[Title 48 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 1997 Edition]
[From the U.S. Government Publishing Office]


[[Page 1]]

          48



          Federal Acquisition Regulations System



          CHAPTER 1 (Parts 1 to 51)

                         Revised as of October 1, 1997

          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT
          AS OF OCTOBER 1, 1997

          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration
          as a Special Edition of
          the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 48:
    Chapter 1--Federal Acquisition Regulation.................       5
  Finding Aids:
    Table of CFR Titles and Chapters..........................    1095
    Alphabetical List of Agencies Appearing in the CFR........    1111
    List of CFR Sections Affected.............................    1121



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--------------------------------------------------------------

   Cite this Code:  CFR

   To cite the regulations in this volume use title, part and
   section number. Thus,  48 CFR 1.000 refers to title 48, part
   1, section 000.

--------------------------------------------------------------


[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, October 1, 1997), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408.

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call 202-512-1800, 
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Customer Service call 202-512-1803.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 1997.



[[Page vii]]



                               THIS TITLE

    Title 48--Federal Acquisition Regulations System is composed of 
eight volumes. The chapters in these volumes are arranged as follows: 
Chapter 1 (parts 1 to 51), chapter 1 (parts 52 to 99), chapter 2 (parts 
201 to 299), chapters 3 to 6, chapters 7 to 14, chapters 15 to 28 and 
chapter 29 to end. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of October 1, 1997.

    The Federal acquisition regulations in chapter 1 are those 
government-wide acquisition regulations jointly issued by the General 
Services Administration, the Department of Defense, and the National 
Aeronautics and Space Administration. Chapters 2 through 99 are 
acquisition regulations issued by individual government agencies. Parts 
1 to 69 in each of chapters 2 through 99 are reserved for agency 
regulations implementing the Federal acquisition regulations in chapter 
1 and are numerically keyed to them. Parts 70 to 99 in chapters 2 
through 99 contain agency regulations supplementing the Federal 
acquisition regulations.

    The OMB control numbers for the Federal Acquisition Regulations 
System appear in section 1.106 of chapter 1. For the convenience of the 
user section 1.106 is reprinted in the Finding Aids section of the 
second volume containing chapter 1 (parts 52 to 99).

    The first volume, containing chapter 1 (parts 1 to 51), includes an 
index to the Federal acquisition regulations.

    For this volume, Gregory R. Walton was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page viii]]




[[Page 1]]



            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM




              (This book contains chapter 1, parts 1 to 51)

  --------------------------------------------------------------------
                                                                    Part

Chapter 1--Federal Acquisition Regulation...................           1

[[Page 3]]



                CHAPTER 1--FEDERAL ACQUISITION REGULATION




  --------------------------------------------------------------------

                          SUBCHAPTER A--GENERAL

Part                                                                Page
1               Federal Acquisition Regulations System......           5
2               Definitions of words and terms..............          20
3               Improper business practices and personal 
                    conflicts of interest...................          24
4               Administrative matters......................          50

                   SUBCHAPTER B--ACQUISITION PLANNING

5               Publicizing contract actions................          67
6               Competition requirements....................          81
7               Acquisition planning........................          93
8               Required sources of supplies and services...         108
9               Contractor qualifications...................         126
10              Market research.............................         159
11              Describing agency needs.....................         160
12              Acquisition of commercial items.............         173

          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES

13              Simplified acquisition procedures...........         186
14              Sealed bidding..............................         232
15              Contracting by negotiation..................         281
16              Types of contracts..........................         329
17              Special contracting methods.................         355
18

[Reserved]

                  SUBCHAPTER D--SOCIOECONOMIC PROGRAMS

19              Small business programs.....................         370
20-21

[Reserved]

22              Application of labor laws to Government 
                    acquisitions............................         432
23              Environment, conservation, occupational 
                    safety, and drug-free workplace.........         490
24              Protection of privacy and freedom of 
                    information.............................         505

[[Page 4]]

25              Foreign acquisition.........................         507
26              Other socioeconomic programs................         528

             SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS

27              Patents, data, and copyrights...............         532
28              Bonds and insurance.........................         572
29              Taxes.......................................         595
30              Cost accounting standards administration....         601
31              Contract cost principles and procedures.....         608
32              Contract financing..........................         667
33              Protests, disputes, and appeals.............         732

             SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING

34              Major system acquisition....................         746
35              Research and development contracting........         749
36              Construction and architect-engineer 
                    contracts...............................         759
37              Service contracting.........................         780
38              Federal supply schedule contracting.........         792
39              Acquisition of information technology.......         793
40

[Reserved]

41              Acquisition of utility services.............         795

                    SUBCHAPTER G--CONTRACT MANAGEMENT

42              Contract administration.....................         805
43              Contract modifications......................         842
44              Subcontracting policies and procedures......         847
45              Government property.........................         854
46              Quality assurance...........................         895
47              Transportation..............................         913
48              Value engineering...........................         948
49              Termination of contracts....................         955
50              Extraordinary contractual actions...........         999
51              Use of Government sources by contractors....        1008
                FAR Index...................................        1014

  Editorial Note:  The Federal Acquisition Regulations Index also 
follows the text of Chapter 1 in 48 CFR Chapter 1, Parts 52-99.

[[Page 5]]



                          SUBCHAPTER A--GENERAL





PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM--Table of Contents




Sec.
1.000  Scope of part.

                Subpart 1.1--Purpose, Authority, Issuance

1.101  Purpose.
1.102  Statement of guiding principles for the Federal Acquisition 
          System.
1.102-1  Discussion.
1.102-2  Performance standards.
1.102-3  Acquisition team.
1.102-4  Role of the acquisition team.
1.103  Authority.
1.104  Applicability.
1.105  Issuance.
1.105-1  Publication and code arrangement.
1.105-2  Arrangement of regulations.
1.105-3  Copies.
1.106  OMB approval under the Paperwork Reduction Act.
1.107  Certifications.

                       Subpart 1.2--Administration

1.201  Maintenance of the FAR.
1.201-1  The two councils.
1.201-2  FAR Secretariat.
1.202  Agency compliance with the FAR.

               Subpart 1.3--Agency Acquisition Regulations

1.301  Policy.
1.302  Limitations.
1.303  Publication and codification.
1.304  Agency control and compliance procedures.

                  Subpart 1.4--Deviations from the FAR

1.400  Scope of subpart.
1.401  Definition.
1.402  Policy.
1.403  Individual deviations.
1.404  Class deviations.
1.405  Deviations pertaining to treaties and executive agreements.

              Subpart 1.5--Agency and Public Participation

1.501  Solicitation of agency and public views.
1.501-1  Definition.
1.501-2  Opportunity for public comments.
1.501-3  Exceptions.
1.502  Unsolicited proposed revisions.
1.503  Public meetings.

      Subpart 1.6--Career Development, Contracting Authority, and 
                            Responsibilities.

1.601  General.
1.602  Contracting officers.
1.602-1  Authority.
1.602-2  Responsibilities.
1.602-3  Ratification of unauthorized commitments.
1.603  Selection, appointment, and termination of appointment.
1.603-1  General.
1.603-2  Selection.
1.603-3  Appointment.
1.603-4  Termination.

                Subpart 1.7--Determinations and Findings

1.700  Scope of subpart.
1.701  Definition.
1.702  General.
1.703  Class determinations and findings.
1.704  Content.
1.705  Supersession and modification.
1.706  Expiration.
1.707  Signatory authority.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42103, Sept. 19, 1983, unless otherwise noted.



1.000  Scope of part.

    This part sets forth basic policies and general information about 
the Federal Acquisition Regulations System including purpose, authority, 
applicability, issuance, arrangement, numbering, dissemination, 
implementation, supplementation, maintenance, administration, and 
deviation. Subparts 1.2, 1.3, and 1.4 prescribe administrative 
procedures for maintaining the FAR System.



                Subpart 1.1--Purpose, Authority, Issuance



1.101  Purpose.

    The Federal Acquisition Regulations System is established for the 
codification and publication of uniform policies and procedures for 
acquisition by all executive agencies. The Federal Acquisition 
Regulations System consists of the Federal Acquisition Regulation (FAR), 
which is the primary document, and agency acquisition regulations that 
implement or supplement the

[[Page 6]]

FAR. The FAR System does not include internal agency guidance of the 
type described in 1.301(a)(2).
[48 FR 42103, Sept. 19, 1983, as amended at 51 FR 27116, July 29, 1986]



1.102  Statement of guiding principles for the Federal Acquisition System.

    (a) The vision for the Federal Acquisition System is to deliver on a 
timely basis the best value product or service to the customer, while 
maintaining the public's trust and fulfilling public policy objectives. 
Participants in the acquisition process should work together as a team 
and should be empowered to make decisions within their area of 
responsibility.
    (b) The Federal Acquisition System will--
    (1) Satisfy the customer in terms of cost, quality, and timeliness 
of the delivered product or service by, for example--
    (i) Maximizing the use of commercial products and services;
    (ii) Using contractors who have a track record of successful past 
performance or who demonstrate a current superior ability to perform; 
and
    (iii) Promoting competition;
    (2) Minimize administrative operating costs;
    (3) Conduct business with integrity, fairness, and openness; and
    (4) Fulfill public policy objectives.
    (c) The Acquisition Team consists of all participants in Government 
acquisition including not only representatives of the technical, supply, 
and procurement communities but also the customers they serve, and the 
contractors who provide the products and services.
    (d) The role of each member of the Acquisition Team is to exercise 
personal initiative and sound business judgment in providing the best 
value product or service to meet the customer's needs. In exercising 
initiative, Government members of the Acquisition Team may assume if a 
specific strategy, practice, policy or procedure is in the best 
interests of the Government and is not addressed in the FAR nor 
prohibited by law (statute or case law), Executive order or other 
regulation, that the strategy, practice, policy or procedure is a 
permissible exercise of authority.
[60 FR 34733, July 3, 1995]



1.102-1  Discussion.

    (a) Introduction. The statement of Guiding Principles for the 
Federal Acquisition System (System) represents a concise statement 
designed to be user-friendly for all participants in Government 
acquisition. The following discussion of the principles is provided in 
order to illuminate the meaning of the terms and phrases used. The 
framework for the System includes the Guiding Principles for the System 
and the supporting policies and procedures in the FAR.
    (b) Vision. All participants in the System are responsible for 
making acquisition decisions that deliver the best value product or 
service to the customer. Best value must be viewed from a broad 
perspective and is achieved by balancing the many competing interests in 
the System. The result is a system which works better and costs less.
[60 FR 34733, July 3, 1995]



1.102-2  Performance standards.

    (a) Satisfy the customer in terms of cost, quality, and timeliness 
of the delivered product or service. (1) The principal customers for the 
product or service provided by the System are the users and line 
managers, acting on behalf of the American taxpayer.
    (2) The System must be responsive and adaptive to customer needs, 
concerns, and feedback. Implementation of acquisition policies and 
procedures, as well as consideration of timeliness, quality and cost 
throughout the process, must take into account the perspective of the 
user of the product or service.
    (3) When selecting contractors to provide products or perform 
services the Government will use contractors who have a track record of 
successful past performance or who demonstrate a current superior 
ability to perform.
    (4) The Government must not hesitate to communicate with the 
commercial sector as early as possible in the

[[Page 7]]

acquisition cycle to help the Government determine the capabilities 
available in the commercial marketplace. The Government will maximize 
its use of commercial products and services in meeting Government 
requirements.
    (5) It is the policy of the System to promote competition in the 
acquisition process.
    (6) The System must perform in a timely, high quality, and cost-
effective manner.
    (7) All members of the Team are required to employ planning as an 
integral part of the overall process of acquiring products or services. 
Although advance planning is required, each member of the Team must be 
flexible in order to accommodate changing or unforeseen mission needs. 
Planning is a tool for the accomplishment of tasks, and application of 
its discipline should be commensurate with the size and nature of a 
given task.
    (b) Minimize administrative operating costs. (1) In order to ensure 
that maximum efficiency is obtained, rules, regulations, and policies 
should be promulgated only when their benefits clearly exceed the costs 
of their development, implementation, administration, and enforcement. 
This applies to internal administrative processes, including reviews, 
and to rules and procedures applied to the contractor community.
    (2) The System must provide uniformity where it contributes to 
efficiency or where fairness or predictability is essential. The System 
should also, however, encourage innovation, and local adaptation where 
uniformity is not essential.
    (c) Conduct business with integrity, fairness, and openness. (1) An 
essential consideration in every aspect of the System is maintaining the 
public's trust. Not only must the System have integrity, but the actions 
of each member of the Team must reflect integrity, fairness, and 
openness. The foundation of integrity within the System is a competent, 
experienced, and well-trained, professional workforce. Accordingly each 
member of the Team is responsible and accountable for the wise use of 
public resources as well as acting in a manner which maintains the 
public's trust. Fairness and openness require open communication among 
team members, internal and external customers, and the public.
    (2) To achieve efficient operations, the System must shift its focus 
from ``risk avoidance'' to one of ``risk management.'' The cost to the 
taxpayer of attempting to eliminate all risk is prohibitive. The 
Executive Branch will accept and manage the risk associated with 
empowering local procurement officials to take independent action based 
on their professional judgment.
    (3) The Government shall exercise discretion, use sound business 
judgment, and comply with applicable laws and regulations in dealing 
with contractors and prospective contractors. All contractors and 
prospective contractors shall be treated fairly and impartially but need 
not be treated the same.
    (d) Fulfill public policy objectives. The System must support the 
attainment of public policy goals adopted by the Congress and the 
President. In attaining these goals, and in its overalll operations, the 
process shall ensure the efficient use of public resources.
[60 FR 34734, July 3, 1995, as amended at 62 FR 51229, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51229, Sept. 30, 1997, Sec. 1.102-2 
was amended by adding paragraph (c)(3), effective Oct. 10, 1997.



1.102-3  Acquisition team.

    The purpose of defining the Federal Acquisition Team (Team) in the 
Guiding Principles is to ensure that participants in the System are 
identified--beginning with the customer and ending with the contractor 
of the product or service. By identifying the team members in this 
manner, teamwork, unity of purpose, and open communication among the 
members of the Team in sharing the vision and achieving the goal of the 
System are encouraged. Individual team members will participate in the 
acquisition process at the appropriate time.
[60 FR 34734, July 3, 1995]



1.102-4  Role of the acquisition team.

    (a) Government members of the Team must be empowered to make 
acquisition decisions within their areas of responsibility, including 
selection,

[[Page 8]]

negotiation, and administration of contracts consistent with the Guiding 
Principles. In particular, the contracting officer must have the 
authority to the maximum extent practicable and consistent with law, to 
determine the application of rules, regulations, and policies, on a 
specific contract.
    (b) The authority to make decisions and the accountability for the 
decision made will be delegated to the lowest level within the System, 
consistent with law.
    (c) The Team must be prepared to perform the functions and duties 
assigned. The Government is committed to provide training, professional 
development, and other resources necessary for maintaining and improving 
the knowledge, skills, and abilities for all Government participants on 
the Team, both with regard to their particular area of responsibility 
within the System, and their respective role as a team member. The 
contractor community is encouraged to do likewise.
    (d) The System will foster cooperative relationships between the 
Government and its contractors consistent with its overriding 
responsibility to the taxpayers.
    (e) The FAR outlines procurement policies and procedures that are 
used by members of the Acquisition Team. If a policy or procedure, or a 
particular strategy or practice, is in the best interest of the 
Government and is not specifically addressed in the FAR, nor prohibited 
by law (statute or case law), Executive order or other regulation, 
Government members of the Team should not assume it is prohibited. 
Rather, absence of direction should be interpreted as permitting the 
Team to innovative and use sound business judgment that is otherwise 
consistent with law and within the limits of their authority. 
Contracting officers should take the lead in encouraging business 
process innovations and ensuring that business decisions are sound.
[60 FR 34734, July 3, 1995, as amended at 62 FR 44804, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44804, Aug. 22, 1997, section 1.102-4 
was amended by adding a sentence to the end of paragraph (e), effective 
Oct. 21, 1997.



1.103  Authority.

    (a) The development of the FAR System is in accordance with the 
requirements of the Office of Federal Procurement Policy (OFPP) Act of 
1974 (Pub. L. 93-400), as amended by Pub. L. 96-83, and OFPP Policy 
Letter 85-1, Federal Acquisition Regulations System, dated August 19, 
1985.
    (b) The FAR is prepared, issued, and maintained, and the FAR System 
is prescribed, jointly by the Secretary of Defense, the Administrator of 
General Services, and the Administrator, National Aeronautics and Space 
Administration, under their several statutory authorities.
[48 FR 42103, Sept. 19, 1983, as amended at 51 FR 27116, July 29, 1986. 
Redesignated at 60 FR 34733, July 3, 1995]



1.104  Applicability.

    The FAR applies to all acquisitions as defined in part 2 of the FAR, 
except where expressly excluded.
[48 FR 42103, Sept. 19, 1983. Redesignated at 60 FR 34733, July 3, 1995]



1.105  Issuance.



1.105-1  Publication and code arrangement.

    (a) The FAR is published in (1) the daily issue of the Federal 
Register, (2) cumulated form in the Code of Federal Regulations (CFR), 
and (3) a separate loose-leaf edition.
    (b) The FAR is issued as Chapter 1 of Title 48, CFR. Subsequent 
chapters are reserved for agency acquisition regulations that implement 
or supplement the FAR (see subpart 1.3). The CFR Staff will assign 
chapter numbers to requesting agencies.
    (c) Each numbered unit or segment (e.g., part, subpart, section, 
etc.) of an agency acquisition regulation that is codified in the CFR 
shall begin with the chapter number. However, the chapter number 
assigned to the FAR will not be included in the numbered units or 
segments of the FAR.
[48 FR 42103, Sept. 19, 1983. Redesignated at 60 FR 34733, July 3, 1995]



1.105-2  Arrangement of regulations.

    (a) General. The FAR is divided into subchapters, parts (each of 
which deals

[[Page 9]]

with a separate aspect of acquisition), subparts, sections, and 
subsections.
    (b) Numbering. (1) The numbering system permits the discrete 
identification of every FAR paragraph. The digits to the left of the 
decimal point represent the part number. The numbers to the right of the 
decimal point and to the left of the dash, represent, in order, the 
subpart (one or two digits), and the section (two digits). The number to 
the right of the dash represents the subsection. Subdivisons may be used 
at the section and subsection level to identify individual paragraphs. 
The following example illustrates the make-up of a FAR number citation 
(note that subchapters are not used with citations):
[GRAPHIC] [TIFF OMITTED] TC03AP91.000

    (2) Subdivisions below the section or subsection level shall consist 
of parenthetical alphanumerics reading from highest to lowest indenture 
as follows: lower case alphabet, Arabic numbers, lower case Roman 
numerals, and upper case alphabet. The following example is 
illustrative:

                              (a)(1)(i)(A)

    Subdivisions, below the 4th level shall repeat the sequence.
    (c) References and citations. (1) Unless otherwise stated, cross-
references indicate parts, subparts, sections, subsections, paragraphs, 
subparagraphs, or subdivisions of this regulation.
    (2) This regulation may be referred to as the Federal Acquisition 
Regulation or the FAR.
    (3) Using the FAR coverage at 9.106-4(d) as a typical illustration, 
reference to the--
    (i) Part would be ``FAR Part 9'' outside the FAR and ``Part 9'' 
within the FAR.
    (ii) Subpart would be ``FAR Subpart 9.1'' outside the FAR and 
``Subpart 9.1'' within the FAR.
    (iii) Section would be ``FAR 9.106'' outside the FAR and ``9.106'' 
within the FAR.
    (iv) Subsection would be ``FAR 9.106-4'' outside the FAR and 
``9.106-4'' within the FAR.
    (v) Paragraph would be ``FAR 9.106-4(d)'' outside the FAR and 
``9.106-4(d)'' within the FAR.
    (4) Citations of authority (e.g., statutes or executive orders) in 
the FAR shall follow the Federal Register form guides.
[48 FR 42103, Sept. 19, 1983. Redesignated at 60 FR 34733, July 3, 1995]



1.105-3  Copies.

    Copies of the FAR in Federal Register, loose-leaf, CD-ROM and CFR 
form may be purchased from the Superintendent of Documents, Government 
Printing Office (GPO), Washington, DC 20402.
[48 FR 42103, Sept. 19, 1983. Redesignated at 60 FR 34733, July 3, 1995, 
as amended at 62 FR 40236, July 25, 1997]



1.106  OMB approval under the Paperwork Reduction Act.

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) imposes a 
requirement on Federal agencies to obtain approval from the Office of 
Management and Budget (OMB) before collecting information from ten or 
more members of the public. The information collection and recordkeeping 
requirements contained in this regulation have been approved by the OMB. 
The following OMB control numbers apply:

                                                                        
------------------------------------------------------------------------
                                                             OMB control
                        FAR segment                              No.    
------------------------------------------------------------------------
3.103......................................................    9000-0018
3.4........................................................    9000-0003
4.102......................................................    9000-0033
4.7........................................................    9000-0034
4.9........................................................    9000-0097
5.405......................................................    9000-0036
7.2........................................................    9000-0082
8.5........................................................    9000-0113
9.1........................................................    9000-0011
9.2........................................................    9000-0020
14.201.....................................................    9000-0034
14.202-4...................................................    9000-0040
14.202-5...................................................    9000-0039
14.205.....................................................    9000-0002
14.205-4(c)................................................    9000-0037
14.214.....................................................    9000-0105
14.407.....................................................    9000-0038
14.5.......................................................    9000-0041
15.2.......................................................    9000-0037
15.209.....................................................    9000-0034

[[Page 10]]

                                                                        
15.407-2...................................................    9000-0078
15.4.......................................................    9000-0013
15.404-1(f)................................................    9000-0080
15.408.....................................................    9000-0115
15.813-1...................................................    9000-0105
15.813-2...................................................    9000-0105
15.813-3...................................................    9000-0105
15.813-6...................................................    9000-0105
19.7.......................................................    9000-0006
22.103.....................................................    9000-0065
22.8.......................................................    1215-0072
22.11......................................................    9000-0066
22.13......................................................    1215-0072
22.14......................................................    1215-0072
23.602.....................................................    9000-0107
27.3.......................................................    9000-0095
27.4.......................................................    9000-0090
28.1.......................................................    9000-0045
28.106-1(b)................................................    9000-0119
28.106-1(e)................................................    9000-0001
28.106-1(n)................................................    9000-0119
28.2.......................................................    9000-0045
29.304.....................................................    9000-0059
30.........................................................    9000-0093
30.6.......................................................    9000-0129
31.205-46..................................................    9000-0079
31.205-46(a)(3)............................................    9000-0088
32.........................................................    9000-0035
32.000.....................................................    9000-0138
32.1.......................................................    9000-0070
                                                                     and
                                                               9000-0138
32.2.......................................................    9000-0138
32.4.......................................................    9000-0073
32.5.......................................................    9000-0010
                                                                     and
                                                               9000-0138
32.7.......................................................    9000-0074
32.9.......................................................    9000-0102
32.10......................................................    9000-0138
33.........................................................    9000-0035
34.1.......................................................    9000-0132
36.213-2...................................................    9000-0037
36.603.....................................................    9000-0004
                                                                     and
                                                               9000-0005
36.701.....................................................    9000-0037
41.004-2(c)................................................    9000-0125
42.7.......................................................    9000-0013
42.12......................................................    9000-0076
42.13......................................................    9000-0076
42.14......................................................    9000-0056
43.205(f)..................................................    9000-0026
45.........................................................    9000-0075
46.........................................................    9000-0077
47.........................................................    9000-0061
48.........................................................    9000-0027
49.........................................................    9000-0028
50.........................................................    9000-0029
51.1.......................................................    9000-0031
51.2.......................................................    9000-0032
52.203-2...................................................    9000-0018
52.203-7...................................................    9000-0091
52.204-3...................................................    9000-0097
52.207-3...................................................    9000-0114
52.211-5...................................................    9000-0030
52.214-14..................................................    9000-0047
52.214-15..................................................    9000-0044
52.214-16..................................................    9000-0044
52.214-17..................................................    9000-0018
52.214-21..................................................    9000-0039
52.214-26..................................................    9000-0034
52.214-28..................................................    9000-0013
52.215-1(d)................................................    9000-0044
52.215-2...................................................    9000-0034
52.215-4...................................................    9000-0046
52.215-6...................................................    9000-0047
52.215-9...................................................    9000-0078
52.215-12..................................................    9000-0013
52.215-13..................................................    9000-0013
52.215-14..................................................    9000-0080
52.215-15(c)(2)(iv)........................................    9000-0048
52.215-19..................................................    9000-0015
52.215-20..................................................    9000-0013
52.215-21..................................................    9000-0013
52.216-2...................................................    9000-0068
52.216-3...................................................    9000-0068
52.216-4...................................................    9000-0068
52.216-5...................................................    9000-0071
52.216-6...................................................    9000-0071
52.216-7...................................................    9000-0069
52.216-10..................................................    9000-0067
52.216-13..................................................    9000-0069
52.216-15..................................................    9000-0069
52.216-16..................................................    9000-0067
52.216-17..................................................    9000-0067
52.219-9...................................................    9000-0006
52.219-10..................................................    9000-0006
52.219-19..................................................    9000-0100
52.219-20..................................................    9000-0100
52.219-21..................................................    9000-0100
52.222-2...................................................    9000-0065
52.222-4...................................................    1215-0119
52.222-6...................................................    1215-0140
52.222-8...................................................    1215-0149
                                                                     and
                                                               1215-0017
52.222-11..................................................    9000-0014
52.222-18..................................................    9000-0127
52.222-21..................................................    1215-0072
52.222-22..................................................    1215-0072
52.222-23..................................................    1215-0072
52.222-25..................................................    1215-0072
52.222-26..................................................    1215-0072
52.222-27..................................................    1215-0072
52.222-35..................................................    1215-0072
52.222-36..................................................    1215-0072
52.222-41..................................................    1215-0017
                                                                     and
                                                               1215-0150
52.222-46..................................................    9000-0066
52.223-1...................................................    9000-0021
52.223-4...................................................    9000-0134
52.223-6(b)(5).............................................    9000-0101
52.233-7...................................................    9000-0117
52.223-8...................................................    9000-0134
52.225-1...................................................    9000-0024
52.225-6...................................................    9000-0023
52.225-8...................................................    9000-0025
52.225-10..................................................    9000-0022
52.225-20..................................................    9000-0130
52.228-1...................................................    9000-0045
52.228-2...................................................    9000-0045
                                                                     and
                                                               9000-0119
52.228-3...................................................    9000-0045
52.228-13..................................................    9000-0045
52.228-15..................................................    9000-0045
52.228-16..................................................    9000-0045
                                                                     and
                                                               9000-0119
52.229-2...................................................    9000-0059
52.230-6...................................................    9000-0129
52.232-5...................................................    9000-0070
52.232-7...................................................    9000-0070
52.232-10..................................................    9000-0070

[[Page 11]]

                                                                        
52.232-12..................................................    9000-0073
52.232-13..................................................    9000-0010
52.232-14..................................................    9000-0010
52.232-15..................................................    9000-0010
52.232-16..................................................    9000-0010
52.232-20..................................................    9000-0074
52.232-21..................................................    9000-0074
52.232-22..................................................    9000-0074
52.232-27..................................................    9000-0102
52.232-29..................................................    9000-0138
52.232-30..................................................    9000-0138
52.232-31..................................................    9000-0138
52.232-32..................................................    9000-0138
52.233-1...................................................    9000-0035
52.234-1...................................................    9000-0133
52.236-5...................................................    9000-0062
52.236-13..................................................    1220-0029
                                                                     and
                                                               9000-0060
52.236-15..................................................    9000-0058
52.236-19..................................................    9000-0064
52.241-2...................................................    9000-0122
52.241-6...................................................    9000-0123
52.241-11..................................................    9000-0126
52.241-13..................................................    9000-0124
52.242-12..................................................    9000-0056
52.243-1...................................................    9000-0026
52.243-2...................................................    9000-0026
52.243-3...................................................    9000-0026
52.243-4...................................................    9000-0026
52.243-6...................................................    9000-0026
52.243-7...................................................    9000-0026
52.245-2...................................................    9000-0075
52.245-3...................................................    9000-0075
52.245-5...................................................    9000-0075
52.245-7...................................................    9000-0075
52.245-8...................................................    9000-0075
52.245-9...................................................    9000-0075
52.245-10..................................................    9000-0075
52.245-11..................................................    9000-0075
52.245-16..................................................    9000-0075
52.245-17..................................................    9000-0075
52.245-18..................................................    9000-0075
52.246-2...................................................    9000-0077
52.246-3...................................................    9000-0077
52.246-4...................................................    9000-0077
52.246-5...................................................    9000-0077
52.246-6...................................................    9000-0077
52.246-7...................................................    9000-0077
52.246-8...................................................    9000-0077
52.246-10..................................................    9000-0077
52.246-12..................................................    9000-0077
52.246-15..................................................    9000-0077
52.247-2...................................................    9000-0053
52.247-29..................................................    9000-0061
52.247-30..................................................    9000-0061
52.247-31..................................................    9000-0061
52.247-32..................................................    9000-0061
52.247-33..................................................    9000-0061
52.247-34..................................................    9000-0061
52.247-35..................................................    9000-0061
52.247-36..................................................    9000-0061
52.247-37..................................................    9000-0061
52.247-38..................................................    9000-0061
52.247-39..................................................    9000-0061
52.247-40..................................................    9000-0061
52.247-41..................................................    9000-0061
52.247-42..................................................    9000-0061
52.247-43..................................................    9000-0061
52.247-44..................................................    9000-0061
52.247-51..................................................    9000-0057
52.247-53..................................................    9000-0055
52.247-57..................................................    9000-0061
52.247-63..................................................    9000-0054
52.247-64..................................................    9000-0054
52.248-1...................................................    9000-0027
52.248-2...................................................    9000-0027
52.248-3...................................................    9000-0027
52.249-2...................................................    9000-0028
52.249-3...................................................    9000-0028
52.249-5...................................................    9000-0028
52.249-6...................................................    9000-0028
52.249-11..................................................    9000-0028
52.250-1...................................................    9000-0029
52.253-1...................................................    9000-0104
53.105.....................................................    9000-0104
53.236-1(a)................................................    9000-0037
SF 24......................................................    9000-0045
SF 25......................................................    9000-0045
SF 25-A....................................................    9000-0045
SF 28......................................................    9000-0001
SF 34......................................................    9000-0045
SF 35......................................................    9000-0045
SF 129.....................................................    9000-0002
SF 254.....................................................    9000-0004
SF 255.....................................................    9000-0005
SF 273.....................................................    9000-0045
SF 274.....................................................    9000-0045
SF 275.....................................................    9000-0045
SF 294.....................................................    9000-0006
SF 295.....................................................    9000-0007
SF 1403....................................................    9000-0011
SF 1404....................................................    9000-0011
SF 1405....................................................    9000-0011
SF 1406....................................................    9000-0011
SF 1407....................................................    9000-0011
SF 1408....................................................    9000-0011
SF 1411....................................................    9000-0013
SF 1413....................................................    9000-0014
SF 1416....................................................    9000-0045
SF 1417....................................................    9000-0037
SF 1418....................................................    9000-0119
SF 1423....................................................    9000-0015
SF 1424....................................................    9000-0015
SF 1426....................................................    9000-0015
SF 1427....................................................    9000-0015
SF 1428....................................................    9000-0015
SF 1429....................................................    9000-0015
SF 1430....................................................    9000-0015
SF 1431....................................................    9000-0015
SF 1432....................................................    9000-0015
SF 1433....................................................    9000-0015
SF 1434....................................................    9000-0015
SF 1435....................................................    9000-0012
SF 1436....................................................    9000-0012
SF 1437....................................................    9000-0012
SF 1438....................................................    9000-0012
SF 1439....................................................    9000-0012
SF 1440....................................................    9000-0012
SF 1443....................................................    9000-0010
SF 1444....................................................    9000-0089
SF 1445....................................................    9000-0089
SF 1446....................................................    9000-0089
SF 1448....................................................    9000-0013
SF 1449....................................................    9000-0136
------------------------------------------------------------------------

[59 FR 67065, Dec. 28, 1994. Redesignated at 60 FR 34733, 34736, July 3, 
1995, as amended at 60 FR 42650, 42665, Aug. 16, 1995; 60 FR 48211, 
Sept. 18, 1995; 60 FR 49710, Sept. 26, 1995; 61 FR 18916, Apr. 29, 1996; 
61 FR 39188, July 26, 1996; 61 FR 67410, 67430, Dec. 20, 1996; 61 FR 
69287, Dec. 31, 1996; 62 FR 227, 235, 271, Jan. 2, 1997; 62 FR 44806, 
44810, Aug. 22, 1997; 62 FR 51229, 51270, Sept. 30, 1997]

[[Page 12]]


    Effective Date Notes:  1. At 62 FR 44806, 44810, Aug. 22, 1997, in 
section 1.106 table, the entries for 28.106-1(b) and 52.228-3 were 
removed; the entry for 52.228-2 was amended by adding OMB Control No. 
9000-0119; and the entries for 28.106-1(e), 28.106-1(n), 52.211-5, 
52.223-4, 52.223-8, 52.228-13, 52.228-15, and 52.228-16, were added, 
effective Oct. 21, 1997.
    2. At 62 FR 51229, 51270, Sept. 30, 1997, in section 1.106 table, in 
the entries: ``15.106 was amended to read 15.209; 15.404 was amended to 
read 15.2; 15.7 was amended to read 15.407-2; 15.8 was amended to read 
15.4; 15.804-8 was amended to read 15.408; 15.812-1(b) was amended to 
read 15.404-1(f); 52.215-6 was amended to read 52.215-4; 52.215-11 was 
amended to read 52.215-1(c)(2)(iv); 52.215-19 was amended to read 
52.215-1(d); 52.215-20 was amended to read 52.215-6; 52.215-21 was 
amended to read 52.215-9; 52.215-24 was amended to read 52.215-12; 
52.215-25 was amended to read 52.215-13; 52.215-26 was amended to read 
52.215-14; 52.215-40 was amended to read 52.215-19; 52.215-41 was 
amended to read 52.215-20; 52.215-42 was amended to read 52.215-21''; 
and the entries 15.813-1, 15.813-2, 15.813-3, 15.813-6, SF 1411, and SF 
1448 were removed, effective Oct. 10, 1997.



1.107  Certifications.

    In accordance with Section 29 of the Office of Federal Procurement 
Policy Act (41 U.S.C. 425), as amended by Section 4301 of the Clinger-
Cohen Act of 1996 (Public Law 104-106), a new requirement for a 
certification by a contractor or offeror may not be included in this 
chapter unless--
    (a) The certification requirement is specifically imposed by 
statute; or
    (b) Written justification for such certification is provided to the 
Administrator for Federal Procurement Policy by the Federal Acquisition 
Regulatory Council, and the Administrator approves in writing the 
inclusion of such certification requirement.
[62 FR 44813, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44813, Aug. 22, 1997, section 1.107 
was added, effective Oct. 21, 1997.



                       Subpart 1.2--Administration



1.201  Maintenance of the FAR.



1.201-1  The two councils.

    (a) Subject to the authorities discussed in 1.102, revisions to the 
FAR will be prepared and issued through the coordinated action of two 
councils, the Defense Acquisition Regulatory Council (DAR Council) and 
the Civilian Agency Acquisition Council (CAA Council). Members of these 
councils shall--
    (1) Represent their agencies on a full-time basis;
    (2) Be selected for their superior qualifications in terms of 
acquisition experience and demonstrated professional expertise; and
    (3) Be funded by their respective agencies.
    (b) The chairperson of the CAA Council shall be the representative 
of the Administrator of General Services. The other members of this 
council shall be one each representative from the (1) Departments of 
Agriculture, Commerce, Energy, Health and Human Services, Interior, 
Labor, State, Transportation, and Treasury, and (2) Environmental 
Protection Agency, Small Business Administration, and Department of 
Veterans Affairs.
    (c) The Director of the DAR Council shall be the representative of 
the Secretary of Defense. The operation of the DAR Council will be as 
prescribed by the Secretary of Defense. Membership shall include 
representatives of the military Departments, the Defense Logistics 
Agency, and the National Aeronautics and Space Administration.
    (d) Responsibility for processing revisions to the FAR is 
apportioned by the two councils so that each council has cognizance over 
specified parts or subparts.
    (e) Each council shall be responsible for--
    (1) Agreeing on all revisions with the other council;
    (2) Submitting to the FAR Secretariat (see 1.201-2) the information 
required under paragraphs 1.501-2(b) and (e) for publication in the 
Federal Register of a notice soliciting comments on a proposed revision 
to the FAR;
    (3) Considering all comments received in response to notice of 
proposed revisions;
    (4) Arranging for public meetings;
    (5) Preparing any final revision in the appropriate FAR format and 
language; and
    (6) Submitting any final revision to the FAR Secretariat for 
publication in

[[Page 13]]

the Federal Register and printing for distribution.
[48 FR 42103, Sept. 19, 1983, as amended at 50 FR 2269, Jan. 15, 1985; 
50 FR 26903, June 28, 1985; 51 FR 2649, Jan. 17, 1986; 54 FR 29280, July 
11, 1989]



1.201-2  FAR Secretariat.

    (a) The General Services Administration is responsible for 
establishing and operating the FAR Secretariat to print, publish, and 
distribute the FAR through the Code of Federal Regulations system 
(including a loose-leaf edition with periodic updates).
    (b) Additionally, the FAR Secretariat shall provide the two councils 
with centralized services for--
    (1) Keeping a synopsis of current FAR cases and their status;
    (2) Maintaining official files;
    (3) Assisting parties interested in reviewing the files on completed 
cases; and
    (4) Performing miscellaneous administrative tasks pertaining to the 
maintenance of the FAR.
[48 FR 42103, Sept. 19, 1983, as amended at 62 FR 40236, July 25, 1997]



1.202  Agency compliance with the FAR.

    Agency compliance with the FAR (see 1.304) is the responsibility of 
the Secretary of Defense (for the military departments and defense 
agencies), the Administrator of General Services (for civilian agencies 
other than NASA), and the Administrator of NASA (for NASA activities).



               Subpart 1.3--Agency Acquisition Regulations



1.301  Policy.

    (a)(1) Subject to the authorities in paragraph (c) below and other 
statutory authority, an agency head may issue or authorize the issuance 
of agency acquisition regulations that implement or supplement the FAR 
and incorporate, together with the FAR, agency policies, procedures, 
contract clauses, solicitation provisions, and forms that govern the 
contracting process or otherwise control the relationship between the 
agency, including any of its suborganizations, and contractors or 
prospective contractors.
    (2) Subject to the authorities in (c) below and other statutory 
authority, an agency head may issue or authorize the issuance of 
internal agency guidance at any organizational level (e.g., designations 
and delegations of authority, assignments of responsibilities, work-flow 
procedures, and internal reporting requirements).
    (b) Agency heads shall establish procedures to ensure that agency 
acquisition regulations are published for comment in the Federal 
Register in conformance with the procedures in subpart 1.5 and as 
required by section 22 of the Office of Federal Procurement Policy Act, 
as amended (41 U.S.C. 418b), and other applicable statutes, when they 
have a significant effect beyond the internal operating procedures of 
the agency or have a significant cost or administrative impact on 
contractors or offerors. However, publication is not required for 
issuances that merely implement or supplement higher level issuances 
that have previously undergone the public comment process, unless such 
implementation or supplementation results in an additional significant 
cost or administrative impact on contractors or offerors or effect 
beyond the internal operating procedures of the issuing organization. 
Issuances under 1.301(a)(2) need not be publicized for public comment.
    (c) When adopting acquisition regulations, agencies shall ensure 
that they comply with the Paperwork Reduction Act (44 U.S.C. 3501, et 
seq.) as implemented in 5 CFR part 1320 (see 1.105) and the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.). Normally, when a law requires 
publication of a proposed regulation, the Regulatory Flexibility Act 
applies and agencies must prepare written analyses or certifications as 
provided in the law.
    (d) Agency acquisition regulations implementing or supplementing the 
FAR are, for--
    (1) The military departments and defense agencies, issued subject to 
the authority of the Secretary of Defense;
    (2) NASA activities, issued subject to the authorities of the 
Administrator of NASA; and

[[Page 14]]

    (3) The civilian agencies other than NASA, issued by the heads of 
those agencies subject to the overall authority of the Administrator of 
General Services or independent authority the agency may have.
[48 FR 42103, Sept. 19, 1983, as amended at 50 FR 2269, Jan. 15, 1985; 
54 FR 5054, Jan. 31, 1989]



1.302  Limitations.

    Agency acquisition regulations shall be limited to--
    (a) Those necessary to implement FAR policies and procedures within 
the agency; and
    (b) Additional policies, procedures, solicitation provisions, or 
contract clauses that supplement the FAR to satisfy the specific needs 
of the agency.



1.303  Publication and codification.

    (a) Agency-wide acquisition regulations shall be published in the 
Federal Register as required by law, shall be codified under an assigned 
chapter in Title 48, Code of Federal Regulations, and shall parallel the 
FAR in format, arrangement, and numbering system (but see 1.104-1(c)). 
Coverage in an agency acquisition regulation that implements a specific 
part, subpart, section, or subsection of the FAR shall be numbered and 
titled to correspond to the appropriate FAR number and title. 
Supplementary material for which there is no counterpart in the FAR 
shall be codified using chapter, part, subpart, section, or subsection 
numbers of 70 and up (e.g., for the Department of Interior, whose 
assigned chapter number in Title 48 is 14, part 1470, subpart 1401.70, 
section 1401.370, or subsection 1401.301-70.)
    (b) Issuances under 1.301(a)(2) need not be published in the Federal 
Register.
[48 FR 42103, Sept. 19, 1983, as amended at 50 FR 2269, Jan. 15, 1985]



1.304  Agency control and compliance procedures.

    (a) Under the authorities of 1.301(c), agencies shall control and 
limit issuance of agency acquisition regulations and, in particular, 
local agency directives that restrain the flexibilities found in the 
FAR, and shall establish formal procedures for the review of these 
documents to assure compliance with this part 1.
    (b) Agency acquisition regulations shall not--
    (1) Unnecessarily repeat, paraphrase, or otherwise restate material 
contained in the FAR or higher-level agency acquisition regulations; or
    (2) Except as required by law or as provided in subpart 1.4, 
conflict or be inconsistent with FAR content.
    (c) Agencies shall evaluate all regulatory coverage in agency 
acquisition regulations to determine if it could apply to other 
agencies. Coverage that is not peculiar to one agency shall be 
recommended for inclusion in the FAR.
[48 FR 42103, Sept. 19, 1983, as amended at 61 FR 39190, July 26, 1996]



                  Subpart 1.4--Deviations from the FAR



1.400  Scope of subpart.

    This subpart prescribes the policies and procedures for authorizing 
deviations from the FAR. Exceptions pertaining to the use of forms 
prescribed by the FAR are covered in part 53 rather than in this 
subpart.



1.401  Definition.

    Deviation means any one or combination of the following:
    (a) The issuance or use of a policy, procedure, solicitation 
provision (see definition in 52.101(a)), contract clause (see definition 
in 52.101(a)), method, or practice of conducting acquisition actions of 
any kind at any stage of the acquisition process that is inconsistent 
with the FAR.
    (b) The omission of any solicitation provision or contract clause 
when its prescription requires its use.
    (c) The use of any solicitation provision or contract clause with 
modified or alternate language that is not authorized by the FAR (see 
definitions of modification and alternate in 52.101(a)).
    (d) The use of a solicitation provision or contract clause 
prescribed by the FAR on a substantially as follows or substantially the 
same as basis (see definitions in 52.101(a)), if such use is 
inconsistent with the intent, principle, or substance of the 
prescription or related

[[Page 15]]

coverage on the subject matter in the FAR.
    (e) The authorization of lesser or greater limitations on the use of 
any solicitation provision, contract clause, policy, or procedure 
prescribed by the FAR.
    (f) The issuance of policies or procedures that govern the 
contracting process or otherwise control contracting relationships that 
are not incorporated into agency acquisition regulations in accordance 
with 1.301(a).



1.402  Policy.

    Unless precluded by law, executive order, or regulation, deviations 
from the FAR may be granted as specified in this subpart when necessary 
to meet the specific needs and requirements of each agency. The 
development and testing of new techniques and methods of acquisition 
should not be stifled simply because such action would require a FAR 
deviation. The fact that deviation authority is required should not, of 
itself, deter agencies in their development and testing of new 
techniques and acquisition methods. Refer to 31.101 for instructions 
concerning deviations pertaining to the subject matter of part 31, 
Contract Cost Principles and Procedures. Deviations are not authorized 
with respect to part 30. Refer to 30.201-5 for instructions concerning 
waivers pertaining to Cost Accounting Standards.
[48 FR 42103, Sept. 19, 1983, as amended at 52 FR 35612, Sept. 22, 1987]



1.403  Individual deviations.

    Individual deviations affect only one contracting action, and, 
unless 1.405(e) is applicable, may be authorized by agency heads or 
their designees. The justification and agency approval shall be 
documented in the contract file.
[48 FR 42103, Sept. 19, 1983, as amended at 61 FR 67411, Dec. 20, 1996]



1.404  Class deviations.

    Class deviations affect more than one contracting action. When it is 
known that a class deviation will be required on a permanent basis, an 
agency should propose an appropriate FAR revision to cover the matter. 
For civilan agencies other than NASA, a copy of each approved class 
deviation shall be furnished to the FAR Secretariat.
    (a) For civilian agencies except NASA, class deviations may be 
authorized by agency heads or their designees, unless 1.405(e) is 
applicable. Delegation of this authority shall not be made below the 
head of a contracting activity. Authorization of class deviations by 
agency officials is subject to the following limitations:
    (1) An agency official who may authorize a class deviation, before 
doing so, shall consult with the chairperson of the Civilian Agency 
Acquisition Council (CAA Council), unless that agency official 
determines that urgency precludes such consultation.
    (2) Recommended revisions to the FAR shall be transmitted to the FAR 
Secretariat by agency heads or their designees for authorizing class 
deviations.
    (b) For DOD, class deviations shall be controlled, processed, and 
approved in accordance with the Defense FAR Supplement.
    (c) For NASA, class deviations shall be controlled and approved by 
the Associate Administrator for Procurement. Deviations shall be 
processed in accordance with agency regulations.
[48 FR 42103, Sept. 19, 1983, as amended at 56 FR 15148, Apr. 15, 1991; 
59 FR 11387, March 10, 1994; 61 FR 67411, Dec. 20, 1996]



1.405  Deviations pertaining to treaties and executive agreements.

    (a) Executive agreements, as used in this section, means Government-
to-Government agreements, including agreements with international 
organizations, to which the United States is a party.
    (b) Any deviation from the FAR required to comply with a treaty to 
which the United States is a party is authorized, unless the deviation 
would be inconsistent with FAR coverage based on a law enacted after the 
execution of the treaty.
    (c) Any deviation from the FAR required to comply with an executive 
agreement is authorized unless the deviation would be inconsistent with 
FAR coverage based on law.
    (d) For civilian agencies other than NASA, a copy of the text 
deviation authorized under paragraph (b) or (c) of

[[Page 16]]

this section shall be transmitted to the FAR Secretariat through a 
central agency control point.
    (e) For civilian agencies other than NASA, if a deviation required 
to comply with a treaty or an executive agreement is not authorized by 
paragraph (b) or (c) of this section, then the request for deviation 
shall be processed through the FAR Secretariat to the Civilian Agency 
Acquisition Council.
[48 FR 42103, Sept. 19, 1983, as amended at 61 FR 67411, Dec. 20, 1996]



              Subpart 1.5--Agency and Public Participation

    Source:  50 FR 2269, Jan. 15, 1985, unless otherwise noted.



1.501  Solicitation of agency and public views.



 1.501-1  Definition.

    Significant revisions, as used in this subpart, means revisions that 
alter the substantive meaning of any coverage in the FAR System having a 
significant cost or administrative impact on contractors or offerors, or 
a significant effect beyond the internal operating procedures of the 
issuing agency. This expression, for example, does not include 
editorial, stylistic, or other revisions that have no impact on the 
basic meaning of the coverage being revised.



1.501-2  Opportunity for public comments.

    (a) Views of agencies and nongovernmental parties or organizations 
will be considered in formulating acquisition policies and procedures.
    (b) The opportunity to submit written comments on proposed 
significant revisions shall be provided by placing a notice in the 
Federal Register. Each of these notices shall include--
    (1) The text of the revision or, if it is impracticable to publish 
the full text, a summary of the proposal;
    (2) The address and telephone number of the individual from whom 
copies of the revision, in full text, can be requested and to whom 
comments thereon should be addressed; and
    (3) When 1.501-3(b) is applicable, a statement that the revision is 
effective on a temporary basis pending completion of the public comment 
period.
    (c) A minimum of 30 days and, normally, at least 60 days will be 
given for the receipt of comments.



1.501-3  Exceptions.

    (a) Comments need not be solicited when the proposed coverage does 
not constitute a significant revision.
    (b) Advance comments need not be solicited when urgent and 
compelling circumstances make solicitation of comments impracticable 
prior to the effective date of the coverage, such as when a new statute 
must be implemented in a relatively short period of time. In such case, 
the coverage shall be issued on a temporary basis and shall provide for 
at least a 30 day public comment period.



1.502  Unsolicited proposed revisions.

    Consideration shall also be given to unsolicited recommendations for 
revisions that have been submitted in writing with sufficient data and 
rationale to permit their evaluation.



1.503  Public meetings.

    Public meetings may be appropriate when a decision to adopt, amend, 
or delete coverage is likely to benefit from significant additional 
views and discussion.



      Subpart 1.6--Career Development, Contracting Authority, and 
                            Responsibilities



1.601  General.

    (a) Unless specifically prohibited by another provision of law, 
authority and responsibility to contract for authorized supplies and 
services are vested in the agency head. The agency head may establish 
contracting activities and delegate broad authority to manage the 
agency's contracting functions to heads of such contracting activities. 
Contracts may be entered into and signed on behalf of the Government 
only by contracting officers. In some agencies, a relatively small 
number of high level officials are designated contracting officers 
solely by virtue of their positions. Contracting officers

[[Page 17]]

below the level of a head of a contracting activity shall be selected 
and appointed under 1.603.
    (b) Agency heads may mutually agree to--
    (1) Assign contracting functions and responsibilities from one 
agency to another; and
    (2) Create joint or combined offices to exercise acquisition 
functions and responsibilities.
[60 FR 49721, Sept. 26, 1995]



1.602  Contracting officers.



1.602-1  Authority.

    (a) Contracting officers have authority to enter into, administer, 
or terminate contracts and make related determinations and findings. 
Contracting officers may bind the Government only to the extent of the 
authority delegated to them. Contracting officers shall receive from the 
appointing authority (see 1.603-1) clear instructions in writing 
regarding the limits of their authority. Information on the limits of 
the contracting officers' authority shall be readily available to the 
public and agency personnel.
    (b) No contract shall be entered into unless the contracting officer 
ensures that all requirements of law, executive orders, regulations, and 
all other applicable procedures, including clearances and approvals, 
have been met.



1.602-2  Responsibilities.

    Contracting officers are responsible for ensuring performance of all 
necessary actions for effective contracting, ensuring compliance with 
the terms of the contract, and safeguarding the interests of the United 
States in its contractual relationships. In order to perform these 
responsibilities, contracting officers should be allowed wide latitude 
to exercise business judgment. Contracting officers shall--
    (a) Ensure that the requirements of 1.602-1(b) have been met, and 
that sufficient funds are available for obligation;
    (b) Ensure that contractors receive impartial, fair, and equitable 
treatment; and
    (c) Request and consider the advice of specialists in audit, law, 
engineering, transportation, and other fields, as appropriate.



1.602-3  Ratification of unauthorized commitments.

    (a) Definitions.
    Ratification, as used in this subsection, means the act of approving 
an unauthorized commitment by an official who has the authority to do 
so.
    Unauthorized commitment, as used in this subsection, means an 
agreement that is not binding solely because the Government 
representative who made it lacked the authority to enter into that 
agreement on behalf of the Government.
    (b) Policy. (1) Agencies should take positive action to preclude, to 
the maximum extent possible, the need for ratification actions. Although 
procedures are provided in this section for use in those cases where the 
ratification of an unauthorized commitment is necessary, these 
procedures may not be used in a manner that encourages such commitments 
being made by Government personnel.
    (2) Subject to the limitations in paragraph (c) of this subsection, 
the head of the contracting activity, unless a higher level official is 
designated by the agency, may ratify an unauthorized commitment.
    (3) The ratification authority in subparagraph (b)(2) of this 
subsection may be delegated in accordance with agency procedures, but in 
no case shall the authority be delegated below the level of chief of the 
contracting office.
    (4) Agencies should process unauthorized commitments using the 
ratification authority of this subsection instead of referring such 
actions to the General Accounting Office for resolution. (See 1.602-
3(d).)
    (5) Unauthorized commitments that would involve claims subject to 
resolution under the Contract Disputes Act of 1978 should be processed 
in accordance with subpart 33.2, Disputes and Appeals.
    (c) Limitations. The authority in subparagraph (b)(2) of this 
subsection may be exercised only when--
    (1) Supplies or services have been provided to and accepted by the 
Government, or the Government otherwise has obtained or will obtain a 
benefit resulting from performance of the unauthorized commitment;

[[Page 18]]

    (2) The ratifying official has the authority to enter into a 
contractual commitment;
    (3) The resulting contract would otherwise have been proper if made 
by an appropriate contracting officer;
    (4) The contracting officer reviewing the unauthorized commitment 
determines the price to be fair and reasonable;
    (5) The contracting officer recommends payment and legal counsel 
concurs in the recommendation, unless agency procedures expressly do not 
require such concurrence;
    (6) Funds are available and were available at the time the 
unauthorized commitment was made; and
    (7) The ratification is in accordance with any other limitations 
prescribed under agency procedures.
    (d) Nonratifiable commitments. Cases that are not ratifiable under 
this subsection may be subject to resolution as recommended by the 
General Accounting Office under its claim procedure (GAO Policy and 
Procedures Manual for Guidance of Federal Agencies, Title 4, Chapter 2), 
or as authorized by FAR part 50. Legal advice should be obtained in 
these cases.
[53 FR 3689, Feb. 8, 1988, as amended at 60 FR 48225, Sept. 18, 1995]



1.603  Selection, appointment, and termination of appointment.



1.603-1  General.

    Subsection 414(4) of title 41, United States Code, requires agency 
heads to establish and maintain a procurement career management program 
and a system for the selection, appointment, and termination of 
appointment of contracting officers. Agency heads or their designees may 
select and appoint contracting officers and terminate their 
appointments. These selections and appointments shall be consistent with 
Office of Federal Procurement Policy's (OFPP) standards for skill-based 
training in performing contracting and purchasing duties as published in 
OFPP Policy Letter No. 92-3, Procurement Professionalism Program 
Policy--Training for Contracting Personnel, June 24, 1992.
[59 FR 67015, Dec. 28, 1994]



1.603-2  Selection.

    In selecting contracting officers, the appointing official shall 
consider the complexity and dollar value of the acquisitions to be 
assigned and the candidate's experience, training, education, business 
acumen, judgment, character, and reputation. Examples of selection 
criteria include--
    (a) Experience in Government contracting and administration, 
commercial purchasing, or related fields;
    (b) Education or special training in business administration, law, 
accounting, engineering, or related fields;
    (c) Knowledge of acquisition policies and procedures, including this 
and other applicable regulations;
    (d) Specialized knowledge in the particular assigned field of 
contracting; and
    (e) Satisfactory completion of acquisition training courses.



1.603-3  Appointment.

    (a) Contracting officers shall be appointed in writing on an SF 
1402, Certificate of Appointment, which shall state any limitations on 
the scope of authority to be exercised, other than limitations contained 
in applicable law or regulation. Appointing officials shall maintain 
files containing copies of all appointments that have not been 
terminated.
    (b) Agency heads are encouraged to delegate micro-purchase authority 
to individuals who are employees of an executive agency or members of 
the Armed Forces of the United States who will be using the supplies or 
services being purchased. Individuals delegated this authority are not 
required to be appointed on an SF 1402, but shall be appointed in 
writing in accordance with agency procedures.
[61 FR 39190, July 26, 1996]



1.603-4  Termination.

    Termination of a contracting officer appointment will be by letter, 
unless the Certificate of Appointment contains other provisions for 
automatic termination. Terminations may be for reasons such as 
reassignment, termination of employment, or unsatisfactory performance. 
No termination shall operate retroactively.

[[Page 19]]



                Subpart 1.7--Determinations and Findings

    Source:  50 FR 1726, Jan. 11, 1985 (interim rule), and 50 FR 52429, 
Dec. 23, 1985 (final rule), unless otherwise noted.



1.700  Scope of subpart.

    This subpart prescribes general policies and procedures for the use 
of determinations and findings (D&F's). Requirements for specific types 
of D&F's can be found with the appropriate subject matter.



1.701  Definition.

    Determination and Findings (D&F) means a special form of written 
approval by an authorized official that is required by statute or 
regulation as a prerequisite to taking certain contracting actions. The 
determination is a conclusion or decision supported by the findings. The 
findings are statements of fact or rationale essential to support the 
determination and must cover each requirement of the statute or 
regulation.



1.702  General.

    (a) A D&F shall ordinarily be for an individual contract action. 
Unless otherwise prohibited, class D&F's may be executed for classes of 
contract action (see 1.703). The approval granted by a D&F is restricted 
to the proposed contract action(s) reasonably described in that D&F. 
D&F's may provided for a reasonable degree of flexibility. Furthermore, 
in their application, reasonable variations in estimated quantities or 
prices are permitted, unless the D&F specifies otherwise.
    (b) When an option is anticipated, the D&F shall state the 
approximate quantity to be awarded initially and the extent of the 
increase to be permitted by the option.



1.703  Class determinations and findings.

    (a) A class D&F provides authority for a class of contracting 
actions. A class may consist of contracting actions for the same or 
related supplies or services or other contracting actions that require 
essentially identical justification.
    (b) The findings in a class D&F shall fully support the proposed 
action either for the class as a whole or for each action. A class D&F 
shall be for a specified period, with the expiration date stated in the 
document.
    (c) The contracting officer shall ensure that individual actions 
taken pursuant to the authority of a class D&F are within the scope of 
the D&F.



1.704  Content.

    Each D&F shall set forth enough facts and circumstances to clearly 
and convincingly justify the specific determination made. As a minimum, 
each D&F shall include, in the prescribed agency format, the following 
information:
    (a) Identification of the agency and of the contracting activity and 
specific identifications of the document as a Determination and 
Findings.
    (b) Nature and/or description of the action being approved.
    (c) Citation of the appropriate statute and/or regulation upon which 
the D&F is based.
    (d) Findings that detail the particular circumstances, facts, or 
reasoning essential to support the determination. Necessary supporting 
documentation shall be obtained from appropriate requirements and 
technical personnel.
    (e) A determination, based on the findings, that the proposed action 
is justified under the applicable statute or regulation.
    (f) Expiration date of the D&F, if required (see 1.706(b)).
    (g) The signature of the official authorized to sign the D&F (see 
1.706) and the date signed.



1.705  Supersession and modification.

    (a) If a D&F is superseded by another D&F, that action shall not 
render invalid any action taken under the original D&F prior to the date 
of its supersession.
    (b) A modification of the D&F will not require cancellation of the 
solicitation if the D&F, as modified, supports the contracting action.



1.706  Expiration.

    Expiration dates are required for class D&F's and are optional for 
individual D&F's. Authority to act under

[[Page 20]]

an individual D&F expires when it is exercised or on an expiration date 
specified in the document, whichever occurs first. Authority to act 
under a class D&F expires on the expiration date specified in the 
document. When a solicitation has been furnished to prospective offerors 
before the expiration date, the authority under the D&F will continue 
until award of the contract(s) resulting from that solicitation.



1.707  Signatory authority.

    When a D&F is required, it shall be signed by the appropriate 
official in accordance with agency regulations. Authority to sign or 
delegate signature authority for the various D&F's is as shown in the 
applicable FAR part.



PART 2--DEFINITIONS OF WORDS AND TERMS--Table of Contents




Sec.
2.000  Scope of part.

                        Subpart 2.1--Definitions

2.101  Definitions.

                     Subpart 2.2--Definitions Clause

2.201  Contract clause.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42107, Sept. 19, 1983, unless otherwise noted.



2.000  Scope of part.

    This part defines words and terms commonly used in this regulation. 
Other terms are defined in the part or subpart with which they are 
particularly associated (see the Index for locations).



                        Subpart 2.1--Definitions



2.101  Definitions.

    As used throughout this regulation, the following words and terms 
are used as defined in this subpart unless (a) the context in which they 
are used clearly requires a different meaning or (b) a different 
definition is prescribed for a particular part or portion of a part.
    Acquisition means the acquiring by contract with appropriated funds 
of supplies or services (including construction) by and for the use of 
the Federal Government through purchase or lease, whether the supplies 
or services are already in existence or must be created, developed, 
demonstrated, and evaluated. Acquisition begins at the point when agency 
needs are established and includes the description of requirements to 
satisfy agency needs, solicitation and selection of sources, award of 
contracts, contract financing, contract performance, contract 
administration, and those technical and management functions directly 
related to the process of fulfilling agency needs by contract.
    Affiliates means associated business concerns or individuals if, 
directly or indirectly, (a) either one controls or can control the other 
or (b) a third party controls or can control both.
    Agency head (see head of the agency).
    Best value means the expected outcome of an acquisition that, in the 
Government's estimation, provides the greatest overall benefit in 
response to the requirement.
    Commercial component means any component that is a commercial item.
    Commercial item means--
    (a) Any item, other than real property, that is of a type 
customarily used for nongovernmental purposes and that--
    (1) Has been sold, leased, or licensed to the general public; or,
    (2) Has been offered for sale, lease, or license to the general 
public;
    (b) Any item that evolved from an item described in paragraph (a) of 
this definition through advances in technology or performance and that 
is not yet available in the commercial marketplace, but will be 
available in the commercial marketplace in time to satisfy the delivery 
requirements under a Government solicitation;
    (c) Any item that would satisfy a criterion expressed in paragraphs 
(a) or (b) of this definition, but for--
    (1) Modifications of a type customarily available in the commercial 
marketplace; or
    (2) Minor modifications of a type not customarily available in the 
commercial marketplace made to meet Federal Government requirements. 
``Minor'' modifications means modifications

[[Page 21]]

that do not significantly alter the nongovernmental function or 
essential physical characteristics of an item or component, or change 
the purpose of a process. Factors to be considered in determining 
whether a modification is minor include the value and size of the 
modification and the comparative value and size of the final product. 
Dollar values and percentages may be used as guideposts, but are not 
conclusive evidence that a modification is minor;
    (d) Any combination of items meeting the requirements of paragraphs 
(a), (b), (c), or (e) of this definition that are of a type customarily 
combined and sold in combination to the general public;
    (e) Installation services, maintenance services, repair services, 
training services, and other services if such services are procured for 
support of an item referred to in paragraphs (a), (b), (c), or (d) of 
this definition, and if the source of such services--
    (1) Offers such services to the general public and the Federal 
Government contemporaneously and under similar terms and conditions; and
    (2) Offers to use the same work force for providing the Federal 
Government with such services as the source uses for providing such 
services to the general public;
    (f) Services of a type offered and sold competitively in substantial 
quantities in the commercial marketplace based on established catalog or 
market prices for specific tasks performed under standard commercial 
terms and conditions. This does not include services that are sold based 
on hourly rates without an established catalog or market price for a 
specific service performed;
    (g) Any item, combination of items, or service referred to in 
paragraphs (a) through (f), notwithstanding the fact that the item, 
combination of items, or service is transferred between or among 
separate divisions, subsidiaries, or affiliates of a contractor; or
    (h) A nondevelopmental item, if the procuring agency determines the 
item was developed exclusively at private expense and sold in 
substantial quantities, on a competitive basis, to multiple State and 
local governments.
    Component means any item supplied to the Federal Government as part 
of an end item or of another component.
    Contract means a mutually binding legal relationship obligating the 
seller to furnish the supplies or services (including construction) and 
the buyer to pay for them. It includes all types of commitments that 
obligate the Government to an expenditure of appropriated funds and 
that, except as otherwise authorized, are in writing. In addition to 
bilateral instruments, contracts include (but are not limited to) awards 
and notices of awards; job orders or task letters issued under basic 
ordering agreements; letter contracts; orders, such as purchase orders, 
under which the contract becomes effective by written acceptance or 
performance; and bilaterial contract modifications. Contracts do not 
include grants and cooperative agreements covered by 31 U.S.C. 6301 et 
seq. For discussion of various types of contracts, see part 16.
    Contract administration office means an office that performs (a) 
assigned postaward functions related to the administration of contracts 
and (b) assigned preaward functions.
    Contracting means purchasing, renting, leasing, or otherwise 
obtaining supplies or services from nonfederal sources. Contracting 
includes description (but not determination) of supplies and services 
required, selection and solicitation of sources, preparation and award 
of contracts, and all phases of contract administration. It does not 
include making grants or cooperative agreements.
    Contracting activity means an element of an agency designated by the 
agency head and delegated broad authority regarding acquisition 
functions.
    Contracting office means an office that awards or executes a 
contract for supplies or services and performs postaward functions not 
assigned to a contract administration office.
    Contracting officer means a person with the authority to enter into, 
administer, and/or terminate contracts and make related determinations 
and findings. The term includes certain authorized representatives of 
the contracting officer acting within the limits of their authority as 
delegated by the contracting officer. Administrative

[[Page 22]]

contracting officer (ACO) refers to a contracting officer who is 
administering contracts. Termination contracting officer (TCO) refers to 
a contracting officer who is settling terminated contracts. A single 
contracting officer may be responsible for duties in any or all of these 
areas. Reference in this regulation to administrative contracting 
officer or termination contracting officer does not (a) require that a 
duty be performed at a particular office or activity or (b) restrict in 
any way a contracting officer in the performance of any duty properly 
assigned.
    Day means, unless otherwise specified, a calendar day.
    Delivery order means an order for supplies placed against an 
established contract or with Government sources.
    Executive agency means an executive department, a military 
department, or any independent establishment within the meaning of 5 
U.S.C. 101, 102, and 104(1), respectively, and any wholly owned 
Government corporation within the meaning of 31 U.S.C. 9101.
    Facsimile means electronic equipment that communicates and 
reproduces both printed and handwritten material. If used in conjunction 
with a reference to a document, e.g., facsimile bid, the term refers to 
a document (in the example given, a bid) that has been transmitted to 
and received by the Government via facsimile.
    Federal Acquisition Computer Network (FACNET) Architecture means the 
Governmentwide Electronic Commerce/Electronic Data Interchange (EC/EDI) 
operational capability for the acquisition of supplies and services that 
provides for electronic data interchange of acquisition information 
between the Government and the private sector, employs nationally and 
internationally recognized data formats, and provides universal user 
access.
    Federal agency means any executive agency or any independent 
establishment in the legislative or judicial branch of the Government 
(except the Senate, the House of Representatives, the Architect of the 
Capitol, and any activities under the Architect's direction).
    Full FACNET means an agency has certified that it has implemented 
all of the FACNET functions outlined in 4.504, and more than 75 percent 
of eligible contracts (not otherwise exempted from FACNET) in amounts 
exceeding the micro-purchase threshold, but not exceeding the simplified 
acquisition threshold, were entered into by the agency during the 
preceding fiscal year using an interim FACNET certified electronic 
automated information system.
    Governmentwide FACNET means that the Federal Government has 
certified its FACNET capability, and more than 75 percent of eligible 
contracts (not otherwise exempted from FACNET) in amounts exceeding the 
micro-purchase threshold, but not exceeding the simplified acquisition 
threshold, entered into by the executive agencies during the preceding 
fiscal year were made through electronic automated information systems 
with full FACNET certification.
    Head of the agency (also called agency head) means the Secretary, 
Attorney General, Administrator, Governor, Chairperson, or other chief 
official of an executive agency, unless otherwise indicated, including 
any deputy or assistant chief official of an executive agency; and the 
term authorized representative means any person, persons, or board 
(other than the contracting officer) authorized to act for the head of 
the agency or Secretary.
    Head of the contracting activity includes the official who has 
overall responsibility for managing the contracting activity.
    Information technology means any equipment, or interconnected 
system(s) or subsystem(s) of equipment, that is used in the automatic 
acquisition, storage, manipulation, management, movement, control, 
display, switching, interchange, transmission, or reception of data or 
information by the agency.
    (a) For purposes of this definition, equipment is used by an agency 
if the equipment is used by the agency directly or is used by a 
contractor under a contract with the agency which--
    (1) Requires the use of such equipment; or
    (2) Requires the use, to a significant extent, of such equipment in 
the performance of a service or the furnishing of a product.

[[Page 23]]

    (b) The term information technology includes computers, ancillary 
equipment, software, firmware and similar procedures, services 
(including support services), and related resources.
    (c) The term information technology does not include any equipment 
that is acquired by a contractor incidental to a contract.
    Interim FACNET means a contracting office has been certified as 
having implemented the electronic automated information systems 
capability to provide widespread public notice of contracting 
opportunities, issue solicitations, and receive responses to 
solicitations and associated requests for information. Such capability 
must allow the private sector to access notices of solicitations, access 
and review solicitations, and respond to solicitations.
    In writing or written means any worded or numbered expression which 
can be read, reproduced, and later communicated, and includes 
electronically transmitted and stored information.
    Major system means that combination of elements that will function 
together to produce the capabilities required to fulfill a mission need. 
The elements may include hardware, equipment, software, or any 
combination thereof, but exclude construction or other improvements to 
real property. A system shall be considered a major system if--
    (a) The Department of Defense is responsible for the system and the 
total expenditures for research, development, test, and evaluation for 
the system are estimated to be more than $115,000,000 (based on fiscal 
year 1990 constant dollars) or the eventual total expenditure for the 
acquisition exceeds $540,000,000 (based on fiscal year 1990 constant 
dollars);
    (b) A civilian agency is responsible for the system and total 
expenditures for the system are estimated to exceed $750,000 (based on 
fiscal year 1980 constant dollars) or the dollar threshold for a ``major 
system'' established by the agency pursuant to Office of Management and 
Budget Circular A-109, entitled ``Major System Acquisitions,'' whichever 
is greater; or
    (c) The system is designated a ``major system'' by the head of the 
agency responsible for the system (10 U.S.C. 2302 and 41 U.S.C. 403).
    Market research means collecting and analyzing information about 
capabilities within the market to satisfy agency needs.
    May denotes the permissive. However, the words no person may... mean 
that no person is required, authorized, or permitted to do the act 
described.
    Micro-purchase means an acquisition of supplies or services (except 
construction), the aggregate amount of which does not exceed $2,500, 
except that in the case of construction, the limit is $2,000.
    Micro-purchase threshold means $2,500.
    National defense means any activity related to programs for military 
or atomic energy production or construction, military assistance to any 
foreign nation, stockpiling, or space.
    Nondevelopmental item means--
    (a) Any previously developed item of supply used exclusively for 
governmental purposes by a Federal agency, a State or local government, 
or a foreign government with which the United States has a mutual 
defense cooperation agreement;
    (b) Any item described in paragraph (a) of this definition that 
requires only minor modification or modifications of a type customarily 
available in the commercial marketplace in order to meet the 
requirements of the procuring department or agency; or
    (c) Any item of supply being produced that does not meet the 
requirements of paragraph (a) or (b) solely because the item is not yet 
in use.
    Offer means a response to a solicitation that, if accepted, would 
bind the offeror to perform the resultant contract. Responses to 
invitations for bids (sealed bidding) are offers called bids or sealed 
bids; responses to requests for proposals (negotiation) are offers 
called proposals; responses to requests for quotations (negotiation) are 
not offers and are called quotes. For unsolicited proposals, see subpart 
15.6.
    Possessions includes the Virgin Islands, Johnston Island, American 
Samoa, Guam, Wake Island, Midway Island, and the guano islands, but does 
not include Puerto Rico, leased bases, or trust territories.
    Senior procurement executive means the individual appointed pursuant 
to section 16(3) of the Office of Federal

[[Page 24]]

Procurement Policy Act (41 U.S.C. 414(3)) who is responsible for 
management direction of the acquisition system of the executive agency, 
including implementation of the unique acquisition policies, 
regulations, and standards of the executive agency.
    Shall denotes the imperative.
    Signature or signed means the discrete, verifiable symbol of an 
individual which, when affixed to a writing with the knowledge and 
consent of the individual, indicates a present intention to authenticate 
the writing. This includes electronic systems.
    Simplified acquisition procedures means the methods prescribed in 
part 13 for making purchases of supplies or services.
    Simplified acquisition threshold means $100,000, except that in the 
case of any contract to be awarded and performed, or purchase to be 
made, outside the United States in support of a contingency operation 
(as defined in 10 U.S.C. 101(a)(13)) or a humanitarian or peacekeeping 
operation (as defined in 10 U.S.C. 2302(7) and 41 U.S.C. 259(d)), the 
term means $200,000.
    Supplies means all property except land or interest in land. It 
includes (but is not limited to) public works, buildings, and 
facilities; ships, floating equipment, and vessels of every character, 
type, and description, together with parts and accessories; aircraft and 
aircraft parts, accessories, and equipment; machine tools; and the 
alteration or installation of any of the foregoing.
    Task order means an order for services placed against an established 
contract or with Government sources.
    United States, when used in a geographic sense, means the 50 States 
and the District of Columbia.
[48 FR 42107, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 4221, Jan. 30, 1985; 50 FR 26903, June 28, 1985; 50 FR 52429, Dec. 
23, 1985; 51 FR 2649, Jan. 17, 1986; 52 FR 19802, May 27, 1987; 54 FR 
48981, Nov. 28, 1989; 56 FR 41744, Aug. 22, 1991; 60 FR 34736, July 3, 
1995; 60 FR 42653, Aug. 16, 1995; 60 FR 48235, Sept. 18, 1995; 61 FR 
39190, July 26, 1996; 61 FR 41468, Aug. 8, 1996; 61 FR 69288, Dec. 31, 
1996; 62 FR 256, Jan. 2, 1997; 62 FR 51230, 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51230, 51270, Sept. 30, 1997, section 
2.101 was amended by adding the definition Best value; and in the 
definition Offer, the reference ``15.5'' was amended to read ``15.6'', 
effective Oct. 10, 1997.



                     Subpart 2.2--Definitions Clause



2.201  Contract clause.

    The contracting officer shall insert the clause at 52.202-1, 
Definitions, in solicitations and contracts except when the contract is 
not expected to exceed the simplified acquisition threshold. If the 
contract is for personal services, construction, architect-engineer 
services, or dismantling, demolition, or removal of improvements, the 
contracting officer shall use the clause with its Alternate I. 
Additional definitions may be included, provided they are consistent 
with the clause and the FAR.
[60 FR 34744, July 3, 1995, as amended at 61 FR 39190, July 26, 1996]



PART 3--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST--Table of Contents




Sec.
3.000  Scope of part.

                         Subpart 3.1--Safeguards

3.101  Standards of conduct.
3.101-1  General.
3.101-2  Solicitation and acceptance of gratuities by Government 
          personnel.
3.101-3  Agency regulations.
3.102  [Reserved]
3.103  Independent pricing.
3.103-1  Solicitation provision.
3.103-2  Evaluating the certification.
3.103-3  The need for further certifications.
3.104  Procurement integrity.
3.104-1  General.
3.104-2  Applicability.
3.104-3  Definitions.
3.104-4  Statutory and related prohibitions, restrictions, and 
          requirements.
3.104-5  Disclosure, protection, and marking of contractor bid or 
          proposal information and source selection information.
3.104-6  Disqualification.
3.104-7  Ethics advisory opinions regarding prohibitions on a former 
          official's acceptance of compensation from a contractor.
3.104-8  Calculating the period of compensation prohibition.
3.104-9  Contract clauses.
3.104-10  Violations or possible violations.
3.104-11  Criminal and civil penalties, and further administrative 
          remedies.

[[Page 25]]

       Subpart 3.2--Contractor Gratuities to Government Personnel

3.201  Applicability.
3.202  Contract clause.
3.203  Reporting suspected violations of the Gratuities clause.
3.204  Treatment of violations.

         Subpart 3.3--Reports of Suspected Antitrust Violations

3.301  General.
3.302  Definitions.
3.303  Reporting suspected antitrust violations.

                      Subpart 3.4--Contingent Fees

3.400  Scope of subpart.
3.401  Definitions.
3.402  Statutory requirements.
3.403  Applicability.
3.404  Contract clause.
3.405  Misrepresentations or violations of the Covenant Against 
          Contingent Fees.
3.406  Records.

             Subpart 3.5--Other Improper Business Practices

3.501  Buying-in.
3.501-1  Definition.
3.501-2  General.
3.502  Subcontractor kickbacks.
3.502-1  Definitions.
3.502-2  Subcontractor kickbacks.
3.502-3  Contract clause.
3.503  Unreasonable restrictions on subcontractor sales.
3.503-1  Policy.
3.503-2  Contract clause.

Subpart 3.6--Contracts With Government Employees or Organizations Owned 
                          or Controlled by Them

3.601  Policy.
3.602  Exceptions.
3.603  Responsibilities of the contracting officer.

              Subpart 3.7--Voiding and Rescinding Contracts

3.700  Scope of subpart.
3.701  Purpose.
3.702  Definition.
3.703  Authority.
3.704  Policy.
3.705  Procedures.

  Subpart 3.8--Limitation on the Payment of Funds to Influence Federal 
                              Transactions

3.800  Scope of subpart.
3.801  Definitions.
3.802  Prohibitions.
3.803  Certification and disclosure.
3.804  Policy.
3.805  Exemption.
3.806  Processing suspected violations.
3.807  Civil penalties.
3.808  Solicitation provision and contract clause.

     Subpart 3.9--Whistleblower Protections for Contractor Employees

3.900  Scope of subpart.
3.901  Definitions.
3.902  Applicability.
3.903  Policy.
3.904  Procedures for filing complaints.
3.905  Procedures for investigating complaints.
3.906  Remedies.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42108, Sept. 19, 1983, unless otherwise noted.



3.000  Scope of part.

    This part prescribes policies and procedures for avoiding improper 
business practices and personal conflicts of interest and for dealing 
with their apparent or actual occurrence.



                         Subpart 3.1--Safeguards



3.101  Standards of conduct.



3.101-1  General.

    Government business shall be conducted in a manner above reproach 
and, except as authorized by statute or regulation, with complete 
impartiality and with preferential treatment for none. Transactions 
relating to the expenditure of public funds require the highest degree 
of public trust and an impeccable standard of conduct. The general rule 
is to avoid strictly any conflict of interest or even the appearance of 
a conflict of interest in Government-contractor relationships. While 
many Federal laws and regulations place restrictions on the actions of 
Government personnel, their official conduct must, in addition, be such 
that they would have no reluctance to make a full public disclosure of 
their actions.

[[Page 26]]



3.101-2  Solicitation and acceptance of gratuities by Government personnel.

    As a rule, no Government employee may solicit or accept, directly or 
indirectly, any gratuity, gift, favor, entertainment, loan, or anything 
of monetary value from anyone who (a) has or is seeking to obtain 
Government business with the employee's agency, (b) conducts activities 
that are regulated by the employee's agency, or (c) has interests that 
may be substantially affected by the performance or nonperformance of 
the employee's official duties. Certain limited exceptions are 
authorized in agency regulations.



3.101-3  Agency regulations.

    (a) Agencies are required by Executive Order 11222 of May 8, 1965, 
and 5 CFR part 735 to prescribe Standards of Conduct. These agency 
standards contain--
    (1) Agency-authorized exceptions to 3.101-2; and
    (2) Disciplinary measures for persons violating the standards of 
conduct.
    (b) Requirements for employee financial disclosure and restrictions 
on private employment for former Government employees are in Office of 
Personnel Management and agency regulations implementing Public Law 95-
521, which amended 18 U.S.C. 207.



3.102  [Reserved]



3.103  Independent pricing.



3.103-1  Solicitation provision.

    The contracting officer shall insert the provision at 52.203-2, 
Certificate of Independent Price Determination, in solicitations when a 
firm-fixed-price contract or fixed-price contract with economic price 
adjustment is contemplated, unless--
    (a) The acquisition is to be made under the simplified acquisition 
procedures in part 13;
    (b) [Reserved]
    (c) The solicitation is a request for technical proposals under two-
step sealed bidding procedures; or
    (d) The solicitation is for utility services for which rates are set 
by law or regulation.
[48 FR 42108, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 25526, June 21, 1990; 60 FR 34744, 
July 3, 1995]



3.103-2  Evaluating the certification.

    (a) Evaluation guidelines. (1) None of the following, in and of 
itself, constitutes disclosure as it is used in subparagraph (a)(2) of 
the Certificate of Independent Price Determination (hereafter, the 
certificate):
    (i) The fact that a firm has published price lists, rates, or 
tariffs covering items being acquired by the Government.
    (ii) The fact that a firm has informed prospective customers of 
proposed or pending publication of new or revised price lists for items 
being acquired by the Government.
    (iii) The fact that a firm has sold the same items to commercial 
customers at the same prices being offered to the Government.
    (2) For the purpose of subparagraph (b)(2) of the certificate, an 
individual may use a blanket authorization to act as an agent for the 
person(s) responsible for determining the offered prices if--
    (i) The proposed contract to which the certificate applies is 
clearly within the scope of the authorization; and
    (ii) The person giving the authorization is the person within the 
offeror's organization who is responsible for determining the prices 
being offered at the time the certification is made in the particular 
offer.
    (3) If an offer is submitted jointly by two or more concerns, the 
certification provided by the representative of each concern applies 
only to the activities of that concern.
    (b) Rejection of offers suspected of being collusive. (1) If the 
offeror deleted or modified subparagraph (a)(1) or (a)(3) or paragraph 
(b) of the certificate, the contracting officer shall reject the 
offeror's bid or proposal.
    (2) If the offeror deleted or modified subparagraph (a)(2) of the 
certificate, the offeror must have furnished with

[[Page 27]]

its offer a signed statement of the circumstances of the disclosure of 
prices contained in the bid or proposal. The chief of the contracting 
office shall review the altered certificate and the statement and shall 
determine, in writing, whether the disclosure was made for the purpose 
or had the effect of restricting competition. If the determination is 
positive, the bid or proposal shall be rejected; if it is negative, the 
bid or proposal shall be considered for award.
    (3) Whenever an offer is rejected under subparagraph (1) or (2) 
above, or the certificate is suspected of being false, the contracting 
officer shall report the situation to the Attorney General in accordance 
with 3.303.
    (4) The determination made under subparagraph (2) above shall not 
prevent or inhibit the prosecution of any criminal or civil actions 
involving the occurrences or transactions to which the certificate 
relates.
[48 FR 42108, Sept. 19, 1983, as amended at 55 FR 25526, June 21, 1990]



3.103-3  The need for further certifications.

    A contractor that properly executed the certificate before award 
does not have to submit a separate certificate with each proposal to 
perform a work order or similar ordering instrument issued pursuant to 
the terms of the contract, where the Government's requirements cannot be 
met from another source.



3.104  Procurement integrity.



3.104-1  General.

    (a) This FAR section 3.104 implements section 27 of the Office of 
Federal Procurement Policy Act (41 U.S.C. 423), as amended by section 
814 of the Fiscal Year 1990/1991 National Defense Authorization Act, 
Public Law 101-189, section 815 of the Fiscal Year 1991 National Defense 
Authorization Act, Public Law 101-510, and section 4304 of the Fiscal 
Year 1996 National Defense Authorization Act, Public Law 104-106 
(hereinafter, the Office of Federal Procurement Policy Act, as amended, 
is referred to as ``the Act''). Agencies may supplement 3.104 and any 
clauses required by 3.104, and may use agency specific definitions to 
identify individuals who occupy positions specified in 3.104-
4(d)(1)(ii). Such supplementation and definitions must be approved at a 
level not lower than the senior procurement executive of the agency, 
unless a higher level of approval is required by law for that agency.
    (b) Agency employees are reminded that there are other statutes and 
regulations that deal with the same or related prohibited conduct, for 
example--
    (1) The offer or acceptance of a bribe or gratuity is prohibited by 
18 U.S.C. 201, 10 U.S.C. 2207, 5 U.S.C. 7353, and 5 CFR part 2635;
    (2) Section 208 of Title 18, United States Code, and 5 CFR part 2635 
preclude a Government employee from participating personally and 
substantially in any particular matter that would affect the financial 
interests of any person from whom the employee is seeking employment;
    (3) Post-employment restrictions are covered by 18 U.S.C. 207 and 5 
CFR parts 2637 and 2641, which prohibit certain activities by former 
Government employees, including representation of a contractor before 
the Government in relation to any contract or other particular matter 
involving specific parties on which the former employee participated 
personally and substantially while employed by the Government;
    (4) Parts 14 and 15 place restrictions on the release of information 
related to procurements and other contractor information which must be 
protected under 18 U.S.C. 1905;
    (5) Other laws such as the Privacy Act (5 U.S.C. 552a) and the Trade 
Secrets Act (18 U.S.C. 1905) may preclude release of information both 
before and after award (see 3.104-5); and
    (6) Use of nonpublic information to further an employee's private 
interest or that of another and engaging in a financial transaction 
using nonpublic information are covered by 5 CFR 2635.703.
[62 FR 227, Jan. 2, 1997]



3.104-2  Applicability.

    (a) The restrictions at 3.104-4 (a) and (b) apply beginning January 
1, 1997, to the conduct of every Federal agency procurement using 
competitive procedures for the acquisition of supplies or

[[Page 28]]

services from non-Federal sources using appropriated funds.
    (b) The requirements of 3.104-4(c) apply beginning January 1, 1997, 
in connection with every Federal agency procurement using competitive 
procedures, for a contract expected to exceed the simplified acquisition 
threshold. Such requirements do not apply after the contract has been 
awarded or the procurement has been canceled.
    (c) The post-employment restrictions at 3.104-4(d) apply to any 
former official of a Federal agency, for services provided or decisions 
made on or after January 1, 1997.
    (d) Former officials of a Federal agency whose employment by a 
Federal agency ended before January 1, 1997, are subject to the 
restrictions imposed by 41 U.S.C. 423 as it existed before Public Law 
104-106. Solely for the purpose of continuing those restrictions on 
those officials to the extent they were imposed prior to January 1, 
1997, the provisions of 41 U.S.C. 423 as it existed before Public Law 
104-106 apply through December 31, 1998.
[62 FR 227, Jan. 2, 1997]



3.104-3  Definitions.

    As used in this section--
    Agency ethics official means the designated agency ethics official 
described in 5 CFR 2638.201 and any other designated person, including--
    (1) Deputy ethics officials described in 5 CFR 2638.204, to whom 
authority under 3.104-7 has been delegated by the designated agency 
ethics official; and
    (2) Alternate designated agency ethics officials described in 5 CFR 
2638.202(b).
    Compensation means wages, salaries, honoraria, commissions, 
professional fees, and any other form of compensation, provided directly 
or indirectly for services rendered. Compensation is indirectly provided 
if it is paid to an entity other than the individual, specifically in 
exchange for services provided by the individual.
    Contract, for purposes of the post-employment restrictions at 3.104-
4(d), includes both competitively awarded and non-competitively awarded 
contracts.
    Contractor bid or proposal information means any of the following 
information submitted to a Federal agency as part of or in connection 
with a bid or proposal to enter into a Federal agency procurement 
contract, if that information has not been previously made available to 
the public or disclosed publicly:
    (1) Cost or pricing data (as defined by 10 U.S.C. 2306a(h) with 
respect to procurements subject to that section, and section 304A(h) of 
the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 
254b(h)), with respect to procurements subject to that section).
    (2) Indirect costs and direct labor rates.
    (3) Proprietary information about manufacturing processes, 
operations, or techniques marked by the contractor in accordance with 
applicable law or regulation.
    (4) Information marked by the contractor as ``contractor bid or 
proposal information'' in accordance with applicable law or regulation.
    (5) Information marked in accordance with 52.215-1(e).
    Decision to award a subcontract or modification of subcontract means 
a decision to designate award to a particular source.
    Federal agency has the meaning provided such term in section 3 of 
the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 
472).
    Federal agency procurement means the acquisition (by using 
competitive procedures and awarding a contract) of goods or services 
(including construction) from non-Federal sources by a Federal agency 
using appropriated funds. For broad agency announcements and small 
business innovative research programs, each proposal received by an 
agency shall constitute a separate procurement for purposes of the Act.
    In excess of $10,000,000 means--
    (1) The value, or estimated value, at the time of award, of the 
contract, including all options;
    (2) The total estimated value at the time of award of all orders 
under an indefinite-delivery, indefinite-quantity, or requirements 
contract;
    (3) Any multiple award schedule contract unless the contracting 
officer documents a lower estimate;

[[Page 29]]

    (4) The value of a delivery order, task order, or an order under a 
Basic Ordering Agreement;
    (5) The amount paid or to be paid in settlement of a claim; or
    (6) The estimated monetary value of negotiated overhead or other 
rates when applied to the Government portion of the applicable 
allocation base.
    Official means:
    (1) An officer, as defined in 5 U.S.C. 2104.
    (2) An employee, as defined in 5 U.S.C. 2105.
    (3) A member of the uniformed services, as defined in 5 U.S.C. 
2101(3).
    (4) A special Government employee, as defined in 18 U.S.C. 202.
    Participating personally and substantially in a Federal agency 
procurement is defined as follows:
    (1) Participating personally and substantially in a Federal agency 
procurement means active and significant involvement of the individual 
in any of the following activities directly related to that procurement:
    (i) Drafting, reviewing, or approving the specification or statement 
of work for the procurement.
    (ii) Preparing or developing the solicitation.
    (iii) Evaluating bids or proposals, or selecting a source.
    (iv) Negotiating price or terms and conditions of the contract.
    (v) Reviewing and approving the award of the contract.
    (2) Participating ``personally'' means participating directly, and 
includes the direct and active supervision of a subordinate's 
participation in the matter.
    (3) Participating ``substantially'' means that the employee's 
involvement is of significance to the matter. Substantial participation 
requires more than official responsibility, knowledge, perfunctory 
involvement, or involvement on an administrative or peripheral issue. 
Participation may be substantial even though it is not determinative of 
the outcome of a particular matter. A finding of substantiality should 
be based not only on the effort devoted to a matter, but on the 
importance of the effort. While a series of peripheral involvements may 
be insubstantial, the single act of approving or participating in a 
critical step may be substantial. However, the review of procurement 
documents solely to determine compliance with regulatory, 
administrative, or budgetary procedures, does not constitute substantial 
participation in a procurement.
    (4) Generally, an individual will not be considered to have 
participated personally and substantially in a procurement solely by 
participating in the following activities:
    (i) Agency level boards, panels, or other advisory committees that 
review program milestones or evaluate and make recommendations regarding 
alternative technologies or approaches for satisfying broad agency level 
missions or objectives;
    (ii) The performance of general, technical, engineering, or 
scientific effort having broad application not directly associated with 
a particular procurement, notwithstanding that such general, technical, 
engineering, or scientific effort subsequently may be incorporated into 
a particular procurement;
    (iii) Clerical functions supporting the conduct of a particular 
procurement; and
    (iv) For procurements to be conducted under the procedures of OMB 
Circular A-76, participation in management studies, preparation of in-
house cost estimates, preparation of ``most efficient organization'' 
analyses, and furnishing of data or technical support to be used by 
others in the development of performance standards, statements of work, 
or specifications.
    Source selection evaluation board means any board, team, council, or 
other group that evaluates bids or proposals.
    Source selection information means any of the following information 
which is prepared for use by a Federal agency for the purpose of 
evaluating a bid or proposal to enter into a Federal agency procurement 
contract, if that information has not been previously made available to 
the public or disclosed publicly:
    (1) Bid prices submitted in response to a Federal agency invitation 
for bids, or lists of those bid prices before bid opening.

[[Page 30]]

    (2) Proposed costs or prices submitted in response to a Federal 
agency solicitation, or lists of those proposed costs or prices.
    (3) Source selection plans.
    (4) Technical evaluation plans.
    (5) Technical evaluations of proposals.
    (6) Cost or price evaluations of proposals.
    (7) Competitive range determinations that identify proposals that 
have a reasonable chance of being selected for award of a contract.
    (8) Rankings of bids, proposals, or competitors.
    (9) Reports and evaluations of source selection panels, boards, or 
advisory councils.
    (10) Other information marked as ``SOURCE SELECTION INFORMATION--SEE 
FAR 3.104'' based on a case-by-case determination by the head of the 
agency or designee, or the contracting officer, that its disclosure 
would jeopardize the integrity or successful completion of the Federal 
agency procurement to which the information relates.
[62 FR 227, Jan. 2, 1997; 62 FR 10709, Mar. 10, 1997, as amended at 62 
FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
3.104-3, in the definition Contractor bid or proposal information, in 
the fifth paragraph, ``52.215-12'' was amended to read ``52.215-1(e)'', 
effective Oct. 10, 1997.



3.104-4  Statutory and related prohibitions, restrictions, and requirements.

    (a) Prohibition on disclosing procurement information (subsection 
27(a) of the Act). (1) A person described in paragraph (a)(2) of this 
subsection shall not, other than as provided by law, knowingly disclose 
contractor bid or proposal information or source selection information 
before the award of a Federal agency procurement contract to which the 
information relates. (See 3.104-5(a).)
    (2) Paragraph (a)(1) of this subsection applies to any person who--
    (i) Is a present or former official of the United States, or a 
person who is acting or has acted for or on behalf of, or who is 
advising or has advised the United States with respect to, a Federal 
agency procurement; and
    (ii) By virtue of that office, employment, or relationship, has or 
had access to contractor bid or proposal information or source selection 
information.
    (b) Prohibition on obtaining procurement information (subsection 
27(b) of the Act). A person shall not, other than as provided by law, 
knowingly obtain contractor bid or proposal information or source 
selection information before the award of a Federal agency procurement 
contract to which the information relates.
    (c) Actions required of agency officials when contacted by offerors 
regarding non-Federal employment (subsection 27(c of the Act). If an 
agency official who is participating personally and substantially in a 
Federal agency procurement for a contract in excess of the simplified 
acquisition threshold contacts or is contacted by a person who is a 
bidder or offeror in that Federal agency procurement regarding possible 
non-Federal employment for that official, the official shall--
    (1) Promptly report the contact in writing to the official's 
supervisor and to the designated agency ethics official (or designee) of 
the agency in which the official is employed; and
    (2)(i) Reject the possibility of non-Federal employment; or
    (ii) Disqualify himself or herself from further personal and 
substantial participation in that Federal agency procurement (see 3.104-
6) until such time as the agency has authorized the official to resume 
participation in such procurement, in accordance with the requirements 
of 18 U.S.C. 208 and applicable agency regulations, on the grounds 
that--
    (A) The person is no longer a bidder or offeror in that Federal 
agency procurement; or
    (B) All discussions with the bidder or offeror regarding possible 
non-Federal employment have terminated without an agreement or 
arrangement for employment.
    (d) Prohibition on former official's acceptance of compensation from 
a contractor (subsection 27(d) of the Act).
    (1) A former official of a Federal agency may not accept 
compensation

[[Page 31]]

from a contractor as an employee, officer, director, or consultant of 
the contractor within a period of one year after such former official--
    (i) Served, at the time of selection of the contractor or the award 
of a contract to that contractor, as the procuring contracting officer, 
the source selection authority, a member of a source selection 
evaluation board, or the chief of a financial or technical evaluation 
team in a procurement in which that contractor was selected for award of 
a contract in excess of $10,000,000;
    (ii) Served as the program manager, deputy program manager, or 
administrative contracting officer for a contract in excess of 
$10,000,000 awarded to that contractor; or
    (iii) Personally made for the Federal agency--
    (A) A decision to award a contract, subcontract, modification of a 
contract or subcontract, or a task order or delivery order in excess of 
$10,000,000 to that contractor;
    (B) A decision to establish overhead or other rates applicable to a 
contract or contracts for that contractor that are valued in excess of 
$10,000,000;
    (C) A decision to approve issuance of a contract payment or payments 
in excess of $10,000,000 to that contractor; or
    (D) A decision to pay or settle a claim in excess of $10,000,000 
with that contractor.
    (2) Nothing in paragraph (d)(1) of this subsection may be construed 
to prohibit a former official of a Federal agency from accepting 
compensation from any division or affiliate of a contractor that does 
not produce the same or similar products or services as the entity of 
the contractor that is responsible for the contract referred to in 
paragraph (d)(1) of this subsection.
[62 FR 228, Jan. 2, 1997]



3.104-5  Disclosure, protection, and marking of contractor bid or proposal information and source selection information.

    (a) Except as specifically provided for in this subsection, no 
person or other entity may disclose contractor bid or proposal 
information or source selection information to any person other than a 
person authorized, in accordance with applicable agency regulations or 
procedures, by the head of the agency or designee, or the contracting 
officer, to receive such information.
    (b) Contractor bid or proposal information and source selection 
information shall be protected from unauthorized disclosure in 
accordance with 14.401, 15.207 applicable law, and agency regulations.
    (c) In determining whether particular information is source 
selection information, see the definition in 3.104-3 and consult with 
agency officials as necessary. Individuals responsible for preparing 
material that may be source selection information under paragraph (10) 
of the definition shall mark the cover page and each page that the 
individual believes contains source selection information with the 
legend ``SOURCE SELECTION INFORMATION--SEE FAR 3.104.'' Although the 
information in paragraphs (1) through (9) of the definition in 3.104-3 
is considered to be source selection information whether or not marked, 
all reasonable efforts shall be made to mark such material with the same 
legend.
    (d) Except as provided in subparagraph (d)(4) of this subsection, if 
the contracting officer believes that information marked as proprietary 
is not proprietary, information otherwise marked as contractor bid or 
proposal information is not contractor bid or proposal information, or 
information marked in accordance with 52.215-1(e) is inappropriately 
marked, the contractor that has affixed the marking shall be notified in 
writing and given an opportunity to justify the marking.
    (1) If the contractor agrees that the marking is not justified, or 
does not respond within the time specified in the notice, the 
contracting officer may remove the marking and the information may be 
released.
    (2) If, after reviewing any justification submitted by the 
contractor, the contracting officer determines that the marking is not 
justified, the contracting officer shall notify the contractor in 
writing.
    (3) Information marked by the contractor as proprietary, otherwise 
marked as contractor bid or proposal information, or marked in 
accordance

[[Page 32]]

with 52.215-1(e), shall not be released until--
    (i) The review of the contractor's justification has been completed; 
or
    (ii) The period specified for the contractor's response has elapsed, 
whichever is earlier. Thereafter, the contracting officer may release 
the information.
    (4) With respect to technical data that are marked proprietary by a 
contractor, the contracting officer shall generally follow the 
procedures in 27.404(h).
    (e) Nothing in this section restricts or prohibits--
    (1) A contractor from disclosing its own bid or proposal information 
or the recipient from receiving that information;
    (2) The disclosure or receipt of information, not otherwise 
protected, relating to a Federal agency procurement after it has been 
canceled by the Federal agency, before contract award, unless the 
Federal agency plans to resume the procurement;
    (3) Individual meetings between a Federal agency official and an 
offeror or potential offeror for, or a recipient of, a contract or 
subcontract under a Federal agency procurement, provided that 
unauthorized disclosure or receipt of contractor bid or proposal 
information or source selection information does not occur; or
    (4) The Government's use of technical data in a manner consistent 
with the Government's rights in the data.
    (f) Nothing in this section shall be construed to authorize--
    (1) The withholding of any information pursuant to a proper request 
from the Congress, any committee or subcommittee thereof, a Federal 
agency, the Comptroller General, or an Inspector General of a Federal 
agency, except as otherwise authorized by law or regulation. Any such 
release which contains contractor bid or proposal information or source 
selection information shall clearly notify the recipient that the 
information or portions thereof are contractor bid or proposal 
information or source selection information related to the conduct of a 
Federal agency procurement, the disclosure of which is restricted by 
section 27 of the Act;
    (2) The withholding of information from, or restricting its receipt 
by, the Comptroller General of the United States in the course of a 
protest against the award or proposed award of a Federal agency 
procurement contract;
    (3) The release of information after award of a contract or 
cancellation of a procurement if such information is contractor bid or 
proposal information or source selection information which pertains to 
another procurement; or
    (4) The disclosure, solicitation, or receipt of bid or proposal 
information or source selection information after award where such 
disclosure, solicitation, or receipt is prohibited by law. See 3.104-
1(b)(5) and subpart 24.2.
[62 FR 229, Jan. 2, 1997, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
3.104-5, in paragraph (b), ``15.411 and 15.413'' was amended to read 
``15.207''; and in paragraph (d)(3) introductory text, ``15.215-12'' was 
amended to read ``15.215-1(e), effective Oct. 10, 1997.



3.104-6  Disqualification.

    (a) Contacts through agents. Disqualification pursuant to 3.104-
4(c)(2) may be required even where contacts are through an agent or 
other intermediary of the agency official or an agent or other 
intermediary of a bidder or offeror. See 18 U.S.C. 208 and 5 CFR 
2635.603(c).
    (b) Disqualification notice. In addition to submitting the contact 
report required by 3.104-4(c)(1), an agency official who must disqualify 
himself or herself pursuant to 3.104-4(c)(2)(ii) shall promptly submit 
to the head of the contracting activity (HCA), or designee, a written 
notice of disqualification from further participation in the 
procurement. Concurrent copies of the notice shall be submitted to the 
contracting officer, the source selection authority if the contracting 
officer is not the source selection authority, and the agency official's 
immediate supervisor. As a minimum, the notice shall--
    (1) Identify the procurement;
    (2) Describe the nature of the agency official's participation in 
the procurement and specify the approximate dates or time period of 
participation; and

[[Page 33]]

    (3) Identify the bidder or offeror and describe its interest in the 
procurement.
    (c) Resumption of participation in a procurement. (1) The individual 
shall remain disqualified until such time as the agency has authorized 
the official to resume participation in the procurement in accordance 
with 3.104-4(c)(2)(ii).
    (2) Subsequent to a period of disqualification, if an agency wishes 
to reinstate the agency official to participation in the procurement, 
the HCA or designee may authorize immediate reinstatement or may 
authorize reinstatement following whatever additional period of 
disqualification the HCA determines is necessary to ensure the integrity 
of the procurement process. In determining that any additional period of 
disqualification is necessary, the HCA or designee shall consider any 
factors that might give rise to an appearance that the agency official 
acted without complete impartiality with respect to issues involved in 
the procurement. The HCA or designee shall consult with the agency 
ethics official in making a determination to reinstate an official. 
Decisions to reinstate an employee should be in writing. It is within 
the discretion of the HCA, or designee, to determine that the agency 
official shall not be reinstated to participation in the procurement.
    (3) An employee must comply with the provisions of 18 U.S.C. 208 and 
5 CFR part 2635 regarding any resumed participation in a procurement 
matter. An employee may not be reinstated to participate in a 
procurement matter affecting the financial interest of someone with whom 
he or she is seeking employment, unless he or she receives a waiver 
pursuant to 18 U.S.C. 208(b)(1) or (b)(3) or an authorization in 
accordance with the requirements of 5 CFR part 2635, as appropriate.
[62 FR 230, Jan. 2, 1997]



3.104-7  Ethics advisory opinions regarding prohibitions on a former official's acceptance of compensation from a contractor.

    (a) An official or former official of a Federal agency who does not 
know whether he or she is or would be precluded by subsection 27(d) of 
the Act (see 3.104-4(d)) from accepting compensation from a particular 
contractor may request advice from the appropriate agency ethics 
official prior to accepting such compensation.
    (b) The request for an advisory opinion shall be submitted in 
writing, shall be dated and signed, and shall include all information 
reasonably available to the official or former official that is relevant 
to the inquiry. As a minimum, the request shall include--
    (1) Information about the procurement(s), or decision(s) on matters 
under 3.104-4(d)(1)(iii), involving the particular contractor, in which 
the individual was or is involved, including contract or solicitation 
numbers, dates of solicitation or award, a description of the supplies 
or services procured or to be procured, and contract amount;
    (2) Information about the individual's participation in the 
procurement or decision, including the dates or time periods of that 
participation, and the nature of the individual's duties, 
responsibilities, or actions; and
    (3) Information about the contractor, including a description of the 
products or services produced by the division or affiliate of the 
contractor from whom the individual proposes to accept compensation.
    (c) Within 30 days after the date a request containing complete 
information is received, or as soon thereafter as practicable, the 
agency ethics official shall issue an opinion as to whether the proposed 
conduct is proper or would violate subsection 27(d) of the Act.
    (d)(1) Where complete information is not included in the request, 
the agency ethics official may ask the requester to provide any 
information reasonably available to the requester. Additional 
information may also be requested from other persons, including the 
source selection authority, the contracting officer, or the requester's 
immediate supervisor.
    (2) In issuing an opinion, the agency ethics official may rely upon 
the accuracy of information furnished by the requester or other agency 
sources, unless he or she has reason to believe that the information is 
fraudulent, misleading, or otherwise incorrect.

[[Page 34]]

    (3) If the requester is advised in a written opinion by the agency 
ethics official that the requester may accept compensation from a 
particular contractor, and accepts such compensation in good faith 
reliance on that advisory opinion, then neither the requester nor the 
contractor shall be found to have knowingly violated subsection 27(d) of 
the Act. If the requester or the contractor has actual knowledge or 
reason to believe that the opinion is based upon fraudulent, misleading, 
or otherwise incorrect information, their reliance upon the opinion will 
not be deemed to be in good faith.
[62 FR 230, Jan. 2, 1997]



3.104-8  Calculating the period of compensation prohibition.

    The 1-year prohibition on accepting compensation (see 3.104-4(d)(1)) 
begins to run as provided in this subsection:
    (a) If the former official was serving in one of the positions 
specified in 3.104-4(d)(1)(i) on the date of the selection of the 
contractor, but not on the date of the award of the contract, the 
prohibition begins on the date of the selection of the contractor.
    (b) If the former official was serving in one of the positions 
specified in 3.104-4(d)(1)(i) on the date of the award of the contract 
(whether or not they were serving on the date of the selection of the 
contractor), the prohibition begins on the date of the award of the 
contract.
    (c) If the former official was serving in one of the positions 
specified in 3.104-4(d)(1)(ii), the prohibition begins on the last date 
the individual served in that position.
    (d) If the former official personally made one of the decisions 
specified in 3.104-4(d)(1)(iii), the prohibition begins on the date the 
decision was made.
[62 FR 231, Jan. 2, 1997]



3.104-9  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.203-8, 
Cancellation, Rescission, and Recovery of Funds for Illegal or Improper 
Activity, in solicitations and contracts with a value exceeding the 
simplified acquisition threshold.
    (b) The contracting officer shall insert the clause at 52.203-10, 
Price or Fee Adjustment for Illegal or Improper Activity, in 
solicitations and contracts with a value exceeding the simplified 
acquisition threshold.
[62 FR 231, Jan. 2, 197]



3.104-10  Violations or possible violations.

    (a) If the contracting officer receives or obtains information of a 
violation or possible violation of subsections 27 (a), (b), (c), or (d) 
of the Act (see 3.104-4), the contracting officer shall determine 
whether the reported violation or possible violation has any impact on 
the pending award or selection of the source therefor.
    (1) If the contracting officer concludes that there is no impact on 
the procurement, the contracting officer shall forward the information 
concerning the violation or possible violation, accompanied by 
appropriate documentation supporting that conclusion, to an individual 
designated in accordance with agency procedures. With the concurrence of 
that individual, the contracting officer shall, without further 
approval, proceed with the procurement.
    (2) If the individual reviewing the contracting officer's conclusion 
does not agree with that conclusion, the individual shall advise the 
contracting officer to withhold award and shall promptly forward the 
information and documentation to the HCA or designee.
    (3) If the contracting officer concludes that the violation or 
possible violation impacts the procurement, the contracting officer 
shall promptly forward the information to the HCA or designee.
    (b) The HCA or designee receiving any information describing an 
actual or possible violation of subsections 27 (a), (b), (c), or (d) of 
the Act, shall review all information available and take appropriate 
action in accordance with agency procedures, such as--
    (1) Advising the contracting officer to continue with the 
procurement;
    (2) Causing an investigation to be conducted;
    (3) Referring the information disclosed to appropriate criminal 
investigative agencies;

[[Page 35]]

    (4) Concluding that a violation occurred; or
    (5) Recommending an agency head determination that the contractor, 
or someone acting for the contractor, has engaged in conduct 
constituting an offense punishable under subsection 27(e) of the Act, 
for the purpose of voiding or rescinding the contract.
    (c) Before concluding that a bidder, offeror, contractor, or person 
has violated the Act, the HCA or designee may request information from 
appropriate parties regarding the violation or possible violation when 
considered in the best interests of the Government.
    (d) If the HCA or designee concludes that the prohibitions of 
section 27 of the Act have been violated, then the HCA or designee may 
direct the contracting officer to--
    (1) If a contract has not been awarded--
    (i) Cancel the procurement;
    (ii) Disqualify an offeror; or
    (iii) Take any other appropriate actions in the interests of the 
Government.
    (2) If a contract has been awarded--
    (i) Effect appropriate contractual remedies, including profit 
recapture as provided for in the clause at 52.203-10, Price or Fee 
Adjustment for Illegal or Improper Activity, or, if the contract has 
been rescinded under paragraph (d)(2)(ii) of this subsection, recovery 
of the amount expended under the contract;
    (ii) Void or rescind the contract with respect to which--
    (A) The contractor or someone acting for the contractor has been 
convicted for an offense where the conduct constitutes a violation of 
subsections 27 (a) or (b) of the Act for the purpose of either--
    (1) Exchanging the information covered by such subsections for 
anything of value; or
    (2) Obtaining or giving anyone a competitive advantage in the award 
of a Federal agency procurement contract; or
    (B) The head of the agency, or designee, has determined, based upon 
a preponderance of the evidence, that the contractor or someone acting 
for the contractor has engaged in conduct constituting an offense 
punishable under subsection 27(e)(1) of the Act; or
    (iii) Take any other appropriate actions in the best interests of 
the Government.
    (3) Refer the matter to the agency suspension and debarment 
official.
    (e) The HCA or designee shall recommend or direct an administrative 
or contractual remedy commensurate with the severity and effect of the 
violation.
    (f) If the HCA or designee receiving information concerning a 
violation or possible violation determines that award is justified by 
urgent and compelling circumstances, or is otherwise in the interests of 
the Government, the HCA may authorize the contracting officer to award 
the contract or execute the contract modification after notification to 
the head of the agency in accordance with agency procedures.
    (g) The HCA may delegate his or her authority under this subsection 
to an individual at least one organizational level above the contracting 
officer and of General Officer, Flag, Senior Executive Service, or 
equivalent rank.
[62 FR 231, Jan. 2, 1997]



3.104-11  Criminal and civil penalties, and further administrative remedies.

    Criminal and civil penalties, and administrative remedies, may apply 
to conduct which violates the Act (see 3.104-4). See 33.102(f) for 
special rules regarding bid protests. See 3.104-10 for administrative 
remedies relating to contracts.
    (a) An official who knowingly fails to comply with the requirements 
of 3.104-4 shall be subject to the penalties and administrative action 
set forth in subsection 27(e) of the Act.
    (b) A bidder or offeror who engages in employment discussion with an 
official subject to the restrictions of 3.104-4, knowing that the 
official has not complied with 3.104-4(c)(1), shall be subject to the 
criminal, civil or administrative penalties set forth in subsection 
27(e) of the Act.
    (c) An official who refuses to terminate employment discussions (see 
3.104-6) may be subject to agency administrative actions under 5 CFR

[[Page 36]]

2635.604(d) if the official's disqualification from participation in a 
particular procurement interferes substantially with the individual's 
ability to perform assigned duties.
[62 FR 231, Jan. 2, 1997]



       Subpart 3.2--Contractor Gratuities to Government Personnel



3.201  Applicability.

    This subpart applies to all executive agencies, except that coverage 
concerning exemplary damages applies only to the Department of Defense 
(10 U.S.C. 2207).



3.202  Contract clause.

    The contracting officer shall insert the clause at 52.203-3, 
Gratuities, in solicitations and contracts with a value exceeding the 
simplified acquisition threshold, except those for personal services and 
those between military departments or defense agencies and foreign 
governments that do not obligate any funds appropriated to the 
Department of Defense.
[61 FR 39200, July 26, 1996]



3.203  Reporting suspected violations of the Gratuities clause.

    Agency personnel shall report suspected violations of the Gratuities 
clause to the contracting officer or other designated official in 
accordance with agency procedures. The agency reporting procedures shall 
be published as an implementation of this section 3.203 and shall 
clearly specify--
    (a) What to report and how to report it; and
    (b) The channels through which reports must pass, including the 
function and authority of each official designated to review them.



3.204  Treatment of violations.

    (a) Before taking any action against a contractor, the agency head 
or a designee shall determine, after notice and hearing under agency 
procedures, whether the contractor, its agent, or another 
representative, under a contract containing the Gratuities clause--
    (1) Offered or gave a gratuity (e.g., an entertainment or gift) to 
an officer, official, or employee of the Government; and
    (2) Intended by the gratuity to obtain a contract or favorable 
treatment under a contract (intent generally must be inferred).
    (b) Agency procedures shall afford the contractor an opportunity to 
appear with counsel, submit documentary evidence, present witnesses, and 
confront any person the agency presents. The procedures should be as 
informal as practicable, consistent with principles of fundamental 
fairness.
    (c) When the agency head or designee determines that a violation has 
occurred, the Government may--
    (1) Terminate the contractor's right to proceed;
    (2) Initiate debarment or suspension measures as set forth in 
subpart 9.4; and
    (3) Assess exemplary damages, if the contract uses money 
appropriated to the Department of Defense.



         Subpart 3.3--Reports of Suspected Antitrust Violations



3.301  General.

    (a) Practices that eliminate competition or restrain trade usually 
lead to excessive prices and may warrant criminal, civil, or 
administrative action against the participants. Examples of 
anticompetitive practices are collusive bidding, follow-the-leader 
pricing, rotated low bids, collusive price estimating systems, and 
sharing of the business.
    (b) Contracting personnel are an important potential source of 
investigative leads for antitrust enforcement and should therefore be 
sensitive to indications of unlawful behavior by offerors and 
contractors. Agency personnel shall report, in accordance with agency 
regulations, evidence of suspected antitrust violations in acquisitions 
for possible referral to (1) the Attorney General under 3.303 and (2) 
the agency office responsible for contractor debarment and suspension 
under subpart 9.4.
[48 FR 42108, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]

[[Page 37]]



3.302  Definitions.

    Identical bids means bids for the same line item that are determined 
to be identical as to unit price or total line item amount, with or 
without the application of evaluation factors (e.g., discount or 
transportation cost).
    Line item means an item of supply or service, specified in an 
invitation for bids, for which the bidder must bid a separate price.
[49 FR 12974, Mar. 30, 1984]



3.303  Reporting suspected antitrust violations.

    (a) Agencies are required by 41 U.S.C. 253(B)(e) and 10 U.S.C. 
2305(b)(5) to report to the Attorney General any bids or proposals that 
evidence a violation of the antitrust laws. These reports are in 
addition to those required by subpart 9.4.
    (b) The antitrust laws are intended to ensure that markets operate 
competitively. Any agreement or mutual understanding among competing 
firms that restrains the natural operation of market forces is suspect. 
Paragraph (c) below identifies behavior patterns that are often 
associated with antitrust violations. Activities meeting the 
descriptions in paragraph (c) are not necessarily improper, but they are 
sufficiently questionable to warrant notifying the appropriate 
authorities, in accordance with agency procedures.
    (c) Practices or events that may evidence violations of the 
antitrust laws include--
    (1) The existence of an industry price list or price agreement to 
which contractors refer in formulating their offers;
    (2) A sudden change from competitive bidding to identical bidding;
    (3) Simultaneous price increases or follow-the-leader pricing;
    (4) Rotation of bids or proposals, so that each competitor takes a 
turn in sequence as low bidder, or so that certain competitors bid low 
only on some sizes of contracts and high on other sizes;
    (5) Division of the market, so that certain competitors bid low only 
for contracts let by certain agencies, or for contracts in certain 
geographical areas, or on certain products, and bid high on all other 
jobs;
    (6) Establishment by competitors of a collusive price estimating 
system;
    (7) The filing of a joint bid by two or more competitors when at 
least one of the competitors has sufficient technical capability and 
productive capacity for contract performance;
    (8) Any incidents suggesting direct collusion among competitors, 
such as the appearance of identical calculation or spelling errors in 
two or more competitive offers or the submission by one firm of offers 
for other firms; and
    (9) Assertions by the employees, former employees, or competitors of 
offerors, that an agreement to restrain trade exists.
    (d) Identical bids shall be reported under this section if the 
agency has some reason to believe that the bids resulted from collusion.
    (e) For offers from foreign contractors for contracts to be 
performed outside the United States, contracting officers may refer 
suspected collusive offers to the authorities of the foreign government 
concerned for appropriate action.
    (f) Agency reports shall be addressed to the Attorney General, U.S. 
Department of Justice, Washington, DC 20530, Attention: Assistant 
Attorney General, Antitrust Division, and shall include--
    (1) A brief statement describing the suspected practice and the 
reason for the suspicion; and
    (2) The name, address, and telephone number of an individual in the 
agency who can be contacted for further information.
    (g) Questions concerning this reporting requirement may be 
communicated by telephone directly to the Office of the Assistant 
Attorney General, Antitrust Division.
[48 FR 42108, Sept. 19, 1983, as amended at 49 FR 12974, Mar. 30, 1984; 
50 FR 1727, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 55 FR 25526, June 
21, 1990]



                      Subpart 3.4--Contingent Fees



3.400  Scope of subpart.

    This subpart prescribes policies and procedures that restrict 
contingent fee arrangements for soliciting or obtaining Government 
contracts to those permitted by 10 U.S.C. 2306(b) and 41 U.S.C. 254(a).

[[Page 38]]



3.401  Definitions.

    Bona fide agency, as used in this subpart, means an established 
commercial or selling agency, maintained by a contractor for the purpose 
of securing business, that neither exerts nor proposes to exert improper 
influence to solicit or obtain Government contracts nor holds itself out 
as being able to obtain any Government contract or contracts through 
improper influence.
    Bona fide employee, as used in this subpart, means a person, 
employed by a contractor and subject to the contractor's supervision and 
control as to time, place, and manner of performance, who neither exerts 
nor proposes to exert improper influence to solicit or obtain Government 
contracts nor holds out as being able to obtain any Government contract 
or contracts through improper influence.
    Contingent fee, as used in this subpart, means any commission, 
percentage, brokerage, or other fee that is contingent upon the success 
that a person or concern has in securing a Government contract.
    Improper influence, as used in this subpart, means any influence 
that induces or tends to induce a Government employee or officer to give 
consideration or to act regarding a Government contract on any basis 
other than the merits of the matter.



3.402  Statutory requirements.

    Contractors' arrangements to pay contingent fees for soliciting or 
obtaining Government contracts have long been considered contrary to 
public policy because such arrangements may lead to attempted or actual 
exercise of improper influence. In 10 U.S.C. 2306(b) and 41 U.S.C. 
254(a), Congress affirmed this public policy but permitted certain 
exceptions. These statutes--
    (a) Require in every negotiated contract a warranty by the 
contractor against contingent fees;
    (b) Permit, as an exception to the warranty, contingent fee 
arrangements between contractors and bona fide employees or bona fide 
agencies; and
    (c) Provide that, for breach or violation of the warranty by the 
contractor, the Government may annul the contract without liability or 
deduct from the contract price or consideration, or otherwise recover, 
the full amount of the contingent fee.



3.403  Applicability.

    This subpart applies to all contracts. Statutory requirements for 
negotiated contracts are, as a matter of policy, extended to sealed bid 
contracts.
[48 FR 42108, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



3.404  Contract clause.

    The contracting officer shall insert the clause at 52.203-5, 
Covenant Against Contingent Fees, in all solicitations and contracts 
exceeding the simplified acquisition threshold, other than those for 
commercial items (see parts 2 and 12).
[61 FR 39188, July 26, 1996]



3.405  Misrepresentations or violations of the Covenant Against Contingent Fees.

    (a) Government personnel who suspect or have evidence of attempted 
or actual exercise of improper influence, misrepresentation of a 
contingent fee arrangement, or other violation of the Covenant Against 
Contingent Fees shall report the matter promptly to the contracting 
officer or appropriate higher authority in accordance with agency 
procedures.
    (b) When there is specific evidence or other reasonable basis to 
suspect one or more of the violations in paragraph (a) above, the chief 
of the contracting office shall review the facts and, if appropriate, 
take or direct one or more of the following, or other, actions:
    (1) If before award, reject the bid or proposal.
    (2) If after award, enforce the Government's right to annul the 
contract or to recover the fee.
    (3) Initiate suspension or debarment action under subpart 9.4.
    (4) Refer suspected fraudulent or criminal matters to the Department 
of Justice, as prescribed in agency regulations.
[48 FR 42108, Sept. 19, 1983. Redesignated at 61 FR 39188, July 26, 
1996]

[[Page 39]]



3.406  Records.

    For enforcement purposes, agencies shall preserve any specific 
evidence of one or more of the violations in 3.405(a), together with all 
other pertinent data, including a record of actions taken. Contracting 
offices shall not retire or destroy these records until it is certain 
that they are no longer needed for enforcement purposes. If the original 
record is maintained in a central file, a copy must be retained in the 
contract file.
[48 FR 42108, Sept. 19, 1983. Redesignated and amended at 61 FR 39188, 
July 26, 1996]



             Subpart 3.5--Other Improper Business Practices



3.501  Buying-in.



3.501-1  Definition.

    Buying-in means submitting an offer below anticipated costs, 
expecting to--
    (a) Increase the contract amount after award (e.g., through 
unnecessary or excessively priced change orders); or
    (b) Receive follow-on contracts at artificially high prices to 
recover losses incurred on the buy-in contract.



3.501-2  General.

    (a) Buying-in may decrease competition or result in poor contract 
performance. The contracting officer must take appropriate action to 
ensure buying-in losses are not recovered by the contractor through the 
pricing of (1) change orders or (2) follow-on contracts subject to cost 
analysis.
    (b) The Government should minimize the opportunity for buying-in by 
seeking a price commitment covering as much of the entire program 
concerned as is practical by using--
    (1) Multiyear contracting, with a requirement in the solicitation 
that a price be submitted only for the total multiyear quantity; or
    (2) Priced options for additional quantities that, together with the 
firm contract quantity, equal the program requirements (see subpart 
17.2).
    (c) Other safeguards are available to the contracting officer to 
preclude recovery of buying-in losses (e.g., amortization of 
nonrecurring costs (see 15.408, Table 15-2, paragraph A., column (2) 
under ``Formats for Submission of Line Item Summaries) and treatment of 
unreasonable price quotations (see 15.405).
48 FR 42108, Sept. 19, 1983, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
3.501-2, in paragraph (c), ``15.804-6(f)'' was amended to read ``15.408, 
Table 15-2, paragraph A., column (2) under ``Formats for Submission of 
Line Item Summaries'', and ``15.803(d)'' was amended to read ``15.405'', 
effective Oct. 10, 1997.



3.502  Subcontractor kickbacks.



3.502-1  Definitions.

    Kickback, as used in this section, means any money, fee, commission, 
credit, gift, gratuity, thing of value, or compensation of any kind 
which is provided, directly or indirectly, to any prime contractor, 
prime contractor employee, subcontractor, or subcontractor employee for 
the purpose of improperly obtaining or rewarding favorable treatment in 
connection with a prime contract or in connection with a subcontract 
relating to a prime contract.
    Person, as used in this section, means a corporation, partnership, 
business association of any kind, trust, joint-stock company, or 
individual.
    Prime contract, as used in this section, means a contract or 
contractual action entered into by the United States for the purpose of 
obtaining supplies, materials, equipment, or services of any kind.
    Prime Contractor, as used in this section, means a person who has 
entered into a prime contract with the United States.
    Prime Contractor employee, as used in this section, means any 
officer, partner, employee, or agent of a prime contractor.
    Subcontract, as used in this section, means a contract or 
contractural action entered into by a prime contractor or subcontractor 
for the purpose of obtaining supplies, materials, equipment, or service 
of any kind under a prime contract.
    Subcontractor, as used in this section, (a) means any person, other 
than the prime contractor, who offers to furnish or furnishes any 
supplies, materials, equipment, or services of any kind

[[Page 40]]

under a prime contract or a subcontract entered into in connection with 
such prime contract, and (b) includes any person who offers to furnish 
or furnishes general supplies to the prime contractor or a higher tier 
subcontractor.
    Subcontractor employee, as used in this section, means any officer, 
partner, employee, or agent of a subcontractor.
[52 FR 6121, Feb. 27, 1987, as amended at 53 FR 34226, Sept. 2, 1988]



3.502-2  Subcontractor kickbacks.

    The Anti-Kickback Act of 1986 (41 U.S.C. 51-58) was passed to deter 
subcontractors from making payments and contractors from accepting 
payments for the purpose of improperly obtaining or rewarding favorable 
treatment in connection with a prime contract or a subcontract relating 
to a prime contract. The Act--
    (a) Prohibits any person from--
    (1) Providing, attempting to provide, or offering to provide any 
kickback;
    (2) Soliciting, accepting, or attempting to accept any kickbacks; or
    (3) Including, directly or indirectly, the amount of any kickback in 
the contract price charged by a subcontractor to a prime contractor or a 
higher tier subcontractor or in the contract price charged by a prime 
contractor to the United States.
    (b) Imposes criminal penalties on any person who knowingly and 
willfully engages in the prohibited conduct addressed in paragraph (a) 
of this subsection.
    (c) Provides for the recovery of civil penalties by the United 
States from any person who knowingly engages in such prohibited conduct 
and from any person whose employee, subcontractor, or subcontractor 
employee provides, accepts, or charges a kickback.
    (d) Provides that--
    (1) The contracting officer may offset the amount of a kickback 
against monies owed by the United States to the prime contractor under 
the prime contract to which such kickback relates;
    (2) The contracting officer may direct a prime contractor to 
withhold from any sums owed to a subcontract under a subcontractor of 
the prime contract the amount of any kickback which was or may be offset 
against the prime contractor under subparagraph (d)(1) of this 
subsection; and
    (3) An offset under subparagraph (d)(1) or a direction under 
subparagraph (d)(2) of this subsection is a claim by the Government for 
the purposes of the Contract Disputes Act of 1978.
    (e) Authorizes contracting officers to order that sums withheld 
under subparagraph (d)(2) of this subsection be paid to the contracting 
agency, or if the sum has already been offset against the prime 
contractor, that it be retained by the prime contractor.
    (f) Requires the prime contractor to notify the contracting officer 
when the withholding under subparagraph (d)(2) of this subsection has 
been accomplished unless the amount withheld has been paid to the 
Government.
    (g) Requires a prime contractor or subcontractor to report in 
writing to the inspector general of the contracting agency, the head of 
the contracting agency if the agency does not have an inspector general, 
or the Department of Justice any possible violation of the Act when the 
prime contractor or subcontractor has reasonable grounds to believe such 
violation may have occurred.
    (h) Provides that, for the purpose of ascertaining whether there has 
been a violation of the Act with respect to any prime contract, the 
General Accounting Office and the inspector general of the contracting 
agency, or a representative of such contracting agency designated by the 
head of such agency if the agency does not have an inspector general, 
shall have access to and may inspect the facilities and audit the books 
and records, including any electronic data or records, of any prime 
contractor or subcontractor under a prime contract awarded by such 
agency.
    (i) Requires each contracting agency to include in each prime 
contract exceeding $100,000 for other than commercial items (see part 
12), a requirement that the prime contractor shall--
    (1) Have in place and follow reasonable procedures designed to 
prevent and detect violations of the Act in its own operations and 
direct business relationships (e.g., company ethics rules prohibiting 
kickbacks by employees,

[[Page 41]]

agents, or subcontractors; education programs for new employees and 
subcontractors, explaining policies about kickbacks, related company 
procedures and the consequences of detection; procurement procedures to 
minimize the opportunity for kickbacks; audit procedures designed to 
detect kickbacks; periodic surveys of subcontractors to elicit 
information about kickbacks; procedures to report kickbacks to law 
enforcement officials; annual declarations by employees of gifts or 
gratuities received from subcontractors; annual employee declarations 
that they have violated no company ethics rules; personnel practices 
that document unethical or illegal behavior and make such information 
available to prospective employers); and
    (2) Cooperate fully with any Federal agency investigating a possible 
violation of the Act.
    (j) Notwithstanding paragraph (i) of this subsection, a prime 
contractor shall cooperate fully with any Federal government agency 
investigating a violation of Section 3 of the Anti-Kickback Act of 1986 
(41 U.S.C. 51-58).
[52 FR 6121, Feb. 27, 1987; 52 FR 9989, Mar. 27, 1987, as amended at 53 
FR 34226, Sept. 2, 1988; 60 FR 48235, Sept. 18, 1995; 61 FR 39191, July 
26, 1996; 62 FR 235, Jan. 2, 1997]



3.502-3  Contract clause.

    The contracting officer shall insert the clause at 52.203-7, Anti-
Kickback Procedures, in solicitations and contracts exceeding the 
simplified acquisition threshold, other than those for commercial items 
(see part 12).
[60 FR 48235, Sept. 18, 1995, as amended at 61 FR 39190, July 26, 1996]



3.503  Unreasonable restrictions on subcontractor sales.



3.503-1  Policy.

    10 U.S.C. 2402 and 41 U.S.C. 253(g) require that subcontractors not 
be unreasonably precluded from making direct sales to the Government of 
any supplies or services made or furnished under a contract. However, 
this does not preclude contractors from asserting rights that are 
otherwise authorized by law or regulation.
[50 FR 35475, Aug. 30, 1985, and 51 FR 27116, July 29, 1986]



3.503-2  Contract clause.

    The contracting officer shall insert the clause at 52.203-6, 
Restrictions on Subcontractor Sales to the Government, in solicitations 
and contracts exceeding the simplified acquisition threshold. For the 
acquisition of commercial items, the contracting officer shall use the 
clause with its Alternate I.
[60 FR 48235, Sept. 18, 1995, as amended at 61 FR 39190, July 26, 1996]



Subpart 3.6--Contracts With Government Employees or Organizations Owned 
                          or Controlled by Them



3.601  Policy.

    (a) Except as specified in 3.602, a contracting officer shall not 
knowingly award a contract to a Government employee or to a business 
concern or other organization owned or substantially owned or controlled 
by one or more Government employees. This policy is intended to avoid 
any conflict of interest that might arise between the employees' 
interests and their Government duties, and to avoid the appearance of 
favoritism or preferential treatment by the Government toward its 
employees.
    (b) For purposes of this subpart, special Government employees (as 
defined in 18 U.S.C. 202) performing services as experts, advisors, or 
consultants, or as members of advisory committees, are not considered 
Government employees unless--
    (1) The contract arises directly out of the individual's activity as 
a special Government employee;
    (2) In the individual's capacity as a special Government employee, 
the individual is in a position to influence the award of the contract; 
or
    (3) Another conflict of interest is determined to exist.
[55 FR 34864, Aug. 24, 1990]



3.602  Exceptions.

    The agency head, or a designee not below the level of the head of 
the contracting activity, may authorize an exception to the policy in 
3.601 only if there is a most compelling reason to do

[[Page 42]]

so, such as when the Government's needs cannot reasonably be otherwise 
met.



3.603  Responsibilities of the contracting officer.

    (a) Before awarding a contract, the contracting officer shall obtain 
an authorization under 3.602 if--
    (1) The contracting officer knows, or has reason to believe, that a 
prospective contractor is one to which award is otherwise prohibited 
under 3.601; and
    (2) There is a most compelling reason to make an award to that 
prospective contractor.
    (b) The contracting officer shall comply with the requirements and 
guidance in subpart 9.5 before awarding a contract to an organization 
owned or substantially owned or controlled by Government employees.



              Subpart 3.7--Voiding and Rescinding Contracts

    Source:  51 FR 27116, July 29, 1986, unless otherwise noted.



3.700  Scope of subpart.

    (a) This subpart prescribes Governmentwide policies and procedures 
for exercising discretionary authority to declare void and rescind 
contracts in relation to which--
    (1) There has been a final conviction for bribery, conflict of 
interest, disclosure or receipt of contractor bid or proposal 
information or source selection information in exchange for a thing of 
value or to give anyone a competitive advantage in the award of a 
Federal agency procurement contract, or similar misconduct; or
    (2) There has been an agency head determination that contractor bid 
or proposal information or source selection information has been 
disclosed or received in exchange for a thing of value, or for the 
purpose of obtaining or giving anyone a competitive advantage in the 
award of a Federal agency procurement contract.
    (b) This subpart does not prescribe policies or procedures for, or 
govern the exercise of, any other remedy available to the Government 
with respect to such contracts, including but not limited to, the common 
law right of avoidance, rescission, or cancellation.
[51 FR 27116, July 29, 1986, as amended at 62 FR 232, Jan. 2, 1997]



3.701  Purpose.

    This subpart provides--
    (a) An administrative remedy with respect to contracts in relation 
to which there has been--
    (1) A final conviction for bribery, conflict of interest, disclosure 
or receipt of contractor bid or proposal information or source selection 
information in exchange for a thing of value or to give anyone a 
competitive advantage in the award of a Federal agency procurement 
contract, or similar misconduct; or
    (2) An agency head determination that contractor bid or proposal 
information or source selection information has been disclosed or 
received in exchange for a thing of value, or for the purpose of 
obtaining or giving anyone a competitive advantage in the award of a 
Federal agency procurement contract; and
    (b) A means to deter similar misconduct in the future by those who 
are involved in the award, performance, and administration of Government 
contracts.
[62 FR 232, Jan. 2, 1997]



3.702  Definition.

    Final conviction means a conviction, whether entered on a verdict or 
plea, including a plea of nolo contendere, for which sentence has been 
imposed.



3.703  Authority.

    (a) Section 1(e) of Pub. L. 87-849, 18 U.S.C. 218 (the Act), 
empowers the President or the heads of executive agencies acting under 
regulations prescribed by the President, to declare void and rescind 
contracts and other transactions enumerated in the Act, in relation to 
which there has been a final conviction for bribery, conflict of 
interest, or any other violation of Chapter 11 of Title 18 of the United 
States Code (18 U.S.C. 201-224). Executive Order 12448, November 4, 
1983, delegates the President's authority under the Act to the heads of 
the executive agencies and military departments.

[[Page 43]]

    (b) Subsection 27(e)(3) of the Office of Federal Procurement Policy 
Act (41 U.S.C. 423) (the OFPP Act), as amended, requires a Federal 
agency, upon receiving information that a contractor or a person has 
engaged in conduct constituting a violation of subsection 27 (a) or (b) 
of the OFPP Act, to consider recission of a contract with respect to 
which--
    (1) The contractor or someone acting for the contractor has been 
convicted for an offense punishable under subsection 27(e)(1) of the 
OFPP Act; or
    (2) The head of the agency, or designee, has determined, based upon 
a preponderance of the evidence, that the contractor or someone acting 
for the contractor has engaged in conduct constituting such an offense.
[51 FR 27116, July 29, 1986, as amended at 62 FR 232, Jan. 2, 1997]



3.704  Policy.

    (a) In cases in which there is a final conviction for any violation 
of 18 U.S.C. 201-224 involving or relating to contracts awarded by an 
agency, the agency head or designee shall consider the facts available 
and, if appropriate, may declare void and rescind contracts, and recover 
the amounts expended and property transferred by the agency in 
accordance with the policies and procedures of this subpart.
    (b) Since a final conviction under 18 U.S.C. 201-224 relating to a 
contract also may justify the conclusion that the party involved is not 
presently responsible, the agency should consider initiating debarment 
proceedings in accordance with subpart 9.4, Debarment, Suspension, and 
Ineligibility, if debarment has not been initiated or is not in effect 
at the time the final conviction is entered.
    (c) If there is a final conviction for an offense punishable under 
subsection 27(e) of the OFPP Act, or if the head of the agency, or 
designee, has determined, based upon a preponderance of the evidence, 
that the contractor or someone acting for the contractor has engaged in 
conduct constituting such an offense, then the head of the contracting 
activity shall consider, in addition to any other penalty prescribed by 
law or regulation--
    (1) Declaring void and rescinding contracts, as appropriate, and 
recovering the amounts expended under the contracts by using the 
procedures at 3.705 (see 3.104-10); and
    (2) Recommending the initiation of suspension or debarment 
proceedings in accordance with subpart 9.4.
[51 FR 27116, July 29, 1986, as amended at 62 FR 232, Jan. 2, 1997]



3.705  Procedures.

    (a) Reporting. The facts concerning any final conviction for any 
violation of 18 U.S.C. 201-224 involving or relating to agency contracts 
shall be reported promptly to the agency head or designee for that 
official's consideration. The agency head or designee shall promptly 
notify the Civil Division, Department of Justice, that an action is 
being considered under this subpart.
    (b) Decision. Following an assessment of the facts, the agency head 
or designee may declare void and rescind contracts with respect to which 
a final conviction has been entered, and recover the amounts expended 
and the property transferred by the agency under the terms of the 
contracts involved.
    (c) Decision-making process. Agency procedures governing the voiding 
and rescinding decision-making process shall be as informal as is 
practicable, consistent with the principles of fundamental fairness. As 
a minimum, however, agencies shall provide the following:
    (1) A notice of the proposed action to declare void and rescind the 
contract shall be made in writing and sent by certified mail, return 
receipt requested.
    (2) A thirty calendar day period after receipt of the notice, for 
the contractor to submit pertinent information before any final decision 
is made.
    (3) Upon request made within the period for submission of pertinent 
information, an opportunity shall be afforded for a hearing at which 
witnesses may be presented, and any witness the agency presents may be 
confronted. However, no inquiry shall be made regarding the validity of 
a conviction.
    (4) If the agency head or designee decides to declare void and 
rescind the

[[Page 44]]

contracts involved, that official shall issue a written decision which--
    (i) States that determination;
    (ii) Reflects consideration of the fair value of any tangible 
benefits received and retained by the agency; and
    (iii) States the amount due, and the property to be returned, to the 
agency.
    (d) Notice of proposed action. The notice of the proposed action, as 
a minimum shall--
    (1) Advise that consideration is being given to declaring void and 
rescinding contracts awarded by the agency, and recovering the amounts 
expended and property transferred therefor, under the provisions of 18 
U.S.C. 218;
    (2) Specifically identify the contracts affected by the action;
    (3) Specifically identify the offense or final conviction on which 
the action is based;
    (4) State the amounts expended and property transferred under each 
of the contracts involved, and the money and the property demanded to be 
returned;
    (5) Identify any tangible benefits received and retained by the 
agency under the contract, and the value of those benefits, as 
calculated by the agency;
    (6) Advise that pertinent information may be submitted within 30 
calendar days after receipt of the notice, and that, if requested within 
that time, a hearing shall be held at which witnesses may be presented 
and any witness the agency presents may be confronted; and
    (7) Advise that action shall be taken only after the agency head or 
designee issues a final written decision on the proposed action.
    (e) Final agency decision. The final agency decision shall be based 
on the information available to the agency head or designee, including 
any pertinent information submitted or, if a hearing was held, presented 
at the hearing. If the agency decision declares void and rescinds the 
contract, the final decision shall specify the amounts due and property 
to be returned to the agency, and reflect consideration of the fair 
value of any tangible benefits received and retained by the agency. 
Notice of the decision shall be sent promptly by certified mail, return 
receipt requested. Rescission of contracts under the authority of the 
Act and demand for recovery of the amounts expended and property 
transferred therefor, is not a claim within the meaning of the Contract 
Disputes Act of 1978 (CDA), 41 U.S.C. 601-613, or part 33. Therefore, 
the procedures required by the CDA and the FAR for the issuance of a 
final contracting officer decision are not applicable to final agency 
decisions under this subpart, and shall not be followed.
[51 FR 27116, July 29, 1986, as amended at 62 FR 232, Jan. 2, 1997]



 Subpart 3.8--Limitations on the Payment of Funds to Influence Federal 
                              Transactions

    Source:  55 FR 3190, Jan. 30, 1990, unless otherwise noted.



3.800  Scope of subpart.

    This subpart prescribes policies and procedures implementing section 
319 of the Department of the Interior and Related Agencies 
Appropriations Act, Pub. L. 101-121, which added a new section 1352 to 
title 31 U.S.C., entitled ``Limitation on use of appropriated funds to 
influence certain Federal contracting and financial transactions'' (the 
Act).



3.801  Definitions.

    Agency, as used in this section, means an executive agency as 
defined in 2.101.
    Covered Federal action, as used in this section, means any of the 
following Federal actions:
    (a) The awarding of any Federal contract.
    (b) The making of any Federal grant.
    (c) The making of any Federal loan.
    (d) The entering into of any cooperative agreement.
    (e) The extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.
    Indian tribe and tribal organization, as used in this section, have 
the meaning provided in section 4 of the Indian Self-Determination and 
Education Assistance Act (25 U.S.C. 450B) and include Alaskan Natives.

[[Page 45]]

    Influencing or attempting to influence, as used in this section, 
means making, with the intent to influence, any communication to or 
appearance before an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with any covered Federal action.
    Local government, as used in this section, means a unit of 
government in a State and, if chartered, established, or otherwise 
recognized by a State for the performance of a governmental duty, 
including a local public authority, a special district, an intrastate 
district, a council of governments, a sponsor group representative 
organization, and any other instrumentality of a local government.
    Officer or employee of an agency, as used in this section, includes 
the following individuals who are employed by an agency:
    (a) An individual who is appointed to a position in the Government 
under title 5, United States Code, including a position under a 
temporary appointment;
    (b) A member of the uniformed services, as defined in subsection 
101(3), title 37, United States Code;
    (c) A special Government employee, as defined in section 202, title 
18, United States Code; and
    (d) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, United States 
Code, appendix 2.
    Person, as used in this section, means an individual, corporation, 
company, association, authority, firm, partnership, society, State, and 
local government, regardless of whether such entity is operated for 
profit or not for profit. This term excludes an Indian tribe, tribal 
organization, or any other Indian organization with respect to 
expenditures specifically permitted by other Federal law.
    Reasonable compensation, as used in this section, means, with 
respect to a regularly employed officer or employee of any person, 
compensation that is consistent with the normal compensation for such 
officer or employee for work that is not furnished to, not funded by, or 
not furnished in cooperation with the Federal Government.
    Reasonable payment, as used in this section, means, with respect to 
professional and other technical services, a payment in an amount that 
is consistent with the amount normally paid for such services in the 
private sector.
    Recipient, as used in this section, includes the contractor and all 
subcontractors. This term excludes an Indian tribe, tribal organization, 
or any other Indian organization with respect to expenditures 
specifically permitted by other Federal law.
    Regularly employed, as used in this section, means, with respect to 
an officer or employee of a person requesting or receiving a Federal 
contract, an officer or employee who is employed by such person for at 
least 130 working days within 1 year immediately preceding the date of 
the submission that initiates agency consideration of such person for 
receipt of such contract. An officer or employee who is employed by such 
person for less than 130 working days within 1 year immediately 
preceding the date of the submission that initiates agency consideration 
of such person shall be considered to be regularly employed as soon as 
he or she is employed by such person for 130 working days.
    State, as used in this section, means a State of the United States, 
the District of Columbia, the Commonwealth of Puerto Rico, a territory 
or possession of the United States, an agency or instrumentality of a 
State, and multi-State, regional, or interstate entity having 
governmental duties and powers.



3.802  Prohibitions.

    (a) Section 1352 of title 31, United States Code, among other 
things, prohibits a recipient of a Federal contract, grant, loan, or 
cooperative agreement from using appropriated funds to pay any person 
for influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with any of the following 
covered Federal actions: the awarding of any Federal contract; the 
making of any Federal grant; the making of any

[[Page 46]]

Federal loan; the entering into of any cooperative agreement; or, the 
modification of any Federal contract, grant, loan, or cooperative 
agreement.
    (b) The Act also requires offerors to furnish a declaration 
consisting of both a certification and a disclosure. These requirements 
are contained in the provision at 52.203-11, Certification and 
Disclosure Regarding Payments to Influence Certain Federal Transactions, 
and the clause at 52.203-12, Limitation on Payments to Influence Certain 
Federal Transactions.
    (1) By signing its offer, an offeror certifies that no appropriated 
funds have been paid or will be paid in violation of the prohibitions in 
31 U.S.C. 1352.
    (2) The disclosure shall identify if any funds other than Federal 
appropriated funds (including profit or fee received under a covered 
Federal action) have been paid, or will be paid, to any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with a Federal contract, 
grant, loan, or cooperative agreement.
    (c) The prohibitions of the Act do not apply under the following 
conditions:
    (1) Agency and legislative liaison by own employees. (i) The 
prohibition on the use of appropriated funds, in paragraph (a) of this 
section, does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a covered Federal action if the payment is for agency and 
legislative liaison activities not directly related to a covered Federal 
action.
    (ii) For purposes of subdivision (c)(1)(i) of this section, 
providing any information specifically requested by an agency or 
Congress is permitted at any time.
    (iii) The following agency and legislative liaison activities are 
permitted at any time where they are not related to a specific 
solicitation for any covered Federal action:
    (A) Discussing with an agency the qualities and characteristics 
(including individual demonstrations) of the person's products or 
services, conditions or terms of sale, and service capabilities;
    (B) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (iv) The following agency and legislative liaison activities are 
permitted where they are prior to formal solicitation of any covered 
Federal action:
    (A) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation of 
a covered Federal action;
    (B) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and
    (C) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Pub. L. 95-507, and subsequent amendments.
    (v) Only those activities expressly authorized by subparagraph 
(c)(1) of this section are permitted under this section.
    (2) Professional and technical services. (i) The prohibition on the 
use of appropriated funds, in paragraph (a) of this section, does not 
apply in the case of--
    (A) Payment of reasonable compensation made to an officer or 
employee of a person requesting or receiving a covered Federal action or 
an extension, continuation, renewal, amendment, or modification of a 
covered Federal action, if payment is for professional or technical 
services rendered directly in the preparation, submission, or 
negotiation of any bid, proposal, or application for that Federal action 
or for meeting requirements imposed by or pursuant to law as a condition 
for receiving that Federal action;
    (B) Any reasonable payment to a person, other than an officer or 
employee of a person requesting or receiving a covered Federal action, 
if the payment is for professional or technical services rendered 
directly in the preparation, submission, or negotiation of any bid, 
proposal, or application for that Federal action, or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal action. Persons other than officers or employees of a 
person requesting or

[[Page 47]]

receiving a covered Federal action include consultants and trade 
associations.
    (ii) For purposes of subdivision (c)(2)(i) of this section, 
``professional and technical services'' shall be limited to advice and 
analysis directly applying any professional or technical discipline. For 
example, drafting of a legal document accompanying a bid or proposal by 
a lawyer is allowable. Similarly, technical advice provided by an 
engineer on the performance or operational capability of a piece of 
equipment rendered directly in the negotiation of a contract is 
allowable. However, communications with the intent to influence made by 
a professional (such as a licensed lawyer) or a technical person (such 
as a licensed accountant) are not allowable under this section unless 
they provide advice and analysis directly applying their professional or 
technical expertise and unless the advice or analysis is rendered 
directly and solely in the preparation, submission or negotiation of a 
covered Federal action. Thus, for example, communications with the 
intent to influence made by a lawyer that do not provide legal advice or 
analysis directly and solely related to the legal aspects of his or her 
client's proposal, but generally advocate one proposal over another are 
not allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (iii) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation and any other requirements in the actual award documents
    (iv) Only those services expressly authorized by subdivisions 
(c)(2)(i) (A) and (B) of this section are permitted under this section.
    (v) The reporting requirements of 3.803(a) shall not apply with 
respect to payments of reasonable compensation made to regularly 
employed officers or employees of a person.



3.803  Certification and disclosure.

    (a) Any contractor who requests or receives a Federal contract 
exceeding $100,000 shall submit the certification and disclosures 
required by the provision at 52.203-11, Certification and Disclosure 
Regarding Payments to Influence Certain Federal Transactions, with its 
offer. Disclosures under this section shall be submitted to the 
contracting officer using OMB standard form LLL, Disclosure of Lobbying 
Activities.
    (b) The contractor shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that materially affects 
the accuracy of the information contained in any disclosure form 
previously filed by such person under paragraph (a) of this section. An 
event that materially affects the accuracy of the information reported 
includes--
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or
    (3) A change in the officer(s), employee(s), or Member(s) of 
Congress contacted to influence or attempt to influence a covered 
Federal action.
    (c) The contractor shall require the submittal of a certification, 
and if required, a disclosure form, by any person who requests or 
receives any subcontract exceeding $100,000 under the Federal contract.
    (d) All subcontractor disclosure forms (but not certifications), 
shall be forwarded from tier to tier until received by the prime 
contractor. The prime contractor shall submit all disclosure forms to 
the contracting officer at the end of the calendar quarter in which the 
disclosure form is submitted by the subcontractor. Each subcontractor 
certification shall be retained in the subcontract file of the awarding 
contractor.
[55 FR 3190, Jan. 30, 1990, as amended at 55 FR 38516, Sept. 18, 1990]

[[Page 48]]



3.804  Policy.

    (a) The contracting officer shall obtain certifications and 
disclosures as required by the provision at 52.203-11, Certification and 
Disclosure Regarding Payments to Influence Certain Federal Transactions, 
prior to the award of any contract exceeding $100,000.
    (b) The contracting officer shall forward a copy of all contractor 
disclosures furnished pursuant to the clause at 52.203-12, Limitation on 
Payments to Influence Certain Federal Transactions, to the official 
designated in accordance with agency procedures, for subsequent 
submission to Congress. The original of the disclosure shall be retained 
in the contract file.



3.805  Exemption.

    The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibitions of this section whenever 
the Secretary determines, in writing, that such an exemption is in the 
national interest. The Secretary shall transmit a copy of such exemption 
to Congress immediately after making such a determination.



3.806  Processing suspected violations.

    Suspected violations of the requirements of the Act shall be 
referred to the official designated in agency procedures.



3.807  Civil penalties.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C. 3803 
(except subsection (c)), 3804-3408, and 3812, insofar as the provisions 
therein are not inconsistent with the requirements of this subpart.



3.808  Solicitation provision and contract clause.

    (a) The provision at 52.203-11, Certification and Disclosure 
Regarding Payments to Influence Certain Federal Transactions, shall be 
included in solicitations expected to exceed $100,000.
    (b) The clause at 52.203-12, Limitation on Payments to Influence 
Certain Federal Transactions, shall be included in solicitations and 
contracts expected to exceed $100,000.



     Subpart 3.9--Whistleblower Protections for Contractor Employees

    Source:  60 FR 37776, July 21, 1995, unless otherwise noted.



3.900  Scope of subpart.

    This subpart implements 10 U.S.C. 2409 and 41 U.S.C. 251, et seq., 
as amended by Sections 6005 and 6006 of the Federal Acquisition 
Streamlining Act of 1994 (Pub. L. 103-355).



3.901  Definitions.

    Authorized official of an agency means an officer or employee 
responsible for contracting, program management, audit, inspection, 
investigation, or enforcement of any law or regulation relating to 
Government procurement or the subject matter of the contract.
    Authorized official of the Department of Justice means any person 
responsible for the investigation, enforcement, or prosecution of any 
law or regulation.
    Inspector General means an Inspector General appointed under the 
Inspector General Act of 1978, as amended. In the Department of Defense 
that is the DOD Inspector General. In the case of an executive agency 
that does not have an Inspector General, the duties shall be performed 
by an official designated by the head of the executive agency.



3.902  Applicability.

    This subpart applies to all Government contracts.



3.903  Policy.

    Government contractors shall not discharge, demote or otherwise 
discriminate against an employee as a reprisal for disclosing 
information to a Member of Congress, or an authorized official of an 
agency or of the Department of Justice, relating to a substantial 
violation of law related to a contract (including the competition for or 
negotiation of a contract).

[[Page 49]]



3.904  Procedures for filing complaints.

    (a) Any employee of a contractor who believes that he or she has 
been discharged, demoted, or otherwise discriminated against contrary to 
the policy in 3.903 may file a complaint with the Inspector General of 
the agency that awarded the contract.
    (b) The complaint shall be signed and shall contain--
    (1) The name of the contractor;
    (2) The contract number, if known; if not, a description reasonably 
sufficient to identify the contract(s) involved;
    (3) The substantial violation of law giving rise to the disclosure;
    (4) The nature of the disclosure giving rise to the discriminatory 
act; and
    (5) The specific nature and date of the reprisal.



3.905  Procedures for investigating complaints.

    (a) Upon receipt of a complaint, the Inspector General shall conduct 
an initial inquiry. If the Inspector General determines that the 
complaint is frivolous or for other reasons does not merit further 
investigation, the Inspector General shall advise the complainant that 
no further action on the complaint will be taken.
    (b) If the Inspector General determines that the complaint merits 
further investigation, the Inspector General shall notify the 
complainant, contractor, and head of the contracting activity. The 
Inspector General shall conduct an investigation and provide a written 
report of findings to the head of the agency or designee.
    (c) Upon completion of the investigation, the head of the agency or 
designee shall ensure that the Inspector General provides the report of 
findings to--
    (1) The complainant and any person acting on the complainant's 
behalf;
    (2) The contractor alleged to have committed the violation; and
    (3) The head of the contracting activity.
    (d) The complainant and contractor shall be afforded the opportunity 
to submit a written response to the report of findings within 30 days to 
the head of the agency or designee. Extensions of time to file a written 
response may be granted by the head of the agency or designee.
    (e) At any time, the head of the agency or designee may request 
additional investigative work be done on the complaint.



3.906  Remedies.

    (a) If the head of the agency or designee determines that a 
contractor has subjected one of its employees to a reprisal for 
providing information to a Member of Congress, or an authorized official 
of an agency or of the Department of Justice, the head of the agency or 
designee may take one or more of the following actions:
    (1) Order the contractor to take affirmative action to abate the 
reprisal.
    (2) Order the contractor to reinstate the person to the position 
that the person held before the reprisal, together with the compensation 
(including back pay), employment benefits, and other terms and 
conditions of employment that would apply to the person in that position 
if the reprisal had not been taken.
    (3) Order the contractor to pay the complainant an amount equal to 
the aggregate amount of all costs and expenses (including attorneys' 
fees and expert witnesses' fees) that were reasonably incurred by the 
complainant for, or in connection with, bringing the complaint regarding 
the reprisal.
    (b) Whenever a contractor fails to comply with an order, the head of 
the agency or designee shall request the Department of Justice to file 
an action for enforcement of such order in the United States district 
court for a district in which the reprisal was found to have occurred. 
In any action brought under this section, the court may grant 
appropriate relief, including injunctive relief and compensatory and 
exemplary damages.
    (c) Any person adversely affected or aggrieved by an order issued 
under this section may obtain review of the order's conformance with the 
law, and this subpart, in the United States Court of Appeals for a 
circuit in which the reprisal is alleged in the order to have occurred. 
No petition seeking such review may be filed more than 60 days after 
issuance of the order by the head of the agency or designee. Review

[[Page 50]]

shall conform to Chapter 7 of Title 5, United States Code.



PART 4--ADMINISTRATIVE MATTERS--Table of Contents




Sec.
4.000  Scope of part.

                     Subpart 4.1--Contract Execution

4.101  Contracting officer's signature.
4.102  Contractor's signature.
4.103  Contract clause.

                   Subpart 4.2--Contract Distribution

4.201  Procedures.
4.202  Agency distribution requirements.
4.203  Taxpayer identification number information.

                      Subpart 4.3--Paper Documents

4.300  Scope of subpart.
4.301  Authority.
4.302  Definition.
4.303  Policy.
4.304  Contract clause.

    Subpart 4.4--Safeguarding Classified Information Within Industry

4.401  Definitions.
4.402  General.
4.403  Responsibilities of contracting officers.
4.404  Contract clause.

             Subpart 4.5--Electronic Commerce in Contracting

4.500  Scope of subpart.
4.501  Definitions.
4.502  Policy.
4.503  Contractor registration.
4.504  FACNET functions.
4.505  FACNET certification.
4.505-1  Interim certification.
4.505-2  Full certification.
4.505-3  Governmentwide certification.
4.505-4  Contract actions excluded.
4.506  Exemptions.

                     Subpart 4.6--Contract Reporting

4.600  Scope of subpart.
4.601  Record requirements.
4.602  Federal Procurement Data System.
4.603  Solicitation provisions.

                Subpart 4.7--Contractor Records Retention

4.700  Scope of subpart.
4.701  Purpose.
4.702  Applicability.
4.703  Policy.
4.704  Calculation of retention periods.
4.705  Specific retention periods.
4.705-1  Financial and cost accounting records.
4.705-2  Pay administration records.
4.705-3  Acquisition and supply records.
4.706  [Reserved]

                 Subpart 4.8--Government Contract Files

4.800  Scope of subpart.
4.801  General.
4.802  Contract files.
4.803  Contents of contract files.
4.804  Closeout of contract files.
4.804-1  Closeout by the office administering the contract.
4.804-2  Closeout of the contracting office files if another office 
          administers the contract.
4.804-3  Closeout of paying office contract files.
4.804-4  Physically completed contracts.
4.804-5  Detailed procedures for closing out contract files.
4.805  Storage, handling, and disposal of contract files.

   Subpart 4.9--Information Reporting to the Internal Revenue Service

4.900  Scope of subpart.
4.901  Definitions.
4.902  Contract information.
4.903  Payment information.
4.904  Solicitation provision.

                  Subpart 4.10--Administrative Matters

4.1001  Policy.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42113, Sept. 19, 1983, unless otherwise noted.



4.000  Scope of part.

    This part prescribes policies and procedures relating to the 
administrative aspects of contract execution, contractor-submitted paper 
documents, distribution, reporting, retention, and files.
[60 FR 28493, May 31, 1995]



                     Subpart 4.1--Contract Execution



4.101  Contracting officer's signature.

    Only contracting officers shall sign contracts on behalf of the 
United States. The contracting officer's name and official title shall 
be typed, stamped, or printed on the contract. The contracting officer 
normally signs the contract after it has been signed by

[[Page 51]]

the contractor. The contracting officer shall ensure that the signer(s) 
have authority to bind the contractor (see specific requirements in 
4.102 of this subpart).
[60 FR 34736, July 3, 1995]



4.102  Contractor's signature.

    (a) Individuals. A contract with an individual shall be signed by 
that individual. A contract with an individual doing business as a firm 
shall be signed by that individual, and the signature shall be followed 
by the individual's typed, stamped, or printed name and the words ``, an 
individual doing business as .......................'' [insert name of 
firm].
    (b) Partnerships. A contract with a partnership shall be signed in 
the partnership name. Before signing for the Government, the contracting 
officer shall obtain a list of all partners and ensure that the 
individual(s) signing for the partnership have authority to bind the 
partnership.
    (c) Corporations. A contract with a corporation shall be signed in 
the corporate name, followed by the word ``by'' and the signature and 
title of the person authorized to sign. The contracting officer shall 
ensure that the person signing for the corporation has authority to bind 
the corporation.
    (d) Joint venturers. A contract with joint venturers may involve any 
combination of individuals, partnerships, or corporations. The contract 
shall be signed by each participant in the joint venture in the manner 
prescribed in paragraphs (a) through (c) above for each type of 
participant. When a corporation is participating, the contracting 
officer shall verify that the corporation is authorized to participate 
in the joint venture.
    (e) Agents. When an agent is to sign the contract, other than as 
stated in paragraphs (a) through (d) above, the agent's authorization to 
bind the principal must be established by evidence satisfactory to the 
contracting officer.
[48 FR 42113, Sept. 19, 1983, as amended at 62 FR 235, Jan. 2, 1997]



4.103  Contract clause.

    The contracting officer shall insert the clause at 52.204-1, 
Approval of Contract, in solicitations and contracts if required by 
agency procedures.
[49 FR 26741, June 29, 1984]



                   Subpart 4.2--Contract Distribution



4.201  Procedures.

    Contracting officers shall distribute copies of contracts or 
modifications within 10 working days after execution by all parties. As 
a minimum, the contracting officer shall--
    (a) Distribute simultaneously one signed copy or reproduction of the 
signed contract to the contractor and the paying office;
    (b) When a contract is assigned to another office for contract 
administration (see subpart 42.2), provide to that office--
    (1) One copy or reproduction of the signed contract and of each 
modification; and
    (2) A copy of the contract distribution list, showing those offices 
that should receive copies of modifications, and any changes to the list 
as they occur;
    (c) Distribute one copy to each accounting and finance office 
(funding office) whose funds are cited in the contract;
    (d) When the contract is not assigned for administration but 
contains a Cost Accounting Standards clause, provide one copy of the 
contract to the cognizant administrative contracting officer and mark 
the copy ``FOR COST ACCOUNTING STANDARDS ADMINISTRATION ONLY'' (see 
30.601(b));
    (e) Provide one copy of each contract or modification that requires 
audit service to the appropriate field audit office listed in the 
``Directory of Federal Contract Audit Offices'' (copies of this 
directory can be ordered from the U.S. Government Printing Office, 
Superintendent of Documents, Washington, DC 20402, referencing stock 
numbers 008-007-03189-9 and 008-007-03190-2 for Volumes I and II, 
respectively); and
    (f) Provide copies of contracts and modifications to those 
organizations required to perform contract administration support 
functions (e.g., when

[[Page 52]]

manufacturing is performed at multiple sites, the contract 
administration office cognizant of each location).
[48 FR 42113, Sept. 19, 1983, as amended at 60 FR 34736, July 3, 1995]



4.202  Agency distribution requirements.

    Agencies shall limit additional distribution requirements to the 
minimum necessary for proper performance of essential functions. When 
contracts are assigned for administration to a contract administration 
office located in an agency different from that of the contracting 
office (see part 42), the two agencies shall agree on any necessary 
distribution in addition to that prescribed in 4.201 above.



4.203  Taxpayer identification number information.

    (a) If the contractor has furnished a taxpayer identification number 
(TIN) when completing the solicitation provision at 52.204-3, Taxpayer 
Identification, the contracting officer shall, unless otherwise provided 
in agency procedures, attach a copy of the completed solicitation 
provision as the last page of the copy of the contract sent to the 
paying office.
    (b) If the TIN or corporate status is derived from a source other 
than the provision at 52.204-3, the last page of the contract forwarded 
to the paying office will be annotated to state the contractor's TIN and 
corporate status.
[54 FR 34752, Aug. 21, 1989, as amended at 55 FR 52788, Dec. 21, 1990]



                      Subpart 4.3--Paper Documents

    Source:  60 FR 28493, May 31, 1995, unless otherwise noted.



4.300  Scope of subpart.

    This subpart provides policies and procedures on contractor-
submitted paper documents.



4.301  Authority.

    The authority for this subpart is established in Executive Order 
12873, Sections 402(d) and 504, October 20, 1993, as amended by 
Executive Order 12995, March 25, 1996.
[60 FR 28493, May 31, 1995, as amended at 61 FR 31616, June 20, 1996]



4.302  Definition.

    Printing/copying double-sided, as used in this subpart, means 
printing or reproducing a document so that information is on both sides 
of a sheet of paper.



4.303  Policy.

    It is the policy of the Government that a contractor submitting 
paper documents to the Government relating to an acquisition should, if 
possible, submit those documents printed/copied double-sided on recycled 
paper. If the contractor can only print/copy double-sided or use 
recycled paper, the contractor should accomplish whichever one the 
contractor has the ability to achieve.



4.304  Contract clause.

    The contracting officer shall insert the clause at 52.204-4, 
Printing/Copying Double-Sided on Recycled Paper, in solicitations and 
contracts greater than the simplified acquisition threshold.
[60 FR 28494, May 31, 1995, as amended at 60 FR 34744, July 3, 1995]



    Subpart 4.4--Safeguarding Classified Information Within Industry



4.401  Definitions.

    Classified acquisition means an acquisition that consists of one or 
more contracts in which offerors would be required to have access to 
classified information (Confidential, Secret, or Top Secret) to properly 
submit an offer or quotation, to understand the performance requirements 
of a classified contract under the acquisition, or to perform the 
contract.
    Classified contract means any contract that requires, or will 
require, access to classified information (Confidential, Secret, or Top 
Secret) by the contractor or its employees in the performance of the 
contract. A contract may be a classified contract even though the 
contract document is not classified.
    Classified information means any information or material, regardless 
of its

[[Page 53]]

physical form or characteristics, that is owned by, produced by or for, 
or under the control of the United States Government, and determined 
pursuant to Executive Order 12356, April 2, 1982 (47 FR 14874, April 6, 
1982) or prior orders to require protection against unauthorized 
disclosure, and is so designated.
[48 FR 42113, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986]



4.402  General.

    (a) Executive Order 12829, January 6, 1993 (58 FR 3479, January 8, 
1993), entitled ``National Industrial Security Program'' (NISP), 
establishes a program to safeguard Federal Government classified 
information that is released to contractors, licensees, and grantees of 
the United States Government. Executive Order 12829 amends Executive 
Order 10865, February 20, 1960 (25 FR 1583, February 25, 1960), entitled 
``Safeguarding Classified Information Within Industry,'' as amended by 
Executive Order 10909, January 17, 1961 (26 FR 508, January 20, 1961).
    (b) The National Industrial Security Program Operating Manual 
(NISPOM) incorporates the requirements of these Executive Orders. The 
Secretary of Defense, in consultation with all affected agencies and 
with the concurrence of the Secretary of Energy, the Chairman of the 
Nuclear Regulatory Commission, and the Director of Central Intelligence, 
is responsible for issuance and maintenance of this Manual. The 
following DOD publications implement the program:
    (1) National Industrial Security Program Operating Manual (NISPOM) 
(DOD 5220.22-M).
    (2) Industrial Security Regulation (ISR) (DOD 5220.22-R).
    (c) Procedures for the protection of information relating to foreign 
classified contracts awarded to U.S. industry, and instructions for the 
protection of U.S. information relating to classified contracts awarded 
to foreign firms, are prescribed in Chapter 10 of the NISPOM.
    (d) Part 27, Patents, Data, and Copyrights, contains policy and 
procedures for safeguarding classified information in patent 
applications and patents.
[48 FR 42113, Sept. 19, 1983, as amended at 61 FR 31617, June 20, 1996]



4.403  Responsibilities of contracting officers.

    (a) Presolicitation phase. Contracting officers shall review all 
proposed solicitations to determine whether access to classified 
information may be required by offerors, or by a contractor during 
contract performance.
    (1) If access to classified information of another agency may be 
required, the contracting officer shall--
    (i) Determine if the agency is covered by the NISP; and
    (ii) Follow that agency's procedures for determining the security 
clearances of firms to be solicited.
    (2) If the classified information required is from the contracting 
officer's agency, the contracting officer shall follow agency 
procedures.
    (b) Solicitation phase. Contracting officers shall--
    (1) Ensure that the classified acquisition is conducted as required 
by the NISP or agency procedures, as appropriate; and
    (2) Include (i) an appropriate Security Requirements clause in the 
solicitation (see 4.404), and (ii) as appropriate, in solicitations and 
contracts when the contract may require access to classified 
information, a requirement for security safeguards in addition to those 
provided in the clause (52.204-2, Security Requirements).
    (c) Award phase. Contracting officers shall inform contractors and 
subcontractors of the security classifications and requirements assigned 
to the various documents, materials, tasks, subcontracts, and components 
of the classified contract as follows:
    (1) Agencies covered by the NISP shall use the Contract Security 
Classification Specification, DD Form 254. The contracting officer, or 
authorized representative, is the approving official for the form and 
shall ensure that it is prepared and distributed in accordance with the 
ISR.

[[Page 54]]

    (2) Contracting officers in agencies not covered by the NISP shall 
follow agency procedures.
[48 FR 42113, Sept. 19, 1983, as amended at 61 FR 31617, June 20, 1996]



4.404  Contract clause.

    (a) The contracting officer shall insert the clause at 52.204-2, 
Security Requirements, in solicitations and contracts when the contract 
may require access to classified information, unless the conditions 
specified in paragraph (d) below apply.
    (b) If a cost contract (see 16.302) for research and development 
with an educational institution is contemplated, the contracting officer 
shall use the clause with its Alternate I.
    (c) If a construction or architect-engineer contract where employee 
identification is required for security reasons is contemplated, the 
contracting officer shall use the clause with its Alternate II.
    (d) If the contracting agency is not covered by the NISP and has 
prescribed a clause and alternates that are substantially the same as 
those at 52.204-2, the contracting officer shall use the agency-
prescribed clause as required by agency procedures.
[48 FR 42113, Sept. 19, 1983, as amended at 61 FR 31617, June 20, 1996]



             Subpart 4.5--Electronic Commerce in Contracting

    Source:  60 FR 34744, July 3, 1995, unless otherwise noted.



4.500  Scope of subpart.

    This subpart provides policy and procedures for the establishment 
and use of the Federal Acquisition Computer Network (FACNET) as required 
by Section 30 of the Office of Federal Procurement Policy (OFPP) Act (41 
U.S.C. 426).



4.501  Definitions.

    ANSI X12, as used in this subpart, means the designation assigned by 
the American National Standards Institute (ANSI) for the structure, 
format, and content of electronic business transactions conducted 
through Electronic Data Interchange (EDI). ANSI is the coordinator and 
clearinghouse for national standards in the United States.
    Electronic commerce (EC), as used in this subpart, means a paperless 
process including electronic mail, electronic bulletin boards, 
electronic funds transfer, electronic data interchange, and similar 
techniques for accomplishing business transactions. The use of terms 
commonly associated with paper transactions (e.g., ``copy'', 
``document'', ``page'', ``printed'', ``sealed envelope'' and 
``stamped'') shall not be interpreted to restrict the use of electronic 
commerce.
    Electronic data interchange (EDI), as used in this subpart, means a 
technique for electronically transferring and string formatted 
information between computers utilizing established and published 
formats and codes, as authorized by the applicable Federal Information 
Processing Standards.
    Implementation convention (IC), as used in this subpart, means the 
common practices and/or interpretations of the use of ANSI X12 
standards. Conventions define how trading partners will use the 
standards for their mutual needs. The Federal IC will be used by 
organizational elements of the Federal community and by government 
organizations and by Trading Partners to exchange data with the Federal 
community.
    Trading partner, as used in this subpart, means a business that has 
agreed to exchange business information electronically.
    Transaction set, as used in this subpart, means the data that is 
exchanged to convey meaning between Trading Partners engaged in EC/EDI.
[60 FR 34744, July 3, 1995, as amended at 61 FR 39191, July 26, 1996]



4.502  Policy.

    (a) The Federal Government shall use FACNET whenever practicable or 
cost-effective. Contracting officers may supplement FACNET transactions 
by using other media to meet the requirements of any contract action 
governed by the FAR (e.g., transmit hard copy of drawings).
    (b) Before using FACNET, or any other method of electronic data 
interchange, The agency head shall ensure that the electronic data 
interchange

[[Page 55]]

system is capable of ensuring authentication and confidentiality 
commensurate with the risk and magnitude of the harm from loss, misuse, 
or unauthorized access to or modification of the information.
[60 FR 34744, July 3, 1995, as amended at 61 FR 39191, July 26, 1996]



4.503  Contractor registration.

    (a) In order for a contractor to conduct electronic commerce with 
the Federal Government, the contractor must provide registration 
information to the Central Contractor Registration (CCR). Phone (800) 
EDI-3414 for information regarding FACNET.
    (b) The contractor will be required to submit trading partner 
profile information, including a Data Universal Numbering System (DUNS) 
number, in accordance with the Federal implementation conventions of the 
appropriate ANSI X12 transaction set for contractor registration.
[61 FR 39191, July 26, 1996]



4.504  FACNET functions.

    (a) For agencies--
    (1) Provide widespread public notice of contracting opportunities, 
and issue solicitations;
    (2) Receive responses to solicitations and associated requests for 
information;
    (3) Provide widespread public notice of contract awards and issuance 
of orders (including price);
    (4) Receive questions regarding solicitations, if practicable;
    (5) Issue contracts and orders, if practicable;
    (6) Initiate payments to contractors, if practicable; and
    (7) Archive data relating to each procurement action.
    (b) For the private sector--
    (1) Access notices of solicitation;
    (2) Access and review solicitations;
    (3) Respond to solicitations;
    (4) Receive contracts and orders, if practicable;
    (5) Access information on contract awards and issuance of orders; 
and
    (6) Receive payment by purchase card, electronic funds transfer, or 
other automated means, if practicable.
[60 FR 34744, July 3, 1995, as amended at 61 FR 39191, July 26, 1996]



4.505  FACNET certification.



4.505-1  Interim certification.

    (a) A contracting office is considered to have implemented interim 
FACNET if--
    (1) The contracting office--
    (i) Has implemented the FACNET functions described in 4.504(a)(1) 
and (2), and (b)(1), (2), and (3); and
    (ii) Issues notices of solicitations and receives responses to 
solicitations in a system having those functions;
    (2) The contracting office can use FACNET for contracts, not 
otherwise exempted (see 4.506), that exceed the micro-purchase threshold 
but do not exceed the simplified acquisition threshold; and
    (3) the senior procurement executive of the agency, or the Under 
Secretary of Defense for Acquisition and Technology for the military 
departments and defense agencies, has certified to the Administrator of 
OFPP that the contracting office has implemented interim FACNET.
    (b) The senior procurement executive of the agency, or the Under 
Secretary of Defense for Acquisition and Technology for the military 
departments and defense agencies, shall notify the private sector via 
the Commerce Business Daily that a contracting office of the agency has 
certified interim FACNET. The notice shall establish a date after which 
it will be required that all responses to solicitations issued by the 
contracting office through FACNET, must be submitted through FACNET, 
unless otherwise authorized.



4.505-2  Full certification.

    (a) An agency is considered to have implemented full FACNET if--
    (1) The agency has implemented all of the FACNET functions described 
in 4.504;
    (2) During the entire preceding fiscal year, more than 75 percent of 
the agency's eligible contracts, not otherwise exempted (see 4.506), 
that exceeded the micro-purchase threshold but did not

[[Page 56]]

exceed the simplified acquisition threshold, were entered into vai 
FACNET; and.
    (3) The head of the agency, with the concurrence of the 
Administrator of OFPP, has certified to the Congress that the agency has 
implemented full FACNET. For the Department of Defense, the 
certification shall be made by the Secretary of Defense for the 
Department as a whole.
    (b) Eligible contracts do not include any class or classes of 
contracts that the Federal Acquisition Regulatory Council determines, 
after October 13, 1997, are not suitable for acquisition through FACNET.



4.505-3  Governmentwide certification.

    The Federal Government is considered to have implemented 
Governmentwide FACNET if--
    (a) During the preceding fiscal year, at least 75 percent of 
eligible contracts entered into by executive agencies, that exceeded the 
micro-purchase threshold but did not exceed the simplified acquisition 
threshold, were made via full FACNET; and
    (b) the Administrator of OFPP has certified implementation of 
Governmentwide FACNET to the Congress.



4.505-4  Contract actions excluded.

    For purposes of calculating the percentage of FACNET use referred to 
in 4.505-2 and 4.505-3, actions issued against established contracts, 
such as delivery orders, task orders, and in-scope modifications, shall 
not be included.



4.506  Exemptions.

    The following are exempted from the use of FACNET as specified and 
shall not be considered when determining compliance with the 
requirements to implement FACNET:
    (a) Interim FACNET. (1) Classes of procurements exempted by the head 
of the contracting activity after a written determination is made that 
FACNET processing of those procurements is not cost-effective or 
practicable; and specific purchases for which the contracting officer 
determines that it is not practicable or cost-effective to process via 
FACNET. Such determinations shall be centrally maintained at the 
contracting office.
    (2) Contracts that do not require notice under subpart 5.2.
    (b) Full FACNET. Contracts awarded by a contracting office (or a 
portion of a contracting office), if the office is exempted from use of 
FACNET by the head of the agency, or the Secretary of Defense for the 
military departments and defense agencies. Any such exemption shall be 
based on a written determination that FACNET processing is not cost-
effective or practicable for the contracting office, or portions 
thereof. Determinations shall be maintained in the office of the senior 
procurement executive, or the Under Secretary of Defense for Acquisition 
and Technology for the military departments and defense agencies.



                     Subpart 4.6--Contract Reporting



4.600  Scope of subpart.

    This subpart prescribes uniform reporting requirements for the 
Federal Procurement Data System (FPDS).



4.601  Record requirements.

    (a) Each executive agency shall establish and maintain for a period 
of 5 years a computer file, by fiscal year, containing unclassified 
records of all procurements exceeding $25,000.
    (b) With respect to each procurement carried out using competitive 
procedures, agencies shall be able to access from the computer file, as 
a minimum, the following information:
    (1) The date of contract award.
    (2) Information identifying the source to whom the contract was 
awarded.
    (3) The property or services obtained by the Government under the 
procurement.
    (4) The total cost of the procurement.
    (5) Those procurements which result in the submission of a single 
bid or proposal so that they can be separately categorized and 
designated noncompetitive procurements using competitive procedures.
    (c) In addition to paragraph (b) of this section with respect to 
each procurement carried out using procedures other than competitive 
procedures,

[[Page 57]]

agencies shall be able to access from the computer file--
    (1) The reason under subpart 6.3 for the use of such procedures; and
    (2) The identity of the organization or activity which conducted the 
procurement.
    (d) In addition to the information described in paragraphs (b) and 
(c) of this section, for procurements in excess of $25,000, agencies 
shall be able to access information on the following from the computer 
file:
    (1) Awards to small disadvantaged businesses using either set-asides 
or full and open competition.
    (2) Awards to business concerns owned and controlled by women.
    (3) The number of offers received in response to a solicitation.
    (4) Task or delivery order contracts.
    (5) Contracts for the acquisition of commercial items.
    (e) This information shall be transmitted to the Federal Procurement 
Data System in accordance with agency procedures.
[50 FR 52429, Dec. 23, 1985, as amended at 52 FR 19802, May 27, 1987; 60 
FR 42653, Aug. 16, 1995]



4.602  Federal Procurement Data System.

    (a) The FPDS provides a comprehensive mechanism for assembling, 
organizing, and presenting contract placement data for the Federal 
Government. Federal agencies report data to the Federal Procurement Data 
Center (FPDC), which collects, processes, and disseminates official 
statistical data on Federal contracting. The data provide (1) a basis 
for recurring and special reports to the President, the Congress, the 
General Accounting Office, Federal executive agencies, and the general 
public; (2) a means of measuring and assessing the impact of Federal 
contracting on the Nation's economy and the extent to which small, small 
disadvantaged and women-owned small business concerns are sharing in 
Federal contracts; and (3) data for other policy and management control 
purposes.
    (b) The FPDS Reporting Manual provides a complete list of reporting 
and nonreporting agencies and organizations. This manual (available at 
no charge from the General Services Administration, Federal Procurement 
Data Center, 7th & D Streets SW., room 5652, Washington, DC 20407, 
telephone (202) 401-1529, FAX (202) 401-1546) provides the necessary 
instruction to the data collection point in each agency as to what data 
are required and how often to provide the data.
    (c) Data collection points in each agency report data on SF 279, 
Federal Procurement Data System (FPDS) Individual Contract Action 
Report, and SF 281, Federal Procurement Data System (FPDS) Summary 
Contract Action Report ($25,000 or Less), or computer-generated 
equivalent. Although the SF 279 and SF 281 are not mandatory for use by 
the agencies, they do provide the mandatory format for submitting data 
to the FPDS.
    (d) The contracting officer shall report a Contractor Identification 
Number for each successful offeror. A Data Universal Numbering System 
(DUNS) number, which is a nine-digit number assigned by Dun and 
Bradstreet Information Services to an establishment, is the Contractor 
Identification Number for Federal contractors. The DUNS number reported 
must identify the successful offeror's name and address exactly as 
stated in the offer and resultant contract. The contracting officer 
shall ask the offeror to provide its DUNS number by using the provision 
prescribed at 4.603(a). If the successful offeror does not provide its 
number, the contracting officer shall contact the offeror and obtain the 
DUNS number.
[48 FR 42113, Sept. 19. 1983. Redesignated at 50 FR 52429, Dec. 23, 
1985, and amended at 54 FR 29280, July 11, 1989; 53 FR 43388, Oct. 26, 
1988; 55 FR 52788, Dec. 21, 1990; 56 FR 41744, Aug. 22, 1991; 57 FR 
60572, Dec. 21, 1992; 60 FR 48259, Sept. 18, 1995; 61 FR 67412, Dec. 20, 
1996; 62 FR 40236, July 25, 1997]



4.603  Solicitation provisions.

    (a) The contracting officer shall insert the provision at 52.204-6, 
Contractor Identification Number--Data Universal Numbering System (DUNS) 
Number, in solicitations that are expected to result in a requirement 
for the generation of an SF 279, Federal

[[Page 58]]

Procurement Data System (FPDS)--Individual Contract Action Report (see 
4.602(c)), or similar agency form.
    (b) The contracting officer shall insert the provision at 52.204-5, 
Women-Owned Business, in all solicitations that are not set aside for 
small business concerns and that exceed the simplified acquisition 
threshold, when the contract is to be performed inside the United 
States, its territories or possessions, Puerto Rico, the Trust Territory 
of the Pacific Islands, or the District of Columbia.
[61 FR 67412, Dec. 20, 1996]



                Subpart 4.7--Contractor Records Retention



4.700  Scope of subpart.

    This subpart provides policies and procedures for retention of 
records by contractors to meet the records review requirements of the 
Government. In this subpart, the terms ``contracts'' and ``contractors'' 
include ``subcontracts'' and ``subcontractors.''



4.701  Purpose.

    The purpose of this subpart is to generally describe records 
retention requirements and to allow reductions in the retention period 
for specific classes of records under prescribed circumstances.



4.702  Applicability.

    (a) This subpart applies to records generated under contracts that 
contain one of the following clauses:
    (1) Audit and Records--Sealed Bidding (52.214-26).
    (2) Audit and Records--Negotiation (52.215-2).
    (b) This subpart is not mandatory on Department of Energy contracts 
for which the Comptroller General allows alternative records retention 
periods. Apart from this exception, this subpart applies to record 
retention periods under contracts that are subject to Chapter 137, Title 
10, U.S.C., and the Federal Property and Administrative Services Act of 
1949, as amended, 40 U.S.C. 471 et seq.
[48 FR 42113, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 42650, Aug. 16, 1995; 60 FR 48211, 
Sept. 18, 1995; 62 FR 258, Jan. 2, 1997]



4.703  Policy.

    (a) Except as stated in 4.703(b), contractors shall make available 
records, which includes books, documents, accounting procedures and 
practices, and other data, regardless of type and regardless of whether 
such items are in written form, in the form of computer data, or in any 
other form, and other supporting evidence to satisfy contract 
negotiation, administration, and audit requirements of the contracting 
agencies and the Comptroller General for (1) 3 years after final payment 
or, for certain records, (2) the period specified in 4.705 through 
4.705-3, whichever of these periods expires first.
    (b) Contractors shall make available the foregoing records and 
supporting evidence for a longer period of time than is required in 
4.703(a) if--
    (1) A retention period longer than that cited in 4.703(a) is 
specified in any contract clause; or
    (2) The contractor, for its own purposes, retains the foregoing 
records and supporting evidence for a longer period. Under this 
circumstance, the retention period shall be the period of the 
contractor's retention or 3 years after final payment, whichever period 
expires first.
    (3) The contractor does not meet the original 90-day due date for 
submission of final indirect cost rate proposals specified in 
subparagraph (d)(2) of the clause at 52.216-7, Allowable Cost and 
Payment, and subparagraph (c)(2) of the clause at 52.216-13, Allowable 
Cost and Payment--Facilities. Under these circumstances, the retention 
periods in 4.705 shall be automatically extended one day for each day 
the proposal is not submitted after the original 90-day due date.
    (c) Nothing in this section shall be construed to preclude a 
contractor from duplicating or storing original records in electronic 
form unless they contain significant information not

[[Page 59]]

shown on the record copy. Original records need not be maintained or 
produced in an audit if the contractor or subcontractor provides 
photographic or electronic images of the original records and meets the 
following requirements:
    (1) The contractor or subcontractor has established procedures to 
ensure that the imaging process preserves accurate images of the 
original records, including signatures and other written or graphic 
images, and that the imaging process is reliable and secure so as to 
maintain the integrity of the records.
    (2) The contractor or subcontractor maintains an effective indexing 
system to permit timely and convenient access to the imaged records.
    (3) The contractor or subcontractor retains the original records for 
a minimum of one year after imaging to permit periodic validation of the 
imaging systems.
    (d) If the information described in paragraph (a) of this section is 
maintained on a computer, contractors shall retain the computer data on 
a reliable medium for the time periods prescribed. Contractors may 
transfer computer data in machine readable form from one reliable 
computer medium to another. Contractors' computer data retention and 
transfer procedures shall maintain the integrity, reliability, and 
security of the original computer data. Contractors shall also retain an 
audit trail describing the data transfer. For the record retention time 
periods prescribed, contractors shall not destroy, discard, delete, or 
write over such computer data.
[48 FR 42113, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986; 
53 FR 43388, Oct. 26, 1988; 54 FR 48982, Nov. 28, 1989; 59 FR 67015, 
Dec. 28, 1994; 60 FR 42650, Aug. 16, 1995]



4.704  Calculation of retention periods.

    (a) The retention periods in 4.705 are calculated from the end of 
the contractor's fiscal year in which an entry is made charging or 
allocating a cost to a Government contract or subcontract. If a specific 
record contains a series of entries, the retention period is calculated 
from the end of the contractor's fiscal year in which the final entry is 
made. The contractor should cut off the records in annual blocks and 
retain them for block disposal under the prescribed retention periods.
    (b) When records generated during a prior contract are relied upon 
by a contractor for cost or pricing data in negotiating a succeeding 
contract, the prescribed periods shall run from the date of the 
succeeding contract.
    (c) If two or more of the record categories described in 4.705 are 
interfiled and screening for disposal is not practical, the contractor 
shall retain the entire record series for the longest period prescribed 
for any category of records.



4.705  Specific retention periods.

    The contractor shall retain the records identified in 4.705-1 
through 4.705-3 for the periods designated, provided retention is 
required under 4.702. Records are identified in this subpart in terms of 
their purpose or use and not by specific name or form number. Although 
the descriptive identifications may not conform to normal contractor 
usage or filing practices, these identifications apply to all contractor 
records that come within the description.



4.705-1  Financial and cost accounting records.

    (a) Accounts receivable invoices, adjustments to the accounts, 
invoice registers, carrier freight bills, shipping orders, and other 
documents which detail the material or services billed on the related 
invoices: Retain 4 years.
    (b) Material, work order, or service order files, consisting of 
purchase requisitions or purchase orders for material or services, or 
orders for transfer of material or supplies: Retain 4 years.
    (c) Cash advance recapitulations, prepared as posting entries to 
accounts receivable ledgers for amounts of expense vouchers prepared for 
employees' travel and related expenses: Retain 4 years.
    (d) Paid, canceled, and voided checks, other than those issued for 
the payment of salary and wages: Retain 4 years.
    (e) Accounts payable records to support disbursements of funds for 
materials, equipment, supplies, and services, containing originals or 
copies of the

[[Page 60]]

following and related documents: remittance advices and statements, 
vendors' invoices, invoice audits and distribution slips, receiving and 
inspection reports or comparable certifications of receipt and 
inspection of material or services, and debit and credit memoranda: 
Retain 4 years.
    (f) Labor cost distribution cards or equivalent documents: Retain 2 
years.
    (g) Petty cash records showing description of expenditures, to whom 
paid, name of person authorizing payment, and date, including copies of 
vouchers and other supporting documents: Retain 2 years.



4.705-2  Pay administration records.

    (a) Payroll sheets, registers, or their equivalent, of salaries and 
wages paid to individual employees for each payroll period; change 
slips; and tax withholding statements: Retain 4 years.
    (b) Clock cards or other time and attendance cards: Retain 2 years.
    (c) Paid checks, receipts for wages paid in cash, or other evidence 
of payments for services rendered by employees: Retain 2 years.



4.705-3  Acquisition and supply records.

    (a) Store requisitions for materials, supplies, equipment, and 
services: Retain 2 years.
    (b) Work orders for maintenance and other services: Retain 4 years.
    (c) Equipment records, consisting of equipment usage and status 
reports and equipment repair orders: Retain 4 years.
    (d) Expendable property records, reflecting accountability for the 
receipt and use of material in the performance of a contract: Retain 4 
years.
    (e) Receiving and inspection report records, consisting of reports 
reflecting receipt and inspection of supplies, equipment, and materials: 
Retain 4 years.
    (f) Purchase order files for supplies, equipment, material, or 
services used in the performance of a contract; supporting documentation 
and backup files including, but not limited to, invoices, and memoranda; 
e.g., memoranda of negotiations showing the principal elements of 
subcontract price negotiations (see 52.244-1 and 52.244-2): Retain 4 
years.
    (g) Production records of quality control, reliability, and 
inspection: Retain 4 years.



4.706  [Reserved]



                 Subpart 4.8--Government Contract Files



4.800  Scope of subpart.

    This subpart prescribes requirements for establishing, maintaining, 
and disposing of contract files for all contractual actions. The 
application of this subpart to contracts awarded using the simplified 
acquisition procedures covered by part 13 is optional. (See also 
documentation requirements in 13.106-2(d).)
[60 FR 34746, July 3, 1995, as amended at 61 FR 39191, July 26, 1996]



4.801  General.

    (a) The head of each office performing contracting, contract 
administration, or paying functions shall establish files containing the 
records of all contractual actions.
    (b) The documentation in the files (see 4.803) shall be sufficient 
to constitute a complete history of the transaction for the purpose of--
    (1) Providing a complete background as a basis for informed 
decisions at each step in the acquisition process;
    (2) Supporting actions taken;
    (3) Providing information for reviews and investigations; and
    (4) Furnishing essential facts in the event of litigation or 
congressional inquiries.
    (c) The files to be established include--
    (1) A file for cancelled solicitations;
    (2) A file for each contract; and
    (3) A file such as a contractor general file, containing documents 
relating--for example--to (i) no specific contract, (ii) more than one 
contract, or (iii) the contractor in a general way (e.g., contractor's 
management systems, past performance, or capabilities).



4.802  Contract files.

    (a) A contract file should generally consist of--

[[Page 61]]

    (1) The contracting office contract file, which shall document the 
basis for the acquisition and the award, the assignment of contract 
administration (including payment responsibilities), and any subsequent 
actions taken by the contracting office;
    (2) The contract administration office contract file, which shall 
document actions reflecting the basis for and the performance of 
contract administration responsibilities; and
    (3) The paying office contract file, which shall document actions 
prerequisite to, substantiating, and reflecting contract payments.
    (b) Normally, each file should be kept separately; however, if 
appropriate, any or all of the files may be combined; e.g., if all 
functions or any combination of the functions are performed by the same 
office.
    (c) Files shall be maintained at organizational levels that shall 
ensure--
    (1) Effective documentation of contract actions;
    (2) Ready accessibility to principal users;
    (3) Minimal establishment of duplicate and working files;
    (4) The safeguarding of classified documents; and
    (5) Conformance with agency regulations for file location and 
maintenance.
    (d) If the contract files or file segments are decentralized (e.g., 
by type or function) to various organizational elements or to other 
outside offices, responsibility for their maintenance shall be assigned. 
A central control and, if needed, a locator system should be established 
to ensure the ability to locate promptly any contract files.
    (e) Contents of contract files that are contractor bid or proposal 
information or source selection information as defined in 3.104-3 shall 
be protected from disclosure to unauthorized persons (see 3.104-5).
    (f) Agencies may retain contract files in any medium (paper, 
electronic, microfilm, etc.) or any combination of media, as long as the 
requirements of this subpart are satisfied.
[48 FR 42113, Sept. 19, 1983, as amended at 54 FR 20496, May 11, 1989; 
55 FR 36794, Sept. 6, 1990; 59 FR 67016, Dec. 28, 1994; 62 FR 232, Jan. 
2, 1997]



4.803  Contents of contract files.

    The following are examples of the records normally contained, if 
applicable, in contract files:
    (a) Contracting office contract file. (1) Purchase request, 
acquisition planning information, and other presolicitation documents.
    (2) Justifications and approvals, determinations and findings, and 
associated documents.
    (3) Evidence of availability of funds.
    (4) Synopsis of proposed acquisition as published in the Commerce 
Business Daily or reference thereto.
    (5) The list of sources solicited, and a list of any firms or 
persons whose requests for copies of the solicitation were denied, 
together with the reasons for denial.
    (6) Set-aside decision.
    (7) Government estimate of contract price.
    (8) A copy of the solicitation and all amendments thereto.
    (9) Security requirements and evidence of required clearances.
    (10) A copy of each offer or quotation, the related abstract, and 
records of determinations concerning late offers or quotations. 
Unsuccessful offers or quotations may be maintained separately, if 
cross-referenced to the contract file. The only portions of the 
unsuccessful offer or quotation that need be retained are--
    (i) Completed solicitation sections A, B, and K;
    (ii) Technical and management proposals;
    (iii) Cost/price proposals;
    (iv) Any other pages of the solicitation that the offeror or quoter 
has altered or annotated.
    (11) Contractor's certifications and representations.
    (12) Preaward survey reports or reference to previous preaward 
survey reports relied upon.
    (13) Source selection documentation.
    (14) Contracting officer's determination of the contractor's 
responsibility.
    (15) Small Business Administration Certificate of Competency.
    (16) Records of contractor's compliance with labor policies 
including equal employment opportunity policies.

[[Page 62]]

    (17) Cost or pricing data and Certificates of Current Cost or 
Pricing Data or a required justification for waiver, or information 
other than cost or pricing data.
    (18) Packaging and transportation data.
    (19) Cost or price analysis.
    (20) Audit reports or reasons for waiver.
    (21) Record of negotiation.
    (22) Justification for type of contract.
    (23) Authority for deviations from this regulation, statutory 
requirements, or other restrictions.
    (24) Required approvals of award and evidence of legal review.
    (25) Notice of award.
    (26) The original of (i) the signed contract or award, (ii) all 
contract modifications, and (iii) documents supporting modifications 
executed by the contracting office.
    (27) Synopsis of award or reference thereto.
    (28) Notice to unsuccessful quoters or offerors and record of any 
debriefing.
    (29) Acquisition management reports (see subpart 4.6).
    (30) Bid, performance, payment, or other bond documents, or a 
reference thereto, and notices to sureties.
    (31) Report of postaward conference.
    (32) Notice to proceed, stop orders, and any overtime premium 
approvals granted at the time of award.
    (33) Documents requesting and authorizing modification in the normal 
assignment of contract administration functions and responsibility.
    (34) Approvals or disapprovals of requests for waivers or deviations 
from contract requirements.
    (35) Rejected engineering change proposals. These proposals may be 
filed separately for early disposal (see 4.805(h)).
    (36) Royalty, invention, and copyright reports (including invention 
disclosures) or reference thereto.
    (37) Contract completion documents.
    (38) Documentation regarding termination actions for which the 
contracting office is responsible.
    (39) Cross-references to pertinent documents that are filed 
elsewhere.
    (40) Any additional documents on which action was taken or that 
reflect actions by the contracting office pertinent to the contract.
    (41) A current chronological list identifying the awarding and 
successor contracting officers, with inclusive dates of responsibility.
    (42) For contracts and contract modifications in excess of $100,000, 
a record of all persons or classes of persons authorized to have access 
to proprietary or source selection information and, to the maximum 
extent practicable, the names of all individuals within the class.
    (b) Contract administration office contract file. (1) Copy of the 
contract and all modifications, together with official record copies of 
supporting documents executed by the contract administration office.
    (2) Any document modifying the normal assignment of contract 
administration functions and responsibility.
    (3) Security requirements.
    (4) Cost or pricing data, Certificates of Current Cost or Pricing 
Data, or information other than cost or pricing data; cost or price 
analysis; and other documentation supporting contractual actions 
executed by the contract administration office.
    (5) Preaward survey information.
    (6) Purchasing system information.
    (7) Consent to subcontract or purchase.
    (8) Performance and payment bonds and surety information.
    (9) Postaward conference records.
    (10) Orders issued under the contract.
    (11) Notice to proceed and stop orders.
    (12) Insurance policies or certificates of insurance or references 
to them.
    (13) Documents supporting advance or progress payments.
    (14) Progressing, expediting, and production surveillance records.
    (15) Quality assurance records.
    (16) Property administration records.
    (17) Documentation regarding termination actions for which the 
contract administration office is responsible.
    (18) Cross reference to other pertinent documents that are filed 
elsewhere.
    (19) Any additional documents on which action was taken or that 
reflect actions by the contract administration office pertinent to the 
contract.

[[Page 63]]

    (20) Contract completion documents.
    (c) Paying office contract file. (1) Copy of the contract and any 
modifications.
    (2) Bills, invoices, vouchers, and supporting documents.
    (3) Record of payments or receipts.
    (4) Other pertinent documents.
[48 FR 42113, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 5054, Jan. 31, 1989; 55 FR 36794, 
Sept. 6, 1990; 60 FR 48211, Sept. 18, 1995; 61 FR 39188, July 26, 1996; 
61 FR 67430, Dec. 20, 1996; 62 FR 232, Jan. 2, 1997]



4.804  Closeout of contract files.



4.804-1  Closeout by the office administering the contract.

    (a) Except as provided in paragraph (c) below, time standards for 
closing out contract files are as follows:
    (1) Files for contracts using simplified acquisition procedures 
should be considered closed when the contracting officer receives 
evidence of receipt of property and final payment, unless otherwise 
specified by agency regulations.
    (2) Files for firm-fixed-price contracts, other than those using 
simplified acquisition procedures, should be closed within 6 months 
after the date on which the contracting officer receives evidence of 
physical completion.
    (3) Files for contracts requiring settlement of indirect cost rates 
should be closed within 36 months of the month in which the contracting 
officer receives evidence of physical completion.
    (4) Files for all other contracts should be closed within 20 months 
of the month in which the contracting officer receives evidence of 
physical completion.
    (b) When closing out the contract files at 4.804-1(a)(2), (3), and 
(4), the contracting officer shall use the closeout procedures at 4.804-
5. However, these closeout actions may be modified to reflect the extent 
of administration that has been performed. Quick closeout procedures 
(see 42.708) should be used, when appropriate, to reduce administrative 
costs and to enable deobligation of excess funds.
    (c) A contract file shall not be closed if (1) the contract is in 
litigation or under appeal, or (2) in the case of a termination, all 
termination actions have not been completed.
[48 FR 42113, Sept. 19, 1983, as amended at 54 FR 34752, Aug. 21, 1989; 
60 FR 34746, July 3, 1995]



4.804-2  Closeout of the contracting office files if another office administers the contract.

    (a) Contract files for contracts using simplified acquisition 
procedures should be considered closed when the contracting officer 
receives evidence of receipt of property and final payment, unless 
otherwise specified by agency regulation.
    (b) All other contract files shall be closed as soon as practicable 
after the contracting officer receives a contract completion statement 
from the contract administration office. The contracting officer shall 
ensure that all contractual actions required have been completed and 
shall prepare a statement to that effect. This statement is authority to 
close the contract file and shall be made a part of the official 
contract file.
[48 FR 42113, Sept. 19, 1983, as amended at 60 FR 34746, July 3, 1995]



4.804-3  Closeout of paying office contract files.

    The paying office shall close the contract file upon issuance of the 
final payment voucher.



4.804-4  Physically completed contracts.

    (a) Except as provided in paragraph (b) below, a contract is 
considered to be physically completed when--
    (1)(i) The contractor has completed the required deliveries and the 
Government has inspected and accepted the supplies;
    (ii) The contractor has performed all services and the Government 
has accepted these services; and
    (iii) All option provisions, if any, have expired; or
    (2) The Government has given the contractor a notice of complete 
contract termination.
    (b) Facilities contracts and rental, use, and storage agreements are 
considered to be physically completed when--

[[Page 64]]

    (1) The Government has given the contractor a notice of complete 
contract termination; or
    (2) The contract period has expired.



4.804-5  Detailed procedures for closing out contract files.

    (a) The office administering the contract is responsible for 
initiating (automated or manual) administrative closeout of the contract 
after receiving evidence of its physical completion. At the outset of 
this process, an initial contract funds status review shall be 
accomplished and, where appropriate, excess funds identified to the 
contracting office. When complete, the administrative closeout 
procedures shall ensure that--
    (1) Disposition of classified material is completed;
    (2) Final patent report is cleared;
    (3) Final royalty report is cleared;
    (4) There is no outstanding value engineering change proposal;
    (5) Plant clearance report is received;
    (6) Property clearance is received;
    (7) All interim or disallowed costs are settled;
    (8) Price revision is completed;
    (9) Subcontracts are settled by the prime contractor;
    (10) Prior year indirect cost rates are settled;
    (11) Termination docket is completed;
    (12) Contract audit is completed;
    (13) Contractor's closing statement is completed;
    (14) Contractor's final invoice has been submitted; and
    (15) Contract funds review is completed and deobligation of any 
excess funds is recommended.
    (b) When the actions in paragraph (a) above have been verified, the 
contracting officer administering the contract shall ensure that a 
contract completion statement, containing the following information, is 
prepared:
    (1) Contract administration office name and address (if different 
from the contracting office).
    (2) Contracting office name and address.
    (3) Contract number.
    (4) Last modification number.
    (5) Last call or order number.
    (6) Contractor name and address.
    (7) Dollar amount of excess funds, if any.
    (8) Voucher number and date, if final payment has been made.
    (9) Invoice number and date, if the final approved invoice has been 
forwarded to a disbursing office of another agency or activity and the 
status of the payment is unknown.
    (10) A statement that all required contract administration actions 
have been fully and satisfactorily accomplished.
    (11) Name and signature of the contracting officer.
    (12) Date.
    (c) When the statement is completed, the contracting officer shall 
ensure that--
    (1) The signed original is placed in the contracting office contract 
file (or forwarded to the contracting office for placement in the files 
if the contract administration office is different from the contracting 
office); and
    (2) A signed copy is placed in the appropriate contract 
administration file if administration is performed by a contract 
administration office.
[48 FR 42113, Sept. 19, 1983, as amended at 54 FR 34752, Aug. 21, 1989]



4.805  Storage, handling, and disposal of contract files.

    (a) Agencies shall prescribe procedures for the handling, storing, 
and disposing of contract files. Such procedures shall take into account 
documents held in other than paper format, such as microfilm and various 
electronic media. The original medium on which the document was created 
may be changed to facilitate storage as long as the requirements of part 
4, law and other regulations are satisfied. The process used to create 
and store records must record and reproduce the original document, 
including signatures and other written and graphic images completely, 
accurately, and clearly. Data transfer, storage, and retrieval 
procedures shall protect the original data from alteration. Unless law 
or other regulations require signed originals to be kept, they may be 
destroyed after the record copies on alternate media and copies 
reproduced from the record copy are verified to be

[[Page 65]]

accurate, complete and clear representations of the originals. Agency 
procedures for contract file disposal shall include provisions that the 
documents specified in paragraph (b) of this section shall not be 
destroyed before the times indicated. When original documents have been 
converted to alternate media for storage, the requirements in paragraph 
(b) of this section shall apply to the record copies on the alternate 
media instead of the original documents.
    (b) If administrative records are mixed with program records and 
cannot be economically segregated, the entire file should be kept for 
the period of time approved for the program records. Similarly, if 
documents, specified below, are part of a subject or case file which 
documents activities different from those specified below, they should 
be treated in the same manner as the files of which they are a part.

                                                                        
------------------------------------------------------------------------
                Document                         Retention Period       
------------------------------------------------------------------------
(1)  Records pertaining to exceptions or  Until final clearance or      
 protests, claims for or against the       settlement, or until the     
 United States, investigations, cases      retention period otherwise   
 pending or in litigation, or similar      specified for the document in
 matters.                                  paragraphs (b)(2) through    
                                           (13) below is completed,     
                                           whichever is later.          
(2)  Signed originals of construction     6 years and 3 months after    
 contracts over $2,000 and all other       initial payment.             
 contracts over $25,000.                                                
(3)  Signed originals of justifications   6 years and 3 months after    
 and approvals and determinations and      final payment.               
 findings required by part 6, and copies                                
 of supporting documents and data.                                      
(4)  Signed originals of construction     3 years after final payment.  
 contracts of $2,000 or less and all                                    
 other contracts of $25,000 or less.                                    
(5) Unsuccessful offers or quotations     Retain 1 year after date of   
 that pertain to contracts using           award or until final payment,
 simplified acquisition procedures.        whichever is later; but if   
                                           the contracting officer      
                                           determines that the files    
                                           have future value to the     
                                           Government, retain as long as
                                           advisable.                   
(6)  Contract status (progressing),       6 months after final payment. 
 expediting, and production surveillance                                
 records.                                                               
(7)  Rejected engineering change          6 months after final payment. 
 proposals.                                                             
(8)  Labor compliance records, including  3 years after final payment.  
 equal employment opportunity records.                                  
(9)  Documents pertaining generally to    Until superseded or obsolete. 
 the contractor as described at                                         
 4.801(c)(3).                                                           
(10) Records or documents other than      1 year after final payment.   
 those in paragraphs 4.805(b) (1)-(9) of                                
 this section pertaining to contracts                                   
 using simplified acquisition                                           
 procedures.                                                            
(11) Records or documents other than      6 years and 3 months after    
 those in paragraphs 4.805(b) (1)-(10)     final payment.               
 of this section pertaining to contracts                                
 not using simplified acquisition                                       
 procedures.                                                            
(12)  Files for cancelled solicitations   5 years after cancellation.   
 (see 4.801(c)(1)).                                                     
(13) Solicited and unsolicited            ..............................
 unsuccessful offers and quotations                                     
 above the simplified acquisition                                       
 threshold:                                                             
  (i)  When filed separately from         Until contract completion     
   contract case files.                    date.                        
  (ii)  When filed with contract case     6 years and 3 months after    
   files.                                  final payment.               
------------------------------------------------------------------------

    (c) Documents listed in paragraph (b)(1) under ``Document'' shall 
not be destroyed until final clearance or settlement.
[48 FR 42113, Sept. 19, 1983, as amended at 50 FR 1727, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 5054, Jan. 31, 1989; 57 FR 60573, Dec. 
21, 1992; 59 FR 67016, Dec. 28, 1994; 60 FR 34746, July 3, 1995; 61 FR 
39190, July 26, 1996]



   Subpart 4.9--Information Reporting to the Internal Revenue Service

    Source:  57 FR 44260, Sept. 24, 1992, unless otherwise noted.



4.900  Scope of subpart.

    This subpart provides policies and procedures applicable to 
reporting contract and payment information to the Internal Revenue 
Service (IRS).



4.901  Definitions.

    Common parent, as used in this subpart, means that corporate entity 
that owns or controls an affiliated group of corporations that files its 
Federal income tax returns on a consolidated basis, and of which the 
offeror is a member.
    Corporate status, as used in this subpart, means a designation as to 
whether the offeror is a corporate entity, an

[[Page 66]]

unincorporated entity (e.g., sole proprietorship or partnership), or a 
corporation providing medical and health care services.
    Taxpayer Identification Number (TIN), as used in this subpart, means 
the number required by the IRS to be used by the offeror in reporting 
income tax and other returns.



4.902  Contract information.

    (a) 26 U.S.C. 6050M, as implemented in 26 CFR, requires heads of 
Federal executive agencies to report certain information to the IRS.
    (b)(1) The required information applies to contract modifications--
    (i) Increasing the amount of a contract awarded before January 1, 
1989, by $50,000 or more; and
    (ii) Entered into on or after April 1, 1990.
    (2) The reporting requirement also applies to certain contracts and 
modifications thereto in excess of $25,000 entered into on or after 
January 1, 1989.
    (c) The information to report is--
    (1) Name, address, and the Taxpayer Identification Number (TIN) of 
contractor;
    (2) Name and TIN of common parent (if any);
    (3) Date of the contract action;
    (4) Amount obligated on the contract action; and
    (5) Estimated contract completion date.
    (d) Transmit the information to the IRS through the Federal 
Procurement Data System (see subpart 4.6 and implementing instructions).



4.903  Payment information.

    (a) 26 U.S.C. 6041 and 6041A, as implemented in 26 CFR, in part, 
require payors, including Federal Government agencies, to report to the 
IRS payments made to certain contractors.
    (b) The following payments are exempt from this reporting 
requirement:
    (1) Payments to corporations. However, payments to corporations 
providing medical and health care services or engaged in the billing and 
collecting of payments for such services are not exempted.
    (2) Payments for bills for merchandise, telegrams, telephone, 
freight, storage, and similar charges.
    (3) Payments of income required to be reported on an IRS Form W-2 
(e.g., contracts for personal services).
    (4) Payments to a hospital or extended care facility described in 26 
CFR 501(c)(3) that is exempt from taxation under 26 CFR 501(a).
    (5) Payments to a hospital or extended care facility owned and 
operated by the United States, a state, the District of Columbia, a 
possession of the United States, or a political subdivision, agency, or 
instrumentality of any of the foregoing.
    (6) Payments for any contract with a state, the District of 
Columbia, a possession of the United States, or a political subdivision, 
agency, or instrumentality of any of the foregoing.
    (c) The following information is required to provide reports to the 
IRS:
    (1) Name, address, and TIN of contractor.
    (2) Corporate status (see 4.901).
    (d) Transmit to paying offices the information specified in 4.203.



4.904  Solicitation provision.

    The contracting officer shall insert the provision at 52.204-3, 
Taxpayer Identification, in solicitations, unless the TIN of each 
offeror has previously been obtained and is known.



                  Subpart 4.10--Administrative Matters

    Source:  62 FR 51230, Sept. 30, 1997, unless otherwise noted.

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, subpart 4.10 
was added, effective Oct. 10, 1997.



4.1001  Policy.

    Contracts may identify the items or services to be acquired as 
separately identified line items. Contract line items should provide 
unit prices or lump sum prices for separately identifiable contract 
deliverables, and associated delivery schedules or performance periods. 
Line items may be further subdivided or stratified for administrative 
purposes (e.g., to provide for traceable accounting classification 
citations).
62 FR 51230, Sept. 30, 1997]

[[Page 67]]



                   SUBCHAPTER B--ACQUISITION PLANNING





PART 5--PUBLICIZING CONTRACT ACTIONS--Table of Contents




Sec.
5.000  Scope of part.
5.001  Definition.
5.002  Policy.

                Subpart 5.1--Dissemination of Information

5.101  Methods of disseminating information.
5.102  Availability of solicitations.

           Subpart 5.2--Synopses of Proposed Contract Actions

5.201  General.
5.202  Exceptions.
5.203  Publicizing and response time.
5.204  Presolicitation notices.
5.205  Special situations.
5.206  Publicizing subcontract opportunities.
5.207  Preparation and transmittal of synopses.

                Subpart 5.3--Synopses of Contract Awards

5.301  General.
5.302  Preparation and transmittal of synopses of awards.
5.303  Announcement of contract awards.

                   Subpart 5.4--Release of Information

5.401  General.
5.402  General public.
5.403  Requests from Members of Congress.
5.404  Release of long-range acquisition estimates.
5.404-1  Release procedures.
5.404-2  Announcements of long-range acquisition estimates.
5.405  Exchange of acquisition information.

                    Subpart 5.5--Paid Advertisements

5.501  Definitions.
5.502  Authority.
5.503  Procedures.
5.504  Use of advertising agencies.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42119, Sept. 19, 1983, unless otherwise noted.



5.000  Scope of part.

    This part prescribes policies and procedures for publicizing 
contract opportunities and award information.



5.001  Definition.

    Contract action, as used in this part, means an action resulting in 
a contract, as defined in subpart 2.1, including contract modifications 
for additional supplies or services, but not including contract 
modifications that are within the scope and under the terms of the 
contract, such as contract modifications issued pursuant to the Change 
clause, or funding and other administrative changes.
[50 FR 1728, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985]



5.002  Policy.

    Contracting officers shall publicize contract actions in order to--
    (a) Increase competition;
    (b) Broaden industry participation in meeting Government 
requirements; and
    (c) Assist small business concerns, small disadvantaged business 
concerns, and women-owned small business concerns in obtaining contracts 
and subcontracts.
[50 FR 52429, Dec. 23, 1985, as amended at 60 FR 48259, Sept. 18, 1995]



                Subpart 5.1--Dissemination of Information



5.101  Methods of disseminating information.

    The Commerce Business Daily (CBD) is the public notification media 
by which U.S. Government agencies identify proposed contract actions and 
contract awards. The CBD is published in five or six daily editions 
weekly, as necessary.
    (a) As required by the Small Business Act (15 U.S.C. 637(e)) and the 
Office of Federal Procurement Policy Act (41 U.S.C. 416), contracting 
officers shall disseminate information on proposed contract actions as 
follows:
    (1) For proposed contract actions expected to exceed $25,000, by 
synopsizing in the Commerce Business Daily (CBD) (see 5.201); and

[[Page 68]]

    (2) For proposed contract actions expected to exceed $10,000, but 
not expected to exceed $25,000, by displaying in a public place, 
including on an electronic bulletin board, or any other appropriate 
electronic means located at the contracting office issuing the 
solicitation, an unclassified notice of the solicitation or a copy of 
the solicitation satisfying the requirements of 5.207 (c) and (f). The 
notice shall include a statement that all responsible sources may submit 
a quotation which, if timely received, shall be considered by the 
agency. Such information shall be posted not later than the date the 
solicitation is issued, and shall remain posted for at least 10 days or 
until after quotations have been opened, whichever is later.
    (i) If solicitations are posted in lieu of a notice, various methods 
of satisfying the requirements of 5.207 (c) and (f) may be employed. For 
example, the requirements for 5.207 (c) and (f) may be met by stamping 
the solicitation, by a cover sheet to the solicitation, or by placing a 
general statement in the display room.
    (ii) The contracting officer need not comply with the display 
requirements of this section when the exemptions at 5.202 (a)(1), (a)(4) 
through (a)(9), or (a)(11) apply, or when oral or FACNET solicitations 
are used.
    (iii) Contracting officers shall post solicitations expected to 
exceed $25,000 if required by agency regulations.
    (iv) Electronic posting of requirements in a place accessible by the 
general public at the Government installation may be used to satisfy the 
public display requirement. Contracting offices utilizing electronic 
systems for public posting shall periodically publicize the methods for 
accessing such information.
    (b) In addition, one or more of the following methods may be used:
    (1) Preparing periodic handouts listing proposed contracts, and 
displaying them as in 5.101(a)(2).
    (2) Assisting local trade associations in disseminating information 
to their members.
    (3) Making brief announcements of proposed contracts to newspapers, 
trade journals, magazines, or other mass communication media for 
publication without cost to the Government.
    (4) Placing paid advertisements in newspapers or other 
communications media, subject to the following limitations:
    (i) Contracting officers shall place paid advertisements of proposed 
contracts only when it is anticipated that effective competition cannot 
be obtained otherwise (see 5.205(d)).
    (ii) Contracting officers shall not place advertisements of proposed 
contracts in a newspaper published and printed in the District of 
Columbia unless the supplies or services will be furnished, or the labor 
performed, in the District of Columbia or adjoining counties in Maryland 
or Virginia (44 U.S.C. 3701).
    (iii) Advertisements published in newspapers must be under proper 
written authority in accordance with 44 U.S.C. 3702 (see 5.502(a)).
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1728, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 27117, July 29, 1986; 52 FR 21885, 
June 9, 1987; 56 FR 41731, Aug. 22, 1991; 60 FR 34736, 34746, July 3, 
1995; 61 FR 39191, July 26, 1996; 62 FR 12692, Mar. 17, 1997]



5.102  Availability of solicitations.

    (a) The contracting officer shall--
    (1) Maintain a reasonable number of copies of solicitations 
publicized in the CBD, including specifications and other pertinent 
information (upon request, potential sources not initially solicited 
shall be mailed or provided copies of solicitations, if available);
    (2) Provide copies of a limited solicitation to firms requesting 
copies that were not initially solicited, but only after advising the 
requester of the determination to limit the solicitation to a specified 
firm or firms as authorized under part 6;
    (3) Provide copies on a first-come-first-served basis, for pickup at 
the contracting office, to publishers, trade associations, information 
services, and other members of the public having a legitimate interest 
(for construction, see 36.211); and
    (4) In addition to the methods of disseminating proposed contract 
information in 5.101(a) and (b), provide upon request to small business 
concerns, as required by 15 U.S.C. 637(b)--

[[Page 69]]

    (i) A copy of the solicitation specifications. In the case of 
solicitations disseminated by electronic data interchange, solicitations 
may be furnished directly to the electronic address of the small 
business concern;
    (ii) The name and telephone number of an employee of the contracting 
office to answer questions on the solicitation; and
    (iii) Adequate citations to each applicable major Federal law or 
agency rule with which small business concerns must comply in performing 
the contract.
    (5) Retain a copy of the solicitation and other documents for review 
by and duplication for those requesting copies after the initial number 
of copies is exhausted.
    (6) Agencies may require payment of a fee, not exceeding the actual 
cost of duplication, for a copy of the solicitation documents.
    (7) If electronic commerce is employed in the solicitation process, 
availability of the RFP may be limited to the electronic medium.
    (b) This section 5.102 applies to classified contracts to the extent 
consistent with agency security requirements (see 5.202(a)(1)).
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1728, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 34737, July 3, 1995; 62 FR 51230, 
Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, section 5.102 
was amended by adding paragraph (a)(7), effective Oct. 10, 1997.



           Subpart 5.2--Synopses of Proposed Contract Actions



5.201  General.

    (a) As required by the Small Business Act (15 U.S.C. 637(e)) and the 
Office of Federal Procurement Policy Act (41 U.S.C. 416), agencies shall 
furnish for publication in the Commerce Business Daily (CBD) notices of 
proposed contract actions as specified in paragraph (b) of this section.
    (b) For acquisitions of supplies and services other than those 
covered by the exceptions in 5.202, and special situations in 5.205, the 
contracting officer shall transmit a notice to the CBD (synopsis) (see 
5.207) for each proposed--
    (1) Contract actions meeting the thresholds in 5.101(a)(1);
    (2) Effort to locate private commercial sources for cost comparison 
purposes under OMB Circular A-76 (see 5.205(d));
    (3) Modification to an existing contract for additional supplies or 
services that meets the thresholds in 5.101(a)(1); or
    (4) Contract action in any amount when advantageous to industry or 
the Government.
    (c) The primary purposes of the CBD notice are to improve small 
business access to acquisition information and enhance competition by 
identifying contracting and subcontracting opportunities.
    (d) Subcriptions to the CBD must be placed with the Superintendent 
of Documents, Government Printing Office, Washington, DC 20402 
(Telephone 202-512-1800).
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1728, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 27117, July 29, 1986; 52 FR 21886, 
June 9, 1987; 60 FR 42653, Aug. 16, 1995; 62 FR 40236, July 25, 1997]



5.202  Exceptions.

    The contracting officer need not submit the notice required by 5.201 
when--
    (a) The contracting officer determines that--
    (1) The synopsis cannot be worded to preclude disclosure of an 
agency's needs and such disclosure would compromise the national 
security (e.g., would result in disclosure of classified information). 
The fact that a proposed solicitation or contract action contains 
classified information, or that access to classified matter may be 
necessary to submit a proposal or perform the contract does not, in 
itself, justify use of this exception to synopsis;
    (2) The contract action is made under the conditions described in 
6.302-2 (or, for purchases conducted using simplified acquisition 
procedures, if unusual and compelling urgency precludes competition to 
the maximum extent practicable) and the Government would be seriously 
injured if the agency complies with the time periods specified in 5.203;

[[Page 70]]

    (3) The contract action is one for which either the written 
direction of a foreign government reimbursing the agency for the cost of 
the acquisition of the supplies or services for such government, or the 
terms of an international agreement or treaty between the United States 
and a foreign government or international organizations, has the effect 
of requiring that the acquisition shall be from specified sources;
    (4) The contract action is expressly authorized or required by a 
statute to be made through another Government agency, including 
acquisitions from the Small Business Administration (SBA) using the 
authority of section 8(a) of the Small Business Act (but see 5.205(f)), 
or from a specific source such as a workshop for the blind under the 
rules of the Committee for the Purchase from the Blind and Other 
Severely Handicapped;
    (5) The contract action is for utility services other than 
telecommunications services and only one source is available;
    (6) The contract action is an order placed under Subpart 16.5;
    (7) The contract action results from acceptance of a proposal under 
the Small Business Innovation Development Act of 1982 (Pub. L. 97-219);
    (8) The contract action results from the acceptance of an 
unsolicited research proposal that demonstrates a unique and innovative 
concept (see 6.003) and publication of any notice complying with 5.207 
would improperly disclose the originality of thought or innovativeness 
of the proposed research, or would disclose proprietary information 
associated with the proposal. This exception does not apply if the 
contract action results from an unsolicited research proposal and 
acceptance is based solely upon the unique capability of the source to 
perform the particular research services proposed (see 6.302-1(a)(2)(i);
    (9) The contract action is made for perishable subsistence supplies, 
and advance notice is not appropriate or reasonable;
    (10) The contract action is made under conditions described in 
6.302-3, or 6.302-5 with regard to brand name commercial items for 
authorized resale, or 6.302-7, and advance notice is not appropriate or 
reasonable;
    (11) The contract action is made under the terms of an existing 
contract that was previously synopsized in sufficient detail to comply 
with the requirements of 5.207 with respect to the current contract 
action;
    (12) The contract action is by a Defense agency and the contract 
action will be made and performed outside the United States, its 
possessions, or Puerto Rico, and only local sources will be solicited. 
This exception does not apply to contract actions subject to the Trade 
Agreements Act (see subpart 25.4). This exception also does not apply to 
North American Free Trade Agreement contract actions, which will be 
synopsized in accordance with agency regulations;
    (13) The contract action is for an amount expected to exceed $25,000 
but not expected to exceed the simplified acquisition threshold and is 
made by a contracting activity that has been certified as having 
implemented a system with interim (until December 31, 1999) or full 
(after December 31, 1999) FACNET and the contract action will be made 
through FACNET;
    (14) The contract action is for an amount at or below $250,000 and 
is made through FACNET after Governmentwide FACNET has been certified 
pursuant to 4.505-3; or
    (15) The contract action is made under conditions described in 
6.302-3 with respect to the services of an expert to support the Federal 
Government in any current or anticipated litigation or dispute.
    (b) The head of the agency determines in writing after consultation 
with the Administrator for Federal Procurement Policy and the 
Administrator of the Small Business Administration, that advance notice 
is not appropriate or reasonable.
[50 FR 1728, Jan. 11, 1985, as amended at 50 FR 52430, Dec. 23, 1985; 51 
FR 27117, July 29, 1986; 53 FR 27463, July 20, 1988; 54 FR 46004, Oct. 
31, 1989; 56 FR 15148, Apr. 15, 1991; 56 FR 41744, Aug. 22, 1991; 59 FR 
545, Jan. 5, 1994; 60 FR 34746, July 3, 1995; 60 FR 42653, Aug. 16, 
1995; 60 FR 49725, Sept. 26, 1995; 61 FR 39192, July 26, 1996]

[[Page 71]]



5.203  Publicizing and response time.

    Whenever agencies are required to publish notice of contract actions 
under 5.201, they shall proceed as follows:
    (a) A notice of contract action shall be published in the Commerce 
Business Daily at least 15 days before issuance of a solicitation except 
that, for acquisitions of commercial items, the contracting officer 
may--
    (1) Establish a shorter period for issuance of the solicitation; or
    (2) Use the combined CBD synopsis/solicitation procedure (see 
12.603).
    (b) The contracting officer shall establish a solicitation response 
time which will afford potential offerors a reasonable opportunity to 
respond to (1) each contract action, including actions via FACNET, in an 
amount estimated to be greater than $25,000, but not greater than the 
simplified acquisition threshold; or (2) each contract action for the 
acquisition of commercial items in an amount estimated to be greater 
than $25,000 (see part 12). The contracting officer should consider the 
circumstances of the individual acquisition, such as the complexity, 
commerciality, availability, and urgency, when establishing the 
solicitation response time.
    (c) Except for the acquisition of commercial items (see 5.203(b)), 
agencies shall allow at least a 30-day response time for receipt of bids 
or proposals from the date of issuance of a solicitation, if the 
contract action is expected to exceed the simplified acquisition 
threshold.
    (d) Agencies shall allow at least a 30 day response time from the 
date of publication of a proper notice of intent to contract for 
architect-engineer services or before issuance of an order under a basic 
ordering agreement or similar arrangement if the contract action is 
expected to exceed the simplified acquisition threshold.
    (e) Agencies shall allow at least a 45 day response time for receipt 
of bids or proposals from the date of publication of the notice required 
in 5.201 for contract actions categorized as research and development if 
the contract action is expected to exceed the simplified acquisition 
threshold.
    (f) Nothing in this subpart prohibits officers or employees of 
agencies from responding to requests for information.
    (g) Contracting officers may, unless they have evidence to the 
contrary, presume that notice has been published 10 days (6 days if 
electronically transmitted) following transmittal of the synopsis to the 
CBD. This presumption is based on the CBD's confirmation that 
publication does occur within these timeframes. This presumption does 
not negate the mandatory waiting or response times specified in 
paragraphs (a) through (d) of this section. Upon learning that a 
particular notice has not in fact been published within the presumed 
timeframes, contracting officers should consider whether the date for 
receipt of offers can be extended or whether circumstances have become 
sufficiently compelling to justify proceeding with the contract action 
under the authority of 5.202(a)(2).
    (h) In addition to other requirements set forth in this section, for 
acquisitions subject to NAFTA or the Trade Agreements Act (see subpart 
25.4), the period of time between publication of the synopsis notice and 
receipt of offers shall be no less than 40 days. However, if the 
acquisition falls within a general category identified in an annual 
forecast, the availability of which is published in the CBD, the 
contracting officer may reduce this time period to as few as 10 days.
[50 FR 52430, Dec. 23, 1985, as amended at 51 FR 31425, Sept. 3, 1986; 
60 FR 34747, July 3, 1995; 60 FR 48236, Sept. 18, 1995; 61 FR 39192, 
July 26, 1996; 62 FR 263, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997]



5.204  Presolicitation notices.

    Contracting officers shall publicize presolicitation notices in the 
CBD (see 15.201 and 36.213-2). Synopsizing is still required prior to 
issuance of any resulting solicitation (see 5.201 and 5.203).
[50 FR 1729, Jan. 11, 1985 and 50 FR 52429, Dec. 23, 1985; 62 FR 271, 
Jan. 2, 1997; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
5.204, ``15.404'' was amended to read ``15.201'', effective Oct. 10, 
1997

[[Page 72]]



5.205  Special situations.

    (a) Research and development (R&D) advance notice. Contracting 
officers may publish in the CBD, advance notices of their interest in 
potential R&D programs whenever existing solicitation mailing lists do 
not include a sufficient number of concerns to obtain adequate 
competition. Advance notices shall not be used where security 
considerations prohibit such publication. Advance notices will enable 
potential sources to learn of R&D programs and provide their sources 
with an opportunity to submit information which will permit evaluation 
of their R&D capabilities. Potential sources which respond to advance 
notices shall be added to the appropriate solicitation mailing list for 
subsequent solicitation. Advance notices shall be titled ``Research and 
Development Sources Sought,'' cite the appropriate Numbered Note, and 
include the name and telephone number of the contracting officer or 
other contracting activity official from whom technical details of the 
project can be obtained. This will enable sources to submit information 
for evaluation of their R&D capabilities. Contracting officers shall 
synopsize all subsequent solicitations for R&D contracts, including 
those resulting from a previously synopsized advance notice, unless one 
of the exceptions in 5.202 applies.
    (b) Federally Funded Research and Development Centers. Before 
establishing a Federally Funded Research and Development Center (FFRDC) 
(see part 35) or before changing its basic purpose and mission, the 
sponsor shall place at least three notices over a 90-day period in the 
Commerce Business Daily and the Federal Register, indicating the 
agency's intention to sponsor an FFRDC or change the basic purpose and 
mission of an FFRDC. The notice shall indicate the scope and nature of 
the effort to be performed and request comments. Notice is not required 
where action is required by law.
    (c) Special notices. Contracting officers may publish in the CBD 
special notices of procurement matters such as business fairs, long-
range procurement estimates, pre-bid/pre-proposal conferences, meetings, 
and the availability of draft solicitations or draft specifications for 
review. Special notices shall be transmitted to the CBD in accordance 
with 5.207.
    (d) Architect-engineering services. Contracting officers shall 
publish notices of intent to contract for architect-engineering services 
as follows:
    (1) Except when exempted by 5.202, contracting officers shall 
synopsize each proposed contract action for which the total fee 
(including phases and options) is expected to exceed $25,000. Reference 
shall be made to the appropriate CBD Numbered Note.
    (2) When the total fee is expected to exceed $10,000 but not exceed 
$25,000, the contracting officer shall comply with 5.101(a)(2). When the 
contract action is not required to be synopsized under subparagraph 
(d)(1) of this section, the contracting officer shall display a notice 
of the solicitation or a copy of the solicitation in a public place at 
the contracting office. Other optional publicizing methods are 
authorized in accordance with 5.101(b).
    (e) Effort to locate commercial sources under OMB Circular A-76. 
When determining the availability of commercial sources under the 
procedures prescribed in subpart 7.3 and OMB Circular A-76, the 
contracting officer shall not arrive at a conclusion that there are no 
commercial sources capable of providing the required supplies or 
services until publicizing the requirement in the CBD at least three 
times in a 90 calendar-day period, with a minimum of 30 calendar days 
between each. When necessary to meet an urgent requirement, this may be 
limited to a total of two publications in the CBD in a 30 calendar-day 
period, with a minimum of 15 calendar days between each.
    (f) Section 8(a) competitive acquisition. When a national buy 
requirement is being considered for competitive acquisition limited to 
eligible 8(a) concerns under Subpart 19.8, the contracting officer shall 
transmit a synopsis of the proposed contract action to the CBD in 
accordance with 5.207. The synopsis may be transmitted to the CDB 
concurrent with submission of the agency offering (see 19.804-2) to the 
Small Business Administration (SBA). The synopsis should also include 
information--

[[Page 73]]

    (1) Advising that the acquisition is being offered for competition 
limited to eligible 8(a) concerns;
    (2) Specifying the Standard Industrial Classification (SIC) code;
    (3) Advising that eligibility to participate may be restricted to 
firms in either the developmental or transitional stage; and
    (4) Encouraging interested 8(a) firms to request a copy of the 
solicitation as expeditiously as possible since the solicitation will be 
issued without further notice upon SBA acceptance of the requirement for 
the section 8(a) Program.
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1729, Jan. 11, 1985; 
50 FR 4221, Jan. 30, 1985; 50 FR 52430, Dec. 23, 1985; 51 FR 27117, July 
29, 1986; 52 FR 21886, June 9, 1987; 53 FR 43389, Oct. 26, 1988; 54 FR 
25061, June 12, 1989; 54 FR 46004, Oct. 31, 1989; 55 FR 3881, Feb. 5, 
1990; 55 FR 25526, June 21, 1990; 55 FR 52789, Dec. 21, 1990; 56 FR 
41731, Aug. 22, 1991; 60 FR 34747, July 3, 1995; 61 FR 39192, July 26, 
1996]



5.206  Publicizing subcontract opportunities.

    Prime contractors may use the CBD to publicize subcontracting 
opportunities stemming from receipt of a Government contract. The CBD 
can be used to seek competition for subcontracts, to increase 
participation by small, small disadvantaged, and women-owned business 
firms, and to meet established subcontracting plan goals. Synopses of 
subcontract opportunities should be prepared and submitted in accordance 
with 5.207.
[57 FR 60574, Dec. 21, 1992]



5.207  Preparation and transmittal of synopses.

    (a) Transmittal. Contracting officers shall transmit synopses of 
actions identified under 5.101 to the Commerce Business Daily by the 
most expeditious and reliable means available.
    (1) Electronic transmission. All synopses transmitted by electronic 
means shall be in ASCII Code. Contact your agency's communications 
center for the appropriate transmission instructions or services.
    (2) Hard copy transmission. When electronic transmission is not 
feasible, synopses should be sent to the CBD via mail or other physical 
delivery of hard copy and should be addressed to: Commerce Business 
Daily, U.S. Government Printing Office, P.O. Box 77880, Washington, DC 
20013-8880.
    (b) Format. The contracting officer shall prepare the synopsis in 
the following style and format to ensure timely processing of the 
synopsis by the Commerce Business Daily.
    (1) General. Format for all synopses shall employ conventional 
typing with abbreviations, capitalization, and punctuation all 
grammatically correct. Each synopsis shall include all 17 format items. 
Do not include the title for the format item.
    (2) Spacing. Begin each line flush left and use double spaced lines 
between each format line. If more than one synopsis is sent at one time, 
separate each synopsis with four line spaces and begin each new synopsis 
with format item number 1.
    (3) Abbreviations. Minimize abbreviations or acronyms to commonly 
recognized abbreviations.
    (4) Standard format. Prepare each synopsis in the following format. 
Begin each format item with the number of the item followed by a period 
(e.g., 1.). Then make two spaces after the period. Next type the 
appropriate information for each format item. Then conclude each format 
item with two exclamation points (i.e., !!). Conclude each complete 
synopsis, following format item 17, with five asterisks (i.e., * * * * 
*).

            Format Item and Explanation/Description of Entry

1. ACTION CODE
    (A single alphabetic character denoting the specific action related 
in the synopsis. Choices are limited to the following: P=Presolicitation 
Notice/Procurement; A=Award announcement; M=Modification of a previously 
announced procurement action (a correction to a previous CBD 
announcement); R=Sources Sought (includes A-76 services and architect-
engineer contracts). If none of the standard codes apply, enter ``N/
A''.)
2. DATE
    (Date on which the synopsis is transmitted to the CBD for 
publication. Use a four digit number indicating month in two digits and 
date in two digits (MMDD). All four spaces must be used with preceding 0 
for months January thru September. Format: 0225 for February 25.)

[[Page 74]]

3. YEAR
    (Two numeric digits denoting the calendar year of the synopsis. 
Format 85 for 1985.)
    4. GOVERNMENT PRINTING OFFICE (GPO) BILLING ACCOUNT CODE.
    (The originating office's account number used by the GPO for billing 
and collection purposes. The field length is nine alpha-numeric 
characters. The first three characters entered are ``GPO'' and then the 
following six characters are the numeric account number. Agencies should 
contact the GPO's Office of Comptroller for additional information. 
Enter N/A if an account number has not been assigned.)
5. CONTRACTING OFFICE ZIP CODE
    (The geographic zip code for the contracting office. Up to nine 
characters may be entered. When using a nine digit zip code, separate 
the first five digits and last four digits with a dash. Format: 00000-
0000.)
    6. CLASSIFICATION CODE. (Service or supply code number; see 
5.207(g). Each synopsis shall classify the contemplated contract action 
under the one classification code which most closely describes the 
acquisition. If the action is for a multiplicity of goods and/or 
services, the preparer should select the one category best describing 
the overall acquisition based upon value. Inclusion of more than one 
classification code, or failure to include a classification code, will 
result in rejection of the synopsis by the Commerce Business Daily).
7. CONTRACTING OFFICE ADDRESS
    (The complete name and address of the contracting office. Field 
length is open, but generally not expected to exceed 90 alpha-numeric 
characters.)
8. SUBJECT
    (Insert classification code for ITEM 6, and a brief title 
description of services, supplies, or project required by the agency. 
This will appear in the CBD as the bold faced title in the first line of 
the description.) (200 character spaces available.)
9. PROPOSED SOLICITATION NUMBER
    (Agency number for control, tracking, identification. For 
solicitations; if not a solicitation, enter N/A.)
10. OPENING/CLOSING RESPONSE DATE
    (For solicitations; if not a solicitation, enter N/A. Issuing agency 
deadline for receipt of bids, proposals or responses. Use a six digit 
date. Format: MMDDYY. Explanation may appear in text of synopsis in Item 
17.)
11. CONTACT POINT/CONTRACTING OFFICER
    (Include name and telephone number of contact. Also include name and 
telephone number of contracting officer if different. This will appear 
as the first item of information in the published entry. This entry may 
be alpha-numeric and up to 320 character blocks in length.)
12. CONTRACT AWARD AND SOLICITATION NUMBER
    (For awards; if  not  an award, enter N/A. The award, solicitation 
or project reference number assigned by the agency to provide a 
reference for bidders/subcontractors. Two hundred character spaces 
available for alpha-numeric entries.)
13. CONTRACT AWARD DOLLAR AMOUNT
    (For awards; if not an award, enter N/A. A ten digit numeric field. 
Enter whole dollars only. Output will be preceded by a dollar sign ($).)
14. CONTRACT LINE ITEM NUMBER
    (For awards--as desired; if not an award, enter N/A. The alpha-
numeric field with dashes and slashes may not exceed 32 spaces. If 
sufficient space is not available, enter N/A and insert the contract 
line item number(s) in format item 17.)
15. CONTRACT AWARD DATE
    (For awards; if not an award, enter N/A. A six digit entry showing 
the date the award is made or the contract let. Format: MMDDYY.)
16. CONTRACTOR
    (For  awards;  if  not an award, enter N/A. Name and address of 
successful offeror. Four hundred character spaces allowed for full 
identification.)
17. DESCRIPTION
    (Enter a clear and concise description of the action. The 
description may not exceed 12,000 textual characters (approximately 3\1/
2\ single spaced pages). The suggested sequence of the content and items 
for inclusion in the description are contained in 5.207(c). Insert N/A 
when synopsizing awards.)

    (5) Nonapplicable format items. When a format item is not 
applicable, type the item number, a period, two blank spaces, and ``N/
A'' (e.g., 10. N/A!!).
    (6) The following is a sample CBD synopsis:

    1. P!!
    2. 0925!!
    3. 85!!
    4. GPO123456!!
    5. 19111-5096!!
    6. 95!!
    7. Defense Industrial Supply Center, 700 Robbins Ave., Philadelphia, 
PA 19111-5096!!
    8. 95--Steel Plate!!
    9. DLA500-86-B-0090!!
    10. BOD, 111585!!
    11. Contact, Mary Drake, 215/697-XXXX/Contracting Officer, Larry 
Bird, 215/697-XXXX!!
    12. N/A!!
    13. N/A!!
    14. N/A!!
    15. N/A!!
    16. N/A!!

[[Page 75]]

    17. NSN9515-00-237-5342, Spec Mil-S-226988, 0.1875 inch thick, 96 
inch width. 240 inch length. Carbon steel, 45,000 lbs. Delivery to NSY 
Philadelphia, PA, and NSC Norfolk, VA. Delivery by 1 Oct. 86. When 
calling, be prepared to state name, address, and solicitation number. 
See note 9. All responsible sources may submit an offer which will be 
considered. * * * * *

    (c) General format for Item 17, ``Description.'' (1) Prepare a clear 
and concise description of the supplies or services that is not 
unnecessarily restrictive of competition and will allow a prospective 
offeror to make an informed business judgment as to whether a copy of 
the solicitation should be requested.
    (2) Do not include in Item 17 the CBD supply or service 
classification code from Item 6.
    (i) National Stock Number (NSN) if assigned.
    (ii) Specification and whether an offeror, its product, or service 
must meet a qualification requirement in order to be eligible for award, 
and identification of the office from which additional information about 
the qualification requirement may be obtained (see subpart 9.2).
    (iii) Manufacturer, including part number, drawing number, etc.
    (iv) Size, dimensions, or other form, fit or functional description.
    (v) Predominant material of manufacture.
    (vi) Quantity, including any options for additional quantities.
    (vii) Unit of issue.
    (viii) Destination information.
    (ix) Delivery schedule.
    (x) Duration of the contract period.
    (xi) For a contract action in an amount estimated to be greater than 
$25,000 but not greater than the simplified acquisition threshold, enter 
(A) a description of the procedures to be used in awarding the contract 
(e.g., request for oral or written quotation or solicitation), and (B) 
the anticipated award date.
    (xii) For Architect-Engineer projects and other projects for which 
the supply or service codes are insufficient, provide brief details with 
respect to: location, scope of services required, cost range and 
limitations, type of contract, estimated starting and completion dates, 
and any significant evaluation factors.
    (xiii) Numbered notes (see 5.207(e)), including instructions for 
set-asides for small businesses.
    (xiv) In the case of noncompetitive contract actions (including 
those that do not exceed the simplified acquisition threshold), identify 
the intended source (see 5.207(e)(3)) and insert a statement of the 
reason justifying the lack of competition.
    (xv) Insert a statement that all responsible sources may submit a 
bid, proposal, or quotation which shall be considered by the agency.
    (xvi) If the contracting office will accept requests for 
solicitations through alternate means (e.g., facsimile machine, Telex), 
provide the machine number and routing instructions.
    (xvii) If the solicitation will be made available to interested 
parties through electronic data interchange, provide any information 
necessary to obtain and respond to the solicitation electronically.
    (d) Set-asides. When the proposed acquisition provides for a total 
or partial small business set aside, the appropriate CBD Numbered Note 
will be cited.
    (e) CBD Numbered Notes. (1) Numbered Notes are footnotes. The 
purpose of the Numbered Notes is to conserve space and simplify the 
identification of repetitive notices. An explanation of the Numbered 
Notes appears each week in the Monday edition of the CBD. If the Monday 
edition of the CBD is not printed because of a holiday, an explanation 
of the Numbered Notes will appear in the next day's issue. When one or 
more of the Notes applies to a synopsis, contracting officers should 
reference the note at the end of Item 17 of the synopsis; e.g., ``See 
Note(s). . . .'' Requests to add or change Notes will be submitted 
through channels for approval by the DAR Council and the CAA Council. 
The Councils will review the Numbered Notes periodically and, as 
appropriate, after consultation with the initiating agency, advise the 
Department of Commerce to delete or modify outdated or unused notes from 
the CBD. Contracting officers shall also include the substance of 
Numbered Notes whenever a proposed contract is

[[Page 76]]

publicized by means other than the CBD (see 5.101).
    (2) If the acquisition is subject to the requirements of the Trade 
Agreements Act of 1979 (see part 25), Numbered Note 12 shall be 
referenced in the synopsis.
    (3) Except for contract actions equal to or less than the simplified 
acquisition threshold or acquisitions of commercial items, the synopsis 
shall refer to Numbered Note 22 for noncompetitive contract actions. If 
it is anticipated that award will be made via a delivery order to an 
existing basic ordering agreement, the synopsis shall so state.
    (4) If, under the proposed acquisition, the Government does not 
intend to acquire a commercial item using part 12, the synopsis shall 
refer to Numbered Note 26.
    (f) Information not covered by Numbered Notes. To alert prospective 
contractors to information not covered by Numbered Notes, contracting 
officers should identify the following unusual circumstances in the 
synopsis:
    (1) Availability of specification, plans, drawing, or other 
technical data. It is impracticable to distribute the applicable ------
------ [insert `specifications,' `plans,' `drawings,' or other 
appropriate words] with the solicitation. These contract documents may 
be examined or obtained at ------------
    (2) Availability of background research report. This contract for 
basic research is a continuation of an effort conducted for the past --
------ [insert period]. A research report containing findings to date is 
not available to the Government.
    (3) Production requirements. The production of the supplies listed 
requires a substantial initial investment or an extended period of 
preparation for manufacture.
    (4) Place of performance unknown. This contract is subject to the 
Service Contract Act and the place of performance is unknown. Wage 
determinations have been requested for (insert localities). The 
contracting officer will request wage determinations for additional 
localities if asked to do so in writing by (insert time and date).
    (g) Codes to be Used in Synopses to Identify Services or Supplies. 
(1) Contracting officers shall use one of the following classification 
codes when the contemplated contract action is for services or when the 
overall acquisition can best be described as services based upon value:

                                                                        
------------------------------------------------------------------------
              Code                             Description              
------------------------------------------------------------------------
               A                 Research and development.              
               B                 Special studies and analysis--not R&D. 
               C                 Architect and engineering services.    
               D                 Information technology services,       
                                  including telecommunications services.
               E                 Purchase of structures and facilities. 
               F                 Natural resources and conservation     
                                  services.                             
               G                 Social services.                       
               H                 Quality control, testing, and          
                                  inspection services.                  
               J                 Maintenance, repair, and rebuilding of 
                                  equipment.                            
               K                 Modification of equipment.             
               L                 Technical representative services.     
               M                 Operation of Government-owned          
                                  facilities.                           
               N                 Installation of equipment.             
               P                 Salvage services.                      
               Q                 Medical services.                      
               R                 Professional, administrative, and      
                                  management support services.          
               S                 Utilities and housekeeping services.   
               T                 Photographic, mapping, printing, and   
                                  publication services.                 
               U                 Education and training services.       
               V                 Transportation, travel, and relocation 
                                  services.                             
               W                 Lease or rental of equipment.          
               X                 Lease or rental of facilities.         
               Y                 Construction of structures and         
                                  facilities.                           
               Z                 Maintenance, repair, and alteration of 
                                  real property.                        
------------------------------------------------------------------------

    (2) Contracting officers shall use one of the following 
classification codes when the contemplated contract action is for 
supplies or when the overall acquisition can best be described as 
supplies based upon value:

                                                                        
                                                                        
             Code                              Description              
                                                                        
10                              Weapons.                                
11                              Nuclear ordnance.                       
12                              Fire control equipment.                 
13                              Ammunition and explosives.              
14                              Guided missiles.                        
15                              Aircraft and airframe structural        
                                 components.                            
16                              Aircraft components and accessories.    
17                              Aircraft launching, landing, and ground 
                                 handling equipment.                    
18                              Space vehicles.                         
19                              Ships, small craft, pontoons, and       
                                 floating docks.                        
20                              Ship and marine equipment.              
22                              Railway equipment.                      
23                              Ground effect vehicles, motor vehicles, 
                                 trailers, and cycles.                  
24                              Tractors.                               
25                              Vehicular equipment components.         
26                              Tires and tubes.                        
28                              Engines, turbines, and components.      
29                              Engine accessories.                     
30                              Mechanical power transmission equipment.
31                              Bearings.                               
32                              Woodworking machinery and equipment.    
34                              Metalworking machinery.                 
35                              Service and trade equipment.            
36                              Special industry machinery.             
37                              Agricultural machinery and equipment.   

[[Page 77]]

                                                                        
38                              Construction, mining, excavating, and   
                                 highway maintenance equipment.         
39                              Materials handling equipment.           
40                              Rope, cable, chain, and fittings.       
41                              Refrigeration, air-conditioning, and air
                                 circulating equipment.                 
42                              Fire fighting, rescue, and safety       
                                 equipment.                             
43                              Pumps and compressors.                  
44                              Furnace, steam plant, and drying        
                                 equipment; and nuclear reactors.       
45                              Plumbing, heating, and sanitation       
                                 equipment.                             
46                              Water purification and sewage treatment 
                                 equipment.                             
47                              Pipe, tubing, hose, and fittings.       
48                              Valves.                                 
49                              Maintenance and repair shop equipment.  
51                              Hand tools.                             
52                              Measuring tools.                        
53                              Hardware and abrasives.                 
54                              Prefabricated structures and            
                                 scaffolding.                           
55                              Lumber, millwork, plywood, and veneer.  
56                              Construction and building materials.    
58                              Communication, detection, and coherent  
                                 radiation equipment.                   
59                              Electrical and electronic equipment     
                                 components.                            
60                              Fiber optics materials, components,     
                                 assemblies, and accessories.           
61                              Electric wire, and power and            
                                 distribution equipment.                
62                              Lighting fixtures and lamps.            
63                              Alarm, signal, and security detection   
                                 systems.                               
65                              Medical, dental, and veterinary         
                                 equipment and supplies.                
66                              Instruments and laboratory equipment.   
67                              Photographic equipment.                 
68                              Chemicals and chemical products.        
69                              Training aids and devices.              
70                              General-purpose information technology  
                                 equipment.                             
71                              Furniture.                              
72                              Household and commercial furnishings and
                                 appliances.                            
73                              Food preparation and serving equipment. 
74                              Office machines, text processing        
                                 systems, and visible record equipment. 
75                              Office supplies and devices.            
76                              Books, maps, and other publications.    
77                              Musical instruments, phonographs, and   
                                 home-type radios.                      
78                              Recreational and athletic equipment.    
79                              Cleaning equipment and supplies.        
80                              Brushes, paints, sealers, and adhesives.
81                              Containers, packaging, and packing      
                                 supplies.                              
83                              Textiles, leather, furs, apparel and    
                                 shoe findings, tents, and flags.       
84                              Clothing, individual equipment, and     
                                 insignia.                              
85                              Toiletries.                             
87                              Agricultural supplies.                  
88                              Live animals.                           
89                              Subsistence.                            
91                              Fuels, lubricants, oils, and waxes.     
93                              Nonmetallic fabricated materials.       
94                              Nonmetallic crude materials.            
95                              Metal bars, sheets, and shapes.         
96                              Ores, minerals, and their primary       
                                 products.                              
99                              Miscellaneous.                          
                                                                        

    (3) Only one classification code shall be reported. If more than one 
code is applicable, the contracting officer shall use the code which 
describes the predominant product or service being procured. The FPDS 
Product and Service Codes Manual, October 1988, may be used to identify 
a specific product or service within each code.
    (h) Cancellation of synopsis. Contracting officers should not 
publish notices of solicitation cancellations (or indefinite 
suspensions) of contract actions in the CBD. Cancellations of 
solicitations shall be made in accordance with 14.209 and 14.404-1.

[48 FR 42119, Sept. 19, 1983]


    Editorial Note:  For Federal Register citations affecting section 
5.207, see the List of Sections Affected in the Finding Aids section of 
this volume.



                Subpart 5.3--Synopses of Contract Awards



5.301  General.

    (a) Except for contract actions described in paragraph (b) of this 
section, contracting officers shall synopsize in the Commerce Business 
Daily (CBD) awards exceeding $25,000 that (1) are subject to the Trade 
Agreements Act (see 25.402 and 25.403), or (2) are likely to result in 
the award of any subcontracts. However, the dollar threshold is not a 
prohibition against publicizing an award of a smaller amount when 
publicizing would be advantageous to industry or to the Government.
    (b) A notice is not required under paragraph (a) of this section 
if--
    (1) The notice would disclose the executive agency's needs and the 
disclosure of such needs would compromise the national security;
    (2) The award results from acceptance of an unsolicited research 
proposal that demonstrates a unique and innovative research concept and 
publication of any notice would disclose the originality of thought or 
innovativeness of the proposed research or would disclose proprietary 
information associated with the proposal;
    (3) The award results from a proposal submitted under the Small 
Business Innovation Development Act of 1982 (Pub. L. 97-219);
    (4) The contract action is an order placed under Subpart 16.5;
    (5) The award is made for perishable subsistence supplies;

[[Page 78]]

    (6) The award is for utility services, other than telecommunications 
services, and only one source is available;
    (7) The contract action is for an amount greater than $25,000 but 
not greater than the simplified acquisition threshold, the contract 
action is made by a contracting office that has been certified as having 
implemented a system with interim (until December 31, 1999) or full 
(after December 31, 1999) FACNET, and the contract action has been made 
through FACNET; or
    (8) The award is for the services of an expert to support the 
Federal Government in any current or anticipated litigation or dispute 
pursuant to the exception to full and open competition authorized at 
6.302-3.
    (c) With respect to acquisitions subject to the Trade Agreements 
Act, contracting officers shall submit synopses in sufficient time to 
permit their publication in the CBD not later than 60 days after award.
[52 FR 19802, May 27, 1987, as amended at 53 FR 27463, July 20, 1988; 60 
FR 34747, July 3, 1995; 60 FR 42653, Aug. 16, 1995; 60 FR 49725, Sept. 
26, 1995]



5.302  Preparation and transmittal of synopses of awards.

    Contracting officers shall transmit synopses of contract awards in 
the same manner as prescribed in 5.207.
[55 FR 52790, Dec. 21, 1990]



5.303  Announcement of contract awards.

    (a) Public announcement. Contracting officers shall make information 
available on awards over $3 million (unless another dollar amount is 
specified in agency acquisition regulations) in sufficient time for the 
agency concerned to announce it by 5:00 p.m. Washington, DC time on the 
day of award. Contracts excluded from this reporting requirement include 
(1) those placed with the Small Business Administration under Section 
8(a) of the Small Business Act, (2) those placed with foreign firms when 
the place of delivery or performance is outside the United States or its 
possessions, and (3) those for which synopsis was exempted under 
5.202(a)(1). Agencies shall not release information on awards before the 
public release time of 5:00 p.m. Washington, DC time.
    (b) Local announcement. Agencies may also release information on 
contract awards to the local press or other media. When local 
announcements are made for contract awards in excess of the simplified 
acquisition threshold, they shall include--
    (1) For awards after sealed bidding, a statement that the contract 
was awarded after competition by sealed bidding, the number of offers 
solicited and received, and the basis for selection (e.g., the lowest 
responsible bidder); or
    (2) For awards after negotiation, the information prescribed by 
15.503(b), and after competitive negotiation (either price or design 
competition), a statement to this effect, and in general terms the basis 
for selection.
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1729, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 52 FR 30076, Aug. 12, 1987; 55 FR 3881, Feb. 
5, 1990; 56 FR 67128, Dec. 27, 1991; 59 FR 67017, Dec. 28, 1994; 60 FR 
34747, July 3, 1995; 60 FR 42653, Aug. 16, 1995; 61 FR 39190, July 26, 
1996; 61 FR 69289, Dec. 31, 1996; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
5.303, in pargraph (b)(2), ``15.1003(b)'' was amended to read 
``15.503(b)'', effective Oct. 10, 1997.



                   Subpart 5.4--Release of Information



5.401  General.

    (a) A high level of business security must be maintained in order to 
preserve the integrity of the acquisition process. When it is necessary 
to obtain information from potential contractors and others outside the 
Government for use in preparing Government estimates, contracting 
officers shall ensure that the information is not publicized or 
discussed with potential contractors.
    (b) Contracting officers may make available maximum information to 
the public, except information--
    (1) On plans that would provide undue or discriminatory advantage to 
private or personal interests;
    (2) Received in confidence from an offeror;

[[Page 79]]

    (3) Otherwise requiring protection under Freedom of Information Act 
(see subpart 24.2) or Privacy Act (see subpart 24.1); or
    (4) Pertaining to internal agency communications (e.g., technical 
reviews, contracting authority or other reasons, or recommendations 
referring thereto).
    (c) This policy applies to all Government personnel who participate 
directly or indirectly in any stage of the acquisition cycle.



5.402  General public.

    Contracting officers shall process requests for specific information 
from the general public, including suppliers, in accordance with subpart 
24.1 or 24.2, as appropriate.



5.403  Requests from Members of Congress.

    (a) Individual requests. Contracting officers shall give Members of 
Congress, upon their request, detailed information regarding any 
particular contract. When responsiveness would result in disclosure of 
classified matter, business confidential information, or information 
prejudicial to competitive acquisition, the contracting officer shall 
refer the proposed reply, with full documentation, to the agency head 
and inform the legislative liaison office of the action.
    (b) Inclusion on solicitation mailing lists. Upon request of a 
Congressional Committee or Subcommittee Chairperson, contracting 
officers shall place any member of a Committee or Subcommittee on the 
applicable solicitation mailing lists to receive automatic distribution 
of solicitations in the specific area of interest.
[48 FR 42119, Sept. 19, 1983, as amended at 50 FR 1729, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



5.404  Release of long-range acquisition estimates.

    To assist industry planning and to locate additional sources of 
supply, it may be desirable to publicize estimates of unclassified long-
range acquisition requirements. Estimates may be publicized as far in 
advance as possible.



5.404-1  Release procedures.

    (a) Application. The agency head, or a designee, may release long-
range acquisition estimates if the information will--
    (1) Assist industry in its planning and facilitate meeting the 
acquisition requirements;
    (2) Not encourage undesirable practices (e.g., attempts to corner 
the market or hoard industrial materials); and
    (3) Not indicate the existing or potential mobilization of the 
industry as a whole.
    (b) Conditions. The agency head shall ensure that--
    (1) Classified information is released through existing security 
channels in accordance with agency security regulations;
    (2) The information is publicized as widely as practicable to all 
parties simultaneously by any of the means described in this part;
    (3) Each release states that (i) the estimate is based on the best 
information available, (ii) the information is subject to modification 
and is in no way binding on the Government, and (iii) more specific 
information relating to any individual item or class of items will not 
be furnished until the proposed acquisition is synopsized in the CBD, or 
the solicitation is issued;
    (4) Each release contains the name and address of the contracting 
officer that will process the acquisition;
    (5) Modifications to the original release are publicized as soon as 
possible, in the same manner as the original; and
    (6) Each release--
    (i) Is coordinated in advance with small business, public 
information, and public relations personnel, as appropriate;
    (ii) Contains, if applicable, a statement that small business set-
asides may be involved, but that a determination can be made only when 
acquisition action is initiated; and
    (iii) Contains the name or description of the item, and the 
estimated quantity to be acquired by calendar quarter, fiscal year, or 
other period. It may also contain such additional information as the 
number of units last acquired, the

[[Page 80]]

unit price, and the name of the last supplier.
[48 FR 42119, Sept. 19, 1983, as amended at 60 FR 48259, Sept. 18, 1995]



5.404-2  Announcements of long-range acquisition estimates.

    Further publication, consistent with the needs of the individual 
case, may be accomplished by announcing in the CBD that long-range 
acquisition estimates have been published and are obtainable, upon 
request, from the contracting officer.



5.405  Exchange of acquisition information.

    (a) When the same item or class of items is being acquired by more 
than one agency, or by more than one contracting activity within an 
agency, the exchange and coordination of pertinent information, 
particularly cost and pricing data, between these agencies or 
contracting activities is necessary to promote uniformity of treatment 
of major issues and the resolution of particularly difficult or 
controversial issues. The exchange and coordination of information is 
particularly beneficial during the period of acquisition planning, 
presolicitation, evaluation, and pre-award survey.
    (b) When substantial acquisitions of major items are involved or 
when the contracting activity deems it desirable, the contracting 
activity shall request appropriate information (on both the end item and 
on major subcontracted components) from other agencies or contracting 
activities responsible for acquiring similar items. Each agency or 
contracting activity receiving such a request shall furnish the 
information requested. The contracting officer, early in a negotiation 
of a contract, or in connection with the review of a subcontract, shall 
request the contractor to furnish information as to the contractor's or 
subcontractor's previous Government contracts and subcontracts for the 
same or similar end items and major subcontractor components.



                    Subpart 5.5--Paid Advertisements



5.501  Definitions.

    Advertisement, as used in this subpart, means any single message 
prepared for placement in communication media, regardless of the number 
of placements.
    Publication, as used in this subpart, means (a) the placement of an 
advertisement in a newspaper, magazine, trade or professional journal, 
or any other printed medium, or (b) the broadcasting of an advertisement 
over radio or television.



5.502  Authority.

    (a) Newspapers. Authority to approve the publication of paid 
advertisements in newspapers is vested in the head of each agency (44 
U.S.C. 3702). This approval authority may be delegated (5 U.S.C. 302 
(b)). Contracting officers shall obtain written authorization in 
accordance with agency procedures before advertising in newspapers.
    (b) Other media. Unless the agency head determines otherwise, 
advance written authorization is not required to place advertisements in 
media other than newspapers.



5.503  Procedures.

    (a) General. (1) Orders for paid advertisements may be placed 
directly with the media or through an advertising agency. Contracting 
officers shall give small, small disadvantaged and women-owned small 
business concerns maximum opportunity to participate in these 
acquisitions.
    (2) The contracting officer shall use the SF 1449 for paper 
solicitations. The SF 1449 shall be used to make awards or place orders 
unless the award/order is made via FACNET or by using the Governmentwide 
commercial purchase card for micro-purchases.
    (b) Rates. Advertisements may be paid for at rates not over the 
commercial rates charged private individuals, with the usual discounts 
(44 U.S.C. 3703).
    (c) Proof of advertising. Every invoice for advertising shall be 
accompanied by a copy of the advertisement or an affidavit of 
publication furnished by

[[Page 81]]

the publisher, radio or television station, or advertising agency 
concerned (44 U.S.C. 3703). Paying offices shall retain the proof of 
advertising until the General Accounting Office settles the paying 
office's account.
    (d) Payment. Upon receipt of an invoice supported by proof of 
advertising, the contracting officer shall attach a copy of the written 
authority (see 5.502(a)) and submit the invoice for payment under agency 
procedures.
[48 FR 42119, Sept. 19, 1983, as amended at 54 FR 48982, Nov. 28, 1989; 
60 FR 34747, July 3, 1995; 60 FR 48259, Sept. 18, 1995; 61 FR 39192, 
July 26, 1996]



5.504  Use of advertising agencies.

    (a) General. Basic ordering agreements may be placed with 
advertising agencies for assistance in producing and placing 
advertisements when a significant number will be placed in several 
publications and in national media. Services of advertising agencies 
include, but are not limited to, counseling as to selection of the media 
for placement of the advertisement, contacting the media in the interest 
of the Government, placing orders, selecting and ordering typography, 
copywriting, and preparing rough layouts.
    (b) Use of commission-paying media. The services of advertising 
agencies in placing advertising with media often can be obtained at no 
cost to the Government, over and above the space cost, as many media 
give advertising agencies a commission or discount on the space cost 
that is not given to the Government.
    (c) Use of noncommission-paying media. Some media do not grant 
advertising agencies a commission or discount, meaning the Government 
can obtain the same rate as the advertising agency. If the advertising 
agency agrees to place advertisements in noncommission-paying media as a 
no-cost service, the basic ordering agreement shall so provide. If the 
advertising agency will not agree to place advertisements at no cost, 
the agreement shall (1) provide that the Government may place orders 
directly with the media, or (2) specify an amount that the Government 
will pay if the agency places the orders.
    (d) Art work, supplies, and incidentals. The basic ordering 
agreement also may provide for the furnishing by the advertising agency 
of art work, supplies, and incidentals, including brochures and 
pamphlets, but not their printing. Incidentals may include telephone 
calls, telegrams, and postage incurred by the advertising agency on 
behalf of the Government.



PART 6--COMPETITION REQUIREMENTS--Table of Contents




Sec.
6.000  Scope of part.
6.001  Applicability.
6.002  Limitations.
6.003  Definitions.

                 Subpart 6.1--Full and Open Competition

6.100  Scope of subpart.
6.101  Policy.
6.102  Use of competitive procedures.

    Subpart 6.2--Full and Open Competition After Exclusion of Sources

6.200  Scope of subpart.
6.201  Policy.
6.202  Establishing or maintaining alternative sources.
6.203  Set-asides for small business concerns.
6.204  Section 8(a) competition.

            Subpart 6.3--Other Than Full and Open Competition

6.300  Scope of subpart.
6.301  Policy.
6.302  Circumstances permitting other than full and open competition.
6.302-1  Only one responsible source and no other supplies or services 
          will satisfy agency requirements.
6.302-2  Unusual and compelling urgency.
6.302-3  Industrial mobilization; engineering, developmental, or 
          research capability; or expert services.
6.302-4  International agreement.
6.302-5  Authorized or required by statute.
6.302-6  National security.
6.302-7  Public interest.
6.303  Justifications.
6.303-1  Requirements.
6.303-2  Content.
6.304  Approval of the justification.
6.305  Availability of the justification.

          Subpart 6.4--Sealed Bidding and Competitive Proposals

6.401  Sealed bidding and competitive proposals.

[[Page 82]]

                   Subpart 6.5--Competition Advocates

6.501  Requirement.
6.502  Duties and responsibilities.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  50 FR 1729, Jan. 11, 1985 (interim rule), and 50 FR 52429, 
Dec. 23, 1985 (final rule), unless otherwise noted.

    Editorial Note:  At 62 FR 51230, Sept. 30, 1997, part 6 was amended 
effective Oct. 10, 1997. The superseded text of the amended sections 
remaining in effect until Oct. 10, 1997 appears in the Oct. 1, 1996, 
revision of Title 48, parts 1-51.



6.000  Scope of part.

    This part prescribes policies and procedures to promote full and 
open competition in the acquisition process and to provide for full and 
open competition, full and open competition after exclusion of sources, 
other than full and open competition, and competition advocates. As used 
in this part, full and open competition is the process by which all 
responsible offerors are allowed to compete. This part does not deal 
with the results of competition (e.g., adequate price competition), 
which are addressed in other parts (e.g., part 15).



6.001  Applicability.

    This part applies to all acquisitions except--
    (a) Contracts awarded using the simplified acquisition procedures of 
part 13 (but see 13.602 for requirements pertaining to sole source 
acquisition of commercial items under subpart 13.6)
    (b) Contracts awarded using contracting procedures (other than those 
addressed in this part) that are expressly authorized by statute;
    (c) Contract modifications, that are within the scope of the 
contract, including the exercise of priced options that were evaluated 
as part of the original competition (see 17.207(f));
    (d) Orders placed under requirements contracts or definite-quantity 
contracts;
    (e) Orders placed under indefinite-quantity contracts that were 
entered into pursuant to this part when--
    (1) The contract was awarded under subpart 6.1 or 6.2 and all 
responsible sources were realistically permitted to compete for the 
requirements contained in the order; or
    (2) The contract was awarded under subpart 6.3 and the required 
justification and approval adequately covers the requirements contained 
in the order; or
    (f) Orders placed against task order and delivery order contracts 
entered into pursuant to subpart 16.5.
[50 FR 52431, Dec. 23, 1985, as amended at 55 FR 52790, Dec. 21, 1990; 
60 FR 34747, July 3, 1995; 60 FR 49725, Sept. 26, 1995; 62 FR 263, Jan. 
2, 1997]



6.002  Limitations.

    No agency shall contract for supplies or services from another 
agency for the purpose of avoiding the requirements of this part.



6.003  Definitions.

    Full and open competition, when used with respect to a contract 
action, means that all responsible sources are permitted to compete.
    Procuring activity, as used in this part, means a component of an 
executive agency having a significant acquisition function and 
designated as such by the head of the agency. Unless agency regulations 
specify otherwise, the term procuring activity shall be synonymous with 
contracting activity as defined in subpart 2.1.
    Sole source acquisition means a contract for the purchase of 
supplies or services that is entered into or proposed to be entered into 
by an agency after soliciting and negotiating with only one source.
    Unique and innovative concept, when used relative to an unsolicited 
research proposal, means that, in the opinion and to the knowledge of 
the Government evaluator, the meritorious proposal is the product of 
original thinking submitted in confidence by one source; contains new 
novel or changed concepts, approaches, or methods; was not submitted 
previously by another; and, is not otherwise available within the 
Federal Government. In this context, the term does not mean that the 
source has the sole capability of performing the research.
[50 FR 1729, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985, as amended at 53 
FR 27463, July 20, 1988]

[[Page 83]]



                 Subpart 6.1--Full and Open Competition



6.100  Scope of subpart.

    This subpart prescribes the policy and procedures that are to be 
used to promote and provide for full and open competition.



6.101  Policy.

    (a) 10 U.S.C. 2304 and 41 U.S.C. 253 require, with certain limited 
exceptions (see subparts 6.2 and 6.3), that contracting officers shall 
promote and provide for full and open competition in soliciting offers 
and awarding Government contracts.
    (b) Contracting officers shall provide for full and open competition 
through use of the competitive procedure(s) contained in this subpart 
that are best suited to the circumstances of the contract action and 
consistent with the need to fulfill the Government's requirements 
efficiently (10 U.S.C. 2304 and 41 U.S.C. 253).
[50 FR 1729, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985, as amended 
at 62 FR 51230, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, section 6.101 
was amended by revising paragraph (b), effective Oct. 10, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

6.101  Policy.

                                * * * * *

    (b) Contracting officers shall provide for full and open competition 
through use of the competitive procedure or combination of competitive 
procedures contained in this subpart that is best suited to the 
circumstances of the contract action. Contracting officers must use good 
judgment in selecting the procedure that best meets the needs of the 
Government.



6.102  Use of competitive procedures.

    The competitive procedures available for use in fulfilling the 
requirement for full and open competition are as follows:
    (a) Sealed bids. (See 6.401(a).)
    (b) Competitive proposals. (See 6.401(b).) If sealed bids are not 
appropriated under (a) above, contracting officers shall request 
competitive proposals or use the other competitive procedures under (c) 
or (d) below.
    (c) Combination of competitive procedures. If sealed bids are not 
appropriate, contracting officers may use any combination of competitive 
procedures (e.g., two-step sealed bidding).
    (d) Other competitive procedures. (1) Selection of sources for 
architect-engineer contracts in accordance with the provisions of Pub. 
L. 92-582 (40 U.S.C. 541 et seq.) is a competitive procedure (see 
subpart 36.6 for procedures).
    (2) Competitive selection of basic and applied research and that 
part of development not related to the development of a specific system 
or hardware procurement is a competitive procedure if award results 
from--
    (i) A broad agency announcement that is general in nature 
identifying areas of research interest, including criteria for selecting 
proposals, and soliciting the participation of all offerors capable of 
satisfying the Government's needs; and
    (ii) A peer of scientific review.
    (3) Use of multiple award schedules issued under the procedures 
established by the Administrator of General Services consistent with the 
requirement of 41 U.S.C. 259(b)(3)(A) for the multiple award schedule 
program of the General Services Administration is a competitive 
procedure.
[50 FR 1729, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985, as amended at 53 
FR 27463, July 20, 1988; 59 FR 53716, Oct. 25, 1994]



    Subpart 6.2--Full and Open Competition After Exclusion of Sources



6.200  Scope of subpart.

    This subpart prescribes policies and procedures for providing for 
full and open competition after excluding one or more sources.



6.201  Policy.

    Acquisitions made under this subpart require use of the competitive 
procedures prescribed in 6.102 after agencies have excluded a source or 
sources from participation in a contract action under the circumstances 
described in 6.202 or 6.203 below.

[[Page 84]]



6.202  Establishing or maintaining alternative sources.

    (a) Agencies may exclude a particular source from a contract action 
in order to establish or maintain an alternative source or sources for 
the supplies or services being acquired if the agency head determines 
that to do so would--
    (1) Increase or maintain competition and likely result in reduced 
overall costs for the acquisition, or for any anticipated acquisition;
    (2) Be in the interest of national defense in having a facility (or 
a producer, manufacturer, or other supplier) available for furnishing 
the supplies or services in case of a national emergency or industrial 
mobilization;
    (3) Be in the interest of national defense in establishing or 
maintaining an essential engineering, research, or development 
capability to be provided by an educational or other nonprofit 
institution or a federally funded research and development center;
    (4) Ensure the continuous availability of a reliable source of 
supplies or services;
    (5) Satisfy projected needs based on a history of high demand; or
    (6) Satisfy a critical need for medical, safety, or emergency 
supplies.
    (b)(1) Every proposed contract action under the authority of 
paragraph (a) above shall be supported by a determination and findings 
(D&F) (see subpart 1.7) signed by the head of the agency or designee. 
This D&F shall not be made on a class basis.
    (2) Technical and requirements personnel are responsible for 
providing all necessary data to support their recommendation to exclude 
a particular source.
    (3) When the authority in (a)(1) above is cited, the findings shall 
include a description of the estimated reduction in overall costs and 
how the estimate was derived.
[50 FR 1729, Jan. 11, 1985, as amended at 60 FR 42653, Aug. 16, 1995]



6.203  Set-asides for small business concerns.

    (a) To fulfill the statutory requirements relating to small business 
concerns, contracting officers may set aside solicitations to allow only 
such business concerns to compete. This includes contract actions 
conducted under the Small Business Innovation Research Program 
established under Pub. L. 97-219.
    (b) No separate justification or determination and findings is 
required under this part to set aside a contract action for small 
business concerns.
    (c) Subpart 19.5 prescribes policies and procedures that shall be 
followed with respect to set-asides.
[60 FR 48259, Sept. 18, 1995]



6.204  Section 8(a) competition.

    (a) To fulfill statutory requirements relating to section 8(a) of 
the Small Business Act, as amended by Pub. L. 100-656, contracting 
officers may limit competition to eligible 8(a) contractors (see subpart 
19.8).
    (b) No separate justification or determination and findings is 
required under this part to limit competition to eligible 8(a) 
contractors.
[54 FR 46005, Oct. 31, 1989]



            Subpart 6.3--Other Than Full and Open Competition



6.300  Scope of subpart.

    This subpart prescribes policies and procedures, and identifies the 
statutory authorities, for contracting without providing for full and 
open competition.



6.301  Policy.

    (a) 41 U.S.C. 253(c) and 10 U.S.C. 2304(c) each authorize, under 
certain conditions, contracting without providing for full and open 
competition. The Department of Defense, Coast Guard, and National 
Aeronautics and Space Administration are subject to 10 U.S.C. 2304(c). 
Other executive agencies are subject to 41 U.S.C. 253(c). Contracting 
without providing for full and open competition or full and open 
competition after exclusion of sources is a violation of statute, unless 
permitted by one of the exceptions in 6.302.
    (b) Each contract awarded without providing for full and open 
competition shall contain a reference to the specific authority under 
which it was so awarded. Contracting officers shall use the

[[Page 85]]

U.S. Code citation applicable to their agency. (See 6.302.)
    (c) Contracting without providing for full and open competition 
shall not be justified on the basis of (1) a lack of advance planning by 
the requiring activity or (2) concerns related to the amount of funds 
available (e.g., funds will expire) to the agency or activity for the 
acquisition of supplies or services.
    (d) When not providing for full and open competition, the 
contracting officer shall solicit offers from as many potential sources 
as is practicable under the circumstances.
    (e) For contracts under this subpart, the contracting officer shall 
use the contracting procedures prescribed in 6.102 (a) or (b), if 
appropriate, or any other procedures authorized by this regulation.



6.302  Circumstances permitting other than full and open competition.

    The following statutory authorities (including applications and 
limitations) permit contracting without providing for full and open 
competition. Requirements for justifications to support the use of these 
authorities are in 6.303.
[50 FR 52431, Dec. 23, 1985]



6.302-1  Only one responsible source and no other supplies or services will satisfy agency requirements.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(1) or 41 U.S.C. 
253(c)(1).
    (2) When the supplies or services required by the agency are 
available from only one responsible source, or, for DoD, NASA, and the 
Coast Guard, from only one or a limited number of responsible sources, 
and no other type of supplies or services will satisfy agency 
requirements, full and open competiton need not be provided for.
    (i) Supplies or services may be considered to be available from only 
one source if the source has submitted an unsolicited research proposal 
that:
    (A) Demonstrates a unique and innovative concept, or, demonstrates a 
unique capability of the source to provide the particular research 
services proposed;
    (B) Offers a concept or services not otherwise available to the 
Government; and
    (C) Does not resemble the substance of a pending competitive 
acquisition. (See 10 U.S.C. 2304(d)(1)(A) and 41 U.S.C. 253(d)(1)(A).)
    (ii) Supplies may be deemed to be available only from the original 
source in the case of a follow-on contract for the continued development 
or production of a major system or highly specialized equipment, 
including major components thereof, when it is likely that award to any 
other source would result in (A) substantial duplication of cost to the 
Government that is not expected to be recovered through competition, or 
(B) unacceptable delays in fulfilling the agency's requirements. (See 10 
U.S.C. 2304(d)(1)(B) or 41 U.S.C. 253(d)(1)(B).)
    (iii) For DoD, NASA, and the Coast Guard, services may be deemed to 
be available only from the original source in the case of follow-on 
contracts for the continued provision of highly specialized services 
when it is likely that award to any other source would result in (A) 
substantial duplication of cost to the Government that is not expected 
to be recovered through competition, or (B) unacceptable delays in 
fulfilling the agency's requirements. (See 10 U.S.C. 2304(d)(1)(B)).
    (b) Application. This authority shall be used, if appropriate, in 
preference to the authority in 6.302-7; it shall not be used when any of 
the other circumstances is applicable. Use of this authority may be 
appropriate in situations such as the following (these examples are not 
intended to be all-inclusive and do not consitute authority in and of 
themselves):
    (1) When there is a reasonable basis to conclude that the agency's 
minimum needs can only be satisfied by (i) unique supplies or services 
available from only one source or only one supplier with unique 
capabilities; or, (ii) for DoD, NASA, and the Coast Guard, unique 
supplies or services available from only one or a limited number of 
sources or from only one or a limited number of suppliers with unique 
capabilities.

[[Page 86]]

    (2) The existence of limited rights in data, patent rights, 
copyrights, or secret processes; the control of basic raw material; or 
similar circumstances, make the supplies and services available from 
only one source (however, the mere existence of such rights or 
circumstances does not in and of itself justify the use of these 
authorities) (see part 27).
    (3) When acquiring utility services (see 41.101), circumstances may 
dictate that only one supplier can furnish the service (see 41.202); or 
when the contemplated contract is for construction of a part of a 
utility system and the utility company itself is the only source 
available to work on the system.
    (4) When the agency head has determined in accordance with the 
agency's standardization program that only specified makes and models of 
technical equipment and parts will satisfy the agency's needs for 
additional units or replacement items, and only one source is available.
    (c) Application for brand name descriptions. An acquisition that 
uses a brand name description or other purchase description to specify a 
particular brand name, product, or feature of a product, peculiar to one 
manufacturer does not provide for full and open competition regardless 
of the number of sources solicited. It shall be justified and approved 
in accordance with FAR 6.303 and 6.304. The justification should 
indicate that the use of such descriptions in the acquisition is 
essential to the Government's requirements, thereby precluding 
consideration of a product manufactured by another company. (Brand-name 
or equal descriptions, and other purchase descriptions that permit 
prospective contractors to offer products other than those specifically 
referenced by brand name, provide for full and open competition and do 
not require justifications and approvals to support their use.)
    (d) Limitations. (1) Contracts awarded using this authority shall be 
supported by the written justifications and approvals described in 6.303 
and 6.304.
    (2) For contracts awarded using this authority, the notices required 
by 5.201 shall have been published and any bids and proposals must have 
been considered. (See 15.402(g).)
[50 FR 52431, Dec. 23, 1985, as amended at 52 FR 21886, June 9, 1987; 53 
FR 27463, July 20, 1988; 56 FR 29127, June 25, 1991; 59 FR 67018, Dec. 
28, 1994]

    Editorial Note:  At 62 FR 51270, Sept. 30, 1997, in section 6.302-1, 
in paragraph (d)(2), ``(See 15.402(h))'' was removed, effective Oct. 10, 
1997, however ``(See 15.402(h))'' did not exist in the 1996 edition of 
this volume.



6.302-2  Unusual and compelling urgency.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(2) or 41 U.S.C. 
253(c)(2).
    (2) When the agency's need for the supplies or services is of such 
an unusual and compelling urgency that the Government would be seriously 
injured unless the agency is permitted to limit the number of sources 
from which it solicits bids or proposals, full and open competition need 
not be provided for.
    (b) Application. This authority applies in those situations where 
(1) an unusual and compelling urgency precludes full and open 
competition, and (2) delay in award of a contract would result in 
serious injury, financial or other, to the Government.
    (c) Limitations. (1) Contracts awarded using this authority shall be 
supported by the written justifications and approvals described in 6.303 
and 6.304. These justifications may be made and approved after contract 
award when preparation and approval prior to award would unreasonably 
delay the acquisition.
    (2) This statutory authority requires that agencies shall request 
offers from as many potential sources as is practicable under the 
circumstances.
[50 FR 52431, Dec. 23, 1985]



6.302-3  Industrial mobilization; engineering, developmental, or research capability; or expert services.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(3) or 41 U.S.C. 
253(c)(3).
    (2) Full and open competition need not to be provided for when it is 
necessary to award the contract to a particular source or sources in 
order:
    (i) to maintain a facility, producer, manufacturer, or other 
supplier available for furnishing supplies or services

[[Page 87]]

in case of a national emergency or to achieve industrial mobilization,
    (ii) to establish or maintain an essential engineering, research, or 
development capability to be provided by an educational or other 
nonprofit institution or a federally funded research and development 
center, or
    (iii) to acquire the services of an expert for any current or 
anticipated litigation or dispute.
    (b) Application. (1) Use of the authority in paragraph (a)(2)(i) 
above may be appropriate when it is necessary to--
    (i) Keep vital facilities or suppliers in business or make them 
available in the event of a national emergency;
    (ii) Train a selected supplier in the furnishing of critical 
supplies or services, prevent the loss of a supplier's ability and 
employees' skills, or maintain active engineering, research, or 
development work;
    (iii) Maintain properly balanced sources of supply for meeting the 
requirements of acquisition programs in the interest of industrial 
mobilization (when the quantity required is substantially larger than 
the quantity that must be awarded in order to meet the objectives of 
this authority, that portion not required to meet such objectives will 
be acquired by providing for full and open competition as appropriate 
under this part);
    (iv) Limit competition for current acquisition of selected supplies 
or services approved for production planning under the Department of 
Defense Industrial Preparedness Program to planned producers with whom 
industrial preparedness agreements for those items exist, or limit award 
to offerors who agree to enter into industrial preparedness agreements;
    (v) Create or maintain the required domestic capability for 
production of critical supplies by limiting competition to items 
manufactured in the United States or the United States and Canada;
    (vi) Continue in production, contractors that are manufacturing 
critical items, where there would otherwise be a break in production; or
    (vii) Divide current production requirements among two or more 
contractors to provide for an adequate industrial mobilization base.
    (2) Use of the authority in paragraph (a)(2)(ii) above may be 
appropriate when it is necessary to--
    (i) Establish or maintain an essential capability for theoretical 
analyses, exploratory studies, or experiments in any field of science or 
technology;
    (ii) Establish or maintain an essential capability for engineering 
or developmental work calling for the practical application of 
investigative findings and theories of a scientific or technical nature; 
or
    (iii) Contract for supplies or services as are necessary incident to 
paragraphs (b)(2)(i) or (ii) above.
    (3) Use of the authority in paragraph (a)(2)(iii) of this section 
may be appropriate when it is necessary to acquire the services of 
either--
    (i) An expert to use, in any litigation or dispute (including any 
reasonably foreseeable litigation or dispute) involving the Government 
in any trial, hearing, or proceeding before any court, administrative 
tribunal, or agency, whether or not the expert is expected to testify. 
Examples of such services include, but are not limited to:
    (A) Assisting the Government in the analysis, presentation, or 
defense of any claim or request for adjustment to contract terms and 
conditions, whether asserted by a contractor or the Government, which is 
in litigation or dispute, or is anticipated to result in dispute or 
litigation before any court, administrative tribunal, or agency, or
    (B) Participating in any part of an alternative dispute resolution 
process, including but not limited to evaluators, fact finders, or 
witnesses, regardless of whether the expert is expected to testify; or
    (ii) A neutral person, e.g., mediators or arbitrators, to facilitate 
the resolution of issues in an alternative dispute resolution process.
    (c) Limitations. Contracts awarded using this authority shall be 
supported by the written justifications and approvals described in 6.303 
and 6.304.
[50 FR 52431, Dec. 23, 1985, as amended at 60 FR 42654, Aug. 16, 1995; 
60 FR 44548, Aug. 28, 1995; 62 FR 235, Jan. 2, 1997]



6.302-4  International agreement.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(4) or 41 U.S.C. 
253(c)(4).

[[Page 88]]

    (2) Full and open competition need not be provided for when 
precluded by the terms of an international agreement or a treaty between 
the United States and a foreign government or international 
organization, or the written directions of a foreign government 
reimbursing the agency for the cost of the acquisition of the supplies 
or services for such government.
    (b) Application. This authority may be used in circumstances such 
as--
    (1) When a contemplated acquisition is to be reimbursed by a foreign 
country that requires that the product be obtained from a particular 
firm as specified in official written direction such as a Letter of 
Offer and Acceptance; or
    (2) When a contemplated acquisition is for services to be performed, 
or supplies to be used, in the sovereign territory of another country 
and the terms of a treaty or agreement specify or limit the sources to 
be solicited.
    (c) Limitations. Except for DoD, NASA, and the Coast Guard, 
contracts awarded using this authority shall be supported by written 
justifications and approvals described in 6.303 and 6.304.

[50 FR 52432, Dec. 23, 1985, as amended at 55 FR 52790, Dec. 21, 1990]



6.302-5  Authorized or required by statute.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(5) or 41 U.S.C. 
253(c)(5).
    (2) Full and open competition need not be provided for when (i) a 
statute expressly authorizes or requires that the acquisition be made 
through another agency or from a specified source, or (ii) the agency's 
need is for a brand name commercial item for authorized resale.
    (b) Application. This authority may be used when statutes, such as 
the following, expressly authorize or require that acquisition be made 
from a specified source or through another agency:
    (1) Federal Prison Industries (UNICOR)--18 U.S.C. 4124 (see subpart 
8.6);
    (2) Qualified Nonprofit Agencies for the Blind or other Severely 
Handicapped--41 U.S.C. 46-48c (see subpart 8.7);
    (3) Government Printing and Binding--44 U.S.C. 501-504, 1121 (see 
subpart 8.8);
    (4) Sole source awards under the 8(a) Program--15 U.S.C. 637 (see 
subpart 19.8); or
    (5) The Robert T. Stafford Disaster Relief and Emergency Assistance 
Act--42 U.S.C. 5150 (see subpart 26.2).
    (c) Limitations. (1) This authority shall not be used when a 
provision of law requires an agency to award a new contract to a 
specified non-Federal Government entity unless the provision of law 
specifically--
    (i) Identifies the entity involved;
    (ii) Refers to 10 U.S.C. 2304(j) for armed services acquisitions or 
section 303(h) of the Federal Property and Administrative Services Act 
of 1949 for civilian agency acquisitions; and
    (iii) States that award to that entity shall be made in 
contravention of the merit-based selection procedures in 10 U.S.C. 
2304(j) or section 303(h) of the Federal Property and Administrative 
Services Act, as appropriate. However, this limitation does not apply--
    (A) When the work provided for in the contract is a continuation of 
the work performed by the specified entity under a preceding contract; 
or
    (B) To any contract requiring the National Academy of Sciences to 
investigate, examine, or experiment upon any subject of science or art 
of significance to an executive agency and to report on those matters to 
the Congress or any agency of the Federal Government.
    (2) Contracts awarded using this authority shall be supported by the 
written justifications and approvals described in 6.303 and 6.304, 
except for--
    (i) Contracts awarded under (a)(2)(ii), (b)(2), or (b)(4) of this 
subsection; or
    (ii) Contracts awarded under (a)(2)(i) of this subsection when the 
statute expressly requires that the procurement be made from a specified 
source. (Justification and approval requirements apply when the statute 
authorizes, but does not require, that the procurement be made from a 
specified source.)
    (3) The authority in (a)(2)(ii) of this subsection may be used only 
for purchases of brand-name commercial items for resale through 
commissaries or other similar facilities. Ordinarily,

[[Page 89]]

these purchases will involve articles desired or preferred by customers 
of the selling activities (but see 6.301(d)).
[50 FR 52432, Dec. 23, 1985, as amended at 51 FR 36971, Oct. 16, 1986; 
54 FR 46005, Oct. 31, 1989; 60 FR 42654, Aug. 16, 1995; 61 FR 39200, 
July 26, 1996]



6.302-6  National security.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(6) or 41 U.S.C. 
253(c)(6).
    (2) Full and open competition need not be provided for when the 
disclosure of the agency's needs would compromise the national security 
unless the agency is permitted to limit the number of sources from which 
it solicits bids or proposals.
    (b) Application. This authority may be used for any acquisition when 
disclosure of the Government's needs would compromise the national 
security (e.g., would violate security requirements); it shall not be 
used merely because the acquisition is classified, or merely because 
access to classified matter will be necessary to submit a proposal or to 
perform the contract.
    (c) Limitations. (1) Contracts awarded using this authority shall be 
supported by the written justifications and approvals described in 6.303 
and 6.304.
    (2) See 5.202(a)(1) for synopsis requirements.
    (3) This statutory authority requires that agencies shall request 
offers from as many potential sources as is practicable under the 
circumstances.
[50 FR 52432, Dec. 23, 1985]



6.302-7  Public interest.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(7) or 41 U.S.C. 
253(c)(7).
    (2) Full and open competition need not be provided for when the 
agency head determines that it is not in the public interest in the 
particular acquisition concerned.
    (b) Application. This authority may be used when none of the other 
authorities in 6.302 apply.
    (c) Limitations. (1) A written determination to use this authority 
shall be made in accordance with subpart 1.7, by (i) the Secretary of 
Defense, the Secretary of the Army, the Secretary of the Navy, the 
Secretary of the Air Force, the Secretary of Transportation for the 
Coast Guard, or the Administrator of the National Aeronautics and Space 
Administration; or (ii) the head of any other executive agency. This 
authority may not be delegated.
    (2) The Congress shall be notified in writing of such determination 
not less than 30 days before award of the contract.
    (3) If required by the head of the agency, the contracting officer 
shall prepare a justification to support the determination under 
paragraph (c)(1) above.
    (4) This Determination and Finding (D & F) shall not be made on a 
class basis.
[50 FR 52432, Dec. 23, 1985]



6.303  Justifications.



6.303-1  Requirements.

    (a) A contracting officer shall not commence negotiations for a sole 
source contract, commence negotiations for a contract resulting from an 
unsolicited proposal, or award any other contract without providing for 
full and open competition unless the contracting officer--
    (1) Justifies, if required in 6.302, the use of such actions in 
writing;
    (2) Certifies the accuracy and completeness of the justification; 
and
    (3) Obtains the approval required by 6.304.
    (b) Technical and requirements personnel are responsible for 
providing and certifying as accurate and complete necessary data to 
support their recommendation for other than full and open competition.
    (c) Justifications required by paragraph (a) above may be made on an 
individual or class basis. Any justification for contracts awarded under 
the authority of 6.302-7 shall only be made on an individual basis. 
Whenever a justification is made and approved on a class basis, the 
contracting officer must ensure that each contract action taken pursuant 
to the authority of the class justification and approval is within the 
scope of the class justification and approval and shall document the 
contract file for each contract action accordingly.

[[Page 90]]

    (d) Contract actions subject to the Agreement on Government 
Procurement (see subpart 25.4, Foreign Acquisition) may be made without 
providing for full and open competition only when permitted and 
justified pursuant to this subpart. If, in such a contract action, the 
authority of 6.302-3(a)(2)(i) or 6.302-7 is being cited as a basis for 
not providing for full and open competition, a copy of the justification 
shall also be forwarded, in accordance with agency procedures, to the 
agency's point of contact with the Office of the United States Trade 
Representative.
    (e) The justifications for contracts awarded under the authority 
cited in 6.302-2 may be prepared and approved within a reasonable time 
after contract award when preparation and approval prior to award would 
unreasonably delay the acquisitions.
[50 FR 1729, Jan. 11, 1985, as amended at 50 FR 52433, Dec. 23, 1985; 55 
FR 25526, June 21, 1990]



 6.303-2  Content.

    (a) Each justification shall contain sufficient facts and rationale 
to justify the use of the specific authority cited. As a minimum, each 
justification shall include the following information:
    (1) Identification of the agency and the contracting activity, and 
specific identification of the document as a ``Justification for other 
than full and open competition.''
    (2) Nature and/or description of the action being approved.
    (3) A description of the supplies or services required to meet the 
agency's needs (including the estimated value).
    (4) An identification of the statutory authority permitting other 
than full and open competition.
    (5) A demonstration that the proposed contractor's unique 
qualifications or the nature of the acquisition requires use of the 
authority cited.
    (6) A description of efforts made to ensure that offers are 
solicited from as many potential sources as is practicable, including 
whether a CBD notice was or will be publicized as required by subpart 
5.2 and, if not, which exception under 5.202 applies.
    (7) A determination by the contracting officer that the anticipated 
cost to the Government will be fair and reasonable.
    (8) A description of the market research conducted (see part 10) and 
the results or a statement of the reason market research was not 
conducted.
    (9) Any other facts supporting the use of other than full and open 
competition, such as:
    (i) Explanation of why technical data packages, specifications, 
engineering descriptions, statements of work, or purchase descriptions 
suitable for full and open competition have not been developed or are 
not available.
    (ii) When 6.302-1 is cited for follow-on acquisitions as described 
in 6.302-1(a)(2)(ii), an estimate of the cost to the Government that 
would be duplicated and how the estimate was derived.
    (iii) When 6.302-2 is cited, data, estimated cost, or other 
rationale as to the extent and nature of the harm to the Government.
    (10) A listing of the sources, if any, that expressed, in writing, 
an interest in the acquisition.
    (11) A statement of the actions, if any, the agency may take to 
remove or overcome any barriers to competition before any subsequent 
acquisition for the supplies or services required.
    (12) Contracting officer certification that the justification is 
accurate and complete to the best of the contracting officer's knowledge 
and belief.
    (b) Each justification shall include evidence that any supporting 
data that is the responsibility of technical or requirements personnel 
(e.g., verifying the Government's minimum needs or schedule requirements 
or other rationale for other than full and open competition) and which 
form a basis for the justification have been certified as complete and 
accurate by the technical or requirements personnel.
[50 FR 1729, Jan. 11, 1985, as amended at 50 FR 52433, Dec. 23, 1985; 60 
FR 48236, Sept. 18, 1995]



6.304  Approval of the justification.

    (a) Except for paragraph (b) of this section, the justification for 
other than full and open competition shall be approved in writing--

[[Page 91]]

    (1) For a proposed contract not exceeding $500,000, the contracting 
officer's certification required by 6.303-2(a)(12) will serve as 
approval unless a higher approving level is established in agency 
procedures.
    (2) For a proposed contract over $500,000 but not exceeding 
$10,000,000, by the competition advocate for the procuring activity 
designated pursuant to 6.501 or an official described in paragraph 
(a)(3) or (a)(4) of this section. This authority is not delegable.
    (3) For a proposed contract over $10,000,000, but not exceeding 
$50,000,000, by the head of the procuring activity, or a designee who--
    (i) If a member of the armed forces, is a general or flag officer; 
or
    (ii) If a civilian, is serving in a position in grade GS 16 or above 
under the General Schedule (or in a comparable or higher position under 
another schedule).
    (4) For a proposed contract over $50,000,000, by the senior 
procurement executive of the agency designated pursuant to the OFPP Act 
(41 U.S.C. 414(3)) in accordance with agency procedures. This authority 
is not delegable except in the case of the Under Secretary of Defense 
(Acquisition and Technology), acting as the senior procurement executive 
for the Department of Defense.
    (b) Any justification for a contract awarded under the authority of 
6.302-7, regardless of dollar amount, shall be considered approved when 
the determination required by 6.302-7(c)(1) is made.
    (c) A class justification for other than full and open competition 
shall be approved in writing in accordance with agency procedures. The 
approval level shall be determined by the estimated total value of the 
class.
    (d) The estimated dollar value of all options shall be included in 
determining the approval level of a justification.
[50 FR 1729, Jan. 11, 1985, as amended at 50 FR 52433, Dec. 23, 1985; 54 
FR 13023, Mar. 29, 1989; 55 FR 3881, Feb. 5, 1990; 55 FR 52790, Dec. 21, 
1990; 60 FR 42654, 42665, Aug. 16, 1995; 61 FR 31618, June 20, 1996]



6.305  Availability of the justification.

    (1) The justification required by 6.303-1 and any related 
information shall be made available for public inspection as required by 
10 U.S.C. 2304(f)(4) and 41 U.S.C. 303(f)(4). Contracting officers shall 
carefully screen all justifications for contractor proprietary data and 
remove all such data, and such references and citations as are necessary 
to protect the proprietary data, before making the justifications 
available for public inspection. Contracting officers shall also be 
guided by the exemptions to disclosure of information contained in the 
Freedom of Information Act (5 U.S.C. 552) and the prohibitions against 
disclosure in 24.202 in determining whether other data should be 
removed.
    (2) If a Freedom of Information request is received, contracting 
officers shall comply with subpart 24.2.
[50 FR 1729, Jan. 11, 1985 and 50 FR 52429, Dec. 23, 1985, as amended at 
62 FR 257, Jan. 2, 1997]



          Subpart 6.4--Sealed Bidding and Competitive Proposals



6.401  Sealed bidding and competitive proposals.

    Sealed bidding and competitive proposals, as described in parts 14 
and 15, are both acceptable procedures for use under subparts 6.1, 6.2, 
and when appropriate, under subpart 6.3. Contracting officers shall 
exercise good judgment in selecting the method of contracting that best 
meets the needs of the Government. If the choice is to use competitive 
proposals rather than sealed bidding, the contracting officer shall 
briefly explain, in writing, which of the four conditions in paragraph 
(a) of this section has not been met. No additional documentation or 
justification is required.
    (a) Sealed bids. (See part 14 for procedures.) Contracting officers 
shall solicit sealed bids if--
    (1) Time permits the solicitation, submission, and evaluation of 
sealed bids;
    (2) The award will be made on the basis of price and other price-
related factors;
    (3) It is not necessary to conduct discussions with the responding 
offerors about their bids; and
    (4) There is reasonable expectation of receiving more than one 
sealed bid.

[[Page 92]]

    (b) Competitive proposals. (See part 15 for procedures.)
    (1) Contracting officers may request competitive proposals if sealed 
bids are not appropriate under paragraph (a) above.
    (2) Because of differences in areas such as law, regulations, and 
business practices, it is generally necessary to conduct discussions 
with offerors relative to proposed contracts to be made and performed 
outside the United States, it possessions, or Puerto Rico. Competitive 
proposals will therefore be used for these contracts unless discussions 
are not required and the use of sealed bids is otherwise appropriate.
[50 FR 1729, Jan. 11, 1985; 50 FR 4221, Jan. 30, 1985; 50 FR 52429, Dec. 
23, 1985; 54 FR 5054, Jan. 31, 1989]



                   Subpart 6.5--Competition Advocates



6.501  Requirement.

    As required by section 20 of the Office of Federal Procurement 
Policy Act, the head of each executive agency shall designate a 
competition advocate for the agency and for each procuring activity of 
the agency. The competition advocates shall--
    (a) Be in positions other than that of the agency senior procurement 
executive;
    (b) Not be assigned any duties or responsibilities that are 
inconsistent with 6.502 below; and
    (c) Be provided with staff or assistance (e.g., specialists in 
engineering, technical operations, contract administration, financial 
management, supply management, and utilization of small business 
concerns), as may be necessary to carry out the advocate's duties and 
responsibilities.
[50 FR 1729, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985, as amended 
at 60 FR 48259, Sept. 18, 1995]



6.502  Duties and responsibilities.

    (a) Agency and procuring activity competition advocates are 
responsible for promoting the acquisition of commercial items, promoting 
full and open competition, challenging requirements that are not stated 
in terms of functions to be performed, performance required or essential 
physical characteristics, and challenging barriers to the acquisition of 
commercial items and full and open competition such as unnecessarily 
restrictive statements of work, unnecessarily detailed specifications, 
and unnecessarily burdensome contract clauses.
    (b) Agency competition advocates shall--
    (1) Review the contracting operations of the agency and identify and 
report to the agency senior procurement executive--
    (i) Opportunities and actions taken to acquire commercial items to 
meet the needs of the agency;
    (ii) Opportunities and actions taken to achieve full and open 
competition in the contracting operations of the agency;
    (iii) Actions taken to challenge requirements that are not stated in 
terms of functions to be performed, performance required or essential 
physical characteristics;
    (iv) Any condition or action that has the effect of unnecessarily 
restricting the acquisition of commercial items or competition in the 
contracting actions of the agency;
    (2) Prepare and submit an annual report to the agency senior 
procurement executive, in accordance with agency procedures, 
describing--
    (i) Such advocate's activities under this subpart;
    (ii) New initiatives required to increase the acquisition of 
commercial items;
    (iii) New initiatives required to increase competition;
    (iv) New initiatives to ensure requirements are stated in terms of 
functions to be performed, performance required or essential physical 
characteristics;
    (v) Any barriers to the acquisition of commercial items or 
competition that remain; and
    (vi) Other ways in which the agency has emphasized the acquisition 
of commercial items and competition in areas such as acquisition 
training and research;
    (3) Recommend to the senior procurement executive of the agency 
goals and plans for increasing competition on a fiscal year basis; and

[[Page 93]]

    (4) Recommend to the senior procurement executive of the agency a 
system of personal and organizational accountability for competition, 
which may include the use of recognition and awards to motivate program 
managers, contracting officers, and others in authority to promote 
competition in acquisition.
[60 FR 48236, Sept. 18, 1995]



PART 7--ACQUISITION PLANNING--Table of Contents




Sec.
7.000  Scope of part.

                     Subpart 7.1--Acquisition Plans

7.101  Definitions.
7.102  Policy.
7.103  Agency-head responsibilities.
7.104  General procedures.
7.105  Contents of written acquisition plans.
7.106  Additional requirements for major systems.

     Subpart 7.2--Planning for the Purchase of Supplies in Economic 
                               Quantities

7.200  Scope of subpart.
7.201  [Reserved]
7.202  Policy.
7.203  Solicitation provision.
7.204  Responsibilities of contracting officers.

          Subpart 7.3--Contractor Versus Government Performance

7.300  Scope of subpart.
7.301  Policy.
7.302  General.
7.303  Determining availability of private commercial sources.
7.304  Procedures.
7.305  Solicitation provisions and contract clause.
7.306  Evaluation.
7.307  Appeals.

                Subpart 7.4--Equipment Lease or Purchase

7.400  Scope of subpart.
7.401  Acquisition considerations.
7.402  Acquisition methods.
7.403  General Services Administration assistance.
7.404  Contract clause.

             Subpart 7.5--Inherently Governmental Functions

7.500  Scope of subpart.
7.501  Definition.
7.502  Applicability.
7.503  Policy.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42124, Sept. 19, 1983, unless otherwise noted.



7.000  Scope of part.

    This part prescribes policies and procedures for--
    (a) Developing acquisition plans;
    (b) Determining whether to use commercial or Government resources 
for acquisition of supplies or services;
    (c) Deciding whether it is more economical to lease equipment rather 
than purchase it; and
    (d) Determining whether functions are inherently governmental.
[48 FR 42124, Sept. 19, 1983, as amended at 61 FR 2628, Jan. 26, 1996]



                     Subpart 7.1--Acquisition Plans



7.101  Definitions.

    Acquisition planning means the process by which the efforts of all 
personnel responsible for an acquisition are coordinated and integrated 
through a comprehensive plan for fulfilling the agency need in a timely 
manner and at a reasonable cost. It includes developing the overall 
strategy for managing the acquisition.
    Acquisition streamlining, as used in this subpart means any effort 
that results in more efficient and effective use of resources to design 
and develop, or produce quality systems. This includes ensuring that 
only necessary and cost-effective requirements are included, at the most 
appropriate time in the acquisition cycle, in solicitations and 
resulting contracts for the design, development, and production of new 
systems, or for modifications to existing systems that involve redesign 
of systems or subsystems.
    Design-to-cost is a concept that establishes cost elements as 
management goals to achieve the best balance between life-cycle cost, 
acceptable performance, and schedule. Under this concept, cost is a 
design constraint during the design and development phases and a 
management discipline throughout the acquisition and operation of the 
system or equipment.

[[Page 94]]

    Life-cycle cost means the total cost to the Government of acquiring, 
operating, supporting, and (if applicable) disposing of the items being 
acquired.
    Planner, as used in this subpart, means the designated person or 
office responsible for developing and maintaining a written plan, or for 
the planning function in those acquisitions not requiring a written 
plan.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 53 FR 34226, Sept. 2, 1988; 60 FR 48236, 
Sept. 18, 1995]



7.102  Policy.

    (a) Agencies shall perform acquisition planning and conduct market 
research (see part 10) for all acquisitions in order to promote and 
provide for--
    (1) Acquisition of commercial items or, to the extent that 
commercial items suitable to meet the agency's needs are not available, 
nondevelopmental items, to the maximum extent practicable (10 U.S.C. 
2377 and 41 U.S.C. 251, et seq.); and
    (2) Full and open competition (see part 6) or, when full and open 
competition is not required in accordance with part 6, to obtain 
competition to the maximum extent practicable, with due regard to the 
nature of the supplies or services to be acquired (10 U.S.C. 2301(a)(5) 
and 41 U.S.C. 253a(a)(1)).
    (b) This planning shall integrate the efforts of all personnel 
responsible for significant aspects of the acquisition. The purpose of 
this planning is to ensure that the Government meets its needs in the 
most effective, economical, and timely manner. Agencies that have a 
detailed acquisition planning system in place that generally meets the 
requirements of 7.104 and 7.105 need not revise their system to 
specifically meet all of these requirements.
[60 FR 48236, Sept. 18, 1995]



7.103  Agency-head responsibilities.

    The agency head or a designee shall prescribe procedures for--
    (a) Promoting and providing for full and open competition (see part 
6) or, when full and open competition is not required in accordance with 
part 6, for obtaining competition to the maximum extent practicable, 
with due regard to the nature of the supplies and services to be 
acquired (41 U.S.C. 253a(a)(1)).
    (b) Encouraging offerors to supply commercial items, or to the 
extent that commercial items suitable to meet the agency needs are not 
available, nondevelopmental items in response to agency solicitations 
(10 U.S.C. 2377 and 41 U.S.C. 251, et seq.); and
    (c) Ensuring that acquisition planners address the requirement to 
specify needs, develop specifications, and to solicit offers in such a 
manner to promote and provide for full and open competition with due 
regard to the nature of the supplies and services to be acquired (10 
U.S.C. 2305(a)(1)(A) and 41 U.S.C. 253A(a)(1)). (See part 6 and 10.002.)
    (d) Establishing criteria and thresholds at which increasingly 
greater detail and formality in the planning process is required as the 
acquisition becomes more complex and costly, specifying those cases in 
which a written plan shall be prepared;
    (e) Writing plans either on a system basis or on an individual 
contract basis, depending upon the acquisition;
    (f) Ensuring that the principles of this subpart are used, as 
appropriate, for those acquisitions that do not require a written plan 
as well as for those that do;
    (g) Designating planners for acquisitions;
    (h) Reviewing and approving acquisition plans and revisions to these 
plans;
    (i) Establishing criteria and thresholds at which design-to-cost and 
life-cycle-cost techniques will be used;
    (j) Establishing standard acquisition plan formats, if desired, 
suitable to agency needs; and
    (k) Waiving requirements of detail and formality, as necessary, in 
planning for acquisitions having compressed delivery or performance 
schedules because of the urgency of the need.
    (l) Assuring that the contracting officer, prior to contracting, 
reviews:
    (1) The acquisition history of the supplies and services; and
    (2) A description of the supplies, including, when necessary for 
adequate description, a picture, drawing, diagram, or other graphic 
representation.

[[Page 95]]

    (m) Ensuring that agency planners include use of the metric system 
of measurement in proposed acquisitions in accordance with 15 U.S.C. 
205b (see 11.002(b)) and agency metric plans and guidelines.
    (n) Ensuring that agency planners specify needs and develop plans, 
drawings, work statements, specifications, or other product descriptions 
promoting the use of environmentally preferable and energy-efficient 
products and services (e.g., promoting energy conservation and the use 
of recovered material content and the elimination or reduction of ozone-
depleting substances usage), and that these are considered in the 
evaluation and award of contracts, as appropriate (see part 23).
    (o) Making a determination, prior to issuance of a solicitation for 
advisory and assistance services involving the analysis and evaluation 
of proposals submitted in response to a solicitation, that a sufficient 
number of covered personnel with the training and capability to perform 
an evaluation and analysis of proposals submitted in response to a 
solicitation are not readily available within the agency or from another 
Federal agency in accordance with the guidelines at 37.204.
    (p) Ensuring that no purchase request is initiated or contract 
entered into that would result in the performance of an inherently 
governmental function by a contractor and that all contracts are 
adequately managed so as to ensure effective official control over 
contract performance.
    (q) Ensuring that knowledge gained from prior acquisitions is used 
to further refine requirements and acquisition strategies. For services, 
greater use of performance-based contracting methods and, therefore, 
fixed-price contracts (see 37.602-5) should occur for follow-on 
acquisitions.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 27561, July 3, 1985; 50 FR 52429, Dec. 23, 1985; 51 FR 27116, July 
29, 1986; 57 FR 60574, Dec. 21, 1992; 60 FR 28495, May 31, 1995; 60 FR 
48236, Sept. 18, 1995; 60 FR 49721, Sept. 26, 1995; 61 FR 2628, Jan. 26, 
1996; 62 FR 40236, July 25, 1997; 62 FR 44814, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44814, Aug. 22, 1997, section 7.103 
was amended by adding paragraph (q), effective Oct. 21, 1997.



7.104  General procedures.

    (a) Acquisition planning should begin as soon as the agency need is 
identified, preferably well in advance of the fiscal year in which 
contract award is necessary. In developing the plan, the planner shall 
form a team consisting of all those who will be responsible for 
significant aspects of the acquisition, such as contracting, fiscal, 
legal, and technical personnel. The planner should review previous plans 
for similar acquisitions and discuss them with the key personnel 
involved in those acquisitions. At key dates specified in the plan or 
whenever significant changes occur, and no less often than annually, the 
planner shall review the plan and, if appropriate, revise it.
    (b) Requirements and logistics personnel should avoid issuing 
requirements on an urgent basis or with unrealistic delivery or 
performance schedules, since it generally restricts competition and 
increases prices. Early in the planning process, the planner should 
consult requirements and logistics personnel who determine type, 
quality, quantity, and delivery requirements.
    (c) The planner shall coordinate with and secure the concurrence of 
the contracting officer in all acquisition planning. If the plan 
proposes using other than full and open competition, the plan shall also 
be coordinated with the cognizant competition advocate.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52433, Dec. 23, 1985]



7.105  Contents of written acquisition plans.

    In order to facilitate attainment of the acquisition objectives, the 
plan must identify those milestones at which decisions should be made 
(see subparagraph (b)(19) below). The plan shall address all the 
technical, business, management, and other significant considerations 
that will control the acquisition. The specific content of plans will 
vary, depending on the nature, circumstances, and stage of the 
acquisition. In preparing the plan, the planner shall follow the 
applicable instructions in paragraphs (a) and (b) below, together with 
the agency's implementing procedures. Acquisition

[[Page 96]]

plans for service contracts shall describe the strategies for 
implementing performance-based contracting methods or shall provide 
rationale for not using those methods (see subpart 37.6).
    (a) Acquisition background and objectives--(1) Statement of need. 
Introduce the plan by a brief statement of need. Summarize the technical 
and contractual history of the acquisition. Discuss feasible acquisition 
alternatives, the impact of prior acquisitions on those alternatives, 
and any related in-house effort.
    (2) Applicable conditions. State all significant conditions 
affecting the acquisition, such as (i) requirements for compatibility 
with existing or future systems or programs and (ii) any known cost, 
schedule, and capability or performance constraints.
    (3) Cost. Set forth the established cost goals for the acquisition 
and the rationale supporting them, and discuss related cost concepts to 
be employed, including, as appropriate, the following items:
    (i) Life-cycle cost. Discuss how life-cycle cost will be considered. 
If it is not used, explain why. If appropriate, discuss the cost model 
used to develop life-cycle-cost estimates.
    (ii) Design-to-cost. Describe the design-to-cost objective(s) and 
underlying assumptions, including the rationale for quantity, learning-
curve, and economic adjustment factors. Describe how objectives are to 
be applied, tracked, and enforced. Indicate specific related 
solicitation and contractual requirements to be imposed.
    (iii) Application of should-cost. Describe the application of 
should-cost analysis to the acquisition (see 15.407-4).
    (4) Capability or performance. Specify the required capabilities or 
performance characteristics of the supplies or the performance standards 
of the services being acquired and state how they are related to the 
need.
    (5) Delivery or performance-period requirements. Describe the basis 
for establishing delivery or performance-period requirements (see 
subpart 11.4). Explain and provide reasons for any urgency if it results 
in concurrency of development and production or constitutes 
justification for not providing for full and open competition.
    (6) Trade-offs. Discuss the expected consequences of trade-offs 
among the various cost, capability or performance, and schedule goals.
    (7) Risks. Discuss technical, cost, and schedule risks and describe 
what efforts are planned or underway to reduce risk and the consequences 
of failure to achieve goals. If concurrency of development and 
production is planned, discuss its effects on cost and schedule risks.
    (8) Acquisition streamlining. If specifically designated by the 
requiring agency as a program subject to acquisition streamlining, 
discuss plans and procedures to:
    (i) Encourage industry participation by using draft solicitations, 
presolicitation conferences, and other means of stimulating industry 
involvement during design and development in recommending the most 
appropriate application and tailoring of contract requirements;
    (ii) Select and tailor only the necessary and cost-effective 
requirements; and
    (iii) State the timeframe for identifying which of those 
specifications and standards, originally provided for guidance only, 
shall become mandatory.
    (b) Plan of action--(1) Sources. Indicate the prospective sources of 
supplies and/or services that can meet the need. Consider required 
sources of supplies or services (see part 8). Include consideration of 
small business, small disadvantaged business, and women-owned small 
business concerns (see part 19). Address the extent and results of the 
market research and indicate their impact on the various elements of the 
plan (see part 10).
    (2) Competition. (i) Describe how competition will be sought, 
promoted, and sustained throughout the course of the acquisition. If 
full and open competition is not contemplated cite the authority in 
6.302, discuss the basis for the application of that authority, identify 
the source(s), and discuss why full and open competition cannot be 
obtained.

[[Page 97]]

    (ii) Identify the major components or subsystems. Discuss component 
breakout plans relative to these major components or subsystems. 
Describe how competition will be sought, promoted, and sustained for 
these components or subsystems.
    (iii) Describe how competition will be sought, promoted, and 
sustained for spares and repair parts. Identify the key logistic 
milestones, such as technical data delivery schedules and acquisition 
method coding conferences, that affect competition.
    (iv) When effective subcontract competition is both feasible and 
desirable, describe how such subcontract competition will be sought, 
promoted, and sustained throughout the course of the acquisition. 
Identify any known barriers to increasing subcontract competition and 
address how to overcome them.
    (3) Source-selection procedures. Discuss the source-selection 
procedures for the acquisition, including the timing for submission and 
evaluation of proposals, and the relationship of evaluation factors to 
the attainment of the acquisition objectives (see subpart 15.3).
    (4) Contracting considerations. For each contract contemplated, 
discuss contract type selection (see part 16); use of multiyear 
contracting, options, or other special contracting methods (see part 
17); any special clauses, special solicitation provisions, or FAR 
deviations required (see subpart 1.4); whether sealed bidding or 
negotiation will be used and why; whether equipment will be acquired by 
lease or purchase (see subpart 7.4) and why; and any other contracting 
considerations.
    (5) Budgeting and funding. Include budget estimates, explain how 
they were derived, and discuss the schedule for obtaining adequate funds 
at the time they are required (see subpart 32.7).
    (6) Product or service descriptions. Explain the choice of product 
or service description types (including performance-based contracting 
descriptions) to be used in the acquisition.
    (7) Priorities, allocations, and allotments. When urgency of the 
requirement dictates a particularly short delivery or performance 
schedule, certain priorities may apply. If so, specify the method for 
obtaining and using priorities, allocations, and allotments, and the 
reasons for them (see subpart 11.6).
    (8) Contractor versus Government performance. Address the 
consideration given to OMB Circular No. A-76 (see subpart 7.3).
    (9) Inherently governmental functions. Address the consideration 
given to OFPP Policy Letter 92-1 (see subpart 7.5).
    (10) Management information requirements. Discuss, as appropriate, 
what management system will be used by the Government to monitor the 
contractor's effort.
    (11) Make or buy. Discuss any consideration given to make-or-buy 
programs (see subpart 15.407-2).
    (12) Test and evaluation. To the extent applicable, describe the 
test program of the contractor and the Government. Describe the test 
program for each major phase of a major system acquisition. If 
concurrency is planned, discuss the extent of testing to be accomplished 
before production release.
    (13) Logistics considerations. Describe--
    (i) The assumptions determining contractor or agency support, both 
initially and over the life of the acquisition, including consideration 
of contractor or agency maintenance and servicing (see subpart 7.3) and 
distribution of commercial items;
    (ii) The reliability, maintainability, and quality assurance 
requirements, including any planned use of warranties (see part 46);
    (iii) The requirements for contractor data (including repurchase 
data) and data rights, their estimated cost, and the use to be made of 
the data (see part 27); and
    (iv) Standardization concepts, including the necessity to designate, 
in accordance with agency procedures, technical equipment as standard so 
that future purchases of the equipment can be made from the same 
manufacturing source.
    (14) Government-furnished property. Indicate any property to be 
furnished to contractors, including material and facilities, and discuss 
any associated considerations, such as its availability or the schedule 
for its acquisition (see part 45).

[[Page 98]]

    (15) Government-furnished information. Discuss any Government 
information, such as manuals, drawings, and test data, to be provided to 
prospective offerors and contractors.
    (16) Environmental and energy conservation objectives. Discuss all 
applicable environmental and energy conservation objectives associated 
with the acquisition (see part 23), the applicability of an 
environmental assessment or environmental impact statement (see 40 CFR 
part 1502), the proposed resolution of environmental issues, and any 
environmentally-related requirements to be included in solicitations and 
contracts.
    (17) Security considerations. For acquisitions dealing with 
classified matters, discuss how adequate security will be established, 
maintained, and monitored (see subpart 4.4).
    (18) Contract administration. Describe how the contract will be 
administered. In contracts for services, include how inspection and 
acceptance corresponding to the work statement's performance criteria 
will be enforced.
    (19) Other considerations. Discuss, as applicable, standardization 
concepts, the industrial readiness program, the Defense Production Act, 
the Occupational Safety and Health Act, foreign sales implications, and 
any other matters germane to the plan not covered elsewhere.
    (20) Milestones for the acquisition cycle. Address the following 
steps and any others appropriate:

    Acquisition plan approval.
    Statement of work.
    Specifications.
    Data requirements.
    Completion of acquisition-package preparation.
    Purchase request.
    Justification and approval for other than full and open competition 
where applicable and/or any required D&F approval.
    Issuance of synopsis.
    Issuance of solicitation.
    Evaluations of proposals, audits, and field reports.
    Beginning and completion of negotiations.
    Contract preparation, review, and clearance.
    Contract award.


    (21) Identification of participants in acquisition plan preparation. 
List the individuals who participated in preparing the acquisition plan, 
giving contact information for each.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985, and 51 FR 27116, July 29, 1986; 53 FR 17856, 
May 18, 1988; 53 FR 34226, Sept. 2, 1988; 60 FR 28495, May 31, 1995; 60 
FR 48237, Sept. 18, 1995; 61 FR 2628, Jan. 26, 1996; 62 FR 40236, July 
25, 1997; 62 FR 44814, Aug. 22, 1997; 62 FR 51230, 51270, Sept. 30, 
1997]

    Effective Date Notes:  1. At 62 FR 44814, Aug. 22, 1997, section 
7.105 was amended by adding a sentence to the end of the introductory 
paragraph; by revising paragraphs (a)(1), (a)(4), and (b)(6); by 
redesignating paragraphs (b)(18) through (b)(20) as paragraphs (b)(19) 
through (b)(21); and by adding a new paragraph (b)(18), effective Oct. 
21, 1997. For the convenience of the user, the superseded text is set 
forth as follows:
    2. At 62 FR 51230, 51270, Sept. 30, 1997, section 7.105 was amended 
by revising paragraph (b)(5); in paragraph (a)(3)(iii), ``15.810'' was 
amended to read ``15.407-4'', in paragraph (b)(3), ``15.6'' was amended 
to read ``15.3''; and in paragraph (b)(11) ``15.7'' was amended to read 
``15.407-2'', effective Oct. 10, 1997.

7.105  Contents of written acquisition plans.

                                * * * * *

    (a) Acquisition background and objectives--(1) Statement of need. 
Introduce the plan by a brief statement of need. Summarize the technical 
and contractual history of the acquisition. Discuss feasible acquisition 
alternatives and any related in-house effort.

                                * * * * *

    (4) Capability or performance. Specify the required capabilities or 
performance characteristics of the supplies or services being acquired 
and state how they are related to the need.

                                * * * * *

    (b) * * *
    (5) Budgeting and funding. Describe how budget estimates were 
derived and discuss the schedule for obtaining adequate funds at the 
time when they are required (see subpart 32.7).
    (6) Product descriptions. In accordance with part 11, explain the 
choice of product description types to be used in the acquisition.

                                * * * * *

[[Page 99]]



7.106  Additional requirements for major systems.

    (a) In planning for the solicitation of a major system (see part 34) 
development contract, planners shall consider requiring offerors to 
include, in their offers, proposals to incorporate in the design of a 
major system--
    (1) Items which are currently available within the supply system of 
the agency responsible for the major system, available elsewhere in the 
national supply system, or commercially available from more than one 
source; and
    (2) Items which the Government will be able to acquire competitively 
in the future if they are likely to be needed in substantial quantities 
during the system's service life.
    (b) In planning for the solicitation of a major system (see part 34) 
production contract, planners shall consider requiring offerors to 
include, in their offers, proposals identifying opportunities to assure 
that the Government will be able to obtain, on a competitive basis, 
items acquired in connection with the system that are likely to be 
acquired in substantial quantities during the service life of the 
system. Proposals submitted in response to such requirements may include 
the following:
    (1) Proposals to provide the Government the right to use technical 
data to be provided under the contract for competitive future 
acquisitions, together with the cost to the Government, if any, of 
acquiring such technical data and the right to use such data.
    (2) Proposals for the qualification or development of multiple 
sources of supply for competitive future acquisitions.
    (c) In determining whether to apply paragraphs (a) and (b) above, 
planners shall consider the purposes for which the system is being 
acquired and the technology necessary to meet the system's required 
capabilities. If such proposals are required, the contracting officer 
shall consider them in evaluating competing offers. In noncompetitive 
awards, the factors in paragraphs (a) and (b) above, may be considered 
by the contracting officer as objectives in negotiating the contract.
[50 FR 27561, July 3, 1985 and 51 FR 27116, July 29, 1986]



     Subpart 7.2--Planning for the Purchase of Supplies in Economic 
                               Quantities

    Source:  50 FR 35475, Aug. 30, 1985, unless otherwise noted.



7.200  Scope of subpart.

    This subpart prescribes policies and procedures for gathering 
information from offerors to assist the Government in planning the most 
advantageous quantities in which supplies should be purchased.



7.201  [Reserved]



7.202  Policy.

    (a) Agencies are required by 10 U.S.C. 2384(a) and 41 U.S.C. 253(f) 
to procure supplies in such quantity as (1) will result in the total 
cost and unit cost most advantageous to the Government, where 
practicable, and (2) does not exceed the quantity reasonably expected to 
be required by the agency.
    (b) Each solicitation for a contract for supplies is required, if 
practicable, to include a provision inviting each offeror responding to 
the solicitation (1) to state an opinion on whether the quantity of the 
supplies proposed to be acquired is economically advantageous to the 
Government, and (2) if applicable, to recommend a quantity or quantities 
which would be more economically advantageous to the Government. Each 
such recommendation is required to include a quotation of the total 
price and the unit price for supplies procured in each recommended 
quantity.



7.203  Solicitation provision.

    Contracting officers shall insert the provision at 52.207-4, 
Economic Purchase Quantity--Supplies, in solicitations for supplies. The 
provision need not be inserted if the solicitation is for a contract 
under the General Services Administration's multiple award schedule 
contract program, or if the contracting officer determines that (a)

[[Page 100]]

the Government already has the data, (b) the data is otherwise readily 
available, or (c) it is impracticable for the Government to vary its 
future requirements.
[52 FR 30076, Aug. 12, 1987]



7.204  Responsibilities of contracting officers.

    (a) Contracting officers are responsible for transmitting offeror 
responses to the solicitation provision at 52.207-4 to appropriate 
inventory management/requirements development activities in accordance 
with agency procedures. The economic purchase quantity data so obtained 
are intended to assist inventory managers in establishing and evaluating 
economic order quantities for supplies under their cognizance.
    (b) In recognition of the fact that economic purchase quantity data 
furnished by offerors are only one of many data inputs required for 
determining the most economical order quantities, contracting officers 
should generally take no action to revise quantities to be acquired in 
connection with the instant procurement. However, if a significant price 
variation is evident from offeror responses, and the potential for 
significant savings is apparent, the contracting officer shall consult 
with the cognizant inventory manager or requirements development 
activity before proceeding with an award or negotiations. If this 
consultation discloses that the Government should be ordering an item of 
supply in different quantities and the inventory manager/requirements 
development activity concurs, the solicitation for the item should be 
amended or canceled and a new requisition should be obtained.



          Subpart 7.3--Contractor Versus Government Performance



7.300  Scope of subpart.

    This subpart prescribes policies and procedures for use in 
acquisitions of commercial or industrial products and services subject 
to (a) OMB Circular No. A-76 (Revised) (the Circular), Performance of 
Commercial Activities, and (b) the Supplement to the Circular.
[57 FR 60575, Dec. 21, 1992]



7.301  Policy.

    The Circular provides that it is the policy of the Government to (a) 
rely generally on private commercial sources for supplies and services, 
if certain criteria are met, while recognizing that some functions are 
inherently Governmental and must be performed by Government personnel, 
and (b) give appropriate consideration to relative cost in deciding 
between Government performance and performance under contract. In 
comparing the costs of Government and contractor performance, the 
Circular provides that agencies shall base the contractor's cost of 
performance on firm offers.



7.302  General.

    The Circular and the Supplement--
    (a) Prescribe the overall policies and detailed procedures required 
of all agencies in making cost comparisons between contractor and 
Government performance. In making cost comparisons, agencies shall--
    (1) Prepare an estimate of the cost of Government performance based 
on the same work statement and level of performance as apply to 
offerors; and
    (2) Compare the total cost of Government performance to the total 
cost of contracting with the potentially successful offeror.
    (b) Provide that solicitations and synopses of the solicitations 
issued to obtain offers for comparison purposes shall state that they 
will not result in a contract if Government performance is determined to 
be more advantageous (see the solicitation provisions at 52.207-1 and 
52.207-2);
    (c) Provide that each cost comparison shall be reviewed by an 
activity independent of the activity which prepared the cost analysis to 
ensure conformance with the instructions in the Supplement; and
    (d) Provide that, ordinarily, agencies should not incur the delay 
and expense of conducting cost comparison studies when the full-time 
equivalent Government employees involved are fewer than those specified 
by law, the Circular, and implementing agency guidance. Cost comparisons 
may be conducted in these instances if there is

[[Page 101]]

reason to believe that commercial prices are unreasonable.
[50 FR 35475, Aug. 30, 1985, as amended at 53 FR 17856, May 18, 1988; 55 
FR 25526, June 21, 1990; 57 FR 60575, Dec. 21, 1992]



7.303  Determining availability of private commercial sources.

    (a) During acquisition planning reviews, contracting officers shall 
assist in identifying private commercial sources.
    (b) In making all reasonable efforts to identify such sources, the 
contracting officer shall assist in--
    (1) Synopsizing the requirement in the Commercial Business Daily 
until a reasonable number of potential sources are identified. If 
necessary, synopsis shall be submitted up to three times in a 90-day 
period with a minimum of 30 days between notices (but, when necessary to 
meet an urgent requirement, this notification may be limited to a total 
of two notices in a 30-day period with a minimum of 15 days between 
them).
    (2) Requesting assistance from the Small Business Administration, 
the Department of Commerce, and the General Services Administration.
    (3) If sufficient sources are not identified through synopses or 
from subparagraph (b)(2) of this section, a finding that no commercial 
source is available may be made and the cost comparison canceled.
[48 FR 42124, Sept. 19, 1983, as amended at 55 FR 25526, June 21, 1990; 
57 FR 60575, Dec. 21, 1992]



7.304  Procedures.

    (a) Work statement. When private commercial sources are available 
and a cost comparison is required, the Government's functional managers 
responsible for the comparison or another group shall prepare a 
comprehensive, performance work statement. The work statement must--
    (1) Accurately reflect the actual Government requirement, stating 
adequately what is to be done without prescribing how it is to be done;
    (2) Include performance standards that can be used to ensure a 
comparable level of performance for both Government and contractor and a 
common basis for evaluation; and
    (3) Be reviewed by the contracting officer to ensure that it is 
adequate and appropriate to serve as a basis for solicitation and award.
    (b) Cost estimate. The agency personnel who develop the cost 
estimate for Government performance--
    (1) Enter on a cost comparison form (see Part IV of the Supplement) 
the cost estimate and the other elements required to accomplish a cost 
comparison;
    (2) Review the estimate for completeness and accuracy and have the 
estimate audited; and
    (3) Submit to the contracting officer the completed form and all 
necessary detailed supporting data in a sealed, dated envelope, or 
electronic equivalent, not later than the time established for receipt 
of initial proposals or bid opening. If more time is needed to develop 
the Government's cost estimate, the contracting officer shall amend the 
opening date of the solicitation.
    (c) Solicitation. (1) The contracting officer shall issue a 
solicitation based on the performance work statement prepared in 
accordance with paragraph (a) of this section. Prepriced option prices 
in existing contracts will not be used instead of issuing a new 
solicitation when conducting a cost comparison under a new start.
    (2) Firm offers shall be required for the period covered by the cost 
comparison, by using (i) a base contract period and any applicable 
priced options to total the amount of time represented by the cost 
estimate for Government performance (see subpart 17.2), or (ii) a 
multiyear contract when appropriate (see subpart 17.1).
    (3) Solicitations shall not, unless a proper determination to the 
contrary is made, limit award to U.S. offerors.
    (d) Integrity of cost comparison. (1) The confidentiality of (i) the 
cost estimate for Government performance and (ii) the bids in sealed bid 
cost comparisons shall be maintained until the time of bid opening, to 
ensure that they are completely independent.

[[Page 102]]

    (2) For cost comparisons conducted using the results of negotiation 
procedures, confidentiality and independence shall be maintained until 
after negotiations are completed and the most advantageous offer has 
been selected.
    (3) Personnel who have knowledge of the cost figures in the cost 
estimate for Government performance shall not participate in the offer-
evaluation process unless the contract file is adequately documented to 
show that no other qualified personnel were available.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 25526, June 21, 1990; 57 FR 60575, 
Dec. 21, 1992; 60 FR 34737, July 3, 1995]



7.305  Solicitation provisions and contract clause.

    (a) The contracting officer shall, when contracting by sealed 
bidding, insert in solicitations issued for the purpose of comparing the 
costs of contractor and Government performance the provision at 52.207-
1, Notice of Cost Comparison (Sealed-Bid).
    (b) The contracting officer shall, when contracting by negotiation, 
insert in requests for proposals issued for the purpose of comparing the 
costs of contractor and Government performance the provision at 52.207-
2, Notice of Cost Comparison (Negotiated).
    (c) The contracting officer shall insert the clause at 52.207-3, 
Right of First Refusal of Employment, in all solicitations which may 
result in a conversion from in-house performance to contract performance 
of work currently being performed by the Government and in contracts 
that result from the solicitations, whether or not a cost comparison is 
conducted. The 10-day period in the clause may be varied by the 
contracting officer up to a period of 90 days.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 52 FR 9037, Mar. 20, 1987; 56 FR 55372, Oct. 
25, 1991]



7.306  Evaluation.

    The evaluation procedure to be followed after the contracting 
officer receives the cost estimate for Government performance (see 
7.304(b)) and the responses to the solicitation differs from 
conventional contracting procedures as follows:
    (a) Sealed bidding. (1) At the public bid opening, after recording 
of bids, the contracting officer shall--
    (i) Open the sealed cost comparison on which the cost estimate for 
Government performance has been entered;
    (ii) Enter on the cost comparison form the price of the apparent low 
bidder;
    (iii) Announce the result, based on the initial cost comparison 
form, stating that this result is subject to required agency processing, 
including evaluation for responsiveness and responsibility, completion 
and audit of the cost comparison form (see Supplement, Part IV, 
Illustration 1), and resolution of any requests for review under the 
appeals procedure (see 7.307);
    (iv) State that no final determination for performance by the 
Government or under contract will be made during the public review 
period specified in the solicitation (at least 15 working days, up to a 
maximum of 30 working days if the contracting officer considers the 
action to be complex; the public review period begins when the documents 
identified in (v) below are available to interested parties), plus any 
additional time required for the appeals procedure; and
    (v) Make available for this public review by interested parties the 
abstract of bids, completed cost comparison form, and detailed data 
supporting the cost estimate for Government performance.
    (2) After evaluation of bids (see subpart 14.4) and determinations 
of responsibility, the contracting officer shall provide the price of 
the low responsive, responsible bidder to the preparer of the cost 
estimate for Government performance, for final Government review of the 
cost comparison form.
    (3) Upon completion of the review process, including resolution of 
any request under 7.307, the responsible agency official shall make the 
final determination for performance by the Government or under contract 
and provide written notification to the contracting officer, who shall 
either award a contract or cancel the solicitation as required.
    (4) The contracting officer shall make the completed and approved 
cost

[[Page 103]]

comparison analysis available to interested parties upon request.
    (b) Negotiation. The contracting officer shall receive proposals, 
evaluate them (see subpart 15.3), conduct negotiations, and select the 
most advantageous proposal in accordance with normal contracting 
procedures (see part 15). The contracting officer shall, before public 
announcement, open the sealed estimate in the presence of the preparer, 
enter the amount of the most advantageous proposal on the cost 
comparison form, and return the form to the preparer of the cost 
estimate for Government performance for completion. The preparer shall 
give due consideration to all types of costs which could add or subtract 
from the cost of either mode of performance.
    (1) If the result of the cost comparison favors performance under 
contract and the responsible agency official approves the result, the 
contracting officer shall award a contract in accordance with agency 
procedures. Concurrently with the award, the contracting officer shall 
publicly--
    (i) Notify interested parties of the result of the cost comparison;
    (ii) Inform interested parties that the completed cost comparison 
form and detailed supporting data are available for review;
    (iii) Announce the contractor's name; and
    (iv) Advise interested parties that contractor preparations for 
performance are conditioned upon completion of the public review period 
specified in the solicitation plus any additional period required by the 
appeals procedure.
    (2) If the result of the cost comparison favors Government 
performance, the contracting officer shall--
    (i) Notify interested parties of the result of the cost comparison;
    (ii) Inform interested parties that the completed cost comparison 
form and detailed supporting data relative to the Government cost 
estimate are available for public review (see subparagraph (3) below); 
and
    (iii) Announce the price of the offer most advantageous to the 
Government.
    (3) The public review period shall begin with the contracting 
officer's announcement of the cost comparison result and availability of 
the cost comparison forms and detailed supporting data to interested 
parties. The review period shall last for the period specified in the 
solicitation (at least 15 working days, up to a maximum of 30 working 
days if the contracting officer considers the action to be complex). 
Upon completion of the public review period and resolution of any 
questions raised under 7.307, the responsible agency official shall 
provide the contracting officer written notification of the final cost 
comparison decision. The contracting officer shall then, in the case of 
subparagraph (b)(1) of this section, give the contractor notice to 
commence or cancel the contract as appropriate or, in the case of 
subparagraph (b)(2) of this section, cancel the solicitation or award 
the contract, as appropriate.
[48 FR 42124, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 34125, Sept. 3, 1986; 53 FR 661, Jan. 
11, 1988; 55 FR 25526, June 21, 1990; 56 FR 41744, Aug. 22, 1991; 57 FR 
60575, Dec. 21, 1992; 60 FR 34737, July 3, 1995; 62 FR 51270, Sept. 30, 
1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
7.306, in paragraph (b), ``15.6'' was amended to read ``15.3'', 
effective Oct. 10, 1997.



7.307  Appeals.

    (a) The Circular provides that each agency shall establish an 
appeals procedure for informal administrative review of the initial cost 
comparison result. The appeals procedure shall provide for an 
independent, objective review of the initial result by an official at a 
higher level than the official who approved that result. The purpose is 
to protect the rights of affected parties and to ensure that final 
agency determinations are fair, equitable, and in accordance with 
established policy.
    (b) The Circular provides that the appeals procedure shall be used 
only to resolve questions concerning the calculation of the cost 
comparison and shall not apply to questions concerning selection of one 
contractor in preference to another, which shall be treated as 
prescribed in subpart 33.1, Protests. Directly affected parties may 
request review of any discrepancy in the cost comparison. Any such 
requests

[[Page 104]]

shall be made in writing to the contracting officer, who shall forward 
them in accordance with agency procedures. Such requests shall be 
considered only if based on specific objections and received within the 
public review period stated in the solicitation.
[48 FR 42124, Sept. 19, 1983, as amended at 55 FR 25527, June 21, 1990; 
57 FR 60575, Dec. 21, 1992; 60 FR 34737, July 3, 1995; 62 FR 40236, July 
25, 1997]



                Subpart 7.4--Equipment Lease or Purchase



7.400  Scope of subpart.

    This subpart provides guidance pertaining to the decision to acquire 
equipment by lease or purchase. It applies to both the initial 
acquisition of equipment and the renewal or extension of existing 
equipment leases.



7.401  Acquisition considerations.

    (a) Agencies should consider whether to lease or purchase equipment 
based on a case-by-case evaluation of comparative costs and other 
factors. The following factors are the minimum that should be 
considered:
    (1) Estimated length of the period the equipment is to be used and 
the extent of use within that period.
    (2) Financial and operating advantages of alternative types and 
makes of equipment.
    (3) Cumulative rental payments for the estimated period of use.
    (4) Net purchase price.
    (5) Transportation and installation costs.
    (6) Maintenance and other service costs.
    (7) Potential obsolescence of the equipment because of imminent 
technological improvements.
    (b) The following additional factors should be considered, as 
appropriate, depending on the type, cost, complexity, and estimated 
period of use of the equipment:
    (1) Availability of purchase options.
    (2) Potential for use of the equipment by other agencies after its 
use by the acquiring agency is ended.
    (3) Trade-in or salvage value.
    (4) Imputed interest.
    (5) Availability of a servicing capability, especially for highly 
complex equipment; e.g., can the equipment be serviced by the Government 
or other sources if it is purchased?



7.402  Acquisition methods.

    (a) Purchase method. (1) Generally, the purchase method is 
appropriate if the equipment will be used beyond the point in time when 
cumulative leasing costs exceed the purchase costs.
    (2) Agencies should not rule out the purchase method of equipment 
acquisition in favor of leasing merely because of the possibility that 
future technological advances might make the selected equipment less 
desirable.
    (b) Lease method. (1) The lease method is appropriate if it is to 
the Government's advantage under the circumstances. The lease method may 
also serve as an interim measure when the circumstances--
    (i) Require immediate use of equipment to meet program or system 
goals; but
    (ii) Do not currently support acquisition by purchase.
    (2) If a lease is justified, a lease with option to purchase is 
preferable.
    (3) Generally, a long term lease should be avoided, but may be 
appropriate if an option to purchase or other favorable terms are 
included.
    (4) If a lease with option to purchase is used, the contract shall 
state the purchase price or provide a formula which shows how the 
purchase price will be established at the time of purchase.
[50 FR 35475, Aug. 30, 1985, as amended at 59 FR 67026, Dec. 28, 1994]



7.403  General Services Administration assistance.

    (a) When requested by an agency, the General Services Administration 
(GSA) will assist in lease or purchase decisions by providing 
information such as--
    (1) Pending price adjustments to Federal Supply Schedule contracts;
    (2) Recent or imminent technological developments;
    (3) New techniques; and
    (4) Industry or market trends.
    (b) Agencies may request information from the following GSA offices:

[[Page 105]]

    (1) Center for Strategic IT Analysis (MKS), Washington, DC 20405, 
for information on acquisition of information technology.
    (2) Federal Supply Service, Office of Acquisition (FC), Washington, 
DC 20406, for information on other types of equipment.
[48 FR 42124, Sept. 19, 1983, as amended at 54 FR 29280, July 11, 1989; 
61 FR 41468, Aug. 8, 1996; 62 FR 40236, July 25, 1997]



7.404  Contract clause.

    The contracting officer shall insert a clause substantially the same 
as the clause in 52.207-5, Option to Purchase Equipment, in 
solicitations and contracts involving a lease with option to purchase.
[59 FR 67026, Dec. 28, 1994]



             Subpart 7.5--Inherently Governmental Functions

    Source:  61 FR 2628, Jan. 26, 1996, unless otherwise noted.



7.500  Scope of subpart.

    The purpose of this subpart is to prescribe policies and procedures 
to ensure that inherently governmental functions are not performed by 
contractors. It implements the policies of Office of Federal Procurement 
Policy (OFPP) Policy Letter 92-1, Inherently Governmental Functions.



7.501  Definition.

    Inherently governmental function means, as a matter of policy, a 
function that is so intimately related to the public interest as to 
mandate performance by Government employees. This definition is a policy 
determination, not a legal determination. An inherently governmental 
function includes activities that require either the exercise of 
discretion in applying Government authority, or the making of value 
judgments in making decisions for the Government. Governmental functions 
normally fall into two categories: the act of governing, i.e., the 
discretionary exercise of Government authority, and monetary 
transactions and entitlements.
    (a) An inherently governmental function involves, among other 
things, the interpretation and execution of the laws of the United 
States so as to--
    (1) Bind the United States to take or not to take some action by 
contract, policy, regulation, authorization, order, or otherwise;
    (2) Determine, protect, and advance United States economic, 
political, territorial, property, or other interests by military or 
diplomatic action, civil or criminal judicial proceedings, contract 
management, or otherwise;
    (3) Significantly affect the life, liberty, or property of private 
persons;
    (4) Commission, appoint, direct, or control officers or employees of 
the United States; or
    (5) Exert ultimate control over the acquisition, use, or disposition 
of the property, real or personal, tangible or intangible, of the United 
States, including the collection, control, or disbursement of Federal 
funds.
    (b) Inherently governmental functions do not normally include 
gathering information for or providing advice, opinions, 
recommendations, or ideas to Government officials. They also do not 
include functions that are primarily ministerial and internal in nature, 
such as building security, mail operations, operation of cafeterias, 
housekeeping, facilities operations and maintenance, warehouse 
operations, motor vehicle fleet management operations, or other routine 
electrical or mechanical services. The list of commercial activities 
included in the attachment to Office of Management and Budget (OMB) 
Circular No. A-76 is an authoritative, nonexclusive list of functions 
which are not inherently governmental functions.



7.502  Applicability.

    The requirements of this subpart apply to all contracts for 
services. This subpart does not apply to services obtained through 
either personnel appointments, advisory committees, or personal services 
contracts issued under statutory authority.



7.503  Policy.

    (a) Contracts shall not be used for the performance of inherently 
governmental functions.

[[Page 106]]

    (b) Agency decisions which determine whether a function is or is not 
an inherently governmental function may be reviewed and modified by 
appropriate Office of Management and Budget officials.
    (c) The following is a list of examples of functions considered to 
be inherently governmental functions or which shall be treated as such. 
This list is not all inclusive:
    (1) The direct conduct of criminal investigations.
    (2) The control of prosecutions and performance of adjudicatory 
functions other than those relating to arbitration or other methods of 
alternative dispute resolution.
    (3) The command of military forces, especially the leadership of 
military personnel who are members of the combat, combat support, or 
combat service support role.
    (4) The conduct of foreign relations and the determination of 
foreign policy.
    (5) The determination of agency policy, such as determining the 
content and application of regulations, among other things.
    (6) The determination of Federal program priorities for budget 
requests.
    (7) The direction and control of Federal employees.
    (8) The direction and control of intelligence and counter-
intelligence operations.
    (9) The selection or non-selection of individuals for Federal 
Government employment, including the interviewing of individuals for 
employment.
    (10) The approval of position descriptions and performance standards 
for Federal employees.
    (11) The determination of what Government property is to be disposed 
of and on what terms (although an agency may give contractors authority 
to dispose of property at prices within specified ranges and subject to 
other reasonable conditions deemed appropriate by the agency).
    (12) In Federal procurement activities with respect to prime 
contracts--
    (i) Determining what supplies or services are to be acquired by the 
Government (although an agency may give contractors authority to acquire 
supplies at prices within specified ranges and subject to other 
reasonable conditions deemed appropriate by the agency);
    (ii) Participating as a voting member on any source selection 
boards;
    (iii) Approving any contractual documents, to include documents 
defining requirements, incentive plans, and evaluation criteria;
    (iv) Awarding contracts;
    (v) Administering contracts (including ordering changes in contract 
performance or contract quantities, taking action based on evaluations 
of contractor performance, and accepting or rejecting contractor 
products or services);
    (vi) Terminating contracts;
    (vii) Determining whether contract costs are reasonable, allocable, 
and allowable; and
    (viii) Participating as a voting member on performance evaluation 
boards.
    (13) The approval of agency responses to Freedom of Information Act 
requests (other than routine responses that, because of statute, 
regulation, or agency policy, do not require the exercise of judgment in 
determining whether documents are to be released or withheld), and the 
approval of agency responses to the administrative appeals of denials of 
Freedom of Information Act requests.
    (14) The conduct of Administrative hearings to determine the 
eligibility of any person for a security clearance, or involving actions 
that affect matters of personal reputation or eligibility to participate 
in Government programs.
    (15) The approval of Federal licensing actions and inspections.
    (16) The determination of budget policy, guidance, and strategy.
    (17) The collection, control, and disbursement of fees, royalties, 
duties, fines, taxes, and other public funds, unless authorized by 
statute, such as 31 U.S.C. 952 (relating to private collection 
contractors) and 31 U.S.C. 3718 (relating to private attorney collection 
services), but not including--
    (i) Collection of fees, fines, penalties, costs, or other charges 
from visitors to or patrons of mess halls, post or base exchange 
concessions, national parks, and similar entities or activities, or from 
other persons, where the amount to be collected is easily calculated or

[[Page 107]]

predetermined and the funds collected can be easily controlled using 
standard case management techniques; and
    (ii) Routine voucher and invoice examination.
    (18) The control of the treasury accounts.
    (19) The administration of public trusts.
    (20) The drafting of Congressional testimony, responses to 
Congressional correspondence, or agency responses to audit reports from 
the Inspector General, the General Accounting Office, or other Federal 
audit entity.
    (d) The following is a list of examples of functions generally not 
considered to be inherently governmental functions. However, certain 
services and actions that are not considered to be inherently 
governmental functions may approach being in that category because of 
the nature of the function, the manner in which the contractor performs 
the contract, or the manner in which the Government administers 
contractor performance. This list is not all inclusive:
    (1) Services that involve or relate to budget preparation, including 
workload modeling, fact finding, efficiency studies, and should-cost 
analyses, etc.
    (2) Services that involve or relate to reorganization and planning 
activities.
    (3) Services that involve or relate to analysis, feasibility 
studies, and strategy options to be used by agency personnel in 
developing policy.
    (4) Services that involve or relate to the development of 
regulations.
    (5) Services that involve or relate to the evaluation of another 
contractor's performance.
    (6) Services in support of acquisition planning.
    (7) Contractors providing assistance in contract management (such as 
where the contractor might influence official evaluations of other 
contractors).
    (8) Contractors providing technical evaluation of contract 
proposals.
    (9) Contractors providing assistance in the development of 
statements of work.
    (10) Contractors providing support in preparing responses to Freedom 
of Information Act requests.
    (11) Contractors working in any situation that permits or might 
permit them to gain access to confidential business information and/or 
any other sensitive information (other than situations covered by the 
National Industrial Security Program described in 4.402(b)).
    (12) Contractors providing information regarding agency policies or 
regulations, such as attending conferences on behalf of an agency, 
conducting community relations campaigns, or conducting agency training 
courses.
    (13) Contractors participating in any situation where it might be 
assumed that they are agency employees or representatives.
    (14) Contractors participating as technical advisors to a source 
selection board or participating as voting or nonvoting members of a 
source evaluation board.
    (15) Contractors serving as arbitrators or providing alternative 
methods of dispute resolution.
    (16) Contractors constructing buildings or structures intended to be 
secure from electronic eavesdropping or other penetration by foreign 
governments.
    (17) Contractors providing inspection services.
    (18) Contractors providing legal advice and interpretations of 
regulations and statutes to Government officials.
    (19) Contractors providing special non-law enforcement, security 
activities that do not directly involve criminal investigations, such as 
prisoner detention or transport and non-military national security 
details.
    (e) Agency implementation shall include procedures requiring the 
agency head or designated requirements official to provide the 
contracting officer, concurrent with transmittal of the statement of 
work (or any modification thereof), a written determination that none of 
the functions to be performed are inherently governmental. This 
assessment should place emphasis on the degree to which conditions and 
facts restrict the discretionary authority, decision-making 
responsibility, or accountability of Government officials

[[Page 108]]

using contractor services or work products. Disagreements regarding the 
determination will be resolved in accordance with agency procedures 
before issuance of a solicitation.
[61 FR 2628, Jan. 26, 1996, as amended at 62 FR 40236, July 25, 1997]



PART 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES--Table of Contents




Sec.
8.000  Scope of part.
8.001  Priorities for use of Government supply sources.
8.002  Use of other Government supply sources.
8.003  Contract clause.

                  Subpart 8.1--Excess Personal Property

8.101  Definition.
8.102  Policy.
8.103  Information on available excess personal property.
8.104  Obtaining nonreportable property.

                         Subpart 8.2  [Reserved]

                         Subpart 8.3  [Reserved]

                  Subpart 8.4--Federal Supply Schedules

8.401  General.
8.402  Applicability.
8.402--8.403-4  [Reserved]
8.404  Using schedules.
8.404-1--8.404-2  [Reserved]
8.404-3  Requests for waivers.
8.405  Ordering office responsibilities.
8.405-1  [Reserved]
8.405-2  Order placement.
8.405-3  Inspection and acceptance.
8.405-4  Delinquent performance.
8.405-5  Termination for default.
8.405-6  Termination for convenience.
8.405-7  Disputes.

                   Subpart 8.5--Acquisition of Helium

8.500  Scope of subpart.
8.501  Definitions.
8.502  Policy.
8.503  Exception.
8.504  Procedures.
8.505  Contract clause.

      Subpart 8.6--Acquisition From Federal Prison Industries, Inc.

8.601  General.
8.602  Policy.
8.603  Purchase priorities.
8.604  Ordering procedures.
8.605  Clearances.
8.606  Exceptions.

 Subpart 8.7--Acquisition From Nonprofit Agencies Employing People Who 
                     Are Blind or Severely Disabled

8.700  Scope of subpart.
8.701  Definitions.
8.702  General.
8.703  Procurement list.
8.704  Purchase priorities.
8.705  Procedures.
8.705-1  General.
8.705-2  Direct-order process.
8.705-3  Allocation process.
8.705-4  Compliance with orders.
8.706  Purchase exceptions.
8.707  Prices.
8.708  Shipping.
8.709  Payments.
8.710  Quality of merchandise.
8.711  Quality complaints.
8.712  Specification changes.
8.713  Optional acquisition of supplies and services.
8.714  Communications with the central nonprofit agencies and the 
          Committee.
8.715  Replacement commodities.

        Subpart 8.8--Acquisition of Printing and Related Supplies

8.800  Scope of subpart.
8.801  Definitions.
8.802  Policy.

  Subpart 8.9--Financial Management Systems Software (FMSS) Mandatory 
             Multiple Award Schedule (MAS) Contracts Program

8.901  General.
8.902  Policy.
8.903  Exceptions.
8.904  Procedures.

                        Subpart 8.10  [Reserved]

                 Subpart 8.11--Leasing of Motor Vehicles

8.1100  Scope of subpart.
8.1101  Definitions.
8.1102  Presolicitation requirements.
8.1103  Contract requirements.
8.1104  Contract clauses.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42129, Sept. 19, 1983, unless otherwise noted.



8.000  Scope of part.

    This part deals with the acquisition of supplies and services from 
or through Government supply sources.

[[Page 109]]



8.001  Priorities for use of Government supply sources.

    (a) Except as required by 8.002, or as otherwise provided by law, 
agencies shall satisfy requirements for supplies and services from or 
through the sources and publications listed below in descending order of 
priority--
    (1) Supplies. (i) Agency inventories;
    (ii) Excess from other agencies (see subpart 8.1);
    (iii) Federal Prison Industries, Inc. (see subpart 8.6);
    (iv) Products available from the Committee for Purchase from People 
Who Are Blind or Severely Disabled (see subpart 8.7);
    (v) Wholesale supply sources, such as stock programs of the General 
Services Administration (GSA) (see 41 CFR 101-26.3), the Defense 
Logistics Agency (see 41 CFR 101-26.6), the Department of Veterans 
Affairs (see 41 CFR 101-26.704), and military inventory control points;
    (vi) Mandatory Federal Supply Schedules (see subpart 8.4);
    (vii) Optional use Federal Supply Schedules (see subpart 8.4); and
    (viii) Commercial sources (including educational and nonprofit 
institutions).
    (2) Services. (i) Services available from the Committee for Purchase 
from People Who Are Blind or Severely Disabled (see subpart 8.7);
    (ii) Mandatory Federal Supply Schedules (see subpart 8.4);
    (iii) Optional use Federal Supply Schedules (see subpart 8.4); and
    (iv) Federal Prison Industries, Inc. (see subpart 8.6), or 
commercial sources (including educational and nonprofit institutions).
    (b) Sources other than those listed in paragraph (a) may be used as 
prescribed in 41 CFR 101-26.301 and in an unusual and compelling urgency 
as prescribed in 6.302-2 and in 41 CFR 101-25.101-5.
    (c) The statutory obligation for Government agencies to satisfy 
their requirements for supplies available from the Committee for 
Purchase From People Who Are Blind or Severely Disabled also applies 
when contractors purchase the supply items for Government use.
[48 FR 42129, Sept. 19, 1983, as amended at 50 FR 1735, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 29280, July 11, 1989; 56 FR 15148, 
Apr. 15, 1991; 59 FR 53716, Oct. 25, 1994; 59 FR 67027, Dec. 28, 1994; 
61 FR 2630, Jan. 26, 1996]



8.002  Use of other Government supply sources.

    Agencies shall satisfy requirements for the following supplies or 
services from or through specified sources, as applicable:
    (a) Public utility services (see part 41);
    (b) Printing and related supplies (see subpart 8.8);
    (c) Leased motor vehicles (see subpart 8.11);
    (d) Strategic and critical materials (e.g., metals and ores) from 
inventories exceeding National Defense Stockpile requirements (detailed 
information is available from the Defense National Stockpile Center, 
8725 John J. Kingman Rd., Suite 4528, Fort Belvior, VA 22060-6223; and
    (e) Helium (see subpart 8.5--Acquisition of Helium).
[48 FR 42129, Sept. 19, 1983, as amended at 57 FR 60576, Dec. 21, 1992; 
59 FR 67018, Dec. 28, 1994; 59 FR 67030, Dec. 28, 1994; 61 FR 41468, 
Aug. 8, 1996; 62 FR 235, Jan. 2, 1997]



8.003  Contract clause.

    The contracting officer shall insert the clause at 52.208-9, 
Contractor Use of Mandatory Sources of Supply, in solicitations and 
contracts which require a contractor to purchase supply items for 
Government use that are available from the Committee for Purchase from 
People Who Are Blind or Severely Disabled. The contracting officer shall 
identify in the contract schedule the items which must be purchased from 
a mandatory source and the specific source.
[61 FR 2631, Jan. 26, 1996]

[[Page 110]]



                  Subpart 8.1--Excess Personal Property



8.101  Definition.

    Excess personal property means any personal property (see 45.601) 
under the control of a Federal agency that the agency head or a designee 
determines is not required for its needs and for the discharge of its 
responsibilities.



8.102  Policy.

    When it is practicable to do so, agencies shall use excess personal 
property as the first source of supply in fulfilling their requirements 
and those of their cost-reimbursement contractors. Accordingly, agencies 
shall ensure that all personnel make positive efforts to satisfy agency 
requirements by obtaining and using excess personal property (including 
that suitable for adaptation or substitution) before initiating 
contracting action.



8.103  Information on available excess personal property.

    Information regarding the availability of excess personal property 
can be obtained through--
    (a) Review of excess personal property catalogs and bulletins issued 
by the General Services Administration (GSA);
    (b) Personal contact with GSA or the activity holding the property;
    (c) Submission of supply requirements to the regional offices of GSA 
(GSA Form 1539, Request for Excess Personal Property, is available for 
this purpose); and
    (d) Examination and inspection of reports and samples of excess 
personal property in GSA regional offices.



8.104  Obtaining nonreportable property.

    GSA will assist agencies in meeting their requirements for supplies 
of the types excepted from reporting as excess by the Federal Property 
Management Regulations (41 CFR 101-43.312). Federal agencies requiring 
such supplies should contact the appropriate GSA regional office.



                      Subpart 8.2--8.3  [Reserved]



                  Subpart 8.4--Federal Supply Schedules



8.401  General.

    (a) The Federal Supply Schedule program, directed and managed by the 
General Services Administration (GSA), provides Federal agencies with a 
simplified process for obtaining commonly used commercial supplies and 
services at prices associated with volume buying (also see 8.001). 
Indefinite delivery contracts (including requirements contracts) are 
established with commercial firms to provide supplies and services at 
stated prices for given periods of time. Similar systems of schedule-
type contracting are used for military items managed by the Department 
of Defense. These systems are not included in the Federal Supply 
Schedule program covered by this subpart.
    (b) The GSA schedule contracting office issues publications, 
entitled Federal Supply Schedules, containing the information necessary 
for placing delivery orders with schedule contractors. Ordering offices 
issue delivery orders directly to the schedule contractors for the 
required supplies and services. Ordering offices may request copies of 
schedules by completing GSA Form 457, FSS Publications Mailing List 
Application, and mailing it to the GSA Centralized Mailing List Service 
(7CAFL), P.O. Box 6477, Fort Worth, TX 76115. Copies of GSA Form 457 
also may be obtained from this address.
    (c) GSA offers an on-line shopping service called ``GSA Advantage!'' 
that enables ordering offices to search product specific information 
(i.e., national stock number, part number, common name), review delivery 
options, place orders directly with contractors (or ask GSA to place 
orders on the agency's behalf), and pay contractors for orders using the 
Governmentwide commercial purchase card (or pay GSA). Ordering offices 
may access the ``GSA Advantage!'' shopping service by connecting to the 
Internet and using a web browser to connect to the Acquisition Reform 
Network (http://www.arnet.gov) or the GSA, Federal Supply Service (FSS) 
Home Page (http://

[[Page 111]]

www.fss.gsa.gov). For more information or assistance, contact GSA at 
Internet e-mail address: [email protected].
[62 FR 44817, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44817, Aug. 22, 1997, section 8.401 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

8.401  General.

    (a) The Federal Supply Schedule program, directed and managed by the 
General Services Administration (GSA), provides Federal agencies with a 
simplified process for obtaining commonly used supplies and services at 
prices associated with volume buying. Indefinite delivery contracts 
(including requirements contracts) are established with commercial firms 
to provide supplies and services at stated prices for given periods of 
time. The schedule contracting office issues publications, titled 
Federal Supply Schedules, containing the information necessary for 
placing delivery orders with the contractors. Ordering offices issue 
delivery orders directly to the schedule contractors for the required 
supplies or services.
    (b) Ordering offices may request copies of schedules by completing 
GSA Form 457, FSS Publications Mailing List Application, and mailing it 
to the GSA Centralized Mailing List Service (7CAFL), P.O. Box 6477, Fort 
Worth, Texas 76115. Copies of GSA Form 457 and the GSA publication 
titled ``Federal Supply Schedule Program Guide'' may also be obtained 
from the above address. The ``Federal Supply Schedule Program Guide,'' 
includes a listing of Federal Supply Schedules and information on the 
use of schedules.
[48 FR 42129, Sept. 19, 1983, as amended at 50 FR 1736, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 29280, July 11, 1989; 56 FR 55372, 
Oct. 25, 1991; 59 FR 53716, Oct. 25, 1994]



8.402  Applicability.

    Procedures in this subpart apply to Federal Supply Schedule 
contracts. Occasionally, special ordering procedures may be established. 
In such cases the procedures will be outlined in the ``Federal Supply 
Schedules''.
[62 FR 44818, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44818, Aug. 22, 1997, section 8.402 
was added, effective Oct. 21, 1997.



8.402--8.403-4  [Reserved]



8.404  Using schedules.

    (a) General. When agency requirements are to be satisfied through 
the use of Federal Supply Schedules as set forth in this subpart, the 
simplified acquisition procedures of part 13 and the small business set-
aside provisions of subpart 19.5 do not apply except for the provision 
at 13.202(c)(3). Orders placed pursuant to a Multiple Award Schedule 
(MAS), using the procedures in this subpart, are considered to be issued 
pursuant to full and open competition (see 6.102(d)(3)). Therefore, when 
placing orders under Federal Supply Schedules, ordering offices need not 
seek further competition, synopsize the requirement, make a separate 
determination of fair and reasonable pricing, or consider small business 
set-asides in accordance with subpart 19.5. GSA has already determined 
the prices of items under schedule contracts to be fair and reasonable. 
By placing an order against a schedule using the procedures in this 
section, the ordering office has concluded that the order represents the 
best value and results in the lowest overall cost alternative 
(considering price, special features, administrative costs, etc.) to 
meet the Government's needs.
    (b) Ordering procedures for optional use schedules--(1) Orders at or 
below the micro-purchase threshold. Ordering offices can place orders at 
or below the micro-purchase threshold with any Federal Supply Schedule 
contractor.
    (2) Orders exceeding the micro-purchase threshold but not exceeding 
the maximum order threshold. Orders should be placed with the schedule 
contractor that can provide the supply or service that represents the 
best value. Before placing an order, ordering offices should consider 
reasonably available information about the supply or service offered 
under MAS contracts by using the ``GSA Advantage!'' on-line shopping 
service, or by reviewing the catalogs/pricelists of at least three 
schedule contractors and select the delivery and other options available 
under the schedule that meet the agency's needs. In selecting the supply 
or service representing the best value, the ordering office may 
consider--
    (i) Special features of the supply or service that are required in 
effective program performance and that are not provided by a comparable 
supply or service;

[[Page 112]]

    (ii) Trade-in considerations;
    (iii) Probable life of the item selected as compared with that of a 
comparable item;
    (iv) Warranty considerations;
    (v) Maintenance availability;
    (vi) Past performance; and
    (vii) Environmental and energy efficiency considerations.
    (3) Orders exceeding the maximum order threshold. Each schedule 
contract has an established maximum order threshold. This threshold 
represents the point where it is advantageous for the ordering office to 
seek a price reduction. In addition to following the procedures in 
paragraph (b)(2) of this section and before placing an order that 
exceeds the maximum order threshold, ordering offices shall--
    (i) Review additional schedule contractors' catalogs/pricelists or 
use the ``GSA Advantage!'' on-line shopping service;
    (ii) Based upon the initial evaluation, generally seek price 
reductions from the schedule contractor(s) appearing to provide the best 
value (considering price and other factors); and
    (iii) After price reductions have been sought, place the order with 
the schedule contractor that provides the best value and results in the 
lowest overall cost alternative (see 8.404(a)). If further price 
reductions are not offered, an order may still be placed, if the 
ordering office determines that it is appropriate.
    (4) Blanket purchase agreements (BPAs). The establishment of Federal 
Supply Schedule BPAs is permitted (see 13.202(c)(3)) when following the 
ordering procedures in this subpart. All schedule contracts contain BPA 
provisions. Ordering offices may use BPAs to establish accounts with 
contractors to fill recurring requirements. BPAs should address the 
frequency of ordering and invoicing, discounts, and delivery locations 
and times.
    (5) Price reductions. In addition to the circumstances outlined in 
paragraph (b)(3) of this section, there may be instances when ordering 
offices will find it advantageous to request a price reduction. For 
example, when the ordering office finds a schedule supply or service 
elsewhere at a lower price or when a BPA is being established to fill 
recurring requirements, requesting a price reduction could be 
advantageous. The potential volume of orders under these agreements, 
regardless of the size of the individual order, may offer the ordering 
office the opportunity to secure greater discounts. Schedule contractors 
are not required to pass on to all schedule users a price reduction 
extended only to an individual agency for a specific order.
    (6) Small business. For orders exceeding the micro-purchase 
threshold, ordering offices should give preference to the items of small 
business concerns when two or more items at the same delivered price 
will satisfy the requirement.
    (7) Documentation. Orders should be documented, at a minimum, by 
identifying the contractor the item was purchased from, the item 
purchased, and the amount paid. If an agency requirement in excess of 
the micro-purchase threshold is defined so as to require a particular 
brand name, product, or a feature of a product peculiar to one 
manufacturer, thereby precluding consideration of a product manufactured 
by another company, the ordering office shall include an explanation in 
the file as to why the particular brand name, product, or feature is 
essential to satisfy the agency's needs.
    (c) Ordering procedures for mandatory use schedules. (1) This 
paragraph (c) applies only to orders against schedule contracts with 
mandatory users. When ordering from multiple-award schedules, mandatory 
users shall also follow the procedures in paragraphs (a) and (b) of this 
section.
    (2) In the case of mandatory schedules, ordering offices shall not 
solicit bids, proposals, quotations, or otherwise test the market solely 
for the purpose of seeking alternative sources to Federal Supply 
Schedules.
    (3) Schedules identify executive agencies required to use them as 
mandatory sources of supply. The single-award schedule shall be used as 
a primary source and the multiple-award schedule as a secondary source. 
Mandatory use of schedules is not a requirement if--
    (i) The schedule contractor is unable to satisfy the ordering 
office's urgent delivery requirement;

[[Page 113]]

    (ii) The order is below the minimum order thresholds;
    (iii) The order is above the maximum order limitation;
    (iv) The consignee is located outside the area of geographic 
coverage stated in the schedule; or
    (v) A lower price for an identical item (i.e., same make and model) 
is available from another source.
    (4) Absence of follow-on award. Ordering offices, after any 
consultation required by the schedule, are not required to forego or 
postpone their legitimate needs pending the award or renewal of any 
schedule contract.
[59 FR 53716, Oct. 25, 1994, as amended at 59 FR 60319, Nov. 23, 1994; 
60 FR 34747, July 3, 1995; 62 FR 44818, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44818, Aug. 22, 1997, section 8.404 
was amended by revising paragraphs (a) and (b), and the heading of 
paragraph (c), effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

8.404  Using schedules.

    (a) General. When agency requirements are to be satisfied through 
the use of Federal Supply Schedules as set forth in this subpart 8.4, 
the policies and procedures of FAR part 13 do not apply. When placing 
orders under a Federal Supply Schedule, ordering activities need not 
seek further competition, synopsize the requirement, make a separate 
determination of fair and reasonable pricing, or consider small business 
set-asides in accordance with subpart 19.5.
    (b) Optional use. (1) Ordering activities can place orders of $2,500 
or less with any Federal Supply Schedule contractor. GSA has already 
determined the prices of items under these contracts to be fair and 
reasonable.
    (2) To reasonably ensure that a selection represents the best value 
and meets the agency's needs at the lowest overall cost, before placing 
an order of more than $2,500, an ordering activity should--
    (i) Consider reasonably available information about products offered 
under Multiple Award Schedule contracts; this standard is met if the 
ordering activity does the following:
    (A) Considers products and prices contained in any GSA MAS automated 
information system; or
    (B) If automated information is not available, reviews at least 
three (3) price lists.
    (ii) In selecting the best value item at the lowest overall cost 
(the price of the item plus administrative costs), the ordering activity 
may consider such factors as--
    (A) Special features of one item not provided by comparable items 
which are required in effective program performance;
    (B) Trade-in considerations;
    (C) Probable life of the item selected as compared with that of a 
comparable item;
    (D) Warranty conditions; and
    (E) Maintenance availability.
    (iii) Give preference to the items of small business concerns when 
two or more items at the same delivered price will meet an ordering 
activity's needs.
    (3) MAS contractors will not be required to pass on to all schedule 
users a price reduction extended only to an individual agency for a 
specific order. There may be circumstances where an ordering activity 
finds it advantageous to request a price reduction, such as where the 
ordering activity finds that a schedule product is available elsewhere 
at a lower price, or where the quantity of an individual order clearly 
indicates the potential for obtaining a reduced price.
    (4) Ordering activities should document orders of $2,500 or less by 
identifying the contractor the item was purchased from, the item 
purchased, and the amount paid. For orders over $2,500, MAS ordering 
files should be documented in accordance with internal agency practices. 
Agencies are encouraged to keep documentation to a minimum.
    (c) Mandatory use. * * *

                                * * * * *



8.404-1--8.404-2  [Reserved]



8.404-3  Requests for waivers.

    (a) When an ordering office that is a mandatory user under a 
schedule determines that items available from the schedule will not meet 
its specific needs, but similar items from another source will, it shall 
submit a request for waiver to the Commissioner, Federal Supply Service 
(F), GSA, Washington, DC 20406, except as provided in (b) below. 
Requests shall contain the following information:
    (1) A complete description of the required items, whenever possible; 
e.g., descriptive literature such as cuts, illustrations, drawings, and 
brochures that explain the characteristics and/or construction.
    (2) A comparison of prices and the technical differences between the 
requested item and the schedule item, identifying as a minimum the--
    (i) Inadequacies of the schedule item to perform required functions; 
and
    (ii) Technical, economic, or other advantages of the item requested.

[[Page 114]]

    (3) Quantity required.
    (4) Estimated annual usage or a statement that the requirement is 
nonrecurrent or unpredictable.
    (b) Ordering offices shall not initiate action to acquire similar 
items from nonschedule sources until a request for waiver is approved, 
except as otherwise provided in interagency agreements.
[48 FR 42129, Sept. 19, 1983, as amended at 54 FR 29280, July 11, 1989]



8.405  Ordering office responsibilities.



8.405-1  [Reserved]



8.405-2  Order placement.

    Ordering offices may use Optional Form 347, an agency-prescribed 
form, or an established electronic communications format to order items 
from schedules and shall place orders directly with the contractor 
within the limitations specified in each schedule. Orders shall include, 
at a minimum, the following information in addition to any information 
required by the schedule:
    (a) Complete shipping and billing addresses.
    (b) Contract number and date.
    (c) Agency order number.
    (d) F.o.b. delivery point; i.e., origin or destination.
    (e) Discount terms.
    (f) Delivery time.
    (g) Special item number or national stock number.
    (h) Brief, complete description of each item (when ordering by model 
number, features and options such as color, finish, and electrical 
characteristics, if available, must be specified).
    (i) Quantity and any variation in quantity.
    (j) Number of units.
    (k) Unit price.
    (l) Total price of order.
    (m) Points of inspection and acceptance.
    (n) Other pertinent data; e.g., delivery instructions or receiving 
hours and size-of-truck limitation.
    (o) Marking requirements.
    (p) Level of preservation, packaging, and packing.
[48 FR 42129, Sept. 19, 1983, as amended at 60 FR 34737, July 3, 1995]



8.405-3  Inspection and acceptance.

    (a) Consignees shall inspect supplies at destination except when--
    (1) The schedule provides for the schedule contracting agency to 
perform source inspection (in this case, the schedule will indicate that 
mandatory source inspection is required); or
    (2) A schedule item is covered by a product description, and the 
ordering office determines that the schedule contracting agency's 
inspection assistance is needed (inspection assistance may be based on 
the ordering volume, the complexity of items, or the past performance of 
the supplier).
    (b) When the schedule contracting agency performs the inspection, as 
specified in the schedule, the ordering office will provide two copies 
of the order specifying source inspection to the schedule contracting 
agency. The schedule contracting agency will notify the ordering office 
of acceptance or rejection of the supplies.
    (c) Material inspected at source by the schedule contracting agency, 
and determined to conform with the product description of the schedule, 
shall not be reinspected for the same purpose. The consignee shall limit 
inspection to quantity and condition on receipt.
    (d) Unless otherwise provided in the schedule, acceptance shall be 
conclusive except as regards latent defects, fraud, or such gross 
mistakes as amount to fraud.



8.405-4  Delinquent performance.

    If the contractor fails to perform on the order, the ordering office 
may terminate the order for default or give the contractor further 
opportunity to perform by modifying the order to establish a new 
delivery date (obtaining consideration as necessary).
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 53717, Oct. 25, 1994]



8.405-5  Termination for default.

    (a)(1) An ordering office may terminate any one or more orders for 
default in accordance with part 49, Termination of Contracts. The 
schedule contracting office shall be notified of all

[[Page 115]]

cases where an ordering office has declared a Federal Supply Schedule 
contractor in default or fraud is suspected.
    (2) Should the contractor claim that the failure was excusable, the 
ordering office shall promptly refer the matter to the schedule 
contracting office. In the absence of a decision by the schedule 
contracting office (or by the head of the schedule contracting agency, 
on appeal) excusing the failure, the ordering office may charge the 
contractor with excess costs resulting from repurchase.
    (3) Any repurchase shall be made at as reasonable a price as 
possible considering the quality required by the Government, delivery 
requirement, and administrative expenses. Copies of all repurchase 
orders, except the copy furnished to the contractor or any other 
commercial concern, shall include the notation ``Repurchase against the 
account of ____________ [insert contractor's name] under Delivery Order 
____________ [insert number] under Contract ____________ [insert 
number]''.
    (4) When excess costs are anticipated, the ordering office may 
withhold funds due the contractor as offset security. Ordering offices 
shall minimize excess costs to be charged against the contractor and 
collect or setoff any excess costs owed.
    (5) If an ordering office is unable to collect excess costs, it 
shall take the following actions:
    (i) Notify the schedule contracting office within 60 days after 
final payment to the replacement contractor. The notice shall include 
the following information about the defaulted order:
    (A) Name and address of the contractor.
    (B) Schedule, contract, and order number.
    (C) National stock or special item number(s), and a brief 
description of the item(s).
    (D) Cost of schedule items involved.
    (E) Excess costs to be collected.
    (F) Other pertinent data.
    (ii) In addition to the above, the notice shall include the 
following information about the replacement contract:
    (A) Name and address of the contractor.
    (B) Item repurchase cost.
    (C) Repurchase order number and date of payment.
    (D) Contract number, if any.
    (E) Other pertinent data.
    (b) Only the schedule contracting officer may terminate for default 
any or all items covered by the schedule contract. When notified of 
default action by the schedule contracting officer with respect to 
defaulted items, ordering offices shall--
    (1) Refuse to accept further performance by the contractor;
    (2) Not place further orders with the contractor;
    (3) Repurchase against the contractor in default from sources 
designated by the schedule contracting officer; or
    (4) Proceed as otherwise directed by the schedule contracting 
officer.
    (c) All actions taken regarding terminations for default shall 
comply with the applicable requirements in part 49.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 53717, Oct. 25, 1994]



8.405-6  Termination for convenience.

    (a) Ordering offices may terminate individual orders for the 
convenience of the Government. Only the schedule contracting officer may 
terminate any or all items covered by the schedule contract for the 
convenience of the Government.
    (b) Before terminating orders for convenience, the ordering office 
shall endeavor to enter into a ``no cost'' cancellation agreement with 
the contractor.
    (c) All actions taken regarding terminations for convenience shall 
comply with the applicable requirements in part 49.



8.405-7  Disputes.

    The ordering office shall refer all unresolved disputes under orders 
to the schedule contracting office for action under the Disputes clause 
of the contract.



                   Subpart 8.5--Acquisition of Helium

    Source:  59 FR 67030, Dec. 28, 1994, unless otherwise noted.

[[Page 116]]



8.500  Scope of subpart.

    This subpart implements the requirements of the Helium Act (50 
U.S.C. 167a, et seq.) concerning the acquisition of liquid or gaseous 
helium by Federal agencies or by Government contractors or 
subcontractors for use in the performance of a Government contract (also 
see 30 CFR Parts 601 and 602).



8.501  Definitions.

    Bureau helium distributor means a private helium distributor which 
has established and maintains eligibility to distribute helium purchased 
from the Bureau of Land Management, as specified in 30 CFR part 602.
    Bureau of Land Management, as used in this subpart, means the 
Department of the Interior, Bureau of Land Management, Helium Field 
Operations, located at 801 South Fillmore Street, Amarillo, TX 79101-
3545.
    Helium requirement forecast means an estimate by the contractor or 
subcontractor of the amount of helium required for performance of the 
contract or subcontract.
    Major helium requirement means a helium requirement during a 
calendar month of 5,000 or more standard cubic feet (measured at 14.7 
pounds per square inch absolute pressure and 70 degrees Fahrenheit 
temperature), including liquid helium gaseous equivalent. In any month 
in which the major requirement threshold is met, all helium purchased 
during that month is considered part of the major helium requirement.
[59 FR 67030, Dec. 28, 1994, as amended at 62 FR 40236, July 25, 1997]



8.502  Policy.

    To the extent that supplies are readily available, all major helium 
requirements purchased by a Government agency or used in the performance 
of a Government contract shall be purchased from the Bureau of Mines. 
This requirement may be satisfied as follows:
    (a) By ordering against a GSA Federal Supply Schedule contract (for 
contractor use and authorization procedures, see subpart 51.1).
    (b)(1) For requirements not covered by a Federal Supply Schedule 
contract, by purchasing from--
    (i) The Bureau of Land Management; or
    (ii) A Bureau helium distributor.
    (2) A copy of the ``List by Shipping Points of Private Distributors 
Eligible to Sell Helium to Federal Agencies'' may be obtained from the 
Bureau of Land Management.
[59 FR 67030, Dec. 28, 1994, as amended at 62 FR 40236, July 25, 1997]



8.503  Exception.

    The requirements of this subpart do not apply to contracts or 
subcontracts in which the helium was acquired by the contractor prior to 
award of the contract or subcontract.



8.504  Procedures.

    (a) Upon receipt of the helium requirement forecast, point of 
contact, and telephone number from the contractor, the contracting 
officer shall forward this information, along with a copy of the 
contract, to the Bureau of Land Management.
    (b) Upon notification by the Bureau of Land Management of an 
apparent discrepancy between helium sales data and the contractor's 
helium requirement forecast, the contracting officer shall determine 
appropriate action and inform the Bureau of Land Management.
[59 FR 67030, Dec. 28, 1994, as amended at 62 FR 40236, July 25, 1997]



8.505  Contract clause.

    The contracting officer shall insert the clause at 52.208-8, Helium 
Requirement Forecast and Required Sources for Helium, in solicitations 
and contracts if it is anticipated that performance of the contract 
involves a major helium requirement.



      Subpart 8.6--Acquisition From Federal Prison Industries, Inc.



8.601  General.

    (a) Federal Prison Industries, Inc. (FPI), also referred to as 
UNICOR, is a self-supporting, wholly owned Government corporation of the 
District of Columbia.

[[Page 117]]

    (b) FPI provides training and employment for prisoners confined in 
Federal penal and correctional institutions through the sale of its 
supplies and services to Government agencies (18 U.S.C. 4121-4128).
    (c) FPI diversifies its supplies and services to prevent private 
industry from experiencing unfair competition from prison workshops or 
activities.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 15148, Apr. 15, 1991]



8.602  Policy.

    (a) Agencies shall purchase required supplies of the classes listed 
in the Schedule of Products made in Federal Penal and Correctional 
Institutions (referred to in this subpart as the Schedule) at prices not 
to exceed current market prices, using the procedures in this subpart.
    (b) Subject to the priorities in 8.001 and 8.603, agencies are 
encouraged to use the facilities of FPI to the maximum extent 
practicable in purchasing (1) supplies that are not listed in the 
Schedule, but that are of a type manufactured in Federal penal and 
correctional institutions, and (2) services that are listed in the 
Schedule.
    (c) If a supply not listed in the Schedule is of a type normally 
produced by Federal penal and correctional institutions, agencies are 
encouraged to suggest that FPI consider the feasibility of adding the 
item to its Schedule.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 15148, Apr. 15, 1991]



8.603  Purchase priorities.

    (a) FPI and nonprofit agencies participating in the Javits-Wagner-
O'Day (JWOD) Program (see subpart 8.7) may produce identical supplies or 
services. When this occurs, ordering offices shall purchase supplies and 
services in the following priorities:
    (1) Supplies:
    (i) Federal Prison Industries, Inc. (41 U.S.C. 48).
    (ii) JWOD participating nonprofit agencies.
    (iii) Commercial sources.
    (2) Services:
    (i) JWOD participating nonprofit agencies.
    (ii) Federal Prison Industries, Inc., or commercial sources.
    (b) Supplies and services manufactured or performed by FPI are in 
strict conformity with Federal Specifications. These supplies and 
services are listed in the Schedule. Copies of the Schedule are 
available from Federal Prison Industries, Inc., Department of Justice, 
Washington, DC 20534.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 15149, Apr. 15, 1991; 
59 FR 67027, Dec. 28, 1994]



8.604  Ordering procedures.

    (a) Contracting officers shall order (1) less-than-carload lots of 
common-use items (Schedule A of the Schedule) from the regional 
warehouses of GSA, unless it is more practical and economical to 
purchase directly from FPI, and (2) carload lots of common-use items, 
and other items listed in the Schedule, from FPI.
    (b) Contracting officers shall prepare orders to FPI using the 
procedures in the Schedule.
    (c) When the contracting officer believes that the FPI price exceeds 
the market price, the matter may be referred to the cognizant product 
division identified in the Schedule or to the FPI Washington office for 
resolution.



8.605  Clearances.

    (a) Clearance is required from FPI before supplies on the Schedule 
are acquired from other sources, except when the conditions in 8.606 
apply. FPI clearances ordinarily are of the following types:
    (1) General or blanket clearances issued when classes of articles or 
services are not available from FPI.
    (2) Formal clearances issued in response to requests from offices 
desiring to acquire, from other sources, supplies listed in the Schedule 
and not covered by a general clearance. Requests should be addressed to 
Federal Prison Industries, Inc., Department of Justice, Washington, DC 
20534.
    (b) Purchases from other sources because of a lower price are not 
normally authorized, and clearances will not be issued on this basis 
except as a result of action taken to resolve questions of price under 
8.604(c).

[[Page 118]]

    (c) Disputes regarding price, quality, character, or suitability of 
supplies produced by FPI are subject to arbitration as specified in 18 
U.S.C. 4124. The statute provides that the arbitration shall be 
conducted by a board consisting of the Comptroller General of the United 
States, the Administrator of General Services, and the President, or 
their representatives. The decisions of the board are final and binding 
on all parties.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 15149, Apr. 15, 1991]



8.606  Exceptions.

    FPI clearances are not required when--
    (a) Public exigency requires immediate delivery or performance;
    (b) Suitable used or excess supplies are available;
    (c) Purchases are made from GSA of less-than-carload lots of common-
use items stocked by GSA (see Schedule A of the Schedule);
    (d) The supplies are acquired and used outside the United States; or
    (e) Orders are for listed items totaling $25 or less that require 
delivery within 10 days.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 15149, Apr. 15, 1991]



 Subpart 8.7--Acquisition From Nonprofit Agencies Employing People Who 
                     Are Blind or Severely Disabled



8.700  Scope of subpart.

    This subpart prescribes the policies and procedures for implementing 
the Javits-Wagner-O'Day Act (41 U.S.C. 46-48c), referred to in this 
subpart as ``the JWOD Act,'' and the rules of the Committee for Purchase 
from People Who Are Blind or Severely Disabled (41 CFR chapter 51).
[59 FR 67027, Dec. 28, 1994]



8.701  Definitions.

    Allocation, as used in this subpart, means an action taken by a 
central nonprofit agency to designate the JWOD participating nonprofit 
agencies that will furnish definite quantities of supplies or perform 
specific services upon receipt of orders from ordering offices.
    Central nonprofit agency, as used in this subpart, means National 
Industries for the Blind (NIB), which has been designated to represent 
people who are blind; or NISH, which has been designated to represent 
JWOD participating nonprofit agencies serving people with severe 
disabilities other than blindness.
    Committee, as used in this subpart, means the Committee for Purchase 
from People Who Are Blind or Severely Disabled.
    Government or entity of the Government means any entity of the 
legislative or judicial branch, any executive agency, military 
department, Government corporation, or independent establishment, the 
U.S. Postal Service, or any nonappropriated-fund instrumentality of the 
Armed Forces.
    Ordering office means any activity in an entity of the Government 
that places orders for the purchase of supplies or services under the 
JWOD Program.
    Procurement List, as used in this subpart, means a list of supplies 
(including military resale commodities) and services that the Committee 
has determined are suitable for purchase by the Government under the 
Javits-Wagner-O'Day Act.
    Nonprofit agency serving people who are blind or nonprofit agency 
serving people with other severe disabilities (referred to jointly as 
JWOD participating nonprofit agencies) means a qualified nonprofit 
agency employing people who are blind or have other severe disabilities 
approved by the Committee to furnish a commodity or a service to the 
Government under the Act.
[59 FR 67027, Dec. 28, 1994]



8.702  General.

    The Committee is an independent Government activity with members 
appointed by the President of the United States. It is responsible for--
    (a) Determining those supplies and services to be purchased by all 
entities of the Government from JWOD participating nonprofit agencies;
    (b) Establishing prices for the supplies and services; and

[[Page 119]]

    (c) Establishing rules and regulations to implement the JWOD Act.
[59 FR 67028, Dec. 28, 1994]



8.703  Procurement list.

    The Committee maintains a Procurement List of all supplies and 
services required to be purchased from JWOD participating nonprofit 
agencies. Questions concerning whether a supply item or service is on 
the Procurement List should be referred to the Committee offices at the 
following address and telephone number: Committee for Purchase from 
People Who Are Blind or Severely Disabled, Crystal Square 3, Room 403, 
1735 Jefferson Davis Highway, Arlington, VA 22202-3461, (703) 603-7740.
    Many items on the Procurement List are identified in the General 
Services Administration (GSA) Supply Catalog and GSA's Customer Service 
Center Catalogs with a black square and the words ``NIB/NISH Mandatory 
Source,'' and in similar catalogs issued by the Defense Logistics Agency 
(DLA) and the Department of Veterans Affairs (VA). GSA, DLA, and VA are 
central supply agencies from which other Federal agencies are required 
to purchase certain supply items on the Procurement List.
[59 FR 67028, Dec. 28, 1994]



8.704  Purchase priorities.

    (a) The JWOD Act requires the Government to purchase supplies or 
services on the Procurement List, at prices established by the 
Committee, from JWOD participating nonprofit agencies if they are 
available within the period required. When identical supplies or 
services are on the Procurement List and the Schedule of Products issued 
by Federal Prison Industries, Inc., ordering offices shall purchase 
supplies and services in the following priorities:
    (1) Supplies:
    (i) Federal Prison Industries, Inc. (41 U.S.C. 48).
    (ii) JWOD participating nonprofit agencies.
    (iii) Commercial sources.
    (2) Services:
    (i) JWOD participating nonprofit agencies.
    (ii) Federal Prison Industries, Inc., or commercial sources.
    (b) No other provision of the FAR shall be construed as permitting 
an exception to the mandatory purchase of items on the Procurement List.
    (c) The Procurement List identifies those supplies for which the 
ordering office must obtain a formal clearance (8.605) from Federal 
Prison Industries, Inc., before making any purchases from JWOD 
participating nonprofit agencies.
[48 FR 42129, Sept. 19, 1983, as amended at 51 FR 19713, May 30, 1986; 
56 FR 15149, Apr. 15, 1991; 59 FR 67028, Dec. 28, 1994]



8.705  Procedures.



8.705-1  General.

    (a) Ordering offices shall obtain supplies and services on the 
Procurement List from the central nonprofit agency or its designated 
JWOD participating nonprofit agencies, except that supplies identified 
on the Procurement List as available from DLA, GSA, or VA supply 
distribution facilities shall be obtained through DLA, GSA, or VA 
procedures. If a distribution facility cannot provide the supplies, it 
shall inform the ordering office, which shall then order from the JWOD 
participating nonprofit agency designated by the Committee.
    (b) Supply distribution facilities in DLA and GSA shall obtain 
supplies on the Procurement List from the central nonprofit agency 
identified or its designated JWOD participating nonprofit agency.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67028, 67029, Dec. 28, 
1994]



8.705-2  Direct-order process.

    Central nonprofit agencies may authorize ordering offices to 
transmit orders for specific supplies or services directly to a JWOD 
participating nonprofit agency. The written authorization remains valid 
until it is revoked by the central nonprofit agency or the Committee. 
The central nonprofit agency shall specify the normal delivery or 
performance lead time required by the nonprofit agency. The ordering

[[Page 120]]

office shall reflect this lead time in its orders.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 67136, Dec. 27, 1991; 
59 FR 67029, Dec. 28, 1994]



8.705-3  Allocation process.

    (a) When the direct order process has not been authorized, the 
ordering office shall submit a written request for allocation 
(requesting the designation of the JWOD participating nonprofit agency 
to produce the supplies or perform the service) to the central nonprofit 
agency designated in the Procurement List. Ordering offices shall 
request allocations in sufficient time for a reply, for orders to be 
placed, and for the nonprofit agency to produce the supplies or provide 
the service within the required delivery or performance schedule.
    (b) The ordering office's request to the central nonprofit agency 
for allocation shall include the following information:
    (1) For supplies--Item name, stock number, latest specification, 
quantity, unit price, date delivery is required, and destination to 
which delivery is to be made.
    (2) For services--Type and location of service required, latest 
specification, work to be performed, estimated volume, and required date 
or dates for completion.
    (3) Other requirements; e.g., packing, marking, as necessary.
    (c) When an allocation is received, the ordering office shall 
promptly issue an order to the specified JWOD participating nonprofit 
agency or to the central nonprofit agency, as instructed by the 
allocation. If the issuance of an order is to be delayed for more than 
15 days beyond receipt of the allocation, or canceled, the ordering 
office shall advise the central nonprofit agency immediately.
    (d) Ordering offices may issue orders without limitation as to 
dollar amount and shall record them upon issuance as obligations. Each 
order shall include, as a minimum, the information contained in the 
request for allocation. Ordering offices shall also include additional 
instructions necessary for performance under the order; e.g., on the 
handling of Government-furnished property, reports required, and 
notification of shipment.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67029, Dec. 28, 1994; 
60 FR 34737, July 3, 1995]



8.705-4  Compliance with orders.

    (a) The central nonprofit agency shall inform the ordering office of 
changes in lead time experienced by its JWOD participating nonprofit 
agencies to minimize requests for extensions once the ordering office 
places an order.
    (b) The ordering office shall grant a request by a central nonprofit 
agency or JWOD participating nonprofit agency for revision in the 
delivery or completion schedule, if feasible. If extension of the 
delivery or completion date is not feasible, the ordering office shall 
notify the appropriate central nonprofit agency and request that it 
reallocate the order, or grant a purchase exception authorizing 
acquisition from commercial sources.
    (c) When a JWOD participating nonprofit agency fails to perform 
under the terms of an order, the ordering office shall make every effort 
to resolve the noncompliance with the nonprofit agency involved and to 
negotiate an adjustment before taking action to cancel the order. If the 
problem cannot be resolved with the nonprofit agency, the ordering 
office shall refer the matter for resolution first to the central 
nonprofit agency and then, if necessary, to the Committee.
    (d) When, after complying with 8.705-4(c), the ordering office 
determines that it must cancel an order, it shall notify the central 
nonprofit agency and, if practical, request a reallocation of the order. 
When the central nonprofit agency cannot reallocate the order, it shall 
grant a purchase exception permitting use of commercial sources, subject 
to approval by the Committee when the value of the purchase exception is 
$25,000 or more.
[48 FR 42129, Sept. 19, 1983, as amended at 56 FR 67136, Dec. 27, 1991; 
59 FR 67028, 67029, Dec. 28, 1994]



8.706  Purchase exceptions.

    (a) Ordering offices may acquire supplies or services on the 
Procurement List from commercial sources only if

[[Page 121]]

the acquisition is specifically authorized in a purchase exception 
granted by the designated central nonprofit agency.
    (b) The central nonprofit agency shall promptly grant purchase 
exceptions when--
    (1) The JWOD participating nonprofit agencies cannot provide the 
supplies or services within the time required, and commercial sources 
can provide them significantly sooner in the quantities required; or
    (2) The quantity required cannot be produced or provided 
economically by the JWOD participating nonprofit agencies.
    (c) The central nonprofit agency granting the exception shall 
specify the quantity and delivery or performance period covered by the 
exception.
    (d) When a purchase exception is granted, the contracting officer 
shall--
    (1) Initiate purchase action within 15 days following the date of 
the exception or any extension granted by the central nonprofit agency; 
and
    (2) Provide a copy of the solicitation to the central nonprofit 
agency when it is issued.
    (e) The Committee may also grant a purchase exception, under any 
circumstances it considers appropriate.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67028, 67029, Dec. 28, 
1994]



8.707  Prices.

    (a) The prices of items on the Procurement List are fair market 
prices established by the Committee. All prices for supplies ordered 
under this subpart are f.o.b. origin.
    (b) Prices for supplies are normally adjusted semiannually. Prices 
for services are normally adjusted annually.
    (c) The Committee may request the agency responsible for acquiring 
the supplies or service to assist it in establishing or revising the 
fair market price. The Committee has the authority to establish prices 
without prior coordination with the responsible contracting office.
    (d) Price changes shall normally apply to all orders received by the 
JWOD participating nonprofit agency on or after the effective date of 
the change. In special cases, after considering the views of the 
ordering office, the Committee may make price changes applicable to 
orders received by the JWOD participating nonprofit agency prior to the 
effective date of the change.
    (e) If an ordering office desires packing, packaging, or marking of 
supplies other than the standard pack as provided on the Procurement 
List, any difference in costs shall be included as a separate item on 
the nonprofit agency's invoice. The ordering office shall reimburse the 
nonprofit agency for these costs.
    (f) Ordering offices may make recommendations to the Committee at 
any time for price revisions for supplies and services on the 
Procurement List.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67028, 67029, Dec. 28, 
1994]



8.708  Shipping.

    (a) Delivery is accomplished when a shipment is placed aboard the 
vehicle of the initial carrier. The time of delivery is the date 
shipment is released to and accepted by the initial carrier.
    (b) Shipment is normally under Government bills of lading. However, 
for small orders, ordering offices may specify other shipment methods.
    (c) When shipments are under Government bills of lading, the bills 
of lading may accompany orders or be otherwise furnished promptly. 
Failure of an ordering office to furnish bills of lading or to designate 
a method of transportation may result in an excusable delay in delivery.
    (d) JWOD participating nonprofit agencies shall include 
transportation costs for small shipments paid by the nonprofit agencies 
as an item on the invoice. The ordering office shall reimburse the 
nonprofit agencies for these costs.
[48 FR 42129, Sept. 19, 1983, as amended at 51 FR 19713, May 30, 1986; 
59 FR 67028, Dec. 28, 1994]



8.709  Payments.

    The ordering office shall make payments for supplies or services on 
the Procurement List within 30 days after shipment or after receipt of a 
proper invoice or voucher.
[59 FR 67028, Dec. 28, 1994]

[[Page 122]]



8.710  Quality of merchandise.

    Supplies and services provided by JWOD participating nonprofit 
agencies shall comply with the applicable Government specifications and 
standards cited in the order. When no specifications or standards 
exist--
    (a) Supplies shall be of the highest quality and equal to similar 
items available on the commercial market; and
    (b) Services shall conform to good commercial practices.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67029, Dec. 28, 1994]



8.711  Quality complaints.

    (a) When the quality of supplies or services received is 
unsatisfactory, the using activity shall take the following actions:
    (1) For supplies received from DLA supply centers, GSA supply 
distribution facilities, or Department of Veterans Affairs distribution 
division, notify the supplying agency.
    (2) For supplies or services received from JWOD participating 
nonprofit agencies, address complaints to the individual nonprofit 
agency involved, with a copy to the appropriate central nonprofit 
agency.
    (b) When quality problems cannot be resolved by the JWOD 
participating nonprofit agency and the ordering office, the ordering 
office shall first contact the central nonprofit agency and then, if 
necessary, the Committee for resolution.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67029, Dec. 28, 1994]



8.712  Specification changes.

    (a) The contracting activity shall notify the JWOD participating 
nonprofit agency and appropriate central nonprofit agency of any change 
in specifications or descriptions. In the absence of such written 
notification, the JWOD participating nonprofit agency shall furnish the 
supplies or services under the specification or description cited in the 
order.
    (b) The contracting activity shall provide 90-days advance 
notification to the Committee and the central nonprofit agency on 
actions that affect supplies on the Procurement List and shall permit 
them to comment before action is taken, particularly when it involves--
    (1) Changes that require new national stock numbers or item 
designations;
    (2) Deleting items from the supply system;
    (3) Standardization; or
    (4) Developing new items to replace items on the Procurement List.
    (c) For services, the contracting activity shall notify the JWOD 
participating nonprofit agency and central nonprofit agency concerned at 
least 90 days prior to the date that any changes in the scope of work or 
other conditions will be required.
    (d) When, in order to meet its emergency needs, a contracting 
activity is unable to give the 90-day notification required in 
paragraphs (b) and (c) of this section, the contracting activity shall, 
at the time it places the order or change notice, inform the JWOD 
participating nonprofit agency and the central nonprofit agency in 
writing of the reasons that it cannot meet the 90-day notification 
requirement.
[48 FR 42129, Sept. 19, 1983, as amended at 51 FR 19714, May 30, 1986; 
59 FR 67029, Dec. 28, 1994]



8.713  Optional acquisition of supplies and services.

    (a) Ordering offices may acquire supplies and services not included 
on the Procurement List from a JWOD participating nonprofit agency that 
is the low responsive, responsible offeror under a solicitation issued 
by other authorized acquisition methods.
    (b) Ordering offices should forward solicitations to JWOD 
participating nonprofit agencies that may be qualified to provide the 
supplies or services required.
[48 FR 42129, Sept. 19, 1983, as amended at 59 FR 67029, Dec. 28, 1994]



8.714  Communications with the central nonprofit agencies and the Committee.

    (a) The addresses of the central nonprofit agencies are:

(1) National Industries for the Blind, 1901 N. Beauregard St., Suite 
    200, Alexandria, VA 22311-1727, (703) 998-0770; and

[[Page 123]]

(2) NISH, 2235 Cedar Lane, Vienna, VA 22182-5200, (703) 560-6800.

    (b) Any matter requiring referral to the Committee shall be 
addressed to the Executive Director of the Committee at 1735 Jefferson-
Davis Highway, Crystal Square 3, Suite 403, Arlington, VA 22202-3461.
[59 FR 67029, Dec. 28, 1994]



8.715  Replacement commodities.

    When a commodity on the Procurement List is replaced by another 
commodity which has not been previously acquired, and a qualified JWOD 
participating nonprofit agency can furnish the replacement commodity in 
accordance with the Government's quality standards and delivery 
schedules and at a fair market price, the replacement commodity is 
automatically on the Procurement List and shall be acquired from the 
JWOD participating nonprofit agency designated by the Committee. The 
commodity being replaced shall continue to be included on the 
Procurement List until there is no longer a requirement for that 
commodity.
[51 FR 19714, May 30, 1986, as amended at 59 FR 67029, Dec. 28, 1994]



        Subpart 8.8--Acquisition of Printing and Related Supplies



8.800  Scope of subpart.

    This subpart provides policy for the acquisition of Government 
printing and related supplies.
[52 FR 9037, Mar. 20, 1987]



8.801  Definitions.

    Government printing means printing, binding, and blankbook work for 
the use of an executive department, independent agency, or establishment 
of the Government.
    Related supplies, as used in this subpart, means supplies that are 
used and equipment that is usable in printing and binding operations.
[48 FR 42129, Sept. 19, 1983, as amended at 52 FR 9037, Mar. 20, 1987]



8.802  Policy.

    (a) Government printing must be done by or through the Government 
Printing Office (GPO) (44 U.S.C. 501), unless--
    (1) The GPO cannot provide the printing service (44 U.S.C. 504);
    (2) The printing is done in field printing plants operated by an 
executive agency (44 U.S.C. 501(2));
    (3) The printing is acquired by an executive agency from allotments 
for contract field printing (44 U.S.C. 501(2)); or
    (4) The printing is specifically authorized by statute to be done 
other than by the GPO.
    (b) The head of each agency shall designate a central printing 
authority; that central printing authority may serve as the liaison with 
the Congressional Joint Committee on Printing (JCP) and the Public 
Printer on matters related to printing. Contracting officers shall 
obtain approval from their designated central printing authority before 
contracting in any manner, whether directly or through contracts for 
other supplies or services, for the items defined in 8.801 and for 
composition, platemaking, presswork, binding, and micrographics (when 
used as a substitute for printing).
    (c)(1) Further, 44 U.S.C. 1121 provides that the Public Printer may 
acquire and furnish paper and envelopes (excluding envelopes printed in 
the course of manufacture) in common use by two or more Government 
departments, establishments, or services within the District of 
Columbia, and provides for reimbursement of the Public Printer from 
available appropriations or funds. Paper and envelopes that are 
furnished by the Public Printer may not be acquired in any other manner.
    (2) Paper and envelopes for use by Executive agencies outside the 
District of Columbia and stocked by GSA shall be requisitioned from GSA 
in accordance with the procedures listed in Federal Property Management 
Regulations (FPMR) 41 CFR part 101, subpart 101-26.3.
[48 FR 42129, Sept. 19, 1983, as amended at 52 FR 9037, Mar. 20, 1987; 
54 FR 48982, Nov. 28, 1989; 59 FR 67032, Dec. 28, 1994]

[[Page 124]]



  Subpart 8.9--Financial Management Systems Software (FMSS) Mandatory 
             Multiple Award Schedule (MAS) Contracts Program

    Source:  61 FR 41468, Aug. 8, 1996, unless otherwise noted.



