FAR 42.703—General.

Policy.

FAR 42.703-1 sets the basic policy for establishing and using final indirect cost rates. It explains that one cognizant agency is responsible for establishing final indirect cost rates for each business unit, and that those rates generally bind all federal agencies unless a statute says otherwise. It also limits when an agency may perform its own audit of indirect cost rates, allowing reliance on another federal audit when that will reasonably satisfy the audit objective. The section further explains how billing rates and final indirect cost rates are used in reimbursing indirect costs under cost-reimbursement contracts and in calculating progress payments under fixed-price contracts. Finally, it requires use of final indirect cost rates for contract closeout and for settling indirect costs in certain fixed-price contract pricing actions, including fixed-price incentive and fixed-price redeterminable contracts, unless the quick-closeout procedure applies. In practice, this section is about avoiding duplicate audits, promoting governmentwide consistency, and ensuring indirect costs are settled correctly and timely across contract types.

Certificate of indirect costs.

FAR 42.703-2 governs the certification of final indirect cost proposals before the Government can accept them or agree on final indirect cost rates. It addresses the basic certification requirement, when an agency head or designee may waive that requirement, what happens if the contractor does not certify, how the contracting officer should respond to a suspected false certification, the statutory penalties tied to submitting unallowable costs in a final indirect cost rate proposal, and the mandatory contract clause that implements the rule. In practice, this section is a control point in the closeout and rate-setting process: it is designed to ensure contractors attest to the accuracy and completeness of their indirect cost proposals, to give the Government a path when certification is missing, and to deter improper cost submissions through penalties and legal review. It also recognizes that some entities—such as foreign governments, certain state and local governments, educational institutions, and nonprofits subject to the Uniform Guidance—may be appropriate candidates for waiver. For contracting officers and contractors, the section matters because it affects whether final rates can be established, how disputes or noncompliance are handled, and whether the required clause must be included in the contract.