US Code

Public Law 119-88 (05/04/2026)

10 U.S.C. § 3744

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 such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities).
(2)
Costs incurred to influence (directly or indirectly) legislative 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 United States where the contractor is found liable or has 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 such 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.
(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 which exceed the amount of the standard commercial fare.
(11)
Costs incurred in making any payment (commonly known as a “golden parachute payment”) which is—
(i)
in an amount in excess of the normal severance pay paid by the contractor to an employee upon termination of employment; and
(ii)
is paid to the employee contingent upon, 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 Acquisition 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 employment of the foreign national is the result of the closing of, or the curtailment of activities at, a United States military facility in that country at the request of the government of that country.
(15)
section 3750 of this title Costs incurred by a contractor in connection with any criminal, civil, or administrative proceeding commenced by the United States or a State, to the extent provided in .
(16)
1
1 So in original. There are two pars. (16).
  Costs of compensation of any contractor employee for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $625,000 adjusted annually for the U.S. Bureau of Labor Statistics Employment Cost Index for total compensation for private industry workers, by occupational and industry group not seasonally adjusted, except that the Secretary of Defense may establish exceptions for positions in the science, technology, engineering, mathematics, medical, and cybersecurity fields and other fields requiring unique areas of expertise upon a determination that such exceptions are needed to ensure that the Department of Defense has continued access to needed skills and capabilities.
(16)
1  Costs of compensation of contractor and subcontractor employees for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $487,000 per year, adjusted annually to reflect the change in the Employment Cost Index for all workers, as calculated by the Bureau of Labor Statistics, except that the head of an executive agency may establish one or more narrowly targeted exceptions for scientists, engineers, or other specialists upon a determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.
(17)
section 3750(c) of this title Costs incurred by a contractor in connection with a congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition as described in .
(b)

Waiver of Severance Pay Restrictions for Foreign Nationals.—

(1)

Head of an agency determination .—

Pursuant to the Federal Acquisition Regulation and subject to the availability of appropriations, the head of an agency awarding a covered contract (other than a contract to which subsection (d) applies) may waive the application of the provisions of subsections (a)(13) and (a)(14) to that contract if the head of the agency determines that—
(A)
the application of such provisions to the contract would adversely affect the continuation of a program, project, or activity that provides significant support services for members of the armed forces stationed or deployed 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 in order 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 .—

The head of an 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 head of the agency will consider granting such a waiver, and, if the agency head will consider granting a waiver, the criteria to be used in granting the waiver.
(3)

Determination to be made before contract awarded .—

The head of an agency shall make the final determination regarding 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 subchapter may establish appropriate definitions, exclusions, limitations, and qualifications.
(d)

Specific Costs Under Military Banking Contracts Relating to Foreign Nationals.—

(1)

Authority .—

The Secretary of Defense may provide in a military banking contract that the provisions of subsections (a)(13) and (a)(14) shall not apply to costs incurred under the contract by the contractor for payment of mandated foreign national severance pay. The Secretary may include such a provision in a military banking contract only if the Secretary determines, with respect to that contract, that 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.
(2)

Definitions .—

In paragraph (1):
(A)

Military banking contract .—

The term “military banking contract” means a contract between the Secretary and a financial institution under which the financial institution operates a military banking facility outside the United States for use by members of the armed forces stationed or deployed outside the United States and other authorized personnel.
(B)

Mandated foreign national severance pay .—

The term “mandated foreign national severance pay” means severance pay paid by a contractor to a foreign national employee the payment of which by the contractor is required in order 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.
(3)

Exception for foreign-owned financial institutions .—

Paragraph (1) does not apply to a contract with a financial institution that is owned or controlled by citizens or nationals of a foreign country, as determined by the Secretary of Defense. Such a determination shall be made in accordance with the criteria set out in paragraph (1) of section 4(g) of the Buy American Act (as added by section 7002(2) of the Omnibus Trade and Competitiveness Act of 1988) and the policy guidance referred to in paragraph (2)(A) of that section.

Pub. L. 116–283, div. A, title XVIII, § 1832(a)134 Stat. 4218 (Added and amended , (d), , , 4219.)

Editorial Notes

References in Text

act Mar. 3, 1933, ch. 212, title III Pub. L. 100–418, title VII, § 7002(2)102 Stat. 1545 section 7004 of Pub. L. 100–418Pub. L. 100–418Pub. L. 111–350, § 7(b)124 Stat. 3855 Section 4 of the Buy American Act (as added by section 7002(2) of the Omnibus Trade and Competitiveness Act of 1988), referred to in subsec. (d)(3), was section 4 of , as added , , . Section 4, which was classified to section 10b–1 of former Title 41, Public Contracts, was omitted from the Code in view of which provided that the amendment by which enacted section 4 ceased to be effective on . Section 4 was subsequently repealed by , , , which Act enacted Title 41, Public Contracts.

