FAR 52.242-1—Notice of Intent to Disallow Costs.
Plain-English Summary
FAR 52.242-1, Notice of Intent to Disallow Costs, gives the Government a formal way to tell a contractor that certain incurred or planned costs appear unallowable under the contract and may be disallowed. The clause applies when a cost-reimbursement contract, a fixed-price incentive contract, or a contract with price redetermination is contemplated, and it is inserted as prescribed by FAR 42.802. It covers the contracting officer’s authority to issue a written notice of intent to disallow specified costs, the contractor’s right to respond in writing with justification, the 60-day response and decision timelines, and the Government’s reservation of rights even if no notice is issued. In practice, the clause is a procedural safeguard: it helps the Government identify and challenge questionable costs early, while giving the contractor an opportunity to explain, support, or correct the cost treatment before a final disallowance decision is made. It does not itself create the underlying allowability rules; those come from the contract terms and applicable cost principles, but it provides the process for raising and resolving disputes about those costs.
Key Rules
Applies to specified contract types
This clause is prescribed for cost-reimbursement contracts, fixed-price incentive contracts, and contracts providing for price redetermination when contemplated. Its purpose is to address cost allowability issues in contract types where the Government may bear some or all of the cost risk.
CO may issue written notice
The contracting officer may issue a written notice of intent to disallow specific costs incurred or planned for incurrence that have been determined not to be allowable under the contract terms. The notice must identify the costs at issue and put the contractor on formal notice.
Contractor may respond with justification
After receiving the notice, the contractor may submit a written response with justification for allowing the costs. This is the contractor’s opportunity to provide facts, contract interpretation, accounting support, or other evidence showing the costs should be accepted.
60-day response and decision timeline
If the contractor responds within 60 days, the contracting officer must, within 60 days after receiving the response, either withdraw the notice in writing or issue a written decision. The clause creates a defined process and timeline for moving the matter toward resolution.
No response does not waive Government rights
Failure to issue a notice under this clause does not limit the Government’s ability to later take exception to incurred costs. In other words, the Government does not lose its rights simply because it did not use this clause before challenging a cost.
Responsibilities
Contracting Officer
Identify costs that appear unallowable under the contract terms, issue a written notice of intent to disallow those costs, review any contractor response, and within 60 days of receiving a timely response either withdraw the notice in writing or issue a written decision.
Contractor
Review the notice, decide whether to contest it, and if contesting, submit a written response with justification for allowing the costs within 60 days of receiving the notice. The contractor should provide supporting documentation and legal or factual arguments as needed.
Government
Preserve the right to question and disallow costs even if no notice was issued under this clause, and ensure cost allowability determinations are made consistent with the contract and applicable rules.
Practical Implications
This clause is mainly a process tool, not the source of cost allowability rules. Contractors still need to look to the contract, FAR cost principles, and any agency supplements to determine whether a cost is allowable.
A notice of intent to disallow is not necessarily the final word. Contractors should treat it as an opportunity to build a record quickly and clearly, because a timely, well-supported response can lead to withdrawal of the notice.
The 60-day deadlines matter. Contractors should track the notice date carefully, and contracting officers should calendar the response deadline and their own 60-day decision deadline to avoid delay or procedural missteps.
The clause can be used for both incurred and planned costs, so contractors should not assume it only applies after costs have been billed. It can affect cost treatment before the costs are fully incurred.
Because the Government retains rights even without issuing a notice, contractors should not rely on silence as approval. Cost allowability should be documented proactively, especially for high-risk or unusual costs.
Official Regulatory Text
As prescribed in 42.802 , insert the following clause in solicitations and contracts when a cost-reimbursement contract, a fixed-price incentive contract, or a contract providing for price redetermination is contemplated: Notice of Intent to Disallow Costs (Apr 1984) (a) Notwithstanding any other clause of this contract- (1) The Contracting Officer may at any time issue to the Contractor a written notice of intent to disallow specified costs incurred or planned for incurrence under this contract that have been determined not to be allowable under the contract terms; and (2) The Contractor may, after receiving a notice under paragraph (a)(1) of this clause, submit a written response to the Contracting Officer, with justification for allowance of the costs. If the Contractor does respond within 60 days, the Contracting Officer shall, within 60 days of receiving the response, either make a written withdrawal of the notice or issue a written decision. (b) Failure to issue a notice under this Notice of Intent to Disallow Costs clause shall not affect the Government’s rights to take exception to incurred costs. (End of clause)