8.901  General.

    (a) OMB has established a mandatory Governmentwide Financial 
Management Systems Software (FMSS) program.
    (b) Agencies may obtain information and assistance concerning the 
use of the FMSS MAS contracts program from: General Services 
Administration, Procurement Services Center (TFB), FMSS Contracting 
Officer, 5203 Leesburg Pike, Suite 1100, Falls Church, VA 22041.
    (c) OMB Circular No. A-127, Revised, ``Financial Management 
Systems,'' provides further policy direction regarding the FMSS program.
[61 FR 41468, Aug. 8, 1996, as amended at 62 FR 40236, July 25, 1997]



8.902  Policy.

    The FMSS MAS contracts program is mandatory for use by executive 
agencies for the acquisition of commercial software for core financial 
systems and for the acquisition of services and support related to the 
implementation of such software.



8.903  Exceptions.

    (a) If an executive agency holds a licensing agreement for a 
software package that is available on the FMSS MAS contracts, and the 
package was obtained under a contract awarded before the award of the 
FMSS MAS contracts, the agency's use of the FMSS MAS contracts program 
is optional for the acquisition of services and support related to the 
implementation of that package until the previous non-MAS contract 
expires.
    (b) Use of the FMSS MAS contracts program by Federal agencies that 
are not executive agencies is optional and is subject to the FMSS 
contractor accepting the order.
    (c) An executive agency shall obtain a waiver from GSA if it 
determines that its requirements for financial management systems 
software cannot be satisfied through use of the FMSS MAS contracts 
program.
    (1) The request for a waiver shall contain the following 
information--
    (i) A description of the agency's requirements;
    (ii) The reasons the FMSS MAS contracts program does not satisfy the 
requirements; and
    (iii) A description of how the agency proposes to satisfy its needs 
for financial management system software.
    (2) Agencies shall send waiver requests to GSA at the address in 
8.901(b).



8.904  Procedures.

    (a) The contracting officer shall announce the agency's requirements 
in a letter of interest (LOI) to all contractors participating in the 
FMSS MAS contracts program.
    (b) At the time of issuance, the contracting officer shall provide a 
copy of the LOI to--
    (1) GSA at the address in 8.901(b);
    (2) OMB at: Office of Federal Financial Management, Federal 
Financial Systems Branch, Office of Management and Budget, 725 17th 
Street, NW, Washington, DC 20503; and
    (3) Department of Treasury at: Division of Financial Management, 
Financial Management Service, Department of the Treasury, PG Center #2, 
Room 800A, Hyattsville, MD 20782.
    (c) The LOI shall--
    (1) Contain sufficient information to enable a competitive 
acquisition under the FMSS MAS contracts program;
    (2) Include instructions to the FMSS MAS contractors for responding 
to the LOI; and
    (3) Include evaluation and award factors.
    (d) The agency shall conduct an analysis of the offerings of the 
FMSS MAS contractors and issue a delivery order to the contractor that 
provides the most advantageous alternative to the Government.
    (e) The contracting officer may issue single or multiple delivery 
orders to satisfy the total requirement.
    (f) The contracting officer shall provide a copy of each delivery 
order, or modification thereto, to OMB and the

[[Page 125]]

Department of Treasury at the address shown in paragraph (b) of this 
section and to GSA at the address in 8.901(b).



                        Subpart 8.10  [Reserved]



                 Subpart 8.11--Leasing of Motor Vehicles



8.1100  Scope of subpart.

    This subpart covers the procedures for the leasing, from commercial 
concerns, of motor vehicles that comply with Federal Motor Vehicle 
Safety Standards and applicable State motor vehicle safety regulations. 
It does not apply to motor vehicles leased outside the United States.



8.1101  Definitions.

    Leasing, as used in this subpart, means the acquisition of motor 
vehicles, other than by purchase from private or commercial sources, and 
includes the synonyms hire and rent.
    Motor vehicle means an item of equipment, mounted on wheels and 
designed for highway and/or land use, that (a) derives power from a 
self-contained power unit or (b) is designed to be towed by and used in 
conjunction with self-propelled equipment.



8.1102  Presolicitation requirements.

    (a) Except as specified in 8.1102(b), before preparing solicitations 
for leasing of motor vehicles, contracting officers shall obtain from 
the requiring activity a written certification that--
    (1) The vehicles requested are of maximum fuel efficiency and 
minimum body size, engine size, and equipment (if any) necessary to 
fulfill operational needs, and meet prescribed fuel economy standards;
    (2) The head of the requiring agency, or a designee, has certified 
that the requested passenger automobiles (sedans and station wagons) 
larger than Type IA, IB, or II (small, subcompact, or compact) are 
essential to the agency's mission;
    (3) Internal approvals have been received; and
    (4) The General Services Administration has advised that it cannot 
furnish the vehicles.
    (b) With respect to requirements for leasing motor vehicles for a 
period of less than 60 days, the contracting officer need not obtain the 
certification specified in 8.1102(a)--
    (1) If the requirement is for type 1A, 1B, or II vehicles, which are 
by definition fuel efficient; or
    (2) If the requirement is for passenger vehicles larger than 1A, 1B, 
or II, and the agency has established procedures for advance approval, 
on a case-by-case basis, of such requirements.
    (c) Generally, solicitations shall not be limited to current-year 
production models. However, with the prior approval of the head of the 
contracting office, solicitations may be limited to current models on 
the basis of overall economy.
[48 FR 42129, Sept. 19, 1983, as amended at 55 FR 25527, June 21, 1990]



8.1103  Contract requirements.

    Contracting officers shall include the following items in each 
contract for leasing motor vehicles:
    (a) Scope of contract.
    (b) Method of computing payments.
    (c) A listing of the number and type of vehicles required, and the 
equipment and accessories to be provided with each vehicle.
    (d) Responsibilities of the contractor or the Government for 
furnishing gasoline, motor oil, antifreeze, and similar items.
    (e) Unless it is determined that it will be more economical for the 
Government to perform the work, a statement that the contractor shall 
perform all maintenance on the vehicles.
    (f) A statement as to the applicability of pertinent State and local 
laws and regulations, and the responsibility of each party for 
compliance with them.
    (g) Responsibilities of the contractor or the Government for 
emergency repairs and services.



8.1104  Contract clauses.

    The contracting officer shall insert the following clauses in 
solicitations and contracts for leasing of motor vehicles, unless the 
motor vehicles are leased in foreign countries:
    (a) The clause at 52.208-4, Vehicle Lease Payments.

[[Page 126]]

    (b) The clause at 52.208-5, Condition of Leased Vehicles.
    (c) The clause at 52.208-6, Marking of Leased Vehicles.
    (d) A clause substantially the same as the clause at 52.208-7, 
Tagging of Leased Vehicles, for vehicles leased over 60 days (see 41 CFR 
101-38.6).
    (e) The provisions and clauses prescribed elsewhere in the FAR for 
solicitations and contracts for supplies when a fixed-price contract is 
contemplated, but excluding--
    (1) The clause at 52.211-16, Variation in Quantity;
    (2) The clause at 52.232-1, Payments;
    (3) The clause at 52.222-20, Walsh-Healey Public Contracts Act; and
    (4) The clause at 52.246-16, Responsibility for Supplies.
[48 FR 42129, Sept. 19, 1983, as amended at 51 FR 19714, May 30, 1986; 
60 FR 48237, Sept. 18, 1995]



PART 9--CONTRACTOR QUALIFICATIONS--Table of Contents




Sec.
9.000  Scope of part.

            Subpart 9.1--Responsible Prospective Contractors

9.100  Scope of subpart.
9.101  Definitions.
9.102  Applicability.
9.103  Policy.
9.104  Standards.
9.104-1  General standards.
9.104-2  Special standards.
9.104-3  Application of standards.
9.104-4  Subcontractor responsibility.
9.105  Procedures.
9.105-1  Obtaining information.
9.105-2  Determinations and documentation.
9.105-3  Disclosure of preaward information.
9.106  Preaward surveys.
9.106-1  Conditions for preaward surveys.
9.106-2  Requests for preaward surveys.
9.106-3  Interagency preaward surveys.
9.106-4  Reports.
9.107  Surveys of nonprofit agencies serving people who are blind or 
          have other severe disabilities under the Javits-Wagner-O'Day 
          (JWOD) Program.

                Subpart 9.2--Qualifications Requirements

9.200  Scope of subpart.
9.201  Definitions.
9.202  Policy.
9.203  QPL's, QML's, and QBL's.
9.204  Responsibilities for establishment of a qualification 
          requirement.
9.205  Opportunity for qualification before award.
9.206  Acquisitions subject to qualification requirements.
9.206-1  General.
9.206-2  Contract clause.
9.206-3  Competition.
9.207  Changes in status regarding qualification requirements.

             Subpart 9.3--First Article Testing and Approval

9.301  Definitions.
9.302  General.
9.303  Use.
9.304  Exceptions.
9.305  Risk.
9.306  Solicitation requirements.
9.307  Government administration procedures.
9.308  Contract clauses.
9.308-1  Testing performed by the contractor.
9.308-2  Testing performed by the Government.

          Subpart 9.4--Debarment, Suspension, and Ineligibility

9.400  Scope of subpart.
9.401  Applicability.
9.402  Policy.
9.403  Definitions.
9.404  List of Parties Excluded from Federal Procurement and 
          Nonprocurement Programs.
9.405  Effect of listing.
9.405-1  Continuation of current contracts.
9.405-2  Restrictions on subcontracting.
9.406  Debarment.
9.406-1  General.
9.406-2  Causes for debarment.
9.406-3  Procedures.
9.406-4  Period of debarment.
9.406-5  Scope of debarment.
9.407  Suspension.
9.407-1  General.
9.407-2  Causes for suspension.
9.407-3  Procedures.
9.407-4  Period of suspension.
9.407-5  Scope of suspension.
9.408  Certification regarding debarment, suspension, proposed 
          debarment, and other responsibility matters.
9.409  Solicitation provision and contract clause.

    Subpart 9.5--Organizational and Consultant Conflicts of Interest

9.500  Scope of subpart.
9.501  Definitions.
9.502  Applicability.
9.503  Waiver.

[[Page 127]]

9.504  Contracting officer responsibilities.
9.505  General rules.
9.505-1  Providing systems engineering and technical direction.
9.505-2  Preparing specifications or work statements.
9.505-3  Providing evaluation services.
9.505-4  Obtaining access to proprietary information.
9.506  Procedures.
9.507  Solicitation provisions and contract clause.
9.507-1  Solicitation provisions.
9.507-2  Contract clause.
9.508  Examples.

                Subpart 9.6--Contractor Team Arrangements

9.601  Definition.
9.602  General.
9.603  Policy.
9.604  Limitations.

Subpart 9.7--Defense Production Pools and Research and Development Pools

9.701  Definition.
9.702  Contracting with pools.
9.703  Contracting with individual pool members.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42142, Sept. 19, 1983, unless otherwise noted.



9.000  Scope of part.

    This part prescribes policies, standards, and procedures pertaining 
to prospective contractors' responsibility; debarment, suspension, and 
ineligibility; qualified products; first article testing and approval; 
contractor team arrangements; defense production pools and research and 
development pools; and organizational conflicts of interest.



            Subpart 9.1--Responsible Prospective Contractors



9.100  Scope of subpart.

    This subpart prescribes policies, standards, and procedures for 
determining whether prospective contractors and subcontractors are 
responsible.



9.101  Definitions.

    Preaward survey means an evaluation by a surveying activity of a 
prospective contractor's capability to perform a proposed contract.
    Responsible prospective contractor means a contractor that meets the 
standards in 9.104.
    Surveying activity means the cognizant contract administration 
office or, if there is no such office, another organization designated 
by the agency to conduct preaward surveys.



9.102  Applicability.

    (a) This subpart applies to all proposed contracts with any 
prospective contractor that is located--
    (1) In the United States, its possessions, or Puerto Rico; or
    (2) Elsewhere, unless application of the subpart would be 
inconsistent with the laws or customs where the contractor is located.
    (b) This subpart does not apply to proposed contracts with (1) 
foreign, State, or local governments; (2) other U.S. Government agencies 
or their instrumentalities; or (3) agencies for the blind or other 
severely handicapped (see subpart 8.7).



9.103  Policy.

    (a) Purchases shall be made from, and contracts shall be awarded to, 
responsible prospective contractors only.
    (b) No purchase or award shall be made unless the contracting 
officer makes an affirmative determination of responsibility. In the 
absence of information clearly indicating that the prospective 
contractor is responsible, the contracting officer shall make a 
determination of nonresponsibility. If the prospective contractor is a 
small business concern, the contracting officer shall comply with 
subpart 19.6, Certificates of Competency and Determinations of 
Responsibility. (If Section 8(a) of the Small Business Act (15 U.S.C. 
637) applies, see subpart 19.8.)
    (c) The award of a contract to a supplier based on lowest evaluated 
price alone can be false economy if there is subsequent default, late 
deliveries, or other unsatisfactory performance resulting in additional 
contractual or administrative costs. While it is important that 
Government purchases be made at the lowest price, this does not require 
an award to a supplier solely

[[Page 128]]

because that supplier submits the lowest offer. A prospective contractor 
must affirmatively demonstrate its responsibility, including, when 
necessary, the responsibility of its proposed subcontractors.
[48 FR 42142, Sept. 19, 1983, as amended at 61 FR 67410, Dec. 20, 1996; 
62 FR 44819, Aug. 22, 1997; 62 FR 48921, Sept. 17, 1997]



9.104  Standards.



9.104-1  General standards.

    To be determined responsible, a prospective contractor must--
    (a) Have adequate financial resources to perform the contract, or 
the ability to obtain them (see 9.104-3(a));
    (b) Be able to comply with the required or proposed delivery or 
performance schedule, taking into consideration all existing commercial 
and governmental business commitments;
    (c) Have a satisfactory performance record (see 48 CFR 9.104-3(b) 
and part 42, subpart 42.15). A prospective contractor shall not be 
determined responsible or nonresponsible solely on the basis of a lack 
of relevant performance history, except as provided in 9.104-2;
    (d) Have a satisfactory record of integrity and business ethics;
    (e) Have the necessary organization, experience, accounting and 
operational controls, and technical skills, or the ability to obtain 
them (including, as appropriate, such elements as production control 
procedures, property control systems, quality assurance measures, and 
safety programs applicable to materials to be produced or services to be 
performed by the prospective contractor and subcontractors) (see 9.104-
3(a));
    (f) Have the necessary production, construction, and technical 
equipment and facilities, or the ability to obtain them (see 9.104-
3(a)); and
    (g) Be otherwise qualified and eligible to receive an award under 
applicable laws and regulations.
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 27119, July 29, 1986; 
56 FR 55374, Oct. 25, 1991; 60 FR 16718, Mar. 31, 1995; 61 FR 67410, 
Dec. 20, 1996]



9.104-2  Special standards.

    (a) When it is necessary for a particular acquisition or class of 
acquisitions, the contracting officer shall develop, with the assistance 
of appropriate specialists, special standards of responsibility. Special 
standards may be particularly desirable when experience has demonstrated 
that unusual expertise or specialized facilities are needed for adequate 
contract performance. The special standards shall be set forth in the 
solicitation (and so identified) and shall apply to all offerors.
    (b) Contracting officers shall award contracts for subsistence only 
to those prospective contractors that meet the general standards in 
9.104-1 and are approved in accordance with agency sanitation standards 
and procedures.



9.104-3  Application of standards.

    (a) Ability to obtain resources. Except to the extent that a 
prospective contractor has sufficient resources or proposes to perform 
the contract by subcontracting, the contracting officer shall require 
acceptable evidence of the prospective contractor's ability to obtain 
required resources (see 9.104-1(a), (e), and (f)). Acceptable evidence 
normally consists of a commitment or explicit arrangement, that will be 
in existence at the time of contract award, to rent, purchase, or 
otherwise acquire the needed facilities, equipment, other resources, or 
personnel. Consideration of a prime contractor's compliance with 
limitations on subcontracting shall take into account the time period 
covered by the contract base period or quantites plus option periods or 
quantities, if such options are considered when evaluating offers for 
award.
    (b) Satisfactory performance record. A prospective contractor that 
is or recently has been seriously deficient in contract performance 
shall be presumed to be nonresponsible, unless the contracting officer 
determines that the circumstances were properly beyond the contractor's 
control, or that the contractor has taken appropriate corrective action. 
Past failure to apply sufficient tenacity and perseverance to perform 
acceptably is strong evidence of nonresponsibility. Failure to meet the 
quality requirements of the contract is a significant factor to consider 
in determining satisfactory performance. The contracting officer shall 
consider the number of contracts involved

[[Page 129]]

and the extent of deficient performance in each contract when making 
this determination. If the pending contract requires a subcontracting 
plan pursuant to Subpart 19.7, Subcontracting with Small, Small 
Disadvantaged Business and Women-Owned Small Business Concerns, the 
contracting officer shall also consider the prospective contractor's 
compliance with subcontracting plans under recent contracts.
    (c) Affiliated concerns. Affiliated concerns (see Affiliates and 
Concerns in 19.101) are normally considered separate entities in 
determining whether the concern that is to perform the contract meets 
the applicable standards for responsibility. However, the contracting 
officer shall consider the affiliate's past performance and integrity 
when they may adversely affect the prospective contractor's 
responsibility.
    (d)(1) Small business concerns. If a small business concern's offer 
that would otherwise be accepted is to be rejected because of a 
determination of nonresponsibility, the contracting officer shall refer 
the matter to the Small Business Administration, which will decide 
whether or not to issue a Certificate of Competency (see subpart 19.6).
    (2) A small business that is unable to comply with the limitations 
on subcontracting at 52.219-14 may be considered nonresponsible.
[48 FR 42142, Sept. 19, 1983, as amended at 53 FR 27463, July 20, 1988; 
53 FR 34226, Sept. 2, 1988; 56 FR 55378, Oct. 25, 1991; 60 FR 48260, 
Sept. 18, 1995; 61 FR 67410, Dec. 20, 1996; 62 FR 44820, Aug. 22, 1997]



9.104-4  Subcontractor responsibility.

    (a) Generally, prospective prime contractors are responsible for 
determining the responsibility of their prospective subcontractors (but 
see 9.405 and 9.405-2 regarding debarred, ineligible, or suspended 
firms). Determinations of prospective subcontractor responsibility may 
affect the Government's determination of the prospective prime 
contractor's responsibility. A prospective contractor may be required to 
provide written evidence of a proposed subcontractor's responsibility.
    (b) When it is in the Government's interest to do so, the 
contracting officer may directly determine a prospective subcontractor's 
responsibility (e.g., when the prospective contract involves medical 
supplies, urgent requirements, or substantial subcontracting). In this 
case, the same standards used to determine a prime contractor's 
responsibility shall be used by the Government to determine 
subcontractor responsibility.



9.105  Procedures.



9.105-1  Obtaining information.

    (a) Before making a determination of responsibility, the contracting 
officer shall possess or obtain information sufficient to be satisfied 
that a prospective contractor currently meets the applicable standards 
in 9.104.
    (b)(1) Generally, the contracting officer shall obtain information 
regarding the responsibility of prospective contractors, including 
requesting preaward surveys when necessary (see 9.106), promptly after a 
bid opening or receipt of offers. However, in negotiated contracting, 
especially when research and development is involved, the contracting 
officer may obtain this information before issuing the request for 
proposals. Requests for information shall ordinarily be limited to 
information concerning (i) the low bidder or (ii) those offerors in 
range for award.
    (2) Preaward surveys shall be managed and conducted by the surveying 
activity.
    (i) If the surveying activity is a contract administration office--
    (A) That office shall advise the contracting officer on prospective 
contractors' financial competence and credit needs; and
    (B) The administrative contracting officer shall obtain from the 
auditor any information required concerning the adequacy of prospective 
contractors' accounting systems and these systems' suitability for use 
in administering the proposed type of contract.
    (ii) If the surveying activity is not a contract administration 
office, the contracting officer shall obtain from the auditor any 
information required concerning prospective contractors' financial 
competence and credit needs, the adequacy of their accounting systems, 
and these systems' suitability for

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use in administering the proposed type of contract.
    (3) Information on financial resources and performance capability 
shall be obtained or updated on as current a basis as is feasible up to 
the date of award.
    (c) In making the determination of responsibility (see 9.104-1(c)), 
the contracting officer shall consider relevant past performance 
information (see subpart 42.15). In addition, the contracting officer 
should use the following sources of information to support such 
determinations:
    (1) The List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs maintained in accordance with subpart 9.4.
    (2) Records and experience data, including verifiable knowledge of 
personnel within the contracting office, audit offices, contract 
administration offices, and other contracting offices.
    (3) The prospective contractor--including bid or proposal 
information, questionnaire replies, financial data, information on 
production equipment, and personnel information.
    (4) Commercial sources of supplier information of a type offered to 
buyers in the private sector.
    (5) Preaward survey reports (see 9.106).
    (6) Other sources such as publications; suppliers, subcontractors, 
and customers of the prospective contractor; financial institutions; 
Government agencies; and business and trade associations.
    (7) If the contract is for construction, the contracting officer may 
consider performance evaluation reports (see 36.201(c)(2)).
    (d) Contracting offices and cognizant contract administration 
offices that become aware of circumstances casting doubt on a 
contractor's ability to perform contracts successfully shall promptly 
exchange relevant information.
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 27119, July 29, 1986; 
52 FR 9038, Mar. 20, 1987; 54 FR 19813, May 8, 1989; 60 FR 16718, Mar. 
31, 1995; 60 FR 33065, June 26, 1995; 61 FR 39201, July 26, 1996]



9.105-2  Determinations and documentation.

    (a) Determinations. (1) The contracting officer's signing of a 
contract constitutes a determination that the prospective contractor is 
responsible with respect to that contract. When an offer on which an 
award would otherwise be made is rejected because the prospective 
contractor is found to be nonresponsible, the contracting officer shall 
make, sign, and place in the contract file a determination of 
nonresponsibility, which shall state the basis for the determination.
    (2) If the contracting officer determines and documents that a 
responsive small business lacks certain elements of responsibility, the 
contracting officer shall comply with the procedures in subpart 19.6. 
When a certificate of competency is issued for a small business concern 
(see subpart 19.6), the contracting officer may accept the factors 
covered by the certificate without further inquiry.
    (b) Support documentation. Documents and reports supporting a 
determination of responsibility or nonresponsibility, including any 
preaward survey reports and any applicable Certificate of Competency, 
must be included in the contract file.



9.105-3  Disclosure of preaward information.

    (a) Except as provided in subpart 24.2, Freedom of Information Act, 
information (including the preaward survey report) accumulated for 
purposes of determining the responsibility of a prospective contractor 
shall not be released or disclosed outside the Government.
    (b) The contracting officer may discuss preaward survey information 
with the prospective contractor before determining responsibility. After 
award, the contracting officer or, if it is appropriate, the head of the 
surveying activity or a designee may discuss the findings of the 
preaward survey with the company surveyed.
    (c) Preaward survey information may contain proprietary and/or 
source selection information and should be

[[Page 131]]

marked with the appropriate legend and protected accordingly (see 3.104-
3).
[48 FR 42142, Sept. 19, 1983, as amended by 54 FR 20496, May 11, 1989; 
62 FR 232, Jan. 2, 1997]



9.106  Preaward surveys.



9.106-1  Conditions for preaward surveys.

    (a) A preaward survey is normally required only when the information 
on hand or readily available to the contracting officer, including 
information from commercial sources, is not sufficient to make a 
determination regarding responsibility. In addition, if the contemplated 
contract will have a fixed price at or below the simplified acquisition 
threshold or will involve the acquisition of commercial items (see part 
12), the contracting officer should not request a preaward survey unless 
circumstances justify its cost.
    (b) When a cognizant contract administration office becomes aware of 
a prospective award to a contractor about which unfavorable information 
exists and no preaward survey has been requested, it shall promptly 
obtain and transmit details to the contracting officer.
    (c) Before beginning a preaward survey, the surveying activity shall 
ascertain whether the prospective contractor is debarred, suspended, or 
ineligible (see subpart 9.4). If the prospective contractor is debarred, 
suspended, or ineligible, the surveying activity shall advise the 
contracting officer promptly and not proceed with the preaward survey 
unless specifically requested to do so by the contracting officer.
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 27489, July 31, 1986; 
60 FR 48237, Sept. 18, 1995; 61 FR 39201, July 26, 1996]



9.106-2  Requests for preaward surveys.

    The contracting officer's request to the surveying activity 
(Preaward Survey of Prospective Contractor (General), SF 1403) shall--
    (a) Identify additional factors about which information is needed;
    (b) Include the complete solicitation package (unless it has 
previously been furnished), and any information indicating prior 
unsatisfactory performance by the prospective contractor;
    (c) State whether the contracting office will participate in the 
survey;
    (d) Specify the date by which the report is required. This date 
should be consistent with the scope of the survey requested and normally 
shall allow at least 7 working days to conduct the survey; and
    (e) When appropriate, limit the scope of the survey.



9.106-3  Interagency preaward surveys.

    When the contracting office and the surveying activity are in 
different agencies, the procedures of this section 9.106 and subpart 
42.1 shall be followed along with the regulations of the agency in which 
the surveying activity is located, except that reasonable special 
requests by the contracting office shall be accommodated.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 20496, May 11, 1989; 
55 FR 36795, Sept. 6, 1990; 62 FR 232, Jan. 2, 1997]



9.106-4  Reports.

    (a) The surveying activity shall complete the applicable parts of SF 
1403, Preaward Survey of Prospective Contractor (General); SF 1404, 
Preaward Survey of Prospective Contractor--Technical; SF 1405, Preaward 
Survey of Prospective Contractor--Production; SF 1406, Preaward Survey 
of Prospective Contractor--Quality Assurance; SF 1407, Preaward Survey 
of Prospective Contractor--Financial Capability; and SF 1408, Preaward 
Survey of Prospective Contractor--Accounting System; and provide a 
narrative discussion sufficient to support both the evaluation ratings 
and the recommendations.
    (b) When the contractor surveyed is a small business that has 
received preferential treatment on an ongoing contract under Section 
8(a) of the Small Business Act (15 U.S.C. 637) or has received a 
Certificate of Competency during the last 12 months, the surveying 
activity shall consult the appropriate Small Business Administration 
field office before making an affirmative recommendation regarding the 
contractor's responsibility or nonresponsibility.
    (c) When a preaward survey discloses previous unsatisfactory 
performance, the surveying activity shall specify the

[[Page 132]]

extent to which the prospective contractor plans, or has taken, 
corrective action. Lack of evidence that past failure to meet 
contractual requirements was the prospective contractor's fault does not 
necessarily indicate satisfactory performance. The narrative shall 
report any persistent pattern of need for costly and burdensome 
Government assistance (e.g., engineering, inspection, or testing) 
provided in the Government's interest but not contractually required.
    (d) When the surveying activity possesses information that supports 
a recommendation of complete award without an on-site survey and no 
special areas for investigation have been requested, the surveying 
activity may provide a short-form preaward survey report. The short-form 
report shall consist solely of the Preaward Survey of Prospective 
Contractor (General), SF 1403. Sections III and IV of this form shall be 
completed and block 21 shall be checked to show that the report is a 
short-form preaward report.



9.107  Surveys of nonprofit agencies serving people who are blind or have other severe disabilities under the Javits-Wagner-O'Day (JWOD) Program.

    (a) The Committee for Purchase From People Who Are Blind or Severely 
Disabled (Committee), as authorized by 41 U.S.C. 46-48c, determines what 
supplies and services Federal agencies are required to purchase from 
JWOD participating nonprofit agencies serving people who are blind or 
have other severe disabilities (see subpart 8.7). The Committee is 
required to find a JWOD participating nonprofit agency capable of 
furnishing the supplies or services before the nonprofit agency can be 
designated as a mandatory source under the JWOD Program. The Committee 
may request a contracting office to assist in assessing the capabilities 
of a nonprofit agency.
    (b) The contracting office, upon request from the Committee, shall 
request a capability survey from the activity responsible for performing 
preaward surveys, or notify the Committee that the JWOD participating 
nonprofit agency is capable, with supporting rationale, and that the 
survey is waived. The capability survey will focus on the technical and 
production capabilities and applicable preaward survey elements to 
furnish specific supplies or services being considered for addition to 
the Procurement List.
    (c) The contracting office shall use the Standard Form 1403 to 
request a capability survey of organizations employing people who are 
blind or have other severe disabilities.
    (d) The contracting office shall furnish a copy of the completed 
survey, or notice that the JWOD participating nonprofit agency is 
capable and the survey is waived, to the Executive Director, Committee 
for Purchase from People Who Are Blind or Severely Disabled.
[59 FR 67029, Dec. 28, 1994]



                Subpart 9.2--Qualifications Requirements

    Source:  50 FR 35476, Aug. 30, 1985, unless otherwise noted.



9.200  Scope of subpart.

    This subpart implements 10 U.S.C. 2319 and 41 U.S.C. 253(e) and 
prescribes policies and procedures regarding qualification requirements 
and the acquisitions that are subject to such requirements.



9.201  Definitions.

    Procuring activity, as used in this part or subpart, means a 
component of an executive agency having a significant acquisition 
function and designated as such by the head of the agency. Unless agency 
regulations specify otherwise, the term procuring activity shall be 
synonymous with contracting activity as defined in subpart 2.1.
    Qualification requirement means a Government requirement for testing 
or other quality assurance demonstration that must be completed before 
award of a contract.
    Qualified bidders list (QBL) means a list of bidders who have had 
their products examined and tested and who have satisfied all applicable 
qualification requirements for that product or have otherwise satisfied 
all applicable qualification requirements.
    Qualified manufacturers list (QML) means a list of manufacturers who

[[Page 133]]

have had their products examined and tested and who have satisfied all 
applicable qualification requirements for that product.
    Qualified products list (QPL) means a list of products which have 
been examined, tested, and have satisfied all applicable qualification 
requirements.
[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 34227, Sept. 2, 1988]



9.202  Policy.

    (a)(1) The head of the agency or designee shall, before establishing 
a qualification requirement, prepare a written justification--
    (i) Stating the necessity for establishing the qualification 
requirement and specifying why the qualification requirement must be 
demonstrated before contract award;
    (ii) Estimating the likely costs for testing and evaluation which 
will be incurred by the potential offeror to become qualified; and
    (iii) Specifying all requirements that a potential offeror (or its 
product) must satisfy in order to become qualified. Only those 
requirements which are the least restrictive to meet the purposes 
necessitating the establishment of the qualification requirements shall 
be specified.
    (2) Upon request to the contracting activity, potential offerors 
shall be provided--
    (i) All requirements that they or their products must satisfy to 
become qualified;
    (ii) At their expense (but see 9.204(a)(2) with regard to small 
businesses), a prompt opportunity to demonstrate their abilities to meet 
the standards specified for qualification using qualified personnel and 
facilities of the agency concerned, or of another agency obtained 
through interagency agreements, or under contract, or other methods 
approved by the agency (including use of approved testing and evaluation 
services not provided under contract to the agency).
    (3) If the services in (a)(2)(ii) above are provided by contract, 
the contractors selected to provide testing and evaluation services 
shall be--
    (i) Those that are not expected to benefit from an absence of 
additional qualified sources; and
    (ii) Required by their contracts to adhere to any restriction on 
technical data asserted by the potential offeror seeking qualification.
    (4) A potential offeror seeking qualification shall be promptly 
informed as to whether qualification is attained and, in the event it is 
not, promptly furnished specific reasons why qualification was not 
attained.
    (b) When justified under the circumstances, the agency activity 
responsible for establishing a qualification requirement shall submit to 
the competition advocate for the procuring activity responsible for 
purchasing the item subject to the qualification requirement, a 
determination that it is unreasonable to specify the standards for 
qualification which a prospective offeror (or its product) must satisfy. 
After considering any comments of the competition advocate reviewing the 
determination, the head of the procuring activity may waive the 
requirements of 9.202(a)(1)(ii) through (4) above for up to 2 years with 
respect to the item subject to the qualification requirement. A copy of 
the waiver shall be furnished to the head of the agency or other 
official responsible for actions under 9.202(a)(1). The waiver authority 
provided in this paragraph does not apply with respect to qualification 
requirements contained in a QPL, QML, or QBL.
    (c) If a potential offeror can demonstrate to the satisfaction of 
the contracting officer that the potential offeror (or its product) 
meets the standards established for qualification or can meet them 
before the date specified for award of the contract, a potential offeror 
may not be denied the opportunity to submit and have considered an offer 
for a contract solely because the potential offeror--
    (1) Is not on a QPL, QML, or QBL maintained by the Department of 
Defense (DOD) or the National Aeronautics and Space Administration 
(NASA); or
    (2) Has not been identified as meeting a qualification requirement 
established after October 19, 1984, by DOD or NASA; or
    (3) Has not been identified as meeting a qualification requirement 
established

[[Page 134]]

by a civilian agency (not including NASA).
    (d) The procedures in subpart 19.6 for referring matters to the 
Small Business Administration are not mandatory on the contracting 
officer when the basis for a referral would involve a challenge by the 
offeror to either the validity of the qualification requirement or the 
offeror's compliance with such requirement.
    (e) The contracting officer need not delay a proposed award in order 
to provide a potential offeror with an opportunity to demonstrate its 
ability to meet the standards specified for qualification. In addition, 
when approved by the head of an agency or designee, a procurement need 
not be delayed in order to comply with 9.202(a).
    (f) Within 7 years following enforcement of a QPL, QML, or QBL by 
DOD or NASA, or within 7 years after any qualification requirement was 
originally established by a civilian agency other than NASA, the 
qualification requirement shall be examined and revalidated in 
accordance with the requirements of 9.202(a). For DOD and NASA, 
qualification requirements, other than QPL's, QML's, and QBL's, shall be 
examined and revalidated within 7 years after establishment of the 
requirement under 9.202(a). Any periods for which a waiver under 
9.202(b) is in effect shall be excluded in computing the 7 years within 
which review and revalidation must occur.
[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 34227, Sept. 2, 1988]



9.203  QPL's, QML's, and QBL's.

    (a) Qualification and listing in a QPL, QML, or QBL is the process 
by which products are obtained from manufacturers or distributors, 
examined and tested for compliance with specification requirements, or 
manufacturers or potential offerors, are provided an opportunity to 
demonstrate their abilities to meet the standards specified for 
qualification. The names of successful products, manufacturers, or 
potential offerors are included on lists evidencing their status. 
Generally, qualification is performed in advance and independently of 
any specific acquisition action. After qualification, the products, 
manufacturers, or potential offerors are included in a Federal or 
Military QPL, QML, or QBL. (See 9.202(a)(2) with regard to any product, 
manufacturer, or potential offeror not yet included on an applicable 
list.)
    (b) Specifications requiring a qualified product are included in the 
following publications:
    (1) GSA Index of Federal Specifications, Standards and Commercial 
Item Descriptions.
    (2) Department of Defense Index of Specifications and Standards.
    (c) Instructions concerning qualification procedures are included in 
the following publications:
    (1) Federal Standardization Handbook, FPMR 101-29, Chapter IV.
    (2) Defense Standardization Manual 4120.3-M, Chapter IV, as amended 
by Military Standards 961 and 962.
    (d) The publications listed in paragraphs (b) and (c) above are sold 
to the public by the Superintendent of Documents, U.S. Government 
Printing Office, Washington, DC 20402. Civil agencies may obtain the 
publications from the General Services Administration, Specifications 
Section (WFSIS), Washington, DC 20407. Defense agencies may obtain the 
publications from the Naval Publications and Forms Center, 5801 Tabor 
Avenue, Philadelphia, PA 19120.
[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 17857, May 18, 1988]



9.204  Responsibilities for establishment of a qualification requirement.

    The responsibilities of agency activities that establish 
qualification requirements include the following:
    (a) Arranging publicity for the qualification requirements. If 
active competition on anticipated future qualification requirements is 
likely to be fewer than two manufacturers or the products of two 
manufacturers, the activity responsible for establishment of the 
qualification requirements shall--
    (1) Periodically publish notice in the Commerce Business Daily 
soliciting additional sources or products to seek qualification unless 
the contracting officer determines that such publication would 
compromise the national security.

[[Page 135]]

    (2) Bear the cost of conducting the specified testing and evaluation 
(excluding the costs associated with producing the item or establishing 
the production, quality control, or other system to be tested and 
evaluated) for a small business concern or a product manufactured by a 
small business concern which has met the standards specified for 
qualification and which could reasonably be expected to compete for a 
contract for that requirement. However, such costs may be borne only if 
it is determined in accordance with agency procedures that such 
additional qualified sources or products are likely to result in cost 
savings from increased competition for future requirements sufficient to 
amortize the costs incurred by the agency within a reasonable period of 
time, considering the duration and dollar value of anticipated future 
requirements. A prospective contractor requesting the United States to 
bear testing and evaluation costs must certify as to its status as a 
small business concern under section 3 of the Small Business Act in 
order to receive further consideration.
    (b) Qualifying products that meet specification requirements.
    (c) Listing manufacturers and suppliers whose products are qualified 
in accordance with agency procedures.
    (d) Furnishing QPL's, OML's, or QBL's or the qualification 
requirements themselves to prospective offerors and the public upon 
request (see 9.202(a)(2)(i) above).
    (e) Clarifying, as necessary, qualification requirements.
    (f) In appropriate cases, when requested by the contracting officer, 
providing concurrence in a decision not to enforce a qualification 
requirement for a solicitation.
    (g) Withdrawing or omitting qualification of a listed product, 
manufacturer or offeror, as necessary.
    (h) Advising persons furnished any list of products, manufacturers 
or offerors meeting a qualification requirement and suppliers whose 
products are on any such list that--
    (1) The list does not constitute endorsement of the product, 
manufacturer, or other source by the Government;
    (2) The products or sources listed have been qualified under the 
latest applicable specification;
    (3) The list may be amended without notice;
    (4) The listing of a product or source does not release the supplier 
from compliance with the specification; and
    (5) Use of the list for advertising or publicity is permitted. 
However, it must not be stated or implied that a particular product or 
source is the only product or source of that type qualified, or that the 
Government in any way recommends or endorses the products or the sources 
listed.
    (i) Reexamining a qualified product or manufacturer when--
    (1) The manufacturer has modified its product, or changed the 
material or the processing sufficiently so that the validity of previous 
qualification is questionable;
    (2) The requirements in the specification have been amended or 
revised sufficiently to affect the character of the product; or
    (3) It is otherwise necessary to determine that the quality of the 
product is maintained in conformance with the specification.



9.205  Opportunity for qualification before award.

    (a) If an agency determines that a qualification requirement is 
necessary, the agency activity responsible for establishing the 
requirement shall urge manufacturers and other potential sources to 
demonstrate their ability to meet the standards specified for 
qualification and, when possible, give sufficient time to arrange for 
qualification before award. The responsible agency activity shall, 
before establishing any qualification requirement, furnish notice to the 
U.S. Department of Commerce, Office of Field Operations, P.O. Box 5999, 
Chicago, Illinois 60680, for synopsis in the Commerce Business Daily. 
The notice shall include--
    (1) Intent to establish a qualification requirement;
    (2) The specification number and name of the product;
    (3) The name and address of the activity to which a request for the 
information and opportunity described in 9.202(a)(2) should be 
submitted;

[[Page 136]]

    (4) The anticipated date that the agency will begin awarding 
contracts subject to the qualification requirement;
    (5) A precautionary notice that when a product is submitted for 
qualification testing, the applicant must furnish any specific 
information that may be requested of the manufacturer before testing 
will begin; and
    (6) The approximate time period following submission of a product 
for qualification testing within which the applicant will be notified 
whether the product passed or failed the qualification testing (see 
9.202(a)(4)).
    (b) The activity responsible for establishing a qualification 
requirement shall keep any list maintained of those already qualified 
open for inclusion of additional products, manufacturers, or other 
potential sources, including eligible products from designated countries 
under terms of the International Agreement on Government Procurement 
(see subpart 25.4).



9.206  Acquisitions subject to qualification requirements.



9.206-1  General.

    (a) Agencies may not enforce any QPL, QML, or QBL without first 
complying with the requirements of 9.202(a). However, qualification 
requirements themselves, whether or not previously embodied in a QPL, 
QML, or QBL, may be enforced without regard to 9.202(a) if they are in 
either of the following categories:
    (1) Any qualification requirement established by statute prior to 
October 30, 1984, for civilian agencies (not including NASA); or
    (2) Any qualification requirement established by statute or 
administrative action prior to October 19, 1984, for DOD or NASA. 
Qualification requirements established after the above dates must comply 
with 9.202(a) to be enforceable.
    (b) Except when the agency head or designee determines that an 
emergency exists, whenever an agency elects, whether before or after 
award, not to enforce a qualification requirement which it established, 
the requirement may not thereafter be enforced unless the agency 
complies with 9.202(a).
    (c) If a qualification requirement applies, the contracting officer 
need consider only those offers identified as meeting the requirement or 
included on the applicable QPL, QML, or QBL, unless an offeror can 
satisfactorily demonstrate to the contracting officer that it or its 
product or its subcontractor or its product can meet the standards 
established for qualification before the date specified for award.
    (d) If a product subject to a qualification requirement is to be 
acquired as a component of an end item, the contracting officer must 
assure that all such components and their qualification requirements are 
properly identified in the solicitation since the product or source must 
meet the standards specified for qualification before award.
    (e) In acquisitions subject to qualification requirements, the 
contracting officer shall take the following steps:
    (1) Use presolicitation notices in appropriate cases to advise 
potential suppliers before issuing solicitations involving qualification 
requirements. The notices shall identify the specification containing 
the qualification requirement and establish an allowable time period, 
consistent with delivery requirements, for prospective offerors to 
demonstrate their abilities to meet the standards specified for 
qualification. The notice shall be publicized in accordance with 5.204. 
Whether or not a presolicitation notice is used, the general synopsizing 
requirements of subpart 5.2 apply.
    (2) Distribute solicitations to prospective contractors whether or 
not they have been identified as meeting applicable qualification 
requirements.
    (3) When appropriate, request in accordance with agency procedures 
that a qualification requirement not be enforced in a particular 
acquisition and, if granted, so specify in the solicitation (see 9.206-
1(b)).
    (4) Forward requests from potential suppliers for information on a 
qualification requirement to the agency activity responsible for 
establishing the requirement.
    (5) Allow the maximum time, consistent with delivery requirements, 
between issuing the solicitation and the

[[Page 137]]

contract award. As a minimum, contracting officers shall comply with the 
time frames specified in 5.203 when applicable.
[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 34227, Sept. 2, 1988]



9.206-2  Contract clause.

    The contracting officer shall insert the clause at 52.209-1, 
Qualification Requirements, in solicitations and contracts when the 
acquisition is subject to a qualification requirement.
[53 FR 34227, Sept. 2, 1988]



9.206-3  Competition.

    (a) Presolicitation. If a qualification requirement applies to an 
acquisition, the contracting officer shall review the applicable QPL, 
QML, or QBL or other identification of those sources which have met the 
requirement before issuing a solicitation to ascertain whether the 
number of sources is adequate for competition. (See 9.204(a) for duties 
of the agency activity responsible for establishment of the 
qualification requirement.) If the number of sources is inadequate, the 
contracting officer shall request the agency activity which established 
the requirement to--
    (1) Indicate the anticipated date on which any sources presently 
undergoing evaluation will have demonstrated their abilities to meet the 
qualification requirement so that the solicitation could be rescheduled 
to allow as many additional sources as possible to qualify; or
    (2) Indicate whether a means other than the qualification 
requirement is feasible for testing or demonstrating quality assurance.
    (b) Postsolicitation. The contracting officer shall submit to the 
agency activity which established the qualification requirement the 
names and addresses of concerns which expressed interest in the 
acquisition but are not included on the applicable QPL, QML, or QBL or 
identified as meeting the qualification requirement. The activity will 
then assist interested concerns in meeting the standards specified for 
qualification (see 9.202(a) (2) and (4)).
[50 FR 35476, Aug. 30, 1985, as amended at 60 FR 34737, July 3, 1995]



9.207  Changes in status regarding qualification requirements.

    (a) The contracting officer shall promptly report to the agency 
activity which established the qualification requirement any conditions 
which may merit removal or omission from a QPL, QML, or QBL or affect 
whether a source should continue to be otherwise identified as meeting 
the requirement. These conditions exist when--
    (1) Products or services are submitted for inspection or acceptance 
that do not meet the qualification requirement;
    (2) Products or services were previously rejected and the defects 
were not corrected when resubmitted for inspection or acceptance;
    (3) A supplier fails to request reevaluation following change of 
location or ownership of the plant where the product which met the 
qualification requirement was manufactured (see the clause at 52.209-1, 
Qualification Requirements);
    (4) A manufacturer of a product which met the qualification 
requirement has discontinued manufacture of the product;
    (5) A source requests removal from a QPL, QML, or QBL;
    (6) A condition of meeting the qualification requirement was 
violated; e.g., advertising or publicity contrary to 9.204(h)(5);
    (7) A revised specification imposes a new qualification requirement;
    (8) Manufacturing or design changes have been incorporated in the 
qualification requirement;
    (9) The source is on the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs (see subpart 9.4); or
    (10) Performance of a contract subject to a qualification 
requirement is otherwise unsatisfactory.
    (b) After considering any of the above or other conditions 
reasonably related to whether a product or source continues to meet the 
standards specified for qualification, an agency may take appropriate 
action without advance notification. The agency shall, however, promptly 
notify the affected parties if a product or source is removed from a 
QPL, QML, or QBL, or will no longer be identified as meeting the 
standards

[[Page 138]]

specified for qualification. This notice shall contain specific 
information why the product or source no longer meets the qualification 
requirement.
[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 34227, Sept. 2, 1988; 
56 FR 15149, Apr. 15, 1991; 60 FR 33065, June 26, 1995]



             Subpart 9.3--First Article Testing and Approval



9.301  Definitions.

    Approval, as used in this subpart, means the contracting officer's 
written notification to the contractor accepting the test results of the 
first article.
    First article, as used in this subpart, means preproduction models, 
initial production samples, test samples, first lots, pilot lots, and 
pilot models.
    First article testing means testing and evaluating the first article 
for conformance with specified contract requirements before or in the 
initial stage of production.



9.302  General.

    First article testing and approval (hereafter referred to as testing 
and approval) ensures that the contractor can furnish a product that 
conforms to all contract requirements for acceptance. Before requiring 
testing and approval, the contracting officer shall consider the--
    (a) Impact on cost or time of delivery;
    (b) Risk to the Government of foregoing such test; and
    (c) Availability of other, less costly, methods of ensuring the 
desired quality.



9.303  Use.

    Testing and approval may be appropriate when--
    (a) The contractor has not previously furnished the product to the 
Government;
    (b) The contractor previously furnished the product to the 
Government, but--
    (1) There have been subsequent changes in processes or 
specifications;
    (2) Production has been discontinued for an extended period of time; 
or
    (3) The product acquired under a previous contract developed a 
problem during its life.
    (c) The product is described by a performance specification; or
    (d) It is essential to have an approved first article to serve as a 
manufacturing standard.



9.304  Exceptions.

    Normally, testing and approval is not required in contracts for--
    (a) Research or development;
    (b) Products requiring qualification before award (e.g., when an 
applicable qualified products list exists (see subpart 9.2));
    (c) Products normally sold in the commercial market; or
    (d) Products covered by complete and detailed technical 
specifications, unless the requirements are so novel or exacting that it 
is questionable whether the products would meet the requirements without 
testing and approval.



9.305  Risk.

    Before first article approval, the acquisition of materials or 
components, or commencement of production, is normally at the sole risk 
of the contractor. To minimize this risk, the contracting officer shall 
provide sufficient time in the delivery schedule for acquisition of 
materials and components, and for production after receipt of first 
article approval. When Government requirements preclude this action, the 
contracting officer may, before approval of the first article, authorize 
the contractor to acquire specific materials or components or commence 
production to the extent essential to meet the delivery schedule (see 
Alternate II of the clause at 52.209-3, First Article Approval--
Contractor Testing, and Alternate II of the clause at 52.209-4, First 
Article Approval--Government Testing. Costs incurred based on this 
authorization are allocable to the contract for (1) progress payments 
and (2) termination settlements if the contract is terminated for the 
convenience of the Government.



9.306  Solicitation requirements.

    Solicitations containing a testing and approval requirement shall--

[[Page 139]]

    (a) Provide, in the circumstance where the contractor is to be 
responsible for the first article approval testing--
    (1) The performance or other characteristics that the first article 
must meet for approval;
    (2) The detailed technical requirements for the tests that must be 
performed for approval; and
    (3) The necessary data that must be submitted to the Government in 
the first article approval test report.
    (b) Provide, in the circumstance where the Government is to be 
responsible for the first article approval testing--
    (1) The performance or other characteristics that the first article 
must meet for approval; and
    (2) The tests to which the first article will be subjected for 
approval.
    (c) Inform offerors that the requirement may be waived when supplies 
identical or similar to those called for have previously been delivered 
by the offeror and accepted by the Government (see 52.209-3(h) and 
52.209-4(i);
    (d) Permit the submission of alternative offers, one including 
testing and approval and the other excluding testing and approval (if 
eligible under 9.306(c));
    (e) State clearly the first article's relationship to the contract 
quantity (see paragraph (e) of the clause at 52.209-3, First Article 
Approval--Contractor Testing, or 52.209-4, First Article Approval--
Government Testing);
    (f) Contain a delivery schedule for the production quantity (see 
11.404). The delivery schedule may--
    (1) Be the same whether or not testing and approval is waived; or
    (2) Provide for earlier delivery when testing and approval is waived 
and the Government desires earlier delivery. In the latter case, any 
resulting difference in delivery schedules shall not be a factor in 
evaluation for award. The clause at 52.209-4, First Article Approval--
Government Testing, shall contain the delivery schedule for the first 
article;
    (g) Provide for the submission of contract numbers, if any, to 
document the offeror's eligibility under 9.306(c);
    (h) State whether the approved first article will serve as a 
manufacturing standard; and
    (i) Include, when the Government is responsible for first article 
testing, the Government's estimated testing costs as a factor for use in 
evaluating offers (when appropriate).
    (j) Inform offerors that the prices for first articles and first 
article tests in relation to production quantities shall not be 
materially unbalanced (see 404-1(g)) if first article test items or 
tests are to be separately priced.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 34753, Aug. 21, 1989; 
55 FR 25527, June 21, 1990; 60 FR 48237, Sept. 18, 1995; 62 FR 51270, 
Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
9.306, in paragraph (j), ``15.814'' was amended to read ``15.404-1(g)'', 
effctive Oct. 10, 1997.



9.307  Government administration procedures.

    (a) Before the contractor ships the first article, or the first 
article test report, to the Government laboratory or other activity 
responsible for approval at the address specified in the contract, the 
contract administration office shall provide that activity with as much 
advance notification as is feasible of the forthcoming shipment, and--
    (1) Advise that activity of the contractual requirements for testing 
and approval, or evaluation, as appropriate;
    (2) Call attention to the notice requirement in paragraph (b) of the 
clause at 52.209-3, First Article Approval-- Contractor Testing, or 
52.209-4, First Article Approval--Government Testing; and
    (3) Request that the activity inform the contract administration 
office of the date when testing or evaluation will be completed.
    (b) The Government laboratory or other activity responsible for 
first article testing or evaluation shall inform the contracting office 
whether to approve, conditionally approve, or disapprove the first 
article. The contracting officer shall then notify the contractor of the 
action taken and furnish a copy of the notice to the contract 
administration office. The notice shall include the first article 
shipment number, when available, and the applicable contract line item 
number. Any changes in the drawings, designs, or

[[Page 140]]

specifications determined by the contracting officer to be necessary 
shall be made under the Changes clause, and not by the notice of 
approval, conditional approval, or disapproval furnished the contractor.



9.308  Contract clauses.



9.308-1  Testing performed by the contractor.

    (a)(1) The contracting officer shall insert the clause at 52.209-3, 
First Article Approval--Contractor Testing, in solicitations and 
contracts when a fixed-price contract is contemplated and it is intended 
that the contract require (i) first article approval and (ii) that the 
contractor be required to conduct the first article testing.
    (2) If it is intended that the contractor be required to produce the 
first article and the production quantity at the same facility, the 
contracting officer shall use the clause with its Alternate I.
    (3) If it is necessary to authorize the contractor to purchase 
material or to commence production before first article approval, the 
contracting officer shall use the clause with its Alternate II.
    (b)(1) The contracting officer shall insert a clause substantially 
the same as the clause at 52.209-3, First Article Approval--Contractor 
Testing, in solicitations and contracts when a cost-reimbursement 
contract is contemplated and it is intended that the contract require 
(i) first article approval and (ii) that the contractor be required to 
conduct the first article test.
    (2) If it is intended that the contractor be required to produce the 
first article and the production quantity at the same facility, the 
contracting officer shall use a clause substantially the same as the 
clause at 52.209-3, First Article Approval--Contractor Testing, with its 
Alternate I.
    (3) If it is necessary to authorize the contractor to purchase 
material or to commence production before first article approval, the 
contracting officer shall use a clause substantially the same as the 
clause at 52.209-3, First Article Approval--Contractor Testing, with its 
Alternate II.



9.308-2  Testing performed by the Government.

    (a)(1) The contracting officer shall insert the clause at 52.209-4, 
First Article Approval--Government Testing, in solicitations and 
contracts when a fixed-price contract is contemplated and it is intended 
that the contract require first article approval and that the Government 
will be responsible for conducting the first article test.
    (2) If it is intended that the contractor be required to produce the 
first article and the production quantity at the same facility, the 
contracting officer shall use the basic clause with its Alternate I.
    (3) If it is necessary to authorize the contractor to purchase 
material or to commence production before first article approval, the 
contracting officer shall use the basic clause with its Alternate II.
    (b)(1) The contracting officer shall insert a clause substantially 
the same as the clause at 52.209-4, First Article Approval--Government 
Testing, in solicitations and contracts when a cost-reimbursement 
contract is contemplated and it is intended that the contract require 
first article approval and that the Government be responsible for 
conducting the first article test.
    (2) If it is intended that the contractor be required to produce the 
first article and the production quantity at the same facility, the 
contracting officer shall use a clause substantially the same as the 
clause at 52.209-4, First Article Approval--Government Testing, with its 
Alternate I.
    (3) If it is necessary to authorize the contractor to purchase 
material or to commence production before first article approval, the 
contracting officer shall use a clause substantially the same as the 
clause at 52.209-4, First Article Approval--Government Testing, with its 
Alternate II.



          Subpart 9.4--Debarment, Suspension, and Ineligibility



9.400  Scope of subpart.

    (a) This subpart--

[[Page 141]]

    (1) Prescribes policies and procedures governing the debarment and 
suspension of contractors by agencies for the causes given in 9.406-2 
and 9.407-2;
    (2) Provides for the listing of contractors debarred, suspended, 
proposed for debarment, and declared ineligible (see the definition of 
ineligible in 9.403); and
    (3) Sets forth the consequences of this listing.
    (b) Although this subpart does cover the listing of ineligible 
contractors (9.404) and the effect of this listing (9.405(b)), it does 
not prescribe policies and procedures governing declarations of 
ineligibility.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 19814, May 8, 1989]



9.401  Applicability.

    In accordance with Public Law 103-355, Section 2455 (31 U.S.C. 6101, 
note), and Executive Order 12689, any debarment, suspension or other 
Government-wide exclusion initiated under the Nonprocurement Common Rule 
implementing Executive Order 12549 on or after August 25, 1995 shall be 
recognized by and effective for Executive Branch agencies as a debarment 
or suspension under this subpart. Similarly, any debarment, suspension, 
proposed debarment or other Government-wide exclusion initiated on or 
after August 25, 1995 under this subpart shall also be recognized by and 
effective for those agencies and participants as an exclusion under the 
Nonprocurement Common Rule.
[60 FR 33065, June 26, 1995]



9.402  Policy.

    (a) Agencies shall solicit offers from, award contracts to, and 
consent to subcontracts with responsible contractors only. Debarment and 
suspension are discretionary actions that, taken in accordance with this 
subpart, are appropriate means to effectuate this policy.
    (b) The serious nature of debarment and suspension requires that 
these sanctions be imposed only in the public interest for the 
Government's protection and not for purposes of punishment. Agencies 
shall impose debarment or suspension to protect the Government's 
interest and only for the causes and in accordance with the procedures 
set forth in this subpart.
    (c) When more than one agency has an interest in the debarment or 
suspension of a contractor, consideration shall be given to designating 
one agency as the lead agency for making the decision. Agencies are 
encouraged to establish methods and procedures for coordinating their 
debarment or suspension actions.
    (d) Agencies shall establish appropriate procedures to implement the 
policies and procedures of this subpart.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 19814, May 8, 1989]



9.403  Definitions.

    Adequate evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.
    Affiliates. Business concerns, organizations, or individuals are 
affiliates of each other if, directly or indirectly, (a) either one 
controls or has the power to control the other, or (b) a third party 
controls or has the power to control both. Indicia of control include, 
but are not limited to, interlocking management or ownership, identity 
of interests among family members, shared facilities and equipment, 
common use of employees, or a business entity organized following the 
debarment, suspension, or proposed debarment of a contractor which has 
the same or similar management, ownership, or principal employees as the 
contract or that was debarred, suspended, or proposed for debarment.
    Agency, as used in this subpart, means any executive department, 
military department or defense agency, or other agency or independent 
establishment of the executive branch.
    Civil judgment means a judgment or finding of a civil offense by any 
court of competent jurisdiction.
    Contractor, as used in this subpart, means any individual or other 
legal entity that--
    (a) Directly or indirectly (e.g., through an affiliate), submits 
offers for or is awarded, or reasonably may be expected to submit offers 
for or be awarded, a Government contract, including a contract for 
carriage under Government or commercial bills of lading, or

[[Page 142]]

a subcontract under a Government contract; or
    (b) Conducts business, or reasonably may be expected to conduct 
business, with the Government as an agent or representative of another 
contractor.
    Conviction means a judgment or conviction of a criminal offense by 
any court of competent jurisdiction, whether entered upon a verdict or a 
plea, and includes a conviction entered upon a plea of nolo contendere.
    Debarment, as used in this subpart, means action taken by a 
debarring official under 9.406 to exclude a contractor from Government 
contracting and Government-approved subcontracting for a reasonable, 
specified period; a contractor so excluded is debarred.
    Debarring official means (a) an agency head or (b) a designee 
authorized by the agency head to impose debarment.
    Indictment means indictment for a criminal offense. An information 
or other filing by competent authority charging a criminal offense shall 
be given the same effect as an indictment.
    Ineligible, as used in this subpart, means excluded from Government 
contracting (and subcontracting, if appropriate) pursuant to statutory, 
Executive order, or regulatory authority other than this regulation and 
its implementing and supplementing regulations; for example, pursuant to 
the Davis-Bacon Act and its related statutes and implementing 
regulations, the Service Contract Act, the Equal Employment Opportunity 
Acts and Executive orders, the Walsh-Healey Public Contracts Act, the 
Buy American Act, or the Environmental Protection Acts and Executive 
orders.
    Legal proceedings means any civil judicial proceeding to which the 
Government is a party or any criminal proceeding. The term includes 
appeals from such proceedings.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs means a list compiled, maintained and distributed by the 
General Services Administration (GSA) containing the names and other 
information about parties debarred, suspended, or voluntarily excluded 
under the Nonprocurement Common Rule or the Federal Acquisition 
Regulation, parties who have been proposed for debarment under the 
Federal Acquisition Regulation, and parties determined to be ineligible.
    Nonprocurement Common Rule means the procedures used by Federal 
Executive Agencies to suspend, debar, or exclude individuals or entities 
from participation in nonprocurement transactions under Executive Order 
12549. Examples of nonprocurement transactions are grants, cooperative 
agreements, scholarships, fellowships, contracts of assistance, loans, 
loan guarantees, subsidies, insurance, payments for specified use, and 
donation agreements.
    Preponderance of the evidence means proof by information that, 
compared with that opposing it, leads to the conclusion that the fact at 
issue is more probably true than not.
    Suspending official means (a) an agency head or (b) a designee 
authorized by the agency head to impose suspension.
    Suspension, as used in this subpart, means action taken by a 
suspending official under 9.407 to disqualify a contractor temporarily 
from Government contracting and Government-approved subcontracting; a 
contractor so disqualified is suspended.
    Unfair trade practices, as used in this subpart, means the 
commission of any of the following acts by a contractor:
    (1) A violation of section 337 of the Tariff Act of 1930 (19 U.S.C. 
1337) as determined by the International Trade Commission.
    (2) A violation, as determined by the Secretary of Commerce, of any 
agreement of the group known as the ``Coordination Committee'' for 
purposes of the Export Administration Act of 1979 (50 U.S.C. App. 2401, 
et seq.) or any similar bilateral or multilateral export control 
agreement.
    (3) A knowingly false statement regarding a material element of a 
certification concerning the foreign content of an item of supply, as 
determined by the Secretary of the Department or the head of the agency 
to which such certificate was furnished.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 19814, May 8, 1989; 56 
FR 15149, Apr. 15, 1991; 59 FR 11372, Mar. 10, 1994; 60 FR 33065, June 
26, 1995]

[[Page 143]]



9.404  List of Parties Excluded from Federal Procurement and Nonprocurement Programs.

    (a) The General Services Administration (GSA) shall--
    (1) Compile and maintain a current list of all parties debarred, 
suspended, proposed for debarment, or declared ineligible by agencies or 
by the General Accounting Office;
    (2) Periodically revise and distribute the list and issue 
supplements, if necessary, to all agencies and the General Accounting 
Office; and
    (3) Include in the list the name and telephone number of the 
official responsible for its maintenance and distribution.
    (b) The List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs shall indicate--
    (1) The names and addresses of all contractors debarred, suspended, 
proposed for debarment, or declared ineligible, in alphabetical order, 
with cross-references when more than one name is involved in a single 
action;
    (2) The name of the agency or other authority taking the action;
    (3) The cause for the action (see 9.406-2 and 9.407-2 for causes 
authorized under this subpart) or other statutory or regulatory 
authority;
    (4) The effect of the action;
    (5) The termination date for each listing;
    (6) The DUNS No.; and
    (7) The name and telephone number of the point of contact for the 
action.
    (c) Each agency shall--
    (1) Notify GSA of the information required by paragraph (b) above 
within 5 working days after the action becomes effective;
    (2) Notify GSA within 5 working days after modifying or rescinding 
an action;
    (3) Notify GSA of the names and addresses of agency organizations 
that are to receive the list and the number of copies to be furnished to 
each;
    (4) In accordance with internal retention procedures, maintain 
records relating to each debarment, suspension, or proposed debarment 
taken by the agency;
    (5) Establish procedures to provide for the effective use of the 
List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs, including internal distribution thereof, to ensure that the 
agency does not solicit offers from, award contracts to, or consent to 
subcontracts with contractors on the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs, except as otherwise 
provided in this subpart; and
    (6) Direct inquiries concerning listed contractors to the agency or 
other authority that took the action.
    (d) Information on the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs is available as follows:
    (1) The printed version is published monthly. Copies may be obtained 
by purchasing a yearly subscription.
    (i) Federal agencies may subscribe to the list through their 
organization's printing and distribution office.
    (ii) The public may subscribe by writing the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402, or by 
calling the Government Printing Office Inquiry and Order Desk at (202) 
512-1800.
    (2) The electronic version is updated daily and provides access to 
the names of firms and individuals on the list by using an asynchronous 
ASCII terminal (e.g., a word processor or microcomputer). Users can 
access the system 24 hours a day, 7 days a week using FTS 2000, or 
commercial telephone lines and the equipment described in the user's 
manual. Aside from the normal costs of local or long-distance telephone 
calls, access is free of charge to the user. To obtain a copy of the 
user's manual for accessing the system, contact GSA at (202) 501-4740.
    (3) A telephone inquiry service to answer general questions about 
entries on the List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs is also available by calling GSA at (202) 501-
4873 or 501-4740. The inquiry will be answered within one working day.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 19814, May 8, 1989; 57 
FR 60577, Dec. 21, 1992; 60 FR 33065, June 26, 1995; 62 FR 40236, July 
25, 1997]



9.405  Effect of listing.

    (a) Contractors debarred, suspended, or proposed for debarment are 
excluded

[[Page 144]]

from receiving contracts, and agencies shall not solicit offers from, 
award contracts to, or consent to subcontracts with these contractors, 
unless the agency head or a designee determines that there is a 
compelling reason for such action (see 9.405-2, 9.406-1(c), 9.407-1(d), 
and 23.50(e)). Contractors debarred, suspended or proposed for debarment 
are also excluded from conducting business with the Government as agents 
or representatives of other contractors.
    (b) Contractors included on the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs as having been declared 
ineligible on the basis of statutory or other regulatory procedures are 
excluded from receiving contracts, and if applicable, subcontracts, 
under the conditions and for the period set forth in the statute or 
regulation. Agencies shall not solicit offers from, award contracts to, 
or consent to subcontracts with these contractors under those conditions 
and for that period.
    (c) Contractors debarred, suspended, or proposed for debarment are 
excluded from acting as individual sureties (see part 28).
    (d)(1) After the opening of bids or receipt of proposals, the 
contracting officer shall review the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs.
    (2) Bids received from any listed contractor in response to an 
invitation for bids shall be entered on the abstract of bids, and 
rejected unless the agency head or a designee determines in writing that 
there is a compelling reason to consider the bid.
    (3) Proposals, quotations, or offers received from any listed 
contractor shall not be evaluated for award or included in the 
competitive range, nor shall discussions be conducted with a listed 
offeror during a period of ineligibility, unless the agency head or a 
designee determines, in writing, that there is a compelling reason to do 
so. If the period of ineligibility expires or is terminated prior to 
award, the contracting officer may, but is not required to, consider 
such proposals, quotations, or offers.
    (4) Immediately prior to award, the contracting officer shall again 
review the List to ensure that no award is made to a listed contractor.
[48 FR 42142, Sept. 19, 1983, as amended at 52 FR 9038, Mar. 20, 1987; 
54 FR 19814, May 8, 1989; 54 FR 48982, Nov. 28, 1989; 55 FR 21707, May 
25, 1990; 56 FR 29127, June 25, 1991; 59 FR 67033, Dec. 28, 1994; 60 FR 
33065, June 26, 1995]



9.405-1  Continuation of current contracts.

    (a) Notwithstanding the debarment, suspension, or proposed debarment 
of a contractor, agencies may continue contracts or subcontracts in 
existence at the time the contractor was debarred, suspended, or 
proposed for debarment unless the agency head or a designee directs 
otherwise. A decision as to the type of termination action, if any, to 
be taken should be made only after review by agency contracting and 
technical personnel and by counsel to ensure the propriety of the 
proposed action.
    (b) Ordering activities may continue to place orders against 
existing contracts, including indefinite delivery contracts, in the 
absence of a termination.
    (c) Agencies shall not renew or otherwise extend the duration of 
current contracts, or consent to subcontracts, with contractors 
debarred, suspended, or proposed for debarment, unless the agency head 
or a designee authorized representative states, in writing, the 
compelling reasons for renewal or extension.
[54 FR 19815, May 8, 1989, as amended at 59 FR 67033, Dec. 28, 1994]



9.405-2  Restrictions on subcontracting.

    (a) When a contractor debarred, suspended, or proposed for debarment 
is proposed as a subcontractor for any subcontract subject to Government 
consent (see subpart 44.2), contracting officers shall not consent to 
subcontracts with such contractors unless the agency head or a designee 
states in writing the compelling reasons for this approval action. (See 
9.405(b) concerning declarations of ineligibility affecting 
subcontracting.)
    (b) The Government suspends or debars contractors to protect the 
Government's interests. By operation of the clause at 52.209-6, 
Protecting the

[[Page 145]]

Government's Interests When Subcontracting with Contractors Debarred, 
Suspended or Proposed for Debarment, contractors shall not enter into 
any subcontract in excess of $25,000 with a contractor that has been 
debarred, suspended, or proposed for debarment unless there is a 
compelling reason to do so. If a contractor intends to subcontract with 
a party that is debarred, suspended, or proposed for debarment as 
evidenced by the party's inclusion on the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs (see 9.404), a corporate 
officer or designee of the contractor is required by operation of the 
clause at 52.209-6, Protecting the Government's Interests when 
Subcontracting with Contractors Debarred, Suspended, or Proposed for 
Debarment, to notify the contracting officer, in writing, before 
entering into such subcontract. The notice must provide the following:
    (1) The name of the subcontractor;
    (2) The contractor's knowledge of the reasons for the subcontractor 
being on the List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs;
    (3) The compelling reason(s) for doing business with the 
subcontractor notwithstanding its inclusion on the List of Parties 
Excluded from Federal Procurement and Nonprocurement Programs; and
    (4) The systems and procedures the contractor has established to 
ensure that it is fully protecting the Government's interests when 
dealing with such subcontractor in view of the specific basis for the 
party's debarment, suspension, or proposed debarment.
    (c) The contractor's compliance with the requirements of 52.209-6 
will be reviewed during Contractor Purchasing System Reviews (see 
subpart 44.3).
[54 FR 19815, May 8, 1989, as amended at 56 FR 29127, June 25, 1991; 59 
FR 67033, Dec. 28, 1994; 60 FR 33066, June 26, 1995; 60 FR 48237, Sept. 
18, 1995]



9.406  Debarment.



9.406-1  General.

    (a) It is the debarring official's responsibility to determine 
whether debarment is in the Government's interest. The debarring 
official may, in the public interest, debar a contractor for any of the 
causes in 9.406-2, using the procedures in 9.406-3. The existence of a 
cause for debarment, however, does not necessarily require that the 
contractor be debarred; the seriousness of the contractor's acts or 
omissions and any remedial measures or mitigating factors should be 
considered in making any debarment decision. Before arriving at any 
debarment decision, the debarring official should consider factors such 
as the following:
    (1) Whether the contractor had effective standards of conduct and 
internal control systems in place at the time of the activity which 
constitutes cause for debarment or had adopted such procedures prior to 
any Government investigation of the activity cited as a cause for 
debarment.
    (2) Whether the contractor brought the activity cited as a cause for 
debarment to the attention of the appropriate Government agency in a 
timely manner.
    (3) Whether the contractor has fully investigated the circumstances 
surrounding the cause for debarment and, if so, made the result of the 
investigation available to the debarring official.
    (4) Whether the contractor cooperated fully with Government agencies 
during the investigation and any court or administrative action.
    (5) Whether the contractor has paid or has agreed to pay all 
criminal, civil, and administrative liability for the improper activity, 
including any investigative or administrative costs incurred by the 
Government, and has made or agreed to make full restitution.
    (6) Whether the contractor has taken appropriate disciplinary action 
against the individuals responsible for the activity which constitutes 
cause for debarment.
    (7) Whether the contractor has implemented or agreed to implement 
remedial measures, including any identified by the Government.
    (8) Whether the contractor has instituted or agreed to institute new 
or revised review and control procedures and ethics training programs.

[[Page 146]]

    (9) Whether the contractor has had adequate time to eliminate the 
circumstances within the contractor's organization that led to the cause 
for debarment.
    (10) Whether the contractor's management recognizes and understands 
the seriousness of the misconduct giving rise to the cause for debarment 
and has implemented programs to prevent recurrence.

The existence or nonexistence of any mitigating factors or remedial 
measures such as set forth in this paragraph (a) is not necessarily 
determinative of a contractor's present responsibility. Accordingly, if 
a cause for debarment exists, the contractor has the burden of 
demonstrating, to the satisfaction of the debarring official, its 
present responsibility and that debarment is not necessary.
    (b) Debarment constitutes debarment of all divisions or other 
organizational elements of the contractor, unless the debarment decision 
is limited by its terms to specific divisions, organizational elements, 
or commodities. The debarring official may extend the debarment decision 
to include any affiliates of the contractor if they are (1) specifically 
named and (2) given written notice of the proposed debarment and an 
opportunity to respond (see 9.406-3(c)).
    (c) A contractor's debarment, or proposed debarment, shall be 
effective throughout the executive branch of the Government, unless the 
agency head or a designee (except see 23.506(e)) states in writing the 
compelling reasons justifying continued business dealings between that 
agency and the contractor.
    (d)(1) When the debarring official has authority to debar 
contractors from both acquisition contracts pursuant to this regulation 
and contracts for the purchase of Federal personal property pursuant to 
the Federal Property Management Regulations (FPMR) 101-45.6, that 
official shall consider simultaneously debarring the contractor from the 
award of acquisition contracts and from the purchase of Federal personal 
property.
    (2) When debarring a contractor from the award of acquisition 
contracts and from the purchase of Federal personal property, the 
debarment notice shall so indicate and the appropriate FAR and FPMR 
citations shall be included.
[48 FR 42142, Sept. 19, 1983, as amended at 52 FR 6121, Feb. 27, 1987; 
54 FR 19815, May 8, 1989; 55 FR 21707, May 25, 1990; 55 FR 30465, July 
26, 1990; 56 FR 67129, Dec. 27, 1991; 59 FR 67033, Dec. 28, 1994]



9.406-2  Causes for debarment.

    (a) The debarring official may debar a contractor for a conviction 
of or civil judgment for--
    (1) Commission of fraud or a criminal offense in connection with (i) 
obtaining, (ii) attempting to obtain, or (iii) performing a public 
contract or subcontract;
    (2) Violation of Federal or State antitrust statutes relating to the 
submission of offers;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, tax 
evasion, or receiving stolen property;
    (4) Intentionally affixing a label bearing a ``Made in America'' 
inscription (or any inscription having the same meaning) to a product 
sold in or shipped to the United States, when the product was not made 
in the United States (see Section 202 of the Defense Production Act 
(Pub. L. 102-558)); or
    (5) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a Government contractor or subcontractor.
    (b)(1) The debarring official may debar a contractor, based upon a 
preponderance of the evidence, for--
    (i) Violation of the terms of a Government contract or subcontract 
so serious as to justify debarment, such as--
    (A) Willful failure to perform in accordance with the terms of one 
or more contracts; or
    (B) A history of failure to perform, or of unsatisfactory 
performance of, one or more contracts.
    (ii) Violations of the Drug-Free Workplace Act of 1988 (Public Law 
100-690), as indicated by--
    (A) Failure to comply with the requirements of the clause at 52.223-
6, Drug-Free Workplace; or
    (B) Such a number of contractor employees convicted of violations of

[[Page 147]]

criminal drug statutes occurring in the workplace as to indicate that 
the contractor has failed to make a good faith effort to provide a drug-
free workplace (see 23.504).
    (iii) Intentionally affixing a label bearing a ``Made in America'' 
inscription (or any inscription having the same meaning) to a product 
sold in or shipped to the United States, when the product was not made 
in the United States (see Section 202 of the Defense Production Act 
(Public Law 102-558)).
    (iv) Commission of an unfair trade practice as defined in 9.403 (see 
Section 201 of the Defense Production Act (Public Law 102-558)).
    (2) The debarring official may debar a contractor, based on a 
determination by the Attorney General of the United States, or designee, 
that the contractor is not in compliance with Immigration and 
Nationality Act employment provisions (see Executive Order 12989). The 
Attorney General's determination is not reviewable in the debarment 
proceedings.
    (c) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a Government contractor or 
subcontractor.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 4968, Jan. 31 ,1989; 
54 FR 19815, May 8, 1989; 55 FR 21707, May 25, 1990; 59 FR 11372, Mar. 
10, 1994; 61 FR 2633, Jan. 26, 1996; 61 FR 41473, Aug. 8, 1996; 61 FR 
69291, Dec. 31, 1996]



9.406-3  Procedures.

    (a) Investigation and referral. Agencies shall establish procedures 
for the prompt reporting, investigation, and referral to the debarring 
official of matters appropriate for that official's consideration.
    (b) Decisionmaking process. (1) Agencies shall establish procedures 
governing the debarment decisionmaking process that are as informal as 
is practicable, consistent with principles of fundamental fairness. 
These procedures shall afford the contractor (and any specifically named 
affiliates) an opportunity to submit, in person, in writing, or through 
a representative, information and argument in opposition to the proposed 
debarment.
    (2) In actions not based upon a conviction or civil judgment, if it 
is found that the contractor's submission in opposition raises a genuine 
dispute over facts material to the proposed debarment, agencies shall 
also--
    (i) Afford the contractor an opportunity to appear with counsel, 
submit documentary evidence, present witnesses, and confront any person 
the agency presents; and
    (ii) Make a transcribed record of the proceedings and make it 
available at cost to the contractor upon request, unless the contractor 
and the agency, by mutual agreement, waive the requirement for a 
transcript.
    (c) Notice of proposal to debar. A notice of proposed debarment 
shall be issued by the debarring official advising the contractor and 
any specifically named affiliates, by certified mail, return receipt 
requested--
    (1) That debarment is being considered;
    (2) Of the reasons for the proposed debarment in terms sufficient to 
put the contractor on notice of the conduct or transaction(s) upon which 
it is based;
    (3) Of the cause(s) relied upon under 9.406-2 for proposing 
debarment;
    (4) That, within 30 days after receipt of the notice, the contractor 
may submit, in person, in writing, or through a representative, 
information and argument in opposition to the proposed debarment, 
including any additional specific information that raises a genuine 
dispute over the material facts;
    (5) Of the agency's procedures governing debarment decisionmaking;
    (6) Of the effect of the issuance of the notice of proposed 
debarment; and
    (7) Of the potential effect of an actual debarment.
    (d) Debarring official's decision. (1) In actions based upon a 
conviction or judgment, or in which there is no genuine dispute over 
material facts, the debarring official shall make a decision on the 
basis of all the information in the administrative record, including any 
submission made by the contractor. If no suspension is in effect, the 
decision shall be made within 30 working days after receipt of any 
information and argument submitted by the contractor, unless the 
debarring official extends this period for good cause.
    (2)(i) In actions in which additional proceedings are necessary as 
to disputed material facts, written findings

[[Page 148]]

of fact shall be prepared. The debarring official shall base the 
decision on the facts as found, together with any information and 
argument submitted by the contractor and any other information in the 
administrative record.
    (ii) The debarring official may refer matters involving disputed 
material facts to another official for findings of fact. The debarring 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary and capricious or clearly 
erroneous.
    (iii) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (3) In any action in which the proposed debarment is not based upon 
a conviction or civil judgment, the cause for debarment must be 
established by a preponderance of the evidence.
    (e) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the contractor and any affiliates 
involved shall be given prompt notice by certified mail, return receipt 
requested--
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective throughout the 
executive branch of the Government unless the head of an agency or a 
designee makes the statement called for by 9.406-1(c).
    (2) If debarment is not imposed, the debarring official shall 
promptly notify the contractor and any affiliates involved, by certified 
mail, return receipt requested.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 19815, May 8, 1989; 59 
FR 67033, Dec. 28, 1994]



9.406-4  Period of debarment.

    (a)(1) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). Generally, debarment should not exceed 3 
years, except that--
    (i) Debarment for violation of the provisions of the Drug-Free 
Workplace Act of 1988 (see 23.506) may be for a period not to exceed 5 
years; and
    (ii) Debarments under 9.406-2(b)(2) shall be for one year unless 
extended pursuant to paragraph (b) of this subsection.
    (2) If suspension precedes a debarment, the suspension period shall 
be considered in determining the debarment period.
    (b) The debarring official may extend the debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the Government's interest. However, a debarment may 
not be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. Debarments under 9.406-
2(b)(2) may be extended for additional periods of one year if the 
Attorney General or designee determines that the contractor continues to 
be in violation of the employment provisions of the Immigration and 
Nationality Act. If debarment for an additional period is determined to 
be necessary, the procedures of 9.406-3 shall be followed to extend the 
debarment.
    (c) The debarring official may reduce the period or extent of 
debarment, upon the contractor's request, supported by documentation, 
for reasons such as--
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;
    (4) Elimination of other causes for which the debarment was imposed; 
or
    (5) Other reasons the debarring offical deems appropriate.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 4968, Jan. 31 ,1989; 
54 FR 19815, May 8, 1989; 55 FR 21707, May 25, 1990; 61 FR 41473, Aug. 
8, 1996]



9.406-5  Scope of debarment.

    (a) The fraudulent, criminal, or other seriously improper conduct of 
any officer, director, shareholder, partner, employee, or other 
individual associated with a contractor may be imputed to the contractor 
when the conduct occurred in connection with the individual's 
performance of duties for or on behalf of the contractor, or with the 
contractor's knowledge, approval, or

[[Page 149]]

acquiescence. The contractor's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (b) The fraudulent, criminal, or other seriously improper conduct of 
a contractor may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the contractor 
who participated in, knew of, or had reason to know of the contractor's 
conduct.
    (c) The fraudulent, criminal, or other seriously improper conduct of 
one contractor participating in a joint venture or similar arrangement 
may be imputed to other participating contractors if the conduct 
occurred for or on behalf of the joint venture or similar arrangement, 
or with the knowledge, approval, or acquiescence of these contractors. 
Acceptance of the benefits derived from the conduct shall be evidence of 
such knowledge, approval, or acquiescence.



9.407  Suspension.



9.407-1  General.

    (a) The suspending official may, in the public interest, suspend a 
contractor for any of the causes in 9.407-2, using the procedures in 
9.407-3.
    (b)(1) Suspension is a serious action to be imposed on the basis of 
adequate evidence, pending the completion of investigation or legal 
proceedings, when it has been determined that immediate action is 
necessary to protect the Government's interest. In assessing the 
adequacy of the evidence, agencies should consider how much information 
is available, how credible it is given the circumstances, whether or not 
important allegations are corroborated, and what inferences can 
reasonably be drawn as a result. This assessment should include an 
examination of basic documents such as contracts, inspection reports, 
and correspondence.
    (b)(2) The existence of a cause for suspension does not necessarily 
require that the contractor be suspended. The suspending official should 
consider the seriousness of the contractor's acts or omissions and may, 
but is not required to, consider remedial measures or mitigating 
factors, such as those set forth in 9.406-1(a). A contractor has the 
burden of promptly presenting to the suspending official evidence of 
remedial measures or mitigating factors when it has reason to know that 
a cause for suspension exists. The existence or nonexistence of any 
remedial measures or mitigating factors is not necessarily determinative 
of a contractor's present responsibility.
    (c) Suspension constitutes suspension of all divisions or other 
organizational elements of the contractor, unless the suspension 
decision is limited by its terms to specific divisions, organizational 
elements, or commodities. The suspending official may extend the 
suspension decision to include any affiliates of the contractor if they 
are (1) specifically named and (2) given written notice of the 
suspension and an opportunity to respond (see 9.407-3(c)).
    (d) A contractor's suspension shall be effective throughout the 
executive branch of the Government, unless the agency head or a designee 
(except see 23.506(e)) states in writing the compelling reasons 
justifying continued business dealings between that agency and the 
contractor.
    (e)(1) When the suspending official has authority to suspend 
contractors from both acquisition contracts pursuant to this regulation 
and contracts for the purchase of Federal personal property pursuant to 
FPMR 101-45.6, that official shall consider simultaneously suspending 
the contractor from the award of acquisition contracts and from the 
purchase of Federal personal property.
    (2) When suspending a contractor from the award of acquisition 
contracts and from the purchase of Federal personal property, the 
suspension notice shall so indicate and the appropriate FAR and FPMR 
citations shall be included.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 4968, Jan. 31, 1989; 
54 FR 19816, May 8, 1989; 56 FR 67130, Dec. 27, 1991; 59 FR 67033, Dec. 
28, 1994]



9.407-2  Causes for suspension.

    (a) The suspending official may suspend a contractor suspected, upon 
adequate evidence, of--
    (1) Commission of fraud or a criminal offense in connection with (i) 
obtaining, (ii) attempting to obtain, or (iii)

[[Page 150]]

performing a public contract or subcontract;
    (2) Violation of Federal or State antitrust statutes relating to the 
submission of offers;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, tax 
evasion, or receiving stolen property; or
    (4) Violations of the Drug-Free Workplace Act of 1988 (Public Law 
100-690), as indicated by--
    (i) Failure to comply with the requirements of the clause at 52.223-
6, Drug-Free Workplace; or
    (ii) Such a number of contractor employees convicted of violations 
of criminal drug statutes occurring in the workplace as to indicate that 
the contractor has failed to make a good faith effort to provide a drug-
free workplace (see 23.504);
    (5) Intentionally affixing a label bearing a ``Made in America'' 
inscription (or any inscription having the same meaning) to a product 
sold in or shipped to the United States, when the product was not made 
in the United States (see section 202 of the Defense Production Act 
(Pub. L. 102-558));
    (6) Commission of an unfair trade practice as defined in 9.403 (see 
section 201 of the Defense Production Act (Pub. L. 102-558)); or
    (7) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a Government contractor or subcontractor.
    (b) Indictment for any of the causes in paragraph (a) above 
constitutes adequate evidence for suspension.
    (c) The suspending official may upon adequate evidence also suspend 
a contractor for any other cause of so serious or compelling a nature 
that it affects the present responsibility of a Government contractor or 
subcontractor.
[48 FR 42142, Sept. 19, 1983, as amended at 54 FR 4968, Jan. 31, 1989; 
55 FR 21707, May 25, 1990; 59 FR 11373, Mar. 10, 1994; 61 FR 2633, Jan. 
26, 1996; 61 FR 69291, Dec. 31, 1996]



9.407-3  Procedures.

    (a) Investigation and referral. Agencies shall establish procedures 
for the prompt reporting, investigation, and referral to the suspending 
official of matters appropriate for that official's consideration.
    (b) Decisionmaking process. (1) Agencies shall establish procedures 
governing the suspension decisionmaking process that are as informal as 
is practicable, consistent with principles of fundamental fairness. 
These procedures shall afford the contractor (and any specifically named 
affiliates) an opportunity, following the imposition of suspension, to 
submit, in person, in writing, or through a representative, information 
and argument in opposition to the suspension.
    (2) In actions not based on an indictment, if it is found that the 
contractor's submission in opposition raises a genuine dispute over 
facts material to the suspension and if no determination has been made, 
on the basis of Department of Justice advice, that substantial interests 
of the Government in pending or contemplated legal proceedings based on 
the same facts as the suspension would be prejudiced, agencies shall 
also--
    (i) Afford the contractor an opportunity to appear with counsel, 
submit documentary evidence, present witnesses, and confront any person 
the agency presents; and
    (ii) Make a transcribed record of the proceedings and make it 
available at cost to the contractor upon request, unless the contractor 
and the agency, by mutual agreement, waive the requirement for a 
transcript.
    (c) Notice of suspension. When a contractor and any specifically 
named affiliates are suspended, they shall be immediately advised by 
certified mail, return receipt requested--
    (1) That they have been suspended and that the suspension is based 
on an indictment or other adequate evidence that the contractor has 
committed irregularities (i) of a serious nature in business dealings 
with the Government or (ii) seriously reflecting on the propriety of 
further Government dealings with the contractor--any such irregularities 
shall be described in terms sufficient to place the contractor on notice 
without disclosing the Government's evidence;

[[Page 151]]

    (2) That the suspension is for a temporary period pending the 
completion of an investigation and such legal proceedings as may ensue;
    (3) Of the cause(s) relied upon under 9.407-2 for imposing 
suspension;
    (4) Of the effect of the suspension;
    (5) That, within 30 days after receipt of the notice, the contractor 
may submit, in person, in writing, or through a representative, 
information and argument in opposition to the suspension, including any 
additional specific information that raises a genuine dispute over the 
material facts; and
    (6) That additional proceedings to determine disputed material facts 
will be conducted unless (i) the action is based on an indictment or 
(ii) a determination is made, on the basis of Department of Justice 
advice, that the substantial interests of the Government in pending or 
contemplated legal proceedings based on the same facts as the suspension 
would be prejudiced.
    (d) Suspending official's decision. (1) In actions (i) based on an 
indictment, (ii) in which the contractor's submission does not raise a 
genuine dispute over material facts, or (iii) in which additional 
proceedings to determine disputed material facts have been denied on the 
basis of Department of Justice advice, the suspending official's 
decision shall be based on all the information in the administrative 
record, including any submission made by the contractor.
    (2)(i) In actions in which additional proceedings are necessary as 
to disputed material facts, written findings of fact shall be prepared. 
The suspending official shall base the decision on the facts as found, 
together with any information and argument submitted by the contractor 
and any other information in the administrative record.
    (ii) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary and capricious or clearly 
erroneous.
    (iii) The suspending official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (3) The suspending official may modify or terminate the suspension 
or leave it in force (for example, see 9.406-4(c) for the reasons for 
reducing the period or extent of debarment). However, a decision to 
modify or terminate the suspension shall be without prejudice to the 
subsequent imposition of (i) suspension by any other agency or (ii) 
debarment by any agency.
    (4) Prompt written notice of the suspending official's decision 
shall be sent to the contractor and any affiliates involved, by 
certified mail, return receipt requested.
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986]



9.407-4  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of investigation and any ensuing legal proceedings, unless 
sooner terminated by the suspending official or as provided in this 
subsection.
    (b) If legal proceedings are not initiated within 12 months after 
the date of the suspension notice, the suspension shall be terminated 
unless an Assistant Attorney General requests its extension, in which 
case it may be extended for an additional 6 months. In no event may a 
suspension extend beyond 18 months, unless legal proceedings have been 
initiated within that period.
    (c) The suspending official shall notify the Department of Justice 
of the proposed termination of the suspension, at least 30 days before 
the 12-month period expires, to give that Department an opportunity to 
request an extension.
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986]



9.407-5  Scope of suspension.

    The scope of suspension shall be the same as that for debarment (see 
9.406-5), except that the procedures of 9.407-3 shall be used in 
imposing suspension.



9.408  Certification regarding debarment, suspension, proposed debarment, and other responsibility matters.

    (a) When an offeror, in compliance with the provision at 52.209-5, 
Certification Regarding Debarment, Suspension, Proposed Debarment, and 
Other

[[Page 152]]

Responsibility Matters, indicates an indictment, charge, civil judgment, 
conviction, suspension, debarment, proposed debarment, ineligibility, or 
default of a contract, the contracting officer shall--
    (1) Request such additional information from the offeror as the 
contracting officer deems necessary in order to make a determination of 
the offeror's responsibility (but see 9.405); and
    (2) Notify, prior to proceeding with award, in accordance with 
agency procedures (see 9.406-3(a) and 9.407-3(a)), the agency official 
responsible for initiating debarment or suspension action, where an 
offeror indicates the existence of an indictment, charge, conviction, or 
civil judgment.
    (b) Offerors who do not furnish the certification or such 
information as may be requested by the contracting officer shall be 
given an opportunity to remedy the deficiency. Failure to furnish the 
certification or such information may render the offeror nonresponsible.
[54 FR 19816, May 8, 1989]



9.409  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the provision at 52.209-5, 
Certification Regarding Debarment, Suspension, Proposed Debarment, and 
Other Responsibility Matters, in solicitations where the contract value 
is expected to exceed the simplified acquisition threshold.
    (b) The contracting officer shall insert the clause at 52.209-6, 
Protecting the Government's Interests when Subcontracting with 
Contractors Debarred, Suspended, or Proposed for Debarment, in 
solicitations and contracts where the contract value exceeds $25,000.
[60 FR 34748, July 3, 1995]



    Subpart 9.5--Organizational and Consultant Conflicts of Interest



9.500  Scope of subpart.

    This subpart:
    (a) Prescribes responsibilities, general rules, and procedures for 
identifying, evaluating, and resolving organizational conflicts of 
interest;
    (b) Provides examples to assist contracting officers in applying 
these rules and procedures to individual contracting situations; and
    (c) Implements section 8141 of the 1989 Department of Defense 
Appropriation Act, Pub. L. 100-463, 102 Stat. 2270-47 (1988) and Office 
of Federal Procurement Policy (OFPP) Letter 89-1, Conflict of Interest 
Policies Applicable to Consultants.
[55 FR 42685, Oct. 22, 1990]



9.501  Definitions.

    Marketing consultant means any independent contractor who furnishes 
advice, information, direction, or assistance to an offeror or any other 
contractor in support of the preparation or submission of an offer for a 
Government contract by that offeror. An independent contractor is not a 
marketing consultant when rendering--
    (a) Services excluded in subpart 37.2;
    (b) Routine engineering and technical services (such as 
installation, operation, or maintenance of systems, equipment, software, 
components, or facilities);
    (c) Routine legal, actuarial, auditing, and accounting services; and
    (d) Training services.
    Organizational conflict of interest means that because of other 
activities or relationships with other persons, a person is unable or 
potentially unable to render impartial assistance or advice to the 
Government, or the person's objectivity in performing the contract work 
is or might be otherwise impaired, or a person has an unfair competitive 
advantage.
[55 FR 42685, Oct. 22, 1990]



9.502  Applicability.

    (a) This subpart applies to contracts with either profit or 
nonprofit organizations, including nonprofit organizations created 
largely or wholly with Government funds.
    (b) The applicability of this subpart is not limited to any 
particular kind of acquisition. However, organizational conflicts of 
interest are more likely to occur in contracts involving--
    (1) Management support services;
    (2) Consultant or other professional services;

[[Page 153]]

    (3) Contractor performance of or assistance in technical 
evaluations; or
    (4) Systems engineering and technical direction work performed by a 
contractor that does not have overall contractual responsibility for 
development or production.
    (c) An oganizational conflict of interest may result when factors 
create an actual or potential conflict of interest on an instant 
contract, or when the nature of the work to be performed on the instant 
contract creates an actual or potential conflict of interest on a future 
acquisition. In the latter case, some restrictions on future activities 
of the contractor may be required.
    (d) Acquisitions subject to unique agency organizational conflict of 
interest statutes are excluded from the requirements of this subpart.
[48 FR 42142, Sept. 19, 1983, as amended at 55 FR 42686, Oct. 22, 1990; 
56 FR 55377, Oct. 25, 1991]



9.503  Waiver.

    The agency head or a designee may waive any general rule or 
procedure of this subpart by determining that its application in a 
particular situation would not be in the Government's interest. Any 
request for waiver must be in writing, shall set forth the extent of the 
conflict, and requires approval by the agency head or a designee. Agency 
heads shall not delegate waiver authority below the level of head of a 
contracting activity.



9.504  Contracting officer responsibilities.

    (a) Using the general rules, procedures, and examples in this 
subpart, contracting officers shall analyze planned acquisitions in 
order to--
    (1) Identify and evaluate potential organizational conflicts of 
interest as early in the acquisition process as possible; and
    (2) Avoid, neutralize, or mitigate significant potential conflicts 
before contract award.
    (b) Contracting officers should obtain the advice of counsel and the 
assistance of appropriate technical specialists in evaluating potential 
conflicts and in developing any necessary solicitation provisions and 
contract clauses (see 9.506).
    (c) Before issuing a solicitation for a contract that may involve a 
significant potential conflict, the contracting officer shall recommend 
to the head of the contracting activity a course of action for resolving 
the conflict (see 9.506).
    (d) In fulfilling their responsibilities for identifying and 
resolving potential conflicts, contracting officers should avoid 
creating unnecessary delays, burdensome information requirements, and 
excessive documentation. The contracting officer's judgment need be 
formally documented only when a substantive issue concerning potential 
organizational conflict of interest exists.
    (e) The contracting officer shall award the contract to the apparent 
successful offeror unless a conflict of interest is determined to exist 
that cannot be avoided or mitigated. Before determining to withhold 
award based on conflict of interest considerations, the contracting 
officer shall notify the contractor, provide the reasons therefor, and 
allow the contractor a reasonable opportunity to respond. If the 
contracting officer finds that it is in the best interest of the United 
States to award the contract notwithstanding a conflict of interest, a 
request for waiver shall be submitted in accordance with 9.503. The 
waiver request and decision shall be included in the contract file.
[48 FR 42142, Sept. 19, 1983, as amended at 55 FR 42686, Oct. 22, 1990; 
56 FR 55377, Oct. 25, 1991]



9.505  General rules.

    The general rules in 9.505-1 through 9.505-4 prescribe limitations 
on contracting as the means of avoiding, neutralizing, or mitigating 
organizational conflicts of interest that might otherwise exist in the 
stated situations. Some illustrative examples are provided in 9.508. 
Conflicts may arise in situations not expressly covered in this section 
9.505 or in the examples in 9.508. Each individual contracting situation 
should be examined on the basis of its particular facts and the nature 
of the proposed contract. The exercise of common sense, good judgment, 
and sound discretion is required in both the decision on whether a 
significant potential conflict exists and, if it does, the development 
of an appropriate

[[Page 154]]

means for resolving it. The two underlying principles are--
    (a) Preventing the existence of conflicting roles that might bias a 
contractor's judgment; and
    (b) Preventing unfair competitive advantage. In addition to the 
other situations described in this subpart, an unfair competitive 
advantage exists where a contractor competing for award for any Federal 
contract possesses--
    (1) Proprietary information (as defined in 3.104-3) that was 
obtained from a Government official without proper authorization; or
    (2) Source selection information (as defined in 3.104-3) that is 
relevant to the contract but is not available to all competitors, and 
such information would assist that contractor in obtaining the contract.
[48 FR 42142, Sept. 19, 1983, as amended at 55 FR 42686, Oct. 22, 1990; 
56 FR 55377, Oct. 25, 1991; 62 FR 232, Jan. 2, 1997]



9.505-1  Providing systems engineering and technical direction.

    (a) A contractor that provides systems engineering and technical 
direction for a system but does not have overall contractual 
responsibility for its development, its integration, assembly, and 
checkout, or its production shall not (1) be awarded a contract to 
supply the system or any of its major components or (2) be a 
subcontractor or consultant to a supplier of the system or any of its 
major components.
    (b) Systems engineering includes a combination of substantially all 
of the following activities: determining specifications, identifying and 
resolving interface problems, developing test requirements, evaluating 
test data, and supervising design. Technical direction includes a 
combination of substantially all of the following activities: developing 
work statements, determining parameters, directing other contractors' 
operations, and resolving technical controversies. In performing these 
activities, a contractor occupies a highly influential and responsible 
position in determining a system's basic concepts and supervising their 
execution by other contractors. Therefore this contractor should not be 
in a position to make decisions favoring its own products or 
capabilities.



9.505-2  Preparing specifications or work statements.

    (a)(1) If a contractor prepares and furnishes complete 
specifications covering nondevelopmental items, to be used in a 
competitive acquisition, that contractor shall not be allowed to furnish 
these items, either as a prime contractor or as a subcontractor, for a 
reasonable period of time including, at least, the duration of the 
initial production contract. This rule shall not apply to--
    (i) Contractors that furnish at Government request specifications or 
data regarding a product they provide, even though the specifications or 
data may have been paid for separately or in the price of the product; 
or
    (ii) Situations in which contractors, acting as industry 
representatives, help Government agencies prepare, refine, or coordinate 
specifications, regardless of source, provided this assistance is 
supervised and controlled by Government representatives.
    (2) If a single contractor drafts complete specifications for 
nondevelopmental equipment, it should be eliminated for a reasonable 
time from competition for production based on the specifications. This 
should be done in order to avoid a situation in which the contractor 
could draft specifications favoring its own products or capabilities. In 
this way the Government can be assured of getting unbiased advice as to 
the content of the specifications and can avoid allegations of 
favoritism in the award of production contracts.
    (3) In development work, it is normal to select firms that have done 
the most advanced work in the field. These firms can be expected to 
design and develop around their own prior knowledge. Development 
contractors can frequently start production earlier and more 
knowledgeably than firms that did not participate in the development, 
and this can affect the time and quality of production, both of which 
are important to the Government. In many instances the Government may 
have financed the development. Thus, while the development contractor 
has a competitive advantage, it is an unavoidable

[[Page 155]]

one that is not considered unfair; hence no prohibition should be 
imposed.
    (b)(1) If a contractor prepares, or assists in preparing, a work 
statement to be used in competitively acquiring a system or services--or 
provides material leading directly, predictably, and without delay to 
such a work statement--that contractor may not supply the system, major 
components of the system, or the services unless--
    (i) It is the sole source;
    (ii) It has participated in the development and design work; or
    (iii) More than one contractor has been involved in preparing the 
work statement.
    (2) Agencies should normally prepare their own work statements. When 
contractor assistance is necessary, the contractor might often be in a 
position to favor its own products or capabilities. To overcome the 
possibility of bias, contractors are prohibited from supplying a system 
or services acquired on the basis of work statements growing out of 
their services, unless excepted in subparagraph (1) above.
    (3) For the reasons given in 9.505-2(a)(3), no prohibitions are 
imposed on development and design contractors.



9.505-3  Providing evaluation services.

    Contracts for the evaluation of offers for products or services 
shall not be awarded to a contractor that will evaluate its own offers 
for products or services, or those of a competitor, without proper 
safeguards to ensure objectivity to protect the Government's interests.
[62 FR 12694, Mar. 17, 1997]



9.505-4  Obtaining access to proprietary information.

    (a) When a contractor requires proprietary information from others 
to perform a Government contract and can use the leverage of the 
contract to obtain it, the contractor may gain an unfair competitive 
advantage unless restrictions are imposed. These restrictions protect 
the information and encourage companies to provide it when necessary for 
contract performance. They are not intended to protect information (1) 
furnished voluntarily without limitations on its use or (2) available to 
the Government or contractor from other sources without restriction.
    (b) A contractor that gains access to proprietary information of 
other companies in performing advisory and assistance services for the 
Government must agree with the other companies to protect their 
information from unauthorized use or disclosure for as long as it 
remains proprietary and refrain from using the information for any 
purpose other than that for which it was furnished. The contracting 
officer shall obtain copies of these agreements and ensure that they are 
properly executed.
    (c) Contractors also obtain proprietary and source selection 
information by acquiring the services of marketing consultants which, if 
used in connection with an acquisition, may give the contractor an 
unfair competitive advantage. Contractors should make inquiries of 
marketing consultants to ensure that the marketing consultant has 
provided no unfair competitive advantage.
[48 FR 42142, Sept. 19, 1983, as amended at 55 FR 42686, Oct. 22, 1990; 
56 FR 55377, Oct. 25, 1991; 62 FR 235, Jan. 2, 1997]



9.506  Procedures.

    (a) If information concerning prospective contractors is necessary 
to identify and evaluate potential organizational conflicts of interest 
or to develop recommended actions, contracting officers should first 
seek the information from within the Government or from other readily 
available sources. Government sources include the files and the 
knowledge of personnel within the contracting office, other contracting 
offices, the cognizant contract administration and audit activities and 
offices concerned with contract financing. Non-Government sources 
include publications and commercial services, such as credit rating 
services, trade and financial journals, and business directories and 
registers.
    (b) If the contracting officer decides that a particular acquisition 
involves a significant potential organizational conflict of interest, 
the contracting officer shall, before issuing the solicitation, submit 
for approval to the chief

[[Page 156]]

of the contracting office (unless a higher level official is designated 
by the agency)--
    (1) A written analysis, including a recommended course of action for 
avoiding, neutralizing, or mitigating the conflict, based on the general 
rules in 9.505 or on another basis not expressly stated in that section;
    (2) A draft solicitation provision (see 9.507-1); and
    (3) If appropriate, a proposed contract clause (see 9.507-2).
    (c) The approving official shall--
    (1) Review the contracting officer's analysis and recommended course 
of action, including the draft provision and any proposed clause;
    (2) Consider the benefits and detriments to the Government and 
prospective contractors; and
    (3) Approve, modify, or reject the recommendations in writing.
    (d) The contracting officer shall--
    (1) Include the approved provision(s) and any approved clause(s) in 
the solicitation or the contract, or both;
    (2) Consider additional information provided by prospective 
contractors in response to the solicitation or during negotiations; and
    (3) Before awarding the contract, resolve the conflict or the 
potential conflict in a manner consistent with the approval or other 
direction by the head of the contracting activity.
    (e) If, during the effective period of any restriction (see 9.507), 
a contracting office transfers acquisition responsibility for the item 
or system involved, it shall notify the successor contracting office of 
the restriction, and send a copy of the contract under which the 
restriction was imposed.
[55 FR 42686, Oct. 22, 1990, as amended at 62 FR 235, Jan. 2, 1997]



9.507  Solicitation provisions and contract clause.



9.507-1  Solicitation provisions.

    As indicated in the general rules in 9.505, significant potential 
organizational conflicts of interest are normally resolved by imposing 
some restraint, appropriate to the nature of the conflict, upon the 
contractor's eligibilty for future contracts or subcontracts. Therefore, 
affected solicitations shall contain a provision that--
    (a) Invites offerors' attention to this subpart;
    (b) States the nature of the potential conflict as seen by the 
contracting officer;
    (c) States the nature of the proposed restraint upon future 
contractor activities; and
    (d) Depending on the nature of the acquisition, states whether or 
not the terms of any proposed clause and the application of this subpart 
to the contract are subject to negotiation.
[55 FR 42687, Oct. 22, 1990, as amended at 56 FR 55377, Oct. 25, 1991; 
60 FR 34748, July 3, 1995; 60 FR 49721, Sept. 26, 1995; 62 FR 235, Jan. 
2, 1997]



9.507-2  Contract clause.

    (a) If, as a condition of award, the contractor's eligibility for 
future prime contract or subcontract awards will be restricted or the 
contractor must agree to some other restraint, the solicitation shall 
contain a proposed clause that specifies both the nature and duration of 
the proposed restraint. The contracting officer shall include the clause 
in the contract, first negotiating the clause's final terms with the 
successful offeror, if it is appropriate to do so (see 9.508-1(d) of 
this subsection).
    (b) The restraint imposed by a clause shall be limited to a fixed 
term of reasonable duration, sufficient to avoid the circumstance of 
unfair competitive advantage or potential bias. This period varies. It 
might end, for example, when the first production contract using the 
contractor's specifications or work statement is awarded, or it might 
extend through the entire life of a system for which the contractor has 
performed systems engineering and technical direction. In every case, 
the restriction shall specify termination by a specific date or upon the 
occurrence of an identifiable event.
[55 FR 42687, Oct. 22, 1990]



9.508  Examples.

    The examples in paragraphs (a) through (i) following illustrate 
situations in which questions concerning organizational conflicts of 
interest may

[[Page 157]]

arise. They are not all inclusive, but are intended to help the 
contracting officer apply the general rules in 9.505 to individual 
contract situations.
    (a) Company A agrees to provide systems engineering and technical 
direction for the Navy on the powerplant for a group of submarines 
(i.e., turbines, drive shafts, propellers, etc.). Company A should not 
be allowed to supply any powerplant components. Company A can, however, 
supply components of the submarine unrelated to the powerplant (e.g., 
fire control, navigation, etc.). In this example, the system is the 
powerplant, not the submarine, and the ban on supplying components is 
limited to those for the system only.
    (b) Company A is the systems engineering and technical direction 
contractor for system X. After some progress, but before completion, the 
system is canceled. Later, system Y is developed to achieve the same 
purposes as system X, but in a fundamentally different fashion. Company 
B is the systems engineering and technical direction contractor for 
system Y. Company A may supply system Y or its components.
    (c) Company A develops new electronic equipment and, as a result of 
this development, prepares specifications. Company A may supply the 
equipment.
    (d) XYZ Tool Company and PQR Machinery Company, representing the 
American Tool Institute, work under Government supervision and control 
to refine specifications or to clarify the requirements of a specific 
acquisition. These companies may supply the item.
    (e) Before an acquisition for information technology is conducted, 
Company A is awarded a contract to prepare data system specifications 
and equipment performance criteria to be used as the basis for the 
equipment competition. Since the specifications are the basis for 
selection of commercial hardware, a potential conflict of interest 
exists. Company A should be excluded from the initial follow-on 
information technology hardware acquisition.
    (f) Company A receives a contract to define the detailed performance 
characteristics an agency will require for purchasing rocket fuels. 
Company A has not developed the particular fuels. When the definition 
contract is awarded, it is clear to both parties that the agency will 
use the performance characteristics arrived at to choose competitively a 
contractor to develop or produce the fuels. Company A may not be awarded 
this follow-on contract.
    (g) Company A receives a contract to prepare a detailed plan for 
scientific and technical training of an agency's personnel. It suggests 
a curriculum that the agency endorses and incorporates in its request 
for proposals to institutions to establish and conduct the training. 
Company A may not be awarded a contract to conduct the training.
    (h) Company A is selected to study the use of lasers in 
communications. The agency intends to ask that firms doing research in 
the field make proprietary information available to Company A. The 
contract must require Company A to (1) enter into agreements with these 
firms to protect any proprietary information they provide and (2) 
refrain from using the information in supplying lasers to the Government 
or for any purpose other than that for which it was intended.
    (i) An agency that regulates an industry wishes to develop a system 
for evaluating and processing license applications. Contractor X helps 
develop the system and process the applications. Contractor X should be 
prohibited from acting as a consultant to any of the applicants during 
its period of performance and for a reasonable period thereafter.
[48 FR 42142, Sept. 19, 1983. Redesignated at 55 FR 42687, Oct. 22, 
1990; 61 FR 41469, Aug. 8, 1996]



                Subpart 9.6--Contractor Team Arrangements



9.601  Definition.

    Contractor team arrangement means an arrangement in which--
    (a) Two or more companies form a partnership or joint venture to act 
as a potential prime contractor; or
    (b) A potential prime contractor agrees with one or more other 
companies to have them act as its subcontractors under a specified 
Government contract or acquisition program.

[[Page 158]]



9.602  General.

    (a) Contractor team arrangements may be desirable from both a 
Government and industry standpoint in order to enable the companies 
involved to (1) complement each other's unique capabilities and (2) 
offer the Government the best combination of performance, cost, and 
delivery for the system or product being acquired.
    (b) Contractor team arrangements may be particularly appropriate in 
complex research and development acquisitions, but may be used in other 
appropriate acquisitions, including production.
    (c) The companies involved normally form a contractor team 
arrangement before submitting an offer. However, they may enter into an 
arrangement later in the acquisition process, including after contract 
award.



9.603  Policy.

    The Government will recognize the integrity and validity of 
contractor team arrangements; provided, the arrangements are identified 
and company relationships are fully disclosed in an offer or, for 
arrangements entered into after submission of an offer, before the 
arrangement becomes effective. The Government will not normally require 
or encourage the dissolution of contractor team arrangements.



9.604  Limitations.

    Nothing in this subpart authorizes contractor team arrangements in 
violation of antitrust statutes or limits the Government's rights to--
    (a) Require consent to subcontracts (see subpart 44.2);
    (b) Determine, on the basis of the stated contractor team 
arrangement, the responsibility of the prime contractor (see subpart 
9.1);
    (c) Provide to the prime contractor data rights owned or controlled 
by the Government;
    (d) Pursue its policies on competitive contracting, subcontracting, 
and component breakout after initial production or at any other time; 
and
    (e) Hold the prime contractor fully responsible for contract 
performance, regardless of any team arrangement between the prime 
contractor and its subcontractors.



Subpart 9.7--Defense Production Pools and Research and Development Pools



9.701  Definition.

    Pool, as used in this subpart, means a group of concerns (see 
19.001) that have--
    (a) Associated together in order to obtain and perform, jointly or 
in conjunction with each other, defense production or research and 
development contracts;
    (b) Entered into an agreement governing their organization, 
relationship, and procedures; and
    (c) Obtained approval of the agreement by either--
    (1) The Small Business Administration (SBA) under section 9 or 11 of 
the Small Business Act (15 U.S.C. 638 or 640) (see 13 CFR part 125); or
    (2) A designated official under Part V of Executive Order 10480, 
August 14, 1953 (18 FR 4939, August 20, 1953) and section 708 of the 
Defense Production Act of 1950 (50 U.S.C. App. 2158).
[48 FR 42142, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986]



9.702  Contracting with pools.

    (a) Except as specified in this subpart, a pool shall be treated the 
same as any other prospective or actual contractor.
    (b) The contracting officer shall not award a contract to a pool 
unless the offer leading to the contract is submitted by the pool in its 
own name or by an individual pool member expressly stating that the 
offer is on behalf of the pool.
    (c) Upon receipt of an offer submitted by a group representing that 
it is a pool, the contracting officer shall verify its approved status 
with the SBA District Office Director or other approving agency and 
document the contract file that the verification was made.
    (d) Pools approved by the SBA under the Small Business Act are 
entitled to the preferences and privileges accorded to small business 
concerns. Approval under the Defense Production Act does not confer 
these preferences and privileges.

[[Page 159]]

    (e) Before awarding a contract to an unincorporated pool, the 
contracting officer shall require each pool member participating in the 
contract to furnish a certified copy of a power of attorney identifying 
the agent authorized to sign the offer or contract on that member's 
behalf. The contracting officer shall attach a copy of each power of 
attorney to each signed copy of the contract retained by the Government.
[48 FR 42142, Setp. 19, 1983, as amended at 61 FR 67410, Dec. 20, 1996]



9.703  Contracting with individual pool members.

    (a) Pool members may submit individual offers, independent of the 
pool. However, the contracting officer shall not consider an independent 
offer by a pool member if that pool member participates in a competing 
offer submitted by the pool.
    (b) If a pool member submits an individual offer, independent of the 
pool, the contracting officer shall consider the pool agreement, along 
with other factors, in determining whether that pool member is a 
responsible prospective contractor under subpart 9.1.



PART 10--MARKET RESEARCH--Table of Contents




Sec.
10.000  Scope of part.
10.001  Policy.
10.002  Procedures.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source:  60 FR 48237, Sept. 18, 1995, unless otherwise noted.



10.000  Scope of part.

    This part prescribes policies and procedures for conducting market 
research to arrive at the most suitable approach to acquiring, 
distributing, and supporting supplies and services. This part implements 
requirements of 41 U.S.C. 253a(a)(1), 41 U.S.C 264b, and 10 U.S.C. 2377.



10.001  Policy.

    (a) Agencies shall--
    (1) Ensure that legitimate needs are identified and trade-offs 
evaluated to acquire items which meet those needs;
    (2) Conduct market research appropriate to the circumstances--
    (i) Before developing new requirements documents for an acquisition 
by that agency;
    (ii) Before soliciting offers for acquisitions with an estimated 
value in excess of the simplified acquisition threshold; and
    (iii) Before soliciting offers for acquisitions with an estimated 
value less than the simplified acquisition threshold when adequate 
information is not available and the circumstances justify its cost; and
    (3) Use the results of market research to--
    (i) Determine if sources capable of satisfying the agency's 
requirements exist;
    (ii) Determine if commercial items or, to the extent commercial 
items suitable to meet the agency's needs are not available, 
nondevelopmental items are available that--
    (A) Meet the agency's requirements;
    (B) Could be modified to meet the agency's requirements; or
    (C) Could meet the agency's requirements if those requirements were 
modified to a reasonable extent;
    (iii) Determine the extent to which commercial items or 
nondevelopmental items could be incorporated at the component level;
    (iv) Determine the practices of firms engaged in producing, 
distributing, and supporting commercial items, such as terms for 
warranties, buyer financing, maintenance and packaging, and marking; and
    (v) Ensure maximum practicable use of recovered materials (see 
subpart 23.4) and promote energy conservation and efficiency.
    (b) When conducting market research, agencies should not request 
potential sources to submit more than the minimum information necessary.



10.002  Procedures.

    (a) Acquisitions begin with a description of the Government's needs 
stated in terms sufficient to allow conduct of market research.
    (b) Market research is then conducted to determine if commercial 
items or nondevelopmental items are available to meet the Government's

[[Page 160]]

needs or could be modified to meet the Government's needs.
    (1) The extent of market research will vary, depending on such 
factors as urgency, estimated dollar value, complexity, and past 
experience. Market research involves obtaining information specific to 
the item being acquired and should include--
    (i) Whether the Government's needs can be met by--
    (A) Items of a type customarily available in the commercial 
marketplace;
    (B) Items of a type customarily available in the commercial 
marketplace with modifications; or
    (C) Items used exclusively for governmental purposes;
    (ii) Customary practices regarding customizing, modifying or 
tailoring of items to meet customer needs and associated costs;
    (iii) Customary practices, including warranty, buyer financing, 
discounts, etc., under which commercial sales of the products are made;
    (iv) The requirements of any laws and regulations unique to the item 
being acquired;
    (v) The availability of items that contain recovered materials and 
items that are energy efficient;
    (vi) The distribution and support capabilities of potential 
suppliers, including alternative arrangements and cost estimates; and
    (vii) Size and status of potential sources (see part 19).
    (2) Techniques for conducting market research may include any or all 
of the following:
    (i) Contacting knowledgeable individuals in Government and industry 
regarding market capabilities to meet requirements.
    (ii) Reviewing the results of recent market research undertaken to 
meet similar or identical requirements.
    (iii) Publishing formal requests for information in appropriate 
technical or scientific journals or business publications.
    (iv) Querying Government data bases that provide information 
relevant to agency acquisitions.
    (v) Participating in interactive, on-line communication among 
industry, acquisition personnel, and customers.
    (vi) Obtaining source lists of similar items from other contracting 
activities or agencies, trade associations or other sources.
    (vii) Reviewing catalogs and other generally available product 
literature published by manufacturers, distributors, and dealers or 
available on-line.
    (viii) Conducting interchange meetings or holding presolicitation 
conferences to involve potential offerors early in the acquisition 
process.
    (c) If market research indicates commercial or nondevelopmental 
items might not be available to satisfy agency needs, agencies shall 
reevaluate the need in accordance with 10.001(a)(3)(ii) and determine 
whether the need can be restated to permit commercial or 
nondevelopmental items to satisfy the agency's needs.
    (d)(1) If market research establishes that the Government's need may 
be met by a type of item or service customarily available in the 
commercial marketplace that would meet the definition of a commercial 
item at subpart 2.1, the contracting officer shall solicit and award any 
resultant contract using the policies and procedures in part 12.
    (2) If market research establishes that the Government's need cannot 
be met by a type of item or service customarily available in the 
marketplace, part 12 shall not be used. When publication of the notice 
at 5.201 is required, the contracting officer shall include a notice to 
prospective offerors that the Government does not intend to use part 12 
for the acquisition (see 5.207(e)(4)).
    (e) Agencies should document the results of market research in a 
manner appropriate to the size and complexity of the acquisition.



PART 11--DESCRIBING AGENCY NEEDS--Table of Contents




Sec.
11.000  Scope of part.
11.001  Definitions.
11.002  Policy.

      Subpart 11.1--Selecting and Developing Requirements Documents

11.101  Order of precedence for requirements documents.
11.102  Standardization program.

[[Page 161]]

11.103  Market acceptance.
11.104  Items peculiar to one manufacturer.
11.105  Purchase descriptions for service contracts.

       Subpart 11.2--Using and Maintaining Requirements Documents

11.201  Identification and availability of specifications.
11.202  Maintenance of standardization documents.
11.203  Customer satisfaction.
11.204  Solicitation provisions and contract clauses.

                    Subpart 11.3--Acceptable Material

11.301  Policy.
11.302  Contract clause.

             Subpart 11.4--Delivery or Performance Schedules

11.401  General.
11.402  Factors to consider in establishing schedules.
11.403  Supplies or services.
11.404  Contract clauses.

                    Subpart 11.5--Liquidated Damages

11.501  General.
11.502  Policy.
11.503  Procedures.
11.504  Contract clauses.

                Subpart 11.6--Priorities and Allocations

11.600  Scope of part.
11.601  Definitions.
11.602  General.
11.603  Procedures.
11.604  Solicitation provisions and contract clauses.

                   Subpart 11.7--Variation in Quantity

11.701  Supply contracts.
11.702  Construction contracts.
11.703  Contract clauses.

                          Subpart 11.8--Testing

11.801  Preaward in-use evaluation.

    Authority:  40 U.S.C. 486 (c); 10 U.S.C. Chapter 137; 42 U.S.C. 2473 
(c).

    Source:  60 FR 48238, Sept. 18, 1995, unless otherwise noted.



11.000  Scope of part.

    This part prescribes policies and procedures for describing agency 
needs.



11.001  Definitions.

    As used in this part--
    New means composed of previously unused components, whether 
manufactured from virgin material, recovered material in the form of raw 
material, or materials and by-products generated from, and reused 
within, an original manufacturing process; provided that the supplies 
meet contract requirements, including, but not limited to, performance, 
reliability, and life expectancy.
    Reconditioned means restored to the original normal operating 
condition by readjustments and material replacement.
    Recovered material has the meaning provided such term in 23.402.
    Remanufactured means factory rebuilt to original specifications.
    Virgin material means previously unused raw material, including 
previously unused copper, aluminum, lead, zinc, iron, other metal or 
metal ore, or any undeveloped resource that is, or with new technology 
will become, a source of raw materials.
[62 FR 44810, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, section 11.001 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

11.001  Definitions.

    Material, as used in this part, includes, but is not limited to, raw 
material, parts, items, components, and end products.
    New, as used in this part, means previously unused or composed of 
previously unused materials and may include unused residual inventory or 
unused former Government surplus property.
    Other than new, as used in this part, includes, but is not limited 
to, recycled, recovered, remanufactured, used, and reconditioned.
    Reconditioned, as used in this part, means restored to an earlier 
normal operating condition by readjustments and replacement of parts.
    Remanufactured, as used in this part, means factory rebuilt to new 
equipment performance specification and unused subsequent to rebuilding.



11.002  Policy.

    (a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 
2377, 41 U.S.C. 253a(a), and 41 U.S.C. 264b, agencies shall--
    (1) Specify needs using market research in a manner designed to--

[[Page 162]]

    (i) Promote full and open competition (see part 6), or maximum 
practicable competition when using simplified acquisition procedures, 
with due regard to the nature of the supplies or services to be 
acquired; and
    (ii) Only include restrictive provisions or conditions to the extent 
necessary to satisfy the needs of the agency or as authorized by law.
    (2) To the maximum extent practicable, ensure that acquisition 
officials--
    (i) State requirements with respect to an acquisition of supplies or 
services in terms of--
    (A) Functions to be performed;
    (B) Performance required; or
    (C) Essential physical characteristics;
    (ii) Define requirements in terms that enable and encourage offerors 
to supply commercial items, or, to the extent that commercial items 
suitable to meet the agency's needs are not available, nondevelopmental 
items, in response to the agency solicitations;
    (iii) Provide offerors of commercial items and nondevelopmental 
items an opportunity to compete in any acquisition to fill such 
requirements;
    (iv) Require prime contractors and subcontractors at all tiers under 
the agency contracts to incorporate commercial items or nondevelopmental 
items as components of items supplied to the agency; and
    (v) Modify requirements in appropriate cases to ensure that the 
requirements can be met by commercial items or, to the extent that 
commercial items suitable to meet the agency's needs are not available, 
nondevelopmental items.
    (b) The Metric Conversion Act of 1975, as amended by the Omnibus 
Trade and Competitiveness Act of 1988 (15 U.S.C. 205a, et seq.), 
designates the metric system of measurement as the preferred system of 
weights and measures for United States trade and commerce, and it 
requires that each agency use the metric system of measurement in its 
acquisitions, except to the extent that such use is impracticable or is 
likely to cause significant inefficiencies or loss of markets to United 
States firms. Requiring activities are responsible for establishing 
guidance implementing this policy in formulating their requirements for 
acquisitions.
    (c) To the extent practicable and consistent with subpart 9.5, 
potential offerors should be given an opportunity to comment on agency 
requirements or to recommend application and tailoring of requirements 
documents and alternative approaches. Requiring agencies should apply 
specifications, standards, and related documents initially for guidance 
only, making final decisions on the application and tailoring of these 
documents as a product of the design and development process. Requiring 
agencies should not dictate detailed design solutions prematurely (see 
7.101 and 7.105(a)(8)).
    (d) The Resource Conservation and Recovery Act of 1976 (42 U.S.C. 
6901, et seq.), as amended, Executive Order 12873, dated October 20, 
1993, and Executive Order 12902, dated March 8, 1994, establish 
requirements for the procurement of products containing recovered 
materials, and environmentally preferable and energy-efficient products 
and services. Requiring activities shall prepare plans, drawings, 
specifications, standards (including voluntary standards), and purchase 
descriptions that consider the requirements set forth in part 23. 
Environmental objectives, such as pollution prevention (e.g., promoting 
waste reduction, source reduction, energy efficiency and maximum 
practicable recovered material content) (see part 23) shall be 
considered when describing Government requirements for supplies and 
services, and when developing source selection factors for competitive 
negotiated acquisitions (see 15.304), when appropriate.
    (e) Some or all of the performance levels or performance 
specifications in a solicitation may be identified as targets rather 
than as fixed or minimum requirements.
[60 FR 48238, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
62 FR 263, Jan. 2, 1997; 62 FR 44810, Aug. 22, 1997; 62 FR 51230, Sept. 
30, 1997]

    Effective Date Notes:  1. At 62 FR 44810, Aug. 22, 1997, in section 
11.002, paragraph (d) was amended by revising the first sentence, 
effective Oct. 21, 1997. For the convenience of the user, the superseded 
text is set forth as follows:

[[Page 163]]

11.002  Policy.

                                * * * * *

    (d) The Resource Conservation and Recovery Act of 1976 (42 U.S.C. 
6901, et seq.), as amended, and Executive Order 12873, dated October 20, 
1993, establish requirements for the procurement of products containing 
recovered materials, and environmentally preferable and energy-efficient 
products and services. * * *

                                * * * * *

    2. At 62 FR 51230, Sept. 30, 1997, section 11.002 was amended by 
adding a sentence to the end of paragraph (d), effective Oct. 10, 1997.



      Subpart 11.1--Selecting and Developing Requirements Documents



11.101  Order of precedence for requirements documents.

    (a) Agencies may select from existing requirements documents, modify 
or combine existing requirements documents, or create new requirements 
documents to meet agency needs, consistent with the following order of 
precedence:
    (1) Documents mandated for use by law.
    (2) Performance-oriented documents.
    (3) Detailed design-oriented documents.
    (4) Standards, specifications and related publications issued by the 
Government outside the Defense or Federal series for the non-repetitive 
acquisition of items.
    (b) Agencies should prepare product descriptions to achieve maximum 
practicable use of recovered material, other materials that are 
environmentally preferable, and products that are energy-efficient (see 
subparts 23.4 and 23.7).
[60 FR 48238, Sept. 18, 1995, as amended at 62 FR 44810, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, section 11.101 
was amended by revising paragraph (b), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

11.101  Order of precedence for requirements documents.

                                * * * * *

    (b) Agencies should prepare product descriptions to achieve maximum 
practicable use of recovered material and other materials that are 
environmentally preferable (see subparts 23.4 and 23.7).



11.102  Standardization program.

    Agencies shall select existing requirements documents or develop new 
requirements documents that meet the needs of the agency in accordance 
with the guidance contained in the Federal Standardization Manual and, 
for DOD components, DOD 4120.3-M, Defense Standardization Program 
Policies and Procedures. The Federal Standardization Manual may be 
obtained from General Services Administration, Federal Supply Service 
Bureau, Specifications Section, Suite 8100, 470 L'Enfant Plaza, SW, 
Washington, DC 20407. DOD 4120.3-M may be obtained from DOD Single Stock 
Point, Standardization Document Order Desk, Building 4D, 700 Robbins 
Avenue, Philadelphia, PA 19111-5094.



11.103  Market acceptance.

    (a) Section 8002(c) of Pub. L. 103-355 provides that, in accordance 
with agency procedures, the head of an agency may, under appropriate 
circumstances, require offerors to demonstrate that the items offered--
    (1) Have either--
    (i) Achieved commercial market acceptance; or
    (ii) Been satisfactorily supplied to an agency under current or 
recent contracts for the same or similar requirements; and
    (2) Otherwise meet the item description, specifications, or other 
criteria prescribed in the public notice and solicitation.
    (b) Appropriate circumstances may, for example, include situations 
where the agency's minimum need is for an item that has a demonstrated 
reliability, performance or product support record in a specified 
environment. Use of market acceptance is inappropriate when new or 
evolving items may meet the agency's needs.

[[Page 164]]

    (c) In developing criteria for demonstrating that an item has 
achieved commercial market acceptance, the contracting officer shall 
ensure the criteria in the solicitation--
    (1) Reflect the minimum need of the agency and are reasonably 
related to the demonstration of an item's acceptability to meet the 
agency's minimum need;
    (2) Relate to an item's performance and intended use, not an 
offeror's capability;
    (3) Are supported by market research;
    (4) Include consideration of items supplied satisfactorily under 
recent or current Government contracts, for the same or similar items; 
and
    (5) Consider the entire relevant commercial market, including small 
business concerns.
    (d) Commercial market acceptance shall not be used as a sole 
criterion to evaluate whether an item meets the Government's 
requirements.
    (e) When commercial market acceptance is used, the contracting 
officer shall document the file to--
    (1) Describe the circumstances justifying the use of commercial 
market acceptance criteria; and
    (2) Support the specific criteria being used.



11.104  Items peculiar to one manufacturer.

    Agency requirements shall not be written so as to require a 
particular brand-name, product, or a feature of a product, peculiar to 
one manufacturer, thereby precluding consideration of a product 
manufactured by another company, unless--
    (a) The particular brand-name, product, or feature is essential to 
the Government's requirements, and market research indicates other 
companies' similar products, or products lacking the particular feature, 
do not meet, or cannot be modified to meet, the agency's minimum needs;
    (b) The authority to contract without providing for full and open 
competition is supported by the required justifications and approvals 
(see 6.302-1); and
    (c) The basis for not providing for maximum practicable competition 
is documented in the file when the acquisition is awarded using 
simplified acquisition procedures.
[60 FR 48238, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
62 FR 263, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997]



11.105  Purchase descriptions for service contracts.

    In drafting purchase descriptions for service contracts, agency 
requiring activities shall ensure that inherently governmental functions 
(see subpart 7.5) are not assigned to a contractor. These purchase 
descriptions shall
    (a) Reserve final determination for Government officials;
    (b) Require proper identification of contractor personnel who attend 
meetings, answer Government telephones, or work in situations where 
their actions could be construed as acts of Government officials unless, 
in the judgment of the agency, no harm can come from failing to identify 
themselves; and
    (c) Require suitable marking of all documents or reports produced by 
contractors.
[61 FR 2629, Jan. 26, 1996]



       Subpart 11.2--Using and Maintaining Requirements Documents



11.201  Identification and availability of specifications.

    (a) Solicitations citing requirements documents listed in the 
General Services Administration (GSA) Index of Federal Specifications, 
Standards and Commercial Item Descriptions, the DoD Index of 
Specifications and Standards (DoDISS), or other agency index shall 
identify each document's approval date and the dates of any applicable 
amendments and revisions. Do not use general identification references, 
such as ``the issue in effect on the date of the solicitation.'' 
Contracting offices will not normally furnish these cited documents with 
the solicitation, except when--
    (1) The requirements document must be furnished with the 
solicitation to enable prospective contractors to make a competent 
evaluation of the solicitation;

[[Page 165]]

    (2) In the judgment of the contracting officer, it would be 
impracticable for prospective contractors to obtain the documents in 
reasonable time to respond to the solicitation; or
    (3) A prospective contractor requests a copy of a Government 
promulgated requirements document.
    (b) Contracting offices shall clearly identify in the solicitation 
any pertinent documents not listed in the GSA Index of Federal 
Specifications, Standards and Commercial Item Descriptions or DoDISS. 
Such documents shall be furnished with the solicitation or specific 
instructions shall be furnished for obtaining or examining such 
documents.
    (c) When documents refer to other documents, such references shall
    (1) Be restricted to documents, or appropriate portions of 
documents, that apply in the acquisition;
    (2) Cite the extent of their applicability;
    (3) Not conflict with other documents and provisions of the 
solicitation; and
    (4) Identify all applicable first tier references.
    (d) The GSA Index of Federal Specifications, Standards and 
Commercial Item Descriptions may be purchased from the General Services 
Administration, Federal Supply Service, Specification Section, Suite 
8100, 470 L'Enfant Plaza, SW, Washington, DC 20407, telephone (202) 619-
8925. The DoDISS may be purchased from the Standardization Documents 
Desk, Building 4D, 700 Robbins Avenue, Philadelphia, PA 19111-5094, 
telephone (215) 697-2569.
    (e) Agencies may generally obtain from the GSA Specification Section 
or the DOD Standardization Documents Desk those nongovernment 
(voluntary) standards adopted for use by Federal or Defense activities. 
Standards not available from these sources may be obtained from 
Government libraries, activities subscribing to document handling 
services or the organization responsible for the preparation, 
publication or maintenance of the standard.
[60 FR 48238, Sept. 18, 1995, as amended at 62 FR 40236, July 25, 1997]



11.202  Maintenance of standardization documents.

    (a) Recommendations for changes to standardization documents listed 
in the GSA Index of Federal Specifications, Standards and Commercial 
Item Descriptions should be submitted to the General Services 
Administration, Federal Supply Service, Office of Acquisition, 
Washington, DC 20406. Agencies shall submit recommendations for changes 
to standardization documents listed in the DoDISS to the cognizant 
preparing activity.
    (b) When an agency cites an existing standardization document but 
modifies it to meet its needs, the agency shall follow the guidance in 
Federal Standardization Manual and, for Defense components, DoD 4120.3-
M, Defense Standardization Program Policies and Procedures.



11.203  Customer satisfaction.

    Acquisition organizations shall communicate with customers to 
determine how well the requirements document reflects the customer's 
needs and to obtain suggestions for corrective actions. Whenever 
practicable, the agency may provide affected industry an opportunity to 
comment on the requirements documents.



11.204  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the provision at 52.211-1, 
Availability of Specifications Listed in the GSA Index of Federal 
Specifications, Standards and Commercial Item Descriptions, in 
solicitations that
    (1) Are issued by civilian agency contracting offices and
    (2) Cite specifications listed in the Index that are not furnished 
with the solicitation.
    (b) The contracting officer shall insert the provision at 52.211-2, 
Availability of Specifications Listed in the DoD Index of Specifications 
and Standards (DoDISS), in solicitations that
    (1) Are issued by DoD contracting offices and
    (2) Cite specifications listed in the DoDISS that are not furnished 
with the solicitation.
    (c) The contracting officer shall insert a provision substantially 
the same

[[Page 166]]

as the provision at 52.211-3, Availability of Specifications Not Listed 
in the GSA Index of Federal Specifications, Standards and Commercial 
Item Descriptions, in solicitations that cite specifications that are 
not listed in the Index and are not furnished with the solicitation, but 
may be obtained from a designated source.
    (d) The contracting officer shall insert a provision substantially 
the same as the provision at 52.211-4, Availability for Examination of 
Specifications Not Listed in the GSA Index of Federal Specifications, 
Standards and Commercial Item Descriptions, in solicitations that cite 
specifications that are not listed in the Index and are available for 
examination at a specified location.



                    Subpart 11.3--Acceptable Material

    Source:  62 FR 44810, Aug. 22, 1997, unless otherwise noted.

    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, subpart 11.3 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text appears following the revised text.



11.301  Policy.

    (a) Agencies shall not require virgin material or supplies composed 
of or manufactured using virgin material unless compelled by law or 
regulation or unless virgin material is vital for safety or meeting 
performance requirements of the contract.
    (b) Except when acquiring commercial items, agencies shall require 
offerors to identify used, reconditioned, or remanufactured supplies, or 
unused former Government surplus property, proposed for use under the 
contract. Such supplies or property may not be used in contract 
performance unless authorized by the contracting officer.
    (c) When acquiring commercial items, the contracting officer shall 
consider the customary practices in the industry for the item being 
acquired. The contracting officer may require offerors to provide 
information on used, reconditioned, or remanufactured supplies, or 
unused former Government surplus property, proposed for use under the 
contract. The request for such information shall be included in the 
solicitation and shall, to the maximum practicable extent, be limited to 
information provided pursuant to normal commercial practices.



11.302  Contract clause.

    Except when acquiring commercial items, the contracting officer 
shall insert the clause at 52.211-5, Material Requirements, in 
solicitations and contracts for supplies.

    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, subpart 11.3 
was revised. For the convenience of the user, the superseded text is set 
forth as follows:

   Subpart 11.3--Acquiring Other Than New Material, Former Government 
                Surplus Property, and Residual Inventory

11.301  Policy.

    (a) Agencies shall allow offers of other than new material, former 
Government surplus property, or residual inventory unless it is 
determined that such materials are unacceptable. When acquiring 
commercial items, the contracting officer should consider the customary 
practice in the industry for the item being acquired. When only new 
material is acceptable, the solicitation shall clearly identify the 
material that must be new. Offerors providing other than new material 
shall be required to comply with the clause at 52.211-5, New Material, 
the provision at 52.211-6, Listing of Other Than New Material, Residual 
Inventory, and Former Government Surplus Property, and the clause at 
52.211-7, Other Than New Material, Residual Inventory, and Former 
Government Surplus Property, as appropriate.
    (b) Agencies shall specify products, including packaging, that 
contain the highest practicable percentage of recovered and 
environmentally preferable materials, and where applicable, post-
consumer material, consistent with performance requirements, 
availability, price reasonableness, and cost-effectiveness.
    (c) Contracting officers shall consider the following when 
determining whether other than new materials, former Government surplus 
property, or residual inventory are acceptable:
    (1) Safety of persons or property.
    (2) Specification and performance requirements.
    (3) Price reasonableness.
    (4) Total cost to the Government (including maintenance, inspection, 
testing, and useful life).
    (d) When a contract calls for material to be furnished at cost, the 
allowable charge for former Government surplus property shall

[[Page 167]]

not exceed the cost at which the contractor acquired the property.

11.302  Solicitation provisions and contract clauses.

    (a) The contracting officer may insert the clause at 52.211-5, New 
Material, in solicitations and contracts for supplies. The clause shall 
not be used if it would be contrary to customary commercial practices 
for the item being acquired.
    (b) The contracting officer shall insert the provision at 52.211-6, 
Listing of Other Than New Material, Residual Inventory, and Former 
Government Surplus Property, in solicitations containing the clause at 
52.211-5.
    (c) The contracting officer shall insert the clause at 52.211-7, 
Other Than New Material, Residual Inventory, and Former Government 
Surplus Property, in contracts containing the clause at 52.211-5.



             Subpart 11.4--Delivery or Performance Schedules

    Source:  48 FR 42159, Sept. 19, 1983, unless otherwise noted. 
Redesignated at 60 FR 48241, Sept. 18, 1995.



11.401  General.

    (a) The time of delivery or performance is an essential contract 
element and shall be clearly stated in solicitations. Contracting 
officers shall ensure that delivery or performance schedules are 
realistic and meet the requirements of the acquisition. Schedules that 
are unnecessarily short or difficult to attain--
    (1) Tend to restrict competition,
    (2) Are inconsistent with small business policies, and
    (3) May result in higher contract prices.
    (b) Solicitations shall, except when clearly unnecessary, inform 
bidders or offerors of the basis on which their bids or proposals will 
be evaluated with respect to time of delivery or performance.
    (c) If timely delivery or performance is unusually important to the 
Government, liquidated damages clauses may be used (see subpart 11.5).
[48 FR 42159, Sept. 19, 1983. Redesignated and amended at 60 FR 48241, 
Sept. 18, 1995]



11.402  Factors to consider in establishing schedules.

    (a) Supplies or services. When establishing a contract delivery or 
performance schedule, consideration shall be given to applicable factors 
such as the--
    (1) Urgency of need;
    (2) Industry practices;
    (3) Market conditions;
    (4) Transportation time;
    (5) Production time;
    (6) Capabilities of small business concerns;
    (7) Administrative time for obtaining and evaluating offers and for 
awarding contracts;
    (8) Time for contractors to comply with any conditions precedent to 
contract performance; and
    (9) Time for the Government to perform its obligations under the 
contract; e.g., furnishing Government property.
    (b) Construction. When scheduling the time for completion of a 
construction contract, the contracting officer shall consider applicable 
factors such as the--
    (1) Nature and complexity of the project;
    (2) Construction seasons involved;
    (3) Required completion date;
    (4) Availability of materials and equipment;
    (5) Capacity of the contractor to perform; and
    (6) Use of multiple completion dates. (In any given contract, 
separate completion dates may be established for separable items of 
work. When multiple completion dates are used, requests for extension of 
time must be evaluated with respect to each item, and the affected 
completion dates modified when appropriate.)
[48 FR 42159, Sept. 19, 1983. Redesignated and amended at 60 FR 48241, 
Sept. 18, 1995]



11.403  Supplies or services.

    (a) The contracting officer may express contract delivery or 
performance schedules in terms of--
    (1) Specific calendar dates;
    (2) Specific periods from the date of the contract; i.e., from the 
date of award or acceptance by the Government, or from the date shown as 
the effective date of the contract;
    (3) Specific periods from the date of receipt by the contractor of 
the notice of award or acceptance by the Government (including notice by 
receipt of

[[Page 168]]

contract document executed by the Government); or
    (4) Specific time for delivery after receipt by the contractor of 
each individual order issued under the contract, as in indefinite 
delivery type contracts and GSA schedules.
    (b) The time specified for contract performance should not be 
curtailed to the prejudice of the contractor because of delay by the 
Government in giving notice of award.
    (c) If the delivery schedule is based on the date of the contract, 
the contracting officer shall mail or otherwise furnish to the 
contractor the contract, notice of award, acceptance of proposal, or 
other contract document not later than the date of the contract.
    (d) If the delivery schedule is based on the date the contractor 
receives the notice of award, or if the delivery schedule is expressed 
in terms of specific calendar dates on the assumption that the notice of 
award will be received by a specified date, the contracting officer 
shall send the contract, notice of award, acceptance of proposal, or 
other contract document by certified mail, return receipt requested, or 
by any other method that will provide evidence of the date of receipt.
    (e) In invitations for bids, if the delivery schedule is based on 
the date of the contract, and a bid offers delivery based on the date 
the contractor receives the contract or notice of award, the contracting 
officer shall evaluate the bid by adding 5 calendar days (as 
representing the normal time for arrival through ordinary mail). If the 
contract or notice of award will be transmitted electronically, (1) the 
solicitation shall so state; and (2) the contracting officer shall 
evaluate delivery schedule based on the date of contract receipt or 
notice of award, by adding one working day. (The term ``working day'' 
excludes weekends and U.S. Federal holidays.) If the offered delivery 
date computed with mailing or transmittal time is later than the 
delivery date required by the invitation for bids, the bid shall be 
considered nonresponsive and rejected. If award is made, the delivery 
date will be the number of days offered in the bid after the contractor 
actually receives the notice of award.



11.404  Contract clauses.

    (a) Supplies or services. (1) The contracting officer may use a time 
of delivery clause to set forth a required delivery schedule and to 
allow an offeror to propose an alternative delivery schedule. The 
clauses and their alternates may be used in solicitations and contracts 
for other than construction and architect-engineering substantially as 
shown, or they may be changed or new clauses written.
    (2) The contracting officer may insert in solicitations and 
contracts other than those for construction and architect-engineering, a 
clause substantially the same as the clause at 52.211-8, Time of 
Delivery, if the Government requires delivery by a particular time and 
the delivery schedule is to be based on the date of the contract. If the 
delivery schedule is expressed in terms of specific calendar dates or 
specific periods and is based on an assumed date of award, the 
contracting officer may use the clause with its Alternate I. If the 
delivery schedule is expressed in terms of specific calendar dates or 
specific periods and is based on an assumed date the contractor will 
receive notice of award, the contracting officer may use the clause with 
its Alternate II. If the delivery schedule is to be based on the actual 
date the contractor receives a written notice of award, the contracting 
officer may use the clause with its Alternate III.
    (3) The contracting officer may insert in solicitations and 
contracts other than those for construction and architect-engineering, a 
clause substantially the same as the clause at 52.211-9, Desired and 
Required Time of Delivery, if the Government desires delivery by a 
certain time but requires delivery by a specified later time, and the 
delivery schedule is to be based on the date of the contract. If the 
delivery schedule is expressed in terms of specific calendar dates or 
specific periods and is based on an assumed date of award, the 
contracting officer may use the clause with its Alternate I. If the 
delivery schedule is expressed in terms of specific calendar dates or 
specific periods and is based on an assumed date the

[[Page 169]]

contractor will receive notice of award, the contracting officer may use 
the clause with its Alternate II. If the delivery schedule is to be 
based on the actual date the contractor receives a written notice of 
award, the contracting officer may use the clause with its Alternate 
III.
    (b) Construction. The contracting officer shall insert the clause at 
52.211-10, Commencement, Prosecution, and Completion of Work, in 
solicitations and contracts when a fixed-price construction contract is 
contemplated. The clause may be changed to accommodate the issuance of 
orders under indefinite-delivery contracts. If the completion date is 
expressed as a specific calendar date, computed on the basis of the 
contractor receiving the notice to proceed by a certain day, the 
contracting officer may use the clause with its Alternate I.
[48 FR 42159, Sept. 19, 1983, as amended at 56 FR 41732, Aug. 22, 1991. 
Redesignated and amended at 60 FR 48241, Sept. 18, 1995]



                    Subpart 11.5--Liquidated Damages

    Source:  48 FR 42159, Sept. 19, 1983, unless otherwise noted. 
Redesignated at 60 FR 48241, Sept. 18, 1995.



11.501  General.

    This subpart provides policies and procedures for the use of 
liquidated damages clauses in solicitations and contracts for supplies, 
services, and construction.
[48 FR 42159, Sept. 19, 1983, as amended at 50 FR 1736, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



11.502  Policy.

    (a) Liquidated damages clauses should be used only when both (1) the 
time of delivery or performance is such an important factor in the award 
of the contract that the Government may reasonably expect to suffer 
damage if the delivery or performance is delinquent, and (2) the extent 
or amount of such damage would be difficult or impossible to ascertain 
or prove. In deciding whether to include a liquidated damage clause in a 
contract, the contracting officer should consider the probable effect on 
such matters as pricing, competition, and the costs and difficulties of 
contract administration.
    (b) The rate of liquidated damages used must be reasonable and 
considered on a case-by-case basis since liquidated damages fixed 
without any reference to probable actual damages may be held to be a 
penalty, and therefore unenforceable. The contract may also include an 
overall maximum dollar amount or period of time, or both, during which 
liquidated damages may be assessed, to ensure that the result is not an 
unreasonable assessment of liquidated damages.
    (c) The contracting officer shall take all reasonable steps to 
mitigate liquidated damages. If a liquidated damages clause is included 
in a contract and a basis for termination for default exists, the 
contracting officer should take appropriate action expeditiously to 
obtain performance by the contractor or to terminate the contract (see 
subpart 49.4). If delivery or performance is desired after termination 
for default, efforts must be made to obtain the delivery or performance 
elsewhere within a reasonable time. Efficient administration of 
contracts containing a liquidated damages clause is imperative to 
prevent undue loss to defaulting contractors and to protect the 
interests of the Government.
    (d) If a contract provides for liquidated damages for delay, the 
Comptroller General, on the recommendation of the head of the agency 
concerned, is authorized and empowered by law to make a remission, that 
in the discretion of the Comptroller General is just and equitable, of 
the whole or any part of such damages.



11.503  Procedures.

    (a) If a liquidated damages clause is to be used in a contract, the 
applicable clause and appropriate rate(s) of liquidated damages shall be 
included in the solicitation.
    (b) If a liquidated damages clause is used in a construction 
contract, the rate(s) of liquidated damages to be assessed against the 
contractor should be for each day of delay and the rate(s) should as a 
minimum cover the estimated cost of inspection and superintendence for 
each day of delay in

[[Page 170]]

completion. Whenever the Government will suffer other specific losses 
due to the failure of the contractor to complete the work on time, the 
rate(s) should also include an amount for these items. Examples of 
specific losses are--
    (1) The cost of substitute facilities;
    (2) The rental of buildings and/or equipment; or
    (3) The continued payment of quarters allowances.
    (c) If appropriate to reflect the probable damages, considering that 
the Government can terminate for default or take other appropriate 
action, the rate of assessment of liquidated damages may be in two or 
more increments which provide a declining rate of assessment as the 
delinquency continues. The contract may also include an overall maximum 
dollar amount or period of time, or both, during which liquidated 
damages may be assessed, to ensure that the result is not an 
unreasonable assessment of liquidated damages.



11.504  Contract clauses.

    (a) The contracting officer may insert the clause at 52.211-11, 
Liquidated Damages--Supplies, Services, or Research and Development, in 
solicitations and contracts when a fixed-price contract is contemplated 
for supplies, services, or research and development (see 12.202).
    (b) The contracting officer may insert the clause at 52.211-12, 
Liquidated Damages--Construction, in solicitations and contracts for 
construction, except construction contracts on a cost-plus-fixed-fee 
basis (see 12.202). If different completion dates are specified in the 
contract for separate parts or stages of the work, the contracting 
officer shall use the clause with its Alternate I.
    (c) The contracting officer shall insert the clause at 52.211-13, 
Time Extensions, in solicitations and contracts for construction in 
which the clause at 52.211-12, Liquidated Damages--Construction, is used 
with its Alternate I.
[48 FR 42159, Sept. 19, 1983. Redesignated and amended at 60 FR 48241, 
Sept. 18, 1995]



                Subpart 11.6--Priorities and Allocations

    Source:  51 FR 19714, May 30, 1986, unless otherwise noted. 
Redesignated at 60 FR 48241, Sept. 18, 1995.



11.600  Scope of subpart.

    This subpart implements the Defense Priorities and Allocations 
System (DPAS), a Department of Commerce (DOC) regulation in support of 
authorized national defense programs (see 15 CFR part 700).
[51 FR 19714, May 30, 1986, as amended at 56 FR 41744, Aug. 22, 1991]



11.601  Definitions.

    Authorized program, as used in this subpart, means a program 
approved by the Federal Emergency Management Agency (FEMA) for 
priorities and allocations support under the Defense Production Act of 
1950, as amended (50 U.S.C. app. 2061, et seq.), to promote the national 
defense. Schedule I of the DPAS lists currently authorized programs.
    Controlled materials, as used in this subpart, means the various 
shapes and forms of steel, copper, aluminum, and nickel alloys specified 
in Schedule II, and defined in Schedule III, of the DPAS.
    Delegate Agency, as used in this subpart, means an agency of the 
U.S. Government authorized by delegation from DOC to place priority 
ratings on contracts that support authorized programs. Schedule I of the 
DPAS lists the Delegate Agencies.
    Rated order means a prime contract for any product, service, or 
material (including controlled materials) placed by a Delegate Agency 
under the provisions of the DPAS in support of an authorized program and 
which requires preferential treatment, and includes subcontracts and 
purchase orders resulting under such contracts.
[51 FR 19714, May 30, 1986. Redesignated at 60 FR 48241, Sept. 18, 1995]



11.602  General.

    (a) Under Title I of the Defense Production Act of 1950, as amended 
(50 U.S.C. app. 2061, et seq.), the President

[[Page 171]]

is authorized (1) to require that contracts in support of the national 
defense be accepted and performed on a preferential or priority basis 
over all other contracts, and (2) to allocate materials and facilities 
in such a manner as to promote the national defense.
    (b) The Office of Industrial Resource Administration (OIRA), DOC, is 
responsible for administering and enforcing a system of priorities and 
allocations to carry out Title I of the Defense Production Act for 
industrial items. The DPAS has been established to promote the timely 
availability of the necessary industrial resources to meet current 
national defense requirements and to provide a framework to facilitate 
rapid industrial mobilization in case of national emergency.
    (c) The Delegate Agencies (see Schedule I of the DPAS) have been 
given authority by DOC to place rated orders in support of authorized 
programs. Other government agencies, Canada, and other friendly foreign 
nations may apply for special rating authority in support of authorized 
programs (see 15 CFR 700.55).
    (d) Rated orders shall be placed in accordance with the procedures 
in the DPAS. Contracting officers responsible for acquisitions in 
support of authorized programs shall be familiar with the DPAS and 
should provide guidance on the DPAS to contractors and suppliers 
receiving rated orders. Agency heads shall ensure compliance with the 
DPAS by contracting activities within their agencies.
    (e) Under the Defense Production Act, any willful violation of the 
Act, the DPAS, or any official action taken by DOC under the DPAS, is a 
crime punishable by a maximum fine of $10,000, one year in prison, or 
both (see 15 CFR 700.70 and 15 CFR 700.74).
[51 FR 19714, May 30, 1986, as amended at 56 FR 41744, Aug. 22, 1991]



11.603  Procedures.

    (a) There are two levels of priority for rated orders established by 
the DPAS, identified by the rating symbols ``DO'' and ``DX.'' All DO 
rated orders have equal priority with each other and take preference 
over unrated orders. All DX rated orders have equal priority with each 
other and take preference over DO rated and unrated orders. DX ratings 
are used for special defense programs designated by the President to be 
of the highest national priority.
    (b) DOC may issue a Directive to compel a contractor or supplier to 
accept a rated order, to rearrange production or delivery schedules, or 
to improve shipments against particular rated orders. Directives issued 
by DOC take precedence over all rated and unrated orders as stated in 
the Directive.
    (c) In addition to any other contractual requirements, a valid rated 
order must contain (see 15 CFR 700.12) the following:
    (1) A priority rating consisting of the appropriate DO or DX rating 
symbol and a program of identification symbol to indicate the authorized 
program (see Schedule I of the DPAS).
    (2) A required delivery date or delivery dates.
    (3) The signature of an individual authorized by the agency to sign 
rated orders.
    (d) The DPAS has the following three basic elements which are 
essential to the operation of the system:
    (1) Mandatory acceptance of rated orders. A rated order shall be 
accepted by a contractor or supplier unless rejected for the reasons 
provided for mandatory rejection in 15 CFR 700.13(b), or for optional 
rejection in 15 CFR 700.13(c).
    (2) Mandatory extension of priority ratings throughout the 
acquisition chain. Contractors and suppliers receiving rated orders 
shall extend priority ratings to subcontractors or vendors when 
acquiring items to fill the rated orders (see 15 CFR 700.15).
    (3) Priority scheduling of production and delivery. Contractors and 
suppliers receiving rated orders shall give the rated orders priority 
over other contracts as needed to meet delivery requirements (see 15 CFR 
700.14).
    (e) Agencies shall provide contracting activities with specific 
guidance on the issuance of rated orders in support of agency programs.
    (f) Contracting officers shall follow agency procedural instructions 
concerning the use of rated orders in support of agency programs.

[[Page 172]]

    (g) Contracting officers, contractors, or subcontractors at any 
tier, that experience difficulty placing rated orders, obtaining timely 
delivery under rated orders, locating a contractor or supplier to fill a 
rated order, ensuring that rated orders receive preferential treatment 
by contractors or suppliers, or require rating authority for items not 
automatically ratable under the DPAS, should promptly seek special 
priorities assistance in accordance with agency procedures (see 15 CFR 
700.50-700.55).
    (h) Contracting officers shall report promptly any violations of the 
DPAS to DOC in accordance with agency procedures.
[51 FR 19714, May 30, 1986, as amended at 56 FR 41744, Aug. 22, 1991]



11.604  Solicitation provisions and contract clauses.

    (a) Contracting officers shall insert the provision at 52.211-14, 
Notice of Priority Rating for National Defense Use, in solicitations 
when the contract to be awarded will be a rated order.
    (b) Contracting officers shall insert the clause at 52.211-15, 
Defense Priority and Allocation Requirements, in contracts that are 
rated orders.
[51 FR 19714, May 30, 1986. Redesignated and amended at 60 FR 48241, 
Sept. 18, 1995]



                   Subpart 11.7--Variation in Quantity

    Source:  48 FR 42159, Sept. 19, 1983, unless otherwise noted. 
Redesignated at 60 FR 48241, Sept. 18, 1995.



11.701  Supply contracts.

    (a) A fixed-price supply contract may authorize Government 
acceptance of a variation in the quantity of items called for if the 
variation is caused by conditions of loading, shipping, or packing, or 
by allowances in manufacturing processes. Any permissible variation 
shall be stated as a percentage and it may be an increase, a decrease, 
or a combination of both; however, contracts for subsistence items may 
use other applicable terms of variation in quantity.
    (b) There should be no standard or usual variation percentage. The 
overrun or underrun permitted in each contract should be based upon the 
normal commercial practices of a particular industry for a particular 
item, and the permitted percentage should be no larger than is necessary 
to afford a contractor reasonable protection. The permissible variation 
shall not exceed plus or minus 10 percent unless a different limitation 
is established in agency regulations. Consideration shall be given to 
the quantity to which the percentage variation applies. For example, 
when delivery will be made to multiple destinations and it is desired 
that the quantity variation apply to the item quantity for each 
destination, this requirement must be stated in the contract.
    (c) Contractors are responsible for delivery of the specified 
quantity of items in a fixed-price contract, within allowable 
variations, if any. If a contractor delivers a quantity of items in 
excess of the contract requirements plus any allowable variation in 
quantity, particularly small dollar value overshipments, it results in 
unnecessary administrative costs to the Government in determining 
disposition of the excess quantity. Accordingly, the contract may 
include the clause at 52.211-17, Delivery of Excess Quantities, to 
provide that--
    (1) Excess quantities of items totaling up to $250 in value may be 
retained without compensating the contractor; and
    (2) Excess quantities of items totaling over $250 in value may, at 
the Government's option, be either returned at the contractor's expense 
or retained and paid for at the contract unit price.
[48 FR 42159, Sept. 19, 1983, as amended at 54 FR 34753, Aug. 21, 1989; 
62 FR 40236, July 25, 1997]



11.702  Construction contracts.

    Construction contracts may authorize a variation in estimated 
quantities of unit-priced items. When the variation between the 
estimated quantity and the actual quantity of a unit-priced item is more 
than plus or minus 15 percent, an equitable adjustment in the contract 
price shall be made upon the demand of either the Government or the 
contractor. The contractor may request an extension of time if the

[[Page 173]]

quantity variation is such as to cause an increase in the time necessary 
for completion. The contracting officer must receive the request in 
writing within 10 days from the beginning of the period of delay. 
However, the contracting officer may extend this time limit before the 
date of final settlement of the contract. The contracting officer shall 
ascertain the facts and make any adjustment for extending the completion 
date that the findings justify.



11.703  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.211-16, 
Variation in Quantity, in solicitations and contracts, when a fixed-
price supply contract is contemplated for supplies, and for services 
that involve the furnishing of supplies.
    (b) The contracting officer may insert the clause at 52.211-17, 
Delivery of Excess Quantities, in solicitations and contracts, when a 
fixed-price supply contract is contemplated.
    (c) The contracting officer shall insert the clause at 52.211-18, 
Variation in Estimated Quantity, in solicitations and contracts when a 
fixed-price construction contract is contemplated that authorizes a 
variation in the estimated quantity of unit-priced items.
[48 FR 42159, Sept. 19, 1983, as amended at 54 FR 34753, Aug. 21, 1989. 
Redesignated and amended at 60 FR 48241, Sept. 18, 1995]



                          Subpart 11.8--Testing

    Source:  62 FR 51230, Sept. 30, 1997, unless otherwise noted.

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, subpart 11.8 
was added, effective Oct. 10, 1997.



11.801  Preaward in-use evaluation.

    Supplies may be evaluated under comparable in-use conditions without 
a further test plan, provided offerors are so advised in the 
solicitation. The results of such tests or demonstrations may be used to 
rate the proposal, to determine technical acceptability, or otherwise to 
evaluate the proposal (see 15.305).



PART 12--ACQUISITION OF COMMERCIAL ITEMS--Table of Contents




Sec.
12.000  Scope of part.
12.001  Definition.

         Subpart 12.1--Acquisition of Commercial Items--General

12.101  Policy.
12.102  Applicability.

  Subpart 12.2--Special Requirements for the Acquisition of Commercial 
                                  Items

12.201  General.
12.202  Market research and description of agency need.
12.203  Procedures for solicitation, evaluation, and award.
12.204  Solicitation/contract form.
12.205  Offers.
12.206  Use of past performance.
12.207  Contract type.
12.208  Contract quality assurance.
12.209  Determination of price reasonableness when contracting by 
          negotiation.
12.210  Contract financing.
12.211  Technical data.
12.212  Computer software.
12.213  Other commercial practices.
12.214  Cost Accounting Standards.

   Subpart 12.3--Solicitation Provisions and Contract Clauses for the 
                     Acquisition of Commercial Items

12.300  Scope of subpart.
12.301  Solicitation provisions and contract clauses for the acquisition 
          of commercial items.
12.302  Tailoring of provisions and clauses for the acquisition of 
          commercial items.
12.303  Contract format.

  Subpart 12.4--Unique Requirements Regarding Terms and Conditions for 
                            Commercial Items

12.401  General.
12.402  Acceptance.
12.403  Termination.
12.404  Warranties.

   Subpart 12.5--Applicability of Certain Laws to the Acquisition of 
                            Commercial Items

12.500  Scope of subpart.
12.501  Applicability.
12.502  Procedures.
12.503  Applicability of certain laws to executive agency contracts for 
          the acquisition of commercial items.

[[Page 174]]

12.504  Applicability of certain laws to subcontracts for the 
          acquisition of commercial items.

Subpart 12.6--Streamlined Procedures for Evaluation and Solicitation for 
                            Commercial Items

12.601  General.
12.602  Streamlined evaluation of offers.
12.603  Streamlined solicitation for commercial items.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source:  60 FR 48241, Sept. 18, 1995, unless otherwise noted.



12.000  Scope of part.

    This part prescribes policies and procedures unique to the 
acquisition of commercial items. It implements the Federal Government's 
preference for the acquisition of commercial items contained in Title 
VIII of the Federal Acquisition Streamlining Act of 1994 (Public Law 
103-355) by establishing acquisition policies more closely resembling 
those of the commercial marketplace and encouraging the acquisition of 
commercial items and components.



12.001  Definition.

    Subcontract, as used in this part, includes, but is not limited to, 
a transfer of commercial items between divisions, subsidiaries, or 
affiliates of a contractor or subcontractor.



         Subpart 12.1--Acquisition of Commercial Items--General



12.101  Policy.

    Agencies shall--
    (a) Conduct market research to determine whether commercial items or 
nondevelopmental items are available that could meet the agency's 
requirements;
    (b) Acquire commercial items or nondevelopmental items when they are 
available to meet the needs of the agency; and
    (c) Require prime contractors and subcontractors at all tiers to 
incorporate, to the maximum extent practicable, commercial items or 
nondevelopmental items as components of items supplied to the agency.



12.102  Applicability.

    (a) This part shall be used for the acquisition of supplies or 
services that meet the definition of commercial items at section 2.101.
    (b) Contracting officers shall use the policies in this part in 
conjunction with the policies and procedures for solicitation, 
evaluation and award prescribed in part 13, Simplified Acquisition 
Procedures; part 14, Sealed Bidding; or part 15, Contracting by 
Negotiation, as appropriate for the particular acquisition.
    (c) Contracts for the acquisition of commercial items are subject to 
the policies in other parts of this chapter. When a policy in another 
part of this chapter is inconsistent with a policy in this part, this 
part 12 shall take precedence for the acquisition of commercial items.
    (d) This part shall not apply to the acquisition of commercial 
items--
    (1) At or below the micro-purchase threshold;
    (2) Using the SF 44 (see 13.505);
    (3) Using the imprest fund (see subpart 13.4); or
    (4) Using the Governmentwide commercial purchase card.
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996]



  Subpart 12.2--Special Requirements for the Acquisition of Commercial 
                                  Items



12.201  General.

    Public Law 103-355 establishes special requirements for the 
acquisition of commercial items intended to more closely resemble those 
customarily used in the commercial marketplace. This subpart identifies 
those special requirements as well as other considerations necessary for 
proper planning, solicitation, evaluation and award of contracts for 
commercial items.



12.202  Market research and description of agency need.

    (a) Market research (see 10.001) is an essential element of building 
an effective strategy for the acquisition of commercial items and 
establishes the foundation for the agency description

[[Page 175]]

of need (see part 11), the solicitation, and resulting contract.
    (b) The description of agency need must contain sufficient detail 
for potential offerors of commercial items to know which commercial 
products or services may be suitable. Generally, for acquisitions in 
excess of the simplified acquisition threshold, an agency's statement of 
need for a commercial item will describe the type of product or service 
to be acquired and explain how the agency intends to use the product or 
service in terms of function to be performed, performance requirement or 
essential physical characteristics. Describing the agency's needs in 
these terms allows offerors to propose methods that will best meet the 
needs of the Government.
    (c) Follow the procedures in subpart 11.2 regarding the 
identification and availability of specifications, standards and 
commercial item descriptions.
[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997]



12.203  Procedures for solicitation, evaluation, and award.

    Contracting officers shall use the policies unique to the 
acquisition of commercial items prescribed in this part in conjunction 
with the policies and procedures for solicitation, evaluation and award 
prescribed in part 13, Simplified Acquisition Procedures; part 14, 
Sealed Bidding; or part 15, Contracting by Negotiation, as appropriate 
for the particular acquisition. The contracting officer may use the 
streamlined procedure for soliciting offers for commercial items 
prescribed in 12.603. For acquisitions of commercial items exceeding the 
simplified acquisition threshold but not exceeding $5,000,000, including 
options, contracting activities shall employ the simplified procedures 
authorized by subpart 13.6 to the maximum extent practicable.
[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997]



12.204  Solicitation/contract form.

    (a) The contracting officer shall use the Standard Form 1449, 
Solicitation/Contract/Order for Commercial Items, if (1) the acquisition 
is expected to exceed the simplified acquisition threshold; (2) a paper 
solicitation or contract is being issued; and (3) procedures at 12.603 
are not being used. Use of the SF 1449 is nonmandatory but encouraged 
for commercial acquisitions not exceeding the simplified acquisition 
threshold.
    (b) Consistent with the requirements at 5.203 (a) and (h), the 
contracting officer may allow fewer than 15 days before issuance of the 
solicitation.
[62 FR 264, Jan. 2, 1997]



12.205  Offers.

    (a) Where technical information is necessary for evaluation of 
offers, agencies should, as part of market research, review existing 
product literature generally available in the industry to determine its 
adequacy for purposes of evaluation. If adequate, contracting officers 
shall request existing product literature from offerors of commercial 
items in lieu of unique technical proposals.
    (b) Contracting officers should allow offerors to propose more than 
one product that will meet a Government need in response to 
solicitations for commercial items. The contracting officer shall 
evaluate each product as a separate offer.
    (c) Consistent with the requirements at 5.203 (b) and (h), the 
contracting officer may allow fewer than 30 days response time for 
receipt of offers for commercial items.
[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997]



12.206  Use of past performance.

    Past performance should be an important element of every evaluation 
and contract award for commercial items. Contracting officers should 
consider past performance data from a wide variety of sources both 
inside and outside the Federal Government in accordance with the 
policies and procedures contained in subpart 9.1, section 13.106-2, or 
subpart 15.3, as applicable.
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
12.206, ``15.6'' was amended to read ``15.3'', effective Oct. 10, 1997.

[[Page 176]]



12.207  Contract type.

    Agencies shall use firm-fixed-price contracts or fixed-price 
contracts with economic price adjustment for the acquisition of 
commercial items. Indefinite-delivery contracts (see subpart 16.5) may 
be used where the prices are established based on a firm-fixed-price or 
fixed-price with economic price adjustment. Use of any other contract 
type to acquire commercial items is prohibited.



12.208  Contract quality assurance.

    Contracts for commercial items shall rely on contractors' existing 
quality assurance systems as a substitute for Government inspection and 
testing before tender for acceptance unless customary market practices 
for the commercial item being acquired include in-process inspection. 
Any in-process inspection by the Government shall be conducted in a 
manner consistent with commercial practice.



12.209  Determination of price reasonableness when contracting by negotiation.

    When contracting by negotiation for commercial items, the policies 
and procedures in subpart 15.4 shall be used to establish the 
reasonableness of prices.
[62 FR 258, Jan. 2, 1997, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
12.209, ``15.8'' was amended to read ``15.4'', effective Oct. 10, 1997.



12.210  Contract financing.

    Customary market practice for some commercial items may include 
buyer contract financing. The contracting officer may offer Government 
financing in accordance with the policies and procedures in part 32.



12.211  Technical data.

    Except as provided by agency-specific statutes, the Government shall 
acquire only the technical data and the rights in that data customarily 
provided to the public with a commercial item or process. The 
contracting officer shall presume that data delivered under a contract 
for commercial items was developed exclusively at private expense. When 
a contract for commercial items requires the delivery of technical data, 
the contracting officer shall include appropriate provisions and clauses 
delineating the rights in the technical data in addenda to the 
solicitation and contract (see part 27 or agency FAR supplements).



12.212  Computer software.

    (a) Commercial computer software or commercial computer software 
documentation shall be acquired under licenses customarily provided to 
the public to the extent such licenses are consistent with Federal law 
and otherwise satisfy the Government's needs. Generally, offerors and 
contractors shall not be required to--
    (1) Furnish technical information related to commercial computer 
software or commercial computer software documentation that is not 
customarily provided to the public; or
    (2) Relinquish to, or otherwise provide, the Government rights to 
use, modify, reproduce, release, perform, display, or disclose 
commercial computer software or commercial computer software 
documentation except as mutually agreed to by the parties.
    (b) With regard to commercial computer software and commercial 
computer software documentation, the Government shall have only those 
rights specified in the license contained in any addendum to the 
contract.



12.213  Other commercial practices.

    It is a common practice in the commercial marketplace for both the 
buyer and seller to propose terms and conditions written from their 
particular perspectives. The terms and conditions prescribed in this 
part seek to balance the interests of both the buyer and seller. These 
terms and conditions are generally appropriate for use in a wide range 
of acquisitions. However, market research may indicate other commercial 
practices that are appropriate for the acquisition of the particular 
item. These practices should be considered for incorporation into the 
solicitation and contract if the contracting officer determines them 
appropriate in concluding a business arrangement satisfactory to both 
parties

[[Page 177]]

and not otherwise precluded by law or Executive order.
[62 FR 264, Jan. 2, 1997]



12.214  Cost Accounting Standards.

    Cost Accounting Standards (CAS) generally will not apply to 
commercial items. If CAS does apply pursuant to 48 CFR 9903.201 (FAR 
Appendix), the contracting officer shall insert the appropriate 
provisions and clauses as prescribed in that section.
[61 FR 67418, Dec. 20, 1996, as amended at 62 FR 40236, July 25, 1997]



   Subpart 12.3--Solicitation Provisions and Contract Clauses for the 
                     Acquisition of Commercial Items



12.300  Scope of subpart.

    This subpart establishes provisions and clauses to be used when 
acquiring commercial items.



12.301  Solicitation provisions and contract clauses for the acquisition of commercial items.

    (a) In accordance with Section 8002 of Public Law 103-355 (41 U.S.C 
264, note), contracts for the acquisition of commercial items shall, to 
the maximum extent practicable, include only those clauses--
    (1) Required to implement provisions of law or executive orders 
applicable to the acquisition of commercial items; or
    (2) Determined to be consistent with customary commercial practice.
    (b) To implement this Act, the contracting officer shall insert the 
following provisions in solicitations for the acquisition of commercial 
items, and clauses in solicitations and contracts for the acquisition of 
commercial items:
    (1) The provision at 52.212-1, Instructions to Offerors--Commercial 
Items. This provision provides a single, streamlined set of instructions 
to be used when soliciting offers for commercial items and is 
incorporated in the solicitation by reference (see Block 27a, SF 1449). 
The contracting officer may tailor these instructions or provide 
additional instructions tailored to the specific acquisition in 
accordance with 12.302;
    (2) The provision at 52.212-3, Offeror Representations and 
Certifications--Commercial Items. This provision provides a single, 
consolidated list of certifications and representations for the 
acquisition of commercial items and is attached to the solicitation for 
offerors to complete and return with their offer. This provision may not 
be tailored except in accordance with Subpart 1.4;
    (3) The clause at 52.212-4, Contract Terms and Conditions--
Commercial Items. This clause includes terms and conditions which are, 
to the maximum extent practicable, consistent with customary commercial 
practices and is incorporated in the solicitation and contract by 
reference (see Block 27a, SF 1449). The contracting officer may tailor 
this clause in accordance with 12.302; and
    (4) The clause at 52.212-5, Contract Terms and Conditions Required 
to Implement Statutes or Executive Orders--Commercial Items. This clause 
incorporates by reference only those clauses required to implement 
provisions of law or executive orders applicable to the acquisition of 
commercial items. The contracting officer shall attach this clause to 
the solicitation and contract and, using the appropriate clause 
prescriptions, indicate which, if any, of the additional clauses cited 
in 52.2125(b) or (c) are applicable to the specific acquisition. When 
cost information is obtained pursuant to part 15 to establish the 
reasonableness of prices for commercial items, the contracting officer 
shall insert the clauses prescribed for this purpose in an addendum to 
the solicitation and contract. This clause may not be tailored.
    (c) When the use of evaluation factors is appropriate, the 
contracting officer may--
    (1) Insert the provision at 52.212-2, Evaluation-- Commercial Items, 
in solicitations for commercial items (see 12.602); or
    (2) Include a similar provision containing all evaluation factors 
required by section 13.106-2, subpart 14.2 or subpart 15.3, as an 
addendum (see 12.302(d)).
    (d) Use of required provisions and clauses. Notwithstanding 
prescriptions contained elsewhere in the FAR, when

[[Page 178]]

acquiring commercial items, contracting officers shall be required to 
use only those provisions and clauses prescribed in this part. The 
provisions and clauses prescribed in this part shall be revised, as 
necessary, to reflect the applicability of statutes and executive orders 
to the acquisition of commercial items.
    (e) Discretionary use of FAR provisions and clauses. The contracting 
officer may include in solicitations and contracts by addendum other FAR 
provisions and clauses when their use is consistent with the limitations 
contained in 12.302. For example:
    (1) The contracting officer may include appropriate clauses when an 
indefinite-delivery type of contract will be used. The clauses 
prescribed at 16.505 may be used for this purpose.
    (2) The contracting officer may include appropriate provisions and 
clauses when the use of options is in the Government's interest. The 
provisions and clauses prescribed in 17.208 may be used for this 
purpose. If the provision at 52.212-2 is used, paragraph (b) provides 
for the evaluation of options.
    (3) The contracting officer may use the provisions and clauses 
contained in part 23 regarding the use of recovered material when 
appropriate for the item being acquired.
    (f) Agencies may supplement the provisions and clauses prescribed in 
this part (to require use of additional provisions and clauses) only as 
necessary to reflect agency unique statutes applicable to the 
acquisition of commercial items or as may be approved by the agency 
senior procurement executive, or the individual responsible for 
representing the agency on the FAR Council, without power of delegation.
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
61 FR 67430, Dec. 20, 1996; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
12.301, in paragraph (c)(2), ``15.6'' was amended to read ``15.3'', 
effective Oct. 10, 1997.



12.302  Tailoring of provisions and clauses for the acquisition of commercial items.

    (a) General. The provisions and clauses established in this subpart 
are intended to address, to the maximum extent practicable, commercial 
market practices for a wide range of potential Government acquisitions 
of commercial items. However, because of the broad range of commercial 
items acquired by the Government, variations in commercial practices, 
and the relative volume of the Government's acquisitions in the specific 
market, contracting officers may, within the limitations of this 
subpart, and after conducting appropriate market research, tailor the 
provision at 52.212-1, Instructions to Offerors-Commercial Items, and 
the clause at 52.212-4, Contract Terms and Conditions-Commercial Items, 
to adapt to the market conditions for each acquisition.
    (b) Tailoring 52.212-4, Contract Terms and Conditions--Commercial 
Items. The following paragraphs of the clause at 52.212-4, Contract 
Terms and Conditions--Commercial Items, implement statutory requirements 
and shall not be tailored--
    (1) Assignments;
    (2) Disputes;
    (3) Payment (except as provided in subpart 32.11);
    (4) Invoice;
    (5) Other compliances; and
    (6) Compliance with laws unique to Government contracts.
    (c) Tailoring inconsistent with customary commercial practice. The 
contracting officer shall not tailor any clause or otherwise include any 
additional terms or conditions in a solicitation or contract for 
commercial items in a manner that is inconsistent with customary 
commercial practice for the item being acquired unless a waiver is 
approved in accordance with agency procedures. The request for waiver 
must describe the customary commercial practice found in the 
marketplace, support the need to include a term or condition that is 
inconsistent with that practice and include a determination that use of 
the customary commercial practice is inconsistent with the needs of the 
Government. A waiver may be requested for an individual or class of 
contracts for that specific item.
    (d) Tailoring shall be by addenda to the solicitation and contract. 
The contracting officer shall indicate in Block

[[Page 179]]

27a of the SF 1449 if addenda are attached. These addenda may include, 
for example, a continuation of the schedule of supplies/services to be 
acquired from blocks 18 through 21 of the SF 1449; a continuation of the 
description of the supplies/services being acquired; further elaboration 
of any other item(s) on the SF 1449; any other terms or conditions 
necessary for the performance of the proposed contract (such as options, 
ordering procedures for indefinite-delivery type contracts, warranties, 
contract financing arrangements, etc.).
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 45772, Aug. 29, 1996; 
61 FR 67430, Dec. 20, 1996; 62 FR 264, Jan. 2, 1997]



12.303  Contract format.

    Solicitations and contracts for the acquisition of commercial items 
prepared using this part 12 shall be assembled, to the maximum extent 
practicable, using the following format:
    (a) Standard Form (SF) 1449;
    (b) Continuation of any block from SF 1449, such as--
    (1) Block 10 if set-aside for emerging small businesses;
    (2) Block 18B for remittance address;
    (3) Block 19 for contract line item numbers;
    (4) Block 20 for schedule of supplies/services; or
    (5) Block 25 for accounting data;
    (c) Contract clauses--
    (1) 52.212-4, Contract Terms and Conditions--Commercial Items, by 
reference (see SF 1449, Block 27a);
    (2) Any addendum to 52.212-4; and
    (3) 52.212-5, Contract Terms and Conditions Required to Implement 
Statutes and Executive Orders;
    (d) Any contract documents, exhibits or attachments; and
    (e) Solicitation provisions--
    (1) 52.212-1, Instructions to Offerors--Commercial Items, by 
reference (see SF 1449, Block 27a);
    (2) Any addendum to 52.212-1;
    (3) 52.212-2, Evaluation--Commercial Items, or other description of 
evaluation factors for award, if used; and
    (4) 52.212-3, Offeror Representations and Certifications--Commercial 
Items.
[60 FR 48241, Sept. 18, 1995; 60 FR 54817, Oct. 26, 1995; 61 FR 67430, 
Dec. 20, 1996]



  Subpart 12.4--Unique Requirements Regarding Terms and Conditions for 
                            Commercial Items



12.401  General.

    This subpart provides--
    (a) Guidance regarding tailoring of the paragraphs in the clause at 
52.212-4, Contract Terms and Conditions--Commercial Items, when the 
paragraphs do not reflect the customary practice for a particular 
market; and
    (b) Guidance on the administration of contracts for commercial items 
in those areas where the terms and conditions in 52.212-4 differ 
substantially from those contained elsewhere in the FAR.



12.402  Acceptance.

    (a) The acceptance paragraph in 52.212-4 is based upon the 
assumption that the Government will rely on the contractor's assurances 
that the commercial item tendered for acceptance conforms to the 
contract requirements. The Government inspection of commercial items 
will not prejudice its other rights under the acceptance paragraph. 
Additionally, although the paragraph does not address the issue of 
rejection, the Government always has the right to refuse acceptance of 
nonconforming items. This paragraph is generally appropriate when the 
Government is acquiring noncomplex commercial items.
    (b) Other acceptance procedures may be more appropriate for the 
acquisition of complex commercial items or commercial items used in 
critical applications. In such cases, the contracting officer shall 
include alternative inspection procedure(s) in an addendum and ensure 
these procedures and the postaward remedies adequately protect the 
interests of the Government. The contracting officer must carefully 
examine the terms and conditions of any express warranty with regard to 
the effect it may have on the Government's available postaward remedies 
(see 12.404).
    (c) The acquisition of commercial items under other circumstances 
such as on an ``as is'' basis may also require acceptance procedures 
different from

[[Page 180]]

those contained in 52.212-4. The contracting officer should consider the 
effect the specific circumstances will have on the acceptance paragraph 
as well as other paragraphs of the clause.



12.403  Termination.

    (a) General. The clause at 52.212-4 permits the Government to 
terminate a contract for commercial items either for the convenience of 
the Government or for cause. However, the paragraphs in 52.212-4 
entitled ``Termination for the Government's Convenience'' and 
``Termination for Cause'' contain concepts which differ from those 
contained in the termination clauses prescribed in part 49. 
Consequently, the requirements of part 49 do not apply when terminating 
contracts for commercial items and contracting officers shall follow the 
procedures in this section. Contracting officers may continue to use 
part 49 as guidance to the extent that part 49 does not conflict with 
this section and the language of the termination paragraphs in 52.212-4.
    (b) Policy. The contracting officer should exercise the Government's 
right to terminate a contract for commercial items either for 
convenience or for cause only when such a termination would be in the 
best interests of the Government. The contracting officer should consult 
with counsel prior to terminating for cause.
    (c) Termination for cause. (1) The paragraph in 52.2124 entitled 
``Excusable Delay'' requires contractors notify the contracting officer 
as soon as possible after commencement of any excusable delay. In most 
situations, this requirement should eliminate the need for a show cause 
notice prior to terminating a contract. The contracting officer shall 
send a cure notice prior to terminating a contract for a reason other 
than late delivery.
    (2) The Government's rights after a termination for cause shall 
include all the remedies available to any buyer in the marketplace. The 
Government's preferred remedy will be to acquire similar items from 
another contractor and to charge the defaulted contractor with any 
excess reprocurement costs together with any incidental or consequential 
damages incurred because of the termination.
    (3) When a termination for cause is appropriate, the contracting 
officer shall send the contractor a written notification regarding the 
termination. At a minimum, this notification shall--
    (i) Indicate the contract is terminated for cause;
    (ii) Specify the reasons for the termination;
    (iii) Indicate which remedies the Government intends to seek or 
provide a date by which the Government will inform the contractor of the 
remedy; and
    (iv) State that the notice constitutes a final decision of the 
contracting officer and that the contractor has the right to appeal 
under the Disputes clause (see 33.211).
    (d) Termination for the Government's convenience. (1) When the 
contracting officer terminates a contract for commercial items for the 
Government's convenience, the contractor shall be paid--
    (i) The percentage of the contract price reflecting the percentage 
of the work performed prior to the notice of the termination, and
    (ii) Any charges the contractor can demonstrate directly resulted 
from the termination. The contractor may demonstrate such charges using 
its standard record keeping system and is not required to comply with 
the cost accounting standards or the contract cost principles in part 
31. The Government does not have any right to audit the contractor's 
records solely because of the termination for convenience.
    (2) Generally, the parties should mutually agree upon the 
requirements of the termination proposal. The parties must balance the 
Government's need to obtain sufficient documentation to support payment 
to the contractor against the goal of having a simple and expeditious 
settlement.



12.404  Warranties.

    (a) Implied warranties. The Government's post award rights contained 
in 52.212-4 are the implied warranty of merchantability, the implied 
warranty of fitness for particular purpose and the remedies contained in 
the acceptance paragraph.

[[Page 181]]

    (1) The implied warranty of merchantability provides that an item is 
reasonably fit for the ordinary purposes for which such items are used. 
The items must be of at least average, fair or medium-grade quality and 
must be comparable in quality to those that will pass without objection 
in the trade or market for items of the same description.
    (2) The implied warranty of fitness for a particular purpose 
provides that an item is fit for use for the particular purpose for 
which the Government will use the items. The Government can rely upon an 
implied warranty of fitness for particular purpose when--
    (i) The seller knows the particular purpose for which the Government 
intends to use the item; and
    (ii) The Government relied upon the contractor's skill and judgment 
that the item would be appropriate for that particular purpose.
    (3) Contracting officers should consult with legal counsel prior to 
asserting any claim for a breach of an implied warranty.
    (b) Express warranties. The Federal Acquisition Streamlining Act of 
1994 (41 U.S.C. 264 note) requires contracting officers to take 
advantage of commercial warranties. To the maximum extent practicable, 
solicitations for commercial items shall require offerors to offer the 
Government at least the same warranty terms, including offers of 
extended warranties, offered to the general public in customary 
commercial practice. Solicitations may specify minimum warranty terms, 
such as minimum duration, appropriate for the Government's intended use 
of the item.
    (1) Any express warranty the Government intends to rely upon must 
meet the needs of the Government. The contracting officer should analyze 
any commercial warranty to determine if--
    (i) The warranty is adequate to protect the needs of the Government, 
e.g., items covered by the warranty and length of warranty;
    (ii) The terms allow the Government effective postaward 
administration of the warranty to include the identification of 
warranted items, procedures for the return of warranted items to the 
contractor for repair or replacement, and collection of product 
performance information; and
    (iii) The warranty is cost-effective.
    (2) In some markets, it may be customary commercial practice for 
contractors to exclude or limit the implied warranties contained in 
52.212-4 in the provisions of an express warranty. In such cases, the 
contracting officer shall ensure that the express warranty provides for 
the repair or replacement of defective items discovered within a 
reasonable period of time after acceptance.
    (3) Express warranties shall be included in the contract by addendum 
(see 12.302).



   Subpart 12.5--Applicability of Certain Laws to the Acquisition of 
                            Commercial Items



12.500  Scope of subpart.

    As required by Section 34 of the Office of Federal Procurement 
Policy Act (41 U.S.C. 430), this subpart lists provisions of laws that 
are not applicable to contracts for the acquisition of commercial items, 
or are not applicable to subcontracts, at any tier, for the acquisition 
of a commercial item. This subpart also lists provisions of law that 
have been amended to eliminate or modify their applicability to either 
contracts or subcontracts for the acquisition of commercial items.



12.501  Applicability.

    (a) This subpart applies to any contract or subcontract at any tier 
for the acquisition of commercial items.
    (b) Nothing in this subpart shall be construed to authorize the 
waiver of any provision of law with respect to any subcontract if the 
prime contractor is reselling or distributing commercial items of 
another contractor without adding value. This limitation is intended to 
preclude establishment of unusual contractual arrangements solely for 
the purpose of Government sales.
    (c) For purposes of this subpart, contractors awarded subcontracts 
under subpart 19.8, Contracting with the Small Business Administration 
(the 8(a) Program), shall be considered prime contractors.

[[Page 182]]



12.502  Procedures.

    (a) The FAR prescription for the provision or clause for each of the 
laws listed in 12.503 has been revised in the appropriate part to 
reflect its proper application to prime contracts for the acquisition of 
commercial items.
    (b) For subcontracts for the acquisition of commercial items or 
commercial components, the clauses at 52.212-5, Contract Terms and 
Conditions Required to Implement Statutes or Executive Orders--
Commercial Items, and 52.244-6, Subcontracts for Commercial Items and 
Commercial Components, reflect the applicability of the laws listed in 
12.504 by identifying the only provisions and clauses that are required 
to be included in a subcontract at any tier for the acquisition of 
commercial items or commercial components.



12.503  Applicability of certain laws to executive agency contracts for the acquisition of commercial items.

    (a) The following laws are not applicable to executive agency 
contracts for the acquisition of commercial items:
    (1) 41 U.S.C. 43, Walsh-Healey Act (see subpart 22.6).
    (2) 41 U.S.C. 254(a) and 10 U.S.C. 2306(b), Contingent Fees (see 
3.404).
    (3) 41 U.S.C. 416(a)(6), Minimum Response Time for Offers under 
Office of Federal Procurement Policy Act (see 5.203).
    (4) 41 U.S.C. 701, et seq., Drug-Free Workplace Act of 1988 (see 
23.501).
    (b) Certain requirements of the following laws have been eliminated 
for executive agency contracts for the acquisition of commercial items:
    (1) 33 U.S.C. 1368, Requirement for a clause under the Federal Water 
Pollution Control Act (see 23.105).
    (2) 40 U.S.C. 327 et seq., Requirement for a certificate and clause 
under the Contract Work Hours and Safety Standards Act (see 22.305).
    (3) 41 U.S.C. 57(a) and (b), and 58, Requirement for a clause and 
certain other requirements related to the Anti-Kickback Act of 1986 (see 
3.502).
    (4) 42 U.S.C. 7606, Requirement for a clause under the Clean Air Act 
(see 23.105).
    (5) 49 U.S.C. 40118, Requirement for a certificate and clause under 
the Fly American provisions (see 47.405).
    (c) The applicability of the following laws have been modified in 
regards to Executive agency contracts for the acquisition of commercial 
items:
    (1) 41 U.S.C. 253g and 10 U.S.C. 2402, Prohibition on Limiting 
Subcontractor Direct Sales to the United States (see 3.503).
    (2) 41 U.S.C. 254(d) and 10 U.S.C. 2306a, Truth in Negotiations Act 
(see 15.403).
    (3) 41 U.S.C. 422, Cost Accounting Standards (see 48 CFR chapter 99) 
(see 12.214).
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 67418, Dec. 20, 1996; 
62 FR 232, 236, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997; 62 FR 51270, 
Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
12.503, in paragraph (c)(2), ``15.804'' was amended to read ``15.403'', 
effective Oct. 10, 1997.



12.504  Applicability of certain laws to subcontracts for the acquisition of commercial items.

    (a) The following laws are not applicable to subcontracts at any 
tier for the acquisition of commercial items or commercial components at 
any tier:
    (1) 15 U.S.C. 644(d), Requirements relative to labor surplus areas 
under the Small Business Act (see subpart 19.2).
    (2) 19 U.S.C. 1202, Tariff Act of 1930 (see subpart 25.6).
    (3) 19 U.S.C. 1309, Supplies for Certain Vessels and Aircraft (see 
subpart 25.6).
    (4) 19 U.S.C. 2701, et seq., Authority to Grant Duty Free Treatment 
(see subpart 25.6).
    (5) 31 U.S.C. 1352, Limitation on Payments to Influence Certain 
Federal Transactions (see subpart 3.8).
    (6) 41 U.S.C. 43, Walsh-Healey Act (see subpart 22.6).
    (7) 41 U.S.C. 253d, Validation of Proprietary Data Restrictions (see 
subpart 27.4).
    (8) 41 U.S.C. 254(a) and 10 U.S.C. 2306(b), Contingent Fees (see 
subpart 3.4).
    (9) 41 U.S.C. 254d(c) and 10 U.S.C. 2313(c), Examination of Records 
of Contractor, when a subcontractor is not required to provide cost or 
pricing data (15.209(b)).
    (10) 41 U.S.C. 351, Service Contract Act of 1965, as amended (see 
subpart 22.10).

[[Page 183]]

    (11) 41 U.S.C. 416(a)(6), Minimum Response Time for Offers under 
Office of Federal Procurement Policy Act (see subpart 5.2).
    (12) 41 U.S.C. 418a, Rights in Technical Data (see subpart 27.4).
    (13) 41 U.S.C. 701, et seq., Drug-Free Workplace Act of 1988 (see 
subpart 23.5).
    (14) 46 U.S.C. 1241(b), Transportation in American Vessels of 
Government Personnel and Certain Cargo (see subpart 47.5) 
(inapplicability effective May 1, 1996).
    (15) 49 U.S.C. 40118, Fly American provisions (see subpart 47.4).
    (b) Certain requirements of the following laws have been eliminated 
for subcontracts at any tier for the acquisition of commercial items or 
commercial components:
    (1) 33 U.S.C. 1368, Requirement for a certificate and clause under 
the Federal Water Pollution Control Act (see subpart 23.1).
    (2) 40 U.S.C. 327, et seq., Requirement for a certificate and clause 
under the Contract Work Hours and Safety Standards Act (see subpart 
22.3).
    (3) 42 U.S.C. 7606, Requirements for a certificate and clause under 
the Clean Air Act (see subpart 23.1).
    (c) The applicability of the following laws have been modified in 
regards to subcontracts at any tier for the acquisition of commercial 
items or commercial components:
    (1) 41 U.S.C. 253g and 10 U.S.C. 2402, Prohibition on Limiting 
Subcontractor Direct Sales to the United States (see subpart 3.5).
    (2) 41 U.S.C. 254(d) and 10 U.S.C. 2306a, Truth in Negotiations Act 
(see subpart 15.4).
    (3) 41 U.S.C. 422, Cost Accounting Standards (48 CFR chapter 99) 
(see 12.214).
[60 FR 48241, Sept. 18, 1996 as amended at 61 FR 67418, Dec. 20, 1996; 
62 FR 232, 236, Jan. 2, 1997; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
15.504, in paragraph (a)(9), ``(see Subpart 15.1)'' was amended to read 
``15.209(b); and in paragraph (c)(2), ``15.8'' was amended to read 
``15.4'', effective Oct. 10, 1997.



Subpart 12.6--Streamlined Procedures for Evaluation and Solicitation for 
                            Commercial Items



12.601  General.

    This subpart provides optional procedures for--
    (a) Streamlined evaluation of offers for commercial items; and
    (b) Streamlined solicitation of offers for commercial items for use 
where appropriate.
    These procedures are intended to simplify the process of preparing 
and issuing solicitations, and evaluating offers for commercial items 
consistent with customary commercial practices.



12.602  Streamlined evaluation of offers.

    (a) When evaluation factors are used, the contracting officer may 
insert a provision substantially the same as the provision at 52.212-2, 
Evaluation--Commercial Items, in solicitations for commercial items or 
comply with the procedures in 13.106-2 if the acquisition is being made 
using simplified acquisition procedures. When the provision at 52.212-2 
is used, paragraph (a) of the provision shall be tailored to the 
specific acquisition to describe the evaluation factors and relative 
importance of those factors. However, when using the simplified 
acquisition procedures in part 13, contracting officers are not required 
to describe the relative importance of evaluation factors.
    (b) Offers shall be evaluated in accordance with the criteria 
contained in the solicitation. For many commercial items, the criteria 
need not be more detailed than technical (capability of the item offered 
to meet the agency need), price and past performance. Technical 
capability may be evaluated by how well the proposed products meet the 
Government requirement instead of predetermined subfactors. 
Solicitations for commercial items do not have to contain subfactors for 
technical capability when the solicitation adequately describes the 
item's intended use. A technical evaluation would normally include 
examination of such things as product literature, product samples (if 
requested), technical features and warranty provisions. Past

[[Page 184]]

performance shall be evaluated in accordance with the procedures in 
section 13.106-2 or subpart 15.3, as applicable. The contracting officer 
shall ensure the instructions provided in the provision at 52.212-1, 
Instructions to Offerors--Commercial Items, and the evaluation criteria 
provided in the provision at 52.212-2, Evaluation--Commercial Items, are 
in agreement.
    (c) Select the offer that is most advantageous to the Government 
based on the factors contained in the solicitation. Fully document the 
rationale for selection of the successful offeror including discussion 
of any tradeoffs considered.
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
62 FR 264, Jan. 2, 1997; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
12.602, in paragraph (b), ``15.6'' was amended to read ``15.3'', 
effective Oct. 10, 1997.



12.603  Streamlined solicitation for commercial items.

    (a) When a written solicitation will be issued, the contracting 
officer may use the following procedure to reduce the time required to 
solicit and award contracts for the acquisition of commercial items. 
This procedure combines the Commerce Business Daily (CBD) synopsis 
required by 5.203 and the issuance of the solicitation into a single 
document with the following limitations:
    (1) Section 5.207 limits submissions to the CBD to 12,000 textual 
characters (approximately 3 \1/2\ single-spaced pages).
    (2) This combined CBD synopsis/solicitation is only appropriate 
where the solicitation is relatively simple and is not recommended for 
use when lengthy addenda to the solicitation are necessary.
    (b) When using the combined synopsis/solicitation procedure, the SF 
1449 is not used for issuing the solicitation.
    (c) To use these procedures, the contracting officer shall--
    (1) Prepare the synopsis as described at 5.207 for items 1-16.
    (2) In item 17, Description, include the following additional 
information:
    (i) The following statement:

    This is a combined synopsis/solicitation for commercial items 
prepared in accordance with the format in FAR Subpart 12.6, as 
supplemented with additional information included in this notice. This 
announcement constitutes the only solicitation; proposals are being 
requested and a written solicitation will not be issued.


    (ii) The solicitation number and a statement that the solicitation 
is issued as an invitation to bid (IFB), request for quotation (RFQ) or 
request for proposal (RFP).
    (iii) A statement that the solicitation document and incorporated 
provisions and clauses are those in effect through Federal Acquisition 
Circular ______.
    (iv) A notice regarding any set-aside and the associated standard 
industrial classification code and small business size standard. Also 
include a statement regarding the Small Business Competitiveness 
Demonstration Program, if applicable.
    (v) A list of contract line item number(s) and items, quantities and 
units of measure, (including option(s), if applicable).
    (vi) Description of requirements for the items to be acquired.
    (vii) Date(s) and place(s) of delivery and acceptance and FOB point.
    (viii) A statement that the provision at 52.212-1, Instructions to 
Offerors--Commercial, applies to this acquisition and a statement 
regarding any addenda to the provision.
    (ix) A statement regarding the applicability of the provision at 
52.212-2, Evaluation--Commercial Items, if used, and the specific 
evaluation criteria to be included in paragraph (a) of that provision. 
If this provision is not used, describe the evaluation procedures to be 
used.
    (x) A statement advising offerors to include a completed copy of the 
provision at 52.212-3, Offeror Representations and Certifications--
Commercial Items, with its offer.
    (xi) A statement that the clause at 52.212-4, Contract Terms and 
Conditions--Commercial Items, applies to this acquisition and a 
statement regarding any addenda to the clause.
    (xii) A statement that the clause at 52.212-5, Contract Terms and 
Conditions Required To Implement Statutes

[[Page 185]]

Or Executive Orders--Commercial Items, applies to this acquisition and a 
statement regarding which, if any, of the additional FAR clauses cited 
in the clause are applicable to the acquisition.
    (xiii) A statement regarding any additional contract requirement(s) 
or terms and conditions (such as contract financing arrangements or 
warranty requirements) determined by the contracting officer to be 
necessary for this acquisition and consistent with customary commercial 
practices.
    (xiv) A statement regarding the Defense Priorities and Allocations 
System (DPAS) and assigned rating, if applicable.
    (xv) A statement regarding any applicable Commerce Business Daily 
numbered notes.
    (xvi) The date, time and place offers are due.
    (xvii) The name and telephone number of the individual to contact 
for information regarding the solicitation.
    (3) Allow response time for receipt of offers as follows:
    (i) Because the CBD synopsis and solicitation are contained in a 
single document, it is not necessary to publish a separate CBD synopsis 
15 days before the issuance of the solicitation.
    (ii) When using the combined CBD synopsis/solicitation, contracting 
officers shall establish a response time in accordance with 5.203(b) 
(but see 5.203(h).
    (4) Publish amendments to solicitations in the same manner as the 
initial synopsis/solicitation.
[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 41469, Aug. 8, 1996; 
62 FR 264, Jan. 2, 1997]

[[Page 186]]



          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES





PART 13--SIMPLIFIED ACQUISITION PROCEDURES--Table of Contents




Sec.
13.000  Scope of part.

                          Subpart 13.1--General

13.101  Definitions.
13.102  Purpose.
13.103  Policy.
13.104  Procedures.
13.105  Small business set-asides.
13.106  Soliciting competition, evaluation of quotes, and award.
13.106-1  Purchases at or below the micro-purchase threshold.
13.106-2  Purchases exceeding the micro-purchase threshold.
13.107  Solicitation forms.
13.108  Legal effect of quotations.
13.109  Agency use of indefinite delivery contracts.
13.110  Federal Acquisition Streamlining Act of 1994 (FASA) list of 
          inapplicable laws.
13.111  Inapplicable provisions and clauses.
13.112  Use of options in acquisitions using simplified acquisition 
          procedures.

                Subpart 13.2--Blanket Purchase Agreements

13.201  General.
13.202  Establishment of blanket purchase agreements (BPAs).
13.203  Clauses.
13.204  Purchases under blanket purchase agreements.
13.205  Review procedures.
13.206  Completion of blanket purchase agreements.

                  Subpart 13.3--Fast Payment Procedure

13.301  General.
13.302  Conditions for use.
13.303  Preparation and execution of orders.
13.304  Responsibility for collection of debts.
13.305  Contract clause.

                       Subpart 13.4--Imprest Fund

13.401  General.
13.402  Agency responsibilities.
13.403  Conditions for use.
13.404  Procedures.

                      Subpart 13.5--Purchase Orders

13.501  General.
13.502  Unpriced purchase orders.
13.503  Obtaining contractor acceptance and modifying purchase orders.
13.504  Termination or cancellation of purchase orders.
13.505  Purchase order and related forms.
13.506  Provisions and clauses.

         Subpart 13.6--Test Program for Certain Commercial Items

13.601  General.
13.602  Special documentation requirements.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42163, Sept. 19, 1983, unless otherwise noted.



13.000  Scope of part.

    This part prescribes policies and procedures for the acquisition of 
supplies and services, including construction, research and development, 
and commercial items, the aggregate amount of which does not exceed the 
simplified acquisition threshold (see 2.101). Section 13.601 provides 
special authority for acquisitions of commercial items exceeding the 
simplified acquisition threshold but not greater than $5,000,000, 
including options. See part 12, Acquisition of Commercial Items, for 
policies applicable to the acquisition of commercial items exceeding the 
micro-purchase threshold. See 36.602-5 for simplified procedures to be 
used when acquiring architect-engineering services.
[62 FR 264, Jan. 2, 1997]



                          Subpart 13.1--General



13.101  Definitions.

    Bulk funding, as used in this part, means a system whereby a 
contracting officer receives authorization from a fiscal and accounting 
officer to obligate funds on purchase documents against a specified lump 
sum of funds reserved for the purpose for a specified period of time 
rather than obtaining individual obligational authority on each purchase 
document.

[[Page 187]]

    Governmentwide commercial purchase card, as used in this part, means 
a purchase card, similar in nature to a commercial credit card, issued 
to authorized agency personnel to use to acquire and to pay for supplies 
and services.
    Imprest fund, as used in this part, means a cash fund of a fixed 
amount established by an advance of funds, without charge to an 
appropriation, from an agency finance or disbursing officer to a duly 
appointed cashier, for disbursement as needed from time to time in 
making payment in cash for relatively small amounts.
    Purchase order, as used in this part, means an offer by the 
Government to buy supplies or services, including construction and 
research and development, upon specified terms and conditions, using 
simplified acquisition procedures.
    Third party draft, as used in this part, means an agency bank draft, 
similar to a check, which is used to acquire and to pay for supplies and 
services. (See Treasury Financial Manual Section 3040.70.)
[48 FR 42163, Sept. 19, 1983, as amended at 49 FR 12974, Mar. 30, 1984; 
50 FR 1736, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 57 FR 60577, Dec. 
21, 1992; 59 FR 64787, Dec. 15, 1994; 60 FR 34748, July 3, 1995; 61 FR 
39192, July 26, 1996]



13.102  Purpose.

    The purpose of this part is to prescribe simplified acquisition 
procedures in order to--
    (a) Reduce administrative costs;
    (b) Improve opportunities for small business, small disadvantaged 
business, and women-owned small business concerns to obtain a fair 
proportion of Government contracts;
    (c) Promote efficiency and economy in contracting; and
    (d) Avoid unnecessary burdens for agencies and contractors.
[60 FR 34748, July 3, 1995, as amended at 61 FR 39192, July 26, 1996]



13.103  Policy.

    (a) Simplified acquisition procedures shall be used to the maximum 
extent practicable for all purchases of supplies or services not 
exceeding the simplified acquisition threshold (including purchases 
below the micro-purchase threshold), unless requirements can be met by 
using required sources of supply under part 8 (e.g., Federal Prison 
Industries, Committee for Purchase From People Who Are Blind or Severely 
Disabled, and Federal Supply Schedule contracts), existing indefinite 
delivery/indefinite quantity contracts, or other established contracts.
    (b) The contracting office shall not use simplified acquisition 
procedures for contract actions exceeding $50,000 after December 31, 
1999, unless the office's cognizant agency has certified full FACNET 
capability in accordance with 4.505-2. This limitation does not apply to 
acquisitions of commercial items conducted using subpart 13.6.
    (c) Simplified acquisition procedures shall not be used in the 
acquisition of supplies and services initially estimated to exceed the 
simplified acquisition threshold (or $5,000,000, including options, for 
acquisitions of commercial items using subpart 13.6), even though 
resulting awards do not exceed the applicable threshold. Requirements 
aggregating more than the simplified acquisition threshold (or 
$5,000,000, including options, if using subpart 13.6) or the micro-
purchase threshold shall not be broken down into several purchases that 
are less than the applicable threshold merely to permit use of 
simplified acquisition procedures, or to avoid any requirements that 
apply to purchases exceeding the micro-purchase threshold.
    (d) Simplified acquisition procedures may be used to acquire 
personal services if the agency has specific statutory authority to 
acquire personal services (see 37.104).
    (e) The Governmentwide commercial purchase card is the preferred 
means to purchase and pay for micro-purchases. This is not intended to 
limit use of the purchase card to micro-purchases, if otherwise 
authorized under agency procedures, nor is it intended to preclude use 
of electronic purchasing techniques.
    (f) Agencies are encouraged to use the Governmentwide commercial 
purchase card and electronic purchasing techniques to the maximum extent 
practicable. The Governmentwide commercial purchase card may be used to 
purchase and pay for purchases under part 8 procedures when authorized,

[[Page 188]]

under existing indefinite delivery/indefinite quantity contracts, or 
from other established contracts in accordance with agency procedures.
    (g) FACNET shall be used to acquire supplies and services (including 
construction, research and development, and architect-engineer) for 
contract actions exceeding the micro-purchase threshold, but not 
exceeding the simplified acquisition threshold when practicable and 
cost-effective (see 4.506). Drawings and lengthy specifications can be 
provided off-line in hard copy or through other appropriate means.
    (h) Contracting officers shall establish deadlines for the 
submission of responses to solicitations which afford suppliers a 
reasonable opportunity to respond in accordance with 5.203, Publicizing 
and response time.
    (i) Contracting officers shall consider all quotes/offers that are 
timely received.
    (j) Contracting officers are encouraged to use innovative approaches 
in awarding contracts using the simplified acquisition procedures under 
the authority of this part. For acquisitions of other than commercial 
items not expected to exceed the simplified acquisition threshold, 
contracting officers may use any appropriate combination of the 
procedures in part 13, 14, 15, 35, or 36, including the use of Standard 
Form (SF) 1442, Solicitation, Offer and Award (Construction, Alteration, 
or Repair), for construction contracts (see 36.701(b)). For acquisitions 
of commercial items not expected to exceed $5 million, contracting 
officers may use any appropriate combination of the procedures in parts 
12, 13, 14 and 15 (see 13.103(c)).
    (k) Micro-purchases may be awarded using any of the purchasing 
methods covered in this part, provided the purchaser is authorized and 
trained, pursuant to agency regulations, to use those methods.
[61 FR 39193, July 26, 1996, as amended at 61 FR 41469, Aug. 8, 1996; 62 
FR 264, Jan. 2, 1997]



13.104  Procedures.

    (a) Contracting officers shall make awards under this part in the 
simplified manner that is most suitable, efficient, and economical in 
the circumstances of each acquisition. Contracting officers may use the 
procedures in this part in acquisitions from Government supply sources 
(see part 8), if their use is authorized by the basic contract or 
concurred in by the source.
    (b) Related items (such as small hardware items or spare parts for 
vehicles) may be included in one solicitation and the award made on an 
``all-or none'' or ``multiple award'' basis if suppliers are so advised 
when quotations or offers are requested.
    (c) Agencies shall use bulk funding to the maximum extent 
practicable to reduce processing time, handling, and documentation. Bulk 
funding is particularly appropriate if numerous purchases using the same 
type of funds are to be made during a given period.
    (d) Agencies shall inspect items or services acquired under 
simplified acquisition procedures as prescribed in 46.404.
    (e) Agencies shall use United States-owned excess or near-excess 
foreign currency, if appropriate, in making payments under simplified 
acquisition procedures (see subpart 25.3).
    (f) For proposed purchases covered by this part, see 5.101 and 5.203 
to determine if public display and synopsis requirements apply.
    (g) When a quotation, oral or written, is to be rejected because a 
small business firm is determined to be nonresponsible (see subpart 
9.1), see subpart 19.6 with respect to certificates of competency.
[60 FR 34749, July 3, 1995, as amended at 61 FR 39193, July 26, 1996; 62 
FR 265, Jan. 2, 1997]



13.105  Small business set-asides.

    (a) Each acquisition (non-FACNET and FACNET) of supplies or services 
that has an anticipated dollar value exceeding $2,500 and not exceeding 
$100,000, is reserved exclusively for small business concerns and shall 
be set aside in accordance with subpart 19.5.
    (b) Each written solicitation under a set-aside shall contain the 
appropriate provisions prescribed by part 19. If the solicitation is 
oral, however, information substantially identical to that

[[Page 189]]

which is in the provision shall be given to potential quoters.
[61 FR 39193, July 26, 1996]



13.106  Soliciting competition, evaluation of quotes, and award.



13.106-1  Purchases at or below the micro-purchase threshold.

    (a) Soliciting competition, evaluation of quotes, and award. (1) To 
the extent practicable, micro-purchases shall be distributed equitably 
among qualified suppliers.
    (2) Micro-purchases (as defined in 2.101) may be awarded without 
soliciting competitive quotations if the contracting officer or 
individual appointed in accordance with 1.603-3(b) considers the price 
reasonable.
    (3) The administrative cost of verifying the reasonableness of the 
price for purchases at or below the micro-purchase threshold may more 
than offset potential savings from detecting instances of overpricing. 
Therefore, action to verify price reasonableness need only be taken if--
    (i) The contracting officer or individual appointed in accordance 
with 1.603-3(b) suspects or has information to indicate that the price 
may not be reasonable (e.g., comparison to the previous price paid or 
personal knowledge of the supply or service); or
    (ii) Purchasing a supply or service for which no comparable pricing 
information is readily available (e.g., a supply or service that is not 
the same as, or is not similar to, other supplies or services that have 
recently been purchased on a competitive basis).
    (4) Prompt payment discounts should be solicited.
    (5) Clauses are not required for micro-purchases using any method in 
part 12 or 13. However, this does not prohibit the use of any clause 
prescribed elsewhere in this chapter when determined necessary by the 
contracting officer.
    (b) Documentation. Minimize the documentation to support micro-
purchases.
[61 FR 39193, July 26, 1996]



13.106-2  Purchases exceeding the micro-purchase threshold.

    (a) Soliciting competition. (1) Contracting officers shall promote 
competition to the maximum extent practicable to obtain supplies and 
services from the source whose offer is the most advantageous to the 
Government, based, as appropriate, on either price alone or price and 
other factors (e.g., past performance and quality) including the 
administrative cost of the purchase. Contracting officers are encouraged 
to use best value. Solicitations shall notify suppliers of the basis 
upon which award is to be made.
    (2) For acquisitions not exceeding the simplified acquisition 
threshold where FACNET is not available, or an exemption set forth in 
4.506 applies, quotations may be solicited through other appropriate 
means (e.g., orally, or in writing). The contracting officer shall 
comply with the requirements of 5.101 when not soliciting via FACNET. 
When a synopsis is required, sufficient information to permit suppliers 
to develop quotations or offers may be incorporated into a combined 
synopsis/ solicitation. In such cases, the contracting officer is not 
required to issue a separate solicitation. For commercial item 
acquisitions, also see 12.603.
    (3) For acquisitions not exceeding $25,000, requests for quotations 
should be solicited orally to the maximum extent practicable when FACNET 
is not available or a written determination has been made that it is not 
practicable or cost-effective to purchase via FACNET. Paper 
solicitations for contract actions not expected to exceed $25,000 should 
be issued only when obtaining electronic or oral quotations is not 
considered economical or practicable. Written solicitations shall be 
issued for construction contracts over $2,000.
    (4) If a synopsis is not required (e.g., the acquisition does not 
exceed $25,000 or an exemption to the synopsis requirement applies) and 
FACNET is not being used, solicitation of at least three sources 
generally may be considered to promote competition to the maximum extent 
practicable. In such circumstances, maximum practicable competition 
ordinarily can be obtained without soliciting quotations or offers

[[Page 190]]

from sources outside the local trade area. If practicable, two sources 
not included in the previous solicitation should be requested to furnish 
quotations or offers. The following factors influence the number of 
quotations or offers required in connection with any particular 
purchase:
    (i) The nature of the article or service to be purchased and whether 
it is highly competitive and readily available in several makes or 
brands, or is relatively noncompetitive.
    (ii) Information obtained in making recent purchases of the same or 
similar item.
    (iii) The urgency of the proposed purchase.
    (iv) The dollar value of the proposed purchase.
    (v) Past experience concerning specific dealers' prices.
    (5) For purchases not exceeding the simplified acquisition 
threshold, contracting officers may solicit from one source if the 
contracting officer determines that the circumstances of the contract 
action deem only one source reasonably available.
    (6) For sole source acquisitions of commercial items in excess of 
the simplified acquisition threshold conducted pursuant to subpart 13.6, 
the requirements at 13.602(a) apply.
    (7) Contracting officers shall not limit competition to suppliers of 
well-known and widely distributed makes or brands (see 11.104), or 
solicit quotations or offers on a personal preference basis.
    (8) In accordance with 14.408-3, contracting officers shall make 
every effort to obtain trade and prompt payment discounts. However, 
prompt payment discounts shall not be considered in the evaluation of 
quotations.
    (9)(i) Each contracting office should maintain a source list (or 
lists, if more convenient). New supply sources for the list may be 
obtained from a variety of sources, including the Central Contractor 
Registration (CCR) data base (see 4.503). The list should identify the 
status of each source (when the status is made known to the contracting 
office) in the following categories:
    (A) Small business.
    (B) Small disadvantaged business.
    (C) Women-owned small business.
    (ii) The status information may be used as the basis to ensure that 
small business concerns are given opportunities to respond to 
solicitations issued using simplified acquisition procedures.
    (10) Solicitations are not required to state the relative importance 
assigned to each evaluation factor and subfactor, nor are they required 
to include subfactors.
    (b) Evaluation of quotations or offers. (1) When evaluating 
quotations or offers, the evaluation must be made on the basis 
established in the solicitation. All quotations or offers must be 
considered. However, the contracting officer has broad discretion in 
fashioning suitable evaluation procedures. The procedures prescribed in 
parts 14 and 15 are not mandatory. At the contracting officer's 
discretion, one or more, but not necessarily all, of the evaluation 
procedures in part 14 or 15 may be used. Formal evaluation plans, 
establishment of a competitive range, conduct of discussions, and 
scoring of quotes or offers are not required. Contracting officers may 
conduct comparative evaluations of offers. Evaluation of other factors, 
such as past performance, does not require the creation or existence of 
a formal data base, but may be based on such information as the 
contracting officer's knowledge of and previous experience with the item 
or service being purchased, customer surveys, or other reasonable basis.
    (2) Standing price quotations may be used in lieu of obtaining 
individual quotations each time a purchase is contemplated. In such 
cases, contracting officers shall ensure that the pricing information is 
current and that the Government obtains the benefit of maximum discounts 
before award is made.
    (3) Contracting officers shall evaluate quotations or offers 
inclusive of transportation charges from the shipping point of the 
supplier to the delivery destination.
    (4) Contracting officers shall comply with the policy in 7.202 
relating to economic purchase quantities, when practicable.
    (c) Award. (1) Occasionally an item can be obtained only from a 
supplier that quotes a minimum order price or

[[Page 191]]

quantity that either unreasonably exceeds stated quantity requirements 
or results in an unreasonable price for the quantities required. In 
these instances, the contracting officer should inform the requiring 
activity of all facts regarding the quotation or offer and ask it to 
confirm or alter its requirement. The file shall be documented to 
support the final action taken.
    (2) For acquisitions not exceeding the simplified acquisition 
threshold, except for awards conducted through FACNET, notification to 
unsuccessful suppliers shall be given only if requested.
    (3) If a supplier requests information on an award which was based 
on factors other than price, a brief explanation of the basis for the 
contract award decision shall be provided (see 15.503(b)(2)).
    (d) Data to support purchases. (1) The determination that a proposed 
price is reasonable should be based on competitive quotations/offers. If 
only one response is received, a statement shall be included in the 
contract file giving the basis of the determination of fair and 
reasonable price. The determination may be based on market research, a 
comparison of the proposed price with prices found reasonable on 
previous purchases, current price lists, catalogs, advertisements, 
similar items in a related industry, value analysis, the contracting 
officer's personal knowledge of the item being purchased, comparison to 
an independent government estimate, or any other reasonable basis.
    (2) When other than price-related factors are considered in 
selecting the supplier (see 13.106-2(b)(1)), the contracting officer 
shall document the file to support the final award decision.
    (3) If only one source is solicited and the acquisition does not 
exceed the simplified acquisition threshold, an additional notation 
shall be made to explain the absence of competition, except for 
acquisition of utility services available only from one source.
    (4) Documentation should be kept to a minimum. The following 
illustrate the extent to which quotation/offer information should be 
recorded:
    (i) Oral solicitations. The contracting office should establish and 
maintain informal records of oral price quotations in order to reflect 
clearly the propriety of placing the order at the price paid with the 
supplier concerned. In most cases, this will consist merely of showing 
the names of the suppliers contacted and the prices and other terms and 
conditions quoted by each.
    (ii) Written solicitations (see 2.101). For acquisitions not 
exceeding the simplified acquisition threshold, written records of 
solicitations/offers may be limited to notes or abstracts to show 
prices, delivery, references to printed price lists used, the supplier 
or suppliers contacted, and other pertinent data.
    (5) Purchasing offices shall retain data supporting purchases (paper 
or electronic) to the minimum extent and duration necessary for 
management review purposes (see subpart 4.8) when using simplified 
acquisition procedures.
[61 FR 39194, July 26, 1996, as amended at 61 FR 69289, Dec. 31, 1996; 
62 FR 265, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997; 62 FR 51270, Sept. 
30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
13.106-2, in paragraph (c)(3), ``15.1003(b)(2)'' was amended to read 
``15.503(b)(2)'', effective Oct. 10, 1997.



13.107  Solicitation forms.

    (a) For use of the SF 1449, Solicitation/Contract/Order for 
Commercial Items, see 12.204.
    (b) Except when quotations are solicited via FACNET, other 
electronic means, or orally, the SF 1449; SF 18, Request for Quotations; 
or other agency authorized form/automated format may be used for other 
than commercial items.
    (c) OF 336, Continuation Sheet, may be used when additional space is 
needed.
[61 FR 39195, July 26, 1996, as amended at 62 FR 266, Jan. 2, 1997]



13.108  Legal effect of quotations.

    (a) A quotation is not an offer and, consequently, cannot be 
accepted by the Government to form a binding contract (see 15.402(e)). 
Therefore, issuance by the Government of an order for supplies or 
services in response to a supplier's quotation does not establish a 
contract. The order is an offer by the Government to the supplier to buy 
certain

[[Page 192]]

supplies or services upon specified terms and conditions. A contract is 
established when the supplier accepts the offer or begins performance.
    (b) When appropriate, the contracting officer may ask the supplier 
to indicate acceptance of an order by notification to the Government, 
preferably in writing, as defined at 2.101. In other circumstances, the 
supplier may indicate acceptance by furnishing the supplies or services 
ordered or by proceeding with the work to the point where substantial 
performance has occurred.
    (c) If the Government issues an order resulting from a quotation, 
the Government may (by written notice to the supplier, at any time 
before acceptance occurs) withdraw, amend, or cancel its offer. (See 
13.504 for procedures on termination or cancellation of purchase 
orders.)
[60 FR 34750, July 3, 1995, as amended at 61 FR 39195, July 26, 1996]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
13.108, in paragraph (a), ``(See 15.402(e))'' was removed, effective 
Oct. 10, 1997.



13.109  Agency use of indefinite delivery contracts.

    Cost and processing time for acquisitions at or below the simplified 
acquisition threshold may be reduced through the use of indefinite 
delivery contracts (see subpart 16.5) that permit task or delivery 
orders to be placed by several contracting or ordering offices in one or 
more executive agencies. Contracting offices are encouraged to seek 
opportunities to cooperate with each other to achieve efficiency and 
economy through the use of indefinite delivery contracts.
[60 FR 34751, July 3, 1995, as amended at 61 FR 39195, July 26, 1996]



13.110  Federal Acquisition Streamlining Act of 1994 (FASA) list of inapplicable laws.

    (a) The following laws are inapplicable to all contracts and 
subcontracts (if otherwise applicable to subcontracts) at or below the 
simplified acquisition threshold:
    (1) 41 U.S.C. 57 (a) and (b) (Anti-Kickback Act of 1986). (Only the 
requirement for the incorporation of the contractor procedures for the 
prevention and detection of violations, and the contractual requirement 
for contractor cooperation in investigations are inapplicable.)
    (2) 40 U.S.C. 270a (Miller Act). (Although the Miller Act no longer 
applies to contracts at or below the simplified acquisition threshold, 
alternative forms of payment protection for suppliers of labor and 
material are still required if the contract exceeds $25,000.)
    (3) 40 U.S.C. 327 to 333 (Contract Work Hours and Safety Standards 
Act).
    (4) 41 U.S.C. 701(a)(1) (Section 5152 of the Drug Free Workplace Act 
of 1988), except for individuals.
    (5) 42 U.S.C. 6962 (Solid Waste Disposal Act) (Only the requirement 
for providing the estimate of recovered material utilized in the 
performance of the contract is inapplicable).
    (6) 10 U.S.C. 2306(b) and 41 U.S.C. 254(a) (Contract Clause 
Regarding Contingent Fees).
    (7) 10 U.S.C. 2313 and 41 U.S.C. 254(c) (Authority to Examine Books 
and Records of Contractors).
    (8) 10 U.S.C. 2402 and 41 U.S.C. 253g (Prohibition on Limiting 
Subcontractor Direct Sales to the United States).
    (b) The Federal Acquisition Regulatory Council will include any law 
enacted after October 13, 1994, that sets forth policies, procedures, 
requirements, or restrictions for the procurement of property or 
services, on the list set forth in 13.110(a), unless the FAR Council 
makes a written determination that it is in the best interests of the 
Government that the enactment should apply to contracts or subcontracts 
not greater than the simplified acquisition threshold.
    (c) The provisions of 13.110(b) do not apply to laws that--
    (1) Provide for criminal or civil penalties; or
    (2) Specifically state that notwithstanding the language of Section 
4101, Pub. L. 103-355, the enactment will be applicable to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold.
    (d) Any individual may petition the Administrator of the Office of 
Federal Procurement Policy to include any applicable provision of law 
not included on the list set forth in 13.110(a) unless

[[Page 193]]

the FAR Council has already determined in writing that the law is 
applicable. The Administrator of OFPP will include the law on the list 
in 13.110(a) unless the FAR Council makes a determination that it is 
applicable within sixty days of receiving the petition.
[60 FR 34751, July 3, 1995, as amended at 61 FR 39195, July 26, 1996]



13.111  Inapplicable provisions and clauses.

    While certain statutes still apply, pursuant to Public Law 103-355, 
the following provisions and clauses are inapplicable to contracts and 
subcontracts at or below the simplified acquisition threshold--
    (a) Clauses implementing Miller Act requirements in 28.102-3;
    (b) 52.203-5, Covenant Against Contingent Fees;
    (c) 52.203-6, Restrictions on Subcontractor Sales to the Government;
    (d) 52.203-7, Anti-Kickback Procedures;
    (e) 52.215-2, Audit and Records--Negotiation;
    (f) 52.222-4, Contract Work Hours and Safety Standards Act--Overtime 
Compensation;
    (g) 52.223-6, Drug-Free Workplace, except for individuals; and
    (h) 52.223-9, Certification and Estimate of Percentage of Recovered 
Material Content for EPA Designated Items.

    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, section 13.111 
was amended by revising paragraph (h), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

13.111  Inapplicable provisions and clauses.

                                * * * * *

    (h) 52.223-8, Estimate of Percentage of Recovered Material for 
Designated Items to be Used in the Performance of the Contract.

                                * * * * *

[60 FR 34751, July 3, 1995, as amended at 61 FR 39188, 39195, July 26, 
1996; 61 FR 69292, Dec. 31, 1996]



13.112  Use of options in acquisitions using simplified acquisition procedures.

    Options may be included in acquisitions using simplified acquisition 
procedures provided that the requirements of subpart 17.2 are met, and 
that the aggregate value of the acquisition and all options does not 
exceed the dollar threshold for use of simplified acquisition procedures 
under this part.
[60 FR 34751, July 3, 1995]



                Subpart 13.2--Blanket Purchase Agreements

    Source:  60 FR 34751, July 3, 1995, unless otherwise noted.



13.201  General.

    (a) A blanket purchase agreement (BPA) is a simplified method of 
filling anticipated repetitive needs for supplies or services by 
establishing ``charge accounts'' with qualified sources of supply (see 
subpart 16.7 for additional coverage of agreements).
    (b) BPAs should be established for use by the level responsible for 
providing supplies for its own operations or for other offices, 
installations, projects, or functions. Such levels, for example, may be 
organized supply points, separate independent or detached field parties, 
or one-person posts or activities.
    (c) The use of BPAs does not exempt the agency from the 
responsibility for keeping obligations and expenditures within available 
funds.



13.202  Establishment of blanket purchase agreements (BPAs).

    (a) The following are circumstances under which contracting officers 
may establish BPAs:
    (1) There is a wide variety of items in a broad class of supplies or 
services that are generally purchased, but the exact items, quantities, 
and delivery requirements are not known in advance and may vary 
considerably.
    (2) There is a need to provide commercial sources of supply for one 
or more offices or projects in a given area that do not have or need 
authority to purchase otherwise.

[[Page 194]]

    (3) Use of this procedure would avoid the writing of numerous 
purchase orders.
    (4) There is not existing requirements contract for the same supply 
or service that the contracting activity is required to use.
    (b) After determining a BPA would be advantageous, contracting 
officers shall--
    (1) Establish the parameters to limit purchases to individual items 
or commodity groups or classes, or permit the supplier to furnish 
unlimited supplies or services; and
    (2) Consider suppliers whose past performance has shown them to be 
dependable, and who offer quality supplies or services at consistently 
lower prices and who have provided numerous purchases at or below the 
simplified acquisition threshold.
    (c) BPAs may be established with--
    (1) More than one supplier for supplies or services of the same type 
to provide maximum practicable competition;
    (2) A single firm from which numerous individual purchases at or 
below the simplified acquisition threshold will likely be made in a 
given period; or
    (3) Federal Supply Schedule contractors, if not inconsistent with 
the terms of the applicable schedule contract.
    (d) BPAs should be prepared without a purchase requisition and only 
after contacting suppliers to make the necessary arrangements for--
    (1) Securing maximum discounts;
    (2) Documenting individual purchase transactions;
    (3) Periodic billings; and
    (4) Incorporating other necessary details.
    (e) BPAs shall be prepared on the forms specified in 13.505(a) and 
shall not cite accounting and appropriation data (see 13.204(e)(4)).
    (1) The following terms and conditions are mandatory:
    (i) Description of agreement. A statement that the supplier shall 
furnish supplies or services, described in general terms, if and when 
requested by the contracting officer (or the authorized representative 
of the contracting officer) during a specified period and within a 
stipulated aggregate amount, if any.
    (ii) Extent of obligation. A statement that the Government is 
obligated only to the extent of authorized purchases actually made under 
the BPA.
    (iii) Pricing. A statement that the prices to the Government shall 
be as low or lower than those charged the supplier's most favored 
customer for comparable quantities under similar terms and conditions, 
in addition to any discounts for prompt payment.
    (iv) Purchase limitation. A statement that specifies the dollar 
limitation for each individual purchase under the BPA (see 13.204(b)).
    (v) Individuals authorized to purchase under the BPA. A statement 
that a list of individuals authorized to purchase under the BPA, 
identified either by title of position or by name of individual, 
organizational component, and the dollar limitation per purchase for 
each position title or individual shall be furnished to the supplier by 
the contracting officer.
    (vi) Delivery tickets. A requirement that all shipments under the 
agreement, except subscriptions and other charges for newspapers, 
magazines, or other periodicals, shall be accompanied by delivery 
tickets or sales slips which shall contain the following minimum 
information:
    (A) Name of supplier.
    (B) BPA number.
    (C) Date of purchase.
    (D) Purchase number.
    (E) Itemized list of supplies or services furnished.
    (F) Quantity, unit price, and extension of each item, less 
applicable discounts (unit prices and extensions need not be shown when 
incompatible with the use of automated systems; provided, that the 
invoice is itemized to show this information).
    (G) Date of delivery or shipment.
    (vii) Invoices. One of the following statements shall be included 
(except that the statement in paragraph (e)(1)(vii)(C) of this section 
should not be used if the accumulation of the individual invoices by the 
Government materially increases the administrative costs of this 
purchase method):

[[Page 195]]

    (A) A summary invoice shall be submitted at least monthly or upon 
expiration of this BPA, whichever occurs first, for all deliveries made 
during a billing period, identifying the delivery tickets covered 
therein, stating their total dollar value, and supported by receipt 
copies of the delivery tickets.
    (B) An itemized invoice shall be submitted at least monthly or upon 
expiration of this BPA, whichever occurs first, for all deliveries made 
during a billing period and for which payment has not been received. 
These invoices need not be supported by copies of delivery tickets.
    (C) When billing procedures provide for an individual invoice for 
each delivery, these invoices shall be accumulated; provided, that--
    (1) A consolidated payment will be made for each specified period; 
and
    (2) The period of any discounts will commence on the final date of 
the billing period or on the date of receipt of invoices for all 
deliveries accepted during the billing period, whichever is later.
    (D) An invoice for subscriptions or other charges for newspapers, 
magazines, or other periodicals shall show the starting and ending dates 
and shall state either that ordered subscriptions have been placed in 
effect or will be placed in effect upon receipt of payment.
    (2) If the fast payment procedure is used, the requirements stated 
in 13.303 shall be included.
[61 FR 39195, July 26, 1996, as amended at 61 FR 41469, Aug. 8, 1996; 62 
FR 266 Jan. 2, 1997; 62 FR 44818, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44818, Aug. 22, 1997, section 13.202 
was amended by adding paragraph (a)(4) and by revising paragraph (c)(3), 
effective Oct. 21, 1997. For the convenience of the user, the superseded 
text is set forth as follows:

13.202  Using schedules.

                                * * * * *

    (c) * * *
    (3) Federal Supply Schedule contractors if not inconsistent with the 
terms of the applicable schedule contract.

                                * * * * *



13.203  Clauses.

    (a) The contracting officer shall insert in each BPA the clauses 
prescribed elsewhere in this part that are required for or applicable to 
the particular BPA.
    (b) Unless a clause prescription specifies otherwise, (e.g., see 
22.305(a), 22.605(a)(5), or 22.1006), if the prescription includes a 
dollar threshold, the amount to be compared to that threshold is that of 
any particular order under the BPA.
[60 FR 34751, July 3, 1995. Redesignated and amended at 61 FR 39196, 
July 26, 1996]



13.204  Purchases under blanket purchase agreements.

    (a) The use of a BPA does not authorize purchases that are not 
otherwise authorized by law or regulation. For example, the BPA, being a 
method of simplifying the making of individual purchases, shall not be 
used to avoid the simplified acquisition threshold, or $5,000,000 for 
acquisitions of commercial items conducted under subpart 13.6.
    (b) Unless otherwise specified in agency regulations, individual 
purchases under BPAs, except those under BPAs established in accordance 
with 13.202(c)(3), shall not exceed the simplified acquisition 
threshold, or $5,000,000, for acquisitions of commercial items conducted 
under subpart 13.6.
    (c) The existence of a BPA does not justify purchasing from only one 
source or avoiding small business set-asides. The requirements of 
13.105, 13.106-2, and subpart 19.5 also apply to each order.
    (d) If there is an insufficient number of BPAs to ensure maximum 
practicable competition for a particular purchase, the contracting 
officer shall--
    (1) Solicit quotations from other sources and make the purchase as 
appropriate; and
    (2) Establish additional BPAs to facilitate future purchases if--
    (i) Recurring requirements for the same or similar items or services 
seem likely,
    (ii) Qualified sources are willing to accept BPAs, and
    (iii) It is otherwise practical to do so.

[[Page 196]]

    (e) Documentation of purchases shall be limited to essential 
information and forms as follows:
    (1) Purchases generally should be made electronically, or orally 
when it is not considered economical or practical to use electronic 
methods.
    (2) A paper purchase document may be issued if written 
communications are necessary to ensure that the vendor and the purchaser 
agree concerning the transaction.
    (3) If a paper document is not issued, the essential elements (e.g., 
date, vendor, items or services, price, delivery date) shall be recorded 
on the purchase requisition, in an informal memorandum, or on a form 
developed locally for the purpose.
    (4) Documentation of purchases shall also cite the pertinent 
purchase requisitions and the accounting and appropriation data.
    (5) When delivery is made or the services are performed, the 
vendor's sales document, delivery document, or invoice may (if it 
reflects the essential elements) be used for the purpose of recording 
receipt and acceptance of the items or services. However, if the 
purchase is assigned to another activity for administration, receipt and 
acceptance of supplies or services shall be documented by signature and 
date on the agency specified form by the authorized Government 
representative after verification and notation of any exceptions.
[60 FR 34751, July 3, 1995, as amended at 61 FR 39196, July 26, 1996; 62 
FR 266, Jan. 2, 1997]



13.205  Review procedures.

    (a) The contracting officer placing orders under a BPA, or the 
designated representative of the contracting officer, shall review a 
sufficient random sample of the BPA files at least annually to ensure 
that authorized procedures are being followed.
    (b) The contracting officer that entered into the BPA shall--
    (1) Ensure that each BPA is reviewed at least annually and, if 
necessary, updated at that time; and
    (2) Maintain awareness of changes in market conditions, sources of 
supply, and other pertinent factors that may warrant making new 
arrangements with different suppliers or modifying existing 
arrangements.
    (c) If an office other than the purchasing office that established a 
BPA is authorized to make purchases under that BPA, the agency that has 
jurisdiction over the office authorized to make the purchases shall 
ensure that the procedures in paragraph (a) of this section are being 
followed.



13.206  Completion of blanket purchase agreements.

    An individual BPA is considered complete when the purchases under it 
equal its total dollar limitation, if any, or when its stated time 
period expires.



                  Subpart 13.3--Fast Payment Procedure

    Source:  60 FR 34754, July 3, 1995, unless otherwise noted.



13.301  General.

    The fast payment procedure allows payment under limited conditions 
to a contractor prior to the Government's verification that supplies 
have been received and accepted. The procedure provides for payment for 
supplies based on the contractor's submission of an invoice that 
constitutes a representation that--
    (a) The supplies have been delivered to a post office, common 
carrier, or point of first receipt by the Government; and
    (b) The contractor agrees to replace, repair, or correct supplies 
not received at destination, damaged in transit, or not conforming to 
purchase agreements.



13.302  Conditions for use.

    If the conditions in paragraphs (a) through (f) of this section are 
present, the fast payment procedure may be used, provided that use of 
the procedure is consistent with the other conditions of the purchase. 
The conditions for use of the fast payment procedure are as follows:
    (a) Individual purchasing instruments do not exceed $25,000, except 
that executive agencies may permit higher dollar limitations for 
specified activities or items on a case-by-case basis.

[[Page 197]]

    (b) Deliveries of supplies are to occur at locations where there is 
both a geographical separation and a lack of adequate communications 
facilities between Government receiving and disbursing activities that 
will make it impractical to make timely payment based on evidence of 
Government acceptance.
    (c) Title to the supplies will vest in the Government--
    (1) Upon delivery to a post office or common carrier for mailing or 
shipment to destination; or
    (2) Upon receipt by the Government if the shipment is by means other 
than Postal Service or common carrier.
    (d) The supplier agrees to replace, repair, or correct supplies not 
received at destination, damaged in transit, or not conforming to 
purchase requirements.
    (e) The purchasing instrument is a firm-fixed price contract, a 
purchase order, or a delivery order for supplies.
    (f) A system is in place to ensure--
    (1) Documenting evidence of contractor performance under fast 
payment acquisitions;
    (2) Timely feedback to the contracting officer in case of contractor 
deficiencies; and
    (3) Identification of suppliers who have a current history of 
abusing the fast payment procedure (also see subpart 9.1).
[60 FR 34754, July 3, 1995, as amended at 61 FR 39196, July 26, 1996]



13.303  Preparation and execution of orders.

    Contracts, purchase orders, or BPAs using the fast payment procedure 
shall include the following:
    (a) A requirement that the supplies be shipped transportation or 
postage prepaid.
    (b) A requirement that invoices be submitted directly to the finance 
or other office designated in the order, or in the case of unpriced 
purchase orders, to the contracting officer (see 13.502(c)).
    (c) The following statement on consignee's copy:

 Consignee's Notification to Purchasing Activity of Nonreceipt, Damage, 
                            or Nonconformance

    The consignee shall notify the purchasing office promptly after the 
specified date of delivery of supplies not received, damaged in transit, 
or not conforming to specifications of the purchase order. Unless 
extenuating circumstances exist, the notification should be made not 
later than 60 days after the specified date of delivery.
[60 FR 34754, July 3, 1995, as amended at 61 FR 39196, July 26, 1996]



13.304  Responsibility for collection of debts.

    The contracting officer shall be primarily responsible for 
collecting debts resulting from failure of contractors to properly 
replace, repair, or correct supplies lost, damaged, or not conforming to 
purchase requirements (see 32.605(b) and 32.606).



13.305  Contract clause.

    The contracting officer shall insert the clause at 52.213-1, Fast 
Payment Procedure, in solicitations and contracts when the conditions in 
13.302 are applicable and it is intended that the fast payment procedure 
be used in the contract (in the case of BPAs, the contracting officer 
may elect to insert the clause either in the BPA or in orders under the 
BPA).



                       Subpart 13.4--Imprest Fund

    Source:  61 FR 39196, July 26, 1996, unless otherwise noted.



13.401  General.

    This subpart prescribes policies and procedures for using imprest 
funds and third party drafts to acquire and pay for supplies or 
services. Related policies and regulations concerning the establishment 
of and accounting for imprest funds and third party drafts, including 
the responsibilities of designated cashiers and alternates, are 
contained in Part IV of the Treasury Financial Manual for Guidance of 
Departments and Agencies, Title 7 of the General Accounting Office 
Policy and Procedures Manual for Guidance of

[[Page 198]]

Federal Agencies, and the agency implementing regulations. Agencies 
shall also be guided by the Manual of Procedures and Instructions for 
Cashiers, issued by the Financial Management Service, Department of the 
Treasury.



13.402  Agency responsibilities.

    Each agency using imprest funds and third party drafts shall--
    (a) Periodically review and determine whether there is a continuing 
need for each fund or third party draft account established, and that 
amounts of those funds or accounts are not in excess of actual needs;
    (b) Take prompt action to have imprest funds or third party draft 
accounts adjusted to a level commensurate with demonstrated needs 
whenever circumstances warrant such action; and
    (c) Develop and issue appropriate implementing regulations. These 
regulations shall include (but are not limited to) procedures covering--
    (1) Designation of personnel authorized to make purchases using 
imprest funds or third party drafts; and
    (2) Documentation of purchases using imprest funds or third party 
drafts, including documentation of--
    (i) Receipt and acceptance of supplies and services by the 
Government;
    (ii) Receipt of cash or third party draft payments by the suppliers; 
and
    (iii) Cash advances and reimbursements.



13.403  Conditions for use.

    Imprest funds or third party drafts may be used for purchases when--
    (a) The imprest fund transaction does not exceed $500 or such other 
limits as have been approved by the agency head;
    (b) The third party draft transaction does not exceed $2,500, unless 
authorized at a higher level in accordance with Treasury restrictions;
    (c) The use of imprest funds or third party drafts is considered to 
be advantageous to the Government; and
    (d) The use of imprest funds or third party drafts for the 
transaction otherwise complies with any additional conditions 
established by agencies and with the policies and regulations referenced 
in 13.401.



13.404  Procedures.

    (a) Each purchase using imprest funds or third party drafts shall be 
based upon an authorized purchase requisition, contracting officer 
verification statement, or other agency approved method of ensuring 
adequate funds are available for the purchase.
    (b) Normally, purchases should be placed orally and without 
soliciting competition if prices are considered reasonable.
    (c) Purchases shall be distributed equitably among qualified 
suppliers.
    (d) Prompt payment discounts shall be solicited.
    (e) Any agency-authorized purchase order form or Standard Form 1165, 
Receipt for Cash-Subvoucher, may be used if a written order is 
considered necessary (e.g., if required by the supplier for discount, 
tax exemption, or other reasons). If a purchase order is used for this 
purpose, it shall be endorsed ``Payment to be made from Imprest Fund'' 
(or ``payment to be made from third-party draft,'' as appropriate).
    (f) The individual authorized to make purchases using imprest funds 
or third party drafts shall--
    (1) Furnish to the imprest fund or third party draft cashier a copy 
of the document required under 13.404(a) annotated to reflect--
    (i) That an imprest fund or third party draft purchase has been 
made;
    (ii) The unit prices and extensions;
    (iii) The supplier's name and address; and
    (iv) The date of anticipated delivery.
    (2) Require the supplier to include with delivery of the supplies an 
invoice, packing slip, or other sales instrument giving--
    (i) The supplier's name and address;
    (ii) List and quantity of items;
    (iii) Unit prices and extensions; and
    (iv) Cash discount, if any.



                      Subpart 13.5--Purchase Orders



13.501  General.

    (a) Except as provided under the unpriced purchase order method (see 
13.502), purchase orders generally are issued on a fixed-price basis. 
See part 12 for acquisition of commercial items.

[[Page 199]]

    (b) Purchase orders shall include any trade and prompt payment 
discounts that are offered, consistent with the applicable principles in 
14.408-3.
    (c) Purchase orders shall specify the quantity of supplies or scope 
of services ordered.
    (d) Inspections under simplified acquisition procedures shall be as 
prescribed in part 46. Orders generally will provide that inspection and 
acceptance will be at destination, and source inspection should be 
specified only if required by part 46. If inspection and acceptance are 
to be performed at destination, advance copies of the purchase order, or 
equivalent notice, shall be furnished to consignee(s) for material 
receipt purposes. Receiving reports shall be accomplished immediately 
upon receipt and acceptance of material.
    (e) F.o.b. destination shall be specified for supplies to be 
delivered within the United States, except Alaska and Hawaii, unless 
there are valid reasons to the contrary.
    (f) Each purchase order shall contain a determinable date by which 
delivery of supplies or performance of services is required.
    (g) The contracting officer's signature (see 2.101) on purchase 
orders shall be in accordance with 4.101. Facsimile and electronic 
signature may be used in the production of purchase orders by automated 
methods.
    (h) 52.223-9, Certification and estimate of Percentage of Recovered 
Material Content for EPA Designated Items.
    (i) In accordance with 31 U.S.C. 3332, payment under contracts may 
be required to be made by electronic funds transfer (EFT). See 32.1103 
for instructions for use of the appropriate clause in purchase orders. 
When obtaining verbal quotes, the contracting officer shall inform the 
offeror of the EFT clause that will be in any resulting purchase order. 
Contracting officers shall not accept EFT payment data. All such data 
shall be provided by the contractor directly to the payment office.
[48 FR 42163, Sept. 19, 1983, as amended at 61 FR 39197, July 26, 1996; 
61 FR 45772, Aug. 29, 1996; 62 FR 44810, Aug. 22, 1997]



13.502  Unpriced purchase orders.

    (a) An unpriced purchase order is an order for supplies or services, 
the price of which is not established at the time of issuance of the 
order.
    (b) An unpriced purchase order may be used only when--
    (1) It is impractical to obtain pricing in advance of issuance of 
the purchase order; and
    (2) The purchase if for--
    (i) Repairs to equipment requiring disassembly to determine the 
nature and extent of repairs;
    (ii) Material available from only one source and for which cost 
cannot be readily established; or
    (iii) Supplies or services for which prices are known to be 
competitive but exact prices are not known (e.g., miscellaneous repair 
parts, maintenance agreements).
    (c) Unpriced purchase orders may be issued by using written purchase 
orders or electronically. A realistic monetary limitation, either for 
each line item or for the total order, shall be placed on each unpriced 
purchase order. The monetary limitation shall be an obligation subject 
to adjustment when the firm price is established. The contracting office 
shall follow-up each order to ensure timely pricing. The contracting 
officer or the contracting officer's designated representative shall 
review the invoice price and, if reasonable (see 13.106-2(d)), process 
the invoice for payment.
[48 FR 42163, Sept. 19, 1983, as amended at 61 FR 39197, July 26, 1996]



13.503  Obtaining contractor acceptance and modifying purchase orders.

    (a) When it is desired to consummate a binding contract between the 
parties before the contractor undertakes performance, the contracting 
officer shall require written (see 2.101) acceptance of the purchase 
order by the contractor.
    (b) A purchase order may be modified by use of--
    (1) Standard Form 30, Amendment of Solicitation/Modification of 
Contract;
    (2) An agency-designed form or an agency-approved automated format; 
or
    (3) A purchase order form, if not prohibited by agency regulations.

[[Page 200]]

    (c) Each purchase order modification shall identify the order it 
modifies and shall contain an appropriate modification number.
    (d) Contracting officers need not obtain a contractor's written 
acceptance of a purchase order modification, unless the written 
acceptance is--
    (1) Determined by the contracting officer to be necessary to ensure 
the contractor's compliance with the purchase order as revised; or
    (2) Required by agency regulations.
[48 FR 42163, Sept. 19, 1983, as amended at 61 FR 39197, July 26, 1996]



13.504  Termination or cancellation of purchase orders.

    (a) If a purchase order that has been accepted in writing by the 
contractor is to be terminated, the contracting officer shall process 
the termination action as prescribed by part 49.
    (b) If a purchase order that has not been accepted in writing by the 
contractor is to be canceled, the contracting officer shall notify the 
contractor in writing that the purchase order has been canceled, request 
the contractor's written acceptance of the cancellation, and proceed as 
follows:
    (1) If the contractor accepts the cancellation and does not claim 
that costs were incurred as a result of beginning performance under the 
purchase order, no further action is required (i.e., the purchase order 
shall be considered canceled).
    (2) If the contractor does not accept the cancellation or claims 
that costs were incurred as a result of beginning performance under the 
purchase order, the contracting officer shall process the termination 
action as prescribed by part 49.



13.505  Purchase order and related forms.

    (a) The following are multipurpose forms used for negotiated 
purchases of supplies or services, delivery or task orders, inspection 
and receiving reports, and invoices:
    (1) SF 1449 shall be used for commercial items.
    (2) For other than commercial items, SF 1449, OF 347, or an agency 
form/automated format may be used. Agencies may print on the latter 
forms the clauses considered to be generally suitable for purchases.
    (3) OF 348 or an agency form/automated format may be used when 
additional space is needed.
    (b) SF 44 is a pocket-size purchase order form designed primarily 
for on-the-spot, over-the-counter purchases of supplies and nonpersonal 
services while away from the purchasing office or at isolated 
activities. It is a multipurpose form that can be used as a purchase 
order, receiving report, invoice, and public voucher.
    (1) SF 44 may be used if all of the following conditions are 
satisfied:
    (i) The amount of the purchase is at or below the micro-purchase 
threshold, except for purchases made under unusual and compelling 
urgency or in support of contingency operations. Agencies may establish 
higher dollar limitations for specific activities or items.
    (ii) The supplies or services are immediately available.
    (iii) One delivery and one payment will be made.
    (iv) Its use is determined to be more economical and efficient than 
use of other simplified acquisition methods.
    (2) General procedural instructions governing the use of SF 44 are 
printed on the form and on the inside front cover of each book of forms.
    (3) Since there is, for all practical purposes, simultaneous placing 
of purchase orders on SF 44 and delivery of the items ordered, clauses 
are not required for purchases using this form.
    (4) Agencies shall provide adequate safeguards regarding the control 
of forms and accounting for purchases.
[61 FR 39197, July 26, 1996]



13.506  Provisions and clauses.

    (a) Each purchase order (and each purchase order modification (see 
13.503)) shall incorporate all clauses required for or applicable to the 
particular acquisition.
    (b) The contracting officer shall insert the clause at 52.213-2, 
Invoices, in purchase orders that authorize advance payments (see 31 
U.S.C. 3324(d)(2)) for subscriptions or other charges for newspapers, 
magazines, periodicals, or other publications (i.e., any publication 
printed, microfilmed, photocopied,

[[Page 201]]

or magnetically or otherwise recorded for auditory or visual usage).
    (c) The contracting officer shall insert the clause at 52.213-3, 
Notice to Supplier, in unpriced purchase orders.
[48 FR 42163, Sept. 19, 1983. Redesignated at 61 FR 39197, July 26, 
1996]



         Subpart 13.6--Test Program for Certain Commercial Items

    Source:  62 FR 266, Jan. 2, 1997, unless otherwise noted.



13.601  General.

    (a) This subpart authorizes, as a test program, use of simplified 
procedures for the acquisition of supplies and services in amounts 
greater than the simplified acquisition threshold but not exceeding 
$5,000,000, including options, if the contracting officer reasonably 
expects, based on the nature of the supplies or services sought, and on 
market research, that offers will include only commercial items. Under 
this test program, contracting officers may use any simplified 
acquisition procedure in this part, subject to any specific dollar 
limitation applicable to the particular procedure. The purpose of this 
test program is to vest contracting officers with additional procedural 
discretion and flexibility, so that commercial item acquisitions in this 
dollar range may be solicited, offered, evaluated, and awarded in a 
simplified manner that maximizes efficiency and economy and minimizes 
burden and administrative costs for both the Government and industry (10 
U.S.C. 2304(g) and 2305 and 41 U.S.C. 253(g) and 253a and 253b).
    (b) For the period of this test, contracting activities shall employ 
the simplified procedures authorized by the test to the maximum extent 
practicable.
    (c) When acquiring commercial items using the procedures in this 
part, the requirements of part 12 apply subject to the order of 
precedence provided at 12.102(c). This includes use of the provisions 
and clauses at subpart 12.3.
    (d) The authority to issue solicitations under this subpart shall 
expire on January 1, 2000. Contracts may be awarded after the expiration 
of this authority for solicitations issued before the expiration of the 
authority.



13.602  Special documentation requirements.

    (a) Sole source acquisitions. Acquisitions conducted under 
simplified acquisition procedures are exempt from the requirements in 
part 6. However, contracting officers shall not conduct sole source 
acquisitions, as defined in 6.003, under this subpart unless the need to 
do so is justified in writing and approved at the levels specified in 
paragraphs (a)(1) and (a)(2) of this section. Contracting officers shall 
prepare sole source justifications using the format at 6.303-2, modified 
to reflect an acquisition under the authority of the test program for 
commercial items (10 U.S.C. 2304 or 41 U.S.C. 253). Justifications and 
approvals are required under this subpart only for sole source 
acquisitions.
    (1) For a proposed contract exceeding $100,000 but not exceeding 
$500,000, the contracting officer's certification that the justification 
is accurate and complete to the best of the contracting officer's 
knowledge and belief will serve as approval, unless a higher approval 
level is established in agency procedures.
    (2) For a proposed contract exceeding $500,000, the approval shall 
be by the competition advocate for the procuring activity, designated 
pursuant to 6.501; or an official described in 6.304 (a)(3) or (a)(4). 
This authority is not delegable.
    (b) Contract file documentation. The contract file shall include--
    (1) A brief written description of the procedures used in awarding 
the contract, including the fact that the test procedures in FAR 13.6 
were used;
    (2) The number of offers received;
    (3) An explanation, tailored to the size and complexity of the 
acquisition, of the basis for the contract award decision; and
    (4) Any justification approved under paragraph (a) of this section.
[62 FR 266, Jan. 2, 1997; 62 FR 12720, Mar. 17, 1997]



PART 14--SEALED BIDDING--Table of Contents




Sec.
14.000  Scope of part.

[[Page 202]]

                   Subpart 14.1--Use of Sealed Bidding

14.101  Elements of sealed bidding.
14.102  [Reserved]
14.103  Policy.
14.103-1  General.
14.103-2  Limitations.
14.104  Types of contracts.
14.105  Solicitations for informational or planning purposes.

                   Subpart 14.2--Solicitation of Bids

14.201  Preparation of invitations for bids.
14.201-1  Uniform contract format.
14.201-2  Part I--The Schedule.
14.201-3  Part II--Contract clauses.
14.201-4  Part III--Documents, exhibits, and other attachments.
14.201-5  Part IV--Representations and instructions.
14.201-6  Solicitation provisions.
14.201-7  Contract clauses.
14.201-8  Price-related factors.
14.201-9  Simplified contract format.
14.202  General rules for solicitation of bids.
14.202-1  Bidding time.
14.202-2  Telegraphic bids.
14.202-3  Bid envelopes.
14.202-4  Bid samples.
14.202-5  Descriptive literature.
14.202-6  Final review of invitations for bids.
14.202-7  Facsimile bids.
14.202-8  Electronic bids.
14.203  Methods of soliciting bids.
14.203-1  Transmittal to prospective bidders.
14.203-2  Dissemination of information concerning invitations for bids.
14.203-3  Master solicitation.
14.204  Records of invitations for bids and records of bids.
14.205  Solicitation mailing lists.
14.205-1  Establishment of lists.
14.205-2  Removal of names from solicitation mailing lists.
14.205-3  Reinstatement on solicitation mailing lists.
14.205-4  Excessively long solicitation mailing lists.
14.205-5  Release of solicitation mailing lists.
14.206  Small business set-asides.
14.207  Pre-bid conference.
14.208  Amendment of invitation for bids.
14.209  Cancellation of invitations before opening.
14.210  Qualified products.
14.211  Release of acquisition information.
14.212  Economic purchase quantities (supplies).
14.213  Annual submission of representations and certifications.
14.214  [Reserved]

                    Subpart 14.3--Submission of Bids

14.301  Responsiveness of bids.
14.302  Bid submission.
14.303  Modification or withdrawal of bids.
14.304  Late bids, late modifications of bids, or late withdrawal of 
          bids.
14.304-1  General.
14.304-2  Notification to late bidders.
14.304-3  Disposition of late submissions.
14.304-4  Records.

           Subpart 14.4--Opening of Bids and Award of Contract

14.400  Scope of subpart.
14.401  Receipt and safeguarding of bids.
14.402  Opening of bids.
14.402-1  Unclassified bids.
14.402-2  Classified bids.
14.402-3  Postponement of openings.
14.403  Recording of bids.
14.404  Rejection of bids.
14.404-1  Cancellation of invitations after opening.
14.404-2  Rejection of individual bids.
14.404-3  Notice to bidders of rejection of all bids.
14.404-4  Restrictions on disclosure of descriptive literature.
14.404-5  All or none qualifications.
14.405  Minor informalities or irregularities in bids.
14.406  Receipt of an unreadable electronic bid.
14.407  Mistakes in bids.
14.407-1  General.
14.407-2  Apparent clerical mistakes.
14.407-3  Other mistakes disclosed before award.
14.407-4  Mistakes after awards.
14.408  Award.
14.408-1  General.
14.408-2  Responsible bidder--reasonableness of price.
14.408-3  Prompt payment discounts.
14.408-4  Economic price adjustment.
14.408-5  [Reserved]
14.408-6  Equal low bids.
14.408-7  Documentation of award.
14.408-8  Protests against award.
14.409  Information to bidders.
14.409-1  Award of unclassified contracts.
14.409-2  Award of classified contracts.

                  Subpart 14.5--Two-Step Sealed Bidding

14.501  General.
14.502  Conditions for use.
14.503  Procedures.
14.503-1  Step one.
14.503-2  Step two.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42171, Sept. 19, 1983, unless otherwise noted.

[[Page 203]]



14.000  Scope of part.

    This part prescribes (a) the basic requirements of contracting for 
supplies and services (including construction) by sealed bidding, (b) 
the information to be included in the solicitation (invitation for 
bids), (c) procedures concerning the submission of bids, (d) 
requirements for opening and evaluating bids and awarding contracts, and 
(e) procedures for two-step sealed bidding.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



                   Subpart 14.1--Use of Sealed Bidding



14.101  Elements of sealed bidding.

    Sealed bidding is a method of contracting that employs competitive 
bids, public opening of bids, and awards. The following steps are 
involved:
    (a) Preparation of invitations for bids. Invitations must describe 
the requirements of the Government clearly, accurately, and completely. 
Unnecessarily restrictive specifications or requirements that might 
unduly limit the number of bidders are prohibited. The invitation 
includes all documents (whether attached or incorporated by reference) 
furnished prospective bidders for the purpose of bidding.
    (b) Publicizing the invitation for bids. Invitations must be 
publicized through distribution to prospective bidders, posting in 
public places, and such other means as may be appropriate. Publicizing 
must occur a sufficient time before public opening of bids to enable 
prospective bidders to prepare and submit bids.
    (c) Submission of bids. Bidders must submit sealed bids to be opened 
at the time and place stated in the solicitation for the public opening 
of bids.
    (d) Evaluation of bids. Bids shall be evaluated without discussions.
    (e) Contract award. After bids are publicly opened, an award will be 
made with reasonable promptness to that responsible bidder whose bid, 
conforming to the invitation for bids, will be most advantageous to the 
Government, considering only price and the price-related factors 
included in the invitation.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.102  [Reserved]



14.103  Policy.



14.103-1  General.

    (a) Sealed bidding shall be used whenever the conditions in 6.401(a) 
are met. This requirement applies to any proposed contract action under 
part 6.
    (b) Current lists of bidders shall be maintained in accordance with 
14.205.
    (c) Sealed bidding may be used for classified acquisitions (see 
4.401) if its use does not violate agency security requirements.
    (d) The policy for pricing modifications of sealed bid contracts 
appears in 15.403-4(a)(1)(iii).
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.103-1, in paragraph (d), ``15.804-2'' was amended to read ``15.403-
4(a)(1)(iii), effective Oct. 10, 1997.



14.103-2  Limitations.

    No awards shall be made as a result of sealed bidding unless--
    (a) Bids have been solicited as required by subpart 14.2;
    (b) Bids have been submitted as required by subpart 14.3;
    (c) The requirements of 1.602-1(b) and part 6 have been met; and
    (d) An award is made to the responsible bidder (see 9.1) whose bid 
is responsive to the terms of the invitation for bids and is most 
advantageous to the Government, considering only price and the price-
related factors included in the invitation, as provided in subpart 14.4.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.104  Types of contracts.

    Firm-fixed-price contracts shall be used when the method of 
contracting is sealed bidding, except that fixed-price contracts with 
economic price adjustment clauses may be used if authorized

[[Page 204]]

in accordance with 16.203 when some flexibility is necessary and 
feasible. Such clauses must afford all bidders an equal opportunity to 
bid.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.105  Solicitations for informational or planning purposes.

    See 15.201(e).
[48 FR 42171, Sept. 19, 1983, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.105, ``15.405'' was amended to read ``15.201(e)'', effective Oct. 10, 
1997.



                   Subpart 14.2--Solicitation of Bids



14.201  Preparation of invitations for bids.



14.201-1  Uniform contract format.

    (a) Contracting officers shall prepare invitations for bids and 
contracts using the uniform contract format outlined in Table 14-1 to 
the maximum practicable extent. The use of the format facilitates 
preparation of the solicitation and contract as well as reference to, 
and use of, those documents by bidders and contractors. It need not be 
used for acquisition of the following:
    (1) Construction (see part 36).
    (2) Shipbuilding (including design, construction, and conversion), 
ship overhaul, and ship repair.
    (3) Subsistence items.
    (4) Supplies or services requiring special contract forms prescribed 
elsewhere in this regulation that are inconsistent with the uniform 
contract format.
    (5) Firm-fixed-price or fixed-price with economic price adjustment 
acquisitions that use the simplified contract format (see 14.201-9).
    (b) Information suitable for inclusion in invitations for bids under 
the uniform contract format shall also be included in invitations for 
bids not subject to that format if applicable.
    (c) Solicitations to which the uniform contract format applies shall 
include Parts I, II, III, and IV. If any section of the uniform contract 
format does not apply, the contracting officer should so mark that 
section in the solicitation. Upon award, the contracting officer shall 
not physically include Part IV in the resulting contract, but shall 
retain it in the contract file. Award by acceptance of a bid on the 
award portion of Standard Form 33, Solicitation Offer and Award (SF 33), 
Standard Form 26, Award/Contract (SF 26), or Standard Form 1447, 
Solicitation/Contract (SF 1447), incorporates Section K, 
Representations, certifications, and other statements of bidders, in the 
resultant contract even though not physically attached.

                               Table 14-1                               
                         Uniform Contract Format                        
------------------------------------------------------------------------
           Section                               Title                  
------------------------------------------------------------------------
                          Part I--The Schedule                          
                                                                        
 A                             Solicitation/contract form               
B                              Supplies or services and prices          
C                              Description/specifications               
D                              Packaging and marking                    
E                              Inspection and acceptance                
F                              Deliveries or performance                
G                              Contract administration data             
H                              Special contract requirements            
                                                                        
                        Part II--Contract Clauses                       
                                                                        
 I                             Contract clauses                         
                                                                        
       Part III--List of Documents, Exhibits, and Other Attachments     
                                                                        
 J                             List of documents, exhibits, and other   
                                attachments                             
                                                                        
                Part IV--Representations and Instructions               
                                                                        
 K                             Representations, certifications, and     
                                other statements of bidders             
L                              Instructions, conditions, and notices to 
                                bidders                                 
M                              Evaluation factors for award             
------------------------------------------------------------------------

[48 FR 42171, Sept. 19, 1983, as amended at 54 FR 48982, Nov. 28, 1989]



14.201-2  Part I--The Schedule.

    The contracting officer shall prepare the Schedule as follows:
    (a) Section A, Solicitation/contract form. (1) Prepare the 
invitation for bids on SF 33, or the SF 1447, unless otherwise permitted 
by this regulation. The SF 33 is the first page of the solicitation and 
includes Section A of the uniform contract format. When the SF 1447 is 
used as the solicitation document, the information in subdivisions 
(a)(2)(i) and (a)(2)(iv) of this subsection shall be inserted in block 9 
of the SF 1447.
    (2) When the SF 33 or SF 1447 is not used, include the following on 
the first page of the invitation for bids:

[[Page 205]]

    (i) Name, address, and location of issuing activity, including room 
and building where bids must be submitted.
    (ii) Invitation for bids number.
    (iii) Date of issuance.
    (iv) Time specified for receipt of bids.
    (v) Number of pages.
    (vi) Requisition or other purchase authority.
    (vii) Requirement for bidder to provide its name and complete 
address, including street, city, county, State, and ZIP code.
    (viii) A statement that bidders should include in the bid the 
address to which payment should be mailed, if that address is different 
from that of the bidder.
    (b) Section B, Supplies or services and prices. Include a brief 
description of the supplies or services; e.g., item number, national 
stock number/part number if applicable, title or name identifying the 
supplies or services, and quantities (see part 11). The SF 33 and SF 
1447 may be supplemented as necessary by the Optional Form 336 (OF 336), 
Continuation Sheet (53.302-336).
    (c) Section C, Description/specifications. Include any description 
or specifications needed in addition to Section B to permit full and 
open competition (see part 11).
    (d) Section D, Packaging and marking. Provide packaging, packing, 
preservation, and marking requirements, if any.
    (e) Section E, Inspection and acceptance. Include inspection, 
acceptance, quality assurance, and reliability requirements (see part 
46, Quality Assurance).
    (f) Section F, Deliveries or performance. Specify the requirements 
for time, place, and method of delivery or performance (see subpart 
11.4, Delivery or Performance Schedules).
    (g) Section G, Contract administration data. Include any required 
accounting and appropriation data and any required contract 
administration information or instructions other than those on the 
solicitation form.
    (h) Section H, Special contract requirements. Include a clear 
statement of any special contract requirements that are not included in 
Section I, Contract clauses, or in other sections of the uniform 
contract format.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 27119, July 29, 1986; 54 FR 48982, 
Nov. 28, 1989; 55 FR 38516, Sept. 18, 1990; 60 FR 48248, Sept. 18, 1995]



14.201-3  Part II--Contract clauses.

    Section I, Contract clauses. The contracting officer shall include 
in this section the clauses required by law or by this regulation and 
any additional clauses expected to apply to any resulting contract, if 
these clauses are not required to be included in any other section of 
the uniform contract format.
[48 FR 42171, Sept. 19, 1983, as amended at 53 FR 17857, May 18, 1988]



14.201-4  Part III--Documents, exhibits, and other attachments.

    Section J, List of documents, exhibits, and other attachments. The 
contracting officer shall list the title, date, and number of pages for 
each attached document.



14.201-5  Part IV--Representations and instructions.

    The contracting officer shall prepare the representations and 
instructions as follows:
    (a) Section K, Representations, certifications, and other statements 
of bidders. Include in this section those solicitation provisions that 
require representations, certifications, or the submission of other 
information by bidders.
    (b) Section L, Instructions, conditions, and notices to bidders. 
Insert in this section solicitation provisions and other information and 
instructions not required elsewhere to guide bidders. Invitations shall 
include the time and place for bid openings, and shall advise bidders 
that bids will be evaluated without discussions (see 52.214-10 and, for 
construction contracts, 52.214-19).
    (c) Section M, Evaluation factors for award. Identify the price-
related factors other than the bid price that will be considered in 
evaluating bids and awarding the contract. (See 14.201-8.)
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 53 FR 17857, May 18, 1988]

[[Page 206]]



14.201-6  Solicitation provisions.

    (a) The provisions prescribed in this subsection are limited to 
subjects that are general in nature, do not come under other subject 
areas of the FAR, and pertain to the preparation and submission of bids.
    (b) The contracting officer shall insert in all invitations for bids 
the provisions at--
    (1) 52.214-1, Solicitation Definitions--Sealed Bidding;
    (2) 52.214-2, Type of Business Organization--Sealed Bidding;
    (3) 52.214-3, Amendments to Invitations for Bids; and
    (4) 52.214-4, False Statements in Bids.
    (c) The contracting officer shall insert the following provisions in 
invitations for bids:
    (1) 52.214-5, Submission of Bids.
    (2) 52.214-6, Explanation to Prospective Bidders.
    (3) 52.214-7, Late Submissions, Modifications, and Withdrawals of 
Bids, for solicitations issued in the United States and Canada for 
submission of bids to a contracting office in the United States or 
Canada.
    (4) 52.214-32, Late Submissions, Modifications, and Withdrawals of 
Bids (Overseas), for solicitations under which bids are to be submitted 
to a contracting office outside the United States or Canada.
    (d) [Reserved]
    (e) The contracting officer shall insert in invitations for bids, 
except those for construction, the provisions at--
    (1) 52.214-9, Failure to Submit Bid, except when using electronic 
data interchange methods not requiring solicitation mailing lists; and
    (2) 52.214-10, Contract Award--Sealed Bidding.
    (f) The contracting officer shall insert in invitations for bids to 
which the uniform contract format applies, the provision at 52.214-12, 
Preparation of Bids.
    (g)(1) The contracting officer shall insert the provision at 52.214-
13, Telegraphic Bids, in invitations for bids if the contracting officer 
decides to authorize telegraphic bids.
    (2) The contracting officer shall insert the basic provision with 
its Alternate I in invitations for bids that are for perishable 
subsistence, and when the contracting officer considers that offerors 
will be unwilling to provide acceptance periods long enough to allow 
written confirmation.
    (h) The contracting officer shall insert the provision at 52.214-14, 
Place of Performance--Sealed Bidding, in invitations for bids except 
those in which the place of performance is specified by the Government.
    (i) The contracting officer shall insert the provision at 52.214-15, 
Period for Acceptance of Bids, in invitations for bids (IFB's) that are 
not issued on SF 33 or SF 1447 except IFB's (1) for construction work or 
(2) in which the Government specifies a minimum acceptance period.
    (j) The contracting officer shall insert the provision at 52.214-16, 
Minimum Bid Acceptance Period, in invitations for bids, except for 
construction, if the contracting officer determines that a minimum 
acceptance period must be specified.
    (k) The contracting officer shall insert the provision at 52.214-17, 
Affiliated Bidders, in invitations for bids if the contracting officer 
determines that disclosure of affiliated bidders is necessary to prevent 
practices prejudicial to full and open competition, such as improper 
multiple bidding.
    (l) The contracting officer shall insert the provision at 52.214-18, 
Preparation of Bids--Construction, in invitations for bids for 
construction work.
    (m) The contracting officer shall insert the provision at 52.214-19, 
Contract Award--Sealed Bidding--Construction, in all invitations for 
bids for construction work.
    (n) Use of the provision at 52.215-4, Notice of Possible 
Standardization, may be appropriate in invitations for bids involving 
supplies that are likely to become standardized. See 15.407(b) regarding 
use of this provision in sealed bidding.
    (o)(1) The contracting officer shall insert the provision at 52.214-
20, Bid Samples, in invitations for bids if bid samples are required.
    (2) If it appears that the conditions in 14.202-4(f)(1) will apply 
and the contracting officer anticipates granting waivers thereunder 
and--

[[Page 207]]

    (i) If the nature of the required product does not necessitate 
limiting the grant of a waiver to a product produced at the same plant 
in which the product previously acquired or tested was produced, the 
contracting officer shall use the provision with its Alternate I; or
    (ii) If the nature of the required product necessitates limiting the 
grant of a waiver to a product produced at the same plant in which the 
product previously acquired or tested was produced, the contracting 
officer shall use the provision with its Alternate II.
    (3) See 14.202-4(f)(2) regarding waiving the requirement for all 
bidders.
    (p)(1) The contracting officer shall insert the provision at 52.214-
21, Descriptive Literature, in invitations for bids if (i) descriptive 
literature is required to evaluate the technical acceptability of an 
offered product and (ii) the required information will not be readily 
available unless it is submitted by bidders.
    (2) Use the basic clause with its Alternate I if the possibility 
exists that the contracting officer may waive the requirement for 
furnishing descriptive literature for a bidder offering a previously 
supplied product that meets specification requirements of the current 
solicitation.
    (3) See 14.202-5(e)(2) regarding waiving the requirement for all 
bidders.
    (q) The contracting officer shall insert the provision at 52.214-22, 
Evaluation of Bids for Multiple Awards, in invitations for bids if the 
contracting officer determines that multiple awards might be made if 
doing so is economically advantageous to the Government.
    (r) The contracting officer shall insert the provision at 52.214-23, 
Late Submissions, Modifications, and Withdrawals of Technical Proposals 
under Two-Step Sealed Bidding, in solicitations for technical proposals 
in step one of two-step sealed bidding issued in the United States and 
Canada for submission of technical proposals to a contracting office in 
the United States or Canada.
    (s) The contracting officer shall insert the provision at 52.214-24, 
Multiple Technical Proposals, in solicitations for technical proposals 
in step one of two-step sealed bidding if the contracting officer 
permits the submission of multiple technical proposals.
    (t) The contracting officer shall insert the provision at 52.214-25, 
Step Two of Two-Step Sealed Bidding, in invitations for bids issued 
under step two of two-step sealed bidding.
    (u) The contracting officer shall insert the provision at 52.214-30, 
Annual Representations and Certifications-Sealed Bidding, in invitations 
for bids if annual representations and certifications are used (see 
14.213).
    (v) The contracting officer shall insert the provision at 52.214-33, 
Late Submissions, Modifications, and Withdrawals of Technical Proposals 
under Two-Step Sealed Bidding (Overseas), in solicitations for technical 
proposals in step one of two-step sealed bidding under which technical 
proposals are to be submitted to a contracting office outside the United 
States or Canada.
    (w) The contracting officer shall insert the provision at 52.214-31, 
Facsimile Bids, in solicitations if facsimile bids are authorized (see 
14.202-7).
    (x) The provision at 52.214-34, Submission of Offers in the English 
Language, is required in solicitations subject to the Trade Agreements 
Act or the North American Free Trade Agreement Implementation Act (see 
25.408(d)). It may be included in other solicitations when the 
contracting officer decides that it is necessary.
    (y) The provision at 52.214-35, Submission of Offers in U.S. 
Currency, is required in solicitations subject to the Trade Agreements 
Act or the North American Free Trade Agreement Implementation Act (see 
25.408(d)). It may be included in other solicitations when the 
contracting officer decides that it is necessary.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1737, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2649, Jan. 17, 1986; 53 FR 43390, Oct. 
26, 1988; 54 FR 5054, Jan. 31, 1989; 54 FR 48982, Nov. 28, 1989; 55 FR 
25527, June 21, 1990; 56 FR 15149, Apr. 15, 1991; 58 FR 31141, May 28, 
1993; 59 FR 545, Jan. 5, 1994; 60 FR 34737, July 3, 1995; 62 FR 51230, 
Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, section 
14.201-6 was amended by removing paragraph (n), effective Oct. 10, 1997.

[[Page 208]]



14.201-7  Contract clauses.

    (a) When contracting by sealed bidding, the contracting officer 
shall insert the clause at 52.214-26, Audit and Records--Sealed Bidding, 
in solicitations and contracts if the contract amount is expected to 
exceed the threshold at 15.403-4(a)(1) for submission of cost or pricing 
data.
    (b)(1) When contracting by sealed bidding, the contracting officer 
shall insert the clause at 52.214-27, Price Reduction for Defective Cost 
or Pricing Data--Modifications--Sealed Bidding, in solicitations and 
contracts if the contract amount is expected to exceed the threshold for 
submission of cost or pricing data at 15.403-4(a)(1).
    (2) In exceptional cases, the head of the contracting activity may 
waive the requirement for inclusion of the clause in a contract with a 
foreign government or agency of that government. The authorizations for 
the waiver and the reasons for granting it shall be in writing.
    (c)(1) When contracting by sealed bidding, the contracting officer 
shall insert the clause at 52.214-28, Subcontractor Cost or Pricing 
Data--Modifications--Sealed Bidding, in solicitations and contracts if 
the contract amount is expected to exceed the threshold for submission 
of cost or pricing data at 15.403-4(a)(1).
    (2) In exceptional cases, the head of the contracting activity may 
waive the requirement for inclusion of the clause in a contract with a 
foreign government or agency of that government. The authorizations for 
the waiver and the reasons for granting it shall be in writing.
    (d) When contracting by sealed bidding, the contracting officer 
shall insert the clause at 52.214-29, Order of Precedence--Sealed 
Bidding, in solicitations and contracts to which the uniform contract 
format applies.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2649, Jan. 17, 1986; 56 FR 67413, Dec. 
30, 1991; 59 FR 62499, Dec. 5, 1994; 60 FR 42650, Aug. 16, 1995; 60 FR 
48211, Sept. 18, 1995; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.201-7, in paragraphs (a), (b)(1), and (c)(1), ``15.804-2(a)(1)'' was 
amended to read ``15.403-4(a)(1)'', effective Oct. 10, 1997.



14.201-8  Price-related factors.

    The factors set forth in paragraphs (a) through (e) below may be 
applicable in evaluation of bids for award and shall be included in the 
solicitation when applicable. (See 14.201-5(c).)
    (a) Foreseeable costs or delays to the Government resulting from 
such factors as differences in inspection, locations of supplies, and 
transportation. If bids are on an f.o.b. origin basis (see 47.303 and 
47.305), transportation costs to the designated points shall be 
considered in determining the lowest cost to the Government.
    (b) Changes made, or requested by the bidder, in any of the 
provisions of the invitation for bids, if the change does not constitute 
a ground for rejection under 14.404.
    (c) Advantages or disadvantages to the Government that might result 
from making more than one award (see 14.201-6(q)). The contracting 
officer shall assume, for the purpose of making multiple awards, that 
$500 would be the administrative cost to the Government for issuing and 
administering each contract awarded under a solicitation. Individual 
awards shall be for the items or combinations of items that result in 
the lowest aggregate cost to the Government, including the assumed 
administrative costs.
    (d) Federal, State, and local taxes (see part 29).
    (e) Origin of supplies, and, if foreign, the application of the Buy 
American Act or any other prohibition on foreign purchases (see part 
25).
[50 FR 1738, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985; 55 FR 25527, 
June 21, 1990]



14.201-9  Simplified contract format.

    Policy. For firm-fixed-price or fixed-price with economic price 
adjustment acquisitions of supplies and services, the contracting 
officer may use the simplified contract format in lieu of the uniform 
contract format (see 14.201-1). The contracting officer has flexibility 
in preparation and organization of the simplified contract format. 
However, the following format should be used to the maximum practical 
extent:

[[Page 209]]

    (a) Solicitation/contract form. Standard Form (SF) 1447, 
Solicitation/Contract, shall be used as the first page of the 
solicitation.
    (b) Contract schedule. Include the following for each contract line 
item:
    (1) Contract line item number.
    (2) Description of supplies or services, or data sufficient to 
identify the requirement.
    (3) Quantity and unit of issue.
    (4) Unit price and amount.
    (5) Packaging and marking requirements.
    (6) Inspection and acceptance, quality assurance, and reliability 
requirements.
    (7) Place of delivery, performance and delivery dates, period of 
performance, and f.o.b. point.
    (8) Other item-peculiar information as necessary (e.g., individual 
fund citations).
    (c) Clauses. Include the clauses required by this regulation. 
Additional clauses shall be incorporated only when considered absolutely 
necessary to the particular acquisition.
    (d) List of documents and attachments. Include if necessary.
    (e) Representations and instructions--(1) Representations and 
certifications. Insert those solicitation provisions that require 
representations, certifications, or the submission of other information 
by offerors.
    (2) Instructions, conditions, and notices. Include the solicitation 
provisions required by 14.201-6. Include any other information/
instructions necessary to guide offerors.
    (3) Evaluation factors for award. Insert all evaluation factors and 
any significant subfactors for award.
    (4) Upon award, the contracting officer need not physically include 
the provisions in subparagraphs (e)(1), (2), and (3) of this subsection 
in the resulting contract, but shall retain them in the contract file. 
Award by acceptance of a bid on the award portion of SF 1447 
incorporates the representations, certifications, and other statements 
of bidders in the resultant contract even though not physically 
attached.
[54 FR 48983, Nov. 28, 1989, as amended at 56 FR 41733, Aug. 22, 1991]



14.202  General rules for solicitation of bids.



14.202-1  Bidding time.

    (a) Policy. A reasonable time for prospective bidders to prepare and 
submit bids shall be allowed in all invitations, consistent with the 
needs of the Government. (For construction contracts, see 36.213-3(a).) 
A bidding time (i.e., the time between issuance of the solicitation and 
opening of bids) of at least 30 calendar days shall be provided when 
synopsis is required by subpart 5.2.
    (b) Factors to be considered. Because of unduly limited bidding 
time, some potential sources may be precluded from bidding and others 
may be forced to include amounts for contingencies that, with additional 
time, could be eliminated. To avoid unduly restricting competition or 
paying higher-than-necessary prices, consideration shall be given to 
such factors as the following in establishing a reasonable bidding time: 
(1) degree of urgency; (2) complexity of requirement; (3) anticipated 
extent of subcontracting; (4) whether use was made of presolicitation 
notices; (5) geographic distribution of bidders; and (6) normal 
transmittal time for both invitations and bids.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 34737, July 3, 1995; 62 FR 272, Jan. 
2, 1997]



14.202-2  Telegraphic bids.

    (a) Telegraphic bids and mailgrams shall be authorized only when--
    (1) The date for the opening of bids will not allow bidders 
sufficient time to submit bids in the prescribed format; or
    (2) Prices are subject to frequent changes.
    (b) If telegraphic bids are to be authorized, see 14.201-6(g). 
Unauthorized telegraphic bids shall not be considered (see 14.301(b)).
[48 FR 42171, Sept. 19, 1983, as amended at 60 FR 34737, July 3, 1995]



14.202-3  Bid envelopes.

    (a) Postage or envelopes bearing Postage and Fees Paid indicia shall 
not be distributed with the invitation for bids

[[Page 210]]

or otherwise supplied to prospective bidders.
    (b) To provide for ready identification and proper handling of bids, 
Optional Form 17, Offer Label, may be furnished with each bid set. The 
form may be obtained from the General Services Administration (see 
53.107).
[48 FR 42171, Sept. 19, 1983, as amended at 59 FR 67033, Dec. 28, 1994]



14.202-4  Bid samples.

    (a) Definition. Bid sample means a sample to be furnished by a 
bidder to show the characteristics of the product offered in a bid.
    (b) Policy. (1) Bidders shall not be required to furnish bid samples 
unless there are characteristics of the product that cannot be described 
adequately in the specification or purchase description.
    (2) Bid samples will be used only to determine the responsiveness of 
the bid and will not be used to determine a bidder's ability to produce 
the required items.
    (3) Bid samples may be examined for any required characteristic, 
whether or not such characteristic is adequately described in the 
specification, if listed in accordance with subdivision (e)(1)(ii) 
below.
    (4) Bids will be rejected as nonresponsive if the sample fails to 
conform to each of the characteristics listed in the invitation.
    (c) When to use. The use of bid samples would be appropriate for 
products that must be suitable from the standpoint of balance, facility 
of use, general ``feel,'' color, pattern, or other characteristics that 
cannot be described adequately in the specification. However, when more 
than a minor portion of the characteristics of the product cannot be 
adequately described in the specification, products should be acquired 
by two-step sealed bidding or negotiation, as appropriate.
    (d) Justification. The reasons why acceptable products cannot be 
acquired without the submission of bid samples shall be set forth in the 
contract file, except where the submission is required by the formal 
specifications (Federal, Military, or other) applicable to the 
acquisition.
    (e) Requirements for samples in invitations for bids. (1) 
Invitations for bids shall--
    (i) State the number and, if appropriate, the size of the samples to 
be submitted and otherwise fully describe the samples required; and
    (ii) List all the characteristics for which the samples will be 
examined.
    (2) If bid samples are required, see 14.201-6(o).
    (f) Waiver of requirement for bid samples. (1) The requirement for 
furnishing bid samples may be waived when a bidder offers a product 
previously or currently being contracted for or tested by the Government 
and found to comply with specification requirements conforming in every 
material respect with those in the current invitation for bids. When the 
requirement may be waived, see 14.201-6(o)(2).
    (2) Where samples required by a Federal, Military, or other formal 
specification are not considered necessary and a waiver of the sample 
requirements of the specification has been authorized, a statement shall 
be included in the invitation that notwithstanding the requirements of 
the specification, samples will not be required.
    (g) Unsolicited samples. Bid samples furnished with a bid that are 
not required by the invitation generally will not be considered as 
qualifying the bid and will be disregarded. However, the bid sample will 
not be disregarded if it is clear from the bid or accompanying papers 
that the bidder's intention was to qualify the bid. (See 14.404-2(d) if 
the qualification does not conform to the solicitation.)
    (h) Handling of bid samples. (1) Samples that are not destroyed in 
testing shall be returned to bidders at their request and expense, 
unless otherwise specified in the invitation.
    (2) Disposition instructions shall be requested from bidders and 
samples disposed of accordingly.
    (3) Samples ordinarily will be returned collect to the address from 
which received if disposition instructions are not received within 30 
days. Small items may be returned by mail, postage prepaid.
    (4) Samples that are to be retained for inspection purposes in 
connection with deliveries shall be transmitted to

[[Page 211]]

the inspecting activity concerned, with instructions to retain the 
sample until completion of the contract or until disposition 
instructions are furnished.
    (5) Where samples are consumed or their usefulness is impaired by 
tests, they will be disposed of as scrap unless the bidder requests 
their return.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.202-5  Descriptive literature.

    (a) Definition. Descriptive literature means information, such as 
cuts, illustrations, drawings, and brochures, which shows the 
characteristics or construction of a product or explains its operation. 
It is furnished by bidders as a part of their bids to describe the 
products offered. The term includes only information required to 
determine acceptability of the product. It excludes other information 
such as that furnished in connection with the qualifications of a bidder 
or for use in operating or maintaining equipment.
    (b) Policy. Bidders shall not be required to furnish descriptive 
literature unless the contracting office needs it to determine before 
award whether the products offered meet the specification and to 
establish exactly what the bidder proposes to furnish.
    (c) Justification. The reasons why product acceptability cannot be 
determined without the submission of descriptive literature shall be set 
forth in the contract file, except when such submission is required by 
formal specifications (Federal, Military, or other) applicable to the 
acquisition.
    (d) Requirements of invitation for bids. (1) The invitation shall 
clearly state (i) what descriptive literature is to be furnished, (ii) 
the purpose for which it is required, (iii) the extent to which it will 
be considered in the evaluation of bids, and (iv) the rules that will 
apply if a bidder fails to furnish the literature before bid opening or 
if the literature furnished does not comply with the requirements of the 
invitation.
    (2) If bidders are to furnish descriptive literature, see 14.201-
6(p).
    (e) Waiver of requirements for descriptive literature. (1) The 
requirement for furnishing descriptive literature may be waived if--
    (i) The bidder states in the bid that the product being offered is 
the same as a product previously or currently being furnished to the 
contracting activity; and
    (ii) The contracting officer determines that the product offered by 
the bidder complies with the specification requirements of the current 
invitation for bids. When the requirement may be waived, see 14.201-
6(p)(2).
    (2) When descriptive literature is not considered necessary and a 
waiver of literature requirements of a Federal, Military, or other 
formal specification has been authorized, a statement shall be included 
in the invitation that, notwithstanding the requirements of the 
specifications, descriptive literature will not be required.
    (3) If the solicitation provides for a waiver, a bidder may submit a 
bid on the basis of either the descriptive literature to be furnished or 
a previously furnished product. If the bid is submitted on one basis, 
the bidder is precluded from having it considered on the other basis 
after bids are opened.
    (f) Unsolicited descriptive literature. If descriptive literature is 
furnished when not required by the invitation for bids, the procedures 
set forth in 14.202-4(g) shall be followed.



14.202-6  Final review of invitations for bids.

    Each invitation for bids shall be thoroughly reviewed before 
issuance to detect and correct discrepancies or ambiguities that could 
limit competition or result in the receipt of nonresponsive bids. 
Contracting officers are responsible for the reviews.



14.202-7  Facsimile bids.

    (a) Unless prohibited or otherwise restricted by agency procedures, 
contracting officers may authorize facsimile bids (see 14.201-6(w)). In 
determining whether or not to authorize facsimile bids, the contracting 
officer shall consider factors such as--
    (1) Anticipated bid size and volume;
    (2) Urgency of the requirement;
    (3) Frequency of price changes;
    (4) Availability, reliability, speed, and capacity of the receiving 
facsimile equipment; and

[[Page 212]]

    (5) Adequacy of administrative procedures and controls for 
receiving, identifying, recording, and safeguarding facsimile bids, and 
ensuring their timely delivery to the bids opening location.
    (b) If facsimile bids are authorized, contracting officers may, 
after the date set for bid opening, request the apparently successful 
offeror to provide the complete original signed bid.
[54 FR 48983, Nov. 28, 1989]



14.202-8  Electronic bids.

    In accordance with subpart 4.5, contracting officers may authorize 
use of electronic commerce for submission of bids. If electronic bids 
are authorized, the solicitation shall specify the electronic commerce 
method(s) that bidders may use.
[60 FR 34737, July 3, 1995



14.203  Methods of soliciting bids.



14.203-1  Transmittal to prospective bidders.

    Invitations for bids or presolicitation notices shall be transmitted 
as specified in 14.205, and shall be provided to others in accordance 
with 5.102. When a contracting office is located in the United States, 
any solicitation sent to a prospective bidder located at a foreign 
address shall be sent by electronic data interchange or international 
air mail if security classification permits.
[60 FR 34737, July 3, 1995]



14.203-2  Dissemination of information concerning invitations for bids.

    (a) Procedures concerning display of invitations for bids in a 
public place, information releases to newspapers and trade journals, 
paid advertisements, and synopsizing in the Commerce Business Daily are 
set forth in 5.101 and 5.2.
    (b) For procedures that apply to publishing notices in the Commerce 
Business Daily to determine whether commercial sources are available, as 
prescribed by OMB Circular A-76, see 5.205(d) and 7.303(b).
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 48983, Nov. 28, 1989]



14.203-3  Master solicitation.

    (a) Definition. Master solicitation, as used in this subsection, 
means a document containing special clauses and provisions that have 
been identified as essential for the acquisition of a specific type of 
supply or service that is acquired repetitvely.
    (b) Use. The master solicitation is provided to potential sources 
who are requested to retain it for continued and repetitive use. 
Individual solicitations shall reference the date of the current master 
solicitation and any changes thereto. Copies of the master solicitation 
shall be made available on request. Cognizant contract administration 
activities shall be provided a current copy of the master solicitation.
[54 FR 29280, July 11, 1989]



14.204  Records of invitations for bids and records of bids.

    (a) Each contracting office shall retain a record of each invitation 
that it issues and each abstract or record of bids. Contracting officers 
shall review and utilize the information available in connection with 
subsequent acquisitions of the same or similar items.
    (b) The file for each invitation shall show the distribution that 
was made and the date the invitation was issued. The names and addresses 
of prospective bidders who requested the invitation and were not 
included on the original solicitation list shall be added to the list 
and made a part of the record.



14.205  Solicitation mailing lists.



14.205-1  Establishment of lists.

    (a) Solicitation mailing lists shall be established by contracting 
activities to assure access to adequate sources of supplies and 
services. This rule need not be followed, however, when (1) the 
requirements of the contracting office can be obtained through use of 
simplified acquisition procedures (see part 13), (2) the requirements 
are nonrecurring, or (3) electronic commerce methods are used which 
transmit solicitations or presolicitation notices automatically to all 
interested sources participating in electronic contracting with the 
purchasing activity. Lists may be established as a central list for

[[Page 213]]

use by all contracting offices within the contracting activity, or as 
local lists maintained by each contracting office.
    (b) All eligible and qualified concerns that have submitted 
solicitation mailing list applications, or that the contracting office 
considers capable of filling the requirements of a particular 
acquisition, shall be placed on the appropriate solicitation mailing 
list. See also 5.403(b). Planned producers under the Industrial 
Preparedness Planning Program shall be included on lists for their 
planned items. Prospective bidders shall be notified that they have been 
added to solicitation mailing lists in accordance with agency 
procedures. The issuance of a solicitation within a reasonable time may 
be considered appropriate notification. Applicants shall be notified if 
they do not meet the criteria for placement on the list.
    (c) The names of prospective bidders who are furnished invitations 
in response to their requests shall be added to the list of those 
initially mailed copies of a particular solicitation, so that they will 
be furnished copies of any solicitation amendments, etc. However, when 
it is known that the request was made by a person or an organization 
that is known not to be a prospective bidder, no entry shall be made on 
the list.
    (d)(1) Standard Form 129, Solicitation Mailing List Application, 
shall be used for obtaining information needed to establish and maintain 
lists. Supplemental information, where required, may be obtained as 
specified in agency implementing regulations.
    (2) The application shall be submitted and signed by the supplier, 
as distinguished from an agent of the supplier. However, suppliers are 
not precluded from designating, in the Standard Form 129, their agents 
to receive solicitations.
    (3) In order to enable suppliers to indicate readily the items on 
which they will generally desire to submit bids, there shall be attached 
to Standard Form 129 forwarded to suppliers for completion, a list of 
items, or item groups, or an index to such listing of the items, 
acquired by the contracting activity maintaining the list, which are 
considered applicable to the supplier's type of business.
    (e) Business concerns listed on solicitation mailing lists shall be 
identified by size in accordance with 19.102. Size status should be 
established before listing a business concern on a list. Disadvantaged 
and women-owned business concern designations shall be shown on the list 
whenever noted on the Standard Form 129 submitted by a particular 
concern.
[48 FR 42171, Sept. 19, 1983, as amended at 60 FR 34737, July 3, 1995; 
60 FR 48260, Sept. 18, 1995; 61 FR 67410, Dec. 20, 1996]



14.205-2  Removal of names from solicitation mailing lists.

    (a) The name of each concern failing to either (1) submit a bid, (2) 
respond to a presolicitation notice (see 14.205-4(c)), or (3) otherwise 
respond to an invitation for bids may be removed from the solicitation 
mailing list without notice to the concern. However, the removal shall 
be limited to the items involved in the invitation or notice. When a 
concern fails to respond to two consecutive invitations or 
presolicitation notices, its name shall be removed from the list to the 
extent indicated in this paragraph. However, in individual cases, 
concerns failing to respond may be retained on a list if retention is in 
the best interest of the Government. Both actual bids and written 
requests for retention on the lists shall be deemed to be responses to 
invitations for bids or presolicitation notices. If this procedure 
results in limited solicitation mailing lists, the contracting officer 
should request an explanation from the concerns that did not respond.
    (b) Concerns that have been debarred from Government contracts or 
otherwise determined to be ineligible to receive an award shall be 
removed from solicitation mailing lists to the extent required by the 
debarment, suspension, or other determination of ineligibility.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.205-3  Reinstatement on solicitation mailing lists.

    Concerns that have been removed from solicitation mailing lists may 
be

[[Page 214]]

reinstated (a) upon written request, (b) by filing a new application on 
Standard Form 129, or (c) by the submission of a bid. Debarred or 
suspended firms shall not be reinstated during the period of a debarment 
or suspension.



14.205-4  Excessively long solicitation mailing lists.

    (a) General. Solicitation mailing lists should be used to promote 
competition commensurate with the dollar value of the proposed contract. 
As much of the solicitation mailing list shall be used as is compatible 
with efficiency and economy in securing competition. Where the number of 
bidders on a mailing list is excessive in relation to a specific 
acquisition, the list may be reduced consistent with this paragraph and 
paragraphs (b) and (c) below. Nonetheless, solicitations should be 
furnished to others upon request, in accordance with 5.102. Also, bids 
shall not be disregarded merely because the bidder was not formally 
invited to bid.
    (b) Rotation of lists. By using different portions of a list for 
separate acquisitions, solicitation mailing lists may be rotated. 
However, considerable judgment must be exercised in determining whether 
the size of the acquisiton justifies the rotation. The use of a 
presolicitation notice (see paragraph (c) below), time permitting, also 
should be considered. In rotating a list, the interests of small, small 
disadvantaged and women-owned small businesses (see 19.202-4) shall be 
considered. Whenever a list is rotated, bids shall be solicited from (1) 
the previously successful bidder, (2) prospective suppliers who have 
been added to the solicitation mailing list since the last solicitation, 
and (3) concerns on the segment of the list selected for use in a 
particular acquisition. However, the rule does not apply when such 
action would be precluded by use of a total set-aside (see part 19).
    (c) Presolicitation notices. In lieu of initially forwarding 
complete bid sets, the contracting officer may send presolicitation 
notices to concerns on the solicitation mailing list. The notice shall 
(1) specify the final date for receipt of requests for a complete bid 
set, (2) briefly describe the requirement and furnish other essential 
information to enable concerns to determine whether they have an 
interest in the invitation, and (3) notify concerns that, if no bid is 
to be submitted, they should advise the issuing office in writing if 
future invitations are desired for the type of supplies or services 
involved. Drawings, plans, and specifications normally will not be 
furnished with the presolicitation notice. The return date of the notice 
must be sufficiently in advance of the mailing date of the invitation 
for bids to permit an accurate estimate of the number of bid sets 
required. Bid sets shall be sent to concerns that request them in 
response to the notice. This procedure is particularly suitable when 
invitations for bids and solicitation mailing lists are lengthy.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 48260, Sept. 18, 1995]



14.205-5  Release of solicitation mailing lists.

    (a) Contracting activities shall make the central and local 
solicitation mailing lists established under this part available to the 
public in response to written requests made in accordance with agency 
regulations implementing subpart 24.2.
    (b) When invitations for bids for construction contracts have been 
issued, trade journals, prospective subcontractors, material suppliers, 
bidders, and others having a bona fide interest will be supplied upon 
request with a list of all prospective bidders furnished copies of the 
plans and specifications. Contracting offices may require written 
requests and establish appropriate procedures.
[48 FR 42171, Sept. 19, 1983, as amended at 52 FR 38189, Oct. 14, 1987; 
53 FR 661, Jan. 11, 1988; 53 FR 43390, Oct. 26, 1988]



14.206  Small business set-asides.

(See Part 19.)
[60 FR 48260, Sept. 18, 1995]



14.207  Pre-bid conference.

    A pre-bid conference may be used, generally in a complex 
acquisition, as a means of briefing prospective bidders and explaining 
complicated specifications and requirements to them as early as possible 
after the invitation

[[Page 215]]

has been issued and before the bids are opened. It shall never be used 
as a substitute for amending a defective or ambiguous invitation. The 
conference shall be conducted in accordance with the procedure 
prescribed in 15.201.
[48 FR 42171, Sept. 19, 1983, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.207, ``15.409'' was amended to read ``15.201'', effective Oct. 10, 
1997.



14.208  Amendment of invitation for bids.

    (a) If it becomes necessary to make changes in quantity, 
specifications, delivery schedules, opening dates, etc., or to correct a 
defective or ambiguous invitation, such changes shall be accomplished by 
amendment of the invitation for bids using Standard Form 30, Amendment 
of Solicitation/Modification of Contract. The fact that a change was 
mentioned at a pre-bid conference does not relieve the necessity for 
issuing an amendment. Amendments shall be sent, before the time for bid 
opening, to everyone to whom invitations have been furnished and shall 
be displayed in the bid room.
    (b) Before amending an invitation for bids, the period of time 
remaining until bid opening and the need to extend this period shall be 
considered. When only a short time remains before the time set for bid 
opening, consideration should be given to notifying bidders of an 
extension of time by telegrams or telephone. Such extension must be 
confirmed in the amendment.
    (c) Any information given to a prospective bidder concerning an 
invitation for bids shall be furnished promptly to all other prospective 
bidders as an amendment to the invitation (1) if such information is 
necessary for bidders to submit bids or (2) if the lack of such 
information would be prejudicial to uninformed bidders. The information 
shall be furnished even though a pre-bid conference is held. No award 
shall be made on the invitation unless such amendment has been issued in 
sufficient time to permit all prospective bidders to consider such 
information in submitting or modifying their bids.



14.209  Cancellation of invitations before opening.

    (a) The cancellation of an invitation for bids usually involves a 
loss of time, effort, and money spent by the Government and bidders. 
Invitations should not be cancelled unless cancellation is clearly in 
the public interest; e.g., (1) where there is no longer a requirement 
for the supplies or services or (2) where amendments to the invitation 
would be of such magnitude that a new invitation is desirable.
    (b) When an invitation issued other than electronically is 
cancelled, bids that have been received shall be returned unopened to 
the bidders and notice of cancellation shall be sent to all prospective 
bidders to whom invitations were issued. When an invitation issued 
electronically is cancelled, a general notice of cancellation shall be 
posted electronically, the bids received shall not be viewed, and the 
bids shall be purged from primary and backup data storage systems.
    (c) The notice of cancellation shall (1) identify the invitation for 
bids by number and short title or subject matter, (2) briefly explain 
the reason the invitation is being cancelled, and (3) where appropriate, 
assure prospective bidders that they will be given an opportunity to bid 
on any resolicitation of bids or any future requirements for the type of 
supplies or services involved. Cancellations shall be recorded in 
accordance with 14.403(d).
[48 FR 42171, Sept. 19, 1983, as amended at 60 FR 34737, July 3, 1995; 
62 FR 12692, Mar. 17, 1997]



14.210  Qualified products.

    See subpart 9.2.



14.211  Release of acquisition information.

    (a) Before solicitation. Information concerning proposed 
acquisitions shall not be released outside the Government before 
solicitation except for presolicitation notices in accordance with 
14.205-4(c) or 36.213-2, or long-range acquisition estimates in 
accordance with 5.404, or synopses in accordance with 5.201. Within the 
Government, such information shall be restricted to those having a 
legitimate interest. Releases of information shall

[[Page 216]]

be made (1) to all prospective bidders, and (2) as nearly as possible at 
the same time, so that one prospective bidder shall not be given unfair 
advantage over another. See 3.104 regarding requirements for proprietary 
and source selection information including access to and disclosure 
thereof.
    (b) After solicitation. Discussions with prospective bidders 
regarding a solicitation shall be conducted and technical or other 
information shall be transmitted only by the contracting officer or 
superiors having contractual authority or by others specifically 
authorized. Such personnel shall not furnish any information to a 
prospective bidder that alone or together with other information may 
afford an advantage over others. However, general information that would 
not be prejudicial to other prospective bidders may be furnished upon 
request; e.g., explanation of a particular contract clause or a 
particular condition of the schedule in the invitation for bids, and 
more specific information or clarifications may be furnished by amending 
the solicitation (see 14.208).
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 36795, Sept. 6, 1990; 62 FR 272, Jan. 
2, 1997]



14.212  Economic purchase quantities (supplies).

    Contracting officers shall comply with the economic purchase 
quantity planning requirements for supplies in subpart 7.2. See 7.203 
for instructions regarding use of the provision at 52.207-4, Economic 
Purchase Quantity--Supplies, and 7.204 for guidance on handling 
responses to that provision.
[50 FR 35479, Aug. 30, 1985]



14.213  Annual submission of representations and certifications.

    (a) Submission of offeror representations and certifications on an 
annual basis, as an alternative to submission in each solicitation, may 
be authorized by agencies subject to the requirements of this section. 
The decision to use annual representations and certifications shall be 
made in accordance with agency procedures.
    (b) In accordance with agency procedures, each contracting office 
utilizing annual representations and certifications shall establish 
procedures and assign responsibilities for centrally requesting, 
receiving, storing, verifying and updating offeror's annual submissions. 
Generally, the representations and certifications shall be effective for 
a period of 1 year from date of signature.
    (c) The contracting officer shall not include in individual 
solicitations the full text of provisions that are contained in the 
annual representations and certifications.
    (d) Offerors shall make changes that affect only one solicitation by 
completing the appropriate section of the provision at 52.214-30, Annual 
Representations and Certifications--Sealed Bidding.
[54 FR 48983, Nov. 28, 1989]



14.214  [Reserved]



                    Subpart 14.3--Submission of Bids



14.301  Responsiveness of bids.

    (a) To be considered for award, a bid must comply in all material 
respects with the invitation for bids. Such compliance enables bidders 
to stand on an equal footing and maintain the integrity of the sealed 
bidding system.
    (b) Telegraphic bids shall not be considered unless permitted by the 
invitation. The term telegraphic bids means bids submitted by telegram 
or by mailgram.
    (c) Facsimile bids shall not be considered unless permitted by the 
solicitation (see 14.202-7).
    (d) Bids should be filled out, executed, and submitted in accordance 
with the instructions in the invitation. If a bidder uses its own bid 
form or a letter to submit a bid, the bid may be considered only if (1) 
the bidder accepts all the terms and conditions of the invitation and 
(2) award on the bid would result in a binding contract with terms and 
conditions that do not vary from the terms and conditions of the 
invitation.
    (e) Bids submitted by electronic commerce shall be considered only 
if the

[[Page 217]]

electronic commerce method was specifically stipulated or permitted by 
the solicitation.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 48983, Nov. 28, 1989; 60 FR 34738, 
July 3, 1995]



14.302  Bid submission.

    (a) Bids shall be submitted so that they will be received in the 
office designated in the invitation for bids (referred to in paragraphs 
(b) and (c) below as the designated office) not later than the exact 
time set for opening of bids.
    (b) Except as specified in paragraph (c) below, if telegraphic bids 
are authorized, a telegraphic bid that is communicated by means of a 
telephone call to the designated office shall be considered if--
    (1) Agency regulations authorize such consideration;
    (2) The telephone call is made by the telegraph office that received 
the telegraphic bid;
    (3) The telephone call is received by the designated office not 
later than the time set for the bid opening;
    (4) The telegraph office that received the telegraphic bid sends the 
designated office the telegram that formed the basis for the telephone 
call;
    (5) The telegram indicates on its face that it was received in the 
telegraph office before the telephone call was received by the 
designated office; and
    (6) The bid in the telegram is identical in all essential respects 
to the bid received in the telephone call from the telegraph office.
    (c) If the conditions in paragraph (b) above apply and the bid 
received by telephone is the apparent low bid, award may not be made 
until the telegram is received by the designated office; however, if the 
telegram is not received by the designated office within 5 days after 
the bid opening date, the bid shall be rejected.



14.303  Modification or withdrawal of bids.

    (a) Bids may be modified or withdrawn by any method authorized by 
the solicitation, if notice is received in the office designated in the 
solicitation not later than the exact time set for opening of bids. 
Unless proscribed by agency regulations, a telegraphic modification or 
withdrawal of a bid received in such office by telephone from the 
receiving telegraph office shall be considered. However, the message 
shall be confirmed by the telegraph company by sending a copy of the 
written telegram that formed the basis for the telephone call. If the 
solicitation authorizes facsimile bids, bids may be modified or 
withdrawn via facsimile received at any time before the exact time set 
for receipt of bids, subject to the conditions specified in the 
provision prescribed in 14.201-6(w). Modifications received by telephone 
(including a record of those telephoned by the telegraph company) or 
facsimile shall be sealed in an envelope by a proper official. The 
official shall write on the envelope (1) the date and time of receipt 
and by whom, and (2) the number of the invitation for bids, and shall 
sign the envelope. No information contained in the envelope shall be 
disclosed before the time set for bid opening.
    (b) A bid may be withdrawn in person by a bidder or its authorized 
representative if, before the exact time set for opening of bids, the 
identity of the persons requesting withdrawal is established and that 
person signs a receipt for the bid.
    (c) Upon withdrawal of an electronically transmitted bid, the data 
received shall not be viewed and shall be purged from primary and backup 
data storage systems.
[48 FR 42171, Sept. 19, 1983, as amended at 54 FR 48983, Nov. 28, 1989; 
60 FR 34738, July 3, 1995]



14.304  Late bids, late modifications of bids, or late withdrawal of bids.



14.304-1  General.

    Bids received in the office designated in the invitation for bids 
after the exact time set for opening are late bids.
    (a) A late bid, modification of bid, or withdrawal of bid shall not 
be considered unless received before contract award, and--
    (1) It was sent to a contracting office in the United States or 
Canada by registered or certified mail not later than

[[Page 218]]

5 calendar days before the bid receipt date specified;
    (2) It was sent by mail (or telegram or facsimile, if authorized) or 
hand-carried (including delivery by a commercial carrier) if it is 
determined by the Government that the late receipt was due primarily to 
government mishandling after receipt at the Government installation;
    (3) It was sent to a contracting office in the United States or 
Canada by U.S. Postal Service Express Mail Next Day Service-Post Office 
to Addressee not later than 5:00 PM at the place of mailing 2 working 
days prior to the date specified for receipt of bids. The term working 
days excludes weekends and Federal holidays; or
    (4) It was transmitted through an electronic commerce method 
authorized by the solicitation and was received at the initial point of 
entry to the Government infrastructure not later than 5:00 p.m. one 
working day prior to the date specified for receipt of bids.
    (b) The only acceptable evidence to establish the date of mailing of 
a late bid, modification, or withdrawal sent to a contracting office in 
the United States or Canada either by registered or certified mail is a 
U.S. or Canadian Postal Service postmark both on the envelope or wrapper 
and on the original receipt from the U.S. or Canadian Postal Service. 
Both postmarks must show a legible date, or the bid, modification, or 
withdrawal shall be deemed to have been mailed late. (The term postmark 
means a printed, stamped, or otherwise placed impression (exclusive of a 
postage meter machine impression) that is readily identifiable without 
further action as having been supplied and affixed on the date of 
mailing by employees of the U.S. or Canadian Postal Service. Therefore, 
bidders should request the postal clerk to place a legible hand 
cancellation bull's-eye postmark on both the receipt and the envelope or 
wrapper.)
    (c) Acceptable evidence to establish the time of receipt at the 
Government installation includes the time/date stamp of such 
installation on the bid wrapper, other documentary evidence of receipt 
maintained by the installation, or oral testimony or statements of 
Government personnel.
    (d) The only acceptable evidence to establish the date of mailing of 
a late bid, modification, or withdrawal sent by U.S. Postal Service 
Express Mail Next Day Service-Post Office to Addressee is the date 
entered by the post office receiving clerk on the Express Mail Next Day 
Service-Post Office to Addressee label and the postmark on the envelope 
or wrapper and on the original receipt from the U.S. Postal Service. 
Postmark has the same meaning as defined in paragraph (b) of this 
subsection, excluding postmarks of the Canadian Postal Service. 
Therefore, bidders should request the postal clerks to place a legible 
hand cancellation bull's-eye postmark on both the receipt and the 
envelope or wrapper.
    (e) Notwithstanding the above, a late modification of an otherwise 
successful bid which makes its terms more favorable to the Government 
will be considered at any time it is received and may be accepted.
[48 FR 42171, Sept. 19, 1983, as amended at 54 FR 48984, Nov. 28, 1989; 
60 FR 34738, July 3, 1995; 61 FR 69293, Dec. 31, 1996; 62 FR 12693, Mar. 
17, 1997]



14.304-2  Notification to late bidders.

    When a bid, modification of bid, or withdrawal of bid is received 
late and it is clear from available information that it cannot be 
considered, the contracting officer shall promptly notify the bidder 
accordingly. However, when a late bid, modification of bid, or 
withdrawal of bid is transmitted to a contracting office in the United 
States or Canada by registered or certified mail or by U.S. Postal 
Service Express Mail Next Day Service-Post Office to Addressee and is 
received before award, the bidder shall be promptly notified 
substantially as follows: Your bid in response to Invitation for Bids 
Number ---- dated ---- for ---- [insert subject matter or short title] 
was received after the time for opening specified in the Invitation. 
Accordingly, your bid will not be opened or considered for award unless 
there is received from you by ---- [insert date] the original post 
office receipt for (insert one of the following, as appropriate):

[[Page 219]]

    (a) Registered or certified mail showing a date of mailing not later 
than the fifth calendar day before the date specified for opening (e.g., 
a bid submitted in response to a solicitation requiring receipt of bids 
by the 20th of the month must have been mailed by the 15th or earlier); 
or
    (b) U.S. Postal Service Express Mail Next Day Service-Post Office to 
Addressee showing a date of mailing not later than 5:00 PM two Federal 
working days prior to the date specified for opening.
[54 FR 48984, Nov. 28, 1989]



14.304-3  Disposition of late submissions.

    Late bids, modification of bids, or withdrawal of bids that are not 
considered for award shall be held unopened, unless opened for 
identification, until after award and then retained with other 
unsuccessful bids. However, any bid bond or guarantee shall be returned.



14.304-4  Records.

    The following shall, if available, be included in the contracting 
office files with respect to each late bid, modification of bid, or 
withdrawal of bid:
    (a) A statement of the date and hour of mailing, filing, or 
delivery.
    (b) A statement of the date and hour of receipt.
    (c) The determination, with supporting facts, as to whether or not 
the late bid was considered for award.
    (d) A statement of the disposition of the late bid.
    (e) The envelope, or other covering, if the late bid was considered 
for award.



           Subpart 14.4--Opening of Bids and Award of Contract



14.400  Scope of subpart.

    This subpart contains procedures for the receipt, handling, opening, 
and disposition of bids including mistakes in bids, and subsequent award 
of contract.



14.401  Receipt and safeguarding of bids.

    (a) All bids (including modifications) received before the time set 
for the opening of bids shall be kept secure. Except as provided in 
paragraph (b) of this section, the bids shall not be opened or viewed, 
and shall remain in a locked bid box, a safe, or in a secured, 
restricted-access electronic bid box. If an invitation for bids is 
cancelled, bids shall be returned to the bidders. Necessary precautions 
shall be taken to ensure the security of the bid box or safe. Before bid 
opening, information concerning the identity and number of bids received 
shall be made available only to Government employees. Such disclosure 
shall be only on a need to know basis. When bid samples are submitted, 
they shall be handled with sufficient care to prevent disclosure of 
characteristics before bid opening.
    (b) Envelopes marked as bids but not identifying the bidder or the 
solicitation may be opened solely for the purpose of identification, and 
then only by an official designated for this purpose. If a sealed bid is 
opened by mistake (e.g., because it is not marked as being a bid), the 
envelope shall be signed by the opener, whose position shall also be 
written thereon, and delivered to the designated official. This official 
shall immediately write on the envelope (1) an explanation of the 
opening, (2) the date and time opened, and (3) the invitation for bids 
number, and shall sign the envelope. The official shall then immediately 
reseal the envelope.
[48 FR 42171, Sept. 19, 1983, as amended at 60 FR 34738, July 3, 1995]



14.402  Opening of bids.



14.402-1  Unclassified bids.

    (a) The bid opening officer shall decide when the time set for 
opening bids has arrived and shall inform those present of that 
decision. The officer shall then (1) personally and publicly open all 
bids received before that time, (2) if practical, read the bids aloud to 
the persons present, and (3) have the bids recorded. The original of 
each bid shall be carefully safeguarded, particularly until the abstract 
of bids required by 14.403 has been made and its accuracy verified.
    (b) Performance of the procedure in paragraph (a) above may be 
delegated to an assistant, but the bid opening officer remains fully 
responsible for the actions of the assistant.

[[Page 220]]

    (c) Examination of bids by interested persons shall be permitted if 
it does not interfere unduly with the conduct of Government business. 
Original bids shall not be allowed to pass out of the hands of a 
Government official unless a duplicate bid is not available for public 
inspection. The original bid may be examined by the public only under 
the immediate supervision of a Government official and under conditions 
that preclude possibility of a substitution, addition, deletion, or 
alteration in the bid.



14.402-2  Classified bids.

    The opening of classified bids shall not be accessible to the 
general public. Openings may be witnessed and the results recorded by 
those bidder representatives (a) who have been previously cleared from a 
security standpoint and (b) who represent bidders who were invited to 
bid. Bids shall be made available to those persons authorized to attend 
the opening of bids. No public record shall be made of bids or bid 
prices received in response to classified invitations for bids.



14.402-3  Postponement of openings.

    (a) A bid opening may be postponed even after the time scheduled for 
bid opening (but otherwise in accordance with 14.208) and--
    (1) The contracting officer has reason to believe that the bids of 
an important segment of bidders have been delayed in the mails, or in 
the communications system specified for transmission of bids, for causes 
beyond their control and without their fault or negligence (e.g., flood, 
fire, accident, weather conditions, strikes, or Government equipment 
blackout or malfunction when bids are due); or
    (2) Emergency or unanticipated events interrupt normal governmental 
processes so that the conduct of bid openings as scheduled is 
impractical.
    (b) At the time of a determination to postpone a bid opening under 
subparagraph (a)(1) above, an announcement of the determination shall be 
publicly posted. If practical before issuance of a formal amendment of 
the invitation, the determination shall be otherwise communicated to 
prospective bidders who are likely to attend the scheduled bid opening.
    (c) In the case of paragraph (a)(2) of this section, and when urgent 
Government requirements preclude amendment of the solicitation as 
prescribed in 14.208, the time specified for opening of bids will be 
deemed to be extended to the same time of day specified in the 
solicitation on the first work day on which normal Government processes 
resume. In such cases, the time of actual bid opening shall be deemed to 
be the time set for bid opening for the purpose of determining ``late 
bids'' under 14.304. A note should be made on the abstract of bids or 
otherwise added to the file explaining the circumstances of the 
postponement.
[48 FR 42171, Sept. 19, 1983, as amended at 60 FR 34738, July 3, 1995; 
61 FR 31619, June 20, 1996]



14.403  Recording of bids.

    (a) Standard Form 1409, Abstract of Offers, or Optional Form 1419, 
Abstract of Offers--Construction (or automated equivalent), shall be 
completed and certified as to its accuracy by the bid opening officer as 
soon after bid opening as practicable. Where bid items are too numerous 
to warrant complete recording of all bids, abstract entries for 
individual bids may be limited to item numbers and bid prices. In 
preparing these forms, the extra columns and SF 1410, Abstract of 
Offers--Continuation, and OF 1419A, Abstract of Offers--Construction, 
Continuation Sheet, may be used to label and record such information as 
the contracting activity deems necessary.
    (b) Abstracts of offers for unclassified acquisitions shall be 
available for public inspection. Such abstracts shall not contain 
information regarding failure to meet minimum standards of 
responsibility, apparent collusion of bidders, or other notations 
properly exempt from disclosure to the public in accordance with agency 
regulations implementing subpart 24.2.
    (c) The forms identified in paragraph (a) above need not be used by 
the Defense Fuel Supply Center for acquisitions of coal or petroleum 
products or by the Defense Personnel Support Center for perishable 
subsistence items.

[[Page 221]]

    (d) If an invitation for bids is cancelled before the time set for 
bid opening, this fact shall be recorded together with a statement of 
the number of bids invited and the number of bids received.
[48 FR 42171, Sept. 19, 1983, as amended at 54 FR 29280, July 11, 1989]



14.404  Rejection of bids.



14.404-1  Cancellation of invitations after opening.

    (a) (1) Preservation of the integrity of the competitive bid system 
dictates that, after bids have been opened, award must be made to that 
responsible bidder who submitted the lowest responsive bid, unless there 
is a compelling reason to reject all bids and cancel the invitation.
    (2) Every effort shall be made to anticipate changes in a 
requirement before the date of opening and to notify all prospective 
bidders of any resulting modification or cancellation. This will permit 
bidders to change their bids and prevent unnecessary exposure of bid 
prices.
    (3) As a general rule, after the opening of bids, an invitation 
should not be cancelled and resolicited due solely to increased 
requirements for the items being acquired. Award should be made on the 
initial invitation for bids and the additional quantity should be 
treated as a new acquisition.
    (b) When it is determined before award but after opening that the 
requirements of 11.201 (relating to the availability and identification 
of specifications) have not been met, the invitation shall be cancelled.
    (c) Invitations may be cancelled and all bids rejected before award 
but after opening when, consistent with paragraph (a)(1) above, the 
agency head determines in writing that--
    (1) Inadequate or ambiguous specifications were cited in the 
invitation;
    (2) Specifications have been revised;
    (3) The supplies or services being contracted for are no longer 
required;
    (4) The invitation did not provide for consideration of all factors 
of cost to the Government, such as cost of transporting Government-
furnished property to bidders' plants;
    (5) Bids received indicate that the needs of the Government can be 
satisfied by a less expensive article differing from that for which the 
bids were invited;
    (6) All otherwise acceptable bids received are at unreasonable 
prices, or only one bid is received and the contracting officer cannot 
determine the reasonableness of the bid price;
    (7) The bids were not independently arrived at in open competition, 
were collusive, or were submitted in bad faith (see subpart 3.3 for 
reports to be made to the Department of Justice);
    (8) No responsive bid has been received from a responsible bidder.
    (9) A cost comparison as prescribed in OMB Circular A-76 and subpart 
7.3 shows that performance by the Government is more economical; or
    (10) For other reasons, cancellation is clearly in the public's 
interest.
    (d) Should administrative difficulties be encountered after bid 
opening that may delay award beyond bidders' acceptance periods, the 
several lowest bidders whose bids have not expired (irrespective of the 
acceptance period specified in the bid) should be requested, before 
expiration of their bids, to extend in writing the bid acceptance period 
(with consent of sureties, if any) in order to avoid the need for 
resoliciting.
    (e) Under some circumstances, completion of the acquisition after 
cancellation of the invitation for bids may be appropriate.
    (1) If the invitation for bids has been cancelled for the reasons 
specified in subparagraphs (c) (6), (7), or (8) of this subsection, and 
the agency head has authorized, in the determination in paragraph (c) of 
this subsection, the completion of the acquisition through negotiation, 
the contracting officer shall proceed in accordance with paragraph (f) 
of this subsection.
    (2) If the invitation for bids has been cancelled for the reasons 
specified in subparagraphs (c) (1), (2), (4), (5), or (10) of this 
subsection, or for the reasons in subparagraphs (c) (6), (7), or (8) of 
this subsection and completion through negotiation is not authorized 
under subparagraph (e)(1) of this subsection, the contracting officer 
shall proceed with a new acquisition.

[[Page 222]]

    (f) When the agency head has determined, in accordance with 
paragraph (e)(1) of this subsection, that an invitation for bids should 
be canceled and that use of negotiation is in the Government's interest, 
the contracting officer may negotiate (in accordance with part 15, as 
appropriate) and make award without issuing a new solicitation 
provided--
    (1) Each responsible bidder in the sealed bid acquisition has been 
given notice that negotiations will be conducted and has been given an 
opportunity to participate in negotiations; and
    (2) The award is made to the responsible bidder offering the lowest 
negotiated price.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 52790, Dec. 21, 1990; 60 FR 48248, 
Sept. 18, 1995; 62 FR 51230, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51230, Sept. 30, 1997, in section 
14.404-1, paragraph (e)(1) was amended by removing the reference 
``15.103'' and inserting the words ``paragraph (f) of this subsecton''; 
and by adding paragraph (f), effective Oct. 10, 1997.



14.404-2  Rejection of individual bids.

    (a) Any bid that fails to conform to the essential requirements of 
the invitation for bids shall be rejected.
    (b) Any bid that does not conform to the applicable specifications 
shall be rejected unless the invitation authorized the submission of 
alternate bids and the supplies offered as alternates meet the 
requirements specified in the invitation.
    (c) Any bid that fails to conform to the delivery schedule or 
permissible alternates stated in the invitation shall be rejected.
    (d) A bid shall be rejected when the bidder imposes conditions that 
would modify requirements of the invitation or limit the bidder's 
liability to the Government, since to allow the bidder to impose such 
conditions would be prejudicial to other bidders. For example, bids 
shall be rejected in which the bidder--
    (1) Protects against future changes in conditions, such as increased 
costs, if total possible costs to the Government cannot be determined;
    (2) Fails to state a price and indicates that price shall be price 
in effect at time of delivery;
    (3) States a price but qualifies it as being subject to price in 
effect at time of delivery;
    (4) When not authorized by the invitation, conditions or qualifies a 
bid by stipulating that it is to be considered only if, before date of 
award, the bidder receives (or does not receive) award under a separate 
solicitation;
    (5) Requires that the Government is to determine that the bidder's 
product meets applicable Government specifications; or
    (6) Limits rights of the Government under any contract clause.
    (e) A low bidder may be requested to delete objectionable conditions 
from a bid provided the conditions do not go to the substance, as 
distinguished from the form, of the bid, or work an injustice on other 
bidders. A condition goes to the substance of a bid where it affects 
price, quantity, quality, or delivery of the items offered.
    (f) Any bid may be rejected if the contracting officer determines in 
writing that it is unreasonable as to price. Unreasonableness of price 
includes not only the total price of the bid, but the prices for 
individual line items as well.
    (g) Any bid may be rejected if the prices for any line items or 
subline items are materially unbalanced (see 15.404-1(g)).
    (h) Bids received from any person or concern that is suspended, 
debarred, proposed for debarment, or declared ineligible as of the bid 
opening date shall be rejected unless a compelling reason determination 
is made (see subpart 9.4).
    (i) Low bids received from concerns determined to be not responsible 
pursuant to subpart 9.1 shall be rejected (but if a bidder is a small 
business concern, see 19.6 with respect to certificates of competency).
    (j) When a bid guarantee is required and a bidder fails to furnish 
the guarantee in accordance with the requirements of the invitation for 
bids, the bid shall be rejected, except as otherwise provided in 28.101-
4.
    (k) The originals of all rejected bids, and any written findings 
with respect to such rejections, shall be preserved

[[Page 223]]

with the papers relating to the acquisition.
    (l) After submitting a bid, if all of a bidder's assets or that part 
related to the bid are transferred during the period between the bid 
opening and the award, the transferee may not be able to take over the 
bid. Accordingly, the contracting officer shall reject the bid unless 
the transfer is effected by merger, operation of law, or other means not 
barred by 41 U.S.C. 15 or 31 U.S.C. 3727.
[48 FR 42171, Sept. 19, 1983, as amended at 51 FR 2649, Jan. 17, 1986; 
55 FR 25527, June 21, 1990; 55 FR 36795, Sept. 6, 1990; 56 FR 29127, 
June 25, 1991; 62 FR 232, Jan. 2, 1997; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.404-2, in paragraph (g), ``15.814'' was amended to read ``15.404-
1(g)'', effective Oct. 10, 1997.



14.404-3  Notice to bidders of rejection of all bids.

    When it is determined necessary to reject all bids, the contracting 
officer shall notify each bidder that all bids have been rejected and 
shall state the reason for such action.



14.404-4  Restrictions on disclosure of descriptive literature.

    When a bid is accompanied by descriptive literature (as defined in 
14.202-5(a)), and the bidder imposes a restriction that prevents the 
public disclosure of such literature, the restriction may render the bid 
nonresponsive. The restriction renders the bid nonresponsive if it 
prohibits the disclosure of sufficient information to permit competing 
bidders to know the essential nature and type of the products offered or 
those elements of the bid that relate to quantity, price, and delivery 
terms. The provisions of this paragraph do not apply to unsolicited 
descriptive literature submitted by a bidder if such literature does not 
qualify the bid (see 14.202-5(f)).



14.404-5  All or none qualifications.

    Unless the solicitation provides otherwise, a bid may be responsive 
notwithstanding that the bidder specifies that award will be accepted 
only on all, or a specified group, of the items. Bidders shall not be 
permitted to withdraw or modify all or none qualifications after bid 
opening since such qualifications are substantive and affect the rights 
of other bidders.



14.405  Minor informalities or irregularities in bids.

    A minor informality or irregularity is one that is merely a matter 
of form and not of substance. It also pertains to some immaterial defect 
in a bid or variation of a bid from the exact requirements of the 
invitation that can be corrected or waived without being prejudicial to 
other bidders. The defect or variation is immaterial when the effect on 
price, quantity, quality, or delivery is negligible when contrasted with 
the total cost or scope of the supplies or services being acquired. The 
contracting officer either shall give the bidder an opportunity to cure 
any deficiency resulting from a minor informality or irregularity in a 
bid or waive the deficiency, whichever is to the advantage of the 
Government. Examples of minor informalities or irregularities include 
failure of a bidder to--
    (a) Return the number of copies of signed bids required by the 
invitation;
    (b) Furnish required information concerning the number of its 
employees;
    (c) Sign its bid, but only if--
    (1) The unsigned bid is accompanied by other material indicating the 
bidder's intention to be bound by the unsigned bid (such as the 
submission of a bid guarantee or a letter signed by the bidder, with the 
bid, referring to and clearly identifying the bid itself); or
    (2) The firm submitting a bid has formally adopted or authorized, 
before the date set for opening of bids, the execution of documents by 
typewritten, printed, or stamped signature and submits evidence of such 
authorization and the bid carries such a signature;
    (d) Acknowledge receipt of an amendment to an invitation for bids, 
but only if--
    (1) The bid received clearly indicates that the bidder received the 
amendment, such as where the amendment added another item to the 
invitation and the bidder submitted a bid on the item; or
    (2) The amendment involves only a matter of form or has either no 
effect or merely a negligible effect on price,

[[Page 224]]

quantity, quality, or delivery of the item bid upon;
    (e) Furnish affidavits concerning parent company and affiliates, if 
required pursuant to the clause at 52.214-17, Affiliated Bidders; and
    (f) Execute the representations with respect to Equal Opportunity 
and Affirmative Action Programs, as set forth in the clauses at 52.222-
22, Previous Contracts and Compliance Reports, and 52.222-25, 
Affirmative Action Compliance.
[48 FR 42171, Sept. 19, 1983, as amended at 55 FR 25527, June 21, 1990; 
62 FR 236, Jan. 2, 1997]



14.406  Receipt of an unreadable electronic bid.

    If a bid received at the Government facility by electronic data 
interchange is unreadable to the degree that conformance to the 
essential requirements of the invitation for bids cannot be ascertained, 
the contracting officer immediately shall notify the bidder that the bid 
will be rejected unless the bidder provides clear and convincing 
evidence--
    (a) Of the content of the bid as originally submitted; and
    (b) That the unreadable condition of the bid was caused by 
Government software or hardware error, malfunction, or other Government 
mishandling.
[60 FR 34738, July 3, 1995]



14.407  Mistakes in bids.



14.407-1  General.

    After the opening of bids, contracting officers shall examine all 
bids for mistakes. In cases of apparent mistakes and in cases where the 
contracting officer has reason to believe that a mistake may have been 
made, the contracting officer shall request from the bidder a 
verification of the bid, calling attention to the suspected mistake. If 
the bidder alleges a mistake, the matter shall be processed in 
accordance with this section 14.407. Such actions shall be taken before 
award.
[48 FR 42171, Sept. 19, 1983. Redesignated and amended at 60 FR 34738, 
July 3, 1995]



14.407-2  Apparent clerical mistakes.

    (a) Any clerical mistake, apparent on its face in the bid, may be 
corrected by the contracting officer before award. The contracting 
officer first shall obtain from the bidder a verification of the bid 
intended. Examples of apparent mistakes are--
    (1) Obvious misplacement of a decimal point;
    (2) Obviously incorrect discounts (for example, 1 percent 10 days, 2 
percent 20 days, 5 percent 30 days);
    (3) Obvious reversal of the price f.o.b. destination and price 
f.o.b. origin; and
    (4) Obvious mistake in designation of unit.
    (b) Correction of the bid shall be effected by attaching the 
verification to the original bid and a copy of the verification to the 
duplicate bid. Correction shall not be made on the face of the bid; 
however, it shall be reflected in the award document.
    (c) Correction of bids submitted by electronic data interchange 
shall be effected by including in the electronic solicitation file the 
original bid, the verification request, and the bid verification.
[48 FR 42171, Sept. 19, 1983. Redesignated and amended at 60 FR 34738, 
July 3, 1995]



14.407-3  Other mistakes disclosed before award.

    In order to minimize delays in contract awards, administrative 
determinations may be made as described in this 14.407-3 in connection 
with mistakes in bids alleged after opening of bids and before award. 
The authority to permit correction of bids is limited to bids that, as 
submitted, are responsive to the invitation and may not be used to 
permit correction of bids to make them responsive. This authority is in 
addition to that in 14.407-2 or that may be otherwise available.
    (a) If a bidder requests permission to correct a mistake and clear 
and convincing evidence establishes both the existence of the mistake 
and the bid actually intended, the agency head may make a determination 
permitting the bidder to correct the mistake; provided, that if this 
correction would result in displacing one or more lower bids, such a 
determination shall not be

[[Page 225]]

made unless the existence of the mistake and the bid actually intended 
are ascertainable substantially from the invitation and the bid itself.
    (b) If (1) a bidder requests permission to withdraw a bid rather 
than correct it, (2) the evidence is clear and convincing both as to the 
existence of a mistake and as to the bid actually intended, and (3) the 
bid, both as uncorrected and as corrected, is the lowest received, the 
agency head may make a determination to correct the bid and not permit 
its withdrawal.
    (c) If, under paragraph (a) or (b) of this subsection,
    (1) The evidence of a mistake is clear and convincing only as to the 
mistake but not as to the intended bid, or
    (2) The evidence reasonably supports the existence of a mistake but 
is not clear and convincing, an official above the contracting officer, 
unless otherwise provided by agency procedures, may make a determination 
permitting the bidder to withdraw the bid.
    (d) If the evidence does not warrant a determination under paragraph 
(a), (b), or (c) above, the agency head may make a determination that 
the bid be neither withdrawn nor corrected.
    (e) Heads of agencies may delegate their authority to make the 
determinations under paragraphs (a), (b), (c), and (d) of this 14.407-3 
to a central authority, or a limited number of authorities as necessary, 
in their agencies, without power of redelegation.
    (f) Each proposed determination shall have the concurrence of legal 
counsel within the agency concerned before issuance.
    (g) Suspected or alleged mistakes in bids shall be processed as 
follows. A mere statement by the administrative officials that they are 
satisfied that an error was made is insufficient.
    (1) The contracting officer shall immediately request the bidder to 
verify the bid. Action taken to verify bids must be sufficient to 
reasonably assure the contracting officer that the bid as confirmed is 
without error, or to elicit the allegation of a mistake by the bidder. 
To assure that the bidder will be put on notice of a mistake suspected 
by the contracting officer, the bidder should be advised as 
appropriate--
    (i) That its bid is so much lower than the other bids or the 
Government's estimate as to indicate a possibility of error;
    (ii) Of important or unusual characteristics of the specifications;
    (iii) Of changes in requirements from previous purchases of a 
similar item; or
    (iv) Of any other information, proper for disclosure, that leads the 
contracting officer to believe that there is a mistake in bid.
    (2) If the bid is verified, the contracting officer shall consider 
the bid as originally submitted. If the time for acceptance of bids is 
likely to expire before a decision can be made, the contracting officer 
shall request all bidders whose bids may become eligible for award to 
extend the time for acceptance of their bids in accordance with 14.404-
1(d). If the bidder whose bid is believed erroneous does not (or cannot) 
grant an extension of time, the bid shall be considered as originally 
submitted (but see subparagraph (5) below). If the bidder alleges a 
mistake, the contracting officer shall advise the bidder to make a 
written request to withdraw or modify the bid. The request must be 
supported by statements (sworn statements, if possible) and shall 
include all pertinent evidence such as the bidder's file copy of the 
bid, the original worksheets and other data used in preparing the bid, 
subcontractors' quotations, if any, published price lists, and any other 
evidence that establishes the existence of the error, the manner in 
which it occurred, and the bid actually intended.
    (3) When the bidder furnishes evidence supporting an alleged 
mistake, the contracting officer shall refer the case to the appropriate 
authority (see paragraph (e) above) together with the following data:
    (i) A signed copy of the bid involved.
    (ii) A copy of the invitation for bids and any specifications or 
drawings relevant to the alleged mistake.
    (iii) An abstract or record of the bids received.
    (iv) The written request by the bidder to withdraw or modify the 
bid, together with the bidder's written statement and supporting 
evidence.
    (v) A written statement by the contracting officer setting forth--

[[Page 226]]

    (A) A description of the supplies or services involved;
    (B) The expiration date of the bid in question and of the other bids 
submitted;
    (C) Specific information as to how and when the mistake was alleged;
    (D) A summary of the evidence submitted by the bidder;
    (E) In the event only one bid was received, a quotation of the most 
recent contract price for the supplies or services involved or, in the 
absence of a recent comparable contract, the contracting officer's 
estimate of a fair price for the supplies or services;
    (F) Any additional pertinent evidence; and
    (G) A recommendation that either the bid be considered for award in 
the form submitted, or the bidder be authorized to withdraw or modify 
the bid.
    (4) When time is of the essence because of the expiration of bids or 
otherwise, the contracting officer may refer the case by telegraph or 
telephone to the appropriate authority. Ordinarily, the contracting 
officer will not refer mistake in bid cases by telegraph or telephone to 
the appropriate authority when the determination set forth in paragraphs 
(a) or (b) above is applicable, since actual examination is generally 
necessary to determine whether the evidence presented is clear and 
convincing.
    (5) Where the bidder fails or refuses to furnish evidence in support 
of a suspected or alleged mistake, the contracting officer shall 
consider the bid as submitted unless (i) the amount of the bid is so far 
out of line with the amounts of other bids received, or with the amount 
estimated by the agency or determined by the contracting officer to be 
reasonable, or (ii) there are other indications of error so clear, as to 
reasonably justify the conclusion that acceptance of the bid would be 
unfair to the bidder or to other bona fide bidders. Attempts made to 
obtain the information required and the action taken with respect to the 
bid shall be fully documented.
    (h) Each agency shall maintain records of all determinations made in 
accordance with this subsection 14.407-3, the facts involved, and the 
action taken in each case. Copies of all such determinations shall be 
included in the file.
    (i) Nothing contained in this subsection 14.407-3 prevents an agency 
from submitting doubtful cases to the Comptroller General for advance 
decision.
[48 FR 42171, Sept. 19, 1983, as amended at 53 FR 17857, May 18, 1988; 
54 FR 13023, Mar. 29, 1989. Redesignated and amended at 60 FR 34738, 
July 3, 1995]



14.407-4  Mistakes after award.

    If a contractor's discovery and request for correction of a mistake 
in bid is not made until after the award, it shall be processed under 
the procedures of subpart 33.2 and the following:
    (a) When a mistake in a contractor's bid is not discovered until 
after award, the mistake may be corrected by contract amendment if 
correcting the mistake would be favorable to the Government without 
changing the essential requirements of the specifications.
    (b) In addition to the cases contemplated in paragraph (a) above or 
as otherwise authorized by law, agencies are authorized to make a 
determination--
    (1) To rescind a contract;
    (2) To reform a contract (i) to delete the items involved in the 
mistake or (ii) to increase the price if the contract price, as 
corrected, does not exceed that of the next lowest acceptable bid under 
the original invitation for bids; or
    (3) That no change shall be made in the contract as awarded, if the 
evidence does not warrant a determination under subparagraphs (1) or (2) 
above.
    (c) Determinations under subparagraphs (b)(1) and (2) above may be 
made only on the basis of clear and convincing evidence that a mistake 
in bid was made. In addition, it must be clear that the mistake was (1) 
mutual, or (2) if unilaterally made by the contractor, so apparent as to 
have charged the contracting officer with notice of the probability of 
the mistake.
    (d) Each proposed determination shall be coordinated with legal 
counsel in accordance with agency procedures.
    (e) Mistakes alleged or disclosed after award shall be processed as 
follows:

[[Page 227]]

    (1) The contracting officer shall request the contractor to support 
the alleged mistake by submission of written statements and pertinent 
evidence, such as (i) the contractor's file copy of the bid, (ii) the 
contractor's original worksheets and other data used in preparing the 
bid, (iii) subcontractors' and suppliers' quotations, if any, (iv) 
published price lists, and (v) any other evidence that will serve to 
establish the mistake, the manner in which the mistake occurred, and the 
bid actually intended.
    (2) The case file concerning an alleged mistake shall contain the 
following:
    (i) All evidence furnished by the contractor in support of the 
alleged mistake.
    (ii) A signed statement by the contracting officer--
    (A) Describing the supplies or services involved;
    (B) Specifying how and when the mistake was alleged or disclosed;
    (C) Summarizing the evidence submitted by the contractor and any 
additional evidence considered pertinent;
    (D) Quoting, in cases where only one bid was received, the most 
recent contract price for the supplies or services involved, or in the 
absence of a recent comparable contract, the contracting officer's 
estimate of a fair price for the supplies or services and the basis for 
the estimate;
    (E) Setting forth the contracting officer's opinion whether a bona 
fide mistake was made and whether the contracting officer was, or should 
have been, on constructive notice of the mistake before the award, 
together with the reasons for, or data in support of, such opinion;
    (F) Setting forth the course of action with respect to the alleged 
mistake that the contracting officer considers proper on the basis of 
the evidence, and if other than a change in contract price is 
recommended, the manner by which the supplies or services will otherwise 
be acquired; and
    (G) Disclosing the status of performance and payments under the 
contract, including contemplated performance and payments.
    (iii) A signed copy of the bid involved.
    (iv) A copy of the invitation for bids and any specifications or 
drawings relevant to the alleged mistake.
    (v) An abstract of written record of the bids received.
    (vi) A written request by the contractor to reform or rescind the 
contract, and copies of all other relevant correspondence between the 
contracting officer and the contractor concerning the alleged mistake.
    (vii) A copy of the contract and any related change orders or 
supplemental agreements.
    (f) Each agency shall include in the contract file a record of (1) 
all determinations made in accordance with this 14.407-4, (2) the facts 
involved, and (3) the action taken in each case.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1738, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985. Redesignated and amended at 60 FR 34738, 
July 3, 1995]



14.408  Award.



14.408-1  General.

    (a) The contracting officer shall make a contract award (1) by 
written or electronic notice, (2) within the time for acceptance 
specified in the bid or an extension (see 14.404-1(d)), and (3) to that 
responsible bidder whose bid, conforming to the invitation, will be most 
advantageous to the Government, considering only price and the price-
related factors (see 14.201-8) included in the invitation. Award shall 
not be made until all required approvals have been obtained and the 
award otherwise conforms with 14.103-2.
    (b) If less than three bids have been received, the contracting 
officer shall examine the situation to ascertain the reasons for the 
small number of responses. Award shall be made notwithstanding the 
limited number of bids. However, the contracting officer shall initiate, 
if appropriate, corrective action to increase competition in future 
solicitations for the same or similar items, and include a notation of 
such action in the records of the invitation for bids (see 14.204).
    (c) (1) Award shall be made by mailing or otherwise furnishing a 
properly executed award document to the successful bidder.

[[Page 228]]

    (2) When a notice of award is issued, it shall be followed as soon 
as possible by the formal award.
    (3) When more than one award results from any single invitation for 
bids, separate award documents shall be suitably numbered and executed.
    (4) When an award is made to a bidder for less than all of the items 
that may be awarded to that bidder and additional items are being 
withheld for subsequent award, the award shall state that the Government 
may make subsequent awards on those additional items within the bid 
acceptance period.
    (5) All provisions of the invitation for bids, including any 
acceptable additions or changes made by a bidder in the bid, shall be 
clearly and accurately set forth (either expressly or by reference) in 
the award document. The award is an acceptance of the bid, and the bid 
and the award constitute the contract.
    (d)(1) Award is generally made by using the Award portion of 
Standard Form (SF) 33, Solicitation, Offer, and Award, or SF 1447, 
Solicitation/Contract (see 53.214). If an offer on an SF 33 leads to 
further changes, the resulting contract shall be prepared as a bilateral 
document on SF 26, Award/Contract.
    (2) Use of the Award portion of SF 33, SF 26, or SF 1447, does not 
preclude the additional use of informal documents, including telegrams 
or electronic transmissions, as notices of awards.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 48984, Nov. 28, 1989; 55 FR 3881, Feb. 
5, 1990. Redesignated at 60 FR 34738, July 3, 1995; 60 FR 42654, Aug. 
16, 1995]



14.408-2  Responsible bidder--reasonableness of price.

    (a) The contracting officer shall determine that a prospective 
contractor is responsible (see subpart 9.1) and that the prices offered 
are reasonable before awarding the contract. The price analysis 
techniques in 15.404-1(b) may be used as guidelines. In each case the 
determination shall be made in the light of all prevailing 
circumstances. Particular care must be taken in cases where only a 
single bid is received.
    (b) The price analysis shall consider whether bids are materially 
unbalanced (see 15.404-1(g)).
[48 FR 42171, Sept. 19, 1983, as amended at 55 FR 25527, June 21, 1990. 
Redesignated at 60 FR 34738, July 3, 1995, as amended at 62 FR 51270, 
Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.408-2, in paragraph (a), ``15.805-2'' was amended to read ``15.404-
1(b)''; and in paragraph (b), ``15.814'' was amended to read ``15.404-
1(g)'', effective Oct. 10, 1997.



14.408-3  Prompt payment discounts.

    (a) Prompt payment discounts shall not be considered in the 
evaluation of bids. However, any discount offered will form a part of 
the award, and will be taken by the payment center if payment is made 
within the discount period specified by the bidder. As an alternative to 
indicating a discount in conjunction with the offer, bidders may prefer 
to offer discounts on individual invoices.
    (b) See 32.111(c)(1), which prescribes the contract clause at 
52.232-8, Discounts for Prompt Payment.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985. 
Redesignated at 60 FR 34738, July 3, 1995]



14.408-4  Economic price adjustment.

    (a) Bidder proposes economic price adjustment.
    (1) When a solicitation does not contain an economic price 
adjustment clause but a bidder proposes one with a ceiling that the 
price will not exceed, the bid shall be evaluated on the basis of the 
maximum possible economic price adjustment of the quoted base price.
    (2) If the bid is eligible for award, the contracting officer shall 
request the bidder to agree to the inclusion in the award of an approved 
economic price adjustment clause (see 16.203) that is subject to the 
same ceiling. If the bidder will not agree to an approved clause, the 
award may be made on the basis of the bid as originally submitted.
    (3) Bids that contain economic price adjustments with no ceiling 
shall be rejected unless a clear basis for evaluation exists.

[[Page 229]]

    (b) Government proposes economic price adjustment.
    (1) When an invitation contains an economic price adjustment clause 
and no bidder takes exception to the provisions, bids shall be evaluated 
on the basis of the quoted prices without the allowable economic price 
adjustment being added.
    (2) When a bidder increases the maximum percentage of economic price 
adjustment stipulated in the invitation or limits the downward economic 
price adjustment provisions of the invitation, the bid shall be rejected 
as nonresponsive.
    (3) When a bid indicates deletion of the economic price adjustment 
clause, the bid shall be rejected as nonresponsive since the downward 
economic price adjustment provisions are thereby limited.
    (4) When a bidder decreases the maximum percentage of economic price 
adjustment stipulated in the invitation, the bid shall be evaluated at 
the base price on an equal basis with bids that do not reduce the 
stipulated ceiling. However, after evaluation, if the bidder offering 
the lower ceiling is in a position to receive the award, the award shall 
reflect the lower ceiling.
[48 FR 42171, Sept. 19, 1983. Redesignated at 60 FR 34738, July 3, 1995]



14.408-5  [Reserved]



14.408-6  Equal low bids.

    (a) Contracts shall be awarded in the following order of priority 
when two or more low bids are equal in all respects:
    (1) Small business concerns that are also labor surplus area 
concerns.
    (2) Other small business concerns.
    (3) Other business concerns.
    (b) If two or more bidders still remain equally eligible after 
application of paragraph (a) above, award shall be made by a drawing by 
lot limited to those bidders. If time permits, the bidders involved 
shall be given an opportunity to attend the drawing. The drawing shall 
be witnessed by at least three persons, and the contract file shall 
contain the names and addresses of the witnesses and the person 
supervising the drawing.
    (c) When an award is to be made by using the priorities under this 
14.408-6, the contracting officer shall include a written agreement in 
the contract that the contractor will perform, or cause to be performed, 
the contract in accordance with the circumstances justifying the 
priority used to break the tie or select bids for a drawing by lot.
[48 FR 42171, Sept. 19, 1983. Redesignated and amended at 60 FR 34738, 
July 3, 1995; 60 FR 48260, Sept. 18, 1995]



14.408-7  Documentation of award.

    (a) The contracting officer shall document compliance with 14.103-2 
in the contract file.
    (b) The documentation shall either state that the accepted bid was 
the lowest bid received, or list all lower bids with reasons for their 
rejection in sufficient detail to justify the award.
    (c) When an award is made after receipt of equal low bids, the 
documentation shall describe how the tie was broken.
[48 FR 42171, Sept. 19, 1983. Redesignated at 60 FR 34738, July 3, 1995]



14.408-8  Protests against award.

    See subpart 33.1, Protests.
[50 FR 23606, June 4, 1985. Redesignated at 60 FR 34738, July 3, 1995]



14.409  Information to bidders.



14.409-1  Award of unclassified contracts.

    (a)(1) The contracting officer shall as a minimum (subject to any 
restrictions in Subpart 9.4)--
    (i) Notify each unsuccessful bidder in writing or electronically 
within three days after contract award, that its bid was not accepted. 
``Day,'' for purposes of the notification process, means calendar day, 
except that the period will run until a day which is not a Saturday, 
Sunday, or legal holiday;
    (ii) Extend appreciation for the interest the unsuccessful bidder 
has shown in submitting a bid; and
    (iii) When award is made to other than a low bidder, state the 
reason for rejection in the notice to each of the unsuccessful low 
bidders.
    (2) For acquisitions subject to the Trade Agreements Act or the 
North American Free Trade Agreement (NAFTA) Implementation Act (see

[[Page 230]]

25.405(e)), agencies shall include in notices given unsuccessful bidders 
from designated or NAFTA countries--
    (i) The dollar amount of the successful bid; and
    (ii) The name and address of the successful bidder.
    (b) Information included in paragraph (a)(2) of this subsection 
shall be provided to any unsuccessful bidder upon request except when 
multiple awards have been made and furnishing information on the 
successful bids would require so much work as to interfere with normal 
operations of the contracting office. In such circumstances, only 
information concerning location of the abstract of offers need be given.
    (c) When a request is received concerning an unclassified invitation 
from an inquirer who is neither a bidder nor a representative of a 
bidder, the contracting officer should make every effort to furnish the 
names of successful bidders and, if requested, the prices at which 
awards were made. However, when such requests require so much work as to 
interfere with the normal operations of the contracting office, the 
inquirer will be advised where a copy of the abstract of offers may be 
seen.
    (d) Requests for records shall be governed by agency regulations 
implementing Subpart 24.2.
[60 FR 42654, Aug. 16, 1995]



14.409-2  Award of classified contracts.

    In addition to 14.409-1, if classified information was furnished or 
created in connection with the solicitation, the contracting officer 
shall advise the unsuccessful bidders, including any who did not bid, to 
take disposition action in accordance with agency procedures. The name 
of the successful bidder and the contract price will be furnished to 
unsuccessful bidders only upon request. Information regarding a 
classified award shall not be furnished by telephone.
[48 FR 42171, Sept. 19, 1983. Redesignated and amended at 60 FR 34738, 
July 3, 1995]



                  Subpart 14.5--Two-Step Sealed Bidding



14.501  General.

    Two-step sealed bidding is a combination of competitive procedures 
designed to obtain the benefits of sealed bidding when adequate 
specifications are not available. An objective is to permit the 
development of a sufficiently descriptive and not unduly restrictive 
statement of the Government's requirements, including an adequate 
technical data package, so that subsequent acquisitions may be made by 
conventional sealed bidding. This method is especially useful in 
acquisitions requiring technical proposals, particularly those for 
complex items. It is conducted in two steps:
    (a) Step one consists of the request for, submission, evaluation, 
and (if necessary) discussion of a technical proposal. No pricing is 
involved. The objective is to determine the acceptability of the 
supplies or services offered. As used in this context, the word 
technical has a broad connotation and includes, among other things, the 
engineering approach, special manufacturing processes, and special 
testing techniques. It is the proper step for clarification of questions 
relating to technical requirements. Conformity to the technical 
requirements is resolved in this step, but not responsibility as defined 
in 9.1.
    (b) Step two involves the submission of sealed priced bids by those 
who submitted acceptable technical proposals in step one. Bids submitted 
in step two are evaluated and the awards made in accordance with 
subparts 14.3 and 14.4.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



14.502  Conditions for use.

    (a) Unless other factors require the use of sealed bidding, two-step 
sealed bidding may be used in preference to negotiation when all of the 
following conditions are present:
    (1) Available specifications or purchase descriptions are not 
definite or complete or may be too restrictive without technical 
evaluation, and any

[[Page 231]]

necessary discussion, of the technical aspects of the requirement to 
ensure mutual understanding between each source and the Government.
    (2) Definite criteria exist for evaluating technical proposals.
    (3) More than one technically qualified source is expected to be 
available.
    (4) Sufficient time will be available for use of the two-step 
method.
    (5) A firm-fixed-price contract or a fixed-price contract with 
economic price adjustment will be used.
    (b) None of the following precludes the use of two-step sealed 
bidding:
    (1) Multi-year contracting.
    (2) Government-owned facilities or special tooling to be made 
available to the successful bidder.
    (3) A total small business set-aside (see 19.502-2).
    (4) A first or subsequent production quantity is being acquired 
under a performance specification.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 48260, Sept. 18, 1995]



14.503  Procedures.



14.503-1  Step one.

    (a) Requests for technical proposals shall be distributed in 
accordance with 14.203-1. In addition, requests shall be synopsized in 
accordance with part 5. The request must include, as a minimum, the 
following:
    (1) A description of the supplies or services required.
    (2) A statement of intent to use the two step method.
    (3) The requirements of the technical proposal.
    (4) The evaluation criteria, to include all factors and any 
significant subfactors.
    (5) A statement that the technical proposals shall not include 
prices or pricing information.
    (6) The date, or date and hour, by which the proposal must be 
received (see 14.201-6(r)).
    (7) A statement that (i) in the second step, only bids based upon 
technical proposals determined to be acceptable, either initially or as 
a result of discussions, will be considered for awards and (ii) each bid 
in the second step must be based on the bidder's own technical 
proposals.
    (8) A statement that (i) offerors should submit proposals that are 
acceptable without additional explanation or information, (ii) the 
Government may make a final determination regarding a proposal's 
acceptability solely on the basis of the proposal as submitted, and 
(iii) the Government may proceed with the second step without requesting 
further information from any offeror; however, the Government may 
request additional information from offerors of proposals that it 
considers reasonably susceptible of being made acceptable, and may 
discuss proposals with their offerors.
    (9) A statement that a notice of unacceptability will be forwarded 
to the offeror upon completion of the proposal evaluation and final 
determination of unacceptability.
    (10) A statement either that only one technical proposal may be 
submitted by each offeror or that multiple technical proposals may be 
submitted. When specifications permit different technical approaches, it 
is generally in the Government's interest to authorize multiple 
proposals. If multiple proposals are authorized, see 14.201-6(s).
    (b) Information on delivery or performance requirements may be of 
assistance to bidders in determining whether or not to submit a proposal 
and may be included in the request. The request shall also indicate that 
the information is not binding on the Government and that the actual 
delivery or performance requirements will be contained in the invitation 
issued under step two.
    (c) Upon receipt, the contracting officer shall--
    (1) Safeguard proposals against disclosure to unauthorized persons;
    (2) Accept and handle data marked in accordance with 15.609 as 
provided in that section; and
    (3) Remove any reference to price or cost.
    (d) The contracting officer shall establish a time period for 
evaluating technical proposals. The period may vary with the complexity 
and number of proposals involved. However, the evaluation should be 
completed quickly.

[[Page 232]]

    (e) (1) Evaluations shall be based on the criteria in the request 
for proposals but not consideration of responsibility as defined in 9.1. 
Proposals shall be categorized as--
    (i) Acceptable;
    (ii) Reasonably susceptible of being made acceptable; or
    (iii) Unacceptable.
    (2) Any proposal which modifies, or fails to conform to the 
essential requirements or specifications of, the request for technical 
proposals shall be considered nonresponsive and categorized as 
unacceptable.
    (f) (1) The contracting officer may proceed directly with step two 
if there are sufficient acceptable proposals to ensure adequate price 
competition under step two, and if further time, effort and delay to 
make additional proposals acceptable and thereby increase competition 
would not be in Government's interest. If this is not the case, the 
contracting officer shall request bidders whose proposals may be made 
acceptable to submit additional clarifying or supplementing information. 
The contracting officer shall identify the nature of the deficiencies in 
the proposal or the nature of the additional information required. The 
contracting officer may also arrange discussions for this purpose. No 
proposal shall be discussed with any offeror other than the submitter.
    (2) In initiating requests for additional information, the 
contracting officer shall fix an appropriate time for bidders to 
conclude discussions, if any, submit all additional information, and 
incorporate such additional information as part of their proposals 
submitted. Such time may be extended in the discretion of the 
contracting officer. If the additional information incorporated as part 
of a proposal within the final time fixed by the contracting officer 
establishes that the proposal is acceptable, it shall be so categorized. 
Otherwise, it shall be categorized as unacceptable.
    (g) When a technical proposal is found unacceptable (either 
initially or after clarification), the contracting officer shall 
promptly notify the offeror of the basis of the determination and that a 
revision of the proposal will not be considered. Upon written request, 
the contracting officer shall debrief unsuccessful offerors (see 15.505 
and 15.506).
    (h) Late technical proposals are governed by 15.208(b) and (c).
    (i) If it is necessary to discontinue two-step sealed bidding, the 
contracting officer shall include a statement of the facts and 
circumstances in the contract file. Each offeror shall be notified in 
writing. When step one results in no acceptable technical proposal or 
only one acceptable technical proposal, the acquisition may be continued 
by negotiation.
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2649, Jan. 17, 1986; 56 FR 41733, Aug. 
22, 1991; 60 FR 42654, Aug. 16, 1995; 61 FR 69289, Dec. 31, 1996; 62 FR 
51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
14.503-1, in paragraph (c)(2), ``15.413'' was amended to read 
``15.609''; in paragraph (g), ``15.1005 and 15.1006'' were amended to 
read ``15.505 and 15.506'', respectively; and in paragraph (h), 
``15.412'' was amended to read ``15.208(b) and (c)'', effective Oct. 10, 
1997.



14.503-2  Step two.

    (a) Sealed bidding procedures shall be followed except that 
invitations for bids shall--
    (1) Be issued only to those offerors submitting acceptable technical 
proposals in step one;
    (2) Include the provision prescribed in 14.201-6(t);
    (3) Prominently state that the bidder shall comply with the 
specifications and the bidder's technical proposal; and
    (4) Not be synopsized in the Commerce Business Daily as an 
acquisition opportunity nor publicly posted (see 5.101(a)).
    (b) The names of firms that submitted acceptable proposals in step 
one will be listed in the Commerce Business Daily for the benefit of 
prospective subcontractors (see 5.207(a)(2)).
[48 FR 42171, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 56 FR 15149, Apr. 15, 1991]



PART 15--CONTRACTING BY NEGOTIATION (Eff. 10-10-97)--Table of Contents




Sec.
15.000  Scope of part.

[[Page 233]]

15.001  Definitions.
15.002  Types of negotiated acquisition.

         Subpart 15.1--Source Selection Processes and Techniques

15.100  Scope of subpart.
15.101  Best value continuum.
15.101-1  Tradeoff process.
15.101-2  Lowest price technically acceptable source selection process.
15.102  Oral presentations.

   Subpart 15.2--Solicitation and Receipt of Proposals and Information

15.200  Scope of subpart.
15.201  Exchanges with industry before receipt of proposals.
15.202  Advisory multi-step process.
15.203  Requests for proposals.
15.204  Contract format.
15.204-1  Uniform contract format
Table 15-1  Uniform Contract Format
15.204-2  Part I--The Schedule.
15.204-3  Part II--Contract Clauses.
15.204-4  Part III--List of Documents, Exhibits, and Other Attachments.
15.204-5  Part IV--Representations and Instructions.
15.205  Issuing solicitations.
15.206  Amending the solicitation.
15.207  Handling proposals and information.
15.208  Submission, modification, revision, and withdrawal of proposals.
15.209  Solicitation provisions and contract clauses.
15.210  Forms.

                     Subpart 15.3--Source Selection

15.300  Scope of subpart.
15.301  Definitions.
15.302  Source selection objective.
15.303  Responsibilities.
15.304  Evaluation factors and significant subfactors.
15.305  Proposal evaluation.
15.306  Exchanges with offerors after receipt of proposals.
15.307  Proposal revisions.
15.308  Source selection decision

                     Subpart 15.4--Contract Pricing

15.400  Scope of subpart.
15.401  Definitions.
15.402  Pricing policy.
15.403  Obtaining cost or pricing data.
15.403-1  Prohibition on obtaining cost or pricing data (10 U.S.C. 2306a 
          and 41 U.S.C. 254b).
15.403-2  Other circumstances where cost or pricing data are not 
          required.
15.403-3  Requiring information other than cost or pricing data.
15.403-4  Requiring cost or pricing data (10 U.S.C. 2306a and 41 U.S.C. 
          254b).
15.403-5  Instructions for submission of cost or pricing data or 
          information other than cost or pricing data.
15.404  Proposal analysis.
15.404-1  Proposal analysis techniques.
15.404-2  Information to support proposal analysis.
15.404-3  Subcontract pricing considerations.
15.404-4  Profit.
15.405  Price negotiation.
15.406  Documentation.
15.406-1  Prenegotiation objectives.
15.406-2  Certificate of current cost or pricing data.
15.406-3  Documenting the negotiation.
15.407  Special cost or pricing areas.
15.407-1  Defective cost or pricing data.
15.407-2  Make-or-buy programs.
15.407-3  Forward pricing rate agreements.
15.407-4  Should-cost review.
15.407-5  Estimating systems.
15.408  Solicitation provisions and contract clauses.

    Table 15-2--Instructions for Submitting Cost or Pricing Data Are 
                                Required

 Subpart 15.5--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes

15.501  Definition.
15.502  Applicability.
15.503  Notifications to unsuccessful offerors.
15.504  Award to successful offeror.
15.505  Preaward debriefing of offerors.
15.506  Postaward debriefing of offerors.
15.507  Protests against award.
15.508  Discovery of mistakes.
15.509  Forms.

                   Subpart 15.6--Unsolicited Proposals

15.600  Scope of subpart.
15.601  Definitions.
15.602  Policy.
15.603  General.
15.604  Agency points of contact.
15.605  Content of unsolicited proposals.
15.606  Agency procedures.
15.606-1  Receipt and initial review.
15.606-2  Evaluation.
15.607  Criteria for acceptance and negotiation of an unsolicited 
          proposal.
15.608  Prohibitions.
15.609  Limited use of data.


    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source:  62 FR 51230, Sept. 30, 1997, unless otherwise noted.

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, part 15 was 
revised, effective Oct. 10, 1997. For the convenience of the user,

[[Page 234]]

part 15 remaining in effect until Oct. 10, 1997, follows the text of 
this new part.



15.000  Scope of part.

    This part prescribes policies and procedures governing competitive 
and noncompetitive negotiated acquisitions. A contract awarded using 
other than sealed bidding procedures is a negotiated contract (see 
14.101).



15.001  Definitions.

    As used in this part--
    Proposal modification is a change made to a proposal before the 
solicitation closing date and time, or made in response to an amendment, 
or made to correct a mistake at any time before award.
    Proposal revision is a change to a proposal made after the 
solicitation closing date, at the request of or as allowed by a 
contracting officer, as the result of negotiations.



15.002  Types of negotiated acquisition.

    (a) Sole source acquisitions. When contracting in a sole source 
environment, the request for proposals (RFP) should be tailored to 
remove unnecessary information and requirements; e.g., evaluation 
criteria and voluminous proposal preparation instructions.
    (b) Competitive acquisitions. When contracting in a competitive 
environment, the procedures of this part are intended to minimize the 
complexity of the solicitation, the evaluation, and the source selection 
decision, while maintaining a process designed to foster an impartial 
and comprehensive evaluation of offerors' proposals, leading to 
selection of the proposal representing the best value to the Government 
(see 2.101).



         Subpart 15.1--Source Selection Processes and Techniques



15.100  Scope of subpart.

    This subpart describes some of the acquisition processes and 
techniques that may be used to design competitive acquisition strategies 
suitable for the specific circumstances of the acquisition.



15.101  Best value continuum.

    An agency can obtain best value in negotiated acquisitions by using 
any one or a combination of source selection approaches. In different 
types of acquisitions, the relative importance of cost or price may 
vary. For example, in acquisitions where the requirement is clearly 
definable and the risk of unsuccessful contract performance is minimal, 
cost or price may play a dominant role in source selection. The less 
definitive the requirement, the more development work required, or the 
greater the performance risk, the more technical or past performance 
considerations may play a dominant role in source selection.



15.101-1  Tradeoff process.

    (a) A tradeoff process is appropriate when it may be in the best 
interest of the Government to consider award to other than the lowest 
priced offeror or other than the highest technically rated offeror.
    (b) When using a tradeoff process, the following apply:
    (1) All evaluation factors and significant subfactors that will 
affect contract award and their relative importance shall be clearly 
stated in the solicitation; and
    (2) The solicitation shall state whether all evaluation factors 
other than cost or price, when combined, are significantly more 
important than, approximately equal to, or significantly less important 
than cost or price.
    (c) This process permits tradeoffs among cost or price and non-cost 
factors and allows the Government to accept other than the lowest priced 
proposal. The perceived benefits of the higher priced proposal shall 
merit the additional cost, and the rationale for tradeoffs must be 
documented in the file in accordance with 15.406.



15.101-2  Lowest price technically acceptable source selection process.

    (a) The lowest price technically acceptable source selection process 
is appropriate when best value is expected to result from selection of 
the technically acceptable proposal with the lowest evaluated price.

[[Page 235]]

    (b) When using the lowest price technically acceptable process, the 
following apply:
    (1) The evaluation factors and significant subfactors that establish 
the requirements of acceptability shall be set forth in the 
solicitation. Solicitations shall specify that award will be made on the 
basis of the lowest evaluated price of proposals meeting or exceeding 
the acceptability standards for non-cost factors. If the contracting 
officer documents the file pursuant to 15.304(c)(3)(iii), past 
performance need not be an evaluation factor in lowest price technically 
acceptable source selections. If the contracting officer elects to 
consider past performance as an evaluation factor, it shall be evaluated 
in accordance with 15.305. However, the comparative assessment in 
15.305(a)(2)(i) does not apply. If the contracting officer determines 
that a small business' past performance is not acceptable, the matter 
shall be referred to the Small Business Administration for a Certificate 
of Competency determination, in accordance with the procedures contained 
in subpart 19.6 and 15 U.S.C. 637(b)(7)).
    (2) Tradeoffs are not permitted.
    (3) Proposals are evaluated for acceptability but not ranked using 
the non-cost/price factors.
    (4) Exchanges may occur (see 15.306).



15.102  Oral presentations.

    (a) Oral presentations by offerors as requested by the Government 
may substitute for, or augment, written information. Use of oral 
presentations as a substitute for portions of a proposal can be 
effective in streamlining the source selection process. Oral 
presentations may occur at any time in the acquisition process, and are 
subject to the same restrictions as written information, regarding 
timing (see 15.208) and content (see 15.306). Oral presentations provide 
an opportunity for dialogue among the parties. Pre-recorded videotaped 
presentations that lack real-time interactive dialogue are not 
considered oral presentations for the purposes of this section, although 
they may be included in offeror submissions, when appropriate.
    (b) The solicitation may require each offeror to submit part of its 
proposal through oral presentations. However, certifications, 
representations, and a signed offer sheet (including any exceptions to 
the Government's terms and conditions) shall be submitted in writing.
    (c) Information pertaining to areas such as an offeror's capability, 
past performance, work plans or approaches, staffing resources, 
transition plans, or sample tasks (or other types of tests) may be 
suitable for oral presentations. In deciding what information to obtain 
through an oral presentation, consider the following:
    (1) The Government's ability to adequately evaluate the information;
    (2) The need to incorporate any information into the resultant 
contract;
    (3) The impact on the efficiency of the acquisition; and
    (4) The impact (including cost) on small businesses. In considering 
the costs of oral presentations, contracting officers should also 
consider alternatives to on-site oral presentations (e.g., 
teleconferencing, video teleconferencing).
    (d) When oral presentations are required, the solicitation shall 
provide offerors with sufficient information to prepare them. 
Accordingly, the solicitation may describe--
    (1) The types of information to be presented orally and the 
associated evaluation factors that will be used;
    (2) The qualifications for personnel that will be required to 
provide the oral presentation(s);
    (3) The requirements for, and any limitations and/or prohibitions 
on, the use of written material or other media to supplement the oral 
presentations;
    (4) The location, date, and time for the oral presentations;
    (5) The restrictions governing the time permitted for each oral 
presentation; and
    (6) The scope and content of exchanges that may occur between the 
Government's participants and the offeror's representatives as part of 
the oral presentations, including whether or not discussions (see 
15.306(d)) will be permitted during oral presentations.
    (e) The contracting officer shall maintain a record of oral 
presentations

[[Page 236]]

to document what the Government relied upon in making the source 
selection decision. The method and level of detail of the record (e.g., 
videotaping, audio tape recording, written record, Government notes, 
copies of offeror briefing slides or presentation notes) shall be at the 
discretion of the source selection authority. A copy of the record 
placed in the file may be provided to the offeror.
    (f) When an oral presentation includes information that the parties 
intend to include in the contract as material terms or conditions, the 
information shall be put in writing. Incorporation by reference of oral 
statements is not permitted.
    (g) If, during an oral presentation, the Government conducts 
discussions (see 15.306(d)), the Government must comply with 15.306 and 
15.307.



   Subpart 15.2--Solicitation and Receipt of Proposals and Information



15.200  Scope of subpart.

    This subpart prescribes policies and procedures for--
    (a) Exchanging information with industry prior to receipt of 
proposals;
    (b) Preparing and issuing requests for proposals (RFPs) and requests 
for information (RFIs); and
    (c) Receiving proposals and information.



15.201  Exchanges with industry before receipt of proposals.

    (a) Exchanges of information among all interested parties, from the 
earliest identification of a requirement through receipt of proposals, 
are encouraged. Any exchange of information must be consistent with 
procurement integrity requirements (see 3.104). Interested parties 
include potential offerors, end users, Government acquisition and 
supporting personnel, and others involved in the conduct or outcome of 
the acquisition.
    (b) The purpose of exchanging information is to improve the 
understanding of Government requirements and industry capabilities, 
thereby allowing potential offerors to judge whether or how they can 
satisfy the Government's requirements, and enhancing the Government's 
ability to obtain quality supplies and services, including construction, 
at reasonable prices, and increase efficiency in proposal preparation, 
proposal evaluation, negotiation, and contract award.
    (c) Agencies are encouraged to promote early exchanges of 
information about future acquisitions. An early exchange of information 
among industry and the program manager, contracting officer, and other 
participants in the acquisition process can identify and resolve 
concerns regarding the acquisition strategy, including proposed contract 
type, terms and conditions, and acquisition planning schedules; the 
feasibility of the requirement, including performance requirements, 
statements of work, and data requirements; the suitability of the 
proposal instructions and evaluation criteria, including the approach 
for assessing past performance information; the availability of 
reference documents; and any other industry concerns or questions. Some 
techniques to promote early exchanges of information are--
    (1) Industry or small business conferences;
    (2) Public hearings;
    (3) Market research, as described in part 10;
    (4) One-on-one meetings with potential offerors (any that are 
substantially involved with potential contract terms and conditions 
should include the contracting officer; also see paragraph (f) of this 
section regarding restrictions on disclosure of information);
    (5) Presolicitation notices;
    (6) Draft RFPs;
    (7) RFIs;
    (8) Presolicitation or preproposal conferences; and
    (9) Site visits.
    (d) The special notices of procurement matters at 5.205(c), or 
electronic notices, may be used to publicize the Government's 
requirement or solicit information from industry.
    (e) RFIs may be used when the Government does not presently intend 
to award a contract, but wants to obtain price, delivery, other market 
information, or capabilities for planning purposes. Responses to these 
notices are not offers and cannot be accepted by

[[Page 237]]

the Government to form a binding contract. There is no required format 
for RFIs.
    (f) General information about agency mission needs and future 
requirements may be disclosed at any time.
    After release of the solicitation, the contracting officer shall be 
the focal point of any exchange with potential offerors. When specific 
information about a proposed acquisition that would be necessary for the 
preparation of proposals is disclosed to one or more potential offerors, 
that information shall be made available to the public as soon as 
practicable, but no later than the next general release of information, 
in order to avoid creating an unfair competitive advantage. Information 
provided to a particular offeror in response to that offeror's request 
shall not be disclosed if doing so would reveal the potential offeror's 
confidential business strategy, and would be protected under 3.104 or 
subpart 24.2. When a presolicitation or preproposal conference is 
conducted, materials distributed at the conference should be made 
available to all potential offerors, upon request.



15.202  Advisory multi-step process.

    (a) The agency may publish a presolicitation notice (see 5.204) that 
provides a general description of the scope or purpose of the 
acquisition and invites potential offerors to submit information that 
allows the Government to advise the offerors about their potential to be 
viable competitors. The presolicitation notice should identify the 
information that must be submitted and the criteria that will be used in 
making the initial evaluation. Information sought may be limited to a 
statement of qualifications and other appropriate information (e.g., 
proposed technical concept, past performance, and limited pricing 
information). At a minimum, the notice shall contain sufficient 
information to permit a potential offeror to make an informed decision 
about whether to participate in the acquisition. This process should not 
be used for multi-step acquisitions where it would result in offerors 
being required to submit identical information in response to the notice 
and in response to the initial step of the acquisition.
    (b) The agency shall evaluate all responses in accordance with the 
criteria stated in the notice, and shall advise each respondent in 
writing either that it will be invited to participate in the resultant 
acquisition or, based on the information submitted, that it is unlikely 
to be a viable competitor. The agency shall advise respondents 
considered not to be viable competitors of the general basis for that 
opinion. The agency shall inform all respondents that, notwithstanding 
the advice provided by the Government in response to their submissions, 
they may participate in the resultant acquisition.



15.203  Requests for proposals.

    (a) Requests for proposals (RFPs) are used in negotiated 
acquisitions to communicate Government requirements to prospective 
contractors and to solicit proposals. RFPs for competitive acquisitions 
shall, at a minimum, describe the--
    (1) Government's requirement;
    (2) Anticipated terms and conditions that will apply to the 
contract:
    (i) The solicitation may authorize offerors to propose alternative 
terms and conditions, including the contract line item number (CLIN) 
structure; and
    (ii) When alternative CLIN structures are permitted, the evaluation 
approach should consider the potential impact on other terms and 
conditions or the requirement (e.g., place of performance or payment and 
funding requirements) (see 15.206);
    (3) Information required to be in the offeror's proposal; and
    (4) Factors and significant subfactors that will be used to evaluate 
the proposal and their relative importance.
    (b) An RFP may be issued for OMB Circular A-76 studies. See subpart 
7.3 for additional information regarding cost comparisons between 
Government and contractor performance.
    (c) Electronic commerce may be used to issue RFPs and to receive 
proposals, modifications, and revisions. In this case, the RFP shall 
specify the electronic commerce method(s) that offerors may use (see 
subpart 4.5).

[[Page 238]]

    (d) Contracting officers may issue RFPs and/or authorize receipt of 
proposals, modifications, or revisions by facsimile.
    (1) In deciding whether or not to use facsimiles, the contracting 
officer should consider factors such as--
    (i) Anticipated proposal size and volume;
    (ii) Urgency of the requirement;
    (iii) Availability and suitability of electronic commerce methods; 
and
    (iv) Adequacy of administrative procedures and controls for 
receiving, identifying, recording, and safeguarding facsimile proposals, 
and ensuring their timely delivery to the designated proposal delivery 
location.
    (2) If facsimile proposals are authorized, contracting officers may 
request offeror(s) to provide the complete, original signed proposal at 
a later date.
    (e) Letter RFPs may be used in sole source acquisitions and other 
appropriate circumstances. Use of a letter RFP does not relieve the 
contracting officer from complying with other FAR requirements. Letter 
RFPs should be as complete as possible and, at a minimum, should contain 
the following:
    (1) RFP number and date;
    (2) Name, address (including electronic address and facsimile 
address, if appropriate), and telephone number of the contracting 
officer;
    (3) Type of contract contemplated;
    (4) Quantity, description, and required delivery dates for the item;
    (5) Applicable certifications and representations;
    (6) Anticipated contract terms and conditions;
    (7) Instructions to offerors and evaluation criteria for other than 
sole source actions;
    (8) Proposal due date and time; and
    (9) Other relevant information; e.g., incentives, variations in 
delivery schedule, cost proposal support, and data requirements.
    (f) Oral RFPs are authorized when processing a written solicitation 
would delay the acquisition of supplies or services to the detriment of 
the Government and a notice is not required under 5.202 (e.g., 
perishable items and support of contingency operations or other 
emergency situations). Use of an oral RFP does not relieve the 
contracting officer from complying with other FAR requirements.
    (1) The contract files supporting oral solicitations should 
include--
    (i) A description of the requirement;
    (ii) Rationale for use of an oral solicitation;
    (iii) Sources solicited, including the date, time, name of 
individuals contacted, and prices offered; and
    (iv) The solicitation number provided to the prospective offerors.
    (2) The information furnished to potential offerors under oral 
solicitations should include appropriate items from paragraph (e) of 
this section.



15.204  Contract format.

    The use of a uniform contract format facilitates preparation of the 
solicitation and contract as well as reference to, and use of, those 
documents by offerors, contractors, and contract administrators. The 
uniform contract format need not be used for the following:
    (a) Construction and architect-engineer contracts (see part 36).
    (b) Subsistence contracts.
    (c) Supplies or services contracts requiring special contract 
formats prescribed elsewhere in this part that are inconsistent with the 
uniform format.
    (d) Letter requests for proposals (see 15.203(e)).
    (e) Contracts exempted by the agency head or designee.



15.204-1  Uniform contract format.

    (a) Contracting officers shall prepare solicitations and resulting 
contracts using the uniform contract format outlined in Table 15-1 of 
this subsection.
    (b) Solicitations using the uniform contract format shall include 
Parts I, II, III, and IV (see 15.204-2 through 15.204-5). Upon award, 
contracting officers shall not physically include Part IV in the 
resulting contract, but shall retain it in the contract file. Section K 
shall be incorporated by reference in the contract.

                  Table 15-1.--Uniform Contract Format                  
------------------------------------------------------------------------
            Section                               Title                 
------------------------------------------------------------------------
                          Part I--The Schedule                          
------------------------------------------------------------------------
A..............................  Solicitation/contract form.            
B..............................  Supplies or services and prices/costs. 

[[Page 239]]

                                                                        
C..............................  Description/specifications/statement of
                                  work.                                 
D..............................  Packaging and marking.                 
E..............................  Inspection and acceptance.             
F..............................  Deliveries or performance.             
G..............................  Contract administration data.          
H..............................  Special contract requirements.         
------------------------------------------------------------------------
                        Part II--Contract Clauses                       
------------------------------------------------------------------------
I..............................  Contract clauses.                      
------------------------------------------------------------------------
      Part III--List of Documents, Exhibits, and Other Attachments      
------------------------------------------------------------------------
J..............................  List of attachments.                   
------------------------------------------------------------------------
                Part IV--Representations and Instructions               
------------------------------------------------------------------------
K..............................  Representations, certifications, and   
                                  other statements of offerors or       
                                  respondents.                          
L..............................  Instructions, conditions, and notices  
                                  to offerors or respondents.           
M..............................  Evaluation factors for award.          
------------------------------------------------------------------------



15.204-2  Part I--The Schedule.

    The contracting officer shall prepare the contract Schedule as 
follows:
    (a) Section A, Solicitation/contract form.
    (1) Optional Form (OF) 308, Solicitation and Offer-Negotiated 
Acquisition, or Standard Form (SF) 33, Solicitation, Offer and Award, 
may be used to prepare RFPs.
    (2) When other than OF 308 or SF 33 is used, include the following 
information on the first page of the solicitation:
    (i) Name, address, and location of issuing activity, including room 
and building where proposals or information must be submitted.
    (ii) Solicitation number.
    (iii) Date of issuance.
    (iv) Closing date and time.
    (v) Number of pages.
    (vi) Requisition or other purchase authority.
    (vii) Brief description of item or service.
    (viii) Requirement for the offeror to provide its name and complete 
address, including street, city, county, state, and zip code, and 
electronic address (including facsimile address), if appropriate.
    (ix) Offer expiration date.
    (b) Section B, Supplies or services and prices/costs. Include a 
brief description of the supplies or services; e.g., item number, 
national stock number/part number if applicable, nouns, nomenclature, 
and quantities. (This includes incidental deliverables such as manuals 
and reports.)
    (c) Section C, Description/specifications/statement of work. Include 
any description or specifications needed in addition to Section B (see 
part 11, Describing Agency Needs).
    (d) Section D, Packaging and marking. Provide packaging, packing, 
preservation, and marking requirements, if any.
    (e) Section E, Inspection and acceptance. Include inspection, 
acceptance, quality assurance, and reliability requirements (see part 
46, Quality Assurance).
    (f) Section F, Deliveries or performance. Specify the requirements 
for time, place, and method of delivery or performance (see subpart 
11.4, Delivery or Performance Schedules, and 47.301-1).
    (g) Section G, Contract administration data. Include any required 
accounting and appropriation data and any required contract 
administration information or instructions other than those on the 
solicitation form. Include a statement that the offeror should include 
the payment address in the proposal, if it is different from that shown 
for the offeror.
    (h) Section H, Special contract requirements. Include a clear 
statement of any special contract requirements that are not included in 
Section I, Contract clauses, or in other sections of the uniform 
contract format.



15.204-3  Part II--Contract Clauses.

    Section I, Contract clauses. The contracting officer shall include 
in this section the clauses required by law or by this part and any 
additional clauses expected to be included in any resulting contract, if 
these clauses are not required in any other section of the uniform 
contract format. An index may be inserted if this section's format is 
particularly complex.



15.204-4  Part III--List of Documents, Exhibits, and Other Attachments.

    Section J, List of attachments. The contracting officer shall list 
the title, date, and number of pages for each attached document, 
exhibit, and other

[[Page 240]]

attachment. Cross-references to material in other sections may be 
inserted, as appropriate.



15.204-5  Part IV--Representations and Instructions.

    The contracting officer shall prepare the representations and 
instructions as follows:
    (a) Section K, Representations, certifications, and other statements 
of offerors. Include in this section those solicitation provisions that 
require representations, certifications, or the submission of other 
information by offerors.
    (b) Section L, Instructions, conditions, and notices to offerors or 
respondents. Insert in this section solicitation provisions and other 
information and instructions not required elsewhere to guide offerors or 
respondents in preparing proposals or responses to requests for 
information. Prospective offerors or respondents may be instructed to 
submit proposals or information in a specific format or severable parts 
to facilitate evaluation. The instructions may specify further 
organization of proposal or response parts, such as--
    (1) Administrative;
    (2) Management;
    (3) Technical;
    (4) Past performance; and
    (5) Cost or pricing data (see Table 15-2 of 15.408) or information 
other than cost or pricing data.
    (c) Section M, Evaluation factors for award. Identify all 
significant factors and any significant subfactors that will be 
considered in awarding the contract and their relative importance (see 
15.304(d)). The contracting officer shall insert one of the phrases in 
15.304(e).



15.205  Issuing solicitations.

    (a) The contracting officer shall issue solicitations to potential 
sources in accordance with the policies and procedures in 5.102, 19.202-
4, and part 6.
    (b) A master solicitation, as described in 14.203-3, may also be 
used for negotiated acquisitions.



15.206  Amending the solicitation.

    (a) When, either before or after receipt of proposals, the 
Government changes its requirements or terms and conditions, the 
contracting officer shall amend the solicitation.
    (b) Amendments issued before the established time and date for 
receipt of proposals shall be issued to all parties receiving the 
solicitation.
    (c) Amendments issued after the established time and date for 
receipt of proposals shall be issued to all offerors that have not been 
eliminated from the competition.
    (d) If a proposal of interest to the Government involves a departure 
from the stated requirements, the contracting officer shall amend the 
solicitation, provided this can be done without revealing to the other 
offerors the alternate solution proposed or any other information that 
is entitled to protection (see 15.207(b) and 15.306(e)).
    (e) If, in the judgment of the contracting officer, based on market 
research or otherwise, an amendment proposed for issuance after offers 
have been received is so substantial as to exceed what prospective 
offerors reasonably could have anticipated, so that additional sources 
likely would have submitted offers had the substance of the amendment 
been known to them, the contracting officer shall cancel the original 
solicitation and issue a new one, regardless of the stage of the 
acquisition.
    (f) Oral notices may be used when time is of the essence. The 
contracting officer shall document the contract file and formalize the 
notice with an amendment (see subpart 4.5, Electronic Commerce in 
Contracting).
    (g) At a minimum, the following information should be included in 
each amendment:
    (1) Name and address of issuing activity.
    (2) Solicitation number and date.
    (3) Amendment number and date.
    (4) Number of pages.
    (5) Description of the change being made.
    (6) Government point of contact and phone number (and electronic or 
facsimile address, if appropriate).
    (7) Revision to solicitation closing date, if applicable.



15.207  Handling proposals and information.

    (a) Upon receipt at the location specified in the solicitation, 
proposals and information received in response to a

[[Page 241]]

request for information (RFI) shall be marked with the date and time of 
receipt and shall be transmitted to the designated officials.
    (b) Proposals shall be safeguarded from unauthorized disclosure 
throughout the source selection process. (See 3.104 regarding the 
disclosure of source selection information (41 U.S.C. 423)). Information 
received in response to an RFI shall be safeguarded adequately from 
unauthorized disclosure.
    (c) If any portion of a proposal received by the contracting officer 
electronically or by facsimile is unreadable, the contracting officer 
immediately shall notify the offeror and permit the offeror to resubmit 
the unreadable portion of the proposal. The method and time for 
resubmission shall be prescribed by the contracting officer after 
consultation with the offeror, and documented in the file. The 
resubmission shall be considered as if it were received at the date and 
time of the original unreadable submission for the purpose of 
determining timeliness under 15.208(a), provided the offeror complies 
with the time and format requirements for resubmission prescribed by the 
contracting officer.



15.208  Submission, modification, revision, and withdrawal of proposals.

    (a) Offerors are responsible for submitting offers, and any 
revisions and modifications to them, so as to reach the Government 
office designated in the solicitation on time. If an emergency or 
unanticipated event interrupts normal Government processes so that 
proposals cannot be received at the office designated for receipt of 
proposals by the exact time specified in the solicitation, and urgent 
Government requirements preclude amendment of the solicitation closing 
date, the time specified for receipt of proposals will be deemed to be 
extended to the same time of day specified in the solicitation on the 
first work day on which normal Government processes resume. If no time 
is specified in the solicitation, the time for receipt is 4:30 p.m., 
local time, for the designated Government office on the date that 
proposals are due.
    (b) Proposals, and modifications to them, that are received in the 
designated Government office after the exact time specified are ``late 
and shall be considered only if--
    (1) They are received before award is made; and
    (2) The circumstances meet the specific requirements of 52.215-
1(c)(3)(i).
    (c) The contracting officer shall promptly notify any offeror if its 
proposal, modification, or revision was received late, and shall inform 
the offeror whether or not it will be considered, unless contract award 
is imminent and the notice prescribed in 15.503(b) would suffice.
    (d) When a late proposal or modification is transmitted to a 
contracting office in the United States or Canada by registered or 
certified mail or by U.S. Postal Service Express Mail Next Day Service-
Post Office to Addressee and is received before award, the offeror shall 
be promptly notified substantially in accordance with the notice in 
14.304-2, appropriately modified to relate to proposals.
    (e) Late proposals and modifications that are not considered shall 
be held unopened, unless opened for identification, until after award 
and then retained with other unsuccessful proposals.
    (f) The following shall, if available, be included in the 
contracting office files for each late proposal, response to request for 
information, or modification:
    (1) The date of mailing, filing, or delivery.
    (2) The date and hour of receipt.
    (3) Whether or not considered for award.
    (4) The envelope, wrapper, or other evidence of date of submission.
    (g) Proposals may be withdrawn at any time before award. Written 
proposals are withdrawn upon receipt by the contracting officer of a 
written notice of withdrawal. Oral proposals in response to oral 
solicitations may be withdrawn orally. The contracting officer shall 
document the contract file when such oral withdrawals are made. One copy 
of withdrawn proposals should be retained in the contract file (see 
4.803(a)(10)). Extra copies of the withdrawn proposals may be destroyed 
or returned to the offeror at the

[[Page 242]]

offeror's request. Extremely bulky proposals shall only be returned at 
the offeror's request and expense.
    (h) Upon withdrawal of an electronically transmitted proposal, the 
data received shall not be viewed and shall be purged from primary and 
backup data storage systems.



15.209  Solicitation provisions and contract clauses.

    When contracting by negotiation--
    (a) The contracting officer shall insert the provision at 52.215-1, 
Instructions to Offerors--Competitive Acquisition, in all competitive 
solicitations where the Government intends to award a contract without 
discussions.
    (1) If the Government intends to make award after discussions with 
offerors within the competitive range, the contracting officer shall use 
the basic provision with its Alternate I.
    (2) If the Government would be willing to accept alternate 
proposals, the contracting officer shall alter the basic clause to add a 
paragraph (c)(9) substantially the same as Alternate II.
    (b)(1) The contracting officer shall insert the clause at 52.215-2, 
Audit and Records-Negotiation (10 U.S.C. 2313, 41 U.S.C. 254d, and OMB 
Circular No. A-133), in solicitations and contracts except those for--
    (i) Acquisitions not exceeding the simplified acquisition threshold;
    (ii) The acquisition of utility services at rates not exceeding 
those established to apply uniformly to the general public, plus any 
applicable reasonable connection charge; or
    (iii) The acquisition of commercial items exempted under 15.403-1.
    (2) For facilities acquisitions, the contracting officer shall use 
the clause with its Alternate I.
    (3) For cost-reimbursement contracts with educational institutions 
and other nonprofit organizations, the contracting officer shall use the 
clause with its Alternate II.
    (4) When the examination of records by the Comptroller General is 
waived in accordance with 25.901, the contracting officer shall use the 
clause with its Alternate III.
    (c) When issuing a solicitation for information or planning 
purposes, the contracting officer shall insert the provision at 52.215-
3, Request for Information or Solicitation for Planning Purposes, and 
clearly mark on the face of the solicitation that it is for information 
or planning purposes.
    (d) The contracting officer shall insert the provision at 52.215-4, 
Type of Business Organization, in all solicitations.
    (e) The contracting officer shall insert the provision at 52.215-5, 
Facsimile Proposals, in solicitations if facsimile proposals are 
authorized (see 15.203(d)).
    (f) The contracting officer shall insert the provision at 52.215-6, 
Place of Performance, in solicitations unless the place of performance 
is specified by the Government.
    (g) The contracting officer shall insert the provision at 52.215-7, 
Annual Representations and Certifications--Negotiation, in solicitations 
if annual representations and certifications are used (see 14.213).
    (h) The contracting officer shall insert the clause at 52.215-8, 
Order of Precedence--Uniform Contract Format, in solicitations and 
contracts using the format at 15.204.



15.210  Forms.

    Prescribed forms are not required to prepare solicitations described 
in this part. The following forms may be used at the discretion of the 
contracting officer:
    (a) Standard Form 33, Solicitation, Offer, and Award, and Optional 
Form 308, Solicitation and Offer-- Negotiated Acquisition, may be used 
to issue RFPs and RFIs.
    (b) Standard Form 30, Amendment of Solicitation/Modification of 
Contract, and Optional Form 309, Amendment of Solicitation, may be used 
to amend solicitations of negotiated contracts.
    (c) Optional Form 17, Offer Label, may be furnished with each 
request for proposal.



                     Subpart 15.3--Source Selection



15.300  Scope of subpart.

    This subpart prescribes policies and procedures for selection of a 
source or sources in competitive negotiated acquisitions.

[[Page 243]]



15.301  Definitions.

    Deficiency, as used in this subpart, is a material failure of a 
proposal to meet a Government requirement or a combination of 
significant weaknesses in a proposal that increases the risk of 
unsuccessful contract performance to an unacceptable level.
    Weakness, as used in this subpart, is a flaw in the proposal that 
increases the risk of unsuccessful contract performance. A ``significant 
weakness'' in the proposal is a flaw that appreciably increases the risk 
of unsuccessful contract performance.



15.302  Source selection objective.

    The objective of source selection is to select the proposal that 
represents the best value.



15.303  Responsibilities.

    (a) Agency heads are responsible for source selection. The 
contracting officer is designated as the source selection authority, 
unless the agency head appoints another individual for a particular 
acquisition or group of acquisitions.
    (b) The source selection authority shall--
    (1) Establish an evaluation team, tailored for the particular 
acquisition, that includes appropriate contracting, legal, logistics, 
technical, and other expertise to ensure a comprehensive evaluation of 
offers;
    (2) Approve the source selection strategy or acquisition plan, if 
applicable, before solicitation release;
    (3) Ensure consistency among the solicitation requirements, notices 
to offerors, proposal preparation instructions, evaluation factors and 
subfactors, solicitation provisions or contract clauses, and data 
requirements;
    (4) Ensure that proposals are evaluated based solely on the factors 
and subfactors contained in the solicitation (10 U.S.C. 2305(b)(1) and 
41 U.S.C. 253b(d)(3));
    (5) Consider the recommendations of advisory boards or panels (if 
any); and
    (6) Select the source or sources whose proposal is the best value to 
the Government (10 U.S.C. 2305(b)(4)(B) and 41 U.S.C. 253b(d)(3)).
    (c) The contracting officer shall--
    (1) After release of a solicitation, serve as the focal point for 
inquiries from actual or prospective offerors;
    (2) After receipt of proposals, control exchanges with offerors in 
accordance with 15.306; and
    (3) Award the contract(s).



15.304  Evaluation factors and significant subfactors.

    (a) The award decision is based on evaluation factors and 
significant subfactors that are tailored to the acquisition.
    (b) Evaluation factors and significant subfactors must--
    (1) Represent the key areas of importance and emphasis to be 
considered in the source selection decision; and
    (2) Support meaningful comparison and discrimination between and 
among competing proposals.
    (c) The evaluation factors and significant subfactors that apply to 
an acquisition and their relative importance are within the broad 
discretion of agency acquisition officials, subject to the following 
requirements:
    (1) Price or cost to the Government shall be evaluated in every 
source selection (10 U.S.C. 2305(a)(3)(A) (ii) and 41 U.S.C. 
253a(c)(1)(B)) (also see part 36 for architect-engineer contracts);
    (2) The quality of the product or service shall be addressed in 
every source selection through consideration of one or more non-cost 
evaluation factors such as past performance, compliance with 
solicitation requirements, technical excellence, management capability, 
personnel qualifications, and prior experience (10 U.S.C. 2305(a)(3) 
(A)(i) and 41 U.S.C. 253a(c)(1)(A)); and
    (3)(i) Except as set forth in paragraph (c)(3)(iii) of this section, 
past performance shall be evaluated in all source selections for 
negotiated competitive acquisitions expected to exceed $1,000,000.
    (ii) Except as set forth in paragraph (c)(3)(iii) of this section, 
past performance shall be evaluated in all source selections for 
negotiated competitive acquisitions issued on or after January 1, 1999, 
for acquisitions expected to exceed $100,000. Agencies should develop 
phase-in schedules that meet or exceed this schedule.
    (iii) Past performance need not be evaluated if the contracting 
officer

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documents the reason past performance is not an appropriate evaluation 
factor for the acquisition (OFPP Policy Letter 92-5).
    (d) All factors and significant subfactors that will affect contract 
award and their relative importance shall be stated clearly in the 
solicitation (10 U.S.C. 2305(a)(2)(A)(i) and 41 U.S.C. 253a(b)(1)(A)) 
(see 15.204-5(c)). The rating method need not be disclosed in the 
solicitation. The general approach for evaluating past performance 
information shall be described.
    (e) The solicitation shall also state, at a minimum, whether all 
evaluation factors other than cost or price, when combined, are--
    (1) Significantly more important than cost or price;
    (2) Approximately equal to cost or price; or
    (3) Significantly less important than cost or price (10 U.S.C. 
2305(a)(3)(A)(iii) and 41 U.S.C. 253a(c)(1)(C)).



15.305  Proposal evaluation.

    (a) Proposal evaluation is an assessment of the proposal and the 
offeror's ability to perform the prospective contract successfully. An 
agency shall evaluate competitive proposals and then assess their 
relative qualities solely on the factors and subfactors specified in the 
solicitation. Evaluations may be conducted using any rating method or 
combination of methods, including color or adjectival ratings, numerical 
weights, and ordinal rankings. The relative strengths, deficiencies, 
significant weaknesses, and risks supporting proposal evaluation shall 
be documented in the contract file.
    (1) Cost or price evaluation. Normally, competition establishes 
price reasonableness. Therefore, when contracting on a firm-fixed-price 
or fixed-price with economic price adjustment basis, comparison of the 
proposed prices will usually satisfy the requirement to perform a price 
analysis, and a cost analysis need not be performed. In limited 
situations, a cost analysis (see 15.403-1(c)(1)(i)(B)) may be 
appropriate to establish reasonableness of the otherwise successful 
offeror's price. When contracting on a cost-reimbursement basis, 
evaluations shall include a cost realism analysis to determine what the 
Government should realistically expect to pay for the proposed effort, 
the offeror's understanding of the work, and the offeror's ability to 
perform the contract. Cost realism analyses may also be used on fixed-
price incentive contracts or, in exceptional cases, on other competitive 
fixed-price-type contracts (see 15.404-1(d)(3)). The contracting officer 
shall document the cost or price evaluation.
    (2) Past performance evaluation. (i) Past performance information is 
one indicator of an offeror's ability to perform the contract 
successfully. The currency and relevance of the information, source of 
the information, context of the data, and general trends in contractor's 
performance shall be considered (41 U.S.C. 401). This comparative 
assessment of past performance information is separate from the 
responsibility determination required under subpart 9.1.
    (ii) The solicitation shall describe the approach for evaluating 
past performance, including evaluating offerors with no relevant 
performance history, and shall provide offerors an opportunity to 
identify past or current contracts (including Federal, State, and local 
government and private) for efforts similar to the Government 
requirement. The solicitation shall also authorize offerors to provide 
information on problems encountered on the identified contracts and the 
offeror corrective actions. The Government shall consider this 
information, as well as information obtained from any other sources, 
when evaluating the offeror past performance. The source selection 
authority shall determine the relevance of similar past performance 
information.
    (iii) The evaluation should take into account past performance 
information regarding predecessor companies, key personnel who have 
relevant experience, or subcontractors that will perform major or 
critical aspects of the requirement when such information is relevant to 
the instant acquisition.
    (iv) In the case of an offeror without a record of relevant past 
performance or for whom information on past performance is not 
available, the offeror

[[Page 245]]

may not be evaluated favorably or unfavorably on past performance.
    (3) Technical evaluation. When tradeoffs are performed (see 15.101-
1), the source selection records shall include--
    (i) An assessment of each offeror's ability to accomplish the 
technical requirements; and
    (ii) A summary, matrix, or quantitative ranking, along with 
appropriate supporting narrative, of each technical proposal using the 
evaluation factors.
    (4) Cost information. Cost information may be provided to members of 
the technical evaluation team in accordance with agency procedures.
    (b) The source selection authority may reject all proposals received 
in response to a solicitation, if doing so is in the best interest of 
the Government.
    (c) For restrictions on the use of support contractor personnel in 
proposal evaluation, see 37.203(d).