Codification

section 2324 of this titlePub. L. 116–283, § 1832(d)Pub. L. 99–145, title IX, § 911(a)(1)99 Stat. 683 Pub. L. 99–190, § 101(b) [title VIII, § 8112(a)(1)]99 Stat. 1185 Pub. L. 100–180, div. A, title VIII, § 805(a)101 Stat. 1126 Pub. L. 100–370, § 1(f)(2)(A)102 Stat. 846 Pub. L. 100–456, div. A, title III, § 322(a)102 Stat. 1952 Pub. L. 100–700, § 8(b)(1)102 Stat. 4636 Pub. L. 101–189, div. A, title III, § 311(a)(1)103 Stat. 1411 Pub. L. 101–510, div. A, title XIII, § 1301(10)104 Stat. 1668 Pub. L. 102–190, div. A, title III, § 346(a)105 Stat. 1346 Pub. L. 102–484, div. A, title XIII, § 1352(b)106 Stat. 2559 Pub. L. 103–355, title II, § 2101(a)(5)108 Stat. 3307 Pub. L. 104–106, div. D, title XLIII, § 4321(b)(9)(A)110 Stat. 672 Pub. L. 105–85, div. A, title VIII, § 808(a)(1)111 Stat. 1836 Pub. L. 111–350, § 5(b)(19)(C)124 Stat. 3844 Pub. L. 112–81, div. A, title VIII, § 803(a)125 Stat. 1485 Pub. L. 113–66, div. A, title VIII, § 811(a)127 Stat. 806 Pub. L. 113–67, div. A, title VII, § 702(a)(2)127 Stat. 1189 Pub. L. 113–291, div. A, title VIII, § 857128 Stat. 3460 The text of subsec. (e) of , which was transferred to this section and amended by , was based on , , ; , , , 1223; , , ; , , ; , title VIII, § 832(a), , , 2023; , , ; , , ; , , ; , , ; , , ; , (b), , , 3308; , , ; , , ; , (D), , ; , , ; , , ; , , ; , , .

Prior Provisions

section 7274 of this titleA prior section 3744 was renumbered .

Amendments

Pub. L. 116–283, § 1832(d)(1)section 2324 of this title2021—, transferred subsec. (e) of to this section, struck out subsec. (e) designation and heading “Specific Costs Not Allowable” at beginning, and redesignated pars. (1), (3), (4), and (2) as subsecs. (a) to (d), respectively.

Pub. L. 116–283, § 1832(d)(2)(A)section 2324(e) of this titleSubsec. (a). , (B), after redesignation of par. (1) of as subsec. (a) of this section, inserted heading and redesignated subpars. (A) to (Q) as pars. (1) to (17), respectively, including two subpars. (P) both redesignated par. (16).

Pub. L. 116–283, § 1832(d)(2)(C)section 3750 of this titleSubsec. (a)(15). , substituted “” for “subsection (k)”.

Pub. L. 116–283, § 1832(d)(2)(D)section 3750(c) of this titleSubsec. (a)(17). , substituted “” for “subsection (k)(2)”.

Pub. L. 116–283, § 1832(d)(3)(A)section 2324(e) of this titleSubsec. (b). , (B), after redesignation of par. (3) of as subsec. (b) of this section, inserted heading and redesignated subpars. (A) to (C) as pars. (1) to (3), respectively.

Pub. L. 116–283, § 1832(d)(3)(A)Subsec. (b)(1). , (C), inserted heading, substituted “subsection (d)” for “paragraph (2)” and “subsections (a)(13) and (a)(14)” for “paragraphs (1)(M) and (1)(N)” in introductory provisions, and redesignated cls. (i) to (iii) of former section 2324(e)(3)(A) as subpars. (A) to (C), respectively.

Pub. L. 116–283, § 1832(d)(3)(D)Subsec. (b)(2). , inserted heading, realigned margin, redesignated cls. (i) and (ii) of former section 2324(e)(3)(B) as subpars. (A) and (B), respectively, and, in subpar. (A), substituted “paragraph (1)” for “subparagraph (A)”.

Pub. L. 116–283, § 1832(d)(3)(E)Subsec. (b)(3). , inserted heading, realigned margin, and substituted “paragraph (1)” for “subparagraph (A)”.

Pub. L. 116–283, § 1832(d)(4)section 2324(e)(3) of this titleSubsec. (c). , after redesignation of par. (4) of as subsec. (c) of this section, inserted heading and substituted “this subchapter” for “this section”.

Pub. L. 116–283, § 1832(d)(5)(A)section 2324(e)(3) of this titleSubsec. (d). , (B), after redesignation of par. (2) of as subsec. (d) of this section, inserted heading, redesignated subpars. (A) to (C) as pars. (1) to (3), respectively, and realigned margins.

Pub. L. 116–283, § 1832(d)(5)(A)Subsec. (d)(1). , (C), inserted heading and substituted “subsections (a)(13) and (a)(14)” for “paragraphs (1)(M) and (1)(N)”.

Pub. L. 116–283, § 1832(d)(5)(D)Subsec. (d)(2). , inserted par. heading, substituted “paragraph (1)” for “subparagraph (A)” in introductory provisions, redesignated cls. (i) and (ii) of former section 2324(e)(2)(B) as subpars. (A) and (B), respectively, and inserted subpar. headings.

Pub. L. 116–283, § 1832(d)(5)(E)Subsec. (d)(3). , inserted heading and substituted “Paragraph (1)” for “Subparagraph (A)”.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 116–283section 1801(d) of Pub. L. 116–283section 3001 of this titleSection and amendment by effective , with additional provisions for delayed implementation and applicability of existing law, see , set out as an Effective Date of 2021 Amendment note preceding .

Regulations

Pub. L. 99–145, title IX, § 911(b)99 Stat. 685

“(1)
section 2324 of title 1010 U.S.C. 374441 U.S.C. 418b41 U.S.C. 1707 Not later than 150 days after the date of the enactment of this Act [], the Secretary of Defense shall prescribe the regulations required by subsections (e) and (f) of [former] , United States Code [see , 3745], as added by subsection (a). Such regulations shall be published in accordance with section 22 of the Office of Federal Procurement Policy Act ([former] ) [now ].
“(2)
The Secretary shall review such regulations at least once every five years. The results of each such review shall be made public.”
, , , provided that: