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(A) it has established appropriate policies and personnel train-
ing and an internal control and review system that provide assur-
ances that unallowable costs subject to penalties are precluded 
from being included in the contractor’s proposal for settlement of 
indirect costs; and 
(B) the unallowable costs subject to the penalty were inadvert-
ently incorporated into the proposal. 
(d) APPLICABILITY OF CONTRACT DISPUTES PROCEDURE.—An action of 
an executive agency under subsection (a) or (b)— 
(1) shall be considered a final decision for the purposes of section 
7103 of this title; and 
(2) is appealable in the manner provided in section 7104(a) of this 
title. 
§ 4304. Specific costs not allowable 
(a) SPECIFIC COSTS.—The following costs are not allowable under a cov-
ered contract: 
(1) Costs of entertainment, including amusement, diversion, and so-
cial activities, and any costs directly associated with those costs (such 
as tickets to shows or sports events, meals, lodging, rentals, transpor-
tation, and gratuities). 
(2) Costs incurred to influence (directly or indirectly) legislative ac-
tion on any matter pending before Congress, a State legislature, or a 
legislative body of a political subdivision of a State. 
(3) Costs incurred in defense of any civil or criminal fraud pro-
ceeding or similar proceeding (including filing of any false certification) 
brought by the Federal Government where the contractor is found lia-
ble or had pleaded nolo contendere to a charge of fraud or similar pro-
ceeding (including filing of a false certification). 
(4) Payments of fines and penalties resulting from violations of, or 
failure to comply with, Federal, State, local, or foreign laws and regula-
tions, except when incurred as a result of compliance with specific 
terms and conditions of the contract or specific written instructions 
from the contracting officer authorizing in advance those payments in 
accordance with applicable provisions of the Federal Acquisition Regu-
lation. 
(5) Costs of membership in any social, dining, or country club or or-
ganization. 
(6) Costs of alcoholic beverages. 
(7) Contributions or donations, regardless of the recipient. 
(8) Costs of advertising designed to promote the contractor or its 
products. 
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(9) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs. 
(10) Costs for travel by commercial aircraft that exceed the amount 
of the standard commercial fare. 
(11) Costs incurred in making any payment (commonly known as a 
‘‘golden parachute payment’’) that is— 
(A) in an amount in excess of the normal severance pay paid 
by the contractor to an employee on termination of employment; 
and 
(B) paid to the employee contingent on, and following, a change 
in management control over, or ownership of, the contractor or a 
substantial portion of the contractor’s assets. 
(12) Costs of commercial insurance that protects against the costs 
of the contractor for correction of the contractor’s own defects in mate-
rials or workmanship. 
(13) Costs of severance pay paid by the contractor to foreign nation-
als employed by the contractor under a service contract performed out-
side the United States, to the extent that the amount of severance pay 
paid in any case exceeds the amount paid in the industry involved 
under the customary or prevailing practice for firms in that industry 
providing similar services in the United States, as determined under 
the Federal Acquisition Regulation. 
(14) Costs of severance pay paid by the contractor to a foreign na-
tional employed by the contractor under a service contract performed 
in a foreign country if the termination of the employment of the foreign 
national is the result of the closing of, or the curtailment of activities 
at, a Federal Government facility in that country at the request of the 
government of that country. 
(15) Costs incurred by a contractor in connection with any criminal, 
civil, or administrative proceeding commenced by the Federal Govern-
ment or a State, to the extent provided in section 4310 of this title. 
(16) Costs of compensation of senior executives of contractors for a 
fiscal year, regardless of the contract funding source, to the extent that 
the compensation exceeds the benchmark compensation amount deter-
mined applicable for the fiscal year by the Administrator under section 
1127 of this title. 
(b) WAIVER OF SEVERANCE PAY RESTRICTIONS FOR FOREIGN NATION-
ALS.— 
(1) EXECUTIVE AGENCY DETERMINATION.—Pursuant to the Federal 
Acquisition Regulation and subject to the availability of appropriations, 
an executive agency, in awarding a covered contract, may waive the ap-
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