15.306  Exchanges with offerors after receipt of proposals.

    (a) Clarifications and award without discussions. (1) Clarifications 
are limited exchanges, between the Government and offerors, that may 
occur when award without discussions is contemplated.
    (2) If award will be made without conducting discussions, offerors 
may be given the opportunity to clarify certain aspects of proposals 
(e.g., the relevance of an offeror's past performance information and 
adverse past performance information to which the offeror has not 
previously had an opportunity to respond) or to resolve minor or 
clerical errors.
    (3) Award may be made without discussions if the solicitation states 
that the Government intends to evaluate proposals and make award without 
discussions. If the solicitation contains such a notice and the 
Government determines it is necessary to conduct discussions, the 
rationale for doing so shall be documented in the contract file (see the 
provision at 52.215-1) (10 U.S.C. 2305(b)(4)(A)(ii) and 41 U.S.C. 
253b(d)(1)(B)).
    (b) Communications with offerors before establishment of the 
competitive range. Communications are exchanges, between the Government 
and offerors, after receipt of proposals, leading to establishment of 
the competitive range. If a competitive range is to be established, 
these communications--
    (1) Shall be limited to the offerors described in paragraphs 
(b)(1)(i) and (b)(1)(ii) of this section and--
    (i) Shall be held with offerors whose past performance information 
is the determining factor preventing them from being placed within the 
competitive range. Such communications shall address adverse past 
performance information to which an offeror has not had a prior 
opportunity to respond; and
    (ii) May only be held with those offerors (other than offerors under 
paragraph (b)(1)(i) of this section) whose exclusion from, or inclusion 
in, the competitive range is uncertain;
    (2) May be conducted to enhance Government understanding of 
proposals; allow reasonable interpretation of the proposal; or 
facilitate the Government's evaluation process. Such communications 
shall not be used to cure proposal deficiencies or material omissions, 
materially alter the technical or cost elements of the proposal, and/or 
otherwise revise the proposal. Such communications may be considered in 
rating proposals for the purpose of establishing the competitive range;
    (3) Are for the purpose of addressing issues that must be explored 
to determine whether a proposal should be placed in the competitive 
range. Such communications shall not provide an opportunity for the 
offeror to revise its proposal, but may address--
    (i) Ambiguities in the proposal or other concerns (e.g., perceived 
deficiencies, weaknesses, errors, omissions, or mistakes (see 14.407)); 
and
    (ii) Information relating to relevant past performance; and
    (4) Shall address adverse past performance information to which the 
offeror has not previously had an opportunity to comment.
    (c) Competitive range. (1) Agencies shall evaluate all proposals in 
accordance with 15.305(a), and, if discussions are to be conducted, 
establish the competitive range. Based on the ratings of each proposal 
against all evaluation criteria, the contracting officer shall establish 
a competitive range comprised of all of the most highly rated

[[Page 246]]

proposals, unless the range is further reduced for purposes of 
efficiency pursuant to paragraph (c)(2) of this section.
    (2) After evaluating all proposals in accordance with 15.305(a) and 
paragraph (c)(1) of this section, the contracting officer may determine 
that the number of most highly rated proposals that might otherwise be 
included in the competitive range exceeds the number at which an 
efficient competition can be conducted. Provided the solicitation 
notifies offerors that the competitive range can be limited for purposes 
of efficiency (see 52.215-1(f)(4)), the contracting officer may limit 
the number of proposals in the competitive range to the greatest number 
that will permit an efficient competition among the most highly rated 
proposals (10 U.S.C. 2305(b)(4) and 41 U.S.C. 253b(d)).
    (3) If the contracting officer, after complying with paragraph 
(d)(3) of this section, decides that an offeror's proposal should no 
longer be included in the competitive range, the proposal shall be 
eliminated from consideration for award. Written notice of this decision 
shall be provided to unsuccessful offerors in accordance with 15.503.
    (4) Offerors excluded or otherwise eliminated from the competitive 
range may request a debriefing (see 15.505 and 15.506).
    (d) Exchanges with offerors after establishment of the competitive 
range. Negotiations are exchanges, in either a competitive or sole 
source environment, between the Government and offerors, that are 
undertaken with the intent of allowing the offeror to revise its 
proposal. These negotiations may include bargaining. Bargaining includes 
persuasion, alteration of assumptions and positions, give-and-take, and 
may apply to price, schedule, technical requirements, type of contract, 
or other terms of a proposed contract. When negotiations are conducted 
in a competitive acquisition, they take place after establishment of the 
competitive range and are called discussions.
    (1) Discussions are tailored to each offeror's proposal, and shall 
be conducted by the contracting officer with each offeror within the 
competitive range.
    (2) The primary objective of discussions is to maximize the 
Government's ability to obtain best value, based on the requirement and 
the evaluation factors set forth in the solicitation.
    (3) The contracting officer shall, subject to paragraphs (d)(4) and 
(e) of this section and 15.307(a), indicate to, or discuss with, each 
offeror still being considered for award, significant weaknesses, 
deficiencies, and other aspects of its proposal (such as cost, price, 
technical approach, past performance, and terms and conditions) that 
could, in the opinion of the contracting officer, be altered or 
explained to enhance materially the proposal's potential for award. The 
scope and extent of discussions are a matter of contracting officer 
judgment. In discussing other aspects of the proposal, the Government 
may, in situations where the solicitation stated that evaluation credit 
would be given for technical solutions exceeding any mandatory minimums, 
negotiate with offerors for increased performance beyond any mandatory 
minimums, and the Government may suggest to offerors that have exceeded 
any mandatory minimums (in ways that are not integral to the design), 
that their proposals would be more competitive if the excesses were 
removed and the offered price decreased.
    (4) If, after discussions have begun, an offeror originally in the 
competitive range is no longer considered to be among the most highly 
rated offerors being considered for award, that offeror may be 
eliminated from the competitive range whether or not all material 
aspects of the proposal have been discussed, or whether or not the 
offeror has been afforded an opportunity to submit a proposal revision 
(see 15.307(a) and 15.503(a)(1)).
    (e) Limits on exchanges. Government personnel involved in the 
acquisition shall not engage in conduct that--
    (1) Favors one offeror over another;
    (2) Reveals an offeror's technical solution, including unique 
technology, innovative and unique uses of commercial items, or any 
information that would compromise an offeror's intellectual property to 
another offeror;
    (3) Reveals an offerors price without that offeror's permission. 
However, the contracting officer may inform an

[[Page 247]]

offeror that its price is considered by the Government to be too high, 
or too low, and reveal the results of the analysis supporting that 
conclusion. It is also permissible, at the Government's discretion, to 
indicate to all offerors the cost or price that the Government's price 
analysis, market research, and other reviews have identified as 
reasonable (41 U.S.C. 423(h)(1)(2));
    (4) Reveals the names of individuals providing reference information 
about an offeror's past performance; or
    (5) Knowingly furnishes source selection information in violation of 
3.104 and 41 U.S.C. 423(h)(1)(2).



15.307  Proposal revisions.

    (a) If an offerors proposal is eliminated or otherwise removed from 
the competitive range, no further revisions to that offeror's proposal 
shall be accepted or considered.
    (b) The contracting officer may request or allow proposal revisions 
to clarify and document understandings reached during negotiations. At 
the conclusion of discussions, each offeror still in the competitive 
range shall be given an opportunity to submit a final proposal revision. 
The contracting officer is required to establish a common cut-off date 
only for receipt of final proposal revisions. Requests for final 
proposal revisions shall advise offerors that the final proposal 
revisions shall be in writing and that the Government intends to make 
award without obtaining further revisions.



15.308  Source selection decision.

    The source selection authority's (SSA) decision shall be based on a 
comparative assessment of proposals against all source selection 
criteria in the solicitation. While the SSA may use reports and analyses 
prepared by others, the source selection decision shall represent the 
SSA's independent judgment. The source selection decision shall be 
documented, and the documentation shall include the rationale for any 
business judgments and tradeoffs made or relied on by the SSA, including 
benefits associated with additional costs. Although the rationale for 
the selection decision must be documented, that documentation need not 
quantify the tradeoffs that led to the decision.



                     Subpart 15.4--Contract Pricing



15.400  Scope of subpart.

    This subpart prescribes the cost and price negotiation policies and 
procedures for pricing negotiated prime contracts (including 
subcontracts) and contract modifications, including modifications to 
contracts awarded by sealed bidding.



15.401  Definitions.

    Cost or pricing data (10 U.S.C. 2306a(h)(1) and 41 U.S.C. 254b) 
means all facts that, as of the date of price agreement or, if 
applicable, an earlier date agreed upon between the parties that is as 
close as practicable to the date of agreement on price, prudent buyers 
and sellers would reasonably expect to affect price negotiations 
significantly. Cost or pricing data are data requiring certification in 
accordance with 15.406-2. Cost or pricing data are factual, not 
judgmental; and are verifiable. While they do not indicate the accuracy 
of the prospective contractor's judgment about estimated future costs or 
projections, they do include the data forming the basis for that 
judgment. Cost or pricing data are more than historical accounting data; 
they are all the facts that can be reasonably expected to contribute to 
the soundness of estimates of future costs and to the validity of 
determinations of costs already incurred. They also include such factors 
as: vendor quotations; nonrecurring costs; information on changes in 
production methods and in production or purchasing volume; data 
supporting projections of business prospects and objectives and related 
operations costs; unit-cost trends such as those associated with labor 
efficiency; make-or-buy decisions; estimated resources to attain 
business goals; and information on management decisions that could have 
a significant bearing on costs.
    Cost realism means that the costs in an offeror's proposal are 
realistic for the work to be performed; reflect a clear understanding of 
the requirements; and are consistent with the various elements of the 
offeror's technical proposal.

[[Page 248]]

    Forward pricing rate agreement means a written agreement negotiated 
between a contractor and the Government to make certain rates available 
during a specified period for use in pricing contracts or modifications. 
Such rates represent reasonable projections of specific costs that are 
not easily estimated for, identified with, or generated by a specific 
contract, contract end item, or task. These projections may include 
rates for such things as labor, indirect costs, material obsolescence 
and usage, spare parts provisioning, and material handling.
    Forward pricing rate recommendation means a rate set unilaterally by 
the administrative contracting officer for use by the Government in 
negotiations or other contract actions when forward pricing rate 
agreement negotiations have not been completed or when the contractor 
will not agree to a forward pricing rate agreement.
    Information other than cost or pricing data means any type of 
information that is not required to be certified in accordance with 
15.406-2 and is necessary to determine price reasonableness or cost 
realism. For example, such information may include pricing, sales, or 
cost information, and includes cost or pricing data for which 
certification is determined inapplicable after submission.
    Price, as used in this subpart, means cost plus any fee or profit 
applicable to the contract type.
    Subcontract, as used in this subpart, also includes a transfer of 
commercial items between divisions, subsidiaries, or affiliates of a 
contractor or a subcontractor (10 U.S.C. 2306a(h)(2) and 41 U.S.C. 
254b(h)(2)).



15.402  Pricing policy.

    Contracting officers shall--
    (a) Purchase supplies and services from responsible sources at fair 
and reasonable prices. In establishing the reasonableness of the offered 
prices, the contracting officer shall not obtain more information than 
is necessary. To the extent that cost or pricing data are not required 
by 15.403-4, the contracting officer shall generally use the following 
order of preference in determining the type of information required:
    (1) No additional information from the offeror, if the price is 
based on adequate price competition, except as provided by 15.403-3(b).
    (2) Information other than cost or pricing data:
    (i) Information related to prices (e.g., established catalog or 
market prices or previous contract prices), relying first on information 
available within the Government; second, on information obtained from 
sources other than the offeror; and, if necessary, on information 
obtained from the offeror. When obtaining information from the offeror 
is necessary, unless an exception under 15.403-1(b) (1) or (2) applies, 
such information submitted by the offeror shall include, at a minimum, 
appropriate information on the prices at which the same or similar items 
have been sold previously, adequate for evaluating the reasonableness of 
the price.
    (ii) Cost information, that does not meet the definition of cost or 
pricing data at 15.401.
    (3) Cost or pricing data. The contracting officer should use every 
means available to ascertain whether a fair and reasonable price can be 
determined before requesting cost or pricing data. Contracting officers 
shall not require unnecessarily the submission of cost or pricing data, 
because it leads to increased proposal preparation costs, generally 
extends acquisition lead time, and consumes additional contractor and 
Government resources.
    (b) Price each contract separately and independently and not--
    (1) Use proposed price reductions under other contracts as an 
evaluation factor; or
    (2) Consider losses or profits realized or anticipated under other 
contracts.
    (c) Not include in a contract price any amount for a specified 
contingency to the extent that the contract provides for a price 
adjustment based upon the occurrence of that contingency.



15.403  Obtaining cost or pricing data.



15.403-1  Prohibition on obtaining cost or pricing data (10 U.S.C. 2306a and 41 U.S.C. 254b).

    (a) Cost or pricing data shall not be obtained for acquisitions at 
or below the simplified acquisition threshold.

[[Page 249]]

    (b) Exceptions to cost or pricing data requirements. The contracting 
officer shall not require submission of cost or pricing data to support 
any action (contracts, subcontracts, or modifications) (but may require 
information other than cost or pricing data to support a determination 
of price reasonableness or cost realism)--
    (1) When the contracting officer determines that prices agreed upon 
are based on adequate price competition (see standards in paragraph 
(c)(1) of this subsection);
    (2) When the contracting officer determines that prices agreed upon 
are based on prices set by law or regulation (see standards in paragraph 
(c)(2) of this subsection);
    (3) When a commercial item is being acquired (see standards in 
paragraph (c)(3) of this subsection);
    (4) When a waiver has been granted (see standards in paragraph 
(c)(4) of this subsection); or
    (5) When modifying a contract or subcontract for commercial items 
(see standards in paragraph (c)(3) of this subsection).
    (c) Standards for exceptions from cost or pricing data 
requirements--(1) Adequate price competition. A price is based on 
adequate price competition if--
    (i) Two or more responsible offerors, competing independently, 
submit priced offers that satisfy the Government's expressed requirement 
and if--
    (A) Award will be made to the offeror whose proposal represents the 
best value (see 2.101) where price is a substantial factor in source 
selection; and
    (B) There is no finding that the price of the otherwise successful 
offeror is unreasonable. Any finding that the price is unreasonable must 
be supported by a statement of the facts and approved at a level above 
the contracting officer;
    (ii) There was a reasonable expectation, based on market research or 
other assessment, that two or more responsible offerors, competing 
independently, would submit priced offers in response to the 
solicitation's expressed requirement, even though only one offer is 
received from a responsible offeror and if--
    (A) Based on the offer received, the contracting officer can 
reasonably conclude that the offer was submitted with the expectation of 
competition, e.g., circumstances indicate that--
    (1) The offeror believed that at least one other offeror was capable 
of submitting a meaningful offer; and
    (2) The offeror had no reason to believe that other potential 
offerors did not intend to submit an offer; and
    (B) The determination that the proposed price is based on adequate 
price competition, is reasonable, and is approved at a level above the 
contracting officer; or
    (iii) Price analysis clearly demonstrates that the proposed price is 
reasonable in comparison with current or recent prices for the same or 
similar items, adjusted to reflect changes in market conditions, 
economic conditions, quantities, or terms and conditions under contracts 
that resulted from adequate price competition.
    (2) Prices set by law or regulation. Pronouncements in the form of 
periodic rulings, reviews, or similar actions of a governmental body, or 
embodied in the laws, are sufficient to set a price.
    (3) Commercial items. Any acquisition for an item that meets the 
commercial item definition in 2.101, or any modification, as defined in 
paragraph (c)(1) or (2) of that definition, that does not change the 
item from a commercial item to a noncommercial item, is exempt from the 
requirement for cost or pricing data.
    (4) Waivers. The head of the contracting activity (HCA) may, without 
power of delegation, waive the requirement for submission of cost or 
pricing data in exceptional cases. The authorization for the waiver and 
the supporting rationale shall be in writing. The HCA may consider 
waiving the requirement if the price can be determined to be fair and 
reasonable without submission of cost or pricing data. For example, if 
cost or pricing data were furnished on previous production buys and the 
contracting officer determines such data are sufficient, when combined 
with updated information, a waiver may be granted. If the HCA has waived 
the requirement for submission of cost or pricing data, the contractor 
or higher-tier subcontractor to whom the waiver relates shall be 
considered as having been required to provide cost or pricing

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data. Consequently, award of any lower-tier subcontract expected to 
exceed the cost or pricing data threshold requires the submission of 
cost or pricing data unless an exception otherwise applies to the 
subcontract or the waiver specifically includes that subcontract.



15.403-2  Other circumstances where cost or pricing data are not required.

    (a) The exercise of an option at the price established at contract 
award or initial negotiation does not require submission of cost or 
pricing data.
    (b) Cost or pricing data are not required for proposals used solely 
for overrun funding or interim billing price adjustments.



15.403-3  Requiring information other than cost or pricing data.

    (a) General. (1) The contracting officer is responsible for 
obtaining information that is adequate for evaluating the reasonableness 
of the price or determining cost realism. However, the contracting 
officer should not obtain more information than is necessary for 
determining the reasonableness of the price or evaluating cost realism. 
To the extent necessary to determine the reasonableness of the price, 
the contracting officer shall require submission of information from the 
offeror. Unless an exception under 15.403-1(b)(1) or (2) applies, such 
information submitted by the offeror shall include, at a minimum, 
appropriate information on the prices at which the same item or similar 
items have previously been sold, adequate for determining the 
reasonableness of the price (10 U.S.C. 2306a(d)(1) and 41 U.S.C. 
254b(d)(1)).
    (2) The contractor's format for submitting such information should 
be used (see 15.403-5(b)(2)).
    (3) The contracting officer shall ensure that information used to 
support price negotiations is sufficiently current to permit negotiation 
of a fair and reasonable price. Requests for updated offeror information 
should be limited to information that affects the adequacy of the 
proposal for negotiations, such as changes in price lists. Such data 
shall not be certified in accordance with 15.406-2.
    (b) Adequate price competition. When adequate price competition 
exists (see 15.403-1(c)(1)), generally no additional information is 
necessary to determine the reasonableness of price. However, if there 
are unusual circumstances where it is concluded that additional 
information is necessary to determine the reasonableness of price, the 
contracting officer shall, to the maximum extent practicable, obtain the 
additional information from sources other than the offeror. In addition, 
the contracting officer may request information to determine the cost 
realism of competing offers or to evaluate competing approaches.
    (c) Limitations relating to commercial items (10 U.S.C. 2306a(d)(2) 
and 41 U.S.C. 254b(d)). (1) Requests for sales data relating to 
commercial items shall be limited to data for the same or similar items 
during a relevant time period.
    (2) The contracting officer shall, to the maximum extent 
practicable, limit the scope of the request for information relating to 
commercial items to include only information that is in the form 
regularly maintained by the offeror as part of its commercial 
operations.
    (3) Information obtained relating to commercial items that is exempt 
from disclosure under 24.202(a) or the Freedom of Information Act (5 
U.S.C. 552(b)) shall not be disclosed outside the Government.



15.403-4  Requiring cost or pricing data (10 U.S.C. 2306a and 41 U.S.C. 254b).

    (a)(1) Cost or pricing data shall be obtained only if the 
contracting officer concludes that none of the exceptions in 15.403-1(b) 
applies. However, if the contracting officer has sufficient information 
available to determine price reasonableness, then a waiver under the 
exception at 15.403-1(b)(4) should be considered. The threshold for 
obtaining cost or pricing data is $500,000. Unless an exception applies, 
cost or pricing data are required before accomplishing any of the 
following actions expected to exceed the current threshold or, in the 
case of existing contracts, the threshold specified in the contract:

[[Page 251]]

    (i) The award of any negotiated contract (except for undefinitized 
actions such as letter contracts).
    (ii) The award of a subcontract at any tier, if the contractor and 
each higher-tier subcontractor have been required to furnish cost or 
pricing data (but see waivers at 15.403-1(c)(4)).
    (iii) The modification of any sealed bid or negotiated contract 
(whether or not cost or pricing data were initially required) or any 
subcontract covered by paragraph (a)(1)(ii) of this subsection. Price 
adjustment amounts shall consider both increases and decreases (e.g., a 
$150,000 modification resulting from a reduction of $350,000 and an 
increase of $200,000 is a pricing adjustment exceeding $500,000). This 
requirement does not apply when unrelated and separately priced changes 
for which cost or pricing data would not otherwise be required are 
included for administrative convenience in the same modification. 
Negotiated final pricing actions (such as termination settlements and 
total final price agreements for fixed-price incentive and 
redeterminable contracts) are contract modifications requiring cost or 
pricing data if the total final price agreement for such settlements or 
agreements exceeds the pertinent threshold set forth at paragraph (a)(1) 
of this subsection, or the partial termination settlement plus the 
estimate to complete the continued portion of the contract exceeds the 
pertinent threshold set forth at paragraph (a)(1) of this subsection 
(see 49.105(c)(15)).
    (2) Unless prohibited because an exception at 15.403-1(b) applies, 
the head of the contracting activity, without power of delegation, may 
authorize the contracting officer to obtain cost or pricing data for 
pricing actions below the pertinent threshold in paragraph (a)(1) of 
this subsection, provided the action exceeds the simplified acquisition 
threshold. The head of the contracting activity shall justify the 
requirement for cost or pricing data. The documentation shall include a 
written finding that cost or pricing data are necessary to determine 
whether the price is fair and reasonable and the facts supporting that 
finding.
    (b) When cost or pricing data are required, the contracting officer 
shall require the contractor or prospective contractor to submit to the 
contracting officer (and to have any subcontractor or prospective 
subcontractor submit to the prime contractor or appropriate 
subcontractor tier) the following in support of any proposal:
    (1) The cost or pricing data.
    (2) A certificate of current cost or pricing data, in the format 
specified in 15.406-2, certifying that to the best of its knowledge and 
belief, the cost or pricing data were accurate, complete, and current as 
of the date of agreement on price or, if applicable, an earlier date 
agreed upon between the parties that is as close as practicable to the 
date of agreement on price.
    (c) If cost or pricing data are requested and submitted by an 
offeror, but an exception is later found to apply, the data shall not be 
considered cost or pricing data as defined in 15.401 and shall not be 
certified in accordance with 15.406-2.
    (d) The requirements of this subsection also apply to contracts 
entered into by an agency on behalf of a foreign government.



15.403-5  Instructions for submission of cost or pricing data or information other than cost or pricing data.

    (a) Taking into consideration the policy at 15.402, the contracting 
officer shall specify in the solicitation (see 15.408 (l) and (m))--
    (1) Whether cost or pricing data are required;
    (2) That, in lieu of submitting cost or pricing data, the offeror 
may submit a request for exception from the requirement to submit cost 
or pricing data;
    (3) Any information other than cost or pricing data that is 
required; and
    (4) Necessary preaward or postaward access to offeror's records.
    (b)(1) Unless required to be submitted on one of the termination 
forms specified in Subpart 49.6, the contracting officer may require 
submission of cost or pricing data in the format indicated in Table 15-2 
of 15.408, specify an alternative format, or permit submission in the 
contractor's format.
    (2) Information other than cost or pricing data may be submitted in 
the offeror's own format unless the contracting officer decides that use 
of a

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specific format is essential and the format has been described in the 
solicitation.
    (3) Data supporting forward pricing rate agreements or final 
indirect cost proposals shall be submitted in a form acceptable to the 
contracting officer.



15.404  Proposal analysis.



15.404-1  Proposal analysis techniques.

    (a) General. The objective of proposal analysis is to ensure that 
the final agreed-to price is fair and reasonable.
    (1) The contracting officer is responsible for evaluating the 
reasonableness of the offered prices. The analytical techniques and 
procedures described in this section may be used, singly or in 
combination with others, to ensure that the final price is fair and 
reasonable. The complexity and circumstances of each acquisition should 
determine the level of detail of the analysis required.
    (2) Price analysis shall be used when cost or pricing data are not 
required (see paragraph (b) of this subsection and 15.404-3).
    (3) Cost analysis shall be used to evaluate the reasonableness of 
individual cost elements when cost or pricing data are required. Price 
analysis should be used to verify that the overall price offered is fair 
and reasonable.
    (4) Cost analysis may also be used to evaluate information other 
than cost or pricing data to determine cost reasonableness or cost 
realism.
    (5) The contracting officer may request the advice and assistance of 
other experts to ensure that an appropriate analysis is performed.
    (6) Recommendations or conclusions regarding the Government's review 
or analysis of an offeror's or contractor's proposal shall not be 
disclosed to the offeror or contractor without the concurrence of the 
contracting officer. Any discrepancy or mistake of fact (such as 
duplications, omissions, and errors in computation) contained in the 
cost or pricing data or information other than cost or pricing data 
submitted in support of a proposal shall be brought to the contracting 
officer's attention for appropriate action.
    (7) The Air Force Institute of Technology (AFIT) and the Federal 
Acquisition Institute (FAI) jointly prepared a five-volume set of 
Contract Pricing Resource Guides to guide pricing and negotiation 
personnel. The five guides are: I Price Analysis, II Quantitative 
Techniques for Contract Pricing, III Cost Analysis, IV Advanced Issues 
in Contract Pricing, and V Federal Contract Negotiation Techniques. 
These references provide detailed discussion and examples applying 
pricing policies to pricing problems. They are to be used for 
instruction and professional guidance. However, they are not directive 
and should be considered informational only. Free copies of the 
references are available on the World Wide Web, Internet address http://
www.gsa.gov/fai.
    (b) Price analysis. (1) Price analysis is the process of examining 
and evaluating a proposed price without evaluating its separate cost 
elements and proposed profit.
    (2) The Government may use various price analysis techniques and 
procedures to ensure a fair and reasonable price, given the 
circumstances surrounding the acquisition. Examples of such techniques 
include, but are not limited to the following:
    (i) Comparison of proposed prices received in response to the 
solicitation.
    (ii) Comparison of previously proposed prices and contract prices 
with current proposed prices for the same or similar end items, if both 
the validity of the comparison and the reasonableness of the previous 
price(s) can be established.
    (iii) Use of parametric estimating methods/application of rough 
yardsticks (such as dollars per pound or per horsepower, or other units) 
to highlight significant inconsistencies that warrant additional pricing 
inquiry.
    (iv) Comparison with competitive published price lists, published 
market prices of commodities, similar indexes, and discount or rebate 
arrangements.
    (v) Comparison of proposed prices with independent Government cost 
estimates.
    (vi) Comparison of proposed prices with prices obtained through 
market research for the same or similar items.
    (c) Cost analysis. (1) Cost analysis is the review and evaluation of 
the separate cost elements and profit in an

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offeror's or contractor's proposal (including cost or pricing data or 
information other than cost or pricing data), and the application of 
judgment to determine how well the proposed costs represent what the 
cost of the contract should be, assuming reasonable economy and 
efficiency.
    (2) The Government may use various cost analysis techniques and 
procedures to ensure a fair and reasonable price, given the 
circumstances of the acquisition. Such techniques and procedures include 
the following:
    (i) Verification of cost or pricing data and evaluation of cost 
elements, including--
    (A) The necessity for, and reasonableness of, proposed costs, 
including allowances for contingencies;
    (B) Projection of the offeror's cost trends, on the basis of current 
and historical cost or pricing data;
    (C) Reasonableness of estimates generated by appropriately 
calibrated and validated parametric models or cost-estimating 
relationships; and
    (D) The application of audited or negotiated indirect cost rates, 
labor rates, and cost of money or other factors.
    (ii) Evaluating the effect of the offeror's current practices on 
future costs. In conducting this evaluation, the contracting officer 
shall ensure that the effects of inefficient or uneconomical past 
practices are not projected into the future. In pricing production of 
recently developed complex equipment, the contracting officer should 
perform a trend analysis of basic labor and materials, even in periods 
of relative price stability.
    (iii) Comparison of costs proposed by the offeror for individual 
cost elements with--
    (A) Actual costs previously incurred by the same offeror;
    (B) Previous cost estimates from the offeror or from other offerors 
for the same or similar items;
    (C) Other cost estimates received in response to the Government's 
request;
    (D) Independent Government cost estimates by technical personnel; 
and
    (E) Forecasts of planned expenditures.
    (iv) Verification that the offeror's cost submissions are in 
accordance with the contract cost principles and procedures in part 31 
and, when applicable, the requirements and procedures in 48 CFR Chapter 
99 (Appendix to the FAR looseleaf edition), Cost Accounting Standards.
    (v) Review to determine whether any cost or pricing data necessary 
to make the contractor's proposal accurate, complete, and current have 
not been either submitted or identified in writing by the contractor. If 
there are such data, the contracting officer shall attempt to obtain 
them and negotiate, using them or making satisfactory allowance for the 
incomplete data.
    (vi) Analysis of the results of any make-or-buy program reviews, in 
evaluating subcontract costs (see 15.407-2).
    (d) Cost realism analysis. (1) Cost realism analysis is the process 
of independently reviewing and evaluating specific elements of each 
offeror's proposed cost estimate to determine whether the estimated 
proposed cost elements are realistic for the work to be performed; 
reflect a clear understanding of the requirements; and are consistent 
with the unique methods of performance and materials described in the 
offeror's technical proposal.
    (2) Cost realism analyses shall be performed on cost-reimbursement 
contracts to determine the probable cost of performance for each 
offeror.
    (i) The probable cost may differ from the proposed cost and should 
reflect the Government's best estimate of the cost of any contract that 
is most likely to result from the offeror's proposal. The probable cost 
shall be used for purposes of evaluation to determine the best value.
    (ii) The probable cost is determined by adjusting each offeror's 
proposed cost, and fee when appropriate, to reflect any additions or 
reductions in cost elements to realistic levels based on the results of 
the cost realism analysis.
    (3) Cost realism analyses may also be used on competitive fixed-
price incentive contracts or, in exceptional cases, on other competitive 
fixed-price-type contracts when new requirements may not be fully 
understood by competing offerors, there are quality concerns, or past 
experience indicates that contractors proposed costs have resulted in

[[Page 254]]

quality or service shortfalls. Results of the analysis may be used in 
performance risk assessments and responsibility determinations. However, 
proposals shall be evaluated using the criteria in the solicitation, and 
the offered prices shall not be adjusted as a result of the analysis.
    (e) Technical analysis. (1) The contracting officer may request that 
personnel having specialized knowledge, skills, experience, or 
capability in engineering, science, or management perform a technical 
analysis of the proposed types and quantities of materials, labor, 
processes, special tooling, facilities, the reasonableness of scrap and 
spoilage, and other associated factors set forth in the proposal(s) in 
order to determine the need for and reasonableness of the proposed 
resources, assuming reasonable economy and efficiency.
    (2) At a minimum, the technical analysis should examine the types 
and quantities of material proposed and the need for the types and 
quantities of labor hours and the labor mix. Any other data that may be 
pertinent to an assessment of the offeror's ability to accomplish the 
technical requirements or to the cost or price analysis of the service 
or product being proposed should also be included in the analysis.
    (f) Unit prices. (1) Except when pricing an item on the basis of 
adequate price competition or catalog or market price, unit prices shall 
reflect the intrinsic value of an item or service and shall be in 
proportion to an item's base cost (e.g., manufacturing or acquisition 
costs). Any method of distributing costs to line items that distorts the 
unit prices shall not be used. For example, distributing costs equally 
among line items is not acceptable except when there is little or no 
variation in base cost.
    (2) Except for the acquisition of commercial items, contracting 
officers shall require that offerors identify in their proposals those 
items of supply that they will not manufacture or to which they will not 
contribute significant value, unless adequate price competition is 
expected (10 U.S.C. 2304 and 41 U.S.C. 254(d)(5)(A)(i)). Such 
information shall be used to determine whether the intrinsic value of an 
item has been distorted through application of overhead and whether such 
items should be considered for breakout. The contracting officer may 
require such information in all other negotiated contracts when 
appropriate.
    (g) Unbalanced pricing. (1) Unbalanced pricing may increase 
performance risk and could result in payment of unreasonably high 
prices. Unbalanced pricing exists when, despite an acceptable total 
evaluated price, the price of one or more contract line items is 
significantly over or understated as indicated by the application of 
cost or price analysis techniques. The greatest risks associated with 
unbalanced pricing occur when--
    (i) Startup work, mobilization, first articles, or first article 
testing are separate line items;
    (ii) Base quantities and option quantities are separate line items; 
or
    (iii) The evaluated price is the aggregate of estimated quantities 
to be ordered under separate line items of an indefinite-delivery 
contract.
    (2) All offers with separately priced line items or subline items 
shall be analyzed to determine if the prices are unbalanced. If cost or 
price analysis techniques indicate that an offer is unbalanced, the 
contracting officer shall--
    (i) Consider the risks to the Government associated with the 
unbalanced pricing in determining the competitive range and in making 
the source selection decision; and
    (ii) Consider whether award of the contract will result in paying 
unreasonably high prices for contract performance.
    (3) An offer may be rejected if the contracting officer determines 
that the lack of balance poses an unacceptable risk to the Government.



15.404-2  Information to support proposal analysis.

    (a) Field pricing assistance. (1) The contracting officer should 
request field pricing assistance when the information available at the 
buying activity is inadequate to determine a fair and reasonable price. 
Such requests shall be tailored to reflect the minimum essential 
supplementary information needed

[[Page 255]]

to conduct a technical or cost or pricing analysis.
    (2) Field pricing assistance generally is directed at obtaining 
technical, audit, and special reports associated with the cost elements 
of a proposal, including subcontracts. Information on related pricing 
practices and history may also be obtained. Field pricing assistance may 
also include information relative to the business, technical, 
production, or other capabilities and practices of an offeror. The type 
of information and level of detail requested will vary in accordance 
with the specialized resources available at the buying activity and the 
magnitude and complexity of the required analysis.
    (3) When field pricing assistance is requested, contracting officers 
are encouraged to team with appropriate field experts throughout the 
acquisition process, including negotiations. Early communication with 
these experts will assist in determining the extent of assistance 
required, the specific areas for which assistance is needed, a realistic 
review schedule, and the information necessary to perform the review.
    (4) When requesting field pricing assistance on a contractor's 
request for equitable adjustment, the contracting officer shall provide 
the information listed in 43.204(b)(5).
    (5) Field pricing information and other reports may include 
proprietary or source selection information (see 3.104-4 (j) and (k)). 
Such information shall be appropriately identified and protected 
accordingly.
    (b) Reporting field pricing information. (1) Depending upon the 
extent and complexity of the field pricing review, results, including 
supporting rationale, may be reported directly to the contracting 
officer orally, in writing, or by any other method acceptable to the 
contracting officer.
    (i) Whenever circumstances permit, the contracting officer and field 
pricing experts are encouraged to use telephonic and/or electronic means 
to request and transmit pricing information.
    (ii) When it is necessary to have written technical and audit 
reports, the contracting officer shall request that the audit agency 
concurrently forward the audit report to the requesting contracting 
officer and the administrative contracting officer (ACO). The completed 
field pricing assistance results may reference audit information, but 
need not reconcile the audit recommendations and technical 
recommendations. A copy of the information submitted to the contracting 
officer by field pricing personnel shall be provided to the audit 
agency.
    (2) Audit and field pricing information, whether written or reported 
telephonically or electronically, shall be made a part of the official 
contract file (see 4.807(f)).
    (c) Audit assistance for prime contracts or subcontracts. (1) The 
contracting officer may contact the cognizant audit office directly, 
particularly when an audit is the only field pricing support required. 
The audit office shall send the audit report, or otherwise transmit the 
audit recommendations, directly to the contracting officer.
    (i) The auditor shall not reveal the audit conclusions or 
recommendations to the offeror/contractor without obtaining the 
concurrence of the contracting officer. However, the auditor may discuss 
statements of facts with the contractor.
    (ii) The contracting officer should be notified immediately of any 
information disclosed to the auditor after submission of a report that 
may significantly affect the audit findings and, if necessary, a 
supplemental audit report shall be issued.
    (2) The contracting officer shall not request a separate preaward 
audit of indirect costs unless the information already available from an 
existing audit, completed within the preceding 12 months, is considered 
inadequate for determining the reasonableness of the proposed indirect 
costs (41 U.S.C. 254d and 10 U.S.C. 2313).
    (3) The auditor is responsible for the scope and depth of the audit. 
Copies of updated information that will significantly affect the audit 
should be provided to the auditor by the contracting officer.
    (4) General access to the offeror's books and financial records is 
limited to the auditor. This limitation does not preclude the 
contracting officer or the

[[Page 256]]

ACO, or their representatives, from requesting that the offeror provide 
or make available any data or records necessary to analyze the offeror's 
proposal.
    (d) Deficient proposals. The ACO or the auditor, as appropriate, 
shall notify the contracting officer immediately if the data provided 
for review is so deficient as to preclude review or audit, or if the 
contractor or offeror has denied access to any records considered 
essential to conduct a satisfactory review or audit. Oral notifications 
shall be confirmed promptly in writing, including a description of 
deficient or denied data or records. The contracting officer immediately 
shall take appropriate action to obtain the required data. Should the 
offeror/contractor again refuse to provide adequate data, or provide 
access to necessary data, the contracting officer shall withhold the 
award or price adjustment and refer the contract action to a higher 
authority, providing details of the attempts made to resolve the matter 
and a statement of the practicability of obtaining the supplies or 
services from another source.



15.404-3  Subcontract pricing considerations.

    (a) The contracting officer is responsible for the determination of 
price reasonableness for the prime contract, including subcontracting 
costs. The contracting officer should consider whether a contractor or 
subcontractor has an approved purchasing system, has performed cost or 
price analysis of proposed subcontractor prices, or has negotiated the 
subcontract prices before negotiation of the prime contract, in 
determining the reasonableness of the prime contract price. This does 
not relieve the contracting officer from the responsibility to analyze 
the contractor's submission, including subcontractor's cost or pricing 
data.
    (b) The prime contractor or subcontractor shall--
    (1) Conduct appropriate cost or price analyses to establish the 
reasonableness of proposed subcontract prices;
    (2) Include the results of these analyses in the price proposal; and
    (3) When required by paragraph (c) of this subsection, submit 
subcontractor cost or pricing data to the Government as part of its own 
cost or pricing data.
    (c) Any contractor or subcontractor that is required to submit cost 
or pricing data also shall obtain and analyze cost or pricing data 
before awarding any subcontract, purchase order, or modification 
expected to exceed the cost or pricing data threshold, unless an 
exception in 15.403-1(b) applies to that action.
    (1) The contractor shall submit, or cause to be submitted by the 
subcontractor(s), cost or pricing data to the Government for 
subcontracts that are the lower of either--
    (i) $10,000,000 or more; or
    (ii) Both more than the pertinent cost or pricing data threshold and 
more than 10 percent of the prime contractor's proposed price, unless 
the contracting officer believes such submission is unnecessary.
    (2) The contracting officer may require the contractor or 
subcontractor to submit to the Government (or cause submission of) 
subcontractor cost or pricing data below the thresholds in paragraph 
(c)(1) of this subsection that the contracting officer considers 
necessary for adequately pricing the prime contract.
    (3) Subcontractor cost or pricing data shall be submitted in the 
format provided in Table 15-2 of 15.408 or the alternate format 
specified in the solicitation.
    (4) Subcontractor cost or pricing data shall be current, accurate, 
and complete as of the date of price agreement, or, if applicable, an 
earlier date agreed upon by the parties and specified on the 
contractor's Certificate of Current Cost or Pricing Data. The contractor 
shall update subcontractor's data, as appropriate, during source 
selection and negotiations.
    (5) If there is more than one prospective subcontractor for any 
given work, the contractor need only submit to the Government cost or 
pricing data for the prospective subcontractor most likely to receive 
the award.



15.404-4  Profit.

    (a) General. This subsection prescribes policies for establishing 
the profit or fee portion of the Government

[[Page 257]]

prenegotiation objective in price negotiations based on cost analysis.
    (1) Profit or fee prenegotiation objectives do not necessarily 
represent net income to contractors. Rather, they represent that element 
of the potential total remuneration that contractors may receive for 
contract performance over and above allowable costs. This potential 
remuneration element and the Government's estimate of allowable costs to 
be incurred in contract performance together equal the Government's 
total prenegotiation objective. Just as actual costs may vary from 
estimated costs, the contractor's actual realized profit or fee may vary 
from negotiated profit or fee, because of such factors as efficiency of 
performance, incurrence of costs the Government does not recognize as 
allowable, and the contract type.
    (2) It is in the Government's interest to offer contractors 
opportunities for financial rewards sufficient to stimulate efficient 
contract performance, attract the best capabilities of qualified large 
and small business concerns to Government contracts, and maintain a 
viable industrial base.
    (3) Both the Government and contractors should be concerned with 
profit as a motivator of efficient and effective contract performance. 
Negotiations aimed merely at reducing prices by reducing profit, without 
proper recognition of the function of profit, are not in the 
Government's interest. Negotiation of extremely low profits, use of 
historical averages, or automatic application of predetermined 
percentages to total estimated costs do not provide proper motivation 
for optimum contract performance.
    (b) Policy. (1) Structured approaches (see paragraph (d) of this 
subsection) for determining profit or fee prenegotiation objectives 
provide a discipline for ensuring that all relevant factors are 
considered. Subject to the authorities in 1.301(c), agencies making 
noncompetitive contract awards over $100,000 totaling $50 million or 
more a year--
    (i) Shall use a structured approach for determining the profit or 
fee objective in those acquisitions that require cost analysis; and
    (ii) May prescribe specific exemptions for situations in which 
mandatory use of a structured approach would be clearly inappropriate.
    (2) Agencies may use another agency's structured approach.
    (c) Contracting officer responsibilities. (1) When the price 
negotiation is not based on cost analysis, contracting officers are not 
required to analyze profit.
    (2) When the price negotiation is based on cost analysis, 
contracting officers in agencies that have a structured approach shall 
use it to analyze profit. When not using a structured approach, 
contracting officers shall comply with paragraph (d)(1) of this 
subsection in developing profit or fee prenegotiation objectives.
    (3) Contracting officers shall use the Government prenegotiation 
cost objective amounts as the basis for calculating the profit or fee 
prenegotiation objective. Before applying profit or fee factors, the 
contracting officer shall exclude any facilities capital cost of money 
included in the cost objective amounts. If the prospective contractor 
fails to identify or propose facilities capital cost of money in a 
proposal for a contract that will be subject to the cost principles for 
contracts with commercial organizations (see subpart 31.2), facilities 
capital cost of money will not be an allowable cost in any resulting 
contract (see 15.408(i)).
    (4)(i) The contracting officer shall not negotiate a price or fee 
that exceeds the following statutory limitations, imposed by 10 U.S.C. 
2306(e) and 41 U.S.C. 254(b):
    (A) For experimental, developmental, or research work performed 
under a cost-plus-fixed-fee contract, the fee shall not exceed 15 
percent of the contract's estimated cost, excluding fee.
    (B) For architect-engineer services for public works or utilities, 
the contract price or the estimated cost and fee for production and 
delivery of designs, plans, drawings, and specifications shall not 
exceed 6 percent of the estimated cost of construction of the public 
work or utility, excluding fees.
    (C) For other cost-plus-fixed-fee contracts, the fee shall not 
exceed 10 percent of the contract's estimated cost, excluding fee.

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    (ii) The contracting officer's signature on the price negotiation 
memorandum or other documentation supporting determination of fair and 
reasonable price documents the contracting officer's determination that 
the statutory price or fee limitations have not been exceeded.
    (5) The contracting officer shall not require any prospective 
contractor to submit breakouts or supporting rationale for its profit or 
fee objective but may consider it, if it is submitted voluntarily.
    (6) If a change or modification calls for essentially the same type 
and mix of work as the basic contract and is of relatively small dollar 
value compared to the total contract value, the contracting officer may 
use the basic contract's profit or fee rate as the prenegotiation 
objective for that change or modification.
    (d) Profit-analysis factors--(1) Common factors. Unless it is 
clearly inappropriate or not applicable, each factor outlined in 
paragraphs (d)(1)(i) through (vi) of this subsection shall be considered 
by agencies in developing their structured approaches and by contracting 
officers in analyzing profit, whether or not using a structured 
approach.
    (i) Contractor effort. This factor measures the complexity of the 
work and the resources required of the prospective contractor for 
contract performance. Greater profit opportunity should be provided 
under contracts requiring a high degree of professional and managerial 
skill and to prospective contractors whose skills, facilities, and 
technical assets can be expected to lead to efficient and economical 
contract performance. The subfactors in paragraphs (d)(1)(i) (A) through 
(D) of this subsection shall be considered in determining contractor 
effort, but they may be modified in specific situations to accommodate 
differences in the categories used by prospective contractors for 
listing costs--
    (A) Material acquisition. This subfactor measures the managerial and 
technical effort needed to obtain the required purchased parts and 
material, subcontracted items, and special tooling. Considerations 
include the complexity of the items required, the number of purchase 
orders and subcontracts to be awarded and administered, whether 
established sources are available or new or second sources must be 
developed, and whether material will be obtained through routine 
purchase orders or through complex subcontracts requiring detailed 
specifications. Profit consideration should correspond to the managerial 
and technical effort involved.
    (B) Conversion direct labor. This subfactor measures the 
contribution of direct engineering, manufacturing, and other labor to 
converting the raw materials, data, and subcontracted items into the 
contract items. Considerations include the diversity of engineering, 
scientific, and manufacturing labor skills required and the amount and 
quality of supervision and coordination needed to perform the contract 
task.
    (C) Conversion-related indirect costs. This subfactor measures how 
much the indirect costs contribute to contract performance. The labor 
elements in the allocable indirect costs should be given the profit 
consideration they would receive if treated as direct labor. The other 
elements of indirect costs should be evaluated to determine whether they 
merit only limited profit consideration because of their routine nature, 
or are elements that contribute significantly to the proposed contract.
    (D) General management. This subfactor measures the prospective 
contractor's other indirect costs and general and administrative (G&A) 
expense, their composition, and how much they contribute to contract 
performance. Considerations include how labor in the overhead pools 
would be treated if it were direct labor, whether elements within the 
pools are routine expenses or instead are elements that contribute 
significantly to the proposed contract, and whether the elements require 
routine as opposed to unusual managerial effort and attention.
    (ii) Contract cost risk. (A) This factor measures the degree of cost 
responsibility and associated risk that the prospective contractor will 
assume as a result of the contract type contemplated and considering the 
reliability of the cost estimate in relation to the complexity and 
duration of the contract task. Determination of contract type should be 
closely related to

[[Page 259]]

the risks involved in timely, cost-effective, and efficient performance. 
This factor should compensate contractors proportionately for assuming 
greater cost risks.
    (B) The contractor assumes the greatest cost risk in a closely 
priced firm-fixed-price contract under which it agrees to perform a 
complex undertaking on time and at a predetermined price. Some firm-
fixed-price contracts may entail substantially less cost risk than 
others because, for example, the contract task is less complex or many 
of the contractor's costs are known at the time of price agreement, in 
which case the risk factor should be reduced accordingly. The contractor 
assumes the least cost risk in a cost-plus-fixed-fee level-of-effort 
contract, under which it is reimbursed those costs determined to be 
allocable and allowable, plus the fixed fee.
    (C) In evaluating assumption of cost risk, contracting officers 
shall, except in unusual circumstances, treat time-and-materials, labor-
hour, and firm-fixed-price, level-of-effort term contracts as cost-plus-
fixed-fee contracts.
    (iii) Federal socioeconomic programs. This factor measures the 
degree of support given by the prospective contractor to Federal 
socioeconomic programs, such as those involving small business concerns, 
small business concerns owned and controlled by socially and 
economically disadvantaged individuals, women-owned small business 
concerns, handicapped sheltered workshops, and energy conservation. 
Greater profit opportunity should be provided contractors that have 
displayed unusual initiative in these programs.
    (iv) Capital investments. This factor takes into account the 
contribution of contractor investments to efficient and economical 
contract performance.
    (v) Cost-control and other past accomplishments. This factor allows 
additional profit opportunities to a prospective contractor that has 
previously demonstrated its ability to perform similar tasks effectively 
and economically. In addition, consideration should be given to measures 
taken by the prospective contractor that result in productivity 
improvements, and other cost-reduction accomplishments that will benefit 
the Government in follow-on contracts.
    (vi) Independent development. Under this factor, the contractor may 
be provided additional profit opportunities in recognition of 
independent development efforts relevant to the contract end item 
without Government assistance. The contracting officer should consider 
whether the development cost was recovered directly or indirectly from 
Government sources.
    (2) Additional factors. In order to foster achievement of program 
objectives, each agency may include additional factors in its structured 
approach or take them into account in the profit analysis of individual 
contract actions.



15.405  Price negotiation.

    (a) The purpose of performing cost or price analysis is to develop a 
negotiation position that permits the contracting officer and the 
offeror an opportunity to reach agreement on a fair and reasonable 
price. A fair and reasonable price does not require that agreement be 
reached on every element of cost, nor is it mandatory that the agreed 
price be within the contracting officer's initial negotiation position. 
Taking into consideration the advisory recommendations, reports of 
contributing specialists, and the current status of the contractor's 
purchasing system, the contracting officer is responsible for exercising 
the requisite judgment needed to reach a negotiated settlement with the 
offeror and is solely responsible for the final price agreement. 
However, when significant audit or other specialist recommendations are 
not adopted, the contracting officer should provide rationale that 
supports the negotiation result in the price negotiation documentation.
    (b) The contracting officer's primary concern is the overall price 
the Government will actually pay. The contracting officer's objective is 
to negotiate a contract of a type and with a price providing the 
contractor the greatest incentive for efficient and economical 
performance. The negotiation of a contract type and a price are related 
and should be considered together with the issues of risk and 
uncertainty to the contractor and the Government. Therefore, the 
contracting officer should not

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become preoccupied with any single element and should balance the 
contract type, cost, and profit or fee negotiated to achieve a total 
result--a price that is fair and reasonable to both the Government and 
the contractor.
    (c) The Government's cost objective and proposed pricing arrangement 
directly affect the profit or fee objective. Because profit or fee is 
only one of several interrelated variables, the contracting officer 
shall not agree on profit or fee without concurrent agreement on cost 
and type of contract.
    (d) If, however, the contractor insists on a price or demands a 
profit or fee that the contracting officer considers unreasonable, and 
the contracting officer has taken all authorized actions (including 
determining the feasibility of developing an alternative source) without 
success, the contracting officer shall refer the contract action to a 
level above the contracting officer. Disposition of the action should be 
documented.



15.406  Documentation.



15.406-1  Prenegotiation objectives.

    (a) The prenegotiation objectives establish the Government's initial 
negotiation position. They assist in the contracting officer's 
determination of fair and reasonable price. They should be based on the 
results of the contracting officer's analysis of the offeror's proposal, 
taking into consideration all pertinent information including field 
pricing assistance, audit reports and technical analysis, fact-finding 
results, independent Government cost estimates and price histories.
    (b) The contracting officer shall establish prenegotiation 
objectives before the negotiation of any pricing action. The scope and 
depth of the analysis supporting the objectives should be directly 
related to the dollar value, importance, and complexity of the pricing 
action. When cost analysis is required, the contracting officer shall 
document the pertinent issues to be negotiated, the cost objectives, and 
a profit or fee objective.



15.406-2  Certificate of current cost or pricing data.

    (a) When cost or pricing data are required, the contracting officer 
shall require the contractor to execute a Certificate of Current Cost or 
Pricing Data, using the format in this paragraph, and shall include the 
executed certificate in the contract file.

               CERTIFICATE OF CURRENT COST OR PRICING DATA

    This is to certify that, to the best of my knowledge and belief, the 
cost or pricing data (as defined in section 15.401 of the Federal 
Acquisition Regulation (FAR) and required under FAR subsection 15.403-4) 
submitted, either actually or by specific identification in writing, to 
the Contracting Officer or to the Contracting Officer's representative 
in support of ____* are accurate, complete, and current as of ____**. 
This certification includes the cost or pricing data supporting any 
advance agreements and forward pricing rate agreements between the 
offeror and the Government that are part of the proposal.

 Firm___________________________________________________________________

 Signature______________________________________________________________

 Name___________________________________________________________________

 Title__________________________________________________________________

 Date of execution***___________________________________________________

    * Identify the proposal, request for price adjustment, or other 
submission involved, giving the appropriate identifying number (e.g., 
RFP No.).
    ** Insert the day, month, and year when price negotiations were 
concluded and price agreement was reached or, if applicable, an earlier 
date agreed upon between the parties that is as close as practicable to 
the date of agreement on price.
    *** Insert the day, month, and year of signing, which should be as 
close as practicable to the date when the price negotiations were 
concluded and the contract price was agreed to. (End of certificate)

    (b) The certificate does not constitute a representation as to the 
accuracy of the contractor's judgment on the estimate of future costs or 
projections. It applies to the data upon which the judgment or estimate 
was based.

[[Page 261]]

This distinction between fact and judgment should be clearly understood. 
If the contractor had information reasonably available at the time of 
agreement showing that the negotiated price was not based on accurate, 
complete, and current data, the contractor's responsibility is not 
limited by any lack of personal knowledge of the information on the part 
of its negotiators.
    (c) The contracting officer and contractor are encouraged to reach a 
prior agreement on criteria for establishing closing or cutoff dates 
when appropriate in order to minimize delays associated with proposal 
updates. Closing or cutoff dates should be included as part of the data 
submitted with the proposal and, before agreement on price, data should 
be updated by the contractor to the latest closing or cutoff dates for 
which the data are available. Use of cutoff dates coinciding with 
reports is acceptable, as certain data may not be reasonably available 
before normal periodic closing dates (e.g., actual indirect costs). Data 
within the contractor's or a subcontractor's organization on matters 
significant to contractor management and to the Government will be 
treated as reasonably available. What is significant depends upon the 
circumstances of each acquisition.
    (d) Possession of a Certificate of Current Cost or Pricing Data is 
not a substitute for examining and analyzing the contractor's proposal.
    (e) If cost or pricing data are requested by the Government and 
submitted by an offeror, but an exception is later found to apply, the 
data shall not be considered cost or pricing data and shall not be 
certified in accordance with this subsection.



15.406-3  Documenting the negotiation.

    (a) The contracting officer shall document in the contract file the 
principal elements of the negotiated agreement. The documentation (e.g., 
price negotiation memorandum (PNM)) shall include the following:
    (1) The purpose of the negotiation.
    (2) A description of the acquisition, including appropriate 
identifying numbers (e.g., RFP No.).
    (3) The name, position, and organization of each person representing 
the contractor and the Government in the negotiation.
    (4) The current status of any contractor systems (e.g., purchasing, 
estimating, accounting, and compensation) to the extent they affected 
and were considered in the negotiation.
    (5) If cost or pricing data were not required in the case of any 
price negotiation exceeding the cost or pricing data threshold, the 
exception used and the basis for it.
    (6) If cost or pricing data were required, the extent to which the 
contracting officer--
    (i) Relied on the cost or pricing data submitted and used them in 
negotiating the price;
    (ii) Recognized as inaccurate, incomplete, or noncurrent any cost or 
pricing data submitted; the action taken by the contracting officer and 
the contractor as a result; and the effect of the defective data on the 
price negotiated; or
    (iii) Determined that an exception applied after the data were 
submitted and, therefore, considered not to be cost or pricing data.
    (7) A summary of the contractor's proposal, any field pricing 
assistance recommendations, including the reasons for any pertinent 
variances from them, the Government's negotiation objective, and the 
negotiated position. Where the determination of price reasonableness is 
based on cost analysis, the summary shall address each major cost 
element. When determination of price reasonableness is based on price 
analysis, the summary shall include the source and type of data used to 
support the determination.
    (8) The most significant facts or considerations controlling the 
establishment of the prenegotiation objectives and the negotiated 
agreement including an explanation of any significant differences 
between the two positions.
    (9) To the extent such direction has a significant effect on the 
action, a discussion and quantification of the impact of direction given 
by Congress, other agencies, and higher-level officials (i.e., officials 
who would not normally exercise authority during the award and review 
process for the instant contract action).

[[Page 262]]

    (10) The basis for the profit or fee prenegotiation objective and 
the profit or fee negotiated.
    (11) Documentation of fair and reasonable pricing.
    (b) Whenever field pricing assistance has been obtained, the 
contracting officer shall forward a copy of the negotiation 
documentation to the office(s) providing assistance. When appropriate, 
information on how advisory field support can be made more effective 
should be provided separately.



15.407  Special cost or pricing areas.



15.407-1  Defective cost or pricing data.

    (a) If, before agreement on price, the contracting officer learns 
that any cost or pricing data submitted are inaccurate, incomplete, or 
noncurrent, the contracting officer shall immediately bring the matter 
to the attention of the prospective contractor, whether the defective 
data increase or decrease the contract price. The contracting officer 
shall consider any new data submitted to correct the deficiency, or 
consider the inaccuracy, incompleteness, or noncurrency of the data when 
negotiating the contract price. The price negotiation memorandum shall 
reflect the adjustments made to the data or the corrected data used to 
negotiate the contract price.
    (b)(1) If, after award, cost or pricing data are found to be 
inaccurate, incomplete, or noncurrent as of the date of final agreement 
on price or an earlier date agreed upon by the parties given on the 
contractor's or subcontractor's Certificate of Current Cost or Pricing 
Data, the Government is entitled to a price adjustment, including profit 
or fee, of any significant amount by which the price was increased 
because of the defective data. This entitlement is ensured by including 
in the contract one of the clauses prescribed in 15.408 (b) and (c) and 
is set forth in the clauses at 52.215-10, Price Reduction for Defective 
Cost or Pricing Data, and 52.215-11, Price Reduction for Defective Cost 
or Pricing Data--Modifications. The clauses give the Government the 
right to a price adjustment for defects in cost or pricing data 
submitted by the contractor, a prospective subcontractor, or an actual 
subcontractor.
    (2) In arriving at a price adjustment, the contracting officer shall 
consider the time by which the cost or pricing data became reasonably 
available to the contractor, and the extent to which the Government 
relied upon the defective data.
    (3) The clauses referred to in paragraph (b)(1) of this subsection 
recognize that the Government's right to a price adjustment is not 
affected by any of the following circumstances:
    (i) The contractor or subcontractor was a sole source supplier or 
otherwise was in a superior bargaining position;
    (ii) The contracting officer should have known that the cost or 
pricing data in issue were defective even though the contractor or 
subcontractor took no affirmative action to bring the character of the 
data to the attention of the contracting officer;
    (iii) The contract was based on an agreement about the total cost of 
the contract and there was no agreement about the cost of each item 
procured under such contract; or
    (iv) Cost or pricing data were required; however, the contractor or 
subcontractor did not submit a Certificate of Current Cost or Pricing 
Data relating to the contract.
    (4) Subject to paragraphs (b) (5) and (6) of this subsection, the 
contracting officer shall allow an offset for any understated cost or 
pricing data submitted in support of price negotiations, up to the 
amount of the Government's claim for overstated pricing data arising out 
of the same pricing action (e.g., the initial pricing of the same 
contract or the pricing of the same change order).
    (5) An offset shall be allowed only in an amount supported by the 
facts and if the contractor--
    (i) Certifies to the contracting officer that, to the best of the 
contractor's knowledge and belief, the contractor is entitled to the 
offset in the amount requested; and
    (ii) Proves that the cost or pricing data were available before the 
``as of'' date specified on the Certificate of Current Cost or Pricing 
Data but were not submitted. Such offsets need not be in

[[Page 263]]

the same cost groupings (e.g., material, direct labor, or indirect 
costs).
    (6) An offset shall not be allowed if--
    (i) The understated data were known by the contractor to be 
understated before the ``as of'' date specified on the Certificate of 
Current Cost or Pricing Data; or
    (ii) The Government proves that the facts demonstrate that the price 
would not have increased in the amount to be offset even if the 
available data had been submitted before the ``as of'' date specified on 
the Certificate of Current Cost or Pricing Data.
    (7)(i) In addition to the price adjustment, the Government is 
entitled to recovery of any overpayment plus interest on the 
overpayments. The Government is also entitled to penalty amounts on 
certain of these overpayments. Overpayment occurs only when payment is 
made for supplies or services accepted by the Government. Overpayments 
do not result from amounts paid for contract financing, as defined in 
32.902.
    (ii) In calculating the interest amount due, the contracting officer 
shall--
    (A) Determine the defective pricing amounts that have been overpaid 
to the contractor;
    (B) Consider the date of each overpayment (the date of overpayment 
for this interest calculation shall be the date payment was made for the 
related completed and accepted contract items; or for subcontract 
defective pricing, the date payment was made to the prime contractor, 
based on prime contract progress billings or deliveries, which included 
payments for a completed and accepted subcontract item); and
    (C) Apply the underpayment interest rate(s) in effect for each 
quarter from the time of overpayment to the time of repayment, utilizing 
rate(s) prescribed by the Secretary of the Treasury under 26 U.S.C. 
6621(a)(2).
    (iii) In arriving at the amount due for penalties on contracts where 
the submission of defective cost or pricing data was a knowing 
submission, the contracting officer shall obtain an amount equal to the 
amount of overpayment made. Before taking any contractual actions 
concerning penalties, the contracting officer shall obtain the advice of 
counsel.
    (iv) In the demand letter, the contracting officer shall separately 
include--
    (A) The repayment amount;
    (B) The penalty amount (if any);
    (C) The interest amount through a specified date; and
    (D) A statement that interest will continue to accrue until 
repayment is made.
    (c) If, after award, the contracting officer learns or suspects that 
the data furnished were not accurate, complete, and current, or were not 
adequately verified by the contractor as of the time of negotiation, the 
contracting officer shall request an audit to evaluate the accuracy, 
completeness, and currency of the data. The Government may evaluate the 
profit-cost relationships only if the audit reveals that the data 
certified by the contractor were defective. The contracting officer 
shall not reprice the contract solely because the profit was greater 
than forecast or because a contingency specified in the submission 
failed to materialize.
    (d) For each advisory audit received based on a postaward review 
that indicates defective pricing, the contracting officer shall make a 
determination as to whether or not the data submitted were defective and 
relied upon. Before making such a determination, the contracting officer 
should give the contractor an opportunity to support the accuracy, 
completeness, and currency of the data in question. The contracting 
officer shall prepare a memorandum documenting both the determination 
and any corrective action taken as a result. The contracting officer 
shall send one copy of this memorandum to the auditor and, if the 
contract has been assigned for administration, one copy to the 
administrative contracting officer (ACO). A copy of the memorandum or 
other notice of the contracting officer's determination shall be 
provided to the contractor.
    (e) If both the contractor and subcontractor submitted, and the 
contractor certified, or should have certified, cost or pricing data, 
the Government has the right, under the clauses at 52.215-10, Price 
Reduction for Defective Cost or Pricing Data, and 52.215-11,

[[Page 264]]

Price Reduction for Defective Cost or Pricing Data--Modifications, to 
reduce the prime contract price if it was significantly increased 
because a subcontractor submitted defective data. This right applies 
whether these data supported subcontract cost estimates or supported 
firm agreements between subcontractor and contractor.
    (f) If Government audit discloses defective subcontractor cost or 
pricing data, the information necessary to support a reduction in prime 
contract and subcontract prices may be available only from the 
Government. To the extent necessary to secure a prime contract price 
reduction, the contracting officer should make this information 
available to the prime contractor or appropriate subcontractors, upon 
request. If release of the information would compromise Government 
security or disclose trade secrets or confidential business information, 
the contracting officer shall release it only under conditions that will 
protect it from improper disclosure. Information made available under 
this paragraph shall be limited to that used as the basis for the prime 
contract price reduction. In order to afford an opportunity for 
corrective action, the contracting officer should give the prime 
contractor reasonable advance notice before determining to reduce the 
prime contract price.
    (1) When a prime contractor includes defective subcontract data in 
arriving at the price but later awards the subcontract to a lower priced 
subcontractor (or does not subcontract for the work), any adjustment in 
the prime contract price due to defective subcontract data is limited to 
the difference (plus applicable indirect cost and profit markups) 
between the subcontract price used for pricing the prime contract, and 
either the actual subcontract price or the actual cost to the 
contractor, if not subcontracted, provided the data on which the actual 
subcontract price is based are not themselves defective.
    (2) Under cost-reimbursement contracts and under all fixed-price 
contracts except firm-fixed-price contracts and fixed-price contracts 
with economic price adjustment, payments to subcontractors that are 
higher than they would be had there been no defective subcontractor cost 
or pricing data shall be the basis for disallowance or nonrecognition of 
costs under the clauses prescribed in 15.408 (b) and (c). The Government 
has a continuing and direct financial interest in such payments that is 
unaffected by the initial agreement on prime contract price.



15.407-2  Make-or-buy programs.

    (a) General. The prime contractor is responsible for managing 
contract performance, including planning, placing, and administering 
subcontracts as necessary to ensure the lowest overall cost and 
technical risk to the Government. When make-or-buy programs are 
required, the Government may reserve the right to review and agree on 
the contractor's make-or-buy program when necessary to ensure 
negotiation of reasonable contract prices, satisfactory performance, or 
implementation of socioeconomic policies. Consent to subcontracts and 
review of contractors' purchasing systems are separate actions covered 
in part 44.
    (b) Definitions. As used in this subsection--
    Buy item means an item or work effort to be produced or performed by 
a subcontractor.
    Make item means an item or work effort to be produced or performed 
by the prime contractor or its affiliates, subsidiaries, or divisions.
    Make-or-buy program means that part of a contractor's written plan 
for a contract identifying those major items to be produced or work 
efforts to be performed in the prime contractor's facilities and those 
to be subcontracted.
    (c) Acquisitions requiring make-or-buy programs. (1) Contracting 
officers may require prospective contractors to submit make-or-buy 
program plans for negotiated acquisitions requiring cost or pricing data 
whose estimated value is $10 million or more, except when the proposed 
contract is for research or development and, if prototypes or hardware 
are involved, no significant follow-on production is anticipated.
    (2) Contracting officers may require prospective contractors to 
submit make-or-buy programs for negotiated acquisitions whose estimated 
value is

[[Page 265]]

under $10 million only if the contracting officer--
    (i) Determines that the information is necessary; and
    (ii) Documents the reasons in the contract file.
    (d) Solicitation requirements. When prospective contractors are 
required to submit proposed make-or-buy programs, the solicitation shall 
include--
    (1) A statement that the program and required supporting information 
must accompany the offer; and
    (2) A description of factors to be used in evaluating the proposed 
program, such as capability, capacity, availability of small, small 
disadvantaged, and women-owned small business concerns for 
subcontracting, establishment of new facilities in or near labor surplus 
areas, delivery or performance schedules, control of technical and 
schedule interfaces, proprietary processes, technical superiority or 
exclusiveness, and technical risks involved.
    (e) Program requirements. To support a make-or-buy program, the 
following information shall be supplied by the contractor in its 
proposal:
    (1) Items and work included. The information required from a 
contractor in a make-or-buy program shall be confined to those major 
items or work efforts that normally would require company management 
review of the make-or-buy decision because they are complex, costly, 
needed in large quantities, or require additional facilities to produce. 
Raw materials, commercial items (see 2.101), and off-the-shelf items 
(see 46.101) shall not be included, unless their potential impact on 
contract cost or schedule is critical. Normally, make-or-buy programs 
should not include items or work efforts estimated to cost less than 1 
percent of the total estimated contract price or any minimum dollar 
amount set by the agency.
    (2) The offeror's program should include or be supported by the 
following information:
    (i) A description of each major item or work effort.
    (ii) Categorization of each major item or work effort as ``must 
make,'' ``must buy, or ``can either make or buy.''
    (iii) For each item or work effort categorized as ``can either make 
or buy,'' a proposal either to ``make'' or to ``buy.''
    (iv) Reasons for categorizing items and work efforts as ``must 
make'' or ``must buy,'' and proposing to ``make'' or to ``buy'' those 
categorized as ``can either make or buy.'' The reasons must include the 
consideration given to the evaluation factors described in the 
solicitation and must be in sufficient detail to permit the contracting 
officer to evaluate the categorization or proposal.
    (v) Designation of the plant or division proposed to make each item 
or perform each work effort, and a statement as to whether the existing 
or proposed new facility is in or near a labor surplus area.
    (vi) Identification of proposed subcontractors, if known, and their 
location and size status (also see Subpart 19.7 for subcontracting plan 
requirements).
    (vii) Any recommendations to defer make-or-buy decisions when 
categorization of some items or work efforts is impracticable at the 
time of submission.
    (viii) Any other information the contracting officer requires in 
order to evaluate the program.
    (f) Evaluation, negotiation, and agreement. Contracting officers 
shall evaluate and negotiate proposed make-or-buy programs as soon as 
practicable after their receipt and before contract award.
    (1) When the program is to be incorporated in the contract and the 
design status of the product being acquired does not permit accurate 
precontract identification of major items or work efforts, the 
contracting officer shall notify the prospective contractor in writing 
that these items or efforts, when identifiable, shall be added under the 
clause at 52.215-9, Changes or Additions to Make-or-Buy Program.
    (2) Contracting officers normally shall not agree to proposed ``make 
items'' when the products or services are not regularly manufactured or 
provided by the contractor and are available--quality, quantity, 
delivery, and other essential factors considered--from another firm at 
equal or lower

[[Page 266]]

prices, or when they are regularly manufactured or provided by the 
contractor, but are available--quality, quantity, delivery, and other 
essential factors considered-- from another firm at lower prices. 
However, the contracting officer may agree to these as ``make items'' if 
an overall lower Governmentwide cost would result or it is otherwise in 
the best interest of the Government. If this situation occurs in any 
fixed-price incentive or cost-plus-incentive-fee contract, the 
contracting officer shall specify these items in the contract and state 
that they are subject to paragraph (d) of the clause at 52.215-9, 
Changes or Additions to Make-or-Buy Program (see 15.408(a)). If the 
contractor proposes to reverse the categorization of such items during 
contract performance, the contract price shall be subject to equitable 
reduction.
    (g) Incorporating make-or-buy programs in contracts. The contracting 
officer may incorporate the make-or-buy program in negotiated contracts 
for--
    (1) Major systems (see part 34) or their subsystems or components, 
regardless of contract type; or
    (2) Other supplies and services if--
    (i) The contract is a cost-reimbursable contract, or a cost-sharing 
contract in which the contractor's share of the cost is less than 25 
percent; and
    (ii) The contracting officer determines that technical or cost risks 
justify Government review and approval of changes or additions to the 
make-or-buy program.



15.407-3  Forward pricing rate agreements.

    (a) When cost or pricing data are required, offerors are required to 
describe any forward pricing rate agreements (FPRA's) in each specific 
pricing proposal to which the rates apply and to identify the latest 
cost or pricing data already submitted in accordance with the agreement. 
All data submitted in connection with the agreement, updated as 
necessary, form a part of the total data that the offeror certifies to 
be accurate, complete, and current at the time of agreement on price for 
an initial contract or for a contract modification.
    (b) Contracting officers will use FPRA rates as bases for pricing 
all contracts, modifications, and other contractual actions to be 
performed during the period covered by the agreement. Conditions that 
may affect the agreement's validity shall be reported promptly to the 
ACO. If the ACO determines that a changed condition invalidates the 
agreement, the ACO shall notify all interested parties of the extent of 
its effect and status of efforts to establish a revised FPRA.
    (c) Contracting officers shall not require certification at the time 
of agreement for data supplied in support of FPRA's or other advance 
agreements. When a forward pricing rate agreement or other advance 
agreement is used to price a contract action that requires a 
certificate, the certificate supporting that contract action shall cover 
the data supplied to support the FPRA or other advance agreement, and 
all other data supporting the action.



15.407-4  Should-cost review.

    (a) General. (1) Should-cost reviews are a specialized form of cost 
analysis. Should-cost reviews differ from traditional evaluation methods 
because they do not assume that a contractor's historical costs reflect 
efficient and economical operation. Instead, these reviews evaluate the 
economy and efficiency of the contractor's existing work force, methods, 
materials, facilities, operating systems, and management. These reviews 
are accomplished by a multi-functional team of Government contracting, 
contract administration, pricing, audit, and engineering 
representatives. The objective of should-cost reviews is to promote both 
short and long-range improvements in the contractor's economy and 
efficiency in order to reduce the cost of performance of Government 
contracts. In addition, by providing rationale for any recommendations 
and quantifying their impact on cost, the Government will be better able 
to develop realistic objectives for negotiation.
    (2) There are two types of should-cost reviews--program should-cost 
review (see paragraph (b) of this subsection) and overhead should-cost 
review (see paragraph (c) of this subsection). These should-cost reviews 
may be performed together or independently. The scope of a should-cost 
review can range from a

[[Page 267]]

large-scale review examining the contractor's entire operation 
(including plant-wide overhead and selected major subcontractors) to a 
small-scale tailored review examining specific portions of a 
contractor's operation.
    (b) Program should-cost review. (1) A program should-cost review is 
used to evaluate significant elements of direct costs, such as material 
and labor, and associated indirect costs, usually associated with the 
production of major systems. When a program should-cost review is 
conducted relative to a contractor proposal, a separate audit report on 
the proposal is required.
    (2) A program should-cost review should be considered, particularly 
in the case of a major system acquisition (see part 34), when--
    (i) Some initial production has already taken place;
    (ii) The contract will be awarded on a sole source basis;
    (iii) There are future year production requirements for substantial 
quantities of like items;
    (iv) The items being acquired have a history of increasing costs;
    (v) The work is sufficiently defined to permit an effective analysis 
and major changes are unlikely;
    (vi) Sufficient time is available to plan and adequately conduct the 
should-cost review; and
    (vii) Personnel with the required skills are available or can be 
assigned for the duration of the should-cost review.
    (3) The contracting officer should decide which elements of the 
contractor's operation have the greatest potential for cost savings and 
assign the available personnel resources accordingly. The expertise of 
on-site Government personnel should be used, when appropriate. While the 
particular elements to be analyzed are a function of the contract work 
task, elements such as manufacturing, pricing and accounting, management 
and organization, and subcontract and vendor management are normally 
reviewed in a should-cost review.
    (4) In acquisitions for which a program should-cost review is 
conducted, a separate program should-cost review team report, prepared 
in accordance with agency procedures, is required. The contracting 
officer shall consider the findings and recommendations contained in the 
program should-cost review team report when negotiating the contract 
price. After completing the negotiation, the contracting officer shall 
provide the ACO a report of any identified uneconomical or inefficient 
practices, together with a report of correction or disposition 
agreements reached with the contractor. The contracting officer shall 
establish a follow-up plan to monitor the correction of the uneconomical 
or inefficient practices.
    (5) When a program should-cost review is planned, the contracting 
officer should state this fact in the acquisition plan or acquisition 
plan updates (see subpart 7.1) and in the solicitation.
    (c) Overhead should-cost review. (1) An overhead should-cost review 
is used to evaluate indirect costs, such as fringe benefits, shipping 
and receiving, facilities and equipment, depreciation, plant maintenance 
and security, taxes, and general and administrative activities.
    It is normally used to evaluate and negotiate an FPRA with the 
contractor. When an overhead should-cost review is conducted, a separate 
audit report is required.
    (2) The following factors should be considered when selecting 
contractor sites for overhead should-cost reviews:
    (i) Dollar amount of Government business.
    (ii) Level of Government participation.
    (iii) Level of noncompetitive Government contracts.
    (iv) Volume of proposal activity.
    (v) Major system or program.
    (vi) Corporate reorganizations, mergers, acquisitions, or takeovers.
    (vii) Other conditions (e.g., changes in accounting systems, 
management, or business activity).
    (3) The objective of the overhead should-cost review is to evaluate 
significant indirect cost elements in-depth, and identify and recommend 
corrective actions regarding inefficient and uneconomical practices. If 
it is conducted in conjunction with a program should-cost review, a 
separate overhead should-cost review report is not required. However, 
the findings and recommendations of the overhead

[[Page 268]]

should-cost team, or any separate overhead should-cost review report, 
shall be provided to the ACO. The ACO should use this information to 
form the basis for the Government position in negotiating an FPRA with 
the contractor. The ACO shall establish a follow-up plan to monitor the 
correction of the uneconomical or inefficient practices.



15.407-5  Estimating systems.

    (a) Using an acceptable estimating system for proposal preparation 
benefits both the Government and the contractor by increasing the 
accuracy and reliability of individual proposals. Cognizant audit 
activities, when it is appropriate to do so, shall establish and manage 
regular programs for reviewing selected contractors' estimating systems 
or methods, in order to reduce the scope of reviews to be performed on 
individual proposals, expedite the negotiation process, and increase the 
reliability of proposals. The results of estimating system reviews shall 
be documented in survey reports.
    (b) The auditor shall send a copy of the estimating system survey 
report and a copy of the official notice of corrective action required 
to each contracting office and contract administration office having 
substantial business with that contractor. Significant deficiencies not 
corrected by the contractor shall be a consideration in subsequent 
proposal analyses and negotiations.



15.408  Solicitation provisions and contract clauses.

    (a) Changes or Additions to Make-or-Buy Program. The contracting 
officer shall insert the clause at 52.215-9, Changes or Additions to 
Make-or-Buy Program, in solicitations and contracts when it is 
contemplated that a make-or- buy program will be incorporated in the 
contract. If a less economical ``make'' or ``buy'' categorization is 
selected for one or more items of significant value, the contracting 
officer shall use the clause with--
    (1) Its Alternate I, if a fixed-price incentive contract is 
contemplated; or
    (2) Its Alternate II, if a cost-plus-incentive-fee contract is 
contemplated.
    (b) Price Reduction for Defective Cost or Pricing Data. The 
contracting officer shall, when contracting by negotiation, insert the 
clause at 52.215-10, Price Reduction for Defective Cost or Pricing Data, 
in solicitations and contracts when it is contemplated that cost or 
pricing data will be required from the contractor or any subcontractor 
(see 15.403-4).
    (c) Price Reduction for Defective Cost or Pricing Data--
Modifications. The contracting officer shall, when contracting by 
negotiation, insert the clause at 52.215-11, Price Reduction for 
Defective Cost or Pricing Data-- Modifications, in solicitations and 
contracts when it is contemplated that cost or pricing data will be 
required from the contractor or any subcontractor (see 15.403-4) for the 
pricing of contract modifications, and the clause prescribed in 
paragraph (b) of this section has not been included.
    (d) Subcontractor Cost or Pricing Data. The contracting officer 
shall insert the clause at 52.215-12, Subcontractor Cost or Pricing 
Data, in solicitations and contracts when the clause prescribed in 
paragraph (b) of this section is included.
    (e) Subcontractor Cost or Pricing Data-- Modifications. The 
contracting officer shall insert the clause at 52.215-13, Subcontractor 
Cost or Pricing Data--Modifications, in solicitations and contracts when 
the clause prescribed in paragraph (c) of this section is included.
    (f) Integrity of Unit Prices. (1) The contracting officer shall 
insert the clause at 52.215-14, Integrity of Unit Prices, in 
solicitations and contracts except for--
    (i) Acquisitions at or below the simplified acquisition threshold;
    (ii) Construction or architect-engineer services under part 36;
    (iii) Utility services under part 41;
    (iv) Service contracts where supplies are not required;
    (v) Acquisitions of commercial items; and
    (vi) Contracts for petroleum products.
    (2) The contracting officer shall insert the clause with its 
Alternate I when contracting without adequate price competition or when 
prescribed by agency regulations.
    (g) Termination of Defined Benefit Pension Plans. The contracting 
officer shall

[[Page 269]]

insert the clause at 52.215-15, Termination of Defined Benefit Pension 
Plans, in solicitations and contracts for which it is anticipated that 
cost or pricing data will be required or for which any preaward or 
postaward cost determinations will be subject to part 31.
    (h) Facilities Capital Cost of Money. The contracting officer shall 
insert the provision at 52.215-16, Facilities Capital Cost of Money, in 
solicitations expected to result in contracts that are subject to the 
cost principles for contracts with commercial organizations (see subpart 
31.2).
    (i) Waiver of Facilities Capital Cost of Money. If the prospective 
contractor does not propose facilities capital cost of money in its 
offer, the contracting officer shall insert the clause at 52.215-17, 
Waiver of Facilities Capital Cost of Money, in the resulting contract.
    (j) Reversion or Adjustment of Plans for Postretirement Benefits 
(PRB) Other Than Pensions. The contracting officer shall insert the 
clause at 52.215-18, Reversion or Adjustment of Plans for Postretirement 
Benefits (PRB) Other Than Pensions, in solicitations and contracts for 
which it is anticipated that cost or pricing data will be required or 
for which any preaward or postaward cost determinations will be subject 
to part 31.
    (k) Notification of Ownership Changes. The contracting officer shall 
insert the clause at 52.215-19, Notification of Ownership Changes, in 
solicitations and contracts for which it is contemplated that cost or 
pricing data will be required or for which any preaward or postaward 
cost determination will be subject to subpart 31.2.
    (l) Requirements for Cost or Pricing Data or Information Other Than 
Cost or Pricing Data. Considering the hierarchy at 15.402, the 
contracting officer may insert the provision at 52.215-20, Requirements 
for Cost or Pricing Data or Information Other Than Cost or Pricing Data, 
in solicitations if it is reasonably certain that cost or pricing data 
or information other than cost or pricing data will be required. This 
provision also provides instructions to offerors on how to request an 
exception. The contracting officer shall--
    (1) Use the provision with its Alternate I to specify a format for 
cost or pricing data other than the format required by Table 15-2 of 
this section;
    (2) Use the provision with its Alternate II if copies of the 
proposal are to be sent to the ACO and contract auditor;
    (3) Use the provision with its Alternate III if submission via 
electronic media is required; and
    (4) Replace the basic provision with its Alternate IV if cost or 
pricing data are not expected to be required because an exception may 
apply, but information other than cost or pricing data is required as 
described in 15.403-3.
    (m) Requirements for Cost or Pricing Data or Information Other Than 
Cost or Pricing Data--Modifications. Considering the hierarchy at 
15.402, the contracting officer may insert the clause at 52.215-21, 
Requirements for Cost or Pricing Data or Information Other Than Cost or 
Pricing Data--Modifications, in solicitations and contracts if it is 
reasonably certain that cost or pricing data or information other than 
cost or pricing data will be required for modifications. This clause 
also provides instructions to contractors on how to request an 
exception. The contracting officer shall--
    (1) Use the clause with its Alternate I to specify a format for cost 
or pricing data other than the format required by Table 15-2 of this 
section;
    (2) Use the clause with its Alternate II if copies of the proposal 
are to be sent to the ACO and contract auditor;
    (3) Use the clause with its Alternate III if submission via 
electronic media is required; and
    (4) Replace the basic clause with its Alternate IV if cost or 
pricing data are not expected to be required because an exception may 
apply, but information other than cost or pricing data is required as 
described in 15.403-3.

 Table 15-2--Instructions for Submitting Cost/Price Proposals When Cost 
                      or Pricing Data Are Required

    This document provides instructions for preparing a contract pricing 
proposal when cost or pricing data are required.


[[Page 270]]


    Note 1: There is a clear distinction between submitting cost or 
pricing data and merely making available books, records, and other 
documents without identification. The requirement for submission of cost 
or pricing data is met when all accurate cost or pricing data reasonably 
available to the offeror have been submitted, either actually or by 
specific identification, to the Contracting Officer or an authorized 
representative. As later information comes into your possession, it 
should be submitted promptly to the Contracting Officer in a manner that 
clearly shows how the information relates to the offeror's price 
proposal. The requirement for submission of cost or pricing data 
continues up to the time of agreement on price, or an earlier date 
agreed upon between the parties if applicable.
    Note 2: By submitting your proposal, you grant the Contracting 
Officer or an authorized representative the right to examine records 
that formed the basis for the pricing proposal. That examination can 
take place at any time before award. It may include those books, 
records, documents, and other types of factual information (regardless 
of form or whether the information is specifically referenced or 
included in the proposal as the basis for pricing) that will permit an 
adequate evaluation of the proposed price.

                         I. General Instructions

    A. You must provide the following information on the first page of 
your pricing proposal:
    (1) Solicitation, contract, and/or modification number;
    (2) Name and address of offeror;
    (3) Name and telephone number of point of contact;
    (4) Name of contract administration office (if available);
    (5) Type of contract action (that is, new contract, change order, 
price revision/redetermination, letter contract, unpriced order, or 
other);
    (6) Proposed cost; profit or fee; and total;
    (7) Whether you will require the use of Government property in the 
performance of the contract, and, if so, what property;
    (8) Whether your organization is subject to cost accounting 
standards; whether your organization has submitted a CASB Disclosure 
Statement, and if it has been determined adequate; whether you have been 
notified that you are or may be in noncompliance with your Disclosure 
Statement or CAS, and, if yes, an explanation; whether any aspect of 
this proposal is inconsistent with your disclosed practices or 
applicable CAS, and, if so, an explanation; and whether the proposal is 
consistent with your established estimating and accounting principles 
and procedures and FAR Part 31, Cost Principles, and, if not, an 
explanation;
    (9) The following statement: This proposal reflects our estimates 
and/or actual costs as of this date and conforms with the instructions 
in FAR 15.403-5(b)(1) and Table 15-2. By submitting this proposal, we 
grant the Contracting Officer and authorized representative(s) the right 
to examine, at any time before award, those records, which include 
books, documents, accounting procedures and practices, and other data, 
regardless of type and form or whether such supporting information is 
specifically referenced or included in the proposal as the basis for 
pricing, that will permit an adequate evaluation of the proposed price.
    (10) Date of submission; and
    (11) Name, title and signature of authorized representative.
    B. In submitting your proposal, you must include an index, 
appropriately referenced, of all the cost or pricing data and 
information accompanying or identified in the proposal. In addition, you 
must annotate any future additions and/or revisions, up to the date of 
agreement on price, or an earlier date agreed upon by the parties, on a 
supplemental index.
    C. As part of the specific information required, you must submit, 
with your proposal, cost or pricing data (that is, data that are 
verifiable and factual and otherwise as defined at FAR 15.401). You must 
clearly identify on your cover sheet that cost or pricing data are 
included as part of the proposal. In addition, you must submit with your 
proposal any information reasonably required to explain your estimating 
process, including--
    (1) The judgmental factors applied and the mathematical or other 
methods used in the estimate, including those used in projecting from 
known data; and
    (2) The nature and amount of any contingencies included in the 
proposed price.
    D. You must show the relationship between contract line item prices 
and the total contract price. You must attach cost-element breakdowns 
for each proposed line item, using the appropriate format prescribed in 
the ``Formats for Submission of Line Item Summaries'' section of this 
table. You must furnish supporting breakdowns for each cost element, 
consistent with your cost accounting system.
    E. When more than one contract line item is proposed, you must also 
provide summary total amounts covering all line items for each element 
of cost.
    F. Whenever you have incurred costs for work performed before 
submission of a proposal, you must identify those costs in your cost/
price proposal.
    G. If you have reached an agreement with Government representatives 
on use of forward pricing rates/factors, identify the agreement, include 
a copy, and describe its nature.

[[Page 271]]

    H. As soon as practicable after final agreement on price or an 
earlier date agreed to by the parties, but before the award resulting 
from the proposal, you must, under the conditions stated in FAR 15.406-
2, submit a Certificate of Current Cost or Pricing Data.

                            II. Cost Elements

    Depending on your system, you must provide breakdowns for the 
following basic cost elements, as applicable:
    A. Materials and services. Provide a consolidated priced summary of 
individual material quantities included in the various tasks, orders, or 
contract line items being proposed and the basis for pricing (vendor 
quotes, invoice prices, etc.). Include raw materials, parts, components, 
assemblies, and services to be produced or performed by others. For all 
items proposed, identify the item and show the source, quantity, and 
price. Conduct price analyses of all subcontractor proposals. Conduct 
cost analyses for all subcontracts when cost or pricing data are 
submitted by the subcontractor. Include these analyses as part of your 
own cost or pricing data submissions for subcontracts expected to exceed 
the appropriate threshold in FAR 15.403-4. Submit the subcontractor cost 
or pricing data as part of your own cost or pricing data as required in 
paragraph IIA(2) of this table. These requirements also apply to all 
subcontractors if required to submit cost or pricing data.
    (1) Adequate Price Competition. Provide data showing the degree of 
competition and the basis for establishing the source and reasonableness 
of price for those acquisitions (such as subcontracts, purchase orders, 
material order, etc.) exceeding, or expected to exceed, the appropriate 
threshold set forth at FAR 15.403-4 priced on the basis of adequate 
price competition. For interorganizational transfers priced at other 
than the cost of comparable competitive commercial work of the division, 
subsidiary, or affiliate of the contractor, explain the pricing method 
(see FAR 31.205-26(e)).
    (2) All Other. Obtain cost or pricing data from prospective sources 
for those acquisitions (such as subcontracts, purchase orders, material 
order, etc.) exceeding the threshold set forth in FAR 15.403-4 and not 
otherwise exempt, in accordance with FAR 15.403-1(b) (i.e., adequate 
price competition, commercial items, prices set by law or regulation or 
waiver). Also provide data showing the basis for establishing source and 
reasonableness of price. In addition, provide a summary of your cost 
analysis and a copy of cost or pricing data submitted by the prospective 
source in support of each subcontract, or purchase order that is the 
lower of either $10,000,000 or more, or both more than the pertinent 
cost or pricing data threshold and more than 10 percent of the prime 
contractor's proposed price. The Contracting Officer may require you to 
submit cost or pricing data in support of proposals in lower amounts. 
Subcontractor cost or pricing data must be accurate, complete and 
current as of the date of final price agreement, or an earlier date 
agreed upon by the parties, given on the prime contractor's Certificate 
of Current Cost or Pricing Data. The prime contractor is responsible for 
updating a prospective subcontractor's data. For standard commercial 
items fabricated by the offeror that are generally stocked in inventory, 
provide a separate cost breakdown, if priced based on cost. For 
interorganizational transfers priced at cost, provide a separate 
breakdown of cost elements. Analyze the cost or pricing data and submit 
the results of your analysis of the prospective source's proposal. When 
submission of a prospective source's cost or pricing data is required as 
described in this paragraph, it must be included along with your own 
cost or pricing data submission, as part of your own cost or pricing 
data. You must also submit any other cost or pricing data obtained from 
a subcontractor, either actually or by specific identification, along 
with the results of any analysis performed on that data.
    B. Direct Labor. Provide a time-phased (e.g., monthly, quarterly, 
etc.) breakdown of labor hours, rates, and cost by appropriate category, 
and furnish bases for estimates.
    C. Indirect Costs. Indicate how you have computed and applied your 
indirect costs, including cost breakdowns. Show trends and budgetary 
data to provide a basis for evaluating the reasonableness of proposed 
rates. Indicate the rates used and provide an appropriate explanation.
    D. Other Costs. List all other costs not otherwise included in the 
categories described above (e.g., special tooling, travel, computer and 
consultant services, preservation, packaging and packing, spoilage and 
rework, and Federal excise tax on finished articles) and provide bases 
for pricing.
    E. Royalties. If royalties exceed $1,500, you must provide the 
following information on a separate page for each separate royalty or 
license fee:
    (1) Name and address of licensor.
    (2) Date of license agreement.
    (3) Patent numbers.
    (4) Patent application serial numbers, or other basis on which the 
royalty is payable.
    (5) Brief description (including any part or model numbers of each 
contract item or component on which the royalty is payable).
    (6) Percentage or dollar rate of royalty per unit.
    (7) Unit price of contract item.
    (8) Number of units.
    (9) Total dollar amount of royalties.
    (10) If specifically requested by the Contracting Officer, a copy of 
the current license agreement and identification of applicable

[[Page 272]]

claims of specific patents (see FAR 27.204 and 31.205-37).
    F. Facilities Capital Cost of Money. When you elect to claim 
facilities capital cost of money as an allowable cost, you must submit 
Form CASB-CMF and show the calculation of the proposed amount (see FAR 
31.205-10).

           III. Formats for Submission of Line Item Summaries

              A. New Contracts (Including Letter Contracts)

                                                                                                                
                                                                                                                
                             Proposed contract estimate--      Proposed contract                                
       Cost elements                  total cost              estimate--unit cost              Reference        
(1)                                                (2)                          (3)                         (4) 
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------

                         Column and Instruction

    (1) Enter appropriate cost elements.
    (2) Enter those necessary and reasonable costs that, in your 
judgment, will properly be incurred in efficient contract performance. 
When any of the costs in this column have already been incurred (e.g., 
under a letter contract), describe them on an attached supporting page. 
When preproduction or startup costs are significant, or when 
specifically requested to do so by the Contracting Officer, provide a 
full identification and explanation of them.
    (3) Optional, unless required by the Contracting Officer.
    (4) Identify the attachment in which the information supporting the 
specific cost element may be found. (Attach separate pages as 
necessary.)

               B. Change Orders, Modifications, and Claims

                                                                                                                
                                                                                                                
                                      Cost of                                                                   
                  Estimated cost   deleted work   Net cost to be   Cost of work     Net cost of                 
 Cost elements     of all work        already         deleted          added          change         Reference  
                     deleted         performed                                                                  
(1)                        (2)              (3)             (4)             (5)             (6)             (7) 
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

                         Column and Instruction

    (1) Enter appropriate cost elements.
    (2) Include the current estimates of what the cost would have been 
to complete the deleted work not yet performed (not the original 
proposal estimates), and the cost of deleted work already performed.
    (3) Include the incurred cost of deleted work already performed, 
using actuals incurred if possible, or, if actuals are not available, 
estimates from your accounting records. Attach a detailed inventory of 
work, materials, parts, components, and hardware already purchased, 
manufactured, or performed and deleted by the change, indicating the 
cost and proposed disposition of each line item. Also, if you desire to 
retain these items or any portion of them, indicate the amount offered 
for them.
    (4) Enter the net cost to be deleted, which is the estimated cost of 
all deleted work less the cost of deleted work already performed. Column 
(2) minus Column (3) equals Column (4).
    (5) Enter your estimate for cost of work added by the change. When 
nonrecurring costs are significant, or when specifically requested to do 
so by the Contracting Officer, provide a full identification and 
explanation of them. When any of the costs in this column have already 
been incurred, describe them on an attached supporting schedule.
    (6) Enter the net cost of change, which is the cost of work added, 
less the net cost to be deleted. Column (5) minus Column (4) equals 
Column (6). When this result is negative, place the amount in 
parentheses.
    (7) Identify the attachment in which the information supporting the 
specific cost element may be found. (Attach separate pages as 
necessary.)

                    C. Price Revision/Redetermination

[[Page 273]]



                                                                                                                                                                                                
                                                                                                                                                                                                
           Number of    Number of                                                                                    Incurred cost--    Incurred     Total     Estimated                        
 Cutoff      units     units to be   Contract    Redetermination    Difference      Cost        Incurred cost--      completed units   cost--work   incurred    cost to    Estimated   Reference
  date     completed    completed     amount     proposal amount                  elements       preproduction                         in process     cost     complete   total cost            
(1)             (2)          (3)         (4)             (5)             (6)          (7)               (8)                 (9)            (10)        (11)       (12)        (13)        (14)  
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                                                                                                                                       
                                                                                                                                                                                                
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (Use as applicable).

                         Column and Instruction

    (1) Enter the cutoff date required by the contract, if applicable.
    (2) Enter the number of units completed during the period for which 
experienced costs of production are being submitted.
    (3) Enter the number of units remaining to be completed under the 
contract.
    (4) Enter the cumulative contract amount.
    (5) Enter your redetermination proposal amount.
    (6) Enter the difference between the contract amount and the 
redetermination proposal amount. When this result is negative, place the 
amount in parentheses. Column (4) minus Column (5) equals Column (6).
    (7) Enter appropriate cost elements. When residual inventory exists, 
the final costs established under fixed-price-incentive and fixed-price-
redeterminable arrangements should be net of the fair market value of 
such inventory. In support of subcontract costs, submit a listing of all 
subcontracts subject to repricing action, annotated as to their status.
    (8) Enter all costs incurred under the contract before starting 
production and other nonrecurring costs (usually referred to as startup 
costs) from your books and records as of the cutoff date. These include 
such costs as preproduction engineering, special plant rearrangement, 
training program, and any identifiable nonrecurring costs such as 
initial rework, spoilage, pilot runs, etc. In the event the amounts are 
not segregated in or otherwise available from your records, enter in 
this column your best estimates. Explain the basis for each estimate and 
how the costs are charged on your accounting records (e.g., included in 
production costs as direct engineering labor, charged to manufacturing 
overhead). Also show how the costs would be allocated to the units at 
their various stages of contract completion.
    (9) Enter in Column (9) the production costs from your books and 
records (exclusive of preproduction costs reported in Column (8)) of the 
units completed as of the cutoff date.
    (10) Enter in Column (10) the costs of work in process as determined 
from your records or inventories at the cutoff date. When the amounts 
for work in process are not available in your records but reliable 
estimates for them can be made, enter the estimated amounts in Column 
(10) and enter in Column (9) the differences between the total incurred 
costs (exclusive of preproduction costs) as of the cutoff date and these 
estimates. Explain the basis for the estimates, including identification 
of any provision for experienced or anticipated allowances, such as 
shrinkage, rework, design changes, etc. Furnish experienced unit or lot 
costs (or labor hours) from inception of contract to the cutoff date, 
improvement curves, and any other available production cost history 
pertaining to the item(s) to which your proposal relates.
    (11) Enter total incurred costs (Total of Columns (8), (9), and 
(10)).
    (12) Enter those necessary and reasonable costs that in your 
judgment will properly be incurred in completing the remaining work to 
be performed under the contract with respect to the item(s) to which 
your proposal relates.
    (13) Enter total estimated cost (Total of Columns (11) and (12)).
    (14) Identify the attachment in which the information supporting the 
specific cost element may be found. (Attach separate pages as 
necessary.)



 Subpart 15.5--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes



15.501  Definition.

    Day, as used in this subpart, has the meaning set forth at 33.101.



15.502  Applicability.

    This subpart applies to competitive proposals, as described in 
6.102(b), and a combination of competitive procedures, as described in 
6.102(c). The procedures in 15.504, 15.506, 15.507, 15.508, and 15.509, 
with reasonable modification, should be followed for sole source 
acquisitions and acquisitions described in 6.102(d)(1) and (2).

[[Page 274]]



15.503  Notifications to unsuccessful offerors.

    (a) Preaward notices--(1) Preaward notices of exclusion from 
competitive range. The contracting officer shall notify offerors 
promptly in writing when their proposals are excluded from the 
competitive range or otherwise eliminated from the competition. The 
notice shall state the basis for the determination and that a proposal 
revision will not be considered.
    (2) Preaward notices for small business set-asides. In addition to 
the notice in paragraph (a)(1) of this section, when using a small 
business set-aside (see subpart 19.5), upon completion of negotiations 
and determinations of responsibility, but prior to award, the 
contracting officer shall notify each offeror in writing of the name and 
location of the apparent successful offeror. The notice shall also state 
that
    (i) The Government will not consider subsequent revisions of the 
offeror's proposal; and
    (ii) No response is required unless a basis exists to challenge the 
small business size status of the apparent successful offeror. The 
notice is not required when the contracting officer determines in 
writing that the urgency of the requirement necessitates award without 
delay or when the contract is entered into under the 8(a) program (see 
19.805-2).
    (b) Postaward notices. (1) Within 3 days after the date of contract 
award, the contracting officer shall provide written notification to 
each offeror whose proposal was in the competitive range but was not 
selected for award (10 U.S.C. 2305(b)(5) and 41 U.S.C. 253b(c)) or had 
not been previously notified under paragraph (a) of this section. The 
notice shall include--
    (i) The number of offerors solicited;
    (ii) The number of proposals received;
    (iii) The name and address of each offeror receiving an award;
    (iv) The items, quantities, and any stated unit prices of each 
award. If the number of items or other factors makes listing any stated 
unit prices impracticable at that time, only the total contract price 
need be furnished in the notice. However, the items, quantities, and any 
stated unit prices of each award shall be made publicly available, upon 
request; and
    (v) In general terms, the reason(s) the offeror's proposal was not 
accepted, unless the price information in paragraph (b)(1)(iv) of this 
section readily reveals the reason. In no event shall an offeror's cost 
breakdown, profit, overhead rates, trade secrets, manufacturing 
processes and techniques, or other confidential business information be 
disclosed to any other offeror.
    (2) Upon request, the contracting officer shall furnish the 
information described in paragraph (b)(1) of this section to 
unsuccessful offerors in solicitations using simplified acquisition 
procedures in part 13.
    (3) Upon request, the contracting officer shall provide the 
information in paragraph (b)(1) of this section to unsuccessful offerors 
that received a preaward notice of exclusion from the competitive range.



15.504  Award to successful offeror.

    The contracting officer shall award a contract to the successful 
offeror by furnishing the executed contract or other notice of the award 
to that offeror.
    (a) If the award document includes information that is different 
than the latest signed proposal, as amended by the offeror's written 
correspondence, both the offeror and the contracting officer shall sign 
the contract award.
    (b) When an award is made to an offeror for less than all of the 
items that may be awarded and additional items are being withheld for 
subsequent award, each notice shall state that the Government may make 
subsequent awards on those additional items within the proposal 
acceptance period.
    (c) If the Optional Form (OF) 307, Contract Award, Standard Form 
(SF) 26, Award/Contract, or SF 33, Solicitation, Offer and Award, is not 
used to award the contract, the first page of the award document shall 
contain the Government's acceptance statement from Block 15 of that 
form, exclusive of the Item 3 reference language, and shall contain the 
contracting officer's name, signature, and date. In addition, if the 
award document includes information that is different than the signed 
proposal, as amended by the

[[Page 275]]

offeror's written correspondence, the first page shall include the 
contractor's agreement statement from Block 14 of the OF 307 and the 
signature of the contractor's authorized representative.



15.505  Preaward debriefing of offerors.

    Offerors excluded from the competitive range or otherwise excluded 
from the competition before award may request a debriefing before award 
(10 U.S.C. 2305(b)(6)(A) and 41 U.S.C. 253b(f)-(h)).
    (a)(1) The offeror may request a preaward debriefing by submitting a 
written request for debriefing to the contracting officer within 3 days 
after receipt of the notice of exclusion from the competition.
    (2) At the offeror's request, this debriefing may be delayed until 
after award. If the debriefing is delayed until after award, it shall 
include all information normally provided in a postaward debriefing (see 
15.506(d)). Debriefings delayed pursuant to this paragraph could affect 
the timeliness of any protest filed subsequent to the debriefing.
    (3) If the offeror does not submit a timely request, the offeror 
need not be given either a preaward or a postaward debriefing. Offerors 
are entitled to no more than one debriefing for each proposal.
    (b) The contracting officer shall make every effort to debrief the 
unsuccessful offeror as soon as practicable, but may refuse the request 
for a debriefing if, for compelling reasons, it is not in the best 
interests of the Government to conduct a debriefing at that time. The 
rationale for delaying the debriefing shall be documented in the 
contract file. If the contracting officer delays the debriefing, it 
shall be provided no later than the time postaward debriefings are 
provided under 15.506. In that event, the contracting officer shall 
include the information at 15.506(d) in the debriefing.
    (c) Debriefings may be done orally, in writing, or by any other 
method acceptable to the contracting officer.
    (d) The contracting officer should normally chair any debriefing 
session held. Individuals who conducted the evaluations shall provide 
support.
    (e) At a minimum, preaward debriefings shall include--
    (1) The agency's evaluation of significant elements in the offeror's 
proposal;
    (2) A summary of the rationale for eliminating the offeror from the 
competition; and
    (3) Reasonable responses to relevant questions about whether source 
selection procedures contained in the solicitation, applicable 
regulations, and other applicable authorities were followed in the 
process of eliminating the offeror from the competition.
    (f) Preaward debriefings shall not disclose--
    (1) The number of offerors;
    (2) The identity of other offerors;
    (3) The content of other offerors proposals;
    (4) The ranking of other offerors;
    (5) The evaluation of other offerors; or
    (6) Any of the information prohibited in 15.506(e).
    (g) An official summary of the debriefing shall be included in the 
contract file.



15.506  Postaward debriefing of offerors.

    (a)(1) An offeror, upon its written request received by the agency 
within 3 days after the date on which that offeror has received 
notification of contract award in accordance with 15.503(b), shall be 
debriefed and furnished the basis for the selection decision and 
contract award.
    (2) To the maximum extent practicable, the debriefing should occur 
within 5 days after receipt of the written request. Offerors that 
requested a postaward debriefing in lieu of a preaward debriefing, or 
whose debriefing was delayed for compelling reasons beyond contract 
award, also should be debriefed within this time period.
    (3) An offeror that was notified of exclusion from the competition 
(see 15.505(a)), but failed to submit a timely request, is not entitled 
to a debriefing.
    (4)(i) Untimely debriefing requests may be accommodated.
    (ii) Government accommodation of a request for delayed debriefing 
pursuant to 15.505(a)(2), or any untimely debriefing request, does not 
automatically extend the deadlines for filing protests.

[[Page 276]]

Debriefings delayed pursuant to 15.505(a)(2) could affect the timeliness 
of any protest filed subsequent to the debriefing.
    (b) Debriefings of successful and unsuccessful offerors may be done 
orally, in writing, or by any other method acceptable to the contracting 
officer.
    (c) The contracting officer should normally chair any debriefing 
session held. Individuals who conducted the evaluations shall provide 
support.
    (d) At a minimum, the debriefing information shall include--
    (1) The Government's evaluation of the significant weaknesses or 
deficiencies in the offeror's proposal, if applicable;
    (2) The overall evaluated cost or price (including unit prices), and 
technical rating, if applicable, of the successful offeror and the 
debriefed offeror, and past performance information on the debriefed 
offeror;
    (3) The overall ranking of all offerors, when any ranking was 
developed by the agency during the source selection;
    (4) A summary of the rationale for award;
    (5) For acquisitions of commercial items, the make and model of the 
item to be delivered by the successful offeror; and
    (6) Reasonable responses to relevant questions about whether source 
selection procedures contained in the solicitation, applicable 
regulations, and other applicable authorities were followed.
    (e) The debriefing shall not include point-by-point comparisons of 
the debriefed offeror's proposal with those of other offerors. Moreover, 
the debriefing shall not reveal any information prohibited from 
disclosure by 24.202 or exempt from release under the Freedom of 
Information Act (5 U.S.C. 552) including--
    (1) Trade secrets;
    (2) Privileged or confidential manufacturing processes and 
techniques;
    (3) Commercial and financial information that is privileged or 
confidential, including cost breakdowns, profit, indirect cost rates, 
and similar information; and
    (4) The names of individuals providing reference information about 
an offeror's past performance.
    (f) An official summary of the debriefing shall be included in the 
contract file.



15.507  Protests against award.

    (a) Protests against award in negotiated acquisitions shall be 
handled in accordance with part 33. Use of agency protest procedures 
that incorporate the alternative dispute resolution provisions of 
Executive Order 12979 is encouraged for both preaward and postaward 
protests.
    (b) If a protest causes the agency, within 1 year of contract award, 
to--
    (1) Issue a new solicitation on the protested contract award, the 
contracting officer shall provide the information in paragraph (c) of 
this section to all prospective offerors for the new solicitation; or
    (2) Issue a new request for revised proposals on the protested 
contract award, the contracting officer shall provide the information in 
paragraph (c) of this section to offerors that were in the competitive 
range and are requested to submit revised proposals.
    (c) The following information will be provided to appropriate 
parties:
    (1) Information provided to unsuccessful offerors in any debriefings 
conducted on the original award regarding the successful offeror's 
proposal; and
    (2) Other nonproprietary information that would have been provided 
to the original offerors.



15.508  Discovery of mistakes.

    Mistakes in a contractor's proposal that are disclosed after award 
shall be processed substantially in accordance with the procedures for 
mistakes in bids at 14.407-4.



15.509  Forms.

    Optional Form 307, Contract Award, Standard Form (SF) 26, Award/
Contract, or SF 33, Solicitation, Offer and Award, may be used to award 
negotiated contracts in which the signature of both parties on a single 
document is appropriate. If these forms are not used, the award document 
shall incorporate the agreement and award language from the OF 307.

[[Page 277]]



                   Subpart 15.6--Unsolicited Proposals



15.600  Scope of subpart.

    This subpart sets forth policies and procedures concerning the 
submission, receipt, evaluation, and acceptance or rejection of 
unsolicited proposals.



15.601  Definitions.

    As used in this subpart--
    Advertising material means material designed to acquaint the 
Government with a prospective contractor's present products, services, 
or potential capabilities, or designed to stimulate the Government's 
interest in buying such products or services.
    Commercial item offer means an offer of a commercial item that the 
vendor wishes to see introduced in the Government's supply system as an 
alternate or a replacement for an existing supply item. This term does 
not include innovative or unique configurations or uses of commercial 
items that are being offered for further development and that may be 
submitted as an unsolicited proposal.
    Contribution means a concept, suggestion, or idea presented to the 
Government for its use with no indication that the source intends to 
devote any further effort to it on the Government's behalf.
    Unsolicited proposal means a written proposal for a new or 
innovative idea that is submitted to an agency on the initiative of the 
offeror for the purpose of obtaining a contract with the Government, and 
that is not in response to a request for proposals, Broad Agency 
Announcement, Small Business Innovation Research topic, Small Business 
Technology Transfer Research topic, Program Research and Development 
Announcement, or any other Government-initiated solicitation or program.



15.602  Policy.

    It is the policy of the Government to encourage the submission of 
new and innovative ideas in response to Broad Agency Announcements, 
Small Business Innovation Research topics, Small Business Technology 
Transfer Research topics, Program Research and Development 
Announcements, or any other Government-initiated solicitation or 
program. When the new and innovative ideas do not fall under topic areas 
publicized under those programs or techniques, the ideas may be 
submitted as unsolicited proposals.



15.603  General.

    (a) Unsolicited proposals allow unique and innovative ideas or 
approaches that have been developed outside the Government to be made 
available to Government agencies for use in accomplishment of their 
missions. Unsolicited proposals are offered with the intent that the 
Government will enter into a contract with the offeror for research and 
development or other efforts supporting the Government mission, and 
often represent a substantial investment of time and effort by the 
offeror.
    (b) Advertising material, commercial item offers, or contributions, 
as defined in 15.601, or routine correspondence on technical issues, are 
not unsolicited proposals.
    (c) A valid unsolicited proposal must--
    (1) Be innovative and unique;
    (2) Be independently originated and developed by the offeror;
    (3) Be prepared without Government supervision, endorsement, 
direction, or direct Government involvement;
    (4) Include sufficient detail to permit a determination that 
Government support could be worthwhile and the proposed work could 
benefit the agency's research and development or other mission 
responsibilities; and
    (5) Not be an advance proposal for a known agency requirement that 
can be acquired by competitive methods.
    (d) Unsolicited proposals in response to a publicized general 
statement of agency needs are considered to be independently originated.



15.604  Agency points of contact.

    (a) Preliminary contact with agency technical or other appropriate 
personnel before preparing a detailed unsolicited proposal or submitting 
proprietary information to the Government may save considerable time and 
effort for both parties (see 15.201). Agencies shall make available to 
potential offerors of unsolicited proposals at least the following 
information:

[[Page 278]]

    (1) Definition (see 15.601) and content (see 15.605) of an 
unsolicited proposal acceptable for formal evaluation.
    (2) Requirements concerning responsible prospective contractors (see 
subpart 9.1), and organizational conflicts of interest (see subpart 
9.5).
    (3) Guidance on preferred methods for submitting ideas/concepts to 
the Government, such as any agency: upcoming solicitations; Broad Agency 
Announcements; Small Business Innovation Research programs; Small 
Business Technology Transfer Research programs; Program Research and 
Development Announcements; or grant programs.
    (4) Agency points of contact for information regarding advertising, 
contributions, and other types of transactions similar to unsolicited 
proposals.
    (5) Information sources on agency objectives and areas of potential 
interest.
    (6) Procedures for submission and evaluation of unsolicited 
proposals.
    (7) Instructions for identifying and marking proprietary information 
so that it is protected and restrictive legends conform to 15.609.
    (b) Only the cognizant contracting officer has the authority to bind 
the Government regarding unsolicited proposals.



15.605  Content of unsolicited proposals.

    Unsolicited proposals should contain the following information to 
permit consideration in an objective and timely manner:
    (a) Basic information including--
    (1) Offeror's name and address and type of organization; e.g., 
profit, nonprofit, educational, small business;
    (2) Names and telephone numbers of technical and business personnel 
to be contacted for evaluation or negotiation purposes;
    (3) Identification of proprietary data to be used only for 
evaluation purposes;
    (4) Names of other Federal, State, or local agencies or parties 
receiving the proposal or funding the proposed effort;
    (5) Date of submission; and
    (6) Signature of a person authorized to represent and contractually 
obligate the offeror.
    (b) Technical information including--
    (1) Concise title and abstract (approximately 200 words) of the 
proposed effort;
    (2) A reasonably complete discussion stating the objectives of the 
effort or activity, the method of approach and extent of effort to be 
employed, the nature and extent of the anticipated results, and the 
manner in which the work will help to support accomplishment of the 
agency's mission;
    (3) Names and biographical information on the offeror's key 
personnel who would be involved, including alternates; and
    (4) Type of support needed from the agency; e.g., facilities, 
equipment, materials, or personnel resources.
    (c) Supporting information including--
    (1) Proposed price or total estimated cost for the effort in 
sufficient detail for meaningful evaluation;
    (2) Period of time for which the proposal is valid (a 6-month 
minimum is suggested);
    (3) Type of contract preferred;
    (4) Proposed duration of effort;
    (5) Brief description of the organization, previous experience, 
relevant past performance, and facilities to be used;
    (6) Other statements, if applicable, about organizational conflicts 
of interest, security clearances, and environmental impacts; and
    (7) The names and telephone numbers of agency technical or other 
agency points of contact already contacted regarding the proposal.



15.606  Agency procedures.

    (a) Agencies shall establish procedures for controlling the receipt, 
evaluation, and timely disposition of unsolicited proposals consistent 
with the requirements of this subpart. The procedures shall include 
controls on the reproduction and disposition of proposal material, 
particularly data identified by the offeror as subject to duplication, 
use, or disclosure restrictions.
    (b) Agencies shall establish agency points of contact (see 15.604) 
to coordinate the receipt and handling of unsolicited proposals.

[[Page 279]]



15.606-1  Receipt and initial review.

    (a) Before initiating a comprehensive evaluation, the agency contact 
point shall determine if the proposal--
    (1) Is a valid unsolicited proposal, meeting the requirements of 
15.603(c);
    (2) Is suitable for submission in response to an existing agency 
requirement (see 15.602);
    (3) Is related to the agency mission;
    (4) Contains sufficient technical and cost information for 
evaluation;
    (5) Has been approved by a responsible official or other 
representative authorized to obligate the offeror contractually; and
    (6) Complies with the marking requirements of 15.609.
    (b) If the proposal meets these requirements, the contact point 
shall promptly acknowledge receipt and process the proposal.
    (c) If a proposal is rejected because the proposal does not meet the 
requirements of paragraph (a) of this subsection, the agency contact 
point shall promptly inform the offeror of the reasons for rejection in 
writing and of the proposed disposition of the unsolicited proposal.



15.606-2  Evaluation.

    (a) Comprehensive evaluations shall be coordinated by the agency 
contact point, who shall attach or imprint on each unsolicited proposal, 
circulated for evaluation, the legend required by 15.609(d). When 
performing a comprehensive evaluation of an unsolicited proposal, 
evaluators shall consider the following factors, in addition to any 
others appropriate for the particular proposal:
    (1) Unique, innovative and meritorious methods, approaches, or 
concepts demonstrated by the proposal;
    (2) Overall scientific, technical, or socioeconomic merits of the 
proposal;
    (3) Potential contribution of the effort to the agency's specific 
mission;
    (4) The offeror's capabilities, related experience, facilities, 
techniques, or unique combinations of these that are integral factors 
for achieving the proposal objectives;
    (5) The qualifications, capabilities, and experience of the proposed 
principal investigator, team leader, or key personnel critical to 
achieving the proposal objectives; and
    (6) The realism of the proposed cost.
    (b) The evaluators shall notify the agency point of contact of their 
recommendations when the evaluation is completed.



15.607  Criteria for acceptance and negotiation of an unsolicited proposal.

    (a) A favorable comprehensive evaluation of an unsolicited proposal 
does not, in itself, justify awarding a contract without providing for 
full and open competition. The agency point of contact shall return an 
unsolicited proposal to the offeror, citing reasons, when its 
substance--
    (1) Is available to the Government without restriction from another 
source;
    (2) Closely resembles a pending competitive acquisition requirement;
    (3) Does not relate to the activity's mission; or
    (4) Does not demonstrate an innovative and unique method, approach, 
or concept, or is otherwise not deemed a meritorious proposal.
    (b) The contracting officer may commence negotiations on a sole 
source basis only when--
    (1) An unsolicited proposal has received a favorable comprehensive 
evaluation;
    (2) A justification and approval has been obtained (see 6.302-
1(a)(2)(i) for research proposals or other appropriate provisions of 
subpart 6.3, and 6.303-2(b));
    (3) The agency technical office sponsoring the contract furnishes 
the necessary funds; and
    (4) The contracting officer has complied with the synopsis 
requirements of subpart 5.2.



15.608  Prohibitions.

    (a) Government personnel shall not use any data, concept, idea, or 
other part of an unsolicited proposal as the basis, or part of the 
basis, for a solicitation or in negotiations with any other firm unless 
the offeror is notified of and agrees to the intended use. However, this 
prohibition does not preclude using any data, concept, or idea in the 
proposal that also is available from another source without restriction.

[[Page 280]]

    (b) Government personnel shall not disclose restrictively marked 
information (see 3.104 and 15.609) included in an unsolicited proposal. 
The disclosure of such information concerning trade secrets, processes, 
operations, style of work, apparatus, and other matters, except as 
authorized by law, may result in criminal penalties under 18 U.S.C. 
1905.



15.609  Limited use of data.

    (a) An unsolicited proposal may include data that the offeror does 
not want disclosed to the public for any purpose or used by the 
Government except for evaluation purposes. If the offeror wishes to 
restrict the data, the title page must be marked with the following 
legend:

                       Use and Disclosure of Data

    This proposal includes data that shall not be disclosed outside the 
Government and shall not be duplicated, used, or disclosed--in whole or 
in part--for any purpose other than to evaluate this proposal. However, 
if a contract is awarded to this offeror as a result of--or in 
connection with--the submission of these data, the Government shall have 
the right to duplicate, use, or disclose the data to the extent provided 
in the resulting contract. This restriction does not limit the 
Government's right to use information contained in these data if they 
are obtained from another source without restriction. The data subject 
to this restriction are contained in Sheets [insert numbers or other 
identification of sheets].

    (b) The offeror shall also mark each sheet of data it wishes to 
restrict with the following legend: Use or disclosure of data contained 
on this sheet is subject to the restriction on the title page of this 
proposal.
    (c) The agency point of contact shall return to the offeror any 
unsolicited proposal marked with a legend different from that provided 
in paragraph (a) of this section. The return letter will state that the 
proposal cannot be considered because it is impracticable for the 
Government to comply with the legend and that the agency will consider 
the proposal if it is resubmitted with the proper legend.
    (d) The agency point of contact shall place a cover sheet on the 
proposal or clearly mark it as follows, unless the offeror clearly 
states in writing that no restrictions are imposed on the disclosure or 
use of the data contained in the proposal:

                Unsolicited Proposal--Use of Data Limited

    All Government personnel must exercise extreme care to ensure that 
the information in this proposal is not disclosed to an individual who 
has not been authorized access to such data in accordance with FAR 
3.104, and is not duplicated, used, or disclosed in whole or in part for 
any purpose other than evaluation of the proposal, without the written 
permission of the offeror. If a contract is awarded on the basis of this 
proposal, the terms of the contract shall control disclosure and use. 
This notice does not limit the Government's right to use information 
contained in the proposal if it is obtainable from another source 
without restriction. This is a Government notice, and shall not by 
itself be construed to impose any liability upon the Government or 
Government personnel for disclosure or use of data contained in this 
proposal.

    (e) The notice in paragraph (d) of this section is used solely as a 
manner of handling unsolicited proposals that will be compatible with 
this subpart. However, the use of this notice shall not be used to 
justify the withholding of a record, nor to improperly deny the public 
access to a record, where an obligation is imposed on an agency by the 
Freedom of Information Act, 5 U.S.C. 552, as amended. A prospective 
offeror should identify trade secrets, commercial or financial 
information, and privileged or confidential information to the 
Government (see paragraph (a) of this section).
    (f) When an agency receives an unsolicited proposal without any 
restrictive legend from an educational or nonprofit organization or 
institution, and an evaluation outside the Government is necessary, the 
agency point of contact shall--
    (1) Attach a cover sheet clearly marked with the legend in paragraph 
(d) of this section;
    (2) Change the beginning of this legend to read ``All Government and 
non-Government personnel * * * ''; and
    (3) Require any non-Government evaluator to agree in writing that 
data in the proposal will not be disclosed to others outside the 
Government.
    (g) If the proposal is received with the restrictive legend (see 
paragraph (a) of this section), the modified cover

[[Page 281]]

sheet shall also be used and permission shall be obtained from the 
offeror before release of the proposal for evaluation by non-Government 
personnel.
    (h) When an agency receives an unsolicited proposal with or without 
a restrictive legend from other than an educational or nonprofit 
organization or institution, and evaluation by Government personnel 
outside the agency or by experts outside of the Government is necessary, 
written permission must be obtained from the offeror before release of 
the proposal for evaluation. The agency point of contact shall--
    (1) Clearly mark the cover sheet with the legend in paragraph (d) or 
as modified in paragraph (f) of this section; and
    (2) Obtain a written agreement from any non-Government evaluator 
stating that data in the proposal will not be disclosed to persons 
outside the Government.

    Effective Date Note:  At 62 FR 51230, Sept. 30, 1997, part 15 was 
revised, effective Oct. 10, 1997. For the convenience of the user, the 
text remaining in effect until Oct. 10, 1997 is set forth as follows:



PART 15--CONTRACTING BY NEGOTIATION

Sec.
15.000  Scope of part.

           Subpart 15.1--General Requirements for Negotiation

15.100  Scope of subpart.
15.101  Definition.
15.102  General.
15.103  Converting from sealed bidding to negotiation procedures.
15.104-15.105  [Reserved]
15.106  Contract clauses.

                     Subparts 15.2-;15.3  [Reserved]

   Subpart 15.4--Solicitation and Receipt of Proposals and Quotations

15.400  Scope of subpart.
15.401  Applicability.
15.402  General.
15.403  Solicitation mailing lists.
15.404  Presolicitation notices and conferences.
15.405  Solicitations for information or planning purposes.
15.405-1  General.
15.405-2  Solicitation provision.
15.406  Preparing requests for proposals (RFP's) and requests for 
          quotations (RFQ's).
15.406-1  Uniform contract format.
15.406-2  Part I--The Schedule.
15.406-3  Part II--Contract clauses.
15.406-4  Part III--List of documents, exhibits, and other attachments.
15.406-5  Part IV--Representations and instructions.
15.407  Solicitation provisions.
15.408  Issuing solicitations.
15.409  Pre-proposal conferences.
15.410  Amendment of solicitations before closing date.
15.411  Receipt of proposals and quotations.
15.412  Late proposals, modifications, and withdrawals of proposals.
15.413  Disclosure and use of information before award.
15.413-1  Alternate I.
15.413-2  Alternate II.
15.414  Forms.
15.415  Economic purchase quantities (supplies).
15.416  Simplified contract format.

                   Subpart 15.5--Unsolicited Proposals

15.500  Scope of subpart.
15.501  Definitions.
15.502  Policy.
15.503  General.
15.504  Advance guidance.
15.505  Content of unsolicited proposals.
15.506  Agency procedures.
15.506-1  Receipt and initial review.
15.506-2  Evaluation.
15.507  Contracting methods.
15.508  Prohibitions.
15.509  Limited use of data.

                     Subpart 15.6--Source Selection

15.600  Scope of subpart.
15.601  Definitions.
15.602  Applicability.
15.603  Purpose.
15.604  Responsibilities.
15.605  Evaluation factors and subfactors.
15.606  Changes in Government requirements.
15.607  Disclosure of mistakes before award.
15.608  Proposal evaluation.
15.609  Competitive range.
15.610  Written or oral discussion.
15.611  Best and final offers.
15.612  Formal source selection.
15.613  Alternative source selection procedures.

                   Subpart 15.7--Make-or-Buy Programs

15.700  Scope of subpart.
15.701  Definitions.
15.702  General.
15.703  Acquisitions requiring make-or-buy programs.
15.704  Items and work included.
15.705  Solicitation requirements.

[[Page 282]]

15.706  Evaluation, negotiation, and agreement.
15.707  Incorporating make-or-buy programs in contracts.
15.708  Contract clause.

                     Subpart 15.8--Price Negotiation

15.800  Scope of subpart.
15.801  Definitions.
15.802  Policy.
15.803  General.
15.804  Cost or pricing data and information other than cost or pricing 
          data.
15.804-1  Prohibition on obtaining cost or pricing data.
15.804-2  Requiring cost or pricing data.
15.804-3  [Reserved]
15.804-4  Certificate of Current Cost or Pricing Data.
15.804-5  Requiring information other than cost or pricing data.
15.804-6  Instructions for submission of cost or pricing data or 
          information other than cost or pricing data.
15.804-7  Defective cost or pricing data.
15.804-8  Contract clauses and solicitation provisions.
15.805  Proposal analysis.
15.805-1  General.
15.805-2  Price analysis.
15.805-3  Cost analysis.
15.805-4  Technical analysis.
15.805-5  Field pricing support.
15.806  Subcontract pricing considerations.
15.806-1  General.
15.806-2  Prospective subcontractor cost or pricing data.
15.806-3  Field pricing reports.
15.807  Prenegotiation objectives.
15.808  Price negotiation memorandum.
15.809  Forward pricing rates agreements.
15.810  Should-cost analysis.
15.810  Should-cost review.
15.810-1  General.
15.810-2  Program should-cost review.
15.810-3  Overhead should-cost review.
15.811  Estimating systems.
15.812  Unit prices.
15.812-1  General.
15.812-2  Contract clause.
15.813  [Reserved]
15.814  Unbalanced offers.

                          Subpart 15.9--Profit

15.900  Scope of subpart.
15.901  General.
15.902  Policy.
15.903  Contracting officer responsibilities.
15.904  Solicitation provision and contract clause.
15.905  Profit-analysis factors.
15.905-1  Common factors.
15.905-2  Additional factors.

 Subpart 15.10--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes

15.1001  Definition.
15.1002  Applicability.
15.1003  Notifications to unsuccessful offerors.
15.1004  Notification to successful offeror.
15.1005  Preaward debriefing of offerors.
15.1006  Postaward debriefing of offerors.
15.1007  Protests against award.
15.1008  Discovery of mistakes.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42187, Sept. 19, 1983, unless otherwise noted.

15.000  Scope of part.

    This part prescribes policies and procedures governing contracting 
for supplies and services by negotiation.

           Subpart 15.1--General Requirements for Negotiation

15.100  Scope of subpart.

    This subpart covers general requirements regarding negotiated 
contracts. Detailed and specific requirements appear throughout this 
regulation.

15.101  Definition.

    Negotiation means contracting through the use of either competitive 
or other-than-competitive proposals and discussions. Any contract 
awarded without using sealed bidding procedures is a negotiated contract 
(see 14.101).
[50 FR 1739, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985]

15.102  General.

    Negotiation is a procedure that includes the receipt of proposals 
from offerors, permits bargaining, and usually affords an opportunity to 
revise their offers before award of a contract. Bargaining--in the sense 
of discussion, persuasion, alteration of initial assumptions and 
positions, and give-and-take--may apply to price, schedule, technical 
requirements, type of contract, or other terms of a proposed contract.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]

15.103  Converting from sealed bidding to negotiation procedures.

    When the agency head has determined, in accordance with 14.404-
1(e)(1), that an invitation for bids is to be cancelled and that use of 
negotiation is appropriate to complete the acquisition, the contracting 
officer may negotiate and make award without issuing a

[[Page 283]]

new solicitation subject to the following conditions--
    (a) Prior notice of intention to negotiate and a reasonable 
opportunity to negotiate have been given by the contracting officer to 
each responsible bidder that submitted a bid in response to the 
invitation for bids;
    (b) The negotiated price is the lowest negotiated price offered by 
any responsible bidder; and
    (c) The negotiated price is lower than the lowest rejected bid price 
of a responsible bidder that submitted a bid in response to the 
invitation for bids. However, this paragraph (c) does not apply if the 
invitation was canceled and all bids were rejected for the reason stated 
in 14.404-1(c)(8).
[50 FR 1739, Jan. 11, 1985, as amended at 55 FR 52790, Dec. 21, 1990]

15.104--15.105  [Reserved]

15.106  Contract clauses.

    (a) This section implements 10 U.S.C. 2313, 41 U.S.C. 254d, and OMB 
Circular No. A-133.
    (b) The contracting officer shall, if contracting by negotiation, 
insert the clause at 52.215-2, Audit and Records--Negotiation, in 
solicitations and contracts except those--
    (1) Not exceeding the simplified acquisition threshold;
    (2) For commercial items exempted under 15.804-1; or
    (3) For utility services at rates not exceeding those established to 
apply uniformly to the general public, plus any applicable reasonable 
connection charge.
    (c) In facilities contracts, the contracting officer shall use the 
clause with its Alternate I. In cost-reimbursement contracts with 
educational institutions and other nonprofit organizations, the 
contracting officer shall use the clause with its Alternate II. If the 
examination of records by the Comptroller General is waived in 
accordance with 25.901, the contracting officer shall use the clause 
with its Alternate III.
[62 FR 258, Jan. 2, 1997]

                      Subparts 15.2-15.3 [Reserved]

   Subpart 15.4--Solicitation and Receipt of Proposals and Quotations

15.400  Scope of subpart.

    This subpart prescribes policies and procedures for (a) preparing 
and issuing requests for proposals (RFP's) and requests for quotations 
(RFQ's) and (b) receiving proposals and quotations.

15.401  Applicability.

    This subpart applies to solicitations issued when contracting by 
negotiation, except--
    (a) Acquisitions made under simplified acquisition procedures; and
    (b) Two-step sealed bidding (see subpart 14.5).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 34756, July 3, 1995; 61 FR 39197, July 
26, 1996]

15.402  General.

    (a) Requests for proposals (RFP's) or requests for quotations 
(RFQ's) are used in negotiated acquisitions to communicate Government 
requirements to prospective contractors and to solicit proposals or 
quotations from them. Except as permitted by paragraph (f) below, 
contracting officers shall issue written solicitations. Solicitations 
shall contain the information necessary to enable prospective 
contractors to prepare proposals or quotations properly. Solicitation 
provisions and contract clauses may be incorporated into solicitations 
and contracts by reference, when authorized by subpart 52.1.
    (b) Contracting officers shall furnish identical information 
concerning a proposed acquisition to all prospective contractors. 
Government personnel shall not provide the advantage of advance 
knowledge concerning a future solicitation to any prospective contractor 
(but see 5.404, 15.404, and 15.405).
    (c) Except for solicitations for information or planning purposes 
(see subparagraph (e)(1) below and 15.405), contracting officers shall 
solicit proposals or quotations only when there is a definite intention 
to award a contract. Subpart 7.3 provides additional instructions for 
solicitations involving cost comparisons between Government and 
contractor performance.
    (d) A proposal received in response to an RFP is an offer that can 
be accepted by the Government to create a binding contract, either 
following negotiations or, when authorized by 15.610, without 
discussion. Contracting officers should normally issue RFP's when they 
consider it reasonable to expect prospective contractors to respond with 
offers, even though they anticipate negotiations after receipt of 
offers. An RFP shall not be used for a solicitation for information or 
planning purposes. Solicitations involving cost comparisons between 
Government and contractor performance (see 7.302(b)) are not for 
information or planning purposes.
    (e) A quotation received in response to an RFQ is not an offer and 
cannot be accepted by the Government to create a binding contract. It is 
informational in character. An RFQ may be used when the Government does 
not intend to award a contract on the basis of the solicitation but 
wishes to obtain price, delivery, or other market information for 
planning purposes (see 15.405).
    (f) Oral solicitations are authorized for perishable subsistence. An 
oral solicitation may

[[Page 284]]

also be used when processing a written solicitation would delay the 
acquisition of supplies or services to the detriment of the Government. 
Use of an oral solicitation does not relieve the contracting officer 
from complying with other requirements of this regulation. In addition 
to other applicable documentation requirements (see subpart 4.1), 
documentation of oral solicitations shall include--
    (1) A justification for use of an oral solicitation;
    (2) Item description, quantity, and delivery schedule;
    (3) Sources solicited, including the date, time, name of individual 
contacted, and prices quoted; and
    (4) The solicitation number provided to the prospective contractors.
    (g) Unless prohibited by agency regulations, letter RFP's may be 
used for acquisitions conducted under 6.302, Circumstances permitting 
other than full and open competition. When this technique is used, 
contracting officers must still comply with other portions of this 
regulation, such as subparts 5.2, Synopses of Proposed Contract Actions, 
and 15.8, Price Negotiation. Letter RFP's should be as clear and concise 
as possible; exclude any unnecessary verbiage or notices; and, as a 
minimum, contain the following:
    (1) RFP number and date.
    (2) Name and address of contracting office.
    (3) Type of contract contemplated.
    (4) Quantity, description, and required delivery for the item.
    (5) Applicable certifications and representations.
    (6) Contract terms and conditions (reference to prior contract or 
updates should be provided, as applicable).
    (7) Offer due date.
    (8) Other relevant information; e.g., incentives, variations in 
delivery schedule, any peculiar or different requirements, cost proposal 
support, and different data requirements.
    (h) If, after considering any responses to a proper notice of 
proposed sole source contract action (see 5.207(d)(3)), the contracting 
officer determines that more than one source can meet the Government's 
needs, the contracting officer shall solicit offers using competitive 
procedures. The contracting officer shall proceed in accordance with 
5.203 for publicizing and response times.
    (i) Unless prohibited or otherwise restricted by agency procedures, 
contracting officers may authorize facsimile proposals (see 15.407(j)). 
In determining whether or not to authorize facsimile proposals, the 
contracting officer shall consider such factors as--
    (1) Anticipated proposal size and volume;
    (2) Urgency of the requirement;
    (3) Frequency of price changes;
    (4) Availability, reliability, speed, and capacity of the receiving 
facsimile equipment; and
    (5) Adequacy of administrative procedures and controls for 
receiving, identifying, recording, and safeguarding facsimile proposals, 
and ensuring their timely delivery to the proposal opening location.
    (j) If facsimile proposals are authorized, contracting officers may, 
after the date set for receipt of proposal, request offeror(s) to 
provide the complete original signed proposal.
    (k) In accordance with subpart 4.5, contracting officers may 
authorize use of electronic commerce for submission of offers. If 
electronic offers are authorized, the solicitation shall specify the 
electronic commerce method(s) that offerors may use.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 53 FR 17857, May 18, 1988; 54 FR 48984, Nov. 
28, 1989; 55 FR 25527, June 21, 1990; 60 FR 34738, July 3, 1995]

15.403  Solicitation mailing lists.

    Contracting offices shall establish, maintain, and use lists of 
potential sources in accordance with 14.205.

15.404  Presolicitation notices and conferences.

    (a) General. Presolicitation notices and conferences may be used as 
preliminary steps in negotiated acquisitions in order to--
    (1) Develop or identify interested sources;
    (2) Request preliminary information based on a general description 
of the supplies or services involved;
    (3) Explain complicated specifications and requirements to 
interested sources; and
    (4) Aid prospective contractors in later submitting proposals 
without undue expenditure of effort, time, and money.
    (b) Presolicitation notices. (1) When presolicitation notices are 
used, the contracting officer shall prepare and issue the notice to 
potential sources and shall synopsize the notice in accordance with 
subpart 5.2.
    (2) Each presolicitation notice shall--
    (i) Define as explicitly as possible the information to be furnished 
in the response;
    (ii) Indicate whether it is contemplated that the presolicitation 
notice will be followed by a conference and a formal solicitation; and
    (iii) Request an expression of interest in the contemplated 
acquisition by a specified date.
    (3) In complex acquisitions, the presolicitation notice may also 
request information pertaining to management, engineering, and 
production capabilities. Detailed drawings, specifications, or plans 
will not normally be included with a presolicitation notice.

[[Page 285]]

    (4) The contracting officer shall furnish copies of the solicitation 
to (i) all those responding affirmatively to the presolicitation notice 
and (ii) other prospective contractors upon their request (but see 
subpart 9.4, Debarment, Suspension, and Ineligibility).
    (c) Presolicitation conferences. (1) The presolicitation conference 
may be used only when approved at a level higher than the contracting 
officer. It shall not be used as a method for prequalification of 
offerors.
    (2) The contracting officer shall--
    (i) Advise all organizations responding to the presolicitation 
notice of the details of any pending presolicitation conference;
    (ii) Conduct the conference and arrange for technical and legal 
personnel to attend, as appropriate; and
    (iii) Furnish copies of the solicitation to all organizations 
attending the conference, unless they decline to participate in the 
acquisition.

15.405  Solicitations for information or planning purposes.

15.405-1  General.

    When information necessary for planning purposes cannot be obtained 
from potential sources by more economical and less formal means, the 
contracting officer may determine in writing that a solicitation for 
information or planning purposes is justified. If this determination is 
approved, in accordance with agency procedures, at a level higher than 
that of the contracting officer, the contracting officer shall then 
issue the solicitation.

15.405-2  Solicitation provision.

    The contracting officer shall insert on the face of each 
solicitation (other than those excluded by 15.401) issued for 
information or planning purposes the provision at 52.215-3, Solicitation 
for Information or Planning Purposes.

15.406  Preparing requests for proposals (RFP's) and requests for 
          quotations (RFQ's).

15.406-1  Uniform contract format.

    (a) Contracting officers shall prepare solicitations and resulting 
contracts using the uniform contract format outlined in Table 15-1. The 
format facilitates preparation of the solicitation and contract, as well 
as reference to and use of those documents by offerors and contractors. 
The uniform contract format is optional for acquisitions outside the 
United States, its possessions, its territories, and Puerto Rico. It 
does not apply to the following:
    (1) Basic agreements (see 16.702).
    (2) Construction and architect-engineer contracts (see part 36).
    (3) Shipbuilding (including design, construction, and conversion), 
ship overhauls, and ship repairs.
    (4) Subsistence.
    (5) Contracts requiring special contract forms prescribed elsewhere 
in this regulation that are inconsistent with the uniform contract 
format.
    (6) Letter Request for Proposals (see 15.402).
    (7) Contracts exempted by the agency head or a designee.
    (8) Contracts utilizing the simplified contract format (see 15.416).
    (b) Solicitations to which the uniform contract format applies shall 
include Parts I, II, III, and IV (see 15.406-2 through 15.406-5). Upon 
award, contracting officers shall not physically include Part IV in the 
resulting contract, but shall retain in their contract file Section K, 
Representations, certifications, and other statements of offerors, as 
completed by the contractor. Award by acceptance of a proposal on the 
award portion of SF 33, SF 26, or SF 1447 incorporates Section K by 
reference in the resultant contract. Contracts requiring a bilateral 
document shall incorporate Section K by reference in the signed 
contract.

                               Table 15-1                               
                         Uniform Contract Format                        
------------------------------------------------------------------------
           Section                               Title                  
------------------------------------------------------------------------
                          Part I--The Schedule                          
                                                                        
 A                             Solicitation/contract form               
B                              Supplies or services and prices/costs    
C                              Description/specifications/ work         
                                statement                               
D                              Packaging and marking                    
E                              Inspection and acceptance                
F                              Deliveries or performance                
G                              Contract administration data             
H                              Special contract requirements            
                                                                        
                        Part II--Contract Clauses                       
                                                                        
 I                             Contract clauses                         
                                                                        
       Part III--List of Documents, Exhibits, and Other Attachments     
                                                                        
 J                             List of attachments                      
                                                                        
                Part IV--Representations and Instructions               
                                                                        
 K                             Representations, certifications, and     
                                other statements of offerors or quoters 
L                              Instructions, conditions, and notices to 
                                offerors or quoters                     
M                              Evaluation factors for award             
------------------------------------------------------------------------

[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1739, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 53 FR 17857, May 18, 1988; 54 FR 48984, Nov. 
28, 1989]

15.406-2  Part I--The Schedule.

    The contracting officer shall prepare the contract Schedule as 
follows:
    (a) Section A, Solicitation/contract form.
    (1) Prepare RFP's on Standard Form 33, Solicitation, Offer and Award 
(53.301-33) or

[[Page 286]]

Standard Form 1447, Solicitation/Contract (53.301-1447), unless 
otherwise permitted by this regulation. The first page of the SF 33 or 
SF 1447 is the first page of the solicitation. The first page of the SF 
33 includes section A of the uniform contract format. When the SF 1447 
is used as the solicitation document, ensure the information in 
subdivisions (a)(3)(i) and (a)(3)(iv) of this subsection are inserted in 
block 9 of the SF 1447.
    (2) Prepare RFQ's on Standard Form 18, Request for Quotations 
(53.301-18). Agencies may overprint the SF 18 to provide for Section A 
of the uniform contract format.
    (3) When other than SF 33, SF 18, or SF 1447 is used, include the 
following on the first page of the solicitation:
    (i) Name, address, and location of issuing activity, including room 
and building where proposals or quotations must be submitted.
    (ii) Solicitation number.
    (iii) Date of issuance.
    (iv) Closing date and time.
    (v) Number of pages.
    (vi) Requisition or other purchase authority.
    (vii) Brief description of item or service.
    (viii) Requirement for the offeror or quoter to provide its name and 
complete address, including street, city, county, State, and Zip Code.
    (ix) A statement that offerors or quoters should include in the 
offer or quotation the address to which payment should be mailed, if 
that address is different from that shown for the offeror or quoter.
    (b) Section B, Supplies or services and prices/costs. Include on the 
second page of the solicitation brief descriptions of the supplies or 
services; e.g., item number, national stock number/part number if 
applicable, nouns, and quantities. (This includes incidental 
deliverables such as manuals and reports.) The second page may be 
supplemented as necessary by Optional Form 336, Continuation Sheet 
(53.302-336).
    (c) Section C, Description/specifications/work statement. Include 
any description or specifications needed in addition to Section B (see 
part 11).
    (d) Section D, Packaging and marking. Provide packaging, packing, 
preservation, and marking requirements, if any.
    (e) Section E, Inspection and acceptance. Include inspection, 
acceptance, quality assurance, and reliability requirements (see part 
46, Quality Assurance).
    (f) Section F, Deliveries or performance. Specify the requirements 
for time, place, and method of delivery or performance (subpart 11.4, 
Delivery or Performance Schedules, and 47.301-1).
    (g) Section G, Contract administration data. Include any required 
accounting and appropriation data and any required contract 
administration information or instructions other than those on the 
solicitation form.
    (h) Section H, Special contract requirements. Include a clear 
statement of any special contract requirements that are not included in 
Section I, Contract clauses, or in other sections of the uniform 
contract format.
[48 FR 42187, Sept. 19, 1983, as amended at 51 FR 27119, July 29, 1986; 
53 FR 17857, May 18, 1988; 54 FR 29281, July 11, 1989; 54 FR 48985, Nov. 
28, 1989; 55 FR 38516, Sept. 18, 1990; 60 FR 48248, Sept. 18, 1995]

15.406-3  Part II--Contract clauses.

    (a) Section I, Contract clauses. The contracting officer shall 
include in this section the clauses required by law or by this 
regulation and any additional clauses expected to be included in any 
resulting contract, if these clauses are not required in any other 
section of the uniform contract format.
    (b) When contracting by negotiation, the contracting officer shall 
insert the clause at 52.215-33, Order of Precedence, in solicitations 
and contracts to which the uniform contract format applies.
    (c) Any alteration pertaining to the contract shall be included in 
this section as part of the clause at 52.252-4, Alterations in Contract. 
See part 52, Solicitation Provisions and Contract Clauses.
[51 FR 2649, Jan. 17, 1986, as amended at 53 FR 17858, May 18, 1988]

15.406-4  Part III--List of documents, exhibits, and other attachments.

    Section J, List of attachments. The contracting officer shall list 
the title, date, and number of pages for each attached document, 
exhibit, and other attachment.

15.406-5  Part IV--Representations and instructions.

    The contracting officer shall prepare the representations and 
instructions as follows:
    (a) Section K, Representations, certifications, and other statements 
of offerors or quoters. Include in this section those solicitation 
provisions that require representations, certifications, or the 
submission of other information by offerors or quoters.
    (b) Section L, Instructions, conditions, and notices to offerors or 
quoters. Insert in this section solicitation provisions and other 
information and instructions not required elsewhere to guide offerors or 
quoters in preparing proposals or quotations. Any alteration pertaining 
to the solicitation shall be included in this section as part of the 
provision at 52.252-3, Alterations in Solicitation. Prospective offerors 
or quoters may be instructed to submit technical proposals in severable 
parts to meet agency requirements. The severable parts should provide 
for separation of cost or pricing data, past performance data and, when 
needed, technical data. The instructions may specify further 
organization of proposal or quotation

[[Page 287]]

parts, such as (1) administrative, (2) management, (3) technical, (4) 
past performance, and (5) cost or pricing data (see 15.804-6 and 15.804-
8).
    (c) Section M, Evaluation factors for award. Identify all 
significant factors, including cost or price, cost or price-related 
factors, and non-cost or non-price-related factors, and any significant 
subfactors that will be considered in awarding the contract (see 
15.605(d) and (e) and the multiple award provision at 52.215-34) and 
state the relative importance the Government places on those evaluation 
factors and subfactors.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 19715, May 30, 1986; 53 FR 17858, May 
18, 1988; 56 FR 41733, Aug. 22, 1991; 60 FR 16718, Mar. 31, 1995; 60 FR 
42655, Aug. 16, 1995; 60 FR 48211, Sept. 18, 1995]

15.407  Solicitation provisions.

    (a) Solicitations, as used in this section, means requests for 
proposals (RFP's) and requests for quotations (RFQ's) other than those 
excluded by 15.401 and those for information or planning purposes. See 
15.405-2 for the solicitation provision used with solicitations for 
information or planning purposes.
    (b) The contracting officer may, upon the approval of the chief of 
the contracting office, insert the provision at 52.215-4, Notice of 
Possible Standardization, in solicitations for supplies that 
subsequently might be standardized. See 14.201-6(n) regarding use of the 
provision in invitations for bids.
    (c) The contracting officer shall insert in solicitations the 
provisions at--
    (1) 52.215-5, Solicitation Definitions;
    (2) 52.215-6, Type of Business Organization;
    (3) 52.215-7, Unnecessarily Elaborate Proposals or Quotations;
    (4) 52.215-8, Amendments to Solicitations;
    (5) 52.215-9, Submission of Offers;
    (6) 52.215-10, Late Submissions, Modifications, and Withdrawals of 
Proposals, for solicitations issued in the United States and Canada for 
submission of offers to a contracting office in the United States or 
Canada;
    (7) 52.215-11, Authorized Negotiators; and
    (8) 52.215-12, Restriction on Disclosure and Use of Data; and
    (9) 52.215-36, Late Submissions, Modifications, and Withdrawals of 
Proposals (Overseas), for solicitations under which offers are to be 
submitted to a contracting office outside the United States or Canada.
    (d) The contracting officer shall--
    (1) Insert in RFP's for other than construction the provision at 
52.215-13, Preparation of Offers;
    (2) Insert in RFP's the provision at 52.215-14, Explanation to 
Prospective Offerors;
    (3) Insert in RFP's the provision at 52.215-15, Failure to Submit 
Offer, except when using electronic data interchange methods not 
requiring solicitation mailing lists; and
    (4) Insert in RFP's the provision at 52.215-16, Contract Award.
    (i) If the RFP is for construction, the contracting officer shall 
use the provision with its Alternate I. If awards are to be made without 
discussions, also use Alternate II.
    (ii) If the contracting officer intends to evaluate offers and make 
award without discussions, use the basic provision with its Alternate 
II.
    (e)(1) The contracting officer shall insert the provision at 52.215-
17, Telegraphic Proposals, in solicitations that authorize telegraphic 
proposals or quotations.
    (2) The contracting officer shall insert the basic provision with 
its Alternate 1 in solicitations that are for perishable subsistence and 
when the contracting officer considers that offerors will be unwilling 
to provide acceptance periods long enough to allow written confirmation.
    (f) The contracting officer shall insert the provision at 52.215-19, 
Period for Acceptance of Offer, in RFP's that are not issued on SF 33 or 
SF 1447 except those (1) for construction work or (2) in which the 
Government specifies a minimum acceptance period.
    (g) The contracting officer shall insert the provision at 52.215-20, 
Place of Performance, in solicitations except those in which the place 
of performance is specified by the Government.
    (h) The contracting officer shall insert the provision at 52.215-34, 
Evaluation of Offers for Multiple Awards, in requests for proposals if 
the contracting officer determines that multiple awards might be made if 
doing so is economically advantageous to the Government.
    (i) The contracting officer shall insert the provision at 52.215-35, 
Annual Representations and Certifications--Negotiation, in requests for 
proposals if annual representations and certifications are utilized (see 
14.213).
    (j) The contracting officer shall insert the provision at 52.215-18, 
Facsimile Proposals, in solicitations if facsimile proposals are 
authorized (see 15.402(i)).
    (k) The contracting officer shall insert in RFP's for construction 
the provision at 52.215-38, Preparation of Offers--Construction.
    (l) The provision at 52.214-34, Submission of Offers in the English 
Language, is required in solicitations subject to the Trade Agreements 
Act or the North American Free Trade Agreement Implementation Act (see 
25.408(d)). It may be included in other solicitations when the 
contracting officer decides that it is necessary.
    (m) The provision at 52.214-35, Submission of Offers in U.S. 
Currency, is required in solicitations subject to the Trade Agreements 
Act or the North American Free Trade

[[Page 288]]

Agreement Implementation Act (see 25.408(d)). It may be included in 
other solicitations when the contracting officer decides that it is 
necessary.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2650, Jan. 17, 1986; 51 FR 19715, May 
30, 1986; 53 FR 43390, Oct. 26, 1988; 54 FR 5054, Jan. 31, 1989; 54 FR 
48985, Nov. 28, 1989; 55 FR 52790, Dec. 21, 1990; 56 FR 15149, Apr. 15, 
1991; 56 FR 41733, Aug. 22, 1991; 58 FR 31141, May 28, 1993; 59 FR 545, 
Jan. 5, 1994; 60 FR 34738, July 3, 1995; 60 FR 42655, Aug. 16, 1995]

15.408  Issuing solicitations.

    (a) The contracting officer shall issue unclassified solicitations 
to potential sources in conformance with the policy and procedures in 
parts 5 and 6.
    (b) Solicitations involving classified information shall be handled 
as prescribed by agency regulations.
    (c) If the contracting office is located in the United States and 
the security classification permits, any solicitation or related 
correspondence sent to a foreign address shall be sent by international 
air mail. Similarly, if the security classification permits, contracting 
offices located outside the United States shall use international air 
mail in appropriate circumstances.
    (d) A master solicitation may be used for negotiated acquisitions, 
subject to the criteria and procedures in 14.203-3.
    (e) To provide for ready identification and proper handling of 
proposals, Optional Form 17, Offer Label, may be furnished with each 
request for proposals. The form may be obtained from the General 
Services Administration (see 53.107).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 29281, July 11, 1989; 59 FR 67033, 
Dec. 28, 1994]

15.409  Pre-proposal conferences.

    (a) A pre-proposal conference may be held to brief prospective 
offerors after a solicitation has been issued but before offers are 
submitted. Generally, the Government uses these conferences in complex 
negotiated acquisitions to explain or clarify complicated specifications 
and requirements.
    (b) The contracting officer shall decide if a pre-proposal 
conference is required and make the necessary arrangements, including 
the following:
    (1) If notice was not in the solicitation, give all prospective 
offerors who received the solicitation adequate notice of the time, 
place, nature, and scope of the conference.
    (2) If time allows, request prospective offerors to submit written 
questions in advance. Prepared answers can then be delivered during the 
conference.
    (3) Arrange for technical and legal personnel to attend the 
conference, if appropriate.
    (c) The contracting officer or a designated representative shall 
conduct the pre-proposal conference, furnish all prospective offerors 
identical information concerning the proposed acquisition, make a 
complete record of the conference, and promptly furnish a copy of that 
record to all prospective offerors. Conferees shall be advised that--
    (1) Remarks and explanations at the conference shall not qualify the 
terms of the solicitation; and
    (2) Terms of the solicitation and specifications remain unchanged 
unless the solicitation is amended in writing.

15.410  Amendment of solicitations before closing date.

    (a) After issuance of a solicitation, but before the date set for 
receipt of proposals, it may be necessary to (1) make changes to the 
solicitation, including, but not limited to, significant changes in 
quantity, specifications, or delivery schedules, (2) correct defects or 
ambiguities, or (3) change the closing date for receipt of proposals. 
Standard Form 30, Amendment of Solicitation/Modification of Contract 
(53.301-30), shall be used for amending a request for proposals (RFP).
    (b) The contracting officer shall determine if the closing date 
needs to be changed when amending a solicitation. If the time available 
before closing is insufficient, prospective offerors or quoters shall be 
notified by electronic data interchange, facsimile transmission, 
telegram, or telephone of an extension of the closing date. Telephonic, 
facsimile, and telegraphic notices shall be confirmed in the written 
amendment to the solicitation. The contracting officer shall not award a 
contract unless any amendments made to an RFP have been issued in 
sufficient time to be considered by prospective offerors.
    (c) Any information given to a prospective offeror or quoter shall 
be furnished promptly to all other prospective offerors or quoters as a 
solicitation amendment if (1) the information is necessary in submitting 
proposals or quotations or (2) the lack of such information would be 
prejudicial to a prospective offeror or quoter.
[48 FR 42187, Sept. 19, 1983, as amended at 60 FR 34738, July 3, 1995; 
62 FR 12693, Mar. 17, 1997]

15.411  Receipt of proposals and quotations.

    (a) The procedures for receipt and handling of proposals and 
quotations should be similar to those prescribed in 14.401. Proposals 
and quotations shall be marked with the date and time of receipt.
    (b) After receipt, proposals and quotations shall be safeguarded 
from unauthorized disclosure. Classified proposals and quotations

[[Page 289]]

shall be handled in accordance with agency regulations. Also see OMB 
Circular No. A-76, the supplemental Handbook, and subpart 7.3, 
Contractor Versus Government Performance, for safeguarding cost-
comparison information.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 61 FR 31619, June 20, 1996]

15.412  Late proposals, modifications, and withdrawals of proposals.

    (a) Modification, as used in this section, means a modification of a 
proposal, including a final modification in response to the contracting 
officer's request for best and final offers. The term does not include 
normal revisions of offers made during the conduct of negotiations by 
offerors selected for discussion.
    (b) Offerors are responsible for submitting offers, and any 
modifications to them, so as to reach the Government office designated 
in the solicitation on time. If an emergency or unanticipated event 
interrupts normal Government processes so that proposals cannot be 
received at the office designated for receipt of proposals by the exact 
time specified in the solicitation, and urgent Government requirements 
preclude amendment of the solicitation closing date as usually 
prescribed by 15.410, the time specified for receipt of proposals will 
be deemed to be extended to the same time of day specified in the 
solicitation on the first work day on which normal Government processes 
resume. If no time is specified in the solicitation, the time for 
receipt is 4:30 p.m., local time, for the designated Government office 
on the date that proposals are due.
    (c) Proposals, and modifications to them, that are received in the 
designated Government office after the exact time specified are late and 
shall be considered only if (1) they are received before award is made, 
and (2) the circumstances meet the specific requirements of the 
provision at 52.215-10, Late Submissions, Modifications, and Withdrawals 
of Proposals.
    (d) When a late proposal or modification is received and it is clear 
from available information that it cannot be considered for award, the 
contracting officer shall promptly notify the offeror that it was 
received late and will not be considered. The notice need not be given 
when the proposed contract is to be awarded within a few days and the 
notice prescribed in 15.1003(b)(1) would suffice.
    (e) When a late proposal or modification is transmitted to a 
contracting officer in the United States or Canada by registered or 
certified mail or by U.S. Postal Service Express Mail Next Day Service-
Post Office to Addressee and is received before award, the offeror shall 
be promptly notified substantially in accordance with the notice in 
14.304-2, appropriately modified to relate to proposals.
    (f) Late proposals and modifications that are not considered shall 
be held unopened, unless opened for identification, until after award 
and then retained with other unsuccessful proposals.
    (g) The following shall, if available, be included in the 
contracting office files for each late proposal, quotation, or 
modification:
    (1) The date of mailing, filing, or delivery.
    (2) The date and hour of receipt.
    (3) Whether or not considered for award.
    (4) The envelope, wrapper, or other evidence of date of submission.
    (h) Upon withdrawal of an electronically transmitted proposal, the 
data received shall not be viewed and shall be purged from primary and 
backup data storage systems.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985; 
54 FR 48985, Nov. 28, 1989; 60 FR 34738, July 3, 1995; 60 FR 42655, Aug. 
16, 1995; 61 FR 31619, June 20, 1996; 61 FR 69289, 69293, Dec. 31, 1996]

15.413  Disclosure and use of information before award.

    See 3.104 for statutory and regulatory requirements related to the 
disclosure of contractor bid or proposal information source selection 
information.
[62 FR 233, Jan. 2, 1997]

15.413-1  Alternate I.

    (a) After receipt of proposals, none of the information contained in 
them or concerning the number or identity of offerors shall be made 
available to the public or to anyone in the Government except as 
otherwise authorized in accordance with 3.104 (for procedures regarding 
requests for information from Members of Congress, see 5.403).
    (b) During the preaward or preacceptance period of a negotiated 
acquisition, only the contracting officer, the contracting officer's 
superiors having contractual authority, and others specifically 
authorized shall transmit technical or other information and conduct 
discussions with prospective contractors. Information shall not be 
furnished to a prospective contractor if, alone or together with other 
information, it may afford the prospective contractor an advantage over 
others (see 15.610, Written and oral discussion). However, general 
information that is not prejudicial to others may be furnished upon 
request.
    (c) Prospective contractors and subcontractors may place 
restrictions on the disclosure and use of data in proposals and 
quotations (see 3.104 and the provision at 52.215-12, Restriction on 
Disclosure and Use of Data). Contracting officers shall not exclude 
proposals from consideration merely because they restrict disclosure and 
use of

[[Page 290]]

data, nor shall they be prejudiced by that restriction. The portions of 
the proposal that are so restricted (except for information that is also 
obtained from another source without restriction) shall be used only for 
evaluation and shall not be disclosed outside the Government without 
permission of the prospective contractor (but see subpart 24.2, Freedom 
of Information Act).
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 36795, Sept. 6, 1990]

15.413-2  Alternate II.

    Agency regulations may provide that the following alternate 
procedures may be used instead of those specified in 15.413-1.
    (a) Proposals furnished to the Government are to be used for 
evaluation purposes only. Disclosure outside the Government for 
evaluation is permitted only to the extent authorized by, and in 
accordance with the procedures in, 15.413-2(f).
    (b) While the Government's limited use of proposals does not require 
that the proposal bear a restrictive notice, proposers should, if they 
desire to maximize protection of their trade secrets or confidential or 
privileged commercial and financial information contained in them, apply 
the restrictive notice prescribed in the provision at 52.215-12, 
Restriction on Disclosure and Use of Data, to such information (also see 
15.407(c)(8)). In any event, information contained in proposals will be 
protected to the extent permitted by law, but the Government assumes no 
liability for the use or disclosure of information (data) not made 
subject to such notice in accordance with the provision at 52.215-12.
    (c) If proposals are received with more restrictive conditions than 
those in the provision at 52.215-12, the contracting officer or 
coordinating officer shall inquire whether the submitter is willing to 
accept the conditions of the provision of 52.215-12. If the submitter 
does not, the contracting officer or coordinating officer shall, after 
consultation with counsel, either return the proposal or accept it as 
marked. Contracting officers shall not exclude from consideration any 
proposals merely because they contain an authorized or agreed-to notice, 
nor shall they be prejudiced by such notice.
    (d) Release of proposal information (data) before decision as to the 
award of a contract, or the transfer of valuable and sensitive 
information between competing offerors during the competitive phase of 
the acquisition process, would seriously disrupt the Government's 
decision-making process and undermine the integrity of the competitive 
acquisition process, thus adversely affecting the Government's ability 
to solicit competitive proposals and award a contract which would best 
meet the Government's needs and serve the public interest. Therefore, to 
the extent permitted by law, none of the information (data) contained in 
proposals (except as authorized in agency regulations) is to be 
disclosed outside the Government before the Government's decision as to 
the award of a contract. In the event an outside evaluation is to be 
obtained, it shall be only to the extent authorized by, and in 
accordance with the procedures of, 15.413-2(f).
    (e) In order to assure that solicited proposals (whether bearing a 
restrictive notice or not) are properly handled, agency implementing 
regulations may require the following Government notice to be placed on 
the cover sheet upon their receipt. (This notice is required for all 
unsolicited proposals, see 15.508.) This is a Government notice for 
internal handling purposes and does not affect any obligations or rights 
the Government may have with regard to the use or disclosure of any 
information (data) contained in the proposal or quotation.

                GOVERNMENT NOTICE FOR HANDLING PROPOSALS

This proposal shall be used and disclosed for evaluation purposes only, 
and a copy of this Government notice shall be applied to any 
reproduction or abstract thereof. Any authorized restrictive notices 
which the submitter places on this proposal shall also be strictly 
complied with. Disclosure of this proposal outside the Government for 
evaluation purposes shall be made only to the extent authorized by, and 
in accordance with, the procedures in (cite agency regulations 
implementing 15.413-2(f)).

    If agency implementing regulations do not authorize release of 
proposals outside the Government for evaluation purposes, the last 
sentence of the foregoing Government notice is to be deleted.
    (f) If authorized in agency implementing regulations, agencies may 
release proposals outside the Government for evaluation, consistent with 
the following:
    (1) Decisions to release proposals outside the Government for 
evaluation purposes shall be made by the agency head or designee;
    (2) Written agreement must be obtained from the evaluator that the 
information (data) contained in the proposal will be used only for 
evaluation purposes and will not be further disclosed;
    (3) Any authorized restrictive legends placed on the proposal by the 
prospective contractor or subcontractor or by the Government shall be 
applied to any reproduction or abstracted information made by the 
evaluator;
    (4) Upon completing the evaluation, all copies of the proposal, as 
well as any abstracts thereof, shall be returned to the Government 
office which initially furnished them for evaluation; and

[[Page 291]]

    (5) All determinations to release the proposal outside the 
Government take into consideration requirements for avoiding 
organizational conflicts of interest and the competitive relationship, 
if any, between the prospective contractor or subcontractor and the 
prospective outside evaluator.
    (g) The submitter of any proposal shall be provided notice adequate 
to afford an opportunity to take appropriate action before release of 
any information (data) contained therein pursuant to a request under the 
Freedom of Information Act (5 U.S.C. 552); and, time permitting, the 
submitter should be consulted to obtain assistance in determining the 
eligibility of the information (data) in question as an exemption under 
the Act. (See also subpart 24.2, Freedom of Information Act.)
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 36795, Sept. 6, 1990; 
62 FR 233, Jan. 2, 1997]

15.414  Forms.

    (a) Standard Form 33 (SF 33), Solicitation, Offer and Award (see 
53.301-33), shall be used in connection with the solicitation and award 
of negotiated contracts. Award may be made using the Award portion of SF 
33, except as provided in paragraph (b) of this section.
    (b) Standard Form 26 (SF 26), Award/Contract (see 53.301-26), shall 
be used when entering into negotiated contracts when the prospective 
contractor has amended its offer, unless--
    (1) The contract is for the construction, alteration, or repair of 
buildings, bridges, roads, or other real property;
    (2) The acquisition is one for which the FAR prescribes special 
contract forms; or
    (3) Use of a purchase order is appropriate.
    (c) Standard Form 1447 (SF 1447), Solicitation/Contract (see 53.301-
1447), shall be used in connection with negotiated acquisitions that use 
the simplified contract format and may be used in lieu of the SF 26 or 
SF 33 for other acquisitions. Award is generally made using the award 
portion of the SF 1447 (see 53.215-1).
[54 FR 48985, Nov. 28, 1989]

15.415  Economic purchase quantities (supplies).

    Contracting officers shall comply with the economic purchase 
quantity planning requirements for supplies in subpart 7.2. See 7.203 
for instructions regarding use of the provision at 52.207-4, Economic 
Purchase Quantity--Supplies, and 7.204 for guidance on handling 
responses to that provision.
[50 FR 35479, Aug. 30, 1985]

15.416  Simplified contract format.

    For firm-fixed-price or fixed-price with economic price adjustment 
acquisitions of supplies and services, the contracting officer may use 
the simplified contract format in lieu of the uniform contract format 
(see 14.201-1).
[54 FR 48985, Nov. 28, 1989]

                   Subpart 15.5--Unsolicited Proposals

15.500  Scope of subpart.

    This subpart prescribes policies and procedures for submission, 
receipt, evaluation, and acceptance of unsolicited proposals. It does 
not govern the competitive selection of basic research proposals (see 
6.102(d)(2)).
[50 FR 52433, Dec. 23, 1985]

15.501  Definitions.

    Advertising material, as used in this subpart, means material 
designed to acquaint the Government with a prospective contractor's 
present products or potential capabilities, or to determine the 
Government's interest in buying these products.
    Commercial item offer means an offer of a commercial item the vendor 
wishes to see introduced in the Government's supply system as an 
alternate or replacement for an existing supply item.
    Contribution, as used in this subpart, means a concept, suggestion, 
or idea presented to the Government for its use with no indication that 
the source intends to devote any further effort to it on the 
Government's behalf.
    Coordinating office, as used in this subpart, means a point of 
contact established within the agency to coordinate the receipt, 
evaluation, and disposition of unsolicited proposals.
    Technical correspondence, as used in this subpart, means written 
requests for information regarding Government interest in research 
areas, submissions of research descriptions, preproposal explorations, 
and other written technical inquiries.
    Unsolicited proposal means a written proposal that is submitted to 
an agency on the initative of the submitter for the purpose of obtaining 
a contract with the Government and which is not in response to a formal 
or informal request (other than an agency request constituting a 
publicized general statement of needs).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 48248, Sept. 18, 1995]

15.502  Policy.

    Agencies may accept unsolicited proposals in accordance with 15.507. 
To award a contract based on an unsolicited proposal without providing 
for full and open competition requires that appropriate authority exists 
in subpart 6.3. In this connection, 6.302-1(a)(2)(i)

[[Page 292]]

provides special authority for unsolicited research proposals.
[50 FR 52433, Dec. 23, 1985]

15.503  General.

    (a) Unsolicited proposals are a valuable means for Government 
agencies to obtain innovative or unique methods or approaches to 
accomplishing their missions from sources outside the Government.
    (b) Advertising material, commercial item offers, contributions, or 
technical correspondence as defined in 15.501 are not unsolicited 
proposals.
    (c) A valid unsolicited proposal must--
    (1) Be innovative and unique;
    (2) Be independently originated and developed by the offeror;
    (3) Be prepared without Government supervision;
    (4) Include sufficient detail to permit a determination that 
Government support could be worthwhile and the proposed work could 
benefit the agency's research and development or other mission 
responsibilities; and
    (5) Not be an advance proposal for a known agency requirement that 
can be acquired by competitive methods.
    (d) Unsolicited proposals in response to a publicized general 
statement of agency needs are considered to be independently originated.
    (e) Agencies that receive unique and innovative unsolicited 
proposals not related to their missions may identify for the offeror 
other agencies whose missions bear a reasonable relationship to the 
proposal's subject matter.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
51 FR 52433, Dec. 23, 1985; 60 FR 48248, Sept. 18, 1995]

15.504  Advance guidance.

    (a) Agencies shall encourage potential offerors to make preliminary 
contacts with appropriate agency personnel before expending extensive 
effort on a detailed unsolicited proposal or submitting proprietary data 
to the Government. These preliminary contacts should include--
    (1) Inquiries as to the general need for the type of effort 
contemplated; and
    (2) Contacts with agency technical personnel for the limited purpose 
of obtaining an understanding of the agency mission and responsibilities 
relative to the type of effort contemplated.
    (b) Agencies shall make available to potential offerors of 
unsolicited proposals at least the following free written information:
    (1) Definition (see 15.501), and content (see 15.505), of an 
unsolicited proposal acceptable for formal evaluation.
    (2) Requirements concerning responsible prospective contractors (see 
subpart 9.1), and organizational conflicts of interest (see subpart 
9.5).
    (3) Role of technical correspondence before proposal preparation.
    (4) Agency contact points for information regarding advertising, 
contributions, solicitation mailing lists, and other types of 
transactions frequently mistaken for unsolicited proposals.
    (5) Procedures for submission and evaluation of unsolicited 
proposals.
    (6) Information sources on agency objectives and areas of potential 
interest.
    (7) Instructions for identifying and marking proprietary information 
so that restrictive legends conform to 15.509.
    (c) Agency personnel shall conduct personal contacts without making 
any agency commitments concerning the acceptance of unsolicited 
proposals.

15.505  Content of unsolicited proposals.

    Unsolicited proposals should contain the following information to 
permit consideration in an objective and timely manner:
    (a) Basic information including--
    (1) Offeror's name and address and type of organization; e.g., 
profit, nonprofit, educational, small business;
    (2) Names and telephone numbers of technical and business personnel 
to be contacted for evaluation or negotiation purposes;
    (3) Identity of proprietary data to be used only for evaluation 
purposes;
    (4) Names of other Federal, State, local agencies, or parties 
receiving the proposal or funding the proposed effort;
    (5) Date of submission; and
    (6) Signature of a person authorized to represent and contractually 
obligate the offeror.
    (b) Technical information including--
    (1) Concise title and abstract (approximately 200 words) of the 
proposed effort;
    (2) A reasonably complete discussion stating the objectives of the 
effort or activity, the method of approach and extent of effort to be 
employed, the nature and extent of the anticipated results, and the 
manner in which the work will help to support accomplishment of the 
agency's mission;
    (3) Names and biographical information on the offeror's key 
personnel who would be involved, including alternates; and
    (4) Type of support needed from the agency; e.g., facilities, 
equipment, materials, or personnel resources.
    (c) Supporting information including--
    (1) Proposed price or total estimated cost for the effort in 
sufficient detail for meaningful evaluation;
    (2) Period of time for which the proposal is valid (a six month 
minimum is suggested);
    (3) Type of contract preferred;
    (4) Proposed duration of effort;

[[Page 293]]

    (5) Brief description of the organization, previous experience in 
the field, and facilities to be used; and
    (6) Required statements, if applicable, about organizational 
conflicts of interest, security clearances, and environmental impacts.

15.506  Agency procedures.

    (a) Agencies shall establish procedures, including assurance of 
accountability, for controlling the receipt, evaluation, and timely 
disposition of proposals consistent with the requirements of this 
subpart. The procedures shall include controls on the reproduction and 
disposition of proposal material, particularly data identified by the 
offeror as subject to duplication, use, or disclosure restrictions.
    (b) Agencies shall establish contact points (see 15.504) to 
coordinate the receipt and handling of unsolicited proposals. Contact 
points outside agency contracting offices shall coordinate with 
qualified contracting personnel.
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 38516, Sept. 18, 1990]

15.506-1  Receipt and initial review.

    (a) Before initiating a comprehensive evaluation, the agency contact 
point shall determine if the unsolicited proposal--
    (1) Contains sufficient technical and cost information;
    (2) Has been approved by a responsible official or other 
representative authorized to contractually obligate the offeror; and
    (3) Complies with the marking requirements of 15.509.
    (b) If the proposal meets these requirements, the contact point 
shall promptly acknowledge and process the proposal. If it does not, the 
contact point shall provide the offeror an opportunity to submit the 
required data.
    (c) Agencies are not required to perform comprehensive evaluations 
of unsolicited proposals not related to their missions. If such 
proposals are received, the agency contact point shall promptly reply to 
the offeror, state how the agency interprets the proposal, and why it is 
not being evaluated.

15.506-2  Evaluation.

    (a) Comprehensive evaluations shall be coordinated by the agency 
contact point, who shall attach or imprint on each unsolicited proposal 
circulated for evaluation the legend required by 15.509(d). When 
performing a comprehensive evaluation of an unsolicited proposal, 
evaluators shall consider the following factors, in addition to any 
others appropriate for the particular proposal:
    (1) Unique and innovative methods, approaches, or concepts 
demonstrated by the proposal.
    (2) Overall scientific, technical, or socio-economic merits of the 
proposal.
    (3) Potential contribution of the effort to the agency's specific 
mission.
    (4) The offeror's capabilities, related experience, facilities, 
techniques, or unique combinations of these which are integral factors 
for achieving the proposal objectives.
    (5) The qualifications, capabilities, and experience of the proposed 
principal investigator, team leader, or key personnel who are critical 
in achieving the proposal objectives.
    (b) The evaluators shall notify the coordinating office of their 
conclusions and recommendations when the evaluation is completed.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]

15.507  Contracting methods.

    (a) A favorable comprehensive evaluation of an unsolicited proposal 
does not, in itself, justify awarding a contract without providing for 
full and open competition. Agency contact points shall return an 
unsolicited proposal to the offeror, citing reasons, when its 
substance--
    (1) Is available to the Government without restriction from another 
source;
    (2) Closely resembles a pending competitive acquisition requirement; 
or
    (3) Does not demonstrate an innovative and unique method, approach, 
or concept.
    (b) The contracting officer may commence negotiation only when--
    (1) The unsolicited proposal has received a favorable comprehensive 
evaluation;
    (2) The unsolicited proposal is not of the character described in 
15.507(a);
    (3) The agency technical office sponsoring the contract supports its 
recommendation with facts and circumstances that preclude competition, 
including consideration of the evaluation factors in 15.506-2(a), 
furnishes the necessary funds, and provides the certification required 
by 6.303-2(b);
    (4) The contracting officer has complied with the synopsis 
requirements of subpart 5.2; and
    (5) The contracting officer has executed any justification and 
obtained any approval or determination and findings that is required by 
subpart 6.3. (For unsolicited research proposals, see 6.302-1(a)(2)(i). 
A valid unsolicited proposal for other than research may be accepted 
only if otherwise permissible under other provisions of subpart 6.3.)
    (c) If the unsolicited proposal is acceptable for award without 
competition, the agency and offeror shall use the proposal as the basis 
for negotiation.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52433, Dec. 23, 1985]

[[Page 294]]

15.508  Prohibitions.

    (a) Government personnel shall not use any data, concept, idea, or 
other part of an unsolicited proposal as the basis, or part of the 
basis, for a solicitation or in negotiations with any other firm unless 
the offeror is notified of and agrees to the intended use. However, this 
prohibition does not preclude using any data, concept, or idea available 
to the Government from other sources without restriction.
    (b) Government personnel shall not disclose restrictively marked 
information (see 15.509 and 3.104) included in an unsolicited proposal. 
The disclosure of such information concerning trade secrets, processes, 
operations, style of work, apparatus, and other matters, except as 
authorized by law, may result in criminal penalties under 18 U.S.C. 
1905.
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 36795, Sept. 6, 1990]

15.509  Limited use of data.

    (a) An unsolicited proposal may include data that the offeror does 
not want disclosed for any purpose other than evaluation. If the offeror 
wishes to restrict the proposal, the title page must be marked with the 
following legend:

                       USE AND DISCLOSURE OF DATA

    The data in this proposal shall not be disclosed outside the 
Government and shall not be duplicated, used, or disclosed in whole or 
in part for any purpose other than to evaluate the proposal; provided, 
that if a contract is awarded to this offeror as a result of or in 
connection with the submission of these data, the Government shall have 
the right to duplicate, use, or disclose the data to the extent provided 
in the contract. This restriction does not limit the Government's right 
to use information contained in the data if it is obtainable from 
another source without restriction. The data subject to this restriction 
are contained in Sheets --------------------.

    (b) The offeror shall also mark each restricted sheet with the 
following legend:

    Use or disclosure of proposal data is subject to the restriction on 
the title page of this Proposal.

    (c) The coordinating office shall return to the offeror any 
unsolicited proposal marked with a legend different from that provided 
in 15.509(a). The return letter will state that the proposal cannot be 
considered because it is impracticable for the Government to comply with 
the legend and that the agency will consider the proposal if it is 
resubmitted with the proper legend.
    (d) The coordinating office shall place a cover sheet on the 
proposal or clearly mark it as follows, unless the offeror clearly 
states in writing that no restrictions are imposed on the disclosure or 
use of the data contained in the proposal:

                          UNSOLICITED PROPOSAL

                           USE OF DATA LIMITED

    All Government personnel must exercise extreme care to ensure that 
the information in this proposal is not disclosed to an individual who 
has not been authorized access to such data in accordance with 3.104, 
and is not duplicated, used, or disclosed in whole or in part for any 
pupose other than evaluation of the proposal, without the written 
permission of the offeror. If a contract is awarded on the basis of this 
proposal, the terms of the contract shall control disclosure and use.
    This notice does not limit the Government's right to use information 
contained in the proposal if it is obtainable from another source 
without restriction.
    This is a Government notice, and shall not by itself be construed to 
impose any liability upon the Government or Government personnel for 
disclosure or use of data contained in this proposal.

    (e) The above notice is used solely as a manner of handling 
unsolicited proposals that will be compatible with this subpart. 
However, the use of this notice shall not be used to justify the 
withholding of a record nor to improperly deny the public access to a 
record where an obligation is imposed on an agency by the Freedom of 
Information Act, 5 U.S.C. 552, as amended. A prospective offeror should 
identify trade secrets, commercial or financial information, and 
privileged or confidential information to the Government (see 
15.509(a)).
    (f) When an agency receives an unsolicited proposal without any 
restrictive legend from an educational or nonprofit organization or 
institution, and an evaluation outside the Government is necessary, the 
coordinating office shall--
    (1) Attach a cover sheet clearly marked with the legend in 
15.509(d);
    (2) Change the beginning of this legend to read ``All Government and 
non-Government personnel....'';
    (3) Delete the words ``is not disclosed outside the Government 
and''; and
    (4) Require any non-government evaluator to give a written agreement 
stating that data in the proposeal will not be disclosed to others 
outside the Government.
    (g) If the proposal is received with the restrictive legend 
(15.509(a)), the modified cover sheet shall also be used and permission 
shall be obtained from the offeror before release of the proposal for 
outside evaluation.

[[Page 295]]

    (h) When an agency receives an unsolicited proposal with or without 
a restrictive legend from other than an educational or nonprofit 
organization or institution, and evaluation by Government personnel 
outside the agency or by experts outside of the Government is necessary, 
written permission must be obtained from the offeror before release of 
the proposal for evaluation. The coordinating office shall--
    (1) Clearly mark the cover sheet with the legend in 15.509(d) or as 
modified in 15.509(f); and
    (2) Obtain a written agreement from any non-Government evaluator 
stating that data in the proposal will not be disclosed to persons 
outside the Government.
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 36795, Sept. 6, 1990; 
62 FR 233, Jan. 2, 1997]

                     Subpart 15.6--Source Selection

15.600  Scope of subpart.

    This subpart prescribes policies and procedures for selection of a 
source or sources in competitive negotiated acquisitions. Formal source 
selection procedures, involving boards, councils, or other groups for 
proposal evaluation, are in 15.612. Alternative procedures that limit 
discussions with offerors during the competition are discussed in 
15.613.

15.601  Definitions.

    Clarification, as used in this subpart, means communication with an 
offeror for the sole purpose of eliminating minor irregularities, 
informalities, or apparent clerical mistakes in the proposal. It is 
achieved by explanation or substantiation, either in response to 
Government inquiry or as initiated by the offeror. Unlike discussion 
(see definition below), clarification does not give the offeror an 
opportunity to revise or modify its proposal, except to the extent that 
correction of apparent clerical mistakes results in a revision.
    Deficiency, as used in this subpart, means any part of a proposal 
that fails to satisfy the Government's requirements.
    Discussion, as used in this subpart, means any oral or written 
communication between the Government and an offeror (other than 
communications conducted for the purpose of minor clarification), 
whether or not initiated by the Government, that (a) involves 
information essential for determining the acceptability of a proposal, 
or (b) provides the offeror an opportunity to revise or modify its 
proposal.
    Source reduction, as used in this subpart, means any practice which 
(a) rduces the amount of any hazardous substance, pollutant, or 
contaminant entering any waste stream or otherwise released into the 
environment prior to recycling, treatment, or disposal; and (b) reduces 
the hazards to public health and the environment associated with the 
release of such substances, pollutants, or contaminants.
    Source selection authority means the Government official in charge 
of selecting the source. This title is most often used when the 
selection process is formal and the official is someone other than the 
contracting officer.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 28496, May 31, 1995; 62 FR 44810, Aug. 
22, 1997]

    Effective Date Note:  At 62 FR 44180, Aug. 22, 1997, section 15.601 
was amended by removing the definition Source reduction, effective Oct. 
21, 1997.

15.602  Applicability.

    (a) This subpart applies to negotiated contracting when source 
selection is based on--
    (1) Cost or price competition between proposals that meet the 
Government's minimum requirements stated in the solicitation; or
    (2) Competition involving an evaluation and comparison of cost or 
price and other factors.
    (b) This subpart does not apply to acquisitions using simplified 
acquisition procedures.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 34756, July 3, 1995; 61 FR 39197, July 
26, 1996]

15.603  Purpose.

    Source selection procedures are designed to--
    (a) Maximize competition;
    (b) Minimize the complexity of the solicitation, evaluation, and the 
selection decision;
    (c) Ensure impartial and comprehensive evaluation of offerors' 
proposals; and
    (d) Ensure selection of the source whose proposal has the highest 
degree of realism and whose performance is expected to best meet stated 
Government requirements.

15.604  Responsibilities.

    (a) Agency heads or their designees are responsible for source 
selection.
    (b) The cognizant technical official is responsible for the 
technical and past performance requirements related to the source 
selection process.
    (c) The contracting officer is responsible for contractual actions 
related to the source selection process, including--
    (1) Issuing solicitations to which this subpart applies in 
accordance with subpart 15.4 and this subpart;

[[Page 296]]

    (2) Conducting or coordinating cost or price analyses as prescribed 
in subpart 15.8;
    (3) Conducting or controlling all negotiations concerning cost or 
price, technical requirements, past performance, and other terms and 
conditions; and
    (4) Selecting the source for contract award, unless another official 
is designated as the source selection authority.
[48 FR 42187, Sept. 19, 1983, as amended at 60 FR 16718, March 31, 1995]

15.605  Evaluation factors and subfactors.

    (a) The factors and subfactors that will be considered in evaluating 
proposals shall be tailored to each acquisition and shall include only 
those factors that will have an impact on the source selection decision.
    (b)(1) The evaluation factors and subfactors that apply to an 
acquisition and the relative importance of those factors and subfactors 
are within the broad discretion of agency acquisition officials except 
that--
    (i) Price or cost to the Government shall be included as an 
evaluation factor in every source selection.
    (ii) Past performance shall be evaluated in all competitively 
negotiated acquisitions expected to exceed $100,000 not later than 
January 1, 1999, unless the contracting officer documents in the 
contract file the reasons why past performance should not be evaluated. 
Agencies may develop their own phase-in schedule for past performance 
evaluations which meets or exceeds the following milestones: All 
solicitations with an estimated value in excess of (A) $1,000,000 issued 
on or after July 1, 1995; (B) $500,000 issued on or after July 1, 1997; 
and (C) $100,000 issued on or after January 1, 1999. Past performance 
may be evaluated in competitively negotiated acquisitions estimated at 
$100,000 or less at the discretion of the contracting officer.
    (iii) Quality shall be addressed in every source selection through 
inclusion in one or more of the non-cost evaluation factors or 
subfactors, such as past performance, technical excellence, management 
capability, personnel qualifications, prior experience, and schedule 
compliance.
    (iv) Environmental objectives, such as promoting waste reduction and 
energy efficiency (see part 23), also shall be considered in every 
source selection, when appropriate. These considerations may be 
expressed in terms such as resource or energy conservation, pollution 
prevention, waste minimization, and recovered material content.
    (2) Any other relevant factors or subfactors, such as cost realism, 
may also be included.
    (c) In awarding a cost-reimbursement contract, the cost proposal 
should not be controlling, since advance estimates of cost may not be 
valid indicators of final actual costs. There is no requirement that 
cost-reimbursement contracts be awarded on the basis of lowest proposed 
cost, lowest proposed fee, or the lowest total proposed cost plus fee. 
The award of cost-reimbursement contracts primarily on the basis of 
estimated costs may encourage the submission of unrealistically low 
estimates and increase the likelihood of cost overruns. The primary 
consideration should be which offeror can perform the contract in a 
manner most advantageous to the Government, as determined by evaluation 
of proposals according to the established evaluation criteria.
    (d)(1) The solicitation should be structured to provide for the 
selection of the source whose proposal offers the greatest value to the 
Government in terms of performance, risk management, cost or price, and 
other factors. At a minimum, the solicitation shall clearly state the 
significant evaluation factors, such as cost or price, cost or price-
related factors, past performance and other non-cost or non-price-
related factors, and any significant subfactors, that will be considered 
in making the source selection, and their relative importance (see 
15.406-5(c)). The solicitation shall inform offerors of minimum 
requirements that apply to particular evaluation factors and significant 
subfactors. Further, the solicitation shall state whether all evaluation 
factors other than cost or price, when combined, are--
    (i) Significantly more important than cost or price;
    (ii) Approximately equal to cost or price; or
    (iii) Significantly less important than cost or price.
    (2) The solicitation may elaborate on the relative importance of 
factors and subfactors at the discretion of the contracting officer. 
Agencies may elect to assign numerical weights to evaluation factors and 
employ those weights when evaluating proposals. Numerical weights need 
not be disclosed in solicitations; however, nothing precludes an agency 
from disclosing the weights on a case-by-case basis. The solicitation 
may state that award will be made to the offeror that meets the 
solicitation's minimum criteria for acceptable award at the lowest cost 
or price.
    (e) In addition to other factors, offers will be evaluated on the 
basis of advantages and disadvantages to the Government that might 
result from making more than one award (see 15.407(h)). The contracting 
officer shall assume for the purpose of making multiple awards that $500 
would be the administrative cost to the Government for issuing and 
administering each contract awarded under a solicitation. Individual 
awards shall be for the items or combination of items that result in the 
lowest aggregate cost to the Government, including the assumed 
administrative costs.

[[Page 297]]

[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 19715, May 30, 1986; 52 FR 21886, June 
9, 1987; 52 FR 28225, July 28, 1987; 53 FR 27462, July 20, 1988; 55 FR 
38516, Sept. 18, 1990; 56 FR 41733, Aug. 22, 1991; 60 FR 16719, Mar. 31, 
1995; 60 FR 28496, May 31, 1995; 60 FR 42655, Aug. 16, 1995; 62 FR 
44810, Aug. 22, 1997]
    Effective Date Note:  At 62 FR 44810, Aug. 22, 1997, section 15.605 
was amended by revising paragraph (b)(1)(iv), effective Oct. 21, 1997. 
For the convenience of the user, the superseded text is set forth as 
follows:

15.605  Evaluation factors and subfactors.

                                * * * * *

    (b) * * *
    (1) * * *
    (iv) Environmental objectives, such as promoting waste reduction, 
source reduction, energy efficiency, and maximum practicable recovered 
material content (see part 23), shall also be considered in every source 
selection, when appropriate.

                                * * * * *



15.606  Changes in Government requirements.

    (a) When, either before or after receipt of proposals, the 
Government changes, relaxes, increases, or otherwise modifies its 
requirements, the contracting officer shall issue a written amendment to 
the solicitation. When time is of the essence, oral advice of changes 
may be given if the changes involved are not complex and all firms to be 
notified (see paragraph (b) below) are notified as near to the same time 
as possible. The contracting officer shall make a record of the oral 
advice and promptly confirm that advice in writing (see 15.410).
    (b) In deciding which firms to notify of a change, the contracting 
officer shall consider the stage in the acquisition cycle at which the 
change occurs and the magnitude of the change, as follows:
    (1) If proposals are not yet due, the amendment shall be sent to all 
firms that have received a solicitation.
    (2) If the time for receipt of proposals has passed but proposals 
have not yet been evaluated, the amendment should normally be sent only 
to the responding offerors.
    (3) If the competitive range (see 15.609(a)) has been established, 
only those offerors within the competitive range shall be sent the 
amendment.
    (4) If a change is so substantial that it warrants complete revision 
of a solicitation, the contracting officer shall cancel the original 
solicitation and issue a new one, regardless of the stage of the 
acquisition. The new solicitation shall be issued to all firms 
originally solicited and to any firms added to the original list.
    (c) If the proposal considered to be most advantageous to the 
Government (as determined according to the established evaluation 
criteria) involves a departure from the stated requirements, the 
contracting officer shall provide all offerors an opportunity to submit 
new or amended proposals on the basis of the revised requirements; 
provided, that this can be done without revealing to the other offerors 
the solution proposed in the original departure or any other information 
that is entitled to protection (see 15.407(c)(8) and 15.610(d)).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



15.607  Disclosure of mistakes before award.

    (a) Contracting officers shall examine all proposals for minor 
informalities or irregularities and apparent clerical mistakes (see 
14.405 and 14.407). Communication with offerors to resolve these matters 
is clarification, not discussion within the meaning of 15.610. However, 
if the resulting communication prejudices the interest of other 
offerors, the contracting officer shall not make award without 
discussions with all offerors within the competitive range.
    (b) Except as indicated in paragraph (c) below, mistakes not covered 
in paragraph (a) above are usually resolved during discussion (see 
15.610).
    (c) When award without discussion is contemplated, the contracting 
officer shall comply with the following procedure:
    (1) If a mistake in a proposal is suspected, the contracting officer 
shall advise the offeror (pointing out the suspected mistake or 
otherwise identifying the area of the proposal where the suspected 
mistake is) and request verification. If the offeror verifies its 
proposal, award may be made.
    (2) If an offeror alleges a mistake in its proposal, the contracting 
officer shall advise the offeror that it may withdraw the proposal or 
seek correction in accordance with subparagraph (3) below.
    (3) If an offeror requests permission to correct a mistake in its 
proposal, the agency head (or a designee not below the level of chief of 
the contracting office) may make a written determination permitting the 
correction; provided, that (i) both the existence of the mistake and the 
proposal actually intended are established by clear and convincing 
evidence from the solicitation and the proposal and (ii) legal review is 
obtained before making the determination.
    (4) If the determination under subparagraph (3) above cannot be 
made, and the contracting officer still contemplates award without 
discussion, the offeror shall be given

[[Page 298]]

a final opportunity to withdraw or to verify its proposal.
    (5) Verification, withdrawal, or correction under subparagraphs 
(c)(1) through (4) above is not considered discussion within the meaning 
of 15.610. If, however, correction of a mistake requires reference to 
documents, worksheets, or other data outside the solicitation and 
proposal in order to establish the existence of the mistake, the 
proposal intended, or both, the mistake may be corrected only through 
discussions under 15.610.
    (d) If a proposal received at the Government facility in electronic 
format is unreadable to the degree that conformance to the essential 
requirements of the solicitation cannot be ascertained from the 
document, the contracting officer immediately shall notify the offeror 
and provide the opportunity for the offeror to submit clear and 
convincing evidence--
    (1) Of the content of the proposal as originally submitted; and
    (2) That the unreadable condition of the proposal was caused by 
Government software or hardware error, malfunction, or other Government 
mishandling.
[48 FR 42187, Sept. 19, 1983, as amended at 60 FR 34738, 34739, July 3, 
1995]



15.608  Proposal evaluation.

    (a) Proposal evaluation is an assessment of both the proposal and 
the offeror's ability to successfully accomplish the prospective 
contract. An agency shall evaluate competitive proposals solely on the 
factors specified in the solicitation.
    (1) Cost or price evaluation. The contracting officer shall use cost 
or price analysis (see subpart 15.8) to evaluate the cost estimate or 
price, not only to determine whether it is reasonable, but also to 
determine the offeror's understanding of the work and ability to perform 
the contract. The contracting officer shall document the cost or price 
evaluation.
    (2) Past performance evaluation. (i) Past performance information is 
an indicator of an offeror's ability to perform the contract. The 
comparative assessment of past performance information is separate from 
the responsibility determination required under 48 CFR 9.103. The number 
and severity of an offeror's problems, the effectiveness of corrective 
actions taken, the offeror's overall work record, and the age and 
relevance of past performance information should be considered at the 
time it is used.
    (ii) Where past performance is to be evaluated, the solicitation 
shall afford offerors the opportunity to identify Federal, state and 
local government, and private contracts performed by the offerors that 
were similar in nature to the contract being evaluated, so that the 
Government may verify the offerors' past performance on these contracts. 
In addition, at the discretion of the contracting officer, the offerors 
may provide information on problems encountered on the identified 
contracts and the offerors' corrective actions. Past performance 
information may also be obtained from other sources known to the 
Government. The source and type of past performance information to be 
included in the evaluation is within the broad discretion of agency 
acquisition officials and should be tailored to the circumstances of 
each acquisition. Evaluations of contractor performance prepared in 
accordance with 48 CFR part 42, subpart 42.15 are one source of 
performance information which may be used.
    (iii) Firms lacking relevant past performance history shall receive 
a neutral evaluation for past performance.
    (3) Technical evaluation. If any technical evaluation is necessary 
beyond ensuring that the proposal meets the minimum requirements in the 
solicitation, the cognizant technical official, in documenting the 
technical evaluation, shall include--
    (i) The basis for evaluation;
    (ii) An analysis of the technically acceptable and unacceptable 
proposals, including an assessment of each offeror's ability to 
accomplish the technical requirements;
    (iii) A summary, matrix, or quantitative ranking of each technical 
proposal in relation to the best rating possible; and
    (iv) A summary of findings.
    (b) All proposals received in response to a solicitation may be 
rejected if the agency head determines in writing that--
    (1) All otherwise acceptable proposals received are at unreasonably 
prices;
    (2) The proposals were not independently arrived at in open 
competition, were collusive, or were submitted in bad faith (see subpart 
3.3 for reports to be made to the Department of Justice);
    (3) A cost comparison as prescribed in OMB Circular A-76 and subpart 
7.3 shows that performance by the Government is more economical; or
    (4) For other reasons, cancellation is clearly in the Government's 
interest.
    (5) A violation or possible violation of section 27 of the Office of 
Federal Procurement Policy Act, as amended (41 U.S.C. 423), has occurred 
(see 3.104).
    (c) The requirements of 14.408-3, Prompt payment discounts, are 
applicable to negotiated acquisitions.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1740, Jan. 11, 1985; 
50 FR 26903, June 28, 1985; 50 FR 52429, Dec. 23, 1985; 55 FR 36795, 
Sept. 6, 1990; 60 FR 16719, Mar. 31, 1995; 60 FR 34739, July 3, 1995]



15.609  Competitive range.

    (a) The contracting officer shall determine which proposals are in 
the competitive range

[[Page 299]]

for the purpose of conducting written or oral discussion (see 
15.610(b)). The competitive range shall be determined on the basis of 
cost or price and other factors that were stated in the solicitation and 
shall include all proposals that have a reasonable chance of being 
selected for award. When there is doubt as to whether a proposal is in 
the competitive range, the proposal should be included.
    (b) If the contracting officer, after complying with 15.610(b), 
determines that a proposal no longer has a reasonable chance of being 
selected for contract award, it may no longer be considered for 
selection.
    (c) The contracting officer shall notify in writing an unsuccessful 
offeror at the earliest practicable time that its proposal is no longer 
eligible for award (see 15.1003).
    (d) If the contracting officer initially solicits unpriced technical 
proposals, they shall be evaluated to determine which are acceptable to 
the Government or could, after discussion, be made acceptable. After 
necessary discussion of these technical proposals is completed, the 
contracting officer shall (1) solicit price proposals for all the 
acceptable technical proposals which offer the greatest value to the 
Government in terms of performance and other factors and (2) make award 
to the low responsible offeror, either without or following discussion, 
as appropriate. Except in acquisition of architect-engineer services 
(see subpart 36.6), a competitive range determination must include cost 
or price proposals.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 42655, Aug. 16, 1995; 61 FR 69289, 
Dec. 31, 1996]



15.610  Written or oral discussion.

    (a) The requirement in paragraph (b) of this section for written or 
oral discussion need not be applied in acquisitions--
    (1) In which prices are fixed by law or regulation;
    (2) Of the set-aside portion of a partial set-aside; or
    (3) In which the solicitation notified all offerors that the 
Government intends to evaluate proposals and make award without 
discussion, unless the contracting officer determines that discussions 
(other than communications conducted for the purpose of minor 
clarification) are considered necessary (see 15.407(d)(4)). Once the 
Government states its intent to award without discussion, the rationale 
for reversal of this decision shall be documented in the contract file.
    (b) Except as provided in paragraph (a) of this section, the 
contracting officer shall conduct written or oral discussions with all 
responsible offerors who submit proposals within the competitive range. 
The content and extent of the discussions is a matter of the contracting 
officer's judgment, based on the particular facts of each acquisition 
(but see paragraphs (c) and (d) of this section).
    (c) The contracting officer shall--
    (1) Control all discussions;
    (2) Advise the offeror of deficiencies in its proposal so that the 
offeror is given an opportunity to satisfy the Government's 
requirements;
    (3) Attempt to resolve any uncertainties concerning the technical 
proposal and other terms and conditions of the proposal;
    (4) Resolve any suspected mistakes by calling them to the offeror's 
attention as specifically as possible without disclosing information 
concerning other offerors' proposals or the evaluation process (see 
15.607 and part 24);
    (5) Provide the offeror a reasonable opportunity to submit any cost 
or price, technical, or other revisions to its proposal that may result 
from the discussions; and
    (6) Provide the offeror an opportunity to discuss past performance 
information obtained from references on which the offeror had not had a 
previous opportunity to comment. Names of individuals providing 
reference information about an offeror's past performance shall not be 
disclosed.
    (d) The contracting officer and other Government personnel involved 
shall not engage in technical leveling (i.e., helping an offeror to 
bring its proposal up to the level of other proposals through successive 
rounds of discussion, such as by pointing out weaknesses resulting from 
the offeror's lack of diligence, competence, or inventiveness in 
preparing the proposal).
    (e) The following conduct may constitute prohibited conduct under 
section 27 of the Office of Federal Procurement Policy Act, as amended 
(41 U.S.C. 423), and subpart 3.104 to which civil and criminal penalties 
and administrative remedies apply.
    (1) Technical transfusion (i.e., Government disclosure of technical 
information pertaining to a proposal that results in improvement of a 
competing proposal); or
    (2) Auction techniques, such as--
    (i) Indicating to an offeror a cost or price that it must meet to 
obtain further consideration;
    (ii) Advising an offeror of its price standing relative to another 
offeror (however, it is permissible to inform an offeror that its cost 
or price is considered by the Government to be too high or unrealistic); 
and
    (iii) Otherwise furnishing information about other offerors' prices.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 36795, Sept. 6, 1990; 56 FR 41733, 
Aug. 22, 1991; 60 FR 16719, Mar. 31, 1995; 60 FR 42655, Aug. 16, 1995]

[[Page 300]]



15.611  Best and final offers.

    (a) Upon completion of discussions, the contracting officer shall 
issue to all offerors still within the competitive range a request for 
best and final offers. Oral requests for best and final offers shall be 
confirmed in writing.
    (b) The request shall include--
    (1) Notice that discussions are concluded;
    (2) Notice that this is the opportunity to submit a best and final 
offer;
    (3) A common cutoff date and time that allows a reasonable 
opportunity for submission of written best and final offers; and
    (4) Notice that if any modification is submitted, it must be 
received by the date and time specified and is subject to the Late 
Submissions, Modifications, and Withdrawals of Proposals provision of 
the solicitation (see 15.412).
    (c) After receipt of best and final offers, the contracting officer 
should not reopen discussions unless it is clearly in the Government's 
interest to do so (e.g., it is clear that information available at that 
time is inadequate to reasonably justify contractor selection and award 
based on the best and final offers received). If discussions are 
reopened, the contracting officer shall issue an additional request for 
best and final offers to all offerors still within the competitive 
range.
    (d) Following evaluation of the best and final offers, the 
contracting officer (or other designated source selection authority) 
shall select that source whose best and final offer is most advantageous 
to the Government, considering price and the other factors included in 
the solicitation (but see 15.608(b)).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 19715, May 30, 1986; 55 FR 38516, 
Sept. 18, 1990]



15.612  Formal source selection.

    (a) General. A source selection process is considered formal when a 
specific evaluation group structure is established to evaluate proposals 
and select the source for contract award. This approach is generally 
used in high-dollar-value acquisitions and may be used in other 
acquisitions as prescribed in agency regulations. The source selection 
organization typically consists of an evaluation board, advisory 
council, and designated source selection authority at a management level 
above that of the contracting officer.
    (b) Responsibilities. When using formal source selection, the agency 
head or a designee shall ensure that--
    (1) The official to be responsible for the source selection is 
formally designated as the source selection authority;
    (2) The source selection authority formally establishes an 
evaluation group structure appropriate to the requirements of the 
particular solicitation; and
    (3) Before conducting any presolicitation conferences (see 15.404) 
or issuing the solicitation, the source selection authority approves a 
source selection plan.
    (c) Source Selection Plan. As a minimum, the plan shall include--
    (1) A description of the organization structure;
    (2) Proposed presolicitation activities;
    (3) A summary of the acquisition strategy;
    (4) A statement of the proposed evaluation factors and any 
significant subfactors and their relative importance;
    (5) A description of the evaluation process, methodology, and 
techniques to be used; and
    (6) A schedule of significant milestones.
    (d) Source Selection Decision. The source selection authority shall 
use the factors established in the solicitation (see 15.605) to make the 
source selection decision.
    (1) The source selection authority shall consider any rankings and 
ratings, and, if requested, any recommendations prepared by evaluation 
and advisory groups.
    (2) The supporting documentation prepared for the selection decision 
shall show the relative differences among proposals and their strengths, 
weaknesses, and risks in terms of the evaluation factors. The supporting 
documentation shall include the basis and reasons for the decision.
    (e) Safeguarding information. Consistent with part 24 and subpart 
3.104, agencies shall exercise particular care to protect source 
selection information.
    (1) During the source selection process, disclosure of proprietary 
or source selection information shall be governed by 3.104-5 and 
applicable agency regulations. After the source selection, releasing 
authority shall be as prescribed in agency procedures. In all cases, 
agency procedures should prescribe the releasing authority.
    (2) Government personnel shall not contact or visit a contractor 
regarding a proposal under source selection evaluation, without the 
prior approval of the source selection authority (see 3.104 for 
additional restrictions).
    (f) Notices and debriefings. See 15.1003, 15.1004, 15.1005, and 
15.1006.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 36795, Sept. 6, 1990; 56 FR 41733, 
Aug. 22, 1991; 60 FR 42655, Aug. 16, 1995; 61 FR 69289, Dec. 31, 1996]



15.613  Alternative source selection procedures.

    (a) The National Aeronautics and Space Administration (NASA) and the 
Department of Defense (DoD) have developed, and use in appropriate 
situations, source selection procedures that limit discussions with 
offerors during the competition, and that differ from other procedures 
prescribed in subpart 15.6. The procedures are the NASA Source 
Evaluation Board procedures and the DoD Four-

[[Page 301]]

Step Source Selection Procedures. Detailed coverage of these procedures 
is in the respective agency acquisition regulations.
    (b) Other agencies may use either the NASA or DoD procedure as a 
model in developing their own procedures, including applicability 
criteria, consistent with mission needs.



                   Subpart 15.7--Make-or-Buy Programs



15.700  Scope of subpart.

    This subpart prescribes policies and procedures for obtaining, 
evaluating, negotiating, and agreeing to prime contractors' proposed 
make-or-buy programs and for incorporating make-or-buy programs into 
contracts. Consent to subcontracts and review of contractors' purchasing 
systems are separate actions covered in part 44, Subcontracting Policies 
and Procedures.



15.701  Definitions.

    Buy item means an item or work effort to be produced or performed by 
a subcontractor.
    Make item means an item or work effort to be produced or performed 
by the prime contractor or its affiliates, subsidiaries, or divisions.
    Make-or-buy program means that part of a contractor's written plan 
for a contract identifying (a) those major items to be produced or work 
efforts to be performed in the prime contractor's facilities and (b) 
those to be subcontracted.



15.702  General.

    The prime contractor is responsible for managing contract 
performance, including planning, placing, and administering subcontracts 
as necessary to ensure the lowest overall cost and technical risk to the 
Government. Although the Government does not expect to participate in 
every management decision, it may reserve the right to review and agree 
on the contractor's make-or-buy program when necessary to ensure (a) 
negotiation of reasonable contract prices, (b) satisfactory performance, 
or (c) implementation of socioeconomic policies.



15.703  Acquisitions requiring make-or-buy programs.

    (a) Contracting officers shall require prospective contractors to 
submit make-or-buy programs for all negotiated acquisitions whose 
estimated value is $5 million or more, except when the proposed 
contract--
    (1) Is for research or development and--if prototypes or hardware 
are involved--no significant follow-on production under the same 
contract is anticipated;
    (2) Qualifies for an exception from the requirement to submit cost 
or pricing data under 15.804-1; or
    (3) Involves only work that the contracting officer determines is 
not complex.
    (b) Contracting officers may require prospective contractors to 
submit make-or-buy programs for negotiated acquisitions whose estimated 
value is under $5 million only if the contracting officer (1) determines 
that the information is necessary and (2) documents the reasons in the 
contract file.
[48 FR 42187, Sept. 19, 1983, as amended at 54 FR 34753, Aug. 21, 1989; 
60 FR 48211, Sept. 18, 1995]



15.704  Items and work included.

    The information required from a prospective contractor in a make-or-
buy program shall be confined to those major items or work efforts that 
would normally require company management review of the make-or-buy 
decision because they are complex, costly, needed in large quantities, 
or require additional facilities to produce. Raw materials, commercial 
items (see 2.101), and off-the-shelf items (see 46.101) shall not be 
included, unless their potential impact on contract cost or schedule is 
critical. As a rule, make-or-buy programs should not include items or 
work efforts estimated to cost less than (a) 1 percent of the total 
estimated contract price or (b) any minimum dollar amount set by the 
agency, whichever is less.
[48 FR 42187, Sept. 19, 1983, as amended at 51 FR 27119, July 29, 1986; 
52 FR 9038, Mar. 20, 1987; 60 FR 48248, Sept. 18, 1995]



15.705  Solicitation requirements.

    When prospective contractors are required to submit proposed make-
or-buy programs (see 15.703), the solicitation shall include--
    (a) A statement that the program and required supporting information 
must accompany the offer;
    (b) A description of factors to be used in evaluating the proposed 
program, such as capability, capacity, availability of small, small 
disadvantaged and women-owned small business concerns for 
subcontracting, establishment of new facilities in or near labor surplus 
areas, delivery or performance schedules, control of technical and 
schedule interfaces, proprietary processes, technical superiority or 
exclusiveness, and technical risks involved; and
    (c) A requirement that the offeror's program include or be supported 
by the following information:
    (1) A description of each major item or work effort (see 15.704).
    (2) Categorization of each major item or work effort as must make, 
must buy, or can either make or buy.
    (3) For each item or work effort categorized as can either make or 
buy, a proposal either to make or to buy.
    (4) Reasons for (i) categorizing items and work efforts as must make 
or must buy and (ii)

[[Page 302]]

proposing to make or to buy those categorized as can either make or buy. 
The reasons must include the consideration given to the evaluation 
factors described in the solicitation and be in sufficient detail to 
permit the contracting officer to evaluate the categorization or 
proposal.
    (5) Designation of the plant or division proposed to make each item 
or perform each work effort and a statement as to whether the existing 
or proposed new facility is in or near a labor surplus area.
    (6) Identification of proposed subcontractors, if known, and their 
location and size status (see also subpart 19.7 for subcontracting plan 
requirements).
    (7) Any recommendations to defer make-or-buy decisions when 
categorization of some items or work efforts is impracticable at the 
time of submission.
    (8) Any other information the contracting officer requires in order 
to evaluate the program.
[48 FR 42187, Sept. 19, 1983, as amended at 60 FR 48260, Sept. 18, 1995]



15.706  Evaluation, negotiation, and agreement.

    (a) Contracting officers shall evaluate and negotiate proposed make-
or-buy programs as soon as practicable after their receipt and before 
contract award. When the program is to be incorporated in the contract 
(see 15.707) and the design status of the product being acquired does 
not permit accurate precontract identification of major items or work 
efforts, the contracting officer shall notify the prospective contractor 
in writing that these items or efforts, when identifiable, shall be 
added under the clause at 52.215-21, Changes or Additions to Make-or-Buy 
Program.
    (b) In preparing to evaluate and negotiate prospective contractors' 
make-or-buy programs, the contracting officer shall request the 
recommendations of appropriate personnel, including technical and 
program management personnel, and the activity small business 
specialist. The proposed program shall also be made available to the 
Small Business Administration representative, if any, for review and 
recommendation. The contracting officer shall request these 
recommendations early enough to consider them fully before (1) agreeing 
to a make-or-buy program or (2) consenting to a change in a make-or-buy 
program already incorporated in a contract.
    (c) The contractor has the basic responsibility for make-or-buy 
decisions. Therefore, its recommendations should be accepted unless they 
are inconsistent with Government interests or policy.
    (d) Contracting officers shall give primary consideration to the 
effect of the proposed make-or-buy program on price, quality, delivery, 
and performance, including technical or financial risk involved. The 
evaluation of must make and must buy items should normally be confined 
to ensuring that they are properly categorized. The effect of the 
following factors on the Government's interests shall also be 
considered:
    (1) Whether the contractor has justified performing work in plant 
that differs significantly from its normal operations.
    (2) Whether the contractor's recommended program requires Government 
investment in new or other facilities in order for the contractor to 
perform the work in plant. (This additional cost to the Government would 
not be reflected in the contract price.)
    (3) The impact of the contractor's projected plant work loading on 
indirect costs.
    (4) The contractor's consideration of the competence, ability, 
experience, and capacity available in other firms, especially small 
business, small disadvantaged business, or women-owned small business 
concerns.
    (5) The projected location of any required additional facilities in 
or near labor surplus areas.
    (6) The contractor's make-or-buy history regarding the type of item 
concerned.
    (7) The scope and type of proposed subcontracts including the type 
and level of technical effort involved.
    (8) Other factors such as future requirements, engineering, tooling, 
starting load costs, market conditions, technical superiority, and the 
availability of personnel and materials.
    (e) Contracting officers shall not normally agree to proposed make 
items when the products or services are (1) not regularly manufactured 
or provided by the contractor and are available--quality, quantity, 
delivery, and other essential factors considered--from another firm at 
equal or lower prices or when they are (2) regularly manufactured or 
provided by the contractor, but available--quality, quantity, delivery, 
and other essential factors considered-- from another firm at lower 
prices. However, the contracting officer may agree to these as make 
items if their categorization as buy items would increase the 
Government's overall cost for the contract or acquisition program.
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 52790, Dec. 21, 1990; 
60 FR 48260, Sept. 18, 1995]



15.707  Incorporating make-or-buy programs in contracts.

    (a) After agreement is reached, the contracting officer may 
incorporate the make-or-buy program in negotiated contracts for--
    (1) Major systems (see part 34) or their subsystems or components, 
regardless of contract type; or
    (2) Other supplies and services if (i) the contract is a cost-
reimbursable contract, or

[[Page 303]]

a cost-sharing contract in which the contractor's share of the cost is 
less than 25 percent, and (ii) the contracting officer determines that 
technical or cost risks justify Government review and approval of 
changes or additions to the make-or-buy program.
    (b) It may be necessary to incorporate some items of significant 
value in the make-or-buy program as make or, alternatively, as buy even 
though the opposite categorization would result in greater economy for 
the Government. If this situation occurs in any fixed-price incentive or 
cost-plus-incentive-fee contract, the contracting officer shall specify 
these items in the contract and state that they are subject to paragraph 
(d) of the clause at 52.215-21, Changes or Additions to Make-or-Buy 
Program (see 15.708 below). If the contractor proposes to reverse the 
categorization of such items during contract performance, the contract 
price shall be subject to equitable reduction.



15.708  Contract clause.

    The contracting officer shall insert the clause at 52.215-21, 
Changes or Additions to Make-or-Buy Program, in solicitations and 
contracts when it is contemplated that a make-or-buy program will be 
incorporated in the contract. If a less economical make or buy 
categorization is selected for one or more items of significant value, 
the contracting officer shall use the clause with (a) its Alternate I, 
if a fixed-price incentive contract is contemplated, or (b) its 
Alternate II, if a cost-plus-incentive-fee contract is contemplated.



                     Subpart 15.8--Price Negotiation



15.800  Scope of subpart.

    This subpart prescribes the cost and price negotiation policies and 
procedures applicable to initial and revised pricing of (a) negotiated 
prime contracts (including subcontract pricing under them when required) 
and (b) contract modifications (including modifications to contracts 
awarded by sealed bidding).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



15.801  Definitions.

    Commercial item is defined in 2.101.
    Cost analysis means the review and evaluation of the separate cost 
elements and proposed profit of (a) an offeror's or contractor's cost or 
pricing data or information other than cost or pricing data and (b) the 
judgmental factors applied in projecting from the data to the estimated 
costs in order to form an opinion on the degree to which the proposed 
costs represent what the cost of the contract should be, assuming 
reasonable economy and efficiency.
    Cost or pricing data means all facts that, as of the date of price 
agreement or, if applicable, another date agreed upon between the 
parties that is as close as practicable to the date of agreement on 
price, prudent buyers and sellers would reasonably expect to affect 
price negotiations significantly. Cost or pricing data are data 
requiring certification in accordance with 15.804-4. Cost or pricing 
data are factual, not judgmental, and are therefore verifiable. While 
they do not indicate the accuracy of the prospective contractor's 
judgment about estimated future costs or projections, they do include 
the data forming the basis for that judgment. Cost or pricing data are 
more than historical accounting data; they are all the facts that can be 
reasonably expected to contribute to the soundness of estimates of 
future costs and to the validity of determinations of costs already 
incurred. They also include such factors as--
    (a) Vendor quotations;
    (b) Nonrecurring costs;
    (c) Information on changes in production methods and in production 
or purchasing volume;
    (d) Data supporting projections of business prospects and objectives 
and related operations costs;
    (e) Unit-cost trends such as those associated with labor efficiency;
    (f) Make-or-buy decisions;
    (g) Estimated resources to attain business goals; and
    (h) Information on management decisions that could have a 
significant bearing on costs.
    Cost realism means the costs in an offeror's proposal are (a) 
realistic for the work to be performed; (b) reflect a clear 
understanding of the requirements; and (c) are consistent with the 
various elements of the offeror's technical proposal.
    Field pricing support means a review and evaluation of the 
contractor's or subcontractor's proposal by any or all field pricing 
support personnel (see 15.805-5(a)(2)).
    Forward pricing rate agreement means a written agreement negotiated 
between a contractor and the Government to make certain rates available 
during a specified period for use in pricing contracts or modifications. 
Such rates represent reasonable projections of specific costs that are 
not easily estimated for, identified with, or generated by a specific 
contract, contract end item, or task. These projections may include 
rates for labor, indirect costs, material obsolescence and usage, spare 
parts provisioning, and material handling.
    Forward pricing rate recommendation means a rate set unilaterally by 
the administrative contracting officer for use by the Government in 
negotiations or other contract actions when forward pricing rate 
agreement negotiations have not been completed or

[[Page 304]]

when the contractor will not agree to a forward pricing rate agreement.
    Information other than cost or pricing data means any type of 
information that is not required to be certified, in accordance with 
15.804-4, that is necessary to determine price reasonableness or cost 
realism. For example, such information may include pricing, sales, or 
cost information, and includes cost or pricing data for which 
certification is determined inapplicable after submission.
    Price, as used in this subpart, means cost plus any fee or profit 
applicable to the contract type.
    Price analysis means the process of examining and evaluating a 
proposed price without evaluating its separate cost elements and 
proposed profit.
    Subcontract, as used in this subpart, includes a transfer of 
commercial items between divisions, subsidiaries, or affiliates of a 
contractor or a subcontractor.
    Technical analysis, as used in this subpart, means the examination 
and evaluation by personnel having specialized knowledge, skills, 
experience, or capability in engineering, science, or management of 
proposed quantities and kinds of materials, labor, processes, special 
tooling, facilities, and associated factors set forth in a proposal in 
order to determine and report on the need for and reasonableness of the 
proposed resources assuming reasonable economy and efficiency.
[48 FR 42187, Sept. 1983, as amended at 51 FR 36971, Oct. 16, 1986; 53 
FR 10829, Apr. 1, 1988; 55 FR 52790, Dec. 21, 1990; 60 FR 48212, Sept. 
18, 1995]



15.802  Policy.

    Contracting officers shall--
    (a) Purchase supplies and services from responsible sources at fair 
and reasonable prices. In establishing the reasonableness of the offered 
prices, the contracting officer shall not obtain more information than 
is necessary. To the extent that the Truth in Negotiations Act, as 
implemented in 15.804-2 and 15.804-5 permits, the contracting officer 
shall generally use the following order of preference in determining the 
type of information required:
    (1) No further information from the offeror if the price is based on 
adequate price competition, except as provided by 15.804-5(b).
    (2) Information other than cost or pricing data:
    (i) Information related to prices (e.g., established catalog or 
market prices), relying first on information available within the 
Government; second, on information obtained from sources other than the 
offeror; and, if necessary, on information obtained from the offeror.
    (ii) Cost information, which does not meet the definition of cost or 
pricing data at 15.801.
    (3) Cost or pricing data. The contracting officer should use every 
means available to ascertain a fair and reasonable price prior to 
requesting cost or pricing data. Contracting officers shall not 
unnecessarily require the submission of cost or pricing data, because it 
leads to increased proposal preparation costs, generally extends 
acquisition lead-time, and wastes both contractor and Government 
resources.
    (b) Price each contract separately and independently and not--
    (1) Use proposed price reductions under other contracts as an 
evaluation factor, or
    (2) Consider losses or profits realized or anticipated under other 
contracts.
    (c) Not include in a contract price any amount for a specified 
contingency to the extent that the contract provides for a price 
adjustment based upon the occurrence of that contingency.
[60 FR 48212, Sept. 18, 1995, as amended at 62 FR 258, Jan. 2, 1997]



15.803  General.

    (a) Since information from sources other than an offeror's or 
contractor's records may significantly affect the Government's 
negotiating position, Government personnel shall not disclose to an 
offeror or contractor any conclusions, recommendations, or portions of 
administrative contracting officer or auditor reports regarding the 
offeror's or contractor's proposal without the concurrence of the 
contracting officer responsible for negotiation. This prohibition does 
not preclude disclosing discrepancies or mistakes of fact (such as 
duplications, omissions, and errors in computation) contained in the 
cost or pricing data or information other than cost or pricing data 
supporting the proposal.
    (b) Before issuing a solicitation, the contracting officer shall 
(when it is feasible to do so) develop an estimate of the proper price 
level or value of the supplies or services to be purchased. Estimates 
can range from simple budgetary estimates to complex estimates based on 
inspection of the product itself and review of such items as drawings, 
specifications, and prior data.
    (c) Price negotiation is intended to permit the contracting officer 
and the offeror to agree on a fair and reasonable price. Price 
negotiation does not require that agreement be reached on every element 
of cost. Reasonable compromises may be necessary, and it may not be 
possible to negotiate a price that is in accord with all the 
contributing specialists' opinions or with the contracting officer's 
prenegotiation objective. The contracting officer is responsible for 
exercising the requisite judgment and is solely responsible

[[Page 305]]

for the final pricing decision. The recommendations and counsel of 
contributing specialists, including auditors, are advisory only. 
However, the contracting officer should include comments in the price 
negotiation memorandum when significant audit or other specialist 
recommendations are not adopted.
    (d) The contracting officer's primary concern is the price the 
Government actually pays; the contractor's eventual cost and profit or 
fee should be a secondary concern. The contracting officer's objective 
is to negotiate a contract of a type and with a price providing the 
contractor the greatest incentive for efficient and economical 
performance. The negotiation of a contract type and a price are related 
and should be considered together with the issues of risk and 
uncertainty to the contractor and the Government. Therefore the 
contracting officer should not become preoccupied with any single 
element and should balance the contract type, cost, and profit or fee 
negotiated to achieve a total result and price fair and reasonable to 
both the Government and the contractor. If, however, the contractor 
insists on a price or demands a profit or fee that the contracting 
officer considers unreasonable and the contracting officer has taken all 
authorized actions (including determining the feasibility of developing 
an alternative source) without success, the contracting officer shall 
then refer the contract action to higher authority. Disposition of the 
action by higher authority should be documented.
[48 FR 42187, Sept. 19, 1983, as amended at 60 FR 48212, Sept. 18, 1995]



15.804  Cost or pricing data and information other than cost or pricing data.



15.804-1  Prohibition on obtaining cost or pricing data.

    (a) Exceptions to cost or pricing data requirements. The contracting 
officer shall not, pursuant to 10 U.S.C. 2306a and 41 U.S.C. 254b, 
require submission of cost or pricing data (but may require information 
other than cost or pricing data to support a determination of price 
reasonableness or cost realism)--
    (1) If the contracting officer determines that prices agreed upon 
are based on--
    (i) Adequate price competition (see exception standards at paragraph 
(b)(1) of this subsection; or
    (ii) Prices set by law or regulation (see exception standards at 
paragraph (b)(2) of this subsection).
    (2) For acquisition of a commercial item (see exception standards at 
paragraph (b)(3) of this subsection).
    (3) For exceptional cases where a waiver has been granted (see 
exception standards at paragraph (b)(4) of this subsection).
    (4) For modifications to contracts or subcontracts for commercial 
items, if the basic contract or subcontract was awarded without the 
submission of cost or pricing data because the action was granted an 
exception from cost or pricing data requirements under paragraph (a)(1) 
or (a)(2) of this subsection and the modification does not change the 
contract or subcontract to a contract or subcontract for the acquisition 
of other than a commercial item (see exception standards at paragraph 
(b)(5) of this subsection).
    (b) Standards for exceptions from cost or pricing data 
requirements--(1) Adequate price competition. A price is based on 
adequate price competition if--
    (i) Two or more responsible offerors, competing independently, 
submit priced offers responsive to the Government's expressed 
requirement and if--
    (A) Award will be made to a responsible offeror whose proposal 
offers either--
    (1) The greatest value (see 15.605(c)) to the Government and price 
is a substantial factor in source selection; or
    (2) The lowest evaluated price; and
    (B) There is no finding that the price of the otherwise successful 
offeror is unreasonable. Any such finding must be supported by a 
statement of the facts and approved at a level above the contracting 
officer;
    (ii) There was a reasonable expectation, based on market research or 
other assessment, that two or more responsible offerors, competing 
independently, would submit priced offers responsive to the 
solicitation's expressed requirement, even though only one offer is 
received from a responsible, responsive offeror and if--
    (A) Based on the offer received, the contracting officer can 
reasonably conclude that the offer was submitted with the expectation of 
competition, e.g., circumstances indicate that--
    (1) The offeror believed that at least one other offeror was capable 
of submitting a meaningful, responsive offer; and
    (2) The offeror had no reason to believe that other potential 
offerors did not intend to submit an offer; and
    (B) The determination that the proposed price is based on adequate 
price competition and is reasonable is approved at a level above the 
contracting officer; or
    (iii) Price analysis clearly demonstrates that the proposed price is 
reasonable in comparison with current or recent prices for the same or 
similar items purchased in comparable quantities, under comparable terms 
and conditions under contracts that resulted from adequate price 
competition.
    (2) Prices set by law or regulation. Pronouncements in the form of 
periodic rulings, reviews, or similar actions of a governmental body, or 
embodied in the laws are sufficient to set a price.

[[Page 306]]

    (3) Commercial items. An acquisition for an item that meets the 
commercial item definition in 2.101 is excepted from the requirement to 
obtain cost or pricing data.
    (4) Exceptional cases. The head of the contracting activity may, 
without power of delegation, waive the requirement for submission of 
cost or pricing data. The authorization for the waiver and the reasons 
for granting it shall be in writing. A waiver may be considered if 
another exception does not apply but the price can be determined to be 
fair and reasonable without submission of cost or pricing data. For 
example, if cost or pricing data were furnished on previous production 
buys and the contracting officer determines such data are sufficient, 
when combined with updated information, a waiver may be granted. If the 
head of the contracting activity has waived the requirement for 
submission of cost or pricing data, the contractor or higher-tier 
subcontractor to whom the waiver relates shall be considered as having 
been required to make available cost or pricing data. Consequently, 
award of any lower-tier subcontract expected to exceed the cost or 
pricing data threshold requires the submission of cost or pricing data 
unless an exception otherwise applies to the subcontract.
    (5) Modifications. This exception applies when the original contract 
or subcontract was exempt from cost or pricing data based on adequate 
price competition, price set by law or regulation, or was a contract or 
subcontract for the acquisition of a commercial item (15.804-1(a)(1) or 
(a)(2)). For modifications of contracts or subcontracts for commercial 
items, the exception at 15.804-1(a)(4) applies if the modification does 
not change the item from a commercial item to a noncommercial item. 
However, if the modification to a contract or a subcontract changes the 
nature of the work under the contract or subcontract either by a change 
to the commercial item or by the addition of other noncommercial work, 
the contracting officer is not prohibited from obtaining cost or pricing 
data for the changed or added work.
[60 FR 48212, Sept. 18, 1995, as amended at 62 FR 258, Jan. 2, 1997]



15.804-2  Requiring cost or pricing data.

    (a)(1) Pursuant to 10 U.S.C. 2306a and 41 U.S.C. 254b, cost or 
pricing data shall be obtained only if the contracting officer concludes 
that none of the exceptions in 15.804-1 applies. However, if the 
contracting officer has sufficient information available to determine 
price reasonableness, then a waiver under the exception at 15.804-
1(b)(4) should be considered. The threshold for obtaining cost or 
pricing data is $500,000. This amount will be subject to adjustment, 
effective October 1, 1995, and every five years thereafter. Unless an 
exception applies, cost or pricing data are required before 
accomplishing any of the following actions expected to exceed the 
threshold in effect on the date of agreement on price, or the date of 
award, whichever is later; or, in the case of existing contracts, the 
threshold specified in the contract:
    (i) The award of any negotiated contract (except for undefinitized 
actions such as letter contracts).
    (ii) The award of a subcontract at any tier, if the contractor and 
each higher-tier subcontractor have been required to furnish cost or 
pricing data (but see exceptional cases at 15.804-1(b)(4)).
    (iii) The modification of any sealed bid or negotiated contract 
(whether or not cost or pricing data were initially required) or 
subcontract covered by paragraph (a)(1)(ii) of this subsection. Price 
adjustment amounts shall consider both increases and decreases. (For 
example, a $150,000 modification resulting from a reduction of $350,000 
and an increase of $200,000 is a pricing adjustment exceeding $500,000.) 
This requirement does not apply when unrelated and separately priced 
changes for which cost or pricing data would not otherwise be required 
are included for administrative convenience in the same modification.
    (2) Unless prohibited because an exception at 15.804-1 (a)(1) or 
(a)(2) applies, the head of the contracting activity, without power of 
delegation, may authorize the contracting officer to obtain cost or 
pricing data for pricing actions below the pertinent threshold in 
paragraph (a)(1) of this subsection provided the action exceeds the 
simplified acquisition threshold. The head of the contracting activity 
shall justify the requirement for cost or pricing data. The 
documentation shall include a written finding that cost or pricing data 
are necessary to determine whether the price is fair and reasonable and 
the facts supporting that finding.
    (b) When cost or pricing data are required, the contracting officer 
shall require the contractor or prospective contractor to submit to the 
contracting officer (and to have any subcontractor or prospective 
subcontractor submit to the prime contractor or appropriate 
subcontractor tier) the following in support of any proposal:
    (1) The cost or pricing data.
    (2) A certificate of current cost or pricing data, in the format 
specified in 15.804-4, certifying that to the best of its knowledge and 
belief, the cost or pricing data were accurate, complete, and current as 
of the date of agreement on price or, if applicable, another date agreed 
upon between the parties that is as close as practicable to the date of 
agreement on price.
    (c) If cost or pricing data are requested and submitted by an 
offeror, but an exception is later found to apply, the data shall not be 
considered cost or pricing data as defined in

[[Page 307]]

15.801 and shall not be certified in accordance with 15.804-4.
    (d) The requirements of this section also apply to contracts entered 
into by the head of an agency on behalf of a foreign government.
[60 FR 48214, Sept. 18, 1995, as amended at 62 FR 258, Jan. 2, 1997]



15.804-3  [Reserved]



15.804-4  Certificate of Current Cost or Pricing Data.

    (a) When cost or pricing data are required, the contracting officer 
shall require the contractor to execute a Certificate of Current Cost or 
Pricing Data, shown following this paragraph (a), and shall include the 
executed certificate in the contract file.

               CERTIFICATE OF CURRENT COST OR PRICING DATA

    This is to certify that, to the best of my knowledge and belief, the 
cost or pricing data (as defined in section 15.801 of the Federal 
Acquisition Regulation (FAR) and required under FAR subsection 15.804-2) 
submitted, either actually or by specific identification in writing, to 
the contracting officer or to the contracting officer's representative 
in support of ------------* are accurate, complete, and current as of --
------**. This certification includes the cost or pricing data 
supporting any advance agreements and forward pricing rate agreements 
between the offeror and the Government that are part of the proposal.
 Firm___________________________________________________________________
 Signature______________________________________________________________
 Name___________________________________________________________________
 Title__________________________________________________________________
 Date of execution***___________________________________________________

    *Identify the proposal, quotation, request for price adjustment, or 
other submission involved, giving the appropriate identifying number 
(e.g., RFP No. ).
    **Insert the day, month, and year when price negotiations were 
concluded and price agreement was reached or, if applicable, another 
date agreed upon between the parties that is as close as practicable to 
the date of agreement on price.
    ***Insert the day, month, and year of signing, which should be as 
close as practicable to the date when the price negotiations were 
concluded and the contract price was agreed to.

                          (End of certificate)

    (b) The certificate does not constitute a representation as to the 
accuracy of the contractor's judgment on the estimate of future costs or 
projections. It does apply to the data upon which the judgment or 
estimate was based. This distinction between fact and judgment should be 
clearly understood. If the contractor had information reasonably 
available at the time of agreement showing that the negotiated price was 
not based on accurate, complete, and current data, the contractor's 
responsibility is not limited by any lack of personal knowledge of the 
information on the part of its negotiators.
    (c) The contracting officer and contractor are encouraged to reach a 
prior agreement on criteria for establishing closing or cutoff dates 
when appropriate in order to minimize delays associated with proposal 
updates. Closing or cutoff dates should be included as part of the data 
submitted with the proposal and, before agreement on price, data should 
be updated by the contractor to the latest closing or cutoff dates for 
which the data are available. Use of cutoff dates coinciding with 
reports is acceptable, as certain data may not be reasonably available 
before normal periodic closing dates (e.g., actual indirect costs). Data 
within the contractor's or a subcontractor's organization on matters 
significant to contractor management and to the Government will be 
treated as reasonably available. What is significant depends upon the 
circumstances of each acquisition.
    (d) Possession of a Certificate of Current Cost or Pricing Data is 
not a substitute for examining and analyzing the contractor's proposal.
    (e) If cost or pricing data are requested and submitted by an 
offeror, but an exception is later found to apply, the data shall not be 
considered cost or pricing data and shall not be certified in accordance 
with this subsection.
    (f) The exercise of an option at the price established in the 
initial negotiation in which cost or pricing data were used does not 
require recertification.
    (g) Contracting officers shall not require certification at the time 
of agreement for data supplied in support of forward pricing rate 
agreements (see 15.809) or other advance agreements. When a forward 
pricing rate agreement or other advance agreement is used in partial 
support of a later contractual action that requires a certificate, the 
price proposal certificate shall cover (1) the data originally supplied 
to support the forward pricing rate agreement or other advance agreement 
and (2) all data required to update the price proposal to the time of 
agreement on contract price.
    (h) Negotiated final pricing actions (such as termination 
settlements and total final price agreements for fixed-price incentive 
and redeterminable contracts) are contract modifications requiring cost 
or pricing data if (1) the total final price agreement for such 
settlements or agreements exceeds the pertinent threshold set forth at 
15.804-2(a)(1) or (2) the partial termination settlement plus

[[Page 308]]

the estimate to complete the continued portion of the contract exceeds 
the pertinent threshold set forth at 15.804-2(a)(1) (see 49.105(c)(15)).
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 56 FR 67414, Dec. 30, 1991; 57 FR 60610, 
Dec. 21, 1992; 60 FR 48214, Sept. 18, 1995]



15.804-5  Requiring information other than cost or pricing data.

    (a) General. (1) If cost or pricing data are not required because an 
exception applies, or an action is at or below the cost or pricing data 
threshold, the contracting officer shall perform a price analysis to 
determine the reasonableness of the price and any need for further 
negotiation.
    (2) The contracting officer shall require submission of information 
other than cost or pricing data only to the extent necessary to 
determine reasonableness of the price or cost realism. Unless an 
exception under 15.804-1(a)(1) applies, the contracting officer shall 
obtain, at a minimum, appropriate information on the prices at which the 
same item or similar items have previously been sold that is adequate 
for evaluating the reasonableness of the price.
    (3) The contractor's format for submitting such information shall 
generally be used (see 15.804-5(c)(2)).
    (4) The contracting officer shall ensure that information used to 
support price negotiations is sufficiently current to permit negotiation 
of a fair and reasonable price. Requests for updated offeror information 
should be limited to information that affects the adequacy of the 
proposal for negotiations, such as changes in price lists. Such data 
shall not be certified in accordance with 15.804-4.
    (b) Adequate price competition. When an acquisition is based on 
adequate price competition, generally no additional information is 
necessary to determine the reasonableness of price. However, if it is 
determined that additional information is necessary to determine the 
reasonableness of the price, the contracting officer shall, to the 
maximum extent practicable, obtain the additional information from 
sources other than the offeror. In addition, the contracting officer may 
request information to determine the cost realism of competing offers or 
to evaluate competing approaches.
    (c) Limitations relating to commercial items. (1) Requests for sales 
data relating to commercial items shall be limited to data for the same 
or similar items during a relevant time period.
    (2) The contracting officer shall, to the maximum extent 
practicable, limit the scope of the request for information relating to 
commercial items to include only information that is in the form 
regularly maintained by the offeror in commercial operations.
    (3) Any information relating to commercial items obtained pursuant 
to this paragraph (c) that is prohibited from disclosure by 24.202(a) or 
exempt from disclosure under the Freedom of Information Act (5 U.S.C. 
552(b)) (see 24.202(b)) shall not be disclosed by the Government.
[62 FR 258, Jan. 2, 1997]



15.804-6  Instructions for submission of cost or pricing data or information other than cost or pricing data.

    (a) Taking into consideration the hierarchy at 15.802, the 
contracting officer shall specify in the solicitation (see 15.804-8 (h) 
and (i))--
    (1) Whether cost or pricing data are required;
    (2) That, in lieu of submitting cost or pricing data, the offeror 
may submit a request for exception from the requirement to submit cost 
or pricing data;
    (3) Whether information other than cost or pricing data is required, 
if cost or pricing data are not necessary;
    (4) The format (see paragraph (b) of this subsection) in which the 
cost or pricing data or information other than cost or pricing data 
shall be submitted; and
    (5) Necessary preaward access to offeror's records if not provided 
by the use of a standard form or clause.
    (b)(1) Cost or pricing data shall be submitted on a SF 1411 unless 
required to be submitted on one of the termination forms specified in 
subpart 49.6. The SF 1411 shall not be used unless cost or pricing data 
are required to be submitted. Contract pricing proposals submitted on a 
SF 1411 with supporting attachments shall be prepared in accordance with 
Table 15-2 or as specified by the contracting officer. Data supporting 
forward pricing rate agreements or final indirect cost proposals shall 
be submitted in a format acceptable to the contracting officer.
    (2) If information other than cost or pricing data is required to 
support price reasonableness or cost realism, the contracting officer 
may require such information to be submitted using a SF 1448. Requests 
for information should be tailored so that only necessary data are 
requested. The information is not considered cost or pricing data and 
shall not be certified in accordance with 15.804-4. Information 
submitted on a SF 1448 shall be prepared following the instructions 
provided in Table 15-3.

[[Page 309]]

 Table 15-2 Instructions for Submission of a Contract Pricing Proposal 
                 When Cost or Pricing Data are Required

The SF 1411 provides a cover sheet for use by offerors to submit to the 
Government a pricing proposal of estimated and/or actual costs only when 
cost or pricing data are required.
1. The pricing proposal shall be segregated by contract line item with 
sufficient detail to permit cost analysis. Attach cost-element 
breakdowns, using the applicable formats prescribed in Item 8A, B, or C 
of this section, for each proposed line item. These breakdowns must 
conform to the instructions in the solicitation and any specific 
requirements established by the contracting officer. Furnish supporting 
breakdowns for each cost element, consistent with the offeror's cost 
accounting system.
Materials--Provide a consolidated priced summary of individual material 
quantities included in the various tasks, orders, or contract line items 
being proposed and the basis for pricing (vendor quotes, invoice prices, 
etc.). Include raw materials, parts, components, assemblies, and 
services to be produced or performed by others. For all items proposed, 
identify the item and show the source, quantity, and price.
Competitive Methods--For those acquisitions (e.g. subcontracts, purchase 
orders, material orders, etc.) exceeding the pertinent threshold set 
forth at 15.804-2(a)(1) priced on a competitive basis, also provide data 
showing degree of competition, and the basis for establishing the source 
and reasonableness of price. For interorganizational transfers priced at 
other than cost of the comparable competitive commercial work of the 
division, subsidiary, or affiliate of the contractor, explain the 
pricing method (see 31.205-26(e)).
Prices Set by Law or Regulation or Commercial Item Exception--When an 
exception from the requirement to submit cost or pricing data is 
requested, whether the item was produced by others or by the offeror, 
provide justification for the exception.
Noncompetitive Methods--For those acquisitions (e.g. subcontracts, 
purchase orders, material orders, etc.) exceeding the pertinent 
threshold set forth at 15.804-2(a)(1) priced on a noncompetitive basis, 
also provide data showing the basis for establishing source and 
reasonableness of price. For standard commercial items fabricated by the 
offeror that are generally stocked in inventory, provide a separate cost 
breakdown if priced based on cost. For interorganizational transfers 
priced at cost, provide a separate breakdown of cost by elements. As 
required by 15.806-2(a), provide a copy of cost or pricing data 
submitted by the prospective source in support of each subcontract, or 
purchase order that is either: (i) $1,000,000 or more, or (ii) both more 
than the pertinent threshold set forth in 15.804-2(a)(1)(iii) and (iv) 
and more than 10 percent of the prime contractor's proposed price. The 
contracting officer may require submission of cost or pricing data in 
support of proposals in lower amounts. Submit the results of the 
analysis of the prospective source's proposal as required by 15.806. 
When the submission of a prospective source's cost or pricing data is 
required as described above, it shall be included as part of the 
offeror's initial pricing proposal.

Direct Labor--Provide a time-phased (e.g., monthly, quarterly, etc.) 
breakdown of labor hours, rates, and cost by appropriate category, and 
furnish bases for estimates.
Indirect Costs--Indicate how offeror has computed and applied offeror's 
indirect costs, including cost breakdowns, and showing trends and 
budgetary data, to provide a basis for evaluating the reasonableness of 
proposed rates. Indicate the rates used and provide an appropriate 
explanation.
Other Costs--List all other costs not otherwise included in the 
categories described above (e.g., special tooling, travel, computer and 
consultant services, preservation, packaging and packing, spoilage and 
rework, and Federal excise tax on finished articles) and provide bases 
for pricing.
Royalties--If more than $250, provide the following information on a 
separate page for each separate royalty or license fee: name and address 
of licensor; date of license agreement; patent numbers, patent 
application serial numbers, or other basis on which the royalty is 
payable; brief description (including any part or model numbers of each 
contract item or component on which the royalty is payable); percentage 
or dollar rate of royalty per unit; unit price of contract item; number 
of units; and total dollar amount of royalties. In addition, if 
specifically requested by the contracting officer, provide a copy of the 
current license agreement and identification of applicable claims of 
specific patents. (See FAR 27.204 and 31.205-37).
Facilities Capital Cost of Money--When the offeror elects to claim 
facilities capital cost of money as an allowable cost, the offeror must 
submit Form

[[Page 310]]

CASB-CMF and show the calculation of the proposed amount (see FAR 
31.205-10).

2.  As part of the specific information required, the offeror must 
submit with offeror's proposal, and clearly identify as such, cost or 
pricing data (that is, data that are verifiable and factual and 
otherwise as defined at FAR 15.801). In addition, submit with offeror's 
proposal any information reasonably required to explain offeror's 
estimating process, including--
a.  The judgmental factors applied and the mathematical or other methods 
used in the estimate, including those used in projecting from known 
data; and
b.  The nature and amount of any contingencies included in the proposed 
price.

3. Whenever the offeror has incurred costs for work performed before 
submission of proposal, those costs must be identified in the offeror's 
cost/price proposal.

    4. There is a clear distinction between submitting cost or pricing 
data and merely making available books, records, and other documents 
without identification. The requirement for submission of cost or 
pricing data is met when all accurate cost or pricing data reasonably 
available to the offeror have been submitted, either actually or by 
specific identification, to the contracting officer or an authorized 
representative. As later information comes into the offeror's 
possession, it should be promptly submitted to the contracting officer 
in a manner that clearly shows how the information relates to the 
offeror's price proposal. The requirement for submission of cost or 
pricing data continues up to the time of agreement on price, or another 
date agreed upon between the parties if applicable.
5.  In submitting offeror's proposal, offeror must include an index, 
appropriately referenced, of all the cost or pricing data and 
information accompanying or identified in the proposal. In addition, any 
future additions and/or revisions, up to the date of agreement on price, 
must be annotated on a supplemental index.

6.  By submitting offeror's proposal, the offeror, if selected for 
negotiation, grants the contracting officer or an authorized 
representative the right to examine, at any time before award, those 
books, records, documents, and other types of factual information, 
regardless of form or whether such supporting information is 
specifically referenced or included in the proposal as the basis for 
pricing, that will permit an adequate evaluation of the proposed price.

7.  As soon as practicable after final agreement on price, but before 
the award resulting from the proposal, the offeror shall, under the 
conditions stated in FAR 15.804-4, submit a Certificate of Current Cost 
or Pricing Data.

8.  Headings for Submission of Line-Item Summaries:

A.  New Contracts (including Letter contracts).

                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                          PROPOSED CONTRACT        PROPOSED CONTRACT                            
            COST ELEMENTS                ESTIMATE--TOTAL COST     ESTIMATE--UNIT COST           REFERENCE       
(1)                                    (2)....................  (3)....................  (4)                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                
Under Column (1)--Enter appropriate cost elements.                                                              
Under Column (2)--Enter those necessary and reasonable costs that in offeror's judgment will properly be        
  incurred in efficient contract performance. When any of the costs in this column have already been incurred   
  (e.g., under a letter contract or unpriced order), describe them on an attached supporting schedule. When     
  preproduction or startup costs are significant, or when specifically requested to do so by the contracting    
  officer, provide a full identification and explanation of them.                                               
Under Column (3)--Optional, unless required by the contracting officer.                                         
Under Column (4)--Identify the attachment in which the information supporting the specific cost element may be  
  found. Attach separate pages as necessary.                                                                    


B.  Change Orders, Modifications, and Claims.

                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        COST OF DELETED                                                                                 
          COST ELEMENTS            ESTIMATED COST OF     WORK ALREADY       NET COST TO BE    COST OF WORK ADDED  NET COST OF CHANGE       REFERENCE    
                                   ALL WORK DELETED        PERFORMED            DELETED                                                                 
(1)                               (2)...............  (3)...............  (4)...............  (5)...............  (6)...............  (7)               
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
Under Column (1)--Enter appropriate cost elements.                                                                                                      
Under Column (2)--Include the current estimates of what the cost would have been to complete the deleted work not yet performed (not the original       
  proposal estimates), and the cost of deleted work already performed.                                                                                  

[[Page 311]]

                                                                                                                                                        
Under Column (3)--Include the incurred cost of deleted work already performed, actually computed if possible, or estimated in the contractor's          
  accounting records. Attach a detailed inventory of work, materials, parts, components, and hardware already purchased, manufactured, or performed and 
  deleted by the change, indicating the cost and proposed disposition of each line item. Also, if offeror desires to retain these items or any portion  
  of them, indicate the amount offered for them.                                                                                                        
Under Column (4)--Enter the net cost to be deleted which is the estimated cost of all deleted work less the cost of deleted work already performed.     
  Column (2) less Column (3) = Column (4).                                                                                                              
Under Column (5)--Enter the offeror's estimate for cost of work added by the change. When nonrecurring costs are significant, or when specifically      
  requested to do so by the contracting officer, provide a full identification and explanation of them. When any of the costs in this column have       
  already been incurred, describe them on an attached supporting schedule.                                                                              
Under Column (6)--Enter the net cost of change which is the cost of work added, less the net cost to be deleted. When this result is negative, place the
  amount in parentheses. Column (5) less Column (4) = Column (6).                                                                                       
Under Column (7)--Identify the attachment in which the information supporting the specific cost element may be found. Attach separate pages as          
  necessary.                                                                                                                                            


C.  Price Revision/Redetermination.

                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         NUMBER OF UNITS      NUMBER OF UNITS TO BE                            REDETERMINATION                          
            CUTOFF DATE                     COMPLETED               COMPLETED           CONTRACT AMOUNT        PROPOSAL AMOUNT           DIFFERENCE     
(1)                                  (2)...................  (3)...................  (4)..................  (5)..................  (6)                  
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        


                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    INCURRED COST--  INCURRED COST--                                                                    
        COST ELEMENTS            INCURRED COST--    COMPLETED UNITS  WORK IN PROCESS   TOTAL INCURRED   ESTIMATED COST  ESTIMATED TOTAL     REFERENCE   
                                  PREPRODUCTION                                             COST         TO COMPLETE          COST                      
(7)                            (8)................  (9)............  (10)...........  (11)...........  (12)...........  (13)...........  (14)           
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
Under Column (1)--Enter the cutoff date required by the contract, if applicable.                                                                        
Under Column (2)--Enter the number of units completed during the period for which experienced costs of production are being submitted.                  
Under Column (3)--Enter the number of units remaining to be completed under the contract.                                                               
Under Column (4)--Enter the cumulative contract amount.                                                                                                 
Under Column (5)--Enter the offeror's redetermination proposal amount.                                                                                  
Under Column (6)--Enter the difference between the contract amount and the redetermination proposal amount. When this result is negative, place the     
  amount in parentheses. Column (4) less Column (5) = Column (6).                                                                                       
Under Column (7)--Enter appropriate cost elements. When residual inventory exists, the final costs established under fixed-price-incentive and fixed-   
  price-redeterminable arrangements should be net of the fair market value of such inventory. In support of subcontract costs, submit a listing of all  
  subcontracts subject to repricing action, annotated as to their status.                                                                               
Under Column (8)--Enter all costs incurred under the contract before starting production and other nonrecurring costs (usually referred to as startup   
  costs) from offeror's books and records as of the cutoff date. These include such costs as preproduction engineering, special plant rearrangement,    
  training program, and any identifiable nonrecurring costs such as initial rework, spoilage, pilot runs, etc. In the event the amounts are not         
  segregated in or otherwise available from offeror's records, enter in this column offeror's best estimates. Explain the basis for each estimate and   
  how the costs are charged on offeror's accounting records (e.g., included in production costs as direct engineering labor, charged to manufacturing   
  overhead, etc.). Also show how the costs would be allocated to the units at their various stages of contract completion.                              
Under Columns (9) and (10)--Enter in Column (9) the production costs from offeror's books and records (exclusive of preproduction costs reported in     
  Column (8)) of the units completed as of the cutoff date. Enter in Column (10) the costs of work in process as determined from offeror's records or   
  inventories at the cutoff date. When the amounts for work in process are not available in contractor's records but reliable estimates for them can be 
  made, enter the estimated amounts in Column (10) and enter in Column (9) the differences between the total incurred costs (exclusive of preproduction 
  costs) as of the cutoff date and these estimates. Explain the basis for the estimates, including identification of any provision for experienced or   
  anticipated allowances, such as shrinkage, rework, design changes, etc. Furnish experienced unit or lot costs (or labor hours) from inception of      
  contract to the cutoff date, improvement curves, and any other available production cost history pertaining to the item(s) to which offeror's proposal
  relates.                                                                                                                                              
Under Column (11)--Enter total incurred costs (Total of Columns (8), (9), and (10)).                                                                    
Under Column (12)--Enter those necessary and reasonable costs that in contractor's judgment will properly be incurred in completing the remaining work  
  to be performed under the contract with respect to the item(s) to which contractor's proposal relates.                                                
Under Column (13)--Enter total estimated cost (Total of Columns (11) and (12)).                                                                         
Under Column (14)--Identify the attachment in which the information supporting the specific cost element may be found. Attach separate pages as         
  necessary.                                                                                                                                            

 Table 15-3  Instructions for Submission of Information Other Than Cost 
                             or Pricing Data

    SF 1448 is a cover sheet for use by offerors to submit information 
to the Government when cost or pricing data are not required but the 
contracting officer has requested information to help establish price 
reasonableness or cost realism. Such information is not considered cost 
or pricing data, and shall not be certified in accordance with 15.804-4.
    1. The information submitted shall be at the level of detail 
described in the solicitation or specified by the contracting officer. 
The offeror's own format is acceptable unless

[[Page 312]]

the contracting officer determines that use of a specific format is 
essential.
    A. If adequate price competition is expected, the information may 
include cost or technical information necessary to determine the cost 
realism and adequacy of the offeror's proposal, e.g., information 
adequate to validate that the proposed costs are consistent with the 
technical proposal, or cost breakdowns to help identify unrealistically 
priced proposals.
    B. If the offer is expected to be at or below the cost or pricing 
data threshold, and adequate price competition is not expected, the 
information may consist of data to permit the contracting officer and 
authorized representatives to determine price reasonableness, e.g., 
information to support an analysis of material costs (when sufficient 
information on labor and overhead rates is already available), or 
information on prices and quantities at which the offeror has previously 
sold the same or similar items.
    2. Any information submitted must support the price proposed. 
Include sufficient detail or cross references to clearly establish the 
relationship of the information provided to the price proposed. Support 
any information provided by explanations or supporting rationale as 
needed to permit the contracting officer and authorized representatives 
to evaluate the documentation.

    (c) Closing or cutoff dates should be included as part of the data 
submitted with the proposal (see 15.804-4(c)).
    (d) The requirement for submission of cost or pricing data is met if 
all cost or pricing data reasonably available to the offeror are either 
submitted or specifically identified in writing by the time of agreement 
on price or another time agreed upon by the parties. However, there is a 
clear distinction between submitting cost or pricing data and merely 
making available books, records, and other documents without 
identification. The latter does not constitute submission of cost or 
pricing data.
    (e) If cost or pricing data and information required to explain the 
estimating process are required and the offeror initially refuses to 
provide necessary data, or the contracting officer determines that the 
data provided is so deficient as to preclude adequate analysis and 
evaluation, the contracting officer shall again attempt to secure the 
data and/or elicit corrective action. If the offeror still persists in 
refusing to provide the needed data or to take corrective action, the 
contracting officer shall withhold the award or price adjustment and 
refer the contract action to higher authority, including details of the 
attempts made to resolve the matter and a statement of the 
practicability of obtaining the supplies or services from another 
source.
    (f) Preproduction and startup costs include costs such as 
preproduction engineering, special tooling, special plant rearrangement, 
training programs, and such nonrecurring costs as initial rework, 
initial spoilage, and pilot runs. When these costs may be a significant 
cost factor in an acquisition, the contracting officer shall require in 
the solicitation that the offeror provide (1) an estimate of total 
preproduction and startup costs, (2) the extent to which these costs are 
included in the proposed price, and (3) the intent to absorb, or plan 
for recovery of, any remaining costs. If a successful offeror has 
indicated an intent to absorb any portion of these costs, the contract 
shall expressly provide that such portion will not be charged to the 
Government in any future noncompetitive pricing action.
    (g) The requirements for contractors to obtain cost or pricing data 
from prospective subcontractors, to analyze these data and to submit the 
results of the analyses are prescribed in 15.806.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 27119, July 29, 1986; 53 FR 17858, May 
18, 1988; 54 FR 34753, Aug. 21, 1989; 56 FR 15149, Apr. 15, 1991; 56 FR 
67414, Dec. 30, 1991; 59 FR 11387, Mar. 10, 1994; 60 FR 48215, Sept. 18, 
1995; 62 FR 259, Jan. 2, 1997; 62 FR 40236, July 25, 1997]



15.804-7  Defective cost or pricing data.

    (a) If, before agreement on price, the contracting officer learns 
that any cost or pricing data submitted are inaccurate, incomplete, or 
noncurrent, the contracting officer shall immediately bring the matter 
to the attention of the prospective contractor, whether the defective 
data increase or decrease the contract price. The contracting officer 
shall negotiate, using any new data submitted or making satisfactory 
allowance for the incorrect data. The price negotiation memorandum shall 
reflect the revised facts.
    (b)(1) If, after award, cost or pricing data are found to be 
inaccurate, incomplete, or noncurrent as of the date of final agreement 
on price given on the contractor's or subcontractor's Certificate of 
Current Cost or Pricing Data, the Government is entitled to a price 
adjustment, including profit or fee, of any significant amount by which 
the price was increased because of the defective data. This entitlement 
is ensured by including in the contract one of the clauses prescribed in 
15.804-8 and set forth at 52.215-22, Price Reduction for Defective Cost 
or Pricing Data, and 52.215-23, Price Reduction for Defective Cost or 
Pricing Data--Modifications. The clauses give the Government the right 
to a price adjustment for defects in cost or pricing data submitted by 
the contractor, a prospective subcontractor, or an actual subcontractor.
    (2) In arriving at a price adjustment, the contracting officer shall 
consider (i) the time

[[Page 313]]

by which the cost or pricing data became reasonably available to the 
contractor and (ii) the extent to which the Government relied upon the 
defective data.
    (3) The clauses referred to in paragraph (b)(1) of this section 
recognize that the Government's right to a price adjustment is not 
affected by any of the following circumstances:
    (i) The contractor or subcontractor was a sole source supplier or 
otherwise was in a superior bargaining position;
    (ii) The contracting officer should have known that the cost or 
pricing data in issue were defective even though the contractor or 
subcontractor took no affirmative action to bring the character of the 
data to the attention of the contracting officer;
    (iii) The contract was based on an agreement about the total cost of 
the contract and there was no agreement about the cost of each such item 
procured under such contract; or
    (iv) The prime contractor or subcontractor did not submit a 
Certificate of Current Cost or Pricing Data relating to the contract.
    (4) Subject to paragraphs (b)(5) and (b)(6) of this section, the 
contracting officer shall allow an offset for any understated cost or 
pricing data submitted in support of price negotiations, up to the 
amount of the Government's claim for overstated pricing data arising out 
of the same pricing action (for example, the initial pricing of the same 
contract or the pricing of the same change order).
    (5) An offset shall be allowed only in an amount supported by the 
facts and if the contractor (i) certifies to the contracting officer 
that, to the best of the contractor's knowledge and belief, the 
contractor is entitled to the offset in the amount requested, and (ii) 
proves that the cost or pricing data were available before the date of 
agreement on price but were not submitted. Such offsets need not be in 
the same cost groupings (e.g., material, direct labor, or indirect 
costs).
    (6) An offset shall not be allowed if (i) the understated data was 
known by the contractor to be understated when the Certificate of 
Current Cost or Pricing Data was signed, or (ii) the Government proves 
that the facts demonstrate that the price would not have increased in 
the amount to be offset even if the available data had been submitted 
before the date of agreement on price.
    (7)(i) In addition to the price adjustment amount, the Government is 
entitled to interest on any overpayments. The Government is also 
entitled to penalty amounts on certain of these overpayments. 
Overpayment occurs only when payment is made for supplies or services 
accepted by the Government. Overpayments would not result from amounts 
paid for contract financing as defined in 32.902.
    (ii) In calculating the interest amount due, the contracting officer 
shall--
    (A) Determine the defective pricing amounts that have been overpaid 
to the contractor;
    (B) Consider the date of each overpayment (the date of overpayment 
for this interest calculation shall be (1) the date payment was made for 
the related completed and accepted contract items, or (2) for 
subcontract defective pricing, the date payment was made to the prime 
contractor, based on prime contract progress billings or deliveries, 
which included payments for a completed and accepted subcontract item); 
and
    (C) Apply the underpayment interest rate(s) in effect for each 
quarter from the time of overpayment to the time of repayment, utilizing 
rate(s) prescribed by the Secretary of the Treasury under 26 U.S.C. 
6621(a)(2).
    (iii) In arriving at the amount due for penalties on contracts where 
the submission of defective cost or pricing data was a knowing 
submission, the contracting officer shall obtain an amount equal to the 
amount of overpayment made. Before taking any contractual actions 
concerning penalties, the contracting officer shall obtain the advice of 
counsel.
    (iv) In the price reduction modification or demand, the contracting 
officer shall separately include--
    (A) The repayment amount;
    (B) The penalty amount (if any);
    (C) The interest amount through a specified date; and
    (D) A statement that interest will continue to accrue until 
repayment is made.
    (c) If, after award, the contracting officer learns or suspects that 
the data furnished were not accurate, complete, and current, or were not 
adequately verified by the contractor as of the time of negotiation, the 
contracting officer shall request an audit to evaluate the accuracy, 
completeness, and currency of the data. Only if the audit reveals that 
the data certified by the contractor were defective may the Government 
evaluate the profit-cost relationships. The contracting officer shall 
not reprice the contract solely because the profit was greater than 
forecast or because some contingency specified in the submission failed 
to materialize.
    (d) For each advisory audit received based on a postaward review 
which indicates defective pricing, the contracting officer shall make a 
determination as to whether or not the data submitted were defective and 
relied upon. Before making such a determination, the contracting officer 
should give the contractor an opportunity to support the accuracy, 
completeness, and currency of the data in question. The contracting 
officer shall prepare a memorandum indicating (1) the contracting 
officer determination as to

[[Page 314]]

whether or not the submitted data were accurate, complete, and current 
as of the certified date and whether or not the Government relied on the 
data, and (2) the results of any contractual action taken. The 
contracting officer shall send one copy of this memorandum to the 
auditor and, if the contract has been assigned for administration, one 
copy to the administrative contracting officer (ACO). The contracting 
officer shall notify the contractor by copy of this memorandum, or 
otherwise, of the determination.
    (e) If (1) both contractor and subcontractor submitted and (2) the 
contractor certified, or should have certified, cost or pricing data, 
the Government has the right, under the clauses at 52.215-22, Price 
Reduction for Defective Cost or Pricing Data, and 52.215-23, Price 
Reduction for Defective Cost or Pricing Data--Modifications, to reduce 
the prime contract price if it was significantly increased because a 
subcontractor submitted defective data. This right applies whether these 
data supported subcontract cost estimates or supported firm agreements 
between subcontractor and contractor.
    (f) If Government audit discloses defective subcontractor cost or 
pricing data, the information necesssary to support a reduction in prime 
contract and subcontract prices may be available only from the 
Government. To the extent necessary to secure a prime contract price 
reduction, the contracting officer should make this information 
available to the prime contractor or appropriate subcontractors upon 
request. If release of the information would compromise Government 
security or disclose trade secrets or confidential business information, 
the contracting officer shall release it only under conditions that will 
protect it from improper disclosure. Information made available under 
this paragraph shall be limited to that used as the basis for the prime 
contract price reduction. In order to afford an opportunity for 
corrective action, the contracting officer should give the prime 
contractor reasonable advance notice before determining to reduce the 
prime contract price.
    (1) When a prime contractor includes defective subcontract data in 
arriving at the price but later awards the subcontract to a lower priced 
subcontractor (or does not subcontract for the work), any adjustment in 
the prime contract price due to defective subcontract data is limited to 
the difference (plus applicable indirect cost and profit markups) 
between (i) the subcontract price used for pricing the prime contract 
and (ii) either the actual subcontract price or the actual cost to the 
contractor, if not subcontracted, provided the data on which the actual 
subcontract price is based are not themselves defective.
    (2) Under cost-reimbursement contracts and under all fixed-price 
contracts except (i) firm-fixed-price contracts and (ii) contracts with 
economic price adjustment, payments to subcontractors that are higher 
than they would be had there been no defective subcontractor cost or 
pricing data shall be the basis for disallowance or nonrecognition of 
costs under the clauses prescribed in 15.804-8. The Government has a 
continuing and direct financial interest in such payments that is 
unaffected by the initial agreement on prime contract price.
[48 FR 42187, Sept. 19, 1983, as amended at 53 FR 10829, Apr. 1, 1988; 
55 FR 52790, Dec. 21, 1990; 60 FR 48216, Sept. 18, 1995]



15.804-8  Contract clauses and solicitation provisions.

    (a) Price reduction for defective cost or pricing data. The 
contracting officer shall, when contracting by negotiation, insert the 
clause at 52.215-22, Price Reduction for Defective Cost or Pricing Data, 
in solicitations and contracts when it is contemplated that cost or 
pricing data will be required from the contractor or any subcontractor 
(see 15.804-2).
    (b) Price reduction for defective cost or pricing data--
modifications. The contracting officer shall, when contracting by 
negotiation, insert the clause at 52.215-23, Price Reduction for 
Defective Cost or Pricing Data--Modifications, in solicitations and 
contracts when (1) it is contemplated that cost or pricing data will be 
required from the contractor or any subcontractor (see 15.804-2) for the 
pricing of contract modifications, and (2) the clause prescribed in 
paragraph (a) of this subsection has not been included.
    (c) Subcontractor cost or pricing data. The contracting officer 
shall insert the clause at 52.215-24, Subcontractor Cost or Pricing 
Data, in solicitations and contracts when the clause prescribed in 
paragraph (a) above is included.
    (d) Subcontractor cost or pricing data--modifications. The 
contracting officer shall insert the clause at 52.215-25, Subcontractor 
Cost or Pricing Data--Modifications, in solicitations and contracts when 
the clause prescribed in paragraph (b) above is included.
    (e) Termination of defined benefit pension plans. The contracting 
officer shall insert the clause at 52.215-27, Termination of Defined 
Benefit Pension Plans, in solicitations and contracts for which it is 
anticipated that cost or pricing data will be required or for which any 
preaward or postaward cost determinations will be subject to part 31.
    (f) Postretirement benefit funds. The contracting officer shall 
insert the clause at 52.215-39, Reversion or Adjustment of Plans for 
Postretirement Benefits Other Than Pensions (PRB), in solicitations and 
contracts for which it is anticipated that cost or pricing data will be 
required or for which any preaward or postaward cost determination will 
be subject to part 31.

[[Page 315]]

    (g) Notification of ownership changes. The contracting officer shall 
insert the clause at 52.215-40, Notification of Ownership Changes, in 
solicitations and contracts for which it is contemplated that cost or 
pricing data will be required or for which any preaward or postaward 
cost determination will be subject to subpart 31.2.
    (h) Requirements for cost or pricing data or information other than 
cost or pricing data. Considering the hierarchy at 15.802, the 
contracting officer may insert the provision at 52.215-41, Requirements 
for Cost or Pricing Data or Information Other Than Cost or Pricing Data, 
in solicitations if it is reasonably certain that cost or pricing data 
or information other than cost or pricing data will be required. This 
provision also provides instructions to offerors on how to request an 
exception. Use the provision with Alternate I to specify a format for 
cost or pricing data other than the format required by Table 15-2 of 
15.804-6(b). Use the provision with Alternate II when copies of the 
proposal are to be sent to the administrative contracting officer and 
contract auditor. Use the provision with Alternate III when submission 
via electronic media is required. Replace the basic provision with 
Alternate IV when a SF 1411 will not be required because an exception 
may apply, but information other than cost or pricing data is required 
as described in 15.804-5.
    (i) Requirements for cost or pricing data or information other than 
cost or pricing data--modifications. Considering the hierarchy at 
15.802, the contracting officer may insert the clause at 52.215-42, 
Requirements for Cost or Pricing Data or Information Other Than Cost or 
Pricing Data--Modifications, in solicitations and contracts if it is 
reasonably certain that cost or pricing data or information other than 
cost or pricing data will be required for modifications. This clause 
also provides instructions to contractors on how to request an 
exception. Use the clause with Alternate I to specify a format for cost 
or pricing data other than the format required by Table 15-2 of 15.804-
6(b). Use the clause with Alternate II if copies of the proposal are to 
be sent to the administrative contracting officer and contract auditor. 
Use the clause with Alternate III if submission via electronic media is 
required. Replace the basic clause with Alternate IV if a SF 1411 is not 
required because an exception may apply, but information other than cost 
or pricing data is required as described in 15.804-5.
[48 FR 42187, Sept. 19, 1983, as amended at 53 FR 10830, Apr. 1, 1988; 
54 FR 34753, Aug. 21, 1989; 56 FR 29127, June 25, 1991; 59 FR 67035, 
Dec. 28, 1994; 60 FR 48216, Sept. 18, 1995; 61 FR 2633, Jan. 26, 1996]



15.805  Proposal analysis.



15.805-1  General.

    (a) The contracting officer, exercising sole responsibility for the 
final pricing decision, shall, as appropriate, coordinate a team of 
experts and request and evaluate the advice of specialists in such 
fields as contracting, finance, law, contract audit, packaging, quality 
control, engineering, traffic management, and contract pricing. The 
contracting officer should have appropriate specialists attend the 
negotiations when complex problems involving significant matters will be 
addressed. The contracting officer may assign responsibility to a 
negotiator or price analyst for (1) determining the extent of 
specialists' advice needed and evaluating that advice, (2) coordinating 
a team of experts, (3) consolidating pricing data and developing a 
prenegotiation objective (see 15.807), and (4) conducting negotiations.
    (b) When cost or pricing data are required, the contracting officer 
shall make a cost analysis to evaluate the reasonableness of individual 
cost elements. In addition, the contracting officer should make a price 
analysis to ensure that the overall price offered is fair and 
reasonable. When cost or pricing data are not required, the contracting 
officer shall make a price analysis to ensure that the overall price 
offered is fair and reasonable.
    (c) The contracting officer shall require prospective contractors to 
perform (1) price analysis for all significant proposed subcontracts and 
purchase orders and (2) cost analysis when the prospective subcontractor 
is required to submit cost or pricing data or the contractor is unable 
to perform an adequate price analysis (see 15.806-1(a)(2)).
    (d) The Air Force Institute of Technology (AFIT) and the Federal 
Acquisition Institute (FAI) jointly prepared a series of five desk 
references to guide pricing and negotiation personnel. The five desk 
references are: Price Analysis, Cost Analysis, Quantitative Techniques 
for Contract Pricing, Advanced Issues in Contract Pricing, and Federal 
Contract Negotiation Techniques. The references provide detailed 
discussion and examples applying pricing policies to pricing problems. 
They are to be used for instruction and professional guidance. However, 
they are not directive and should be considered informational only. 
Copies of the desk references are available on CD-ROM which also 
contains the FAR, the FTR and various other regulations and training 
materials. The CD-ROM may be purchased by annual subscription (updated 
quarterly), or individually (reference ``List ID GSAFF,'' Stock No. 722-
009-0000-2). The individual CD-ROMs or subscription to the CD-ROM may be 
purchased from the Superintendent of Documents, U.S. Government Printing 
Office, by telephone (202) 512-1800 or facsimile (202) 512-2550, or by 
mail

[[Page 316]]

order from the Superintendent of Documents, P.O. Box 371954, Pittsburgh, 
PA 15250-7954. Free copies of the desk references are available on the 
World Wide Web, Internet address: http://www.gsa.gov/staff/v/
training.htm
[48 FR 42187, Sept. 19, 1983, as amended at 56 FR 15150, Apr. 15, 1991; 
60 FR 48217, Sept. 18, 1995; 61 FR 31621, June 20, 1996; 61 FR 41469, 
Aug. 8, 1996]



15.805-2  Price analysis.

    The contracting officer is responsible for selecting and using 
whatever price analysis techniques will ensure a fair and reasonable 
price. One or more of the following techniques may be used to perform 
price analysis:
    (a) Comparison of proposed prices received in response to the 
solicitation.
    (b) Comparison of prior proposed prices and contract prices with 
current proposed prices for the same or similar end items. To provide a 
suitable basis for comparison, the contracting officer should consider 
differences in specifications, quantities ordered, time for delivery, 
Government-furnished materials, experienced trends of improvement in 
production efficiency, and when prior acquisitions occurred. Any 
comparison will not be valid unless the reasonableness of the prior 
price was established. The comparison may not detect an unreasonable 
proposed price unless changes in the general level of business in the 
industry which may impact prices are taken into account.
    (c) Application of rough yardsticks (such as dollars per pound or 
per horsepower, or other units) to highlight significant inconsistencies 
that warrant additional pricing inquiry.
    (d) Comparison with competitive published price lists, published 
market prices of commodities, similar indexes, and discount or rebate 
arrangements.
    (e) Comparison of proposed prices with independent Government cost 
estimates (see 15.803(b)).
    (f) Comparison of proposed prices with prices for the same or 
similar items obtained through market research.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 55 FR 52791, Dec. 21, 1990; 60 FR 48217, 
Sept. 18, 1995]



15.805-3  Cost analysis.

    The contracting officer shall, as appropriate, use the techniques 
and procedures outlined in paragraphs (a) through (f) below to perform 
cost analysis:
    (a) Verification of cost or pricing data and evaluation of cost 
elements, including--
    (1) The necessity for and reasonableness of proposed costs, 
including allowances for contingencies;
    (2) Projection of the offeror's cost trends, on the basis of current 
and historical cost or pricing data;
    (3) A technical appraisal of the estimated labor, material, tooling, 
and facilities requirements and of the reasonableness of scrap and 
spoilage factors; and
    (4) The application of audited or negotiated indirect cost rates 
(see subpart 42.7), labor rates, and cost of money or other factors.
    (b) Evaluating the effect of the offeror's current practices on 
future costs. In conducting this evaluation, the contracting officer 
shall ensure that the effects of inefficient or uneconomical past 
practices are not projected into the future. In pricing production of 
recently developed, complex equipment, the contracting officer should 
make a trend analysis of basic labor and materials even in periods of 
relative price stability.
    (c) Comparison of costs proposed by the offeror for individual cost 
elements with--
    (1) Actual costs previously incurred by the same offeror;
    (2) Previous cost estimates from the offeror or from other offerors 
for the same or similar items;
    (3) Other cost estimates received in response to the Government's 
request;
    (4) Independent Government cost estimates by technical personnel; 
and
    (5) Forecasts or planned expenditures.
    (d) Verification that the offeror's cost submissions are in 
accordance with the contract cost principles and procedures in part 31 
and, when applicable, the requirements and procedures in 48 CFR Chapter 
99 (Appendix B, FAR loose-leaf edition).
    (e) Review to determine whether any cost or pricing data necessary 
to make the contractor's proposal accurate, complete, and current have 
not been either submitted or identified in writing by the contractor. If 
there are such data, the contracting officer shall attempt to obtain 
them and negotiate, using them or making satisfactory allowance for the 
incomplete data.
    (f) Analysis of the results of any make-or-buy program reviews, in 
evaluating subcontract costs.
[48 FR 42187, Sept. 19, 1983, as amended at 57 FR 39586, August 31, 
1992]



15.805-4  Technical analysis.

    When cost or pricing data are required, the contracting officer 
should generally request a technical analysis of proposals, asking that 
requirements, logistics, or other appropriate qualified personnel review 
and assess, as a minimum--
    (a) The quantities and kinds of material proposed;
    (b) The need for the number and kinds of labor hours and the labor 
mix;

[[Page 317]]

    (c) The special tooling and facilities proposed;
    (d) The reasonableness of proposed scrap and spoilage factors; and
    (e) Any other data that may be pertinent to the cost or price 
analysis.



15.805-5  Field pricing support.

    (a)(1) When cost or pricing data are required, contracting officers 
shall request a field pricing report (which may include an audit review 
by the cognizant contract audit activity) before negotiating any 
contract or modification resulting from a proposal in excess of 
$500,000, except as otherwise authorized under agency procedures, unless 
information available to the contracting officer is considered adequate 
to determine the reasonableness of the proposed cost or price. The 
contracting officer should contact the cognizant audit office to 
determine the existence of audits addressing proposed indirect costs. In 
accordance with 41 U.S.C. 254d and 10 U.S.C. 2313, the contracting 
officer shall not request a preaward audit of such indirect costs unless 
the information available from any existing audit completed within the 
preceding 12 months is considered inadequate for determining the 
reasonableness of the proposed indirect costs. Requests for field 
pricing support should be tailored to ask for minimum essential 
information needed to ensure a fair and reasonable price. Information of 
the type described in subdivisions (a)(1)(i) through (a)(1)(vi) of this 
subsection, which is often available to the contracting officer from the 
Administrative Contracting Officer or from the cognizant auditor, may be 
useful in determining the extent of any field pricing support that is 
needed--
    (i) An engineering determination of the level of effort required for 
research and development or study contracts;
    (ii) Audited cost information from contract awards in process or 
recently negotiated contracts;
    (iii) Analyzed data on proposed subcontract items which constitute 
the major portion of the prime contract price proposal;
    (iv) Prices of standard commercial items which constitute the major 
portion of the prime contract price proposal;
    (v) Special forward pricing formulae or rates prescribed in an 
existing advance agreement of forecasted overhead rates;
    (vi) Current labor rates, overhead rates, loading factors, per diem 
rates, and actual costs and labor hours for production lots. No single 
category of information is necessarily sufficient by itself; for 
example, information on the rates for labor and overhead would normally 
require data concerning the base elements--labor hours, material costs, 
etc.--to which the rates apply. When available data are considered for a 
reasonableness determination, the contracting officer shall document the 
contract file to reflect the basis of the determination.
    (2) Field pricing reports are intended to give the contracting 
officer a detailed analysis of the proposal, for use in contract 
negotiations. Field pricing support personnel include, but are not 
limited to, administrative contracting officers, contract auditors, 
price analysts, quality assurance personnel, engineers, and small 
business and legal specialists.
    (b) Contracting officers should not request field pricing support 
for proposed contracts or modifications of an amount less than that 
specified in subparagraph (a)(1) above. An exception may be made when a 
reasonable pricing result cannot be established, because of (1) lack of 
knowledge of the particular contractor, (2) sensitive conditions, or (3) 
an inability to evaluate the price reasonableness through price analysis 
or cost analysis of existing data.
    (c)(1) When initiating field pricing support, the contracting 
officer shall do so by sending a request to the cognizant administrative 
contracting officer (ACO). If an audit is all that is needed, the 
contracting officer may initiate an audit by sending the request 
directly to the cognizant audit office. In both cases, the contracting 
officer shall, in the request, (i) prescribe the extent of the support 
needed, (ii) state the specific areas for which input is required, (iii) 
include the information necessary to perform the review (such as the 
offeror's proposal and the applicable portions of the solicitation, 
particularly those describing requirements and delivery schedules), and 
(iv) assign a realistic deadline for receipt of the report.
    (2) Assignment of unrealistically short deadlines may reduce the 
quality of the audit and field pricing reports and may make it 
impossible to establish the fairness and reasonableness of the price.
    (3) Agency field pricing procedures shall not preclude free and open 
communication among the contracting officer, ACO, and auditor.
    (4) When the contracting officer requires a field pricing review of 
requests for equitable adjustments, the contracting officer should 
provide the information listed in 43.204(b)(5).
    (d) Only the auditor shall have general access to the offeror's 
books and financial records. This limitation does not preclude the 
contracting officer, the ACO, or their representatives from requesting 
any data from or reviewing offeror records necessary to the discharge of 
their responsibilities. The duties of auditors and those of other 
specialists may require both to evaluate the same elements of estimated 
costs. They shall review the data jointly or concurrently when possible, 
the auditor rendering services within the audit area of responsibility 
and the other specialists rendering services within their own areas of 
responsibility. The ACO or

[[Page 318]]

auditor, as appropriate, shall orally notify the contracting officer 
immediately of data provided that is so deficient as to preclude review 
and any denial of access to records or to cost or pricing data 
considered essential to the performance of satisfactory review. The oral 
notification shall be promptly confirmed in writing to the contracting 
officer describing the deficient or denied data or records, with copies 
of the deficient data if requested by the contracting officer, the need 
for the evidence, and the costs unsupported as a result of the denial. 
The contracting officer shall review the written notification and shall 
take immediate action to obtain the data needed. If the offeror persists 
in refusing to provide the data, and the contracting officer determines 
that the data is essential for a fair and reasonable price 
determination, then the contracting officer shall proceed with the 
action outlined in 15.804-6(e).
    (e) The auditor shall begin the audit as soon as possible after 
receiving the contracting officer's request. The auditor is responsible 
for the scope and depth of the audit. As a minimum, the audit report 
shall include the following:
    (1) The findings on specific areas listed in the contracting 
officer's request.
    (2) An explanation of the basis and method used by the offeror in 
proposal preparation.
    (3) An identification of the original proposal and of all subsequent 
written formal and other identifiable submissions by which cost or 
pricing data were either submitted or identified.
    (4) A description of cost or pricing data coming to the attention of 
the auditor that were not submitted but that may have a significant 
effect on the proposed cost or price.
    (5) A list of any cost or pricing data submitted that are not 
accurate, complete and current and of any cost representations that are 
unsupported. When the result of deficiencies is so great that the 
auditor cannot perform an audit or considers the proposal unacceptable 
as a basis for negotiation, the contracting officer shall be orally 
notified so that prompt corrective action may be taken, as provided by 
15.805-5(d). The auditor will immediately confirm the notification in 
writing, explaining the deficiencies and the cost impact on the 
proposal.
    (6) The originals of all technical analyses received by the auditor 
and a quantification of the dollar effect of the technical analysis 
findings.
    (7) If the auditor believes that the offeror's estimating methods or 
accounting system are inadequate to support the proposal or to permit 
satisfactory administration of the contract contemplated, a statement to 
that effect.
    (8) A statement of the extent to which the auditor has discussed 
discrepancies or mistakes of fact in the proposal with the offeror.
    (f) The auditor shall not discuss auditor conclusions or 
recommendations on the offeror's estimated or projected costs with the 
offeror unless specifically requested to do so by the contracting 
officer.
    (g) If field pricing support was not requested, the auditor shall 
send the completed audit report directly to the contracting officer. If 
field pricing support was requested, the auditor shall send the 
completed audit report to the ACO for forwarding, without change, with 
the field pricing report. The ACO shall consolidate the field pricing 
report inputs and send a field pricing report, accompanied by the 
original copy of the audit report, to the contracting officer by the 
assigned date. The ACO shall send the auditor a copy of the field 
pricing report (without the audit report and technical analysis). Audit 
and field pricing reports shall be made a part of the official contract 
file.
    (h) If any information is disclosed after submission of a proposal 
that may significantly affect the audit findings, the contracting 
officer shall require the offeror to provide concurrent copies to the 
appropriate field pricing office (ACO and audit offices). In that case, 
the ACO or auditor, as appropriate, will be requested to immediately 
review the disclosed information and orally report the findings to the 
contracting officer, followed by a supplemental report when considered 
necessary.
    (i) The requirements for field pricing support reports for 
subcontracts are prescribed in 15.806.
    (j) Field pricing reports, including audit and technical reports, 
may contain proprietary and/or source selection information (see 3.104-
3), and the cover page and all pages containing such information should 
be marked with the appropriate legend and protected accordingly.
[48 FR 42187, Sept. 19, 1983, as amended at 51 FR 27119, July 29, 1986; 
51 FR 36971, Oct. 16, 1986; 54 FR 20496, May 11, 1989; 54 FR 34753, Aug. 
21, 1989; 55 FR 36796, Sept. 6, 1990; 55 FR 52791, Dec. 21, 1990; 56 FR 
15150, Apr. 15, 1991; 60 FR 42650, Aug. 16, 1995; 61 FR 2634, Jan. 26, 
1996; 62 FR 233, Jan. 2, 1997]



15.806  Subcontract pricing considerations.



15.806-1  General.

    (a)(1) The contracting officer is responsible for the determination 
of price reasonableness for the prime contract. In order to make this 
determination, it is required that an analysis be conducted of all the 
relevant facts and data including subcontractor cost or pricing data 
required to be submitted, results of the prime or higher tier 
subcontractor's analyses of subcontractor proposals, the field pricing 
support (if any), and historical pricing data. The fact that a 
contractor or higher tier subcontractor has an approved purchasing 
system or performs an analysis of

[[Page 319]]

subcontractor cost or pricing data does not in any way relieve the 
contracting officer or field pricing support team from the 
responsibility to analyze the prime contractor's submission, including 
the subcontractor cost or pricing data. However, the prime contractor or 
higher tier subcontractor is responsible for conducting appropriate 
price and cost analysis before awarding any subcontract.
    (2) Subcontractors must submit to the contractor or higher tier 
subcontractor, cost or pricing data or requests for exception from the 
requirement to submit them. The contractor and the higher tier 
subcontractor shall:
    (i) Conduct price analyses and, when the subcontractor is required 
to submit cost or pricing data, or if the contractor or higher tier 
subcontractor is unable to perform an adequate price analysis, cost 
analyses for all subcontracts,
    (ii) Include the results of these analyses as part of their own cost 
or pricing data submission, and
    (iii) When required, in accordance with 15.806-2(a), submit the 
subcontractor cost or pricing data as part of their own cost or pricing 
data submission.
    (b) Unless the subcontract qualifies for an exception under 15.804-
1, any contractor required to submit cost or pricing data also shall 
obtain cost or pricing data before awarding any subcontract or purchase 
order expected to exceed the cost or pricing data threshold, or issuing 
any modification involving a price adjustment expected to exceed the 
cost or pricing data threshold.
    (c) The requirements in paragraphs (a) and (b) of this subsection, 
modified to relate to higher tier subcontractors rather than to the 
prime contractor, shall apply to lower tier subcontracts for which 
subcontractor cost or pricing data are required.
    (d) If the prime contractor negotiates subcontract prices before 
negotiating the prime contract, such subcontract prices must 
nevertheless be reviewed and analyzed by the Government. In no instance 
should such negotiated subcontract prices be accepted as the sole 
evidence that these prices are fair and reasonable.
[54 FR 34754, Aug. 21, 1989, as amended at 56 FR 67414, Dec. 30, 1991; 
60 FR 48217, Sept. 18, 1995]



15.806-2  Prospective subcontractor cost or pricing data.

    (a) The contracting officer shall require a contractor that is 
required to submit cost or pricing data also to submit to the Government 
(or cause submission of) accurate, complete, and current cost or pricing 
data from prospective subcontractors in support of each subcontract cost 
estimate that is
    (1) $1,000,000 or more,
    (2) Both more than the cost or pricing data threshold and more than 
10 percent of the prime contractor's proposed price, or
    (3) Considered to be necessary for adequately pricing the prime 
contract. These subcontract cost or pricing data may be submitted using 
a Standard Form (SF) 1411, Contract Pricing Proposal Cover Sheet (Cost 
or Pricing Data Required).
    (b) The contracting officer shall require the prospective contractor 
to support subcontractor cost estimates below the threshold in 15.806-
1(b) with any data or information (including other subcontractor 
quotations) needed to establish a reasonable price.
    (c) If the prospective contractor satisfies the contracting officer 
that a subcontract will be priced on the basis of one of the exceptions, 
the contracting officer shall not require submission of cost or pricing 
data to the Government in that case. If the subcontract estimate is 
based upon the cost or pricing data of the prospective subcontractor 
most likely to be awarded the subcontract, the contracting officer shall 
not require submission to the Government of data from more than one 
proposed subcontractor for that subcontract.
    (d) Subcontractor cost or pricing data shall be accurate, complete, 
and current as of the date of price agreement or, if applicable, another 
date agreed upon between the parties, given on the contractor's 
Certificate of Current Cost or Pricing Data. The prospective contractor 
shall be responsible for updating a prospective subcontractor's data.
    (e) In exceptional cases, the contracting officer may, with the 
approval of the chief of the contracting office, excuse a prospective 
contractor from submitting subcontractor cost or pricing data and the 
required related analyses before completion of negotiations of the prime 
contract. The prime contractor must, however, obtain this cost or 
pricing data before award of the subcontract in question. Any request 
from a prospective contractor to be excused from submitting 
subcontractor data before completion of negotiations of the prime 
contract must be supported by an explanation as to why the data and 
analyses cannot be submitted in a timely manner. If excusing the 
prospective contractor appears to be appropriate, the contracting 
officer shall provide the chief of the contracting office with the 
prospective contractor's explanation, the contracting officer's 
supporting rationale, and a discussion of how the subcontract price will 
be determined to be fair and reasonable or what steps will be taken to 
protect the interest of the Government, e.g., include a contract clause 
that provides for negotiating an adjustment to the prime contract amount 
after award.

[[Page 320]]

[54 FR 34754, Aug. 21, 1989, as amended at 56 FR 67414, Dec. 30, 1991; 
60 FR 48217, Sept. 18, 1995]



15.806-3  Field pricing reports.

    (a) When obtaining field pricing support on a prime contractor 
proposal in accordance with 15.805-5, the contracting officer should 
request audit or field pricing support to analyze and evaluate the 
proposal of a subcontractor at any tier (notwithstanding availability of 
data or analyses performed by the prime contractor) if the contracting 
officer believes that such support is necessary to ensure reasonableness 
of the total proposed price. This step may be appropriate when, for 
example--
    (1) There is a business relationship between the contractor and 
subcontractor not conducive to independence and objectivity;
    (2) The contractor is a sole source and the subcontract costs 
represent a substantial part of the contract cost;
    (3) The contractor has been denied access to the subcontractor's 
records;
    (4) The contracting officer determines that, because of factors such 
as the size of the proposed subcontract price, audit or field pricing 
support for a subcontract or subcontracts at any tier is critical to a 
fully detailed analysis of the prime contract proposal;
    (5) The contractor or higher tier subcontractor has been cited for 
having significant estimating system deficiencies in the area of 
subcontract pricing, especially the failure to perform adequate cost 
analyses of proposed subcontract costs or to perform subcontract 
analyses prior to negotiation of the prime contract with the Government; 
or
    (6) A lower tier subcontractor has been cited as having significant 
estimating system deficiencies.
    (b) When the contracting officer requests the cognizant ACO or 
auditor to review a subcontractor's cost estimates, the request shall 
include, when available, a copy of any review prepared by the prime 
contractor or higher tier subcontractor, the subcontractor's proposal, 
cost or pricing data provided by the subcontractor, and the results of 
the prime contractor's cost or price analysis.
    (c) When the Government performs the subcontract analysis, the 
Government shall furnish to the prime contractor or higher tier 
subcontractor, with the consent of the subcontractor reviewed, a summary 
of the analysis performed in determining any unacceptable costs, by 
element, included in the subcontract proposal. If the subcontractor 
withholds consent, the Government shall furnish a range of unacceptable 
costs for each element in such a way as to prevent disclosure of 
subcontractor proprietary data.
[54 FR 34753, Aug. 21, 1989, as amended at 61 FR 2635, Jan 26, 1996]



15.807  Prenegotiation objectives.

    (a) The process of determining prenegotiation objectives helps the 
contracting officer to judge the overall reasonableness of proposed 
prices and to negotiate a fair and reasonable price or cost and fee. In 
setting the prenegotiation objectives, the contracting officer shall 
analyze the offeror's proposal, taking into account the field pricing 
report, if any; any audit report and technical analysis whether or not 
part of a field pricing report; and other pertinent data such as 
independent Government cost estimates and price histories. This process 
may include fact-finding sessions with the offeror when the contracting 
officer deems appropriate.
    (b) The contracting officer shall establish prenegotiation 
objectives before the negotiation of any pricing action. The scope and 
depth of the analysis supporting the objectives should be directly 
related to the dollar value, importance, and complexity of the pricing 
action. When cost analysis is required, the analysis shall address (1) 
the pertinent issues to be negotiated, (2) the cost objectives, and (3) 
a profit or fee objective.
    (c) The Government's cost objective and proposed pricing arrangement 
directly affect the profit or fee objective. Because profit or fee is 
only one of several interrelated variables, the contracting officer 
shall not agree on profit or fee without concurrent agreement on cost 
and type of contract. Specific agreement on the exact values or weights 
assigned to individual profit-analysis factors (see 15.905) is not 
required during negotiations and should not be attempted.



15.808  Price negotiation memorandum.

    (a) At the conclusion of each negotiation of an initial or revised 
price, the contracting officer shall promptly prepare a memorandum of 
the principal elements of the price negotiation. The memorandum shall be 
included in the contract file and shall contain the following minimum 
information:
    (1) The purpose of the negotiation.
    (2) A description of the acquisition, including appropriate 
identifying numbers (e.g., RFP No.).
    (3) The name, position, and organization of each person representing 
the contractor and the Government in the negotiation.
    (4) The current status of the contractor's purchasing system when 
material is a significant cost element and the current status of other 
contractor systems (e.g., estimating, accounting, and compensation) to 
the extent that these additional systems affected and were considered in 
the negotiation.
    (5) If cost or pricing data were required, the extent to which the 
contracting officer--
    (i) Relied on the cost or pricing data submitted and used them in 
negotiating the price; and

[[Page 321]]

    (ii) Recognized as inaccurate, incomplete, or noncurrent any cost or 
pricing data submitted; the action taken by the contracting officer and 
the contractor as a result; and the effect of the defective data on the 
price negotiated.
    (6) If cost or pricing data were not required in the case of any 
price negotiation exceeding the cost or pricing data threshold, the 
exception used and the basis for it.
    (7) A summary of the contractor's proposal, the field pricing report 
recommendations, and the reasons for any pertinent variances from the 
field pricing report recommendations. Where the determination of price 
reasonableness is based on cost analysis, the summary shall address the 
amount of each major cost element: (i) Proposed by the contractor, (ii) 
recommended by the field or other pricing assistance report (if any), 
(iii) contained in the Government's negotiation objective, and (iv) 
considered negotiated as a part of the price.
    (8) The most significant facts or considerations controlling the 
establishment of the prenegotiation price objective and the negotiated 
price including an explanation of any significant differences between 
the two positions. To the extent such direction is received, the price 
negotiation memorandum (PNM) shall discuss and quantify the impact of 
direction given by Congress, other agencies, and higher level officials 
(i.e., officials who would not normally exercise authority during the 
award and review process for the instant contract action) if the 
direction has had a significant effect on the action.
    (9) The basis for determining the profit or fee prenegotiation 
objective and the profit or fee negotiated.
    (b) Whenever a field pricing report has been submitted, the 
contracting officer shall forward a copy of the price negotiation 
memorandum (PNM) to the cognizant audit office and a copy to the 
cognizant administrative contracting officer. When appropriate, 
information on how the advisory services of the field pricing support 
team can be made more effective should be provided separately.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 52 FR 19803, May 27, 1987; 55 FR 52791, Dec. 
21, 1990; 56 FR 67414, Dec. 30, 1991; 60 FR 48217, Sept. 18, 1995]



15.809  Forward pricing rates agreements.

    (a) Negotiation of forward pricing rate agreements (FPRA's) may be 
requested by the contracting officer or the contractor or initiated by 
the administrative contracting officer (ACO). In determining whether or 
not to establish such an agreement, the ACO should consider whether the 
benefits to be derived from the agreement are commensurate with the 
effort of establishing and monitoring it. Normally, FPRA's should be 
negotiated only with contractors having a significant volume of 
Government contract proposals. The cognizant contract administration 
agency shall determine whether an FPRA will be established.
    (b) The ACO shall obtain the contractor's proposal and require that 
it include cost or pricing data that are accurate, complete, and current 
as of the date of submission. The ACO shall invite the cognizant 
contract auditor and contracting offices having a significant interest 
to participate in developing a Government objective and in the 
negotiations. Upon completing negotiations, the ACO shall prepare a 
price negotiation memorandum (PNM) (see 15.808) and forward copies of 
the PNM and FPRA to the cognizant auditor and to all contracting offices 
that are known to be affected by the FPRA. A Certificate of Current Cost 
or Pricing Data shall not be required at this time (see 15.804-4(g)).
    (c) The FPRA shall provide specific terms and conditions covering 
expiration, application, and data requirements for systematic monitoring 
to assure the validity of the rates. The agreement shall provide for 
cancellation at the option of either party and shall require the 
contractor to submit to the ACO and to the cognizant contract auditor 
any significant change in cost or pricing data.
    (d) Offerors are required (see 15.804-4(g)) to describe any FPRA's 
in each specific pricing proposal to which the rates apply and identify 
the latest cost or pricing data already submitted in accordance with the 
agreement. All data submitted in connection with the agreement, updated 
as necessary, form a part of the total data that the offeror certifies 
to be accurate, complete, and current at the time of agreement on price 
for an initial contract or for a contract modification.
    (e) Contracting officers will use FPRA rates as bases for pricing 
all contracts, modifications, and other contractual actions to be 
performed during the period covered by the agreement, unless the ACO 
determines that changed conditions have invalidated part or all of the 
agreement. Conditions that may affect the agreement's validity shall be 
promptly reported to the ACO. If the ACO determines that a changed 
condition has invalidated the agreement, the ACO shall notify all 
interested parties of the extent of its effect and initiate revision of 
the agreement.
    (f) When the FPRA has been invalidated, the contractor, ACO, and 
contracting officer shall reflect the changed conditions in proposals, 
cost analyses, and negotiations, pending revision of the agreement. If 
an FPRA has not been established or has been invalidated, the ACO will 
issue a forward pricing rate recommendation (FPRR) to buying activities 
with documentation to assist negotiators in achieving recommended rates. 
In

[[Page 322]]

the absence of a FPRA or FPRR, field pricing reports will include 
support for rates utilitzed.
[48 FR 42187, Sept. 19, 1983, as amended at 55 FR 52791, Dec. 21, 1990]



15.810  Should-cost review.



15.810-1  General.

    (a) Should-cost reviews are a specialized form of cost analysis. 
Should-cost reviews differ from traditional evaluation methods. During 
traditional reviews, local contract audit and contract administration 
personnel primarily base their evaluation of forecasted costs on an 
analysis of historical costs and trends. In contrast, should-cost 
reviews do not assume that a contractor's historical costs reflect 
efficient and economical operation. Instead, these reviews evaluate the 
economy and efficiency of the contractor's existing work force, methods, 
materials, facilities, operating systems, and management. These reviews 
are accomplished by a multi-functional team of Government contracting, 
contract administration, pricing, audit, and engineering 
representatives. The objective of should-cost reviews is to promote both 
short and long-range improvements in the contractor's economy and 
efficiency in order to reduce the cost of performance of Government 
contracts. In addition, by providing rationale for any recommendations 
and quantifying their impact on cost, the Government will be better able 
to develop realistic objectives for negotiation.
    (b) There are two types of should-cost reviews--program should-cost 
review (see 15.810-2) and overhead should-cost review (see 15.810-3). 
These should-cost reviews may be performed together or independently. 
The scope of a should-cost review can range from a large-scale review 
examining the contractor's entire operation (including plant-wide 
overhead and selected major subcontractors) to a small-scale tailored 
review examining specific portions of a contractor's operation.
[61 FR 2635, Jan. 26, 1996]



15.810-2  Program should-cost review.

    (a) Program should-cost review is used to evaluate significant 
elements of direct costs, such as material and labor, and associated 
indirect costs, usually incurred in the production of major systems. 
When a program should-cost review is conducted relative to a contractor 
proposal, a separate audit report on the proposal is required.
    (b) A program should-cost review should be considered, particularly 
in the case of a major system acquisition (see part 34), when--
    (1) Some initial production has already taken place;
    (2) The contract will be awarded on a sole-source basis;
    (3) There are future year production requirements for substantial 
quantities of like items;
    (4) The items being acquired have a history of increasing costs;
    (5) The work is sufficiently defined to permit an effective analysis 
and major changes are unlikely;
    (6) Sufficient time is available to plan and conduct the should-cost 
review adequately; and
    (7) Personnel with the required skills are available or can be 
assigned for the duration of the should-cost review.
    (c) The contracting officer should decide which elements of the 
contractor's operation have the greatest potential for cost savings and 
assign the available personnel resources accordingly. While the 
particular elements to be analyzed are a function of the contract work 
task, elements such as manufacturing, pricing and accounting, management 
and organization, and subcontract and vendor management are normally 
reviewed in a should-cost review.
    (d) In acquisitions for which a program should-cost review is 
conducted, a separate program should-cost review team report, prepared 
in accordance with agency procedures, is required. Field pricing reports 
are required only to the extent that they contribute to the combined 
team position. The contracting officer shall consider the findings and 
recommendations contained in the program should-cost review team report 
when negotiating the contract price. After completing the negotiation, 
the contracting officer shall provide the administrative contracting 
officer (ACO) a report of any identified uneconomical or inefficient 
practices, together with a report of correction or disposition 
agreements reached with the contractor. The contracting officer shall 
establish a follow-up plan to monitor the correction of the uneconomical 
or inefficient practices.
    (e) When a program should-cost review is planned, the contracting 
officer should state this fact in the acquisition plan (see subpart 7.1) 
and in the solicitation.
[61 FR 2636, Jan. 26, 1996]



15.810-3  Overhead should-cost review.

    (a) An overhead should-cost review is used to evaluate indirect 
costs, such as fringe benefits, shipping and receiving, facilities and 
equipment, depreciation, plant maintenance and security, taxes, and 
general and administrative activities. It is normally used to evaluate 
and negotiate a forward pricing rate agreement (FPRA) with the 
contractor. When an overhead should-cost review is conducted, a separate 
audit report is required.
    (b) The following factors should be considered when selecting 
contractor sites for overhead should-cost reviews:

[[Page 323]]

    (1) Dollar amount of Government business.
    (2) Level of Government participation.
    (3) Level of noncompetitive Government contracts.
    (4) Volume of proposal activity.
    (5) Major system or program.
    (6) Mergers, acquisitions, takeovers.
    (7) Other conditions, e.g., changes in accounting systems, 
management, or business activity.
    (c) The objective of the overhead should-cost review is to evaluate 
significant indirect cost elements in-depth, identify inefficient and 
uneconomical practices, and recommend corrective action. If it is 
conducted in conjunction with a program should-cost review, a separate 
overhead should-cost review report is not required. However, the 
findings and recommendations of the overhead should-cost team, or any 
separate overhead should-cost review report, shall be provided to the 
ACO. The ACO should use this information to form the basis for the 
Government position in negotiating a FPRA with the contractor. The ACO 
shall establish a follow-up plan to monitor the correction of the 
uneconomical or inefficient practices.
[61 FR 2636, Jan. 26, 1996]



15.811  Estimating systems.

    (a) The consistent preparation of proposals using an acceptable 
estimating system benefits both the Government and the contractor by 
increasing the accuracy and reliability of individual proposals. 
Cognizant audit activities, when it is appropriate to do so, shall 
establish and manage regular programs for reviewing selected 
contractors' estimating systems or methods, in order to (1) reduce the 
scope of reviews to be performed on individual proposals, (2) expedite 
the negotiation process, and (3) increase the reliability of proposals. 
The results of estimating system reviews shall be documented in survey 
reports.
    (b) The auditor shall send a copy of the estimating system survey 
report and a copy of the official notice of corrective action required 
to each contracting office and contract administration office having 
substantial business with that contractor. Significant deficiencies not 
corrected by the contractor shall be a consideration in subsequent 
proposal analyses and negotiations.
    (c) In determining the acceptability of a contractor's estimating 
system, the auditor should consider--
    (1) The source of data for estimates and the procedures for ensuring 
that the data are accurate, complete, and current;
    (2) The documentation developed and maintained in support of the 
estimate;
    (3) The assignment of responsibilities for originating, reviewing, 
and approving estimates;
    (4) The procedures followed for developing estimates for direct and 
indirect cost elements;
    (5) The extent of coordination and communication between 
organizational elements responsible for the estimate; and
    (6) Management support, including estimate approval, establishment 
of controls, and training programs.



15.812  Unit prices.



15.812-1  General.

    (a) Direct and indirect costs are generally allocated to contracts 
in accordance with the Cost Accounting Standards of 48 CFR Chapter 99 
(when applicable) and the Contract Cost Principles and Procedures of 
part 31. However, for the purpose of pricing all items of supplies, 
distribution of those costs within contracts shall be on a basis that 
ensures the unit prices are in proportion to the item's base cost (e.g., 
manufacturing or acquisition costs. Any method of distributing costs to 
line items that distorts the unit prices shall not be used. For example, 
distributing costs equally among line items is not acceptable except 
when there is little or no variation in base cost.
    (b) However, the policy in paragraph (a) of this subsection does not 
apply to any contract or subcontract for acquisition of a commercial 
item.
    (c) In addition, when contracting by negotiation without full and 
open competition, contracting officers shall require that offerors 
identify in their proposals those items of supply which they will not 
manufacture or to which they will not contribute significant value. The 
contracting officer shall require similar information when contracting 
by negotiation with full and open competition if adequate price 
competition is not expected (see 15.804-1(b)(1)). The information need 
not be requested in connection with the award of contracts under the 
General Services Administration's competitive Multiple Award Schedule 
Program. The information shall not be requested for commercial items. 
Such information shall be used to determine whether the intrinsic value 
of an item has been distorted through application of overhead and 
whether such items should be considered for breakout. The contracting 
officer may require such information in any other negotiated contracts 
when appropriate.
[51 FR 27120, July 29, 1986 as amended at; 52 FR 21886, June 9, 1987; 53 
FR 27462, July 20, 1988; 56 FR 15150, Apr. 15, 1991; 57 FR 39587, Aug. 
31, 1992; 60 FR 48217, Sept. 18, 1995; 62 FR 259, Jan. 2, 1997]



15.812-2  Contract clause.

    (a) The contracting officer shall insert the clause at 52.215-26, 
Integrity of Unit Prices, in all solicitations and contracts for other 
than--

[[Page 324]]

    (1) Acquisitions at or below the simplified acquisition threshold;
    (2) Construction or architect-engineer services under part 36;
    (3) Utility services under part 41;
    (4) Service contracts where supplies are not required.
    (5) Acquisitions of commercial items; and
    (6) Contracts for petroleum products.
    (b) The contracting officer shall insert the clause with its 
Alternate I when contracting without full and open competition or when 
prescribed by agency regulations.
[51 FR 27120, July 29, 1986, as amended at 52 FR 21887, June 9, 1987; 56 
FR 15150, Apr. 15, 1991; 59 FR 67018, Dec. 28, 1994; 60 FR 34756, July 
3, 1995; 62 FR 259, Jan. 2, 1997]



15.813  [Reserved]



15.814  Unbalanced offers.

    (a) Offers shall also be analyzed to determine whether they are 
unbalanced with respect to prices or separately priced line items. This 
is particularly important when evaluating the relationship of the price 
for first article tests or test items to the price for the production 
units, and in evaluating the prices for options in relationship to the 
prices for the basic requirement.
    (b) An offer is mathematically unbalanced if it is based on prices 
which are significantly less than cost for some contract line items and 
significantly overstated in relation to cost for others. An offer is 
materially unbalanced if it is mathematically unbalanced, and if--
    (1) There is a reasonable doubt that the offer would result in the 
lowest overall cost to the Government, even though it is the lowest 
evaluated offer; or
    (2) The offer is so grossly unbalanced that its acceptance would be 
tantamount to allowing an advance payment.
    (c) Offers that are materially unbalanced may be rejected.
    (d) Depending on the nature of the acquisition, contracting officers 
shall use either price analysis or cost analysis techniques, or a 
combination of the two techniques, to determine if offers are materially 
unbalanced. The following are examples of techniques that can be used to 
determine if an offer is unbalanced. Although these examples 
specifically relate to first article testing, they may also be used for 
other procurements where unbalanced offers may be of concern.
    (1) Compare all offers to determine if the offerors have 
significantly higher prices for the first articles than for the 
production units. The comparison should consider whether the Government 
or the contractor will perform the first article test.
    (2) For an individual offer, compare the relationship of first 
article prices to prices for production items. The cost to the offeror 
for first articles may be estimated (i) By comparing the total price 
offered, including the first article to an alternate proposal by the 
same offeror which does not include first article testing (see 
9.306(d)); or (ii) if cost data has been submitted, by reviewing certain 
elements of cost to determine, for instance, whether manufacturing and 
special tooling, and test equipment costs, are prorated among the first 
articles and the production units, or are only applied to the first 
articles. If cost data are not available, it may be necessary for 
contracting officers to estimate contractor cost.
[55 FR 25529, June 21, 1990]



                          Subpart 15.9--Profit



15.900  Scope of subpart.

    This subpart--
    (a) Prescribes policies for establishing the profit or fee portion 
of the Government prenegotiation objective;
    (b) Applies to price negotiations based on cost analysis;
    (c) Prescribes policies for agencies' development and use of a 
structured approach for determining the profit or fee prenegotiation 
objective (see 15.905 for the contents of a structured approach); and
    (d) Specifies (1) situations requiring contracting officers to 
analyze profit and (2) considerations for that analysis.



15.901  General.

    (a) Profit or fee prenegotiation objectives do not necessarily 
represent net income to contractors. Rather, they represent that element 
of the potential total remuneration that contractors may receive for 
contract performance over and above allowable costs. This potential 
remuneration element and the Government's estimate of allowable costs to 
be incurred in contract performance together equal the Government's 
total prenegotiation objective. Just as actual costs may vary from 
estimated costs, the contractor's actual realized profit or fee may vary 
from negotiated profit or fee, because of such factors as efficiency of 
performance, incurrence of costs the Government does not recognize as 
allowable, and contract type.
    (b) It is in the Government's interest to offer contractors 
opportunities for financial rewards sufficient to (1) stimulate 
efficient contract performance, (2) attract the best capabilities of 
qualified large and small business concerns to Government contracts, and 
(3) maintain a viable industrial base.
    (c) Both the Government and contractors should be concerned with 
profit as a motivator of efficient and effective contract performance. 
Negotiations aimed merely at reducing prices by reducing profit, without 
proper recognition of the function of profit,

[[Page 325]]

are not in the Government's interest. Negotiation of extremely low 
profits, use of historical averages, or automatic application of 
predetermined percentages to total estimated costs do not provide proper 
motivation for optimum contract performance. With the exception of 
statutory ceilings in 15.903(d) on profit and fee, agencies shall not 
(1) establish administrative ceilings or (2) create administrative 
procedures that could be represented to contractors as de facto 
ceilings.



15.902  Policy.

    (a) Structured approaches (see 15.905) for determining profit or fee 
prenegotiation objectives provide a discipline for ensuring that all 
relevant factors are considered. Subject to the authorities in 1.301(c), 
agencies making noncompetitive contract awards over $100,000 totaling 
$50 million or more a year--
    (1) Shall use a structured approach for determining the profit or 
fee objective in those acquisitions that require cost analysis; and
    (2) May prescribe specific exemptions for situations in which 
mandatory use of a structured approach would be clearly inappropriate.
    (b) Agencies may use another agency's structured approach.



15.903  Contracting officer responsibilities.

    (a) When the price negotiation is not based on cost analysis, 
contracting officers are not required to analyze profit.
    (b) When the price negotiation is based on cost analysis, 
contracting officers in agencies that have a structured approach shall 
use it to analyze profit. When not using a structured approach, 
contracting officers shall comply with 15.905-1 in developing profit or 
fee prenegotiation objectives.
    (c) Contracting officers shall use the Government prenegotiation 
cost objective amounts as the basis for calculating the profit or fee 
prenegotiation objective. Before the allowability of facilities capital 
cost of money, this cost was included in profits or fees. Therefore, 
before applying profit or fee factors, the contracting officer shall 
exclude any facilities capital cost of money included in the cost 
objective amounts. If the prospective contractor fails to identify or 
propose facilities capital cost of money in a proposal for a contract 
that will be subject to the cost principles for contracts with 
commercial organizations (see subpart 31.2), facilities capital cost of 
money will not be an allowable cost in any resulting contract (see 
15.904).
    (d) (1) The contracting officer shall not negotiate a price or fee 
that exceeds the following statutory limitations, imposed by 10 U.S.C. 
2306(d) and 41 U.S.C. 254(b):
    (i) For experimental, developmental, or research work performed 
under a cost-plus-fixed-fee contract, the fee shall not exceed 15 
percent of the contract's estimated cost, excluding fee.
    (ii) For architect-engineering services for public works or 
utilities, the contract price or the estimated cost and fee for 
production and delivery of designs, plans, drawings, and specifications 
shall not exceed 6 percent of the estimated cost of construction of the 
public work or utility, excluding fees.
    (iii) For other cost-plus-fixed-fee contracts, the fee shall not 
exceed 10 percent of the contract's estimated cost, excluding fee.
    (2) The limitations in subdivisions (1)(i) and (iii) above shall 
apply also to the maximum fees on cost-plus-incentive-fee and cost-plus-
award-fee contracts. However, a deviation to the maximum-fee limitation 
for a specific cost-plus-incentive-fee or cost-plus-award-fee contract 
may be authorized in accordance with subpart 1.4.
    (e) The contracting officer shall not require any prospective 
contractor to submit details of its profit or fee objective but shall 
consider them if they are submitted voluntarily.
    (f) If a change or modification (1) calls for essentially the same 
type and mix of work as the basic contract and (2) is of relatively 
small dollar value compared to the total contract value, the contracting 
officer may use the basic contract's profit or fee rate as the 
prenegotiation objective for that change or modification.
[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985]



15.904  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the provision at 52.215-30, 
Facilities Capital Cost of Money, in solicitations expected to result in 
contracts that are subject to the cost principles for contracts with 
commercial organizations (see subpart 31.2).
    (b) If the prospective contractor does not propose facilities 
capital cost of money in its offer, insert the clause at 52.215-31, 
Waiver of Facilities Capital Cost of Money, in the resulting contract.
[52 FR 35613, Sept. 22, 1987]



15.905  Profit-analysis factors.



15.905-1  Common factors.

    Unless it is clearly inappropriate or not applicable, each factor 
outlined in paragraphs (a) through (f) following shall be considered by 
agencies in developing their structured approaches and by contracting 
officers in analyzing profit whether or not using a structured approach.
    (a) Contractor effort. This factor measures the complexity of the 
work and the resources required of the prospective contractor for 
contract performance. Greater profit opportunity should be provided 
under contracts

[[Page 326]]

requiring a high degree of professional and managerial skill and to 
prospective contractors whose skills, facilities, and technical assets 
can be expected to lead to efficient and economical contract 
performance. Subfactors (1) through (4) following shall be considered in 
determining contractor effort, but they may be modified in specific 
situations to accommodate differences in the categories used by 
prospective contractors for listing costs:
    (1) Material acquisition. This subfactor measures the managerial and 
technical effort needed to obtain the required purchased parts and 
material, subcontracted items, and special tooling. Considerations 
include (i) the complexity of the items required, (ii) the number of 
purchase orders and subcontracts to be awarded and administered, (iii) 
whether established sources are available or new or second sources must 
be developed, and (iv) whether material will be obtained through routine 
purchase orders or through complex subcontracts requiring detailed 
specifications. Profit consideration should correspond to the managerial 
and technical effort involved.
    (2) Conversion direct labor. This subfactor measures the 
contribution of direct engineering, manufacturing, and other labor to 
converting the raw materials, data, and subcontracted items into the 
contract items. Considerations include the diversity of engineering, 
scientific, and manufacturing labor skills required and the amount and 
quality of supervision and coordination needed to perform the contract 
task.
    (3) Conversion-related indirect costs. This subfactor measures how 
much the indirect costs contribute to contract performance. The labor 
elements in the allocable indirect costs should be given the profit 
consideration they would receive if treated as direct labor. The other 
elements of indirect costs should be evaluated to determine whether they 
(i) merit only limited profit consideration because of their routine 
nature or (ii) are elements that contribute significantly to the 
proposed contract.
    (4) General management. This subfactor measures the prospective 
contractor's other indirect costs and general and administrative (G&A) 
expense, their composition, and how much they contribute to contract 
performance. Considerations include (i) how labor in the overhead pools 
would be treated if it were direct labor, (ii) whether elements within 
the pools are routine expenses or instead are elements that contribute 
significantly to the proposed contract, and (iii) whether the elements 
require routine as opposed to unusual managerial effort and attention.
    (b) Contract cost risk. (1) This factor measures the degree of cost 
responsibility and associated risk that the prospective contractor will 
assume (i) as a result of the contract type contemplated and (ii) 
considering the reliability of the cost estimate in relation to the 
complexity and duration of the contract task. Determination of contract 
type should be closely related to the risks involved in timely, cost-
effective, and efficient performance. This factor should compensate 
contractors proportionately for assuming greater cost risks.
    (2) The contractor assumes the greatest cost risk in a closely 
priced firm-fixed-price contract under which it agrees to perform a 
complex undertaking on time and at a predetermined price. Some firm-
fixed-price contracts may entail substantially less cost risk than 
others because, for example, the contract task is less complex or many 
of the contractor's costs are known at the time of price agreement, in 
which case the risk factor should be reduced accordingly. The contractor 
assumes the least cost risk in a cost-plus-fixed-fee level-of-effort 
contract, under which it is reimbursed those costs determined to be 
allocable and allowable, plus the fixed fee.
    (3) In evaluating assumption of cost risk, contracting officers 
shall, except in unusual circumstances, treat time-and-materials, labor-
hour, and firm-fixed-price, level-of-effort term contracts as cost-plus-
fixed-fee contracts.
    (c) Federal socioeconomic programs. This factor measures the degree 
of support given by the prospective contractor to Federal socioeconomic 
programs, such as those involving small business concerns, small 
business concerns owned and controlled by socially and economically 
disadvantaged individuals, women-owned small businesses, handicapped 
sheltered workshops, and energy conservation. Greater profit opportunity 
should be provided contractors who have displayed unusual initiative in 
these programs.
    (d) Capital investments. This factor takes into account the 
contribution of contractor investments to efficient and economical 
contract performance.
    (e) Cost-control and other past accomplishments. This factor allows 
additional profit opportunities to a prospective contractor that has 
previously demonstrated its ability to perform similar tasks effectively 
and economically. In addition, consideration should be given to (1) 
measures taken by the prospective contractor that result in productivity 
improvements and (2) other cost-reduction accomplishments that will 
benefit the Government in follow-on contracts.
    (f) Independent development. Under this factor, the contractor may 
be provided additional profit opportunities in recognition of 
independent development efforts relevant to the contract end item 
without Government assistance. The contracting officer should consider 
whether the development cost was recovered directly or indirectly from 
Government sources.

[[Page 327]]

[48 FR 42187, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985; 
60 FR 48260, Sept. 18, 1995]



15.905-2  Additional factors.

    In order to foster achievement of program objectives, each agency 
may include additional factors in its structured approach or take them 
into account in the profit analysis of individual contract actions.



 Subpart 15.10--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes

    Source:  61 FR 69289, Dec. 31, 1996, unless otherwise noted.



15.1001  Definition.

    Day, as used in this subpart, has the meaning set forth at 33.101.



15.1002  Applicability.

    This subpart applies to the use of competitive proposals, as 
described in 6.102(b), and a combination of competitive procedures, as 
described in 6.102(c). To the extent practicable, however, the 
procedures and intent of this subpart, with reasonable modification, 
should be followed for acquisitions described in 6.102(d): broad agency 
announcements, small business innovation research contracts, and 
architect-engineer contracts. However, they do not apply to multiple 
award schedules, as described in 6.102(d)(3).



15.1003  Notifications to unsuccessful offerors.

    (a) Preaward notices--(1) Preaward notices of exclusion from 
competitive range. The contracting officer shall promptly notify 
offerors when they are excluded from the competitive range or otherwise 
excluded from further consideration. The notice shall--
    (i) State the basis for the determination and that a proposal 
revision will not be considered;
    (ii) Advise the offeror that, if a preaward or postaward debriefing 
is desired, a written request must be submitted to the contracting 
officer within three days; and
    (iii) Indicate that, absent receipt of a timely written request, the 
Government is not obligated to provide a preaward or a postaward 
debriefing.
    (2) Preaward notices for small business set-asides. In a small 
business set-aside (see subpart 19.5), upon completion of negotiations 
and determinations of responsibility, but prior to award, the contacting 
officer shall notify each unsuccessful offeror in writing of the name 
and location of the apparent successful offeror. The notice also shall 
state that--
    (i) The Government will not consider subsequent revisions of the 
unsuccessful offeror's proposal; and
    (ii) No response is required unless a basis exists to challenge the 
small business size status of the apparent successful offeror. The 
notice is not required when the contracting officer determines in 
writing that the urgency of the requirement necessitates award without 
delay.
    (b) Postaward notices. Within three days after the date of contract 
award, the contracting officer shall provide written notification to 
each unsuccessful offeror (unless preaward notice was given under 
paragraph (a) of this section).
    (1) The notice shall include--
    (i) The number of offerors solicited;
    (ii) The number of proposals received;
    (iii) The name and address of each offeror receiving an award;
    (iv) The items, quantities, and unit prices of each award (if the 
number of items or other factors makes listing unit prices 
impracticable, only the total contract price need be furnished); and
    (v) In general terms, the reason the offeror's proposal was not 
accepted, unless the price information in paragraph (b)(1)(iv) of this 
section readily reveals the reason. In no event shall an offeror's cost 
breakdown, profit, overhead rates, trade secrets, manufacturing 
processes and techniques, or other confidential business information be 
disclosed to any other offeror.
    (2) Upon request, the contracting officer shall furnish the 
information described in paragraphs (b)(1) (i) through (v) of this 
section to unsuccessful offerors in solicitations using the simplified 
acquisition procedures in part 13.



15.1004  Notification to successful offeror.

    The contracting officer shall award a contract with reasonable 
promptness to the successful offeror (selected in accordance with 
15.611(d)) by transmitting a written notice of the award to that offeror 
(but see 15.608(b)). When an award is made to an offeror for less than 
all of the items that may be awarded to that offeror and additional 
items are being withheld for subsequent award, each notice shall state 
that the Government may make subsequent awards on those additional items 
within the offer acceptance period.



15.1005  Preaward debriefing of offerors.

    Offerors excluded from the competitive range or otherwise excluded 
from further consideration prior to the final source selection decision 
may request a debriefing before award (10 U.S.C. 2305(b)(6)(A) and 41 
U.S.C. 253b(f)-(h)). The process for requesting and conducting preaward 
debriefings is as follows:
    (a) The offeror may request a preaward debriefing by submitting a 
written request for

[[Page 328]]

debriefing to the contracting officer within three days of the receipt 
of notice of exclusion from the competitive range. If the offeror does 
not submit a timely request, the offeror need not be given either a 
preaward or a postaward debriefing. Offerors are entitled to no more 
than one debriefing on each acquisition.
    (b) The contracting officer should provide a debriefing to the 
offeror as soon as practicable. If providing a preaward debriefing is 
not in the best interest of the Government at the time it is requested, 
the contracting officer may delay the debriefing, but shall provide the 
debriefing no later than the time postaward debriefings are provided 
under 15.1006. In that event, the contracting officer shall include the 
information at 15.1006(d) in the debriefing.
    (c) Debriefings may be done orally, in writing, or by any other 
method acceptable to the contracting officer.
    (d) The contracting officer or designee shall chair any debriefing 
session held. Individuals who conducted the evaluation shall provide 
support.
    (e) At a minimum, preaward debriefings shall include--
    (1) The agency's evaluation of significant elements in the offeror's 
proposal;
    (2) A summary of the rationale for excluding the offeror from the 
competitive range; and
    (3) Reasonable responses to relevant questions about whether source 
selection procedures contained in the solicitation, applicable 
regulations, and other applicable authorities were followed in the 
process of excluding the offeror from the competitive range.
    (f) Preaward debriefings shall not disclose--
    (1) The number of offerors;
    (2) The identity of other offerors;
    (3) The content of other offerors' proposals;
    (4) The ranking of other offerors;
    (5) The evaluation of other offerors; or
    (6) Any of the information prohibited in 15.1006(e).
    (g) The contracting officer shall include an official summary of the 
debriefing in the contract file.



15.1006  Postaward debriefing of offerors.

    (a) An offeror shall be debriefed and furnished the basis for the 
source selection decision and contract award, if its written request is 
received by the contracting officer within three days after the offeror 
receives notice of contract award. Offerors that requested a postaward 
debriefing at the time they were eliminated from the competitive range 
or otherwise excluded from further consideration prior to the final 
source selection decision shall also be provided a debriefing at this 
time. An offeror that failed to submit a timely request under 15.1003(a) 
or 15.1005(a) is not entitled to a debriefing. When practicable, 
debriefing requests received more than three days after the offeror 
receives notice of contract award may be accommodated. However, 
accommodating such untimely debriefing requests does not extend the time 
within which suspension of performance can be required, as this 
accommodation is not a ``required debriefing'' as described in part 33. 
To the maximum extent practicable, the debriefing should occur within 
five days after receipt of the written request.
    (b) Debriefings of successful and unsuccessful offerors may be done 
orally, in writing, or by any other method acceptable to the contracting 
officer.
    (c) The contracting officer or designee shall chair any debriefing 
session held. Individuals who conducted the evaluation shall provide 
support.
    (d) At a minimum, the debriefing information shall include--
    (1) The Government's evaluation of the significant weaknesses or 
deficiencies in the offeror's proposal, if applicable;
    (2) The overall evaluated cost or price and technical rating, if 
applicable, of the successful offeror and the debriefed offeror;
    (3) The overall ranking of all offerors when any ranking was 
developed by the agency during the source selection;
    (4) A summary of the rationale for award;
    (5) For acquisitions of commercial end items, the make and model of 
the item to be delivered by the successful offeror; and
    (6) Reasonable responses to relevant questions about whether source 
selection procedures contained in the solicitation, applicable 
regulations, and other applicable authorities were followed.
    (e) The debriefing shall not include point-by-point comparisons of 
the debriefed offeror's proposal with those of other offerors. Moreover, 
debriefing shall not reveal any information prohibited from disclosure 
by 24.202 or exempt from release under the Freedom of Information Act, 
including--
    (1) Trade secrets;
    (2) Privileged or confidential manufacturing processes and 
techniques;
    (3) Commercial and financial information that is privileged or 
confidential, including cost breakdowns, profit, indirect cost rates, 
and similar information; and
    (4) The names of individuals providing reference information about 
an offeror's past performance.
    (f) The contracting officer shall include an official summary of the 
debriefing in the contract file.
[61 FR 69289, Dec. 31, 1996, as amended at 62 FR 257, Jan. 2, 1997]

[[Page 329]]



15.1007  Protests against award.

    (a) Before filing a protest, prior to award of a contract, of the 
exclusion of an offeror from the competitive range (or otherwise from 
further consideration), use of alternative dispute resolution techniques 
is encouraged (see subpart 33.2).
    (b) Protests against award in negotiated acquisitions shall be 
treated substantially the same as in sealed bidding (see subpart 33.1).
    (c) If, within one year of contract award, a protest causes the 
agency to issue either a new solicitation or a new request for best and 
final offers on the protested contract award, the agency shall make 
available to all prospective offerors for the new solicitation, or 
original offerors that are requested to submit new best and final 
offers--
    (1) Information provided in any debriefings conducted on the 
original award about the successful offeror's proposal; and
    (2) Other nonproprietary information provided to the original 
offerors.



15.1008  Discovery of mistakes.

    For treatment of mistakes in an offeror's proposal that are 
discovered before award, see 15.607. Mistakes in a contractor's proposal 
that are disclosed after award shall be processed in accordance with 
14.407-4.



PART 16--TYPES OF CONTRACTS--Table of Contents




Sec.
16.000  Scope of part.

                 Subpart 16.1--Selecting Contract Types

16.101  General.
16.102  Policies.
16.103  Negotiating contract type.
16.104  Factors in selecting contract types.
16.105  Solicitation provision.

                   Subpart 16.2--Fixed-Price Contracts

16.201  General.
16.202  Firm-fixed-price contracts.
16.202-1  Description.
16.202-2  Application.
16.203  Fixed-price contracts with economic price adjustment.
16.203-1  Description.
16.203-2  Application.
16.203-3  Limitations.
16.203-4  Contract clauses.
16.204  Fixed-price incentive contracts.
16.205  Fixed-price contracts with prospective price redetermination.
16.205-1  Description.
16.205-2  Application.
16.205-3  Limitations.
16.205-4  Contract clause.
16.206  Fixed-ceiling-price contracts with retroactive price 
          redetermination.
16.206-1  Description.
16.206-2  Application.
16.206-3  Limitations.
16.206-4  Contract clause.
16.207  Firm-fixed-price, level-of-effort term contracts.
16.207-1  Description.
16.207-2  Application.
16.207-3  Limitations.

               Subpart 16.3--Cost-Reimbursement Contracts

16.301  General.
16.301-1  Description.
16.301-2  Application.
16.301-3  Limitations.
16.302  Cost contracts.
16.303  Cost-sharing contracts.
16.304  Cost-plus-incentive-fee contracts.
16.305  Cost-plus-award-fee contracts.
16.306  Cost-plus-fixed-fee contracts.
16.307  Contract clauses.

                    Subpart 16.4--Incentive Contracts

16.401  General.
16.402  Application of predetermined, formula-type incentives.
16.402-1  Cost incentives.
16.402-2  Performance incentives.
16.402-3  Delivery incentives.
16.402-4  Structuring multiple-incentive contracts.
16.403  Fixed-price incentive contracts.
16.403-1  Fixed-price incentive (firm target) contracts.
16.403-2  Fixed-price incentive (successive targets) contracts.
16.404  Fixed-price contracts with award fees.
16.405  Cost-reimbursement incentive contracts.
16.405-1  Cost-plus-incentive-fee contracts.
16.405-2  Cost-plus-award-fee contracts.
16.406  Contract clauses.

               Subpart 16.5--Indefinite-Delivery Contracts

16.500  Scope of subpart.
16.501-1  Definitions.
16.501-2  General.
16.502  Definite-quantity contracts.
16.503  Requirements contracts.
16.504  Indefinite-quantity contracts.
16.505  Ordering.
16.506  Solicitation provisions and contract clauses.

   Subpart 16.6--Time-and-Materials, Labor-Hour, and Letter Contracts

16.601  Time-and-materials contracts.
16.602  Labor-hour contracts.
16.603  Letter contracts.
16.603-1  Description.
16.603-2  Application.
16.603-3  Limitations.

[[Page 330]]

16.603-4  Contract clauses.

                        Subpart 16.7--Agreements

16.701  Scope.
16.702  Basic agreements.
16.703  Basic ordering agreements.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42219, Sept. 19, 1983, unless otherwise noted.



16.000  Scope of part.

    This part describes types of contracts that may be used in 
acquisitions. It prescribes policies and procedures and provides 
guidance for selecting a contract type appropriate to the circumstances 
of the acquisition.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 34756, July 3, 1995; 
61 FR 39197, July 26, 1996]



                 Subpart 16.1--Selecting Contract Types



16.101  General.

    (a) A wide selection of contract types is available to the 
Government and contractors in order to provide needed flexibility in 
acquiring the large variety and volume of supplies and services required 
by agencies. Contract types vary according to (1) the degree and timing 
of the responsibility assumed by the contractor for the costs of 
performance and (2) the amount and nature of the profit incentive 
offered to the contractor for achieving or exceeding specified standards 
or goals.
    (b) The contract types are grouped into two broad categories: fixed-
price contracts (see subpart 16.2) and cost-reimbursement contracts (see 
subpart 16.3). The specific contract types range from firm-fixed-price, 
in which the contractor has full responsibility for the performance 
costs and resulting profit (or loss), to cost-plus-fixed-fee, in which 
the contractor has minimal responsibility for the performance costs and 
the negotiated fee (profit) is fixed. In between are the various 
incentive contracts (see subpart 16.4), in which the contractor's 
responsibility for the performance costs and the profit or fee 
incentives offered are tailored to the uncertainties involved in 
contract performance.



16.102  Policies.

    (a) Contracts resulting from sealed bidding shall be firm-fixed-
price contracts or fixed-price contracts with economic price adjustment.
    (b) Contracts negotiated under part 15 may be of any type or 
combination of types that will promote the Government's interest, except 
as restricted in this part (see 10 U.S.C. 2306(a) and 41 U.S.C. 254(a)). 
Contract types not described in this regulation shall not be used, 
except as a deviation under subpart 1.4.
    (c) The cost-plus-a-percentage-of-cost system of contracting shall 
not be used (see 10 U.S.C. 2306(a) and 41 U.S.C. 254(b)). Prime 
contracts (including letter contracts) other than firm-fixed-price 
contracts shall, by an appropriate clause, prohibit cost- plus-a-
percentage-of-cost subcontracts (see clauses prescribed in subpart 44.2 
for cost-reimbursement contracts and subparts 16.2 and 16.4 for fixed-
price contracts).
    (d) No contract may be awarded before the execution of any 
determination and findings (D&F's) required by this part. Minimum 
requirements for the content of D&F's required by this part are 
specified in 1.704.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



16.103  Negotiating contract type.

    (a) Selecting the contract type is generally a matter for 
negotiation and requires the exercise of sound judgment. Negotiating the 
contract type and negotiating prices are closely related and should be 
considered together. The objective is to negotiate a contract type and 
price (or estimated cost and fee) that will result in reasonable 
contractor risk and provide the contractor with the greatest incentive 
for efficient and economical performance.
    (b) A firm-fixed-price contract, which best utilizes the basic 
profit motive of business enterprise, shall be used when the risk 
involved is minimal or can be predicted with an acceptable degree of 
certainty. However, when a reasonable basis for firm pricing does not 
exist,

[[Page 331]]

other contract types should be considered, and negotiations should be 
directed toward selecting a contract type (or combination of types) that 
will appropriately tie profit to contractor performance.
    (c) In the course of an acquisition program, a series of contracts, 
or a single long-term contract, changing circumstances may make a 
different contract type appropriate in later periods than that used at 
the outset. In particular, contracting officers should avoid protracted 
use of a cost-reimbursement or time-and-materials contract after 
experience provides a basis for firmer pricing.
    (d) Each contract file shall include documentation to show why the 
particular contract type was selected. Exceptions to this requirement 
are:
    (1) Fixed-price acquisitions made under simplified acquisition 
procedures,
    (2) Contracts on a firm fixed-price basis other than those for major 
systems or research and development, and
    (3) Awards on the set-aside portion of sealed bid partial set-asides 
for small business.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 5054, Jan. 31, 1989; 60 FR 34756, July 
3, 1995; 60 FR 48260, Sept. 18, 1995; 61 FR 39198, July 26, 1996]



16.104  Factors in selecting contract types.

    There are many factors that the contracting officer should consider 
in selecting and negotiating the contract type. They include the 
following:
    (a) Price competition. Normally, effective price competition results 
in realistic pricing, and a fixed-price contract is ordinarily in the 
Government's interest.
    (b) Price analysis. Price analysis with or without competition, may 
provide a basis for selecting the contract type. The degree to which 
price analysis can provide a realistic pricing standard should be 
carefully considered. (See 15.404-1(b).)
    (c) Cost analysis. In the absence of effective price competition and 
if price analysis is not sufficient, the cost estimates of the offeror 
and the Government provide the bases for negotiating contract pricing 
arrangements. It is essential that the uncertainties involved in 
performance and their possible impact upon costs be identified and 
evaluated, so that a contract type that places a reasonable degree of 
cost responsibility upon the contractor can be negotiated.
    (d) Type and complexity of the requirement. Complex requirements, 
particularly those unique to the Government, usually result in greater 
risk assumption by the Government. This is especially true for complex 
research and development contracts, when performance uncertainties or 
the likelihood of changes makes it difficult to estimate performance 
costs in advance. As a requirement recurs or as quantity production 
begins, the cost risk should shift to the contractor, and a fixed-price 
contract should be considered.
    (e) Urgency of the requirement. If urgency is a primary factor, the 
Government may choose to assume a greater proportion of risk or it may 
offer incentives to ensure timely contract performance.
    (f) Period of performance or length of production run. In times of 
economic uncertainty, contracts extending over a relatively long period 
may require economic price adjustment terms.
    (g) Contractor's technical capability and financial responsibility.
    (h) Adequacy of the contractor's accounting system. Before agreeing 
on a contract type other than firm-fixed-price, the contracting officer 
shall ensure that the contractor's accounting system will permit timely 
development of all necessary cost data in the form required by the 
proposed contract type. This factor may be critical when the contract 
type requires price revision while performance is in progress, or when a 
cost-reimbursement contract is being considered and all current or past 
experience with the contractor has been on a fixed-price basis.
    (i) Concurrent contracts. If performance under the proposed contract 
involves concurrent operations under other contracts, the impact of 
those contracts, including their pricing arrangements, should be 
considered.
    (j) Extent and nature of proposed subcontracting. If the contractor 
proposes extensive subcontracting, a contract

[[Page 332]]

type reflecting the actual risks to the prime contractor should be 
selected.
    (k) Acquisition history. Contractor risk usually decreases as the 
requirement is repetitively acquired. Also, product descriptions or 
descriptions of services to be performed can be defined more clearly.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 62 FR 44814, Aug. 22, 1997; 62 FR 51270, 
Sept. 30, 1997]

    Effective Date Notes:  1. At 62 FR 44814, Aug. 22, 1997, section 
16.104 was amended by adding paragraph (k), effective Oct. 21, 1997.
    2. At 62 FR 51270, Sept. 30, 1997, in section 16.104, in paragraph 
(b), ``15.808-2'' was amended to read ``15.404-1(b)'', effective Oct. 
10, 1997.



16.105  Solicitation provision.

    The contracting officer shall complete and insert the provision at 
52.216-1, Type of Contract, in a solicitation unless it is for--
    (a) A fixed-price acquisition made under simplified acquisition 
procedures; or
    (b) Information or planning purposes.
[60 FR 34756, July 3, 1995, as amended at 61 FR 39198, July 26, 1996]



                   Subpart 16.2--Fixed-Price Contracts



16.201  General.

    Fixed-price types of contracts provide for a firm price or, in 
appropriate cases, an adjustable price. Fixed-price contracts providing 
for an adjustable price may include a ceiling price, a target price 
(including target cost), or both. Unless otherwise specified in the 
contract, the ceiling price or target price is subject to adjustment 
only by operation of contract clauses providing for equitable adjustment 
or other revision of the contract price under stated circumstances. The 
contracting officer shall use firm-fixed-price or fixed-price with 
economic price adjustment contracts when acquiring commercial items.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995]



16.202  Firm-fixed-price contracts.



16.202-1  Description.

    A firm-fixed-price contract provides for a price that is not subject 
to any adjustment on the basis of the contractor's cost experience in 
performing the contract. This contract type places upon the contractor 
maximum risk and full responsibility for all costs and resulting profit 
or loss. It provides maximum incentive for the contractor to control 
costs and perform effectively and imposes a minimum administrative 
burden upon the contracting parties.



16.202-2  Application.

    A firm-fixed-price contract is suitable for acquiring commercial 
items (see parts 2 and 12) or for acquiring other supplies or services 
on the basis of reasonably definite functional or detailed 
specifications (see part 11) when the contracting officer can establish 
fair and reasonable prices at the outset, such as when--
    (a) There is adequate price competition;
    (b) There are reasonable price comparisons with prior purchases of 
the same or similar supplies or services made on a competitive basis or 
supported by valid cost or pricing data;
    (c) Available cost or pricing information permits realistic 
estimates of the probable costs of performance; or
    (d) Performance uncertainties can be identified and reasonable 
estimates of their cost impact can be made, and the contractor is 
willing to accept a firm fixed price representing assumption of the 
risks involved.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995]



16.203  Fixed-price contracts with economic price adjustment.



16.203-1  Description.

    A fixed-price contract with economic price adjustment provides for 
upward and downward revision of the stated contract price upon the 
occurrence of specified contingencies. Economic price adjustments are of 
three general types:
    (a) Adjustments based on established prices. These price adjustments 
are

[[Page 333]]

based on increases or decreases from an agreed-upon level in published 
or otherwise established prices of specific items or the contract end 
items.
    (b) Adjustments based on actual costs of labor or material. These 
price adjustments are based on increases or decreases in specified costs 
of labor or material that the contractor actually experiences during 
contract performance.
    (c) Adjustments based on cost indexes of labor or material. These 
price adjustments are based on increases or decreases in labor or 
material cost standards or indexes that are specifically identified in 
the contract.



16.203-2  Application.

    A fixed-price contract with economic price adjustment may be used 
when (i) there is serious doubt concerning the stability of market or 
labor conditions that will exist during an extended period of contract 
performance, and (ii) contingencies that would otherwise be included in 
the contract price can be identified and covered separately in the 
contract. Price adjustments based on established prices should normally 
be restricted to industry-wide contingencies. Price adjustments based on 
labor and material costs should be limited to contingencies beyond the 
contractor's control. For use of economic price adjustment in sealed bid 
contracts, see 14.408-4.
    (a) In establishing the base level from which adjustment will be 
made, the contracting officer shall ensure that contingency allowances 
are not duplicated by inclusion in both the base price and the 
adjustment requested by the contractor under economic price adjustment 
clause.
    (b) In contracts that do not require submission of cost or pricing 
data, the contracting officer shall obtain adequate information to 
establish the base level from which adjustment will be made and may 
require verification of data submitted.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 34739, July 3, 1995]



16.203-3  Limitations.

    A fixed-price contract with economic price adjustment shall not be 
used unless the contracting officer determines that it is necessary 
either to protect the contractor and the Government against significant 
fluctuations in labor or material costs or to provide for contract price 
adjustment in the event of changes in the contractor's established 
prices.



16.203-4  Contract clauses.

    (a) Adjustment based on established prices--standard supplies. (1) 
The contracting officer shall, when contracting by negotiation, insert 
the clause at 52.216-2, Economic Price Adjustment--Standard Supplies, or 
an agency-prescribed clause as authorized in subparagraph (2) below, in 
solicitations and contracts when all of the following conditions apply:
    (i) A fixed-price contract is contemplated.
    (ii) The requirement is for standard supplies that have an 
established catalog or market price.
    (iii) The contracting officer has made the determination specified 
in 16.203-3.
    (2) If all the conditions in subparagraph (a)(1) above apply and the 
contracting officer determines that the use of the clause at 52.216-2 is 
inappropriate, the contracting officer may use an agency-prescribed 
clause instead of the clause at 52.216-2.
    (3) If the negotiated unit price reflects a net price after applying 
a trade discount from a catalog or list price, the contracting officer 
shall document in the contract file both the catalog or list price and 
the discount. (This does not apply to prompt payment or cash discounts.)
    (b) Adjustment based on established prices--semistandard supplies. 
(1) The contracting officer shall, when contracting by negotiation, 
insert the clause at 52.216-3, Economic Price Adjustment--Semistandard 
Supplies, or an agency-prescribed clause as authorized in subparagraph 
(2) below, in solicitations and contracts when all of the following 
conditions apply:
    (i) A fixed price contract is contemplated.
    (ii) The requirement is for semistandard supplies for which the 
prices can be reasonably related to the prices of nearly equivalent 
standard

[[Page 334]]

supplies that have an established catalog or market price.
    (iii) The contracting officer has made the determination specified 
in 16.203-3.
    (2) If all conditions in subparagraph (b)(1) above apply and the 
contracting officer determines that the use of the clause at 52.216-3 is 
inappropriate, the contracting officer may use an agency-prescribed 
clause instead of the clause at 52.216-3.
    (3) If the negotiated unit price reflects a net price after applying 
a trade discount from a catalog or list price, the contracting officer 
shall document in the contract file both the catalog or list price and 
the discount. (This does not apply to prompt payment or cash discounts.)
    (4) Before entering into the contract, the contracting officer and 
contractor must agree in writing on the identity of the standard 
supplies and the corresponding contract line items to which the clause 
applies.
    (5) If the supplies are standard, except for preservation, 
packaging, and packing requirements, the clause prescribed in 16.203-
4(a), shall be used rather than this clause.
    (c) Adjustments based on actual cost of labor or material. (1) The 
contracting officer shall, when contracting by negotiation, insert a 
clause that is substantially the same as the clause at 52.216-4, 
Economic Price Adjustment--Labor and Material, or an agency-prescribed 
clause as authorized in subparagraph (2) below, in solicitation and 
contracts when all of the following conditions apply:
    (i) A fixed-price contract is contemplated.
    (ii) There is no major element of design engineering or development 
work involved.
    (iii) One or more identifiable labor or material cost factors are 
subject to change.
    (iv) The contracting officer has made the determination specified in 
16.203-3.
    (2) If all conditions in subparagraph (c)(1) above apply and the 
contracting officer determines that the use of the clause at 52.216-4 is 
inappropriate, the contracting officer may use an agency-prescribed 
clause instead of the clause at 52.216-4.
    (3) The contracting officer shall describe in detail in the contract 
Schedule--
    (i) The types of labor and materials subject to adjustment under the 
clause;
    (ii) The labor rates, including fringe benefits (if any) and unit 
prices of materials that may be increased or decreased; and
    (iii) The quantities of the specified labor and materials allocable 
to each unit to be delivered under the contract.
    (4) In negotiating adjustments under the clause, the contracting 
officer shall--
    (i) Consider work in process and materials on hand at the time of 
changes in labor rates, including fringe benefits (if any) or material 
prices;
    (ii) Not include in adjustments any indirect cost (except fringe 
benefits as defined in 31.205-6(m)) or profit; and
    (iii) Consider only those fringe benefits specified in the contract 
Schedule.
    (d) Adjustments based on cost indexes of labor or material. The 
contracting officer should consider using an economic price adjustment 
clause based on cost indexes of labor or material under the 
circumstances and subject to approval as described in subparagraphs (1) 
and (2) below.
    (1) A clause providing adjustment based on cost indexes of labor or 
materials may be appropriate when--
    (i) The contract involves an extended period of performance with 
significant costs to be incurred beyond 1 year after performance begins;
    (ii) The contract amount subject to adjustment is substantial; and
    (iii) The economic variables for labor and materials are too 
unstable to permit a reasonable division of risk between the Government 
and the contractor, without this type of clause.
    (2) Any clause using this method shall be prepared and approved 
under agency procedures. Because of the variations in circumstances and 
clause wording that may arise, no standard clause is prescribed.
[48 FR 42219, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987; 
60 FR 48217, Sept. 18, 1995; 62 FR 259, Jan. 2, 1997]



16.204  Fixed-price incentive contracts.

    A fixed-price incentive contract is a fixed-price contract that 
provides for

[[Page 335]]

adjusting profit and establishing the final contract price by a formula 
based on the relationship of final negotiated total cost to total target 
cost. Fixed-price incentive contracts are covered in subpart 16.4, 
Incentive Contracts. See 16.403 for more complete descriptions, 
application, and limitations for these contracts. Prescribed clauses are 
found at 16.406.
[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 11387, Mar. 10, 1994; 
62 FR 12695, Mar. 17, 1997]



16.205  Fixed-price contracts with prospective price redetermination.



16.205-1  Description.

    A fixed-price contract with prospective price redetermination 
provides for (a) a firm fixed price for an initial period of contract 
deliveries or performance and (b) prospective redetermination, at a 
stated time or times during performance, of the price for subsequent 
periods of performance.



16.205-2  Application.

    A fixed-price contract with prospective price redetermination may be 
used in acquisitions of quantity production or services for which it is 
possible to negotiate a fair and reasonable firm fixed price for an 
initial period, but not for subsequent periods of contract performance.
    (a) The initial period should be the longest period for which it is 
possible to negotiate a fair and reasonable firm fixed price. Each 
subsequent pricing period should be at least 12 months.
    (b) The contract may provide for a ceiling price based on evaluation 
of the uncertainties involved in performance and their possible cost 
impact. This ceiling price should provide for assumption of a reasonable 
proportion of the risk by the contractor and, once established, may be 
adjusted only by operation of contract clauses providing for equitable 
adjustment or other revision of the contract price under stated 
circumstances.



16.205-3  Limitations.

    This contract type shall not be used unless--
    (a) Negotiations have established that (1) the conditions for use of 
a firm-fixed-price contract are not present (see 16.202-2), and (2) a 
fixed-price incentive contract would not be more appropriate;
    (b) The contractor's accounting system is adequate for price 
redetermination;
    (c) The prospective pricing periods can be made to conform with 
operation of the contractor's accounting system; and
    (d) There is reasonable assurance that price redetermination actions 
will take place promptly at the specified times.



16.205-4  Contract clause.

    The contracting officer shall, when contracting by negotiation, 
insert the clause at 52.216-5, Price Redetermination--Prospective, in 
solicitations and contracts when a fixed-price contract is contemplated 
and the conditions specified in 16.205-2 and 16.205-3(a) through (d) 
apply.



16.206  Fixed-ceiling-price contracts with retroactive price redetermination.



16.206-1  Description.

    A fixed-ceiling-price contract with retroactive price 
redetermination provides for (a) a fixed ceiling price and (b) 
retroactive price redetermination within the ceiling after completion of 
the contract.



16.206-2  Application.

    A fixed-ceiling-price contract with retroactive price 
redetermination is appropriate for research and development contracts 
estimated at $100,000 or less when it is established at the outset that 
a fair and reasonable firm fixed price cannot be negotiated and that the 
amount involved and short performance period make the use of any other 
fixed-price contract type impracticable.
    (a) A ceiling price shall be negotiated for the contract at a level 
that reflects a reasonable sharing of risk by the contractor. The 
established ceiling price may be adjusted only if required by the 
operation of contract clauses providing for equitable adjustment or 
other revision of the contract price under stated circumstances.

[[Page 336]]

    (b) The contract should be awarded only after negotiation of a 
billing price that is as fair and reasonable as the circumstances 
permit.
    (c) Since this contract type provides the contractor no cost control 
incentive except the ceiling price, the contracting officer should make 
clear to the contractor during discussion before award that the 
contractor's management effectiveness and ingenuity will be considered 
in retroactively redetermining the price.



16.206-3  Limitations.

    This contract type shall not be used unless--
    (a) The contract is for research and development and the estimated 
cost is $100,000 or less;
    (b) The contractor's accounting system is adequate for price 
redetermination;
    (c) There is reasonable assurance that the price redetermination 
will take place promptly at the specified time; and
    (d) The head of the contracting activity (or a higher-level 
official, if required by agency procedures) approves its use in writing.



16.206-4  Contract clause.

    The contracting officer shall, when contracting by negotiation, 
insert the clause at 52.216-6, Price Redetermination--Retroactive, in 
solicitations and contracts when a fixed-price contract is contemplated 
and the conditions in 16.206-2 and 16.206-3(a) through (d) apply.



16.207  Firm-fixed-price, level-of-effort term contracts.



16.207-1  Description.

    A firm-fixed-price, level-of-effort term contract requires (a) the 
contractor to provide a specified level of effort, over a stated period 
of time, on work that can be stated only in general terms and (b) the 
Government to pay the contractor a fixed dollar amount.



16.207-2  Application.

    A firm-fixed-price, level-of-effort term contract is suitable for 
investigation or study in a specific research and development area. The 
product of the contract is usually a report showing the results achieved 
through application of the required level of effort. However, payment is 
based on the effort expended rather than on the results achieved.



16.207-3  Limitations.

    This contract type may be used only when--
    (a) The work required cannot otherwise be clearly defined;
    (b) The required level of effort is identified and agreed upon in 
advance;
    (c) There is reasonable assurance that the intended result cannot be 
achieved by expending less than the stipulated effort; and
    (d) The contract price is $100,000 or less, unless approved by the 
chief of the contracting office.



               Subpart 16.3--Cost-Reimbursement Contracts



16.301  General.



16.301-1  Description.

    Cost-reimbursement types of contracts provide for payment of 
allowable incurred costs, to the extent prescribed in the contract. 
These contracts establish an estimate of total cost for the purpose of 
obligating funds and establishing a ceiling that the contractor may not 
exceed (except at its own risk) without the approval of the contracting 
officer.



16.301-2  Application.

    Cost-reimbursement contracts are suitable for use only when 
uncertainties involved in contract performance do not permit costs to be 
estimated with sufficient accuracy to use any type of fixed-price 
contract.



16.301-3  Limitations.

    (a) A cost-reimbursement contract may be used only when--
    (1) The contractor's accounting system is adequate for determining 
costs applicable to the contract; and
    (2) Appropriate Government surveillance during performance will 
provide reasonable assurance that efficient methods and effective cost 
controls are used.

[[Page 337]]

    (3) See 15.404-4(c)(4)(i) for statutory limitations on price or fee.
    (b) The use of cost-reimbursement contracts is prohibited for the 
acquisition of commercial items (see parts 2 and 12).
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 59 FR 64785, Dec. 15, 1994; 60 FR 48248, 
Sept. 18, 1995; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
16.301-3, in paragraph (a)(3), ``15.903(d)'' was amended to read 
``15.404-4(c)(4)(i)'', effective Oct. 10, 1997.



16.302  Cost contracts.

    (a) Description. A cost contract is a cost-reimbursement contract in 
which the contractor receives no fee.
    (b) Application. A cost contract may be appropriate for research and 
development work, particularly with nonprofit educational institutions 
or other nonprofit organizations, and for facilities contracts.
    (c) Limitations. See 16.301-3.



16.303  Cost-sharing contracts.

    (a) Description. A cost-sharing contract is a cost-reimbursement 
contract in which the contractor receives no fee and is reimbursed only 
for an agreed-upon portion of its allowable costs.
    (b) Application. A cost-sharing contract may be used when the 
contractor agrees to absorb a portion of the costs, in the expectation 
of substantial compensating benefits.
    (c) Limitations. See 16.301-3.



16.304  Cost-plus-incentive-fee contracts.

    A cost-plus-incentive-fee contract is a cost-reimbursement contract 
that provides for an initially negotiated fee to be adjusted later by a 
formula based on the relationship of total allowable costs to total 
target costs. Cost-plus-incentive-fee contracts are covered in subpart 
16.4, Incentive Contracts. See 16.405-1 for a more complete description 
and discussion of application of these contracts. See 16.301-3 for 
limitations.
[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997]



16.305  Cost-plus-award-fee contracts.

    A cost-plus-award-fee contract is a cost-reimbursement contract that 
provides for a fee consisting of (a) a base amount (which may be zero) 
fixed at inception of the contract and (b) an award amount, based upon a 
judgmental evaluation by the Government, sufficient to provide 
motivation for excellence in contract performance. Cost-plus-award-fee 
contracts are covered in subpart 16.4, Incentive Contracts. See 16.405-2 
for a more complete description and discussion of application of these 
contracts. See 16.301-3 and 16.405-2(c) for limitations.
[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997]



16.306  Cost-plus-fixed-fee contracts.

    (a) Description. A cost-plus-fixed-fee contract is a cost-
reimbursement contract that provides for payment to the contractor of a 
negotiated fee that is fixed at the inception of the contract. The fixed 
fee does not vary with actual cost, but may be adjusted as a result of 
changes in the work to be performed under the contract. This contract 
type permits contracting for efforts that might otherwise present too 
great a risk to contractors, but it provides the contractor only a 
minimum incentive to control costs.
    (b) Application. (1) A cost-plus-fixed-fee contract is suitable for 
use when the conditions of 16.301-2 are present and, for example--
    (i) The contract is for the performance of research or preliminary 
exploration or study, and the level of effort required is unknown; or
    (ii) The contract is for development and test, and using a cost-
plus- incentive-fee contract is not practical.
    (2) A cost-plus-fixed-fee contract normally should not be used in 
development of major systems (see part 34) once preliminary exploration, 
studies, and risk reduction have indicated a high degree of probability 
that the development is achievable and the Government has established 
reasonably firm performance objectives and schedules.
    (c) Limitations. No cost-plus-fixed-fee contract shall be awarded 
unless the

[[Page 338]]

contracting officer complies with all limitations in 16.301-3.
    (d) Completion and term forms. A cost-plus-fixed-fee contract may 
take one of two basic forms--completion or term.
    (1) The completion form describes the scope of work by stating a 
definite goal or target and specifying an end product. This form of 
contract normally requires the contractor to complete and deliver the 
specified end product (e.g., a final report of research accomplishing 
the goal or target) within the estimated cost, if possible, as a 
condition for payment of the entire fixed fee. However, in the event the 
work cannot be completed within the estimated cost, the Government may 
require more effort without increase in fee, provided the Government 
increases the estimated cost.
    (2) The term form describes the scope of work in general terms and 
obligates the contractor to devote a specified level of effort for a 
stated time period. Under this form, if the performance is considered 
satisfactory by the Government, the fixed fee is payable at the 
expiration of the agreed-upon period, upon contractor statement that the 
level of effort specified in the contract has been expended in 
performing the contract work. Renewal for further periods of performance 
is a new acquisition that involves new cost and fee arrangements.
    (3) Because of the differences in obligation assumed by the 
contractor, the completion form is preferred over the term form whenever 
the work, or specific milestones for the work, can be defined well 
enough to permit development of estimates within which the contractor 
can be expected to complete the work.
    (4) The term form shall not be used unless the contractor is 
obligated by the contract to provide a specific level of effort within a 
definite time period.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 37777, July 21, 1995; 62 FR 236, Jan. 
2, 1997; 62 FR 51258, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51258, Sept. 30, 1997, section 16.306 
was amended by revising paragraph (c), effective Oct. 10, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

16.306  Cost-plus-fixed-fee contracts.

                                * * * * *

    (c) Limitations. No cost-plus-fixed-fee contract shall be awarded 
unless--
    (1) All limitations in 16.301-3 are complied with; and
    (2) The contracting officer has signed a determination and findings 
establishing the basis for application of the statutory price or fee 
limitation (see 15.903(d)).

                                * * * * *



16.307  Contract clauses.

    (a)(1) The contracting officer shall insert the clause at 52.216-7, 
Allowable Cost and Payment, in solicitations and contracts when a cost-
reimbursement contract (other than a facilities contract) is 
contemplated. If the contract is with an educational institution, modify 
the clause by deleting from paragraph (a) the words ``subpart 31.2'' and 
substituting for them ``subpart 31.3.'' If the contract is with a State 
or local government, modify the clause by deleting from paragraph (a) 
the words ``subpart 31.2'' and substituting for them ``subpart 31.6.'' 
If the contract is with a nonprofit organization other than an 
educational institution, a State or local government, or a nonprofit 
organization exempted under OMB Circular No. A-122, modify the clause by 
deleting from paragraph (a) the words ``subpart 31.2'' and substituting 
for them ``subpart 31.7.''
    (2) If the contract is a construction contract and contains the 
clause at 52.232-27, Prompt Payment for Construction Contracts, the 
contracting officer shall use the clause at 52.216-7 with its Alternate 
I.
    (b) The contracting officer shall insert the clause at 52.216-8, 
Fixed Fee, in solicitations and contracts when a cost-plus-fixed-fee 
contract (other than a facilities contract or a construction contract) 
is contemplated.
    (c) The contracting officer shall insert the clause at 52.216-9, 
Fixed-Fee--Construction, in solicitations and contracts when a cost-
plus-fixed-fee construction contract is contemplated.
    (d) The contracting officer shall insert the clause at 52.216-10, 
Incentive Fee, in solicitations and contracts when a cost-plus-
incentive-fee contract

[[Page 339]]

(other than a facilities contract) is contemplated.
    (e)(1) The contracting officer shall insert the clause at 52.216-11, 
Cost Contract--No Fee, in solicitations and contracts when a cost-
reimbursement contract is contemplated that provides no fee and is not a 
cost-sharing contract or a facilities contract.
    (2) If a cost-reimbursement research and development contract with 
an educational institution or a nonprofit organization that provides no 
fee or other payment above cost and is not a cost-sharing contract is 
contemplated, and if the contracting officer determines that withholding 
of a portion of allowable costs is not required, the contracting officer 
shall use the clause with its Alternate I.
    (f)(1) The contracting officer shall insert the clause at 52.216-12, 
Cost-Sharing Contract--No Fee, in solicitations and contracts when a 
cost-sharing contract (other than a facilities contract) is 
contemplated.
    (2) If a cost-sharing research and development contract with an 
educational institution or a nonprofit organization is contemplated, and 
if the contracting officer determines that withholding of a portion of 
allowable costs is not required, the contracting officer shall use the 
clause with its Alternate I.
    (g)(1) The contracting officer shall insert the clause at 52.216-13, 
Allowable Cost and Payment--Facilities, in solicitations and contracts 
when a cost-reimbursement consolidated facilities contract or a cost-
reimbursement facilities acquisition contract (see 45.302-6) is 
contemplated.
    (2) If a facilities acquisition contract is contemplated and, in the 
judgment of the contracting officer, it may be necessary to withhold 
payment of an amount to protect the Government's interest, the 
contracting officer shall use the clause with its Alternate I.
    (h) The contracting officer shall insert the clause at 52.216-14, 
Allowable Cost and Payment--Facilities Use, in solicitations and 
contracts when a facilities use contract is contemplated.
    (i) The contracting officer shall insert the clause at 52.216-15, 
Predetermined Indirect Cost Rates, in solicitations and contracts when a 
cost-reimbursement research and development contract with an educational 
institution (see 42.705-3(b)) is contemplated and predetermined indirect 
cost rates are to be used. If the contract is a facilities contract, 
modify paragraph (c) by deleting the words ``Subpart 31.1'' and 
substituting for them ``section 31.106.''
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985; 
61 FR 31622, June 20, 1996; 61 FR 67419, Dec. 20, 1996]



                    Subpart 16.4--Incentive Contracts



16.401  General.

    (a) Incentive contracts as described in this subpart are appropriate 
when a firm-fixed-price contract is not appropriate and the required 
supplies or services can be acquired at lower costs and, in certain 
instances, with improved delivery or technical performance, by relating 
the amount of profit or fee payable under the contract to the 
contractor's performance. Incentive contracts are designed to obtain 
specific acquisition objectives by--
    (1) Establishing reasonable and attainable targets that are clearly 
communicated to the contractor; and
    (2) Including appropriate incentive arrangements designed to (i) 
motivate contractor efforts that might not otherwise be emphasized and 
(ii) discourage contractor inefficiency and waste.
    (b) When predetermined, formula-type incentives on technical 
performance or delivery are included, increases in profit or fee are 
provided only for achievement that surpasses the targets, and decreases 
are provided for to the extent that such targets are not met. The 
incentive increases or decreases are applied to performance targets 
rather than minimum performance requirements.
    (c) The two basic categories of incentive contracts are fixed-price 
incentive contracts (see 16.403 and 16.404) and cost-reimbursement 
incentive contracts (see 16.405). Since it is usually to the 
Government's advantage for the contractor to assume substantial cost 
responsibility and an appropriate share of the cost risk, fixed-price 
incentive contracts are preferred when contract costs and performance 
requirements

[[Page 340]]

are reasonably certain. Cost-reimbursement incentive contracts are 
subject to the overall limitations in 16.301 that apply to all cost-
reimbursement contracts.
    (d) Award-fee contracts are a type of incentive contract.
[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997]



16.402  Application of predetermined, formula-type incentives.



16.402-1  Cost incentives.

    (a) Most incentive contracts include only cost incentives, which 
take the form of a profit or fee adjustment formula and are intended to 
motivate the contractor to effectively manage costs. No incentive 
contract may provide for other incentives without also providing a cost 
incentive (or constraint).
    (b) Except for award-fee contracts (see 16.404 and 16.405-2), 
incentive contracts include a target cost, a target profit or fee, and a 
profit or fee adjustment formula that (within the constraints of a price 
ceiling or minimum and maximum fee) provides that--
    (1) Actual cost that meets the target will result in the target 
profit or fee;
    (2) Actual cost that exceeds the target will result in downward 
adjustment of target profit or fee; and
    (3) Actual cost that is below the target will result in upward 
adjustment of target profit or fee.
[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12696, Mar. 17, 1997; 
62 FR 51379, Oct. 1, 1997]



16.402-2  Performance incentives.

    (a) Performance incentives may be considered in connection with 
specific product characteristics (e.g., a missile range, an aircraft 
speed, an engine thrust, or a vehicle maneuverability) or other specific 
elements of the contractor's performance. These incentives should be 
designed to relate profit or fee to results achieved by the contractor, 
compared with specified targets.
    (b) To the maximum extent practicable, positive and negative 
performance incentives shall be considered in connection with service 
contracts for performance of objectively measurable tasks when quality 
of performance is critical and incentives are likely to motivate the 
contractor.
    (c) Technical performance incentives may be particularly appropriate 
in major systems contracts, both in development (when performance 
objectives are known and the fabrication of prototypes for test and 
evaluation is required) and in production (if improved performance is 
attainable and highly desirable to the Government).
    (d) Technical performance incentives may involve a variety of 
specific characteristics that contribute to the overall performance of 
the end item. Accordingly, the incentives on individual technical 
characteristics must be balanced so that no one of them is exaggerated 
to the detriment of the overall performance of the end item.
    (e) Performance tests and/or assessments of work performance are 
generally essential in order to determine the degree of attainment of 
performance targets. Therefore, the contract must be as specific as 
possible in establishing test criteria (such as testing conditions, 
instrumentation precision, and data interpretation) and performance 
standards (such as the quality levels of services to be provided).
    (f) Because performance incentives present complex problems in 
contract administration, the contracting officer should negotiate them 
in full coordination with Government engineering and pricing 
specialists.
    (g) It is essential that the Government and contractor agree 
explicitly on the effect that contract changes (e.g., pursuant to the 
Changes clause) will have on performance incentives.
    (h) The contracting officer must exercise care, in establishing 
performance criteria, to recognize that the contractor should not be 
rewarded or penalized for attainments of Government-furnished 
components.
[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 44815, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44815, Aug. 22, 1997, section 16.402-
2 was amended by revising the section heading and paragraph (a); by 
redesignating paragraphs (b) through (g) as paragraphs (c) through (h); 
by adding a new paragraph (b); and by revising newly designated 
paragraph (e), effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

[[Page 341]]

16.402-2  Technical performance incentives.

    (a) Technical performance incentives may be considered in connection 
with specific product characteristics (e.g., a missile range, an 
aircraft speed, an engine thrust, or a vehicle maneuverability) or other 
specific elements of the contractor's performance. These incentives 
should be designed to tailor profit or fee to results achieved by the 
contractor, compared with specified target goals.

                                * * * * *

    (e) Performance tests are generally essential in order to determine 
the degree of attainment of performance targets. Therefore, the contract 
must be as specific as possible in establishing test criteria such as 
testing conditions, instrumentation precision, and data interpretation.

                                * * * * *



16.402-3  Delivery incentives.

    (a) Delivery incentives should be considered when improvement from a 
required delivery schedule is a significant Government objective. It is 
important to determine the Government's primary objectives in a given 
contract (e.g., earliest possible delivery or earliest quantity 
production).
    (b) Incentive arrangements on delivery should specify the 
application of the reward-penalty structure in the event of Government-
caused delays or other delays beyond the control, and without the fault 
or negligence, of the contractor or subcontractor.



16.402-4  Structuring multiple-incentive contracts.

    A properly structured multiple-incentive arrangement should--
    (a) Motivate the contractor to strive for outstanding results in all 
incentive areas; and
    (b) Compel trade-off decisions among the incentive areas, consistent 
with the Government's overall objectives for the acquisition. Because of 
the interdependency of the Government's cost, the technical performance, 
and the delivery goals, a contract that emphasizes only one of the goals 
may jeopardize control over the others. Because outstanding results may 
not be attainable for each of the incentive areas, all multiple-
incentive contracts must include a cost incentive (or constraint) that 
operates to preclude rewarding a contractor for superior technical 
performance or delivery results when the cost of those results outweighs 
their value to the Government.



16.403  Fixed-price incentive contracts.

    (a) Description. A fixed-price incentive contract is a fixed-price 
contract that provides for adjusting profit and establishing the final 
contract price by application of a formula based on the relationship of 
total final negotiated cost to total target cost. The final price is 
subject to a price ceiling, negotiated at the outset. The two forms of 
fixed-price incentive contracts, firm target and successive targets, are 
further described in 16.403-1 and 16.403-2 below.
    (b) Application. A fixed-price incentive contract is appropriate 
when--
    (1) A firm-fixed-price contract is not suitable;
    (2) The nature of the supplies or services being acquired and other 
circumstances of the acquisition are such that the contractor's 
assumption of a degree of cost responsibility will provide a positive 
profit incentive for effective cost control and performance; and
    (3) If the contract also includes incentives on technical 
performance and/or delivery, the performance requirements provide a 
reasonable opportunity for the incentives to have a meaningful impact on 
the contractor's management of the work.
    (c) Billing prices. In fixed-price incentive contracts, billing 
prices are established as an interim basis for payment. These billing 
prices may be adjusted, within the ceiling limits, upon request of 
either party to the contract, when it becomes apparent that final 
negotiated cost will be substantially different from the target cost.
[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994]



16.403-1  Fixed-price incentive (firm target) contracts.

    (a) Description. A fixed-price incentive (firm target) contract 
specifies a target cost, a target profit, a price ceiling (but not a 
profit ceiling or floor), and a profit adjustment formula. These

[[Page 342]]

elements are all negotiated at the outset. The price ceiling is the 
maximum that may be paid to the contractor, except for any adjustment 
under other contract clauses. When the contractor completes performance, 
the parties negotiate the final cost, and the final price is established 
by applying the formula. When the final cost is less than the target 
cost, application of the formula results in a final profit greater than 
the target profit; conversely, when final cost is more than target cost, 
application of the formula results in a final profit less than the 
target profit, or even a net loss. If the final negotiated cost exceeds 
the price ceiling, the contractor absorbs the difference as a loss. 
Because the profit varies inversely with the cost, this contract type 
provides a positive, calculable profit incentive for the contractor to 
control costs.
    (b) Application. A fixed-price incentive (firm target) contract is 
appropriate when the parties can negotiate at the outset a firm target 
cost, target profit, and profit adjustment formula that will provide a 
fair and reasonable incentive and a ceiling that provides for the 
contractor to assume an appropriate share of the risk. When the 
contractor assumes a considerable or major share of the cost 
responsibility under the adjustment formula, the target profit should 
reflect this responsibility.
    (c) Limitations. This contract type may be used only when--
    (1) The contractor's accounting system is adequate for providing 
data to support negotiation of final cost and incentive price revision; 
and
    (2) Adequate cost or pricing information for establishing reasonable 
firm targets is available at the time of initial contract negotiation.
    (d) Contract Schedule. The contracting officer shall specify in the 
contract Schedule the target cost, target profit, and target price for 
each item subject to incentive price revision.
[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994]



16.403-2  Fixed-price incentive (successive targets) contracts.

    (a) Description. (1) A fixed-price incentive (successive targets) 
contract specifies the following elements, all of which are negotiated 
at the outset:
    (i) An initial target cost.
    (ii) An initial target profit.
    (iii) An initial profit adjustment formula to be used for 
establishing the firm target profit, including a ceiling and floor for 
the firm target profit. (This formula normally provides for a lesser 
degree of contractor cost responsibility than would a formula for 
establishing final profit and price.)
    (iv) The production point at which the firm target cost and firm 
target profit will be negotiated (usually before delivery or shop 
completion of the first item).
    (v) A ceiling price that is the maximum that may be paid to the 
contractor, except for any adjustment under other contract clauses 
providing for equitable adjustment or other revision of the contract 
price under stated circumstances.
    (2) When the production point specified in the contract is reached, 
the parties negotiate the firm target cost, giving consideration to cost 
experience under the contract and other pertinent factors. The firm 
target profit is established by the formula. At this point, the parties 
have two alternatives, as follows:
    (i) They may negotiate a firm fixed price, using the firm target 
cost plus the firm target profit as a guide.
    (ii) If negotiation of a firm fixed price is inappropriate, they may 
negotiate a formula for establishing the final price using the firm 
target cost and firm target profit. The final cost is then negotiated at 
completion, and the final profit is established by formula, as under the 
fixed-price incentive (firm target) contract (see 16.403-1 above).
    (b) Application. A fixed-price incentive (successive targets) 
contract is appropriate when--
    (1) Available cost or pricing information is not sufficient to 
permit the negotiation of a realistic firm target cost and profit before 
award;
    (2) Sufficient information is available to permit negotiation of 
initial targets; and
    (3) There is reasonable assurance that additional reliable 
information will be available at an early point in

[[Page 343]]

the contract performance so as to permit negotiation of either (i) a 
firm fixed price or (ii) firm targets and a formula for establishing 
final profit and price that will provide a fair and reasonable 
incentive. This additional information is not limited to experience 
under the contract, itself, but may be drawn from other contracts for 
the same or similar items.
    (c) Limitations. This contract type may be used only when--
    (1) The contractor's accounting system is adequate for providing 
data for negotiating firm targets and a realistic profit adjustment 
formula, as well as later negotiation of final costs; and
    (2) Cost or pricing information adequate for establishing a 
reasonable firm target cost is reasonably expected to be available at an 
early point in contract performance.
    (d) Contract Schedule. The contracting officer shall specify in the 
contract Schedule the initial target cost, initial target profit, and 
initial target price for each item subject to incentive price revision.
[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994]



16.404  Fixed-price contracts with award fees.

    (a) Award-fee provisions may be used in fixed-price contracts when 
the Government wishes to motivate a contractor and other incentives 
cannot be used because contractor performance cannot be measured 
objectively. Such contracts shall--
    (1) Establish a fixed price (including normal profit) for the 
effort. This price will be paid for satisfactory contract performance. 
Award fee earned (if any) will be paid in addition to that fixed price; 
and
    (2) Provide for periodic evaluation of the contractor's performance 
against an award-fee plan.
    (b) A solicitation contemplating award of a fixed-price contract 
with award fee shall not be issued unless the following conditions 
exist:
    (1) The administrative costs of conducting award-fee evaluations are 
not expected to exceed the expected benefits;
    (2) Procedures have been established for conducting the award-fee 
evaluation;
    (3) The award-fee board has been established; and
    (4) An individual above the level of the contracting officer 
approved the fixed-price-award-fee incentive.
[62 FR 12696, Mar. 17, 1997]



16.405  Cost-reimbursement incentive contracts.

    See 16.301 for requirements applicable to all cost-reimbursement 
contracts, for use in conjunction with the following subsections.
[48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 
1997]



16.405-1  Cost-plus-incentive-fee contracts.

    (a) Description. The cost-plus-incentive-fee contract is a cost-
reimbursement contract that provides for the initially negotiated fee to 
be adjusted later by a formula based on the relationship of total 
allowable costs to total target costs. This contract type specifies a 
target cost, a target fee, minimum and maximum fees, and a fee 
adjustment formula. After contract performance, the fee payable to the 
contractor is determined in accordance with the formula. The formula 
provides, within limits, for increases in fee above target fee when 
total allowable costs are less than target costs, and decreases in fee 
below target fee when total allowable costs exceed target costs. This 
increase or decrease is intended to provide an incentive for the 
contractor to manage the contract effectively. When total allowable cost 
is greater than or less than the range of costs within which the fee-
adjustment formula operates, the contractor is paid total allowable 
costs, plus the minimum or maximum fee.
    (b) Application. (1) A cost-plus-incentive-fee contract is 
appropriate for services or development and test programs when--
    (i) A cost-reimbursement contract is necessary (see 16.301-2) and
    (ii) A target cost and a fee adjustment formula can be negotiated 
that are likely to motivate the contractor to manage effectively.

[[Page 344]]

    (2) The contract may include technical performance incentives when 
it is highly probable that the required development of a major system is 
feasible and the Government has established its performance objectives, 
at least in general terms. This approach may also apply to other 
acquisitions, if the use of both cost and technical performance 
incentives is desirable and administratively practical.
    (3) The fee adjustment formula should provide an incentive that will 
be effective over the full range of reasonably foreseeable variations 
from target cost. If a high maximum fee is negotiated, the contract 
shall also provide for a low minimum fee that may be a zero fee or, in 
rare cases, a negative fee.
    (c) Limitations. No cost-plus-incentive-fee contract shall be 
awarded unless all limitations in 16.301-3 are complied with.
[48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 
1997, as amended at 62 FR 44815, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44815, Aug. 22, 1997, section 16.405-
1 was amended by revising paragraph (b)(1) introductory text and the 
last sentence of paragraph (b)(2), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

16.405-1  Cost-plus-incentive-fee contracts.

                                * * * * *

    (b) Application. (1) A cost-plus-incentive-fee contract is 
appropriate for development and test programs when
    (2) * * * This approach may also apply to other development 
programs, if the use of both cost and technical performance incentives 
is desirable and administratively practical.

                                * * * * *



16.405-2  Cost-plus-award-fee contracts.

    (a) Description. A cost-plus-award-fee contract is a cost-
reimbursement contract that provides for a fee consisting of (1) a base 
amount fixed at inception of the contract and (2) an award amount that 
the contractor may earn in whole or in part during performance and that 
is sufficient to provide motivation for excellence in such areas as 
quality, timeliness, technical ingenuity, and cost-effective management. 
The amount of the award fee to be paid is determined by the Government's 
judgmental evaluation of the contractor's performance in terms of the 
criteria stated in the contract. This determination is made unilaterally 
by the Government and is not subject to the Disputes clause.
    (b) Application. (1) The cost-plus-award-fee contract is suitable 
for use when--
    (i) The work to be performed is such that it is neither feasible nor 
effective to devise predetermined objective incentive targets applicable 
to cost, technical performance, or schedule;
    (ii) The likelihood of meeting acquisition objectives will be 
enhanced by using a contract that effectively motivates the contractor 
toward exceptional performance and provides the Government with the 
flexibility to evaluate both actual performance and the conditions under 
which it was achieved; and
    (iii) Any additional administrative effort and cost required to 
monitor and evaluate performance are justified by the expected benefits.
    (2) The number of evaluation criteria and the requirements they 
represent will differ widely among contracts. The criteria and rating 
plan should motivate the contractor to improve performance in the areas 
rated, but not at the expense of at least minimum acceptable performance 
in all other areas.
    (3) Cost-plus-award-fee contracts shall provide for evaluation at 
stated intervals during performance, so that the contractor will 
periodically be informed of the quality of its performance and the areas 
in which improvement is expected. Partial payment of fee shall generally 
correspond to the evaluation periods. This makes effective the incentive 
which the award fee can create by inducing the contractor to improve 
poor performance or to continue good performance.
    (c) Limitations. No cost-plus-award-fee contract shall be awarded 
unless--
    (1) All of the limitations in 16.301-3 are complied with;
    (2) The maximum fee payable (i.e., the base fee plus the highest 
potential

[[Page 345]]

award fee) complies with the limitations in 16.301-3; and
    (3) The contract amount, performance period, and expected benefits 
are sufficient to warrant the additional administrative effort and cost 
involved.
[48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 
1997]



16.406  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.216-16, 
Incentive Price Revision--Firm Target, in solicitations and contracts 
when a fixed-price incentive (firm target) contract is contemplated. If 
the contract calls for supplies or services to be ordered under a 
provisioning document or Government option and the prices are to be 
subject to the incentive price revision under the clause, the 
contracting officer shall use the clause with its Alternate I.
    (b) The contracting officer shall insert the clause at 52.216-17, 
Incentive Price Revision--Successive Targets, in solicitations and 
contracts when a fixed-price incentive (successive targets) contract is 
contemplated. If the contract calls for supplies or services to be 
ordered under a provisioning document or Government option and the 
prices are to be subject to incentive price revision under the clause, 
the contracting officer shall use the clause with its Alternate I.
    (c) The clause at 52.216-7, Allowable Cost and Payment, is 
prescribed in 16.307(a) for insertion in solicitations and contracts 
when a cost-plus-incentive-fee contract or a cost-plus-award-fee 
contract is contemplated.
    (d) The clause at 52.216-10, Incentive Fee, is prescribed in 
16.307(d) for insertion in solicitations and contracts when a cost-plus-
incentive-fee contract is contemplated.
    (e) The contracting officer shall insert an appropriate award-fee 
clause in solicitations and contracts when an award-fee contract is 
contemplated, provided that the clause--
    (1) Is prescribed by or approved under agency acquisition 
regulations;
    (2) Is compatible with the clause at 52.216-7, Allowable Cost and 
Payment; and
    (3) Expressly excludes from the operation of the Disputes clause any 
disagreement by the contractor concerning the amount of the award fee.
[48 FR 42219, Sept. 19, 1983. Redesignated and amended at 62 FR 12696, 
Mar. 17, 1997]



               Subpart 16.5--Indefinite-Delivery Contracts



16.500  Scope of subpart.

    This subpart prescribes policies and procedures for making awards of 
indefinite-delivery contracts and establishes a preference scheme for 
making multiple awards of indefinite-quantity contracts. This subpart 
does not limit the use of other than competitive procedures authorized 
by part 6. Nothing in this subpart shall be construed to limit, impair, 
or restrict the authority of the General Services Administration (GSA) 
to enter into schedule, multiple award, or task or delivery order 
contracts under any other provision of law. Therefore, GSA regulations 
and the coverage for the Federal Supply Schedule program in subpart 8.4 
and part 38 take precedence over this subpart. This subpart may be used 
to acquire information technology requirements that are not satisfied 
under the Federal Supply Schedule program. The multiple award preference 
scheme established by this subpart does not apply to architect-engineer 
contracts subject to the procedures in subpart 36.6. However, agencies 
are not precluded from making multiple awards for architect-engineer 
services using the procedures in this subpart, provided the selection of 
contractors and placement of orders is consistent with subpart 36.6.
[61 FR 39203, July 26, 1996, as amended at 61 FR 41469, Aug. 8, 1996]



16.501-1  Definitions.

    As used in this subpart--
    Advisory and assistance services has the same meaning as set forth 
in 37.201.
    Delivery order contract means a contract for supplies that does not 
procure or specify a firm quantity of supplies (other than a minimum or 
maximum quantity) and that provides for the issuance of orders for the 
delivery of supplies during the period of the contract.
    Task order contract means a contract for services that does not 
procure or

[[Page 346]]

specify a firm quantity of services (other than a minimum or maximum 
quantity) and that provides for the issuance of orders for the 
performance of tasks during the period of the contract.
[60 FR 49725, Sept. 26, 1995]



16.501-2  General.

    (a) There are three types of indefinite-delivery contracts: 
Definite-quantity contracts, requirements contracts, and indefinite-
quantity contracts. The appropriate type of indefinite-delivery contract 
may be used to acquire supplies and/or services when the exact times 
and/or exact quantities of future deliveries are not known at the time 
of contract award. Pursuant to 10 U.S.C. 2304d and section 303K of the 
Federal Property and Administrative Services Act of 1949, requirements 
contracts and indefinite-quantity contracts are also known as delivery 
order contracts or task order contracts.
    (b) The various types of indefinite-delivery contracts offer the 
following advantages:
    (1) All three types permit (i) Government stocks to be maintained at 
minimum levels and (ii) direct shipment to users.
    (2) Indefinite-quantity contracts and requirements contracts also 
permit (i) flexibility in both quantities and delivery scheduling and 
(ii) ordering of supplies or services after requirements materialize.
    (3) Indefinite-quantity contracts limit the Government's obligation 
to the minimum quantity specified in the contract.
    (4) Requirements contracts may permit faster deliveries when 
production lead time is involved, because contractors are usually 
willing to maintain limited stocks when the Government will obtain all 
of its actual purchase requirements from the contractor.
    (c) Indefinite-delivery contracts may provide for any appropriate 
cost or pricing arrangement under part 16. Cost or pricing arrangements 
that provide for an estimated quantity of supplies or services (e.g., 
estimated number of labor hours) must comply with the appropriate 
procedures of this subpart.
[48 FR 42219, Sept. 19, 1983. Redesignated and amended at 60 FR 49725, 
Sept. 26, 1995]



16.502  Definite-quantity contracts.

    (a) Description. A definite-quantity contract provides for delivery 
of a definite quantity of specific supplies or services for a fixed 
period, with deliveries or performance to be scheduled at designated 
locations upon order.
    (b) Application. A definite-quantity contract may be used when it 
can be determined in advance that (1) a definite quantity of supplies or 
services will be required during the contract period and (2) the 
supplies or services are regularly available or will be available after 
a short lead time.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 49725, Sept. 26, 1995]



16.503  Requirements contracts.

    (a) Description. A requirements contract provides for filling all 
actual purchase requirements of designated Government activities for 
supplies or services during a specified contract period, with deliveries 
or performance to be scheduled by placing orders with the contractor.
    (1) For the information of offerors and contractors, the contracting 
officer shall state a realistic estimated total quantity in the 
solicitation and resulting contract. This estimate is not a 
representation to an offeror or contractor that the estimated quantity 
will be required or ordered, or that conditions affecting requirements 
will be stable or normal. The contracting officer may obtain the 
estimate from records of previous requirements and consumption, or by 
other means, and should base the estimate on the most current 
information available.
    (2) The contract shall state, if feasible, the maximum limit of the 
contractor's obligation to deliver and the Government's obligation to 
order. The contract may also specify maximum or minimum quantities that 
the Government may order under each individual order and the maximum 
that it may order during a specified period of time.
    (b) Application. A requirements contract may be appropriate for 
acquiring

[[Page 347]]

any supplies or services when the Government anticipates recurring 
requirements but cannot predetermine the precise quantities of supplies 
or services that designated Government activities will need during a 
definite period.
    (c) Government property furnished for repair. When a requirements 
contract is used to acquire work (e.g., repair, modification, or 
overhaul) on existing items of Government property, the contracting 
officer shall specify in the Schedule that failure of the Government to 
furnish such items in the amounts or quantities described in the 
Schedule as estimated or maximum will not entitle the contractor to any 
equitable adjustment in price under the Government Property clause of 
the contract.
    (d) Limitations on use of requirements contracts for advisory and 
assistance services. (1) Except as provided in paragraph (d)(2) of this 
section, no solicitation for a requirements contract for advisory and 
assistance services in excess of three years and $10,000,000 (including 
all options) may be issued unless the contracting officer or other 
official designated by the head of the agency determines in writing that 
the services required are so unique or highly specialized that it is not 
practicable to make multiple awards using the procedures in 16.504.
    (2) The limitation in paragraph (d)(1) of this section is not 
applicable to an acquisition of supplies or services that includes the 
acquisition of advisory and assistance services, if the contracting 
officer or other official designated by the head of the agency 
determines that the advisory and assistance services are necessarily 
incident to, and not a significant component of, the contract.
[48 FR 42219, Sept. 19, 1983, as amended at 56 FR 15150, Apr. 15, 1991; 
60 FR 49725, Sept. 26, 1995]



16.504  Indefinite-quantity contracts.

    (a) Description. An indefinite-quantity contract provides for an 
indefinite quantity, within stated limits, of supplies or services to be 
furnished during a fixed period, with deliveries or performance to be 
scheduled by placing orders with the contractor.
    (1) The contract shall require the Government to order and the 
contractor to furnish at least a stated minimum quantity of supplies or 
services and, if and as ordered, the contractor to furnish any 
additional quantities, not to exceed a stated maximum. The contracting 
officer may obtain the basis for the maximum from records of previous 
requirements and consumption, or by other means, but the maximum 
quantity should be realistic and based on the most current information 
available.
    (2) To ensure that the contract is binding, the minimum quantity 
must be more than a nominal quantity, but it should not exceed the 
amount that the Government is fairly certain to order.
    (3) The contract may also specify maximum or minimum quantities that 
the Government may order under each task or delivery order and the 
maximum that it may order during a specific period of time.
    (4) In addition to other required provisions and clauses, a 
solicitation and contract for an indefinite quantity shall--
    (i) Specify the period of the contract, including the number of 
options and the period for which the contract may be extended under each 
option, if any;
    (ii) Specify the total minimum and maximum quantity or dollar value 
of supplies or services to be acquired under the contract;
    (iii) Include a statement of work, specifications, or other 
description, that reasonably describes the general scope, nature, 
complexity, and purpose of the supplies or services to be acquired under 
the contract in a manner that will enable a prospective offeror to 
decide whether to submit an offer;
    (iv) State the procedures that will be used in issuing orders and, 
if multiple awards may be made, state the procedures and selection 
criteria that will be used to provide awardees a fair opportunity to be 
considered for each order (see 16.505(b)(1));
    (v) If multiple awards may be made, include the provision at 52.216-
27, Single or Multiple Awards, to notify offerors that more than one 
contract may be awarded; and

[[Page 348]]

    (vi) If an award of a task order contract for advisory and 
assistance services in excess of three years and $10,000,000 (including 
all options) is anticipated, include the provision at 52.216-28, 
Multiple Awards for Advisory and Assistance Services, unless a 
determination to make a single award is made under paragraph 
(c)(2)(i)(A) of this section.
    (b) Application. An indefinite-quantity contract may be used when 
the Government cannot predetermine, above a specified minimum, the 
precise quantities of supplies or services that will be required during 
the contract period, and it is inadvisable for the Government to commit 
itself for more than a minimum quantity. An indefinite-quantity contract 
should be used only when a recurring need is anticipated.
    (c) Multiple award preference--(1) General preference. Except for 
indefinite-quantity contracts for advisory and assistance services as 
provided in paragraph (c)(2) of this section, the contracting officer 
shall, to the maximum extent practicable, give preference to making 
multiple awards of indefinite-quantity contracts under a single 
solicitation for the same or similar supplies or services to two or more 
sources. In making a determination as to whether multiple awards are 
appropriate, the contracting officer shall exercise sound business 
judgment as part of acquisition planning. No separate written 
determination to make a single award is necessary when the determination 
is contained in a written acquisition plan or when a class determination 
has been made in accordance with subpart 1.7. Multiple awards should not 
be made if the contracting officer determines that--
    (i) Only one contractor is capable of providing performance at the 
level of quality required because the supplies or services are unique or 
highly specialized;
    (ii) Based on the contracting officer's knowledge of the market, 
more favorable terms and conditions, including pricing, will be provided 
if a single award is made;
    (iii) The cost of administration of multiple contracts may outweigh 
any potential benefits from making multiple awards;
    (iv) The tasks likely to be ordered are so integrally related that 
only a single contractor can reasonably perform the work;
    (v) The total estimated value of the contract is less than the 
simplified acquisition threshold; or
    (vi) Multiple awards would not be in the best interests of the 
Government.
    (2) Contracts for advisory and assistance services. (i) Except as 
provided in paragraph (c)(2)(ii) of this section, if an indefinite-
quantity contract for advisory and assistance services will not exceed 
three years and $10,000,000, including all options, a contracting 
officer may, but is not required to, give preference to making multiple 
awards. If an indefinite-quantity contract for advisory and assistance 
services exceeds three years and $10,000,000, including all options, 
multiple awards shall be made unless--
    (A) The contracting officer or other official designated by the head 
of the agency determines in writing, prior to the issuance of the 
solicitation, that the services required under the task order contract 
are so unique or highly specialized that it is not practicable to award 
more than one contract. This determination may also be appropriate when 
the tasks likely to be issued are so integrally related that only a 
single contractor can reasonably perform the work;
    (B) The contracting officer or other official designated by the head 
of the agency determines in writing, after the evaluation of offers, 
that only one offeror is capable of providing the services required at 
the level of quality required; or
    (C) Only one offer is received.
    (ii) The requirements of paragraph (c)(2)(i) of this section are not 
applicable to an acquisition of supplies or services that includes the 
acquisition of advisory and assistance services, if the contracting 
officer or other official designated by the head of the agency

[[Page 349]]

determines that the advisory and assistance services are necessarily 
incident to, and not a significant component of, the contract.
[48 FR 42219, Sept. 19, 1983, as amended at 56 FR 15150, Apr. 15, 1991; 
60 FR 49725, Sept. 26, 1995; 61 FR 39190, 39203, July 26, 1996]



16.505  Ordering.

    (a) General. (1) When placing orders under this subpart, a separate 
notice under 5.201 is not required.
    (2) The contracting officer or duly appointed ordering officer shall 
ensure that individual orders clearly describe all services to be 
performed or supplies to be delivered. Such officer shall also ensure 
that orders are within the scope, period, and maximum value of the 
contract.
    (3) The contracting officer shall include in the contract Schedule 
the names of the activity or activities authorized to issue orders.
    (4) If appropriate, authorization for placing oral orders may be 
included in the contract Schedule; provided, that procedures have been 
established for obligating funds and that oral orders are confirmed in 
writing.
    (5) Orders may be placed by facsimile or by electronic commerce 
methods, if provided for in the contract.
    (6) Orders placed under indefinite-delivery contracts shall contain 
the following information:
    (i) Date of order.
    (ii) Contract number and order number.
    (iii) Item number and description, quantity, and unit price or 
estimated cost or fee.
    (iv) Delivery or performance date.
    (v) Place of delivery or performance (including consignee).
    (vi) Packaging, packing, and shipping instructions, if any.
    (vii) Accounting and appropriation data.
    (viii) Any other pertinent information.
    (7) No protest under subpart 33.1 is authorized in connection with 
the issuance or proposed issuance of an order under a task order 
contract or delivery order contract except for a protest on the grounds 
that the order increases the scope, period, or maximum value of the 
contract.
    (b) Orders under multiple award contracts. (1) Except as provided 
for in paragraph (b)(2) of this section, for orders issued under 
multiple delivery order contracts or multiple task order contracts, each 
awardee shall be provided a fair opportunity to be considered for each 
order in excess of $2,500. In determining the procedures for providing 
awardees a fair opportunity to be considered for each order, contracting 
officers shall exercise broad discretion. The contracting officer, in 
making decisions in the award of any individual task order, should 
consider factors such as past performance on earlier tasks under the 
multiple award contract, quality of deliverables, cost control, price, 
cost, or other factors that the contracting officer believes are 
relevant to the award of a task order to an awardee under the contract. 
In evaluating past performance on individual orders, the procedural 
requirements in subpart 42.15 are not mandatory. The procedures and 
selection criteria that will be used to provide multiple awardees a fair 
opportunity to be considered for each order must be set forth in the 
solicitation and contract. The procedures for selecting awardees for the 
placement of particular orders need not comply with the competition 
requirements of part 6. However, agencies shall not use any method (such 
as allocation) that would not result in fair consideration being given 
to all awardees prior to placing each order. Formal evaluation plans or 
scoring of quotes or offers are not required. Agencies may use oral 
proposals and streamlined procedures when selecting an order awardee. In 
addition, the contracting officer need not contact each of the multiple 
awardees under the contract before selecting an order awardee if the 
contracting officer has information available to ensure that each 
awardee is provided a fair opportunity to be considered for each order.
    (2) Awardees need not be given an opportunity to be considered for a 
particular order in excess of $2,500 under multiple delivery order 
contracts or multiple task order contracts if the contracting officer 
determines that--

[[Page 350]]

    (i) The agency need for such supplies or services is of such urgency 
that providing such opportunity would result in unacceptable delays;
    (ii) Only one such contractor is capable of providing such supplies 
or services required at the level of quality required because the 
supplies or services ordered are unique or highly specialized;
    (iii) The order should be issued on a sole-source basis in the 
interest of economy and efficiency as a logical follow-on to an order 
already issued under the contract, provided that all awardees were given 
a fair opportunity to be considered for the original order; or
    (iv) It is necessary to place an order to satisfy a minimum 
guarantee.
    (3) The Ocompeting independentlyO requirement of 15.403-1(c)(1) is 
satisfied for orders placed under multiple delivery order contracts or 
multiple task order contracts when--
    (i) The price for the supplies or services is established in the 
contract at the time of contract award; or
    (ii) The contracting officer solicits offers from two or more 
awardees for order placement when the price for the supplies or services 
is not established in the contract at the time of contract award.
    (4) The head of the agency shall designate a task order contract and 
delivery order contract ombudsman who shall be responsible for reviewing 
complaints from contractors on task order contracts and delivery order 
contracts. The ombudsman shall review complaints from the contractors 
and ensure that all contractors are afforded a fair opportunity to be 
considered, consistent with the procedures in the contract. The 
ombudsman shall be a senior agency official who is independent of the 
contracting officer and may be the agency's competition advocate.
    (c) Limitation on ordering period for task order contracts for 
advisory and assistance services. (1) Except as provided for in 
paragraph (c)(2) of this section, the ordering period of a task order 
contract for advisory and assistance services, including all options or 
modifications, may not exceed five years, unless a longer period is 
specifically authorized by a statute that is applicable to such a 
contract. Notwithstanding the five-year limitation or the requirements 
of Part 6, a task order contract for advisory and assistance services 
may be extended on a sole-source basis only once for a period not to 
exceed six months if the contracting officer or other official 
designated by the head of the agency determines that--
    (i) The award of a follow-on contract is delayed by circumstances 
that were not reasonably foreseeable at the time the initial contract 
was entered into; and
    (ii) The extension is necessary to ensure continuity of services 
pending the award of the follow-on contract.
    (2) The limitation on ordering period contained in paragraph (c)(1) 
of this section is not applicable to an acquisition of supplies or 
services that includes the acquisition of advisory and assistance 
services, if the contracting officer or other official designated by the 
head of the agency determines that the advisory and assistance services 
are necessarily incident to, and not a significant component of, the 
contract.
[60 FR 49726, Sept. 26, 1995, as amended at 61 FR 39203, July 26, 1996; 
62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
16.505, in paragraph (b)(3), ``15.804-1(b)(1)'' was amended to read 
``15.403-1(c)(1)'', effective Oct. 10, 1997.



16.506  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the clause at 52.216-18, 
Ordering, in solicitations and contracts when a definite-quantity 
contract, a requirements contract, or an indefinite-quantity contract is 
contemplated.
    (b) The contracting officer shall insert a clause substantially the 
same as the clause at 52.216-19, Order Limitations, in solicitations and 
contracts when a definite-quantity contract, a requirements contract, or 
an indefinite-quantity contract is contemplated.
    (c) The contracting officer shall insert the clause at 52.216-20, 
Definite Quantity, in solicitations and contracts when a definite-
quantity contract is contemplated.
    (d) (1) The contracting officer shall insert the clause at 52.216-
21, Requirements, in solicitations and contracts

[[Page 351]]

when a requirements contract is contemplated.
    (2) If the contract is for nonpersonal services and related supplies 
and covers estimated requirements that exceed a specific Government 
activity's internal capability to produce or perform, the contracting 
officer shall use the clause with its Alternate I.
    (3) If the contract includes subsistence for both Government use and 
resale in the same Schedule, and similar products may be acquired on a 
brand-name basis, the contracting officer shall use the clause with its 
Alternate II (but see paragraph (d)(5) of this section).
    (4) If the contract involves a partial small business set-aside, the 
contracting officer shall use the clause with its Alternate III (but see 
subparagraph (5) below).
    (5) If the contract (i) includes subsistence for both Government use 
and resale in the same Schedule and similar products may be acquired on 
a brand-name basis and (ii) involves a partial small business set-aside, 
the contracting officer shall use the clause with its Alternate IV.
    (e) The contracting officer shall insert the clause at 52.216-22, 
Indefinite Quantity, in solicitations and contracts when an indefinite-
quantity contract is contemplated.
    (f) The contracting officer shall insert the provision at 52.216-27, 
Single or Multiple Awards, in solicitations for indefinite quantity 
contracts that may result in multiple contract awards. This provision 
shall not be used for advisory and assistance services contracts that 
exceed three years and $10,000,000 (including all options). Contracting 
officers may modify the provision to specify the number of awards the 
Government reasonably estimates that it may make.
    (g) In accordance with 16.504(a)(4)(vi), the contracting officer 
shall insert the provision at 52.216-28, Multiple Awards for Advisory 
and Assistance Services, in solicitations for task order contracts for 
advisory and assistance services that exceed three years and $10,000,000 
(including all options) unless a determination has been made under 
16.504(c)(2)(i)(A). Contracting officers may modify the provision to 
specify the number of awards the Government reasonably estimates that it 
may make.
[48 FR 42219, Sept. 19, 1983; 60 FR 48260, Sept. 18, 1995. Redesignated 
and amended at 60 FR 49726, 49727, Sept. 26, 1995]



   Subpart 16.6--Time-and-Materials, Labor-Hour, and Letter Contracts



16.601  Time-and-materials contracts.

    (a) Description. A time-and-materials contract provides for 
acquiring supplies or services on the basis of (1) direct labor hours at 
specified fixed hourly rates that include wages, overhead, general and 
administrative expenses, and profit and (2) materials at cost, 
including, if appropriate, material handling costs as part of material 
costs.
    (b) Application. A time-and-materials contract may be used only when 
it is not possible at the time of placing the contract to estimate 
accurately the extent or duration of the work or to anticipate costs 
with any reasonable degree of confidence.
    (1) Government surveillance. A time-and-materials contract provides 
no positive profit incentive to the contractor for cost control or labor 
efficiency. Therefore, appropriate Government surveillance of contractor 
performance is required to give reasonable assurance that efficient 
methods and effective cost controls are being used.
    (2) Material handling costs. When included as part of material 
costs, material handling costs shall include only costs clearly excluded 
from the labor-hour rate. Material handling costs may include all 
appropriate indirect costs allocated to direct materials in accordance 
with the contractor's usual accounting procedures consistent with part 
31.
    (3) Optional method of pricing material. When the nature of the work 
to be performed requires the contractor to furnish material that it 
regularly sells to the general public in the normal course of its 
business, the contract may provide for charging material on a basis 
other than at cost if--
    (i) The total estimated contract price does not exceed $25,000 or 
the estimated price of material so charged does not exceed 20 percent of 
the estimated contract price;

[[Page 352]]

    (ii) The material to be so charged is identified in the contract;
    (iii) No element of profit on material so charged is included as 
profit in the fixed hourly labor rates; and
    (iv) The contract provides (A) that the price to be paid for such 
material shall be based on an established catalog or list price in 
effect when material is furnished, less all applicable discounts to the 
Government, and (B) that in no event shall the price exceed the 
contractor's sales price to its most-favored customer for the same item 
in like quantity, or the current market price, whichever is lower.
    (c) Limitations. A time-and-materials contract may be used (1) only 
after the contracting officer executes a determination and findings that 
no other contract type is suitable and (2) only if the contract includes 
a ceiling price that the contractor exceeds at its own risk. The 
contracting officer shall document the contract file to justify the 
reasons for and amount of any subsequent change in the ceiling price.



16.602  Labor-hour contracts.

    Description. A labor-hour contract is a variation of the time-and-
materials contract, differing only in that materials are not supplied by 
the contractor. See 16.601(b) and 16.601(c) for application and 
limitations, respectively.



16.603  Letter contracts.



16.603-1  Description.

    A letter contract is a written preliminary contractual instrument 
that authorizes the contractor to begin immediately manufacturing 
supplies or performing services.



16.603-2  Application.

    (a) A letter contract may be used when (1) the Government's 
interests demand that the contractor be given a binding commitment so 
that work can start immediately and (2) negotiating a definitive 
contract is not possible in sufficient time to meet the requirement. 
However, a letter contract should be as complete and definite as 
feasible under the circumstances.
    (b) When a letter contract award is based on price competition, the 
contracting officer shall include an overall price ceiling in the letter 
contract.
    (c) Each letter contract shall, as required by the clause at 52.216-
25, Contract Definitization, contain a negotiated definitization 
schedule including (1) dates for submission of the contractor's price 
proposal, required cost or pricing data, and, if required, make-or-buy 
and subcontracting plans, (2) a date for the start of negotiations, and 
(3) a target date for definitization, which shall be the earliest 
practicable date for definitization. The schedule will provide for 
definitization of the contract within 180 days after the date of the 
letter contract or before completion of 40 percent of the work to be 
performed, whichever occurs first. However, the contracting officer may, 
in extreme cases and according to agency procedures, authorize an 
additional period. If, after exhausting all reasonable efforts, the 
contracting officer and the contractor cannot negotiate a definitive 
contract because of failure to reach agreement as to price or fee, the 
clause at 52.216-25 requires the contractor to proceed with the work and 
provides that the contracting officer may, with the approval of the head 
of the contracting activity, determine a reasonable price or fee in 
accordance with subpart 15.4 and part 31, subject to appeal as provided 
in the Disputes clause.
    (d) The maximum liability of the Government inserted in the clause 
at 52.216-24, Limitation of Government Liability, shall be the estimated 
amount necessary to cover the contractor's requirements for funds before 
definitization. However, it shall not exceed 50 percent of the estimated 
cost of the definitive contract unless approved in advance by the 
official that authorized the letter contract.
    (e) The contracting officer shall assign a priority rating to the 
letter contract if it is appropriate under 11.604.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995; 
62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
16.603-2, in paragraph (c)(3), ``15.8'' was amended to read ``15.4'', 
effective Oct. 10, 1997.

[[Page 353]]



16.603-3  Limitations.

    A letter contract may be used only after the head of the contracting 
activity or a designee determines in writing that no other contract is 
suitable. Letter contracts shall not--
    (a) Commit the Government to a definitive contract in excess of the 
funds available at the time the letter contract is executed;
    (b) Be entered into without competition when competition is required 
by part 6; or
    (c) Be amended to satisfy a new requirement unless that requirement 
is inseparable from the existing letter contract. Any such amendment is 
subject to the same requirements and limitations as a new letter 
contract.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 31426, Sept. 3, 1986]



16.603-4  Contract clauses.

    (a) The contracting officer shall include in each letter contract 
the clauses required by this regulation for the type of definitive 
contract contemplated and any additional clauses known to be appropriate 
for it.
    (b) In addition, the contracting officer shall insert the following 
clauses in solicitations and contracts when a letter contract is 
contemplated:
    (1) The clause at 52.216-23, Execution and Commencement of Work, 
except that this clause may be omitted from letter contracts awarded on 
SF 26;
    (2) The clause at 52.216-24, Limitation of Government Liability, 
with dollar amounts completed in a manner consistent with 16.603-2(d); 
and
    (3) The clause at 52.216-25, Contract Definitization, with its 
paragraph (b) completed in a manner consistent with 16.603-2(c). If, at 
the time of entering into the letter contract, the contracting officer 
knows that the definitive contract will be based on adequate price 
competition or will otherwise meet the criteria of 15.403-1 for not 
requiring submission of cost or pricing data, the words ``and cost or 
pricing data supporting its proposal'' may be deleted from paragraph (a) 
of the clause. If the letter contract is being awarded on the basis of 
price competition, the contracting officer shall use the clause with its 
Alternate I.
    (c) The contracting officer shall also insert the clause at 52.216-
26, Payments of Allowable Costs Before Definitization, in solicitations 
and contracts if a cost-reimbursement definitive contract is 
contemplated, unless the acquisition involves conversion, alteration, or 
repair of ships.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 48217, Sept. 18, 1995; 
62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
16.603-4, in paragraph (b)(3), ``15.804-1'' was amended to read 
``15.403-1'', effective Oct. 10, 1997.



