[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR42.709-5]

[Page 777]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 42_CONTRACT ADMINISTRATION AND AUDIT SERVICES--Table of Contents
 
                    Subpart 42.7_Indirect Cost Rates
 
Sec.  42.709-5  Waiver of the penalty.

    The cognizant contracting officer shall waive the penalties at 
42.709-1(a) when--
    (a) The contractor withdraws the proposal before the Government 
formally initiates an audit of the proposal and the contractor submits a 
revised proposal (an audit will be deemed to be formally initiated when 
the Government provides the contractor with written notice, or holds an 
entrance conference, indicating that audit work on a specific final 
indirect cost proposal has begun);
    (b) The amount of the unallowable costs under the proposal which are 
subject to the penalty is $10,000 or less (i.e., if the amount of 
expressly or previously determined unallowable costs which would be 
allocated to the contracts specified in 42.709(b) is $10,000 or less); 
or
    (c) The contractor demonstrates, to the cognizant contracting 
officer's satisfaction, that--
    (1) It has established policies and personnel training and an 
internal control and review system that provide assurance that 
unallowable costs subject to penalties are precluded from being included 
in the contractor's final indirect cost rate proposals (e.g., the types 
of controls required for satisfactory participation in the Department of 
Defense sponsored self-governance programs, specific accounting controls 
over indirect costs, compliance tests which demonstrate that the 
controls are effective, and Government audits which have not disclosed 
recurring instances of expressly unallowable costs); and
    (2) The unallowable costs subject to the penalty were inadvertently 
incorporated into the proposal; i.e., their inclusion resulted from an 
unintentional error, notwithstanding the exercise of due care.

[60 FR 42659, Aug. 16, 1995]