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(1) COSTS.—The term ‘‘costs’’, with respect to a proceeding, means 
all costs incurred by a contractor, whether before or after the com-
mencement of the proceeding, including— 
(A) administrative and clerical expenses; 
(B) the cost of legal services, including legal services performed 
by an employee of the contractor; 
(C) the cost of the services of accountants and consultants re-
tained by the contractor; and 
(D) the pay of directors, officers, and employees of the con-
tractor for time devoted by those directors, officers, and employees 
to the proceeding. 
(2) PENALTY.—The term ‘‘penalty’’ does not include restitution, re-
imbursement, or compensatory damages. 
(3) PROCEEDING.—The term ‘‘proceeding’’ includes an investigation. 
(b) IN GENERAL.—Except as otherwise provided in this section, costs in-
curred by a contractor in connection with a criminal, civil, or administrative 
proceeding commenced by the Federal Government or a State are not allow-
able as reimbursable costs under a covered contract if the proceeding— 
(1) relates to a violation of, or failure to comply with, a Federal or 
State statute or regulation; and 
(2) results in a disposition described in subsection (c). 
(c) COVERED DISPOSITIONS.—A disposition referred to in subsection 
(b)(2) is any of the following: 
(1) In a criminal proceeding, a conviction (including a conviction 
pursuant to a plea of nolo contendere) by reason of the violation or 
failure referred to in subsection (b). 
(2) In a civil or administrative proceeding involving an allegation of 
fraud or similar misconduct, a determination of contractor liability on 
the basis of the violation or failure referred to in subsection (b). 
(3) In any civil or administrative proceeding, the imposition of a 
monetary penalty by reason of the violation or failure referred to in 
subsection (b). 
(4) A final decision to do any of the following, by reason of the viola-
tion or failure referred to in subsection (b): 
(A) Debar or suspend the contractor. 
(B) Rescind or void the contract. 
(C) Terminate the contract for default. 
(5) A disposition of the proceeding by consent or compromise if the 
disposition could have resulted in a disposition described in paragraph 
(1), (2), (3), or (4). 
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(d) COSTS ALLOWED
BY SETTLEMENT AGREEMENT
IN PROCEEDING 
COMMENCED BY FEDERAL GOVERNMENT.—In the case of a proceeding re-
ferred to in subsection (b) that is commenced by the Federal Government 
and is resolved by consent or compromise pursuant to an agreement entered 
into by a contractor and the Federal Government, the costs incurred by the 
contractor in connection with the proceeding that are otherwise not allow-
able as reimbursable costs under subsection (b) may be allowed to the extent 
specifically provided in that agreement. 
(e) COSTS SPECIFICALLY AUTHORIZED BY EXECUTIVE AGENCY IN PRO-
CEEDING COMMENCED BY STATE.—In the case of a proceeding referred to 
in subsection (b) that is commenced by a State, the executive agency that 
awarded the covered contract involved in the proceeding may allow the costs 
incurred by the contractor in connection with the proceeding as reimburs-
able costs if the executive agency determines, in accordance with the Fed-
eral Acquisition Regulation, that the costs were incurred as a result of— 
(1) a specific term or condition of the contract; or 
(2) specific written instructions of the executive agency. 
(f) OTHER ALLOWABLE COSTS.— 
(1) IN GENERAL.—Except as provided in paragraph (3), costs in-
curred by a contractor in connection with a criminal, civil, or adminis-
trative proceeding commenced by the Federal Government or a State 
in connection with a covered contract may be allowed as reimbursable 
costs under the contract if the costs are not disallowable under sub-
section (b), but only to the extent provided in paragraph (2). 
(2) AMOUNT OF ALLOWABLE COSTS.— 
(A) MAXIMUM AMOUNT ALLOWED.—The amount of the costs al-
lowable under paragraph (1) in any case may not exceed the 
amount equal to 80 percent of the amount of the costs incurred, 
to the extent that the costs are determined to be otherwise allow-
able and allocable under the Federal Acquisition Regulation. 
(B) CONTENT OF REGULATIONS.—Regulations issued for the 
purpose of subparagraph (A) shall provide for appropriate consid-
eration of the complexity of procurement litigation, generally ac-
cepted principles governing the award of legal fees in civil actions 
involving the Federal Government as a party, and other factors as 
may be appropriate. 
(3) WHEN OTHERWISE ALLOWABLE COSTS ARE NOT ALLOWABLE.— 
In the case of a proceeding referred to in paragraph (1), contractor 
costs otherwise allowable as reimbursable costs under this subsection 
are not allowable if— 
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(A) the proceeding involves the same contractor misconduct al-
leged as the basis of another criminal, civil, or administrative pro-
ceeding; and 
(B) the costs of the other proceeding are not allowable under 
subsection (b). 
CHAPTER 45—CONTRACT FINANCING 
Sec. 
4501.
Authority of executive agency. 
4502.
Payment. 
4503.
Security for advance payments. 
4504.
Conditions for progress payments. 
4505.
Payments for commercial items. 
4506.
Action in case of fraud. 
§ 4501. Authority of executive agency 
An executive agency may— 
(1) make advance, partial, progress or other payments under con-
tracts for property or services made by the agency; and 
(2) insert in solicitations for procurement of property or services a 
provision limiting to small business concerns advance or progress pay-
ments. 
§ 4502. Payment 
(a) BASIS FOR PAYMENT.—When practicable, payments under section 
4501 of this title shall be made on any of the following bases: 
(1) Performance measured by objective, quantifiable methods such as 
delivery of acceptable items, work measurement, or statistical process 
controls. 
(2) Accomplishment of events defined in the program management 
plan. 
(3) Other quantifiable measures of results. 
(b) PAYMENT AMOUNT.—Payments made under section 4501 of this title 
may not exceed the unpaid contract price. 
§ 4503. Security for advance payments 
Advance payments under section 4501 of this title may be made only on 
adequate security and a determination by the agency head that to do so 
would be in the public interest. The security may be in the form of a lien 
in favor of the Federal Government on the property contracted for, on the 
balance in an account in which the payments are deposited, and on such 
of the property acquired for performance of the contract as the parties may 
agree. This lien shall be paramount to all other liens and is effective imme-
diately upon the first advancement of funds without filing, notice, or any 
other action by the Federal Government. 
§ 4504. Conditions for progress payments 
(a) PAYMENT COMMENSURATE WITH WORK.—The executive agency shall 
ensure that a payment for work in progress (including materials, labor, and 
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other items) under a contract of an executive agency that provides for those 
payments is commensurate with the work accomplished that meets stand-
ards established under the contract. The contractor shall provide informa-
tion and evidence the executive agency determines is necessary to permit the 
executive agency to carry out this subsection. 
(b) LIMITATION.—The executive agency shall ensure that progress pay-
ments referred to in subsection (a) are not made for more than 80 percent 
of the work accomplished under the contract as long as the executive agency 
has not made the contractual terms, specifications, and price definite. 
(c) APPLICATION.—This section applies to a contract in an amount great-
er than $25,000. 
§ 4505. Payments for commercial items 
(a) TERMS AND CONDITIONS FOR PAYMENTS.—Payments under section 
4501 of this title for commercial items may be made under terms and condi-
tions that the head of the executive agency determines are appropriate or 
customary in the commercial marketplace and are in the best interests of 
the Federal Government. 
(b) SECURITY FOR PAYMENTS.—The head of the executive agency shall 
obtain adequate security for the payments. If the security is in the form 
of a lien in favor of the Federal Government, the lien is paramount to all 
other liens and is effective immediately on the first payment, without filing, 
notice, or other action by the Federal Government. 
(c) LIMITATION
ON ADVANCE PAYMENTS.—Advance payments made 
under section 4501 of this title for commercial items may include payments, 
in a total amount not more than 15 percent of the contract price, in ad-
vance of any performance of work under the contract. 
(d) NONAPPLICATION OF CERTAIN CONDITIONS.—The conditions of sec-
tions 4503 and 4504 of this title need not be applied if they would be incon-
sistent, as determined by the head of the executive agency, with commercial 
terms and conditions pursuant to this section. 
§ 4506. Action in case of fraud 
(a) DEFINITION.—In this section, the term ‘‘remedy coordination offi-
cial’’, with respect to an executive agency, means the individual or entity 
in that executive agency who coordinates within that executive agency the 
administration of criminal, civil, administrative, and contractual remedies 
resulting from investigations of fraud or corruption related to procurement 
activities. 
(b) RECOMMENDATION TO REDUCE OR SUSPEND PAYMENTS.—In any 
case in which the remedy coordination official of an executive agency finds 
that there is substantial evidence that the request of a contractor for ad-
vance, partial, or progress payment under a contract awarded by that execu-
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