                        Subpart 16.7--Agreements



16.701  Scope.

    This subpart prescribes policies and procedures for establishing and 
using basic agreements and basic ordering agreements. (See subpart 13.2 
for blanket purchase agreements (BPA's) and see 35.015(b) for additional 
coverage of basic agreements with educational institutions and nonprofit 
organizations.)



16.702  Basic agreements.

    (a) Description. A basic agreement is a written instrument of 
understanding, negotiated between an agency or contracting activity and 
a contractor, that (1) contains contract clauses applying to future 
contracts between the parties during its term and (2) contemplates 
separate future contracts that will incorporate by reference or 
attachment the required and applicable clauses agreed upon in the basic 
agreement. A basic agreement is not a contract.
    (b) Application. A basic agreement should be used when a substantial 
number of separate contracts may be awarded to a contractor during a 
particular period and significant recurring negotiating problems have 
been experienced with the contractor. Basic agreements may be used with 
negotiated fixed-price or cost-reimbursement contracts.
    (1) Basic agreements shall contain (i) clauses required for 
negotiated contracts by statute, executive order, and this regulation 
and (ii) other clauses

[[Page 354]]

prescribed in this regulation or agency acquisition regulations that the 
parties agree to include in each contract as applicable.
    (2) Each basic agreement shall provide for discontinuing its future 
applicablity upon 30 days' written notice by either party.
    (3) Each basic agreement shall be reviewed annually before the 
anniversary of its effective date and revised as necessary to conform to 
the requirements of this regulation. Basic agreements may need to be 
revised before the annual review due to mandatory statutory 
requirements. A basic agreement may be changed only by modifying the 
agreement itself and not by a contract incorporating the agreement.
    (4) Discontinuing or modifying a basic agreement shall not affect 
any prior contract incorporating the basic agreement.
    (5) Contracting officers of one agency should obtain and use 
existing basic agreements of another agency to the maximum practical 
extent.
    (c) Limitations. A basic agreement shall not--
    (1) Cite appropriations or obligate funds;
    (2) State or imply any agreement by the Government to place future 
contracts or orders with the contractor; or
    (3) Be used in any manner to restrict competition.
    (d) Contracts incorporating basic agreements. (1) Each contract 
incorporating a basic agreement shall include a scope of work and price, 
delivery, and other appropriate terms that apply to the particular 
contract. The basic agreement shall be incorporated into the contract by 
specific reference (including reference to each amendment) or by 
attachment.
    (2) The contracting officer shall include clauses pertaining to 
subjects not covered by the basic agreement, but applicable to the 
contract being negotiated, in the same manner as if there were no basic 
agreement.
    (3) If an existing contract is modified to effect new acquisition, 
the modification shall incorporate the most recent basic agreement, 
which shall apply only to work added by the modification, except that 
this action is not mandatory if the contract or modification includes 
all clauses required by statute, executive order, and this regulation as 
of the date of the modification. However, if it is in the Government's 
interest and the contractor agrees, the modification may incorporate the 
most recent basic agreement for application to the entire contract as of 
the date of the modification.



16.703  Basic ordering agreements.

    (a) Description. A basic ordering agreement is a written instrument 
of understanding, negotiated between an agency, contracting activity, or 
contracting office and a contractor, that contains (1) terms and clauses 
applying to future contracts (orders) between the parties during its 
term, (2) a description, as specific as practicable, of supplies or 
services to be provided, and (3) methods for pricing, issuing, and 
delivering future orders under the basic ordering agreement. A basic 
ordering agreement is not a contract.
    (b) Application. A basic ordering agreement may be used to expedite 
contracting for uncertain requirements for supplies or services when 
specific items, quantities, and prices are not known at the time the 
agreement is executed, but a substantial number of requirements for the 
type of supplies or services covered by the agreement are anticipated to 
be purchased from the contractor. Under proper circumstances, the use of 
these procedures can result in economies in ordering parts for equipment 
support by reducing administrative lead-time, inventory investment, and 
inventory obsolescence due to design changes.
    (c) Limitations. A basic ordering agreement shall not state or imply 
any agreement by the Government to place future contracts or orders with 
the contractor or be used in any manner to restrict competition.
    (1) Each basic ordering agreement shall--
    (i) Describe the method for determining prices to be paid to the 
contractor for the supplies or services;
    (ii) Include delivery terms and conditions or specify how they will 
be determined;
    (iii) List one or more Government activities authorized to issue 
orders under the agreement;

[[Page 355]]

    (iv) Specify the point at which each order becomes a binding 
contract (e.g., issuance of the order, acceptance of the order in a 
specified manner, or failure to reject the order within a specified 
number of days);
    (v) Provide that failure to reach agreement on price for any order 
issued before its price is established (see paragraph (d)(3) below) is a 
dispute under the Disputes clause included in the basic ordering 
agreement; and
    (vi) If fast payment procedures will apply to orders, include the 
special data required by 13.303.
    (2) Each basic ordering agreement shall be reviewed annually before 
the anniversary of its effective date and revised as necessary to 
conform to the requirements of this regulation. Basic ordering 
agreements may need to be revised before the annual review due to 
mandatory statutory requirements. A basic ordering agreement shall be 
changed only by modifying the agreement itself and not by individual 
orders issued under it. Modifying a basic ordering agreement shall not 
retroactively affect orders previously issued under it.
    (d) Orders. A contracting officer representing any Government 
activity listed in a basic ordering agreement may issue orders for 
required supplies or services covered by that agreement.
    (1) Before issuing an order under a basic ordering agreement, the 
contracting officer shall--
    (i) Obtain competition in accordance with part 6;
    (ii) If the order is being placed after competition, ensure that use 
of the basic ordering agreement is not prejudicial to other offerors; 
and
    (iii) Sign or obtain any applicable justifications and approvals, 
and any determination and findings, in accordance with 1.602-1(b), and 
comply with other requirements, as if the order were a contract awarded 
independently of a basic ordering agreement.
    (2) Contracting officers shall--
    (i) Issue orders under basic ordering agreements on Optional Form 
(OF) 347, Order for Supplies or Services, or on any other appropriate 
contractual instrument;
    (ii) Incorporate by reference the provisions of the basic ordering 
agreement;
    (iii) If applicable, cite the authority under 6.302 in each order; 
and
    (iv) Comply with 5.203 when synopsis is required by 5.201.
    (3) The contracting officer shall neither make any final commitment 
nor authorize the contractor to begin work on an order under a basic 
ordering agreement until prices have been established, unless the order 
establishes a ceiling price limiting the Government's obligation and 
either--
    (i) The basic ordering agreement provides adequate procedures for 
timely pricing of the order early in its performance period; or
    (ii) The need for the supplies or services is compelling and 
unusually urgent (i.e., when the Government would be seriously injured, 
financially or otherwise, if the requirement is not met sooner than 
would be possible if prices were established before the work began). The 
contracting officer shall proceed with pricing as soon as practical. In 
no event shall an entire order be priced retroactively.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 61 FR 39198, July 26, 1996]



PART 17--SPECIAL CONTRACTING METHODS--Table of Contents




Sec.
17.000  Scope of part.

                   Subpart 17.1--Multiyear Contracting

17.101  Authority.
17.102  Applicability.
17.103  Definitions.
17.104  General.
17.105  Policy.
17.105-1  Uses.
17.105-2  Objectives.
17.106  Procedures.
17.106-1  General.
17.106-2  Solicitations.
17.106-3  Special procedures applicable to DoD, NASA, and the Coast 
          Guard.
17.107  Options.
17.108  Congressional notification.
17.109  Contract clauses.

                          Subpart 17.2--Options

17.200  Scope of subpart.
17.201  Definition.

[[Page 356]]

17.202  Use of options.
17.203  Solicitations.
17.204  Contracts.
17.205  Documentation.
17.206  Evaluation.
17.207  Exercise of options.
17.208  Solicitation provisions and contract clauses.

                        Subpart 17.3  [Reserved]

                Subpart 17.4--Leader Company Contracting

17.401  General.
17.402  Limitations.
17.403  Procedures.

      Subpart 17.5--Interagency Acquisitions Under the Economy Act

17.500  Scope of subpart.
17.501  Definition.
17.502  General.
17.503  Determinations and findings requirements.
17.504  Ordering procedures.
17.505  Payment.

            Subpart 17.6--Management and Operating Contracts

17.600  Scope of subpart.
17.601  Definition.
17.602  Policy.
17.603  Limitations.
17.604  Identifying management and operating contracts.
17.605  Award, renewal, and extension.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42231, Sept. 19, 1983, unless otherwise noted.



17.000  Scope of part.

    This part prescribes policies and procedures for the acquisition of 
supplies and services through special contracting methods, including--
    (a) Multi-year contracting;
    (b) Options; and
    (c) Leader company contracting.



                   Subpart 17.1--Multiyear Contracting

    Source:  61 FR 39204, July 26, 1996, unless otherwise noted.



17.101  Authority.

    This subpart implements Section 304B of the Federal Property and 
Administrative Services Act of 1949 (41 U.S.C. 254c) and 10 U.S.C. 2306b 
and provides policy and procedures for the use of multiyear contracting.



17.102  Applicability.

    For DoD, NASA, and the Coast Guard, the authorities cited in 17.101 
do not apply to contracts for the purchase of supplies to which 40 
U.S.C. 759 applies (information resource management supply contracts).



17.103  Definitions.

    As used in this subpart--
    Cancellation means the cancellation (within a contractually 
specified time) of the total requirements of all remaining program 
years. Cancellation results when the contracting officer
    (a) Notifies the contractor of nonavailability of funds for contract 
performance for any subsequent program year, or
    (b) Fails to notify the contractor that funds are available for 
performance of the succeeding program year requirement.
    Cancellation ceiling means the maximum cancellation charge that the 
contractor can receive in the event of cancellation.
    Cancellation charge means the amount of unrecovered costs which 
would have been recouped through amortization over the full term of the 
contract, including the term canceled.
    Multiyear contract means a contract for the purchase of supplies or 
services for more than 1, but not more than 5, program years. A 
multiyear contract may provide that performance under the contract 
during the second and subsequent years of the contract is contingent 
upon the appropriation of funds, and (if it does so provide) may provide 
for a cancellation payment to be made to the contractor if 
appropriations are not made. The key distinguishing difference between 
multiyear contracts and multiple year contracts is that multiyear 
contracts, defined in the statutes cited at 17.101, buy more than 1 
year's requirement (of a product or service) without establishing and 
having to exercise an option for each program year after the first.
    Nonrecurring costs means those costs which are generally incurred on 
a one-time basis and include such costs as

[[Page 357]]

plant or equipment relocation, plant rearrangement, special tooling and 
special test equipment, preproduction engineering, initial spoilage and 
rework, and specialized work force training.
    Recurring costs means costs that vary with the quantity being 
produced, such as labor and materials.
    Termination for convenience means the procedure which may apply to 
any Government contract, including multiyear contracts. As contrasted 
with cancellation, termination can be effected at any time during the 
life of the contract (cancellation is effected between fiscal years) and 
can be for the total quantity or a partial quantity (whereas 
cancellation must be for all subsequent fiscal years' quantities).



17.104  General.

    (a) Multiyear contracting is a special contracting method to acquire 
known requirements in quantities and total cost not over planned 
requirements for up to 5 years unless otherwise authorized by statute, 
even though the total funds ultimately to be obligated may not be 
available at the time of contract award. This method may be used in 
sealed bidding or contracting by negotiation.
    (b) Multiyear contracting is a flexible contracting method 
applicable to a wide range of acquisitions. The extent to which 
cancellation terms are used in multiyear contracts will depend on the 
unique circumstances of each contracting action. Accordingly, for 
multiyear contracts, the agency head may authorize modification of the 
requirements of this subpart and the clause at 52.217-2, Cancellation 
Under Multiyear Contracts.
    (c) Agency funding of multiyear contracts shall conform to the 
policies in OMB Circulars A-11 (Preparation and Submission of Budget 
Estimates) and A-34 (Instructions on Budget Execution) and other 
applicable guidance regarding the funding of multiyear contracts. As 
provided by that guidance, the funds obligated for multiyear contracts 
must be sufficient to cover any potential cancellation and/or 
termination costs; and multiyear contracts for the acquisition of fixed 
assets should be fully funded or funded in stages that are economically 
or programmatically viable.



17.105  Policy.



17.105-1  Uses.

    (a) Except for DoD, NASA, and the Coast Guard, the contracting 
officer may enter into a multiyear contract if the head of the 
contracting activity determines that--
    (1) The need for the supplies or services is reasonably firm and 
continuing over the period of the contract; and
    (2) A multiyear contract will serve the best interests of the United 
States by encouraging full and open competition or promoting economy in 
administration, performance, and operation of the agency's programs.
    (b) For DoD, NASA, and the Coast Guard, the head of the agency may 
enter into a multiyear contract for supplies if--
    (1) The use of such a contract will result in substantial savings of 
the total estimated costs of carrying out the program through annual 
contracts;
    (2) The minimum need to be purchased is expected to remain 
substantially unchanged during the contemplated contract period in terms 
of production rate, procurement rate, and total quantities;
    (3) There is a stable design for the supplies to be acquired, and 
the technical risks associated with such supplies are not excessive;
    (4) There is a reasonable expectation that, throughout the 
contemplated contract period, the head of the agency will request 
funding for the contract at a level to avoid contract cancellation; and
    (5) The estimates of both the cost of the contract and the cost 
avoidance through the use of a multiyear contract are realistic.
    (c) The multiyear contracting method may be used for the acquisition 
of supplies or services.
    (d) If funds are not appropriated to support the succeeding years' 
requirements, the agency must cancel the contract.

[[Page 358]]



17.105-2  Objectives.

    Use of multiyear contracting is encouraged to take advantage of one 
or more of the following:
    (a) Lower costs.
    (b) Enhancement of standardization.
    (c) Reduction of administrative burden in the placement and 
administration of contracts.
    (d) Substantial continuity of production or performance, thus 
avoiding annual startup costs, preproduction testing costs, make-ready 
expenses, and phaseout costs.
    (e) Stabilization of contractor work forces.
    (f) Avoidance of the need for establishing quality control 
techniques and procedures for a new contractor each year.
    (g) Broadening the competitive base with opportunity for 
participation by firms not otherwise willing or able to compete for 
lesser quantities, particularly in cases involving high startup costs.
    (h) Providing incentives to contractors to improve productivity 
through investment in capital facilities, equipment, and advanced 
technology.



17.106  Procedures.



17.106-1  General.

    (a) Method of contracting. The nature of the requirement should 
govern the selection of the method of contracting, since the multiyear 
procedure is compatible with sealed bidding, including two-step sealed 
bidding, and negotiation.
    (b) Type of contract. Given the longer performance period associated 
with multiyear acquisition, consideration in pricing fixed-priced 
contracts should be given to the use of economic price adjustment terms 
and profit objectives commensurate with contractor risk and financing 
arrangements.
    (c) Cancellation procedures. (1) All program years except the first 
are subject to cancellation. For each program year subject to 
cancellation, the contracting officer shall establish a cancellation 
ceiling. Ceilings must exclude amounts for requirements included in 
prior program years. The contracting officer shall reduce the 
cancellation ceiling for each program year in direct proportion to the 
remaining requirements subject to cancellation. For example, consider 
that the total nonrecurring costs (see 15.408, Table 15-2, Formats for 
Submission of Line Items Summaries C(8)) are estimated at 10 percent of 
the total multiyear price, and the percentages for each of the program 
year requirements for 5 years are (i) 30 in the first year, (ii) 30 in 
the second, (iii) 20 in the third, (iv) 10 in the fourth, and (v) 10 in 
the fifth. The cancellation percentages, after deducting 3 percent for 
the first program year, would be 7, 4, 2, and 1 percent of the total 
price applicable to the second, third, fourth, and fifth program years, 
respectively.
    (2) In determining cancellation ceilings, the contracting officer 
must estimate reasonable preproduction or startup, labor learning, and 
other nonrecurring costs to be incurred by an ``average'' prime 
contractor or subcontractor, which would be applicable to, and which 
normally would be amortized over, the items or services to be furnished 
under the multiyear requirements. Nonrecurring costs include such costs, 
where applicable, as plant or equipment relocation or rearrangement, 
special tooling and special test equipment, preproduction engineering, 
initial rework, initial spoilage, pilot runs, allocable portions of the 
costs of facilities to be acquired or established for the conduct of the 
work, costs incurred for the assembly, training, and transportation to 
and from the job site of a specialized work force, and unrealized labor 
learning. They shall not include any costs of labor or materials, or 
other expenses (except as indicated above), which might be incurred for 
performance of subsequent program year requirements. The total estimate 
of the above costs must then be compared with the best estimate of the 
contract cost to arrive at a reasonable percentage or dollar figure. To 
perform this calculation, the contracting officer should obtain in-house 
engineering cost estimates identifying the detailed recurring and 
nonrecurring costs, and the effect of labor learning.
    (3) The contracting officer shall establish cancellation dates for 
each program year's requirements regarding production lead time and the 
date by

[[Page 359]]

which funding for these requirements can reasonably be established. The 
contracting officer shall include these dates in the schedule, as 
appropriate.
    (d) Cancellation ceilings. Cancellation ceilings and dates may be 
revised after issuing the solicitation if necessary. In sealed bidding, 
the contracting officer shall change the ceiling by amending the 
solicitation before bid opening. In two-step sealed bidding, discussions 
conducted during the first step may indicate the need for revised 
ceilings and dates which may be incorporated in step two. In a 
negotiated acquisition, negotiations with offerors may provide 
information requiring a change in cancellation ceilings and dates before 
final negotiation and contract award.
    (e) Payment of cancellation charges. If cancellation occurs, the 
Government's liability will be determined by the terms of the applicable 
contract.
    (f) Presolicitation or pre-bid conferences. To ensure that all 
interested sources of supply are thoroughly aware of how multiyear 
contracting is accomplished, use of presolicitation or pre-bid 
conferences may be advisable.
    (g) Payment limit. The contracting officer shall limit the 
Government's payment obligation to an amount available for contract 
performance. The contracting officer shall insert the amount for the 
first program year in the contract upon award and modify it for 
successive program years upon availability of funds.
    (h) Termination payment. If the contract is terminated for the 
convenience of the Government in whole, including requirements subject 
to cancellation, the Government's obligation shall not exceed the amount 
specified in the Schedule as available for contract performance, plus 
the cancellation ceiling.
[61 FR 39204, July 26, 1996, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
17.106-1, in paragraph (c)(1), ``15.804-6'' was amended to read 
``15.408, Table 15-2, Formats for Submission of Line Items Summaries 
C(8)'', effective Oct. 10, 1997.



17.106-2  Solicitations.

    Solicitations for multiyear contracts shall reflect all the factors 
to be considered for evaluation, specifically including the following:
    (a) The requirements, by item of supply or service, for the--
    (1) First program year; and
    (2) Multiyear contract including the requirements for each program 
year.
    (b) Criteria for comparing the lowest evaluated submission on the 
first program year requirements to the lowest evaluated submission on 
the multiyear requirements.
    (c) A provision that, if the Government determines before award that 
only the first program year requirements are needed, the Government's 
evaluation of the price or estimated cost and fee shall consider only 
the first year.
    (d) A provision specifying a separate cancellation ceiling (on a 
percentage or dollar basis) and dates applicable to each program year 
subject to a cancellation (see 17.106-1 (c) and (d)).
    (e) A statement that award will not be made on less than the first 
program year requirements.
    (f) The Government's administrative costs of annual contracting may 
be used as a factor in the evaluation only if they can be reasonably 
established and are stated in the solicitation.
    (g) The cancellation ceiling shall not be an evaluation factor.



17.106-3  Special procedures applicable to DoD, NASA, and the Coast Guard.

    (a) Participation by subcontractors, suppliers, and vendors. In 
order to broaden the defense industrial base, to the maximum extent 
practicable--
    (1) Multiyear contracting shall be used in such a manner as to seek, 
retain, and promote the use under such contracts of companies that are 
subcontractors, suppliers, and vendors; and
    (2) Upon accrual of any payment or other benefit under such a 
multiyear contract to any subcontractor, supplier, or vendor company 
participating in such contract, such payment or benefit shall be 
delivered to such company in the most expeditious manner practicable.
    (b) Protection of existing authority. To the extent practicable, 
multiyear contracting shall not be carried out in a

[[Page 360]]

manner to preclude or curtail the existing ability of the Department or 
agency to provide for termination of a prime contract, the performance 
of which is deficient with respect to cost, quality, or schedule.
    (c) Cancellation or termination for insufficient funding. In the 
event funds are not made available for the continuation of a multiyear 
contract awarded using the procedures in this section, the contract 
shall be canceled or terminated.
    (d) Contracts awarded under the multiyear procedure shall be firm-
fixed-price, fixed-price with economic price adjustment, or fixed-price 
incentive.
    (e) Recurring costs in cancellation ceiling. The inclusion of 
recurring costs in cancellation ceilings is an exception to normal 
contract financing arrangements and requires approval by the agency 
head.
    (f) Annual and multiyear proposals. Obtaining both annual and 
multiyear offers provides reduced lead time for making an annual award 
in the event that the multiyear award is not in the Government's 
interest. Obtaining both also provides a basis for the computation of 
savings and other benefits. However, the preparation and evaluation of 
dual offers may increase administrative costs and workload for both 
offerors and the Government, especially for large or complex 
acquisitions. The head of a contracting activity may authorize the use 
of a solicitation requesting only multiyear prices, provided it is found 
that such a solicitation is in the Government's interest, and that dual 
proposals are not necessary to meet the objectives in 17.105-2.
    (g) Level unit prices. Multiyear contract procedures provide for the 
amortization of certain costs over the entire contract quantity 
resulting in identical (level) unit prices (except when the economic 
price adjustment terms apply) for all items or services under the 
multiyear contract. If level unit pricing is not in the Government's 
interest, the head of a contracting activity may approve the use of 
variable unit prices, provided that for competitive proposals there is a 
valid method of evaluation.



17.107  Options.

    Benefits may accrue by including options in a multiyear contract. In 
that event, contracting officers must follow the requirements of subpart 
17.2. Options should not include charges for plant and equipment already 
amortized, or other nonrecurring charges which were included in the 
basic contract.



17.108  Congressional notification.

    (a) Except for DoD, NASA, and the Coast Guard, a multiyear contract 
which includes a cancellation ceiling in excess of $10 million may not 
be awarded until the head of the agency gives written notification of 
the proposed contract and of the proposed cancellation ceiling for that 
contract to the committees on appropriations of the House of 
Representatives and Senate and the appropriate oversight committees of 
the House and Senate for the agency in question. Information on such 
committees may not be readily available to contracting officers. 
Accordingly, agencies should provide such information through its 
internal regulations. The contract may not be awarded until the thirty-
first day after the date of notification.
    (b) For DoD, NASA, and the Coast guard, a multiyear contract which 
includes a cancellation ceiling in excess of $100 million may not be 
awarded until the head of the agency gives written notification of the 
proposed contract and of the proposed cancellation ceiling for that 
contract to the committees on armed services and on appropriations of 
the House of Representative and Senate. The contract may not be awarded 
until the thirty-first day after the date of notification.



17.109  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.217-2, 
Cancellation Under Multiyear Contracts, in solicitations and contracts 
when a multiyear contract is contemplated.
    (b) Economic price adjustment clauses. Economic price adjustment 
clauses are adaptable to multiyear contracting needs. When the period of 
production is likely to warrant a labor and material costs contingency 
in the contract price, the contracting officer should

[[Page 361]]

normally use an economic price adjustment clause (see 16.203). When 
contracting for services, the contracting officer--
    (1) Shall add the clause at 52.222-43, Fair Labor Standards Act and 
Service Contract Act-Price Adjustment (Multiple Year and Option 
Contracts), when the contract includes the clause at 52.222-41, Service 
Contract Act of 1965, as amended;
    (2) May modify the clause at 52.222-43 in overseas contracts when 
laws, regulations, or international agreements require contractors to 
pay higher wage rates; or
    (3) May use an economic price adjustment clause authorized by 
16.203, when potential fluctuations require coverage and are not 
included in cost contingencies provided for by the clause at 52.222-43.



                          Subpart 17.2--Options



17.200  Scope of subpart.

    This subpart prescribes policies and procedures for the use of 
option solicitation provisions and contract clauses. Except as provided 
in agency regulations, this subpart does not apply to contracts for
    (a) Services involving the construction, alteration, or repair 
(including dredging, excavating, and painting) of buildings, bridges, 
roads, or other kinds of real property;
    (b) Architect-engineer services; and
    (c) Research and development services.

However, it does not preclude the use of options in those contracts.
[61 FR 41469, Aug. 8, 1996]



17.201  Definition.

    Option means a unilateral right in a contract by which, for a 
specified time, the Government may elect to purchase additional supplies 
or services called for by the contract, or may elect to extend the term 
of the contract.



17.202  Use of options.

    (a) Subject to the limitations of paragraphs (b) and (c) of this 
section, for both sealed bidding and contracting by negotiation, the 
contracting officer may include options in contracts when it is in the 
Government's interest. When using sealed bidding, the contracting 
officer shall make a written determination that there is a reasonable 
likelihood that the options will be exercised before including the 
provision at 52.217-5, Evaluation of Options, in the solicitation. (See 
17.207(f) with regard to the exercise of options.)
    (b) Inclusion of an option is normally not in the Government's 
interest when, in the judgment of the contracting officer--
    (1) The foreseeable requirements involve--
    (i) Minimum economic quantities (i.e., quantities large enough to 
permit the recovery of startup costs and production of the required 
supplies at a reasonable price); and
    (ii) Delivery requirements far enough into the future to permit 
competitive acquisition, production, and delivery.
    (2) An indefinite quantity or requirements contract would be more 
appropriate than a contract with options. However, this does not 
preclude the use of an indefinite quantity contract or requirements 
contract with options.
    (c) The contracting officer shall not employ options if--
    (1) The contractor will incur undue risks; e.g., the price or 
availability of necessary materials or labor is not reasonably 
foreseeable;
    (2) Market prices for the supplies or services involved are likely 
to change substantially; or
    (3) The option represents known firm requirements for which funds 
are available unless (i) the basic quantity is a learning or testing 
quantity and (ii) competition for the option is impracticable once the 
initial contract is awarded.
    (d) In recognition of (1) the Government's need in certain service 
contracts for continuity of operations and (2) the potential cost of 
disrupted support, options may be included in service contracts if there 
is an anticipated need for a similar service beyond the first contract 
period.
[48 FR 42231, Sept. 19, 1983, as amended at 53 FR 17858, May 18, 1988; 
56 FR 15150, Apr. 15, 1991; 60 FR 42656, Aug. 16, 1995]

[[Page 362]]



17.203  Solicitations.

    (a) Solicitations shall include appropriate option provisions and 
clauses when resulting contracts will provide for the exercise of 
options (see 17.208).
    (b) Solicitations containing option provisions shall state the basis 
of evaluation, either exclusive or inclusive of the option and, when 
appropriate, shall inform offerors that it is anticipated that the 
Government may exercise the option at time of award.
    (c) Solicitations normally should allow option quantities to be 
offered without limitation as to price, and there shall be no limitation 
as to price if the option quantity is to be considered in the evaluation 
for award (see 17.206).
    (d) Solicitations that allow the offer of options at unit prices 
which differ from the unit prices for the basic requirement shall state 
that offerors may offer varying prices for options, depending on the 
quantities actually ordered and the dates when ordered.
    (e) If it is anticipated that the Government may exercise an option 
at the time of award and if the condition specified in paragraph (d) 
above applies, solicitations shall specify the price at which the 
Government will evaluate the option (highest option price offered or 
option price for specified requirements).
    (f) Solicitations may, in unusual circumstances, require that 
options be offered at prices no higher than those for the initial 
requirement; e.g., when (1) the option cannot be evaluated under 17.206, 
or (2) future competition for the option is impracticable.
    (g) Solicitations that require the offering of an option at prices 
no higher than those for the initial requirement shall--
    (1) Specify that the Government will accept an offer containing an 
option price higher than the base price only if the acceptance does not 
prejudice any other offeror; and
    (2) Limit option quantities for additional supplies to not more than 
50 percent of the initial quantity of the same contract line item. In 
unusual circumstances, an authorized person at a level above the 
contracting officer may approve a greater percentage of quantity.
    (h) See 25.402(a)(5) regarding use of options in calculating the 
estimated contract amount for application of the Trade Agreements Act 
and North American Free Trade Agreement thresholds.
[48 FR 42231, Sept. 19, 1983, as amended at 53 FR 27464, July 20, 1988; 
58 FR 31141, May 28, 1993; 59 FR 545, Jan. 5, 1994]



17.204  Contracts.

    (a) The contract shall specify limits on the purchase of additional 
supplies or services, or the overall duration of the term of the 
contract, including any extension.
    (b) The contract shall state the period within which the option may 
be exercised.
    (c) The period shall be set so as to provide the contractor adequate 
lead time to ensure continuous production.
    (d) The period may extend beyond the contract completion date for 
service contracts. This is necessary for situations when exercise of the 
option would result in the obligation of funds that are not available in 
the fiscal year in which the contract would otherwise be completed.
    (e) Unless otherwise approved in accordance with agency procedures, 
the total of the basic and option periods shall not exceed 5 years in 
the case of services, and the total of the basic and option quantities 
shall not exceed the requirement for 5 years in the case of supplies. 
These limitations do not apply to information technology contracts. 
However, statutes applicable to various classes of contracts, for 
example, the Service Contract Act (see 22.1002-1), may place additional 
restrictions on the length of contracts.
    (f) Contracts may express options for increased quantities of 
supplies or services in terms of (1) percentage of specific line items, 
(2) increase in specific line items, or (3) additional numbered line 
items identified as the option.
    (g) Contracts may express extensions of the term of the contract as 
an amended completion date or as additional time for performance; e.g., 
days, weeks, or months.
[48 FR 42231, Sept. 19, 1983, as amended at 54 FR 5055, Jan. 31, 1989; 
61 FR 41470, Aug. 8, 1996]

[[Page 363]]



17.205  Documentation.

    (a) The contracting officer shall justify in writing the quantities 
or the term under option, the notification period for exercising the 
option, and any limitation on option price under 17.203(g); and shall 
include the justification document in the contract file.
    (b) Any justifications and approvals and any determination and 
findings required by part 6 shall specify both the basic requirement and 
the increase permitted by the option.
[48 FR 42231, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



17.206  Evaluation.

    (a) In awarding the basic contract, the contracting officer shall, 
except as provided in paragraph (b) of this section, evaluate offers for 
any option quantities or periods contained in a solicitation when it has 
been determined prior to soliciting offers that the Government is likely 
to exercise the options. (See 17.208.)
    (b) The contracting officer need not evaluate offers for any option 
quantities when it is determined that evaluation would not be in the 
best interests of the Government and this determination is approved at a 
level above the contracting officer. An example of a circumstance that 
may support a determination not to evaluate offers for option quantities 
is when there is a reasonable certainty that funds will be unavailable 
to permit exercise of the option.
[53 FR 17858, May 18, 1988]



17.207  Exercise of options.

    (a) When exercising an option, the contracting officer shall provide 
written notice to the contractor within the time period specified in the 
contract.
    (b) When the contract provides for economic price adjustment and the 
contractor requests a revision of the price, the contracting officer 
shall determine the effect of the adjustment on prices under the option 
before the option is exercised.
    (c) The contracting officer may exercise options only after 
determining that--
    (1) Funds are available;
    (2) The requirement covered by the option fulfills an existing 
Government need;
    (3) The exercise of the option is the most advantageous method of 
fulfilling the Government's need, price and other factors (see 
paragraphs (d) and (e) below) considered; and
    (4) The option was synopsized in accordance with part 5 unless 
exempted by 5.202(a)(10) or other appropriate exemptions in 5.202.
    (d) The contracting officer, after considering price and other 
factors, shall make the determination on the basis of one of the 
following:
    (1) A new solicitation fails to produce a better price or a more 
advantageous offer than that offered by the option. If it is anticipated 
that the best price available is the option price or that this is the 
more advantageous offer, the contracting officer should not use this 
method of testing the market.
    (2) An informal analysis of prices or an examination of the market 
indicates that the option price is better than prices available in the 
market or that the option is the more advantageous offer.
    (3) The time between the award of the contract containing the option 
and the exercise of the option is so short that it indicates the option 
price is the lowest price obtainable or the more advantageous offer. The 
contracting officer shall take into consideration such factors as market 
stability and comparison of the time since award with the usual duration 
of contracts for such supplies or services.
    (e) The determination of other factors under (c)(3) of this section 
should take into account the Government's need for continuity of 
operations and potential costs of disrupting operations.
    (f) Before exercising an option, the contracting officer shall make 
a written determination for the contract file that exercise is in 
accordance with the terms of the option, the requirements of this 
section, and part 6. To satisfy requirements of part 6 regarding full 
and open competition, the option must have been evaluated as part of the 
initial competition and be exercisable at an amount specified in or 
reasonably

[[Page 364]]

determinable from the terms of the basic contract, e.g.--
    (1) A specific dollar amount;
    (2) An amount to be determined by applying provisions (or a formula) 
provided in the basic contract, but not including renegotiation of the 
price for work in a fixed-price type contract;
    (3) In the case of a cost-type contract, if--
    (i) The option contains a fixed or maximum fee; or
    (ii) The fixed or maximum fee amount is determinable by applying a 
formula contained in the basic contract (but see 16.102(c));
    (4) A specific price that is subject to an economic price adjustment 
provision; or
    (5) A specific price that is subject to change as the result of 
changes to prevailing labor rates provided by the Secretary of Labor.
    (g) The contract modification or other written document which 
notifies the contractor of the exercise of the option shall cite the 
option clause as authority.
[48 FR 42231, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 
50 FR 52429, 52434, Dec. 23, 1985; 53 FR 17858, May 18, 1988]



17.208  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert a provision substantially 
the same as the provision at 52.217-3, Evaluation Exclusive of Options, 
in solicitations when the solicitation includes an option clause and 
does not include one of the provisions prescribed in paragraph (b) or 
(c) below.
    (b) The contracting officer shall insert a provision substantially 
the same as the provision at 52.217-4, Evaluation of Options Exercised 
at Time of Contract Award, in solicitations when the solicitation 
includes an option clause, the contracting officer has determined that 
there is a reasonable likelihood that the option will be exercised, and 
the option may be exercised at the time of contract award.
    (c) The contracting officer shall insert a provision substantially 
the same as the provision at 52.217-5, Evaluation of Options, in 
solicitations when--
    (1) The solicitation contains an option clause;
    (2) An option is not to be exercised at the time of contract award;
    (3) A firm-fixed-price contract, a fixed-price contract with 
economic price adjustment, or other type of contract approved under 
agency procedures is contemplated; and
    (4) The contracting officer has determined that there is a 
reasonable likelihood that the option will be exercised. For sealed 
bids, the determination shall be in writing.
    (d) The contracting officer shall insert a clause substantially the 
same as the clause at 52.217-6, Option for Increased Quantity, in 
solicitations and contracts, other than those for services, when the 
inclusion of an option is appropriate (see 17.200 and 17.202) and the 
option quantity is expressed as a percentage of the basic contract 
quantity or as an additional quantity of a specific line item.
    (e) The contracting officer shall insert a clause substantially the 
same as the clause at 52.217-7, Option for Increased Quantity--
Separately Priced Line Item, in solicitations and contracts, other than 
those for services, when the inclusion of an option is appropriate (see 
17.200 and 17.202) and the option quantity is identified as a separately 
priced line item having the same nomenclature as a corresponding basic 
contract line item.
    (f) The contracting officer shall insert a clause substantially the 
same as the clause at 52.217-8, Options to Extend Services, in 
solicitations and contracts for services when the inclusion of an option 
is appropriate. (See 17.200, 17.202, and 37.111.)
    (g) The contracting officer shall insert a clause substantially the 
same as the clause at 52.217-9, Option to Extend the Term of the 
Contract, in solicitations and contracts when the inclusion of an option 
is appropriate (see 17.200 and 17.202) and it is necessary to include in 
the contract a requirement that the Government shall give the contractor 
a preliminary written notice of its intent to extend the contract, a 
stipulation that an extension of the contract includes an extension of

[[Page 365]]

the option, and/or a specified limitation on the total duration of the 
contract.
[48 FR 42231, Sept. 19, 1983, as amended at 53 FR 17858, May 18, 1988; 
54 FR 5055, Jan. 31, 1989; 54 FR 29281, July 11, 1989; 55 FR 38516, 
Sept. 18, 1990; 60 FR 42656, Aug. 16, 1995]



                        Subpart 17.3  [Reserved]



                Subpart 17.4--Leader Company Contracting



17.401  General.

    Leader company contracting is an extraordinary acquisition technique 
that is limited to special circumstances and utilized only when its use 
is in accordance with agency procedures. A developer or sole producer of 
a product or system is designated under this acquisition technique to be 
the leader company, and to furnish assistance and know-how under an 
approved contract to one or more designated follower companies, so they 
can become a source of supply. The objectives of this technique are one 
or more of the following:
    (a) Reduce delivery time.
    (b) Achieve geographic dispersion of suppliers.
    (c) Maximize the use of scarce tooling or special equipment.
    (d) Achieve economies in production.
    (e) Ensure uniformity and reliability in equipment, compatibility or 
standardization of components, and interchangeability of parts.
    (f) Eliminate problems in the use of proprietary data that cannot be 
resolved by more satisfactory solutions.
    (g) Facilitate the transition from development to production and to 
subsequent competitive acquisition of end items or major components.



17.402  Limitations.

    (a) Leader company contracting is to be used only when--
    (1) The leader company has the necessary production know-how and is 
able to furnish required assistance to the follower(s);
    (2) No other source can meet the Government's requirements without 
the assistance of a leader company;
    (3) The assistance required of the leader company is limited to that 
which is essential to enable the follower(s) to produce the items; and
    (4) Its use is authorized in accordance with agency procedures.
    (b) When leader company contracting is used, the Government shall 
reserve the right to approve subcontracts between the leader company and 
the follower(s).



17.403  Procedures.

    (a) The contracting officer may award a prime contract to a--
    (1) Leader company, obligating it to subcontract a designated 
portion of the required end items to a specified follower company and to 
assist it to produce the required end items;
    (2) Leader company, for the required assistance to a follower 
company, and a prime contract to the follower for production of the 
items; or
    (3) Follower company, obligating it to subcontract with a designated 
leader company for the required assistance.
    (b) The contracting officer shall ensure that any contract awarded 
under this arrangement contains a firm agreement regarding disclosure, 
if any, of contractor trade secrets, technical designs or concepts, and 
specific data, or software, of a proprietary nature.



      Subpart 17.5--Interagency Acquisitions Under the Economy Act

    Source:  60 FR 49721, Sept. 26, 1995, unless otherwise noted.



17.500  Scope of subpart.

    (a) This subpart prescribes policies and procedures applicable to 
interagency acquisitions under the Economy Act (31 U.S.C. 1535). The 
Economy Act also provides authority for placement of orders between 
major organizational units within an agency; procedures for such intra-
agency transactions are addressed in agency regulations.
    (b) The Economy Act applies when more specific statutory authority 
does not exist. Examples of interagency acquisitions to which the 
Economy Act does not apply include acquisitions

[[Page 366]]

from required sources of supplies prescribed in part 8, which have 
separate statutory authority.



17.501  Definition.

    Interagency acquisition means a procedure by which an agency needing 
supplies or services (the requesting agency) obtains them from another 
agency (the servicing agency).



17.502  General.

    (a) The Economy Act authorizes agencies to enter into mutual 
agreements to obtain supplies or services by interagency acquisition.
    (b) The Economy Act may not be used by an agency to circumvent 
conditions and limitations imposed on the use of funds.
    (c) Acquisitions under the Economy Act are not exempt from the 
requirements of subpart 7.3, Contractor Versus Government Performance.
    (d) The Economy Act may not be used to make acquisitions conflicting 
with any other agency's authority or responsibility (for example, that 
of the Administrator of General Services under the Federal Property and 
Administrative Services Act).



17.503  Determinations and findings requirements.

    (a) Each Economy Act order shall be supported by a Determination and 
Finding (D&F). The D&F shall state that--
    (1) Use of an interagency acquisition is in the best interest of the 
Government; and
    (2) The supplies or services cannot be obtained as conveniently or 
economically by contracting directly with a private source.
    (b) If the Economy Act order requires contracting action by the 
servicing agency, the D&F shall also include a statement that at least 
one of the following circumstances is applicable--
    (1) The acquisition will appropriately be made under an existing 
contract of the servicing agency, entered into before placement of the 
order, to meet the requirements of the servicing agency for the same or 
similar supplies or services;
    (2) The servicing agency has capabilities or expertise to enter into 
a contract for such supplies or services which is not available within 
the requesting agency; or
    (3) The servicing agency is specifically authorized by law or 
regulation to purchase such supplies or services on behalf of other 
agencies.
    (c) The D&F shall be approved by a contracting officer of the 
requesting agency with authority to contract for the supplies or 
services to be ordered, or by another official designated by the agency 
head, except that, if the servicing agency is not covered by the Federal 
Acquisition Regulation, approval of the D&F may not be delegated below 
the senior procurement executive of the requesting agency.



17.504  Ordering procedures.

    (a) Before placing an Economy Act order for supplies or services 
with another Government agency, the requesting agency shall make the D&F 
required in 17.503. The servicing agency may require a copy of the D&F 
to be furnished with the order.
    (b) The order may be placed on any form or document that is 
acceptable to both agencies. The order should include--
    (1) A description of the supplies or services required;
    (2) Delivery requirements;
    (3) A funds citation;
    (4) A payment provision (see 17.505); and
    (5) Acquisition authority as may be appropriate (see 17.504(d)).
    (c) The requesting and servicing agencies should agree to procedures 
for the resolution of disagreements that may arise under interagency 
acquisitions, including, in appropriate circumstances, the use of a 
third-party forum. If a third party is proposed, consent of the third 
party should be obtained in writing.
    (d) When an interagency acquisition requires the servicing agency to 
award a contract, the following procedures also apply:
    (1) If a justification and approval or a D&F (other than the 
requesting agency's D&F required in 17.503) is required by law or 
regulation, the servicing

[[Page 367]]

agency shall execute and issue the justification and approval or D&F. 
The requesting agency shall furnish the servicing agency any information 
needed to make the justification and approval or D&F.
    (2) The requesting agency shall also be responsible for furnishing 
other assistance that may be necessary, such as providing information or 
special contract terms needed to comply with any condition or limitation 
applicable to the funds of the requesting agency.
    (3) The servicing agency is responsible for compliance with all 
other legal or regulatory requirements applicable to the contract, 
including
    (i) Having adequate statutory authority for the contractual action, 
and
    (ii) Complying fully with the competition requirements of part 6 
(see 6.002). However, if the servicing agency is not subject to the 
Federal Acquisition Regulation, the requesting agency shall verify that 
contracts utilized to meet its requirements contain provisions 
protecting the Government from inappropriate charges (for example, 
provisions mandated for FAR agencies by part 31), and that adequate 
contract administration will be provided.
    (e) Nonsponsoring Federal agencies may use a Federally Funded 
Research and Development Center (FFRDC) only if the terms of the FFRDC's 
sponsoring agreement permit work from other than a sponsoring agency. 
Work placed with the FFRDC is subject to the acceptance by the sponsor 
and must fall within the purpose, mission, general scope of effort, or 
special competency of the FFRDC. (See 35.017; see also 6.302 for 
procedures to follow where using other than full and open competition.) 
The nonsponsoring agency shall provide to the sponsoring agency 
necessary documentation that the requested work would not place the 
FFRDC in direct competition with domestic private industry.



17.505  Payment.

    (a) The servicing agency may ask the requesting agency, in writing, 
for advance payment for all or part of the estimated cost of furnishing 
the supplies or services. Adjustment on the basis of actual costs shall 
be made as agreed to by the agencies.
    (b) If approved by the servicing agency, payment for actual costs 
may be made by the requesting agency after the supplies or services have 
been furnished.
    (c) Bills rendered or requests for advance payment shall not be 
subject to audit or certification in advance of payment.
    (d) If the Economy Act order requires use of a contract by the 
servicing agency, then in no event shall the servicing agency require, 
or the requiring agency pay, any fee or charge in excess of the actual 
cost (or estimated cost if the actual cost is not known) of entering 
into and administering the contract or other agreement under which the 
order is filled.



            Subpart 17.6--Management and Operating Contracts



17.600  Scope of subpart.

    This subpart prescribes policies and procedures for management and 
operating contracts for the Department of Energy and any other agency 
having requisite statutory authority.



17.601  Definition.

    Management and operating contract means an agreement under which the 
Government contracts for the operation, maintenance, or support, on its 
behalf, of a Government-owned or -controlled research, development, 
special production, or testing establishment wholly or principally 
devoted to one or more major programs of the contracting Federal agency.



17.602  Policy.

    (a) Heads of agencies, with requisite statutory authority, may 
determine in writing to authorize contracting officers to enter into or 
renew any management and operating contract in accordance with the 
agency's statutory authority, or the Competition in Contracting Act of 
1984, and the agency's regulations governing such contracts. This 
authority shall not be delegated. Every contract so authorized shall 
show its authorization upon its face.
    (b) Agencies may authorize management and operating contracts only 
in a manner consistent with the guidance of

[[Page 368]]

this subpart and only if they are consistent with the situations 
described in 17.604.
    (c) Within 2 years of the effective date of this regulation, 
agencies shall review their current contractual arrangements in the 
light of the guidance of this subpart, in order to (1) identify, modify 
as necessary, and authorize management and operating contracts and (2) 
modify as necessary or terminate contracts not so identified and 
authorized, except that any contract with less than 4 years remaining as 
of the effective date of this regulation need not be terminated, nor 
need it be identified, modified, or authorized unless it is renewed or 
its terms are substantially renegotiated.
[48 FR 42163, Sept. 19, 1983, as amended at 50 FR 52434, Dec. 23, 1985]



17.603  Limitations.

    (a) Management and operating contracts shall not be authorized for--
    (1) Functions involving the direction, supervision, or control of 
Government personnel, except for supervision incidental to training;
    (2) Functions involving the exercise of police or regulatory powers 
in the name of the Government, other than guard or plant protection 
services;
    (3) Functions of determining basic Government policies;
    (4) Day-to-day staff or management functions of the agency or of any 
of its elements; or
    (5) Functions that can more properly be accomplished in accordance 
with subpart 45.3, Providing Government Property to Contractors.
    (b) Since issuance of an authorization under 17.602(a) is deemed 
sufficient proof of compliance with paragraph (a) immediately above, 
nothing in paragraph (a) immediately above shall affect the validity or 
legality of such an authorization.



17.604  Identifying management and operating contracts.

    A management and operating contract is characterized both by its 
purpose (see 17.601) and by the special relationship it creates between 
Government and contractor. The following criteria can generally be 
applied in identifying management and operating contracts:
    (a) Government-owned or -controlled facilities must be utilized; for 
instance, (1) in the interest of national defense or mobilization 
readiness, (2) to perform the agency's mission adequately, or (3) 
because private enterprise is unable or unwilling to use its own 
facilities for the work.
    (b) Because of the nature of the work, or because it is to be 
performed in Government facilities, the Government must maintain a 
special, close relationship with the contractor and the contractor's 
personnel in various important areas (e.g., safety, security, cost 
control, site conditions).
    (c) The conduct of the work is wholly or at least substantially 
separate from the contractor's other business, if any.
    (d) The work is closely related to the agency's mission and is of a 
long-term or continuing nature, and there is a need (1) to ensure its 
continuity and (2) for special protection covering the orderly 
transition of personnel and work in the event of a change in 
contractors.



17.605  Award, renewal, and extension.

    (a) Effective work performance under management and operating 
contracts usually involves high levels of expertise and continuity of 
operations and personnel. Because of program requirements and the 
unusual (sometimes unique) nature of the work performed under management 
and operating contracts, the Government is often limited in its ability 
to effect competition or to replace a contractor. Therefore contracting 
officers should take extraordinary steps before award to assure 
themselves that the prospective contractor's technical and managerial 
capacity are sufficient, that organizational conflicts of interest are 
adequately covered, and that the contract will grant the Government 
broad and continuing rights to involve itself, if necessary, in 
technical and managerial decisionmaking concerning performance.
    (b) The contracting officer shall review each management and 
operating contract, following agency procedures, at appropriate 
intervals and at least once every 5 years. The review should

[[Page 369]]

determine whether meaningful improvement in performance or cost might 
reasonably be achieved. Any extension or renewal of an operating and 
management contract must be authorized at a level within the agency no 
lower than the level at which the original contract was authorized in 
accordance with 17.602(a).
    (c) Replacement of an incumbent contractor is usually based largely 
upon expectation of meaningful improvement in performance or cost. 
Therefore, when reviewing contractor performance, contracting officers 
should consider--
    (1) The incumbent contractor's overall performance, including, 
specifically, technical, administrative, and cost performance;
    (2) The potential impact of a change in contractors on program 
needs, including safety, national defense, and mobilization 
considerations; and
    (3) Whether it is likely that qualified offerors will compete for 
the contract.



PART 18  [RESERVED]




[[Page 370]]



                  SUBCHAPTER D--SOCIOECONOMIC PROGRAMS





PART 19--SMALL BUSINESS PROGRAMS--Table of Contents




Sec.
19.000  Scope of part.
19.001  Definitions.

                      Subpart 19.1--Size Standards

19.101  Explanation of terms.
19.102  Size standards.

                         Subpart 19.2--Policies

19.201  General policy.
19.202  Specific policies.
19.202-1  Encouraging small business participation in acquisitions.
19.202-2  Locating small business sources.
19.202-3  Equal low bids.
19.202-4  Solicitation.
19.202-5  Data collection and reporting requirements.
19.202-6  Determination of fair market price.

    Subpart 19.3--Determination of Status as a Small Business Concern

19.301  Representation by the offeror.
19.302  Protesting a small business representation.
19.303  Determining product or service classifications.
19.304  Solicitation provision and contract clause.

    Subpart 19.4--Cooperation With the Small Business Administration

19.401  General.
19.402  Small Business Administration procurement center 
          representatives.
19.403  Small Business Administration breakout procurement center 
          representatives.

               Subpart 19.5--Set-Asides for Small Business

19.501  General.
19.502  Setting aside acquisitions.
19.502-1  Requirements for setting aside acquisitions.
19.502-2  Total set-asides.
19.502-3  Partial set-asides.
19.502-4  Methods of conducting set-asides.
19.502-5  Insufficient causes for not setting aside an acquisition.
19.503  Setting aside a class of acquisitions.
19.504  [Reserved]
19.505  Rejecting Small Business Administration recommendations.
19.506  Withdrawing or modifying set-asides.
19.507  Automatic dissolution of a set-aside.
19.508  Solicitation provisions and contract clauses.

     Subpart 19.6--Certificates of Competency and Determinations of 
                             Responsibility

19.601  General.
19.602  Procedures.
19.602-1  Referral.
19.602-2  Issuing or denying a certificate of competency (COC).
19.602-3  Resolving differences between the agency and the Small 
          Business Administration.
19.602-4  Awarding the contract.

 Subpart 19.7--Subcontracting With Small Business, Small Disadvantaged 
            Business and Women-Owned Small Business Concerns

19.701  Definitions.
19.702  Statutory requirements.
19.703  Eligibility requirements for participating in the program.
19.704  Subcontracting plan requirements.
19.705  Responsibilities of the contracting officer under the 
          subcontracting assistance program.
19.705-1  General support of the program.
19.705-2  Determining the need for a subcontracting plan.
19.705-3  Preparing the solicitation.
19.705-4  Reviewing the subcontracting plan.
19.705-5  Awards involving subcontracting plans.
19.705-6  Postaward responsibilities of the contracting officer.
19.705-7  Liquidated damages.
19.706  Responsibilities of the cognizant administrative contracting 
          officer.
19.707  The Small Business Administration's role in carrying out the 
          program.
19.708  Solicitation provisions and contract clauses.

 Subpart 19.8--Contracting With the Small Business Administration (the 
                              8(a) Program)

19.800  General.
19.801  [Reserved]
19.802  Selecting concerns for the 8(a) Program.
19.803  Selecting acquisitions for the 8(a) Program.
19.804  Evaluation, offering, and acceptance.
19.804-1  Agency evaluation.
19.804-2  Agency offering.
19.804-3  SBA acceptance.
19.804-4  Repetitive acquisitions.
19.805  Competitive 8(a).
19.805-1  General.
19.805-2  Procedures.

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19.806  Pricing the 8(a) contract.
19.807  Estimating the fair market price.
19.808  Contract negotiation.
19.808-1  Sole source.
19.808-2  Competitive.
19.809  Preaward considerations.
19.810  SBA appeals.
19.811  Preparing the contracts.
19.811-1  Sole source.
19.811-2  Competitive.
19.811-3  Contract clauses.
19.812  Contract administration.

                        Subpart 19.9  [Reserved]

   Subpart 19.10--Small Business Competitiveness Demonstration Program

19.1001  General.
19.1002  Definition.
19.1003  Purpose.
19.1004  Participating agencies.
19.1005  Applicability.
19.1006  Procedures.
19.1007  Solicitation provisions.

    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source:  48 FR 42240, Sept. 19, 1983, unless otherwise noted.



19.000  Scope of part.

    (a) This part implements the acquisition-related sections of the 
Small Business Act (15 U.S.C. 631 et seq.), applicable sections of the 
Armed Services Procurement Act (10 U.S.C. 2302 et seq., the Federal 
Property and Administrative Services Act (41 U.S.C. 252), and Executive 
Order 12138, May 18, 1979. It covers--
    (1) The determination that a concern is eligible for participation 
in the programs identified in this part;
    (2) The respective roles of executive agencies and the Small 
Business Administration (SBA) in implementing the programs;
    (3) Setting acquisitions aside for exclusive competitive 
participation by small business concerns;
    (4) The certificate of competency program;
    (5) The subcontracting assistance program;
    (6) The 8(a) program, under which agencies contract with the SBA for 
goods or services to be furnished under a subcontract by a small 
disadvantaged business concern; and
    (7) The use of women-owned small business concerns.
    (b) This part, except for subpart 19.6, applies only inside the 
United States, its territories and possessions, Puerto Rico, the Trust 
Territory of the Pacific Islands, and the District of Columbia. Subpart 
19.6 applies worldwide.
[48 FR 42240, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994; 
59 FR 67036, Dec. 28, 1994]



19.001  Definitions.

    Concern, as used in this part, means any business entity organized 
for profit (even if its ownership is in the hands of a nonprofit entity) 
with a place of business located in the United States and which makes a 
significant contribution to the U.S. economy through payment of taxes 
and/or use of American products, material and/or labor, etc. Concern 
includes but is not limited to an individual, partnership, corporation, 
joint venture, association, or cooperative. For the purpose of making 
affiliation findings (see 19.101) any business entity, whether organized 
for profit or not, and any foreign business entity; i.e., any entity 
located outside the United States, shall be included.
    Fair market price, as used in this part, means a price based on 
reasonable costs under normal competitive conditions and not on lowest 
possible cost (see 19.202-6).
    Industry, as used in this part, means all concerns primarily engaged 
in similar lines of activity, as listed and described in the Standard 
Industrial Classification (SIC) Manual.
    Labor surplus area means a geographical area identified by the 
Department of Labor in accordance with 20 CFR Part 654, Subpart A, as an 
area of concentrated unemployment or underemployment or an area of labor 
surplus.
    Labor surplus area concern means a concern that together with its 
first-tier subcontractors will perform substantially in labor surplus 
areas. Performance is substantially in labor surplus areas if the costs 
incurred under the contract on account of manufacturing, production, or 
performance of appropriate services in labor surplus areas exceed 50 
percent of the contract price.
    Nonmanufacturer rule means that a contractor under a small business 
set-

[[Page 372]]

aside or 8(a) contract shall be a small business under the applicable 
size standard and shall provide either its own produce or that of 
another domestic small business manufacturing or processing concern (see 
13 CFR 121.406).
    Small business concern means a concern, including its affiliates, 
that is independently owned and operated, not dominant in the field of 
operation in which it is bidding on government contracts, and qualified 
as a small business under the criteria and size standards in 13 CFR part 
121 (see 19.102). Such a concern is not dominant in its field of 
operation when it does not exercise a controlling or major influence on 
a national basis in a kind of business activity in which a number of 
business concerns are primarily engaged. In determining whether 
dominance exists, consideration shall be given to all appropriate 
factors, including volume of business, number of employees, financial 
resources, competitive status or position, ownership or control of 
materials, processes, patents, license agreements, facilities, sales 
territory, and nature of business activity.
    Small disadvantaged business concern means a small business concern 
that is at least 51 percent unconditionally owned by one or more 
individuals who are both socially and economically disadvantaged, or a 
publicly owned business that has at least 51 percent of its stock 
unconditionally owned by one or more socially and economically 
disadvantaged individuals and that has its management and daily business 
controlled by one or more such individuals. This terms also means a 
small business concern that is at least 51 percent unconditionally owned 
by an economically disadvantaged Indian tribe or Native Hawaiian 
Organization, or a publicly owned business that has at least 51 percent 
of its stock unconditionally owned by one of these entities, that has 
its management and daily business controlled by members of an 
economically disadvantaged Indian tribe or Native Hawaiian Organization, 
and that meets the requirements of 13 CFR part 124.
    (a) Socially disadvantaged individuals means individuals who have 
been subjected to racial or ethnic prejudice or cultural bias because of 
their identity as a member of a group without regard to their qualities 
as individuals.
    (b) Economically disadvantaged individuals means socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system is impaired due to diminished opportunities to obtain 
capital and credit as compared to others in the same line of business 
who are not socially disadvantaged. Individuals who represent that they 
are members of named groups (Black Americans, Hispanic Americans, Native 
Americans, Asian-Pacific Americans, Subcontinent-Asian Americans) are to 
be considered socially and economically disadvantaged.
    (1) Subcontinent Asian Americans means United States citizens whose 
origins are in India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands, or Nepal.
    (2) Asian Pacific Americans means United States citizens whose 
origins are in Japan, China, the Philippines, Vietnam, Korea, Samoa, 
Guam, the U.S. Trust Territory of the Pacific Islands (Republic of 
Palau), the Northern Mariana Islands, Laos, Kampuchea (Cambodia), 
Taiwan, Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, 
Republic of the Marshall Islands, the Federated States of Micronesia, 
Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru.
    (3) Native Americans means American Indians, Eskimos, Aleuts, and 
native Hawaiians.
    (c) Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in, and chartered as a not-for-
profit organization by, the State of Hawaii, which is controlled by 
Native Hawaiians, and whose business activities will principally benefit 
such Native Hawaiians.
    (d) Indian tribe means any Indian tribe, band, nation, or other 
organized group of community of Indians, including any Alaska Native 
Corporation as defined in 13 CFR 124.100 which is recognized as eligible 
for the special programs and services provided by the U.S. to Indians 
because of their status as Indians, or which is recognized as such by 
the State in which such tribe, band, nation, group, or community 
resides.

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    Women-owned small business concern means a small business concern--
    (a) Which is at least 51 percent owned by one or more women; or, in 
the case of any publicly owned business, at least 51 percent of the 
stock of which is owned by one or more women; and
    (b) Whose management and daily business operations are controlled by 
one or more women.
[51 FR 2650, Jan. 17, 1986, as amended at 52 FR 38189, Oct. 14, 1987; 54 
FR 25062, June 12, 1989; 55 FR 3881, Feb. 5, 1990; 57 FR 60580, Dec. 21, 
1992; 60 FR 48260, Sept. 18, 1995; 61 FR 67410, Dec. 20, 1996; 62 FR 
236, Jan. 2, 1997; 62 FR 44820, 44822, Aug. 22, 1997]

    Effective Date Note:  At 62 FR 44822, Aug. 22, 1997, in section 
19.001, in the definition Small disadvantaged business concern, 
paragraphs (b)(1) and (b)(2) were revised, effective Oct. 21, 1997. For 
the convenience of the user, the superseded text is set forth as 
follows:

19.001  Definitions.

                                * * * * *

    Small disadvantaged business concern * * *
    (b) * * *
    (1) Subcontinent Asian Americans means United States citizens whose 
origins are in India, Pakistan, Bangladesh, Sri Lanka, Bhutan, or Nepal.
    (2) Asian Pacific Americans means United States citizens whose 
origins area in Japan, China, the Philippines, Vietnam, Korea, Samoa, 
Guam, the U.S. Trust Territory of the Pacific Islands (Republic of 
Palau), the Northern Mariana Islands, Laos, Kampuchea (Cambodia), 
Taiwan, Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, 
Republic of the Marshall Islands, or the Federated States of Micronesia.

                                * * * * *



                      Subpart 19.1--Size Standards



19.101  Explanation of terms.

    Affiliates. As used in this subpart, business concerns are 
affiliates of each other if, directly or indirectly, either one controls 
or has the power to control the other, or another concern controls or 
has the power to control both. In determining whether affiliation 
exists, consideration is given to all appropriate factors including 
common ownership, common management, and contractual relationships; 
provided, that restraints imposed by a franchise agreement are not 
considered in determining whether the franchisor controls or has the 
power to control the franchisee, if the franchisee has the right to 
profit from its effort, commensurate with ownership, and bears the risk 
of loss or failure. Any business entity may be found to be an affiliate, 
whether or not it is organized for profit or located inside the United 
States.
    (a) Nature of control. Every business concern is considered as 
having one or more parties who directly or indirectly control or have 
the power to control it. Control may be affirmative or negative and it 
is immaterial whether it is exercised so long as the power to control 
exists.
    (b) Meaning of party or parties. The term party or parties includes, 
but is not limited to, two or more persons with an identity of interest 
such as members of the same family or persons with common investments in 
more than one concern. In determining who controls or has the power to 
control a concern, persons with an identity of interest may be treated 
as though they were one person.
    (c) Control through stock ownership. (1) A party is considered to 
control or have the power to control a concern, if the party controls or 
has the power to control 50 percent or more of the concern's voting 
stock.
    (2) A party is considered to control or have the power to control a 
concern, even though the party owns, controls, or has the power to 
control less than 50 percent of the concern's voting stock, if the block 
of stock the party owns, controls, or has the power to control is large, 
as compared with any other outstanding block of stock. If two or more 
parties each owns, controls, or has the power to control, less than 50 
percent of the voting stock of a concern, and such minority block is 
equal or substantially equal in size, and large as compared with any 
other block outstanding, there is a presumption that each such party 
controls or has the power to control such concern; however, such 
presumption may be rebutted by a showing that such control or power to 
control, in fact, does not exist.
    (3) If a concern's voting stock is distributed other than as 
described above, its management (officers and directors)

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is deemed to be in control of such concern.
    (d) Stock options and convertible debentures. Stock options and 
convertible debentures exercisable at the time or within a relatively 
short time after a size determination and agreements to merge in the 
future, are considered as having a present effect on the power to 
control the concern. Therefore, in making a size determination, such 
options, debentures, and agreements are treated as though the rights 
held thereunder had been exercised.
    (e) Voting trusts. If the purpose of a voting trust, or similar 
agreement, is to separate voting power from beneficial ownership of 
voting stock for the purpose of shifting control of or the power to 
control a concern in order that such concern or another concern may 
qualify as a small business within the size regulations, such voting 
trust shall not be considered valid for this purpose regardless of 
whether it is or is not valid within the appropriate jurisdiction. 
However, if a voting trust is entered into for a legitimate purpose 
other than that described above, and it is valid within the appropriate 
jurisdiction, it may be considered valid for the purpose of a size 
determination, provided such consideration is determined to be in the 
best interest of the small business program.
    (f) Control through common management. A concern may be found as 
controlling or having the power to control another concern when one or 
more of the following circumstances are found to exist, and it is 
reasonable to conclude that under the circumstances, such concern is 
directing or influencing, or has the power to direct or influence, the 
operation of such other concern.
    (1) Interlocking management. Officers, directors, employees, or 
principal stockholders of one concern serve as a working majority of the 
board of directors or officers of another concern.
    (2) Common facilities. One concern shares common office space and/or 
employees and/or other facilities with another concern, particularly 
where such concerns are in the same or related industry or field of 
operation, or where such concerns were formerly affiliated.
    (3) Newly organized concern. Former officers, directors, principal 
stockholders, and/or key employees of one concern organize a new concern 
in the same or a related industry or field operation, and serve as its 
officers, directors, principal stockholders, and/or key employees, and 
one concern is furnishing or will furnish the other concern with 
subcontracts, financial or technical assistance, and/or facilities, 
whether for a fee or otherwise.
    (g) Control through contractual relationships--(1) Definition of a 
joint venture for size determination purposes. A joint venture for size 
determination purposes is an association of persons and/or concerns with 
interests in any degree or proportion by way of contract, express or 
implied, consorting to engage in and carry out a single specific 
business venture for joint profit, for which purpose they combine their 
efforts, property, money, skill, or knowledge, but not on a continuing 
or permanent basis for conducting business generally. A joint venture is 
viewed as a business entity in determining power to control its 
management.
    (2) Joint venture--procurement and property sale assistance-- 
Concerns bidding on a particular procurement or property sale as joint 
venturers are considered as affiliated and controlling or having the 
power to control each other with regard to performance of the contract. 
Moreover, an ostensible subcontractor which is to perform primary or 
vital requirements of a contract may have a controlling role such to be 
considered a joint venturer affiliated on the contract with the prime 
contractor. A joint venture affiliation finding is limited to particular 
contracts unless the SBA size determination finds general affiliation 
between the parties.
    (3) Where a concern is not considered as being an affiliate of a 
concern with which it is participating in a joint venture, it is 
necessary, nevertheless, in computing annual receipts, etc., for the 
purpose of applying size standards, to include such concern's share of 
the joint venture receipts (as distinguished from its share of the 
profits of such venture).

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    (4) Franchise and license agreements. If a concern operates or is to 
operate under a franchise (or a license) agreement, the following policy 
is applicable: In determining whether the franchisor controls or has the 
power to control and, therefore, is affiliated with the franchisee, the 
restraints imposed on a franchisee by its franchise agreement shall not 
be considered, provided that the franchisee has the right to profit from 
its effort and the risk of loss or failure, commensurate with ownership. 
Even though a franchisee may not be controlled by the franchisor by 
virtue of the contractual relationship between them, the franchisee may 
be controlled by the franchisor or others through common ownership or 
common management, in which case they would be considered as affiliated.
    Annual receipts. (a) Annual receipts of a concern which has been in 
business for 3 or more complete fiscal years means the annual average 
gross revenue of the concern taken for the last 3 fiscal years. For the 
purpose of this definition, gross revenue of the concern includes 
revenues from sales of products and services, interest, rents, fees, 
commissions and/or whatever other sources derived, but less returns and 
allowances, sales of fixed assets, interaffiliate transactions between a 
concern and its domestic and foreign affiliates, and taxes collected for 
remittance (and if due, remitted) to a third party. Such revenues shall 
be measured as entered on the regular books of account of the concern 
whether on a cash, accrual, or other basis of accounting acceptable to 
the U.S. Treasury Department for the purpose of supporting Federal 
income tax returns, except when a change in accounting method from cash 
to accrual or accrual to cash has taken place during such 3-year period, 
or when the completed contract method has been used.
    (1) In any case of a change in accounting method from cash to 
accrual or accrual to cash, revenues for such 3-year period shall, prior 
to the calculation of the annual average, be restated to the accrual 
method. In any case, where the completed contract method has been used 
to account for revenues in such 3-year period, revenues must be restated 
on an accrual basis using the percentage of completion method.
    (2) In the case of a concern which does not keep regular books of 
accounts, but which is subject to U.S. Federal income taxation, annual 
receipts shall be measured as reported, or to be reported to the U.S. 
Treasury Department, Internal Revenue Service, for Federal income tax 
purposes, except that any return based on a change in accounting method 
or on the completed contract method of accounting must be restated as 
provided for in the preceding paragraphs.
    (b) Annual receipts of a concern that has been in business for less 
than 3 complete fiscal years means its total receipts for the period it 
has been in business, divided by the number of weeks including fractions 
of a week that it has been in business, and multiplied by 52. In 
calculating total receipts, the definitions and adjustments related to a 
change of accounting method and the completed contract method of 
paragraph (a) above, are applicable.
    Number of employees is a measure of the average employment of a 
business concern and means its average employment, including the 
employees of its domestic and foreign affiliates, based on the number of 
persons employed on a full-time, part-time, temporary, or other basis 
during each of the pay periods of the preceding 12 months. If a business 
has not been in existence for 12 months, number of employees means the 
average employment of such concern and its affiliates during the period 
that such concern has been in existence based on the number of persons 
employed during each of the pay periods of the period that such concern 
has been in business. If a business has acquired an affiliate during the 
applicable 12-month period, it is necessary, in computing the 
applicant's number of employees, to include the affiliate's number of 
employees during the entire period, rather than only its employees 
during the period in which it has been an affiliate. The employees of a 
former affiliate are not included, even if such concern had been an 
affiliate during a portion of the period.
[51 FR 2650, Jan. 17, 1986]

[[Page 376]]



19.102  Size standards.

    (a) The SBA establishes small business size standards on an 
industry-by-industry basis. (See 13 CFR part 121.)
    (b) Small business size standards are applied by--
    (1) Classifying the product or service being acquired in the 
industry whose definition, as found in the Standard Industrial 
Classification (SIC) Manual, best describes the principal nature of the 
product or service being acquired;
    (2) Identifying the size standard SBA established for that industry; 
and
    (3) Specifying the size standard in the solicitation, so that 
offerors can appropriately represent themselves as small or large.
    (c) For size standard purposes, a product or service shall be 
classified in only one industry, whose definition best describes the 
principal nature of the product or service being acquired even though 
for other purposes it could be classified in more than one.
    (d) When acquiring a product or service that could be classified in 
two or more industries with different size standards, contracting 
officers shall apply the size standard for the industry accounting for 
the greatest percentage of the contract price.
    (e) If a solicitation calls for more than one item and allows offers 
to be submitted on any or all of the items, an offeror must meet the 
size standard for each item it offers to furnish. If a solicitation 
calling for more than one item requires offers on all or none of the 
items, an offeror may qualify as a small business by meeting the size 
standard for the item accounting for the greatest percentage of the 
total contract price.
    (f) Any concern which submits a bid or offer in its own name, other 
than on a construction or service contract, but which proposes to 
furnish a product which it did not itself manufacture, is deemed to be a 
small business when it has no more than 500 employees, and--
    (1) Except as provided in subparagraphs (f)(4) through (f)(7) of 
this section, in the case of Government acquisitions set aside for small 
businesses, such nonmanufacturer must furnish in the performance of the 
contract, the product of a small business manufacturer or producer, 
which end product must be manufactured or produced in the United States. 
The term nonmanufacturer includes a concern which can manufacture or 
produce the product referred to in the specific acquisition but does not 
do so in connection with that acquisition. For size determination 
purposes there can be only one manufacturer of the end item being 
procured. The manufacturer of the end item being acquired is the concern 
which, with its own forces, transforms inorganic or organic substances 
including raw materials and/or miscellaneous parts or components into 
such end item. However, see the limitations on subcontracting at 52.219-
14 which apply to any small business offeror other than a 
nonmanufacturer for purposes of set-asides and 8(a) awards.
    (2) A concern which purchases items and packages them into a kit is 
considered to be a nonmanufacturer small business and can qualify as 
such for a given acquisition if it meets the size qualifications of a 
small nonmanufacturer for the acquisition, and if more than 50 percent 
of the total value of the kit and its contents is accounted for by items 
manufactured by small business.
    (3) For the purpose of receiving a Certificate of Competency on an 
unrestricted acquisition, a small business nonmanufacturer may furnish 
any domestically produced or manufactured product.
    (4) In the case of acquisitions set aside for small business or 
awarded under section 8(a) of the Small Business Act, when the 
acquisition is for a specific product (or a product in a class of 
products) for which the SBA has determined that there are no small 
business manufacturers or processors in the Federal market, then the SBA 
may grant a class waiver so that a nonmanufacturer does not have to 
furnish the product of a small business. For the most current listing of 
classes for which SBA has granted a waiver, contact an SBA Office of 
Government Contracting. A listing is also available in the SBA's 
Procurement Automated Source System (PASS) and on SBA's Internet 
Homepage at http://www.sbaonline.sba.gov/GC/nonmanuf.html. Contracting 
officers may request that the SBA waive the

[[Page 377]]

nonmanufacturer rule for a particular class of products.
    (5) For a specific solicitation, a contracting officer may request a 
waiver of that part of the nonmanufacturer rule which requires that the 
actual manufacturer or processor be a small business concern if the 
contracting officer determines that no known domestic small business 
manufacturers or processors can reasonably be expected to offer a 
product meeting the requirements of the solicitation.
    (6) Requests for waivers shall be sent to the Associate 
Administrator for Government Contracting, United States Small Business 
Administration, Mail Code 6250, 409 Third Street, SW., Washington, DC 
20416.
    (7) The SBA provides for an exception to the nonmanufacturer rule 
where the procurement of a manufactured item processed under the 
procedures set forth in part 13 is set aside for small business and 
where the anticipated cost of the procurement will not exceed $25,000. 
In those procurements, the offeror need not supply the end product of a 
small business concern as long as the product acquired is manufactured 
or produced in the United States.
    (g) The industry size standards are set forth in the following 
table. The table column labeled SIC follows the standard industrial 
classification code as published by the Government in the Standard 
Industrial Classification Manual. The Manual is intended to cover the 
entire field of economic activities. It classifies and defines 
activities by industry categories and is the source used by SBA as a 
guide in defining industries for size standards. The number of employees 
or annual receipts indicates the maximum allowed for a concern, 
including its affiliates, to be considered small.

[[Page 378]]



                                       Size Standards by SIC Industry 3/96                                      
----------------------------------------------------------------------------------------------------------------
                                       Description  (N.E.C. = Not elsewhere       Size standards in number of   
                 SIC                                classified)                employees or millions of dollars 
----------------------------------------------------------------------------------------------------------------
                                              See Footnotes on Menu                                             
  Division A--Agriculture, Forestry                                                                             
             and Fishing                                                                                        
                                                                                                                
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    Major Group 01--Agricultural                                                                                
          Production--Crops                                                                                     
                                                                                                                
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0111................................  Wheat.................................  $0.5                              
0112................................  Rice..................................  $0.5                              
0115................................  Corn..................................  $0.5                              
0116................................  Soybeans..............................  $0.5                              
0119................................  Cash Grains, N.E.C....................  $0.5                              
0131................................  Cotton................................  $0.5                              
0132................................  Tobacco...............................  $0.5                              
0133................................  Sugarcane and Sugar Beets.............  $0.5                              
0134................................  Irish Potatoes........................  $0.5                              
0139................................  Field Crops, Except Cash Grains,        $0.5                              
                                       N.E.C..                                                                  
0161................................  Vegetables and Melons.................  $0.5                              
0171................................  Berry Crops...........................  $0.5                              
0172................................  Grapes................................  $0.5                              
0173................................  Tree Nuts.............................  $0.5                              
0174................................  Citrus Fruits.........................  $0.5                              
0175................................  Deciduous Tree Fruits.................  $0.5                              
0179................................  Fruits and Tree Nuts, N.E.C...........  $0.5                              
0181................................  Ornamental Floriculture Nursery         $0.5                              
                                       Products.                                                                
0182................................  Food Crops Grown Under Cover..........  $0.5                              
0191................................  General Farms, Primarily Crop.........  $0.5                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                Major Group 02--Livestock and Animal Specialties                                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
0211................................  Beef Cattle Feedlots (Custom).........  $1.5                              
0212................................  Beef Cattle, Except Feedlots..........  $0.5                              
0213................................  Hogs..................................  $0.5                              
0214................................  Sheep and Goats.......................  $0.5                              
0219................................  General Livestock, Except Dairy and     $0.5                              
                                       Poultry.                                                                 
0241................................  Dairy Farms...........................  $0.5                              
0251................................  Broiler, Fryer, and Roaster Chickens..  $0.5                              
0252................................  Chicken Eggs..........................  $9.0                              
0253................................  Turkeys and Turkey Eggs...............  $0.5                              
0254................................  Poultry Hatcheries....................  $0.5                              
0259................................  Poultry and Eggs, N.E.C...............  $0.5                              
0271................................  Fur-Bearing Animals and Rabbits.......  $0.5                              
0272................................  Horses and Other Equines..............  $0.5                              
0273................................  Animal Aquaculture....................  $0.5                              
0279................................  Animal Specialties, N.E.C.............  $0.5                              
0291................................  General Farms, Primarily Livestock and  $0.5                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                               Animal Specialties                                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
    Major Group 07--Agricultural                                                                                
              Services                                                                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
0711................................  Soil Preparation Services.............  $5.0                              
0721................................  Crop Planting, Cultivating, and         $5.0                              
                                       Protecting.                                                              
0722................................  Crop Harvesting, Primarily by Machine.  $5.0                              
0723................................  Crop Preparation Service for Market,    $5.0                              
                                       Except Cotton Ginning.                                                   
0724................................  Cotton Ginning........................  $5.0                              
0741................................  Veterinary Services for Livestock.....  $5.0                              
0742................................  Veterinary Services for Animal          $5.0                              
                                       Specialties.                                                             
0751................................  Livestock Services, Except Veterinary.  $5.0                              
0752................................  Animal Specialty Services, Except       $5.0                              
                                       Veterinary.                                                              
0761................................  Farm Labor Contractors and Crew         $5.0                              
                                       Leaders.                                                                 
0762................................  Farm Management Services..............  $5.0                              
0781................................  Landscape Counseling and Planning.....  $5.0                              
0782................................  Lawn and Garden Services..............  $5.0                              
0783................................  Ornamental Shrub and Tree Services....  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                            Major Group 08--Forestry                                            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
0811................................  Timber Tracts.........................  $5.0                              

[[Page 379]]

                                                                                                                
0831................................  Forest Nurseries and Gathering of       $5.0                              
                                       Forest Products.                                                         
0851................................  Forestry Services.....................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                 Major Group 09--Fishing, Hunting, and Trapping                                 
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
0912................................  Finfish...............................  $3.0                              
0913................................  Shellfish.............................  $3.0                              
0919................................  Miscellaneous Marine Products.........  $3.0                              
0921................................  Fish Hatcheries and Preserves.........  $3.0                              
0971................................  Hunting and Trapping, and Game          $3.0                              
                                       Propagation.                                                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                               Division B--Mining                                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
    Major Group 10--Metal Mining                                                                                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1011................................  Iron Ores.............................  500                               
1021................................  Copper Ores...........................  500                               
1031................................  Lead and Zinc Ores....................  500                               
1041................................  Gold Ores.............................  500                               
1044................................  Silver Ores...........................  500                               
1061................................  Ferroalloy Ores, Except Vanadium......  500                               
1081................................  Metal Mining Services.................  $5.0                              
1094................................  Uranium-Radium-Vanadium Ores..........  500                               
1099................................  Miscellaneous Metal Ores, N.E.C.......  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                          Major Group 12--Coal Mining                                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1221................................  Bituminous Coal and Lignite Surface     500                               
                                       Mining.                                                                  
1222................................  Bituminous Coal Underground Mining....  500                               
1231................................  Anthracite Mining.....................  500                               
1241................................  Coal Mining Services..................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                     Major Group 13--Oil and Gas Extraction                                     
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1311................................  Crude Petroleum and Natural Gas.......  500                               
1321................................  Natural Gas Liquids...................  500                               
1381................................  Drilling Oil and Gas Wells............  500                               
1382................................  Oil and Gas Field Exploration Services  $5.0                              
1389................................  Oil and Gas Field Services, N.E.C.....  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                   Major Group 14--Mining and Quarrying of Nonmetallic Minerals, Except Fuels                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1411................................  Dimension Stone.......................  500                               
1422................................  Crushed and Broken Limestone..........  500                               
1423................................  Crushed and Broken Granite............  500                               
1429................................  Crushed and Broken Stone, N.E.C.......  500                               
1442................................  Construction Sand and Gravel..........  500                               
1446................................  Industrial Sand.......................  500                               
1455................................  Kaolin and Ball Clay..................  500                               
1459................................  Clay, Ceramic, and Refractory           500                               
                                       Minerals, N.E.C..                                                        
1474................................  Potash, Soda, and Borate Minerals.....  500                               
1475................................  Phosphate Rock........................  500                               
1479................................  Chemical and Fertilizer Mineral         500                               
                                       Mining, N.E.C.                                                           
1481................................  Nonmetallic Minerals Services, Except   $5.0                              
                                       Fuels.                                                                   
1499................................  Miscellaneous Nonmetallic Minerals,     500                               
                                       Except Fuels.                                                            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                            Division C--Construction                                            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
      Major Group 15--Building                                                                                  
  Construction--General Contractors                                                                             
       and Operative Builders                                                                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1521................................  General Contractors--Single-Family      $17.0                             
                                       Houses.                                                                  
1522................................  General Contractors--Residential        $17.0                             
                                       Buildings, Other Than Single-Family.                                     
1531................................  Operative Builders....................  $17.0                             
1541................................  General Contractors--Industrial         $17.0                             
                                       Buildings and Warehouses.                                                

[[Page 380]]

                                                                                                                
1542................................  General Contractors--Nonresidential     $17.0                             
                                       Buildings, Other Than Industrial                                         
                                       Buildings and Warehouses.                                                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                Major Group 16--Heavy Construction Other Than Building Construction--Contractors                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1611................................  Highway and Street Construction,        $17.0                             
                                       Except Elevated Highways.                                                
1622................................  Bridge, Tunnel, and Elevated Highway    $17.0                             
                                       Construction..                                                           
1623................................  Water, Sewer, Pipeline, and             $17.0                             
                                       Communications and Power Line                                            
                                       Construction.                                                            
1629................................  Heavy Construction, N.E.C.............  $17.0                             
Except,.............................  Dredging and Surface Cleanup            $13.5 \1\                         
                                       Activities.                                                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                            Major Group 17--Construction--Special Trade Contractors                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
1711................................  Plumbing, Heating, and Air-             $7.0                              
                                       Conditioning.                                                            
1721................................  Painting and Paper Hanging............  $7.0                              
1731................................  Electrical Work.......................  $7.0                              
1741................................  Masonry, Stone Setting, and Other       $7.0                              
                                       Stone Work.                                                              
1742................................  Plastering, Drywall, Acoustical and     $7.0                              
                                       Insulation Work.                                                         
1743................................  Terrazzo, Tile, Marble, and Mosaic      $7.0                              
                                       Work.                                                                    
1751................................  Carpentry Work........................  $7.0                              
1752................................  Floor Laying and Other Floor Work,      $7.0                              
                                       N.E.C..                                                                  
1761................................  Roofing, Siding, and Sheet Metal Work.  $7.0                              
1771................................  Concrete Work.........................  $7.0                              
1781................................  Water Well Drilling...................  $7.0                              
1791................................  Structural Steel Erection.............  $7.0                              
1793................................  Glass and Glazing Work................  $7.0                              
1794................................  Excavation Work.......................  $7.0                              
1795................................  Wrecking and Demolition Work..........  $7.0                              
1796................................  Installation or Erection of Building    $7.0                              
                                       Equipment, N.E.C..                                                       
1799................................  Special Trade Contractors, N.E.C......  $7.0                              
Except,.............................  Base Housing Maintenance..............  $7.0 \12\                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                          Division D--Manufacturing \2\                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
  Major Group 20--Food and Kindred                                                                              
              Products                                                                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2011................................  Meat Packing Plants...................  500                               
2013................................  Sausages and Other Prepared Meat        500                               
                                       Products.                                                                
2015................................  Poultry Slaughtering and Processing...  500                               
2021................................  Creamery Butter.......................  500                               
2022................................  Natural, Processed, and Imitation       500                               
                                       Cheese.                                                                  
2023................................  Dry, Condensed, and Evaporated Dairy    500                               
                                       Products.                                                                
2024................................  Ice Cream and Frozen Desserts.........  500                               
2026................................  Fluid Milk............................  500                               
2032................................  Canned Specialties....................  1,000                             
2033................................  Canned Fruits, Vegetables, Preserves,   500 \3\                           
                                       Jams, and Jellies.                                                       
2034................................  Dried and Dehydrated Fruits,            500                               
                                       Vegetables, and Soup Mixes.                                              
2035................................  Pickled Fruits and Vegetables,          500                               
                                       Vegetable Sauces and Seasonings, and                                     
                                       Salad Dressings.                                                         
2037................................  Frozen Fruits, Fruit Juices, and        500                               
                                       Vegetables.                                                              
2038................................  Frozen Specialties, N.E.C.............  500                               
2041................................  Flour and Other Grain Mill Products...  500                               
2043................................  Cereal Breakfast Foods................  1,000                             
2044................................  Rice Milling..........................  500                               
2045................................  Prepared Flour Mixes and Doughs.......  500                               
2046................................  Wet Corn Milling......................  750                               
2047................................  Dog and Cat Food......................  500                               
2048................................  Prepared Feeds and Feed Ingredients     500                               
                                       for Animals and Fowls, Except Dogs                                       
                                       and Cats.                                                                
2051................................  Bread and Other Bakery Products,        500                               
                                       Except Cookies and Crackers.                                             
2052................................  Cookies and Crackers..................  750                               
2053................................  Frozen Bakery Products, Except Bread..  500                               
2061................................  Cane Sugar, Except Refining...........  500                               
2062................................  Cane Sugar Refining...................  750                               
2063................................  Beet Sugar............................  750                               
2064................................  Candy and Other Confectionery Products  500                               
2066................................  Chocolate and Cocoa Products..........  500                               

[[Page 381]]

                                                                                                                
2067................................  Chewing Gum...........................  500                               
2068................................  Salted and Roasted Nuts and Seeds.....  500                               
2074................................  Cottonseed Oil Mills..................  500                               
2075................................  Soybean Oil Mills.....................  500                               
2076................................  Vegetable Oil Mills, Except Corn,       1,000                             
                                       Cottonseed, and Soybean.                                                 
2077................................  Animal and Marine Fats and Oils.......  500                               
2079................................  Shortening, Table Oils, Margarine, and  750                               
                                       Other Edible Fats and Oils, N.E.C.                                       
2082................................  Malt Beverages........................  500                               
2083................................  Malt..................................  500                               
2084................................  Wines, Brandy, and Brandy Spirits.....  500                               
2085................................  Distilled and Blended Liquors.........  750                               
2086................................  Bottled and Canned Soft Drinks and      500                               
                                       Carbonated Waters.                                                       
2087................................  Flavoring Extracts and Flavoring        500                               
                                       Syrups, N.E.C.                                                           
2091................................  Canned and Cured Fish and Seafoods....  500                               
2092................................  Prepared Fresh or Frozen Fish and       500                               
                                       Seafoods.                                                                
2095................................  Roasted Coffee........................  500                               
2096................................  Potato Chips, Corn Chips, and Similar   500                               
                                       Snacks.                                                                  
2097................................  Manufactured Ice......................  500                               
2098................................  Macaroni, Spaghetti, Vermicelli, and    500                               
                                       Noodles.                                                                 
2099................................  Food Preparations, N.E.C..............  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                        Major Group 21--Tobacco Products                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2111................................  Cigarettes............................  1,000                             
2121................................  Cigars................................  500                               
2131................................  Chewing and Smoking Tobacco and Snuff.  500                               
2141................................  Tobacco Stemming and Redrying.........  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                     Major Group 22--Textile Mill Products                                      
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2211................................  Broadwoven Fabric Mills, Cotton.......  1,000                             
2221................................  Broadwoven Fabric Mills, Manmade Fiber  500                               
                                       and Silk.                                                                
2231................................  Broadwoven Fabric Mills, Wool           500                               
                                       (Including Dyeing and Finishing).                                        
2241................................  Narrow Fabric and Other Smallwares      500                               
                                       Mills: Cotton, Wool, Silk and Manmade                                    
                                       Fiber.                                                                   
2251................................  Women's Full-Length and Knee-Length     500                               
                                       Hosiery, Except Socks.                                                   
2252................................  Hosiery, N.E.C........................  500                               
2253................................  Knit Outerwear Mills..................  500                               
2254................................  Knit Underwear and Nightwear Mills....  500                               
2257................................  Weft Knit Fabric Mills................  500                               
2258................................  Lace and Warp Knit Fabric Mills.......  500                               
2259................................  Knitting Mills, N.E.C.................  500                               
2261................................  Finishers of Broadwoven Fabrics of      1,000                             
                                       Cotton.                                                                  
2262................................  Finishers of Broadwoven Fabrics of      500                               
                                       Manmade Fiber and Silk.                                                  
2269................................  Finishers of Textiles, N.E.C..........  500                               
2273................................  Carpets and Rugs......................  500                               
2281................................  Yarn Spinning Mills...................  500                               
2282................................  Yarn Texturizing, Throwing, Twisting,   500                               
                                       and Winding Mills.                                                       
2284................................  Thread Mills..........................  500                               
2295................................  Coated Fabrics, Not Rubberized........  1,000                             
2296................................  Tire Cord and Fabrics.................  1,000                             
2297................................  Nonwoven Fabrics......................  500                               
2298................................  Cordage and Twine.....................  500                               
2299................................  Textile Goods, N.E.C..................  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
          Major Group 23--Apparel and Other Finished Products Made From Fabrics and Similar Materials           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2311................................  Men's and Boys' Suits, Coats and        500                               
                                       Overcoats.                                                               
2321................................  Men's and Boys' Shirts, Except Work     500                               
                                       Shirts.                                                                  
2322................................  Men's and Boys' Underwear and           500                               
                                       Nightwear.                                                               
2323................................  Men's and Boys' Neckwear..............  500                               
2325................................  Men's and Boys' Separate Trousers and   500                               
                                       Slacks.                                                                  
2326................................  Men's and Boys' Work Clothing.........  500                               
2329................................  Men's and Boys' Clothing, N.E.C.......  500                               
2331................................  Women's, Misses', and Juniors' Blouses  500                               
                                       and Shirts.                                                              
2335................................  Women's, Misses', and Juniors' Dresses  500                               
2337................................  Women's, Misses', and Juniors' Suits,   500                               
                                       Skirts, and Coats.                                                       

[[Page 382]]

                                                                                                                
2339................................  Women's, Misses', and Juniors'          500                               
                                       Outerwear, N.E.C.                                                        
2341................................  Women's, Misses', Children's, and       500                               
                                       Infants' Underwear and Nightwear.                                        
2342................................  Brassieres, Girdles, and Allied         500                               
                                       Garments.                                                                
2353................................  Hats, Caps, and Millinery.............  500                               
2361................................  Girls', Children's, and Infants'        500                               
                                       Dresses, Blouses, and Shirts.                                            
2369................................  Girls', Children's, and Infants'        500                               
                                       Outerwear, N.E.C..                                                       
2371................................  Fur Goods.............................  500                               
2381................................  Dress and Work Gloves, Except Knit and  500                               
                                       All-Leather.                                                             
2384................................  Robes and Dressing Gowns..............  500                               
2385................................  Waterproof Outerwear..................  500                               
2386................................  Leather and Sheep-Lined Clothing......  500                               
2387................................  Apparel Belts.........................  500                               
2389................................  Apparel and Accessories, N.E.C........  500                               
2391................................  Curtains and Draperies................  500                               
2392................................  Housefurnishings, Except Curtains and   500                               
                                       Draperies.                                                               
2393................................  Textile Bags..........................  500                               
2394................................  Canvas and Related Products...........  500                               
2395................................  Pleating, Decorative and Novelty        500                               
                                       Stitching, and Tucking for the Trade.                                    
2396................................  Automotive Trimmings, Apparel           500                               
                                       Findings, and Related Products.                                          
2397................................  Schiffli Machine Embroideries.........  500                               
2399................................  Fabricated Textile Products, N.E.C....  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                           Major Group 24--Lumber and Wood Products, Except Furniture                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2411................................  Logging...............................  500                               
2421................................  Sawmills and Planing Mills, General...  500                               
2426................................  Hardwood Dimension and Flooring Mills.  500                               
2429................................  Special Product Sawmills, N.E.C.......  500                               
2431................................  Millwork..............................  500                               
2434................................  Wood Kitchen Cabinets.................  500                               
2435................................  Hardwood Veneer and Plywood...........  500                               
2436................................  Softwood Veneer and Plywood...........  500                               
2439................................  Structural Wood Members, N.E.C........  500                               
2441................................  Nailed and Lock Corner Wood Boxes and   500                               
                                       Shook.                                                                   
2448................................  Wood Pallets and Skids................  500                               
2449................................  Wood Containers, N.E.C................  500                               
2451................................  Mobile Homes..........................  500                               
2452................................  Prefabricated Wood Buildings and        500                               
                                       Components.                                                              
2491................................  Wood Preserving.......................  500                               
2493................................  Reconstituted Wood Products...........  500                               
2499................................  Wood Products, N.E.C..................  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                     Major Group 25--Furniture and Fixtures                                     
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2511................................  Wood Household Furniture, Except        500                               
                                       Upholstered.                                                             
2512................................  Wood Household Furniture, Upholstered.  500                               
2514................................  Metal Household Furniture.............  500                               
2515................................  Mattresses, Foundations, and            500                               
                                       Convertible Beds.                                                        
2517................................  Wood Television, Radio, Phonograph,     500                               
                                       and Sewing Machine Cabinets.                                             
2519................................  Household Furniture, N.E.C............  500                               
2521................................  Wood Office Furniture.................  500                               
2522................................  Office Furniture, Except Wood.........  500                               
2531................................  Public Building and Related Furniture.  500                               
2541................................  Wood Office and Store Fixtures,         500                               
                                       Partitions, Shelving, and Lockers.                                       
2542................................  Office and Store Fixtures, Partitions,  500                               
                                       Shelving, and Lockers, Except Wood.                                      
2591................................  Drapery Hardware and Window Blinds and  500                               
                                       Shades.                                                                  
2599................................  Furniture and Fixtures, N.E.C.........  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                    Major Group 26--Paper and Allied Products                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2611................................  Pulp Mills............................  750                               
2621................................  Paper Mills...........................  750                               
2631................................  Paperboard Mills......................  750                               
2652................................  Setup Paperboard Boxes................  500                               
2653................................  Corrugated and Solid Fiber Boxes......  500                               
2655................................  Fiber Cans, Tubes, Drums, and Similar   500                               
                                       Products.                                                                
2656................................  Sanitary Food Containers, Except        750                               
                                       Folding.                                                                 

[[Page 383]]

                                                                                                                
2657................................  Folding Paperboard Boxes, Including     750                               
                                       Sanitary.                                                                
2671................................  Packaging Paper and Plastics Film,      500                               
                                       Coated and Laminated.                                                    
2672................................  Coated and Laminated Paper, N.E.C.....  500                               
2673................................  Plastics, Foil, and Coated Paper Bags.  500                               
2674................................  Uncoated Paper and Multiwall Bags.....  500                               
2675................................  Die-Cut Paper and Paperboard and        500                               
                                       Cardboard.                                                               
2676................................  Sanitary Paper Products...............  500                               
2677................................  Envelopes.............................  500                               
2678................................  Stationery, Tablets, and Related        500                               
                                       Products.                                                                
2679................................  Converted Paper and Paperboard          500                               
                                       Products, N.E.C.                                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                           Major Group 27--Printing, Publishing, and Allied Industries                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2711................................  Newspapers: Publishing, or Publishing   500                               
                                       and Printing.                                                            
2721................................  Periodicals: Publishing, or Publishing  500                               
                                       and Printing.                                                            
2731................................  Books: Publishing, or Publishing and    500                               
                                       Printing.                                                                
2732................................  Book Printing.........................  500                               
2741................................  Miscellaneous Publishing..............  500                               
2752................................  Commercial Printing, Lithographic.....  500                               
2754................................  Commercial Printing, Gravure..........  500                               
2759................................  Commercial Printing, N.E.C............  500                               
2761................................  Manifold Business Forms...............  500                               
2771................................  Greeting Cards........................  500                               
2782................................  Blankbooks, Looseleaf Binders and       500                               
                                       Devices.                                                                 
2789................................  Bookbinding and Related Work..........  500                               
2791................................  Typesetting...........................  500                               
2796................................  Platemaking and Related Services......  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                  Major Group 28--Chemicals and Allied Products                                 
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2812................................  Alkalies and Chlorine.................  1,000                             
2813................................  Industrial Gases......................  1,000                             
2816................................  Inorganic Pigments....................  1,000                             
2819................................  Industrial Inorganic Chemicals, N.E.C.  1,000                             
2821................................  Plastics Materials, Synthetic Resins,   750                               
                                       and Nonvulcanizable Elastomers.                                          
2822................................  Synthetic Rubber (Vulcanizable          1,000                             
                                       Elastomers).                                                             
2823................................  Cellulosic Manmade Fibers.............  1,000                             
2824................................  Manmade Organic Fibers, Except          1,000                             
                                       Cellulosic.                                                              
2833................................  Medicinal Chemicals and Botanical       750                               
                                       Products.                                                                
2834................................  Pharmaceutical Preparations...........  750                               
2835................................  In Vitro and In Vivo Diagnostic         500                               
                                       Substances.                                                              
2836................................  Biological Products, Except Diagnostic  500                               
                                       Substances.                                                              
2841................................  Soap and Other Detergents, Except       750                               
                                       Specialty Cleaners.                                                      
2842................................  Specialty Cleaning, Polishing, and      500                               
                                       Sanitation Preparations.                                                 
2843................................  Surface Active Agents, Finishing        500                               
                                       Agents, Sulfonated Oils, and                                             
                                       Assistants.                                                              
2844................................  Perfumes, Cosmetics, and Other Toilet   500                               
                                       Preparations.                                                            
2851................................  Paints, Varnishes, Lacquers, Enamels,   500                               
                                       and Allied Products.                                                     
2861................................  Gum and Wood Chemicals................  500                               
2865................................  Cyclic Organic Crudes and               750                               
                                       Intermediates, and Organic Dyes and                                      
                                       Pigments.                                                                
2869................................  Industrial Organic Chemicals, N.E.C...  1,000                             
2873................................  Nitrogenous Fertilizers...............  1,000                             
2874................................  Phosphatic Fertilizers................  500                               
2875................................  Fertilizers, Mixing Only..............  500                               
2879................................  Pesticides and Agricultural Chemicals,  500                               
                                       N.E.C..                                                                  
2891................................  Adhesives and Sealants................  500                               
2892................................  Explosives............................  750                               
2893................................  Printing Ink..........................  500                               
2895................................  Carbon Black..........................  500                               
2899................................  Chemicals and Chemical Preparations,    500                               
                                       N.E.C..                                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                            Major Group 29--Petroleum Refining and Related Industries                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
2911................................  Petroleum Refining....................  1,500 \4\                         
2951................................  Asphalt Paving Mixtures and Blocks....  500                               
2952................................  Asphalt Felts and Coatings............  750                               
2992................................  Lubricating Oils and Greases..........  500                               

[[Page 384]]

                                                                                                                
2999................................  Products of Petroleum and Coal, N.E.C.  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                           Major Group 30--Rubber and Miscellaneous Plastics Products                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3011................................  Tires and Inner Tubes.................  1,000 \5\                         
3021................................  Rubber and Plastics Footwear..........  1,000                             
3052................................  Rubber and Plastics Hose and Belting..  500                               
3053................................  Gaskets, Packing, and Sealing Devices.  500                               
3061................................  Molded, Extruded, and Lathe-Cut         500                               
                                       Mechanical Rubber Goods.                                                 
3069................................  Fabricated Rubber Products, N.E.C.....  500                               
3081................................  Unsupported Plastics Film and Sheet...  500                               
3082................................  Unsupported Plastics Profile Shapes...  500                               
3083................................  Laminated Plastics Plate, Sheet, and    500                               
                                       Profile Shapes.                                                          
3084................................  Plastics Pipe.........................  500                               
3085................................  Plastics Bottles......................  500                               
3086................................  Plastics Foam Products................  500                               
3087................................  Custom Compounding of Purchased         500                               
                                       Plastics Resins.                                                         
3088................................  Plastics Plumbing Fixtures............  500                               
3089................................  Plastics Products, N.E.C..............  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                  Major Group 31--Leather and Leather Products                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3111................................  Leather Tanning and Finishing.........  500                               
3131................................  Boot and Shoe Cut Stock and Findings..  500                               
3142................................  House Slippers........................  500                               
3143................................  Men's Footwear, Except Athletic.......  500                               
3144................................  Women's Footwear, Except Athletic.....  500                               
3149................................  Footwear, Except Rubber, N.E.C........  500                               
3151................................  Leather Gloves and Mittens............  500                               
3161................................  Luggage...............................  500                               
3171................................  Women's Handbags and Purses...........  500                               
3172................................  Personal Leather Goods, Except Women's  500                               
                                       Handbags and Purses.                                                     
3199................................  Leather Goods, N.E.C..................  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                           Major Group 32--Stone, Clay, Glass, and Concrete Products                            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3211................................  Flat Glass............................  1,000                             
3221................................  Glass Containers......................  750                               
3229................................  Pressed and Blown Glass and Glassware,  750                               
                                       N.E.C..                                                                  
3231................................  Glass Products, Made of Purchased       500                               
                                       Glass.                                                                   
3241................................  Cement, Hydraulic.....................  750                               
3251................................  Brick and Structural Clay Tile........  500                               
3253................................  Ceramic Wall and Floor Tile...........  500                               
3255................................  Clay Refractories.....................  500                               
3259................................  Structural Clay Products, N.E.C.......  500                               
3261................................  Vitreous China Plumbing Fixtures and    750                               
                                       China and Earthenware Fittings and                                       
                                       Bathroom Accessories.                                                    
3262................................  Vitreous China Table and Kitchen        500                               
                                       Articles.                                                                
3263................................  Fine Earthenware (Whiteware) Table and  500                               
                                       Kitchen Articles.                                                        
3264................................  Porcelain Electrical Supplies.........  500                               
3269................................  Pottery Products, N.E.C...............  500                               
3271................................  Concrete Block and Brick..............  500                               
3272................................  Concrete Products, Except Block and     500                               
                                       Brick.                                                                   
3273................................  Ready Mixed Concrete..................  500                               
3274................................  Lime..................................  500                               
3275................................  Gypsum Products.......................  1,000                             
3281................................  Cut Stone and Stone Products..........  500                               
3291................................  Abrasive Products.....................  500                               
3292................................  Asbestos Products.....................  750                               
3295................................  Minerals and Earths, Ground or          500                               
                                       Otherwise Treated.                                                       
3296................................  Mineral Wool..........................  750                               
3297................................  Nonclay Refractories..................  750                               
3299................................  Nonmetallic Mineral Products, N.E.C...  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                    Major Group 32--Primary Metal Industries                                    
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3312................................  Steel Works, Blast Furnaces (Including  1,000                             
                                       Coke Ovens), and Rolling Mills.                                          

[[Page 385]]

                                                                                                                
3313................................  Electrometallurgical Products, Except   750                               
                                       Steel.                                                                   
3315................................  Steel Wiredrawing and Steel Nails and   1,000                             
                                       Spikes.                                                                  
3316................................  Cold-Rolled Steel Sheet, Strip, and     1,000                             
                                       Bars.                                                                    
3317................................  Steel Pipe and Tubes..................  1,000                             
3321................................  Gray and Ductile Iron Foundries.......  500                               
3322................................  Malleable Iron Foundries..............  500                               
3324................................  Steel Investment Foundries............  500                               
3325................................  Steel Foundries, N.E.C................  500                               
3331................................  Primary Smelting and Refining of        1,000                             
                                       Copper.                                                                  
3334................................  Primary Production of Aluminum........  1,000                             
3339................................  Primary Smelting and Refining of        750                               
                                       Nonferrous Metals, Except Copper and                                     
                                       Aluminum.                                                                
3341................................  Secondary Smelting and Refining of      500                               
                                       Nonferrous Metals.                                                       
3351................................  Rolling, Drawing, and Extruding of      750                               
                                       Copper.                                                                  
3353................................  Aluminum Sheet, Plate, and Foil.......  750                               
3354................................  Aluminum Extruded Products............  750                               
3355................................  Aluminum Rolling and Drawing, N.E.C...  750                               
3356................................  Rolling, Drawing, and Extruding of      750                               
                                       Nonferrous Metals, Except Copper and                                     
                                       Aluminum.                                                                
3357................................  Drawing and Insulating of Nonferrous    1,000                             
                                       Wire.                                                                    
3363................................  Aluminum Die-Castings.................  500                               
3364................................  Nonferrous Die-Castings, Except         500                               
                                       Aluminum.                                                                
3365................................  Aluminum Foundries....................  500                               
3366................................  Copper Foundries......................  500                               
3369................................  Nonferrous Foundries, Except Aluminum   500                               
                                       and Copper.                                                              
3398................................  Metal Heat Treating...................  750                               
3399................................  Primary Metal Products, N.E.C.........  750                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
            Major Group 34--Fabricated Metal Products, Except Machinery and Transportation Equipment            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3411................................  Metal Cans............................  1,000                             
3412................................  Metal Shipping Barrels, Drums, Kegs,    500                               
                                       and Pails.                                                               
3421................................  Cutlery...............................  500                               
3423................................  Hand and Edge Tools, Except Machine     500                               
                                       Tools and Handsaws.                                                      
3425................................  Saw Blades and Handsaws...............  500                               
3429................................  Hardware, N.E.C.......................  500                               
3431................................  Enameled Iron and Metal Sanitary Ware.  750                               
3432................................  Plumbing Fixture Fittings and Trim....  500                               
3433................................  Heating Equipment, Except Electric and  500                               
                                       Warm Air Furnaces.                                                       
3441................................  Fabricated Structural Metal...........  500                               
3442................................  Metal Doors, Sash, Frames, Molding,     500                               
                                       and Trim.                                                                
3443................................  Fabricated Plate Work (Boiler Shops)..  500                               
3444................................  Sheet Metal Work......................  500                               
3446................................  Architectural and Ornamental Metal      500                               
                                       Work.                                                                    
3448................................  Prefabricated Metal Buildings and       500                               
                                       Components.                                                              
3449................................  Miscellaneous Structural Metal Work...  500                               
3451................................  Screw Machine Products................  500                               
3452................................  Bolts, Nuts, Screws, Rivets, and        500                               
                                       Washers.                                                                 
3462................................  Iron and Steel Forgings...............  500                               
3463................................  Nonferrous Forgings...................  500                               
3465................................  Automotive Stampings..................  500                               
3466................................  Crowns and Closures...................  500                               
3469................................  Metal Stampings, N.E.C................  500                               
3471................................  Electroplating, Plating, Polishing,     500                               
                                       Anodizing, and Coloring.                                                 
3479................................  Coating, Engraving, and Allied          500                               
                                       Services, N.E.C..                                                        
3482................................  Small Arms Ammunition.................  1,000                             
3483................................  Ammunition, Except for Small Arms.....  1,500                             
3484................................  Small Arms............................  1,000                             
3489................................  Ordnance and Accessories, N.E.C.......  500                               
3491................................  Industrial Valves.....................  500                               
3492................................  Fluid Power Valves and Hose Fittings..  500                               
3493................................  Steel Springs, Except Wire............  500                               
3494................................  Valves and Pipe Fittings, N.E.C.......  500                               
3495................................  Wire Springs..........................  500                               
3496................................  Miscellaneous Fabricated Wire Products  500                               
3497................................  Metal Foil and Leaf...................  500                               
3498................................  Fabricated Pipe and Pipe Fittings.....  500                               
3499................................  Fabricated Metal Products, N.E.C......  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           

[[Page 386]]

                                                                                                                
                   Major Group 35--Industrial and Commercial Machinery and Computer Equipment                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3511................................  Steam, Gas, and Hydraulic Turbines,     1,000                             
                                       and Turbine Generator Set Units.                                         
3519................................  Internal Combustion Engines, N.E.C....  1,000                             
3523................................  Farm Machinery and Equipment..........  500                               
3524................................  Lawn and Garden Tractors and Home Lawn  500                               
                                       and Garden Equipment.                                                    
3531................................  Construction Machinery and Equipment..  750                               
3532................................  Mining Machinery and Equipment, Except  500                               
                                       Oil and Gas Field Machinery and                                          
                                       Equipment.                                                               
3533................................  Oil and Gas Field Machinery and         500                               
                                       Equipment.                                                               
3534................................  Elevators and Moving Stairways........  500                               
3535................................  Conveyors and Conveying Equipment.....  500                               
3536................................  Overhead Traveling Cranes, Hoists, and  500                               
                                       Monorail Systems.                                                        
3537................................  Industrial Trucks, Tractors, Trailers,  750                               
                                       and Stackers.                                                            
3541................................  Machine Tools, Metal Cutting Types....  500                               
3542................................  Machine Tools, Metal Forming Types....  500                               
3543................................  Industrial Patterns...................  500                               
3544................................  Special Dies and Tools, Die Sets, Jigs  500                               
                                       and Fixtures, and Industrial Molds.                                      
3545................................  Cutting Tools, Machine Tool             500                               
                                       Accessories, and Machinists'                                             
                                       Precision Measuring Devices.                                             
3546................................  Power-Driven Handtools................  500                               
3547................................  Rolling Mill Machinery and Equipment..  500                               
3548................................  Electric and Gas Welding and Soldering  500                               
                                       Equipment.                                                               
3549................................  Metalworking Machinery, N.E.C.........  500                               
3552................................  Textile Machinery.....................  500                               
3553................................  Woodworking Machinery.................  500                               
3554................................  Paper Industries Machinery............  500                               
3555................................  Printing Trades Machinery and           500                               
                                       Equipment.                                                               
3556................................  Food Products Machinery...............  500                               
3559................................  Special Industry Machinery, N.E.C.....  500                               
3561................................  Pumps and Pumping Equipment...........  500                               
3562................................  Ball and Roller Bearings..............  750                               
3563................................  Air and Gas Compressors...............  500                               
3564................................  Industrial and Commercial Fans and      500                               
                                       Blowers and Air Purification                                             
                                       Equipment.                                                               
3565................................  Packaging Machinery...................  500                               
3566................................  Speed Changers, Industrial High-Speed   500                               
                                       Drives, and Gears.                                                       
3567................................  Industrial Process Furnaces and Ovens.  500                               
3568................................  Mechanical Power Transmission           500                               
                                       Equipment, N.E.C..                                                       
3569................................  General Industrial Machinery and        500                               
                                       Equipment, N.E.C..                                                       
3571................................  Electronic Computers..................  1,000                             
3572................................  Computer Storage Devices..............  1,000                             
3575................................  Computer Terminals....................  1,000                             
3577................................  Computer Peripheral Equipment, N.E.C..  1,000                             
3578................................  Calculating and Accounting Machines,    1,000                             
                                       Except Electronic Computers.                                             
3579................................  Office Machines, N.E.C................  500                               
3581................................  Automatic Vending Machines ...........  500                               
3582................................  Commercial Laundry, Drycleaning, and    500                               
                                       Pressing Machines.                                                       
3585................................  Air-Conditioning and Warm Air Heating   750                               
                                       Equipment and Commercial and                                             
                                       Industrial Refrigeration Equipment.                                      
3586................................  Measuring and Dispensing Pumps........  500                               
3589................................  Service Industry Machinery, N.E.C.....  500                               
3592................................  Carburetors, Pistons, Piston Rings,     500                               
                                       and Valves.                                                              
3593................................  Fluid Power Cylinders and Actuators...  500                               
3594................................  Fluid Power Pumps and Motors..........  500                               
3596................................  Scales and Balances, Except Laboratory  500                               
3599................................  Industrial and Commercial Machinery     500                               
                                       and Equipment, N.E.C.                                                    
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
      Major Group 36--Electronic and Other Electrical Equipment and Components, Except Computer Equipment       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3612................................  Power, Distribution, and Specialty      750                               
                                       Transformers.                                                            
3613................................  Switchgear and Switchboard Apparatus..  750                               
3621................................  Motors and Generators.................  1,000                             
3624................................  Carbon and Graphite Products..........  750                               
3625................................  Relays and Industrial Controls........  750                               
3629................................  Electrical Industrial Apparatus,        500                               
                                       N.E.C..                                                                  
3631................................  Household Cooking Equipment...........  750                               

[[Page 387]]

                                                                                                                
3632................................  Household Refrigerators and Home and    1,000                             
                                       Farm Freezers.                                                           
3633................................  Household Laundry Equipment...........  1,000                             
3634................................  Electric Housewares and Fans .........  750                               
3635................................  Household Vacuum Cleaners.............  750                               
3639................................  Household Appliances, N.E.C. .........  500                               
3641................................  Electric Lamp Bulbs and Tubes.........  1,000                             
3643................................  Current-Carrying Wiring Devices.......  500                               
3644................................  Noncurrent-Carrying Wiring Devices....  500                               
3645................................  Residential Electric Lighting Fixtures  500                               
3646................................  Commercial, Industrial, and             500                               
                                       Institutional Electric Lighting                                          
                                       Fixtures.                                                                
3647................................  Vehicular Lighting Equipment..........  500                               
3648................................  Lighting Equipment, N.E.C.............  500                               
3651................................  Household Audio and Video Equipment...  750                               
3652................................  Phonograph Records and Prerecorded      750                               
                                       Audio Tapes and Disks.                                                   
3661................................  Telephone and Telegraph Apparatus.....  1,000                             
3663................................  Radio and Television Broadcasting and   750                               
                                       Communications Equipment.                                                
3669................................  Communications Equipment, N.E.C.......  750                               
3671................................  Electron Tubes........................  750                               
3672................................  Printed Circuit Boards................  500                               
3674................................  Semiconductors and Related Devices....  500                               
3675................................  Electronic Capacitors.................  500                               
3676................................  Electronic Resistors..................  500                               
3677................................  Electronic Coils, Transformers, and     500                               
                                       Other Inductors.                                                         
3678................................  Electronic Connectors.................  500                               
3679................................  Electronic Components, N.E.C..........  500                               
3691................................  Storage Batteries.....................  500                               
3692................................  Primary Batteries, Dry and Wet........  1,000                             
3694................................  Electrical Equipment for Internal       750                               
                                       Combustion Engines.                                                      
3695................................  Magnetic and Optical Recording Media..  1,000                             
3699................................  Electrical Machinery, Equipment, and    750                               
                                       Supplies, N.E.C..                                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                    Major Group 37--Transportation Equipment                                    
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3711................................  Motor Vehicles and Passenger Car        1,000                             
                                       Bodies.                                                                  
3713................................  Truck and Bus Bodies..................  500                               
3714................................  Motor Vehicle Parts and Accessories...  750                               
3715................................  Truck Trailers........................  500                               
3716................................  Motor Homes...........................  1,000                             
3721................................  Aircraft..............................  1,500                             
3724................................  Aircraft Engines and Engine Parts.....  1,000                             
3728................................  Aircraft Parts and Auxiliary            1,000 \9\                         
                                       Equipment, N.E.C.                                                        
3731................................  Shipbuilding and Repair of Nuclear      1,000                             
                                       Propelled Ships.                                                         
Except..............................  Shipbuilding of Nonnuclear Propelled    1,000                             
                                       Ships and Nonpropelled Ships.                                            
                                      Ship Repair (Including Overhauls and    1,000                             
                                       Conversions) Performed on Nonnuclear                                     
                                       Propelled and Nonpropelled Ships East                                    
                                       of the 108 Meridian.                                                     
                                      Ship Repair (Including Overhauls and    1,000                             
                                       Conversions) Performed on Nonnuclear                                     
                                       Propelled and Nonpropelled Ships West                                    
                                       of the 108 Meridian.                                                     
3732................................  Boat Building and Repairing...........  500                               
3743................................  Railroad Equipment....................  1,000                             
3751................................  Motorcycles, Bicycles, and Parts......  500                               
3761................................  Guided Missiles and Space Vehicles....  1,000                             
3764................................  Guided Missile and Space Vehicle        1,000                             
                                       Propulsion Units and Propulsion Unit                                     
                                       Parts.                                                                   
3769................................  Guided Missile and Space Vehicle Parts  1,000                             
                                       and Auxiliary Equipment, N.E.C.                                          
3792................................  Travel Trailers and Campers...........  500                               
3795................................  Tanks and Tank Components.............  1,000                             
3799................................  Transportation Equipment, N.E.C. .....  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
  Major Group 38--Measuring, Analyzing, and Controlling Instruments; Photographic, Medical, and Optical Goods;  
                                               Watches and Clocks                                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3812................................  Search, Detection, Navigation,          750                               
                                       Guidance, Aeronautical, and Nautical                                     
                                       Systems and Instruments.                                                 
3821................................  Laboratory Apparatus and Furniture....  500                               
3822................................  Automatic Controls for Regulating       500                               
                                       Residential and Commercial                                               
                                       Environments and Appliances.                                             

[[Page 388]]

                                                                                                                
3823................................  Industrial Instruments for              500                               
                                       Measurement, Display, and Control of                                     
                                       Process Variables; and Related                                           
                                       Products.                                                                
3824................................  Totalizing Fluid Meters and Counting    500                               
                                       Devices.                                                                 
3825................................  Instruments for Measuring and Testing   500                               
                                       of Electricity and Electrical Signals.                                   
3826................................  Laboratory Analytical Instruments.....  500                               
3827................................  Optical Instruments and Lenses........  500                               
3829................................  Measuring and Controlling Devices,      500                               
                                       N.E.C.                                                                   
3841................................  Surgical and Medical Instruments and    500                               
                                       Apparatus.                                                               
3842................................  Orthopedic, Prosthetic, and Surgical    500                               
                                       Appliances and Supplies.                                                 
3843................................  Dental Equipment and Supplies.........  500                               
3844................................  X-Ray Apparatus and Tubes and Related   500                               
                                       Irradiation Apparatus.                                                   
3845................................  Electromedical and Electrotherapeutic   500                               
                                       Apparatus.                                                               
3851................................  Ophthalmic Goods......................  500                               
3861................................  Photographic Equipment and Supplies...  500                               
3873................................  Watches, Clocks, Clockwork Operated     500                               
                                       Devices, and Parts.                                                      
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                             Major Group 39--Miscellaneous Manufacturing Industries                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
3911................................  Jewelry, Precious Metal...............  500                               
3914................................  Silverware, Plated Ware, and Stainless  500                               
                                       Steel Ware.                                                              
3915................................  Jewelers' Findings and Materials, and   500                               
                                       Lapidary Work.                                                           
3931................................  Musical Instruments...................  500                               
3942................................  Dolls and Stuffed Toys................  500                               
3944................................  Games, Toys, and Children's Vehicles,   500                               
                                       Except Dolls and Bicycles.                                               
3949................................  Sporting and Athletic Goods, N.E.C....  500                               
3951................................  Pens, Mechanical Pencils, and Parts...  500                               
3952................................  Lead Pencils, Crayons, and Artists'     500                               
                                       Materials.                                                               
3953................................  Marking Devices.......................  500                               
3955................................  Carbon Paper and Inked Ribbons........  500                               
3961................................  Costume Jewelry and Costume Novelties,  500                               
                                       Except Precious Metal.                                                   
3965................................  Fasteners, Buttons, Needles, and Pins.  500                               
3991................................  Brooms and Brushes....................  500                               
3993................................  Signs and Advertising Specialties.....  500                               
3995................................  Burial Caskets........................  500                               
3996................................  Linoleum, Asphalted-Felt-Base, and      750                               
                                       Other Hard Surface Floor Coverings,                                      
                                       N.E.C..                                                                  
3999................................  Manufacturing Industries, N.E.C.......  500                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                 Division E--Transportation, Communications Electric, Gas, and Sanitary Services                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
      Major Group 40--Railroad                                                                                  
           Transportation                                                                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4011................................  Railroads, Line-Haul Operating........  1,500                             
4013................................  Railroad Switching and Terminal         500                               
                                       Establishments.                                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
           Major Group 41--Local and Suburban Transit and Interurban Highway Passenger Transportation           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4111................................  Local and Suburban Transit............  $5.0                              
4119................................  Local Passenger Transportation, N.E.C.  $5.0                              
4121................................  Taxicabs..............................  $5.0                              
4131................................  Intercity and Rural Bus Transportation  $5.0                              
4141................................  Local Bus Charter Service.............  $5.0                              
4142................................  Bus Charter Service, Except Local.....  $5.0                              
4151................................  School Buses..........................  $5.0                              
4173................................  Terminal and Service Facilities for     $5.0                              
                                       Motor Vehicle Passenger                                                  
                                       Transportation.                                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                          Major Group 42--Motor Freight Transportation and Warehousing                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4212................................  Local Trucking Without Storage........  $18.5                             
Except..............................  Garbage and Refuse Collection, Without  $6.0                              
                                       Disposal.                                                                
4213................................  Trucking, Except Local................  $18.5                             
4214................................  Local Trucking With Storage...........  $18.5                             
4215................................  Courier Services, Except by Air.......  $18.5                             
4221................................  Farm Product Warehousing and Storage..  $18.5                             
4222................................  Refrigerated Warehousing and Storage..  $18.5                             

[[Page 389]]

                                                                                                                
4225................................  General Warehousing and Storage.......  $18.5                             
4226................................  Special Warehousing and Storage,        $18.5                             
                                       N.E.C..                                                                  
4231................................  Terminal and Joint Terminal             $5.0                              
                                       Maintenance Facilities for Motor                                         
                                       Freight Transportation.                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                      Major Group 44--Water Transportation                                      
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4412................................  Deep Sea Foreign Transportation of      500                               
                                       Freight.                                                                 
4424................................  Deep Sea Domestic Transportation of     500                               
                                       Freight.                                                                 
4432................................  Freight Transportation on the Great     500                               
                                       Lakes--St. Lawrence Seaway.                                              
4449................................  Water Transportation of Freight,        500                               
                                       N.E.C..                                                                  
4481................................  Deep Sea Transportation of Passengers,  500                               
                                       Except by Ferry.                                                         
4482................................  Ferries...............................  500                               
4489................................  Water Transportation of Passengers,     500                               
                                       N.E.C..                                                                  
4491................................  Marine Cargo Handling.................  $18.5                             
4492................................  Towing and Tugboat Services...........  $5.0                              
4493................................  Marinas...............................  $5.0                              
4499................................  Water Transportation Services, N.E.C..  $5.0                              
Except..............................  Offshore Marine Water Transportation    $20.5                             
                                       Services.                                                                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                      Major Group 45--Transportation by Air                                     
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4512................................  Air Transportation, Scheduled.........  1,500                             
4513................................  Air Courier Services..................  1,500                             
4522................................  Air Transportation, Nonscheduled,.....  1,500                             
Except..............................  Offshore Marine Air Transportation      $20.5                             
                                       Services.                                                                
4581................................  Airports, Flying Fields, and Airport    $5.0                              
                                       Terminal Services.                                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                 Major Group 46--Pipelines, Except Natural Gas                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4612................................  Crude Petroleum Pipelines.............  1,500                             
4613................................  Refined Petroleum Pipelines...........  1,500                             
4619................................  Pipelines, N.E.C......................  $25.0                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                    Major Group 47--Transportation Services                                     
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4724................................  Travel Agencies.......................  $1.0 \6\                          
4725................................  Tour Operators........................  $5.0                              
4729................................  Arrangement of Passenger                $5.0                              
                                       Transportation, N.E.C..                                                  
4731................................  Arrangement of Transportation of        $18.5                             
                                       Freight and Cargo.                                                       
4741................................  Rental of Railroad Cars...............  $5.0                              
4783................................  Packing and Crating...................  $18.5                             
4785................................  Fixed Facilities and Inspection and     $5.0                              
                                       Weighing Services for Motor Vehicle                                      
                                       Transportation.                                                          
4789................................  Transportation Services, N.E.C........  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                         Major Group 48--Communications                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4812................................  Radiotelephone Communications.........  1,500                             
4813................................  Telephone Communications, Except        1,500                             
                                       Radiotelephone.                                                          
4822................................  Telegraph and Other Message             $5.0                              
                                       Communications.                                                          
4832................................  Radio Broadcasting Stations...........  $5.0                              
4833................................  Television Broadcasting Stations......  $10.5                             
4841................................  Cable and Other Pay Television          $11.0                             
                                       Services.                                                                
4899................................  Communications Services, N.E.C........  $11.0                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                              Major Group 49--Electric, Gas, and Sanitary Services                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
4911................................  Electric Services.....................  4 million megawatt hrs.           
4922................................  Natural Gas Transmission..............  $5.0                              
4923................................  Gas Transmission and Distribution.....  $5.0                              
4924................................  Natural Gas Distribution..............  500                               
4925................................  Mixed, Manufactured, or Liquefied       $5.0                              
                                       Petroleum.                                                               
  ..................................  Gas Production and/or Distribution....                                    
4931................................  Electric and Other Services Combined..  $5.0                              
4932................................  Gas and Other Services Combined.......  $5.0                              

[[Page 390]]

                                                                                                                
4939................................  Combination Utilities, N.E.C..........  $5.0                              
4941................................  Water Supply..........................  $5.0                              
4952................................  Sewerage Systems......................  $5.0                              
4953................................  Refuse Systems........................  $6.0                              
4959................................  Sanitary Services, N.E.C..............  $5.0                              
4961................................  Steam and Air-Conditioning Supply.....  $9.0                              
4971................................  Irrigation Systems....................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                          Division F--Wholesale Trade                                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
    (Not Applicable to Government                                                                               
    procurement of supplies. The                                                                                
nonmanufacturer size standard of 500                                                                            
employees shall be used for purposes                                                                            
    of Government procurement of                                                                                
             supplies.)                                                                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
  Major Group 50--Wholesale Trade--                                                                             
            Durable Goods                                                                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5012................................  Automobiles and Other Motor Vehicles..  100                               
5013................................  Motor Vehicle Supplies and New Parts..  100                               
5014................................  Tires and Tubes.......................  100                               
5015................................  Motor Vehicle Parts, Used.............  100                               
5021................................  Furniture.............................  100                               
5023................................  Homefurnishings.......................  100                               
5031................................  Lumber, Plywood, Millwork, and Wood     100                               
                                       Panels.                                                                  
5032................................  *Brick, Stone, and Related              100                               
                                       Construction Materials.                                                  
5033................................  Roofing, Siding, and Insulation         100                               
                                       Materials.                                                               
5039................................  Construction Materials, N.E.C.........  100                               
5043................................  Photographic Equipment and Supplies...  100                               
5044................................  Office Equipment......................  100                               
5045................................  Computers and Computer Peripheral       100                               
                                       Equipment and Software.                                                  
5046................................  Commercial Equipment, N.E.C...........  100                               
5047................................  Medical, Dental, and Hospital           100                               
                                       Equipment and Supplies.                                                  
5048................................  Ophthalmic Goods......................  100                               
5049................................  Professional Equipment and Supplies,    100                               
                                       N.E.C..                                                                  
5051................................  Metals Service Centers and Offices....  100                               
5052................................  Coal and Other Minerals and Ores......  100                               
5063................................  Electrical Apparatus and Equipment,     100                               
                                       Wiring Supplies, and Construction                                        
                                       Materials.                                                               
5064................................  *Electrical Appliances, Television and  100                               
                                       Radio Sets.                                                              
5065................................  Electronic Parts and Equipment, N.E.C.  100                               
5072................................  Hardware..............................  100                               
5074................................  Plumbing and Heating Equipment and      100                               
                                       Supplies (Hydronics).                                                    
5075................................  Warm Air Heating and Air-Conditioning   100                               
                                       Equipment and Supplies.                                                  
5078................................  Refrigeration Equipment and Supplies..  100                               
5082................................  Construction and Mining (Except         100                               
                                       Petroleum) Machinery and Equipment.                                      
5083................................  Farm and Garden Machinery and           100                               
                                       Equipment.                                                               
5084................................  Industrial Machinery and Equipment....  100                               
5085................................  Industrial Supplies...................  100                               
5087................................  Service Establishment Equipment and     100                               
                                       Supplies.                                                                
5088................................  Transportation Equipment and Supplies,  100                               
                                       Except Motor Vehicles.                                                   
5091................................  Sporting and Recreational Goods and     100                               
                                       Supplies.                                                                
5092................................  Toys and Hobby Goods and Supplies.....  100                               
5093................................  Scrap and Waste Materials.............  100                               
5094................................  Jewelry, Watches, Precious Stones, and  100                               
                                       Precious Metals.                                                         
5099................................  Durable Goods, N.E.C..................  100                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                Major Group 51--Wholesale Trade--Nondurable Goods                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5111................................  Printing and Writing Paper............  100                               
5112................................  Stationery and Office Supplies........  100                               
5113................................  Industrial and Personal Service Paper.  100                               
5122................................  Drugs, Drug Proprietaries, and          100                               
                                       Druggists' Sundries.                                                     
5131................................  Piece Goods, Notions, and Other Dry     100                               
                                       Goods.                                                                   
5136................................  Men's and Boys' Clothing and            100                               
                                       Furnishings.                                                             
5137................................  Women's, Children's, and Infants'       100                               
                                       Clothing and Accessories.                                                
5139................................  Footwear..............................  100                               
5141................................  Groceries, General Line...............  100                               
5142................................  Packaged Frozen Foods.................  100                               
5143................................  Dairy Products, Except Dried or Canned  100                               

[[Page 391]]

                                                                                                                
5144................................  Poultry and Poultry Products..........  100                               
5145................................  Confectionery.........................  100                               
5146................................  Fish and Seafood......................  100                               
5147................................  Meats and Meat Products...............  100                               
5148................................  Fresh Fruits and Vegetables...........  100                               
5149................................  Groceries and Related Products, N.E.C.  100                               
5153................................  Grain and Field Beans.................  100                               
5154................................  Livestock.............................  100                               
5159................................  Farm-Product Raw Materials, N.E.C.....  100                               
5162................................  Plastics Materials and Basic Forms and  100                               
                                       Shapes.                                                                  
5169................................  Chemical and Allied Products, N.E.C...  100                               
5171................................  Petroleum Bulk Stations and Terminals.  100                               
5172................................  Petroleum and Petroleum Products        100                               
                                       Wholesalers, Except Bulk Stations and                                    
                                       Terminals.                                                               
5181................................  Beer and Ale..........................  100                               
5182................................  Wine and Distilled Alcoholic Beverages  100                               
5191................................  Farm Supplies.........................  100                               
5192................................  Books, Periodicals, and Newspapers....  100                               
5193................................  Flowers, Nursery Stock, and Florists'   100                               
                                       Supplies.                                                                
5194................................  Tobacco and Tobacco Products..........  100                               
5198................................  Paints, Varnishes, and Supplies.......  100                               
5199................................  Nondurable Goods, N.E.C...............  100                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                            Division G--Retail Trade                                            
                             (Not Applicable to Government procurement of supplies.                             
   The nonmanufacturer size standard of 500 employees shall be used for purposes of Government procurement of   
                                                   supplies.)                                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
 Major Group 52--Building Materials,                                                                            
 Hardware, Garden Supply, and Mobile                                                                            
            Home Dealers                                                                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5211................................  Lumber and Other Building Materials     $5.0                              
                                       Dealers.                                                                 
5231................................  Paint, Glass, and Wallpaper Stores....  $5.0                              
5251................................  Hardware Stores.......................  $5.0                              
5261................................  Retail Nurseries, Lawn and Garden       $5.0                              
                                       Supply Stores.                                                           
5271................................  Mobile Home Dealers...................  $9.5                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                   Major Group 53--General Merchandise Stores                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5311................................  Department Stores.....................  $20.0                             
5331................................  Variety Stores........................  $8.0                              
5399................................  Miscellaneous General Merchandise       $5.0                              
                                       Stores.                                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                           Major Group 54--Food Stores                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5411................................  Grocery Stores........................  $20.0                             
5421................................  Meat and Fish (Seafood) Markets,        $5.0                              
                                       Including Freezer Provisioners.                                          
5431................................  Fruit and Vegetable Markets...........  $5.0                              
5441................................  Candy, Nut, and Confectionery Stores..  $5.0                              
5451................................  Dairy Products Stores.................  $5.0                              
5461................................  Retail Bakeries.......................  $5.0                              
5499................................  Miscellaneous Food Stores.............  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                        Major Group 55--Automotive Dealers and Gasoline Service Stations                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5511................................  Motor Vehicle Dealers (New and Used)..  $21.0                             
5521................................  Motor Vehicle Dealers (Used Only).....  $17.0                             
5531................................  Auto and Home Supply Stores...........  $5.0                              
5541................................  Gasoline Service Stations.............  $6.5                              
5551................................  Boat Dealers..........................  $5.0                              
5561................................  Recreational Vehicle Dealers..........  $5.0                              
5571................................  Motorcycle Dealers....................  $5.0                              
5599................................  Automotive Dealers, N.E.C.............  $5.0                              
Except..............................  Aircraft Dealers, Retail..............  $7.5                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                  Major Group 56--Apparel and Accessory Stores                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5611................................  Men's and Boys' Clothing and Accessory  $6.5                              
                                       Stores.                                                                  

[[Page 392]]

                                                                                                                
5621................................  Women's Clothing Stores...............  $6.5                              
5632................................  Women's Accessory and Specialty Stores  $5.0                              
5641................................  Children's and Infants' Wear Stores...  $5.0                              
5651................................  Family Clothing Stores................  $6.5                              
5661................................  Shoe Stores...........................  $6.5                              
5699................................  Miscellaneous Apparel and Accessory     $5.0                              
                                       Stores.                                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                        Major Group 57--Home Furniture, Furnishings, and Equipment Stores                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5712................................  Furniture Stores......................  $5.0                              
5713................................  Floor Covering Stores.................  $5.0                              
5714................................  Drapery, Curtain, and Upholstery        $5.0                              
                                       Stores.                                                                  
5719................................  Miscellaneous Homefurnishings Stores..  $5.0                              
5722................................  Household Appliance Stores............  $6.5                              
5731................................  Radio, Television, and Consumer         $6.5                              
                                       Electronics Stores.                                                      
5734................................  Computer and Computer Software Stores.  $6.5                              
5735................................  Record and Prerecorded Tape Stores....  $5.0                              
5736................................  Musical Instrument Stores.............  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                   Major Group 58--Eating and Drinking Places                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5812................................  Eating Places.........................  $5.0                              
Except..............................  Food Service, Institutional...........  $15.0                             
5813................................  Drinking Places (Alcoholic Beverages).  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                      Major Group 59--Miscellaneous Retail                                      
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
5812................................  Drug Stores and Proprietary Stores....  $5.0                              
5821................................  Liquor Stores.........................  $5.0                              
5832................................  Used Merchandise Stores...............  $5.0                              
5841................................  Sporting Goods Stores and Bicycle       $5.0                              
                                       Shops.                                                                   
5842................................  Book Stores...........................  $5.0                              
5843................................  Stationery Stores.....................  $5.0                              
5844................................  Jewelry Stores........................  $5.0                              
5845................................  Hobby, Toy, and Game Shops............  $5.0                              
5846................................  Camera and Photographic Supply Stores.  $5.0                              
5847................................  Gift, Novelty, and Souvenir Shops.....  $5.0                              
5848................................  Luggage and Leather Goods Stores......  $5.0                              
5849................................  Sewing, Needlework, and Piece Goods     $5.0                              
                                       Stores.                                                                  
5861................................  Catalog and Mail-Order Houses.........  $18.5                             
5862................................  Automatic Merchandising Machine         $5.0                              
                                       Operators.                                                               
5863................................  Direct Selling Establishments.........  $5.0                              
5883................................  Fuel Oil Dealers......................  $9.0                              
5884................................  Liquefied Petroleum Gas (Bottled Gas)   $5.0                              
                                       Dealers...                                                               
5889................................  Fuel Dealers, N.E.C...................  $5.0                              
5892................................  Florists..............................  $5.0                              
5893................................  Tobacco Stores and Stands.............  $5.0                              
5894................................  News Dealers and Newsstands...........  $5.0                              
5895................................  Optical Goods Stores..................  $5.0                              
5899................................  Miscellaneous Retail Stores, N.E.C....  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                Division H--Finance, Insurance, and Real Estate                                 
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
     Major Group 60--Depository                                                                                 
            Institutions                                                                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6021................................  National Commercial Banks.............  $100 Million in Assets\7\         
6022................................  State Commercial Banks................  $100 Million in Assets\7\         
6029................................  Commercial Banks, N.E.C...............  $100 Million in Assets\7\         
6035................................  Savings Institutions, Federally         $100 Million in Assets\7\         
                                       Chartered.                                                               
6036................................  Savings Institutions, Not Federally     $100 Million in Assets\7\         
                                       Chartered.                                                               
6061................................  Credit Unions, Federally Chartered....  $100 Million in Assets\7\         
6062................................  Credit Unions, Not Federally Chartered  $100 Million in Assets\7\         
6081................................  Branches and Agencies of Foreign Banks  $100 Million in Assets\7\         
6082................................  Foreign Trade and International Banks.  $100 Million in Assets\7\         
6091................................  Nondeposit Trust Facilities...........  $5.0                              
6099................................  Functions Related to Depositor          $5.0                              
                                       Banking, N.E.C..                                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           

[[Page 393]]

                                                                                                                
                                    Major Group 61--Nondepository Institution                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6141................................  Personal Credit Institutions..........  $5.0                              
6153................................  Short-Term Business Credit              $5.0 *                            
                                       Institutions, Except Agriculture.                                        
6158................................  Miscellaneous Business Credit           $5.0                              
                                       Institutions.                                                            
6162................................  Mortgage Bankers and Loan               $5.0                              
                                       Correspondents.                                                          
6163................................  Loan Brokers..........................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                 Major Group 62--Security and Commodity Brokers, Dealers, Exchanges and Services                
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6211................................  Security Brokers, Dealers and           $5.0                              
                                       Flotation Companies.                                                     
6221................................  Commodity Contracts Brokers and         $5.0                              
                                       Dealers.                                                                 
6231................................  Security and Commodity Exchanges......  $5.0                              
6282................................  Investment Advice.....................  $5.0                              
6289................................  Services Allied With the Exchange of    $5.0                              
                                       Securities or Commodities, N.E.C..                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                       Major Group 63--Insurance Carriers                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6311................................  Life Insurance........................  $5.0                              
6321................................  Accident and Health Insurance.........  $5.0                              
6324................................  Hospital and Medical Service Plans....  $5.0                              
6331................................  Fire, Marine, and Casualty Insurance                                      
                                       1,500.                                                                   
6351................................  Surety Insurance......................  $5.0                              
6361................................  Title Insurance.......................  $5.0                              
6371................................  Pension, Health and Welfare Funds.....  $5.0                              
6399................................  Insurance Carriers, N.E.C.............  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                             Major Group 64--Insurance Agents, Brokers, and Service                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6411................................  Insurance Agents, Brokers, and Service  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                           Major Group 65--Real Estate                                          
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6512................................  Operators of Nonresidential Buildings.  $5.0                              
6513................................  Operators of Apartment Buildings......  $5.0                              
6514................................  Operators of Dwellings Other Than       $5.0                              
                                       Apartment Buildings.                                                     
6515................................  Operators of Residential Mobile Home    $5.0                              
                                       Sites,.                                                                  
Except..............................  Leasing of Building Space to Federal    $15.0 \8\                         
                                       Government by Owners.                                                    
6517................................  Lessors of Railroad Property..........  $5.0                              
6519................................  Lessors of Real Property, N.E.C.......  $5.0                              
6531................................  Real Estate Agents and Managers.......  $1.5 \6\                          
6541................................  Title Abstract Offices................  $5.0                              
6552................................  Land Subdividers and Developers,        $5.0                              
                                       Except Cemeteries.                                                       
6553................................  Cemetery Subdividers and Developers...  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                              Major Group 67--Holding and Other Investment Offices                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
6712................................  Offices of Bank Holding Companies.....  $5.0                              
6719................................  Offices of Holding Companies, N.E.C...  $5.0                              
6722................................  Management Investment Offices, Open-    $5.0                              
                                       End.                                                                     
6726................................  Unit Investment Trusts, Face-Amount     $5.0                              
                                       Certificate Offices, and Closed-End                                      
                                       Management Investment Offices.                                           
6732................................  Educational, Religious, and Charitable  $5.0                              
                                       Trusts.                                                                  
6733................................  Trusts, Except Educational, Religious,  $5.0                              
                                       and Charitable.                                                          
6792................................  Oil Royalty Traders...................  $5.0                              
6794................................  Patent Owners and Lessors.............  $5.0                              
6798................................  Real Estate Investment Trusts.........  $5.0                              
6799................................  Investors, N.E.C......................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                              Division I--Services                                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
   Major Group 70--Hotels, Rooming                                                                              
  Houses, Camps, and Other Lodging                                                                              
               Places                                                                                           
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7011................................  Hotels and Motels.....................  $5.0                              

[[Page 394]]

                                                                                                                
7021................................  Rooming and Boarding Houses...........  $5.0                              
7032................................  Sporting and Recreational Camps.......  $5.0                              
7033................................  Recreational Vehicle Parks and          $5.0                              
                                       Campsites.                                                               
7041................................  Organization Hotels and Lodging         $5.0                              
                                       Houses, on Membership Basis.                                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                        Major Group 72--Personal Services                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7211................................  Power Laundries, Family and Commercial  $10.5                             
7212................................  Garment Pressing, and Agents for        $5.0                              
                                       Laundries and Drycleaners.                                               
7213................................  Linen Supply..........................  $10.5                             
7215................................  Coin-Operated Laundries and             $5.0                              
                                       Drycleaning.                                                             
7216................................  Drycleaning Plants, Except Rug          $3.5                              
                                       Cleaning.                                                                
7217................................  Carpet and Upholstery Cleaning........  $3.5                              
7218................................  Industrial Launderers.................  $10.5                             
7219................................  Laundry and Garment Services, N.E.C...  $5.0                              
7221................................  Photographic Studios, Portrait........  $5.0                              
7231................................  Beauty Shops..........................  $5.0                              
7241................................  Barber Shops..........................  $5.0                              
7251................................  Shoe Repair Shops and Shoeshine         $5.0                              
                                       Parlors.                                                                 
7261................................  Funeral Service and Crematories.......  $5.0                              
7291................................  Tax Return Preparation Services.......  $5.0                              
7299................................  Miscellaneous Personal Services, N.E.C  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                        Major Group 73--Business Services                                       
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7311................................  Advertising Agencies..................  $5.0 \6\                          
7312................................  Outdoor Advertising Services..........  $5.0 \6\                          
7313................................  Radio, Television, and Publishers'      $5.0 \6\                          
                                       Advertising Representatives.                                             
7319................................  Advertising, N.E.C....................  $5.0 \6\                          
7322................................  Adjustment and Collection Services....  $5.0                              
7323................................  Credit Reporting Services.............  $5.0                              
7331................................  Direct Mail Advertising Services......  $5.0                              
7334................................  Photocopying and Duplicating Services.  $5.0                              
7335................................  Commercial Photography................  $5.0                              
7336................................  Commercial Art and Graphic Design.....  $5.0                              
7338................................  Secretarial and Court Reporting         $5.0                              
                                       Services.                                                                
7342................................  Disinfecting and Pest Control Services  $5.0                              
7349................................  Building Cleaning and Maintenance       $12.0                             
                                       Services, N.E.C.                                                         
7352................................  Medical Equipment Rental and Leasing..  $5.0                              
7353................................  Heavy Construction Equipment Rental     $5.0                              
                                       and Leasing.                                                             
7359................................  Equipment Rental and Leasing, N.E.C...  $5.0                              
7361................................  Employment Agencies...................  $5.0                              
7363................................  Help Supply Services..................  $5.0                              
7371................................  Computer Programming Services.........  $18.0                             
7372................................  Prepackaged Software..................  $18.0                             
7373................................  Computer Integrated Systems Design....  $18.0                             
7374................................  Computer Processing and Data            $18.0                             
                                       Preparation and Processing Services.                                     
7375................................  Information Retrieval Services........  $18.0                             
7376................................  Computer Facilities Management          $18.0                             
                                       Services.                                                                
7377................................  Computer Rental and Leasing...........  $18.0                             
7378................................  Computer Maintenance and Repair.......  $18.0                             
7379................................  Computer Related Services, N.E.C......  $18.0                             
7381................................  Detective, Guard, and Armored Car       $9.0                              
                                       Services.                                                                
7382................................  Security Systems Services.............  $9.0                              
7383................................  News Syndicates.......................  $5.0                              
7384................................  Photofinishing Laboratories...........  $5.0                              
7389................................  Business Services, N.E.C..............  $5.0                              
Except..............................  Map Drafting Services, Mapmaking        $3.5                              
                                       (Including Aerial) and                                                   
                                       Photogrammetric Mapping Services.                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                            Major Group 75--Automotive Repair, Services, and Parking                            
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7513................................  Truck Rental and Leasing, Without       $18.5                             
                                       Drivers.                                                                 
7514................................  Passenger Car Rental..................  $18.5                             
7515................................  Passenger Car Leasing.................  $18.5                             
7519................................  Utility Trailer and Recreational        $5.0                              
                                       Vehicle Rental.                                                          
7521................................  Automobile Parking....................  $5.0                              
7532................................  Top, Body, and Upholstery Repair Shops  $5.0                              
                                       and Paint Shops.                                                         

[[Page 395]]

                                                                                                                
7533................................  Automotive Exhaust System Repair Shops  $5.0                              
7534................................  Tire Retreading and Repair Shops......  $10.5                             
7536................................  Automotive Glass Replacement Shops....  $5.0                              
7537................................  Automotive Transmission Repair Shops..  $5.0                              
7538................................  General Automotive Repair Shops.......  $5.0                              
7539................................  Automotive Repair Shops, N.E.C........  $5.0                              
7542................................  Carwashes.............................  $5.0                              
7549................................  Automotive Services, Except Repair and  $5.0                              
                                       Carwashes.                                                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                  Major Group 76--Miscellaneous Repair Services                                 
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7622................................  Radio and Television Repair Shops.....  $5.0                              
7623................................  Refrigeration and Air-Conditioning      $5.0                              
                                       Service and Repair Shops.                                                
7629................................  Electrical and Electronic Repair        $5.0                              
                                       Shops, N.E.C..                                                           
7631................................  Watch, Clock, and Jewelry Repair......  $5.0                              
7641................................  Reupholstery and Furniture Repair.....  $5.0                              
7692................................  Welding Repair........................  $5.0                              
7694................................  Armature Rewinding Shops..............  $5.0                              
7699................................  Repair Shops and Related Services,      $5.0\9\                           
                                       N.E.C..                                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                         Major Group 78--Motion Pictures                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7812................................  Motion Picture and Video Tape           $21.5                             
                                       Production.                                                              
7819................................  Services Allied to Motion Picture       $21.5                             
                                       Production.                                                              
7822................................  Motion Picture and Video Tape           $21.5                             
                                       Distribution.                                                            
7829................................  Services Allied to Motion Picture       $5.0                              
                                       Distribution.                                                            
7832................................  Motion Picture Theaters, Except Drive-  $5.0                              
                                       In.                                                                      
7833................................  Drive-In Motion Picture Theaters......  $5.0                              
7841................................  Video Tape Rental.....................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                Major Group 79--Amusement and Recreation Services                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
7911................................  Dance Studios, Schools, and Halls.....  $5.0                              
7922................................  Theatrical Producers (Except Motion     $5.0                              
                                       Picture) and Miscellaneous Theatrical                                    
                                       Services.                                                                
7929................................  Bands, Orchestras, Actors, and Other    $5.0                              
                                       Entertainers and Entertainment Groups.                                   
7933................................  Bowling Centers.......................  $5.0                              
7941................................  Professional Sports Clubs and           $5.0                              
                                       Promoters.                                                               
7991................................  Physical Fitness Facilities...........  $5.0                              
7993................................  Coin-Operated Amusement Devices.......  $5.0                              
7996................................  Amusement Parks.......................  $5.0                              
7997................................  Membership Sports and Recreation Clubs  $5.0                              
7999................................  Amusement and Recreation Services,      $5.0                              
                                       N.E.C..                                                                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                         Major Group 80--Health Services                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8011................................  Offices and Clinics of Doctors of       $5.0                              
                                       Medicine.                                                                
8021................................  Offices and Clinics of Dentists.......  $5.0                              
8031................................  Offices and Clinics of Doctors of       $5.0                              
                                       Osteopathy.                                                              
8041................................  Offices and Clinics of Chiropractors..  $5.0                              
8042................................  Offices and Clinics of Optometrists...  $5.0                              
8043................................  Offices and Clinics of Podiatrists....  $5.0                              
8049................................  Offices and Clinics of Health           $5.0                              
                                       Practitioners, N.E.C.                                                    
8051................................  Skilled Nursing Care Facilities.......  $5.0                              
8052................................  Intermediate Care Facilities..........  $5.0                              
8059................................  Nursing and Personal Care Facilities,   $5.0                              
                                       N.E.C.                                                                   
8062................................  General Medical and Surgical Hospitals  $5.0                              
8063................................  Psychiatric Hospitals.................  $5.0                              
8069................................  Specialty Hospitals, Except             $5.0                              
                                       Psychiatric.                                                             
8071................................  Medical Laboratories..................  $5.0                              
8072................................  Dental Laboratories...................  $5.0                              
8082................................  Home Health Care Services.............  $5.0                              
8092................................  Kidney Dialysis Centers...............  $5.0                              
8093................................  Specialty Outpatient Facilities,        $5.0                              
                                       N.E.C..                                                                  
8099................................  Health and Allied Services, N.E.C.....  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           

[[Page 396]]

                                                                                                                
                                         Major Group 81--Legal Services                                         
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8111................................  Legal Services........................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                      Major Group 82--Educational Services                                      
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8211................................  Elementary and Secondary Schools......  $5.0                              
8221................................  Colleges, Universities, and             $5.0                              
                                       Professional Schools.                                                    
8222................................  Junior Colleges and Technical           $5.0                              
                                       Institutes.                                                              
8231................................  Libraries.............................  $5.0                              
8243................................  Data Processing Schools...............  $5.0                              
8244................................  Business and Secretarial Schools......  $5.0                              
8249................................  Vocational Schools, N.E.C.............  $5.0                              
8299................................  Schools and Educational Services,       $5.0                              
                                       N.E.C..                                                                  
8299................................  Flight Training Services..............  $18.5                             
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                         Major Group 83--Social Services                                        
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8322................................  Individual and Family Social Services.  $5.0                              
8331................................  Job Training and Vocational             $5.0                              
                                       Rehabilitation Services.                                                 
8351................................  Child Day Care Services...............  $5.0                              
8361................................  Residential Care......................  $5.0                              
8399................................  Social Services, N.E.C................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                  Major Group 84--Museums, Art Galleries, and Botanical and Zoological Gardens                  
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8412................................  Museums and Art Galleries.............  $5.0                              
8422................................  Arboreta and Botanical or Zoological    $5.0                              
                                       Gardens.                                                                 
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                    Major Group 86--Membership Organizations                                    
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8611................................  Business Associations.................  $5.0                              
8621................................  Professional Membership Organizations.  $5.0                              
8631................................  Labor Unions and Similar Labor          $5.0                              
                                       Organizations.                                                           
8641................................  Civic, Social, and Fraternal            $5.0                              
                                       Associations.                                                            
8651................................  Political Organizations...............  $5.0                              
8661................................  Religious Organizations...............  $5.0                              
8699................................  Membership Organizations, N.E.C.......  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                     Major Group 87--Engineering, Accounting, Research, and Related Services                    
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8711................................  Engineering Services..................  $2.5                              
Except..............................  Military and Aerospace Equipment and    $20.0                             
                                       Military Weapons.                                                        
Except..............................  Contracts and Subcontracts for          $20.0                             
                                       Engineering Services Awarded Under                                       
                                       the National Energy Policy Act of                                        
                                       1992.                                                                    
Except..............................  Marine Engineering and Naval            $13.5                             
                                       Architecture.                                                            
8712................................  Architectural Services................  $2.5                              
8713................................  Surveying Services....................  $2.5                              
8721................................  Accounting, Auditing, and Bookkeeping   $6.0                              
                                       Services.                                                                
8731................................  Commercial Physical and Biological      500 \10\                          
                                       Research.                                                                
Except..............................  Aircraft..............................  1,500                             
Except..............................  Aircraft Parts, and Auxiliary           1,000                             
                                       Equipment, and Aircraft Engines and                                      
                                       Engine Parts.                                                            
Except..............................  Space Vehicles and Guided Missiles,     1,000                             
                                       their Propulsion Units, their                                            
                                       Propulsion Units Parts, and their                                        
                                       Auxiliary Equipment and Parts.                                           
8732................................  Commercial Economic, Sociological, and  $5.0                              
                                       Educational Research.                                                    
8733................................  Noncommercial Research Organizations..  $5.0                              
8734................................  Testing Laboratories..................  $5.0                              
8741................................  Management Services...................  $5.0                              
Except..............................  Conference Management Services........  $5.06                             
8742................................  Management Consulting Services........  $5.0                              
8743................................  Public Relations Services.............  $5.0                              
8744................................  Facilities Support Management Services  $5.0 \11\                         
Except..............................  Base Maintenance......................  $20.0 \12\                        
Except..............................  Environmental Remediation Services....  500 \13\                          

[[Page 397]]

                                                                                                                
8748................................  Business Consulting Services, N.E.C...  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                               Major Group 89--Services, not Elsewhere Classified                               
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
8999................................  Services, N.E.C.......................  $5.0                              
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
                                   Division K--Nonclassifiable Establishments                                   
                                                                                                                
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½                                                                           
9999................................  Nonclassifiable Establishments........  $5.0                              
----------------------------------------------------------------------------------------------------------------
\1\ SIC code 1629--Dredging: To be considered small for purposes of Government procurement, a firm must perform 
  at least 40 percent of the volume dredged with its own equipment or equipment owned by another small dredging 
  concern.                                                                                                      
\2\ SIC Division D--Manufacturing: For rebuilding machinery or equipment on a factory basis, or equivalent, use 
  the SIC code for a newly manufactured product. Concerns performing major rebuilding or overhaul activities do 
  not necessarily have to meet the criteria for being a ``manufacturer'' although the activities may be         
  classified under a manufacturing SIC code. Ordinary repair services or preservation are not considered        
  rebuilding.                                                                                                   
\3\ SIC code 2033: For purposes of Government procurement for food canning and preserving, the standard of 500  
  employees excludes agricultural labor as defined in 3306(k) of the Internal Revenue Code, 26 U.S.C. 3306(k).  
\4\ SIC code 2911: For purposes of Government procurement, the firm may not have more than 1,500 employees nor  
  more than 75,000 barrels per day capacity of petroleum-based inputs, including crude oil or bona fide         
  feedstocks. Capacity includes owned or leased facilities as well as facilities under a processing agreement or
  an arrangement such as an exchange agreement or a throughput. The total product to be delivered under the     
  contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide      
  feedstocks.                                                                                                   
\5\ SIC code 3011: For purposes of Government procurement, a firm is small for bidding on a contract for        
  pneumatic tires within Census Classification codes 30111 and 30112, provided that:                            
(1) The value of tires within Census Classification codes 30111 and 30112 which it manufactured in the United   
  States during the previous calendar year is more than 50 percent of the value of its total worldwide          
  manufacture,                                                                                                  
(2) the value of pneumatic tires within Census Classification codes 30111 and 30112 comprising its total        
  worldwide manufacture during the preceding calendar year was less than 5 percent of the value of all such     
  tires manufactured in the United States during that period, and                                               
(3) the value of the principal product which it manufactured or otherwise produced, or sold worldwide during the
  preceding calendar year is less than 10 percent of the total value of such products manufactured or otherwise 
  produced or sold in the United States during that period.                                                     
\6\ SIC codes 4724, 6531, 7311, 7312, 7313, 7319, and 8741 (part): As measured by total revenues, but excluding 
  funds received in trust for an unaffiliated third party, such as bookings or sales subject to commissions. The
  commissions received are included as revenue.                                                                 
\7\ A financial institution's assets are determined by averaging the assets reported on its four quarterly      
  financial statements for the preceding year.                                                                  
Assets for the purposes of this size standard means the assets defined according to the Federal Financial       
  Institutions Examination Council 034 call report form.                                                        
\8\ SIC code 6515: Leasing of building space to the Federal Government by Owners: For Government procurement, a 
  size standard of $15.0 million in gross receipts applies to the owners of building space leased to the Federal
  Government. The standard does not apply to an agent.                                                          
\9\ SIC codes 7699 and 3728: Contracts for the rebuilding or overhaul of aircraft ground support equipment on a 
  contract basis are classified under SIC code 3728.                                                            
\10\ SIC code 8731: For research and development contracts requiring the delivery of a manufactured product, the
  appropriate size standard is that of the manufacturing industry.                                              
(1) Research and Development means laboratory or other physical research and development. It does not include   
  economic, educational, engineering, operations, systems, or other nonphysical research; or computer           
  programming, data processing, commercial and/or medical laboratory testing.                                   
(2) For purposes of the Small Business Innovation Research (SBIR) program only, a different definition has been 
  established by law. See 121.701 of these regulations.                                                         
(3) Research and development for guided missiles and space vehicles includes evaluations and simulation, and    
  other services requiring thorough knowledge of complete missiles and spacecraft.                              
\11\ Facilities Management, a component of SIC code 8744, includes establishments, not elsewhere classified,    
  which provide overall management and the personnel to perform a variety of related support services in        
  operating a complete facility in or around a specific building, or within another business or Government      
  establishment. Facilities management means furnishing three or more personnel supply services which may       
  include, but are not limited to, secretarial services, typists, telephone answering, reproduction or          
  mimeograph service, mailing service, financial or business management, public relations, conference planning, 
  travel arrangements, word processing, maintaining files and/or libraries, switchboard operation, writers,     
  bookkeeping, minor office equipment maintenance and repair, or use of information systems (not programming).  
\12\ SIC code 8744: (1) If one of the activities of base maintenance, as defined below, can be identified with a
  separate industry and that activity (or industry) accounts for 50 percent or more of the value of an entire   
  contract, then the proper size standard is that of the particular industry, and not the base maintenance size 
  standard.                                                                                                     
(2) ``Base Maintenance'' requires the performance of three or more separate activities in the areas of service  
  or special trade construction industries. If services are performed, these activities must each be in a       
  separate SIC code including, but not limited to, Janitorial and Custodial Service, Fire Prevention Service,   
  Messenger Service, Commissary Service, Protective Guard Service, and Grounds Maintenance and Landscaping      
  Service. If the contract requires the use of special trade contractors (plumbing, painting, plastering,       
  carpentry, etc.), all such special trade construction activities are considered a single activity and         
  classified as Base Housing Maintenance. Since Base Housing Maintenance is only one activity, two additional   
  activities are required for a contract to be classified as ``Base Maintenance.''                              
\13\ SIC code 8744: (1) For SBA assistance as a small business concern in the industry of Environmental         
  Remediation Services, other than for Government procurement, a concern must be engaged primarily in furnishing
  a range of services for the remediation of a contaminated environment to an acceptable condition including,   
  but not limited to, preliminary assessment, site inspection, testing, remedial investigation, feasibility     
  studies, remedial design, containment, remedial action, removal of contaminated materials, storage of         
  contaminated materials and security and site closeouts. If one of such activities accounts for 50 percent or  
  more of a concern's total revenues, employees, or other related factors, the concern's primary industry is    
  that of the particular industry and not the Environmental Remediation Services Industry.                      

[[Page 398]]

                                                                                                                
(2) For purposes of classifying a Government procurement as Environmental Remediation Services, the general     
  purpose of the procurement must be to restore a contaminated environment and also the procurement must be     
  composed of activities in three or more separate industries with separate SIC codes or, in some instances     
  (e.g., engineering), smaller sub-components of SIC codes with separate, distinct size standards. These        
  activities may include, but are not limited to, separate activities in industries such as: Heavy Construction;
  Special Trade Construction; Engineering Services; Architectural Services; Management Services; Refuse Systems;
  Sanitary Services, Not Elsewhere Classified; Local Trucking Without Storage; Testing Laboratories; and        
  Commercial, Physical and Biological Research. If any activity in the procurement can be identified with a     
  separate SIC code, or component of a code with a separate distinct size standard, and that industry accounts  
  for 50 percent or more of the value of the entire procurement, then the proper size standard is the one for   
  that particular industry, and not the Environmental Remediation Service size standard.                        

[48 FR 42240, Sept. 19, 1983 as amended at 51 FR 2652, Jan. 17, 1986; 51 
FR 27489, July 31, 1986; 51 FR 31426, Sept. 3, 1986; 52 FR 21887, June 
9, 1987; 52 FR 30076, Aug. 12, 1987; 53 FR 661, Jan. 11, 1988; 53 FR 
34227, Sept. 2, 1988; 53 FR 43390, Oct. 26, 1988; 54 FR 5055, Jan. 31, 
1989; 54 FR 13023, Mar. 29, 1989; 54 FR 25062, June 12, 1989; 55 FR 
3882, Feb. 5, 1990; 55 FR 25529, June 21, 1990; 57 FR 60580, 60610, Dec. 
21, 1992; 59 FR 11376, 11387, Mar. 10, 1994; 59 FR 17723, Apr. 14, 1994; 
60 FR 34756, July 3, 1995; 61 FR 31622, June 20, 1996; 61 FR 39208, July 
26, 1996; 61 FR 67410, Dec. 20, 1996]



                         Subpart 19.2--Policies



19.201  General policy.

    (a) It is the policy of the Government to provide maximum 
practicable opportunities in its acquisitions to small business 
concerns, small disadvantaged business concerns, and women-owned small 
business concerns. Such concerns shall also have the maximum practicable 
opportunity to participate as subcontractors in the contracts awarded by 
any executive agency, consistent with efficient contract performance. 
The Small Business Administration (SBA) counsels and assists small 
business concerns and assists contracting personnel to ensure that a 
fair proportion of contracts for supplies and services is placed with 
small business.
    (b) Heads of contracting activities are responsible for effectively 
implementing the small business programs within their activities, 
including achieving program goals. They are to ensure that contracting 
and technical personnel maintain knowledge of small, small disadvantaged 
and women-owned small business program requirements and take all 
reasonable action to increase participation in their activities' 
contracting processes by these businesses.
    (c) The Small Business Act requires each agency with contracting 
authority to establish an Office of Small and Disadvantaged Business 
Utilization (see section (k) of the Small Business Act). Management of 
the office shall be the responsibility of an officer or employee of the 
agency who shall, in carrying out the purposes of the Act--
    (1) Be known as the Director of Small and Disadvantaged Business 
Utilization;
    (2) Be appointed by the agency head;
    (3) Be responsible to and report directly to the agency head or the 
deputy to the agency head;
    (4) Be responsible for the agency carrying out the functions and 
duties in sections 8 and 15 of the Small Business Act;
    (5) Assist small business concerns in obtaining payments under their 
contracts, late payment, interest penalties, or information on 
contractual payment provisions;
    (6) Have supervisory authority over agency personnel to the extent 
that their functions and duties relate to sections 8 and 15 of the Small 
Business Act;
    (7) Assign a small business technical advisor to each contracting 
activity within the agency to which the SBA has assigned a 
representative (see 19.402)--
    (i) Who shall be a full-time employee of the contracting activity, 
well qualified, technically trained, and familiar with the supplies or 
services contracted for by the activity; and
    (ii) Whose principal duty is to assist the SBA's assigned 
representative in performing functions and duties relating to sections 8 
and 15 of the Small Business Act.

[[Page 399]]

    (8) Cooperate and consult on a regular basis with the SBA in 
carrying out the agency's functions and duties in sections 8 and 15 of 
the Small Business Act.
    (9) Make recommendations in accordance with agency regulations as to 
whether a particular acquisition should be awarded under Subpart 19.5 as 
a set-aside, or under Subpart 19.8 as a Section 8(a) award.
    (d) Small Business Specialists shall be appointed and act in 
accordance with agency regulations.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 27562, July 3, 1985; 
51 FR 27116, July 29, 1986; 54 FR 13333, Mar. 31, 1989; 54 FR 25062, 
June 12, 1989; 60 FR 48260, Sept. 18, 1995; 62 FR 44820, Aug. 22, 1997]



19.202  Specific policies.

    In order to further the policy in 19.201(a), contracting officers 
shall comply with the specific policies listed in this section and shall 
consider recommendations of the agency Director of Small and 
Disadvantaged Business Utilization, or the Director's designee, as to 
whether a particular acquisition should be awarded under Subpart 19.5 or 
19.8. The contracting officer shall document the contract file whenever 
the Director's recommendations are not accepted.
[54 FR 25062, June 12, 1989, as amended at 60 FR 48260, Sept. 18, 1995]



19.202-1  Encouraging small business participation in acquisitions.

    Small business concerns shall be afforded an equitable opportunity 
to compete for all contracts that they can perform to the extent 
consistent with the Government's interest. When applicable, the 
contracting officer shall take the following actions:
    (a) Divide proposed acquisitions of supplies and services (except 
construction) into reasonably small lots (not less than economic 
production runs) to permit offers on quantities less than the total 
requirement.
    (b) Plan acquisitions such that, if practicable, more than one small 
business concern may perform the work, if the work exceeds the amount 
for which a surety may be guaranteed by SBA against loss under 15 U.S.C. 
694b.
    (c) Ensure that delivery schedules are established on a realistic 
basis that will encourage small business participation to the extent 
consistent with the actual requirements of the Government.
    (d) Encourage prime contractors to subcontract with small business 
concerns (see subpart 19.7).
    (e)(1) Provide a copy of the proposed acquisition package to the SBA 
procurement center representative at least 30 days prior to the issuance 
of the solicitation if--
    (i) The proposed acquisition is for supplies or services currently 
being provided by a small business and the proposed acquisition is of a 
quantity or estimated dollar value, the magnitude of which makes it 
unlikely that small businesses can compete for the prime contract, or
    (ii) The proposed acquisition is for construction and seeks to 
package or consolidate discrete construction projects and the magnitude 
of this consolidation makes it unlikely that small businesses can 
compete for the prime contract.
    (2) The contracting officer shall also provide a statement 
explaining why the--
    (i) Proposed acquisition cannot be divided into reasonably small 
lots (not less than economic production runs) to permit offers on 
quantities less than the total requirement;
    (ii) Delivery schedules cannot be established on a realistic basis 
that will encourage small business participation to the extent 
consistent with the actual requirements of the Government;
    (iii) Proposed acquisition cannot be structured so as to make it 
likely that small businesses can compete for the prime contract; or
    (iv) Consolidated construction project cannot be acquired as 
separate discrete projects.
    (3) The 30-day notification process shall occur concurrently with 
other processing steps required prior to the issuance of the 
solicitation.
    (4) If the contracting officer rejects the SBA procurement center 
representative's recommendation, made in accordance with 19.402(c)(2), 
the contracting officer shall document the basis for

[[Page 400]]

the rejection and notify the SBA procurement center representative in 
accordance with 19.505.
[48 FR 42240, Sept. 19, 1983, as amended at 56 FR 67132, Dec. 27, 1991; 
57 FR 60581, Dec. 21, 1992]



19.202-2  Locating small business sources.

    The contracting officer shall, to the extent practicable, encourage 
maximum participation by small business concerns, small disadvantaged 
business concerns, and women-owned small business concerns in 
acquisitions by taking the following actions:
    (a) Include on mailing lists all established and potential small 
business sources, including those located in labor surplus areas, if the 
concerns have submitted acceptable applications or appear from other 
representations to be qualified small business concerns.
    (b) Before issuing solicitations, make every reasonable effort to 
find additional small business concerns, unless lists are already 
excessively long and only some of the concerns on the list will be 
solicited. This effort should include contacting the agency SBA 
procurement center representative, or if there is none, the SBA.
    (c) Publicize solicitations and contract awards in the ``Commerce 
Business Daily'' (see subparts 5.2 and 5.3).



19.202-3  Equal low bids.

    In the event of equal low bids (see 14.408-6), awards shall be made 
first to small business concerns which are also labor surplus area 
concerns, and second to small business concerns which are not also labor 
surplus area concerns.
[60 FR 48261, Sept. 18, 1995]



19.202-4  Solicitation.

    The contracting officer shall encourage maximum response to 
solicitations by small business, small disadvantaged business concerns, 
and women-owned small business concerns by taking the following actions:
    (a) Allow the maximum amount of time practicable for the submission 
of offers.
    (b) Furnish specifications, plans, and drawings with solicitations, 
or furnish information as to where they may be obtained or examined.
    (c) Send solicitations to (1) all small business concerns on the 
solicitation mailing list, or (2) a pro rata number of small business 
concerns when less than a complete list is used.
    (d) Provide to any small business concern, upon its request, a copy 
of bid sets and specifications with respect to any contract to be let, 
the name and telephone number of an agency contact to answer questions 
related to such prospective contract and adequate citations to each 
major Federal law or agency rule with which such business concern must 
comply in performing such contract other than laws or agency rules with 
which the small business must comply when doing business with other than 
the Government.



19.202-5  Data collection and reporting requirements.

    Agencies shall measure the extent of small business participation in 
their acquisition programs by taking the following actions:
    (a) Require each prospective contractor to represent whether it is a 
small business, small disadvantaged business or women-owned small 
business (see the provision at 52.219-1, Small Business Program 
Representations).
    (b) Accurately measure the extent of participation by small, small 
disadvantaged, and women-owned small businesses in Government 
acquisitions in terms of the total value of contracts placed during each 
fiscal year, and report data to the SBA at the end of each fiscal year 
(see Subpart 4.6).
[48 FR 42240, Sept. 19, 1983, as amended at 60 FR 48261, Sept. 18, 1995]



19.202-6  Determination of fair market price.

    Agencies shall determine the fair market price of small business 
set-aside and 8(a) contracts as follows:
    (a) For total and partial small business set-aside contracts, the 
fair market price shall be the price achieved in accordance with the 
reasonable price guidelines in 15.405.
    (b) For 8(a) contracts, both with respect to meeting the requirement 
at 19.806(b) and in order to accurately estimate the current fair market 
price,

[[Page 401]]

contracting officers shall follow the procedures at 19.807.
[52 FR 38189, Oct. 14, 1987, as amended at 53 FR 43390, Oct. 26, 1988; 
54 FR 46005, Oct. 31, 1989; 62 FR 51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
19.202-6, in paragraph (a), ``15.805-2'' was amended to read ``15.405'', 
effective Oct. 10, 1997.



    Subpart 19.3--Determination of Status as a Small Business Concern



19.301  Representation by the offeror.

    (a) To be eligible for award as a small business, an offeror must 
represent in good faith that it is a small business at the time of its 
written representation. An offeror may represent that it is a small 
business concern in connection with a specific solicitation if it meets 
the definition of a small business concern applicable to the 
solicitation and has not been determined by the Small Business 
Administration (SBA) to be other than a small business.
    (b) The contracting officer shall accept an offeror's representation 
in a specific bid or proposal that it is a small business unless (1) 
another offeror or interested party challenges the concern's small 
business representation or (2) the contracting officer has a reason to 
question the representation. Challenges of and questions concerning a 
specific representation shall be referred to the SBA in accordance with 
19.302.
    (c) An offeror's representation that it is a small business is not 
binding on the SBA. If an offeror's small business status is challenged, 
the SBA will evaluate the status of the concern and make a 
determination, which will be binding on the contracting officer, as to 
whether the offeror is a small business. A concern cannot become 
eligible for a specific award by taking action to meet the definition of 
a small business concern after the SBA has determined that it is not a 
small business.
    (d) If the SBA determines that the status of a concern as a ``small 
business,'' a ``small disadvantaged business'' or a ``women-owned small 
business'' has been misrepresented in order to obtain a set-aside 
contract, an 8(a) subcontract, a subcontract that is to be included as 
part or all of a goal contained in a subcontracting plan, or a prime or 
subcontract to be awarded as a result, or in furtherance of any other 
provision of Federal law that specifically references Section 8(d) of 
the Small Business Act for a definition of program eligibility, the SBA 
may take action as specified in Section 16(d) of the Act. If the SBA 
declines to take action, the agency may initiate the process. The SBA's 
regulations on penalties for misrepresentations and false statements are 
contained in 13 CFR 124.6.
[48 FR 42240, Sept. 19, 1983, as amended at 55 FR 3882, Feb. 5, 1990; 60 
FR 48261, Sept. 18, 1995; 62 FR 236, Jan. 2, 1997]



19.302  Protesting a small business representation.

    (a) Any offeror or other interested party may protest the small 
business representation of an offeror in a specific offer.
    (b) Any time after offers are opened, the contracting officer may 
question the small business representation of any offeror in a specific 
offer by filing a contracting officer's protest (see paragraph (c) 
below).
    (c) (1) Any contracting officer who receives a protest, whether 
timely or not, or who, as the contracting officer, wishes to protest the 
small business representation of an offeror, shall promptly forward the 
protest to the SBA Area Office for the geographical area where the 
principal office of the concern in question is located.
    (2) The protest, or confirmation if the protest was initiated 
orally, shall be in writing and shall contain the basis for the protest 
with specific, detailed evidence to support the allegation that the 
offeror is not small. The SBA will dismiss any protest that does not 
contain specific grounds for the protest.
    (d) In order to affect a specific solicitation, a protest must be 
timely. SBA's regulations on timeliness are contained in 13 CFR 121.10.
    (1) To be timely, a protest by any concern or other interested party 
must be received by the contracting officer (see (i) and (ii) of this 
section by the close of business of the 5th business

[[Page 402]]

day after bid opening (in sealed bid acquisitions) or receipt of the 
special notification from the contracting officer that identifies the 
apparently successful offeror (in negotiated acquisitions) (see 
15.503(a)(2)).
    (i) A protest may be made orally if it is confirmed in writing 
either within the 5-day period or by letter postmarked no later than 1 
day after the oral protest.
    (ii) A protest may be made in writing if it is delivered to the 
contracting officer by hand, telegram, or letter within the 5-day 
period.
    (2) A contracting officer's protest is always considered timely 
whether filed before or after award.
    (3) A protest under a Multiple Award Schedule will be timely if 
received by SBA at any time prior to the expiration of the contract 
period, including renewals.
    (e) Upon receipt of a protest from or forwarded by the Contracting 
Office, the SBA will--
    (1) Notify the contracting officer and the protestant of the date it 
was received, and that the size of the concern being challenged is under 
consideration by the SBA; and
    (2) Furnish to the concern whose representation is being protested a 
copy of the protest and a blank SBA Form 355, Application for Small 
Business Determination, by certified mail, return receipt requested.
    (f) Within 3 business days after receiving a copy of the protest and 
the form, the challenged offeror must file with the SBA a completed SBA 
Form 355 and a statement answering the allegations in the protest, and 
furnish evidence to support its position. If the offeror does not submit 
the required material within the 3 business days or another period of 
time granted by the SBA, the SBA may assume that the disclosure would be 
contrary to the offeror's interests.
    (g)(1) Within 10 business days after receiving a protest, the 
challenged offeror's response, and other pertinent information, the SBA 
will determine the size status of the challenged concern and notify the 
contracting officer, the protestant, and the challenged offeror of its 
decision by certified mail, return receipt requested.
    (2) The SBA Area Director will determine the small business status 
of the questioned bidder or offeror and notify the contracting officer 
and the bidder or offeror of the determination. Award may be made on the 
basis of that determination. This determination is final unless it is 
appealed in accordance with paragraph (i) below, and the contracting 
officer is notified of the appeal before award. If an award was made 
before the time the contracting officer received notice of the appeal, 
the contract shall be presumed to be valid.
    (h)(1) After receiving a protest involving an offeror being 
considered for award, the contracting officer shall not award the 
contract until (i) the SBA has made a size determination or (ii) 10 
business days have expired since SBA's receipt of a protest, whichever 
occurs first; however, award shall not be withheld when the contracting 
officer determines in writing that an award must be made to protect the 
public interest.
    (2) After the 10-day period has expired, the contracting officer 
may, when practical, continue to withhold award until the SBA's 
determination is received, unless further delay would be disadvantageous 
to the Government.
    (3) Whenever an award is made before the receipt of SBA's size 
determination, the contracting officer shall notify SBA that the award 
has been made.
    (4) If a protest is received that challenges the small business 
status of an offeror not being considered for award, the contracting 
officer is not required to suspend contracting action. The contracting 
officer shall forward the protest to the SBA (see 19.302(c)(1)) with a 
notation that the concern is not being considered for award, and shall 
notify the protestant of this action.
    (i) An appeal from an SBA size determination may be filed by (1) any 
concern or other interested party whose protest of the small business 
representation of another concern has been denied by an SBA Area 
Director, (2) any concern or other interested party that has been 
adversely affected by an Area Director's decision, or (3) the SBA 
Associate Administrator for the SBA program involved. The appeal must be 
filed with the Office of Hearings and

[[Page 403]]

Appeals, Small Business Administration, Washington, DC 20416, within the 
time limits and in strict accordance with the procedures contained in 13 
CFR 121.1001. The SBA will inform the contracting officer of its ruling 
on the appeal. The SBA decision, if received before award, will apply to 
the pending acquisition. SBA rulings received after award shall not 
apply to that acquisition.
    (j) A protest which is not timely, even though received before 
award, shall be forwarded to the Small Business Administration area 
office (see 19.302(c)(1) of this section), with a notation on it that 
the protest is not timely. The protestant shall be notified that the 
protest cannot be considered on the instant acquisition but has been 
referred to SBA for its consideration in any future actions. A protest 
received by a contracting officer after award of a contract shall be 
forwarded to the Small Business Administration area office with a 
notation that award has been made. The protestant shall be notified that 
the award has been made and that the protest has been forwarded to SBA 
for its consideration in future actions.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2664, Jan. 17, 1986; 60 FR 42656, Aug. 
16, 1995; 61 FR 69289, Dec. 31, 1996; 62 FR 44820, Aug. 22, 1997; 62 FR 
51270, Sept. 30, 1997]

    Effective Date Note:  At 62 FR 51270, Sept. 30, 1997, in section 
19.302, in paragraph (d)(1), ``15.1003(a)(2)'' was amended to read 
``15.503(a)(2)'', effective Oct. 10, 1997.



19.303  Determining product or service classifications.

    (a) The contracting officer shall determine the appropriate standard 
industrial classification code and related small business size standard 
and include them in solicitations above the micro-purchase threshold.
    (b) If different products or services are required in the same 
solicitation, the solicitation shall identify the appropriate small 
business size standard for each product or service.
    (c) The contracting officer's determination is final unless appealed 
as provided below.
    (1) If the solicitation period is longer than 30 days, the appeal 
must be filed not less than 10 business days before the bid opening or 
proposal submission date. If the solicitation period is 30 days or is 
shorter than 30 days, the appeal must be filed not less than 5 business 
days before the bid opening or proposal submission date.
    (2) The appeal shall be in writing and shall be addressed to the 
Office of Hearings and Appeals, Small Business Administration, 
Washington, DC 20416. No particular form is prescribed for the appeal. 
However, time limits and procedures set forth in SBA's regulations at 13 
CFR 121.11 are strictly enforced. The appellant shall submit an original 
and one legible copy of the appeal. In the case of telegraphic appeals, 
the telegraphic notice shall be confirmed by the next day mailing of a 
written appeal, in duplicate. By signing the submission, a party or its 
attorney attests that the statements and allegations in the submission 
are true to the best of its knowledge, and that the submission is not 
being filed for the purpose of delay or harassment. The appeal shall 
include--
    (i) The substance and date of the determination being appealed;
    (ii) The number and date of the solicitation, and the name, address, 
and telephone number of the contracting officer;
    (iii) The reasons why the contracting officer's determination is 
alleged to be erroneous;
    (iv) Documentary evidence to support the allegation;
    (v) The name, address, and telephone number of the appellant; and
    (vi) A statement acknowledging that copies of the appeal have been 
provided the contracting officer.
    (3) The Office of Hearings and Appeals will notify the contracting 
officer of the date it received the appeal and the docket number 
assigned. The contracting officer's response, if any, to the appeal must 
include appropriate argument and evidence, and must be filed with the 
Office of Hearings and Appeals no later than 5 business days after 
receipt of the appeal. The Office of Hearings and Appeals, if possible, 
will inform the contracting officer of its ruling on the appeal before 
the end of the solicitation period. SBA rulings received after the due 
date shall not

[[Page 404]]

apply to the pending acquisition, but shall apply to future acquisitions 
of the product or service.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
55 FR 38516, Sept. 18, 1990; 55 FR 52791, Dec. 21, 1990; 60 FR 34756, 
July 3, 1995; 61 FR 39198, July 26, 1996; 62 FR 236, Jan. 2, 1997]



19.304  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the provision at 52.219-1, 
Small Business Program Representations, in solicitations exceeding the 
micro-purchase threshold when the contract is to be performed inside the 
United States, its territories or possessions, Puerto Rico, the Trust 
Territory of the Pacific Islands, or the District of Columbia.
    (b) When contracting by sealed bidding, the contracting officer 
shall insert the provision at 52.219-2, Equal Low Bids, in solicitations 
and contracts when the contract is to be performed inside the United 
States, its territories or possessions, Puerto Rico, the Trust Territory 
of the Pacific Islands, or the District of Columbia.
[60 FR 48261, Sept. 18, 1995]



    Subpart 19.4--Cooperation With the Small Business Administration



19.401  General.

    (a) The Small Business Act is the authority under which the Small 
Business Administration (SBA) and agencies consult and cooperate with 
each other in formulating policies to ensure that small business 
interests will be recognized and protected.
    (b) The Director of Small and Disadvantaged Business Utilization 
serves as the agency focal point for interfacing with SBA.
[48 FR 42240, Sept. 19, 1983, as amended at 60 FR 48261, Sept. 18, 1995]



19.402  Small Business Administration procurement center representatives.

    (a) The SBA may assign one or more procurement center 
representatives to any contracting activity or contract administration 
office to carry out SBA policies and programs. Assigned SBA procurement 
center representatives are required to comply with the contracting 
agency's directives governing the conduct of contracting personnel and 
the release of contract information. The SBA must obtain for its 
procurement center representatives security clearances required by the 
contracting agency.
    (b) Upon their request and subject to applicable acquisition and 
security regulations, contracting officers shall give SBA procurement 
center representatives access to all reasonably obtainable contract 
information that is directly pertinent to their official duties.
    (c) The duties assigned by SBA to its procurement center 
representatives include the following:
    (1) Reviewing proposed acquisitions to recommend (i) the setting 
aside of selected acquisitions not unilaterally set aside by the 
contracting officer, (ii) new qualified small, small disadvantaged and 
women-owned small business sources, and (iii) breakout of components for 
competitive acquisitions.
    (2) Reviewing proposed acquisition packages provided in accordance 
with 19.202-1(e). If the SBA procurement center representative believes 
that the acquisition, as proposed, makes it unlikely that small 
businesses can compete for the prime contract, the representative shall 
recommend any alternate contracting method that the representative 
reasonably believes will increase small business prime contracting 
opportunities. The recommendation shall be made to the contracting 
officer within 15 days after receipt of the package.
    (3) Recommending concerns for inclusion on solicitation mailing 
lists or on a list of concerns to be solicited in a specific 
acquisition.
    (4) Appealing to the chief of the contracting office any contracting 
officer's determination not to solicit a concern recommended by the SBA 
for a particular acquisition, when not doing so results in no small 
business being solicited.
    (5) Conducting periodic reviews of the contracting activity to which 
assigned to ascertain whether it is complying with the small business 
policies in this regulation.
    (6) Sponsoring and participating in conferences and training 
designed to

[[Page 405]]

increase small business participation in the contracting activities of 
the office.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 19715, May 30, 1986; 
56 FR 67132, Dec. 27, 1991; 60 FR 48261, Sept. 18, 1995]



19.403  Small Business Administration breakout procurement center representatives.

    (a) The SBA is required by section 403 of Pub. L. 98-577 to assign a 
breakout procurement center representative to each major procurement 
center. A major procurement center means a procurement center that, in 
the opinion of the administrator, purchases substantial dollar amounts 
of other than commercial items, and which has the potential to incur 
significant savings as a result of the placement of a breakout 
procurement representative. The SBA breakout procurement center 
representative is an advocate for (1) the appropriate use of full and 
open competition, and (2) the breakout of items, when appropriate and 
while maintaining the integrity of the system in which such items are 
used. The SBA breakout procurement center representative is in addition 
to the SBA procurement center representative (see 19.402). When an SBA 
breakout procurement center representative is assigned, the SBA is 
required to assign at least two collocated small business technical 
advisors. Assigned SBA breakout procurement center representatives and 
technical advisors are required to comply with the contracting agency's 
directives governing the conduct of contracting personnel and the 
release of contract information. The SBA must obtain for its breakout 
procurement center representatives and technical advisors security 
clearances required by the contracting agency.
    (b) Contracting officers shall comply with 19.402(b) in their 
relationships with SBA breakout procurement center representatives and 
SBA small business technical advisors.
    (c) The SBA breakout procurement center representative is authorized 
to--
    (1) Attend any provisioning conference or similar evaluation session 
during which determinations are made as to whether requirements are to 
be acquired using other than full and open competition and make 
recommendations with respect to such requirements to the members of such 
conference or session;
    (2) Review, at any time, restrictions on competition previously 
imposed on items through acquisition method coding or similar procedures 
and recommend to personnel of the appropriate activity the prompt 
reevaluation of such limitations;
    (3) Review restrictions on competition arising out of restrictions 
on the rights of the United States in technical data and, when 
appropriate, recommend that personnel of the appropriate activity 
initiate a review of the validity of such an asserted restriction;
    (4) Obtain from any governmental source, and make available to 
personnel of the appropriate center, technical data necessary for the 
preparation of a competitive solicitation package for any item of supply 
or service previously acquired noncompetitively due to the 
unavailability of such technical data;
    (5) Have access to procurement records and other data of the 
procurement center commensurate with the level of such representative's 
approved security clearance classification;
    (6) Receive unsolicited engineering proposals and, when 
appropriate--
    (i) Conduct a value analysis of such proposal to determine whether 
it, if adopted, will result in lower costs to the United States without 
substantially impeding legitimate acquisition objectives and forward to 
personnel of the appropriate center recommendations with respect to such 
proposal; or
    (ii) Forward such proposals without analysis to personnel of the 
center responsible for reviewing them who shall furnish the breakout 
procurement center representative with information regarding the 
proposal's disposition;
    (7) Review the systems that account for the acquisition and 
management of technical data within the procurement center to ensure 
that such systems provide the maximum availability and access to data 
needed for the preparation of offers to sell to the United States those 
supplies to which such data pertain which potential offerors are 
entitled to receive;

[[Page 406]]

    (8) Appeal the failure by the procurement center to act favorably on 
any recommendation made pursuant to subparagraphs (c) (1) through (7) of 
this section. Such appeal must be in writing and shall be filed and 
processed in accordance with the appeal procedures set out in 19.505;
    (9) Conduct familiarization sessions for contracting officers and 
other appropriate personnel of the procurement center to which assigned. 
Such sessions shall acquaint the participants with the duties and 
objectives of the representative and shall instruct them in the methods 
designed to further the breakout of items for procurement through full 
and open competition; and
    (10) Prepare and personally deliver an annual briefing and report to 
the head of the procurement center to which assigned. Such briefing and 
report shall detail the past and planned activities of the 
representative and shall contain recommendations for improvement in the 
operation of the center as may be appropriate. The head of such center 
shall personally receive the briefing and report and shall, within 60 
calendar days after receipt, respond, in writing, to each recommendation 
made by the representative.
    (d) The duties of the SBA small business technical advisors are to 
assist the SBA breakout procurement center representative in carrying 
out the activities described in (c) (1) through (7) of this section and 
to assist the SBA procurement center representatives (see FAR 19.402).
[51 FR 19715, May 30, 1986, as amended at 54 FR 25062, June 12, 1989]



               Subpart 19.5--Set-Asides for Small Business



19.501  General.

    (a) The purpose of small business set-asides is to award certain 
acquisitions exclusively to small business concerns. A ``set-aside for 
small business'' is the reserving of an acquisition exclusively for 
participation by small business concerns. A set-aside may be open to all 
small businesses. A set-aside of a single acquisition or a class of 
acquisitions may be total or partial.
    (b) The determination to make a set-aside may be unilateral or 
joint. A unilateral determination is one which is made by the 
contracting officer. A joint determination is one which is recommended 
by the Small Business Administration (SBA) procurement center 
representative and concurred in by the contracting officer.
    (c) The contracting officer shall review acquisitions to determine 
if they can be set aside for small business, giving consideration to the 
recommendations of agency personnel having cognizance of the agency's 
small and disadvantaged business utilization program and documenting why 
a set-aside is inappropriate when the acquisition is not set aside. If 
the acquisition is set aside based on this review, it is a unilateral 
set-aside by the contracting officer. Agencies may establish threshold 
levels for this review depending upon their needs.
    (d) At the request of an SBA procurement center representative, the 
contracting officer shall make available for review at the contracting 
office (to the extent of the SBA representative's security clearance) 
all proposed acquisitions in excess of the micro-purchase threshold that 
have not been unilaterally set aside for small business.
    (e) To the extent practicable, unilateral determinations initiated 
by a contracting officer shall be used as the basis for small business 
set-asides rather than joint determinations by an SBA procurement center 
representative and a contracting officer.
    (f) All solicitations involving set-asides must specify the 
applicable small business size standard and product classification (see 
19.303).
    (g) Except as authorized by law, a contract may not be awarded as a 
result of a set-aside if the cost to the awarding agency exceeds the 
fair market price.
[48 FR 42240, Sept. 19, 1983]

    Editorial Note:  For Federal Register citations affecting section 
19.501, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.

[[Page 407]]



19.502  Setting aside acquisitions.



19.502-1  Requirements for setting aside acquisitions.

    The contracting officer shall set aside an individual acquisition or 
class of acquisitions when it is determined to be in the interest of
    (a) Maintaining or mobilizing the Nation's full productive capacity,
    (b) War or national defense programs, or
    (c) Assuring that a fair proportion of Government contracts in each 
industry category is placed with small business concerns, and when the 
circumstances described in 19.502-2 or 19.502-3(a) exist.

This requirement does not apply to purchases of $2,500 or less, or 
purchases from required sources of supply under Part 8 (e.g., Federal 
Prison Industries, Committee for Purchase From People Who are Blind or 
Severely Disabled, and Federal Supply Schedule contracts).
[48 FR 42240, Sept. 19, 1983, as amended at 52 FR 38189, Oct. 14, 1987; 
60 FR 34757, July 3, 1995; 61 FR 41470, Aug. 8, 1996; 61 FR 67430, Dec. 
20, 1996]



19.502-2  Total set-asides.

    (a) Each acquisition of supplies or services that has an anticipated 
dollar value exceeding $2,500, but not over $100,000, is automatically 
reserved exclusively for small business concerns and shall be set aside 
unless the contracting officer determines there is not a reasonable 
expectation of obtaining offers from two or more responsible small 
business concerns that are competitive in terms of market prices, 
quality, and delivery. If the contracting officer does not proceed with 
the small business set-aside and purchases on an unrestricted basis, the 
contracting officer shall include in the contract file the reason for 
this unrestricted purchase. If the contracting officer receives only one 
acceptable offer from a responsible small business concern in response 
to a set-aside, the contracting officer should make an award to that 
firm. If the contracting officer receives no acceptable offers from 
responsible small business concerns, the set-aside shall be withdrawn 
and the requirement, if still valid, shall be resolicited on an 
unrestricted basis. The small business reservation does not preclude the 
award of a contract with a value not greater than $100,000 under subpart 
19.8, Contracting with the Small Business Administration, or under 
19.1006(c), Emerging small business set-aside.
    (b) The contracting officer shall set aside any acquisition over 
$100,000 for small business participation when there is a reasonable 
expectation that (1) offers will be obtained from at least two 
responsible small business concerns offering the products of different 
small business concerns (but see paragraph (c) of this subsection); and 
(2) award will be made at fair market prices. Total small business set-
asides shall not be made unless such a reasonable expectation exists 
(but see 19.502-3 as to partial set-asides). Although past acquisition 
history of an item or similar items is always important, it is not the 
only factor to be considered in determining whether a reasonable 
expectation exists. In making R&D small business set-asides, there must 
also be a reasonable expectation of obtaining from small businesses the 
best scientific and technological sources consistent with the demands of 
the proposed acquisition for the best mix of cost, performances, and 
schedules.
    (c) For set-asides other than for construction or services, any 
concern proposing to furnish a product which it did not itself 
manufacture must furnish the product of a small business manufacturer 
unless the SBA has granted either a waiver or exception to the 
nonmanufacturer rule (see 19.102(f)). In industries where the SBA finds 
that there are no small business manufacturers, it may issue a waiver to 
the nonmanufacturer rule (see 19.102(f) (4) and (5)). In addition, SBA 
has excepted procurements processed under simplified acquisition 
procedures (see part 13), where the anticipated cost of the procurement 
will not exceed $25,000, from the nonmanufacturer rule. Waivers permit 
small businesses to provide any firm's product. The exception permits 
small businesses to provide any domestic firm's product. In both of 
these cases, the contracting officer's determination in paragraph (b)(1) 
of this subsection or the decision not to set aside a procurement 
reserved for

[[Page 408]]

small business under paragraph (a) of this subsection will be based on 
the expectation of receiving offers from at least two responsible small 
businesses, including nonmanufacturers, offering the products of 
different concerns.
    (d) The requirements of this subsection do not apply to acquisitions 
over $25,000 during the period when set-asides cannot be considered for 
the four designated industry groups (see 19.1006(b)).
[60 FR 34757, July 3, 1995, as amended at 61 FR 39209, July 26, 1996]



19.502-3  Partial set-asides.

    (a) The contracting officer shall set aside a portion of an 
acquisition, except for construction, for exclusive small business 
participation when--
    (1) A total set-aside is not appropriate (see 19.502-2);
    (2) The requirement is severable into two or more economic 
production runs or reasonable lots;
    (3) One or more small business concerns are expected to have the 
technical competence and productive capacity to satisfy the set-aside 
portion of the requirement at a fair market price;
    (4) The acquisition is not subject to simplified acquisition 
procedures; and
    (5) A partial set-aside shall not be made if there is a reasonable 
expectation that only two concerns (one large and one small) with 
capability will respond with offers unless authorized by the head of a 
contracting activity on a case-by-case basis. Similarly, a class of 
acquisitions, not including construction, may be partially set aside. 
Under certain specified conditions, partial set-asides may be used in 
conjunction with multiyear contracting procedures.
    (b) When the contracting officer determines that a portion of an 
acquisition is to be set aside, the requirement shall be divided into a 
set-aside portion and a non-set-aside portion, each of which shall (1) 
be an economic production run or reasonable lot and (2) have terms and a 
delivery schedule comparable to the other. When practicable, the set-
aside portion should make maximum use of small business capacity.
    (c)(1) The contracting officer shall award the non-set-aside portion 
using normal contracting procedures.
    (2)(i) After all awards have been made on the non-set-aside portion, 
the contracting officer shall negotiate with eligible concerns on the 
set-aside portion, as provided in the solicitation, and make award. 
Negotiations shall be conducted only with those offerors who have 
submitted responsive offers on the non-set-aside portion. Negotations 
shall be conducted with small business concerns in the order of priority 
as indicated in the solicitation (but see (ii) below). The set-aside 
portion shall be awarded as provided in the solicitation. An offeror 
entitled to receive the award for quantities of an item under the non-
set-aside portion and who accepts the award of additional quantities 
under the set-aside portion shall not be requested to accept a lower 
price because of the increased quantities of the award, nor shall 
negotiation be conducted with a view to obtaining such a lower price 
based solely upon receipt of award of both portions of the acquisition. 
This does not prevent acceptance by the contracting officer of voluntary 
reductions in the price from the low eligible offeror before award, 
acceptance of voluntary refunds, or the change of prices after award by 
negotiation of a contract modification.
    (ii) If equal low offers are received on the non-set-aside portion 
from concerns eligible for the set-aside portion, the concern that is 
awarded the non-set-aside part of the acquisition shall have first 
priority with respect to negotiations for the set-aside.
[48 FR 42240, Sept. 19, 1989, as amended at 53 FR 43390, Oct. 26, 1988; 
60 FR 34757, July 3, 1995]



19.502-4  Methods of conducting set-asides.

    (a) Total set-asides may be conducted by using simplified 
acquisition procedures (see part 13), sealed bids (see part 14), or 
competitive proposals (see part 15). Partial small business set-asides 
may be conducted using sealed bids (see part 14), or competitive 
proposals (see part 15).
    (b) Except for offers on the non-set-aside portion of partial set-
asides, offers received from concerns that do not qualify as small 
business concerns shall be considered nonresponsive and

[[Page 409]]

shall be rejected. However, before rejecting an offer otherwise eligible 
for award because of questions concerning the size representation, an 
SBA determination must be obtained (see subpart 19.3).
[50 FR 1743, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985, as amended 
at 59 FR 67037, Dec. 28, 1994; 60 FR 34757, July 3, 1995]



19.502-5  Insufficient causes for not setting aside an acquisition.

    None of the following is, in itself, sufficient cause for not 
setting aside an acquisition:
    (a) A large percentage of previous contracts for the required 
item(s) has been placed with small business concerns.
    (b) The item is on an established planning list under the Industrial 
Readiness Planning Program. However, a total set-aside shall not be made 
when the list contains a large business Planned Emergency Producer of 
the item(s) who has conveyed a desire to supply some or all of the 
required items.
    (c) The item is on a Qualified Products List. However, a total set-
aside shall not be made if the list contains the products of large 
business unless none of the large businesses desires to participate in 
the acquisition.
    (d) A period of less than 30 days is available for receipt of 
offers.
    (e) The contract is classified.
    (f) Small business concerns are already receiving a fair proportion 
of the agency's contracts for supplies and services.
    (g) A class set-aside of the item or service has been made by 
another contracting activity.
    (h) A ``brand name or equal'' product description will be used in 
the solicitation.



19.503  Setting aside a class of acquisitions.

    (a) A class of acquisitions of selected products or services, or a 
portion of the acquisitions, may be set aside for exclusive 
participation by small business concerns if individual acquisitions in 
the class will meet the criteria in 19.502-1, 19.502-2, or 19.502-3(a). 
The determination to make a class set-aside shall not depend on the 
existence of a current acquisition if future acquisitions can be clearly 
foreseen.
    (b) The determination to set aside a class of acquisitions may be 
either unilateral or joint.
    (c) Each class set-aside determination shall be in writing and 
must--
    (1) Specifically identify the product(s) and service(s) it covers;
    (2) Provide that the set-aside does not apply to any acquisition 
automatically reserved for small business concerns under 19.502-2(a).
    (3) Provide that the set-aside applies only to the (named) 
contracting office(s) making the determination; and
    (4) Provide that the set-aside does not apply to any individual 
acquisition if the requirement is not severable into two or more 
economic production runs or reasonable lots, in the case of a partial 
class set-aside.
    (d) The contracting officer shall review each individual acquisition 
arising under a class set-aside to identify any changes in the magnitude 
of requirements, specifications, delivery requirements, or competitive 
market conditions that have occurred since the initial approval of the 
class set-aside. If there are any changes of such a material nature as 
to result in probable payment of more than a fair market price by the 
Government or in a change in the capability of small business concerns 
to satisfy the requirements, the contracting officer may withdraw or 
modify (see 19.506(a)) the unilateral or joint set-aside by giving 
written notice to the SBA procurement center representative (if one is 
assigned), stating the reasons.
[48 FR 42240, Sept. 19, 1989, as amended at 53 FR 43390, Oct. 26, 1988; 
60 FR 34757, July 3, 1995]



19.504  [Reserved]



19.505  Rejecting Small Business Administration recommendations.

    (a) If the contracting officer rejects a recommendation of the SBA 
procurement center representative or breakout procurement center 
representative, written notice shall be furnished to the appropriate SBA 
center representative within 5 working days of the contracting officer's 
receipt of the recommendation.

[[Page 410]]

    (b) The SBA procurement center representative may appeal the 
contracting officer's rejection to the head of the contracting activity 
(or designee) within 2 working days after receiving the notice. The head 
of the contracting activity (or designee) shall render a decision in 
writing, and provide it to the SBA representative within 7 working days. 
Pending issuance of a decision to the SBA procurement center 
representative, the contracting officer shall suspend action on the 
acquisition.
    (c) If the head of the contracting activity agrees that the 
contracting officer's rejection was appropriate, the SBA procurement 
center representative may--
    (1) Within 1 working day, request the contracting officer to suspend 
action on the acquisition until the SBA Administrator appeals to the 
agency head (see paragraph (f) of this section); and
    (2) The SBA shall be allowed 15 working days after making such a 
written request, within which the Administrator of SBA
    (i) May appeal to the Secretary of the Department concerned, and
    (ii) Shall notify the contracting officer whether the further appeal 
has, in fact, been taken.

If notification is not received by the contracting officer within the 
15-day period, it shall be deemed that the SBA request to suspend 
contracting action has been withdrawn and that an appeal to the 
Secretary was not taken.
    (d) When the contracting officer has been notified within the 15-day 
period that the SBA has appealed to the agency head, the head of the 
contracting activity (or designee) shall forward justification for its 
decision to the agency head. The contracting officer shall suspend 
contract action until notification is received that the SBA appeal has 
been settled.
    (e) The agency head shall reply to the SBA within 30 working days 
after receiving the appeal. The decision of the agency head shall be 
final.
    (f) A request to suspend action on an acquisition need not be 
honored if the contracting officer determines that proceeding to 
contract award and performance is in the public interest. The 
contracting officer shall include in the contract file a statement of 
the facts justifying the determination, and shall promptly notify the 
SBA representative of the determination and provide a copy of the 
justification.
[60 FR 48261, Sept. 18, 1995]



19.506  Withdrawing or modifying set-asides.

    (a) If, before award of a contract involving a set-aside, the 
contracting officer considers that award would be detrimental to the 
public interest, (e.g., payment of more than a fair market price), the 
contracting officer may withdraw the set-aside determination whether it 
was unilateral or joint. The contracting officer shall initiate a 
withdrawal of an individual set-aside by giving written notice to the 
agency small business specialist and the SBA procurement center 
representative, if one is assigned, stating the reasons. In a similar 
manner, the contracting officer may modify a unilateral or joint class 
set-aside to withdraw one or more individual acquisitions.
    (b) If the agency small business specialist does not agree to a 
withdrawal or modification, the case shall be promptly referred to the 
SBA representative (if one is assigned) for review. If an SBA 
representative is not assigned, disagreements between the agency small 
business specialist and the contracting officer shall be resolved using 
agency procedures. However, the procedures are not applicable to 
automatic dissolutions of set-asides (see 19.507) or dissolution of set-
asides under $100,000.
    (c) The contracting officer shall prepare a written statement 
supporting any withdrawal or modification of a set-aside and include it 
in the contract file.
[60 FR 48262, Sept. 18, 1995]



19.507  Automatic dissolution of a set-aside.

    (a) If a set-aside acquisition or portion of an acquisition is not 
awarded, the unilateral or joint determination to set the acquisition 
aside is automatically dissolved for the unawarded portion of the set-
aside. The required supplies and/or services for which no award was made 
may be acquired by

[[Page 411]]

sealed bidding or negotiation, as appropriate.
    (b) Before issuing a solicitation for the items called for in a 
small business set-aside that was dissolved, the contracting officer 
shall ensure that the delivery schedule is realistic in the light of all 
relevant factors, including the capabilities of small business concerns.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



19.508  Solicitation provisions and contract clauses.

    (a)-(b)  [Reserved]
    (c) The contracting officer shall insert the clause at 52.219-6, 
Notice of Total Small Business Set-Aside, in solicitations and contracts 
involving total small business set-asides. The clause at 52.219-6 with 
its Alternate I will be used when the acquisition is for a product in a 
class for which the Small Business Administration has waived the 
nonmanufacturer rule (see 19.102(f) (4) and (5)).
    (d) The contracting officer shall insert the clause at 52.219-7, 
Notice of Partial Small Business Set-Aside, in solicitations and 
contracts involving partial small business set-asides. The clause at 
52.219-7 with its Alternate I will be used when the acquisition is for a 
product in a class for which the Small Business Administration has 
waived the nonmanufacturer rule (see 19.102(f) (4) and (5)).
    (e) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in solicitations and contracts for 
supplies, services, and construction, if any portion of the requirement 
is to be set aside for small business and the contract amount is 
expected to exceed $100,000.
[48 FR 42240, June 9, 1987, as amended at 52 FR 21902, June 9, 1987; 52 
FR 38189, Oct. 14, 1987; 53 FR 27464, July 20, 1988; 53 FR 43390, Oct. 
26, 1988; 54 FR 25063, June 12, 1989; 55 FR 25529, June 21, 1990; 55 FR 
38516, Sept. 18, 1990; 60 FR 34757, July 3, 1995; 60 FR 48262, Sept. 18, 
1995; 61 FR 39209, July 26, 1996; 61 FR 67430, Dec. 20, 1996; 62 FR 236, 
Jan. 2, 1997; 62 FR 44820, Aug. 22, 1997]



     Subpart 19.6--Certificates of Competency and Determinations of 
                             Responsibility



19.601  General.

    (a) A Certificate of Competency (COC) is the certificate issued by 
the Small Business Administration (SBA) stating that the holder is 
responsible (with respect to all elements of responsibility, including, 
but not limited to, capability, competency, capacity, credit, integrity, 
perseverance, tenacity, and limitations on subcontracting) for the 
purpose of receiving and performing a specific Government contract.
    (b) The COC program empowers the Small Business Administration (SBA) 
to certify to Government contracting officers as to all elements of 
responsibility of any small business concern to receive and perform a 
specific Government contract. The COC program does not extend to 
questions concerning regulatory requirements imposed and enforced by 
other Federal agencies.
    (c) The COC program is applicable to all Government acquisitions. A 
contracting officer shall, upon determining an apparent successful small 
business offeror to be nonresponsible, refer that small business to the 
SBA for a possible COC, even if the next acceptable offer is also from a 
small business.
    (d) When a solicitation requires a small business to adhere to the 
limitations on subcontracting, a contracting officer's finding that a 
small business cannot comply with the limitation shall be treated as an 
element of responsibility and shall be subject to the COC process. When 
a solicitation requires a small business to adhere to the definition of 
a nonmanufacturer, a contracting officer's determination that the small 
business does not comply shall be processed in accordance with subpart 
19.3.
    (e) Contracting officers, including those located overseas, are 
required to comply with this subpart for U.S. small business concerns.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
54 FR 34754, Aug. 21, 1989; 59 FR 67036, Dec. 28, 1994; 61 FR 67410, 
Dec. 20, 1996; 62 FR 44820, Aug. 22,1997]

[[Page 412]]



19.602  Procedures.



19.602-1  Referral.

    (a) Upon determining and documenting that an apparent successful 
small business offeror lacks certain elements of responsibility 
(including, but not limited to, capability, competency, capacity, 
credit, integrity, perseverance, tenacity, and limitations on 
subcontracting), the contracting officer shall--
    (1) Withhold contract award (see 19.602-3); and
    (2) Refer the matter to the cognizant SBA Government Contracting 
Area Office (Area Office) serving the area in which the headquarters of 
the offeror is located, in accordance with agency procedures, except 
that referral is not necessary if the small business concern--
    (i) Is determined to be unqualified and ineligible because it does 
not meet the standard in 9.104-1(g); provided, that the determination is 
approved by the chief of the contracting office; or
    (ii) Is suspended or debarred under Executive Order 11246 or subpart 
9.4.
    (b) If a partial set-aside is involved, the contracting officer 
shall refer to the SBA the entire quantity to which the concern may be 
entitled, if responsible.
    (c) The referral shall include--
    (1) A notice that a small business concern has been determined to be 
nonresponsible, specifying the elements of responsibility the 
contracting officer found lacking; and
    (2) If applicable, a copy of the following:
    (i) Solicitation.
    (ii) Final offer submitted by the concern whose responsibility is at 
issue for the procurement.
    (iii) Abstract of bids or the contracting officer's price 
negotiation memorandum.
    (iv) Preaward survey.
    (v) Technical data package (including drawings, specifications and 
statement of work).
    (vi) Any other justification and documentation used to arrive at the 
nonresponsibility determination.
    (d) For any single acquisition, the contracting officer shall make 
only one referral at a time regarding a determination of 
nonresponsibility.
    (e) Contract award shall be withheld by the contracting officer for 
a period of 15 business days (or longer if agreed to by the SBA and the 
contracting officer) following receipt by the appropriate SBA Area 
Office of a referral that includes all required documentation.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 27489, July 31, 1986; 
62 FR 44820, Aug. 22, 1997]



19.602-2  Issuing or denying a Certificate of Competency (COC).

    Within 15 business days (or a longer period agreed to by the SBA and 
the contracting agency) after receiving a notice that a small business 
concern lacks certain elements of responsibility, the SBA Area Office 
will take the following actions:
    (a) Inform the small business concern of the contracting officer's 
determination and offer it an opportunity to apply to the SBA for a COC. 
(A concern wishing to apply for a COC should notify the SBA Area Office 
serving the geographical area in which the headquarters of the offeror 
is located.)
    (b) Upon timely receipt of a complete and acceptable application, 
elect to visit the applicant's facility to review its responsibility.
    (1) The COC review process is not limited to the areas of 
nonresponsibility cited by the contracting officer.
    (2) The SBA may, at its discretion, independently evaluate the COC 
applicant for all elements of responsibility, but may presume 
responsibility exists as to elements other than those cited as 
deficient.
    (c) Consider denying a COC for reasons of nonresponsibility not 
originally cited by the contracting officer.
    (d) When the Area Director determines that a COC is warranted (for 
contracts valued at $25,000,000 or less), notify the contracting officer 
and provide the following options:
    (1) Accept the Area Director's decision to issue a COC and award the 
contract to the concern. The COC issuance letter will then be sent, 
including as an attachment a detailed rationale for the decision; or
    (2) Ask the Area Director to suspend the case for one or more of the 
following purposes:

[[Page 413]]

    (i) To permit the SBA to forward a detailed rationale for the 
decision to the contracting officer for review within a specified period 
of time.
    (ii) To afford the contracting officer the opportunity to meet with 
the Area Office to review all documentation contained in the case file 
and to attempt to resolve any issues.
    (iii) To submit any information to the SBA Area Office that the 
contracting officer believes the SBA did not consider (at which time the 
SBA Area Office will establish a new suspense date mutually agreeable to 
the contracting officer and the SBA).
    (iv) To permit resolution of an appeal by the contracting agency to 
SBA Headquarters under 19.602-3. However, there is no contracting 
officer's appeal when the Area Office proposes to issue a COC valued at 
$100,000 or less.
    (e) At the completion of the process, notify the concern and the 
contracting officer that the COC is denied or is being issued.
    (f) Refer recommendations for issuing a COC on contracts greater 
than $25,000,000 to SBA Headquarters.
[62 FR 44820, Aug. 22, 1997]



19.602-3  Resolving differences between the agency and the Small Business Administration.

    (a) COCs valued between $100,000 and $25,000,000. (1) When 
disagreements arise about a concern's ability to perform, the 
contracting officer and the SBA shall make every effort to reach a 
resolution before the SBA takes final action on a COC. This shall be 
done through the complete exchange of information and in accordance with 
agency procedures. If agreement cannot be reached between the 
contracting officer and the SBA Area Office, the contracting officer 
shall request that the Area Office suspend action and refer the matter 
to SBA Headquarters for review. The SBA Area Office shall honor the 
request for a review if the contracting officer agrees to withhold award 
until the review process is concluded. Without an agreement to withhold 
award, the SBA Area Office will issue the COC in accordance with 
applicable SBA regulations.
    (2) SBA Headquarters will furnish written notice to the procuring 
agency's Director, Office of Small and Disadvantaged Business 
Utilization (OSDBU) or other designated official (with a copy to the 
contracting officer) that the case file has been received and that an 
appeal decision may be requested by an authorized official.
    (3) If the contracting agency decides to file an appeal, it must 
notify SBA Headquarters through its procuring agency's Director, OSDBU, 
or other designated official, within 10 business days (or a time period 
agreed upon by both agencies) that it intends to appeal the issuance of 
the COC.
    (4) The appeal and any supporting documentation shall be filed by 
the procuring agency's Director, OSDBU, or other designated official, 
within 10 business days (or a period agreed upon by both agencies) after 
SBA Headquarters receives the agency's notification in accordance with 
paragraph (a)(3) of this subsection.
    (5) The SBA Associate Administrator for Government Contracting will 
make a final determination, in writing, to issue or to deny the COC.
    (b) SBA Headquarters' decisions on COCs valued over $25,000,000. (1) 
Prior to taking final action, SBA Headquarters will contact the 
contracting agency and offer it the following options:
    (i) To request that the SBA suspend case processing to allow the 
agency to meet with SBA Headquarters personnel and review all 
documentation contained in the case file; or
    (ii) To submit to SBA Headquarters for evaluation any information 
that the contracting agency believes has not been considered.
    (2) After reviewing all available information, the SBA will make a 
final decision to either issue or deny the COC.
    (c)  Reconsideration of a COC after issuance. (1) The SBA reserves 
the right to reconsider its issuance of a COC, prior to contract award, 
if--
    (i) The COC applicant submitted false information or omitted 
materially adverse information; or
    (ii) The COC has been issued for more than 60 days (in which case 
the SBA may investigate the firm's current circumstances).

[[Page 414]]

    (2) When the SBA reconsiders and reaffirms the COC, the procedures 
in subsection 19.602-2 do not apply.
    (3) Denial of a COC by the SBA does not preclude a contracting 
officer from awarding a contract to the referred concern, nor does it 
prevent the concern from making an offer on any other procurement.
[62 FR 44821, Aug. 22, 1997]



19.602-4  Awarding the contract.

    (a) If new information causes the contracting officer to determine 
that the concern referred to the SBA is actually responsible to perform 
the contract, and award has not already been made under paragraph (c) 
below, the contracting officer shall reverse the determination of 
nonresponsibility, notify the SBA of this action, withdraw the referral, 
and proceed to award the contract.
    (b) The contracting officer shall award the contract to the concern 
in question if the SBA issues a COC after receiving the referral. An 
SBA-certified concern shall not be required to meet any other 
requirements of responsibility. SBA COC's are conclusive with respect to 
all elements of responsibility of prospective small business 
contractors.
    (c) The contracting officer shall proceed with the acquisition and 
award the contract to another appropriately selected and responsible 
offeror if the SBA has not issued a COC within 15 business days (or a 
longer period of time agreed to with the SBA) after receiving the 
referral.



 Subpart 19.7--Subcontracting With Small Business, Small Disadvantaged 
            Business and Women-Owned Small Business Concerns



19.701  Definitions.

    Failure to make a good faith effort to comply with the 
subcontracting plan, as used in this subpart, means willful or 
intentional failure to perform in accordance with the requirements of 
the subcontracting plan, or willful or intentional action to frustrate 
the plan.
    Small business subcontractor means any concern that--
    (a) In connection with subcontracts of $10,000 or less if, including 
its affiliates, its number of employees does not exceed 500 persons; and
    (b) In connection with subcontracts exceeding $10,000, if its number 
of employees or average annual receipts, including its affiliates, does 
not exceed the size standard under section 19.102 for the product or 
service it is providing on the subcontract.
    Subcontract, as used in this subpart, means any agreement (other 
than one involving an employer-employee relationship) entered into by a 
Government prime contractor or subcontractor calling for supplies and/or 
services required for contract performance, contract modification, or 
subcontract.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
54 FR 30709, July 21, 1989]



19.702  Statutory requirements.

    Any contractor receiving a contract for more than the simplified 
acquisition threshold shall agree in the contract that small business 
concerns, small disadvantaged business concerns and women-owned small 
business concerns shall have the maximum practicable opportunity to 
participate in contract performance consistent with its efficient 
performance. It is further the policy of the United States that its 
prime contractors establish procedures to ensure the timely payment of 
amounts due pursuant to the terms of their subcontracts with small 
business concerns, small disadvantaged business concerns and women-owned 
small business concerns.
    (a) Except as stated in paragraph (b) below, the Small Business Act 
imposes the following requirements regarding subcontracting with small 
businesses and small business subcontracting plans.
    (1) In negotiated acquisitions, each solicitation of offers to 
perform a contract or contract modification, which individually is 
expected to exceed $500,000 ($1,000,000 for construction) and that has 
subcontracting possibilities shall require the apparently successful

[[Page 415]]

offeror to submit an acceptable subcontracting plan. If the apparently 
successful offeror fails to negotiate a subcontracting plan acceptable 
to the contracting officer within the time limit prescribed by the 
contracting officer, the offeror will be ineligible for award.
    (2) In sealed bid acquisitions, each invitation for bids to perform 
a contract or contract modification, which individually is expected to 
exceed $500,000 ($1,000,000 for construction) and that has 
subcontracting possibilities, shall require the bidder selected for 
award to submit a subcontracting plan. If the selected bidder fails to 
submit a plan within the time limit prescribed by the contracting 
officer, the bidder will be ineligible for award.
    (b) Subcontracting plans (see subparagraphs (a)(1) and (2) above) 
are not required--
    (1) From small business concerns;
    (2) For personal services contracts;
    (3) For contracts or contract modifications that will be performed 
entirely outside of any State, territory, or possession of the United 
States, the District of Columbia, and the Commonwealth of Puerto Rico; 
or
    (4) For modifications to contracts that do not contain the clause at 
52.219-8, Utilization of Small, Small Disadvantaged and Women-Owned 
Small Business Concerns (or equivalent prior clauses).
    (c) As stated in 15 U.S.C. 637(d)(8), any contractor or 
subcontractor failing to comply in good faith with the requirements of 
the subcontracting plan is in material breach of its contract. Further, 
15 U.S.C. 637(d)(4)(F) directs that a contractor's failure to make a 
good faith effort to comply with the requirements of the subcontracting 
plan shall result in the imposition of liquidated damages.
    (d) As authorized by 15 U.S.C. 637(d)(11), certain costs incurred by 
a mentor firm in providing developmental assistance to a Protege firm 
under the Department of Defense Pilot Mentor-Protege Program, may be 
credited as subcontract awards to a small disadvantaged business for the 
purpose of determining whether the mentor firm attains a small 
disadvantaged business goal under any subcontracting plan entered into 
with any executive agency. However, the mentor-Protege agreement must 
have been approved by the Office of Small and Disadvantaged Business 
Utilization, Office of the Deputy Under Secretary of Defense 
(International and Commercial Programs) DUSD(I&CP)SADBU, Room 2A338, 
3061 Defense Pentagon, Washington, DC 20301-3061, (703) 695-1536, before 
developmental assistance costs may be credited against subcontract 
goals.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 50 FR 27562, July 3, 1985; 51 FR 27116, July 
29, 1986; 54 FR 30709, July 21, 1989; 56 FR 41731, Aug. 22, 1991; 60 FR 
48262, Sept. 18, 1995; 61 FR 2638, Jan. 26, 1996; 61 FR 39190, July 26, 
1996; 61 FR 67420, Dec. 20, 1996; 62 FR 40236, July 25, 1997]



19.703  Eligibility requirements for participating in the program.

    (a) To be eligible as a subcontractor under the program, a concern 
must represent itself as a small business concern, small disadvantaged 
business concern or a woman-owned small business concern.
    (1) To represent itself as a small business concern or a women-owned 
small business concern, a concern must meet the appropriate definition 
in 19.001.
    (2) To represent itself as a small disadvantaged business concern, a 
concern must meet the definition in 19.001. Individuals who represent 
that they are members of named groups (Black Americans, Hispanic 
Americans, Native Americans, Asian-Pacific Americans, Subcontinent-Asian 
Americans) may also represent themselves as socially and economically 
disadvantaged. Individuals who are not members of named groups may also 
represent themselves, and participate in the program, as socially and 
economically disadvantaged if they are qualified by the SBA under the 
procedures in 13 CFR 124.105(c)). Concerns that are tribally owned 
entities or Native Hawaiian Organizations may represent themselves as 
socially and economically disadvantaged if they qualify under the 
requirements of 13 CFR 124.112 or 13 CFR 124.113, respectively. The 
Office of Minority Small Business and Capital Ownership Development in 
the SBA has the final authority to determine

[[Page 416]]

the eligibility of a concern to be designated as a small disadvantaged 
business concern, and will answer inquiries from contractors and others 
regarding eligibility. Formal protests of a subcontractor's eligibility 
as a small disadvantaged business may be initiated only by the 
contracting officer responsible for the prime contract or by the SBA. 
Such protests will be processed in accordance with 13 CFR 124.601-
124.610. Other small business subcontractors and the prime contractor 
may submit information to the contracting officer in an effort to 
persuade the contracting officer to initiate a protest. Such protests, 
in order to be considered timely, must be received by the contracting 
officer prior to completion of performance by the intended 
subcontractor.
    (b) A contractor acting in good faith may rely on the written 
representation of its subcontractor regarding the subcontractor's 
status. The contractor, the contracting officer, or any other interested 
party can challenge a subcontractor's size status representation by 
filing a protest, in accordance with 13 CFR 121.1601 through 121.1608. 
Protests challenging a subcontractor's disadvantaged status 
representation shall be filed in accordance with 13 CFR 124.601 through 
124.610. Protests challenging a subcontractor's status as a women-owned 
small business concern shall be filed in accordance with Small Business 
Administration procedures.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
55 FR 3882, Feb. 5, 1990; 55 FR 52792, Dec. 21, 1990; 60 FR 48262, Sept. 
18, 1995; 62 FR 236, Jan. 2, 1997]



19.704  Subcontracting plan requirements.

    (a) Each subcontracting plan required under 19.702(a)(1) and (2) 
must include--
    (1) Separate percentage goals for using small business concerns, 
small disadvantaged business concerns and women-owned small business 
concerns as subcontractors;
    (2) The name of an individual employed by the offeror who will 
administer the offeror's subcontracting program, and a description of 
the duties of the individual;
    (3) A description of the efforts the offeror will make to ensure 
that small business concerns, small disadvantaged business concerns and 
women-owned small business concerns will have an equitable opportunity 
to compete for subcontracts;
    (4) Assurances that the offeror will include the clause at 52.219-8, 
Utilization of Small, Small Disadvantaged and Women-Owned Small Business 
Concerns (see 19.708(b)), in all subcontracts that offer further 
subcontracting opportunities, and that the offeror will require all 
subcontractors (except small business concerns) that receive 
subcontracts in excess of $500,000 ($1,000,000 for construction) to 
adopt a plan similar to the plan required by the clause at 52.219-9, 
Small, Small Disadvantaged and Women-Owned Small Business Subcontracting 
Plan (see 19.708(c));
    (5) Assurances that the offeror will (i) cooperate in any studies or 
surveys as may be required, (ii) submit periodic reports in order to 
allow the Government to determine the extent of compliance by the 
offeror with the subcontracting plan, and (iii) submit Standard Form 
(SF) 294, Subcontracting Report for Individual Contracts, and SF 295, 
Summary Subcontract Report, in accordance with the instructions on the 
forms.
    (6) A recitation of the types of records the offeror will maintain 
to demonstrate procedures adopted to comply with the requirements and 
goals in the plan, including establishing source lists; and a 
description of the offeror's efforts to locate small, small 
disadvantaged and women-owned small business concerns and to award 
subcontracts to them.
    (b) Contractors may establish, on a plant or division-wide basis, a 
master subcontracting plan which contains all the elements required by 
the clause at 52.219-9, Small, Small Disadvantaged and Women-Owned Small 
Business Subcontracting Plan, except goals. Master plans shall be 
effective for a 3-year period after approval by the contracting officer; 
however, it is incumbent upon contractors to maintain and update master 
plans. Changes required to update master plans are not effective until 
approved by the contracting officer. A master plan, when incorporated in 
an individual plan, shall

[[Page 417]]

apply to that contract throughout the life of the contract.
    (c) For contracts containing options, the cumulative value of the 
basic contract and all options is considered in determining whether a 
subcontracting plan is necessary (see 19.705-2(a)). If a plan is 
necessary and the offeror is submitting an individual contract plan, the 
plan shall contain all the elements required by 19.704(a) and shall 
contain separate parts, one for the basic contract and one for each 
option.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
54 FR 29281, July 11, 1989; 60 FR 48262, Sept. 18, 1995; 61 FR 31643, 
June 20, 1996]



19.705  Responsibilities of the contracting officer under the subcontracting assistance program.



19.705-1  General support of the program.

    The contracting officer may encourage the development of increased 
subcontracting opportunities in negotiated acquisition by providing 
monetary incentives such as payments based on actual subcontracting 
achievement or award fee contracting (see the clause at 52.219-10, 
Incentive Subcontracting Program, and 19.708(c)). When using any 
contractual incentive provision based upon rewarding the contractor 
monetarily for exceeding goals in the subcontracting plan, the 
contracting officer must ensure that (a) the goals are realistic and (b) 
any rewards for exceeding the goals are commensurate with the efforts 
the contractor would not have otherwise expended. Incentive provisions 
should normally be negotiated after reaching final agreement with the 
contractor on the subcontracting plan.
[48 FR 42240, Sept. 19, 1983, as amended at 60 FR 48262, Sept. 18, 1995]



19.705-2  Determining the need for a subcontracting plan.

    The contracting officer shall take the following actions to 
determine whether a proposed contractual action requires a 
subcontracting plan:
    (a) Determine whether the proposed contractual action will meet the 
dollar threshold in 19.702(a)(1) or (2). If the action includes options 
or similar provisions, include their value in determining whether the 
threshold is met.
    (b) Determine whether subcontracting possibilities exist by 
considering relevant factors such as--
    (1) Whether firms engaged in the business of furnishing the types of 
items to be acquired customarily contract for performance of part of the 
work or maintain sufficient in-house capability to perform the work;
    (2) Whether there are likely to be product prequalification 
requirements; and
    (c) If it is determined that there are no subcontracting 
possibilities, the determination must be approved at a level above the 
contracting officer and placed in the contract file.
    (d) In solicitations for negotiated acquisitions, the contracting 
officer may require the submission of subcontracting plans with initial 
offers, or at any other time prior to award. In determining when 
subcontracting plans should be required, as well as when and with whom 
plans should be negotiated, the contracting officer shall consider the 
integrity of the competitive process, the goal of affording maximum 
practicable opportunity for small, small disadvantaged and women-owned 
small business concerns to participate, and the burden placed on 
offerors.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986; 
51 FR 19716, May 30, 1986; 60 FR 48262, Sept. 18, 1995; 61 FR 2638, Jan. 
26, 1996]



19.705-3  Preparing the solicitation.

    The contracting officer shall provide the Small Business 
Administration's (SBA's) resident procurement center representative, if 
any, a reasonable period of time to review any solicitation requiring 
submission of a subcontracting plan and to submit advisory findings 
before the solicitation is issued.



19.705-4  Reviewing the subcontracting plan.

    The contracting officer shall review the subcontracting plan for 
adequacy, ensuring that the required information, goals, and assurances 
are included (see 19.704).
    (a) No detailed standards apply to every subcontracting plan. 
Instead, the contracting officer must consider each

[[Page 418]]

plan in terms of the circumstances of the particular acquisition, 
including--
    (1) Previous involvement of small business concerns as prime 
contractors or subcontractors in similar acquisitions;
    (2) Proven methods of involving small business concerns as 
subcontractors in similar acquisitions; and
    (3) The relative success of methods the contractor intends to use to 
meet the goals and requirements of the plan, as evidenced by records 
maintained by contractors.
    (b) If, under a sealed bid solicitation, a bidder submits a plan 
that does not cover each of the six required elements (see 19.704), the 
contracting officer shall advise the bidder of the deficiency and 
request submission of a revised plan by a specific date. If the bidder 
does not submit a plan which incorporates the six required elements 
within the time allotted, the bidder shall be ineligible for award. If 
the plan, although responsive, evidences the bidder's intention not to 
comply with its obligations under the clause at 52.219-8, Utilization of 
Small, Small Disadvantaged and Women-Owned Small Business Concerns, the 
contracting officer may find the bidder nonresponsible.
    (c) In negotiated acquisitions, the contracting officer shall 
determine whether the plan is acceptable based on the negotiation of 
each of the six elements of the plan (see 19.704). Subcontracting goals 
should be set at a level that the parties reasonably expect can result 
from the offeror expending good faith efforts to use small, small 
disadvantaged and women-owned small business subcontractors to the 
maximum practicable extent. Particular attention should be paid to the 
identification of steps that, if taken, would be considered a good faith 
effort. No goal should be negotiated upward if it is apparent that a 
higher goal will significantly increase the Government's cost or 
seriously impede the attainment of acquisition objectives. An incentive 
subcontracting clause (see 52.219-10, Incentive Subcontracting Program), 
may be used when additional and unique contract effort, such as 
providing technical assistance, could significantly increase subcontract 
awards to small, small disadvantaged or women-owned small businesses.
    (d) In determining the acceptability of a proposed subcontracting 
plan, the contracting officer should take the following actions:
    (1) Evaluate the offeror's past performance in awarding subcontracts 
for the same or similar products or services to small, small 
disadvantaged and women-owned small business concerns. If information is 
not available on a specific type of product or service, evaluate the 
offeror's overall past performance.
    (2) In accordance with 15 U.S.C. 637(d)(4)(F)(iii), ensure that the 
goals offered are attainable in relation to--
    (i) The subcontracting opportunities available to the contractor, 
commensurate with the efficient and economical performance of the 
contract;
    (ii) The pool of eligible subcontractors available to fulfill the 
subcontracting opportunities; and
    (iii) The actual performance of such contractor in fulfilling the 
subcontracting goals specified in prior plans.
    (3) Evaluate the offeror's make-or-buy policy or program to ensure 
that it does not conflict with the offeror's proposed subcontracting 
plan and is in the Government's interest. If the contract involves 
products or services that are particularly specialized or not generally 
available in the commercial market, consider the offeror's current 
capacity to perform the work and the possibility of reduced 
subcontracting opportunities.
    (4) Evaluate subcontracting potential, considering the offeror's 
make-or-buy policies or programs, the nature of the products or services 
to be subcontracted, the known availability of small, small 
disadvantaged and women-owned small business concerns in the 
geographical area where the work will be performed, and the potential 
contractor's long-standing contractual relationship with its suppliers.
    (5) Advise the offeror of available sources of information on 
potential small, small disadvantaged and women-owned small business 
subcontractors, as well as any specific concerns known to be potential 
subcontractors. If the offeror's proposed

[[Page 419]]

goals are questionable, the contracting officer shall emphasize that the 
information should be used to develop realistic and acceptable goals.
    (6) Obtain advice and recommendations from the SBA procurement 
center representative (if any) and the agency small business specialist.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 19716, May 30, 1986; 54 FR 30709, July 
21, 1989; 55 FR 52792, Dec. 21, 1990; 60 FR 48262, Sept. 18, 1995]



19.705-5  Awards involving subcontracting plans.

    (a) In making an award that requires a subcontracting plan, the 
contracting officer shall be responsible for the following:
    (1) Consider the contractor's compliance with the subcontracting 
plans submitted on previous contracts as a factor in determining 
contractor responsibility.
    (2) Assure that a subcontracting plan was submitted when required.
    (3) Notify the SBA resident procurement center representative of the 
opportunity to review the proposed contract (including the plan and 
supporting documentation). The notice shall be issued in sufficient time 
to provide the representative a reasonable time to review the material 
and submit advisory recommendations to the contracting officer. Failure 
of the representative to respond in a reasonable period of time shall 
not delay contract award.
    (4) Determine any fee that may be payable if an incentive is used in 
conjunction with the subcontracting plan.
    (5) Ensure that an acceptable plan is incorporated into and made a 
material part of the contract.
    (b) Letter contracts and similar undefinitized instruments, which 
would otherwise meet the requirements of 19.702(a)(1) and (2), shall 
contain at least a preliminary basic plan addressing the requirements of 
19.704 and in such cases require the negotiation of the final plan 
within 90 days after award or before definitization, whichever occurs 
first.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



19.705-6  Postaward responsibilities of the contracting officer.

    After a contract or contract modification containing a 
subcontracting plan is awarded, the contracting officer is responsible 
for the following:
    (a) Notifying the SBA of the award by sending a copy of the award 
document to the Assistant Regional Administrator for Procurement 
Assistance in the SBA region where the contract will be performed.
    (b) Forwarding a copy of each plan and any associated approvals to 
the Assistant Regional Administrator for Procurement Assistance in the 
SBA region where the contractor's headquarters is located, if any 
company-wide plans were received from offerors of commercial products.
    (c) Giving to the assigned SBA resident procurement center 
representative (if any) a copy of--
    (1) Any subcontracting plan submitted in response to a sealed bid 
solicitation; and
    (2) The final negotiated subcontracting plan that was incorporated 
into a negotiated contract or contract modification.
    (d) Notifying the SBA resident procurement center representative of 
the opportunity to review subcontracting plans in connection with 
contract modifications.
    (e) Forwarding a copy of each plan, or a determination that there is 
no requirement for a subcontracting plan, to the cognizant contract 
administration office.
    (f) Initiating action to assess liquidated damages in accordance 
with 19.705-7 upon a recommendation by the administrative contracting 
officer or receipt of other reliable evidence to indicate that such 
action is warranted.
    (g) Taking action to enforce the terms of the contract upon receipt 
of a notice under 19.706(a)(6).
[48 FR 42240, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987; 
53 FR 27464, July 20, 1988; 53 FR 34228, Sept. 2, 1988; 54 FR 30709, 
July 21, 1989; 55 FR 52792, Dec. 21, 1990]



19.705-7  Liquidated damages.

    (a) Maximum practicable utilization of small, small disadvantaged 
and women-owned small business concerns

[[Page 420]]

as subcontractors in Government contracts is a matter of national 
interest with both social and economic benefits. When a contractor fails 
to make a good faith effort to comply with a subcontracting plan, these 
objectives are not achieved, and 15 U.S.C. 637(d)(4)(F) directs that 
liquidated damages shall be paid by the contractor.
    (b) The amount of damages attributable to the contractor's failure 
to comply shall be an amount equal to the actual dollar amount by which 
the contractor failed to achieve each subcontract goal or, in the case 
of a commercial products plan, shall be that portion of the dollar 
amount allocable to Government contracts by which the contractor failed 
to achieve each subcontract goal.
    (c) If, at contract completion, or in the case of a commercial 
products plan, at the close of the fiscal year for which the plan is 
applicable, a contractor has failed to meet its subcontracting goals and 
the contracting officer decides in accordance with paragraph (d) of this 
subsection that the contractor failed to make a good faith effort to 
comply with its subcontracting plan, the contracting officer shall give 
the contractor written notice specifying the failure, advising the 
contractor of the possibility that the contractor may have to pay to the 
Government liquidated damages, and providing a period of 10 days (or 
longer period as necessary) within which to respond. The notice shall 
give the contractor an opportunity to demonstrate what good faith 
efforts have been made before the contracting officer issues the final 
decision, and shall further state that failure of the contractor to 
respond may be taken as an admission that no valid explanation exists. 
When appropriate, the notice may invite the contractor to discuss the 
matter.
    (d) In determining whether a contractor failed to make a good faith 
effort to comply with its subcontracting plan, a contracting officer 
must look to the totality of the contractor's actions, consistent with 
the information and assurances provided in its plan. The fact that the 
contractor failed to meet its subcontracting goals does not, in and of 
itself, constitute a failure to make a good faith effort. For example, 
notwithstanding a contractor's diligent effort to identify and solicit 
offers from small, small disadvantaged and women-owned small business 
concerns, factors such as unavailability of anticipated sources or 
unreasonable prices may frustrate achievement of the contractor's goals. 
However, when considered in the context of the contractor's total effort 
in accordance with its plan, the following may be considered as indicia 
of a failure to make a good faith effort: a failure to attempt to 
identify, contact, solicit, or consider for contract award, small, small 
disadvantaged or women-owned small business concerns; a failure to 
designate a company official to administer the subcontracting program; a 
failure to maintain records or otherwise demonstrate procedures adopted 
to comply with the plan; and the adoption of company policies or 
procedures which have as their objectives the frustration of the 
objectives of the plan.
    (e) If, after consideration of all the pertinent data, the 
contracting officer finds that the contractor failed to make a good 
faith effort to comply with its subcontracting plan, the contracting 
officer shall issue a final decision to the contractor to that effect 
and require the payment of liquidated damages in an amount stated. The 
contracting officer's final decision shall state that the contractor has 
the right to appeal under the clause in the contract entitled Disputes.
    (f) With respect to commercial products plans, i.e., company-wide or 
division-wide subcontracting plans approved under paragraph (g) of the 
clause in the contract entitled Small, Small Disadvantaged and Women-
Owned Small Business Subcontracting Plan, the contracting officer of the 
agency that originally approved the plan will exercise the functions of 
the contracting officer under this subsection on behalf of all agencies 
that awarded contracts covered by that commercial products plan.
    (g) Liquidated damages shall be in addition to any other remedies 
that the Government may have.
[54 FR 30709, July 21, 1989, as amended at 60 FR 48263, Sept. 18, 1995]

[[Page 421]]



19.706  Responsibilities of the cognizant administrative contracting officer.

    (a) The administrative contracting officer is responsible for 
assisting in evaluating subcontracting plans, and for monitoring, 
evaluating, and documenting contractor performance under the clause 
prescribed in 19.708(b) and any subcontracting plan included in the 
contract. The contract administration office shall provide the necessary 
information and advice to support the contracting officer, as 
appropriate, by furnishing--
    (1) Documentation on the contractor's performance and compliance 
with subcontracting plans under previous contracts;
    (2) Information on the extent to which the contractor is meeting the 
plan's goals for subcontracting with eligible small, small disadvantaged 
and women-owned small business concerns;
    (3) Information on whether the contractor's efforts to ensure the 
participation of small, small disadvantaged and women-owned small 
business concerns are in accordance with its subcontracting plan;
    (4) Information on whether the contractor is requiring its 
subcontractors to adopt similar subcontracting plans;
    (5) Immediate notice if, during performance, the contractor is 
failing to meet its commitments under the clause prescribed in 19.708(b) 
or the subcontracting plan; and
    (6) Immediate notice and rationale if, during performance, the 
contractor is failing to comply in good faith with the subcontracting 
plan.
    (b) If the contractor does not comply in good faith with the 
subcontracting plan, the administrative contracting officer shall, upon 
contract completion, make appropriate recommendations that contracting 
officers may use for future contracts.
[48 FR 42240, Sept. 19, 1983, as amended at 54 FR 30710, July 21, 1989; 
60 FR 48263, Sept. 18, 1995]



19.707  The Small Business Administration's role in carrying out the program.

    (a) Under the program, the SBA may--
    (1) Assist both Government agencies and contractors in carrying out 
their responsibilities with regard to subcontracting plans;
    (2) Review (within 5 working days) any solicitation that meets the 
dollar threshold in 19.702(a)(1) or (2) before the solicitation is 
issued;
    (3) Review (within 5 working days) before execution any negotiated 
contractual document requiring a subcontracting plan, including the plan 
itself, and submit recommendations to the contracting officer, which 
shall be advisory in nature; and
    (4) Evaluate compliance with subcontracting plans, either on a 
contract-by-contract basis, or, in the case of contractors having 
multiple contracts, on an aggregate basis.
    (b) The SBA is not authorized to (1) prescribe the extent to which 
any contractor or subcontractor shall subcontract, (2) specify concerns 
to which subcontracts will be awarded, or (3) exercise any authority 
regarding the administration of individual prime contracts or 
subcontracts.
[48 FR 42240, Sept. 19, 1983, as amended at 51 FR 2664, Jan. 17, 1986]



19.708  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-8, 
Utilization of Small, Small Disadvantaged and Women-Owned Small Business 
Concerns, in solicitations and contracts when the contract amount is 
expected to be over the simplified acquisition threshold unless--
    (1) A personal services contract is contemplated (see 37.104); or
    (2) The contract, together with all its subcontracts, is to be 
performed entirely outside of any State, territory, or possession of the 
United States, the District of Columbia, and the Commonwealth of Puerto 
Rico.
    (b)(1) The contracting officer shall, when contracting by 
negotiation, insert the clause at 52.219-9, Small, Small Disadvantaged 
and Women-Owned Small Business Subcontracting Plan, in solicitations and 
contracts that
    (i) Offer subcontracting possibilities,
    (ii) Are expected to exceed $500,000 ($1,000,000 for construction of 
any public facility), and

[[Page 422]]

    (iii) Are required to include the clause at 52.219-8, Utilization of 
Small, Small Disadvantaged and Women-Owned Small Business Concerns, 
unless the acquisition is set aside or is to be accomplished under the 
8(a) program. When contracting by sealed bidding rather than by 
negotiation, the contracting officer shall use the clause with its 
Alternate I. When contracting by negotiation, and subcontracting plans 
are required with initial proposals as provided for in 19.705-2(d), the 
contracting officer shall use the clause with its Alternate II.
    (2) The contracting officer shall insert the clause at 52.219-16, 
Liquidated Damages--Subcontracting Plan, in all solicitations and 
contracts containing the clause at 52.219-9, Small, Small Disadvantaged 
and Women-Owned Small Business Subcontracting Plan, or its Alternate I.
    (c)(1) The contracting officer may, when contracting by negotiation, 
insert in solicitations and contracts a clause substantially the same as 
the clause at 52.219-10, Incentive Subcontracting Program, when a 
subcontracting plan is required (see 19.702(a)(1)), and inclusion of a 
monetary incentive is, in the judgment of the contracting officer, 
necessary to increase subcontracting opportunities for small, small 
disadvantaged and women-owned small business concerns, and is 
commensurate with the efficient and economical performance of the 
contract; unless the conditions in paragraph (c)(3) of this section are 
applicable. The contracting officer may vary the terms of the clause as 
specified in paragraph (c)(2) of this section.
    (2) Various approaches may be used in the development of small, 
small disadvantaged and women-owned small business concerns' 
subcontracting incentives. They can take many forms, from a fully 
quantified schedule of payments based on actual subcontract achievement 
to an award fee approach employing subjective evaluation criteria (see 
paragraph (c)(3) of this section). The incentive should not reward the 
contractor for results other than those that are attributable to the 
contractor's efforts under the incentive subcontracting program.
    (3) As specified in paragraph (c)(2) of this section, the 
contracting officer may include small, small disadvantaged and women-
owned small business subcontracting as one of the factors to be 
considered in determining the award fee in a cost-plus-award-fee 
contract; in such cases, however, the contracting officer shall not use 
the clause at 52.219-10, Incentive Subcontracting Program.
[48 FR 42240, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 2664, Jan. 17, 1986; 54 FR 30710, July 
21, 1989; 56 FR 41731, Aug. 22, 1991; 60 FR 48263, Sept. 18, 1995; 61 FR 
2639, Jan. 26, 1996; 61 FR 39190, July 26, 1996]



 Subpart 19.8--Contracting With the Small Business Administration (the 
                              8(a) Program)

    Source: 54 FR 46005, Oct. 31, 1989, unless otherwise noted.



19.800  General.

    (a) Section 8(a) of the Small Busines Act (15 U.S.C. 637(a)) 
established a program that authorizes the Small Business Administration 
(SBA) to enter into all types of contracts with other agencies and let 
subcontracts for performing those contracts to firms eligible for 
program participation. The SBA's subcontractors are referred to as 8(a) 
contractors.
    (b) Contracts may be awarded to the SBA for performance by eligible 
8(a) firms on either a sole source or competitive basis.
    (c) When, acting under the authority of the program, the SBA 
certifies to an agency that the SBA is competent and responsible to 
perform a specific contract, the contracting officer is authorized, in 
the contracting officer's discretion, to award the contract to the SBA 
based upon mutually agreeable terms and conditions.



19.801  [Reserved]



19.802  Selecting concerns for the 8(a) Program.

    Selecting concerns for the 8(a) Program is the responsibility of the 
SBA and is based on the criteria established in 13 CFR 124.101-113.

[[Page 423]]



19.803  Selecting acquisitions for the 8(a) Program.

    Through their cooperative efforts, the SBA and an agency match the 
agency's requirements with the capabilities of 8(a) concerns to 
establish a basis for the agency to contract with the SBA under the 
program. Selection is initiated in one of three ways--
    (a) The SBA advises an agency contracting activity through a search 
letter of an 8(a) firm's capabilities and asks the agency to identify 
acquisitions to support the firm's business plans. In these instances, 
the SBA will provide at least the following information in order to 
enable the agency to match an acquisition to the firm's capabilities.
    (1) Identification of the concern and its owners.
    (2) Background information on the concern, including any and all 
information pertaining to the concern's technical ability and capacity 
to perform.
    (3) The firm's present production capacity and related facilities.
    (4) The extent to which contracting assistance is needed in the 
present and the future, described in terms that will enable the agency 
to relate the concern's plans to present and future agency requirements.
    (5) If construction is involved, the request shall also include the 
following:
    (i) The concern's capabilities in and qualifications for 
accomplishing various categories of maintenance, repair, alteration, and 
construction work in specific categories such as mechanical, electrical, 
heating and air conditioning, demolition, building, painting, paving, 
earth work, waterfront work, and general construction work.
    (ii) The concern's capacity in each construction category in terms 
of estimated dollar value (e.g., electrical, up to $100,000).
    (b) The SBA identifies a specific requirement for a particular 8(a) 
firm or firms and asks the agency contracting activity to offer the 
acquisition to the 8(a) Program for the firm(s). In these instances, in 
addition to the information in paragraph (a) of this section, the SBA 
will provide--
    (1) A clear identification of the acquisition sought; e.g., project 
name or number;
    (2) A statement as to how any additional needed facilities will be 
provided in order to ensure that the firm will be fully capable of 
satisfying the agency's requirements;
    (3) If construction, information as to the bonding capability of the 
firm(s); and
    (4) Either--
    (i) If sole source request--
    (A) The reasons why the firm is considered suitable for this 
particular acquisition; e.g., previous contracts for the same or similar 
supply or service; and
    (B) A statement that the firm is eligible in terms of SIC code, 
business support levels, and business activity targets; or,
    (ii) If competitive, a statement that at least two 8(a) firms are 
considered capable of satisfying the agency's requirements and a 
statement that the firms are also eligible in terms of the SIC code, 
business support levels, and business activity targets. If requested by 
the contracting activity, SBA will identify at least two such firms and 
provide information concerning the firms' capabilities.
    (c) Agencies may also review other proposed acquisitions for the 
purpose of identifying requirements which may be offered to the SBA. 
Where agencies independently, or through the self marketing efforts of 
an 8(a) firm, identify a requirement for the 8(a) Program, they may 
offer on behalf of a specific 8(a) firm, for the 8(a) Program in 
general, or for 8(a) competition.
[54 FR 46005, Oct. 31, 1989, as amended at 55 FR 3882, Feb. 5, 1990; 61 
FR 67410, Dec. 20, 1996]



19.804  Evaluation, offering, and acceptance.



19.804-1  Agency evaluation.

    In determining the extent to which a requirement should be offered 
in support of the 8(a) Program, the agency should evaluate--
    (a) Its current and future plans to acquire the specific items or 
work that 8(a) contractors are seeking to provide, identified in terms 
of--
    (1) Quantities required or the number of construction projects 
planned; and

[[Page 424]]

    (2) Performance or delivery requirements, including required monthly 
production rates, when applicable.
    (b) Its current and future plans to acquire items or work similar in 
nature and complexity to that specified in the business plan;
    (c) Problems encountered in previous acquisitions of the items or 
work from the 8(a) contractors and/or other contractors;
    (d) The impact of any delay in delivery;
    (e) Whether the items or work have previously been acquired using 
small business set-asides; and
    (f) Any other pertinent information about known 8(a) contractors, 
the items, or the work. This includes any information concerning the 
firms' capabilities. When necessary, the contracting agency shall make 
an independent review of the factors in 19.803(a) and other aspects of 
the firms' capabilities which would ensure the satisfactory performance 
of the requirement being considered for commitment to the 8(a) Program.



19.804-2  Agency offering.

    (a) After completing its evaluation, the agency shall notify the SBA 
of the extent of its plans to place 8(a) contracts with the SBA for 
specific quantities of items or work. The notification must identify the 
timeframes within which prime contract and subcontract actions must be 
completed in order for the agency to meet its responsibilities. The 
notification must also contain the following information applicable to 
each prospective contract:
    (1) A description of the work to be performed or items to be 
delivered, and a copy of the statement of work, if available.
    (2) The estimated period of performance.
    (3) The SIC code that applies to the principal nature of the 
acquisition.
    (4) The anticipated dollar value of the requirement, including 
options, if any.
    (5) Any special restrictions or geographical limitations on the 
requirement (for construction and services include the location of the 
work to be performed).
    (6) Any special capabilities or disciplines needed for contract 
performance.
    (7) The type of contract anticipated.
    (8) The acquisition history, if any, of the requirement, including 
the names and addresses of any small business contractors which have 
performed this requirement during the previous 24 months.
    (9) A statement that no solicitation for this specific acquisition 
has been issued as a small business set-aside or a small disadvantaged 
business set-aside, and that no other public communication (such as a 
notice in the Commerce Business Daily) has been made evidencing the 
contracting agency's clear intention to set aside the acquisition for 
small business or small disadvantaged business.
    (10) Identification of any particular 8(a) concern designated for 
consideration, including a brief justification, such as--
    (i) The 8(a) concern, through its own efforts, marketed the 
requirement and caused it to be reserved for the 8(a) Program; or
    (ii) The acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent.
    (11) Bonding requirements, if applicable.
    (12) Identification of all known 8(a) concerns which have expressed 
an interest in this specific requirement as a result of self-marketing, 
response to sources sought, or publication of advanced acquisition 
requirements.
    (13) Identification of all SBA district or regional offices which 
have asked for the acquisition for the 8(a) Program.
    (14) A recommendation, if appropriate, as to whether the acquisition 
should be competitive or sole source; and
    (15) Any other pertinent and reasonably available data.
    (b)(1) An agency offering a construction requirement should submit 
it to the SBA District Office for the geographical area where the work 
is to be performed.
    (2) Sole source requirements, other than construction, should be 
forwarded

[[Page 425]]

directly to the district office that services the nominated firm. If the 
contracting officer is not nominating a specific firm, the offering 
letter should be forwarded to the district office servicing the 
geographical area in which the contracting office is located.
    (c) All requirements for 8(a) competition, other than construction, 
should be forwarded to the district office servicing the geographical 
area in which the contracting office is located. All requirements for 
8(a) construction competition should be forwarded to the district office 
servicing the geographical area in which all or the major portion of the 
construction is to be performed. All requirements, including 
construction, shall be synopsized in the Commerce Business Daily. For 
construction, the synopsis shall include the geographical area of the 
competition set forth in the SBA's acceptance letter.
[54 FR 46005, Oct. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996; 
62 FR 44823, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44823, Aug. 22, 1997, section 19.804-2 
was amended by revising paragraphs (b)(2) and (c), effective Oct. 21, 
1997. For the convenience of the user, the superseded text is set forth 
as follows:

19.804-2  Agency offering.

                                * * * * *

    (b) * * *
    (2) Sole source requirements, other than construction, should be 
forwarded directly to the district office that services the nominated 
firm. If the contracting officer is not nominating a specific firm, the 
offering letter should be sent to SBA Headquarters, Office of Minority 
and Capital Ownership Development, 409 3rd Street, SW, Washington, DC 
20416.
    (c) In order to ensure consistency and uniformity, all requirements 
for 8(a) competition shall be offered to and processed by the Division 
of Business Development, SBA Headquarters. All requirements, including 
construction, shall be synopsized in the Commerce Business Daily by the 
cognizant procuring agency. For construction, the synopsis shall include 
the geographical area of the competition as determined by the Assistant 
Administrator, Division of Business Development, in consultation with 
the local SBA district office where the work is to be performed.



19.804-3  SBA acceptance.

    (a) Upon receipt of the contracting agency's offer, the SBA will 
determine whether to accept the requirement for the 8(a) Program. The 
SBA's decision whether to accept the requirement will be transmitted to 
the contracting agency in writing within 15 working days of receipt of 
the offer, unless the SBA requests, and the contracting agency grants, 
an extension.
    (b) If the acquisition is accepted as a sole source, the SBA will 
advise the contracting activity of the 8(a) firm selected for 
negotiation. Generally, the SBA will accept a contracting activity's 
recommended source.
[48 FR 42240, Sept. 19, 1983, as amended at 56 FR 55380, Oct. 25, 1991; 
61 FR 67421, Dec. 20, 1996]



19.804-4  Repetitive acquisitions.

    In order for repetitive acquisitions to be awarded through the 8(a) 
Program, there must be separate offers and acceptances. This allows the 
SBA to revalidate a firm's eligibility, to evaluate the suitability of 
each acquisition as a competitive 8(a), and to determine whether the 
requirement should continue under the 8(a) Program.



19.805  Competitive 8(a).



19.805-1  General.

    (a) Except as provided in paragraph (b) of this subsection, an 
acquisition offered to the SBA under the 8(a) Program shall be awarded 
on the basis of competition limited to eligible 8(a) firms if--
    (1) There is a reasonable expectation that at least two eligible and 
responsible 8(a) firms will submit offers and that award can be made at 
a fair market price; and
    (2) The anticipated award price of the contract, including options, 
will exceed $5,000,000 for acquisitions assigned manufacturing standard 
industrial classification (SIC) codes and $3,000,000 for all other 
acquisitions.
    (b) Where an acquisition exceeds the competitive threshold, the SBA 
may accept the requirement for a sole source 8(a) award if--

[[Page 426]]

    (1) There is not a reasonable expectation that at least two eligible 
and responsible 8(a) firms will submit offers at a fair market price; or
    (2) The SBA determines that an 8(a) concern owned and controlled by 
an economically disadvantaged Indian tribe is eligible and responsible 
and needs the acquisition for its business development.
    (c) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount shall not be divided into 
several requirements for lesser amounts in order to use 8(a) sole source 
procedures for award to a single firm.
    (d) The SBA Association Administrator for Minority Small Business 
and Capital Ownership Development (AA/MSB&COD) may approve an agency 
recommendation for a competitive 8(a) award below the competitive 
thresholds. Such recommendations will be approved only on a limited 
basis and will be primarily granted where technical competitions are 
appropriate or where a large number of responsible 8(a) firms are 
available for competition. Agency recommendations for competition below 
the threshold may be included in the offering letter or may be submitted 
by separate correspondence to the SBA Headquarters.
[54 FR 46005, Oct. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996]



19.805-2  Procedures.

    (a) Competitive 8(a) acquisitions shall be conducted by contracting 
agencies by using sealed bids (see part 14) or competitive proposals 
(see part 15).
    (b) Offers shall be solicited from those sources identified in 
accordance with the SBA instructions provided under 19.804-3.
    (c) The SBA will determine the eligibility of the firms for award of 
the contract. Eligibility will be determined by the SBA as of the time 
of submission of initial offers which include price. Eligibility is 
based on Section 8(a) Program criteria.
    (1) In sealed bid acquisitions, upon receipt of offers, the 
contracting officer will provide the SBA a copy of the solicitation, the 
estimated fair market price, and a list of offerors ranked in the order 
of their standing for award (i.e., first low, second low, etc.) with the 
total evaluated price for each offer, differentiating between basic 
requirements and any options. The SBA will consider the eligibility of 
the first low offeror. If the first low offeror is not determined to be 
eligible, the SBA will consider the eligibility of the next low offeror 
until an eligible offeror is identified. The SBA will determine the 
eligibility of the firms and advise the contracting officer within 5 
working days after its receipt of the list of bidders. Once eligibility 
has been established by the SBA, the successful offeror will be 
determined by the contracting activity in accordance with normal 
contracting procedures.
    (2) In negotiated acquisition, the SBA will determine eligibility 
when the successful offeror has been established by the agency and the 
contract transmitted for signature unless a referral has been made under 
19.809, in which case the SBA will determine eligibility at that point.
    (d) In any case in which a firm is determined to be ineligible, the 
SBA will notify the firm of that determination.
    (e) The eligibility of an 8(a) firm for a competitive 8(a) award may 
not be challenged or protested by another 8(a) firm or any other party 
as part of a solicitation or proposed contract award. Any party with 
information concerning the eligibility of an 8(a) firm to continue 
participation in the 8(a) Program may submit such information to the SBA 
in accordance with 13 CFR 124.111(c).
[54 FR 46005, Oct. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996]



19.806  Pricing the 8(a) contract.

    (a) The contracting officer shall price the 8(a) contract in 
accordance with subpart 15.4. If required by subpart 15.4, the SBA shall 
obtain certified cost or pricing data from the 8(a) contractor. If the 
SBA requests audit assistance to determine the reasonableness of the 
proposed price in a sole source acquisition, the contracting activity 
shall furnish it to the extent it is available.
    (b) An 8(a) contract, sole source or competitive, may not be awarded 
if the price of the contract results in a cost

[[Page 427]]

to the contracting agency which exceeds a fair market price.
    (c) If requested by the SBA, the contracting officer shall make 
available the data used to estimate the fair market price.
    (d) The negotiated contract price and the estimated fair market 
price are subject to the concurrence of the SBA. In the event of a 
disagreement between the contracting officer and the SBA, the SBA may 
appeal in accordance with 19.810.
[54 FR 46005, Oct. 31, 1989, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51270, Sept. 30, 1997, in sction 
19.806, in paragraph (a), ``15.8'' was amended to read ``15.4'', 
effective Oct. 10, 1997.



19.807  Estimating the fair market price.

    (a) The contracting officer shall estimate the fair market price of 
the work to be performed by the 8(a) contractor.
    (b) In estimating the fair market price for an acquisition other 
than those covered in paragraph (c) of this section, the contracting 
officer shall use cost or price analysis and consider commercial prices 
for similar products and services, available in-house cost estimates, 
data (including cost or pricing data) submitted by the SBA or the 8(a) 
contractor, and data obtained from any other Government agency.
    (c) In estimating a fair market price for a repeat purchase, the 
contracting officer shall consider recent award prices for the same 
items or work if there is comparability in quantities, conditions, 
terms, and performance times. The estimated price should be adjusted to 
reflect differences in specifications, plans, transportation costs, 
packaging and packing costs, and other circumstances. Price indices may 
be used as guides to determine the changes in labor and material costs. 
Comparison of commercial prices for similar items may also be used.



19.808  Contract negotiation.



19.808-1  Sole source.

    (a) The SBA is responsible for initiating negotiations with the 
agency within the time established by the agency. If the SBA does not 
initiate negotiations within the agreed time and the agency cannot allow 
additional time, the agency may, after notifying the SBA, proceed with 
the acquisition from other sources.
    (b) The SBA should participate, whenever practicable, in negotiating 
the contracting terms. When mutually agreeable, the SBA may authorize 
the contracting activity to negotiate directly with the 8(a) contractor. 
Whether or not direct negotiations take place, the SBA is responsible 
for approving the resulting contract before award.
[54 FR 46005, Oct. 31, 1989, as amended at 55 FR 3883, Feb. 5, 1990; 56 
FR 55378, Oct. 25, 1991; 61 FR 67421, Dec. 20, 1996]



19.808-2  Competitive.

    In competitive 8(a) acquisitions subject to part 15, the contracting 
officer conducts negotiations directly with the competing 8(a) firms.



19.809  Preaward considerations.

    The contracting officer should request a preaward survey of the 8(a) 
contractor whenever considered useful. If the results of the preaward 
survey or other information available to the contracting officer raise 
substantial doubt as to the firm's ability to perform, the contracting 
officer should refer the matter to the SBA for its consideration in 
deciding whether SBA should certify that it is competent and responsible 
to perform. This is not a referral for Certificate of Competency 
consideration under subpart 19.6. Within 15 working days of the receipt 
of the referral or a longer period agreed to by the SBA and the 
contracting activity, the SBA local district office that services the 
8(a) firm will advise the contracting officer as to the SBA's 
willingness to certify its competency to perform the contract using the 
8(a) concern in question as its subcontractor. The contracting officer 
shall proceed with the acquisition and award the contract to another 
appropriately selected 8(a) offeror if the SBA has not certified its 
competency within 15 working days (or a longer mutually agreeable 
period.)
[54 FR 46005, OCt. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996]

[[Page 428]]



19.810  SBA appeals.

    (a) The following matters may be submitted by the SBA Administrator 
for determination to the agency head if the SBA and the contracting 
officer fail to agree on them:
    (1) The decision not to make a particular acquisition available for 
award under the 8(a) Program.
    (2) The terms and conditions of a particular sole source acquisition 
to be awarded under the 8(a) Program.
    (3) The estimated fair market price.
    (b) Notification of a proposed referral to the agency head by the 
SBA must be received by the contracting officer within 5 working days 
after the SBA is formally notified of the contracting officer's 
decision. The SBA shall provide the agency Director for Small and 
Disadvantaged Business Utilization a copy of this notification. The SBA 
must provide the request for determination to the agency head within 20 
working days of the SBA's receipt of the adverse decision. Pending 
issuance of a decision by the agency head, the contracting officer shall 
suspend action on the acquisition. Action on the acquisition need not be 
suspended if the contracting officer makes a written determination that 
urgent and compelling circumstances which significantly affect the 
interests of the United States will not permit waiting for a decision.
    (c) If the SBA appeal is denied, the decision of the agency head 
shall specify the reasons for the denial, including the reasons why the 
selected firm was determined incapable of performance, if appropriate. 
The decision shall be made a part of the contract file.



19.811  Preparing the contracts.



19.811-1  Sole source.

    (a) The contract to be awarded by the agency to the SBA shall be 
prepared in accordance with agency procedures and in the same detail as 
would be required in a contract with a business concern. The contracting 
officer shall use the Standard Form 26 as the award form, except for 
construction contracts, in which case the Standard Form 1442 shall be 
used as required in 36.701(b).
    (b) The agency shall prepare the contract that the SBA will award to 
the 8(a) contractor in accordance with agency procedures, as if the 
agency were awarding the contract directly to the 8(a) contractor, 
except for the following.
    (1) The award form shall cite 41 U.S.C. 253(c)(5) or 10 U.S.C. 
2304(c)(5) (as appropriate) as the authority for use of other than full 
and open competition.
    (2) Appropriate clauses shall be included, as necessary, to reflect 
that the contract is between the SBA and the 8(a) contractor.
    (3) The following items shall be inserted by the SBA--
    (i) The SBA contract number.
    (ii) The effective date.
    (iii) The typed name of the SBA's contracting officer.
    (iv) The signature of the SBA's contracting officer.
    (v) The date signed.
    (4) The SBA will obtain the signature of the 8(a) contractor prior 
to signing and returning the prime contract to the contracting officer 
for signature. The SBA will make every effort to obtain signatures and 
return the contract, and any subsequent bilateral modification, to the 
contracting officer within a maximum of 10 working days.
    (c) Except in procurements where the SBA will make advance payments 
to its 8(a) contractor, the agency contracting officer may, as an 
alternative to the procedures in 19.811-1(a) and (b), use a single 
contract document for both the prime contract between the agency and the 
SBA and its 8(a) contractor. The single contract document shall contain 
the information in 19.811-1(b) (1), (2), (3), and (5). Appropriate 
blocks on the Standard Form (SF) 26 or 1442 will be asterisked and a 
continuation sheet appended which includes the following:
    (1) Agency acquisition office, prime contract number, name of agency 
contracting officer and lines for signature, date signed, and effective 
date.
    (2) The SBA office, the SBA contract number, name of the SBA 
contracting officer, and lines for signature and date signed.
    (3) Name and lines for the 8(a) contractor's signature and date 
signed.
[54 FR 46005, Oct. 31, 1989, as amended at 55 FR 3883, Feb. 5, 1990; 61 
FR 67421, Dec. 20, 1996; 62 FR 233, Jan. 2, 1997]

[[Page 429]]



19.811-2  Competitive.

    (a) The contract will be prepared in accordance with 14.408-1(d), 
except that appropriate blocks on the Standard Form 26 or 1442 will be 
asterisked and a continuation sheet appended which includes the 
following:
    (1) The agency contracting activity, prime contract number, name of 
agency contracting officer, and lines for signature, date signed, and 
effective date.
    (2) The SBA office, the SBA subcontract number, name of the SBA 
contracting officer and lines for signature and date signed.
    (b) The process for obtaining signatures shall be as specified in 
19.811-1(b)(4).
[54 FR 46005, Oct. 31, 1989, as amended at 60 FR 34739, July 3, 1995; 62 
FR 233, Jan. 2, 1997]



19.811-3  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-11, 
Special 8(a) Contract Conditions, in contracts between the SBA and the 
agency when the acquisition is accomplished using the procedures of 
19.811-1(a) and (b).
    (b) The contracting officer shall insert the clause at 52.219-12, 
Special 8(a) Subcontract Conditions, in contracts between the SBA and 
its 8(a) contractor when the acquisition is accomplished using the 
procedures of 19.811-1(a) and (b).
    (c) The contracting officer shall insert the clause at 52.219-17, 
Section 8(a) Award, in competitive solicitations and contracts when the 
acquisition is accomplished using the procedures of 19.805 and in sole 
source awards which utilize the alternative procedure in 19.811-1(c).
    (d) The contracting officer shall insert the clause at 52.219-18, 
Notification of Competition Limited to Eligible 8(a) Concerns, in 
competitive solicitations and contracts when the acquisition is 
accomplished using the procedures of 19.805.
    (1) The clause at 52.219-18 with its Alternate I will be used when 
competition is to be limited to 8(a) concerns within one or more 
specific SBA districts pursuant to 19.804-2.
    (2) The clause at 52.219-18 with its Alternate II will be used when 
the acquisition is for a product in a class for which the Small Business 
Administration has waived the nonmanufacturer rule (see 19.102(f) (4) 
and (5)).
    (e) The contracting officer shall insert the clause at 52.219-14, 
Limitations or Subcontracting, in any solicitation and contract 
resulting from this subpart.
[54 FR 46005, Oct. 31, 1989, as amended at 55 FR 3883, Feb. 5, 1990; 55 
FR 25529, June 21, 1990; 60 FR 48263, Sept. 18, 1995; 61 FR 39209, July 
26, 1996; 61 FR 67421, Dec. 20, 1996]



19.812  Contract administration.

    (a) The contracting officer shall assign contract administration 
functions, as required, based on the location of the 8(a) contractor 
(see DoD Directory of Contract Administration Services Components (DoD 
4105.59-H)).
    (b) The agency shall distribute copies of the contract(s) in 
accordance with part 4. All contracts and modifications, if any, shall 
be distributed to both the SBA and the firm in accordance with the 
timeframes set forth in 4.201.
    (c) To the extent consistent with the contracting activity's 
capability and resources, 8(a) contractors furnishing requirements shall 
be afforded production and technical assistance, including, when 
appropriate, identification of causes of deficiencies in their products 
and suggested corrective action to make such products acceptable.
    (d) Section 407 of Pub. L. 100-656 requires that an 8(a) contract be 
terminated for convenience if the 8(a) concern to which it was awarded 
transfers ownership or control of the firm, unless the Administrator of 
the SBA, on a nondelegable basis, waives the requirement for contract 
termination. This Administrator may waive the termination requirement 
only if certain conditions exist. Moreover, a waiver of the statutory 
requirement for termination is permitted only if the 8(a) firm's request 
for waiver is made to the SBA prior to the actual relinquishment of 
ownership or control. The clauses in the contract entitled ``Special 
8(a) Contract Conditions'' and ``Special 8(a) Subcontract Conditions'' 
require the SBA and the 8(a) subcontractor to notify the contracting 
officer when ownership of the firm is being transferred. When the 
contracting officer receives

[[Page 430]]

information that an 8(a) contractor is planning to transfer ownership or 
control to another firm, action must be taken immediately to preserve 
the option of waiving the termination requirement. The contracting 
officer should determine the timing of the proposed transfer and its 
effect on contract performance and mission support. If the contracting 
officer determines that the SBA does not intend to waive the termination 
requirement, and termination of the contract would severely impair 
attainment of the agency's program objectives or mission, the 
contracting officer should immediately notify the SBA in writing that 
the agency is requesting a waiver. Within 15 business days thereafter, 
or such longer period as agreed to by the agency and the SBA, the agency 
head shall either confirm or withdraw the request for waiver. Unless a 
waiver is approved by the SBA, the contracting officer shall terminate 
the contract for convenience upon receipt of a written request by the 
SBA. This statutory requirement for a convenience termination does not 
affect the Government's right to terminate for default if the cause for 
termination of an 8(a) contract is other than the transfer of ownership 
or control.
[54 FR 46005, Oct. 31, 1989, as amended at 56 FR 15151, Apr. 15, 1991]



                        Subpart 19.9  [Reserved]



   Subpart 19.10--Small Business Competitiveness Demonstration Program

    Source: 54 FR 5055, Jan. 31, 1989, unless otherwise noted.



19.1001  General.

    The Small Business Competitiveness Demonstration Program was 
established by Title VII of the ``Business Opportunity Development 
Reform Act of 1988'', Pub. L. 100-656, as amended by Title II of Pub. L. 
102-366 and implemented by an OFPP Policy Directive and Test Plan, dated 
August 31, 1989, as amended on April 16, 1993. The program will be 
conducted over the period from January 1, 1989, through September 30, 
1997. Pursuant to Section 713(a) of Pub. L. 100-656, the requirements of 
the FAR that are inconsistent with the program procedures are waived. 
The program consists of two major components--
    (a) A test of unrestricted competition in four designated industry 
groups; and
    (b) A test of enhanced small business participation in 10 agency 
targeted industry categories.
[55 FR 52792, Dec. 21, 1990, as amended at 59 FR 11376, Mar. 10, 1994; 
59 FR 67036, Dec. 28, 1994; 61 FR 67422, Dec. 20, 1996]



19.1002  Definition.

    Emerging small business, as used in this subpart, means a small 
business concern whose size is no greater than 50 percent of the 
numerical size standard applicable to the standard industrial 
classification code assigned to a contracting opportunity.



19.1003  Purpose.

    The purpose of the demonstration program is to--
    (a) Test the ability of small businesses to compete successfully in 
certain industry categories without competition being restricted by the 
use of small business set-asides. This portion of the program is limited 
to the four designated industry groups listed in section 19.1005.
    (b) Measure the extent to which awards are made to a new category of 
small businesses (ESB's), and to provide for certain acquisitions to be 
reserved for ESB participation only. This portion of the program is also 
limited to the four designated industry groups listed in section 
19.1005.
    (c) Expand small business participation in 10 targeted industry 
categories through continued use of set-aside procedures, increased 
management attention, and specifically tailored acquisition procedures, 
as implemented through agency procedures.
[54 FR 5055, Jan. 31, 1989, as amended at 55 FR 52792, Dec. 21, 1990]



19.1004  Participating agencies.

    The following agencies have been identified as participants in the 
demonstration program:
    The Department of Agriculture.
    The Department of Defense, except the Defense Mapping Agency.

[[Page 431]]

    The Department of Energy.
    The Department of Health and Human Services.
    The Department of Interior.
    The Department of Transportation.
    The Department of Veterans Affairs.
    The Environmental Protection Agency.
    The General Services Administration.
    The National Aeronautics and Space Administration.
[54 FR 5055, Jan. 31, 1989, as amended at 54 FR 29281, July 11, 1989; 55 
FR 38516, Sept. 18, 1990]



19.1005  Applicability.

    (a) Designated industry groups. (1) Construction under standard 
industrial classification (SIC) codes that comprise Major Groups 15, 16, 
and 17 (excluding dredging--Federal Procurement Data System (FPDS) 
service codes Y216 and Z216).
    (2) Refuse systems and related services including portable 
sanitation services, under SIC code 4212 or 4953, limited to FPDS 
service code S205.
    (3) Architectural and engineering services (including surveying and 
mapping) under SIC codes 7389, 8711, 8712, or 8713, which are awarded 
under the qualification-based selection procedures required by 40 U.S.C. 
541 et seq. (see subpart 36.6) (limited to FPDS service codes C111 
through C216, C219, T002, T004, T008, T009, T014, and R404).
    (4) Nonnuclear ship repair (including overhauls and conversions) 
performed on nonnuclear propelled and nonpropelled ships under SIC code 
3731, limited to FPDS service codes J998 (repair performed east of the 
108th meridian) and J999 (repair performed west of the 108th meridian).
    (b) Targeted industry categories. Each participating agency, in 
consultation with the Small Business Administration, shall designate its 
own targeted industry categories for enhanced small business 
participation.
[55 FR 52792, Dec. 21, 1990, as amended at 59 FR 67036, Dec. 28, 1994]



19.1006  Procedures.

    (a) General. (1) All solicitations shall include the applicable SIC 
code and size standards.
    (2) The face of each award made pursuant to the program shall 
contain a statement that the award is being issued pursuant to the Small 
Business Competitiveness Demonstration Program.
    (b) Designated industry groups. (1) Solicitations for acquisitions 
in any of the four designated industry groups issued from January 1, 
1989, through September 30, 1997, that have an anticipated dollar value 
greater then $25,000 shall not be considered for small business set-
asides under subpart 19.5 (however, see subparagraphs (b)(2) and (c)(1) 
of this section). Acquisitions in the designated industry groups shall 
continue to be considered for placement under the 8(a) program (see 
subpart 19.8).
    (2) Agencies may reinstate the use of small business set-asides as 
necessary to meet their assigned goals, but only within organizational 
unit(s) that failed to meet the small business participation goal.
    (c) Emerging small business set-aside. (1) All acquisitions in the 
four designated industry groups with an estimated value equal to or less 
than the emerging small business reserve amount established by the 
Office of Federal Procurement Policy shall be set aside for ESB's; 
provided that the contracting officer determines that there is a 
reasonable expectation of obtaining offers from two or more responsible 
ESB's that will be competitive in terms of market price, quality, and 
delivery. If no such reasonable expectation exists, the contracting 
officer shall--
    (i) For acquisitions $25,000 or less, proceed in accordance with 
13.105 or subpart 19.5; or
    (ii) For acquisitions over $25,000, proceed in accordance with 
paragraph (b) of this section.
    (2) If the contracting officer proceeds with the ESB set-aside and 
receives a quotation from only one ESB at a reasonable price, the 
contracting officer shall make the award. If there is no quote from an 
ESB, or the quote is not at a reasonable price, then the contracting 
officer shall cancel the ESB set-aside and proceed in accordance with 
(c)(1) (i) or (ii) of this section.

[[Page 432]]

    (3) When using other than simplified acquisition procedures for ESB 
set-asides, the clause at 52.219-14, Limitations on subcontracting, 
shall be placed in all solicitations and resulting contracts.
    (d) To expand small business participation in the targeted industry 
categories, each participating agency will develop and implement a time-
phased strategy with incremental goals, including reporting on goal 
attainment. To the extent practicable, provisions that encourage and 
promote teaming and joint ventures shall be considered. These provisions 
should permit small business firms to effectively compete for contracts 
that individual small businesses would be ineligible to compete for 
because of lack of production capacity or capability.
[55 FR 52792, Dec. 21, 1990, as amended at 59 FR 11376, Mar. 10, 1994; 
59 FR 67037, Dec. 28, 1994; 60 FR 34757, July 3, 1995; 61 FR 67422, Dec. 
20, 1996]



19.1007  Solicitation provisions.

    (a) The contracting officer shall insert in full text the provision 
at 52.219-19, Small Business Concern Representation for the Small 
Business Competitiveness Demonstration Program, in all solicitations in 
the four designated industry groups.
    (b) The contracting officer shall insert in full text the provision 
at 52.219-20, Notice of Emerging Small Business Set-Aside, in all 
solicitations for emerging small businesses in accordance with 
19.1006(c).
    (c) The contracting officer shall insert in full text the provision 
at 52.219-21, Small Business Size Representation for Targeted Industry 
Categories under the Small Business Competitiveness Demonstration 
Program, in all solicitations issued in each of the targeted industry 
categories under the Small Business Competitiveness Demonstration 
Program that are expected to result in a contract award in excess of 
$25,000.
[55 FR 52793, Dec. 21, 1990]



PARTS 20-21  [RESERVED]






PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS--Table of Contents




Sec.
22.000  Scope of part.
22.001  Definition.

                   Subpart 22.1--Basic Labor Policies

22.101  Labor relations.
22.101-1  General.
22.101-2  Contract pricing and administration.
22.101-3  Reporting labor disputes.
22.101-4  Removal of items from contractors' facilities affected by work 
          stoppages.
22.102  Federal and State labor requirements.
22.102-1  Policy.
22.102-2  Administration.
22.103  Overtime.
22.103-1  Definitions.
22.103-2  Policy.
22.103-3  Procedures.
22.103-4  Approvals.
22.103-5  Contract clauses.

                       Subpart 22.2--Convict Labor

22.201  General.
22.202  Contract clause.

       Subpart 22.3--Contract Work Hours and Safety Standards Act

22.300  Scope of subpart.
22.301  Statutory requirement.
22.302  Liquidated damages and overtime pay.
22.303  Administration and enforcement.
22.304  Variations, tolerances, and exemptions.
22.305  Contract clauses.

   Subpart 22.4--Labor Standards for Contracts Involving Construction

22.400  Scope of subpart.
22.401  Definitions.
22.402  Applicability.
22.403  Statutory and regulatory requirements.
22.403-1  Davis-Bacon Act.
22.403-2  Copeland Act.
22.403-3  Contract Work Hours and Safety Standards Act.
22.403-4  Department of Labor regulations.
22.404  Davis-Bacon Act wage determinations.
22.404-1  Types of wage determinations.
22.404-2  General requirements.
22.404-3  Procedures for requesting wage determinations.
22.404-4  Solicitations issued without wage determinations.

[[Page 433]]

22.404-5  Expiration of project wage determinations.
22.404-6  Modifications of wage determinations.
22.404-7  Correction of wage determinations containing clerical errors.
22.404-8  Notification of improper wage determination before award.
22.404-9  Award of contract without required wage determination.
22.404-10  Posting wage determinations and notice.
22.404-11  Wage determination appeals.
22.405  Labor standards for construction work performed under facilities 
          contracts.
22.406  Administration and enforcement.
22.406-1  Policy.
22.406-2  Wages, fringe benefits, and overtime.
22.406-3  Additional classifications.
22.406-4  Apprentices and trainees.
22.406-5  Subcontracts.
22.406-6  Payrolls and statements.
22.406-7  Compliance checking.
22.406-8  Investigations.
22.406-9  Withholding from or suspension of contract payments.
22.406-10  Disposition of disputes concerning construction contract 
          labor standards enforcement.
22.406-11  Contract terminations.
22.406-12  Cooperation with the Department of Labor.
22.406-13  Semiannual enforcement reports.
22.407  Contract clauses.

                        Subpart 22.5  [Reserved]

             Subpart 22.6--Walsh-Healey Public Contracts Act

22.601  [Reserved]
22.602  Statutory requirements.
22.603  Applicability.
22.604  Exemptions.
22.604-1  Statutory exemptions.
22.604-2  Regulatory exemptions.
22.605  Rulings and interpretations of the Act.
22.606--22.607  [Reserved]
22.608  Procedures.
22.609  Regional jurisdictions of the Department of Labor, Wage and Hour 
          Division.
22.610  Contract clause.

                        Subpart 22.7  [Reserved]

               Subpart 22.8--Equal Employment Opportunity

22.800  Scope of subpart.
22.801  Definitions.
22.802  General.
22.803  Responsibilities.
22.804  Affirmative action programs.
22.804-1  Nonconstruction.
22.804-2  Construction.
22.805  Procedures.
22.806  Inquiries.
22.807  Exemptions.
22.808  Complaints.
22.809  Enforcement.
22.810  Solicitation provisions and contract clauses.

             Subpart 22.9--Nondiscrimination Because of Age

22.901  Policy.
22.902  Handling complaints.

         Subpart 22.10--Service Contract Act of 1965, as Amended

22.1000  Scope of subpart.
22.1001  Definitions.
22.1002  Statutory requirements.
22.1002-1  General.
22.1002-2  Wage determinations based on prevailing rates.
22.1002-3  Wage determinations based on collective bargaining 
          agreements.
22.1002-4  Application of the Fair Labor Standards Act minimum wage.
22.1003  Applicability.
22.1003-1  General.
22.1003-2  Geographical coverage of the Act.
22.1003-3  Statutory exemptions.
22.1003-4  Administrative limitations, variations, tolerances, and 
          exemptions.
22.1003-5  Some examples of contracts covered.
22.1003-6  Repair distinguished from remanufacturing of equipment.
22.1003-7  Questions concerning applicability of the Act.
22.1004  Department of Labor responsibilities and regulations.
22.1005  [Reserved]
22.1006  Contract clauses.
22.1007  Requirement to submit Notice (SF 98/98a).
22.1008  Procedures for preparing and submitting Notice (SF 98/98a).
22.1008-1  Preparation of Notice (SF 98/98a).
22.1008-2  Preparation of SF 98a.
22.1008-3  Section 4(c) successorship with incumbent contractor 
          collective bargaining agreement.
22.1008-4  Procedures when place of performance is unknown.
22.1008-5  Multiple-year contracts.
22.1008-6  Contract modifications (options, extensions, changes in 
          scope) and anniversary dates.
22.1008-7  Required time of submission of Notice.
22.1009  Place of performance unknown.
22.1009-1  General.
22.1009-2  Attempt to identify possible places of performance.
22.1009-3  All possible places of performance identified.

[[Page 434]]

22.1009-4  All possible places of performance not identified.
22.1010  Notification to interested parties under collective bargaining 
          agreements.
22.1011  Response to Notice by Department of Labor.
22.1011-1  Department of Labor action.
22.1011-2  Requests for status or expediting of response.
22.1012  Late receipt or nonreceipt of wage determination.
22.1012-1    General.
22.1012-2  Response to timely submission of Notice--no collective 
          bargaining agreement.
22.1012-3  Response to timely submission of Notice--with collective 
          bargaining agreement.
22.1012-4  Response to late submission of Notice--no collective 
          bargaining agreement.
22.1012-5  Response to late submission of Notice--with collective 
          bargaining agreement.
22.1013  Review of wage determination.
22.1014  Delay of acquisition dates over 60 days.
22.1015  Discovery of errors by the Department of Labor.
22.1016  Statement of equivalent rates for Federal hires.
22.1017  Notice of award.
22.1018  Notification to contractors and employees.
22.1019  Additional classes of service employees.
22.1020  Seniority lists.
22.1021  Requests for hearing.
22.1022  Withholding of contract payments.
22.1023  Termination for default.
22.1024  Cooperation with the Department of Labor.
22.1025  Ineligibility of violators.
22.1026  Disputes concerning labor standards.

            Subpart 22.11--Professional Employee Compensation

22.1101  Applicability.
22.1102  Definition.
22.1103  Policy, procedures, and solicitation provision.

   Subpart 22.12--Nondisplacement of Qualified Workers Under Certain 
                                Contracts

22.1200  Scope of subpart.
22.1201  Statement of policy.
22.1202  Definitions.
22.1203  Applicability.
22.1203-1  General.
22.1203-2  Exclusions.
22.1204  Seniority lists.
22.1205  Notice to employees.
22.1206  Complaint procedures.
22.1207  Withholding of contract payments.
22.1208  Contract clause.

        Subpart 22.13--Special Disabled and Vietnam Era Veterans

22.1300  Scope of subpart.
22.1301  Policy.
22.1302  Applicability.
22.1303  Waivers.
22.1304  Department of Labor notices and reports.
22.1305  Collective bargaining agreements.
22.1306  Complaint procedures.
22.1307  Actions because of noncompliance.
22.1308  Contract clauses.

              Subpart 22.14--Employment of the Handicapped

22.1400  Scope of subpart.
22.1401  Policy.
22.1402  Applicability.
22.1403  Waivers.
22.1404  Department of Labor notices.
22.1405  Collective bargaining agreements.
22.1406  Complaint procedures.
22.1407  Actions because of noncompliance.
22.1408  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42258, Sept. 19, 1983, unless otherwise noted.



22.000  Scope of part.

    This part--
    (a) Deals with general policies regarding contractor labor relations 
as they pertain to the acquisition process;
    (b) Prescribes contracting policy and procedures for implementing 
pertinent labor laws; and
    (c) Prescribes contract clauses with respect to each pertinent labor 
law.



22.001  Definition.

    Administrator or Administrator, Wage and Hour Division, as used in 
this part, means the Administrator, Wage and Hour Division, Employment 
Standards Administration, U.S. Department of Labor, Washington, DC 20210 
or an authorized representative.
[53 FR 4935, Feb. 18, 1988]



                   Subpart 22.1--Basic Labor Policies



22.101  Labor relations.



22.101-1  General.

    (a) Agencies shall maintain sound relations with industry and labor 
to ensure (1) prompt receipt of information

[[Page 435]]

involving labor relations that may adversely affect the Government 
acquisition process and (2) that the Government obtains needed supplies 
and services without delay. All matters regarding labor relations shall 
be handled in accordance with agency procedures.
    (b) Agencies shall remain impartial concerning any dispute between 
labor and contractor management and not undertake the conciliation, 
mediation, or arbitration of a labor dispute. To the extent practicable, 
agencies should ensure that the parties to the dispute use all available 
methods for resolving the dispute, including the services of the 
National Labor Relations Board, Federal Mediation and Conciliation 
Service, the National Mediation Board and other appropriate Federal, 
State, local, or private agencies.
    (c) Agencies should, when practicable, exchange information 
concerning labor matters with other affected agencies to ensure a 
uniform Government approach concerning a particular plant or labor-
management dispute.
    (d) Agencies should take other actions concerning labor relations 
problems to the extent consistent with their acquisition 
responsibilities. For example, agencies should--
    (1) Notify the agency responsible for conciliation, mediation, 
arbitration, or other related action of the existence of any labor 
dispute affecting or threatening to affect agency acquisition programs;
    (2) Furnish to the parties to a dispute factual information 
pertinent to the dispute's potential or actual adverse impact on these 
programs, to the extent consistent with security regulations; and
    (3) Seek a voluntary agreement between management and labor, 
notwithstanding the continuance of the dispute, to permit uninterrupted 
acquisition of supplies and services. This shall only be done, however, 
if the attempt to obtain voluntary agreement does not involve the agency 
in the merits of the dispute and only after consultation with the agency 
responsible for conciliation, mediation, arbitration, or other related 
action.
    (e) The head of the contracting activity may designate programs or 
requirements for which it is necessary that contractors be required to 
notify the Government of actual or potential labor disputes that are 
delaying or threaten to delay the timely contract performance (see 
22.103-5(a)).



22.101-2  Contract pricing and administration.

    (a) Contractor labor policies and compensation practices, whether or 
not included in labor-management agreements, are not acceptable bases 
for allowing costs in cost-reimbursement contracts or for recognition of 
costs in pricing fixed-price contracts if they result in unreasonable 
costs to the Government. For a discussion of allowable costs resulting 
from labor-management agreements, see 31.205-6(c).
    (b) Labor disputes may cause work stoppages that delay the 
performance of Government contracts. Contracting officers shall impress 
upon contractors that each contractor shall be held accountable for 
reasonably avoidable delays. Standard contract clauses dealing with 
default, excusable delays, etc., do not relieve contractors or 
subcontractors from the responsibility for delays that are within the 
contractors' or their subcontractors' control. A delay caused by a 
strike that the contractor or subcontractor could not reasonably prevent 
can be excused; however, it cannot be excused beyond the point at which 
a reasonably diligent contractor or subcontractor could have acted to 
end the strike by actions such as--
    (1) Filing a charge with the National Labor Relations Board to 
permit the Board to seek injunctive relief in court.
    (2) Using other available Government procedures.
    (3) Using private boards or organizations to settle disputes.
    (c) Strikes normally result in changing patterns of cost incurrence 
and therefore may have an impact on the allowability of costs for cost-
reimbursement contracts or for recognition of costs in pricing fixed-
price contracts. Certain costs may increase because of strikes; e.g., 
guard services and attorney's fees. Other costs incurred during a strike 
may not fluctuate (e.g., fixed costs such as rent and depreciation), but 
because of reduced

[[Page 436]]

production, their proportion of the unit cost of items produced 
increases. All costs incurred during strikes shall be carefully examined 
to ensure recognition of only those costs necessary for performing the 
contract in accordance with the Government's essential interest.
    (d) If during a labor dispute, the inspectors' safety is not 
endangered, the normal functions of inspection at the plant of a 
Government contractor shall be continued without regard to the existence 
of a labor dispute, strike, or picket line.



22.101-3  Reporting labor disputes.

    The office administering the contract shall report, in accordance 
with agency procedures, any potential or actual labor disputes that may 
interfere with performing any contracts under its cognizance. If a 
contract contains the clause at 52.222-1, Notice to the Government of 
Labor Disputes, the contractor also must report any actual or potential 
dispute that may delay contract performance.



22.101-4  Removal of items from contractors' facilities affected by work stoppages.

    (a) Items shall be removed from contractors' facilities affected by 
work stoppages in accordance with agency procedures. Agency procedures 
should allow for the following:
    (1) Determine whether removal of items is in the Government's 
interest. Normally the determining factor is the critical needs of an 
agency program.
    (2) Attempt to arrange with the contractor and the union 
representative involved their approval of the shipment of urgently 
required items.
    (3) Obtain appropriate approvals from within the agency.
    (4) Determine who will remove the items from the plant(s) involved.
    (b) Avoid the use or appearance of force and prevent incidents that 
might detrimentally affect labor-management relations.
    (c) When two or more agencies' requirements are or may become 
involved in the removal of items, the contract administration office 
shall ensure that the necessary coordination is accomplished.



22.102  Federal and State labor requirements.



22.102-1  Policy.

    Agencies shall cooperate, and encourage contractors to cooperate 
with Federal and State agencies responsible for enforcing labor 
requirements such as--
    (a) Safety;
    (b) Health and sanitation;
    (c) Maximum hours and minimum wages;
    (d) Equal employment opportunity;
    (e) Child and convict labor;
    (f) Age discrimination;
    (g) Disabled and Vietnam veteran employment; and
    (h) Employment of the handicapped.
[48 FR 42258, Sept. 19, 1983, as amended at 56 FR 55374, Oct. 25, 1991]



22.102-2  Administration.

    (a) Agencies shall cooperate with, and encourage contractors to use 
to the fullest extent practicable, the United States Employment Service 
(USES) and its affiliated local State Employment Service offices in 
meeting contractors' labor requirements. These requirements may be to 
staff new or expanding plant facilities, including requirements for 
workers in all occupations and skills from local labor market areas or 
through the Federal-State employment clearance system.
    (b) Local State employment offices are operated throughout the 
United States, Puerto Rico, Guam, and the Virgin Islands. In addition to 
providing recruitment assistance to contractors, cooperation with the 
local State Employment Service offices will further the national program 
of maintaining continuous assessment of manpower requirements and 
resources on a national and local basis.
    (c) The U.S. Department of Labor is responsible for the 
administration and enforcement of the Occupational Safety and Health 
Act.
[48 FR 42258, Sept. 19, 1983, as amended at 56 FR 55374, Oct. 25, 1991]



22.103  Overtime.



22.103-1  Definitions.

    Normal workweek, as used in this subpart, means, generally, a 
workweek of 40 hours. Outside the United States, its

[[Page 437]]

possessions, and Puerto Rico, a workweek longer than 40 hours shall be 
considered normal if:
    (a) The workweek does not exceed the norm for the area, as 
determined by local custom, tradition, or law; and
    (b) The hours worked in excess of 40 in the workweek are not 
compensated at a premium rate of pay.
    Overtime means time worked by a contractor's employee in excess of 
the employee's normal workweek.
    Overtime premium means the difference between the contractor's 
regular rate of pay to an employee for the shift involved and the higher 
rate paid for overtime. It does not include shift premium.
    Shift premium means the difference between the contractor's regular 
rate of pay to an employee and the higher rate paid for extra-pay-shift 
work.
[48 FR 42258, Sept. 19, 1983 as amended at 51 FR 12293, Apr. 9, 1986]



22.103-2  Policy.

    Contractors shall perform all contracts, so far as practicable, 
without using overtime, particularly as a regular employment practice, 
except when lower overall costs to the Government will result or when it 
is necessary to meet urgent program needs. Any approved overtime, extra-
pay shifts, and multishifts should be scheduled to achieve these 
objectives.



22.103-3  Procedures.

    (a) Solicitations normally shall not specify delivery or performance 
schedules that may require overtime at Government expense.
    (b) In negotiating contracts, contracting officers should, 
consistent with the Government's needs, attempt to (1) ascertain the 
extent that offers are based on the payment of overtime and shift 
premiums and (2) negotiate contract prices or estimated costs without 
these premiums or obtain the requirement from other sources.
    (c) When it becomes apparent during negotiations of applicable 
contracts (see 22.103-5(b)) that overtime will be required in contract 
performance, the contracting officer shall secure from the contractor a 
request for all overtime to be used during the life of the contract, to 
the extent that the overtime can be estimated with reasonable certainty. 
The contractor's request shall contain the information required by 
paragraph (b) of the clause at 52.222-2, Payment for Overtime Premiums.



22.103-4  Approvals.

    (a) The contracting officer shall review the contractor's request 
for overtime. Approval of the use of overtime may be granted by an 
agency approving official after determining in writing that overtime is 
necessary to--
    (1) Meet essential delivery or performance schedules;
    (2) Make up for delays beyond the control and without the fault or 
negligence of the contractor; or
    (3) Eliminate foreseeable extended production bottlenecks that 
cannot be eliminated in any other way.
    (b) Approval by the designated official of use and total dollar 
amount of overtime is required before inclusion of an amount in 
paragraph (a) of the clause at 52.222-2, Payment for Overtime Premiums. 
This clause is to be inserted in cost-reimbursement contracts over 
$100,000, except for those exempted under 22.103-5(b).
    (c) Contracting officer approval of payment of overtime premiums is 
required for time-and-materials and labor-hour contracts (see paragraph 
(a)(3) of the clause at 52.232-7, Payments Under Time-and-Materials and 
Labor-Hour Contracts).
    (d) No approvals are required for paying overtime premiums under 
other types of contracts.
    (e) Approvals by the agency approving official (see 22.103-4(a)) may 
be for an individual contract, project, program, plant, division, or 
company, as practical.
    (f) During contract performance, contractor requests for overtime 
exceeding the amount authorized by paragraph (a) of the clause at 
52.222-2, Payment for Overtime Premiums, shall be submitted as stated in 
paragraph (b) of the clause to the office administering the contract. 
That office will review the request and if it approves, send the request 
to the contracting officer. If the contracting officer determines that 
the requested overtime should be approved in whole or in part, the 
contracting officer shall request the approval of the

[[Page 438]]

agency's designated approving official and modify paragraph (a) of the 
clause to reflect any approval.
    (g) Overtime premiums at Government expense should not be approved 
when the contractor is already obligated, without the right to 
additional compensation, to meet the required delivery date.
    (h) When the use of overtime is authorized under a contract, the 
office administering the contract and the auditor should periodically 
review the use of overtime to ensure that it is allowable in accordance 
with the criteria in part 31. Only overtime premiums for work in those 
departments, sections, etc., of the contractor's plant that have been 
individually evaluated and the necessity for overtime confirmed shall be 
considered for approval.
    (i) Approvals for using overtime shall ordinarily be prospective, 
but, if justified by emergency circumstances, approvals may be 
retroactive.



22.103-5  Contract clauses.

    (a) The contracting officer shall insert the clause 52.222-1, Notice 
to the Government of Labor Disputes, in solicitations and contracts that 
involve programs or requirements that have been designated under 22.101-
1(e).
    (b) The contracting officer shall include the clause at 52.222-2, 
Payment for Overtime Premiums, in solicitations and contracts when a 
cost-reimbursement contract is contemplated and the contract amount is 
expected to be over $100,000; unless (a) a cost-reimbursement contract 
for operation of vessels is contemplated, or (b) a cost-plus-incentive-
fee contract that will provide a swing from the target fee of at least 
plus or minus 3 percent and a contractor's share of at least 10 percent 
is contemplated.



                       Subpart 22.2--Convict Labor



22.201  General.

    (a) Executive Order 11755, December 29, 1973, as amended by 
Executive Order 12608, September 9, 1987, and Executive Order 12943, 
December 13, 1994, states: ``The development of the occupational and 
educational skills of prison inmates is essential to their 
rehabilitation and to their ability to make an effective return to free 
society. Meaningful employment serves to develop those skills. It is 
also true, however, that care must be exercised to avoid either the 
exploitation of convict labor or any unfair competition between convict 
labor and free labor in the production of goods and services.'' The 
Executive order does not prohibit the contractor, in performing the 
contract, from employing--
    (1) Persons on parole or probation;
    (2) Persons who have been pardoned or who have served their terms;
    (3) Federal prisoners; or
    (4) Nonfederal prisoners authorized to work at paid employment in 
the community under the laws of a jurisdiction listed in the Executive 
order if--
    (i) The worker is paid or is in an approved work training program on 
a voluntary basis;
    (ii) Representatives of local union central bodies or similar labor 
union organizations have been consulted;
    (iii) Paid employment will not--
    (A) Result in the displacement of employed workers;
    (B) Be applied in skills, crafts, or trades in which there is a 
surplus of available gainful labor in the locality; or
    (C) Impair existing contracts for services;
    (iv) The rates of pay and other conditions of employment will not be 
less than those for work of a similar nature in the locality where the 
work is being performed; and
    (v) The Attorney General of the United States has certified that the 
work-release laws or regulations of the jurisdiction involved are in 
conformity with the requirements of Executive Order 11755, as amended.
    (b) Department of Justice regulations authorize the Director of the 
Bureau of Justice Assistance to exercise the power and authority vested 
in the Attorney General by the Executive order to certify and to revoke 
the certification of work-release laws or regulations (see 28 CFR 0.94-
1(b)).
[61 FR 31644, June 20, 1996]



22.202  Contract clause.

    The contracting officer shall insert the clause at 52.222-3, Convict 
Labor, in solicitations and contracts above the

[[Page 439]]

micro-purchase threshold, when the contract is to be performed in any 
State, the District of Columbia, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern 
Mariana Islands, or the Trust Territory of the Pacific Islands; unless--
    (a) The contract will be subject to the Walsh-Healey Public 
Contracts Act (see subpart 22.6), which contains a separate prohibition 
against the employment of convict labor;
    (b) The supplies or services are to be purchased from Federal Prison 
Industries, Inc. (see subpart 8.6); or
    (c) The acquisition involves the purchase, from any State prison, of 
finished supplies that may be secured in the open market or from 
existing stocks, as distinguished from supplies requiring special 
fabrication.
[48 FR 42258, Sept. 19, 1983, as amended at 60 FR 34758, July 3, 1995; 
61 FR 31644, June 20, 1996]



       Subpart 22.3--Contract Work Hours and Safety Standards Act



22.300  Scope of subpart.

    This subpart prescribes policies and procedures for applying the 
requirements of the Contract Work Hours and Safety Standards Act (40 
U.S.C. 327-333) (the Act) to contracts that may require or involve 
laborers or mechanics. In this subpart, the term laborers or mechanics 
includes apprentices, trainees, helpers, watchmen, guards, firefighters, 
fireguards, and workmen who perform services in connection with dredging 
or rock excavation in rivers or harbors, but does not include any 
employee employed as a seaman.
[51 FR 12293, Apr. 9, 1986]



22.301  Statutory requirement.

    The Act requires that certain contracts contain a clause specifying 
that no laborer or mechanic doing any part of the work contemplated by 
the contract shall be required or permitted to work more than 40 hours 
in any workweek unless paid for all such overtime hours at not less than 
1\1/2\ times the basic rate of pay.
[48 FR 42258, Sept. 19, 1983 as amended at 51 FR 12293, Apr. 9, 1986]



22.302  Liquidated damages and overtime pay.

    (a) As set forth in the Act, when an overtime computation discloses 
under-payments, the contractor and any subcontractor responsible 
therefor shall be liable to the affected employee for the emplolyee's 
unpaid wages and shall, in addition, be liable to the Government for 
liquidated damages. Liquidated damages shall be computed for each 
affected employee in the sum of $10 for each calendar day on which such 
employee was required or permitted to work in excess of the standard 
workweek of 40 hours without payment of the overtime wages required by 
the Act.
    (b) In the event of failure or refusal of the contractor or any 
subcontractor to comply with overtime pay requirements of the Act, if 
the funds withheld by Federal agencies for labor standards violations 
are not sufficient to pay fully both the unpaid wages due laborers and 
mechanics and the liquidated damages due the Government, the available 
funds shall be used first to compensate the laborers and mechanics for 
the wages to which they are entitled (or an equitable portion thereof 
when the funds are not adequate for this purpose); and the balance, if 
any, shall be used for the payment of liquidated damages.
    (c) If the head of an agency or a designee finds that the 
administratively determined liquidated damages due under section 104(c) 
of the Contract Work Hours and Safety Standards Act are incorrect, or 
that the contractor or subcontractor inadvertently violated the 
provisions of the Act notwithstanding the exercise of due care, the 
agency head or a designee may--
    (1) Make an adjustment in, or release the contractor or 
subcontractor from the liability for, liquidated damages of $500 or 
less; or
    (2) Make a recommendation to the Secretary of Labor for an 
adjustment in or release from the liability when the liquidated damages 
are over $500.

[[Page 440]]

    (d) Upon final administrative determination, funds withheld or 
collected for liquidated damages shall be disposed of in accordance with 
agency procedures.
[51 FR 12293, Apr. 9, 1986, as amended at 53 FR 4935, Feb. 18, 1988]



22.303  Administration and enforcement.

    The procedures and reports required for construction contracts in 
subpart 22.4 also apply to investigations of alleged violations of the 
Act on other than construction contracts.



22.304  Variations, tolerances, and exemptions.

    (a) The Secretary of Labor under 40 U.S.C. 331, upon the Secretary's 
initiative or at the request of any Federal agency, may provide 
reasonable limitations and allow variations, tolerances, and exemptions 
to and from any or all provisions of the Act (see 29 CFR 5.15).
    (b) The Secretary of Labor may make variations, tolerances, and 
exemptions from the regulatory requirements of applicable parts of 29 
CFR when the Secretary finds that such action is necessary and proper in 
the public interest or to prevent injustice and undue hardship (see 29 
CFR 5.14).
[51 FR 12293, Apr. 9, 1986]



22.305  Contract clauses.

    The contracting officer shall insert the clause at 52.222-4, 
Contract Work Hours and Safety Standards Act-Overtime Compensation, in 
solicitations and contracts (including, for this purpose, basic ordering 
agreements) when the contract may require or involve the employment of 
laborers or mechanics. However, the contracting officer shall not 
include the clause in solicitations and contracts if it is contemplated 
that the contract will be in one of the following categories:
    (a) Contracts at or below the simplified acquisition threshold.
    (b) Contracts for supplies, materials, or articles ordinarily 
available in the open market.
    (c) Contracts for transportation by land, air, or water, or for the 
transmission of intelligence.
    (d) Contracts to be performed solely within a foreign country or 
within a territory under United States jurisdiction other than a State, 
the District of Columbia, Puerto Rico, the Virgin Islands, Outer 
Continental Shelf Lands as defined in the Outer Continental Shelf Lands 
Act (43 U.S.C. 1331), American Samoa, Guam, Wake Island, and Johnston 
Island.
    (e) Contracts requiring work to be done solely in accordance with 
the Walsh-Healey Public Contracts Act (see subpart 22.6).
    (f) Contracts (or portions of contracts) for supplies in connection 
with which any required services are merely incidental to the contract 
and do not require substantial employment of laborers or mechanics.
    (g) Contracts for commercial items (see parts 2 and 12).
    (h) Any other contracts exempt under regulations of the Secretary of 
Labor (29 CFR 5.15).
[51 FR 12293, Apr. 9, 1986, as amended at 53 FR 661, Jan. 11, 1988; 60 
FR 34758, July 3, 1995; 60 FR 48248, Sept. 18, 1995]



   Subpart 22.4--Labor Standards for Contracts Involving Construction

    Source: 53 FR 4935, Feb. 18, 1988, unless otherwise noted.



22.400  Scope of subpart.

    This subpart implements the statutes which prescribe labor standards 
requirements for contracts in excess of $2,000 for construction, 
alteration, or repair, including painting and decorating, of public 
buildings and public works. (See definition of Construction in section 
22.401.) Labor relations requirements prescribed in other subparts of 
part 22 may also apply.



22.401  Definitions.

    Building or work, as used in this subpart generally means 
construction activity as distinguished from manufacturing, furnishing of 
materials, or servicing and maintenance work. The terms include, without 
limitation, buildings, structures, and improvements of all types, such 
as bridges, dams, plants, highways, parkways, streets, subways, tunnels, 
sewers,

[[Page 441]]

mains, power lines, pumping stations, heavy generators, railways, 
airports, terminals, docks, piers, wharves, ways, lighhouses, buoys, 
jetties, breakwaters, levees, canals, dredging, shoring, rehabilitation 
and reactivation of plants, scaffolding, drilling, blasting, excavating, 
clearing, and landscaping. The manufacture or furnishing of materials, 
articles, supplies, or equipment (whether or not a Federal or State 
agency acquires title to such materials, articles, supplies, or 
equipment during the course of the manufacture or furnishing, or owns 
the materials from which they are manufactured or furnished) is not 
building or work within the meaning of the regulations in this subpart 
unless conducted in connection with and at the site of such building or 
work as is described in the foregoing sentence, or under the United 
States Housing Act of 1937 and the Housing Act of 1949 in the 
construction or development of the project.
    Construction, alteration, or repair, as used in this subpart, means 
all types of work done on a particular building or work at the site 
thereof, including without limitation, altering, remodeling, 
installation (if appropriate) on the site of the work of items 
fabricated off-site, painting and decorating, the transporting of 
materials and supplies to or from the building or work by the employees 
of the construction contractor or construction subcontractor, and the 
manufacturing or furnishing of materials, articles, supplies, or 
equipment on the site of the building or work by persons employed by the 
contractor or subcontractor.
    Laborers or mechanics, as used in this subpart, includes--
    (a) Those workers, utilized by a contractor or subcontractor at any 
tier, whose duties are manual or physical in nature (including those 
workers who use tools or who are performing the work of a trade), as 
distinguished from mental or managerial;
    (b) Apprentices, trainees, helpers, and, in the case of contracts 
subject to the Contract Work Hours and Safety Standards Act, watchmen 
and guards. The terms ``apprentice'' and ``trainee'' are defined as 
follows:
    (1) Apprentice means (i) a person employed and individually 
registered in a bona fide apprenticeship program registered with the 
U.S. Department of Labor, Employment and Training Administration, Bureau 
of Apprenticeship and Training, or with a State Apprenticeship Agency 
recognized by the Bureau, or (ii) a person in the first 90 days of 
probationary employment as an apprentice in such an apprenticeship 
program, who is not individually registered in the program, but who has 
been certified by the Bureau of Apprenticeship and Training or a State 
Apprenticeship Agency (where appropriate) to be eligible for 
probationary employment as an apprentice.
    (2) Trainee means a person registered and receiving on-the-job 
training in a construction occupation under a program which has been 
approved in advance by the U.S. Department of Labor, Employment and 
Training Administration, as meeting its standards for on-the-job 
training programs and which has been so certified by the Administration.
    (c) Working foremen who devote more than 20 percent of their time 
during a workweek performing duties of a laborer or mechanic, and who do 
not meet the criteria of 29 CFR part 541, for the time so spent; and
    (d) Every person performing the duties of a laborer or mechanic, 
regardless of any contractual relationship alleged to exist between the 
contractor and those individuals. The terms exclude workers whose duties 
are primarily executive, supervisory (except as provided in paragraph 
(c) of this definition), administrative, or clerical, rather than 
manual. Persons employed in a bona fide executive, administrative, or 
professional capacity as defined in 29 CFR part 541 are not deemed to be 
laborers or machanics.
    Public building or public work, as used in this subpart, means 
building or work, the construction, prosecution, completion, or repair 
of which, as defined in this section, is carried on directly by 
authority of, or with funds of, a Federal agency to serve the interest 
of the general public regardless of whether title thereof is in a 
Federal agency.
    Site of the work, as used in this subpart, is defined as follows:

[[Page 442]]

    (a) The site of the work is limited to the physical place or places 
where the construction called for in the contract will remain when work 
on it is completed, and nearby property, as described in paragraph (b) 
of this definition, used by the contractor or subcontractor during 
construction that, because of proximity, can reasonably be included in 
the site.
    (b) Except as provided in paragraph (c) of this definition, 
fabrication plants, mobile factories, batch plants, borrow pits, job 
headquarters, tool yards, etc., are parts of the site of the work; 
provided they are dedicated exclusively, or nearly so, to performance of 
the contract or project, and are so located in proximity to the actual 
construction location that it would be reasonable to include them.
    (c) The site of the work does not include permanent home offices, 
branch plant establishments, fabrication plants, or tool yards of a 
contractor or subcontractor whose locations and continuance in operation 
are determined wholly without regard to a particular Federal contract or 
project. In addition, fabrication plants, batch plants, borrow pits, job 
headquarters, yards, etc., of a commercial supplier or materialman which 
are established by a supplier of materials for the project before 
opening of bids and not on the project site, are not included in the 
site of the work. Such permanent, previously established facilities are 
not a part of the site of the work, even if the operations for a period 
of time may be dedicated exclusively, or nearly so, to the performance 
of a contract.
    Wages, as used in this subpart, means the basic hourly rate of pay; 
any contribution irrevocably made by a contractor or subcontractor to a 
trustee or to a third person pursuant to a bona fide fringe benefit 
fund, plan, or program; and the rate of costs to the contractor or 
subcontractor which may be reasonably anticipated in providing bona fide 
fringe benefits to laborers and mechanics pursuant to an enforceable 
commitment to carry out a financially responsible plan or program, which 
was communicated in writing to the laborers and mechanics affected. The 
fringe benefits enumerated in the Davis-Bacon Act include medical or 
hospital care, pensions on retirement or death, compensation for 
injuries or illness resulting from occupational activity, or insurance 
to provide any of the foregoing; unemployment benefits; life insurance, 
disability insurance, sickness insurance, or accident insurance; 
vacation or holiday pay; defraying costs of apprenticeship or other 
similar programs; or other bona fide fringe benefits. Fringe benefits do 
not include benefits required by other Federal, State, or local law.
[53 FR 4935, Feb. 18, 1988, as amended at 57 FR 44263, Sept. 24, 1992; 
59 FR 67038, Dec. 28, 1994]



22.402  Applicability.

    (a) Contracts for construction work.
    (1) The requirements of this subpart apply--
    (i) Only if the construction work is, or reasonably can be foreseen 
to be, performed at a particular site so that wage rates can be 
determined for the locality, and only to construction work that is 
performed by laborers and mechanics at the site of the work;
    (ii) To dismantling, demolition, or removal of improvements if a 
part of the construction contract, or if construction at that site is 
anticipated by another contract as provided in subpart 37.3;
    (iii) To the manufacture or fabrication of construction materials 
and components conducted in connection with the construction and on the 
site of the work by the contractor or a subcontractor under a contract 
otherwise subject to this subpart; and
    (iv) To painting of public buildings or public works, whether 
performed in connection with the original construction or as alteration 
or repair of an existing structure.
    (2) The requirements of this subpart do not apply to--
    (i) The manufacturing of components or materials off the site of the 
work or their subsequent delivery to the site by the commercial supplier 
or materialman;
    (ii) Contracts requiring construction work that is so closely 
related to research, experiment, and development that it cannot be 
performed separately, or that is itself the subject of research,

[[Page 443]]

experiment, or development (see paragraph (b) of this section for 
applicability of this subpart to research and development contracts or 
portions thereof involving construction, alteration, or repair of a 
public building or public work);
    (iii) Employees of railroads operating under collective bargaining 
agreements that are subject to the Railway Labor Act; or
    (iv) Employees who work at contractors' or subcontractors' permanent 
home offices, fabrication shops, or tool yards not located at the site 
of the work. However, if the employees go to the site of the work and 
perform construction activities there, the requirements of this subpart 
are applicable for the actual time so spent, not including travel unless 
the employees transport materials or supplies to or from the site of the 
work.
    (b) Nonconstruction contracts involving some construction work. (1) 
The requirements of this subpart apply to construction work to be 
performed as part of nonconstruction contracts (supply, service, 
research and development, etc.) if--
    (i) The construction work is to be performed on a public building or 
public work;
    (ii) The contract contains specific requirements for a substantial 
amount of construction work exceeding the monetary threshold for 
application of the Davis Bacon Act (the word substantial relates to the 
type and quantity of construction work to be performed and not merely to 
the total value of construction work as compared to the total value of 
the contract); and
    (iii) The construction work is physically or functionally separate 
from, and is capable of being performed on a segregated basis from, the 
other work required by the contract.
    (2) The requirements of this subpart do not apply if--
    (i) The construction work is incidental to the furnishing of 
supplies, equipment, or services (for example, the requirements do not 
apply to simple installation or alteration at a public building or 
public work that is incidental to furnishing supplies or equipment under 
a supply contract; however, if a substantial and segregable amount of 
construction, alteration, or repair is required, such as for 
installation of heavy generators or large refrigerator systems or for 
plant modification or rearrangement, the requirements of this subpart 
apply); or
    (ii) The construction work is so merged with nonconstruction work or 
so fragmented in terms of the locations or time spans in which it is to 
be performed, that it is not capable of being segregated as a separate 
contractual requirement.



22.403  Statutory and regulatory requirements.



22.403-1  Davis-Bacon Act.

    The Davis-Bacon Act (40 U.S.C. 276a-276a-7) provides that contracts 
in excess of $2,000 to which the United States or the District of 
Columbia is a party for construction, alteration, or repair (including 
painting and decorating) of public buildings or public works within the 
United States, shall contain a clause (see 52.222-6) that no laborer or 
mechanic employed directly upon the site of the work shall receive less 
than the prevailing wage rates as determined by the Secretary of Labor.



22.403-2  Copeland Act.

    The Copeland (Anti-Kickback) Act (18 U.S.C. 874 and 40 U.S.C. 276c) 
makes it unlawful to induce, by force, intimidation, threat of procuring 
dismissal from employment, or otherwise, any person employed in the 
construction or repair of public buildings or public works, financed in 
whole or in part by the United States, to give up any part of the 
compensation to which that person is entitled under a contract of 
employment. The Copeland Act also requires each contractor and 
subcontractor to furnish weekly a statement of compliance with respect 
to the wages paid each employee during the preceding week. Contracts 
subject to the Copeland Act shall contain a clause (see 52.222-10) 
requiring contractors and subcontractors to comply with the regulations 
issued by the Secretary of Labor under the Copeland Act.

[[Page 444]]



22.403-3  Contract Work Hours and Safety Standards Act.

    The Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333) 
requires that certain contracts (see 22.305) contain a clause (see 
52.222-4) specifying that no laborer or mechanic doing any part of the 
work contemplated by the contract shall be required or permitted to work 
more than 40 hours in any workweek unless paid for all additional hours 
at not less than 1\1/2\ times the basic rate of pay (see 22.301).



22.403-4  Department of Labor regulations.

    Under the statutes referred to in this 22.403 and Reorganization 
Plan No. 14 of 1950 (3 CFR 1949-53 Comp., p. 1007), the Secretary of 
Labor has issued regulations in Title 29, Subtitle A, Code of Federal 
Regulations, prescribing standards and procedures to be observed by the 
Department of Labor and the Federal contracting agencies. Those 
standards and procedures applicable to contracts involving construction 
are implemented in this subpart. The Department of Labor regulations 
include--
    (a) Part 1, relating to Davis-Bacon Act minimum wage rates;
    (b) Part 3, relating to the Copeland (Anti-Kickback) Act and 
requirements for submission of weekly statements of compliance and the 
preservation and inspection of weekly payroll records;
    (c) Part 5, relating to enforcement of the Davis-Bacon Act, Contract 
Work Hours and Safety Standards Act, and Copeland (Anti-Kickback) Act;
    (d) Part 6, relating to rules of practice for appealing the findings 
of the Administrator, Wage and Hour Division, in enforcement cases under 
the Davis-Bacon Act, Contract Work Hours and Safety Standards Act, 
Copeland (Anti-Kickback) Act, and Service Contract Act, and by which 
Administrative Law Judge hearings are held; and
    (e) Part 7, relating to rules of practice by which contractors and 
other interested parties may appeal to the Department of Labor Wage 
Appeals Board, decisions issued by the Administrator, Wage and Hour 
Division, or administrative law judges under the Davis-Bacon Act, 
Contract Work Hours and Safety Standards Act, or Copeland (Anti-
Kickback) Act. All questions relating to the application and 
interpretation of wage determinations (including the classifications 
therein) and the interpretation of the Department of Labor regulations 
in this subsection shall be referred to the Administrator, Wage and Hour 
Division.



22.404  Davis-Bacon Act wage determinations.

    The Department of Labor is responsible for issuing wage 
determinations reflecting prevailing wages, including fringe benefits. 
The wage determinations apply only to those laborers and mechanics 
employed by a contractor upon the site of the work including drivers who 
transport to or from the site materials and equipment used in the course 
of contract operations. Determinations are issued for different types of 
construction, such as building, heavy, highway, and residential 
(referred to as rate schedules), and apply only to the types of 
construction designated in the determination.



22.404-1  Types of wage determinations.

    (a) General wage determinations.
    (1) A general wage determination contains prevailing wage rates for 
the types of construction designated in the determination, and is used 
in contracts performed within a specified geographical area. General 
wage determinations contain no expiration date and remain valid until 
modified, superseded, or canceled by a notice in the Federal Register by 
the Department of Labor. Once incorporated in a contract, a general wage 
determination normally remains effective for the life of the contract. 
These determinations shall be used whenever possible. They are issued at 
the discretion of the Department of Labor either upon receipt of an 
agency request or on the Department of Labor's own initiative.
    (2) General wage determinations are published weekly in the 
Government

[[Page 445]]

Printing Office (GPO) document entitled ``General Wage Determinations 
Issued Under the Davis-Bacon and Related Acts.'' Notices of general wage 
determinations are published in the Federal Register. General wage 
determinations are effective on the publication date of the notice or 
upon receipt of the determination by the contracting agency, whichever 
occurs first.
    (3) The GPO publication is available for examination at each of the 
50 Regional Government Depository Libraries and many other of the 1,400 
Government Depository Libraries across the country. Subscriptions may be 
obtained by contacting: Superintendent of Documents, U.S. Government 
Printing Office, Washington, DC 20402. The GPO publication is divided 
into three volumes East, Central, and West which may be ordered 
separately. The States covered by each volume are as follows:

                             Volume I--East

Alabama
Connecticut
Delaware
Florida
Georgia
Kentucky
Maine
Maryland
Massachusetts
Mississippi
New Hampshire
New Jersey
New York
North Carolina
Pennsylvania
Rhode Island
South Carolina
Tennessee
Vermont
Virginia
West Virginia
District of Columbia
Puerto Rico
Virgin Islands

                           Volume II--Central

Arkansas
Illinois
Iowa
Indiana
Kansas
Louisiana
Michigan
Minnesota
Missouri
Nebraska
Ohio
Oklahoma
Texas
Wisconsin
New Mexico

                            Volume III--West

Alaska
Arizona
California
Colorado
Guam
Idaho
Montana
Nevada
North Dakota
Hawaii
South Dakota
Utah
Washington
Wyoming
Oregon
    (4) On or about January 1 of each year, an annual edition will be 
issued that includes all current general wage determinations for the 
States covered by each volume. Throughout the remainder of the year 
regular weekly updates will be distributed providing any modifications 
or superseded wage determinations issued. Each volume's annual and 
weekly editions will be provided in loose-leaf format.
    (b) Project wage determinations. A project wage determination is 
issued at the specific request of a contracting agency. It is used only 
when no general wage determination applies, and is effective for 180 
calendar days from the date of the determination. However, if a 
determination expires before contract award, it may be possible to 
obtain an extension to the 180-day life of the determination (see 
22.404-5(b)(2)). Once incorporated in a contract, a project wage 
determination normally remains effective for the life of the contract.



22.404-2  General requirements.

    (a) The contracting officer shall ensure that only the appropriate 
wage determinations are incorporated in solicitations and contracts and 
shall designate the work to which each wage determination or part 
thereof applies.
    (b) If the wage determination is a general wage determination or a 
project wage determination containing more than one rate schedule, the 
contracting officer shall either include only the rate schedules that 
apply to the particular types of construction (building, heavy, highway, 
etc.) or include the entire wage determination and clearly indicate the 
parts of the work to which each rate schedule shall be applied. 
Inclusion by reference is not permitted.
    (c) The Wage and Hour Division has issued the following general 
guidelines for use in selecting the proper schedule(s) of wage rates:
    (1) Building construction is generally the construction of sheltered 
enclosures with walk-in access, for housing persons, machinery, 
equipment, or supplies. It typically includes all construction of such 
structures, installation of utilities and equipment (both above and 
below grade level), as well as incidental grading, utilities and paving, 
unless there is an established area practice to the contrary.
    (2) Residential construction is generally the construction, 
alteration, or

[[Page 446]]

repair of single family houses or apartment buildings of no more than 
four (4) stories in height, and typically includes incidental items such 
as site work, parking areas, utilities, streets and sidewalks, unless 
there is an established area practice to the contrary.
    (3) Highway construction is generally the construction, alteration, 
or repair of roads, streets, highways, runways, taxiways, alleys, 
parking areas, and other similar projects that are not incidental to 
building, residential, or heavy construction.
    (4) Heavy construction includes those projects that are not properly 
classified as either building, residential, or highway, and is of a 
catch-all nature. Such heavy projects may sometimes be distinguished on 
the basis of their individual characteristics, and separate schedules 
issued (e.g., dredging, water and sewer line, dams, flood control, 
etc.).
    (5) When the nature of a project is not clear, it is necessary to 
look at additional factors, with primary consideration given to locally 
established area practices. If there is any doubt as to the proper 
application of wage rate schedules to the type or types of construction 
involved, guidance shall be sought before the opening of bids, or 
receipt of best and final offers, from the Administrator, Wage and Hour 
Division. Further examples are contained in Department of Labor All 
Agency Memoranda Numbers 130 and 131.



22.404-3  Procedures for requesting wage determinations.

    (a) Requests for general wage determinations. If there is a general 
wage determination applicable to the project, the agency may use it 
without notifying the Department of Labor. When necessary, a request for 
a general wage determination may be made by submitting Standard Form 
(SF) 308, Request for Determination and Response to Request, to the 
Administrator, Wage and Hour Division, attention: Branch of Construction 
Contract Wage Determinations.
    (b) Requests for project wage determinations. A contracting agency 
shall submit requests for project wage determinations on SF 308 to the 
Department of Labor. The requests shall include the following 
information:
    (1) The location, including the county (or other civil subdivision) 
and State in which the proposed project is located.
    (2) The name of the project and a sufficiently detailed description 
of the work to indicate the types of construction involved (e.g., 
building, heavy, highway, residential, or other type).
    (3) Any available pertinent wage payment information, unless wage 
patterns in the area are clearly established.
    (4) The estimated cost of each project.
    (5) All the classifications of laborers and mechanics likely to be 
employed.
    (c) Time for submission of requests. The time required by the 
Department of Labor for processing requests for project wage 
determinations varies according to the facts and circumstances in each 
case. An agency should expect the processing to take at least 30 days. 
Accordingly, agencies should submit requests to the Department of Labor 
at least 45 days (60 days if possible) before issuing the solicitation.
    (d) Limitations. Project wage determinations are effective for 180 
calendar days from the date of issuance and apply only to contract 
awards made within that time period (see 22.404-1(b)). Project wage 
determinations do not apply to, and shall not be included in, contracts 
other than those for which they are issued. Once incorporated in a 
contract, a project wage determination normally remains effective for 
the life of the contract.
    (e) Review of wage determinations. Immediately upon receipt, the 
contracting agency shall examine the wage determination and inform the 
Department of Labor of any changes necessary or appropriate to correct 
errors. Private parties requesting changes should be advised to submit 
their requests to the Department of Labor.



22.404-4  Solicitations issued without wage determinations.

    (a) If a solicitation is issued before the wage determination is 
obtained, a notice shall be included in the solicitation that the 
schedule of minimum wage rates to be paid under the contract will be 
issued as an amendment to the solicitation.

[[Page 447]]

    (b) In sealed bidding, bids may not be opened until a reasonable 
time after the wage determination has been furnished to all bidders.
    (c) In negotiated acquisitions, the contracting officer may open 
proposals and conduct negotiations before obtaining the wage 
determination. However, the contracting officer shall incorporate the 
wage determination into the solicitation before submission of best and 
final offers.



22.404-5  Expiration of project wage determinations.

    (a) The contracting officer shall make every effort to ensure that 
contract award is made before expiration of the project wage 
determination included in the solicitation.
    (b) The following procedure applies when contracting by sealed 
bidding:
    (1) If a project wage determination expires before bid opening, or 
if it appears before bid opening that a project wage determination may 
expire before award, the contracting officer shall request a new 
determination early enough to ensure its receipt before bid opening. If 
necessary, the contracting officer shall postpone the bid opening date 
to allow a reasonable time to obtain the determination, amend the 
solicitation to incorporate the new determination, and permit bidders to 
amend their bids. If the new determination does not change the wage 
rates and would not warrant amended bids, the contracting officer shall 
amend the solicitation to include the number and date of the new 
determination.
    (2) If a project wage determination expires after bid opening but 
before award, the contracting officer shall request an extension of the 
project wage determination expiration date from the Administrator, Wage 
and Hour Division. The request for extension shall be supported by a 
written finding, which shall include a brief statement of factual 
support, that the extension is necessary and proper in the public 
interest to prevent injustice or undue hardship or to avoid serious 
impairment of the conduct of Government business. If necessary, the 
contracting officer shall delay award to permit either receipt of the 
extension or receipt and processing of a new determination. If the 
request is granted, the contracting officer shall award the contract and 
modify it to apply the extended expiration date to the already 
incorporated project wage determination. (See 43.103(b)(1).) If the 
request is denied, the Administrator will proceed to issue a new project 
wage determination. Upon receipt, the contracting officer shall process 
the new determination as follows:
    (i) If the new determination changes any wage rates for 
classifications to be used in the contract, the contracting officer may 
cancel the solicitation only in accordance with 14.404-1. Otherwise the 
contracting officer shall award the contract and incorporate the new 
determination to be effective on the date of contract award. The 
contracting officer shall equitably adjust the contract price for any 
increased or decreased cost of performance resulting from any changed 
wage rates.
    (ii) If the new determination does not change any wage rates, the 
contracting officer shall award the contract and modify it to include 
the number and date of the new determination. (See 43.103(b)(1).)
    (c) The following procedure applies when contracting by negotiation:
    (1) If a project wage determination will or does expire before 
contract award, the contracting officer shall request a new wage 
determination from the Department of Labor. If necessary, the 
contracting officer shall delay award while the new determination is 
obtained and processed.
    (2) The contracting officer need not delay opening and reviewing 
proposals or discussing them with the offerors while a new determination 
is being obtained. The contracting officer shall request offerors to 
extend the period for acceptance of any proposal if that period expires 
or may expire before receipt and full processing of the new 
determination.
    (3) If the new determination changes any wage rates, the contracting 
officer shall amend the solicitation to incorporate the new 
determination, and furnish the wage rate information to all prospective 
offerors that were sent a solicitation if the closing date for receipt 
of proposals has not yet occurred, or to all offerors that submitted 
proposals if the closing date has passed.

[[Page 448]]

All offerors to whom wage rate information has been furnished shall be 
given reasonable opportunity to amend their proposals.
    (4) If the new determination does not change any wage rates, the 
contracting officer shall amend the solicitation to include the number 
and date of the new determination and award the contract.



22.404-6  Modifications of wage determinations.

    (a) General. The Department of Labor may modify a wage determination 
to make it current by specifying only the items being changed or by 
issuing a supersedeas decision, which is a reissuance of the entire 
determination with changes incorporated. All project wage determination 
modifications expire on the same day as the original determination. The 
need to include a modification of a project wage determination in a 
solicitation is determined by the time of receipt of the modification by 
the contracting agency. Therefore, the modification shall be time-date 
stamped immediately upon receipt by the agency. The need for inclusion 
of a modification of a general wage determination in a solicitation is 
determined by the publication date of the notice in the Federal 
Register, or by the time of receipt of the modification (time-date 
stamped immediately upon receipt) by the contracting agency, whichever 
occurs first. (Note the distinction between receipt by the agency 
(modification is effective) and receipt by the contracting officer, 
which may occur later.)
    (b) The following applies when contracting by sealed bidding:
    (1) A written action modifying a wage determination shall be 
effective if:
    (i) It is received by the contracting agency, or notice of the 
modification is published in the Federal Register, 10 or more calendar 
days before the date of bid opening, or
    (ii) It is received by the contracting agency, or notice of the 
modification is published in the Federal Register, less than 10 calendar 
days before the date of bid opening, unless the contracting officer 
finds that there is not reasonable time available before bid opening to 
notify the prospective bidders. (If the contracting officer finds that 
there is not reasonable time to notify bidders, a written report of the 
finding shall be placed in the contract file and shall be made available 
to the Department of Labor upon request.)
    (2) All written actions modifying wage determinations received by 
the contracting agency after bid opening, or modifications to general 
wage determinations, notices of which are published in the Federal 
Register after bid opening, shall not be effective and shall not be 
included in the solicitation (but see paragraph (b)(6) of this section).
    (3) If an effective modification is received by the contracting 
officer before bid opening, the contracting officer shall postpone the 
bid opening, if necessary, to allow a reasonable time to amend the 
solicitation to incorporate the modification and permit bidders to amend 
their bids. If the modification does not change the wage rates and would 
not warrant amended bids, the contracting officer shall amend the 
solicitation to include the number and date of the modification.
    (4) If an effective modification is received by the contracting 
officer after bid opening, but before award, the contracting officer 
shall follow the procedures in 22.404-5(b)(2)(i) or (ii).
    (5) If an effective modification is received by the contracting 
officer after award, the contracting officer shall modify the contract 
to incorporate the wage modification retroactive to the date of award 
and equitably adjust the contract price for any increased or decreased 
cost of performance resulting from any changed wage rates. If the 
modification does not change any wage rates and would not warrant 
contract price adjustment, the contracting officer shall modify the 
contract to include the number and date of the modification.
    (6) If an award is not made within 90 days after bid opening, any 
modification to a general wage determination, notice of which is 
published in the Federal Register before award, shall be effective for 
any resultant contract unless an extension of the 90-day period is 
obtained from the Administrator, Wage and Hour Division. An agency head 
or a

[[Page 449]]

designee may request such an extension from the Administrator. The 
request must be supported by a written finding, which shall include a 
brief statement of factual support, that the extension is necessary and 
proper in the public interest to prevent injustice, undue hardship, or 
to avoid serious impairment in the conduct of Government business. The 
contracting officer shall follow the procedures in 22.404-5(b)(2).
    (c) The following applies when contracting by negotiation:
    (1) All written actions modifying wage determinations received by 
the contracting agency before contract award, or modifications to 
general wage determinations notices of which are published in the 
Federal Register before award, shall be effective.
    (2) If an effective wage modification is received by the contracting 
officer before award, the contracting officer shall follow the 
procedures in 22.404-5(c)(3) or (4).
    (3) If an effective wage modification is received by the contracting 
officer after award, the contracting officer shall follow the procedures 
in 22.404-6(b)(5).



22.404-7  Correction of wage determinations containing clerical errors.

    Upon the Labor Department's own initiative or at the request of the 
contracting agency, the Administrator, Wage and Hour Division, may 
correct any wage determination found to contain clerical errors. Such 
corrections shall be effective immediately and shall apply to any 
solicitation or active contract. The contracting officer shall follow 
the procedures in 22.404-5(b)(1) or (2)(i) or (ii) in sealed bidding, 
22.404-5(c)(3) or (4) in negotiations, and 22.404-6(b)(5) after contract 
award.



22.404-8  Notification of improper wage determination before award.

    (a) Written notification by the Department of Labor received by the 
contracting officer prior to award that (1) a solicitation includes the 
wrong wage determination or the wrong rate schedule or (2) a wage 
determination is withdrawn by the Department of Labor as a result of a 
decision by the Wage Appeals Board, shall be effective immediately 
without regard to 22.404-6.
    (b) In sealed bidding, the contracting officer shall proceed in 
accordance with the following:
    (1) If the notification reaches the contracting officer before bid 
opening, the contracting officer shall postpone the bid opening date, if 
necessary, to allow a reasonable time to (i) obtain the appropriate 
determination if a new wage determination is required, (ii) amend the 
solicitation to incorporate the determination (or rate schedule), and 
(iii) permit bidders to amend their bids. If the appropriate wage 
determination does not change any wage rates and would not warrant 
amended bids, the contracting officer shall amend the solicitation to 
include the number and date of the new determination.
    (2) If the notification reaches the contracting officer after bid 
opening but before award, the contracting officer shall delay awarding 
the contract, if necessary, and if required, obtain the appropriate wage 
determination. The appropriate wage determination shall be processed in 
accordance with 22.404-5(b)(2)(i) or (ii).
    (c) In negotiated acquisitions, the contracting officer shall delay 
award, if necessary, and process the notification in the manner 
prescribed for a new wage determination at 22.404-5(c)(3).



22.404-9  Award of contract without required wage determination.

    (a) If a contract is awarded without the required wage determination 
(i.e., incorporating no determination, containing a clearly inapplicable 
general wage determination, or containing a project determination which 
is inapplicable because of an inaccurate description of the project or 
its location), the contracting officer shall initiate action to 
incorporate the required determination in the contract immediately upon 
discovery of the error. If a required wage determination (valid 
determination in effect on the date of award) is not available, the 
contracting officer shall expeditiously request a wage determination 
from the Department of Labor, including a statement explaining the 
circumstances and giving the date of the contract award.

[[Page 450]]

    (b) The contracting officer shall--
    (1) Modify the contract to incorporate the required wage 
determination (retroactive to the date of award), and equitably adjust 
the contract price if appropriate; or
    (2) Terminate the contract.



22.404-10  Posting wage determinations and notice.

    The contractor is required to keep a copy of the wage determination 
(and any approved additional classifications) posted at the site of the 
work in a prominent place where it can be easily seen by the workers. 
The contracting officer shall furnish to the contractor, Department of 
Labor Form WH-1321, Notice to Employees Working on Federal and Federally 
Financed Construction Projects, for posting with the wage rates. The 
name, address, and telephone number of the Government officer 
responsible for the administration of the contract shall be indicated in 
the poster to inform workers to whom they may submit complaints or raise 
questions concerning labor standards.



22.404-11  Wage determination appeals.

    The Secretary of Labor has established a Wage Appeals Board which 
decides appeals of final decisions made by the Department of Labor 
concerning Davis-Bacon Act wage determinations. A contracting agency or 
other interested party may file a petition for review under the 
procedures in 29 CFR Part 7 if reconsideration by the Administrator has 
been sought pursuant to 29 CFR 1.8 and denied.



22.405  Labor standards for construction work performed under facilities contracts.

    If it is not certain at the time of contract award that construction 
work may be required under a facilities contract (see 45.301), the 
clause at 52.222-17, Labor Standards for Construction Work--Facilities 
Contracts (see 22.407(c)) shall be included in the contract. When 
covered construction work is necessary after contract award, the 
contracting officer shall obtain the appropriate wage determination and 
incorporate it in the contract and identify the item or items of 
construction work to which the clauses apply.



22.406  Administration and enforcement.



22.406-1  Policy.

    (a) General. Contracting agencies are responsible for ensuring the 
full and impartial enforcement of labor standards in the administration 
of construction contracts. Contracting agencies shall maintain an 
effective program that shall include--
    (1) Ensuring that contractors and subcontractors are informed, 
before commencement of work, of their obligations under the labor 
standards clauses of the contract;
    (2) Adequate payroll reviews, on-site inspections, and employee 
interviews to determine compliance by the contractor and subcontractors, 
and prompt initiation of corrective action when required;
    (3) Prompt investigation and disposition of complaints; and
    (4) Prompt submission of all reports required by this subpart.
    (b) Preconstruction letters and conferences. Before construction 
begins, the contracting officer shall inform the contractor of the labor 
standards clauses and wage determination requirements of the contract 
and of the contractor's and any subcontractor's responsibilities under 
the contract. Unless it is clear that the contractor is fully aware of 
the requirements, the contracting officer shall issue an explanatory 
letter and/or arrange a conference with the contractor promptly after 
award of the contract.



22.406-2  Wages, fringe benefits, and overtime.

    (a) In computing wages paid to a laborer or mechanic, the contractor 
may include only the following items:
    (1) Amounts paid in cash to the laborer or mechanic, or deducted 
from payments under the conditions set forth in 29 CFR 3.5.
    (2) Contributions (except those required by Federal, State, or local 
law) the contractor makes irrevocably to a trustee or a third party 
under any bona fide plan or program to provide for medical or hospital 
care, pensions,

[[Page 451]]

compensation for injuries or illness resulting from occupational 
activity, unemployment benefits, life insurance, disability and sickness 
insurance, accident insurance, or any other bona fide fringe benefit.
    (3) Other contributions or anticipated costs for bona fide fringe 
benefits to the extent expressly approved by the Secretary of Labor.
    (b)(1) The contractor may satisfy the obligation under the clause at 
52.222-6, Davis-Bacon Act, by providing wages consisting of any 
combination of contributions or costs as specified in paragraph (a) of 
this subsection, if the total cost of the combination is not less than 
the total of the basic hourly rate and fringe benefits payments 
prescribed in the wage determination for the classification of laborer 
or mechanic concerned.
    (2) Wages provided by the contractor and fringe benefits payments 
required by the wage determination may include items that are not stated 
as exact cash amounts. In these cases, the hourly cash equivalent of the 
cost of these items shall be determined by dividing the employer's 
contributions or costs by the employee's hours worked during the period 
covered by the costs or contributions. For example, if a contractor pays 
a monthly health insurance premium of $112 for a particular employee who 
worked 125 hours during the month, the hourly cash equivalent is 
determined by dividing $112 by 125 hours, which equals $0.90 per hour. 
Similarly, the calculation of hourly cash equivalent for nine paid 
holidays per year for an employee with an hourly rate of pay of $5.00 is 
determined by multiplying $5.00 by 72 (9 days at 8 hours each), and 
dividing the result of $360 by the number of hours worked by the 
employee during the year. If the interested parties (contractor, 
contracting officer, and employees or their representative) cannot agree 
on the cash equivalent, the contracting officer shall submit the 
question for final determination to the Department of Labor as 
prescribed by agency procedures. The information submitted shall 
include--
    (i) A comparison of the payments, contributions, or costs in the 
wage determination with those made or proposed as equivalents by the 
contractor; and
    (ii) The comments and recommendations of the contracting officer.
    (c) In computing required overtime payments, (i.e., 1\1/2\ times the 
basic hourly rate of pay) the contractor shall use the basic hourly rate 
of pay in the wage determination, or the basic hourly rate actually paid 
by the contractor, if higher. The basic rate of pay includes employee 
contributions to fringe benefits, but excludes the contractor's 
contributions, costs, or payment of cash equivalents for fringe 
benefits. Overtime shall not be computed on a rate lower than the basic 
hourly rate in the wage determination.



22.406-3  Additional classifications.

    (a) If any laborer or mechanic is to be employed in a classification 
that is not listed in the wage determination applicable to the contract, 
the contracting officer, pursuant to the clause at 52.222-6, Davis-Bacon 
Act, shall require that the contractor submit to the contracting 
officer, Standard Form (SF) 1444, Request for Authorization of 
Additional Classification and Rate, which, along with other pertinent 
data, contains the proposed additional classification and minimum wage 
rate including any fringe benefits payments.
    (b) Upon receipt of SF 1444 from the contractor, the contracting 
officer shall review the request to determine whether it meets the 
following criteria:
    (1) The classification is appropriate and the work to be performed 
by the classification is not performed by any classification contained 
in the applicable wage determination.
    (2) The classification is utilized in the area by the construction 
industry.
    (3) The proposed wage rate, including any fringe benefits, bears a 
reasonable relationship to the wage rates in the wage determination in 
the contract.
    (c)(1) If the criteria in paragraph (b) of this section are met and 
the contractor and the laborers or mechanics to be employed in the 
additional classification (if known) or their representatives agree to 
the proposed additional classification, and the contracting officer 
approves, the contracting officer shall submit a report (including a 
copy of SF

[[Page 452]]

1444) of that action to the Administrator, Wage and Hour Division, for 
approval, modification, or disapproval of the additional classification 
and wage rate (including any amount designated for fringe benefits); or
    (2) If the contractor, the laborers or mechanics to be employed in 
the classification or their representatives, and the contracting officer 
do not agree on the proposed additional classification, or if the 
criteria are not met, the contracting officer shall submit a report 
(including a copy of SF 1444) giving the views of all interested parties 
and the contracting officer's recommendation to the Administrator, Wage 
and Hour Division, for determination of appropriate classification and 
wage rate.
    (d)(1) Within 30 days of receipt of the report, the Administrator, 
Wage and Hour Division, will complete action and so advise the 
contracting officer, or will notify the contracting officer that 
additional time is necessary.
    (2) Upon receipt of the Department of Labor's action, the 
contracting officer shall forward a copy of the action to the 
contractor, directing that the classification and wage rate be posted in 
accordance with paragraph (a) of the clause at 52.222-6 and that workers 
in the affected classification receive no less than the minimum rate 
indicated from the first day on which work under the contract was 
performed in the classification.
[53 FR 4935, Feb. 18, 1988, as amended at 57 FR 44263, Sept. 24, 1992; 
59 FR 67038, Dec. 28, 1994]



22.406-4  Apprentices and trainees.

    (a) The contracting officer shall review the contractor's employment 
and payment records of apprentices and trainees made available pursuant 
to the clause at 52.222-8, Payrolls and Basic Records, to ensure that 
the contractor has complied with the clause at 52.222-9, Apprentices and 
Trainees.
    (b) If a contractor has classified employees as apprentices or 
trainees without complying with the requirements of the clause at 
52.222-9, the contracting officer shall reject the classification and 
require the contractor to pay the affected employees at the rates 
applicable to the classification of the work actually performed.



22.406-5  Subcontracts.

    In accordance with the requirements of the clause at 52.222-11, 
Subcontracts (Labor Standards), the contractor and subcontractors at any 
tier are required to submit a fully executed SF 1413, Statement and 
Acknowledgment, upon award of each subcontract.



22.406-6  Payrolls and statements.

    (a) Submission. In accordance with the clause at 52.222-8, Payrolls 
and Basic Records, the contractor must submit or cause to be submitted, 
within 7 calendar days after the regular payment date of the payroll 
week covered, for the contractor and each subcontractor, (1) copies of 
weekly payrolls applicable to the contract, and (2) weekly payroll 
statements of compliance. The contractor may use the Department of Labor 
Form WH-347, Payroll (For Contractor's Optional Use), or a similar form 
that provides the same data and identical representation.
    (b) Withholding for nonsubmission. If the contractor fails to submit 
copies of its or its subcontractors' payrolls promptly, the contracting 
officer shall, from any payment due to the contractor, withhold approval 
of an amount that the contracting officer considers necessary to protect 
the interest of the Government and the employees of the contractor or 
any subcontractor.
    (c) Examination. (1) The contracting officer shall examine the 
payrolls and payroll statements to ensure compliance with the contract 
and any statutory or regulatory requirements. Particular attention 
should be given to--
    (i) The correctness of classifications and rates;
    (ii) Fringe benefits payments;
    (iii) Hours worked;
    (iv) Deductions; and
    (v) Disproportionate employment ratios of laborers, apprentices, or 
trainees, to journeymen.
    (2) Fringe benefits payments, contributions made, or costs incurred 
on other than a weekly basis shall be considered as a part of weekly 
payments to the extent they are creditable to the particular weekly 
period involved and are otherwise acceptable.
    (d) Preservation. The contracting agency shall retain payrolls and 
statements of compliance for 3 years after

[[Page 453]]

completion of the contract and make them available when requested by the 
Department of Labor at any time during that period. Submitted payrolls 
shall not be returned to a contractor or subcontractor for any reasons, 
but copies thereof may be furnished to the contractor or subcontractor 
who submitted them, or to a higher tier contractor or subcontractor.
    (e) Disclosure of payroll records. Contractor payroll records in the 
Government's possession must be carefully protected from any public 
disclosure which is not required by law, since payroll records may 
contain information in which the contractor's employees have a privacy 
interest, as well as information in which the contractor may have a 
proprietary interest that the Government may be obliged to protect. 
Questions concerning release of this information may involve the Freedom 
of Information Act (FOIA).



22.406-7  Compliance checking.

    (a) General. The contracting officer shall make checks and 
investigations on all contracts covered by this subpart as may be 
necessary to ensure compliance with the labor standards requirement of 
the contract.
    (b) Regular compliance checks. Regular compliance checking includes 
the following activities:
    (1) Employee interviews to determine correctness of classifications, 
rates of pay, fringe benefits payments, and hours worked. (See Standard 
Form 1445.)
    (2) On-site inspections to check type of work performed, number and 
classification of workers, and fulfillment of posting requirements.
    (3) Payroll reviews to ensure that payrolls of prime contractors and 
subcontractors have been submitted on time and are complete and in 
compliance with contract requirements.
    (4) Comparison of the information in this paragraph (b) with 
available data, including daily inspector's report and daily logs of 
construction, to ensure consistency.
    (c) Special compliance checks. Situations that may require special 
compliance checks include--
    (1) Inconsistencies, errors, or omissions detected during regular 
compliance checks; or
    (2) Receipt of a complaint alleging violations. If the complaint is 
not specific enough, the complainant shall be so advised and invited to 
submit additional information.



22.406-8  Investigations.

    Contracting agencies are responsible for conducting labor standards 
investigations when available information indicates such action is 
warranted. In addition, the Department of Labor may conduct an 
investigation on its own initiative or may request a contracting agency 
to do so.
    (a) Contracting agencies. The contracting agency shall conduct an 
investigation if a compliance check (see 22.406-7) indicates that 
violations may have occurred that are substantial in amount, willful, or 
not corrected. (See also 22.406-9(a) regarding withholding from contract 
payments.) The investigation shall include all aspects of the 
contractor's compliance with contract labor standards requirements, and 
shall not be limited to specific areas raised in a complaint or 
uncovered during compliance checks. The investigation should be made by 
personnel familiar with labor laws and their application to contracts. 
If oral or written statements are taken from employees during an 
investigation, the statements, or excerpts or summaries thereof, shall 
not be divulged to anyone other than authorized Government officials 
without the prior signed consent of the employee. Investigators may use 
the investigation and enforcement instructions issued by and available 
upon written request from the Administrator, Wage and Hour Division. Any 
available Department of Labor files pertinent to an investigation may be 
obtained upon written request to the Administrator, Wage and Hour 
Division. None of the material obtained from Labor Department files, 
other than computations of back wages and liquidated damages and 
summaries of back wages due, may be disclosed in any manner to any one 
other than responsible Federal officials charged

[[Page 454]]

with administering the contract, without obtaining the permission of the 
Department of Labor.
    (b) Review of the investigation report. The contracting officer 
shall review the investigation report on receipt and make preliminary 
findings regarding the contractor. Adverse findings that are not 
supported by other evidence shall not normally be based solely on 
employee statements that have not been authorized for disclosure by the 
employee. However, if the investigation establishes a pattern of 
possible violations that are based on employees' statements that have 
not been authorized for disclosure, the pattern itself may constitute a 
suitable basis for a finding of noncompliance.
    (c) Notification to the contractor. The contracting officer shall 
take the following actions upon completing the review:
    (1) Provide written notice to the contractor concerning the 
preliminary findings, proposed corrective actions, and the contractor's 
right to request that the basis for the findings be made available and 
to submit written rebuttal information within a reasonable period of 
time.
    (2) Upon request from the contractor, make the basis for the 
findings available. However, under no circumstances will the contractor 
be permitted to examine the investigation report. Also, the contracting 
officer shall not disclose the identity of any employee who filed a 
complaint or who was interviewed, without the prior consent of the 
employee.
    (3)(i) If the contractor submits a rebuttal, reconsider the 
preliminary findings based on information brought out by the rebuttal 
and notify the contractor of the final findings.
    (ii) If no rebuttal is submitted within a reasonable time, the 
preliminary findings shall be considered final.
    (4) Request the contractor to make restitution for underpaid wages 
and liquidated damages determined by the contracting officer to be due, 
whether the violation is considered willful or nonwillful. If the 
request includes liquidated damages, it shall contain a written 
statement that the contractor may within 60 days request relief from 
such assessment.
    (d) Contracting officer's report. (1) After taking the actions 
prescribed in paragraphs (b) and (c) of this section, the contracting 
officer shall prepare and forward a report of violations including 
findings and supporting evidence to the agency head or designee. 
Standard Form 1446, Labor Standards Investigation Summary Sheet, shall 
be completed and attached as the first page of the report.
    (2) After reviewing the contracting officer's report, the agency 
head or the agency head's designee, shall process the report as follows:
    (i) A detailed enforcement report shall be submitted to the 
Administrator, Wage and Hour Division within 60 days after completion of 
the investigation, if--
    (A) Underpayments by a contractor or subcontractor total $1,000 or 
more;
    (B) There is reason to believe that the violations are aggravated or 
willful (or, also, in the case of the Davis-Bacon Act, there is reason 
to believe that the contractor has disregarded its obligations to 
employees and subcontractors);
    (C) Restitution has not been effected; or
    (D) Future compliance has not been assured.
    (ii) If none of the conditions in paragraph (d)(2)(i) of this 
section is present but the investigation was expressly requested by the 
Department of Labor, only a summary report shall be submitted to the 
Administrator, Wage and Hour Division. The report shall summarize any 
violations, including any data on the amount of restitution paid, the 
number of workers who received restitution, liquidated damages assessed 
under the Contract Work Hours and Safety Standards Act, corrective 
measures taken and any information that may be necessary to review any 
recommendations for an appropriate adjustment in liquidated damages.
    (iii) If none of the conditions in paragraph (d)(2) (i) or (ii) of 
this section is present, the case shall be closed and the report 
retained in the appropriate contract file.
    (iv) If substantial evidence is found that violations are willful 
and in violation of a criminal statute (generally 18

[[Page 455]]

U.S.C. 874 or 1001) the report (supplemented if necessary) also shall be 
forwarded to the Attorney General of the United States for prosecution 
if the facts warrant. In all such cases, the Administrator, Wage and 
Hour Division, shall be informed simultaneously of the action taken.
    (e) Department of Labor investigations. In investigations conducted 
by the Department of Labor which disclose (1) underpayments totaling 
$1,000 or more, (2) aggravated/willful violations (or, in the case of 
the Davis-Bacon Act, there is reason to believe that the contractor has 
disregarded its obligations to employees and subcontractors), or (3) 
potential assessment of liquidated damages under the Contract Work Hours 
and Safety Standards Act, the Department of Labor will furnish the 
concerned contracting agency an enforcement report detailing violations 
found and any action taken by the contractor to correct such violations, 
including any payment of back wages. In investigations disclosing other 
than in this paragraph (e), the agency will be furnished a letter of 
notification summarizing the findings of the investigation.



22.406-9  Withholding from or suspension of contract payments.

    (a) Withholding from contract payments. If the contracting officer 
believes a violation exists (see 22.406-8), or upon request of the 
Department of Labor, the contracting officer shall withhold from 
payments due the contractor an amount equal to the estimated wage 
underpayment as well as any estimated liquidated damages due the United 
States under the Contract Work Hours and Safety Standards Act. (See 
22.302.)
    (1) Pursuant to the clauses at 52.222-4, Contract Work Hours and 
Safety Standards Act--Overtime Compensation, and 52.222-7, Withholding 
of Funds, cross-withholding of funds from any current Federal contract 
with the same prime contractor, or from any Federally assisted contract 
with the same prime contractor which is subject to either Davis-Bacon 
prevailing wage requirements or Contract Work Hours and Safety Standards 
Act requirements, respectively, is authorized.
    (2) If subsequent investigation confirms violations, the contracting 
officer shall adjust the withholding as necessary. If the withholding 
was requested by the Department of Labor, the contracting officer shall 
not reduce or release the withholding without written approval of the 
Department of Labor.
    (3) The withheld funds shall be used as provided in paragraph (c) of 
this section to satisfy assessed liquidated damages and, unless the 
contractor makes restitution, validated wage underpayments.
    (b) Suspension of contract payments. If a contractor or 
subcontractor fails or refuses to comply with the labor standards 
clauses of the Davis-Bacon Act and Related Statutes, the agency upon its 
own action or upon the written request of an authorized representative 
of the Department of Labor, shall suspend or cause to be suspended any 
further payment, advance, or guarantee of funds until the violations are 
discontinued or until sufficient funds are withheld to compensate 
employees for the wages to which they are entitled, and to cover any 
liquidated damages which may be due.
    (c) Disposition of contract payments withheld or suspended--(1) 
Forwarding wage underpayments to the Comptroller General. Upon final 
administrative determination, if restitution has not been made by the 
contractor or subcontractor, the contracting officer shall forward to 
the appropriate disbursing office Standard Form (SF) 1093, Schedule of 
Withholdings Under the Davis-Bacon Act (40 U.S.C. 276a) and/or Contract 
Work Hours and Safety Standards Act (40 U.S.C. 327-333). The contracting 
officer shall include with the SF 1093 a listing of the name, social 
security number, and last known address of each affected employee; the 
amount due each employee; employee claims if feasible; and a brief 
statement of the reason for requiring restitution. Also, the contracting 
officer shall indicate if restitution was not made because the employee 
could not be located. Underpaid employees may be assisted in the 
preparation of their claims. The disbursing office shall submit the SF 
1093 with attached additional data and the

[[Page 456]]

funds withheld (by check) to the Comptroller General (Claims Division).
    (2) Returning of withheld funds to contractor. When funds withheld 
are no longer necessary or exceed the amount required to satisfy 
validated wage underpayments and assessed liquidated damages, these 
funds shall be paid the contractor in an expeditious manner.
    (3) Limitation on forwarding or returning funds. If the withholding 
was requested by the Department of Labor or if the findings are disputed 
(see 22.406-10(e)), the contracting officer shall not forward the funds 
to the Comptroller General, Claims Division, or return them to the 
contractor without approval by the Department of Labor.
    (4) Liquidated damages. Upon final administrative determination, 
funds withheld or collected for liquidated damages shall be disposed of 
in accordance with agency procedures.



22.406-10  Disposition of disputes concerning construction contract labor standards enforcement.

    (a) The areas of possible differences of opinion between contracting 
officers and contractors in construction contract labor standards 
enforcement include--
    (1) Misclassification of workers;
    (2) Hours of work;
    (3) Wage rates and payment;
    (4) Payment of overtime;
    (5) Withholding practices; and
    (6) The applicability of the labor standards requirements under 
varying circumstances.
    (b) Generally, these differences are settled administratively at the 
project level by the contracting agency. If necessary, these differences 
may be settled with assistance from the Department of Labor.
    (c) When requesting the contractor to take corrective action in 
labor violation cases, the contracting officer shall inform the 
contractor of the following:
    (1) Disputes concerning the labor standards requirements of the 
contract are handled under the contract clause at 52.222-14, Disputes 
Concerning Labor Standards, and not under the clause at 52.233-1, 
Disputes.
    (2) The contractor may appeal the contracting officer's findings or 
part thereof by furnishing the contracting officer a complete statement 
of the reasons for the disagreement with the findings.
    (d) The contracting officer shall promptly transmit the contracting 
officer's findings and the contractor's statement to the Administrator, 
Wage and Hour Division.
    (e) The Administrator, Wage and Hour Division, will respond directly 
to the contractor or subcontractor, with a copy to the contracting 
agency. The contractor or subcontractor may appeal the Administrator's 
findings in accordance with the procedures outlined in Labor Department 
Regulations (29 CFR 5.11). Hearings before administrative law judges are 
conducted in accordance with 29 CFR part 6, and hearings before the 
Labor Department Wage Appeals Board are conducted in accordance with 29 
CFR part 7.
    (f) The Administrator, Wage and Hour Division, may institute 
debarment proceedings against the contractor or subcontractor if the 
Administrator finds reasonable cause to believe that the contractor or 
subcontractor has committed willful or aggravated violations of the 
Contract Work Hours and Safety Standards Act or the Copeland (Anti-
Kickback) Act, or any of the applicable statutes listed in 29 CFR 5.1 
other than the Davis-Bacon Act, or has committed violations of the 
Davis-Bacon Act that constitute a disregard of its obligations to 
employees or subcontractors under section 3(a) of that Act.



22.406-11  Contract terminations.

    If a contract or subcontract is terminated for violation of the 
labor standards clauses, the contracting agency shall submit a report to 
the Administrator, Wage and Hour Division, and the Comptroller General. 
The report shall include--
    (a) The number of the terminated contract;
    (b) The name and address of the terminated contractor or 
subcontractor;
    (c) The name and address of the contractor or subcontractor, if any, 
who is to complete the work;
    (d) The amount and number of the replacement contract, if any; and
    (e) A description of the work.

[[Page 457]]



22.406-12  Cooperation with the Department of Labor.

    (a) The contracting agency shall cooperate with representatives of 
the Department of Labor in the inspection of records, interviews with 
workers, and all other aspects of investigations undertaken by the 
Department of Labor. When requested, the contracting agency shall 
furnish to the Secretary of Labor any available information on 
contractors, subcontractors, current and previous contracts, and the 
nature of the contract work.
    (b) If a Department of Labor representative undertakes an 
investigation at a construction project, the contracting officer shall 
inquire into the scope of the investigation, and request to be notified 
immediately of any violations discovered under the Davis-Bacon Act, the 
Contract Work Hours and Safety Standards Act, or the Copeland (Anti-
Kickback) Act.



22.406-13  Semiannual enforcement reports.

    A semiannual report on compliance with and enforcement of the 
construction labor standards requirements of the Davis-Bacon Act and 
Contract Work Hours and Safety Standards Act is required from each 
contracting agency. The reporting periods are October 1 through March 31 
and April 1 through September 30. The reports shall only contain 
information as to the enforcement actions of the contracting agency and 
shall be prepared as prescribed in Department of Labor memoranda and 
submitted to the Department of Labor within 30 days after the end of the 
reporting period. This report has been assigned interagency report 
control number 1482-DOL-SA.



22.407  Contract clauses.

    (a) The contracting officer shall insert the following clauses in 
solicitations and contracts in excess of $2,000 for construction within 
the United States:
    (1) The clause at 52.222-6, Davis-Bacon Act.
    (2) The clause at 52.222-7, Withholding of Funds.
    (3) The clause at 52.222-8, Payrolls and Basic Records.
    (4) The clause at 52.222-9, Apprentices and Trainees.
    (5) The clause at 52.222-10, Compliance with Copeland Act 
Requirements.
    (6) The clause at 52.222-11, Subcontracts (Labor Standards).
    (7) The clause at 52.222-12, Contract Termination--Debarment.
    (8) The clause at 52.222-13, Compliance with Davis-Bacon and Related 
Act Regulations.
    (9) The clause at 52.222-14, Disputes Concerning Labor Standards.
    (10) The clause at 52.222-15, Certification of Eligibility.
    (b) The contracting officer shall insert the clause at 52.222-16, 
Approval of Wage Rates, in solicitations and contracts in excess of 
$2,000 for cost-reimbursement construction to be performed within the 
United States, except for contracts with a State or political 
subdivision thereof.
    (c) A contract that is not primarily for construction may contain a 
requirement for some construction work to be performed in the United 
States. If under 22.402(b) the requirements of this subpart apply to the 
construction work, the contracting officer shall insert in such 
solicitations and contracts the applicable construction labor standards 
clauses required in this section and identify the item or items of 
construction work to which the clauses apply.
    (d) The contracting officer shall insert the clause at 52.222-17, 
Labor Standards for Construction Work--Facilities Contracts, in 
solicitations and contracts, if a facilities contract (see 45.301) may 
require covered construction work (see 22.402(b)) to be performed in the 
United States.



                        Subpart 22.5  [Reserved]



             Subpart 22.6--Walsh-Healey Public Contracts Act



22.601  [Reserved]



22.602  Statutory requirements.

    Except for the exemptions at 22.604, all contracts subject to the 
Walsh-Healey Public Contracts Act (the Act) (41 U.S.C. 35-45) and 
entered into by any executive department, independent

[[Page 458]]

establishment, or other agency or instrumentality of the United States, 
or by the District of Columbia, or by any corporation (all the stock of 
which is beneficially owned by the United States) for the manufacture or 
furnishing of materials, supplies, articles, and equipment (referred to 
in this subpart as supplies) in any amount exceeding $10,000, shall 
include or incorporate by reference the stipulations required by the Act 
pertaining to such matters as minimum wages, maximum hours, child labor, 
convict labor, and safe and sanitary working conditions.
[61 FR 67410, Dec. 20, 1996]



22.603  Applicability.

    The requirements in 22.602 apply to contracts (including for this 
purpose, indefinite-delivery contracts, basic ordering agreements, and 
blanket purchase agreements) and subcontracts under Section 8(a) of the 
Small Business Act, for the manufacture or furnishing of supplies that 
are to be performed within the United States, Puerto Rico, or the Virgin 
Islands, and which exceed or may exceed $10,000, unless exempted under 
22.604.



22.604  Exemptions.



22.604-1  Statutory exemptions.

    Contracts for acquisition of the following supplies are exempt from 
the Act:
    (a) Any item in those situations where the contracting officer is 
authorized by the express language of a statute to purchase ``in the 
open market'' generally (such as commercial items, see part 12); or 
where a specific purchase is made under the conditions described in 
6.302-2 in circumstances where immediate delivery is required by the 
public exigency.
    (b) Perishables, including dairy, livestock, and nursery products.
    (c) Agricultural or farm products processed for first sale by the 
original producers.
    (d) Agricultural commodities or the products thereof purchased under 
contract by the Secretary of Agriculture.
[48 FR 42258, Sept. 19, 1983, as amended at 53 FR 4944, Feb. 18, 1988; 
60 FR 48248, Sept. 18, 1995]



22.604-2  Regulatory exemptions.

    (a) Contracts for the following acquisitions are fully exempt from 
the Act (see 41 CFR 50-201.603):
    (1) Public utility services.
    (2) Supplies manufactured outside the United States, Puerto Rico, or 
the Virgin Islands.
    (3) Purchases against the account of a defaulting contractor where 
the stipulations of the Act were not included in the defaulted contract.
    (4) Newspapers, magazines, or periodicals, contracted for with sales 
agents or publisher representatives, which are to be delivered by the 
publishers thereof.
    (b)(1) Upon the request of the agency head, the Secretary of Labor 
may exempt specific contracts or classes of contracts from the inclusion 
or application of one or more of the Act's stipulations; provided, that 
the request includes a finding by the agency head stating the reasons 
why the conduct of Government business will be seriously impaired unless 
the exemption is granted.
    (2) Those requests for exemption that relate solely to safety and 
health standards shall be transmitted to the Assistant Secretary for 
Occupational Safety and Health, U.S. Department of Labor, Washington, DC 
202l0. All other requests shall be transmitted to the Administrator of 
the Wage and Hour Division, U.S. Department of Labor, Washington, DC 
202l0.
[48 FR 42258, Sept. 19, 1983, as amended at 61 FR 67410, Dec. 20, 1996]



22.605  Rulings and interpretations of the Act.

    (a) As authorized by the Act, the Secretary of Labor has issued 
rulings and interpretations concerning the administration of the Act 
(see 41 CFR 50-206). The substance of certain rulings and 
interpretations is as follows:
    (1) If a contract for $10,000 or less is subsequently modified to 
exceed $10,000, the contract becomes subject to the Act for work 
performed after the date of the modification.
    (2) If a contract for more than $10,000 is subsequently modified by 
mutual agreement to $10,000 or less, the contract is not subject to the 
Act for work

[[Page 459]]

performed after the date of the modification.
    (3) If a contract awarded to a prime contractor contains a provision 
whereby the prime contractor is made an agent of the Government, the 
prime contractor is required to include the stipulations of the Act in 
contracts in excess of $10,000 awarded for and on behalf of the 
Government for supplies that are to be used in the construction and 
equipment of Government facilities.
    (4) If a contract subject to the Act is awarded to a contractor 
operating Government-owned facilities, the stipulations of the Act 
affect the employees of that contractor the same as employees of 
contractors operating privately owned facilities.
    (5) Indefinite-delivery contracts, including basic ordering 
agreements and blanket purchase agreements, are subject to the Act 
unless it can be determined in advance that the aggregate amount of all 
orders estimated to be placed thereunder for 1 year after the effective 
date of the agreement will not exceed $10,000. A determination shall be 
made annually thereafter if the contract or agreement is extended, and 
the contract or agreement modified if necessary.
    (b) [Reserved]



22.606--22.607  [Reserved]



22.608  Procedures.

    (a) Award. When a contract subject to the Act is awarded, the 
contracting officer, in accordance with regulations or instructions 
issued by the Secretary of Labor and individual agency procedures, shall 
furnish to the contractor DOL publication WH-1313, Notice to Employees 
Working on Government Contracts.
    (b) Breach of stipulation. In the event of a violation of a 
stipulation required under the Act, the contracting officer shall, in 
accordance with agency procedures, notify the appropriate regional 
office of the DOL, Wage and Hour Division (see 22.609), and furnish any 
information available.
[61 FR 67411, Dec. 20, 1996]



22.609  Regional jurisdictions of the Department of Labor, Wage and Hour Division.

    Geographic jurisdictions of the following regional offices of the 
DOL, Wage and Hour Division, are shown here, and are to be contacted by 
contracting officers in all situations required by this subpart, unless 
otherwise specified:
    (a) The Region I office located in Boston, Massachusetts, has 
jurisdiction for Maine, New Hampshire, Vermont, Massachusetts, Rhode 
Island, and Connecticut.
    (b) The Region II office located in New York, New York, has 
jurisdiction for New York, New Jersey, Puerto Rico, and the Virgin 
Islands.
    (c) The Region III office located in Philadelphia, Pennsylvania, has 
jurisdiction for Pennsylvania, Maryland, Delaware, Virginia, West 
Virginia, and the District of Columbia.
    (d) The Region IV office located in Atlanta, Georgia, has 
jurisdiction for North Carolina, South Carolina, Kentucky, Tennessee, 
Mississippi, Alabama, Georgia, and Florida.
    (e) The Region V office located in Chicago, Illinois, has 
jurisdiction for Ohio, Indiana, Michigan, Illinois, Wisconsin, and 
Minnesota.
    (f) The Region VI office located in Dallas, Texas, has jurisdiction 
for Louisiana, Arkansas, Oklahoma, Texas, and New Mexico.
    (g) The Region VII office located in Kansas City, Missouri, has 
jurisdiction for Missouri, Iowa, Nebraska, and Kansas.
    (h) The Region VIII office located in Denver, Colorado, has 
jurisdiction for North Dakota, South Dakota, Montana, Wyoming, Colorado, 
and Utah.
    (i) The Region IX office located in San Francisco, California, has 
jurisdiction for Arizona, California, Nevada, Hawaii, and Guam.
    (j) The Region X office located in Seattle, Washington, has 
jurisdiction for Washington, Oregon, Idaho, and Alaska.
[48 FR 42258, Sept. 19, 1983 as amended at 51 FR 2665, Jan. 17, 1986]



22.610  Contract clause.

    The contracting officer shall insert the clause at 52.222-20, Walsh-
Healey

[[Page 460]]

Public Contracts Act, in solicitations and contracts covered by the Act 
(see 22.603, 22.604, and 22.605).
[61 FR 67411, Dec. 20, 1996]



                        Subpart 22.7  [Reserved]



               Subpart 22.8--Equal Employment Opportunity



22.800  Scope of subpart.

    This subpart prescribes policies and procedures pertaining to 
nondiscrimination in employment by Government contractors and 
subcontractors.



22.801  Definitions.

    Affirmative action program, as used in this subpart, means a 
contractor's program that complies with Department of Labor regulations 
to assure equal opportunity in employment to minorities and women.
    Construction work, as used in this subpart, means the construction, 
rehabilitation, alteration, conversion, extension, demolition, or repair 
of buildings, highways, or other changes or improvements to real 
property, including facilities providing utility services. The term also 
includes the supervision, inspection, and other onsite functions 
incidental to the actual construction.
    Contracting agency, as used in this subpart, means any department, 
agency, establishment, or instrumentality in the Executive Branch of the 
Government, including any wholly owned Government corporation that 
enters into contracts.
    Contractor, as used in this subpart, includes the terms prime 
contractor and subcontractor.
    Director, as used in this subpart, means the Director, Office of 
Federal Contract Compliance Programs (OFCCP), United States Department 
of Labor.
    Equal Opportunity clause, as used in this subpart, means the clause 
at 52.222-26, Equal Opportunity, prescribed in 22.810(e).
    EO 11246, as used in this subpart, means Parts II and IV of 
Executive Order 11246, September 24, 1965 (30 FR 12319), and any 
Executive Order amending or superseding this Order (see 22.802). This 
term specifically includes the Equal Opportunity clause at 52.222-26, 
and the rules, regulations, and orders issued pursuant to EO 11246 by 
the Secretary of Labor or a designee.
    Government contract, as used in this subpart, means any agreement or 
modification thereof between a Government contracting agency and any 
person for the furnishing of supplies or services, or for the use of 
real or personal property including lease arrangements. The term does 
not include (a) agreements in which the parties stand in the 
relationship of employer and employee and (b) contracts for the sale of 
real and personal property by the Government.
    Prime contractor, as used in this subpart, means any person who 
holds, or has held, a Government contract subject to EO 11246.
    Recruiting and training agency, as used in this subpart, means any 
person who refers workers to any contractor or subcontractor or provides 
or supervises apprenticeship or training for employment by any 
contractor or subcontractor.
    Site of construction, as used in this subpart, means the general 
physical location of any building, highway, or other change or 
improvement to real property that is undergoing construction, 
rehabilitation, alteration, conversion, extension, demolition, or 
repair; and any temporary location or facility at which a contractor, 
subcontractor, or other participating party meets a demand or performs a 
function relating to a Government contract or subcontract.
    Subcontract, as used in this subpart, means any agreement or 
arrangement between a contractor and any person (in which the parties do 
not stand in the relationship of an employer and an employee) (a) for 
the furnishing of supplies or services or for use of real or personal 
property, including lease arrangements, that, in whole or in part, is 
necessary to the performance of any one or more Government contracts or 
(b) under which any portion of the contractor's obligation under any one 
or more Government contracts is performed, undertaken, or assumed.
    Subcontractor, as used in this subpart, means any person who holds, 
or has

[[Page 461]]

held, a subcontract subject to EO 11246. The term first-tier 
subcontractor means a subcontractor holding a subcontract with a prime 
contractor.
    United States, as used in this subpart, means the States, the 
District of Columbia, the Virgin Islands, the Commonwealth of Puerto 
Rico, and the possessions of the United States.



22.802  General.

    (a) Executive Order 11246, as amended, sets forth the Equal 
Opportunity clause and requires that all Government contracting agencies 
(1) include this clause in all nonexempt Government prime contracts and 
subcontracts (see 22.807), and (2) act to ensure compliance with the 
clause and the regulations of the Secretary of Labor to promote the full 
realization of equal employment opportunity for all persons, regardless 
of race, color, religion, sex, or national origin.
    (b) No contract or modification involving new acquisition shall be 
entered into, and no subcontract shall be approved by a contracting 
officer, with a person who has been found ineligible by the Director for 
reasons of noncompliance with the requirements of EO 11246.
    (c) No contracting officer or contractor shall contract for supplies 
or services in a manner so as to avoid applicability of the requirements 
of EO 11246.
    (d) Contractor disputes related to compliance with its obligation 
shall be handled according to the rules, regulations, and relevant 
orders of the Secretary of Labor (see 41 CFR 60-1.1).



22.803  Responsibilities.

    (a) The Secretary of Labor is responsible for the--
    (1) Administration and enforcement of prescribed parts of EO 11246; 
and
    (2) Adoption of rules and regulations and the issuance of orders 
necessary to achieve the purposes of EO 11246.
    (b) The Secretary of Labor has delegated authority and assigned 
responsibility to the Director for carrying out the responsibilities 
assigned to the Secretary by EO 11246, except for the issuance of rules 
and regulations of a general nature.
    (c) The head of each agency is responsible for ensuring that the 
requirements of this subpart are carried out within the agency, and for 
cooperating with and assisting the OFCCP in fulfilling its 
responsibilities.
    (d) In the event the applicability of EO 11246 and implementing 
regulations is questioned, the contracting officer shall forward the 
matter through agency channels for resolution.



22.804  Affirmative action programs.



22.804-1  Nonconstruction.

    Except as provided in 22.807, each nonconstruction prime contractor 
and each subcontractor with 50 or more employees and (a) a contract or 
subcontract of $50,000 or more or (b) Government bills of lading that in 
any 12-month period, total, or can reasonably be expected to total, 
$50,000 or more, is required to develop a written affirmative action 
program for each of its establishments within 120 days from the 
commencement of its first such Government contract, subcontract, or 
Government bill of lading.



22.804-2  Construction.

    (a) Construction contractors that hold a nonexempt (see 22.807) 
Government construction contract are required to meet (1) the contract 
terms and conditions citing affirmative action requirements applicable 
to covered geographical areas or projects and (2) applicable 
requirements of 41 CFR 60-1 and 60-4.
    (b) Each contracting agency shall maintain a listing of covered 
geographical areas that are subject to affirmative action requirements 
that specify goals for minorities and women in covered construction 
trades. Information concerning, and additions to, this listing will be 
provided to the principally affected contracting officers in accordance 
with agency procedures. Any contracting officer contemplating a 
construction project in excess of $10,000 within a geographic area not 
known to be covered by specific affirmative action goals shall request 
instructions on the most current information from the OFCCP regional 
office, or as otherwise specified in agency regulations, before issuing 
the solicitation.

[[Page 462]]

    (c) Contracting officers shall give written notice to the OFCCP 
regional office within 10 working days of award of a construction 
contract subject to these affirmative action requirements. The 
notification shall include the name, address, and telephone number of 
the contractor; employer identification number; dollar amount of the 
contract; estimated starting and completion dates of the contract; the 
contract number; and the geographical area in which the contract is to 
be performed. When requested by the OFCCP regional office, the 
contracting officer shall arrange a conference among contractor, 
contracting activity, and compliance personnel to discuss the 
contractor's compliance responsibilities.



22.805  Procedures.

    (a) Preaward clearances for contracts and subcontracts of $1 million 
or more (excluding construction). (1) Except as provided in 22.805(a)(7) 
below, if the estimated amount of the contract, subcontract, or basic 
ordering agreement is expected to aggregate $1 million or more or to 
increase the aggregate value of an existing contract to $1 million or 
more, the contracting officer shall request the appropriate OFCCP 
regional office to determine whether a contractor is awardable before 
(i) award of any contract, including any indefinite delivery contract or 
letter contract, (ii) modification of an existing contract for new 
effort that would constitute a contract award, or the (iii) issuance of 
any basic ordering agreement.
    (2) Preaward clearance for each proposed contract and for each 
proposed first-tier subcontract of $1 million or more shall be requested 
by the contracting officer directly from the OFCCP regional office(s). 
Verbal requests shall be confirmed in writing.
    (3) When the contract work is to be performed outside the United 
States with employees recruited within the United States, the 
contracting officer shall send the request for a preaward review to the 
OFCCP regional office serving the area where the proposed contractor's 
corporate home or branch office is located in the United States, or the 
corporate location where personnel recruiting is handled, if different 
from the contractor's corporate home or branch office. If the proposed 
contractor has no corporate office or location within the United States, 
the preaward review request action should be based on the location of 
the recruiting and training agency in the United States.
    (4) The contracting officer shall include the following information 
in the preaward review request:
    (i) Name, address, and telephone number of the prospective 
contractor and of any corporate affiliate at which work is to be 
performed.
    (ii) Name, address, and telephone number of each proposed first-tier 
subcontractor with a proposed subcontract estimated at $1 million or 
more.
    (iii) Anticipated date of award.
    (iv) Information as to whether the contractor and first-tier 
subcontractors have previously held any Government contracts or 
subcontracts.
    (v) Place or places of contract performance and first-tier 
subcontracts estimated at $1 million or more, if known.
    (vi) The estimated dollar amount of the contract and each first-tier 
subcontract, if known.
    (5) The contracting officer shall allow as much time as feasible 
before award for the conduct of necessary reviews by OFCCP. As soon as 
the apparently successful contractor can be determined, the contracting 
officer shall process a preaward review request in accordance with 
agency procedures, assuring, if possible, that the preaward review 
request is submitted to the OFCCP regional office at least 30 calendar 
days before the proposed award date.
    (6) In the event the Director has not made a final preaward 
clearance determination within 30 calendar days from submission of the 
clearance request, the contracting officer shall withhold award of the 
contract for an additional 15 calendar days, or until clearance is 
received, whichever occurs first. If the additional 15 calendar days 
expire, and the Director has not either found the contractor to be in 
compliance or made a final written determination declaring the 
contractor ineligible for reasons of noncompliance, the award may be 
made to the contractor in question.

[[Page 463]]

The contracting officer shall notify the OFCCP regional office of the 
award.
    (7) If the procedures specified in (5) and (6) above would delay 
award of an urgent and critical contract beyond the time necessary to 
make award or beyond the time specified in the offer or extension 
thereof, the contracting officer shall immediately inform the OFCCP 
regional office of the expiration date of the offer or the required date 
of award and request clearance be provided before that date. If the 
OFCCP regional office advises that a preaward review cannot be completed 
by the required date, the contracting officer shall submit written 
justification for the award to the head of the contracting activity, 
who, after informing the OFCCP regional office, may then approve the 
award without the preaward clearance. If an award is made under this 
authority, the contracting officer shall immediately request a postaward 
review from the OFCCP regional office.
    (8) If, under the provisions of (7) above, a postaward review 
determines the contractor to be nonawardable, the Director, may 
authorize the use of the enforcement procedures at 22.809 against the 
noncomplying contractor.
    (b) Furnishing posters. The contracting officer shall furnish to the 
contractor appropriate quantities of the poster entitled Equal 
Opportunity Is The Law. These shall be obtained in accordance with 
agency procedures.



22.806  Inquiries.

    (a) An inquiry from a contractor regarding status of its compliance 
with EO 11246, or rights of appeal to any of the actions in 22.809 shall 
be referred to the OFCCP regional office.
    (b) Labor union inquiries regarding the revision of a collective 
bargaining agreement in order to comply with EO 11246, shall be referred 
to the Director.



22.807  Exemptions.

    (a) Under the following exemptions, all or part of the requirements 
of EO 11246 may be excluded from a contract subject to EO 11246:
    (1) National security. The agency head may determine that a contract 
is essential to the national security and that the award of the contract 
without complying with one or more of the requirements of this subpart 
is necessary to the national security. Upon making such a determination, 
the agency shall notify the Director in writing within 30 days.
    (2) Specific contracts. The Director may exempt a contracting agency 
from requiring the inclusion of one or more of the requirements of EO 
11246 in any contract if the Director deems that special circumstances 
in the national interest so require. Groups or categories of contracts 
of the same type may also be exempted if the Director finds it 
impracticable to act upon each request individually or if group 
exemptions will contribute to convenience in the administration of EO 
11246.
    (b) The following exemptions apply even though a contract or 
subcontract contains the Equal Opportunity clause:
    (1) Transactions of $10,000 or less. The Equal Opportunity clause is 
required to be included in prime contracts and subcontracts by 
22.802(a). Individual prime contracts or subcontracts of $10,000 or less 
are exempt from application of the Equal Opportunity clause, unless the 
aggregate value of all prime contracts or subcontracts awarded to a 
contractor or subcontractor in any 12-month period exceeds, or can 
reasonably be expected to exceed, $10,000. (Note: Government bills of 
lading, regardless of amount, are not exempt.)
    (2) Work outside the United States. Contracts are exempt from the 
requirements of EO 11246 for work performed outside the United States by 
employees who were not recruited within the United States.
    (3) Contracts with State or local governments. The requirements of 
EO 11246 in any contract with a State or local government (or any 
agency, instrumentality, or subdivision thereof) shall not be applicable 
to any agency, instrumentality or subdivision of such government that 
does not participate in work on or under the contract.
    (4) Work on or near Indian reservations. It shall not be a violation 
of EO 11246 for a contractor to extend a publicly announced preference 
in employment to Indians living on or near an Indian reservation in 
connection with employment opportunities on or near an Indian 
reservation. This applies to that

[[Page 464]]

area where a person seeking employment could reasonably be expected to 
commute to and from in the course of a work day. Contractors extending 
such a preference shall not, however, discriminate among Indians on the 
basis of religion, sex, or tribal affiliation, and the use of such 
preference shall not excuse a contractor from complying with EO 11246, 
rules and regulations of the Secretary of Labor, and applicable clauses 
in the contract.
    (5) Facilities not connected with contracts. The Director may exempt 
from the requirements of EO 11246 any of a contractor's facilities that 
the Director finds to be in all respects separate and distinct from 
activities of the contractor related to performing the contract; 
provided, that the Director also finds that the exemption will not 
interfere with, or impede the effectiveness of, EO 11246.
    (6) Indefinite quantity contracts. With respect to indefinite 
quantity contracts and subcontracts, the Equal Opportunity clause 
applies unless the contracting officer has reason to believe that the 
amount to be ordered in any year under the contract will not exceed 
$10,000. The applicability of the Equal Opportunity clause shall be 
determined by the contracting officer at the time of award for the first 
year, and annually thereafter for succeeding years, if any. 
Notwithstanding the above, the Equal Opportunity clause shall be applied 
to the contract whenever the amount of a single order exceeds $10,000. 
Once the Equal Opportunity clause is determined to be applicable, the 
contract shall continue to be subject to such clause for its duration 
regardless of the amounts ordered, or reasonably expected to be ordered, 
in any year.
    (c) To request an exemption under subparagraphs (a)(1), (a)(2), or 
(b)(5), the contracting officer shall submit, under agency procedure, a 
detailed justification for omitting all, or part of, the requirements of 
EO 11246. Requests for exemptions under subparagraphs (a)(2) or (b)(5) 
above shall be submitted to the Director for approval.
    (d) The Director may withdraw the exemption for a specific contract, 
or group of contracts, if the Director deems that such action is 
necessary and appropriate to achieve the purposes of EO 11246. Such 
withdrawal shall not apply--
    (1) To contracts awarded before the withdrawal; or
    (2) To any sealed bid contract (including restricted sealed 
bidding), unless the withdrawal is made more than 10 calendar days 
before the bid opening date.
[48 FR 42258, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987]



22.808  Complaints.

    Complaints received by the contracting officer alleging violation of 
the requirements of EO 11246 shall be referred immediately to the OFCCP 
regional office. The complainant shall be advised in writing of the 
referral. The contractor that is the subject of a complaint shall not be 
advised in any manner or for any reason of the complainant's name, the 
nature of the complaint, or the fact that the complaint was received.



22.809  Enforcement.

    Upon the written direction of the Director, one or more of the 
following actions, as well as administrative sanctions and penalties, 
may be exercised against contractors found to be in violation of EO 
11246, the regulations of the Secretary of Labor, or the applicable 
contract clauses:
    (a) Publication of the names of the contractor or their unions.
    (b) Cancellation, termination, or suspension of the contractor's 
contracts or portion thereof.
    (c) Debarment from future Government contracts, or extensions or 
modifications of existing contracts, until the contractor has 
established and carried out personnel and employment policies in 
compliance with EO 11246 and the regulations of the Secretary of Labor.
    (d) Referral by the Director of any matter arising under EO 11246 to 
the Department of Justice or to the Equal Employment Opportunity 
Commission (EEOC) for the institution of appropriate civil or criminal 
proceedings.

[[Page 465]]



22.810  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the following provisions in 
solicitations when a contract is contemplated that will include the 
clause at 52.222-26, Equal Opportunity:
    (1) 52.222-21, Certification of Non- segregated Facilities, if the 
amount of the contract is expected to exceed $10,000.
    (2) 52.222-22, Previous Contracts and Compliance Reports.
    (b) The contracting officer shall insert the provision at 52.222-23, 
Notice of Requirement for Affirmative Action to Ensure Equal Employment 
Opportunity, in solicitations for construction when a contract is 
contemplated that will include the clause at 52.222-26, Equal 
Opportunity, and the amount of the contract is expected to be in excess 
of $10,000.
    (c) The contracting officer shall insert the provision at 52.222-24, 
Preaward On-Site Equal Opportunity Compliance Review, in solicitations, 
other than those for construction, when a contract is contemplated that 
will include the clause at 52.222-26, Equal Opportunity, and the amount 
of the contract is expected to be for $1 million or more.
    (d) The contracting officer shall insert the provision at 52.222-25, 
Affirmative Action Compliance, in solicitations, other than those for 
construction, when a contract is contemplated that will include the 
clause at 52.222-26, Equal Opportunity.
    (e) The contracting officer shall insert the clause at 52.222-26, 
Equal Opportunity, in solicitations and contracts (see 22.802) unless 
all the terms of the clause are exempt from the requirements of EO 11246 
(see 22.807(a)). If one or more, but not all, of the terms of the clause 
are exempt from the requirements of EO 11246, the contracting officer 
shall use the basic clause with its Alternate I.
    (f) The contracting officer shall insert the clause at 52.222-27, 
Affirmative Action Compliance Requirements for Construction, in 
solicitations and contracts for construction that will include the 
clause at 52.222-26, Equal Opportunity, and the amount of the contract 
is expected to be in excess of $10,000.
    (g) The contracting officer shall insert the clause at 52.222-28, 
Equal Opportunity Preaward Clearance of Subcontracts, in solicitations 
and contracts, except for construction, when the amount of the contract 
is expected to be for $1 million or more and the contract includes the 
clause prescribed in paragraph (a), (b), or (c) of 44.204.
    (h) The contracting officer shall insert the clause at 52.222-29, 
Notification of Visa Denial, in contracts that will include the clause 
at 52.222-26, Equal Opportunity, if the contractor is required to 
perform in or on behalf of a foreign country.
[48 FR 42258, Sept. 19, 1983, as amended at 50 FR 23606, June 4, 1985; 
52 FR 19803, May 27, 1987]



             Subpart 22.9--Nondiscrimination Because of Age



22.901  Policy.

    Executive Order 11141, February 12, 1964 (29 FR 2477), states that 
the Government policy is as follows:
    (a) Contractors and subcontractors shall not, in connection with 
employment, advancement, or discharge of employees, or the terms, 
conditions, or privileges of their employment, discriminate against 
persons because of their age except upon the basis of a bona fide 
occupational qualification, retirement plan, or statutory requirement.
    (b) Contractors and subcontractors, or persons acting on their 
behalf, shall not specify in solicitations or advertisements for 
employees to work on Government contracts, a maximum age limit for 
employment unless the specified maximum age limit is based upon a bona 
fide occupational qualification, retirement plan, or statutory 
requirement.
    (c) Agencies will bring this policy to the attention of contractors. 
The use of contract clauses is not required.



22.902  Handling complaints.

    Agencies shall bring complaints regarding a contractor's compliance 
with this policy to that contractor's attention (in writing, if 
appropriate), stating

[[Page 466]]

the policy, indicating that the contractor's compliance has been 
questioned, and requesting that the contractor take any appropriate 
steps that may be necessary to comply.



         Subpart 22.10--Service Contract Act of 1965, as Amended

    Source: 54 FR 19816, May 8, 1989, unless otherwise noted.



22.1000  Scope of subpart.

    This subpart prescribes policies and procedures implementing the 
provisions of the Service Contract Act of 1965, as amended (41 U.S.C. 
351, et seq.), the applicable provisions of the Fair Labor Standards Act 
of 1938, as amended (29 U.S.C. 201, et seq.), and related Secretary of 
Labor regulations and instructions (29 CFR parts 4, 6, 8, and 1925).



22.1001  Definitions.

    Act or Service Contract Act, as used in this subpart, means the 
Service Contract Act of 1965, as amended.
    Agency labor advisor means an individual responsible for advising 
contracting agency officials on Federal contract labor matters.
    Contractor, as used in this subpart, includes a subcontractor at any 
tier whose subcontract is subject to the provisions of the Act.
    Multiple year contracts, as used in this subpart, means contracts 
having a term of more than 1 year regardless of fiscal year funding. The 
term includes multi-year contracts (see 17.103).
    Notice, as used in this subpart, means Standard Form (SF) 98, Notice 
of Intention to Make a Service Contract and Response to Notice, and SF 
98a Attachment A. The term Notice is always capitalized in this subpart 
when it means Standard Forms 98 and 98a.
    Service contract, as used in this subpart, means any Government 
contract, the principal purpose of which is to furnish services in the 
United States through the use of service employees, except as exempted 
under section 7 of the Act (41 U.S.C. 356; see 22.1003-3 and 22.1003-4), 
or any subcontract at any tier thereunder. See 22.1003-5 and 29 CFR 
4.130 for a partial list of services covered by the Act.
    Service employee means any person engaged in the performance of a 
service contract other than any person employed in a bona fide 
executive, administrative, or professional capacity, as those terms are 
defined in part 541 of title 29, Code of Federal Regulations. The term 
service employee includes all such persons regardless of any contractual 
relationship that may be alleged to exist between a contractor or 
subcontractor and such persons.
    United States, as used in this subpart, includes any State of the 
United States, the District of Columbia, Puerto Rico, the Virgin 
Islands, Outer Continental Shelf Lands as defined in the Outer 
Continental Shelf Lands Act (43 U.S.C. 1331, et seq.), American Samoa, 
Guam, Northern Mariana Islands, Wake Island, and Johnston Island but 
does not include any other territory under U.S. jurisdiction or any U.S. 
base or possession within a foreign country.
    Wage and Hour Division means the unit in the Employment Standards 
Administration of the Department of Labor to which is assigned functions 
of the Secretary of Labor under the Act.
    Wage determination means a determination of minimum wages or fringe 
benefits made under sections 2(a) or 4(c) of the Act (41 U.S.C. 351(a) 
or 353(c)) applicable to the employment in a given locality of one or 
more classes of service employees.
[54 FR 19816, May 8, 1989, as amended at 61 FR 39207, July 26, 1996]



22.1002  Statutory requirements.



22.1002-1  General.

    Service contracts over $2,500 shall contain mandatory provisions 
regarding minimum wages and fringe benefits, safe and sanitary working 
conditions, notification to employees of the minimum allowable 
compensation, and equivalent Federal employee classifications and wage 
rates. Under 41 U.S.C. 353(d), service contracts may not exceed 5 years.



22.1002-2  Wage determinations based on prevailing rates.

    Contractors performing on service contracts in excess of $2,500 to 
which no predecessor contractor's collective

[[Page 467]]

bargaining agreement applies shall pay their employees at least the 
wages and fringe benefits found by the Department of Labor to prevail in 
the locality or, in the absence of a wage determination, the minimum 
wage set forth in the Fair Labor Standards Act.



22.1002-3  Wage determinations based on collective bargaining agreements.

    (a) Successor contractors performing on contracts in excess of 
$2,500 for substantially the same services performed in the same 
locality must pay wages and fringe benefits (including accrued wages and 
benefits and prospective increases) at least equal to those contained in 
any bona fide collective bargaining agreement entered into under the 
predecessor contract. This requirement is self-executing and is not 
contingent upon incorporating a wage determination or the wage and 
fringe benefit terms of the predecessor contractor's collective 
bargaining agreement in the successor contract. This requirement will 
not apply if the Secretary of Labor determines (1) after a hearing, that 
the wages and fringe benefits are substantially at variance with those 
which prevail for services of a similar character in the locality or (2) 
that the wages and fringe benefits are not the result of arm's length 
negotiations.
    (b) Paragraphs in this subpart 22.10 which deal with this statutory 
requirement and the Department of Labor's implementing regulations are 
22.1008-3, concerning applicability of this requirement and the 
forwarding of a collective bargaining agreement with a Notice (SF 98, 
98a); 22.1010, concerning notification to contractors and bargaining 
representatives of procurement dates; 22.1012-3, explaining when a 
collective bargaining agreement will not apply due to late receipt by 
the contracting officer; and 22.1013 and 22.1021, explaining when the 
application of a collective bargaining agreement can be challenged due 
to a variance with prevailing rates or lack of arm's length bargaining.
[54 FR 19816, May 8, 1989, as amended at 59 FR 67039, Dec. 28, 1994]



22.1002-4  Application of the Fair Labor Standards Act minimum wage.

    No contractor or subcontractor holding a service contract for any 
dollar amount shall pay any of its employees working on the contract 
less than the minimum wage specified in section 6(a)(1) of the Fair 
Labor Standards Act (29 U.S.C. 206).



22.1003  Applicability.



22.1003-1  General.

    This subpart 22.10 applies to all Government contracts, the 
principal purpose of which is to furnish services in the United States 
through the use of service employees, except as exempted in 22.1003-3 
and 22.1003-4 of this section, or any subcontract at any tier 
thereunder. This subpart does not apply to individual contract 
requirements for services in contracts not having as their principal 
purpose the furnishing of services. The nomenclature, type, or 
particular form of contract used by contracting agencies is not 
determinative of coverage.



22.1003-2  Geographical coverage of the Act.

    The Act applies to service contracts performed in the United States 
(see 22.1001). The Act does not apply to contracts performed outside the 
United States.



22.1003-3  Statutory exemptions.

    The Act does not apply to--
    (a) Any contract for construction, alteration, or repair of public 
buildings or public works, including painting and decorating;
    (b) Any work required to be done in accordance with the provisions 
of the Walsh-Healey Public Contracts Act (41 U.S.C. 35-45);
    (c) Any contract for transporting freight or personnel by vessel, 
aircraft, bus, truck, express, railroad, or oil or gas pipeline where 
published tariff rates are in effect;
    (d) Any contract for furnishing services by radio, telephone, 
telegraph, or cable companies subject to the Communications Act of 1934;
    (e) Any contract for public utility services;

[[Page 468]]

    (f) Any employment contract providing for direct services to a 
Federal agency by an individual or individuals; or
    (g) Any contract for operating postal contract stations for the U.S. 
Postal Service.



22.1003-4  Administrative limitations, variations, tolerances, and exemptions.

    (a) The Secretary of Labor may provide reasonable limitations and 
may make rules and regulations allowing reasonable variations, 
tolerances, and exemptions to and from any or all provisions of the Act 
other than section 10 (41 U.S.C. 358). These will be made only in 
special circumstances where it has been determined that the limitation, 
variation, tolerance, or exemption is necessary and proper in the public 
interest or to avoid the serious impairment of Government business, and 
is in accord with the remedial purpose of the Act to protect prevailing 
labor standards (41 U.S.C. 353(b)). See 29 CFR 4.123 for a listing of 
administrative exemptions, tolerances, and variations. Requests for 
limitations, variances, tolerances, and exemptions from the Act shall be 
submitted in writing through contracting channels and the agency labor 
advisor to the Wage and Hour Administrator.
    (b) In addition to the statutory exemptions cited in 22.1003-3 of 
this subsection, the Secretary of Labor has exempted the following types 
of contracts from all provisions of the Act:
    (1) Contracts entered into by the United States with common carriers 
for the carriage of mail by rail, air (except air star routes), bus, and 
ocean vessel, where such carriage is performed on regularly scheduled 
runs of the trains, airplanes, buses, and vessels over regularly 
established routes and accounts for an insubstantial portion of the 
revenue therefrom.
    (2) Any contract entered into by the U.S. Postal Service with an 
individual owner-operator for mail service if it is not contemplated at 
the time the contract is made that the owner-operator will hire any 
service employee to perform the services under the contract except for 
short periods of vacation time or for unexpected contingencies or 
emergency situations such as illness, or accident.
    (3) Contracts for the carriage of freight or personnel if such 
carriage is subject to rates covered by section 10721 of the Interstate 
Commerce Act.
    (4) Contracts as follows:
    (i) Contracts principally for the maintenance, calibration, or 
repair of the following types of equipment are exempt, subject to the 
restrictions in subdivisions (b)(4)(ii), (b)(4)(iii), and (b)(4)(iv) of 
this subsection.
    (A) Automated data processing equipment and office information/word 
processing systems.
    (B) Scientific equipment and medical apparatus or equipment if the 
application of micro-electronic circuitry or other technology of at 
least similar sophistication is an essential element (for example, 
Federal Supply Classification (FSC) Group 65, Class 6515, Medical 
Diagnostic Equipment; Class 6525, X-Ray Equipment; FSC Group 66, Class 
6630, Chemical Analysis Instruments; and Class 6665, Geographical and 
Astronomical Instruments, are largely composed of the types of equipment 
exempted hereunder).
    (C) Office/business machines not otherwise exempt pursuant to 
subdivision (b)(4)(i)(A) of this subsection, if such services are 
performed by the manufacturer or supplier of the equipment.
    (ii) The exemption set forth in this subparagraph (b)(4) of this 
subsection shall apply only under the following circumstances:
    (A) The items of equipment are commercial items which are used 
regularly for other than Government purposes and are sold or traded by 
the contractor in substantial quantities to the general public in the 
course of normal business operations.
    (B) The contract services are furnished at prices which are, or are 
based on, established catalog or market prices (see 29 CFR 
4.123(e)(1)(ii)(B)) for the maintenance, calibration, or repair of such 
commercial items.
    (C) The contractor utilizes the same compensation (wage and fringe 
benefits) plan for all service employees performing work under the 
contract as the contractor uses for equivalent employees servicing the 
same equipment of commercial customers.

[[Page 469]]

    (D) The contractor certifies in the contract to the provisions in 
subdivision (b)(4)(ii) of this subsection. (See 22.1006(e).)
    (iii)(A) Determinations of the applicability of this exemption shall 
be made in the first instance by the contracting officer before contract 
award. In determining that the exemption applies, the contracting 
officer shall consider all factors and make an affirmative determination 
that all of the above conditions have been met.
    (B) If any potential offerors would not qualify for the exemption, 
the contracting officer shall incorporate in the solicitation the 
Service Contract Act clause (see 22.1006(a)) and, if the contract will 
exceed $2,500, the appropriate Department of Labor wage determination 
(see 22.1007).
    (iv) If the Department of Labor determines after contract award that 
any of the requirements for exemption in subparagraph (b)(4) of this 
subsection have not been met, the exemption will be deemed inapplicable, 
and the contract shall become subject to the Service Contract Act, 
effective as of the date of the Department of Labor determination.
[54 FR 19816, May 8, 1989, as amended at 61 FR 39198, July 26, 1996]



22.1003-5  Some examples of contracts covered.

    The following examples, while not definitive or exclusive, 
illustrate some of the types of services that have been found to be 
covered by the Act (see 29 CFR 4.130 for additional examples):
    (a) Motor pool operation, parking, taxicab, and ambulance services.
    (b) Packing, crating, and storage.
    (c) Custodial, janitorial, housekeeping, and guard services.
    (d) Food service and lodging.
    (e) Laundry, dry-cleaning, linen-supply, and clothing alteration and 
repair services.
    (f) Snow, trash, and garbage removal.
    (g) Aerial spraying and aerial reconnaissance for fire detection.
    (h) Some support services at installations, including grounds 
maintenance and landscaping.
    (i) Certain specialized services requiring specific skills, such as 
drafting, illustrating, graphic arts, stenographic reporting, or 
mortuary services.
    (j) Electronic equipment maintenance and operation and engineering 
support services.
    (k) Maintenance and repair of all types of equipment, for example, 
aircraft, engines, electrical motors, vehicles, and electronic, office 
and related business and construction equipment. (But see 22.1003-
4(b)(4).)
    (l) Operation, maintenance, or logistics support of a Federal 
facility.
    (m) Data collection, processing and analysis services.
[48 FR 42258, Sept. 19, 1983, as amended at 56 FR 67136, Dec. 27, 1991]



22.1003-6  Repair distinguished from remanufacturing of equipment.

    (a) Contracts principally for remanufacturing of equipment which is 
so extensive as to be equivalent to manufacturing are subject to the 
Walsh-Healey Public Contracts Act, rather than to the Service Contract 
Act. Remanufacturing shall be deemed to be manufacturing when the 
criteria in either subparagraphs (a)(1) or (a)(2) of this subsection are 
met.
    (1) Major overhaul of an item, piece of equipment, or materiel which 
is degraded or inoperable, and under which all of the following 
conditions exist:
    (i) The item or equipment is required to be completely or 
substantially torn down into individual component parts.
    (ii) Substantially all of the parts are reworked, rehabilitated, 
altered and/or replaced.
    (iii) The parts are reassembled so as to furnish a totally rebuilt 
item or piece of equipment.
    (iv) Manufacturing processes similar to those which were used in the 
manufacturing of the item or piece of equipment are utilized.
    (v) The disassembled components, if usable (except for situations 
where the number of items or pieces of equipment involved are too few to 
make it practicable) are commingled with existing inventory and, as 
such, lose their identification with respect to a particular piece of 
equipment.
    (vi) The items or equipment overhauled are restored to original life 
expectancy, or nearly so.

