FAR 42.706—Distribution of documents.
Plain-English Summary
FAR 42.706 explains how the government must distribute the paperwork that results from establishing indirect cost rates. It covers two related document flows: first, the prompt distribution of executed indirect cost rate agreements to the contractor, each affected contracting agency, and the relevant contract files; and second, the distribution of the supporting negotiation memorandum or audit report, depending on whether the rates were established by contracting officer determination or auditor determination. The section exists to make sure all affected parties have the same official record of the agreed rates and the basis for those rates, which is essential for billing, provisional and final indirect cost adjustments, contract administration, and later audits or disputes. In practice, this provision helps prevent inconsistent rate application across contracts and agencies, ensures the administrative record is complete, and supports transparency and traceability in indirect cost rate negotiations. It also ties the distribution process to the contract distribution guidance in FAR subpart 4.2, so the documents are filed and circulated in a way that supports proper contract modification records.
Key Rules
Prompt distribution of rate agreements
The contracting officer or auditor must promptly send executed copies of the indirect cost rate agreement to the contractor and to each affected contracting agency. The rule is about timely circulation of the final, signed agreement so all stakeholders can apply the rates consistently.
File copies in contract records
Copies of the executed agreement must also be placed in the contract files, following the contract distribution guidance in FAR subpart 4.2. This ensures the official contract record contains the rate agreement and supports later administration or review.
Distribute supporting memorandum or report
When the rates are established by contracting officer determination, the negotiation memorandum must be furnished as appropriate; when established by auditor determination, the audit report must be furnished as appropriate. The supporting document explains the basis for the rate decision and should reach the offices that need it.
Send to contracting and audit offices
The negotiation memorandum or audit report must be provided to the contracting offices and Government audit offices, as appropriate. This keeps the administrative and audit communities aligned on the rationale and evidence behind the indirect cost rate agreement.
Responsibilities
Contracting Officer
Promptly distribute executed indirect cost rate agreements when responsible for the determination, ensure copies are placed in the contract files, and furnish the negotiation memorandum to the appropriate contracting offices and Government audit offices.
Auditor
Promptly distribute executed indirect cost rate agreements when responsible for the determination, ensure copies are placed in the contract files, and furnish the audit report to the appropriate contracting offices and Government audit offices.
Contractor
Receive the executed indirect cost rate agreement and use it for billing, provisional rate application, and contract administration; maintain it in the contractor’s records as needed for compliance and audit support.
Affected Contracting Agency
Receive the executed indirect cost rate agreement and use it to apply the agreed indirect cost rates to affected contracts and related pricing or reimbursement actions.
Contract Files/Contract Administration Offices
Maintain copies of the executed agreement and related supporting documents in the official contract record in accordance with FAR subpart 4.2 distribution requirements.
Government Audit Offices
Receive the negotiation memorandum or audit report, as appropriate, to support oversight, future audits, and review of the basis for the indirect cost rate agreement.
Practical Implications
This section is mainly about recordkeeping and communication, but it has real financial consequences because indirect cost rates drive reimbursement and final cost settlements across multiple contracts.
A common pitfall is failing to send the executed agreement to every affected agency, which can lead to inconsistent rate application or delayed contract adjustments.
Another risk is omitting the supporting memorandum or audit report from the offices that need it, which can make later reviews harder and weaken the audit trail.
Contracting officers and auditors should treat “promptly” as a real timeliness requirement, not an after-the-fact filing step, because delays can affect billing and closeout.
The reference to FAR subpart 4.2 means the agreement must be handled as part of the official contract distribution process, not just informally emailed or stored outside the contract file.
Official Regulatory Text
(a) The contracting officer or auditor shall promptly distribute executed copies of the indirect cost rate agreement to the contractor and to each affected contracting agency and shall provide copies of the agreement for the contract files, in accordance with the guidance for contract modifications in subpart 4.2 , Contract Distribution. (b) Copies of the negotiation memorandum prepared under contracting officer determination or audit report prepared under auditor determination shall be furnished, as appropriate, to the contracting offices and Government audit offices.