An unallowable cost refers to any expense that cannot be included in the pricing, reimbursements, or settlements of a government contract. This exclusion is based on specific laws, regulations, or contractual agreements. Understanding what constitutes an unallowable cost is crucial for contractors working with government entities to ensure compliance and avoid financial penalties.
The term "unallowable cost" is primarily used in government contracting. It is relevant in various legal contexts, particularly in procurement and contract law. Contractors must be aware of unallowable costs to ensure they do not claim these expenses for reimbursement, as doing so can lead to legal repercussions, including penalties or contract disputes. Users can manage related forms and procedures through resources like US Legal Forms, which provides templates drafted by experienced attorneys.
Here are a couple of examples of abatement:
Example 1: A contractor submits a claim for reimbursement that includes a lavish dinner with potential clients. This expense is deemed unallowable because it does not directly relate to the contract's performance.
Example 2: A company incurs legal fees for defending against a lawsuit related to a contract. If these fees are not directly tied to the contract's execution, they may be classified as unallowable costs (hypothetical example).
Major statutes that govern unallowable costs include:
| Term | Definition | Differences |
|---|---|---|
| Allowable Cost | Expenses that can be reimbursed under a government contract. | Allowable costs are compliant with regulations and directly related to contract performance. |
| Cost Reimbursement | A payment method where the contractor is reimbursed for allowable costs incurred. | Cost reimbursement focuses on allowable costs, while unallowable costs cannot be reimbursed. |
If you are a contractor and believe you may have incurred unallowable costs, it is essential to:
| Attribute | Details |
|---|---|
| Typical Fees | Varies based on contract type and scope. |
| Jurisdiction | Federal and state government contracts. |
| Possible Penalties | Financial penalties, contract termination, or legal action. |
Examples include entertainment expenses, certain lobbying costs, and fines or penalties.
