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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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§ 4306. Applicability of regulations to subcontractors 
The regulations referred to in sections 4304 and 4305(a) and (b) of this 
title shall require prime contractors of a covered contract, to the maximum 
extent practicable, to apply the provisions of those regulations to all sub-
contractors of the covered contract. 
§ 4307. Contractor certification 
(a) CONTENT AND FORM.—A proposal for settlement of indirect costs ap-
plicable to a covered contract shall include a certification by an official of 
the contractor that, to the best of the certifying official’s knowledge and be-
lief, all indirect costs included in the proposal are allowable. The certifi-
cation shall be in a form prescribed in the Federal Acquisition Regulation. 
(b) WAIVER.—An executive agency may, in an exceptional case, waive the 
requirement for certification under subsection (a) in the case of a contract 
if the agency— 
(1) determines that it would be in the interest of the Federal Gov-
ernment to waive the certification; and 
(2) states in writing the reasons for the determination and makes 
the determination available to the public. 
§ 4308. Penalties for submission of cost known to be unal-
lowable 
The submission to an executive agency of a proposal for settlement of 
costs for any period after those costs have been accrued that includes a cost 
that is expressly specified by statute or regulation as being unallowable, 
with the knowledge that the cost is unallowable, is subject to section 287 
of title 18 and section 3729 of title 31. 
§ 4309. Burden of proof on contractor 
In a proceeding before a board of contract appeals, the United States 
Court of Federal Claims, or any other Federal court in which the reason-
ableness of indirect costs for which a contractor seeks reimbursement from 
the Federal Government is in issue, the burden of proof is on the contractor 
to establish that those costs are reasonable. 
§ 4310. Proceeding costs not allowable 
(a) DEFINITIONS.—In this section: 
(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 
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(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). 
(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. 
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