FAR 42.700—Scope of subpart.
Plain-English Summary
FAR 42.700 is the scope statement for Subpart 42.7, which tells readers what this subpart is about and what it is not. It covers the policies and procedures used to establish two specific kinds of indirect cost rates: billing rates and final indirect cost rates. In practice, this means the subpart governs how contractors and contracting officers handle provisional or interim rates used during contract performance, and how they later settle on final rates after actual indirect costs are known. The purpose is to provide a framework for pricing, invoicing, reimbursement, and year-end closeout of indirect costs under cost-reimbursement and other applicable contracts. Because indirect rates affect how much a contractor can bill during performance and how much the Government ultimately pays, this section is important for cash flow, auditability, and final contract settlement. It is a scope provision, so it does not itself set the detailed mechanics of rate negotiation or audit; instead, it identifies the two rate-setting subjects that the rest of the subpart addresses.
Key Rules
Subpart covers billing rates
This subpart applies to the establishment of billing rates, which are the rates used during contract performance to support interim billing of indirect costs. These rates are typically provisional and are intended to approximate the contractor’s eventual indirect cost recovery.
Subpart covers final indirect rates
This subpart also applies to the establishment of final indirect cost rates, which are the rates used to determine the contractor’s actual allowable indirect cost recovery after the accounting period closes. Final rates reconcile what was billed or reimbursed against actual costs.
Policies and procedures only
The section is a scope statement, so it identifies the subject matter of the subpart rather than prescribing detailed steps by itself. The specific procedures for negotiating, establishing, and settling rates are found in the other sections of Subpart 42.7.
Responsibilities
Contracting Officer
Use the policies and procedures in Subpart 42.7 when establishing billing rates and final indirect cost rates, and ensure the rates applied to contracts are consistent with the subpart’s framework.
Contractor
Provide the cost and accounting information needed to support billing rate and final indirect cost rate establishment, and use the established billing rates for interim invoicing subject to later final settlement.
Agency
Apply the subpart’s policies and procedures in administering indirect cost rate matters, including oversight of rate establishment and reconciliation processes.
Practical Implications
This section tells you immediately that Subpart 42.7 is about indirect rate establishment, not direct-cost pricing or general contract administration.
Contractors should expect two different rate processes: one for interim billing during performance and one for final settlement after actual costs are known.
A common pitfall is treating billing rates as final; they are usually provisional and may require adjustment later.
Contracting officers and contractors should keep accounting records, incurred cost submissions, and supporting schedules aligned so final rates can be established and reconciled efficiently.
Because indirect rates affect both cash flow and final payment, misunderstandings here can lead to billing disputes, audit findings, or delayed closeout.
Official Regulatory Text
This subpart prescribes policies and procedures for establishing- (a) Billing rates; and (b) Final indirect cost rates.