[[Page 470]]

    (vii) Such work is performed in a facility owned or operated by the 
contractor.
    (2) Major modification of an item, piece of equipment, or material 
which is wholly or partially obsolete, and under which all of the 
following conditions exist:
    (i) The item or equipment is required to be completely or 
substantially torn down.
    (ii) Outmoded parts are replaced.
    (iii) The item or equipment is rebuilt or reassembled.
    (iv) The contract work results in the furnishing of a substantially 
modified item in a usable and serviceable condition.
    (v) The work is performed in a facility owned or operated by the 
contractor.
    (b) Remanufacturing does not include the repair of damaged or broken 
equipment which does not require a complete teardown, overhaul, and 
rebuild as described in subparagraphs (a)(1) and (a)(2) of this 
subsection, or the periodic and routine maintenance, preservation, care, 
adjustment, upkeep, or servicing of equipment to keep it in usable, 
serviceable, working order. Such contracts typically are billed on an 
hourly rate (labor plus materials and parts) basis. Any contract 
principally for this type of work is subject to the Service Contract 
Act. Examples of such work include the following:
    (1) Repair of an automobile, truck, or other vehicle, construction 
equipment, tractor, crane, aerospace, air conditioning and refrigeration 
equipment, electric motors, and ground powered industrial or vehicular 
equipment.
    (2) Repair of typewriters and other office equipment (but see 
22.1003-4(b)(4)).
    (3) Repair of appliances, radios, television sets, calculators, and 
other electronic equipment.
    (4) Inspecting, testing, calibration, painting, packaging, 
lubrication, tune-up, or replacement of internal parts of equipment 
listed in subparagraphs (b)(1), (b)(2), and (b)(3) of this subsection.
    (5) Reupholstering, reconditioning, repair, and refinishing of 
furniture.



22.1003-7  Questions concerning applicability of the Act.

    If the contracting officer questions the applicability of the Act to 
an acquisition, the contracting officer shall request the advice of the 
agency labor advisor. Unresolved questions shall be submitted in a 
timely manner to the Administrator, Wage and Hour Division, for 
determination.



22.1004  Department of Labor responsibilities and regulations.

    Under the Act, the Secretary of Labor is authorized and directed to 
enforce the provisions of the Act, make rules and regulations, issue 
orders, hold hearings, make decisions, and take other appropriate 
action. The Department of Labor has issued implementing regulations on 
such matters as--
    (a) Service contract labor standards provisions and procedures (29 
CFR part 4, subpart A);
    (b) Wage determination procedures (29 CFR part 4, subpart B);
    (c) Application of the Act (rulings and interpretations) (29 CFR 
part 4, subpart C);
    (d) Compensation standards (29 CFR part 4, subpart D);
    (e) Enforcement (29 CFR part 4, subpart E);
    (f) Safe and sanitary working conditions (29 CFR part 1925);
    (g) Rules of practice for administrative proceedings enforcing 
service contract labor standards (29 CFR part 6); and
    (h) Practice before the Board of Service Contract Appeals (29 CFR 
part 8).



22.1005  [Reserved]



22.1006  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.222-41, 
Service Contract Act of 1965, as amended, in solicitations and contracts 
if the contract is subject to the Act and is (1) for over $2,500 or (2) 
for an indefinite dollar amount and the contracting officer does not 
know in advance that the contract amount will be $2,500 or less.
    (b) The contracting officer shall insert the clause at 52.222-42, 
Statement of Equivalent Rates for Federal Hires, in solicitations and 
contracts if the

[[Page 471]]

contract amount is expected to be over $2,500 and the Act is applicable. 
(See 22.1016.)
    (c)(1) The contracting officer shall insert the clause at 52.222-43, 
Fair Labor Standards Act and Service Contract Act--Price Adjustment 
(Multiple Year and Option Contracts), or another clause which 
accomplishes the same purpose, in solicitations and contracts if the 
contract is expected to be a fixed-price service contract containing the 
clause at 52.222-41, Service Contract Act of 1965, as amended, and is a 
multiple year contract or is a contract with options to renew which 
exceeds the simplified acquisition threshold. The clause may be used in 
contracts that do not exceed the simplified acquisition threshold. The 
clause at 52.222-43, Fair Labor Standards Act and Service Contract Act--
Price Adjustment (Multiple Year and Option Contracts), applies to both 
contracts subject to area prevailing wage determinations and contracts 
subject to the incumbent contractor's collective bargaining agreement in 
effect during this contract's preceding contract period (see 22.1002-2 
and 22.1002-3). Contracting officers shall ensure that contract prices 
or contract unit price labor rates are adjusted only to the extent that 
a contractor's increases or decreases in applicable wages and fringe 
benefits are made to comply with the requirements set forth in the 
clauses at 52.222-43 (subparagraphs (c) (1), (2) and (3)), or 52.222-44 
(subparagraphs (b) (1) and (2)). (For example, the prior year wage 
determination required a minimum wage rate of $4.00 per hour. The 
contractor actually paid $4.10. The new wage determination increases the 
minimum rate to $4.50. The contractor increases the rate actually paid 
to $4.75 per hour. The allowable price adjustment is $.40 per hour.)
    (2) The contracting officer shall insert the clause at 52.222-44, 
Fair Labor Standards Act and Service Contract Act--Price Adjustment, in 
solicitations and contracts if the contract is expected to be a fixed-
price service contract containing the clause at 52.222-41, Service 
Contract Act of 1965, as amended, exceeds the simplified acquisition 
threshold, and is not a multiple year contract or is not a contract with 
options to renew. The clause may be used in contracts that do not exceed 
the simplified acquisition threshold. The clause at 52.222-44, Fair 
Labor Standards Act and Service Contract Act--Price Adjustment, applies 
to both contracts subject to area prevailing wage determinations and 
contracts subject to contractor collective bargaining agreements (see 
22.1002-2 and 22.1002-3).
    (3) The clauses prescribed in paragraph 22.1006(c)(1) cover 
situations in which revised minimum wage rates are applied to contracts 
by operation of law, or by revision of a wage determination in 
connection with (i) exercise of a contract option or (ii) extension of a 
multiple year contract into a new program year. If a clause prescribed 
in 16.203-4(d) is used, it must not conflict with, or duplicate payment 
under, the clauses prescribed in this paragraph 22.1006(c).
    (d) The contracting officer shall insert the clause at 52.222-47, 
Service Contract Act (SCA) Minimum Wages and Fringe Benefits, if--
    (1) The clause at 52.222-41 applies;
    (2) The contract resulting from the solicitation succeeds a contract 
for substantially the same services to be performed in the same 
locality;
    (3) The incumbent contractor has negotiated or is negotiating a 
collective bargaining agreement with some or all of its service 
employees; and
    (4) All applicable Department of Labor wage determinations have been 
requested but not received.
    (e)(1) The contracting officer shall insert the clause at 52.222-48, 
Exemption from Application of Service Contract Act Provisions, in any 
solicitation and resulting contract calling for the maintenance, 
calibration, and/or repair of information technology, scientific and 
medical, and office and business equipment if the contracting officer 
determines that the resultant contract may be exempt from Service 
Contract Act coverage as described at 22.1003-4(b)(4).
    (2) If the successful offeror does not certify that the exemption 
applies, the contracting officer shall not insert the clause at 52.222-
48 and instead shall insert in the contract (i) the applicable Service 
Contract Act clause(s) and (ii) the appropriate Department of Labor

[[Page 472]]

wage determination if the contract exceeds $2,500.
    (f) The contracting officer shall insert the clause at 52.222-49, 
Service Contract Act--Place of Performance Unknown, if using the 
procedures prescribed in 22.1009-4.
[54 FR 19816, May 8, 1989, as amended at 60 FR 34758, July 3, 1995; 61 
FR 41470, Aug. 8, 1996]



22.1007  Requirement to submit Notice (SF 98/98a).

    The contracting officer shall submit Standard Forms 98 and 98a (see 
53.301-98 and 53.301-98a), ``Notice of Intention to Make a Service 
Contract and Response to Notice'' and ``Attachment A'' (both forms 
hereinafter referred to as ``Notice''), together with any required 
supplemental information to the Administrator, Wage and Hour Division, 
Employment Standards Administration, U.S. Department of Labor, 
Washington, DC 20210, for the following service contracts:
    (a) Each new solicitation and contract in excess of $2,500.
    (b) Each contract modification which brings the contract above 
$2,500 and--
    (1) Extends the existing contract pursuant to an option clause or 
otherwise; or
    (2) Changes the scope of the contract whereby labor requirements are 
affected significantly.
    (c) Each multiple year contract in excess of $2,500 upon--
    (1) Annual anniversary date if the contract is subject to annual 
appropriations; or
    (2) Biennial anniversary date if the contract is not subject to 
annual appropriations and its proposed term exceeds 2 years--unless 
otherwise advised by the Wage and Hour Division (see 22.1008-5).



22.1008  Procedures for preparing and submitting Notice (SF 98/98a).



22.1008-1  Preparation of Notice (SF 98/98a).

    The contracting officer shall complete and submit the Notice in 
accordance with the instructions on the SF 98 and shall supplement it 
with information required under this section. Care should be taken to 
ensure that all required information is provided to avert return without 
action by the Department of Labor. The contracting officer shall retain 
a copy of the completed Notice and any required supplementary 
information until the signed and dated response to the Notice is 
received from the Department of Labor and placed in the contract file.



22.1008-2  Preparation of SF 98a.

    (a) The SF 98a shall contain the following information concerning 
the service employees expected to be employed by the contractor and any 
known subcontractors in performing the contract:
    (1) All classes of service employees to be utilized.
    (i) If a wage determination is to be based on a collective 
bargaining agreement (CBA) (see 22.1002-3 and 22.1008-3), use the exact 
title shown in the CBA.
    (ii) For other than subdivision (a)(1)(i) of this subsection--
    (A) Use the exact title shown in the Wage and Hour Division's 
Service Contract Act Directory of Occupations (see paragraph (b) of this 
subsection).
    (B) Provide an appropriate job title and job description if the 
Directory cannot be used.
    (2) The estimated number of service employees in each class; and
    (3) The wage rate that would be paid each class if employed by the 
agency and subject to the wage provisions of 5 U.S.C. 5341 or 5332 (see 
22.1016).
    (b)(1) The Wage and Hour Division's Service Contract Act Directory 
of Occupations (Directory) contains standard job titles and definitions 
(descriptions) for many commonly utilized service employee occupations. 
Contracting officers shall use this Directory to the maximum extent 
possible in listing service employee classes on the SF 98a. This usage 
will enhance the timely issuance of comprehensive wage determinations.
    (2) If the job title contained in the Directory differs from that 
contained in the statement of work but the job definition (description) 
in the Directory and the statement of work match sufficiently, the 
contracting officer shall use the Directory job title.

[[Page 473]]

    (3) The latest edition of the Directory is available for sale by the 
Superintendent of Documents and may be ordered by calling (202) 783-3238 
or writing to Superintendent of Documents, U.S. Government Printing 
Office, Washington, DC 20402. Contracting agencies, in accordance with 
agency procedures, are responsible for notifying their own personnel of 
a new edition of the Directory.



22.1008-3  Section 4(c) successorship with incumbent contractor collective bargaining agreement.

    (a) Early in the acquisition cycle, the contracting officer shall 
determine whether section 4(c) of the Act affects the new acquisition. 
The contracting officer shall determine whether there is a predecessor 
contract and, if so, whether the incumbent prime contractor or its 
subcontractors and any of their employees have a collective bargaining 
agreement.
    (b) Section 4(c) of the Act provides that a successor contractor 
must pay wages and fringe benefits (including accrued wages and benefits 
and prospective increases) to service employees at least equal to those 
agreed upon by a predecessor contractor under the following conditions:
    (1) The services to be furnished under the proposed contract will be 
substantially the same as services being furnished by an incumbent 
contractor whose contract the proposed contract will succeed.
    (2) The services will be performed in the same locality.
    (3) The incumbent prime contractor or subcontractor is furnishing 
such services through the use of service employees whose wages and 
fringe benefits are the subject of one or more collective bargaining 
agreements.
    (c) The application of section 4(c) of the Act is subject to the 
following limitations:
    (1) Section 4(c) of the Act will not apply if the incumbent 
contractor enters into a collective bargaining agreement for the first 
time and the agreement does not become effective until after the 
expiration of the incumbent's contract.
    (2) If the incumbent contractor enters into a new or revised 
collective bargaining agreement during the period of the incumbent's 
performance on the current contract, the terms of the new or revised 
agreement shall not be effective for the purposes of section 4(c) of the 
Act under the following conditions:
    (i)(A) In sealed bidding, the contracting agency receives notice of 
the terms of the collective bargaining agreement less than 10 days 
before bid opening and finds that there is not reasonable time still 
available to notify bidders (see 22.1012-3(a)); or
    (B) For contractual actions other than sealed bidding, the 
contracting agency receives notice of the terms of the collective 
bargaining agreement after award, provided that the start of performance 
is within 30 days of award (see 22.1012-3(b)); and
    (ii) The contracting officer has given both the incumbent contractor 
and its employees' collective bargaining agent timely written 
notification of the applicable acquisition dates (see 22.1010).
    (d) If section 4(c) of the Act applies, the contracting officer 
shall obtain a copy of any collective bargaining agreement between an 
incumbent contractor or subcontractor and its employees. Obtaining a 
copy of an incumbent contractor's collective bargaining agreement may 
involve coordination with the administrative contracting officer 
responsible for administering the predecessor contract. (Paragraph (m) 
of the clause at 52.222-41, Service Contract Act of 1965, as amended, 
requires the incumbent prime contractor to furnish the contracting 
officer a copy of each collective bargaining agreement.) The contracting 
officer shall submit a copy of each collective bargaining agreement 
together with any related documents specifying the wage rates and fringe 
benefits currently or prospectively payable under each agreement with 
the Notice.
    (e) Section 4(c) of the Act will not apply if the Secretary of Labor 
determines (1) after a hearing, that the wages and fringe benefits in 
the predecessor contractor's collective bargaining agreement are 
substantially at variance with those which prevail for services of a 
similar character in the locality, or (2) that the wages and

[[Page 474]]

fringe benefits in the predecessor contractor's collective bargaining 
agreement are not the result of arm's length negotiations (see 22.1013 
and 22.1021). The Department of Labor (DOL) has concluded that 
contingent collective bargaining agreement provisions that attempt to 
limit a contractor's obligations by means such as requiring issuance of 
a wage determination by the DOL, requiring inclusion of the wage 
determination in the contract, or requiring the Government to adequately 
reimburse the contractor, generally reflect a lack of arm's length 
negotiations.
    (f) If the services are being furnished at more than one location 
and the collectively bargained wage rates and fringe benefits are 
different at different locations or do not apply to one or more 
locations, the contracting officer shall identify the locations to which 
the agreements apply.
    (g) If the collective bargaining agreement does not apply to all 
service employees under the contract, the contracting officer shall 
separately list on the SF 98a the service employee classifications (1) 
subject to the collective bargaining agreement and (2) not subject to 
any collective bargaining agreement.
[54 FR 19816, May 8, 1989, as amended at 59 FR 67040, Dec. 28, 1994]



22.1008-4  Procedures when place of performance is unknown.

    See 22.1009.



22.1008-5  Multiple-year contracts.

    If the proposed contract is multiple year and is not subject to 
annual appropriations, the contracting officer shall furnish with the 
Notice a statement in writing describing the type of funding and giving 
the length of the performance period. Unless otherwise advised by the 
wage and hour division that a Notice must be filed on the annual 
anniversary date, the contracting officer shall submit a new Notice on 
each biannual anniversary date of the multiple year contract if its term 
is for a period in excess of 2 years.



22.1008-6  Contract modifications (options, extensions, changes in scope) and anniversary dates.

    If the purpose of the Notice is to obtain a wage determination for 
an exercise of an option, an extension to the contract term, a change in 
scope (see 22.1007(b)(2)), or the anniversary date of a multiple year 
contract, the contracting officer shall fill in Box 2 of the SF 98 as 
follows:
    (a) In the Estimated solicitation date subbox, indicate, as 
appropriate: Mod-Exercise of Option; Mod-Extension; Mod-Change in Scope; 
Annual Anniversary; or Biennial Anniversary; and
    (b) In the month/day/year subbox, indicate the date the wage 
determination is required.



22.1008-7  Required time of submission of Notice.

    (a) If the contract action is for a recurring or known requirement, 
the contracting officer shall submit the Notice not less than 60 days 
(nor more than 120 days, except with the approval of the Wage and Hour 
Division) before the earlier of (1) issuance of any invitation for bids, 
(2) issuance of any request for proposals, (3) commencement of 
negotiations, (4) issuance of modification for exercise of option, 
contract extension, or change in scope, (5) annual anniversary date of a 
contract for more than 1 year subject to annual appropriations, or (6) 
each biennial anniversary date of a contract for more than 2 years not 
subject to annual appropriations unless otherwise advised by the Wage 
and Hour Division (see 22.1008-5).
    (b) If the contract action is for a nonrecurring or unknown 
requirement for which the advance planning described in paragraph (a) of 
this subsection is not feasible, the contracting officer shall submit 
the Notice as soon as possible, but not later than 30 days before the 
contracting actions in paragraph (a) of this subsection. The contracting 
officer should indicate on the Notice that the requirement is 
nonrecurring or unknown and advance planning was not feasible.
    (c) If exceptional circumstances prevent timely submission, as 
required by paragraphs (a) and (b) of this subsection, the contracting 
officer shall

[[Page 475]]

submit the Notice and the required supplemental information with a 
written statement of the reason for delay as soon as practicable.
    (d) In an emergency situation requiring an immediate wage 
determination response, the contracting officer shall, in accordance 
with contracting agency procedures, contact the Wage and Hour Division 
by telephone for guidance before submitting the Notice.



22.1009  Place of performance unknown.



22.1009-1  General.

    If the place of performance is unknown, the contracting officer may 
use the procedures in this section. The contracting officer should first 
attempt to identify the specific places or geographical areas where the 
services might be performed (see 22.1009-2) and then may follow the 
procedures either in 22.1009-3 or in 22.1009-4.



22.1009-2  Attempt to identify possible places of performance.

    The contracting officer should attempt to identify the specific 
places or geographical areas where the services might be performed. The 
following may indicate possible places of performance:
    (a) Locations of previous contractors and their competitors.
    (b) The solicitation mailing list.
    (c) Responses to a presolicitation notice (see 5.204).



22.1009-3  All possible places of performance identified.

    (a) If the contracting officer can identify all the possible places 
or areas of performance (even though the actual place of performance 
will not be known until the successful offeror is chosen), the 
contracting officer, as required in 22.1008, shall submit the Notice to 
the Wage and Hour Division. If the number of places of performance 
exceeds the space available on the Notice, the contracting officer shall 
provide a listing by state-county-city/town in an attachment to the 
Notice.
    (b) The Wage and Hour Division may issue a wage determination for 
each different geographical area of performance identified by the 
contracting officer, or in unusual situations it may issue a wage 
determination for one or more composite areas of performance. If there 
is a substantial number of places or areas of performance indicating the 
need for a wage determination for one or more composite areas of 
performance, the contracting officer should, before submitting the 
Notice, contact the Wage and Hour Division concerning the issuance of 
such a wage determination.
    (c) If the contracting officer subsequently learns of any potential 
offerors in previously unidentified places before the closing date for 
submission of offers, the contracting officer shall follow one of the 
following procedures:
    (1) Continue to follow the procedures in this subsection and:
    (i) Submit Notices for the additional places of performance to the 
Wage and Hour Division, and
    (ii) Amend the solicitation to include all wage determinations and, 
if necessary, extend the time for submission of final offers.
    (2) Follow the procedures in 22.1009-4.



22.1009-4  All possible places of performance not identified.

    If the contracting officer believes that there may be offerors 
interested in performing in unidentified places or areas, the 
contracting officer may use the following procedures:
    (a) If the contracting officer has identified possible places or 
areas where services might be performed, the contracting officer shall 
submit the Notice to the Wage and Hour Division (see 22.1009-3 (a) and 
(b)).
    (b) Include the following information in the Commerce Business Daily 
Notice (see 5.207(f)(4)):
    (1) That the place of performance is unknown.
    (2) The possible places or areas of performance for which the 
contracting officer has requested wage determinations.
    (3) That the contracting officer will request wage determinations 
for additional possible places of performance if asked to do so in 
writing.
    (4) The time and date by which requests for wage determinations for 
additional places must be received by the contracting officer.

[[Page 476]]

    (c) Insert the clause at 52.222-49, Service Contract Act--Place of 
Performance Unknown, in solicitations and contracts. Include the 
information required in the clause by subparagraphs (b)(2) and (b)(4) of 
this subsection. The closing date for receipt of offerors' requests for 
wage determinations for additional possible places of performance should 
allow reasonable time for potential offerors to review the solicitation 
and determine their interest in competing. Generally, 10 to 15 days from 
the date of issuance of the solicitation may be considered a reasonable 
period of time.
    (d) The procedures in 14.304-1 shall apply to late receipt of 
offerors' requests for wage determinations for additional places of 
performance. However, late receipt of an offeror's request for a wage 
determination for additional places of performance does not preclude the 
offeror's competing for the proposed acquisition.
    (e) If the contracting officer receives any timely requests for wage 
determinations for additional places of performance the contracting 
officer shall--
    (1) Submit Notices for the additional places of performance to the 
Wage and Hour Division; and
    (2) Amend the solicitation to include all wage determinations and, 
if necessary, extend the time for submission of final offers.
    (f) If the successful offeror did not make a timely request for a 
wage determination and will perform in a place of performance for which 
the contracting officer therefore did not request a wage determination, 
the contracting officer shall--
    (1) Award the contract;
    (2) Request a wage determination; and
    (3) Incorporate the wage determination in the contract, retroactive 
to the date of contract award and with no adjustment in contract price, 
pursuant to the clause at 52.222-49, Service Contract--Place of 
Performance Unknown.



22.1010  Notification to interested parties under collective bargaining agreements.

    (a) The contracting officer should determine whether the incumbent 
prime contractor's or its subcontractors' service employees performing 
on the current contract are represented by a collective bargaining 
agent. If there is a collective bargaining agent, the contracting 
officer shall give both the incumbent contractor and its employees' 
collective bargaining agent written notification of--
    (1) The forthcoming successor contract and the applicable 
acquisition dates (issuance of solicitation, opening of bids, 
commencement of negotiations, award of contract, or start of 
performance, as the case may be); or
    (2) The forthcoming contract modification and applicable acquisition 
dates (exercise of option, extension of contract, change in scope, or 
start of performance, as the case may be); or
    (3) The forthcoming multiple year contract anniversary date (annual 
anniversary date or biennial date, as the case may be).
    (b) This written notification must be given at least 30 days in 
advance of the earliest applicable acquisition date or the applicable 
annual or biennial anniversary date in order for the time-of-receipt 
limitations in 22.1012-3 (a) and (b) to apply. The contracting officer 
shall retain a copy of the notification in the contract file.



22.1011  Response to Notice by Department of Labor.



22.1011-1  Department of Labor action.

    The Wage and Hour Division will mark, date, and sign the section of 
the SF 98 titled Response to Notice and return the signed original 
together with appropriate additional material (wage determination, 
position/classification descriptions, etc.). The Wage and Hour Division 
will take one of the following four actions:
    (a) Issue and attach applicable wage determination(s); or
    (b) Indicate that no wage determination is in effect for the 
locality of contract performance; or
    (c) Indicate that the Service Contract Act is not applicable based 
on information submitted; or
    (d) Return the Notice for additional information (see 22.1008-1).

[[Page 477]]



22.1011-2  Requests for status or expediting of response.

    Checking the status or the expediting of wage determination 
responses shall be made in accordance with contracting agency 
procedures.



22.1012  Late receipt or nonreceipt of wage determination.



22.1012-1  General.

    The Wage and Hour Administrator, generally, will issue a wage 
determination or revision to it in response to a Notice. The contracting 
officer shall incorporate the determination or revision in the 
particular solicitation and contract for which the wage determination 
was sought.



22.1012-2  Response to timely submission of Notice--no collective bargaining agreement.

    (a) If the contracting officer has not received a response from the 
Department of Labor within 60 days (or 30 days if a nonrecurring or 
unknown requirement), the contracting agency shall contact the Wage and 
Hour Division to determine when the wage determination or revision can 
be expected. 
    (b) In sealed bidding, a revision of a wage determination shall not 
be effective if a collective bargaining agreement does not exist, the 
revision is received by the contracting agency less than 10 days before 
the opening of bids, and the contracting officer finds that there is not 
reasonable time to incorporate the revision in the solicitation.
    (c) For contractual actions other than sealed bidding where a 
collective bargaining agreement does not exist, a revision of a wage 
determination received by the contracting agency after award of a new 
contract or a modification as specified in 22.1007(b) shall not be 
effective provided that the start of performance is within 30 days of 
the award or the specified modification. If the contract does not 
specify a start of performance date which is within 30 days of the award 
or the specified modification, and if contract performance does not 
commence within 30 days of the award or the specified modification, the 
Department of Labor shall be notified and any revision received by the 
contracting agency not less than 10 days before commencement of the work 
shall be effective.
    (d) The limitations in paragraphs (b) and (c) of this subsection 
shall apply only if a timely Notice required in 22.1008-7 (a) and (b) 
has been submitted.



22.1012-3  Response to timely submission of Notice--with collective bargaining agreement.

    (a) In sealed bidding, a wage determination or revision based on a 
new or changed collective bargaining agreement shall not be effective if 
the contracting agency has received notice of the terms of the new or 
changed collective bargaining agreement less than 10 days before bid 
opening and the contracting officer determines that there is not 
reasonable time to incorporate the new or changed terms of the 
collective bargaining agreement in the solicitation (see 52.222-47).
    (b) For contractual actions other than sealed bidding, a wage 
determination or revision based on a new or changed collective 
bargaining agreement shall not be effective if notice of the terms of 
the new or changed collective bargaining agreement is received by the 
contracting agency after award of a successor contract or a modification 
as specified in 22.1007(b), provided that the contract start of 
performance is within 30 days of the award of the contract or of the 
specified modification. If the contract does not specify a start of 
performance date which is within 30 days of the award of the contract or 
of the specified modification, or if contract performance does not 
commence within 30 days of the award of the contract or of the specified 
modification, any notice of the terms of a new or changed collective 
bargaining agreement received by the agency not less than 10 days before 
commencement of the work shall be effective for purposes of the 
successor contract under section 4(c) of the Act.
    (c) The limitations in paragraphs (a) and (b) of this subsection 
shall apply only if timely Notices and notifications required in 
22.1008-7 and 22.1010 have been given.
    (d) If the contracting officer has not received a response from the 
Department of Labor within 60 days (or 30

[[Page 478]]

days if a nonrecurring or unknown requirement), the contracting agency 
shall contact the Wage and Hour Division to determine when the wage 
determination or revision can be expected. If the Department of Labor is 
unable to provide the wage determination or revision by the latest date 
needed to maintain the acquisition schedule, the solicitation/contract 
action should proceed according to the following instructions:
    (1) If a successorship/same locality/incumbent collective bargaining 
agreement situation exists, the contracting officer shall incorporate in 
the solicitation the wage and fringe benefit terms of the collective 
bargaining agreement, or the collective bargaining agreement itself, and 
the clause at 52.222-47, Service Contract Act (SCA) Minimum Wages and 
Fringe Benefits. The contracting officer may incorporate the wage and 
fringe benefit terms of the collective bargaining agreement, or the 
collective bargaining agreement itself, in other contract actions such 
as the exercise of options in order to facilitate price adjustments in 
fixed-price type contracts (but see 22.1008-3(e) and 22.1013(a)).
    (2) The terms of a new or changed collective bargaining agreement, 
negotiated by the predecessor contractor during the period of 
performance of the predecessor contract, will not apply to the successor 
contract under the conditions set forth in paragraphs (a), (b), and (c) 
of this subsection.
[54 FR 19816, May 8, 1989, as amended at 59 FR 67040, Dec. 28, 1994]



22.1012-4  Response to late submission of Notice--no collective bargaining agreement.

    If the contracting officer has not filed the Notice within the time 
limits in 22.1008-7, and thus has not received a response from the 
Department of Labor, and a successorship/same locality/incumbent 
collective bargaining agreement situation does not exist, the 
contracting officer shall contact the Wage and Hour Division to 
determine when the wage determination or revision can be expected. If 
the Department of Labor is unable to provide the wage determination or 
revision by the latest date needed to maintain the acquisition schedule, 
the contracting officer shall use the latest wage determination or 
revision, if any, incorporated in the existing contract. If any new or 
revised wage determination is received later in response to the Notice, 
the contracting officer shall include it in the solicitation or contract 
within 30 calendar days of receipt. If the contract has been awarded, 
the contracting officer shall equitably adjust the contract price to 
reflect any changed cost of performance resulting from incorporating the 
wage determination or revision. The Administrator, Wage and Hour 
Division, may require retroactive application of the wage determination 
for a contractual action over $2,500 using more than five service 
employees. These provisions are not intended to alter the contracting 
officer's responsibility to make timely submissions as required in 
22.1008-7.



22.1012-5  Response to late submission of Notice--with collective bargaining agreement.

    If the contracting officer has not filed the Notice within the time 
limits in 22.1008-7, has not received a response from the Department of 
Labor, and a successorship/same locality/incumbent collective bargaining 
agreement situation exists, the contracting officer shall contact the 
Wage and Hour Division to determine when the wage determination or 
revision can be expected. If the Department of Labor is unable to 
provide the wage determination or revision by the latest date needed to 
maintain the acquisition schedule, the contracting officer shall 
incorporate in the solicitation the wage and fringe benefit terms of the 
collective bargaining agreement, or the collective bargaining agreement 
itself, and the clause at 52.222-47, Service Contract Act (SCA) Minimum 
Wages and Fringe Benefits. If the contract has been awarded, an 
equitable adjustment following receipt of the wage determination or 
revision will not be required, since the wage determination or revision 
will be based on the economic terms of the collective bargaining 
agreement. The contracting officer may incorporate the wage and fringe

[[Page 479]]

benefit terms of the collective bargaining agreement, or the collective 
bargaining agreement itself, in other contract actions such as the 
exercise of options in order to facilitate price adjustments for options 
in fixed-price type contracts (but see 22.1008-3(e) and 22.1013(a)).
[54 FR 19816, May 8, 1989, as amended at 59 FR 67040, Dec. 28, 1994]



22.1013  Review of wage determination.

    (a) Based on incumbent collective bargaining agreement. (1) If 
wages, fringe benefits, or periodic increases provided for in a 
collective bargaining agreement vary substantially from those prevailing 
for similar services in the locality, the contracting officer shall 
immediately contact the agency labor advisor to consider instituting the 
procedures in 22.1021.
    (2) If the contracting officer believes that an incumbent or 
predecessor contractor's agreement was not the result of arm's length 
negotiations, the contracting officer shall contact the agency labor 
advisor to determine appropriate action.
    (b) Based on other than incumbent collective bargaining agreement. 
Upon receiving a wage determination not predicated upon a collective 
bargaining agreement, the contracting officer shall ascertain--
    (1) If the wage determination does not conform with wages and fringe 
benefits prevailing for similar services in the locality; or
    (2) If the wage determination contains significant errors or 
omissions. If either subparagraph (b)(1) or (b)(2) of this section is 
evident, the contracting officer shall contact the agency labor advisor 
to determine appropriate action.



22.1014  Delay of acquisition dates over 60 days.

    If any invitation for bids, request for proposals, bid opening, or 
commencement of negotiation for a proposed contract for which a wage 
determination was provided in response to a Notice has been delayed, for 
whatever reason, more than 60 days from such date as indicated on the 
submitted Notice, the contracting officer shall, in accordance with 
agency procedures, contact the Wage and Hour Division for the purpose of 
determining whether the wage determination issued under the initial 
submission is still current. Any revision of a wage determination 
received by the contracting agency as a result of that communication, or 
upon discovery by the Department of Labor of a delay, shall supersede 
the earlier response as the wage determination applicable to the 
particular acquisition subject to the time frames in 22.1012-2(a) and 
(b).



22.1015  Discovery of errors by the Department of Labor.

    If the Department of Labor discovers and determines, whether before 
or after a contract award, that a contracting officer made an erroneous 
determination that the Service Contract Act did not apply to a 
particular acquisition or failed to include an appropriate wage 
determination in a covered contract, the contracting officer, within 30 
days of notification by the Department of Labor, shall include in the 
contract the clause at 52.222-41 and any applicable wage determination 
issued by the Administrator. If the contract is subject to section 10 of 
the Act (41 U.S.C. 358), the Administrator may require retroactive 
application of that wage determination. The contracting officer shall 
equitably adjust the contract price to reflect any changed cost of 
performance resulting from incorporating a wage determination or 
revision.



22.1016  Statement of equivalent rates for Federal hires.

    (a) The statement required under the clause at 52.222-42, Statement 
of Equivalent Rates for Federal Hires, (see 22.1006(b)) shall set forth 
those wage rates and fringe benefits that would be paid by the 
contracting activity to the various classes of service employees 
expected to be utilized under the contract if 5 U.S.C. 5332 (General 
Schedule--white collar) and/or 5 U.S.C. 5341 (Wage Board--blue collar) 
were applicable.
    (b) Procedures for computation of these rates are as follows:
    (1) Wages paid blue collar employees shall be the basic hourly rate 
for each class. The rate shall be Wage Board pay schedule step two for 
nonsupervisory

[[Page 480]]

service employees and step three for supervisory service employees.
    (2) Wages paid white collar employees shall be an hourly rate for 
each class. The rate shall be obtained by dividing the general pay 
schedule step one biweekly rate by 80.
    (3) Local civilian personnel offices can assist in determining and 
providing grade and salary data.



22.1017  Notice of award.

    Whenever an agency awards a service contract subject to the Act 
which may be in excess of $25,000 and that agency does not report the 
award to the Federal Procurement Data System, it shall furnish an 
original and one copy of Standard Form 99, Notice of Award of Contract 
(see 53.301-99) to the Wage and Hour Division, Employment Standards 
Administration, Department of Labor, unless it makes other arrangements 
with the Wage and Hour Division for notifying it of contract awards.



22.1018  Notification to contractors and employees.

    The contracting officer shall take the following steps to ensure 
that service employees are notified of minimum wages and fringe 
benefits.
    (a) As soon as possible after contract award, inform the contractor 
of the labor standards requirements of the contract relating to the Act 
and of the contractor's responsibilities under these requirements, 
unless it is clear that the contractor is fully informed.
    (b) At the time of award, furnish the contractor Department of Labor 
Publication WH-1313, Notice to Employees Working on Government 
Contracts, for posting at a prominent and accessible place at the 
worksite before contract performance begins. The publication advises 
employees of the compensation (wages and fringe benefits) required to be 
paid or furnished under the Act and satisfies the notice requirements in 
paragraph (g) of the clause at 52.222-41, Service Contract Act of 1965, 
as amended.
    (c) Attach any applicable wage determination to Publication WH-1313.



22.1019  Additional classes of service employees.

    (a) If the contracting officer is aware that contract performance 
involves classes of service employees not included in the wage 
determination, the contracting officer shall require the contractor to 
classify the unlisted classes so as to provide a reasonable relationship 
(i.e., appropriate level of skill comparison) between the unlisted 
classifications and the classifications listed in the determination (see 
paragraph (c) of the clause at 52.222-41, Service Contract Act of 1965, 
as amended). The contractor shall initiate the conforming procedure 
before unlisted classes of employees perform contract work. The 
contractor shall submit Standard Form (SF) 1444, Request For 
Authorization of Additional Classification and Rate. The contracting 
officer shall review the proposed classification and rate and promptly 
submit the completed SF 1444 (which must include information regarding 
the agreement or disagreement of the employees' representative or the 
employees themselves together with the agency recommendation) and all 
other pertinent information to the Wage and Hour Division. Within 30 
days of receipt of the request, the Wage and Hour Division will (1) 
approve, modify, or disapprove the request when the parties are in 
agreement or (2) render a final determination in the event of 
disagreement among the parties. If the Wage and Hour Division will 
require more than 30 days to take action, it will notify the contracting 
officer within 30 days of receipt of the request that additional time is 
necessary.
    (b) Some wage determinations will list a series of classes within a 
job classification family, for example, Computer Operators, level I, II, 
and III, or Electronic Technicians, level I, II, and III, or Clerk 
Typist, level I and II. Generally, level I is the lowest level. It is 
the entry level, and establishment of a lower level through conformance 
is not permissible. Further, trainee classifications may not be 
conformed. Helpers in skilled maintenance trades (for example, 
electricians, machinists, and automobile mechanics) whose duties

[[Page 481]]

constitute, in fact, separate and distinct jobs may also be used if 
listed on the wage determination, but may not be conformed. Conformance 
may not be used to artificially split or subdivide classifications 
listed in the wage determination. However, conforming procedures may be 
used if the work which an employee performs under the contract is not 
within the scope of any classification listed on the wage determination, 
regardless of job title. (See 29 CFR 4.152.)
    (c) Subminimum rates for apprentices, student learners, and 
handicapped workers are permissible in accordance with paragraph (q) of 
the clause at 52.222-41, Service Contract Act of 1965, as amended.



22.1020  Seniority lists.

    If a contract is performed at a Federal facility where employees may 
be hired/retained by a succeeding contractor, the incumbent prime 
contractor is required to furnish a certified list of all service 
employees on the contractor's or subcontractor's payroll during the last 
month of the contract, together with anniversary dates of employment, to 
the contracting officer no later than 10 days before contract 
completion. (See paragraph (n) of the clause at 52.222-41, Service 
Contract Act of 1965, as amended.) At the commencement of the succeeding 
contract, the contracting officer shall provide a copy of the list to 
the successor contractor for determining employee eligibility for 
vacation or other fringe benefits which are based upon length of 
service, including service with predecessor contractors if such benefit 
is required by an applicable wage determination.



22.1021  Requests for hearing.

    (a) A contracting agency or other interested party may request a 
hearing on an issue presented in 22.1013(a). To obtain a hearing for the 
contracting agency, the contracting officer shall submit a written 
request through appropriate channels (ordinarily the agency labor 
advisor) to: Administrator, Wage and Hour Division, Employment Standards 
Administration, U.S. Department of Labor, Washington, DC 20210.
    (b) A request for a substantial variance hearing shall include 
sufficient data to show that the rates at issue vary substantially from 
those prevailing for similar services in the locality. The request shall 
also include--
    (1) The number of the wage determinations at issue;
    (2) The name of the contracting agency whose contract is involved;
    (3) A brief description of the services to be performed under the 
contract;
    (4) The status of the procurement and any estimated procurement 
dates, such as bid opening, contract award, and commencement date of the 
contract or its follow-up option period;
    (5) A statement of the applicant's case, setting forth in detail the 
reasons why the applicant believes that a substantial variance exists 
with respect to some or all of the wages and/or fringe benefits;
    (6) Names and addresses (to the extent known) of interested parties; 
and
    (7) Any other data required by the Administrator.
    (c) A request for an arm's length hearing shall include--
    (1) A statement of the applicant's case setting forth in detail the 
reasons why the applicant believes that the wages and fringe benefits 
contained in the collective bargaining agreement were not reached as a 
result of arm's length negotiations;
    (2) A statement regarding the status of the procurement and any 
estimated procurement dates, such as bid opening, contract award, and 
commencement date of the contract or its follow-up option period; and
    (3) Names and addresses (to the extent known) of interested parties.
    (d) Unless the Administrator determines that extraordinary 
circumstances exist, the Administrator will not consider requests for a 
hearing unless received as follows:
    (1) For sealed bid contracts, more than 10 days before the award of 
the contract; or
    (2) For negotiated contracts and for contracts with provisions 
exceeding the initial term by option, before the commencement date of 
the contract or the follow-up option period.
[59 FR 67041, Dec. 28, 1994]

[[Page 482]]



22.1022  Withholding of contract payments.

    Any violations of the clause at 52.222-41, Service Contract Act of 
1965, as amended, renders the responsible contractor liable for the 
amount of any deductions, rebates, refunds, or underpayments (which 
includes nonpayment) of compensation due employees performing the 
contract. The contracting officer may withhold--or, upon written request 
of the Department of Labor from a level no lower than that of Assistant 
Regional Administrator, Wage and Hour Division, Employment Standards 
Administration, Department of Labor, shall withhold--the amount needed 
to pay such underpaid employees from accrued payments due the contractor 
on the contract, or on any other prime contract (whether subject to the 
Service Contract Act or not) with the contractor. The agency shall place 
the amount withheld in a deposit fund. Such withheld funds shall be 
transferred to the Department of Labor for disbursement to the underpaid 
employees on order of the Secretary (or authorized representatives), an 
Administrative Law Judge, or the Board of Service Contract Appeals. In 
addition, the Department of Labor has given blanket approval to forward 
withheld funds pending completion of an investigation or other 
administrative proceeding when disposition of withheld funds remains the 
final action necessary to close out a contract.
[54 FR 19816, May 8, 1989, as amended at 61 FR 39198, July 26, 1996]



22.1023  Termination for default.

    As provided by the Act, any contractor failure to comply with the 
requirements of the contract clauses related to the Act may be grounds 
for termination for default (see paragraph (k) of the clause at 52.222-
41, Service Contract Act of 1965, as amended).



22.1024  Cooperation with the Department of Labor.

    The contracting officer shall cooperate with Department of Labor 
representatives in the examination of records, interviews with service 
employees, and all other aspects of investigations undertaken by the 
Department. When asked, agencies shall furnish the Wage and Hour 
Administrator or a designee, any available information on contractors, 
subcontractors, their contracts, and the nature of the contract 
services. The contracting officer shall promptly refer, in writing to 
the appropriate regional office of the Department, apparent violations 
and complaints received. Employee complaints shall not be disclosed to 
the employer.



22.1025  Ineligibility of violators.

    A list of persons or firms found to be in violation of the Act is 
contained in the List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs (see 9.404). No Government contract may be 
awarded to any violator so listed because of a violation of the Act, or 
to any firm, corporation, partnership, or association in which the 
violator has a substantial interest, without the approval of the 
Secretary of Labor. This prohibition against award to an ineligible 
contractor applies to both prime and subcontracts.
[54 FR 19816, May 8, 1989, as amended at 60 FR 33066, June 26, 1995]



22.1026  Disputes concerning labor standards.

    Disputes concerning labor standards requirements of the contract are 
handled under paragraph (t) of the contract clause at 52.222-41, Service 
Contract Act of 1965, as amended, and not under the clause at 52.233-1, 
Disputes.



            Subpart 22.11--Professional Employee Compensation



22.1101  Applicability.

    The Service Contract Act of 1965 was enacted to ensure that 
Government contractors compensate their blue-collar service workers and 
some white-collar service workers fairly, but it does not cover bona 
fide executive, administrative, or professional employees. The Office of 
Federal Procurement Policy issued Policy Letter No. 78-2, dated March 
29, 1978, Preventing Wage Busting for Professionals. This subpart 
implements that policy letter. Its application is limited to 
professional employees. This subpart 22.11 provides

[[Page 483]]

policies and procedures for use in negotiated service contracts 
exceeding $500,000 that involve meaningful numbers of professional 
employees.
[48 FR 42258, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
57 FR 60582, Dec. 21, 1992]



22.1102  Definition.

    Professional employee means any person meeting the definition of 
employee employed in a bona fide . . . professional capacity given in 29 
CFR part 541. The term embraces members of those professions having a 
recognized status based upon acquiring professional knowledge through 
prolonged study. Examples of these professions include accountancy, 
actuarial computation, architecture, dentistry, engineering, law, 
medicine, nursing, pharmacy, the sciences (such as biology, chemistry, 
and physics), and teaching. To be a professional employee, a person must 
not only be a professional but must be involved essentially in 
discharging professional duties.



22.1103  Policy, procedures, and solicitation provision.

    All professional employees shall be compensated fairly and properly. 
Accordingly, the contracting officer shall insert the provision at 
52.222-46, Evaluation of Compensation for Professional Employees, in 
solicitations for negotiated service contracts when the contract amount 
is expected to exceed $500,000 and the service to be provided will 
require meaningful numbers of professional employees. This provision 
requires that offerors submit for evaluation a total compensation plan 
setting forth proposed salaries and fringe benefits for professional 
employees working on the contract. Supporting information will include 
data, such as recognized national and regional compensation surveys and 
studies of professional, public and private organizations, used in 
establishing the total compensation structure. Plans indicating 
unrealistically low professional employees compensation may be assessed 
adversely as one of the factors considered in making an award.
[57 FR 60582, Dec. 21, 1992]



   Subpart 22.12--Nondisplacement of Qualified Workers Under Certain 
                                Contracts

    Source: 62 FR 44824, Aug. 22, 1997, unless otherwise noted.



22.1200  Scope of subpart.

    This subpart prescribes policies and procedures for implementing 
Executive Order 12933 of October 20, 1994, Nondisplacement of Qualified 
Workers Under Certain Contracts, and Department of Labor regulations at 
29 CFR part 9.



22.1201  Statement of policy.

    It is the policy of the Federal Government that contracts for 
building services at public buildings shall require the contractor under 
a successor contract for performance of similar services at the same 
public building, to offer those employees (other than managerial or 
supervisory employees) under the predecessor contract, whose employment 
will be terminated as a result of the award of the successor contract, a 
right of first refusal to employment under the contract in positions for 
which they are qualified. Executive Order 12933 states that there shall 
be no employment openings under the contract until such right of first 
refusal has been provided.



22.1202  Definitions.

    Building service contract, as used in this subpart, means a contract 
for recurring services related to the maintenance of a public building. 
Recurring services are services that are required to be performed 
regularly or periodically throughout the course of a contract, and 
throughout the course of the succeeding or follow-on contract(s), at one 
or more of the same public buildings. Executive Order 12933 lists 
examples of building service contracts as including, but not limited to, 
contracts for the recurring provision of custodial or janitorial 
services; window washing; laundry; food services; guard or other 
protective services; landscaping and groundskeeping services; and 
inspection, maintenance, and repair of fixed

[[Page 484]]

equipment such as elevators, air conditioning, and heating systems. 
Building service contracts do not include--
    (1) Contracts that provide maintenance services only on a non-
recurring or irregular basis. For example, a contract to provide 
servicing of fixed equipment once a year, or to mulch a garden on a one-
time or annual basis, is a non-recurring maintenance contract that is 
not covered by this subpart;
    (2) Contracts for day-care services in a Federal office building; or
    (3) Concessions for sales of goods or services other than food 
services or laundry services.
    Public building, as used in this subpart, means any building owned 
by the United States that is generally suitable for office or storage 
space or both for the use of one or more Federal agencies or mixed 
ownership corporations, its grounds, approaches, and appurtenances.
    (1) Public buildings do not include any building on the public 
domain. The public domain includes only (i) those public lands owned by 
the United States and administered by the Department of the Interior, 
Bureau of Land Management, and (ii) the National Forest System 
administered by the Department of Agriculture, U.S. Forest Service. The 
public domain does not include Federal buildings, such as office 
buildings in cities or towns, that are occupied by the Bureau of Land 
Management or U.S. Forest Service where such buildings are not on lands 
administered by those agencies.
    (2) Buildings on the following are not public buildings:
    (i) Properties of the United States in foreign countries;
    (ii) Native American and Native Eskimo properties held in trust by 
the United States;
    (iii) Lands used in connection with Federal programs for 
agricultural, recreational, and conservation purposes, including 
research in connection therewith;
    (iv) Lands used in connection with river, harbor, flood control, 
reclamation, or power projects; or for chemical manufacturing or 
development projects; or for nuclear production, research, or 
development projects;
    (v) Land used in connection with housing and residential projects;
    (vi) Properties of the United States Postal Service;
    (vii) Military installations (including any fort, camp, post, naval 
training station, airfield, proving ground, military supply depot, 
military school, or any similar facility of the Department of Defense, 
but not including the Pentagon);
    (viii) Installations of the National Aeronautics and Space 
Administration, except regular office buildings; and
    (ix) Department of Veterans Affairs installations used for hospital 
or domiciliary purposes.
    (3) Buildings leased to the Government are not public buildings 
unless the building is leased pursuant to a lease-purchase contract.
    Service employee, as used in this subpart, means any person engaged 
in the performance of recurring building services other than a person in 
a bona fide executive, administrative, or professional capacity, as 
those terms are defined in 29 CFR part 541, and shall include all such 
persons regardless of any contractual relationship that may be alleged 
to exist between a contractor and such person.



22.1203  Applicability.



22.1203-1  General.

    (a) This subpart applies to building service contracts where the 
contract is entered into by the Government in an amount equal to or 
greater than the simplified acquisition threshold and the contract 
succeeds a contract for similar work at one or more of the same public 
buildings.
    (b)(1) Except as provided in paragraph (b)(2) of this subsection, a 
contract that includes a requirement for recurring building services is 
subject to this subpart even if the contract also contains other non-
covered services or non-service requirements, such as construction or 
supplies, and even if the contract is not subject to the McNamara-O'Hara 
Service Contract Act, 41 U.S.C. 351 et seq. However, the requirements of 
this subpart apply only to the

[[Page 485]]

building services portion of the contract, and only to those public 
buildings for which services were provided under a predecessor contract.
    (2) This subpart does not apply to building services that are only 
incidental to a contract for another purpose, such as incidental 
maintenance under a contract to operate a day-care center. Building 
service requirements will not be considered incidental, and, therefore, 
will be subject to this subpart where (i) the contract contains specific 
requirements for a substantial amount of building services or it is 
ascertainable that a substantial amount of building services will be 
necessary to the performance of the contract (the word ``substantial'' 
relates to the type and quantity of building services to be performed 
and not merely to the total value of such work, whether in absolute 
dollars or cost percentages as compared to the total value of the 
contract); and (ii) the building services work is physically or 
functionally separate, and as a practical matter is capable of being 
performed on a segregated basis, from the other work called for by the 
contract. Building services performed on a building being leased to the 
Government pursuant to a lease-purchase contract are not covered unless 
the services are being performed under a contract directly with the 
Government.



22.1203-2  Exclusions.

    (a) This subpart does not apply to--
    (1) Contracts under the simplified acquisition threshold;
    (2) Contracts for commodities or services produced or provided by 
the blind or severely handicapped, awarded pursuant to the Javits-
Wagner-O'Day Act, 41 U.S.C. 46-48a, and any future enacted law creating 
an employment preference for some group of workers under building 
service contracts;
    (3) Guard, elevator operator, messenger, or custodial services 
provided to the Government under contracts with sheltered workshops 
employing the severely handicapped as outlined in the Edgar Amendment, 
section 505 of the Treasury, Postal Services and General Government 
Appropriations Act, 1995, Public Law 103-329; or
    (4) Agreements for vending facilities operated by the blind, entered 
into under the preference provisions of the Randolph-Sheppard Act, 20 
U.S.C. 107.
    (b) A successor contractor is not required to offer a right of first 
refusal for employment when a majority of its employees, who will 
perform the particular service under the contract, will work both at the 
public building and at other locations under contracts not subject to 
Executive Order 12933. Examples include, but are not limited to, pest 
control or trash removal services where the employees periodically visit 
various Government and non-Government sites, and make service calls to 
repair equipment at various Government and non-Government buildings. 
This exclusion does not apply (i) where the service employees' work on 
non-covered contracts is not performed as a part of the same job as 
their work on the Federal contract in question, or where they separately 
apply for work on the non-Federal contracts; or (ii) where the employees 
are deployed in a manner that is designed to avoid the purposes of 
Executive Order 12933. In making this determination, all the facts and 
circumstances are examined, including particularly the manner in which 
the predecessor contractor deployed its work force to perform the 
services, the manner in which the work force is typically deployed to 
perform such services, and the manner in which the contract is 
structured.



22.1204  Seniority lists.

    (a) Not less than 60 days before completion of its contract, the 
predecessor contractor must furnish the contracting officer with a 
certified list of the names of all service employees engaged in the 
performance of building services, working for the contractor at the 
Federal facility at the time the list is submitted, together with their 
anniversary dates of employment. The contracting officer in turn shall 
provide the list to the successor contractor and, if requested, to 
employees of the predecessor contractor or their representatives.
    (b) The list provided pursuant to paragraph (a) of this section 
satisfies the requirements of paragraph (n) of

[[Page 486]]

the clause at 52.222-41, Service Contract Act of 1965, as Amended.



22.1205  Notice to employees.

    (a) Where the successor contract is a contract subject to this 
subpart, the contracting officer will provide written notice to service 
employees of the predecessor contractor, who are engaged in building 
services, of their possible right to an offer of employment. Such notice 
either may be posted in a conspicuous place at the work site or may be 
delivered to the employees individually.
    (b) Contracting officers may use either the following suggested 
notice format or another format with the same information.

              Notice to Building Service Contract Employees

The contract for [type of service] services currently performed by 
[predecessor contractor] has been awarded to a new contractor. 
[Successor contractor] will begin performance on [date successor 
contract begins].
As a condition of the new contract [successor contractor] is required to 
offer employment to the employees of [predecessor contractor] working at 
[the contract work site or work sites] except in the following 
situations:
 Managerial or supervisory employees on the current contract are 
not entitled to an offer of employment.
 [Successor contractor] may reduce the size of the current work 
force. Therefore, only a portion of the existing work force may receive 
employment offers. However, [successor contractor] must offer employment 
to the employees of [predecessor contractor] if any vacancies occur in 
the first 3 months of the new contract.
 [Successor contractor] may employ a current employee on the new 
contract before offering employment to [predecessor contractor's] 
employees only if the current employee has worked for [successor 
contractor] for at least 3 months immediately preceding the commencement 
of the new contract and would face layoff or discharge if not employed 
under the new contract.
 Where [successor contractor] has reason to believe, based on 
credible information from a knowledgeable source, that an employee's 
performance has been unsuitable on the current contract, the employee is 
not entitled to employment with the new contractor.
If you are offered employment on the new contract, you will have at 
least 10 days to accept the offer.
If you are an employee of [predecessor contractor] and believe that you 
are entitled to an offer of employment with [successor contractor], but 
have not received an offer, you may file a complaint with [contracting 
officer or representative], the contracting officer handling this 
contract at: [address and telephone number of contracting officer]. If 
the contracting officer is unable to resolve your complaint, the 
contracting officer will forward a report to the U.S. Department of 
Labor, Wage and Hour Division. You also may file your complaint directly 
with [address of the nearest District Office of the Wage and Hour 
Division].
If you have any questions about your right to employment on the new 
contract, contact: [Name, address, and telephone number of the 
contracting officer.]



22.1206  Complaint procedures.

    (a) Any employee of the predecessor contractor, who believes that he 
or she was not offered employment by the successor contractor as 
required by this subpart, may file a complaint with the contracting 
officer.
    (b) Upon receipt of the complaint, the contracting officer shall 
provide information to the employee(s) and the successor contractor 
about their rights and responsibilities under this subpart. If the 
matter is not resolved through such actions, the contracting officer 
shall, within 30 days from receipt of the complaint, obtain statements 
of the positions of the parties and forward the complaint and 
statements, together with a summary of the issues and any relevant facts 
known to the contracting officer, to the nearest District Office of the 
Wage and Hour Division, Employment Standards Administration, U.S. 
Department of Labor, with copies to the contractor and the complaining 
employee.
    (c) If the contracting officer has not forwarded the complaint to 
the Wage and Hour Division within 30 days of receipt of the complaint, 
as required by paragraph (b) of this section, the complainant may refile 
the complaint directly with the nearest District Office of the Wage and 
Hour Division.



22.1207  Withholding of contract payments.

    (a) The Secretary of Labor has the authority to issue orders 
prescribing appropriate remedies, including, but not limited to, 
requiring employment of the predecessor contractor's employees and 
payment of wages lost.

[[Page 487]]

    (b) After an investigation and a determination by the Administrator, 
Wage and Hour Division, Department of Labor, that lost wages or other 
monetary relief is due, the Administrator may direct that so much of the 
accrued payments due on either the contract or any other contract 
between the contractor and the Government shall be withheld in a deposit 
fund as is necessary to pay the moneys due. Upon the final order of the 
Secretary of Labor that such moneys are due, the Administrator may 
direct that such withheld funds be transferred to the Department of 
Labor for disbursement.
    (c) If the contracting officer or the Secretary of Labor finds that 
the predecessor contractor has failed to provide a list of the names of 
employees working under the contract in accordance with the requirements 
of the predecessor's contract, the contracting officer may take such 
action as may be necessary to cause the suspension of the payment of 
funds until such time as the list is provided to the contracting 
officer.



22.1208  Contract clause.

    The contracting officer shall insert the clause at 52.222-50, 
Nondisplacement of Qualified Workers, in solicitations and contracts for 
building services that succeed contracts for performance of similar work 
at the same public building and that are not excluded by 22.1203.



        Subpart 22.13--Special Disabled and Vietnam Era Veterans



22.1300  Scope of subpart.

    This subpart prescribes policies and procedures for implementing the 
Vietnam Era Veterans Readjustment Assistance Act of 1972, as amended (38 
U.S.C. 2012) (the Act); Executive Order 11701, January 24, 1973 (38 FR 
2675, January 29, 1973); and the regulations of the Secretary of Labor 
(41 CFR part 60-250 and part 61-250). In this subpart, the terms 
contract and contractor include subcontract and subcontractor.
[48 FR 42258, Sept. 19, 1983, as amended at 53 FR 661, Jan. 11, 1988]



22.1301  Policy.

    Government contractors, when entering into contracts subject to the 
Act, are required to list all suitable employment openings with the 
appropriate local employment service office and take affirmative action 
to employ, and advance in employment, qualified special disabled 
veterans and veterans of the Vietnam Era without discrimination based on 
their disability or veterans' status.



22.1302  Applicability.

    (a) The Act applies to all contracts for supplies and services 
(including construction) of $10,000 or more except as waived by the 
Secretary of Labor.
    (b) The requirements of the clause at 52.222-35, Affirmative Action 
for Special Disabled and Vietnam Era Veterans, in any contract with a 
State or local government (or any agency, instrumentality, or 
subdivision) shall not apply to any agency, instrumentality, or 
subdivision of that government that does not participate in work on or 
under the contract.



22.1303  Waivers.

    (a) The agency head, with the concurrence of the Director, Office of 
Federal Contract Compliance Programs (OFCCP), Department of Labor 
(Director), may waive any or all of the terms of the clause at 52.222-
35, Affirmative Action for Special Disabled and Vietnam Era Veterans, 
for--
    (1) Any contract if a waiver is deemed to be in the national 
interest; or
    (2) Groups or categories of contracts if a waiver is in the national 
interest and it is--
    (i) Impracticable to act on each request individually; and
    (ii) Determined that the waiver will substantially contribute to 
convenience in administering the Act.
    (b)(1) The head of a civilian agency, with the concurrence of the 
Director of OFCCP, or, (2) the Secretary of Defense may waive any 
requirement in this subpart when it is determined that the contract is 
essential to the national security, and that its award without complying 
with such requirements is necessary to the national security. Upon 
making such a determination,

[[Page 488]]

the head of a civilian agency shall notify the Director in writing 
within 30 days.
    (c) The contracting officer shall submit requests for waivers in 
accordance with agency procedures.
    (d) A waiver granted for a particular class of contracts may be 
withdrawn for any contract within that class whenever considered 
necessary by the Director to achieve the purposes of the Act. The 
withdrawal shall not apply to contracts awarded before the withdrawal. 
The withdrawal shall not apply to solicitations under any means of 
sealed bidding unless it is made more than 10 calendar days before the 
date set for bid opening.
[48 FR 42258, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987]



22.1304  Department of Labor notices and reports.

    (a) The contracting officer shall furnish to the contractor 
appropriate notices for posting when they are prescribed by the 
Director.
    (b) The Act requires contractors to submit a report at least 
annually to the Secretary of Labor regarding employment of Vietnam era 
and special disabled veterans unless all of the terms of the clause at 
52.222-35, Affirmative Action for Special Disabled and Vietnam Era 
Veterans, have been waived (see 22.1303). The contractor shall use 
Standard Form VETS-100, Federal Contractor Veterans' Employment Report, 
to submit the required reports.
[53 FR 661, Jan. 11, 1988]



22.1305  Collective bargaining agreements.

    If performance under the clause at 52.222-35, Affirmative Action for 
Special Disabled and Vietnam Era Veterans, may necessitate a revision of 
a collective bargaining agreement, the contracting officer shall advise 
the affected labor unions that the Department of Labor (DOL) will give 
them appropriate opportunity to present their views. However, neither 
the contracting officer nor any representative of the contracting 
officer shall discuss with the contractor or any labor representative 
any aspect of the collective bargaining agreement.



22.1306  Complaint procedures.

    Following agency procedures, the contracting office shall forward 
any complaints received about the administration of the Act to the 
Veteran's Employment Service of DOL, through the local Veteran's 
Employment Representative or designee, at the local State employment 
office. The Director of the Office of Federal Contract Compliance 
Programs of the DOL is primarily responsible for making investigations 
of complaints.



22.1307  Actions because of noncompliance.

    The contracting officer shall take necessary action as soon as 
possible upon notification by the appropriate agency official to 
implement any sanctions imposed on a contractor by the Department of 
Labor for violations of the clause at 52.222-35, Affirmative Action for 
Special Disabled and Vietnam Era Veterans. These sanctions (see 41 CFR 
60-250.28) may include--
    (a) Withholding from payments otherwise due;
    (b) Termination or suspension of the contract; or
    (c) Debarment of the contractor.



22.1308  Contract clauses.

    (a)(1) The contracting officer shall insert the clause at 52.222-35, 
Affirmative Action for Special Disabled and Vietnam Era Veterans, in 
solicitations and contracts when the contract is for $10,000 or more or 
is expected to amount to $10,000 or more, except when--
    (i) Work is performed outside the United States by employees 
recruited outside the United States (for the purposes of this subpart, 
United States includes the States, the District of Columbia, the Virgin 
Islands, the Commonwealth of Puerto Rico, Guam, American Samoa, and the 
Trust Territory of the Pacific Islands); or
    (ii) The agency head has waived, in accordance with 22.1303(a) or 
22.1303(b) all of the terms of the clause.
    (2) If the agency head waives one or more (but not all) of the terms 
of the clause in accordance with 22.1303(a) or

[[Page 489]]

22.1303(b), use the basic clause with its Alternate I.
    (b) The contracting officer shall insert the clause at 52.222-37, 
Employment Reports on Special Disabled Veterans and Veterans of the 
Vietnam Era, in solicitations and contracts containing the clause at 
52.222-35, Affirmative Action for Special Disabled and Vietnam Era 
Veterans.
[48 FR 42258, Sept. 19, 1983, as amended at 53 FR 662, Jan. 11, 1988; 55 
FR 38517, Sept. 18, 1990]



              Subpart 22.14--Employment of the Handicapped



22.1400  Scope of subpart.

    This subpart prescribes policies and procedures for implementing 
Section 503 of the Rehabilitation Act of l973, as amended (29 U.S.C. 
793) (the Act); Executive Order 11758, January 15, 1974; and the 
regulations of the Secretary of Labor (41 CFR part 60-741). In this 
subpart, the terms contract and contractor include subcontract and 
subcontractor.



22.1401  Policy.

    Government contractors, when entering into contracts subject to the 
Act, are required to take affirmative action to employ, and advance in 
employment, qualified handicapped individuals without discrimination 
based on their physical or mental handicap.



22.1402  Applicability.

    (a) Section 503 of the Act applies to all Government contracts in 
excess of $2,500 for supplies and services (including construction) 
except as waived by the Secretary of Labor. The clause at 52.222-36, 
Affirmative Action for Handicapped Workers, implements the Act.
    (b) The requirements of the clause at 52.222-36, Affirmative Action 
for Handicapped Workers, in any contract with a State or local 
government (or any agency, instrumentality, or subdivision) shall not 
apply to any agency, instrumentality, or subdivision of that government 
that does not participate in work on or under the contract.



22.1403  Waivers.

    (a) The agency head, with the concurrence of the Director, Office of 
Federal Contract Compliance Programs (OFCCP), (Director), may waive any 
or all of the terms of the clause at 52.222-36, Affirmative Action for 
Handicapped Workers, for--
    (1) Any contract if a waiver is deemed to be in the national 
interest; or
    (2) Groups or categories of contracts if a waiver is in the national 
interest and it is--
    (i) Impracticable to act on each request individually; and
    (ii) Determined that the waiver will substantially contribute to 
convenience in administering the Act.
    (b)(1) The head of a civilian agency, with the concurrence of the 
Director of OFCCP, or, (2) the Secretary of Defense, may waive any 
requirement in this subpart when it is determined that the contract is 
essential to the national security, and that its award without complying 
with such requirements is necessary to the national security. Upon 
making such a determination, the head of a civilian agency shall notify 
the Director in writing within 30 days.
    (c) The contracting officer shall submit requests for waivers in 
accordance with agency procedures.
    (d) A waiver granted for a particular class of contracts may be 
withdrawn for any contract within that class whenever considered 
necessary by the Director to achieve the purposes of the Act. The 
withdrawal shall not apply to contracts awarded before the withdrawal. 
The withdrawal shall not apply to solicitations under any means of 
formal sealed bidding unless it is made more than 10 calendar days 
before the date set for bid opening.
[48 FR 42258, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987]



22.1404  Department of Labor notices.

    The contracting officer shall furnish to the contractor appropriate 
notices that state the contractor's obligations and the handicapped 
individual's rights under the Employment of the Handicapped program. The 
contracting officer may obtain these notices from the Department of 
Labor Regional Office, Office of Federal Contract Compliance Programs.

[[Page 490]]



22.1405  Collective bargaining agreements.

    If performance under the clause at 52.222-36, Affirmative Action for 
Handicapped Workers, may necessitate a revision of a collective 
bargaining agreement, the contracting officer shall advise the affected 
labor unions that the Department of Labor will give them appropriate 
opportunity to present their views. However, neither the contracting 
officer nor any representative of the contracting officer shall discuss 
with the contractor or any labor representative any aspect of the 
collective bargaining agreement.



22.1406  Complaint procedures.

    Following agency procedures, the contracting office shall forward 
any complaints received about the administration of the Act to the 
OFCCP, 200 Constitution Avenue, NW., Washington, DC 20210, or to any 
OFCCP regional or area office. The OFCCP shall institute investigation 
of each complaint and shall be responsible for developing a complete 
case record.



22.1407  Actions because of noncompliance.

    The contracting officer shall take necessary action as soon as 
possible upon notification by the appropriate agency official to 
implement any sanctions imposed on a contractor by the Department of 
Labor for violations of the clause at 52.222-36, Affirmative Action for 
Handicapped Workers. These sanctions (see 41 CFR 60-74l.28) may 
include--
    (a) Withholding from payments otherwise due;
    (b) Termination or suspension of the contract; or
    (c) Debarment of the contractor.



22.1408  Contract clause.

    (a) The contracting officer shall insert the clause at 52.222-36, 
Affirmative Action for Handicapped Workers, in solicitations and 
contracts that exceed $2,500 or are expected to exceed $2,500, except 
when--
    (1) Work is performed outside the United States by employees 
recruited outside the United States (for the purpose of this subpart, 
United States, includes the States, the District of Columbia, the Virgin 
Islands, Puerto Rico, Guam, American Samoa, and the Trust Territory of 
the Pacific Islands); or
    (2) The agency head has waived, in accordance with 22.1403(a) or 
22.1403(b) all the terms of the clause.
    (b) If the agency head waives one or more (but not all) of the terms 
of the clause in accordance with 22.1403(a) or 22.1403(b), use the basic 
clause with its Alternate I.



PART 23--ENVIRONMENT, CONSERVATION, OCCUPATIONAL SAFETY, AND DRUG-FREE WORKPLACE--Table of Contents




Sec.
23.000  Scope of part.

         Subpart 23.1--Pollution Control and Clean Air and Water

23.101  Applicability.
23.102  Authorities.
23.103  Policy.
23.104  Exemptions.
23.105  Solicitation provision and contract clause.
23.106  Delaying award.
23.107  Compliance responsibilities.

                    Subpart 23.2--Energy Conservation

23.201  Authorities.
23.202  Definitions.
23.203  Policy.

Subpart 23.3--Hazardous Material Identification and Material Safety Data

23.300  Scope of subpart.
23.301  Definition.
23.302  Policy.
23.303  Contract clause.

                Subpart 23.4--Use of Recovered Materials

23.400   Scope of subpart.
23.401   Authorities.
23.402   Definitions.
23.403   Policy.
23.404   Procedures.
23.405   Solicitation provision and contract clause.

                    Subpart 23.5--Drug-Free Workplace

23.500  Scope of subpart.
23.501  Applicability.
23.502  Authority.
23.503  Definitions.
23.504  Policy.
23.505  Contract clause.

[[Page 491]]

23.506  Suspension of payments, termination of contract, and debarment 
          and suspension actions.

              Subpart 23.6--Notice of Radioactive Material

23.601  Requirements.
23.602  Contract clause.

  Subpart 23.7--Contracting for Environmentally Preferable and Energy-
                     Efficient Products and Services

23.701  Applicability.
23.702  Authorities.
23.703  Definitions.
23.704  Policy.
23.705  Application to Government-owned or leased facilities.
23.706  Contract clause.

                Subpart 23.8--Ozone-Depleting Substances

23.800  Scope of subpart.
23.801  Authorities.
23.802  Definition.
23.803  Policy.
23.804  Contract clauses.

             Subpart 23.9--Toxic Chemical Release Reporting

23.901  Purpose.
23.902  General.
23.903  Applicability.
23.904  Definition.
23.905  Policy.
23.906  Requirements.
23.907  Solicitation provision and contract clause.

Subpart 23.10--Federal Compliance With Right-To-Know Laws and Pollution 
                         Prevention Requirements

23.1001  Purpose.
23.1002  Applicability.
23.1003  Definition.
23.1004  Requirements.
23.1005  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42275, Sept. 19, 1983, unless otherwise noted.



23.000  Scope of part.

    This part prescribes acquisition policies and procedures supporting 
the Government's program for ensuring a drug-free workplace and for 
protecting and improving the quality of the environment through 
pollution control, energy conservation, identification of hazardous 
material, and use of recovered materials.
[54 FR 4968, Jan. 31, 1989]



         Subpart 23.1--Pollution Control and Clean Air and Water



23.101  Applicability.

    This subpart does not apply to contracts at or below the simplified 
acquisition threshold or to the use of facilities outside the United 
States. (United States, as used in this subpart, includes the States, 
the District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands, Guam, American Samoa, and the Trust Territory of the Pacific 
Islands.)
[48 FR 42275, Sept. 19, 1983, as amended at 60 FR 34758, July 3, 1995]



23.102  Authorities.

    (a) Clean Air Act (42 U.S.C. 7401 et seq.).
    (b) Clean Water Act (33 U.S.C. 1251 et seq.).
    (c) Executive Order 11738, September 10, 1973 (38 FR 25161, 
September 12, 1973).
    (d) Environmental Protection Agency (EPA) regulations (40 CFR part 
32).
[48 FR 42275, Sept. 19, 1983, as amended at 62 FR 236, Jan. 2, 1997]



23.103  Policy.

    (a) It is the Government's policy to improve environmental quality. 
Accordingly, executive agencies shall conduct their acquisition 
activities in a manner that will result in effective enforcement of the 
Clean Air Act (the Air Act) and the Clean Water Act (the Water Act).
    (b) Except as provided in 23.104, executive agencies shall not enter 
into, renew, or extend contracts with firms proposing to use facilities 
listed by EPA (40 CFR part 15) as violating facilities under the Air Act 
or the Water Act.



23.104  Exemptions.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
contracts and subcontracts are not subject to the restriction in 
23.103(b) if they are (1) $100,000 or under; (2) for indefinite

[[Page 492]]

quantities and the contracting officer believes that the amount ordered 
in any year under the contract will not exceed $100,000; or (3) for 
commercial items.
    (b) If the facility to be used is on the EPA List of Violating 
Facilities for a conviction under the Air Act or the Water Act, the 
exemption in paragraph (a) above does not apply.
    (c) The agency head may exempt any contract, subcontract, or class 
of contracts or subcontracts from the requirement in 23.103(b) for 1 
year when it is in the paramount interest of the United States to do so.
    (1) Before granting a class exemption, the agency head shall consult 
with the EPA Administrator or the Administrator's designee.
    (2) The agency head shall notify the EPA Administrator, or a 
designee, as soon as practical after granting an individual exemption. 
The notification shall describe the purpose of the contract and explain 
why the paramount interest of the United States required the exemption.
[48 FR 42275, Sept. 19, 1983, as amended at 53 FR 27464, July 20, 1988; 
60 FR 48248, Sept. 18, 1995]



23.105  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the solicitation provision 
at 52.223-1, Clean Air and Water Certification, in solicitations 
containing the clause at 52.223-2, Clean Air and Water (see paragraph 
(b) following).
    (b) The contracting officer shall insert the clause at 52.223-2, 
Clean Air and Water, in solicitations and contracts to which this 
subpart applies (see 23.101), if--
    (1) The contract is expected to exceed $100,000;
    (2) The contracting officer believes that orders under an indefinite 
quantity contract in any year will exceed $100,000; or
    (3) A facility to be used has been the subject of a conviction under 
the applicable portion of the Air Act (42 U.S.C. 7413(c)(1)) or Water 
Act (33 U.S.C. 1319(c)) and is listed by EPA as a violating facility; 
and
    (4) The acquisition is not otherwise exempt under 23.104.



23.106  Delaying award.

    (a) If an otherwise successful offeror informs the contracting 
officer that EPA is considering listing a facility proposed for contract 
performance (see the provision at 52.223-1, Clean Air and Water 
Certification), the contracting officer shall promptly notify the EPA 
Administrator or a designee, in writing, that the offeror is being 
considered for award.
    (b) After consulting with the agency involved, the EPA Administrator 
or a designee may request the contracting officer to delay award for up 
to 15 working days, beginning on the date the EPA Administrator or a 
designee is notified that the award is under consideration.
    (c) The contracting officer then shall delay award, only for the 
period of time requested by the EPA (up to 15 working days), except when 
the delay is likely to prejudice the agency's programs or seriously 
disadvantage the Government. The contracting officer shall promptly 
notify the EPA Administrator or a designee only if a decision is made to 
award before the period requested expires.



23.107  Compliance responsibilities.

    Primary responsibility for ensuring compliance with Federal, State, 
or local pollution control laws and related requirements rests with EPA 
and other agencies designated under the laws. If a contracting officer 
becomes aware of noncompliance with clean air or water standards in 
facilities used in performing nonexempt contracts, that contracting 
officer shall notify the agency head, or a designee, who shall promptly 
notify the EPA Administrator or a designee in writing.



                    Subpart 23.2--Energy Conservation



23.201  Authorities.

    (a) Energy Policy and Conservation Act (42 U.S.C. 6361(a)(1)) and 
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. 
6901, et seq.).
    (b) National Energy Conservation Policy Act (42 U.S.C. 8253 and 
8262g).
    (c) Executive Order 11912, April 13, 1976.

[[Page 493]]

    (d) Executive Order 12759, Sections 3, 9, and 10, April 17, 1991.
    (e) Executive Order 12902, March 8, 1994.
[60 FR 28496, May 31, 1995]



23.202  Definitions.

    Consumer product means any article (other than an automobile, as 
defined in section 501(1) of the Motor Vehicle Information and Cost 
Savings Act) that--
    (a) Consumes energy; and
    (b) Is distributed in commerce for personal use or consumption by 
individuals.
    Covered product means a consumer product of one of the following 
types:
    (a) Central air conditioners.
    (b) Clothes dryers.
    (c) Clothes washers.
    (d) Dishwashers.
    (e) Freezers.
    (f) Furnaces.
    (g) Home heating equipment, not including furnaces.
    (h) Humidifiers and dehumidifiers.
    (i) Kitchen ranges and ovens.
    (j) Refrigerators and refrigerator-freezers.
    (k) Room air conditioners.
    (l) Television sets.
    (m) Water heaters.
    (n) Any other type of product that the Secretary of Energy 
classifies as a covered product under 42 U.S.C. 6292(b).
    Energy efficiency standard means a performance standard that--
    (a) Prescribes a minimum level of energy efficiency for a covered 
product, determined by test procedures prescribed under 42 U.S.C. 6293; 
and
    (b) Includes any other requirements that the Secretary of Energy may 
prescribe under 42 U.S.C. 6295(c).
    Energy use and efficiency label means a label provided by a 
manufacturer of a covered product under 42 U.S.C. 6296.
    Manufacture means to manufacture, produce, assemble, or import.
    Manufacturer, as used in this part, means any business that, or 
person who, manufactures a consumer product.



23.203  Policy.

    Agencies shall consider energy-efficiency in the procurement of 
products and services. Energy conservation and efficiency data shall be 
considered along with estimated cost and other relevant factors in the 
preparation of plans, drawings, specifications, and other product 
descriptions.
[60 FR 28496, May 31, 1995]



Subpart 23.3--Hazardous Material Identification and Material Safety Data



23.300  Scope of subpart.

    This subpart prescribes policies and procedures for acquiring 
deliverable items, other than ammunition and explosives, that require 
the furnishing of data involving hazardous materials. Agencies may 
prescribe special procedures for ammunition and explosives.



23.301  Definition.

    Hazardous material is defined in the latest version of Federal 
Standard No. 313 (Federal Standards are sold to the public and Federal 
agencies through: General Services Administration, Specifications Unit 
(3FBP-W), 7th & D Sts., SW., Washington, DC 20407.
[56 FR 55374, Oct. 25, 1991]



23.302  Policy.

    (a) The Occupational Safety and Health Administration (OSHA) is 
responsible for issuing and administering regulations that require 
Government activities to apprise their employees of--
    (1) All hazards to which they may be exposed;
    (2) Relative symptoms and appropriate emergency treatment; and
    (3) Proper conditions and precautions for safe use and exposure.
    (b) To accomplish this objective, it is necessary to obtain certain 
information relative to the hazards which may be introduced into the 
workplace by the supplies being acquired. Accordingly, offerors and 
contractors are required to submit hazardous materials data whenever the 
supplies being acquired are identified as hazardous materials. The 
latest version of Federal Standard No. 313 (Material Safety Data Sheet, 
Preparation and Submission of) includes criteria for identification of 
hazardous materials.

[[Page 494]]

    (c) Hazardous material data (Material Safety Data Sheets (MSDS's)) 
are required--
    (1) As specified in the latest version of Federal Standard No. 313 
(including revisions adopted during the term of the contract);
    (2) For any other material designated by a Government technical 
representative as potentially hazardous and requiring safety controls.
    (d) MSDS's must be submitted--
    (1) By the apparent successful offeror prior to contract award if 
hazardous materials are expected to be used during contract performance.
    (2) For agencies other than the Department of Defense, again by the 
contractor with the supplies at the time of delivery.
    (e) The contracting officer shall provide a copy of all MSDS's 
received to the safety officer or other designated individual.
[48 FR 42275, Sept. 19, 1983, as amended at 56 FR 55374, Oct. 25, 1991; 
62 FR 236, Jan. 2, 1997]



23.303  Contract clause.

    (a) The contracting officer shall insert the clause at 52.223-3, 
Hazardous Material Identification and Material Safety Data, in 
solicitations and contracts if the contract will require the delivery of 
hazardous materials as defined in 23.301.
    (b) If the contract is awarded by an agency other than the 
Department of Defense, the contracting officer shall use the clause at 
52.223-3 with its Alternate I.
[56 FR 55374, Oct. 25, 1991]



                Subpart 23.4--Use of Recovered Materials

    Source: 60 FR 28496, May 31, 1995, unless otherwise noted.



23.400  Scope of subpart.

    This subpart prescribes policies and procedures for acquisition of--
    (a) Environmental Protection Agency (EPA) designated items for which 
agencies must develop and implement affirmative procurement programs 
pursuant to 42 U.S.C. 6901 et seq., and Executive Order 12873; and
    (b) Other products when preference is given to offers of products 
containing recovered material.
[62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.400 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

23.400  Scope of subpart.

    This subpart prescribes policies and procedures for acquisition of:
    (a) Environmental Protection Agency (EPA) designated items for which 
agencies must develop and implement affirmative procurement programs 
pursuant to 42 U.S.C. 6901 et seq., and E. O. 12873;
    (b) Agency designated items specifying recovered material; and
    (c) Other products when preference is given to offers of products 
containing recovered material.



23.401  Authorities.

    (a) The statutory basis for this program is the Resource 
Conservation and Recovery Act of 1976 (RCRA), as amended (Solid Waste 
Disposal Act, 42 U.S.C. 6901 et seq.). With limited exceptions, the 
statute requires agencies responsible for drafting or reviewing 
specifications to ensure that they:
    (1) Do not exclude the use of recovered materials,
    (2) Do not require the items to be manufactured from virgin 
materials, and
    (3) Do require, for EPA designated items, the use of recovered 
materials to the maximum extent practicable without jeopardizing the 
intended end use of the item. The statute further requires agencies to 
develop and implement affirmative procurement programs for EPA 
designated items within one year after EPA's designation.
    (b) The statute also requires the EPA to prepare guidelines on the 
availability, sources, and potential uses of recovered materials and 
associated items, including solid waste management services.
    (c) Executive Order 12873, dated October 20, 1993, as amended, 
requires that the Federal Government assume leadership in making more 
efficient use of natural resources through the acquisition of items made 
with recovered materials and work to increase and expand markets for 
recovered materials

[[Page 495]]

through greater Federal Government preference and demand for such items. 
Executive Order 12873 also provides direction for agency development and 
implementation of affirmative procurement programs.
[60 FR 28496, May 31, 1995, as amended at 62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, in section 
23.401, paragraph (c) was amended by adding ``as amended,'' following 
``October 20, 1993,'', effective Oct. 21, 1997.



23.402  Definitions.

    As used in this subpart--
    EPA designated item means an item--
    (1) That is or can be made with recovered material;
    (2) That is listed by EPA in a procurement guideline (40 CFR part 
247); and
    (3) For which EPA has provided purchasing recommendations in a 
related Recovered Materials Advisory Notice (RMAN).
    Postconsumer material means a material or finished product that has 
served its intended use and has been diverted or recovered from waste 
destined for disposal, having completed its life as a consumer item. 
Postconsumer material is a part of the broader category of ``recovered 
material.''
    Recovered material means waste materials and by-products which have 
been recovered or diverted from solid waste including postconsumer 
material, but such term does not include those materials and by-products 
generated from, and commonly reused within, an original manufacturing 
process.
[60 FR 28496, May 31, 1995, as amended at 62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.402 
was amended by adding an introductory sentence and revising the 
definitions EPA designated item and Postconsumer material, effective 
Oct. 21, 1997. For the convenience of the user, the superseded text is 
set forth as follows:

23.402  Definitions.

    EPA designated item means an item that is or can be made with 
recovered materials and is listed by EPA in a procurement guideline (40 
CFR, chapter 1, subchapter I).
    Postconsumer material means a material or finished product that has 
served its intended use and has been discarded for disposal or recovery, 
having completed its life as a consumer item. Postconsumer material is a 
part of the broader category of ``recovered material.''

                                * * * * *



23.403  Policy.

    The Government's policy is to aquire, in a cost-effective manner, 
items composed of the highest percentage of recovered materials 
practicable consistent with maintaining a satisfactory level of 
competition without adversely affecting performance requirements or 
exposing suppliers' employees to undue hazards from the recovered 
materials.



23.404  Procedures.

    (a) Applicability. These procedures apply to all agency acquisitions 
of EPA designated items when--
    (1) The price of the item exceeds $10,000; or
    (2) The aggregate amount paid for items, or for functionally 
equivalent items, in the preceding fiscal year was $10,000 or more.
    (b) EPA designated items. (1) EPA designates items that are or can 
be made with recovered materials in 40 CFR part 247 and accompanying 
RMAN's. The RMAN cites the applications for which the EPA items have 
been designated and the percentages of recovered material content.
    (2) For EPA designated items, agencies shall establish an 
affirmative procurement program. The responsibilities for preparation, 
implementation, and monitoring of affirmative procurement programs shall 
be shared between technical or requirements personnel and procurement 
personnel. As a minimum, such programs shall include--
    (i) A recovered materials preference program;
    (ii) An agency promotion program;
    (iii) A program for requiring reasonable estimates, certification, 
and verification of recovered material used in the performance of 
contracts; and
    (iv) Annual review and monitoring of the effectiveness of the 
program.
    (3) Acquisition of EPA designated items that do not meet the EPA 
minimum recovered material standards shall be approved by an official 
designated by the agency head based on a written determination that the 
items--

[[Page 496]]

    (i) Are not available within a reasonable period of time;
    (ii) Are available only at unreasonable prices;
    (iii) Are not available from a sufficient number of sources to 
maintain a satisfactory level of competition; or
    (iv) Based on technical verification, fail to meet performance 
standards in the specifications. Technical or requirements personnel 
shall provide a written statement when this determination is used 
partially or totally as a basis for an exemption. This determination 
shall be made on the basis of National Institute of Standards and 
Technology guidelines in any case in which the material is covered by 
these guidelines.
    (4) Contractor certifications required by the clause at 52.223-9 
shall be consolidated and reported in accordance with agency procedures.
[62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.404 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

23.404  Procedures.

    (a) Applicability. These procedures apply to all agency acquisitions 
where the agency requires minimum percentages of recovered materials. 
For EPA designated items, these procedures apply
    (1) When the price of the item exceeds $10,000 or
    (2) When the aggregate amount paid for items, or for functionally 
equivalent items, in the preceding fiscal year was $10,000 or more.
    (b) EPA designated items. (1) EPA has designated items that are or 
can be made with recovered materials in 40 CFR chapter 1, subchapter I.
    (2) For EPA designated items, agencies shall establish an 
affirmative procurement program. The responsibilities for preparation, 
implementation and monitoring of affirmative procurement programs shall 
be shared between technical or requirements personnel and procurement 
personnel. As a minimum, such programs shall include--
    (i) A recovered materials preference program;
    (ii) An agency promotion program;
    (iii) A program for requiring reasonable estimates, certification, 
and verification of recovered material used in the performance of 
contracts; and
    (iv) Annual review and monitoring of the effectiveness of the 
program.
    (3) Acquisition of EPA designated items which do not meet the EPA or 
agency minimum recovered material standards shall be approved by an 
official designated by the agency head based on a written determination 
that the items--
    (i) Are not available within a reasonable period of time;
    (ii) Are available only at unreasonable prices;
    (iii) Are not available from a sufficient number of sources to 
maintain a satisfactory level of competition; or
    (iv) Based on technical verification, fail to meet performance 
standards in the specifications. Technical or requirements personnel 
shall provide a written determination when this determination is used 
partially or totally as a basis for an exemption. This determination 
shall be made on the basis of National Institute of Standards and 
Technology guidelines in any case in which the material is covered by 
these guidelines.
    (4) Annual contractor certifications required by the clause at 
52.223-9 shall be consolidated and reported in accordance with agency 
procedures.
    (c) Agency designated items. Agency designated items specifying 
recovered material content shall be acquired pursuant to agency 
procedures.



23.405  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the provision at 52.223-4, 
Recovered Material Certification, in solicitations that are for, or 
specify the use of, recovered materials.
    (b) The contracting officer shall insert the clause at 52.223-9, 
Certification and Estimate of Percentage of Recovered Material Content 
for EPA Designated Items, in contracts exceeding the simplified 
acquisition threshold that are for, or specify the use of, an EPA 
designated item.
[62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.405 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

23.405  Solicitation provisions and contract clause.

    (a) The contracting officer shall insert the provision at 52.223-4, 
Recovered Material Certification, in solicitations requiring the use of 
recovered materials.
    (b)(1) The contracting officer shall insert the provision at 52.223-
8, Estimate of Percentage of Recovered Material for Designated Items to 
be Used in the Performance of the Contract, in solicitations exceeding

[[Page 497]]

the simplified acquisition threshold that contain a requirement for an 
EPA designated item.
    (2) The contracting officer shall use Alternate I of the provision 
at 52.223-8 in solicitations exceeding the simplified acquisition 
threshold that do not require EPA designated items, but do require 
agency designated items requiring recovered materials.
    (3) The contracting officer shall use Alternate II of the provision 
at 52.223-8 in solicitations exceeding the simplified acquisition 
threshold containing a requirement for both EPA designated and agency 
designated items.
    (c) When the basic provision or Alternate II at 52.223-8 is used, 
the contracting officer shall also insert the clause at 52.223-9, 
Certification of Percentage of Recovered Material Content for EPA 
Designated Items Used in Performance of the Contract.
[60 FR 28496, May 31, 1995, as amended at 61 FR 39198, July 26, 1996]



                    Subpart 23.5--Drug-Free Workplace

    Source: 54 FR 4968, Jan. 31, 1989 (interim) and 55 FR 21707, May 25, 
1990 (final), unless otherwise noted.



23.500  Scope of subpart.

    This subpart implements the Drug Free Workplace Act of 1988 (Pub. L. 
100-690).



23.501  Applicability.

    This subpart applies to all contracts, including contracts with 8(a) 
contractors under FAR subpart 19.8 and modifications which require a 
justification and approval (see subpart 6.3) except--
    (a) Contracts at or below the simplified acquisition threshold; 
however, the requirements of this subpart shall apply to contracts of 
any value if the contract is awarded to an individual;
    (b) Contracts for the acquisition of commercial items (see part 12);
    (c) Contracts or those parts of contracts that are to be performed 
outside of the United States, its territories, and its possessions;
    (d) Contracts by law enforcement agencies, if the head of the law 
enforcement agency or designee involved determines that application of 
this subpart would be inappropriate in connection with the law 
enforcement agency's undercover operations; or
    (e) Where application would be inconsistent with the international 
obligations of the United States or with the laws and regulations of a 
foreign country.
[54 FR 4968, Jan. 31, 1989, as amended at 55 FR 21707, May 25, 1990; 60 
FR 34758, July 3, 1995; 60 FR 48248, Sept. 18, 1995]



23.502  Authority.

    Drug-Free Workplace Act of 1988 (Pub. L. 100-690).



23.503  Definitions.

    Controlled substance, as used in this subpart, means a controlled 
substance in schedules I through V of section 202 of the Controlled 
Substances Act (21 U.S.C. 812), and as further defined in regulation at 
21 CFR 1308.11-1308.15.
    Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes.
    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, possession, 
or use of any controlled substance.
    Drug-free workplace means the site(s) for the performance of work 
done by the contractor in connection with a specific contract at which 
employees of the contractor are prohibited from engaging in the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance.
    Employee means an employee of a contractor directly engaged in the 
performance of work under a Government contract. Directly engaged is 
defined to include all direct cost employees and any other contract 
employee who has other than a minimal impact or involvement in contract 
performance.
    Individual means an offeror/contractor that has no more than one 
employee including the offeror/contractor.
[54 FR 4968, Jan. 31, 1989, as amended at 55 FR 21707, May 25, 1990]



23.504  Policy.

    (a) No offeror other than an individual shall be considered a 
responsible source (see 9.104-1(g) and 19.602-

[[Page 498]]

1(a)(2)(i)) for a contract that exceeds the simplified acquisition 
threshold, unless it agrees that it will provide a drug-free workplace 
by--
    (1) Publishing a statement notifying its employees that the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance is prohibited in the contractor's workplace, and 
specifying the actions that will be taken against employees for 
violations of such prohibition;
    (2) Establishing an ongoing drug-free awareness program to inform 
its employees about--
    (i) The dangers of drug abuse in the workplace;
    (ii) The contractor's policy of maintaining a drug-free workplace;
    (iii) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (iv) The penalties that may be imposed upon employees for drug abuse 
violations occurring in the workplace;
    (3) Providing all employees engaged in performance of the contract 
with a copy of the statement required by paragraph (a)(1) of this 
section;
    (4) Notifying all employees in writing in the statement required by 
subparagraph (a)(1) of this section, that as a condition of employment 
on a covered contract, the employee will--
    (i) Abide by the terms of the statement; and
    (ii) Notify the employer in writing of the employee's conviction 
under a criminal drug statute for a violation occurring in the workplace 
no later than 5 days after such conviction;
    (5) Notifying the contracting officer in writing within 10 days 
after receiving notice under subdivision (a)(4)(ii) of this section, 
from an employee or otherwise receiving actual notice of such 
conviction. The notice shall include the postion title of the employee;
    (6) Within 30 days after receiving notice under subparagraph (a)(4) 
of this section of a conviction, taking one of the following actions 
with respect to any employee who is convicted of a drug abuse violation 
occurring in the workplace:
    (i) Taking appropriate personnel action against such employee, up to 
and including termination; or
    (ii) Requiring such employee to satisfactorily participate in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency.
    (7) Making a good faith effort to maintain a drug-free workplace 
through implementation of subparagraphs (a)(1) through (a)(6) of this 
section.
    (b) No individual shall be awarded a contract of any dollar value 
unless that individual agrees not to engage in the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance 
while performing the contract.
    (c) For a contract of 30 days or more performance duration, the 
contractor shall comply with the provisions of paragraph (a) of this 
section within 30 days after contract award, unless the contracting 
officer agrees in writing that circumstances warrant a longer period of 
time to comply. Before granting such an extension, the contracting 
officer shall consider such factors as the number of contractor 
employees at the worksite, whether the contractor has or must develop a 
drug-free workplace program, and the number of contractor worksites. For 
contracts of less than 30 days performance duration, the contractor 
shall comply with the provisions of paragraph (a) of this section as 
soon as possible, but in any case, by a date prior to when performance 
is expected to be completed.
[54 FR 4968, Jan. 31, 1989, as amended at 55 FR 21707, May 25, 1990; 55 
FR 38517, Sept. 18, 1990; 60 FR 34758, July 3, 1995; 61 FR 69292, Dec. 
31, 1996]



23.505  Contract clause.

    (a) Contracting officers shall insert the clause at 52.223-6, Drug-
Free Workplace, except as provided in paragraph (b) of this section, in 
solicitations and contracts--
    (1) Of any dollar value if the contract is expected to be awarded to 
an individual; or
    (2) Expected to exceed the simplified acquisition threshold if the 
contract is expected to be awarded to other than an individual.

[[Page 499]]

    (b) Contracting officers shall not insert the clause at 52.223-6, 
Drug-Free Workplace, in solicitations and contracts, if--
    (1) The resultant contract is to be performed entirely outside of 
the United States, its territories, and its possessions;
    (2) The resultant contract is for law enforcement agencies, and the 
head of the law enforcement agency or designee involved determines that 
application of the requirements of this subpart would be inappropriate 
in connection with the law enforcement agency's undercover operations; 
or
    (3) Inclusion of these requirements would be inconsistent with the 
international obligations of the United States or with the laws and 
regulations of a foreign country.
[55 FR 21707, May 25, 1990, as amended at 60 FR 34758, July 3, 1995; 61 
FR 69292, Dec. 31, 1996]



23.506  Suspension of payments, termination of contract, and debarment and suspension actions.

    (a) After determining in writing that adequate evidence to suspect 
any of the causes at paragraph (d) of this section exists, the 
contracting officer may suspend contract payments in accordance with the 
procedures at 32.503-6(a)(1).
    (b) After determining in writing that any of the causes at paragraph 
(d) of this section exists, the contracting officer may terminate the 
contract for default.
    (c) Upon initiating action under paragraph (a) or (b) of this 
section, the contracting officer shall refer the case to the agency 
suspension and debarment official, in accordance with agency procedures, 
pursuant to subpart 9.4.
    (d) The specific causes for suspension of contract payments, 
termination of a contract for default, or suspension and debarment are--
    (1) The contractor has failed to comply with the requirements of the 
clause at 52.223-6, Drug-Free Workplace; or
    (2) The number of contractor employees convicted of violations of 
criminal drug statutes occurring in the workplace indicates that the 
contractor has failed to make a good faith effort to provide a drug-free 
workplace.
    (e) A determination under this section to suspend contract payments, 
terminate a contract for default, or debar or suspend a contractor may 
be waived by the agency head for a particular contract, in accordance 
with agency procedures, only if such waiver is necessary to prevent a 
severe disruption of the agency operation to the detriment of the 
Federal Government or the general public (see subpart 9.4). The waiver 
authority of the agency head cannot be delegated.
[54 FR 4968, Jan. 31, 1989, as amended at 55 FR 21708, May 25, 1990; 61 
FR 69292, Dec. 31, 1996]



              Subpart 23.6--Notice of Radioactive Material

    Source: 56 FR 55374, Oct. 25, 1991, unless otherwise noted.



23.601  Requirements.

    (a) The clause at 52.223-7, Notice of Radioactive Materials, 
requires the contractor to notify the contracting officer prior to 
delivery of radioactive material.
    (b) Upon receipt of the notice, the contracting officer shall notify 
receiving activities so that appropriate safeguards can be taken.
    (c) The clause permits the contracting officer to waive the 
notification if the contractor states that the notification on prior 
deliveries is still current. The contracting officer may waive the 
notice only after consultation with cognizant technical representatives.
    (d) The contracting officer is required to specify in the clause at 
52.223-7, the number of days in advance of delivery that the contractor 
will provide notification. The determination of the number of days 
should be done in coordination with the installation/facility radiation 
protection officer (RPO). The RPO is responsible for insuring the proper 
license, authorization or permit is obtained prior to receipt of the 
radioactive material.
[56 FR 55374, Oct. 25, 1991, as amended at 62 FR 236, Jan. 2, 1997]

[[Page 500]]



23.602  Contract clause.

    The contracting officer shall insert the clause at 52.223-7, Notice 
of Radioactive Materials, in solicitations and contracts for supplies 
which are, or which contain-- (a) radioactive material requiring 
specific licensing under regulations issued pursuant to the Atomic 
Energy Act of 1954; or (b) radioactive material not requiring specific 
licensing in which the specific activity is greater than 0.002 
microcuries per gram or the activity per item equals or exceeds 0.01 
microcuries. Such supplies include, but are not limited to, aircraft, 
ammunition, missiles, vehicles, electronic tubes, instrument panel 
gauges, compasses and identification markers.



  Subpart 23.7--Contracting for Environmentally Preferable and Energy-
                     Efficient Products and Services

    Source: 60 FR 28497, May 31, 1995, unless otherwise noted.



23.701  Applicability.

    This subpart prescribes policies for obtaining environmentally 
preferable and energy-efficient products and services.



23.702  Authorities.

    (a) Resource Conservation and Recovery Act (RCRA) (42 U.S.C. 6901, 
et seq.).
    (b) National Energy Conservation Policy Act (42 U.S.C. 8262g).
    (c) Pollution Prevention Act of 1990 (42 U.S.C. 13101, et seq.).
    (d) Executive Order 12873, October 20, 1993.
    (e) Executive Order 12856, August 3, 1993.
    (f) Executive Order 12902, March 8, 1994.



23.703  Definitions.

    As used in this subpart--
    Environmentally preferable means products or services that have a 
lesser negative effect on human health or the environment when compared 
with competing products or services that serve the same purpose. This 
comparison should use principles recommended in guidance issued by EPA 
(see Executive Order 12873, Section 503), and may consider raw materials 
acquisition, production, manufacturing, packaging, distribution, reuse, 
operation, maintenance, or disposal of the product or service.
    Pollution prevention means any practive that--
    (1) Reduces the amount of any hazardous substance, pollutant, or 
contaminant entering any waste stream or otherwise released into the 
environment (including fugitive emissions) prior to recycling, 
treatment, or disposal, and reduces the hazards to public health and the 
environment associated with the release of such substances, pollutants, 
and contaminants; or
    (2) Reduces or eliminates the creation of pollutants through 
increased efficiency in the use of raw materials, energy, water, or 
other resources.
    Recycling means the series of activities, including collection, 
separation, and processing, by which products or other materials are 
recovered from the solid waste stream for use in the form or raw 
materials in the manufacture of products other than fuel for producing 
heat or power by combustion.
    Waste prevention means any change in the design, manufacturing, 
purchase, or use of materials or products (including packaging) to 
reduce their amount or toxicity before they become municipal solid 
waste. Waste prevention also refers to the reuse of products or 
materials.
    Waste reduction means preventing or decreasing the amount of waste 
being generated through waste prevention, recycling, or purchasing 
recycled and environmentally preferable products.
[60 FR 28497, May 31, 1995, as amended at 62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.703 
was amended by adding an introductory sentence and the definition 
Pollution prevention, and by revising the definition Waste prevention, 
effective Oct. 21, 1997. For the convenience of the user, the superseded 
text is set forth as follows:

23.703  Definitions.

                                * * * * *

    Waste prevention also known as ``source reduction'' means any change 
in the design,

[[Page 501]]

manufacturing, purchase, or use of materials or products (including 
packaging) to reduce their amount or toxicity before they become 
municipal solid waste. Waste prevention also refers to the reuse of 
products or materials.

                                * * * * *



23.704  Policy.

    (a) Agencies shall implement cost-effective contracting preference 
programs favoring the acquisition of environmentally preferable and 
energy-efficient products and services, and shall employ acquisition 
strategies that affirmatively implement the objectives in paragraph (b) 
of this section.
    (b) The following environmental objectives shall be addressed 
throughout the acquisition process:
    (1) Obtaining products and services considered to be environmentally 
preferable (based on EPA-issued guidance).
    (2) Obtaining products considered to be energy-efficient; i.e., 
products that are in the upper 25 percent of energy-efficiency for all 
similar products, or products that are at least 10 percent more 
efficient than the minimum level that meets Federal standards (see 
Executive Order 12902, Section 507).
    (3) Eliminating or reducing the generation of hazardous waste and 
the need for special material processing (including special handling, 
storage, treatment, and disposal).
    (4) Promoting the use of nonhazardous and recovered materials.
    (5) Realizing life-cycle cost savings.
    (6) Promoting cost-effective waste reduction when creating plans, 
drawings, specifications, standards, and other product descriptions 
authorizing material substitutions, extensions of shelf-life, and 
process improvements.
[62 FR 44811, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44811, Aug. 22, 1997, section 23.704 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

23.704  Policy.

    (a) Agencies shall implement cost-effective contracting preference 
programs favoring the acquisition of environmentally preferable and 
energy-efficient products and services.
    (b) The following environmental objectives shall be addressed 
through the acquisition process:
    (1) Obtaining products and services considered to be environmentally 
preferable (based on EPA-issued guidance) and energy-efficient.
    (2) Eliminating or reducing the generation of hazardous waste and 
the need for special material processing (including special handling, 
storage, treatment, and disposal).
    (3) Promoting the use of nonhazardous and recovered materials.
    (4) Realizing life-cycle cost savings.
    (5) Promoting cost effective waste reduction when creating plans, 
drawings, specifications, standards, and other product descriptions 
authorizing material substitutions, extensions of shelf-life, and 
process improvements; and
    (6) Otherwise employing acquisition strategies that affirmatively 
implement the objectives in paragraph (b) of this section.



23.705  Application to Government-owned or leased facilities.

    Pursuant to Executive Order 12873, Section 701, every new contract 
for contractor operation of a Government-owned or leased facility shall 
require contractor programs to promote and implement cost-effective 
waste reduction in performing the contract. In addition, where 
economically feasible, existing contracts for contractor operation of 
Government-owned or leased facilities should be modified to provide for 
cost-effective waste reduction in contract performance.



23.706  Contract clause.

    The contracting officer shall insert the clause at 52.223-10, Waste 
Reduction Program, in all solicitations and contracts for contractor 
operation of Government-owned or leased facilities.



                Subpart 23.8--Ozone-Depleting Substances

    Source: 60 FR 28500, May 31, 1995, unless otherwise noted.



23.800  Scope of subpart.

    This subpart sets forth policies and procedures for the acquisition 
of items which contain, use, or are manufactured with ozone-depleting 
substances.
[60 FR 28500, May 31, 1995, as amended at 61 FR 31645, June 20, 1996]

[[Page 502]]



23.801  Authorities.

    (a) Title VI of the Clean Air Act (42 U.S.C. 7671, et seq.).
    (b) Executive Order 12843, April 21, 1993.
    (c) Environmental Protection Agency (EPA) regulations, Protection of 
Stratospheric Ozone (40 CFR part 82).



23.802  Definition.

    Ozone-depleting substance means--
    (a) Any substance designated as Class I by EPA (40 CFR part 82), 
including but not limited to chlorofluorocarbons, halons, carbon 
tetrachloride, and methyl chloroform; or
    (b) Any substance designated as Class II by EPA (40 CFR part 82), 
including but not limited to hydrochlorofluorocarbons.
[61 FR 31645, June 20, 1996]



23.803  Policy.

    (a) It is the policy of the Federal Government that Federal 
agencies:
    (1) Implement cost-effective programs to minimize the procurement of 
materials and substances that contribute to the depletion of 
stratospheric ozone; and
    (2) Give preference to the procurement of alternative chemicals, 
products, and manufacturing processes that reduce overall risks to human 
health and the environment by lessening the depletion of ozone in the 
upper atmosphere.
    (b) In preparing specifications and purchase descriptions, and in 
the acquisition of supplies and services, agencies shall ensure that 
acquisitions:
    (1) Comply with the requirements of Title VI of the Clean Air Act, 
Executive Order 12843, and 40 CFR 82.84(a) (2), (3), (4), and (5); and
    (2) Substitute safe alternatives to ozone-depleting substances, as 
identified under 42 U.S.C. 7671k, to the maximum extent practicable, as 
provided in 40 CFR 82.84(a)(1), except in the case of Class I substances 
being used for specified essential uses, as identified under 40 CFR 
82.4(r).
[60 FR 28500, May 31, 1995, as amended at 61 FR 31645, June 20, 1996]



23.804  Contract clauses.

    Except for contracts to be performed outside the United States, its 
possessions, and Puerto Rico, the contracting officer shall insert the 
clause at:
    (a) 52.223-11, Ozone-Depleting Substances, in solicitations and 
contracts for ozone-depleting substances or for supplies that may 
contain or be manufactured with ozone-depleting substances.
    (b) 52.223-12, Refrigeration Equipment and Air Conditioners, in 
solicitations and contracts for services when the contract includes the 
maintenance, repair, or disposal of any equipment or appliance using 
ozone-depleting substances as a refrigerant, such as air conditioners, 
including motor vehicles, refrigerators, chillers, or freezers.
[61 FR 31645, June 20, 1996]



             Subpart 23.9--Toxic Chemical Release Reporting

    Source: 60 FR 55307, Oct. 30, 1995, unless otherwise noted.



23.901  Purpose.

    This subpart implements the requirements of Executive Order (E.O.) 
12969 of August 8, 1995, Federal Acquisition and Community Right-to-
Know. (See also EPA Notice, ``Guidance Implementing Executive Order 
12969'' (60 FR 50738, September 29, 1995).)
[60 FR 55307, Oct. 30, 1995, as amended at 61 FR 41474, Aug. 8, 1996]



23.902  General.

    (a) The Emergency Planning and Community Right-to-Know Act of 1986 
(EPCRA) and the Pollution Prevention Act of 1990 (PPA) established 
programs to protect public health and the environment by providing the 
public with important information on the toxic chemicals being released 
by manufacturing facilities into the air, land, and water in its 
communities.
    (b) Under EPCRA section 313 (42 U.S.C. 11023), and PPA section 6607 
(42 U.S.C. 13106), the owner or operator of certain manufacturing 
facilities is required to submit annual reports on

[[Page 503]]

toxic chemical releases and waste management activities to the 
Environmental Protection Agency (EPA) and the States.
[60 FR 55307, Oct. 30, 1995, as amended at 61 FR 41474, Aug. 8, 1996]



23.903  Applicability.

    (a) This subpart applies to all competitive contracts expected to 
exceed $100,000 (including all options) and competitive 8(a) contracts.
    (b) This subpart does not apply to--
    (1) Acquisitions of commercial items as defined in part 2; or
    (2) Contractor facilities located outside the United States. (The 
United States, as used in this subpart, includes any State of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, 
American Samoa, the United States Virgin Islands, the Northern Mariana 
Islands, and any other territory or possession over which the United 
States has jurisdiction.)
[60 FR 55307, Oct. 30, 1995, as amended at 61 FR 41474, Aug. 8, 1996]



23.904  Definition.

    Toxic chemicals means reportable chemicals currently listed and 
added pursuant to EPCRA sections 313 (c), (d), and (e), except for those 
chemicals deleted by EPA using the statutory criteria of EPCRA, sections 
313 (d) and (e).



23.905  Policy.

    (a) It is the policy of the Government to purchase supplies and 
services that have been produced with a minimum adverse impact on 
community health and the environment.
    (b) Federal agencies, to the greatest extent practicable, shall 
contract with companies that report in a public manner on toxic 
chemicals released to the environment.



23.906  Requirements.

    (a) E.O. 12969 requires that solicitations for competitive contracts 
expected to exceed $100,000 (including all options) include, to the 
maximum extent practicable, as an award eligibility criterion, a 
certification by the offeror that, if awarded a contract, either----
    (1) As the owner or operator of facilities to be used in the 
performance of the contract that are subject to Form R filing and 
reporting requirements, the offeror will file, and will continue to file 
throughout the life of the contract, for such facilities, the Toxic 
Chemical Release Inventory Form (Form R) as described in EPCRA sections 
313 (a) and (g) and PPA section 6607; or--
    (2) Facilities to be used in the performance of the contract are 
exempt from Form R filing and reporting requirements because the 
facilities--
    (i) Do not manufacture, process, or otherwise use any toxic 
chemicals listed under section 313(c) of EPCRA, 42 U.S.C. 11023(c);---
    (ii) Do not have 10 or more full-time employees as specified in 
section 313(b)(1)(A) of EPCRA, 42 U.S.C. 11023(b)(1)(A);---
    (iii) Do not meet the reporting thresholds of toxic chemicals 
established under section 313(f) of EPCRA, 42 U.S.C. 11023(f) (including 
the alternate thresholds at 40 CFR 372.27, provided an appropriate 
certification form has been filed with EPA);---
    (iv) Do not fall within Standard Industrial Classification Code 
(SIC) designations 20 through 39 as set forth in 19.102; or---
    (v) Are not located within any State of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, Guam, American 
Samoa, the United States Virgin Islands, the Northern Mariana Islands, 
or any other territory or possession over which the United States has 
jurisdiction.-
    (b) A determination that it is not practicable to include the 
solicitation provision at 52.223-13, Certification of Toxic Chemical 
Release Reporting, in a solicitation or class of solicitations shall be 
approved by a procurement official at a level no lower than the head of 
the contracting activity. Prior to making such a determination for a 
solicitation or class of solicitations with an estimated value in excess 
of $500,000 (including all options), the agency shall consult with the 
Environmental Protection Agency, Director, Environmental Assistance 
Division, Office of

[[Page 504]]

Pollution Prevention and Toxic Substances (Mail Code 7408), Washington, 
DC 20460.-
    (c) Award shall not be made to offerors who do not certify in 
accordance with paragraph (a) of this section when the provision at 
52.223-13, Certification of Toxic Chemical Release Reporting, is 
included in the solicitation. If facilities to be used by the offeror in 
the performance of the contract are not subject to Form R filing and 
reporting requirements and the offeror fails to check the appropriate 
box(es) in 52.223-13, Certification of Toxic Chemical Release Reporting, 
such failure shall be considered a minor informality or irregularity.
    (d) The contracting officer shall cooperate with EPA representatives 
and provide such advice and assistance as may be required to aid EPA in 
the performance of its responsibilities under E.O. 12969.
    (e) EPA, upon determining that a contractor is not filing the 
necessary forms or is filing incomplete information, may recommend to 
the head of the contracting activity that the contract be terminated for 
convenience. The head of the contracting activity shall consider the EPA 
recommendation and determine if termination or some other action is 
appropriate.
[60 FR 55307, Oct. 30, 1995, as amended at 61 FR 41474, Aug. 8, 1996]



23.907  Solicitation provision and contract clause.

    Except for acquisitions of commercial items as defined in part 2, 
the contracting officer shall--
    (a) Insert the provision at 52.223-13, Certification of Toxic 
Chemical Release Reporting, in all solicitations for competitive 
contracts expected to exceed $100,000 (including all options) and 
competitive 8(a) contracts, unless it has been determined in accordance 
with 23.906(b) that to do so is not practicable; and
    (b) When the solicitation contains the provision at 52.223-13, 
Certification of Toxic Chemical Release Reporting, insert the clause at 
52.223-14, Toxic Chemical Release Reporting, in the resulting contract, 
if the contract is expected to exceed $100,000 (including all options).
[60 FR 55307, Oct. 30, 1995, as amended at 61 FR 41474, Aug. 8, 1996]



Subpart 23.10--Federal Compliance With Right-To-Know Laws and Pollution 
                         Prevention Requirements

    Source: 62 FR 12697, Mar. 17, 1997, unless otherwise noted.



23.1001  Purpose.

    This subpart implements requirements of Executive Order (E.O.) 12856 
of August 3, 1993, Federal Compliance with Right-To-Know Laws and 
Pollution Prevention Requirements.



23.1002  Applicability.

    The requirements of this subpart apply to facilities owned or 
operated by a Federal agency except those facilities located outside the 
several states of the United States, the District of Columbia, and the 
Commonwealth of Puerto Rico.



23.1003  Definition.

    Federal agency, as used in this subpart, means an executive agency 
(see 2.101).



23.1004  Requirements.

    (a) E.O. 12856 requires Federal facilities to comply with the 
provisions of the Emergency Planning and Community Right-to-Know Act of 
1986 (EPCRA)(42 U.S.C. 11001-11050) and the Pollution Prevention Act of 
1990 (PPA)(42 U.S.C. 13101-13109).
    (b) Pursuant to Section 1-104 of E.O. 12856, and any agency 
implementing procedures, every new contract that provides for 
performance on a Federal facility shall require the contractor to 
provide information necessary for the Federal agency to comply with the 
emergency planning and toxic release reporting requirements of EPCRA and 
PPA.



23.1005  Contract clause.

    The contracting officer shall insert the clause at 52.223-5, 
Pollution Prevention and Right-to-Know Information, in all solicitations 
and contracts

[[Page 505]]

that provide for performance, in whole or in part, on a Federal 
facility.



PART 24--PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION--Table of Contents




Sec.
24.000  Scope of part.

             Subpart 24.1--Protection of Individual Privacy

24.101  Definitions.
24.102  General.
24.103  Procedures.
24.104  Contract clauses.

                Subpart 24.2--Freedom of Information Act

24.201  Authority.
24.202  Prohibitions.
24.203  Policy.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42277, Sept. 19, 1983, unless otherwise noted.



24.000  Scope of part.

    This part prescribes policies and procedures that apply requirements 
of the Privacy Act of 1974 (5 U.S.C. 552a) (the Act) and OMB Circular 
No. A-130, December 12, 1985, to Government contracts and cites the 
Freedom of Information Act (5 U.S.C. 552, as amended.)
[48 FR 42277, Sept. 19, 1983, as amended at 55 FR 38517, Sept. 18, 1990]



             Subpart 24.1--Protection of Individual Privacy



24.101  Definitions.

    Agency, as used in this subpart, means any executive department, 
military department, Government corporation, Government controlled 
corporation, or other establishment in the executive branch of the 
Government (including the Executive Office of the President), or any 
independent regulatory agency.
    Individual, as used in this subpart, means a citizen of the United 
States or an alien lawfully admitted for permanent residence.
    Maintain, as used in this subpart, means maintain, collect, use, or 
disseminate.
    Operation of a system of records, as used in this subpart, means 
performance of any of the activities associated with maintaining the 
system of records, including the collection, use, and dissemination of 
records.
    Record, as used in this subpart, means any item, collection, or 
grouping of information about an individual that is maintained by an 
agency, including, but not limited to, education, financial 
transactions, medical history, and criminal or employment history, and 
that contains the individual's name, or the identifying number, symbol, 
or other identifying particular assigned to the individual, such as a 
fingerprint or voiceprint or a photograph.
    System of records on individuals, as used in this subpart, means a 
group of any records under the control of any agency from which 
information is retrieved by the name of the individual or by some 
identifying number, symbol, or other identifying particular assigned to 
the individual.



24.102  General.

    (a) The Act requires that when an agency contracts for the design, 
development, or operation of a system of records on individuals on 
behalf of the agency to accomplish an agency function the agency must 
apply the requirements of the Act to the contractor and its employees 
working on the contract.
    (b) An agency officer or employee may be criminally liable for 
violations of the Act. When the contract provides for operation of a 
system of records on individuals, contractors and their employees are 
considered employees of the agency for purposes of the criminal 
penalties of the Act.
    (c) If a contract specifically provides for the design, development, 
or operation of a system of records on individuals on behalf of an 
agency to accomplish an agency function, the agency must apply the 
requirements of the Act to the contractor and its employees working on 
the contract. The system of records operated under the contract is 
deemed to be maintained by the agency and is subject to the Act.
    (d) Agencies, which within the limits of their authorities, fail to 
require that

[[Page 506]]

systems of records on individuals operated on their behalf under 
contracts be operated in conformance with the Act may be civilly liable 
to individuals injured as a consequence of any subsequent failure to 
maintain records in conformance with the Act.



24.103  Procedures.

    (a) The contracting officer shall review requirements to determine 
whether the contract will involve the design, development, or operation 
of a system of records on individuals to accomplish an agency function.
    (b) If one or more of those tasks will be required, the contracting 
officer shall--
    (1) Ensure that the contract work statement specifically identifies 
the system of records on individuals and the design, development, or 
operation work to be performed; and
    (2) Make available, in accordance with agency procedures, agency 
rules and regulation implementing the Act.



24.104  Contract clauses.

    When the design, development, or operation of a system of records on 
individuals is required to accomplish an agency function, the 
contracting officer shall insert the following clauses in solicitations 
and contracts:
    (a) The clause at 52.224-1, Privacy Act Notification.
    (b) The clause at 52.224-2, Privacy Act.



                Subpart 24.2--Freedom of Information Act



24.201  Authority.

    The Freedom of Information Act (5 U.S.C. 552, as amended) provides 
that information is to be made available to the public either by (a) 
publication in the Federal Register; (b) providing an opportunity to 
read and copy records at convenient locations; or (c) upon request, 
providing a copy of a reasonably described record.



24.202  Prohibitions.

    (a) A proposal in the possession or control of the Government, 
submitted in response to a competitive solicitation, shall not be made 
available to any person under the Freedom of Information Act. This 
prohibition does not apply to a proposal, or any part of a proposal, 
that is--
    (1) In the possession or control of NASA or the Coast Guard; or
    (2) Set forth or incorporated by reference in a contract between the 
Government and the contractor that submitted the proposal. (See 10 
U.S.C. 2305(g) and 41 U.S.C. 253b(m).)
    (b) No agency shall disclose any information obtained pursuant to 
15.403-3(b) that is exempt from disclosure under the Freedom of 
Information Act. (See 10 U.S.C. 2306a(d)(2)(C) and 41 U.S.C. 
254b(d)(2)(C).)
[62 FR 257, Jan. 2, 1997, as amended at 62 FR 51270, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51270, Sept. 30, 1997, in section 
24.202, in paragraph (b), ``15.804-5(b)'' was amended to read ``15.403-
3(b)'', effective Oct. 10, 1997.



24.203  Policy.

    (a) The Act specifies, among other things, how agencies shall make 
their records available upon public request, imposes strict time 
standards for agency responses, and exempts certain records from public 
disclosure. Each agency's implementation of these requirements is 
located in its respective title of the Code of Federal Regulations and 
referenced in subpart 24.2 of its implementing acquisition regulations.
    (b) Contracting officers may receive requests for records that may 
be exempted from mandatory public disclosure. The exemptions most often 
applicable are those relating to classified information, to trade 
secrets and confidential commercial or financial information, to 
interagency or intra-agency memoranda, or to personal and medical 
information pertaining to an individual. Since these requests often 
involve complex issues requiring an in-depth knowledge of a large and 
increasing body of court rulings and policy guidance, contracting 
officers are cautioned to comply with the implementing regulations of 
their agency and to obtain necessary guidance from the agency officials 
having Freedom of Information Act responsibility. If additional 
assistance is needed, authorized

[[Page 507]]

agency officials may contact the Department of Justice, Office of 
Information and Privacy.
[48 FR 42277, Sept. 19, 1983, as amended at 51 FR 31426, Sept. 3, 1986. 
Redesignated at 62 FR 257, Jan. 2, 1997]



PART 25--FOREIGN ACQUISITION--Table of Contents




Sec.
25.000  Scope of part.

                Subpart 25.1--Buy American Act--Supplies

25.100  Scope of subpart.
25.101  Definitions.
25.102  Policy.
25.103  Agreements with certain foreign governments.
25.104  Acquiring civil aircraft and related articles.
25.105  Evaluating offers.
25.106  [Reserved]
25.107  Acquisition from or through other Government agencies.
25.108  Excepted articles, materials, and supplies.
25.109  Solicitation provisions and contract clauses.

         Subpart 25.2--Buy American Act--Construction Materials

25.200  Scope of subpart.
25.201  Definitions.
25.202  Policy.
25.203  Determinations requested before submission of offers.
25.204  Evaluating offers of foreign construction material.
25.205  Postaward determinations.
25.206  Noncompliance.
25.207  Solicitaion provisions and contract clauses.

                Subpart 25.3--Balance of Payments Program

25.300  Scope of subpart.
25.301  Definitions.
25.302  Policy.
25.303  Procedures.
25.304  Excess and near-excess foreign currencies.
25.305  Solicitation provision and contract clauses.

                     Subpart 25.4--Trade Agreements

25.400  Scope of subpart.
25.401  Definitions.
25.402  Policy.
25.403  Exceptions.
25.404  [Reserved]
25.405  Procedures.
25.406--25.407  [Reserved]
25.408  Solicitation provisions and contract clauses.

                  Subpart 25.5--Use of Foreign Currency

25.501  Policy.
25.502  Solicitation provision.

                    Subpart 25.6--Customs and Duties

25.600  Scope of subpart.
25.601  Definition.
25.602  Policy.
25.603  Procedures.
25.604  Exempted supplies.
25.605  Contract clause.

         Subpart 25.7--Restrictions on Certain Foreign Purchases

25.701  Restrictions.
25.702  Contract clause.

         Subpart 25.8--International Agreements and Coordination

25.801  International agreements.
25.802  Procedures.

          Subpart 25.9--Additional Foreign Acquisition Clauses

25.901  Omission of audit clause.
25.902  Inconsistency between English version and translation of 
          contract.

   Subpart 25.10--Implementation of Sanctions Against Countries That 
 Discriminate Against United States Products or Services in Government 
                               Procurement

25.1000  Scope of subpart.
25.1001  Definitions.
25.1002  Trade sanctions.
25.1003  Contract clauses.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42278, Sept. 19, 1983, unless otherwise noted.



25.000  Scope of part.

    Except as provided in agency regulations, this part provides 
policies and procedures to implement the Buy American Act, the Balance 
of Payments Program, purchases under the Trade Agreements Act of 1979, 
and other laws and regulations that pertain to acquiring foreign 
supplies, services, and construction materials. This part also provides 
policies and procedures pertaining to international agreements, customs 
and duties, the clause

[[Page 508]]

at 52.215-2, Audit and Records--Negotiation, and use of local currency 
for payment.
[48 FR 42278, Sept. 19, 1983, as amended at 60 FR 42650, Aug. 16, 1995]



                Subpart 25.1--Buy American Act--Supplies



25.100  Scope of subpart.

    This subpart implements the Buy American Act (41 U.S.C. 10) and 
Executive Order 10582, December 17, 1954 (as amended). It applies to (a) 
supply contracts exceeding the micro-purchase threshold; and (b) 
contracts for services that involve the furnishing of supplies when the 
supply portion of the contract exceeds the micro-purchase threshold.
[59 FR 64788, Dec. 15, 1994]



25.101  Definitions.

    Civil aircraft and related articles, as used in this subpart, means 
(a) all aircraft other than aircraft to be purchased for use by the 
Department of Defense or the U.S. Coast Guard; (b) the engines (and 
parts and components for incorporation into the engines) of these 
aircraft; (c) any other parts, components, and subassemblies for 
incorporation into the aircraft; and (d) any ground flight simulators, 
and parts and components of these simulators, for use with respect to 
the aircraft, whether to be used as original or replacement equipment in 
the manufacture, repair, maintenance, rebuilding, modification, or 
conversion of the aircraft, and without regard to whether the aircraft 
or articles receive duty-free treatment under section 601(a)(2) of the 
Trade Agreements Act of 1979.
    Components, as used in this subpart, means those articles, 
materials, and supplies incorporated directly into the end products.
    Domestic end product, as used in this subpart, means (a) an 
unmanufactured end product mined or produced in the United States, or 
(b) an end product manufactured in the United States, if the cost of its 
components mined, produced, or manufactured in the United States exceeds 
50 percent of the cost of all its components. (In determining if an end 
product is domestic, only the end product and its components shall be 
considered.) The cost of each component includes transportation costs to 
the place of incorporation into the end product and any applicable duty 
(whether or not a duty-free entry certificate is issued). Components of 
foreign origin of the same class or kind for which determinations have 
been made in accordance with 25.102(a)(3) and (4) are treated as 
domestic. Scrap generated, collected, and prepared for processing in the 
United States is considered domestic.
    Domestic offer, as used in this subpart, means an offered price for 
a domestic end product, including transportation to destination.
    End product, as used in this subpart, means those articles, 
materials, and supplies to be acquired for public use under the 
contract.
    Foreign end product, as used in this subpart, means an end product 
other than a domestic end product.
    Foreign offer, as used in this subpart, means an offered price for a 
foreign end product, including transportation to destination and duty 
(whether or not a duty-free entry certificate is issued).
    Instrumentality, as used in this subpart, does not include an agency 
or division of the government of a country, but may be construed to 
include arrangements such as the European Union.
    United States, as used in this subpart, means the United States, its 
possessions, Puerto Rico, and any other place subject to its 
jurisdiction, but does not include leased bases or trust territories.
[48 FR 42278, Sept. 19, 1983, as amended at 53 FR 53340, Dec. 30, 1988; 
59 FR 545, Jan. 5, 1994; 60 FR 67514, Dec. 29, 1995]



25.102  Policy.

    (a) The Buy American Act requires that only domestic end products be 
acquired for public use, except articles, materials, and supplies--
    (1) For use outside the United States;
    (2) For which the cost would be unreasonable, as determined in 
accordance with 25.105;
    (3) For which the agency head determines that domestic preference 
would be inconsistent with the public interest;

[[Page 509]]

    (4) That are not mined, produced, or manufactured in the United 
States in sufficient and reasonably available commercial quantities, of 
a satisfactory quality (see 25.108); or
    (5) Purchased specifically for commissary resale.
    (b) Unless agency regulation prescribes otherwise:
    (1) The contracting officer may make a nonavailability determination 
under 25.102(a)(4) for an acquisition if--
    (i) The acquisition was conducted by full and open competition;
    (ii) The acquisition was synopsized under 5.201; and,
    (iii) No offer for a domestic end product was received; or
    (2) The head of the contracting activity or designee may make a 
nonavailability determination under 25.102(a)(4) for any circumstance 
other than that specified in paragraph (b)(1) of this section.
[48 FR 42278, Sept. 19, 1983, as amended at 54 FR 48985, Nov. 28, 1989; 
56 FR 41736, Aug. 22, 1991]



25.103  Agreements with certain foreign governments.

    The Department of Defense and the National Aeronautics and Space 
Administration (NASA) have determined that it is inconsistent with the 
public interest to apply the restrictions of the Buy American Act to 
their acquisitions for public use of certain supplies mined, produced, 
or manufactured in certain foreign countries. Detailed procedures 
implementing these determinations are in the Department of Defense (DOD) 
Federal Acquisition Regulation Supplement and the NASA Federal 
Acquisition Regulation Supplement.
[48 FR 42278, Sept. 19, 1983, as amended at 53 FR 662, Jan. 11, 1988]



25.104  Acquiring civil aircraft and related articles.

    (a) The U.S. Trade Representative, on February 19, 1980 (45 FR 
12349, February 25, 1980), waived applying the Buy American Act to the 
acquisition of civil aircraft and related articles of countries or 
instrumentalities that are parties to the Agreement on Civil Aircraft. 
The representative acted under the authority of section 303 of the Trade 
Agreements Act of 1979 (19 U.S.C. 2513). Countries and Instrumentalities 
that are parties to the agreement (as of January 1, 1996) are Canada, 
the European Union (Austria, Belgium, Denmark, Finland, France, Germany, 
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, 
Sweden and the United Kingdom), Japan, Norway, Romania, and Switzerland. 
The Office of the U.S. Trade Representative, Washington, DC 20506, can 
provide information on changes to the list of parties to the agreement 
made since January 1, 1996.
    (b) For the purpose of this waiver, an article is a product of a 
country or instrumentality only if--
    (1) It is wholly the growth, product, or manufacture of that country 
or instrumentality; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country or instrumentality, it has been 
substantially transformed into a new and different article of commerce 
with a name, character, or use distinct from that of the article or 
articles from which it was so transformed.
    (c) The waiver is subject to modification or withdrawal by the U.S. 
Trade Representative.
[48 FR 42278, Sept. 19, 1983, as amended at 53 FR 662, Jan. 11, 1988; 60 
FR 67515, Dec. 29, 1995]



25.105  Evaluating offers.

    (a) Unless the agency head determines otherwise, the offered price 
of a domestic end product is unreasonable when the lowest acceptable 
domestic offer exceeds the lowest acceptable foreign offer (see 25.101), 
inclusive of duty, by--
    (1) More than 6 percent, if the domestic offer is from a large 
business; or
    (2) More than 12 percent, if the domestic offer is from a small 
business concern.
    (b) The evaluation in paragraph (a) above shall be applied on an 
item-by-item basis or to any group of items on which award may be made 
as specifically provided by the solicitation.
    (c) If an award of more than $250,000 would be made to a domestic 
concern if the 12-percent factor were applied, but not if the 6-percent 
factor were applied, the agency head shall decide whether

[[Page 510]]

award to the domestic concern would involve unreasonable cost.
    (d) The evaluation in paragraph (a) of this section shall not be 
applied to offers of Israeli end products at or above $50,000 (see 
25.402(a)(2)).
    (e) The evaluation in paragraph (a) of this section shall not be 
applied to offers of Canadian end products above $25,000 (see 
25.402(a)(3)). For the definition of Canadian end product, see 25.401.
[48 FR 42278, Sept. 19, 1983, as amended at 53 FR 27464, July 20, 1988; 
53 FR 53340, Dec. 30, 1988; 60 FR 48263, Sept. 18, 1995]



25.106  [Reserved]



25.107  Acquisition from or through other Government agencies.

    The General Services Administration is responsible for compliance 
with the Buy American Act for--
    (a) Foreign end products acquired for stock in GSA stores depots;
    (b) Direct purchases for other agencies; and
    (c) Establishing mandatory Federal Supply Schedules that do not 
include a domestic end product.



25.108  Excepted articles, materials, and supplies.

    (a) One or more agencies have determined that the articles, 
materials, and supplies listed in paragraph (d) of this section are not 
mined, produced, or manufactured in the United States in sufficient and 
reasonably available commercial quantities of a satisfactory quality. 
The list in paragraph (d) of this section is furnished for information 
only; an article, material or supply listed therein may be treated as 
domestic only when the agency concerned has made a determination that it 
is not mined, produced, or manufactured in the United States in 
sufficient and reasonably available quantities of a satisfactory 
quality.
    (b) Agencies making determinations under 25.102(a)(4) or 
25.202(a)(2) for unlisted articles, materials, or supplies shall submit 
a copy of these determinations to the appropriate FAR Council for 
possible addition of items to the list.
    (c) Agencies shall provide detailed information to the appropriate 
FAR Council if any item on the list becomes reasonably available in 
sufficient commercial quantities of a satisfactory quality.
    (d)(1) The excepted articles, materials, and supplies are as 
follows:

Acetylene, black.
Agar, bulk.
Anise.
Antimony, as metal or oxide.
Asbestos, amosite, chrysotile, and crocidolite.
Bananas.
Bauxite.
Beef, corned, canned.
Beef extract.
Bephenium hydroxynapthoate.
Bismuth.
Books, trade, text, technical, or scientific; newspapers; pamphlets; 
magazines; periodicals; printed briefs and films; not printed in the 
United States and for which domestic editions are not available.
Brazil nuts, unroasted.
Cadmium, ores and flue dust.
Calcium cyanamide.
Capers.
Cashew nuts.
Castor beans and castor oil.
Chalk, English.
Chestnuts.
Chicle.
Chrome ore or chromite.
Cinchona bark.
Cobalt, in cathodes, rondelles, or other primary ore and metal forms.
Cocoa beans.
Coconut and coconut meat, unsweetened, in shredded, desiccated, or 
similarly prepared form.
Coffee, raw or green bean.
Colchicine alkaloid, raw.
Copra.
Cork, wood or bark and waste.
Cover glass, microscope slide.
Crane rail (85-pound per foot).
Cryolite, natural.
Dammar gum.
Diamonds, industrial, stones and abrasives.
Emetine, bulk.
Ergot, crude.
Erythrityl tetranitrate.
Fair linen, altar.
Fibers of the following types: abaca, abace, agave, coir, flax, jute, 
jute burlaps, palmyra, and sisal.
Goat and kidskins.
Graphite, natural, crystalline, crucible grade.
Hand file sets (Swiss pattern).
Handsewing needles.
Hemp yarn.
Hog bristles for brushes.
Hyoscine, bulk.
Ipecac, root.
Iodine, crude.
Kaurigum.

[[Page 511]]

Lac.
Leather, sheepskin, hair type.
Lavender oil.
Manganese.
Menthol, natural bulk.
Mica.
Microprocessor chips (brought onto a Government construction site as 
separate units for incorporation into building systems during 
construction or repair and alteration of real property).
Nickel, primary, in ingots, pigs, shots, cathodes, or similar forms; 
nickel oxide and nickel salts.
Nitroguanidine (also known as picrite).
Nux vomica, crude.
Oiticica oil.
Olive oil.
Olives (green), pitted or unpitted, or stuffed, in bulk.
Opium, crude.
Oranges, mandarin, canned.
Petroleum, crude oil, unfinished oils, and finished products (see 
definitions of petroleum terms in subparagraph (d)(2) below).
Pine needle oil.
Platinum and related group metals, refined, as sponge, powder, ingots, 
or cast bars.
Pyrethrum flowers.
Quartz crystals.
Quebracho.
Quinidine.
Quinine.
Rabbit fur felt.
Radium salts, source and special nuclear materials.
Rosettes.
Rubber, crude and latex.
Rutile.
Santonin, crude.
Secretin.
Shellac.
Silk, raw and unmanufactured.
Spare and replacement parts for equipment of foreign manufacture, and 
for which domestic parts are not available.
Spices and herbs, in bulk.
Sugars, raw.
Swords and scabbards.
Talc, block, steatite.
Tantalum.
Tapioca flour and cassava.
Tartar, crude; tartaric acid and cream of tartar in bulk.
Tea in bulk.
Thread, metallic (gold).
Thyme oil.
Tin in bars, blocks, and pigs.
Triprolidine hydrochloride.
Tungsten.
Vanilla beans.
Venom, cobra.
Wax, carnauba.
Wire glass
Woods; logs, veneer, and lumber of the following species: Alaskan yellow 
cedar, angelique, balsa, ekki, greenheart, lignum vitae, mahogany, and 
teak.
Yarn, 50 Denier rayon.


    (2) As used in subparagraph (d)(1) of this section, petroleum terms 
are defined as follows:
    (i) Crude oil means crude petroleum, as it is produced at the 
wellhead, and liquids (under atmospheric conditions) that have been 
recovered from mixtures of hydrocarbons that existed in a vaporous phase 
in a reservoir and that are not natural gas products.
    (ii) Finished products means any one or more of the following 
petroleum oils, or a mixture or combination of these oils, to be used 
without further processing except blending by mechanical means:
    (A) Asphalt--a solid or semi-solid cementitious material that (1) 
gradually liquefies when heated, (2) has bitumens as its predominating 
constituents, and (3) is obtained in refining crude oil.
    (B) Fuel oil--a liquid or liquefiable petroleum product burned for 
lighting or for the generation of heat or power and derived directly or 
indirectly from crude oil, such as kerosene, range oil, distillate fuel 
oils, gas oil, diesel fuel, topped crude oil, or residues.
    (C) Gasoline--a refined petroleum distillate that, by its 
composition, is suitable for use as a carburant in internal combustion 
engines.
    (D) Jet fuel--a refined petroleum distillate used to fuel jet 
propulsion engines.
    (E) Liquefied gases--hydrocarbon gases recovered from natural gas or 
produced from petroleum refining and kept under pressure to maintain a 
liquid state at ambient temperatures.
    (F) Lubricating oil--a refined petroleum distillate or specially 
treated petroleum residue used to lessen friction between surfaces.
    (G) Naphtha--a refined petroleum distillate falling within a 
distillation range overlapping the higher gasoline and the lower 
kerosenes.
    (H) Natural gas products--liquids (under atmospheric conditions), 
including natural gasoline, that--
    (1) Are recovered by a process of absorption, adsorption, 
compression, refrigeration, cycling, or a combination of these 
processes, from mixtures of

[[Page 512]]

hydrocarbons that existed in a vaporous phase in a reservoir, and
    (2) When recovered and without processing in a refinery, otherwise 
fall within any of the definitions of products contained in subdivision 
(B), (C), (D), and (G) above.
    (I) Residual fuel oil--a topped crude oil or viscous residuum that, 
as obtained in refining or after blending with other fuel oil, meets or 
is the equivalent of Military Specification Mil-F-859 for Navy Special 
Fuel Oil and any more viscous fuel oil, such as No. 5 or Bunker C.
    (iii) Unfinished oils means one or more of the petroleum oils listed 
in subdivision (ii) above, or a mixture or combination of these oils, 
that are to be further processed other than by blending by mechanical 
means.
[48 FR 42278, Sept. 19, 1983, as amended at 54 FR 48985, Nov. 28, 1989; 
55 FR 25530, June 21, 1990; 55 FR 38517, Sept. 18, 1990; 56 FR 15151, 
Apr. 15, 1991; 56 FR 67133, Dec. 27, 1991; 57 FR 60583, Dec. 21, 1992; 
59 FR 11377, Mar. 10, 1994; 62 FR 12698, Mar. 17, 1997]



25.109  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the provision at 52.225-1, 
Buy American Certificate, in solicitations where the clause at 52.225-3 
is used.
    (b) When quotations are obtained orally (see part 13), vendors shall 
be informed that only domestic end products, other than end products 
excepted on a blanket or individual basis (see 25.108 and subpart 25.4), 
shall be acceptable, unless the price for an offered domestic end 
product is unreasonable (see 25.105).
    (c) The contracting officer shall insert the provision at 52.225-2, 
Waiver of Buy American Act for Civil Aircraft and Related Articles, in 
solicitations for the acquisition of civil aircraft and related 
articles.
    (d) Except as provided in paragraph (e) of this section, the 
contracting officer shall insert the clause at 52.225-3, Buy American 
Act--Supplies, in solicitations and contracts for the acquisition of 
supplies, or for services involving the furnishing of supplies, for use 
within the United States.
    (e) Do not use the clause prescribed in paragraph (d) of this 
section when--
    (1) The solicitation is restricted to domestic end products under 
subpart 6.3;
    (2) The acquisition is made under a trade agreement (see subpart 
25.4); or
    (3) Another exception to the Buy American Act applies (e.g., 
nonavailability or public interest).
[48 FR 42258, Sept. 19, 1983 as amended at 51 FR 2665, Jan. 17, 1986; 56 
FR 55379, Oct. 25, 1991; 58 FR 31141, May 28, 1993; 59 FR 545, Jan. 5, 
1994; 60 FR 67515, Dec. 29, 1995]



         Subpart 25.2--Buy American Act--Construction Materials



25.200  Scope of subpart.

    This subpart implements the Buy American Act (41 U.S.C. 10) and 
Executive Order 10582, December 17, 1954 (as amended). It applies to 
contracts for the construction, alteration, or repair of any public 
building or public work in the United States.



25.201  Definitions.

    Components, as used in this subpart, means those articles, 
materials, and supplies incorporated directly into construction 
materials.
    Construction, as used in this subpart, means construction, 
alteration, or repair of any public building or public work in the 
United States.
    Construction material, as used in this subpart, means an article, 
material, or supply brought to the construction site for incorporation 
into the building or work. Construction material also includes an item 
brought to the site pre-assembled from articles, materials, and 
supplies. However, emergency life safety systems, such as emergency 
lighting, fire alarm, and audio evacuation systems, which are discrete 
systems incorporated into a public building or work and which are 
produced as a complete system, shall be evaluated as a single and 
distinct construction material regardless of when or how the individual 
parts or components of such systems are delivered to the construction 
site.
    Domestic construction material, as used in this subpart, means (a) 
an unmanufactured construction material mined or produced in the United 
States, or (b) a construction material manufactured in the United 
States, if the cost of its

[[Page 513]]

components mined, produced, or manufactured in the United States exceeds 
50 percent of the cost of all its components. (In determining whether a 
construction material is domestic, only the construction material and 
its components shall be considered.) The cost of each component includes 
transportation costs to the place of incorporation into the construction 
material and any applicable duty (whether or not a duty-free entry 
certificate is issued). Components of foreign origin of the same class 
or kind for which determinations have been made in accordance with 
25.202(a)(2) are treated as domestic.
    Foreign construction material, as used in this subpart, means a 
construction material other than a domestic construction material.
    United States (see 25.101).
[48 FR 42278, Sept. 19, 1983, as amended at 57 FR 20375, May 12, 1992; 
62 FR 12698, Mar. 17, 1997]



25.202   Policy.

    (a) The Buy American Act requires that only domestic construction 
materials be used in construction in the United States, except when--
    (1) The cost would be unreasonable, i.e., the cost of domestic 
construction material exceeds the cost of foreign construction material 
by more than 6 percent, unless the agency head determines a higher 
percentage to be appropriate (see Executive Order 10582);
    (2) The head of the contracting activity or designee determines the 
construction material is not mined, produced, or manufactured in the 
United States in sufficient and reasonably available commercial 
quantities of a satisfactory quality (see 25.108);
    (3) The agency head determines that application of the restrictions 
of the Buy American Act to a particular construction material would be 
impracticable; or
    (4) The agency head determines that application of the restrictions 
of the Buy American Act to a particular construction material would be 
inconsistent with the public interest. Under this authority, agencies 
may have agreements with foreign governments that provide blanket 
exceptions to the Buy American Act (e.g., Trade Agreements Act and North 
American Free Trade Agreement (NAFTA)).
    (b) Unless the contracting officer determines that insufficient time 
is available, offerors should request determinations regarding the 
inapplicability of the Buy American Act in time to allow determination 
before submission of offers.
    (c) When it is determined for any of the reasons stated in this 
section that certain foreign construction materials may be used, the 
excepted materials shall be listed in the contract. Findings justifying 
the exception shall be available for public inspection.
    (d) For construction contracts with an acquisition value of 
$6,500,000 or more, but less than $7,311,000, see 25.402(a)(3). If the 
acquisition value is $7,311,000 or more, see 25.402(a)(1).
[62 FR 12698, Mar. 17, 1997]



25.203   Determinations requested before submission of offers.

    (a) Any request for a determination regarding the inapplicability of 
the Buy American Act made before receipt of offers shall be evaluated 
based on the information requested in the applicable clause at 52.225-5, 
Buy American Act--Construction Materials, paragraphs (c) and (d), or 
52.225-15, Buy American Act--Construction Materials under Trade 
Agreements Act and North American Free Trade Agreement, paragraphs (c) 
and (d), and may be supplemented by other information readily available 
to the contracting officer.
    (b) If the Government determines before receipt of offers that an 
exception to the Buy American Act applies (other than a general 
exception based on the Trade Agreements Act or NAFTA), the excepted 
material shall be identified by the Government in the clause at 52.225-
5(b)(2) or 52.225-15(b)(3).
[62 FR 12698, Mar. 17, 1997]



25.204  Evaluating offers of foreign construction material.

    (a) Offerors proposing to use foreign construction material other 
than that listed by the Government in the applicable clause at 52.225-
5(b)(2) or 52.225-15(b)(3) or excepted under the Trade Agreements Act or 
NAFTA (52.225-15(b)(2)) must provide the information

[[Page 514]]

required by paragraphs (c) and (d) of the respective clauses.
    (b) Unless agency regulations specify a higher percentage, the 
Government will add to the offered price 6 percent of the cost of any 
foreign construction material proposed for exception from the 
requirements of the Buy American Act based on the unreasonable cost of 
domestic construction materials. If the evaluation of offers results in 
a tie between an offer including foreign construction material excepted 
on the basis of unreasonable cost, as evaluated, and an offer including 
solely domestic construction material or other foreign construction 
material that is excepted by the Government in the solicitation under 
the clause at 52.225-5(b) (2) or 52.225-15(b)(2) or (3) or subsequently 
excepted on a basis other than unreasonable cost, award shall be made to 
the offeror that submitted the latter offer.
    (c) Offerors also may submit alternate offers based on use of 
equivalent domestic construction material to avoid possible rejection of 
the entire offer, if the Government determines that an exception 
permitting use of a particular foreign construction material does not 
apply.
    (d) If, upon evaluation of an offer, the Government determines that 
an exception to the Buy American Act applies, and the Government accepts 
that offer, the excepted material shall be listed in the contract at 
52.225-5(b)(2) or 52.225-15(b)(3).
[62 FR 12699, Mar. 17, 1997]



25.205  Postaward determinations.

    (a) If a contractor requests a determination regarding the 
inapplicability of the Buy American Act after contract award, the 
contractor shall explain why the determination could not have been 
requested before contract award or why the need for such determination 
otherwise was not reasonably foreseeable. If the contractor does not 
submit a satisfactory explanation, the Government need not make a 
determination regarding the inapplicability of the Buy American Act.
    (b) Evaluation of any request for a determination regarding the 
inapplicability of the Buy American Act made after contract award shall 
be based on information similar to that required before award by the 
applicable clause at 52.225-5 (c) and (d) or 52.225-15 (c) and (d) and/
or other information readily available to the contracting officer.
    (c) If a determination is made after contract award that an 
exception to the Buy American Act applies, the contract shall be 
modified to allow use of foreign construction material, and adequate 
consideration shall be negotiated. However, when the basis for the 
exception is the unreasonable price of a domestic construction material, 
adequate consideration shall not be less than the differential 
established in 25.202(a)(1) or agency procedures.
[62 FR 12699, Mar. 17, 1997]



25.206  Noncompliance.

    (a) The contracting officer is responsible for conducting Buy 
American Act investigations when available information indicates such 
action is warranted.
    (b) Unless fraud is suspected, the contracting officer shall notify 
the contractor of the apparent unauthorized use of foreign construction 
material and request a reply, to include proposed corrective action.
    (c) If an investigation reveals that a contractor or subcontractor 
has used foreign construction material without authorization, the 
contracting officer shall take appropriate action, including one or more 
of the following:
    (1) Process a determination with regard to inapplicability of the 
Buy American Act in accordance with 25.205.
    (2) Consider requiring the removal and replacement of the 
unauthorized foreign construction material.
    (3) If removal and replacement of foreign construction material 
incorporated in a building or work would be impracticable, cause undue 
delay, or otherwise be detrimental to the interests of the Government, 
the contracting officer may determine in writing that the foreign 
construction material need not be removed and replaced. Such a 
determination to retain foreign construction material does not 
constitute a determination that an exception to the Buy American Act 
applies,

[[Page 515]]

and this should be so stated in the determination. Further, such a 
determination to retain foreign construction material does not affect 
the Government's right to suspend and/or debar a contractor, 
subcontractor, or supplier for violation of the Buy American Act, or to 
exercise other contractual rights and remedies, such as reducing the 
contract price or terminating the contract for default.
    (4) If the noncompliance is sufficiently serious, consider 
exercising appropriate contractual remedies, such as terminating the 
contract for default. Also consider preparing and forwarding a report 
for suspension and/or debarment, including findings and supporting 
evidence in accordance with subpart 9.4, Debarment, Suspension, and 
Ineligibility. If the noncompliance appears to be fraudulent, consider 
referring the matter to other appropriate agency officials, such as the 
officer responsible for criminal investigation and prosecution.
[62 FR 12699, Mar. 17, 1997]



25.207  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the clause at 52.225-5, Buy 
American Act--Construction Materials, in solicitations and contracts for 
construction inside the United States, except when the clause at 52.225-
15, Buy American Act--Construction Materials under Trade Agreements Act 
and North American Free Trade Agreement, is prescribed.
    (b)(1) The contracting officer shall insert the provision at 52.225-
12, Notice of Buy American Act Requirement--Construction Materials, in 
solicitations for construction that contain the clause at 52.225-5, Buy 
American Act--Construction Materials.
    (2) If the contracting officer determines that insufficient time is 
available to process a determination regarding the inapplicability of 
the Buy American Act prior to receipt of offers, the contracting officer 
shall use the provision with its Alternate I.
    (c)(1) The contracting officer shall insert the provision at 52.225-
13, Notice of Buy American Act Requirement--Construction Materials under 
Trade Agreements Act and North American Free Trade Agreement, in 
solicitations for construction that contain the clause at 52.225-15, Buy 
American Act--Construction Materials under Trade Agreements Act and 
North American Free Trade Agreement.
    (2) If the contracting officer determines that insufficient time is 
available to process a determination regarding the inapplicability of 
the Buy American Act prior to receipt of offers, the contracting officer 
shall use the provision with its Alternate I.
    (d)(1) The contracting officer shall insert the clause at 52.225-15, 
Buy American Act--Construction Materials under Trade Agreements Act and 
North American Free Trade Agreement, in solicitations and contracts for 
construction inside the United States with an estimated acquisition 
value of $7,311,000 or more.
    (2) For solicitations and contracts for construction inside the 
United States with an estimated acquisition value of $6,500,000 or more, 
but less than $7,311,000, the contracting officer shall use the clause 
with its Alternate I.
[62 FR 12699, Mar. 17, 1997]



                Subpart 25.3--Balance of Payments Program



25.300  Scope of subpart.

    This subpart provides policies and procedures applicable to 
contracting for supplies, services, or construction for use outside the 
United States and provides for the use of excess or near-excess foreign 
currency. The Balance of Payments Program restrictions have been waived 
with respect to the acquisition, in accordance with subpart 25.4, of 
certain products under the Trade Agreements Act of 1979 and the North 
American Free Trade Agreement (NAFTA) Implementation Act.
[48 FR 42278, Sept. 19, 1983, as amended at 59 FR 546, Jan. 5, 1994]



25.301  Definitions.

    Components (see 25.101).
    Domestic end product (see 25.101).
    Domestic offer (see 25.101).
    Domestic services, as used in this subpart, means services performed 
in the United States. If services provided under a single contract are 
performed

[[Page 516]]

both inside and outside the United States, they shall be considered 
domestic if 25 percent or less of their total cost is attributable to 
services (including incidental supplies used in connection with these 
services) performed outside the United States.
    End product (see 25.101).
    Foreign end product (see 25.101).
    Foreign offer (see 25.101).
    Foreign services, as used in this subpart, means services other than 
domestic services.
    United States (see 25.101).



25.302  Policy.

    (a) The Balance of Payments Program is an interim measure imposed to 
alleviate the impact of Government expenditures on the Nation's balance 
of international payments. The Balance of Payments Program differs from 
the Buy American Act in that the Buy American Act applies only to 
acquisitions for use inside the United States, while the Balance of 
Payments Program applies to acquisitions for use outside the United 
States.
    (b) Foreign end products or services may be acquired for use outside 
the United States if any of the following conditions are met:
    (1) The estimated cost of the product or service is at or below the 
simplified acquisition threshold.
    (2) Perishable subsistence items are required and the agency head, 
or a designee, determines that delivery from the United States would 
significantly impair their quality at the point of consumption.
    (3) The agency head, or a designee, determines that a requirement 
can only be filled by a foreign end product or service, and that it is 
not feasible to forgo filling it or to provide a domestic substitute 
(see 25.108).
    (4) The acquisition is for ice, books, utilities, communications, 
and other materials or services that, by their nature or as a practical 
matter, can only be acquired or performed in the country concerned and a 
U.S. Government capability does not exist.
    (5) Subsistence items are required specifically for resale in 
overseas commissary stores.
    (6) The acquisition of foreign end products or services is required 
by a treaty or executive agreement between governments.
    (7) Petroleum supplies and their by-products as listed and defined 
in 25.108 are required.
    (8) The end products or services are paid for with excess or near-
excess foreign currencies (see 25.304).
    (9) The end products or services are mined, produced, or 
manufactured in Panama and are required by and for the use of United 
States Forces in Panama.
    (c) Contracts shall require use of domestic construction materials 
(see 25.201) for construction, repair, or maintenance of real property 
outside the United States, except when the cost of these materials 
(including transportation and handling costs) exceeds the cost of 
foreign construction materials by more than 50 percent. A differential 
greater than 50 percent may be used when specifically authorized by the 
agency head or a designee.
[48 FR 42278, Sept. 19, 1983, as amended at 60 FR 34758, July 3, 1995; 
61 FR 39198, July 26, 1996]



25.303  Procedures.

    (a) Solicitation of offers. The procedures in this section apply to 
contracts for supplies and services when the exceptions in 25.302(b) do 
not apply. Solicitations shall state that information regarding 
articles, materials, supplies, and services excepted from these 
procedures is available to prospective contractors upon request. When 
quotations are obtained orally (see part 13), vendors shall be informed 
that only domestic end products or services will be acceptable, except 
for those items that have been excepted or when the price for the 
foreign end products or services meets the evaluation criteria in 
paragraph (b) below.
    (b) Evaluation. For purposes of evaluation, each foreign offer shall 
be adjusted by increasing it by 50 percent. If this procedure results in 
a tie between a foreign offer as evaluated and a domestic offer, the 
domestic offer shall be considered the successful offer. When this 
procedure results in the acquisition of foreign end products or 
services, the acquisition of domestic

[[Page 517]]

end products or services is thereby considered unreasonable in cost or 
inconsistent with the public interest.



25.304  Excess and near-excess foreign currencies.

    (a) The United States holds currencies of certain countries in 
amounts determined annually by the Secretary of the Treasury to be 
excess to the normal, or above the immediate (near-excess) requirements 
of the Government. These countries are identified in Bulletins issued by 
the Office of Management and Budget which will be distributed through 
agency procedures on an expedited basis. Additional information may also 
be obtained from the Department of the Treasury, Office of the Assistant 
Secretary for International Affairs, Office of Development Policy. 
Acquisitions of foreign end products, services, or construction paid for 
in excess of near-excess foreign currencies are an exception to the 
balance of payments restrictions in this subpart (see 25.302(b)(8)).
    (b) Excess and near-excess foreign currencies shall be used whenever 
feasible in payment of contracts over $1 million performed wholly or 
partly in any of the listed countries. In some cases, award may be made 
to an offeror willing to accept payment, in whole or part, in excess or 
near-excess foreign currency, even though the offer, when compared to 
offers in United States dollars, is not the lowest received. Price 
differentials may be funded from excess or near-excess foreign 
currencies available without charge to agency appropriations, subject to 
Office of Management and Budget (OMB) Circular No. A-20, May 21, 1966.
    (c) Before issuing solicitations for contracts to be performed 
wholly or partly in the listed countries, the contracting officer shall 
obtain a determination from the agency head, or a designee no lower than 
the head of the contracting activity, as to the feasibility of using 
excess or near-excess foreign currency. Agency officials shall consult 
with the Budget Review Division, Office of Management and Budget, and 
verify--
    (1) The availability of excess or near-excess foreign currency;
    (2) The feasibility of using that currency in payment of the 
contract;
    (3) The price differential, if any, that will be considered 
acceptable; and
    (4) Procedures for obtaining excess or near-excess foreign currency 
requirements.
    (d) When use of excess or near-excess foreign currency is determined 
feasible, the contracting officer shall, in the solicitation--
    (1) Require that offers be stated in U.S. dollars;
    (2) Request that offers also be stated, in whole or in part, in 
excess or near-excess foreign currency; and
    (3) Reserve the right to make the award to the responsive offeror 
(i) that is willing to accept payment, in whole or in part, in excess or 
near-excess foreign currency, and (ii) whose offer is most advantageous 
to the Government, even though the total price may be higher than offers 
in U.S. dollars.
[48 FR 42278, Sept. 19, 1983, as amended at 53 FR 43390, Oct. 26, 1988]



25.305  Solicitation provision and contract clauses.

    (a) Solicitation provision. The contracting officer shall insert the 
provision at 52.225-6, Balance of Payments Program Certificate, in 
solicitations for supplies or services for use outside the United 
States, unless one or more of the exceptions in 25.302(b) applies or the 
acquisition is made under the Trade Agreements Act of 1979 or NAFTA (see 
subpart 25.4).
    (b) Oral quotations. When quotations are obtained orally, vendors 
shall be informed that only domestic end products or services will be 
acceptable, except for those items that have been excepted or when the 
price for the foreign end products or services meets the evaluation 
criteria in 25.303(b).
    (c) Contract clauses. (1) The contracting officer shall insert the 
clause at 52.225-7, Balance of Payments Program, in solicitations and 
contracts for acquiring supplies or services for use outside the United 
States, unless one or more of the exceptions in 25.302(b) applies or the 
acquisition is made under the Trade Agreements Act of 1979 or NAFTA (see 
subpart 25.4).

[[Page 518]]

    (2) For construction contracts outside the United States, with an 
estimated value of $6,500,000 or more, insert the clause at 52.225-22, 
Balance of Payments Program--Construction Materials-- NAFTA.
[48 FR 42278, Sept. 19, 1983, as amended at 59 FR 546, Jan. 5, 1994; 61 
FR 31647, June 20, 1996]



                     Subpart 25.4--Trade Agreements



25.400  Scope of subpart.

    (a) This subpart provides policies and procedures for acquisitions 
subject to the Agreement on Government Procurement, as approved by 
Congress in the Trade Agreements Act of 1979 (19 U.S.C. 2501-2582), and 
as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), and 
other trade agreements including--
    (1) Acquisitions from countries designated under the Caribbean Basin 
Economic Recovery Act (19 U.S.C. 2701, et seq.);
    (2) Acquisitions involving offers of Israeli end products under the 
U.S.-Israel Free Trade Area Agreement, as approved by Congress in the 
United States-Israel Free Trade Area Implementation Act of 1985 (19 
U.S.C. 2112 note);
    (3) Acquisitions involving offers of Canadian or Mexican end 
products under the North American Free Trade Agreement (NAFTA), as 
approved by Congress in the NAFTA Implementation Act (Pub. L. 103-182, 
107 Stat. 2057); and
    (4) The Agreement on Civil Aircraft (19 U.S.C. 2513).
    (b) For application of the trade agreements which are unique to 
individual agencies (Department of Defense, National Aeronautics and 
Space Administration, Department of Energy (Power Marketing 
Administration), Department of the Interior (Bureau of Reclamation) and 
Department of Transportation (Federal Aviation Administration), see 
agency regulations.
[60 FR 67515, Dec. 29, 1995]



25.401  Definitions.

    Canadian end product, as used in this subpart, means an article that 
(a) is wholly the growth, product, or manufacture of Canada, or (b) in 
the case of an article which consists in whole or in part of materials 
from another country or instrumentality, has been substantially 
transformed in Canada into a new and different article of commerce with 
a name, character, or use distinct from that of the article or articles 
from which it was transformed. The term refers to a product offered for 
purchase under a supply contract, but for purposes of calculating the 
value of the end product includes services (except transportation 
services) incidental to its supply; provided, that the value of those 
incidental services does not exceed that of the product itself.
    Caribbean Basin country, as used in this subpart, means a country 
designated by the President as a beneficiary under the Caribbean Basin 
Economic Recovery Act (19 U.S.C. 2701, et seq.) and listed as follows:

Antigua and Barbuda
Aruba
Bahamas
Barbados
Belize
British Virgin Islands
Costa Rica
Dominica
Dominican Republic
El Salvador
Grenada
Guatemala
Guyana
Haiti
Honduras
Jamaica
Montserrat
Netherlands Antilles
Nicaragua
Panama
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Trinidad and Tobago

    Caribbean Basin country end product, as used in this subpart, means 
an article that (a) is wholly the growth, product, or manufacture of the 
Caribbean Basin country, or (b) in the case of an article which consists 
in whole or in part of materials from another country or 
instrumentality, has been substantially transformed into a new and 
different article of commerce with a name, character, or use distinct 
from that of the article or articles from which it was so transformed. 
The term refers to a product offered for purchase under a supply 
contract, but for purposes of calculating the value of the end product 
includes services (except transportation services) incidental to its 
supply; provided, that the value of those incidental services does not 
exceed that of the product itself. The term excludes products that are 
excluded from duty-free treatment for Caribbean countries under 19 
U.S.C. 2703(b), which presently are--

[[Page 519]]

    (1) Textiles and apparel articles that are subject to textile 
agreements;
    (2) Footwear, handbags, luggage, flat goods, work gloves, and 
leather wearing apparel not designated as eligible articles for the 
purpose of the Generalized System of Preferences under Title V of the 
Trade Act of 1974;
    (3) Tuna, prepared or preserved in any manner in airtight 
containers;
    (4) Petroleum, or any product derived from petroleum; and
    (5) Watches and watch parts (including cases, bracelets and straps), 
of whatever type including, but not limited to, mechanical, quartz 
digital or quartz analog, if such watches or watch parts contain any 
material that is the product of any country to which the Tariff Schedule 
of the United States (TSUS) column 2 rates of duty apply.
    Designated country, as used in this subpart, means a country or 
instrumentality designated under the Trade Agreements Act of 1979 and 
listed as follows:

Aruba
Austria
Bangladesh
Belgium
Benin
Bhutan
Botswana
Burkina Faso
Burundi
Canada
Cape Verde
Central African Republic
Chad
Comoros
Denmark
Djibouti
Equatorial Guinea
Finland
France
Gambia
Germany
Greece
Guinea
Guinea-Bissau
Haiti
Hong Kong
Ireland
Israel
Italy
Japan
Kiribati
Lesotho
Liechtenstein
Luxembourg
Malawi
Maldives
Mali
Mozambique
Nepal
Netherlands
Niger
Norway
Portugal
Republic of Korea
Rwanda
Sao Tome and Principe
Sierra Leone
Singapore
Somalia
Spain
Sweden
Switzerland
Tanzania U.R.
Togo
Tuvalu
Uganda
United Kingdom
Vanuatu
Western Samoa
Yemen

    Designated country construction material, as used in this subpart, 
means construction material that (a) is wholly the growth, product, or 
manufacture of a designated country, or (b) in the case of a 
construction material which consists in whole or in part of materials 
from another country or instrumentality, has been substantially 
transformed in a designated country into a new and different 
construction material distinct from the materials from which it was 
transformed.
    Designated country end product, as used in this subpart, means an 
article that (a) is wholly the growth, product, or manufacture of the 
designated country, or (b) in the case of an article which consists in 
whole or in part of materials from another country or instrumentality, 
has been substantially transformed into a new and different article of 
commerce with a name, character, or use distinct from that of the 
article or articles from which it was so transformed. The term refers to 
a product offered for purchase under a supply contract, but for purposes 
of calculating the value of the end product includes services (except 
transportation services) incidental to its supply; provided, that the 
value of those incidental services does not exceed that of the product 
itself.
    Eligible product, as used in this subpart, means a designated, North 
American Free Trade Agreement (NAFTA), or Caribbean Basin country end 
product.
    Mexican end product, as used in this subpart, means an article that 
(a) is wholly the growth, product, or manufacture of Mexico, or (b) in 
the case of an article which consists in whole or in part of materials 
from another country or instrumentality, has been substantially 
transformed in Mexico into a new and different article of commerce with 
a name, character, or use distinct from that of the article or articles 
from which it was transformed. The term refers to a product offered for 
purchase under a supply contract, but for purposes of calculating the 
value of the end product includes services (except transportation 
services) incidental to its supply; provided, that the value of those 
incidental services does not exceed that of the product itself.
    North American Free Trade Agreement (NAFTA) country, as used in this 
subpart, means Canada or Mexico.
    NAFTA country construction material, means a construction material 
that (a)

[[Page 520]]

is wholly the growth, product, or manufacture of a NAFTA country or (b) 
in the case of a construction material which consists in whole or in 
part of materials from another country or instrumentality, has been 
substantially transformed in a NAFTA country into a new and different 
construction material distinct form the materials from which it was 
transformed.
    NAFTA country end product, as used in this subpart, means a Canadian 
end product or a Mexican end product.
[48 FR 42278, Sept. 19, 1983, as amended at 49 FR 12974, Mar. 30, 1984; 
51 FR 16802, May 6, 1986; 53 FR 53340, Dec. 30, 1988; 54 FR 34755, Aug. 
21, 1989; 57 FR 48471, Oct. 26, 1992; 58 FR 31142, May 28, 1993; 59 FR 
546, Jan. 5, 1994; 60 FR 28502, May 31, 1995; 60 FR 67515, Dec. 29, 
1995; 62 FR 268, Jan. 2, 1997; 62 FR 44828, Aug. 22, 1997]



25.402  Policy.

    (a)(1) Executive Order 12260 requires the U.S. Trade Representative 
to set the dollar threshold for application of the Trade Agreements Act. 
The current threshold is $190,000 for supply and services contracts and 
$7,311,000 for construction contracts. The thresholds will be published 
in the Federal Register and will be distributed through agency 
procedures on an expedited basis. When the value of the proposed 
acquisition of an eligible product is estimated to be at or over the 
dollar threshold, agencies shall evaluate offers for an eligible product 
without regard to the restrictions of the Buy American Act (see subpart 
25.1) or the Balance of Payments Program (see subpart 25.3). When the 
value of the proposed construction contract is estimated to be at or 
over the dollar threshold, agencies shall evaluate offers of designated 
country construction materials without regard to the restrictions of the 
Buy American Act (see subpart 25.2) or the Balance of Payments Program 
(see subpart 25.3). When the value of the proposed acquisition is 
estimated to be below the Trade Agreements Act threshold, the 
restrictions of the Buy American Act or the Balance of Payments Program 
shall be applied to foreign offers, except as noted in paragraphs (a)(2) 
and (a)(3) of this section (see 25.105).
    (2) As required by Article 15 of the U.S.-Israel Free Trade Area 
Agreement, agencies other than the Department of Defense, Department of 
Energy, Department of Transportation, the Bureau of Reclamation of the 
Department of the Interior, the Federal Housing Finance Board, and the 
Office of Thrift Supervision shall evaluate offers of Israeli end 
products at or above $50,000 in amount without regard to the 
restrictions of the Buy American Act (see subpart 25.1) or the Balance 
of Payments Program (see subpart 25.3).
    (3) As required by the North American Free Trade Agreement (NAFTA) 
Implementation Act (Pub. L. 103-182, 107 Stat. 2057), agencies shall 
evaluate offers of the following NAFTA country end products without 
regard to the restrictions of the Buy American Act (see subpart 25.1) or 
the Balance of Payments Program (see subpart 25.3):
    (i) NAFTA country construction materials under construction 
contracts with an estimated acquisition value of $6,500,000 or more.
    (ii) Canadian end products under supply contracts with an estimated 
value above $25,000 and Mexican end products under supply contracts with 
an estimated value of $50,000 or more.
    (4) To determine whether the Trade Agreements Act or NAFTA applies 
to the acquisition of products by lease, rental, or lease-purchase 
contract (including lease-to-ownership, or lease-with-option-to 
purchase), the contracting officer shall calculate the estimated 
acquisition value as follows:
    (i) If a fixed-term contract of 12 months or less is contemplated, 
use the total estimated value of this acqusition.
    (ii) If a fixed-term contract of more than 12 months is 
contemplated, use the total estimated value of the acquisition plus the 
estimated residual value of the leased equipment at the conclusion of 
the contemplated term of the contract.
    (iii) If an indefinite-term contract is contemplated, use the 
estimated monthly payment multiplied by 48.
    (iv) If there is any doubt as to the contemplated term of the 
contract, use the estimated monthly payment multiplied by 48.

[[Page 521]]

    (5) If a contemplated acquisition includes an option clause (see 
subpart 17.2), when calculating the threshold for application of Trade 
Agreements Act or NAFTA provisions include the value of all options.
    (b) The U.S. Trade Representative has determined that in order to 
promote further economic recovery of the Caribbean Basin countries (as 
defined in 25.401), products originating in those countries which are 
eligible for duty-free treatment under the Caribbean Basin Economic 
Recovery Act shall be treated as eligible products for the purposes of 
this subpart. Except for products of Panama, this determination is 
effective until September 30, 1997. For products of Panama, this 
determination is effective until September 30, 1998. These dates may be 
extended by the U.S. Trade Representative by means of a notice in the 
Federal Register.
    (c)(1) There shall be no acquisition of foreign end products subject 
to the Trade Agreements Act unless the foreign end products are eligible 
products, except as provided in paragraphs (c)(2) and (c)(3) of this 
section.
    (2) The prohibition in paragraph (c)(1) of this section does not 
apply if offers of domestic end products or of eligible products are 
either not received or are insufficient to fulfill the requirements.
    (3) A waiver may be granted under section 302(b)(2) of the Trade 
Agreements Act (19 U.S.C. 2512(b)(2)).
    (d) No requirement for the acquisition of eligible products shall be 
divided with the intent of reducing the estimated value of the 
acquisition below the dollar threshold addressed in paragraph (a) of 
this section.
    (e) Acquisitions of eligible products are subject to the 
requirements of part 6. The use of the authorities cited in 6.302-
3(a)(2)(i) or 6.302-7 requires compliance with 6.303-1(d).
    (f) Subject to the provisions of U.S. law and regulation, a supplier 
established in a designated, North American Free Trade Agreement, or a 
Caribbean Basin country shall not be accorded less favorable treatment 
than is accorded to another supplier established in that country on the 
basis of--
    (1) Foreign ownership or affiliation; or
    (2) Where the goods being supplied were produced, provided that the 
country of production is a designated, North American Free Trade 
Agreement, or a Caribbean Basin country.
    (g) The procedures in 25.405 apply to the acquisition of NAFTA 
country services. These are services provided by a firm established in a 
NAFTA country under service contracts with an estimated acquisition 
value of $50,000 or more ($6,500,000 or more for construction), except 
for the following excluded services (Federal Service Code or Category 
from the Federal Procurement Data System Product/Service Code Manual is 
indicated in parentheses):
    (1) Information processing and related telecommunications services 
(D):
    (i) Automated data processing (ADP) telecommunications and 
transmission services (D304).
    (ii) ADP teleprocessing and timesharing services (D305).
    (iii) Telecommunications network management services (D316).
    (iv) Automated news services, data services, or other information 
services (D317).
    (v) Other ADP and telecommunications services (D399).
    (2) Maintenance, repair, modification, rebuilding, and installation 
of equipment (J):
    (i) Maintenance, repair, modification, rebuilding, and installation 
of equipment related to ships (J019).
    (ii) Non-nuclear ship repair (J998).
    (3) Operation of Government-owned facilities (M):
    (i) All facilities operated by the Department of Defense, Department 
of Energy, and the National Aeronautics and Space Administration.
    (ii) Research and development facilities (M180).
    (4) Utilities--all classes (S).
    (5) Transportation, travel, and relocation services--all classes 
except V503 travel agent services (V).
    (6) All services purchased in support of military forces overseas.
    (7) Construction dredging services.
[52 FR 8567, Mar. 18, 1987; 52 FR 30076, Aug. 12, 1987, as amended at 53 
FR 27464, July 20, 1988; 53 FR 53341, Dec. 30, 1988; 56 FR 15151, Apr. 
15, 1991; 58 FR 31142, May 28, 1993; 59 FR 546, Jan. 5, 1994; 60 FR 
67516, Dec. 29, 1995; 61 FR 31647, 31650, June 20, 1996; 62 FR 269, Jan. 
2, 1997]

[[Page 522]]



25.403  Exceptions.

    This subpart does not apply to--
    (a) Acquisitions below the dollar thresholds in 25.402(a) (1) 
through (3), respectively;
    (b) Purchases under small or small disadvantaged business preference 
programs;
    (c)(1) Purchases of arms, ammunition or war materials, or purchases 
indispensable for national security or for national defense purposes, by 
the Department of Defense, as provided in departmental regulations;
    (2) Purchases indispensable for national security or for national 
defense purposes, subject to policies established by the U.S. Trade 
Representative.
    (d) Research and development contracts;
    (e) Purchases of items for resale;
    (f) Purchases under subpart 8.6, Acquisition from Federal Prison 
Industries, Inc., and subpart 8.7, Acquisition from Nonprofit Agencies 
Employing People Who Are Blind or Severely Disabled; or
    (g) Purchases of products that are excluded from duty-free treatment 
for Caribbean countries under 19 U.S.C. 2703 (b); which presently are--
    (1) Textiles and apparel articles that are subject to textile 
agreements;
    (2) Footwear, handbags, luggage, flat goods, work gloves, and 
leather wearing apparel not designated as eligible articles for this 
purpose of the Generalized System of Preferences under Title V of the 
Trade Act of 1974;
    (3) Tuna, prepared or preserved in any manner in airtight 
containers;
    (4) Petroleum, or any product derived from petroleum; and
    (5) Watches and watch parts (including cases, bracelets and straps), 
of whatever type including, but not limited to, mechanical, quartz 
digital or quartz analog, if such watches or watch parts contain any 
material that is the product of any country to which the Tariff Schedule 
of the United States (TSUS) column two rates of duty apply.
[60 FR 67516, Dec. 29, 1995]



25.404  [Reserved]



25.405  Procedures.

    When the Trade Agreements Act or North American Free Trade Agreement 
(NAFTA) applies, the following procedures shall be used:
    (a) Contracting officers shall comply with the requirements of 
section 5.203, Publicizing and response time.
    (b) Agencies shall not impose technical requirements solely to 
preclude the acquisition of eligible products.
    (c) Offers received in response to solicitations anticipating 
competitive negotiations shall be opened in the presence of an impartial 
witness, whose name shall be recorded in the contract file.
    (d) Solicitations shall specify that offers involving eligible 
products from designated, NAFTA, or Caribbean Basin countries shall be 
submitted in the English language and in U.S. dollars.
    (e) Within three days after a contract award for an eligible 
product, agencies shall give unsuccessful offerors from designated or 
NAFTA countries notice in accordance with 14.409-1 and 15.503. ``Day,'' 
for purposes of the notification process, means calendar day, except 
that the period will run until a day which is not a Saturday, Sunday, or 
legal holiday.
[48 FR 42278, Sept. 19, 1983, as amended at 51 FR 16803, May 6, 1986; 51 
FR 20976, June 10, 1986; 51 FR 30619, Aug. 27, 1986; 52 FR 30076, Aug. 
12, 1987; 53 FR 27465, July 20, 1988; 56 FR 15151, Apr. 15, 1991; 59 FR 
546, Jan. 5, 1994; 60 FR 34739, July 3, 1995; 60 FR 42657, Aug. 16, 
1995; 61 FR 69289, Dec. 31, 1996; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
25.405, in paragraph (e), ``15.1003'' was amended to read ``15.503'', 
effective Oct. 10, 1997.



25.406--25.407  [Reserved]



25.408  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert--
    (1) The provision at 52.225-8, Buy American Act--Trade Agreements--
Balance of Payments Program Certificate, in solicitations containing the 
clause at 52.225-9;

[[Page 523]]

    (2) The clause at 52.225-9, Buy American Act--Trade Agreements--
Balance of Payments Program, in solicitations and contracts for supplies 
where the contracting officer has determined that the acquisition is 
subject to the Trade Agreements Act;
    (3) The provision at 52.225-20, Buy American Act--North American 
Free Trade Agreement Implementation Act--Balance of Payments Program 
Certificate, in solicitations containing the clause at 52.225-21. Use 
the provision with its Alternate I if the acquisition value is between 
$25,000 and $50,000; and
    (4) The clause at 52.225-21, Buy American Act--North American Free 
Trade Agreement Implementation Act--Balance of Payments Program, in 
solicitations and contracts for supplies where the contracting officer 
has determined that the acquisition is not subject to the Trade 
Agreements Act but is subject to NAFTA. Use the clause with its 
Alternate I if the acquisition value is between $25,000 and $50,000.
    (b) The contracting officer shall rely on the offeror's 
certification as submitted.
    (c) The clause prescriptions at paragraph (a) of this section shall 
apply where any item under a multiple item solicitation is determined to 
be subject to the Trade Agreements Act or North American Free Trade 
Agreement Implementation Act. If the Acts do not apply to all of the 
items being solicited, the contracting officer shall indicate, in the 
schedule, those items that are exempt.
    (d) The contracting officer shall insert the provisions at 52.214-
34, Submission of Offers in the English Language, and 52.214-35, 
Submission of Offers in U.S. Currency, in all solicitations subject to 
the Trade Agreements Act or NAFTA.
[48 FR 42278, Sept. 19, 1983, as amended at 56 FR 15151, Apr. 15, 1991. 
Redesignated at 58 FR 31142, May 28, 1993, as amended at 59 FR 547, Jan. 
5, 1994; 60 FR 67517, Dec. 29, 1995; 61 FR 31647, June 20, 1996; 62 FR 
261, Jan. 2, 1997]



                  Subpart 25.5--Use of Foreign Currency



25.501  Policy.

    (a) Unless a specific currency is required by international 
agreement or by the Trade Agreements Act (see 25.405(d)), contracting 
officers shall determine whether solicitations for contracts to be 
entered into and performed outside the United States will require 
submission of offers either in U.S. currency or in a specified foreign 
currency. In unusual circumstances, the contracting officer may permit 
submission of offers in other than a specified currency.
    (b) To ensure a fair evaluation of offers, solicitations should 
generally require all offers to be priced in the same currency. However, 
if submission of offers in other than a specified currency is permitted, 
the contracting officer shall convert the offered prices to U.S. 
currency for evaluation purposes. The contracting officer shall use the 
current market exchange rate from a commonly used source in effect on 
the
    (1) Date of bid opening for sealed bid acquisitions,
    (2) Closing date for negotiated acquisitions when award is based on 
initial offers, or
    (3) Due date for receipt of best and final offers, for other 
negotiated acquisitions.
    (c) If contracts are priced in foreign currency, agencies must 
ensure that adequate funds are available to cover currency fluctuations 
in order to avoid a violation of the Anti-Deficiency Act.
[61 FR 31650, June 20, 1996]



25.502  Solicitation provision.

    The contracting officer shall insert the provision at 52.225-4, 
Evaluation of Foreign Currency Offers, in solicitations if the use of 
other than a specified currency is permitted. The contracting officer 
shall insert the source of the rate to be used in the evaluation of 
offers.
[61 FR 31651, June 20, 1996]

[[Page 524]]



                    Subpart 25.6--Customs and Duties



25.600  Scope of subpart.

    This subpart provides policies and procedures for exempting from 
import duties certain supplies purchased under Government contracts. 
Regulations governing importations and duties are contained in the 
Customs Regulations issued by the U.S. Customs Service, Department of 
the Treasury (Chapter 1, Title 19 of the Code of Federal Regulations).



25.601  Definition.

    Customs territory of the United States, as used in this subpart, 
means the States, the District of Columbia, and Puerto Rico.



25.602  Policy.

    United States laws impose duties on foreign supplies imported into 
the customs territory of the United States. Certain exemptions from 
these duties are available to Government agencies. Agencies shall use 
these exemptions whenever the anticipated savings to appropriated funds 
will outweigh the administrative costs associated with processing 
required documentation.



25.603  Procedures.

    (a) General. Except as provided elsewhere in the Customs Regulations 
(see 19 CFR 10.100), all shipments of imported supplies purchased under 
Government contracts are subject to the usual Customs entry and 
examination requirements. Unless the agency obtains an exemption (see 
25.604), those shipments are also subject to duty.
    (b) Formal entry and release. (1) Upon receipt of a notice from a 
Government contractor or customs office of the arrival, or pending 
arrival, of a shipment of supplies entitled to duty-free entry, the 
contracting officer normally shall execute--
    (i) Customs Form 7501, Consumption Entry, which shall serve as both 
the entry and the entry summary (see 19 CFR parts 141-142) (two copies 
to be forwarded to the District Director of Customs at port of entry);
    (ii) Customs Form 7501-A, Consumption Entry Permit (one copy to be 
forwarded to the District Director of Customs at port of entry); and
    (iii) Either a duty-free entry certificate when required in 
accordance with 25.604 (two copies to be forwarded to the District 
Director of Customs at port of entry) or Customs Form 7506, Warehouse 
Withdrawal Conditionally Free of Duty, and Permit (two copies to be 
forwarded to the District Director of Customs at warehouse location).
    (2) Customs forms are available from any District Director of 
Customs Office or United States Customs port. Data for completing 
customs forms shall be obtained from the contractor.
    (c) Immediate entry and release. Imported supplies purchased under 
Government contracts are regarded as shipments, the immediate delivery 
of which is necessary under the provisions of 19 U.S.C. 1448(b). Request 
for their release from Customs custody before formal entry and release 
shall normally be made by the contracting officer by filing Customs Form 
3461, Immediate Delivery Application, with the District Director of 
Customs at port of entry. Forms for formal entry and release must be 
filed within a reasonable time thereafter. Applications for immediate 
delivery may be limited to particular shipments or may cover all 
shipments under a Government contract. They may be approved for specific 
or indefinite periods of time (see 19 CFR 10.101 and 19 CFR part 142, 
subpart A, for requirements).



25.604  Exempted supplies.

    (a) Schedule 8 of the Tariff Schedules of the United States (19 
U.S.C. 1202) lists supplies for which exemptions from duty may be 
obtained when imported into the customs territory of the United States 
under a Government contract. For certain of these supplies, the 
contracting agency must certify to the Commissioner of Customs that they 
are for the purpose stated in the Tariff Schedule (see 19 CFR 10.102-
104, 10.110, 10.114-119, 10.121, and 15 CFR 301 for requirements and 
formats).
    (b) Supplies (as opposed to equipment) for Government-operated 
vessels or aircraft may be withdrawn from any customs-bonded warehouse, 
from continuous customs custody elsewhere than in a bonded warehouse, or 
from a foreign-trade zone free of duty and internal revenue tax as 
provided in 19

[[Page 525]]

U.S.C. 1309(a). The contracting activity shall cite this authority on 
the appropriate customs form when making such purchases (see 19 CFR 
10.59(a)).



25.605  Contract clause.

    (a) The contracting officer shall insert the clause at 52.225-10, 
Duty-Free Entry, in solicitations and contracts over $100,000 that 
provide for, or anticipate furnishing to the Government, supplies to be 
imported into the customs territory of the United States.
    (b) The clause may be used in solicitations and contracts of 
$100,000 or less, if such action is consistent with the policy in 
25.602.
    (c) If the contracting officer knows before award that the contract 
includes specific supplies that will be accorded duty-free entry, a list 
of these supplies shall be inserted in the contract Schedule. The list 
shall include item numbers from Schedule 8, Tariff Schedules of the 
United States, and a description of the supplies.



         Subpart 25.7--Restrictions on Certain Foreign Purchases

    Source: 61 FR 41476, Aug. 8, 1996, unless otherwise noted.



25.701  Restrictions.

    (a) The Government does not acquire supplies or services from 
foreign governments or their organizations when these supplies or 
services cannot be imported lawfully into the United States. Therefore, 
agencies and their contractors and subcontractors shall not acquire any 
supplies or services originating from sources within, or that were 
located in or transported from or through--
    (1) Cuba (31 CFR part 515);
    (2) Iran (31 CFR part 560);
    (3) Iraq (31 CFR part 575);
    (4) Libya (31 CFR part 550); or
    (5) North Korea (31 CFR part 500).
    (b) Agencies and their contractors and subcontractors shall not 
acquire any supplies or services from entities controlled by the 
Government of Iraq (Executive Orders 12722 and 12724).
    (c) Questions concerning these restrictions should be referred to 
the Department of the Treasury, Office of Foreign Assets Control, 
Washington, DC 20220, (202) 622-2520.



25.702  Contract clause.

    The contracting officer shall insert the clause at 52.225-11, 
Restrictions on Certain Foreign Purchases, in solicitations and 
contracts over $2,500.



         Subpart 25.8--International Agreements and Coordination



25.801  International agreements.

    Treaties and agreements between the United States and foreign 
governments may affect contracting within foreign countries. Contracting 
officers should give particular attention to the provisions in those 
agreements that pertain to purchase procedures, contract forms and 
clauses, taxes, patents, technical information, facilities, and other 
matters related to contracting.



25.802  Procedures.

    (a) When placing contracts with contractors outside the United 
States, for performance outside the United States, contracting officers 
shall--
    (1) Determine the existence and applicability of any international 
agreements to contracts being planned or processed, and ensure 
compliance with these agreements; and
    (2) Conduct the necessary advance acquisition planning and 
coordination between the appropriate United States executive agencies 
and foreign interests as required by these agreements.
    (b) Many international agreements are compiled in the United States 
Treaties and Other International Agreements series published by the 
Department of State. Copies of this publication are normally available 
in overseas legal offices and United States diplomatic missions.



          Subpart 25.9--Additional Foreign Acquisition Clauses

    Source: 54 FR 29281, July 11, 1989, unless otherwise noted.

[[Page 526]]



25.901  Omission of audit clause.

    (a) Definition. Foreign contractor, as used in this subpart, means a 
contractor or subcontractor organized or existing under the laws of a 
country other than the United States, its territories, or possessions.
    (b) Policy. As required by 10 U.S.C. 2313, 41 U.S.C. 254d, and 
15.209(b), the contracting officer shall consider for use in negotiated 
contracts with foreign contractors, whenever possible, the basic clause 
at 52.215-2, Audit and Records--Negotiation, which authorizes 
examination of records by the Comptroller General. Use of the clause 
with Alternate III should be approved only after the contracting agency, 
having considered such factors as alternate sources of supply, 
additional cost, and time of delivery, has made all reasonable efforts 
to include the basic clause.
    (c) Conditions for use of Alternate III. The contracting officer may 
use the clause at 52.215-2, Audit and Records--Negotiation, with its 
Alternate III in contracts with foreign contractors--
    (1) If the agency head, or designee, determines, with the 
concurrence of the Comptroller General, that waiver of the right to 
examination of records by the Comptroller General will serve the public 
interest; or
    (2) If the contractor is a foreign government or agency thereof or 
is precluded by the laws of the country involved from making its 
records, as defined at 4.703(a), available for examination, and the 
agency head, or designee, determines, after taking into account the 
price and availability of the property or services from United States 
sources, that waiver of the right to examination of records by the 
Comptroller General best serves the public interest.
    (d) Determination and findings. The determination and findings 
shall--
    (1) Identify the contract and its purpose, and whether it is a 
contract with a foreign contractor or with a foreign government or 
agency thereof;
    (2) Describe the efforts to include the basic clause;
    (3) State the reasons for the contractor's refusal to include the 
basic clause;
    (4) Describe the price and availability of the property or services 
from the United States and other sources; and
    (5) Determine that it will serve the interest of the United States 
to use the clause with its Alternate III.
[54 FR 29281, July 11, 1989, as amended at 59 FR 11378, Mar. 10, 1994; 
60 FR 42650, Aug. 16, 1995; 62 FR 259, Jan. 2, 1997; 62 FR 51271, Sept. 
30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
25.901, in paragraph (b), ``15.106(b)'' was amended to read 
``15.209(b)'', effective Oct. 10, 1997.



25.902  Inconsistency between English version and translation of contract.

    The contracting officer shall insert the clause at 52.225-14, 
Inconsistency Between English Version and Translation of Contract, in 
solicitations and contracts whenever translation into another language 
is anticipated.



   Subpart 25.10--Implementation of Sanctions Against Countries That 
 Discriminate Against United States Products or Services in Government 
                               Procurement

    Source: 58 FR 31142, May 28, 1993, unless otherwise noted.



25.1000  Scope of subpart.

    This subpart implements section 305(d)(1) of the Trade Agreements 
Act of 1979, as amended (19 U.S.C. 2515(d)(1)), which requires the 
President to identify a country which discriminates against U.S. 
products or services in Government procurement and to impose sanctions 
on that country's products and services. This subpart does not apply to 
the Department of Defense. For thresholds which are unique to individual 
agencies (e.g., Power Marketing Administration of the Department of 
Energy), see agency regulations.
[58 FR 31142, May 28, 1993, as amended at 60 FR 67517, Dec. 29, 1995]



25.1001  Definitions.

    As used in this subpart--
    Sanctioned European Union (EU) construction means construction to be 
performed in a sanctioned member state of the EU and the contract is 
awarded

[[Page 527]]

by a contracting activity located in the United States or its 
territories.
    Sanctioned EU end product means an article that (a) is wholly the 
growth product or manufacture of a sanctioned member state of the EU or 
(b) in the case of an article which consists in whole or in part of 
materials from another country or instrumentality, has been 
substantially transformed into a new and different article of commerce 
with a name, character, or use distinct from that from which it was so 
transformed in a sanctioned member state of the EU. The term refers to a 
product offered for purchase under a supply contract, but for purposes 
of calculating the value of the end product includes services (except 
transportation services) incidental to its supply; provided, that the 
value of these incidental services does not exceed that of the product 
itself.
    Sanctioned EU services means services to be performed in a 
sanctioned member state of the EU when the contract is awarded by a 
contracting activity located in the United States or its territories.
    Sanctioned member state of the EU means Austria, Belgium, Denmark, 
Finland, France, Ireland, Italy, Luxembourg, the Netherlands, Sweden, 
and the United Kingdom.
[60 FR 67517, Dec. 29, 1995]



25.1002  Trade sanctions.

    (a) Subject to the exceptions in paragraph (b) of this section, 
executive agencies shall not award contracts for--
    (1) Sanctioned EU end products with an estimated acquisition value 
less than $190,000.
    (2) Sanctioned EU construction with an estimated acquisition value 
less than $7,311,000.
    (3) Sanctioned EU services as follows:
    (i) Service contracts with an estimated acquisition value less than 
$190,000.
    (ii) Regardless of dollar value, contracts for--
    (A) All transportation services, including Launching Services (all V 
codes, J019, J998, J999, K019);
    (B) Dredging (Y216, Z216);
    (C) Management and operation contracts of certain government or 
privately-owned facilities used for government purposes, including 
federally-funded research and development centers (all M codes);
    (D) Development, production or co-production of program material for 
broadcasting, such as motion pictures (T006, T016);
    (E) Research and development (all A codes);
    (F) Airport concessions (S203);
    (G) Legal services (R418);
    (H) Hotel and restaurant services (S203);
    (I) Placement and supply of personnel services (V241, V251);
    (J) Investigation and security services (S206, S211, R423);
    (K) Education and training services (all U codes, R419);
    (L) Health and social services (all O codes, all G codes);
    (M) Recreational, cultural, and sporting services (G003); and
    (N) Telecommunications services (encompassing only voice telephony, 
telex, radio telephony, paging, and satellite services) (S1, D304, D305, 
D316, D317, D399).
    (b) The sanctions in paragraph (a) of this section do not apply to 
the following:
    (1) Purchases awarded by simplified procedures in accordance with 
Part 13.
    (2) Total small business set asides under 19.502-2.
    (3) Contracts in support of the U.S. national security interests.
    (4) Contracts for goods or services awarded outside the United 
States and its territories where the goods or services are to be used 
outside the United States.
    (5) Contracts for essential spare, repair, or replacement parts not 
otherwise available from non-sanctioned countries.
    (c) Authority to exempt certain procurements. (1) The head of an 
agency, without power of redelegation, may authorize the award of a 
contract or class of contracts for sanctioned EU end products, services, 
and construction, the purchase of which is otherwise prohibited under 
paragraph (a) of this section if the agency head determines that such 
action is necessary--
    (i) In the public interest;

[[Page 528]]

    (ii) To avoid the restriction of competition in a manner which would 
limit the procurement in question to, or would establish a preference 
for, the services, articles, materials, or supplies of a single 
manufacturer or supplier; or
    (iii) Because there would be or are an insufficient number of 
potential or actual bidders to assure the procurement of services, 
articles, materials or supplies of requisite quality at competitive 
prices.
    (2) When a determination is made according to this paragraph (c), 
the head of the agency shall notify the Chairman of the Committee on 
Banking, Finance and Urban Affairs and the Chairman of the Committee on 
Governmental Affairs of the United States Senate; the Chairman of the 
Committee on Ways and Means and the Chairman of the Committee on 
Government Operations of the United States House of Representatives--
    (i) Not less than 30 days prior to the date of award of a contract 
or the date of authorization of the award of a class of contracts; or
    (ii) Not more than 90 days after the award of a contract or 
authorization where the agency's need for the service, article, material 
or supply is of such urgency that the United States would be seriously 
injured by a delay.
    (3) A copy of the notification required in paragraph (c)(2) of this 
section shall be sent to the United States Trade Representative.
[58 FR 31142, May 28, 1993, as amended at 60 FR 67517, Dec. 29, 1995]



25.1003  Contract clauses.

    Except as provided in 25.1002(b) and (c)--
    (a) Insert the clause at 52.225-18, European Union Sanctions for End 
Products, in solicitations and contracts for supplies with an estimated 
acquisition value less than $190,000.
    (b) Insert the clause at 52.225-19, European Union Sanction for 
Services, in solicitations and contracts for--
    (1) Services with an estimated acquisition value less than $190,000; 
and
    (2) All services listed in FAR 25.1002(a)(3)(ii).
[60 FR 67517, Dec. 29, 1995]



PART 26--OTHER SOCIOECONOMIC PROGRAMS--Table of Contents




                 Subpart 26.1--Indian Incentive Program

Sec.
26.100  Scope of subpart.
26.101  Definitions.
26.102  Policy.
26.103  Procedures.
26.104  Contract clause.

        Subpart 26.2--Disaster or Emergency Assistance Activities

26.200  Scope of subpart.
26.201  Policy.

Subpart 26.3--Historically Black Colleges and Universities and Minority 
                              Institutions

26.300  Scope of subpart.
26.301  Definitions.
26.302  General policy.
26.303  Data collection and reporting requirements.
26.304  Solicitation provision.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).


    Source: 56 FR 41737, Aug. 22, 1991, unless otherwise noted.

    Note: This part has been created to facilitate promulgation of 
additional FAR and agency level socioeconomic coverage which properly 
fall under FAR Subchapter D--Socioeconomic Programs, but neither 
implements nor supplements existing FAR Parts 19 or 22 through 25.



                 Subpart 26.1--Indian Incentive Program



26.100  Scope of subpart.

    This subpart implements 25 U.S.C. 1544, which provides an incentive 
to prime contractors that use Indian organizations and Indian-owned 
economic enterprises as subcontractors.



26.101  Definitions.

    As used in this subpart--
    Indian means any person who is a member of any Indian tribe, band, 
group, pueblo, or community which is recognized by the Federal 
Government as eligible for services from the Bureau of Indian Affairs 
(BIA) in accordance with 25 U.S.C. 1452(c) and any ``Native'' as defined 
in the Alaska Native Claims Settlement Act (43 U.S.C. 1601).

[[Page 529]]

    Indian organization means the governing body of any Indian tribe or 
entity established or recognized by the governing body of an Indian 
tribe for the purposes of 25 U.S.C., chapter 17.
    Indian-owned economic enterprise means any Indian-owned (as 
determined by the Secretary of the Interior) commercial, industrial, or 
business activity established or organized for the purpose of profit, 
provided that Indian ownership shall constitute not less than 51 percent 
of the enterprise.
    Indian tribe means any Indian tribe, band, group, pueblo, or 
community, including native villages and native groups (including 
corporations organized by Kenai, Juneau, Sitka, and Kodiak) as defined 
in the Alaska Native Claims Settlement Act, which is recognized by the 
Federal Government as eligible for services from BIA in accordance with 
25 U.S.C. 1452(c).
    Interested party means a prime contractor or an actual or 
prospective offeror whose direct economic interest would be affected by 
the award of a subcontract or by the failure to award a subcontract.
[56 FR 41737, Aug. 22, 1991, as amended at 61 FR 39210, July 26, 1996]



26.102  Policy.

    Indian organizations and Indian-owned economic enterprises shall 
have the maximum practicable opportunity to participate in performing 
contracts awarded by Federal agencies. In fulfilling this requirement, 
the Indian Incentive Program allows an incentive payment equal to 5 
percent of the amount paid to a subcontractor in performing the 
contract, if the contract so authorizes and the subcontractor is an 
Indian organization or Indian-owned economic enterprise.
[61 FR 39211, July 26, 1996]



26.103  Procedures.

    (a) Contracting officers and prime contractors, acting in good 
faith, may rely on the self-certification of an Indian organization or 
Indian-owned economic enterprise as to its eligibility, unless an 
interested party challenges its status or the contracting officer has 
independent reason to question that status.
    (b) In the event of a challenge to the self-certification of a 
subcontractor, the contracting officer shall refer the matter to the 
U.S. Department of the Interior, Bureau of Indian Affairs (BIA), Attn: 
Chief, Division of Contracting and Grants Administration, 1849 C Street, 
NW., MS-2626-MIB, Washington, DC 20240-4000. The BIA will determine the 
eligibility and notify the contracting officer.
    (c) The BIA will acknowledge receipt of the request from the 
contracting officer within 5 working days. Within 45 additional working 
days, BIA will advise the contracting officer, in writing, of its 
determination.
    (d) The contracting officer will notify the prime contractor upon 
receipt of a challenge.
    (1) To be considered timely, a challenge shall--
    (i) Be in writing;
    (ii) Identify the basis for the challenge;
    (iii) Provide detailed evidence supporting the claim; and
    (iv) Be filed with and received by the contracting officer prior to 
award of the subcontract in question.
    (2) If the notification of a challenge is received by the prime 
contractor prior to award, it shall withhold award of the subcontract 
pending the determination by BIA, unless the prime contractor 
determines, and the contracting officer agrees, that award must be made 
in order to permit timely performance of the prime contract.
    (3) Challenges received after award of the subcontract shall be 
referred to BIA, but the BIA determination shall have prospective 
application only.
    (e) If the BIA determination is not received within the prescribed 
time period, the contracting officer and the prime contractor may rely 
on the self-certification of the subcontractor.
    (f) Subject to the terms and conditions of the contract and the 
availability of funds, contracting officers shall authorize an incentive 
payment of 5 percent of the amount paid to the subcontractor. 
Contracting officers shall seek funding in accordance with agency 
procedures.
[56 FR 41737, Aug. 22, 1991, as amended at 57 FR 20377, May 12, 1992; 61 
FR 39211, July 26, 1996; 62 FR 40236, July 25, 1997]

[[Page 530]]



26.104  Contract clause.

    (a) Contracting officers in the Department of Defense shall insert 
the clause at 52.226-1, Utilization of Indian Organizations and Indian-
Owned Economic Enterprises, in solicitations and contracts that contain 
the clause at 52.219-9, Small, Small Disadvantaged and Women-Owned Small 
Business subcontracting Plan.
    (b) Contracting officers in civilian agencies may insert the clause 
at 52.226-1, Utilization of Indian Organizations and Indian-Owned 
Economic Enterprises, in solicitations and contracts if--
    (1) In the opinion of the contracting officer, subcontracting 
possibilities exist for Indian organizations or Indian-owned economic 
enterprises; and
    (2) Funds are available for any increased costs as described in 
paragraph (c)(2) of the clause at 52.226-1.
[56 FR 41737, Aug. 22, 1991, as amended at 60 FR 48264, Sept. 18, 1995; 
61 FR 39211, July 26, 1996]



        Subpart 26.2--Disaster or Emergency Assistance Activities

    Source: 61 FR 39200, July 26, 1996, unless otherwise noted.



26.200  Scope of subpart.

    This subpart implements 42 U.S.C. 5150, which provides a preference 
for local organizations, firms, and individuals when contracting for 
major disaster or emergency assistance activities (see 6.302-5).



26.201  Policy.

    (a) When contracting under this subpart for major disaster or 
emergency assistance activities, such as debris clearance, distribution 
of supplies, or reconstruction, preference shall be given, to the extent 
feasible and practicable, to those organizations, firms, or individuals 
residing or doing business primarily in the area affected by such major 
disaster or emergency.
    (b) The authority to provide preference under this subpart applies 
only to those acquisitions, including those which do not exceed the 
simplified acquisition threshold, conducted during the term of a major 
disaster or emergency declaration made by the President of the United 
States under the authority of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (42 U.S.C. 5121 et seq.).



Subpart 26.3--Historically Black Colleges and Universities and Minority 
                              Institutions

    Source: 62 FR 12703, Mar. 17, 1997, unless otherwise noted.



26.300  Scope of subpart.

    (a) This subpart implements Executive Order 12928 of September 16, 
1994, which promotes participation of Historically Black Colleges and 
Universities (HBCUs) and Minority Institutions (MIs) in Federal 
procurement.
    (b) This subpart does not pertain to contracts performed entirely 
outside the United States, its possessions, Puerto Rico, and the Trust 
Territory of the Pacific Islands.



26.301  Definitions.

    As used in this subpart--
    Historically Black College or University means an institution 
determined by the Secretary of Education to meet the requirements of 34 
CFR 608.2. For DoD, NASA, and the Coast Guard, the term also includes 
any nonprofit research institution that was an integral part of such a 
college or university before November 14, 1986.
    Minority Institution means an institution of higher education 
meeting the requirements of Section 1046(3) of the Higher Education Act 
of 1965 (20 U.S.C. 1135d-5(3)) which, for the purpose of this subpart, 
includes a Hispanic-serving institution of higher education as defined 
in Section 316(b)(1) of the Act (20 U.S.C. 1059c(b)(1)).



26.302  General policy.

    It is the policy of the Government to promote participation of HBCUs 
and MIs in Federal procurement.



26.303  Data collection and reporting requirements.

    Executive Order 12928 requires periodic reporting to the President 
on the progress of departments and agencies

[[Page 531]]

in complying with the laws and requirements mentioned in the Executive 
order.



26.304  Solicitation provision.

    The contracting officer shall insert the provision at 52.226-2, 
Historically Black College or University and Minority Institution 
Representation, in solicitations exceeding the micro-purchase threshold, 
for research, studies, supplies, or services of the type normally 
acquired from higher educational institutions.

[[Page 532]]



             SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS





PART 27--PATENTS, DATA, AND COPYRIGHTS--Table of Contents




Sec.
27.000  Scope of part.

                          Subpart 27.1--General

27.101  Applicability.
27.102  [Reserved]
27.103  Policy.
27.104  General guidance.

                          Subpart 27.2--Patents

27.200  Scope of subpart.
27.201  Authorization and consent.
27.201-1  General.
27.201-2  Clauses on authorization and consent.
27.202  Notice and assistance.
27.202-1  General.
27.202-2  Clause on notice and assistance.
27.203  Patent indemnification of Government by contractor.
27.203-1  General.
27.203-2  Clauses for sealed bid contracts (excluding construction).
27.203-3  Negotiated contracts (excluding construction).
27.203-4  Clauses for negotiated contracts (excluding construction).
27.203-5  Clause for construction contracts and for dismantling, 
          demolition, and removal of improvements contracts.
27.203-6  Clause for Government waiver of indemnity.
27.204  Reporting of royalties--anticipated or paid.
27.204-1  General.
27.204-2  Solicitation provision for royalty information.
27.204-3  Patents--notice of Government as a licensee.
27.205  Adjustment of royalties.
27.206  Refund of royalties.
27.206-1  General.
27.206-2  Clause for refund of royalties.
27.207  Classified contracts.
27.207-1  General.
27.207-2  Clause for classified contracts.
27.208  Use of patented technology under the North American Free Trade 
          Agreement.
27.209  Use of patented technology under the General Agreement on 
          Tariffs and Trade (GATT).

         Subpart 27.3--Patent Rights Under Government Contracts

27.300  Scope of subpart.
27.301  Definitions.
27.302  Policy.
27.303  Contract clauses.
27.304  Procedures.
27.304-1  General.
27.304-2  Contracts placed by or for other Government agencies.
27.304-3  Contracts for construction work or architect-engineer 
          services.
27.304-4  Subcontracts.
27.304-5  Appeals.
27.305  Administration of patent rights clauses.
27.305-1  Patent rights follow-up.
27.305-2  Follow-up by contractor.
27.305-3  Follow-up by Government.
27.305-4  Conveyance of invention rights acquired by the Government.
27.305-5  Publication or release of invention disclosures.
27.306  Licensing background patent rights to third parties.

               Subpart 27.4--Rights in Data and Copyrights

27.400  Scope of subpart.
27.401  Definitions.
27.402  Policy.
27.403  Data rights--general.
27.404  Basic rights in data clause.
27.405  Other data rights provisions.
27.406  Acquisition of data.
27.407  Rights to technical data in successful proposals.
27.408  Cosponsored research and development activities.
27.409  Solicitation provisions and contract clauses.

                        Subpart 27.5  [Reserved]

    Subpart 27.6--Foreign License and Technical Assistance Agreements

27.601  General.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 49 FR 12974, Mar. 30, 1984, unless otherwise noted.



27.000  Scope of part.

    This part prescribes policies, procedures, and contract clauses 
pertaining to patents and directs agencies to develop coverage for 
Rights in Data and Copyrights.

[[Page 533]]



                          Subpart 27.1--General



27.101  Applicability.

    The policies, procedures, and clauses prescribed by this part 27 are 
applicable to all agencies. Agencies are authorized to adopt alternate 
policies, procedures, and clauses, but only to the extent determined 
necessary to meet the specific requirements of laws, executive orders, 
treaties, or international agreements. Any agency action adopting such 
alternate policies, procedures, and clauses shall be covered in 
published agency regulations.



27.102  [Reserved]



27.103  Policy.

    The policies pertaining to patents, data, and copyrights are set 
forth in this part 27 and the related clauses in part 52.



27.104  General guidance.

    (a) The Government encourages the maximum practical commercial use 
of inventions made while performing Government contracts.
    (b) Generally, the Government will not refuse to award a contract on 
the grounds that the prospective contractor may infringe a patent.
    (c) Generally, the Government encourages the use of inventions in 
performing contracts and, by appropriate contract clauses, authorizes 
and consents to such use, even though the inventions may be covered by 
U.S. patents and indemnification against infringement may be 
appropriate.
    (d) Generally, the Government should be indemnified against 
infringement of U.S. patents resulting from performing contracts when 
the supplies or services acquired under the contracts normally are or 
have been sold or offered for sale by any supplier to the public in the 
commercial open market or are the same as such supplies or services with 
relatively minor modifications.
    (e) The Government acquires supplies or services on a competitive 
basis in accordance with part 6, but it is important that the efforts 
directed toward full and open competition not improperly demand or use 
data relating to private developments.
    (f) The Government honors the rights in data resulting from private 
developments and limits its demands for such rights to those essential 
for Government purposes.
    (g) The Government honors rights in patents, data, and copyrights, 
and complies with the stipulations of law in using or acquiring such 
rights.
    (h) Generally, the Government requires that contractors obtain 
permission from copyright owners before including privately-owned 
copyrighted works in data required to be delivered under Government 
contracts.
[49 FR 12974, Mar. 30, 1984, as amended at 50 FR 1743, Jan. 11, 1985; 50 
FR 52429, Dec. 23, 1985]



                          Subpart 27.2--Patents



27.200  Scope of subpart.

    This subpart prescribes policy with respect to--
    (a) Patent infringement liability resulting from work performed by 
or for the Government;
    (b) Royalties payable in connection with performing Government 
contracts; and
    (c) Security requirements covering patent applications containing 
classified subject matter filed by contractors.



27.201  Authorization and consent.



27.201-1  General.

    (a) In those cases where the Government has authorized or consented 
to the manufacture or use of an invention described in and covered by a 
patent of the United States, any suit for infringement of the patent 
based on the manufacture or use of the invention by or for the United 
States by a contractor (including a subcontractor at any tier) can be 
maintained only against the Government in the U.S. Claims Court and not 
against the contractor or subcontractor (28 U.S.C. 1498). To ensure that 
work by a contractor or subcontractor under a Government contract may 
not be enjoined by reason of patent infringement, the Government shall 
give authorization and consent in accordance with this regulation. The 
liability of the Government for damages in any such suit against it may,

[[Page 534]]

however, ultimately be borne by the contractor or subcontractor in 
accordance with the terms of any patent indemnity clause also included 
in the contract, and an authorization and consent clause does not 
detract from any patent indemnification commitment by the contractor or 
subcontractor. Therefore, both a patent indemnity clause and an 
authorization and consent clause may be included in the same contract.
    (b) The contracting officer shall not include in any solicitation or 
contract--
    (1) Any clause whereby the Government expressly agrees to indemnify 
the contractor against liability for patent infringement; or
    (2) Any authorization and consent clause when both complete 
performance and delivery are outside the United States, its possessions, 
and Puerto Rico.



27.201-2  Clauses on authorization and consent.

    (a) The contracting officer shall insert the clause at 52.227-1, 
Authorization and Consent, in solicitations and contracts (including 
those for construction; architect-engineer services; dismantling, 
demolition, or removal of improvements; and noncommon carrier 
communication services), except when using simplified acquisition 
procedures or both complete performance and delivery are outside the 
United States, its possessions, and Puerto Rico. Although the clause is 
not required when simplified acquisition procedures are used, it may be 
used with them.
    (b) The contracting officer shall insert the clause with its 
Alternate I in all R&D solicitations and contracts (including those for 
construction and architect-engineer services calling exclusively for R&D 
work or exclusively for experimental work), unless both complete 
performance and delivery are outside the United States, its possessions, 
and Puerto Rico. When a proposed contract involves both R&D work and 
supplies or services, and the R&D work is the primary purpose of the 
contract, the contracting officer shall use this alternate. In all other 
proposed contracts involving both R&D work and supplies or services, the 
contracting officer shall use the basic clause. Also, when a proposed 
contract involves either R&D or supplies and materials, in addition to 
construction or architect-engineer work, the contracting officer shall 
use the basic clause.
    (c) If the solicitation or contract is for communication services 
with a common carrier and the services are unregulated and not priced by 
a tariff schedule set by a regulatory body, the contracting officer 
shall use the clause with its Alternate II.
[49 FR 12974, Mar. 30, 1984, as amended at 60 FR 34758, July 3, 1995]



27.202  Notice and assistance.



27.202-1  General.

    The contractor is required to notify the contracting officer of all 
claims of infringement that come to the contractor's attention in 
connection with performing a Government contract. The contractor is also 
required, when requested, to assist the Government with any evidence and 
information in its possession in connection with any suit against the 
Government, or any claims against the Government made before suit has 
been instituted, on account of any alleged patent or copyright 
infringement arising out of or resulting from the contract performance.



27.202-2  Clause on notice and assistance.

    The contracting officer shall insert the clause at 52.227-2, Notice 
and Assistance Regarding Patent and Copyright Infringement, in supply, 
service, or research and development solicitations and contracts 
(including construction and architect-engineer contracts) which 
anticipate a contract value above the simplified acquisition threshold, 
except when complete performance and delivery are outside the United 
States, its possessions, and Puerto Rico, unless the contracts indicate 
that the supplies or other deliverables are ultimately to be shipped 
into one of those areas.
[60 FR 34758, July 3, 1995]

[[Page 535]]



27.203  Patent indemnification of Government by contractor.



27.203-1  General.

    (a) To the extent set forth in this section, the Government requires 
reimbursement for liability for patent infringement arising out of or 
resulting from performing construction contracts or contracts for 
supplies or services that normally are or have been sold or offered for 
sale by any supplier to the public in the commercial open market or that 
are the same as such supplies or services with relatively minor 
modifications. Appropriate clauses for indemnification of the Government 
are prescribed in the following subsections.
    (b) A patent indemnity clause shall not be used in the following 
situations:
    (1) When the clause at 52.227-1, Authorization and Consent, with its 
Alternate I, is included in the contract, except that in contracts 
calling also for supplies of the kind described in paragraph (a) above, 
a patent indemnity clause may be used solely with respect to such 
supplies.
    (2) When the contract is for supplies or services (or such items 
with relatively minor modifications) that clearly are not or have not 
been sold or offered for sale by any supplier to the public in the 
commercial open market. However, a patent indemnity clause may be 
included in (i) sealed bid contracts to obtain an indemnity regarding 
specific components, spare parts, or services so sold or offered for 
sale (see 27.203-2(b) below), and (ii) contracts to be awarded (either 
by sealed bid or negotiation) if a patent owner contends that the 
acquisition would result in patent infringement and the prospective 
contractor, after responding to a solicitation that did not contain an 
indemnity clause, is willing to indemnify the Government against such 
infringement either (A) without increase in price on the basis that the 
patent is invalid or not infringed, or (B) for other good reasons.
    (3) When both performance and delivery are to be outside the United 
States, its possessions, and Puerto Rico, unless the contract indicates 
that the supplies or other deliverables are ultimately to be shipped 
into one of those areas.
    (4) When the contract is awarded using simplified acquisition 
procedures.
    (5) When the contract is solely for architect-engineer work (see 
part 36).
[49 FR 12974, Mar. 30, 1984, as amended at 50 FR 1743, Jan. 11, 1985; 50 
FR 52429, Dec. 23, 1985; 60 FR 34759, July 3, 1995]



27.203-2  Clauses for sealed bid contracts (excluding construction).

    (a) Except when prohibited by 27.203-1(b) above, the contracting 
officer shall insert the clause at 52.227-3, Patent Indemnity, in sealed 
bid contracts for supplies or services (excluding construction and 
dismantling, demolition, and removal of improvements), if the 
contracting officer determines that the supplies or services (or such 
items with relatively minor modifications) normally are or have been 
sold or offered for sale by any supplier to the public in the commercial 
open market. Also the clause may be included as authorized in 27.203-
1(b)(2)(i).
    (b) In solicitations and contracts (excluding those for 
construction) that call in part for specific components, spare parts, or 
services (or such items with relatively minor modifications) that 
normally are or have been sold or offered for sale by any supplier to 
the public in the commercial open market, the contracting officer may 
use the clause with its Alternate I or II, as appropriate. The choice 
between Alternate I (identification of excluded items) and Alternate II 
(identification of included items) should be based upon simplicity, 
Government administrative convenience and ease of identification of the 
items.
    (c) In solicitations and contracts for communication services and 
facilities where performance is by a common carrier, and the services 
are unregulated and are not priced by a tariff schedule set by a 
regulatory body, use the basic clause with its Alternate III.
[49 FR 12974, Mar. 30, 1984, as amended at 50 FR 1743, Jan. 11, 1985; 50 
FR 52429, Dec. 23, 1985]



27.203-3  Negotiated contracts (excluding construction).

    A patent indemnity clause is not required in negotiated contracts, 
(except construction contracts covered at

[[Page 536]]

27.203-5), but may be used as discussed in 27.203-4 below. A decision to 
omit a patent indemnity clause in a negotiated fixed-price contract 
described in this subsection should be based on a price consideration to 
the Government for forgoing the indemnification rights normally received 
by commercial purchasers of the same supplies or services.
[49 FR 12974, Mar. 30, 1984, as amended at 51 FR 2665, Jan. 17, 1986]



27.203-4  Clauses for negotiated contracts (excluding construction).

    (a) The contracting officer may insert the clause at 52.227-3, 
Patent Indemnity--
    (1) As authorized in 27.203-1(b)(2)(ii); and
    (2) Except as prohibited by 27.203-1(b), in solicitations 
anticipating negotiated contracts (and such contracts) for supplies or 
services (excluding construction and dismantling, demolition, and 
removal of improvements), if the contracting officer determines that the 
supplies or services (or such items with relatively minor modifications) 
normally are or have been sold or offered for sale by any supplier to 
the public in the commercial open market. Ordinarily, the contracting 
officer, in consultation with the prospective contractor, should be able 
to determine whether the supplies or services being purchased normally 
are or have been sold or offered for sale by any supplier to the public 
in the commercial open market. (For negotiated construction contracts, 
see 27.203-5).
    (b) In solicitations and contracts that call in part for specific 
components, spare parts, or services (or such items with relatively 
minor modifications) that normally are or have been sold or offered for 
sale by any supplier to the public in the commercial open market, the 
contracting officer may use the clause with its Alternate I or II, as 
appropriate. The choice between Alternate I (identification of excluded 
items) and Alternate II (identification of included items) should be 
based upon simplicity, Government administrative convenience, and the 
ease of identification of the items.
    (c) In solicitations and contracts for communication services and 
facilities where performance is by a common carrier, and the services 
are unregulated and are not priced by a tariff schedule set by a 
regulatory body, the clause shall be used with its Alternate III.



27.203-5  Clause for construction contracts and for dismantling, demolition, and removal of improvements contracts.

    Except as prohibited by 27.203-1(b), the contracting officer shall 
insert the clause at 52.227-4, Patent Indemnity--Construction Contracts, 
in solicitations and contracts for construction or that are fixed-price 
for dismantling, demolition, or removal of improvements. If it is 
determined that the construction will necessarily involve the use of 
structures, products, materials, equipment, processes, or methods that 
are nonstandard, noncommercial, or special, the contracting officer may 
expressly exclude them from the patent indemnification by using the 
basic clause with its Alternate I.



27.203-6  Clause for Government waiver of indemnity.

    If, in the Government's interest, it is appropriate to exempt one or 
more specific United States patents from the patent indemnity clause, 
the contracting officer shall obtain written approval from the agency 
head or designee and shall insert the clause at 52.227-5, Waiver of 
Indemnity, in solicitations and contracts in addition to the appropriate 
patent indemnity clause. The contracting officer shall document the 
contract file with a copy of the written approval.



27.204  Reporting of royalties--anticipated or paid.



27.204-1  General.

    (a) (1) To determine whether royalties anticipated or actually paid 
under Government contracts are excessive, improper, or inconsistent with 
any Government rights in particular inventions, patents, or patent 
applications, contracting officers shall require prospective contractors 
to furnish certain royalty information and shall require contractors to 
furnish certain royalty reports. Contracting officers shall take

[[Page 537]]

appropriate action to reduce or eliminate excessive or improper 
royalties.
    (2) Royalty information shall not be required (except for 
information under 27.204-3) in sealed bid contracts unless the need for 
such information is approved at a level above that of the contracting 
officer as being necessary for proper protection of the Government's 
interests.
    (b) Any solicitations that may result in a negotiated contract for 
which royalty information is desired or for which cost or pricing data 
is obtained (see 15.403) should contain a provision requesting 
information relating to any proposed charge for royalties. If the 
response to a solicitation includes a charge for royalties, the 
contracting officer shall, before award of the contract, forward the 
information relating to the proposed payments of royalties to the office 
having cognizance of patent matters for the contracting activity 
concerned. The cognizant office shall promptly advise the contracting 
officer of appropriate action. Before award, the contracting officer 
shall take action to protect the Government's interest with respect to 
such royalties, giving due regard to all pertinent factors relating to 
the proposed contract and the advice of the cognizant office.
    (c) The contracting officer, when considering the approval of a 
subcontract, shall require and obtain the same royalty information and 
take the same action with respect to such subcontracts in relation to 
royalties as required for prime contracts under paragraph (b) of this 
subsection. However, consent need not be withheld pending receipt of 
advice in regard to such royalties from the office having cognizance of 
patent matters.
    (d) The contracting officer shall forward the royalty information 
and/or royalty reports received to the office having cognizance of 
patent matters for the contracting activity concerned for advice as to 
appropriate action.
[49 FR 12974, Mar. 30, 1984, as amended at 52 FR 19803, May 27, 1987; 56 
FR 15152, Apr. 15, 1991; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
27.204-1, in paragraph (b), ``FAR 15.804'' was amended to read 
``15.403'', effective Oct. 10, 1997.



27.204-2  Solicitation provision for royalty information.

    The contracting officer shall insert a solicitation provision 
substantially as shown in 52.227-6, Royalty Information, in any 
solicitation that may result in a negotiated contract for which royalty 
information is desired or for which cost or pricing data is obtained 
under 15.403. If the solicitation is for communication services and 
facilities by a common carrier, use the provision with its Alternate I.
[49 FR 12974, Mar. 30, 1984, as amended at 56 FR 15153, Apr. 15, 1991; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
27.204-2, ``15.804'' was amended to read ``15.403'', effective Oct. 10, 
1997.



27.204-3  Patents--notice of Government as a licensee.

    (a) When the Government is obligated to pay a royalty on a patent 
because of a license agreement between the Government and a patent owner 
and the contracting officer knows (or has reason to believe) that the 
licensed patent will be applicable to a prospective contract, the 
Government should furnish information relating to the royalty to 
prospective offerors since it serves the interest of both the Government 
and the offerors. In such situations, the contracting officer should 
include in the solicitation a notice of the license, the number of the 
patent, and the royalty rate recited in the license.
    (b) When the Government is obligated to pay such a royalty, the 
solicitation should also require offerors to furnish information 
indicating whether or not each offeror is a licensee under the patent or 
the patent owner. This information is necessary so that the Government 
may either (1) evaluate an offeror's price by adding an amount equal to 
the royalty, or (2) negotiate a price reduction with an offeror-licensee 
when the offeror is licensed under the same patent at a lower royalty 
rate.
    (c) If the Government is obligated to pay a royalty on a patent 
involved in the prospective contract, the contracting officer shall 
insert in the solicitation, substantially as shown, the provision at 
52.227-7, Patents--Notice of Government Licensee.

[[Page 538]]



27.205  Adjustment of royalties.

    (a) If at any time the contracting officer has reason to believe 
that any royalties paid, or to be paid, under an existing or prospective 
contract or subcontract are inconsistent with Government rights, 
excessive, or otherwise improper, the facts shall be promptly reported 
to the office having cognizance of patent matters for the contracting 
activity concerned. The cognizant office shall review the royalties thus 
reported and such royalties as are reported under 27.204 and 27.206 and, 
in accordance with agency procedures, shall either recommend appropriate 
action to the contracting officer or, if authorized, shall take 
appropriate action.
    (b) In coordination with the cognizant office, the contracting 
officer shall promptly act to protect the Government against payment of 
royalties on supplies or services--
    (1) With respect to which the Government has a royalty-free license;
    (2) At a rate in excess of the rate at which the Government is 
licensed; or
    (3) When the royalties in whole or in part otherwise constitute an 
improper charge.
    (c) In appropriate cases, the contracting officer in coordination 
with the cognizant office shall obtain a refund pursuant to any refund 
of royalties clause in the contract (see 27.206) or negotiate for a 
reduction of royalties.
    (d) For guidance in evaluating information furnished pursuant to 
27.204 and 27.205(a) above, see 31.205-37 and 31.311-34. See also 31.109 
regarding advance understandings on particular cost items, including 
royalties.



27.206  Refund of royalties.



27.206-1  General.

    When a fixed-price contract is negotiated under circumstances that 
make it questionable whether or not substantial amounts of royalties 
will have to be paid by the contractor or a subcontractor, such 
royalties may be included in the target or contract price, provided the 
contract specifies that the Government will be reimbursed the amount of 
such royalties if they are not paid. Such circumstances might include, 
for example, either a pending Government anti-trust action or 
prospective litigation on the validity of a patent or patents or on the 
enforceability of an agreement (upon which the contractor or 
subcontractor bases the asserted obligation) to pay the royalties to be 
included in the target or contract price.



27.206-2  Clause for refund of royalties.

    The contracting officer shall insert the clause at 52.227-9, Refund 
of Royalties, in negotiated fixed-price contracts and solicitations 
contemplating such contracts if the contracting officer determines that 
circumstances make it questionable whether or not substantial amounts of 
royalties will have to be paid by the contractor or a subcontractor at 
any tier.



27.207  Classified contracts.



27.207-1  General.

    (a) Unauthorized disclosure of classified subject matter, whether in 
patent applications or resulting from the issuance of a patent, may be a 
violation of 18 U.S.C. 792 et seq. (Espionage and Censorship), and 
related statutes, and may be contrary to the interests of national 
security.
    (b) Upon receipt from the contractor of a patent application, not 
yet filed, that has been submitted by the contractor in compliance with 
paragraph (a) or (b) of the clause at 52.227-10, Filing of Patent 
Applications--Classified Subject Matter, the contracting officer shall 
ascertain the proper security classification of the patent application. 
Upon a determination that the application contains classified subject 
matter, the contracting officer shall inform the contractor of any 
instructions deemed necessary or advisable relating to transmittal of 
the application to the United States Patent Office in accordance with 
procedures in the National Industrial Security Program Operating Manual. 
If the material is classified Secret or higher, the contracting officer 
shall make every effort to notify the contractor of the determination 
within 30 days, pursuant to paragraph (a) of the clause.
    (c) In the case of all applications filed under the provisions of 
this section 27.207, the contracting officer, upon receiving the 
application serial

[[Page 539]]

number, the filing date, and the information furnished by the contractor 
under paragraph (d) of the clause at 52.227-10, Filing of Patent 
Applications--Classified Subject Matter, shall promptly submit that 
information to personnel having cognizance of patent matters in order 
that the steps necessary to ensure the security of the application may 
be taken.
    (d) A request for the approval referred to in paragraph (c) of the 
clause at 52.227-10, Filing of Patent Applications--Classified Subject 
Matter, must be considered and acted upon promptly by the contracting 
officer in order to avoid the loss of valuable patent rights of the 
Government or the contractor.
[49 FR 12974, Mar. 30, 1984, as amended at 61 FR 31617, June 20, 1996]



27.207-2  Clause for classified contracts.

    The contracting officer shall insert the clause at 52.227-10, Filing 
of Patent Applications--Classified Subject Matter, in all classified 
solicitations and contracts and in all solicitations and contracts where 
the nature of the work or classified subject matter involved in the work 
reasonably might be expected to result in a patent application 
containing classified subject matter.



27.208  Use of patented technology under the North American Free Trade Agreement.

    (a) The requirements of this section apply to the use of technology 
covered by a valid patent when the patent holder is from a country that 
is a party to the North American Free Trade Agreement (NAFTA).
    (b) Article 1709(10) of NAFTA generally requires a user of 
technology covered by a valid patent to make a reasonable effort to 
obtain authorization prior to use of the patented technology. However, 
NAFTA provides that this requirement for authorization may be waived in 
situations of national emergency or other circumstances of extreme 
urgency, or public noncommercial use.
    (c) Section 6 of Executive Order 12889 of December 27, 1993, waives 
the requirement to obtain advance authorization for--
    (1) An invention used or manufactured by or for the Federal 
Government, except that the patent owner must be notified whenever the 
agency or its contractor, without making a patent search, knows or has 
demonstrable reasonable grounds to know that an invention described in 
and covered by a valid U.S. patent is or will be used or manufactured 
without a license; and
    (2) The existence of a national emergency or other circumstances of 
extreme urgency, except that the patent owner must be notified as soon 
as it is reasonably practicable to do so.
    (d) Section 6(c) of Executive Order 12889 provides that the notice 
to the patent owner does not constitute an admission of infringement of 
a valid privately owned patent.
    (e) When addressing issues regarding compensation for the use of 
patented technology, Government personnel should be advised that NAFTA 
uses the term ``adequate remuneration.'' Executive Order 12889 equates 
``remuneration'' to ``reasonable and entire compensation'' as used in 28 
U.S.C. 1498, the statute which gives jurisdiction to the U.S. Court of 
Federal Claims to hear patent and copyright cases involving infringement 
by the U.S. Government.
    (f) Depending on agency procedures, either the technical/requiring 
activity or the contracting officer shall ensure compliance with the 
notice requirements of NAFTA Article 1709(10). A contract award should 
not be suspended pending notification to the right holder.
    (g) When questions arise regarding the notice requirements or other 
matters relating to this section, the contracting officer should consult 
with legal counsel.
[61 FR 31648, June 20, 1996]



27.209  Use of patented technology under the General Agreement on Tariffs and Trade (GATT).

    (a) Article 31 of Annex 1C, Agreement on Trade-Related Aspects of 
Intellectual Property Rights, to GATT (Uruguay Round) addresses 
situations where the law of a member country allows for use of a patent 
without authorization from the patent holder, including use by the 
Government.

[[Page 540]]

    (b) The contracting officer should consult with legal counsel 
regarding questions under this section.
[61 FR 39212, July 26, 1996]



         Subpart 27.3--Patent Rights Under Government Contracts



27.300  Scope of subpart.

    This subpart prescribes policies, procedures, and contract clauses 
with respect to inventions made in the performance of work under a 
Government contract or subcontract thereunder if a purpose of the 
contract or subcontract is the conduct of experimental, developmental, 
or research work, except to the extent statutory requirements 
necessitate different agency policies, procedures, and clauses as 
specified in agency supplemental regulations.



27.301  Definitions.

    Invention, as used in this subpart, means any invention or discovery 
that is or may be patentable or otherwise protectable under title 35 of 
the U.S. Code or any novel variety of plant that is or may be 
protectable under the Plant Variety Protection Act (7 U.S.C. 2321, et 
seq.).
    Made, as used in this subpart, when used in relation to any 
invention, means the conception or first actual reduction to practice of 
such invention.
    Nonprofit organization, as used in this subpart, means a domestic 
university or other institution of higher education or an organization 
of the type described in section 501(c)(3) of the Internal Revenue Code 
of 1954 (26 U.S.C. 501(c)) and exempt from taxation under section 501(a) 
of the Internal Revenue Code (26 U.S.C. 501(a)), or any nonprofit 
scientific or educational organization qualified under a State nonprofit 
organization statute.
    Practical application, as used in this subpart, means to 
manufacture, in the case of a composition or product; to practice, in 
the case of a process or method; or to operate, in the case of a machine 
or system; and, in each case, under such conditions as to establish that 
the invention is being utilized and that its benefits are, to the extent 
permitted by law or Government regulations, available to the public on 
reasonable terms.
    Small business firm, as used in this subpart, means a small business 
concern as defined at 15 U.S.C. 632 and implementing regulations of the 
Administrator of the Small Business Administration. (For the purpose of 
this definition, the size standard contained in 13 CFR 121.3-8 for small 
business contractors and in 13 CFR 121.3-12 for small business 
subcontractors will be used. See FAR part 19).
    Subject invention, as used in this subpart, means any invention of 
the contractor conceived or first actually reduced to practice in the 
performance of work under a Government contract; provided, that in the 
case of a variety of plant, the date of determination defined in section 
41(d) of the Plant Variety Protection Act, 7 U.S.C. 2401(d), must also 
occur during the period of contract performance.
[49 FR 12974, Mar. 30, 1984, as amended at 54 FR 25063, June 12, 1989 
and 55 FR 25525, June 21, 1990]



27.302  Policy.

    (a) Introduction. The policy of this section is based on Chapter 18 
of title 35, U.S.C. (Pub. L. 95-517, Pub. L. 98-620, 37 CFR part 401), 
the Presidential Memorandum on Government Patent Policy to the Heads of 
Executive Departments and Agencies dated February 18, 1983, and 
Executive Order 12591, which provides that, to the extent permitted by 
law, the head of each Executive Department and agency shall promote the 
commercialization, in accord with the Presidential Memorandum, of 
patentable results of federally funded research by granting to all 
contractors, regardless of size, the title to patents made in whole or 
in part with Federal funds, in exchange for royalty-free use by or on 
behalf of the Government. The objectives of this policy are to use the 
patent system to promote the utilization of inventions arising from 
federally supported research or development; to encourage maximum 
participation of industry in federally supported research and 
development efforts; to ensure that these inventions are used in a 
manner to promote free competition and enterprise; to promote the 
commercialization and

[[Page 541]]

public availability of the inventions made in the United States by 
United States industry and labor; to ensure that the Government obtains 
sufficient rights in federally supported inventions to meet the needs of 
the Government and protect the public against nonuse or unreasonable use 
of inventions; and, to minimize the costs of administering policies in 
this area.
    (b) Contractor right to elect title. Under the policy set forth in 
paragraph (a) of this section, each contractor may, after disclosure to 
the Government as required by the patent rights clause included in the 
contract, elect to retain title to any invention made in the performance 
of work under the contract. To the extent an agency's statutory 
requirements necessitate a different policy, or different procedures 
and/or contract clauses to effectuate the policy set forth in paragraph 
(a) of this section, such policy, procedures, and clauses shall be 
contained in or expressly referred to in that agency's supplement to 
this subpart. In addition, a contract may provide otherwise (1) when the 
contractor is not located in the United States or does not have a place 
of business located in the United States or is subject to the control of 
a foreign-government (see 27.303(c)), (2) in exceptional circumstances 
when it is determined by the agency that restriction or elimination of 
the right to retain title in any subject invention will better promote 
the policy and objectives of Chapter 18 of title 35, U.S.C. and the 
Presidential Memorandum, (3) when it is determined by a Government 
authority which is authorized by statute or Executive order to conduct 
foreign intelligence or counterintelligence activities that the 
restriction or elimination of the right to retain title to any subject 
invention is necessary to protect the security of such activities, or 
(4) when the contract includes the operation of a Government-owned, 
contractor-operated facility of the Department of Energy primarily 
dedicated to the Department's naval nuclear propulsion or weapons 
related programs and all funding agreement limitations under 35 U.S.C. 
202(a)(iv) for agreements with small business firms and nonprofit 
organizations are limited to inventions occurring under the above two 
programs.
    In the case of small business firms and nonprofit organizations, 
when an agency justifies and exercises the exception at subparagraph 
(b)(2) of this section on the basis of national security, the contract 
shall provide the contractor with the right to elect ownership to any 
invention made under such contract as provided by the clause at 52.227-
11, Patent Rights--Retention by the Contractor (Short Form), if the 
invention is not classified by the agency within 6 months of the date it 
is reported to the agency, or within the same time period the Department 
of Energy (DOE) does not, as authorized by regulation, law or Executive 
order or implementing regulations thereto, prohibit unauthorized 
dissemination of the invention. Contracts in support of DOE's naval 
nuclear propulsion program are exempted from this paragraph. When a 
contract involves a series of separate task orders, an agency may apply 
the exceptions at subparagraph (b) (2) or (3) of this section to 
individual task orders, and it may structure the contract so that 
modified patent rights clauses will apply to the task order even though 
the clause at 52.227-11 is applicable to the remainder of the work. In 
those instances when the Government has the right to acquire title at 
the time of contracting, the contractor may, nevertheless, request 
greater rights to an identified investion (see 27.304-1(a)). The right 
of the contractor to retain title shall, in any event, be subject to the 
provisions of paragraphs (c) through (g) of this section.
    (c) Government license. The Government shall have at least a 
nonexclusive, nontransferable, irrevocable, paid-up license to practice, 
or have practiced for or on behalf of the United States, any subject 
invention throughout the world; and may, if provided in the contract 
(see Alernative I of the applicable patent rights clause), have 
additional rights to sublicense any foreign government or international 
organization pursuant to existing treaties or agreements identified in 
the contract, or to otherwise effectuate such treaties or agreements. In 
the case of long term contracts, the contract may

[[Page 542]]

also provide (see Alternate II) such rights with respect to treaties or 
agreements to be entered into by the Government after the award of the 
contract.
    (d) Government right to receive title. (1) The Government has the 
right to receive title to any invention if the contract so provides 
pursuant to a determination made in accordance with subparagraph (b) 
(1), (2), (3), or (4) of this section. In addition, to the extent 
provided in the patent rights clause, the Government has the right to 
receive title to an invention--
    (i) If the contractor has not disclosed the invention within the 
time specified in the clause;
    (ii) In any country where the contractor does not elect to retain 
rights or fails to elect to retain rights to the invention within the 
time specified in the clause;
    (iii) In any country where the contractor has not filed a patent 
application within the time specified in the clause;
    (iv) In any country where the contractor decides not to continue 
prosecution of a patent application, pay maintenance fees, or defend in 
a reexamination or opposition proceeding on the patent; and/or
    (v) In any country where the contractor no longer desires to retain 
title.
    (2) For the purposes of this paragraph, election or filing in a 
European Patent Office Region or under the Patent Cooperation Treaty 
constitutes election or filing in any country covered therein to meet 
the times specified in the clause, provided that the Government has the 
right to receive title in those countries not subsequently designated by 
the contractor.
    (e) Utilization reports. The Government shall have the right to 
require periodic reporting on the utilization or efforts at obtaining 
utilization that are being made by the contractor or its licensees or 
assignees. Such reporting by small business firms and nonprofit 
organizations may be required in accordance with instructions as may be 
issued by the Department of Commerce. Agencies should protect the 
confidentiality or utilization reports which are marked with 
restrictions to the extent permitted by 35 U.S.C. 205 or other 
applicable laws and 37 CFR part 401. Agencies shall not disclose such 
utilization reports to persons outside the Government without permission 
of the contractor. Contractors will continue to provide confidential 
markings to help prevent inadvertent release outside the agency.
    (f) March-in rights. (1) With respect to any subject invention in 
which a contractor has acquired title, contracts provide that the agency 
shall have the right (unless provided otherwise in accordance with 
27.304-1(f)) to require the contractor, an assignee, or exclusive 
licensee of a subject invention to grant a nonexclusive, partially 
exclusive, or exclusive license in any field of use to a responsible 
applicant or applicants, upon terms that are reasonable under the 
circumstances, and if the contractor, assignee, or exclusive licensee 
refuses such request, to grant such a license itself, if the agency 
determines that such action is necessary--
    (i) Because the contractor or assignee has not taken, or is not 
expected to take within a reasonable time, effective steps to achieve 
practical application of the subject invention in such field of use;
    (ii) To alleviate health or safety needs which are not reasonably 
satisfied by the contractor, assignee, or their licensees;
    (iii) To meet requirements for public use specified by Federal 
regulations and such requirements are not reasonably satisfied by the 
contractor, assignee, or licensees; or
    (iv) Because the agreement required by paragraph (g) below has 
neither been obtained nor waived, or because a licensee of the exclusive 
right to use or sell any subject invention in the United States is in 
breach of its agreement obtained pursuant to paragraph (g) below.
    (2) This right of the agency shall be exercised only after the 
contractor has been provided a reasonable time to present facts and show 
cause why the proposed agency action should not be taken, and afforded 
an opportunity to take appropriate action if the contractor wishes to 
dispute or appeal the proposed action, in accordance with 27.304-1(g).

[[Page 543]]

    (g) Preference for United States industry. Unless provided otherwise 
in accordance with 27.304-1(f), contracts provide that no contractor 
which receives title to any subject invention and no assignee of any 
such contractor shall grant to any person the exclusive right to use or 
sell any subject invention in the United States unless such person 
agrees that any products embodying the subject invention or produced 
through the use of the subject invention will be manufactured 
substantially in the United States. However, in individual cases, the 
requirement for such an agreement may be waived by the agency upon a 
showing by the contractor or assignee that reasonable but unsuccessful 
efforts have been made to grant licenses on similar terms to potential 
licensees that would be likely to manufacture substantially in the 
United States or that under the circumstances domestic manufacture is 
not commercially feasible.
    (h) Small business preference. (1) Nonprofit organization 
contractors are expected to use efforts that are reasonable under the 
circumstances to attract small business licensees. They are also 
expected to give small business firms that meet the standard outlined in 
the clause at 52.227-11, Patent Rights--Retention by the Contractor 
(Short Form), a preference over other applicants for licenses. What 
constitutes reasonable efforts to attract small business licensees will 
vary with the circumstances and the nature, duration, and expense of 
efforts needed to bring the invention to the market. Subparagraph (k)(4) 
of the clause is not intended, for example, to prevent nonprofit 
organizations from providing larger firms with a right of first refusal 
or other options in inventions that relate to research being supported 
under long-term or other arrangements with larger companies. Under such 
circumstances, it would not be reasonable to seek and to give a 
preference to small business licensees.
    (2) Small business firms that believe a nonprofit organzations is 
not meeting its obligations under the clause may report their concerns 
to the Secretary of Commerce. To the extent deemed appropriate, the 
Secretary of Commerce will undertake informal investigation of the 
concern, and, if appropriate, enter into discussions or negotiations 
with the nonprofit organization to the end of improving its efforts in 
meeting its obligations under the clause. However, in no event will the 
Secretary of Commerce intervene in ongoing negotiations or contractor 
decisions concerning the licensing of a specific subject invention. All 
the above investigations, discussions, and negotiations of the Secretary 
of Commerce will be in coordinations with other interested agencies, 
including the Small Business Administration; and in the case of a 
contract for the operation of a Government-owned, contractor-operated 
research or production facility, the Secretary of Commerce will 
coordinate with the agency responsible for the facility prior to any 
discussions or negotiations with the contractor.
    (i) Minimum rights to contractor. (1) When the Government acquires 
title to a subject invention, the contractor is normally granted a 
revocable, nonexclusive, royalty-free license to that invention 
throughout the world. The contractor's license extends to its domestic 
subsidiaries and affiliates, if any, within the corporate structure of 
which the contractor is a part and includes the right to grant 
sublicenses of the same scope to the extent the contractor was legally 
obligated to do so at the time the contract was awarded. The license is 
transferable only with the approval of the contracting officer except 
when transferred to the successor of that part of the contractor's 
business to which the invention pertains.
    (2) The contractor's domestic license may be revoked or modified to 
the extent necessary to achieve expeditious practical application of the 
subject invention pursuant to an application for an exclusive license 
submitted in accordance with the applicable provisions in the Federal 
Property Management Regulations and agency licensing regulations. This 
license will not be revoked in that field of use or the geographical 
areas in which the contractor has achieved practical application and 
continues to make the benefits of the invention reasonably accessible to 
the

[[Page 544]]

public. The license in any foreign country may be revoked or modified to 
the extent the contractor, its licensees, or its domestic subsidiaries 
or affiliates have failed to achieve practical application in that 
country. See the procedures at 27.304-1(e).
    (j) Confidentiality of inventions. The publication of information 
disclosing an invention by any party before the filing of a patent 
application may create a bar to a valid patent. Accordingly, 35 U.S.C. 
205 and 37 CFR part 40 provide that Federal agencies are authorized to 
withhold from disclosure to the public information disclosing any 
invention in which the Federal Government owns or may own a right, 
title, or interest (including a nonexclusive license) for a reasonable 
time in order for a patent application to be filed. Furthermore, Federal 
agencies shall not be required to release copies of any document which 
is part of an application for patent filed with the United States Patent 
and Trademark Office or with any foreign patent office. The Presidential 
Memorandum on Government Patent Policy specifies that agencies should 
protect the confidentiality of invention disclosures and patent 
applications required in performance or in consequence of awards to the 
extent permitted by 35 U.S.C. 205 or other applicable laws.
[49 FR 12974, Mar. 30, 1984, as amended at 50 FR 1743, Jan. 11, 1985; 50 
FR 52429, Dec. 23, 1985; 51 FR 2665, Jan. 17, 1986; 54 FR 25063, June 
12, 1989 and 55 FR 25525, June 21, 1990; 62 FR 40237, July 25, 1997]



27.303  Contract clauses.

    In contracts (and solicitations therefor) for experimental, 
developmental, or research work (but see 27.304-3 regarding contracts 
for construction work or architect-engineer services), a patent rights 
clause shall be inserted as follows:
    (a) (1) The contracting officer shall insert the clause at 52.227-
11, Patent Rights--Retention by the Contractor (Short Form), if all the 
following conditions apply:
    (i) The contractor is a small business concern or nonprofit 
organization as defined in 27.301 or, except for contracts of the 
Department of Defense (DOD), the Department of Energy (DOE), or the 
National Aeronautics and Space Administration (NASA), any other type of 
contractor.
    (ii) No alternative patent rights clause is used in accordance with 
paragraph (c) or (d) of this section or 27.304-2.
    (2) To the extent the information is not required elsewhere in the 
contract, and unless otherwise specified by agency supplemental 
regulations, the contracting officer may modify 52.227-11(f) to require 
the contractor to do one or more of the following:
    (i) Provide periodic (but not more frequently than annually) 
listings of all subject inventions required to be disclosed during the 
period covered by the report.
    (ii) Provide a report prior to the closeout of the contract listing 
all subject inventions or stating that there were none.
    (iii) Provide, upon request, the filing date, serial number and 
title, a copy of the patent application, and patent number and issue 
date for any subject invention in any country in which the contractor 
has applied for patents.
    (iv) Furnish the Government an irrevocable power to inspect and make 
copies of the patent application file when a Federal Government employee 
is a coinventor.
    (3) If the acquisition of patent rights for the benefit of a foreign 
government is required under a treaty or executive agreement, or if the 
agency head or a designee determines at the time of contracting that it 
would be in the national interest to acquire the right to sublicense 
foreign governments or international organizations pursuant to any 
existing or future treaty or agreement, the contracting officer shall 
use the clause at 52.227-11, with its Alternate I. If other rights are 
necessary to effectuate the treaty or agreement, Alternate I may be 
appropriately modified. In long term contracts, Alternate II shall be 
added if necessary to effectuate treaties or agreements to be entered 
into.
    (4) If the contracting officer includes the clause at 52.227-11, 
Patent Rights--Retention by the Contractor (Short Form), in a contract 
with a nonprofit organization for the operation of a

[[Page 545]]

Government-owned facility, the contracting officer will include 
Alternate III in lieu of subparagraph (k)(3) of the clause.
    (5) If the contract is for the operation of a Government-owned 
facility, the contracting officer may include Alternate IV with the 
clause at 52.227-11.
    (b) (1) The contracting officer shall insert the clause at 52.227-
12, Patent Rights--Retention by the Contractor (Long Form), if all the 
following conditions apply:
    (i) The contractor is other than a small business firm or nonprofit 
organization.
    (ii) No alternative clause is used in accordance with paragraph (c) 
or (d) of this section or 237.304-2.
    (iii) The contracting agency is one of those excepted under 
subdivision (a)(1)(i) of this section.
    (2) If the acquisition of patent rights for the benefit of a foreign 
government is required under a treaty or executive agreement or if the 
agency head or a designee determines at the time of contracting that it 
would be in the national interest to acquire the right to sublicense 
foreign governments or international organizations pursuant to any 
existing or future treaty or agreement, the contracting officer shall 
use the clause at 52.227-12, with its Alternate I. If other rights are 
necessary to effectuate the treaty or agreement, Alternate I may be 
appropriately modified. In long term contracts, Alternate II shall be 
added if necessary to effectuate treaties or agreements to be entered 
into.
    (c) (1) The contracting officer shall insert the clause at 52.227-
13, Patent Rights--Acquisition by the Government, if any of the 
following conditions apply:
    (i) No alternative clause is used in accordance with subparagraphs 
(c) (2) and (4) or paragraph (d) of this section or 27.304-2.
    (ii) The work is to be performed outside the United States, its 
possessions, and Puerto Rico by contractors that are not small business 
firms, nonprofit organizations as defined in 27.301, or domestic firms. 
For purposes of this subparagraph, the contracting officer may presume 
that a contractor is not a domestic firm unless it is known that the 
firm is not foreign owned, controlled, or influenced. (See 27.304-4(a) 
regarding subcontracts with U.S. firms.)
    (2) Pursuant to their statutory requirements, DOE and NASA may 
specify in their supplemental regulations use of a modified version of 
the clause at 52.227-13 in contracts with other than small business 
concerns or nonprofit organizations.
    (3) If the acquisition of patent rights for the benefit of a foreign 
government is required under a treaty or executive agreement or if the 
agency head or a designee determines at the time of contracting that it 
would be in the national interest to acquire the right to sublicense 
foreign governments or international organizations pursuant to any 
existing or future treaty or agreement, the contracting officer shall 
use the clause with its Alternate I. If other rights are necessary to 
effectuate the treaty or agreement, Alternate I may be appropriately 
modified. In long term contracts, Alternate II shall be added if 
necessary to effectuate treaties or agreements to be entered into.
    (4) Section 401 of title 37 of the Code of Federal Regulations 
provides that in contracts with small business firms and nonprofit 
organizations, when an agency exercises the exceptions at 27.302(b) (2) 
or (3) it shall use the clause at 52.227-11, with such modifications as 
are necessary to address the exceptional circumstances or concerns which 
led to the use of the exception. The greater rights determinations 
provision of 52.227-13(b)(2) shall be included in the modified clause.
    (d) (1) If one of the following applies, the contracting officer may 
insert the clause prescribed in paragraph (a) or (b) of this section as 
otherwise applicable, agency supplemental regulations may provide 
another clause and specify its use, or the contracting officer shall 
insert the clause prescribed in paragraph (c) of this section:
    (i) The contractor is not located in the United States or does not 
have a place of business located in the United States or is subject to 
the control of a foreign government.

[[Page 546]]

    (ii) There are exceptional circumstances and the agency head 
determines that restriction or elimination of the right to retain title 
to any subject invention will better promote the policy and objectives 
of chapter 18 of title 35 of the United States Code.
    (iii) It is determined by a Government authority which is authorized 
by statute or executive order to conduct foreign intelligence or 
counterintelligence activities that restriction or elimination of the 
right to retain any subject invention is necessary to protect the 
security of such activities.
    (iv) The contract includes the operation of a Government-owned, 
contractor-operated facility of the Department of Energy primarily 
dedicated to that Department's naval nuclear propulsion or weapons 
related programs.
    (2) Before using any of the exceptions under subparagraph (d)(1) of 
this section in a contract with a small business firm or a nonprofit 
organization and before using the exception of subdivision (d)(1)(ii) of 
this section for any contractor, the agency shall prepare a written 
determination, including a statement of facts supporting the 
determination, that the conditions identified in the exception exist. A 
separate statement of facts shall be prepared for each exceptional 
circumstances determination, except that in appropriate cases a single 
determination may apply to both a contract and any subcontract issued 
under it, or to any contract to which an exception is applicable. In 
cases when subdivision (d)(1)(ii) of this section is used, the 
determination shall also include an analysis justifying the 
determination. This analysis should address, with specificity, how the 
alternate provisions will better achieve the objectives set forth in 35 
U.S.C. 200. For contracts with small business firms and nonprofit 
organizations, a copy of each determination, statement of facts, and, if 
applicable, analysis shall be promptly provided to the contractor or 
offeror along with a notification of its appeal rights under 35 U.S.C. 
202(b)(4) in accordance with 27.304-1(a). In the case of small business 
and nonprofit contractors, except for determination under subdivision 
(d)(1)(iii) of this section, the agency shall, within 30 days after 
award of a contract, also provide copies of each determination, 
statement of fact, and analysis to the Secretary of Commerce. These 
shall be sent within 30 days after the award of the contract to which 
they pertain. In the case of contracts with small business concerns, 
copies will also be sent to the Chief Counsel for Advocacy of the Small 
Business Administration.
    (e) For those agencies excepted under paragraph (a)(1)(i) of this 
section, only small business firms or non-profit organizations qulaify 
for the clause at 52.227-11. If one of these agencies has reason to 
question the status of the prospective contractor, the agency may file a 
protest in accordance with 13 CFR 121.3-5 if small business firm status 
is questioned, or require the prospective contractor to furnish evidence 
of its status as a nonprofit organization.
    (f) Alternates I and II to the clauses at 52.227-11, 52.227-12, and 
52-227-13, as applicable, may be modified to make clear that the rights 
granted to the foreign government or international organization may be 
for additional rights beyond a license or sublicense if so required by 
the applicable treaty or international agreement. For example, in some 
cases exclusive licenses or even assignment of title in the foreign 
country involved might be required. In addition, an Alternate may be 
modified to provide for direct licensing by the contractor of the 
foreign government or international organization.
[54 FR 25065, June 12, 1989 and 55 FR 25525, June 21, 1990; 62 FR 236, 
Jan. 2, 1997]



27.304  Procedures.



27.304-1  General.

    (a) Contractor appeals of exceptions. (1) In accordance with 35 
U.S.C. 202(b)(4), a small business firm or nonprofit organization 
contractor has the right to an administrative review of a determination 
to use one of the exceptions at 27.303(d)(1)(i)-(iv) if the contractor 
believes that a determination is either (i) contrary to the policies and 
objectives of this subsection or (ii) constitutes an abuse of discretion 
by the agency. Subparagraphs (a) (2) thru (7) of this subsection specify 
the procedures to be followed by contractors and agencies in such cases. 
The assertion of such a

[[Page 547]]

claim by the contractor shall not be used as a basis for withholding or 
delaying the award of a contract or for suspending performance under an 
award. However, pending final resolution of the claim, the contract may 
be issued with the patent rights provision proposed by the agency; but 
should the final decision be in favor of the contractor, the contract 
will be amended accordingly and the amendment made retroactive to the 
effective date of the contract.
    (2) A contractor may appeal a determination by providing written 
notice to the agency within 30 working days from the time it receives a 
copy of the agency's determination, or within such longer time as an 
agency may specify in its regulations. The contractor's notice should 
specifically identify the basis for the appeal.
    (3) The appeal shall be decided by the head of the agency or 
designee who is at a level above the person who made the determination. 
If the notice raises a genuine dispute over the material facts, the head 
of the agency or designee shall undertake or refer the matter for fact-
finding.
    (4) Fact-finding shall be conducted in accordance with procedures 
established by the agency. Such procedures shall be as informal as 
practicable and be consistent with principles of fundamental fairness. 
The procedures should afford the contractor the opportunity to appear 
with counsel, submit documentary evidence, present witnesses, and 
confront such persons as the agency may rely upon. A transcribed record 
shall be made and shall be available at cost to the contractor upon 
request. The requirement for a transcribed record may be waived by 
mutual agreement of the contractor and the agency.
    (5) The official conducting the fact-finding shall prepare or adopt 
written findings of fact and transmit them to the head of the agency or 
designee promptly after the conclusion of the fact-finding proceeding 
along with a recommended decision. A copy of the findings of fact and 
recommended decision shall be sent to the contractor by registered or 
certified mail.
    (6) Fact-finding should be completed within 45 working days from the 
date the agency receives the contractor's written notice.
    (7) When fact-finding has been conducted, the head of the agency or 
designee shall base his or her decision on the facts found, together 
with any argument submitted by the contractor, agency officials, or any 
other information in the administrative record. In cases referred for 
fact-finding, the agency head or designee may reject only those facts 
that have been found to be clearly erroneous, but must explicitly state 
the rejection and indicate the basis for the contrary finding. The 
agency head or designee may hear oral arguments after fact-finding 
provided that the contractor or contractor's attorney or representative 
is present and given an opportunity to make arguments and rebuttal. The 
decision of the agency head or designee shall be in writing and if it is 
unfavorable to the contractor, include an explanation of the basis of 
the decision. The decision of the agency or designee shall be made 
within 30 working days after fact-finding or, if there was no fact-
finding, within 45 working days from the date the agency received the 
contractor's written notice. In accordance with 35 U.S.C. 203, a small 
business firm or a nonprofit organization contractor adversely affected 
by a determination under this section may, at any time within 60 days 
after the determination is issued, file a petition in the United States 
Claims Court, which shall have jurisdiction to determine the appeal on 
the record and to affirm, reverse, remand, or modify, as appropriate, 
the determination of the Federal agency.
    (b) Greater rights determination. Whenever the contract contains the 
clause at 52.227-13, Patent Rights--Acquisition by the Government, the 
contractor (or an employee-inventor of the contractor after consultation 
with the contractor) may request greater rights to an identified 
invention within the period specified in such clause. Requests for 
greater rights may be granted if the agency head or designee determines 
that the interests of the United States and the general public will be 
better served thereby. In making such determinations, the agency head or 
designee shall consider at least the following objectives:

[[Page 548]]

    (1) Promoting the utilization of inventions arising from federally-
supported research and development.
    (2) Ensuring that inventions are used in a manner to promote full 
and open competition and free enterprise.
    (3) Promoting public availability of inventions made in the United 
States by United States industry and labor.
    (4) Ensuring that the Government obtains sufficient rights in 
federally supported inventions to meet the needs of the Government and 
protect the public against nonuse or unreasonable use of inventions.
    (c) Retention of rights by inventor. If the contractor does not 
elect to retain title to a subject invention, the agency may consider 
and, after consultation with the contractor, grant requests for 
retention or rights by the inventor. Retention of rights by the inventor 
will be subject to the conditions in paragraph (d) (except subparagraphs 
(d)(1)), (f)(4), and paragraphs (h), (i), and (j) of the applicable 
Patent Rights--Retention by the Contractor clause.
    (d) Government assignment to contractor of rights in Government 
employees' inventions. When a Government employee is a coinventor of an 
invention made under a contract with a small business firm or nonprofit 
organization, the agency employing the coinventor may transfer or 
reassign whatever right it may acquire in the subject invention from its 
employee to the contractor, subject at least to the conditions of 35 
U.S.C. 202-204.
    (e) Additional requirements. (1) If it is desired to have the right 
to require any of the following, when using the clause at 52.227-11, 
Patent Rights--Retention by the Contractor (Short Form), the contract 
shall be modified to require the contractor to do one or more of the 
following:
    (i) Provide periodic (but not more frequently than annually) 
listings of all subject inventions required to be disclosed during the 
period covered by the report.
    (ii) Provide a report prior to the closeout of the contract listing 
all subject inventions or stating that there were none.
    (iii) Provide, upon request, the filing date, serial number, and 
title; a copy of the patent application; and patent number and issue 
date for any subject invention in any country in which the contractor 
has applied for patents.
    (iv) Furnish the Government an irrevocable power to inspect and make 
copies of the patent application file when a Federal Government employee 
is a coinventor.
    (2) To the extent provided by such modification (and automatically 
under the terms of the clauses at 52.227-12, Patent Rights--Retention by 
the Contractor (Long Form), and 52.227-13, Patent Rights--Acquisition by 
the Government), the contracting officer may require the contractor to--
    (i) Furnish a copy of each subcontract containing a patent rights 
clause (but if a copy of a subcontract is furnished under another 
clause, a duplicate shall not be requested under the patent rights 
clause);
    (ii) Submit interim and final invention reports listing subject 
inventions and notifying the contracting officer of all subcontracts 
awarded for experimental, developmental, or research work;
    (iii) Submit information regarding the filing date, serial number 
and title, and, upon request, a copy of the patent application, and 
patent number and issue date for any subject invention in any country 
for which the contractor has retained title; and
    (iv) Submit periodic reports on the utilization of a subject 
invention or on efforts at obtaining utilization that are being made by 
the contractor or its licensees or assignees.
    (3) The contractor is required to deliver to the contracting officer 
an instrument confirmatory of all rights to which the Government is 
entitled and to furnish the Government an irrevocable power to inspect 
and make copies of the patent application file. Such delivery should 
normally be made within 6 months after filing each patent application, 
or within 6 months after submitting the invention disclosure if the 
application has been previously filed.
    (f) Revocation or modification of contractor's minimum rights. 
Before revocation or modification of the contractor's license in 
accordance with 27.302(i)(2), the contracting officer will furnish the

[[Page 549]]

contractor a written notice of intention to revoke or modify the 
license, and the contractor will be allowed 30 days (or such other time 
as may be authorized by the contracting officer for good cause shown by 
the contractor) after the notice to show cause why the license should 
not be revoked or modified. The contractor has the right to appeal, in 
accordance with applicable regulations in 37 CFR part 404 and agency 
licensing regulations, any decisions concerning the revocation or 
modification.
    (g) Exercise of march-in rights. The following procedures shall 
govern the exercise of the march-in rights set forth in 35 U.S.C. 203, 
paragraph (j) of the Patent Rights--Retention by the Contractor clauses, 
and subdivision (c)(1)(ii) of the Patent Rights--Acquisition by the 
Government clause:
    (1) When the agency receives information that it believes might 
warrant the exercise of march-in rights, before initiating any march-in 
proceeding in accordance with the procedures of subparagraph (g)(2) of 
this section, it shall notify the contractor in writing of the 
information and request informal written or oral comments from the 
contractor. In the absence of any comments from the contractor within 30 
days the agency may, at its discretion, initiate the procedures below. 
If a comment is received, whether or not within 30 days, then the agency 
shall, within 60 days after it receives the comment, either initiate the 
procedures below or notify the contractor, in writing, that it will not 
pursue march-in rights based on the information about which the 
contractor was notified.
    (2) A march-in proceeding shall be initiated by the issuance of a 
written notice by the agency head or a designee to the contractor and 
its assignee or exclusive licensee, as applicable and if known to the 
agency, stating that the Government has determined to exercise march-in 
rights. The notice shall state the reasons for the proposed march-in, in 
terms sufficient to put the contractor on notice of the facts upon which 
the action is based, and shall specify the field or fields of use in 
which the Government is considering requiring licensing. The notice 
shall advise the contractor, assignee, or exclusive licensee of its 
rights as set forth in this section and in any supplemental agency 
regulations or procedures. The determination to exercise march-in rights 
shall be made by the head of the agency or designee.
    (3) Within 30 days after the receipt of the written notice of march-
in, the contractor, its assignee or exclusive licensee, may submit in 
person, in writing, or through a representative information or argument 
in opposition to the proposed march-in, including any additional 
specific information which raises a genuine dispute over the material 
facts upon which the march-in is based. If the information presented 
raises a genuine dispute over the material facts, the head of the agency 
or designee shall undertake or refer the matter to another official for 
fact-finding.
    (4) Fact-finding shall be conducted in accordance with the 
procedures established by the agency. Such procedures shall be as 
informal as practicable and be consistent with principles of fundamental 
fairness. The procedures should afford the contractor the opportunity to 
appear with counsel, submit documentary evidence, present witnesses, and 
confront such persons as the agency may present. A transcribed record 
shall be made and shall be available at cost to the contractor upon 
request. The requirement for a transcribed record may be waived by 
mutual agreement of the contractor and the agency. Any portion of the 
march-in proceeding, including a fact-finding hearing that involves 
testimony or evidence relating to the utilization or efforts at 
obtaining utilization that are being made by the contractor, its 
assignee, or licensees shall be closed to the public, including 
potential licensees. In accordance with 35 U.S.C. 202(c)(5), agencies 
shall not disclose any such information obtained during a march-in 
proceeding to persons outside the Government except when such release is 
authorized by the contractor, its assignee, or licensee.
    (5) The official conducting the fact-finding shall prepare or adopt 
written findings of fact and transmit them to the head of the agency or 
designee promptly after the conclusion of the factfinding proceeding 
along with a

[[Page 550]]

recommended determination. A copy of the findings of fact shall be sent 
to the contractor, its assignee, or exclusive licensee by registered or 
certified mail. The contractor, its assignee or exclusive licensee, and 
agency representatives will be given 30 days to submit written arguments 
to the head of the agency or designee; and, upon request by the 
contractor, oral arguments will be held before the agency head or 
designee that will make the final determination.
    (6) In case in which fact-finding has been conducted, the head of 
the agency or designee shall base his or her determination on the facts 
found, together with any other information and written or oral arguments 
submitted by the contractor, its assignee or exclusive licensee and 
agency representatives, and any other information in the administrative 
record. The consistency of the exercise of march-in rights with the 
policy and objectives of 35 U.S.C. 200 shall also be considered. In 
cases referred for fact-finding, the head of the agency or designee may 
reject only those facts that have been found to be clearly erroneous, 
but must explicitly state the rejection and indicate the basis for the 
contrary finding. Written notice of the determination whether march-in 
rights will be exercised shall be made by the head of the agency or 
designee and sent to the contractor, its assignee, or exclusive 
licensee, by certified or registered mail within 90 days after the 
completion of fact-finding or 90 days after oral arguments, whichever is 
later, or the proceedings will be deemed to have been terminated and 
thereafter no march-in based on the facts and reasons upon which the 
proceeding was initiated may be exercised.
    (7) An agency may, at any time, terminate a march-in proceeding if 
it is satisfied that it does not wish to exercise march-in rights.
    (8) These procedures shall also apply to the exercise of march-in 
rights against inventors receiving title to subject inventions under 35 
U.S.C. 202(d) and, for that purpose, the term contractor, as used 
herein, shall be deemed to include the inventory and the term exclusive 
licensee shall be deemed to include partially exclusive licensee.
    (9) An agency determination unfavorable to the contractor, its 
assignee, or exclusive licensee shall be held in abeyance pending the 
exhaustion of appeals or petitions filed under 35 U.S.C. 203(2).
    (h) Licenses and assignments under contracts with nonprofit 
organizations. If the contractor is a nonprofit organization, the clause 
at 52.227-11 provides that certain contractor actions require agency 
approval, as specified below. Agencies shall provide procedures for 
obtaining such approval.

Rights to a subject invention in the United States may not be assigned 
without the approval of the contracting agency, except where such 
assignment is made to an organization which has as one of its primary 
functions the management of inventions (provided that such assignee will 
be subject to the same provisions as the contractor).
[54 FR 25066, June 12, 1989 and 55 FR 25525, June 21, 1990]



27.304-2  Contracts placed by or for other Government agencies.

    The following procedures apply unless agency agreements provide 
otherwise:
    (a) When a Government agency requests another Government agency to 
award a contract on its behalf, the request should explain any special 
circumstances surrounding the contract and specify and furnish the 
patent rights clause to be used. Normally, the clause will be in 
accordance with the policies and procedures of this subpart. If, 
however, the request states that a clause of the requesting agency is 
required (e.g., because of statutory requirements, a deviation, or 
exceptional circumstances) that clause shall be used rather than those 
of this subpart.
    (1) If the request states that an agency clause is required and the 
work to be performed under the contract is not severable and is funded 
wholly or in part by the agency, then that agency clause and no other 
patent rights clause shall be included in the contract.
    (2) If the request states that an agency clause is required, and the 
work to be performed under the contract is severable and is only in part 
for the requesting agency, then the work which is on behalf of the 
requesting agency

[[Page 551]]

shall be identified in the contract, and the agency clause shall be made 
applicable to that portion. In such situations, the remaining portion of 
the work (for the agency awarding the contract) shall likewise be 
identified and the appropriate patent rights clause (if required) shall 
be made applicable to that remaining portion.
    (3) If the request states that an agency clause is not required in 
any resulting contract, then the appropriate patent rights clause shall 
be used, if a patent rights clause is required.
    (b) Where use of the specified clause, or any modification, waiver, 
or omission of the Government's rights under any provisions therein, 
requires a written determination, the reporting of such determination, 
or a deviation, if any such acts are required in accordance with 
27.303(d)(2), it shall be the responsibility of the requesting agency to 
make such determination, submit the required reports, and obtain such 
deviations, in consultation with the contracting agency, unless 
otherwise agreed between the contracting and requesting agencies. 
However, a deviation to a specified clause of the requesting agency 
shall not be made without prior approval of that agency.
    (c) The requesting agency may require, and provide instructions 
regarding, the forwarding or handling of any invention disclosures or 
other reporting requirements of the specified clauses. Normally the 
requesting agency shall be responsible for the handling of any disclosed 
inventions, including the filing of patent applications where the 
Government receives title, and the custody, control, and licensing 
thereof, unless provided otherwise in the instructions or other 
agreements with the contracting agency.
[49 FR 12974, Mar. 30, 1984, as amended at 54 FR 25068, June 12, 1989 
and 55 FR 25525, June 21, 1990]



27.304-3  Contracts for construction work or architect-engineer services.

    (a) If a solicitation or contract for construction work or 
architect-engineer services has as a purpose the performance of 
experimental, developmental, or research work or test and evaluation 
studies involving such work and calls for, or can be expected to 
involve, the design of a Government facility or of novel structures, 
machines, products, materials, processes, or equipment (including 
construction equipment), it shall include a patent rights clause 
selected in accordance with the policies and procedures of this subpart 
27.3.
    (b) A solicitation or contract for construction work or architect-
engineer services that calls for or can be expected to involve only 
standard types of construction to be built by previously developed 
equipment, methods, and processes shall not include a patent rights 
clause. The term standard types of construction means construction in 
which the distinctive features, if any, in all likelihood will amount to 
no more than--
    (1) Variations in size, shape, or capacity of otherwise structurally 
orthodox and conventionally acting structures or structural groupings; 
or
    (2) Purely artistic or esthetic (as distinguished from functionally 
significant) architectural configurations and designs of both structural 
and nonstructural members or groupings, which may or may not be 
sufficiently novel or meritorious to qualify for design protection under 
the design patent or copyright laws.



27.304-4  Subcontracts.

    (a) The policies and procedures covered by this subpart apply to all 
contracts at any tier. Hence, a contractor awarding a subcontract and a 
subcontractor awarding a lower-tier subcontract that has as a purpose 
the conduct of experimental, developmental, or research work is required 
to determine the appropriate patent rights clause to be included that is 
consistent with these policies and procedures. Generally, the clause at 
either 52.227-11, 52.227-12, or 52.227-13 is to be used and will be so 
specified in the patent rights clause contained in the higher-tier 
contract, but the contracting officer may direct the use of a particular 
patent rights clause in any lower-tier contract in accordance with the 
policies and procedures of this subpart. For instance, when the clause 
at 52.227-13 is in the prime contract because the work

[[Page 552]]

is to be performed overseas, any subcontract with a nonprofit 
organization would contain the clause at 52.227-11.
    (b) Whenever a prime contractor or a subcontractor considers the 
inclusion of a particular clause in a subcontract to be inappropriate or 
a subcontractor refuses to accept the proffered clause, the matter shall 
be resolved by the agency contracting officer in consultation with 
counsel.
    (c) It is Government policy that contractors shall not use their 
ability to award subcontracts as economic leverage to acquire rights for 
themselves in inventions resulting from subcontracts.



27.304-5  Appeals.

    (a) The agency official initially authorized to take any of the 
following actions shall provide the contractor with a written statement 
of the basis for the action at the time the action is taken, including 
any relevant facts that were relied upon in taking the action:
    (1) A refusal to grant an extension to the invention disclosure 
period under subparagraph (c)(4) of the clauses at 52.227-11 and 52.227-
12.
    (2) A request for a conveyance of title to the Government under 
27.302(d)(1)(i) through (v).
    (3) A refusal to grant a waiver under 27.302(g), Preference for U.S. 
Industry.
    (4) A refusal to approve an assignment under 27.304-1(h)(1).
    (5) A refusal to approve an extension of the exclusive license 
period under 27.304-1(h)(2).
    (b) Each agency shall establish and publish procedures under which 
any of the agency actions listed in paragraph (a) above may be appealed 
to the head of the agency or designee. Review at this level shall 
consider both the factual and legal basis for the action and its 
consistency with the policy and objectives of 35 U.S.C. 200-206 and this 
subpart.
    (c) Appeals procedures established under paragraph (b) of this 
subsection shall include administrative due process procedures and 
standards for fact-finding at least comparable to those set forth in 37 
CFR part 401.6(e)-(g) whenever there is a dispute as to the factual 
basis for an agency request for a conveyance of title under 27.302(d)(1) 
(i) through (v) including any dispute as to whether or not an invention 
is a subject invention.
    (d) To the extent that any of the actions described in paragraph (a) 
above are subject to appeal under the Contract Disputes Act, the 
procedures under that Act will satisfy the requirements of paragraphs 
(b) and (c) above.
[49 FR 12974, Mar. 30, 1984, as amended at 54 FR 25068, June 12, 1989 
and 55 FR 25525, June 21, 1990]



27.305  Administration of patent rights clauses.



27.305-1  Patent rights follow-up.

    (a) It is important that the Government and the contractor know and 
exercise their rights in inventions conceived or first actually reduced 
to practice in the course of or under Government contracts in order to 
ensure their expeditious availability to the public and to enable the 
Government, the contractor, and the public to avoid unnecessary payment 
of royalties and to defend themselves against claims and suits for 
patent infringement. To attain these ends, contracts having a patent 
rights clause should be so administered that--
    (1) Inventions are identified, disclosed, and reported as required 
by the contract, and elections are made;
    (2) The rights of the Government in such inventions are established;
    (3) Where patent protection is appropriate, patent applications are 
timely filed and prosecuted by contractors or by the Government;
    (4) The rights of the Government in filed patent applications are 
documented by formal instruments such as licenses or assignments; and
    (5) Expeditious commercial utilization of such inventions is 
achieved.
    (b) If a subject invention is made under funding agreements of more 
than one agency, at the request of the contractor or on their own 
initiative, the agencies shall designate one agency as responsible for 
administration of the rights of the Government in the invention.

[[Page 553]]



27.305-2  Follow-up by contractor.

    (a) Contractor procedures. If required by the applicable clause, the 
contractor shall establish and maintain effective procedures to ensure 
its patent rights obligations are met and that subject inventions are 
timely identified and disclosed, and when appropriate, patent 
applications are filed.
    (b) Contractor reports. Contractors shall submit all reports 
required by the patent rights clause to the contracting officer or other 
representative designated for such purpose in the contract. Agencies 
may, in their implementing instructions, provide specific forms for use 
on an optional basis for such reporting.



27.305-3  Follow-up by Government.

    (a) Agencies shall maintain appropriate follow-up procedures to 
protect the Government's interest and to check that subject inventions 
are identified and disclosed, and when appropriate, patent applications 
are filed, and that the Government's rights therein are established and 
protected. Follow-up activities for contracts that include a clause 
referenced in 27.304-2 shall be coordinated with the appropriate agency.
    (b) The contracting officer administering the contract (or other 
representative specifically designated in the contract for such purpose) 
is responsible for receiving invention disclosures, reports, 
confirmatory instruments, notices, requests, and other documents and 
information submitted by the contractor pursuant to a patent rights 
clause. If the contractor fails to furnish documents or information as 
called for by the clause within the time required, the contracting 
officer shall promptly request the contractor to supply the required 
documents or information and, if the failure persists, shall take 
appropriate action to secure compliance. Invention disclosures, reports, 
confirmatory instruments, notices, requests, and other documents and 
information relating to patent rights clauses shall be promptly 
furnished by the contracting officer administering the contract (or 
other designee) to the procuring agency or contracting activity for 
which the procurement was made for appropriate action.
    (c) Contracting activities shall establish appropriate procedures to 
detect and correct failures by the contractor to comply with its 
obligations under the patent rights clauses, such as failures to 
disclose and report subject inventions, both during and after contract 
performance. Ordinarily a contractor should have written instructions 
for its employees covering compliance with these contract obligations. 
Government effort to review and correct contractor compliance with its 
patent rights obligations should be directed primarily towards contracts 
that, because of the nature of the research, development, or 
experimental work or the large dollar amount spent on such work, are 
more likely to result in subject inventions significant in number or 
quality, and towards contracts when there is reason to believe the 
contractors may not be complying with their contractual obligations. 
Other contracts may be reviewed using a spot-check method, as feasible. 
Appropriate follow-up procedures and activities may include the 
investigation or review of selected contracts or contractors by those 
qualified in patent and technical matters to detect failures to comply 
with contract obligations.
    (d) Follow-up activities should include, where appropriate, use of 
Government patent personnel--
    (1) To interview agency technical personnel to identify novel 
developments made in contracts;
    (2) To review technical reports submitted by contractors with 
cognizant agency technical personnel;
    (3) To check the Official Gazette of the United States Patent and 
Trademark Office and other sources for patents issued to the contractor 
in fields related to its Government contracts; and
    (4) If additional information is required, to have cognizant 
Government personnel interview contractor personnel regarding work under 
the contract involved, observe the work on site, and inspect laboratory 
notebooks and other records of the contractor related to work under the 
contract.

[[Page 554]]

    (e) If it is determined that a contractor or subcontractor does not 
have a clear understanding of the rights and obligations of the parties 
under a patent rights clause, or that its procedures for complying with 
the clause are deficient, a post-award orientation conference or letter 
should ordinarily be used to explain these rights and obligations (see 
subpart 42.5). When a contractor fails to establish, maintain, or follow 
effective procedures for identifying, disclosing, and, when appropriate, 
filing patent applications on inventions (if such procedures are 
required by the patent rights clause), or after appropriate notice fails 
to correct any deficiency, the contracting officer may require the 
contractor to make available for examination books, records, and 
documents relating to the contractor's inventions in the same field of 
technology as the contract effort to enable a determination of whether 
there are such inventions and may invoke the withholding of payments 
provision (if any) of the clause. The withholding of payments provision 
(if any) of the patent rights clause or of any other contract clause may 
also be invoked if the contractor fails to disclose a subject invention. 
Significant or repeated failures by a contractor to comply with the 
patent rights obligation in its contracts shall be documented and made a 
part of the general file (see 4.801(c)(3)).



27.305-4  Conveyance of invention rights acquired by the Government.

    (a) Agencies are responsible for those procedures necessary to 
protect the Government's interest in subject inventions. When the 
Government acquires the entire right, title, and interest in an 
invention by contract, this is normally accomplished by an assignment 
either from each inventor to the contractor and from the contractor to 
the Government, or from the inventor to the Government with the consent 
of the contractor, so that the chain of title from the inventor to the 
Government is clearly established. When the Government's rights are 
limited to a license, there should be a confirmatory instrument to that 
effect.
    (b) The form of conveyance of title from the inventor to the 
contractor must be legally sufficient to convey the rights the 
contractor is required to convey to the Government. Agencies may, by 
supplemental instructions, develop suitable assignments, licenses, and 
other papers evidencing any rights of the Government in patents or 
patent applications, including such instruments as may be required to be 
recorded in the Statutory Register or documented in the Government 
Register maintained by the U.S. Patent and Trademark Office pursuant to 
Executive Order 9424, February 18, 1944.



27.305-5  Publication or release of invention disclosures.

    (a) In accordance with the policy at 27.302(i), to protect their 
mutual interests, contractors and the Government should cooperate in 
deferring the publication or release of invention disclosures until the 
filing of the first patent application, and use their best efforts to 
achieve prompt filing when publication or release may be imminent. The 
Government will, on its part and to the extent authorized by 35 U.S.C. 
205, withhold from disclosure to the public any invention disclosures 
reported under the patent rights clauses of 52.227-11, 52.227-12, or 
52.227-13 for a reasonable time in order for patent applications to be 
filed. The policy in 27.302(i) regarding protection of confidentiality 
shall be followed.
    (b) The Government will also use reasonable efforts to withhold from 
disclosure to the public for a reasonable time other information 
disclosing a reported invention included in any data delivered pursuant 
to contract requirements; provided, that the contractor notifies the 
agency as to the identity of the data and the invention to which it 
relates at the time of delivery of the data. Such notification must be 
to both the contracting officer and any patent representative to which 
the invention is reported, if other than the contracting officer.
    (c) As an additional protection for small business firms and 
nonprofit organizations 37 CFR part 401 prescribes that agencies shall 
not disclose or release, in accordance with 35 U.S.C. 205, for a period 
of 18 months from the filing date of the application to third parties 
pursuant to request under the

[[Page 555]]

Freedom of Information Act or otherwise copies of any document which the 
agency obtained under contract which is part of an application for 
patent with the U.S. Patent and Trademark Office or any foreign patent 
office filed by the contractor (or its assignees, licensees, or 
employees) on a subject invention to which the contractor has elected to 
retain title. This prohibition does not extend to disclosure to other 
Government agencies or contractors of Government agencies under an 
obligation to maintain such information in confidence.
[49 FR 12974, Mar. 30, 1984, as amended at 54 FR 25069, June 12, 1989 
and 55 FR 25525, June 21, 1990]



27.306  Licensing background patent rights to third parties.

    (a) A contract with a small business firm or nonprofit organization 
will not contain a provision allowing the Government to require the 
licensing to third parties of inventions owned by the contractor that 
are not subject inventions unless such provision has been approved by 
the agency head and written justification has been signed by the agency 
head. Any such provision will clearly state whether the licensing may be 
required in connection with the practice of a subject invention, a 
specifically identified work object, or both. The agency head may not 
delegate the authority to approve such provisions or to sign 
justifications required for such provisions.
    (b) The Government will not require the licensing of third parties 
under any such provision unless the agency head determines that the use 
of the invention by others is necessary for the practice of a subject 
invention or for the use of a work object of the contract and that such 
action is necessary to achieve the practical application of the subject 
invention or work object. Any such determination will be on the record 
after an opportunity for a hearing, and the contractor shall be given 
notification of the determination by certified or registered mail. The 
notification shall include a statement that any action commenced for 
judicial review of such determination must be brought by the contractor 
within 60 days after the notification.



               Subpart 27.4--Rights in Data and Copyrights

    Source: 52 FR 18140, May 13, 1987, unless otherwise noted.



27.400  Scope of subpart.

    (a) The policy statement in 27.402 applies to all executive 
agencies. The remainder of the subpart sets forth civilian agency and 
National Aeronautics and Space Administration (NASA) policies, 
procedures, and instructions with respect to (1) rights in data and 
copyrights and (2) acquisition of data. However, these policies, 
procedures, and instructions are not required to be applicable to NASA 
solicitations until December 31, 1987 (or until such other date as the 
NASA FAR Supplement is revised to accommodate the policies, procedures, 
and instructions contained in this subpart). Due to the special mission 
needs of the Department of Defense (DOD) and as required by 10 U.S.C. 
2320, the remainder of the DOD policies, procedures, and instructions 
with respect to rights in data and copyrights and acquisition of data 
are contained in the DOD FAR Supplement (DFARS).
    (b) Civilian agencies other than NASA shall implement section 203 of 
Public Law 98-577 pertaining to validation of proprietary data 
restrictions.
[52 FR 18140, May 13, 1987, as amended at 54 FR 34755, Aug. 21, 1989]



27.401  Definitions.

    Computer software, as used in this subpart, means computer programs, 
computer data bases, and documentation thereof.
    Data, as used in this subpart, means recorded information, 
regardless of form or the media on which it may be recorded. The term 
includes technical data and computer software. The term does not include 
information incidental to contract administration, such as financial, 
administrative, cost or pricing or management information.
    Form, fit, and function data, as used in this subpart, means data 
relating to items, components, processes that are sufficient to enable 
physical and functional interchangeability, as well as

[[Page 556]]

data identifying source, size, configuration, mating and attachment 
characteristics, functional characteristics, and performance 
requirements; except that for computer software it means data 
identifying source, functional characteristics, and performance 
requirements, but specifically excludes the source code, algorithm, 
process, formulae, and flow charts of the software.
    Limited rights, as used in this subpart, means the rights of the 
Government in limited rights data, as set forth in a Limited Rights 
Notice if included in a data rights clause of the contract.
    Limited rights data, as used in this subpart, means data, other than 
computer software, that embody trade secrets or are commercial or 
financial and confidential or privileged, to the extent that such data 
pertain to items, components, or processes developed at private expense, 
including minor modifications thereof. (Agencies may, however, adopt the 
following alternate definition:
    Limited rights data, as used in this subpart, means data developed 
at private expense that embody trade secrets or are commercial or 
financial and confidential or privileged (see 27.404(c).)
    Restricted computer software, as used in this subpart, means 
computer software developed at private expense and that is a trade 
secret; is commercial or financial and confidential or privileged; or is 
published copyrighted computer software; including minor modifications 
of such computer software.
    Restricted rights, as used in this subpart, means the rights of the 
Government in restricted computer software as set forth in a Restricted 
Rights Notice, if included in a data rights clause of the contract, or 
as otherwise may be included or incorporated in the contract.
    Technical data, as used in this subpart, means data other than 
computer software, which are of a scientific or technical nature.
    Unlimited rights, as used in this subpart, means the rights of the 
Government to use, disclose, reproduce, prepare derivative works, 
distribute copies to the public, and perform publicly and display 
publicly, in any manner and for any purpose, and to have or permit 
others to do so.



27.402  Policy.

    (a) It is necessary for the departments and agencies, in order to 
carry out their missions and programs, to acquire or obtain access to 
many kinds of data produced during or used in the performance of their 
contracts. Agencies require such data to: obtain competition among 
suppliers; fulfill certain responsibilities for disseminating and 
publishing the results of their activities; ensure appropriate 
utilization of the results of research, development, and demonstration 
activities including the dissemination of technical information to 
foster subsequent technological developments; and meet other 
programmatic and statutory requirements. Further, for defense purposes, 
such data are also required by agencies to meet specialized acquisition 
needs and ensure logistics support.
    (b) At the same time, the Government recognizes that its contractors 
may have a legitimate proprietary interest (e.g., a property right or 
other valid economic interest) in data resulting from private 
investment. Protection of such data from unauthorized use and disclosure 
is necessary in order to prevent the compromise of such property right 
or economic interest, avoid jeopardizing the contractor's commercial 
position, and preclude impairment of the Government's ability to obtain 
access to or use of such data. The protection of such data by the 
Government is also necessary to encourage qualified contractors to 
participate in Government programs and apply innovative concepts to such 
programs. In light of the above considerations, in applying these 
policies, agencies shall strike a balance between the Government's need 
and the contractor's legitimate proprietary interest.



27.403  Data rights--general.

    All contracts that require data to be produced, furnished, acquired 
or specifically used in meeting contract performance requirements, must 
contain terms that delineate the respective rights and obligations of 
the Government and the contractor regarding the use, duplication, and 
disclosure of such

[[Page 557]]

data, except certain contracts resulting from sealed bidding or similar 
situations which require only existing data (other than limited rights 
data and restricted computer software) to be delivered and reproduction 
rights are not needed for such data. As a general rule the data rights 
clause at 52.227-14, Rights in Data--General, including Alternates I, 
II, III, IV, and V, where determined to be appropriate as discussed in 
27.404, is to be used for that purpose. However, in certain contracts 
either the particular subject matter of the contract or the intended use 
of the data may require the use of other prescribed clauses, or may not 
require the use of any prescribed clause, as discussed in 27.405 and 
27.408. Also, in selecting a data rights clause, it is important to note 
that any such clause does not specify the data (in terms of type, 
quantity or quality) that is to be delivered, but only the respective 
rights of the Government and the contractor to use, disclose, or 
reproduce such data. Accordingly, the contract should also include 
appropriate terms to specify the data to be delivered.



27.404  Basic rights in data clause.

    (a) Unlimited rights data. Under the clause at 52.227-14, Rights in 
Data--General, the Government acquires unlimited rights in the following 
data (except as provided in paragraph (f) of this section for 
copyrighted data): (1) Data first produced in the performance of a 
contract (except to the extent such data constitute minor modifications 
to data that are limited rights data or restricted computer software); 
(2) form, fit, and function data delivered under contract; (3) data 
(except as may be included with restricted computer software) that 
constitute manuals or instructional and training material for 
installation, operation, or routine maintenance and repair of items, 
components, or processes delivered or furnished for use under a 
contract; and (4) all other data delivered under the contract other than 
limited rights data or restricted computer software (see paragraph (b) 
of this section). If any of the foregoing data are published copyrighted 
data with the notice of 17 U.S.C. 401 or 402, the Government acquires 
them under a copyright license, as set forth in paragraph (f) of this 
section, rather than with unlimited rights.
    (b) Limited rights data and restricted computer software. The clause 
at 52.227-14, Rights in Data--General, enables the contractor to protect 
qualifying limited rights data and restricted computer software by 
withholding such data from delivery to the Government and delivering 
form, fit, and function data in lieu thereof. However, when an agency 
has a need to obtain delivery of limited rights data or restricted 
computer software, the clause may be used with its Alternates II or III, 
as set forth in paragraphs (d) and (e) of this section. These 
alternatives enable a contracting officer to selectively request the 
delivery of such data with limited rights or restricted rights, either 
by specifying such delivery in the contract or by specific request.
    (c) Alternate definition of limited rights data. In the clause at 
52.227-14, Rights in Data--General, in order for data to qualify as 
limited rights data, in addition to being data that either embody a 
trade secret or are data that are commercial or financial and 
confidential or privileged, such data must also pertain to items, 
components, or processes developed at private expense, including minor 
modifications thereof. However, for contracts that do not require the 
development, use or delivery of items, components or processes that are 
intended to be acquired by or for the Government, an agency may adopt 
for general use or for use in specific circumstances the alternate 
definition of limited rights data set forth in Alternate I. The 
alternate definition does not require that such data pertain to items, 
components, or processes developed at private expense; but rather that 
such data were developed at private expense and embody a trade secret or 
are commercial or financial and confidential or privileged.
    (d) Protection of limited rights data specified for delivery. (1) 
Contracting officers are authorized to modify the clause at 52.227-14, 
Rights in Data--General, by use of Alternate II, which Alternate adds 
subparagraph (g)(2) to the clause to enable the Government to require 
delivery of limited rights data rather than allowing the contractor to

[[Page 558]]

withhold such data. To obtain such delivery, the contract may identify 
and specify data to be delivered, or the contracting officer may 
require, by written request during contract performance, the delivery of 
data that has been withheld or identified as withholdable under 
subparagraph (g)(1) of the clause at 52.227-14 Rights in Data--General. 
In addition, if agreed to during negotiations, the contract may 
specifically identify data that are not to be delivered under Alternate 
II or which, if delivered, will be delivered with limited rights. The 
limited rights obtained by the Government are set forth in the Limited 
Rights Notice contained in subparagraph (g)(2) (Alternate II). Such 
limited rights data will not, without permission of the contractor, be 
used by the Government for purposes of manufacture, and will not be 
disclosed outside the Government except for certain specific purposes as 
may be set forth in the Notice, and then only if the Government makes 
the disclosure subject to prohibition against further use and disclosure 
by the recipient. The following are examples of specific purposes which 
may be adopted by an agency in its supplement and added to the Limited 
Rights Notice of subparagraph (g)(2) of the clause (Alternate II):
    (i) Use (except for manufacture) by support service contractors.
    (ii) Evaluation by nongovernment evaluators.
    (iii) Use (except for manufacture) by other contractors 
participating in the Government's program of which the specific contract 
is a part, for information and use in connection with the work performed 
under each contract.
    (iv) Emergency repair or overhaul work.
    (v) Release to a foreign government, or instrumentality thereof, as 
the interests of the United States Government may require, for 
information or evaluation, or for emergency repair or overhaul work by 
such government.
    (2) As an aid in determining whether the clause at 52.227-14 should 
be used with its Alternate II, the provision at 52.227-15, 
Representation of Limited Rights Data and Restricted Computer Software, 
may be included in any solicitation containing the clause at 52.227-14, 
Rights in Data--General. This representation requests that an offeror 
state in response to a solicitation, to the extent feasible, whether 
limited rights data are likely to be used in meeting the data delivery 
requirements set forth in the solicitation. In addition, the need for 
Alternate II should be considered during negotiations or discussion with 
an offeror, particularly where negotiations are based on an unsolicited 
proposal. However, use of the clause at 52.227-14, Rights in Data--
General, without Alternate II does not preclude this Alternate from 
being used subsequently by modification during contract performance, 
should the need arise for delivery of limited rights data that have been 
withheld or identified as withholdable.
    (3) Whenever data that would qualify as limited rights data, if it 
were to be delivered in human readable form, is formatted as a computer 
data base for the purpose of delivery under a contract containing the 
clause at 52.227-14, Rights in Data--General, such data is to be treated 
as limited rights data, rather than restricted computer software, for 
the purposes of paragraph (g) of that clause.
    (e) Protection of restricted computer software specified for 
delivery. (1) Contracting officers are authorized to modify the clause 
at 52.227-14, Rights in Data--General, by use of Alternate III, which 
Alternate adds subparagraph (g)(3) to the clause to enable the 
Government to require delivery of restricted computer software rather 
than allowing the contractor to withhold such restricted computer 
software. To obtain such delivery, the contract may identify and specify 
the computer software to be delivered, or the contracting officer may 
require by written request during contract performance, the delivery of 
computer software that has been withheld or identified as withholdable 
under subparagraph (g)(1) of the clause. In addition, if agreed to 
during negotiations, the contract may specifically identify computer 
software that are not to be delivered under Alternate III or which, if 
delivered, will be with restricted rights. In considering whether to use 
the clause at 52.227-14 with its Alternate III, it should be 
particularly noted that unlike other data, computer software is also an 
end item in itself,

[[Page 559]]

such that if withheld and form, fit, and function data provided in lieu 
thereof, an operational program will not be acquired. Thus, if delivery 
of restricted computer software is anticipated to be needed to meet 
contract performance requirements, the contracting officer should assure 
that the clause is used with its Alternate III. Unless otherwise agreed 
to (see paragraph (e)(2) of this section) the restricted rights obtained 
by the Government are set forth in the Restricted Rights Notice 
contained in subparagraph (g)(3) (Alternate III). Such restricted 
computer software will not be used or reproduced by the Government, or 
disclosed outside the Government, except that the computer software may 
be--
    (i) Used or copied for use in or with the computer or computers for 
which it was acquired, including use at any Government installation to 
which such computer or computers may be transferred;
    (ii) Used or copied for use in or with a backup computer if any 
computer for which it was acquired becomes inoperative;
    (iii) Reproduced for safekeeping (archives) or backup purposes;
    (iv) Modified, adapted, or combined with other computer software, 
provided that the modified, combined, or adapted portions of any 
derivative software incorporating restricted computer software are made 
subject to the same restricted rights;
    (v) Disclosed to and reproduced for use by support service 
contractors, subject to the same restriction under which the Government 
acquired the software;
    (vi) Used or copied for use in or transferred to a replacement 
computer; and
    (vii) Used in accordance with subdivisions (e)(1) (i) through (v) of 
this section, without disclosure prohibitions, if the computer software 
is published copyrighted computer software.
    (2) The restricted rights set forth in subparagraph (e)(1) of this 
section are the minimum rights the Government normally obtains with 
restricted computer software and will automatically apply when such 
software is acquired under the Restricted Rights Notice of subparagraph 
(g)(3) (Alternate III) of the clause. However, either greater or lesser 
rights, consistent with the purposes and needs for which the software is 
to be acquired, may be specified by the contracting officer in a 
particular contract or prescribed in agency regulations. For example, 
consideration should be given to any networking needs or any 
requirements for use of the computer software from remote terminals. 
Also, in addressing such needs, the scope of the restricted rights may 
be different for the documentation accompanying the computer software 
than for the programs and data bases. Any additions to, or limitations 
on, the restricted rights set forth in the Restricted Rights Notice of 
subparagraph (g)(3) of the clause are to be expressly stated in the 
contract or in a collateral agreement incorporated in and made part of 
the contract, and the notice modified accordingly.
    (3) As an aid in determining whether the clause should be used with 
its Alternate III, the provision at 52.227-15, Representation of Limited 
Rights Data and Restricted Computer Software, may be included in any 
solicitation containing the clause at 52.227-14, Rights in Data--
General. This representation requests that an offeror state, in response 
to a solicitation, to the extent feasible, whether restricted computer 
software is likely to be used in meeting the data delivery requirements 
set forth in the solicitation. In addition, the need for Alternate III 
should be considered during negotiations or discussions with an offeror, 
particularly where negotiations are based on an unsolicited proposal. 
However, use of the clause at 52.227-14, Rights in Data--General, 
without Alternate III does not preclude this Alternate from being used 
subsequently by modification during contract performance, should the 
need arise for the delivery of restricted computer software that has 
been withheld or identified as withholdable.
    (f) Copyrighted data.--(1) Data first produced in the performance of 
a contract. (i) In order to enhance the transfer or dissemination of 
information produced at Government expense, contractors are normally 
authorized, without prior approval of the contracting officer, to 
establish claim to copyright

[[Page 560]]

subsisting in technical or scientific articles based on or containing 
data first produced in the performance of work under a contract 
containing the clause at 52.227-14, Rights in Data--General and 
published in academic, technical or professional journals, symposia 
proceedings and similar works. Otherwise, the permission of the 
contracting officer is required in accordance with subdivision 
(f)(1)(ii) of this section or any applicable agency regulations, to 
establish claim to copyright subsisting in data first produced in the 
performance of a contract unless the clause is used with its Alternate 
IV in accordance with subdivision (f)(1)(iii) of this section. Agencies 
may, however, restrict copyright under certain circumstances in 
accordance with subparagraph (g)(3) of this section.
    (ii) Usually, permission for a contractor to establish claim to 
copyright subsisting in data first produced under the contract will be 
granted when copyright protection will enhance the appropriate transfer 
or dissemination of such data and the commercialization of products or 
processes to which it pertains. The request for permission must be made 
in writing, and may be made either prior to contract award or 
subsequently during contract performance. It should identify the data 
involved or furnish copies of the data for which permission is 
requested, as well as a statement as to the intended publication or 
dissemination media or other purpose for which copyright is desired. The 
request normally will be granted unless--(A) the data consist of a 
report that represents the official views of the agency or that the 
agency is required by statute to prepare; (B) the data are intended 
primarily for internal use by the Government; (C) the data are of the 
type that the agency itself distributes to the public under an agency 
program; (D) the Government determines that limitation on distribution 
of the data is in the national interest; (E) the Government determines 
that the data should be disseminated without restriction.
    (iii) An Alternate IV is provided for use with the clause at 52.227-
14, Rights in Data--General, which Alternate provides a substitute 
subparagraph (c)(1) in the clause granting blanket permission for 
contractors to establish claim to copyright subsisting in all data first 
produced in the performance of the contract without further request 
being made by the contractor. Alternate IV shall be used in all 
contracts for basic or applied research (other than those for management 
or operation of Government facilities and in contracts and subcontracts 
in support of programs being conducted at such facilities or where 
international agreements require otherwise) to be performed solely by 
colleges and universities. Alternate IV will not be used in contracts 
with colleges and universities if a purpose of the contract is for 
development of computer software for distribution to the public 
(including use in solicitations) by or on behalf of the Government. In 
addition, Alternate IV may be used in other contracts if an agency 
determines to grant blanket permission for contractors to establish 
claim to copyright subsisting in all data first produced in the 
performance of contract without further request being made by the 
contractor. In any contract where Alternate IV is used, the contract may 
exclude any data, items or categories of data from the blanket 
permission granted, either by express provisions in the contract or by 
the addition of a subparagraph (d)(3) to the clause, consistent with 
subparagraph (g)(3) of this section.
    (iv) Whenever a contractor establishes claim to copyright subsisting 
in data (other than computer software) first produced in the performance 
of a contract, the Government is granted a paid-up nonexclusive, 
irrevocable, worldwide license to reproduce, prepare derivative works, 
distribute to the public, perform publicly and display publicly by or on 
behalf of the Government, for all such data, as set forth in 
subparagraph (c)(1) of the clause at 52.227-14, Rights in Data--General. 
For computer software the scope of the Government's license does not 
include the right to distribute to the public. Agencies may also, either 
on a case-by-case basis, or on a class basis if provided in implementing 
regulations, obtain a license of different scope than set forth in 
subparagraph (c)(1) of the clause if the agency determines that

[[Page 561]]

such different license will substantially enhance the transfer or 
dissemination of any data first produced under the contract, and will 
not interfere with the Government's use of the data as contemplated by 
the contract or if required for international agreements. If an agency 
obtains such a different license, the scope of that license shall be 
clearly stated in a conspicuous place on the medium on which the data is 
recorded. That is, if a report, the scope of the different license shall 
be put on the cover, or first page, of the report. If computer software, 
the scope of the different license shall be placed on the most 
conspicuous place available.
    (v) Whenever a contractor establishes claim to copyright in data 
first produced in the performance of a contract, irrespective of which 
Alternate is used with the clause or the scope of the Government's 
license, the contractor is required to affix the applicable copyright 
notices of 17 U.S.C. 401 or 402, and acknowledgment of Government 
sponsorship (including the contract number) to the data whenever such 
data are delivered to the Government, published, or deposited for 
registration as a published work in the U.S. Copyright Office. Failure 
to do so could result in such data being treated as unlimited rights 
data (see paragraph (i) of this section).
    (2) Data not first produced in the performance of a contract. (i) 
Contractors are not to incorporate in data delivered under a contract 
any data that is not first produced under the contract and that is 
marked with the copyright notice of 17 U.S.C. 401 or 402, without either 
(A) acquiring for or granting to the Government certain copyright 
license rights for the data, or (B) obtaining permission from the 
contracting officer to do otherwise. The copyright license the 
Government acquires for such data will normally be of the same scope as 
discussed in subdivision (f)(1)(iv) of this section, and is set forth in 
subparagraph (c)(2) of the clause at 52.227-14, Rights in Data--General. 
However, agencies may, on a case-by-case basis, or on a class basis if 
provided in implementing agency regulations, obtain a license of 
different scope if the agency determines that such different license 
will not be inconsistent with the purpose of acquiring the data. If a 
license of a different scope is acquired, it must be so stated in the 
contract and clearly set forth in a conspicuous place on the data when 
delivered to the Government. In addition, if computer software not first 
produced under a contract is delivered with the copyright notice of 17 
U.S.C. 401, the Government's license will be as set forth in 
subparagraph (g)(3) (Alternate III) if included in the clause at 52.227-
14, Rights in Data--General, or as otherwise may be provided in a 
collateral agreement incorporated in or made part of the contract.
    (ii) Contractors delivering data with both an authorized limited 
rights or restricted rights notice and the copyright notice of 17 U.S.C. 
401 or 402 should modify the copyright notice to include the following 
(or similar) statement: Unpublished--all rights reserved under the 
copyright laws of the United States. If this statement is omitted, the 
contractor may be afforded an opportunity to correct it in accordance 
with paragraph (h) of this section. Otherwise, data delivered with a 
copyright notice of 17 U.S.C. 401 or 402 may be presumed to be published 
copyrighted data subject to the applicable license rights set forth in 
subdivision (f)(2)(i) of this section, without disclosure limitations or 
restrictions.
    (iii) If contractor action causes limited rights or restricted 
rights data to be published with the copyright notice of 17 U.S.C. 401 
or 402 after its delivery to the Government, the Government is relieved 
of disclosure and use limitations and restrictions regarding such data, 
and the contractor should advise the Government, request that a 
copyright notice be placed on the copies of the data delivered to the 
Government and acknowledge that the applicable copyright license set 
forth in subdivision (f)(2)(i) of this section applies.
    (g) Release, publication, and use of data. (1) In paragraph (d) of 
the clause at 52.227-14, Rights in Data--General, subparagraph (d)(1) 
recognizes the fact that normally the contractor has the right to use, 
release to others, reproduce, distribute, or publish data first produced 
in the performance of a contract, except to the extent such data

[[Page 562]]

may be subject to Federal export control or to national security laws or 
regulations. In addition, to the extent the contractor receives or is 
given access to data that is necessary for the performance of the 
contract from or by the Government or others acting on behalf of the 
Government, and the data contains restrictive markings, subparagraph 
(d)(2) provides an agreement with the contractor to treat the data in 
accordance with the markings, unless otherwise specifically authorized 
by the contracting officer.
    (2) In contracts for basic or applied research with universities or 
colleges, no restrictions may be placed upon the conduct of or reporting 
on the results of unclassified basic or applied research, except as 
provided in applicable U.S. Statutes. For the purposes of this 
subparagraph, agency restrictions on the release or disclosure of 
computer software that has been, readily can be, or is intended to be, 
developed to the point of practical application (including for agency 
distribution under established programs) are not considered restrictions 
on the reporting of the results of basic or applied research. Agencies 
may also restrict claim to copyright in any computer software for 
purposes of established agency distribution programs, or where required 
to accomplish the purpose for which the software is produced.
    (3) Except for the results of basic or applied research under 
contracts with universities or colleges, agencies may, to the extent 
provided in their FAR supplements, place limitations or restrictions on 
the contractor's right to use, release to others, reproduce, distribute, 
or publish any data first produced in the performance of the contract, 
including a requirement to assign copyright to the Government or another 
party, either by adding a subparagraph (d)(3) to the Rights in Data--
General clause at 52.227-14, or by express limitations or restrictions 
in the contract. In the latter case, the limitations or restrictions 
should be referenced in the Rights in Data--General clause. However, 
such regulatory restrictions or limitations are not to be imposed unless 
they are determined by the agency to be necessary in the furtherance of 
agency mission objectives, needed to support specific agency programs, 
or necessary to meet statutory requirements. Notwithstanding the 
provisions of this subparagraph, agencies may obtain, if provided in 
their FAR supplement, for information purposes only, advance copies of 
articles intended for publication in academic, scientific or technical 
journals or symposia proceedings or similar works.
    (h) Unauthorized marking of data. Except for validation of 
restrictive markings on technical data under contracts for major 
systems, or for support of major systems, by agencies subject to the 
provisions of Title III of the Federal Property and Administrative 
Services Act of 1949, the Government has, in accordance with paragraph 
(e) of the clause at 52.227-14, Rights in Data--General, the right to 
either return to the contractor data containing markings not authorized 
by that clause, or to cancel or ignore such markings. However, markings 
will not be canceled or ignored without making written inquiry of the 
contractor and affording the contractor at least 30 days to provide a 
written justification to substantiate the propriety of the markings. 
Failure of the contractor to respond, or failure to provide a written 
justification to substantiate the propriety of the markings within the 
time afforded, may result in the Government's action to cancel or ignore 
the markings. If the contractor provides a written justification to 
substantiate the propriety of the markings, it will be considered by the 
contracting officer and the contractor notified of any determination 
based thereon. If the contracting officer determines that the markings 
are authorized, the contractor will be so notified in writing. Further, 
if the contracting officer determines, with concurrence of the head of 
the contracting activity, that the markings are not authorized, the 
contractor will be furnished a written determination which shall become 
the final agency decision regarding the appropriateness of the markings 
and the markings will be cancelled or ignored and the data will no 
longer be made subject to disclosure prohibitions, unless the contractor 
files suit within 90

[[Page 563]]

days in a court of competent jurisdiction. In any event, the markings 
will not be cancelled or ignored unless the contractor fails to respond 
within the period provided, or, if the contractor does respond, until 
final resolution of the matter, either by the contracting officer's 
determination becoming the final agency decision or by final disposition 
of the matter by court decision if suit is filed. The foregoing 
procedures may be modified in accordance with agency regulations 
implementing the Freedom of Information Act (5 U.S.C. 552) if necessary 
to respond to a request thereunder. In addition, the contractor is not 
precluded from bringing a claim under the Contract Disputes Act, 
including pursuant to the Disputes clause of this contract if 
applicable, that may arise as the result of the Government's action to 
remove or ignore any markings on data, unless such action occurs as the 
result of a final disposition of the matter by a court of competent 
jurisdiction.
    (i) Omitted or incorrect notices. (1) Data delivered under a 
contract containing the clause at 52.227-14, Rights in Data--General, 
without a limited rights notice or restricted rights notice, and without 
a copyright notice, will be presumed to have been delivered with 
unlimited rights, and the Government assumes no liability for the 
disclosure, use, or reproduction of such data. However, to the extent 
the data has not been disclosed without restriction outside the 
Government, the contractor may within 6 months (or a longer period 
approved by the contracting officer for good cause shown) request 
permission of the contracting officer to have omitted limited rights or 
restricted rights notices, as applicable, placed on qualifying data at 
the contractor's expense, and the contracting officer may agree to so 
permit if the contractor (i) identifies the data for which a notice is 
to be added or corrected, (ii) demonstrates that the omission of the 
proposed notice was inadvertent, (iii) establishes that use of the 
proposed notice is authorized, and (iv) acknowledges that the Government 
has no liability with respect to any disclosure or use of any such data 
made prior to the addition of the notice or resulting from the omission 
of the notice.
    (2) The contracting officer may also (i) permit correction, at the 
contractor's expense, of incorrect notices if the contractor identifies 
the data on which correction of the notice is to be made, and 
demonstrates that the correct notice is authorized, or (ii) correct any 
incorrect notices.
    (j) Inspection of data at the contractor's facility. Contracting 
officers may obtain the right to inspect data at the contractor's 
facility by use of Alternate V, which adds paragraph (j) to provide that 
right in the clause at 52.227-14, Rights in Data--General. Agencies may 
also adopt Alternate V for general use. The data subject to inspection 
may be data withheld or withholdable under subparagraph (g)(1) of the 
clause. Such inspection may be made by the contracting officer or 
designee (including nongovernmental personnel under the same conditions 
as the contracting officer) for the purpose of verifying a contractor's 
assertion regarding the limited rights or restricted rights status of 
the data, or for evaluating work performance under the contract. This 
right may be exercised up to 3 years after acceptance of all items to be 
delivered under the contract. The contract may specify data items that 
are not subject to inspection under paragraph (j) (Alternate V). If the 
contractor demonstrates to the contracting officer that there would be a 
possible conflict of interest if inspection were made by a particular 
representative, the contracting officer shall designate an alternate 
representative.



27.405  Other data rights provisions.

    (a) Production of special works. (1) The clause at 52.227-17, Rights 
in Data--Special Works, is to be used in contracts (or may be made 
applicable to portions thereof) that are primarily for the production or 
compilation of data (other than limited rights data or restricted 
computer software) for the Government's own use, or when there is a 
specific need to limit distribution and use of the data and/or to obtain 
indemnity for liabilities that may arise out of the content, 
performance, or disclosure of the data. Examples are contracts for--
    (i) The production of audiovisual works, including motion pictures 
or

[[Page 564]]

television recordings with or without accompanying sound, or for the 
preparation of motion picture scripts, musical compositions, sound 
tracks, translation, adaptation, and the like;
    (ii) Histories of the respective agencies, departments, services, or 
units thereof;
    (iii) Surveys of Government establishments;
    (iv) Works pertaining to the instruction or guidance of Government 
officers and employees in the discharge of their official duties;
    (v) The compilation of reports, books, studies, surveys, or similar 
documents that do not involve research, development, or experimental 
work;
    (vi) The collection of data containing personally identifiable 
information such that the disclosure thereof would violate the right of 
privacy or publicity of the individual to whom the information relates;
    (vii) Investigatory reports; or
    (viii) The development, accumulation, or compilation of data (other 
than that resulting from research, development, or experimental work 
performed by the contractor), the early release of which could prejudice 
follow-on acquisition activities or agency regulatory or enforcement 
activities.
    (2) The contract may specify the purposes and conditions (including 
time limitations) under which the data may be used, released, or 
reproduced other than for contract performance. Contracts for the 
production of audiovisual works, sound recordings, etc., may include 
limitations in connection with talent releases, music licenses, and the 
like that are consistent with the purposes for which the works are 
acquired.
    (3) Subdivision (c)(1)(ii) of the clause at 52.227-17, Rights in 
Data--Special Works, which enables the Government to obtain assignment 
of copyright in any data first produced in the performance of the 
contract, may be deleted if the contracting officer determines that such 
assignment is not needed to further the objectives of the contract.
    (4) Paragraph (e) of the clause, which requires the contractor to 
indemnify the Government against any liability incurred as the result of 
any violation of trade secrets, copyrights, right of privacy or 
publicity, or any libelous or other unlawful matter arising out of or 
contained in any production or compilation of data that are subject to 
the clause, may be deleted or limited in scope where the contracting 
officer determines that, because of the nature of the particular data 
involved, such liability will not arise.
    (5) When the audiovisual or other special works are produced to 
accomplish a public purpose other than acquisition for the Government's 
own use (such as for production and distribution to the public of such 
works by other than a Federal agency) agencies are authorized to modify 
the Rights in Data--Special Works clause for use in such contracts, with 
rights in data provisions which meet agency mission needs yet protect 
free speech and freedom of expression, as well as the artistic license 
of the creator of the work.
    (b) Rights relating to existing data other than limited rights 
data--(1) Acquisition of existing audiovisual and similar works. The 
clause at 52.227-18, Rights in Data--Existing Works, is for use in 
contracts exclusively for the acquisition (without modification) of 
existing motion pictures, television recordings, and other audiovisual 
works; sound recordings; musical, dramatic, and literary works; 
pantomimes and choreographic works; pictorial, graphic, and sculptural 
works; and works of a similar nature. The contract may set forth 
limitations consistent with the purposes for which the works covered by 
the contract are being acquired. Examples of these limitations are (i) 
means of exhibition or transmission, (ii) time, (iii) type of audience, 
and (iv) geographical location. If the contract requires that works of 
the type indicated in subparagraph (b)(1) of this section are to be 
modified through editing, translation, or addition of subject matter, 
etc. (rather than purchased in existing form) the clause at 52.227-17, 
Rights in Data--Special Works, is to be used. (See paragraph (a) of this 
section.)
    (2) Acquisition of existing computer software. (i) When contracting 
other than from GSA's Multiple Award Schedule contracts for the 
acquisition of existing computer software (i.e., privately developed 
software normally vended commercially under a license or lease

[[Page 565]]

agreement restricting its use, disclosure, or reproduction), no specific 
contract clause prescribed in this subpart need be used, but the 
contract (or purchase order) must specifically address the Government's 
rights to use, disclose and reproduce the software, which rights must be 
sufficient for the Government to fulfill the need for which the software 
is being acquired. Such rights may be negotiated and set forth in the 
contract using the guidance concerning restricted rights as set forth in 
27.404(e), or the clause at 52.227-19, Commercial Computer Software--
Restricted Rights, may be used. Restricted computer software acquired 
under GSA Multiple Award Schedule contracts and orders are excluded from 
this requirement. The guidance concerning rights set forth in 27.404(e), 
as well as those in the clause at 52.227-19, are the minimum rights the 
Government usually should accept. Thus if greater rights than these 
minimum rights are needed, or lesser rights are to be acquired, they 
must be negotiated and set forth in the contract (or purchase order). 
This includes any additions to, or limitations on, the rights set forth 
in paragraph (b) of the clause at 52.227-19 when used. Examples of 
greater rights may be those necessary for networking purposes or use of 
the software from remote terminals communicating with a host computer 
where the software is located. If the computer software is to be 
acquired with unlimited rights, the contract must also so state. In 
addition, the contract must adequately describe the computer programs 
and/or data bases, the form (tapes, punch cards, disk pack, and the 
like), and all the necessary documentation pertaining thereto. If the 
acquisition is by lease or license, the disposition of the computer 
software (by returning to the vendor or destroying) at the end of the 
term of the lease or license must be addressed.
    (ii) If the contract incorporates, makes reference to, or uses a 
vendor's standard commercial lease, license, or purchase agreement, such 
agreement shall be reviewed to assure that it is consistent with 
subdivision (b)(2)(i) of this section. Caution should be exercised in 
accepting a vendor's terms and conditions, since they may be directed to 
commercial sales and may not be appropriate for Government contracts. 
Any inconsistencies in a vendor's standard commercial agreement shall be 
addressed in the contract and the contract terms shall take precedence 
over the vendor's standard commercial agreement. If the clause at 
52.227-19, Commercial Computer Software--Restricted Rights, is used, 
inconsistencies in the vendor's standard commercial agreement regarding 
the Government's right to use, duplicate or disclose the computer 
software are reconciled by that clause.
    (iii) If a prime contractor under a contract containing the clause 
at 52.227-14, Rights in Data--General, with subparagraph (g)(3) 
(Alternate III) in the clause, acquires restricted computer software 
from a subcontractor (at any tier) as a separate acquisition for 
delivery to or for use on behalf of the Government, the contracting 
officer may approve any additions to, or limitations on the restricted 
rights in the Restricted Rights Notice of subparagraph (g)(3) in a 
collateral agreement incorporated in and made part of the contract.
    (3) Other existing data and works. Except for existing audiovisual 
and similar works pursuant to subparagraph (b)(1) of this section, and 
existing computer software pursuant to subparagraph (b)(2) of this 
section, no clause contained in this subpart is required to be included 
in (i) contracts solely for the acquisition of books, periodicals, and 
other printed items in the exact form in which such items are to be 
obtained unless reproduction rights are to be acquired; or (ii) other 
contracts (e.g., contracts resulting from sealed bidding) that require 
only existing data (other than limited rights data) to be delivered and 
such data are available without disclosure prohibitions, unless 
reproduction rights to the data are to be obtained. If the reproduction 
rights to the data are to be obtained in any contract of the type 
described in subdivision (b)(3) (i) or (ii) of this section, such rights 
must be specifically set forth in the contract. No clause contained in 
this subpart is required to be included in contracts substantially for 
on-line data base services in the same

[[Page 566]]

form as they are normally available to the general public.
    (c) Contracts awarded under Small Business Innovative Research 
(SBIR) Program. The clause at 52.227-20, Rights in Data--SBIR Program, 
is for use in all Phase I and Phase II contracts awarded under the Small 
Business Innovative Research Program (SBIR) established pursuant to Pub. 
L. 97-219 (the Small Business Innovation Development Act of 1982). The 
clause is limited to use solely in contracts awarded under the SBIR 
Program, and is the only data rights clause to be used in such 
contracts.



27.406  Acquisition of data.

    (a) General. (1) It is the Government's practice to determine, to 
the extent feasible, its data requirements in time for inclusion in 
solicitations. The data requirements may be subject to revision during 
contract negotiations. Since the preparation, reformatting, maintenance 
and updating, cataloging, and storage of data represents an expense to 
both the Government and the contractor, efforts should be made to keep 
the contract data requirements to a minimum, consistent with the 
purposes of the contract.
    (2) To the extent feasible, all known data requirements, including 
the time and place for delivery and any limitations and restrictions to 
be imposed on the contractor in the handling of the data, shall be 
specified in the contract. Further, and to the extent feasible, in major 
system acquisitions, data requirements shall be set out as separate 
contract line items. In establishing the contract data requirements and 
in specifying data items to be delivered by a contractor, agencies may, 
consistent with subparagraph (a)(1) of this section, develop their own 
contract schedule provisions in agency procedures (including data 
requirements lists) for listing, specifying, identifying source, 
assuring delivery, and handling any data required to be delivered, first 
produced, or specifically used in the performance of the contract.
    (3) Data delivery requirements should normally not require that a 
contractor provide the Government, as a condition of the procurement, 
unlimited rights in data that qualify as limited rights data or 
restricted computer software. Rather, form, fit, and function data may 
be furnished with unlimited rights in lieu of the qualifying data, or 
the qualifying data may be furnished with limited rights or restricted 
rights if needed (see 27.404 (d) and (e)). If greater rights are needed 
such need should be clearly set forth in the solicitation and the 
contractor fairly compensated for such greater rights.
    (b) Additional data requirements. (1) Recognizing that in some 
contracting situations, such as experimental, developmental, research, 
or demonstration contracts, it may not be feasible to ascertain all the 
data requirements at the time of contracting, the clause at 52.227-16, 
Additional Data Requirements, may be used to enable the subsequent 
ordering by the contracting officer of additional data first produced or 
specifically used in the performance of such contracts as the actual 
requirements become known. The clause shall normally be used in 
solicitations and contracts involving experimental, developmental, 
research or demonstration work (other than basic or applied research to 
be performed under a contract solely by a university or college when the 
contract amount will be $500,000 or less) unless all the requirements 
for data are believed to be known at the time of contracting and 
specified in the contract. If the contract is for basic or applied 
research to be performed by a university or college, and the contracting 
officer believes the contract effort will in the future exceed $500,000, 
even though the initial award does not, the contracting officer may 
include the clause in the initial award.
    (2) Data may be ordered under the clause at 52.227-16, Additional 
Data Requirements, at any time during contract performance or within a 
period of 3 years after acceptance of all items to be delivered under 
the contract. The contractor is to be compensated for converting the 
data into the prescribed form, for reproduction, and for delivery. In 
order to minimize storage costs for the retention of data, the 
contractor may be relieved of retention requirements for specified data 
items by the contracting officer at any time during the retention period 
required by

[[Page 567]]

the clause. The contracting officer may permit the contractor to 
identify and specify in the contract data not to be ordered for delivery 
under the Additional Data Requirements clause if such data is not 
necessary to meet the Government's requirements for data. Also, the 
contracting officer may alter the Additional Data Requirements clause by 
deleting the term or specifically used in paragraph (a) thereof if 
delivery of such data is not necessary to meet the Government's 
requirements for data. Any data ordered under this clause will be 
subject to the Rights in Data--General clause (or other equivalent 
clause setting forth the respective rights of the Government and the 
contractor) in the contract, and data authorized to be withheld under 
such clause will not be required to be delivered under the Additional 
Data Requirements clause, except as provided in Alternate II or 
Alternate III, if included in the clause (see 27.404 (d) and (e)).
    (3) Agencies not having an established program for dissemination of 
computer software shall give consideration to not ordering additional 
computer software under the clause at 52.227-16, Additional Data 
Requirements, for the sole purpose of disseminating or marketing of the 
software to the public especially if this will provide the contractor 
additional incentive to make improvements to the software at its own 
expense and disseminate or market it. This should not preclude an agency 
from including a summary description of computer software available from 
a contractor in any data dissemination programs which it operates, with 
a statement as to how the potential user can obtain it through the 
contractor, licensee, or assignee. In cases where the contracting 
officer orders software for internal purposes, consideration shall be 
given, consistent with the Government's needs, to not ordering 
particular source codes, algorithms, processes, formulae or flow charts 
of the software if the contractor shows that this aids its efforts to 
disseminate or market the software.
    (c) Acceptance of data. As required by 41 U.S.C. 418a(d)(7), 
acceptability of technical data delivered under a contract shall be in 
accordance with the appropriate contract clause as required by subpart 
46.3, and the clause at 52.227-21, Technical Data Declaration, Revision, 
and Withholding of Payment--Major Systems, when it is included in the 
contract. (See paragraph (d) of this section.)
    (d) Major system acquisition. (1) In order to assure that technical 
data needed to support a major system acquisition are timely delivered 
and are complete, accurate, and satisfy the requirements of the contract 
concerning the data, the clause at 52.227-21, Technical Data 
Declaration, Revision, and Withholding of Payment--Major Systems, is to 
be included in contracts for or in support of a major system (as the 
term major system is defined in section 4 of the Office of Federal 
Procurement Policy Act, as amended by Pub. L. 98-577), including every 
detailed design, development, or production contract for a major system 
acquisition and contracts for any individual part, component, 
subassembly, assembly, or subsystem integral to the major system, and 
other property which may be replaced during the service life of the 
system, and including spare parts and replenishment spare parts.
    (2) The clause at 52.227-21, Technical Data, Declaration, Revision, 
and Withholding of Payment--Major Systems, requires the contractor, upon 
delivery of any technical data made subject to the clause in the 
contract, to declare that to the best of its knowledge and belief, such 
data are complete, accurate, and comply with contract requirements. It 
also provides for corrections of any deficiencies in the data, as well 
as for the ability of the contracting officer to request revisions of 
the data to reflect engineering design changes made during performance 
of the contract and affecting form, fit, and function of the items the 
data depict. Further included is the authority for the contracting 
officer to withhold payment under the contract to assure timely delivery 
of the technical data and/or assure correction if the technical data are 
not complete, accurate, and in compliance with contract requirements.
    (3) When the clause at 52.227-21, Technical Data, Declaration, 
Revision and

[[Page 568]]

Withholding of Payment--Major Systems, is used, the section of the 
contract specifying data delivery requirements (see subparagraph (a)(2) 
of this section) shall expressly identify those line items of technical 
data to which the clause applies. Upon delivery of such technical data, 
the contracting officer or designee shall review the technical data and 
the contractor's declaration relating thereto to assure that the data 
are complete, accurate, and comply with contract requirements. If not, 
the contractor is to be requested to correct the deficiencies, and 
payment may be withheld until such is done. Final payment should not be 
made under the contract until it has been determined that the delivery 
requirements of those line items of data to which the clause applies 
have been satisfactorily met.
    (4) In a contract for or in support of a major system awarded by a 
civilian agency other than NASA or the U.S. Coast Guard the contracting 
officer shall include contractual provisions requiring, as an element of 
performance under the contract, the delivery of any technical data, 
other than computer software, relating to the major system or supplies 
for the major system procured or to be procured by the Government, which 
are to be developed exclusively with Federal funds in the performance of 
the contract if the delivery of such technical data is needed to ensure 
the competitive acquisition of supplies or services that will be 
required in substantial quantities in the future. The clause at 52.227-
22, Major System--Minimum Rights, is to be included in such contracts in 
addition to the clause at 52.227-14, Rights in Data--General, and other 
required clauses, to ensure that the Government acquires at least those 
rights required by Pub. L. 98-577 in technical data developed 
exclusively with Federal funds. In any contract to which this 
subparagraph (d)(4) applies, technical data, other than computer 
software, relating to a major system or supplies for a major system, 
procured or to be procured by the Government and also relating to the 
design, development, or manufacture of products or processes offered or 
to be offered for sale to the public (except for such data as may be 
necessary for the Government to operate or maintain the product, or use 
the process if obtained by the United States as an element of 
performance under the contract), shall not be required to be provided to 
the Government from persons who have developed such products or 
processes as a condition for the procurement of such products or 
processes by the Government.
[52 FR 18140, May 13, 1987, as amended at 62 FR 236, Jan. 2, 1997]



27.407  Rights to technical data in successful proposals.

    (a) Contracting officers may, in consideration of contract award, 
desire to acquire unlimited rights in technical data (but not commercial 
or financial information) contained in a successful proposal upon which 
a contract award is based. However, before such unlimited rights are 
acquired, the prospective contractor must be afforded the opportunity 
either (1) to advise the contracting officer that the technical data, or 
portions thereof (to be identified by the prospective contractor), are 
covered by any restrictive notice regarding the disclosure and use of 
proposal information authorized by subpart 15.2 or 15.6 (or any agency 
supplement thereto), and request that such protection be maintained by 
excluding the data from the Government's rights; or (2) to establish to 
the contracting officer's satisfaction that identified portions of the 
technical data do not relate directly to or will not be utilized in the 
work to be performed under the contract, and request that such portions 
be excluded from the Government's rights.
    (b) If unlimited rights to technical data in successful proposals, 
as set forth in paragraph (a) of this section, are to be acquired, it 
shall be by use of the clause at 52.227-23, Rights to Proposal Data 
(Technical). Any excluded technical data will be identified by inserting 
appropriate proposal page numbers in the clause, which clause enables 
the identification of data to be excluded from the Government's rights, 
as discussed in paragraph (a) of this section. Such exclusion is not 
dispositive of the protective status of the data, but any excluded 
technical data,

[[Page 569]]

as well as any commercial and financial information contained in the 
proposal, will remain subject to the policies in subpart 15.2 or 15.6 
(or agency supplements thereto) relating to proposal information (i.e., 
will be used for evaluation purposes only). If the clause at 52.227-23, 
Rights to Proposal Data (Technical), is included in a contract, the 
prospective contractor must be specifically afforded the opportunity to 
exclude technical data as set forth in paragraph (a) of this section, 
and the contract file must reflect that fact. If there is a need to have 
access to any of the excluded technical data during contract 
performance, consideration should be given to their acquisition as 
limited rights data, if they so qualify, in accordance with 27.404(d).
[52 FR 18140, May 13, 1987, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
27.407, in paragraphs (a)(1) and (b), ``15.4 or 15.5'' was amended to 
read ``15.2 or 15.6''; effective Oct. 10, 1997.



27.408  Cosponsored research and development activities.

    (a) In contracts involving cosponsored research and development 
wherein the contractor is required to make substantial contributions of 
funds or resources (i.e., by cost-sharing or by repayment of 
nonrecurring costs), and the contractor's and the Government's 
respective contributions to any item, component, process, or computer 
software, developed or produced under the contract are not readily 
segregable, the contracting officer may limit the acquisition of or 
acquire less than unlimited rights to any data developed and delivered 
under such contract. Agencies may regulate the use of this authority in 
their supplements. Basically such rights should, at a minimum, assure 
use of the data for agreed-to Governmental purposes (including 
reprocurement rights as appropriate), and will address any disclosure 
limitations or restrictions to be imposed on the data. Also, 
consideration may be given to directed licensing provisions if needed to 
carry out the objectives of the contract. Since the purpose of the 
cosponsored research and development, the legitimate proprietary 
interests of the contractor, the needs of the Government, and the 
respective contributions of both parties may vary, no specific clauses 
are prescribed, but a clause providing less than unlimited rights in the 
Government for data developed and delivered under the contract (such as 
license rights) may be tailored to the circumstances consistent with the 
foregoing and the policy set forth in 27.402. As a guide, such clause 
may be appropriate when the contractor contributes money or resources, 
or agrees to make repayment of nonrecurring costs, of a value of 
approximately 50 percent of the total cost of the contract (i.e., 
Government, contractor, and/or third party paid costs), and the 
respective contributions are not readily segregable for any work element 
to be performed under the contract. Such clause may be used for all or 
for only specifically identified tasks or work elements under the 
contract. In the latter instance, its use will be in addition to 
whatever other data rights clause is prescribed under this subpart, with 
the contract specifically identifying which clause is to apply to which 
tasks or work elements. Further, such clause may not be appropriate 
where the purpose of the contract is to produce data for dissemination 
to the public, or to develop or demonstrate technologies which will be 
available, in any event, to the public for their direct use.
    (b) Where the contractor's contributions are readily segregable (by 
performance requirements and the funding therefor) and so identified in 
the contract, any data resulting therefrom may be treated under such 
clause as limited rights data or restricted computer software in 
accordance with 27.404 (d) or (e), as applicable; or if such treatment 
is inconsistent with the purpose of the contract, rights to such data 
may, if so negotiated and stated in the contract, be treated in a manner 
consistent with paragraph (a) of this section.



27.409  Solicitation provisions and contract clauses.

    (a)(1) The contracting officer shall insert the clause at 52.227-14, 
Rights in Data--General, including its use with Alternate I through 
Alternate V as may be required or authorized in accordance

[[Page 570]]

with paragraphs (b) through (f) of this section, in solicitations and 
contracts if it is contemplated that data will be produced, furnished, 
or acquired under the contract, unless the contract is--
    (i) For the production of special works of the type set forth in 
27.405(a), but the clause at 52.227-14, Rights in Data-- General, shall 
be included in the contract and made applicable to data other than 
special works, as appropriate;
    (ii) For the acquisition of existing data works, as described in 
27.405(b);
    (iii) To be performed outside the United States, its possessions, 
and Puerto Rico, in which case agencies may prescribe different clauses 
(see paragraph (n) of this section);
    (iv) For architect-engineer services or construction work, in which 
case agencies may utilize the clause at 52.227-17, Rights in Data--
Special Works, or may prescribe different clauses;
    (v) A Small Business Innovation Research contract (see paragraph (l) 
of this section);
    (vi) For the management, operation, design, or construction of a 
Government-owned facility to perform research, development, or 
production work, in which case agencies may prescribe different clauses 
(see paragraph (p) of this section); or
    (vii) A contract involving cosponsored research and development in 
which a clause providing for less than unlimited right has been 
authorized. (See 27.408).
    (2) Subparagraph (e)(3) of the clause at 52.227-14, Rights in Data--
General, may be deleted or reserved by an agency not subject to Title 
III of the Federal Property and Administrative Services Act.
    (b) If an agency determines, in accordance with 27.404(c), to adopt 
the alternate definition of Limited Rights Data in paragraph (a) of the 
clause, the clause shall be used with its Alternate I.
    (c) In accordance with 27.404(d), if a contracting officer 
determines it is necessary to obtain the delivery of limited rights 
data, the clause shall be used with its Alternate II. The contracting 
officer shall, when Alternate II is used, assure that the purposes, if 
any, for which limited rights data are to be disclosed outside the 
Government are included in the Limited Rights Notice of subparagraph 
(g)(2) of the clause.
    (d) In accordance with 27.404(e), if a contracting officer 
determines it is necessary to obtain the delivery of restricted computer 
software, the clause shall be used with its Alternate III. Any greater 
or lesser rights regarding the use, duplication, or disclosure of 
restricted computer software than those set forth in the Restricted 
Rights Notice of subparagraph (g)(3) of the clause must be specified in 
the contract and the notice modified accordingly.
    (e) The clause shall be used with its Alternate IV in contracts for 
basic or applied research (other than those for the management or 
operation of Government facilities or where international agreements 
require otherwise), to be performed solely by universities and colleges. 
The clause may be used with its Alternate IV in other contracts if in 
accordance with 27.404(f)(1) an agency determines to grant blanket 
permission for the contractor to establish claim to copyright subsisting 
in all data first produced without further request being made by the 
contractor. When Alternate IV is used, the contract may exclude items or 
categories of data from the blanket permission granted, either by 
express provisions in the contract or by the addition of a subparagraph 
(d)(3) to the clause (see 27.404(g)(2)).
    (f) In accordance with 27.404(i), if a contracting officer needs to 
have the right to inspect certain data at a contractor's facility or if 
by an agency, generally the clause shall be used with its Alternate V.
    (g) In accordance with 27.404(d)(2), if the contracting officer 
desires to have an offeror state in response to a solicitation, to the 
extent feasible, whether limited rights data or restricted computer 
software are likely to be used in meeting the data delivery requirements 
set forth in the solicitation, the contracting officer shall insert in 
the solicitation the provision at 52.227-15, Representation of Limited 
Rights Data and Restricted Computer Software in any solicitation 
containing the clause at 52.227-14, Rights in Data--General. The 
contractor's response will provide an aid in determining whether the

[[Page 571]]

clause should be used with Alternate II and/or Alternate III.
    (h) The contracting officer shall normally insert the clause at 
52.227-16, Additional Data Requirements, in solicitations and contracts 
involving experimental, developmental, research, or demonstration work 
(other than basic or applied research to be performed solely by a 
university or college where the contract amount will be $500,000 or 
less) unless all the requirements for data are believed to be known at 
the time of contracting and specified in the contract. (See 27.406(b).) 
This clause may also be used in other contracts when considered 
appropriate.
    (i) In accordance with 27.405(a), the contracting officer shall 
insert the clause at 52.227-17, Rights in Data--Special Works, in 
solicitations and contracts primarily for the production or compilation 
of data (other than limited rights data or restricted computer software) 
for the Government's internal use, or when there is a specific need to 
limit distribution and use of the data and/or to obtain indemnity for 
liabilities that may arise out of the content, performance, or 
disclosure of the data. Examples of such contracts are set forth in 
27.405(a). The contract may specify the purposes and conditions 
(including time limitations) under which the data may be used, released 
or reproduced by the contractor for other than contract performance. 
Contracts for the production of audiovisual works, sound recordings, 
etc. may include limitations in connection with talent releases, music 
licenses, and the like that are consistent with the purposes for which 
the data is acquired.
    (j) The contracting officer shall insert the clause at 52.227-18, 
Rights in Data--Existing Works, in solicitations and contracts 
exclusively for the acquisition, without modification, of existing 
audiovisual and similar works of the type set forth in 27.405(b)(1). The 
contract may set forth limitations consistent with the purposes for 
which the work is being acquired. The clause at 52.227-17, Rights in 
Data--Special Works, shall be used if existing works are to be modified, 
as by editing, translation, addition of subject matter, etc.
    (k) In accordance with 27.405(b)(2), when contracting (other than 
from GSA's Multiple Award Schedule contracts) for the acquisition of 
existing computer software, the clause at 52.227-19, Commercial Computer 
Software-Restricted Rights, may be used in the solicitation and 
contract. In any event, the contracting officer shall assure that the 
contract contains terms to obtain sufficient rights for the Government 
to fulfill the need for which the software is being acquired and is 
otherwise consistent with 27.405(b)(2).
    (l) If the contract is a Small Business Innovation Research (SBIR) 
contract, the clause at 52.227-20, Rights in Data--SBIR Program shall be 
used in all Phase I and Phase II contracts awarded under the Small 
Business Innovation Research Program established pursuant to Pub. L. 97-
219 (The Small Business Innovation Development Act of 1982).
    (m) While no specific clause of this subpart is required to be 
included in contracts solely for the acquisition, without disclosure 
prohibitions, of books, publications and similar items in the exact form 
in which such items exist prior to the request for purchase (i.e., the 
off-the-shelf purchase of such items), or in other contracts (e.g., 
contracts resulting from sealed bidding) where only existing data 
available without disclosure prohibitions is to be furnished, if 
reproduction rights are to be acquired the contract shall include terms 
addressing such rights. (See 27.405(b)(3).)
    (n) Agencies may prescribe in their procedures, as appropriate, a 
clause consistent with the policy of 27.402 in contracts to be performed 
outside the United States, its possessions, and Puerto Rico.
    (o) Agencies may prescribe in their procedures the clause at 52.227-
17, Rights in Data--Special Works, or prescribe, as appropriate, clauses 
consistent with the policy in 27.402 in contracts for architect-engineer 
services and construction work.
    (p) Agencies may prescribe in their procedures, as appropriate, a 
clause consistent with the policy of 27.402 in contracts for management, 
operation, design, or construction of Government-owned research, 
development, or production facilities, and in contracts and

[[Page 572]]

subcontracts in support of programs being conducted at such facilities.
    (q) In accordance with 27.406(d), the contracting officer shall 
insert the clause at 52.227-21, Technical Data Declaration, Revision, 
and Withholding of Payment--Major Systems, in contracts for major 
systems acquisitions or for support of major systems acquisitions. When 
used, this clause requires that the technical data to which it applies 
be specified in the contract. (See 27.406(d).)
    (r) In the case of civilian agencies except NASA and the U.S. Coast 
Guard, the contracting officer shall insert the clause at 52.227-22, 
Major System--Minimum Rights, in contracts for major systems or 
contracts in support of major systems.
    (s) In accordance with 27.407, if a contracting officer desires to 
acquire unlimited rights in technical data contained in a successful 
proposal upon which a contract award is based, the contracting officer 
shall insert the clause at 52.227-23, Rights to Proposed Data 
(Technical). Rights to technical data in a proposal are not acquired by 
mere incorporation by reference of the proposal in the contract, and if 
a proposal is incorporated by reference, 27.404 must be followed to 
assure that such rights are appropriately addressed.
[52 FR 18140, May 13, 1987, as amended at 55 FR 38517, Sept. 18, 1990; 
62 FR 236, Jan. 2, 1997]



                        Subpart 27.5  [Reserved]



    Subpart 27.6--Foreign License and Technical Assistance Agreements



27.601  General.

    Agencies shall provide all necessary rules and regulations as are 
required for the proper application of the laws and policies of the U.S. 
Government regarding--
    (a) Elimination in agreements between domestic concerns and foreign 
governments or foreign concerns of charges for the use of patents in 
which the U.S. Government has a royalty-free license or of charges in 
agreements for the use of data that the U.S. Government has a right to 
use and disclose to others, that is in the public domain, or that was 
acquired by the U.S. Government with the unrestricted right to use, 
duplicate, or disclose and to have or permit others to do so;
    (b) Foreign license and technical assistance agreements between the 
U.S. Government and United States domestic concerns;
    (c) Guidance on negotiating contract prices and terms concerning 
patents and data, including royalties, in contracts between the U.S. 
Government and a foreign government or foreign concern; and
    (d) Regulations and guidance on controls on the exportation of data 
relating to certain designated items, such as arms or munitions of war, 
and guidance on reviews of agreements involving such data (see 22 CFR 
part l24).



PART 28--BONDS AND INSURANCE--Table of Contents




Sec.
28.000  Scope of part.
28.001  Definitions.

           Subpart 28.1--Bonds and Other Financial Protections

28.100  Scope of subpart.
28.101  Bid guarantees.
28.101-1  Policy on use.
28.101-2  Solicitation provision or contract clause.
28.101-3  [Reserved]
28.101-4  Noncompliance with bid guarantee requirements.
28.102  Performance and payment bonds and alternative payment 
          protections for construction contracts.
28.102-1  General.
28.102-2  Amount required.
28.102-3  Contract clauses.
28.103  Performance and payment bonds for other than construction 
          contracts.
28.103-1  General.
28.103-2  Performance bonds.
28.103-3  Payment bonds.
28.103-4  Contract clause.
28.104  Annual performance bonds.
28.105  Other types of bonds.
28.105-1  Advance payment bonds.
28.105-2  Patent infringement bonds.
28.106  Administration.
28.106-1  Bonds and bond related forms.
28.106-2  Substitution of surety bonds.
28.106-3  Additional bond and security.
28.106-4  Contract clause.
28.106-5  Consent of surety.
28.106-6  Furnishing information.

[[Page 573]]

28.106-7  Withholding contract payments.
28.106-8  Payment to subcontractors or suppliers.

           Subpart 28.2--Sureties and Other Security for Bonds

28.200  Scope of subpart.
28.201  Requirements for security.
28.202  Acceptability of corporate sureties.
28.203  Acceptability of individual sureties.
28.203-1  Security interests by an individual surety.
28.203-2  Acceptability of assets.
28.203-3  Acceptance of real property.
28.203-4  Substitution of assets.
28.203-5  Release of lien.
28.203-6  Contract clause.
28.203-7  Exclusion of individual sureties.
28.204  Alternatives in lieu of corporate or individual sureties.
28.204-1  United States bonds or notes.
28.204-2  Certified or cashiers checks, bank drafts, money orders, or 
          currency.
28.204-3  Irrevocable letter of credit (ILC).
28.204-4  Contract clause.

                         Subpart 28.3--Insurance

28.301  Policy.
28.302  Notice of cancellation or change.
28.303  Insurance against loss of or damage to Government property.
28.304  Risk-pooling arrangements.
28.305  Overseas workers' compensation and war-hazard insurance.
28.306  Insurance under fixed-price contracts.
28.307  Insurance under cost-reimbursement contracts.
28.307-1  Group insurance plans.
28.307-2  Liability.
28.308  Self-insurance.
28.309  Contract clauses for workers' compensation insurance.
28.310  Contract clause for work on a Government installation.
28.311  Solicitation provision and contract clause on liability 
          insurance under cost-reimbursement contracts.
28.311-1  Contract clause.
28.311-2  Agency solicitation provisions and contract clauses.
28.312  Contract clause for insurance of leased motor vehicles.
28.313  Contract clauses for insurance of transportation or 
          transportation-related services.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42286, Sept. 19, 1983, unless otherwise noted.



28.000  Scope of part.

    This part prescribes requirements for obtaining financial protection 
against losses under sealed bid and negotiated contracts. It covers bid 
guarantees, bonds, alternative payment protections, security for bonds, 
and insurance. The terms ``bid'' and ``bidders'' include ``proposal'' 
and ``offerors.''
[62 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, section 28.000 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.000  Scope of part.

    This part prescribes requirements for obtaining financial protection 
against damages under sealed bid and negotiated contracts. It covers bid 
guarantees, bonds, sureties, and insurance. The terms bid and bidders 
include proposal and offerors.
[48 FR 42286, Sept. 19, 1983, as amended at 50 FR 1743, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



28.001  Definitions.

    Attorney-in-fact, as used in this part, means an agent, independent 
agent, underwriter, or any other company or individual holding a power 
of attorney granted by a surety (see also power of attorney).
    Bid guarantee means a form of security assuring that the bidder (a) 
will not withdraw a bid within the period specified for acceptance and 
(b) will execute a written contract and furnish required bonds, 
including any necessary coinsurance or reinsurance agreements, within 
the time specified in the bid, unless a longer time is allowed, after 
receipt of the specified forms.
    Bond means a written instrument executed by a bidder or contractor 
(the ``principal''), and a second party (``the surety'' or ``sureties'') 
(except as provided in 28.204), to assure fulfillment of the principal's 
obligations to a third party (the ``obligee'' or ``Government''), 
identified in the bond. If the principal's obligations are not met, the 
bond assures payment, to the extent stipulated, of any loss sustained by 
the obligee. The types of bonds and related documents are as follows:
    (a) An advance payment bond secures fulfillment of the contractor's 
obligations under an advance payment provision.
    (b) An annual bid bond is a single bond furnished by a bidder, in 
lieu of

[[Page 574]]

separate bid bonds, which secures all bids (on other than construction 
contracts) requiring bonds submitted during a specific Government fiscal 
year.
    (c) An annual performance bond is a single bond furnished by a 
contractor, in lieu of separate performance bonds, to secure fulfillment 
of the contractor's obligations under contracts (other than construction 
contracts) requiring bonds entered into during a specific Government 
fiscal year.
    (d) A patent infringement bond secures fulfillment of the 
contractor's obligations under a patent provision.
    (e) A payment bond assures payments as required by law to all 
persons supplying labor or material in the prosecution of the work 
provided for in the contract.
    (f) A performance bond secures performance and fulfillment of the 
contractor's obligations under the contract.
    Consent of surety means an acknowledgment by a surety that its bond 
given in connection with a contract continues to apply to the contract 
as modified.
    Insurance, as used in this part, means a contract which provides 
that for a stipulated consideration, one party undertakes to indemnify 
another against loss, damage, or liability arising from an unknown or 
contingent event.
    Irrevocable letter of credit (ILC) means a written commitment by a 
federally insured financial institution to pay all or part of a stated 
amount of money until the expiration date of the letter, upon 
presentation by the Government (the beneficiary) of a written demand 
therefor. Neither the financial institution nor the offeror/contractor 
can revoke or condition the letter of credit.
    Penal sum or penal amount means the amount of money specified in a 
bond (or a percentage of the bid price in a bid bond) as the maximum 
payment for which the surety is obligated or the amount of security 
required to be pledged to the Government in lieu of a corporate or 
individual surety for the bond.
    Power of attorney, as used in this part, means the authority given 
one person or corporation to act for and obligate another, as specified 
in the instrument creating the power; in corporate suretyship, an 
instrument under seal which appoints an attorney-in-fact to act in 
behalf of a surety company in signing bonds (see also attorney-in-fact).
    Reinsurance means a transaction which provides that a surety, for a 
consideration, agrees to indemnify another surety against loss which the 
latter may sustain under a bond which it has issued.
    Surety means an individual or corporation legally liable for the 
debt, default, or failure of a principal to satisfy a contractual 
obligation. The types of sureties referred to are as follows:
    (a) An individual surety is one person, as distinguished from a 
business entity, who is liable for the entire penal amount of the bond.
    (b) A corporate surety is licensed under various insurance laws and, 
under its charter, has legal power to act as surety for others.
    (c) A cosurety is one of two or more sureties that are jointly 
liable for the penal sum of the bond. A limit of liability for each 
surety may be stated.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996; 
62 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, in section 
28.001, the definitions for Irrevocable letter of credit (ILC) and Penal 
sum or penal amount were revised, effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

28.001  Definitions.

                                * * * * *

    Irrevocable letter of credit (ILC) means a written commitment by a 
federally insured financial institution to pay all or part of a stated 
amount of money on demand to the Government (the beneficiary) until the 
expiration date of the letter. The letter of credit cannot be revoked or 
conditioned.
    Penal sum or penal amount means the amount of money specified in a 
bond (or a percentage of the bid price in a bid bond) as the maximum 
payment for which the surety is obligated.

                                * * * * *

[[Page 575]]



           Subpart 28.1--Bonds and Other Financial Protections



28.100  Scope of subpart.

    This subpart prescribes requirements and procedures for the use of 
bonds, alternative payment protections, and all types of bid guarantees.
[62 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, section 28.100 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.100  Scope of subpart.

    This subpart prescribes requirements and procedures for the use of 
bonds and all types of bid guarantees.



28.101  Bid guarantees.



28.101-1  Policy on use.

    (a) A contracting officer shall not require a bid guarantee unless a 
performance bond or a performance and payment bond is also required (see 
28.102 and 28.103). Except as provided in paragraph (c) of this 
subsection, bid guarantees shall be required whenever a performance bond 
or a performance and payment bond is required.
    (b) All types of bid guarantees are acceptable for supply or service 
contracts (see annual bid bonds and annual performance bonds coverage in 
28.001). Only separate bid guarantees are acceptable in connection with 
construction contracts. Agencies may specify that only separate bid 
bonds are acceptable in connection with construction contracts.
    (c) The chief of the contracting office may waive the requirement to 
obtain a bid guarantee when a performance bond or a performance and 
payment bond is required if it is determined that a bid guarantee is not 
in the best interest of the Government for a specific acquisition (e.g., 
overseas construction, emergency acquisitions, sole-source contracts). 
Class waivers may be authorized by the agency head or designee.
[48 FR 42286, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
52 FR 19803, May 27, 1987; 52 FR 30076, Aug. 12, 1987; 54 FR 34755, Aug. 
21, 1989; 61 FR 39213, July 26, 1996]



28.101-2  Solicitation provision or contract clause.

    (a) The contracting officer shall insert a provision or clause 
substantially the same as the provision at 52.228-1, Bid Guarantee, in 
solicitations or contracts that require a bid guarantee or similar 
guarantee. For example, the contracting officer may modify this 
provision--
    (1) To set a period of time that is other than 10 days for the 
return of executed bonds;
    (2) For use in connection with construction solicitations when the 
agency has specified that only separate bid bonds are acceptable in 
accordance with 28.101-1(b);
    (3) For use in solicitations for negotiated contracts; or
    (4) For use in service contracts containing options for extended 
performance.
    (b) The contracting officer shall determine the amount of the bid 
guarantee for insertion in the provision at 52.228-1 (see 28.102-2(c)). 
The amount shall be adequate to protect the Government from loss should 
the successful bidder fail to execute further contractual documents and 
bonds as required. The bid guarantee amount shall be at least 20 percent 
of the bid price but shall not exceed $3 million. When the penal sum is 
expressed as a percentage, a maximum dollar limitation may be stated.
[61 FR 39213, July 26, 1996]



28.101-3  [Reserved]



28.101-4  Noncompliance with bid guarantee requirements.

    (a) In sealed bidding, noncompliance with a solicitation requirement 
for a bid guarantee requires rejection of the bid, except in the 
situations described in paragraph (c) of this subsection when the 
noncompliance shall be waived.
    (b) In negotiation, noncompliance with a solicitation requirement 
for a bid guarantee requires rejection of an initial proposal as 
unacceptable, if a determination is made to award the contract based on 
initial proposals without discussion, except in the situations described 
in paragraph (c) of this subsection when noncompliance shall

[[Page 576]]

be waived. (See 15.306(a)(2) for conditions regarding making awards 
based on initial proposals.) If the conditions for awarding based on 
initial proposals are not met, deficiencies in bid guarantees submitted 
by offerors determined to be in the competitive range shall be addressed 
during discussions and the offeror shall be given an opportunity to 
correct the deficiency.
    (c) Noncompliance with a solicitation requirement for a bid 
guarantee shall be waived in the following circumstances unless the 
contracting officer determines in writing that acceptance of the bid 
would be detrimental to the Government's interest when--
    (1) Only one offer is received. In this case, the contracting 
officer may require the furnishing of the bid guarantee before award;
    (2) The amount of the bid guarantee submitted is less than required, 
but is equal to or greater than the difference between the offer price 
and the next higher acceptable offer;
    (3) The amount of the bid guarantee submitted, although less than 
that required by the solicitation for the maximum quantity offered, is 
sufficient for a quantity for which the offeror is otherwise eligible 
for award. Any award to the offeror shall not exceed the quantity 
covered by the bid guarantee;
    (4) The bid guarantee is received late, and late receipt is waived 
under 14.304;
    (5) A bid guarantee becomes inadequate as a result of the correction 
of a mistake under 14.407 (but only if the bidder will increase the bid 
guarantee to the level required for the corrected bid);
    (6) A telegraphic offer modification is received without 
corresponding modification of the bid guarantee, if the modification 
expressly refers to the previous offer and the offeror corrects any 
deficiency in bid guarantee;
    (7) An otherwise acceptable bid bond was submitted with a signed 
offer, but the bid bond was not signed by the offeror;
    (8) An otherwise acceptable bid bond is errroneously dated or bears 
no date at all; or
    (9) A bid bond does not list the United States as obligee, but 
correctly identifies the offeror, the solicitation number, and the name 
and location of the project involved, so long as it is acceptable in all 
other respects.
[54 FR 48985, Nov. 28, 1989, as amended at 60 FR 34739, July 3, 1995; 62 
FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section in 
section 28.101-4, in paragraph (b), ``15.610(a)'' was amended to read 
``15.306(a)(2)'', effective Oct. 10, 1997.



28.102  Performance and payment bonds and alternative payment protections for construction contracts.



28.102-1  General.

    (a) The Miller Act (40 U.S.C. 270a-270f) requires performance and 
payment bonds for any construction contract exceeding $100,000, except 
that this requirement may be waived (1) by the contracting officer for 
as much of the work as is to be performed in a foreign country upon 
finding that it is impracticable for the contractor to furnish such 
bond, or (2) as otherwise authorized by the Miller Act or other law.
    (b)(1) Pursuant to Section 4104(b)(2) of the Federal Acquisition 
Streamlining Act of 1994 (Public Law 103-355), for construction 
contracts greater than $25,000, but not greater than $100,000, the 
contracting officer shall select two or more of the following payment 
protections, giving particular consideration to inclusion of an 
irrevocable letter of credit as one of the selected alternatives:
    (i) A payment bond.
    (ii) An irrevocable letter of credit (ILC).
    (iii) A tripartite escrow agreement. The prime contractor 
establishes an escrow account in a federally insured financial 
institution and enters into a tripartite escrow agreement with the 
financial institution, as escrow agent, and all of the suppliers of 
labor and material. The escrow agreement shall establish the terms of 
payment under the contract and of resolution of disputes among the 
parties. The Government makes payments to the contractor's escrow 
account, and the escrow agent distributes the payments in accordance 
with the agreement, or triggers the disputes resolution procedures if 
required.
    (iv) Certificates of deposit. The contractor deposits certificates 
of deposit

[[Page 577]]

from a federally insured financial institution with the contracting 
officer, in an acceptable form, executable by the contracting officer.
    (v) A deposit of the types of security listed in 28.204-1 and 
28.204-2.
    (2) The contractor shall submit to the Government one of the payment 
protections selected by the contracting officer.
    (c) The contractor shall furnish all bonds or alternative payment 
protection, including any necessary reinsurance agreements, before 
receiving a notice to proceed with the work or being allowed to start 
work.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996]



28.102-2  Amount required.

    (a) Performance bonds. (1) The penal amount of performance bonds 
shall be 100 percent of the original contract price, unless the 
contracting officer determines that a lesser amount would be adequate 
for the protection of the Government.
    (2) The Government may require additional performance bond 
protection when a contract price is increased. The increase in 
protection shall generally equal 100 percent of the increase in contract 
price. The Government may secure additional protection by directing the 
contractor to increase the penal amount of the existing bond or to 
obtain an additional bond.
    (b) Payment bonds or alternative payment protection. (1) The penal 
amount of payment bonds or the amount of alternative payment protection 
shall equal--
    (i) Fifty percent of the contract price if the contract price is not 
more than $1 million;
    (ii) Forty percent of the contract price if the contract price is 
more than $1 million but not more than $5 million; or
    (iii) Two and one half million if the contract price is more than $5 
million.
    (2) If the original contract price is $5 million or less, the 
Government may require additional protection if the contract price is 
increased.
    (i) The penal amount of the total protection as revised shall meet 
the requirement of paragraph (b)(1) of this subsection.
    (ii) The Government shall secure the required additional protection 
by directing the contractor to increase the penal sum of the existing 
bond or to obtain an additional bond, or to furnish additional 
alternative payment protection.
    (3) The Government shall secure additional protection by directing 
the contractor to increase the penal sum of the existing bond or to 
obtain an additional bond, or to furnish additional alternative payment 
protection.
    (c) Requirements and indefinite-quantity contracts. (1) When 
determining the penal sum of bonds or the amount of alternative payment 
protection for requirements contracts, the contracting officer shall 
consider the contract price to be the price payable for the estimated 
quantity.
    (2) When determining the penal sum of bonds or the amount of 
alternative payment protection for indefinite-quantity contracts, the 
contracting officer shall consider the contract price to be the price 
payable for the specified minimum quantity. When the minimum quantity is 
exceeded, paragraphs (a)(2) and (b)(2) of this subsection apply.
    (d) Reducing amounts. The contracting officer has the discretion to 
reduce the amount of security to support a bond, subject to the 
conditions of 28.203-5(c) or 28.204(b).
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996; 
62 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, section 28.102-2 
was amended by revising the introductory text of paragraph (b)(1), and 
paragraphs (b)(2), (c)(1), and (c)(2), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

28.102-2  Amount required.

                                * * * * *

    (b) * * * (1) The penal amount of payment bonds or alternative 
payment protection shall equal--
    (2) If the original contract price is $5 million or less, the 
Government may require additional protection if the contract price is 
increased. The penal amount of the total

[[Page 578]]

protection as revised shall meet the requirement of paragraph (b)(1) of 
this subsection.

                                * * * * *

    (c) * * * (1) When determining the penal sum of bonds or alternative 
payment protection for requirements contracts, the contracting officer 
shall consider the contract price to be the price payable for the 
estimated quantity.
    (2) When determining the penal sum of bonds or alternative payment 
protection for indefinite-quantity contracts, the contracting officer 
shall consider the contract price to be the price payable for the 
specified minimum quantity. When the minimum quantity is exceeded, 
subparagraphs (a)(2) and (b)(2) of this subsection apply.

                                * * * * *



28.102-3  Contract clauses.

    (a) The contracting officer shall insert a clause substantially the 
same as the clause at 52.228-15, Performance and Payment Bonds--
Construction, in solicitations and contracts for construction that 
contain a requirement for performance and payment bonds if the resultant 
contract is expected to exceed $100,000. The penal amount of the 
performance bonds may be decreased in accordance with 28.102-2(a). Where 
the provision at 52.228-1 is not included in the solicitation, the 
contracting officer shall set a period of time for return of executed 
bonds.
    (b) Insert the clause at 52.228-13, Alternative Payment Protections, 
in solicitations and contracts for construction, when the estimated or 
actual value exceeds $25,000 but does not exceed $100,000. Complete the 
clause by specifying the payment protections selected (see 28.102-
1(b)(1)) and the deadline for submission.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996; 
61 FR 39213, July 26, 1996; 62 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, section 28.102-3 
was amended by revising the section heading and the last sentence of 
paragraph (b), effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.102-3  Solicitation requirements and contract clause.

                                * * * * *

    (b) * * * Complete the clause by specifying the payment protection 
or protections selected (see 28.102-1(b)(1)), the penal amount required, 
and the deadline for submission.

                                * * * * *



28.103  Performance and payment bonds for other than construction contracts.



28.103-1  General.

    (a) Generally, agencies shall not require performance and payment 
bonds for other than construction contracts. However, performance and 
payment bonds may be used as permitted in 28.103-2 and 28.103-3.
    (b) The contractor shall furnish all bonds before receiving a notice 
to proceed with the work.
    (c) No bond shall be required after the contract has been awarded if 
it was not specifically required in the contract, except as may be 
determined necessary for a contract modification.



28.103-2  Performance bonds.

    (a) Performance bonds may be required for contracts exceeding the 
simplified acquisition threshold when necessary to protect the 
Government's interest. The following situations may warrant a 
performance bond:
    (1) Government property or funds are to be provided to the 
contractor for use in performing the contract or as partial compensation 
(as in retention of salvaged material).
    (2) A contractor sells assets to or merges with another concern, and 
the Government, after recognizing the latter concern as the successor in 
interest, desires assurance that it is financially capable.
    (3) Substantial progress payments are made before delivery of end 
items starts.
    (4) Contracts are for dismantling, demolition, or removal of 
improvements.
    (b) The Government may require additional performance bond 
protection when a contract price is increased.
    (c) The contracting officer must determine the contractor's 
responsibility

[[Page 579]]

(see subpart 9.1) even though a bond has been or can be obtained.
[48 FR 42286, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995; 
61 FR 39213, July 26, 1996]



28.103-3  Payment bonds.

    (a) A payment bond is required only when a performance bond is 
required, and if the use of payment bond is in the Government's 
interest.
    (b) When a contract price is increased, the Government may require 
additional bond protection in an amount adequate to protect suppliers of 
labor and material.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 39213, July 26, 1996]



28.103-4  Contract clause.

    The contracting officer shall insert a clause substantially the same 
as the clause at 52.228-16, Performance and Payment Bonds--Other than 
Construction, in solicitations and contracts that contain a requirement 
for both payment and performance bonds. The contracting officer shall 
determine the amount of each bond for insertion in the clause. The 
amount shall be adequate to protect the interest of the Government. The 
contracting officer shall also set a period of time (normally 10 days) 
for return of executed bonds. Alternate I shall be used when only 
performance bonds are required.
[61 FR 39213, July 26, 1996]



28.104  Annual performance bonds.

    (a) Annual performance bonds only apply to non-construction 
contracts. They shall provide a gross penal sum applicable to the total 
amount of all covered contracts.
    (b) When the penal sums obligated by contracts are approximately 
equal to or exceed the penal sum of the annual performance bond, an 
additional bond will be required to cover additional contracts.



28.105  Other types of bonds.

    The head of the contracting activity may approve using other types 
of bonds in connection with acquiring particular supplies or services. 
These types include advance payment bonds and patent infringement bonds.



28.105-1  Advance payment bonds.

    Advance payment bonds may be required only when the contract 
contains an advance payment provision and a performance bond is not 
furnished. The contracting officer shall determine the amount of the 
advance payment bond necessary to protect the Government.



28.105-2  Patent infringement bonds.

    (a) Contracts providing for patent indemnity may require these bonds 
only if--
    (1) A performance bond is not furnished; and
    (2) The financial responsibility of the contractor is unknown or 
doubtful.
    (b) The contracting officer shall determine the penal sum.



28.106  Administration.



28.106-1  Bonds and bond related forms.

    The following Standard Forms (SF's) and Optional Forms (OF's) shown 
in 53.301 and 53.302 shall be used, except in foreign countries, when a 
bid bond, performance or payment bond, or an individual surety is 
required. The bond forms shall be used as indicated in the instruction 
portion of each form.
    (a) SF 24, Bid Bond (see 28.101).
    (b) SF 25, Performance Bond (see 28.102-1 and 28.106-3(b)).
    (c) SF 25-A, Payment Bond (see 28.102-1 and 28.106-3(b)).
    (d) SF 25-B, Continuation Sheet (for SF's 24, 25, and 25-A).
    (e) SF 28, Affidavit of Individual Surety (see 28.203).
    (f) SF 34, Annual Bid Bond (see 28.001).
    (g) SF 35, Annual Performance Bond (see 28.104).
    (h) SF 273, Reinsurance Agreement for a Miller Act Performance Bond 
(see 28.202(a)(4)).
    (i) SF 274, Reinsurance Agreement for a Miller Act Payment Bond (see 
28.202(a)(4)).
    (j) SF 275, Reinsurance Agreement in Favor of the United States (see 
28.202(a)(4)).
    (k) SF 1414, Consent of Surety (see 28.106-5).
    (l) SF 1415, Consent of Surety and Increase of Penalty (see 28.106-
3).

[[Page 580]]

    (m) SF 1416, Payment Bond for Other Than Construction Contracts (see 
28.103-3 and 28.106-3(b)).
    (n) SF 1418, Performance Bond for Other Than Construction Contracts 
(see 28.103-2 and 28.106-3(b)).
    (o) OF 90, Release of Lien on Real Property (see 28.203-5).
    (p) OF 91, Release of Personal Property from Escrow (see 28.203-5).
[48 FR 42286, Sept. 19, 1983, as amended at 54 FR 48986, Nov. 28, 1989; 
61 FR 39213, July 26, 1996]



28.106-2  Substitution of surety bonds.

    (a) A new surety bond covering all or part of the obligations on a 
bond previously approved may be substituted for the original bond if 
approved by the head of the contracting activity, or as otherwise 
specified in agency regulation.
    (b) When a new surety bond is approved, the contracting officer 
shall notify the principal and surety of the original bond of the 
effective date of the new bond.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 39213, July 26, 1996]



28.106-3  Additional bond and security.

    (a) When additional bond coverage is required and is secured in 
whole or in part by the original surety or sureties, agencies shall use 
Standard Form 1415, Consent of Surety and Increase of Penalty. Standard 
Form 1415 is authorized for local reproduction, and a copy of the form 
is furnished for this purpose in part 53 of the looseleaf edition of the 
FAR.
    (b) When additional bond coverage is required and is secured in 
whole or in part by a new surety or by one of the alternatives described 
in 28.204 in lieu of corporate or individual surety, agencies shall use 
Standard Form 25, Performance Bond; Standard Form 1418, Performance Bond 
for Other Than Construction Contracts; Standard Form 25-A, Payment Bond; 
or Standard Form 1416, Payment Bond for Other Than Construction 
Contracts.
[63 FR 44806, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44806, Aug. 22, 1997, section 28.106-3 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.106-3  Additional bond or security.

    (a) When additional bond coverage is required and is furnished in 
whole or in part by the original surety or sureties, agencies shall use 
Standard Form 1415, Consent of Surety and Increase of Penalty. Standard 
Form 1415 is authorized for local reproduction, and a copy of the form 
is furnished for this purpose in part 53 of the looseleaf edition of the 
FAR.
    (b) When additional coverage is furnished in whole or in part by a 
new surety, agencies shall use Standard Form 25, Performance Bond; 
Standard Form 1418, Performance Bond for Other Than Construction 
Contracts; Standard Form 25-A, Payment Bond; or Standard Form 1416, 
Payment Bond for Other Than Construction Contracts.
    (c) When an ILC is used as an alternative to corporate or individual 
sureties as security for a performance or payment bond and the contract 
performance period is extended, the contracting officer shall require 
the contractor to provide an ILC with an appropriately extended maturity 
that meets the requirements of 28.204-3(f).
[48 FR 42286, Sept. 19, 1983, as amended at 53 FR 43391, Oct. 26, 1988; 
61 FR 31652, June 20, 1996; 61 FR 39213, July 26, 1996]



28.106-4  Contract clause.

    (a) The contracting officer shall insert the clause at 52.228-2, 
Additional Bond Security, in solicitations and contracts when bonds are 
required.
    (b) In accordance with Section 806(a)(3) of Pub. L. 102-190, as 
amended by Sections 2091 and 8105 of Pub. L. 103-355, the contracting 
officer shall insert the clause at 52.228-12, Prospective Subcontractor 
Requests for Bonds, in solicitations and contracts with respect to which 
a payment bond will be furnished pursuant to the Miller Act (see 28.102-
1), except for contracts for the acquisition of commercial items as 
defined in Subpart 2.1.
[48 FR 42286, Sept. 19, 1983, as amended at 60 FR 48273, Sept. 18, 1995]



28.106-5  Consent of surety.

    (a) When any contract is modified, the contracting officer shall 
obtain the consent of surety if--
    (1) An additional bond is obtained from other than the original 
surety;
    (2) No additional bond is required and--
    (i) The modification is for new work beyond the scope of the 
original contract; or

[[Page 581]]

    (ii) The modification does not change the contract scope but changes 
the contract price (upward or downward) by more than 25 percent or 
$50,000; or
    (3) Consent of surety is required for a novation agreement (See 
subpart 42.12).
    (b) When a contract for which performance or payment is secured by 
any of the types of security listed in 28.204 is modified as described 
in paragraph (a) of this subsection, no consent of surety is required.
    (c) Agencies shall use Standard Form 1414, Consent of Surety, for 
all types of contracts.
[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996]



28.106-6  Furnishing information.

    (a) The surety on the bond, upon its written request, may be 
furnished information on the progress of the work, payments, and the 
estimated percentage of completion, concerning the contract for which 
the bond was furnished.
    (b) When a payment bond has been provided, the contracting officer 
shall, upon request, furnish the name and address of the surety or 
sureties to any subcontractor or supplier who has furnished or been 
requested to furnish labor or material for the contract. In addition, 
general information concerning the work progress, payments, and the 
estimated percentage of completion may be furnished to persons who have 
provided labor or materials and have not been paid.
    (c) When a payment bond has been provided for a contract, the head 
of the agency or designee shall furnish a certified copy of the bond and 
the contract for which it was given to any person who makes a request 
therefor and who furnishes an affidavit that the requestor has supplied 
labor or materials for such work and payment therefor has not been made 
or that the requestor is being sued on such bond. The person who makes 
the request shall be required to pay such costs of preparation as 
determined by the head of the agency or designee to be reasonable and 
appropriate (see 40 U.S.C. 270(c)).
    (d) Section 806(a)(2) of Pub. L. 102-190, as amended by Sections 
2091 and 8105 of Pub. L. 103-355, requires that the Federal Government 
provide information to subcontractors on payment bonds under contracts 
for other than commercial items as defined in Subpart 2.1. Upon the 
written or oral request of a subcontractor/supplier, or prospective 
subcontractor/supplier, under a contract with respect to which a payment 
bond has been furnished pursuant to the Miller Act, the contracting 
officer shall promptly provide to the requester, either orally or in 
writing, as appropriate, any of the following:
    (1) Name and address of the surety or sureties on the payment bond.
    (2) Penal amount of the payment bond.
    (3) Copy of the payment bond. The contracting officer may impose 
reasonable fees to cover the cost of copying and providing a copy of the 
payment bond.
[48 FR 42286, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985; 
60 FR 48273, Sept. 18, 1995]



28.106-7  Withholding contract payments.

    (a) During contract performance, agencies shall not withhold 
payments due contractors or assignees because subcontractors or 
suppliers have not been paid.
    (b) If, after completion of the contract work, the Government 
receives written notice from the surety regarding the contractor's 
failure to meet its obligation to its subcontractors or suppliers, the 
contracting officer shall withhold final payment. However, the surety 
must agree to hold the Government harmless from any liability resulting 
from withholding the final payment. The contracting officer will 
authorize final payment upon agreement between the contractor and surety 
or upon a judicial determination of the rights of the parties.
    (c) For any withholding incident to the labor standards provisions 
of the contract, see part 22.



28.106-8  Payment to subcontractors or suppliers.

    The contracting officer will only authorize payment to 
subcontractors or suppliers from an ILC (or any other cash equivalent 
security) upon a judicial determination of the rights of the parties, a 
signed notarized statement by the contractor that the payment is

[[Page 582]]

due and owed, or a signed agreement between the parties as to amount due 
and owed.
[62 FR 44807, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44807, Aug. 22, 1997, section 28.106-8 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.106-8  Payment to subcontractors or suppliers.

    The contracting officer will only authorize payment from an ILC (or 
any other cash equivalent security) upon a judicial determination of the 
rights of the parties, a signed notarized statement by the contractor 
that the payment is due and owed, or a signed agreement between the 
parties as to amount due and owed.
[61 FR 31652, June 20, 1996]



           Subpart 28.2--Sureties and Other Security for Bonds



28.200  Scope of subpart.

    This subpart prescribes procedures for the use of sureties and other 
security to protect the Government from financial losses.
[62 FR 44807, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44807, Aug. 22, 1997, section 28.200 
was revised, effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

28.200  Scope of subpart.

    This subpart prescribes procedures for the use of sureties to 
protect the Government from financial losses.



28.201  Requirements for security.

    (a) Agencies shall obtain adequate security for bonds (including 
coinsurance and reinsurance agreements) required or used with a contract 
for supplies or services (including construction). Acceptable forms of 
security include (1) corporate or individual sureties or (2) any of the 
types of security authorized in lieu of sureties by 28.204.
    (b) Solicitations shall not preclude offerors from using the types 
of surety or other security permitted by this subpart, unless prohibited 
by law or regulation.
[48 FR 42286, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990; 
62 FR 44807, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44807, Aug. 22, 1997, in section 
28.201, in the section heading, ``sureties'' was amended to read 
``security'' and in paragraph (b), ``other'' was inserted after ``or'' 
the first time it appeared, effective Oct. 21, 1997.



28.202  Acceptability of corporate sureties.

    (a)(1) Corporate sureties offered for bonds furnished with contracts 
performed in the United States, its possessions, or Puerto Rico must 
appear on the list contained in the Department of the Treasury Circular 
570, ``Companies Holding Certificates of Authority as Acceptable 
Sureties on Federal Bonds and Acceptable Reinsuring Companies.''
    (2) The penal amount of the bond should not exceed the surety's 
underwriting limit stated in the Department of the Treasury circular. If 
the penal amount exceeds the underwriting limit, the bond will be 
acceptable only if (i) the amount which exceeds the specified limit is 
coinsured or reinsured and (ii) the amount of coinsurance or reinsurance 
does not exceed the underwriting limit of each coinsurer or reinsurer.
    (3) Coinsurance or reinsurance agreements shall conform to the 
Department of the Treasury regulations in 31 CFR 223.10 and 223.11. When 
reinsurance is contemplated, the contracting office generally shall 
require reinsurance agreements to be executed and submitted with the 
bonds before making a final determination on the bonds.
    (4) When specified in the solicitation, the contracting officer may 
accept a bond from the direct writing company in satisfaction of the 
total bond requirement of the contract. This is permissible until 
necessary reinsurance agreements are executed, even though the total 
bond requirement may exceed the insurer's underwriting limitation. The 
contractor shall execute and submit necessary reinsurance agreements to 
the contracting officer within the time specified on the bid form, which 
may not exceed 45 calendar days after the execution of the bond. The 
contractor shall use Standard Form 273, Reinsurance Agreement for a 
Miller Act Performance Bond, and Standard Form

[[Page 583]]

274, Reinsurance Agreement for a Miller Act Payment Bond, when 
reinsurance is furnished with Miller Act bonds. Standard Form 275, 
Reinsurance Agreement in Favor of the United States, is used when 
reinsurance is furnished with bonds for other purposes.
    (b) For contracts performed in a foreign country, sureties not 
appearing on Treasury Department Circular 570 are acceptable if the 
contracting officer determines that it is impracticable for the 
contractor to use Treasury listed sureties.
    (c) The Department of the Treasury issues supplements to Circular 
570, notifying all Federal agencies of (1) new approved corporate surety 
companies and (2) the termination of the authority of any specific 
corporate surety to qualify as a surety on Federal bonds. Upon receipt 
of notification of termination of a company's authority to qualify as a 
surety on Federal bonds, the contracting officer shall review the 
outstanding contracts and take action necessary to protect the 
Government, including, where appropriate, securing new bonds with 
acceptable sureties in lieu of outstanding bonds with the named company.
    (d) The Department of the Treasury Circular 570 may be obtained from 
the U.S. Department of the Treasury, Financial Management Service, 
Surety Bond Branch, 401 14th St., SW., 2nd Floor--West Wing, Washington, 
DC 20227.
[48 FR 42286, Sept. 19, 1983, as amended at 54 FR 48986, Nov. 28, 1989]



28.203  Acceptability of individual sureties.

    (a) An individual surety is acceptable for all types of bonds except 
position schedule bonds. The contracting officer shall determine the 
acceptability of individuals proposed as sureties, and shall ensure that 
the surety's pledged assets are sufficient to cover the bond obligation. 
(See 28.203-7 for information on excluded individual sureties.)
    (b) An individual surety must execute the bond, and the unencumbered 
value of the assets (exclusive of all outstanding pledges for other bond 
obligations) pledged by the individual surety, must equal or exceed the 
penal amount of each bond. The individual surety shall execute the 
Standard Form 28 and provide a security interest in accordance with 
28.203-1. One individual surety is adequate support for a bond, provided 
the unencumbered value of the assets pledged by that individual surety 
equal or exceed the amount of the bond. An offeror may submit up to 
three individual sureties for each bond, in which case the pledged 
assets, when combined, must equal or exceed the penal amount of the 
bond. Each individual surety must accept both joint and several 
liability to the extent of the penal amount of the bond.
    (c) If the contracting officer determines that no individual surety 
in support of a bid guarantee is acceptable, the offeror utilizing the 
individual surety shall be rejected as nonresponsible, except as 
provided in 28.101-4. A finding of nonresponsibility based on 
unacceptability of an individual surety, need not be referred to the 
Small Business Administration for a competency review. (See 19.602-
1(a)(2)(i) and 61 Comp. Gen. 456 (1982).)
    (d) A contractor submitting an unacceptable individual surety in 
satisfaction of a performance or payment bond requirement may be 
permitted a reasonable time, as determined by the contracting officer, 
to substitute an acceptable surety for a surety previously determined to 
be unacceptable.
    (e) When evaluating individual sureties, contracting officers may 
obtain assistance from the office identified in 28.202(d).
    (f) Contracting officers shall obtain the opinion of legal counsel 
as to the adequacy of the documents pledging the assets prior to 
accepting the bid guarantee and payment and performance bonds.
    (g) Evidence of possible criminal or fraudulent activities by an 
individual surety shall be referred to the appropriate agency official 
in accordance with agency procedures.
[54 FR 48986, Nov. 28, 1989]

[[Page 584]]



28.203-1  Security interests by an individual surety.

    (a) An individual surety may be accepted only if a security interest 
in assets acceptable under 28.203-2 is provided to the Government by the 
individual surety. The security interest shall be furnished with the 
bond.
    (b) The value at which the contracting officer accepts the assets 
pledged must be equal to or greater than the aggregate penal amounts of 
the bonds required by the solicitation and may be provided by one or a 
combination of the following methods:
    (1) An escrow account with a federally insured financial institution 
in the name of the contracting agency. (See 28.203-2(b)(2) with respect 
to Government securities in book entry form.) Acceptable securities for 
deposit in escrow are discussed in 28.203-2. While the offeror is 
responsible for establishing the escrow account, the terms and 
conditions must be acceptable to the contracting officer. At a minimum, 
the escrow account shall provide for the following:
    (i) The account must provide the contracting officer the sole and 
unrestricted right to draw upon all or any part of the funds deposited 
in the account. A written demand for withdrawal shall be sent to the 
financial institution by the contracting officer, after obtaining the 
concurrence of legal counsel, with a copy to the offeror/contractor and 
to the surety. Within the time period specified in the demand, the 
financial institution would pay the Government the amount demanded up to 
the amount on deposit. If any dispute should arise between the 
Government and the offeror/contractor, the surety, or the subcontractors 
or suppliers with respect to the offer or contract, the financial 
institution would be required, unless precluded by order of a court of 
competent jurisdiction, to disburse monies to the Government as directed 
by the contracting officer.
    (ii) The financial institution would be authorized to release to the 
individual surety all or part of the balance of the escrow account, 
including any accrued interest, upon receipt of written authorization 
from the contracting officer.
    (iii) The Government would not be responsible for any costs 
attributable to the establishment, maintenance, administration, or any 
other aspect of the account.
    (iv) The financial institution would not be liable or responsible 
for the interpretation of any provisions or terms and conditions of the 
solicitation or contract.
    (v) The financial institution would provide periodic account 
statements to the contracting officer.
    (vi) The terms of the escrow account could not be amended without 
the consent of the contracting officer.
    (2) A lien on real property, subject to the restrictions in 28.203-2 
and 28.203-3.
[54 FR 48986, Nov. 28, 1989]



28.203-2  Acceptability of assets.

    (a) The Government will accept only cash, readily marketable assets, 
or irrevocable letters of credit from a federally insured financial 
institution from individual sureties to satisfy the underlying bond 
obligations.
    (b) Acceptable assets include--
    (1) Cash, or certificates of deposit, or other cash equivalents with 
a federally insured financial institution;
    (2) United States Government securities at market value. (An escrow 
account is not required if an individual surety offers Government 
securities held in book entry form at a depository institution. In lieu 
thereof, the individual shall provide evidence that the depository 
institution has (i) placed a notation against the individual's book 
entry account indicating that the security has been pledged in favor of 
the respective agency; (ii) agreed to notify the agency prior to 
maturity of the security; and (iii) agreed to hold the proceeds of the 
security subject to the pledge in favor of the agency until a 
substitution of securities is made or the security interest is formally 
released by the agency);
    (3) Stocks and bonds actively traded on a national U.S. security 
exchange with certificates issued in the name of the individual surety. 
National security exchanges are--(i) the New York Stock Exchange; (ii) 
the American Stock Exchange; (iii) the Boston Stock Exchange; (iv) the 
Cincinnati Stock

[[Page 585]]

Exchange; (v) the Midwest Stock Exchange; (vi) the Philadelphia Stock 
Exchange; (vii) the Pacific Stock Exchange; and (viii) the Spokane Stock 
Exchange. These assets will be accepted at 90 percent of their 52-week 
low, as reflected at the time of submission of the bond. Stock options 
and stocks on the over-the-counter (OTC) market or NASDQ Exchanges will 
not be accepted. Assistance in evaluating the acceptability of 
securities may be obtained from the Securities and Exchange Commission, 
Division of Enforcement, 450 Fifth Street NW., Washington, DC 20549.
    (4) Real property owned in fee simple by the surety without any form 
of concurrent ownership, except as provided in subdivision (c)(3)(iii) 
of this subsection, and located within the 50 United States, its 
territories, or possessions. These assets will be accepted at 100 
percent of the most current tax assessment value (exclusive of 
encumbrances) or 75 percent of the properties' unencumbered market value 
provided a current appraisal is furnished (see 28.203-3).
    (5) Irrevocable letters of credit (ILC) issued by a federally 
insured financial institution in the name of the contracting agency and 
which identify the agency and solicitation or contract number for which 
the ILC is provided.
    (c) Unacceptable assets include but are not limited to--
    (1) Notes or accounts receivable;
    (2) Foreign securities;
    (3) Real property as follows:
    (i) Real property located outside the United States, its 
territories, or possessions.
    (ii) Real property which is a principal residence of the surety.
    (iii) Real property owned concurrently regardless of the form of co-
tenancy (including joint tenancy, tenancy by the entirety, and tenancy 
in common) except where all co-tenants agree to act jointly.
    (iv) Life estates, leasehold estates, or future interests in real 
property.
    (4) Personal property other than that listed in paragraph (b) of 
this subsection (e.g., jewelry, furs, antiques);
    (5) Stocks and bonds of the individual surety in a controlled, 
affiliated, or closely held concern of the offeror/contractor;
    (6) Corporate assets (e.g., plant and equipment);
    (7) Speculative assets (e.g., mineral rights);
    (8) Letters of credit, except as provided in 28.203-2(b)(5).
[54 FR 48987, Nov. 28, 1989]



28.203-3  Acceptance of real property.

    (a) Whenever a bond with a security interest in real property is 
submitted, the individual surety shall provide--
    (1) Evidence of title in the form of a certificate of title prepared 
by a title insurance company approved by the United States Department of 
Justice. This list entitled List of Approved Attorneys, Abstracters, and 
Title Companies is available from the Title Unit, Land Acquisition 
Section, Land and Natural Resource Division, Department of Justice, 
Washington, DC 20530. This title evidence must show fee simple title 
vested in the surety along with any concurrent owners; whether any real 
estate taxes are due and payable; and any recorded encumbrances against 
the property, including the lien filed in favor of the Government under 
paragraph (d) of this subsection;
    (2) Evidence of the amount due under any encumbrance shown in the 
evidence of title;
    (3) A copy of the current real estate tax assessment of the property 
or a current appraisal dated no earlier than 6 months prior to the date 
of the bond, prepared by a professional appraiser who certifies that the 
appraisal has been conducted in accordance with the generally accepted 
appraisal standards as reflected in the Uniform Standards of 
Professional Appraisal Practice as promulgated by the Appraisal 
Foundation, 1029 Vermont Avenue NW., Washington, DC 20005.
    (b) Failure to provide evidence that the lien has been properly 
recorded will render the offeror nonresponsible.
    (c) The individual surety is liable for the payment of all 
administrative costs of the Government, including legal fees, associated 
with the liquidation of pledged real estate.
    (d) The following format, or any document substantially the same, 
shall be used by the surety and recorded in the

[[Page 586]]

local recorder's office when a surety pledges real estate on Standard 
Form 28, Affidavit of Individual Surety.

                           Lien on Real Estate

    I/we agree that this instrument constitutes a lien in the amount of 
$----- on the property described in this lien. The rights of the United 
States Government shall take precedence over any subsequent lien or 
encumbrance until the lien is formally released by a duly authorized 
representative of the United States. I/we hereby grant the United States 
the power of sale of subject property, including the right to satisfy 
its reasonable administrative costs, including legal fees associated 
with any sale of subject property, in the event of contractor default if 
I/we otherwise fail to satisfy the underlying (  ) bid guarantee, (  ) 
performance bond, (  ) or payment bond obligations as an individual 
surety on solicitation/contract number -----. The lien is upon the real 
estate now owned by me/us described as follows: (legal description, 
street address and other identifying description)
    IN WITNESS HEREOF, I/we have hereunto affixed my/our hand(s) and 
seal(s) this ---- DAY OF ---- 19--.

 _______________________________________________________________________

WITNESS:

 _______________________________________________________________________

(SEAL)

    I, -----, a Notary Public in and for the (CITY) -----, (STATE) -----
, do hereby certify that -----, a party or parties to a certain 
Agreement bearing the date ----- day of ----- 19--, and hereunto 
annexed, personally appeared before me, the said ----- being personally 
well known to me as the person(s) who executed said lien, and 
acknowledged the same to be his/her/their act and deed. GIVEN under my 
hand and seal this ----- day of ----- 19--.

 _______________________________________________________________________

NOTARY PUBLIC,     STATE

    My Commission expires:
[54 FR 48987, Nov. 28, 1989]



28.203-4  Substitution of assets.

    An individual surety may request the Government to accept a 
substitute asset for that currently pledged by submitting a written 
request to the responsible contracting officer. The contracting officer 
may agree to the substitution of assets upon determining, after 
consultation with legal counsel, that the substitute assets to be 
pledged are adequate to protect the outstanding bond or guarantee 
obiligations. If acceptable, the substitute assets shall be pledged as 
provided for in subpart 28.2.
[54 FR 48988, Nov. 28, 1989]



28.203-5  Release of lien.

    (a) After consultation with legal counsel, the contracting officer 
shall release the security interest on the individual surety's assets 
using the Optional Form 90, Release of Lien on Real Property, or 
Optional Form 91, Release of Personal Property from Escrow, or a similar 
release as soon as possible consistent with the conditions in 
subparagraphs (a) (1) and (2) of this subsection. A surety's assets 
pledged in support of a payment bond may be released to a subcontractor 
or supplier upon Government receipt of a Federal district court 
judgment, or a sworn statement by the subcontractor or supplier that the 
claim is correct along with a notarized authorization of the release by 
the surety stating that it approves of such release.
    (1) Contracts subject to the Miller Act. The security interest shall 
be maintained for the later of (i) 1 year following final payment, (ii) 
until completion of any warranty period (applicable only to performance 
bonds), or (iii) pending resolution of all claims filed against the 
payment bond during the 1-year period following final payment.
    (2) Contracts subject to alternative payment protection (28.102-
1(b)(1)). The security interest shall be maintained for the full 
contract performance period plus one year.
    (3) Other contracts not subject to the Miller Act. The security 
interest shall be maintained for 90 days following final payment or 
until completion of any warranty period (applicable only to performance 
bonds), whichever is later.
    (b) Upon written request, the contracting officer may release the 
security interest on the individual surety's assets in support of a bid 
guarantee based upon evidence that the offer supported by the individual 
surety will not result in contract award.
    (c) Upon written request by the individual surety, the contracting 
officer may release a portion of the security

[[Page 587]]

interest on the individual surety's assets based upon substantial 
performance of the contractor's obligations under its performance bond. 
Release of the security interest in support of a payment bond must 
comply with the subparagraphs (a) (1) through (3) of this subsection. In 
making this determination, the contracting officer will give 
consideration as to whether the unreleased portion of the lien is 
sufficient to cover the remaining contract obligations, including 
payments to subcontractors and other potential liabilities. The 
individual surety shall, as a condition of the partial release, furnish 
an affidavit agreeing that the release of such assets does not relieve 
the individual surety of its obligations under the bond(s).
[54 FR 48988, Nov. 28, 1989, as amended at 61 FR 31652, June 20, 1996]



28.203-6  Contract clause.

    Insert the clause at 52.228-11 in solicitations and contracts which 
require the submission of bid guarantees, performance, or payment bonds.
[54 FR 48988, Nov. 28, 1989]



28.203-7  Exclusion of individual sureties.

    (a) An individual may be excluded from acting as a surety on bonds 
submitted by offerors on procurement by the executive branch of the 
Federal Government, by the acquiring agency's head or designee utilizing 
the procedures in subpart 9.4. The exclusion shall be for the purpose of 
protecting the Government.
    (b) An individual may be excluded for any of the following causes:
    (1) Failure to fulfill the obligations under any bond.
    (2) Failure to disclose all bond obligations.
    (3) Misrepresentation of the value of available assets or 
outstanding liabilities.
    (4) Any false or misleading statement, signature or representation 
on a bond or affidavit of individual suretyship.
    (5) Any other cause affecting responsibility as a surety of such 
serious and compelling nature as may be determined to warrant exclusion.
    (c) An individual surety excluded pursuant to this subsection shall 
be included on the List of Parties Excluded from Federal Procurement and 
Nonprocurement Programs. (See 9.404.)
    (d) Contracting officers shall not accept the bonds of individual 
sureties whose names appear on the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs (see 9.404) unless the acquiring 
agency's head or a designee states in writing the compelling reasons 
justifying acceptance.
    (e) An exclusion of an individual surety under this subsection will 
also preclude such party from acting as a contractor in accordance with 
subpart 9.4.
[54 FR 48988, Nov. 28, 1989, as amended at 60 FR 33066, June 26, 1995]



28.204  Alternatives in lieu of corporate or individual sureties.

    (a) Any person required to furnish a bond to the Government may 
furnish any of the types of security listed in 28.204-1 through 28.204-3 
instead of a corporate or individual surety for the bond. When any of 
those types of security are deposited, a statement shall be incorporated 
in the bond form pledging the security in lieu of execution of the bond 
form by corporate or individual sureties. The contractor shall execute 
the bond forms as the principal. Agencies shall establish safeguards to 
protect against loss of the security and shall return the security or 
its equivalent to the contractor when the bond obligation has ceased.
    (b) Upon written request by any contractor securing a performance or 
payment bond by any of the types of security listed in 28.204-1 through 
28.204-3, the contracting officer may release a portion of the security 
only when the conditions allowing the partial release of lien in 28.203-
5(c) are met. The contractor shall, as a condition of the partial 
release, furnish an affidavit agreeing that the release of such security 
does not relieve the contractor of its obligations under the bond(s).
    (c) The contractor may satisfy a requirement for bond security by 
furnishing a combination of the types of security listed in 28.204-1 
through 28.204-3 or a combination of bonds supported by these types of 
security and additional

[[Page 588]]

surety bonds under 28.202 or 28.203. During the period for which a bond 
supported by security is required, the contractor may substitute one 
type of security listed in 28.204-1 through 28.204-3 for another, or may 
substitute, in whole or combination, additional surety bonds under 
28.202 or 28.203.
[61 FR 31653, June 20, 1996, as amended at 62 FR 44807, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44807, Aug. 22, 1997, in section 
28.204, in paragraph (a), the second sentence was revised, effective 
Oct. 21, 1997. For the convenience of the user, the supersed text is set 
forth as follows:

28.204  Alternatives in lieu of corporate or individual sureties.

    (a) * * * When any of those types of security are deposited, a 
statement shall be incorporated in the bond form pledging the security.

                                * * * * *



28.204-1  United States bonds or notes.

    Any person required to furnish a bond to the Government has the 
option, instead of furnishing a surety or sureties on the bond, of 
depositing certain United States bonds or notes in an amount equal at 
their par value to the penal sum of the bond (the Act of February 24, 
1919 (31 U.S.C. 9303) and Treasury Department Circular No. 154 dated 
July 1, 1978 (31 CFR part 225)). In addition, a duly executed power of 
attorney and agreement authorizing the collection or sale of such United 
States bonds or notes in the event of default of the principal on the 
bond shall accompany the deposited bonds or notes. The contracting 
officer may (a) turn securities over to the finance or other authorized 
agency official, or (b) deposit them with the Treasurer of the United 
States, a Federal Reserve Bank (or branch with requisite facilities), or 
other depository designated for that purpose by the Secretary of the 
Treasury, under procedures prescribed by the agency concerned and 
Treasury Department Circular No. 154 (exception: The contracting officer 
shall deposit all bonds and notes received in the District of Columbia 
with the Treasurer of the United States).
[48 FR 42286, Sept. 19, 1983. Redesignated and amended at 54 FR 48986, 
48989, Nov. 28, 1989]



28.204-2  Certified or cashiers checks, bank drafts, money orders, or currency.

    Any person required to furnish a bond has an option to furnish a 
certified or cashier's check, bank draft, Post Office money order, or 
currency, in an amount equal to the penal sum of the bond, instead of 
furnishing surety or sureties on the bonds. Those furnishing checks, 
drafts, or money orders shall draw them to the order of the appropriate 
Federal agency.
[48 FR 42286, Sept. 19, 1983. Redesignated at 54 FR 48986, Nov. 28, 
1989]



28.204-3  Irrevocable letter of credit (ILC).

    (a) Any person required to furnish a bond has the option to furnish 
a bond secured by an ILC in an amount equal to the penal sum required to 
be secured (see 28.204). A separate ILC is required for each bond.
    (b) The ILC shall be irrevocable, require presentation of no 
document other than a written demand and the ILC (and letter of 
confirmation, if any), expire only as provided in paragraph (f) of this 
subsection, and be issued/confirmed by an acceptable federally insured 
financial institution as provided in paragraph (g) of this subsection.
    (c) To draw on the ILC, the contracting officer shall use the sight 
draft set forth in the clause at 52.228-14, and present it with the ILC 
(including letter of confirmation, if any) to the issuing financial 
institution or the confirming financial institution (if any).
    (d) If the contractor does not furnish an acceptable replacement 
ILC, or other acceptable substitute, at least 30 days before an ILC's 
scheduled expiration, the contracting officer shall immediately draw on 
the ILC.
    (e) If, after the period of performance of a contract where ILCs are 
used to support payment bonds, there are outstanding claims against the 
payment bond, the contracting officer shall draw on the ILC prior to the 
expiration date of the ILC to cover these claims.
    (f) The period for which financial security is required shall be as 
follows:
    (1) If used as a bid guarantee, the ILC should expire no earlier 
than 60 days after the close of the bid acceptance period.

[[Page 589]]

    (2) If used as an alternative to corporate or individual sureties as 
security for a performance or payment bond, the offeror/contractor may 
submit an ILC with an initial expiration date estimated to cover the 
entire period for which financial security is required or an ILC with an 
initial expiration date that is a minimum period of one year from the 
date of issuance. The ILC shall provide that, unless the issuer provides 
the beneficiary written notice of non-renewal at least 60 days in 
advance of the current expiration date, the ILC is automatically 
extended without amendment for one year from the expiration date, or any 
future expiration date, until the period of required coverage is 
completed and the contracting officer provides the financial institution 
with a written statement waiving the right to payment. The period of 
required coverage shall be:
    (i) For contracts subject to the Miller Act, the later of--
    (A) One year following the expected date of final payment;
    (B) For performance bonds only, until completion of any warranty 
period; or
    (C) For payment bonds only, until resolution of all claims filed 
against the payment bond during the one-year period following final 
payment.
    (ii) For contracts not subject to the Miller Act, the later of--
    (A) 90 days following final payment; or
    (B) For performance bonds only, until completion of any warranty 
period.
    (g) Only federally insured financial institutions rated investment 
grade or higher shall issue or confirm the ILC. Unless the financial 
institution issuing the ILC had letter of credit business of at least 
$25 million in the past year, ILCs over $5 million must be confirmed by 
another acceptable financial institution that had letter of credit 
business of at least $25 million in the past year.
    (1) The offeror/contractor shall provide the contracting officer a 
credit rating from a recognized commercial rating service as specified 
in Office of Federal Procurement Policy Pamphlet No. 7 (see 28.204-3(h)) 
that indicates the financial institution has the required rating(s) as 
of the date of issuance of the ILC.
    (2) If the contracting officer learns that a financial institution's 
rating has dropped below the required level, the contracting officer 
shall give the contractor 30 days to substitute an acceptable ILC or 
shall draw on the ILC using the sight draft in paragraph (g) of the 
clause at 52.228-14.
    (h)(1) Additional information on credit rating services and 
investment grade ratings is contained within Office of Federal 
Procurement Policy Pamphlet No. 7, Use of Irrevocable Letters of Credit. 
This pamphlet may be obtained by calling the Office of Management and 
Budget's publications office at (202) 395-7332.
    (2) A copy of the Uniform Customs and Practice (UCP) for Documentary 
Credits, 1993 Revision, International Chamber of Commerce Publication 
No. 500, is available from: ICC Publishing, Inc., 156 Fifth Avenue, New 
York NY, 10010, Telephone: (212) 206-1150, Telefax: (212) 633-6025, E-
mail: [email protected]
[61 FR 31653, June 20, 1996, as amended at 62 FR 44807, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44807, Aug. 22, 1997, section 28.204-3 
was amended by revising paragraphs (b), (c), (f) introductory text, 
(f)(2) introductory text, (f)(2)(ii)(B), (g) introductory text, (g)(1), 
and (h), effective Oct. 21, 1997. For the convenience of the user, the 
superseded text is set forth as follows:

28.204-3  Irrevocable letter of credit (ILC).

                                * * * * *

    (b) The ILC shall be irrevocable, unconditional, expire only as 
provided in paragraph (f) of this subsection, and be issued by an 
acceptable federally insured financial institution as provided in 
paragraph (g) of this subsection. ILCs over $5 million must be confirmed 
by another acceptable financial institution that had letter of credit 
business of at least $25 million in the past year.
    (c) To draw on the ILC, the contracting officer shall use the sight 
draft set forth in the clause at 52.228-14 and present it with the ILC 
to the issuing financial institution or the confirming financial 
institution (if any).

                                * * * * *

[[Page 590]]

    (f) Expiration dates shall be established as follows:

                                * * * * *

    (2) If used as an alternative to corporate or individual sureties as 
security for a performance or payment bond, the offeror/contractor may 
submit an ILC to cover the entire period of performance or an ILC with 
an initial expiration date which is a minimum period of one year from 
the date of issuance, with a provision which states that the ILC is 
automatically extended without amendment for one year from the 
expiration date, or any future expiration date, until the period of 
performance is completed. The final expiration date shall be:

                                * * * * *

    (ii) * * *
    (B) Until completion of any warranty period for performance bonds 
only.
    (g) The ILC shall be issued or confirmed by a federally insured 
financial institution rated investment grade or higher.
    (1) The offeror/contractor shall provide the contracting officer a 
credit rating that indicates the financial institution has the required 
rating(s) as of the date of issuance of the ILC.

                                * * * * *

    (h) Additional information on credit rating services and investment 
grade ratings, and a copy of the Uniform Customs and Practice (UCP) for 
Documentary Credits, 1983 Revision, International Chamber of Commerce 
Publication No. 400, is contained within the Office of Federal 
Procurement Policy Pamphlet No. 7, Use of Irrevocable Letters of Credit. 
This pamphlet may be obtained by calling the Office of Management and 
Budget's publications office at (202) 395-7332.



28.204-4  Contract clause.

    Insert the clause at 52.228-14, Irrevocable Letter of Credit, in 
solicitations and contracts for services, supplies, or construction, 
when a bid guarantee, or performance bonds, or performance and payment 
bonds are required.
[61 FR 31653, June 20, 1996]



                         Subpart 28.3--Insurance



28.301  Policy.

    Contractors shall be required to carry insurance under the following 
circumstances:
    (a)(1) The Government requires any contractor subject to Cost 
Accounting Standard (CAS) 416 (48 CFR 9004.416 (appendix B, FAR loose-
leaf edition)) to obtain insurance, by purchase or self-coverage, for 
the perils to which the contractor is exposed, except when (i) the 
Government, by providing in the contract in accordance with law, agrees 
to indemnify the contractor under specified circumstances or (ii) the 
contract specifically relieves the contractor of liability for loss of 
or damage to Government property.
    (2) The Government reserves the right to disapprove the purchase of 
any insurance coverage not in the Government's interest.
    (3) Allowability of the insurance program's cost shall be determined 
in accordance with the criteria in 31.205-19.
    (b) Contractors, whether or not their contracts are subject to CAS 
416, are required by law and this regulation to provide insurance for 
certain types of perils (e.g., workers' compensation). Insurance is 
mandatory also when commingling of property, type of operation, 
circumstances of ownership, or condition of the contract make it 
necessary for the protection of the Government. The minimum amounts of 
insurance required by this regulation (see 28.307-2) may be reduced when 
a contract is to be performed outside the United states, its 
possessions, and Puerto Rico. When more than one agency is involved, the 
agency responsible for review and approval of a contractor's insurance 
program shall coordinate with other interested agencies before acting on 
significant insurance matters.
    (c) Contractors awarded nonpersonal services contracts for health 
care services are required to maintain medical liability insurance and 
indemnify the Government for liability producing acts or omissions by 
the contractor, its employees and agents (see 37.400).
[48 FR 42286, Sept. 19, 1983, as amended at 54 FR 5056, Jan. 31, 1989; 
59 FR 67043, Dec. 28, 1994]



28.302  Notice of cancellation or change.

    When the Government requires the contractor to provide insurance 
coverage, the policies shall contain an endorsement that any 
cancellation or

[[Page 591]]

material change in the coverage adversely affecting the Government's 
interest shall not be effective unless the insurer or the contractor 
gives written notice of cancellation or change as required by the 
contracting officer. When the coverage is provided by self-insurance, 
the contractor shall not change or decrease the coverage without the 
administrative contracting officer's prior approval (see 28.308(c)).



