FAR 42.8—Subpart 42.8

Scope of subpart.

FAR 42.800 is a scope provision that tells readers what this subpart is about: the policies and procedures for issuing notices of intent to disallow costs and for actually disallowing costs that have already been incurred during contract performance. In practice, this means the subpart governs how the Government alerts a contractor that certain claimed or billed costs may be rejected, and how it formally determines that those costs are unallowable and should not be paid, reimbursed, or retained. The section is important because cost disallowance affects payment, indirect cost recovery, final billing, and potential repayment obligations, especially under cost-reimbursement, time-and-materials, and other contracts where cost allowability matters. It also signals that the Government must follow prescribed procedures before disallowing costs, rather than simply refusing payment informally. For contractors, this section is a warning that questioned costs can become formal disallowances after performance, so records, support, and responsiveness to notices matter. For contracting officers and auditors, it frames the administrative process for protecting the Government’s interests while giving the contractor notice and an opportunity to respond where required by the applicable procedures.

Notice of intent to disallow costs.

FAR 42.801 explains when and how a contracting officer may issue a written notice of intent to disallow costs during contract performance, and what must happen after the notice is issued. It covers the timing of the notice, the requirement to try to settle the matter first through discussions, the purpose of early notification, the contractor’s right to respond in writing, the 60-day response/decision framework, and the minimum contents of the notice itself. It also addresses who must receive copies of the notice, the special coordination required when indirect cost elements are involved, and which official must issue the final written decision if the contractor disagrees. In practice, this section is a procedural safeguard: it gives the Government a way to flag potentially unallowable costs early, while giving the contractor notice, an opportunity to explain or contest the issue, and a prompt path to resolution. For contractors, it is an early warning that questioned costs may affect billing, provisional rates, or forward pricing arrangements; for contracting officers, it is a structured process that must be documented carefully and coordinated with the right officials.

Contract clause.

FAR 42.802 is a clause-insertion rule that tells contracting officers when to include FAR 52.242-1, Notice of Intent to Disallow Costs, in solicitations and contracts. It applies when the contemplated contract type is a cost-reimbursement contract, a fixed-price incentive contract, or a contract that provides for price redetermination. The purpose is to give the Government a formal mechanism to notify the contractor before disallowing questioned costs, which supports due process, transparency, and orderly administration of contract costs. In practice, this section matters because it ensures the disallowance notice clause is present at the outset in contract types where cost allowability and pricing adjustments can later become issues. For contractors, it signals that claimed costs may be challenged and that they should maintain strong accounting, documentation, and internal controls. For contracting officers, it is a mandatory solicitation-and-contract drafting requirement, not a discretionary one, whenever the listed contract types are contemplated.

Disallowing costs after incurrence.

FAR 42.803 explains how the Government may disallow costs after they have already been incurred under cost-reimbursement contracts, the cost-reimbursement portion of fixed-price contracts, reimbursable letter contracts, and time-and-materials or labor-hour contracts. It addresses the mechanics of voucher handling, including when the contracting officer receives and acts on vouchers, when an agency auditor may receive vouchers directly from the contractor, and how approved or questionable costs are routed for payment or suspension. The section also covers the auditor’s authority to suspend or disapprove questionable costs, issue notices of contract costs suspended and/or disapproved, and coordinate with the contractor, disbursing officer, and contracting officer. Finally, it explains the contractor’s options when it disagrees with a deduction from current payments, including requesting review by the cognizant contracting officer, filing a claim under the Disputes clause, or doing both. In practice, this section is about controlling reimbursement risk, preserving the Government’s ability to withhold payment for unallowable costs, and giving contractors a process to challenge those determinations.