H. R. 1107—109 
that contractor before the submission of that proposal, the 
executive agency shall assess a penalty against the contractor 
in an amount equal to 2 times the amount of the disallowed 
cost allocated to covered contracts for which a proposal for 
settlement of indirect costs has been submitted. 
(c) WAIVER
OF PENALTY.—The Federal Acquisition Regulation 
shall provide for a penalty under subsection (b) to be waived in 
the case of a contractor’s proposal for settlement of indirect costs 
when— 
(1) the contractor withdraws the proposal before the formal 
initiation of an audit of the proposal by the Federal Government 
and resubmits a revised proposal; 
(2) the amount of unallowable costs subject to the penalty 
is insignificant; or 
(3) the contractor demonstrates, to the contracting officer’s 
satisfaction, that— 
(A) it has established appropriate policies and personnel 
training and an internal control and review system that 
provide assurances that unallowable costs subject to pen-
alties 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 
inadvertently 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 covered contract: 
(1) Costs of entertainment, including amusement, diversion, 
and social activities, and any costs directly associated with 
those costs (such as tickets to shows or sports events, meals, 
lodging, rentals, transportation, and gratuities). 
(2) Costs incurred to influence (directly or indirectly) legisla-
tive action 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 
proceeding or similar proceeding (including filing of any false 
certification) brought by the Federal Government where the 
contractor is found liable or had pleaded nolo contendere to 
a charge of fraud or similar proceeding (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 regulations, 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 Regulation. 
(5) Costs of membership in any social, dining, or country 
club or organization. 
(6) Costs of alcoholic beverages. 
(7) Contributions or donations, regardless of the recipient.
H. R. 1107—110 
(8) Costs of advertising designed to promote the contractor 
or its products. 
(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 materials or workmanship. 
(13) Costs of severance pay paid by the contractor to foreign 
nationals employed by the contractor under a service contract 
performed outside 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 Acquisi-
tion Regulation. 
(14) Costs of severance pay paid by the contractor to a foreign 
national employed by the contractor under a service contract 
performed in a foreign country if the termination of the employ-
ment 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 Government 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 determined applicable for the fiscal year 
by the Administrator under section 1127 of this title. 
(b) WAIVER
OF SEVERANCE PAY RESTRICTIONS
FOR FOREIGN 
NATIONALS.— 
(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 application 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 executive 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
H. R. 1107—111 
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 businesses 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 executive agency shall include in the solicitation for a cov-
ered 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 deter-
mination 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 considered 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 con-
tain provisions on the allowability of contractor costs. Those provi-
sions shall define in detail and in specific terms the costs that 
are unallowable, in whole or in part, under covered contracts. 
(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 action on regulatory and contract matters (other than 
costs incurred in regard to contract proposals pursuant to solic-
ited or unsolicited bids). 
(6) Community relations. 
(7) Dining facilities. 
(8) Professional and consulting services, including legal serv-
ices. 
(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.