28.303  Insurance against loss of or damage to Government property.

    When the Government requires or approves insurance to cover loss of 
or damage to Government property (see 45.103, Responsibility and 
liability for Government property), it may be provided by specific 
insurance policies or by inclusion of the risks in the contractor's 
existing policies. The policies shall disclose the Government's interest 
in the property.



28.304  Risk-pooling arrangements.

    Agencies may establish risk-pooling arrangements. These arrangements 
are designed to use the services of the insurance industry for safety 
engineering and the handling of claims at minimum cost to the 
Government. The agency responsible shall appoint a single manager or 
point of contact for each arrangement.



28.305  Overseas workers' compensation and war-hazard insurance.

    (a) Public-work contract, as used in this subpart, means any 
contract for a fixed improvement or for any other project, fixed or not, 
for the public use of the United States or its allies, involving 
construction, alteration, removal, or repair, including projects or 
operations under service contracts and projects in connection with the 
national defense or with war activities, dredging, harbor improvements, 
dams, roadways, and housing, as well as preparatory and ancillary work 
in connection therewith at the site or on the project.
    (b) The Defense Base Act (42 U.S.C. 1651 et seq.) extends the 
Longshoremen's and Harbor Workers' Compensation Act (33 U.S.C. 901) to 
various classes of employees working outside the United States, 
including those engaged in performing--
    (1) Public-work contracts; or
    (2) Contracts approved or financed under the Foreign Assistance Act 
of 1961 (Pub. L. 87-195) other than (i) contracts approved or financed 
by the Development Loan Fund (unless the Secretary of Labor, acting upon 
the recommendation of a department or agency, determines that such 
contracts should be covered) or (ii) contracts exclusively for materials 
or supplies.
    (c) When the Defense Base Act applies (see 42 U.S.C. 1651 et seq.) 
to these employees, the benefits of the Longshoremen's and Harbor 
Workers' Compensation Act are extended through operation of the War 
Hazards Compensation Act (42 U.S.C. 1701 et seq.) to protect the 
employees against the risk of war hazards (injury, death, capture, or 
detention). When, by means of an insurance policy or a self-insurance 
program, the contractor provides the workers' compensation coverage 
required by the Defense Base Act, the contractor's employees 
automatically receive war-hazard risk protection.
    (d) When the agency head recommends a waiver to the Secretary of 
Labor, the Secretary may waive the applicability of the Defense Base Act 
to any contract, subcontract, work location, or classification of 
employees.
    (e) If the Defense Base Act is waived for some or all of the 
contractor's employees, the benefits of the War Hazards Compensation Act 
are automatically waived with respect to those employees for whom the 
Defense Base Act is waived. For those employees, the contractor shall 
provide workers' compensation coverage against the risk of work injury 
or death and assume liability toward the employees and their 
beneficiaries for war-hazard injury, death, capture, or detention. The 
contract shall provide either that the costs of this liability or the 
reasonable costs of insurance against this liability shall be allowed as 
a cost under the contract.



28.306  Insurance under fixed-price contracts.

    (a) General. Although the Government is not ordinarily concerned 
with the contractor's insurance coverage if

[[Page 592]]

the contract is a fixed-price contract, in special circumstances 
agencies may specify insurance requirements under fixed-price contracts. 
Examples of such circumstances include the following:
    (1) The contractor is--or has a separate operation--engaged 
principally in Government work.
    (2) Government property is involved.
    (3) The work is to be performed on a Government installation.
    (4) The Government elects to assume risks for which the contractor 
ordinarily obtains commercial insurance.
    (b) Work on a Government installation. (1) When the clause at 
52.228-5, Insurance--Work on a Government Installation, is required to 
be included in a fixed-price contract by 28.310, the coverage specified 
in 28.307 is the minimum insurance required and shall be included in the 
contract Schedule or elsewhere in the contract. The contracting officer 
may require additional coverage and higher limits.
    (2) When the clause at 52.228-5, Insurance--Work on a Government 
Installation, is not required by 28.310 but is included because the 
contracting officer considers it to be in the Government's interest to 
do so, any of the types of insurance specified in 28.307 may be omitted 
or the limits may be lowered, if appropriate.



28.307  Insurance under cost-reimbursement contracts.

    Cost-reimbursement contracts (and subcontracts, if the terms of the 
prime contract are extended to the subcontract) ordinarily require the 
types of insurance listed in 28.307-2, with the minimum amounts of 
liability indicated. (See 28.308 for self-insurance.)



28.307-1  Group insurance plans.

    (a) Prior approval requirement. Under cost-reimbursement contracts, 
before buying insurance under a group insurance plan, the contractor 
must submit the plan for approval, in accordance with agency 
regulations. Any change in benefits provided under an approved plan that 
can reasonably be expected to increase significantly the cost to the 
Government requires similar approval.
    (b) Premium refunds or credits. The plan shall provide for the 
Government to share in any premium refunds or credits paid or otherwise 
allowed to the contractor. In determining the extent of the Government's 
share in any premium refunds or credits, any special reserves and other 
refunds to which the contractor may be entitled in the future shall be 
taken into account.



28.307-2  Liability.

    (a) Workers' compensation and employer's liability. Contractors are 
required to comply with applicable Federal and State workers' 
compensation and occupational disease statutes. If occupational diseases 
are not compensable under those statutes, they shall be covered under 
the employer's liability section of the insurance policy, except when 
contract operations are so commingled with a contractor's commercial 
operations that it would not be practical to require this coverage. 
Employer's liability coverage of at least $100,000 shall be required, 
except in States with exclusive or monopolistic funds that do not permit 
workers' compensation to be written by private carriers. (See 28.305(c) 
for treatment of contracts subject to the Defense Base Act.)
    (b) General liability. (1) The contracting officer shall require 
bodily injury liability insurance coverage written on the comprehensive 
form of policy of at least $500,000 per occurrence.
    (2) Property damage liability insurance shall be required only in 
special circumstances as determined by the agency.
    (c) Automobile liability. The contracting officer shall require 
automobile liability insurance written on the comprehensive form of 
policy. The policy shall provide for bodily injury and property damage 
liability covering the operation of all automobiles used in connection 
with performing the contract. Policies covering automobiles operated in 
the United States shall provide coverage of at least $200,000 per person 
and $500,000 per occurrence for bodily injury and $20,000 per occurrence 
for property damage. The amount of liability coverage on other policies 
shall be commensurate with any legal requirements of the locality and 
sufficient to meet normal and customary claims.

[[Page 593]]

    (d) Aircraft public and passenger liability. When aircraft are used 
in connection with performing the contract, the contracting officer 
shall require aircraft public and passenger liability insurance. 
Coverage shall be at least $200,000 per person and $500,000 per 
occurrence for bodily injury, other than passenger liability, and 
$200,000 per occurrence for property damage. Coverage for passenger 
liability bodily injury shall be at least $200,000 multiplied by the 
number of seats or passengers, whichever is greater.
    (e) Vessel liability. When contract performance involves use of 
vessels, the contracting officer shall require, as determined by the 
agency, vessel collision liability and protection and indemnity 
liability insurance.



28.308  Self-insurance.

    (a) When it is anticipated that 50 percent or more of the self-
insurance costs to be incurred at a segment (see 31.001) of a 
contractor's business will be allocable to negotiated Government 
contracts, and the self-insurance costs at the segment for the 
contractor's fiscal year are expected to be $200,000 or more, the 
contractor shall submit, in writing, information on its proposed self-
insurance program to the administrative contracting officer and obtain 
that official's approval of the program. The submission shall be by 
segment or segments of the contractor's business to which the program 
applies and shall include--
    (1) A complete description of the program, including any resolution 
of the board of directors authorizing and adopting coverage, including 
types of risks, limits of coverage, assignments of safety and loss 
control, and legal service responsibilities;
    (2) If available, the corporate insurance manual and organization 
chart detailing fiscal responsibilities for insurance;
    (3) The terms regarding insurance coverage for any Government 
property;
    (4) The contractor's latest financial statements;
    (5) Any self-insurance feasibility studies or insurance market 
surveys reporting comparative alternatives;
    (6) Loss history, premiums history, and industry ratios;
    (7) A formula for establishing reserves, including percentage 
variations between losses paid and losses reserved;
    (8) Claims administration policy, practices, and procedures;
    (9) The method of calculating the projected average loss; and
    (10) A disclosure of all captive insurance company and re-insurance 
agreements, including methods of computing cost.
    (b) Programs of self-insurance covering a contractor's insurable 
risks, including the deductible portion of purchased insurance, may be 
approved when examination of a program indicates that its application is 
in the Government's interest. Agencies shall not approve a program of 
self-insurance for workers' compensation in a jurisdiction where 
workers' compensation does not completely cover the employer's liability 
to employees, unless the contractor--
    (1) Maintains an approved program of self-insurance for any 
employer's liability not so covered; or
    (2) Shows that the combined cost to the Government of self-insurance 
for workers' compensation and commercial insurance for employer's 
liability will not exceed the cost of covering both kinds of risk by 
commercial insurance.
    (c) Once the administrative contracting officer has approved a 
program, the contractor must submit to that official for approval any 
major proposed changes to the program. Any program approval may be 
withdrawn if a contracting officer finds that either (1) any part of a 
program does not comply with the requirements of this subpart and/or the 
criteria at 31.205-19 or (2) conditions or situations existing at the 
time of approval that were a basis for original approval of the program 
have changed to the extent that a program change is necessary.
    (d) To qualify for a self-insurance program, a contractor must 
demonstrate ability to sustain the potential losses involved. In making 
the determination, the contracting officer shall consider the following 
factors:
    (1) The soundness of the contractor's financial condition, including 
available lines of credit.

[[Page 594]]

    (2) The geographic dispersion of assets, so that the potential of a 
single loss depleting all the assets is unlikely.
    (3) The history of previous losses, including frequency of 
occurrence and the financial impact of each loss.
    (4) The type and magnitude of risk, such as minor coverage for the 
deductible portion of purchased insurance or major coverage for 
hazardous risks.
    (5) The contractor's compliance with Federal and State laws and 
regulations.
    (e) Agencies shall not approve a program of self-insurance for 
catastrophic risks (e.g., see 50.403, Special procedures for unusually 
hazardous or nuclear risks). Should performance of Government contracts 
create the risk of catastrophic losses, the Government may, to the 
extent authorized by law, agree to indemnify the contractor or recognize 
an appropriate share of premiums for purchased insurance, or both.
    (f) Self-insurance programs to protect a contractor against the 
costs of correcting its own defects in materials or workmanship shall 
not be approved. For these purposes, normal rework estimates and 
warranty costs will not be considered self-insurance.
[48 FR 42286, Sept. 19, 1983, as amended at 55 FR 3883, Feb. 5, 1990]



28.309  Contract clauses for workers' compensation insurance.

    (a) The contracting officer shall insert the clause at 52.228-3, 
Workers' Compensation Insurance (Defense Base Act), in solicitations and 
contracts when the Defense Base Act applies (see 28.305) and--
    (1) The contract will be a public-work contract performed outside 
the United States; or
    (2) The contract will be approved or financed under the Foreign 
Assistance Act of 1961 (Pub. L. 87-195) and is not excluded by 
28.305(b)(2).
    (b) The contracting officer shall insert the clause at 52.228-4, 
Workers' Compensation and War-Hazard Insurance Overseas, in 
solicitations and contracts when the contract will be a public-work 
contract performed outside the United States and the Secretary of Labor 
waives the applicability of the Defense Base Act (see 28.305(d)).



28.310  Contract clause for work on a Government installation.

    (a) The contracting officer shall insert the clause at 52.228-5, 
Insurance-Work on a Government Installation, in solicitations and 
contracts when a fixed-price contract is contemplated, the contract 
amount is expected to exceed the simplified acquisition threshold, and 
the contract will require work on a Government installation, unless--
    (1) Only a small amount of work is required on the Government 
installation (e.g., a few brief visits per month); or
    (2) All work on the Government installation is to be performed 
outside the United States, its possessions, and Puerto Rico.
    (b) The contracting officer may insert the clause at 52.228-5 in 
solicitations and contracts described in (a)(1) and (2) above if it is 
in the Government's interest to do so.
[48 FR 42286, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995; 
61 FR 39190, July 26, 1996]



28.311  Solicitation provision and contract clause on liability insurance under cost-reimbursement contracts.



28.311-1  Contract clause.

    In accordance with agency acquisition regulations, the contracting 
officer shall insert the clause at 52.228-7, Insurance--Liability to 
Third Persons, in solicitations and contracts, other than those for 
construction contracts and those for architect-engineer services, when a 
cost-reimbursement contract is contemplated.
[55 FR 52793, Dec. 21, 1990. Redesignated and amended at 61 FR 2639, 
Jan. 26, 1996]



28.311-2  Agency solicitation provisions and contract clauses.

    Agencies may prescribe their own solicitation provisions and 
contract clauses to implement the basic policies contained in this 
subpart 28.3.
[55 FR 52793, Dec. 21, 1990. Redesignated at 61 FR 2639, Jan. 26, 1996]

[[Page 595]]



28.312  Contract clause for insurance of leased motor vehicles.

    The contracting officer shall insert the clause at 52.228-8, 
Liability and Insurance--Leased Motor Vehicles, in solicitations and 
contracts for the leasing of motor vehicles (see subpart 8.11).



28.313  Contract clauses for insurance of transportation or transportation-related services.

    (a) The contracting officer shall insert the clause at 52.228-9, 
Cargo Insurance, in solicitations and contracts for transportation or 
for transportation-related services, except when freight is shipped 
under rates subject to released or declared value.
    (b) The contracting officer shall insert a clause substantially the 
same as that at 52.228-10, Vehicular and General Public Liability 
Insurance, in solicitations and contracts for transportation or for 
transportation-related services when the contracting officer determines 
that vehicular liability or general public liability insurance required 
by law is not sufficient.



PART 29--TAXES--Table of Contents




Sec.
29.000  Scope of part.

                          Subpart 29.1--General

29.101  Resolving tax problems.

                   Subpart 29.2--Federal Excise Taxes

29.201  General.
29.202  General exemptions.
29.203  Other Federal tax exemptions.

                   Subpart 29.3--State and Local Taxes

29.300  Scope of subpart.
29.301  Definition.
29.302  Application of State and local taxes to the Government.
29.303  Application of State and local taxes to Government contractors 
          and subcontractors.
29.304  Matters requiring special consideration.
29.305  State and local tax exemptions.

                     Subpart 29.4--Contract Clauses

29.401  Domestic contracts.
29.401-1  Indefinite-delivery contracts for leased equipment.
29.401-2  Construction contracts performed in North Carolina.
29.401-3  Competitive contracts.
29.401-4  Noncompetitive contracts.
29.401-5  Contracts performed in U.S. possessions or Puerto Rico.
29.401-6  New Mexico gross receipts and compensating tax.
29.402  Foreign contracts.
29.402-1  Foreign fixed-price contracts.
29.402-2  Foreign cost-reimbursement contracts.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42293, Sept. 19, 1983, unless otherwise noted.



29.000  Scope of part.

    This part prescribes policies and procedures for (a) using tax 
clauses in contracts (including foreign contracts), (b) asserting 
immunity or exemption from taxes, and (c) obtaining tax refunds. It 
explains Federal, State, and local taxes on certain supplies and 
services acquired by executive agencies and the applicability of such 
taxes to the Federal Government. It is for the general information of 
Government personnel and does not present the full scope of the tax laws 
and regulations.



                          Subpart 29.1--General



29.101  Resolving tax problems.

    (a) Contract tax problems are essentially legal in nature and vary 
widely. Specific tax questions must be resolved by reference to the 
applicable contract terms and to the pertinent tax laws and regulations. 
Therefore, when tax questions arise, contracting officers should request 
assistance from the agency-designated legal counsel.
    (b) To keep treatment within an agency consistent, contracting 
officers or other authorized personnel shall consult the agency-
designated counsel before negotiating with any taxing authority for the 
purpose of (1) determining whether or not a tax is valid or applicable 
or (2) obtaining exemption from, or refund of, a tax.
    (c) When the constitutional immunity of the Government from State or 
local taxation may reasonably be at issue, contractors should be 
discouraged from negotiating independently with taxing authorities if 
the contract

[[Page 596]]

involved is either (1) a cost-reimbursement contract or (2) a fixed-
price contract containing a tax escalation clause.
    (d) Before purchasing goods or services from a foreign source, the 
contracting officer should consult the agency-designated counsel (1) for 
information on foreign tax treaties and agreements in force and on the 
implementation of any foreign-tax-relief programs and (2) to resolve any 
other tax questions affecting the prospective contract.



                   Subpart 29.2--Federal Excise Taxes



29.201  General.

    (a) Federal excise taxes are levied on the sale or use of particular 
supplies or services. Subtitle D of the Internal Revenue Code of 1954, 
Miscellaneous Excise Taxes, 26 U.S.C. 4041 et seq., and its implementing 
regulations, 26 CFR parts 40 through 299, cover miscellaneous federal 
excise tax requirements. Questions arising in this area should be 
directed to the agency-designated counsel. The most common excise taxes 
are--
    (1) Manufacturers' excise taxes imposed on certain motor-vehicle 
articles, tires and inner tubes, gasoline, lubricating oils, coal, 
fishing equipment, firearms, shells, and cartridges sold by 
manufacturers, producers, or importers; and
    (2) Special-fuels excise taxes imposed at the retail level on diesel 
fuel and special motor fuels.
    (b) Sometimes the law exempts the Federal Government from these 
taxes. Contracting officers should solicit prices on a tax-exclusive 
basis when it is known that the Government is exempt from these taxes, 
and on a tax-inclusive basis when no exemption exists.
    (c) Executive agencies shall take maximum advantage of available 
Federal excise tax exemptions.
[48 FR 42293, Sept. 19, 1983, as amended at 55 FR 52793, Dec. 21, 1990]



29.202  General exemptions.

    No Federal manufacturers' or special-fuels excise taxes are imposed 
in many contracting situations as, for example, when the supplies are 
for any of the following:
    (a) The exclusive use of any State or political subdivision, 
including the District of Columbia (26 U.S.C. 4041 and 4221).
    (b) Shipment to a United States possession or Puerto Rico, or for 
export. Shipment or export must occur within 6 months of the time title 
passes to the Government. When the exemption is claimed, the words for 
export or shipment to a possession must appear on the contract or 
purchase document, and the contracting officer must furnish the seller 
proof of export (see 26 CFR 48.4221-3).
    (c) Further manufacture, or resale for further manufacture (this 
exemption does not include tires and inner tubes) (26 CFR 48.4221-2).
    (d) Use as fuel supplies, ships or sea stores, or legitimate 
equipment on vessels of war, including (1) aircraft owned by the United 
States and constituting a part of the armed forces and (2) guided 
missiles and pilotless aircraft owned or chartered by the United States. 
When this exemption is to be claimed, the purchase should be made on a 
tax-exclusive basis. The contracting officer shall furnish the seller an 
exemption certificate for Supplies for Vessels of War (an example is 
given in 26 CFR 48.4221-4(d)(2); the IRS will accept one certificate 
covering all orders under a single contract for a specified period of up 
to 12 calendar quarters) (26 U.S.C. 4041 and 4221).
    (e) A nonprofit educational organization (26 U.S.C. 4041 and 4221).
    (f) Emergency vehicles (26 U.S.C. 4053 and 4064(b)(1)(c)).
[48 FR 42293, Sept. 19, 1983, as amended at 53 FR 662, Jan. 11, 1988]



29.203  Other Federal tax exemptions.

    (a) Pursuant to 26 U.S.C. 4293, the Secretary of the Treasury has 
exempted the United States from the communications excise tax imposed in 
26 U.S.C. 4251, when the supplies and services are for the exclusive use 
of the United States. (Secretarial Authorization, June 20, 1947, 
Internal Revenue Cumulative Bulletin, 1947-1, 205.)
    (b) Pursuant to 26 U.S.C. 4483(b), the Secretary of the Treasury has 
exempted the United States from the federal

[[Page 597]]

highway vehicle users tax imposed in 26 U.S.C. 4481. The exemption 
applies whether the vehicle is owned or leased by the United States. 
(Secretarial Authorization, Internal Revenue Cumulative Bulletin, 1956-
2, 1369.)
[53 FR 662, Jan. 11, 1988]



                   Subpart 29.3--State and Local Taxes



29.300  Scope of subpart.

    This subpart prescribes the policies and procedures regarding the 
exemption or immunity of Federal Government purchases and property from 
State and local taxation.



29.301  Definition.

    State and local taxes means taxes levied by the States, the District 
of Columbia, Puerto Rico, possessions of the United States, or their 
political subdivisions.



29.302  Application of State and local taxes to the Government.

    (a) Generally, purchases and leases made by the Federal Government 
are immune from State and local taxation. Whether any specific purchase 
or lease is immune, however, is a legal question requiring advice and 
assistance of the agency-designated counsel.
    (b) When it is economically feasible to do so, executive agencies 
shall take maximum advantage of all exemptions from State and local 
taxation that may be available. If appropriate, the contracting officer 
shall provide a Standard Form 1094, U.S. Tax Exemption Form (see part 
53), or other evidence listed in 29.305(a) to establish that the 
purchase is being made by the Government.
[48 FR 42293, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]



29.303  Application of State and local taxes to Government contractors and subcontractors.

    (a) Prime contractors and subcontractors shall not normally be 
designated as agents of the Government for the purpose of claiming 
immunity from State or local sales or use taxes. Before any activity 
contends that a contractor is an agent of the Government, the matter 
shall be referred to the agency head for review. The referral shall 
include all pertinent data on which the contention is based, together 
with a thorough analysis of all relevant legal precedents.
    (b) When purchases are not made by the Government itself, but by a 
prime contractor or by a subcontractor under a prime contract, the right 
to an exemption of the transaction from a sales or use tax may not rest 
on the Government's immunity from direct taxation by States and 
localities. It may rest instead on provisions of the particular State or 
local law involved, or, in some cases, the transaction may not in fact 
be expressly exempt from the tax. The Government's interest shall be 
protected by using the procedures in 29.101.
    (c) Frequently, property (including property acquired under the 
progress payments clause of fixed-price contracts or the Government 
property clause of cost-reimbursement contracts) owned by the Government 
is in the possession of a contractor or subcontractor. Situations may 
arise in which States or localities assert the right to tax Government 
property directly or to tax the contractor's or subcontractor's 
possession of, interest in, or use of that property. In such cases, the 
contracting officer shall seek review and advice from the agency-
designated counsel on the appropriate course of action.



29.304  Matters requiring special consideration.

    The imposition of State and local taxes may result in special 
contract considerations including the following:
    (a) With coordination of the agency-designated counsel, a contract 
may (1) state that the contract price includes or excludes a specified 
tax or (2) require that the contractor take certain actions with regard 
to payment, nonpayment, refund, protest, or other treatment of a 
specified tax. Such special treatment may be appropriate when there is 
doubt as to the applicability or allocability of the tax, or when the 
applicability of the tax is being litigated.
    (b) The applicability of State and local taxes to purchases by the 
Federal

[[Page 598]]

Government may depend on the place and terms of delivery. When the 
contract price will be substantial, alternative places and terms of 
delivery should be considered in light of possible tax consequences.
    (c) Indefinite-delivery contracts for equipment rental may require 
the contractor to furnish equipment in any of the States. Since leased 
equipment remains the contractor's property, States and local 
governments impose a wide variety of property, use, or other taxes on 
equipment leased to the Government. The amount of these taxes can vary 
considerably from jurisdiction to jurisdiction. See 29.401-1 for the 
prescription of the contract clause to be included in contracts when 
delivery points are not known at time of contracting.
    (d) The North Carolina State and local sales and use tax.
    (1) The North Carolina Sales and Use Tax Act authorizes counties and 
incorporated cities and towns to obtain each year from the Commissioner 
of Revenue of the State of North Carolina a refund of sales and use 
taxes indirectly paid on building materials, supplies, fixtures, and 
equipment that become a part of or are annexed to any building or 
structure erected, altered, or repaired for such counties and 
incorporated cities and towns in North Carolina. In United States v. 
Clayton, 250 F. Supp. 827 (1965), it was held that the United States is 
entitled to the benefit of the refund, but must follow the refund 
procedure of the Act and the regulations to recover what it is due.
    (2) The Act provides that, to receive the refund, claimants must 
file, within 6 months after the claimant's fiscal year closes, a written 
request substantiated by such records, receipts, and information as the 
Commissioner of Revenue may require. No refund will be made on an 
application not filed within the time allowed and in such manner as the 
Commissioner may require. The requirements of the Commissioner are set 
forth in regulations that provide that, to substantiate a refund claim 
for sales or use taxes paid on purchases of building materials, 
supplies, fixtures, or equipment by a contractor, the Government must 
secure from the contractor certified statements setting forth the cost 
of the property purchased from each vendor and the amount of sales or 
use taxes paid. In the event the contractor makes several purchases from 
the same vendor, the certified statement must indicate the invoice 
numbers, the inclusive dates of the invoices, the total amount of the 
invoices, and the sales and use taxes paid. The statement must also 
include the cost of any tangible personal property withdrawn from the 
contractor's warehouse stock and the amount of sales or use tax paid by 
the contractor. Similar certified statements by subcontractors must be 
obtained by the general contractor and furnished to the claimant. Any 
local sales or use taxes included in the contractor's statement must be 
shown separately from the State sales or use taxes.
    (3) The clause prescribed at 29.401-2 requires contractors to submit 
to contracting officers by November 30 of each year a certified 
statement disclosing North Carolina State and local sales and use taxes 
paid during the 12-month period that ended the preceding September 30. 
The contracting officer shall ensure that contractors comply with this 
requirement and shall obtain the annual refund to which the Government 
may be entitled. The application for refund must be filed each year 
before March 31 and in the manner and form required by the Commissioner 
of Revenue. Copies of the form may be obtained from the State of North 
Carolina, Department of Revenue, P.O. Box 25000, Raleigh, NC 27640.
[48 FR 42293, Sept. 19, 1983, as amended at 62 FR 40237, July 25, 1997]



29.305  State and local tax exemptions.

    (a) Evidence of exemption. Evidence needed to establish exemption 
from State or local taxes depends on the grounds for the exemption 
claimed, the parties to the transaction, and the requirements of the 
taxing jurisdiction. Such evidence may include the following:
    (1) A copy of the contract or relevant portion.
    (2) Copies of purchase orders, shipping documents, credit-card-
imprinted

[[Page 599]]

sales slips, paid or acknowledged invoices, or similar documents that 
identify an agency or instrumentality of the United States as the buyer.
    (3) A U.S. Tax Exemption Form (SF 1094).
    (4) A State or local form indicating that the supplies or services 
are for the exclusive use of the United States.
    (5) Any other State or locally required document for establishing 
general or specific exemption.
    (6) Shipping documents indicating that shipments are in interstate 
or foreign commerce.
    (b) Furnishing proof of exemption. If a reasonable basis to sustain 
a claimed exemption exists, the seller will be furnished evidence of 
exemption, as follows:
    (1) Under a contract containing the clause at 52.229-3, Federal, 
State, and Local Taxes, or at 52.229-4, Federal, State, and Local Taxes 
(Noncompetitive Contract), in accordance with the terms of those 
clauses.
    (2) Under a cost-reimbursement contract, if requested by the 
contractor and approved by the contracting officer or at the discretion 
of the contracting officer.
    (3) Under a contract or purchase order that contains no tax 
provision, if--
    (i) Requested by the contractor and approved by the contracting 
officer or at the discretion of the contracting officer; and
    (ii) Either the contract price does not include the tax or, if the 
transaction or property is tax exempt, the contractor consents to a 
reduction in the contract price.
[48 FR 42293, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]



                     Subpart 29.4--Contract Clauses



29.401  Domestic contracts.



29.401-1  Indefinite-delivery contracts for leased equipment.

    The contracting officer shall insert the clause at 52.229-1, State 
and Local Taxes, in solicitations and contracts for leased equipment 
when a fixed-price indefinite-delivery contract is contemplated, the 
contract will be performed wholly or partly within the United States, 
its possessions, or Puerto Rico, and the place or places of delivery are 
not known at the time of contracting.



29.401-2  Construction contracts performed in North Carolina.

    The contracting officer shall insert the clause at 52.229-2, North 
Carolina State and Local Sales and Use Tax, in solicitations and 
contracts for construction to be performed in North Carolina. If the 
requirement is for vessel repair to be performed in North Carolina, the 
clause shall be used with its Alternate I.



29.401-3  Competitive contracts.

    The contracting officer shall insert the clause at 52.229-3, 
Federal, State, and Local Taxes, in solicitations and contracts if the 
contract is to be performed wholly or partly within the United States, 
its possessions, or Puerto Rico, when a fixed-price contract is 
contemplated and the contract is expected to exceed the simplified 
acquisition threshold, unless the clause at 52.229-4, Federal, State, 
and Local Taxes (Noncompetitive Contract), is included in the contract.
[60 FR 34759, July 3, 1995, as amended at 61 FR 39190, July 26, 1996]



29.401-4  Noncompetitive contracts.

    The contracting officer shall insert the clause at 52.229-4, 
Federal, State, and Local Taxes (Noncompetitive Contract), in fixed-
price noncompetitive contracts when the contract exceeds the simplified 
acquisition threshold to be performed wholly or partly within the United 
States, its possessions, or Puerto Rico when satisfied that the contract 
price does not include contingencies for State and local taxes, and 
that, unless the clause is used, the contract price will include such 
contingencies. When the clause at 52.229-4 is included in a contract, 
the contracting officer shall ensure that the contract does not include 
the clause at 52.229-3, Federal, State, and Local Taxes.
[48 FR 42293, Sept. 19, 1983, as amended at 55 FR 52793, Dec. 21, 1990; 
60 FR 34759, July 3, 1995; 61 FR 39190, July 26, 1996]

[[Page 600]]



29.401-5  Contracts performed in U.S. possessions or Puerto Rico.

    The contracting officer shall insert the clause at 52.229-5, Taxes--
Contracts Performed in U.S. Possessions or Puerto Rico, in solicitations 
and contracts that include the clause at 52.229-3, Federal, State, and 
Local Taxes, or 52.229-4, Federal, State, and Local Taxes 
(Noncompetitive Contract).



29.401-6  New Mexico gross receipts and compensating tax.

    (a) Definition. Services, as used in this subsection, is as defined 
in the Gross Receipts and Compensating Tax Act of the State of New 
Mexico, Sec. 7-9-3(k) NM SA 1978, and means all activities engaged in 
for other persons for a consideration, which activities involve 
predominately the performance of a service as distinguished from selling 
or leasing property. Services includes activities performed by a person 
for its members of shareholders. In determining what is a service, the 
intended use, principal objective or ultimate objective of the 
contracting parties shall not be controlling. Services also includes 
construction activities and all tangible personal property that will 
become an ingredient or component part of a construction project. Such 
tangible personal property retains its character as tangible personal 
property until it is installed as an ingredient or component part of a 
construction project in New Mexico. However, sales of tangible personal 
property that will become an ingredient or component part of a 
construction project to persons engaged in the construction business are 
sales of tangible personal property.
    (b) Contract clause. The contracting officer shall insert the clause 
at 52.229-10, State of New Mexico Gross Receipts and Compensating Tax, 
in solicitations and contracts issued by the executive agencies 
identified in paragraph (c) of this subsection when all three of the 
following conditions exist:
    (1) The contractor will be performing a cost-reimbursement contract.
    (2) The contract directs or authorizes the contractor to acquire 
tangible personal property as a direct cost under a contract and title 
to such property passes directly to and vests in the United States upon 
delivery of the property by the vendor.
    (3) The contract will be for services to be performed in whole or in 
part within the State of New Mexico.
    (c) Participating agencies. (1) The executive agencies listed below 
have entered into an agreement with the State of New Mexico to eliminate 
the double taxation of Government cost-reimbursement contracts when 
contractors and their subcontractors purchase tangible personal property 
to be used in performing services in whole or in part in the State of 
New Mexico and for which title to such property will pass to the United 
States upon delivery of the property to the contractor and its 
subcontractors by the vendor. Therefore, the clause applies only to 
solicitations and contracts issued by the--

United States Department of Agriculture;
United States Department of the Air Force;
United States Department of the Army;
United States Department of Energy;
United States Department of Health and Human Services;
United States Department of Interior;
United States Department of Labor;
United States Department of the Navy;
United States Department of Transportation;
United States General Services Administration; and
United States National Aeronautics and Space Administration.

    (2) Any other Federal agency which expects to award cost-
reimbursement contracts to be performed in New Mexico should contact the 
New Mexico Taxation and Revenue Department to execute a similar 
agreement.
[53 FR 34228, Sept. 2, 1988, as amended at 55 FR 3883, Feb. 5, 1990; 55 
FR 38517, Sept. 18, 1990]



29.402  Foreign contracts.



29.402-1  Foreign fixed-price contracts.

    (a) The contracting officer shall insert the clause at 52.229-6, 
Taxes--Foreign Fixed-Price Contracts, in solicitations and contracts 
expected to exceed the simplified acquisition threshold when a fixed-
price contract is contemplated and the contract is to be

[[Page 601]]

performed wholly or partly in a foreign country, unless it is 
contemplated that the contract will be with a foreign government.
    (b) The contracting officer shall insert the clause at 52.229-7, 
Taxes--Fixed-Price Contracts With Foreign Governments, in solicitations 
and contracts that exceed the simplified acquisition threshold when a 
fixed-price contract with a foreign government is contemplated.
[48 FR 42293, Sept. 19, 1983, as amended at 55 FR 52793, Dec. 21, 1990; 
61 FR 39198, July 26, 1996]



29.402-2  Foreign cost-reimbursement contracts.

    (a) The contracting officer shall insert the clause at 52.229-8, 
Taxes--Foreign Cost-Reimbursement Contracts, in solicitations and 
contracts when a cost-reimbursement contract is contemplated and the 
contract is to be performed wholly or partly in a foreign country, 
unless it is contemplated that the contract will be with a foreign 
government.
    (b) The contracting officer shall insert the clause at 52.229-9, 
Taxes--Cost-Reimbursement Contracts with Foreign Governments, in 
solicitations and contracts when a cost-reimbursement contract with a 
foreign government is contemplated.



PART 30--COST ACCOUNTING STANDARDS ADMINISTRATION--Table of Contents




Sec.
30.000  Scope of part.

                          Subpart 30.1--General

30.101  Cost Accounting Standards.
30.102  Cost Accounting Standards Board publication.

                 Subpart 30.2--CAS Program Requirements

30.201  Contract requirements.
30.201-1  CAS applicability.
30.201-2  Types of CAS coverage.
30.201-3  Solicitation provisions.
30.201-4  Contract clauses.
30.201-5  Waiver.
30.201-6  Findings.
30.201-7  Cognizant Federal agency responsibilities.
30.202  Disclosure requirements.
30.202-1  General requirements.
30.202-2  Impracticality of submission.
30.202-3  Amendments and revisions.
30.202-4  Privileged and confidential information.
30.202-5  Filing disclosure statements.
30.202-6  Responsibilities.
30.202-7  Determinations.
30.202-8  Subcontractor disclosure statements.

           Subpart 30.3--CAS Rules and Regulations  [Reserved]

           Subpart 30.4--Cost Accounting Standards  [Reserved]

 Subpart 30.5--Cost Accounting Standards for Educational Institutions  
                               [Reserved]

                    Subpart 30.6--CAS Administration

30.601  Responsibility.
30.602  Changes to disclosed or established cost accounting practices.
30.602-1  Equitable adjustments for new or modified standards.
30.602-2  Noncompliance with CAS requirements.
30.602-3  Voluntary changes.
30.603  Subcontract administration.

    Source: 57 FR 39587, Aug. 31, 1992, unless otherwise noted.



30.000  Scope of part.

    This part describes policies and procedures for applying the Cost 
Accounting Standards Board (CASB) rules and regulations (48 CFR chapter 
99 (FAR appendix)) to negotiated contracts and subcontracts. This part 
does not apply to sealed bid contracts or to any contract with a small 
business concern (see 48 CFR 9903.201-1(b) (FAR appendix) for these and 
other exemptions).
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18916, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]



                          Subpart 30.1--General



30.101  Cost Accounting Standards.

    (a) Public Law 100-679 (41 U.S.C. 422) requires certain contractors 
and subcontractors to comply with Cost Accounting Standards (CAS) and to 
disclose in writing and follow consistently their cost accounting 
practices.
    (b) Contracts that refer to this part 30 for the purpose of applying 
the policies, procedures, standards and regulations promulgated by the 
CASB pursuant to Public Law 100-679, shall be deemed to refer to the 
CAS, and any

[[Page 602]]

other regulations promulgated by the CASB (see 48 CFR chapter 99), all 
of which are hereby incorporated in this part 30.
    (c) Appendix to the FAR loose-leaf edition contains: Part I, CAS and 
CASB Rules and Regulations; Part II, nonregulatory preambles to the CAS; 
Part III, preambles to CAS Rules and Regulations; Part IV, preambles 
published under the FAR system; and Part V, CASB Rules and Procedures 
(administrative).
    (d) The preambles are not regulatory but are intended to explain why 
the Standards and related Rules and Regulations were written, and to 
provide rationale for positions taken relative to issues raised in the 
public comments. The preambles are printed in chronological order to 
provide an administrative history.
[57 FR 39587, Aug. 31, 1992, as amended at 62 FR 40237, July 25, 1997]



30.102  Cost Accounting Standards Board publication.

    Copies of the CASB Standards and Regulations are printed in title 48 
of the Code of Federal Regulations, chapter 99, and may be obtained by 
writing the Superintendent of Documents, U.S. Government Printing 
Office, Washington, DC 20402, or by calling the Washington, DC, ordering 
desk at area code (202) 512-1800.
[57 FR 39587, Aug. 31, 1992, as amended at 62 FR 40237, July 25, 1997]



                 Subpart 30.2--CAS Program Requirements



30.201  Contract requirements.

    Title 48 CFR 9903.201-1 (FAR appendix) describes the rules for 
determining whether a proposed contract or subcontract is exempt from 
CAS. Negotiated contracts not exempt in accordance with 48 CFR 9903.201-
1(b) shall be subject to CAS. A CAS-covered contract may be subject to 
either full or modified coverage. The rules for determining whether full 
or modified coverage applies are in 48 CFR 9903.201-2 (FAR appendix).
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18916, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]



30.201-1  CAS applicability.

    See 48 CFR 9903.201-1 (FAR appendix).
[61 FR 18916, Apr. 29, 1996 as amended at 62 FR 40237, July 25, 1997]



30.201-2  Types of CAS coverage.

    See 48 CFR 9903.201-2 (FAR appendix).
[61 FR 18916, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.201-3  Solicitation provisions.

    (a) The contracting officer shall insert the provision at 52.230-1, 
Cost Accounting Standards Notices and Certification, in solicitations 
for proposed contracts subject to CAS as specified in 48 CFR 9903.201 
(FAR appendix).
    (b) If an award to an educational institution is contemplated prior 
to July 1, 1997, the contracting officer shall insert the basic 
provision set forth at 52.230-1 with its Alternate I, unless the 
contract is to be performed by a Federally Funded Research and 
Development Center (FFRDC) (see 48 CFR 9903.201-2(c)(5) (FAR appendix)), 
or the provision at 48 CFR 9903.201-2(c)(6) (FAR appendix) applies.
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.201-4  Contract clauses.

    (a) Cost Accounting Standards. (1) The contracting officer shall 
insert the clause at FAR 52.230-2, Cost Accounting Standards, in 
negotiated contracts, unless the contract is exempted (see 48 CFR 
9903.201-1 (FAR appendix)), the contract is subject to modified coverage 
(see 48 CFR 9903.201-2 (FAR appendix)), or the clause prescribed in 
paragraph (c) of this subsection is used.
    (2) The clause at FAR 52.230-2 requires the contractor to comply 
with all CAS specified in 48 CFR part 9904 (FAR appendix), to disclose 
actual cost accounting practices (applicable to CAS-covered contracts 
only), and to follow disclosed and established cost accounting practices 
consistently.
    (b) Disclosure and Consistency of Cost Accounting Practices. (1) The 
contracting officer shall insert the clause at FAR 52.230-3, Disclosure 
and Consistency of Cost Accounting Practices, in negotiated contracts 
when the contract amount is over $500,000, but less than

[[Page 603]]

$25 million, and the offeror certifies it is eligible for and elects to 
use modified CAS coverage (see 48 CFR 9903.201-2 (FAR appendix), unless 
the clause prescribed in paragraph (c) of this subsection is used). -
    (2) The clause at FAR 52.230-3 requires the contractor to comply 
with 48 CFR 9904.401, 9904.402, 9904.405, and 9904.406 (FAR appendix) to 
disclose (if it meets certain requirements) actual cost accounting 
practices, and to follow consistently its established cost accounting 
practices.
    (c) Consistency in Cost Accounting Practices. The contracting 
officer shall insert the clause at FAR 52.230-4, Consistency in Cost 
Accounting Practices, in negotiated contracts that are exempt from CAS 
requirements solely on the basis of the fact that the contract is to be 
awarded to a United Kingdom contractor and is to be performed 
substantially in the United Kingdom (see 48 CFR 9903.201-1(b)(12) (FAR 
appendix)).
    (d) Administration of Cost Accounting Standards. (1) The contracting 
officer shall insert the clause at FAR 52.230-6, Administration of Cost 
Accounting Standards, in contracts containing any of the clauses 
prescribed in paragraphs (a), (b), or (e) of this subsection.
    (2) The clause at FAR 52.230-6 specifies rules for administering CAS 
requirements and procedures to be followed in cases of failure to 
comply.
    (e) Cost Accounting Standards--Educational Institutions. (1) The 
contracting officer shall insert the clause at FAR 52.230-5, Cost 
Accounting Standards--Educational Institution, in negotiated contracts 
awarded to educational institutions, unless the contract is exempted 
(see 48 CFR 9903.201-1 (FAR appendix)), the contract is to be performed 
by an FFRDC (see 48 CFR 9903.201-2(c)(5) (FAR appendix)), or the 
provision at 48 CFR 9903.201-2(c)(6) (FAR appendix) applies.
    (2) The clause at FAR 52.230-5 requires the educational institution 
to comply with all CAS specified in 48 CFR part 9905 (FAR appendix), to 
disclose actual cost accounting practices as required by 48 CFR 
9903.202-1(f) (FAR appendix), and to follow disclosed and established 
cost accounting practices consistently.
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.201-5  Waiver.

    In some instances, contractors or subcontractors may refuse to 
accept all or part of the requirements of the CAS clauses (FAR 52.230-2, 
Cost Accounting Standards, FAR 52.230-3, Disclosure and Consistency of 
Cost Accounting Practices, and FAR 52.230-5, Cost Accounting Standards--
Educational Institution). If the contracting officer determines that it 
is impractical to obtain the materials, supplies, or services from any 
other source, the contracting officer shall prepare a request for waiver 
in accordance with 48 CFR 9903.201-5 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.201-6  Findings.

    See 48 CFR 9903.201-6 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.201-7  Cognizant Federal agency responsibilities.

    See 48 CFR 9903.201-7 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.202  Disclosure requirements.



30.202-1  General requirements.

    See 48 CFR 9903.202-1 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.202-2  Impracticality of submission.

    See 48 CFR 9903.202-2 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.202-3  Amendments and revisions.

    See 48 CFR 9903.202-3 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]

[[Page 604]]



30.202-4  Privileged and confidential information.

    See 48 CFR 9903.202-4 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.202-5  Filing disclosure statements.

    See 48 CFR 9903.202-5 (FAR appendix).
[61 FR 18917, Apr. 29, 1996, as amended at 62 FR 40237, July 25, 1997]



30.202-6  Responsibilities.

    (a) The contracting officer is responsible for determining when a 
proposed contract may require CAS coverage and for including the 
appropriate notice in the solicitation. The contracting officer must 
then ensure that the offeror has made the required solicitation 
certifications and that required Disclosure Statements are submitted. 
(Also see 48 CFR 9903.201-3 and 9903.202 (FAR appendix).)
    (b) The contracting officer shall not award a CAS-covered contract 
until the ACO has made a written determination that a required 
Disclosure Statement is adequate unless, in order to protect the 
Government's interest, the contracting officer waives the requirement 
for an adequacy determination before award. In this event, a 
determination of adequacy shall be required as soon as possible after 
the award.
    (c) The cognizant auditor is responsible for conducting reviews of 
Disclosure Statements for adequacy and compliance.
    (d) The cognizant ACO is responsible for determinations of adequacy 
and compliance of the Disclosure Statement.
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18917, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]



30.202-7  Determinations.

    (a) Adequacy determination. As prescribed by 48 CFR 9903.202-6 (FAR 
appendix), the cognizant auditor shall conduct a review of the 
Disclosure Statement to ascertain whether it is current, accurate, and 
complete and shall report the results to the cognizant ACO, who shall 
determine whether or not it adequately describes the offeror's cost 
accounting practices. If the ACO identifies any areas of inadequacy, the 
ACO shall request a revised Disclosure Statement. If the Disclosure 
Statement is adequate, the ACO shall notify the offeror in writing, with 
copies to the cognizant auditor and contracting officer. The notice of 
adequacy shall state that a disclosed practice shall not, by virtue of 
such disclosure, be considered an approved practice for pricing 
proposals or accumulating and reporting contract performance cost data. 
Generally, the ACO shall furnish the contractor notification of adequacy 
or inadequacy within 30 days after the Disclosure Statement has been 
received by the ACO.
    (b) Compliance determination. After the notification of adequacy, 
the cognizant auditor shall conduct a detailed compliance review to 
ascertain whether or not the disclosed practices comply with Part 31 and 
the CAS and shall advise the ACO of the results. The ACO shall take 
action regarding noncompliance with CAS under FAR 30.602-2. The ACO may 
require a revised Disclosure Statement and adjustment of the prime 
contract price or cost allowance. Noncompliance with part 31 shall be 
processed separately, in accordance with normal administrative 
practices.
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18917, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]



30.202-8  Subcontractor disclosure statements.

    (a) When the Government requires determinations of adequacy or 
inadequacy, the ACO cognizant of the subcontractor shall provide such 
determination to the ACO cognizant of the prime contractor or next 
higher tier subcontractor. The ACO cognizant of higher tier 
subcontractors or prime contractors shall not reverse the determination 
of the ACO cognizant of the subcontractor.
    (b) Any determination that it is impractical to secure a 
subcontractor's Disclosure Statement must be made in accordance with 48 
CFR 9903.202-2 (FAR appendix).
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18918, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]

[[Page 605]]



           Subpart 30.3--CAS Rules and Regulations  [Reserved]

    Note: See 48 CFR 9903.3 (FAR appendix).



           Subpart 30.4--Cost Accounting Standards  [Reserved]

    Note: See 48 CFR part 9904 (FAR appendix).



 Subpart 30.5--Cost Accounting Standards for Educational Institutions  
                               [Reserved]

    Note: See 48 CFR part 9905 (FAR appendix).



                    Subpart 30.6--CAS Administration



30.601  Responsibility.

    (a) The cognizant ACO shall perform CAS administration for all 
contracts in a business unit notwithstanding retention of other 
administration functions by the contracting officer.
    (b) Within 30 days after the award of any new contract or 
subcontract subject to CAS, the contracting officer, contractor, or 
subcontractor making the award shall request the cognizant ACO to 
perform administration for CAS matters (see subpart 42.2).
[57 FR 39587, Aug. 31, 1992, as amended at 59 FR 67043, Dec. 28, 1994]



30.602  Changes to disclosed or established cost accounting practices.

    Adjustments to contracts and withholding amounts payable for CAS 
noncompliance, new standards, or voluntary changes are required only if 
the amounts involved are material. In determining materiality, the ACO 
shall use the criteria in 48 CFR 9903.305 (FAR appendix). The ACO may 
forego action to require that a cost impact proposal be submitted or to 
adjust contracts, if the ACO determines the amount involved is 
immaterial. However, in the case of noncompliance issues, the ACO shall 
inform the contractors that:
    (a) The Government reserves the right to make appropriate contract 
adjustments if, in the future, the ACO determines that the cost impact 
has become material and
    (b) The contractor is not excused from the obligation to comply with 
the applicable Standard or rules and regulations involved.
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18918, Apr. 29, 1996; 
62 FR 40237, July 25, 1997]



30.602-1  Equitable adjustments for new or modified standards.

    (a) New or modified standards. (1) The provision at 52.230-1, Cost 
Accounting Standards Notices and Certification, requires offerors to 
state whether or not the award of the contemplated contract would 
require a change to established cost accounting practices affecting 
existing contracts and subcontracts. The contracting officer shall 
ensure that the contractor's response to the notice is made known to the 
ACO.
    (2) Contracts and subcontracts containing the clause at 52.230-2, 
Cost Accounting Standards, or FAR 52.230-5, Cost Accounting Standards--
Educational Institution, may require equitable adjustments to comply 
with new or modified CAS. Such adjustments are limited to contracts and 
subcontracts awarded before the effective date of each new or modified 
standard. A new or modified standard becomes applicable prospectively to 
these contracts and subcontracts when a new contract or subcontract 
containing the clause at 52.230-2 or 52.230-5 is awarded on or after the 
effective date of the new or modified standard.
    (3) Contracting officers shall encourage contractors to submit to 
the ACO any change in accounting practice in anticipation of complying 
with a new or modified standard as soon as practical after the new or 
modified Standard has been promulgated by the CASB.
    (b) Accounting changes. (1) The clause at FAR 52.230-6, 
Administration of Cost Accounting Standards, requires the contractor to 
submit a description of any change in cost accounting practices required 
to comply with a new or modified CAS within 60 days (or other mutually 
agreed to date) after award of a contract requiring the change.
    (2) The ACO, with the assistance of the auditor, shall review the 
proposed change concurrently for adequacy and

[[Page 606]]

compliance (see 30.202-7). If the description of the change meets both 
tests, the ACO shall notify the contractor and request submission of a 
cost impact proposal in accordance with FAR 30.602.
    (c) Contract price adjustments. (1) The ACO shall promptly analyze 
the cost impact proposal with the assistance of the auditor, determine 
the impact, and negotiate the contract price adjustment on behalf of all 
Government agencies. The ACO shall invite contracting officers to 
participate in negotiations of adjustments when the price of any of 
their contracts may be increased or decreased by $10,000 or more. At the 
conclusion of negotiations, the ACO shall--
    (i) Execute supplemental agreements to contracts of the ACO's own 
agency (and, if additional funds are required, request them from the 
appropriate contracting officer);
    (ii) Prepare a negotiation memorandum and send copies to cognizant 
auditors and contracting officers of other agencies having prime 
contracts affected by the negotiation (those agencies shall execute 
supplemental agreements in the amounts negotiated); and
    (iii) Furnish copies of the memorandum indicating the effect on 
costs to the ACO of the next higher tier subcontractor or prime 
contractor, as appropriate, if a subcontract is to be adjusted. This 
memorandum shall be the basis for negotiation between the subcontractor 
and the next higher tier subcontractor or prime contractor and for 
execution of a supplemental agreement to the subcontract.
    (2) If the parties fail to agree on the cost or price adjustment, 
the ACO may make a unilateral adjustment, subject to contractor appeal 
as provided in the clause at 52.233-1, Disputes.
    (d) Remedies for contractor failure to make required submissions. 
(1) If the contractor does not submit the accounting change description 
or the general dollar magnitude of the change or cost impact proposal 
(in the form and manner specified), the ACO, with the assistance of the 
auditor, shall estimate the general dollar magnitude of the cost impact 
on CAS-covered contracts and subcontracts. The ACO may then withhold an 
amount not to exceed 10 percent of each subsequent amount determined 
payable related to the contractor's CAS-covered prime contracts, up to 
the estimated general dollar magnitude of the cost impact, until the 
required submission is furnished by the contractor.
    (2) If the contractor has not submitted the cost impact proposal 
before the total withheld amount reaches the estimated general dollar 
magnitude and the ACO determines that an adjustment is required (see 
30.602), the ACO shall request the contractor to agree to the cost or 
price adjustment. The contractor shall also be advised that in the event 
no agreement on the cost or price adjustment is reached within 20 days, 
the ACO may make a unilateral adjustment, subject to contractor appeal 
as provided in the clause at 52.233-1, Disputes.
[57 FR 39587, Aug. 31, 1992, as amended at 59 FR 67043, Dec. 28, 1994; 
61 FR 18918, Apr. 29, 1996]



30.602-2  Noncompliance with CAS requirements.

    (a) Determination of noncompliance. (1) Within 15 days of the 
receipt of a report of alleged noncompliance from the cognizant auditor, 
the ACO shall make an initial finding of compliance or noncompliance and 
advise the auditor.
    (2) If an initial finding of noncompliance is made, the ACO shall 
immediately notify the contractor in writing of the exact nature of the 
noncompliance and allow the contractor 60 days within which to agree or 
to submit reasons why the existing practices are considered to be in 
compliance.
    (3) If the contractor agrees with the initial finding of 
noncompliance, the ACO shall review the contractor submissions required 
by paragraph (a) of the clause at FAR 52.230-6, Administration of Cost 
Accounting Standards.
    (4) If the contractor disagrees with the initial noncompliance 
finding, the ACO shall review the reasons why the contractor considers 
the existing practices to be in compliance and make a determination of 
compliance or noncompliance. If the ACO determines that the contractor's 
practices are in noncompliance, a written explanation shall be provided 
as to why the ACO

[[Page 607]]

disagrees with the contractor's rationale. The ACO shall notify the 
contractor and the auditor in writing of the determination. If the ACO 
makes a determination of noncompliance, the procedures in (b) through 
(d), as appropriate, shall be followed.
    (b) Accounting changes. (1) The clause at FAR 52.230-6, 
Administration of Cost Accounting Standards, requires the contractor to 
submit a description of any cost accounting practice change needed to 
correct a noncompliance.
    (2) The ACO shall review the proposed change concurrently for 
adequacy and compliance (see 30.202-7). If the description of the change 
meets both tests, the ACO shall notify the contractor and request 
submission of a cost impact proposal in accordance with FAR 30.602.
    (c) Contract price adjustments. (1) The ACO shall request that the 
contractor submit a cost impact proposal within the time specified in 
the clause at FAR 52.230-6, Administration of Cost Accounting Standards.
    (2) Upon receipt of the cost impact proposal, the ACO shall then 
follow the procedures in 30.602-1(c)(1). In accordance with the clause 
at 52.230-2, Cost Accounting Standards, or FAR 52.230-5, Cost Accounting 
Standards--Educational Institution, the ACO shall include and separately 
identify, as part of the computation of the contract price 
adjustment(s), applicable interest on any increased costs paid to the 
contractor as a result of the noncompliance. Interest shall be computed 
from the date of overpayment to the time the adjustment is effected. If 
the costs were incurred and paid evenly over the fiscal years during 
which the noncompliance occurred, then the midpoint of the period in 
which the noncompliance began may be considered the baseline for the 
computation of interest. An alternate equitable method should be used if 
the costs were not incurred and paid evenly over the fiscal years during 
which the noncompliance occurred. Interest under 52.230-2 should be 
computed pursuant to Public Law 100-679.
    (d) Remedies for contractor failure to make required submissions. 
(1) If the contractor does not submit the accounting change description 
or the general dollar magnitude of the change or cost impact proposal 
(in the form and manner specified), the ACO, with the assistance of the 
cognizant auditor, shall estimate the general dollar magnitude of the 
cost impact on CAS-covered contracts and subcontracts. The ACO may then 
withhold an amount not to exceed 10 percent of each subsequent amount 
determined payable related to the contractor's CAS-covered prime 
contracts, up to the estimated general dollar magnitude of the cost 
impact until the required submission is furnished by the contractor.
    (2) If the contractor has not submitted the cost impact proposal 
before the total withheld amount reaches the estimated general dollar 
magnitude and the ACO determines that an adjustment is required (see 
30.602), the ACO shall notify the contractor and request agreement as to 
the cost or price adjustment together with any applicable interest as 
computed in accordance with 30.602-2(c)(2). The contractor shall also be 
advised that in the event no agreement on the cost or price adjustment 
is reached within 20 days, the ACO may make a unilateral adjustment, 
subject to contractor appeal, as provided in the clause at 52.233-1, 
Disputes.
    (3) If the ACO determines that there is no material increase in 
costs as a result of the noncompliance, the ACO shall notify the 
contractor in writing that the contractor is in noncompliance, that 
corrective action should be taken, and that if such noncompliance 
subsequently results in materially increased costs to the Government, 
the provisions of the clause at 52.230-2, Cost Accounting Standards, 
52.230-5, Cost Accounting Standards--Educational Institution, and/or the 
clause at 52.230-3, Disclosure and Consistency of Cost Accounting 
Practices, will be enforced.
[57 FR 39590, Aug. 31, 1992; 57 FR 43409, Sept. 21, 1992, as amended at 
57 FR 47373, Oct. 15, 1992; 59 FR 67043, Dec. 28, 1994; 61 FR 18918, 
Apr. 29, 1996]



30.602-3  Voluntary changes.

    (a) General. (1) The contractor may voluntarily change its disclosed 
or established cost accounting practices.

[[Page 608]]

    (2) The contract price may be adjusted for voluntary changes. 
However, increased costs resulting from a voluntary change may be 
allowed only if the ACO determines that the change is desirable and not 
detrimental to the interest of the Government.
    (b) Accounting changes. (1) The clause at FAR 52.230-6, 
Administration of Cost Accounting Standards, requires the contractor to 
notify the ACO and submit a description of any voluntary cost accounting 
practice change not less than 60 days (or such other date as may be 
mutually agreed to) before implementation of the voluntary change.
    (2) The ACO, with the assistance of the cognizant auditor, shall 
review the proposed change concurrently for adequacy and compliance (see 
30.202-7). If the description of the change meets both tests, the ACO 
shall notify the contractor and request submission of a cost impact 
proposal in accordance with FAR 30.602.
    (c) Contract price adjustments. (1) With the assistance of the 
auditor, the ACO shall promptly analyze the cost impact proposal to 
determine whether or not the proposed change will result in increased 
costs being paid by the Government. The ACO shall consider all of the 
contractor's affected CAS-covered contracts and subcontracts, but any 
cost changes to higher-tier subcontracts or contracts of other 
contractors over and above the cost of the subcontract adjustment shall 
not be considered.
    (2) The ACO shall then follow the procedures in 30.602-1(c)(1).
    (d) Remedies for contractor failure to make required submissions. 
(1) If the contractor does not submit the accounting change description 
or the general dollar magnitude of the change or cost impact proposal 
(in the form and manner specified), the ACO, with the assistance of the 
cognizant auditor, shall estimate the general dollar magnitude of the 
cost impact on CAS-covered contracts and subcontracts. The ACO may then 
withhold an amount not to exceed 10 percent of each subsequent amount 
determined payable related to the contractor's CAS-covered prime 
contracts up to the estimated general dollar magnitude of the cost 
impact, until the required submission is furnished by the contractor.
    (2) If the contractor has not submitted the cost impact proposal 
before the total withheld amount reaches the estimated general dollar 
magnitude and the ACO determines that an adjustment is appropriate (see 
30.602), the ACO shall request the contractor to agree to the cost or 
price adjustment. The contractor shall also be advised that, in the 
event no agreement on the cost or price adjustment is reached within 20 
days, the ACO may make a unilateral adjustment subject to contractor 
appeal, as provided in the clause at 52.233-1, Disputes.
[57 FR 39587, Aug. 31, 1992, as amended at 59 FR 67043, Dec. 28, 1994; 
61 FR 18918, Apr. 29, 1996]



30.603  Subcontract administration.

    When a negotiated CAS price adjustment or a determination of 
noncompliance is required at the subcontract level, the ACO cognizant of 
the subcontractor shall make the determination and advise the ACO 
cognizant of the prime contractor or next higher tier subcontractor of 
the decision. The ACOs cognizant of higher tier subcontractors or prime 
contractors shall not reverse the determination of the ACO cognizant of 
the subcontractor.
[57 FR 39590, Aug. 31, 1992; 57 FR 43495, Sept. 21, 1992; 61 FR 18918, 
Apr. 29, 1996]



PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents




Sec.
31.000  Scope of part.
31.001  Definitions.
31.002  Availability of accounting guide.

                       Subpart 31.1--Applicability

31.100  Scope of subpart.
31.101  Objectives.
31.102  Fixed-price contracts.
31.103  Contracts with commercial organizations.
31.104  Contracts with educational institutions.
31.105  Construction and architect-engineer contracts.
31.106  Facilities contracts.
31.106-1  Applicable cost principles.
31.106-2  Exceptions to general rules on allowability and allocability.
31.106-3  Contractor's commercial items.

[[Page 609]]

31.107  Contracts with State, local, and federally recognized Indian 
          tribal governments.
31.108  Contracts with nonprofit organizations.
31.109  Advance agreements.
31.110  Indirect cost rate certification and penalties on unallowable 
          costs.

          Subpart 31.2--Contracts With Commercial Organizations

31.201  General.
31.201-1  Composition of total cost.
31.201-2  Determining allowability.
31.201-3  Determining reasonableness.
31.201-4  Determining allocability.
31.201-5  Credits.
31.201-6  Accounting for unallowable costs.
31.201-7  Construction and architect-engineer contracts.
31.202  Direct costs.
31.203  Indirect costs.
31.204  Application of principles and procedures.
31.205;  Selected costs.
31.205-1  Public relations and advertising costs.
31.205-2  [Reserved]
31.205-3  Bad debts.
31.205-4  Bonding costs.
31.205-5  Civil defense costs.
31.205-6  Compensation for personal services.
31.205-7  Contingencies.
31.205-8  Contributions or donations.
31.205-9  [Reserved]
31.205-10  Cost of money.
31.205-11  Depreciation.
31.205-12  Economic planning costs.
31.205-13  Employee morale, health, welfare, food service, and dormitory 
          costs and credits.
31.205-14  Entertainment costs.
31.205-15  Fines, penalties, and mischarging costs.
31.205-16  Gains and losses on disposition or impairment of depreciable 
          property or other capital assets.
31.205-17  Idle facilities and idle capacity costs.
31.205-18  Independent research and development and bid and proposal 
          costs.
31.205-19  Insurance and indemnification.
31.205-20  Interest and other financial costs.
31.205-21  Labor relations costs.
31.205-22  Lobbying and political activity costs.
31.205-23  Losses on other contracts.
31.205-24  Maintenance and repair costs.
31.205-25  Manufacturing and production engineering costs.
31.205-26  Material costs.
31.205-27  Organization costs.
31.205-28  Other business expenses.
31.205-29  Plant protection costs.
31.205-30  Patent costs.
31.205-31  Plant reconversion costs.
31.205-32  Precontract costs.
31.205-33  Professional and consultant service costs.
31.205-34  Recruitment costs.
31.205-35  Relocation costs.
31.205-36  Rental costs.
31.205-37  Royalties and other costs for use of patents.
31.205-38  Selling costs.
31.205-39  Service and warranty costs.
31.205-40  Special tooling and special test equipment costs.
31.205-41  Taxes.
31.205-42  Termination costs.
31.205-43  Trade, business, technical, and professional activity costs.
31.205-44  Training and education costs.
31.205-45  Transporation costs.
31.205-46  Travel costs.
31.205-47  Costs related to legal and other proceedings.
31.205-48  Deferred research and development costs.
31.205-49  Goodwill.
31.205-50  [Reserved]
31.205-51  Costs of alcoholic beverages.
31.205-52  Asset valuations resulting from business combinations.

          Subpart 31.3--Contracts With Educational Institutions

31.301  Purpose.
31.302  General.
31.303  Requirements.

                     Subparts 31.4--31.5  [Reserved]

  Subpart 31.6--Contracts With State, Local, and Federally Recognized 
                        Indian Tribal Governments

31.601  Purpose.
31.602  General.
31.603  Requirements.

          Subpart 31.7--Contracts With Nonprofit Organizations

31.701  Purpose.
31.702  General.
31.703  Requirements.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42301, Sept. 19, 1983, unless otherwise noted.

    Editorial Note: Nomenclature changes for part 31 appear at 52 FR 
35669, Sept. 22, 1987.



31.000  Scope of part.

    This part contains cost principles and procedures for (a) the 
pricing of contracts, subcontracts, and modifications to contracts and 
subcontracts whenever cost analysis is performed

[[Page 610]]

(see 15.404-1(c)) and (b) the determination, negotiation, or allowance 
of costs when required by a contract clause.
48 FR 42301, Sept. 19, 1983, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.000, ``15.805-3'' was amended to read ``15.404-1(c)'', effective Oct. 
10, 1997.



31.001  Definitions.

    Accrued benefit cost method means an actuarial cost method under 
which units of benefit are assigned to each cost accounting period and 
are valued as they accrue; i.e., based on the services performed by each 
employee in the period involved. The measure of normal cost under this 
method for each cost accounting period is the present value of the units 
of benefit deemed to be credited to employees for service in that 
period. The measure of the actuarial liability at a plan's inception 
date is the present value of the units of benefit credited to employees 
for service prior to that date. (This method is also known as the unit 
credit cost method.)
    Accumulating costs means collecting cost data in an organized 
manner, such as through a system of accounts.
    Actual cash value means the cost of replacing damaged property with 
other property of like kind and quality in the physical condition of the 
property immediately before the damage.
    Actual costs, as used in this part (other than subpart 31.6), means 
amounts determined on the basis of costs incurred, as distinguished from 
forecasted costs. Actual costs include standard costs properly adjusted 
for applicable variances.
    Actuarial assumption means a prediction of future conditions 
affecting pension costs; e.g., mortality rate, employee turnover, 
compensation levels, pension fund earnings, and changes in values of 
pension funds assets.
    Actuarial cost method means a technique which uses actuarial 
assumptions to measure the present value of future pension benefits and 
pension fund administrative expenses, and which assigns the cost of such 
benefits and expenses to cost accounting periods.
    Actuarial gain and loss means the effect on pension cost resulting 
from differences between actuarial assumptions and actual experience.
    Actuarial liability means pension cost attributable, under the 
actuarial cost method in use, to years before the date of a particular 
actuarial valuation. As of such date, the actuarial liability represents 
the excess of the present value of the future benefits and 
administrative expenses over the present value of future contributions, 
for the normal cost for all plan participants and beneficiaries. The 
excess of the actuarial liability over the value of the assets of a 
pension plan is the unfunded actuarial liability.
    Actuarial valuation means the determination, as of a specified date, 
of the normal cost, actuarial liability, value of the assets of a 
pension fund, and other relevant values for the pension plan.
    Allocate means to assign an item of cost, or a group of items of 
cost, to one or more cost objectives. This term includes both direct 
assignment of cost and the reassignment of a share from an indirect cost 
pool.
    Business unit means any segment of an organization, or an entire 
business organization which is not divided into segments.
    Compensated personal absence means any absence from work for reasons 
such as illness, vacation, holidays, jury duty, military training, or 
personal activities for which an employer pays compensation directly to 
an employee in accordance with a plan or custom of the employer.
    Cost input means the cost, except general and administrative (G&A) 
expenses, which for contract costing purposes is allocable to the 
production of goods and services during a cost accounting period.
    Cost objective, as used in this part (other than subpart 31.6), 
means a function, organizational subdivision, contract, or other work 
unit for which cost data are desired and for which provision is made to 
accumulate and measure the cost of processes, products, jobs, 
capitalized projects, etc.
    Cost of capital committed to facilities means an imputed cost 
determined by applying a cost of money rate to facilities capital.

[[Page 611]]

    Deferred compensation means an award made by an employer to 
compensate an employee in a future cost accounting period or periods for 
services rendered in one or more cost accounting periods before the date 
of the receipt of compensation by the employee. This definition shall 
not include the amount of year end accruals for salaries, wages, or 
bonuses that are to be paid within a reasonable period of time after the 
end of a cost accounting period.
    Defined-benefit pension plan means a pension plan in which the 
benefits to be paid, or the basis for determining such benefits, are 
established in advance and the contributions are intended to provide the 
stated benefits.
    Defined-contribution pension plan means a pension plan in which the 
contributions to be made are established in advance and the benefits are 
determined thereby.
    Directly associated cost means any cost which is generated solely as 
a result of the incurrence of another cost, and which would not have 
been incurred had the other cost not been incurred.
    Estimating costs means the process of forecasting a future result in 
terms of cost, based upon information available at the time.
    Expressly unallowable cost means a particular item or type of cost 
which, under the express provisions of an applicable law, regulation, or 
contract, is specifically named and stated to be unallowable.
    Facilities capital means the net book value of tangible capital 
assets and of those intangible capital assets that are subject to 
amortization.
    Final cost objective, as used in this part (other than subparts 31.3 
and 31.6), means a cost objective that has allocated to it both direct 
and indirect costs and, in the contractor's accumulation system, is one 
of the final accumulation points.
    Fiscal year, as used in this part, means the accounting period for 
which annual financial statements are regularly prepared, generally a 
period of 12 months, 52 weeks, or 53 weeks.
    Funded pension cost, as used in this part, means the portion of 
pension costs for a current or prior cost accounting period that has 
been paid to a funding agency.
    General and administrative (G&A) expense means any management, 
financial, and other expense which is incurred by or allocated to a 
business unit and which is for the general management and administration 
of the business unit as a whole. G&A expense does not include those 
management expenses whose beneficial or causal relationship to cost 
objectives can be more directly measured by a base other than a cost 
input base representing the total activity of a business unit during a 
cost accounting period.
    Home office means an office responsible for directing or managing 
two or more, but not necessarily all, segments of an organization. It 
typically establishes policy for, and provides guidance to, the segments 
in their operations. It usually performs management, supervisory, or 
administrative functions, and may also perform service functions in 
support of the operations of the various segments. An organization which 
has intermediate levels, such as groups, may have several home offices 
which report to a common home office. An intermediate organization may 
be both a segment and a home office.
    Immediate-gain actuarial cost method means any of the several 
actuarial cost methods under which actuarial gains and losses are 
included as part of the unfunded actuarial liability of the pension 
plan, rather than as part of the normal cost of the plan.
    Independent research and development (IR&D) cost means the cost of 
effort which is neither sponsored by a grant, nor required in performing 
a contract, and which falls within any of the following four areas: (a) 
basic research, (b) applied research, (c) development, and (d) systems 
and other concept formulation studies.
    Indirect cost pools, as used in this part (other than subparts 31.3 
and 31.6), means groupings of incurred costs identified with two or more 
cost objectives but not identified specifically with any final cost 
objective.
    Insurance administration expenses means the contractor's costs of 
administering an insurance program; e.g., the costs of operating an 
insurance or risk-management department, processing

[[Page 612]]

claims, actuarial fees, and service fees paid to insurance companies, 
trustees, or technical consultants.
    Intangible capital asset means an asset that has no physical 
substance, has more than minimal value, and is expected to be held by an 
enterprise for continued use or possession beyond the current accounting 
period for the benefits it yields.
    Job, as used in this part, means a homogeneous cluster of work 
tasks, the completion of which serves an enduring purpose for the 
organization. Taken as a whole, the collection of tasks, duties, and 
responsibilities constitutes the assignment for one or more individuals 
whose work is of the same nature and is performed at the same skill/ 
responsibility level--as opposed to a position, which is a collection of 
tasks assigned to a specific individual. Within a job, there may be pay 
categories which are dependent on the degree of supervision required by 
the employee while performing assigned tasks which are performed by all 
persons with the same job.
    Job class of employees, as used in this part, means employees 
performing in positions within the same job.
    Labor cost at standard means a preestablished measure of the labor 
element of cost, computed by multiplying labor-rate standard by labor-
time standard.
    Labor market, as used in this part, means a place where individuals 
exchange their labor for compensation. Labor markets are identified and 
defined by a combination of the following factors:
    (1) Geography,
    (2) Education and/or technical background required,
    (3) Experience required by the job,
    (4) Licensing or certification requirements,
    (5) Occupational membership, and
    (6) Industry.
    Labor-rate standard means a preestablished measure, expressed in 
monetary terms, of the price of labor.
    Labor-time standard means a preestablished measure, expressed in 
temporal terms, of the quantity of labor.
    Material cost at standard means a preestablished measure of the 
material elements of cost, computed by multiplying material-price 
standard by material-quantity standard.
    Material-price standard means a preestablished measure, expressed in 
monetary terms, of the price of material.
    Material-quantity standard means a preestablished measure, expressed 
in physical terms, of the quantity of material.
    Moving average cost means an inventory costing method under which an 
average unit cost is computed after each acquisition by adding the cost 
of the newly acquired units to the cost of the units of inventory on 
hand and dividing this figure by the new total number of units.
    Normal cost means the annual cost attributable, under the actuarial 
cost method in use, to years subsequent to a particular valuation date.
    Original complement of low cost equipment means a group of items 
acquired for the initial outfitting of a tangible capital asset or an 
operational unit, or a new addition to either. The items in the group 
individually cost less than the minimum amount established by the 
contractor for capitalization for the classes of assets acquired but in 
the aggregate they represent a material investment. The group, as a 
complement, is expected to be held for continued service beyond the 
current period. Initial outfitting of the unit is completed when the 
unit is ready and available for normal operations.
    Pay-as-you-go cost method means a method of recognizing pension cost 
only when benefits are paid to retired employees or their beneficiaries.
    Pension plan means a deferred compensation plan established and 
maintained by one or more employers to provide systematically for the 
payment of benefits to plan participants after their retirements; 
provided, that the benefits are paid for life or are payable for life at 
the option of the employees. Additional benefits such as permanent and 
total disability and death payments, and survivorship payments to 
beneficiaries of deceased employees may be an integral part of a pension 
plan.

[[Page 613]]

    Pension plan participant means any employee or former employee of an 
employer or any member or former member of an employee organization, who 
is or may become eligible to receive a benefit from a pension plan which 
covers employees of such employer or members of such organization who 
have satisfied the plan's participation requirements, or whose 
beneficiaries are receiving or may be eligible to receive any such 
benefit. A participant whose employment status with the employer has not 
been terminated is an active participant of the employer's pension plan.
    Pricing means the process of establishing a reasonable amount or 
amounts to be paid for supplies or services.
    Profit center, as used in this part (other than subparts 31.3 and 
31.6), means the smallest organizationally independent segment of a 
company charged by management with profit and loss responsibilities.
    Projected average loss means the estimated long-term average loss 
per period for periods of comparable exposure to risk of loss.
    Projected benefit cost method means any of the several actuarial 
cost methods which distribute the estimated total cost of all the 
employees' prospective benefits over a period of years, usually their 
working careers.
    Proposal means any offer or other submission used as a basis for 
pricing a contract, contract modification, or termination settlement or 
for securing payments thereunder.
    Residual value means the proceeds, less removal and disposal costs, 
if any, realized upon disposition of a tangible capital asset. It 
usually is measured by the net proceeds from the sale or other 
disposition of the asset, or its fair value if the asset is traded in on 
another asset. The estimated residual value is a current forecast of the 
residual value.
    Segment means one of two or more divisons, product departments, 
plants, or other subdivisions of an organization reporting directly to a 
home office, usually identified with responsibility for profit and/or 
producing a product or service. The term includes Government-owned 
contractor-operated (GOCO) facilities, and joint ventures and 
subsidiaries (domestic and foreign) in which the organization has a 
majority ownership. The term also includes those joint ventures and 
subsidiaries (domestic and foreign) in which the organization has less 
than a majority of ownership, but over which it exercises control.
    Self-insurance means the assumption or retention of the risk of loss 
by the contractor, whether voluntarily or involuntarily. Self-insurance 
includes the deductible portion of purchased insurance.
    Self-insurance charge means a cost which represents the projected 
average loss under a self-insurance plan.
    Service life means the period of usefulness of a tangible capital 
asset (or group of assets) to its current owner. The period may be 
expressed in units of time or output. The estimated service life of a 
tangible capital asset (or group of assets) is a current forecast of its 
service life and is the period over which depreciation cost is to be 
assigned.
    Spread-gain actuarial cost method means any of the several projected 
benefit actuarial cost methods under which actuarial gains and losses 
are included as part of the current and future normal costs of the 
pension plan.
    Standard cost means any cost computed with the use of preestablished 
measures.
    Tangible capital asset means an asset that has physical substance, 
more than minimal value, and is expected to be held by an enterprise for 
continued use or possession beyond the current accounting period for the 
services it yields.
    Termination gain or loss means an actuarial gain or loss resulting 
from the difference between the assumed and actual rates at which 
pension plan participants separate from employment for reasons other 
than retirement, disability, or death.
    Unallowable cost means any cost which, under the provisions of any 
pertinent law, regulation, or contract, cannot be included in prices, 
cost-reimbursements, or settlements under a Government contract to which 
it is allocable.
    Unfunded pension plan as used in this part, means a defined benefit 
pension

[[Page 614]]

plan for which no funding agency is established for the accumulation of 
contributions.
    Variance means the difference between a preestablished measure and 
an actual measure.
    Weighted average cost means an inventory costing method under which 
an average unit cost is computed periodically by dividing the sum of the 
cost of beginning inventory plus the cost of acquisitions by the total 
number of units included in these two categories.
[48 FR 42301, Sept. 17, 1983, as amended at 54 FR 13024, Mar. 29, 1989; 
61 FR 39217, July 26, 1996; 61 FR 69288, Dec. 31, 1996]



31.002  Availability of accounting guide.

    Contractors needing assistance in developing or improving their 
accounting systems and procedures may request a copy of the guide 
entitled ``Guidance for New Contractors'' (DCAAP 7641.90). The guide is 
available from: Headquarters, Defense Contract Audit Agency, Operating 
Administrative Office, 8725 John J. Kingman Road, Suite 2135, Fort 
Belvoir, Virginia 22060-6219; Telephone No. (703) 767-1066; Telefax No. 
(703) 767-1061.
[61 FR 2640, Jan. 26, 1996]



                       Subpart 31.1--Applicability



31.100  Scope of subpart.

    This subpart describes the applicability of the cost principles and 
procedures in succeeding subparts of this part to various types of 
contracts and subcontracts. It also describes the need for advance 
agreements.



31.101  Objectives.

    In recognition of differing organizational characteristics, the cost 
principles and procedures in the succeeding subparts are grouped 
basically by organizational type; e.g., commercial concerns and 
educational institutions. The overall objective is to provide that, to 
the extent practicable, all organizations of similar types doing similar 
work will follow the same cost principles and procedures. To achieve 
this uniformity, individual deviations concerning cost principles 
require advance approval of the agency head or designee. Class 
deviations for the civilian agencies require advance approval of the 
Civilian Agency Acquisition Council. Class deviations for the National 
Aeronautics and Space Administration require advance approval of the 
Associate Administrator for Procurement. Class deviations for the 
Department of Defense require advance approval of the Director of 
Defense Procurement, Office of the Under Secretary of Defense for 
Acquisition and Technology.
[48 FR 42301, Sept. 19, 1983, as amended at 56 FR 67133, Dec. 27, 1991; 
61 FR 31655, June 20, 1996]



31.102  Fixed-price contracts.

    The applicable subparts of part 31 shall be used in the pricing of 
fixed-price contracts, subcontracts, and modifications to contracts and 
subcontracts whenever (a) cost analysis is performed, or (b) a fixed-
price contract clause requires the determination or negotiation of 
costs. However, application of cost principles to fixed-price contracts 
and subcontracts shall not be construed as a requirement to negotiate 
agreements on individual elements of cost in arriving at agreement on 
the total price. The final price accepted by the parties reflects 
agreement only on the total price. Further, notwithstanding the 
mandatory use of cost principles, the objective will continue to be to 
negotiate prices that are fair and reasonable, cost and other factors 
considered.



31.103  Contracts with commercial organizations.

    This category includes all contracts and contract modifications for 
supplies, services, or experimental, developmental, or research work 
negotiated with organizations other than educational institutions (see 
31.104), construction and architect-engineer contracts (see 31.105), 
State and local governments (see 31.107) and nonprofit organizations 
(see 31.108) on the basis of cost.
    (a) The cost principles and procedures in subpart 31.2 and agency 
supplements shall be used in pricing negotiated supply, service, 
experimental, developmental, and research contracts and contract 
modifications with commercial organizations whenever cost

[[Page 615]]

analysis is performed as required by 15.404-1(c).
    (b) In addition, the contracting officer shall incorporate the cost 
principles and procedures in subpart 31.2 and agency supplements by 
reference in contracts with commercial organizations as the basis for--
    (1) Determining reimbursable costs under (i) cost-reimbursement 
contracts and cost-reimbursement subcontracts under these contracts 
performed by commercial organizations and (ii) the cost-reimbursement 
portion of time-and-materials contracts except when material is priced 
on a basis other than at cost (see 16.601(b)(3));
    (2) Negotiating indirect cost rates (see subpart 42.7);
    (3) Proposing, negotiating, or determining costs under terminated 
contracts (see 49.103 and 49.113);
    (4) Price revision of fixed-price incentive contracts (see 16.204 
and 16.403);
    (5) Price redetermination of price redetermination contracts (see 
16.205 and 16.206); and
    (6) Pricing changes and other contract modifications.
[48 FR 42301, Sept. 19, 1983, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.103, in paragraph (a), ``15.805-3'' was amended to read ``15.404-
1(c)'', effective Oct. 10, 1997.



31.104  Contracts with educational institutions.

    This category includes all contracts and contract modifications for 
research and development, training, and other work performed by 
educational institutions.
    (a) The contracting officer shall incorporate the cost principles 
and procedures in subpart 31.3 by reference in cost-reimbursement 
contracts with educational institutions as the basis for--
    (1) Determining reimbursable costs under the contracts and cost-
reimbursement subcontracts thereunder performed by educational 
institutions;
    (2) Negotiating indirect cost rates; and
    (3) Settling costs of cost-reimbursement terminated contracts (see 
subpart 49.3 and 49.109-7).
    (b) The cost principles in this subpart are to be used as a guide in 
evaluating costs in connection with negotiating fixed-price contracts 
and termination settlements.



31.105  Construction and architect-engineer contracts.

    (a) This category includes all contracts and contract modifications 
negotiated on the basis of cost with organizations other than 
educational institutions (see 31.104), State and local governments (see 
31.107), and nonprofit organizations except those exempted under OMB 
Circular A-122 (see 31-108) for construction management or construction, 
alteration or repair of buildings, bridges, roads, or other kinds of 
real property. It also includes architect-engineer contracts related to 
construction projects. It does not include contracts for vessels, 
aircraft, or other kinds of personal property.
    (b) Except as otherwise provided in (d) below, the cost principles 
and procedures in subpart 31.2 shall be used in the pricing of contracts 
and contract modifications in this category if cost analysis is 
performed as required by 15.404-1(c).
    (c) In addition, the contracting officer shall incorporate the cost 
principles and procedures in subpart 31.2 (as modified by (d) below) by 
reference in contracts in this category as the basis for--
    (1) Determining reimbursable costs under cost-reimbursement 
contracts, including cost-reimbursement subcontracts thereunder;
    (2) Negotiating indirect cost rates;
    (3) Proposing, negotiating, or determining costs under terminated 
contracts;
    (4) Price revision of fixed-price incentive contracts; and
    (5) Pricing changes and other contract modifications.
    (d) Except as otherwise provided in this paragraph (d), the 
allowability of costs for construction and architect-engineer contracts 
shall be determined in accordance with subpart 31.2.
    (1) Because of widely varying factors such as the nature, size, 
duration, and location of the construction project, advance agreements 
as set forth in 31.109, for such items as home office

[[Page 616]]

overhead, partners' compensation, employment of consultants, and 
equipment usage costs, are particularly important in construction and 
architect-engineer contracts. When appropriate they serve to express the 
parties' understanding and avoid possible subsequent disputes or 
disallowances.
    (2) Construction equipment, as used in this section, means equipment 
(including marine equipment) in sound workable condition, either owned 
or controlled by the contractor or the subcontractor at any tier, or 
obtained from a commercial rental source, and furnished for use under 
Government contracts.
    (i) Allowable ownership and operating costs shall be determined as 
follows:
    (A) Actual cost data shall be used when such data can be determined 
for both ownership and operating costs for each piece of equipment, or 
groups of similar serial or series equipment, from the contractor's 
accounting records. When such costs cannot be so determined, the 
contracting agency may specify the use of a particular schedule of 
predetermined rates or any part thereof to determine ownership and 
operating costs of construction equipment (see subdivisions (d)(2)(i)(B) 
and (C) of this section). However, costs otherwise unallowable under 
this part shall not become allowable through the use of any schedule 
(see 31.109(c)). For example, schedules need to be adjusted for 
Government contract costing purposes if they are based on replacement 
cost, include unallowable interest costs, or use improper cost of money 
rates or computations. Contracting officers should review the 
computations and factors included within the specified schedule and 
ensure that unallowable or unacceptably computed factors are not allowed 
in cost submissions.
    (B) Predetermined schedules of construction equipment use rates 
(e.g., the Construction Equipment Ownership and Operating Expense 
Schedule published by the U.S. Army Corps of Engineers, industry 
sponsored construction equipment cost guides, or commercially published 
schedules of construction equipment use cost) provide average ownership 
and operating rates for construction equipment. The allowance for 
ownership costs should include the cost of depreciation and may include 
facilities capital cost of money. The allowance for operating costs may 
include costs for such items as fuel, filters, oil, and grease; 
servicing, repairs, and maintenance; and tire wear and repair. Costs of 
labor, mobilization, demobilization, overhead, and profit are generally 
not reflected in schedules, and separate consideration may be necessary.
    (C) When a schedule of predetermined use rates for construction 
equipment is used to determine direct costs, all costs of equipment that 
are included in the cost allowances provided by the schedule shall be 
identified and eliminated from the contractor's other direct and 
indirect costs charged to the contract. If the contractor's accounting 
system provides for site or home office overhead allocations, all costs 
which are included in the equipment allowances may need to be included 
in any cost input base before computing the contractor's overhead rate. 
In periods of suspension of work pursuant to a contract clause, the 
allowance for equipment ownership shall not exceed an amount for standby 
cost as determined by the schedule or contract provision.
    (ii) Reasonable costs of renting construction equipment are 
allowable (but see paragraph (C) below).
    (A) Costs, such as maintenance and minor or running repairs incident 
to operating such rented equipment, that are not included in the rental 
rate are allowable.
    (B) Costs incident to major repair and overhaul of rental equipment 
are unallowable.
    (C) The allowability of charges for construction equipment rented 
from any division, subsidiary, or organization under common control, 
will be determined in accordance with 31.205-36(b)(3).
    (3) Costs incurred at the job site incident to performing the work, 
such as the cost of superintendence, timekeeping and clerical work, 
engineering, utility costs, supplies, material handling, restoration and 
cleanup, etc., are allowable as direct or indirect costs, provided the 
accounting practice

[[Page 617]]

used is in accordance with the contractor's established and consistently 
followed cost accounting practices for all work.
    (4) Rental and any other costs, less any applicable credits incurred 
in acquiring the temporary use of land, structures, and facilities are 
allowable. Costs, less any applicable credits, incurred in constructing 
or fabricating structures and facilities of a temporary nature are 
allowable.
[48 FR 42301, Sept. 19, 1983, as amended at 50 FR 23607, June 4, 1985; 
52 FR 19804, May 27, 1987; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.105, in paragraph (b), ``15.805-3'' was amended to read 15.404-
1(c)'', effective Oct. 10, 1997.



31.106  Facilities contracts.



31.106-1  Applicable cost principles.

    The cost principles and procedures applicable to the evaluation and 
determination of costs under facilities contracts (as defined in 
45.301), and subcontracts thereunder, will be governed by the type of 
entity to which a facilities contract is awarded. Except as otherwise 
provided in 31.106-2 below, subpart 31.2 applies to facilities contracts 
awarded to commercial organizations; subpart 31.3 applies to facilities 
contracts awarded to educational institutions; and 31.105 applies to 
facilities contracts awarded to construction contractors. Whichever cost 
principles are appropriate will be used in the pricing of facilities 
contracts and contract modifications if cost analysis is performed as 
required by 15.404-1(c). In addition, the contracting officer shall 
incorporate the cost principles and procedures appropriate in the 
circumstances (e.g., subpart 31.2; subpart 31.3; or 31.105) by reference 
in facilities contracts as the basis for--
    (a) Determining reimbursable costs under facilities contracts, 
including cost-reimbursement subcontracts thereunder;
    (b) Negotiating indirect cost rates; and
    (c) Determining costs of terminated contracts when the contractor 
elects to voucher out costs (see subpart 49.3), and for settlement by 
determination (see 49.109-7).
[48 FR 42301, Sept. 19, 1983, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.106 introductory text, ``15.805-3'' was amended to read ``15.404-
1(c)'', effective Oct. 10, 1997.



31.106-2  Exceptions to general rules on allowability and allocability.

    (a) A contractor's established accounting system and procedures are 
normally directed to the equitable allocation of costs to the types of 
products which the contractor produces or services rendered in the 
course of normal operating activities. The acquisition of, or work on, 
facilities for the Government normally does not involve the 
manufacturing processes, plant departmental operations, cost patterns of 
work, administrative and managerial control, or clerical effort usual to 
production of the contractor's normal products or services.
    (b) Advance agreements (see 31.109) should be made between the 
contractor and the contracting officer as to indirect cost items to be 
applied to the facilities acquisition. A contractor's normal accounting 
practice for allocating indirect costs to the acquisition of contractor 
facilities may range from charging all these costs to this acquisition 
to not charging any. When necessary to produce an equitable result, the 
contractor's usual method of allocating indirect cost shall be varied, 
and appropriate adjustment shall be made to the pools of indirect cost 
and the bases of their distribution.
    (c) The purchase of completed facilities (or services in connection 
with the facilities) from outside sources does not involve the 
contractor's direct labor or indirect plant maintenance personnel. 
Accordingly, indirect manufacturing and plant overhead costs, which are 
primarily incurred or generated by reason of direct labor or maintenance 
labor operations, are not allocable to the acquisition of such 
facilities.
    (d) Contracts providing for the installation of new facilities or 
the rehabilitation of existing facilities may involve the use of the 
contractor's plant maintenance labor, as distinguished

[[Page 618]]

from direct labor engaged in the production of the company's normal 
products. In such instances, only those types of indirect manufacturing 
and plant operating costs that are related to or incurred by reason of 
the expenditures of the classes of labor used for the performance of the 
facilities work may be allocated to the facilities contract. Thus, a 
facilities contract which involves the use of plant maintenance labor 
only would not be subject to an allocation of such cost items as direct 
productive labor supervision, depreciation, and maintenance expense 
applicable to productive machinery and equipment, or raw material and 
finished goods storage costs.
    (e) Where a facilities contract calls for the construction, 
production, or rehabilitation of equipment or other items that are 
involved in the regular course of the contractor's business by the use 
of the contractor's direct labor and manufacturing processes, the 
indirect costs normally allocated to all that work may be allocated to 
the facilities contract.



31.106-3  Contractor's commercial items.

    If facilities constituting the contractor's usual commercial items 
(or only minor modifications thereof) are acquired by the Government 
under the contract, the Government shall not pay any amount in excess of 
the contractor's most favored customer price or the price of other 
suppliers for like quantities of the same or substantially the same 
items, whichever is lower.
[48 FR 42301, Sept. 19, 1983, as amended at 60 FR 48248, Sept. 18, 1995]



31.107  Contracts with State, local, and federally recognized Indian tribal governments.

    (a) Subpart 31.6 provides principles and standards for determining 
costs applicable to contracts with State, local, and federally 
recognized Indian tribal governments. They provide the basis for a 
uniform approach to the problem of determining costs and to promote 
efficiency and better relationships between State, local, and federally 
recognized Indian tribal governments, and Federal Government entities. 
They apply to all programs that involve contracts with State, local, and 
federally recognized Indian tribal governments, except contracts with--
    (1) Publicly financed educational institutions subject to subpart 
31.3; or
    (2) Publicly owned hospitals and other providers of medical care 
subject to requirements promulgated by the sponsoring Government 
agencies.
    (b) The Office of Management and Budget will approve any other 
exceptions in particular cases when adequate justification is presented.
[48 FR 42301, Sept. 19, 1983, as amended at 52 FR 30076, Aug. 12, 1987]



31.108  Contracts with nonprofit organizations.

    Subpart 31.7 provides principles and standards for determining costs 
applicable to contracts with nonprofit organizations other than 
educational institutions, State and local governments, and those 
nonprofit organizations exempted under OMB Circular No. A-122.



31.109  Advance agreements.

    (a) The extent of allowability of the costs covered in this part 
applies broadly to many accounting systems in varying contract 
situations. Thus, the reasonableness, the allocability and the 
allowability under the specific cost principles at subparts 31.2, 31.3, 
31.6, and 31.7 of certain costs may be difficult to determine. To avoid 
possible subsequent disallowance or dispute based on unreasonableness, 
unallocability or unallowability under the specific cost principles at 
subparts 31.2, 31.3, 31.6, and 31.7, contracting officers and 
contractors should seek advance agreement on the treatment of special or 
unusual costs. However, an advance agreement is not an absolute 
requirement and the absence of an advance agreement on any cost will 
not, in itself, affect the reasonableness, allocability or the 
allowability under the specific cost principles at subparts 31.2, 31.3, 
31.6, and 31.7 of that cost.
    (b) Advance agreements may be negotiated either before or during a 
contract but should be negotiated before incurrence of the costs 
involved. The agreements must be in writing, executed by both 
contracting parties, and incorporated into applicable current and future 
contracts. An advance

[[Page 619]]

agreement shall contain a statement of its applicability and duration.
    (c) The contracting officer is not authorized by this 31.109 to 
agree to a treatment of costs inconsistent with this part. For example, 
an advance agreement may not provide that, notwithstanding 31.205-20, 
interest is allowable.
    (d) Advance agreements may be negotiated with a particular 
contractor for a single contract, a group of contracts, or all the 
contracts of a contracting office, an agency, or several agencies.
    (e) The cognizant administrative contracting officer (ACO), or other 
contracting officer established in part 42, shall negotiate advance 
agreements except that an advance agreement affecting only one contract, 
or class of contracts from a single contracting office, shall be 
negotiated by a contracting officer in the contracting office, or an ACO 
when delegated by the contracting officer. When the negotiation 
authority is delegated, the ACO shall coordinate the proposed agreement 
with the contracting officer before executing the advance agreement.
    (f) Before negotiating an advance agreement, the Government 
negotiator shall--
    (1) Determine if other contracting offices inside the agency or in 
other agencies have a significant unliquidated dollar balance in 
contracts with the same contractor;
    (2) Inform any such office or agency of the matters under 
consideration for negotiation; and
    (3) As appropriate, invite the office or agency and the cognizant 
audit agency to participate in prenegotiation discussions and/or in the 
subsequent negotiations.
    (g) Upon completion of the negotiation, the sponsor shall prepare 
and distribute to other interested agencies and offices, including the 
audit agency, copies of the executed agreement and a memorandum 
providing the information specified in 15.406-3, as applicable.
    (h) Examples of costs for which advance agreements may be 
particularly important are--
    (1) Compensation for personal services, including but not limited to 
allowances for off-site pay, incentive pay, location allowances, 
hardship pay, cost of living differential, and termination of defined 
benefit pension plans;
    (2) Use charges for fully depreciated assets;
    (3) Deferred maintenance costs;
    (4) Precontract costs;
    (5) Independent research and development and bid and proposal costs;
    (6) Royalties and other costs for use of patents;
    (7) Selling and distribution costs;
    (8) Travel and relocation costs, as related to special or mass 
personnel movements, as related to travel via contractor-owned, -leased, 
or -chartered aircraft, or as related to maximum per diem rates;
    (9) Costs of idle facilities and idle capacity;
    (10) Severance pay to employees on support service contracts;
    (11) Plant reconversion;
    (12) Professional services (e.g., legal, accounting, and 
engineering);
    (13) General and administrative costs (e.g., corporate, division, or 
branch allocations) attributable to the general management, supervision, 
and conduct of the contractor's business as a whole. These costs are 
particularly significant in construction, job-site, architect-engineer, 
facilities, and Government-owned contractor operated (GOCO) plant 
contracts (see 31.203(f));
    (14) Costs of construction plant and equipment (see 31.105(d)).
    (15) Costs of public relations and advertising; and
    (16) Training and education costs (see 31.205-44(h)).
[48 FR 42301, Sept. 19, 1983, as amended at 51 FR 12298, Apr. 9, 1986; 
51 FR 27489, July 31, 1986; 52 FR 9038, Mar. 20, 1987; 52 FR 27806, July 
24, 1987; 54 FR 34755, Aug. 21, 1989; 59 FR 67045, Dec. 28, 1994; 61 FR 
69288, Dec. 31, 1996; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.109, in paragraph (g), ``15.808, Price negotiation memorandum'' was 
amended to read ``15.406-3'', effective Oct. 10, 1997.



31.110  Indirect cost rate certification and penalties on unallowable costs.

    (a) Certain contracts require certification of the indirect cost 
rates proposed for final payment purposes. See 42.703-2 for 
administrative procedures regarding the certification provisions

[[Page 620]]

and the related contract clause prescription.
    (b) If unallowable costs are included in final indirect cost 
settlement proposals, penalties may be assessed. See 42.709 for 
administrative procedures regarding the penalty assessment provisions 
and the related contract clause prescription.
[60 FR 42658, Aug. 16, 1995, as amended at 62 FR 237, Jan. 2, 1997]



          Subpart 31.2--Contracts With Commercial Organizations



31.201  General.



31.201-1  Composition of total cost.

    (a) The total cost of a contract is the sum of the direct and 
indirect costs allocable to the contract, incurred or to be incurred, 
less any allocable credits, plus any allocable cost of money pursuant to 
31.205-10. In ascertaining what constitutes a cost, any generally 
accepted method of determining or estimating costs that is equitable and 
is consistently applied may be used, including standard costs properly 
adjusted for applicable variances. See 31.201-2(b) and (c) for Cost 
Accounting Standards (CAS) requirements.
    (b) While the total cost of a contract includes all costs properly 
allocable to the contract, the allowable costs to the Government are 
limited to those allocable costs which are allowable pursuant to part 31 
and applicable agency supplements.
[48 FR 42301, Sept. 19, 1983, as amended at 59 FR 67045, Dec. 28, 1994]



31.201-2  Determining allowability.

    (a) The factors to be considered in determining whether a cost is 
allowable include the following:
    (1) Reasonableness.
    (2) Allocability.
    (3) Standards promulgated by the CAS Board, if applicable; 
otherwise, generally accepted accounting principles and practices 
appropriate to the particular circumstances.
    (4) Terms of the contract.
    (5) Any limitations set forth in this subpart.
    (b) Certain cost principles in this subpart incorporate the 
measurement, assignment, and allocability rules of selected CAS and 
limit the allowability of costs to the amounts determined using the 
criteria in those selected standards. Only those CAS or portions of 
standards specifically made applicable by the cost principles in this 
subpart are mandatory unless the contract is CAS-covered (see 48 CFR 
9903). Business units that are not otherwise subject to these standards 
under a CAS clause are subject to the selected standards only for the 
purpose of determining allowability of costs on Government contracts. 
Including the selected standards in the cost principles does not subject 
the business unit to any other CAS rules and regulations. The 
applicability of the CAS rules and regulations is determined by the CAS 
clause, if any, in the contract and the requirements of the standards 
themselves.
    (c) When contractor accounting practices are inconsistent with this 
subpart 31.2, costs resulting from such inconsistent practices shall not 
be allowed in excess of the amount that would have resulted from using 
practices consistent with this subpart.
    (d) A contractor is responsible for accounting for costs 
appropriately and for maintaining records, including supporting 
documentation, adequate to demonstrate that costs claimed have been 
incurred, are allocable to the contract, and comply with applicable cost 
principles in this subpart and agency supplements. The contracting 
officer may disallow all or part of a claimed cost which is inadequately 
supported.
[48 FR 42301, Sept. 19, 1983, as amended at 57 FR 39590, Aug. 31, 1992; 
61 FR 31656, June 20, 1996]



31.201-3  Determining reasonableness.

    (a) A cost is reasonable if, in its nature and amount, it does not 
exceed that which would be incurred by a prudent person in the conduct 
of competitive business. Reasonableness of specific costs must be 
examined with particular care in connection with firms or their separate 
divisions that may not be subject to effective competitive restraints. 
No presumption of reasonableness shall be attached to the incurrence of 
costs by a contractor. If an initial review of the facts results in a

[[Page 621]]

challenge of a specific cost by the contracting officer or the 
contracting officer's representative, the burden of proof shall be upon 
the contractor to establish that such cost is reasonable.
    (b) What is reasonable depends upon a variety of considerations and 
circumstances, including--
    (1) Whether it is the type of cost generally recognized as ordinary 
and necessary for the conduct of the contractor's business or the 
contract performance;
    (2) Generally accepted sound business practices, arm's length 
bargaining, and Federal and State laws and regulations;
    (3) The contractor's responsibilities to the Government, other 
customers, the owners of the business, employees, and the public at 
large; and
    (4) Any significant deviations from the contractor's established 
practices.
[52 FR 19804, May 27, 1987]



31.201-4  Determining allocability.

    A cost is allocable if it is assignable or chargeable to one or more 
cost objectives on the basis of relative benefits received or other 
equitable relationship. Subject to the foregoing, a cost is allocable to 
a Government contract if it--
    (a) Is incurred specifically for the contract;
    (b) Benefits both the contract and other work, and can be 
distributed to them in reasonable proportion to the benefits received; 
or
    (c) Is necessary to the overall operation of the business, although 
a direct relationship to any particular cost objective cannot be shown.



31.201-5  Credits.

    The applicable portion of any income, rebate, allowance, or other 
credit relating to any allowable cost and received by or accruing to the 
contractor shall be credited to the Government either as a cost 
reduction or by cash refund. See 31.205-6(j)(4) for rules related to 
refund or credit to the Government upon termination of an overfunded 
defined benefit pension plan.
[48 FR 42301, Sept. 19, 1983, as amended at 54 FR 34755, Aug. 21, 1989]



31.201-6  Accounting for unallowable costs.

    (a) Costs that are expressly unallowable or mutually agreed to be 
unallowable, including mutually agreed to be unallowable directly 
associated costs, shall be identified and excluded from any billing, 
claim, or proposal applicable to a Government contract. A directly 
associated cost is any cost which is generated solely as a result of 
incurring another cost, and which would not have been incurred had the 
other cost not been incurred. When an unallowable cost is incurred, its 
directly associated costs are also unallowable.
    (b) Costs which specifically become designated as unallowable or as 
unallowable directly associated costs of unallowable costs as a result 
of a written decision furnished by a contracting officer shall be 
identified if included in or used in computing any billing, claim, or 
proposal applicable to a Government contract. This identification 
requirement applies also to any costs incurred for the same purpose 
under like circumstances as the costs specifically identified as 
unallowable under either this paragraph or paragraph (a) above.
    (c) The practices for accounting for and presentation of unallowable 
costs will be those as described in 48 CFR 9904.405-50, Accounting for 
Unallowable Costs.
    (d) If a directly associated cost is included in a cost pool which 
is allocated over a base that includes the unallowable cost with which 
it is associated, the directly associated cost shall remain in the cost 
pool. Since the unallowable costs will attract their allocable share of 
costs from the cost pool, no further action is required to assure 
disallowance of the directly associated costs. In all other cases, the 
directly associated costs, if material in amount, must be purged from 
the cost pool as unallowable costs.
    (e)(1) In determining the materiality of a directly associated cost, 
consideration should be given to the significance of (i) the actual 
dollar amount, (ii) the cumulative effect of all directly associated 
costs in a cost pool, or (iii) the ultimate effect on the cost of 
Government contracts.

[[Page 622]]

    (2) Salary expenses of employees who participate in activities that 
generate unallowable costs shall be treated as directly associated costs 
to the extent of the time spent on the proscribed activity, provided the 
costs are material in accordance with subparagraph (e)(1) above (except 
when such salary expenses are, themselves, unallowable). The time spent 
in proscribed activities should be compared to total time spent on 
company activities to determine if the costs are material. Time spent by 
employees outside the normal working hours should not be considered 
except when it is evident that an employee engages so frequently in 
company activities during periods outside normal working hours as to 
indicate that such activities are a part of the employee's regular 
duties.
    (3) When a selected item of cost under 31.205 provides that directly 
associated costs be unallowable, it is intended that such directly 
associated costs be unallowable only if determined to be material in 
amount in accordance with the criteria provided in paragraphs (e)(1) and 
(e)(2) above, except in those situations where allowance of any of the 
directly associated costs involved would be considered to be contrary to 
public policy.
[48 FR 42301, Sept. 19, 1983, as amended at 59 FR 67045, Dec. 28, 1994]



31.201-7  Construction and architect-engineer contracts.

    Specific principles and procedures for evaluating and determining 
costs in connection with contracts and subcontracts for construction, 
and architect-engineer contracts related to construction projects, are 
in 31.105. The applicability of these principles and procedures is set 
forth in 31.000 and 31.100.



31.202  Direct costs.

    (a) A direct cost is any cost that can be identified specifically 
with a particular final cost objective. No final cost objective shall 
have allocated to it as a direct cost any cost, if other costs incurred 
for the same purpose in like circumstances have been included in any 
indirect cost pool to be allocated to that or any other final cost 
objective. Costs identified specifically with the contract are direct 
costs of the contract and are to be charged directly to the contract. 
All costs specifically identified with other final cost objectives of 
the contractor are direct costs of those cost objectives and are not to 
be charged to the contract directly or indirectly.
    (b) For reasons of practicality, any direct cost of minor dollar 
amount may be treated as an indirect cost if the accounting treatment--
    (1) Is consistently applied to all final cost objectives; and
    (2) Produces substantially the same results as treating the cost as 
a direct cost.



31.203  Indirect costs.

    (a) An indirect cost is any cost not directly identified with a 
single, final cost objective, but identified with two or more final cost 
objectives or an intermediate cost objective. It is not subject to 
treatment as a direct cost. After direct costs have been determined and 
charged directly to the contract or other work, indirect costs are those 
remaining to be allocated to the several cost objectives. An indirect 
cost shall not be allocated to a final cost objective if other costs 
incurred for the same purpose in like circumstances have been included 
as a direct cost of that or any other final cost objective.
    (b) Indirect costs shall be accumulated by logical cost groupings 
with due consideration of the reasons for incurring such costs. Each 
grouping should be determined so as to permit distribution of the 
grouping on the basis of the benefits accruing to the several cost 
objectives. Commonly, manufacturing overhead, selling expenses, and 
general and administrative (G&A) expenses are separately grouped. 
Similarly, the particular case may require subdivision of these 
groupings, e.g., building occupancy costs might be separable from those 
of personnel administration within the manufacturing overhead group. 
This necessitates selecting a distribution base common to all cost 
objectives to which the grouping is to be allocated. The base should be 
selected so as to permit allocation

[[Page 623]]

of the grouping on the basis of the benefits accruing to the several 
cost objectives. When substantially the same results can be achieved 
through less precise methods, the number and composition of cost 
groupings should be governed by practical considerations and should not 
unduly complicate the allocation.
    (c) Once an appropriate base for distributing indirect costs has 
been accepted, it shall not be fragmented by removing individual 
elements. All items properly includable in an indirect cost base should 
bear a pro rata share of indirect costs irrespective of their acceptance 
as Government contract costs. For example, when a cost input base is 
used for the distribution of G&A costs, all items that would properly be 
part of the cost input base, whether allowable or unallowable, shall be 
included in the base and bear their pro rata share of G&A costs.
    (d) The contractor's method of allocating indirect costs shall be in 
accordance with standards promulgated by the CAS Board, if applicable to 
the contract; otherwise, the method shall be in accordance with 
generally accepted accounting principles which are consistently applied. 
The method may require examination when--
    (1) Substantial differences occur between the cost patterns of work 
under the contract and the contractor's other work;
    (2) Significant changes occur in the nature of the business, the 
extent of subcontracting, fixed-asset improvement programs, inventories, 
the volume of sales and production, manufacturing processes, the 
contractor's products, or other relevant circumstances; or
    (3) Indirect cost groupings developed for a contractor's primary 
location are applied to offsite locations. Separate cost groupings for 
costs allocable to offsite locations may be necessary to permit 
equitable distribution of costs on the basis of the benefits accruing to 
the several cost objectives.
    (e) A base period for allocating indirect costs is the cost 
accounting period during which such costs are incurred and accumulated 
for distribution to work performed in that period. The criteria and 
guidance in 48 CFR 9904.406 for selecting the cost accounting periods to 
be used in allocating indirect costs are incorporated herein for 
application to contracts subject to full CAS coverage. For contracts 
subject to modified CAS coverage and for non-CAS-covered contracts, the 
base period for allocating indirect costs will normally be the 
contractor's fiscal year. But a shorter period may be appropriate (1) 
for contracts in which performance involves only a minor portion of the 
fiscal year, or (2) when it is general practice in the industry to use a 
shorter period. When a contract is performed over an extended period, as 
many base periods shall be used as are required to represent the period 
of contract performance.
    (f) Special care should be exercised in applying the principles of 
paragraphs (b), (c), and (d) above when Government-owned contractor-
operated (GOCO) plants are involved. The distribution of corporate, 
division, or branch office G&A expenses to such plants operating with 
little or no dependence on corporate administrative activities may 
require more precise cost groupings, detailed accounts screening, and 
carefully developed distribution bases.
[48 FR 42301, Sept. 19, 1983, as amended at 57 FR 39590, Aug. 31, 1992]



31.204  Application of principles and procedures.

    (a) Costs shall be allowed to the extent they are reasonable, 
allocable, and determined to be allowable under 31.201, 31.202, 31.203, 
and 31.205. These criteria apply to all of the selected items that 
follow, even if particular guidance is provided for certain items for 
emphasis or clarity.
    (b) Costs incurred as reimbursements or payments to a subcontractor 
under a cost-reimbursement, fixed-price incentive, or price 
redeterminable type subcontract of any tier above the first firm-fixed-
price subcontract or fixed-price subcontract with economic price 
adjustment provisions are allowable to the extent that allowance is 
consistent with the appropriate subpart of this part 31 applicable to 
the subcontract involved. Costs incurred as payments under firm-fixed-
price subcontracts or fixed-price subcontracts with economic

[[Page 624]]

price adjustment provisions or modifications thereto, when cost analysis 
was performed under 15.404-1(c), shall be allowable only to the extent 
that the price was negotiated in accordance with 31.102.
    (c) Section 31.205 does not cover every element of cost. Failure to 
include any item of cost does not imply that it is either allowable or 
unallowable. The determination of allowability shall be based on the 
principles and standards in this subpart and the treatment of similar or 
related selected items. When more than one subsection in 31.205 is 
relevant to a contractor cost, the cost shall be apportioned among the 
applicable subsections, and the determination of allowability of each 
portion shall be based on the guidance contained in the applicable 
subsection. When a cost, to which more than one subsection in 31.205 is 
relevant, cannot be apportioned, the determination of allowability shall 
be based on the guidance contained in the subsection that most 
specifically deals with, or best captures the essential nature of, the 
cost at issue.
[48 FR 42301, Sept. 19, 1983, as amended at 53 FR 17858, May 18, 1988; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.204, in paragraph (b), ``15.805-3'' was amended to read ``15.404-
1(c)'', effective Oct. 10, 1997.



31.205  Selected costs.



31.205-1  Public relations and advertising costs.

    (a) Public relations means all functions and activities dedicated 
to--
    (1) Maintaining, protecting, and enhancing the image of a concern or 
its products; or
    (2) Maintaining or promoting reciprocal understanding and favorable 
relations with the public at large, or any segment of the public. The 
term public relations includes activities associated with areas such as 
advertising, customer relations, etc.
    (b) Advertising means the use of media to promote the sale of 
products or services and to accomplish the activities referred to in 
paragraph (d) of this subsection, regardless of the medium employed, 
when the advertiser has control over the form and content of what will 
appear, the media in which it will appear, and when it will appear. 
Advertising media include but are not limited to conventions, exhibits, 
free goods, samples, magazines, newspapers, trade papers, direct mail, 
dealer cards, window displays, outdoor advertising, radio, and 
television.
    (c) Public relations and advertising costs include the costs of 
media time and space, purchased services performed by outside 
organizations, as well as the applicable portion of salaries, travel, 
and fringe benefits of employees engaged in the functions and activities 
identified in paragraphs (a) and (b) of this subsection.
    (d) The only allowable advertising costs are those that are--
    (1) Specifically required by contract, or that arise from 
requirements of Government contracts and that are exclusively for--
    (i) Recruiting personnel required for performing contractual 
obligations, when considered in conjunction with all other recruitment 
costs (but see 31.205-34);
    (ii) Acquiring scarce items for contract performance; or
    (iii) Disposing of scrap or surplus materials acquired for contract 
performance.
    (2) Costs of activities to promote sales of products normally sold 
to the U.S. Government, including trade shows, which contain a 
significant effort to promote exports from the United States. Such costs 
are allowable, notwithstanding paragraphs (f)(1), (f)(3), (f)(4)(ii), 
and (f)(5) of this subsection. However, such costs do not include the 
costs of memorabilia (e.g., models, gifts, and souvenirs), alcoholic 
beverages, entertainment, and physical facilities which are primarily 
used for entertainment rather than product promotion.
    (e) Allowable public relations costs include the following:
    (1) Costs specifically required by contract.
    (2) Costs of--
    (i) Responding to inquiries on company policies and activities;
    (ii) Communicating with the public, press, stockholders, creditors, 
and customers; and

[[Page 625]]

    (iii) Conducting general liaison with news media and Government 
public relations officers, to the extent that such activities are 
limited to communication and liaison necessary to keep the public 
informed on matters of public concern such as notice of contract awards, 
plant closings or openings, employee layoffs or rehires, financial 
information, etc.
    (3) Costs of participation in community service activities (e.g., 
blood bank drives, charity drives, savings bond drives, disaster 
assistance, etc.).
    (4) Costs of plant tours and open houses (but see subparagraph 
(f)(5) of this subsection).
    (5) Costs of keel laying, ship launching, commissioning, and roll-
out ceremonies, to the extent specifically provided for by contract.
    (f) Unallowable public relations and advertising costs include the 
following:
    (1) All public relations and advertising costs, other than those 
specified in paragraphs (d) and (e) of this subsection, whose primary 
purpose is to promote the sale of products or services by stimulating 
interest in a product or product line (except for those costs made 
allowable under 31.205-38(c)), or by disseminating messages calling 
favorable attention to the contractor for purposes of enhancing the 
company image to sell the company's products or services.
    (2) All costs of trade shows and other special events which do not 
contain a significant effort to promote the export sales of products 
normally sold to the U.S. Government.
    (3) Costs of sponsoring meetings, conventions, symposia, seminars, 
and other special events when the principal purpose of the event is 
other than dissemination of technical information or stimulation of 
production.
    (4) Costs of ceremonies such as (i) corporate celebrations and (ii) 
new product announcements.
    (5) Costs of promotional material, motion pictures, videotapes, 
brochures, handouts, magazines, and other media that are designed to 
call favorable attention to the contractor and its activities.
    (6) Costs of souvenirs, models, imprinted clothing, buttons, and 
other mementos provided to customers or the public.
    (7) Costs of memberships in civic and community organizations.
[51 FR 12298, Apr. 9, 1986, as amended at 53 FR 12130, Apr. 12, 1988; 53 
FR 13274, Apr. 22, 1988; 54 FR 34755, Aug. 21, 1989; 56 FR 15153, Apr. 
15, 1991; 60 FR 42660, Aug. 16, 1995; 61 FR 67423, Dec. 20, 1996; 62 FR 
12704, Mar. 17, 1997]



31.205-2  [Reserved]



31.205-3  Bad debts.

    Bad debts, including actual or estimated losses arising from 
uncollectible accounts receivable due from customers and other claims, 
and any directly associated costs such as collection costs, and legal 
costs are unallowable.



31.205-4  Bonding costs.

    (a) Bonding costs arise when the Government requires assurance 
against financial loss to itself or others by reason of the act or 
default of the contractor. They arise also in instances where the 
contractor requires similar assurance. Included are such bonds as bid, 
performance, payment, advance payment, infringement, and fidelity bonds.
    (b) Costs of bonding required pursuant to the terms of the contract 
are allowable.
    (c) Costs of bonding required by the contractor in the general 
conduct of its business are allowable to the extent that such bonding is 
in accordance with sound business practice and the rates and premiums 
are reasonable under the circumstances.



31.205-5  Civil defense costs.

    (a) Civil defense costs are those incurred in planning for, and 
protecting life and property against, the possible effects of enemy 
attack. Costs of civil defense measures (including costs in excess of 
normal plant protection costs, first-aid training and supplies, fire 
fighting training and equipment, posting of additional exit notices and 
directions, and other approved civil defense measures) undertaken on the 
contractor's premises pursuant to suggestions or requirements of civil 
defense authorities are allowable when allocated to all work of the 
contractor.

[[Page 626]]

    (b) Costs of capital assets acquired for civil defense purposes are 
allowable through depreciation (see 31.205-11).
    (c) Contributions to local civil defense funds and projects are 
unallowable.



31.205-6  Compensation for personal services.

    (a) General. Compensation for personal services includes all 
remuneration paid currently or accrued, in whatever form and whether 
paid immediately or deferred, for services rendered by employees to the 
contractor during the period of contract performance (except as 
otherwise provided for in other paragraphs of this subsection). It 
includes, but is not limited to, salaries; wages; directors' and 
executive committee members' fees; bonuses (including stock bonuses); 
incentive awards; employee stock options, and stock appreciation rights; 
employee stock ownership plans; employee insurance; fringe benefits; 
contributions to pension, other postretirement benefits, annuity, and 
employee incentive compensation plans; and allowances for off-site pay, 
incentive pay, location allowances, hardship pay, severance pay, and 
cost of living differential. Compensation for personal services is 
allowable subject to the following general criteria and additional 
requirements contained in other parts of this cost principle:
    (1) Compensation for personal services must be for work performed by 
the employee in the current year and must not represent a retroactive 
adjustment of prior years' salaries or wages (but see 31.205-6 (g), (h), 
(j), (k), (m), and (o) of this subsection).
    (2) The compensation in total must be reasonable for the work 
performed; however, specific restrictions on individual compensation 
elements must be observed where they are prescribed.
    (3) The compensation must be based upon and conform to the terms and 
conditions of the contractor's established compensation plan or practice 
followed so consistently as to imply, in effect, an agreement to make 
the payment.
    (4) No presumption of allowability will exist where the contractor 
introduces major revisions of existing compensation plans or new plans 
and the contractor--
    (i) Has not notified the cognizant ACO of the changes either before 
their implementation or within a reasonable period after their 
implementation, and
    (ii) Has not provided the Government, either before implementation 
or within a reasonable period after it, an opportunity to review the 
allowability of the changes.
    (5) Costs that are unallowable under other paragraphs of this 
subpart 31.2 shall not be allowable under this subsection 31.205-6 
solely on the basis that they constitute compensation for personal 
services.
    (b) Reasonableness. The compensation for personal services paid or 
accrued to each employee must be reasonable for the work performed. 
Compensation will be considered reasonable if each of the allowable 
elements making up the employee's compensation package is reasonable. 
This paragraph addresses the reasonableness of compensation, except when 
the compensation is set by provisions of a labor-management agreement 
under terms of the Federal Labor Relations Act or similar state 
statutes. The tests for reasonableness of labor-management agreements 
are set forth in paragraph (c) of this subsection. In addition to the 
provisions of 31.201-3, in testing the reasonableness of individual 
elements for particular employees or job classes of employees, 
consideration should be given to factors determined to be relevant by 
the contracting officer.
    (1) Among others, factors which may be relevant include general 
conformity with the compensation practices of other firms of the same 
size, the compensation practices of other firms in the same industry, 
the compensation practices of firms in the same geographic area, the 
compensation practices of firms engaged in predominantly non-Government 
work, and the cost of comparable services obtainable from outside 
sources. The appropriate factors for evaluating the reasonableness of 
compensation depend on the degree to which those factors are 
representative of the labor market for the job being evaluated. The 
relative significance of factors will vary according to circumstances. 
In administering this

[[Page 627]]

principle, it is recognized that not every compensation case need be 
subjected in detail to the tests described in this cost principle. The 
tests need be applied only when a general review reveals amounts or 
types of compensation that appear unreasonable or unjustified. Based on 
an initial review of the facts, contracting officers or their 
representatives may challenge the reasonableness of any individual 
element or the sum of the individual elements of compensation paid or 
accrued to particular employees or job classes of employees. In such 
cases, there is no presumption of reasonableness and, upon challenge, 
the contractor must demonstrate the reasonableness of the compensation 
item in question. In doing so, the contractor may introduce, and the 
contracting officer will consider, not only any circumstances 
surrounding the compensation item challenged, but also the magnitude of 
other compensation elements which may be lower than would be considered 
reasonable in themselves. However, the contractor's right to introduce 
offsetting compensation elements into consideration is subject to the 
following limitations:
    (i) Offsets will be considered only between the allowable elements 
of an employee's (or a job class of employees') compensation package or 
between the compensation packages of employees in jobs within the same 
job grade or level.
    (ii) Offsets will be considered only between the allowable portion 
of the following compensation elements of employees or job classes of 
employees:
    (A) Wages and salaries.
    (B) Incentive bonuses.
    (C) Deferred compensation.
    (D) Pension and savings plan benefits.
    (E) Health insurance benefits.
    (F) Life insurance benefits.
    (G) Compensated personal absence benefits. However, any of the above 
elements or portions thereof, whose amount is not measurable, shall not 
be introduced or considered as an offset item.
    (iii) In considering offsets, the magnitude of the compensation 
elements in question must be taken into account. In determining the 
magnitude of compensation elements, the timing of receipt by the 
employee must be considered.
    (2) Compensation costs under certain conditions give rise to the 
need for special consideration. Among such conditions are the following:
    (i) Compensation to (A) owners of closely held corporations, 
partners, sole proprietors, or members of their immediate families, or 
(B) persons who are contractually committed to acquire a substantial 
financial interest in the contractor's enterprise. Determination should 
be made that salaries are reasonable for the personal services rendered 
rather than being a distribution of profits. Compensation in lieu of 
salary for services rendered by partners and sole proprietors will be 
allowed to the extent that it is reasonable and does not constitute a 
distribution of profits. For closely held corporations, compensation 
costs covered by this subdivision shall not be recognized in amounts 
exceeding those costs that are deductible as compensation under the 
Internal Revenue Code and regulations under it.
    (ii) Any change in a contractor's compensation policy that results 
in a substantial increase in the contractor's level of compensation, 
particularly when it was concurrent with an increase in the ratio of 
Government contracts to other business, or any change in the treatment 
of allowability of specific types of compensation due to changes in 
Government policy. Contracting officers or their representatives should 
normally challenge increased costs where major revisions of existng 
compensation plans or new plans are introduced by the contractor, and 
the contractor--
    (A) Has not notified the cognizant ACO of the changes either before 
their implementation or within a reasonable period after their 
implementation; and
    (B) Has not provided the Government, either before implementation or 
within a reasonable period after it, an opportunity to review the 
reasonableness of the changes.
    (iii) The contractor's business is such that its compensation levels 
are not subject to the restraints that normally occur in the conduct of 
competitive business.

[[Page 628]]

    (iv) The contractor incurs costs for compensation in excess of the 
amounts which are deductible under the Internal Revenue Code and 
regulations issued under it.
    (c) Labor-management agreements. If costs of compensation 
established under ``arm's length'' negotiated labor-management 
agreements are otherwise allowable, the costs are reasonable if, as 
applied to work in performing Government contracts, they are not 
determined to be unwarranted by the character and circumstances of the 
work or discriminatory against the Government. The application of the 
provisions of a labor-management agreement designed to apply to a given 
set of circumstances and conditions of employment (e.g, work involving 
extremely hazardous activities or work not requiring recurrent use of 
overtime) is unwarranted when applied to a Government contract involving 
significantly different circumstances and conditions of employment 
(e.g., work involving less hazardous activities or work continually 
requiring use of overtime). It is discriminatory against the Government 
if it results in employee compensation (in whatever form or name) in 
excess of that being paid for similar non-Government work under 
comparable circumstances. Disallowance of costs will not be made under 
this paragraph (c) unless--
    (1) The contractor has been permitted an opportunity to justify the 
costs; and
    (2) Due consideration has been given to whether unusual conditions 
pertain to Government contract work, imposing burdens, hardships, or 
hazards on the contractor's employees, for which compensation that might 
otherwise appear unreasonable is required to attract and hold necessary 
personnel.
    (d) Form of payment. (1) Compensation for personal services includes 
compensation paid or to be paid in the future to employees in the form 
of cash, corporate securities, such as stocks, bonds, and other 
financial instruments (see paragraph (d)(2) of this subsection regarding 
valuation), or other assets, products, or services.
    (2) When compensation is paid with securities of the contractor or 
of an affiliate, the following additional restrictions apply:
    (i) Valuation placed on the securities shall be the fair market 
value on the measurement date (i.e., the first date the number of shares 
awarded is known) determined upon the most objective basis available.
    (ii) Accruals for the cost of securities before issuing the 
securities to the employees shall be subject to adjustment according to 
the possibilities that the employees will not receive the securities and 
that their interest in the accruals will be forfeited.
    (e) Domestic and foreign differential pay. (1) When personal 
services are performed in a foreign country, compensation may also 
include a differential that may properly consider all expenses 
associated with foreign employment such as housing, cost of living 
adjustments, transportation, bonuses, additional Federal, State, local 
or foreign income taxes resulting from foreign assignment, and other 
related expenses.
    (2) Differential allowances for additional Federal, State, or local 
income taxes resulting from domestic assignments are unallowable.
    (f) Bonuses and incentive compensation. (1) Incentive compensation 
for management employees, cash bonuses, suggestion awards, safety 
awards, and incentive compensation based on production, cost reduction, 
or efficient performance are allowable provided the awards are paid or 
accrued under an agreement entered into in good faith between the 
contractor and the employees before the services are rendered or 
pursuant to an established plan or policy followed by the contractor so 
consistently as to imply, in effect, an agreement to make such payment 
and the basis for the award is supported.
    (2) When the bonus and incentive compensation payments are deferred, 
the costs are subject to the requirements of paragraph (f)(1) above and 
of paragraph (k) below.
    (g) Severance pay. (1) Severance pay, also commonly referred to as 
dismissal wages, is a payment in addition to regular salaries and wages 
by contractors to workers whose employment is being involuntarily 
terminated. Payments for early retirement incentive plans are covered in 
paragraph (j)(7) below.

[[Page 629]]

    (2) Severance pay to be allowable must meet the general allowability 
criteria in subdivision (g)(2)(i) below, and, depending upon whether the 
severance is normal or abnormal, criteria in subdivision (g)(2)(ii) for 
normal severance pay or subdivision (g)(2)(iii) for abnormal severance 
pay also apply. In addition, paragraph (g)(3) of this subsection applies 
if the severance cost is for foreign nationals employed outside the 
United States.
    (i) Severance pay is allowable only to the extent that, in each 
case, it is required by (A) law; (B) employer-employee agreement; (C) 
established policy that constitutes, in effect, an implied agreement on 
the contractor's part; or (D) circumstances of the particular 
employment. Payments made in the event of employment with a replacement 
contractor where continuity of employment with credit for prior length 
of service is preserved under substantially equal conditions of 
employment, or continued employment by the contractor at another 
facility, subsidiary, affiliate, or parent company of the contractor are 
not severance pay and are unallowable.
    (ii) Actual normal turnover severance payments shall be allocated to 
all work performed in the contractor's plant, or where the contractor 
provides for accrual of pay for normal severances, that method will be 
acceptable if the amount of the accrual is reasonable in light of 
payments actually made for normal severances over a representative past 
period and if amounts accrued are allocated to all work performed in the 
contractor's plant.
    (iii) Abnormal or mass severance pay is of such a conjectural nature 
that measurement of costs by means of an accrual will not achieve equity 
to both parties. Thus, accruals for this purpose are not allowable. 
However, the Government recognizes its obligation to participate, to the 
extent of its fair share, in any specific payment. Thus, allowability 
will be considered on a case-by-case basis.
    (3) Notwithstanding the reference to geographical area in 31.205-
6(b)(1), under 10 U.S.C. 2324(e)(1)(M) and 41 U.S.C. 256(e)(1)(M), the 
costs of severance payments to foreign nationals employed under a 
service contract performed outside the United States are unallowable to 
the extent that such payments exceed amounts typically paid to employees 
providing similar services in the same industry in the United States. 
Further, under 10 U.S.C. 2324(e)(1)(N) and 41 U.S.C. 256(e)(1)(N), all 
such costs of severance payments which are otherwise allowable are 
unallowable if the termination of employment of the foreign national is 
the result of the closing of, or the curtailment of activities at, a 
United States facility in that country at the request of the government 
of that country; this does not apply if the closing of a facility or 
curtailment of activities is made pursuant to a status-of-forces or 
other country-to-country agreement entered into with the government of 
that country before November 29, 1989. 10 U.S.C. 2324(e)(3) and 41 
U.S.C. 256(e)(2) permit the head of the agency, or designee, to waive 
these cost allowability limitations under certain circumstances (see 
37.113 and the solicitation provision at 52.237-8).
    (h) Backpay. (1) Backpay resulting from violations of Federal labor 
laws or the Civil Rights Act of 1964. Backpay may result from a 
negotiated settlement, order, or court decree that resolves a violation 
of Federal labor laws or the Civil Rights Act of 1964. Such backpay 
falls into two categories: one requiring the contractor to pay employees 
additional compensation for work performed for which they were 
underpaid, and the other resulting from other violations, such as when 
the employee was improperly discharged, discriminated against, or other 
circumstances for which the backpay was not additional compensation for 
work performed. Backpay resulting from underpaid work is compensation 
for the work performed and is allowable. All other backpay resulting 
from violation of Federal labor laws or the Civil Rights Act of 1964 is 
unallowable.
    (2) Other backpay. Backpay may also result from payments to union 
employees (union and non-union) for the difference in their past and 
current wage rates for working without a contract or

[[Page 630]]

labor agreement during labor management negotiations. Such backpay is 
allowable. Backpay to nonunion employees based upon results of union 
agreement negotiations is allowable only if (i) a formal agreement or 
understanding exists between management and the employees concerning 
these payments, or (ii) an established policy or practice exists and is 
followed by the contractor so consistently as to imply, in effect, an 
agreement to make such payment.
    (i) Compensation based on changes in the prices of corporate 
securities or corporate security ownership, such as stock options, stock 
appreciation rights, phantom stock plans, and junior stock conversions.
    (1) Any compensation which is calculated, or valued, based on 
changes in the price of corporate securities is unallowable.
    (2) Any compensation represented by dividend payments or which is 
calculated based on dividend payments is unallowable.
    (3) If a contractor pays an employee in lieu of the employee 
receiving or exercising a right, option, or benefit which would have 
been unallowable under this paragraph (i), such payments are also 
unallowable.
    (j) Pension costs. (1) A pension plan is a deferred compensation 
plan that is established and maintained by one or more employers to 
provide systematically for paying benefits to plan participants after 
their retirement, provided that the benefits are paid for life or are 
payable for life at the option of the employee. Additional benefits such 
as permanent and total disability and death payments and survivorship 
payments to beneficiaries of deceased employees may be treated as 
pension costs, provided the benefits are an integral part of the pension 
plan and meet all the criteria pertaining to pension costs.
    (2) Pension plans are normally segregated into two types of plans: 
defined benefit or defined contribution pension plans. The cost of all 
defined benefit pension plans shall be measured, allocated, and 
accounted for in compliance with the provisions of 48 CFR 9904.412, 
Composition and Measurement of Pension Costs, and 48 CFR 9904.413, 
Adjustment and Allocation of Pension Cost. The costs of all defined 
contribution pension plans shall be measured, allocated, and accounted 
for in accordance with the provisions of 48 CFR 9904.412. Pension costs 
are allowable subject to the referenced standards and the cost 
limitations and exclusions set forth in subdivision (j)(2)(i) and in 
subparagraphs (j) (3) through (8) of this subsection.
    (i) Except for unfunded pension plans as defined in 31.001, to be 
allowable in the current year, pension costs must be funded by the time 
set for filing the Federal income tax return or any extension thereof. 
Pension costs assigned to the current year, but not funded by the tax 
return time, shall not be allowable in any subsequent year.
    (ii) Pension payments must be reasonable in amount and be paid 
pursuant to (A) an agreement entered into in good faith between the 
contractor and employees before the work or services are performed and 
(B) the terms and conditions of the established plan. The cost of 
changes in pension plans which are discriminatory to the Government or 
are not intended to be applied consistently for all employees under 
similar circumstances in the future are not allowable.
    (iii) Except as provided for early retirement benefits in 
subparagraph (j) (7) of this subsection, one-time-only pension 
supplements not available to all participants of the basic plan are not 
allowable as pension costs unless the supplemental benefits represent a 
separate pension plan and the benefits are payable for life at the 
option of the employee.
    (iv) Increases in payments to previously retired plan participants 
covering cost-of-living adjustments are allowable if paid in accordance 
with a policy or practice consistently followed.
    (3) Defined benefit pension plans. This paragraph covers pension 
plans in which the benefits to be paid or the basis for determining such 
benefits are established in advance and the contributions are intended 
to provide the stated benefits. The cost limitations and exclusions 
pertaining to defined benefit plans are as follows:

[[Page 631]]

    (i)(A) Except for unfunded pension plans as defined in 31.001, 
normal costs of pension plans not funded in the year incurred, and all 
other components of pension costs (see 48 CFR 9904.412-40(a)(1)) 
assignable to the current accounting period but not funded during it, 
shall not be allowable in subsequent years (except that a payment made 
to a fund by the time set for filing the Federal income tax return or 
any extension thereof is considered to have been made during such 
taxable year). However, any part of a pension cost that is computed for 
a cost accounting period that is deferred pursuant to a waiver granted 
under the provisions of the Employee's Retirement Income Security Act of 
1974 (ERISA) (see 48 CFR 9904.412-50(c)(3)), will be allowable in those 
future accounting periods in which the funding does occur. The 
allowability of these deferred contributions will be limited to the 
amounts that would have been allowed had the funding occurred in the 
year the costs would have been assigned except for the waiver.
    (B) Allowable costs for unfunded pension plans, as defined in 
31.001, are limited to the amount computed in accordance with 48 CFR 
9904.412 and 48 CFR 9904.413.
    (ii) Any amount paid or funded before the time it becomes assignable 
and allowable shall be applied to future years, in order of time, as if 
actually paid and deductible in those years. The interest earned on such 
premature funding, based on the valuation rate of return, may be 
excluded from future years' computations of pension costs in accordance 
with 48 CFR 9904.412-50(a)(7).
    (iii) Increased pension costs caused by delay in funding beyond 30 
days after each quarter of the year to which they are assignable are 
unallowable. If a composite rate is used for allocating pension costs 
between the segments of a company and if, because of differences in the 
timing of the funding by the segments, an inequity exists, allowable 
pension costs for each segment will be limited to that particular 
segment's calculation of pension costs as provided for in 48 CFR 
9904.413-50(c)(5). Determination of unallowable costs shall be made in 
accordance with the actuarial method used in calculating pension costs.
    (iv) Allowability of the cost of indemnifying the Pension Benefit 
Guaranty Corporation (PBGC) under ERISA section 4062 or 4064 arising 
from terminating an employee deferred compensation plan will be 
considered on a case-by-case basis; provided that if insurance was 
required by the PBGC under ERISA section 4023, it was so obtained and 
the indemnification payment is not recoverable under the insurance. 
Consideration under the foregoing circumstances will be primarily for 
the purpose of appraising the extent to which the indemnification 
payment is allocable to Government work. If a beneficial or other 
equitable relationship exists, the Government will participate, despite 
the requirements of 31.205-19(a)(3) and (b), in the indemnification 
payment to the extent of its fair share.
    (v) Increased pension costs resulting from the withdrawal of assets 
from a pension fund and transfer to another employee benefit plan fund 
are unallowable except to the extent authorized by an advance agreement. 
The advance agreement shall:
    (A) State the amount of the Government's equitable share in the 
gross amount withdrawn; and
    (B) Provide that the Government receive a credit equal to the amount 
of the Government's equitable share of the gross withdrawal. If a 
transfer is made without such an agreement, paragraph (j)(4) of this 
subsection will apply to the transfer as a constructive withdrawal and 
receipt of the funds by the contractor.
    (4) Termination of defined benefit pension plans. When excess or 
surplus assets revert to the contractor as a result of termination of a 
defined benefit pension plan, or such assets are constructively received 
by it for any reason, the contractor shall make a refund or give a 
credit to the Government for its equitable share of the gross amount 
withdrawn. The Government's equitable share shall reflect the 
Government's participation in pension costs through those contracts for 
which (see 15.403-4) cost or pricing data were submitted or which are 
subject to subpart 31.2.

[[Page 632]]

    (5) Defined contribution pension plans. This paragraph covers those 
pension plans in which the contributions to be made are established in 
advance and the level of benefits is determined by the contributions 
made. It also covers profit sharing, savings plans, and other such plans 
provided the plans fall within the definition of a pension plan in 
paragraph (j)(1) above.
    (i) The pension cost assignable to a cost accounting period is the 
net contribution required to be made for that period after taking into 
account dividends and other credits, where applicable. However, any 
portion of pension cost computed for a cost accounting period that is 
deferred pursuant to a waiver granted under the provisions of ERISA (see 
48 CFR 9904.412-50(c)(3)) will be allowable in those future accounting 
periods when the funding does occur. The allowability of these deferred 
contributions will be limited to the amounts that would have been 
allowed had the funding been made in the year the costs would have been 
assigned except for the waiver.
    (ii) Any amount paid or funded to the trust before the time it 
becomes assignable and allowable shall be applied to future years, in 
order of time, as if actually paid and deductible in such years.
    (iii) The provisions of subdivision (j)(3)(iv) above concerning 
payments to PBGC apply to defined contribution plans.
    (6)  [Reserved]
    (7) Early retirement incentive plans. An early retirement incentive 
plan is a plan under which employees receive a bonus or incentive, over 
and above the requirement of the basic pension plan, to retire early. 
These plans normally are not applicable to all participants of the basic 
plan and do not represent life income settlements, and as such would not 
qualify as pension costs. However, for contract costing purposes, early 
retirement incentive payments are allowable subject to the pension cost 
criteria contained in subdivisions (j)(3)(i) through (iv) provided--
    (i) The costs are accounted for and allocated in accordance with the 
contractor's system of accounting for pension costs.
    (ii) The payments are made in accordance with the terms and 
conditions of the contractor's plan;
    (iii) The plan is applied only to active employees. The cost of 
extending the plan to employees who retired or were terminated before 
the adoption of the plan is unallowable; and
    (iv) The total of the incentive payments to any employee may not 
exceed the amount of the employee's annual salary for the previous 
fiscal year before the employee's retirement.
    (8) Employee stock ownership plans (ESOP). (i) An ESOP is an 
individual stock bonus plan designed specifically to invest in the stock 
of the employer corporation. The contractor's contributions to an 
Employee Stock Ownership Trust (ESOT) may be in the form of cash, stock, 
or property. Costs of ESOP's are allowable subject to the following 
conditions:
    (A) Contributions by the contractor in any one year may not exceed 
15 percent (25 percent when a money purchase plan is included) of 
salaries and wages of employees participating in the plan in any 
particular year.
    (B) The contribution rate (ratio of contribution to salaries and 
wages of participating employees) may not exceed the last approved 
contribution rate except when approved by the contracting officer based 
upon justification provided by the contractor. When no contribution was 
made in the previous year for an existing ESOP, or when a new ESOP is 
first established, and the contractor proposes to make a contribution in 
the current year, the contribution rate shall be subject to the 
contracting officer's approval.
    (C) When a plan or agreement exists wherein the liability for the 
contribution can be compelled for a specific year, the expense 
associated with that liability is assignable only to that period. Any 
portion of the contribution not funded by the time set for filing of the 
Federal income tax return for that year or any extension thereof shall 
not be allowable in subsequent years.
    (D) When a plan or agreement exists wherein the liability for the 
contribution cannot be compelled, the amount contributed for any year is 
assignable to that year provided the amount is funded by the time set 
for filing of the

[[Page 633]]

Federal income tax return for that year.
    (E) When the contribution is in the form of stock, the value of the 
stock contribution shall be limited to the fair market value of the 
stock on the date that title is effectively transferred to the trust. 
Cash contributions shall be allowable only when the contractor furnishes 
evidence satisfactory to the contracting officer demonstrating that 
stock purchases by the ESOT are or will be at a fair market price; e.g., 
makes arrangements with the trust permitting the contracting officer to 
examine purchases of stock by the trust to determine that prices paid 
are at fair market value. When excessive prices are paid, the amount of 
the excess will be credited to the same indirect cost pools that were 
charged for the ESOP contributions in the year in which the stock 
purchase occurs. However, when the trust purchases the stock with 
borrowed funds which will be repaid over a period of years by cash 
contributions from the contractor to the trust, the excess price over 
fair market value shall be credited to the indirect cost pools pro rata 
over the period of years during which the contractor contributes the 
cash used by the trust to repay the loan. When the fair market value of 
unissued stock or stock of a closely held corporation is not readily 
determinable, the valuation will be made on a case-by-case basis taking 
into consideration the guidelines for valuation used by the IRS.
    (ii) Amounts contributed to an ESOP arising from either (A) an 
additional investment tax credit (see 1975 Tax Reduction Act--TRASOP's); 
or (B) a payroll-based tax credit (see Economic Recovery Tax Act of 
1981) are unallowable.
    (iii) The requirements of subdivision (j)(3)(ii) above are 
applicable to Employee Stock Ownership Plans.
    (k) Deferred compensation. (1) Deferred compensation is an award 
given by an employer to compensate an employee in a future cost 
accounting period or periods for services rendered in one or more cost 
accounting periods before the date of receipt of compensation by the 
employee. Deferred compensation does not include the amount of year-end 
accruals for salaries, wages, or bonuses that are paid within a 
reasonable period of time after the end of a cost accounting period. 
Subject to 31.205-6(a), deferred awards are allowable when they are 
based on current or future services. Awards made in periods subsequent 
to the period when the work being remunerated was performed are not 
allowable.
    (2) The costs of deferred awards shall be measured, allocated, and 
accounted for in compliance with the provisions of 48 CFR 9904.415, 
Accounting for the Cost of Deferred Compensation.
    (3) Deferred compensation payments to employees under awards made 
before the effective date of 48 CFR 9904.415 are allowable to the extent 
they would have been allowable under prior acquisition regulations.
    (l) Compensation incidental to business acquisitions. The following 
costs are unallowable:
    (1) Payments to employees under agreements in which they receive 
special compensation, in excess of the contractor's normal severance pay 
practice, if their employment terminates following a change in the 
management control over, or ownership of, the contractor or a 
substantial portion of its assets.
    (2) Payments to employees under plans introduced in connection with 
a change (whether actual or prospective) in the management control over, 
or ownership of, the contractor or a substantial portion of its assets 
in which those employees receive special compensation, which is 
contingent upon the employee remaining with the contractor for a 
specified period of time.
    (m) Fringe benefits. (1) Fringe benefits are allowances and services 
provided by the contractor to its employees as compensation in addition 
to regular wages and salaries. Fringe benefits include, but are not 
limited to, the cost of vacations, sick leave, holidays, military leave, 
employee insurance, and supplemental unemployment benefit plans. Except 
as provided otherwise in subpart 31.2, the costs of fringe benefit are 
allowable to the extent that they are reasonable and are required by 
law, employer-employee agreement, or an established policy of the 
contractor.

[[Page 634]]

    (2) That portion of the cost of company-furnished automobiles that 
relates to personal use by employees (including transportation to and 
from work) is unallowable regardless of whether the cost is reported as 
taxable income to the employees (see 31.205-46(f)).
    (n) Employee rebate and purchase discount plans. Rebates and 
purchase discounts, in whatever form, granted to employees on products 
or services produced by the contractor or affiliates are unallowable.
    (o) Postretirement benefits other than pensions (PRB). (1) PRB 
covers all benefits, other than cash benefits and life insurance 
benefits paid by pension plans, provided to employees, their 
beneficiaries, and covered dependents during the period following the 
employees' retirement. Benefits encompassed include, but are not limited 
to, postretirement health care; life insurance provided outside a 
pension plan; and other welfare benefits such as tuition assistance, day 
care, legal services, and housing subsidies provided after retirement.
    (2) To be allowable, PRB costs must be reasonable and incurred 
pursuant to law, employer-employee agreement, or an established policy 
of the contractor. In addition, to be allowable, PRB costs must also be 
calculated in accordance with paragraphs (o)(2)(i), (ii), or (iii) of 
this section.
    (i) Cash basis. Cost recognized as benefits when they are actually 
provided, must be paid to an insurer, provider, or other recipient for 
current year benefits or premiums.
    (ii) Terminal funding. If a contractor elects a terminal-funded 
plan, it does not accrue PRB costs during the working lives of 
employees. Instead, it accrues and pays the entire PRB liability to an 
insurer or trustee in a lump sum upon the termination of employees (or 
upon conversion to such a terminal-funded plan) to establish and 
maintain a fund or reserve for the sole purpose of providing PRB to 
retirees. The lump sum is allowable if amortized over a period of 15 
years.
    (iii) Accrual basis. Accrual costing other than terminal funding 
must be measured and assigned according to Generally Accepted Accounting 
Principles and be paid to an insurer or trustee to establish and 
maintain a fund or reserve for the sole purpose of providing PRB to 
retirees. The accrual must also be calculated in accordance with 
generally accepted actuarial principles and practices as promulgated by 
the Actuarial Standards Board.
    (3) To be allowable, costs must be funded by the time set for filing 
the Federal income tax return or any extension thereof. PRB costs 
assigned to the current year, but not funded or otherwise liquidated by 
the tax return time, shall not be allowable in any subsequent year.
    (4) Increased PRB costs caused by delay in funding beyond 30 days 
after each quarter of the year to which they are assignable are 
unallowable.
    (5) Costs of postretirement benefits in paragraph (o)(2)(iii) of 
this section attributable to past service (``transition obligation'') as 
defined in Financial Accounting Standards Board Statement 106, paragraph 
110, are allowable subject to the following limitation: The allowable 
amount of such costs assignable to a contractor fiscal year cannot 
exceed the amount of such costs which would be assigned to that 
contractor fiscal year under the delayed recognition methodology 
described in paragraphs 112 and 113 of Statement 106.
    (6) The Government shall receive an equitable share of any amount of 
previously funded PRB costs which revert or inure to the contractor. 
Such equitable share shall reflect the Government's previous 
participation in PRB costs through those contracts for which certified 
cost or pricing data were required or which were subject to subpart 
31.2.
    (p) Limitation on allowability of compensation for certain 
contractor personnel. (1) For contracts awarded during fiscal year 1997, 
costs incurred from October 1, 1996, through September 30, 1997, for 
compensation of an officer in a senior management position in excess of 
$250,000 per year are unallowable (Section 809 of Public Law 104-201).
    (2) As used in this paragraph:
    (i) Compensation means--
    (A) The total amount of taxable wages paid to the employee for the 
year concerned; plus

[[Page 635]]

    (B) The total amount of elective deferred compensation earned by the 
employee in the year concerned.
    (ii) Officer in a senior management position means--
    (A) The contractor's Chief Executive Officer (CEO) or any individual 
acting in a similar capacity;
    (B) The contractor's four most highly compensated officers in senior 
management positions, other than the CEO; and
    (C) If the contractor is organizationally subdivided into 
intermediate home offices and/or segments, the five most highly 
compensated individuals in senior management positions at each such 
intermediate home office and/or segment.
[48 FR 42301, Sept. 19, 1983]

    Editorial Note: For Federal Register citations affection section 
31.205-6, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.205-6, in paragraph (j)(4), ``certified (see 15.804)'' was amended to 
read ``(see 15.403-4)'', effective Oct. 10, 1997.



31.205-7  Contingencies.

    (a) Contingency, as used in this subpart, means a possible future 
event or condition arising from presently known or unknown causes, the 
outcome of which is indeterminable at the present time.
    (b) Costs for contingencies are generally unallowable for historical 
costing purposes because such costing deals with costs incurred and 
recorded on the contractor's books. However, in some cases, as for 
example, terminations, a contingency factor may be recognized when it is 
applicable to a past period to give recognition to minor unsettled 
factors in the interest of expediting settlement.
    (c) In connection with estimates of future costs, contingencies fall 
into two categories:
    (1) Those that may arise from presently known and existing 
conditions, the effects of which are foreseeable within reasonable 
limits of accuracy; e.g., anticipated costs of rejects and defective 
work. Contingencies of this category are to be included in the estimates 
of future costs so as to provide the best estimate of performance cost.
    (2) Those that may arise from presently known or unknown conditions, 
the effect of which cannot be measured so precisely as to provide 
equitable results to the contractor and to the Government; e.g., results 
of pending litigation. Contingencies of this category are to be excluded 
from cost estimates under the several items of cost, but should be 
disclosed separately (including the basis upon which the contingency is 
computed) to facilitate the negotiation of appropriate contractual 
coverage. (See, for example, 31.205-6(g), 31.205-19, and 31.205-24.)



31.205-8  Contributions or donations.

    Contributions or donations, including cash, property and services, 
regardless of recipient, are unallowable, except as provided in 31.205-
1(e)(3).
[51 FR 12300, Apr. 9, 1986]



31.205-9  [Reserved]



31.205-10  Cost of money.

    (a) Facilities capital cost of money--(1) General. (i) Facilities 
capital cost of money (cost of capital committed to facilities) is an 
imputed cost determined by applying a cost-of-money rate to facilities 
capital employed in contract performance. A cost-of-money rate is 
uniformly imputed to all contractors (see subdivision (ii) below). 
Capital employed is determined without regard to whether its source is 
equity or borrowed capital. The resulting cost of money is not a form of 
interest on borrowings (see 31.205-20).
    (ii) 48 CFR 9904.414, Cost of Money as an Element of the Cost of 
Facilities Capital, establishes criteria for measuring and allocating, 
as an element of contract cost, the cost of capital committed to 
facilities. Cost-of-money factors are developed on Form CASB-CMF, broken 
down by overhead pool at the business unit, using (A) business-unit 
facilities capital data, (B) overhead allocation base data, and (C) the 
cost-of-money rate, which is based on interest rates specified by the 
Secretary of the Treasury under Pub. L. 92-41.
    (2) Allowability. Whether or not the contract is otherwise subject 
to CAS,

[[Page 636]]

facilities capital cost of money is allowable if--
    (i) The contractor's capital investment is measured, allocated to 
contracts, and costed in accordance with 48 CFR 9904.414;
    (ii) The contractor maintains adequate records to demonstrate 
compliance with this standard;
    (iii) The estimated facilities capital cost of money is specifically 
identified or proposed in cost proposals relating to the contract under 
which this cost is to be claimed; and
    (iv) The requirements of 31.205-52, which limit the allowability of 
facilities capital cost of money, are observed.
    (3) Accounting. The facilities capital cost of money need not be 
entered on the contractor's books of account. However, the contractor 
shall (i) make a memorandum entry of the cost and (ii) maintain, in a 
manner that permits audit and verification, all relevant schedules, cost 
data, and other data necessary to support the entry fully.
    (4) Payment. Facilities capital cost of money that is (i) allowable 
under paragraph (2) above, and (ii) calculated, allocated, and 
documented in accordance with this cost principle shall be an incurred 
cost for reimbursement purposes under applicable cost-reimbursement 
contracts and for progress payment purposes under fixed-price contracts.
    (5) The cost of money resulting from including asset valuations 
resulting from business combinations in the facilities capital employed 
base is unallowable (see 31.205-52).
    (b) Cost of money as an element of the cost of capital assets under 
construction--(1) General. (i) Cost of money as an element of the cost 
of capital assets under construction is an imputed cost determined by 
applying a cost-of-money rate to the investment in tangible and 
intangible capital assets while they are being constructed, fabricated, 
or developed for a contractor's own use. Capital employed is determined 
without regard to whether its source is equity or borrowed capital. The 
resulting cost of money is not a form of interest on borrowing (see 
31.205-20).
    (ii) 48 CFR 9904.417, Cost of Money as an Element of the Cost of 
Capital Assets Under Construction, establishes criteria for measuring 
and allocating, as an element of contract cost, the cost of capital 
committed to capital assets under construction, fabrication, or 
development.
    (2) Allowability. (i) Whether or not the contract is otherwise 
subject to CAS, and except as specified in subdivision (ii) below, the 
cost of money for capital assets under construction, fabrication, or 
development is allowable if--
    (A) The cost of money is calculated, allocated to contracts, and 
costed in accordance with 48 CFR 9904.417;
    (B) The contractor maintains adequate records to demonstrate 
compliance with this standard;
    (C) The cost of money for tangible capital assets is included in the 
capitalized cost that provides the basis for allowable depreciation 
costs, or, in the case of intangible capital assets, the cost of money 
is included in the cost of those assets for which amortization costs are 
allowable; and
    (D) The requirements of 31.205-52, which limit the allowability of 
cost of money for capital assets under construction, fabrication, or 
development, are observed.
    (ii) Actual interest cost in lieu of the calculated imputed cost of 
money for capital assets under construction, fabrication, or development 
is unallowable.
    (3) Accounting. The cost of money for capital assets under 
construction need not be entered on the contractor's books of account. 
However, the contractor shall (i) make a memorandum entry of the cost 
and (ii) maintain, in a manner that permits audit and verification, all 
relevant schedules, cost data, and other data necessary to support the 
entry fully.
    (4) Payment. The cost of money for capital assets under construction 
that is allowable under paragraph (2) above of this cost principle shall 
be an incurred cost for reimbursement purposes under applicable cost-
reimbursement contracts and for progress payment purposes under fixed-
price contracts.
[48 FR 42301, Sept. 19, 1983, as amended at 49 FR 26743, June 29, 1984; 
52 FR 35669, Sept. 22, 1987; 55 FR 25530, June 21, 1990; 56 FR 29128, 
June 25, 1991; 57 FR 39591, Aug. 31, 1992]

[[Page 637]]



31.205-11  Depreciation.

    (a) Depreciation is a charge to current operations which distributes 
the cost of a tangible capital asset, less estimated residual value, 
over the estimated useful life of the asset in a systematic and logical 
manner. It does not involve a process of valuation. Useful life refers 
to the prospective period of economic usefulness in a particular 
contractor's operations as distinguished from physical life; it is 
evidenced by the actual or estimated retirement and replacement practice 
of the contractor.
    (b) Contractors having contracts subject to 48 CFR 9904.409, 
Depreciation of Tangible Capital Assets, must adhere to the requirement 
of that standard for all fully CAS-covered contracts and may elect to 
adopt the standard for all other contracts. All requirements of 48 CFR 
9904.409 are applicable if the election is made, and its requirements 
supersede any conflicting requirements of this cost principle. Once 
electing to adopt 48 CFR 9904.409 for all contracts, contractors must 
continue to follow it until notification of final acceptance of all 
deliverable items on all open negotiated Government contracts. 
Paragraphs (c) through (e) below apply to contracts to which 48 CFR 
9904.409 is not applied.
    (c) Normal depreciation on a contractor's plant, equipment, and 
other capital facilities is an allowable contract cost, if the 
contractor is able to demonstrate that it is reasonable and allocable 
(but see paragraph (i) below).
    (d) Depreciation shall be considered reasonable if the contractor 
follows policies and procedures that are--
    (1) Consistent with those followed in the same cost center for 
business other than Government;
    (2) Reflected in the contractor's books of accounts and financial 
statements; and
    (3) Both used and acceptable for Federal income tax purposes.
    (e) When the depreciation reflected on a contractor's books of 
accounts and financial statements differs from that used and acceptable 
for Federal income tax purposes, reimbursement shall be based on the 
asset cost amortized over the estimated useful life of the property 
using depreciation methods (straight line, sum of the years' digits, 
etc.) acceptable for income tax purposes. Allowable depreciation shall 
not exceed the amounts used for book and statement purposes and shall be 
determined in a manner consistent with the depreciation policies and 
procedures followed in the same cost center on non-Government business 
(but see paragraph (o) of this subsection).
    (f) Depreciation for reimbursement purposes in the case of tax-
exempt organizations shall be determined on the basis described in 
paragraph (e) immediately above.
    (g) Special considerations are required for assets acquired before 
the effective date of this cost principle if, on that date, the 
undepreciated balance of these assets resulting from depreciation 
policies and procedures used previously for Government contracts and 
subcontracts is different from the undepreciated balance on the books 
and financial statements. The undepreciated balance for contract cost 
purposes shall be depreciated over the remaining life using the methods 
and lives followed for book purposes. The aggregate depreciation of any 
asset allowable after the effective date of this 31.205-11 shall not 
exceed the cost basis of the asset less any depreciation allowed or 
allowable under prior acquisition regulations.
    (h) Depreciation should usually be allocated to the contract and 
other work as an indirect cost. The amount of depreciation allowed in 
any accounting period may, consistent with the basic objectives in 
paragraph (a) above, vary with volume of production or use of multishift 
operations.
    (i) In the case of emergency facilities covered by certificates of 
necessity, a contractor may elect to use normal depreciation without 
requesting a determination of true depreciation, or may elect to use 
either normal or true depreciation after a determination of true 
depreciation has been made by an Emergency Facilities Depreciation Board 
(EFDB). The method elected must be followed consistently thoughout the 
life of the emergency facility. When an election is made to use normal 
depreciation, the criteria in paragraphs (c), (d), (e), and (f) above 
shall apply for both the emergency period and the

[[Page 638]]

post-emergency period. When an election is made to use true 
depreciation, the amount allowable as depreciation--
    (1) With respect to the emergency period (five years), shall be 
computed in accordance with the determination of the EFDB and allocated 
rateably over the full five year emergency period; provided no other 
allowance is made which would duplicate the factors, such as 
extraordinary obsolescence, covered by the Board's determination; and
    (2) After the end of the emergency period, shall be computed by 
distributing the remaining undepreciated portion of the cost of the 
emergency facility over the balance of its useful life provided the 
remaining undepreciated portion of such cost shall not include any 
amount of unrecovered true depreciation.
    (j) No depreciation, rental, or use charge shall be allowed on 
property acquired at no cost from the Government by the contractor or by 
any division, subsidiary, or affiliate of the contractor under common 
control.
    (k) The depreciation on any item which meets the criteria for 
allowance at a price under 31.205-26(e) may be based on that price, 
provided the same policies and procedures are used for costing all 
business of the using division, subsidiary, or organization under common 
control.
    (l) No depreciation or rental shall be allowed on property fully 
depreciated by the contractor or by any division, subsidiary, or 
affiliate of the contractor under common control. However, a reasonable 
charge for using fully depreciated property may be agreed upon and 
allowed (but see 31.109(h)(2)). In determining the charge, consideration 
shall be given to cost, total estimated useful life at the time of 
negotiations, effect of any increased maintenance charges or decreased 
efficiency due to age, and the amount of depreciation previously charged 
to Government contracts or subcontracts.
    (m) 48 CFR 9904.404, Capitalization of Tangible Assets, applies to 
assets acquired by a capital lease as defined in Statement of Financial 
Accounting Standard No. 13 (FAS-13), Accounting for Leases, issued by 
the Financial Accounting Standards Board (FASB). Compliance with 48 CFR 
9904.404 and FAS-13 requires that such leased assets (capital leases) be 
treated as purchased assets; i.e., be capitalized and the capitalized 
value of such assets be distributed over their useful lives as 
depreciation charges, or over the leased life as amortization charges as 
appropriate. Assets whose leases are classified as capital leases under 
FAS-13 are subject to the requirements of 31.205-11 while assets 
acquired under leases classified as operating leases are subject to the 
requirements on rental costs in 31.205-36. The standards of financial 
accounting and reporting prescribed by FAS-13 are incorporated into this 
principle and shall govern its application, except as provided in 
subparagraphs (1), (2), and (3) below.
    (1) Rental costs under a sale and leaseback arrangement shall be 
allowable up to the amount that would have been allowed had the 
contractor retained title to the property.
    (2) Capital leases, as defined in FAS-13, for all real and personal 
property, between any related parties are subject to the requirements of 
this subparagraph 31.205-11(m). If it is determined that the terms of 
the lease have been significantly affected by the fact that the lessee 
and lessor are related, depreciation charges shall not be allowed in 
excess of those which would have occurred if the lease contained terms 
consistent with those found in a lease between unrelated parties.
    (3) Assets acquired under leases that the contractor must capitalize 
under FAS-13 shall not be treated as purchased assets for contract 
purposes if the leases are covered by 31.205-36(b)(4).
    (n) Whether or not the contract is otherwise subject to CAS, the 
requirements of 31.205-52, which limit the allowability of depreciation, 
shall be observed.
    (o) In the event of a write-down from carrying value to fair value 
as a result of impairments caused by events or changes in circumstances, 
allowable depreciation of the impaired assets shall be limited to the 
amounts that would have been allowed had the assets not been written 
down (see 31.205-16(g)). However, this does not preclude a change in 
depreciation resulting from other causes such as permissible changes in 
estimates of service life,

[[Page 639]]

consumption of services, or residual value.
[48 FR 42301, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990; 
57 FR 39591, Aug. 31, 1992; 60 FR 64255, Dec. 14, 1995; 61 FR 67424, 
Dec. 20, 1996]



31.205-12  Economic planning costs.

    (a) This category includes costs of generalized long-range 
management planning that is concerned with the future overall 
development of the contractor's business and that may take into account 
the eventual possibility of economic dislocations or fundamental 
alterations in those markets in which the contractor currently does 
business. Economic planning costs do not include organization or 
reorganization costs covered by 31.205-27.
    (b) Economic planning costs are allowable as indirect costs to be 
properly allocated.
    (c) Research and development and engineering costs designed to lead 
to new products for sale to the general public are not allowable under 
this principle.



31.205-13  Employee morale, health, welfare, food service, and dormitory costs and credits.

    (a) Aggregate costs incurred on activities designed to improve 
working conditions, employer-employee relations, employee morale, and 
employee performance (less income generated by these activities) are 
allowable, except as limited by paragraphs (b), (c), and (d) of this 
subsection. Some examples of allowable activities are house 
publications, health clinics, wellness/fitness centers, employee 
counseling services, and food and dormitory services, which include 
operating or furnishing facilities for cafeterias, dining rooms, 
canteens, lunch wagons, vending machines, living accommodations, or 
similar types of services for the contractor's employees at or near the 
contractor's facilities.
    (b) Costs of gifts are unallowable. (Gifts do not include awards for 
performance made pursuant to 31.205-6(f) or awards made in recognition 
of employee achievements pursuant to an established contractor plan or 
policy.)
    (c) Costs of recreation are unallowable, except for the costs of 
employees' participation in company sponsored sports teams or employee 
organizations designed to improve company loyalty, team work, or 
physical fitness.
    (d) Losses from operating food and dormitory services may be 
included as costs only if the contractor's objective is to operate such 
services on a break-even basis. Losses sustained because food services 
or lodging accommodations are furnished without charge or at prices or 
rates which obviously would not be conducive to the accomplishment of 
the above objective are not allowable. A loss may be allowed, however, 
to the extent that the contractor can demonstrate that unusual 
circumstances exist (e.g., where the contractor must provide food or 
dormitory services at remote locations where adequate commercial 
facilities are not reasonably available; or where charged but 
unproductive labor costs would be excessive but for the services 
provided or where cessation or reduction of food or dormitory operations 
will not otherwise yield net cost savings) such that even with efficient 
management, operating the services on a break-even basis would require 
charging inordinately high prices, or prices or rates higher than those 
charged by commercial establishments offering the same services in the 
same geographical areas. Costs of food and dormitory services shall 
include an allocable share of indirect expenses pertaining to these 
activities.
    (e) When the contractor has an arrangement authorizing an employee 
association to provide or operate a service, such as vending machines in 
the contractor's plant, and retain the profits, such profits shall be 
treated in the same manner as if the contractor were providing the 
service (but see paragraph (f) of this subsection).
    (f) Contributions by the contractor to an employee organization, 
including funds from vending machine receipts or similar sources, may be 
included as costs incurred under paragraph (a) of this subsection only 
to the extent that the contractor demonstrates that an equivalent amount 
of the costs incurred by the employee organization would be allowable if 
directly incurred by the contractor.
[60 FR 42662, Aug. 16, 1995]

[[Page 640]]



31.205-14  Entertainment costs.

    Costs of amusement, diversions, social activities, and any directly 
associated costs such as tickets to shows or sports events, meals, 
lodging, rentals, transportation, and gratuities are unallowable. Costs 
made specifically unallowable under this cost principle are not 
allowable under any other cost principle. Costs of membership in social, 
dining, or country clubs or other organizations having the same purposes 
are also unallowable, regardless of whether the cost is reported as 
taxable income to the employees.
[60 FR 42663, Aug. 16, 1995]



31.205-15  Fines, penalties, and mischarging costs.

    (a) Costs of fines and penalties resulting from violations of, or 
failure of the contractor to comply with, Federal, State, local, or 
foreign laws and regulations, are unallowable except when incurred as a 
result of compliance with specific terms and conditions of the contract 
or written instructions from the contracting officer.
    (b) Costs incurred in connection with, or related to, the 
mischarging of costs on Government contracts are unallowable when the 
costs are caused by, or result from, alteration or destruction of 
records, or other false or improper charging or recording of costs. Such 
costs include those incurred to measure or otherwise determine the 
magnitude of the improper charging, and costs incurred to remedy or 
correct the mischarging, such as costs to rescreen and reconstruct 
records.
[51 FR 12301, Apr. 9, 1986, as amended at 54 FR 13024, Mar. 29, 1989; 55 
FR 52793, Dec. 21, 1990]



31.205-16  Gains and losses on disposition or impairment of depreciable property or other capital assets.

    (a) Gains and losses from the sale, retirement, or other disposition 
(but see 31.205-19) of depreciable property shall be included in the 
year in which they occur as credits or charges to the cost grouping(s) 
in which the depreciation or amortization applicable to those assets was 
included (but see paragraph (d) of this subsection). However, no gain or 
loss shall be recognized as a result of the transfer of assets in a 
business combination (see 31.205-52).
    (b) Gains and losses on disposition of tangible capital assets, 
including those acquired under capital leases (see 31.205-11(m), shall 
be considered as adjustments of depreciation costs previously 
recognized. The gain or loss for each asset disposed of is the 
difference between the net amount realized, including insurance proceeds 
from involuntary conversions, and its undepreciated balance. The gain 
recognized for contract costing purposes shall be limited to the 
difference between the acquisition cost (or for assets acquired under a 
capital lease, the value at which the leased asset is capitalized) of 
the asset and its undepreciated balance (except see subdivisions 
(c)(2)(i) or (ii) below).
    (c) Special considerations apply to an involuntary conversion which 
occurs when a contractor's property is destroyed by events over which 
the owner has no control, such as fire, windstorm, flood, accident, 
theft, etc., and an insurance award is recovered. The following govern 
involuntary conversions:
    (1) When there is a cash award and the converted asset is not 
replaced, gain or loss shall be recognized in the period of disposition. 
The gain recognized for contract costing purposes shall be limited to 
the difference between the acquisition cost of the asset and its 
undepreciated balance.
    (2) When the converted asset is replaced, the contractor shall 
either--
    (i) Adjust the depreciable basis of the new asset by the amount of 
the total realized gain or loss; or
    (ii) Recognize the gain or loss in the period of disposition, in 
which case the Government shall participate to the same extent as 
outlined in subparagraph (c)(1) above.
    (d) Gains and losses on the disposition of depreciable property 
shall not be recognized as a separate charge or credit when--
    (1) Gains and losses are processed through the depreciation reserve 
account and reflected in the depreciation allowable under 31.205-11; or
    (2) The property is exchanged as part of the purchase price of a 
similar item,

[[Page 641]]

and the gain or loss is taken into consideration in the depreciation 
cost basis of the new item.
    (e) Gains and losses arising from mass or extraordinary sales, 
retirements, or other disposition other than through business 
combinations shall be considered on a case-by-case basis.
    (f) Gains and losses of any nature arising from the sale or exchange 
of capital assets other than depreciable property shall be excluded in 
computing contract costs.
    (g) With respect to long-lived tangible and identifiable intangible 
assets held for use, no loss shall be allowed for a write-down from 
carrying value to fair value as a result of impairments caused by events 
or changes in circumstances (e.g., environmental damage, idle facilities 
arising from a declining business base, etc.). If depreciable property 
or other capital assets have been written down from carrying value to 
fair value due to impairments, gains or losses upon disposition shall be 
the amounts that would have been allowed had the assets not been written 
down.
[48 FR 42301, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990; 
60 FR 64255, Dec. 14, 1995; 61 FR 67424, Dec. 20, 1996]



31.205-17  Idle facilities and idle capacity costs.

    (a) Costs of idle facilities or idle capacity, as used in this 
subsection, means costs such as maintenance, repair, housing, rent, and 
other related costs; e.g., property taxes, insurance, and depreciation.
    Facilities, as used in this subsection, means plant or any portion 
thereof (including land integral to the operation), equipment, 
individually or collectively, or any other tangible capital asset, 
wherever located, and whether owned or leased by the contractor.
    Idle capacity, as used in this subsection, means the unused capacity 
of partially used facilities. It is the difference between that which a 
facility could achieve under 100 percent operating time on a one-shift 
basis, less operating interruptions resulting from time lost for 
repairs, setups, unsatisfactory materials, and other normal delays, and 
the extent to which the facility was actually used to meet demands 
during the accounting period. A multiple-shift basis may be used in the 
calculation instead of a one-shift basis if it can be shown that this 
amount of usage could normally be expected for the type of facility 
involved.
    Idle facilities, as used in this subsection, means completely unused 
facilities that are excess to the contractor's current needs.
    (b) The costs of idle facilities are unallowable unless the 
facilities--
    (1) Are necessary to meet fluctuations in workload; or
    (2) Were necessary when acquired and are now idle because of changes 
in requirements, production economies, reorganization, termination, or 
other causes which could not have been reasonably foreseen. (Costs of 
idle facilities are allowable for a reasonable period, ordinarily not to 
exceed 1 year, depending upon the initiative taken to use, lease, or 
dispose of the idle facilities (but see 31.205-42)).
    (c) Costs of idle capacity are costs of doing business and are a 
factor in the normal fluctuations of usage or overhead rates from period 
to period. Such costs are allowable provided the capacity is necessary 
or was originally reasonable and is not subject to reduction or 
elimination by subletting, renting, or sale, in accordance with sound 
business, economics, or security practices. Widespread idle capacity 
throughout an entire plant or among a group of assets having 
substantially the same function may be idle facilities.
    (d) Any costs to be paid directly by the Government for idle 
facilities or idle capacity reserved for defense mobilization production 
shall be the subject of a separate agreement.



31.205-18  Independent research and development and bid and proposal costs.

    (a) Definitions. Applied research, as used in this subsection, means 
that effort which (1) normally follows basic research, but may not be 
severable from the related basic research, (2) attempts to determine and 
exploit the potential of scientific discoveries or improvements in 
technology, materials, processes, methods, devices, or

[[Page 642]]

techniques, and (3) attempts to advance the state of the art. Applied 
research does not include efforts whose principal aim is design, 
development, or test of specific items or services to be considered for 
sale; these efforts are within the definition of the term development, 
defined in this subsection.
    Basic research, as used in this subsection, means that research 
which is directed toward increase of knowledge in science. The primary 
aim of basic research is a fuller knowledge or understanding of the 
subject under study, rather than any practical application thereof.
    Bid and proposal (B&P) costs, as used in this subsection, means the 
costs incurred in preparing, submitting, and supporting bids and 
proposals (whether or not solicited) on potential Government or non-
Government contracts. The term does not include the costs of effort 
sponsored by a grant or cooperative agreement, or required in the 
performance of a contract.
    Company, as used in this subsection, means all divisions, 
subsidiaries, and affiliates of the contractor under common control.
    Contractor, as used in paragraph (c)(2) of this subsection, includes 
all divisions, subsidiaries, and affiliates under common control.
    Covered contract, as used in paragraph (c)(2) of this subsection, 
means a prime contract entered into by a Government agency for an amount 
more than $100,000, except for a fixed-price contract without cost 
incentives. It also includes a subcontract for an amount more than 
$100,000, except for a fixed-price subcontract without cost incentives 
under such a prime contract.
    Covered segment, as used in paragraph (c)(2) of this subsection, 
means a product division of the contractor that allocated more than 
$1,000,000 in IR&D/B&P costs to covered contracts during the preceding 
fiscal year. In the case of a contractor that has no product divisions, 
such term means that contractor as a whole. A product division of the 
contractor that allocated less than $1,000,000 in IR&D/B&P costs to 
covered contracts during the preceding fiscal year shall not be subject 
to the limitation for major contractors set forth in 31.205-18(c)(2)(i) 
and (c)(ii).
    Development, as used in this subsection, means the systematic use, 
under whatever name, of scientific and technical knowledge in the 
design, development, test, or evaluation of a potential new product or 
service (or of an improvement in an existing product or service) for the 
purpose of meeting specific performance requirements or objectives. 
Development includes the functions of design engineering, prototyping, 
and engineering testing. Development excludes: (1) Subcontracted 
technical effort which is for the sole purpose of developing an 
additional source for an existing product, or (2) development effort for 
manufacturing or production materials, systems, processes, methods, 
equipment, tools, and techniques not intended for sale.
    Independent research and development (IR&D), as used in this 
subsection, means a contractor's IR&D cost that consists of projects 
falling within the four following areas: (1) Basis research, (2) applied 
research, (3) development, and (4) systems and other concept formulation 
studies. The term does not include the costs of effort sponsored by a 
grant or required in the performance of a contract. IR&D effort shall 
not include technical effort expended in developing and preparing 
technical data specifically to support submitting a bid or proposal.
    Major contractor, as used in paragraph (c)(2) of this subsection, 
means any contractor whose covered segments allocated to covered 
contracts a total of more than $10,000,000 in IR&D/B&P costs in the 
preceding fiscal year. For purposes of calculating the dollar threshold 
amounts to determine whether a contractor meets the definition of 
``major contractor,'' contractor segments allocating less than 
$1,000,000 of IR&D/B&P costs to covered contracts in the preceding year 
shall not be included.
    Systems and other concept formulation studies, as used in this 
subsection, means analyses and study efforts either related to specific 
IR&D efforts or directed toward identifying desirable new systems, 
equipment or components, or modifications and improvements to existing 
systems, equipment, or components.

[[Page 643]]

    (b) Composition and allocation of costs. The requirements of 48 CFR 
9904.420, Accounting for independent research and development costs and 
bid and proposal costs, are incorporated in their entirety and shall 
apply as follows--
    (1) Fully-CAS-covered contracts. Contracts that are fully-CAS-
covered shall be subject to all requirements of 48 CFR 9904.420.
    (2) Modified CAS-covered and non-CAS-covered contracts. Contracts 
that are not CAS-covered or that contain terms or conditions requiring 
modified CAS coverage shall be subject to all requirements of 48 CFR 
9904.420 except 48 CFR 9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2), 
which are not then applicable. However, non-CAS-covered or modified CAS-
covered contracts awarded at a time the contractor has CAS-covered 
contracts requiring compliance with 48 CFR 9904.420, shall be subject to 
all the requirements of 48 CFR 9904.420. When the requirements of 48 CFR 
9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2) are not applicable, the 
following apply:
    (i) IR&D and B&P costs shall be allocated to final cost objectives 
on the same basis of allocation used for the G&A expense grouping of the 
profit center (see 31.001) in which the costs are incurred. However, 
when IR&D and B&P costs clearly benefit other profit centers or benefit 
the entire company, those costs shall be allocated through the G&A of 
the other profit centers or through the corporate G&A, as appropriate.
    (ii) If allocations of IR&D or B&P through the G&A base do not 
provide equitable cost allocation, the contracting officer may approve 
use of a different base.
    (c) Allowability. (1) This subparagraph (c)(1) implements section 
824 of the National Defense Authorization Act for Fiscal Year 1991 (Pub. 
L. 101-510). Except as provided in paragraphs (c)(2), (d), and (e) of 
this subsection, or as provided in agency regulations, costs for IR&D 
and B&P are allowable only in accordance with the following:
    (i) Companies required to negotiate advance agreements. (A) Any 
company that received payments for IR&D and B&P costs in a fiscal year, 
either as a prime contractor or subcontractor, exceeding $7,000,000 from 
Government agencies, is required to negotiate with the Government an 
advance agreement which establishes a ceiling for allowability of IR&D 
and B&P costs for the following fiscal year. This agreement is binding 
on all Government agencies, unless prohibited by statute. The 
requirements of section 203 of Public Law 91-441 necessitate that the 
Department of Defense (DOD) be the lead negotiating agency when the 
contractor has received more than $7,000,000 in payments for IR&D and 
B&P from DOD. Computation of IR&D and B&P costs to determine whether the 
threshold criterion was reached shall include only recoverable IR&D and 
B&P costs allocated during the company's previous fiscal year to prime 
contracts and subcontracts for which the submission and certification of 
cost or pricing data were required. (See also paragraph (b) of this 
subsection and 15.403-4.) The computation shall include full burdening 
pursuant to 48 CFR 9904.420.
    (B) When a company meets the criterion in (c)(1)(i)(A) of this 
subsection, required advance agreements may be negotiated at the 
corporate level and/or with those profit centers that contract directly 
with the Government and that in the preceding year allocated recoverable 
IR&D and B&P costs exceeding $700,000, including burdening, to contracts 
and subcontracts for which the submission and certification of cost or 
pricing data were required (see also paragraph (b) of this subsection 
and 15.403-4). When ceilings are negotiated for separate profit centers 
of the company, the allowability of IR&D and B&P costs for any center 
that in its previous fiscal year did not reach the $700,000 threshold 
may be determined in accordance with paragraph (c)(1)(ii) of this 
subsection.
    (C) Ceilings are the maximum dollar amounts of total IR&D and B&P 
costs that will be allowable for allocation over the appropriate base 
for that part of the company's operation covered by an advance 
agreement.
    (D) No IR&D and B&P cost shall be allowable if a company fails to 
initiate negotiation of a required advance agreement before the end of 
the fiscal year for which the agreement is required.

[[Page 644]]

    (E) When negotiations are held with a company meeting the $7,000,000 
criterion or with separate profit centers (when negotiations are held at 
that level under (c)(1)(i)(B) of this subsection), and if no advance 
agreement is reached, payment for IR&D and B&P costs shall be reduced 
below that which the company or profit center would have otherwise 
received. The amount of such reduced payment shall not exceed 75 percent 
of the amount which, in the opinion of the contracting officer, the 
company or profit center would be entitled to receive under an advance 
agreement. Written notification of the contracting officer's 
determination of a reduced amount shall be provided the contractor. In 
the event that an advance agreement is not reached before the end of the 
contractor's fiscal year for which the agreement is to apply, 
negotiations shall immediately be terminated, and the contracting 
officer shall furnish a determination of the reduced amount.
    (F) Contractors may appeal decisions of the contracting officer to 
reduce payment. The appeal shall be filed with the contracting officer 
within 30 days of receipt of the contracting officer's determination. 
(See also subpart 42.10.)
    (ii) Companies not required to negotiate advance agreements. Costs 
for IR&D and B&P are allowable as indirect expenses on contracts to the 
extent that those costs are allocable and reasonable.
    (2) This subparagraph (c)(2) implements section 802 of the National 
Defense Authorization Act for Fiscal Years 1992 and 1993 (Pub. L. 102-
190) and is effective for IR&D and B&P costs incurred by a contractor 
during fiscal years of that contractor that begin on or after October 1, 
1992. Except as provided in paragraph (d) of this subsection, or as 
provided in agency regulations, costs for IR&D and B&P are allowable as 
indirect expenses on contracts to the extent that those costs are 
allocable and reasonable. The following limitations apply to major 
contractors--
    (i) For the first three contractor fiscal years beginning on or 
after October 1, 1992, the total maximum allowable amount of IR&D/B&P 
costs shall not exceed the sum of:
    (A) The total amount of allowable IR&D/B&P costs in the preceding 
fiscal year (i.e., the lower of the previous year's ceiling or actual 
costs incurred); plus
    (B) Five percent of the amount in (c)(2)(i)(A) of this subsection; 
plus
    (C) If the total amount of IR&D/B&P costs for a fiscal year is 
greater than the total amount of IR&D/B&P costs for the preceding fiscal 
year, the amount that is determined by multiplying the amount in 
(c)(2)(i)(A) of this subsection by the lesser of--
    (1) The percentage by which the total amount of IR&D/B&P costs for a 
fiscal year exceeds the total amount of such costs for the preceding 
fiscal year; or
    (2) The percentage rate of inflation from the end of the preceding 
fiscal year to the end of the fiscal year for which the amount of the 
limitation is being computed. The rate of inflation shall be the price 
escalation index for the Research, Development, Test & Evaluation 
(RDT&E) account, Total Obligation Authority (TOA) which is published 
annually (normally in January) by the Department of Defense Comptroller 
and used in preparation of the annual submission of the Defense budget. 
This rate will be published in the Federal Register on an annual basis.
    (ii) Major contractors shall submit, in accordance with agency 
guidance, financial and technical information to support their IR&D/B&P 
costs.
    (iii) A waiver may be granted, in accordance with agency procedures, 
to increase the amount prescribed in (c)(2)(i) of this subsection for 
the following special circumstances:
    (A) To ensure that the contractor's allowable IR&D/B&P costs are at 
least the same amount that would have been allowed under this subpart 
which was in effect on December 4, 1991; or
    (B) When it is in the best interest of the Government.
    (d) Deferred IR&D and B&P costs. (1) IR&D costs that were incurred 
in previous accounting periods are unallowable, except when a contractor 
has developed a specific product at its own risk in anticipation of 
recovering the development costs in the sale price of the product 
provided that--

[[Page 645]]

    (i) The total amount of IR&D costs applicable to the product can be 
identified;
    (ii) The proration of such costs to sales of the product is 
reasonable;
    (iii) The contractor had no Government business during the time that 
the costs were incurred or did not allocate IR&D costs to Government 
contracts except to prorate the cost of developing a specific product to 
the sales of that product; and
    (iv) No costs of current IR&D programs are allocated to Government 
work except to prorate the costs of developing a specific product to the 
sales of that product.
    (2) When deferred costs are recognized, the contract (except firm-
fixed-price and fixed-price with economic price adjustment) will include 
a specific provision setting forth the amount of deferred IR&D costs 
that are allocable to the contract. The negotiation memorandum will 
state the circumstances pertaining to the case and the reason for 
accepting the deferred costs.
    (e) Cooperative arrangements. (1) IR&D costs may be incurred by 
contractors working jointly with one or more non-Federal entities 
pursuant to a cooperative arrangement (for example, joint ventures, 
limited partnerships, teaming arrangements, and collaboration and 
consortium arrangements). IR&D costs also may include costs contributed 
by contractors in performing cooperative research and development 
agreements, or similar arrangements, entered into under--
    (i) Section 12 of the Stevenson-Wydler Technology Transfer Act of 
1980 (15 U.S.C. 3710(a));
    (ii) Sections 203(c) (5) and (6) of the National Aeronautics and 
Space Act of 1958, as amended (42 U.S.C. 2473(c) (5) and (6));
    (iii) 10 U.S.C. 2371 for the Defense Advanced Research Projects 
Agency; or
    (iv) Other equivalent authority.
    (2) IR&D costs incurred by a contractor pursuant to these types of 
cooperative arrangements should be considered as allowable IR&D costs if 
the work performed would have been allowed as contractor IR&D had there 
been no cooperative arrangement.
[57 FR 44265, Sept. 24, 1992, as amended at 59 FR 11379, Mar. 10, 1994; 
62 FR 12705, Mar. 17, 1997; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.205-18, in paragraphs (c)(1)(i)(A) and (B), ``15.804'' was amended to 
read ``15.403-4'', effective Oct. 10, 1997.



31.205-19  Insurance and indemnification.

    (a) Insurance by purchase or by self-insuring includes coverage the 
contractor is required to carry, or to have approved, under the terms of 
the contract and any other coverage the contractor maintains in 
connection with the general conduct of its business. Any contractor 
desiring to establish a program of self-insurance applicable to 
contracts that are not subject to 48 CFR 9904.416, Accounting for 
Insurance Costs, shall comply with the self-insurance requirements of 
that standard as well as with part 28 of this Regulation. However, 
approval of a contractor's insurance program in accordance with part 28 
does not constitute a determination as to the allowability of the 
program's cost. The amount of insurance costs which may be allowed is 
subject to the cost limitations and exclusions in the following 
subparagraphs.
    (1) Costs of insurance required or approved, and maintained by the 
contractor pursuant to the contract, are allowable.
    (2) Costs of insurance maintained by the contractor in connection 
with the general conduct of its business are allowable, subject to the 
following limitations:
    (i) Types and extent of coverage shall follow sound business 
practice, and the rates and premiums must be reasonable.
    (ii) Costs allowed for business interruption or other similar 
insurance must be limited to exclude coverage of profit.
    (iii) The cost of property insurance premiums for insurance coverage 
in excess of the acquisition cost of the insured assets is allowable 
only when the contractor has a formal written policy assuring that in 
the event the insured

[[Page 646]]

property is involuntarily converted, the new asset shall be valued at 
the book value of the replaced asset plus or minus adjustments for 
differences between insurance proceeds and actual replacement cost. If 
the contractor does not have such a formal written policy, the cost of 
premiums for insurance coverage in excess of the acquisition cost of the 
insured asset is unallowable.
    (iv) Costs of insurance for the risk of loss of or damage to 
Government property are allowable only to the extent that the contractor 
is liable for such loss or damage and such insurance does not cover loss 
or damage that results from willful misconduct or lack of good faith on 
the part of any of the contractor's directors or officers or other 
equivalent representatives.
    (v) Contractors operating under a program of self-insurance must 
obtain approval of the program when required by 28.308(a).
    (vi) Costs of insurance on the lives of officers, partners, or 
proprietors are allowable only to the extent that the insurance 
represents additional compensation (see 31.205-6).
    (3) Actual losses are unallowable unless expressly provided for in 
the contract, except--
    (i) Losses incurred under the nominal deductible provisions of 
purchased insurance, in keeping with sound business practice, are 
allowable for contracts not subject to 48 CFR 9904.416 and when the 
contractor did not establish a self-insurance program. Such contracts 
are not subject to the self-insurance requirements of 48 CFR 9904.416. 
For contracts subject to 48 CFR 9904.416, and for those made subject to 
the self-insurance requirements of that Standard as a result of the 
contractor's having established a self-insurance program (see paragraph 
(a) above), actual losses may be used as a basis for charges under a 
self-insurance program when the actual amount of losses will not differ 
significantly from the projected average losses for the accounting 
period (see 48 CFR 9904.416-50(a)(2)(ii)). In those instances where an 
actual loss has occurred and the present value of the liability is 
determined under the provisions of 48 CFR 9904.416-50(a)(3)(ii), the 
allowable cost shall be limited to an amount computed using as a 
discount rate the interest rate determined by the Secretary of the 
Treasury pursuant to 50 U.S.C. App. 1215(b)(2) in effect at the time the 
loss is recognized. However, the full amount of a lump-sum settlement to 
be paid within a year of the date of settlement is allowable.
    (ii) Minor losses, such as spoilage, breakage, and disappearance of 
small hand tools that occur in the ordinary course of doing business and 
that are not covered by insurance are allowable.
    (4) The cost of insurance to protect the contractor against the 
costs of correcting its own defects in materials or workmanship is 
unallowable. However, insurance costs to cover fortuitous or casualty 
losses resulting from defects in materials or workmanship are allowable 
as a normal business expense.
    (5) Premiums for retroactive or backdated insurance written to cover 
occurred and known losses are unallowable.
    (b) If purchased insurance is available, the charge for any self-
insurance coverage plus insurance administration expenses shall not 
exceed the cost of comparable purchased insurance plus associated 
insurance administration expenses.
    (c) Insurance provided by captive insurers (insurers owned by or 
under the control of the contractor) is considered self-insurance, and 
charges for it must comply with the self-insurance provisions of 48 CFR 
9904.416. However, if the captive insurer also sells insurance to the 
general public in substantial quantities and it can be demonstrated that 
the charge to the contractor is based on competitive market forces, the 
insurance will be considered purchased insurance.
    (d) The allowability of premiums for insurance purchased from 
fronting insurance companies (insurance companies not related to the 
contractor but who reinsure with a captive insurer of the contractor) 
shall not exceed the amount (plus reasonable fronting company charges 
for services rendered) which the contractor would have been allowed had 
it insured directly with the captive insurer.

[[Page 647]]

    (e) Self-insurance charges for risks of catastrophic losses are not 
allowable (see 28.308(e)).
    (f) The Government is obligated to indemnify the contractor only to 
the extent authorized by law, as expressly provided for in the contract, 
except as provided in paragraph (a)(3) above.
    (g) Late premium payment charges related to employee deferred 
compensation plan insurance incurred pursuant to section 4007 (29 U.S.C. 
1307) or section 4023 (29 U.S.C. 1323) of the Employee Retirement Income 
Security Act of 1974 are unallowable.
[48 FR 42301, Sept. 19, 1983, as amended at 50 FR 23607, June 4, 1985; 
51 FR 31426, Sept. 3, 1986; 57 FR 39591, Aug. 31, 1992]



31.205-20  Interest and other financial costs.

    Interest on borrowings (however represented), bond discounts, costs 
of financing and refinancing capital (net worth plus long-term 
liabilities), legal and professional fees paid in connection with 
preparing prospectuses, costs of preparing and issuing stock rights, and 
directly associated costs are unallowable except for interest assessed 
by State or local taxing authorities under the conditions specified in 
31.205-41 (but see 31.205-28).



31.205-21  Labor relations costs.

    Costs incurred in maintaining satisfactory relations between the 
contractor and its employees, including costs of shop stewards, labor 
management committees, employee publications, and other related 
activities, are allowable.



31.205-22  Lobbying and political activity costs.

    (a) Costs associated with the following activities are unallowable:
    (1) Attempts to influence the outcomes of any Federal, State, or 
local election, referendum, initiative, or similar procedure, through in 
kind or cash contributions, endorsements, publicity, or similar 
activities;
    (2) Establishing, administering, contributing to, or paying the 
expenses of a political party, campaign, political action committee, or 
other organization established for the purpose of influencing the 
outcomes of elections;
    (3) Any attempt to influence (i) the introduction of Federal, state, 
or local legislation, or (ii) the enactment or modification of any 
pending Federal, state, or local legislation through communication with 
any member or employee of the Congress or state legislature (including 
efforts to influence state or local officials to engage in similar 
lobbying activity), or with any government official or employee in 
connection with a decision to sign or veto enrolled legislation;
    (4) Any attempt to influence (i) the introduction of Federal, state, 
or local legislation, or (ii) the enactment or modification of any 
pending Federal, state, or local legislation by preparing, distributing 
or using publicity or propaganda, or by urging members of the general 
public or any segment thereof to contribute to or participate in any 
mass demonstration, march, rally, fund raising drive, lobbying campaign 
or letter writing or telephone campaign;
    (5) Legislative liaison activities, including attendance at 
legislative sessions or committee hearings, gathering information 
regarding legislation, and analyzing the effect of legislation, when 
such activities are carried on in support of or in knowing preparation 
for an effort to engage in unallowable activities; or
    (6) Costs incurred in attempting to improperly influence (see 
3.401), either directly or indirectly, an employee or officer of the 
Executive branch of the Federal Government to give consideration to or 
act regarding a regulatory or contract matter.
    (b) The following activities are excepted from the coverage of (a) 
above:
    (1) Providing a technical and factual presentation of information on 
a topic directly related to the performance of a contract through 
hearing testimony, statements or letters to the Congress or a state 
legislature, or subdivision, member, or cognizant staff member thereof, 
in response to a documented request (including a Congressional Record 
notice requesting testimony or statements for the record at a regularly 
scheduled hearing) made by the recipient member, legislative body or 
subdivision, or a cognizant staff member thereof; provided such 
information is readily obtainable and can be readily

[[Page 648]]

put in deliverable form; and further provided that costs under this 
section for transportation, lodging or meals are unallowable unless 
incurred for the purpose of offering testimony at a regularly scheduled 
Congressional hearing pursuant to a written request for such 
presentation made by the Chairman or Ranking Minority Member of the 
Committee or Subcommittee conducting such hearing.
    (2) Any lobbying made unallowable by paragraph (a)(3) of this 
subsection to influence state or local legislation in order to directly 
reduce contract cost, or to avoid material impairment of the 
contractor's authority to perform the contract.
    (3) Any activity specifically authorized by statute to be undertaken 
with funds from the contract.
    (c) When a contractor seeks reimbursement for indirect costs, total 
lobbying costs shall be separately identified in the indirect cost rate 
proposal, and thereafter treated as other unallowable activity costs.
    (d) Contractors shall maintain adequate records to demonstrate that 
the certification of costs as being allowable or unallowable (see 
42.703-2) pursuant to this subsection complies with the requirements of 
this subsection.
    (e) Existing procedures should be utilized to resolve in advance any 
significant questions or disagreements concerning the interpretation or 
application of this subsection.
[49 FR 18278, Apr. 27, 1984, as amended at 51 FR 12301, Apr. 9, 1986; 52 
FR 19804, May 27, 1987; 60 FR 42660, Aug. 16, 1995; 61 FR 31657, June 
20, 1996; 61 FR 67425, Dec. 20, 1996; 62 FR 237, Jan. 2, 1997]



31.205-23  Losses on other contracts.

    An excess of costs over income under any other contract (including 
the contractor's contributed portion under cost-sharing contracts) is 
unallowable.



31.205-24  Maintenance and repair costs.

    (a) Costs necessary for the upkeep of property (including Government 
property, unless otherwise provided for) that neither add to the 
permanent value of the property nor appreciably prolong its intended 
life, but keep it in an efficient operating condition, are to be treated 
as follows (but see 31.205-11):
    (1) Normal maintenance and repair costs are allowable.
    (2) Extraordinary maintenance and repair costs are allowable, 
provided those costs are allocated to the applicable periods for 
purposes of determining contract costs (but see 31.109).
    (b) Expenditures for plant and equipment, including rehabilitation 
which should be capitalized and subject to depreciation, according to 
generally accepted accounting principles as applied under the 
contractor's established policy or, when applicable, according to 48 CFR 
9904.404, Capitalization of Tangible Assets, are allowable only on a 
depreciation basis.
[48 FR 42301, Sept. 19, 1983, as amended at 57 FR 39591, Aug. 31, 1992]



31.205-25  Manufacturing and production engineering costs.

    (a) The costs of manufacturing and production engineering effort as 
described in (1) through (4) below are all allowable:
    (1) Developing and deploying new or improved materials, systems, 
processes, methods, equipment, tools and techniques that are or are 
expected to be used in producing products or services;
    (2) Developing and deploying pilot production lines;
    (3) Improving current production functions, such as plant layout, 
production scheduling and control, methods and job analysis, equipment 
capabilities and capacities, inspection techniques, and tooling analysis 
(including tooling design and application improvements); and
    (4) Material and manufacturing producibility analysis for production 
suitability and to optimize manufacturing processes, methods, and 
techniques.
    (b) This cost principle does not cover:
    (1) Basic and applied research effort (as defined in 31.205-18(a)) 
related to new technology, materials, systems, processes, methods, 
equipment, tools and techniques. Such technical effort is governed by 
31.205-18, Independent research and development costs and bid and 
proposal costs; and

[[Page 649]]

    (2) Development effort for manufacturing or production materials, 
systems, processes, methods, equipment, tools and techniques that are 
intended for sale is also governed by 31.205-18.
    (c) Where manufacturing or production development costs are 
capitalized or required to be capitalized under the contractor's 
capitalization policies, allowable cost will be determined in accordance 
with the requirements of 31.205-11, Depreciation.



31.205-26  Material costs.

    (a) Material costs include the costs of such items as raw materials, 
parts, sub-assemblies, components, and manufacturing supplies, whether 
purchased or manufactured by the contractor, and may include such 
collateral items as inbound transportation and intransit insurance. In 
computing material costs, consideration shall be given to reasonable 
overruns, spoilage, or defective work (unless otherwise provided in any 
contract provision relating to inspecting and correcting defective 
work). These costs are allowable, subject to the requirements of 
paragraphs (b) through (e) below.
    (b) Costs of material shall be adjusted for income and other 
credits, including available trade discounts, refunds, rebates, 
allowances, and cash discounts, and credits for scrap, salvage, and 
material returned to vendors. Such income and other credits shall either 
be credited directly to the cost of the material or be allocated as a 
credit to indirect costs. When the contractor can demonstrate that 
failure to take cash discounts was reasonable, lost discounts need not 
be credited.
    (c) Reasonable adjustments arising from differences between periodic 
physical inventories and book inventories may be included in arriving at 
costs; provided, such adjustments relate to the period of contract 
performance.
    (d) When materials are purchased specifically for and are 
identifiable solely with performance under a contract, the actual 
purchase cost of those materials should be charged to the contract. If 
material is issued from stores, any generally recognized method of 
pricing such material is acceptable if that method is consistently 
applied and the results are equitable. When estimates of future material 
costs are required, current market price or anticipated acquisition cost 
may be used, but the basis of pricing must be disclosed.
    (e) Allowance for all materials, supplies, and services that are 
sold or transferred between any divisions, subdivisions, subsidiaries, 
or affiliates of the contractor under a common control shall be on the 
basis of cost incurred in accordance with this subpart. However, 
allowance may be at price when it is the established practice of the 
transferring organization to price interorganizational transfers at 
other than cost for commercial work of the contractor or any division, 
subsidiary, or affiliate of the contractor under a common control, and 
when the item being transferred qualifies for an exception under 15.403-
1(b) and the contracting officer has not determined the price to be 
unreasonable.
    (f) When a commercial item under paragraph (e) of this subsection is 
transferred at a price based on a catalog or market price, the price 
should be adjusted to reflect the quantities being acquired and may be 
adjusted to reflect the actual cost of any modifications necessary 
because of contract requirements.
[48 FR 42301, Sept. 19, 1983, as amended at 60 FR 48218, Sept. 18, 1995; 
62 FR 259, Jan. 2, 1997; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.205-26, in paragraph (e), ``15.804-1'' was amended to read ``15.403-
1(b)'', effective Oct. 10, 1997.



31.205-27  Organization costs.

    (a) Except as provided in paragraph (b) of this section, 
expenditures in connection with (1) planning or executing the 
organization or reorganization of the corporate structure of a business, 
including mergers and acquisitions, (2) resisting or planning to resist 
the reorganization of the corporate structure of a business or a change 
in the controlling interest in the ownership of a business, and (3) 
raising capital (net worth plus long-term liabilities), are unallowable. 
Such expenditures include but are not limited to incorporation fees and 
costs of attorneys, accountants, brokers, promoters and organizers, 
management consultants and investment counselors, whether or not

[[Page 650]]

employees of the contractor. Unallowable reorganization costs include 
the cost of any change in the contractor's financial structure, 
excluding administrative costs of short-term borrowings for working 
capital, resulting in alterations in the rights and interests of 
security holders, whether or not additional capital is raised.
    (b) The cost of activities primarily intended to provide 
compensation will not be considered organizational costs subject to this 
subsection, but will be governed by 31.205-6. These activities include 
acquiring stock for (1) executive bonuses, (2) employee savings plans, 
and (3) employee stock ownership plans.
[48 FR 42301, Sept. 19, 1983, as amended at 53 FR 10830, Apr. 1, 1988]



31.205-28  Other business expenses.

    The following types of recurring costs are allowable when allocated 
on an equitable basis:
    (a) Registry and transfer charges resulting from changes in 
ownership of securities issued by the contractor.
    (b) Cost of shareholders' meetings.
    (c) Normal proxy solicitations.
    (d) Preparing and publishing reports to shareholders.
    (e) Preparing and submitting required reports and forms to taxing 
and other regulatory bodies.
    (f) Incidental costs of directors' and committee meetings.
    (g) Other similar costs.



31.205-29  Plant protection costs.

    Costs of items such as (a) wages, uniforms, and equipment of 
personnel engaged in plant protection, (b) depreciation on plant 
protection capital assets, and (c) necessary expenses to comply with 
military requirements, are allowable.



31.205-30  Patent costs.

    (a) The following patent costs are allowable to the extent that they 
are incurred as requirements of a Government contract (but see 31.205-
33):
    (1) Costs of preparing invention disclosures, reports, and other 
documents.
    (2) Costs for searching the art to the extent necessary to make the 
invention disclosures.
    (3) Other costs in connection with the filing and prosecution of a 
United States patent application where title or royalty-free license is 
to be conveyed to the Government.
    (b) General counseling services relating to patent matters, such as 
advice on patent laws, regulations, clauses, and employee agreements, 
are allowable (but see 31.205-33).
    (c) Other than those for general counseling services, patent costs 
not required by the contract are unallowable. (See also 31.205-37.)



31.205-31  Plant reconversion costs.

    Plant reconversion costs are those incurred in restoring or 
rehabilitating the contractor's facilities to approximately the same 
condition existing immediately before the start of the Government 
contract, fair wear and tear excepted. Reconversion costs are 
unallowable except for the cost of removing Government property and the 
restoration or rehabilitation costs caused by such removal. However, in 
special circumstances where equity so dictates, additional costs may be 
allowed to the extent agreed upon before costs are incurred. Care should 
be exercised to avoid duplication through allowance as contingencies, 
additional profit or fee, or in other contracts.



31.205-32  Precontract costs.

    Precontract costs are those incurred before the effective date of 
the contract directly pursuant to the negotiation and in anticipation of 
the contract award when such incurrence is necessary to comply with the 
proposed contract delivery schedule. Such costs are allowable to the 
extent that they would have been allowable if incurred after the date of 
the contract (see 31.109).



31.205-33  Professional and consultant service costs.

    (a) Definition. Professional and consultant services, as used in 
this subpart, are those services rendered by persons who are members of 
a particular profession or possess a special skill and who are not 
officers or employees of the contractor. Examples include those services 
acquired by contractors or subcontractors in order to enhance

[[Page 651]]

their legal, economic, financial, or technical positions. Professional 
and consultant services are generally acquired to obtain information, 
advice, opinions, alternatives, conclusions, recommendations, training, 
or direct assistance, such as studies, analyses, evaluations, liaison 
with Government officials, or other forms of representation.
    (b) Costs of professional and consultant services are allowable 
subject to this paragraph and paragraphs (c) through (f) of this 
subsection when reasonable in relation to the services rendered and when 
not contingent upon recovery of the costs from the Government (but see 
31.205-30 and 31.205-47).
    (c) Costs of professional and consultant services performed under 
any of the following circumstances are unallowable:
    (1) Services to improperly obtain, distribute, or use information or 
data protected by law or regulation (e.g., 52.215-1(e), Restriction on 
Disclosure and Use of Data).
    (2) Services that are intended to improperly influence the contents 
of solicitations, the evaluation of proposals or quotations, or the 
selection of sources for contract award, whether award is by the 
Government, or by a prime contractor or subcontractor.
    (3) Any other services obtained, performed, or otherwise resulting 
in violation of any statute or regulation prohibiting improper business 
practices or conflicts of interest.
    (4) Services performed which are not consistent with the purpose and 
scope of the services contracted for or otherwise agreed to.
    (d) In determining the allowability of costs (including retainer 
fees) in a particular case, no single factor or any special combination 
of factors is necessarily determinative. However, the contracting 
officer shall consider the following factors, among others:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
contractor's capability in the particular area.
    (3) The past pattern of acquiring such services and their costs, 
particularly in the years prior to the award of Government contracts.
    (4) The impact of Government contracts on the contractor's business.
    (5) Whether the proportion of Government work to the contractor's 
total business is such as to influence the contractor in favor of 
incurring the cost, particularly when the services rendered are not of a 
continuing nature and have little relationship to work under Government 
contracts.
    (6) Whether the service can be performed more economically by 
employment rather than by contracting.
    (7) The qualifications of the individual or concern rendering the 
service and the customary fee charged, especially on non-Government 
contracts.
    (8) Adequacy of the contractual agreement for the service (e.g., 
description of the service, estimate of time required, rate of 
compensation, termination provisions).
    (e) Retainer fees, to be allowable, must be supported by evidence 
that--
    (1) The services covered by the retainer agreement are necessary and 
customary;
    (2) The level of past services justifies the amount of the retainer 
fees (if no services were rendered, fees are not automatically 
unallowable);
    (3) The retainer fee is reasonable in comparison with maintaining an 
in-house capability to perform the covered services, when factors such 
as cost and level of expertise are considered; and
    (4) The actual services performed are documented in accordance with 
paragraph (f) of this subsection.
    (f) Fees for services rendered shall be allowable only when 
supported by evidence of the nature and scope of the service furnished. 
(See also 31.205-38(f).) However, retainer agreements generally are not 
based on specific statements of work. Evidence necessary to determine 
that work performed is proper and does not violate law or regulation 
shall include--
    (1) Details of all agreements (e.g., work requirements, rate of 
compensation, and nature and amount of other expenses, if any) with the 
individuals or organizations providing the services and details of 
actual services performed;

[[Page 652]]

    (2) Invoices or billings submitted by consultants, including 
sufficient detail as to the time expended and nature of the actual 
services provided; and
    (3) Consultants' work products and related documents, such as trip 
reports indicating persons visited and subjects discussed, minutes of 
meetings, and collateral memoranda and reports.
[55 FR 52793, Dec. 21, 1990; 57 FR 60610, Dec. 21, 1992; 62 FR 51271, 
Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.205-33, in paragraph (c)(1), ``52.215-12'' was amended to read 
``52.215-1(e)'', effective Oct. 10, 1997.



31.205-34  Recruitment costs.

    (a) Subject to paragraphs (b) and (c) below, and provided that the 
size of the staff recruited and maintained is in keeping with workload 
requirements, the following costs are allowable:
    (1) Costs of help-wanted advertising.
    (2) Costs of operating an employment office needed to secure and 
maintain an adequate labor force.
    (3) Costs of operating an aptitude and educational testing program.
    (4) Travel costs of employees engaged in recuiting personnel.
    (5) Travel costs of applicants for interviews.
    (6) Costs for employment agencies, not in excess of standard 
commercial rates.
    (b) Help-wanted advertising costs are unallowable if the 
advertising--
    (1) Is for personnel other than those required to perform 
obligations under a Government contract;
    (2) Does not describe specific positions or classes of positions;
    (3) Is excessive relative to the number and importance of the 
positions or to the industry practices;
    (4) Includes material that is not relevant for recruitment purposes, 
such as extensive illustrations or descriptions of the company's 
products or capabilities;
    (5) Is designed to pirate personnel from another Government 
contractor; or
    (6) Includes color (in publications).
    (c) Excessive compensation costs offered to prospective employees to 
pirate them from another Government contractor are unallowable. Such 
excessive costs may include salaries, fringe benefits, or special 
emoluments which are in excess of standard industry practices or the 
contractor's customary compensation practices.



31.205-35  Relocation costs.

    (a) Relocation costs are costs incident to the permanent change of 
duty of assignment (for an indefinite or stated period, but in either 
event for not less than 12 months) of an existing employee or upon 
recruitment of a new employee. The following types of relocation costs 
are allowable as noted, subject to paragraphs (b) through (f) below:
    (1) Cost of travel of the employee and members of the immediate 
family (see 31.205-46) and transportation of the household and personal 
effects to the new location.
    (2) Cost of finding a new home, such as advance trips by employees 
and spouses to locate living quarters, and temporary lodging during the 
transition periods not exceeding separate cumulative totals of 60 days 
for employees and 45 days for spouses and dependents, including advance 
trip time.
    (3) Closing costs (i.e., brokerage fees, legal fees, appraisal fees, 
points, finance charges, etc.) incident to the disposition of actual 
residence owned by the employee when notified of transfer, except that 
these costs when added to the costs described in subparagraph (a)(4) 
below shall not exceed 14 percent of the sales price of the property 
sold.
    (4) Continuing costs of ownership of the vacant former actual 
residence being sold, such as maintenance of building and grounds 
(exclusive of fixing up expenses), utilities, taxes, property insurance, 
mortgage interest, after settlement date or lease date of new permanent 
residence, except that these costs when added to the costs described in 
subparagraph (a)(3) above, shall not exceed 14 percent of the sales 
price of the property sold.
    (5) Other necessary and reasonable expenses normally incident to 
relocation, such as disconnecting and connecting household appliances; 
automobile registration; driver's license and use taxes; cutting and 
fitting rugs, draperies, and curtains; forfeited utility fees and 
deposits; and purchase of

[[Page 653]]

insurance against damage to or loss of personal property while in 
transit.
    (6) Costs incident to acquiring a home in a new location, except 
that (i) these costs will not be allowable for existing employees or 
newly recruited employees who, before the relocation, were not 
homeowners and (ii) the total costs shall not exceed 5 percent of the 
purchase price of the new home.
    (7) Mortgage interest differential payments, except that these costs 
are not allowable for existing or newly recruited employees who, before 
the relocation, were not homeowners and the total payments are limited 
to an amount determined as follows:
    (i) The difference between the mortgage interest rates of the old 
and new residences times the current balance of the old mortgage times 3 
years.
    (ii) When mortgage differential payments are made on a lump sum 
basis and the employee leaves or is transferred again in less than 3 
years, the amount initially recognized shall be proportionately adjusted 
to reflect payments only for the actual time of the relocation.
    (8) Rental differential payments covering situations where relocated 
employees retain ownership of a vacated home in the old location and 
rent at the new location. The rented quarters at the new location must 
be comparable to those vacated, and the allowable differential payments 
may not exceed the actual rental costs for the new home, less the fair 
market rent for the vacated home times 3 years.
    (9) Cost of canceling an unexpired lease.
    (b) The costs described in paragraph (a) above must also meet the 
following criteria to be considered allowable:
    (1) The move must be for the benefit of the employer.
    (2) Reimbursement must be in accordance with an established policy 
or practice that is consistently followed by the employer and is 
designed to motivate employees to relocate promptly and economically.
    (3) The costs must not otherwise be unallowable under subpart 31.2.
    (4) Amounts to be reimbursed shall not exceed the employee's actual 
expenses, except that for miscellaneous costs of the type discussed in 
subparagraph (a)(5) above, a flat amount, not to exceed $1,000, may be 
allowed in lieu of actual costs.
    (c) The following types of costs are not allowable:
    (1) Loss on sale of a home.
    (2) Costs incident to acquiring a home in a new location as follows:
    (i) Real estate brokers fees and commissions.
    (ii) Cost of litigation.
    (iii) Real and personal property insurance against damage or loss of 
property.
    (iv) Mortgage life insurance.
    (v) Owner's title policy insurance when such insurance was not 
previously carried by the employee on the old residence (however, cost 
of a mortgage title policy is allowable).
    (vi) Property taxes and operating or maintenance costs.
    (3) Continuing mortgage principal payments on residence being sold.
    (4) Payments for employee income or FICA (social security) taxes 
incident to reimbursed relocation costs.
    (5) Payments for job counseling and placement assistance to employee 
spouses and dependents who were not employees of the contractor at the 
old location.
    (6) Costs incident to furnishing equity or nonequity loans to 
employees or making arrangements with lenders for employees to obtain 
lower-than-market rate mortgage loans.
    (d) If relocation costs for an employee have been allowed either as 
an allocable indirect or direct cost, and the employee resigns within 12 
months for reasons within the employee's control, the contractor shall 
refund or credit the relocation costs to the Government.
    (e) Subject to the requirements of paragraphs (a) through (d) above, 
the costs of family movements and of personnel movements of a special or 
mass nature are allowable. The cost, however, should be assigned on the 
basis of work (contracts) or time period benefited.
    (f) Relocation costs (both outgoing and return) of employees who are 
hired for performance on specific contracts or long-term field projects 
are allowable if--

[[Page 654]]

    (1) The term of employment is not less than 12 months;
    (2) The employment agreement specifically limits the duration of 
employment to the time spent on the contract or field project for which 
the employee is hired;
    (3) The employment agreement provides for return relocation to the 
employee's permanent and principal home immediately prior to the 
outgoing relocation, or other location of equal or lesser cost; and
    (4) The relocation costs are determined under the rules of 
paragraphs (a) through (d) above. However, the costs to return 
employees, who are released from employment upon completion of field 
assignments pursuant to their employment agreements, are not subject to 
the refund or credit requirement of paragraph (d).
[48 FR 42301, Sept. 19, 1983, as amended at 52 FR 9038, Mar. 20, 1987]



31.205-36  Rental costs.

    (a) This subsection is applicable to the cost of renting or leasing 
real or personal property acquired under ``operating leases'' as defined 
in Statement of Financial Accounting Standards No. 13 (FAS-13), 
Accounting for Leases. Compliance with 31.205-11(m) requires that assets 
acquired by means of capital leases, as defined in FAS-13, shall be 
treated as purchased assets; i.e., be capitalized and the capitalized 
value of such assets be distributed over their useful lives as 
depreciation charges, or over the lease term as amortization charges, as 
appropriate (but see subparagraph (b)(4) below).
    (b) The following costs are allowable:
    (1) Rental costs under operating leases, to the extent that the 
rates are reasonable at the time of the lease decision, after 
consideration of (i) rental costs of comparable property, if any; (ii) 
market conditions in the area; (iii) the type, life expectancy, 
condition, and value of the property leased; (iv) alternatives 
available; and (v) other provisions of the agreement.
    (2) Rental costs under a sale and leaseback arrangement only up to 
the amount the contractor would be allowed if the contractor retained 
title.
    (3) Charges in the nature of rent for property between any 
divisions, subsidiaries, or organization under common control, to the 
extent that they do not exceed the normal costs of ownership, such as 
depreciation, taxes, insurance, facilities capital cost of money, and 
maintenance (excluding interest or other unallowable costs pursuant to 
part 31), provided that no part of such costs shall duplicate any other 
allowed cost. Rental cost of personal property leased from any division, 
subsidiary, or affiliate of the contractor under common control, that 
has an established practice of leasing the same or similar property to 
unaffiliated lessees shall be allowed in accordance with subparagraph 
(b)(1) above.
    (4) Rental costs under leases entered into before March 1, 1970 for 
the remaining term of the lease (excluding options not exercised before 
March 1, 1970) to the extent they would have been allowable under 
Defense Acquisition Regulation (Formerly ASPR) 15-205.34 or Federal 
Procurement Regulations section 1-15.205-34 in effect January 1, 1969.
    (c) The allowability of rental costs under unexpired leases in 
connection with terminations is treated in 31.205-42(e).
[48 FR 42301, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
61 FR 69288, Dec. 31, 1996]



31.205-37  Royalties and other costs for use of patents.

    (a) Royalties on a patent or amortization of the cost of purchasing 
a patent or patent rights necessary for the proper performance of the 
contract and applicable to contract products or processes are allowable 
unless--
    (1) The Government has a license or the right to a free use of the 
patent;
    (2) The patent has been adjudicated to be invalid, or has been 
administratively determined to be invalid;
    (3) The patent is considered to be unenforceable; or
    (4) The patent is expired.
    (b) Care should be exercised in determining reasonableness when the 
royalties may have been arrived at as a result of less-than-arm's-length 
bargaining; e.g., royalties--
    (1) Paid to persons, including corporations, affiliated with the 
contractor;

[[Page 655]]

    (2) Paid to unaffiliated parties, including corporations, under an 
agreement entered into in contemplation that a Government contract would 
be awarded; or
    (3) Paid under an agreement entered into after the contract award.
    (c) In any case involving a patent formerly owned by the contractor, 
the royalty amount allowed should not exceed the cost which would have 
been allowed had the contractor retained title.
    (d) See 31.109 regarding advance agreements.



31.205-38  Selling costs.

    (a) Selling is a generic term encompassing all efforts to market the 
contractor's products or services, some of which are covered 
specifically in other subsections of 31.205. Selling activity includes 
the following broad categories:
    (1) Advertising.
    (2) Corporate image enhancement including broadly-targeted sales 
efforts, other than advertising.
    (3) Bid and proposal costs.
    (4) Market planning.
    (5) Direct selling.
    (b) Advertising costs are defined at 31.205-1(b) and are subject to 
the allowability provisions of 31.205-1 (d) and (f). Corporate image 
enhancement activities are included within the definitions of public 
relations at 31.205-1(a) and entertainment at 31.205-14 and are subject 
to the allowability provisions at 31.205-1 (e) and (f) and 31.205-14, 
respectively. Bid and proposal costs are defined at 31.205-18 and have 
their allowability controlled by that subsection. Market planning 
involves market research and analysis and generalized management 
planning concerned with development of the contractor's business. The 
allowability of long-range market planning costs is controlled by the 
provisions of 31.205-12. Other market planning costs are allowable to 
the extent that they are reasonable and not in excess of the limitations 
of subparagraph (c)(2) of this subsection. Costs of activities which are 
correctly classified and disallowed under cost principles referenced in 
this paragraph (b) are not to be reconsidered for reimbursement under 
any other provision of this subsection.
    (c)(1) Direct selling efforts are those acts or actions to induce 
particular customers to purchase particular products or services of the 
contractor. Direct selling is characterized by person-to-person contact 
and includes such activities as familiarizing a potential customer with 
the contractor's products or services, conditions of sale, service 
capabilities, etc. It also includes negotiation, liaison between 
customer and contractor personnel, technical and consulting activities, 
individual demonstrations, and any other activities having as their 
purpose the application or adaptation of the contractor's products or 
services for a particular customer's use. The cost of direct selling 
efforts is allowable if reasonable in amount.
    (2) The costs of broadly targeted and direct selling efforts and 
market planning other than long-range, that are incurred in connection 
with a significant effort to promote export sales of products normally 
sold to the U.S. Government, including the costs of exhibiting and 
demonstrating such products, are allowable on contracts with the U.S. 
Government provided the costs are allocable, reasonable, and otherwise 
allowable under this subpart 31.2.
    (d) The costs of any selling efforts other than those addressed in 
paragraphs (b) or (c) of this subsection are unallowable.
    (e) Costs of the type identified in paragraphs (b), (c), and (d) of 
this subsection are often commingled on the contractor's books in the 
selling expense account because these activities are performed by the 
sales departments. However, identification and segregation of 
unallowable costs is required under the provisions of 31.201-6 and 48 
CFR 9904.405, and such costs are not allowable merely because they are 
incurred in connection with allowable selling activities.
    (f) Notwithstanding any other provision of this subsection, sellers' 
or agents' compensation, fees, commissions, percentages, retainer or 
brokerage fees, whether or not contingent

[[Page 656]]

upon the award of contracts, are allowable only when paid to bona fide 
employees or established commercial or selling agencies maintained by 
the contractor for the purpose of securing business.
[51 FR 12301, Apr. 9, 1986, as amended at 52 FR 19805, May 27, 1987; 55 
FR 38517, Sept. 18, 1990; 56 FR 15153, Apr. 15, 1991; 57 FR 39591, Aug. 
31, 1992; 59 FR 11387, Mar. 10, 1994; 61 FR 39189, July 26, 1996; 62 FR 
12704, Mar. 17, 1997]



31.205-39  Service and warranty costs.

    Service and warranty costs include those arising from fulfillment of 
any contractual obligation of a contractor to provide services such as 
installation, training, correcting defects in the products, replacing 
defective parts, and making refunds in the case of inadequate 
performance. When not inconsistent with the terms of the contract, such 
service and warranty costs are allowable. However, care should be 
exercised to avoid duplication of the allowance as an element of both 
estimated product cost and risk.



31.205-40  Special tooling and special test equipment costs.

    (a) The terms special tooling and special test equipment are defined 
in 45.101.
    (b) The cost of special tooling and special test equipment used in 
performing one or more Government contracts is allowable and shall be 
allocated to the specific Government contract or contracts for which 
acquired, except that the cost of (1) items acquired by the contractor 
before the effective date of the contract (or replacement of such 
items), whether or not altered or adapted for use in performing the 
contract, and (2) items which the contract schedule specifically 
excludes, shall be allowable only as depreciation or amortization.
    (c) When items are disqualified as special tooling or special test 
equipment because with relatively minor expense they can be made 
suitable for general purpose use and have a value as such commensurate 
with their value as special tooling or special test equipment, the cost 
of adapting the items for use under the contract and the cost of 
returning them to their prior configuration are allowable.



31.205-41  Taxes.

    (a) The following types of costs are allowable:
    (1) Federal, State, and local taxes (see part 29), except as 
otherwise provided in paragraph (b) below that are required to be and 
are paid or accrued in accordance with generally accepted accounting 
principles. Fines and penalties are not considered taxes.
    (2) Taxes otherwise allowable under subparagraph (a)(1) above, but 
upon which a claim of illegality or erroneous assessment exists; 
provided the contractor, before paying such taxes--
    (i) Promptly requests instructions from the contracting officer 
concerning such taxes; and
    (ii) Takes all action directed by the contracting officer arising 
out of subparagraph (2)(i) above or an independent decision of the 
Government as to the existence of a claim of illegality or erroneous 
assessment, to (A) determine the legality of the assessment or (B) 
secure a refund of such taxes.
    (3) Pursuant to subparagraph (a)(2) above, the reasonable costs of 
any action taken by the contractor at the direction or with the 
concurrence of the contracting officer. Interest or penalties incurred 
by the contractor for non-payment of any tax at the direction of the 
contracting officer or by reason of the failure of the contracting 
officer to ensure timely direction after a prompt request.
    (4) The Environmental Tax found at section 59A of the Internal 
Revenue Code, also called the ``Superfund Tax.''
    (b) The following types of costs are not allowable:
    (1) Federal income and excess profits taxes.
    (2) Taxes in connection with financing, refinancing, refunding 
operations, or reorganizations (see 31.205-20 and 31.205-27).
    (3) Taxes from which exemptions are available to the contractor 
directly, or available to the contractor based on an exemption afforded 
the Government, except when the contracting officer determines that the 
administrative burden incident to obtaining the exemption outweighs the 
corresponding benefits accruing to the Government. When

[[Page 657]]

partial exemption from a tax is attributable to Government contract 
activity, taxes charged to such work in excess of that amount resulting 
from application of the preferential treatment are unallowable. These 
provisions intend that tax preference attributable to Government 
contract activity be realized by the Government. The term exemption 
means freedom from taxation in whole or in part and includes a tax 
abatement or reduction resulting from mode of assessment, method of 
calculation, or otherwise.
    (4) Special assessments on land that represent capital improvements.
    (5) Taxes (including excises) on real or personal property, or on 
the value, use, possession or sale thereof, which is used solely in 
connection with work other than on Government contracts (see paragraph 
(c) below).
    (6) Any excise tax in subtitle D, chapter 43 of the Internal Revenue 
Code of 1986, as amended. That chapter includes excise taxes imposed in 
connection with qualified pension plans, welfare plans, deferred 
compensation plans, or other similar types of plans.
    (7) Income tax accruals designed to account for the tax effects of 
differences between taxable income and pretax income as reflected by the 
books of account and financial statements.
    (c) Taxes on property (see subparagraph (b)(5) above) used solely in 
connection with either non-Government or Government work should be 
considered directly applicable to the respective category of work unless 
the amounts involved are insignificant or comparable results would 
otherwise be obtained; e.g., taxes on contractor-owned work-in-process 
which is used solely in connection with non-Government work should be 
allocated to such work; taxes on contractor-owned work-in-process 
inventory (and Government-owned work-in-process inventory when taxed) 
used solely in connection with Government work should be charged to such 
work. The cost of taxes incurred on property used in both Government and 
non-Government work shall be apportioned to all such work based upon the 
use of such property on the respective final cost objectives.
    (d) Any taxes, interest, or penalties that were allowed as contract 
costs and are refunded to the contractor shall be credited or paid to 
the Government in the manner it directs. If a contractor or 
subcontractor obtains a foreign tax credit that reduces its U.S. Federal 
income tax return because of the payment of any tax or duty allowed as 
contract costs, and if those costs were reimbursed by a foreign 
government, the amount of the reduction shall be paid to the Treasurer 
of the United States at the time the Federal income tax return is filed. 
However, any interest actually paid or credited to a contractor incident 
to a refund of tax, interest, or penalty shall be paid or credited to 
the Government only to the extent that such interest accrued over the 
period during which the contractor had been reimbursed by the Government 
for the taxes, interest, or penalties.
[48 FR 42301, Sept. 19, 1983, as amended at 55 FR 3884, Feb. 5, 1990; 55 
FR 52794, Dec. 21, 1990; 61 FR 2641, Jan. 26, 1996]



31.205-42  Termination costs.

    Contract terminations generally give rise to the incurrence of costs 
or the need for special treatment of costs that would not have arisen 
had the contract not been terminated. The following cost principles 
peculiar to terminktion situations are to be used in conjunction with 
the other cost principles in subpart 31.2:
    (a) Common items. The costs of items reasonably usable on the 
contractor's other work shall not be allowable unless the contractor 
submits evidence that the items could not be retained at cost without 
sustaining a loss. The contracting officer should consider the 
contractor's plans and orders for current and planned production when 
determining if items can reasonably be used on other work of the 
contractor. Contemporaneous purchases of common items by the contractor 
shall be regarded as evidence that such items are reasonably usable on 
the contractor's other work. Any acceptance of common items as allocable 
to the terminated portion of the contract should be limited to the 
extent that the quantities of such items on hand, in transit,

[[Page 658]]

and on order are in excess of the reasonable quantitative requirements 
of other work.
    (b) Costs continuing after termination. Despite all reasonable 
efforts by the contractor, costs which cannot be discontinued 
immediately after the effective date of termination are generally 
allowable. However, any costs continuing after the effective date of the 
termination due to the negligent or willful failure of the contractor to 
discontinue the costs shall be unallowable.
    (c) Initial costs. Initial costs, including starting load and 
preparatory costs, are allowable as follows:
    (1) Starting load costs not fully absorbed because of termination 
are nonrecurring labor, material, and related overhead costs incurred in 
the early part of production and result from factors such as--
    (i) Excessive spoilage due to inexperienced labor;
    (ii) Idle time and subnormal production due to testing and changing 
production methods;
    (iii) Training; and
    (iv) Lack of familiarity or experience with the product, materials, 
or manufacturing processes.
    (2) Preparatory costs incurred in preparing to perform the 
terminated contract include such costs as those incurred for initial 
plant rearrangement and alterations, management and personnel 
organization, and production planning. They do not include special 
machinery and equipment and starting load costs.
    (3) When initial costs are included in the settlement proposal as a 
direct charge, such costs shall not also be included in overhead. 
Initial costs attributable to only one contract shall not be allocated 
to other contracts.
    (4) If initial costs are claimed and have not been segregated on the 
contractor's books, they shall be segregated for settlement purposes 
from cost reports and schedules reflecting that high unit cost incurred 
during the early stages of the contract.
    (5) If the settlement proposal is on the inventory basis, initial 
costs should normally be allocated on the basis of total end items 
called for by the contract immediately before termination; however, if 
the contract includes end items of a diverse nature, some other 
equitable basis may be used, such as machine or labor hours.
    (d) Loss of useful value. Loss of useful value of special tooling, 
and special machinery and equipment is generally allowable, provided--
    (1) The special tooling, or special machinery and equipment is not 
reasonably capable of use in the other work of the contractor;
    (2) The Government's interest is protected by transfer of title or 
by other means deemed appropriate by the contracting officer; and
    (3) The loss of useful value for any one terminated contract is 
limited to that portion of the acquisition cost which bears the same 
ratio to the total acquisition cost as the terminated portion of the 
contract bears to the entire terminated contract and other Government 
contracts for which the special tooling, or special machinery and 
equipment was acquired.
    (e) Rental under unexpired leases. Rental costs under unexpired 
leases, less the residual value of such leases, are generally allowable 
when shown to have been reasonably necessary for the performance of the 
terminated contract, if--
    (1) The amount of rental claimed does not exceed the reasonable use 
value of the property leased for the period of the contract and such 
further period as may be reasonable; and
    (2) The contractor makes all reasonable efforts to terminate, 
assign, settle, or otherwise reduce the cost of such lease.
    (f) Alterations of leased property. The cost of alterations and 
reasonable restorations required by the lease may be allowed when the 
alterations were necessary for performing the contract.
    (g) Settlement expenses. (1) Settlement expenses, including the 
following, are generally allowable:
    (i) Accounting, legal, clerical, and similar costs reasonably 
necessary for--
    (A) The preparation and presentation, including supporting data, of 
settlement claims to the contracting officer; and
    (B) The termination and settlement of subcontracts.

[[Page 659]]

    (ii) Reasonable costs for the storage, transportation, protection, 
and disposition of property acquired or produced for the contract.
    (iii) Indirect costs related to salary and wages incurred as 
settlement expenses in (i) and (ii); normally, such indirect costs shall 
be limited to payroll taxes, fringe benefits, occupancy costs, and 
immediate supervision costs.
    (2) If settlement expenses are significant, a cost account or work 
order shall be established to separately identify and accumulate them.
    (h) Subcontractor claims. Subcontractor claims, including the 
allocable portion of the claims common to the contract and to other work 
of the contractor, are generally allowable. An appropriate share of the 
contractor's indirect expense may be allocated to the amount of 
settlements with subcontractors; provided, that the amount allocated is 
reasonably proportionate to the relative benefits received and is 
otherwise consistent with 31.201-4 and 31.203(c). The indirect expense 
so allocated shall exclude the same and similar costs claimed directly 
or indirectly as settlement expenses.
[48 FR 42301, Sept. 19, 1983]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
31.205-42, in paragraph (c) introductory text, ``(See 15.804-6(f))'' was 
removed, effective Oct. 10, 1997.



31.205-43  Trade, business, technical, and professional activity costs.

    The following types of costs are allowable:
    (a) Memberships in trade, business, technical, and professional 
organizations.
    (b) Subscriptions to trade, business, professional, or other 
technical periodicals.
    (c) When the principal purpose of a meeting, convention, conference, 
symposium, or seminar is the dissemination of trade, business, technical 
or professional information or the stimulation of production or improved 
productivity:
    (1) Costs of organizing, setting up, and sponsoring the meetings, 
conventions, symposia, etc., including rental of meeting facilities, 
transportation, subsistence, and incidental costs;
    (2) Costs of attendance by contractor employees, including travel 
costs (see 31.205-46); and
    (3) Costs of attendance by individuals who are not employees of the 
contractor, provided;
    (i) Such costs are not also reimbursed to the individual by the 
employing company or organization, and
    (ii) The individual's attendance is essential to achieve the purpose 
of the conference, meeting, convention, symposium, etc.
[48 FR 42301, Sept. 19, 1983, as amended at 53 FR 27467, July 20, 1988; 
60 FR 42660, Aug. 16, 1995]



31.205-44  Training and education costs.

    (a) Allowable costs. Training and education costs are allowable to 
the extent indicated below.
    (b) Vocational training. Costs of preparing and maintaining a 
noncollege level program of instruction, including but not limited to 
on-the-job, classroom, and apprenticeship training, designed to increase 
the vocational effectiveness of employees, are allowable. These costs 
include (1) salaries or wages of trainees (excluding overtime 
compensation), (2) salaries of the director of training and staff when 
the training program is conducted by the contractor, (3) tuition and 
fees when the training is in an institution not operated by the 
contractor, and/or (4) training materials and textbooks.
    (c) Part-time college level education. Allowable costs of part-time 
college education at an undergraduate or postgraduate level, including 
that provided at the contractor's own facilities, are limited to--
    (1) Fees and tuition charged by the educational institution, or, 
instead of tuition, instructors' salaries and the related share of 
indirect cost of the educational institution, to the extent that the sum 
thereof is not in excess of the tuition that would have been paid to the 
participating educational institution;
    (2) Salaries and related costs of instructors who are employees of 
the contractor; and
    (3) Training materials and textbooks; and

[[Page 660]]

    (4) Straight-time compensation of each employee for time spent 
attending classes during working hours not in excess of 156 hours per 
year where circumstances do not permit the operation of classes or 
attendance at classes after regular working hours. In unusual cases, the 
period may be extended (see paragraph (h) below).
    (d) Full-time education. Costs of tuition, fees, training materials 
and textbooks (but not subsistence, salary, or any other emoluments) in 
connection with full-time education, including that provided at the 
contractor's own facilities, at a postgraduate but not undergraduate 
college level, are allowable only when the course or degree pursued is 
related to the field in which the employee is working or may reasonably 
be expected to work and are limited to a total period not to exceed 2 
school years or the length of the degree program, whichever is less, for 
each employee so trained.
    (e) Specialized programs. Costs of attendance of up to 16 weeks per 
employee per year at specialized programs specifically designed to 
enhance the effectiveness of managers or to prepare employees for such 
positions are allowable. Such costs include enrollment fees and related 
charges and employees' salaries, subsistence, training materials, 
textbooks, and travel. Costs allowable under this paragraph do not 
include costs for courses that are part of a degree-oriented curriculum, 
which are only allowable pursuant to paragraphs (c) and (d) of this 
subsection.
    (f) Other expenses. Maintenance expense and normal depreciation or 
fair rental on facilities owned or leased by the contractor for training 
purposes are allowable in accordance with 31.205-17, 31.205-24, and 
31.205-36.
    (g) Grants. Grants to educational or training institutions, 
including the donation of facilities or other properties, scholarships, 
and fellowships are considered contributions and are unallowable.
    (h) Advance agreements. (1) Training and education costs in excess 
of those otherwise allowable under (c) and (d) of this subsection, 
including subsistence, salaries, or any other emoluments, may be allowed 
to the extent set forth in an advance agreement negotiated under 31.109. 
To be considered for an advance agreement, the contractor must 
demonstrate that the costs are consistently incurred under an 
established managerial, engineering, or scientific training and 
education program, and that the course or degree pursued is related to 
the field in which employees are now working or may reasonably be 
expected to work. Before entering into the advance agreement, the 
contracting officer shall give consideration to such factors as--
    (i) The length of employees' service with the contractor;
    (ii) Employees' past performance and potential;
    (iii) Whether employees are in formal development programs; and
    (iv) The total number of participating employees.
    (2) Any advance agreement must include a provision requiring the 
contractor to refund to the Government training and education costs for 
employees who resign within 12 months of completion of such training or 
education for reasons within an employee's control.
    (i) Training or education costs for other than bona--fide employees. 
Costs of tuition, fees, textbooks, and similar or related benefits 
provided for other than bona--fide employees are unallowable, except 
that the costs incurred for educating employee dependents (primary and 
secondary level studies) when the employee is working in a foreign 
country where public education is not available and where suitable 
private education is inordinately expensive may be included in overseas 
differential.
    (j) Employee dependent education plans. Costs of college plans for 
employee dependents are unallowable.
[48 FR 42301, Sept. 19, 1983, as amended at 52 FR 9038, Mar. 20, 1987; 
52 FR 27806, July 24, 1987; 52 FR 30077, Aug. 12, 1987]



31.205-45  Transportation costs.

    Allowable transportation costs include freight, express, cartage, 
and postage charges relating to goods purchased, in process, or 
delivered. When these costs can be identified with the items involved, 
they may be directly costed as transportation costs or added to the cost 
of such items. When identification with the materials received

[[Page 661]]

cannot be made, inbound transportation costs may be charged to the 
appropriate indirect cost accounts if the contractor follows a 
consistent and equitable procedure. Outbound freight, if reimbursable 
under the terms of the contract, shall be treated as a direct cost.



31.205-46  Travel costs.

    (a) Costs for transportation, lodging, meals, and incidental 
expenses. (1) Costs incurred by contractor personnel on official company 
business are allowable, subject to the limitations contained in this 
subsection. Costs for transportation may be based on mileage rates, 
actual costs incurred, or on a combination thereof, provided the method 
used results in a reasonable charge. Costs for lodging, meals, and 
incidental expenses may be based on per diem, actual expenses, or a 
combination thereof, provided the method used results in a reasonable 
charge.
    (2) Except as provided in paragraph (a)(3) of this section, costs 
incurred for lodging, meals, and incidental expenses (as defined in the 
regulations cited in (a)(2) (i) through (iii) of this paragraph) shall 
be considered to be reasonable and allowable only to the extent that 
they do not exceed on a daily basis the maximum per diem rates in effect 
at the time of travel as set forth in the--
    (i) Federal Travel Regulation, prescribed by the General Services 
Administration, for travel in the conterminous 48 United States, 
available on a subscription basis from the Superintendent of Documents, 
U.S. Government Printing Office, Washington, DC 20402, Stock No. 922-
002-00000-2;
    (ii) Joint Travel Regulations, Volume 2, DoD Civilian Personnel, 
Appendix A, prescribed by the Department of Defense, for travel in 
Alaska, Hawaii, The Commonwealth of Puerto Rico, and territories and 
possessions of the United States, available on a subscription basis from 
the Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402, Stock No. 908-010-00000-1; or
    (iii) Standarized Regulations (Government Civilians, Foreign Areas), 
section 925, Maximum Travel Per Diem Allowances of Foreign Areas, 
prescribed by the Department of State, for travel in areas not covered 
in (a)(2) (i) and (ii) of this paragraph, available on a subscription 
basis from the Superintendent of Documents, U.S. Government Printing 
Office, Washington, DC 20402, Stock No. 744-088-00000-0.
    (3) In special or unusual situations, actual costs in excess of the 
above-referenced maximum per diem rates are allowable provided that such 
amounts do not exceed the higher amounts authorized for Federal civilian 
employees as permitted in the regulations referenced in (a)(2) (i), 
(ii), or (iii) or this section. For such higher amounts to be allowable, 
all of the following conditions must be met:
    (i) One of the conditions warranting approval of the actual expense 
method, as set forth in the regulations referred in (a)(2) (i), (ii), or 
(iii) of this section, must exist.
    (ii) A written justification for use of the higher amounts must be 
approved by an officer of the contractor's organization or designee to 
ensure that the authority is properly administered and controlled to 
prevent abuse.
    (iii) If it becomes necessary to exercise the authority to use the 
higher actual expense method repetitively or on a continuing basis in a 
particular area, the contractor must obtain advance approval from the 
contracting officer.
    (iv) Documentation to support actual costs incurred shall be in 
accordance with the contractor's established practices, subject to 
paragraph (a)(7) of this subsection, and provided that a receipt is 
required for each expenditure in excess of $25.00. The approved 
justification required by (a)(3)(ii) and, if applicable, (a)(3)(iii) of 
this paragraph must be retained.
    (4) Subparagraphs (a)(2) and (a)(3) of this subsection do not 
incorporate the regulations cited in subdivisions (a)(2)(i), (ii), and 
(iii) of this subsection in their entirety. Only the maximum per diem 
rates, the definitions of lodging, meals, and incidental expenses, and 
the regulatory coverage dealing with special or unusual situations are 
incorporated herein.
    (5) An advance agreement (see 31.109) with respect to compliance 
with paragraphs (a)(2) and (a)(3) of this section may be useful and 
desirable.

[[Page 662]]

    (6) The maximum per diem rates referenced in subparagraph (a)(2) of 
this subsection generally would not constitute a reasonable daily 
charge--
    (i) When no lodging costs are incurred; and/or
    (ii) On partial travel days (e.g.), day of departure and return).
    Appropriate downward adjustments from the maximum per diem rates 
would normally be required under these circumstances. While these 
adjustments need not be calculated in accordance with the Federal Travel 
Regulation or Joint Travel Regulations, they must result in a reasonable 
charge.
    (7) Costs shall be allowable only if the following information is 
documented:
    (i) Date and place (city, town, or other similar designation) of the 
expenses;
    (ii) Purpose of the trip; and
    (iii) Name of person on trip and that person's title or relationship 
to the contractor.
    (b) Travel costs incurred in the normal course of overall 
administration of the business are allowable and shall be treated as 
indirect costs.
    (c) Travel costs directly attributable to specific contract 
performance are allowable and may be charged to the contract under 
31.202.
    (d) Airfare costs in excess of the lowest customary standard, coach, 
or equivalent airfare offered during normal business hours are 
unallowable except when such accommodations require circuitous routing, 
require travel during unreasonable hours, excessively prolong travel, 
result in increased cost that would offset transportation savings, are 
not reasonably adequate for the physical or medical needs of the 
traveler, or are not reasonably available to meet mission requirements. 
However, in order for airfare costs in excess of the above standard 
airfare to be allowable, the applicable condition(s) set forth in this 
paragraph must be documented and justified.
    (e)(1) Cost of travel by contractor-owned, -leased, or -chartered 
aircraft, as used in this subparagraph, includes the cost of lease, 
charter, operation (including personnel), maintenance, depreciation, 
insurance, and other related costs.
    (2) The costs of travel by contractor-owned, -leased, or -chartered 
aircraft are limited to the standard airfare described in paragraph (d) 
of this subsection for the flight destination unless travel by such 
aircraft is specifically required by contract specification, term, or 
condition, or a higher amount is approved by the contracting officer. A 
higher amount may be agreed to when one or more of the circumstances for 
justifying higher than standard airfare listed in paragraph (d) of this 
subsection are applicable, or when an advance agreement under 
subparagraph (e)(3) of this subsection has been executed. In all cases, 
travel by contractor-owned, -leased, or         -chartered aircraft must 
be fully documented and justified. For each contractor-owned, -leased, 
or -chartered aircraft used for any business purpose which is charged or 
allocated, directly or indirectly, to a Government contract, the 
contractor must maintain and make available manifest/logs for all 
flights on such company aircraft. As a minimum, the manifest/log shall 
indicate--
    (i) Date, time, and points of departure;
    (ii) Destination, date, and time of arrival;
    (iii) Name of each passenger and relationship to the contractor;
    (iv) Authorization for trip; and
    (v) Purpose of trip.
    (3) Where an advance agreement is proposed (see 31.109), 
consideration may be given to the following:
    (i) Whether scheduled commercial airlines or other suitable, less 
costly, travel facilities are available at reasonable times, with 
reasonable frequency, and serve the required destinations conveniently.
    (ii) Whether increased flexibility in scheduling results in time 
savings and more effective use of personnel that would outweigh 
additional travel costs.
    (f) Costs of contractor-owned or leased automobiles, as used in this 
paragraph, include the costs of lease, operation (including personnel), 
maintenance, depreciation, insurance, etc.

[[Page 663]]

These costs are allowable, if reasonable, to the extent that the 
automobiles are used for company business. That portion of the cost of 
company-furnished automobiles that relates to personal use by employees 
(including transportation to and from work) is compensation for personal 
services and is unallowable as stated in 31.205-6(m)(2).
[48 FR 42301, Sept. 19, 1983, as amended at 51 FR 12301, Apr. 9, 1986; 
51 FR 27489, July 31, 1986; 51 FR 36972, Oct. 16, 1986; 56 FR 41739, 
Aug. 22, 1991; 57 FR 20377, May 12, 1992; 61 FR 31657, June 20, 1996; 62 
FR 40237, July 25, 1997]



31.205-47  Costs related to legal and other proceedings.

    (a) Definitions.Conviction, as used in this subsection, is defined 
in 9.403.
    Costs include, but are not limited to, administrative and clerical 
expenses; the costs of legal services, whether performed by in-house or 
private counsel; the costs of the services of accountants, consultants, 
or others retained by the contractor to assist it; costs of employees, 
officers, and directors; and any similar costs incurred before, during, 
and after commencement of a judicial or administrative proceeding which 
bears a direct relationship to the proceedings.
    Fraud, as used in this subsection, means (1) acts of fraud or 
corruption or attempts to defraud the Government or to corrupt its 
agents, (2) acts which constitute a cause for debarment or suspension 
under 9.406-2(a) and 9.407-2(a) and (3) acts which violate the False 
Claims Act, 31 U.S.C., sections 3729-3731, or the Anti-Kickback Act, 41 
U.S.C., sections 51 and 54.
    Penalty, does not include restitution, reimbursement, or 
compensatory damages.
    Proceeding, includes an investigation.
    (b) Costs incurred in connection with any proceeding brought by a 
Federal, State, local or foreign government for violation of, or a 
failure to comply with, law or regulation by the contractor (including 
its agents or employees) are unallowable if the result is--
    (1) In a criminal proceeding, a conviction;
    (2) In a civil or administrative proceeding, either a finding of 
contractor liability where the proceeding involves an allegation of 
fraud or similar misconduct or imposition of a monetary penalty where 
the proceeding does not involve an allegation of fraud or similar 
misconduct.
    (3) A final decision by an appropriate official of an executive 
agency to:
    (i) Debar or suspend the contractor;
    (ii) Rescind or void a contract; or
    (iii) Terminate a contract for default by reason of a violation or 
failure to comply with a law or regulation;
    (4) Disposition of the matter by consent or compromise if the 
proceeding could have led to any of the outcomes listed in subparagraphs 
(b) (1) through (3) of this subsection (but see paragraphs (c) and (d) 
of this subsection); or
    (5) Not covered by subparagraphs (b) (1) through (4) of this 
subsection, but where the underlying alleged contractor misconduct was 
the same as that which led to a different proceeding whose costs are 
unallowable by reason of subparagraphs (b) (1) through (4) of this 
subsection.
    (c) To the extent they are not otherwise unallowable, costs incurred 
in connection with any proceeding under paragraph (b) of this subsection 
commenced by the United States that is resolved by consent or compromise 
pursuant to an agreement entered into between the contractor and the 
United States, and which are unallowable solely because of paragraph (b) 
of this subsection, may be allowed to the extent specifically provided 
in such agreement.
    (d) To the extent that they are not otherwise unallowable, costs 
incurred in connection with any proceeding under paragraph (b) of this 
subsection commenced by a State, local, or foreign government may be 
allowable when the contracting officer (or other official specified in 
agency procedures) determines, that the costs were incurred either:
    (1) As a direct result of a specific term or condition of a Federal 
contract; or
    (2) As a result of compliance with specific written direction of the 
cognizant contracting officer.
    (e) Costs incurred in connection with proceedings described in 
paragraph (b) of this subsection, but which are not

[[Page 664]]

made unallowable by that paragraph, may be allowable to the extent that:
    (1) The costs are reasonable in relation to the activities required 
to deal with the proceeding and the underlying cause of action;
    (2) The costs are not otherwise recovered from the Federal 
Government or a third party, either directly as a result of the 
proceeding or otherwise; and
    (3) The percentage of costs allowed does not exceed the percentage 
determined to be appropriate considering the complexity of procurement 
litigation, generally accepted principles governing the award of legal 
fees in civil actions involving the United States as a party, and such 
other factors as may be appropriate. Such percentage shall not exceed 80 
percent. However, if an agreement reached under paragraph (c) of this 
subsection has explicitly considered this 80 percent rule, then the full 
amount of costs resulting from that agreement shall be allowable.
    (f) Costs not covered elsewhere in this subsection are unallowable 
if incurred in connection with--
    (1) Defense against Federal Government claims or appeals or the 
prosecution of claims or appeals against the Federal Government (see 
33.201).
    (2) Organization, reorganization, (including mergers and 
acquisitions) or resisting mergers and acquisitions (see also 31.205-
27).
    (3) Defense of antitrust suits.
    (4) Defense of suits brought by employees or ex-employees of the 
contractor under section 2 of the Major Fraud Act of 1988 where the 
contractor was found liable or settled.
    (5) Costs of legal, accounting, and consultant services and directly 
associated costs incurred in connection with the defense or prosecution 
of lawsuits or appeals between contractors arising from either (1) an 
agreement or contract concerning a teaming arrangement, a joint venture, 
or similar arrangement of shared interest; or (2) dual sourcing, 
coproduction, or similar programs, are unallowable, except when (i) 
incurred as a result of compliance with specific terms and conditions of 
the contract or written instructions from the contracting officer, or 
(ii) when agreed to in writing by the contracting officer.
    (6) Patent infringement litigation, unless otherwise provided for in 
the contract.
    (7) Representation of, or assistance to, individuals, groups, or 
legal entities which the contractor is not legally bound to provide, 
arising from an action where the participant was convicted of violation 
of a law or regulation or was found liable in a civil or administrative 
proceeding.
    (8) Protests of Federal Government solicitations or contract awards, 
or the defense against protests of such solicitations or contract 
awards, unless the costs of defending against a protest are incurred 
pursuant to a written request from the cognizant contracting officer.
    (g) Costs which may be unallowable under 31.205-47, including 
directly associated costs, shall be segregated and accounted for by the 
contractor separately. During the pendency of any proceeding covered by 
paragraph (b) and subparagraphs (f)(4) and (f)(7) of this subsection, 
the contracting officer shall generally withhold payment of such costs. 
However, if in the best interests of the Government, the contracting 
officer may provide for conditional payment upon provision of adequate 
security, or other adequate assurance, and agreement by the contractor 
to repay all unallowable costs, plus interest, if the costs are 
subsequently determined to be unallowable.
[48 FR 42301, Sept. 19, 1983, as amended at 51 FR 12302, Apr. 9, 1986; 
54 FR 13024, Mar. 29, 1989; 55 FR 52794, Dec. 21, 1990; 61 FR 41477, 
Aug. 8, 1996]



31.205-48  Deferred research and development costs.

    Research and development, as used in this subsection, means the type 
of technical effort which is described in 31.205-18 but which is 
sponsored by, or required in performance of, a contract or grant. 
Research and development costs (including amounts capitalized) that were 
incurred before the award of a particular contract are unallowable 
except when allowable as precontract costs. In addition, when costs are 
incurred in excess of either the price of a contract or amount of a 
grant for research and development effort, such excess may not be 
allocated as a cost to any other Government contract.

[[Page 665]]



31.205-49  Goodwill.

    Goodwill, an unidentifiable intangible asset, originates under the 
purchase method of accounting for a business combination when the price 
paid by the acquiring company exceeds the sum of the identifiable 
individual assets acquired less liabilities assumed, based upon their 
fair values. The excess is commonly referred to as goodwill. Goodwill 
may arise from the acquisition of a company as a whole or a portion 
thereof. Any costs for amortization, expensing, write-off, or write-down 
of goodwill (however represented) are unallowable.
[49 FR 26743, June 29, 1984]



31.205-50  [Reserved]



31.205-51  Costs of alcoholic beverages.

    Costs of alcoholic beverages are unallowable.
[51 FR 12302, Apr. 9, 1986]



31.205-52  Asset valuations resulting from business combinations.

    When the purchase method of accounting for a business combination is 
used, allowable amortization, cost of money, and depreciation shall be 
limited to the total of the amounts that would have been allowed had the 
combination not taken place.
[55 FR 25530, June 21, 1990]



          Subpart 31.3--Contracts With Educational Institutions



31.301  Purpose.

    This subpart provides the principles for determining the cost of 
research and development, training, and other work performed by 
educational institutions under contracts with the Government.



31.302  General.

    Office of Management and Budget (OMB) Circular No. A-21, Cost 
Principles for Educational Institutions, revised, provides principles 
for determining the costs applicable to research and development, 
training, and other work performed by educational institutions under 
contracts with the Government.



31.303  Requirements.

    (a) Contracts that refer to this subpart 31.3 for determining 
allowable costs under contracts with educational institutions shall be 
deemed to refer to, and shall have the allowability of costs determined 
by the contracting officer in accordance with, the revision of OMB 
Circular A-21 in effect on the date of the contract.
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost.



                     Subparts 31.4--31.5  [Reserved]



  Subpart 31.6--Contracts With State, Local, and Federally Recognized 
                        Indian Tribal Governments



31.601  Purpose.

    This subpart provides the principles for determining allowable cost 
of contracts and subcontracts with State, local, and federally 
recognized Indian tribal governments.



31.602  General.

    Office of Management and Budget (OMB) Circular No. A-87, Cost 
Principles for State and Local Governments, Revised, sets forth the 
principles for determining the allowable costs of contracts and 
subcontracts with State, local, and federally recognized Indian tribal 
governments. These principles are for cost determination and are not 
intended to identify the circumstances or dictate the extent of Federal 
and State or local participation in financing a particular contract.



31.603  Requirements.

    (a) Contracts that refer to this subpart 31.6 for determining 
allowable costs under contracts with State, local and Indian tribal 
governments shall be deemed to refer to, and shall have the allowability 
of costs determined by the contracting officer in accordance with, the 
revision of OMB Circular A-87 which is in effect on the date of the 
contract.
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost. However, under 10

[[Page 666]]

U.S.C. 2324(e) and 41 U.S.C. 256(e), the following costs are 
unallowable:
    (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 regulations in the FAR or an 
executive agency supplement to the FAR.
    (5) Costs of any 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 the 
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 
by regulations in the FAR or in an executive agency supplement to the 
FAR.
    (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 curtailment of activities 
at, a United States 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 proceedings commenced by the United States or a 
State, to the extent provided in 10 U.S.C. 2324(k) or 41 U.S.C. 256(k).
[48 FR 42301, Sept. 19, 1983, as amended at 42660, Aug. 16, 1995]



          Subpart 31.7--Contracts With Nonprofit Organizations



31.701  Purpose.

    This subpart provides the principles for determining the cost 
applicable to work performed by nonprofit organizations under contracts 
with the Government. A nonprofit organization, for purpose of 
identification, is defined as a business entity organized and operated 
exclusively for charitable, scientific, or educational purposes, of 
which no part of the net earnings inure

[[Page 667]]

to the benefit of any private shareholder or individual, of which no 
substantial part of the activities is carrying on propaganda or 
otherwise attempting to influence legislation or participating in any 
political campaign on behalf of any candidate for public office, and 
which are exempt from federal income taxation under section 501 of the 
Internal Revenue Code.



31.702  General.

    Office of Management and Budget (OMB) Circular No. A-122, Cost 
Principles for Nonprofit Organizations, sets forth principles for 
determining the costs applicable to work performed by nonprofit 
organizations under contracts (also applies to grants and other 
agreements) with the Government.



31.703  Requirements.

    (a) Contracts which refer to this subpart 31.7 for determining 
allowable costs shall be deemed to refer to, and shall have the 
allowability of costs determined by the contracting officer in 
accordance with, the revision of OMB Circular A-122 in effect on the 
date of the contract.
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost. However, under 10 U.S.C. 2324(e) and 41 U.S.C. 
256(e), the costs cited in 31.603(b) are unallowable.
[48 FR 42301, Sept. 19, 1983, as amended at 60 FR 42661, Aug. 16, 1995]



PART 32--CONTRACT FINANCING--Table of Contents




Sec.
32.000  Scope of part.
32.001  Definitions.
32.002  Applicability of subparts.
32.003  Simplified acquisition procedures financing.
32.004  Contract performance in foreign countries.
32.005  Consideration for contract financing.
32.006  Reduction or suspension of contract payments upon finding of 
          fraud.
32.006-1  General.
32.006-2  Definitions.
32.006-3  Responsibilities.
32.006-4  Procedures.
32.006-5  Reporting.

          Subpart 32.1--Non-Commercial Item Purchase Financing

32.100  Scope of subpart.
32.101  Authority.
32.102  Description of contract financing methods.
32.103  Progress payments under construction contracts.
32.104  Providing contract financing.
32.105  Uses of contract financing.
32.106  Order of preference.
32.107  Need for contract financing not a deterrent.
32.108  Financial consultation.
32.109  Termination financing.
32.110  [Reserved]
32.111  Contract clauses for noncommercial purchases.
32.112  Payment of subcontractors under contracts for non-commercial 
          items.
32.112-1  Subcontractor assertions of nonpayment.
32.112-2  Subcontractor requests for information.
32.113  Customary contract financing.
32.114  Unusual contract financing.

            Subpart 32.2--Commercial Item Purchase Financing

32.200  Scope of subpart.
32.201  Statutory authority.
32.202  General.
32.202-1  Policy.
32.202-2  Types of payments for commercial item purchases.
32.202-3  Conducting market research about financing terms.
32.202-4  Security for Government financing.
32.203  Determining contract financing terms.
32.204  Procedures for contracting officer-specified commercial contract 
          financing.
32.205  Procedures for offeror-proposed commercial contract financing.
32.206  Solicitation provisions and contract clauses.
32.207  Administration and payment of commercial financing payments.

          Subpart 32.3--Loan Guarantees for Defense Production

32.300  Scope of subpart.
32.301  Definitions.
32.302  Authority.
32.303  General.
32.304  Procedures.
32.304-1  Application for guarantee.
32.304-2  Certificate of eligibility.
32.304-3  Asset formula.
32.304-4  Guarantee amount and maturity.
32.304-5  Assignment of claims under contracts.
32.304-6  Other collateral security.
32.304-7  Contract surety bonds and loan guarantees.
32.304-8  Other borrowing.
32.305  Loan guarantees for terminated contracts.

[[Page 668]]

32.306  Loan guarantees for subcontracts.

         Subpart 32.4--Advance Payments for Non-Commercial Items

32.400  Scope of subpart.
32.401  Statutory authority.
32.402  General.
32.403  Applicability.
32.404  Exclusions.
32.405  Applying Pub. L. 85-804 to advance payments under sealed bid 
          contracts.
32.406  Letters of credit.
32.407  Interest.
32.408  Application for advance payments.
32.409  Contracting officer action.
32.409-1  Recommendation for approval.
32.409-2  Recommendation for disapproval.
32.409-3  Security, supervision, and covenants.
32.410  Findings, determination, and authorization.
32.411  Agreement for special bank account.
32.412  Contract clause.

             Subpart 32.5--Progress Payments Based on Costs

32.500  Scope of subpart.
32.501  General.
32.501-1  Customary progress payment rates.
32.501-2  Unusual progress payments.
32.501-3  Contract price.
32.501-4  [Reserved]
32.501-5  Other protective terms.
32.502  Preaward matters.
32.502-1  Use of customary progress payments.
32.502-2  Contract finance office clearance.
32.502-3  Solicitation provisions.
32.502-4  Contract clauses.
32.503  Postaward matters.
32.503-1  Contractor requests.
32.503-2  Supervision of progress payments.
32.503-3  Initiation of progress payments and review of accounting 
          system.
32.503-4  Approval of progress payment requests.
32.503-5  Administration of progress payments.
32.503-6  Suspension or reduction of payments.
32.503-7  Limitation on general and administrative expenses (G&A) for 
          progress payments.
32.503-8  Liquidation rates--ordinary method.
32.503-9  Liquidation rates--alternate method.
32.503-10  Establishing alternate liquidation rates.
32.503-11  Adjustments for price reduction.
32.503-12  Maximum unliquidated amount.
32.503-13  Quarterly statements for price revision contracts.
32.503-14  Protection of Government title.
32.503-15  Application of Government title terms.
32.503-16  Risk of loss.
32.504  Subcontracts.

                      Subpart 32.6--Contract Debts

32.600  Scope of subpart.
32.601  Definition.
32.602  General.
32.603  Applicability.
32.604  Exclusions.
32.605  Responsibilities and cooperation among Government officials.
32.606  Debt determination and collection.
32.607  Tax credit.
32.608  Negotiation of contract debts.
32.609  Memorandum of pricing agreement with refund.
32.610  Demand for payment of contract debt.
32.611  Routine setoff.
32.612  Withholding and setoff.
32.613  Deferment of collection.
32.614  Interest.
32.614-1  Interest charges.
32.614-2  Interest credits.
32.615  Delays in receipt of notices or demands.
32.616  Compromise actions.
32.617  Contract clause.

                     Subpart 32.7--Contract Funding

32.700  Scope of subpart.
32.701  [Reserved]
32.702  Policy.
32.703  Contract funding requirements.
32.703-1  General.
32.703-2  Contracts conditioned upon availability of funds.
32.703-3  Contracts crossing fiscal years.
32.704  Limitation of cost or funds.
32.705  Contract clauses.
32.705-1  Clauses for contracting in advance of funds.
32.705-2  Clauses for limitation of cost or funds.

                   Subpart 32.8--Assignment of Claims

32.800  Scope of subpart.
32.801  Definitions.
32.802  Conditions.
32.803  Policies.
32.804  Extent of assignee's protection.
32.805  Procedure.
32.806  Contract clauses.

                      Subpart 32.9--Prompt Payment

32.900  Scope of subpart.
32.901  Applicability.
32.902  Definitions.
32.903  Policy.
32.904  Responsibilities.
32.905  Invoice payments.
32.906  Contract financing payments.

[[Page 669]]

32.907  Interest penalties.
32.907-1  Late invoice payment.
32.907-2  Late contract financing payment.
32.908  Contract clauses.
32.909  Contractor inquiries.

                Subpart 32.10--Performance-Based Payments

32.1000  Scope of subpart.
32.1001  Policy.
32.1002  Bases for performance-based payments.
32.1003  Criteria for use.
32.1004  Procedure.
32.1005  Contract clauses.
32.1006  Agency approvals.
32.1007  Administration and payment of performance-based payments.
32.1008  Suspension or reduction of performance-based payments.
32.1009  Title.
32.1010  Risk of loss.

                Subpart 32.11--Electronic Funds Transfer

32.1100  Scope of subpart.
32.1101  Policy.
32.1102  Assignment of claims.
32.1103  Contract clauses.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42328, Sept. 19, 1983, unless otherwise noted.



32.000  Scope of part.

    This part prescribes policies and procedures for contract financing 
and other payment matters. This includes--
    (a) Payment methods, including partial payments and progress 
payments based on percentage or stage of completion;
    (b) Loan guarantees, advance payments, and progress payments based 
on costs;
    (c) Administration of debts to the Government arising out of 
contracts;
    (d) Contract funding, including the use of contract clauses limiting 
costs or funds;
    (e) Assignment of claims to aid in private financing;
    (f) Selected payment clauses;
    (g) Financing of purchases of commercial items;
    (h) Performance-based payments; and
    (i) Electronic funds transfer payments.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49710, Sept. 26, 1995; 
61 FR 45772, Aug. 29, 1996]



32.001  Definitions.

    Contract action, as used in this part, means an action resulting in 
a contract, as defined in FAR subpart 2.1, including contract 
modifications for additional supplies or services, but not including 
contract modifications that are within the scope and under the terms of 
the contract, such as contract modifications issued pursuant to the 
Changes clause, or funding and other administrative changes.
    Customary contract financing means that financing deemed by an 
agency to be available for routine use by contracting officers. Most 
customary contract financing arrangements should be usable by 
contracting officers without specific reviews or approvals by higher 
management.
    Unusual contract financing means any financing not deemed customary 
contract financing by the agency. Unusual contract financing is 
financing that is legal and proper under applicable laws, but that the 
agency has not authorized contracting officers to use without specific 
reviews or approvals by higher management.
[52 FR 30077, Aug. 12, 1987, as amended at 60 FR 49710, Sept. 26, 1995]



32.002  Applicability of subparts.

    (a) The following sections and subparts of this part are applicable 
to all purchases subject to part 32:
    (1) Sections 32.000 through 32.005.
    (2) Subpart 32.3, Loan Guarantees for Defense Production.
    (3) Subpart 32.6, Contract Debts.
    (4) Subpart 32.7, Contract Funding.
    (5) Subpart 32.8, Assignment of Claims.
    (6) Subpart 32.9, Prompt Payment.
    (7) Subpart 32.11, Electronic Funds Transfer.
    (b) Subpart 32.2, Commercial Item Purchase Financing, is applicable 
only to purchases of commercial items under authority of part 12.
    (c) The following subparts of this part are applicable to all 
purchases

[[Page 670]]

made under any authority other than part 12:
    (1) Subpart 32.1, Non-Commercial Item Purchase Financing.
    (2) Subpart 32.4, Advance Payments For Non-Commercial Items.
    (3) Subpart 32.5, Progress Payments Based on Costs.
    (4) Subpart 32.10, Performance-Based Payments.
[60 FR 49710, Sept. 26, 1995, as amended at 61 FR 45772, Aug. 29, 1996]



32.003  Simplified acquisition procedures financing.

    Unless agency regulations otherwise permit, contract financing shall 
not be provided for purchases made under the authority of part 13.
[60 FR 49710, Sept. 26, 1995]



32.004  Contract performance in foreign countries.

    The enforceability of contract provisions for security of Government 
financing in a foreign jurisdiction is dependent upon local law and 
procedure. Prior to providing contract financing where foreign 
jurisdictions may become involved, the contracting officer shall ensure 
the Government's security is enforceable. This may require the provision 
of additional or different security than that normally provided for in 
the standard contract clauses.
[60 FR 49710, Sept. 26, 1995]



32.005  Consideration for contract financing.

    (a) Requirement. When a contract financing clause is included at the 
inception of a contract, there shall be no separate consideration for 
the contract financing clause. The value of the contract financing to 
the contractor is expected to be reflected in either
    (1) A bid or negotiated price that will be lower than such price 
would have been in the absence of the contract financing, or
    (2) Contract terms and conditions, other than price, that are more 
beneficial to the Government than they would have been in the absence of 
the contract financing. Adequate new consideration is required for 
changes to, or the addition of, contract financing after award.
    (b) Amount of new consideration. The contractor may provide new 
consideration by monetary or nonmonetary means, provided the value is 
adequate. The fair and reasonable consideration should approximate the 
amount by which the price would have been less had the contract 
financing terms been contained in the initial contract. In the absence 
of definite information on this point, the contracting officer should 
apply the following criteria in evaluating whether the proposed new 
consideration is adequate:
    (1) The value to the contractor of the anticipated amount and 
duration of the contract financing at the imputed financial costs of the 
equivalent working capital.
    (2) The estimated profit rate to be earned through contract 
performance.
    (c) Interest. Except as provided in subpart 32.4, Advance Payments 
for Non-Commercial Items, the contract shall not provide for any other 
type of specific charges, such as interest, for contract financing.
[60 FR 49710, Sept. 26, 1995]



32.006  Reduction or suspension of contract payments upon finding of fraud.



32.006-1  General.

    (a) Under Title 10 of the United States Code, the statutory 
authority implemented by this section is available only to the 
Department of Defense; this statutory authority is not available to the 
National Aeronautics and Space Administration or the United States Coast 
Guard. Under the Federal Property and Administrative Services Act (41 
U.S.C. 255), this statutory authority is available to all agencies 
subject to that Act.
    (b) 10 U.S.C. 2307(h)(2) and 41 U.S.C. 255, as amended by the 
Federal Acquisition Streamlining Act of 1994, Public Law 103-355, 
provide for a reduction or suspension of further payments to a 
contractor when the agency head determines there is substantial evidence 
that the contractor's request for advance, partial, or progress payments 
is based on fraud. This authority does not apply to commercial interim 
payments under subpart 32.2, or performance-based payments under subpart 
32.10.

[[Page 671]]

    (c) The agency head may not delegate his or her responsibilities 
under these statutes below Level IV of the Executive Schedule.
    (d) Authority to reduce or suspend payments under these statutes is 
in addition to other Government rights, remedies, and procedures.
    (e) In accordance with these statutes, agency head determinations 
and decisions under this section may be made for an individual contract 
or any group of contracts affected by the fraud.
[60 FR 49728, Sept. 26, 1995]



32.006-2  Definitions.

    As used in this section--
    Remedy coordination official means the person or entity in the 
agency who coordinates within that agency the administration of 
criminal, civil, administrative, and contractual remedies resulting from 
investigations of fraud or corruption related to procurement activities. 
(See 10 U.S.C. 2307(h)(10) and 41 U.S.C. 255(g)(9).)
    Substantial evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.
[60 FR 49729, Sept. 26, 1995]



32.006-3  Responsibilities.

    (a) Agencies shall establish appropriate procedures to implement the 
policies and procedures of this section.
    (b) Government personnel shall report suspected fraud related to 
advance, partial, or progress payments in accordance with agency 
regulations.
[60 FR 49729, Sept. 26, 1995]



32.006-4  Procedures.

    (a) In any case in which an agency's remedy coordination official 
finds substantial evidence that a contractor's request for advance, 
partial, or progress payments under a contract awarded by that agency is 
based on fraud, the remedy coordination official shall recommend that 
the agency head reduce or suspend further payments to the contractor. 
The remedy coordination official shall submit to the agency head a 
written report setting forth the remedy coordination official's findings 
that support each recommendation.
    (b) Upon receiving a recommendation from the remedy coordination 
official under paragraph (a) of this subsection, the agency head shall 
determine whether substantial evidence exists that the request for 
payment under a contract is based on fraud.
    (c) If the agency head determines that substantial evidence exists, 
the agency head may reduce or suspend further payments to the contractor 
under the affected contract(s). Such reduction or suspension shall be 
reasonably commensurate with the anticipated loss to the Government 
resulting from the fraud.
    (d) In determining whether to reduce or suspend further payment(s), 
as a minimum, the agency head shall consider--
    (1) A recommendation from investigating officers that disclosure of 
the allegations of fraud to the contractor may compromise an ongoing 
investigation;
    (2) The anticipated loss to the Government as a result of the fraud;
    (3) The contractor's overall financial condition and ability to 
continue performance if payments are reduced or suspended;
    (4) The contractor's essentiality to the national defense, or to the 
execution of the agency's official business; and
    (5) Assessment of all documentation concerning the alleged fraud, 
including documentation submitted by the contractor in its response to 
the notice required by paragraph (e) of this subsection.
    (e) Before making a decision to reduce or suspend further payments, 
the agency head shall, in accordance with agency procedures--
    (1) Notify the contractor in writing of the action proposed by the 
remedy coordination official and the reasons therefor (such notice must 
be sufficiently specific to permit the contractor to collect and present 
evidence addressing the aforesaid reasons); and
    (2) Provide the contractor an opportunity to submit information 
within a reasonable time, in response to the action proposed by the 
remedy coordination official.
    (f) When more than one agency has contracts affected by the fraud, 
the

[[Page 672]]

agencies shall consider designating one agency as the lead agency for 
making the determination and decision.
    (g) The agency shall retain in its files the written justification 
for each--
    (1) Decision of the agency head whether to reduce or suspend further 
payments; and
    (2) Recommendation received by an agency head in connection with 
such decision.
    (h) Not later than 180 calendar days after the date of the reduction 
or suspension action, the remedy coordination official shall--
    (1) Review the agency head's determination on which the reduction or 
suspension decision is based; and
    (2) Transmit a recommendation to the agency head as to whether the 
reduction or suspension should continue.
[60 FR 49729, Sept. 26, 1995]



32.006-5  Reporting.

    (a) In accordance with 41 U.S.C. 255, the head of an agency, other 
than the Department of Defense, shall prepare a report for each fiscal 
year in which a recommendation has been received pursuant to 32.006-
4(a). Reports within the Department of Defense shall be prepared in 
accordance with 10 U.S.C. 2307.
    (b) In accordance with 41 U.S.C. 255 and 10 U.S.C. 2307, each report 
shall contain--
    (1) Each recommendation made by the remedy coordination official;
    (2) The actions taken on the recommendation(s), with reasons for 
such actions; and
    (3) An assessment of the effects of each action on the Government.
[60 FR 49729, Sept. 26, 1995]



          Subpart 32.1--Non-Commercial Item Purchase Financing



32.100  Scope of subpart.

    This subpart provides policies and procedures applicable to contract 
financing and payment for any purchases other than purchases of 
commercial items in accordance with part 12.
[60 FR 49710, Sept. 26, 1995]



32.101  Authority.

    The basic authority for the contract financing described in this 
part is contained in section 305 of the Federal Property and 
Administrative Services Act of 1949 (41 U.S.C. 255), section 2307 of the 
Armed Services Procurement Act (10 U.S.C. 2307), and Title III of the 
Defense Production Act of 1950 (50 U.S.C. App. 2091), as amended.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49710, Sept. 26, 1995]



32.102  Description of contract financing methods.

    (a) Advance payments are advances of money by the Government to a 
prime contractor before, in anticipation of, and for the purpose of 
complete performance under one or more contracts. They are expected to 
be liquidated from payments due to the contractor incident to 
performance of the contracts. Since they are not measured by 
performance, they differ from partial, progress, or other payments based 
on the performance or partial performance of a contract. Advance 
payments may be made to prime contractors for the purpose of making 
advances to subcontractors.
    (b) Progress payments based on costs are made on the basis of costs 
incurred by the contractor as work progresses under the contract. This 
form of contract financing does not include--
    (1) Payments based on the percentage or stage of completion 
accomplished;
    (2) Payments for partial deliveries accepted by the Government;
    (3) Partial payments for a contract termination proposal; or
    (4) Performance-based payments.
    (c) Loan guarantees are made by Federal Reserve banks, on behalf of 
designated guaranteeing agencies, to enable contractors to obtain 
financing from private sources under contracts for the acquisition of 
supplies or services for the national defense.
    (d) Partial payments for accepted supplies and services that are 
only a part of the contract requirements are authorized under 41 U.S.C. 
255 and 10 U.S.C. 2307. Office of Management and

[[Page 673]]

Budget Circular A-125, Prompt Payment, requires agencies to pay for 
partial delivery of supplies or partial performance of services unless 
specifically prohibited by the contract. Although partial payments 
generally are treated as a method of payment and not as a method of 
contract financing, using partial payments can assist contractors to 
participate in Government contracts without, or with minimal, contract 
financing. When appropriate, contract statements of work and pricing 
arrangements shall be designed to permit acceptance and payment for 
discrete portions of the work, as soon as accepted (but see 
32.903(f)(2)).
    (e)(1) Progress payments based on a percentage or stage of 
completion are authorized by the statutes cited in 32.101.
    (2) This type of progress payment may be used as a payment method 
under agency procedures. Agency procedures must ensure that payments are 
commensurate with work accomplished, which meets the quality standards 
established under the contract. Furthermore, progress payments may not 
exceed 80 percent of the eligible costs of work accomplished on 
undefinitized contract actions.
    (f) Performance-based payments are contract financing payments made 
on the basis of--
    (1) Performance measured by objective, quantifiable methods;
    (2) Accomplishment of defined events; or
    (3) Other quantifiable measures of results.
[48 FR 42328, Sept. 19, 1987, as amended at 52 FR 30077, Aug. 12, 1987; 
60 FR 49711, Sept. 26, 1995; 62 FR 12706, Mar. 17, 1997]



32.103  Progress payments under construction contracts.

    When satisfactory progress has not been achieved by a contractor 
during any period for which a progress payment is to be made, a 
percentage of the progress payment may be retained. Retainage should not 
be used as a substitute for good contract management, and the 
contracting officer should not withhold funds without cause. 
Determinations to retain and the specific amount to be withheld shall be 
made by the contracting officer on a case-by-case basis. Such decisions 
will be based on the contracting officer's assessment of past 
performance and the likelihood that such performance will continue. The 
amount of retainage withheld shall not exceed 10 percent of the approved 
estimated amount in accordance with the terms of the contract and may be 
adjusted as the contract approaches completion to recognize better than 
expected performance, the ability to rely on alternative safeguards, and 
other factors. Upon completion of all contract requirements, retained 
amounts shall be paid promptly.
[51 FR 19716, May 30, 1986, as amended at 60 FR 49711, Sept. 26, 1995]



32.104  Providing contract financing.

    (a) Prudent contract financing can be a useful working tool in 
Government acquisition by expediting the performance of essential 
contracts. Government financing shall be provided only to the extent 
actually needed for prompt and efficient performance, considering the 
availability of private financing. Contract financing shall be 
administered so as to aid, not impede, the acquisition. At the same 
time, the contracting officer shall avoid any undue risk of monetary 
loss to the Government through the financing. The contractor's use of 
the contract financing provided and the contractor's financial status 
shall be monitored.
    (b) If the contractor is a small business concern, the contracting 
officer shall give special attention to meeting the contractor's 
contract financing need. However, a contractor's receipt of a 
certificate of competency from the Small Business Administration has no 
bearing on the contractor's need for or entitlement to contract 
financing.
    (c) Subject to specific agency regulations, the contracting officer 
may provide customary contract financing in accordance with 32.113. 
Unusual contract financing shall not be provided except as authorized in 
32.114.
    (d) Unless otherwise authorized by agency regulation, contract 
financing may be provided for contracts with--
    (1) Small business concerns, when the contract price will be greater 
than the simplified acquisition threshold; or
    (2) Other than small business concerns, when the contract price will 
be

[[Page 674]]

$1 million or more, or for a group of contracts, whose prices are 
greater than the simplified acquisition threshold, that total $1 million 
or more.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49711, Sept. 26, 1995]



32.105  Uses of contract financing.

    (a) Contract financing methods covered in this part are intended to 
be self-liquidating through contract performance. Consequently, agencies 
shall only use the methods for financing of contractor working capital, 
not for the expansion of contractor-owned facilities or the acquisition 
of fixed assets. However, under loan guarantees, exceptions may be made 
for--
    (1) Facilities expansion of a minor or incidental nature, if a 
relatively small part of the guaranteed loan is used for the expansion 
and the contractor's repayment would not be delayed or impaired; or
    (2) Other instances of facilities expansion for which contract 
financing is appropriate under agency procedures.
    (b) The limitations in this section do not apply to contracts under 
which facilities are being acquired for Government ownership.



32.106  Order of preference.

    The contracting officer shall consider the following order of 
preference when a contractor requests contract financing, unless an 
exception would be in the Government's best interest in a specific case:
    (a) Private financing without Government guarantee. It is not 
intended, however, that the contractor be required to obtain private 
financing (1) at unreasonable terms, or (2) from other agencies.
    (b) Customary contract financing (see 32.113).
    (c) Loan guarantees.
    (d) Unusual contract financing (see 32.114).
    (e) Advance payments (see exceptions in 32.402(b)).
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49711, Sept. 26, 1995]



32.107  Need for contract financing not a deterrent.

    (a) If the contractor or offeror meets the standards prescribed for 
responsible prospective contractors at 9.104, the contracting officer 
shall not treat the contractor's need for contract financing as a 
handicap for a contract award; e.g., as a responsibility factor or 
evaluation criterion.
    (b) The contractor should not be disqualified from contract 
financing solely because the contractor failed to indicate a need for 
contract financing before the contract was awarded.



32.108  Financial consultation.

    Each contracting office should have available and use the services 
of contract financing personnel competent to evaluate credit and 
financial problems. In resolving any questions concerning (a) the 
financial capability of an offeror or contractor to perform a contract 
or (b) what form of contract financing is appropriate in a given case, 
the contracting officer should consult the appropriate contract 
financing office.



32.109  Termination financing.

    To encourage contractors to invest their own funds in performance 
despite the susceptibility of the contract to termination for the 
convenience of the Government, the contract financing procedures under 
this part may be applied to the financing of terminations either in 
connection with or independently of financing for contract performance 
(see 49.112-1).



32.110  [Reserved]



32.111  Contract clauses for noncommercial purchases.

    (a) The contracting officer shall insert the following clauses, 
appropriately modified with respect to payment due dates, in accordance 
with agency regulations--
    (1) The clause at 52.232-1, Payments, in solicitations and contracts 
when a fixed-price supply contract, a fixed-price service contract, or a 
contract for nonregulated communication services is contemplated;

[[Page 675]]

    (2) The clause at 52.232-2, Payment under Fixed-Price Research and 
Development Contracts, in solicitations and contracts when a fixed-price 
research and development contract is contemplated;
    (3) The clause at 52.232-3, Payments under Personal Services 
Contracts, in solicitations and contracts for personal services;
    (4) The clause at 52.232-4, Payments under Transportation Contracts 
and Transportation-Related Services Contracts, in solicitations and 
contracts for transportation or transportation-related services;
    (5) The clause at 52.232-5, Payments under Fixed-Price Construction 
Contracts, in solicitations and contracts for construction when a fixed-
price contract is contemplated; and
    (6) The clause at 52.232-6, Payments under Communication Service 
Contracts with Common Carriers, in solicitations and contracts for 
regulated communication services by common carriers.
    (b) The contracting officer shall insert the clause at 52.232-7, 
Payments under Time-and-Materials and Labor-Hour Contracts, 
appropriately modified with respect to payment due dates in accordance 
with agency regulations, in solicitations and contracts when a time-and-
materials or labor-hour contract is contemplated. If (i) the nature of 
the work to be performed requires the contractor to furnish material 
that is regularly sold to the general public in the normal course of 
business by the contractor and (ii) the price is under the limitations 
prescribed in 16.601(b)(3), the contracting officer shall use the clause 
with its Alternate I. If a labor-hour contract is contemplated, and if 
no specific reimbursement for materials furnished is intended, the 
contracting officer may use the clause with its Alternate II.
    (c) The contracting officer shall insert the following clauses, 
appropriately modified with respect to payment due dates in accordance 
with agency regulations:
    (1) The clause at 52.232-8, Discounts for Prompt Payment, in 
solicitations and contracts when a fixed-price supply contract or fixed-
price service contract is contemplated.
    (2) A clause, substantially the same as the clause at 52.232-9, 
Limitation on Withholding of Payments, in solicitations and contracts 
when a supply contract, research and development contract, service 
contract, time-and-materials contract, or labor-hour contract is 
contemplated that includes two or more terms authorizing the temporary 
withholding of amounts otherwise payable to the contractor for supplies 
delivered or services performed.
    (d) The contracting officer shall insert the following clauses, 
appropriately modified with respect to payments due dates in accordance 
with agency regulations:
    (1) The clause at 52.232-10, Payments under Fixed-Price Architect-
Engineer Contracts, in fixed-price architect-engineer contracts.
    (2) The clause at 52.232-11, Extras, in solicitations and contracts 
when a fixed-price supply contract, fixed-price service contract, or a 
transportation contract is contemplated.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
60 FR 49711, Sept. 26, 1995]



32.112  Payment of subcontractors under contracts for non-commercial items.



32.112-1  Subcontractor assertions of nonpayment.

    (a) In accordance with Section 806(a)(4) of Pub. L. 102-190, as 
amended by Sections 2091 and 8105 of Pub. L. 103-355, upon the assertion 
by a subcontractor or supplier of a Federal contractor that the 
subcontractor or supplier has not been paid in accordance with the 
payment terms of the subcontract, purchase order, or other agreement 
with the prime contractor, the contracting officer may determine--
    (1) For a construction contract, whether the contractor has made--
    (i) Progress payments to the subcontractor or supplier in compliance 
with Chapter 39 of Title 31, United States Code (Prompt Payment Act); or
    (ii) Final payment to the subcontractor or supplier in compliance 
with the terms of the subcontract, purchase order, or other agreement 
with the prime contractor;

[[Page 676]]

    (2) For a contract other than construction, whether the contractor 
has made progress payments, final payments, or other payments to the 
subcontractor or supplier in compliance with the terms of the 
subcontract, purchase order, or other agreement with the prime 
contractor; or
    (3) For any contract, whether the contractor's certification of 
payment of a subcontractor or supplier accompanying its payment request 
to the Government is accurate.
    (b) If, in making the determination in paragraphs (a)(1) and (2) of 
this section, the contracting officer finds the prime contractor is not 
in compliance, the contracting officer may--
    (1) Encourage the contractor to make timely payment to the 
subcontractor or supplier; or
    (2) If authorized by the applicable payment clauses, reduce or 
suspend progress payments to the contractor.
    (c) If the contracting officer determines that a certification 
referred to in paragraph (a)(3) of this section is inaccurate in any 
material respect, the contracting officer shall initiate administrative 
or other remedial action.
[60 FR 48274, Sept. 18, 1995]



32.112-2  Subcontractor requests for information.

    (a) In accordance with Section 806(a)(1) of Pub. L. 102-190, as 
amended by Sections 2091 and 8105 of Pub. L. 103-355, upon the request 
of a subcontractor or supplier under a Federal contract for a non-
commercial item, the contracting officer shall promptly advise the 
subcontractor or supplier as to--
    (1) Whether the prime contractor has submitted requests for progress 
payments or other payments to the Federal Government under the contract; 
and
    (2) Whether final payment under the contract has been made by the 
Federal Government to the prime contractor.
    (b) In accordance with 5 U.S.C. 552(b)(1), this subsection does not 
apply to matters that are--
    (1) Specifically authorized under criteria established by an 
Executive order to be kept classified in the interest of national 
defense or foreign policy; and
    (2) Properly classified pursuant to such Executive order.
[60 FR 48274, Sept. 18, 1995]



32.113  Customary contract financing.

    The following contract financing arrangements are customary contract 
financing when provided in accordance with this part and agency 
regulations:
    (a) Financing of shipbuilding, or ship conversion, alteration, or 
repair, when agency regulations provide for progress payments based on a 
percentage or stage of completion;
    (b) Financing of construction or architect-engineer services 
purchased under the authority of part 36;
    (c) Financing of contracts for supplies or services awarded under 
the sealed bid method of procurement in accordance with part 14, or 
under the competitive negotiation method of procurement in accordance 
with part 15, through progress payments based on costs in accordance 
with subpart 32.5;
    (d) Financing of contracts for supplies or services awarded under a 
sole-source acquisition as defined in part 6 and using the procedures of 
part 15, through either progress payments based on costs in accordance 
with subpart 32.5, or performance-based payments in accordance with 
subpart 32.10 (but not both). Performance-based payments are the 
preferred method when the contracting officer finds them practical, and 
the contractor agrees to their use;
    (e) Financing of contracts for supplies or services through advance 
payments in accordance with subpart 32.4;
    (f) Financing of contracts for supplies or services through 
guaranteed loans in accordance with subpart 32.3; or
    (g) Financing of contracts for supplies or services through any 
appropriate combination of advance payments, guaranteed loans, and 
either performance-based payments or progress payments (but not both) in 
accordance with their respective subparts.
[60 FR 49711, Sept. 26, 1995]



32.114  Unusual contract financing.

    Any contract financing arrangement that deviates from this part is 
unusual contract financing. Unusual contract

[[Page 677]]

financing shall be authorized only after approval by the head of the 
agency or as provided for in agency regulations.
[60 FR 49711, Sept. 26, 1995]



            Subpart 32.2--Commercial Item Purchase Financing

    Source: 60 FR 49711, Sept. 26, 1995, unless otherwise noted.



32.200  Scope of subpart.

    This subpart provides policies and procedures for commercial 
financing arrangements under commercial purchases pursuant to Part 12.



32.201  Statutory authority.

    10 U.S.C. 2307(f) and 41 U.S.C. 255(f) provide that payment for 
commercial items may be made under such terms and conditions as the head 
of the agency determines are appropriate or customary in the commercial 
marketplace and are in the best interest of the United States.



32.202  General.



32.202-1  Policy.

    (a) Use of financing in contracts. It is the responsibility of the 
contractor to provide all resources needed for performance of the 
contract. Thus, for purchases of commercial items, financing of the 
contract is normally the contractor's responsibility. However, in some 
markets the provision of financing by the buyer is a commercial 
practice. In these circumstances, the contracting officer may include 
appropriate financing terms in contracts for commercial purchases when 
doing so will be in the best interest of the Government.
    (b) Authorization. Commercial interim payments and commercial 
advance payments may be made under the following circumstances--
    (1) The contract item financed is a commercial supply or service;
    (2) The contract price exceeds the simplified acquisition threshold;
    (3) The contracting officer determines that it is appropriate or 
customary in the commercial marketplace to make financing payments for 
the item;
    (4) Authorizing this form of contract financing is in the best 
interest of the Government (see paragraph (e) of this subsection);
    (5) Adequate security is obtained (see 32.202-4);
    (6) Prior to any performance of work under the contract, the 
aggregate of commercial advance payments shall not exceed 15 percent of 
the contract price;
    (7) The contract is awarded on the basis of competitive procedures 
or, if only one offer is solicited, adequate consideration is obtained 
(based on the time value of the additional financing to be provided) if 
the financing is expected to be substantially more advantageous to the 
offeror than the offeror's normal method of customer financing; and
    (8) The contracting officer obtains concurrence from the payment 
office concerning liquidation provisions when required by 32.206(e).
    (c) Difference from non-commercial financing. Government financing 
of commercial purchases under this subpart is expected to be different 
from that used for non-commercial purchases under subpart 32.1 and its 
related subparts. While the contracting officer may adapt techniques and 
procedures from the non-commercial subparts for use in implementing 
commercial contract financing arrangements, the contracting officer must 
have a full understanding of effects of the differing contract 
environments and of what is needed to protect the interests of the 
Government in commercial contract financing.
    (d) Unusual contract financing. Any contract financing arrangement 
not in accord with the requirements of agency regulations or this part 
is unusual contract financing and requires advance approval in 
accordance with agency procedures. If not otherwise specified, such 
unusual contract financing shall be approved by the head of the 
contracting activity.
    (e) Best interest of the Government. The statutes cited in 32.201 do 
not allow contract financing by the Government unless it is in the best 
interest of the United States. Agencies may establish standards to 
determine whether contract financing is in the best interest of the 
Government. These standards

[[Page 678]]

may be for certain types of procurements, certain types of items, or 
certain dollar levels of procurements.
[60 FR 49711, Sept. 26, 1995, as amended at 61 FR 39190, July 26, 1996]



32.202-2  Types of payments for commercial item purchases.

    These definitions incorporate the requirements of the statutory 
commercial financing authority and the implementation of the Prompt 
Payment Act.
    Commercial advance payment means a payment made before any 
performance of work under the contract. The aggregate of these payments 
shall not exceed 15 percent of the contract price. These payments are 
contract financing payments for prompt payment purposes (i.e., not 
subject to the interest penalty provisions of the Prompt Payment Act in 
accordance with subpart 32.9). These payments are not subject to subpart 
32.4, Advance Payments for Non-Commercial Items.
    Commercial interim payment means any payment that is not a 
commercial advance payment or a delivery payment. These payments are 
contract financing payments for prompt payment purposes (i.e., not 
subject to the interest penalty provisions of the Prompt Payment Act in 
accordance with subpart 32.9). A commercial interim payment is given to 
the contractor after some work has been done, whereas a commercial 
advance payment is given to the contractor when no work has been done.
    Delivery payment means a payment for accepted supplies or services, 
including payments for accepted partial deliveries. Commercial financing 
payments are liquidated by deduction from these payments. Delivery 
payments are invoice payments for prompt payment purposes.



32.202-3  Conducting market research about financing terms.

    Contract financing may be a subject included in the market research 
conducted in accordance with part 10. If market research for contract 
financing is conducted, the contracting officer should consider--
    (a) The extent to which other buyers provide contract financing for 
purchases in that market;
    (b) The overall level of financing normally provided;
    (c) The amount or percentages of any payments equivalent to 
commercial advance payments (see 32.202-2);
    (d) The basis for any payments equivalent to commercial interim 
payments (see 32.202-2), as well as the frequency, and amounts or 
percentages; and
    (e) Methods of liquidation of contract financing payments and any 
special or unusual payment terms applicable to delivery payments (see 
32.202-2).



32.202-4  Security for Government financing.

    (a) Policy. (1) 10 U.S.C. 2307(f) and 41 U.S.C. 255(f) require the 
Government to obtain adequate security for Government financing. The 
contracting officer shall specify in the solicitation the type of 
security the Government will accept. If the Government is willing to 
accept more than one form of security, the offeror shall be required to 
specify the form of security it will provide. If acceptable to the 
contracting officer, the resulting contract shall specify the security 
(see 32.206(b)(1)(iv)).
    (2) Subject to agency regulations, the contracting officer may 
determine the offeror's financial condition to be adequate security, 
provided the offeror agrees to provide additional security should that 
financial condition become inadequate as security (see paragraph (c) of 
the clause at 52.232-29, Terms for Financing of Purchases of Commercial 
Items). Assessment of the contractor's financial condition shall 
consider both net worth and liquidity. If the contracting officer finds 
the offeror's financial condition is not adequate security, the 
contracting officer shall require other adequate security. Paragraphs 
(b), (c), and (d) of this subsection list other (but not all) forms of 
security that the contracting officer may find acceptable.
    (3) The value of the security must be at least equal to the maximum 
unliquidated amount of contract financing payments to be made to the 
contractor. The value of security may be adjusted periodically during 
contract performance, as long as it is always equal to or greater than 
the amount of unliquidated financing.

[[Page 679]]

    (b) Paramount lien. (1) The statutes cited in 32.201 provide that if 
the Government's security is in the form of a lien, such lien is 
paramount to all other liens and is effective immediately upon the first 
payment, without filing, notice, or other action by the United States.
    (2) When the Government's security is in the form of a lien, the 
contract shall specify what the lien is upon, e.g., the work in process, 
the contractor's plant, or the contractor's inventory. Contracting 
officers may be flexible in the choice of assets. The contract must also 
give the Government a right to verify the existence and value of the 
assets.
    (3) Provision of Government financing shall be conditioned upon a 
contractor certification that the assets subject to the lien are free 
from any prior encumbrances. Prior liens may result from such things as 
capital equipment loans, installment purchases, working capital loans, 
various lines of credit, and revolving credit arrangements.
    (c) Other assets as security. Contracting officers may consider the 
guidance at 28.203-2, 28.203-3, and 28.204 in determining which types of 
assets may be acceptable as security. For the purpose of applying the 
guidance in part 28 to this subsection, the term ``surety'' and/or 
``individual surety'' should be interpreted to mean ``offeror'' and/or 
``contractor.''
    (d) Other forms of security. Other acceptable forms of security 
include--
    (1) An irrevocable letter of credit from a federally insured 
financial institution;
    (2) A bond from a surety, acceptable in accordance with part 28 
(note that the bond must guarantee repayment of the unliquidated 
contract financing);
    (3) A guarantee of repayment from a person or corporation of 
demonstrated liquid net worth, connected by significant ownership to the 
contractor; or
    (4) Title to identified contractor assets of adequate worth.
    (e) Management of risk and security. In establishing contract 
financing terms, the contracting officer must be aware of certain risks. 
For example, very high amounts of financing early in the contract 
(front-end loading) may unduly increase the risk to the Government. The 
security and the amounts and timing of financing payments must be 
analyzed as a whole to determine whether the arrangement will be in the 
best interest of the Government.



32.203  Determining contract financing terms.

    When the criteria in 32.202-1(b) are met, the contracting officer 
may either specify the financing terms in the solicitation (see 32.204) 
or permit each offeror to propose its own customary financing terms (see 
32.205). When the contracting officer has sufficient information on 
financing terms that are customary in the commercial marketplace for the 
item, those terms may be specified in the solicitation.



32.204  Procedures for contracting officer-specified commercial contract financing.

    The financing terms shall be included in the solicitation. Contract 
financing shall not be a factor in the evaluation of resulting 
proposals, and proposals of alternative financing terms shall not be 
accepted (but see 14.208 and 15.206 concerning amendments of 
solicitations). However, an offer stating that the contracting officer-
specified contract financing terms will not be used by the offeror does 
not alter the evaluation of the offer, nor does it render the offer 
nonresponsive or otherwise unacceptable. In the event of award to an 
offeror who declined the proposed contract financing, the contract 
financing provisions shall not be included in the resulting contract. 
Contract financing shall not be a basis for adjusting offerors' proposed 
prices, because the effect of contract financing is reflected in each 
offeror's proposed prices.
[60 FR 49711, Sept. 26, 1995, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
32.204, ``15.606'' was amended to read ``15.206'', effective Oct. 10, 
1997.

[[Page 680]]



32.205  Procedures for offeror-proposed commercial contract financing.

    (a) Under this procedure, each offeror may propose financing terms. 
The contracting officer must then determine which offer is in the best 
interests of the United States.
    (b) Solicitations. The contracting officer shall include in the 
solicitation the provision at 52.232-31, Invitation to Propose Financing 
Terms. The contracting officer shall also--
    (1) Specify the delivery payment (invoice) dates that will be used 
in the evaluation of financing proposals; and
    (2) Specify the interest rate to be used in the evaluation of 
financing proposals (see paragraph (c)(4) of this section).
    (c) Evaluation of proposals. (1) When contract financing terms vary 
among offerors, the contracting officer must adjust each proposed price 
for evaluation purposes to reflect the cost of providing the proposed 
financing in order to determine the total cost to the Government of that 
particular combination of price and financing.
    (2) Contract financing results in the Government making payments 
earlier than it otherwise would. In order to determine the cost to the 
Government of making payments earlier, the contracting officer must 
compute the imputed cost of those financing payments and add it to the 
proposed price to determine the evaluated price for each offeror.
    (3) The imputed cost of a single financing payment is the amount of 
the payment multiplied by the annual interest rate, multiplied by the 
number of years, or fraction thereof, between the date of the financing 
payment and the date the amount would have been paid as a delivery 
payment. The imputed cost of financing is the sum of the imputed costs 
of each of the financing payments.
    (4) The time value of proposal-specified contract financing 
arrangements shall be calculated using as the interest rate the Nominal 
Discount Rate specified in Appendix C of OMB Circular A-94, ``Benefit-
Cost Analysis of Federal Programs; Guidelines and Discounts'', 
appropriate to the period of contract financing. Where the period of 
proposed financing does not match the periods in the OMB Circular, the 
interest rate for the period closest to the finance period shall be 
used. Appendix C is updated yearly, and is available from the Office of 
Economic Policy in the Office of Management and Budget (OMB).



32.206  Solicitation provisions and contract clauses.

    (a) The contract shall contain the paragraph entitled ``Payment'' of 
the clause at 52.212-4, Contract Terms and Conditions--Commercial Items. 
If the contract will provide for contract financing, the contracting 
officer shall construct a solicitation provision and contract clause. 
This solicitation provision shall be constructed in accordance with 
32.204 or 32.205. If the procedure at 32.205 is used, the solicitation 
provision at 52.232-31, Invitation to Propose Financing Terms, shall be 
included. The contract clause shall be constructed in accordance with 
the requirements of this subpart and any agency regulations.
    (b) Each contract financing clause shall include:
    (1) A description of the--
    (i) Computation of the financing payment amounts (see paragraph (c) 
of this section);
    (ii) Specific conditions of contractor entitlement to those 
financing payments (see paragraph (c) of this section);
    (iii) Liquidation of those financing payments by delivery payments 
(see paragraph (e) of this section);
    (iv) Security the contractor will provide for financing payments and 
any terms or conditions specifically applicable thereto (see 32.202-4); 
and
    (v) Frequency, form, and any additional content of the contractor's 
request for financing payment (in addition to the requirements of the 
clause at 52.232-29, Terms for Financing of Purchases of Commercial 
Items; and
    (2) Unless agency regulations authorize alterations, the unaltered 
text of the clause at 52.232-29, Terms for Financing of Purchases of 
Commercial Items.

[[Page 681]]

    (c) Computation of amounts, and contractor entitlement provisions. 
(1) Contracts shall provide that delivery payments shall be made only 
for completed supplies and services accepted by the Government in 
accordance with the terms of the contract. Contracts may provide for 
commercial advance and commercial interim payments based upon a wide 
variety of bases, including (but not limited to) achievement or 
occurrence of specified events, the passage of time, or specified times 
prior to the delivery date(s). The basis for payment must be objectively 
determinable. The clause written by the contracting officer shall 
specify, to the extent access is necessary, the information and/or 
facilities to which the Government shall have access for the purpose of 
verifying the contractor's entitlement to payment of contract financing.
    (2) If the contract is awarded using the offeror-proposed procedure 
at 32.205, the clause constructed by the contracting officer under 
paragraph (b)(1) of this section shall contain the following:
    (i) A statement that the offeror's proposed listing of earliest 
times and greatest amounts of projected financing payments submitted in 
accordance with paragraph (d)(2) of the provision at 52.232-31, 
Invitation to Propose Financing Terms, is incorporated into the 
contract, and
    (ii) A statement that financing payments shall be made in the lesser 
amount and on the later of the date due in accordance with the financing 
terms of the contract, or in the amount and on the date projected in the 
listing of earliest times and greatest amounts incorporated in the 
contract.
    (3) If the security accepted by the contracting officer is the 
contractor's financial condition, the contracting officer shall 
incorporate in the clause constructed under paragraph (b)(1) of this 
section the following--
    (i) A statement that the contractor's financial condition has been 
accepted as adequate security for commercial financing payments; and
    (ii) A statement that the contracting officer may exercise the 
Government's rights to require other security under paragraph (c), 
Security for Government Financing, of the clause at 52.232-29, Terms for 
Financing of Purchases of Commercial Items, in the event the 
contractor's financial condition changes and is found not to be adequate 
security.
    (d) Instructions for multiple appropriations. If contract financing 
is to be computed for the contract as a whole, and if there is more than 
one appropriation account (or subaccount) funding payments under the 
contract, the contracting officer shall include, in the contract, 
instructions for distribution of financing payments to the respective 
funds accounts. Distribution instructions and contract liquidation 
instructions must be mutually consistent.
    (e) Liquidation. Liquidation of contract financing payments shall be 
on the same basis as the computation of contract financing payments; 
that is, financing payments computed on a whole contract basis shall be 
liquidated on a whole contract basis; and a payment computed on a line 
item basis shall be liquidated against that line item. If liquidation is 
on a whole contract basis, the contracting officer shall use a uniform 
liquidation percentage as the liquidation method, unless the contracting 
officer obtains the concurrence of the cognizant payment office that the 
proposed liquidation provisions can be executed by that office, or 
unless agency regulations provide alternative liquidation methods.
    (f) Prompt payment for commercial purchase payments. The provisions 
of subpart 32.9, Prompt Payment, apply to contract financing and invoice 
payments for commercial purchases in the same manner they apply to non-
commercial purchases. The contracting officer is responsible for 
including in the contract all the information necessary to implement 
prompt payment. In particular, contracting officers must be careful to 
clearly differentiate in the contract between contract financing and 
invoice payments and between items having different prompt payment 
times.
    (g) Installment payment financing for commercial items. Contracting 
officers may insert the clause at 52.232-30, Installment Payments for 
Commercial Items, in solicitations and contracts in lieu of constructing 
a specific clause in

[[Page 682]]

accordance with paragraphs (b) through (e) of this section, if the 
contract action qualifies under the criteria at 32.202-1(b) and 
installment payments for the item are either customary or are authorized 
in accordance with agency procedures.
    (1) Description. Installment payment financing is payment by the 
Government to a contractor of a fixed number of equal interim financing 
payments prior to delivery and acceptance of a contract item. The 
installment payment arrangement is designed to reduce administrative 
costs. However, if a contract will have a large number of deliveries, 
the administrative costs may increase to the point where installment 
payments are not in the best interests of the Government.
    (2) Authorized types of installment payment financing and rates. 
Installment payments may be made using the clause at 52.232-30, 
Installment Payments for Commercial Items, either at the 70 percent 
financing rate cited in the clause or at a lower rate in accordance with 
agency procedures.
    (3) Calculating the amount of installment financing payments. The 
contracting officer shall identify in the contract schedule those items 
for which installment payment financing is authorized. Monthly 
installment payment amounts are to be calculated by the contractor 
pursuant to the instructions in the contract clause only for items 
authorized to receive installment payment financing.
    (4) Liquidating installment payments. If installment payments have 
been made for an item, the amount paid to the contractor upon acceptance 
of the item by the Government shall be reduced by the amount of 
installment payments made for the item. The contractor's request for 
final payment for each item is required to show this calculation.



32.207  Administration and payment of commercial financing payments.

    (a) Responsibility. The contracting officer responsible for 
administration of the contract shall be responsible for review and 
approval of contract financing requests.
    (b) Approval of financing requests. Unless otherwise provided in 
agency regulations, or by agreement with the appropriate payment 
official--
    (1) The contracting officer shall be responsible for receiving, 
approving, and transmitting all contract financing requests to the 
appropriate payment office; and
    (2) Each approval shall specify the amount to be paid, necessary 
contractual information, and the account(s) (see 32.206(d)) to be 
charged for the payment.
    (c) Management of security. After contract award, the contracting 
officer responsible for approving requests for financing payments shall 
be responsible for determining that the security continues to be 
adequate. If the contractor's financial condition is the Government's 
security, this contracting officer is also responsible for monitoring 
the contractor's financial condition.



          Subpart 32.3--Loan Guarantees for Defense Production



32.300  Scope of subpart.

    This subpart prescribes policies and procedures for designated 
agencies' guarantees of loans made by private financial institutions to 
borrowers performing contracts related to national defense (see 30.102).



32.301  Definitions.

    Borrower, as used in this subpart, means a contractor, subcontractor 
(at any tier), or other supplier who receives a guaranteed loan.
    Federal Reserve Board means the Board of Governors of the Federal 
Reserve System.
    Guaranteed loan or V loan, as used in this subpart, means a loan, 
revolving credit fund, or other financial arrangement made pursuant to 
Regulation V of the Federal Reserve Board, under which the guaranteeing 
agency is obligated, on demand of the lender, to purchase a stated 
percentage of the loan and to share any losses in the amount of the 
guaranteed percentage.
    Guaranteeing agency, as used in this subpart, means any agency that 
the President has authorized to guarantee loans, through Federal Reserve 
Banks, for expediting national defense production.

[[Page 683]]



32.302  Authority.

    Congress has authorized Federal Reserve Banks to act, on behalf of 
guaranteeing agencies, as fiscal agents of the United States in the 
making of loan guarantees for defense production (Section 301, Defense 
Production Act of 1950 (50 U.S.C. App. 2091)). By Executive Order 10480, 
August 14, 1953 (3 CFR 1949-53), as amended, the President has 
designated the following agencies as guaranteeing agencies:
    (a) Department of Defense.
    (b) Department of Energy.
    (c) Department of Commerce.
    (d) Department of the Interior.
    (e) Department of Agriculture.
    (f) General Services Administration.
    (g) National Aeronautics and Space Administration.



32.303  General.

    (a) Section 301 of the Defense Production Act authorizes loan 
guarantees for contract performance or other operations related to 
national defense, subject to amounts annually authorized by Congress on 
the maximum obligation of any guaranteeing agency under any loan, 
discount, advance, or commitment in connection therewith, entered into 
under section 301. (See 50 U.S.C. App. 2091 for statutory limitations 
and exceptions concerning the authorization of loan guarantee amounts 
and the use of loan guarantees for the prevention of insolvency or 
bankruptcy.)
    (b) The guarantee shall be for less than 100 percent of the loan 
unless the agency determines that--
    (1) The circumstances are exceptional;
    (2) The operations of the contractor are vital to the national 
defense; and
    (3) No other suitable means of financing are available.
    (c) Loan guarantees are not issued to other agencies of the 
Government.
    (d) Guaranteed loans are essentially the same as conventional loans 
made by private financial institutions, except that the guaranteeing 
agency is obligated, on demand of the lender, to purchase a stated 
percentage of the loan and to share any losses in the amount of the 
guaranteed percentage. It is the responsibility of the private financial 
institution to disburse and collect funds and to administer the loan. 
Under Regulation V of the Federal Reserve Board (12 CFR 245), any 
private financing institution may submit an application to the Federal 
Reserve Bank of its district for guarantee of a loan or credit.
    (e) Federal Reserve Banks will make the loan guarantee agreements on 
behalf of the guaranteeing agencies.
    (f) Under Section 302(c) of Executive Order 10480, August 14, 1953 
(3 CFR 1949-53), as amended, all actions and operations of Federal 
Reserve Banks, as fiscal agents, are subject to the supervision of the 
Federal Reserve Board. The Federal Reserve Board is authorized to 
prescribe the following, after consultation with the heads of 
guaranteeing agencies:
    (1) Regulations governing the actions and operations of fiscal 
agents.
    (2) Rates of interest, guarantee and commitment fees, and other 
charges that may be made for loans, discounts, advances, or commitments 
guaranteed by the guaranteeing agencies through the Federal Reserve 
Banks. These prescriptions may be in the form of specific rates or 
limits, or in other forms.
    (3) Uniform forms and procedures to be used in connection with the 
guarantees.
    (g) The guaranteeing agency is responsible for certifying 
eligibility for the guarantee and fixing the maximum dollar amount and 
maturity date of the guaranteed loan to meet the contractor's 
requirement for financing performance of the defense production contract 
on hand at the time the guarantee application is submitted.



32.304  Procedures.



32.304-1  Application for guarantee.

    (a) A contractor, subcontractor, or supplier that needs operating 
funds to perform a contract related to national defense may apply to a 
financing institution for a loan. If the financing institution is 
willing to extend credit, but considers a Government guarantee 
necessary, the institution may apply to the Federal Reserve Bank of its 
district for the guarantee. Application forms and guidance are available 
at all Federal Reserve Banks.

[[Page 684]]

    (b) The Federal Reserve Bank will promptly send a copy of the 
application, including a list of the relevant defense contracts held by 
the contractor, to the Federal Reserve Board. The Board will transmit 
the application and the list of contracts to the interested guaranteeing 
agency, so that the agency can determine the eligibility of the 
contractor.
    (c) To expedite the process, the Federal Reserve Bank may, pursuant 
to instructions of a guaranteeing agency, submit lists of the defense 
contracts to the interested contracting officers.
    (d) While eligibility is being determined, the Federal Reserve Bank 
will make any necessary credit investigations to supplement the 
information furnished by the applicant financing institution in order 
to--
    (1) Expedite necessary defense financing; and
    (2) Protect the Government against monetary loss.
    (e) The Federal Reserve Bank will send its report and recommendation 
to the Federal Reserve Board. The Board will transmit them to the 
interested guaranteeing agency.



32.304-2  Certificate of eligibility.

    (a) The contracting officer shall prepare the certificate of 
eligibility for a contract that the contracting officer deems to be of 
material consequence, when--
    (1) The contract financing office requests it;
    (2) Another interested agency requests it; or
    (3) The application for a loan guarantee relates to a contract or 
subcontract within the cognizance of the contracting officer.
    (b) The agency shall evaluate the relevant data, including the 
certificate of eligibility, the accompanying data, and any other 
relevant information on the contractor's financial status and 
performance, to determine whether authorization of a loan guarantee 
would be in the Government's interest.
    (c) If the contractor has several major national defense contracts, 
it is normally not necessary to evaluate the eligibility of relatively 
minor contracts. The determination of eligibility should be processed, 
without delay, based on the preponderance of the amount of the 
contracts.
    (d) The certificate of eligibility shall include the following 
determinations:
    (1) The supplies or services to be acquired are essential to the 
national defense.
    (2) The contractor has the facilities and the technical and 
management ability required for contract performance.
    (3) There is no practicable alternate source for the acquisition 
without prejudice to the national defense. (This statement shall not be 
included if the contractor is a small business concern.)
    (e) The contracting officer shall consider the following factors in 
determining if a practicable alternate source exists:
    (1) Prejudice to the national defense, because reletting of a 
contract with another source would conflict with a major policy on 
defense acquisition; e.g., policies relating to the mobilization base.
    (2) The urgency of contract performance schedules.
    (3) The technical ability and facilities of other potential sources.
    (4) The extent to which other sources would need contract financing 
to perform.
    (5) The willingness of other sources to enter into contracts.
    (6) The time and expense involved in repurchasing for contracts or 
parts of contracts. This may include potential claims under a 
termination for convenience or delays incident to default at a later 
date.
    (7) The comparative prices available from other sources.
    (8) The disruption of established subcontracting arrangements.
    (9) Other pertinent factors.
    (f) The contracting officer shall attach sufficient data to the 
certificate of eligibility to support the determinations made. Available 
pertinent information shall be included on--
    (1) The contractor's past performance;
    (2) The relationship of the contractor's operations to performance 
schedules; and
    (3) Other factors listed in paragraph (e) above, if relevant to the 
case under consideration.

[[Page 685]]

    (g) If the contracting officer determines that a certificate of 
eligibility is not justified, the facts and reasons supporting that 
conclusion shall be documented and furnished to the agency contract 
finance office.
    (h) The guaranteeing agency shall review the proposed guarantee 
terms and conditions. If they are considered appropriate, the 
guaranteeing agency shall complete a standard form of authorization as 
prescribed by the Federal Reserve Board. The agency shall transmit the 
authorization through the Federal Reserve Board to the Federal Reserve 
Bank. The Bank is authorized to execute and deliver to the financing 
institution a standard form of guarantee agreement, with the terms and 
conditions approved for the particular case. The financing institution 
will then make the loan.
    (i) Substantially the same procedure may be followed for the 
application of an offeror who is actively negotiating or bidding for a 
defense contract, except that the guarantee shall not be authorized 
until the contract has been executed.
    (j) The contracting officer shall report to the agency contract 
finance office any information about the contractor that would have a 
potentially adverse impact on a pending guarantee application. The 
contracting officer is not required, however, to initiate any special 
investigation for this purpose.
    (k) With regard to existing contracts, the agency shall not consider 
the percentage of guarantee requested by the financing institution in 
determining the contractor's eligibility.



32.304-3  Asset formula.

    (a) Under guaranteed loans made primarily for working capital 
purposes, the agency shall normally limit the guarantee, by use of an 
asset formula, to an amount that does not exceed a specified percentage 
(90 percent or less) of the contractor's investment (e.g., payrolls and 
inventories) in defense production contracts. The asset formula may 
include all items under defense contracts for which the contractor would 
be entitled to payment on performance or termination. The formula shall 
exclude--
    (1) Amounts for which the contractor has not done any work or made 
any expenditure;
    (2) Amounts that would become due as the result of later performance 
under the contracts; and
    (3) Cash collateral or bank deposit balances.
    (b) Progress payments are deducted from the asset formula.
    (c) The agency may relax the asset formula to an appropriate extent 
for the time actually necessary for contract performance, if the 
contractor's working capital and credit are inadequate.



32.304-4  Guarantee amount and maturity.

    The agency may change the guarantee amount or maturity date, within 
the limitations at 32.304-3, as follows:
    (a) If the contractor enters into additional defense production 
contracts after the application for, but before authorization of, a 
guarantee, the agency may adjust the loan guarantee amount or maturity 
date to meet any significant increase in financing need.
    (b) If the contractor enters into defense production contracts 
during the term of the guaranteed loan, the parties may adjust the 
existing guarantee agreement to provide for financing the new contracts. 
Pertinent information and the Federal Reserve Bank reports will be 
submitted to the guaranteeing agency under the procedures for the 
original guarantee application, described in 32.304-1. Normally, a new 
certificate of eligibility is required.



32.304-5  Assignment of claims under contracts.

    (a) The agency shall generally require a contractor that is provided 
a guaranteed loan to execute an assignment of claims under defense 
production contracts (including any contracts entered into during the 
term of the guaranteed loan that are eligible for financing under the 
loan); however, the agency need not require assignment if any of the 
following conditions are present:
    (1) The contractor's financial condition is so strong that the 
protection to the Government provided by an assignment of claims is 
unnecessary.

[[Page 686]]

    (2) In connection with the assignment of claims under a major 
contract, the increased protection of the loan that would be provided by 
the assignments under additional, relatively smaller contracts is not 
considered necessary by the agency.
    (3) The assignment of claims would create an administrative burden 
disproportionate to the protection required; e.g., if the contractor has 
a large number of contracts with individually small dollar amounts.
    (b) The contractor shall also execute an assignment of claims if 
requested to do so by the guarantor or the financing institution.
    (c) A subcontract or purchase order issued to a subcontractor shall 
not be considered eligible for financing under guaranteed loans when the 
issuer of the subcontract or purchase order reserves (1) the privilege 
of making payments directly to the assignor or to the assignor and 
assignee jointly, after notice of the assignment, or (2) the right to 
reduce or set off assigned proceeds under defense production contracts 
by reason of claims against the borrower arising after notice of 
assignment and independently of defense production contracts under which 
the borrower is the seller.



32.304-6  Other collateral security.

    The following are examples of other forms of security that, although 
seldom invoked under guaranteed loans, may be required when considered 
necessary for protection of the Government interest:
    (a) Mortgages on fixed assets.
    (b) Liens against inventories.
    (c) Endorsements.
    (d) Guarantees.
    (e) Subordinations or standbys of other indebtedness.



32.304-7  Contract surety bonds and loan guarantees.

    (a) Contract surety bonds are incompatible with the Government's 
interests under guaranteed loans, unless the interests of the surety are 
subordinated to the guaranteed loan.
    (b) If a substantial share of the contractor's defense contracts are 
covered by surety bonds, or the amount of the bond is substantial in 
relation to the contractor's net worth, the agency shall not authorize 
the guarantee of a loan on a bonded contract unless the surety enters 
into an agreement with the financing institution to subordinate the 
surety's rights and claims in favor of the guaranteed loan.
    (c) The agency approval of a guarantee for a loan involving 
relatively substantial subcontracts covered by surety bonds shall also 
depend on the establishment of a reasonable allocation agreement between 
the sureties and the financing institution. The agreement should give 
the financing institution the benefit, with regard to payments to be 
made on the contract, of the portion of its loans fairly attributable to 
expenditures made under the bonded subcontracts before notice of 
default.



32.304-8  Other borrowing.

    (a) Because of the limitations under guaranteed loans, some 
contractors seek to supplement the loan by other borrowing (outside the 
guarantee) from the financing institution or other sources. It has been 
recognized in practice that, while prohibition of borrowings outside the 
guaranteed loan is preferable when practicable in a given V-loan case, 
such other borrowings should be permitted when necessary.
    (b) If the agency consents to the contractor obtaining other 
borrowing during the guaranteed loan period, the agency shall apply the 
following restrictions:
    (1) A reasonable limit on the amount of other borrowing.
    (2) If guaranteed and unguaranteed loans are made by the same 
financing institution, a requirement that any collateral security 
requested by the institution under the unguaranteed loan is also to be 
secondary collateral for the guaranteed loan.
    (3) A requirement that the contractor provide appropriate 
documentation to the guaranteeing agency, at intervals not longer than 
30 days, to disclose outstanding unguaranteed borrowings.
[48 FR 42328, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]

[[Page 687]]



32.305  Loan guarantees for terminated contracts.

    (a) The purpose of guaranteed loans; i.e., to provide for financing 
based on the borrower's recoverable investment in defense production 
contracts, may also apply to contracts that have been terminated 
(partially or totally) for the convenience of the Government. Guaranteed 
loans also may be made before such termination if it is known that 
termination of particular contracts for the convenience of the 
Government is about to occur. These loans are expected to provide 
necessary financing pending termination settlements and payments. They 
may also finance continuing performance of defense production contracts 
that are eligible for guaranteed loans.
    (b) The procedure for such guarantees is substantially the same as 
that outlined in 32.304, except that certificates of eligibility are not 
required for (1) contracts that have been totally terminated or (2) the 
terminated portion of contracts that have been partially terminated. The 
agency shall take precautions necessary to avoid Government losses and 
to ensure the loans will be self-liquidating from the proceeds of 
defense production contracts.
    (c) Loan guarantees for contract termination financing shall not be 
provided before specific contract terminations are certain.



32.306  Loan guarantees for subcontracts.

    If the request for a loan guarantee concerns a subcontractor that is 
financially weak in comparison with its contractor, the Government's 
interests may be fostered by the contractor making progress payments to 
the subcontractor. If so, the agency shall try to arrange for the 
contractor to provide the progress payments. As a result, the need for 
the loan guarantee may be reduced or eliminated and the contractor would 
bear part or all of the risk of loss arising from the selection of the 
subcontractor.



         Subpart 32.4--Advance Payments for Non-Commercial Items



32.400  Scope of subpart.

    This subpart provides policies and procedures for advance payments 
on prime contracts and subcontracts. It does not include policies and 
procedures for advance payments for the types of transactions listed in 
32.404. This subpart does not apply to commercial advance payments, 
which are subject to subpart 32.2.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49714, Sept. 26, 1995]



32.401  Statutory authority.

    The agency may authorize advance payments in negotiated and sealed 
bid contracts if the action is appropriate under (a) section 305 of the 
Federal Property and Administrative Services Act of 1949 (41 U.S.C. 
255), (b) the Armed Services Procurement Act (10 U.S.C. 2307), or (c) 
Pub. L. 85-804 (50 U.S.C. 1431-1435) and Executive Order 10789, November 
14, 1958 (3 CFR 1958 Supp. pp. 72-74) (see part 50 of the Federal 
Acquisition Regulation (FAR) for other applications of this statute).
[48 FR 42328, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



32.402  General.

    (a) A limitation on authority to grant advance payments under Pub. 
L. 85-804 (50 U.S.C. 1431-1435) is described at FAR 50.203(b)(4).
    (b) Advance payments may be provided on any type of contract; 
however, the agency shall authorize advance payments sparingly. Except 
for the contracts described in 32.403(a) and (b), advance payment is the 
least preferred method of contract financing (see 32.106) and generally 
they should not be authorized if other types of financing are reasonably 
available to the contractor in adequate amounts. Loans and credit at 
excessive interest rates or other exorbitant charges, or loans from 
other Government agencies, are not considered reasonably available 
financing.

[[Page 688]]

    (c) If statutory requirements and standards for advance payment 
determinations are met, the contracting officer shall generally 
recommend that the agency authorize advance payments.
    (1) The statutory requirements are that--
    (i) The contractor gives adequate security;
    (ii) The advance payments will not exceed the unpaid contract price 
(see 32.410(b), subparagraph (a)(2)); and
    (iii) The agency head or designee determines, based on written 
findings, that the advance payment--
    (A) Is in the public interest (under 32.401(a) or (b)); or
    (B) Facilitates the national defense (under 32.401(c)).
    (2) The standards for advance payment determinations are that--
    (i) The advance payments will not exceed the contractor's interim 
cash needs based on--
    (A) Analysis of the cash flow required for contract performance;
    (B) Consideration of the reimbursement or other payment cycle; and
    (C) To the extent possible, employment of the contractor's own 
working capital;
    (ii) The advance payments are necessary to supplement other funds or 
credit available to a contractor;
    (iii) The recipient is otherwise qualified as a responsible 
contractor;
    (iv) The Government will benefit from performance prospects or there 
are other practical advantages; and
    (v) The case fits one or more of the categories described in 32.403.
    (d) If necessary, the agency may authorize advance payments in 
addition to progress or partial payments on the same contract (see 
32.501-1(c)).
    (e) Each agency that provides advance payments shall--
    (1) Place the responsibility for making findings and determinations, 
and for approval of contract terms concerning advance payments (see 
32.410), at an organizational level high enough to ensure uniform 
application of this subpart (see the limitation at 50.201(b) which also 
applies to advance payments authorized under Pub. L. 85-804 (50 U.S.C. 
1431-1435)); and
    (2) Establish procedures for coordination, before advance payment 
authorization, with the activity that provides contract financing 
support.
    (f) If the contract provides for advance payments under Pub. L. 85-
804, the contracting officer shall ensure conformance with the 
requirements of FAR 50.307.
[48 FR 42328, Sept. 19, 1983, as amended at 59 FR 67047, Dec. 28, 1994]



32.403  Applicability.

    Advance payments may be considered useful and appropriate for the 
following:
    (a) Contracts for experimental, research, or development work with 
nonprofit educational or research institutions.
    (b) Contracts solely for the management and operation of Government-
owned plants.
    (c) Contracts for acquisition at cost of facilities for Government 
ownership.
    (d) Contracts of such a highly classified nature that the agency 
considers it undesirable for national security to permit assignment of 
claims under the contract.
    (e) Contracts entered into with financially weak contractors whose 
technical ability is considered essential to the agency. In these cases, 
the agency shall closely monitor the contractor's performance and 
financial controls to reduce the Government's financial risk.
    (f) Contracts for which a loan by a private financial institution is 
not practicable, whether or not a loan guarantee under this part is 
issued; for example, if--
    (1) Financing institutions will not assume a reasonable portion of 
the risk under a guaranteed loan;
    (2) Loans with reasonable interest rates or finance charges are not 
available to the contractor; or
    (3) Contracts involve operations so remote from a financial 
institution that the institution could not be expected to suitably 
administer a guaranteed loan.
    (g) Contracts with small business concerns, under which 
circumstances that make advance payments appropriate often occur (but 
see 32.104(b)).

[[Page 689]]

    (h) Contracts under which exceptional circumstances make advance 
payments the most advantageous contract financing method for both the 
Government and the contractor.



32.404  Exclusions.

    (a) This subpart does not apply to advance payments authorized by 
law for--
    (1) Rent;
    (2) Tuition;
    (3) Insurance premiums;
    (4) Expenses of investigations in foreign countries;
    (5) Extension or connection of public utilities for Government 
buildings or installations;
    (6) Subscriptions to publications;
    (7) Purchases of supplies or services in foreign countries, if--
    (i) The purchase price does not exceed $10,000 (or equivalent amount 
of the applicable foreign currency); and
    (ii) The advance payment is required by the laws or government 
regulations of the foreign country concerned;
    (8) Enforcement of the customs or narcotics laws; or
    (9) Other types of transactions excluded by agency procedures under 
statutory authority.
    (b) Agencies may issue their own instructions to deal with advance 
payment items in paragraph (a) above authorized under statutes relevant 
to their agencies.



32.405  Applying Pub. L. 85-804 to advance payments under sealed bid contracts.

    (a) Actions that designated agencies may take to facilitate the 
national defense without regard to other provisions of law relating to 
contracts, as explained in 50.101(a), also include making advance 
payments. These advance payments may be made at or after award of sealed 
bid contracts as well as negotiated contracts.
    (b) Bidders may request advance payments before or after award, even 
if the invitation for bids does not contain an advance payment 
provision. However, the contracting officer shall reject any bid 
requiring that advance payments be provided as a basis for acceptance.
    (c) When advance payments are requested, the agency may--
    (1) Enter into the contract and provide for advance payments 
conforming to this part 32;
    (2) Enter into the contract without providing for advance payments 
if the contractor does not actually need advance payments; or
    (3) Deny award of the contract if the request for advance payments 
has been disapproved under 32.409-2 and funds adequate for performance 
are not otherwise available to the offeror.
[48 FR 42328, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



32.406  Letters of credit.

    (a) The Department of the Treasury (Treasury) prescribes regulations 
and instructions covering the use of letters of credit for advance 
payments under contracts. See Treasury Department Circular 1075 (31 CFR 
part 205), and the implementing instructions in the Treasury Financial 
Manual, available in offices providing financial advice and assistance.
    (b) If agencies provide advance payments to contractors, use of the 
following methods is required unless the agency has obtained a waiver 
from the Treasury Department:
    (1) By letter of credit if the contracting agency expects to have a 
continuing relationship with the contractor for a year or more, with 
advances totaling at least $120,000 a year.
    (2) By direct Treasury check if the circumstances do not meet the 
criteria in subparagraph (1) above.
    (c) If the agency has entered into multiple contracts (or a 
combination of contract(s) and assistance agreement(s)) involving 
eligibility of a contractor for more than one letter of credit, the 
agency shall follow arrangements made under Treasury procedures for (1) 
consolidating funding to the same contractor under one letter of credit 
or (2) replacing multiple letters of credit with a single letter of 
credit.
    (d) The letter of credit enables the contractor to withdraw 
Government funds in amounts needed to cover its own disbursements of 
cash for contract performance. Whenever feasible, the agency shall, 
under the direction and approval of the Department of the Treasury, use 
a letter of credit method

[[Page 690]]

that requires the contractor not to withdraw the Government funds until 
the contractor's checks have been (1) forwarded to the payees (delay of 
drawdown technique), or (2) presented to the contractor's bank for 
payment (checks paid technique) (see 31 CFR 205.3 and 205.4(d)).
    (e) The Treasury regulations provide for terminating the advance 
financing arrangement if the contractor is unwilling or unable to 
minimize the elapsed time between receipt of the advance and 
disbursement of the funds. In such cases, if reversion to normal payment 
methods is not feasible, the Treasury regulation provides for use of a 
working capital method of advance; i.e., for limiting advances to (1) 
only the estimated disbursements for a given initial period and (2) 
subsequently, for only actual cash disbursements (31 CFR 205.3(k) and 
205.7).
[48 FR 42328, Sept. 19, 1983, as amended at 52 FR 19805, May 27, 1987]



32.407  Interest.

    (a) Except as provided in paragraph (d) below, the contracting 
officer shall charge interest on the daily unliquidated balance of all 
advance payments at the higher of--
    (1) The published prime rate of the banking institution (depository) 
in which the special bank account (see 32.409-3) is established; or
    (2) The rate established by the Secretary of the Treasury under 50 
U.S.C. App. 1215(b)(2).
    (b) The interest rate for advance payments shall be adjusted for 
changes in the prime rate of the depository and the semiannual 
determination by the Secretary of the Treasury under 50 U.S.C. App. 
1215(b)(2). The contracting officer shall obtain data from the 
depository on changes in the interest rate during the month. Interest 
shall be computed at the end of each month on the daily unliquidated 
balance of advance payments at the applicable daily interest rate.
    (c) Interest shall be required on contracts that are for 
acquisition, at cost, of facilities for Government ownership, if the 
contracts are awarded in combination with, or in contemplation of, 
supply contracts or subcontracts.
    (d) The agency head or designee may authorize advance payments 
without interest under the following types of contracts, if in the 
Government's interest:
    (1) Contracts for experimental, research, or development work 
(including studies, surveys, and demonstrations in socio-economic areas) 
with nonprofit education or research institutions.
    (2) Contracts solely for the management and operation of Government-
owned plants.
    (3) Cost-reimbursement contracts with governments, including State 
or local governments, or their instrumentalities.
    (4) Other classes of contracts, or unusual cases, for which the 
exclusion of interest on advances is specifically authorized by agency 
procedures.
    (e) If a contract provides for interest-free advance payments, the 
contracting officer may require the contractor to charge interest on 
advances or downpayments to subcontractors and credit the Government for 
the proceeds from the interest charges. Interest rates shall be 
determined as described in paragraphs (a) and (b) above. The contracting 
officer need not require the contractor to charge interest on an advance 
to a subcontractor that is an institution of the kind described in 
paragraph (d)(1).
    (f) The contracting officer shall not allow interest charges, 
required by this 32.407, as reimbursable costs under cost-reimbursement 
contracts, whether the interest charge was incurred by the prime 
contractor or a subcontractor.



32.408  Application for advance payments.

    (a) A contractor may apply for advance payments before or after the 
award of a contract.
    (b) The contractor shall submit any advance payment request in 
writing to the contracting officer and provide the following 
information:
    (1) A reference to the contract if the request concerns an existing 
contract, or a reference to the solicitation if the request concerns a 
proposed contract.
    (2) A cash flow forecast showing estimated disbursements and 
receipts for the period of contract performance. If the application 
pertains to a type of

[[Page 691]]

contract described in 32.403(a) or (b), the contractor shall limit the 
forecast to the contract to be financed by advance payments.
    (3) The proposed total amount of advance payments.
    (4) The name and address of the bank at which the contractor expects 
to establish a special account as depository for the advance payments. 
If advance payments in the form of a letter of credit are anticipated, 
the contractor shall identify the specific account at the bank to be 
used. This subparagraph (4) is not applicable if an alternate method is 
used under agency procedures.
    (5) A description of the contractor's efforts to obtain unguaranteed 
private financing or a V-loan (see 32.301) under eligible contracts. 
This requirement is not applicable to the contract types described in 
32.403(a) or (b).
    (6) Other information appropriate to an understanding of (i) the 
contractor's financial condition and need, (ii) the contractor's ability 
to perform the contract without loss to the Government, and (iii) 
financial safeguards needed to protect the Government's interest. 
Ordinarily, if the contract is a type described in 32.403(a) or (b), the 
contractor may limit the response to this subparagraph (6) to 
information on the contractor's reliability, technical ability, and 
accounting system and controls.



32.409  Contracting officer action.

    After analysis of the contractor's application and any appropriate 
investigation, the contracting officer shall recommend approval or 
disapproval and transmit the request and recommendation to the approving 
authority designated under 32.402(e).



32.409-1  Recommendation for approval.

    If recommending approval, the contracting officer shall transmit the 
following, under agency procedures, to the approving authority:
    (a) Contract data, including--
    (1) Identification and date of the award;
    (2) Citation of the appropriation;
    (3) Type and dollar amount of the contract;
    (4) Items to be supplied, schedule of deliveries or performance, and 
status of any deliveries or performance;
    (5) The contract fee or profit contemplated; and
    (6) A copy of the contract, if available.
    (b) The contractor's request and supporting information.
    (c) A report on the contractor's past performance, responsibility, 
technical ability, and plant capacity.
    (d) Comments on (1) the contractor's need for advance payments and 
(2) potential Government benefits from the contract performance.
    (e) Proposed advance payment contract terms, including proposed 
security requirements.
    (f) The findings, determination, and authorization (see 32.410).
    (g) The recommendation for approval of the advance payment request.
    (h) Justification of any proposal for waiver of interest charges 
(see 32.407).



32.409-2  Recommendation for disapproval.

    If recommending disapproval, the contracting officer shall, under 
agency procedures, transmit--
    (a) The items prescribed in 32.409-1(a), (b), and (c); and
    (b) The recommendation for disapproval and the reasons.



32.409-3  Security, supervision, and covenants.

    (a) If advance payments are approved, the contracting officer shall 
enter into an agreement with the contractor covering bank accounts and 
suitable covenants protecting the Government's interest (see 32.411). 
This requirement generally applies under all statutory authorities, but 
modified requirements applicable to certain specific cases are 
prescribed in paragraphs (e) through (g) below.
    (b) The agency shall (1) ensure that the amount of advance payments 
does not exceed the contractor's financial needs, and (2) closely 
supervise the contractor's withdrawal of funds from special bank 
accounts in which the advance payments are deposited.
    (c) In the terms of the agreement, the contracting officer should 
provide for a

[[Page 692]]

paramount lien in favor of the Government. This lien may supplement or 
replace other security requirements. The lien should cover--
    (1) Supplies being acquired;
    (2) Any credit balance in the special bank account in which advance 
payments are deposited; and
    (3) All property that the contractor acquires for performing the 
contract, except to the extent to which the Government otherwise has 
valid title to the property.
    (d) Security requirements vary to fit the circumstances of different 
cases. Minimum security requirements are covered by the clauses 
prescribed in the contract. The contracting officer may supplement these 
as necessary in each case for protection of the Government's interest. 
Examples of additional security terms are--
    (1) Personal or corporate endorsements or guarantees;
    (2) Pledges of collateral;
    (3) Subordination or standby of other indebtedness;
    (4) Controls or limitations on profit distributions, salaries, 
bonuses or commissions, rentals and royalties, capital expenditures, 
creation of liens, retirement of stock or debt, and creation of 
additional obligations; and
    (5) Advance payment bonds (rarely required).
    (e) In an advance payment agreement with an instrumentality of the 
Government, a State, a local government, or an agency or instrumentality 
of a State or local government, the contracting officer may omit the 
requirement for deposit of the advances in a special bank account, if 
the official approving the advance determines that other adequate 
security exists to protect the Government's interest.
    (f) The requirements of this 32.409-3 do not apply when using 
letters of credit if an agency's procedures provide for--
    (1) The use under a cost-reimbursement contract of Federal funds 
deposited in the contractor's bank account (without the contractor 
acquiring title to the funds); and
    (2) The security of such deposit of public moneys in accordance with 
governing regulations of the Treasury Department.
    (g) If a separate special bank account is not required; e.g., 
advance payment by a letter of credit, an agency may require a special 
bank account for an individual case, or classes of cases, if the 
circumstances warrant.



32.410  Findings, determination, and authorization.

    (a) Each determination concerning advance payments shall be 
supported by written findings (see 32.402(c)(1)(iii)).
    (b) The following is an example of the format and text of findings, 
determination, and authorization with alternative words, phrases, and 
paragraphs to be selected to conform to the circumstances involved:

     FINDINGS, DETERMINATION, AND AUTHORIZATION FOR ADVANCE PAYMENTS

                                FINDINGS

    (a) The undersigned hereby finds that:
    (1) The -------- [insert the name of the contracting activity] and 
-------- [insert the name of the contractor] (have entered) (propose to 
enter) into (negotiated) (sealed bid) Contract No. ----, dated ------
    [Summarize the specific facts and significant circumstances 
concerning the contract and the contractor, that, together with the 
other findings, will clearly support the determination below.]
    (2) Advance payments (in an amount not to exceed $------ at any time 
outstanding) (in an aggregate amount not exceeding $------, less the 
aggregate amounts repaid, or withdrawn by the Government) are required 
by the Contractor to perform under the contract. The amount does not 
exceed the unpaid contract price or the estimated interim cash needs 
arising during the reimbursement cycle.
    (3) The advance payments are necessary for prompt, efficient 
contract performance that will benefit the Government.
    (4) The proposed advance payment clause provides for security for 
the protection of the Government. The clause requires that all payments 
will be desposited in a special bank account and that the Government 
will have a paramount lien on (i) the credit balance in the special bank 
account, (ii) any supplies contracted for, and (iii) any material or 
other property acquired for performance of the contract. [Insert the 
following, if applicable (The Contractor's financial management system 
provides for effective control over and accountability for all Federal 
funds under governing regulations of the Treasury Department.) (An 
advance payment

[[Page 693]]

bond is required.)] This security is considered adequate.
    (5) Advance payments are the only adequate means of financing 
available to the Contractor, and the amount designated in (2) above is 
based, to the extent possible, on the use of the Contractor's own 
working capital in performing the contract.

           [Insert paragraph (6), (7), or (8), as applicable].

    (6) The Contractor is a nonprofit (educational) (and) (research) 
institution, and the contract is for (experimental) (,) (research and 
development) work.
    (7) The contract is solely for the management and operation of a 
Government-owned plant.
    (8) The following unusual facts and circumstances favor making 
advance payments to the Contractor without interest:

              [List the pertinent facts and circumstances.]

                              DETERMINATION

    (b) Based on the findings in (a) above, the undersigned determined 
that the making of the proposed advance payments, (with interest at the 
rate of --[Insert the interest rate computed in accordance with 32.407] 
percent on the daily unliquidated balance of the advance payments,) 
(without interest, except as provided by the proposed advance payment 
clause,) (is in the public interest) (will facilitate the national 
defense).

                              AUTHORIZATION

    (c) The advance payments, of which (the amount at any time 
outstanding) (the aggregate amount, less the aggregate amounts repaid, 
or withdrawn by the Government), shall not exceed $----, are hereby 
authorized under (section 305 of the Federal Property and Administrative 
Services Act of 1949 (41 U.S.C. 255)) (the Armed Services Procurement 
Act (10 U.S.C. 2307)) (the Extraordinary Contracting Authority of 
Government Agencies in Connection with National Defense Functions (50 
U.S.C. 1431-1435) and Executive Order No. 10789 of November 14, 1958 (3 
CFR 1958 Supp. pp. 72-74)) [or, if other, cite appropriate authority] on 
(terms substantially as contained in the proposed advance payment 
clause, a copy (an outline) of which is annexed to this authorization) 
(the following terms:) [Insert the appropriate terms.]
    (All prior authorizations for advance payments under Contract No. --
---- are superseded.)

 _______________________________________________________________________
                                                       (Signature)      
________________________________________________________________________
                                                          (Name typed)  
________________________________________________________________________
                                          (Title of authorized official)

    [Each Findings, Determination, and Authorization shall be 
individually prepared to fit the particular circumstances at hand. 
Subparagraphs (a)(1), (2), (3) and (4) and paragraphs (b) and (c) shall 
be used in each case. If the contract is (a) for experimental, 
developmental, or research work and with a nonprofit educational or 
research institution, or (b) only for management and operation of a 
Government-owned plant, subparagraph (a)(5) should not be included. If 
the advance payment is to be made without interest to the contractor, 
include subparagraph (a)(6), (7), or (8). If any advance payments have 
previously been authorized for the contract, include the final sentence 
of paragraph (c). The alternate parenthetical wording or other 
modifications may be used as appropriate. The paragraphs actually used 
shall be renumbered sequentially].
[48 FR 42328, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



32.411  Agreement for special bank account.

    The contracting officer shall use substantially the following form 
of agreement for a special bank account for advance payments:

                   AGREEMENT FOR SPECIAL BANK ACCOUNT

    This agreement is entered into this ---- day of ------, 19--, 
between the United States of America, (the Government), represented by 
the Contracting Officer executing this agreement, ------ [Insert the 
name of the contractor], a ------ [Insert the name of the State of 
incorporation] corporation (the Contractor), and ------, a banking 
corporation under the laws of ------, located at ------ (the Bank).

                                RECITALS

    (a) Under date of ------, 19--, the Government and the Contractor 
entered into Contract No. ------, or a related supplemental agreement, 
providing for advance payments to the Contractor. A copy of the advance 
payment terms was furnished to the Bank.
    (b) The contract or supplemental agreement requires that amounts 
advanced to the Contractor be deposited separate from the Contractor's 
general or other funds, in a Special Bank Account at a member bank of 
the Federal Reserve System or any ``insured'' bank within the meaning of 
the Act creating the Federal Deposit Insurance Corporation (12 U.S.C. 
1811). The parties agree to deposit the amounts with the Bank, which 
meets the requirement.
    (c) This Special Bank Account is designated ``-------- [Insert the 
contractor's name], -------- [Insert the name of the Government agency] 
Special Bank Account.''

[[Page 694]]

                                COVENANTS

    In consideration of the foregoing, and for other good and valuable 
considerations, the parties agree to the following conditions:
    (a) The Government shall have a lien on the credit balance in the 
account to secure the repayment of all advance payments made to the 
Contractor. The lien is paramount to any lien or claim of the Bank 
regarding the account.
    (b) The Bank is bound by the terms of the contract relating to the 
deposit and withdrawal of funds in the Special Bank Account, but is not 
responsible for the application of funds withdrawn from the account. The 
Bank shall act on written directions from the Contracting Officer, the 
administering office, or a duly authorized representative of either. The 
Bank is not liable to any party to this agreement for any action that 
complies with the written directions. Any written directions received by 
the Bank through the Contracting Officer on -------- [Insert the name of 
the agency] stationery and purporting to be signed by, or by the 
direction of -------- or duly authorized representative, shall be, as 
far as the rights, duties, and liabilities of the Bank are concerned, 
considered as being properly issued and filed with the Bank by the ----
---- [Insert the name of the agency].
    (c) The Government, or its authorized representatives, shall have 
access to the books and records maintained by the Bank regarding the 
Special Bank Account at all reasonable times and for all reasonable 
purposes, including (but not limited to), the inspection or copying of 
the books and records and any and all pertinent memoranda, checks, 
correspondence, or documents. The Bank shall preserve the books and 
records for a period of 6 years after the closing of this Special Bank 
Account.
    (d) In the event of the service of any writ of attachment, levy of 
execution, or commencement of garnishment proceedings regarding the 
Special Bank Account, the Bank will promptly notify -------- [Insert the 
name of the administering office].
    (e) While this Special Bank Account exists, the Bank shall inform 
the Government each month of the Bank's published prime interest rate 
and changes to the rate during the month. The Bank shall give this 
information to the Contracting Officer on the last business day of the 
month. [This covenant will not be included in Special Bank Account 
Agreements covering interest-free advance payments].
    Each of the parties to this agreement has executed the agreement on 
--------, 19--

 _______________________________________________________________________
________________________________________________________________________
                                        [Signatures and official titles]



32.412  Contract clause.

    (a) The contracting officer shall insert the clause at 52.232-12, 
Advance Payments, in solicitations and contracts under which the 
Government will provide advance payments, except as provided in 
32.412(b).
    (b) If the agency desires to waive the countersignature requirement 
because of the contractor's financial strength, good performance record, 
and favorable experience concerning cost disallowances, the contracting 
officer shall use the clause with its Alternate I.
    (c) If a cost-reimbursement contract is contemplated, the 
contracting officer shall use the clause with its Alternate II.
    (d) If the agency considers a more rapid liquidation appropriate, 
the contracting officer shall use the clause with its Alternate III.
    (e) If the agency provides advance payments under the contract at no 
interest to the prime contractor, the contracting officer shall use the 
clause with its Alternate IV.
    (f) If the requirement for a special bank account is eliminated in 
accordance with 32.409-3 (e) or (g), the contracting officer shall 
insert in the solicitation or contract the clause set forth in Alternate 
V of 52.232-12, Advance Payments, instead of the basic clause.
[48 FR 42328, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990]



             Subpart 32.5--Progress Payments Based on Costs



32.500  Scope of subpart.

    This subpart prescribes policies, procedures, forms, solicitation 
provisions, and contract clauses for providing contract financing 
through progress payments based on costs. This subpart does not apply 
to--
    (a) Payments under cost-reimbursement contracts, other than 
reimbursement of the contractor's progress payments to subcontractors 
and suppliers (see 32.504(f)); or
    (b) Contracts for construction or for shipbuilding or ship 
conversion, alteration, or repair, when the contracts provide for 
progress payments based on a percentage or stage of completion.

[[Page 695]]



32.501  General.

    Progress payments may be customary or unusual. Customary progress 
payments are those made under the general guidance in this subpart, 
using the customary progress payment rate, the cost base, and frequency 
of payment established in the Progress Payments clause, and either the 
ordinary liquidation method or the alternate method as provided in 
subsections 32.503-8 and 32.503-9. Any other progress payments are 
considered unusual, and may be used only in exceptional cases when 
authorized in accordance with subsection 32.501-2.



32.501-1  Customary progress payment rates.

    (a) The customary progress payment rate is 80 percent, applicable to 
the total costs of performing the contract. The customary rate for 
contracts with small business concerns is 85 percent. The Department of 
Defense (DOD) may establish other customary rates for foreign military 
sales and for flexible progress payments.
    (b) Any rate higher than those permitted in paragraph (a) above 
shall be considered an unusual progress payment. The contracting officer 
shall not include a higher rate in a contract unless advance agency 
approval is obtained as prescribed in 32.501-2.
    (c) When advance payments and progress payments are authorized under 
the same contract, a progress payment rate higher than the customary 
rate shall not be authorized.
    (d) In accordance with the Defense Procurement Improvement Act of 
1986 (Public Law 99-145), as amended, and for civilian agencies, in 
accordance with 41 U.S.C. 255, as amended, progress payments are limited 
to 80 percent on work accomplished under undefinitized contract actions. 
A higher rate is not authorized under unusual progress payments or other 
customary progress payments for the undefinitized actions.
[48 FR 42328, Sept. 19, 1987, as amended at 52 FR 30077, Aug. 12, 1987; 
60 FR 49714, Sept. 26, 1995]



32.501-2  Unusual progress payments.

    (a) The contracting officer may provide unusual progress payments 
only if--
    (1) The contract necessitates predelivery expenditures that are 
large in relation to contract price and in relation to the contractor's 
working capital and credit;
    (2) The contractor fully documents an actual need to supplement any 
private financing available, including guaranteed loans; and
    (3) The contractor's request is approved by the head of the 
contracting activity or a designee. In addition, see 32.502-2.
    (b) The excess of the unusual progress payment rate approved over 
the customary progress payment rate should be the lowest amount possible 
under the circumstances.
    (c) Progress payments will not be considered unusual merely because 
they are on letter contracts or the definitive contracts that supersede 
letter contracts.



32.501-3  Contract price.

    (a) For the purpose of making progress payments and determining the 
limitation on progress payments, the contract price shall be as follows:
    (1) Under firm-fixed-price contracts, the contract price is the 
current contract price plus any unpriced modifications for which funds 
have been obligated.
    (2) If the contract is redeterminable or subject to economic price 
adjustment, the contract price is the initial price until modified.
    (3) Under a fixed-price incentive contract, the contract price is 
the target price plus any unpriced modifications for which funds have 
been obligated. However, if the contractor's properly incurred costs 
exceed the target price, the contracting officer may provisionally 
increase the price up to the ceiling or maximum price.
    (4) Under a letter contract, the contract price is the maximum 
amount obligated by the contract as modified.
    (5) Under an unpriced order issued against a basic ordering 
agreement, the

[[Page 696]]

contract price is the maximum amount obligated by the order, as 
modified.
    (6) Any portion of the contract specifically providing for 
reimbursement of costs only shall be excluded from the contract price.
    (b) The contracting officer shall not make progress payments or 
increase the contract price beyond the funds obligated under the 
contract, as amended.



32.501-4  [Reserved]



32.501-5  Other protective terms.

    If the contracting officer considers it necessary for protection of 
the Government's interest, protective terms such as the following may be 
used in addition to the Progress Payments clause of the contract:
    (a) Personal or corporate guarantees.
    (b) Subordinations or standbys of indebtedness.
    (c) Special bank accounts.
    (d) Protective covenants of the kinds in paragraph (p) of the clause 
at 52.232-12, Advance Payments.
    (e) A provision, included in the solicitation and resultant contract 
when first article testing is required (see subpart 9.3), limiting 
progress payments on first article work by a stated amount or 
percentage.
[48 FR 42328, Sept. 19, 1983, as amended at 55 FR 52794, Dec. 21, 1990]



32.502  Preaward matters.

    This section covers matters that generally are relevant only before 
contract award. This does not preclude taking actions discussed here 
after award, if appropriate; e.g., postaward addition of a Progress 
Payments clause for consideration.



32.502-1  Use of customary progress payments.

    The use of a Progress Payments clause in solicitations and resulting 
contracts generally shall be based upon considerations of the criteria 
in this subsection. Reasonable doubts should be resolved in favor of 
including the Progress Payments clause in the solicitation. Bids 
conditioned on progress payments when the solicitation did not provide 
for progress payments shall be rejected as nonresponsive.
    (a) Subject to paragraph (b) of this subsection, the contracting 
officer may provide for customary progress payments if the contractor 
(1) will not be able to bill for the first delivery of products, or 
other performance milestones, for a substantial time after work must 
begin (normally 4 months or more for small business concerns; 6 months 
or more for others), and (2) will make expenditures for contract 
performance during the predelivery period that have a significant impact 
on the contractor's working capital. Progress payments may also be 
authorized, particularly for small suppliers, if the contractor 
demonstrates actual financial need or the unavailability of private 
financing (see 32.106(a)).
    (b) To reduce undue administrative effort and expense, unless 
otherwise provided in agency regulations, the contracting officer shall 
not provide for progress payments on contracts of less than $1 million 
unless--
    (1) The contractor is a small business concern and the contract will 
be equal to or greater than the simplified acquisition threshold; or
    (2) The contractor will perform a group of small contracts at the 
same time and the total impact on working capital is equivalent to a 
single contract of $1,000,000 or more.
    (c)(1) In considering whether to provide for progress payments in 
circumstances under which a series of orders are awarded (e.g., 
indefinite delivery contracts or basic ordering agreements contemplating 
requisitions, task orders, etc., or their equivalent), the contracting 
officer shall apply the standards in paragraphs (a) and (b) of this 
subsection, based on--
    (i) An estimate of the total work to be done; and
    (ii) The probable impact on working capital of the predelivery 
expenditures and production lead times of the majority of the individual 
orders.
    (2) In authorizing progress payments under multiple-order contracts, 
the contracting officer should establish a single liquidation rate 
applicable to all orders.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49715, Sept. 26, 1995]

[[Page 697]]



32.502-2  Contract finance office clearance.

    The contracting officer shall obtain the approval of the contract 
finance office or other offices designated under agency procedures 
before taking any of the following actions:
    (a) Providing a progress payment rate higher than the customary rate 
(see 32.501-1).
    (b) Deviating from the progress payments terms prescribed in this 
part.
    (c) Providing progress payments to a contractor--
    (1) Whose financial condition is in doubt;
    (2) Who has had an advance payment request or loan guarantee denied 
for financial reasons (or approved but withdrawn or lapsed) within the 
previous 12 months; or
    (3) Who is named in the consolidated list of contractors indebted to 
the United States (known commonly as the Hold-up List).



32.502-3  Solicitation provisions.

    (a) The contracting officer shall insert the provision at 52.232-13, 
Notice of Progress Payments, in invitations for bids and requests for 
proposals that include a Progress Payments clause.
    (b)(1) Under the authority of the statutes cited in 32.101, an 
invitation for bids may restrict the availability of progress payments 
to small business concerns only.
    (2) The contracting officer shall insert the provision at 52.232-14, 
Notice of Availability of Progress Payments Exclusively for Small 
Business Concerns, in invitations for bids if it is anticipated that (1) 
both small business concerns and others may submit bids in response to 
the same invitation and (2) only the small business bidders would need 
progress payments.
    (c) The contracting officer shall insert the provision at 52.232-15, 
Progress Payments Not Included, in invitations for bids if the 
solicitation will not contain one of the provisions prescribed in 
paragraphs (a) and (b) above.



32.502-4  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.232-16, 
Progress Payments, in solicitations and fixed-price contracts under 
which the Government will provide progress payments based on costs.
    (b) If the contractor is a small business concern, the contracting 
officer shall use the clause with its Alternate I.
    (c) If the contract is a letter contract, the contracting officer 
shall use the clause with its Alternate II.
    (d) If the nature of the contract necessitates separate progress 
payment rates for portions of work that are clearly severable and 
accounting segregation would be maintained (e.g., annual production 
requirements), the application of separate progress payment rates shall 
be fully described in a supplementary special provision within the 
contract. Separate progress payment requests and subsequent invoices 
shall be submitted by the contractor for the severable portions of work 
in order to maintain accounting integrity.
[48 FR 42328, Sept. 19, 1983, as amended 52 FR 30077, Aug. 12, 1987]



32.503  Postaward matters.

    This section covers matters that are generally relevant only after 
award of a contract. This does not preclude taking actions discussed 
here before award, if appropriate; e.g., preaward review of accounting 
systems and controls.



32.503-1  Contractor requests.

    Each contractor request for progress payment shall--
    (a) Be submitted on Standard Form 1443, Contractor's Request for 
Progress Payment;
    (b) Comply with the instructions appropriate to the applicable form, 
and the contract terms; and
    (c) Include any additional information reasonably requested by the 
contracting officer.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 34739, July 3, 1995]



32.503-2  Supervision of progress payments.

    (a) The extent of progress payments supervision, by prepayment 
review or periodic review, should vary inversely with the contractor's 
experience, performance record, reliability, quality of

[[Page 698]]

management, and financial strength, and with the adequacy of the 
contractor's accounting system and controls. Supervision shall be of a 
kind and degree sufficient to provide timely knowledge of the need for, 
and timely opportunity for, any actions necessary to protect Government 
interests.
    (b) The administering office must keep itself informed of the 
contractor's overall operations and financial condition, since 
difficulties encountered and losses suffered in operations outside the 
particular progress payment contract may affect adversely the 
performance of that contract and the liquidation of the progress 
payments.
    (c) For contracts with contractors (1) whose financial condition is 
doubtful or not strong in relation to progress payments outstanding or 
to be outstanding, (2) with management of doubtful capacity, (3) whose 
accounting controls are found by experience to be weak, or (4) 
experiencing substantial difficulties in performance, full information 
on progress under the contract involved (including the status of 
subcontracts) and on the contractor's other operations and overall 
financial condition should be obtained and analyzed frequently, with a 
view to protecting the Government's interests better and taking such 
action as may be proper to make contract performance more certain.
    (d) So far as practicable, all cost problems, particularly those 
involving indirect costs, that are likely to create disagreements in 
future administration of the contract should be identified and resolved 
at the inception of the contract (see 31.109).



32.503-3  Initiation of progress payments and review of accounting system.

    (a) For contractors that the administrative contracting officer 
(ACO) has found by previous experience or recent audit review (within 
the last 12 months) to be (1) reliable, competent, and capable of 
satisfactory performance, (2) possessed of an adequate accounting system 
and controls, and (3) in sound financial condition, progress payments in 
amounts requested by the contractor should be approved as a matter of 
course.
    (b) For all other contractors, the ACO shall not approve progress 
payments before determining (1) that (i) the contractor will be capable 
of liquidating any progress payments or (ii) the Government is otherwise 
protected against loss by additional protective provisions, and (2) that 
the contractor's accounting system and controls are adequate for proper 
administration of progress payments. The services of the cognizant 
independent audit agency or office should be used to the greatest extent 
practicable. However, if the auditor so advises, a complete audit may 
not be necessary.



32.503-4  Approval of progress payment requests.

    (a) When the reliability of the contractor and the adequacy of the 
contractor's accounting system and controls have been established (see 
32.503-3 above) the ACO may, in approving any particular progress 
payment request (including initial requests on new contracts), rely upon 
that accounting system and upon the contractor's certification, without 
requiring audit or review of the request before payment.
    (b) The ACO should not routinely ask for audits of progress payment 
requests. However, when there is reason to (1) question the reliability 
or accuracy of the contractor's certification or (2) believe that the 
contract will involve a loss, the ACO should ask for a review or audit 
of the request before payment is approved or the request is otherwise 
disposed of.
    (c) When there is reason to doubt the amount of a progress payment 
request, only the doubtful amount should be withheld, subject to later 
adjustment after review or audit; any clearly proper and due amounts 
should be paid without awaiting resolution of the differences.



32.503-5  Administration of progress payments.

    (a) While the ACO may, in approving progress payment requests under 
32.503-3 above, rely on the contractor's accounting system and 
certification without prepayment review, postpayment reviews (including 
audits when considered necessary) shall be made periodically, or when 
considered

[[Page 699]]

desirable by the ACO to determine the validity of progress payments 
already made and expected to be made.
    (b) These postpayment reviews or audits shall, as a minimum, include 
a determination of whether or not--
    (1) The unliquidated progress payments are fairly supported by the 
value of the work accomplished on the undelivered portion of the 
contract;
    (2) The applicable limitation on progress payments in the Progress 
Payments clause has been exceeded;
    (3)(i) The unpaid balance of the contract price will be adequate to 
cover the anticipated cost of completion, or
    (ii) The contractor has adequate resources to complete the contract; 
and
    (4) There is reason to doubt the adequacy and reliability of the 
contractor's accounting system and controls and certification.
    (c)(1) Generally, the progress payments made under multiple-order 
contracts should be administered under each individual order as if the 
order constituted a separate contract.
    (2) If the contractor requests it and the contracting officer 
approving individual progress payments agrees, the administration of 
progress payments may be based on the overall contract or agreement. 
Under this method, the contractor shall include a supporting schedule 
with each request for a progress payment. The schedule should identify 
the costs applicable to each order.
    (3) The contracting officer may treat a group of orders as a single 
unit for administration of progress payments if each order in the group 
is (i) subject to a uniform liquidation rate, and (ii) under the 
jurisdiction of the same payment office.



32.503-6  Suspension or reduction of payments.

    (a) General. The Progress Payments clause provides a Government 
right to reduce or suspend progress payments, or to increase the 
liquidation rate, under specified conditions. These conditions and 
actions are discussed in paragraphs (b) through (g) below.
    (1) The contracting officer shall take these actions only in 
accordance with the contract terms and never precipitately or 
arbitrarily. These actions should be taken only after--
    (i) Notifying the contractor of the intended action and providing an 
opportunity for discussion;
    (ii) Evaluating the effect of the action on the contractor's 
operations, based on the contractor's financial condition, projected 
cash requirements, and the existing or available credit arrangements; 
and
    (iii) Considering the general equities of the particular situation.
    (2) The contracting officer shall take immediate unilateral action 
only if warranted by circumstances such as overpayments or 
unsatisfactory contract performance.
    (3) In all cases, the contracting officer shall (i) act fairly and 
reasonably, (ii) base decisions on substantial evidence, and (iii) 
document the contract file. Findings made under paragraph (c) of the 
Progress Payments clause shall be in writing.
    (b) Contractor noncompliance. (1) The contractor must comply with 
all material requirements of the contract. This includes the requirement 
to maintain an efficient and reliable accounting system and controls, 
adequate for the proper administration of progress payments. If the 
system or controls are deemed inadequate, progress payments shall be 
suspended (or the portion of progress payments associated with the 
unacceptable portion of the contractor's accounting system shall be 
suspended) until the necessary changes have been made.
    (2) If the contractor fails to comply with the contract without 
fault or negligence, the contracting officer will not take action 
permitted by paragraph (c)(1) of the Progress Payments clause, other 
than to correct overpayments and collect amounts due from the 
contractor.
    (c) Unsatisfactory financial condition. (1) If the contracting 
officer finds that contract performance (including full liquidation of 
progress payments) is endangered by the contractor's financial 
condition, or by a failure to make progress, the contracting officer 
shall require the contractor to make additional operating or financial 
arrangements adequate for completing the

[[Page 700]]

contract without loss to the Government.
    (2) If the contracting officer concludes that further progress 
payments would increase the probable loss to the Government, the 
contracting officer shall suspend progress payments and all other 
payments until the unliquidated balance of progress payments is 
eliminated.
    (d) Excessive inventory. If the inventory allocated to the contract 
exceeds reasonable requirements (including a reasonable accumulation of 
inventory for continuity of operations), the contracting officer should, 
in addition to requiring the transfer of excessive inventory from the 
contract, take one or more of the following actions, as necessary, to 
avoid or correct overpayment:
    (1) Eliminate the costs of the excessive inventory from the costs 
eligible for progress payments, with appropriate reduction in progress 
payments outstanding.
    (2) Apply additional deductions to billings for deliveries (increase 
liquidation).
    (e) Delinquency in payment of costs of performance. (1) If the 
contractor is delinquent in paying the costs of contract performance in 
the ordinary course of business, the contracting officer shall evaluate 
whether the delinquency is caused by an unsatisfactory financial 
condition and, if so, shall apply the guidance in paragraph (c) above. 
If the contractor's financial condition is satisfactory, the contracting 
officer shall not deny progress payments if the contractor agrees to--
    (i) Cure the payment delinquencies;
    (ii) Avoid further delinquencies; and
    (iii) Make additional arrangements adequate for completing the 
contract without loss to the Government.
    (2) If the contractor has, in good faith, disputed amounts claimed 
by subcontractors, suppliers, or others, the contracting officer shall 
not consider the payments delinquent until the amounts due are 
established by the parties through litigation or arbitration. However, 
the amounts shall be excluded from costs eligible for progress payments 
so long as they are disputed.
    (3) Determinations of delinquency in making contributions under 
employee pension, profit sharing, or stock ownership plans, and 
exclusion of costs for such contributions from progress payment 
requests, shall be in accordance with paragraph (a)(2) of the clause at 
52.232-6, Progress Payments, without regard to the provisions of 32.503-
6.
    (f) Fair value of undelivered work. (1) For the purposes of subpart 
32.5, the fair value of undelivered work is the lesser of (i) the 
contract price of the undelivered work, minus the estimated costs 
required for completing contract performance, or (ii) the incurred costs 
applicable to the undelivered items.
    (2) The contracting officer shall monitor the relationship of 
unliquidated progress payments to the fair value of undelivered work 
under the contract. If the unliquidated progress payments exceed the 
fair value of undelivered work, the contracting officer shall, governed 
by the principles in paragraphs (c) and (e) above, take appropriate 
action to eliminate this excess using the loss ratio adjustment 
described in paragraph (g) below, and based on full consideration of--
    (i) The degree of completion of contract performance;
    (ii) The quality and amount of work performed on the undelivered 
portion of the contract;
    (iii) The amount of work remaining to be done and the estimated 
costs of completion of performance; and
    (iv) The amount remaining unpaid under the contract.
    (g) Loss contracts. (1) If the sum of the total costs incurred under 
a contract plus the estimated costs to complete the performance are 
likely to exceed the contract price, the contracting officer shall 
compute a loss ratio factor and adjust future progress payments to 
exclude the element of loss. The loss ratio factor is computed as 
follows:
    (i) Revise the current contract price used in progress payment 
computations (the current ceiling price under fixed-price incentive 
contracts) to include any pending change orders and unpriced orders to 
the extent funds for the orders have been obligated.
    (ii) Divide the revised contract price by the sum of the total costs 
incurred to date plus the estimated additional costs of completing the 
contract performance.

[[Page 701]]

    (2) If the contracting officer believes a loss is probable, future 
progress payment requests shall be modified as follows:
    (i) The contract price shall be the revised amount computed under 
subparagraph (1)(i) above.
    (ii) The total costs eligible for progress payments shall be the 
product of (A) the sum of paid costs eligible for progress payments 
times (B) the loss ratio factor computed under subparagraph (1)(ii) 
above.
    (iii) The costs applicable to items delivered, invoiced, and 
accepted shall not include costs in excess of the contract price of the 
items.
    (3) The contracting officer may use audit assistance, technical 
services, management reports, and other sources of pertinent data to 
evaluate progress payment requests. If the contracting officer concludes 
that the contractor's figures in the contractor's progress payment 
request are not correct, the contracting officer shall--
    (i) In the manner prescribed in paragraph (4) below, prepare a 
supplementary analysis to be attached to the contractor's request;
    (ii) Advise the contractor in writing of the differences; and
    (iii) Adjust all further progress payments in accordance with 
paragraph (1) above, using the contracting officer's figures, until the 
difference is resolved.
    (4) The following is an example of the supplementary analysis 
required in paragraph (3) above:

                                                                        
                                                                        
                                                                        
Section I:                                                              
  Contract price...........................................     $950,000
  Change orders and unpriced orders (to extent funds have               
   been obligated).........................................       50,000
                                                                        
                                                            ------------
  Revised contract price...................................   $1,000,000
                                                                        
Section II:                                                             
  Total costs incurred to date.............................     $900,000
  Estimated additional costs to complete...................      300,000
                                                                        
                                                            ------------
    Total costs to complete................................   $1,200,000
                                                            ============
                                                                        


                                                                        
                                                                        
                                                                        
                                $1,000,000                              
      Loss ratio factor         ----------    =  83.3%                  
                                $1,200,000                              
                                                                        


                                                                        
                                                                        
                                                                        
  Total costs eligible for progress payments...............     $900,000
  Loss ratio factor........................................     x  83.3%
  Recognized costs for progress payments...................     $749,700
  Progress payment rate....................................     x  80.0%
  Alternate amount to be used..............................     $599,760
Section III:                                                            
  Factored costs of items delivered *......................     $250,000
  Recognized costs applicable to undelivered items                      
   ($749,700-$250,000).....................................     $499,700
                                                                        
* This amount shall be the same as the contract price of the items      
  delivered.                                                            

[48 FR 42328, Sept. 19, 1983, as amended at 52 FR 30077, Aug. 12, 1987; 
54 FR 5056, Jan. 31, 1989; 54 FR 48989, Nov. 28, 1989]



32.503-7  Limitation on general and administrative expenses (G&A) for progress payments.

    If the contractor established an inventory suspense account under 
Appendix A of Cost Accounting Standard (CAS) 410, Allocation of Business 
Unit General and Administrative Expenses to Final Cost Objectives (48 
CFR 9904.410 (appendix, FAR loose-leaf edition)), and the account is $5 
million or more, the following limitations shall apply to progress 
payments:
    (a) G&A shall not be eligible for progress payments until the value 
of work in process inventories under new contracts exceeds that under 
the old. For this purpose, new contracts shall be considered to be those 
awarded after CAS 410 became applicable to the work of the contractor. 
Old contracts are those included in the suspense account prescribed in 
CAS 410.
    (b) The amount of G&A eligible for progress payments under the 
contract shall be the contractor's pro rata share of G&A allocable to 
the excess under paragraph (a) above.
[48 FR 42328, Sept. 19, 1983, as amended at 59 FR 67043, Dec. 28, 1994; 
62 FR 40237, July 25, 1997 ]



32.503-8  Liquidation rates--ordinary method.

    Progress payments are recouped by the Government through the 
deduction of liquidations from payments that would otherwise be due to 
the contractor for completed contract items. To determine the amount of 
the liquidation, a liquidation rate is applied to the contract price of 
contract items delivered and accepted. The ordinary method is that the 
liquidation rate is the same as the progress payment rate; at the 
beginning of a contract, only this method may be used. If the contract 
is subject to the CAS limitation in 32.503-7 on G&A eligible for 
progress

[[Page 702]]

payments, the ordinary method includes the use of an adjusted 
liquidation rate to reflect the applicable G&A suspense account. The 
adjusted liquidation rate shall be established by (a) dividing the 
unbilled G&A by the contract price, (b) multiplying the quotient by the 
progress payment rate stated in the contract, and (c) subtracting the 
resulting rate from the progress payment rate. For example, if the price 
is $1,100,000 and the unbilled G&A is $47,600, the adjusted liquidation 
rate would be 76.5 percent, computed as follows:

                                                                        
                                                                        
                                                                        
Unbilled G.A divided by contract price (47,600/1,100,000)......   4.33% 
Result x progress payment rate (4.33% x 80%)...................   3.46% 
Result subtracted from progress payment rate (80% - 3.46%).....  76.54% 
                                                                        

[48 FR 42328, Sept. 19, 1983, as amended 52 FR 30077, Aug. 12, 1987]



32.503-9  Liquidation rates--alternate method.

    (a) The liquidation rate determined under 32.503-8 shall apply 
throughout the period of contract performance unless the contracting 
officer adjusts the liquidation rate under the alternate method in this 
32.503-9. The objective of the alternate liquidation rate method is to 
permit the contractor to retain the earned profit element of the 
contract prices for completed items in the liquidation process. The 
contracting officer may reduce the liquidation rate if--
    (1) The contractor requests a reduction in the rate;
    (2) The rate has not been reduced in the preceding 12 months;
    (3) The contract delivery schedule extends at least 18 months from 
the contract award date;
    (4) Data on actual costs are available (i) for the products 
delivered, or (ii) if no deliveries have been made, for a performance 
period of at least 12 months;
    (5) The reduced liquidation rate would result in the Government 
recouping under each invoice the full extent of the progress payments 
applicable to the costs allocable to that invoice;
    (6) The contractor would not be paid for more than the costs of 
items delivered and accepted (less allocable progress payments) and the 
earned profit on those items;
    (7) The unliquidated progress payments would not exceed the limit 
prescribed in paragraph (a)(4) of the Progress Payments clause;
    (8) The parties agree on an appropriate rate; and
    (9) The contractor agrees to certify annually, or more often if 
requested by the contracting officer, that the alternate rate continues 
to meet the conditions of subsections 5, 6, and 7 above. The certificate 
must be accompanied by adequate supporting information.
    (b) The contracting officer shall change the liquidation rate in the 
following circumstances:
    (1) The rate shall be increased for both previous and subsequent 
transactions, if the contractor experiences a lower profit rate than the 
rate anticipated at the time the liquidation rate was established. 
Accordingly, the contracting officer shall adjust the progress payments 
associated with contract items already delivered, as well as subsequent 
progress payments.
    (2) The rate shall be increased or decreased in keeping with the 
successive changes to the contract price or target profit when--
    (i) The target profit is changed under a fixed-price incentive 
contract with successive targets; or
    (ii) A redetermined price involves a change in the profit element 
under a contract with prospective price redetermination at stated 
intervals.
    (c) Whenever the liquidation rate is changed, the contracting 
officer shall issue a contract modification to specify the new rate in 
the Progress Payments clause. Adequate consideration for these contract 
modifications is provided by the consideration included in the initial 
contract. The parties shall promptly make the payment or liquidation 
required in the circumstances.



32.503-10  Establishing alternate liquidation rates.

    (a) The contracting officer shall ensure that the liquidation rate 
is--
    (1) High enough to result in Government recoupment of the applicable 
progress payments on each billing; and

[[Page 703]]

    (2) Supported by documentation included in the administration office 
contract file.
    (b) The minimum liquidation rate is the expected progress payments 
divided by the contract price. Each of these factors is discussed below:
    (1) Usually, the contracting officer shall compute the expected 
progress payments by multiplying the estimated cost of performing the 
contract by the progress payment rate. In certain cases, part of the 
contractor's G&A is excluded from the estimated cost for the purpose of 
calculating expected progress payments for the liquidation rate. These 
cases pertain to the implementation of CAS 410 (see 32.503-7 and 32.503-
8).
    (2) For purposes of computing the liquidation rate, the contracting 
officer may adjust the estimated cost and the contract price to include 
the estimated value of any work authorized but not yet priced and any 
projected economic adjustments; however, the contracting officer's 
adjustment shall not exceed the Government's estimate of the price of 
all authorized work or the funds obligated for the contract.
    (3) The following are examples of the computation. Assuming an 
estimated price of $1,100,000 and total estimated costs eligible for 
progress payments of $1,000,000:
    (i) If the progress payment rate is 80 percent, the minimum 
liquidation rate should be 72.7 percent, computed as follows:
[GRAPHIC] [TIFF OMITTED] TC03AP91.001

    (ii) If the progress payment rate is 85 percent, the minimum 
liquidation rate should be 77.3 percent, computed as follows:
[GRAPHIC] [TIFF OMITTED] TC03AP91.002

    (iii) If the contract is subject to CAS limitation on G&A eligible 
for progress payments (see 32.503-7), an adjusted alternate liquidation 
rate shall be established by subtracting the estimated G&A not eligible 
for progress payments from the total estimated contract costs. For 
example, if the price is $1,100,000, costs are $1,000,000, and unbilled 
G&A is $47,600, the liquidation rate should be 69.3 percent, computed as 
follows:
[GRAPHIC] [TIFF OMITTED] TC03AP91.003

    (4) Minimum liquidation rates will generally be expressed to tenths 
of a percent. Decimals between tenths will be rounded up to the next 
highest tenth (not necessarily the nearest tenth), since rounding down 
would produce a rate below the minimum rate calculated.
[48 FR 42328, Sept. 19, 1983, as amended 52 FR 30077, Aug. 12, 1987]



32.503-11  Adjustments for price reduction.

    (a) If a retroactive downward price reduction occurs under a 
redeterminable contract that provides for progress payments, the 
contracting officer shall--
    (1) Determine the refund due and obtain repayment from the 
contractor for the excess of payments made for delivered items over 
amounts due as recomputed at the reduced prices; and
    (2) Increase the unliquidated progress payments amount for 
overdeductions made from the contractor's billings for items delivered.
    (b) The contracting officer shall also increase the unliquidated 
progress payments amount if the contractor makes an interim or voluntary 
price reduction under a redeterminable or incentive contract.



32.503-12  Maximum unliquidated amount.

    (a) The contracting officer shall ensure that any excess of the 
unliquidated progress payments over the contractual limitation in 
paragraph (a) of the Progress Payments clause in the contract is 
promptly corrected through one or more of the following actions:
    (1) Increasing the liquidation rate.
    (2) Reducing the progress payment rate.
    (3) Suspending progress payments.
    (b) The excess described in paragraph (a) above is most likely to 
arise under the following circumstances:

[[Page 704]]

    (1) The costs of performance exceed the contract price.
    (2) The alternate method of liquidation (see 32.503-9) is used and 
the actual costs of performance exceed the cost estimates used to 
establish the liquidation rate.
    (3) The rate of progress or the quality of contract performance is 
unsatisfactory.
    (4) The rate of rejections, waste, or spoilage is excessive.
    (c) As required, the services of the cognizant independent audit 
agency or office should be fully utilized, along with the services of 
qualified cost analysis and engineering personnel.



32.503-13  Quarterly statements for price revision contracts.

    Under price revision or redeterminable contracts that include 
progress payments clauses, the contracting officer shall occasionally 
compare the quarterly statements submitted under the price revision or 
renegotiation clause at 52.216-5, 52.216-6, 52.216-16, or 52.216-17 with 
the contractor's requests for progress payments. The contracting officer 
should ensure, as far as is reasonably possible, that costs of delivered 
items in the quarterly statements are excluded from the costs of 
undelivered items (the basis for unliquidated progress payments) in the 
contractor's request for progress payments.



32.503-14  Protection of Government title.

    (a) Since the Progress Payments clause gives the Government title to 
all of the materials, work-in-process, finished goods, and other items 
of property described in paragraph (d) of the Progress Payments clause, 
under the contract under which progress payments have been made, the ACO 
must ensure that the Government title to these inventories is not 
compromised by other encumbrances. Ordinarily, the ACO, in the absence 
of reason to believe otherwise, may rely upon the contractor's 
certification contained in the progress payment request.
    (b) If the ACO becomes aware of any arrangement or condition that 
would impair the Government's title to the property affected by progress 
payment, the ACO shall require additional protective provisions (see 
32.501-5) to establish and protect the Government's title.
    (c) The existence of any such encumbrance is a violation of the 
contractor's obligations under the contract, and the ACO may, if 
necessary, suspend or reduce progress payments under the terms of the 
Progress Payments clause covering failure to comply with any material 
requirement of the contract. In addition, if the contractor fails to 
disclose an existing encumbrance in the progress payments certification, 
the ACO should consult with legal counsel concerning possible violation 
of 31 U.S.C. 3729, the False Claims Act.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986]



32.503-15  Application of Government title terms.

    (a) Property to which the Government obtains title by operation of 
the Progress Payments clause solely is not, as a consequence, 
Government-furnished property.
    (b) Although property title is vested in the Government under the 
Progress Payments clause, the acquisition, handling, and disposition of 
certain types of property are governed by other clauses, as follows:
    (1) The clause at 52.245-17, Special Tooling, for special tooling.
    (2) The termination clauses at 52.249, for termination inventory.
    (c) The contractor may sell or otherwise dispose of current 
production scrap in the ordinary course of business on its own volition, 
even if title has vested in the Government under the Progress Payments 
clause. The contracting officer shall require the contractor to credit 
the costs of the contract performance with the proceeds of the scrap 
disposition.
    (d) When the title to materials or other inventories is vested in 
the Government under the Progress Payments clause, the contractor may 
transfer the inventory items from the contract for its own use or other 
disposition only if, and on terms, approved by the contracting officer. 
The contractor shall (1) eliminate the costs allocable to the 
transferred property from the costs of contract performance, and (2) 
repay or credit to the Government an amount

[[Page 705]]

equal to the unliquidated progress payments, allocable to the 
transferred property.
    (e) If excess property remains after the contract performance is 
complete and all contractor obligations under the contract are 
satisfied, including full liquidation of progress payments, the excess 
property is outside the scope of the Progress Payments clause. 
Therefore, the contractor holds title to it.



32.503-16  Risk of loss.

    (a) Under the Progress Payments clause, and except for normal 
spoilage, the contractor bears the risk for loss, theft, destruction, or 
damage to property affected by the clause, even though title is vested 
in the Government, unless the Government has expressly assumed this 
risk. The clauses prescribed in this regulation related to progress 
payments, default, and terminations do not constitute a Government 
assumption of this risk.
    (b) If a loss occurs in connection with property for which the 
contractor bears the risk, the contractor is obligated to repay to the 
Government the amount of unliquidated progress payments based on costs 
allocable to the property.
    (c) The contractor is not obligated to pay for the loss of property 
for which the Government has assumed the risk of loss. However, a 
serious loss may impede the satisfactory progress of contract 
performance, so that the contracting officer may need to act under 
paragraph (c)(5) of the Progress Payments clause.



32.504  Subcontracts.

    (a) The contracting officer shall encourage the contractor to 
provide progress payments to subcontractors on terms that meet the 
standards in 32.502-1 for customary progress payments.
    (b) The contractor's requests for progress payments may include the 
full amount paid to subcontractors as progress payments under the 
contract and subcontracts.
    (c) If the contractor is considering making unusual progress 
payments to a subcontractor, the parties shall be guided by the policies 
in 32.501-2. If unusual progress payments for the subcontract are 
approved by the Government, the contracting officer shall issue a 
contract modification to specify the new rate in subdivision (j)(4) of 
the Progress Payments clause in the prime contract. This will allow the 
contractor to include the progress payments to the subcontractor in the 
cost basis for progress payments by the Government. This modification 
shall not be considered a deviation and shall not require the clearance 
prescribed in 32.502-2(b).
    (d) The contractor has a duty to ensure that progress payments to 
subcontractors conform to the standards and principles prescribed in 
paragraph (j) of the Progress Payments clause in the prime contract. 
Although the contracting officer should, to the extent appropriate, 
review the subcontract as part of the overall administration of progress 
payments in the prime contract, there is no special requirement for 
contracting officer review or consent merely because the subcontract 
includes a progress payments clause except as provided in paragraph (c) 
above. However, the contracting officer shall ensure that the contractor 
has installed the necessary management control systems, including 
internal audit procedures.
    (e) The subcontract terms shall include the substance of the 
Progress Payments clause in the prime contract, modified to indicate 
that the contractor, not the Government, awards the subcontract and 
administers the progress payments. The following exceptions apply to 
wording modifications:
    (1) The subcontract terms on title to property under progress 
payments shall provide for vesting of title in the Government, not the 
contractor, as in paragraph (d) of the Progress Payments clause in the 
prime contract. A reference to the contractor may, however, be 
substituted for Government in subdivision (d)(2)(iv) of the clause.
    (2) In the subcontract terms on reports and access to records, the 
contractor shall not delete the references to Contracting Officer and 
Government in adapting paragraph (g) of the Progress Payments clause in 
the contract, but may expand the terms as follows:

[[Page 706]]

    (i) The term Contracting Officer may be changed to Contracting 
Officer or Prime Contractor.
    (ii) The term the Government may be changed to the Government or 
Prime Contractor.
    (3) The subcontract special terms regarding default shall include 
paragraph (h) of the Progress Payments clause in the contract through 
its subdivision (i). The rest of paragraph (h) is optional.
    (f) If the contractor makes progress payments to a subcontractor 
under a cost-reimbursement prime contract, the contracting officer shall 
accept the progress payments as reimbursable costs of the prime contract 
only under the following conditions:
    (1) The payments are made under the criteria in 32.502-1 for 
customary progress payments.
    (2) The payments do not exceed the progress payment rate in 32.501-1 
unless unusual progress payments to the subcontractor have been approved 
in accordance with 32.501-2.
    (3) The subcontractor complies with the liquidation principles of 
32.503-8, 32.503-9, and 32.503-10.
    (4) The subcontract contains progress payments terms as prescribed 
in this section.
[48 FR 42328, Sept. 19, 1983, as amended at 52 FR 9039, Mar. 20, 1987]



                      Subpart 32.6--Contract Debts



32.600  Scope of subpart.

    This subpart prescribes policies and procedures for the Government's 
actions in ascertaining and collecting contract debts, charging interest 
on the debts, deferring collections, and compromising and terminating 
certain debts.



32.601  Definition.

    Responsible official, as used in this subpart, means the contracting 
officer (see subpart 2.1) or other official designated under agency 
procedures to administer the collection of contract debts and applicable 
interest.



32.602  General.

    The contract debts covered in this subpart arise in various ways. 
The following are some examples:
    (a) Damages or excess costs related to defaults in performance.
    (b) Breach of contract obligations concerning progress payments, 
advance payments, or Government-furnished property or material.
    (c) Government expense of correcting defects.
    (d) Overpayments related to errors in quantity or billing or 
deficiencies in quality.
    (e) Retroactive price reductions resulting from contract terms for 
price redetermination or for determination of prices under incentive 
type contracts.
    (f) Overpayments disclosed by quarterly statements required under 
price redetermination or incentive contracts.
    (g) Delinquency in contractor payments due under agreements or 
arrangements for deferral or postponement of collections.
    (h) Reimbursement of costs, as provided in 33.102(b) and 
33.104(h)(1), paid by the Government where a postaward protest is 
sustained as a result of an awardee's misstatement, misrepresentation, 
or miscertification.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 48275, Sept. 18, 1995; 
61 FR 41470, Aug. 8, 1996]



32.603  Applicability.

    Except as otherwise specified, this subpart applies to all debts to 
the Government arising in connection with contracts and subcontracts for 
the acquisition of supplies or services, and debts arising from the 
Government's payment of costs, as provided in 33.102(b) and 
33.104(h)(1), where a postaward protest is sustained as a result of an 
awardee's misstatement, misrepresentation, or miscertification.
[61 FR 41470, Aug. 8, 1996]



32.604  Exclusions.

    This subpart does not apply to claims of the Government against 
military or civilian employees or their dependents arising in connection 
with current or

[[Page 707]]

past employment by the Government. Sections 32.613, 32.614, and 32.616 
do not apply to claims against common carriers for transportation 
overcharges and freight and cargo losses.



32.605  Responsibilities and cooperation among Government officials.

    (a) To protect the Government's interests, contracting officers, 
contract financing offices, disbursing officials, and auditors shall 
cooperate fully with each other to--
    (1) Discover promptly when a contract debt arises;
    (2) Ascertain the correct amount of the debt;
    (3) Act promptly and effectively to collect the debt;
    (4) Administer deferment of collection agreements; and
    (5) Provide up-to-date information on the status of the debt.
    (b) For most kinds of contract debts, including reimbursement of 
protest costs, the contracting officer has the primary responsibility 
for determining the amounts of and collecting contract debt. Under some 
agency procedures, however, the individual who is responsible for 
payment under the contract; e.g., the disbursing officer, may have this 
primary responsibility.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 48275, Sept. 18, 1995]



32.606  Debt determination and collection.

    (a) If any indication of a contract debt arises, the responsible 
official shall determine promptly whether an actual debt is due the 
Government and the amount. Any unwarranted delay may contribute to--
    (1) Loss of timely availability of the funds to the program for 
which the funds were initially provided;
    (2) Increased difficulty in collecting the debt; or
    (3) Actual monetary loss to the Government.
    (b) In determining the amount of any contract debt, the responsible 
official shall fairly consider both the Government's claim and any 
contract claims by the contractor against the Government. This 
determination does not constitute a settlement of such claims, nor is it 
a contracting officer's final determination under the Contract Disputes 
Act of 1978.
    (c) The responsible official shall establish a control record for 
each contract debt, to include at least the following information:
    (1) The name and address of the contractor.
    (2) The contract number, if any.
    (3) A description of the debt.
    (4) The amount of debt and the appropriation to be credited.
    (5) The date the debt was determined.
    (6) The dates of demands for payment.
    (7) The amounts and dates of collections, as they occur.
    (8) The date of any appeal filed or action brought in the Court of 
Claims under the Disputes clause.
    (9) The status of collections. Examples include--
    (i) Actions reported to the disbursing officer (name, location, and 
date);
    (ii) Funds requested to be withheld by the disbursing officer;
    (iii) Funds requested to be withheld by other offices (date and 
office);
    (iv) Deferment or installment payment arrangement requested;
    (v) Deferment or installment request reviewed;
    (vi) Supplemental information requested to support deferment 
requests; and
    (vii) Actions transferred to the contract financing office.
    (d) Except in cases in which an agreement has been entered into for 
deferment of collections (32.613) or bankruptcy proceedings against the 
contractor have been initiated, the contractor shall be required to 
liquidate the debt by--
    (1) Cash payment in a lump sum, on demand; or
    (2) Credit against existing unpaid bills due the contractor.
    (e) The responsible officials shall use all proper means available 
to them for collecting debts as rapidly as possible. Practices for 
ascertaining and collecting debts shall be comprehensive, dynamic, and 
as uniform as practicable. Full consideration shall be given to personal 
contact and followup.
[48 FR 42328, Sept. 19, 1983, as amended at 55 FR 38517, Sept. 18, 1990]

[[Page 708]]



32.607  Tax credit.

    (a) If the contractor is entitled to a tax credit under section 1481 
of the Internal Revenue Code (26 U.S.C. 1481) and requests recognition 
of the credit in the debt collection, the responsible official shall 
comply.
    (b) The tax credit shall be considered to reduce the amount of the 
debt as of the date when interest on the debt begins to accrue.
    (c) The amount of the debt reduction shall be the amount of the tax 
credit certificate, if a certificate was issued by the Internal Revenue 
Service (IRS). If the IRS has not yet issued a certificate, the 
responsible official may accept the contractor's estimate of the tax 
credit amount until the certificate is issued, subject to any 
verification that the responsible official considers appropriate.
    (d) A reduction for a tax credit does not apply to a debt arising 
from a subcontract.



32.608  Negotiation of contract debts.

    (a) The responsible official shall ensure that any negotiations 
concerning debt determinations are completed expeditiously. If 
consistent with the contract, the official shall make a unilateral 
determination promptly if the contractor is delinquent in any of the 
following actions:
    (1) Furnishing pertinent information.
    (2) Negotiating expeditiously.
    (3) Entering into an agreement on a fair and reasonable price 
revision.
    (4) Signing an interim memorandum evidencing a negotiated pricing 
agreement involving refund.
    (5) Executing an appropriate contract modification reflecting the 
result of negotiations.
    (b) The amount of indebtedness determined unilaterally shall be an 
amount that--
    (1) Is proper based on the merits of the case;
    (2) Does not exceed an amount that would have been considered 
acceptable in a negotiated agreement; and
    (3) Is consistent with the contract terms.
    (c) For unilateral debt determinations, the contracting officer 
shall issue a decision as required by the clause at 52.233-1, Disputes. 
Such decision shall include a demand for payment (see 33.211(a)(4)(vi)). 
No demand for payment under 32.610 shall be issued prior to a 
contracting officer's final decision. A copy of the final decision shall 
be sent to the appropriate finance office.
[48 FR 42328, Sept. 19, 1983, as amended at 54 FR 34755, Aug. 21, 1989]



32.609  Memorandum of pricing agreement with refund.

    (a) If a refund to the Government is agreed upon in negotiations 
under a price revision type of contract, the responsible official shall 
promptly write a memorandum to document the agreement and the contract 
debt. The memorandum shall be signed by the negotiators for the 
Government and the contractor. If the procedures of either the agency or 
the contractor require approval of the negotiation results by higher 
authority, the memorandum shall be written without prejudice to the 
final pricing. After negotiations are completed, a supplemental 
agreement shall be executed without delay.
    (b) The amount of refund shall be computed promptly, without waiting 
for itemization of adjustment of past billings, accounting adjustments, 
or the adjusted invoices.



32.610  Demand for payment of contract debt.

    (a) A demand for payment shall be made as soon as the responsible 
official has computed the amount of refund due. If the debt arises from 
excess costs for a default termination, the demand shall be made without 
delay, as explained in 49.402-6.
    (b) The demand shall include the following:
    (1) A description of the debt, including the debt amount.
    (2) Notification that any amounts not paid within 30 days from the 
date of the demand will bear interest from the date of the demand, or 
from any earlier date specified in the contract, and that the interest 
rate shall be the rate established by the Secretary of the Treasury, for 
the period affected, under Public Law 92-41. In the case of a debt 
arising from a price reduction for defective pricing, or as specifically

[[Page 709]]

set forth in a Cost Accounting Standards (CAS) clause in the contract, 
that interest will run from the date of overpayment by the Government 
until repayment by the contractor at the underpayment rate established 
by the Secretary of the Treasury, for the periods affected, under 26 
U.S.C. 6621(a)(2).
    (3) A notification that the contractor may submit a proposal for 
deferment of collection if immediate payment is not practicable or if 
the amount is disputed.
    (4) Identification of the responsible official designated for 
determining the amount of the debt and for its collection.
    (c) If subparagraph (b)(3) of the clause at 52.232-17, Interest, 
applies, the demand mentioned in paragraph (a) above shall accompany or 
be included in the transmittal mentioned in the clause.
[48 FR 42328, Sept. 19, 1983, as amended at 54 FR 34755, Aug. 21, 1989; 
55 FR 52794, Dec. 21, 1990; 56 FR 29128, June 25, 1991; 61 FR 18922, 
Apr. 29, 1996]



32.611  Routine setoff.

    If a disbursing officer is the responsible official for collection 
of a contract debt, or is notified of the debt by the responsible 
official and has contractor invoices on hand for payment, the disbursing 
officer shall make an appropriate setoff. The disbursing officer shall 
give the contractor an explanation of the setoff. To the extent that the 
setoff reduces the debt, the explanation shall replace the demand 
prescribed in 32.610.



32.612  Withholding and setoff.

    During the 30 days following the issuance of a demand, the 
advisability of withholding payments otherwise due to the contractor 
shall be considered based on the circumstances of the individual cases. 
If payment is not completed within 30 days, and deferment is not 
requested, withholding of principal and interest shall be initiated 
immediately. In the event the contract is assigned under the Assignment 
of Claims Act of 1940 (31 U.S.C. 3727 and 41 U.S.C. 15), the rights of 
the assignee will be scrupulously respected and withholding of payments 
shall be consistent with those rights. For additional information on 
assignment of claims, see subpart 32.8.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986]



32.613  Deferment of collection.

    (a) If the responsible official receives a written request from the 
contractor for a deferment of the debt collection or installment 
payments, the official shall promptly review the request to see if the 
information included is adequate for action on the request. If not, the 
contractor shall be asked to furnish the needed information. Any 
necessary changes to the terms of the proposed deferment/installment 
agreement shall also be suggested.
    (b) If the contractor has appealed the debt under the procedures of 
the Disputes clause of the contract, the information with the request 
for deferment may be limited to an explanation of the contractor's 
financial condition.
    (c) If there is no appeal pending or action filed under the Disputes 
clause of the contract, the following information about the contractor 
should be submitted with the request:
    (1) Financial condition.
    (2) Contract backlog.
    (3) Projected cash receipts and requirements.
    (4) The feasibility of immediate payment of the debt.
    (5) The probable effect on operations of immediate payment in full.
    (d) Although the existence of a contractor appeal of the debt does 
not of itself require the Government to suspend or delay collection 
action, the responsible official shall consider whether deferment of the 
debt collection is advisable to avoid possible overcollection. The 
responsible official may authorize a deferment pending the resolution of 
appeal.
    (e) Deferments pending disposition of appeal may be granted to small 
business concerns and financially weak contractors, with a reasonable 
balance of the need for Government security against loss and undue 
hardship on the contractor.
    (f) If a contractor has not appealed the debt or filed an action 
under the Disputes clause of the contract, the responsible official may 
arrange for deferment/installment payments if the

[[Page 710]]

contractor is unable to pay at once in full or the contractor's 
operations under national defense contracts would be seriously impaired. 
The arrangement shall include appropriate covenants and securities and 
should be limited to the shortest practicable maturity.
    (g) Contracts and arrangements for deferment may not provide that a 
claim of the Government will not become due and payable pending mutual 
agreement on the amount of the claim or, in the case of a dispute, until 
the decision is reached.
    (h) At a minimum, the deferment agreement shall contain the 
following:
    (1) A description of the debt.
    (2) The date of first demand for payment.
    (3) Notice of an interest charge, in conformity with FAR 32.614 and 
the clause at FAR 52.232-17, Interest; or, in the case of a debt arising 
from a defective pricing or a CAS noncompliance overpayment, interest, 
as prescribed by the applicable Price Reduction for Defective Cost or 
Pricing Data or CAS clause.
    (4) Identification of the office to which the contractor is to send 
debt payments.
    (5) A requirement for the contractor to submit financial information 
requested by the Government and for reasonable access to the 
contractor's records and property by Government representatives.
    (6) Provision for the Government to terminate the deferment 
agreement and accelerate the maturity of the debt if the contractor 
defaults or if bankruptcy or insolvency proceedings are instituted by or 
against the contractor.
    (7) Protective requirements that are considered by the Government to 
be prudent and feasible in the specific circumstances. The coverage of 
protective terms at 32.409 and 32.501-5 may be used as a guide.
    (i) If a contractor appeal of the debt determination is pending, the 
deferment agreement shall also include a requirement that the contractor 
shall--
    (1) Diligently prosecute the appeal; and
    (2) Pay the debt in full when the appeal is decided, or when the 
parties reach agreement on the debt amount.
    (j) If the contractor does not plan to appeal the debt or file an 
action under the Disputes clause of the contract, the deferment/
installment agreement shall include a specific schedule or plan for 
payment. It should permit the Government to make periodic financial 
reviews of the contractor and to require prepayments if the Government 
considers the contractor's ability to pay improved. It should also 
provide for required stated or measurable prepayments on the occurrence 
of specific events or contingencies that improve the contractor's 
ability to pay.
    (k) If desired by the contractor, the deferment agreement may 
provide for the right to make prepayments without prejudice, for refund 
of overpayments, and for crediting of interest (see 32.614-2).
    (l) Actions filed by contractors under the Disputes clause shall not 
suspend or delay collection. Until the action is decided, deferments 
shall only be granted if, within 30 days after the filing of such 
action, the contractor presents to the responsible official a good and 
sufficient bond, or other collateral acceptable to the responsible 
official, in the amount of the claim, and approved by the responsible 
official. Any amount collected by the Government in excess of the amount 
found to be due on appeal under the Disputes clause of the contract 
shall be refunded to the contractor with interest thereon from the date 
of collection by the Government at the annual rate established by the 
Secretary of Treasury under Pub. L. 92-41. Simple interest shall be 
calculated through the period of indebtedness to reflect each 6-month 
period change in the rates established by the Secretary.
[48 FR 42328, Sept. 19, 1983, as amended at 55 FR 52795, Dec. 21, 1990; 
56 FR 29128, June 25, 1991; 61 FR 18922, Apr. 29, 1996]



32.614  Interest.



32.614-1  Interest charges.

    (a) Under the clause at 52.232-17, Interest, the responsible 
official shall apply interest charges to any contract

[[Page 711]]

debt unpaid after 30 days from the issuance of a demand, unless--
    (1) The contract specifies another due date or procedure for 
charging or collecting interest;
    (2) The contract is a kind excluded under 32.617; or
    (3) The contract or debt has been exempted from interest charges 
under agency procedures.
    (b) If not already applicable under the contract terms, interest on 
contract debt shall be made an element of any agreement entered into on 
deferment of collection.
    (c) Unless specified otherwise in the clause at FAR 52.232-17, the 
interest charge shall be at the rate established by the Secretary of the 
Treasury under Public Law 92-41 for the period in which the amount 
becomes due. The interest charge shall be computed for the actual number 
of calendar days involved beginning on the due date and ending on--
    (1) The date on which the designated office receives payment from 
the contractor;
    (2) The date of issuance of a Government check to the contractor 
from which an amount otherwise payable has been withheld as a credit 
against the contract debt;
    (3) The date on which an amount withheld and applied to the contract 
debt would otherwise have become payable to the contractor; or
    (4) The date of any applicable tax credit under 32.607.
[48 FR 42328, Sept. 19, 1983, as amended at 56 FR 29128, June 25, 1991; 
61 FR 18922, Apr. 29, 1996]



32.614-2  Interest credits.

    (a) An equitable interest credit shall be applied under the 
following circumstances:
    (1) When the amount of debt initially determined is subsequently 
reduced; e.g., through a successful appeal.
    (2) When the collection procedures followed in a given case result 
in an overcollection of the debt due.
    (3) When the responsible official determines that the Government has 
unduly delayed payments to the contractor on the same contract at some 
time during the period to which the interest charge applied, provided an 
interest penalty was not paid for such late payment.
    (b) Any appropriate interest credits shall be computed under the 
following procedures:
    (1) Interest at the rate under 32.614-1(c) shall be charged on the 
reduced debt from the date specified in the first demand made for 
payment of the higher debt.
    (2) Interest may not be reduced for any time between the due date 
under the demand and the period covered by a deferment of collection, 
unless the contract includes an interest clause; e.g., the clause 
prescribed in 32.617.
    (3) Interest shall not be credited in an amount that, when added to 
other amounts refunded or released to the contractor, exceeds the total 
amount that has been collected, or withheld for the purpose of 
collecting the debt. This limitation shall be further reduced by the 
amount of any limitation applicable under 32.614-2(b)(2).



32.615  Delays in receipt of notices or demands.

    If delivery of the demands or notices required by the clause at 
52.232-17, Interest, is delayed by the Government (e.g., undue delay 
after dating at the originating office or delays in the mail), the date 
of the debt and accrual of interest shall be extended to a time that is 
fair and reasonable under the particular circumstances.



32.616  Compromise actions.

    For debts under $100,000, excluding interest, if further collection 
is not practicable or would cost more than the amount of recovery, the 
agency may compromise the debt or terminate or suspend further 
collection action. Compromise is authorized by the Federal Claims 
Collection Act of 1966 (31 U.S.C. 3711). Compromise actions shall 
conform to Federal claims collection standards (4 CFR 101-105), and 
agency regulations.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
56 FR 29128, June 25, 1991]



32.617  Contract clause.

    (a) The contracting officer shall insert the clause at 52.232-17, 
Interest, in solicitations and contracts, unless it is

[[Page 712]]

contemplated that the contract will be in one or more of the following 
categories:
    (1) Contracts at or below the simplified acquisition threshold.
    (2) Contracts with Government agencies.
    (3) Contracts with a State or local government or instrumentality.
    (4) Contracts with a foreign government or instrumentality.
    (5) Contracts without any provision for profit or fee with a 
nonprofit organization.
    (6) Contracts described in subpart 5.5, Paid advertisements.
    (7) Any other exceptions authorized under agency procedures.
    (b) The contracting officer may insert the clause at 52.232-17, 
Interest, in solicitations and contracts when it is contemplated that 
the contract will be in any of the categories specified in 32.617(a).
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



                     Subpart 32.7--Contract Funding



32.700  Scope of subpart.

    This subpart (a) describes basic requirements for contract funding 
and (b) prescribes procedures for using limitation of cost or limitation 
of funds clauses. Detailed acquisition funding requirements are 
contained in agency fiscal regulations.



32.701  [Reserved]



32.702  Policy.

    No officer or employee of the Government may create or authorize an 
obligation in excess of the funds available, or in advance of 
appropriations (Anti-Deficiency Act, 31 U.S.C. 1341), unless otherwise 
authorized by law. Before executing any contract, the contracting 
officer shall (a) obtain written assurance from responsible fiscal 
authority that adequate funds are available or (b) expressly condition 
the contract upon availability of funds in accordance with 32.703-2.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986]



32.703  Contract funding requirements.



32.703-1  General.

    (a) If the contract is fully funded, funds are obligated to cover 
the price or target price of a fixed-price contract or the estimated 
cost and any fee of a cost-reimbursement contract.
    (b) If the contract is incrementally funded, funds are obligated to 
cover the amount allotted and any corresponding increment of fee.



32.703-2  Contracts conditioned upon availability of funds.

    (a) Fiscal year contracts. The contracting officer may initiate a 
contracting action properly chargeable to funds of the new fiscal year 
before these funds are available; provided, that the contract includes 
the clause at 52.232-18, Availability of Funds (see 32.705-1(a)). This 
authority may be used only for operation and maintenance and continuing 
services (e.g., rentals, utilities, and supply items not financed by 
stock funds) (1) necessary for normal operations and (2) for which 
Congress previously had consistently appropriated funds, unless specific 
statutory authority exists permitting applicability to other 
requirements.
    (b) Indefinite-quantity or requirements contracts. A one-year 
indefinite-quantity or requirements contract for services that is funded 
by annual appropriations may extend beyond the fiscal year in which it 
begins; provided, that (1) any specified minimum quantities are certain 
to be ordered in the initial fiscal year (see 37.106) and (2) the 
contract includes the clause at 52.232-19, Availability of Funds for the 
Next Fiscal Year (see 32.705-1(b)).
    (c) Acceptance of supplies or services. The Government shall not 
accept supplies or services under a contract conditioned upon the 
availability of funds until the contracting officer has given the 
contractor notice, to be confirmed in writing, that funds are available.



32.703-3  Contracts crossing fiscal years.

    (a) A contract that is funded by annual appropriations may not cross 
fiscal years, except in accordance with statutory authorization (see 41 
U.S.C. 11a, 31 U.S.C. 1308, 42 U.S.C. 2459a and

[[Page 713]]

41 U.S.C. 253l (see paragraph (b) of this section)), or when the 
contract calls for an end product that cannot feasibly be subdivided for 
separate performance in each fiscal year (e.g., contracts for expert or 
consultant services).
    (b) 41 U.S.C. 253l, as amended by Section 1073 of the Federal 
Acquisition Streamlining Act of 1994 (Pub. L. 103-355), authorizes heads 
of executive agencies other than the Department of Defense, United 
States Coast Guard, and the National Aeronautics and Space 
Administration (41 U.S.C. 252(a)(1)), to enter into a basic contract, 
options, or orders under that contract for procurement of severable 
services for a period that begins in one fiscal year and ends in the 
next fiscal year if the period of the basic contract, options or orders 
under that contract does not exceed one year each. Funds made available 
for a fiscal year may be obligated for the total amount of an action 
entered into under this authority (see 37.106(b)). Consult agency 
supplements for similar authorities that may exist for the Department of 
Defense, United States Coast Guard, or the National Aeronautics and 
Space Administration.
[60 FR 37778, July 21, 1995]



32.704  Limitation of cost or funds.

    (a)(1) When a contract contains the clause at 52.232-20, Limitation 
of Cost; 52.232-21, Limitation of Cost (Facilities); or 52.232-22, 
Limitation of Funds, the contracting officer, upon learning that the 
contractor is approaching the estimated cost of the contract or the 
limit of the funds allotted, shall promptly obtain funding and 
programming information pertinent to the contract's continuation and 
notify the contractor in writing that--
    (i) Additional funds have been allotted, or the estimated cost has 
been increased, in a specified amount;
    (ii) The contract is not to be further funded and that the 
contractor should submit a proposal for an adjustment of fee, if any, 
based on the percentage of work completed in relation to the total work 
called for under the contract;
    (iii) The contract is to be terminated; or
    (iv)(A) The Government is considering whether to allot additional 
funds or increase the estimated cost, (B) the contractor is entitled by 
the contract terms to stop work when the funding or cost limit is 
reached, and (C) any work beyond the funding or cost limit will be at 
the contractor's risk.
    (2) Upon learning that a partially funded contract containing any of 
the clauses referenced in subparagraph (1) above will receive no further 
funds, the contracting officer shall promptly give the contractor 
written notice of the decision not to provide funds.
    (b) Under a cost-reimbursement contract, the contracting officer may 
issue a change order, a direction to replace or repair defective items 
or work, or a termination notice without immediately increasing the 
funds available. Since a contractor is not obligated to incur costs in 
excess of the estimated cost in the contract, the contracting officer 
shall ensure availability of funds for directed actions. The contracting 
officer may direct that any increase in the estimated cost or amount 
allotted to a contract be used for the sole purpose of funding 
termination or other specified expenses.
    (c) Government personnel encouraging a contractor to continue work 
in the absence of funds will incur a violation of Revised Statutes 
Section 3679 (31 U.S.C. 1341) that may subject the violator to civil or 
criminal penalties.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986]



32.705  Contract clauses.



32.705-1  Clauses for contracting in advance of funds.

    (a) The contracting officer shall insert the clause at 52.232-18, 
Availability of Funds, in solicitations and contracts if the contract 
will be chargeable to funds of the new fiscal year and the contracting 
action is to be initiated before the funds are available.
    (b) The contracting officer shall insert the clause at 52.232-19, 
Availability of Funds for the Next Fiscal Year, in solicitations and 
contracts if a one-year indefinite-quantity or requirements contract for 
services is contemplated and the contract (a) is funded by annual 
appropriations and (b) is to extend beyond the initial fiscal year (see 
32.703-2(b)).

[[Page 714]]



32.705-2  Clauses for limitation of cost or funds.

    (a) The contracting officer shall insert the clause at 52.232-20, 
Limitation of Cost, in solicitations and contracts if a fully funded 
cost-reimbursement contract is contemplated, except those for 
consolidated facilities, facilities acquisition, or facilities use, 
whether or not the contract provides for payment of a fee.
    (b) The contracting officer shall insert the clause at 52.232-21, 
Limitation of Cost (Facilities), in solicitations and contracts for 
consolidated facilities, facilities acquisition, or facilities use (see 
45.301).
    (c) The contracting officer shall insert the clause at 52.232-22, 
Limitation of Funds, in solicitations and contracts if an incrementally 
funded cost-reimbursement contract is contemplated.



                   Subpart 32.8--Assignment of Claims



32.800  Scope of subpart.

    This subpart prescribes policies and procedures for the assignment 
of claims under the Assignment of Claims Act of 1940, as amended, 31 
U.S.C. 3727 (hereafter referred to as the Act).
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986]



32.801  Definitions.

    Assignment of claims, as used in this subpart, means the transfer or 
making over by the contractor to a bank, trust company, or other 
financing institution, as security for a loan to the contractor, of its 
right to be paid by the Government for contract performance.
    Designated agency, as used in this subpart, means any department or 
agency of the executive branch of the United States Government (see 
32.803(d)).
    No-setoff commitment, as used in this subpart, means a contractual 
undertaking that, to the extent permitted by the Act, payments by the 
designated agency to the assignee under an assignment of claims will not 
be reduced to liquidate the indebtedness of the contractor to the 
Government.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49730, Sept. 26, 1995]



32.802  Conditions.

    Under the Assignment of Claims Act, a contractor may assign moneys 
due or to become due under a contract if all the following conditions 
are met:
    (a) The contract specifies payments aggregating $1,000 or more.
    (b) The assignment is made to a bank, trust company, or other 
financing institution, including any Federal lending agency.
    (c) The contract does not prohibit the assignment.
    (d) Unless otherwise expressly permitted in the contract, the 
assignment--
    (1) Covers all unpaid amounts payable under the contract;
    (2) Is made only to one party, except that any assignment may be 
made to one party as agent or trustee for two or more parties 
participating in the financing of the contract; and
    (3) Is not subject to further assignment.
    (e) The assignee sends a written notice of assignment together with 
a true copy of the assignment instrument to the--
    (1) Contracting officer or the agency head;
    (2) Surety on any bond applicable to the contract; and
    (3) Disbursing officer designated in the contract to make payment.



32.803  Policies.

    (a) Any assignment of claims that has been made under the Act to any 
type of financing institution listed in 32.802(b) may thereafter be 
further assigned and reassigned to any such institution if the 
conditions in 32.802(d) and (e) continue to be met.
    (b) A contract may prohibit the assignment of claims if the agency 
determines the prohibition to be in the Government's interest.
    (c) Under a requirements or indefinite quantity type contract that 
authorizes ordering and payment by multiple Government activities, 
amounts due for individual orders for $1,000 or more may be assigned.
    (d) Any contract of a designated agency (see FAR 32.801), except a 
contract under which full payment has been made, may include a no-setoff

[[Page 715]]

commitment only when a determination of need is made by the head of the 
agency, in accordance with the Presidential delegation of authority 
dated October 3, 1995, and after such determination has been published 
in the Federal Register. The Presidential delegation makes such 
determinations of need subject to further guidance issued by the Office 
of Federal Procurement Policy. The following guidance has been provided: 
Use of the no-setoff provision may be appropriate to facilitate the 
national defense; in the event of a national emergency or natural 
disaster; or when the use of the no-setoff provision may facilitate 
private financing of contract performance. However, in the event an 
offeror is significantly indebted to the United States, the contracting 
officer should consider whether the inclusion of the no-setoff 
commitment in a particular contract is in the best interests of the 
United States. In such an event, the contracting officer should consult 
with the Government officer(s) responsible for collecting the debt(s).
    (e) When an assigned contract does not include a no-setoff 
commitment, the Government may apply against payments to the assignee 
any liability of the contractor to the Government arising independently 
of the assigned contract if the liability existed at the time notice of 
the assignment was received even though that liability had not yet 
matured so as to be due and payable.
[48 FR 42328, Sept. 19, 1983, as amended at 60 FR 49730, Sept. 26, 1995; 
61 FR 18921, Apr. 29, 1996]



32.804  Extent of assignee's protection.

    (a) No payments made by the Government to the assignee under any 
contract assigned in accordance with the Act may be recovered on account 
of any liability of the contractor to the Government. This immunity of 
the assignee is effective whether the contractor's liability arises from 
or independently of the assigned contract.
    (b) Except as provided in paragraph (c) below, the inclusion of a 
no-setoff commitment in an assigned contract entitles the assignee to 
receive contract payments free of reduction or setoff for--
    (1) Any liability of the contractor to the Government arising 
independently of the contract; and
    (2) Any of the following liabilities of the contractor to the 
Government arising from the assigned contract:
    (i) Renegotiation under any statute or contract clause.
    (ii) Fines.
    (iii) Penalties, exclusive of amounts that may be collected or 
witheld from the contractor under, or for failure to comply with, the 
terms of the contract.
    (iv) Taxes or social security contributions.
    (v) Withholding or nonwithholding of taxes or social security 
contributions.
    (c) In some circumstances, a setoff may be appropriate even though 
the assigned contract includes a no-setoff commitment, e.g.--
    (1) When the assignee has neither made a loan under the assignment 
nor made a commitment to do so; or
    (2) To the extent that the amount due on the contract exceeds the 
amount of any loans made or expected to be made under a firm commitment 
for financing.



32.805  Procedure.

    (a) Assignments. (1) Assignments by corporations should be (i) 
executed by an authorized representative, (ii) attested by the secretary 
or the assistant secretary of the corporation, and (iii) impressed with 
the corporate seal or accompanied by a true copy of the resolution of 
the corporation's board of directors authorizing the signing 
representative to execute the assignment.
    (2) If the contractor is a partnership, the assignment may be signed 
by one partner, if it is accompanied by an acknowledged certification 
that the signer is a general partner of the partnership.
    (3) If the contractor is an individual, the assignment must be 
signed by that individual and the signature acknowledged before a notary 
public or other person authorized to administer oaths.
    (b) Filing. The assignee shall forward to each party specified in 
32.802(e) an original and three copies of the notice of assignment, 
together with one true copy of the instrument of assignment.

[[Page 716]]

The true copy shall be a certified duplicate or photostat copy of the 
original assignment.
    (c) Format for notice of assignment. The following is a suggested 
format for use by an assignee in providing the notice of assignment 
required by 32.802(e).

                          NOTICE OF ASSIGNMENT

TO: ---------- [address to one of the parties specified in 32.802(e)].
    This has reference to Contract No. ------ dated ------, entered into 
between -------- [contractor's name and address] and -------- 
[government agency, name of office, and address], for -------- [describe 
nature of the contract].
    Moneys due or to become due under the contract described above have 
been assigned to the undersigned under the provisions of the Assignment 
of Claims Act of 1940, as amended, 31 U.S.C. 3727, 41 U.S.C. 15.
    A true copy of the instrument of assignment executed by the 
Contractor on -------- [date], is attached to the original notice.
    Payments due or to become due under this contract should be made to 
the undersigned assignee.
    Please return to the undersigned the three enclosed copies of this 
notice with appropriate notations showing the date and hour of receipt, 
and signed by the person acknowledging receipt on behalf of the 
addressee.

                                                       Very truly yours,
 _______________________________________________________________________
                                                      [name of assignee]
 By_____________________________________________________________________
                                           [signature of signing officer
 Title__________________________________________________________________
                                              [title of signing officer]
 _______________________________________________________________________
________________________________________________________________________
                                                   [address of assignee]

                             ACKNOWLEDGEMENT

    Receipt is acknowledged of the above notice and of a copy of the 
instrument of assignment. They were received at ---- (a.m.) (p.m.) on --
------, 19----.

 _______________________________________________________________________
                                                       [signature]      
________________________________________________________________________
                                                         [title]        
________________________________________________________________________

    On behalf of

 _______________________________________________________________________
                                      [name of addressee of this notice]

    (d) Examination by the Government. In examining and processing 
notices of assignment and before acknowleging their receipt, contracting 
officers should assure that the following conditions and any additional 
conditions specified in agency regulations, have been met:
    (1) The contract has been properly approved and executed.
    (2) The contract is one under which claims may be assigned.
    (3) The assignment covers only money due or to become due under the 
contract.
    (e) Release of assignment. (1) A release of an assignment is 
required whenever--
    (i) There has been a further assignment or reassignment under the 
Act; or
    (ii) The contractor wishes to reestablish its right to receive 
further payments after the contractor's obligations to the assignee have 
been satisfied and a balance remains due under the contract.
    (2) The assignee, under a further assignment or reassignment, in 
order to establish a right to receive payment from the Government, must 
file with the addressees listed in 32.802(e) a--
    (i) Written notice of release of the contractor by the assigning 
financing institution;
    (ii) Copy of the release instrument;
    (iii) Written notice of the further assignment or reassignment; and
    (iv) Copy of the further assignment or reassignment instrument.
    (3) If the assignee releases the contractor from an assignment of 
claims under a contract, the contractor, in order to establish a right 
to receive payment of the balance due under the contract, must file a 
written notice of release together with a true copy of the release of 
assignment instrument with the addressees noted in 32.802(e).
    (4) The addressee of a notice of release of assignment or the 
official acting on behalf of that addressee shall acknowledge receipt of 
the notice.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
52 FR 9039, Mar. 20, 1987; 62 FR 237, Jan. 2, 1997]



32.806  Contract clauses.

    (a)(1) The contracting officer shall insert the clause at 52.232-23, 
Assignment of Claims, in solicitations and contracts expected to exceed 
the micro-purchase threshold, unless the

[[Page 717]]

contract will prohibit the assignment of claims (see 32.803(b)). The use 
of the clause is not required for purchase orders. However, the clause 
may be used in purchase orders expected to exceed the micro-purchase 
threshold, that are accepted in writing by the contractor, if such use 
is consistent with agency policies and regulations.
    (2) If a no-setoff commitment has been authorized (see FAR 
32.803(d)), the contracting officer shall use the clause with its 
Alternate I.
    (b) The contracting officer shall insert the clause at 52.232-24, 
Prohibition of Assignment of Claims, in solicitations and contracts for 
which a determination has been made under agency regulations that the 
prohibition of assignment of claims is in the Government's interest.
[48 FR 42328, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
60 FR 49730, Sept. 26, 1995; 61 FR 18921, Apr. 29, 1996]



                      Subpart 32.9--Prompt Payment

    Source: 53 FR 3690, Feb. 8, 1988, unless otherwise noted.



32.900  Scope of subpart.

    This subpart prescribes policies, procedures, and clauses for 
implementing Office of Management and Budget (OMB) Circular A-125, 
Prompt Payment.
[54 FR 13333, Mar. 31, 1989]



32.901  Applicability.

    This subpart applies to all Government contracts (including 
contracts at or below the simplified acquisition threshold), except 
contracts with payment terms and late payment penalties established by 
other governmental authority (e.g., tariffs).
[60 FR 34759, July 3, 1995, as amended at 61 FR 39198, July 26, 1996]



32.902  Definitions.

    Contract financing payment, as used in this subpart, means a 
Government disbursement of monies to a contractor under a contract 
clause or other authorization prior to acceptance of supplies or 
services by the Government. Contract financing payments include advance 
payments, progress payments based on cost under the clause at 52.232-16, 
Progress Payments, progress payments based on a percentage or stage of 
completion (see 32.102(e)(1)) other than those made under the clause at 
52.232-5, Payments Under Fixed-Price Construction Contracts or the 
clause at 52-232-10, Payments Under Fixed-Price Architect-Engineer 
Contracts, and interim payments on cost-type contracts. Contract 
financing payments do not include invoice payments or payments for 
partial deliveries.
    Day, as used in this subpart, means calendar day, including weekends 
and holidays, unless otherwise indicated. (However, see 32.903(e)(3) 
concerning payments due on Saturdays, Sundays, and legal holidays.)
    Designated billing office, as used in this subpart, means the office 
or person (governmental or nongovernmental) designated in the contract 
where the contractor first submits invoices and contract financing 
requests. This might be the Government disbursing office, contract 
administration office, office accepting the supplies delivered or 
services performed by the contractor, contract audit office, or a 
nongovernmental agent. In some cases, different offices might be 
designated to receive invoices and contract financing requests.
    Designated payment office means the place designated in the contract 
to make invoice payments or contract financing payments. Normally, this 
will be the Government disbursing office.
    Discount for prompt payment means an invoice payment reduction 
voluntarily offered by the contractor, in conjunction with the clause at 
52.232-8, Discounts for Prompt Payment, if payment is made by the 
Government prior to the due date. The due date is calculated from the 
date of the contractor's invoice. If the contractor has not placed a 
date on the invoice, the due date is calculated from the date the 
designated billing office receives a proper invoice, provided the agency 
annotates such invoice with the date of receipt at the time of receipt. 
When the discount date falls on a Saturday, Sunday, or legal holiday 
when Federal Government offices are closed and Government business is 
not expected to be conducted, payment may be made on

[[Page 718]]

the following business day and a discount may be taken.
    Due date means the date on which payment should be made.
    Invoice means a contractor's bill or written request for payment 
under the contract for supplies delivered or services performed.
    Invoice payment, as used in this subpart, means a Government 
disbursement of monies to a contractor under a contract or other 
authorization for supplies or services accepted by the Government. This 
includes payments of partial deliveries that have been accepted by the 
Government and final cost or fee payments where amounts owed have been 
settled between the Government and the contractor. For purposes of this 
subpart, invoice payments also include all payments made under the 
clause at 52.232-5, Payments Under Fixed-Price Construction Contracts, 
and the clause at 52.232-10, Payments Under Fixed-Price Architect-
Engineer Contracts. Invoice payments do not include contract financing 
payments.
    Payment date means the date on which a check for payment is dated 
or, for an electronic funds transfer, the specified payment date.
    Proper invoice means a bill or written request for payment which 
meets the minimum standards specified in the clauses at 52.232-25, 
Prompt Payment, 52.232-26, Prompt Payment for Fixed-Price Architect-
Engineer Contracts, or 52.232-27, Prompt Payment for Construction 
Contracts (also see 32.905(e)), and other terms and conditions contained 
in the contract for invoice submission.
    Receiving report means written evidence meeting the requirements of 
32.905(f) which indicates Government acceptance of supplies delivered or 
services performed by the contractor (see subpart 46.6).
    Specified payment date, as it applies to electronic funds transfer 
(EFT), means the date which the Government has placed in the EFT payment 
transaction instruction given to the Federal Reserve System as the date 
on which the funds are to be transferred to the contractor's account by 
the financial agent. If no date has been specified in the instruction, 
the specified payment date is 3 business days after the payment office 
releases the EFT payment transaction instruction.
[53 FR 3690, Feb. 8, 1988, as amended at 54 FR 13333, Mar. 31, 1989; 55 
FR 25530, June 21, 1990; 61 FR 45772, Aug. 29, 1996; 62 FR 12706, Mar. 
17, 1997]



32.903  Policy.

    (a) All solicitations and contracts subject to this subpart shall 
specify payment procedures, payment due dates, and interest penalties 
for late invoice payment.
    (b) The Government shall not make invoice and contract financing 
payments earlier than 7 days prior to the due dates specified in the 
contract unless the agency head, or designee, determines to make earlier 
payment on a case-by-case basis (see 32.908 for required clauses).
    (c) Payment will be based on receipt of a proper invoice or contract 
financing request and satisfactory contract performance.
    (d) Agency procedures shall ensure that, when specifying due dates, 
full consideration is given to the time reasonably required by 
Government officials to fulfill their administrative responsibilities 
under the contract.
    (e)(1) Checks shall be mailed on the same day they are dated.
    (2) For payments made by electronic funds transfer, the date 
specified by the Government (see 32.902 for definition of ``specified 
payment date'') for settlement of the payment at a Federal Reserve Bank 
shall be on or before the established due date.
    (3) When the due date falls on a Saturday, Sunday, or legal holiday 
when Federal Government offices are closed and Government business is 
not expected to be conducted, payment may be made on the following 
business day without incurring a late payment interest penalty.
    (f)(1) Contracting officers shall, where the nature of the work 
permits, write contract statements of work and pricing arrangements that 
allow contractors to deliver, and receive invoice payments for, discrete 
portions of the work as soon as completed and found acceptable by the 
Government (see 32.102(d)).

[[Page 719]]

    (2) Unless specifically prohibited by the contract, the contractor 
is entitled to payment for accepted partial deliveries of supplies or 
partial performance of services that comply with all applicable contract 
requirements and for which prices can be calculated from the contract 
terms.
    (3) Under some types of contracts, such as many cost-reimbursement 
contracts, partial payments cannot be made because the invoice price 
cannot be determined until after settlement of total contract costs and 
other contract-wide final arrangements. However, interim payments or 
contract financing payments may be made in accordance with the terms of 
the contract.
    (g) Discounts for prompt payment offered by the contractor shall be 
taken only when payments are made within the discount period specified 
by the contractor.
    (h) Agencies shall pay an interest penalty, without request from the 
contractor, for late invoice payments or improperly taken discounts for 
prompt payment. The temporary unavailability of funds to make a timely 
payment does not relieve an agency from the obligation to pay interest 
penalties or the additional interest penalties discussed in paragraph 
(i) of this section and paragraph (g) of 32.907-1.
    (i) For contracts awarded after October 1, 1989, if the interest 
penalty is not paid within 10 days after it is due and the contractor 
makes a written demand for payment within 40 days after payment of the 
principal amount due, agencies shall pay an additional penalty amount, 
which shall be calculated in accordance with 32.907-1(g).
    (j) If the contractor has assigned a contractor identifier (such as 
an invoice number) to an invoice or financing request, each payment or 
remittance advice shall use the contractor identifier (in addition to 
any Government or contract information) in describing any payment made.
    (k) For payments made by electronic funds transfer, the specified 
payment date, included in the Government's order to pay the contractor, 
is the date of payment for prompt payment purposes, whether or not the 
Federal Reserve System actually makes the payment by that date, and 
whether or not the contractor's financial agent credits the contractor's 
account on that date. However, a specified payment date must be a valid 
date under the rules of the Federal Reserve System. For example, if the 
Federal Reserve System requires 2 days' notice before a specified 
payment date to process a transaction, release of a payment transaction 
instruction to the Federal Reserve Bank 1 day before the specified 
payment date could not constitute a valid date under the rules of the 
Federal Reserve System.
[62 FR 12706, Mar. 17, 1997]



32.904  Responsibilities.

    (a) Agency heads--
    (1) Shall establish the policies and procedures necessary to 
implement this subpart;
    (2) May prescribe additional standards for establishing due dates on 
invoice payments (see 32.905) and contract financing payments (see 
32.906) necessary to support agency programs and foster prompt payment 
to contractors;
    (3) May adopt different payment procedures in order to accommodate 
unique circumstances, provided that such procedures are consistent with 
the policies set forth in this subpart; and
    (4) Shall inform contractors of points of contact within their 
cognizant payment offices to enable contractors to obtain status of 
invoices.
    (b) Contracting officers, in drafting solicitations and contracts, 
shall identify for each contract line item number, subline item number, 
or exhibit line item number--
    (1) Which of the applicable Prompt Payment clauses applies to each 
item when the solicitation or contract contains items that will be 
subject to different payment terms; and
    (2) The applicable Prompt Payment food category (e.g., which item 
numbers are meat or meat food products, which are perishable 
agricultural commodities), when the solicitation or contract contains 
multiple payment terms for various classes of foods and edible products.
[62 FR 12707, Mar. 17, 1997]

[[Page 720]]



32.905  Invoice payments.

    (a) General. Except as prescribed in paragraphs (b), (c), and (d) of 
this section, the due date for making an invoice payment by the 
designated payment office shall be as follows:
    (1) The 30th day after the designated billing office has 
received a proper invoice from the contractor (except as provided in 
paragraph (a)(2) of this section); or the 30th day after 
Government acceptance of supplies delivered or services performed by the 
contractor, whichever is later.
    (i) On a final invoice where the payment amount is subject to 
contract settlement actions, acceptance shall be deemed to have occurred 
on the effective date of the contract settlement.
    (ii) For the sole purpose of computing an interest penalty that 
might be due the contractor, Government acceptance shall be deemed to 
have occurred constructively on the 7th day after the 
contractor has delivered supplies or performed services in accordance 
with the terms and conditions of the contract, unless there is a 
disagreement over quantity, quality, or contractor compliance with a 
contract requirement. In the event that actual acceptance occurs within 
the constructive acceptance period, the determination of an interest 
penalty shall be based on the actual date of acceptance. The 
constructive acceptance requirement does not, however, compel Government 
officials to accept supplies or services, perform contract 
administration functions, or make payment prior to fulfilling their 
responsibilities. Except in the case of a contract for the purchase of a 
commercial item as defined in 2.101, including a brand-name commercial 
item for authorized resale (e.g., commissary items), the contracting 
officer may specify a longer period for constructive acceptance in the 
solicitation and resulting contract, if required to afford the 
Government a reasonable opportunity to inspect and test the supplies 
furnished or to evaluate the services performed. The contract file shall 
indicate the justification for extending the constructive acceptance 
period beyond 7 days. Extended acceptance periods shall not be a routine 
agency practice but shall be used only when necessary to permit proper 
Government inspection and testing of the supplies delivered or services 
performed.
    (iii) If the contract does not require submission of an invoice for 
payment (e.g., periodic lease payments), the due date will be as 
specified in the contract.
    (2) If the designated billing office fails to annotate the invoice 
with the actual date of receipt at the time of receipt, the invoice 
payment due date shall be the 30th day after the date of the 
contractor's invoice, provided a proper invoice is received and there is 
no disagreement over quantity, quality, or contractor compliance with 
contract requirements.
    (b) Architect-engineer contracts. The due date for making payments 
on contracts that contain the clause at 52.232-10, Payments Under Fixed-
Price Architect-Engineer Contracts, shall be as follows:
    (1) The due date for work or services completed by the contractor 
shall be the later of the following two events:
    (i) The 30th day after the designated billing office has 
received a proper invoice from the contractor.
    (ii) The 30th day after Government acceptance of the work 
or services completed by the contractor. On a final invoice where the 
payment amount is subject to contract settlement actions (e.g., release 
of claims), acceptance shall be deemed to have occurred on the effective 
date of the settlement. For the sole purpose of computing an interest 
penalty that might be due the contractor, Government acceptance shall be 
deemed to have occurred constructively on the 7th day after 
the contractor has completed the work or services in accordance with the 
terms and conditions of the contract (see also paragraph (b)(4) of this 
section). In the event that actual acceptance occurs within the 
constructive acceptance period, the determination of an interest penalty 
shall be based on the actual date of acceptance.
    (2) The due date for progress payments shall be the 30th 
day after Government approval of contractor estimates of work or 
services accomplished. For the sole purpose of computing an interest 
penalty that might

[[Page 721]]

be due the contractor, Government approval shall be deemed to have 
occurred constructively on the 7th day after contractor estimates have 
been received by the designated billing office (see also paragraph 
(b)(4) of this section). In the event that actual approval occurs within 
the constructive approval period, the determination of an interest 
penalty shall be based on the actual date of approval.
    (3) If the designated billing office fails to annotate the invoice 
or payment request with the actual date of receipt at the time of 
receipt, the payment due date shall be the 30th day after the 
date of the contractor's invoice or payment request, provided a proper 
invoice or payment request is received and there is no disagreement over 
quantity, quality, or contractor compliance with contract requirements.
    (4) The constructive acceptance and constructive approval 
requirements described in paragraphs (b)(1) and (b)(2) of this section 
are conditioned upon receipt of a proper payment request and no 
disagreement over quantity, quality, contractor compliance with contract 
requirements, or the requested progress payment amount. These 
requirements do not compel Government officials to accept work or 
services, approve contractor estimates, perform contract administration 
functions, or make payment prior to fulfilling their responsibilities. 
The contracting officer may specify a longer period for constructive 
acceptance or constructive approval, if required to afford the 
Government a reasonable opportunity to inspect and test the supplies 
furnished or to evaluate the services performed.
    (c) Construction contracts. (1) The due date for making payments on 
construction contracts shall be as follows:
    (i) The due date for making progress payments based on contracting 
officer approval of the estimated amount and value of work or services 
performed, including payments for reaching milestones in any project, 
shall be 14 days after receipt of a proper payment request by the 
designated billing office. If the designated billing office fails to 
annotate the payment request with the actual date of receipt at the time 
of receipt, the payment due date shall be deemed to be the 
14th day after the date of the contractor's payment request, 
provided a proper payment request is received and there is no 
disagreement over quantity, quality, or contractor compliance with 
contract requirements. The contracting officer may specify a longer 
period in the solicitation and resulting contract if required to afford 
the Government a reasonable opportunity to adequately inspect the work 
and to determine the adequacy of the contractor's performance under the 
contract. The contract file shall indicate the justification for 
extending the due date beyond 14 days. The contracting officer or a 
representative shall not approve progress payment requests unless the 
certification and substantiation of amounts requested are provided as 
required by the clause at 52.232-5, Payments Under Fixed-Price 
Construction Contracts.
    (ii) The due date for payment of any amounts retained by the 
contracting officer in accordance with the clause at 52.232-5, Payments 
Under Fixed-Price Construction Contracts, shall be as specified in the 
contract or, if not specified, 30 days after approval by the contracting 
officer for release to the contractor. This release of retained amounts 
shall be based on the contracting officer's determination that 
satisfactory progress has been made.
    (iii) The due date for final payments based on completion and 
acceptance of all work (including any retained amounts), and payments 
for partial deliveries that have been accepted by the Government (e.g., 
each separate building, public work, or other division of the contract 
for which the price is stated separately in the contract) shall be as 
follows:
    (A) Either the 30th day after receipt by the designated 
billing office of a proper invoice from the contractor, or the 
30th day after Government acceptance of the work or services 
completed by the contractor, whichever is later. If the designated 
billing office fails to annotate the invoice with the actual date of 
receipt at the time of receipt, the invoice payment due date shall be 
deemed to be the 30th day after the date of the contractor's 
invoice, provided a proper invoice is received and there is

[[Page 722]]

no disagreement over quantity, quality, or contractor compliance with 
contract requirements.
    (B) On a final invoice where the payment amount is subject to 
contract settlement actions (e.g., release of contractor claims), 
acceptance shall be deemed to have occurred on the effective date of the 
contract settlement.
    (iv) For the sole purpose of computing an interest penalty that 
might be due the contractor for payments described in paragraph 
(c)(1)(iii)(A) of this section, Government acceptance or approval shall 
be deemed to have occurred constructively on the 7th day 
after the contractor has completed the work or services in accordance 
with the terms and conditions of the contract (see also paragraph 
(c)(1)(v) of this section). In the event that actual acceptance occurs 
within the constructive acceptance period, the determination of an 
interest penalty shall be based on the actual date of acceptance.
    (v) The constructive acceptance and constructive approval 
requirements described in paragraph (c)(1)(iv) of this section are 
conditioned upon receipt of a proper payment request and no disagreement 
over quantity, quality, contractor compliance with contract 
requirements, or the requested amount. These requirements do not compel 
Government officials to accept work or services, approve contractor 
estimates, perform contract administration functions, or make payment 
prior to fulfilling their responsibilities. The contracting officer may 
specify a longer period for constructive acceptance or constructive 
approval in the solicitation and resulting contract, if required to 
afford the Government a reasonable opportunity to adequately inspect the 
work and to determine the adequacy of the contractor's performance under 
the contract.
    (2) Construction contracts contain special provisions concerning 
contractor payments to subcontractors, along with special contractor 
certification requirements. The Office of Management and Budget has 
determined that these certifications are not to be construed as final 
acceptance of the subcontractor's performance. The certification in 
52.232-5(c) implements this determination; however, certificates are 
still acceptable if the contractor deletes paragraph (c)(4) of 52.232-5 
from the certificate.
    (3)(i) Paragraph (d) of the clause at 52.232-5, Payments under 
Fixed-Price Construction Contracts, and paragraph (e)(6) of the clause 
at 52.232-27, Prompt Payment for Construction Contracts, provide for the 
contractor to pay interest on unearned amounts in certain circumstances. 
This interest shall be recovered from subsequent payments to the 
contractor. Therefore, normally no demand for payment shall be made. 
Contracting officers shall--
    (A) Compute the amount in accordance with the clause;
    (B) Provide the contractor with a final decision; and
    (C) Notify the payment office of the amount to be withheld.
    (ii) The payment office shall be responsible for making the 
deduction of interest. Amounts collected in accordance with these 
provisions shall revert to the Treasury of the United States.
    (d) Food and specified items. Due dates for payments of contractor 
invoices for meat, meat food products, or fish; perishable agricultural 
commodities; and dairy products, edible fats or oils, and food products 
prepared from edible fats or oils are as follows:
    (1) For meat or meat food products, as defined in section 2(a)(3) of 
the Packers and Stockyard Act of 1921 (7 U.S.C. 182(3)), and as further 
defined in Public Law 98-181, including any edible fresh or frozen 
poultry meat, any perishable poultry meat food product, fresh eggs, and 
any perishable egg product, as close as possible to, but not later than, 
the 7th day after product delivery.
    (2) For fresh or frozen fish, as defined in section 204(3) of the 
Fish and Seafood Promotion Act of 1986 (16 U.S.C. 4003(3)), as close as 
possible to, but not later than, the 7th day after product 
delivery.
    (3) For perishable agricultural commodities, as defined in section 
1(4) of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 
499a(4)), as close as possible to, but not later than, the 
10th day after product delivery, unless another date is 
specified in the contract.

[[Page 723]]

    (4) For dairy products (as defined in section 111(e) of the Dairy 
Production Stabilization Act of 1983 (7 U.S.C. 4502(e)), edible fats or 
oils, and food products prepared from edible fats or oils, as close as 
possible to, but not later than, the 10th day after the date 
on which a proper invoice has been received. Liquid milk, cheese, 
certain processed cheese products, butter, yogurt, ice cream, 
mayonnaise, salad dressings, and other similar products, fall within 
this classification. Nothing in the Act limits this classification to 
refrigerated products. When questions arise regarding the proper 
classification of a specific product, prevailing industry practices 
should be followed in specifying a contract payment due date. The burden 
of proof that a classification of a specific product is, in fact, 
prevailing industry practice is upon the contractor making the 
representation.
    (e) Content of invoices. A proper invoice must include the items 
listed in paragraphs (e)(1) through (e)(8) of this section. If the 
invoice does not comply with these requirements, it shall be returned 
within 7 days after the date the designated billing office received the 
invoice (3 days on contracts for meat, meat food products, or fish; 5 
days on contracts for perishable agricultural commodities, dairy 
products, edible fats or oils, and food products prepared from edible 
fats or oils), with a statement of the reasons why it is not a proper 
invoice. If such notice is not timely, then an adjusted due date for the 
purpose of determining an interest penalty, if any, will be established 
in accordance with 32.907-1(b):
    (1) Name and address of the contractor.
    (2) Invoice date. (Contractors are encouraged to date invoices as 
close as possible to the date of mailing or transmission.)
    (3) Contract number or other authorization for supplies delivered or 
services performed (including order number and contract line item 
number).
    (4) Description, quantity, unit of measure, unit price, and extended 
price of supplies delivered or services performed.
    (5) Shipping and payment terms (e.g., shipment number and date of 
shipment, prompt payment discount terms). Bill of lading number and 
weight of shipment will be shown for shipments on Government bills of 
lading.
    (6) Name and address of contractor official to whom payment is to be 
sent (must be the same as that in the contract or in a proper notice of 
assignment).
    (7) Name (where practicable), title, phone number, and mailing 
address of person to be notified in the event of a defective invoice.
    (8) Any other information or documentation required by the contract 
(such as evidence of shipment).
    (9) While not required, contractors are strongly encouraged to 
assign an identification number to each invoice.
    (f) Authorization to pay. All invoice payments shall be supported by 
a receiving report or any other Government documentation authorizing 
payment. The agency receiving official should forward the receiving 
report or other Government documentation to the designated payment 
office by the 5th working day after Government acceptance or 
approval, unless other arrangements have been made. This period of time 
does not extend the due dates prescribed in this section. Acceptance 
should be completed as expeditiously as possible. The receiving report 
or other Government documentation authorizing payment shall, as a 
minimum, include the following:
    (1) Contract number or other authorization for supplies delivered or 
services performed.
    (2) Description of supplies delivered or services performed.
    (3) Quantities of supplies received and accepted or services 
performed, if applicable.
    (4) Date supplies delivered or services performed.
    (5) Date supplies or services were accepted by the designated 
Government official (or progress payment request was approved if being 
made under the clause at 52.232-5, Payments Under Fixed-Price 
Construction Contracts, or the clause at 52.232-10, Payments Under 
Fixed-Price Architect-Engineer Contracts).

[[Page 724]]

    (6) Signature, or when permitted by agency regulations, electronic 
equivalent, printed name, title, mailing address, and telephone number 
of the designated Government official responsible for acceptance or 
approval functions.
    (7) If the contract provides for the use of Government certified 
invoices in lieu of a separate receiving report, the Government 
certified invoice also must contain the information described in 
paragraphs (f)(1) through (f)(6) of this section.
    (g) Discounts. When a discount for prompt payment is to be taken, 
payment will be made as close as possible to, but not later than, the 
end of the discount period. Payment terms are specified in the clause at 
52.232-8, Discounts for Prompt Payment.
    (h) Billing office. The designated billing office shall immediately 
annotate each invoice with the actual date it receives the invoice.
    (i) Payment office. The designated payment office shall annotate 
each invoice and receiving report with the date a proper invoice or 
receiving report was received by the designated payment office.
    (j) Multiple payment rates. Contractors may be encouraged, but 
cannot be required, to submit separate invoices for products with 
different payment due dates under the same contract or order. When an 
invoice is received that contains items with different payment periods 
(a mixed invoice), the payment office shall comply with all contractual 
and statutory payment provisions. In dealing with mixed invoices the 
payment office may, subject to agency policy--
    (1) Pay all items at the later of the due dates, provided applicable 
interest penalties also are paid;
    (2) Pay all items at the earlier of the due dates; or
    (3) Split invoice payments, making payment by the due date 
applicable to each payment class.
[62 FR 12707, Mar. 17, 1997]



32.906  Contract financing payments.

    (a) Unless otherwise prescribed in policies and procedures issued by 
the agency head, or designee, the due date for making contract financing 
payments by the designated payment office will be the 30th 
day after the designated billing office has received a proper request. 
In the event that an audit or other review of a specific financing 
request is required to ensure compliance with the terms and conditions 
of the contract, the designated payment office is not compelled to make 
payment by the due date specified. Agency heads may prescribe shorter 
periods for payment, if appropriate based on contract pricing or 
administrative considerations. For example, a shorter period may be 
justified by an Agency if the nature and extent of contract financing 
arrangements are integrated with Agency contract pricing policies. A 
period shorter than 7 days or longer than 30 days shall not be 
prescribed.
    (b) For advance payments, loans, or other arrangements that do not 
involve recurrent submission of contract financing requests, payment 
shall be made in accordance with the applicable contract financing terms 
or as directed by the contracting officer.
    (c) A proper contract financing request must comply with the terms 
and conditions specified by contract financing clauses or other 
authorizing terms. The contractor shall correct any defects in requests 
submitted in the manner specified in the contract or as directed by the 
contracting officer.
    (d) The designated billing officer and designated payment office 
shall annotate each contract financing request with the date a proper 
request was received in their respective offices.
[53 FR 2690, Feb. 8, 1988, as amended at 62 FR 12709, Mar. 17, 1997]



32.907  Interest penalties.



32.907-1  Late invoice payment.

    (a) An interest penalty shall be paid automatically by the 
designated payment office, without request from the contractor, when all 
of the following conditions, if applicable, have been met:
    (1) A proper invoice was received by the designated billing office.
    (2) A receiving report or other Government documentation authorizing 
payment was processed, and there was

[[Page 725]]

no disagreement over quantity, quality, or contractor compliance with 
any contract requirement.
    (3) In the case of a final invoice, the payment amount is not 
subject to further contract settlement actions between the Government 
and the contractor.
    (4) The designated payment office paid the contractor after the due 
date.
    (b) The interest penalty computation shall not include--
    (1) The time taken by the Government to notify the contractor of a 
defective invoice, unless it exceeds the periods prescribed in 
32.905(e);
    (2) The time taken by the contractor to correct the invoice. If the 
designated billing office failed to notify the contractor of a defective 
invoice within the periods prescribed in 32.905(e), the due date on the 
corrected invoice will be adjusted by subtracting from such date the 
number of days taken beyond the prescribed notification of defects 
period. Any interest penalty owed the contractor will be based on this 
adjusted due date; and
    (3) The period between the date of an attempted electronic funds 
transfer and the date the contractor furnishes correct electronic funds 
transfer data; provided the Government notifies the contractor of the 
defective data within 7 days after the Government receives notice that 
the transfer could not be completed because of defective data.
    (c) An interest penalty shall be paid automatically by the 
designated payment office, without request from the contractor, if a 
discount for prompt payment is taken improperly. The interest penalty 
shall be calculated on the amount of discount taken for the period 
beginning with the first day after the end of the discount period 
through the date when the contractor is paid.
    (d) The interest penalty shall be at the rate established by the 
Secretary of the Treasury under section 12 of the Contract Disputes Act 
of 1978 (41 U.S.C. 611) that is in effect on the day after the due date, 
except where the interest penalty is prescribed by other governmental 
authority (e.g., tariffs). The rate in effect on the day after the due 
date shall remain fixed during the period for which an interest penalty 
is calculated. This rate is referred to as the ``Renegotiation Board 
Interest Rate,'' and it is published in the Federal Register 
semiannually on or about January 1 and July 1. Information concerning 
this interest rate can be obtained from the Department of the Treasury, 
Financial Management Service, Washington, DC 20227, telephone (202) 874-
6995. Interest calculations shall be based upon a 360-day year. The 
interest penalty shall accrue daily on the invoice principal payment 
amount approved by the Government until the payment date of such 
approved principal amount; and will be compounded in 30-day increments 
inclusive from the first day after the due date through the payment 
date. That is, interest accrued at the end of any 30-day period will be 
added to the approved invoice principal payment amount and will be 
subject to interest penalties if not paid in the succeeding 30-day 
period. The interest penalty amount, the interest rate, and the period 
for which the interest penalty was computed, will be stated separately 
by the designated payment office on the check, in accompanying 
remittance advice, or, for an electronic funds transfer, by an 
appropriate electronic or other remittance advice. Adjustments will be 
made by the designated payment office for errors in calculating interest 
penalties.
    (f) Interest penalties are not required on payment delays due to 
disagreement between the Government and contractor over the payment 
amount, or other issues involving contract compliance, or on amounts 
temporarily withheld or retained in accordance with the terms of the 
contract. Claims involving disputes, and any interest that may be 
payable, will be resolved in accordance with the Disputes clause.
    (g)(1) For contracts awarded on or after October 1, 1989, a penalty 
amount (calculated in accordance with subparagraph (g)(3) of this 
section) shall be paid, in addition to the interest penalty amount, only 
if the contractor--
    (i) Is owed an interest penalty of $1 or more;
    (ii) Is not paid the interest penalty within 10 days after the date 
the invoice amount is paid; and

[[Page 726]]

    (iii) Makes a written demand to the designated payment office for 
additional penalty payment in accordance with paragraph (g)(2) of this 
section, postmarked not later than 40 days after the date the invoice 
amount is paid.
    (2)(i) Contractors shall support written demands for additional 
penalty payments with the following data. No additional data shall be 
required. Contractors shall--
    (A) Specifically assert that late payment interest is due under a 
specific invoice, and request payment of all overdue late payment 
interest penalty and such additional penalty as may be required;
    (B) Attach a copy of the invoice on which the unpaid late payment 
interest was due; and
    (C) State that payment of the principal has been received, including 
the date of receipt.
    (ii) Demands must be postmarked on or before the 40th day 
after payment was made, except that--
    (A) If the postmark is illegible or nonexistent, the demand must 
have been received and annotated with the date of receipt by the 
designated payment office on or before the 40th day after 
payment was made; or
    (B) If the postmark is illegible or nonexistent and the designated 
payment office fails to make the required annotation, the demand's 
validity will be determined by the date the contractor has placed on the 
demand; provided such date is no later than the 40th day after payment 
was made.
    (3)(i) The additional penalty shall be equal to 100 percent of any 
original late payment interest penalty, except--
    (A) The additional penalty shall not exceed $5,000;
    (B) The additional penalty shall never be less than $25; and
    (C) No additional penalty is owed if the amount of the underlying 
interest penalty is less than $1.
    (ii) If the interest penalty ceases to accrue in accordance with the 
limits stated in paragraphs (e)(1) and (e)(2) of this section, the 
amount of the additional penalty shall be calculated on the amount of 
interest penalty that would have accrued in the absence of these limits, 
but shall not exceed the limits specified in paragraph (g)(3)(i) of this 
subsection.
    (iii) For determining the maximum and minimum additional penalties, 
the test shall be the interest penalty due on each separate payment made 
for each separate contract. The maximum and minimum additional penalty 
shall not be based upon individual invoices unless the invoices are paid 
separately. Where payments are consolidated for disbursing purposes, the 
maximum and minimum additional penalty determination shall be made 
separately for each contract therein.
    (iv) The additional penalty does not apply to payments regulated by 
other Government regulations (e.g., payments under utility contracts 
subject to tariffs and regulation).
[53 FR 3690, Feb. 8, 1988, as amended at 54 FR 13336, Mar. 31, 1989; 62 
FR 12709, Mar. 17, 1997; 62 FR 40237, July 25, 1997]



32.907-2  Late contract financing payment.

    No interest penalty shall be paid to the contractor as a result of 
delayed contract financing payments.



32.908  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.232-26, 
Prompt Payment for Fixed-Price Architect-Engineer Contracts, in 
solicitations and contracts that contain the clause at 52.232-10, 
Payments Under Fixed-Price Architect-Engineer Contracts.
    (1) As authorized in 32.905(b)(4), the contracting officer may 
modify the date in paragraph (a)(4)(i) of the clause to specify a period 
longer than 7 days for constructive acceptance or constructive approval, 
if required to afford the Government a practicable opportunity to 
inspect and test the supplies furnished or evaluate the services 
performed.
    (2) If applicable, as authorized in 32.906(a) and only as permitted 
by agency policies and procedures, the contracting officer may insert in 
paragraph (b) of the clause a period shorter than 30 days (but not less 
than 7 days) for making contract financing payments.
    (b) The contracting officer shall insert the clause at 52.232-27, 
Prompt Payment for Construction Contracts,

[[Page 727]]

in all solicitations and contracts for construction (see part 36).
    (1) As authorized in 32.905(c)(1)(i), the contracting officer may 
modify the date in paragraph (a)(1)(i)(A) of the clause to specify a 
period longer than 14 days if required to afford the Government a 
reasonable opportunity to adequately inspect the work and to determine 
the adequacy of the Contractor's performance under the contract.
    (2) As authorized in 32.905(c)(1)(v), the contracting officer may 
modify the date in paragraph (a)(4)(i) of the clause to specify a period 
longer than 7 days for constructive acceptance or constructive approval 
if required to afford the Government a reasonable opportunity to inspect 
and test the supplies furnished or evaluate the services performed.
    (3) If applicable, as authorized in 32.906(a) and only as permitted 
by agency policies and procedures, the contracting officer may insert in 
paragraph (b) of the clause a period shorter than 30 days (but not less 
than 7 days) for making contract financing payments.
    (c) The contracting officer shall insert the clause at 52.232-25, 
Prompt Payment, in all other solicitations and contracts (including 
contracts at or below the simplified acquisition threshold), except 
where the clause at 52.212-4, Contract Terms and Conditions--Commercial 
Items, applies, and except as indicated in 32.901.
    (1) As authorized in 32.905(a)(1)(ii), the contracting officer may 
modify the date in paragraph (a)(5)(i) of the clause to specify a period 
longer than 7 days for constructive acceptance, if required to afford 
the Government a reasonable opportunity to inspect and test the supplies 
furnished or to evaluate the services performed, except in the case of a 
contract for the purchase of a commercial item as defined in 2.101, 
including a brand-name commercial item for authorized resale (e.g., 
commissary items).
    (2) As authorized in 32.906(a) and only as permitted by agency 
policies and procedures, the contracting officer may insert in paragraph 
(b) of the clause a period shorter than 30 days (but not less than 7 
days) for making contract financing payments.
[62 FR 12710, Mar. 17, 1997]



32.909  Contractor inquiries.

    Questions concerning delinquent payments should be directed to the 
designated billing office or designated payment office. If a question 
involves a disagreement in payment amount or timing, it should be 
directed to the contracting officer for resolution. The contracting 
officer shall coordinate within appropriate contracting channels and 
seek the advice of other offices as may be necessary to resolve 
disagreements. Small business concerns may obtain additional assistance 
related to payment issues, late payment interest penalties, and 
information on the Prompt Payment Act, by contacting the Agency's local 
representative from the Office of Small and Disadvantaged Business 
Utilization.
[53 FR 3690, Feb. 8, 1988, as amended at 54 FR 13336, Mar. 31, 1989]



                Subpart 32.10--Performance-Based Payments

    Source: 60 FR 49715, Sept. 26, 1995, unless otherwise noted.



32.1000  Scope of subpart.

    This subpart provides policy and procedures for performance-based 
payments under non-commercial purchases pursuant to subpart 32.1. This 
subpart does not apply to--
    (a) Payments under cost-reimbursement contracts;
    (b) Contracts for architect-engineer services or construction, or 
for shipbuilding or ship conversion, alteration, or repair, when the 
contracts provide for progress payments based upon a percentage or stage 
of completion;
    (c) Contracts for research or development; or
    (d) Contracts awarded through sealed bid or competitive negotiation 
procedures.



32.1001  Policy.

    (a) Performance-based payments are contract financing payments that 
are not payment for accepted items.

[[Page 728]]

    (b) Performance-based payments are fully recoverable, in the same 
manner as progress payments, in the event of default. Except as provided 
in 32.1003(c), performance-based payments shall not be used when other 
forms of contract financing are provided.
    (c) For Government accounting purposes, performance-based payments 
should be treated like progress payments based on costs under subpart 
32.5.
    (d) Performance-based payments are contract financing payments and, 
therefore, are not subject to the interest-penalty provisions of prompt 
payment (see subpart 32.9). However, these payments shall be made in 
accordance with the agency's policy for prompt payment of contract 
financing payments.
    (e) Performance-based payments are the preferred financing method 
when the contracting officer finds them practical, and the contractor 
agrees to their use.



32.1002  Bases for performance-based payments.

    Performance-based payments may be made on any of the following 
bases:
    (a) Performance measured by objective, quantifiable methods;
    (b) Accomplishment of defined events; or
    (c) Other quantifiable measures of results.



32.1003  Criteria for use.

    Performance-based payments shall be used only if the following 
conditions are met:
    (a) The contracting officer and offeror are able to agree on the 
performance-based payment terms;
    (b) The contract is a definitized fixed-price type contract (but see 
32.1005(b)); and
    (c) The contract does not provide for other methods of contract 
financing, except that advance payments in accordance with subpart 32.4, 
or guaranteed loans in accordance with subpart 32.3 may be used.



32.1004  Procedure.

    Performance-based payments may be made either on a whole contract or 
on a deliverable item basis, unless otherwise prescribed by agency 
regulations. Financing payments to be made on a whole contract basis are 
applicable to the entire contract, and not to specific deliverable 
items. Financing payments to be made on a deliverable item basis are 
applicable to a specific individual deliverable item. (A deliverable 
item for these purposes is a separate item with a distinct unit price. 
Thus, a contract line item for 10 airplanes, with a unit price of 
$1,000,000 each, has ten deliverable items--the separate planes. A 
contract line item for 1 lot of 10 airplanes, with a lot price of 
$10,000,000, has only one deliverable item--the lot.)
    (a) Establishing performance bases. (1) The basis for performance-
based payments may be either specifically described events (e.g., 
milestones) or some measurable criterion of performance. Each event or 
performance criterion that will trigger a finance payment shall be an 
integral and necessary part of contract performance and shall be 
identified in the contract, along with a description of what constitutes 
successful performance of the event or attainment of the performance 
criterion. The signing of contracts or modifications, the exercise of 
options, or other such actions shall not be events or criteria for 
performance-based payments. An event need not be a critical event in 
order to trigger a payment, but successful performance of each such 
event or performance criterion shall be readily verifiable.
    (2) Events or criteria may be either severable or cumulative. The 
successful completion of a severable event or criterion is independent 
of the accomplishment of any other event or criterion. Conversely, the 
successful accomplishment of a cumulative event or criterion is 
dependent upon the previous accomplishment of another event. A contract 
may provide for more than one series of severable and/or cumulative 
performance events or criteria performed in parallel. The following 
shall be included in the contract:
    (i) The contract shall not permit payment for a cumulative event or 
criterion until the dependent event or criterion has been successfully 
completed.
    (ii) Severable events or criteria shall be specifically identified 
in the contract.

[[Page 729]]

    (iii) The contract shall identify which events or criteria are 
preconditions for the successful achievement of each cumulative event or 
criterion.
    (iv) If payment of performance-based finance amounts is on a 
deliverable item basis, each event or performance criterion shall be 
part of the performance necessary for that deliverable item and shall be 
identified to a specific contract line item or subline item.
    (b) Establishing performance-based finance payment amounts. (1) The 
contracting officer shall establish a complete, fully defined schedule 
of events or performance criteria and payment amounts when negotiating 
contract terms. If a contract action significantly affects the price, or 
event or performance criterion, the contracting officer responsible for 
pricing the contract modification shall adjust the performance-based 
payment schedule appropriately.
    (2) Total performance-based payments shall not exceed 90 percent of 
the contract price if on a whole contract basis, or 90 percent of the 
delivery item price if on a delivery item basis. The amount of each 
performance-based payment shall be specifically stated either as a 
dollar amount or as a percentage of a specifically identified price 
(e.g., contract price, or unit price of the deliverable item). The 
payment of contract financing has a cost to the Government in terms of 
interest paid by the Treasury to borrow funds to make the payment. 
Because the contracting officer has wide discretion as to the timing and 
amount of the performance-based payments, the contracting officer must 
ensure that the total contract price is fair and reasonable, all factors 
(including the financing costs to the Treasury of the performance-based 
payments) considered. Performance-based payment amounts may be 
established on any rational basis determined by the contracting officer, 
or agency procedures, which may include (but are not limited to)--
    (i) Engineering estimates of stages of completion;
    (ii) Engineering estimates of hours or other measures of effort to 
be expended in performance of an event or achievement of a performance 
criterion; or
    (iii) The estimated projected cost of performance of particular 
events.
    (3) When subsequent contract modifications are issued, the 
performance-based payment schedule shall be adjusted as necessary to 
reflect the actions required by those contract modifications.
    (c) Instructions for multiple appropriations. If there is more than 
one appropriation account (or subaccount) funding payments on the 
contract, the contracting officer shall provide instructions to the 
Government payment office for distribution of financing payments to the 
respective funds accounts. Distribution instructions must be consistent 
with the contract's liquidation provisions.
    (d) Liquidating performance-based finance payments. Performance-
based amounts shall be liquidated by deducting a percentage or a 
designated dollar amount from the delivery payments. The contracting 
officer shall specify the liquidation rate or designated dollar amount 
in the contract. The method of liquidation shall ensure complete 
liquidation no later than final payment.
    (1) If the performance-based payments are established on a delivery 
item basis, the liquidation amount for each line item shall be the 
percent of that delivery item price that was previously paid under 
performance-based finance payments or the designated dollar amount.
    (2) If the performance-based finance payments are on a whole 
contract basis, liquidation shall be by predesignated liquidation 
amounts or liquidation percentages.



32.1005  Contract clauses.

    (a) If performance-based contract financing will be provided, the 
contracting officer shall insert the clause at 52.232-32, Performance-
Based Payments, in the solicitation and contract with the description of 
the basis for payment and liquidation as required in 32.1004.
    (b) In solicitations for undefinitized contracts, the contracting 
officer may

[[Page 730]]

include the clause at 52.232-32, Performance-Based Payments, with a 
provision that the clause is not effective until the contract is 
definitized and the performance-based payment schedule is included in 
the contract.



32.1006  Agency approvals.

    The contracting officer shall obtain such approvals as are required 
by agency regulations.



32.1007  Administration and payment of performance-based payments.

    (a) Responsibility. The contracting officer responsible for 
administration of the contract shall be responsible for review and 
approval of performance-based payments.
    (b) Approval of financing requests. Unless otherwise provided in 
agency regulations, or by agreement with the appropriate payment 
official--
    (1) The contracting officer shall be responsible for receiving, 
approving, and transmitting all performance-based payment requests to 
the appropriate payment office; and
    (2) Each approval shall specify the amount to be paid, necessary 
contractual information, and the appropriation account(s) (see 
32.1004(c)) to be charged for the payment.
    (c) Reviews. The contracting officer is responsible for determining 
what reviews are required for protection of the Government's interests. 
The contracting officer should consider the contractor's 0experience, 
performance record, reliability, financial strength, and the adequacy of 
controls established by the contractor for the administration of 
performance-based payments. Based upon the risk to the Government, post-
payment reviews and verifications should normally be arranged as 
considered appropriate by the contracting officer. If considered 
necessary by the contracting officer, pre-payment reviews may be 
required.
    (d) Incomplete performance. The contracting officer shall not 
approve a performance-based payment until the specified event or 
performance criterion has been successfully accomplished in accordance 
with the contract. If an event is cumulative, the contracting officer 
shall not approve the performance-based payment unless all identified 
preceding events or criteria are accomplished.
    (e) Government-caused delay. Entitlement to a performance-based 
payment is solely on the basis of successful performance of the 
specified events or performance criteria. However, if there is a 
Government-caused delay, the contracting officer may renegotiate the 
performance-based payment schedule, to facilitate contractor billings 
for any successfully accomplished portions of the delayed event or 
criterion.



32.1008  Suspension or reduction of performance-based payments.

    The contracting officer shall apply the policy and procedures in 
paragraphs (a), (b), (c), and (e) of 32.503-6, Suspension or reduction 
of payments, whenever exercising the Government's rights to suspend or 
reduce performance-based payments in accordance with paragraph (e) of 
the clause at 52.232-32, Performance-Based Payments.



32.1009  Title.

    (a) Since the clause at 52.232-32, Performance-Based Payments, gives 
the Government title to the property described in paragraph (f) of the 
clause, the contracting officer must ensure that the Government title is 
not compromised by other encumbrances. Ordinarily, the contracting 
officer, in the absence of reason to believe otherwise, may rely upon 
the contractor's certification contained in the payment request.
    (b) If the contracting officer becomes aware of any arrangement or 
condition that would impair the Government's title to the property 
affected by the Performance-Based Payments clause, the contracting 
officer shall require additional protective provisions.
    (c) The existence of any such encumbrance is a violation of the 
contractor's obligations under the contract, and the contracting officer 
may, if necessary, suspend or reduce payments under the terms of the 
Performance-Based Payments clause covering failure to comply with a 
material requirement of the contract. In addition, if the contractor 
fails to disclose an existing encumbrance in the certification, the 
contracting officer should

[[Page 731]]

consult with legal counsel concerning possible violation of 31 U.S.C. 
3729, the False Claims Act.



32.1010  Risk of loss.

    (a) Under the clause at 52.232-32, Performance-Based Payments, and 
except for normal spoilage, the contractor bears the risk for loss, 
theft, destruction, or damage to property affected by the clause, even 
though title is vested in the Government, unless the Government has 
expressly assumed this risk. The clauses prescribed in this regulation 
related to performance-based payments, default, and terminations do not 
constitute a Government assumption of risk.
    (b) If a loss occurs in connection with property for which the 
contractor bears the risk, and the property is needed for performance, 
the contractor is obligated to repay the Government the performance-
based payments related to the property.
    (c) The contractor is not obligated to pay for the loss of property 
for which the Government has assumed the risk of loss. However, a 
serious loss may impede the satisfactory progress of contract 
performance, so that the contracting officer may need to act under 
paragraph (e)(2) of the Performance-Based Payments clause. In addition, 
while the contractor is not required to repay previous performance-based 
payments in the event of a loss for which the Government has assumed the 
risk, such a loss may prevent the contractor from making the 
certification required by the Performance-Based Payments clause.



                Subpart 32.11--Electronic Funds Transfer

    Source: 61 FR 45772, Aug. 29, 1996, unless otherwise noted.



32.1100  Scope of subpart.

    This subpart provides policy and procedures for Government payment 
by electronic funds transfer (EFT).



32.1101  Policy.

    (a) 31 U.S.C. 3332(e) requires payment by EFT in certain situations. 
The payment office, not the contracting officer, determines if payment 
is to be made by EFT. The payment office may determine not to require 
submission of EFT information in accordance with paragraph (j) of the 
contract clauses at 52.232-33 and 52.232-34.
    (b) The Government will protect against improper disclosure of a 
contractor's EFT information. The clauses at 52.232-33 and 52.232-34 
require the contractor to submit such information directly to the 
payment office.
    (c) Contractors that do not have an account at a domestic United 
States financial institution or an authorized payment agent are exempted 
by 31 U.S.C. 3332 until January 1, 1999, from the requirement to be paid 
by EFT. The clause at 52.232-33 provides for the contractor to submit a 
certification to that effect directly to the payment office in lieu of 
the EFT information otherwise required by the clause.
    (d) Payment by EFT is the preferred method of contract payment in 
normal contracting situations. However, in accordance with 31 CFR 
208.3(c), certain classes of contracts have been authorized specific 
limited exceptions as listed in paragraphs (d) (1) through (4) of this 
section. In these situations, the method of payment shall be specified 
by the payment office, either through agency regulations or by specific 
agreement.
    (1) Contracts awarded by contracting officers outside the United 
States and Puerto Rico shall provide for payment by other than EFT. 
However, payment by EFT is acceptable for this type of contract if the 
contractor agrees and the payment office concurs.
    (2) Contracts denominated or paid in other than United States 
dollars shall provide for payment by other than EFT.
    (3) Classified contracts (see 4.401) shall provide for payment by 
other than EFT where payment by EFT could compromise the safeguarding of 
classified information or national security, or where arrangements for 
appropriate EFT payments would be impractical due to security 
considerations.
    (4) Contracts executed by deployed contracting officers in the 
course of military operations, including, but not limited to, 
contingency operations as

[[Page 732]]

defined in 10 U.S.C. 101(a)(13), or contracts executed by any 
contracting officer in the conduct of emergency operations, such as 
responses to natural disasters or national or civil emergencies, shall 
provide for payment by other than EFT where (i) EFT payment is not known 
to be possible, or (ii) EFT payment would not support the objectives of 
the operation. Contracting officers predesignated to perform contracting 
duties in the event of these operations shall include coordinated plans 
for payment arrangements as part of the pre-contingency contract 
operations planning.



32.1102  Assignment of claims.

    The use of EFT payment methods is not a substitute for a properly 
executed assignment of claims in accordance with subpart 32.8. EFT 
information which shows the ultimate recipient of the transfer to be 
other than the contractor, in the absence of a proper assignment of 
claims, is considered to be incorrect EFT information within the meaning 
of the ``Suspension of Payment'' paragraphs of the EFT clauses at 
52.232-33 and 52.232-34.



32.1103  Contract clauses.

    (a) Unless instructed otherwise by the cognizant payment office or 
agency guidance, the contracting officer shall insert the clause at 
52.232-33, Mandatory Information for Electronic Funds Transfer Payment, 
in all solicitations and resulting contracts which (1) will not be paid 
through use of the Governmentwide commercial purchase card (see 
13.103(e)); and (2) are not otherwise excepted in accordance with 
32.1101(d). The clause may be inserted in other contracts if the 
contractor requests payment by EFT and the payment office concurs.
    (b) Unless instructed otherwise by agency guidance, the contracting 
officer shall insert the clause at 52.232-34, Optional Information for 
Electronic Funds Transfer Payment, in all solicitations and resulting 
contracts which (1) Do not contain the clause at 52.232-33; (2) Will not 
be paid through use of the Governmentwide commercial purchase card (see 
13.103(e)); and (3) Are not otherwise excepted in accordance with 
32.1101(d).
    (c) For contracts containing the clause at 52.212-4, Contract Terms 
and Conditions--Commercial Items, if the clause at 52.232-33, Mandatory 
Information for Electronic Funds Transfer Payment, will not be included 
in the contract in accordance with paragraph (a) of this section, the 
contracting officer shall attach an addendum to the contract that 
deletes the clause at 52.232-33 and--
    (1) If required by paragraph (b) of this section, incorporates the 
clause at 52.232-34, Optional Information for Electronic Funds Transfer 
Payment, in the contract; or
    (2) If the clause at 52.232-34 is not required, specifies that the 
Government will make payment under the contract by check.
    (d) If more than one disbursing office will make payment under a 
contract, the contracting officer shall include the EFT clause 
appropriate for each office and shall identify the applicability by 
disbursing office and contract line item.



PART 33--PROTESTS, DISPUTES, AND APPEALS--Table of Contents




Sec.
33.000  Scope of part.

                         Subpart 33.1--Protests

33.101  Definitions.
33.102  General.
33.103  Protests to the agency.
33.104  Protests to GAO.
33.105  [Reserved]
33.106  Solicitation provision and contract clause.

                   Subpart 33.2--Disputes and Appeals

33.201  Definitions.
33.202  Contract Disputes Act of 1978.
33.203  Applicability.
33.204  Policy.
33.205  Relationship of the Act to Pub. L. 85-804.
33.206  Initiation of a claim.
33.207  Contractor certification.
33.208  Interest on claims.
33.209  Suspected fraudulent claims.
33.210  Contracting officer's authority.

[[Page 733]]

33.211  Contracting officer's decision.
33.212  Contracting officer's duties upon appeal.
33.213  Obligation to continue performance.
33.214  Alternative dispute resolution (ADR).
33.215  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).



33.000  Scope of part.

    This part prescribes policies and procedures for filing protests and 
for processing contract disputes and appeals.
[50 FR 2270, Jan. 15, 1985]



                         Subpart 33.1--Protests



33.101  Definitions.

    Day, as used in this subpart, means a calendar day, unless otherwise 
specified. In the computation of any period--
    (a) The day of the act, event, or default from which the designated 
period of time begins to run is not included; and
    (b) The last day after the act, event, or default is included 
unless--
    (1) The last day is a Saturday, Sunday, or legal holiday; or
    (2) In the case of a filing of a paper at any appropriate 
administrative forum, the last day is a day on which weather or other 
conditions cause the closing of the forum for all or part of the day, in 
which event the next day on which the appropriate administrative forum 
is open is included.
    (c) In the case of the 5-day period after a debriefing date and the 
10-day period after contract award for filing a protest resulting in a 
suspension (as described at 33.104(c)), Saturdays, Sundays, and legal 
holidays shall be counted.
    Filed, as used in this subpart, means the complete receipt of any 
document by an agency before its close of business. Documents received 
after close of business are considered filed as of the next day. Unless 
otherwise stated, the agency close of business is presumed to be 4:30 
p.m., local time.
    Interested Party for the purpose of filing a protest, as used in 
this subpart, means an actual or prospective offeror whose direct 
economic interest would be affected by the award of a contract or by the 
failure to award a contract.
    Protest, as used in this subpart, means a written objection by an 
interested party to any of the following:
    (a) A solicitation or other request by an agency for offers for a 
contract for the procurement of property or services.
    (b) The cancellation of the solicitation or other request.
    (c) An award or proposed award of the contract.
    (d) A termination or cancellation of an award of the contract, if 
the written objection contains an allegation that the termination or 
cancellation is based in whole or in part on improprieties concerning 
the award of the contract.
[50 FR 2270, Jan. 15, 1985, as amended at 53 FR 43391, Oct. 26, 1988; 54 
FR 19827, May 8, 1989; 60 FR 48225, Sept. 18, 1995]



33.102  General.

    (a) Contracting officers shall consider all protests and seek legal 
advice, whether protests are submitted before or after award and whether 
filed directly with the agency or the General Accounting Office (GAO). 
(See 19.302 for protests of small business status.)
    (b) If, in connection with a protest, the head of an agency 
determines that a solicitation, proposed award, or award does not comply 
with the requirements of law or regulation, the head of the agency may--
    (1) Take any action that could have been recommended by the 
Comptroller General had the protest been filed with the General 
Accounting Office; and
    (2) Pay appropriate costs as stated in 33.104(h).
    (3) Require the awardee to reimburse the Government's costs, as 
provided in this paragraph, where a postaward protest is sustained as 
the result of an awardee's intentional or negligent misstatement, 
misrepresentation, or miscertification. In addition to any other remedy 
available, and pursuant to the requirements of Subpart 32.6, the 
Government may collect this debt by offsetting the amount against any 
payment due the awardee under any contract between the awardee and the 
Government.
    (i) When a protest is sustained by GAO under circumstances that may 
allow the Government to seek reimbursement for protest costs, the 
contracting officer will determine whether the protest was sustained 
based on the

[[Page 734]]

awardee's negligent or intentional misrepresentation. If the protest was 
sustained on several issues, protest costs shall be apportioned 
according to the costs attributable to the awardee's actions.
    (ii) The contracting officer shall review the amount of the debt, 
degree of the awardee's fault, and costs of collection, to determine 
whether a demand for reimbursement ought to be made. If it is in the 
best interests of the Government to seek reimbursement, the contracting 
officer shall notify the contractor in writing of the nature and amount 
of the debt, and the intention to collect by offset if necessary. Prior 
to issuing a final decision, the contracting officer shall afford the 
contractor an opportunity to inspect and copy agency records pertaining 
to the debt to the extent permitted by statute and regulation, and to 
request review of the matter by the head of the contracting activity.
    (iii) When appropriate, the contracting officer shall also refer the 
matter to the agency debarment official for consideration under Subpart 
9.4.
    (c) In accordance with 31 U.S.C. 1558, with respect to any protest 
filed with the GAO, if the funds available to the agency for a contract 
at the time a protest is filed in connection with a solicitation for, 
proposed award of, or award of such a contract would otherwise expire, 
such funds shall remain available for obligation for 100 days after the 
date on which the final ruling is made on the protest. A ruling is 
considered final on the date on which the time allowed for filing an 
appeal or request for reconsideration has expired, or the date on which 
a decision is rendered on such appeal or request, whichever is later.
    (d) Protest likely after award. The contracting officer may stay 
performance of a contract within the time period contained in 
33.104(c)(1) if the contracting officer makes a written determination 
that--
    (1) A protest is likely to be filed; and
    (2) Delay of performance is, under the circumstances, in the best 
interests of the United States.
    (e) An interested party wishing to protest is encouraged to seek 
resolution within the agency (see 33.103) before filing a protest with 
the GAO, but may protest to the GAO in accordance with GAO regulations 
(4 CFR part 21).
    (f) No person may file a protest at GAO for a procurement integrity 
violation unless that person reported to the contracting officer the 
information constituting evidence of the violation within 14 days after 
the person first discovered the possible violation (41 U.S.C. 423(g)).
[50 FR 2270, Jan. 15, 1985, as amended at 55 FR 38517, Sept. 18, 1990; 
55 FR 52795, Dec. 21, 1990; 60 FR 48226, 48275, Sept. 18, 1995; 61 FR 
41470, Aug. 8, 1996; 61 FR 67411, Dec. 20, 1996; 62 FR 233, Jan. 2, 
1997]



33.103  Protests to the agency.

    (a) Reference. Executive Order 12979, Agency Procurement Protests, 
establishes policy on agency procurement protests.
    (b) Prior to submission of an agency protest, all parties shall use 
their best efforts to resolve concerns raised by an interested party at 
the contracting officer level through open and frank discussions.
    (c) The agency should provide for inexpensive, informal, 
procedurally simple, and expeditious resolution of protests. Where 
appropriate, the use of alternative dispute resolution techniques, third 
party neutrals, and another agency's personnel are acceptable protest 
resolution methods.
    (d) The following procedures are established to resolve agency 
protests effectively, to build confidence in the Government's 
acquisition system, and to reduce protests outside of the agency:
    (1) Protests shall be concise and logically presented to facilitate 
review by the agency. Failure to substantially comply with any of the 
requirements of paragraph (d)(2) of this section may be grounds for 
dismissal of the protest.
    (2) Protests shall include the following information:
    (i) Name, address, and fax and telephone numbers of the protester.
    (ii) Solicitation or contract number.
    (iii) Detailed statement of the legal and factual grounds for the 
protest, to include a description of resulting prejudice to the 
protester.
    (iv) Copies of relevant documents.

[[Page 735]]

    (v) Request for a ruling by the agency.
    (vi) Statement as to the form of relief requested.
    (vii) All information establishing that the protester is an 
interested party for the purpose of filing a protest.
    (viii) All information establishing the timeliness of the protest.
    (3) All protests filed directly with the agency will be addressed to 
the contracting officer or other official designated to receive 
protests.
    (4) In accordance with agency procedures, interested parties may 
request an independent review of their protest at a level above the 
contracting officer; solicitations should advise potential bidders and 
offerors that this review is available. Agency procedures and/or 
solicitations shall notify potential bidders and offerors whether this 
independent review is available as an alternative to consideration by 
the contracting officer of a protest or is available as an appeal of a 
contracting officer decision on a protest. Agencies shall designate the 
official(s) who are to conduct this independent review, but the 
official(s) need not be within the contracting officer's supervisory 
chain. When practicable, officials designated to conduct the independent 
review should not have had previous personal involvement in the 
procurement. If there is an agency appellate review of the contracting 
officer's decision on the protest, it will not extend GAO's timeliness 
requirements. Therefore, any subsequent protest to the GAO must be filed 
within 10 days of knowledge of initial adverse agency action (4 CFR 
21.2(a)(3)).
    (e) Protests based on alleged apparent improprieties in a 
solicitation shall be filed before bid opening or the closing date for 
receipt of proposals. In all other cases, protests shall be filed no 
later than 10 days after the basis of protest is known or should have 
been known, whichever is earlier. The agency, for good cause shown, or 
where it determines that a protest raises issues significant to the 
agency's acquisition system, may consider the merits of any protest 
which is not timely filed.
    (f) Action upon receipt of protest. (1) Upon receipt of a protest 
before award, a contract may not be awarded, pending agency resolution 
of the protest, unless contract award is justified, in writing, for 
urgent and compelling reasons or is determined, in writing, to be in the 
best interest of the Government. Such justification or determination 
shall be approved at a level above the contracting officer, or by 
another official pursuant to agency procedures.
    (2) If award is withheld pending agency resolution of the protest, 
the contracting officer will inform the offerors whose offers might 
become eligible for award of the contract. If appropriate, the offerors 
should be requested, before expiration of the time for acceptance of 
their offers, to extend the time for acceptance to avoid the need for 
resolicitation. In the event of failure to obtain such extension of 
offers, consideration should be given to proceeding with award pursuant 
to paragraph (f)(1) of this section.
    (3) Upon receipt of a protest within 10 days after contract award or 
within 5 days after a debriefing date offered to the protester under a 
timely debriefing request in accordance with 15.505 or 15.506, whichever 
is later, the contracting officer shall immediately suspend performance, 
pending resolution of the protest within the agency, including any 
review by an independent higher level official, unless continued 
performance is justified, in writing, for urgent and compelling reasons 
or is determined, in writing, to be in the best interest of the 
Government. Such justification or determination shall be approved at a 
level above the contracting officer, or by another official pursuant to 
agency procedures.
    (4) Pursuing an agency protest does not extend the time for 
obtaining a stay at GAO. Agencies may include, as part of the agency 
protest process, a voluntary suspension period when agency protests are 
denied and the protester subsequently files at GAO.
    (g) Agencies shall make their best efforts to resolve agency 
protests within 35 days after the protest is filed. To the extent 
permitted by law and regulation, the parties may exchange relevant 
information.
    (h) Agency protest decisions shall be well-reasoned, and explain the 
agency position. The protest decision shall be

[[Page 736]]

provided to the protester using a method that provides evidence of 
receipt.
[61 FR 39219, July 29, 1996, as amended at 61 FR 69289, Dec. 31, 1996; 
62 FR 270, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997; 62 FR 51271, Sept. 
30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
33.103, in paragraph (f)(3), ``15.1006'' was amended to read ``15.505 or 
15.506'', effective Oct. 10, 1997.



33.104  Protests to GAO.

    Procedures for protests to GAO are found at 4 CFR Part 21 (GAO Bid 
Protest Regulations). In the event guidance concerning GAO procedure in 
this section conflicts with 4 CFR Part 21, 4 CFR Part 21 governs.
    (a) General procedures. (1) A protester is required to furnish a 
copy of its complete protest to the official and location designated in 
the solicitation or, in the absence of such a designation, to the 
contracting officer, so it is received no later than 1 day after the 
protest is filed with the GAO. The GAO may dismiss the protest if the 
protester fails to furnish a complete copy of the protest within 1 day.
    (2) Immediately after receipt of the GAO's written notice that a 
protest has been filed, the agency shall give notice of the protest to 
the contractor if the award has been made, or, if no award has been 
made, to all parties who appear to have a reasonable prospect of 
receiving award if the protest is denied. The agency shall furnish 
copies of the protest submissions to such parties with instructions to 
(i) communicate directly with the GAO, and (ii) provide copies of any 
such communication to the agency and to other participating parties when 
they become known. However, if the protester has identified sensitive 
information and requests a protective order, then the contracting 
officer shall obtain a redacted version from the protester to furnish to 
other interested parties, if one has not already been provided.
    (3)(i) Upon notice that a protest has been filed with the GAO, the 
contracting officer shall immediately begin compiling the information 
necessary for a report to the GAO. The agency shall submit a complete 
report to the GAO within 30 days after the GAO notifies the agency by 
telephone that a protest has been filed, or within 20 days after receipt 
from the GAO of a determination to use the express option, unless the 
GAO--
    (A) Advises the agency that the protest has been dismissed; or
    (B) Authorizes a longer period in response to an agency's request 
for an extension. Any new date is documented in the agency's file.
    (ii) When a protest is filed with the GAO, and an actual or 
prospective offeror so requests, the procuring agency shall, in 
accordance with any applicable protective orders, provide actual or 
prospective offerors reasonable access to the protest file. However, if 
the GAO dismisses the protest before the documents are submitted to the 
GAO, then no protest file need be made available. Information exempt 
from disclosure under 5 U.S.C. 552 may be redacted from the protest 
file. The protest file shall be made available to non-intervening actual 
or prospective offerors within a reasonable time after submittal of an 
agency report to the GAO. The protest file shall include an index and as 
appropriate--
    (A) The protest;
    (B) The offer submitted by the protester;
    (C) The offer being considered for award or being protested;
    (D) All relevant evaluation documents;
    (E) The solicitation, including the specifications or portions 
relevant to the protest;
    (F) The abstract of offers or relevant portions; and
    (G) Any other documents that the agency determines are relevant to 
the protest, including documents specifically requested by the 
protester.
    (iii) The agency report to the GAO shall include--
    (A) A copy of the documents described in 33.104(a)(3)(ii);
    (B) The contracting officer's signed statement of relevant facts and 
a memorandum of law. The contracting officer's statement shall set forth 
findings, actions, and recommendations, and any additional evidence or 
information not provided in the protest file that may be necessary to 
determine the merits of the protest;

[[Page 737]]

    (C) A list of the documents withheld from the protester, or 
intervenors, and the reasons for withholding them. The list identifies 
any documents specifically requested by, and withheld from, the 
protester; and
    (D) A list of parties being provided the documents.
    (4)(i) At the same time the agency submits its report to the GAO, 
the agency shall furnish copies of its report to the protester and any 
intervenors. A party shall receive all relevant documents, except--
    (A) Those that the agency has decided to withhold from that party 
for any reason, including those covered by a protective order issued by 
the GAO. Documents covered by a protective order shall be released only 
in accordance with the terms of the order. Examples of documents the 
agency may decide to exclude from a copy of the report include documents 
previously furnished to or prepared by a party; classified information; 
and information that would give the party a competitive advantage; and
    (B) Protester's documents which the agency determines, pursuant to 
law or regulation, to withhold from any interested party.
    (ii)(A) If the protester requests additional documents within 2 days 
after the protester knew the existence or relevance of additional 
documents, or should have known, the agency shall provide the requested 
documents to the GAO within 5 days of receipt of the request.
    (B) The additional documents shall also be provided to the protester 
and other interested parties within this 5-day period unless the agency 
has decided to withhold them for any reason (see subdivision (a)(4)(i) 
of this section). This includes any documents covered by a protective 
order issued by the GAO. Documents covered by a protective order shall 
be provided only in accordance with the terms of the order.
    (C) The agency shall notify the GAO of any documents withheld from 
the protester and other interested parties and shall state the reasons 
for withholding them.
    (5) The GAO may issue protective orders which establish terms, 
conditions, and restrictions for the provision of any document to an 
interested party. Protective orders prohibit or restrict the disclosure 
by the party of procurement sensitive information, trade secrets or 
other proprietary or confidential research, development or commercial 
information that is contained in such document. Protective orders do not 
authorize withholding any documents or information from the United 
States Congress or an executive agency.
    (i) Requests for protective orders. Any party seeking issuance of a 
protective order shall file its request with the GAO as soon as 
practicable after the protest is filed, with copies furnished 
simultaneously to all parties.
    (ii) Exclusions and rebuttals. Within 2 days after receipt of a copy 
of the protective order request, any party may file with the GAO a 
request that particular documents be excluded from the coverage of the 
protective order, or that particular parties or individuals be included 
in or excluded from the protective order. Copies of the request shall be 
furnished simultaneously to all parties.
    (iii) Additional documents. If the existence or relevance of 
additional documents first becomes evident after a protective order has 
been issued, any party may request that these additional documents be 
covered by the protective order. Any party to the protective order also 
may request that individuals not already covered by the protective order 
be included in the order. Requests shall be filed with the GAO, with 
copies furnished simultaneously to all parties.
    (iv) Sanctions and remedies. The GAO may impose appropriate 
sanctions for any violation of the terms of the protective order. 
Improper disclosure of protected information will entitle the aggrieved 
party to all appropriate remedies under law or equity. The GAO may also 
take appropriate action against an agency which fails to provide 
documents designated in a protective order.
    (6) The protester and other interested parties are required to 
furnish a copy of any comments on the agency report directly to the GAO 
within 14 days, or 7 days if express option is used, after

[[Page 738]]

receipt of the report, with copies provided to the contracting officer 
and to other participating interested parties. If a hearing is held, 
these comments are due within 7 days after the hearing.
    (7) Agencies shall furnish the GAO with the name, title, and 
telephone number of one or more officials (in both field and 
headquarters offices, if desired) whom the GAO may contact who are 
knowledgeable about the subject matter of the protest. Each agency shall 
be responsible for promptly advising the GAO of any change in the 
designated officials.
    (b) Protests before award. (1) When the agency has received notice 
from the GAO of a protest filed directly with the GAO, a contract may 
not be awarded unless authorized, in accordance with agency procedures, 
by the head of the contracting activity, on a nondelegable basis, upon a 
written finding that--
    (i) Urgent and compelling circumstances which significantly affect 
the interest of the United States will not permit awaiting the decision 
of the GAO; and
    (ii) Award is likely to occur within 30 days of the written finding.
    (2) A contract award shall not be authorized until the agency has 
notified the GAO of the finding in subparagraph (b)(1) of this section.
    (3) When a protest against the making of an award is received and 
award will be withheld pending disposition of the protest, the 
contracting officer should inform the offerors whose offers might become 
eligible for award of the protest. If appropriate, those offerors should 
be requested, before expiration of the time for acceptance of their 
offer, to extend the time for acceptance to avoid the need for 
resolicitation. In the event of failure to obtain such extensions of 
offers, consideration should be given to proceeding under subparagraph 
(b)(1) of this section.
    (c) Protests after award. (1) When the agency receives notice of a 
protest from the GAO within 10 days after contract award or within 5 
days after a debriefing date offered to the protester for any debriefing 
that is required by 15.505 or 15.506, whichever is later, the 
contracting officer shall immediately suspend performance or terminate 
the awarded contract, except as provided in paragraphs (c) (2) and (3) 
of this section.
    (2) In accordance with agency procedures, the head of the 
contracting activity may, on a nondelegable basis, authorize contract 
performance, notwithstanding the protest, upon a written finding that--
    (i) Contract performance will be in the best interests of the United 
States; or
    (ii) Urgent and compelling circumstances that significantly affect 
the interests of the United States will not permit waiting for the GAO's 
decision.
    (3) Contract performance shall not be authorized until the agency 
has notified the GAO of the finding in subparagraph (c)(2) of this 
section.
    (4) When it is decided to suspend performance or terminate the 
awarded contract, the contracting officer should attempt to negotiate a 
mutual agreement on a no-cost basis.
    (5) When the agency receives notice of a protest filed with the GAO 
after the dates contained in subparagraph (c)(1), the contracting 
officer need not suspend contract performance or terminate the awarded 
contract unless the contracting officer believes that an award may be 
invalidated and a delay in receiving the supplies or services is not 
prejudicial to the Government's interest.
    (d) Findings and notice. If the decision is to proceed with contract 
award, or continue contract performance under paragraphs (b) or (c) of 
this section, the contracting officer shall include the written findings 
or other required documentation in the file. The contracting officer 
also shall give written notice of the decision to the protester and 
other interested parties.
    (e) Hearings. The GAO may hold a hearing at the request of the 
agency, a protester, or other interested party who has responded to the 
notice in paragraph (a)(2) of this section. A recording or transcription 
of the hearing will normally be made, and copies may be obtained from 
the GAO. All parties may file comments on the hearing and report within 
7 days of the hearing.
    (f) GAO decision time. GAO issues its recommendation on a protest 
within 100 days from the date of filing of the

[[Page 739]]

protest with the GAO, or within 65 days under the express option. The 
GAO attempts to issue its recommendation on an amended protest that adds 
a new ground of protest within the time limit of the initial protest. If 
an amended protest cannot be resolved within the initial time limit, the 
GAO may resolve the amended protest through an express option.
    (g) Notice to GAO. If the agency has not fully implemented the GAO 
recommendations with respect to a solicitation for a contract or an 
award or a proposed award of a contract within 60 days of receiving the 
GAO recommendations, the head of the contracting activity responsible 
for that contract shall report the failure to the GAO not later than 5 
days after the expiration of the 60-day period. The report shall explain 
the reasons why the GAO's recommendation, exclusive of costs, has not 
been followed by the agency.
    (h) Award of costs. (1) If the GAO determines that a solicitation 
for a contract, a proposed award, or an award of a contract does not 
comply with a statute or regulation, the GAO may recommend that the 
agency pay to an appropriate protester the cost, exclusive of profit, of 
filing and pursuing the protest, including reasonable attorney, 
consultant and expert witness fees, and bid and proposal preparation 
costs. The agency shall use funds available for the procurement to pay 
the costs awarded.
    (2) If the GAO recommends the award of costs to an interested party, 
the agency shall attempt to reach an agreement on the amount of the cost 
to be paid. If the agency and the interested party are unable to agree 
on the amount to be paid, GAO may, upon request of the interested party, 
recommend to the agency the amount of cost that the agency should pay.
    (3) For protests filed on or after October 1, 1995, no agency shall 
pay a party, other than a small business concern within the meaning of 
section 3(a) of the Small Business Act (see 19.001, Small business 
concern), costs under paragraph (h)(2) of this section--
    (i) For consultant and expert witness fees that exceed the highest 
rate of compensation for expert witnesses paid by the Government 
pursuant to 5 U.S.C. 3109 and Expert and Consultant Appointments, 60 FR 
45649, September 1, 1995 (5 CFR 304.105); or
    (ii) For attorneys' fees that exceed $150 per hour, unless the 
agency determines, based on the recommendation of the Comptroller 
General on a case-by-case basis, that an increase in the cost of living 
or a special factor, such as the limited availability of qualified 
attorneys for the proceedings involved, justifies a higher fee. The cap 
placed on attorneys' fees for businesses, other than small businesses, 
constitutes a benchmark as to a ``reasonable'' level for attorneys' fees 
for small businesses.
    (4) A recommended award of costs may be paid by the agency from 
funds available to or for the use of the agency for the acquisition of 
supplies or services. Before paying a recommended award of costs, agency 
personnel should consult legal counsel. Section 33.104(h) applies to all 
recommended awards of costs which have not yet been paid.
    (5) If the GAO recommends that the agency pay costs (as defined in 
paragraph (h)(1) of this section) and the agency does not promptly pay 
the costs, the agency shall promptly report to GAO the reasons for the 
failure to follow the GAO recommendation.
    (6) Any costs the contractor receives under this section shall not 
be the subject of subsequent proposals, billings, or claims against the 
Government and those exclusions should be reflected in the cost 
agreement.
    (7) If the Government pays costs, as provided in paragraph (h)(1) of 
this section, where a postaward protest is sustained as the result of an 
awardee's intentional or negligent misstatement, misrepresentation, or 
miscertification, the Government may require the awardee to reimburse 
the Government the amount of such costs. In addition to any other remedy 
available, and pursuant to the requirements of Subpart 32.6, the 
Government may collect this debt by offsetting the amount against any 
payment due the awardee under any contract between the awardee and the 
Government.
[57 FR 60585, Dec. 21, 1992, as amended at 60 FR 48227, 48275, Sept. 18, 
1995; 61 FR 41470, Aug. 8, 1996; 61 FR 69289, Dec. 31, 1996; 62 FR 
12718, Mar. 17, 1997; 62 FR 51271, Sept. 30, 1997]

[[Page 740]]


    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
33.104, in paragraph (c)(1), ``15.1006'' was amended to read ``15.505 or 
15.506'', effective Oct. 10, 1997.



33.105  [Reserved]



33.106  Solicitation provision and contract clause.

    (a) The contracting officer shall insert the provision at 52.233-2, 
Service of Protest, in solicitations for contracts expected to exceed 
the simplified acquisition threshold.
    (b) The contracting officer shall insert the clause at 52.233-3, 
Protest After Award, in all solicitations and contracts. If a cost 
reimbursement contract is contemplated, the contracting officer shall 
use the clause with its Alternate I.
[50 FR 25681, June 20, 1985, as amended at 60 FR 34759, July 3, 1995]



                   Subpart 33.2--Disputes and Appeals

    Source: 48 FR 42349, Sept. 19, 1983, unless otherwise noted. 
Redesignated at 50 FR 2270, Jan. 15, 1985.



33.201  Definitions.

    Accrual of a claim occurs on the date when all events, which fix the 
alleged liability of either the Government or the contractor and permit 
assertion of the claim, were known or should have been known. For 
liability to be fixed, some injury must have occurred. However, monetary 
damages need not have been incurred.
    Alternative dispute resolution (ADR) means any procedure or 
combination of procedures voluntarily used to resolve issues in 
controversy without the need to resort to litigation. These procedures 
may include, but are not limited to, assisted settlement negotiations, 
conciliation, facilitation, mediation, fact-finding, minitrials, and 
arbitration.
    Claim, as used in this subpart, means a written demand or written 
assertion by one of the contracting parties seeking, as a matter of 
right, the payment of money in a sum certain, the adjustment or 
interpretation of contract terms, or other relief arising under or 
relating to the contract. A claim arising under a contract, unlike a 
claim relating to that contract, is a claim that can be resolved under a 
contract clause that provides for the relief sought by the claimant. 
However, a written demand or written assertion by the contractor seeking 
the payment of money exceeding $100,000 is not a claim under the 
Contract Disputes Act of 1978 until certified as required by the Act and 
33.207. A voucher, invoice, or other routine request for payment that is 
not in dispute when submitted is not a claim. The submission may be 
converted to a claim, by written notice to the contracting officer as 
provided in 33.206(a), if it is disputed either as to liability or 
amount or is not acted upon in a reasonable time.
    Defective certification, as used in this subpart, means a 
certificate which alters or otherwise deviates from the language in 
33.207(c) or which is not executed by a person duly authorized to bind 
the contractor with respect to the claim. Failure to certify shall not 
be deemed to be a defective certification.
    Issue in controversy means a material disagreement between the 
Government and the contractor which (1) may result in a claim or (2) is 
all or part of an existing claim.
    Misrepresentation of fact, as used in this part, means a false 
statement of substantive fact, or any conduct which leads to the belief 
of a substantive fact material to proper understanding of the matter in 
hand, made with intent to deceive or mislead.
    Neutral person, as used in this subpart, means an impartial third 
party, who serves as a mediator, fact finder, or arbitrator, or 
otherwise functions to assist the parties to resolve the issues in 
controversy. A neutral person may be a permanent or temporary officer or 
employee of the Federal Government or any other individual who is 
acceptable to the parties. A neutral person shall have no official, 
financial, or personal conflict of interest with respect to the issues 
in controversy, unless such interest is fully disclosed in writing to 
all parties and all parties agree

[[Page 741]]

that the neutral person may serve (5 U.S.C. 583).
[48 FR 42349, Sept. 19, 1983. Redesignated and amended at 50 FR 2270, 
Jan. 15, 1985; 56 FR 67417, Dec. 30, 1991; 59 FR 11381, Mar. 10, 1994; 
60 FR 48230, Sept. 18, 1995]



33.202  Contract Disputes Act of 1978.

    The Contract Disputes Act of 1978, as amended (41 U.S.C. 601-613) 
(the Act), establishes procedures and requirements for asserting and 
resolving claims subject to the Act. In addition, the Act provides for: 
(a) the payment of interest on contractor claims; (b) certification of 
contractor claims; and (c) a civil penalty for contractor claims that 
are fraudulent or based on a misrepresentation of fact.
[56 FR 67417, Dec. 30, 1991, as amended at 59 FR 11381, Mar. 10, 1994]



33.203  Applicability.

    (a) Except as specified in paragraph (b) below, this part applies to 
any express or implied contract covered by the Federal Acquisition 
Regulation.
    (b) This subpart does not apply to any contract with (1) a foreign 
government or agency of that government, or (2) an international 
organization or a subsidiary body of that organization, if the agency 
head determines that the application of the Act to the contract would 
not be in the public interest.
    (c) This part applies to all disputes with respect to contracting 
officer decisions on matters arising under or relating to a contract. 
Agency Boards of Contract Appeals (BCA's) authorized under the Act 
continue to have all of the authority they possessed before the Act with 
respect to disputes arising under a contract, as well as authority to 
decide disputes relating to a contract. The clause at 52.233-1, 
Disputes, recognizes the all disputes authority established by the Act 
and states certain requirements and limitations of the Act for the 
guidance of contractors and contracting agencies. The clause is not 
intended to affect the rights and obligations of the parties as provided 
by the Act or to constrain the authority of the statutory agency BCA's 
in the handling and deciding of contractor appeals under the Act.
[48 FR 42349, Sept. 19, 1983. Redesignated and amended at 50 FR 2270, 
Jan. 15, 1985]



33.204  Policy.

    The Government's policy is to try to resolve all contractual issues 
in controversy by mutual agreement at the contracting officer's level. 
Reasonable efforts should be made to resolve controversies prior to the 
submission of a claim. Agencies are encouraged to use ADR procedures to 
the maximum extent practicable. Certain factors, however, may make the 
use of ADR inappropriate (see 5 U.S.C. 572(b)). Except for arbitration 
conducted pursuant to the Administrative Dispute Resolution Act (ADRA), 
Public Law 100-522, agencies have authority which is separate from that 
provided by the ADRA to use ADR procedures to resolve issues in 
controversy. Agencies may also elect to proceed under the authority and 
requirements of the ADRA.
[59 FR 11381, Mar. 10, 1994]



33.205  Relationship of the Act to Pub. L. 85-804.

    (a) Requests for relief under Pub. L. 85-804 (50 U.S.C. 1431-1435) 
are not claims within the Contract Disputes Act of 1978 or the Disputes 
clause at 52.233-1, Disputes, and shall be processed under part 50, 
Extraordinary Contractual Actions. However, relief formerly available 
only under Pub. L. 85-804; i.e., legal entitlement to rescission or 
reformation for mutual mistake, is now available within the authority of 
the contracting officer under the Contract Disputes Act of 1978 and the 
Disputes clause. In case of a question whether the contracting officer 
has authority to settle or decide specific types of claims, the 
contracting officer should seek legal advice.
    (b) A contractor's allegation that it is entitled to rescission or 
reformation of its contract in order to correct or mitigate the effect 
of a mistake shall be treated as a claim under the Act. A contract may 
be reformed or rescinded by the contracting officer if the contractor 
would be entitled to such remedy or relief under the law of Federal

[[Page 742]]

contracts. Due to the complex legal issues likely to be associated with 
allegations of legal entitlement, contracting officers shall make 
written decisions, prepared with the advice and assistance of legal 
counsel, either granting or denying relief in whole or in part.
    (c) A claim that is either denied or not approved in its entirety 
under paragraph (b) above may be cognizable as a request for relief 
under Pub. L. 85-804 as implemented by part 50. However, the claim must 
first be submitted to the contracting officer for consideration under 
the Contract Disputes Act of 1978 because the claim is not cognizable 
under Public Law 85-804, as implemented by part 50, unless other legal 
authority in the agency concerned is determined to be lacking or 
inadequate.



33.206  Initiation of a claim.

    (a) Contractor claims shall be submitted, in writing, to the 
contracting officer for a decision within 6 years after accrual of a 
claim, unless the contracting parties agreed to a shorter time period. 
This 6-year time period does not apply to contracts awarded prior to 
October 1, 1995. The contracting officer shall document the contract 
file with evidence of the date of receipt of any submission from the 
contractor deemed to be a claim by the contracting officer.
    (b) The contracting officer shall issue a written decision on any 
Government claim initiated against a contractor within 6 years after 
accrual of the claim, unless the contracting parties agreed to a shorter 
time period. The 6-year period shall not apply to contracts awarded 
prior to October 1, 1995, or to a Government claim based on a contractor 
claim involving fraud.
[60 FR 48230, Sept. 18, 1995]



33.207  Contractor certification.

    (a) Contractors shall provide the certification specified in 
33.207(c) when submitting any claim--
    (1) Exceeding $100,000; or
    (2) Regardless of the amount claimed when using--
    (i) Arbitration conducted pursuant to 5 U.S.C. 575-580; or
    (ii) Any other ADR technique that the agency elects to handle in 
accordance with the ADRA.
    (b) The certification requirement does not apply to issues in 
controversy that have not been submitted as all or part of a claim.
    (c) The certification shall state as follows:

    I certify that the claim is made in good faith; that the supporting 
data are accurate and complete to the best of my knowledge and belief; 
that the amount requested accurately reflects the contract adjustment 
for which the contractor believes the Government is liable; and that I 
am duly authorized to certify the claim on behalf of the contractor.


    (d) The aggregate amount of both increased and decreased costs shall 
be used in determining when the dollar thresholds requiring 
certification are met (see example in 15.403-4(a)(1)(iii) regarding cost 
or pricing data).
    (e) The certification may be executed by any person duly authorized 
to bind the contractor with respect to the claim.
    (f) A defective certification shall not deprive a court or an agency 
BCA of jurisdiction over that claim. Prior to the entry of a final 
judgment by a court or a decision by an agency BCA, however, the court 
or agency BCA shall require a defective certification to be corrected.
[59 FR 11381, Mar. 10, 1994, as amended at 60 FR 48218, 48230, Sept. 18, 
1995; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
33.207, in paragraph (d), `` 15.804-2(a)(1)(iii) was amended to read 
``15.403-4(a)(1)(iii), effective Oct. 10, 1997.



33.208  Interest on claims.

    (a) The Government shall pay interest on a contractor's claim on the 
amount found due and unpaid from the date that--
    (1) The contracting officer receives the claim (certified if 
required by 33.207(a)); or
    (2) Payment otherwise would be due, if that date is later, until the 
date of payment.
    (b) Simple interest on claims shall be paid at the rate, fixed by 
the Secretary of the Treasury as provided in the Act, which is 
applicable to the period during

[[Page 743]]

which the contracting officer receives the claim and then at the rate 
applicable for each 6-month period as fixed by the Treasury Secretary 
during the pendency of the claim. (See 32.614 for the right of the 
Government to collect interest on its claims against a contractor).
    (c) With regard to claims having defective certifications, interest 
shall be paid from either the date that the contracting officer 
initially receives the claim or October 29, 1992, whichever is later. 
However, if a contractor has provided a proper certificate prior to 
October 29, 1992, after submission of a defective certificate, interest 
shall be paid from the date of receipt by the Government of a proper 
certificate.
[59 FR 11381, Mar. 10, 1994, as amended at 60 FR 48230, Sept. 18, 1995]



33.209  Suspected fraudulent claims.

    If the contractor is unable to support any part of the claim and 
there is evidence that the inability is attributable to 
misrepresentation of fact or to fraud on the part of the contractor, the 
contracting officer shall refer the matter to the agency official 
responsible for investigating fraud.



33.210  Contracting officer's authority.

    Except as provided in this section, contracting officers are 
authorized, within any specific limitations of their warrants, to decide 
or resolve all claims arising under or relating to a contract subject to 
the Act. In accordance with agency policies and 33.214, contracting 
officers are authorized to use ADR procedures to resolve claims. The 
authority to decide or resolve claims does not extend to--
    (a) A claim or dispute for penalties or forfeitures prescribed by 
statute or regulation that another Federal agency is specifically 
authorized to administer, settle, or determine; or
    (b) The settlement, compromise, payment or adjustment of any claim 
involving fraud.
[48 FR 42349, Sept. 19, 1983. Redesignated and amended at 50 FR 2270, 
Jan. 15, 1985; 51 FR 36972, Oct. 16, 1986; 59 FR 11381, Mar. 10, 1994]



33.211  Contracting officer's decision.

    (a) When a claim by or against a contractor cannot be satisfied or 
settled by mutual agreement and a decision on the claim is necessary, 
the contracting officer shall--
    (1) Review the facts pertinent to the claim;
    (2) Secure assistance from legal and other advisors;
    (3) Coordinate with the contract administration office or 
contracting office, as appropriate; and
    (4) Prepare a written decision that shall include a--
    (i) Description of the claim or dispute;
    (ii) Reference to the pertinent contract terms;
    (iii) Statement of the factual areas of agreement and disagreement;
    (iv) Statement of the contracting officer's decision, with 
supporting rationale;
    (v) Paragraph substantially as follows:

``This is the final decision of the Contracting Officer. You may appeal 
this decision to the agency board of contract appeals. If you decide to 
appeal, you must, within 90 days from the date you receive this 
decision, mail or otherwise furnish written notice to the agency board 
of contract appeals and provide a copy to the Contracting Officer from 
whose decision this appeal is taken. The notice shall indicate that an 
appeal is intended, reference this decision, and identify the contract 
by number. With regard to appeals to the agency board of contract 
appeals, you may, solely at your election, proceed under the board's 
small claim procedure for claims of $50,000 or less or its accelerated 
procedure for claims of $100,000 or less. Instead of appealing to the 
agency board of contract appeals, you may bring an action directly in 
the United States Court of Federal Claims (except as provided in the 
Contract Disputes Act of 1978, 41 U.S.C. 603, regarding Maritime 
Contracts) within 12 months of the date you receive this decision''; and
    (vi) Demand for payment prepared in accordance with 32.610(b) in all 
cases where the decision results in a finding that the contractor is 
indebted to the Government.

[[Page 744]]

    (b) The contracting officer shall furnish a copy of the decision to 
the contractor by certified mail, return receipt requested, or by any 
other method that provides evidence of receipt. This requirement shall 
apply to decisions on claims initiated by or against the contractor.
    (c) The contracting officer shall issue the decision within the 
following statutory time limitations:
    (1) For claims of $100,000 or less, 60 days after receiving a 
written request from the contractor that a decision be rendered within 
that period, or within a reasonable time after receipt of the claim if 
the contractor does not make such a request.
    (2) For claims over $100,000, 60 days after receiving a certified 
claim; provided, however, that if a decision will not be issued within 
60 days, the contracting officer shall notify the contractor, within 
that period, of the time within which a decision will be issued.
    (d) The contracting officer shall issue a decision within a 
reasonable time, taking into account--
    (1) The size and complexity of the claim;
    (2) The adequacy of the contractor's supporting data; and
    (3) Any other relevant factors.
    (e) The contracting officer shall have no obligation to render a 
final decision on any claim exceeding $100,000 which contains a 
defective certification, if within 60 days after receipt of the claim, 
the contracting officer notifies the contractor, in writing, of the 
reasons why any attempted certification was found to be defective.
    (f) In the event of undue delay by the contracting officer in 
rendering a decision on a claim, the contractor may request the tribunal 
concerned to direct the contracting officer to issue a decision in a 
specified time period determined by the tribunal.
    (g) Any failure of the contracting officer to issue a decision 
within the required time periods will be deemed a decision by the 
contracting officer denying the claim and will authorize the contractor 
to file an appeal or suit on the claim.
    (h) The amount determined payable under the decision, less any 
portion already paid, should be paid, if otherwise proper, without 
awaiting contractor action concerning appeal. Such payment shall be 
without prejudice to the rights of either party.
[48 FR 42349, Sept. 19, 1983. Redesignated at 50 FR 2270, Jan. 15, 1985, 
and amended at 54 FR 34755, Aug. 21, 1989; 59 FR 11382, Mar. 10, 1994; 
60 FR 48230, Sept. 18, 1995]



33.212  Contracting officer's duties upon appeal.

    To the extent permitted by any agency procedures controlling 
contacts with agency BCA personnel, the contracting officer shall 
provide data, documentation, information, and support as may be required 
by the agency BCA for use on a pending appeal from the contracting 
officer's decision.



33.213  Obligation to continue performance.

    (a) In general, before passage of the Act, the obligation to 
continue performance applied only to claims arising under a contract. 
However, Section 6(b) of the Act authorizes agencies to require a 
contractor to continue contract performance in accordance with the 
contracting officer's decision pending final decision on a claim 
relating to the contract. In recognition of this fact, an alternate 
paragraph is provided for paragraph (h) of the clause at 52.233-1, 
Disputes. This paragraph shall be used only as authorized by agency 
procedures.
    (b) In all contracts that include the clause at 52.233-1, Disputes, 
with its Alternate I, in the event of a dispute not arising under, but 
relating to, the contract, the contracting officer shall consider 
providing, through appropriate agency procedures, financing of the 
continued performance; provided, that the Government's interest is 
properly secured.



33.214  Alternative dispute resolution (ADR).

    (a) The objective of using ADR procedures is to increase the 
opportunity for relatively inexpensive and expeditious resolution of 
issues in controversy. Essential elements of ADR include--
    (1) Existence of an issue in controversy;
    (2) A voluntary election by both parties to participate in the ADR 
process;

[[Page 745]]

    (3) An agreement on alternative procedures and terms to be used in 
lieu of formal litigation;
    (4) Participation in the process by officials of both parties who 
have the authority to resolve the issue in controversy; and
    (5) Certification by the contractor in accordance with 33.207 when 
using ADR procedures to resolve all or part of a claim under the 
authority of the ADRA.
    (b) If the contracting officer rejects a request for ADR from a 
small business contractor, the contracting officer shall provide the 
contractor written explanation citing one or more of the conditions in 5 
U.S.C. 572(b) or such other specific reasons that ADR procedures are 
inappropriate for the resolution of the dispute. In any case where a 
contractor rejects a request of an agency for ADR proceedings, the 
contractor shall inform the agency in writing of the contractor's 
specific reasons for rejecting the request.
    (c) ADR procedures may be used at any time that the contracting 
officer has authority to resolve the issue in controversy. If a claim 
has been submitted, ADR procedures may be applied to all or a portion of 
the claim. When ADR procedures are used subsequent to the issuance of a 
contracting officer's final decision, their use does not alter any of 
the time limitations or procedural requirements for filing an appeal of 
the contracting officer's final decision and does not constitute a 
reconsideration of the final decision.
    (d) When appropriate, a neutral person may be used to facilitate 
resolution of the issue in controversy using the procedures chosen by 
the parties.
    (e) The confidentiality of ADR proceedings shall be protected 
consistent with 5 U.S.C. 574.
[56 FR 67417, Dec. 30, 1991, as amended at 59 FR 11382, Mar. 10, 1994; 
60 FR 48230, Sept. 18, 1995]



33.215  Contract clause.

    The contracting officer shall insert the clause at 52.233-1, 
Disputes, in solicitations and contracts, unless the conditions in 
33.203(b) apply. If it is determined under agency procedures that 
continued performance is necessary pending resolution of any claim 
arising under or relating to the contract, the contracting officer shall 
use the clause with its Alternate I.
[48 FR 42349, Sept. 19, 1983. Redesignated and amended at 50 FR 2270, 
Jan. 15, 1985. Redesignated at 56 FR 67417, Dec. 30, 1991; 57 FR 60610, 
Dec. 21, 1992]

[[Page 746]]



             SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING





PART 34--MAJOR SYSTEM ACQUISITION--Table of Contents




                          Subpart 34.0--General

Sec.
34.000  Scope of part.
34.001  Definition.
34.002  Policy.
34.003  Responsibilities.
34.004  Acquisition strategy.
34.005  General requirements.
34.005-1  Competition.
34.005-2  Mission-oriented solicitation.
34.005-3  Concept exploration contracts.
34.005-4  Demonstration contracts.
34.005-5  Full-scale development contracts.
34.005-6  Full production.

  Subpart 34.1--Testing, Qualification and Use of Industrial Resources 
            Developed Under Title III, Defense Production Act

34.100  Scope of subpart.
34.101  Definitions.
34.102  Policy.
34.103  Testing and qualification.
34.104  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42351, Sept. 19, 1983, unless otherwise noted.



                          Subpart 34.0--General



34.000  Scope of part.

    This part describes acquisition policies and procedures for use in 
acquiring major systems consistent with OMB Circular No. A-109, Major 
System Acquisitions (A-109) (see 34.003).



34.001  Definition.

    Effective competition, as used in this part, is a market condition 
which exists when two or more contractors, acting independently, 
actively contend for the Government's business in a manner which ensures 
that the Government will be offered the lowest cost or price alternative 
or best technical design meeting its minimum needs.
[50 FR 27562, July 3, 1985, as amended at 51 FR 52434, Dec. 23, 1985; 51 
FR 27116, July 29, 1986; 61 FR 41470, Aug. 8, 1996]



34.002  Policy.

    The policies of this part are designed to ensure that agencies 
acquire major systems in the most effective, economical, and timely 
manner. Agencies acquiring major systems shall--
    (a) Promote innovation and full and open competition as required by 
part 6 in the development of major system concepts by (1) expressing 
agency needs and major system acquisition program objectives in terms of 
the agency's mission and not in terms of specified systems to satisfy 
needs, and (2) focusing agency resources and special management 
attention on activities conducted in the initial stage of major 
programs; and
    (b) Sustain effective competition between alternative system 
concepts and sources for as long as it is beneficial.
[48 FR 42351, Sept. 19, 1983, as amended at 50 FR 52434, Dec. 23, 1985]



34.003  Responsibilities.

    (a) As required by A-109, the agency head or designee shall 
establish written procedures for its implementation.
    (b) The agency procedures shall identify the key decision points of 
each major system acquisition and the agency official(s) for making 
those decisions.
    (c) Systems acquisitions normally designated as major are those 
programs that, as determined by the agency head, (1) are directed at and 
critical to fulfilling an agency mission need, (2) entail allocating 
relatively large resources for the particular agency, and (3) warrant 
special management attention, including specific agency-head decisions. 
The agency procedures may establish additional criteria, as specified in 
A-109, for designating major programs system acquisitions.



34.004  Acquisition strategy.

    The program manager, as specified in agency procedures, shall 
develop an acquisition strategy tailored to the particular major system 
acquisition program. This strategy is the program manager's overall plan 
for satisfying the mission need in the most effective,

[[Page 747]]

economical, and timely manner. The strategy shall be in writing and 
prepared in accordance with the requirements of subpart 7.1, except 
where inconsistent with this part, and shall qualify as the acquisition 
plan for the major system acquisition, as required by that subpart.



34.005  General requirements.



34.005-1  Competition.

    (a) The program manager shall, throughout the acquisition process, 
promote full and open competition and sustain effective competition 
between alternative major system concepts and sources, as long as it is 
economically beneficial and practicable to do so. Notice of the proposed 
acquisition shall be given the broadest and most effective circulation 
practicable throughout the business, academic, and Government 
communities. Foreign contractors, technology, and equipment may be 
considered when it is feasible and permissible to do so.
    (b) The contracting officer should time solicitation issuance and 
contract award to maintain continuity of concept development during the 
transition from withdrawing concept proposer to new contractor.
[48 FR 42351, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



34.005-2  Mission-oriented solicitation.

    (a) Before issuing the solicitation, whenever practicable and 
consistent with agency procedures, the contracting officer should take 
the actions outlined in subparagraphs (1) and (2):
    (1) Advance notification of the acquisition should be given the 
widest practicable dissemination, including publication in the Commerce 
Business Daily (see subpart 5.2) and should be sent to as wide a 
selection of potential sources as practicable, including smaller and 
newer firms, Government laboratories, federally funded research and 
development centers, educational institutions and other not-for-profit 
organizations, and, if it would be beneficial and is not prohibited, 
foreign sources.
    (2) If appropriate, hold a presolicitation conference (see 15.201) 
and/or send copies of the proposed solicitation to all prospective 
offerors for their comments. After evaluation of these comments, the 
solicitation should be revised, if appropriate.
    (b) The contracting officer shall send the final solicitation to all 
prospective offerors. It shall--
    (1) Describe the nature of the need in terms of mission capabilities 
required, without reference to any specific systems to satisfy the need;
    (2) Indicate, and explain when appropriate, the schedule, 
capability, and cost objectives and any known constraints in the 
acquisition;
    (3) Provide, or indicate how access can be obtained to, all 
Government data related to the acquisition;
    (4) Include selection requirements consistent with the acquisition 
strategy; and
    (5) Clearly state that each offeror is free to propose its own 
technical approach, main design features, subsystems, and alternatives 
to schedule, cost, and capability goals.
    (c) To the extent practicable, the solicitation shall not reference 
or mandate Government specifications or standards, unless the agency is 
mandating a subsystem or other component as approved under agency 
procedure.
[48 FR 42351, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
34.005-2, in paragraph (a)(2), ``15.404'' was amended to read 
``15.201'', effective Oct. 10, 1997.



34.005-3  Concept exploration contracts.

    Whenever practicable, contracts to be performed during the concept 
exploration phase shall be for relatively short periods, at planned 
dollar levels. These contracts are to refine the proposed concept and to 
reduce the concept's technical uncertainties. The scope of work for this 
phase of the program shall be consistent with the Government's planned 
budget for the phase. Follow-on contracts for such tasks in the 
exploration phase shall be awarded as long as the concept approach 
remains promising, the contractor's progress is acceptable, and it is 
economically practicable to do so.

[[Page 748]]



34.005-4  Demonstration contracts.

    Whenever practicable, contracts for the demonstration phase should 
provide for contractors to submit, by the end of the phase, priced 
proposals, totally funded by the Government, for full-scale development. 
The contracting officer should provide contractors with operational test 
conditions, performance criteria, life cycle cost factors, and any other 
selection criteria necessary for the contractors to prepare their 
proposals.



34.005-5  Full-scale development contracts.

    Whenever practicable, the full-scale development contracts should 
provide for the contractors to submit priced proposals for production 
that are based on the latest quantity, schedule, and logistics 
requirements and other considerations that will be used in making the 
production decision.



34.005-6  Full production.

    Contracts for full production of successfully tested major systems 
selected from the full-scale development phase may be awarded if the 
agency head (a) reaffirms the mission need and program objectives and 
(b) grants approval to proceed with production.



  Subpart 34.1--Testing, Qualification and Use of Industrial Resources 
            Developed Under Title III, Defense Production Act

    Source: 59 FR 67048, Dec. 28, 1994, unless otherwise noted.



34.100  Scope of subpart.

    This subpart prescribes policies and procedures for the testing, 
qualification, and use of industrial resources manufactured or developed 
with assistance provided under section 301, 302, or 303 of the Defense 
Production Act (50 U.S.C. App. 2091-2093). Title III of the Defense 
Production Act authorizes various forms of Government assistance to 
encourage expansion of production capacity and supply of industrial 
resources essential to national defense.



34.101  Definitions.

    Item of supply, for the purpose of this subpart, means any 
individual part, component, subassembly, assembly, or subsystem integral 
to a major system, and other property which may be replaced during the 
service life of the system. The term includes spare parts and 
replenishment parts, but does not include packaging or labeling 
associated with shipment or identification of an ``item.''



34.102  Policy.

    It is the policy of the Government, as required by section 126 of 
Public Law 102-558, to pay for any testing and qualification required 
for the use or incorporation of the industrial resources manufactured or 
developed with assistance provided under Title III of the Defense 
Production Act of 1950.



34.103  Testing and qualification.

    (a) Contractors receiving requests from a Title III project 
contractor for testing and qualification of a Title III industrial 
resource shall refer such requests to the contracting officer. The 
contracting officer shall evaluate the request in accordance with agency 
procedures to determine whether: (1) the Title III industrial resource 
is being or potentially may be used in the development or manufacture of 
a major system or item of supply; and (2) for major systems in 
production, remaining quantities to be acquired are sufficient to 
justify incurring the cost of testing and qualification. In evaluating 
this request, the contracting officer shall consult with the Defense 
Production Act Office, Title III Program, located at Wright Patterson 
Air Force Base, Ohio 45433-7739.
    (b) If the determination at 34.103(a) is affirmative, the 
contracting officer shall modify the contract to require the contractor 
to test the Title III industrial resource for qualification.
    (c) The Defense Production Act Office, Title III Program, shall 
provide to the contractor the industrial resource produced by the Title 
III project contractor in sufficient amounts to meet testing needs.

[[Page 749]]



34.104  Contract clause.

    Insert the clause at 52.234-1, Industrial Resources Developed under 
Defense Production Act, Title III, in all contracts for major systems 
and items of supply.



PART 35--RESEARCH AND DEVELOPMENT CONTRACTING--Table of Contents




Sec.
35.000  Scope of part.
35.001  Definitions.
35.002  General.
35.003  Policy.
35.004  Publicizing requirements and expanding research and development 
          sources.
35.005  Work statement.
35.006  Contracting methods and contract type.
35.007  Solicitations.
35.008  Evaluation for award.
35.009  Subcontracting research and development effort.
35.010  Scientific and technical reports.
35.011  Data.
35.012  Patent rights.
35.013  Insurance.
35.014  Government property and title.
35.015  Contracts for research with educational institutions and 
          nonprofit organizations.
35.016  Broad agency announcement.
35.017  Federally Funded Research and Development Centers.
35.017-1  Sponsoring agreements.
35.017-2  Establishing or changing an FFRDC.
35.017-3  Using an FFRDC.
35.017-4  Reviewing FFRDC's.
35.017-5  Terminating FFRDC.
35.017-6  Master list of FFRDC's.
35.017-7  Limitation on the creation of new FFRDC'S.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42352, Sept. 19, 1983, unless otherwise noted.



35.000  Scope of part.

    (a) This part prescribes policies and procedures of special 
application to research and development (R&D) contracting.
    (b) R&D integral to acquisition of major systems is covered in part 
34. Independent research and development (IR&D) is covered at 31.205-18.
    (c) This part also implements OFPP Policy Letter 84-1, Federally 
Funded Research and Development Centers (FFRDC's), by prescribing the 
procedures for establishment, use, review, and termination of FFRDC's.
[48 FR 42352, Sept. 19, 1983, as amended at 55 FR 3884, Feb. 5, 1990]



35.001  Definitions.

    Applied research means the effort that (a) normally follows basic 
research, but may not be severable from the related basic research; (b) 
attempts to determine and exploit the potential of scientific 
discoveries or improvements in technology, materials, processes, 
methods, devices, or techniques; and (c) attempts to advance the state 
of the art. When being used by contractors in cost principle 
applications, this term does not include efforts whose principal aim is 
the design, development, or testing of specific items or services to be 
considered for sale; these efforts are within the definition of 
development, given below.
    Basic research means research directed toward increasing knowledge 
in science. The primary aim of basic research is a fuller knowledge or 
understanding of the subject under study, rather than any practical 
application of that knowledge.
    Broad agency announcement means a general announcement of an 
agency's research interest including criteria for selecting proposals 
and soliciting the participation of all offerors capable of satisfying 
the Government's needs (see 6.102(d)(2)).
    Cost sharing, as used in this part, means an explicit arrangement 
under which the contractor bears some of the burden of reasonable, 
allocable, and allowable contract cost.
    Development, as used in this part, means the systematic use of 
scientific and technical knowledge in the design, development, testing, 
or evaluation of a potential new product or service (or of an 
improvement in an existing product or service) to meet specific 
performance requirements or objectives. It includes the functions of 
design engineering, prototyping, and engineering testing; it excludes 
subcontracted technical effort that is for the sole purpose of 
developing an additional source for an existing product.
    Federally Funded Research and Development Centers (FFRDC's), means 
activities that are sponsored under a

[[Page 750]]

broad charter by a Government agency (or agencies) for the purpose of 
performing, analyzing, integrating, supporting, and/or managing basic or 
applied research and/or development, and which receive 70 percent or 
more of their financial support from the Government; a long-term 
relationship is contemplated; most or all of the facilities are owned or 
funded by the Government; and the FFRDC has access to Government and 
supplier data, employees, and facilities beyond that which is common in 
a normal contractual relationship. The National Science Foundation 
maintains the master list of FFRDC's.
    Recoupment, as used in this part, means the recovery by the 
Government of Government-funded nonrecurring costs from contractors that 
sell, lease, or license the resulting products or technology to buyers 
other than the Federal Government.
[48 FR 42352, Sept. 19, 1983, as amended at 53 FR 27467, July 20, 1988; 
55 FR 3884, Feb. 5, 1990]



35.002  General.

    The primary purpose of contracted R&D programs is to advance 
scientific and technical knowledge and apply that knowledge to the 
extent necessary to achieve agency and national goals. Unlike contracts 
for supplies and services, most R&D contracts are directed toward 
objectives for which the work or methods cannot be precisely described 
in advance. It is difficult to judge the probabilities of success or 
required effort for technical approaches, some of which offer little or 
no early assurance of full success. The contracting process shall be 
used to encourage the best sources from the scientific and industrial 
community to become involved in the program and must provide an 
environment in which the work can be pursued with reasonable flexibility 
and minimum administrative burden.



35.003  Policy.

    (a) Use of contracts. Contracts shall be used only when the 
principal purpose is the acquisition of supplies or services for the 
direct benefit or use of the Federal Government. Grants or cooperative 
agreements should be used when the principal purpose of the transaction 
is to stimulate or support research and development for another public 
purpose.
    (b) Cost sharing. Cost sharing policies (which are not otherwise 
required by law) under Government contracts shall be in accordance with 
16.303, 42.707(a) and agency procedures.
    (c) Recoupment. Recoupment not otherwise required by law shall be in 
accordance with agency procedures.



35.004  Publicizing requirements and expanding research and development sources.

    (a) In order to obtain a broad base of the best contractor sources 
from the the scientific and industrial community, agencies shall, in 
addition to following the requirements of part 5, continually search for 
and develop information on sources (including small business concerns) 
competent to perform R&D work. These efforts should include--
    (1) Early identification and publication of agency R&D needs and 
requirements, including publication in the Commerce Business Daily (see 
part 5);
    (2) Cooperation among technical personnel, contracting officers, and 
Government small business personnel early in the acquisition process; 
and
    (3) Providing agency R&D points of contact for potential sources.
    (b) See subpart 9.7 for information regarding R&D pools and subpart 
9.6 for teaming arrangements.



35.005  Work statement.

    (a) A clear and complete work statement concerning the area of 
exploration (for basic research) or the end objectives (for development 
and applied research) is essential. The work statement should allow 
contractors freedom to exercise innovation and creativity. Work 
statements must be individually tailored by technical and contracting 
personnel to attain the desired degree of flexibility for contractor 
creativity and the objectives of the R&D.
    (b) In basic research the emphasis is on achieving specified 
objectives and knowledge rather than on achieving predetermined end 
results prescribed in a statement of specific performance 
characteristics. This emphasis applies

[[Page 751]]

particularly during the early or conceptual phases of the R&D effort.
    (c) In reviewing work statements, contracting officers should ensure 
that language suitable for a level-of-effort approach, which requires 
the furnishing of technical effort and a report on the results, is not 
intermingled with language suitable for a task-completion approach, 
which often requires the development of a tangible end item designed to 
achieve specific performance characteristics. The wording of the work 
statement should also be consistent with the type and form of contract 
to be negotiated (see 16.207 and 16.306(d)). For example, the work 
statement for a cost-reimbursement contract promising the contractor's 
best efforts for a fixed term would be phrased differently than a work 
statement for a cost-reimbursement completion contract promising the 
contractor's best efforts for a defined task. Differences between work 
statements for fixed-price contracts and cost-reimbursement contracts 
should be even clearer.
    (d) In preparing work statements, technical and contracting 
personnel shall consider and, as appropriate, provide in the 
solicitation--
    (1) A statement of the area of exploration, tasks to be performed, 
and objectives of the research or development effort;
    (2) Background information helpful to a clear understanding of the 
objective or requirement (e.g., any known phenomena, techniques, 
methodology, or results of related work);
    (3) Information on factors such as personnel, environment, and 
interfaces that may constrain the results of the effort;
    (4) Reporting requirements and information on any additional items 
that the contractor is required to furnish (at specified intervals) as 
the work progresses;
    (5) The type and form of contract contemplated by the Government 
and, for level-of-effort work statements, an estimate of applicable 
professional and technical effort involved; and
    (6) Any other considerations peculiar to the work to be performed; 
for example, any design-to-cost requirements.



35.006  Contracting methods and contract type.

    (a) In R&D acquisitions, the precise specifications necessary for 
sealed bidding are generally not available, thus making negotiation 
necessary. However, the use of negotiation in R&D contracting does not 
change the obligation to comply with part 6.
    (b) Selecting the appropriate contract type is the responsibility of 
the contracting officer. However, because of the importance of technical 
considerations in R&D, the choice of contract type should be made after 
obtaining the recommendations of technical personnel. Although the 
Government ordinarily prefers fixed-price arrangements in contracting, 
this preference applies in R&D contracting only to the extent that 
goals, objectives, specifications, and cost estimates are sufficient to 
permit such a preference. The precision with which the goals, 
performance objectives, and specifications for the work can be defined 
will largely determine the type of contract employed. The contract type 
must be selected to fit the work required.
    (c) Because the absence of precise specifications and difficulties 
in estimating costs with accuracy (resulting in a lack of confidence in 
cost estimates) normally precludes using fixed-price contracting for 
R&D, the use of cost-reimbursement contracts is usually appropriate (see 
subpart 16.3). The nature of development work often requires a cost-
reimbursement completion arrangement (see 16.306(d)). When the use of 
cost and performance incentives is desirable and practicable, fixed-
price incentive and cost-plus-incentive-fee contracts should be 
considered in that order of preference.
    (d) When levels of effort can be specified in advance, a short-
duration fixed-price contract may be useful for developing system design 
concepts, resolving potential problems, and reducing Government risks. 
Fixed-price contracting may also be used in minor projects when the 
objectives of the research are well defined and there is sufficient 
confidence in the cost estimate for price negotiations. (See 16.207.)
    (e) Projects having production requirements as a follow-on to R&D 
efforts normally should progress from

[[Page 752]]

cost-reimbursement contracts to fixed-price contracts as designs become 
more firmly established, risks are reduced, and production tooling, 
equipment, and processes are developed and proven. When possible, a 
final commitment to undertake specific product development and testing 
should be avoided until (1) preliminary exploration and studies have 
indicated a high degree of probability that development is feasible and 
(2) the Government has determined both its minimum requirements and 
desired objectives for product performance and schedule completion.
[48 FR 42352, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



35.007  Solicitations.

    (a) The submission and subsequent evaluation of an inordinate number 
of R&D proposals from sources lacking appropriate qualifications is 
costly and time-consuming to both industry and the Government. 
Therefore, contracting officers should initially distribute 
solicitations only to sources technically qualified to perform research 
or development in the specific field of science or technology involved. 
Cognizant technical personnel should recommend potential sources that 
appear qualified, as a result of--
    (1) Present and past performance of similar work;
    (2) Professional stature and reputation;
    (3) Relative position in a particular field of endeavor;
    (4) Ability to acquire and retain the professional and technical 
capability, including facilities, required to perform the work; and
    (5) Other relevant factors.
    (b) Proposals generally shall be solicited from technically 
qualified sources, including sources that become known as a result of 
synopses or other means of publicizing requirements. If it is not 
practicable to initially solicit all apparently qualified sources, only 
a reasonable number need be solicited. In the interest of competition, 
contracting officers shall furnish copies of the solicitation to other 
apparently qualified sources.
    (c) Solicitations shall require offerors to describe their technical 
and management approach, identify technical uncertainties, and make 
specific proposals for the resolution of any uncertainties. The 
solicitation should require offerors to include in the proposal any 
planned subcontracting of scientific or technical work (see 35.009).
    (d) Solicitations may require that proposals be organized so that 
the technical portions can be efficiently evaluated by technical 
personnel (see 15.204-5(b)). Solicitation and evaluation of proposals 
should be planned to minimize offerors' and Government expense.
    (e) R&D solicitations should contain evaluation factors to be used 
to determine the most technically competent (see 15.304), such as--
    (1) The offeror's understanding of the scope of the work;
    (2) The approach proposed to accomplish the scientific and technical 
objectives of the contract or the merit of the ideas or concepts 
proposed;
    (3) The availability and competence of experienced engineering, 
scientific, or other technical personnel;
    (4) The offeror's experience;
    (5) Pertinent novel ideas in the specific branch of science and 
technology involved; and
    (6) The availability, from any source, of necessary research, test, 
laboratory, or shop facilities.
    (f) In addition to evaluation factors for technical competence, the 
contracting officer shall consider, as appropriate, management 
capability (including cost management techniques), experience and past 
performance, subcontracting practices, and any other significant 
evaluation criteria (e.g., unrealistically low cost estimates in 
proposals for cost-reimbursement or fixed-price incentive contracts). 
Although cost or price is not normally the controlling factor in 
selecting a contractor to perform R&D, it should not be disregarded in 
arriving at a selection that best satisfies the Government's requirement 
at a fair and reasonable cost.
    (g) The contracting officer should ensure that each prospective 
offeror fully understands the details of the work, especially the 
Government interpretation of the work statement. If the effort is 
complex, the contracting officer

[[Page 753]]

should provide prospective offerors an opportunity to comment on the 
details of the requirements as contained in the work statement, the 
contract Schedule, and any related specifications. This may be done 
through the use of preproposal conferences (see 15.201).
    (h) If it is appropriate to do so, solicitations should permit 
offerors to propose an alternative contract type (see 16.103).
    (i) In circumstances when a concern has a new idea or product to 
discuss that incorporates the results of independent R&D work funded by 
the concern in the private sector and is of interest to the Government, 
there should be no hesitancy to discuss it; however, the concern should 
be warned that the Government will not be obligated by the discussion. 
Under such circumstances, it may be appropriate to negotiate directly 
with the concern without competition. Also see subpart 15.6 concerning 
unsolicited proposals.
    (j) The Government may issue an exploratory request to determine the 
existence of ideas or prior work in a specific field of research. Any 
such request shall clearly state that it does not impose any obligation 
on the Government or signify a firm intention to enter into a contract.
[48 FR 42352, Sept.19, 1983, as amended at 62 FR 5271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
35.007, in paragraph (d),``15.406-5(b)'' is amended to read ``15.204-
5(b)''; in paragraph (e) introductory text, ``15.605(e)'' is amended to 
read ``15.304''; in paragraph (g), ``15.409'' is amended to read 
``15.201''; and in paragraph (i), ``15.5'' is amended to read ``15.6''; 
effective Oct. 10, 1997.



35.008  Evaluation for award.

    (a) Generally, an R&D contract should be awarded to that 
organization, including any educational institution, that proposes the 
best ideas or concepts and has the highest competence in the specific 
field of science or technology involved. However, an award should not be 
made to obtain capabilities that exceed those needed for successful 
performance of the work.
    (b) In R&D contracting, precise specifications are ordinarily not 
available. The contracting officer should therefore take special care in 
reviewing the solicitation evaluation factors to assure that they are 
properly presented and consistent with the solicitation.
    (c) When a small business concern would otherwise be selected for 
award but is considered not responsible, the SBA Certificate of 
Competency procedure shall be followed (see subpart 19.6).
    (d) The contracting officer should use the procedures in subpart 
15.5 to notify and debrief offerors.
    (e) It is important to evaluate a proposed contractor's cost or 
price estimate, not only to determine whether the estimate is reasonable 
but also to provide valuable insight into the offeror's understanding of 
the project, perception of risks, and ability to organize and perform 
the work. Cost or price analysis, as appropriate (see 15.404-1(c)), is a 
useful tool.
[48 FR 42352, Sept. 19, 1983, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
35.008, in paragraph (d), ``15.10'' is amended to read ``15.5'' and in 
paragraph (e), ``15.805'' is amended to read ``15.404-1(c); effective 
Oct. 10, 1997.



35.009  Subcontracting research and development effort.

    Since the selection of R&D contractors is substantially based on the 
best scientific and technological sources, it is important that the 
contractor not subcontract technical or scientific work without the 
contracting officer's advance knowledge. During the negotiation of a 
cost-reimbursement R&D contract, the contracting officer shall obtain 
complete information concerning the contractor's plans for 
subcontracting any portion of the experimental, research, or development 
effort (see also 35.007(c)). Also when negotiating a fixed-price 
contract, the contracting officer should evaluate this information and 
may obtain an agreement that protects the Government's interests. The 
clause at 52.244-2, Subcontracts Under Cost-Reimbursement and Letter 
Contracts, prescribed for cost-reimbursement contracts at 44.204(c), 
requires the contracting officer's prior approval for the placement of a 
substantial cost-reimbursement

[[Page 754]]

subcontract that has experimental, developmental, or research work as 
one of its purposes.



35.010  Scientific and technical reports.

    (a) R&D contracts shall require contractors to furnish scientific 
and technical reports, consistent with the objectives of the effort 
involved, as a permanent record of the work accomplished under the 
contract.
    (b) Agencies should make R&D contract results available to other 
Government activities and the private sector. Contracting officers shall 
follow agency regulations regarding such matters as national security, 
protection of data, and new-technology dissemination policy. Reports 
should be sent to the National Technical Information Service (NTIS), 
5285 Port Royal Road, Springfield, VA 22161. When agencies require that 
completed reports be covered by a report documentation page, Standard 
Form (SF) 298, Report Documentation Page, the contractor should submit a 
copy with the report.
[48 FR 42352, Sept. 19, 1983, as amended at 55 FR 3884, Feb. 5, 1990; 59 
FR 67049, Dec. 28, 1994]



35.011  Data.

    (a) R&D contracts shall specify the technical data to be delivered 
under the contract, since the data clauses required by part 27 do not 
require the delivery of any such data.
    (b) In planning a developmental program when subsequent production 
contracts are contemplated, consideration should be given to the need 
and time required to obtain a technical package (plans, drawings, 
specifications, and other descriptive information) that can be used to 
achieve competition in production contracts. In some situations, the 
developmental contractor may be in the best position to produce such a 
technical package.



35.012  Patent rights.

    For a discussion of patent rights, see agency regulations and part 
27.



35.013  Insurance.

    Nonprofit, educational, or State institutions performing cost-
reimbursement contracts often do not carry insurance. They may claim 
immunity from liability for torts, or, as State institutions, they may 
be prohibited by State law from expending funds for insurance. When this 
is the case, see 28.311 for appropriate clause coverage.



35.014  Government property and title.

    (a) The requirements in part 45 for establishing and maintaining 
control over Government property apply to all R&D contracts.
    (b) In implementing 31 U.S.C. 6306, and unless an agency head 
provides otherwise, the policies in subparagraphs (1) through (4) 
following, regarding title to equipment (and other tangible personal 
property) purchased by the contractor using Government funds provided 
for the conduct of basic or applied scientific research, apply to 
contracts with nonprofit institutions of higher education and nonprofit 
organizations whose primary purpose is the conduct of scientific 
research:
    (1) If the contractor obtains the contracting officer's advance 
approval, the contractor shall automatically acquire and retain title to 
any item of equipment costing less than $5,000 (or a lesser amount 
established by agency regulations) acquired on a reimbursable basis.
    (2) If purchased equipment costs $5,000 (or a lesser amount 
established by agency regulations) or more, and as the parties 
specifically agree in the contract, title may--
    (i) Vest in the contractor upon acquisition without further 
obligation to the Government;
    (ii) Vest in the contractor, subject to the Government's right to 
direct transfer of the title to the Government or to a third party 
within 12 months after the contract's completion or termination 
(transfer of title to the Government or third party shall not be the 
basis for any claim by the contractor); or
    (iii) Vest in the Government, if the contracting officer determines 
that vesting of title in the contractor would not further the objectives 
of the agency's research program.
    (3) If title to equipment is vested in the contractor, depreciation, 
amortization, or use charges are not allowable with respect to that 
equipment under

[[Page 755]]

any existing or future Government contract or subcontract.
    (4) If the contract is performed at a Government installation and 
there is a continuing need for the equipment following contract 
completion, title need not be transferred to the contractor.
    (c) The absence of an agreement covering title to equipment acquired 
by the contractor with Government funds that cost $1,000 or more does 
not limit an agency's right to act to vest title in a contractor as 
authorized by 31 U.S.C. 6306.
    (d)(1) Vesting title under paragraph (b) above is subject to civil 
rights legislation, 42 U.S.C. 2000d. Before title is vested, the 
contractor must agree that--

    ``No person in the United States shall, on the ground of race, 
color, or national origin, be excluded from participation in, be denied 
the benefits of, or be otherwise subjected to discrimination under this 
contemplated financial assistance (title to equipment).''


    (2) By signing the contract, the contractor accepts and agrees to 
comply with this requirement.
    (e) The policies in subparagraphs (b)(1) through (b)(3) and 
paragraph (d) above are implemented in the Government property clauses 
(Alternate II of the clause at 52.245-2, Government Property (Fixed-
Price); Alternate I of the clause at 52.245-5, Government Property 
(Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts); 
Alternate I of the clause at 52.245-11, Government Property (Facilities 
Use); and the clause at 52.245-15, Transfer of Title to the Facilities), 
which are prescribed in part 45 (at 45.106 for fixed-price and cost-
reimbursement contracts and at 45.302-6 and 45.302-7 for facilities 
contracts).
[48 FR 42352, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985]



35.015  Contracts for research with educational institutions and nonprofit organizations.

    (a) General. (1) When the R&D work is not defined precisely and the 
contract states only a period during which work is conducted (that is, a 
specific time for achievement of results is not required), research 
contracts with educational institutions and nonprofit organizations 
shall--
    (i) State that the contractor bears primary responsibility for the 
research;
    (ii) Give (A) the name of the principal investigator (or project 
leader), if the decision to contract is based on that particular 
individual's research effort and management capabilities, and (B) the 
contractor's estimate of the amount of time that individual will devote 
to the work;
    (iii) Provide that the named individual shall be closely involved 
and continuously responsible for the conduct of the work;
    (iv) Provide that the contractor must obtain the contracting 
officer's approval to change the principal investigator (or project 
leader);
    (v) Require that the contractor advise the contracting officer if 
the principal investigator (or project leader) will, or plans to, devote 
substantially less effort to the work than anticipated; and
    (vi) Require that the contractor obtain the contracting officer's 
approval to change the phenomenon under study, the stated objectives of 
the research, or the methodology.
    (2) If a research contract does provide precise objectives or a 
specific date for achievement of results, the contracting officer may 
include in the contract the requirements set forth in subparagraph (1) 
above, if it is necessary for the Government to exercise oversight and 
approval over the avenues of approach, methods, or schedule of work.
    (b) Basic agreements. (1) A basic agreement should be negotiated if 
the number of contracts warrants such an agreement (see 16.702). Basic 
agreements should be reviewed and updated at least annually.
    (2) To promote uniformity and consistency in dealing with 
educational institutions and nonprofit organizations, agencies are 
encouraged to use basic agreements of other agencies.
[48 FR 42352, Sept. 19, 1983, as amended at 56 FR 15153, Apr. 15, 1991]



35.016  Broad agency announcement.

    (a) General. This paragraph prescribes procedures for the use of the 
broad agency announcement (BAA) with Peer or Scientific Review (see 
6.102(d)(2)) for

[[Page 756]]

the acquisition of basic and applied research and that part of 
development not related to the development of a specific system or 
hardware procurement. BAA's may be used by agencies to fulfill their 
requirements for scientific study and experimentation directed toward 
advancing the state-of-the-art or increasing knowledge or understanding 
rather than focusing on a specific system or hardware solution. The BAA 
technique shall only be used when meaningful proposals with varying 
technical/scientific approaches can be reasonably anticipated.
    (b) The BAA, together with any supporting documents, shall--
    (1) Describe the agency's research interest, either for an 
individual program requirement or for broadly defined areas of interest 
covering the full range of the agency's requirements;
    (2) Describe the criteria for selecting the proposals, their 
relative importance and the method of evaluation;
    (3) Specify the period of time during which proposals submitted in 
response to the BAA will be accepted; and
    (4) Contain instructions for the preparation and submission of 
proposals.
    (c) The availability of the BAA shall be published in the Commerce 
Business Daily and, if authorized pursuant to subpart 5.5, may also be 
published in noted scientific, technical, or engineering periodicals. 
The notice shall be published no less frequently than annually.
    (d) Proposals received as a result of the BAA shall be evaluated in 
accordance with evaluation criteria specified therein through a peer or 
scientific review process. Written evaluation reports on individual 
proposals will be necessary but proposals need not be evaluated against 
each other since they are not submitted in accordance with a common work 
statement.
    (e) The primary basis for selecting proposals for acceptance shall 
be technical, importance to agency programs, and fund availability. Cost 
realism and reasonableness shall also be considered to the extent 
appropriate.
    (f) Synopsis under subpart 5.2, Synopses of Proposed Contract 
Actions, of individual contract actions based upon proposals received 
under the BAA is not required. The notice published pursuant to 
subparagraph (c), of this section, fulfills the synopsis requirement.
[53 FR 27467, July 20, 1988]



35.017  Federally Funded Research and Development Centers.

    (a) Policy.
    (1) This section sets forth Federal policy regarding the 
establishment, use, review, and termination of Federally Funded Research 
and Development Centers (FFRDC's) and related sponsoring agreements.
    (2) An FFRDC meets some special long-term research or development 
need which cannot be met as effectively by existing in-house or 
contractor resources. FFRDC's enable agencies to use private sector 
resources to accomplish tasks that are integral to the mission and 
operation of the sponsoring agency. An FFRDC, in order to discharge its 
responsibilities to the sponsoring agency, has access, beyond that which 
is common to the normal contractual relationship, to Government and 
supplier data, including sensitive and proprietary data, and to 
employees and facilities. The FFRDC is required to conduct its business 
in a manner befitting its special relationship with the Government, to 
operate in the public interest with objectivity and independence, to be 
free from organizational conflicts of interest, and to have full 
disclosure of its affairs to the sponsoring agency. It is not the 
Government's intent that an FFRDC use its privileged information or 
access to facilities to compete with the private sector. However, an 
FFRDC may perform work for other than the sponsoring agency under the 
Economy Act, or other applicable legislation, when the work is not 
otherwise available from the private sector.
    (3) FFRDC's are operated, managed, and/or administered by either a 
university or consortium of universities, other not-for-profit or 
nonprofit organization, or an industrial firm, as an autonomous 
organization or as an identifiable separate operating unit of a parent 
organization.
    (4) Long-term relationships between the Government and FFRDC's are 
encouraged in order to provide the continuity that will attract high-
quality

[[Page 757]]

personnel to the FFRDC. This relationship should be of a type to 
encourage the FFRDC to maintain currency in its field(s) of expertise, 
maintain its objectivity and independence, preserve its familiarity with 
the needs of its sponsor(s), and provide a quick response capability.
    (b) Definitions.
    Nonsponsor, as used in this section, means any other organization, 
in or outside of the Federal Government, which funds specific work to be 
performed by the FFRDC and is not a party to the sponsoring agreement.
    Primary sponsor, as used in this section, means the lead agency 
responsible for managing, administering, or monitoring overall use of 
the FFRDC under a multiple sponsorship agreement.
    Special competency, as used in this section, means a special or 
unique capability, including qualitative aspects, developed incidental 
to the primary functions of the FFRDC to meet some special need.
    Sponsor means the executive agency which manages, administers, 
monitors, funds, and is responsible for the overall use of an FFRDC. 
Multiple agency sponsorship is possible as long a one agency agrees to 
act as the ``primary sponsor.'' In the event of multiple sponsors, 
``sponsor'' refers to the primary sponsor.
[55 FR 3885, Feb. 5, 1990]



35.017-1  Sponsoring agreements.

    (a) In order to facilitate a long-term relationship between the 
Government and an FFRDC, establish the FFRDC's mission, and ensure a 
periodic reevaluation of the FFRDC, a written agreement of sponsorship 
between the Government and the FFRDC shall be prepared when the FFRDC is 
established. The sponsoring agreement may take various forms; it may be 
included in a contract between the Government and the FFRDC, or in 
another legal instrument under which an FFRDC accomplishes effort, or it 
may be in a separate written agreement. Notwithstanding its form, the 
sponsoring agreement shall be clearly designated as such by the sponsor.
    (b) While the specific content of any sponsoring agreement will vary 
depending on the situation, the agreement shall contain, as a minimum, 
the requirements of paragraph (c) of this subsection. The requirements 
for, and the contents of, sponsoring agreements may be as further 
specified in sponsoring agencies' policies and procedures.
    (c) As a minimum, the following requirements must be addressed in 
either a sponsoring agreement or sponsoring agencies' policies and 
procedures:
    (1) A statement of the purpose and mission of the FFRDC.
    (2) Provisions for the orderly termination or nonrenewal of the 
agreement, disposal of assets, and settlement of liabilities. The 
responsibility for capitalization of an FFRDC must be defined in such a 
manner that ownership of assets may be readily and equitably determined 
upon termination of the FFRDC's relationship with its sponsor(s).
    (3) A provision for the identification of retained earnings 
(reserves) and the development of a plan for their use and disposition.
    (4) A prohibition against the FFRDC competing with any non-FFRDC 
concern in response to a Federal agency request for proposal for other 
than the operation of an FFRDC. This prohibition is not required to be 
applied to any parent organization or other subsidiary of the parent 
organization in its non-FFRDC operations. Requests for information, 
qualifications or capabilities can be answered unless otherwise 
restricted by the sponsor.
    (5) A delineation of whether or not the FFRDC may accept work from 
other than the sponsor(s). If nonsponsor work can be accepted, a 
delineation of the procedures to be followed, along with any limitations 
as to the nonsponsors form which work can be accepted (other Federal 
agencies, State or local governments, nonprofit or profit organizations, 
etc.).
    (d) The sponsoring agreement or sponsoring agencies' policies and 
procedures may also contain, as appropriate, other provisions, such as 
identification of--(1) Any cost elements which will require advance 
agreement if cost-type contracts are used; and (2) Considerations which 
will affect negotiation of fees where payment of fees is

[[Page 758]]

determined by the sponsor(s) to be appropriate.
    (e) The term of the agreement will not exceed 5 years, but can be 
renewed, as a result of periodic review, in increments not to exceed 5 
years.
[55 FR 3885, Feb. 5, 1990]



35.017-2  Establishing or changing an FFRDC.

    To establish an FFRDC, or change its basic purpose and mission, the 
sponsor shall ensure the following:
    (a) Existing alternative sources for satisfying agency requirements 
cannot effectively meet the special research or development needs.
    (b) The notices required for publication (see 5.205(b)) are placed 
as required.
    (c) There is sufficient Government expertise available to adequately 
and objectively evaluate the work to be performed by the FFRDC.
    (d) The Executive Office of the President, Office of Science and 
Technology Policy, Washington, DC 20506, is notified.
    (e) Controls are established to ensure that the costs of the 
services being provided to the Government are reasonable.
    (f) The basic purpose and mission of the FFRDC is stated clearly 
enough to enable differentiation between work which should be performed 
by the FFRDC and that which should be performed by non-FFRDC's.
    (g) A reasonable continuity in the level of support to the FFRDC is 
maintained, consistent with the agency's need for the FFRDC and the 
terms of the sponsoring agreement.
    (h) The FFRDC is operated, managed, or administered by an autonomous 
organization or as an identifiably separate operating unit of a parent 
organization, and is required to operate in the public interest, free 
from organizational conflict of interest, and to disclose its affairs 
(as an FFRDC) to the primary sponsor.
    (i) Quantity prodution or manufacturing is not performed unless 
authorized by legislation.
    (j) Approval is received from the head of the sponsoring agency.
[55 FR 3885, Feb. 5, 1990, as amended at 62 FR 12694, Mar. 17, 1997]



35.017-3  Using an FFRDC.

    (a) All work placed with the FFRDC must be within the purpose, 
mission, general scope of effort, or special competency of the FFRDC.
    (b) Where the use of the FFRDC by a nonsponsor is permitted by the 
sponsor, the sponsor shall be responsible for compliance with paragraph 
(a) of this subsection. The nonsponsoring agency is responsible for 
making the determination required by 17.504 and providing the 
documentation required by 17.504(e). When permitted by the sponsor, a 
Federal agency may contract directly with the FFRDC in which case that 
Federal agency is responsible for compliance with part 6.
[55 FR 3886, Feb. 5, 1990]



35.017-4  Reviewing FFRDC's.

    (a) The sponsor, prior to extending the contract or agreement with 
an FFRDC, shall conduct a comprehensive review of the use and need for 
the FFRDC. The review will be coordinated with any co-sponsors and may 
be performed in conjunction with the budget process. If the sponsor 
determines that its sponsorship is no longer appropriate, it shall 
apprise other agencies which use the FFRDC of the determination and 
afford them an opportunity to assume sponsorship.
    (b) Approval to continue or terminate the sponsorship shall rest 
with the head of the sponsoring agency. This determination shall be 
based upon the results of the review conducted in accordance with 
paragraph (c) of this subsection.
    (c) An FFRDC review should include the following:
    (1) An examination of the sponsor's special technical needs and 
mission requirements that are performed by the FFRDC to determine if and 
at what level they continue to exist.
    (2) Consideration of alternative sources to meet the sponsor's 
needs.
    (3) An assessment of the efficiency and effectiveness of the FFRDC 
in meeting the sponsor's needs, including the FFRDC's ability to 
maintain its objectivity, independence, quick response capability, 
currency in its field(s) of expertise, and familiarity with the needs of 
its sponsor.

[[Page 759]]

    (4) An assessment of the adequacy of the FFRDC management in 
ensuring a cost-effective operation.
    (5) A determination that the criteria for establishing the FFRDC 
continue to be satisfied and that the sponsoring agreement is in 
compliance with 35.017-1.
[55 FR 3886, Feb. 5, 1990]



35.017-5  Terminating FFRDC.

    When a sponsor's need for the FFRDC no longer exists, the 
sponsorship may be transferred to one or more Government agencies, if 
appropriately justified. If the FFRDC is not transferred to another 
Government agency, it shall be phased out.
[55 FR 3886, Feb. 5, 1990]



35.017-6  Master list of FFRDC's.

    The National Science Foundation (NSF) maintains a master Government 
list of FFRDC's. Primary sponsors will provide information on each 
FFRDC, including sponsoring agreements, mission statements, funding 
data, and type of R&D being performed, to the NSF upon its request for 
such information.
[55 FR 3886, Feb. 5, 1990]



35.017-7  Limitation on the creation of new FFRDC's.

    Pursuant to 10 U.S.C. 2367, the Secretary of Defense, the Secretary 
of the Army, the Secretary of the Navy, the Secretary of the Air Force, 
the Secretary of Transportation, and the Administrator of the National 
Aeronautics and Space Administration may not obligate or expend amounts 
appropriated to the Department of Defense for purposes of operating an 
FFRDC that was not in existence before June 2, 1986, until (a) the head 
of the agency submits to Congress a report with respect to such center 
that describes the purpose, mission, and general scope of effort of the 
center; and (b) a period of 60 days, beginning on the date such report 
is received by Congress, has elapsed.
[55 FR 3886, Feb. 5, 1990]



PART 36--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS--Table of Contents




Sec.
36.000  Scope of part.

                          Subpart 36.1--General

36.101  Applicability.
36.102  Definitions.
36.103  Methods of contracting.
36.104  Policy.

      Subpart 36.2--Special Aspects of Contracting for Construction

36.201  Evaluation of contractor performance.
36.202  Specifications.
36.203  Government estimate of construction costs.
36.204  Disclosure of the magnitude of construction projects.
36.205  Statutory cost limitations.
36.206  Liquidated damages.
36.207  Pricing fixed-price construction contracts.
36.208  Concurrent performance of firm-fixed-price and other types of 
          construction contracts.
36.209  Construction contracts with architect-engineer firms.
36.210  Inspection of site and examination of data.
36.211  Distribution of advance notices and solicitations.
36.212  Preconstruction orientation.
36.213  Special procedures for sealed bidding in construction 
          contracting.
36.213-1  General.
36.213-2  Presolicitation notices.
36.213-3  Invitations for bids.
36.213-4  Notice of award.
36.214  Special procedures for price negotiation in construction 
          contracting.
36.215  Special procedures for cost-reimbursement contracts for 
          construction.

        Subpart 36.3--Two-Phase Design Build Selection Procedures

36.300  Scope of subpart.
36.301  Use of two-phase design-build selection procedures.
36.302  Scope of work.
36.303  Procedures.
36.303-1  Phase One.
36.303-2  Phase Two.

             Subpart 36.4--Commercial Practices  [Reserved]

                     Subpart 36.5--Contract Clauses

36.500  Scope of subpart.
36.501  Performance of work by the contractor.

[[Page 760]]

36.502  Differing site conditions.
36.503  Site investigation and conditions affecting the work.
36.504  Physical data.
36.505  Material and workmanship.
36.506  Superintendence by the contractor.
36.507  Permits and responsibilities.
36.508  Other contracts.
36.509  Protection of existing vegetation, structures, equipment, 
          utilities, and improvements.
36.510  Operations and storage areas.
36.511  Use and possession prior to completion.
36.512  Cleaning up.
36.513  Accident prevention.
36.514  Availability and use of utility services.
36.515  Schedules for construction contracts.
36.516  Quantity surveys.
36.517  Layout of work.
36.518  Work oversight in cost-reimbursement construction contracts.
36.519  Organization and direction of the work.
36.520  Contracting by negotiation.
36.521  Specifications and drawings for construction.
36.522  Preconstruction conference.
36.523  Site visit.

                Subpart 36.6--Architect-Engineer Services

36.600  Scope of subpart.
36.601  Policy.
36.601-1  Public announcement.
36.601-2  Competition.
36.601-3  Applicable contracting procedures.
36.601-4  Implementation.
36.602  Selection of firms for architect-engineer contracts.
36.602-1  Selection criteria.
36.602-2  Evaluation boards.
36.602-3  Evaluation board functions.
36.602-4  Selection authority.
36.602-5  Short selection process for contracts not to exceed the 
          simplified acquisition threshold.
36.603  Collecting data on and appraising firms' qualifications.
36.604  Performance evaluation.
36.605  Government cost estimate for architect-engineer work.
36.606  Negotiations.
36.607  Release of information on firm selection.
36.608  Liability for Government costs resulting from design errors or 
          deficiencies.
36.609  Contract clauses.
36.609-1  Design within funding limitations.
36.609-2  Redesign responsibility for design errors or deficiencies.
36.609-3  Work oversight in architect-engineer contracts.
36.609-4  Requirements for registration of designers.

     Subpart 36.7--Standard and Optional Forms for Contracting for 
Construction, Architect-Engineer Services, and Dismantling, Demolition, 
                       or Removal of Improvements.

36.700  Scope of subpart.
36.701  Standard and optional forms for use in contracting for 
          construction or dismantling, demolition, or removal of 
          improvements.
36.702  Forms for use in contracting for architect-engineer services.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42356, Sept. 19, 1983, unless otherwise noted.



36.000  Scope of part.

    This part prescribes policies and procedures peculiar to contracting 
for construction and architect-engineer services. It includes 
requirements for using certain clauses and standard forms that apply 
also to contracts for dismantling, demolition, or removal of 
improvements.



                          Subpart 36.1--General



36.101  Applicability.

    (a) Construction and architect-engineer contracts are subject to the 
requirements in other parts of this regulation, which shall be followed 
when applicable.
    (b) When a requirement in this part is inconsistent with a 
requirement in another part of this regulation, this part 36 shall take 
precedence if the acquisition of construction or architect-engineer 
services is involved.
    (c) A contract for both construction and supplies or services shall 
include (1) clauses applicable to the predominant part of the work (see 
subpart 22.4), or (2) if the contract is divided into parts, the clauses 
applicable to each portion.
[48 FR 42356, Sept. 19, 1983, as amended at 57 FR 55471, Nov. 25, 1992; 
58 FR 12140, Mar. 2, 1993]



36.102  Definitions.

    Architect-engineer services, as defined in 40 U.S.C. 541, means:
    (1) Professional services of an architectural or engineering nature, 
as defined by State law, if applicable, which

[[Page 761]]

are required to be performed or approved by a person licensed, 
registered, or certified to provide such services;
    (2) Professional services of an architectural or engineering nature 
performed by contract that are associated with research, planning, 
development, design, construction, alteration, or repair of real 
property; and
    (3) Such other professional services of an architectural or 
engineering nature, or incidental services, which members of the 
architectural and engineering professions (and individuals in their 
employ) may logically or justifiably perform, including studies, 
investigations, surveying and mapping, tests, evaluations, 
consultations, comprehensive planning, program management, conceptual 
designs, plans and specifications, value engineering, construction phase 
services, soils engineering, drawing reviews, preparation of operating 
and maintenance manuals, and other related services.
    As-built drawings, see record drawings.
    Construction means construction, alteration, or repair (including 
dredging, excavating, and painting) of buildings, structures, or other 
real property. For purposes of this definition, the terms buildings, 
structures, or other real property include but are not limited to 
improvements of all types, such as bridges, dams, plants, highways, 
parkways, streets, subways, tunnels, sewers, mains, power lines, 
cemeteries, pumping stations, railways, airport facilities, terminals, 
docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, 
levees, canals, and channels. Construction does not include the 
manufacture, production, furnishing, construction, alteration, repair, 
processing, or assembling of vessels, aircraft, or other kinds of 
personal property.
    Contract, as used in this part, is intended to refer to a contract 
for construction or a contract for architect-engineer services, unless 
another meaning is clearly intended.
    Design, as used in this part, means defining the construction 
requirement (including the functional relationships and technical 
systems to be used, such as architectural, environmental, structural, 
electrical, mechanical, and fire protection), producing the technical 
specifications and drawings, and preparing the construction cost 
estimate.
    Design-bid-build, as used in this part, means the traditional 
delivery method where design and construction are sequential and 
contracted for separately with two contracts and two contractors.
    Design-build, as used in this part, means combining design and 
construction in a single contract with one contractor.
    Firm, as used in this part in conjunction with architect-engineer 
services, means any individual, partnership, corporation, association, 
or other legal entity permitted by law to practice the professions of 
architecture or engineering.
    Plans and specifications, as used in this part, means drawings, 
specifications, and other data for and preliminary to the construction.
    Record drawings, as used in this part, means drawings submitted by a 
contractor or subcontractor at any tier to show the construction of a 
particular structure or work as actually completed under the contract.
    Shop drawings, as used in this part, means drawings submitted by the 
construction contractor or a subcontractor at any tier or required under 
a construction contract, showing in detail (1) the proposed fabrication 
and assembly of structural elements, (2) the installation (i.e., form, 
fit, and attachment details) of materials or equipment, or (3) both.
    Two-phase design-build selection procedures, as used in this part, 
is a selection method in which a limited number of offerors (normally 
five or fewer) is selected during Phase One to submit detailed proposals 
for Phase Two (see subpart 36.3).
[48 FR 42356, Sept. 19, 1983, as amended at 51 FR 36972, Oct. 16, 1986; 
54 FR 13336, Mar. 31, 1989; 54 FR 19827, May 8, 1989; 56 FR 29128, June 
25, 1991; 62 FR 272, Jan. 2, 1997]



36.103  Methods of contracting.

    (a) Contracting officers shall acquire construction using sealed bid 
procedures if the conditions in 6.401(a) apply, except that sealed 
bidding need not be used for construction contracts to be performed 
outside the United States,

[[Page 762]]

its possessions, or Puerto Rico. (See 6.401(b)(2).)
    (b) Contracting officers shall acquire architect-engineer services 
by negotiation, and select sources in accordance with applicable law, 
subpart 36.6, and agency regulations.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



36.104  Policy.

    Unless the traditional acquisition approach of design-bid-build 
established under the Brooks Architect-Engineers Act (41 U.S.C. 541, et 
seq.) or another acquisition procedure authorized by law is used, the 
contracting officer shall use the two-phase selection procedures 
authorized by 10 U.S.C. 2305a or 41 U.S.C. 253m when entering into a 
contract for the design and construction of a public building, facility, 
or work, if the contracting officer makes a determination that the 
procedures are appropriate for use (see subpart 36.3). Other acquisition 
procedures authorized by law include the procedures established in this 
part and other parts of this chapter and, for DoD, the design-build 
process described in 10 U.S.C. 2862.
[62 FR 272, Jan. 2, 1997]



      Subpart 36.2--Special Aspects of Contracting for Construction



36.201  Evaluation of contractor performance.

    (a) Preparation of performance evaluation reports. (1) The 
contracting activity shall evaluate contractor performance and prepare a 
performance report using the SF 1420, Performance Evaluation 
(Construction Contracts), for each construction contract of--
    (i) $500,000 or more; or
    (ii) More than $10,000, if the contract was terminated for default.
    (2) The report shall be prepared at the time of final acceptance of 
the work, at the time of contract termination, or at other times, as 
appropriate, in accordance with agency procedures. Ordinarily, the 
evaluating official who prepares the report should be the person 
responsible for monitoring contract performance.
    (3) If the evaluating official concludes that a contractor's overall 
performance was unsatisfactory, the contractor shall be advised in 
writing that a report of unsatisfactory performance is being prepared 
and the basis for the report. If the contractor submits any written 
comments, the evaluating official shall include them in the report, 
resolve any alleged factual discrepancies, and make appropriate changes 
in the report.
    (4) The head of the contracting activity shall establish procedures 
which ensure that fully qualified personnel prepare and review 
performance reports.
    (b) Review of performance reports. Each performance report shall be 
reviewed to ensure that it is accurate and fair. The reviewing official 
should have knowledge of the contractor's performance and should 
normally be at an organizational level above that of the evaluating 
official.
    (c) Distribution and use of performance reports. (1) Each 
performance report shall be distributed in accordance with agency 
procedures. One copy shall be included in the contract file. The 
contracting activity shall retain the report for at least six years 
after the date of the report.
    (2) Before making a determination of responsibility in accordance 
with subpart 9.1, the contracting officer may consider performance 
reports in accordance with agency instructions.
[48 FR 42356, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
54 FR 48989, Nov. 28, 1989]



36.202  Specifications.

    (a) Construction specifications shall conform to the requirements in 
part 11 of this regulation.
    (b) Whenever possible, contracting officers shall ensure that 
references in specifications are to widely recognized standards or 
specifications promulgated by governments, industries, or technical 
societies.
    (c) When brand name or equal descriptions are necessary, 
specifications must clearly identify and describe the particular 
physical, functional, or other characteristics of the brand-

[[Page 763]]

name items which are considered essential to satisfying the requirement.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995]



36.203  Government estimate of construction costs.

    (a) An independent Government estimate of construction costs shall 
be prepared and furnished to the contracting officer at the earliest 
practicable time for each proposed contract and for each contract 
modification anticipated to cost $100,000 or more. The contracting 
officer may require an estimate when the cost of required work is 
anticipated to be less than $100,000. The estimate shall be prepared in 
as much detail as though the Government were competing for award.
    (b) When two-step sealed bidding is used, the independent Government 
estimate shall be prepared when the contract requirements are 
definitized.
    (c) Access to information concerning the Government estimate shall 
be limited to Government personnel whose official duties require 
knowledge of the estimate. An exception to this rule may be made during 
contract negotiations to allow the contracting officer to identify a 
specialized task and disclose the associated cost breakdown figures in 
the Government estimate, but only to the extent deemed necessary to 
arrive at a fair and reasonable price. The overall amount of the 
Government's estimate shall not be disclosed except as permitted by 
agency regulations.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 62 FR 44829, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44829, Aug. 22, 1997, in section 
36.203, paragraph (a) was amended by removing ``$25,000'' and inserting 
``$100,000'' each time it appeared, effective Oct. 21, 1997.



36.204  Disclosure of the magnitude of construction projects.

    Advance notices and solicitations shall state the magnitude of the 
requirement in terms of physical characteristics and estimated price 
range. In no event shall the statement of magnitude disclose the 
Government's estimate. Therefore, the estimated price should be 
described in terms of one of the following price ranges:
    (a) Less than $25,000.
    (b) Between $25,000 and $100,000.
    (c) Between $100,000 and $250,000.
    (d) Between $250,000 and $500,000.
    (e) Between $500,000 and $1,000,000.
    (f) Between $1,000,000 and $5,000,000.
    (g) Between $5,000,000 and $10,000,000.
    (h) More than $10,000,000.



36.205  Statutory cost limitations.

    (a) Contracts for construction shall not be awarded at a cost to the 
Government--
    (1) In excess of statutory cost limitations, unless applicable 
limitations can be and are waived in writing for the particular 
contract; or
    (2) Which, with allowances for Government-imposed contingencies and 
overhead, exceeds the statutory authorization.
    (b) Solicitations containing one or more items subject to statutory 
cost limitations shall state (1) the applicable cost limitation for each 
affected item in a separate schedule; (2) that an offer which does not 
contain separately-priced schedules will not be considered; and (3) that 
the price on each schedule shall include an approximate apportionment of 
all estimated direct costs, allocable indirect costs, and profit.
    (c) The Government shall reject an offer if its prices exceed 
applicable statutory limitations, unless laws or agency procedures 
provide pertinent exemptions. However, if it is in the Government's 
interest, the contracting officer may include a provision in the 
solicitation which permits the award of separate contracts for 
individual items whose prices are within or not subject to applicable 
statutory limitations.
    (d) The Government shall also reject an offer if its prices are 
within statutory limitations only because it is materially unbalanced. 
An offer is unbalanced if its prices are significantly less than cost 
for some work, and overstated for other work.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 62 FR 237, Jan. 2, 1997]

[[Page 764]]



36.206  Liquidated damages.

    The contracting officer shall evaluate the need for liquidated 
damages in a construction contract in accordance with 11.502 and agency 
regulations.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995]



36.207  Pricing fixed-price construction contracts.

    (a) Generally, firm-fixed-price contracts shall be used to acquire 
construction. They may be priced (1) on a lump-sum basis (when a lump 
sum is paid for the total work or defined parts of the work), (2) on a 
unit-price basis (when a unit price is paid for a specified quantity of 
work units), or (3) using a combination of the two methods.
    (b) Lump-sum pricing shall be used in preference to unit pricing 
except when--
    (1) Large quantities of work such as grading, paving, building 
outside utilities, or site preparation are involved;
    (2) Quantities of work, such as excavation, cannot be estimated with 
sufficient confidence to permit a lump-sum offer without a substantial 
contingency;
    (3) Estimated quantities of work required may change significantly 
during construction; or
    (4) Offerors would have to expend unusual effort to develop adequate 
estimates.
    (c) Fixed-price contracts with economic price adjustment may be used 
if such a provision is customary in contracts for the type of work being 
acquired, or when omission of an adjustment provision would preclude a 
significant number of firms from submitting offers or would result in 
offerors including unwarranted contingencies in proposed prices.



36.208  Concurrent performance of firm-fixed-price and other types of construction contracts.

    In view of potential labor and administrative problems, cost-plus-
fixed-fee, price-incentive, or other types of contracts with cost 
variation or cost adjustment features shall not be permitted 
concurrently, at the same work site, with firm-fixed-price, lump sum, or 
unit price contracts except with the prior approval of the head of the 
contracting activity.



36.209  Construction contracts with architect-engineer firms.

    No contract for the construction of a project shall be awarded to 
the firm that designed the project or its subsidiaries or affiliates, 
except with the approval of the head of the agency or authorized 
representative.



36.210  Inspection of site and examination of data.

    The contracting officer should make appropriate arrangements for 
prospective offerors to inspect the work site and to have the 
opportunity to examine data available to the Government which may 
provide information concerning the performance of the work, such as 
boring samples, original boring logs, and records and plans of previous 
construction. The data should be assembled in one place and made 
available for examination. The solicitation should notify offerors of 
the time and place for the site inspection and data examination. If it 
is not feasible for offerors to inspect the site or examine the data on 
their own, the solicitation should also designate an individual who will 
show the site or data to the offerors. Significant site information and 
the data should be made available to all offerors in the same manner, 
including information regarding any utilities to be furnished during 
construction. A record should be kept of the identity and affiliation of 
all offerors' representatives who inspect the site or examine the data.



36.211  Distribution of advance notices and solicitations.

    Advance notices and solicitations should be distributed to reach as 
many prospective offerors as practicable. Contracting officers may send 
notices and solicitations to organizations that maintain, without charge 
to the public, display rooms for the benefit of prospective offerors, 
subcontractors, and material suppliers. If requested by such 
organizations, this may be done for all or a stated class of 
construction projects on an annual or semiannual

[[Page 765]]

basis. Contracting officers may determine the geographical extent of 
distribution of advance notices and solicitations on a case-by-case 
basis.



36.212  Preconstruction orientation.

    (a) The contracting officer will inform the successful offeror of 
significant matters of interest, including--(1) statutory matters such 
as labor standards (subpart 22.4), and subcontracting plan requirements 
(subpart 19.7); and (2) other matters of significant interest, including 
who has authority to decide matters such as contractual, administrative 
(e.g., security, safety, and fire and environmental protection), and 
construction responsibilities.
    (b) As appropriate, the contracting officer may issue an explanatory 
letter or conduct a preconstruction conference.
    (c) If a preconstruction conference is to be held, the contracting 
officer shall--
    (1) Conduct the conference prior to the start of construction at the 
work site;
    (2) Notify the successful offeror of the date, time, and location of 
the conference (see 36.522); and
    (3) Inform the successful offeror of the proposed agenda and any 
need for attendance by subcontractors.
[59 FR 67049, Dec. 28, 1994]



36.213  Special procedures for sealed bidding in construction contracting.



36.213-1  General.

    Contracting officers shall follow the procedures for sealed bidding 
in part 14, as modified and supplemented by the requirements in this 
subpart.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985. Redesignated at 62 FR 272, Jan. 2, 1997]



36.213-2  Presolicitation notices.

    (a) Unless the requirement is waived by the head of the contracting 
activity or a designee, the contracting officer shall send 
presolicitation notices to prospective bidders on any construction 
requirement when the proposed contract is expected to equal or exceed 
$100,000. Presolicitation notices may also be used when the proposed 
contract is expected to be less than $100,000. These notices shall be 
issued sufficiently in advance of the invitation for bids to stimulate 
the interest of the greatest number of prospective bidders.
    (b) Presolicitation notices shall--
    (1) Describe the proposed work in sufficient detail to disclose the 
nature and volume of work (in terms of physical characteristics and 
estimated price range)(see 36.204);
    (2) State the location of the work;
    (3) Include tentative dates for issuing invitations, opening bids, 
and completing contract performance;
    (4) State where plans will be available for inspection without 
charge;
    (5) Specify a date by which requests for the invitation for bids 
should be submitted;
    (6) Notify recipients that if they do not submit a bid they should 
advise the issuing office as to whether they want to receive future 
presolicitation notices;
    (7) State whether award is restricted to small businesses; and
    (8) Specify any amount to be charged for solicitation documents.
    (9) Be publicized in the Commerce Business Daily in accordance with 
5.204.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 51 FR 19716, May 30, 1986. Redesignated at 
62 FR 272, Jan. 2, 1997]



36.213-3  Invitations for bids.

    (a) Invitations for bids for construction shall allow sufficient 
time for bid preparation (i.e., the period of time between the date 
invitations are distributed and the date set for opening of bids) (but 
see 5.203 and 14.202-1) to allow bidders an adequate opportunity to 
prepare and submit their bids, giving due regard to the construction 
season and the time necessary for bidders to inspect the site, obtain 
subcontract bids, examine data concerning the work, and prepare 
estimates based on plans and specifications.
    (b) Invitations for bids shall be prepared in accordance with 
subpart 14.2 and this section using the forms prescribed in part 53.
    (c) Contracting officers should assure that each invitation for bids 
includes

[[Page 766]]

the following information, when applicable:
    (1) The appropriate wage determination of the Secretary of Labor 
(see subpart 22.4), or, if the invitation for bids must be issued before 
the wage determination is received, a notice that the schedule of 
minimum wage rates to be paid under the contract will be issued as an 
amendment to the invitation for bids before the opening date for bids 
(see 14.208 and 22.404-3(b)).
    (2) The Performance of Work by the Contractor clause (see 36.501 and 
52.236-1).
    (3) The magnitude of the proposed construction project (see 36.204).
    (4) The period of performance (see subpart 11.4).
    (5) Arrangements made for bidders to inspect the site and examine 
the data concerning performance of the work (see 36.210).
    (6) Information concerning any facilities, such as utilities, office 
space, and warehouse space, to be furnished during construction.
    (7) Information concerning the prebid conference (see 14.207).
    (8) Any special qualifications or experience requirements that will 
be considered in determining the responsibility of bidders (see subpart 
9.1).
    (9) Any special instructions concerning bids, alternate bids, and 
award.
    (10) Any instructions concerning reporting requirements.
    (d) The contracting officer shall send invitations for bids to 
prospective bidders who requested them in response to the 
presolicitation notice, and should send them to other prospective 
bidders upon their specific request (see 14.205 and 5.102(a)).
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 1744, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 48249, Sept. 18, 1995. Redesignated at 
62 FR 272, Jan. 2, 1997]



36.213-4  Notice of award.

    When a notice of award is issued, it shall be done in writing or 
electronically, shall contain information required by 14.408, and 
shall--
    (a) Identify the invitation for bids;
    (b) Identify the contractor's bid;
    (c) State the award price;
    (d) Advise the contractor that any required payment and performance 
bonds must be promptly executed and returned to the contracting officer;
    (e) Specify the date of commencement of work, or advise that a 
notice to proceed will be issued.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34739, July 3, 1995; 
60 FR 42657, Aug. 16, 1995. Redesignated at 62 FR 272, Jan. 2, 1997]



36.214  Special procedures for price negotiation in construction contracting.

    (a) Agencies shall follow the policies and procedures in part 15 
when negotiating prices for construction.
    (b) The contracting officer shall evaluate proposals and associated 
cost or pricing data or information other than cost or pricing data and 
shall compare them to the Government estimate.
    (1) When submission of cost or pricing data is not required (see 
15.403-1 and 15.403-2), and any element of proposed cost differs 
significantly from the Government estimate, the contracting officer 
should request the offeror to submit cost information concerning that 
element (e.g., wage rates or fringe benefits, significant materials, 
equipment allowances, and subcontractor costs).
    (2) When a proposed price is significantly lower than the Government 
estimate, the contracting officer shall make sure both the offeror and 
the Government estimator completely understand the scope of the work. If 
negotiations reveal errors in the Government estimate, the estimate 
shall be corrected and the changes shall be documented in the contract 
file.
    (c) When appropriate, additional pricing tools may be used. For 
example, proposed prices may be compared to current prices for similar 
types of work, adjusted for differences in the work site and the 
specifications. Also, rough yardsticks may be developed and used, such 
as cost per cubic foot for structures, cost per linear foot for 
utilities, and cost per cubic yard for excavation or concrete.
[48 FR 42356, Sept. 19, 1983, as amended at 53 FR 34228, Sept. 2, 1988; 
60 FR 48218, Sept. 18, 1995. Redesignated at 62 FR 272, Jan. 2, 1997, as 
amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
36.214, in paragraph

[[Page 767]]

(b)(1), ``15.804-1 and 15.804-2'' is amended to read ``15.403-1 and 
15.403-2'', effective Oct. 10, 1997.



36.215  Special procedures for cost-reimbursement contracts for construction.

    Contracting officers may use a cost-reimbursement contract to 
acquire construction only when its use is consistent with subpart 16.3 
and part 15 (see 15.404(c)(4)(i) for fee limitation on cost-
reimbursement contracts).
[48 FR 42356, Sept. 19, 1983. Redesignated at 62 FR 272, Jan. 2, 1997; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
36.215, ``15.903(d)(1)(iii)'' is amended to read ``15.404-4(c)(4)(i)'', 
effective Oct. 10, 1997.



        Subpart 36.3--Two-Phase Design-Build Selection Procedures

    Source: 62 FR 272, Jan. 2, 1997, unless otherwise noted.



36.300  Scope of subpart.

    This subpart prescribes policies and procedures for the use of the 
two-phase design-build selection procedures authorized by 10 U.S.C. 
2305a and 41 U.S.C. 253m.



36.301  Use of two-phase design-build selection procedures.

    (a) During formal or informal acquisition planning (see part 7), if 
considering the use of two-phase design-build selection procedures, the 
contracting officer shall conduct the evaluation in paragraph (b) of 
this section.
    (b) The two-phase design-build selection procedures shall be used 
when the contracting officer determines that this method is appropriate, 
based on the following:
    (1) Three or more offers are anticipated.
    (2) Design work must be performed by offerors before developing 
price or cost proposals, and offerors will incur a substantial amount of 
expense in preparing offers.
    (3) The following criteria have been considered:
    (i) The extent to which the project requirements have been 
adequately defined.
    (ii) The time constraints for delivery of the project.
    (iii) The capability and experience of potential contractors.
    (iv) The suitability of the project for use of the two-phase 
selection method.
    (v) The capability of the agency to manage the two-phase selection 
process.
    (vi) Other criteria established by the head of the contracting 
activity.



36.302  Scope of work.

    The agency shall develop, either in-house or by contract, a scope of 
work that defines the project and states the Government's requirements. 
The scope of work may include criteria and preliminary design, budget 
parameters, and schedule or delivery requirements. If the agency 
contracts for development of the scope of work, the procedures in 
subpart 36.6 shall be used.



36.303  Procedures.

    One solicitation may be issued covering both phases, or two 
solicitations may be issued in sequence. Proposals will be evaluated in 
Phase One to determine which offerors will submit proposals for Phase 
Two. One contract will be awarded using competitive negotiation.



36.303-1  Phase One.

    (a) Phase One of the solicitation(s) shall include--
    (1) The scope of work;
    (2) The phase-one evaluation factors, including--
    (i) Technical approach (but not detailed design or technical 
information);
    (ii) Technical qualifications, such as--
    (A) Specialized experience and technical competence;
    (B) Capability to perform;
    (C) Past performance of the offeror's team (including the architect-
engineer and construction members); and
    (iii) Other appropriate factors (excluding cost or price related 
factors, which are not permitted in Phase One);
    (3) Phase-two evaluation factors (see 36.303-2); and
    (4) A statement of the maximum number of offerors that will be 
selected to submit phase-two proposals. The maximum number specified 
shall not

[[Page 768]]

exceed five unless the contracting officer determines, for that 
particular solicitation, that a number greater than five is in the 
Government's interest and is consistent with the purposes and objectives 
of two-phase design-build contracting).
    (b) After evaluating phase-one proposals, the contracting officer 
shall select the most highly qualified offerors (not to exceed the 
maximum number specified in the solicitation in accordance with 36.303-
1(a)(4)) and request that only those offerors submit phase-two 
proposals.
[62 FR 272, Jan. 2, 1997; 62 FR 10710, Mar. 10, 1997]



36.303-2  Phase Two.

    (a) Phase Two of the solicitation(s) shall be prepared in accordance 
with part 15, and include phase-two evaluation factors, developed in 
accordance with 15.304. Examples of potential phase-two technical 
evaluation factors include design concepts, management approach, key 
personnel, and proposed technical solutions.
    (b) Phase Two of the solicitation(s) shall require submission of 
technical and price proposals, which shall be evaluated separately, in 
accordance with part 15.
[62 FR 272, Jan. 2, 1997, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
36.303-2, in paragraph (a), ``15.605'' was amended to read ``15.304'', 
effective Oct. 10, 1997.



             Subpart 36.4--Commercial Practices  [Reserved]



                     Subpart 36.5--Contract Clauses



36.500  Scope of subpart.

    This subpart prescribes clauses for insertion in solicitations and 
contracts for (a) construction and (b) dismantling, demolition, or 
removal of improvements contracts. Provisions and clauses prescribed 
elsewhere in the Federal Acquisition Regulation (FAR) shall also be used 
in such solicitations and contracts when the conditions specified in the 
prescriptions for the provisions and clauses are applicable.



36.501  Performance of work by the contractor.

    (a) To assure adequate interest in and supervision of all work 
involved in larger projects, the contractor shall be required to perform 
a significant part of the contract work with its own forces. The 
contract shall express this requirement in terms of a percentage that 
reflects the minimum amount of work the contractor must perform with its 
own forces. This percentage is (1) as high as the contracting officer 
considers appropriate for the project, consistent with customary or 
necessary specialty subcontracting and the complexity and magnitude of 
the work, and (2) ordinarily not less than 12 percent unless a greater 
percentage is required by law or agency regulation. Specialties such as 
plumbing, heating, and electrical work are usually subcontracted, and 
should not normally be considered in establishing the amount of work 
required to be performed by the contractor.
    (b) The contracting officer shall insert the clause at 52.236-1, 
Performance of Work by the Contractor, in solicitations and contracts, 
except those awarded pursuant to subparts 19.5 or 19.8, when a fixed-
price construction contract is contemplated and the contract amount is 
expected to exceed $1,000,000. The contracting officer may insert the 
clause on solicitations and contracts when a fixed-price construction 
contract is contemplated and the contract amount is expected to be 
$1,000,000 or less.
[48 FR 42356, Sept. 19, 1983, as amended at 53 FR 43392, Oct. 26, 1988]



36.502  Differing site conditions.

    The contracting officer shall insert the clause at 52.236-2, 
Differing Site Conditions, in solicitations and contracts when a fixed-
price construction contract or a fixed-price dismantling, demolition, or 
removal of improvements contract is contemplated and the contract amount 
is expected to exceed the simplified acquisition threshold. The 
contracting officer may insert the clause in solicitations and contracts 
when a fixed-price construction

[[Page 769]]

or a fixed-price contract for dismantling, demolition, or removal of 
improvements is contemplated and the contract amount is expected to be 
at or below the simplified acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.503  Site investigation and conditions affecting the work.

    The contracting officer shall insert the clause at 52.236-3, Site 
Investigation and Conditions Affecting the Work, in solicitations and 
contracts when a fixed-price construction contract or a fixed-price 
dismantling, demolition, or removal of improvements contract is 
contemplated and the contract amount is expected to exceed the 
simplified acquisition threshold. The contracting officer may insert the 
clause in solicitations and contracts when a fixed-price construction or 
a fixed-price contract for dismantling, demolition, or removal of 
improvements is contemplated and the contract amount is expected to be 
at or below the simplified acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.504  Physical data.

    The contracting officer shall insert the clause at 52.236-4, 
Physical Data, in solicitations and contracts when a fixed-price 
construction contract is contemplated and physical data (e.g., test 
borings, hydrographic data, weather conditions data) will be furnished 
or made available to offerors.



36.505  Material and workmanship.

    The contracting officer shall insert the clause at 52.236-5, 
Material and Workmanship, in solicitations and contracts for 
construction contracts.
[54 FR 48989, Nov. 28, 1989]



36.506  Superintendence by the contractor.

    The contracting officer shall insert the clause at 52.236-6, 
Superintendence by the Contractor, in solicitations and contracts when a 
fixed-price construction contract or a fixed-price dismantling, 
demolition, or removal of improvements contract is contemplated and the 
contract amount is expected to exceed the simplified acquisition 
threshold. The contracting officer may insert the clause in 
solicitations and contracts when a fixed-price construction or a fixed-
price contract for dismantling, demolition, or removal of improvements 
is contemplated and the contract amount is expected to be at or below 
the simplified acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.507  Permits and responsibilities.

    The contracting officer shall insert the clause at 52.236-7, Permits 
and Responsibilities, in solicitations and contracts when a fixed-price 
or cost-reimbursement construction contract or a fixed-price 
dismantling, demolition, or removal of improvements contract is 
contemplated.
[54 FR 48989, Nov. 28, 1989]



36.508  Other contracts.

    The contracting officer shall insert the clause at 52.236-8, Other 
Contracts, in solicitations and contracts when a fixed-price 
construction contract or a fixed-price dismantling, demolition, or 
removal of improvements contract is contemplated and the contract amount 
is expected to exceed the simplified acquisition threshold. The 
contracting officer may insert the clause in solicitations and contracts 
when a fixed-price construction or a fixed-price contract for 
dismantling, demolition, or removal of improvements is contemplated and 
the contract amount is expected to be at or below the simplified 
acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.509  Protection of existing vegetation, structures, equipment, utilities, and improvements.

    The contracting officer shall insert the clause at 52.236-9, 
Protection of Existing Vegetation, Structures, Equipment, Utilities, and 
Improvements, in solicitations and contracts when a fixed-price 
construction contract or a fixed-price dismantling, demolition, or 
removal of improvements contract is

[[Page 770]]

contemplated and the contract amount is expected to exceed the 
simplified acquisition threshold. The contracting officer may insert the 
clause in solicitations and contracts when a fixed-price construction or 
a fixed-price contract for dismantling, demolition, or removal of 
improvements is contemplated and the contract amount is expected to be 
at or below the simplified acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.510  Operations and storage areas.

    The contracting officer shall insert the clause at 52.236-10, 
Operations ald Storage Areas, in solicitations and contracts when a 
fixed-price construction contract or a fixed-price dismantling, 
demolition, or removal of improvements contract is contemplated and the 
contract amount is expected to exceed the simplified acquisition 
threshold. The contracting officer may insert the clause in 
solicitations and contracts when a fixed-price construction or a fixed-
price contract for dismantling, demolition, or removal of improvements 
is contemplated and the contract amount is expected to be at or below 
the simplified acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.511  Use and possession prior to completion.

    The contracting officer shall insert the clause at 52.236-11, Use 
and Possession Prior to Completion, in solicitations and contracts when 
a fixed-price construction contract is contemplated and the contract 
award amount is expected to exceed the simplified acquisition threshold. 
This clause may be inserted in solicitations and contracts when the 
contract amount is expected to be at or below the simplified acquisition 
threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.512  Cleaning up.

    The contracting officer shall insert the clause at 52.236-12, 
Cleaning Up, in solicitations and contracts when a fixed-price 
construction contract or a fixed-price dismantling, demolition, or 
removal of improvements contract is contemplated and the contract amount 
is expected to exceed the simplified acquisition threshold. The 
contracting officer may insert the clause in solicitations and contracts 
when a fixed-price construction or a fixed-price contract for 
dismantling, demolition, or removal of improvements is contemplated and 
the contract amount is expected to be at or below the simplified 
acquisition threshold.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.513  Accident prevention.

    (a) The contracting officer shall insert the clause at 52.236-13, 
Accident Prevention, in solicitations and contracts when a fixed-price 
construction contract or a fixed-price dismantling, demolition, or 
removal of improvements contract is contemplated and the contract amount 
is expected to exceed the simplified acquisition threshold. The 
contracting officer may insert the clause in solicitations and contracts 
when a fixed-price construction or a fixed-price contract for 
dismantling, demolition, or removal of improvements is contemplated and 
the contract amount is expected to be at or below the simplified 
acquisition threshold. If the contract will involve work of a long 
duration or hazardous nature, the contracting officer shall use the 
clause with its Alternate I.
    (b) The contracting officer shall insert the clause or the clause 
with its Alternate I in solicitations and contracts when a contract for 
services to be performed at Government facilities (see FAR part 37) is 
contemplated, and technical representatives advise that special 
precautions are appropriate.
    (c) The contracting officer should inform the Occupational Safety 
and Health Administration (OSHA), or other cognizant Federal, State, or 
local officials, of instances where the contractor has been notified to 
take immediate action to correct serious or imminent dangers.
[48 FR 42356, Sept. 19, 1983, as amended at 56 FR 55375, Oct. 25, 1991; 
60 FR 34759, July 3, 1995]

[[Page 771]]



36.514  Availability and use of utility services.

    The contracting officer shall insert the clause at 52.236-14, 
Availability and Use of Utility Services, in solicitations and contracts 
when a fixed-price construction contract or a fixed-price dismantling, 
demolition, or removal of improvements contract is contemplated, the 
contract is to be performed on Government sites, and the contracting 
officer decides (a) that the existing utility system(s) is adequate for 
the needs of both the Government and the contractor, and (b) furnishing 
it is in the Government's interest. When this clause is used, the 
contracting officer shall list the available utilities in the contract.



36.515  Schedules for construction contracts.

    The contracting officer may insert the clause at 52.236-15, 
Schedules for Construction Contracts, in solicitations and contracts 
when a fixed-price construction contract is contemplated, the contract 
amount is expected to exceed the simplified acquisition threshold, and 
the period of actual work performance exceeds 60 days. This clause may 
also be inserted in such solicitations and contracts when work 
performance is expected to last less than 60 days and an unusual 
situation exists that warrants imposition of the requirements. This 
clause should not be used in the same contract with clauses covering 
other management approaches for ensuring that a contractor makes 
adequate progress.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



36.516  Quantity surveys.

    The contracting officer may insert the clause at 52.236-16, Quantity 
Surveys, in solicitations and contracts when a fixed-price construction 
contract providing for unit pricing of items and for payment based on 
quantity surveys is contemplated. If it is determined at a level above 
that of the contracting officer that it is impracticable for Government 
personnel to perform the original and final surveys, and the Government 
wishes the contractor to perform these surveys, the clause shall be used 
with its Alternate.



36.517  Layout of work.

    The contracting officer shall insert the clause at 52.236-17, Layout 
of Work, in solicitations and contracts when a fixed-price construction 
contract is contemplated and use of this clause is appropriate due to a 
need for accurate work layout and for siting verification during work 
performance.



36.518  Work oversight in cost-reimbursement construction contracts.

    The contracting officer shall insert the clause at 52.236-18, Work 
Oversight in Cost-Reimbursement Construction Contracts, in solicitations 
and contracts when a cost-reimbursement construction contract is 
contemplated.



36.519  Organization and direction of the work.

    The contracting officer shall insert the clause at 52.236-19, 
Organization and Direction of the Work, in solicitations and contracts 
when a cost-reimbursement construction contract is contemplated.



36.520  Contracting by negotiation.

    The contracting officer shall insert in solicitations for 
construction the provision at 52.236-28, Preparation of Offers--
Construction, when contracting by negotiation.
[62 FR 51258, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, section 36.520 
was added, effective Oct. 10, 1997.



36.521  Specifications and drawings for construction.

    The contracting officer shall insert the clause at 52.236-21, 
Specifications and Drawings for Construction, in solicitations and 
contracts when a fixed-price construction contract or a fixed-price 
dismantling, demolition, or removal of improvements contract is 
contemplated and the contract amount is expected to exceed the 
simplified acquisition threshold. The contracting officer may insert the 
clause in solicitations and contracts when a fixed-price construction or 
a fixed-price contract for dismantling, demolition, or

[[Page 772]]

removal of improvements is contemplated and the contract amount is 
expected to be at or below the simplified acquisition threshold. When 
the Government needs record drawings, the contracting officer shall (a) 
use the clause with its Alternate I, if reproducible shop drawings are 
needed, or (b) use the clause with its Alternate II, if reproducible 
shop drawings are not needed.
[48 FR 42356, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
60 FR 34759, July 3, 1995]



36.522  Preconstruction conference.

    If the contracting officer determines it may be desirable to hold a 
preconstruction conference, the contracting officer shall insert a 
clause substantially the same as the clause at 52.236-26, 
Preconstruction Conference, in solicitations and fixed price contracts 
for construction or for dismantling, demolition or removal of 
improvements.
[59 FR 67050, Dec. 28, 1994]



36.523  Site visit.

    The contracting officer shall insert a provision substantially the 
same as the provision at 52.236-27, Site Visit (Construction), in 
solicitations which include the clauses at 52.236-2, Differing Site 
Conditions, and 52.236-3, Site Investigations and Conditions Affecting 
the Work. Alternate I may be used when an organized site visit will be 
conducted.
[59 FR 67050, Dec. 28, 1994]



                Subpart 36.6--Architect-Engineer Services



36.600  Scope of subpart.

    This subpart prescribes policies and procedures applicable to the 
acquisition of architect-engineer services.



36.601  Policy.



36.601-1  Public announcement.

    The Government shall publicly announce all requirements for 
architect-engineer services and negotiate contracts for these services 
based on the demonstrated competence and qualifications of prospective 
contractors to perform the services at fair and reasonable prices. (See 
Pub. L. 92-582, as amended; 40 U.S.C. 541-544.)
[56 FR 29128, June 25, 1991]



36.601-2  Competition.

    Acquisition of architect-engineer services in accordance with the 
procedures in this subpart will constitute a competitive procedure. (See 
6.102(d)(1).)
[56 FR 29128, June 25, 1991]



36.601-3  Applicable contracting procedures.

    (a) For facility design contracts, the statement of work shall 
require that the architect-engineer specify, in the construction design 
specifications, use of the maximum practicable amount of recovered 
materials consistent with the performance requirements, availability, 
price reasonableness, and cost-effectiveness. Where appropriate, the 
statement of work also shall require the architect-engineer to consider 
energy conservation, pollution prevention, and waste reduction to the 
maximum extent practicable in developing the construction design 
specifications.
    (b) Sources for contracts for architect-engineer services shall be 
selected in accordance with the procedures in this subpart rather than 
the solicitation or source selection procedures prescribed in parts 13, 
14, and 15 of this regulation.
    (c) When the contract statement of work includes both architect-
engineer services and other services, the contracting officer shall 
follow the procedures in this subpart if the statement of work, 
substantially or to a dominant extent, specifies performance or approval 
by a registered or licensed architect or engineer. If the statement of 
work does not specify such performance or approval, the contracting 
officer shall follow the procedures in parts 13, 14, or 15.
    (d) Other than ``incidental services'' as specified in the 
definition of architect-engineer services in Section 36.102 and in 
Section 36.601-4(a)(3), services that do not require performance by a 
registered or licensed architect or engineer, notwithstanding the fact 
that architect-engineers also may perform

[[Page 773]]

those services, should be acquired pursuant to parts 13, 14, and 15.
[56 FR 29128, June 25, 1991, as amended at 60 FR 28498, May 31, 1995; 62 
FR 44812, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44812, Aug. 22, 1997, section 36.601-3 
was amended by revising paragraph (a), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

36.601-3  Applicable contracting procedures.

    (a) Prior to announcing a requirement for architect-engineering 
services for the design of a facility, the contracting officer shall ask 
the technical official responsible for the facility being designed to 
specifically identify any areas where recovered materials cannot be used 
in the facility construction. In those areas where recovered materials 
may be used, the architect-engineer shall specify use of the maximum 
practicable amount of recovered materials in the construction design 
specifications consistent with 10.010(b).

                                * * * * *



36.601-4  Implementation.

    (a) Contracting officers should consider the following services to 
be ``architect-engineer services'' subject to the procedures of this 
subpart:
    (1) Professional services of an architectural or engineering nature, 
as defined by applicable State law, which the State law requires to be 
performed or approved by a registered architect or engineer.
    (2) Professional services of an architectural or engineering nature 
associated with design or construction of real property.
    (3) Other professional services of an architectural or engineering 
nature or services incidental thereto (including studies, 
investigations, surveying and mapping, tests, evaluations, 
consultations, comprehensive planning, program management, conceptual 
designs, plans and specifications, value engineering, construction phase 
services, soils engineering, drawing reviews, preparation of operating 
and maintenance manuals and other related services) that logically or 
justifiably require performance by registered architects or engineers or 
their employees.
    (4) Professional surveying and mapping services on an architectural 
or engineering nature. Surveying is considered to be an architectural 
and engineering service and shall be procured pursuant to 36.601 from 
registered surveyors or architects and engineers. Mapping associated 
with the research, planning, development, design, construction, or 
alteration of real property is considered to be an architectural and 
engineering service and is to be procured pursuant to 36.601. However, 
mapping services such as those typically performed by the Defense 
Mapping Agency that are not connected to traditionally understood or 
accepted architectural and engineering activities, are not incidental to 
such architectural and engineering activities or have not in themselves 
traditionally been considered architectural and engineering services 
shall be procured pursuant to provisions in parts 13, 14, and 15.
    (b) Contracting officers may award contracts for architect-engineer 
services to any firm permitted by law to practice the professions of 
architecture or engineering.
[56 FR 29128, June 25, 1991]



36.602  Selection of firms for architect-engineer contracts.



36.602-1  Selection criteria.

    (a) Agencies shall evaluate each potential contractor in terms of 
its--
    (1) Professional qualifications necessary for satisfactory 
performance of required services;
    (2) Specialized experience and technical competence in the type of 
work required, including, where appropriate, experience in energy 
conservation, pollution prevention, waste reduction, and the use of 
recovered materials;
    (3) Capacity to accomplish the work in the required time;
    (4) Past performance on contracts with Government agencies and 
private industry in terms of cost control, quality of work, and 
compliance with performance schedules;
    (5) Location in the general geographical area of the project and 
knowledge of the locality of the project; provided, that application of 
this criterion leaves an appropriate number of qualified firms, given 
the nature and size of the project; and

[[Page 774]]

    (6) Acceptability under other appropriate evaluation criteria.
    (b) When the use of design competition is approved by the agency 
head or a designee, agencies may evaluate firms on the basis of their 
conceptual design of the project. Design competition may be used when--
    (1) Unique situations exist involving prestige projects, such as the 
design of memorials and structures of unusual national significance;
    (2) Sufficient time is available for the production and evaluation 
of conceptual designs; and
    (3) The design competition, with its costs, will substantially 
benefit the project.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 28498, May 31, 1995; 
62 FR 44812, Aug. 22, 1997; 62 FR 51379, Oct. 1, 1997]

    Effective Date Note: At 62 FR 44812, Aug. 22, 1997, section 36.602-1 
was amended by revising paragraph (a)(2), removing paragraph (a)(6), and 
redesignating paragraph (a)(7) as paragraph (a)(6), effective Oct. 21, 
1997. For the convenience of the user, the superseded text is set forth 
as follows:

36.602-1  Selection criteria.

    (a) * * *
    (2) Specialized experience and technical competence in the type of 
work required;

                                * * * * *

    (6) Demonstrated success in prescribing the use of recovered 
materials and achieving waste reduction and energy efficiency in 
facility design.

                                * * * * *



36.602-2  Evaluation boards.

    (a) When acquiring architect-engineer services, an agency shall 
provide for one or more permanent or ad hoc architect-engineer 
evaluation boards (which may include preselection boards when authorized 
by agency regulations) to be composed of members who, collectively, have 
experience in architecture, engineering, construction, and Government 
and related acquisition matters. Members shall be appointed from among 
highly qualified professional employees of the agency or other agencies, 
and if authorized by agency procedure, private practitioners of 
architecture, engineering, or related professions. One Government member 
of each board shall be designated as the chairperson.
    (b) No firm shall be eligible for award of an architect-engineer 
contract during the period in which any of its principals or associates 
are participating as members of the awarding agency's evaluation board.



36.602-3  Evaluation board functions.

    Under the general direction of the head of the contracting activity, 
an evaluation board shall perform the following functions:
    (a) Review the current data files on eligible firms and responses to 
a public notice concerning the particular project (see 36.604).
    (b) Evaluate the firms in accordance with the criteria in 36.602-1.
    (c) Hold discussions with at least three of the most highly 
qualified firms regarding concepts and the relative utility of 
alternative methods of furnishing the required services.
    (d) Prepare a selection report for the agency head or other 
designated selection authority recommending, in order of preference, at 
least three firms that are considered to be the most highly qualified to 
perform the required services. The report shall include a description of 
the discussions and evaluation conducted by the board to allow the 
selection authority to review the considerations upon which the 
recommendations are based.
[48 FR 42356, Sept. 19, 1983, as amended at 54 FR 48989, Nov. 28, 1989; 
60 FR 28498, May 31, 1995; 62 FR 44812, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44812, Aug. 22, 1997, section 36.602-3 
was amended by revising paragraph (c), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

36.602-3  Evaluation board functions.

                                * * * * *

    (c) Hold discussions with at least three of the most highly 
qualified firms regarding concepts, the relative utility of alternative 
methods, and feasible ways to prescribe the use of recovered materials 
and achieve waste reduction and energy-efficiency in facility design 
(see part 23).

                                * * * * *

[[Page 775]]



36.602-4  Selection authority.

    (a) The final selection decision shall be made by the agency head or 
a designated selection authority.
    (b) The selection authority shall review the recommendations of the 
evaluation board and shall, with the advice of appropriate technical and 
staff representatives, make the final selection. This final selection 
shall be a listing, in order of preference, of the firms considered most 
highly qualified to perform the work. If the firm listed as the most 
preferred is not the firm recommended as the most highly qualified by 
the evaluation board, the selection authority shall provide for the 
contract file a written explanation of the reason for the preference. 
All firms on the final selection list are considered selected firms with 
which the contracting officer may negotiate in accordance with 36.606.
    (c) The selection authority shall not add firms to the selection 
report. If the firms recommended in the report are not deemed to be 
qualified or the report is considered inadequate for any reason, the 
selection authority shall record the reasons and return the report 
through channels to the evaluation board for appropriate revision.
    (d) The board shall be promptly informed of the final selection.



36.602-5  Short selection process for contracts not to exceed the simplified acquisition threshold.

    When authorized by the agency, either or both of the short processes 
described in this subsection may be used to select firms for contracts 
not expected to exceed the simplified acquisition threshold. Otherwise, 
the procedures prescribed in 36.602-3 and 36.602-4 shall be followed.
    (a) Selection by the board. The board shall review and evaluate 
architect-engineer firms in accordance with 36.602-3, except that the 
selection report shall serve as the final selection list and shall be 
provided directly to the contracting officer. The report shall serve as 
an authorization for the contracting officer to commence negotiations in 
accordance with 36.606.
    (b) Selection by the chairperson of the board. When the board 
decides that formal action by the board is not necessary in connection 
with a particular selection, the following procedures shall be followed:
    (1) The chairperson of the board shall perform the functions 
required in 36.602-3.
    (2) The agency head or designated selection authority shall review 
the report and approve it or return it to the chairperson for 
appropriate revision.
    (3) Upon receipt of an approved report, the chairperson of the board 
shall furnish the contracting officer a copy of the report which will 
serve as an authorization for the contracting officer to commence 
negotiations in accordance with 36.606.
[48 FR 42356, Sept. 19, 1983, as amended at 54 FR 48989, Nov. 28, 1989; 
60 FR 34759, July 3, 1995]



36.603  Collecting data on and appraising firms' qualifications.

    (a) Establishing offices. Agencies shall maintain offices or 
permanent evaluation boards, or arrange to use the offices or boards of 
other agencies, to receive and maintain data on firms wishing to be 
considered for Government contracts. Each office or board shall be 
assigned a jurisdiction by its parent agency, making it responsible for 
a geographical region or area, or a specialized type of construction.
    (b) Qualifications data. To be considered for architect-engineer 
contracts, a firm must file with the appropriate office or board the 
Standard Form 254 (SF 254), Architect-Engineer and Related Services 
Questionnaire, and when applicable, the Standard Form 255 (SF 255), 
Architect-Engineer and Related Services Questionnaire for Specific 
Project.
    (c) Data files and the classification of firms. Under the direction 
of the parent agency, offices or permanent evaluation boards shall 
maintain an architect-engineer qualifications data file. These offices 
or boards shall review the SF's 254 and 255 filed, and shall classify 
each firm with respect to:
    (1) Location;
    (2) Specialized experience;
    (3) Professional capabilities; and
    (4) Capacity, with respect to the scope of work that can be 
undertaken. A firm's ability and experience in computer-assisted design 
should be considered, when appropriate.

[[Page 776]]

    (d) Currency of files. Any office or board maintaining 
qualifications data files shall review and update each file at least 
once a year. This process should include:
    (1) Encouraging firms to submit annually an updated statement of 
qualifications and performance data on a SF 254.
    (2) Reviewing the SF's 254 and 255 and, if necessary, updating the 
firm's classification (see 36.603(c)).
    (3) Recording any contract awards made to the firm in the past year.
    (4) Assuring that the file contains a copy of each pertinent 
performance report (see 36.604).
    (5) Discarding any material that has not been updated within the 
past three years, if it is no longer pertinent, see 36.604(c).
    (6) Posting the date of the review in the file.
    (e) Use of data files. Evaluation boards and other appropriate 
Government employees, including contracting officers, shall use data 
files on firms.



36.604  Performance evaluation.

    (a) Preparation of performance reports. For each contract of more 
than $25,000, performance evaluation reports shall be prepared by the 
cognizant contracting activity, using the SF 1421, Performance 
Evaluation (Architect-Engineer). Performance evaluation reports may also 
be prepared for contracts of $25,000 or less.
    (1) A report shall be prepared after final acceptance of the 
architect and engineer contract work or after contract termination. 
Ordinarily, the evaluating official who prepares this report should be 
the person responsible for monitoring contract performance.
    (2) A report may also be prepared after completion of the actual 
construction of the project.
    (3) In addition to the reports in subparagraphs (a)(1) and (2) of 
this section, interim reports may be prepared at any time.
    (4) If the evaluating official concludes that a contractor's overall 
performance was unsatisfactory, the contractor shall be advised in 
writing that a report of unsatisfactory performance is being prepared 
and the basis for the report. If the contractor submits any written 
comments, the evaluating official shall include them in the report, 
resolve any alleged factual discrepancies, and make appropriate changes 
in the report.
    (5) The head of the contracting activity shall establish procedures 
which ensure that fully qualified personnel prepare and review 
performance reports.
    (b) Review of performance reports. Each performance report shall be 
reviewed to ensure that it is accurate and fair. The reviewing official 
should have knowledge of the contractor's performance and should 
normally be at an organizational level above that of the evaluating 
official.
    (c) Distribution and use of performance reports. Each performance 
report shall be distributed in accordance with agency procedures. The 
report shall be included in the contract file, and copies shall be sent 
to offices or boards for filing with the firm's qualifications data (see 
36.603(d)(4)). The contracting activity shall retain the report for at 
least six years after the date of the report.
[48 FR 42356, Sept. 19, 1983, as amended at 56 FR 15153, Apr. 15, 1991]



36.605  Government cost estimate for architect-engineer work.

    (a) An independent Government estimate of the cost of architect-
engineer services shall be prepared and furnished to the contracting 
officer before commencing negotiations for each proposed contract or 
contract modification expected to exceed $100,000. The estimate shall be 
prepared on the basis of a detailed analysis of the required work as 
though the Government were submitting a proposal.
    (b) Access to information concerning the Government estimate shall 
be limited to Government personnel whose official duties require 
knowledge of the estimate. An exception to this rule may be made during 
contract negotiations to allow the contracting officer to identify a 
specialized task and disclose the associated cost breakdown figures in 
the Government estimate, but only to the extent deemed necessary to 
arrive at a fair and reasonable price. The overall amount of the 
Government's estimate shall not be

[[Page 777]]

disclosed except as permitted by agency regulations.
[48 FR 42356, Sept. 19, 1983, as amended at 62 FR 44829, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44829, Aug. 22, 1997, in section 
36.605, paragraph (a) was amended by removing ``$25,000'' and inserting 
``$100,000'', effective Oct. 21, 1997.



36.606  Negotiations.

    (a) Unless otherwise specified by the selection authority, the final 
selection authorizes the contracting officer to begin negotiations. 
Negotiations shall be conducted in accordance with part 15 of this 
chapter, beginning with the most preferred firm in the final selection 
(see 15.404-4(c)(4)(i) on fee limitation and the determination and 
findings requirement at 16.306(c)(2) for a cost-plus-fixed-fee 
contract).
    (b) The contracting officer should ordinarily request a proposal 
from the firm, ensuring that the solicitation does not inadvertently 
preclude the firm from proposing the use of modern design methods.
    (c) The contracting officer shall inform the firm that no 
construction contract may be awarded to the firm that designed the 
project, except as provided in 36.209.
    (d) During negotiations, the contracting officer should seek advance 
agreement (see 31.109) on any charges for computer-assisted design. When 
the firm's proposal does not cover appropriate modern and cost-effective 
design methods (e.g., computer-assisted design), the contracting officer 
should discuss this topic with the firm.
    (e) Because selection of firms is based upon qualifications, the 
extent of any subcontracting is an important negotiation topic. The 
clause prescribed at 44.204(d), Subcontractors and Outside Associates 
and Consultants (see 52.244-4), limits a firm's subcontracting to firms 
agreed upon during negotiations.
    (f) If a mutually satisfactory contract cannot be negotiated, the 
contracting officer shall obtain a written best and final offer from the 
firm, and notify the firm that negotiations have been terminated. The 
contracting officer shall then initiate negotiations with the next firm 
on the final selection list. This procedure shall be continued until a 
mutually satisfactory contract has been negotiated. If negotiations fail 
with all selected firms, the contracting officer shall refer the matter 
to the selection authority who, after consulting with the contracting 
officer as to why a contract cannot be negotiated, may direct the 
evaluation board to recommend additional firms in accordance with 
36.602.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 37777, July 21, 1995; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
36.606, in paragraph (a), ``15.903(d)(1)(ii)'' was amended to read 
``15.404-4(c)(4)(i)'', effective Oct. 10, 1997.



36.607  Release of information on firm selection.

    (a) After final selection has taken place, the contracting officer 
may release information identifying only the architect-engineer firm 
with which a contract will be negotiated for certain work. The work 
should be described in any release only in general terms, unless 
information relating to the work is classified. If negotiations are 
terminated without awarding a contract to the highest rated firm, the 
contracting officer may release that information and state that 
negotiations will be undertaken with another (named) architect-engineer 
firm. When an award has been made, the contracting officer may release 
award information, (see 5.401).
    (b) Debriefings of successful and unsuccessful firms will be held 
after final selection has taken place and will be conducted, to the 
extent practicable, in accordance with 15.503, 15.506(b) through (f), 
15.507(c). Note that 15.506(d)(2) through (d)(5) do not apply to 
architect-engineer contracts.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 42657, Aug. 16, 1995; 
61 FR 69291, Dec. 31, 1996; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
36.607, in paragrah (b), ``15.1004, 15.006(b), throught (f), 15.1007(c); 
15.1006(d)(2) through (d)(5)'' was amended to read ``15.503, 15.506(b) 
through (f), 15.507(c), 15.506(d)(2) through (d)(5)'', respectively; 
effective Oct. 10, 1997.

[[Page 778]]



36.608  Liability for Government costs resulting from design errors or deficiencies.

    Architect-engineer contractors shall be responsible for the 
professional quality, technical accuracy, and coordination of all 
services required under their contracts. A firm may be liable for 
Government costs resulting from errors or deficiencies in designs 
furnished under its contract. Therefore, when a modification to a 
construction contract is required because of an error or deficiency in 
the services provided under an architect-engineer contract, the 
contracting officer (with the advice of technical personnel and legal 
counsel) shall consider the extent to which the architect-engineer 
contractor may be reasonably liable. The contracting officer shall 
enforce the liability and collect the amount due, if the recoverable 
cost will exceed the administrative cost involved or is otherwise in the 
Government's interest. The contracting officer shall include in the 
contract file a written statement of the reasons for the decision to 
recover or not to recover the costs from the firm.



36.609  Contract clauses.



36.609-1  Design within funding limitations.

    (a) The Government may require the architect-engineer contractor to 
design the project so that construction costs will not exceed a 
contractually specified dollar limit (funding limitation). If the price 
of construction proposed in response to a Government solicitation 
exceeds the construction funding limitation in the architect-engineer 
contract, the firm shall be solely responsible for redesigning the 
project within the funding limitation. These additional services shall 
be performed at no increase in the price of this contract. However, if 
the cost of proposed construction is affected by events beyond the 
firm's reasonable control (e.g., if there is an increase in material 
costs which could not have been anticipated, or an undue delay by the 
Government in issuing a construction solicitation), the firm shall not 
be obligated to redesign at no cost to the Government. If a firm's 
design fails to meet the contractual limitation on construction cost and 
the Government determines that the firm should not redesign the project, 
a written statement of the reasons for that determination shall be 
placed in the contract file.
    (b) The amount of the construction funding limitation (to be 
inserted in paragraph (c) of the clause at 52.236-22) is to be 
established during negotiations between the contractor and the 
Government. This estimated construction contract price shall take into 
account any statutory or other limitations and exclude any allowances 
for Government supervision and overhead and any amounts set aside by the 
Government for contingencies. In negotiating the amount, the contracting 
officer should make available to the contractor the information upon 
which the Government has based its initial construction estimate and any 
subsequently acquired information that may affect the construction 
costs.
    (c) The contracting officer shall insert the clause at 52.236-22, 
Design Within Funding Limitations, in fixed-price architect-engineer 
contracts except when (1) the head of the contracting activity or a 
designee determines in writing that cost limitations are secondary to 
performance considerations and additional project funding can be 
expected, if necessary, (2) the design is for a standard structure and 
is not intended for a specific location, or (3) there is little or no 
design effort involved.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985]



36.609-2  Redesign responsibility for design errors or deficiencies.

    (a) Under architect-engineer contracts, contractors shall be 
required to make necessary corrections at no cost to the Government when 
the designs, drawings, specifications, or other items or services 
furnished contain any errors, deficiencies, or inadequacies. If, in a 
given situation, the Government does not require a firm to correct such 
errors, the contracting officer shall include a written statement of the 
reasons for that decision in the contract file.

[[Page 779]]

    (b) The contracting officer shall insert the clause at 52.236-23, 
Responsibility of the Architect-Engineer Contractor, in fixed-price 
architect-engineer contracts.
[48 FR 42356, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985]



36.609-3  Work oversight in architect-engineer contracts.

    The contracting officer shall insert the clause at 52.236-24, Work 
Oversight in Architect-Engineer Contracts, in fixed-price architect-
engineer contracts.
[50 FR 26903, June 28, 1985]



36.609-4  Requirements for registration of designers.

    The contracting officer shall insert the clause at 52.236-25, 
Requirements for Registration of Designers, in fixed-price architect-
engineer contracts, except that it may be omitted from a contract when 
the design is to be performed (a) outside the United States, its 
possessions, or Puerto Rico, or (b) in a State or possession that does 
not have registration requirements for the particular field involved.



     Subpart 36.7--Standard and Optional Forms for Contracting for 
Construction, Architect-Engineer Services, and Dismantling, Demolition, 
                       or Removal of Improvements



36.700  Scope of subpart.

    This subpart sets forth requirements for the use of standard and 
optional forms, prescribed in part 53, for contracting for construction, 
architect-engineer services, or dismantling, demolition, or removal of 
improvements. These standard and optional forms are illustrated in part 
53.
[54 FR 29282, July 11, 1989]



36.701  Standard and optional forms for use in contracting for construction or dismantling, demolition, or removal of improvements.

    (a) Contracting officers shall use Standard Form 1417, 
Presolicitation Notice (Construction Contract), to inform prospective 
offerors that a solicitation will be released for a proposed 
construction or dismantling, demolition, or removal of improvements 
contract estimated to be $100,000 or more. This form may also be used if 
the proposed contract is estimated to be less than $100,000.
    (b) Standard Form 1442, Solicitation, Offer, and Award 
(Construction, Alteration, or Repair), shall be used to solicit and 
submit offers, and award construction or dismantling, demolition, or 
removal of improvements contracts expected to exceed the simplified 
acquisition threshold, and may be used for contracts at or below the 
simplified acquisition threshold. In all sealed bid solicitations, or 
when the Government otherwise requires a noncancellable offer acceptance 
period, the contracting officer shall insert in the blank provided in 
Block 13D the number of calendar days that the offer must be available 
for acceptance after the date offers are due.
    (c) Optional Form 347, Order for Supplies or Services, may be used 
for construction or dismantling, demolition, or removal of improvements 
contracts that are at or below the simplified acquisition threshold 
provided, that the contracting officer includes the clauses required 
(see subpart 36.5) in the simplified acquisitions (see part 13).
    (d) Contracting officers may use Optional Form 1419, Abstract of 
Offers--Construction, and Optional Form 1419A, Abstract of Offers--
Construction, Continuation Sheet, or the automated equivalents to record 
offers submitted in response to a sealed bid solicitation (see 14.403) 
and may also use them to record offers submitted in response to 
negotiated solicitations.
    (e) Contracting activities shall use Standard Form 1420, Performance 
Evaluation (Construction), in evaluating and reporting on the 
performance of construction contractors as required in 36.201.
[48 FR 42356, Sept. 19, 1983, as amended at 52 FR 19805, May 27, 1987; 
54 FR 29282, July 11, 1989; 60 FR 34759, July 3, 1995; 61 FR 39198, July 
26, 1996]



36.702  Forms for use in contracting for architect-engineer services.

    (a) Contracting officers shall use Standard Form 252, Architect-
Engineer

[[Page 780]]

Contract, to award fixed-price contracts for architect-engineer services 
when the services are to be performed in the United States, its 
possessions, or Puerto Rico.
    (b) The following standard forms shall be used preliminary to award 
of a contract for architect-engineer services relating to the 
construction, alteration, or repair of real property:
    (1) Standard Form 254, Architect-Engineer and Related Services 
Questionnaire, shall be used to obtain information from architect-
engineer firms regarding their professional qualifications.
    (2) Standard Form 255, Architect-Engineer and Related Services 
Questionnaire for Specific Project, shall be used to supplement the SF 
254 with additional, specific information on the firms' qualifications 
for a particular project when the contract amount is expected to exceed 
the simplified acquisition threshold. This form may be used when the 
contract amount is expected to be at or below the simplified acquisition 
threshold, if the contracting officer determines that its use is 
appropriate.
    (c) Standard Form 1421, Performance Evaluation (Architect-Engineer), 
shall be used in evaluating and reporting on the performance of 
architect-engineer contractors as required in 36.604.
[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



PART 37--SERVICE CONTRACTING--Table of Contents




Sec.
37.000  Scope of part.

                Subpart 37.1--Service Contracts--General

37.101  Definitions.
37.102  Policy.
37.103  Contracting officer responsibility.
37.104  Personal services contracts.
37.105  Competition in service contracting.
37.106  Funding and term of service contracts.
37.107  Service Contract Act of 1965.
37.108  Small business Certificate of Competency.
37.109  Services of quasi-military armed forces.
37.110  Solicitation provisions and contract clauses.
37.111  Extension of services.
37.112  Government use of private sector temporaries.
37.113  Severance payments to foreign nationals.
37.113-1  Waiver of cost allowability limitations.
37.113-2  Solicitation provision and contract clause.
37.114  Special acquisition requirements.
37.115  Uncompensated overtime.
37.115-1  Scope.
37.115-2  General policy.
37.115-3  Solicitation provision.

             Subpart 37.2--Advisory and Assistance Services

37.200  Scope of subpart.
37.201  Definitions.
37.202  Exclusions.
37.203  Policy.
37.204  Guidelines for determining availability of personnel.
37.205  Contracting officer responsibilities.

    Subpart 37.3--Dismantling, Demolition, or Removal of Improvements

37.300  Scope of subpart.
37.301  Labor standards.
37.302  Bonds or other security.
37.303  Payments.
37.304  Contract clauses.

             Subpart 37.4--Nonpersonal Health Care Services

37.400  Scope of subpart.
37.401  Policy.
37.402  Contracting officer responsibilities.
37.403  Contract clause.

         Subpart 37.5--Management Oversight of Service Contracts

37.500  Scope of subpart.
37.501  Definition.
37.502  Exclusions.
37.503  Agency-head responsibilities.
37.504  Contracting officials' responsibilities.

               Subpart 37.6--Performance-Based Contracting

37.600  Scope of subpart.
37.601  General.
37.602  Elements of performance-based contracting.
37.602-1  Statements of work.
37.602-2  Quality assurance.
37.602-3  Selection procedures.
37.602-4  Contract type.
37.602-5  Follow-on and repetitive requirements.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

[[Page 781]]


    Source: 48 FR 42365, Sept. 19, 1983, unless otherwise noted.



37.000  Scope of part.

    This part prescribes policy and procedures that are specific to the 
acquisition and management of services by contract. This part applies to 
all contracts for services regardless of the type of contract or kind of 
service being acquired. This part requires the use of performance-based 
contracting to the maximum extent practicable and prescribes policies 
and procedures for use of performance-based contracting methods (see 
subpart 37.6). Additional guidance for research and development services 
is in part 35; architect-engineering services is in part 36; information 
technology is in part 39; and transportation services is in part 47. 
Parts 35, 36, 39, and 47 take precedence over this part in the event of 
inconsistencies. This part includes, but is not limited to, contracts 
for services to which the Service Contract Act of 1965, as amended, 
applies (see subpart 22.10).
[62 FR 12694, Mar. 17, 1997, as amended at 62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.000 
was amended by adding a new third sentence, effective Oct. 21, 1997.



                Subpart 37.1--Service Contracts--General



37.101  Definitions.

    Child care services means child protective services (including the 
investigation of child abuse and neglect reports), social services, 
health and mental health care, child (day) care, education (whether or 
not directly involved in teaching), foster care, residential care, 
recreational or rehabilitative programs, and detention, correctional, or 
treatment services.
    Nonpersonal services contract means a contract under which the 
personnel rendering the services are not subject, either by the 
contract's terms or by the manner of its administration, to the 
supervision and control usually prevailing in relationships between the 
Government and its employees.
    Performance-based contracting means structuring all aspects of an 
acquisition around the purpose of the work to be performed as opposed to 
either the manner by which the work is to be performed or broad and 
imprecise statements of work.
    Personal services contract means a contract that, by its express 
terms or as administered, makes the contractor personnel appear, in 
effect, Government employees (see 37.104).
    Service contract means a contract that directly engages the time and 
effort of a contractor whose primary purpose is to perform an 
identifiable task rather than to furnish an end item of supply. A 
service contract may be either a nonpersonal or personal contract. It 
can also cover services performed by either professional or 
nonprofessional personnel whether on an individual or organizational 
basis. Some of the areas in which service contracts are found include 
the following:
    (a) Maintenance, overhaul, repair, servicing, rehabilitation, 
salvage, modernization, or modification of supplies, systems, or 
equipment.
    (b) Routine recurring maintenance of real property.
    (c) Housekeeping and base services.
    (d) Advisory and assistance services.
    (e) Operation of Government-owned equipment, facilities, and 
systems.
    (f) Communications services.
    (g) Architect-Engineering (see subpart 36.6).
    (h) Transportation and related services (see part 47).
    (i) Research and development (see part 35).
[48 FR 42365, Sept. 19, 1983, as amended at 53 FR 43392, Oct. 26, 1988; 
59 FR 67051, Dec. 28, 1994; 62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.101 
was amended by adding the definition Performance-based contracting, 
effective Oct. 21, 1997.



37.102  Policy.

    (a) Agencies shall use performance-based contracting methods (see 
subpart 37.6), to the maximum extent practicable, for the acquisition of 
services, including those acquired under supply contracts, except--
    (1) Architect-engineer services acquired in accordance with 40 
U.S.C. 541-544, as amended (see part 36);
    (2) Construction (see part 36);
    (3) Utility services (see part 41); or

[[Page 782]]

    (4) Services that are incidental to supply purchases.
    (b) Agencies shall generally rely on the private sector for 
commercial services (see OMB Circular No. A-76, Performance of 
Commercial Activities and subpart 7.3).
    (c) Agencies shall not award a contract for the performance of an 
inherently governmental function (see subpart 7.5).
    (d) Non-personal service contracts are proper under general 
contracting authority.
    (e) Agency program officials are responsible for accurately 
describing the need to be filled, or problem to be resolved, through 
service contracting in a manner that ensures full understanding and 
responsive performance by contractors and, in so doing, should obtain 
assistance from contracting officials, as needed.
    (f) Agencies shall establish effective management practices in 
accordance with Office of Federal Procurement Policy (OFPP) Policy 
Letter 93-1, Management Oversight of Service Contracting, to prevent 
fraud, waste, and abuse in service contracting.
    (g) Services are to be obtained in the most cost-effective manner, 
without barriers to full and open competition, and free of any potential 
conflicts of interest.
    (h) Agencies shall ensure that sufficiently trained and experienced 
officials are available within the agency to manage and oversee the 
contract administration function.
[61 FR 2630, Jan. 26, 1996, as amended at 62 FR 12694, Mar. 17, 1997; 62 
FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.102 
was amended by redesignating paragraphs (a) through (g) as paragraphs 
(b) through (h) and by adding a new paragraph (a), effective Oct. 21, 
1997.



37.103  Contracting officer responsibility.

    (a) The contracting officer is responsible for ensuring that a 
proposed contract for services is proper. For this purpose the 
contracting officer shall--
    (1) Determine whether the proposed service is for a personal or 
nonpersonal services contract using the definitions in 37.101 and the 
guidelines in 37.104;
    (2) In doubtful cases, obtain the review of legal counsel; and
    (3) Document the file (except as provided in paragraph (b) below) 
with (i) the opinion of legal counsel, if any, (ii) a memorandum of the 
facts and rationale supporting the conclusion that the contract does not 
violate the provisions in 37.104(b), and (iii) any further documentation 
that the contracting agency may require.
    (b) Nonpersonal services contracts are exempt from the requirements 
of subparagraph (a)(3) above.
    (c) Ensure that performance-based contracting methods are used to 
the maximum extent practicable when acquiring services.
    (d) Ensure that contracts for child care services include 
requirements for criminal history background checks on employees who 
will perform child care services under the contract in accordance with 
42 U.S.C. 13041, as amended, and agency procedures.
[48 FR 42365, Sept. 19, 1983, as amended at 55 FR 36796, Sept. 6, 1990; 
59 FR 67051, Dec. 28, 1994; 62 FR 233, Jan. 2, 1997; 62 FR 44815, Aug. 
22, 1997; 62 FR 51379, Oct. 1, 1997]



37.104  Personal services contracts.

    (a) As indicated in 37.101, a personal services contract is 
characterized by the employer-employee relationship it creates between 
the Government and the contractor's personnel. The Government is 
normally required to obtain its employees by direct hire under 
competitive appointment or other procedures required by the civil 
service laws. Obtaining personal services by contract, rather than by 
direct hire, circumvents those laws unless Congress has specifically 
authorized acquisition of the services by contract.
    (b) Agencies shall not award personal services contracts unless 
specifically authorized by statute (e.g., 5 U.S.C. 3109) to do so.
    (c)(1) An employer-employee relationship under a service contract 
occurs when, as a result of (i) the contract's terms or (ii) the manner 
of its administration during performance, contractor personnel are 
subject to the relatively continuous supervision and control of a 
Government officer or employee. However, giving an order for a specific 
article or service, with the

[[Page 783]]

right to reject the finished product or result, is not the type of 
supervision or control that converts an individual who is an independent 
contractor (such as a contractor employee) into a Government employee.
    (2) Each contract arrangement must be judged in the light of its own 
facts and circumstances, the key question always being: Will the 
Government exercise relatively continuous supervision and control over 
the contractor personnel performing the contract? The sporadic, 
unauthorized supervision of only one of a large number of contractor 
employees might reasonably be considered not relevant, while relatively 
continuous Government supervision of a substantial number of contractor 
employees would have to be taken strongly into account (see (d) below).
    (d) The following descriptive elements should be used as a guide in 
assessing whether or not a proposed contract is personal in nature:
    (1) Performance on site.
    (2) Principal tools and equipment furnished by the Government.
    (3) Services are applied directly to the integral effort of agencies 
or an organizational subpart in furtherance of assigned function or 
mission.
    (4) Comparable services, meeting comparable needs, are performed in 
the same or similar agencies using civil service personnel.
    (5) The need for the type of service provided can reasonably be 
expected to last beyond one year.
    (6) The inherent nature of the service, or the manner in which it is 
provided reasonably requires directly or indirectly, Government 
direction or supervision of contractor employees in order to--
    (i) Adequately protect the Government's interest;
    (ii) Retain control of the function involved; or
    (iii) Retain full personal responsibility for the function supported 
in a duly authorized Federal officer or employee.
    (e) When specific statutory authority for a personal service 
contract is cited, obtain the review and opinion of legal counsel.
    (f) Personal services contracts for the services of individual 
experts or consultants are limited by the Classification Act. In 
addition, the Office of Personnel Management has established 
requirements which apply in acquiring the personal services of experts 
or consultants in this manner (e.g., benefits, taxes, conflicts of 
interest). Therefore, the contracting officer shall effect necessary 
coordination with the cognizant civilian personnel office.



37.105  Competition in service contracting.

    (a) Unless otherwise provided by statute, contracts for services 
shall be awarded through sealed bidding whenever the conditions in 
6.401(a) are met (except see 6.401(b)).
    (b) The provisions of statute and part 6 of this regulation 
requiring competition apply fully to service contracts. The method of 
contracting used to provide for competition may vary with the type of 
service being acquired and may not necessarily be limited to price 
competition.
[50 FR 1744, Jan. 11, 1985, and 50 FR 52429, Dec. 23, 1985]



37.106  Funding and term of service contracts.

    (a) When contracts for services are funded by annual appropriations, 
the term of contracts so funded shall not extend beyond the end of the 
fiscal year of the appropriation except when authorized by law (see 
paragraph (b) of this section for certain service contracts, 32.703-2 
for contracts conditioned upon availability of funds, and 32.703-3 for 
contracts crossing fiscal years).
    (b) 41 U.S.C. 253l, as amended by Section 1073 of the Federal 
Acquisition Streamlining Act of 1994 (Pub. L. 103-355), authorizes the 
head of any executive agency except the Department of Defense, United 
States Coast Guard, and the National Aeronautics and Space 
Administration (41 U.S.C. 252(a)(1)), to enter into a basic contract, 
options, or orders under that contract for procurement of severable 
services for a period that begins in one fiscal year and ends in the 
next fiscal year if the period of the basic contract, options or orders 
under that contract does not exceed one year each. Funds made available 
for a fiscal year may be

[[Page 784]]

obligated for the total amount of an action entered into under this 
authority (see 32.703-3(b)). Consult agency supplements for similar 
authorities that may exist for the Department of Defense, United States 
Coast Guard, or the National Aeronautics and Space Administration.
    (c) Agencies with statutory multiyear authority shall consider the 
use of this authority to encourage and promote economical business 
operations when acquiring services.
[60 FR 37778, July 21, 1995, as amended at 62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.106 
was amended by adding paragraph (c), effective Oct. 21, 1997.



37.107  Service Contract Act of 1965.

    The Service Contract Act of 1965 (41 U.S.C. 351-357) (the Act) 
provides for minimum wages and fringe benefits as well as other 
conditions of work under certain types of service contracts (see subpart 
22.10). Whether or not the Act applies to a specific service contract 
will be determined by the definitions and exceptions given in the Act, 
or implementing regulations.



37.108  Small business Certificate of Competency.

    In those service contracts for which the Government requires the 
highest competence obtainable, as evidenced in a solicitation by a 
request for a technical/management proposal and a resultant technical 
evaluation and source selection, the small business Certificate of 
Competency procedures may not apply (see subpart 19.6).



37.109  Services of quasi-military armed forces.

    Contracts with Pinkerton Detective Agencies or similar organizations 
are prohibited by 5 U.S.C. 3108. This prohibition applies only to 
contracts with organizations that offer quasi-military armed forces for 
hire, or with their employees, regardless of the contract's character. 
An organization providing guard or protective services does not thereby 
become a quasi-military armed force, even though the guards are armed or 
the organization provides general investigative or detective services. 
(See 57 Comp. Gen. 524).



37.110  Solicitation provisions and contract clauses.

    (a) The contracting officer shall insert the provision at 52.237-1, 
Site Visit, in solicitations for services to be performed on Government 
installations, unless the solicitation is for construction.
    (b) The contracting officer shall insert the clause at 52.237-2, 
Protection of Government Buildings, Equipment, and Vegetation, in 
solicitations and contracts for services to be performed on Government 
installations, unless a construction contract is contemplated.
    (c) The contracting officer may insert the clause at 52.237-3, 
Continuity of Services, in solicitations and contracts for services, 
when--
    (1) The services under the contract are considered vital to the 
Government and must be continued without interruption and when, upon 
contract expiration, a successor, either the Government or another 
contractor, may continue them; and
    (2) The Government anticipates difficulties during the transition 
from one contractor to another or to the Government. Examples of 
instances where use of the clause may be appropriate are services in 
remote locations or services requiring personnel with special security 
clearances.
    (d) See 9.508 regarding the use of an appropriate provision and 
clause concerning the subject of conflict-of-interest, which may at 
times be significant in solicitations and contracts for services.
    (e) The contracting officer shall also insert in solicitations and 
contracts for services the provisions and clauses prescribed elsewhere 
in the FAR, as appropriate for each acquisition, depending on the 
conditions that are applicable.
[48 FR 42365, Sept. 19, 1983, as amended at 55 FR 52795, Dec. 21, 1990; 
57 FR 60584, Dec. 21, 1992]



37.111  Extension of services.

    Award of contracts for recurring and continuing service requirements 
are often delayed due to circumstances beyond the control of contracting 
offices. Examples of circumstances causing such delays are bid protests 
and alleged mistakes in bid. In order to avoid negotiation of short 
extensions to existing

[[Page 785]]

contracts, the contracting officer may include an option clause (see 
17.208(f)) in solicitations and contracts which will enable the 
Government to require continued performance of any services within the 
limits and at the rates specified in the contract. However, these rates 
may be adjusted only as a result of revisions to prevailing labor rates 
provided by the Secretary of Labor. The option provision may be 
exercised more than once, but the total extension of performance 
thereunder shall not exceed 6 months.
[54 FR 29282, July 11, 1989]



37.112  Government use of private sector temporaries.

    Contracting officers may enter into contracts with temporary help 
service firms for the brief or intermittent use of the skills of private 
sector temporaries. Services furnished by temporary help firms shall not 
be regarded or treated as personal services. These services shall not be 
used in lieu of regular recruitment under civil service laws or to 
displace a Federal employee. Acquisition of these services shall comply 
with the authority, criteria, and conditions of 5 CFR part 300, subpart 
E, Use of Private Sector Temporaries, and agency procedures.
[56 FR 55380, Oct. 25, 1991]



37.113  Severance payments to foreign nationals.



37.113-1  Waiver of cost allowability limitations.

    (a) The head of any agency, or designee, may waive the 31.205-
6(g)(3) cost allowability limitations on severance payments to foreign 
nationals for contracts that--
    (1) Provide significant support services for (i) members of the 
armed forces stationed or deployed outside the United States, or (ii) 
employees of an executive agency posted outside the United States; and
    (2) Will be performed in whole or in part outside the United States.
    (b) Waivers can be granted only before contract award.
    (c) Waivers cannot be granted for--
    (1) Military banking contracts, which are covered by 10 U.S.C. 
2324(e)(2); or
    (2) Severance payments made by a contractor to a foreign national 
employed by the contractor under a DOD service contract in the Republic 
of the Philippines, if the discontinuation of the foreign national is 
the result of the termination of basing rights of the United States 
military in the Republic of the Philippines (section 1351(b) of Public 
Law 102-484, 10 U.S.C. 1592, note).
[60 FR 42661, Aug. 16, 1995]



37.113-2  Solicitation provision and contract clause.

    (a) Use the provision at 52.237-8, Restriction on Severance Payments 
to Foreign Nationals, in all solicitations that meet the criteria in 
37.113-1(a), except for those excluded by 37.113-1(c).
    (b) When the head of an agency, or designee, has granted a waiver 
pursuant to 37.113-1, use the clause at 52.237-9, Waiver of Limitation 
on Severance Payments to Foreign Nationals.
[60 FR 42261, Aug. 16, 1995]



37.114  Special acquisition requirements.

    Contracts for services which require the contractor to provide 
advice, opinions, recommendations, ideas, reports, analyses, or other 
work products have the potential for influencing the authority, 
accountability, and responsibilities of Government officials. These 
contracts require special management attention to ensure that they do 
not result in performance of inherently governmental functions by the 
contractor and that Government officials properly exercise their 
authority. Agencies must ensure that--
    (a) A sufficient number of qualified Government employees are 
assigned to oversee contractor activities, especially those that involve 
support of government policy or decision making. During performance of 
service contracts, the functions being performed shall not be changed or 
expanded to become inherently governmental.
    (b) A greater scrutiny and an appropriate enhanced degree of 
management oversight is exercised when contracting for functions that 
are not inherently governmental but closely support the

[[Page 786]]

performance of inherently governmental functions (see 7.503(c)).
    (c) All contractor personnel attending meetings, answering 
Government telephones, and working in other situations where their 
contractor status is not obvious to third parties are required to 
identify themselves as such to avoid creating an impression in the minds 
of members of the public or Congress that they are Government officials, 
unless, in the judgment of the agency, no harm can come from failing to 
identify themselves. They must also ensure that all documents or reports 
produced by contractors are suitably marked as contractor products or 
that contractor participation is appropriately disclosed.
[61 FR 2630, Jan. 26, 1996]



37.115  Uncompensated overtime.



37.115-1  Scope.

    The policies in this section are based on Section 834 of Public Law 
101-510 (10 U.S.C. 2331).
[62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.115-1 
was added, effective Oct. 21, 1997.



37.115-2  General policy.

    (a) Use of uncompensated overtime is not encouraged.
    (b) When professional or technical services are acquired on the 
basis of the number of hours to be provided, rather than on the task to 
be performed, the solicitation shall require offerors to identify 
uncompensated overtime hours and the uncompensated overtime rate for 
direct charge Fair Labor Standards Act--exempt personnel included in 
their proposals and subcontractor proposals. This includes uncompensated 
overtime hours that are in indirect cost pools for personnel whose 
regular hours are normally charged direct.
[62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.115-2 
was added, effective Oct. 21, 1997.



37.115-3  Solicitation provision.

    The contracting officer shall insert the provision at 52.237-10, 
Identification of Uncompensated Overtime, in all solicitations valued 
above the simplified acquisition threshold, for professional or 
technical services to be acquired on the basis of the number of hours to 
be provided.
[62 FR 44815, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, section 37.115-3 
was added, effective Oct. 21, 1997.



             Subpart 37.2--Advisory and Assistance Services

    Source: 60 FR 49722, Sept. 26, 1995, unless otherwise noted.



37.200  Scope of subpart.

    This subpart prescribes policies and procedures for acquiring 
advisory and assistance services by contract. The subpart applies to 
contracts, whether made with individuals or organizations, that involve 
either personal or nonpersonal services.



37.201  Definitions.

    Advisory and assistance services means those services provided under 
contract by nongovernmental sources to support or improve: 
organizational policy development; decision-making; management and 
administration; program and/or project management and administration; or 
R&D activities. It can also mean the furnishing of professional advice 
or assistance rendered to improve the effectiveness of Federal 
management processes or procedures (including those of an engineering 
and technical nature). In rendering the foregoing services, outputs may 
take the form of information, advice, opinions, alternatives, analyses, 
evaluations, recommendations, training and the day-to-day aid of support 
personnel needed for the successful performance of ongoing Federal 
operations. All advisory and assistance services are to be classified in 
one of the following definitional subdivisions:
    (a) Management and professional support services, i.e., contractual 
services that provide assistance, advice or training for the efficient 
and effective

[[Page 787]]

management and operation of organizations, activities (including 
management and support services for R&D activities), or systems. These 
services are normally closely related to the basic responsibilities and 
mission of the agency originating the requirement for the acquisition of 
services by contract. Included are efforts that support or contribute to 
improved organization of program management, logistics management, 
project monitoring and reporting, data collection, budgeting, 
accounting, performance auditing, and administrative/technical support 
for conferences and training programs;
    (b) Studies, analyses and evaluations, i.e., contracted services 
that provide organized, analytical assessments/ evaluations in support 
of policy development, decision-making, management, or administration. 
Included are studies in support of R&D activities. Also included are 
acquisitions of models, methodologies, and related software supporting 
studies, analyses or evaluations; or
    (c) Engineering and technical services, i.e., contractual services 
used to support the program office during the acquisition cycle by 
providing such services as systems engineering and technical direction 
(see 9.505-1(b)) to ensure the effective operation and maintenance of a 
weapon system or major system as defined in OMB Circular No. A-109 or to 
provide direct support of a weapon system that is essential to research, 
development, production, operation or maintenance of the system.
    Covered personnel, as used in this subpart, means--
    (a) An officer or an individual who is appointed in the civil 
service by one of the following acting in an official capacity:
    (1) The President;
    (2) A Member of Congress;
    (3) A member of the uniformed services;
    (4) An individual who is an employee under 5 U.S.C. 2105;
    (5) The head of a Government-controlled corporation; or
    (6) An adjutant general appointed by the Secretary concerned under 
32 U.S.C. 709(c).
    (b) A member of the Armed Services of the United States.
    (c) A person assigned to a Federal agency who has been transferred 
to another position in the competitive service in another agency.



37.202  Exclusions.

    The following activities and programs are excluded or exempted from 
the definition of advisory or assistance services:
    (a) Routine information technology services unless they are an 
integral part of a contract for the acquisition of advisory and 
assistance services.
    (b) Architectural and engineering services as defined in the Brooks 
Architect-Engineers Act (Section 901 of the Federal Property and 
Administrative Services Act of 1949, 40 U.S.C. 541).
    (c) Research on theoretical mathematics and basic research involving 
medical, biological, physical, social, psychological, or other 
phenomena.
[60 FR 49722, Sept. 26, 1995, as amended at 61 FR 41470, Aug. 8, 1996]



37.203  Policy.

    (a) The acquisition of advisory and assistance services is a 
legitimate way to improve Government services and operations. 
Accordingly, advisory and assistance services may be used at all 
organizational levels to help managers achieve maximum effectiveness or 
economy in their operations.
    (b) Subject to 37.205, agencies may contract for advisory and 
assistance services, when essential to the agency's mission, to--
    (1) Obtain outside points of view to avoid too limited judgment on 
critical issues;
    (2) Obtain advice regarding developments in industry, university, or 
foundation research;
    (3) Obtain the opinions, special knowledge, or skills of noted 
experts;
    (4) Enhance the understanding of, and develop alternative solutions 
to, complex issues;
    (5) Support and improve the operation of organizations; or
    (6) Ensure the more efficient or effective operation of managerial 
or hardware systems.
    (c) Advisory and assistance services shall not be--

[[Page 788]]

    (1) Used in performing work of a policy, decision-making, or 
managerial nature which is the direct responsibility of agency 
officials;
    (2) Used to bypass or undermine personnel ceilings, pay limitations, 
or competitive employment procedures;
    (3) Contracted for on a preferential basis to former Government 
employees;
    (4) Used under any circumstances specifically to aid in influencing 
or enacting legislation; or
    (5) Used to obtain professional or technical advice which is readily 
available within the agency or another Federal agency.
    (d) Limitation on payment for advisory and assistance services. 
Contractors may not be paid for services to conduct evaluations or 
analyses of any aspect of a proposal submitted for an initial contract 
award unless--
    (1) Neither covered personnel from the requesting agency, nor from 
another agency, with adequate training and capabilities to perform the 
required proposal evaluation, are readily available and a written 
determination is made in accordance with 37.204;
    (2) The contractor is a Federally-Funded Research and Development 
Center (FFRDC) as authorized in Section 23 of the Office of Federal 
Procurement Policy (OFPP) Act as amended (41 U.S.C. 419) and the work 
placed under the FFRDCOs contract meets the criteria of 35.017-3; or
    (3) Such functions are otherwise authorized by law.



37.204  Guidelines for determining availability of personnel.

    (a) The head of an agency shall determine, for each evaluation or 
analysis of proposals, if sufficient personnel with the requisite 
training and capabilities are available within the agency to perform the 
evaluation or analysis of proposals submitted for the acquisition.
    (b) If, for a specific evaluation or analysis, such personnel are 
not available within the agency, the head of the agency shall--
    (1) Determine which Federal agencies may have personnel with the 
required training and capabilities; and
    (2) Consider the administrative cost and time associated with 
conducting the search, the dollar value of the procurement, other costs, 
such as travel costs involved in the use of such personnel, and the 
needs of the Federal agencies to make management decisions on the best 
use of available personnel in performing the agency's mission.
    (c) If the supporting agency agrees to make the required personnel 
available, the agencies shall execute an agreement for the detail of the 
supporting agency's personnel to the requesting agency.
    (d) If the requesting agency, after reasonable attempts to obtain 
personnel with the required training and capabilities, is unable to 
identify such personnel, the head of the agency may make the 
determination required by 37.203.
    (e) An agency may make a determination regarding the availability of 
covered personnel for a class of proposals for which evaluation and 
analysis would require expertise so unique or specialized that it is not 
reasonable to expect such personnel to be available.



37.205  Contracting officer responsibilities.

    The contracting officer shall ensure that the determination required 
in accordance with the guidelines at 37.204 has been made prior to 
issuing a solicitation.



    Subpart 37.3--Dismantling, Demolition, or Removal of Improvements



37.300  Scope of subpart.

    This subpart prescribes procedures for contracting for dismantling 
or demolition of buildings, ground improvements, and other real property 
structures and for the removal of such structures or portions of them 
(hereafter referred to as dismantling, demolition, or removal of 
improvements).



37.301  Labor standards.

    Contracts for dismantling, demolition, or removal of improvements 
are subject to either the Service Contract Act (41 U.S.C. 351-358) or 
the Davis-Bacon Act (40 U.S.C. 276a--276a-7). If the contract is solely 
for dismantling,

[[Page 789]]

demolition, or removal of improvements, the Service Contract Act applies 
unless further work which will result in the construction, alteration, 
or repair of a public building or public work at that location is 
contemplated. If such further construction work is intended, even though 
by separate contract, then the Davis-Bacon Act applies to the contract 
for dismantling, demolition, or removal.



37.302  Bonds or other security.

    When a contract is solely for dismantling, demolition, or removal of 
improvements, the Miller Act (40 U.S.C. 270a-270f) (see 28.102) does not 
apply. However, the contracting officer may require the contractor to 
furnish a performance bond or other security (see 28.103) in an amount 
that the contracting officer considers adequate to (a) ensure completion 
of the work, (b) protect property to be retained by the Government, (c) 
protect property to be provided as compensation to the contractor, and 
(d) protect the Government against damage to adjoining property.



37.303  Payments.

    (a) The contract may provide that the (1) Government pay the 
contractor for the dismantling or demolition of structures or (2) 
contractor pay the Government for the right to salvage and remove the 
materials resulting from the dismantling or demolition operation.
    (b) The contracting officer shall consider the usefulness to the 
Government of all salvageable property. Any of the property that is more 
useful to the Government than its value as salvage to the contractor 
should be expressly designated in the contract for retention by the 
Government. The contracting officer shall determine the fair market 
value of any property not so designated, since the contractor will get 
title to this property, and its value will therefore be important in 
determining what payment, if any, shall be made to the contractor and 
whether additional compensation will be made if the contract is 
terminated.



37.304  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.237-4, 
Payment by Government to Contractor, in solicitations and contracts 
solely for dismantling, demolition, or removal of improvements whenever 
the contracting officer determines that the Government shall make 
payment to the contractor in addition to any title to property that the 
contractor may receive under the contract. If the contracting officer 
determines that all material resulting from the dismantling or 
demolition work is to be retained by the Government, use the basic 
clause with its Alternate I.
    (b) The contracting officer shall insert the clause at 52.237-5, 
Payment by Contractor to Government in solicitations and contracts for 
dismantling, demolition, or removal of improvements whenever the 
contractor is to receive title to dismantled or demolished property and 
a net amount of compensation is due to the Government, except if the 
contracting officer determines that it would be advantageous to the 
Government for the contractor to pay in increments and the government to 
transfer title to the contractor for increments of property only upon 
receipt of those payments.
    (c) The contracting officer shall insert the clause at 52.237-6, 
Incremental Payment by Contractor to Government, in solicitations and 
contracts for dismantling, demolition, or removal of improvements if (1) 
the contractor is to receive title to dismantled or demolished property 
and a net amount of compensation is due the Government, and (2) the 
contracting officer determines that it would be advantageous to the 
Government for the contractor to pay in increments, and for the 
Government to transfer title to the contractor for increments of 
property only upon receipt of those payments. This determination may be 
appropriate, for example, if it encourages greater competition or 
participation of small business concerns.

[[Page 790]]



             Subpart 37.4--Nonpersonal Health Care Services

    Source: 54 FR 5056, Jan. 31, 1989, unless otherwise noted.



37.400  Scope of subpart.

    This subpart prescribes policies and procedures for obtaining health 
care services of physicians, dentists and other health care providers by 
nonpersonal services contracts, as defined in 37.101.



37.401  Policy.

    Agencies may enter into nonpersonal health care services contracts 
with physicians, dentists and other health care providers under 
authority of 10 U.S.C. 2304 and 41 U.S.C. 253. Each contract shall--
    (a) State that the contract is a nonpersonal health care services 
contract, as defined in 37.101, under which the contractor is an 
independent contractor;
    (b) State that the Government may evaluate the quality of 
professional and administrative services provided, but retains no 
control over the medical, professional aspects of services rendered 
(e.g., professional judgments, diagnosis for specific medical 
treatment);
    (c) Require that the contractor indemnify the Government for any 
liability producing act or omission by the contractor, its employees and 
agents occurring during contract performance;
    (d) Require that the contractor maintain medical liability 
insurance, in a coverage amount acceptable to the contracting officer, 
which is not less than the amount normally prevailing within the local 
community for the medical specialty concerned; and
    (e) State that the contractor is required to ensure that its 
subcontracts for provisions of health care services, contain the 
requirements of the clause at 52.237-7, including the maintenance of 
medical liability insurance.



37.402  Contracting officer responsibilities.

    Contracting officers shall obtain evidence of insurability 
concerning medical liability insurance from the apparent successful 
offeror prior to contract award and shall obtain evidence of insurance 
demonstrating the required coverage prior to commencement of 
performance.
[62 FR 237, Jan. 2, 1997]



37.403  Contract clause.

    The contracting officer shall insert the clause at 52.237-7, 
Indemnification and Medical Liability Insurance, in solicitations and 
contracts for nonpersonal health care services. The contracting officer 
may include the clause in bilateral purchase orders for nonpersonal 
health care services awarded under the procedures in part 13.



         Subpart 37.5--Management Oversignt of Service Contracts

    Source: 62 FR 12694, Mar. 17, 1997, unless otherwise noted.



37.500  Scope of subpart.

    This subpart establishes responsibilities for implementing Office of 
Federal Procurement Policy (OFPP) Policy Letter 93-1, Management 
Oversight of Service Contracting.



37.501  Definition.

    Best practices, as used in this subpart, means techniques that 
agencies may use to help detect problems in the acquisition, management, 
and administration of service contracts. Best practices are practical 
techniques gained from experience that agencies may use to improve the 
procurement process.



37.502  Exclusions.

    (a) This subpart does not apply to services that are
    (1) Obtained through personnel appointments and advisory committees;
    (2) Obtained through personal service contracts authorized by 
statute;
    (3) For construction as defined in 36.102; or
    (4) Obtained through interagency agreements where the work is being 
performed by in-house Federal employees.
    (b) Services obtained under contracts below the simplified 
acquisition threshold and services incidental to supply contracts also 
are excluded from the requirements of this subpart.

[[Page 791]]

However, good management practices and contract administration 
techniques should be used regardless of the contracting method.



37.503  Agency-head responsibilities.

    The agency head or designee should ensure that--
    (a) Requirements for services are clearly defined and appropriate 
performance standards are developed so that the agency's requirements 
can be understood by potential offerors and that performance in 
accordance with contract terms and conditions will meet the agency's 
requirements;
    (b) Service contracts are awarded and administered in a manner that 
will provide the customer its supplies and services within budget and in 
a timely manner;
    (c) Specific procedures are in place before contracting for services 
to ensure compliance with OFPP Policy Letters 92-1, Inherently 
Governmental Functions, 91-2, Service Contracting, and 89-1, Conflicts 
of Interest Policies Applicable to Consultants; and
    (d) Strategies are developed and necessary staff training is 
initiated to ensure effective implementation of the policies in 37.102.



37.504  Contracting officials' responsibilities.

    Contracting officials should ensure that ``best practices'' 
techniques are used when contracting for services and in contract 
management and administration (see OFPP Policy Letter 93-1).



               Subpart 37.6--Performance-Based Contracting

    Source: 62 FR 44815, Aug. 22, 1997, unless otherwise noted.

    Effective Date Note: At 62 FR 44815, Aug. 22, 1997, subpart 37.6 was 
added, effective Oct. 21, 1997.



37.600  Scope of subpart.

    This subpart prescribes policies and procedures for use of 
performance-based contracting methods. It implements OFPP Policy Letter 
91-2, Service Contracting.



37.601  General.

    Performance-based contracting methods are intended to ensure that 
required performance quality levels are achieved and that total payment 
is related to the degree that services performed meet contract 
standards. Performance-based contracts--
    (a) Describe the requirements in terms of results required rather 
than the methods of performance of the work;
    (b) Use measurable performance standards (i.e., terms of quality, 
timeliness, quantity, etc.) and quality assurance surveillance plans 
(see 46.103(a) and 46.401(a));
    (c) Specify procedures for reductions of fee or for reductions to 
the price of a fixed-price contract when services are not performed or 
do not meet contract requirements (see 46.407); and
    (d) Include performance incentives where appropriate.



37.602  Elements of performance-based contracting.



37.602-1  Statements of work.

    (a) Generally, statements of work shall define requirements in 
clear, concise language identifying specific work to be accomplished. 
Statements of work must be individually tailored to consider the period 
of performance, deliverable items, if any, and the desired degree of 
performance flexibility (see 11.105). In the case of task order 
contracts, the statement of work for the basic contract need only define 
the scope of the overall contract (see 16.504(a)(4)(iii)). The statement 
of work for each task issued under a task order contract shall comply 
with paragraph (b) of this subsection. To achieve the maximum benefits 
of performance-based contracting, task order contracts should be awarded 
on a multiple award basis (see 16.504(c) and 16.505(b)).
    (b) When preparing statements of work, agencies shall, to the 
maximum extent practicable--
    (1) Describe the work in terms of ``what'' is to be the required 
output rather than either ``how'' the work is to be accomplished or the 
number of hours to be provided (see 11.002(a)(2) and 11.101);

[[Page 792]]

    (2) Enable assessment of work performance against measurable 
performance standards;
    (3) Rely on the use of measurable performance standards and 
financial incentives in a competitive environment to encourage 
competitors to develop and institute innovative and cost-effective 
methods of performing the work; and
    (4) Avoid combining requirements into a single acquisition that is 
too broad for the agency or a prospective contractor to manage 
effectively.



37.602-2  Quality assurance.

    Agencies shall develop quality assurance surveillance plans when 
acquiring services (see 46.103 and 46.401(a)). These plans shall 
recognize the responsibility of the contractor (see 46.105) to carry out 
its quality control obligations and shall contain measurable inspection 
and acceptance criteria corresponding to the performance standards 
contained in the statement of work. The quality assurance surveillance 
plans shall focus on the level of performance required by the statement 
of work, rather than the methodology used by the contractor to achieve 
that level of performance.



37.602-3  Selection procedures.

    Agencies shall use competitive negotiations when appropriate to 
ensure selection of services that offer the best value to the 
Government, cost and other factors considered (see 15.605).



37.602-4  Contract type.

    Contract types most likely to motivate contractors to perform at 
optimal levels shall be chosen (see subpart 16.1 and, for research and 
development contracts, see 35.006). To the maximum extent practicable, 
performance incentives, either positive or negative or both, shall be 
incorporated into the contract to encourage contractors to increase 
efficiency and maximize performance (see subpart 16.4). These incentives 
shall correspond to the specific performance standards in the quality 
assurance surveillance plan and shall be capable of being measured 
objectively. Fixed-price contracts are generally appropriate for 
services that can be defined objectively and for which the risk of 
performance is manageable (see subpart 16.1).



37.602-5  Follow-on and repetitive requirements.

    When acquiring services that previously have been provided by 
contract, agencies shall rely on the experience gained from the prior 
contract to incorporate performance-based contracting methods to the 
maximum extent practicable. This will facilitate the use of fixed-price 
contracts for such requirements for services. (See 7.105 for requirement 
to address performance-based contracting strategies in acquisition 
plans. See also 16.104(k).)



PART 38--FEDERAL SUPPLY SCHEDULE CONTRACTING--Table of Contents




Sec.
38.000  Scope of part.

              Subpart 38.1--Federal Supply Schedule Program

38.101  General.

  Subpart 38.2--Establishing and Administering Federal Supply Schedules

38.201  Coordination requirements.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42368, Sept. 19, 1983, unless otherwise noted.



38.000  Scope of part.

    This part prescribes policies and procedures for contracting for 
supplies and services under the Federal Supply Schedule program, which 
is directed and managed by the General Services Administration (see 
subpart 8.4, Federal Supply Schedules, for additional information). The 
Department of Defense uses a similar system of schedule contracting for 
military items that are also not a part of the Federal Supply Schedule 
program.
[59 FR 53717, Oct. 25, 1994, as amended at 61 FR 41470, Aug. 8, 1996]

[[Page 793]]



              Subpart 38.1--Federal Supply Schedule Program



38.101  General.

    (a) The Federal Supply Schedule program provides Federal agencies 
with a simplified process of acquiring commonly used supplies and 
services in varying quantities at lower prices while obtaining discounts 
associated with volume buying. Indefinite delivery contracts (including 
requirements contracts) are awarded, using competitive procedures, to 
commercial firms to provide supplies and services at stated prices for 
given periods of time, for delivery within the 48 continguous states, 
Washington, DC, and possibly Alaska, Hawaii, and overseas deliveries. 
The schedule contracting office issues publications, titled Federal 
Supply Schedules, containing the information needed for placing delivery 
orders with the contractors.
    (b) Each schedule identifies specific agencies in designated 
geographic areas that are required to use the contracts as primary 
sources of supply.
    (c) Federal agencies not identified in the schedules as mandatory 
users (see 8.404-2) may issue orders under the schedules, and the 
contractors are encouraged to accept the orders.
    (d) Although GSA awards most Federal Supply Schedule contracts, it 
may authorize other agencies to award schedule contracts and publish 
schedules; e.g., the Department of Veterans Affairs awards schedule 
contracts for certain medical and nonperishable subsistence items.
[48 FR 42368, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 54 FR 29282, July 11, 1989; 59 FR 53717, 
Oct. 25, 1994; 62 FR 40237, July 25, 1997]



  Subpart 38.2--Establishing and Administering Federal Supply Schedules



38.201  Coordination requirements.

    (a) Subject to interagency agreements, contracting officers having 
responsibility for awarding Federal Supply Schedule contracts shall 
coordinate and obtain approval of the General Services Administration's 
Federal Supply Service (FSS) before--
    (1) Establishing new schedules;
    (2) Discontinuing existing schedules;
    (3) Changing the scope of agency or geographical coverage of 
existing schedules; or
    (4) Adding or deleting special item numbers, national stock numbers, 
or revising their description.
    (b) Requests should be forwarded to the General Services 
Administration, Federal Supply Service, Office of Acquisition (FC), 
Washington, DC 20406.
[48 FR 42368, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989; 
56 FR 55372, Oct. 25, 1991; 59 FR 53718, Oct. 25, 1994; 62 FR 40237, 
July 25, 1997]



PART 39--ACQUISITION OF INFORMATION TECHNOLOGY--Table of Contents




Sec.
39.000  Scope of part.
39.001  Applicability.
39.002  Definitions.

                          Subpart 39.1--General

39.101  Policy.
39.102  Management of risk.
39.103--39.104  [Reserved]
39.105  Privacy.
39.106  Year 2000 complaints.
39.107  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source: 61 FR 41470, Aug. 8, 1996, unless otherwise noted.



39.000  Scope of part.

    This part prescribes acquisition policies and procedures for use in 
acquiring information technology consistent with other parts of this 
chapter and OMB Circular No. A-130, Management of Federal Information 
Resources.



39.001  Applicability.

    This part applies to the acquisition of information technology by or 
for the use of agencies except for acquisitions of information 
technology for national security systems. However, acquisitions of 
information technology for national security systems shall be conducted 
in accordance with 40 U.S.C. 1412 with regard to requirements for 
performance and results-based management; the role of the agency Chief 
Information Officer in acquisitions; and

[[Page 794]]

accountability. These requirements are addressed in OMB Circular No. A-
130.



39.002  Definitions.

    National security system, as used in this part, means any 
telecommunications or information system operated by the United States 
Government, the function, operation, or use of which--
    (a) Involves intelligence activities;
    (b) Involves cryptologic activities related to national security;
    (c) Involves command and control of military forces;
    (d) Involves equipment that is an integral part of a weapon or 
weapons system; or
    (e) Is critical to the direct fulfillment of military or 
intelligence missions. This does not include a system that is to be used 
for routine administrative and business applications, such as payroll, 
finance, logistics, and personnel management applications.
    Year 2000 compliant, as used in this part, means, with respect to 
information technology, that the information technology accurately 
processes date/time data (including, but not limited to, calculating, 
comparing, and sequencing) from, into, and between the twentieth and 
twenty-first centuries, and the years 1999 and 2000 and leap year 
calculations, to the extent that other information technology, used in 
combination with the information technology being acquired, properly 
exchanges date/time data with it.
[61 FR 41470, Aug. 8, 1996, as amended at 62 FR 274, Jan. 2, 1997; 62 FR 
44830, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44830, Aug. 22, 1997, section 39.002 
was amended by revising the definiton Year 2000 compliant, effective 
Oct. 21, 1997. For the convenience of the user, the superseded text is 
set forth as follows:

39.002  Definitions.

                                * * * * *

    Year 2000 compliant means information technology that accurately 
processes date/time data (including, but not limited to, calculating, 
comparing, and sequencing) from, into, and between the twentieth and 
twenty-first centuries, and the years 1999 and 2000 and leap year 
calculations. Furthermore, Year 2000 compliant information technology, 
when used in combination with other information technology, shall 
accurately process date/time data if the other information technology 
properly exchanges date/time data with it.



                          Subpart 39.1--General



39.101  Policy.

    In acquiring information technology, agencies shall identify their 
requirements pursuant to OMB Circular A-130, including consideration of 
security of resources, protection of privacy, national security and 
emergency preparedness, accommodations for individuals with 
disabilities, and energy efficiency. When developing an acquisition 
strategy, contracting officers should consider the rapidly changing 
nature of information technology through market research (see part 10) 
and the application of technology refreshment techniques.



39.102  Management of risk.

    (a) Prior to entering into a contract for information technology, an 
agency should analyze risks, benefits, and costs. (See part 7 for 
additional information regarding requirements definition.) Reasonable 
risk taking is appropriate as long as risks are controlled and 
mitigated. Contracting and program office officials are jointly 
responsible for assessing, monitoring and controlling risk when 
selecting projects for investment and during program implementation.
    (b) Types of risk may include schedule risk, risk of technical 
obsolescence, cost risk, risk implicit in a particular contract type, 
technical feasibility, dependencies between a new project and other 
projects or systems, the number of simultaneous high risk projects to be 
monitored, funding availability, and program management risk.
    (c) Appropriate techniques should be applied to manage and mitigate 
risk during the acquisition of information technology. Techniques 
include, but are not limited to: prudent project management; use of 
modular contracting; thorough acquisition planning tied to budget 
planning by the program, finance and contracting offices; continuous 
collection and evaluation of risk-based assessment data; prototyping 
prior to implementation; post implementation reviews to determine actual

[[Page 795]]

project cost, benefits and returns; and focusing on risks and returns 
using quantifiable measures.



39.103--39.104  [Reserved]



39.105  Privacy.

    Agencies shall ensure that contracts for information technology 
address protection of privacy in accordance with the Privacy Act (5 
U.S.C. 552a) and part 24. In addition, each agency shall ensure that 
contracts for the design, development, or operation of a system of 
records using commercial information technology services or information 
technology support services include the following:
    (a) Agency rules of conduct that the contractor and the contractor's 
employees shall be required to follow.
    (b) A list of the anticipated threats and hazards that the 
contractor must guard against.
    (c) A description of the safeguards that the contractor must 
specifically provide.
    (d) Requirements for a program of Government inspection during 
performance of the contract that will ensure the continued efficacy and 
efficiency of safeguards and the discovery and countering of new threats 
and hazards.



39.106  Year 2000 compliance.

    When acquiring information technology that will be required to 
perform date/time processing involving dates subsequent to December 31, 
1999, agencies shall ensure that solicitations and contracts--
    (a)(1) Require the information technology to be Year 2000 compliant; 
or
    (2) Require that non-compliant information technology be upgraded to 
be Year 2000 compliant prior to the earlier of
    (i) The earliest date on which the information technology may be 
required to perform date/time processing involving dates later than 
December 31, 1999, or
    (ii) December 31, 1999; and
    (b) As appropriate, describe existing information technology that 
will be used with the information technology to be acquired and identify 
whether the existing information technology is Year 2000 compliant.
[62 FR 274, Jan. 2, 1997]



39.107  Contract clause.

    The contracting officer shall insert a clause substantially the same 
as the clause at 52.239-1, Privacy or Security Safeguards, in 
solicitations and contracts for information technology which require 
security of information technology, and/or are for the design, 
development, or operation of a system of records using commercial 
information technology services or support services.
[61 FR 41470, Aug. 8, 1996. Redesignated at 62 FR 274, Jan. 2, 1997]



PARTS 40--[RESERVED]






PART 41--ACQUISITION OF UTILITY SERVICES--Table of Contents




                          Subpart 41.1--General

Sec.
41.100  Scope of part.
41.101  Definitions.
41.102  Applicability.
41.103   Statutory and delegated authority.

                Subpart 41.2--Acquiring Utility Services

41.201  Policy.
41.202  Procedures.
41.203  GSA assistance.
41.204  GSA areawide contracts.
41.205  Separate contracts.
41.206  Interagency agreements.

                  Subpart 41.3--Requests for Assistance

41.301  Requirements.

                      Subpart 41.4--Administration

41.401  Monthly and annual review.
41.402  Rate changes and regulatory intervention.

        Subpart 41.5--Solicitation Provision and Contract Clauses

41.501  Solicitation provision and contract clauses.

                           Subpart 41.6--Forms

41.601  Utility services forms.

[[Page 796]]

                          Subpart 41.7--Formats

41.701  Formats for utility service specifications.
41.702  Formats for annual utility service review.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source: 59 FR 67018, Dec. 28, 1994, unless otherwise noted.



                          Subpart 41.1--General



41.100  Scope of part.

    This part prescribes policies, procedures, and contract format for 
the acquisition of utility services. (See 41.102(b) for services that 
are excluded from this part.)



41.101  Definitions.

    As used in this part,
    Areawide contract means a contract entered into between the General 
Services Administration (GSA) and a utility service supplier to cover 
utility service needs of Federal agencies within the franchise territory 
of the supplier. Each areawide contract includes an ``Authorization'' 
form for requesting service, connection, disconnection, or change in 
service.
    Authorization means the document executed by the ordering agency and 
the utility supplier to order service under an areawide contract.
    Connection charge means all nonrecurring costs, whether refundable 
or nonrefundable, to be paid by the Government to the utility supplier 
for the required connecting facilities, which are installed, owned, 
operated, and maintained by the utility supplier (see Termination 
liability).
    Delegated agency means an agency that has received a written 
delegation of authority from GSA to contract for utility services for 
periods not exceeding ten years (see 41.103(b)).
    Federal Power and Water Marketing Agency means a Government entity 
that produces, manages, transports, controls, and sells electrical and 
water supply service to customers.
    Franchise territory means a geographical area that a utility 
supplier has a right to serve based upon a franchise, a certificate of 
public convenience and necessity, or other legal means.
    Intervention means action by GSA or a delegated agency to formally 
participate in a utility regulatory proceeding on behalf of all Federal 
executive agencies.
    Multiple service locations means the various locations or delivery 
points in the utility supplier's service area to which it provides 
service under a single contract.
    Rates may include rate schedules, riders, rules, terms and 
conditions of service, and other tariff and service charges, e.g., 
facilities use charges.
    Separate contract means a utility services contract (other than a 
GSA areawide contract, an Authorization under an areawide contract, or 
an interagency agreement) to cover the acquisition of utility services.
    Termination liability means a contingent Government obligation to 
pay a utility supplier the unamortized portion of a connection charge 
and any other applicable nonrefundable service charge as defined in the 
contract in the event the Government terminates the contract before the 
cost of connection facilities has been recovered by the utility supplier 
(see ``Connection charge'').
    Utility service means a service such as furnishing electricity, 
natural or manufactured gas, water, sewerage, thermal energy, chilled 
water, steam, hot water, or high temperature hot water. The application 
of part 41 to other services (e.g., rubbish removal, snow removal) may 
be appropriate when the acquisition is not subject to the Service 
Contract Act of 1965 (see 37.107).



41.102  Applicability.

    (a) Except as provided in paragraph (b) of this section, this part 
applies to the acquisition of utility services for the Government, 
including connection charges and termination liabilities.
    (b) This part does not apply to--
    (1) Utility services produced, distributed, or sold by another 
Federal agency. In those cases, agencies shall use interagency 
agreements (see 41.206);
    (2) Utility services obtained by purchase, exchange, or otherwise by 
a Federal power or water marketing agency incident to that agency's 
marketing or distribution program;

[[Page 797]]

    (3) Cable television (CATV) and telecommunications services;
    (4) Acquisition of natural or manufactured gas when purchased as a 
commodity;
    (5) Acquisition of utilities services in foreign countries;
    (6) Acquisition of rights in real property, acquisition of public 
utility facilities, and on-site equipment needed for the facility's own 
distribution system, or construction/maintenance of Government-owned 
facilities; or
    (7) Third party financed shared-savings projects authorized by 42 
U.S.C. 8287. However, agencies may utilize part 41 for any energy 
savings or purchased utility service directly resulting from 
implementation of a third party financed shared-savings project under 42 
U.S.C. 8287 for periods not to exceed 25 years.



41.103  Statutory and delegated authority.

    (a) Statutory authority. (1) The General Services Administration 
(GSA) is authorized by section 201 of the Federal Property and 
Administrative Services Act of 1949, as amended (40 U.S.C. 481), to 
prescribe policies and methods governing the acquisition and supply of 
utility services for Federal agencies. This authority includes related 
functions such as managing public utility services and representing 
Federal agencies in proceedings before Federal and state regulatory 
bodies. GSA is authorized by section 201 of the Act to contract for 
utility services for periods not exceeding ten years.
    (2) The Department of Defense (DOD) is authorized by 10 U.S.C. 2304, 
and 40 U.S.C. 474(3) to acquire utility services for military 
facilities.
    (3) The Department of Energy (DOE) is authorized by the Department 
of Energy Organization Act (42 U.S.C. 2751, et seq.) to acquire utility 
services. DOE is authorized by the Atomic Energy Act of 1954, as amended 
(42 U.S.C. 2204), to enter into new contracts or modify existing 
contracts for electric services for periods not exceeding 25 years for 
uranium enrichment installations.
    (b) Delegated authority. GSA has delegated its authority to enter 
into utility service contracts for periods not exceeding ten years to 
DOD and DOE, and for connection charges only to the Department of 
Veteran Affairs. Contracting pursuant to this delegated authority shall 
be consistent with the requirements of this part. Other agencies 
requiring utility service contracts for periods over one year, but not 
exceeding ten years, may request a delegation of authority from GSA at 
the address specified in 41.301(a). In keeping with its statutory 
authority, GSA will, as necessary, conduct reviews of delegated 
agencies' acquisitions of utility services to ensure compliance with the 
terms of the delegation and applicable laws and regulations.
    (c) Requests for delegations of contracting authority from GSA shall 
include a certification from the acquiring agency's Senior Procurement 
Executive that the agency has--
    (1) An established acquisition program;
    (2) Personnel technically qualified to deal with specialized 
utilities problems; and
    (3) The ability to accomplish its own pre-award contract review.
[59 FR 67018, Dec. 28, 1994, as amended at 60 FR 37777, July 21, 1995]



                Subpart 41.2--Acquiring Utility Services



41.201  Policy.

    (a) Subject to paragraph (d) of this section, it is the policy of 
the Federal Government that agencies obtain required utility services 
from sources of supply which are most advantageous to the Government in 
terms of economy, efficiency, reliability, or service.
    (b) Except for acquisitions at or below the simplified acquisition 
threshold, agencies shall acquire utility services by a bilateral 
written contract, which must include the clauses required by 41.501, 
regardless of whether rates or terms and conditions of service are fixed 
or adjusted by a regulatory body. Agencies may not use the utility 
supplier's forms and clauses to avoid the inclusion of provisions and 
clauses required by 41.501 or by statute. (See 41.202(c) for procedures 
to be used when the supplier refuses to execute a written contract.)

[[Page 798]]

    (c) Specific operating and management details, such as procedures 
for internal agency contract assistance and review, delegations of 
authority, and approval thresholds, may be prescribed by an individual 
agency subject to compliance with applicable statutes and regulations.
    (d)(1) Section 8093 of the Department of Defense Appropriations Act 
of 1988, Pub. L. 100-202, provides that none of the funds appropriated 
by that Act or any other Act with respect to any fiscal year by any 
department, agency, or instrumentality of the United States, may be used 
for the purchase of electricity by the Government in any manner that is 
inconsistent with state law governing the providing of electric utility 
service, including state utility commission rulings and electric utility 
franchises or service territories established pursuant to state statute, 
state regulation, or state-approved territorial agreements.
    (2) The Act does not preclude--
    (i) The head of a Federal agency from entering into a contract 
pursuant to 42 U.S.C. 8287 (which pertains to the subject of shared 
energy savings including cogeneration);
    (ii) The Secretary of a military department from entering into a 
contract pursuant to 10 U.S.C. 2394 (which pertains to contracts for 
energy or fuel for military installations including the provision and 
operation of energy production facilities); or
    (iii) The Secretary of a military department from purchasing 
electricity from any provider when the utility or utilities having 
applicable state-approved franchise or other service authorizations are 
found by the Secretary to be unwilling or unable to meet unusual 
standards for service reliability that are necessary for purposes of 
national defense.
    (3) Additionally, the head of a Federal agency may--
    (i) Consistent with applicable state law, enter into contracts for 
the purchase or transfer of electricity to the agency by a non-utility, 
including a qualifying facility under the Public Utility Regulatory 
Policies Act of 1978;
    (ii) Enter into an interagency agreement, pursuant to 41.206 and 
17.5, with a Federal power marketing agency or the Tennessee Valley 
Authority for the transfer of electric power to the agency; and
    (iii) Enter into a contract with an electric utility under the 
authority or tariffs of the Federal Energy Regulatory Commission.
    (e) Prior to acquiring electric utility services on a competitive 
basis, the contracting officer shall determine, with the advice of legal 
counsel, by a market survey or any other appropriate means, e.g. 
consultation with the state agency responsible for regulating public 
utilities, that such competition would not be inconsistent with state 
law governing the provision of electric utility service, including state 
utility commission rulings and electric utility franchises or service 
territories established pursuant to state statute, state regulation, or 
state-approved territorial agreements. Proposals from alternative 
electric suppliers must provide a representation that service can be 
provided in a manner not inconsistent with section 8093 of Public Law 
100-202 (see 41.201(d)). The representation must be supported with 
appropriate legal and factual rationale.
[59 FR 67018, Dec. 28, 1994, as amended at 60 FR 34759, July 3, 1995; 61 
FR 39190, July 26, 1996]



41.202  Procedures.

    (a) Prior to executing a utility service contract, the contracting 
officer shall comply with parts 6 and 7 and 41.201 (d) and (e). In 
accordance with parts 6 and 7, agencies shall conduct market surveys and 
perform acquisition planning in order to promote and provide for full 
and open competition provided that the contracting officer determines 
that any resultant contract would not be inconsistent with applicable 
state law governing the provision of electric utility services. If 
competition for an entire utility service is not available, the market 
survey may be used to determine the availability of competitive sources 
for certain portions of the requirement. The scope of the term ``entire 
utility service'' includes the provision of the utility service 
capacity, energy, water, sewage, transportation, standby or back-up 
service, transmission and/or distribution service, quality assurance, 
system

[[Page 799]]

reliability, system operation and maintenance, metering, and billing.
    (b) In performing a market survey (see 7.101), the contracting 
officer shall consider, in addition to alternative competitive sources, 
use of the following:
    (1) GSA areawide contracts (see 41.204);
    (2) Separate contracts (see 41.205); and
    (3) Interagency agreements (see 41.206).
    (c) When a utility supplier refuses to execute a tendered contract 
as outlined in 41.201(b), the agency shall obtain a written definite and 
final refusal signed by a corporate officer or other responsible 
official of the supplier (or if unobtainable, document any unwritten 
refusal), and transmit this document, along with statements of the 
reasons for the refusal and the record of negotiations, to GSA at the 
address specified at 41.301(a). Unless urgent and compelling 
circumstances exist, the contracting officer shall notify GSA prior to 
acquiring utility services without executing a tendered contract. After 
such notification, the agency may proceed with the acquisition and pay 
for the utility service under the provisions of 31 U.S.C. 1501(a)(8)--
    (1) By issuing a purchase order in accordance with subpart 13.5; or
    (2) By ordering the necessary utility service and paying for it upon 
the presentation of an invoice, provided that a determination is 
approved by the head of the contracting activity that a written contract 
cannot be obtained and that the issuance of a purchase order is not 
feasible.
    (d) When obtaining service without a bilateral written contract, the 
contracting officer shall establish a utility history file on each 
acquisition of utility service provided by a contractor. This utility 
history file shall contain, in addition to applicable documents in 
4.803, the following information:
    (1) The unsigned, tendered contract and any related letter of 
transmittal.
    (2) The reasons stated by the utility supplier for not executing the 
tendered contract, the record of negotiations, and a written definite 
and final refusal by a corporate officer or other responsible official 
of the supplier (or if unobtainable, documentation of unwritten 
refusal).
    (3) Services to be furnished and the estimated annual cost.
    (4) Historical record of any applicable connection charges.
    (5) Historical record of any applicable ongoing capital credits.
    (6) A copy of the applicable rate schedule.
    (e) If the Government obtains utility service pursuant to paragraph 
(c) of this section, the contracting officer shall, on an annual basis 
beginning from the date of final refusal, take action to execute a 
bilateral written contract. The contracting officer shall document the 
utility history file with the efforts made and the agency shall notify 
GSA, in writing, if the utility continues to refuse to execute a 
bilateral contract.



41.203  GSA assistance.

    (a) GSA will, upon request, provide technical and acquisition 
assistance, or will delegate its contracting authority for the 
furnishing of the services described in this part for any Federal 
agency, mixed-ownership Government corporation, the District of 
Columbia, the Senate, the House of Representatives, or the Architect of 
the Capitol and any activity under the Architect's direction.
    (b) Agencies seeking assistance shall provide, upon request by GSA, 
the information listed in 41.301.



41.204  GSA areawide contracts.

    (a) Purpose. GSA enters into areawide contracts (see 41.101) for use 
by Federal agencies. Areawide contracts provide a pre-established 
contractual vehicle for ordering utility services under the conditions 
in paragraph (c)(1) of this section.
    (b) Features. (1) Areawide contracts generally provide for ordering 
utility service at rates approved and/or established by a regulatory 
body and published in a tariff or rate schedule. However, agencies are 
permitted to negotiate other rates and terms and conditions of service 
with the supplier (see paragraph (c) of this section). Rates other than 
those published may require the approval of the regulatory body.

[[Page 800]]

    (2) Areawide contracts are negotiated with utility service suppliers 
for the provision of service within the supplier's franchise territory 
or service area.
    (3) Due to the regulated nature of the utility industry, as well as 
statutory restrictions associated with the procurement of electricity 
(see 41.201(d)), competition is typically not available within the 
entire geographical area covered by an areawide contract, although it 
may be available at specific locations within the utility's service 
area. When competing suppliers are available, the provisions of 
paragraph (c)(1) of this section apply.
    (c) Procedures for obtaining service. (1) Any Federal agency having 
a requirement for utility services within an area covered by an areawide 
contract shall acquire services under that areawide contract unless--
    (i) Service is available from more than one supplier; or
    (ii) The head of the contracting activity or designee otherwise 
determines that use of the areawide contract is not advantageous to the 
Government. If service is available from more than one supplier, service 
shall be acquired using competitive acquisition procedures (see 
41.202(a)). The determination required by paragraph (c)(1)(ii) of this 
section shall be documented in the contract file with an information 
copy furnished to GSA at the address in 41.301(a).
    (2) Each areawide contract includes an authorization form for 
ordering service, connection, disconnection, or change in service. Upon 
execution of an authorization by the contracting officer and utility 
supplier, the utility supplier is required to furnish services, without 
further negotiation, at the current, applicable published or unpublished 
rates, unless other rates, and/or terms and conditions are separately 
negotiated by the Federal agency with the supplier.
    (3) The contracting officer shall execute the Authorization, and 
attach it to a Standard Form (SF) 26, Award/Contract, along with any 
modifications such as connection charges, special facilities, or service 
arrangements. The contracting officer shall also attach any specific 
fiscal, operational, and administrative requirements of the agency, 
applicable rate schedules, technical information and detailed maps or 
drawings of delivery points, details on Government ownership, 
maintenance, or repair of facilities, and other information deemed 
necessary to fully define the service conditions in the Authorization/
contract.
    (d) List of areawide contracts. A list of current GSA areawide 
contracts is available from the GSA office specified at 41.301(a). The 
list identifies the types of services and the geographic area served. A 
copy of the contract may also be obtained from this office.
    (e) Notification. Agencies shall provide GSA at the address 
specified at 41.301(a) a copy of each SF 26 and executed Authorization 
issued under an areawide contract within 30 days after execution.



41.205  Separate contracts.

    (a) In the absence of an areawide contract or interagency agreement 
(see 41.206), agencies shall acquire utility services by separate 
contract subject to this part, and subject to agency contracting 
authority.
    (b) If an agency enters into a separate contract, the contracting 
officer shall document the contract file with the following information:
    (1) The number of available suppliers.
    (2) Any special equipment, service reliability, or facility 
requirements and related costs.
    (3) The utility supplier's rates, connection charges, and 
termination liability.
    (4) Total estimated contract value (including costs in subparagraphs 
(b) (2) and (3) of this subsection).
    (5) Any technical or special contract terms required.
    (6) Any unusual characteristics of services required.
    (7) The utility's wheeling or transportation policy for utility 
service.
    (c) If requesting GSA assistance with a separate contract, the 
requesting agency shall furnish the technical and acquisition data 
specified in 41.205(b), 41.301, and such other data as GSA may deem 
necessary.

[[Page 801]]

    (d) A contract exceeding a 1-year period, but not exceeding ten 
years (except pursuant to 41.103), may be justified, and is usually 
required, where any of the following circumstances exist:
    (1) The Government will obtain lower rates, larger discounts, or 
more favorable terms and conditions of service;
    (2) A proposed connection charge, termination liability, or any 
other facilities charge to be paid by the Federal Government will be 
reduced or eliminated; or
    (3) The utility service supplier refuses to render the desired 
service except under a contract exceeding a 1-year period.



41.206  Interagency agreements.

    Agencies shall use interagency agreements (e.g., consolidated 
purchase, joint use, or cross-service agreements) when acquiring utility 
service or facilities from other Government agencies and shall comply 
with the policies and procedures at subpart 17.5, Interagency 
Acquisitions under the Economy Act.



                  Subpart 41.3--Requests for Assistance



41.301  Requirements.

    (a) Requests for delegations of GSA contracting authority, 
assistance with a proposed contract as provided in 41.203, and the 
submission of other information required by this part, shall be sent or 
submitted to the General Services Administration (GSA) region in which 
service is required. The names and locations of GSA regional offices are 
available from the Public Utilities Division (PPU), Public Buildings 
Service, Washington, DC 20405.
    (b) Requests for contracting assistance for utility services shall 
be sent not later than 120 days prior to the date new services are 
required to commence an existing contract will expire. Requests for 
assistance shall contain the following information:
    (1) A technical description or specification of the type, quantity, 
and quality of service required, and a delivery schedule.
    (2) A copy of any service proposal or proposed contract.
    (3) Copies of all current published or unpublished rates of the 
utility supplier.
    (4) Identification of any unusual factors affecting the acquisition.
    (5) Identification of all available sources or methods of supply, an 
analysis of the cost effectiveness of each, and a statement of the 
ability of each source to provide the required services, including the 
location and a description of each available supplier's facilities at 
the nearest point of service, and the cost of providing or obtaining 
necessary backup and other ancillary services.
    (c) For new utility service requirements, the agency shall furnish 
the information in paragraph (a) of this section and the following as 
applicable:
    (1) The date initial service is required.
    (2) For the first 12 months of full service, estimated maximum 
demand, monthly consumption, other pertinent information (e.g., demand 
side management, load or energy management, peak shaving, on site 
generation, load shaping), and annual cost of the service.
    (3) Known or estimated time schedule for growth to ultimate 
requirements.
    (4) Estimated ultimate maximum demand and ultimate monthly 
consumption.
    (5) A simple schematic diagram or line drawing showing the meter 
locations, the location of the new utility facilities to be constructed 
on Federal property by the Federal agency, and any required new 
connection facilities on either side of the delivery point to be 
constructed by the utility supplier to provide the new services.
    (6) Accounting and appropriation data to cover the required utility 
services and any connection charges required to be paid by the agency 
receiving such utility services.
    (7) The following data concerning proposed facilities and related 
charges or costs:
    (i) Proposed refundable or nonrefundable connection charge, 
termination liability, or other facilities charge to be paid by the 
agency, together with a description of the supplier's proposed 
facilities and estimated construction

[[Page 802]]

costs, and its rationale for the charge (e.g., tariff provisions or 
policies).
    (ii) A copy of the acquiring agency's estimate to make its own 
connection to the supplier's facilities through use of its own resources 
or by separate contract. When feasible, the acquiring agency shall 
provide its estimates to construct and operate its own utility 
facilities in lieu of participating in a cost-sharing construction 
program with the proposed utility supplier.
    (d) For existing utility service, the agency shall furnish GSA the 
information in paragraph (b) of this section and the following, as 
applicable:
    (1) A copy of the most recent 12-months' service invoices.
    (2) A tabulation, by month, for the most recent 12 months, showing 
the actual utility demands, consumption, connection charges, fuel 
adjustment charges, and the average monthly cost per unit of 
consumption.
    (3) An estimate, by month, for the next 12 months, showing the 
estimated maximum demands, monthly consumption, other pertinent 
information (e.g., demand side management, load or energy management, 
peak shaving, on site generation, load shaping), and annual cost of the 
service.
    (4) Accounting and appropriation data to cover the costs for the 
continuation of utility services.
    (5) A statement noting whether the transformer, or other system 
components, on either side of the delivery point are owned by the 
Federal agency or the utility supplier, and if the metering is on the 
primary or secondary side of the transformer.



                      Subpart 41.4--Administration



41.401  Monthly and annual review.

    Agencies shall review utility service invoices on a monthly basis 
and all utility accounts, with annual values exceeding the simplified 
acquisition threshold, on an annual basis. Annual reviews of accounts 
with annual values at or below the simplified acquisition threshold 
shall be conducted when deemed advantageous to the Government. The 
purpose of the monthly review is to ensure the accuracy of utility 
service invoices. The purpose of the annual review is to ensure that the 
utility supplier is furnishing the services to each facility under the 
utility's most economical, applicable rate and to examine competitive 
markets for more advantageous service offerings. The annual review shall 
be based upon the facility's usage, conditions and characteristics of 
service at each individual delivery point for the most recent 12 months. 
If a more advantageous rate is appropriate, the Federal agency shall 
request the supplier to make such rate change immediately.
[59 FR 67018, Dec. 28, 1994, as amended at 60 FR 34759, July 3, 1995]



41.402  Rate changes and regulatory intervention.

    (a) When a change is proposed to rates or terms and conditions of 
service to the Government, the agency shall promptly determine whether 
the proposed change is reasonable, justified, and not discriminatory.
    (b) If a change is proposed to rates or terms and conditions of 
service that may be of interest to other Federal agencies, and 
intervention before a regulatory body is considered justified, the 
matter shall be referred to GSA. The agency may request from GSA a 
delegation of authority for the agency to intervene on behalf of the 
consumer interests of the Federal executive agencies (see 41.301).
    (c) Pursuant to 52.241-7, Change in Rates or Terms and Conditions of 
Service for Regulated Services, if a regulatory body approves a rate 
change, any rate change shall be made a part of the contract by 
unilateral contract modification or otherwise documented in accordance 
with agency procedures. The approved applicable rate shall be effective 
on the date determined by the regulatory body and resulting rates and 
charges shall be paid promptly to avoid late payment provisions. Copies 
of the modification containing the approved rate change shall be sent to 
the agency's paying office or office responsible for verifying billed 
amounts (see 41.401).
    (d) If the utility supplier is not regulated and the rates, terms, 
and conditions of service are subject to negotiation pursuant to the 
clause at 52.241-8,

[[Page 803]]

Change in Rates or Terms and Conditions of Service for Unregulated 
Services, any rate change shall be made a part of the contract by 
contract modification, with copies sent to the agency's paying office or 
office responsible for verifying billed amounts.



        Subpart 41.5--Solicitation Provision and Contract Clauses



41.501  Solicitation provision and contract clauses.

    (a) Because the terms and conditions under which utility suppliers 
furnish service may vary from area to area, the differences may 
influence the terms and conditions appropriate to a particular utility's 
contracting situation. To accommodate requirements that are peculiar to 
the contracting situation, this section prescribes provisions and 
clauses on a ``substantially the same as'' basis (see 52.101) which 
permits the contracting officer to prepare and utilize variations of the 
prescribed provision and clauses in accordance with agency procedures.
    (b) The contracting officer shall insert in solicitations for 
utility services a provision substantially the same as the provision at 
52.241-1, Electric Service Territory Compliance Representation, when 
proposals from alternative electric suppliers are sought.
    (c) The contracting officer shall insert in solicitations and 
contracts for utility services clauses substantially the same as the 
clauses at--
    (1) 52.241-2, Order of Precedence--Utilities;
    (2) 52.241-3, Scope and Duration of Contract;
    (3) 52.241-4, Change in Class of Service;
    (4) 52.241-5, Contractor's Facilities; and
    (5) 52.241-6, Service Provisions.
    (d) The contracting officer shall insert clauses substantially the 
same as the clauses listed below in solicitations and contracts under 
the prescribed conditions--
    (1) 52.241-7, Change in Rates or Terms and Conditions of Service for 
Regulated Services, when the utility services are subject to a 
regulatory body. (Except for GSA areawide contracts, the contracting 
officer shall insert in the blank space provided in the clause the name 
of the contracting officer. For GSA areawide contracts, the contracting 
officer shall insert the following: ``GSA and each areawide customer 
with annual billings that exceed $250,000.'')
    (2) 52.241-8, Change in Rates or Terms and Conditions of Service for 
Unregulated Services, when the utility services are not subject to a 
regulatory body.
    (3) 52.241-9, Connection Charge, when a refundable connection charge 
is required to be paid by the Government to compensate the contractor 
for furnishing additional facilities necessary to supply service. (Use 
Alternate I to the clause if a nonrefundable charge is to be paid. When 
conditions require the incorporation of a nonrecurring, nonrefundable 
service charge or a termination liability, see paragraphs (d)(6) and 
(d)(4) of this section.)
    (4) 52.241-10, Termination Liability, when payment is to be made to 
the contractor upon termination of service in conjunction with or in 
lieu of a connection charge upon completion of the facilities.
    (5) 52.241-11, Multiple Service Locations (as defined in 41.101), 
when providing for possible alternative service locations, except under 
areawide contracts, is required.
    (6) 52.241-12, Nonrefundable, Nonrecurring Service Charge, when the 
Government is required to pay a nonrefundable, nonrecurring membership 
fee, a charge for initiation of service, or a contribution for the cost 
of facilities construction. The Government may provide for inclusion of 
such agreed amount or fee as a part of the connection charge, a part of 
the initial payment for services, or as periodic payments to fulfill the 
Government's obligation.
    (7) 52.241-13, Capital Credits, when the Federal Government is a 
member of a cooperative and is entitled to capital credits, consistent 
with the bylaws and governing documents of the cooperative.
    (e) Depending on the conditions that are appropriate for each 
acquisition, the contracting officer shall also insert

[[Page 804]]

in solicitations and contracts for utility services the provisions and 
clauses prescribed elsewhere in the FAR.
[59 FR 67018, Dec. 28, 1994, as amended at 60 FR 14377, Mar. 17, 1995]



                           Subpart 41.6--Forms



41.601  Utility services forms.

    (a) If acquiring utility services under other than an areawide 
contract, a purchase order, or an interagency agreement, the Standard 
Form (SF) 33, Solicitation, Offer and Award; SF 26, Award/Contract; or 
SF 1447, Solicitation/Contract, shall be used.
    (b) The contracting officer shall incorporate the applicable rate 
schedule in each contract, purchase order or modification.



                          Subpart 41.7--Formats



41.701  Formats for utility service specifications.

    (a) The following specification formats for use in acquiring utility 
services are available from the address specified at 41.301(a) and may 
be used and modified at the agency's discretion:
    (1) Electric service.
    (2) Water service.
    (3) Steam service.
    (4) Sewage service.
    (5) Natural gas service.
    (b) Contracting officers may modify the specification format 
referenced in paragraph (a) of this section and attach technical items, 
details on Government ownership of facilities and maintenance or repair 
obligations, maps or drawings of delivery points, and other information 
deemed necessary to fully define the service conditions.
    (c) The specifications and attachments (see paragraph (b) of this 
section) shall be inserted in Section C of the utility service 
solicitation and contract.



41.702  Formats for annual utility service review.

    (a) Formats for use in conducting annual reviews of the following 
utility services are available from the address specified at 41.301(a) 
and may be used at the agency's discretion:
    (1) Electric service.
    (2) Gas service.
    (3) Water and sewage service.
    (b) Contracting officers may modify the annual utility service 
review format as necessary to fully cover the service used.

[[Page 805]]



                    SUBCHAPTER G--CONTRACT MANAGEMENT





PART 42--CONTRACT ADMINISTRATION--Table of Contents




Sec.
42.000  Scope of part.

  Subpart 42.1--Interagency Contract Administration and Audit Services

42.100  Scope of subpart.
42.101  Policy.
42.102  Procedures.

           Subpart 42.2--Assignment of Contract Administration

42.200  Scope of subpart.
42.201  Definition.
42.202  Assignment of contract administration.
42.203  Retention of contract administration.
42.204  Supporting contract administration.
42.205  Designation of the paying office.
42.206  Reassignment of contract administration.

         Subpart 42.3--Contract Administration Office Functions

42.301  General.
42.302  Contract administration functions.

                 Subpart 42.4--Correspondence and Visits

42.401  Contract correspondence.
42.402  Visits to contractors' facilities.
42.403  Evaluation of contract administration offices.

                   Subpart 42.5--Postaward Orientation

42.500  Scope of subpart.
42.501  General.
42.502  Selecting contracts for postaward orientation.
42.503  Postaward conferences.
42.503-1  Postaward conference arrangements.
42.503-2  Postaward conference procedure.
42.503-3  Postaward conference report.
42.504  Postaward letters.
42.505  Postaward subcontractor conferences.

       Subpart 42.6--Corporate Administrative Contracting Officer

42.601  General.
42.602  Assignment and location.
42.603  Responsibilities.

                    Subpart 42.7--Indirect Cost Rates

42.700  Scope of subpart.
42.701  Definitions.
42.702  Purpose.
42.703  General.
42.703-1  Policy.
42.703-2  Certificate of indirect costs.
42.704  Billing rates.
42.705  Final indirect cost rates.
42.705-1  Contracting officer determination procedure.
42.705-2  Auditor determination procedure.
42.705-3  Educational institutions.
42.705-4  State and local governments.
42.705-5  Nonprofit organizations other than educational and state and 
          local governments.
42.706  Distribution of documents.
42.707  Cost-sharing rates and limitations on indirect cost rates.
42.708  Quick-closeout procedure.
42.709  Scope.
42.709-1  General.
42.709-2  Responsibilities.
42.709-3  Assessing the penalty.
42.709-4  Computing interest.
42.709-5  Waiver of the penalty.
42.709-6  Contract clause.

                   Subpart 42.8--Disallowance of Costs

42.800  Scope of subpart.
42.801  Notice of intent to disallow costs.
42.802  Contract clause.
42.803  Disallowing costs after incurrence.

                        Subpart 42.9--Bankruptcy

42.900  Scope of subpart.
42.901  General.
42.902  Procedures.
42.903  Solicitation provision and contract clause.

 Subpart 42.10--Negotiating Advance Agreements for Independent Research 
                 and Development/Bid and Proposal Costs

42.1001  Definitions.
42.1002  Applicability.
42.1003  Designation of lead negotiating agency.
42.1004  Location of negotiators in a central office.
42.1005  Lead negotiating agency responsibilities.
42.1006  Conducting negotiations.
42.1007  Content of advance agreements.
42.1008  Administrative appeals.

          Subpart 42.11--Production Surveillance and Reporting

42.1101  General.
42.1102  Applicability.

[[Page 806]]

42.1103  Policy.
42.1104  Surveillance requirements.
42.1105  Assignment of criticality designator.
42.1106  Reporting requirements.
42.1107  Contract clause.

          Subpart 42.12--Novation and Change-of-Name Agreements

42.1200  Scope of subpart.
42.1201  Definitions.
42.1202  Responsibility for executing agreements.
42.1203  Processing agreements.
42.1204  Agreement to recognize a successor in interest (novation 
          agreement).
42.1205  Agreement to recognize contractor's change of name.

  Subpart 42.13--Suspension of Work, Stop-Work Orders, and Government 
                              Delay of Work

42.1301  General.
42.1302  Suspension of work.
42.1303  Stop-work orders.
42.1304  Government delay of work.
42.1305  Contract clauses.

          Subpart 42.14--Traffic and Transportation Management

42.1401  General.
42.1402  Volume movements within the continental United States.
42.1403  Shipping documents covering f.o.b. origin shipments.
42.1404  Shipments by parcel post or other classes of mail.
42.1404-1  Parcel post eligible shipments.
42.1404-2  Contract clauses.
42.1405  Discrepancies incident to shipment of supplies.
42.1406  Report of shipment.
42.1406-1  Advance notice.
42.1406-2  Contract clause.

            Subpart 42.15--Contractor Performance Information

42.1500  Scope of subpart.
42.1501  General.
42.1502  Policy.
42.1503  Procedures.

          Subpart 42.16--Small Business Contract Administration

42.1601  General.

             Subpart 42.17--Forward Pricing Rate Agreements

42.1701  Procedures.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42370, Sept. 19, 1983, unless otherwise noted.



42.000  Scope of part.

    This part prescribes general policies and procedures for performing 
contract administration functions and related audit services.



  Subpart 42.1--Interagency Contract Administration and Audit Services



42.100  Scope of subpart.

    This subpart prescribes policies and procedures for obtaining and 
providing interagency contract administration and audit services in 
order to (a) provide specialized assistance through field offices 
located at or near contractors' establishments, (b) avoid or eliminate 
overlapping and duplication of Government effort, and (c) provide more 
consistent treatment of contractors.



42.101  Policy.

    (a) Agencies requiring field contract administration or audit 
services are encouraged to use cross-servicing arrangements with 
existing contract administration and contract audit components to 
preclude duplicate demands being made upon contractors (see 42.102(a) 
for the directories of cognizant offices). The customer agency and the 
servicing agency shall enter into a formal cross-servicing arrangement 
when the volume of work or other circumstances warrants a formal 
understanding.
    (b) Multiple reviews, inspections, and examinations of a contractor 
or subcontractor by several agencies involving the same practices, 
operations, or functions shall be eliminated to the maximum practicable 
extent through the use of cross-servicing arrangements.
    (c) OMB Circular No. A-73, Audit of Federal Operations and Programs, 
states executive branch policy on audit cross-servicing arrangements. As 
further provided in OFPP Policy Letter 78-4, Field Contract Support 
Cross-Servicing Program, (1) agencies shall use cross-servicing 
arrangements for the audit of costs incurred under contracts of two or 
more agencies being

[[Page 807]]

performed at the same business entity, and (2) the responsible auditor 
or contracting officer shall coordinate with concerned agencies the 
establishment of indirect cost rates at such entities and shall convey 
the finally established rates to those agencies for application to their 
contracts to the extent allocable and allowable (see subpart 42.7).
    (d) Subject to the fiscal regulations of the agencies concerned, 
agencies (1) may be reimbursed in accordance with the Economy Act of 
1932 (31 U.S.C. 1535) for services rendered under formal or informal 
cross-servicing arrangements, (2) normally should refrain from seeking 
reimbursement for cross-servicing accomplished incidental to their own 
needs or Government-wide responsibilities, and (3) may use the hourly 
rate established under the cross-servicing arrangement between the 
Department of Defense and the National Aeronautics and Space 
Administration to facilitate reimbursement arrangements.
    (e) Agencies are not expected to enter into cross-servicing 
arrangements that would unduly burden agency resources or otherwise 
obstruct an agency in fulfilling its responsibilities.
[48 FR 42370, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
53 FR 662, Jan. 11, 1988]



42.102  Procedures.

    (a) In locating available field contract administration or audit 
services, contracting offices shall consult the Department of Defense 
Directory of Contract Administration Services Components or the 
Directory of Federal Contract Audit Offices. Questions regarding 
contract administration offices may be referred to: HQ Defense Logistics 
Agency, Attn: DLA:DASC-WP, 8725 John J Kingman Road, Fort Belvoir, VA 
22060. Questions regarding audit offices may be referred to the: Defense 
Contract Audit Agency, Attn: CMO Publications Officer, 8725 John J 
Kingman Road, Suite 2135, Fort Belvoir, VA 22060-6219. Agencies having a 
field contract administration or audit cross-servicing capability shall 
arrange for identification of this capability (including changes as they 
occur) in the appropriate directory by contacting one of these offices.
    (b) Services may be obtained by direct request to the cognizant 
contract administration or audit component indicated in the applicable 
directory or as specified in a formal cross-servicing arrangement (see 
42.101(a)).
    (c) Except for requests submitted under formal cross-servicing 
arrangements, requests for services from Government agencies may be 
declined on a case-by-case basis if resources are inadequate to 
accomplish delegated tasks, provided the decision is made by an official 
above the level of the contract administration office, or as otherwise 
provided in agency regulations.
    (d) Contract administration and audit services will be performed 
using the procedures of the servicing agency unless formal agreements 
between agencies provide otherwise.
    (e) Both the requesting and servicing activities are responsible for 
prudent use of the services provided under either formal or informal 
interagency cross-servicing arrangements. When it is appropriate, 
servicing activities shall counsel requesting agencies or contracting 
offices concerning the desirability and practicality of relaxing or 
waiving controls and surveillance that may not be necessary to ensure 
satisfactory contract performance.
[48 FR 42370, Sept. 19, 1983, as amended at 55 FR 38517, Sept. 18, 1990; 
62 FR 40237, July 25, 1997]



           Subpart 42.2--Assignment of Contract Administration



42.200  Scope of subpart.

    This subpart prescribes policies and procedures for (a) assigning, 
retaining, or reassigning contract administration responsibility, (b) 
withholding normal functions or delegating additional functions when 
assigning contracts for administration, and (c) requesting and 
performing supporting contract administration. Subpart 42.3 lists both 
the normal contract administration functions and those requiring 
specific authorization by the contracting office.



42.201  Definition.

    Supporting contract administration means performance of specific 
contract administration functions by another

[[Page 808]]

contract administration office (CAO) as required by (a) the CAO to which 
a contract is assigned for administration or (b) the contracting office 
retaining a contract for administration.



42.202  Assignment of contract administration.

    (a) Authority. Except as provided in paragraph (b) below, assignment 
of a contract to a CAO for administration automatically carries with it 
the authority to perform all of the normal functions listed in 42.302(a) 
to the extent that those functions apply to the contract. The CAO has 
authority to perform the functions requiring specific authorizations, 
listed in 42.302(b), only to the extent specified by the contracting 
office. No other function shall be performed by the CAO unless delegated 
as provided under 42.202(c).
    (b) Withholding normal functions. In assigning a contract for 
administration by a CAO, the contracting office may withhold individual 
functions among those listed in 42.302(a) if--
    (1) Their retention by the contracting office is required by (i) the 
contracting agency's agency-level acquisition regulations or (ii) a 
formal interagency cross-servicing arrangement (see 42.101(a) and 
42.102(b)); or
    (2) It is clear, after consultation with the CAO when appropriate, 
that they can best be performed by the contracting office and the 
decision to withhold them is approved above the contracting officer's 
level.
    (c) Delegating additional functions. For individual contracts or 
groups of contracts, the contracting office may delegate to the CAO 
functions not listed in 42.302; provided, that--
    (1) Prior coordination with the CAO ensures the availability of 
required resources;
    (2) In the case of authority to issue orders under provisioning 
procedures in existing contracts and under basic ordering agreements for 
items and services identified in the schedule, the head of the 
contracting activity or designee approves the delegation; and
    (3) The delegation does not require the CAO to undertake new or 
follow-on acquisitions.
    (d) Transmittal and documentation. When assigning a contract for 
administration by a CAO, the contracting officer shall--
    (1) Enter on the contract the name and address of the CAO designated 
to administer it;
    (2) Provide any special instructions, including any specific 
authorization to perform functions listed in 42.302(b), in an 
accompanying letter to the CAO;
    (3) Include, along with the contract furnished to the CAO, copies of 
all contracting agency regulations or directives that are (i) 
incorporated into the contract by reference or (ii) otherwise necessary 
to administer the contract, unless copies have been previously provided; 
and
    (4) Advise the contractor (and other activities as appropriate) of 
any functions withheld or additional functions delegated in the special 
instructions under subparagraph (2) above.
    (e) Contract administration office responsibilities. For each 
contract assigned for administration, the CAO shall--
    (1) Perform the functions listed in 42.302(a) to the extent that 
they apply to the contract, except for any functions specifically 
withheld under paragraph (b) above;
    (2) Perform the functions listed in 42.302(b) to the extent that 
they apply and are specifically authorized by the contracting office;
    (3) Serve as a focal point for inquiries and keep the contracting 
office and other interested activities advised concerning all pertinent 
matters related to administration of the contract;
    (4) Request supporting contract administration under 42.204 when it 
is required; and
    (5) Reassign contract administration under 42.206(a) if reassignment 
is required.



42.203  Retention of contract administration.

    (a) Contracting offices shall retain for administration any contract 
(1) not requiring the performance of contract administration functions 
(see 42.302) at or near contractor facilities, or (2) for which 
retention by the contracting office is prescribed by agency acquisition 
regulations. However, 30.601(a) and (b) require that retained contracts 
to which Cost Accounting Standards

[[Page 809]]

(CAS) apply be assigned for CAS administration only. Instructions for 
marking and distributing these contracts are provided in 4.201(c).
    (b) Contracting offices or CAO's may request supporting contract 
administration under 42.204 for contracts for which they have contract 
administration responsibility. However, if a substantial proportion of 
the normal contract administration functions listed in 42.302(a) are to 
be requested, an official above the contracting officer's level shall 
review the validity of retaining administration while requesting 
extensive supporting contract administration.
[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 67043, Dec. 28, 1994]



42.204  Supporting contract administration.

    (a) A CAO assigned a contract for administration under 42.202 or a 
contracting office retaining administration under 42.203 may request 
supporting contract administration from the CAO cognizant of the 
contractor location where performance of specific contract 
administration functions is required. The request shall (1) be in 
writing, (2) clearly state the specific functions to be performed, and 
(3) be accompanied by a copy of pertinent contractual and other 
necessary documents.
    (b) The prime contractor is responsible for managing its 
subcontracts. The CAO's concern with subcontracts is normally limited to 
evaluating the prime contractor's management of them (see part 44). 
Therefore, supporting contract administration shall not be used for 
subcontracts unless (1) the Government would otherwise incur undue cost, 
(2) successful completion of the prime contract is threatened, or (3) it 
is authorized under paragraph (c) below or elsewhere in this regulation.
    (c) For major system acquisitions (see part 34), the contracting 
officer may designate certain high-risk or critical subsystems or 
components for special surveillance (see 44.205) in addition to 
requesting supporting contract administration. This surveillance shall 
be conducted in a manner fully consistent with the policy of calling 
upon the cognizant CAO to perform contract administration functions at a 
contractor's facility (see subpart 42.1).



42.205  Designation of the paying office.

    If the information is available, the contracting officer shall enter 
on the contract the name and address of the office designated under 
agency procedures to make payments on the contract. Unless agency 
acquisition regulations otherwise provide, the assignment of contract 
administration to a CAO does not affect the designation of the paying 
office.



42.206  Reassignment of contract administration.

    (a) The administrative contracting officer at the CAO of initial 
assignment shall reassign a contract for administration when the need 
for reassignment results from (1) an incorrect initial assignment, (2) 
organizational transfer of the cognizant CAO, (3) establishment or 
disestablishment of a CAO, or (4) a change in a CAO's geographical 
responsibility.
    (b) The contracting officer at the contracting office shall reassign 
a contract for administration when reasons other than those in paragraph 
(a) above make reassignment appropriate.
    (c) To reassign a contract, the responsible contracting officer 
shall use a unilateral contract modification. The CAO of initial 
assignment shall transfer the contract file and necessary supporting 
documents to the successor CAO.
    (d) When warranted by a change in circumstances and approved at a 
higher level, a contracting officer may recall a contract or function 
previously assigned for administration.



         Subpart 42.3--Contract Administration Office Functions



42.301  General.

    When a contract is assigned for administration under subpart 42.2, 
the contract administration office (CAO) shall perform contract 
administration functions in accordance with this regulation, the 
contract terms, and, unless otherwise agreed upon in formal cross-
servicing arrangements (see 42.101(a)),

[[Page 810]]

the applicable regulations of the servicing agency.



42.302  Contract administration functions.

    (a) The following are the normal contract administration functions 
to be performed by the cognizant CAO, to the extent they apply, as 
prescribed in 42.202:
    (1) Review the contractor's compensation structure.
    (2) Review the contractor's insurance plans.
    (3) Conduct post-award orientation conferences.
    (4) Review and evaluate contractors' proposals under subpart 15.4 
and, when negotiation will be accomplished by the contracting officer, 
furnish comments and recommendations to that officer.
    (5) Negotiate forward pricing rate agreements (see 15.407-3).
    (6) Negotiate advance agreements applicable to treatment of costs 
under contracts currently assigned for administration (see 31.109).
    (7) Determine the allowability of costs suspended or disapproved as 
required (see subpart 42.8), direct the suspension or disapproval of 
costs when there is reason to believe they should be suspended or 
disapproved, and approve final vouchers.
    (8) Issue Notices of Intent to Disallow or not Recognize Costs (see 
subpart 42.8).
    (9) Establish final indirect cost rates and billing rates for those 
contractors meeting the criteria for contracting officer determination 
in subpart 42.7.
    (10) Attempt to resolve issues in controversy, using ADR procedures 
when appropriate (see subpart 33.2); prepare findings of fact and issue 
decisions under the Disputes clause on matters in which the 
administrative contracting officer (ACO) has the authority to take 
definitive action.
    (11) In connection with Cost Accounting Standards (see part 30 and 
48 CFR chapter 99 (FAR appendix))--
    (i) Determine the adequacy of the contractor's disclosure 
statements;
    (ii) Determine whether disclosure statements are in compliance with 
Cost Accounting Standards and part 31;
    (iii) Determine the contractor's compliance with Cost Accounting 
Standards and disclosure statements, if applicable; and
    (iv) Negotiate price adjustments and execute supplemental agreements 
under the Cost Accounting Standards clauses at 52.230-2, 52.230-3, 
52.230-5 and 52.230-6.
    (12) Review and approve or disapprove the contractor's requests for 
payments under the progress payments or performance-based payments 
clauses.
    (13) Make payments on assigned contracts when prescribed in agency 
acquisition regulations (see 42.205).
    (14) Manage special bank accounts.
    (15) Ensure timely notification by the contractor of any anticipated 
overrun or underrun of the estimated cost under cost-reimbursement 
contracts.
    (16) Monitor the contractor's financial condition and advise the 
contracting officer when it jeopardizes contract performance.
    (17) Analyze quarterly limitation on payments statements and recover 
overpayments from the contractor.
    (18) Issue tax exemption forms.
    (19) Ensure processing and execution of duty-free entry 
certificates.
    (20) For classified contracts, administer those portions of the 
applicable industrial security program designated as ACO 
responsibilities (see subpart 4.4).
    (21) Issue work requests under maintenance, overhaul, and 
modification contracts.
    (22) Negotiate prices and execute supplemental agreements for spare 
parts and other items selected through provisioning procedures when 
prescribed by agency acquisition regulations.
    (23) Negotiate and execute contractual documents for settlement of 
partial and complete contract terminations for convenience, except as 
otherwise prescribed by part 49.
    (24) Negotiate and execute contractual documents settling 
cancellation charges under multi-year contracts.
    (25) Process and execute novation and change of name agreements 
under subpart 42.12.
    (26) Perform property administration (see part 45).

[[Page 811]]

    (27) Approve contractor acquisition or fabrication of special test 
equipment under the clause at 52.245-18, Special Test Equipment.
    (28) Perform necessary screening, redistribution, and disposal of 
contractor inventory.
    (29) Issue contract modifications requiring the contractor to 
provide packing, crating, and handling services on excess Government 
property. When the ACO determines it to be in the Government's 
interests, the services may be secured from a contractor other than the 
contractor in possession of the property.
    (30) In facilities contracts--
    (i) Evaluate the contractor's requests for facilities and for 
changes to existing facilities and provide appropriate recommendations 
to the contracting officer;
    (ii) Ensure required screening of facility items before acquisition 
by the contractor;
    (iii) Approve use of facilities on a noninterference basis in 
accordance with the clause at 52.245-9, Use and Charges;
    (iv) Ensure payment by the contractor of any rental due; and
    (v) Ensure reporting of items no longer needed for Government 
production.
    (31) Perform production support, surveillance, and status reporting, 
including timely reporting of potential and actual slippages in contract 
delivery schedules.
    (32) Perform pre-award surveys (see subpart 9.1).
    (33) Advise and assist contractors regarding their priorities and 
allocations responsibilities and assist contracting offices in 
processing requests for special assistance and for priority ratings for 
privately owned capital equipment.
    (34) Monitor contractor industrial labor relations matters under the 
contract; apprise the contracting officer and, if designated by the 
agency, the cognizant labor relations advisor, of actual or potential 
labor disputes; and coordinate the removal of urgently required material 
from the strikebound contractor's plant upon instruction from, and 
authorization of, the contracting officer.
    (35) Perform traffic management services, including issuance and 
control of Government bills of lading and other tran portation 
documents.
    (36) Review the adequacy of the contractor's traffic operations.
    (37) Review and evaluate preservation, packaging, and packing.
    (38) Ensure contractor compliance with contractual quality assurance 
requirements (see part 46).
    (39) Ensure contractor compliance with contractual safety 
requirements.
    (40) Perform engineering surveillance to assess compliance with 
contractual terms for schedule, cost, and technical performance in the 
areas of design, development, and production.
    (41) Evaluate for adequacy and perform surveillance of contractor 
engineering efforts and management systems that relate to design, 
development, production, engineering changes, subcontractors, tests, 
management of engineering resources, reliability and maintainability, 
data control systems, configuration management, and independent research 
and development.
    (42) Review and evaluate for technical adequacy the contractor's 
logistics support, maintenance, and modification programs.
    (43) Report to the contracting office any inadequacies noted in 
specifications.
    (44) Perform engineering analyses of contractor cost proposals.
    (45) Review and analyze contractor-proposed engineering and design 
studies and submit comments and recommendations to the contracting 
office, as required.
    (46) Review engineering change proposals for proper classification, 
and when required, for need, technical adequacy of design, 
producibility, and impact on quality, reliability, schedule, and cost; 
submit comments to the contracting office.
    (47) Assist in evaluating and make recommendations for acceptance or 
rejection of waivers and deviations.
    (48) Evaluate and monitor the contractor's procedures for complying 
with procedures regarding restrictive markings on data.
    (49) Monitor the contractor's value engineering program.

[[Page 812]]

    (50) Review, approve or disapprove, and maintain surveillance of the 
contractor's purchasing system (see part 44).
    (51) Consent to the placement of subcontracts.
    (52) Review, evaluate, and approve plant or division-wide small, 
small disadvantaged and women-owned small business master subcontracting 
plans.
    (53) Obtain the contractor's currently approved company- or 
division-wide plans for small, small disadvantaged and women-owned small 
business subcontracting for its commercial products, or, if there is no 
currently approved plan, assist the contracting officer in evaluating 
the plans for those products.
    (54) Assist the contracting officer, upon request, in evaluating an 
offeror's proposed small, small disadvantaged and women-owned small 
business subcontracting plans, including documentation of compliance 
with similar plans under prior contracts.
    (55) By periodic surveillance, ensure the contractor's compliance 
with small, small disadvantaged and women-owned small business 
subcontracting plans and any labor surplus area contractual 
requirements; maintain documentation of the contractor's performance 
under and compliance with these plans and requirements; and provide 
advice and assistance to the firms involved, as appropriate.
    (56) Maintain surveillance of flight operations.
    (57) Assign and perform supporting contract administration.
    (58) Ensure timely submission of required reports.
    (59) Issue administrative changes, correcting errors or omissions in 
typing, contractor address, facility or activity code, remittance 
address, computations, which do not require additional contract funds, 
and other such changes (see 43.101).
    (60) Cause release of shipments from contractor's plants according 
to the shipping instructions. When applicable, the order of assigned 
priority shall be followed; shipments within the same priority shall be 
determined by date of the instruction.
    (61) Obtain contractor proposals for any contract price adjustments 
resulting from amended shipping instructions. ACO's shall review all 
amended shipping instructions on a periodic, consolidated basis to 
assure that adjustments are timely made. Except when the ACO has 
settlement authority, the ACO shall forward the proposal to the 
contracting officer for contract modification. The ACO shall not delay 
shipments pending completion and formalization of negotiations of 
revised shipping instructions.
    (62) Negotiate and/or execute supplemental agreements, as required, 
making changes in packaging subcontractors or contract shipping points.
    (63) Cancel unilateral purchase orders when notified of 
nonacceptance by the contractor. The ACO shall notify the contracting 
officer when the purchase order is canceled.
    (64) Negotiated and execute one-time supplemental agreements 
providing for the extension of contract delivery schedules up to 90 days 
on contracts with an assigned Critically Designator of C (see 42.1105). 
Notification that the contract delivery schedule is being extended shall 
be provided to the contracting office. Subsequent extensions on any 
individual contract shall be authorized only upon concurrence of the 
contracting office.
    (65) Accomplish administrative closeout procedures (see 4.804-5).
    (66) Determine that the contractor has a drug-free workplace program 
and drug free awareness program (see subpart 23.5).
    (67) Support the program, product, and project offices regarding 
program reviews, program status, program performance and actual or 
anticipated program problems.
    (68) Evaluate the contractor's environmental practices to determine 
whether they adversely impact contract performance or contract cost, and 
ensure contractor compliance with environmental requirements specified 
in the contact. Contracting officer responsibilities include, but are 
not limited to--

[[Page 813]]

    (i) Ensuring compliance with specifications requiring the use of 
environmentally preferable and energy-efficient materials and the use of 
materials or delivery of end items with the specified recovered material 
content. This shall occur as part of the quality assurance procedures 
set forth in part 46.
    (ii) As required in the contract, ensuring that the contractor 
complies with the reporting requirements relating to recovered material 
content utilized in contract performance.
    (69) Administer commercial financing provisions and monitor 
contractor security to ensure its continued adequacy to cover 
outstanding payments, when on-site review is required.
    (b) The CAO shall perform the following functions only when and to 
the the extent specifically authorized by the contracting office:
    (1) Negotiate or negotiate and execute supplemental agreements 
incorporating contractor proposals resulting from change orders issued 
under the Changes clause. Before completing negotiations, coordinate any 
delivery schedule change with the contracting office.
    (2) Negotiate prices and execute priced exhibits for unpriced orders 
issued by the contracting officer under basic ordering agreements.
    (3) Negotiate or negotiate and execute supplemental agreements 
changing contract delivery schedules.
    (4) Negotiate or negotiate and execute supplemental agreements 
providing for the deobligation of unexpended dollar balances considered 
excess to known contract requirements.
    (5) Issue amended shipping instructions and, when necessary, 
negotiate and execute supplemental agreements incorporating contractor 
proposals resulting from these instructions.
    (6) Negotiate changes to interim billing prices.
    (7) Negotiate and definitize adjustments to contract prices 
resulting from exercise of an economic price adjustment clause (see 
subpart 16.2).
    (8) Issue change orders and negotiate and execute resulting 
supplemental agreements under contracts for ship construction, 
conversion, and repair.
    (9) Execute supplemental agreements on firm-fixed price supply 
contracts to reduce required contract line item quantities and 
deobligate excess funds when notified by the contractor of an 
inconsequential delivery shortage, and it is determined that such action 
is in the best interests of the Government, notwithstanding the default 
provisions of the contract. Such action will be taken only upon the 
written request of the contractor and, in no event shall the total 
downward contract price adjustment resulting from an inconsequential 
delivery shortage exceed $250.00 or 5 percent of the contract price, 
whichever is less.
    (10) Execute supplemental agreements to permit a chance in place of 
inspection at origin specified in firm fixed-price supply contracts 
awarded to nonmanufacturers, as deemed necessary to protect the 
Government's interests.
    (11) Prepare evaluations of contractor performance in accordance 
with subpart 42.15.
    (c) Any additional contract administration functions not listed in 
42.302(a) and (b), or not otherwise delegated, remain the responsibility 
of the contracting office.
[48 FR 42370, Sept. 19, 1983, as amended at 54 FR 34756, Aug. 21, 1989; 
54 FR 48989, Nov. 28, 1989; 55 FR 21708, May 25, 1990; 55 FR 38517, 
Sept. 18, 1990; 56 FR 15154, Apr. 15, 1991; 59 FR 11382, Mar. 10, 1994; 
59 FR 67043, Dec. 28, 1994; 60 FR 16719, Mar. 31, 1995; 60 FR 28498, May 
31, 1995; 60 FR 48264, Sept. 18, 1995; 60 FR 49717, Sept. 26, 1995; 61 
FR 18918, Apr. 29, 1996; 62 FR 237, Jan. 2, 1997; 62 FR 40237, July 25, 
1997; 62 FR 44812, Aug. 22, 1997; 62 FR 51271, Sept. 30, 1997]

    Effective Date Notes: 1. At 62 FR 44812, Aug. 22, 1997, section 
42.302 was amended by revising (a)(68) introductory text and paragraph 
(a)(68)(i), effective Oct. 21, 1997. For the convenience of the user, 
the superseded text is set forth as follows:

42.302  Contract administration functions.

    (a) * * *
    (68) Monitor the contractor's compliance with the requirements of 
environmental laws including the Resource Conservation and Recovery Act 
(RCRA) (42 U.S.C. 6901, et seq.) and other environmental requirements as 
specified in the contract (see part 23). Responsibilities of the 
contracting officer shall include--

[[Page 814]]

    (i) Verification of contractor compliance with specifications 
requiring the use of environmentally preferable and energy-efficient 
materials and the use of materials or delivery of end items with the 
specified recovered material content. This shall occur as part of the 
quality assurance procedures set forth in part 46.

                                * * * * *

    2. At 62 FR 51271, Sept. 30, 1997, in section 42.302, in paragraph 
(a)(4), ``15.8'' was amended to read ``15.4''; and in paragraph (a)(5), 
``15.809'' was amended to read ``15.407-3''; effective Oct. 10, 1997.



                 Subpart 42.4--Correspondence and Visits



42.401  Contract correspondence.

    (a) The contracting officer (or other contracting agency personnel) 
normally shall (1) forward correspondence relating to assigned contract 
administration functions through the cognizant contract administration 
office (CAO) to the contractor and (2) provide a copy for the CAO's 
file. When urgency requires sending such correspondence directly to the 
contractor, a copy shall be sent concurrently to the CAO.
    (b) The CAO shall send the contracting office a copy of pertinent 
correspondence conducted between the CAO and the contractor.



42.402  Visits to contractors' facilities.

    (a) Government personnel planning to visit a contractor's facility 
in connection with one or more Government contracts shall provide prior 
notification to the cognizant CAO, with the following information, 
sufficiently in advance to permit the CAO to make necessary 
arrangements. Such notification is for the purpose of eliminating 
duplicative reviews, requests, investigations, and audits relating to 
the contract administration functions in subpart 42.3 delegated to CAO's 
and shall, as a minimum, include the following (see also paragraph (b) 
of this section):
    (1) Visitors' names, official positions, and security clearances.
    (2) Date and duration of visit.
    (3) Name and address of contractor and personnel to be contacted.
    (4) Contract number, program involved, and purpose of visit.
    (5) If desired, visitors to a contractor's plant may request that a 
representative of the CAO accompany them. In any event, the CAO has 
final authority to decide whether a representative shall accompany a 
visitor.
    (b) If the visit will result in reviewing, auditing, or obtaining 
any information from the contractor relating to contract administration 
functions, the prospective visitor shall identify the information in 
sufficient detail so as to permit the CAO, after consultation with the 
contractor and the cognizant audit office, to determine whether such 
information, adequate to fulfill the requirement, has recently been 
reviewed by or is available within the Government. If so, the CAO will 
discourage the visit and refer the prospective visitor to the Government 
office where such information is located. Where the office is the CAO, 
such information will be immediately forwarded or otherwise made 
available to the requestor.
    (c) Visitors shall fully inform the CAO of any agreements reached 
with the contractor or other results of the visit that may affect the 
CAO.
[48 FR 42370, Sept. 19, 1983, as amended at 53 FR 662, Jan. 11, 1988; 53 
FR 17859, May 18, 1988]



42.403  Evaluation of contract administration offices.

    Onsite inspections or evaluations of the performance of the assigned 
functions of a contract administration office shall be accomplished only 
by or under the direction of the agency of which that office is a part.



                   Subpart 42.5--Postaward Orientation



42.500  Scope of subpart.

    This subpart prescribes policies and procedures for the postaward 
orientation of contractors and subcontractors through (a) a conference 
or (b) a letter or other form of written communication.



42.501  General.

    (a) A postaward orientation aids both Government and contractor 
personnel

[[Page 815]]

to (l) achieve a clear and mutual understanding of all contract 
requirements and (2) identify and resolve potential problems. However, 
it is not a substitute for the contractor's fully understanding the work 
requirements at the time offers are submitted, nor is it to be used to 
alter the final agreement arrived at in any negotiations leading to 
contract award.
    (b) Postaward orientation is encouraged to assist small business, 
small disadvantaged and women-owned small business concerns (see part 
19).
    (c) While cognizant Government or contractor personnel may request 
the contracting officer to arrange for orientation, it is up to the 
contracting officer to decide whether a postaward orientation in any 
form is necessary.
    (d) Maximum benefits will be realized when orientation is conducted 
promptly after award.
[48 FR 42370, Sept. 19, 1983, as amended at 60 FR 48264, Sept. 18, 1995]



42.502  Selecting contracts for postaward orientation.

    When deciding whether postaward orientation is necessary and, if so, 
what form it shall take, the contracting officer shall consider, as a 
minimum, the--
    (a) Nature and extent of the preaward survey and any other prior 
discussions with the contractor;
    (b) Type, value, and complexity of the contract;
    (c) Complexity and acquisition history of the product or service;
    (d) Requirements for spare parts and related equipment;
    (e) Urgency of the delivery schedule and relationship of the product 
or service to critical programs;
    (f) Length of the planned production cycle;
    (g) Extent of subcontracting;
    (h) Contractor's performance history and experience with the product 
or service;
    (i) Contractor's status, if any, as a small business, small 
disadvantaged or women-owned small business concern;
    (j) Contractor's performance history with small, small disadvantaged 
and women-owned small business subcontracting programs;
    (k) Safety precautions required for hazardous materials or 
operations; and
    (l) Complex financing arrangements, such as progress payments, 
advance payments, or guaranteed loans.
[48 FR 42370, Sept. 19, 1983, as amended at 60 FR 48264, Sept. 18, 1995]



42.503  Postaward conferences.



42.503-1  Postaward conference arrangements.

    (a) The contracting officer who decides that a conference is needed 
is responsible for--
    (1) Establishing the time and place of the conference;
    (2) Preparing the agenda, when necessary;
    (3) Notifying appropriate Government representatives (e.g., 
contracting/contract administration office) and the contractor;
    (4) Designating or acting as the chairperson;
    (5) Conducting a preliminary meeting of Government personnel; and
    (6) Preparing a summary report of the conference.
    (b) When the contracting office initiates a conference, the 
arrangements may be made by that office or, at its request, by the 
contract administration office.



42.503-2  Postaward conference procedure.

    The chairperson of the conference shall conduct the meeting. Unless 
a contract change is contemplated, the chairperson shall emphasize that 
it is not the purpose of the meeting to change the contract. The 
contracting officer may make commitments or give directions within the 
scope of the contracting officer's authority and shall put in writing 
and sign any commitment or direction, whether or not it changes the 
contract. Any change to the contract that results from the postaward 
conference shall be made only by a contract modification (see 43.101) 
referencing the applicable terms of the contract. Participants without 
authority to bind the Government shall not take action that in any way 
alters the contract. The chairperson shall include in the summary report

[[Page 816]]

(see 42.503-3 below) all information and guidance provided to the 
contractor.



42.503-3  Postaward conference report.

    The chairperson shall prepare and sign a report of the postaward 
conference. The report shall cover all items discussed, including areas 
requiring resolution, controversial matters, the names of the 
participants assigned responsibility for further actions, and the due 
dates for the actions. The chairperson shall furnish copies of the 
report to the contracting office, the contract administration office, 
the contractor, and others who require the information.



42.504  Postaward letters.

    In some circumstances, a letter or other written form of 
communication to the contractor may be adequate postaward orientation 
(in lieu of a conference). The letter should identify the Government 
representative responsible for administering the contract and cite any 
unusual or significant contract requirements. The rules on changes to 
the contract in 42.503-2 also apply here.



42.505  Postaward subcontractor conferences.

    (a) The prime contractor is generally responsible for conducting 
postaward conferences with subcontractors. However, the prime contractor 
may invite Government representatives to a conference with 
subcontractors, or the Government may request that the prime contractor 
initiate a conference with subcontractors. The prime contractor should 
ensure that representatives from involved contract administration 
offices are invited.
    (b) Government representatives (1) must recognize the lack of 
privity of contract between the Government and subcontractors, (2) shall 
not take action that is inconsistent with or alters subcontracts, and 
(3) shall ensure that any changes in direction or commitment affecting 
the prime contract or contractor resulting from a subcontractor 
conference are made by written direction of the contracting officer to 
the prime contractor in the same manner as described in 42.503-2.



       Subpart 42.6--Corporate Administrative Contracting Officer



42.601  General.

    Contractors with more than one operational location (e.g., division, 
plant, or subsidiary) often have corporate-wide policies, procedures, 
and activities requiring Government review and approval and affecting 
the work of more than one administrative contracting officer (ACO). In 
these circumstances, effective and consistent contract administration 
may require the assignment of a corporate administrative contracting 
officer (CACO) to deal with corporate management and to perform selected 
contract administration functions on a corporate-wide basis.



42.602  Assignment and location.

    (a) A CACO may be assigned only when (1) the contractor has at least 
two locations with resident ACO's or (2) the need for a CACO is approved 
by the agency head or designee (for this purpose, a nonresident ACO will 
be considered as resident if at least 75 percent of the ACO's effort is 
devoted to a single contractor). One of the resident ACO's may be 
designated to perform the CACO functions, or a full-time CACO may be 
assigned. In determining the location of the CACO, the responsible 
agency shall take into account such factors as the location(s) of the 
corporate records, corporate office, major plant, cognizant government 
auditor, and overall cost effectiveness.
    (b) A decision to initiate or discontinue a CACO assignment should 
be based on such factors as (1) the benefits of coordination and liaison 
at the corporate level, (2) the volume of Government sales, (3) the 
degree of control exercised by the contractor's corporate office over 
Government-oriented lower-tier operating elements, and (4) the impact of 
corporate policies and procedures on those elements.
    (c) Responsibility for assigning a CACO shall be determined as 
follows:
    (1) When all locations of a corporate entity are under the contract 
administration cognizance of a single agency, that agency is 
responsible.
    (2) When the locations are under the contract administration 
cognizance of

[[Page 817]]

more than one agency, the agencies concerned shall agree on the 
responsible agency (normally on the basis of the agency with the largest 
unliquidated dollar balance of affected contracts). In such cases, 
agencies may sometimes also consider geographic location.
    (d) The directory of contract administration components referenced 
in 42.102(a) includes a listing of CACO's and the contractors for which 
they are assigned responsibility. When the directory indicates that the 
services of a CACO are available, the provisions of subpart 42.1 apply 
to the CACO functions.



42.603  Responsibilities.

    (a) The CACO shall perform, on a corporate-wide basis, the contract 
administration functions (see subpart 42.3) as designated by the 
responsible agency. Typical CACO functions include (1) the determination 
of final indirect cost rates for cost-reimbursement contracts, (2) 
establishment of advance agreements or recommendations on corporate/home 
office expense allocations, and (3) administration of Cost Accounting 
Standards (CAS) applicable to corporate-level and corporate-directed 
accounting practices.
    (b) The CACO shall--
    (1) Fully utilize the cognizant contract audit agency financial and 
advisory accounting services, including (i) advice regarding the 
acceptability of corporate-wide policies and (ii) advisory audit 
reports;
    (2) Keep cognizant ACO's and auditors informed of important matters 
under consideration and determinations made; and
    (3) Solicit their advice and participation as appropriate.



                    Subpart 42.7--Indirect Cost Rates



42.700  Scope of subpart.

    This subpart prescribes policies and procedures for establishing (a) 
billing rates and (b) final indirect cost rates.



42.701  Definitions.

    Billing rate means an indirect cost rate (a) established temporarily 
for interim reimbursement of incurred indirect costs and (b) adjusted as 
necessary pending establishment of final indirect cost rates.
    Business unit (see 31.001).
    Final indirect cost rate means the indirect cost rate established 
and agreed upon by the Government and the contractor as not subject to 
change. It is usually established after the close of the contractor's 
fiscal year (unless the parties decide upon a different period) to which 
it applies. In the case of cost-reimbursement research and development 
contracts with educational institutions, it may be predetermined; that 
is, established for a future period on the basis of cost experience with 
similar contracts, together with supporting data.
    Indirect cost (see 31.001 and 31.203).
    Indirect cost rate means the percentage or dollar factor that 
expresses the ratio of indirect expense incurred in a given period to 
direct labor cost, manufacturing cost, or another appropriate base for 
the same period.
[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 11387, Mar. 10, 1994]



42.702  Purpose.

    (a) Establishing final indirect cost rates under this subpart 
provides--
    (1) Uniformity of approach with a contractor when more than one 
contract or agency is involved;
    (2) Economy of administration; and
    (3) Timely settlement under cost-reimbursement contracts.
    (b) Establishing billing rates provides a method for interim 
reimbursement of indirect costs at estimated rates subject to adjustment 
during contract performance and at the time the final indirect cost 
rates are established.



42.703  General.



42.703-1  Policy.

    (a) A single agency (see 42.705-1(a)) shall be responsible for 
establishing indirect cost rates for each business unit. These rates 
shall be binding on all agencies and their contracting offices, unless 
otherwise specifically prohibited by statute. An agency shall not 
perform an audit of indirect cost rates when the contracting officer 
determines that the objectives of the audit can reasonably be met by 
accepting the results of an audit that was conducted

[[Page 818]]

by any other department or agency of the Federal Government (10 U.S.C. 
2313(d) and 41 U.S.C. 254d(d)).
    (b) Billing rates and final indirect cost rates shall be used in 
reimbursing indirect costs under cost-reimbursement contracts and in 
determining progress payments under fixed-price contracts.
    (c) Contracting officers shall--
    (1) Unless the quick-closeout procedure in 42.708 is used, use final 
indirect cost rates of a business unit for a given period, which shall 
be binding for all the cost-reimbursement contracts of the business unit 
for that period, subject to any specific limitation in a contract or 
advance agreement (when contracts of more than one agency are involved, 
see 42.101(c)); and
    (2) To ensure compliance with 10 U.S.C. 2324(a) and 41 U.S.C. 
256(a), use established final indirect cost rates in negotiating the 
final price of fixed-price incentive and fixed-price redeterminable 
contracts and in other situations requiring that indirect costs be 
settled before contract prices are established.
[48 FR 42370, Sept. 19, 1983, as amended at 60 FR 42661, Aug. 16, 1995. 
Redesignated at 60 FR 42664, Aug. 16, 1995, as amended at 62 FR 274, 
Jan. 2, 1997]



42.703-2  Certificate of indirect costs.

    (a) General. In accordance with 10 U.S.C. 2324(h) and 41 U.S.C. 
256(h), a proposal shall not be accepted and no agreement shall be made 
to establish final indirect cost rates unless the costs have been 
certified by the contractor.
    (b) Waiver of certification. (1) The agency head, or designee, may 
waive the certification requirement when--
    (i) It is determined to be in the interest of the United States; and
    (ii) The reasons for the determination are put in writing and made 
available to the public.
    (2) A waiver may be appropriate for a contract with--
    (i) A foreign government or international organization, such as a 
subsidiary body of the North Atlantic Treaty Organization;
    (ii) A state or local government subject to OMB Circular A-87;
    (iii) An educational institution subject to OMB Circular A-21; and
    (iv) A nonprofit organization subject to OMB Circular A-122.
    (c) Failure to certify. (1) If the contractor has not certified its 
proposal for final indirect cost rates and a waiver is not appropriate, 
the contracting officer may unilaterally establish the rates.
    (2) Rates established unilaterally should be--
    (i) Based on audited historical data or other available data as long 
as unallowable costs are excluded; and
    (ii) Set low enough to ensure that unallowable costs will not be 
reimbursed.
    (d) False certification. The contracting officer should consult with 
legal counsel to determine appropriate action when a contractor 
certificate of final indirect costs is thought to be false.
    (e) Penalties for unallowable costs. 10 U.S.C. 2324(a) through (d) 
and 41 U.S.C. 256 (a) through (d) prescribe penalties for submission of 
unallowable costs in final indirect cost rate proposals (see 42.709 for 
penalties and contracting officer responsibilities).
    (f) Contract clause. (1) Except as provided in paragraph (f)(2) of 
this subsection, the clause at 52.242-4, Certification of Final Indirect 
Costs, shall be incorporated into all solicitations and contracts which 
provide for establishment of final indirect cost rates.
    (2) The Department of Energy may provide an alternate clause in its 
agency supplement for its Management and Operating contracts.
[60 FR 42664, Aug. 16, 1995, as amended at 62 FR 237, Jan. 2, 1997; 62 
FR 10710, Mar. 10, 1997]



42.704  Billing rates.

    (a) The contracting officer or auditor responsible under 42.705 for 
determining the final indirect cost rate ordinarily shall also be 
responsible for determining the billing rate.
    (b) The contracting officer or auditor shall establish a billing 
rate on the basis of information resulting from recent review, previous 
audits or experience, or similar reliable data or experience of other 
contracting activities. In establishing the billing rate, the 
contracting officer or auditor should ensure that it is as close as 
possible to the final indirect cost rate anticipated

[[Page 819]]

for the contractor's fiscal period, as adjusted for any unallowable 
costs. When the contracting officer or auditor determines that the 
dollar value of contracts requiring use of a billing rate does not 
warrant submission of a detailed billing rate proposal, the billing rate 
may be established by making appropriate adjustments from the prior 
year's indirect cost experience to eliminate unallowable and 
nonrecurring costs and to reflect new or changed conditions.
    (c) Once established, billing rates may be prospectively or 
retroactively revised by mutual agreement of the contracting officer or 
auditor and the contractor at either party's request, to prevent 
substantial overpayment or underpayment.
    (d) The elements of indirect cost and the base or bases used in 
computing billing rates shall not be construed as determinative of the 
indirect costs to be distributed or of the bases of distribution to be 
used in the final settlement.
    (e) When the contractor provides to the cognizant contracting 
officer the certified final indirect cost rate proposal in accordance 
with 42.705-(b) or 42.705-(b), the contractor and the Government may 
mutually agree to revise billing rates to reflect the proposed indirect 
cost rates, as approved by the Government to reflect historically 
disallowed amounts from prior years' audits, until the proposal has been 
audited and settled. The historical decrement will be determined by 
either the cognizant contracting officer (42.705-1(b)) or the cognizant 
auditor (42.705-2(b)).
[48 FR 42370, Sept. 19, 1983, as amended at 61 FR 69296, Dec. 31, 1996]



42.705  Final indirect cost rates.

    (a) Final indirect cost rates shall be established on the basis of--
    (1) Contracting officer determination procedure (see 42.705-1) or
    (2) Auditor determination procedure (see 42.705-2).
    (b) Within 120 days after settlement of the final indirect cost 
rates (or longer, if approved in writing by the contracting officer), 
the contractor shall submit a completion invoice or voucher reflecting 
the settled amounts and rates on all contracts physically completed in 
the year covered by the proposal.
[61 FR 69296, Dec. 31, 1996]



42.705-1  Contracting officer determination procedure.

    (a) Applicability and responsibility. Contracting officer 
determination shall be used for the following, with the indicated 
cognizant contracting officer responsible for establishing the final 
indirect cost rates:
    (1) Business units of a multidivisional corporation under the 
cognizance of a corporate administrative contracting officer (see 
subpart 42.6), with that officer responsible for the determination, 
assisted, as required, by the administrative contracting officers 
assigned to the individual business units. Negotiations may be conducted 
on a coordinated or centralized basis, depending upon the degree of 
centralization within the contractor's organization.
    (2) Business units not under the cognizance of a corporate 
administrative contracting officer, but having a resident administrative 
contracting officer (see 42.602), with that officer responsible for the 
determination. For this purpose, a nonresident administrative 
contracting officer is considered as resident if at least 75 percent of 
the administrative contracting officer's time is devoted to a single 
contractor.
    (3) Business units not included in subparagraph (1) or (2) above, 
but where the predominant interest (on the basis of unliquidated 
contract dollar amount) is in an agency whose procedures require 
contracting officer determination. In such cases, the responsible 
contracting officer will be as designated under that agency's 
procedures.
    (4) Educational institutions (see 42.705-3 for responsibility and 
procedures).
    (5) State and local governments (see 42.705-4).
    (6) Nonprofit organizations other than educational and state and 
local governments (see 42.705-5).
    (b) Procedures. (1) In accordance with the Allowable Cost and 
Payment clause at 52.216-7 or 52.216-13, the contractor shall submit to 
the contracting officer

[[Page 820]]

and, if required by agency procedures, to the cognizant auditor a final 
indirect cost rate proposal reflecting actual cost experience during the 
covered period, together with supporting cost or pricing data.
    (2) The auditor shall submit to the contracting officer an advisory 
audit report identifying any relevant advance agreements or restrictive 
terms of specific contracts.
    (3) The contracting officer shall head the Government negotiating 
team, which includes the cognizant auditor and technical or functional 
personnel as required. Contracting offices having significant dollar 
interest shall be invited to participate in the negotiation and in the 
preliminary discussion of critical issues. Individuals or offices that 
have provided a significant input to the Government position should be 
invited to attend.
    (4) The Government negotiating team shall develop a negotiation 
position. Pursuant to 10 U.S.C. 2324(f) and 41 U.S.C. 256(f), the 
contracting, officer shall--
    (i) Not resolve any questioned costs until obtaining--
    (A) Adequate documentation on the costs; and
    (B) The contract auditor's opinion on the allowability of the costs.
    (ii) Whenever possible, invite the contract auditor to serve as an 
advisor at any negotiation or meeting with the contractor on the 
determination of the contractor's final indirect cost rates.
    (5) The cognizant contracting officer shall--
    (i) Conduct negotiations;
    (ii) Prepare a written indirect cost rate agreement conforming to 
the requirements of the contracts;
    (iii) Prepare, sign, and place in the contractor general file (see 
4.801(c)(3)) a negotiation memorandum covering (A) the disposition of 
significant matters in the advisory audit report, (B) reconciliation of 
all costs questioned, with identification of items and amounts allowed 
or disallowed in the final settlement as well as the disposition of 
period costing or allocability issues, (C) reasons why any 
recommendations of the auditor or other Government advisors were not 
followed, and (D) identification of cost or pricing data submitted 
during the negotiations and relied upon in reaching a settlement; and
    (iv) Distribute resulting documents in accordance with 42.706.
    (v) Notify the contractor of the individual costs which were 
considered unallowable and the respective amounts of the disallowance.
[48 FR 42370, Sept. 19, 1983, as amended at 60 FR 42661, Aug. 16, 1995; 
62 FR 51258, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, section 42.705-
1 was amended by revising paragraph (b)(2), effective Oct. 10, 1997. For 
the convenience of the user, the superseded text is set forth as 
follows:

42.705-1  Contracting officer determination procedure.

                                * * * * *

    (b) * * *
    (2) The auditor shall submit to the contracting officer an advisory 
audit report (i) identifying any relevant advance agreements or 
restrictive terms of specific contracts and (ii) including the 
information required by 15.805-5(e).

                                * * * * *



42.705-2  Auditor determination procedure.

    (a) Applicability and responsibility. (1) The cognizant Government 
auditor shall establish final indirect cost rates for business units not 
covered in 42.705-1(a).
    (2) In addition, auditor determination may be used for business 
units that are covered in 42.705-1(a) when the contracting officer and 
auditor agree that the indirect costs can be settled with little 
difficulty and any of the following circumstances apply:
    (i) The business unit has primarily fixed-price contracts, with only 
minor involvement in cost-reimbursement contracts.
    (ii) The administrative cost of contracting officer determination 
would exceed the expected benefits.
    (iii) The business unit does not have a history of disputes and 
there are few cost problems.
    (iv) The contracting officer and auditor agree that special 
circumstances require auditor determination.

[[Page 821]]

    (b) Procedures. (1) The contractor shall submit to the cognizant 
contracting officer and auditor a final indirect cost rate proposal 
reflecting actual cost experience during the covered period, together 
with supporting cost or pricing data.
    (2) The auditor shall--
    (i) Audit the proposal and seek agreement on it with the contractor;
    (ii) In coordination with the affected contracting officers, prepare 
an indirect cost rate agreement conforming to the requirements of the 
contracts;
    (iii) If agreement with the contractor is not reached, forward the 
audit report to the contracting officer designated by the agency with 
the predominant interest (on the basis of unliquidated contract dollar 
amounts) or, where applicable, the contracting officer designated in 
42.705-2(a)(2) above, who will then resolve the disagreement; and
    (iv) Distribute resulting documents in accordance with 42.706.
[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 67052, Dec. 28, 1994; 
62 FR 51258, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, section 42.705-
2 was amended by removing paragraph (b)(2)(iii); and by redesignating 
paragraphs (b)(2)(iv) and (b)(2)(v) as paragraphs (b)(2)(iii) and 
(b)(2)(iv), respectively, effective Oct. 10, 1997. For the convenience 
of the user, the superseded text is set forth as follows:

42.705-2  Auditor determination procedure.

                                * * * * *

    (b) * * *
    (2) * * *
    (iii) Prepare an audit report including the information required by 
15.805-5(e);

                                * * * * *



42.705-3  Educational institutions.

    (a) General. (1) Postdetermined final indirect cost rates shall be 
used in the settlement of indirect costs for all cost-reimbursement 
contracts with educational institutions, unless predetermined final 
indirect cost rates are authorized and used (see paragraph (b) below).
    (2) OMB Circular No. A-88, Indirect Cost Rates, Audit, and Audit 
Followup at Educational Institutions, (i) assigns each educational 
institution to a single Government agency for the negotiation of 
indirect cost rates and (ii) provides that those rates shall be accepted 
by all Federal agencies. Cognizant Government agencies and educational 
institutions are listed in the Directory of Federal Contract Audit 
Offices (see 42.102(a)).
    (3) The cognizant agency shall establish the billing rates and final 
indirect cost rates at the educational institution, consistent with the 
requirements of this subpart, subpart 31.3, and the OMB Circular. The 
agency shall follow the procedures outlined in 42.705-1(b).
    (4) If the cognizant agency is unable to reach agreement with an 
institution, the appeals system of the cognizant agency shall be 
followed for resolution of the dispute.
    (b) Predetermined final indirect cost rates. (1) Under cost-
reimbursement research and development contracts with universities, 
colleges, or other educational institutions (41 U.S.C. 254a), payment 
for reimbursable indirect costs may be made on the basis of 
predetermined final indirect cost rates. The cognizant agency is not 
required to establish predetermined rates, but if they are established, 
their use must be extended to all the institution's Government 
contracts.
    (2) In deciding whether the use of predetermined rates would be 
appropriate for the educational institution concerned, the agency should 
consider both the stability of the institution's indirect costs and 
bases over a period of years and any anticipated changes in the amount 
of the direct and indirect costs.
    (3) Unless their use is approved at a level in the agency (see 
subparagraph (a)(2) above) higher than the contracting officer, 
predetermined rates shall not be used when--
    (i) There has been no recent audit of the indirect costs;
    (ii) There have been frequent or wide fluctuations in the indirect 
cost rates and the bases over a period of years; or
    (iii) The estimated reimbursable costs for any individual contract 
are expected to exceed $1 million annually.
    (4)(i) If predetermined rates are to be used and no rates have been 
previously

[[Page 822]]

established for the institution's current fiscal year, the agency shall 
obtain from the institution a proposal for predetermined rates.
    (ii) If the proposal is found to be generally acceptable, the agency 
shall negotiate the predetermined rates with the institution. The rates 
should be based on an audit of the institution's costs for the year 
immediately preceding the year in which the rates are being negotiated. 
If this is not possible, an earlier audit may be used, but appropriate 
steps should be taken to identify and evaluate significant variations in 
costs incurred or in bases used that may have a bearing on the 
reasonableness of the proposed rates. However, in the case of smaller 
contracts (e.g., $100,000 or less), an audit made at an earlier date is 
acceptable if (A) there have been no significant changes in the 
contractor's organization and (B) it is reasonably apparent that another 
audit would have little effect on the rates finally agreed upon and the 
potential for overpayment of indirect cost is relatively insignificant.
    (5) If predetermined rates are used--
    (i) The contracting officer shall include the negotiated rates and 
bases in the contract Schedule; and
    (ii) See 16.307(i), which prescribes the clause at 52.216-15, 
Predetermined Indirect Cost Rates.
    (6) Predetermined indirect cost rates shall be applicable for a 
period of not more than four years. The agency shall obtain the 
contractor's proposal for new predetermined rates sufficiently in 
advance so that the new rates, based on current data, may be promptly 
negotiated near the beginning of the new fiscal year or other period 
agreed to by the parties (see paragraphs (b) and (d) of the clause at 
52.216-15, Predetermined Indirect Cost Rates).
    (7) Contracting officers shall use billing rates established by the 
agency to reimburse the contractor for work performed during a period 
not covered by predetermined rates.
[48 FR 42370, Sept. 19, 1983, as amended at 61 FR 31622, June 20, 1996]



42.705-4  State and local governments.

    OMB Circular No. A-87 concerning cost principles for state and local 
governments (see subpart 31.6) establishes the cognizant agency concept 
and procedures for determining a cognizant agency for approving state 
and local government indirect costs associated with federally-funded 
programs and activities. The indirect cost rates negotiated by the 
cognizant agency will be used by all Federal agencies that also award 
contracts to these same state and local governments.



42.705-5  Nonprofit organizations other than educational and state and local governments.

    See OMB Circular No. A-122.



42.706  Distribution of documents.

    (a) The contracting officer or auditor shall promptly distribute 
executed copies of the indirect cost rate agreement to the contractor 
and to each affected contracting agency and shall provide copies of the 
agreement for the contract files, in accordance with the guidance for 
contract modifications in subpart 4.2, Contract Distribution.
    (b) Copies of the negotiation memorandum prepared under contracting 
officer determination or audit report prepared under auditor 
determination shall be furnished, as appropriate, to the contracting 
offices and Government audit offices.



42.707  Cost-sharing rates and limitations on indirect cost rates.

    (a) Cost-sharing arrangements, when authorized, may call for the 
contractor to participate in the costs of the contract by accepting 
indirect cost rates lower than the anticipated actual rates. In such 
cases, a negotiated indirect cost rate ceiling may be incorporated into 
the contract for prospective application. For cost sharing under 
research and development contracts, see 35.003(b).
    (b)(1) Other situations may make it prudent to provide a final 
indirect cost rate ceiling in a contract. Examples of such circumstances 
are when the proposed contractor--
    (i) Is a new or recently reorganized company, and there is no past 
or recent record of incurred indirect costs;
    (ii) Has a recent record of a rapidly increasing indirect cost rate 
due to a declining volume of sales without a

[[Page 823]]

commensurate decline in indirect expenses; or
    (iii) Seeks to enhance its competitive position in a particular 
circumstance by basing its proposal on indirect cost rates lower than 
those that may reasonably be expected to occur during contract 
performance, thereby causing a cost overrun.
    (2) In such cases, an equitable ceiling covering the final indirect 
cost rates may be negotiated and specified in the contract.
    (c) When ceiling provisions are utilized, the contract shall also 
provide that (1) the Government will not be obligated to pay any 
additional amount should the final indirect cost rates exceed the 
negotiated ceiling rates and, (2) in the event the final indirect cost 
rates are less than the negotiated ceiling rates, the negotiated rates 
will be reduced to conform with the lower rates.



42.708  Quick-closeout procedure.

    (a) The contracting officer responsible for contract closeout shall 
negotiate the settlement of indirect costs for a specific contract, in 
advance of the determination of final indirect cost rates, if--
    (1) The contract is physically complete;
    (2) The amount of unsettled indirect cost to be allocated to the 
contract is relatively insignificant. Indirect cost amounts will be 
considered insignificant when--
    (i) The total unsettled indirect cost to be allocated to any one 
contract does not exceed $1,000,000; and
    (ii) Unless otherwise provided in agency procedures, the cumulative 
unsettled indirect costs to be allocated to one or more contracts in a 
single fiscal year do not exceed 15 percent of the estimated, total 
unsettled indirect costs allocable to cost-type contracts for that 
fiscal year. The contracting officer may waive the 15 percent 
restriction based upon a risk assessment that considers the contractor's 
accounting, estimating, and purchasing systems; other concerns of the 
cognizant contract auditors; and any other pertinent information; and
    (3) Agreement can be reached on a reasonable estimate of allocable 
dollars.
    (b) Determinations of final indirect costs under the quick-closeout 
procedure provided for by the Allowable Cost and Payment clause at 
52.216-7 or 52.216-13 shall be final for the contract it covers and no 
adjustment shall be made to other contracts for over- or under-
recoveries of costs allocated or allocable to the contract covered by 
the agreement.
    (c) Indirect cost rates used in the quick closeout of a contract 
shall not be considered a binding precedent when establishing the final 
indirect cost rates for other contracts.
[48 FR 42370, Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990; 
61 FR 31661, June 20, 1996]



42.709  Scope.

    (a) This section implements 10 U.S.C. 2324 (a) through (d) and 41 
U.S.C. 256 (a) through (d). It covers the assessment of penalties 
against contractors which include unallowable indirect costs in--
    (1) Final indirect cost rate proposals; or
    (2) The final statement of costs incurred or estimated to be 
incurred under a fixed-price incentive contract.
    (b) This section applies to all contracts in excess of $500,000, 
except fixed-price contracts without cost incentives or any firm-fixed-
price contracts for the purchase of commercial items.
[60 FR 42658, Aug. 16, 1995]



42.709-1  General.

    (a) The following penalties apply to contracts covered by this 
section:
    (1) If the indirect cost is expressly unallowable under a cost 
principle in the FAR, or an executive agency supplement to the FAR, that 
defines the allowability of specific selected costs, the penalty is 
equal to--
    (i) The amount of the disallowed costs allocated to contracts that 
are subject to this section for which an indirect cost proposal has been 
submitted; plus
    (ii) Interest on the paid portion, if any, of the disallowance.

[[Page 824]]

    (2) If the indirect cost was determined to be unallowable for that 
contractor before proposal submission, the penalty is two times the 
amount in paragraph (a)(1)(i) of this section.
    (b) These penalties are in addition to other administrative, civil, 
and criminal penalties provided by law.
    (c) It is not necessary for unallowable costs to have been paid to 
the contractor in order to assess a penalty.
[60 FR 42658, Aug. 16, 1995]



42.709-2  Responsibilities.

    (a) The cognizant contracting officer is responsible for--
    (1) Determining whether the penalties in 42.709-1(a) should be 
assessed;
    (2) Determining whether such penalties should be waived pursuant to 
42.709-5; and
    (3) Referring the matter to the appropriate criminal investigative 
organization for review and for appropriate coordination of remedies, if 
there is evidence that the contractor knowingly submitted unallowable 
costs.
    (b) The contract auditor, in the review and/or the determination of 
final indirect cost proposals for contracts subject to this section, is 
responsible for--
    (1) Recommending to the contracting officer which costs may be 
unallowable and subject to the penalties in 42.709-1(a);
    (2) Providing rationale and supporting documentation for any 
recommendation; and
    (3) Referring the matter to the appropriate criminal investigative 
organization for review and for appropriate coordination of remedies, if 
there is evidence that the contractor knowingly submitted unallowable 
costs.
[60 FR 42658, Aug. 16, 1995]



42.709-3  Assessing the penalty.

    Unless a waiver is granted pursuant to 42.709-5, the cognizant 
contracting officer shall--
    (a) Assess the penalty in 42.709-1(a)(1), when the submitted cost is 
expressly unallowable under a cost principle in the FAR or an executive 
agency supplement that defines the allowability of specific selected 
costs; or
    (b) Assess the penalty in 42.709-1(a)(2), when the submitted cost 
was determined to be unallowable for that contractor prior to submission 
of the proposal. Prior determinations of unallowability may be evidenced 
by--
    (1) A DCAA Form 1, Notice of Contract Costs Suspended and/or 
Disapproved (see 48 CFR 242.705-2), or any similar notice which the 
contractor elected not to appeal and was not withdrawn by the cognizant 
Government agency;
    (2) A contracting officer final decision which was not appealed;
    (3) A prior executive agency Board of Contract Appeals or court 
decision involving the contractor, which upheld the cost disallowance; 
or
    (4) A determination or agreement of unallowability under 31.201-6.
    (c) Issue a final decision (see 33.211) which includes a demand for 
payment of any penalty assessed under paragraph (a) or (b) of this 
section. The letter shall state that the determination is a final 
decision under the Disputes clause of the contract. (Demanding payment 
of the penalty is separate from demanding repayment of any paid portion 
of the disallowed cost.)
[60 FR 42658, Aug. 16, 1995]



42.709-4  Computing interest.

    For 42.709-1(a)(1)(ii), compute interest on any paid portion of the 
disallowed cost as follows:
    (a) Consider the overpayment to have occurred, and interest to have 
begun accumulating, from the midpoint of the contractor's fiscal year. 
Use an alternate equitable method if the cost was not paid evenly over 
the fiscal year.
    (b) Use the interest rate specified by the Secretary of the Treasury 
pursuant to Pub. L. 92-41 (85 Stat. 97).
    (c) Compute interest from the date of overpayment to the date of the 
demand letter for payment of the penalty.
    (d) Determine the paid portion of the disallowed costs in 
consultation with the contract auditor.
[60 FR 42659, Aug. 16, 1995]

[[Page 825]]



42.709-5  Waiver of the penalty.

    The cognizant contracting officer shall waive the penalties at 
42.709-1(a) when--
    (a) The contractor withdraws the proposal before the Government 
formally initiates an audit of the proposal and the contractor submits a 
revised proposal (an audit will be deemed to be formally initiated when 
the Government provides the contractor with written notice, or holds an 
entrance conference, indicating that audit work on a specific final 
indirect cost proposal has begun);
    (b) The amount of the unallowable costs under the proposal which are 
subject to the penalty is $10,000 or less (i.e., if the amount of 
expressly or previously determined unallowable costs which would be 
allocated to the contracts specified in 42.709(b) is $10,000 or less); 
or
    (c) The contractor demonstrates, to the cognizant contracting 
officer's satisfaction, that--
    (1) It has established policies and personnel training and an 
internal control and review system that provide assurance that 
unallowable costs subject to penalties are precluded from being included 
in the contractor's final indirect cost rate proposals (e.g., the types 
of controls required for satisfactory participation in the Department of 
Defense sponsored self-governance programs, specific accounting controls 
over indirect costs, compliance tests which demonstrate that the 
controls are effective, and Government audits which have not disclosed 
recurring instances of expressly unallowable costs); and
    (2) The unallowable costs subject to the penalty were inadvertently 
incorporated into the proposal; i.e., their inclusion resulted from an 
unintentional error, notwithstanding the exercise of due care.
[60 FR 42659, Aug. 16, 1995]



42.709-6  Contract clause.

    Use the clause at 52.242-3, Penalties for Unallowable Costs, in all 
solicitations and contracts over $500,000 except fixed-price contracts 
without cost incentives or any firm-fixed-price contract for the 
purchase of commercial items. Generally, covered contracts are those 
which contain one of the clauses at 52.216-7, 52.216-13, 52.216-16, or 
52.216-17, or a similar clause from an executive agency's supplement to 
the FAR.
[60 FR 42659, Aug. 16, 1995]



                   Subpart 42.8--Disallowance of Costs



42.800  Scope of subpart.

    This subpart prescribes policies and procedures for (a) issuing 
notices of intent to disallow costs and (b) disallowing costs already 
incurred during the course of performance.



42.801  Notice of intent to disallow costs.

    (a) At any time during the performance of a contract of a type 
referred to in 42.802, the cognizant contracting officer responsible for 
administering the contract may issue the contractor a written notice of 
intent to disallow specified costs incurred or planned for incurrence. 
However, before issuing the notice, the contracting officer responsible 
for administering the contract shall make every reasonable effort to 
reach a satisfactory settlement through discussions with the contractor.
    (b) A notice of intent to disallow such costs usually results from 
monitoring contractor costs. The purpose of the notice is to notify the 
contractor as early as practicable during contract performance that the 
cost is considered unallowable under the contract terms and to provide 
for timely resolution of any resulting disagreement. In the event of 
disagreement, the contractor may submit to the contracting officer a 
written response. Any such response shall be answered by withdrawal of 
the notice or by making a written decision within 60 days.
    (c) As a minimum, the notice shall--
    (1) Refer to the contract's Notice of Intent to Disallow Costs 
clause;
    (2) State the contractor's name and list the numbers of the affected 
contracts;
    (3) Describe the costs to be disallowed, including estimated dollar

[[Page 826]]

value by item and applicable time periods, and state the reasons for the 
intended disallowance;
    (4) Describe the potential impact on billing rates and forward 
pricing rate agreements;
    (5) State the notice's effective date and the date by which written 
response must be received;
    (6) List the recipients of copies of the notice; and
    (7) Request the contractor to acknowledge receipt of the notice.
    (d) The contracting officer issuing the notice shall furnish copies 
to all contracting officers cognizant of any segment of the contractor's 
organization.
    (e) If the notice involves elements of indirect cost, it shall not 
be issued without coordination with the contracting officer or auditor 
having authority for final indirect cost settlement (see 42.705).
    (f) In the event the contractor submits a response that disagrees 
with the notice (see paragraph (b) above), the contracting officer who 
issued the notice shall either withdraw the notice or issue the written 
decision, except when elements of indirect cost are involved, in which 
case the contracting officer responsible under 42.705 for determining 
final indirect cost rates shall issue the decision.



42.802  Contract clause.

    The contracting officer shall insert the clause at 52.242-1, Notice 
of Intent to Disallow Costs, in solicitations and contracts when a cost-
reimbursement contract, a fixed-price incentive contract, or a contract 
providing for price redetermination is contemplated.



42.803  Disallowing costs after incurrence.

    Cost-reimbursement contracts, the cost-reimbursement portion of 
fixed-price contracts, letter contracts that provide for reimbursement 
of costs, and time-and-material and labor-hour contracts provide for 
disallowing costs during the course of performance after the costs have 
been incurred. The following procedures shall apply:
    (a) Contracting officer receipt of vouchers. When contracting 
officers receive vouchers directly from the contractor and, with or 
without auditor assistance, approve or disapprove them, the process 
shall be conducted in accordance with the normal procedures of the 
individual agency.
    (b) Auditor receipt of vouchers. (1) When authorized by agency 
regulations, the contract auditor may be authorized to (i) receive 
reimbursement vouchers directly from contractors, (ii) approve for 
payment those vouchers found acceptable, and (iii) suspend payment of 
questionable costs. The auditor shall forward approved vouchers for 
payment to the cognizant contracting, finance, or disbursing officer, as 
appropriate under the agency's procedures.
    (2) If the examination of a voucher raises a question regarding the 
allowability of a cost under the contract terms, the auditor, after 
informal discussion as appropriate, may, where authorized by agency 
regulations, issue a notice of contract costs suspended and/or 
disapproved simultaneously to the contractor and the disbursing officer, 
with a copy to the cognizant contracting officer, for deduction from 
current payments with respect to costs claimed but not considered 
reimbursable.
    (3) If the contractor disagrees with the deduction from current 
payments, the contractor may--
    (i) Submit a written request to the cognizant contracting officer to 
consider whether the unreimbursed costs should be paid and to discuss 
the findings with the contractor;
    (ii) File a claim under the Disputes clause, which the cognizant 
contracting officer will process in accordance with agency procedures; 
or
    (iii) Do both of the above.



                        Subpart 42.9--Bankruptcy

    Source: 56 FR 15154, Apr. 15, 1991, unless otherwise noted.



42.900  Scope of subpart.

    This subpart prescribes policies and procedures regarding actions to 
be taken when a contractor enters into proceedings relating to 
bankruptcy. It establishes a requirement for the contractor to notify 
the contracting officer upon filing a petition for bankruptcy. It 
further establishes minimum

[[Page 827]]

requirements for agencies to follow in the event of a contractor 
bankruptcy.



42.901  General.

    The contract administration office shall take prompt action to 
determine the potential impact of a contractor bankruptcy on the 
Government in order to protect the interests of the Government.



42.902  Procedures.

    (a) When notified of bankruptcy proceedings, agencies shall, as a 
minimum--
    (1) Furnish the notice of bankruptcy to legal counsel and other 
appropriate agency offices (e.g., contracting, financial, property) and 
affected buying activities;
    (2) Determine the amount of the Government's potential claim against 
the contractor (in assessing this impact, identify and review any 
contracts that have not been closed out, including those physically 
completed or terminated);
    (3) Take actions necessary to protect the Government's financial 
interests and safeguard Government property; and
    (4) Furnish pertinent contract information to the legal counsel 
representing the Government.
    (b) The contracting officer shall consult the legal counsel, 
whenever possible, prior to taking any action regarding the contractor's 
bankruptcy proceedings.



42.903  Solicitation provision and contract clause.

    The contracting officer shall insert the clause at 52.242-13, 
Bankruptcy, in all solicitations and contracts exceeding the simplified 
acquisition threshold.
[56 FR 15154, Apr. 15, 1991, as amended at 60 FR 34759, July 3, 1995; 61 
FR 39190, July 26, 1996]



 Subpart 42.10--Negotiating Advance Agreements for Independent Research 
                 and Development/Bid and Proposal Costs



42.1001  Definitions.

    See 31.205-18(a).



42.1002  Applicability.

    The procedures in this subpart shall be used for negotiating advance 
agreements containing dollar ceilings for allowability of independent 
research and development and bid and proposal (IR&D/B&P) costs when 
these agreements are required by 31.205-18(c)(1) until contractors' 
fiscal years beginning on or after October 1, 1992, after which there is 
no requirement for advance agreement negotiations and formal IR&D 
technical reviews and evaluations.
[57 FR 44267, Sept. 24, 1992]



42.1003  Designation of lead negotiating agency.

    A single lead agency shall negotiate all required advance agreements 
for IR&D/B&P costs for each company required to negotiate an advance 
agreement under 31.205-18(c)(1). These agreements are binding on the 
company and on all Government agencies, unless prohibited by statute. 
The lead agency shall be designated as follows:
    (a) To implement section 203 of Pub. L. 91-441, as amended by 
section 208 of Pub. L. 96-342, the Department of Defense (DOD) shall be 
the lead agency for each company receiving combined IR&D/B&P payments 
from DOD during the company's previous fiscal year exceeding the 
threshold in 31.205-18(c)(1).
    (b) When DOD is not the lead agency as indicated in paragraph (a) 
preceding, and more than one agency has contracts with the company, the 
agency that paid the largest dollar amount of IR&D/B&P costs in the 
company's previous fiscal year shall (1) be the lead agency or (2) 
arrange for another agency having contracts with that company to be the 
lead agency.
    (c) In the case of DOD, the term lead negotiating agency means the 
military service responsible for performing the negotiation of IR&D/B&P 
costs.

[[Page 828]]



42.1004  Location of negotiators in a central office.

    In order to facilitate participation, consistency, and interagency 
coordination, agencies with negotiating responsibilities shall locate at 
a central office(s) all personnel responsible for negotiating and 
executing advance agreements required under 31.205-18(c)(1). These 
agencies shall issue instructions on the use, by contracting officers, 
of estimated IR&D/B&P factors in forward pricing, interim billings, etc. 
Contracting officers shall obtain such factors, when applicable, from 
the cognizant central office.



42.1005  Lead negotiating agency responsibilities.

    The lead agency shall perform the functions listed in paragraphs (a) 
through (h) following:
    (a) Furnish contractors with guidance on the technical and financial 
information needed to support IR&D/B&P proposals, as well as how and 
when to submit the proposals.
    (b) Perform, or arrange for performance of, a technical evaluation 
of the IR&D proposed by the contractor, to assist the contracting 
officer in evaluating the reasonableness and technical quality of the 
IR&D program. The technical evaluation shall include an opinion 
concerning the proposed IR&D program and any agency special rules on 
allowability.
    (c) Provide the contractor with a contracting officer's 
determination concerning the proposed IR&D/B&P projects and any agency 
special rules on allowability.
    (d) When advance agreements have not yet been negotiated, provide 
information regarding estimated ceilings, the allocation base, and 
indirect rate data, as appropriate, to contracting officers or other 
interested agency personnel who require information on IR&D/B&P costs 
for forward pricing and interim billing.
    (e) Coordinate participation by affected agencies in prenegotiation 
meetings and in negotiations (see 31.109(f)).
    (f) Prepare a prenegotiation position in coordination with the 
affected agencies.
    (g) Negotiate advance agreements establishing dollar ceilings for 
IR&D/B&P costs allowable during the company's fiscal year for allocation 
to all work of that part of the company's operation covered by the 
agreement.
    (h) Prepare advance agreements and distribute them to affected 
agencies (see 31.109(g)).
    (i) Prepare negotiation memorandums and distribute them to affected 
agencies upon request. The contracting officer may delete from the 
distributed copy portions of a memorandum that are not pertinent to the 
affected agency. When a negotiation memorandum must contain company data 
subject to protection, that data should be so marked, and, when it is 
useful and feasible to do so, it may be separated from the body of the 
memorandum.



42.1006  Conducting negotiations.

    (a) Each contractor required to negotiate an advance agreement under 
31.205-18(c)(1) shall submit, in accordance with agency guidance, 
technical and financial information to support its proposed IR&D/B&P 
programs (see 42.1005(a)). Separate dollar ceilings shall be negotiated 
for IR&D costs and for B&P costs. In negotiating the ceilings, in 
addition to other considerations, contracting officers shall pay 
particular attention to--
    (1) Comparison with the previous year's programs, including the 
level of Government participation;
    (2) Changes in the company's current business activities and 
projected future business activities, to the extent these future 
activities can be determined with reasonable certainty;
    (3) The results of the technical evaluation of IR&D
    (4) The extent to which the company's B&P program is well planned 
and managed; and
    (5) The determination concerning the company's IR&D/B&P projects and 
any agency special rules on allowability.
    (b) Negotiated ceilings must take into account the general rules of 
reasonableness (see 31.201-3) and the preceding considerations.



42.1007  Content of advance agreements.

    Agreements negotiated in accordance with this subpart shall include 
the

[[Page 829]]

items specified in paragraphs (a) through (j) following:
    (a) A dollar ceiling for total IR&D costs.
    (b) A dollar ceiling for total B&P costs.
    (c) A total dollar ceiling for IR&D/B&P costs equal to the sum of 
paragraphs (a) and (b) above.
    (d) The base or other information necessary for allocating IR&D/B&P 
costs.
    (e) A statement that a review in accordance with 42.1005 has been 
performed.
    (f) For those companies meeting the threshold requirements, a 
provision that the recovery of IR&D/B&P costs under Government contracts 
shall not exceed the lesser of--
    (1) Such contracts' allocable share of incurred costs up to the 
total ceiling specified in (c) above; or
    (2) The amount of incurred costs as determined under any agency 
special rules on allowability.
    (g) Any additional agreements concerning the allocability or 
allowability of IR&D costs or B&P costs.
    (h) A provision stating whether recovery is authorized under either 
paragraph (a) or (b) above in excess of the established ceiling, 
provided the total recovery in the two categories does not exceed the 
total ceiling in paragraph (c) above.
    (i) A requirement that the lesser of (1) the current IR&D/B&P 
estimates or (2) the appropriate ceiling amounts shall be used by the 
Government and the contractor for estimating and pricing contractual 
actions. (Also see (e) above.)
    (j) A requirement that the lesser of (1) the actual costs incurred 
or (2) the appropriate ceiling amounts shall be used by the Government 
and the contractor for final price determinations. (Also see (f) above.)



42.1008  Administrative appeals.

    If negotiations are held and an advance agreement is not reached, 
the contracting officer shall make a determination of a reduced amount 
of payment for IR&D/B&P (see 31.205-18(c)(1)(v) and (vi)). Each lead 
negotiating agency shall establish an administrative appeals hearing 
group and procedures for hearing and deciding contractor appeals of the 
contracting officer's decision to reduce payment. Appeal procedures 
under this section are separate and distinct from board or court appeals 
under the Contract Disputes Act of 1978 (41 U.S.C. 601-613).



          Subpart 42.11--Production Surveillance and Reporting



42.1101  General.

    Production surveillance is a function of contract administration 
used to determine contractor progress and to identify any factors that 
may delay performance. Production surveillance involves Government 
review and analysis of (a) contractor performance plans, schedules, 
controls, and industrial processes and (b) the contractor's actual 
performance under them.



42.1102  Applicability.

    This subpart applies to all contracts for supplies or services other 
than facilities, construction contracts, and Federal Supply Schedule 
contracts. See part 37, especially subpart 37.6, regarding surveillance 
of contracts for services.
[48 FR 42370, Sept. 19, 1983, as amended at 62 FR 44816, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44816, Aug. 22, 1997, section 42.1102 
was amended by adding a sentence to the end of the paragraph, effective 
Oct. 21, 1997.



42.1103  Policy.

    The contractor is responsible for timely contract performance. The 
Government will maintain surveillance of contractor performance as 
necessary to protect its interests. When the contracting office retains 
a contract for administration, the contracting officer administering the 
contract shall determine the extent of surveillance.



42.1104  Surveillance requirements.

    (a) The contract administration office determines the extent of 
production surveillance on the basis of (1) the criticality (degree of 
importance to the Government) assigned by the contracting officer (see 
42.1105) to the supplies or services and (2) consideration of the 
following factors:

[[Page 830]]

    (i) Contract requirements for reporting production progress and 
performance.
    (ii) The contract performance schedule.
    (iii) The contractor's production plan.
    (iv) The contractor's history of contract performance.
    (v) The contractor's experience with the contract supplies or 
services.
    (vi) The contractor's financial capability.
    (vii) Any supplementary written instructions from the contracting 
office.
    (b) Contracts at or below the simplified acquisition threshold 
should not normally require production surveillance.
    (c) In planning and conducting surveillance, contract administration 
offices shall make maximum use of any reliable contractor production 
control or data management systems.
    (d) In performing surveillance, contract administration office 
personnel shall avoid any action that may (1) be inconsistent with any 
contract requirement or (2) result in claims of waivers, of changes, or 
of other contract modifications.
[48 FR 42370, Sept. 19, 1983, as amended at 60 FR 34759, July 3, 1995]



42.1105  Assignment of criticality designator.

    Contracting officers shall assign a criticality designator to each 
contract in the space for designating the contract administration 
office, as follows:

                                                                        
                                                                        
     Criticality Designator                     Criterion               
                                                                        
A                                Critical contracts, including DX-rated 
                                  contracts (see subpart 11.6),         
                                  contracts citing the authority in     
                                  6.302-2 (unusual and compelling       
                                  urgency), and contracts for major     
                                  systems.                              
B                                Contracts (other than those designated 
                                  ``A'') for items needed to maintain a 
                                  Government or contractor production or
                                  repair line, to preclude out-of-stock 
                                  conditions or to meet user needs for  
                                  nonstock items.                       
C                                All contracts other than those         
                                  designated ``A'' or ``B.''            
                                                                        

[48 FR 42370, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 60 FR 48249, Sept. 18, 1995]



42.1106  Reporting requirements.

    (a) When information on contract performance status is needed, 
contracting officers may require contractors to submit production 
progress reports (see 42.1107(a)). Reporting requirements shall be 
limited to that information essential to Government needs and shall take 
maximum advantage of data output generated by contractor management 
systems.
    (b) Contract administration offices shall review and verify the 
accuracy of contractor reports and advise the contracting officer of any 
required action. The accuracy of contractor-prepared reports shall be 
verified either by a program of continuous surveillance of the 
contractor's report-preparation system or by individual review of each 
report.
    (c) The contract administration office may at any time initiate a 
report to advise the contracting officer (and the inventory manager, if 
one is designated in the contract) of any potential or actual delay in 
performance. This advice shall (1) be in writing, (2) be provided in 
sufficient time for the contracting officer to take necessary action, 
and (3) provide a definite recommendation, if action is appropriate.



42.1107  Contract clause.

    (a) The contracting officer shall insert the clause at 52.242-2, 
Production Progress Reports, in solicitations and contracts when 
production progress reporting is required; unless a facilities contract, 
a construction contract, or a Federal Supply Schedule contract is 
contemplated.
    (b) When the clause at 52.242-2 is used, the contracting officer 
shall specify appropriate reporting instructions in the Schedule (see 
42.1106(a)).



          Subpart 42.12--Novation and Change-of-Name Agreements



42.1200  Scope of subpart.

    This subpart prescribes policies and procedures for--
    (a) Recognition of a successor in interest to Government contracts 
when contractor assets are transferred;
    (b) Recognition of a change in a contractor's name; and
    (c) Execution of novation agreements and change-of-name agreements 
by the responsible contracting officer.

[[Page 831]]



42.1201  Definitions.

    Change-of-name agreement means a legal instrument executed by the 
contractor and the Government that recognizes the legal change of name 
of the contractor without disturbing the original contractual rights and 
obligations of the parties.
    Novation agreement means a legal instrument executed by (a) the 
contractor (transferor), (b) the successor in interest (transferee), and 
(c) the Government by which, among other things, the transferor 
guarantees performance of the contract, the transferee assumes all 
obligations under the contract, and the Government recognizes the 
transfer of the contract and related assets.



42.1202  Responsibility for executing agreements.

    The contracting officer responsible for processing and executing 
novation and change-of-name agreements shall be determined as follows:
    (a) If any of the affected contracts held by the transferor have 
been assigned to an administrative contracting officer (ACO) (see 2.1 
and 42.202), the responsible contracting officer shall be--
    (1) This ACO; or
    (2) The ACO responsible for the corporate office, if affected 
contracts are in more than one plant or division of the transferor.
    (b) If none of the affected contracts held by the transferor have 
been assigned to an ACO, the contracting officer responsible for the 
largest unsettled (unbilled plus billed but unpaid) dollar balance of 
contracts shall be the responsible contracting officer.
    (c) If several transferors are involved, the responsible contracting 
officer shall be--
    (1) The ACO administering the largest unsettled dollar balance; or
    (2) The contracting officer (or ACO) designated by the agency having 
the largest unsettled dollar balance, if none of the affected contracts 
have been assigned to an ACO.



42.1203  Processing agreements.

    (a) When a firm performing Government contracts wishes the 
Government to recognize (1) a successor in interest to these contracts 
or (2) a name change, the contractor shall submit a written request to 
the responsible contracting officer (see 42.1202).
    (b) The responsible contracting officer shall--
    (1) Promptly notify each contract administration office and 
contracting office affected by a proposed agreement for recognizing a 
successor in interest;
    (2) Provide these offices with a list of all affected contracts; and
    (3) Request submission within 30 days of their comments, which shall 
include technical considerations, if appropriate.
    (c) The responsible contracting officer shall determine whether or 
not it is in the Government's interest to recognize the proposed 
successor in interest on the basis of--
    (1) The comments received from the affected contract administration 
offices and contracting offices (failure to comment by the specified 
date shall be taken as consent); and
    (2) A determination that the proposed successor is responsible under 
subpart 9.1, Responsible Prospective Contractors.
    (d) Before novation and change-of-name agreements are executed, the 
responsible contracting officer shall ensure that Government counsel has 
reviewed them for legal sufficiency.
    (e) The responsible contracting officer shall (1) forward a signed 
copy of the executed novation or change-of-name agreement to the 
transferor and to the transferee and (2) retain a signed copy in the 
case file.
    (f) Following distribution of the agreement, the responsible 
contracting officer shall--
    (1) Prepare a Standard Form 30, Amendment of Solicitation/
Modification of Contract, incorporating a summary of the agreement and 
attaching a complete list of contracts affected;
    (2) Retain the original Standard Form 30 with the attached list in 
the case file;
    (3) Send a signed copy of the Standard Form 30, with attached list 
to the transferor and to the transferee; and

[[Page 832]]

    (4) Send a copy of this Standard Form 30 with attached list to each 
contract administration office or contracting office involved, which 
shall be responsible for further appropriate distribution.



42.1204  Agreement to recognize a successor in interest (novation agreement).

    (a) The law (41 U.S.C. 15) prohibits transfer of Government 
contracts. However, the Government may, in its interest, recognize a 
third party as the successor in interest to a Government contract when 
the third party's interest in the contract arises out of the transfer of 
(1) all the contractor's assets or (2) the entire portion of the assets 
involved in performing the contract. (See 14.404-2(k) for the effect of 
novation agreements after bid opening but before award.) Examples 
include but are not limited to--
    (i) Sale of these assets with a provision for assuming liabilities;
    (ii) Transfer of these assets incident to a merger or corporate 
consolidation; and
    (iii) Incorporation of a proprietorship or partnership, or formation 
of a partnership.
    (b) When it is in the Government's interest not to concur in the 
transfer of a contract from one company to another company, the original 
contractor remains under contractual obligation to the Government, and 
the contract may be terminated for reasons of default, should the 
original contractor not perform.
    (c) When a contractor asks the Government to recognize a successor 
in interest, the responsible contracting officer shall obtain from the 
contractor three signed copies of the proposed novation agreement and 
one copy each, as applicable, of the following:
    (1) An authenticated copy of the instrument effecting the transfer 
of assets; e.g., bill of sale, certificate of merger, contract, deed, 
agreement, or court decree.
    (2) A list of all affected contracts and purchase orders remaining 
unsettled between the transferor and the Government, showing for each 
the (i) contract number and type, (ii) name and address of the 
contracting office, (iii) total dollar value as amended, and (iv) 
remaining unpaid balance.
    (3) A certified copy of each resolution of the corporate parties' 
boards of directors authorizing the transfer of assets.
    (4) A certified copy of the minutes of each corporate party's 
stockholder meeting necessary to approve the transfer of assets.
    (5) An authenticated copy of the transferee's certificate and 
articles of incorporation, if a corporation was formed for the purpose 
of receiving the assets involved in performing the Government contracts.
    (6) The opinion of legal counsel for the transferor and transferee 
stating that the transfer was properly effected under applicable law and 
the effective date of transfer.
    (7) Evidence of the transferee's capability to perform the 
contracts.
    (8) Balance sheets of the transferor and transferee as of the dates 
immediately before and after the transfer of assets, certified for 
accuracy by independent accountants.
    (9) Evidence that any security clearance requirements have been met.
    (10) The consent of sureties on all contracts listed under 
subparagraph (2) above if bonds are required, or a statement from the 
transferor that none are required.
    (d) When recognizing a successor in interest to a Government 
contract is consistent with the Government's interest, the responsible 
contracting officer shall execute a novation agreement with the 
transferor and the transferee. It shall ordinarily provide in part 
that--
    (1) The transferee assumes all the transferor's obligations under 
the contract;
    (2) The transferor waives all rights under the contract against the 
Government;
    (3) The transferor guarantees performance of the contract by the 
transferee (a satisfactory performance bond may be accepted instead of 
the guarantee); and
    (4) Nothing in the agreement shall relieve the transferor or 
transferee from compliance with any Federal law.
    (e) The responsible contracting officer shall use the following 
format for

[[Page 833]]

agreements when the transferor and transferee are corporations and all 
the transferor's assets are transferred. This format may be adapted to 
fit specific cases and may be used as a guide in preparing similar 
agreements for other situations.

                           NOVATION AGREEMENT

    The ABC CORPORATION (Transferor), a corporation duly organized and 
existing under the laws of -------- [insert State] with its principal 
office in -------- [insert city]; the XYZ CORPORATION (Transferee), [if 
appropriate add ``formerly known as the EFG Corporation''] a corporation 
duly organized and existing under the laws of -------- [insert State] 
with its principal office in -------- [insert city]; and the UNITED 
STATES OF AMERICA (Government) enter into this Agreement as of -------- 
[insert the date transfer of assets became effective under applicable 
State law].
    (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
    (1) The Government, represented by various Contracting Officers of 
the -------- [insert name(s) of agency(ies)], has entered into certain 
contracts with the Transferor, namely: -------- [insert contract or 
purchase order identifications]; [or delete ``namely'' and insert ``as 
shown in the attached list marked `Exhibit A' and incorporated in this 
Agreement by reference.'']. The term the contracts, as used in this 
Agreement, means the above contracts and purchase orders and all other 
contracts and purchase orders, including all modifications, made between 
the Government and the Transferor before the effective date of this 
Agreement (whether or not performance and payment have been completed 
and releases executed if the Government or the Transferor has any 
remaining rights, duties, or obligations under these contracts and 
purchase orders). Included in the term the contracts are also all 
modifications made under the terms and conditions of these contracts and 
purchase orders between the Government and the Transferee, on or after 
the effective date of this Agreement.
    (2) As of --------, 19--, the Transferor has transferred to the 
Transferee all the assets of the Transferor by virtue of a -------- 
[insert term descriptive of the legal transaction involved] between the 
Transferor and the Transferee.
    (3) The Transferee has acquired all the assets of the Transferor by 
virtue of the above transfer.
    (4) The Transferee has assumed all obligations and liabilities of 
the Transferor under the contracts by virtue of the above transfer.
    (5) The Transferee is in a position to fully perform all obligations 
that may exist under the contracts.
    (6) It is consistent with the Government's interest to recognize the 
Transferee as the successor party to the contracts.
    (7) Evidence of the above transfer has been filed with the 
Government.
    [When a change of name is also involved; e.g., a prior or concurrent 
change of the Transferee's name, an appropriate statement shall be 
inserted (see example in paragraph (8) below)].
    (8) A certificate dated --------, 19--, signed by the Secretary of 
State of -------- [insert State], to the effect that the corporate name 
of EFG CORPORATION was changed to XYZ CORPORATION on --------, 19--, has 
been filed with the Government.
    (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY THIS 
AGREEMENT--
    (1) The Transferor confirms the transfer to the Transferee, and 
waives any claims and rights against the Government that it now has or 
may have in the future in connection with the contracts.
    (2) The Transferee agrees to be bound by and to perform each 
contract in accordance with the conditions contained in the contracts. 
The Transferee also assumes all obligations and liabilities of, and all 
claims against, the Transferor under the contracts as if the Transferee 
were the original party to the contracts.
    (3) The Transferee ratifies all previous actions taken by the 
Transferor with respect to the contracts, with the same force and effect 
as if the action had been taken by the Transferee.
    (4) The Government recognizes the Transferee as the Transferor's 
successor in interest in and to the contracts. The Transferee by this 
Agreement becomes entitled to all rights, titles, and interests of the 
Transferor in and to the contracts as if the Transferee were the 
original party to the contracts. Following the effective date of this 
Agreement, the term Contractor, as used in the contracts, shall refer to 
the Transferee.
    (5) Except as expressly provided in this Agreement, nothing in it 
shall be construed as a waiver of any rights of the Governmelt against 
the Transferor.
    (6) All payments and reimbursements previously made by the 
Governmelt to the Transferor, and all other previous actions taken by 
the Government under the contracts, shall be considered to have 
discharged those parts of the Government's obligations under the 
contracts. All payments and reimbursements made by the Government after 
the date of this Agreement in the name of or to the Transferor shall 
have the same force and effect as if made to the Transferee, and shall 
constitute a complete discharge of the Government's obligations under 
the contracts, to the extent of the amounts paid or reimbursed.
    (7) The Transferor and the Transferee agree that the Government is 
not obligated

[[Page 834]]

to pay or reimburse either of them for, or otherwise give effect to, any 
costs, taxes, or other expenses, or any related increases, directly or 
indirectly arising out of or resulting from the transfer or this 
Agreement, other than those that the Government in the absence of this 
transfer or Agreement would have been obligated to pay or reimburse 
under the terms of the contracts.
    (8) The Transferor guarantees payment of all liabilities and the 
performance of all obligations that the Transferee (i) assumes under 
this Agreement or (ii) may undertake in the future should these 
contracts be modified under their terms and conditions. The Transferor 
waives notice of, and consents to, any such future modifications.
    (9) The contracts shall remain in full force and effect, except as 
modified by this Agreement. Each party has executed this Agreement as of 
the day and year first above written.

    UNITED STATES OF AMERICA,

 By_____________________________________________________________________
 Title__________________________________________________________________

    ABC CORPORATION,

 By_____________________________________________________________________
 Title__________________________________________________________________


[CORPORATE SEAL]

    XYZ CORPORATION,

 By_____________________________________________________________________
 Title__________________________________________________________________

[CORPORATE SEAL]

                               CERTIFICATE

    I, ----------, certify that I am the Secretary of ABC CORPORATION; 
that ----------, who signed this Agreement for this corporation, was 
then -------- of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporate powers.
    Witness my hand and the seal of this corporation this -------- day 
of -------- 19--.

 By_____________________________________________________________________

[CORPORATE SEAL]

                               CERTIFICATE

    I, ----------, certify that I am the Secretary of XYZ CORPORATION; 
that ----------, who signed this Agreement for this corporation, was 
then ---------- of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporate powers.
    Witness my hand and the seal of this corporation this -------- day 
of -------- 19--.

 By_____________________________________________________________________


[CORPORATE SEAL]



42.1205  Agreement to recognize contractor's change of name.

    (a) If only a change of the contractor's name is involved and the 
Government's and contractor's rights and obligations remain unaffected, 
the parties shall execute an agreement to reflect the name change. The 
contractor shall forward to the responsible contracting officer three 
signed copies of the Change-of-Name Agreement, and one copy each of the 
following:
    (1) The document effecting the name change, authenticated by a 
proper official of the State having jurisdiction.
    (2) The opinion of the contractor's legal counsel stating that the 
change of name was properly effected under applicable law and showing 
the effective date.
    (3) A list of all affected contracts and purchase orders remaining 
unsettled between the contractor and the Government, showing for each 
the contract number and type, and name and address of the contracting 
office. The contracting officer may request the total dollar value as 
amended and the remaining unpaid balance for each contract.
    (b) The following suggested format for an agreement may be adapted 
for specific cases:

                        CHANGE-OF-NAME AGREEMENT

    The ABC CORPORATION (Contractor), a corporation duly organized and 
existing under the laws of ------ [insert State], and the UNITED STATES 
OF AMERICA (Government), enter into this Agreement as of -------- 
[insert date when the change of name became effective under applicable 
State law].
    (a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
    (1) The Government, represented by various Contracting Officers of 
the -------- [insert name(s) of agency(ies)], has entered into certain 
contracts and purchase orders with the XYZ CORPORATION, namely: -------- 
[insert contract or purchase order identifications]; [or delete 
``namely'' and insert ``as shown in the attached list marked `Exhibit A' 
and incorporated in this Agreement by reference.'']. The term the 
contracts, as used in this Agreement, means the above contracts and 
purchase orders and all other contracts and purchase orders, including 
all modifications, made by the Government and the Contractor before the 
effective date of this

[[Page 835]]

Agreement (whether or not performance and payment have been completed 
and releases executed if the Government or the Contractor has any 
remaining rights, duties, or obligations under these contracts and 
purchase orders).
    (2) The XYZ CORPORATION, by an amendment to its certificate of 
incorporation, dated --------, 19--, has changed its corporate name to 
ABC CORPORATION.
    (3) This amendment accomplishes a change of corporate name only and 
all rights and obligations of the Government and of the Contractor under 
the contracts are unaffected by this change.
    (4) Documentary evidence of this change of corporate name has been 
filed with the Government.
    (b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT--
    (1) The contracts covered by this Agreement are amended by 
substituting the name ``ABC CORPORATION'' for the name ``XYZ 
CORPORATION'' wherever it appears in the contracts; and
    (2) Each party has executed this Agreement as of the day and year 
first above written.

    UNITED STATES OF AMERICA,

 By_____________________________________________________________________
 Title__________________________________________________________________

    ABC CORPORATION,

 By_____________________________________________________________________
 Title__________________________________________________________________

[CORPORATE SEAL]

                               CERTIFICATE

    I, ----------, certify that I am the Secretary of ABC CORPORATION; 
that ----------, who signed this Agreement for this corporation, was 
then -------- of this corporation; and that this Agreement was duly 
signed for and on behalf of this corporation by authority of its 
governing body and within the scope of its corporate powers.
    Witness my hand and the seal of this corporation this ---- day of --
------ 19--.

 By_____________________________________________________________________

[CORPORATE SEAL]
[48 FR 42370, Sept. 19, 1983, as amended at 56 FR 67134, Dec. 27, 1991]



  Subpart 42.13--Suspension of Work, Stop-Work Orders, and Government 
                              Delay of Work

    Source: 48 FR 42159, Sept. 19, 1983, unless otherwise noted. 
Redesignated at 60 FR 48241, Sept. 18, 1995.



42.1301  General.

    Situations may occur during contract performance that cause the 
Government to order a suspension of work, or a work stoppage. This 
subpart provides clauses to meet these situations and a clause for 
settling contractor claims for unordered Government caused delays that 
are not otherwise covered in the contract.



42.1302  Suspension of work.

    A suspension of work under a construction or architect-engineer 
contract may be ordered by the contracting officer for a reasonable 
period of time. If the suspension is unreasonable, the contractor may 
submit a written claim for increases in the cost of performance, 
excluding profit.



42.1303  Stop-work orders.

    (a) Stop-work orders may be used, when appropriate, in any 
negotiated fixed-price or cost-reimbursement supply, research and 
development, or service contract if work stoppage may be required for 
reasons such as advancement in the state-of-the-art, production or 
engineering breakthroughs, or realignment of programs.
    (b) Generally, a stop-work order will be issued only if it is 
advisable to suspend work pending a decision by the Government and a 
supplemental agreement providing for the suspension is not feasible. 
Issuance of a stop-work order shall be approved at a level higher than 
the contracting officer. Stop-work orders shall not be used in place of 
a termination notice after a decision to terminate has been made.
    (c) Stop-work orders should include--
    (1) A description of the work to be suspended;
    (2) Instructions concerning the contractor's issuance of further 
orders for materials or services;
    (3) Guidance to the contractor on action to be taken on any 
subcontracts; and
    (4) Other suggestions to the contractor for minimizing costs.
    (d) Promptly after issuing the stop-work order, the contracting 
officer should discuss the stop-work order with the contractor and 
modify the order, if necessary, in light of the discussion.

[[Page 836]]

    (e) As soon as feasible after a stop-work order is issued, but 
before its expiration, the contracting officer shall take appropriate 
action to--
    (1) Terminate the contract;
    (2) Cancel the stop-work order (any cancellation of a stop-work 
order shall be subject to the same approvals as were required for its 
issuance); or
    (3) Extend the period of the stop-work order if it is necessary and 
if the contractor agrees (any extension of the stop-work order shall be 
by a supplemental agreement).



42.1304  Government delay of work.

    (a) The clause at 52.242-17, Government Delay of Work, provides for 
the administrative settlement of contractor claims that arise from 
delays and interruptions in the contract work caused by the acts, or 
failures to act, of the contracting officer. This clause is not 
applicable if the contract otherwise specifically provides for an 
equitable adjustment because of the delay or interruption; e.g., when 
the Changes clause is applicable.
    (b) The clause does not authorize the contracting officer to order a 
suspension, delay, or interruption of the contract work and it shall not 
be used as the basis or justification of such an order.
    (c) If the contracting officer has notice of an unordered delay or 
interruption covered by the clause, the contracting officer shall act to 
end the delay or take other appropriate action as soon as practicable.
    (d) The contracting officer shall retain in the file a record of all 
negotiations leading to any adjustment made under the clause, and 
related cost or pricing data, or information other than cost or pricing 
data.
[48 FR 42159, Sept. 19, 1983. Redesignated and amended at 60 FR 48241, 
48249, Sept. 18, 1995]



42.1305  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.242-14, 
Suspension of Work, in solicitations and contracts when a fixed-price 
construction or architect-engineer contract is contemplated.
    (b)(1) The contracting officer may, when contracting by negotiation, 
insert the clause at 52.242-15, Stop-Work Order, in solicitations and 
contracts for supplies, services, or research and development.
    (2) If a cost-reimbursement contract is contemplated, the 
contracting officer shall use the clause with its Alternate I.
    (c) The contracting officer shall insert the clause at 52.242-16, 
Stop-Work Order--Facilities, in solicitations and contracts when a 
facilities acquisition contract or a consolidated facilities contract is 
contemplated.
    (d) The contracting officer shall insert the clause at 52.242-17, 
Government Delay of Work, in solicitations and contracts when a fixed-
price contract is contemplated for supplies other than commercial or 
modified-commercial items. The clause use is optional when a fixed-price 
contract is contemplated for services, or for supplies that are 
commercial or modified-commercial items.
[48 FR 42159, Sept. 19, 1983, as amended at 50 FR 2270, Jan. 15, 1985; 
50 FR 25680, June 20, 1985. Redesignated and amended at 60 FR 48241, 
48249, Sept. 18, 1995]



          Subpart 42.14--Traffic and Transportation Management



42.1401  General.

    (a) The contract administration office (CAO) shall ensure that 
instructions to contractors result in the most efficient and economical 
use of carrier services and equipment. If the transportation data 
regarding f.o.b. origin contracts is insufficient for Government 
transportation management purposes, the CAO shall obtain the data used 
in the evaluation of offers.
    (b) Transportation personnel assigned to or supporting the CAO, or 
appropriate agency personnel, are responsible for--
    (1) Furnishing timely routings and releases for port shipments;
    (2) Monitoring shipments to provide for carload or truckload 
quantities when practicable;
    (3) Controlling and issuing U.S. Government bills of lading (GBL's) 
and determining proper freight classification descriptions;
    (4) Reviewing documentation to ensure the proper distribution and 
validation of shipping documents;

[[Page 837]]

    (5) Developing, and advising on, transportation cost differentials 
brought on by proposed changes in contract terms; e.g., delivery 
schedules;
    (6) Determining, for contract requirements, the size and carrying 
capability of carrier equipment to transport overdimensional and/or 
overweight supplies, hazardous materials, or supplies requiring special 
shipping arrangements;
    (7) Developing information and reporting movements that may be the 
basis for negotiating special rates for volume movements or for rate 
adjustments (see 42.1402(b));
    (8) Exercising control of irregularities in preservation, packing, 
loading, blocking and bracing, and other causes contributing to loss and 
damage; sealing of carrier equipment and documentation;
    (9) Providing information on the use of transit arrangements;
    (10) Recommending, when appropriate, prepayment by contractor for 
f.o.b. origin shipments or parcel post (see 47.303-17 and 42.1404);
    (11) Recommending, when appropriate, the use of commercial forms and 
procedures for small shipments of a recurring nature if transportation 
costs do not exceed $100, as authorized in 41 CFR 101-41.304-2 and, for 
the Department of Defense (DOD), in Chapter 32, Defense Traffic 
Management Regulation (DTMR) (AR 55-355, NAVSUPINST 4600.70, AFM 75-2, 
MCO P-4600.14A, DLAR 4500.3);
    (12) Diverting, reconsigning, tracing, and expediting shipments; and
    (13) Considering the capabilities of contractors for meeting new or 
emergency requirements that arise during the contract administration and 
using these capabilities when appropriate.
    (14) Using routings through established consolidation stations when 
it is in the Government's interest.
    (c) Civilian agencies shall consult and cooperate with the Office of 
Transportation of the General Services Administration (GSA) as required 
in 41 CFR 101-40. (See 47.105, Transportation assistance, for assistance 
to civilian Government activities or to military installations.)
[48 FR 42370, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
55 FR 52796, Dec. 21, 1990; 59 FR 11383, Mar. 10, 1994]



42.1402  Volume movements within the continental United States.

    (a) (1) For purposes of contract administration, a volume movement 
is--
    (i) In DOD, the aggregate of freight shipments amounting to or 
exceeding 25 carloads, 25 truckloads, or 500,000 pounds, to move during 
the contract period from one origin point for delivery to one 
destination point or area; and
    (ii) In civilian agencies, 50 short tons (100,000 pounds) in the 
aggregate to move during the contract period from one origin point for 
delivery to one destination point or area.
    (2) Transportation personnel assigned to or supporting the CAO, or 
appropriate agency personnel, shall report planned and actual volume 
movements in accordance with agency regulations. DOD activities report 
to the Military Traffic Management Command (MTMC) under the Defense 
Traffic Management Regulation (DTMR). Civilian agencies report to GSA, 
Office of Transportation, or other designated offices under the Federal 
Property Management Regulations (FPMR), specifically 41 CFR 101-40.305-
2.
    (b) Reporting of volume movements permits MTMC and GSA 
transportation personnel to determine the reasonableness of applicable 
current rates and, when appropriate, to negotiate adjusted or modified 
rates.
[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 11383, Mar. 10, 1994]



42.1403  Shipping documents covering f.o.b. origin shipments.

    (a) Except as provided in 47.303-17, when a contract specifies 
delivery of supplies f.o.b. origin with transportation costs to be paid 
by the Government, the contractor shall make shipments on U.S. 
Government bills of lading (GBL's), or on other shipping documents 
prescribed by MTMC in the case of seavan containers, furnished by the

[[Page 838]]

CAO or the appropriate agency transportation office. Each agency shall 
establish appropriate procedures by which the contractor shall obtain 
GBL's. The contracting officer shall not authorize the contractor to 
ship on commercial bills of lading for conversion to GBL's unless 
delivery is extremely urgent and GBL's are not readily available.
    (b) The possible application of reduced rates under section 10721 of 
the Interstate Commerce Act for shipments on commercial bills of lading 
and the Commercial Bill of Lading Notations clause are discussed at 
47.104.
    (c) (1) The limited authority for the use of commercial forms and 
procedures to acquire freight or express transportation for small 
shipments of a recurring nature when transportation costs do not exceed 
$100, is prescribed in the Transportation Documentation and Audit 
Regulation, specifically 41 CFR 101-41.304-2.
    (2) For DOD shipments, corresponding guidance is in Chapter 32 of 
the DTMR.
[48 FR 42370, Sept. 19, 1983. Redesignated and amended at 55 FR 52796, 
Dec. 21, 1990; 59 FR 11383, Mar. 10, 1994]



42.1404  Shipments by parcel post or other classes of mail.



42.1404-1  Parcel post eligible shipments.

    (a) (1) Use of parcel post or other classes of mail permits direct 
movements from source of supply to the user, without the intermediate 
documentation that is required when supplies are transported through 
depots or air or water terminals. However, the use of parcel post and 
other classes of mail shall be confined to deliveries of mailable matter 
that meet the size, weight, and distance limitations prescribed by the 
U.S. Postal Service. Parcel post eligible shipments for overseas 
destinations will not be sent via Small Package Delivery services or 
parcel post to CONUS military air or water terminals. These shipments 
will be mailed through the APO or FPO to the overseas user.
    (2) When parcel post or other classes of mail are used by 
contractors, they shall prepay the postage costs by using their own 
mailing labels or stamps and include prepaid postage costs as separate 
items in the invoices for supplies shipped.
    (b)(1) Authority for contractors to use indicia mail may be obtained 
by submitting Postal Service (PS) Form 3601, Application to Mail Without 
Affixing Postage Stamps, to the U.S. Postal Service for approval, 
following agency procedures. If approval is granted, the agency shall 
follow the U.S. Postal Service permit requirements.
    (2) When indicia mail is used, the contractor will be provided with 
a completed PS Form 3601 and official penalty permit imprint mailing 
labels, envelopes, or cards printed on the top right side in a 
rectangular box: Postage and Fees Paid (first line); Government Agency 
Name (second line); and, the proper permit imprint number (G-000) on the 
third line. These must also bear in the upper left corner in every case 
the printed return address of the agency concerned above the printed 
phrases ``Official Business'' and ``Penalty for Private Use, $300.'' The 
name and address of a private person or firm shall not be shown.
    (c) When a contractor uses the contractor's own label for making a 
shipment to a post office servicing military and other agency consignees 
outside the United States, the contractor shall stamp or imprint the 
parcel immediately above the label in l/4 inch block letters with (i) 
the name of the agency and (ii) the words Official Mail-Contents for 
Official Use-Exempt from Customs Requirements. This permits 
identification and expedites handling within the postal system. Use of 
this marking does not eliminate the requirement for payment of postage 
by the contractor when so required by the contract or when the 
contractor is to be reimbursed for the cost of postage.
    (d) Contractors may not insure shipments at Government expense for 
the purpose of recovery in case of loss and/or damage, except that 
minimum insurance required for the purposes of obtaining receipts at 
point of origin and upon delivery is authorized.
[48 FR 42370, Sept. 19, 1983, as amended at 53 FR 27467, July 20, 1988; 
57 FR 60587, Dec. 21, 1992]

[[Page 839]]



42.1404-2  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.242-10, 
F.o.b. Origin--Government Bills of Lading or Prepaid Postage, in 
solicitations and contracts when f.o.b. origin shipments are to be made 
using Government bills of lading or prepaid postage.
    (b) The contracting officer shall insert the clause at 52.242-11, 
F.o.b. Origin--Government Bills of Lading or Indicia Mail, in 
solicitations and contracts when f.o.b. origin shipments are to be made 
using Government bills of lading or indicia mail, if indicia mail has 
been authorized by the U.S. Postal Service.



42.1405  Discrepancies incident to shipment of supplies.

    (a) Discrepancies incident to shipment include overage, shortage, 
loss, damage, and other discrepancies between the quantity and/or 
condition of supplies received from commercial carriers and the quantity 
and/or condition of these supplies as shown on the covering bill of 
lading or other transportation document. Regulations and procedures for 
reporting and adjusting discrepancies in Government shipments are in 
subpart 40.7 of the Federal Property Management Regulations (41 CFR 101-
40.7). (Military installations shall consult Reporting of Transportation 
Discrepancies in Shipments, AR 55-38, NAVSUP INST 4610.33C, AFR 75-18, 
MCO P4610.19D, DLAR 4500.15).
    (b) Generally, when the place of delivery is f.o.b. origin, the 
Government consignee at destination is also accountable for the 
supplies, and all claims or reports dealing with discrepancies shall be 
initiated at that point in accordance with the property accountability 
regulations of the agency concerned.
    (c) If supplies are acquired on an f.o.b. destination basis, any 
claim arising from a discrepancy occurring in transit is a matter for 
settlement between the contractor and the carrier. However, the 
Government consignee shall (1) notify the carrier of the discrepancy by 
noting the exception on the carrier's delivery receipt and (2) furnish 
all available data to the CAO or appropriate agency office, which shall 
promptly transmit the data to the contractor.
[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 11383, Mar. 10, 1994]



42.1406  Report of shipment.



42.1406-1  Advance notice.

    Military (and as required, civilian agency) storage and distribution 
points, depots, and other receiving activities require advance notice of 
shipments en route from contractors' plants. Generally, this 
notification is required only for classified material; sensitive, 
controlled, and certain other protected material; explosives, and some 
other hazardous materials; selected shipments requiring movement 
control; or minimum carload or truckload shipments. It facilitates 
arrangements for transportation control, labor, space, and use of 
materials handling equipment at destination. Also, timely receipt of 
notices by the consignee transportation office precludes the incurring 
of demurrage and vehicle detention charges.
[48 FR 42370, Sept. 19, 1983, as amended at 54 FR 48989, Nov. 28, 1989]



42.1406-2  Contract clause.

    The contracting officer shall insert the clause at 52.242-12, Report 
of Shipment (REPSHIP), in solicitations and contracts when advance 
notice of shipment is required for safety or security reasons, or where 
carload or truckload shipments will be made to DoD installations or, as 
required, to civilian agency facilities.
[54 FR 48989, Nov. 28, 1989]



            Subpart 42.15--Contractor Performance Information

    Source: 60 FR 16719, Mar. 31, 1995, unless otherwise noted.



42.1500  Scope of subpart.

    This subpart provides policies and establishes responsibilities for 
recording and maintaining contractor performance information. It 
implements Office of Federal Procurement Policy Letter 92-5, Past 
Performance Information. This subpart does not apply to procedures used 
by agencies in determining

[[Page 840]]

fees under award or incentive fee contracts. However, the fee amount 
paid to contractors should be reflective of the contractor's performance 
and the past performance evaluation should closely parallel the fee 
determinations.



42.1501  General.

    Past performance information is relevant information, for future 
source selection purposes, regarding a contractor's actions under 
previously awarded contracts. It includes, for example, the contractor's 
record of conforming to contract requirements and to standards of good 
workmanship; the contractor's record of forecasting and controlling 
costs; the contractor's adherence to contract schedules, including the 
administrative aspects of performance; the contractor's history of 
reasonable and cooperative behavior and commitment to customer 
satisfaction; and generally, the contractor's business-like concern for 
the interest of the customer.



42.1502  Policy.

    (a) Except as provided in paragraph (b) of this section, agencies 
shall prepare an evaluation of contractor performance for each contract 
in excess of $1,000,000 (regardless of the date of contract award) and 
for each contract in excess of $100,000 beginning not later than January 
1, 1998 (regardless of the date of contract award), at the time the work 
under the contract is completed. In addition, interim evaluations should 
be prepared as specified by the agencies to provide current information 
for source selection purposes, for contracts with a period of 
performance, including options, exceeding one year. This evaluation is 
generally for the entity, division, or unit that performed the contract. 
The content and format of performance evaluations shall be established 
in accordance with agency procedures and should be tailored to the size, 
content, and complexity of the contractual requirements.
    (b) Agencies shall not evaluate performance for contracts awarded 
under 48 CFR part 8, subparts 8.6 and 8.7. Agencies shall evaluate 
construction contractor performance and architect/engineer contractor 
performance in accordance with 48 CFR 36.201 and 36.604, respectively.
[60 FR 16719, Mar. 31, 1995 as amended at 62 FR 51258, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, section 42.1502 
was amended by revising the first sentence of paragraph (a), effective 
Oct. 10, 1997. For the convenience of the user, the superseded text is 
set forth as follows:

42.1502  Policy.

    (a) Except as provided in paragraph (b) of this section, agencies 
shall prepare an evaluation of contractor performance for each contract 
in excess of $1,000,000 beginning July 1, 1995, $500,000 beginning July 
1, 1996, and $100,000 beginning January 1, 1998, (regardless of the date 
of contract award) at the time the work under the contract is completed. 
* * *

                                * * * * *



42.1503  Procedures.

    (a) Agency procedures for the past performance evaluation system 
shall generally provide for input to the evaluations from the technical 
office, contracting office and, where appropriate, end users of the 
product or service.
    (b) Agency evaluations of contractor performance prepared under this 
subpart shall be provided to the contractor as soon as practicable after 
completion of the evaluation. Contractors shall be given a minimum of 30 
days to submit comments, rebutting statements, or additional 
information. Agencies shall provide for review at a level above the 
contracting officer to consider disagreements between the parties 
regarding the evaluation. The ultimate conclusion on the performance 
evaluation is a decision of the contracting agency. Copies of the 
evaluation, contractor response, and review comments, if any, shall be 
retained as part of the evaluation. These evaluations may be used to 
support future award decisions, and should therefore be marked ``Source 
Selection Information''. The completed evaluation shall not be released 
to other than Government personnel and the contractor whose performance 
is being evaluated during the period the information may be used to 
provide source selection information. Disclosure of such information 
could cause harm both to the commercial interest

[[Page 841]]

of the Government and to the competitive position of the contractor 
being evaluated as well as impede the efficiency of Government 
operations. Evaluations used in determining award or incentive fee 
payments may also be used to satisfy the requirements of this subpart. A 
copy of the annual or final past performance evaluation shall be 
provided to the contractor as soon as it is finalized.
    (c) Departments and agencies shall share past performance 
information with other departments and agencies when requested to 
support future award decisions. The information may be provided through 
interview and/or by sending the evaluation and comment documents to the 
requesting source selection official.
    (d) Any past performance information systems, including automated 
systems, used for maintaining contractor performance information and/or 
evaluations should include appropriate management and technical controls 
to ensure that only authorized personnel have access to the data.
    (e) The past performance information shall not be retained to 
provide source selection information for longer than three years after 
completion of contract performance.
60 FR 16719, Sept. 30, 1997, as amended at 62 FR 51258, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, secton 42.1503 
was amended by adding a sentence at the end of paragraph (b), effective 
Oct. 10, 1997.



          Subpart 42.16--Small Business Contract Administration



42.1601  General.

    The contracting officer shall make every reasonable effort to 
respond in writing within 30 days to any written request to the 
contracting officer from a small business concern with respect to a 
contract administration matter. In the event the contracting officer 
cannot respond to the request within the 30-day period, the contracting 
officer shall, within the period, transmit to the contractor a written 
notification of the specific date the contracting officer expects to 
respond. This provision shall not apply to a request for a contracting 
officer decision under the Contract Disputes Act of 1978 (41 U.S.C. 601-
613).
[60 FR 48230, Sept. 18, 1995]



             Subpart 42.17--Forward Pricing Rate Agreements

    Source: 62 FR 51258, Sept. 30, 1997, unless otherwise noted.

    Effective Date Note: At 62 FR 51258, Sept. 30, 1997, subpart 42.17 
was added, effective Oct. 10, 1997.



42.1701  Procedures.

    (a) Negotiation of forward pricing rate agreements (FPRA's) may be 
requested by the contracting officer or the contractor or initiated by 
the administrative contracting officer (ACO). In determining whether or 
not to establish such an agreement, the ACO should consider whether the 
benefits to be derived from the agreement are commensurate with the 
effort of establishing and monitoring it. Normally, FPRA's should be 
negotiated only with contractors having a significant volume of 
Government contract proposals. The cognizant contract administration 
agency shall determine whether an FPRA will be established.
    (b) The ACO shall obtain the contractor's proposal and require that 
it include cost or pricing data that are accurate, complete, and current 
as of the date of submission. The ACO shall invite the cognizant 
contract auditor and contracting offices having a significant interest 
to participate in developing a Government objective and in the 
negotiations. Upon completing negotiations, the ACO shall prepare a 
price negotiation memorandum (PNM) (see 15.406-3) and forward copies of 
the PNM and FPRA to the cognizant auditor and to all contracting offices 
that are known to be affected by the FPRA. A Certificate of Current Cost 
or Pricing Data shall not be required at this time (see 15.407-3(c)).
    (c) The FPRA shall provide specific terms and conditions covering 
expiration, application, and data requirements for systematic monitoring 
to ensure the validity of the rates. The agreement shall provide for 
cancellation at the option of either party and

[[Page 842]]

shall require the contractor to submit to the ACO and to the cognizant 
contract auditor any significant change in cost or pricing data.
    (d) When an FPRA is invalid, the contractor should submit and 
negotiate a new proposal to reflect the changed conditions. If an FPRA 
has not been established or has been invalidated, the ACO will issue a 
forward pricing rate recommendation (FPRR) to buying activities with 
documentation to assist negotiators. In the absence of an FPRA or FPRR, 
the ACO shall include support for rates utilized.
    (e) The ACO may negotiate continuous updates to the FPRA. The FPRA 
will provide specific terms and conditions covering notification, 
application, and data requirements for systematic monitoring to ensure 
the validity of the rates.



PART 43--CONTRACT MODIFICATIONS--Table of Contents




Sec.
43.000  Scope of part.

                          Subpart 43.1--General

43.101  Definitions.
43.102  Policy.
43.103  Types of contract modifications.
43.104  Notification of contract changes.
43.105  Availability of funds.
43.106  [Reserved]
43.107  Contract clause.

                       Subpart 43.2--Change Orders

43.201  General.
43.202  Authority to issue change orders.
43.203  Change order accounting procedures.
43.204  Administration.
43.205  Contract clauses.

                           Subpart 43.3--Forms

43.301  Use of forms.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42386, Sept. 19, 1983, unless otherwise noted.



43.000  Scope of part.

    This part prescribes policies and procedures for preparing and 
processing contract modifications for all types of contracts including 
construction and architect-engineer contracts. It does not apply to--
    (a) Orders for supplies or services not otherwise changing the terms 
of contracts or agreements (e.g., delivery orders under indefinite-
delivery contracts); or
    (b) Modifications for extraordinary contractual relief (see part 
50).



                          Subpart 43.1--General



43.101  Definitions.

    Administrative change means a unilateral (see 43.103(b)) contract 
change, in writing, that does not affect the substantive rights of the 
parties (e.g., a change in the paying office or the appropriation data).
    Change order means a written order, signed by the contracting 
officer, directing the contractor to make a change that the Changes 
clause authorizes the contracting officer to order without the 
contractor's consent.
    Contract modification means any written change in the terms of a 
contract (see 43.103).
    Effective date has various meanings based on the circumstances in 
which it is used:
    (a) For a solicitation amendment, change order, or administrative 
change, the effective date shall be the issue date of the amendment, 
change order, or administrative change.
    (b) For a supplemental agreement, the effective date shall be the 
date agreed upon by the contracting parties.
    (c) For a modification issued as a confirming notice of termination 
for the convenience of the Government, the effective date of the 
confirming notice shall be the same as the effective date of the initial 
notice.
    (d) For a modification converting a termination for default to a 
termination for the convenience of the Government, the effective date 
shall be the same as the effective date of the termination for default.
    (e) For a modification confirming the termination contracting 
officer's previous letter determination of the amount due in settlement 
of a contract termination for convenience, the effective date shall be 
the same as the effective date of the previous letter determination.

[[Page 843]]

    Supplemental agreement means a contract modification that is 
accomplished by the mutual action of the parties.



43.102  Policy.

    (a) Only contracting officers acting within the scope of their 
authority are empowered to execute contract modifications on behalf of 
the Government. Other Government personnel shall not--
    (1) Execute contract modifications;
    (2) Act in such a manner as to cause the contractor to believe that 
they have authority to bind the Government; or
    (3) Direct or encourage the contractor to perform work that should 
be the subject of a contract modification.
    (b) Contract modifications, including changes that could be issued 
unilaterally, shall be priced before their execution if this can be done 
without adversely affecting the interest of the Government. If a 
significant cost increase could result from a contract modification and 
time does not permit negotiation of a price, at least a maximum price 
shall be negotiated unless impractical.
    (c) The Federal Acquisition Streamlining Act of 1994, Public Law 
103-355 (FASA), and Section 4402 of the Clinger-Cohen Act of 1996, 
Public Law 104-106, authorize, but do not require, contracting officers, 
if requested by the prime contractor, to modify contracts without 
requiring consideration to incorporate changes authorized by FASA or 
Clinger-Cohen Act amendments into existing contracts. Contracting 
officers are encouraged, if appropriate, to modify contracts without 
requiring consideration to incorporate these new policies. The contract 
modification should be accomplished by inserting into the contract, as a 
minimum, the current version of the applicable FAR clauses.
[48 FR 42386, Sept. 19, 1983, as amended at 61 FR 18915, Apr. 29, 1996; 
61 FR 69298, Dec. 31, 1996]



43.103  Types of contract modifications.

    Contract modifications are of the following types:
    (a) Bilateral. A bilateral modification (supplemental agreement) is 
a contract modification that is signed by the contractor and the 
contracting officer. Bilateral modifications are used to--
    (1) Make negotiated equitable adjustments resulting from the 
issuance of a change order;
    (2) Definitize letter contracts; and
    (3) Reflect other agreements of the parties modifying the terms of 
contracts.
    (b) Unilateral. A unilateral modification is a contract modification 
that is signed only by the contracting officer. Unilateral modifications 
are used, for example, to--
    (1) Make administrative changes;
    (2) Issue change orders;
    (3) Make changes authorized by clauses other than a changes clause 
(e.g., Property clause, Options clause, Suspension of Work clause, 
etc.); and
    (4) Issue termination notices.



43.104  Notification of contract changes.

    (a) When a contractor considers that the Government has effected or 
may effect a change in the contract that has not been identified as such 
in writing and signed by the contracting officer, it is necessary that 
the contractor notify the Government in writing as soon as possible. 
This will permit the Government to evaluate the alleged change and (1) 
confirm that it is a change, direct the mode of further performance, and 
plan for its funding; (2) countermand the alleged change; or (3) notify 
the contractor that no change is considered to have occurred.
    (b) The clause at 52.243-7, Notification of Changes, which is 
prescribed in 43.107, (1) incorporates the policy expressed in paragraph 
(a) above; (2) requires the contractor to notify the Government promptly 
of any Government conduct that the contractor considers a change to the 
contract, and (3) specifies the responsibilities of the contractor and 
the Government with respect to such notifications.
[48 FR 42386, Sept. 19, 1983, as amended at 56 FR 41744, Aug. 22, 1991]



43.105  Availability of funds.

    (a) The contracting officer shall not execute a contract 
modification that causes or will cause an increase in funds without 
having first obtained a

[[Page 844]]

certification of fund availability, except for modifications to 
contracts that--
    (1) Are conditioned on availability of funds (see 32.703-2); or
    (2) Contain a limitation of cost or funds clause (see 32.704).
    (b) The certification required by paragraph (a) above shall be based 
on the negotiated price, except that modifications executed before 
agreement on price may be based on the best available estimate of cost.



43.106  [Reserved]



43.107  Contract clause.

    The contracting officer may insert a clause substantially the same 
as the clause at 52.243-7, Notification of Changes, in solicitations and 
contracts. The clause is available for use primarily in negotiated 
research and development or supply contracts for the acquisition of 
major weapon systems or principal subsystems. If the contract amount is 
expected to be less than $1,000,000, the clause shall not be used, 
unless the contracting officer anticipates that situations will arise 
that may result in a contractor alleging that the Government has 
effected changes other than those identified as such in writing and 
signed by the contracting officer.
[48 FR 42386, Sept. 19, 1983. Redesignated at 54 FR 20497, May 11, 1989]



                       Subpart 43.2--Change Orders



43.201  General.

    (a) Generally, Government contracts contain a changes clause that 
permits the contracting officer to make unilateral changes, in 
designated areas, within the general scope of the contract. These are 
accomplished by issuing written change orders on Standard Form 30, 
Amendment of Solicitation/Modification of Contract (SF 30), unless 
otherwise provided (see 43.301).
    (b) The contractor must continue performance of the contract as 
changed, except that in cost-reimbursement or incrementally funded 
contracts the contractor is not obligated to continue performance or 
incur costs beyond the limits established in the Limitation of Cost or 
Limitation of Funds clause (see 32.705-2).
    (c) The contracting officer may issue a change order by telegraphic 
message under unusual or urgent circumstances; provided, that--
    (1) Copies of the message are furnished promptly to the same 
addressees that received the basic contract;
    (2) Immediate action is taken to confirm the change by issuance of a 
SF 30;
    (3) The message contains substantially the information required by 
the SF 30 (except that the estimated change in price shall not be 
indicated), including in the body of the message the statement, ``Signed 
by (Name), Contracting Officer''; and
    (4) The contracting officer manually signs the original copy of the 
message.



43.202  Authority to issue change orders.

    Change orders shall be issued by the contracting officer except when 
authority is delegated to an administrative contracting officer (see 
42.202(c)).



43.203  Change order accounting procedures.

    (a) Contractors' accounting systems are seldom designed to segregate 
the costs of performing changed work. Therefore, before prospective 
contractors submit offers, the contracting officer should advise them of 
the possible need to revise their accounting procedures to comply with 
the cost segregation requirements of the Change Order Accounting clause 
at 52.243-6.
    (b) The following categories of direct costs normally are segregable 
and accountable under the terms of the Change Order Accounting clause:
    (1) Nonrecurring costs (e.g., engineering costs and costs of 
obsolete or reperformed work).
    (2) Costs of added distinct work caused by the change order (e.g., 
new subcontract work, new prototypes, or new retrofit or backfit kits).
    (3) Costs of recurring work (e.g., labor and material costs).



43.204  Administration.

    (a) Change order documentation. When change orders are not forward 
priced, they require two documents: the

[[Page 845]]

change order and a supplemental agreement reflecting the resulting 
equitable adjustment in contract terms. If an equitable adjustment in 
the contract price or delivery terms or both can be agreed upon in 
advance, only a supplemental agreement need be issued, but 
administrative changes and changes issued pursuant to a clause giving 
the Government a unilateral right to make a change (e.g., an option 
clause) initially require only one document.
    (b) Definitization. (1) Contracting officers shall negotiate 
equitable adjustments resulting from change orders in the shortest 
practicable time.
    (2) Administrative contracting officers negotiating equitable 
adjustments by delegation under 42.302(b)(1), shall obtain the 
contracting officer's concurrence before adjusting the contract delivery 
schedule.
    (3) Contracting offices and contract administration offices, as 
appropriate, shall establish suspense systems adequate to ensure 
accurate identification and prompt definitization of unpriced change 
orders.
    (4) The contracting officer shall ensure that a cost analysis is 
made, if appropriate, under 15.404-1(c) and shall consider the 
contractor's segregable costs of the change, if available. If additional 
funds are required as a result of the change, the contracting officer 
shall secure the funds before making any adjustment to the contract.
    (5) When the contracting officer requires a field pricing review of 
requests for equitable adjustment, the contracting officer shall provide 
a list of any significant contract events which may aid in the analysis 
of the request. This list should include--
    (i) Date and dollar amount of contract award and/or modification;
    (ii) Date of submission of initial contract proposal and dollar 
amount;
    (iii) Date of alleged delays or disruptions;
    (iv) Performance dates as scheduled at date of award and/or 
modification;
    (v) Actual performance dates;
    (vi) Date entitlement to an equitable adjustment was determined or 
contracting officer decision was rendered, if applicable;
    (vii) Date of certification of the request for adjustment if 
certification is required; and
    (viii) Dates of any pertinent Government actions or other key events 
during contract performance which may have an impact on the contractor's 
request for equitable adjustment.
    (c) Complete and final equitable adjustments. To avoid subsequent 
controversies that may result from a supplemental agreement containing 
an equitable adjustment as the result of a change order, the contracting 
officer should--
    (1) Ensure that all elements of the equitable adjustment have been 
presented and resolved; and
    (2) Include, in the supplemental agreement, a release similar to the 
following:

                    CONTRACTOR'S STATEMENT OF RELEASE

    In consideration of the modification(s) agreed to herein as complete 
equitable adjustments for the Contractor's..........(describe).......... 
``proposal(s) for adjustment,'' the Contractor hereby releases the 
Government from any and all liability under this contract for further 
equitable adjustments attributable to such facts or circumstances giving 
rise to the ``proposal(s) for adjustment'' (except for ..........).


[48 FR 42386, Sept. 19, 1983, as amended at 56 FR 15154, Apr. 15, 1991; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
43.204, in paragraph (b)(4), ``15.805'' was amended to read ``15.404-
1(c)'', effective Oct. 10, 1997.



43.205  Contract clauses.

    (a) (1) The contracting officer shall insert the clause at 52.243-1, 
Changes--Fixed-Price, in solicitations and contracts when a fixed-price 
contract for supplies is contemplated.
    (2) If the requirement is for services, other than architect-
engineer or other professional services, and no supplies are to be 
furnished, the contracting officer shall use the clause with its 
Alternate I.
    (3) If the requirement is for services (other than architect-
engineer services, transportation, or research and development) and 
supplies are to be

[[Page 846]]

furnished, the contracting officer shall use the clause with its 
Alternate II.
    (4) If the requirement is for architect-engineer or other 
professional services, the contracting officer shall use the clause with 
its Alternate III.
    (5) If the requirement is for transportation services, the 
contracting officer shall use the clause with its Alternate IV.
    (6) If it is desired to include the clause in solicitations and 
contracts when a research and development contract is contemplated, the 
contracting officer shall use the clause with its Alternate V.
    (b)(1) The contracting officer shall insert the clause at 52.243-2, 
Changes--Cost-Reimbursement, in solicitations and contracts when a cost-
reimbursement contract for supplies is contemplated.
    (2) If the requirement is for services and no supplies are to be 
furnished, the contracting officer shall use the clause with its 
Alternate I.
    (3) If the requirement is for services and supplies are to be 
furnished, the contracting officer shall use the clause with its 
Alternate II.
    (4) If the requirement is for construction, the contracting officer 
shall use the clause with its Alternate III.
    (5) If a facilities contract is contemplated, the contracting 
officer shall use the clause with its Alternate IV.
    (6) If it is desired to include the clause in solicitations and 
contracts when a research and development contract is contemplated, the 
contracting officer shall use the clause with its Alternate V.
    (c) The contracting officer shall insert the clause at 52.243-3, 
Changes--Time-and-Materials or Labor-Hours, in solicitations and 
contracts when a time-and-materials or labor-hour contract is 
contemplated.
    (d) The contracting officer shall insert the clause at 52.243-4, 
Changes, in solicitations and contracts for (1) dismantling, demolition, 
or removal of improvements; and (2) construction, when a fixed-price 
contract is contemplated and the contract amount is expected to exceed 
the simplified acquisition threshold.
    (e) The contracting officer shall insert the clause at 52.243-5, 
Changes and Changed Conditions, in solicitations and contracts for 
construction, when the contract amount is not expected to exceed the 
simplified acquisition threshold.
    (f) The contracting officer may insert a clause, substantially the 
same as the clause at 52.243-6, Change Order Accounting, in 
solicitations and contracts for supply and research and development 
contracts of significant technical complexity, if numerous changes are 
anticipated. The clause may be included in solicitations and contracts 
for construction if deemed appropriate by the contracting officer.
[48 FR 42386, Sept. 19, 1983, as amended at 56 FR 15154, Apr. 15, 1991; 
60 FR 34760, July 3, 1995; 61 FR 39190, July 26, 1996]



                           Subpart 43.3--Forms



43.301  Use of forms.

    (a)(1) The Standard Form 30 (SF 30), Amendment of Solicitation/
Modification of Contract, exclusive of actions processed under part 15, 
shall (except for the options stated in 43.301(a)(2) or actions 
processed under part 15) be used for--
    (i) Any amendment to a solicitation;
    (ii) Change orders issued under the Changes clause of the contract;
    (iii) Any other unilateral contract modification issued under a 
contract clause authorizing such modification without the consent of the 
contractor;
    (iv) Administrative changes such as the correction of typographical 
mistakes, changes in the paying office, and changes in accounting and 
appropriation data;
    (v) Supplemental agreements (see 43.103); and
    (vi) Removal, reinstatement, or addition of funds to a contract.
    (2) The SF 30 may be used for (i) modifications that change the 
price of contracts for the acquisition of petroleum as a result of 
economic price adjustment, (ii) termination notices, and (iii) purchase 
order modifications as specified in 13.503.
    (3) If it is anticipated that a change will result in a price 
change, the estimated amount of the price change shall not be shown on 
copies of SF 30 furnished to the contractor.

[[Page 847]]

    (b) The Optional Form 336 (OF 336), Continuation Sheet, or a blank 
sheet of paper, may be used as a continuation sheet for a contract 
modification.
[48 FR 42386, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985; 
51 FR 27120, July 29, 1986; 62 FR 51259, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51259, Sept. 30, 1997, section 43.301 
was amended by revising paragraph (a)(1) introductory text, effective 
Oct. 10, 1997. For the convenience of the user, the superseded text is 
set forth as follows:

43.301  Use of forms.

    (a)(1) The Standard Form 30 (SF 30), Amendment of Solicitation/
Modification of Contract, shall (except for the options stated in 
43.301(a)(2)) be used for--

                                * * * * *



PART 44--SUBCONTRACTING POLICIES AND PROCEDURES--Table of Contents




Sec.
44.000  Scope of part.

                          Subpart 44.1--General

44.101  Definitions.
44.102  Policy.

                  Subpart 44.2--Consent to Subcontracts

44.201  Consent requirements.
44.201-1  Fixed-price prime contracts.
44.201-2  Cost-reimbursement and letter prime contracts.
44.201-3  Other prime contracts.
44.201-4  Contractor use of Government sources.
44.202  Contracting officer's evaluation.
44.202-1  Responsibilities.
44.202-2  Considerations.
44.203  Consent limitations.
44.204  Contract clauses.

          Subpart 44.3--Contractors' Purchasing Systems Reviews

44.301  Objective.
44.302  Requirements.
44.303  Extent of review.
44.304  Surveillance.
44.305  Granting, withholding, or withdrawing approval.
44.305-1  Responsibilities.
44.305-2  Notification.
44.305-3  Withholding or withdrawing approval.
44.306  Disclosure of approval status.
44.307  Reports.

     Subpart 44.4--Subcontracts for Commercial Items and Commercial 
                               Components

44.400  Scope of subpart.
44.401  Applicability.
44.402  Policy requirements.
44.403  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42388, Sept. 19, 1983, unless otherwise noted.



44.000  Scope of part.

    This part prescribes policies and procedures for consent to 
subcontracts and for review, evaluation, and approval of contractors' 
purchasing systems.



                          Subpart 44.1--General



44.101  Definitions.

    Approved purchasing system means a contractor's purchasing system 
that has been reviewed and approved in accordance with this part.
    Consent to subcontract means the contracting officer's written 
consent for the prime contractor to enter into a particular subcontract.
    Contractor, as used in this part, means the total contractor 
organization or a separate entity of it, such as an affiliate, division, 
or plant, that performs its own purchasing.
    Contractor purchasing system review (CPSR) means the complete 
evaluation of a contractor's purchasing of material and services, 
subcontracting, and subcontract management from development of the 
requirement through completion of subcontract performance.
    Facilities (see 45.301).
    Subcontract, as used in this part, means any contract as defined in 
subpart 2.1 entered into by a subcontractor to furnish supplies or 
services for performance of a prime contract or a subcontract. It 
includes but is not limited to purchase orders, and changes and 
modifications to purchase orders.
    Subcontractor, as used in this part, means any supplier, 
distributor, vendor, or firm that furnishes supplies or services to or 
for a prime contractor or another subcontractor.
[48 FR 42388, Sept. 19, 1983, as amended at 50 FR 26903, June 28, 1985]

[[Page 848]]



44.102  Policy.

    (a) Consent to subcontracts is required under 44.201 when the 
subcontract work is complex, the dollar value is substantial, or the 
Government's interest is not adequately protected by competition and the 
type of prime contract or subcontract.
    (b) Consent requirements may be waived when the contractor's 
purchasing system has been reviewed and approved in accordance with 
subpart 44.3.



                  Subpart 44.2--Consent to Subcontracts



44.201  Consent requirements.



44.201-1  Fixed-price prime contracts.

    (a) Consent to subcontracts is not required under prime contracts 
that are firm-fixed-price or fixed-price with economic price adjustment 
provisions. (See paragraph (c) below for unpriced modifications.)
    (b) If the contractor has an approved purchasing system--
    (1) Consent to subcontracts is not required under other fixed-price 
prime contracts (but see paragraph (b)(2) of this section); and
    (2) Consent is required for subcontracts identified in the 
subcontracts clause of the contract. These can be subcontracts for 
critical systems, subsystems, or components, or other subcontracts 
selected by the contracting officer as needing special surveillance. 
Subcontracts may be identified by subcontract number or by class of 
items (e.g., subcontracts for engines on a prime contract for 
airframes).
    (c) If the contractor does not have an approved purchasing system, 
consent to the subcontracts specified in paragraph (d) below is 
required--
    (1) Under fixed-price incentive and fixed-price redeterminable prime 
contracts; and
    (2) Under prime contracts that are firm-fixed-price or fixed-price 
with economic price adjustment provisions, only when a new subcontract 
results from an unpriced modification to the prime contract.
    (d) Under prime contracts required to include the clause at 52.244-
1, Subcontracts (Fixed-Price Contracts), consent is required under 
paragraph (c) of this subsection for any subcontract that is--
    (1) Estimated to be over $100,000 (or less if the contract clause 
has been modified as permitted by its preface); or
    (2) One of a number of subcontracts, under the prime contract, with 
a single subcontractor for the same or related supplies or services, 
which in the aggregate are estimated to be over $100,000 (or less, if 
the contract clause has been modified as permitted by its preface).
[48 FR 42388, Sept. 19, 1983, as amended at 51 FR 36972, Oct. 16, 1986; 
56 FR 15154, Apr. 15, 1991; 59 FR 67052, Dec. 28, 1994]



44.201-2  Cost-reimbursement and letter prime contracts.

    (a) Consent is required under cost-reimbursement and letter prime 
contracts (except facilities contracts) for subcontracts (1) for 
fabrication, purchase, rental, installation, or other acquisition of 
special test equipment valued at more than $25,000 or of any items of 
facilities, or (2) that have experimental, developmental, or research 
work as one of their purposes.
    (b) If the contractor does not have an approved purchasing system, 
consent is also required, under cost-reimbursement and letter prime 
contracts for (1) cost-reimbursement, time-and-materials, or labor-hour 
subcontracts and (2) fixed-price subcontracts that exceed either $25,000 
or 5 percent of the total estimated cost of the prime contract; except 
that for DoD, Coast Guard, and NASA, the amounts shall be the greater of 
the simplified acquisition threshold or 5 percent of the total estimated 
cost of the prime contract.
    (c) If the contractor has an approved purchasing system--
    (1) Consent is not required for the subcontracts identified in 
paragraph (b) of this section (but see paragraph (c)(2) of this 
section). However, advance notification is still required by 10 U.S.C. 
2306(e) or 41 U.S.C. 254(b); and
    (2) Consent is required for subcontracts identified in the 
subcontracts clause of the contract. These can be subcontracts for 
critical systems, subsystems, or components, or

[[Page 849]]

other subcontracts selected by the contracting officer as needing 
special surveillance. Subcontracts may be identified by subcontract 
number or by class of items (e.g., subcontracts for engines on a prime 
contract for airframes).
[48 FR 42388, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 26903, June 28, 1985; 50 FR 52429, Dec. 23, 1985; 59 FR 67052, 
Dec. 28, 1994; 60 FR 34760, July 3, 1995; 61 FR 2642, Jan. 26, 1996; 61 
FR 39190, July 26, 1996]



44.201-3  Other prime contracts.

    Except for purchase of raw material or commercial stock items, 
consent is required for all subcontracts under time-and-material 
contracts. Consent is required for subcontracts under prime contracts 
for--
    (a) Architect-engineer services; and
    (b) Mortuary services, refuse service, or shipment and storage of 
personal property, when an agency requires prior approval of 
subcontractors' facilities.



44.201-4  Contractor use of Government sources.

    The contracting officer's written authorization for the contractor 
to purchase from Government sources (see part 51) constitutes consent.



44.202  Contracting officer's evaluation.



44.202-1  Responsibilities.

    (a) The cognizant administrative contracting officer (ACO) is 
responsible for consent to subcontracts, except when the contracting 
officer retains the contract for administration or withholds the consent 
responsibility from delegation to the ACO. In such cases, the contract 
administration office should assist the contracting office in its 
evaluation as requested.
    (b) The responsible contracting officer shall--
    (1) Promptly evaluate the contractor's requests for consent to 
subcontract;
    (2) Obtain assistance in the evaluation from subcontracting, audit, 
pricing, technical, or other specialists as necessary; and
    (3) Notify the contractor in writing of consent or the withholding 
of consent, including any changes or corrections required.
    (c) Designation of a specific subcontractor by the Government or 
evaluation of subcontracts during contract negotiations does not in 
itself satisfy the requirements for advance notification or consent 
pursuant to the clauses at 52.244-1, 52.244-2, and 52.244-3. However, 
if, in the opinion of the contracting officer, the advance notification 
or consent requirements were satisfied for certain subcontracts 
evaluated during negotiations, the contracting officer shall include a 
statement in the contract that those requirements have been satisfied. 
The statement shall identify the specific subcontracts and contain 
appropriate information concerning the extent to which such requirements 
are satisfied and/or limited with respect to future changes or revisions 
in work statement, specifications, or other applicable aspects of the 
contract that may be subject to change. For fixed-price contracts see 
44.204(a)(3).
[48 FR 42388, Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990]



44.202-2  Considerations.

    (a) The contracting officer responsible for consent shall review the 
request and supporting data and consider the following:
    (1) Is the decision to subcontract consistent with the contractor's 
approved make-or-buy program, if any (see 15.407-2)?
    (2) Is the subcontract for special test equipment or facilities that 
are available from Government sources (see subpart 45.3)?
    (3) Is the selection of the particular supplies, equipment, or 
services technically justified?
    (4) Has the contractor complied with the prime contract requirements 
regarding small business subcontracting, including, if applicable, its 
plan for subcontracting with small, small disadvantaged and women-owned 
small business concerns (see part 19)?
    (5) Was adequate price competition obtained or its absence properly 
justified?
    (6) Did the contractor adequately assess and dispose of 
subcontractors' alternate proposals, if offered?

[[Page 850]]

    (7) Does the contractor have a sound basis for selecting and 
determining the responsibility of the particular subcontractor?
    (8) Has the contractor performed adequate cost or price analysis or 
price comparisons and obtained accurate, complete, and current cost or 
pricing data, including any required certifications?
    (9) Is the proposed subcontract type appropriate for the risks 
involved and consistent with current policy?
    (10) Has adequate consideration been obtained for any proposed 
subcontract that will involve the use of Government-furnished 
facilities?
    (11) Has the contractor adequately and reasonably translated prime 
contract technical requirements into subcontract requirements?
    (12) Does the prime contractor comply with applicable cost 
accounting standards for awarding the subcontract?
    (13) Is the proposed subcontractor on the List of Parties Excluded 
from Federal Procurement and Nonprocurement Programs (see subpart 9.4)?
    (b) Particularly careful and thorough consideration under paragraph 
(a) above is necessary when--
    (1) The prime contractor's purchasing system or performance is 
inadequate;
    (2) Close working relationships or ownership affiliations between 
the prime and subcontractor may preclude free competition or result in 
higher prices;
    (3) Subcontracts are proposed for award on a non-competitive basis, 
at prices that appear unreasonable, or at prices higher than those 
offered to the Government in comparable circumstances; or
    (4) Subcontracts are proposed on a cost-reimbursement, time-and-
materials, or labor-hour basis.
[48 FR 42388, Sept. 19, 1983, as amended at 60 FR 33066, June 26, 1995; 
60 FR 48264, Sept. 18, 1995; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
44.202-2, in paragraph (a)(1), ``Subpart 15.7'' was amended to read 
``15.407-2'', effective Oct. 10, 1997.



44.203  Consent limitations.

    (a) The contracting officer's consent to a subcontract or approval 
of the contractor's purchasing system does not constitute a 
determination of the acceptability of the subcontract terms or price, or 
of the allowability of costs, unless the consent or approval specifies 
otherwise.
    (b) Contracting officers shall not consent to--
    (1) Cost-reimbursement subcontracts if the fee exceeds the fee 
limitations of 16.301-3;
    (2) Subcontracts providing for payment on a cost-plus-a-percentage-
of-cost basis;
    (3) Subcontracts obligating the contracting officer to deal directly 
with the subcontractor;
    (4) Subcontracts that make the results of arbitration, judicial 
determination, or voluntary settlement between the prime contractor and 
subcontractor binding on the Government; or
    (5) Repetitive or unduly protracted use of cost-reimbursement, time-
and-materials, or labor-hour subcontracts (contracting officers should 
follow the principles of 16.103(c)).
    (c) Contracting officers should not refuse consent to a subcontract 
merely because it contains a clause giving the subcontractor the right 
of indirect appeal to an agency board of contract appeals if the 
subcontractor is affected by a dispute between the Government and the 
prime contractor. Indirect appeal means assertion by the subcontractor 
of the prime contractor's right to appeal or the prosecution of an 
appeal by the prime contractor on the subcontractor's behalf. The clause 
may also provide that the prime contractor and subcontractor shall be 
equally bound by the contracting officer's or board's decision. The 
clause may not attempt to obligate the contracting officer or the 
appeals board to decide questions that do not arise between the 
Government and the prime contractor or that are not cognizable under the 
clause at 52.233-1, Disputes.



44.204  Contract clauses.

    (a) Fixed-price contracts. (1) Except as specified in (a)(2) below, 
the contracting officer--
    (i) Shall insert the clause at 52.244-1, Subcontracts (Fixed-Price 
Contracts), in solicitations and contracts when a

[[Page 851]]

fixed-price contract is contemplated and the contract amount is expected 
to exceed $500,000; and
    (ii) May insert the clause in solicitations and contracts when a 
fixed-price contract is contemplated and the contract amount is not 
expected to exceed $500,000, if the contracting officer determines that 
its use will be in the Government's interest.
    (2) The clause shall not be used (i) in solicitations and contracts 
for mortuary services, refuse services, or shipment and storage of 
personal property, when an agency prescribed clause on approval of 
subcontractors' facilities is required, or (ii) in architect-engineer 
contracts.
    (3) If the contracting officer elects to delete the requirement for 
advance notification of, or consent to, any subcontracts that were 
evaluated during negotiations, the contracting officer shall use the 
clause with its Alternate I.
    (b) Cost-reimbursement and letter contracts. The contracting officer 
shall insert the clause at 52.244-2, Subcontracts (Cost-Reimbursement 
and Letter Contracts), in solicitations and contracts when a cost-
reimbursement or letter contract is contemplated. If the contracting 
office is in DoD, the Coast Guard, or NASA, the contracting officer 
shall use the clause with its Alternate I. See also 44.205.
    (c) Time-and-materials and labor-hour contracts. The contracting 
officer shall insert the clause at 52.244-3, Subcontracts (Time-and-
Materials and Labor-Hour Contracts), in solicitations and contracts when 
a time-and-materials and labor-hour contract is contemplated.
    (d) Architect-engineer contracts. The contracting officer shall 
insert the clause at 52.244-4, Subcontractors and Outside Associates and 
Consultants, in fixed-price architect-engineer contracts.
    (e) Competition in subcontracting. The contracting officer shall, 
when contracting by negotiation, insert the clause at 52.244-5, 
Competition in Subcontracting, in solicitations and contracts when the 
contract amount is expected to exceed the simplified acquisition 
threshold, unless--
    (1) A firm-fixed-price contract, awarded on the basis of adequate 
price competition or whose prices are set by law or regulation, is 
contemplated; or
    (2) A contract of the type and/or purpose identified in paragraphs 
(c) and (d) above is contemplated.
[48 FR 42388, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 23607, June 4, 1985; 50 FR 52429, Dec. 23, 1985; 59 FR 67053, Dec. 
28, 1994; 60 FR 34760, July 3, 1995; 61 FR 39190, July 26, 1996]



          Subpart 44.3--Contractors' Purchasing Systems Reviews



44.301  Objective.

    The objective of a contractor purchasing system review (CPSR) is to 
evaluate the efficiency and effectiveness with which the contractor 
spends Government funds and complies with Government policy when 
subcontracting. The review provides the administrative contracting 
officer (ACO) a basis for granting, withholding, or withdrawing approval 
of the contractor's purchasing system.



44.302  Requirements.

    (a) Determine the need for a CPSR based on, but not limited to, the 
past performance of the contractor, and volume, complexity and dollar 
value of the subcontracting activity. If a contractor's sales to the 
Government (excluding sales under sealed bid procedures and sales of 
commercial items pursuant to part 12) are expected to exceed $25 million 
during the next year, perform a review to determine if a CPSR is needed. 
Such sales include those represented by prime contracts, subcontracts 
under Government prime contracts, and modifications. Generally, a CPSR 
is not performed for a specific contract. The head of the agency 
responsible for contract administration may raise or lower the $25 
million review level if such action is considered to be in the 
Government's best interest.
    (b) Once an initial determination has been made under paragraph (a) 
of this

[[Page 852]]

section, at least every 3 years the cognizant contract administration 
activity will determine whether a purchasing system review is necessary. 
If necessary, the cognizant contract administration activity will 
conduct a purchasing system review.
[62 FR 12719, Mar. 17, 1997]



44.303  Extent of review.

    A CPSR requires an evaluation of the contractor's purchasing system. 
This evaluation shall not include subcontracts awarded by the contractor 
exclusively in support of Government contracts awarded to the contractor 
that used sealed bid procedures or that are for commercial items 
pursuant to part 12. The considerations listed in 44.202-2 for consent 
evaluation of particular subcontracts also shall be used to evaluate the 
contractor's purchasing system, including the contractor's policies, 
procedures, and performance under that system. Special attention shall 
be given to--
    (a) The degree of price competition obtained;
    (b) Pricing policies and techniques, including methods of obtaining 
accurate, complete, and current cost or pricing data and certification 
as required;
    (c) Methods of evaluating subcontractor responsibility, including 
the contractor's use of the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs (see 9.404) and, if the 
contractor has subcontracts with parties on the list, the documentation, 
systems, and procedures the contractor has established to protect the 
Government's interests (see 9.405-2).
    (d) Treatment accorded affiliates and other concerns having close 
working arrangements with the contractor;
    (e) Policies and procedures pertaining to small business concerns, 
including small disadvantaged and women-owned small business concerns;
    (f) Planning, award, and postaward management of major subcontract 
programs;
    (g) Compliance with Cost Accounting Standards in awarding 
subcontracts;
    (h) Appropriateness of types of contracts used (see 16.103); and
    (i) Management control systems, including internal audit procedures, 
to administer progress payments to subcontractors.
[48 FR 42388, Sept. 19, 1983, as amended at 52 FR 9039, Mar. 20, 1987; 
54 FR 19827, May 8, 1989; 60 FR 33066, June 26, 1995; 60 FR 48264, Sept. 
18, 1995; 62 FR 12719, Mar. 17, 1997]



44.304  Surveillance.

    (a) The ACO shall maintain a sufficient level of surveillance to 
ensure that the contractor is effectively managing its purchasing 
program.
    (b) Surveillance shall be accomplished in accordance with a plan 
developed by the ACO with the assistance of subcontracting, audit, 
pricing, technical, or other specialists as necessary. The plan should 
cover pertinent phases of a contractor's purchasing system (preaward, 
postaward, performance, and contract completion) and pertinent 
operations that affect the contractor's purchasing and subcontracting. 
The plan should also provide for reviewing the effectiveness of the 
contractor's corrective actions taken as a result of previous Government 
recommendations. Duplicative reviews of the same areas by CPSR and other 
surveillance monitors should be avoided.
[48 FR 42388, Sept. 19, 1983, as amended at 59 FR 67054, Dec. 28, 1994; 
62 FR 12719, Mar. 17, 1997]



44.305  Granting, withholding, or withdrawing approval.



44.305-1  Responsibilities.

    The cognizant ACO is responsible for granting, withholding, or 
withdrawing approval of a contractor's purchasing system. The ACO 
shall--
    (a) Approve a purchasing system only after determining that the 
contractor's purchasing policies and practices are efficient and provide 
adequate protection of the Government's interests; and
    (b) Promptly notify the contractor in writing of the granting, 
withholding, or withdrawal of approval.
[62 FR 12719, Mar. 17, 1997]



44.305-2  Notification.

    (a) The notification granting system approval shall include--

[[Page 853]]

    (1) Identification of the plant or plants covered by the approval;
    (2) The effective date of approval; and
    (3) A statement that system approval--
    (i) Applies to all Federal Government contracts at that plant to the 
extent that cross-servicing arrangements exist;
    (ii) Waives the contractual requirement for advance notification in 
fixed-price contracts, but not for cost-reimbursement contracts;
    (iii) Waives the contractual requirement for consent to subcontracts 
in fixed-price contracts and for specified subcontracts in cost-
reimbursement contracts but not for those subcontracts, if any, selected 
for special surveillance and identified in the contract Schedule; and
    (iv) May be withdrawn at any time at the ACO's discretion.
    (b) In exceptional circumstances, consent to certain subcontracts or 
classes of subcontracts may be required even though the contractor's 
purchasing system has been approved. The system approval notification 
shall identify the class or classes of subcontracts requiring consent. 
Reasons for selecting the subcontracts include the fact that a CPSR or 
continuing surveillance has revealed sufficient weaknesses in a 
particular area of subcontracting to warrant special attention by the 
ACO.
    (c) When recommendations are made for improvement of an approved 
system, the contractor shall be requested to reply within 15 days with a 
position regarding the recommendations.
[48 FR 42388, Sept. 19, 1983, as amended at 62 FR 12719, Mar. 17, 1997]



44.305-3  Withholding or withdrawing approval.

    (a) The ACO shall withhold or withdraw approval of a contractor's 
purchasing system when there are major weaknesses or when the contractor 
is unable to provide sufficient information upon which to make an 
affirmative determination. The ACO may withdraw approval at any time on 
the basis of a determination that there has been a deterioration of the 
contractor's purchasing system or to protect the Government's interest. 
Approval shall be withheld or withdrawn when there is a recurring 
noncompliance with requirements, including but not limited to--
    (1) Cost or pricing data (see 15.403);
    (2) Implementation of cost accounting standards (see 48 CFR chapter 
99 (Appendix B, FAR loose-leaf edition);
    (3) Advance notification as required by the clauses prescribed in 
44.204; or
    (4) Small business subcontracting (see subpart 19.7).
    (b) When approval of the contractor's purchasing system is withheld 
or withdrawn, the ACO shall within 10 days after completing the in-plant 
review (1) inform the contractor in writing, (2) specify the 
deficiencies that must be corrected to qualify the system for approval, 
and (3) request the contractor to furnish within 15 days a plan for 
accomplishing the necessary actions. If the plan is accepted, the ACO 
shall make a follow-up review as soon as the contractor notifies the ACO 
that the deficiencies have been corrected.
[48 FR 42388, Sept. 19, 1983, as amended at 59 FR 67043, Dec. 28, 1994; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
44.305-3, in paragraph (a)(1), ``15.804'' was amended to read 
``15.403'', effective Oct. 10, 1997.



44.306  Disclosure of approval status.

    Upon request, the ACO may inform a contractor that the purchasing 
system of a proposed subcontractor has been approved or disapproved, but 
shall caution that the Government will not keep the contractor advised 
of any changes in the approval status. If the proposed subcontractor's 
purchasing system has not been reviewed, the contractor shall be so 
advised.
[62 FR 12719, Mar. 17, 1997]



44.307  Reports.

    The ACO shall distribute copies of CPSR reports; notifications 
granting, withholding, or withdrawing system approval; and Government 
recommendations for improvement of an approved system, including the 
contractor's response, to at least--
    (a) The cognizant contract audit office;
    (b) Activities prescribed by the cognizant agency; and

[[Page 854]]

    (c) The contractor (except that furnishing copies of the 
contractor's response is optional).
[62 FR 12719, Mar. 17, 1997]



     Subpart 44.4--Subcontracts for Commercial Items and Commercial 
                               Components

    Source: 60 FR 48249, Sept. 18, 1995, unless otherwise noted.



44.400  Scope of subpart.

    This subpart prescribes the policies limiting the contract clauses a 
prime contractor may be required to apply to any subcontractors that are 
furnishing commercial items or commercial components in accordance with 
Section 8002(b)(2) (Public Law 103-355).



44.401  Applicability.

    This subpart applies to all contracts and subcontracts. For the 
purpose of this subpart, the term ``subcontract'' has the same meaning 
as defined in part 12.



44.402  Policy requirements.

    (a) Contractors and subcontractors at all tiers shall, to the 
maximum extent practicable:
    (1) Be required to incorporate commercial items or nondevelopmental 
items as components of items delivered to the Government; and
    (2) Not be required to apply to any of its divisions, subsidiaries, 
affiliates, subcontractors or suppliers that are furnishing commercial 
items or commercial components any clause, except those--
    (i) Required to implement provisions of law or executive orders 
applicable to subcontractors furnishing commercial items or commercial 
components; or
    (ii) Determined to be consistent with customary commercial practice 
for the item being acquired.
    (b) The clause at 52.244-6, Subcontracts for Commercial Items and 
Commercial Components, implements the policy in paragraph (a) of this 
section. Notwithstanding any other clause in the prime contract, only 
those clauses identified in the clause at 52.244-6 are required to be in 
subcontracts for commercial items or commercial components.
    (c) Agencies may supplement the clause at 52.244-6 only as necessary 
to reflect agency unique statutes applicable to the acquisition of 
commercial items.



44.403  Contract clause.

    The contracting officer shall insert the clause at 52.244-6, 
Subcontracts for Commercial Items and Commercial Components, in 
solicitations and contracts for supplies or services other than 
commercial items.



PART 45--GOVERNMENT PROPERTY--Table of Contents




Sec.
45.000  Scope of part.

                          Subpart 45.1--General

45.101  Definitions.
45.102  Policy.
45.103  Responsibility and liability for Government property.
45.104  Review and correction of contractors' property control systems.
45.105  Records of Government property.
45.106  Government property clauses.

                   Subpart 45.2--Competitive Advantage

45.201  General.
45.202  Evaluation procedures.
45.202-1  Rental equivalents.
45.202-2  Rent.
45.202-3  Other costs and savings.
45.203  Postaward utilization requests.
45.204  Residual value of special tooling and special test equipment.
45.205  Solicitation requirements.

       Subpart 45.3--Providing Government Property to Contractors

45.300  Scope of subpart.
45.301  Definitions.
45.302  Providing facilities.
45.302-1  Policy.
45.302-2  Facilities contracts.
45.302-3  Other contracts.
45.302-4  Contractor use of Government-owned and -operated test 
          facilities.
45.302-5  Standby or layaway requirements.
45.302-6  Required Government property clauses for facilities contracts.
45.302-7  Optional property-related clauses for facilities contracts.
45.303  Providing material.
45.303-1  Policy.
45.303-2  Procedures.
45.304  Providing motor vehicles.
45.305  [Reserved]

[[Page 855]]

45.306  Providing special tooling.
45.306-1  Providing existing special tooling.
45.306-2  Special tooling under cost-reimbursement contracts.
45.306-3  Special tooling under fixed-price contracts.
45.306-4  [Reserved]
45.306-5  Contract clause.
45.307  Providing special test equipment.
45.307-1  General.
45.307-2  Acquiring special test equipment.
45.307-3  Contract clause.
45.308  Providing Government production and research property ``as is.''
45.308-1  General.
45.308-2  Contract clause.
45.309  Providing Government production and research property under 
          special restrictions.
45.310  Providing agency-peculiar property.
45.311  Providing Government property by transfer.

     Subpart 45.4--Contractor Use and Rental of Government Property

45.400  Scope of subpart.
45.401  Policy.
45.402  Authorizing use of Government production and research property.
45.403  Rental--Use and Charges clause.
45.404  Rent-free use.
45.405  Contracts with foreign governments or international 
          organizations.
45.406  Use of Government production and research property on 
          independent research and development programs.
45.407  Non-Government use of plant equipment.

  Subpart 45.5--Management of Government Property in the Possession of 
                               Contractors

45.500  Scope of subpart.
45.501  Definitions.
45.502  Contractor responsibility.
45.502-1  Receipts for Government property.
45.502-2  Discrepancies incident to shipment.
45.503  Relief from responsibility.
45.504  Contractor's liability.
45.505  Records and reports of Government property.
45.505-1  Basic information.
45.505-2  Records of pricing information.
45.505-3  Records of material.
45.505-4  Records of special tooling and special test equipment.
45.505-5  Records of plant equipment.
45.505-6  Special reports of plant equipment.
45.505-7  Records of real property.
45.505-8  Records of scrap or salvage.
45.505-9  Records of related data and information.
45.505-10  Records of completed products.
45.505-11  Records of transportation and installation costs of plant 
          equipment.
45.505-12  Records of misdirected shipments.
45.505-13  Records of property returned for rework.
45.505-14  Reports of Government property.
45.506  Identification.
45.507  Segregation of Government property.
45.508  Physical inventories.
45.508-1  Inventories upon termination or completion.
45.508-2  Reporting results of inventories.
45.508-3  Quantitative and monetary control.
45.509  Care, maintenance, and use.
45.509-1  Contractor's maintenance program.
45.509-2  Use of Government property.
45.510  Property in possession of subcontractors.
45.511  Audit of property control system.

  Subpart 45.6--Reporting, Redistribution, and Disposal of Contractor 
                                Inventory

45.600  Scope of subpart.
45.601  Definitions.
45.602  [Reserved]
45.603  Disposal methods.
45.604  Restrictions on purchase or retention of contractor inventory.
45.605  Contractor-acquired property.
45.605-1  Purchase or retention at cost.
45.605-2  Return to suppliers.
45.605-3  Cost-reimbursement contracts.
45.606  Inventory schedules.
45.606-1  Submission.
45.606-2  Common items.
45.606-3  Acceptance.
45.606-4  Withdrawals.
45.606-5  Instructions for preparing and submitting schedules of 
          contractor inventory.
45.607  Scrap.
45.607-1  General.
45.607-2  Recovering precious metals.
45.608  Screening of contractor inventory.
45.608-1  General.
45.608-2  Standard screening.
45.608-3  Agency screening.
45.608-4  Limited screening.
45.608-5  Special items screening.
45.608-6  Waiver of screening requirements.
45.608-7  Reimbursement of costs for transfer of contractor inventory.
45.608-8  Report of excess personal property (SF 120).
45.609  Donations.
45.610  Sale of surplus contractor inventory.
45.610-1  Responsibility.
45.610-2  Exemptions from sale by GSA.
45.610-3  Proceeds of sale.
45.610-4  Contractor inventory in foreign countries.
45.611  Destruction or abandonment.
45.612  Removal and storage.
45.612-1  General.
45.612-2  Special storage at the contractor's risk.
45.612-3  Special storage at the Government's expense.

[[Page 856]]

45.613  Property disposal determinations.
45.614  Subcontractor inventory.
45.615  Accounting for contractor inventory.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42392, Sept. 19, 1983, unless otherwise noted.



45.000  Scope of part.

    This part prescribes policies and procedures for providing 
Government property to contractors, contractors' use and management of 
Government property, and reporting, redistributing, and disposing of 
contractor inventory. It does not apply to providing property under any 
statutory leasing authority, except as to non-Government use of plant 
equipment under 45.407; to property to which the Government has acquired 
a lien or title solely because of partial, advance, or progress 
payments; or to disposal of real property.



                          Subpart 45.1--General



45.101  Definitions.

    (a) Contractor-acquired property, as used in this part, means 
property acquired or otherwise provided by the contractor for performing 
a contract and to which the Government has title.
    Government-furnished property, as used in this part, means property 
in the possession of, or directly acquired by, the Government and 
subsequently made available to the contractor.
    Government property means all property owned by or leased to the 
Government or acquired by the Government under the terms of the 
contract. It includes both Government-furnished property and contractor-
acquired property as defined in this section.
    Plant equipment, as used in this part, means personal property of a 
capital nature (including equipment, machine tools, test equipment, 
furniture, vehicles, and accessory and auxiliary items) for use in 
manufacturing supplies, in performing services, or for any 
administrative or general plant purpose. It does not include special 
tooling or special test equipment.
    Property, as used in this part, means all property, both real and 
personal. It includes facilities, material, special tooling, special 
test equipment, and agency-peculiar property.
    Real property, as used in this part, means land and rights in land, 
ground improvements, utility distribution systems, and buildings and 
other structures. It does not include foundations and other work 
necessary for installing special tooling, special test equipment, or 
plant equipment.
    Special test equipment, as used in this part, means either single or 
multipurpose integrated test units engineered, designed, fabricated, or 
modified to accomplish special purpose testing in performing a contract. 
It consists of items or assemblies of equipment, including standard or 
general purpose items or components, that are interconnected and 
interdependent so as to become a new functional entity for special 
testing purposes. It does not include material, special tooling, 
facilities (except foundations and similar improvements necessary for 
installing special test equipment), and plant equipment items used for 
general plant testing purposes.
    Special tooling, as used in this part, means jigs, dies, fixtures, 
molds, patterns, taps, gauges, other equipment and manufacturing aids, 
all components of these items, and replacement of these items, which are 
of such a specialized nature that without substantial modification or 
alteration their use is limited to the development or production of 
particular supplies or parts thereof or to the performance of particular 
services. It does not include material, special test equipment, 
facilities (except foundations and similar improvements necessary for 
installing special tooling), general or special machine tools, or 
similar capital items.
    (b) Additional definitions also applying throughout this part appear 
in those subparts where the terms are most frequently used.
[48 FR 42392, Sept. 19, 1983, as amended at 51 FR 19716, May 30, 1986; 
51 FR 33270, Sept. 19, 1986; 53 FR 27468, July 20, 1988]



45.102  Policy.

    Contractors are ordinarily required to furnish all property 
necessary to perform Government contracts. However, if contractors 
possess Government property, agencies shall--
    (a) Eliminate to the maximum practical extent any competitive 
advantage

[[Page 857]]

that might arise from using such property;
    (b) Require contractors to use Government property to the maximum 
practical extent in performing Government contracts;
    (c) Permit the property to be used only when authorized;
    (d) Charge appropriate rentals when the property is authorized for 
use on other than a rent-free basis;
    (e) Require contractors to be responsible and accountable for, and 
keep the Government's official records of Government property in their 
possession or control (but see 45.105);
    (f) Require contractors to review and provide justification for 
retaining Government property not currently in use; and
    (g) Ensure maximum practical reutilization of contractor inventory 
(see 45.601) within the Government.



45.103  Responsibility and liability for Government property.

    (a) Contractors are responsible and liable for Government property 
in their possession, unless otherwise provided by the contract.
    (b) Generally, Government contracts do not hold contractors liable 
for loss of or damage to Government property when the property is 
provided under--
    (1) Negotiated fixed-price contracts for which the contract price is 
not based upon an exception at 15.403-1;
    (2) Cost-reimbursement contracts;
    (3) Facilities contracts; or
    (4) Negotiated or sealed bid service contracts performed on a 
Government installation where the contracting officer determines that 
the contractor has little direct control over the Government property 
because it is located on a Government installation and is subject to 
accessibility by personnel other than the contractor's employees and 
that by placing the risk on the contractor, the cost of the contract 
would be substantially increased.
    (c) When justified by the circumstances, the contract may require 
the contractor to assume greater liability for loss of or damage to 
Government property than that contemplated by the Government property 
clauses or the clause at 52.245-8, Liability for the Facilities. For 
example, this may be the case when the contractor is using Government 
property primarily for commercial work rather than Government work.
    (d) If the Government provides Government property directly to a 
subcontractor, the terms of paragraph (b) above shall apply to the 
subcontractor.
    (e) Subcontractors are liable for loss of or damage to Government 
property furnished through a prime contractor. However, if the prime 
contract is of a type listed in subparagraph (b)(1) or (2) above, the 
prime contractor may, after obtaining the contracting officer's consent, 
reduce the subcontractor's liability by including in the subcontract a 
clause similar to paragraph (g), Limited risk of loss, as provided in 
Alternate I of the clause at 52.245-2, Government Property (Fixed-Price 
Contracts), (for fixed-price contracts) or similar to the same paragraph 
of the clause at 52.245-5, Government Property (Cost-Reimbursement, 
Time-and-Material, or Labor-Hour Contracts) (for cost-reimbursement 
contracts). Before consenting to a clause that reduces the 
subcontractor's liability, the contracting officer should ensure that 
the Government's interests are sufficiently protected.
    (f) A prime contractor that provides Government property to a 
subcontractor shall not be relieved of any responsibility to the 
Government that the prime contractor may have under the terms of the 
prime contract.
[48 FR 42392, Sept. 19, 1983, as amended at 53 FR 663, Jan. 11, 1988; 60 
FR 48218, Sept. 18, 1995; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
45.103, in paragraph (b)(1), ``15.804-1'' was amended to read ``15.403-
1'', effective Oct. 10, 1997.



45.104  Review and correction of contractors' property control systems.

    (a) The review and approval of a contractor's property control 
system shall be accomplished by the agency responsible for contract 
administration at a contractor's plant or installation. The review and 
approval of a contractor's property control system by one agency shall 
be binding on all other departments and agencies based on interagency 
agreements.

[[Page 858]]

    (b) The contracting officer or the representative assigned the 
responsibility as property administrator shall review contractors' 
property control systems to assure compliance with the Government 
property clauses of the contract.
    (c) The property administrator shall notify the contractor in 
writing when its property control system does not comply with subpart 
45.5 or other contract requirements and shall request prompt correction 
of deficiencies. If the contractor does not correct the deficiencies 
within a reasonable period, the property administrator shall request 
action by the contracting officer administering the contract. The 
contracting officer shall--
    (1) Notify the contractor in writing of any required corrections and 
establish a schedule for completion of actions;
    (2) Caution the contractor that failure to take the required 
corrective actions within the time specified will result in withholding 
or withdrawing system approval; and
    (3) Advise the contractor that its liability for loss of or damage 
to Government property may increase if approval is withheld or 
withdrawn.



45.105  Records of Government property.

    (a) Contractor records of Government property established and 
maintained under the terms of the contract are the Government's official 
Government property records. Duplicate official records shall not be 
furnished to or maintained by Government personnel, except as provided 
in paragraph (b) below.
    (b) Contracts may provide for the contracting office to maintain the 
Government's official Government property records when the contracting 
office retains contract administration and Government property is 
furnished to a contractor--(1) for repair or servicing and return to the 
shipping organization, (2) for use on a Government installation, (3) 
under a local support service contract, (4) under a contract with a 
short performance period, or (5) when otherwise determined by the 
contracting officer to be in the Government's interest.
[48 FR 42392, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
57 FR 60588, Dec. 21, 1992]



45.106  Government property clauses.

    This section prescribes the principal Government property clauses. 
Other clauses pertaining to Government property are prescribed in 
subpart 45.3.
    (a) The contracting officer shall insert the clause at 52.245-1, 
Property Records, in solicitations and contracts when the conditions in 
45.105(b) exist and the Government maintains the Government's official 
Government property records.
    (b) (1) The contracting officer shall insert the clause at 52.245-2, 
Government Property (Fixed-Price Contracts), in solicitations and 
contracts when a fixed-price contract is contemplated, except as 
provided in paragraphs (d) and (e) below.
    (2) If the contract is--
    (i) A negotiated fixed-price contract for which prices are not based 
on an exception at 15.403-1; or
    (ii) A fixed-price service contract which is performed primarily on 
a Government installation, provided the contracting officer determines 
it to be in the best interest of the Government (see 45.103(b)(4)), the 
contracting officer shall use the clause with its Alternate I.
    (3) If the contract is for the conduct of basic or applied research 
at nonprofit institutions of higher education or at nonprofit 
organizations whose primary purpose is the conduct of scientific 
research (see 35.014), the contracting officer shall use the clause with 
its Alternate II.
    (c) The contracting officer shall insert the clause at 52.245-3, 
Identification of Government-Furnished Property, in addition to the 
clause at 52.245-2, Government Property (Fixed-Price Contracts), in 
solicitations and contracts when a fixed-price construction contract is 
contemplated under which the Government is to furnish Government 
property f.o.b. railroad cars at a specified destination or f.o.b. truck 
at the project site. The contract Schedule shall specify the point of 
delivery and

[[Page 859]]

may include special terms and conditions covering installation, 
preparation for operation, or equipment testing by the Government or by 
another contractor.
    (d) The contracting officer may insert the clause at 52.245-4, 
Government-Furnished Property (Short Form), in solicitations and 
contracts when a fixed-price, time-and-material, or labor-hour contract 
is contemplated and the acquisition cost of all Government-furnished 
property to be involved in the contract is $100,000 or less; unless a 
contract with an educational or nonprofit organization is contemplated.
    (e) When the cost of the item to be repaired does not exceed the 
simplified acquisition threshold, purchase orders for property repair 
need not include a Government property clause.
    (f) (1) The contracting officer shall insert the clause at 52.245-5, 
Government Property (Cost-Reimbursement, Time-and-Material, or Labor-
Hour Contracts), in solicitations and contracts when a cost-
reimbursement, time-and-material, or labor-hour contract is 
contemplated, except as provided in paragraph (d) above.
    (2) If the contract is for the conduct of basic or applied research 
at nonprofit institutions of higher education or at nonprofit 
organizations whose primary purpose is the conduct of scientific 
research (see 35.014), the contracting officer shall use the clause with 
its Alternate I.
    (g) The contracting officer shall insert the clause at 52.245-6, 
Liability for Government Property (Demolition Services), in addition to 
the clauses prescribed at 37.304, in solicitations and contracts for 
dismantling, demolition, or removal of improvements.
[48 FR 42392, Sept. 19, 1983, as amended at 53 FR 663, Jan. 11, 1988; 57 
FR 60588, Dec. 21, 1992; 60 FR 34760, July 3, 1995; 60 FR 48218, Sept. 
18, 1995; 61 FR 39190, July 26, 1996; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
45.106, in paragraph (b)(2)(i), ``15.804-1'' was amended to read 
``15.403-1'', effective Oct. 10, 1997.



                   Subpart 45.2--Competitive Advantage



45.201  General.

    (a) The contracting officer shall, to the maximum practical extent, 
eliminate competitive advantage accruing to a contractor possessing 
Government production and research property (see 45.301). This is done 
by (1) adjusting the offers of those contractors by applying, for 
evaluation purposes only, a rental equivalent evaluation factor or, (2) 
when adjusting offers is not practical, by charging the contractor rent 
for using the property. Applying a rental equivalent factor is not 
appropriate in awarding negotiated contracts when the contracting 
officer determines that using the factor would not affect the choice of 
contractors.
    (b) In evaluating offers, the contracting officer shall also 
consider any costs or savings to the Government related to providing 
such property, regardless of any competitive advantage that may result 
(see 45.202-3).



45.202  Evaluation procedures.



45.202-1  Rental equivalents.

    If a rental equivalent evaluation factor is used, it shall be equal 
to the rent allocable to the proposed contract that would otherwise have 
been charged for the property, as computed in accordance with the clause 
at 52.245-9, Use and Charges. (See 45.205(b) for solicitation 
requirements.)



45.202-2  Rent.

    If using a rental equivalent evaluation factor is not practical, and 
the competitive advantage is to be eliminated by charging rent, any 
offeror or subcontractor may use Government production and research 
property after obtaining the written approval of the contacting officer 
having cognizance of the property. Rent shall be charged in accordance 
with 45.403.



45.202-3  Other costs and savings.

    (a) If furnishing Government production and research property will 
result in direct measurable costs that the

[[Page 860]]

Government must bear, additional factors shall be considered in 
evaluating bids or proposals. These factors shall be specified in the 
solicitation either as dollar amounts or as formulas and shall be 
limited to the cost of--
    (1) Reactivation from storage;
    (2) Rehabilitation and conversion; and
    (3) Making the property available on an f.o.b. basis.
    (b) If, under the terms of the solicitation, the contractor will 
bear the transportation cost of furnishing Government production and 
research property or the cost of making it suitable for use (such as 
when property is offered on an as is basis (see 45.308)), no additional 
evaluation factors related to those costs shall be used.
    (c) If using Government production and research property will result 
in measurable savings to the Government, the dollar amount of these 
savings shall be specified in the solicitation and used in evaluating 
offers. Examples of such savings include--
    (1) Savings occurring as a direct result of activating tools being 
maintained in idle status at known cost to the Government; and
    (2) Avoiding the costs of deactivating and placing tools in layaway 
or storage or of maintaining them in an idle state, if the prospective 
costs are known. For these costs to be included in the evaluation, firm 
decisions must have been made that the tools will be laid away or stored 
if not used on the proposed contract and that such costs are not merely 
being deferred.



45.203  Postaward utilization requests.

    When, after award, a contractor requests the use of special tooling 
or special test equipment, the administrative contracting officer shall 
obtain a fair rental or other adequate consideration if use is 
authorized. The value of the items, if known, and any amount included 
for them in the contract price shall be considered.



45.204  Residual value of special tooling and special test equipment.

    (a) In awarding competitively negotiated contracts that permit the 
acquisition of special tooling or special test equipment, an evaluation 
may be made of the residual value of the property to the Government. 
This evaluation is appropriate when the contracting officer (1) 
determines that the property will have a reasonably foreseeable 
usefulness and related residual value beyond the period of use on the 
proposed contract and (2) anticipates that the cost of the property (as 
proposed by the several offerors) may be a factor in making the award. 
This evaluation is not appropriate if the contract will include the 
special tooling or special test equipment as a contract line item.
    (b) The purpose of evaluating the residual value of special tooling 
or special test equipment is to apportion to each proposal only that 
part of the total cost of the property that represents the amount of 
useful life to be consumed during contract performance. Accordingly, the 
proposed price or cost may be reduced for evaluation purposes by an 
amount representing the residual value of such property to the 
Government. In estimating residual value, the contracting officer shall 
consider--
    (1) The useful life of the special tooling and special test 
equipment to be acquired;
    (2) Adaptability of the property for use by other contractors or by 
the Government;
    (3) Reasonably foreseeable requirements for future use of the 
property; and
    (4) The scrap or salvage value of the property.
    (c) If the contacting officer decides to consider the residual value 
of special tooling or special test equipment, the solicitation shall so 
notify offerors and state the Government's reasonably foreseeable future 
requirements for the property.



45.205  Solicitation requirements.

    (a) When Government production and research property (see 45.301) is 
offered for use in a competitive acquisition, solicitations will 
ordinarily require the contractor to assume all costs related to making 
the property available for use (such as payment of all transportation or 
rehabilitation costs).
    (b) The solicitation shall describe the evaluation procedures to be 
followed, including rental charges or equivalents

[[Page 861]]

(see 45.202) and other costs or savings to be evaluated (see 45.202-3), 
and shall require all offerors to submit with their offers the following 
information:
    (1) A list or description of all Government production and research 
property that the offeror or its subcontractors propose to use on a 
rent-free basis. The list shall include property offered for use in the 
solicitation, as well as property already in possession of the offeror 
and its subcontractors under other contracts.
    (2) Identification of the facilities contract or other instrument 
under which property already in possession of the offeror and its 
subcontractors is held, and the written permission for its use from the 
contracting officer having cognizance of the property.
    (3) The dates during which the property will be available for use 
(including the first, last, and all intervening months) and, for any 
property that will be used concurrently in performing two or more 
contracts, the amounts of the respective uses in sufficient detail to 
support proration of the rent.
    (4) The amount of rent that would otherwise be charged, computed in 
accordance with 45.403.
    (c) Solicitations shall provide that using Government production and 
research property (other than as described and permitted in the 
solicitation (see paragraph (b) above)) will not be authorized under the 
contract unless such use is approved in writing by the contracting 
officer cognizant of the property, and either rent calculated in 
accordance with the clause at 52.245-9, Use and Charges, is charged, or 
the contract price is reduced by an equivalent amount. (See 45.203 for 
postaward requests for special tooling and special test equipment and 
45.204(c) for solicitation requirements for special tooling and special 
test equipment with residual value.)



       Subpart 45.3--Providing Government Property to Contractors



45.300  Scope of subpart.

    This subpart prescribes policies and procedures for providing 
Government property to contractors.



45.301  Definitions.

    Agency-peculiar property, as used in this subpart, means Government-
owned personal property that is peculiar to the mission of one agency 
(e.g., military or space property). It excludes Government material, 
special test equipment, special tooling, and facilities.
    Facilities, as used in this subpart and when used in other than a 
facilities contract, means property used for production, maintenance, 
research, development, or testing. It includes plant equipment and real 
property (see 45.101). It does not include material, special test 
equipment, special tooling, or agency-peculiar property.
    Facilities contract, as used in this subpart, means a contract under 
which Government facilities are provided to a contractor or 
subcontractor by the Government for use in connection with performing 
one or more related contracts for supplies or services. It is used 
occasionally to provide special tooling or special test equipment. 
Facilities contracts may take any of the following forms:
    (a) A facilities acquisition contract providing for the acquisition, 
construction, and installation of facilities.
    (b) A facilities use contract providing for the use, maintenance, 
accountability, and disposition of facilities.
    (c) A consolidated facilities contract, which is a combination of a 
facilities acquisition and a facilities use contract.
    Government production and research property, as used in this 
subpart, means Government-owned facilities, Government-owned special 
test equipment, and special tooling to which the Government has title or 
the right to acquire title.
    Material, as used in this subpart, means property that may be 
incorporated into or attached to a deliverable end item or that may be 
consumed or expended in performing a contract. It includes assemblies, 
components, parts, raw and processed materials, and small tools and 
supplies that may be consumed in normal use in performing a contract.
    Nonprofit organization, as used in this subpart, means any 
corporation, foundation, trust, or institution operated

[[Page 862]]

for scientific, educational, or medical purposes, not organized for 
profit, and no part of the net earnings of which inures to the benefit 
of any private shareholder or individual.
    Nonseverable, as used in this subpart, when related to Government 
production and research property, means property that cannot be removed 
after erection or installation without substantial loss of value or 
damage to the property or to the premises where installed.
[48 FR 42392, Sept. 19, 1983, as amended at 57 FR 60589, Dec. 21, 1992



45.302  Providing facilities.



45.302-1  Policy.

    (a) Contractors shall furnish all facilities required for performing 
Government contracts except as provided in this subsection. Government 
facilities provided to contractors shall be individually identified in 
the solicitation, if possible, and contract. Agencies shall not furnish 
facilities to contractors for any purpose, including restoration, 
replacement, or modernization, except as follows:
    (1) For use in a Government-owned, contractor-operated plant 
operated on a cost-plus-fee basis.
    (2) For support of industrial preparedness programs.
    (3) As components of special tooling or special test equipment 
acquired or fabricated at Government expense.
    (4) When, as a result of the prospective contractor's written 
statement asserting inability to obtain facilities, the agency head or 
designeee issues a Determination and Finding (see subpart 1.7) that the 
contract cannot be fulfilled by any other practical means or that it is 
in the public interest to provide the facilities.
    (i) If the contractor's inability to provide facilities is due to 
insufficient lead time, the Government may provide existing facilities 
until the contractor's facilities can be installed.
    (ii) Mere assertion by a contractor that it is unable to provide 
facilities is not, in itself, sufficient to justify approval. 
Appropriate Government officials must determine that providing 
Government facilities is justified.
    (iii) The determination shall include findings that private 
financing of the facilities was sought but not available or that private 
financing was determined not advantageous to the Government. The 
determination shall also state that the contract cannot be accomplished 
without Government facilities being provided.
    (iv) The original determination shall be included in the contract 
file.
    (v) No determination is required when the facilities are provided as 
components of special tooling or special test equipment acquired or 
fabricated at Government expense.
    (5) As otherwise authorized by law or regulation.
    (b) Agencies shall not--
    (1) Furnish new facilities to contractors unless existing 
Government-owned facilities are either inadequate or cannot be 
economically furnished;
    (2) Use research and development funds to provide contractors with 
new construction or improvements of general utility, unless authorized 
by law; or
    (3) Provide facilities to contractors solely for non-Government use, 
unless authorized by law.
    (c) Competitive solicitations shall not include an offer by the 
Government to provide new facilities, nor shall solicitations offer to 
furnish existing Government facilities that must be moved into a 
contractor's plant, unless adequate price competition cannot be 
otherwise obtained. Such solicitations shall require contractors to 
identify the Government-owned facilities desired to be moved into their 
plants.
    (d) Government facilities with a unit cost of less than $10,000 
shall not be provided to contractors unless--
    (1) The contractor is a nonprofit institution of higher education or 
other nonprofit organization whose primary purpose is the conduct of 
scientific research;
    (2) A contractor is operating a Government-owned plant on a cost-
plus-fee basis;
    (3) A contractor is performing on a Government establishment or 
installation;

[[Page 863]]

    (4) A contractor is performing under a contract specifying that it 
may acquire or fabricate special tooling, special test equipment, and 
components thereof subsequent to obtaining the approval of the 
contracting officer; or
    (5) The facilities are unavailable from other than Government 
sources.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 34756, Aug. 21, 1989]



45.302-2  Facilities contracts.

    (a) Facilities shall be provided to a contractor or subcontractor 
only under a facilities contract using the appropriate clauses required 
by 45.302-6, except as provided in 45.302-3.
    (b) All facilities provided by a contracting activity for use by a 
contractor at any one plant or general location shall be governed by a 
single facilities contract, unless the contracting officer determines 
this to be impractical. Each agency should consolidate, to the maximum 
practical extent, its facility contracts covering specific contractor 
locations.
    (c) No fee shall be allowed under a facilities contract. Profit or 
fee (plus or minus) shall be considered in awarding any related supply 
or service contract, consistent with the profit guidelines of 15.404-4.
    (d) Special tooling and special test equipment will normally be 
provided to a contractor under a supply contract, but may be provided 
under a facilities contract when administratively desirable.
    (e) Agencies shall ensure that facility projects involving real 
property transactions comply with applicable laws (e.g., 10 U.S.C. 2676 
and 41 U.S.C. 12 and 14).
[48 FR 42392, Sept. 19, 1983, as amended at 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
45.302-2, in paragraph (c), ``Subpart 15.9'' was amended to read 
``15.404-4'', effective Oct. 10, 1997.



45.302-3  Other contracts.

    (a) Facilities may be provided to a contractor under a contract 
other than a facilities contract when one of the following exceptions 
applies:
    (1) The actual or estimated cumulative acquisition cost of the 
facilities provided by the contracting activity to the contractor at one 
plant or general location does not exceed $1,000,000;
    (2) The number of items of plant equipment provided is ten or fewer;
    (3) The contract performance period is twelve months or less;
    (4) The contract is for construction;
    (5) The contract is for services and the facilities are to be used 
in connection with the operation of a Government-owned plant or 
installation; or
    (6) The contract is for work within an establishment or installation 
operated by the Government.
    (b) When a facilities contract is not used, the Government's 
interest shall normally be protected by using the appropriate Government 
property clause or, in the case of subparagraph (a)(5) of this 
subsection, by appropriate portions of the facilities clauses.
    (c) No profit or fee shall be allowed on the cost of the facilities 
when purchased for the account of the Government under other than a 
facilities contract. General purpose components of special tooling or 
special test equipment are not facilities.
[48 FR 42392, Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990; 
57 FR 60588, 60589, Dec. 21, 1992]



45.302-4  Contractor use of Government-owned and -operated test facilities.

    (a) Agencies may authorize onsite use by contractors of existing 
Government-owned and -operated test facilities in connection with 
Government contracts only when--
    (1) No adequate commercial test capability is available;
    (2) Substantial cost savings will result from using the Government-
owned test facilities; or
    (3) Otherwise authorized by law.
    (b) When such use is authorized, the contracting officer shall 
obtain adequate consideration comparable to commercial rates.



45.302-5  Standby or layaway requirements.

    A facilities contract may include requirements for maintenance and 
storage of Government production and research property in standby or 
layaway

[[Page 864]]

status. The contract shall include appropriate specifications for the 
care and maintenance of the property. If the Government is required to 
pay the contractor for maintenance and storage, the contract shall 
define what constitutes standby or layaway and specify when payments 
will begin and end. The contract may provide for reimbursing the 
contractor for any State or local property tax it is required to pay 
because of its possession of or interest in such property (see 31.205-
41).



45.302-6  Required Government property clauses for facilities contracts.

    (a) The contracting officer shall insert the clause at 52.245-7, 
Government Property (Consolidated Facilities), in solicitations and 
contracts when a consolidated facilities contract is contemplated (see 
45.301).
    (b) The contracting officer shall insert the clause at 52.245-8, 
Liability for the Facilities, in solicitations and contracts when a 
consolidated facilities contract, a facilities acquisition contract, or 
a facilities use contract is contemplated (see 45.301).
    (c) The contracting officer shall insert the clause at 52.245-9, Use 
and Charges, in solicitations and contracts (1) when a consolidated 
facilities contract or a facilities use contract (see 45.301) or (2) 
when a fixed-price contract is contemplated, and Government production 
and research property is provided other than on a rent-free basis.
    (d) The contracting officer shall insert the clause at 52.245-10, 
Government Property (Facilities Acquisition), in solicitations and 
contracts when a facilities acquisition contract is contemplated (see 
45.301).
    (e) (1) The contracting officer shall insert the clause at 52.245-
11, Government Property (Facilities Use), in solicitations and contracts 
when a facilities use contract is contemplated (see 45.301).
    (2) If the contract is for the conduct of basic or applied research 
at nonprofit institutions of higher education, or is awarded to a 
nonprofit organization whose primary purpose is the conduct of 
scientific research (see 35.014), the contracting officer shall use the 
clause with its Alternate I.



45.302-7  Optional property-related clauses for facilities contracts.

    (a) The contracting officer may insert the clause at 52.245-12, 
Contract Purpose (Nonprofit Educational Institutions), in solicitations 
and contracts when a facilities use contract is contemplated and award 
may be made to a nonprofit educational institution (also see 45.302-6).
    (b) The contracting officer may insert the clause at 52.245-13, 
Accountable Facilities (Nonprofit Educational Institutions), in 
solicitations and contracts when a facilities contract is contemplated 
and award may be made to a nonprofit educational institution (also see 
45.302-6).
    (c) The contracting officer may insert the clause at 52.245-14, Use 
of Government Facilities, in solicitations and contracts when a 
facilities use contract is contemplated and award may be made to a 
nonprofit educational institution (also see 45.302-6).
    (d) The contracting officer may, under a proper delegation of 
authority, insert the clause at 52.245-15, Transfer of Title to the 
Facilities, in solicitations and contracts when a consolidated 
facilities contract, a facilities acquisition contract, or a facilities 
use contract is contemplated for the conduct of basic or applied 
research at nonprofit institutions of higher education, or at nonprofit 
organizations whose primary purpose is the conduct of scientific 
research (see 35.015 and 45.302-6).
    (e) The contracting officer may insert the clause at 52.245-16, 
Facilities Equipment Modernization, in solicitations and contracts when 
a consolidated facilities contract, a facilities acquisition contract, 
or a facilities use contract is contemplated under which the Government 
will provide modernized or replacement facilities.



45.303  Providing material.



45.303-1  Policy.

    Contractors shall ordinarily furnish all material for performing 
Government contracts. However, agencies should provide material to a 
contractor when necessary to achieve significant economy, 
standardization, or expedited

[[Page 865]]

production, or when it is otherwise in the Government's interest.



45.303-2  Procedures.

    Solicitations shall specify material that the Government will 
furnish in sufficient detail (including requisitioning procedures) to 
enable offerors to evaluate it accurately. The contracting officer shall 
insert the appropriate Government property clause prescribed in 45.106, 
in all solicitations when the Government will provide material.



45.304  Providing motor vehicles.

    (a) Contractors shall ordinarily furnish any motor vehicles needed 
in performing Government contracts. Agencies may provide contractors 
with motor vehicles only when--
    (1) The number of vehicles required for use by contractor personnel 
is predictable and expected to remain fairly constant;
    (2) The proposed contract will bear the entire cost of the vehicle 
program;
    (3) The motor vehicles will not be used on any contract other than 
that for which the vehicles were provided, unless approved by the 
appropriate department or agency official;
    (4) Prospective contractors do not have or would not be expected to 
have an existing and continuing capability for providing the vehicles 
from their own resources; and
    (5) Substantial savings are expected.
    (b) Agencies that provide contractors with Government-owned-or-
leased motor vehicles are responsible for ensuring that such vehicles 
are used only for the performance of the contract. Under 41 CFR 101-
38.301-1, contractors are prohibited from using such vehicles for home-
to-work transportation consistent with Pub. L. 99-550 amending 31 U.S.C. 
1344. (See subpart 51.2, Contractor Use of Interagency Fleet Management 
System (IFMS) Vehicles.)
[48 FR 42392, Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990]



45.305  [Reserved]



45.306  Providing special tooling.



45.306-1  Providing existing special tooling.

    (a) The contracting officer shall offer existing Government special 
tooling to prospective contractors for use in Government work if it will 
not disrupt programs of equal or higher priority, it is otherwise 
advantageous to the Government, and use of the special tooling is 
authorized under 45.402(a). (See also 45.308 and 45.309.)
    (b) Contracts authorizing the furnishing of existing special tooling 
shall contain a description of the special tooling, the terms and 
conditions of shipment, and the terms covering the cost of adapting and 
installing the tooling.



45.306-2  Special tooling under cost-reimbursement contracts.

    Title to special tooling under cost-reimbursement contracts is 
acquired by the Government in all cases. The clause used for this 
purpose is 52.245-5, Government Property (Cost-Reimbursement, Time-and-
Material, or Labor-Hour Contracts).
[54 FR 48989, Nov. 28, 1989]



45.306-3  Special tooling under fixed-price contracts.

    (a) Criteria for acquisition. In deciding whether or not to acquire 
title to special tooling, or rights to title, under fixed-price 
contracts, the contracting officer shall consider the following factors:
    (1) The current or probable future need of the Government for the 
items involved (including in-house use) and the estimated cost of 
producing them if not acquired.
    (2) The estimated residual value of the items.
    (3) The administrative burden and other expenses incident to 
reporting, recordkeeping, preparation, handling transportation, and 
storage.

[[Page 866]]

    (4) The feasibility and probable cost of making the items available 
to other offerors in the event of future acquisitions.
    (5) The amount offered by the contractor for the right to retain the 
items.
    (6) The affect on future competition and contract pricing.
    (b) Decision not to acquire special tooling. In contracts in which 
the Government will not acquire title to special tooling, or rights to 
title, special requirements may be included in the Schedule of the 
contract (e.g., requirement governing the contractor's capitalization of 
special tooling costs).
[54 FR 48989, Nov. 28, 1989]



45.306-4  [Reserved]



45.306-5  Contract clause.

    The contracting officer shall insert the clause at 52.245-17, 
Special Tooling, in solicitations and contracts when a fixed-price 
contract is contemplated, and either the contract will include special 
tooling provided by the Government or the Government will acquire title 
or right to title in special tooling to be acquired or fabricated by the 
contractor for the Government, other than special tooling to be 
delivered as an end item under the contract. The Special Tooling clause 
shall apply to all special tooling accountable to the contract.
[54 FR 48989, Nov. 28, 1989]



45.307  Providing special test equipment.



45.307-1  General.

    (a) Contracting officers shall offer existing Government-owned 
special test equipment to contractors, consistent with the conditions in 
45.306-1(a). (See also 45.308 and 45.309.)
    (b) Contracting officers may also authorize contractors to acquire 
special test equipment for the Government when it is advantageous to the 
Government under the criteria in 45.306-3(a) and existing special test 
equipment is not available.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 48990, Nov. 28, 1989]



45.307-2  Acquiring special test equipment.

    (a) When special test equipment or components are known, the 
solicitation (and the contract) shall separately identify each item to 
be furnished by the Government or acquired or fabricated by the 
contractor for the Government. Individual items of less than $5,000 may 
be grouped by category.
    (b) Notice and approval. Under negotiated contracts containing the 
clause at 52.245-18, Special Test Equipment, the contractor must notify 
the contracting officer if it intends to acquire or fabricate special 
test equipment. Within 30 days of receipt of the notice, the contracting 
officer shall--
    (1) Review the proposed items for necessity and proper 
classification as special test equipment;
    (2) Screen the availability of existing Government-owned test 
equipment in accordance with agency procedures; and
    (3) Notify the contractor, approving or disapproving the acquisition 
or fabrication and, if it is disapproved, state whether the equipment 
will be furnished by the Government.
[48 FR 42392, Sept. 19, 1983, as amended at 57 FR 60588, Dec. 21, 1992]



45.307-3  Contract clause.

    The contracting officer shall insert the clause at 52.245-18, 
Special Test Equipment, in solicitations and contracts when contracting 
by negotiation and the contractor will acquire or fabricate special test 
equipent for the Government but the exact identification of the special 
test equipment to be acquired or fabricated is unknown.
[54 FR 48990, Nov. 28, 1989]



45.308  Providing Government production and research property ``as is.''



45.308-1  General.

    (a) The contracting officer may provide Government production and 
research property on an ``as is'' basis for performing fixed-price, 
time-and-material, and labor-hour contracts. It may also be furnished 
under a facilities contract, in which case the contract shall state that 
the contractor will not be reimbursed for transporting, installing,

[[Page 867]]

modifying, repairing, or otherwise making the property ready for use.
    (b) When the property is provided under other than a facilities 
contract, the solicitation shall state that--
    (1) Offerors may inspect the property before submitting offers and 
the conditions under which it may be inspected;
    (2) The property is offered in its current condition, f.o.b. present 
location (provide specific locations);
    (3) Offerors must satisfy themselves that the property is suitable 
for their use;
    (4) The successful offeror shall bear the cost of transporting, 
installing, modifying, repairing, or otherwise making the property 
suitable for use; and
    (5) Evaluations will be made in accordance with Subpart 45.2 to 
eliminate any competitive advantage resulting from using the property.
[54 FR 48990, Nov. 28, 1989]



45.308-2  Contract clause.

    The contracting officer shall insert the clause at 52.245-19, 
Government Property Furnished ``As Is,'' in solicitations and contracts 
when a contract other than a consolidated facilities contract, a 
facilities acquisition contract, or a facilities use contract is 
contemplated and Government production and research property is to be 
furnished ``as is'' (see 45.106 for additional clauses that may be 
required).
[54 FR 48990, Nov. 28, 1989]



45.309  Providing Government production and research property under special restrictions.

    (a) Government production and research property, other than 
foundations and similar improvements necessary for installing special 
tooling, special test equipment, or plant equipment, shall not be 
installed or constructed on land not owned by the Government in such 
fashion as to be nonseverable, unless the head of the contracting 
activity determines that the location is necessary, and the contract 
under which the property is provided contains--
    (1) A requirement for the contractor to reimburse the Government for 
the fair value of the property at contract completion or termination or 
within a reasonable time thereafter (for example, the provision may 
require the contractor to purchase the property at a value determined by 
appraisal or at a price equal to its acquisition cost less depreciation 
at a specified rate);
    (2) An option for the Government to acquire the underlying land; or
    (3) An alternative provision that the agency head considers adequate 
to protect the Government's interests.
    (b) If patent or other proprietary rights of a contractor may 
restrict the disposal of Government production and research property, 
the condition in either paragraph (a)(1) or (a)(3) above shall be 
satisfied before the property is provided.
    (c) If Government production and research property is not available 
to all offerors, the solicitation shall identify the offerors to whom 
the property is available.



45.310  Providing agency-peculiar property.

    (a) Agency-peculiar property may be furnished to contractors when 
necessary for use as a standard or model, for testing the contractor's 
end item where suitable commercial equipment is not available, to 
establish equipment compatibility, or for other reasons that the 
contracting officer determines to be in the Government's interest.
    (b) Agency-peculiar property may be furnished under a facilities 
contract, a supply or service contract containing the appropriate 
Government Property clause, or a special bailment agreement.
    (c) Contracting officers shall provide special instructions for 
security, liability, maintenance, and/or property control, when agency-
peculiar property requires special handling or safeguards.



45.311  Providing Government property by transfer.

    Government property shall be transferred only if there is a 
requirement under the gaining contract. Transfers of Government 
property, as Government-furnished property, shall be documented by a 
modification to the gaining contract. A modification or other 
documentation listing all items of

[[Page 868]]

property transferred is required for the losing contract.
[59 FR 67054, Dec. 28, 1994]



     Subpart 45.4--Contractor Use and Rental of Government Property



45.400  Scope of subpart.

    This subpart prescribes policies and procedures for contractor use 
and rental of Government production and research property.



45.401  Policy.

    In performing Government contracts or subcontracts, Government 
production and research property in the possession of contractors or 
subcontractors shall be used to the greatest possible extent, provided 
that a competitive advantage is not conferred on the contractor or its 
subcontractors (see subpart 45.2). Prior approval of the contracting 
officer having cognizance of Government production and research property 
is required for any use, whether Government or non-Government, to ensure 
that the Government receives adequate consideration. Government use is 
defined as use in support of U.S. Government contacts and non-Government 
use is all other use (including direct commercial sales to domestic and 
foreign customers). As a general rule, Government use is on a rent-free 
basis. Non-Government use is on a rental basis. When Government 
production and research property is no longer required for the 
performance of Government contracts or subcontracts, it shall not 
continue to be made available to a contractor for non-Government use.
[51 FR 19717, May 30, 1986]



45.402  Authorizing use of Government production and research property.

    (a) Contracting officers who believe it to be in the Government's 
interest for a prospective contractor or subcontractor to use existing 
Government production and research property shall authorize such use in 
the contract. The contracting officer shall confirm the availability of 
the property before authorizing its use on either a rental or rent-free 
basis.
    (b) Unless the solicitation provides for the successful offeror to 
use Government production and research property in the offeror's 
possession, the solicitation shall require any offeror desiring to use 
such property to request the written concurrence of the contracting 
officer cognizant of the property. To preclude a competitive advantage, 
the contracting officer's concurrence should include any information 
required by subpart 45.2.
    (c) The contracting officer shall review the contractor's request 
for non-Government use of Government production and research property 
when the property is no longer required for performing Government 
contracts but is retained for spares or for mobilization and readiness 
requirements. (Also see 45.302-1(b)(3).)



45.403  Rental--Use and Charges clause.

    (a) The contracting officer shall charge contractors rent for using 
Government production and research property, except as prescribed in 
45.404 and 45.405. Rent shall be computed in accordance with the clause 
at 52.245-9, Use and Charges. If the agency head or designee determines 
it to be in the Government's interest, rent for classes of production 
and research property other than plant equipment identified in item (ii) 
of Table I of the clause at 52.245-9, Use and Charges, may be charged on 
the basis of use rather than the rental period, or on some other 
equitable basis. In such cases, the clause at 52.245-9, Use and Charges, 
shall be appropriately modified.
    (b) The contracting officer cognizant of the Government production 
and research property shall ensure the collection of any rent due the 
Government from the contractor.



45.404  Rent-free use.

    (a) The rental required by 45.403 above does not apply to the 
following Government production and research property:
    (1) That which is located in Government-owned, contractor-operated 
plants operated on a cost-plus-fee basis (but see 45.405).
    (2) That which is left in place or installed on contractor-owned 
property

[[Page 869]]

for mobilization or future Government production purposes. However, rent 
computed in accordance with 45.403(a) shall apply to that portion of 
property or its capacity used or authorized for use.
    (3) Items of equipment that are part of a general program approved 
by the Federal Emergency Management Agency (FEMA) and present unusual 
problems in relation to the time required for their preparation for 
shipment, installation, and operation because of size, complexity, or 
performance characteristics.
    (4) Any other Government production and research property that may 
be excepted by FEMA.
    (b) The contracting officer cognizant of the Government production 
and research property may grant written authorization for rent-free use 
of production and research property in the possession of nonprofit 
organizations when used for research, development, or educational work 
and--
    (1) The use of the property is directly or indirectly in the 
national interest;
    (2) The property will not be used for the direct benefit of a 
profitmaking organization; and
    (3) The Government receives some direct benefit (such as rights to 
use the results of the work without charge) from its use. As a minimum, 
the contractor shall furnish a report on the work for which the property 
was provided.
    (c) If the contracting officer has obtained adequate price or other 
consideration, Government production and research property may also be 
used rent-free under--
    (1) Prime contracts that specifically authorize such use without 
charge; and
    (2) Subcontracts of any tier, if the contracting officer awarding 
the prime contract has specifically authorized rent-free use by the 
subcontractor.
    (d) After award, a contract may be modified to eliminate rent for 
using Government production and research property. In this case, the 
contract shall be equitably adjusted to reflect the elimination of rent 
and any other amount attributable thereto.



45.405  Contracts with foreign governments or international organizations.

    Requests by, or for the benefit of, foreign governments or 
international organizations to use Government production and research 
property shall be processed and costs shall be recovered or rental 
charged in accordance with agency procedures.



45.406  Use of Government production and research property on independent research and development programs.

    The contracting officer cognizant of Government production and 
research property in the possession of a contractor may authorize a 
contractor to use the property on an independent research and 
development (IR&D) program, if--
    (a) Such use will not conflict with the primary use of the property 
or enable the contractor to retain property that could otherwise be 
released;
    (b) The contractor agrees not to include as a charge against any 
Government contract the rental value of the property used on its IR&D 
program; and
    (c) A rental charge for the portion of the contractor's IR&D program 
cost allocated to commercial work, computed in accordance with 45.403, 
is deducted from any agreed-upon Government share of the contractor's 
IR&D costs.



45.407  Non-Government use of plant equipment.

    Requirements for authorization and dollar thresholds for non-
Government use of specific types of plant equipment shall be set at the 
agency level. The following general policies and requirements shall be 
used by agencies in supplementing this section:
    (a) The contracting officer's advance written approval shall be 
required for any non-Government use of active plant equipment. Before 
authorizing non-Government use exceeding 25 percent, the contracting 
officer shall obtain approval of the head (or designee) of the agency 
that awarded the contract to which the property is accountable.

[[Page 870]]

    (b) The approvals under paragraph (a) above may be granted only when 
it is in the Government's interest--
    (1) To keep the equipment in a high state of operational readiness 
through regular use;
    (2) Because substantial savings to the Government would accrue 
through overhead cost-sharing and receipt of rental; or
    (3) To avoid an inequity to a contractor who is required by the 
Government to retain the equipment in place.
    (c) If the contractor's request for non-Government use in excess of 
25 percent is approved, the contracting officer may require the 
contractor to insure the property against loss or damage. Facilities 
contracts may be modified to require such insurance.



  Subpart 45.5--Management of Government Property in the Possession of 
                               Contractors



45.500  Scope of subpart.

    This subpart prescribes the minimum requirements contractors must 
meet in establishing and maintaining control over Government property. 
It applies to contractors organized for profit and, except as otherwise 
noted, to non-profit organizations. In order for the special 
requirements in this subpart governing nonprofit organizations to apply, 
the contract must identify the contractor as a nonprofit organization. 
If there is any inconsistency between this subpart and the terms of the 
contract under which the Government property is provided, the terms of 
the contract shall govern.



45.501  Definitions.

    Accessory item, as used in this subpart, means an item that 
facilitates or enhances the operation of plant equipment but which is 
not essential for its operation.
    Agency-peculiar property (see 45.301).
    Auxiliary item, as used in this subpart, means an item without which 
the basic unit of plant equipment cannot operate.
    Contractor-acquired property (see 45.101).
    Custodial records, as used in this subpart, means written memoranda 
of any kind, such as requisitions, issue hand receipts, tool checks, and 
stock record books, used to control items issued from tool cribs, tool 
rooms, and stockrooms.
    Discrepancies incident to shipment, as used in this subpart, means 
all deficiencies incident to shipment of Government property to or from 
a contractor's facility whereby differences exist between the property 
purported to have been shipped and property actually received. Such 
deficiencies include loss, damage, destruction, improper status and 
condition coding, errors in identity or classification, and improper 
consignment.
    Facilities (see 45.301).
    Government-furnished property (see 45.101).
    Government property (see 45.101).
    Individual item record, as used in this subpart, means a separate 
card, form, document or specific line(s) of computer data used to 
account for one item of property.
    Material (see 45.301).
    Nonprofit organization (see 45.301).
    Plant equipment (see 45.101).
    Property administrator, as used in this subpart, means an authorized 
representative of the contracting officer assigned to administer the 
contract requirements and obligations relating to Government property.
    Real property (see 45.101).
    Salvage, as used in this subpart, means property that, because of 
its worn, damaged, deteriorated, or incomplete condition or specialized 
nature, has no reasonable prospect of sale or use as serviceable 
property without major repairs, but has some value in excess of its 
scrap value.
    Scrap, as used in this subpart, means personal property that has no 
value except for its basic material content.
    Special test equipment (see 45.101).
    Special tooling (see 45.101).
    Stock record, as used in this subpart, means a perpetual inventory 
record which shows by nomenclature the quantities of each item received 
and issued and the balance on hand.
    Summary record, as used in this subpart, means a separate card, 
form, document or specific line(s) of computer data used to account for 
multiple quantities of a line item of special tooling,

[[Page 871]]

special test equipment, or plant equipment costing less than $5,000 per 
unit.
    Utility distribution system, as used in this subpart, includes 
distribution and transmission lines, substations, or installed equipment 
forming an integral part of the system by which gas, water, steam, 
electricity, sewerage, or other utility services are transmitted between 
the outside building or structure in which the services are used and the 
point of origin, disposal, or connection with some other system. It does 
not include communication services.
    Work-in-process, as used in this subpart, means material that has 
been released to manufacturing, engineering, design or other services 
under the contract and includes undelivered manufactured parts, 
assemblies, and products, either complete or incomplete.
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 11384, Mar. 10, 1994]



45.502  Contractor responsibility.

    (a) The contractor is directly responsible and accountable for all 
Government property in accordance with the requirements of the contract. 
This includes Government property in the possession or control of a 
subcontractor. The contractor shall establish and maintain a system in 
accordance with this subpart to control, protect, preserve, and maintain 
all Government property. This property control system shall be in 
writing unless the property administrator determines that maintaining a 
written system is unnecessary. The system shall be reviewed and, if 
satisfactory, approved in writing by the property administrator.
    (b) The contractor shall maintain and make available the records 
required by this subpart and account for all Government property until 
relieved of that responsibility. The contractor shall furnish all 
necessary data to substantiate any request for relief from 
responsibility.
    (c) (1) The contractor shall be responsible for the control of 
Government property under this subpart 45.5 upon--
    (i) Delivery of Government-furnished property into its custody or 
control;
    (ii) Delivery, when property is purchased by the contractor and the 
contract calls for reimbursement by the Government (this requirement 
does not alter or modify contractual requirements relating to passage of 
title);
    (iii) Approval of its claim for reimbursement by the Government or 
upon issuance for use in contract performance, whichever is earlier, of 
property withdrawn from contractor-owned stores and charged directly to 
the contract; or
    (iv) Acceptance of title by the Government when title is acquired 
pursuant to specific contract clauses or as a result of change orders or 
contract termination.
    (2) Property to which the Government has acquired a lien or title 
solely as a result of advance, progress, or partial payments is not 
subject to the requirements of this subpart.
    (d) The contractor shall require subcontractors provided Government 
property under the prime contract to comply with the requirements of 
this subpart. Procedures for assuring subcontractor compliance shall be 
included in the contractor's property control system. Where the property 
administrator assigned to the contract has requested supporting property 
administration from another contract administration office, the 
contractor may accept the system approval of the supporting property 
administrator instead of performing duplicative actions to assure the 
subcontractor's compliance.
    (e) If the property administrator finds any portion of the 
contractor's property control system to be inadequate, the contractor 
must take any necessary corrective action before the system can be 
approved. If the contractor and property administrator cannot agree 
regarding the adequacy of control and corrective action, the matter 
shall be referred to the contracting officer.
    (f) When Government property (excluding misdirected shipments, see 
45.505-12) is disclosed to be in the possession or control of the 
contractor but not provided under any contract, the contractor shall 
promptly (1) record such property according to the established property 
control procedure and (2) furnish to the property administrator all 
known circumstances and data pertaining to its receipt and a statement 
as to whether there is a need for its retention.

[[Page 872]]

    (g) The contractor shall promptly report all Government property in 
excess of the amounts needed to complete full performance under the 
contracts providing it or authorizing its use.
    (h) When unrecorded Government property is found, both the cause of 
the discrepancy and actions taken or needed to prevent recurrence shall 
be determined and reported to the property administrator.
[48 FR 42392, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986]



45.502-1  Receipts for Government property.

    The contractor shall furnish written receipts for all or specified 
classes of Government property only when the property administrator 
deems it essential for maintaining minimum acceptable property controls. 
If evidence of receipt is required for contractor-acquired property, the 
contractor shall provide it before submitting its request for payment 
for the property. For Government-furnished property, the contractor 
shall provide the required receipt immediately upon receipt of the 
property.



45.502-2  Discrepancies incident to shipment.

    (a) Government-furnished property. If overages, shortages, or 
damages are discovered upon receipt of Government-furnished property, 
the contractor shall provide a statement of the condition and apparent 
causes to the property administrator and to other activities specified 
in the approved property control system. Only that quantity of property 
actually received will be recorded on the official records.
    (b) Contractor-acquired property. The contractor shall take all 
actions necessary in adjusting overages, shortages, or damages in 
shipment of contractor-acquired property from a vendor or supplier. 
However, when the shipment has moved by Government bill of lading and 
carrier liability is indicated, the contractor shall report the 
discrepancy in accordance with paragraph (a) above.



45.503  Relief from responsibility.

    (a) Unless the contract or contracting officer provides otherwise, 
the contractor shall be relieved of property control responsibility for 
Government property by--
    (1) Reasonable and proper consumption of property in the performance 
of the contract as determined by the property administrator;
    (2) Retention by the contractor, with the approval of the 
contracting officer, of property for which the Government has received 
consideration;
    (3) The authorized sale of property, provided the proceeds are 
received by or credited to the Government;
    (4) Shipment from the contractor's plant, under Government 
instructions, except when shipment is to a subcontractor or other 
location of the contractor; or
    (5) A determination by the contracting officer of the contractor's 
liability for any property that is lost, damaged, destroyed, or consumed 
in excess of that normally anticipated in a manufacturing or processing 
operation, if--
    (i) The determination is furnished to the contractor in writing;
    (ii) The Government is reimbursed where required by the 
determination; and
    (iii) Property rendered unserviceable by damage is properly disposed 
of, and the determination is cross-referenced to the shipping or other 
documents evidencing disposal.
    (b) Nonprofit organizations are relieved of responsibility for 
Government property when title to the property is transferred to the 
contractor (see 35.014).



45.504  Contractor's liability.

    (a) Subject to the terms of the contract and the circumstances 
surrounding the particular case, the contractor may be liable for 
shortages, loss, damages, or destruction of Government property. The 
contractor may also be liable when the use or consumption of Government 
property unreasonably exceeds the allowances provided for by the 
contract, the bill of material, or other appropriate criteria.
    (b) The contractor shall investigate and report to the property 
administrator all cases of loss, damage, or destruction of Government 
property in its possession or control as soon as the facts become known 
or when requested

[[Page 873]]

by the property administrator. A report shall also be furnished when 
completed and accepted products or end items are lost, damaged, or 
destroyed while in the contractor's possession or control.
    (c) The contractor shall require any of its subcontractors 
possessing or controlling Government property accountable under the 
contract to investigate and report all instances of loss, damage, or 
destruction of such property.



45.505  Records and reports of Government property.

    (a) The contractor's property control records shall constitute the 
Government's official property records unless an exception has been 
authorized. The contractor shall establish and maintain adequate control 
records for all Government property, including property provided to and 
in the possession or control of a subcontractor. The property control 
records specified in this section are the minimum required by the 
Government. Unless the property administrator directs otherwise, when a 
subcontractor has an approved property control system for Government 
property provided under its own prime contracts, the contractor shall 
use the records created and maintained under that system.
    (b) The contractor's property control system shall provide financial 
accounts for Government-owned property in the contractor's possession or 
control. The system shall be subject to internal control standards and 
be supported by property records for such property.
    (c) Official Government property records must identify all 
Government property and provide a complete, current, auditable record of 
all transactions. The contractor's system of records maintenance shall 
be sufficient to adequately control Government property as required by 
this section. The contractor's system of records maintenance, as a 
minimum, shall be equivalent to and maintained in the same manner as the 
contractor's system for maintaining records of contractor-owned 
property, but need not exceed the requirements of this subpart. The 
records shall be safeguarded from tampering or destruction. Records 
shall be accessible to authorized Government personnel.
    (d) Separate property records for each contract are desirable, but a 
consolidated property record may be maintained if it provides the 
required information.
    (e) Special tooling and special test equipment fabricated from 
materials that are the property of the Government shall be recorded as 
Government-owned immediately upon fabrication. Special tooling and 
special test equipment fabricated from materials that are the property 
of the contractor shall be recorded as Government property at the time 
title passes to the Government.
    (f) Property records of the type established for components acquired 
separately shall be used for serviceable components permanently removed 
from items of Government property as a result of modification.
    (g) The contractor's property control system shall contain a system 
or technique to locate any item of Government property within a 
reasonable period of time.
[48 FR 42392, Sept. 19, 1983, as amended at 53 FR 43394, Oct. 26, 1988]



45.505-1  Basic information.

    (a) Unless summary records are used as authorized under paragraph 
(b) of this section, the contractor's property control records shall 
provide the following basic information for every item of Government 
property in the contractor's possession, regardless of value (other 
subsections of 45.505 require additional information for specific 
categories of Government property):
    (1) The name, description, and National Stock Number (if furnished 
by the Government or available in the property control system).
    (2) Quantity received (or fabricated), issued, and on hand.
    (3) Unit price (and unit of measure).
    (4) Contract number or equivalent code designation.
    (5) Location.
    (6) Disposition.
    (7) Posting reference and date of transaction.
    (b) Summary records are normally adequate for special tooling, 
special

[[Page 874]]

test equipment, and plant equipment costing less than $5,000 per unit, 
except where the contract administration office determines that 
individual item records are necessary for effective control, 
calibration, or maintenance. Summary records shall provide the 
information listed in paragraphs (a)(1) through (a)(7) of this section, 
but may reference a general location, provided the contractor can locate 
the property within a reasonable period of time.
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 11384, Mar. 10, 1994]



45.505-2  Records of pricing information.

    (a) Requirement for unit prices. (1) The contractor's property 
control system shall contain the unit price for each item of Government 
property except as provided in (b) below. When a contractor records the 
unit price of property on other than the quantitative inventory records, 
those supplementary records shall become part of the official Government 
property records.
    (2) (Note: This subparagraph (2) does not apply to nonprofit 
organizations.) The requirement that unit prices be contained in the 
official Government property records does not apply to those separate 
property records located at a contractor's secondary sites and 
subcontractor plants; provided, that--
    (i) Records maintained by the prime contractor at its primary site 
include unit prices; and
    (ii) The prime contractor agrees to furnish actual or estimated unit 
prices to the secondary site or subcontractor as the need arises.
    (3) When definite information as to unit price cannot be obtained, 
reasonable estimates will be used.
    (b) Determining unit price. (1) Contractor-acquired and contractor-
fabricated property. Except for items fabricated by nonprofit 
organizations for research and development purposes, the unit price of 
contractor-acquired and contractor-fabricated property shall be 
determined in accordance with the system established by the contractor 
in conformance with consistently applied sound accounting principles. 
Generally, separate unit prices should be applied to items of special 
tooling and special test equipment fabricated or acquired by the 
contractor. However, if the contractor's accounting system is 
acceptable, and if maintaining detailed cost records results in 
excessive accounting cost or is otherwise impracticable, group pricing 
may be used for special tooling, special test equipment, and work-in-
process in accordance with the contractor's acceptable cost accounting 
system. All processed material, fabricated parts, components, and 
assemblies charged to the contractor's work-in-process inventory, 
including items in temporary storage while awaiting processing, may be 
considered as work-in-process for this purpose.
    (2) Government-furnished property. The Government shall determine 
and furnish to the contractor the unit price of Government-furnished 
property. Transportation and installation costs shall not generally be 
considered as part of the unit price for this purpose. Normally, the 
unit price of Government-furnished property will be provided on the 
document covering shipment of the property to the contractor. In the 
event the unit price is not provided on the document, the contractor 
will take action to obtain the information.



45.505-3  Records of material.

    (a) General. All Government material furnished to the contractor, as 
well as other material to which title has passed to the Government by 
reason of allocation from contractor-owned stores or purchase by the 
contractor for direct charge to a Government contract or otherwise, 
shall be recorded in accordance with the contractor's property control 
system and the requirements of this section.
    (b) Consolidated stock record. When a contractor has more than one 
Government contract under which Government material is provided, a 
consolidated record for materials may be authorized by the property 
administrator, provided, the total quantity of any item is allocated to 
each contract by contract number and each requisition of material from 
contractor-owned stores is charged to the contract on which the material 
is to be used. The supporting document or issue slip shall show the 
contract number or equivalent code designation to which the issue is 
charged.

[[Page 875]]

    (c) Custodial records. The contractor shall maintain custodial 
records for tool crib items, guard force items, protective clothing, and 
other items issued to individuals for use in their work.
    (d) Use of receipt and issue documents. (Note: This paragraph (d) 
does not apply to nonprofit organizations.) The property administrator 
may authorize the contractor to maintain, in lieu of stock records, a 
file of appropriately cross-referenced documents evidencing receipt, 
issue, and use of Government-provided material that is issued for 
immediate consumption and is not entered in the inventory record as a 
matter of sound business practice. This method of control may be 
authorized for--
    (1) Material charged through overhead;
    (2) Material under research and development contracts;
    (3) Subcontracted or outside production items;
    (4) Nonstock or special items;
    (5) Items that are produced for direct charge to a contract, or are 
acquired and issued for installation upon receipt, and involve no 
spoilage; and
    (6) Items issued from contractor-owned inventory direct to 
production or maintenance, etc.
    (e) Material issued directly upon receipt. (Note: This paragraph (e) 
applies only to nonprofit organizations.)
    (1) Under fixed-price contracts, the contractor's documents 
evidencing receipt and issue will be accepted as property control 
records for Government-furnished material issued directly by the 
contractor upon receipt so as to be considered consumed under the 
contract.
    (2) Under cost-reimbursement contracts, Government invoices, 
contractor's purchase documents, or other evidence of acquisition and 
issue will be accepted as adequate property records for material 
furnished to or acquired by the contractor and issued directly so as to 
be considered consumed under the contract.
    (f) Multicontract cost and material control. (Note: This paragraph 
(f) does not apply to nonprofit organizations.)
    (1) Description and scope. A multicontract cost and material control 
system substitutes a system of financial accounting for the requirements 
for physical identification of Government material. The system operates 
as follows:
    (i) The contractor may acquire, requisition, receive, store, and 
issue like items of material for the total requirements of all contracts 
involved in the system without identifying the material to each 
contract.
    (ii) The contractor may commingle, during any stage of contract 
performance, Government-owned and contractor-owned material and work-in-
process that was furnished, acquired, or produced for all Government 
contracts covered by the system, without physical segregation or 
identification to the individual contracts.
    (iii) In lieu of physical segregation and identification to 
individual contracts, periodic calculation of requirements and 
distribution of costs to all contracts permits the allocation of costs 
of material to products delivered. This system, by reflecting the 
material expended to perform each contract at any stage in production, 
permits usage analysis to determine the reasonableness of consumption 
and expenditure of Government material.
    (iv) The system may include all Government contracts of any type 
that involve common repetitive operations.
    (v) The system does not require commingling of all common materials 
under all contracts. For example, items of Government-furnished material 
of high value or in short supply may be excluded from commingling and 
reserved for use in performing the contract under which furnished.
    (vi) The contractor shall take physical inventories of material in 
stores included in the systems (other than work-in-process) at least 
annually, extend and reconcile prices to the quantitative balance for 
each item, and record adjustments in the stock record and financial 
inventory control accounts. Such physical inventories and adjustments, 
as well as equitable distribution to cost accounts of any inventory 
losses, shall be reviewed by and are subject to the approval of the 
property administrator.
    (2) Criteria. A multicontract cost and material control system may 
be authorized if--

[[Page 876]]

    (i) The contractor demonstrates that adopting the system will result 
in savings or improved operations or that it will otherwise be in the 
Government's interest;
    (ii) The system is applied to existing Government contracts only and 
excludes materials acquired or costs incurred for non-Government work or 
in anticipation of future Government work; and
    (iii) The contractor's accounting system is adequate to--
    (A) Provide on a complete and timely basis a clear audit trail from 
costs of materials acquired for each contract to materials used or 
disposed of on each contract;
    (B) Reflect separately for Government-furnished and contractor-
acquired material in stores (except work-in-process) the inventory 
balances as affected by receipts, issues, adjustments, and other 
dispositions;
    (C) Determine unit costs for each identifiable part, component, 
subassembly, assembly, end item, and contract item;
    (D) Calculate amounts for cost reimbursements and progress payments 
during the life of the contract by applying or allocating such unit 
costs developed through each stage of work-in-process to contract items 
for the requirements of each contract; and
    (E) Assure that when Government material furnished for use under one 
contract is authorized for use on another contract, the initial contract 
receives credit.
    (3) Authorization. The administrative contracting officer may 
authorize a contractor who is performing or will perform more than one 
Government contract to use the multicontract cost and material control 
system. The property administrator shall approve whatever detailed 
operating procedures are necessary for each system authorized.
    (4) Requirement. Whenever a multicontract cost and material control 
system is authorized, the contractor's financial accounts shall include 
all material in the system acquired or furnished for Government work and 
shall satisfy the requirements in subdivision (f)(2)(iii) of 45.505-3 
above.



45.505-4  Records of special tooling and special test equipment.

    (Note: The special tooling requirements of this subsection 45.505-4 
do not apply to nonprofit organizations except for paragraph (c).)
    (a) Unless summary records are used as authorized under 45.505-1(b), 
the contractor's property control system shall provide the basic 
information listed in 45.505-1(a) regarding each item of Government-
owned special tooling and special test equipment, including any general 
purpose test equipment incorporated as components in such a manner that 
removal and reuse may be feasible and economical.
    (b) If the contractor uses group pricing of special tooling or 
special test equipment, as recognized in 45.505-2(b), unit prices may be 
computed when required.
    (c) In the case of special tooling acquired or fabricated by 
nonprofit organizations or furnished by the Government to nonprofit 
organizations for research and development, the Government invoices, 
contractor's purchase document, or other documents that evidence 
acquisition or issue will be accepted as adequate property control 
records.
    (d) Records identifying special tooling and special test equipment 
shall include the identification number and item on which used.
    (e) The contractor shall, when specified by the contract, identify 
and report special tooling and special test equipment by retention 
category (e.g., assembly tooling or critical tooling for spares or 
replacements).
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 11384, Mar. 10, 1994]



45.505-5  Records of plant equipment.

    (a) Unless summary records are used as authorized under 45.505-1(b), 
the contractor shall maintain individual item records for each item of 
plant equipment.
    (b) In addition to the information required in 45.505-1, the 
contractor's records of Government-owned plant equipment, regardless of 
value, shall include--
    (1) Federal Supply Code for the manufacturer (as listed in 
Cataloging

[[Page 877]]

Handbook H4-1 and H4-2) (available from the Superintendent of Documents, 
Government Printing Office (GPO), Washington, D.C. 20402);
    (2) Federal Supply Classification (Cataloging Handbooks H2-1, H2-2, 
and H2-3) (available from GPO); and
    (3) The original manufacturer's model or part number.
    (c) For each item of Government-owned plant equipment having a unit 
cost of $5,000 or more, the contractor shall, in addition to the 
requirements of (b) above, include--
    (1) Serial number and year built (when available);
    (2) Government identification/tag number; and
    (3) Acquisition and disposition document references and dates.
    (d) The property administrator may determine that the information in 
(c)(1) and (2) above should be recorded in the property records for 
plant equipment costing less than $5,000.
    (e) Accessory and auxiliary equipment shall be recorded on the 
record of the associated item of plant equipment. If the accessory or 
auxiliary item is not attached to, a part of, or acquired for use with a 
specific item of plant equipment, it shall be recorded either in an 
individual item record or in a summary stock record. When accessory and 
auxiliary items are permanently separated from the basic item of plant 
equipment, the unit price of the basic item shall be appropriately 
reduced.
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 11384, Mar. 10, 1994]



45.505-6  Special reports of plant equipment.

    An agency may set requirements for any special reports of plant 
equipment it determines necessary.



45.505-7  Records of real property.

    (a) The contractor shall maintain an itemized record of the 
description, location, acquisition cost, and disposition of all 
Government real property (including unimproved real property); all 
alterations, all construction work, and sites connected with such 
alteration and construction, acquired by purchase, lease, or otherwise. 
These records, including maps, drawings, plans, specifications, and 
supplementary data where necessary, shall (1) be complete, (2) show the 
original cost of the property and improvements and the cost of any 
changes and additions, and (3) be appropriately indexed.
    (b) Costs incurred by the contractor or the Government for new 
construction, including erection, installation, or assembly of 
Government real property in possession of the contractor, shall be 
capitalized in the official Government real property records and 
financial accounts maintained by the contractor for the Government.
    (c) Costs incurred for additions, expansions, extensions, 
conversions, alterations, and improvements, including applicable 
portions of capital maintenance, that increase the value, life, utility, 
capability, or serviceability of Government real property shall be 
capitalized.
    (d) Costs incurred for portable buildings or facilities specifically 
constructed for tests that involve destruction of the facility shall not 
be capitalized in the Government real property records or financial 
accounts.
    (e) Costs incurred for maintenance, repair, or rearrangement to 
maintain the Government real property in good physical condition, 
utility, capacity, or serviceability shall be charged to expense, and 
the real property records shall not be affected.
    (f) When Government-owned real property is sold, transferred, 
donated, destroyed by fire or other cause, abandoned-in-place, or 
condemned, the financial accounts shall be reduced by the presently 
recorded cost and the real property records annotated with a supporting 
statement, including pertinent facts.



45.505-8  Records of scrap or salvage.

    (a) The contractor shall maintain records of all scrap or salvage 
generated, except as provided in 45.507. These records shall conform to 
the contractor's established system of scrap and salvage control 
approved by the property administrator.
    (b) The contractor's property control system shall provide the 
following information:

[[Page 878]]

    (1) Contract number, if practical, or equivalent code designation 
from which the scrap or salvage derived.
    (2) Nomenclature or description of salvable items or classification 
(material content) of scrap.
    (3) Quantity on hand.
    (4) Posting reference and date of transaction.
    (5) Disposition.



45.505-9  Records of related data and information.

    The contractor shall maintain property control and accountability, 
in accordance with sound business practice, of manufacturing or assembly 
drawings; installation, operation, repair, or maintenance instructions; 
and other similar information furnished to the contractor by the 
Government or generated or acquired by the contractor under the contract 
and for which title vests in the Government. The requirements of this 
subpart do not otherwise apply to such property.



45.505-10  Records of completed products.

    The contractor shall maintain a record of all completed products 
produced under a contract as follows:
    (a) When there is no time lapse between Government inspection and 
acceptance of the completed products and shipment from the plant site, 
the records shall, as a minimum, consist of a summary of quantities 
accepted and shipped. When end items are accepted by the Government and 
stored with the contractor awaiting shipment, the record shall identify 
quantities stored, location, and disposition action.
    (b) On contracts that provide for the contractor to retain completed 
products for further use under the contract or other contracts, such 
items shall be considered Government-furnished property upon acceptance 
and shall be recorded as required by this subpart.
    (c) When completed products are returned to a contractor under the 
terms of a warranty clause, the contractor shall maintain, by contract, 
a record containing a description of the items involved, quantities 
received and returned to the Government, and other pertinent data 
necessary to determine that a proper accounting for all property has 
been made.



45.505-11  Records of transportation and installation costs of plant equipment.

    (Note: This subsection 45.505-11 does not apply to nonprofit 
organizations.)
    (a) Transportation costs. (1) The contractor shall record within the 
property control system the transportation and installation costs 
directly borne by the Government for each item of Government-owned plant 
equipment with an acquisition cost of $5,000 or more. The administrative 
contracting officer may require the contractor to provide such recorded 
costs for use in computing rental charges.
    (2) If transportation costs are not included in the price of 
equipment delivered, the contractor shall contact the property 
administrator for instructions for obtaining applicable freight data.
    (b) Installation costs. (1) When the contractor performs 
installation, the cost shall be computed in accordance with the 
contractor's accounting system (if the system is acceptable for other 
contract cost determination purposes) and recorded in the property 
record.
    (2) When installation is subcontracted, the contractor shall record 
the cost paid to the subcontractor in the property record.
    (3) When installation costs are included in the price of equipment 
delivered to the using location, the property records should be so 
annotated.



45.505-12  Records of misdirected shipments.

    The contractor's property control system shall provide the following 
information regarding each misdirected shipment of Government property 
received:
    (a) Identity of shipment, such as shipping document or bill of 
lading.
    (b) Origin of shipment.
    (c) Content (items in the shipment) per shipping documents, if 
available.
    (d) Location.
    (e) Disposition.

[[Page 879]]



45.505-13  Records of property returned for rework.

    (a) The contractor shall maintain quantitative records of property 
returned for processing to assure control from time of receipt through 
return of the items to the Government. The contractor shall establish 
item records under its property control system and shall include the 
information required in 45.505-1.
    (b) The records shall specify the quantity of units returned to the 
Government and the quantity otherwise disposed of with proper authority.



45.505-14  Reports of Government property.

    (a) The contractor's property control system shall provide annually 
the total acquisition cost of Government property for which the 
contractor is accountable under each contract with each agency, 
including Government property at subcontractor plants and alternate 
locations. The following classifications (property classifications may 
be varied to meet individual agency needs) shall be reported:
    (1) Land and rights therein.
    (2) Other real property, including utility distribution systems, 
buildings, structures, and improvements thereto.
    (3) Plant equipment.
    (4) Special tooling.
    (5) Special test equipment.
    (6) Material.
    (7) Agency peculiar property.
    (b) The contractor shall report the information under paragraph (a) 
as directed by the contracting officer.
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 11385, Mar. 10, 1994]



45.506  Identification.

    (a) Upon receipt of Government property, the contractor shall 
promptly--
    (1) Identify the property in accordance with agency regulations;
    (2) Mark the property in accordance with this section; and
    (3) Record the property in its property control records.
    (b)(1) Except for the following, all Government property shall be 
marked with an indication of Government ownership:
    (i) Items issued to individuals for use in their work (e.g., 
protective clothing or tool crib tools) where adequate physical control 
is maintained over the items.
    (ii) Property of a bulk type, or where its general nature of packing 
or handling precludes adequate marking.
    (iii) Material that is commingled, as authorized by 45.507.
    (iv) Where the property administrator agrees that marking is 
impractical.
    (2) Exempted items shall be entered and described on the accountable 
property records.
    (c)(1) In addition to marking with an indication of Government 
ownership, the following property shall be marked with a serial number 
in accordance with procedures approved by the property administrator:
    (i) Special tooling.
    (ii) Special test equipment.
    (iii) Components of special test equipment that have an acquisition 
cost of $5,000 or more and are incorporated in a manner that makes 
removal and reutilization feasible and economical.
    (iv) Plant equipment.
    (v) Accessory or auxiliary equipment associated with a specific item 
of plant equipment that is recorded on the property records, if 
necessary to assure return with the associated basic item.
    (2) The contractor shall record assigned numbers on all applicable 
documents pertaining to the property control system.
    (3) If the property is located in a standard agency registration 
system, the contractor may use the property's registration number as the 
serial number. The contractor should obtain the registration number 
through the property administrator from the owning agency.
    (d) The markings in paragraphs (b) and (c) of this section shall 
be--(1) securely affixed to the property, (2) legible, and (3) 
conspicuous. Examples of appropriate markings are bar coding, decals, 
and stamping. If marking will damage the property or is otherwise 
impractical, the contractor shall

[[Page 880]]

promptly notify the property administrator and ask for the item to be 
exempted (see paragraph (b) of this section). Markings shall be removed 
or obliterated when Government property is sold, scrapped, or donated.
[57 FR 60588, Dec. 21, 1992]



45.507  Segregation of Government property.

    Government property shall be kept physically separate from 
contractor-owned property. However, when advantageous to the Government 
and consistent with the contractor's authority to use such property, the 
property may be commingled--
    (a) When the Government property is special tooling, special test 
equipment, or plant equipment clearly identified and recorded as 
Government property;
    (b) When approved by the property administrator in connection with 
research and development contracts;
    (c) When material is included in a multicontract cost and material 
control system (however, see 45.505-3(f));
    (d) When (1) scrap of a uniform nature is produced from both 
Government-owned and contractor-owned material and physical segregation 
is impracticable, (2) scrap produced from Government-owned material is 
insignificant in consideration of the cost of segregation and control, 
or (3) Government contracts involved are fixed-price and provide for the 
retention of the scrap by the contractor; or
    (e) When otherwise approved by the property administrator.



45.508  Physical inventories.

    The contractor shall periodically physically inventory all 
Government property (except materials issued from stock for 
manufacturing, research, design, or other services required by the 
contract) in its possession or control and shall cause subcontractors to 
do likewise. The contractor, with the approval of the property 
administrator, shall establish the type, frequency, and procedures. 
These may include electronic reading, recording and reporting or other 
means of reporting the existence and location of the property and 
reconciling the records. Type and frequency of inventory should be based 
on the contractor's established practices, the type and use of the 
Government property involved, or the amount of Government property 
involved and its monetary value, and the reliability of the contractor's 
property control system. Type and frequency of physical inventories 
normally will not vary between contracts being performed by the 
contractor, but may vary with the types of property being controlled. 
Personnel who perform the physical inventory shall not be the same 
individuals who maintain the property records or have custody of the 
property unless the contractor's operation is too small to do otherwise.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 25069, June 12, 1989]



45.508-1  Inventories upon termination or completion.

    (a) General. Immediately upon termination or completion of a 
contract, the contractor shall perform and cause each subcontractor to 
perform a physical inventory, adequate for disposal purposes, of all 
Government property applicable to the contract, unless the requirement 
is waived as provided in paragraph (b) below.
    (b) Exception. The requirement for physical inventory at the 
completion of a contract may be waived by the property administrator 
when the property is authorized for use on a follow-on contract; 
provided, that--
    (1) Experience has established the adequacy of property controls and 
an acceptable degree of inventory discrepancies; and
    (2) The contractor provides a statement indicating that record 
balances have been transferred in lieu of preparing a formal inventory 
list and that the contractor accepts responsibility and accountability 
for those balances under the terms of the follow-on contract.
    (c) Listings for disposal purposes. (Note: This paragraph (c) 
applies only to nonprofit organizations.)
    (1) Standard items that have been modified may be described on 
listings for disposal purposes as standard items with a general 
description of the modification.
    (2) Items that have been fabricated, such as test equipment, shall 
be described in sufficient detail to permit a

[[Page 881]]

potential user to determine whether they are of sufficient interest to 
warrant further inspection.



45.508-2  Reporting results of inventories.

    The contractor shall, as a minimum, submit the following to the 
property administrator promptly after completing the physical inventory:
    (a) A listing that identifies all discrepancies disclosed by a 
physical inventory.
    (b) A signed statement that physical inventory of all or certain 
classes of Government property was completed on a given date and that 
the official property records were found to be in agreement except for 
discrepancies reported.



45.508-3  Quantitative and monetary control.

    When requested by the contracting officer, the contractor's reports 
of results of physical inventory shall be prepared on a quantitative and 
monetary basis and segregated by categories of property.



45.509  Care, maintenance, and use.

    The contractor shall be responsible for the proper care, 
maintenance, and use of Government property in its possession or control 
from the time of receipt until properly relieved of responsibility, in 
accordance with sound industrial practice and the terms of the contract. 
The removal of Government property to storage, or its contemplated 
transfer, does not relieve the contractor of these responsibilities.



45.509-1  Contractor's maintenance program.

    (a) Consistent with the terms of the contract, the contractor's 
maintenance program shall provide for--
    (1) Disclosure of need for and the performance of preventive 
maintenance;
    (2) Disclosure and reporting of need for capital rehabilitation; and
    (3) Recording of work accomplished under the program.
    (b) Preventive maintenance is maintenance performed on a regularly 
scheduled basis to prevent the occurrence of defects and to detect and 
correct minor defects before they result in serious consequences. An 
effective preventive maintenance program shall include at least--
    (1) Inspection of buildings at periodic intervals to assure 
detection of deterioration and the need for repairs;
    (2) Inspection of plant equipment at periodic intervals to assure 
detection of maladjustment, wear, or impending breakdown;
    (3) Regular lubrication of bearings and moving parts in accordance 
with a lubrication plan;
    (4) Adjustments for wear, repair, or replacement of worn or damaged 
parts and the elimination of causes of deterioration;
    (5) Removal of sludge, chips, and cutting oils from equipment that 
will not be used for a period of time;
    (6) Taking necessary precautions to prevent deterioration caused by 
contamination, corrosion, and other substances; and
    (7) Proper storage and preservation of accessories and special tools 
furnished with an item of plant equipment but not regularly used with 
it.
    (c) The contractor's maintenance program shall provide for 
disclosing and reporting the need for major repair, replacement, and 
other capital rehabilitation work for Government property in its 
possession or control.
    (d) The contractor shall keep records of maintenance actions 
performed and any deficiencies in the Government property discovered as 
a result of inspections.



45.509-2  Use of Government property.

    (a) The contractor's procedures shall be in writing and adequate (1) 
to assure that Government property will be used only for those purposes 
authorized in the contract and that any required approvals will be 
obtained, and (2) to provide a basis for determining and allocating 
rental charges.
    (b) With respect to plant equipment with an acquisition value of 
$5,000 or more, the procedures, as a minimum, shall--
    (1) Establish a minimum level of use below which an analysis of need 
shall be made and retention justified, except for inactive plants and 
equipment retained for mobilization (the use level may be established 
for individual items

[[Page 882]]

or families of items, depending upon circumstances of use);
    (2) Provide for recording authorized and actual use consistent with 
the established use levels;
    (3) Require periodic analyses of production needs for plant 
equipment utilization based upon known requirements; and
    (4) Provide for prompt reporting to the contracting officer of all 
plant equipment for which retention is not justified.
[48 FR 42392, Sept. 19, 1983, as amended at 52 FR 30078, Aug. 12, 1987]



45.510  Property in possession of subcontractors.

    The contractor shall require any of its subcontractors possessing or 
controlling Government property to adequately care for and maintain that 
property and assure that it is used only as authorized by the contract. 
The contractor's approved property control system shall include 
procedures necessary for accomplishing this responsibility.



45.511  Audit of property control system.

    The Government may audit the contractor's property control system as 
frequently as conditions warrant. These audits may take place at any 
time during contract performance, upon contract completion or 
termination, or at any time thereafter during the period the contractor 
is required to retain such records. The contractor shall make all such 
records and related correspondence available to the auditors.



  Subpart 45.6--Reporting, Redistribution, and Disposal of Contractor 
                                Inventory



45.600  Scope of subpart.

    This subpart establishes policies and procedures for the reporting, 
redistribution, and disposal of Government property excess to contracts 
and of property that forms the basis of a claim against the Government 
(e.g., termination inventory under fixed-price contracts). This subpart 
does not apply to the disposal of real property or to property for which 
the Government has a lien or title solely as a result of advance or 
progress payments that have been liquidated.



45.601  Definitions.

    Common item, as used in this subpart, means material that is common 
to the applicable Government contract and the contractor's other work.
    Contractor-acquired property (see 45.101).
    Contractor inventory, as used in this subpart, means--
    (a) Any property acquired by and in the possession of a contractor 
or subcontractor under a contract for which title is vested in the 
Government and which exceeds the amounts needed to complete full 
performance under the entire contract;
    (b) Any property that the Government is obligated or has the option 
to take over under any type of contract as a result either of any 
changes in the specifications or plans thereunder or of the termination 
of the contract (or subcontract thereunder), before completion of the 
work, for the convenience or at the option of the Government; and
    (c) Government-furnished property that exceeds the amounts needed to 
complete full performance under the entire contract.
    Government-furnished property (see 45.101).
    Government property (see 45.101).
    Line item, as used in this subpart, means a single line entry on a 
reporting form that indicates a quantity of property having the same 
description and condition code from any one contract at any one 
reporting location.
    Personal property, as used in this subpart, means property of any 
kind or interest in it except real property, records of the Federal 
Government, and naval vessels of the following categories: battleships, 
cruisers, aircraft carriers, destroyers, and submarines.
    Plant clearance, as used in this subpart, means all actions relating 
to the screening, redistribution, and disposal of contractor inventory 
from a contractor's plant or work site. The term contractor's plant 
includes a contractor-operated Government facility.

[[Page 883]]

    Plant clearance officer, as used in this subpart, means an 
authorized representative of the contracting officer assigned 
responsibility for plant clearance.
    Plant clearance period, as used in this subpart, means the period 
beginning on the effective date of contract completion or termination 
and ending 90 days (or such longer period as may be agreed to) after 
receipt by the contracting officer of acceptable inventory schedules for 
each property classification. The final phase of the plant clearance 
period means that period after receipt of acceptable inventory 
schedules.
    Plant equipment (see 45.101).
    Precious metals, as used in this subpart, means uncommon and highly 
valuable metals characterized by their superior resistance to corrosion 
and oxidation. Included are silver, gold, and the platinum group 
metals--platinum, palladium, iridium, osmium, rhodium, and ruthenium.
    Property administrator (see 45.501).
    Public body means any State, Territory, or possession of the United 
States, any political subdivision thereof, the District of Columbia, the 
Commonwealth of Puerto Rico, any agency or instrumentality of any of the 
foregoing, any Indian tribe, or any agency of the Federal Government.
    Real property (see 45.101).
    Reportable property, as used in this subpart, means contractor 
inventory that must be reported for screening in accordance with this 
subpart before disposition as surplus.
    Reporting activity, as used in this subpart, means the Government 
activity that initiates the Standard Form 120, Report of Excess Personal 
Property (or when acceptable to GSA, by data processing output).
    Salvage (see 45.501).
    Scrap (see 45.501).
    Screening completion date, as used in this subpart, means the date 
on which all screening required by this subpart is to be completed. It 
includes screening within the Government and the donation screening 
period.
    Serviceable or usable property, as used in this subpart, means 
property that has a reasonable prospect of use or sale either in its 
existing form or after minor repairs or alterations.
    Special test equipment (see 45.101).
    Special tooling (see 45.101).
    Surplus property, as used in this subpart, means contractor 
inventory not required by any Federal agency.
    Surplus Release Date (SRD), as used in this subpart, means the date 
on which screening of personal property for Federal use is completed and 
the property is not needed for any Federal use. On that date, property 
becomes surplus and is eligible for donation.
    Termination inventory, as used in this subpart, means any property 
purchased, supplied, manufactured, furnished, or otherwise acquired for 
the performance of a contract subsequently terminated and properly 
allocable to the terminated portion of the contract. It includes 
Government-furnished property. It does not include any facilities, 
material, special test equipment, or special tooling that are subject to 
a separate contract or to a special contract requirement governing their 
use or disposition.
    Work-in-process (see 45.501).



45.602  [Reserved]



45.603  Disposal methods.

    An agency may exercise its rights to require delivery of any 
contractor inventory. This includes transfers of Government property to 
another Government contract. If the agency does not exercise these 
rights, the contractor inventory shall be disposed of by one of the 
following methods in the priority indicated:
    (a) Purchase or retention at cost by prime contractor or 
subcontractor of contractor-acquired property (see 45.605-1).
    (b) Return of contractor-acquired property to suppliers (see 45.605-
2).
    (c) Use within the Government through the use of prescribed 
screening procedures (see 45.608).
    (d) Donation to eligible donees (see 45.609).
    (e) Sale (including purchase or retention at less than cost by the 
prime contractor or subcontractor)(see 45.610).
    (f) Donation to public bodies in lieu of abandonment (see 45.611).

[[Page 884]]

    (g) Abandonment or destruction (see 45.611).
[48 FR 42392, Sept. 19, 1983, as amended at 59 FR 67054, Dec. 28, 1994]



45.604  Restrictions on purchase or retention of contractor inventory.

    A contractor's or subcontractor's authority to purchase, retain, or 
dispose of contractor inventory is subject to any contract provisions 
and to applicable Government restrictions on the disposition of property 
that is classified for security reasons, possesses military offensive or 
defensive characteristics, or is dangerous to public health, safety, or 
welfare.



45.605  Contractor-acquired property.



45.605-1  Purchase or retention at cost.

    (a) The plant clearance officer shall encourage contractors to 
purchase or retain contractor-acquired property at cost. However, the 
contractor shall not include any part of the cost of property purchased 
or retained in any claim for reimbursement against the Government. Under 
cost-reimbursement contracts, appropriate adjustments shall be made for 
previously reimbursed costs. When the property is for use on a 
continuing Government contract or commercial operation, handling and 
transportation charges may be considered an allowable cost (included in 
the contractor's settlement proposal as other costs in the case of a 
termination), provided that the charges are reasonable.
    (b) If a contractor purchases or retains contractor inventory for 
use on a continuing Government contract that is subsequently terminated, 
the property shall be allocated to the continuing contract, even though 
its purchase would otherwise constitute undue anticipation of production 
schedules. If, as a result of the purchase or retention of property from 
a terminated contract for use on other Government contracts, the 
contractor terminates subcontracts under the other Government contracts, 
reasonable termination charges of the subcontracts may be included as an 
allocable cost under the contract that generated the excess property.



45.605-2  Return to suppliers.

    The plant clearance officer shall encourage contractors to return 
allocable quantities of contractor-acquired property to suppliers for 
full credit less either the supplier's normal restocking charge or 25 
percent of the cost, whichever is less. Contractors may be reimbursed 
for reasonable transportation, handling, and restocking charges, but not 
for the cost of the returned property. Under cost-reimbursement 
contracts, appropriate adjustments shall be made for costs previously 
reimbursed. A contractor's property control system shall include 
procedures to ensure property is returned to the supplier for 
appropriate credit whenever feasible.
[48 FR 42392, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990]



45.605-3  Cost-reimbursement contracts.

    Under cost-reimbursement contracts, property purchased or retained 
by the contractor or returned to suppliers shall not be reported on 
inventory schedules. The cognizant contract administration office, in 
coordination with the cognizant auditor, shall periodically review such 
transactions to protect the Government's interests.



45.606  Inventory schedules.



45.606-1  Submission.

    When property is no longer needed to perform the contract, the 
contractor shall prepare inventory schedules in accordance with the 
contract and instructions from the plant clearance officer and shall 
promptly submit the schedules to the cognizant contract administration 
office. Detailed instructions and requirements governing preparing and 
submitting inventory schedules are contained in 45.606-5. Agencies may 
use special inventory schedules for intra-agency screening of particular 
categories of contractor inventory (e.g., plant equipment of $5,000 or 
more). Such schedules may also be used for screening with other Federal 
agencies after coordination with GSA.
[48 FR 42392, Sept. 19, 1983, as amended at 56 FR 15154, Apr. 15, 1991; 
57 FR 60590, Dec. 21, 1992; 62 FR 237, Jan. 2, 1997]

[[Page 885]]



45.606-2  Common items.

    The contractor's inventory schedules shall not include any items 
that the contractor can reasonably use on other work without financial 
loss. However, the schedules shall include common items specified by the 
contracting officer for delivery to the Government or which are 
Government-furnished property.



45.606-3  Acceptance.

    (a) Within l5 days after receipt of inventory schedules, the plant 
clearance officer shall review them, determine their acceptability, and 
request the contractor to correct any inadequate listings. Inventory 
schedules should not be rejected if the information is adequate for 
disposal purposes, even if complete cost data on work-in-process are not 
available. Rejection shall be limited, when possible, to specific items 
and shall not necessarily render the entire schedule unacceptable. If 
substantial errors are discovered that were not apparent on termination 
inventory schedules previously found acceptable, the final phase of a 
plant clearance period shall not begin until corrected schedules have 
been submitted, unless the plant clearance officer determines otherwise.
    (b) The plant clearance officer, with the assistance of other 
Government personnel as necessary, shall verify that (1) the inventory 
is present at the location indicated, (2) the inventory is allocable to 
the contract, (3) the quantity and condition are correctly stated, and 
(4) the contractor has endeavored to divert items to other work. The 
verification may be recorded on SF 1423, Inventory Verification Survey. 
The plant clearance officer shall require the contractor to promptly 
correct any discrepancies on the inventory schedule or resubmit the 
schedule as necessary.
[48 FR 42392, Sept. 19, 1983, as amended at 55 FR 25530, June 21, 1990]



45.606-4  Withdrawals.

    If, before final disposition, the contractor becomes aware that any 
items of contractor-acquired property listed in the inventory schedules 
are usable on other work without financial loss, the contractor shall 
purchase the items or retain them at cost and amend the inventory 
schedules and claim accordingly. Upon notifying the plant clearance 
officer, the contractor may purchase or retain at cost any other items 
of property included in the inventory schedules. Withdrawal of any 
Government-furnished property is subject to the written approval of the 
plant clearance officer. If withdrawal is requested after screening has 
started, the plant clearance officer shall notify immediately the 
appropriate screening activity.



45.606-5  Instructions for preparing and submitting schedules of contractor inventory.

    (a) Use of forms. The contractor shall report contractor inventory 
on the following forms, as appropriate.
    (1) Standard Form 1426, Inventory Schedule A (Metals in Mill Product 
Form) and SF 1427, Inventory Schedule A--Continuation Sheet. These forms 
are to be used to list metals in raw or primary form as furnished by the 
mill and on which there has been no subsequent fabricating operations. 
They are also to be used for listing nonmetallic materials, such as 
plastics, rubber, or lumber, in mill product form. They are not to be 
used for listing castings or forgings, which shall be reported on SF 
1428.
    (2) Standard Form 1428, Inventory Schedule B and SF 1429, Inventory 
Schedule B--Continuation Sheet. These forms are to be used to list all 
contractor inventory (including plant equipment) for which Standard 
Forms 1426, 1430, 1432, or 1434 are not appropriate. However, agencies 
may direct listing of particular categories of plant equipment on agency 
forms when standard forms are not appropriate. (See 45.505-6 and 45.606-
1.)
    (3) Standard Form 1430, Inventory Schedule C (Work in Process) and 
SF 1431, Inventory Schedule C--Continuation Sheet. These forms are to be 
used to list all work in process.
    (4) Standard Form 1432, Inventory Schedule D (Special Tooling and 
Special Test Equipment) and SF 1433, Inventory Schedule D--Continuation 
Sheet. These forms are to be used to list such contractor inventory as 
dies, jigs, gauges,

[[Page 886]]

fixtures, special tools, and special test equipment.
    (5) Standard Form 1434, Termination Inventory Schedule E. This is a 
short form to be used with SF 1438, Settlement Proposal (Short Form). 
Applicability is limited to termination settlement proposals under 
$10,000.
    (b) Submission.
    (1) Contractors shall report contractor inventory promptly after 
determining it to be excess, unless a later date is authorized by the 
contract or the plant clearance officer.
    (2) Unless contract provisions or agency regulations prescribe 
otherwise, 12 copies of inventory schedules listing serviceable or 
salvable items and 6 copies of inventory schedules listing scrap items 
shall be presented to the plant clearance officer at the cognizant 
contract administration office.
    (3) The standard inventory schedule forms may be electronically 
reproduced by contractors pursuant to 53.105, provided no change is made 
to the name, content or sequence of the data elements. All essential 
elements of data must be included and the form must be signed.
    (4) The appropriate continuation sheet shall be used when more space 
is needed.
    (5) Partial schedules may be submitted when they cover substantial 
portions of a particular property classification of contractor 
inventory. The first page of each schedule submitted shall be identified 
as partial or final in the title block of the schedule.
    (6) The contractor should consult with the plant clearance officer 
when in doubt as to item descriptions or other inventory schedule 
requirements.
    (c) Grouping contractor inventory for reporting purposes. All line 
items of contractor inventory shall be grouped into the following 
categories in the order indicated and reported on separate forms (line 
items may not be divided for the purpose of avoiding screening 
requirements):
    (1) Classified property. This category includes all property bearing 
a security classification, regardless of acquisition cost. Classified 
property should be further subdivided into the same categories as 
unclassified property (see paragraph (3) below).
    (2) Government-furnished property. This category should be 
subdivided into the same categories as unclassified property (see 
paragraph (3) below).
    (3) Unclassified property. Unclassified property shall be subdivided 
as follows:
    (i) Special tooling, regardless of acquisition cost.
    (ii) Scrap, regardless of acquisition cost.
    (iii) Salvage, regardless of acquisition cost.
    (iv) Remaining property having a line item acquisition cost of less 
than $1,000 ($500 for furniture).
    (v) Property having a line item acquisition cost of $1,000 or more 
($500 for furniture), further separated into the following categories 
(these categories may be revised to suit agency needs):
    (A) Aeronautical material and equipment.
    (B) Electronic material and equipment.
    (C) Special test equipment.
    (D) Other serviceable or usable property.
    (d) General instructions for completing forms. The inventory 
schedule forms are self-explanatory, except for the following general 
instructions and the specific instructions in paragraph (e) below.
    (1) If the inventory applies solely to one contract modification, 
indicate the contract modification number in the same block as the prime 
contract number. If the inventory results from the termination of a 
contract, enter the termination docket number in the same block as the 
prime contract number.
    (2) Provide in column b an accurate and complete commercial 
description for each item of serviceable contractor inventory. Where 
practical, show the manufacturer's name, address, and catalog number. 
Describe other items in sufficient detail to permit the Government to 
determine appropriate disposition. Include in descriptions for all line 
items the National Stock Number furnished to the contractor with 
Government-furnished property and the National Stock Number available in 
the contractor's property control system.
    (3) Identify in column b any industrial diamonds, diamond swarf, and

[[Page 887]]

property containing economically recoverable quantities of precious 
metals by the type of metal and express the quantity of the metal in the 
appropriate weight unit or in the percentage of total content. In 
addition, hazardous material or property contaminated with hazardous 
material shall be identified as to the type of hazardous material.
    (4) Enter in column c one of the following codes to indicate the 
condition of each item of material:

    Code 1, Unused-good. Unused property that is usable without repairs 
and identical or interchangeable with new items from normal supply 
sources.

    Code 2, Unused-fair. Unused property that is usable without repairs, 
but is deteriorated or damaged to the extent that utility is somewhat 
impaired.

    Code 3, Unused-poor. Unused property that is usable without repairs, 
but is considerably deteriorated or damaged. Enough utility remains to 
classify the property better than salvage.

    Code 4, Used-good. Used property that is usable without repairs and 
most of its useful life remains.

    Code 5, Used-fair. Used property that is usable without repairs, but 
is somewhat worn or deteriorated and may soon require repairs.

    Code 6, Used-poor. Used property that may be used without repairs, 
but is considerably worn or deteriorated to the degree that remaining 
utility is limited or major repairs will soon be required.

    Code 7, Repairs required-good. Required repairs are minor and should 
not exceed 15 percent of original acquisition cost.

    Code 8, Repairs required-fair. Required repairs are considerable and 
are estimated to range from 16 percent to 40 percent of original 
acquisition cost.

    Code 9, Repairs required-poor. Required repairs are major because 
property is badly damaged, worn, or deteriorated, and are estimated to 
range from 41 percent to 65 percent of original acquisition cost.

    Code X, Salvage. Property has some value in excess of its basic 
material content, but repair or rehabilitation to use for the originally 
intended purpose is clearly impractical. Repair for any use would exceed 
65 percent of the original acquisition cost.

    Code S, Scrap. Material that has no value except for its basic 
material content.
    (5) Enter in columns e and f the standard or invoiced cost of the 
material being reported. If such data are not available, enter the 
estimated cost, identified by the symbol ``(e)''.
    (6) Enter after the amount of the contractor's offer in column g the 
letter ``A'' if a credit for acquisition has been authorized or approved 
by the plant clearance officer. Enter the letter ``C'' if the amount 
represents your offer to acquire the item. In either case, enter the 
quantity on a second line if it is less than the full quantity shown in 
column d.
    (e) Instructions for completing specific forms. The following 
instructions are in addition to the general instructions in paragraph 
(d) and the self-explanatory blocks on the inventory forms.
    (1) Inventory Schedule A (Metals in Mill Product Form) (SF 1426).
    (i) Classification. List each type of metal (such as aluminum or 
carbon steel) on a separate form, with the name or alloy shown in the 
Property Classification block. List like forms of the metal or alloy 
together in sequence. (For example, for carbon steel, group all the 
strip, followed by sheets, followed by the bar stock, etc.)
    (ii) Description. Enter in column b the full commercial description 
and weight for all items. Identify the material specification entered in 
column b2 as either a Government specification or that of a particular 
industrial society or manufacturer. Complete columns b3, b4, and b5 to 
show the thickness, width, and length.
    (2) Inventory Schedule B (SF 1428).
    (i) Classification. Use a separate form for each classification. 
Enter the name of the classification in the Property Classification 
block. Items having no commercial value should be placed in a single 
classification designated no commercial value. The term raw materials 
(other than metals) means material in primary form. Examples are 
plastics, textiles, lumber, and chemicals. Arrange items in sequence 
under separate subheadings. For example, under the

[[Page 888]]

classification chemicals, group separately all acids, all alkalis, all 
resins, etc.
    (ii) Description. In the inventory description for plant equipment 
(see 45.101 for definition), include the following as a minimum:
    (A) Nomenclature or description of the item and Federal Supply 
Classification (see Cataloging Handbooks H2-1, H2-2, and H2-3).
    (B) Federal Supply Code for Manufacturers (see Cataloging Handbooks 
H4-1 and H4-2) and, if available in the contractor's property control 
system, the name and address of the equipment manufacturer.
    (C) Model/part number.
    (3) Inventory Schedule C (Work in Process) (SF 1430).
    (i) Classification. No classification of items is required. Do not 
list finished components on this form (use SF 1428).
    (ii) Description. Enter in column b a description in sufficient 
detail to permit the Government to determine the appropriate 
disposition. Estimate percentage of completion for each line item.
    (iii) Condition (column c). Generally, conditions X (salvage) or S 
(scrap) are applicable to work in process (see paragraph (d)(4) above).
    (4) Inventory Schedule D (Special Tooling and Special Test 
Equipment) (SF 1432).
    (i) Classification. Use a new form for each general classification, 
such as dies, jigs, gauges, fixtures, special tooling, and special test 
equipment.
    (ii) Description. Furnish a description which will enable the plant 
clearance officer or screener to determine the appropriate disposition. 
Include tool nomenclature, tool number, related product part number, or 
function which the tool performs. Designate special tooling usable for 
maintenance programs by placing the letter ``M'' in the left-hand 
column, For Use of Contracting Agency Only.
    (i) Classification. Use of a new form for each general 
classification of special tooling and special test equipment.
    (ii) Description. Furnish a description which will enable the plant 
clearance officer or screener to determine the appropriate disposition, 
including the potential for reutilization. Include tool nomenclature, 
tool number, related product part number, and function which the tool 
performs. Designate special tooling usable for maintenance programs by 
placing the letter ``M'' in the left-hand column, For Use of Contracting 
Agency Only. Provide the end-item application and a brief description of 
the test function for each unit of special test equipment.
    (5) Termination Inventory Schedule E (SF 1434).
    (i) Classification. No special classification is required, but 
similar items should be grouped together. Several classifications may be 
listed on one form.
    (ii) Description. Enter in column b the full commercial description 
of all items which have commercial value. For other items, furnish a 
description in sufficient detail to permit the Government to determine 
the appropriate disposition.
[48 FR 42392, Sept. 19, 1983, as amended at 52 FR 30078, Aug. 12, 1987; 
54 FR 25069, June 12, 1989; 56 FR 41740, Aug. 22, 1991; 60 FR 34739, 
July 3, 1995; 62 FR 237, Jan. 2, 1997]



45.607  Scrap.



45.607-1  General.

    (a) The contractor need not itemize scrap on inventory schedules if 
(1) the material is physically segregated in the contractor's plant and 
(2) the contractor submits a statement describing the material, 
estimating its cost, and providing other information necessary for the 
plant clearance officer to verify whether the property is scrap. The 
contractor shall sort the scrap to the extent economically feasible to 
assure the highest sale proceeds.
    (b) The plant clearance officer shall review the schedules of 
property reported as scrap and, if necessary, physically inspect the 
property involved. If the plant clearance officer determines that any of 
the property is serviceable, usable, or salvable, the contractor shall 
resubmit it on appropriate inventory schedules.



45.607-2  Recovering precious metals.

    (a) GSA is responsible for initiating the Government-wide precious 
metals recovery program (see FPMR 101-42.3

[[Page 889]]

for procedures and requirements in recovering precious metals).
    (b) Agencies shall assure that contractors generating contractor 
inventory containing precious metal-bearing scrap identify and promptly 
report such items. Agencies are also responsible for establishing and 
maintaining a program for recovering precious metals. Agencies having no 
recovery and disposal facility available may request information or 
recovery assistance from the GSA regional office serving the area or the 
DOD Precious Metals Recovery Program, Defense Logistics Agency, Attn: 
DLA:SIP, 8725 John J Kingman Road, Fort Belvoir VA 22060.
    (c) Precious metals shall be packaged in nonporous, smooth 
containers in a manner to prevent loss through leakage or damage to the 
containers. (Glass containers shall not be used.) Grindings or sweepings 
shall not be packaged in paper or wooden containers, because loss occurs 
by adhesion to the containers. Containers shall be marked to show the 
type of precious metals.
    (d) The shipping document shall indicate the net weight of each item 
to the nearest ounce (troy or avoirdupois). Shipment shall be made by 
the most economical means available, consistent with adequate safeguards 
to prevent loss or theft.
[48 FR 42392, Sept. 19, 1983, as amended at 62 FR 40237, July 25, 1997]



45.608  Screening of contractor inventory.



45.608-1  General.

    (a) Serviceable or usable property included in the contractor's 
inventory schedules that is not purchased or retained by the prime 
contractor or subcontractor or returned to suppliers shall be screened 
for use by Government agencies before disposition by donation or sale. 
Agencies shall assure the widespread dissemination of information 
concerning the availability of contractor inventory.
    (b) There are four categories of screening: standard, agency, 
limited, and special items. The plant clearance officer shall determine 
the categories of screening required, initiate prescribed screening, and 
assure accomplishment of transfer and donation.
    Table 45-1 lists the type of property and screening period for each 
of these categories. When circumstances warrant, the plant clearance 
officer may extend the period for agency screening or arrange for more 
extensive screening than that prescribed. In the event of a conflict 
between Table 45-1 and a specific contract requirement, items shall be 
screened as provided by the contract.

                               Table 45-1                               
               Screening Requirements by Type of Property               
------------------------------------------------------------------------
     Screening                                                          
     Categories           Type of Property               Period         
------------------------------------------------------------------------
Standard             Line items valued at       90 days/(see 45.608-2)  
                      $1,000 or more ($500 for                          
                      furniture).                                       
Agency               Special tooling,           30 days/(See 45.608-3)  
                      perishables, property                             
                      bearing a security                                
                      classification, property                          
                      dangerous to public                               
                      health and safety,                                
                      regardless of                                     
                      acquisition cost, and                             
                      agency-peculiar                                   
                      property..                                        
Limited              Special tooling, scrap     30 days/(see 45.608-4)  
                      and salvage, property in                          
                      condition codes 3, 6, 9,                          
                      X, and S, work-in-                                
                      process, inventory                                
                      schedules (the total                              
                      acquisition cost of                               
                      which is reported as                              
                      $2,500 or less), and                              
                      line items of less than                           
                      $1,000 ($500 for                                  
                      furniture) (except                                
                      perishables, property                             
                      bearing a security                                
                      classification, and                               
                      property dangerous to                             
                      public health and                                 
                      safety)..                                         
Special Items        Special test equipment     (see 45.608-5(a))       
                      with standard                                     
                      components..                                      
                     Special test equipment     (see 45.608-5(b))       
                      without standard                                  
                      components..                                      
                     Printing equipment.......  (see 45.608-5(c))       
                     Nuclear materials........  (see 45.608-5(d))       
------------------------------------------------------------------------

[48 FR 42392, Sept. 19, 1983, as amended at 56 FR 41740, Aug. 22, 1991; 
61 FR 41471, Aug. 8, 1996]



45.608-2  Standard screening.

    (a) Standard screening applies to serviceable property with a line 
item value of $1,000 or more ($500 for furniture) that does not meet the 
criteria for another screening category.
    (b) Standard screening begins on the date the plant clearance 
officer receives acceptable contractor inventory schedules and ends 90 
days thereafter.

[[Page 890]]

The period is broken into three phases as follows:
    (1) 1st through 30th day--screening by the contracting agency. The 
agency shall screen the listed items for its use. When screening is 
completed, the plant clearance officer shall delete the retained items 
from the schedules.
    (2) 31st through 75th day--screening by all Federal agencies. Not 
later than the 31st day, the plant clearance officer shall send four 
copies of the revised schedules and Standard Form (SF) 120, Report of 
Excess Personal Property, to the General Services Administration (GSA) 
regional office that serves the region in which the property is located. 
If the plant clearance officer receives a request for property transfer 
after submission of the SF 120, and before receiving a GSA property 
transfer order, a prompt request shall be forwarded to GSA for approval 
to withdraw the items from the inventory schedule. The regional GSA 
office will prepare and issue circulars and catalogs to all Federal 
agencies within the region. GSA will honor requests for transfer of 
property on a first-come first-served basis through the 75th day. The 
GSA regional office will transmit to the plant clearance officer the 
approved orders and shipping instructions for property to be 
transferred. The 75th day is the surplus release date and will be shown 
on the SF 120. The plant clearance officer may not extend this date.
    (3) 76th through 90th day--screening by GSA for possible donation. 
During this period, GSA will arrange for screening of all remaining 
property for possible donation to eligible donees. Procedures for 
donation are in 45.609. The 90th day is the screening completion date 
and will be shown on the SF 120. The plant clearance officer shall not 
extend this date.
[48 FR 42392, Sept. 19, 1983, as amended at 56 FR 41740, Aug. 22, 1991]



45.608-3  Agency screening.

    Agency screening is the procedure for screening certain types of 
property (see Table 45-1) only within the contracting agency. The 
screening period begins on the date the plant clearance officer receives 
acceptable inventory schedules and ends 30 days later.



45.608-4  Limited screening.

    (a) Items that are scrap or salvage or that otherwise have a limited 
potential for use (except special tooling) are not ordinarily subject to 
standard or agency screening. The plant clearance officer shall include 
listings of such property in a special file, which shall be made 
available to GSA for limited screening. The screening period for such 
property begins on the date the plant clearance officer receives 
acceptable inventory schedules and ends 30 days later. This period is 
apportioned into two phases, as follows:
    (1) 1st through 15th day--GSA selection of items for Federal 
utilization.
    (2) 16th through 30th day--GSA selection of items for donation.
    (b) For special tooling, the screening period described in paragraph 
(a) above begins upon completion of agency screening.



45.608-5  Special items screening.

    Special procedures are established for the following types of 
property:
    (a) Special test equipment with standard components. (1) Contractors 
reporting special test equipment that contains standard, general, or 
multipurpose components will describe the composite unit to clearly 
reflect its capability. Standard components that can be economically 
removed and reused will be listed and described in sufficient detail to 
permit screening.
    (2) If the contractor has a requirement for the standard components 
to meet other approved special test equipment or facilities 
requirements, the contractor shall annotate the SF 1432, Inventory 
Schedule D (Special Tooling and Special Test Equipment), to reflect this 
requirement. Screening shall be accomplished in accordance with agency 
procedures for the first 30 days. If there are no agency requirements 
for the composite unit, and if the administrative contracting officer 
approves the retention, the contractor shall have priority for the 
standard components for which it has indicated a requirement.
    (3) Standard components that have not been retained by the agency or 
the contractor shall be screened in accordance with standard 
requirements for the 31st through 75th day. Standard

[[Page 891]]

components shall not be removed from the composite unit until a 
requirement has been established. If no requirements exist, the 
composite units shall be donated or sold in accordance with prescribed 
procedures.
    (b) Special test equipment without standard components. Special test 
equipment without standard components shall receive agency screening for 
30 days. Items for which no requirements exist shall receive limited 
screening for an additional 30 days.
    (c) Printing equipment. Agencies shall report all printing equipment 
excess to their requirements to the Public Printer, Government Printing 
Office, North Capitol and H Streets, NW, Washington, DC 20401, after 
screening within the agency (see 44 U.S.C. 312). If the Public Printer 
indicates no requirements, the reporting activity shall submit the 
listing of printing equipment to the General Services Administration for 
further use and donation screening.
    (d) Nuclear materials. (1) The possession, use, and transfer of 
certain nuclear materials are subject to the regulatory controls of the 
Nuclear Regulatory Commission (NRC). The materials are defined as 
follows:
    (i) By-product material--any radioactive material (except special 
nuclear material) yielded in or made radioactive by exposure to the 
radiation incident to producing or using special nuclear material.
    (ii) Source material--uranium or thorium, or any combination 
thereof, in any physical or chemical form; or ores which contain by 
weight one-twentieth of 1 percent (0.05 percent) or more of uranium, 
thorium, or any combination thereof. Source material does not include 
special nuclear material.
    (iii) Special nuclear material--plutonium, uranium 233, uranium 
enriched in the isotope 233 or in the isotope 235, and any other 
material that the NRC determines to be special nuclear material (but not 
including source material); or any material artificially enriched by any 
nuclear material.
    (2) Plant clearance officers shall submit listings of excess nuclear 
material in the categories described above for screening by the 
contracting activity. If there are no requirements, the ultimate method 
of disposal shall be dependent upon the license issued by the NRC or the 
respective states and pertinent Federal and agency regulations.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 34756, Aug. 21, 1989; 
56 FR 41740, Aug. 22, 1991; 61 FR 41471, Aug. 8, 1996]



45.608-6  Waiver of screening requirements.

    Agency heads or their designees may authorize exceptions from 
screening requirements; provided, (a) there are compelling circumstances 
clearly in the Government's interest and (b) the contracting agency 
prepares a written notice, including justification, and provides a copy 
to General Services Administration, Office of Governmentwide Policy, 
Office of Transportation and Personal Property (MT), 1800 F Street NW., 
Washington, DC 20405, and the contract administration office 10 days 
before the effective date of the exception.
[48 FR 42392, Sept. 19, 1983, as amended at 62 FR 40237, July 25, 1997]



45.608-7  Reimbursement of costs for transfer of contractor inventory.

    The contracting agency shall not be reimbursed for the acquisition 
cost of any property selected by another agency or for overhead or 
administrative costs associated with such property. The transferee will 
pay any transportation costs that are not the contractor's 
responsibility. Costs for packing, crating, preparation for shipment, 
and loading of contractor inventory are chargeable to the contract for 
assets subject to the Government property clauses at 52.245-2, 
Government Property (Fixed-Price Contracts) and 52.245-5, Government 
Property (Cost-Reimbursement, Time-and-Material, or Labor-hour 
Contracts), and such costs are ordinarily included in the contractor's 
settlement proposal for termination inventory. The transferee will pay 
such costs for property subject to 52.245-7, Government Property 
(Consolidated Facilities), or 52.245-10, Government Property (Facilities 
Acquisition), or 52.245-11, Government Property (Facilities Use), unless 
such costs are otherwise the contractor's responsibility. The contract 
administration office is responsible for obtaining packing, crating, and 
handling service. To

[[Page 892]]

accelerate plant clearance, the transferee shall include all appropriate 
data, including funding data, in the transfer or shipping document.
[54 FR 34756, Aug. 21, 1989]



45.608-8  Report of excess personal property (SF 120).

    (a) This subsection provides instructions for completing SF 120, 
Report of Excess Personal Property, when reporting contractor inventory 
in accordance with 45.608-2. (For reporting other agency excess personal 
property, see 41 CFR 101-43.4901-120-1, Instructions for preparing SF 
120).
    (b) All items on the form are self-explanatory, except as follows:
    Item 1, Report number. Enter the serial number of the report and any 
other identifying number or symbol required by the reporting agency. If 
the report is a correction or withdrawal (complete or partial) of a 
prior report, the original report number shall be entered, followed by 
the letter a, b, or c, etc., to identify the number of successive 
correcting or withdrawing reports.
    Item 3, Total cost. Enter the total of all amounts shown on the 
inventory schedules.
    Item 4, Type of report.
    Box b--Check if necessary to correct an original report and complete 
items 1, 2, 3, 4, 5, and 7. Complete the remaining items only to the 
extent necessary to show the correction.
    Box c--Check for partial withdrawals of contractor inventory 
previously reported and complete items 1, 2, 3, 4, 5, and 7. Re-identify 
in column 18(b) the line items or portions of line items withdrawn. In 
column 18(e), show the number of units withdrawn. In column 18(g), show 
the acquisition cost of the units withdrawn. In item 3, enter the total 
acquisition cost of all items withdrawn.
    Box d--Check for total withdrawal of contractor inventory previously 
reported and complete items 1, 2, 3, 4, 5, and 7. Provide explanatory 
remarks in column 18(b).
    Item 5, To. Enter the name(s) and address(es) of the screening 
agencies or the GSA regional office serving the geographic area in which 
the property is located.
    Item 6, Appropriation or fund to be reimbursed. No entry shall be 
made in this item if the net proceeds are to be deposited in the 
Treasury as miscellaneous receipts (see 45.610-3). However, in exchange/
sale transactions an appropriation number is required.
    Item 8, Report approved by. Enter signature and title of the Federal 
official approving report.
    Item 12, GSA control number. Not to be used by reporting activity.
    Item 13, FSC group number, if known. If inventory schedules contain 
multiple FSC groups, insert ``See Inventory Schedules.''
    Item 14, Location of property. Enter the name of contractor holding 
the property and the specific address where the property is located.
    Item 15, Reimbursement required. Enter X in the block designated 
``No.''
    Item 16, Agency control number. Leave blank.
    Item 17, Surplus release date (see 45.608-2).
    Item 18, Excess property list. Leave blank.
    Column a, Item number. Leave blank.
    Column b, Description. Enter the following information:
    (1) Identification of attached inventory schedules and the number of 
pages for each schedule.
    (2) The screening completion date (see 45.608-2).
    (3) The following notation: ``It is imperative that fund 
appropriations for the transportation of the materials be furnished with 
the transfer order.'' If, pursuant to 45.608-7, the transferee is 
responsible for funding, packing, crating, and handling, include this 
additional notation: ``Fund appropriations for packing, crating, and 
handling of inventory described herein must also be provided by the 
transferee.''
    (4) Contract number.
    (5) When reporting motor vehicles in Federal Supply Groups 23, 24, 
and 38--
    (i) In column 18(b), the estimated one-time cost of repairs (parts 
and labor); and
    (ii) In column 18(c), a condition code based on the estimated cost 
of repairs.

[[Page 893]]

    (c) Columns c through h. Leave blank, except as they are used for 
5(ii) above.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 34756, Aug. 21, 1989; 
56 FR 41740, Aug. 22, 1991; 56 FR 67136, Dec. 27, 1991]



45.609  Donations.

    (a) Property may be donated only after it has been determined to be 
surplus following appropriate utilization screening. The donation of 
surplus property to an authorized donee is subordinate to any need for 
property by a Federal agency.
    (b) The GSA is responsible for making necessary arrangements for 
donation screening of serviceable property during the last l5 days of 
the 90-day screening period.
    (c) Items that have been selected for donation shall not be retained 
longer than 42 calendar days from the surplus release date. The plant 
clearance officer shall authorize release to the eligible donees 
immediately upon receipt of GSA approval and shipping instructions. If 
approval and shipping instructions, including provision for payment of 
all costs incident to donation, are not received within the 42-day 
period, the property shall be otherwise disposed of as surplus. All 
costs incident to donation that are not the responsibility of the 
contractor shall be borne by the donee.
    (d) Agencies having a current essential requirement may withdraw 
property undergoing donation screening. In all other cases, property may 
be withdrawn only after GSA concurrence.



45.610  Sale of surplus contractor inventory.



45.610-1  Responsibility.

    (a) The Administrator, GSA, exercises general supervision and 
direction over the disposition of surplus personal property, including 
sales of surplus contractor inventory. Policy and procedures for sales 
of contractor inventory are contained in the Federal Property Management 
Regulations (FPMR) 41 CFR part 101-45. Sales of contractor inventory 
under the control of the Department of Defense are conducted in 
accordance with the DOD Supplement to the FAR.
    (b) Reportable property submitted to GSA on SF 120 for utilization 
screening and not otherwise transferred or donated will automatically be 
programmed for sale by the GSA regional office.
    (c) All other property requiring sale shall be reported to GSA on SF 
126, Report of Personal Property for Sale, and in accordance with any 
additional instructions provided by the GSA regional office cognizant of 
the location where the property is physically located.



45.610-2  Exemptions from sale by GSA.

    (a) Agency heads may seek exemptions from the Administrator, GSA, by 
submitting a letter explaining the impairment or adverse effect of sale 
by GSA and justifying the need for the exemption.
    (b) GSA regional offices may authorize sale by the reporting 
activity of perishable items or small lots of limited-value property at 
isolated locations.



45.610-3  Proceeds of sale.

    Proceeds of any sale are to be credited to the Treasury of the 
United States as miscellaneous receipts, except where the contract or 
any subcontract thereunder authorizes the proceeds to be credited to the 
price or cost of the work (40 U.S.C. 485(a) and (e)).



45.610-4  Contractor inventory in foreign countries.

    Contractor inventory located in foreign countries shall be sold or 
disposed of in accordance with agency procedures (see 40 U.S.C. 511-
514).



45.611  Destruction or abandonment.

    (a) Surplus property may be destroyed or abandoned only after every 
effort has been made to dispose of it by other authorized methods. 
Before authorizing destruction or abandonment, the plant clearance 
officer shall determine in writing that--
    (1) The property has no commercial value and no value to the 
Government;
    (2) The estimated cost of care and handling is greater than the 
probable sale price; or

[[Page 894]]

    (3) Because of its nature, the property constitutes a danger to 
public health, safety, or welfare.
    (b) Unless permitted by the contract, no contractor inventory shall 
be abandoned on the contractor's premises without the contractor's 
written consent.
    (c) Surplus property for which a determination has been made under 
subparagraph (a)(1) or (2) above may, however, be donated to public 
bodies in lieu of abandonment or destruction. All costs incident to 
donation shall be borne by the donee.



45.612  Removal and storage.



45.612-1  General.

    Contractor inventory shall be removed from the contractor's premises 
as soon as possible to preclude storage expenses.



45.612-2  Special storage at the contractor's risk.

    When the contractor finds it necessary to remove property from the 
premises before expiration of the plant clearance period, the contractor 
may, with the concurrence of the plant clearance officer, store property 
in a warehouse or other storage location on or off the contractor's 
premises. Storage shall in no way modify the contractor's responsibility 
for the property. The expense of storage, including any cost incident to 
the transportation to and from the storage area, shall normally be borne 
by the contractor and shall not be charged directly or indirectly to 
Government contracts unless the contracting officer determines that the 
storage is for the convenience of the Government.



45.612-3  Special storage at the Government's expense.

    (a) Contractor inventory may be stored at the Government's expense 
only when the contracting officer determines that it should be retained 
in storage for anticipated use.
    (b) When the plant clearance officer recommends that the contracting 
office execute a storage agreement with the contractor, the request 
shall be accompanied with adequate data to justify the agreement (e.g., 
property to be stored, storage period, and cost to the Government).
    (c) If the contractor will not agree to storage on its premises, the 
plant clearance officer shall submit adequate information to permit a 
decision by the contracting office for storage on a Government or 
commercial facility (e.g., storage space required; necessary packing, 
crating, and shipping services; and information as to available 
Government or commercial storage facilities in the local area).



45.613  Property disposal determinations.

    Written determinations supporting abandonment, destruction, or other 
appropriate disposition shall be made by the plant clearance officer and 
reviewed by an appropriate reviewing authority within the agency.



45.614  Subcontractor inventory.

    (a) The disposal policies and procedures in this subpart are 
applicable to contractor inventory in the possession of subcontractors, 
except inventory under terminated subcontracts for which the termination 
contracting officer has authorized the prime contractor to conclude 
settlements (see 49.108-4).
    (b) Subcontractors in all tiers shall prepare inventory schedules in 
accordance with the requirements of this subpart. Forms prescribed for 
use by prime contractors may be used by subcontractors, but their use is 
not required if substantially equivalent information is provided. 
Subcontractor inventory and any disposal recommendations (including 
scrap recommendations) shall be reported through the next-higher-tier 
subcontractor to the contractor, who is responsible for reporting 
property to the cognizant plant clearance officer. The prime contractor 
and each subcontractor are responsible for review and approval of 
inventory schedules submitted by their respective next-lower-tier 
subcontractors. This includes review and, if necessary, physical survey 
of subcontractor inventory that is contained in a termination settlement 
proposal to assure that it is physically,

[[Page 895]]

technically, and quantitatively allocable to the contract, and cannot be 
reasonably diverted to other work of the subcontractor.
    (c) Any rights which the prime contractor has or acquires in the 
inventory of first-tier or lower-tier subcontractors shall, to the 
extent directed by the contracting officer, be exercised for the benefit 
of the Government in accordance with the provisions of the prime 
contract.
    (d) Contract administration offices shall assure that prime 
contractors have performed adequate allocability reviews of 
subcontractor inventory and have determined that materials reasonably 
usable on other prime or subcontractor work are not included in a 
termination settlement proposal. The plant clearance officer for the 
prime contractor plant is responsible for determining the adequacy of 
screening, allocability reviews, and proper crediting of proceeds for 
the disposal of subcontractor inventory by the prime contractor. 
Assistance should generally be secured from other officers for 
verification, determination of allocability, local screening, and plant 
clearance action when property is located outside the geographic area of 
the cognizant contract administration office.
[48 FR 42392, Sept. 19, 1983, as amended at 54 FR 34756, Aug. 21, 1989]



45.615  Accounting for contractor inventory.

    Following disposition of all contractor inventory, and after due 
application of proceeds, the plant clearance officer shall prepare SF 
1424, Inventory Disposal Report, accounting for all property reported by 
the contractor and its disposition. The report shall indicate any 
inventory lost, damaged, destroyed, or otherwise unaccounted for, as 
well as any changes in quantity or value of inventory made by the 
contractor after submission of the initial schedules. The report shall 
be transmitted to the property administrator or, for termination 
inventory, to the termination contracting officer.



PART 46--QUALITY ASSURANCE--Table of Contents




Sec.
46.000  Scope of part.

                          Subpart 46.1--General

46.101  Definitions.
46.102  Policy.
46.103  Contracting office responsibilities.
46.104  Contract administration office responsibilities.
46.105  Contractor responsibilities.

               Subpart 46.2--Contract Quality Requirements

46.201  General.
46.202  Types of contract quality requirements.
46.202-1  Contracts for commercial items.
46.202-2  Government reliance on inspection by contractor.
46.202-3  Standard inspection requirements.
46.202-4  Higher-level contract quality requirements.
46.203  Criteria for use of contract quality requirements.
46.204  [Reserved]

                     Subpart 46.3--Contract Clauses

46.301  Contractor inspection requirements.
46.302  Fixed-price supply contracts.
46.303  Cost-reimbursement supply contracts.
46.304  Fixed-price service contracts.
46.305  Cost-reimbursement service contracts.
46.306  Time-and-material and labor-hour contracts.
46.307  Fixed-price research and development contracts.
46.308  Cost-reimbursement research and development contracts.
46.309  Research and development contracts (short form).
46.310  Facilities contracts.
46.311  Higher-level contract quality requirement.
46.312  Construction contracts.
46.313  Contracts for dismantling, demolition, or removal of 
          improvements.
46.314  Transportation contracts.
46.315  Certificate of conformance.
46.316  Responsibility for supplies.

           Subpart 46.4--Government Contract Quality Assurance

46.401  General.
46.402  Government contract quality assurance at source.
46.403  Government contract quality assurance at destination.
46.404  Government contract quality assurance for acquisitions at or 
          below the simplified acquisition threshold.
46.405  Subcontracts.
46.406  Foreign governments.
46.407  Nonconforming supplies or services.
46.408  Single-agency assignments of Government contract quality 
          assurance.

[[Page 896]]

                        Subpart 46.5--Acceptance

46.501  General.
46.502  Responsibility for acceptance.
46.503  Place of acceptance.
46.504  Certificate of conformance.
46.505  Transfer of title and risk of loss.

         Subpart 46.6--Material Inspection and Receiving Reports

46.601  General.

                        Subpart 46.7--Warranties

46.701  Definitions.
46.702  General.
46.703  Criteria for use of warranties.
46.704  Authority for use of warranties.
46.705  Limitations.
46.706  Warranty terms and conditions.
46.707  Pricing aspects of fixed-price incentive contract warranties.
46.708  Warranties of data.
46.709  Warranties of commercial items.
46.710  Contract clauses.

Subpart 46.8--Contractor Liability for Loss of or Damage to Property of 
                             the Government

46.800  Scope of subpart.
46.801  Applicability.
46.802  Definition.
46.803  Policy.
46.804  Items priced at or based on catalog or market prices.
46.805  Contract clauses.
46.806  Subcontracts.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42415, Sept. 19, 1983, unless otherwise noted.



46.000  Scope of part.

    This part prescribes policies and procedures to ensure that supplies 
and services acquired under Government contract conform to the 
contract's quality and quantity requirements. Included are inspection, 
acceptance, warranty, and other measures associated with quality 
requirements.



                          Subpart 46.1--General



46.101  Definitions.

    Acceptance, as used in this part, means the act of an authorized 
representative of the Government by which the Government, for itself or 
as agent of another, assumes ownership of existing identified supplies 
tendered or approves specific services rendered as partial or complete 
performance of the contract.
    Commercial item (see 2.101).
    Contract quality requirements means the technical requirements in 
the contract relating to the quality of the product or service and those 
contract clauses prescribing inspection, and other quality controls 
incumbent on the contractor, to assure that the product or service 
conforms to the contractual requirements.
    Critical nonconformance means a nonconformance that is likely to 
result in hazardous or unsafe conditions for individuals using, 
maintaining, or depending upon the supplies or services; or is likely to 
prevent performance of a vital agency mission.
    Government contract quality assurance means the various functions, 
including inspection, performed by the Government to determine whether a 
contractor has fulfilled the contract obligations pertaining to quality 
and quantity.
    Inspection means examining and testing supplies or services 
(including, when appropriate, raw materials, components, and 
intermediate assemblies) to determine whether they conform to contract 
requirements.
    Latent defect means a defect which exists at the time of acceptance 
but cannot be discovered by a reasonable inspection.
    Major nonconformance means a nonconformance, other than critical, 
that is likely to result in failure of the supplies or services, or to 
materially reduce the usability of the supplies or services for their 
intended purpose.
    Minor nonconformance means a nonconformance that is not likely to 
materially reduce the usability of the supplies or services for their 
intended purpose, or is a departure from established standards having 
little bearing on the effective use or operation of the supplies or 
services.
    Off-the-shelf item means an item produced and placed in stock by a 
contractor, or stocked by a distributor, before receiving orders or 
contracts for its sale. The item may be commercial or produced to 
military or Federal specifications or description.

[[Page 897]]

    Patent defect means any defect which exists at the time of 
acceptance and is not a latent defect.
    Subcontractor (see 44.101).
    Testing means that element of inspection that determines the 
properties or elements, including functional operation of supplies or 
their components, by the application of established scientific 
principles and procedures.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995; 
61 FR 31662, June 20, 1996]



46.102  Policy.

    Agencies shall ensure that--
    (a) Contracts include inspection and other quality requirements, 
including warranty clauses when appropriate, that are determined 
necessary to protect the Government's interest.
    (b) Supplies or services tendered by contractors meet contract 
requirements;
    (c) Government contract quality assurance is conducted before 
acceptance (except as otherwise provided in this part), by or under the 
direction of Government personnel;
    (d) No contract precludes the Government from performing inspection;
    (e) Nonconforming supplies or services are rejected, except as 
otherwise provided in 46.407;
    (f) Contracts for commercial items shall rely on a contractor's 
existing quality assurance system as a substitute for compliance with 
Government inspection and testing before tender for acceptance unless 
customary market practices for the commercial item being acquired permit 
in-process inspection (Section 8002 of Public Law 103-355). Any in-
process inspection by the Government shall be conducted in a manner 
consistent with commercial practice; and
    (g) The quality assurance and acceptance services of other agencies 
are used when this will be effective, economical, or otherwise in the 
Government's interest (see subpart 42.1.)
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995]



46.103  Contracting office responsibilities.

    Contracting offices are responsible for--
    (a) Receiving from the activity responsible for technical 
requirements any specifications for inspection, testing, and other 
contract quality requirements essential to ensure the integrity of the 
supplies or services (the activity responsible for technical 
requirements is responsible for prescribing contract quality 
requirements, such as inspection and testing requirements or, for 
service contracts, a quality assurance surveillance plan);
    (b) Including in solicitations and contracts the appropriate 
requirements for the contractor's control of quality for the supplies or 
services to be acquired;
    (c) Issuing any necessary instructions to the cognizant contract 
administration office and acting on recommendations submitted by that 
office (see 42.301 and 46.104(f);
    (d) When contract administration is retained (see 42.203), verifying 
that the contractor fulfills the contract quality requirements; and
    (e) Ensuring that nonconformances are identified, and establishing 
the significance of a nonconformance when considering the acceptability 
of supplies or services which do not meet contract requirements.
[48 FR 42415, Sept. 19, 1983, as amended at 61 FR 31663, June 20, 1996; 
62 FR 44816, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44816, Aug. 22, 1997, section 46.103 
was amended by revising paragraph (a), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

46.103  Contracting office responsibilities.

                                * * * * *

    (a) Receiving from the activity responsible for technical 
requirements any specifications for inspection, testing, and other 
contract quality requirements essential to ensure the integrity of the 
supplies or services (the activity responsible for technical 
requirements is responsible for prescribing such inspection, testing, 
and other contract quality requirements);

                                * * * * *

[[Page 898]]



46.104  Contract administration office responsibilities.

    When a contract is assigned for administration to the contract 
administration office cognizant of the contractor's plant, that office, 
unless specified otherwise, shall--
    (a) Develop and apply efficient procedures for performing Government 
contract quality assurance actions under the contract in accordance with 
the written direction of the contracting office:
    (b) Perform all actions necessary to verify whether the supplies or 
services conform to contract quality requirements;
    (c) Maintain, as part of the performance records of the contract, 
suitable records reflecting--
    (1) The nature of Government contract quality assurance actions, 
including, when appropriate, the number of observations made and the 
number and type of defects; and
    (2) Decisions regarding the acceptability of the products, the 
processes, and the requirements, as well as action to correct defects.
    (d) Implement any specific written instructions from the contracting 
office;
    (e) Report to the contracting office any defects observed in design 
or technical requirements, including contract quality requirements; and
    (f) Recommend any changes necessary to the contract, specifications, 
instructions, or other requirements that will provide more effective 
operations or eliminate unnecessary costs (see 42.102(e) and 46.103(c)).



46.105  Contractor responsibilities.

    (a) The contractor is responsible for carrying out its obligations 
under the contract by--
    (1) Controlling the quality of supplies or services;
    (2) Tendering to the Government for acceptance only those supplies 
or services that conform to contract requirements;
    (3) Ensuring that vendors or suppliers of raw materials, parts, 
components, subassemblies, etc., have an acceptable quality control 
system; and
    (4) Maintaining substantiating evidence, when required by the 
contract, that the supplies or services conform to contract quality 
requirements, and furnishing such information to the Government as 
required.
    (b) The contractor may be required to provide and maintain an 
inspection system or program for the control of quality that is 
acceptable to the Government (see 46.202).
    (c) The control of quality by the contractor may relate to, but is 
not limited to--
    (1) Manufacturing processes, to ensure that the product is produced 
to, and meets, the contract's technical requirements;
    (2) Drawings, specifications, and engineering changes, to ensure 
that manufacturing methods and operations meet the contract's technical 
requirements;
    (3) Testing and examination, to ensure that practices and equipment 
provide the means for optimum evaluation of the characteristics subject 
to inspection;
    (4) Reliability and maintainability assessment (life, endurance, and 
continued readiness);
    (5) Fabrication and delivery of products, to ensure that only 
conforming products are tendered to the Government;
    (6) Technical documentation, including drawings, specifications, 
handbooks, manuals, and other technical publications;
    (7) Preservation, packaging, packing, and marking; and
    (8) Procedures and processes for services to ensure that services 
meet contract performance requirements.
    (d) The contractor is responsible for performing all inspections and 
test required by the contract except those specifically reserved for 
performance by the Government (see 46.201(c).
[48 FR 42415, Sept. 19, 1983, as amended at 55 FR 38517, Sept. 18, 1990]



               Subpart 46.2--Contract Quality Requirements



46.201  General.

    (a) The contracting officer shall include in the solicitation and 
contract the appropriate quality requirements. The type and extent of 
contract quality requirements needed depends on the

[[Page 899]]

particular acquisition and may range from inspection at time of 
acceptance to a requirement for the contractor's implementation of a 
comprehensive program for controlling quality.
    (b) As feasible, solicitations and contracts may provide for 
alternative, but substantially equivalent, inspection methods to obtain 
wide competition and low cost. The contracting officer may also 
authorize contractor-recommended alternatives when in the Government's 
interest and approved by the activity responsible for technical 
requirements.
    (c) Although contracts generally make contractors responsible for 
performing inspection before tendering supplies to the Government, there 
are situations in which contracts will provide for specialized 
inspections to be performed solely by the Government. Among situations 
of this kind are--
    (1) Tests that require use of specialized test equipment or 
facilities not ordinarily available in suppliers' plants or commercial 
laboratories (e.g., ballistic testing of ammunition, unusual 
environmental tests, and simulated service tests); and
    (2) Contracts that require Government testing for first article 
approval (see subpart 9.3).
    (d) Except as otherwise specified by the contract, required 
contractor testing may be performed in the contractor's or 
subcontractor's laboratory or testing facility, or in any other 
laboratory or testing facility acceptable to the Government.



46.202  Types of contract quality requirements.

    Contract quality requirements fall into four general categories, 
depending on the extent of quality assurance needed by the Government 
for the acquisition involved.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995]



46.202-1  Contracts for commercial items.

    When acquiring commercial items (see part 12), the Government shall 
rely on contractors' existing quality assurance systems as a substitute 
for Government inspection and testing before tender for acceptance 
unless customary market practices for the commercial item being acquired 
include in-process inspection. Any in-process inspection by the 
Government shall be conducted in a manner consistent with commercial 
practice.
[60 FR 48249, Sept. 18, 1995]



46.202-2  Government reliance on inspection by contractor.

    (a) Except as specified in (b) below, the Government shall rely on 
the contractor to accomplish all inspection and testing needed to ensure 
that supplies or services acquired at or below the simplified 
acquisition threshold conform to contract quality requirements before 
they are tendered to the Government (see 46.301).
    (b) The Government shall not rely on inspection by the contractor if 
the contracting officer determines that the Government has a need to 
test the supplies or services in advance of their tender for acceptance, 
or to pass judgment upon the adequacy of the contractor's internal work 
processes. In making the determination, the contracting officer shall 
consider--
    (1) The nature of the supplies and services being purchased and 
their intended use;
    (2) The potential losses in the event of defects;
    (3) The likelihood of uncontested replacement or correction of 
defective work; and
    (4) The cost of detailed Government inspection.
[48 FR 42415, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
60 FR 34760, July 3, 1995. Redesignated and amended at 60 FR 48249, 
Sept. 18, 1995]



46.202-3  Standard inspection requirements.

    (a) Standard inspection requirements are contained in the clauses 
prescribed in 46.302 through 46.308, and 46.310, and in the product and 
service specifications that are included in solicitations and contracts.
    (b) The clauses referred to in (a) above--
    (1) Require the contractor to provide and maintain an inspection 
system that is acceptable to the Government;

[[Page 900]]

    (2) Give the Government the right to make inspections and tests 
while work is in process; and
    (3) Require the contractor to keep complete, and make available to 
the Government, records of its inspection work.
[48 FR 42415, Sept. 19, 1983. Redesignated at 60 FR 48249, Sept. 18, 
1995.



46.202-4  Higher-level contract quality requirements.

    (a) Higher-level contract quality requirements are contained in the 
clause prescribed in 46.311. Such requirements are appropriate in 
solicitations and contracts for complex and critical items (see 
46.203(b) and (c) or when the technical requirements of the contract are 
such as to require--
    (1) Control of such things as work operations, in-process controls, 
and inspection; or
    (2) Attention to such factors as organization, planning, work 
instructions, documentation control, and advanced metrology.
    (b) If it is in the Government's interest to require that higher-
level contract quality requirements be maintained, the contract shall 
require the contractor to comply with a Government-specified inspection 
system, quality control system, or quality program (e.g., MIL-I-45208, 
MIL-Q-9858, NHB 5300.4(1B), NHB 5300.4(1C), FED-STD-368, or ANSI/ASME 
NQA-1). The contracting officer shall consult technical personnel before 
including one of these specifications in a contract.
[48 FR 42415, Sept. 19, 1983, Redesignated and amended at 60 FR 48249, 
Sept. 18, 1995]



46.203  Criteria for use of contract quality requirements.

    The extent of contract quality requirements, including contractor 
inspection, required under a contract shall usually be based upon the 
classification of the contract item (supply or service) as determined by 
its technical description, its complexity, and the criticality of its 
application.
    (a) Technical description. Contract items may be technically 
classified as--
    (1) Commercial (described in commercial catalogs, drawings, or 
industrial standards; see part 2); or
    (2) Military-Federal (described in Government drawings and 
specifications).
    (b) Complexity. (1) Complex items have quality characteristics, not 
wholly visible in the end item, for which contractual conformance must 
be established progressively through precise measurements, tests, and 
controls applied during purchasing, manufacturing, performance, 
assembly, and functional operation either as an individual item or in 
conjunction with other items.
    (2) Noncomplex items have quality characteristics for which simple 
measurement and test of the end item are sufficient to determine 
conformance to contract requirements.
    (c) Criticality. (1) A critical application of an item is one in 
which the failure of the item could injure personnel or jeopardize a 
vital agency mission. A critical item may be either peculiar, meaning it 
has only one application, or common, meaning it has multiple 
applications.
    (2) A noncritical application is any other application. Noncritical 
items may also be either peculiar or common.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995]



46.204  [Reserved]



                     Subpart 46.3--Contract Clauses



46.301  Contractor inspection requirements.

    The contracting officer shall insert the clause at 52.246-1, 
Contractor Inspection Requirements, in solicitations and contracts for 
supplies or services when the contract amount is expected to be at or 
below the simplified acquisition threshold and (a) inclusion of the 
clause is necessary to ensure an explicit understanding of the 
contractor's inspection responsibilities, or (b) inclusion of the clause 
is required under agency procedures. The clause shall not be used if the 
contracting officer has made the determination specified in 46.202-2(b).
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995; 
60 FR 48250, Sept. 18, 1995]

[[Page 901]]



46.302  Fixed-price supply contracts.

    The contracting officer shall insert the clause at 52.246-2, 
Inspection of Supplies--Fixed-Price, in solicitations and contracts for 
supplies, or services that involve the furnishing of supplies, when a 
fixed-price contract is contemplated and the contract amount is expected 
to exceed the simplified acquisition threshold. The contracting officer 
may insert the clause in such solicitations and contracts when the 
contract amount is expected to be at or below the simplified acquisition 
threshold and inclusion of the clause is in the Government's interest. 
If a fixed-price incentive contract is contemplated, the contracting 
officer shall use the clause with its Alternate I. If a fixed-ceiling-
price contract with retroactive price redetermination is contemplated, 
the contracting officer shall use the clause with its Alternate II.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



46.303  Cost-reimbursement supply contracts.

    The contracting officer shall insert the clause at 52.246-3, 
Inspection of Supplies--Cost-Reimbursement, in solicitations and 
contracts for supplies, or services that involve the furnishing of 
supplies, when a cost-reimbursement contract is contemplated.



46.304  Fixed-price service contracts.

    The contracting officer shall insert the clause at 52.246-4, 
Inspection of Services--Fixed-Price, in solicitations and contracts for 
services, or supplies that involve the furnishing of services, when a 
fixed-price contract is contemplated and the contract amount is expected 
to exceed the simplified acquisition threshold. The contracting officer 
may insert the clause in such solicitations and contracts when the 
contract amount is expected to be at or below the simplified acquisition 
threshold and inclusion is in the Government's interest.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



46.305  Cost-reimbursement service contracts.

    The contracting officer shall insert the clause at 52.246-5, 
Inspection of Services--Cost Reimbursement, in solicitations and 
contracts for services, or supplies that involve the furnishing of 
services, when a cost-reimbursement contract is contemplated.



46.306  Time-and-material and labor-hour contracts.

    The contracting officer shall insert the clause at 52.246-6, 
Inspection--Time-and-Material and Labor-Hour, in solicitations and 
contracts when a time-and-material contract or a labor-hour contract is 
contemplated. If Government inspection and acceptance are to be 
performed at the contractor's plant, the contracting officer shall use 
the clause with its Alternate I.
[48 FR 42415, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986]



46.307  Fixed-price research and development contracts.

    (a) The contracting officer shall insert the clause at 52.246-7, 
Inspection of Research and Development--Fixed-Price, in solicitations 
and contracts for research and development when (1) the primary 
objective of the contract is the delivery of end items other than 
designs, drawings, or reports, (2) a fixed-price contract is 
contemplated, and (3) the contract amount is expected to exceed the 
simplified acquisition threshold; unless use of the clause is 
impractical and the clause prescribed in 46.309 is considered to be more 
appropriate.
    (b) The contracting officer may insert the clause in such 
solicitations and contracts when the contract amount is expected to be 
at or below the simplified acquisition threshold,

[[Page 902]]

and its use is in the Government's interest.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



46.308  Cost-reimbursement research and development contracts.

    The contracting officer shall insert the clause at 52.246-8, 
Inspection of Research and Development--Cost-Reimbursement, in 
solicitations and contracts for research and development when (a) the 
primary objective of the contract is the delivery of end items other 
than designs, drawings, or reports, and (b) a cost-reimbursement 
contract is contemplated; unless use of the clause is impractical and 
the clause prescribed in 46.309 is considered to be more appropriate. If 
it is contemplated that the contract will be on a no-fee basis, the 
contracting officer shall use the clause with its Alternate I.



46.309  Research and development contracts (short form).

    The contracting officer shall insert the clause at 52.246-9, 
Inspection of Research and Development (Short Form), in solicitations 
and contracts for research and development when the clause prescribed in 
46.307 or the clause prescribed in 46.308 is not used.
[51 FR 27120, July 29, 1986]



46.310  Facilities contracts.

    The contracting officer shall insert the clause at 52.246-10, 
Inspection of Facilities, in solicitations and contracts when a 
facilities contract is contemplated.



46.311  Higher-level contract quality requirement.

    The contracting officer shall insert the clause at 52.246-11, 
Higher-Level Contract Quality Requirement (Government Specification), in 
solicitations and contracts when the inclusion of a higher-level 
contract quality requirement is appropriate (see 46.202-4).
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48250, Sept. 18, 1995]



46.312  Construction contracts.

    The contracting officer shall insert the clause at 52.246-12, 
Inspection of Construction, in solicitations and contracts for 
construction when a fixed-price contract is contemplated and the 
contract amount is expected to exceed the simplified acquisition 
threshold. The contracting officer may insert the clause in such 
solicitations and contracts when the contract amount is expected to be 
at or below the simplified acquisition threshold, and its use is in the 
Government's interest.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



46.313  Contracts for dismantling, demolition, or removal of improvements.

    The contracting officer shall insert the clause at 52.246-13, 
Inspection--Dismantling, Demolition, or Removal of Improvements, in 
solicitations and contracts for dismantling, demolition, or removal of 
improvements.



46.314  Transportation contracts.

    The contracting officer shall insert the clause at 52.246-14, 
Inspection of Transportation, in solicitations and contracts for freight 
transportation services (including local drayage) by rail, motor 
(including bus), domestic freight forwarder, and domestic water carriers 
(including inland, coastwise, and intercoastal). The contracting officer 
shall not use the clause for the acquisition of transportation services 
by domestic or international air carriers or by international ocean 
carriers, or to freight services provided under bills of lading or to 
those negotiated for reduced rates under 49 U.S.C. 10721(b)(1). (See 
part 47, Transportation.)



46.315  Certificate of conformance.

    The contracting officer shall insert the clause at 52.246-15, 
Certificate of Conformance, in solicitations and contracts for supplies 
or services when the conditions in 46.504 apply.



46.316  Responsibility for supplies.

    The contracting officer shall insert the clause at 52.246-16, 
Responsibility for Supplies, in solicitations and contracts for (a) 
supplies, (b) services involving the furnishing of supplies, or (c) 
research and development, when a fixed-price contract is contemplated 
and the contract amount is expected to

[[Page 903]]

exceed the simplified acquisition threshold. The contracting officer may 
insert the clause in such solicitations and contracts when the contract 
amount is not expected to exceed the simplified acquisition threshold 
and inclusion of the clause is authorized under agency procedures.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



           Subpart 46.4--Government Contract Quality Assurance



46.401  General.

    (a) Government contract quality assurance shall be performed at such 
times (including any stage of manufacture or performance of services) 
and places (including subcontractors' plants) as may be necessary to 
determine that the supplies or services conform to contract 
requirements. Quality assurance surveillance plans should be prepared in 
conjunction with the preparation of the statement of work. The plans 
should specify--
    (1) All work requiring surveillance; and
    (2) The method of surveillance.
    (b) Each contract shall designate the place or places where the 
Government reserves the right to perform quality assurance.
    (c) If the contract provides for performance of Government quality 
assurance at source, the place or places of performance may not be 
changed without the authorization of the contracting officer.
    (d) If a contract provides for delivery and acceptance at 
destination and the Government inspects the supplies at a place other 
than destination, the supplies shall not ordinarily be reinspected at 
destination, but should be examined for quantity, damage in transit, and 
possible substitution or fraud.
    (e) Government inspection shall be performed by or under the 
direction or supervision of Government personnel.
    (f) Government inspection shall be documented on an inspection or 
receiving report form or commercial shipping document/packing list, 
under agency procedures (see subpart 46.6).
    (g) Agencies may prescribe the use of inspection approval or 
disapproval stamps to identify and control supplies and material that 
have been inspected for conformance with contract quality requirements.
[48 FR 42415, Sept. 19, 1983, as amended at 62 FR 44816, Aug. 22, 1997]

     Effective Date Note: At 62 FR 44816, Aug. 22, 1997, section 46.401 
was amended by revising paragraph (a), effective Oct. 21, 1997. For the 
convenience of the user, the superseded text is set forth as follows:

46.401  General.

    (a) Government contract quality assurance shall be performed at such 
times (including any stage of manufacture or performance of services) 
and places (including subcontractors' plants) as may be necessary to 
determine that the supplies or services conform to contract 
requirements.

                                * * * * *



46.402  Government contract quality assurance at source.

    Agencies shall perform contract quality assurance, including 
inspection, at source if--
    (a) Performance at any other place would require uneconomical 
disassembly or destructive testing;
    (b) Considerable loss would result from the manufacture and shipment 
of unacceptable supplies, or from the delay in making necessary 
corrections;
    (c) Special required instruments, gauges, or facilities are 
available only at source;
    (d) Performance at any other place would destroy or require the 
replacement of costly special packing and packaging;
    (e) A higher-level contract quality requirement is included in the 
contract (see 46.202-4);
    (f) Government inspection during contract performance is essential;
    (g) Supplies requiring inspection are destined for points of 
embarkation for overseas shipment (unless the contracting officer 
determines in advance that necessary inspection functions can be 
provided at such points); or
    (h) It is determined for other reasons to be in the Government's 
interest.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48250, Sept. 18, 1995]

[[Page 904]]



46.403  Government contract quality assurance at destination.

    (a) Government contract quality assurance that can be performed at 
destination is normally limited to inspection of the supplies or 
services. Inspection shall be performed at destination under the 
following circumstances--
    (1) Supplies are purchased off-the-shelf and require no technical 
inspection;
    (2) Necessary testing equipment is located only at destination;
    (3) Perishable subsistence supplies purchased within the United 
States, except that those supplies destined for overseas shipment will 
normally be inspected for condition and quantity at points of 
embarkation;
    (4) Brand name products purchased for authorized resale through 
commissaries or similar facilities (however, supplies destined for 
direct overseas shipment may be accepted by the contracting officer or 
an authorized representative on the basis of a tally sheet evidencing 
receipt of shipment signed by the port transportation officer or other 
designated official at the transshipment point);
    (5) The products being purchased are processed under direct control 
of the National Institutes of Health or the Food and Drug Administration 
of the Department of Health and Human Services;
    (6) The contract is for services performed at destination; or
    (7) It is determined for other reasons to be in the Government's 
interest.
    (b) Overseas inspection of supplies shipped from the United States 
shall not be required except in unusual circumstances, and then only 
when the contracting officer determines in advance that inspection can 
be performed or makes necessary arrangements for its performance.



46.404  Government contract quality assurance for acquisitions at or below the simplified acquisition threshold.

    (a) In determining the type and extent of Government contract 
quality assurance to be required for contracts at or below the 
simplified acquisition threshold, the contracting officer shall consider 
the criticality of application of the supplies or services, the amount 
of possible losses, and the likelihood of uncontested replacement of 
defective work (see 46.202-2).
    (b) When the conditions in 46.202-2(b) apply, the following policies 
shall govern:
    (1) Unless a special situation exists, the Government shall inspect 
contracts at or below the simplified acquisition threshold at 
destination and only for type and kind; quantity; damage; operability 
(if readily determinable); and preservation, packaging, packing, and 
marking, if applicable.
    (2) Special situations may require more detailed quality assurance 
and the use of a standard inspection or higher-level contract quality 
requirement. These situations include those listed in 46.402 and 
contracts for items having critical applications.
    (3) Detailed Government inspection may be limited to those 
characteristics that are special or likely to cause harm to personnel or 
property. When repetitive purchases of the same item are made from the 
same manufacturer with a history of defect-free work, Government 
inspection may be reduced to a periodic check of occasional purchases.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995; 
60 FR 48250, Sept. 18, 1995]



46.405  Subcontracts.

    (a) Government contract quality assurance on subcontracted supplies 
or services shall be performed only when required in the Government's 
interest. The primary purpose is to assist the contract administration 
office cognizant of the prime contractor's plant in determining the 
conformance of subcontracted supplies or services with contract 
requirements or to satisfy one or more of the factors included in (b) 
below. It does not relieve the prime contractor of any responsibilities 
under the contract. When appropriate, the prime contractor shall be 
requested to arrange for timely Government access to the subcontractor 
facility.
    (b) The Government shall perform quality assurance at the 
subcontract level when--

[[Page 905]]

    (1) The item is to be shipped from the subcontractor's plant to the 
using activity and inspection at source is required;
    (2) The conditions for quality assurance at source are applicable 
(see 46.402);
    (3) The contract specifies that certain quality assurance functions, 
which can be performed only at the subcontractor's plant, are to be 
performed by the Government; or
    (4) It is otherwise required by the contract or determined to be in 
the Government's interest.
    (c) Supplies or services for which certificates, records, reports, 
or similar evidence of quality are available at the prime contractor's 
plant shall not be inspected at the subcontractor's plant, except 
occasionally to verify this evidence or when required under (b) above.
    (d) All oral and written statements and contract terms and 
conditions relating to Government quality assurance actions at the 
subcontract level shall be worded so as not to--
    (1) Affect the contractual relationship between the prime contractor 
and the Government, or between the prime contractor and the 
subcontractor;
    (2) Establish a contractual relationship between the Government and 
the subcontractor; or
    (3) Constitute a waiver of the Government's right to accept or 
reject the supplies or services.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



46.406  Foreign governments.

    Government contract quality assurance performed for foreign 
governments or international agencies shall be administered according to 
the foreign policy and security objectives of the United States. Such 
support shall be furnished only when consistent with or required by 
legislation, executive orders, or agency policies concerning mutual 
international programs.



46.407  Nonconforming supplies or services.

    (a) Contracting officers should reject supplies or services not 
conforming in all respects to contract requirements (see 46.102). In 
those instances where deviation from this policy is found to be in the 
Government's interest, such supplies or services may be accepted only as 
authorized in this section.
    (b) Contractors ordinarily shall be given an opportunity to correct 
or replace nonconforming supplies or services when this can be 
accomplished within the required delivery schedule. Unless the contract 
specifies otherwise (as may be the case in some cost-reimbursement 
contracts), correction or replacement shall be without additional cost 
to the Government. Subparagraph (e)(2) of the clause at 52.246-2, 
Inspection of Supplies--Fixed-Price, reserves to the Government the 
right to charge the contractor the cost of Government reinspection and 
retests because of prior rejection.
    (c)(1) In situations not covered by paragraph (b) of this section, 
the contracting officer shall ordinarily reject supplies or services 
when the nonconformance is critical or major. However, there may be 
circumstances (e.g., reasons of economy or urgency) when acceptance of 
such supplies or services is determined by the contracting officer to be 
in the Government's interest. The contracting officer shall make this 
determination based upon--
    (i) Advice of the technical activity that the material is safe to 
use, and will perform its intended purpose;
    (ii) Information regarding the nature and extent of the 
nonconformance;
    (iii) A request from the contractor for acceptance of the supplies 
or services (if feasible);
    (iv) A recommendation for acceptance or rejection, with supporting 
rationale; and
    (v) The contract adjustment considered appropriate, including any 
adjustment offered by the contractor.
    (2) The cognizant contract administration office, or other 
Government activity directly involved, shall furnish this data to the 
contracting officer in writing, except that in urgent cases it may be 
furnished orally and later confirmed in writing. Before making a 
decision to accept, the contracting officer shall obtain the concurrence 
of the activity responsible for the technical requirements of the 
contract and, where health factors are involved, of the responsible 
health official of the agency concerned.

[[Page 906]]

    (d) If the nonconformance is minor, the cognizant contract 
administration office may make the determination to accept or reject, 
except where this authority is withheld by the contracting office of the 
contracting activity. To assist in making this determination, the 
contract administration office may establish a joint contractor-contract 
administrative office review group. Acceptance of supplies and services 
with critical or major nonconformances is outside the scope of the 
review group.
    (e) Contracting officers shall discourage the repeated tender of 
nonconforming supplies or services, including those with only minor 
nonconformances, by appropriate action, such as rejection and 
documenting the contractor's performance record.
    (f) Each contract under which supplies or services with critical or 
major nonconformances are accepted as authorized in paragraph (c) of 
this section shall be modified to provide for an equitable price 
reduction or other consideration. For services, the contracting officer 
can consider identifying the value of the individual work requirements 
or tasks (subdivisions) that may be subject to price or fee reduction. 
This value may be used to determine an equitable adjustment for 
nonconforming services. However, when supplies or services involving 
minor nonconformances are accepted, the contract shall not be modified 
unless (1) it appears that the savings to the contractor in fabricating 
the nonconforming supplies or performing the nonconforming services will 
exceed the cost to the Government of processing the modification, or (2) 
the Government's interests otherwise require a contract modification.
    (g) Notices of rejection shall include the reasons for rejection and 
be furnished promptly to the contractor. Promptness in giving this 
notice is essential because, if timely nature of rejection is not 
furnished, acceptance may in certain cases be implied as a matter of 
law. The notice shall be in writing if--
    (1) The supplies or services have been rejected at a place other 
than the contractor's plant;
    (2) The contractor persists in offering nonconforming supplies or 
services for acceptance; or
    (3) Delivery or performance was late without excusable cause.
[48 FR 42415, Sept. 19, 1983, as amended at 61 FR 31663, June 20, 1996; 
62 FR 44816, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44816, Aug. 22, 1997, section 46.407 
was amended by adding new second and third sentences to paragraph (f) 
introductory text, effective Oct. 21, 1997.



46.408  Single-agency assignments of Government contract quality assurance.

    (a) Government-wide responsibility for quality assurance support for 
acquisitions of certain commodities is assigned as follows:
    (1) For drugs, biologics, and other medical supplies--the Food and 
Drug Administration;
    (2) For food, except seafood--the Department of Agriculture.
    (3) For seafood--the National Marine Fisheries Service of the 
Department of Commerce.
    (b) Agencies requiring quality assurance support for acquiring these 
supplies should request the support directly from the cognizant office.



                        Subpart 46.5--Acceptance



46.501  General.

    Acceptance constitutes acknowledgment that the supplies or services 
conform with applicable contract quality and quantity requirements, 
except as provided in this subpart and subject to other terms and 
conditions of the contract. Acceptance may take place before delivery, 
at the time of delivery, or after delivery, depending on the provisions 
of the terms and conditions of the contract. Supplies or services shall 
ordinarily not be accepted before completion of Government contract 
quality assurance actions (however, see 46.504). Acceptance shall 
ordinarily be evidenced by execution of an acceptance certificate on an 
inspection or receiving report form or commercial shipping document/
packing list.



46.502  Responsibility for acceptance.

    Acceptance of supplies or services is the responsibility of the 
contracting

[[Page 907]]

officer. When this responsibility is assigned to a cognizant contract 
administration office or to another agency (see 42.102(c)), acceptance 
by that office or agency is binding on the Government.



46.503  Place of acceptance.

    Each contract shall specify the place of acceptance. Contracts that 
provide for Government contract quality assurance at source shall 
ordinarily provide for acceptance at source. Contracts that provide for 
Government contract quality assurance at destination shall ordinarily 
provide for acceptance at destination. (For transportation terms, see 
subpart 47.3). Supplies accepted at a place other than destination shall 
not be reinspected at destination for acceptance purposes, but should be 
examined at destination for quantity, damage in transit, and possible 
substitution or fraud.



46.504  Certificate of conformance.

    A certificate of conformance (see 46.315) may be used in certain 
instances instead of source inspection (whether the contract calls for 
acceptance at source or destination) at the discretion of the 
contracting officer if the following conditions apply:
    (a) Acceptance on the basis of a contractor's certificate of 
conformance is in the Government's interest.
    (b) (1) Small losses would be incurred in the event of a defect; or
    (2) Because of the contractor's reputation or past performance, it 
is likely that the supplies or services furnished will be acceptable and 
any defective work would be replaced, corrected, or repaired without 
contest. In no case shall the Government's right to inspect supplies 
under the inspection provisions of the contract be prejudiced.



46.505  Transfer of title and risk of loss.

    (a) Title to supplies shall pass to the Government upon formal 
acceptance, regardless of when or where the Government takes physical 
possession, unless the contract specifically provides for earlier 
passage of title.
    (b) Unless the contract specifically provides otherwise, risk of 
loss of or damage to supplies shall remain with the contractor until, 
and shall pass to the Government upon--
    (1) Delivery of the supplies to a carrier if transportation is 
f.o.b. origin; or
    (2) Acceptance by the Government or delivery of the supplies to the 
Government at the destination specified in the contract, whichever is 
later, if transportation is f.o.b. destination.
    (c) Paragraph (b) above shall not apply to supplies that so fail to 
conform to contract requirements as to give a right of rejection. The 
risk of loss of or damage to such nonconforming supplies remains with 
the contractor until cure or acceptance. After cure or acceptance, 
paragraph (b) above shall apply.
    (d) Under paragraph (b) above, the contractor shall not be liable 
for loss of or damage to supplies caused by the negligence of officers, 
agents, or employees of the Government acting within the scope of their 
employment.
    (e) The policy expressed in (a) through (d) above is specified in 
the clause at 52.246-16, Responsibility for Supplies, which is 
prescribed in 46.316.



         Subpart 46.6--Material Inspection and Receiving Reports



46.601  General.

    Agencies shall prescribe procedures and instructions for the use, 
preparation, and distribution of material inspection and receiving 
reports and commercial shipping document/packing lists to evidence 
Government inspection (see 46.401) and acceptance (see 46.501).



                        Subpart 46.7--Warranties



46.701  Definitions.

    Acceptance (see 46.101).
    Correction, as used in this subpart, means the elimination of a 
defect.
    Warranty, as used in this subpart, means a promise or affirmation 
given by a contractor to the Government regarding the nature, 
usefulness, or condition of the supplies or performance of services 
furnished under the contract.



46.702  General.

    (a) The principal purposes of a warranty in a Government contract 
are (1)

[[Page 908]]

to delineate the rights and obligations of the contractor and the 
Government for defective items and services and (2) to foster quality 
performance.
    (b) Generally, a warranty should provide--
    (1) A contractual right for the correction of defects 
notwithstanding any other requirement of the contract pertaining to 
acceptance of the supplies or services by the Government; and
    (2) A stated period of time or use, or the occurrence of a specified 
event, after acceptance by the Government to assert a contractual right 
for the correction of defects.
    (c) The benefits to be derived from a warranty must be commensurate 
with the cost of the warranty to the Government.



46.703  Criteria for use of warranties.

    The use of warranties is not mandatory. In determining whether a 
warranty is appropriate for a specific acquisition, the contracting 
officer shall consider the following factors:
    (a) Nature and use of the supplies or services. This includes such 
factors as--
    (1) Complexity and function;
    (2) Degree of development;
    (3) State of the art;
    (4) End use;
    (5) Difficulty in detecting defects before acceptance; and
    (6) Potential harm to the Government if the item is defective.
    (b) Cost. Warranty costs arise from--
    (1) The contractor's charge for accepting the deferred liability 
created by the warranty; and
    (2) Government administration and enforcement of the warranty (see 
paragraph (c) below).
    (c) Administration and enforcement. The Government's ability to 
enforce the warranty is essential to the effectiveness of any warranty. 
There must be some assurance that an adequate administrative system for 
reporting defects exists or can be established. The adequacy of a 
reporting system may depend upon such factors as the--
    (1) Nature and complexity of the item;
    (2) Location and proposed use of the item;
    (3) Storage time for the item;
    (4) Distance of the using activity from the source of the item;
    (5) Difficulty in establishing existence of defects; and
    (6) Difficulty in tracing responsibility for defects.
    (d) Trade practice. In many instances an item is customarily 
warranted in the trade, and, as a result of that practice, the cost of 
an item to the Government will be the same whether or not a warranty is 
included. In those instances, it would be in the Government's interest 
to include such a warranty.
    (e) Reduced requirements. The contractor's charge for assumption of 
added liability may be partially or completely offset by reducing the 
Government's contract quality assurance requirements where the warranty 
provides adequate assurance of a satisfactory product.



46.704  Authority for use of warranties.

    The use of a warranty in an acquisition shall be approved in 
accordance with agency procedures.



46.705  Limitations.

    (a) Except for the warranties in the clauses at 52.246-3, Inspection 
of Supplies--Cost-Reimbursement, and 52.246-8, Inspection of Research 
and Development--Cost-Reimbursement, the contracting officer shall not 
include warranties in cost-reimbursement contracts, unless authorized in 
accordance with agency regulations (see 46.708).
    (b) Warranty clauses shall not limit the Government's rights under 
an inspection clause (see subpart 46.3) in relation to latent defects, 
fraud, or gross mistakes that amount to fraud.
    (c) Except for warranty clauses in construction contracts, warranty 
clauses shall provide that the warranty applies notwithstanding 
inspection and acceptance or other clauses or terms of the contract.



46.706  Warranty terms and conditions.

    (a) To facilitate the pricing and enforcement of warranties, the 
contracting officer shall ensure that warranties clearly state the--
    (1) Exact nature of the item and its components and characteristics 
that the contractor warrants;

[[Page 909]]

    (2) Extent of the contractor's warranty including all of the 
contractor's obligations to the Government for breach of warranty;
    (3) Specific remedies available to the Government; and
    (4) Scope and duration of the warranty.
    (b) The contracting officer shall consider the following guidelines 
when preparing warranty terms and conditions:
    (1) Extent of contractor obligations (i) Generally, the contractor's 
obligations under warranties extend to all defects discovered during the 
warranty period, but do not include damage caused by the Government. 
When a warranty for the entire item is not advisable, a warranty may be 
required for a particular aspect of the item that may require special 
protection (e.g., installation, components, accessories, subassemblies, 
preservation, packaging, and packing, etc.).
    (ii) If the Government specifies the design of the end item and its 
measurements, tolerances, materials, tests, or inspection requirements, 
the contractor's obligations for correction of defects shall usually be 
limited to defects in material and workmanship or failure to conform to 
specifications. If the Government does not specify the design, the 
warranty extends also to the usefulness of the design.
    (iii) If express warranties are included in a contract (except 
contracts for commercial items), all implied warranties of 
merchantability and fitness for a particular purpose shall be negated by 
the use of specific language in the clause (see clauses 52.246-17, 
Warranty of Supplies of a Noncomplex Nature; 52.246-18, Warranty of 
Supplies of a Complex Nature; and 52.246-19, Warranty of Systems and 
Equipment under Performance Specifications or Design Criteria).
    (2) Remedies (i) Normally, a warranty shall provide as a minimum 
that the Government may (A) obtain an equitable adjustment of the 
contract, or (B) direct the contractor to repair or replace the 
defective items at the contractor's expense.
    (ii) If it is not practical to direct the contractor to make the 
repair or replacement, or, because of the nature of the item, the repair 
or replacement does not afford an appropriate remedy to the Government, 
the warranty should provide alternate remedies, such as authorizing the 
Government to--
    (A) Retain the defective item and reduce the contract price by an 
amount equitable under the circumstances; or
    (B) Arrange for the repair or replacement of the defective item, by 
the Government or by another source, at the contractor's expense.
    (iii) If it can be foreseen that it will not be practical to return 
an item to the contractor for repair, to remove it to an alternate 
source for repair, or to replace the defective item, the warranty should 
provide that the Government may repair, or require the contractor to 
repair, the item in place at the contractor's expense. The contract 
shall provide that in the circumstance where the Government is to 
accomplish the repair, the contractor will furnish at the place of 
delivery the material or parts, and the installation instructions 
required to successfully accomplish the repair.
    (iv) Unless provided otherwise in the warranty, the contractor's 
obligation to repair or replace the defective item, or to agree to an 
equitable adjustment of the contract, shall include responsibility for 
the costs of furnishing all labor and material to (A) reinspect items 
that the Government reasonably expected to be defective, (B) accomplish 
the required repair or replacement of defective items, and (C) test, 
inspect, package, pack, and mark repaired or replaced items.
    (v) If repair or replacement of defective items is required, the 
contractor shall generally be required by the warranty to bear the 
expense of transportation for returning the defective item from the 
place of delivery specified in the contract (irrespective of the f.o.b. 
point or the point of acceptance) to the contractor's plant and 
subsequent return. When defective items are returned to the contractor 
from other than the place of delivery specified in the contract, or when 
the Government exercises alternate remedies, the contractor's liability 
for transportation charges incurred shall not exceed an

[[Page 910]]

amount equal to the cost of transportation by the usual commercial 
method of shipment between the place of delivery specified in the 
contract and the contractor's plant and subsequent return.
    (3) Duration of the warranty. The time period or duration of the 
warranty must be clearly specified and shall be established after 
consideration of such factors as (i) the estimated useful life of the 
item, (ii) the nature of the item including storage or shelf-life, and 
(iii) trade practice. The period specified shall not extend the 
contractor's liability for patent defects beyond a reasonable time after 
acceptance by the Government.
    (4) Notice. The warranty shall specify a reasonable time for 
furnishing notice to the contractor regarding the discovery of defects. 
This notice period, which shall apply to all defects discovered during 
the warranty period, shall be long enough to assure that the Government 
has adequate time to give notice to the contractor. The contracting 
officer shall consider the following factors when establishing the 
notice period:
    (i) The time necessary for the Government to discover the defects.
    (ii) The time reasonably required for the Government to take 
necessary administrative steps and make a timely report of discovery of 
the defects to the contractor.
    (iii) The time required to discover and report defective 
replacements.
    (5) Markings. The packaging and preservation requirements of the 
contract shall require the contractor to stamp or mark the supplies 
delivered or otherwise furnish notice with the supplies of the existence 
of the warranty. The purpose of the markings or notice is to inform 
Government personnel who store, stock, or use the supplies that the 
supplies are under warranty. Markings may be brief but should include 
(i) a brief statement that a warranty exists, (ii) the substance of the 
warranty, (iii) its duration, and (iv) who to notify if the supplies are 
found to be defective. For commercial items (see 46.709), the 
contractor's trade practice in warranty marking is acceptable if 
sufficient information is presented for supply personnel and users to 
identify warranted supplies.
    (6) Consistency. Contracting officers shall ensure that the warranty 
clause and any other warranty conditions in the contract (e.g., in the 
specifications or an inspection clause) are consistent. To the extent 
practicable, all of the warranties to be contained in the contract 
should be expressed in the warranty clause.



46.707  Pricing aspects of fixed-price incentive contract warranties.

    If a fixed-price incentive contract contains a warranty (see 
46.708), the estimated cost of the warranty to the contractor should be 
considered in establishing the incentive target price and the ceiling 
price of the contract. All costs incurred, or estimated to be incurred, 
by the contractor in complying with the warranty shall be considered 
when establishing the total final price. Contractor compliance with the 
warranty after the establishment of the total final price shall be at no 
additional cost to the Government.



46.708  Warranties of data.

    Warranties of data shall be developed and used in accordance with 
agency regulations.



46.709  Warranties of commercial items.

    The contracting officer should take advantage of commercial 
warranties, including extended warranties, where appropriate and in the 
Government's best interests, offered by the contractor for the repair 
and replacement of commercial items (see part 12).
[60 FR 48250, Sept. 18, 1995]



46.710  Contract clauses.

    The clauses and alternates prescribed in this section may be used in 
solicitations and contracts in which inclusion of a warranty is 
appropriate (see 46.709 for warranties for commercial items). However, 
because of the many situations that may influence the warranty terms and 
conditions appropriate to a particular acquisition, the contracting 
officer may vary the terms and conditions of the clauses and alternates 
to the extent necessary. The alternates prescribed in this section 
address the

[[Page 911]]

clauses; however, the conditions pertaining to each alternate must be 
considered if the terms and conditions are varied to meet a particular 
need.
    (a) (1) The contracting officer may insert a clause substantially 
the same as the clause at 52.246-17, Warranty of Supplies of a 
Noncomplex Nature, in solicitations and contracts for noncomplex items 
when a fixed-price supply contract is contemplated and the use of a 
warranty clause has been approved under agency procedures.
    (2) If it is desirable to specify that necessary transportation 
incident to correction or replacement will be at the Government's 
expense (as might be the case if, for example, the cost of a warranty 
would otherwise be prohibitive), the contracting officer may use the 
clause with its Alternate II.
    (3) If the supplies cannot be obtained from another source, the 
contracting officer may use the clause with its Alternate III.
    (4) If a fixed-price incentive contract is contemplated, the 
contracting officer may use the clause with its Alternate IV.
    (5) If it is anticipated that recovery of the warranted item will 
involve considerable Government expense for disassembly and/or 
reassembly of larger items, the contracting officer may use the clause 
with its Alternate V.
    (b) (1) The contracting officer may insert a clause substantially 
the same as the clause at 52.246-18, Warranty of Supplies of a Complex 
Nature, in solicitations and contracts for deliverable complex items 
when a fixed-price supply or research and development contract is 
contemplated and the use of a warranty clause has been approved under 
agency procedures.
    (2) If it is desirable to specify that necessary transportation 
incident to correction or replacement will be at the Government's 
expense (as might be the case if, for example, the cost of a warranty 
would otherwise be prohibitive), the contracting officer may use the 
clause with its Alternate II.
    (3) If a fixed-price incentive contract is contemplated, the 
contracting officer may use the clause with its Alternate III.
    (4) If it is anticipated that recovery of the warranted item will 
involve considerable Government expense for disassembly and/or 
reassembly of larger items, the contracting officer may use the clause 
with its Alternate IV.
    (c) (1) The contracting officer may insert a clause substantially 
the same as the clause at 52.246-19, Warranty of Systems and Equipment 
under Performance Specifications or Design Criteria, in solicitations 
and contracts when performance specifications or design are of major 
importance; a fixed-price supply, service, or research and development 
contract for systems and equipment is contemplated; and the use of a 
warranty clause has been approved under agency procedures.
    (2) If it is desirable to specify that necessary transportation 
incident to correction or replacement will be at the Government's 
expense (as might be the case if, for example, the cost of a warranty 
would otherwise be prohibitive), the contracting officer may use the 
clause with its Alternate I.
    (3) If a fixed-price incentive contract is contemplated, the 
contracting officer may use the clause with its Alternate II.
    (4) If it is anticipated that recovery of the warranted item will 
involve considerable Government expense for disassembly and/or 
reassembly of larger items, the contracting officer may use the clause 
with its Alternate III.
    (d) The contracting officer may insert a clause substantially the 
same as the clause at 52.246-20, Warranty of Services, in solicitations 
and contracts for services when a fixed-price contract for services is 
contemplated and the use of a warranty clause has been approved under 
agency procedures; unless a clause substantially the same as the clause 
at 52.246-19, Warranty of Systems and Equipment under Performance 
Specifications or Design Criteria, has been used.
    (e) (1) The contracting officer may insert a clause substantially 
the same as the clause at 52.246-21, Warranty of Construction, in 
solicitations and contracts when a fixed-price construction contract 
(see 46.705(c)) is contemplated and the use of a warranty clause has 
been approved under agency procedures.
    (2) If the Government specifies in the contract the use of any 
equipment by

[[Page 912]]

brand name and model, the contracting officer may use the clause with 
its Alternate I.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48250, Sept. 18, 1995]



Subpart 46.8--Contractor Liability for Loss of or Damage to Property of 
                             the Government



46.800  Scope of subpart.

    This subpart prescribes policies and procedures for limiting 
contractor liability for loss of or damage to property of the Government 
that (a) occurs after acceptance and (b) results from defects or 
deficiencies in the supplies delivered or services performed.



46.801  Applicability.

    (a) This subpart applies to contracts other than those for (1) 
information technology, including telecommunications, (2) construction, 
(3) architect-engineer services, and (4) maintenance and rehabilitation 
of real property. This subpart does not apply to items priced at or 
based on catalog or market prices except as indicated in 46.804.
    (b) See subpart 46.7, Warranties, for policies and procedures 
concerning contractor liability caused by nonconforming technical data.
[48 FR 42415, Sept. 19, 1983, as amended at 61 FR 41471, Aug. 8, 1996]



46.802  Definition.

    High-value item, as used in this subpart, means a contract end item 
that (a) has a high unit cost (normally exceeding $100,000 per unit), 
such as an aircraft, an aircraft engine, a communication system, a 
computer system, a missile, or a ship, and (b) is designated by the 
contracting officer as a high-value item.



46.803  Policy.

    (a) General. The Government will generally act as a self-insurer by 
relieving contractors, as specified in this subpart, of liability for 
loss of or damage to property of the Government that (1) occurs after 
acceptance of supplies delivered or services performed under a contract 
and (2) results from defects or deficiencies in the supplies or 
services. However, the Government will not relieve the contractor of 
liability for loss of or damage to the contract end item itself, except 
for high-value items.
    (b) High-value items. In contracts requiring delivery of high-value 
items, the Government will relieve contractors of contractual liability 
for loss of or damage to those items. However, this relief shall not 
limit the Government's rights arising under the contract to--
    (1) Have any defective item or its components corrected, repaired, 
or replaced when the defect or deficiency is discovered before the loss 
of or damage to a high-value item occurs; or
    (2) Obtain equitable relief when the defect or deficiency is 
discovered after such loss or damage occurs.
    (c) Exception. The Government will not provide contractual relief 
under paragraphs (a) and (b) above when contractor liability can be 
preserved without increasing the contract price.
    (d) Limitations. Subject to the specific terms of the limitation of 
liability clause included in the contract, the relief provided under 
paragraphs (a) and (b) above does not apply--
    (1) To the extent that contractor liability is expressly provided 
under a contract clause authorized by this regulation;
    (2) When a defect or deficiency in, or the Government's acceptance 
of, the supplies or services results from willful misconduct or lack of 
good faith on the part of the contractor's managerial personnel; or
    (3) To the extent that any contractor insurance, or self-insurance 
reserve, covers liability for loss or damage suffered by the Government 
through purchase or use of the supplies delivered or services performed 
under the contract.



46.804  Items priced at or based on catalog or market prices.

    Contractors generally (a) carry product liability or similar 
insurance, or maintain a reserve for self-insurance, covering liability 
arising from defective items and (b) reflect its cost in catalog or 
market prices. Therefore, for items being priced at or based on catalog 
or market prices,contracting officers should not provide relief under 
the policy in 46.803 by including a

[[Page 913]]

clause prescribed in 46.805, unless they obtain an appropriate reduction 
from the catalog or market price to reflect reduced contractor 
liability.
[48 FR 42415, Sept. 19, 1983, as amended at 60 FR 48218, Sept. 18, 1995; 
62 FR 259, Jan. 2, 1997]



46.805  Contract clauses.

    (a) Contracts that exceed the simplified acquisition threshold. The 
contracting officer shall insert the appropriate clause or combination 
of clauses specified in subparagraphs (a)(1) through (a)(5) of this 
section in solicitations and contracts when the contract amount is 
expected to be in excess of the simplified acquisition threshold and the 
contract is subject to the requirements of this subpart as indicated in 
46.801:
    (1) In contracts requiring delivery of end items that are not high-
value items, insert the clause at 52.246-23, Limitation of Liability.
    (2) In contracts requiring delivery of high-value items, insert the 
clause at 52.246-24, Limitation of Liability--High-Value Items.
    (3) In contracts requiring delivery of both high-value items and 
other end items, insert both clauses prescribed in (1) and (2) above, 
Alternate I of the clause at 52.246-24, and identify clearly in the 
contract schedule the line items designated as high-value items.
    (4) In contracts requiring the performance of services, insert the 
clause at 52.246-25, Limitation of Liability--Services.
    (5) In contracts requiring both the performance of services and the 
delivery of end items, insert the clause prescribed in subparagraph (4) 
above and the appropriate clause or clauses prescribed in subparagraph 
(1), (2), or (3) above, and identify clearly in the contract schedule 
any high-value line items.
    (b) Acquisitions at or below the simplified acquisition threshold. 
The clauses prescribed by paragraph (a) of this section are not required 
for contracts at or below the simplified acquisition threshold. However, 
in response to a contractor's specific request, the contracting officer 
may insert the clauses prescribed in paragraph (a)(1) or (a)(4) of this 
section in a contract at or below the simplified acquisition threshold 
and may obtain any price reduction that is appropriate.
[48 FR 42415, Sept. 19, 1983, as amended at 55 FR 3886, Feb. 5, 1990; 60 
FR 34760, July 3, 1995; 61 FR 39190, July 26, 1996]



46.806  Subcontracts.

    (a) The clause at 52.246-23, Limitation of Liability, and the clause 
at 52.246-25, Limitation of Liability--Services, each require the 
contractor to insert the same clause in all subcontracts.
    (b) The clause at 52.246-24, Limitation of Liability--High-Value 
Items, and its Alternate I require the contractor to insert that clause, 
the clause at 52.246-23, Limitation of Liability, or both, as 
appropriate, in all subcontracts. However, they require the contractor 
to obtain the contracting officer's written approval before including 
the clause at 52.246-24, Limitation of Liability--High-Value Items. The 
contracting officer shall approve the use of this clause in a 
subcontract only if the clause would have been used had the subcontract 
been a prime contract with the Government.



PART 47--TRANSPORTATION--Table of Contents




Sec.
47.000  Scope of subpart.
47.001  Definitions.
47.002  Applicability.

                          Subpart 47.1--General

47.101  Policies.
47.102  Transportation insurance.
47.103  Transportation Documentation and Audit Regulation (TDA).
47.104  Government rate tenders under section 10721 of the Interstate 
          Commerce Act.
47.104-1  Government freight.
47.104-2  Fixed-price contracts.
47.104-3  Cost-reimbursement contracts.
47.104-4  Contract clauses.
47.104-5  Citation of Government rate tenders.
47.105  Transportation assistance.

Subpart 47.2--Contracts for Transportation or for Transportation-Related 
                                Services

47.200  Scope of subpart.
47.201  Definitions.
47.202  Presolicitation planning.
47.203  Transportation term contracts.

[[Page 914]]

47.204  Single-movement contracts.
47.205  Availability of term contracts and basic ordering agreements for 
          transportation or for transportation-related services.
47.206  Preparation of solicitations and contracts.
47.207  Solicitation provisions, contract clauses, and special 
          requirements.
47.207-1  Qualifications of offerors.
47.207-2  Duration of contract and time of performance.
47.207-3  Description of shipment, origin, and destination.
47.207-4  Determination of weights.
47.207-5  Contractor responsibilities.
47.207-6  Rates and charges.
47.207-7  Liability and insurance.
47.207-8  Government responsibilities.
47.207-9  Annotation and distribution of shipping and billing documents.

            Subpart 47.3--Transportation in Supply Contracts

47.300  Scope of subpart.
47.301  General.
47.301-1  Responsibilities of contracting officers.
47.301-2  Participation of transportation officers.
47.301-3  Using the Defense Transportation System (DTS).
47.302  Place of delivery--f.o.b. point.
47.303  Standard delivery terms and contract clauses.
47.303-1  F.o.b. origin.
47.303-2  F.o.b. origin, contractor's facility.
47.303-3  F.o.b. origin, freight allowed.
47.303-4  F.o.b. origin, freight prepaid.
47.303-5  F.o.b. origin, with differentials.
47.303-6  F.o.b. destination.
47.303-7  F.o.b. destination, within consignee's premises.
47.303-8  F.a.s. vessel, port of shipment.
47.303-9  F.o.b. vessel, port of shipment.
47.303-10  F.o.b. inland carrier, point of exportation.
47.303-11  F.o.b. inland point, country of importation.
47.303-12  Ex dock, pier, or warehouse, port of importation.
47.303-13  C.& f. destination.
47.303-14  C.i.f. destination.
47.303-15  F.o.b. designated air carrier's terminal, point of 
          exportation.
47.303-16  F.o.b. designated air carrier's terminal, point of 
          importation.
47.303-17  Contractor-prepaid commercial bills of lading, small package 
          shipments.
47.304  Determination of delivery terms.
47.304-1  General.
47.304-2  Shipments within CONUS.
47.304-3  Shipments from CONUS for overseas delivery.
47.304-4  Shipments originating outside CONUS.
47.304-5  Exceptions.
47.305  Solicitation provisions, contract clauses, and transportation 
          factors.
47.305-1  Solicitation requirements.
47.305-2  Solicitations f.o.b. origin and f.o.b. destination--lowest 
          overall cost.
47.305-3  F.o.b. origin solicitations.
47.305-4  F.o.b. destination solicitations.
47.305-5  Destination unknown.
47.305-6  Shipments to ports and air terminals.
47.305-7  Quantity analysis, direct delivery, and reduction of 
          crosshauling and backhauling.
47.305-8  Consolidation of small shipments and the use of stopoff 
          privileges.
47.305-9  Commodity description and freight classification.
47.305-10  Packing, marking, and consignment instructions.
47.305-11  Options in shipment and delivery.
47.305-12  Delivery of Government-furnished property.
47.305-13  Transit arrangements.
47.305-14  Mode of transportation.
47.305-15  Loading responsibilities of contractors.
47.305-16  Shipping characteristics.
47.305-17  Returnable cylinders.
47.306  Transportation factors in the evaluation of offers.
47.306-1  Transportation cost determinations.
47.306-2  Lowest overall transportation costs.
47.306-3  Adequacy of loading and unloading facilities.

         Subpart 47.4--Air Transportation by U.S.-Flag Carriers

47.401  Definitions.
47.402  Policy.
47.403  Guidelines for implementation of the Fly America Act.
47.403-1  Availability and unavailability of U.S.-flag air carrier 
          service.
47.403-2  Air transport agreements between the United States and foreign 
          governments.
47.403-3  Disallowance of expenditures.
47.404  Air freight forwarders.
47.405  Contract clause.

         Subpart 47.5--Ocean Transportation by U.S.-Flag Vessels

47.500  Scope of subpart.
47.501  Definitions.
47.502  Policy.
47.503  Applicability.
47.504  Exceptions.
47.505  Construction contracts.
47.506  Procedures.
47.507  Contract clauses.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

[[Page 915]]


    Source: 48 FR 42424, Sept. 19, 1983, unless otherwise noted.



47.000  Scope of subpart.

    (a) This part prescribes policies and procedures for--
    (1) Applying transportation and traffic management considerations in 
the acquisition of supplies; and
    (2) Acquiring transportation or transportation-related services by 
contract methods other than bills of lading, transportation requests, 
transportation warrants, and similar transportation forms. Even though 
the FAR does not regulate the acquisition of transportation or 
transportation-related services when the bill of lading is the contract, 
this contract method is widely used and, therefore, relevant guidance on 
the use of the bill of lading, particularly the Government bill of 
lading (GBL), is provided in this part.
    (b) The definitions in this part have been condensed from statutory 
definitions. In case of inconsistency between the language of this part 
and the statutory requirements, the statute shall prevail.



47.001  Definitions.

    Carrier or commercial carrier means a common carrier or a contract 
carrier.
    Common carrier, as used in this part, means a person holding itself 
out to the general public to provide transportation for compensation.
    Contract carrier means a person providing transportation for 
compensation under continuing agreements with one person or a limited 
number of persons.
    CONUS or Continental United States means the 48 contiguous states 
and the District of Columbia.
    F.o.b. means free on board. This term is used in conjunction with a 
physical point to determine (a) the responsibility and basis for payment 
of freight charges and (b) unless otherwise agreed, the point at which 
title for goods passes to the buyer or consignee.
    F.o.b. origin means free on board at origin; i.e., the seller or 
consignor places the goods on the conveyance by which they are to be 
transported. Unless the contract provides otherwise, cost of shipping 
and risk of loss are borne by the buyer or consignee.
    F.o.b. destination means free on board at destination; i.e., the 
seller or consignor delivers the goods on seller's or consignor's 
conveyance at destination. Unless the contract provides otherwise, cost 
of shipping and risk of loss are borne by the seller or consignor.
    Freight means supplies, goods, and transportable property.
    Shipment, as used in this part, means freight transported or to be 
transported.



47.002  Applicability.

    (a) All Government personnel concerned with the activities listed in 
subparagraphs (1) through (4) below shall follow the regulations in part 
47 as applicable:
    (1) Acquisition of supplies.
    (2) Acquisition of transportation and transportation-related 
services.
    (3) Transportation assistance and traffic management.
    (4) The making and administration of contracts under which payments 
are made from Government funds for (i) the transportation of supplies, 
(ii) transportation-related services, or (iii) transportation of 
contractor personnel and their personal belongings.
    (b) Subpart 42.14, Traffic and Transportation Management, shall be 
used for administering transportation contracts, transportation-related 
contracts, and those portions of supply and other contracts that involve 
transportation.



                          Subpart 47.1--General



47.101  Policies.

    (a) The contracting officer shall obtain traffic management advice 
and assistance (see 47.105) in the consideration of transportation 
factors required for--
    (1) Solicitations and awards;
    (2) Contract administration, modification, and termination; and
    (3) Transportation of property by the Government to and from 
contractors' plants.
    (b) (1) The preferred method of transporting supplies for the 
Government is by commercial carriers. However, Government-owned, leased, 
or chartered vehicles, aircraft, and vessels may be used if (i) they are 
available and not

[[Page 916]]

fully utilized, (ii) their use will result in substantial economies, and 
(iii) their use is in accordance with all applicable statutes, agency 
policies and regulations.
    (2) If the three circumstances listed in subparagraph (b)(1) above 
apply, Government vehicles may be used for purposes such as--
    (i) Local transportation of supplies between Government 
installations;
    (ii) Pickup and delivery services that commercial carriers do not 
perform in connection with line-haul transportation;
    (iii) Transportation of supplies to meet emergencies; and
    (iv) Accomplishment of program objectives that cannot be attained by 
using commercial carriers.
    (c) Agencies shall not accord preferential treatment to any mode of 
transportation or to any particular carrier either in awarding or 
administering contracts for the acquisition of supplies or in awarding 
contracts for the acquisition of transportation. (See subparts 47.2 and 
47.3 for situations in which the contracting officer is permitted to use 
specific modes of transportation.)
    (d) Agencies shall place with small business concerns purchases and 
contracts for transportation and transportation-related services as 
prescribed in part 19.
    (e) Agencies shall comply with the Fly America Act, the Cargo 
Preference Act, and related statutes as prescribed in subparts 47.4, Air 
Transportation by U.S.-Flag Carriers, and 47.5, Ocean Transportation by 
U.S.-Flag Vessels.



47.102  Transportation insurance.

    (a) The Government generally (1) retains the risk of loss of and/or 
damage to its property that is not the legal liability of commercial 
carriers and (2) does not buy insurance coverage for its property in the 
possession of commercial carriers (40 U.S.C. 726). (See part 28, Bonds 
and Insurance.)
    (b) Under special circumstances the Government may, if such action 
is considered necessary and in the Government's interest, (1) buy 
insurance coverage for Government property or (2) require the carrier to 
(i) assume full responsibility for loss of or damage to the Government 
property in its possession and (ii) buy insurance to cover the carrier's 
assumed responsibility. The cost of this insurance to the carrier shall 
be part of the transportation cost. (The Secretary of the Treasury 
prescribes regulations regarding shipments of valuables in 31 CFR parts 
261 and 262.)
    (c) (1) If special circumstances dictate the need for the Government 
to buy insurance coverage, the contracting officer shall ascertain that 
(i) there is no statutory prohibition and (ii) funds for insurance are 
available.
    (2) The contracting officer shall document the need and 
authorization for insurance coverage in the contract file.



47.103  Transportation Documentation and Audit Regulation (TDA).

    (a) The United States Government bill of lading (GBL) generally 
shall be used for the transportation of property of the United States 
for which the Government pays the transportation charges directly to 
commercial carriers.
    (b) (1) Regulations and procedures governing the GBL, documentation, 
payment, and audit of transportation services acquired by the United 
States Government are prescribed in 41 CFR 101-41, Transportation 
Documentation and Audit. Included in this regulation, among others, is 
the limited authority for the use of commercial forms and procedures to 
acquire freight or express transportation for small shipments of a 
recurring nature when transportation costs do not exceed $100.
    (2) For DOD shipments, corresponding guidance is in Chapter 32 of 
the Defense Traffic Management Regulation (DTMR).
    (c) Subsection 42.1403-2 prescribes regulations and procedures for 
the occasional use of contractor-prepaid commercial bills of lading for 
the transportation of supplies weighing not more than 1,000 pounds that 
are acquired by the Government on f.o.b. origin terms.
[48 FR 42424, Sept. 19, 1983, as amended at 59 FR 11383, Mar. 10, 1994]

[[Page 917]]



47.104  Government rate tenders under section 10721 of the Interstate Commerce Act.



47.104-1  Government freight.

    (a) Common carriers subject to the jurisdiction of the Interstate 
Commerce Commission may under the provisions of 49 U.S.C. 10721 offer to 
transport persons or property for the account of the United States 
without charge or at reduced rates.
    (b) Section 10721 rates are published in Government rate tenders and 
apply to shipments moving for the account of the Government; i.e., on--
    (1) Government bills of lading;
    (2) Commercial bills of lading endorsed to show that such bills of 
lading are to be exchanged for, or converted to, Government bills of 
lading at destination after delivery to the consignees; or
    (3) Commercial bills of lading endorsed to show that total 
transportation charges are assignable to, and will be reimbursed by, the 
Government (see the clause at 52.247-1, Commercial Bill of Lading 
Notations).
    (c) Government agencies may negotiate with carriers for additional 
or revised section 10721 rates in appropriate situations. Only qualified 
transportation officers shall carry out these negotiations. (See 47.105 
for transportation assistance.) The following are examples of situations 
in which negotiations for additional or revised section 10721 rates may 
be appropriate:
    (1) Volume movements are expected.
    (2) Shipments will be made on a recurring basis between designated 
places, and substantial savings in transportation costs appear possible 
even though a volume movement is not involved.
    (3) Transit arrangements are feasible and advantageous to the 
Government.



47.104-2  Fixed-price contracts.

    (a) F.o.b. destination. Section 10721 quotations do not apply to 
shipments under fixed-price f.o.b. destination contracts (delivered 
price).
    (b) F.o.b. origin. Under fixed-price f.o.b. origin contracts, 
shipments normally shall be made on GBL's. However, if it is 
advantageous to the Government, the contracting officer may occasionally 
require the contractor to prepay the freight charges to a specific 
destination. In such cases, the contractor shall use a commercial bill 
of lading and be reimbursed for the direct and actual transportation 
cost as a separate item in the invoice. The clause at 52.247-1, 
Commercial Bill of Lading Notations, will ensure that the Government in 
this type of arrangement obtains the benefit of section 10721 rates.



47.104-3  Cost-reimbursement contracts.

    (a) The Interstate Commerce Commission has ruled that section 10721 
rates may be applied to shipments other than those made by the 
Government if the total benefit accrues to the Government; i.e., the 
Government must pay the charges or directly and completely reimburse the 
party that initially bears the freight charges. Therefore, section 10721 
rates may be used for shipments moving on commercial bills of lading in 
cost-reimbursement contracts under which the transportation costs are 
direct and allowable costs under the cost principles of part 31.
    (b) Section 10721 rates may be applied to the movement of household 
goods and personal effects of contractor employees who are relocated for 
the convenience and at the direction of the Government and whose total 
transportation costs are reimbursed by the Government.
    (c) The clause at 52.247-1, Commercial Bill of Lading Notations, 
will ensure that the Government receives the benefit of lower section 
10721 rates in cost-reimbursement contracts as described in paragraphs 
(a) and (b) above.
    (d) Contracting officers shall--
    (1) Include in contracts a statement requiring the contractor to use 
carriers that offer acceptable service at reduced rates if available; 
and
    (2) Ensure that contractors receive the name and location of the 
transportation officer designated to furnish support and guidance when 
using Government rate tenders under 47.104-5(b).
    (e) Transportation officers shall--
    (1) Advise and assist contracting officers and contractors; and

[[Page 918]]

    (2) Make available to contractors the names of carriers that provide 
service under section 10721 quotations, cite applicable rate tenders, 
and advise contractors of the statement that must be shown on the 
carrier's commercial bill of lading (see the clause at 52.247-1, 
Commercial Bill of Lading Notations).



47.104-4  Contract clauses.

    (a) The contracting officer, in order to ensure the application of 
section 10721 rates, shall insert the clause at 52.247-1, Commercial 
Bill of Lading Notations, in solicitations and contracts when the 
contracts will be--
    (1) Cost-reimbursement contracts, including those that may involve 
the movement of household goods (see 47.104-3(b)); or
    (2) Fixed-price f.o.b. origin contracts (other than contracts at or 
below the simplified acquisition threshold) (see 47.104-2(b) and 47.104-
3).
    (b) The contracting officer may insert the clause at 52.247-1, 
Commercial Bill of Lading Notations, in solicitations and contracts made 
at or below the simplified acquisition threshold when it is contemplated 
that the delivery terms will be f.o.b. origin.
    (c) The contracting officer shall insert the clause at 52.247-67, 
Submission of Commercial Transportation Bills to the General Services 
Administration for Audit, in solicitations and contracts when a cost-
reimbursement contract is contemplated and the contract or a first-tier 
cost-reimbursement subcontract thereunder will authorize reimbursement 
of transportation as a direct charge to the contract or subcontract.
[48 FR 42424, Sept. 19, 1983, as amended at 54 FR 48990, Nov. 28, 1989; 
59 FR 67055, Dec. 28, 1994; 60 FR 34760, July 3, 1995; 61 FR 39190, July 
26, 1996]



47.104-5  Citation of Government rate tenders.

    When section 10721 rates apply, transportation officers or 
contractors, as appropriate, shall identify the applicable Government 
rate tender by endorsement on bills of lading, including--
    (a) GBL's or commercial bills of lading to be converted to GBL's 
(see 41 CFR 101-41.303, Conversion of commercial bills of lading to 
GBL's); and
    (b) Properly endorsed commercial bills of lading when transportation 
charges are reimbursable (see 47.104-2(b) and 47.104-3).



47.105  Transportation assistance.

    (a) Civilian Government activities that do not have transportation 
officers, or otherwise need assistance on transportation matters, shall 
obtain assistance from (1) the GSA Regional Federal Supply Service 
Bureau that provides support to the activity or (2) the transportation 
element of the contract administration office designated in the 
contract.
    (b) Military installations shall obtain transportation assistance 
from the transportation office of the contracting activity, unless 
another military activity has been designated as responsible for 
furnishing assistance, guidance, or data. Military transportation 
offices shall request needed additional aid from the appropriate area 
headquarters of the Military Traffic Management Command (MTMC).
[48 FR 42424, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989]



Subpart 47.2--Contracts for Transportation or for Transportation-Related 
                                Services



47.200  Scope of subpart.

    (a) This subpart prescribes procedures for the acquisition by sealed 
bid or negotiated contracts of--
    (1) Freight transportation (including local drayage) from rail, 
motor (including bus), domestic water (including inland, coastwise, and 
intercoastal) carriers, and from freight forwarders; and
    (2) Transportation-related services including but not limited to 
stevedoring, storage, packing, marking, and ocean freight forwarding.
    (b) Except as provided in paragraph (c) below, this subpart does not 
apply to--
    (1) The acquisition of freight transportation from (i) domestic or 
international air carriers and (ii) international ocean carriers (see 
subparts 47.4 and 47.5);
    (2) Freight transportation acquired by bills of lading;

[[Page 919]]

    (3) Freight transportation for which rates are negotiated under 49 
U.S.C. 10721(b)(1); or
    (4) Contracts at or below the simplified acquisition threshold.
    (c) With appropriate modifications, the procedures in this subpart 
may be applied to the acquisition of freight transportation from the 
carriers listed in paragraph (b)(1) above and passenger transportation 
from any carrier or mode.
    (d) The procedures in this subpart are applicable to the 
transportation of household goods and personal effects of persons being 
relocated at Government expense except when acquired--
    (1) Under the commuted rate schedules as required in the Federal 
Travel Regulation (41 CFR part 101-7);
    (2) By U.S. Government bill of lading (GBL); or
    (3) By DoD under the Personal Property Management Regulation (DoD 
4500.34R).
    (e) Additional guidance for DoD acquisition of freight and passenger 
transportation is in the Defense Traffic Management Regulation.
[48 FR 42424, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985; 59 FR 11383, Mar. 10, 1994; 60 FR 34760, 
July 3, 1995; 61 FR 39190, July 26, 1996]



47.201  Definitions.

    General freight, as used in this subpart, means supplies, goods, and 
transportable property not encompassed in the definitions of household 
goods or office furniture.
    Household goods, as used in this subpart, means personal property 
that belongs to a person and that person's immediate family and 
includes, but is not limited to household furnishings, equipment and 
appliances, furniture, clothing, books, and similar property (see 41 CFR 
101-7).
    Office furniture, as used in this subpart, means furniture, 
equipment, fixtures, records, and other equipment and materials used in 
Government offices, hospitals, and similar establishments.



47.202  Presolicitation planning.

    Contracting officers shall inform activities that plan to acquire 
transportation or transportation-related services of the applicable 
lead-time requirements, that is--
    (a) The Service Contract Act of 1965 (SCA) requirement for 
submission of Standard Form 98, Notice of Intention to Make a Service 
Contract and Response to Notice, to the Department of Labor not less 
than the number of days prescribed by the Department of Labor before the 
issuance of an invitation for bid, request for proposal, or commencement 
of negotiations for any contract exceeding $2,500 that may be subject to 
the SCA (see subpart 22.10);
    (b) The possible requirement to provide, during the solicitation 
period, time for prospective offerors or contractors to inspect origin 
and destination locations; or
    (c) The possible requirement for inspection by agency personnel of 
prospective contractor facilities and equipment.



47.203  Transportation term contracts.

    (a) Transportation term contracts are indefinite delivery 
requirements contracts for transportation or for transportation-related 
services. They are particularly useful for local drayage and office 
relocations within a metropolitan area.
    (b) Transportation term contracts shall contain descriptions of the 
services to be performed; rates and charges for these services; the 
geographical area of coverage; the term of the contract; and minimum or 
maximum order limitations by dollar amount, shipment size, or other 
criteria.
    (c) If appropriate, the transportation term contract shall require 
the contractor to provide the services covered to any Government agency 
that issues an order for these services under the contract. If so--
    (1) Agencies may place orders for transportation or for 
transportation-related services under existing term contracts without 
further consideration of competition, as these term contracts are 
awarded on a price-competitive basis; and
    (2) Agency personnel shall ensure that the orders they place conform 
to the contract, including any minimum or maximum order limitations.
    (d) Policies and procedures regarding the use of GSA term contracts 
for

[[Page 920]]

transportation or for transportation-related services by civilian 
executive agencies are prescribed in 41 CFR 101-40.109.



47.204  Single-movement contracts.

    Single-movement contracts may be awarded for unique transportation 
services that are not otherwise available under carrier tariffs or 
covered by DOD or GSA contracts; e.g., special requirements at origin 
and/or destination.



47.205  Availability of term contracts and basic ordering agreements for transportation or for transportation-related services.

    (a) All Government agencies may contract for transportation or for 
transportation-related services and execute basic ordering agreements 
(BOA's) (see subpart 16.7) unless agency regulations prescribe 
otherwise. However, it is generally more economical and efficient for 
most agencies to make use of term contracts and basic ordering 
agreements that have been executed by agencies that employ personnel 
experienced in contracting for transportation or for transportation-
related services. The Department of Defense (DOD) and the General 
Services Administration (GSA) contract for transportation or for 
transportation-related services on behalf of other activities and 
agencies. For instance, GSA awards term contracts for services such as 
local drayage, office moves, and ocean-freight forwarding (see 47.105 
for assistance).
    (b) Agencies may obtain transportation or transportation-related 
services for which the cost does not exceed the simplified acquisition 
threshold, if term contracts or basic ordering agreements are not 
available.
[48 FR 42424, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995; 
61 FR 39198, July 26, 1996]



47.206  Preparation of solicitations and contracts.

    (a) Contracting officers shall prepare solicitations and contracts 
for transportation or for transportation-related services as prescribed 
elsewhere in the FAR for fixed-price service contracts to the extent 
that those requirements are applicable and not inconsistent with the 
requirements in subpart 47.2.
    (b) In addition, the contracting officer shall include in 
solicitations and contracts for transportation or for transportation-
related services provisions, clauses, and instructions as prescribed in 
section 47.207.
[48 FR 42424, Sept. 19, 1983. Redesignated at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



47.207  Solicitation provisions, contract clauses, and special requirements.

    The contracting officer shall include provisions, clauses, and 
special requirements in solicitations and contracts for transportation 
or for transportation-related services as prescribed in 47.207-1 through 
47.207-9.



47.207-1  Qualifications of offerors.

    (a) Operating authorities. The contracting officer shall insert the 
clause at 52.247-2, Permits, Authorities, or Franchises, when regulated 
transportation is involved. The clause need not be used when a Federal 
office move is intrastate and the contracting officer determines that it 
is in the Government's interest not to apply the requirement for holding 
or obtaining State authority to operate within the State.
    (b) Performance capability for Federal office moving contracts. (1) 
The contracting officer shall insert the clause at 52.247-3, Capability 
to Perform a Contract for the Relocation of a Federal Office, when a 
Federal office is relocated, to ensure that offerors are capable to 
perform interstate or intrastate moving contracts involving the 
relocation of Federal offices.
    (2) If a Federal office move is intrastate and the contracting 
officer determines that it is in the Government's interest not to apply 
the requirements for holding or obtaining State authority to operate 
within the State, and to maintain a facility within the State or 
commercial zone, the contracting officer shall use the clause with its 
Alternate I.
    (c) Inspection of shipping and receiving facilities. The contracting 
officer shall insert the provision at 52.247-4, Inspection of Shipping 
and Receiving Facilities, when it is desired for offerors to

[[Page 921]]

inspect the shipping, receiving, or other sites to ensure realistic 
bids.
    (d) Familiarization with conditions. The contracting officer shall 
insert the clause at 52.247-5, Familiarization with Conditions, to 
ensure that offerors become familiar with conditions under which and 
where the services will be performed.
    (e) Financial statement. The contracting officer shall insert the 
provision at 52.247-6, Financial Statement, to ensure that offerors are 
prepared to furnish financial statements.



47.207-2  Duration of contract and time of performance.

    The contracting officer shall--
    (a) Establish a specific expiration date (month, day, and year) for 
the contract or state the length of time that the contract will remain 
in effect; e.g., 6 months commencing from the date of award; and
    (b) Include the following items as appropriate:
    (1) A statement of the time period during which the service is 
required when the service is a one-time job; e.g., a routine office 
relocation.
    (2) A time schedule for the performance of segments of a major job; 
e.g., an office relocation for which the work phases must be coordinated 
to meet other needs of the agency.
    (3) Statements of performance times for particular services; e.g., 
pickup and delivery services. Specify--
    (i) On which days of the week and during which hours of the day 
pickup and delivery services may be required;
    (ii) The maximum time allowable to the contractor for accomplishing 
delivery under regular or priority service; and
    (iii) How much advance notice the contractor will be given for 
regular pickup services and, if applicable, priority pickup services.



47.207-3  Description of shipment, origin, and destination.

    (a) Origin of shipments. The contracting officer shall include in 
solicitations full details regarding the location from which the freight 
is to be shipped. For example, if a single location is shown, furnish 
the shipper's name, street address, city, State, and ZIP code. If 
several or indefinite locations are involved, as in the case of multiple 
shippers or drayage contracts, describe the area of origin including 
boundaries and ZIP codes.
    (b) Destination of shipments. The contracting officer shall include 
full details regarding delivery points. For example, if a single 
delivery point is shown, furnish the consignee's name, street address, 
city, State, and ZIP code. If several or indefinite delivery points are 
involved, describe the delivery area, including boundaries and ZIP 
codes.
    (c) Description of the freight. The contracting officer shall 
include in solicitations--
    (1) An inventory if the freight consists of nonbulk items; and
    (2) The freight classification description, which should be obtained 
from the transportation office. If a freight classification description 
is not available, use a clear nontechnical description. Include 
additional details necessary to ensure that the prospective offerors 
have complete information about the freight; e.g., size, weight, 
hazardous material, whether packed for export, or unusual value.
    (d) Exclusion of freight. The contracting officer shall (1) clearly 
identify any freight or types of shipments that are subject to 
exclusion; e.g., bulk freight, hazardous commodities, or shipments under 
or over specified weights; and (2) insert a clause substantially the 
same as the clause at 52.247-7, Freight Excluded, when any commodities 
or types of shipments have been identified for exclusion.
    (e) Quantity. (1) The contracting officer shall state the actual 
weight of the freight or a reasonably accurate estimate. The following 
are examples:
    (i) If the contract covers transportation services required over an 
extended period of time, include a schedule of actual or estimated 
tonnage or number of items to be transported per week, month, or other 
time period.
    (ii) If the contract covers a group movement of household goods, 
give an estimate of the aggregate weights and the basis for determining 
the aggregate weight.
    (2) The contracting officer shall insert the clause at 52.247-8, 
Estimated

[[Page 922]]

Weights or Quantities Not Guaranteed, when weights or quantities are 
estimates.



47.207-4  Determination of weights.

    The contracting officer shall specify in the contract the method of 
determining the weights of shipments as appropriate for the kind of 
freight involved and the type of service required.
    (a) Shipments of freight other than household goods and office 
furniture.
    (1) The contracting officer shall insert the clause at 52.247-9, 
Agreed Weight--General Freight, when the shipping activity determines 
the weight of shipments of freight other than household goods or office 
furniture.
    (2) The contracting officer shall insert the clause at 52.247-10, 
Net Weight--General Freight, when the weight of shipments of freight 
other than household goods or office furniture is not known at the time 
of shipment and the contractor is responsible for determining the net 
weight of the shipments.
    (b) Shipments of household goods or office furniture. The 
contracting officer shall insert the clause at 52.247-11, Net Weight--
Household Goods or Office Furniture, when movements of Government 
employees' household goods or relocations of Government offices are 
involved.



47.207-5  Contractor responsibilities.

    Contractor responsibilities vary with the kinds of freight to be 
shipped and services required. The contracting officer shall specify 
clearly those service requirements that are not considered normal 
transportation or transportation-related requirements.
    (a) Type of equipment. If appropriate, the contracting officer shall 
specify the type and size of equipment to be furnished by the 
contractor. Otherwise, state that the contractor shall furnish clean and 
sound closed-type equipment of sufficient size to accommodate the 
shipment.
    (b) Supervision, labor, or materials. The contracting officer shall 
insert a clause substantially the same as the clause at 52.247-12, 
Supervision, Labor, or Materials, when the contractor is required to 
furnish supervision, labor, or materials.
    (c) Accessorial services--moving contracts. The contracting officer 
shall insert a clause substantially the same as the clause at 52.247-13, 
Accessorial Services--Moving Contracts, in contracts for the 
transportation of household goods or office furniture.
    (d) Receipt of shipment. The contracting officer shall insert the 
clause at 52.247-14, Contractor Responsibility for Receipt of Shipment.
    (e) Loading and unloading. The contracting officer shall insert the 
clause at 52.247-15, Contractor Responsibility for Loading and 
Unloading, when the contractor is responsible for loading and unloading 
shipments.
    (f) Return of undelivered freight. The contracting officer shall 
insert the clause at 52.247-16, Contractor Responsibility for Returning 
Undelivered Freight, when the contractor is responsible for returning 
undelivered freight.



47.207-6  Rates and charges.

    (a) (1) The contracting officer shall include in the solicitation a 
statement that the charges in the contract shall not exceed the 
contractor's charges for the same service that is--
    (i) Available to the general public; or
    (ii) Otherwise tendered to the Government.
    (2) The contracting officer shall insert the clause at 52.247-17, 
Charges.
    (b) The contracting officer shall include in the solicitation a 
tabulation listing each required service and the basis for the rate 
(price); e.g., unit of weight or per work-hour, leaving sufficient space 
for offerors to insert the rates offered for each service.
    (c) The following guidelines apply to the composition of a 
tabulation of transportation or of transportation-related services and 
their rate (price) bases:
    (1) Combination of pricing bases. If various types of services with 
different bases for assessing charges are required under the same 
contract, show each service separately and the applicable basis for that 
service.
    (2) Hourly rate basis. If charges are based on an hourly rate, state 
the method for charging for fractions of an hour; e.g., (i) a period of 
30 minutes or

[[Page 923]]

less is charged at one-half the hourly rate and (ii) the hourly rate 
applies to any portion of an hour that exceeds 30 minutes.
    (3) Shipments of varying weights. If charges are based on weight and 
shipments will vary in weight, request rates on a graduated weight 
basis. Include a table of graduated weights for offerors to insert 
rates.
    (4) Multiple origins and/or destinations. Specify whether rates are 
requested for each origin and/or each destination or for specific groups 
of origins and/or destinations.
    (5) Multiple shipments from one origin. If multiple shipments will 
be tendered at one time to the contractor for delivery to two or more 
consignees at the same destination, request the rate applicable to the 
aggregate weight. If such shipments are for delivery to various 
destinations along the route between origin and last destination, 
request the rate applicable to the aggregate weight and a stopoff charge 
for each intermediate destination.
    (i) The contracting officer shall insert the clause at 52.247-18, 
Multiple Shipments, when multiple shipments are tendered at one time to 
the contractor for transportation from one origin to two or more 
consignees at the same destination.
    (ii) The contracting officer shall insert the clause at 52.247-19, 
Stopping in Transit for Partial Unloading, when multiple shipments are 
tendered at one time to the contractor for transportation from one 
origin to two or more consignees along the route between origin and last 
destination.
    (6) Estimated quantities or weights. The contracting officer shall 
insert in solicitations the provision at 52.247-20, Estimated Quantities 
or Weights for Evaluation of Offers, when quantities or weights of 
shipments between each origin and destination are not known, stating 
estimated quantity or weight for each origin/destination pair.
    (7) Additional services. If services in addition to those covered in 
the basic rate are anticipated; e.g., inside delivery, state the 
conditions under which payment will be made for those services.



47.207-7  Liability and insurance.

    (a) The contracting officer shall specify--
    (1) The contractor's liability for injury to persons or damage to 
property other than the freight being transported;
    (2) The contractor's liability for loss of and/or damage to the 
freight being transported; and
    (3) The amount of insurance the contractor is required to maintain.
    (b) When the contractor's liability for loss of and/or damage to the 
freight being transported is not specified, the usual measure of 
liability as prescribed in section 11707 of the Interstate Commerce Act 
(49 U.S.C. 11707) applies.
    (c) The contracting officer shall insert the clause at 52.247-21, 
Contractor Liability for Personal Injury and/or Property Damage.
    (d) The contracting officer shall insert the clause at 52.247-22, 
Contractor Liability for Loss of and/or Damage to Freight other than 
Household Goods, in solicitations and contracts for the transportation 
of freight other than household goods.
    (e) The contracting officer shall insert the clause at 52.247-23, 
Contractor Liability for Loss of and/or Damage to Household Goods, in 
solicitations and contracts for the transportation of household goods, 
including the rate per pound appropriate to the situation.
    (f) When freight is not shipped under rates subject to released or 
declared value, see 28.313(a) and the clause at 52.228-9, Cargo 
Insurance.
    (g) When the contracting officer determines that vehicular liability 
and/or general public liability insurance required by law are not 
sufficient for a contract, see 28.313(b) and the clause at 52.228-10, 
Vehicular and General Public Liability Insurance.



47.207-8  Government responsibilities.

    (a) The contracting officer shall state clearly the Government's 
responsibilities that have a direct bearing on the contractor's 
performance under the contract; e.g., the Government's responsibility to 
notify the contractor in advance when hazardous materials are included 
in a shipment.
    (1) Advance notification. The contracting officer shall insert the 
clause at

[[Page 924]]

52.247-24, Advance Notification by the Government, when the Government 
is responsible for notifying the contractor of specific service times or 
unusual shipments.
    (2) Government equipment with or without operators (i) The 
contracting officer shall insert the clause at 52.247-25, Government-
Furnished Equipment with or without Operators, when the Government 
furnishes equipment with or without operators.
    (ii) Insert the kind of equipment and the locations where the 
equipment will be furnished.
    (3) Direction and marking. The contracting officer shall insert the 
clause at 52.247-26, Government Direction and Marking, when office 
relocations are involved.
    (b) The contracting officer shall insert the clause at 52.247-27, 
Contract Not Affected by Oral Agreement.



47.207-9  Annotation and distribution of shipping and billing documents.

    (a) The contracting officer shall state in detail the 
responsibilities of the contractor, the contracting agency, and, if 
appropriate, the consignee for the annotation and distribution of 
shipping and billing documents. See 41 CFR part 101-41, Transportation 
Documentation and Audit (TDA).
    (b) In instances of mass movements of freight made available to the 
contractor at one time, it is particularly important that the 
contracting officer specifies that bills of lading be cross-referenced 
so that the Government benefits from applicable volume rates.
    (c) The contracting officer shall insert the clause at 52.247-28, 
Contractor's Invoices, in drayage or other term contracts.



            Subpart 47.3--Transportation in Supply Contracts



47.300  Scope of subpart.

    (a) This subpart prescribes policies and procedures for the 
application of transportation and traffic management considerations in 
the acquisition of supplies. The terms and conditions contained in this 
subpart are applicable to fixed-price contracts.
    (b) If a special requirement exists for application of any of these 
terms and conditions to other types of contracts; e.g., cost-
reimbursement contracts, for which transportation arrangements are 
normally the responsibility of the contractor and transportation costs 
are allowable (see 31.205-45), the contracting officer shall use the 
terms and conditions prescribed in this subpart as a guide for (1) 
contract coverage of transportation and (2) instructions to the 
contractor to minimize the ultimate transportation costs to the 
Government.



47.301  General.

    (a) Transportation and traffic management factors are important in 
awarding and administering contracts to ensure that (1) acquisitions are 
made on the basis most advantageous to the Government and (2) supplies 
arrive in good order and condition and on time at the required place. 
(See 47.104 for possible reduced transportation rates for Government 
shipments).
    (b) The requiring activity shall--
    (1) Consider all transportation factors including present and future 
requirements, positioning of supplies, and subsequent distribution to 
the extent known or ascertainable; and
    (2) Provide the contracting office with information and instructions 
reflecting transportation factors applicable to the particular 
acquisition.



47.301-1  Responsibilities of contracting officers.

    (a) Contracting officers shall obtain from traffic management 
offices transportation factors required for (1) solicitations and awards 
and (2) contract administration, modification, and termination, 
including the movement of property by the Government to and from 
contractors' plants.
    (b) Contracting officers shall request transportation office 
participation especially before making an initial acquisition of 
supplies that are unusually large, heavy, high, wide, or long; have 
sensitive or dangerous characteristics; or lend themselves to 
containerized movements from the source. In determining total 
transportation charges, contracting officers shall also consider 
additional costs arising from factors such as the use of special 
equipment,

[[Page 925]]

excess blocking and bracing material, or circuitous routing.



47.301-2  Participation of transportation officers.

    Agencies' transportation officers shall participate in the 
solicitation and evaluation of offers to ensure that all necessary 
transportation factors, such as transportation costs, transit 
arrangements, time in transit, and port capabilities, are considered and 
result in solicitations and contracts advantageous to the Government. 
Transportation officers shall provide traffic management assistance 
throughout the acquisition cycle (see 47.105 Transportation assistance).
[48 FR 42424, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



47.301-3  Using the Defense Transportation System (DTS).

    (a) All military and civilian agencies shipping, or arranging for 
the acquisition and shipment by Government contractors, through the use 
of military-controlled transport or through military transshipment 
facilities shall follow Department of Defense (DOD) Regulation 4500.32-
R, Military Standard Transportation and Movement Procedures (MILSTAMP). 
MILSTAMP establishes uniform procedures and documents for the 
generation, documentation, communication, and use of transportation 
information, thus providing the capability for control of shipments 
moving in the DTS. MILSTAMP has been implemented on a world-wide basis.
    (b) Contracting activities are responsible for (1) ensuring that the 
requirements of the MILSTAMP regulation are included in appropriate 
contracts for all applicable shipments and (2) enforcing these 
requirements with regard to shipments under their control. This includes 
requirements relating to documentation, marking, advance notification of 
shipment dates, and terminal clearances.
    (c) Contractual documents shall designate a contract administration 
office (see 42.202(d)) as the contact point to which the contractor will 
provide necessary information to (1) effect MILSTAMP documentation and 
movement control, including air or water terminal shipment clearances, 
and (2) obtain data necessary for shipment marking and freight routing. 
Contractual documents shall specify that the contractor shall not ship 
directly to a military air or water port terminal without authorization 
from the designated contract administration office (see 47.305-6(f)).
[48 FR 42424, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
55 FR 38517, Sept. 18, 1990]



47.302  Place of delivery--f.o.b. point.

    (a) The policies and procedures in 47.304-1, -2, and -3 govern the 
transportation of supplies from sources in the Continental United States 
(CONUS), except when identifiable costs, nature of the supplies 
(security, safety, or value), delivery requirements (premium modes of 
transport, escorts, transit arrangements, and tentative conditions), or 
other advantages, limitations, or requirements dictate otherwise. The 
policies and procedures in 47.304-4 govern the transportation of 
supplies from sources outside CONUS.
    (b) Generally, the contracting officer shall solicit offers, and 
award contracts, with delivery terms on the basis prescribed in 47.304. 
The contracting officer shall document the contract file (see 4.801) 
with justifications for solicitations that do not specify delivery on 
the basis prescribed in 47.304.
    (c) (1) The place of performance of Government acquisition quality 
assurance actions and the place of acceptance shall not control the 
delivery term, except that if acceptance is at destination, 
transportation shall be f.o.b. destination (see 47.304-1(f)).
    (2) The fact that transportation is f.o.b. destination does not 
alone necessitate changing the place of acceptance from origin to 
destination; and the fact that acceptance is at origin does not 
necessitate an f.o.b. origin delivery term. Providing for inspection and 
acceptance at origin (if appropriate under 46.402), in conjunction with 
an f.o.b. destination term, may be advantageous to both the Government 
and the contractor. Acceptance of title at origin by the Government 
permits payment of the contractor, provided the invoice is supported 
either by a copy of the

[[Page 926]]

signed commercial bill of lading (indicating the carrier's receipt of 
the supplies covered by the invoice for transportation to the particular 
destination specified in the contract) or by other appropriate evidence 
of shipment to the particular destination for the contractor's account.



47.303  Standard delivery terms and contract clauses.

    Standard delivery terms are listed in 47.303-1 through 47.303-16 
(but see 47.300 regarding applicability to cost reimbursement 
contracts).
[53 FR 34228, Sept. 2, 1988]



47.303-1  F.o.b. origin.

    (a) Explanation of delivery term. F.o.b. origin means free of 
expense to the Government delivered--
    (1) On board the indicated type of conveyance of the carrier (or of 
the Government, if specified) at a designated point in the city, county, 
and State from which the shipment will be made and from which line-haul 
transportation service (as distinguished from switching, local drayage, 
or other terminal service) will begin;
    (2) To, and placed on, the carrier's wharf (at shipside, within 
reach of the ship's loading tackle, when the shipping point is within a 
port area having water transportation service) or the carrier's freight 
station;
    (3) To a U.S. Postal Service facility; or
    (4) If stated in the solicitation, to any Government-designated 
point located within the same city or commercial zone as the f.o.b. 
origin point specified in the contract (commercial zones are prescribed 
by the Interstate Commerce Commission at 49 CFR part 1048).
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment in 
conformance with carrier requirements to protect the goods and to ensure 
assessment of the lowest applicable transportation charge;
    (2) (i) Order specified carrier equipment when requested by the 
Government; or
    (ii) If not specified, order appropriate carrier equipment not in 
excess of capacity to accommodate shipment;
    (3) Deliver the shipment in good order and condition to the carrier, 
and load, stow, trim, block, and/or brace carload or truckload shipment 
(when loaded by the contractor) on or in the carrier's conveyance as 
required by carrier rules and regulations;
    (4) Be responsible for any loss of and/or damage to the goods--
    (i) Occurring before delivery to the carrier;
    (ii) Resulting from improper packing and marking; or
    (iii) Resulting from improper loading, stowing, trimming, blocking, 
and/or bracing of the shipment, if loaded by the contractor on or in the 
carrier's conveyance;
    (5) Complete the Government bill of lading supplied by the ordering 
agency or, when a Government bill of lading is not supplied, prepare a 
commercial bill of lading or other transportation receipt. The bill of 
lading shall show--
    (i) A description of the shipment in terms of the governing freight 
classification or tariff (or Government rate tender) under which lowest 
freight rates are applicable;
    (ii) The seals affixed to the conveyance with their serial numbers 
or other identification;
    (iii) Lengths and capacities of cars or trucks ordered and 
furnished;
    (iv) Other pertinent information required to effect prompt delivery 
to the consignee, including name, delivery address, postal address and 
ZIP code of consignee, routing, etc.;
    (v) Special instructions or annotations requested by the ordering 
agency for commercial bills of lading; e.g., (A) to be converted to a 
Government bill of lading, or (B) this shipment is the property of, and 
the freight charges paid to the carrier(s) will be reimbursed by, the 
Government; and
    (vi) The signature of the carrier's agent and the date the shipment 
is received by the carrier; and
    (6) Distribute the copies of the bill of lading, or other 
transportation receipts, as directed by the ordering agency.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and

[[Page 927]]

contracts the clause at 52.247-29, F.o.b. Origin, when the delivery term 
is f.o.b. origin.
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 17859, May 18, 1988]



47.303-2  F.o.b. origin, contractor's facility.

    (a) Explanation of delivery term. F.o.b. origin, contractor's 
facility means free of expense to the Government delivered on board the 
indicated type of conveyance of the carrier (or of the Government if 
specified) at the designated facility, on the named street or highway, 
in the city, county, and State from which the shipment will be made.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-1(b).
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-30, F.o.b. Origin, 
Contractor's Facility, when the delivery term is f.o.b. origin, 
contractor's facility.



47.303-3  F.o.b. origin, freight allowed.

    (a) Explanation of delivery term. F.o.b. origin, freight allowed 
means--
    (1) Free of expense to the Government delivered--
    (i) On board the indicated type or conveyance of the carrier (or of 
the Government, if specified) at a designated point in the city, county, 
and State from which the shipments will be made and from which line-haul 
transportation service (as distinguished from switching, local drayage, 
or other terminal service) will begin;
    (ii) To, and placed on, the carrier's wharf (at shipside, within 
reach of the ship's loading tackle, when the shipping point is within a 
port area having water transportation service) or the carrier's freight 
station;
    (iii) To a U.S. Postal Service facility; or
    (iv) If stated in the solicitation, to any Government-designated 
point located within the same city or commercial zone as the f.o.b. 
origin point specified in the contract (commercial zones are prescribed 
by the Interstate Commerce Commission at 49 CFR part 1048); and
    (2) An allowance for freight, based on applicable published tariff 
rates (or Government rate tenders) between the points specified in the 
contract, is deducted from the contract price.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-1(b).
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-31, F.o.b. Origin, 
Freight Allowed, when the delivery term is f.o.b. origin, freight 
allowed.
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 17859, May 18, 1988]



47.303-4  F.o.b. origin, freight prepaid.

    (a) Explanation of delivery term. F.o.b. origin, freight prepaid 
means--
    (1) Free of expense to the Government delivered--
    (i) On board the indicated type of conveyance of the carrier (or of 
the Government, if specified) at a designated point in the city, county, 
and State from which the shipments will be made and from which line-haul 
transportation service (as distinguished from switching, local drayage, 
or other terminal service) will begin;
    (ii) To, and placed on, the carrier's wharf (at shipside, within 
reach of the ship's loading tackle, when the shipping point is within a 
port area having water transportation service) or the carrier's freight 
station;
    (iii) To a U.S. Postal Service facility; or
    (iv) If stated in the solicitation, to any Government-designated 
point located within the same city or commercial zone as the f.o.b. 
origin point specified in the contract (commercial zones are prescribed 
by the Interstate Commerce Commission at 49 CFR part 1048); and
    (2) The cost of transportation, ultimately the Government's 
obligation, is prepaid by the contractor to the point specified in the 
contract.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-1(b), except that the contractor 
shall prepare commercial bills of lading or other transportation 
receipts and shall prepay all freight charges to the extent specified in 
the contract.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and

[[Page 928]]

contracts the clause at 52.247-32, F.o.b. Origin, Freight Prepaid, when 
the delivery term is f.o.b. origin, freight prepaid.
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 17859, May 18, 1988]



47.303-5  F.o.b. origin, with differentials.

    (a) Explanation of delivery term. F.o.b. origin, with differentials 
means--
    (1) Free of expense to the Government delivered--
    (i) On board the indicated type of conveyance of the carrier (or of 
the Government, if specified) at a designated point in the city, county, 
and State from which the shipments will be made and from which line-haul 
transportation service (as distinguished from switching, local drayage, 
or other terminal service) will begin;
    (ii) To, and placed on, the carrier's wharf (at shipside, within 
reach of the ship's loading tackle, when the shipping point is within a 
port area having water transportation service) or the carrier's freight 
station;
    (iii) To a U.S. Postal Service facility; or
    (iv) If stated in the solicitation, to any Government-designated 
point located within the same city or commercial zone as the f.o.b. 
origin point specified in the contract (commercial zones are prescribed 
by the Interstate Commerce Commission at 49 CFR part 1048); and
    (2) Differentials for mode of transportation, type of vehicle, or 
place of delivery as indicated in contractor's offer may be added to the 
contract price.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-1(b).
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-33, F.o.b. Origin, with 
Differentials, when it is likely that offerors may include in f.o.b. 
origin offers a contingency to compensate for unfavorable routing 
conditions by the Government at the time of shipment.
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 17859, May 18, 1988]



47.303-6  F.o.b. destination.

    (a) Explanation of delivery term. F.o.b. destination means--
    (1) Free of expense to the Government delivered, on board the 
carrier's conveyance, at a specified delivery point where the 
consignee's facility (plant, warehouse, store, lot, or other location to 
which shipment can be made) is located; and
    (2) Supplies shall be delivered to the destination consignee's wharf 
(if destination is a port city and supplies are for export), warehouse 
unloading platform, or receiving dock, at the expense of the contractor. 
The Government shall not be liable for any delivery, storage, demurrage, 
accessorial, or other charges involved before the actual delivery (or 
constructive placement as defined in carrier tariffs) of the supplies to 
the destination, unless such charges are caused by an act or order of 
the Government acting in its contractual capacity. If rail carrier is 
used, supplies shall be delivered to the specified unloading platform of 
the consignee. If motor carrier (including ``piggyback'') is used, 
supplies shall be delivered to truck tailgate at the unloading platform 
of the consignee, except when the supplies delivered meet the 
requirements of Item 568 of the National Motor Freight Classification 
for ``heavy or bulky freight.'' When supplies meeting the requirements 
of the referenced Item 568 are delivered, unloading (including movement 
to the tailgate) shall be performed by the consignee, with assistance 
from the truck driver, if requested. If the contractor uses rail carrier 
or freight forwarder for less than carload shipments, the contractor 
shall ensure that the carrier will furnish tailgate delivery when 
required, if transfer to truck is required to complete delivery to 
consignee.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment in 
conformance with carrier requirements;
    (2) Prepare and distribute commercial bills of lading;
    (3) Deliver the shipment in good order and condition to the point of 
delivery specified in the contract;

[[Page 929]]

    (4) Be responsible for any loss of and/or damage to the goods 
occurring before receipt of the shipment by the consignee at the 
delivery point specified in the contract;
    (5) Furnish a delivery schedule and designate the mode of delivering 
carrier; and
    (6) Pay and bear all charges to the specified point of delivery.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-34, F.o.b. Destination, 
when the delivery term is f.o.b. destination.
[48 FR 42424 Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990]



47.303-7  F.o.b. destination, within consignee's premises.

    (a) Explanation of delivery term. F.o.b. destination, within 
consignee's premises means free of expense to the Government delivered 
and laid down within the doors of the consignee's premises, including 
delivery to specific rooms within a building if so specified.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-6(b).
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-35, F.o.b. Destination, 
within Consignee's Premises, when the delivery term is f.o.b. 
destination, within consignee's premises.



47.303-8  F.a.s. vessel, port of shipment.

    (a) Explanation of delivery term. F.a.s. vessel, port of shipment 
means free of expense to the Government delivered alongside the ocean 
vessel and within reach of its loading tackle at the specified port of 
shipment.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements to protect 
the goods and to ensure assessment of the lowest applicable 
transportation charge;
    (2) (i) Deliver the shipment in good order and condition alongside 
the ocean vessel and within reach of its loading tackle, at the point of 
delivery and on the date or within the period specified in the contract; 
and
    (ii) Pay and bear all applicable charges, including transportation 
costs, wharfage, handling, and heavy lift charges, if necessary, up to 
this point;
    (3) Provide a clean dock or ship's receipt;
    (4) Be responsible for any loss of and/or damage to the goods 
occurring before delivery of the shipment to the point specified in the 
contract; and
    (5) At the Government's request and expense, assist in obtaining the 
documents required for (i) exportation or (ii) importation at 
destination.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-36, F.a.s. Vessel, Port 
of Shipment, when the delivery term is f.a.s. vessel, port of shipment.



47.303-9  F.o.b. vessel, port of shipment.

    (a) Explanation of delivery term. F.o.b. vessel, port shipment means 
free of expense to the Government loaded, stowed, and trimmed on board 
the ocean vessel at the specified port of shipment.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements to protect 
the goods and to ensure assessment of the lowest applicable 
transportation charge;
    (2) (i) Deliver the shipment on board the ocean vessel in good order 
and condition on the date or within the period fixed; and
    (ii) Pay and bear all charges incurred in placing the shipment 
actually on board;
    (3) Provide a clean ship's receipt or on-board ocean bill of lading;
    (4) Be responsible for any loss of and/or damage to the goods 
occurring before delivery of the shipment on board the ocean vessel; and
    (5) At the Government's request and expense, assist in obtaining the 
documents required for (i) exportation or (ii) importation at 
destination.

[[Page 930]]

    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-37, F.o.b. Vessel, Port 
of Shipment, when the delivery term is f.o.b. vessel, port of shipment.



47.303-10  F.o.b. inland carrier, point of exportation.

    (a) Explanation of delivery term. F.o.b. inland carrier, point of 
exportation means free of expense to the Government, on board the 
conveyance of the inland carrier, delivered to the specified point of 
exportation.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements to protect 
the goods and to ensure assessment of the lowest applicable 
transportation charge;
    (2) Prepare and distribute commercial bills of lading;
    (3) (i) Deliver the shipment in good order and condition in or on 
the conveyance of the carrier on the date or within the period 
specified; and
    (ii) Pay and bear all applicable charges, including transportation 
costs, to the point of delivery specified in the contract;
    (4) Be responsible for any loss of and/or damage to the goods 
occurring before delivery of the shipment to the point of delivery 
specified in the contract; and
    (5) At the Government's request and expense, assist in obtaining the 
documents required for (i) exportation or (ii) importation at 
destination.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-38, F.o.b. Inland 
Carrier, Point of Exportation, when the delivery term is f.o.b. inland 
carrier, point of exportation.



47.303-11  F.o.b. inland point, country of importation.

    (a) Explanation of delivery term. F.o.b. inland point, country of 
importation means free of expense to the Government, on board the 
indicated type of conveyance of the carrier, delivered to the specified 
inland point where the consignee's facility is located.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements to protect 
the goods;
    (2) (i) Deliver, in or on the inland carrier's conveyance, the 
shipment in good order and condition to the specified inland point where 
the consignee's facility is located;
    (ii) Pay and bear all applicable charges incurred up to the point of 
delivery, including transportation costs; export, import, or other fees 
or taxes; costs of landing; wharfage costs; customs duties and costs of 
certificates of origin; consular invoices; and other documents that may 
be required for importation; and
    (3) Be responsible for any loss of and/or damage to the goods until 
their arrival on or in the carrier's conveyance at the specified inland 
point.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-39, F.o.b. Inland 
Point, Country of Importation, when the delivery term is f.o.b. inland 
point, country of importation.



47.303-12  Ex dock, pier, or warehouse, port of importation.

    (a) Explanation of delivery term. Ex dock, pier, or warehouse, port 
of importation means free of expense to the Government delivered on the 
designated dock or pier or in the warehouse at the specified port of 
importation.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements to protect 
the goods;
    (2) (i) Deliver shipment in good order and condition; and
    (ii) Pay and bear all charges up to the point of delivery specified 
in the contract, including transportation costs; export, import, or 
other fees or taxes; costs of wharfage and landing, if

[[Page 931]]

any; customs duties; and costs of certificates of origin, consular 
invoices, or other documents that may be required for exportation or 
importation; and
    (3) Be responsible for any loss of and/or damage to the goods 
occurring before delivery of the shipment to the point of delivery 
specified in the contract.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-40, Ex Dock, Pier, or 
Warehouse, Port of Importation, when the delivery term is ex dock, pier, 
or warehouse, port of importation.



47.303-13  C.& f. destination.

    (a) Explanation of delivery term. C.& f. destination means free of 
expense to the Government delivered on board the ocean vessel to the 
specified point of destination, with the cost of transportation paid by 
the contractor.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for 
ocean transportation in conformance with carrier requirements;
    (2) (i) Deliver the shipment in good order and condition; and
    (ii) Pay and bear all applicable charges to the point of destination 
specified in the contract, including transportation costs and export 
taxes or other fees or charges levied because of exportation;
    (3) Obtain and dispatch promptly to the Government clean on-board 
ocean bills of lading to the specified point of destination;
    (4) Be responsible for any loss of and/or damage to the goods 
occurring before delivery; and
    (5) At the Government's request and expense, provide certificates of 
origin, consular invoices, or any other documents issued in the country 
of origin or of shipment, or both, that may be required for importation 
into the country of destination.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-41, C.&f. Destination, 
when the delivery term is c.& f. destination.



47.303-14  C.i.f. destination.

    (a) Explanation of delivery term. C.i.f. destination means free of 
expense to the Government delivered on board the ocean vessel to the 
specified point of destination, with the cost of transportation and 
marine insurance paid by the contractor.
    (b) Contractor responsibilities. The contractor's responsibilities 
are the same as those listed in 47.303-13(b), except that, in addition, 
the contractor shall obtain and dispatch to the Government an insurance 
policy or certificate providing the amount and extent of marine 
insurance coverage specified in the contract or agreed upon by the 
Government contracting officer.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-42, C.i.f. Destination, 
when the delivery term is c.i.f. destination.



47.303-15  F.o.b. designated air carrier's terminal, point of exportation.

    (a) Explanation of delivery term. F.o.b. designated air carrier's 
terminal, point of exportation means free of expense to the Government 
loaded aboard the aircraft, or delivered to the custody of the air 
carrier (if only the air carrier performs the loading), at the air 
carrier's terminal specified in the contract.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for air 
transportation in conformance with carrier requirements to protect the 
goods and to ensure assessment of the lowest applicable transportation 
charge;
    (2) (i) Deliver the shipment in good order and condition into the 
conveyance of the carrier, or to the custody of the carrier (if only the 
carrier performs the loading), at the point of delivery and on the date 
or within the period specified in the contract; and
    (ii) Pay and bear all applicable charges up to this point;
    (3) Provide a clean Government bill of lading and/or air waybill;
    (4) Be responsible for any loss of and/or damage to the goods 
occurring before delivery of the goods to the point specified in the 
contract; and

[[Page 932]]

    (5) At the Government's request and expense, assist in obtaining the 
documents required for the purpose of exportation.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-43, F.o.b. Designated 
Air Carrier's Terminal, Point of Exportation, when the delivery term is 
f.o.b. designated air carrier's terminal, point of exportation.



47.303-16  F.o.b. designated air carrier's terminal, point of importation.

    (a) Explanation of delivery term. F.o.b. designated air carrier's 
terminal, point of importation means free of expense to the Government 
delivered to the air carrier's terminal at the point of importation 
specified in the contract.
    (b) Contractor responsibilities. The contractor shall--
    (1) (i) Pack and mark the shipment to comply with contract 
specifications; or
    (ii) In the absence of specifications, prepare the shipment for air 
transportation in conformance with carrier requirements to protect the 
goods;
    (2) Prepare and distribute bills of lading or air waybills;
    (3) (i) Deliver the shipment in good order and condition to the 
point of delivery specified in the contract; and
    (ii) Pay and bear all charges incurred up to the point of delivery 
specified in the contract, including transportation costs; export, 
import, or other fees or taxes; cost of landing, if any; customs duties; 
and costs of certificates of origin, consular invoices, or other 
documents that may be required for exportation or importation; and
    (4) Be responsible for any loss of and/or damage to the goods until 
delivery of the goods to the Government at the designated air carrier's 
terminal.
    (c) Contract clause. The contracting officer shall insert in 
solicitations and contracts the clause at 52.247-44, F.o.b. Designated 
Air Carrier's Terminal, Point of Importation, when the delivery term is 
f.o.b. designated air carrier's terminal, point of importation.



47.303-17  Contractor-prepaid commercial bills of lading, small package shipments.

    (a) If it is advantageous to the Government, the contracting officer 
may authorize the contractor to ship supplies, which have been acquired 
f.o.b. origin, to domestic destinations, including DOD air and water 
terminals, by common carriers on commercial bills of lading. Such 
shipments shall not exceed 150 pounds by commercial air or 1,000 pounds 
by other commercial carriers and shall not have a security 
classification.
    (b) The contracting officer may authorize the shipments under 
paragraph (a) of this subsection to be consolidated with the 
contractor's own prepaid shipments for delivery to one or more 
destinations, if all appropriate f.o.b. origin shipments under one or 
more Government contracts have been consolidated initially. The 
contractor may be authorized to consolidate less-than-carload or less-
than-truckload Government shipments with its own shipments so that the 
Government can take advantage of lower carload or truckload freight 
costs. The Government shall assume its pro rata share of the combined 
shipment cost. Agency transportation personnel shall evaluate overall 
transportation costs before authorizing any movement to ensure savings 
to the Government consistent with other contract and traffic management 
considerations. When consolidation is authorized, a copy of the 
commercial bill of lading shall be mailed promptly to each consignee.
    (c) Shipments under prepaid commercial bills of lading, as 
authorized in paragraph (a) of this subsection, do not require a 
contract modification. Unless otherwise provided in the contract, the 
supplies move for the account of, and at the risk of, the Government. 
The supplies become Government property when loaded on the carrier's 
equipment and the contractor has obtained the carrier's receipt. The 
contractor pays the transportation charges and is reimbursed by the 
Government. Loss or damage claims shall be processed in accordance with 
agency regulations.
    (d) The contractor's invoice for reimbursement by the Government 
shall show the prepaid transportation charges as agreed (see paragraph 
(b) of this subsection), as a separate item for each individual 
shipment. The contractor shall support the transportation charges with a 
copy of the carrier's

[[Page 933]]

receipted freight bill or other evidence of receipt, except as follows:
    (1) A Government agency may determine that receipted freight bills 
or other evidence of receipt are not required for transportation charges 
of $25 or less.
    (2) A Government agency may pay an invoiced but unsupported 
transportation charge of $100 or less per transaction (i.e., purchase, 
invoice, or aggregate billing or payment for multiple purchases), if--
    (i) The contractor cannot reasonably provide a receipted freight 
bill; and
    (ii) The agency has determined that the charges are reasonable. 
Determination of reasonableness may be based on--
    (A) Past experience (authenticated transportation charges for 
similar shipments);
    (B) Rate checks;
    (C) Copies of previous freight bills submitted by the contractor; or
    (D) Other information submitted by the contractor to substantiate 
the amount claimed.
    (3) Receipted freight bills in support of invoiced transportation 
charges of $100 or less are not required for reimbursement by the 
Government, if--
    (i) The underlying contract specifies retention by the contractor of 
all records for at least 3 years after final payment under the contract; 
and
    (ii) The contractor agrees to furnish evidence of payment when 
requested by the Government.
    (e) Shipments and invoices shall not be split to reduce 
transportation charges to $100 or less per transaction as a means of 
avoiding the required documented support for the charges. See 47.303-
17(d)(1) for unsupported transportation charges of $25 or less.
    (f) The contracting officer shall insert the clause at 52.247-65, 
F.o.b. Origin, Prepaid Freight-Small Package Shipments, in solicitations 
and contracts when f.o.b. origin shipments are to be made.
[55 FR 52796, Dec. 21, 1990, as amended at 62 FR 237, Jan. 2, 1997]



47.304  Determination of delivery terms.



47.304-1  General.

    (a) The contracting officer shall determine f.o.b. terms generally 
on the basis of overall costs, giving due consideration to the criteria 
given in 47.304.
    (b) Solicitations shall specify whether offerors must submit offers 
f.o.b. origin, f.o.b. destination, or both; or whether offerors may 
choose the basis on which they make an offer. The contracting officer 
shall consider the most advantageous delivery point, such as (1) f.o.b. 
origin, carrier's equipment, wharf, or specified freight station near 
contractor's plant; or (2) f.o.b. destination.
    (c) In determining whether f.o.b. origin or f.o.b. destination is 
more advantageous to the Government, the contracting officer shall 
consider the availability of lower freight rates (Government rate 
tenders) to the Government for f.o.b. origin acquisitions. F.o.b. origin 
contracts also present other desirable traffic management features, in 
that they--
    (1) Permit use of transit privileges (see 47.305-13);
    (2) Permit diversions to new destinations without price adjustment 
for transportation (see 47.305-11);
    (3) Facilitate use of special routings or types of equipment (e.g., 
circuitous routing or oversize shipments) (see 47.305-14);
    (4) Facilitate, if necessary, use of premium cost transportation and 
permit Government-controlled transportation;
    (5) Permit negotiations for reduced freight rates (see 47.104-1(b)); 
and
    (6) Permit use of small shipment consolidation stations.
    (d) When destinations are tentative or unknown, the solicitation 
shall be f.o.b. origin only (see 47.305-5).
    (e) When the size or quantity of supplies with confidential or 
higher security classification requires commercial transportation 
services, the contracting officer shall generally specify f.o.b. origin 
acquisitions.

[[Page 934]]

    (f) When acceptance must be at destination, solicitation shall be on 
an f.o.b. destination only basis.
    (g) Following are examples of situations when solicitations shall 
normally be on an f.o.b. destination only basis because it is 
advantageous to the Government (see 47.305-4):
    (1) Bulk supplies, such as coal, that require other than Government-
owned or operated handling, storage, and loading facilities, are 
destined for shipment outside the continental United States.
    (2) Steel or other bulk construction products are destined for 
shipment outside the continental United States.
    (3) Supplies consist of forest products such as lumber.
    (4) Perishable or medical supplies are subject to in-transit 
deterioration.
    (5) Evaluation of f.o.b. origin offers is anticipated to result in 
increased administrative lead time or administrative cost that would 
outweigh the potential advantages of an f.o.b. origin determination.



47.304-2  Shipments within CONUS.

    (a) Solicitations shall provide that offers may be submitted on the 
basis of either or both f.o.b origin and f.o.b. destination and that 
they will be evaluated on the basis of the lowest overall cost to the 
Government.
    (b) When sufficient reasons exist not to follow this policy, the 
contract file shall be documented to include the reasons.



47.304-3  Shipments from CONUS for overseas delivery.

    (a) When Government acquisitions involve shipments from CONUS to 
overseas destinations, delivery f.o.b. origin may afford not only the 
economies of lower freight rates available to the Government within the 
United States, but also flexibility for selection of (1) the port of 
export and (2) the ocean transportation providing the lowest overall 
cost to the Government.
    (b)(1) Unless there are valid reasons to the contrary (see 47.304-
5), acquisition of supplies originating within CONUS for ultimate 
delivery to destinations outside CONUS shall be made on the basis of 
f.o.b. origin. This policy applies to supplies and equipment to be 
shipped either directly to a port area for export or to a storage or 
holding area for subsequent forwarding to a port area for export.
    (2) Justification for the solicitation of offers on other than an 
f.o.b. origin basis shall be recorded and the contract file documented 
accordingly.
    (c) Export cargo involves considerations of operational and cost 
factors from the point of origin within CONUS to the overseas port 
destination. The lowest cost of shipping can be determined only by 
evaluating and comparing the various prospective landed costs (including 
inland, terminal, and ocean costs). Also, agencies may have export 
licensing privileges for shipments to foreign destinations. The 
contracting officer shall obtain advice from the transportation officer 
to ensure full use of these privileges.



47.304-4  Shipments originating outside CONUS.

    (a) Unless there are valid reasons to the contrary (see 47.304-5), 
acquisition of supplies originating outside CONUS for ultimate delivery 
to destinations within CONUS or elsewhere, regardless of the quantity of 
the shipments, shall be on the basis of f.o.b. origin or f.o.b. 
destination, whichever is more advantageous to the Government.
    (b) The contracting officer shall request the advice of the 
transportation officer to determine the most appropriate place of 
delivery to be specified in acquisition documents, giving full 
consideration to the possible use of Government transportation 
facilities, reduced rates available, special licensing or custom 
requirements, and availability of U.S.-flag shipping services between 
the points involved (see subpart 47.5).



47.304-5  Exceptions.

    (a) Unusual conditions or circumstances may require the use of terms 
other than f.o.b. origin or f.o.b. destination. Such conditions or 
circumstances include, but are not limited to--
    (1) Transportation disabilities at origin or destination;
    (2) Mode of transportation required;

[[Page 935]]

    (3) Availability of Government or commercial loading, unloading, or 
transshipment facilities;
    (4) Characteristics of the supplies;
    (5) Trade customs related to certain supplies;
    (6) Origins or destinations in Alaska and Hawaii; and
    (7) Program requirements.
    (b) Contracting officers shall obtain assistance from transportation 
officers before issuing solicitations when unusual conditions or 
circumstances exist that relate to f.o.b. terms.



47.305  Solicitation provisions, contract clauses, and transportation factors.

    (a) The contracting officer shall coordinate transportation factors 
with the transportation office during the planning, solicitation, and 
award phases of the acquisition process (see 47.105).
    (b) To the extent feasible, activities shall schedule deliveries to 
effect savings in transportation costs, and concomitant reductions in 
energy consumption by carriers (see 47.305-7 and 47.305-8 for specific 
possibilities).



47.305-1  Solicitation requirements.

    When the acquisition of supplies is on f.o.b. origin or f.o.b. 
destination delivery terms, the contracting officer shall include in 
solicitations a requirement that the offeror furnish the Government as 
much of the following data as is applicable to the particular 
acquisition:
    (a) Modes of transportation and, if rail transportation is used, 
names of rail carriers serving the offeror's facility.
    (b) The number of railroad cars, motor trucks, or other conveyances 
that can be loaded per day.
    (c) Type of packaging; e.g., box, carton, crate, drum, bundle, 
skids, and when applicable, package number from the governing freight 
classification.
    (d) Number of units packed in one container.
    (e) Guaranteed maximum shipping weight; cubic measurement; and 
length, width, and height of each container.
    (f) Minimum size of each shipment.
    (g) Number of containers or units that can be loaded in a car, 
truck, or other conveyance of the size normally used (specify type and 
size) for the commodity.
    (h) Description of material in terms of the governing freight 
classification or tariff (or Government rate tender) under which lowest 
freight rates are applicable.
    (i) Benefits available to the Government under transit arrangements 
made by the offeror.
    (j) Other requirements as stated under specific section headings.



47.305-2  Solicitations f.o.b. origin and f.o.b. destination--lowest overall cost.

    (a) Solicitations, when appropriate, shall specify that offers may 
be f.o.b. origin, f.o.b. destination, or both; and that they will be 
evaluated on the basis of the lowest overall cost to the Government.
    (b) When offers are solicited on the basis of both f.o.b. origin and 
f.o.b. destination, the contracting officer shall insert in 
solicitations the provision at 52.247-45, F.o.b. Origin and/or F.o.b. 
Destination Evaluation.



47.305-3  F.o.b. origin solicitations.

    When preparing f.o.b. origin solicitations, the contracting officer 
shall refer to 47.303, where f.o.b. origin clauses relating to standard 
delivery terms are prescribed, and to 42.1404-2, where the use of bills 
of lading, parcel post, and indicia mail is prescribed. Supply 
solicitations that will or may result in f.o.b. origin contracts shall 
also contain requirements, information, provisions, and clauses 
concerning the following items:
    (a) Delivery in carload or truckload lots f.o.b. carrier's 
equipment, wharf, or freight station.
    (b) The requirement that the offeror furnish the following 
information with the offer:
    (1) Location of the offeror's actual shipping point(s) (street 
address, city, State, and ZIP code) from which supplies will be 
delivered to the Government.
    (2) Whether the offeror's shipping point has a private railroad 
siding, and the name of the rail carrier serving it.
    (3) When the offeror's shipping point does not have a private 
siding, the

[[Page 936]]

names and addresses of the nearest public rail siding and of the carrier 
serving it. (This will enable transportation officers, when issuing 
routing instructions, to select the mode of transportation that will 
provide the required service at the lowest possible overall cost.)
    (4)(i) The quantity of supplies to be shipped from each shipping 
point.
    (ii) The contracting officer shall insert in f.o.b. origin 
solicitations the provision at 52.247-46, Shipping Point(s) Used in 
Evaluation of F.o.b. Origin Offers, when price evaluation for shipments 
from various shipping points is contemplated.
    (c) When delivery is f.o.b. origin, contractor's facility, and the 
designated facility is not covered by the line-haul transportation rate, 
the charges required to deliver the shipment to the point where the 
line-haul rate is applicable.
    (d) When delivery is f.o.b. origin, freight allowed, the basis on 
which transportation charges will be allowed, including the origin and 
destination from and to which transportation charges will be allowed.
    (e) If f.o.b. origin offers only are desired, a statement that 
offers submitted on any other basis will be rejected as nonresponsive.
    (f)(1) The methods of transportation used in evaluating offers. The 
Government normally uses land transportation by regulated common 
carriers between points in the 48 contiguous United States and the 
District of Columbia.
    (2) The contracting officer shall insert the provision at 52.247-47, 
Evaluation--F.o.b. Origin, in solicitations that require prices f.o.b. 
origin for the purpose of establishing the basis on which offers will be 
evaluated.
    (g)(1) When it is believed that prospective contractors are likely 
to include in f.o.b. origin offers a contingency to compensate for what 
may be an unfavorable routing condition by the Government at the time of 
shipment, the contracting officer may permit prospective contractors to 
state in offers a reimbursable differential that represents the cost of 
bringing the supplies to any f.o.b. origin place of delivery specified 
by the Government at the time of shipment (see the clause at 52.247-33, 
F.o.b. Origin, with Differentials).
    (2) Following are situations that might impose on the contractor a 
substantial cost above at plant or commercial shipping point prices 
because of Government-required routings:
    (i) The loading nature of the supplies; e.g., wheeled vehicles.
    (ii) The different methods of shipment specified by the Government; 
e.g., towaway, driveaway, tri-level vehicle, or rail car, that may 
increase the contractor's cost in varying amounts for bringing the 
supplies to, or loading and bracing the supplies at, the specified place 
of delivery.
    (iii) The contractor's f.o.b. origin shipping point is a port city 
served by United States inland, coastwise, or intercoastal water 
transportation, and the contractor would incur additional costs to make 
delivery f.o.b. a wharf in that city to accommodate water routing 
specified by the Government.
    (iv) The contractor's plant does not have a private rail siding and 
in order to ship by Government-specified rail routing, the contractor 
would be required to deliver the supplies to a public siding or freight 
terminal and to load, brace, and install dunnage in rail cars.
[48 FR 42424, Sept. 19, 1986, as amended at 51 FR 31426, Sept. 3, 1986]



47.305-4  F.o.b. destination solicitations.

    (a) When preparing f.o.b destination solicitations, the contracting 
officer shall refer to 47.303 for the prescription of f.o.b. destination 
clauses relating to standard delivery terms.
    (b) If f.o.b. destination only offers are desired, the solicitation 
shall state that offers submitted on a basis other than f.o.b. 
destination will be rejected as nonresponsive.
    (c) When supplies will or may be purchased f.o.b. destination but 
inspection and acceptance will be at origin, the contracting officer 
shall insert in solicitations and contracts the clause at 52.247-48, 
F.o.b. Destination--Evidence of Shipment.

[[Page 937]]



47.305-5  Destination unknown.

    (a)(1) When destinations are unknown, solicitations shall be f.o.b. 
origin only.
    (2) The contracting officer shall include in the contract file 
justifications for such solicitations.
    (b)(1) When the exact destination of the supplies to be acquired is 
not known, but the general location of the users can be reasonably 
established, the acquiring activity shall designate tentative 
destinations for the purpose of computing transportation costs, showing 
estimated quantities for each tentative destination.
    (2) The contracting officer shall insert in solicitations the 
provision at 52.247-49, Destination Unknown, when destinations are 
tentative and only for the purpose of evaluating offers.
    (3) If it is necessary to control subsequent shipping weights, the 
solicitation shall state that subsequent shipments shall be made in 
carloads or truckloads (see the clause at 52.247-59, F.o.b. Origin--
Carload and Truckload Shipments).
    (c)(1) When exact destinations are not known and it is impracticable 
to establish tentative or general delivery places for the purpose of 
evaluating transportation costs, the contracting officer shall insert in 
solicitations the provision at 52.247-50, No Evaluation of 
Transportation Costs.
    (2) The solicitation shall also state that the transportation costs 
of subsequent shipments must be controlled (see, for example, the clause 
at 52.247-61, F.o.b. Origin--Minimum Size of Shipments).



47.305-6  Shipments to ports and air terminals.

    (a) When supplies are acquired on the basis of the delivery terms in 
47.303-8 through 47.303-16, the solicitation shall include a requirement 
that the offeror furnish the Government the following information:
    (1) When the delivery term is f.a.s. vessel, port of shipment, 
f.o.b. vessel, port of shipment, or f.o.b. inland carrier, point of 
exportation, the required data shall include--
    (i) A delivery schedule in number of units and/or long or short 
tons;
    (ii) Maximum quantities available per shipment;
    (iii) The quantity that can be made available for loading to vessel 
per running day of 24 hours (if acquisition involves a commodity to be 
shipped in bulk);
    (iv) The minimum leadtime required to make supplies available for 
loading to vessel; and
    (v) The port and pier or other designation and, when applicable, the 
maximum draft of vessel (in feet) that can be accommodated.
    (2) When the delivery term is f.o.b. inland point, country of 
importation or f.o.b. designated air carrier's terminal, point of 
importation, the required data shall include--
    (i) A delivery schedule in number of units and/or long or short 
tons;
    (ii) Maximum quantities available per shipment; and
    (iii) Other data appropriate to shipment by air carrier.
    (3) When the delivery term is ex dock, pier, or warehouse, port of 
importation or c.& f. destination, the required data shall include--
    (i) A delivery schedule in number of units and/or long or short 
tons;
    (ii) Maximum quantities available per shipment; and
    (iii) The number of containers or units that can be loaded in a car, 
truck, or other conveyance of the size normally used (specify type and 
size) for the commodity.
    (4) When the delivery term is c.i.f. destination, the required data 
shall include--
    (i) The same as specified in 47.305-6(a)(3); and
    (ii) The amount and type of marine insurance coverage; e.g., whether 
the coverage is With Average or Free of Particular Average and whether 
it covers any special risks or excludes any of the usual risks 
associated with the specific commodity involved.
    (5) When the delivery term is f.o.b. designated air carrier's 
terminal, point of exportation, the required data shall include--
    (i) A delivery schedule in number of units, type of package, and 
individual weight and dimensions of each package;

[[Page 938]]

    (ii) Minimum leadtime required to make supplies available for 
loading into aircraft;
    (iii) Name of airport and location to which shipment will be 
delivered; and
    (iv) Other data appropriate to shipment by air carrier.
    (b) When supplies are acquired for known destinations outside CONUS 
and originate within CONUS, the contracting officer shall, for 
transportation evaluation purposes, note in the solicitation the CONUS 
port of loading or point of exit (aerial or water) and the water port of 
debarkation that serves the overseas destination.
    (c) The contracting officer may also, for evaluation purposes, list 
in the solicitation other CONUS ports that meet the eligibility criteria 
compatible with the nature and quantity of the supplies, their 
destination, type of carrier required, and specified overseas delivery 
dates. This permits offerors that are geographically remote from the 
port that normally serves the overseas destination to be competitive as 
far as transportation costs are concerned.
    (d) Unless logistics requirements limit the ports of loading to the 
ports listed in the solicitation, the solicitation shall state that--
    (1) Offerors may nominate additional ports (including ports in 
Alaska and Hawaii) more favorably located to their shipping points; and
    (2) These ports will be considered in the evaluation of offers if 
they possess all requisite capabilities of the listed ports in relation 
to the supplies being acquired.
    (e) When supplies are to be exported through CONUS ports and offers 
are solicited on an f.o.b. origin or f.o.b. destination basis, the 
contracting officer shall insert in solicitations the provision at 
52.247-51, Evaluation of Export Offers. The contracting officer shall 
use the provision with its--
    (1) Alternate I, when the CONUS ports of export are DOD water 
terminals;
    (2) Alternate II, when offers are solicited on an f.o.b. origin only 
basis; or
    (3) Alternate III, when offers are solicited on an f.o.b. 
destination only basis.
    (f)(1) When the supplies are to move in the Defense Transportation 
System (DTS) (see 47.301-3), the contract shall specify that--
    (i) A Transportation Control Movement Document (TCMD) must be 
dispatched to the appropriate DOD air or water clearance authority in 
accordance with MILSTAMP procedures for all shipments consigned to DOD 
air or water terminal transshipment points; and
    (ii) An Export Release must be obtained for supplies to be 
transshipped via a water port of loading to overseas destinations, 
except for shipments for which an Export Release is not required, 
generally shipments of less than 10,000 pounds, (see paragraph 202024 of 
the Defense Traffic Management Regulation (AR 55-355, NAVSUP 4600.70, 
MCO 4600.14A, AFM 75-2, DLAR 4500.3).
    (2) When shipments will be consigned to DOD air or water terminal 
transshipment points, the contracting officer shall insert in 
solicitations and contracts the clause at 52.247-52, Clearance and 
Documentation Requirements--Shipments to DOD Air or Water Terminal 
Transshipment Points.
    (g) When a contract will not generate any shipments that require an 
Export Release, only the DOD CONUS ports that serve the overseas 
destination shall be listed in the solicitation (see MILSTAMP at 47.301-
3), except that the responsible contracting officer may limit the water 
ports listed when such limitation is considered necessary to meet 
delivery or other requirements.
    (h) The award shall specify the United States ports of loading that 
afford the lowest overall cost to the overseas destination.
    (i) When supplies will be from origins outside CONUS to destinations 
either within or outside CONUS, the contracting officer shall use the 
appropriate f.o.b. term and include evaluation-of-offers information.
    (j) In furtherance of the Cargo Preference Act of 1954 (46 U.S.C. 
1241(b)), to encourage and foster the American Merchant Marine, the port 
of delivery of supplies originating outside the United States and 
shipped by ocean

[[Page 939]]

vessel shall be based on the availability of United States-flag vessels 
between the ports involved, unless the acquiring activity has given 
other specific instructions. (See subpart 47.5--Ocean Transportation by 
U.S.-Flag Vessels.)
    (k) For application of the Fly America Act to the transportation of 
supplies and personnel when the Government is responsible for the 
transportation costs, see subpart 47.4--Air Transportation by U.S.-Flag 
Carriers.
    (l) Military and civilian agencies shall obtain assistance from 
transportation offices in connection with all export shipments (see 
47.105).
[48 FR 42424, Sept. 19, 1983, as amended at 59 FR 11383, Mar. 10, 1994]



47.305-7  Quantity analysis, direct delivery, and reduction of crosshauling and backhauling.

    (a) Quantity analysis. (1) The requiring activity shall consider the 
acquisition of carload or truckload quantities.
    (2) When additional quantities of the supplies being acquired can be 
transported at lower unit transportation costs or with a relatively 
small increase in total transportation costs, with no impairment to the 
program schedule, the contracting officer shall ascertain from the 
requiring activity whether there is a known requirement for additional 
quantities. This may be the case, for example, when the additional 
quantity could profitably be stored by the activity for future use, or 
could be distributed advantageously to several using activities on the 
same transportation route or in the same geographical area.
    (b) Direct delivery. When it is the usual practice of a requiring 
activity to acquire supplies in large quantities for shipment to a 
central point and subsequent distribution to using activities, as 
needed, consideration shall be given, if sufficient quantities are 
involved to warrant scheduling direct delivery, to the feasibility of 
providing for direct delivery from the contractor to the using activity, 
thereby reducing the cost of transportation and handling.
    (c) Crosshauling and backhauling. The contracting officer shall 
select distribution and transshipment facilities intermediate to origins 
and ultimate destinations to reduce crosshauling and backhauling; i.e., 
the transportation of personal property of the same kind in opposite 
directions or the return of the property to or through areas previously 
traversed in shipment.



47.305-8  Consolidation of small shipments and the use of stopoff privileges.

    (a) Consolidation of small shipments. Consolidation of small 
shipments into larger lots frequently results in lower transportation 
costs. Therefore, the contracting officer, after consultation with the 
transportation office and the activity requiring the supplies, may 
revise the delivery schedules to provide for deliveries in larger 
quantities.
    (b) Stopping for partial unloading. When feasible, schedules for 
delivery of supplies to multiple destinations shall be consolidated and 
the stopoff privileges permitted under carrier tariffs shall be used for 
partial unloading at one or more points directly en route between the 
point of origin and the last destination.



47.305-9  Commodity description and freight classification.

    (a) Generally, the freight rate for supplies is based on the rating 
applicable to the freight classification description published in 
tariffs filed with Federal and State regulatory bodies. Therefore, the 
contracting officer shall show in the solicitation a complete 
description of the commodity to be acquired and of packing requirements 
to determine proper transportation charges for the evaluation of offers. 
If supplies cannot be properly classified through reference to freight 
classification tariffs or if doubt exists, the contracting officer shall 
obtain the applicable freight classification from the transportation 
office. In some situations prospective contractors have established an 
official freight classification description that can be applied.
    (b)(1) When the supplies being acquired are new to the supply 
system, nonstandard, or modifications of previously shipped items, and 
different freight classifications may apply, the

[[Page 940]]

contracting officer shall insert in solicitations the provision at 
52.247-53, Freight Classification Description.
    (2) The contracting officer shall alert the transportation officer 
to the possibility of negotiations for appropriate freight 
classification ratings and reasonable transportation rates.
    (c) The solicitation shall contain adequate descriptions of 
explosives and other dangerous supplies according to (1) the regular 
freight classification and (2) the hazardous material description and 
hazard class as shown in 49 CFR 172.101.
    (d) The contracting officer shall furnish the freight classification 
information developed in 47.305-9(a), (b), and (c) above to the contract 
administration office.



47.305-10  Packing, marking, and consignment instructions.

    (a) Acquisition documents shall include packing and marking 
requirements necessary to prevent deterioration of supplies and damages 
due to the hazards of shipping, handling, and storage, and, when 
appropriate, marking in accordance with the requirements of 49 CFR 
172.300.
    (b) Contracts shall include complete consignment and marking 
instructions at the time the contract is awarded to ensure that supplies 
are delivered to proper destinations without delay. If complete 
consignment information is not initially known, the contracting officer 
shall issue amended delivery instructions under the Changes clause of 
the contract (see 43.205) as soon as the information becomes known.
    (c) If necessary to meet required delivery schedules, the 
contracting officer may issue instructions by telephone, teletype, or 
telegram. The contracting officer shall confirm these instructions in 
writing.
    (d) Marking and consignment instructions for military shipments 
shall conform to the current issue of MIL-STD-129 (Military Standard 
Marking for Shipment and Storage) and other applicable DOD regulations. 
Shipments for civilian agencies shall be marked as specified in Federal 
Standard 123, Marking for Domestic Shipment (Civil Agencies).



47.305-11  Options in shipment and delivery.

    Although the clauses prescribed in subpart 43.2 allow certain 
changes to be made in regard to shipment and delivery, it may be 
desirable to provide specifically for certain options in the 
solicitation. The Government may reserve the right to--
    (a) Direct deliveries of all or part of the contract quantity to 
destinations or to consignees other than those specified in the 
solicitation and in the contract;
    (b) Direct shipments in quantities that may require transportation 
rates different from those on which the contract price is based; and
    (c) Direct shipments by a mode of transportation other than that 
stipulated in the solicitation and in the contract.
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]



47.305-12  Delivery of Government-furnished property.

    (a)(1) When Government property is furnished to a contractor and 
transportation costs to the Government are a factor in the evaluation of 
offers, the contracting officer shall include in the solicitation a 
clear description of the property, its location, and other information 
necessary for the preparation of cost estimates.
    (2) The contracting officer shall insert in solicitations and 
contracts the clause at 52.247-55, F.o.b. Point for Delivery of 
Government-Furnished Property, when Government property is to be 
furnished under a contract and the Government will be responsible for 
transportation arrangements and costs.
    (b) The contracting officer shall describe explosive and dangerous 
material according to (1) the regular freight classification and (2) the 
hazardous material description and hazard class as shown in 49 CFR 
172.101.



47.305-13  Transit arrangements.

    (a) Transit privileges. (1) Transit arrangements permit the stopping 
of a carload or truckload shipment at a specific intermediate point en 
route to the

[[Page 941]]

final destination for storage, processing, or other purposes, as 
specified in carrier tariffs or rate tenders. A single through rate is 
charged from origin to final destination plus a transit or other related 
charge, rather than a more expensive combination of rates to and from 
the transit point.
    (2) The contracting officer shall consider possible benefits 
available to the Government through the use of existing transit 
arrangements or through efforts to obtain additional transit privileges 
from the carriers. Solicitations incorporating transit arrangements 
shall be restricted to f.o.b. origin offers, as f.o.b. destination 
offers can only quote fixed overall delivered prices at first 
destination.
    (3)(i) Traffic management personnel shall furnish information and 
analyses of situations in which transit arrangements may be beneficial. 
The quantity to be awarded must be of sufficient tonnage to ensure that 
carload/truckload shipments can be made by the contractor, and there 
should be reasonable certainty that shipments out of the transit point 
will be requested in carload/truckload quantities.
    (ii) The contracting officer shall insert in solicitations the 
provision at 52.247-56, Transit Arrangements, when benefits may accrue 
to the Government because transit arrangements may apply.
    (b) Transit credits. (1) In evaluations of f.o.b. origin offers for 
large quantities of supplies that contractors normally have in process 
or storage at intermediate points, contracting officers shall make use 
of contractors' earned commercial transit credits, which are recorded 
with the carriers. A transit credit represents the transportation costs 
for a recorded tonnage from the initial point to an intermediate point. 
The remaining transportation charges from the intermediate point to the 
Government destination, because they are based on through rates, are 
frequently lower than the transportation charges that would apply for 
the same tonnage if the intermediate point were the initial origin 
point.
    (2) If transit credits apply, the contract shall state that the 
contractor shall ship the goods on prepaid commercial bills of lading, 
subject to reimbursement by the Government. The contracting officer 
shall ensure that this does not preclude a proper change in delivery 
terms under the Changes clause. The shipments move for the account and 
at the risk of the Government, as they become Government property at 
origin.
    (3) The contractor shall show the transportation and transit charges 
as separate amounts on the invoice for each individual shipment. The 
amount to be reimbursed by the Government shall not exceed the amount 
quoted in the offer. Regulations and procedures regarding contractor 
prepaid transportation charges are prescribed in 42.1403-2.
    (4) The contracting officer shall insert in solicitations and 
contracts the clause at 52.247-57, Transportation Transit Privilege 
Credits, when supplies are of such a nature, or when it is the custom of 
the trade, that offerors may have potential transit credits available 
and the Government may reduce transportation costs through the use of 
transit credits.



47.305-14  Mode of transportation.

    Generally, solicitations shall not specify a particular mode of 
transportation or a particular carrier. If the use of particular types 
of carriers is necessary to meet program requirements, the solicitation 
shall provide that only offers involving the specified types of carriers 
will be considered. The contracting officer shall obtain all 
specifications for mode, route, delivery, etc., from the transportation 
office.



47.305-15  Loading responsibilities of contractors.

    (a)(1) Contractors are responsible for loading, blocking, and 
bracing carload shipments as specified in standards published by the 
Association of American Railroads.
    (2) The contracting officer shall insert in solicitations and 
contracts the clause at 52.247-58, Loading, Blocking, and Bracing of 
Freight Car Shipments, when supplies may be shipped in carload lots by 
rail.
    (b) If the nature of the supplies or safety, environmental, or 
transportability factors require special methods

[[Page 942]]

for securing the supplies on the carrier's equipment, or if only a 
special mode of transportation or type vehicle is appropriate, the 
contracting officer shall include in solicitations detailed 
specifications that have been coordinated with the transportation 
office.



47.305-16  Shipping characteristics.

    (a) Required shipping weights. The contracting officer shall insert 
in solicitations and contracts the clause at 52.247-59, F.o.b. Origin--
Carload and Truckload Shipments, when it is contemplated that they may 
result in f.o.b. origin contracts with shipments in carloads or 
truckloads. This will facilitate realistic freight cost evaluations of 
offers and ensure that contractors produce economical shipments of 
agreed size.
    (b) Guaranteed shipping characteristics. (1) The contracting officer 
shall insert in soliciations and contracts, excluding those at or below 
the simplified acquisition threshold, the clause at 52.247-60, 
Guaranteed Shipping Characteristics, when shipping and other 
characteristics are required to evaluate offers as to transportation 
costs. When all of the shipping characteristics listed in paragraph (a) 
of the clause at 52.247-60 are not required to evaluate offers as to 
transportation costs, the contracting officer shall delete the 
characteristics not required from the clause.
    (2) The award document shall show the shipping characteristics used 
in the evaluation.
    (c) Minimum size of shipments. When volume rates may apply, the 
contracting officer shall insert in solicitations and contracts the 
clause at 52.247-61, F.o.b. Origin--Minimum Size of Shipments.
    (d) Specific quantities unknown. (1) When total requirements and 
destinations to which shipments will be made are known, but the specific 
quantity to be shipped to each destination cannot be predetermined, 
solicitations shall state that offers are to be submitted on the basis 
of delivery f.o.b. origin and/or f.o.b. destination and that offers will 
be evaluated on both bases.
    (2) The contracting officer shall insert in solicitations and 
contracts the clause at 52.247-62, Specific Quantities Unknown, when 
total requirements and destinations to which shipments will be made are 
known, but the specific quantity to be shipped to each destination 
cannot be predetermined. This clause protects the interests of both the 
Government and the contractor during the course of the performance of 
the contract.
[48 FR 42424, Sept. 19, 1983, as amended at 54 FR 48990, Nov. 28, 1989; 
60 FR 34760, July 3, 1995; 61 FR 39190, July 26, 1996]



47.305-17  Returnable cylinders.

    The contracting officer shall insert the clause at 52.247-66, 
Returnable Cylinders, in a solicitation and contract whenever the 
contract involves the purchase of gas in contractor-furnished returnable 
cylinders and the contractor retains title to the cylinders.
[59 FR 11386, Mar. 10, 1994]



47.306  Transportation factors in the evaluation of offers.

    When evaluating offers, contracting officers shall consider 
transportation and transportation-related costs as well as the offerors' 
shipping and receiving facilities.



47.306-1  Transportation cost determinations.

    When requesting the transportation officer to assist in evaluating 
offers, the contracting officer shall give the transportation officer 
all pertinent data, including the following information:
    (a) A complete description of the commodity being acquired including 
packaging instructions.
    (b) Planned date of award.
    (c) Date of initial shipment.
    (d) Total quantity to be shipped (including weight and cubic 
content, when appropriate).
    (e) Delivery schedule.
    (f) Contract period.
    (g) Possible use of transit privileges, including stopoffs for 
partial loading or unloading, or both.



47.306-2  Lowest overall transportation costs.

    (a) For the evaluation of offers, the transportation officer shall 
give to the

[[Page 943]]

contracting officer, and the contracting officer shall use, the lowest 
available freight rates and related accessorial and incidental charges 
that (1) are in effect on, or become effective before, the expected date 
of the initial shipment and (2) are on file or published on the date of 
the bid opening.
    (b) If rates or related charges become available after the bid 
opening or the due date of offers, they shall not be used in the 
evaluation unless they cover transportation for which no applicable 
rates or accessorial or incidental costs were in existence at the time 
of bid opening or due date of the offers.



47.306-3  Adequacy of loading and unloading facilities.

    (a) When determining the transportation capabilities of an offeror, 
the contracting officer shall consider the type and adequacy of the 
offeror's shipping facilities, including the ability to consolidate and 
ship in carload or truckload lots.
    (b) The contracting officer shall consider the type and adequacy of 
the consignee's receiving facilities to avoid shipping schedules that 
cannot be properly accommodated.



         Subpart 47.4--Air Transportation by U.S.-Flag Carriers



47.401  Definitions.

    Air freight forwarder means an indirect air carrier that is 
responsible for the transportation of property from the point of receipt 
to the point of destination, and utilizes for the whole or any part of 
such transportation the services of a direct air carrier or its agent, 
or of another air freight forwarder.
    Gateway airport abroad means the airport from which the traveler 
last embarks en route to the United States or at which the traveler 
first debarks incident to travel from the United States.
    Gateway airport in the United States means the last U.S. airport 
from which the traveler's flight departs or the first U.S. airport at 
which the traveler's flight arrives.
    International air transportation means transportation by air between 
a place in the United States and a place outside the United States or 
between two places both of which are outside the United States.
    United States, as used in this subpart, means the 50 States, the 
District of Columbia, the Commonwealth of Puerto Rico, and possessions 
of the United States.
    U.S.-flag air carrier means an air carrier holding a certificate 
under section 401 of the Federal Aviation Act of 1958 (49 U.S.C. 1371).



47.402  Policy.

    Section 5 of the International Air Transportation Fair Competitive 
Practices Act of 1974 (49 U.S.C. 1517) (Fly America Act) requires that 
Federal employees and their dependents, consultants, contractors, 
grantees, and others use U.S.-flag air carriers for U.S. Government-
financed international air travel and transportation of their personal 
effects or property, to the extent service by these carriers is 
available.



47.403  Guidelines for implementation of the Fly America Act.

    This section 47.403 is based on the Guidelines for Implementation of 
the Fly America Act (case number B-138942), issued by the Comptroller 
General of the United States on March 31, 1981.



47.403-1  Availability and unavailability of U.S.-flag air carrier service.

    (a) If a U.S.-flag air carrier cannot provide the international air 
transportation needed or if the use of U.S.-flag air carrier service 
would not accomplish an agency's mission, foreign-flag air carrier 
service may be deemed necessary.
    (b) U.S.-flag air carrier service is considered available even 
though--
    (1) Comparable or a different kind of service can be provided at 
less cost by a foreign-flag air carrier;
    (2) Foreign-flag air carrier service is preferred by, or is more 
convenient for, the agency or traveler; or
    (3) Service by a foreign-flag air carrier can be paid for in excess 
foreign currency (unless U.S.-flag air carriers decline to accept excess 
or near excess

[[Page 944]]

foreign currencies for transportation payable only out of such monies).
    (c) Except as provided in paragraph 47.403-1(a), U.S.-flag air 
carrier service shall be used for U.S. Government-financed commercial 
foreign air travel if service provided by U.S.-flag air carriers is 
available. In determining availability of a U.S.-flag air carrier, the 
following scheduling principles shall be followed unless their 
application would result in the last or first leg of travel to or from 
the United States being performed by a foreign-flag air carrier:
    (1) U.S.-flag air carrier service available at point of origin shall 
be used to destination or, in the absence of direct or through service, 
to the farthest interchange point on a usually traveled route.
    (2) When an origin or interchange point is not served by a U.S.-flag 
air carrier, foreign-flag air carrier service shall be used only to the 
nearest interchange point on a usually traveled route to connect with 
U.S.-flag air carrier service.
    (3) When a U.S.-flag air carrier involuntarily reroutes the traveler 
via a foreign-flag air carrier, the foreign-flag air carrier may be used 
notwithstanding the availability of alternative U.S.-flag air carrier 
service.
    (d) For travel between a gateway airport in the United States and a 
gateway airport abroad, passenger service by U.S.-flag air carrier shall 
not be considered available if--
    (1) The gateway airport abroad is the traveler's origin or 
destination airport and the use of U.S.-flag air carrier service would 
extend the time in a travel status, including delay at origin and 
accelerated arrival at destination, by at least 24 hours more than 
travel by a foreign-flag air carrier; or
    (2) The gateway airport abroad is an interchange point and the use 
of U.S.-flag air carrier service would require the traveler to wait 6 
hours or more to make connections at that point, or if delayed departure 
from, or accelerated arrival at, the gateway airport in the United 
States would extend time in a travel status by at least 6 hours more 
than travel by a foreign-flag air carrier.
    (e) For travel between two points outside the United States, the 
rules in paragraphs 47.403-1(a), (b), and (c) shall be applicable, but 
passenger service by a U.S.-flag air carrier shall not be considered to 
be reasonably available if--
    (1) Travel by a foreign-flag air carrier would eliminate two or more 
aircraft changes en route;
    (2) One of the two points abroad is the gateway airport en route to 
or from the United States and the use of a U.S.-flag air carrier would 
extend the time in a travel status by at least 6 hours more than travel 
by a foreign-flag air carrier, including accelerated arrival at the 
overseas destination or delayed departure from the overseas origin, as 
well as delay at the gateway airport or other interchange point abroad; 
or
    (3) The travel is not part of the trip to or from the United States 
and the use of a U.S.-flag air carrier would extend the time in a travel 
status by at least 6 hours more than travel by a foreign-flag air 
carrier including delay at origin, delay en route, and accelerated 
arrival at destination.
    (f) For all short-distance travel under either paragraph (d) or 
paragraph (e) of 47.403-1, U.S. air carrier service shall not be 
considered available when the elapsed traveltime on a scheduled flight 
from origin to destination airport by foreign-flag air carrier is 3 
hours or less and service by a U.S.-flag air carrier would involve twice 
such traveltime.



47.403-2  Air transport agreements between the United States and foreign governments.

    Nothing in the guidelines of the Comptroller General (see 47.403) 
shall preclude, and no penalty shall attend, the use of a foreign-flag 
air carrier that provides transportation under an air transport 
agreement between the United States and a foreign government, the terms 
of which are consistent with the international aviation policy goals at 
49 U.S.C. 1502(b) and provide reciprocal rights and benefits.



47.403-3  Disallowance of expenditures.

    (a) Agencies shall disallow expenditures for U.S. Government-
financed

[[Page 945]]

commercial international air transportation on foreign-flag air carriers 
unless there is attached to the appropriate voucher a memorandum 
adequately explaining why service by U.S.-flag air carriers was not 
available, or why it was necessary to use foreign-flag air carriers.
    (b) When the travel is by indirect route or the traveler otherwise 
fails to use available U.S.-flag air carrier service, the amount to be 
disallowed against the traveler is based on the loss of revenues 
suffered by U.S.-flag air carriers as determined under the following 
formula, which is prescribed and more fully explained in 56 Comp. Gen. 
209 (1977):

[GRAPHIC] [TIFF OMITTED] TC03AP91.004

[GRAPHIC] [TIFF OMITTED] TC03AP91.005

    (c) The justification requirement is satisfied by the contractor's 
use of a statement similar to the one contained in the clause at 52.247-
63, Preference for U.S.-Flag Air Carriers. (See 47.405.)
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]



47.404  Air freight forwarders.

    (a) Agencies may use air freight forwarders that are engaged in 
international air transportation (49 U.S.C. 1301(24)(c)) for U.S. 
Government-financed movements of property. The rule on disallowance of 
expenditures in 47.403-3(a) applies also to the air carriers used by 
these international air freight forwarders.
    (b) Agency personnel shall inform international air freight 
forwarders that to facilitate prompt payments of their bills, they shall 
submit with their bills (1) a copy of the airway bill or manifest 
showing the air carriers used and (2) justification for the use of 
foreign-flag air carriers similar to the one shown in the clause at 
52.247-63, Preference for U.S.-Flag Air Carriers.
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]



47.405  Contract clause.

    The contracting officer shall insert the clause at 52.247-63, 
``Preference for U.S.-Flag Air Carriers, in solicitations and contracts 
whenever it is possible that U.S. Government-financed international air 
transportation of personnel (and their personal effects) or property 
will occur in the performance of the contract.'' This clause does not 
apply to contracts awarded using the simplified acquisition procedures 
in part 13 or contracts for commercial items (see part 12).
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 27468, July 20, 1988; 
60 FR 48250, Sept. 18, 1995]



         Subpart 47.5--Ocean Transportation by U.S.-Flag Vessels



47.500  Scope of subpart.

    This subpart prescribes policy and procedures for giving preference 
to U.S.-flag vessels when transportation of supplies by ocean vessel is 
required. This subpart does not apply to the Department of Defense 
(DoD). Policy and procedures applicable to DoD appear in DFARS subpart 
247.5.
[48 FR 42424, Sept. 19, 1983, as amended at 55 FR 3886, Feb. 5, 1990]



47.501  Definitions.

    Dry bulk carrier means a vessel used primarily for the carriage of 
shipload lots of homogeneous unmarked nonliquid cargoes such as grain, 
coal, cement, and lumber.
    Dry cargo liner means a vessel used for the carriage of 
heterogeneous marked cargoes in parcel lots. However, any cargo may be 
carried in these vessels, including part cargoes of dry bulk items or, 
when carried in deep tanks, bulk liquids such as petroleum and vegetable 
oils.

[[Page 946]]

    Foreign-flag vessel means any vessel of foreign registry including 
vessels owned by U.S. citizens but registered in a nation other than the 
United States.
    Government vessel, as used in this subpart, means a vessel owned by 
the U.S. Government and operated directly by the Government or for the 
Government by an agent or contractor, including a privately owned U.S.-
flag vessel under bareboat charter to the Government.
    Privately owned U.S.-flag commercial vessel, as used in this 
subpart, means a vessel (a) registered and operated under the laws of 
the United States, (b) used in commercial trade of the United States, 
(c) owned and operated by U.S. citizens, including a vessel under voyage 
or time charter to the Government, and (d) a Government-owned vessel 
under bareboat charter to, and operated by, U.S. citizens.
    Tanker means a vessel used primarily for the carriage of bulk liquid 
cargoes such as liquid petroleum products, vegetable oils, and molasses.
    U.S.-flag vessel, as used in this subpart, when used independently 
means either a Government vessel or a privately owned U.S.-flag 
commercial vessel.



47.502  Policy.

    (a) The policy of the United States regarding the use of U.S.-flag 
vessels is stated in the following acts:
    (1) The Cargo Preference Act of 1904 (10 U.S.C. 2631), which 
requires the Department of Defense to use only U.S.-flag vessels for 
ocean transportation of supplies for the Army, Navy, Air Force, or 
Marine Corps unless those vessels are not available at fair and 
reasonable rates.
    (2) The Merchant Marine Act of 1936 (46 U.S.C. 1101), which declares 
it is the policy of the United States to foster the development and 
encourage the maintenance of its merchant marine.
    (3) The Cargo Preference Act of 1954 (46 U.S.C. 1241(b), which is 
Section 901(b) of the Merchant Marine Act). Under this Act, Government 
agencies acquiring, either within or outside the United States, supplies 
that may require ocean transportation shall ensure that at least 50 
percent of the gross tonnage of these supplies (computed separately for 
dry bulk carriers, dry cargo liners, and tankers) is transported on 
privately owned U.S.-flag commercial vessels to the extent that such 
vessels are available at rates that are fair and reasonable for U.S.-
flag commercial vessels. This applies when the supplies are--
    (i) Acquired for the account of the United States;
    (ii) Furnished to, or for the account of, a foreign nation without 
provision for reimbursement;
    (iii) Furnished for the account of a foreign nation in connection 
with which the United States advances funds or credits, or guarantees 
the convertibility of foreign currencies; or
    (iv) Acquired with advance of funds, loans, or guaranties made by or 
on behalf of the United States.
    (b) Additional policies providing preference for the use of U.S.-
flag vessels are contained in--
    (1) 10 U.S.C. 2634 for the transporation of privately-owned vehicles 
belonging to service members when making permanent change of station 
moves;
    (2) 46 U.S.C. 1241(a) for official business travel by officers and 
employees of the United States and for the transportation of their 
personal effects; and
    (3) 46 U.S.C. 1241(e) for the transportation of motor vehicles owned 
by Government personnel when transportation is at Government expense or 
otherwise authorized by law.
    (c) The provisions of the Cargo Preference Act of 1954 may be 
temporarily waived when the Congress, the President, or the Secretary of 
Defense declares that an emergency justifying a temporary waiver exists 
and so notifies the appropriate agency or agencies.



47.503  Applicability.

    (a) Except as stated in paragraph (b) below and in 47.504, the Cargo 
Preference Acts of 1904 and 1954 described in 47.502(a) apply to the 
following cargoes:
    (1) Supplies owned by the Government and in the possession of--
    (i) The Government;
    (ii) A contractor; or
    (iii) A subcontractor at any tier.

[[Page 947]]

    (2) Supplies for use of the Government that are contracted for and 
require subsequent delivery to a Government activity but are not owned 
by the Government at the time of shipment.
    (3) Supplies not owned by the Government at the time of shipment 
that are to be transported for distribution to foreign assistance 
programs, but only if these supplies are not acquired or contracted for 
with local currency funds (see 47.504(b)).
    (b) Government-owned supplies to be shipped commercially that are 
(1) in the possession of a department, a contractor, or a subcontractor 
at any tier and (2) for use of military departments shall be transported 
exclusively in privately owned U.S.-flag commercial vessels if such 
vessels are available at rates that are fair and reasonable for U.S.-
flag commercial vessels.
    (c) The 50-percent requirement shall not prevent the use of 
privately owned U.S.-flag commercial vessels for transportation of up to 
100 percent of the cargo subject to the Cargo Preference Act of 1954.



47.504  Exceptions.

    The policy and procedures in this subpart do not apply to the 
following:
    (a) Shipments aboard vessels of the Panama Canal Commission or as 
required or authorized by law or treaty.
    (b) Ocean transportation between foreign countries of supplies 
purchased with foreign currencies made available, or derived from funds 
that are made available, under the Foreign Assistance Act of 1961 (22 
U.S.C. 2353).
    (c) Shipments of classified supplies when the classification 
prohibits the use of non-Government vessels.
    (d) Contracts awarded using the simplified acquisition procedures in 
part 13.
    (e) Beginning May 1, 1996, subcontracts for the acquisition of 
commercial items or commercial components (see 12.504(a)(13)). This 
exception does not apply to grants-in-aid shipments, such as 
agricultural and food-aid shipments, to shipments covered under Export-
Import Bank loans or guarantees, and to subcontracts under Government 
contracts or agreements for ocean transportation services.
[48 FR 42424, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995; 
60 FR 48250, Sept. 18, 1995]



47.505  Construction contracts.

    (a) Except as stated in paragraph (b) below, construction 
contractors, including subcontractors and suppliers, engaged in overseas 
work shall comply with the policies and regulations in this subpart.
    (b) These requirements shall not apply to military assistance, 
foreign aid, or similar projects under the auspices of the U.S. 
Government when the recipient nation furnishes, or pays for, at least 50 
percent of the transportation, in which event foreign-flag vessels may 
be used for a portion not to exceed 50 percent of the gross tonnage for 
the project.



47.506  Procedures.

    (a) The contracting officer shall obtain assistance from the 
transportation activity (see 47.105) in developing appropriate shipping 
instructions and delivery terms for inclusion in solicitations and 
contracts that may involve ocean transportation of supplies subject to 
the requirements of the Cargo Preference Act of 1954 (see 47.502(a)(3)).
    (b) When the contractor notifies the contracting officer that a 
privately owned U.S.-flag commercial vessel is not available, the 
contracting officer shall seek assistance from the transportation 
activity.
    (c) For purposes of determining the availability of privately owned 
U.S.-flag commercial vessels at fair and reasonable rates, rates filed 
and published in accordance with the requirements of the Federal 
Maritime Commission may be accepted as fair and reasonable. When 
applicable rates for charter cargoes are not in published tariffs, a 
determination as to whether the rates are fair and reasonable shall be 
obtained from the Maritime Administration.
    (d) The Maritime Administration has issued regulations (46 CFR 381) 
that require agencies to submit reports regarding ocean shipments. 
Contracting officers shall follow agency regulations

[[Page 948]]

when preparing, or furnishing information for, these reports.



47.507  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.247-64, 
Preference for Privately Owned U.S.-Flag Commercial Vessels, in 
solicitations and contracts that may involve ocean transportation of 
supplies subject to the Cargo Preference Act of 1954. (For application 
of the Cargo Preference Act of 1954, see 47.502(a)(3), 47.503(a), and 
47.504.)
    (b) If an applicable statute requires, or if it has been determined 
under agency procedures, that the supplies to be furnished under 
contracts shall be transported exclusively in privately owned U.S.-flag 
commercial vessels (see 47.502(a)(1) and 47.503(b)), use the basic 
clause with its Alternate I.
    (c) If an applicable statute requires, or it has been determined 
under agency procedures, that supplies, materials, or equipment to be 
shipped under construction contracts shall be transported exclusively in 
privately owned U.S.-flag commercial vessels (see 47.505), use the basic 
clause with its Alternate II.
    (d) The contracting officer may insert in solicitations and 
contracts, under agency procedures, additional appropriate clauses 
concerning the vessels to be used.



PART 48--VALUE ENGINEERING--Table of Contents




Sec.
48.000  Scope of part.
48.001  Definitions.

                  Subpart 48.1--Policies and Procedures

48.101  General.
48.102  Policies.
48.103  Processing value engineering change proposals.
48.104  Sharing arrangements.
48.104-1  Sharing acquisition savings.
48.104-2  Sharing collateral savings.
48.104-3  Sharing alternative--no-cost settlement method.
48.105  Relationship to other incentives.

                     Subpart 48.2--Contract Clauses

48.201  Clauses for supply or service contracts.
48.202  Clause for construction contracts.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42443, Sept. 19, 1983, unless otherwise noted.



48.000  Scope of part.

    This part prescribes policies and procedures for using and 
administering value engineering techniques in contracts.



48.001  Definitions.

    Acquisition savings, as used in this part, means savings resulting 
from the application of a value engineering change proposal (VECP) to 
contracts awarded by the same contracting office of its successor for 
essentially the same unit. Acquisition savings include--
    (a) Instant contract savings, which are the net cost reductions on 
the contract under which the VECP is submitted and accepted, and which 
are equal to the instant unit cost reduction multiplied by the number of 
instant contract units affected by the VECP, less the contractor's 
allowable development and implementation costs;
    (b) Concurrent contract savings, which are net reductions in the 
prices of other contracts that are definitized and ongoing at the time 
the VECP is accepted; and
    (c) Future contract savings, which are the product of the future 
unit cost reduction multiplied by the number of future contract units 
scheduled for delivery during the sharing period (but see 48.102(g)). If 
the instant contract is a multiyear contract, future contract savings 
include savings on quantities funded after VECP acceptance.
    Collateral costs, as used in this part, means agency costs of 
operation, maintenance logistic support, or Government-furnished 
property.
    Collateral savings, as used in this part, means those measurable net 
reductions resulting from a VECP in the agency's overall projected 
collateral costs, exclusive of acquisition savings, whether or not the 
acquisition cost changes.
    Contracting office, as used in this part, includes any contracting 
office that the acquisition is transferred to, such as another branch of 
the agency or another agency's office that is performing a joint 
acquisition action.

[[Page 949]]

    Contractor's development and implementation costs, as used in this 
part, means those costs the contractor incurs on a VECP specifically in 
developing, testing, preparing, and submitting the VECP, as well as 
those costs the contractor incurs to make the contractual changes 
required by Government acceptance of a VECP.
    Future unit cost reduction, as used in this part, means the instant 
unit cost reduction adjusted as the contracting officer considers 
necessary for projected learning or changes in quantity during the 
sharing period. It is calculated at the time the VECP is accepted and 
applies either (a) throughout the sharing period, unless the contracting 
officer decides that recalculation is necessary because conditions are 
significantly different from those previously anticipated or (b) to the 
calculation of a lump-sum payment, which cannot later be revised.
    Government costs, as used in this part, means those agency costs 
that result directly from developing and implementing the VECP, such as 
any net increases in the cost of testing, operations, maintenance, and 
logistics support. The term does not include the normal administrative 
costs of processing the VECP or any increase in instant contract cost or 
price resulting from negative instant contract savings.
    Instant contract, as used in this part, means the contract under 
which the VECP is submitted. It does not include increases in quantities 
after acceptance of the VECP that are due to contract modifications, 
exercise of options, or additional orders. If the contract is a 
multiyear contract, the term does not include quantities funded after 
VECP acceptance. In a fixed-price contract with prospective price 
redetermination, the term refers to the period for which firm prices 
have been established.
    Instant unit cost reduction means the amount of the decrease in unit 
cost of performance (without deducting any contractor's development or 
implementation costs) resulting from using the VECP on the instant 
contract. In service contracts, the instant unit cost reduction is 
normally equal to the number of hours per line-item task saved by using 
the VECP on the instant contract, multiplied by the appropriate contract 
labor rate.
    Negative instant contract savings means the increase in the instant 
contract cost or price when the acceptance of a VECP results in an 
excess of the contractor's allowable development and implementation 
costs over the product of the instant unit cost reduction multiplied by 
the number of instant contract units affected.
    Net acquisition savings means total acquisition savings, including 
instant, concurrent, and future contract savings, less Government costs.
    Sharing base, as used in this part, means the number of affected end 
items on contracts of the contracting office accepting the VECP.
    Sharing period, as used in this part, means the period beginning 
with acceptance of the first unit incorporating the VECP and ending at 
the later of (a) 3 years after the first unit affected by the VECP is 
accepted or (b) the last scheduled delivery date of an item affected by 
the VECP under the instant contract delivery schedule in effect at the 
time the VECP is accepted (but see 48.102(g)).
    Unit, as used in this part, means the item or task to which the 
contracting officer and the contractor agree the VECP applies.
    Value engineering, as used in this part, means an analysis of the 
functions of a program, project, system, product, item of equipment, 
building, facility, service, or supply of an executive agency, performed 
by qualified agency or contractor personnel, directed at improving 
performance, reliability, quality, safety, and life-cycle costs (Section 
36 of the Office of Federal Procurement Policy Act, 41 U.S.C. 401, et 
seq.).
    Value engineering change proposal (VECP) means a proposal that--
    (a) Requires a change to the instant contract to implement; and
    (b) Results in reducing the overall projected cost to the agency 
without impairing essential functions or characteristics; provided, that 
it does not involve a change--
    (1) In deliverable end item quantities only;
    (2) In research and development (R&D) items or R&D test quantities

[[Page 950]]

that are due solely to results of previous testing under the instant 
contract; or
    (3) To the contract type only.
    Value engineering proposal, as used in this part, means, in 
connection with an A-E contract, a change proposal developed by 
employees of the Federal Government or contractor value engineering 
personnel under contract to an agency to provide value engineering 
services for the contract or program.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989; 
55 FR 3887, Feb. 5, 1990; 61 FR 39220, July 26, 1996]



                  Subpart 48.1--Policies and Procedures



48.101  General.

    (a) Value engineering is the formal technique by which contractors 
may (1) voluntarily suggest methods for performing more economically and 
share in any resulting savings or (2) be required to establish a program 
to identify and submit to the Government methods for performing more 
economically. Value engineering attempts to eliminate, without impairing 
essential functions or characteristics, anything that increases 
acquisition, operation, or support costs.
    (b) There are two value engineering approaches:
    (1) The first is an incentive approach in which contractor 
participation is voluntary and the contractor uses its own resources to 
develop and submit any value engineering change proposals (VECP's). The 
contract provides for sharing of savings and for payment of the 
contractor's allowable development and implementation costs only if a 
VECP is accepted. This voluntary approach should not in itself increase 
costs to the Government.
    (2) The second approach is a mandatory program in which the 
Government requires and pays for a specific value engineering program 
effort. The contractor must perform value engineering of the scope and 
level of effort required by the Government's program plan and included 
as a separately priced item of work in the contract Schedule. No value 
engineering (VE) sharing is permitted in architect-engineer contracts. 
All other contracts with a program clause share in savings on accepted 
VECP's, but at a lower percentage rate than under the voluntary 
approach. The objective of this value engineering program requirement is 
to ensure that the contractor's value engineering effort is applied to 
areas of the contract that offer opportunities for considerable savings 
consistent with the functional requirements of the end item of the 
contract.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989]



48.102  Policies.

    (a) As required by Section 36 of the Office of Federal Procurement 
Policy Act (41 U.S.C. 401, et seq.), agencies shall establish and 
maintain cost-effective value engineering procedures and processes. 
Agencies shall provide contractors a substantial financial incentive to 
develop and submit VECP's. Contracting activities will include value 
engineering provisions in appropriate supply, service, architect-
engineer and construction contracts as prescribed by 48.201 and 48.202 
except where exemptions are granted on a case-by-case basis, or for 
specific classes of contracts, by the agency head.
    (b) Agencies shall: (1) establish guidelines for processing VECP's; 
(2) process VECP's objectively and expeditiously; and (3) provide 
contractors a fair share of the savings on accepted VECP's.
    (c) Agencies shall consider requiring incorporation of value 
engineering clauses in appropriate subcontracts.
    (d)(1) Agencies other than the Department of Defense shall use the 
value engineering program requirement clause (52.248-1, Alternates I or 
II) in initial production contracts for major systems programs (see 
definition of major system in 34.001) and for contracts for major 
systems research and development except where the contracting officer 
determines and documents the file to reflect that such use is not 
appropriate
    (2) In Department of Defense contracts, the VE program requirement 
clause (52.248-1, Alternates I or II), shall be placed in initial 
production solicitations and contracts (first and second production 
buys) for major system acquisition programs as defined in DoD Directive 
5000.1, except as specified in

[[Page 951]]

subdivisions (d)(2)(i) and (ii) of this section. A program requirement 
clause may be included in initial production contracts for less than 
major systems acquisition programs if there is a potential for savings. 
The contracting officer is not required to include a program requirement 
clause in initial production contracts--
    (i) Where, in the judgment of the contracting officer, the prime 
contractor has demonstrated an effective VE program during either 
earlier program phases, or during other recent comparable production 
contracts.
    (ii) Which are awarded on the basis of competition.
    (e) Value engineering incentive payments do not constitute profit or 
fee within the limitations imposed by 10 U.S.C. 2306(d) and 41 U.S.C. 
254(b) (see 15.404-4(c)(4)(i).
    (f) Generally, profit or fee on the instant contact should not be 
adjusted downward as a result of acceptance of a VECP. Profit or fee 
shall be excluded when calculating instant or future contract savings.
    (g) In the case of contracts for items requiring an extended period 
for production (e.g., ship construction, major system acquisition), 
agencies may prescribe sharing of future contract savings on all future 
contract units to be delivered under contracts awarded for essentially 
the same item during the sharing period, even if the scheduled delivery 
date is outside the sharing period. For engineering-development and low-
rate-initial-production contracts, the future sharing shall be on 
scheduled deliveries equal in number to the quantity required over the 
highest 36 consecutive months of planned production, based on planning 
or production documentation at the time the VECP is accepted.
    (h) In the case of contracts for architect-engineer services, the 
contract shall include a separately priced line item for mandatory value 
engineering of the scope and level of effort required in the statement 
of work. The objective is to ensure that value engineering effort is 
applied to specified areas of the contract that offer opportunities for 
significant savings to the Government. There shall be no sharing of 
value engineering savings in contracts for architect-engineer services.
    (i) Agencies shall establish procedures for funding and payment of 
the contractor's share of collateral savings and future contract 
savings.
[48 FR 42443, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986; 
54 FR 5057, Jan. 31, 1989; 55 FR 3887, Feb. 5, 1990; 61 FR 39221, July 
26, 1996; 62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
48.102, in paragraph (e), ``15.903(d)'' was amended to read ``15.404-
4(c)(4)(i), effective Oct. 10, 1997.



48.103  Processing value engineering change proposals.

    (a) Instructions to the contractor for preparing a VECP and 
submitting it to the Government are included in paragraphs (c) and (d) 
of the value engineering clauses prescribed in subpart 48.2. Upon 
receiving a VECP, the contracting officer or other designated official 
shall promptly process and objectively evaluate the VECP in accordance 
with agency precedures and shall document the contract file with the 
rationale for accepting or rejecting the VECP.
    (b) The contracting officer is responsible for accepting or 
rejecting the VECP within 45 days from its receipt by the Government. If 
the Government will need more time to evaluate the VECP, the contracting 
officer shall notify the contractor promptly in writing giving the 
reasons and the anticipated decision date. The contractor may withdraw, 
in whole or in part, any VECP not accepted by the Government within the 
period specified in the VECP. Any VECP may be approved, in whole or in 
part, by a contract modification incorporating the VECP. Until the 
effective date of the contract modification, the contractor shall 
perform in accordance with the existing contract. If the Government 
accepts the VECP, but properly rejects units subsequently delivered or 
does not receive units on which a savings share was paid, the contractor 
shall reimburse the Government for the proportionate share of these 
payments. If the VECP is not accepted, the contracting officer shall 
provide the contractor with prompt written notification, explaining the 
reasons for rejection.

[[Page 952]]

    (c) The following Government decisions are not subject to the 
Disputes clause or otherwise subject to litigation under the Contract 
Disputes Act of 1978 (41 U.S.C. 601-613):
    (1) The decision to accept or reject a VECP.
    (2) The determination of collateral costs or collateral savings.
    (3) The decision as to which of the sharing rates applies when 
Alternate II of the clause at 52.248-1, Value Engineering, is used.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989]



48.104  Sharing arrangements.



48.104-1  Sharing acquisition savings.

    (a) Supply or service contracts. (1) The sharing base for 
acquisition savings is normally the number of affected end items on 
contracts of the contracting office accepting the VECP. The sharing 
rates (Government/contractor) for net acquisition savings for supplies 
and services are based on the type of contract, the value engineering 
clause or alternate used, and the type of savings, as follows:

         GOVERNMENT/CONTRACTOR SHARES OF NET ACQUISITION SAVINGS        
                          (figures in percent)                          
------------------------------------------------------------------------
                                          Sharing Arrangement           
                             -------------------------------------------
                                    Incentive        Program requirement
                                   (voluntary)           (mandatory)    
        Contract Type        -------------------------------------------
                                                              Concurrent
                               Instant  Concurrent   Instant  and future
                              contract  and future  contract   contract 
                                rate       rate       rate       rate   
------------------------------------------------------------------------
Fixed-price (other than                                                 
 incentive)                     50/50      50/50      75/25      75/25  
Incentive (fixed-price or                                               
 cost)                            *        50/50        *        75/25  
Cost- reimbursement (other                                              
 than incentive)**              75/25      75/25      85/15      85/15  
------------------------------------------------------------------------
*Same sharing arrangement as the contract's profit or fee adjustment    
  formula.                                                              
**Includes cost-plus-award-fee contracts.                               

    (2) Acquisition savings may be realized on the instant contract, 
concurrent contracts, and future contracts. The contractor is entitled 
to a percentage share (see subparagraph (1) above) of any net 
acquisition savings. Net acquisition savings result when the total of 
acquisition savings becomes greater than the total of Government costs 
and any negative instant contract savings. This may occur on the instant 
contract or it may not occur until reductions have been negotiated on 
concurrent contracts or until future contract savings are calculated, 
either through lump-sum payment or as each future contract is awarded.
    (i) When the instant contract is not an incentive contract, the 
contractor's share of net acquisition savings is calculated and paid 
each time such savings are realized. This may occur once, several times, 
or, in rare cases, not at all.
    (ii) When the instant contract is an incentive contract, the 
contractor shares in instant contract savings through the contract's 
incentive structure. In calculating acquisition savings under incentive 
contracts, the contracting officer shall add any negative instant 
contract savings to the target cost or to the target price and ceiling 
price and then offset these negative instant contract savings and any 
Government costs against concurrent and future contract savings.
    (3) The contractor shares in the savings on all affected units 
scheduled for delivery during the sharing period (but see 48.102(g)). 
The contractor is responsible for maintaining, for 3 years after final 
payment on the contract under which the VECP was accepted, records 
adequate to identify the first delivered unit incorporating the 
applicable VECP.
    (4) Contractor shares of savings are paid through the contract under 
which the VECP was accepted. On incentive contracts, the contractor's 
share of concurrent and future contract savings and of collateral 
savings shall be paid as a separate firm-fixed-price contract line item 
on the instant contract.
    (5) Within 3 months after concurrent contracts have been modified to 
reflect price reductions attributable to use of the VECP, the 
contracting officer shall modify the instant contract to provide the 
contractor's share of savings.
    (6) The contractor's share of future contract savings may be paid as 
subsequent contracts are awarded or in a lump-sum payment at the time 
the

[[Page 953]]

VECP is accepted. The lump-sum method may be used only if the 
contracting officer has established that this is the best way to proceed 
and the contractor agrees. The contracting officer ordinarily shall make 
calculations as future contracts are awarded and, within 3 months after 
their award, modify the instant contract to provide the contractor's 
share of savings. For future contract savings calculated under the 
optional lump-sum method, the sharing base is an estimate of the number 
of items that the contracting office will purchase for delivery during 
the sharing period. In deciding whether or not to use the more 
convenient lump-sum method for an individual VECP, the contracting 
officer shall consider--
    (i) The accuracy with which the number of items to be delivered 
during the sharing period can be estimated and the probability of actual 
production of the projected quantity;
    (ii) The availability of funds for a lump-sum payment; and
    (iii) The administrative expense of amending the instant contract as 
future contracts are awarded.
    (b) Construction contracts. Sharing on construction contracts 
applies only to savings on the instant contract and to collateral 
savings. The Government's share of savings is determined by subtracting 
Government costs from instant contract savings and multiplying the 
result by (1) 45 percent for fixed-price contracts; or (2) 75 percent 
for cost-reimbursement contracts. Value engineering sharing does not 
apply to incentive construction contracts.
    (c) Architect-engineering contracts. There shall be no sharing of 
value engineering savings in contracts for architect-engineer services.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989; 
55 FR 3887, Feb. 5, 1990; 59 FR 11387, Mar. 10, 1994]



48.104-2  Sharing collateral savings.

    (a) The Government shares collateral savings with the contractor, 
unless the head of the contracting activity has determined that the cost 
of calculating and tracking collateral savings will exceed the benefits 
to be derived (see 48.201(e)).
    (b) The contractor's share of collateral savings is 20 percent of 
the estimated savings to be realized during an average year of use but 
shall not exceed (1) the contract's firm-fixed-price, target price, 
target cost, or estimated cost, at the time the VECP is accepted, or (2) 
$100,000, whichever is greater. In determining collateral savings, the 
contracting officer shall consider any degradation of performance, 
service life, or capability. (See 48.104-1(a)(4) for payment of 
collateral savings through the instant contract.)



48.104-3  Sharing alternative--no-cost settlement method.

    To minimize the administrative costs for both parties when there is 
a known continuing requirement for the unit, consideration should be 
given to the settlement of a VECP submitted against the VE Incentive 
clause of the contract at no cost to either party. Under this method of 
settlement, the contractor would keep all of the savings on the instant 
contract, and all savings on its concurrent contracts only. The 
Government would keep all savings resulting from concurrent contracts 
placed on other sources, savings from all future contracts and all 
collateral savings. Use of this method must be by mutual agreement of 
both parties for individual VECPs.



48.105  Relationship to other incentives.

    Contractors should be offered the fullest possible range of 
motivation, yet the benefits of an accepted VECP should not be rewarded 
both as value engineering shares and under performance, design-to-cost, 
or similar incentives of the contract. To that end, when performance, 
design-to-cost, or similar targets are set and incentivized, the targets 
of such incentives affected by the VECP are not to be adjusted because 
of the acceptance of the VECP. Only those benefits of an accepted VECP 
not rewardable under other incentives are rewarded under a value 
engineering clause.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989]

[[Page 954]]



                     Subpart 48.2--Contract Clauses



48.201  Clauses for supply or service contracts.

    (a) General. The contracting officer shall insert a value 
engineering clause in solicitations and contracts when the contract 
amount is expected to be $100,000 or more, except as specified in 
subparagraphs (1) through (5) and in paragraph (f) below. A value 
engineering clause may be included in contracts of lesser value if the 
contracting officer sees a potential for significant savings. Unless the 
chief of the contracting office authorizes its inclusion, the 
contracting officer shall not include a value engineering clause in 
solicitations and contracts--
    (1) For research and development other than full-scale development;
    (2) For engineering services from not-for-profit or nonprofit 
organizations;
    (3) For personal services (see subpart 37.1);
    (4) Providing for product or component improvement, unless the value 
engineering incentive application is restricted to areas not covered by 
provisions for product or component improvement;
    (5) For commercial products (see part 11) that do not involve 
packaging specifications or other special requirements or 
specifications; or
    (6) When the agency head has exempted the contract (or a class of 
contracts) from the requirements of part 48.
    (b) Value engineering incentive. To provide a value engineering 
incentive, the contracting officer shall insert the clause at 52.248-1, 
Value Engineering, in solicitations and contracts except as provided in 
paragraph (a) above (but see subparagraph (e)(1) below).
    (c) Value engineering program requirement. (1) If a mandatory value 
engineering effort is appropriate (i.e., if the contracting officer 
considers that substantial savings to the Government may result from a 
sustained value engineering effort of a specified level), the 
contracting officer shall use the clause with its Alternate I (but see 
subparagraph (e)(2) below).
    (2) The value engineering program requirement may be specified by 
the Government in the solicitation or, in the case of negotiated 
contracting, proposed by the contractor as part of its offer and 
included as a subject for negotiation. The program requirement shall be 
shown as a separately priced line item in the contract Schedule.
    (d) Value engineering incentive and program requirement. (1) If both 
a value engineering incentive and a mandatory program requirement are 
appropriate, the contracting officer shall use the clause with its 
Alternate II (but see subparagraph (e)(3) below).
    (2) The contract shall restrict the value engineering program 
requirement to well-defined areas of performance designated by line item 
in the contract Schedule. Alternate II applies a value engineering 
program to the specified areas and a value engineering incentive to the 
remaining areas of the contract.
    (e) Collateral savings computation not cost-effective. If the head 
of the contracting activity determines for a contract or class of 
contracts that the cost of computing and tracking collateral savings 
will exceed the benefits to be derived, the contracting officer shall 
use the clause with its--
    (1) Alternate III if a value engineering incentive is involved;
    (2) Alternate III and Alternate I if a value engineering program 
requirement is involved; or
    (3) Alternate III and Alternate II if both an incentive and a 
program requirement are involved.
    (f) Architect-engineering contracts. The contracting officer shall 
insert the clause at 52.248-2, Value Engineering--Architect-Engineer, in 
solicitations and contracts whenever the Government requires and pays 
for a specific value engineering effort in architect-engineer contracts. 
The clause at 52.248-1, Value Engineering, shall not be used in 
solicitations and contracts for architect-engineer services.
[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989; 
55 FR 3887, Feb. 5, 1990]



48.202  Clause for construction contracts.

    The contracting officer shall insert the clause at 52.248-3, Value 
Engineering--Construction, in construction solicitations and contracts 
when the contract amount is estimated to be

[[Page 955]]

$100,000 or more, unless an incentive contract is contemplated. The 
contracting officer may include the clause in contracts of lesser value 
if the contracting officer sees a potential for significant savings. The 
contracting officer shall not include the clause in incentive-type 
construction contracts. If the head of the contracting activity 
determines that the cost of computing and tracking collateral savings 
for a contract will exceed the benefits to be derived, the contracting 
officer shall use the clause with its Alternate I.



PART 49--TERMINATION OF CONTRACTS--Table of Contents




Sec.
49.000  Scope of part.
49.001  Definitions.
49.002  Applicability.

                    Subpart 49.1--General Principles

49.100  Scope of subpart.
49.101  Authorities and responsibilities.
49.102  Notice of termination.
49.103  Methods of settlement.
49.104  Duties of prime contractor after receipt of notice of 
          termination.
49.105  Duties of termination contracting officer after issuance of 
          notice of termination.
49.105-1  Termination status reports.
49.105-2  Release of excess funds.
49.105-3  Termination case file.
49.105-4  Cleanup of construction site.
49.106  Fraud or other criminal conduct.
49.107  Audit of prime contract settlement proposals and subcontract 
          settlements.
49.108  Settlement of subcontract settlement proposals.
49.108-1  Subcontractor's rights.
49.108-2  Prime contractor's rights and obligations.
49.108-3  Settlement procedure.
49.108-4  Authorization for subcontract settlements without approval or 
          ratification.
49.108-5  Recognition of judgments and arbitration awards.
49.108-6  Delay in settling subcontractor settlement proposals.
49.108-7  Government assistance in settling subcontracts.
49.108-8  Assignment of rights under subcontracts.
49.109  Settlement agreements.
49.109-1  General.
49.109-2  Reservations.
49.109-3  Government property.
49.109-4  No-cost settlement.
49.109-5  Partial settlements.
49.109-6  Joint settlement of two or more settlement proposals.
49.109-7  Settlement by determination.
49.110  Settlement negotiation memorandum.
49.111  Review of proposed settlements.
49.112  Payment.
49.112-1  Partial payments.
49.112-2  Final payment.
49.113  Cost principles.
49.114  Unsettled contract changes.
49.115  Settlement of terminated incentive contracts.

Subpart 49.2--Additional Principles for Fixed-Price Contracts Terminated 
                             for Convenience

49.201  General.
49.202  Profit.
49.203  Adjustment for loss.
49.204  Deductions.
49.205  Completed end items.
49.206  Settlement proposals.
49.206-1  Submission of settlement proposals.
49.206-2  Bases for settlement proposals.
49.206-3  Submission of inventory schedules.
49.207  Limitation on settlements.
49.208  Equitable adjustment after partial termination.

  Subpart 49.3--Additional Principles for Cost-Reimbursement Contracts 
                       Terminated for Convenience

49.301  General.
49.302  Discontinuance of vouchers.
49.303  Procedure after discontinuing vouchers.
49.303-1  Submission of settlement proposal.
49.303-2  Submission of inventory schedules.
49.303-3  Audit of settlement proposal.
49.303-4  Adjustment of indirect costs.
49.303-5  Final settlement.
49.304  Procedure for partial termination.
49.304-1  General.
49.304-2  Submission of settlement proposal (fee only).
49.304-3  Submission of vouchers.
49.305  Adjustment of fee.
49.305-1  General.
49.305-2  Construction contracts.

                  Subpart 49.4--Termination for Default

49.401  General.
49.402  Termination of fixed-price contracts for default.
49.402-1  The Government's right.
49.402-2  Effect of termination for default.
49.402-3  Procedure for default.
49.402-4  Procedure in lieu of termination for default.
49.402-5  Memorandum by the contracting officer.
49.402-6  Repurchase against contractor's account.

[[Page 956]]

49.402-7  Other damages.
49.403  Termination of cost-reimbursement contracts for default.
49.404  Surety-takeover agreements.
49.405  Completion by another contractor.
49.406  Liquidation of liability.

               Subpart 49.5--Contract Termination Clauses

49.501  General.
49.502  Termination for convenience of the Government.
49.503  Termination for convenience of the Government and default.
49.504  Termination of fixed-price contracts for default.
49.505  Other termination clauses.

          Subpart 49.6--Contract Termination Forms and Formats

49.601  Notice of termination for convenience.
49.601-1  Telegraphic notice.
49.601-2  Letter notice.
49.602  Forms for settlement of terminated contracts.
49.602-1  Termination settlement proposal forms.
49.602-2  Inventory schedule forms.
49.602-3  Schedule of accounting information.
49.602-4  Partial payments.
49.602-5  Settlement agreement.
49.603  Formats for termination for convenience settlement agreements.
49.603-1  Fixed-price contracts--complete termination.
49.603-2  Fixed-price contracts--partial termination.
49.603-3  Cost-reimbursement contracts--complete termination, if 
          settlement includes cost.
49.603-4  Cost-reimbursement contracts--complete termination, with 
          settlement limited to fee.
49.603-5  Cost-reimbursement contracts--partial termination.
49.603-6  No-cost settlement agreement--complete termination.
49.603-7  No-cost settlement agreement--partial termination.
49.603-8  Fixed-price contracts--settlements with subcontractors only.
49.603-9  Settlement of reservations.
49.604  Release of excess funds under terminated contracts.
49.605  Request to settle subcontractor settlement proposals.
49.606  Granting subcontract settlement authorization.
49.607  Delinquency notices.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42447, Sept. 19, 1983, unless otherwise noted.



49.000  Scope of part.

    This part establishes policies and procedures relating to the 
complete or partial termination of contracts for the convenience of the 
Government or for default. It prescribes contract clauses relating to 
termination and excusable delay and includes instructions for using 
termination and settlement forms.



49.001  Definitions.

    Claim, as used in this part, means the same as the language in 
33.201.
    Continued portion of the contract, as used in this part, means the 
portion of a partially terminated contract that the contractor must 
continue to perform.
    Effective date of termination means the date on which the notice of 
termination requires the contractor to stop performance under the 
contract. If the termination notice is received by the contractor 
subsequent to the date fixed for termination, then the effective date of 
termination means the date the notice is received.
    Other work, as used in this part, means any current or scheduled 
work of the contractor, whether Government or commercial, other than 
work related to the terminated contract.
    Partial termination means the termination of a part, but not all, of 
the work that has not been completed and accepted under a contract.
    Settlement agreement, as used in this part, means a written 
agreement in the form of an amendment to a contract settling all or a 
severable portion of a settlement proposal.
    Settlement proposal, as used in this part, means a proposal for 
effecting settlement of a contract terminated in whole or in part, 
submitted by a contractor or subcontractor in the form, and supported by 
the data, required by this part. A settlement proposal is included 
within the generic meaning of the word claim under false claims acts 
(see 18 U.S.C. 287 and 31 U.S.C. 3729).
    Terminated portion of the contract means the portion of a terminated 
contract that relates to work or end items not completed and accepted 
before the

[[Page 957]]

effective date of termination that the contractor is not to continue to 
perform. For construction contracts that have been completely terminated 
for convenience, it means the entire contract, notwithstanding the 
completion of, and payment for, individual items of work before 
termination.
    Termination contracting officer means a contracting officer who is 
settling terminated contracts (see Contracting officer in 2.1).
    Termination inventory means the same as the language in 45.601.
    Unsettled contract change means any contract change or contract term 
for which a definitive modification is required but has not been 
executed.
[48 FR 42443, Sept. 19, 1983, as amended at 51 FR 2666, Jan. 17, 1986]



49.002  Applicability.

    (a) This part applies to contracts that provide for termination for 
the convenience of the Government or for the default of the contractor 
(see also 13.504(b)).
    (b) Contractors shall use this part, unless inappropriate, to settle 
subcontracts terminated as a result of modification of prime contracts. 
The contracting officer shall use this part as a guide in evaluating 
settlements of subcontracts terminated for the convenience of a 
contractor whenever the settlement will be the basis of a proposal for 
reimbursement from the Government under a cost-reimbursement contract.
    (c) The contracting officer may use this part in determining an 
equitable adjustment resulting from a modification under the Changes 
clause of any contract, except cost-reimbursement contracts.
    (d) When action to be taken or authority to be exercised under this 
part depends upon the amount of the settlement proposal, that amount 
shall be determined by deducting from the gross settlement proposed the 
amounts payable for completed articles or work at the contract price and 
amounts for the settlement of subcontractor settlement proposals. 
Credits for retention or other disposal of termination inventory and 
amounts for advance or partial payments shall not be deducted.



                    Subpart 49.1--General Principles



49.100  Scope of subpart.

    (a) This subpart deals with--
    (1) The authority and responsibility of contracting officers to 
terminate contracts in whole or in part for the convenience of the 
Government or for default;
    (2) Duties of the contractor and the contracting officer after 
issuance of the notice of termination;
    (3) General procedures for the settlement of terminated contracts; 
and
    (4) Settlement agreements.
    (b) Additional principles applicable to the termination for 
convenience and settlement of fixed-price and cost-reimbursement 
contracts are included in subparts 49.2 and 49.3. Additional principles 
applicable to the termination of contracts for default are included in 
subpart 49.4.



49.101  Authorities and responsibilities.

    (a) The termination clauses or other contract clauses authorize 
contracting officers to terminate contracts for convenience, or for 
default, and to enter into settlement agreements under this regulation.
    (b) The contracting officer shall terminate contracts, whether for 
default or convenience, only when it is in the Government's interest. 
The contracting officer shall effect a no-cost settlement instead of 
issuing a termination notice when (1) it is known that the contractor 
will accept one, (2) Government property was not furnished, and (3) 
there are no outstanding payments, debts due the Government, or other 
contractor obligations.
    (c) When the price of the undelivered balance of the contract is 
less than $5,000, the contract should not normally be terminated for 
convenience but should be permitted to run to completion.
    (d) After the contracting officer issues a notice of termination, 
the termination contracting officer (TCO) is responsible for negotiating 
any settlement with the contractor, including a no-cost settlement if 
appropriate. Auditors and TCO's shall promptly schedule and complete 
audit reviews

[[Page 958]]

and negotiations, giving particular attention to the need for timely 
action on all settlements involving small business concerns.
    (e) If the same item is under contract with both large and small 
business concerns and it is necessary to terminate for convenience part 
of the units still to be delivered, preference shall be given to the 
continuing performance of small business contracts over large business 
contracts unless the chief of the contracting office determines that 
this is not in the Government's interest.
    (f) The contracting officer is responsible for the release of excess 
funds resulting from the termination unless this responsibility is 
specifically delegated to the TCO.
[48 FR 42447, Sept. 19, 1983, as amended at 55 FR 52797, Dec. 21, 1990; 
56 FR 67134, Dec. 27, 1991]



49.102  Notice of termination.

    (a) General. The contracting officer shall terminate contracts for 
convenience or default only by a written notice to the contractor (see 
49.601). When the notice is mailed, it shall be sent by certified mail, 
return receipt requested. When the contracting office arranges for hand 
delivery of the notice, a written acknowledgment shall be obtained from 
the contractor. The notice shall state--
    (1) That the contract is being terminated for the convenience of the 
Government (or for default) under the contract clause authorizing the 
termination;
    (2) The effective date of termination;
    (3) The extent of termination;
    (4) Any special instructions; and
    (5) The steps the contractor should take to minimize the impact on 
personnel if the termination, together with all other outstanding 
terminations, will result in a significant reduction in the contractor's 
work force (see paragraph (g) of the notice in 49.601-2). If the 
termination notice is by telegram, include these steps in the confirming 
letter or modification.
    (b) Distribution of copies. The contracting officer shall 
simultaneously send the termination notice to the contractor, and a copy 
to the contract administration office and to any known assignee, 
guarantor, or surety of the contractor.
    (c) Amendment of termination notice. The contracting officer may 
amend a termination notice to--
    (1) Correct nonsubstantive mistakes in the notice;
    (2) Add supplemental data or instructions; or
    (3) Rescind the notice if it is determined that items terminated had 
been completed or shipped before the contractor's receipt of the notice.
    (d) Reinstatement of terminated contracts. Upon written consent of 
the contractor, the contracting office may reinstate the terminated 
portion of a contract in whole or in part by amending the notice of 
termination if it has been determined in writing that--
    (1) Circumstances clearly indicate a requirement for the terminated 
items; and
    (2) Reinstatement is advantageous to the Government.



49.103  Methods of settlement.

    Settlement of terminated cost-reimbursement contracts and fixed-
price contracts terminated for convenience may be effected by (a) 
negotiated agreement, (b) determination by the TCO, (c) costing-out 
under vouchers using SF 1034, Public Voucher for Purchases and Services 
Other Than Personal, for cost-reimbursement contracts (as prescribed in 
subpart 49.3), or (d) a combination of these methods. When possible, the 
TCO should negotiate a fair and prompt settlement with the contractor. 
The TCO shall settle a settlement proposal by determination only when it 
cannot be settled by agreement.



49.104  Duties of prime contractor after receipt of notice of termination.

    After receipt of the notice of termination, the contractor shall 
comply with the notice and the termination clause of the contract, 
except as otherwise directed by the TCO. The notice and clause 
applicable to convenience terminations generally require that the 
contractor--
    (a) Stop work immediately on the terminated portion of the contract 
and stop placing subcontracts thereunder;

[[Page 959]]

    (b) Terminate all subcontracts related to the terminated portion of 
the prime contract;
    (c) Immediately advise the TCO of any special circumstances 
precluding the stoppage of work;
    (d) Perform the continued portion of the contract and submit 
promptly any request for an equitable adjustment of price for the 
continued portion, supported by evidence of any increase in the cost, if 
the termination is partial;
    (e) Take necessary or directed action to protect and preserve 
property in the contractor's possession in which the Government has or 
may acquire an interest and, as directed by the TCO, deliver the 
property to the Government;
    (f) Promptly notify the TCO in writing of any legal proceedings 
growing out of any subcontract or other commitment related to the 
terminated portion of the contract;
    (g) Settle outstanding liabilities and proposals arising out of 
termination of subcontracts, obtaining any approvals or ratifications 
required by the TCO;
    (h) Promptly submit the contractor's own settlement proposal, 
supported by appropriate schedules; and
    (i) Dispose of termination inventory, as directed or authorized by 
the TCO.



49.105  Duties of termination contracting officer after issuance of notice of termination.

    (a) Consistent with the termination clause and the notice of 
termination, the TCO shall--
    (1) Direct the action required of the prime contractor;
    (2) Examine the settlement proposal of the prime contractor and, 
when appropriate, the settlement proposals of subcontractors;
    (3) Promptly negotiate settlement with the contractor and enter into 
a settlement agreement; and
    (4) Promptly settle the contractor's settlement proposal by 
determination for the elements that cannot be agreed on, if unable to 
negotiate a complete settlement.
    (b) To expedite settlement, the TCO may request specially qualified 
personnel to--
    (1) Assist in dealings with the contractor;
    (2) Advise on legal and contractual matters;
    (3) Conduct accounting reviews and advise and assist on accounting 
matters; and
    (4) Perform the following functions regarding termination inventory 
(see subpart 45.6):
    (i) Verify its existence.
    (ii) Determine qualitative and quantitative allocability.
    (iii) Make recommendations concerning serviceability.
    (iv) Undertake necessary screening and redistribution.
    (v) Assist the contractor in accomplishing other disposition.
    (c) The TCO should promptly hold a conference with the contractor to 
develop a definite program for effecting the settlement. When 
appropriate in the judgment of the TCO, after consulting with the 
contractor, principal subcontractors should be requested to attend. 
Topics that should be discussed at the conference and documented 
include--
    (1) General principles relating to the settlement of any settlement 
proposal, including obligations of the contractor under the termination 
clause of the contract;
    (2) Extent of the termination, point at which work is stopped, and 
status of any plans, drawings, and information that would have been 
delivered had the contract been completed;
    (3) Status of any continuing work;
    (4) Obligation of the contractor to terminate subcontracts and 
general principles to be followed in settling subcontractor settlement 
proposals;
    (5) Names of subcontractors involved and the dates termination 
notices were issued to them;
    (6) Contractor personnel handling review and settlement of 
subcontractor settlement proposals and the methods being used;
    (7) Arrangements for transfer of title and delivery to the 
Government of any material required by the Government;
    (8) General principles and procedures to be followed in the 
protection, preservation, and disposition of the contractor's and 
subcontractors' termination inventories, including the preparation of 
termination inventory schedules;

[[Page 960]]

    (9) Contractor accounting practices and preparation of SF 1439 
(Schedule of Accounting Information (49.602-3);
    (10) Form in which to submit settlement proposals;
    (11) Accounting review of settlement proposals;
    (12) Any requirement for interim financing in the nature of partial 
payments;
    (13) Tentative time schedule for negotiation of the settlement, 
including submission by the contractor and subcontractors of settlement 
proposals, termination inventory schedules, and accounting information 
schedules (see 49.206-3 and 49.303-2);
    (14) Actions taken by the contractor to minimize impact upon 
employees affected adversely by the termination (see paragraph (g) of 
the letter notice in 49.601-2); and
    (15) Obligation of the contractor to furnish accurate, complete, and 
current cost or pricing data, and to certify to that effect in 
accordance with 15.403-4(a)(1) when the amount of a termination 
settlement agreement, or a partial termination settlement agreement plus 
the estimate to complete the continued portion of the contract exceeds 
the threshold in 15.403-4.
[48 FR 42447, Sept. 19, 1983, as amended at 61 FR 39221, July 26, 1996; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
49.105, in paragraph (c)(15), ``15.804-4(h)'' and ``15.804'' were 
amended to read ``15.403-4(a)(1)'' and ``15.403-4'', respectively, 
effective Oct. 10, 1997.



49.105-1  Termination status reports.

    When the TCO and contracting officer are in different activities, 
the TCO will furnish periodic status reports on termination actions to 
the contracting office upon request. The contracting office shall 
specify the information required.



49.105-2  Release of excess funds.

    (a) The TCO shall estimate the funds required to settle the 
termination, and within 30 days after the receipt of the termination 
notice, recommend the release of excess funds to the contracting 
officer. The initial deobligation of excess funds should be accomplished 
in a timely manner by the contracting officer, or the TCO, if delegated 
the responsibility. The TCO shall not recommend the release of amounts 
under $1,000, unless requested by the contracting officer.
    (b) The TCO shall maintain continuous surveillance of required funds 
to permit timely release of any additional excess funds (a recommended 
format for release of excess funds is in 49.604). If previous releases 
of excess funds result in a shortage of the amount required for 
settlement, the TCO shall promptly inform the contracting officer, who 
shall reinstate the funds within 30 days.
[56 FR 67134, Dec. 27, 1991]



49.105-3  Termination case file.

    The TCO responsible for negotiating the final settlement shall 
establish a separate case file for each termination. This file will 
include memoranda and records of all actions relative to the settlement 
(see 4.801).



49.105-4  Cleanup of construction site.

    In the case of terminated construction contracts, the contracting 
officer shall direct action to ensure the cleanup of the site, 
protection of serviceable materials, removal of hazards, and other 
action necessary to leave a safe and healthful site.



49.106  Fraud or other criminal conduct.

    If the TCO suspects fraud or other criminal conduct related to the 
settlement of a terminated contract, the TCO shall discontinue 
negotiations and report the facts under agency procedures.



49.107  Audit of prime contract settlement proposals and subcontract settlements.

    (a) The TCO shall refer each prime contractor settlement proposal of 
$100,000 or more to the appropriate audit agency for review and 
recommendations. The TCO may submit settlement proposals of less than 
$100,000 to the audit agency. Referrals shall indicate any specific 
information or data that the TCO desires and shall include facts and 
circumstances that will assist the audit agency in performing its 
function. The audit agency shall

[[Page 961]]

develop requested information and may make any further accounting 
reviews it considers appropriate. After its review, the audit agency 
shall submit written comments and recommendations to the TCO. When a 
formal examination of settlement proposals under $100,000 is not 
warranted, the TCO will perform or have performed a desk review and 
include a written summary of the review in the termination case file.
    (b) The TCO shall refer subcontract settlements received for 
approval or ratification to the appropriate audit agency for review and 
recommendations when (1) the amount exceeds $100,000 or (2) the TCO 
wants a complete or partial accounting review. The audit agency shall 
submit written comments and recommendations to the TCO. The review by 
the audit agency does not relieve the prime contractor or higher tier 
subcontractor of the responsibility for performing an accounting review.
    (c)(1) The responsibility of the prime contractor and of each 
subcontractor (see 49.108) includes performance of accounting reviews 
and any necessary field audits. However, the TCO should request the 
Government audit agency to perform the accounting review of a 
subcontractor's settlement proposal when--
    (i) A subcontractor objects, for competitive reasons, to an 
accounting review of its records by an upper tier contractor;
    (ii) The Government audit agency is currently performing audit work 
at the subcontractor's plant, or can perform the audit more economically 
or efficiently;
    (iii) Audit by the Government is necessary for consistent audit 
treatment and orderly administration; or
    (iv) The contractor has a substantial or controlling financial 
interest in the subcontractor.
    (2) The audit agency should avoid duplication of accounting reviews 
performed by the upper tier contractor on subcontractor settlement 
proposals. However, this should not preclude the Government from making 
additional reviews when appropriate. When the contractor is performing 
accounting reviews according to this section, the TCO should request the 
audit agency to periodically examine the contractor's accounting review 
procedures and performance, and to make appropriate comments and 
recommendations to the TCO.
    (d) The audit report is advisory only, and is for the TCO to use in 
negotiating a settlement or issuing a unilateral determination. 
Government personnel handling audit reports must be careful not to 
reveal privileged information or information that will jeopardize the 
negotiation position of the Government, the prime contractor, or a 
higher tier subcontractor. Consistent with this, and when in the 
Government's interest, the TCO may furnish audit reports under paragraph 
(c) above to prime and higher tier subcontractors for their use in 
settling subcontract settlement proposals.
[48 FR 42447, