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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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plication of paragraphs (13) and (14) of subsection (a) to that contract 
if the executive agency determines that— 
(A) the application of those provisions to that contract would 
adversely affect the continuation of a program, project, or activity 
that provides significant support services for employees of the ex-
ecutive agency posted outside the United States; 
(B) the contractor has taken (or has established plans to take) 
appropriate actions within the contractor’s control to minimize the 
amount and number of incidents of the payment of severance pay 
by the contractor to employees under the contract who are foreign 
nationals; and 
(C) the payment of severance pay is necessary to comply with 
a law that is generally applicable to a significant number of busi-
nesses in the country in which the foreign national receiving the 
payment performed services under the contract or is necessary to 
comply with a collective bargaining agreement. 
(2) SOLICITATION TO INCLUDE STATEMENT ABOUT WAIVER.—An ex-
ecutive agency shall include in the solicitation for a covered contract 
a statement indicating— 
(A) that a waiver has been granted under paragraph (1) for the 
contract; or 
(B) whether the executive agency will consider granting a waiver 
and, if the executive agency will consider granting a waiver, the 
criteria to be used in granting the waiver. 
(3) DETERMINATION TO BE MADE BEFORE CONTRACT AWARDED.— 
An executive agency shall make the final determination whether to 
grant a waiver under paragraph (1) with respect to a covered contract 
before award of the contract. 
(c) ESTABLISHMENT OF DEFINITIONS, EXCLUSIONS, LIMITATIONS, AND 
QUALIFICATIONS.—The provisions of the Federal Acquisition Regulation 
implementing this chapter may establish appropriate definitions, exclusions, 
limitations, and qualifications. A submission by a contractor of costs that 
are incurred by the contractor and that are claimed to be allowable under 
Department of Energy management and operating contracts shall be consid-
ered a proposal for settlement of indirect costs incurred by the contractor 
for any period after those costs have been accrued. 
§ 4305. Required regulations 
(a) IN GENERAL.—The Federal Acquisition Regulation shall contain pro-
visions on the allowability of contractor costs. Those provisions shall define 
in detail and in specific terms the costs that are unallowable, in whole or 
in part, under covered contracts. 
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(b) SPECIFIC ITEMS.—The regulations shall, at a minimum, clarify the 
cost principles applicable to contractor costs of the following: 
(1) Air shows. 
(2) Membership in civic, community, and professional organizations. 
(3) Recruitment. 
(4) Employee morale and welfare. 
(5) Actions to influence (directly or indirectly) executive branch ac-
tion on regulatory and contract matters (other than costs incurred in 
regard to contract proposals pursuant to solicited or unsolicited bids). 
(6) Community relations. 
(7) Dining facilities. 
(8) Professional and consulting services, including legal services. 
(9) Compensation. 
(10) Selling and marketing. 
(11) Travel. 
(12) Public relations. 
(13) Hotel and meal expenses. 
(14) Expense of corporate aircraft. 
(15) Company-furnished automobiles. 
(16) Advertising. 
(17) Conventions. 
(c) ADDITIONAL REQUIREMENTS.— 
(1) WHEN QUESTIONED COSTS MAY BE RESOLVED.—The Federal 
Acquisition Regulation shall require that a contracting officer not re-
solve any questioned costs until the contracting officer has obtained— 
(A) adequate documentation of those costs; and 
(B) the opinion of the contract auditor on the allowability of 
those costs. 
(2) PRESENCE OF CONTRACT AUDITOR.—The Federal Acquisition 
Regulation shall provide that, to the maximum extent practicable, a 
contract auditor be present at any negotiation or meeting with the con-
tractor regarding a determination of the allowability of indirect costs 
of the contractor. 
(3) SETTLEMENT
TO
REFLECT
AMOUNT
OF
INDIVIDUAL
QUES-
TIONED COSTS.—The Federal Acquisition Regulation shall require that 
all categories of costs designated in the report of a contract auditor as 
questioned with respect to a proposal for settlement be resolved in a 
manner so that the amount of the individual questioned costs that are 
paid will be reflected in the settlement. 
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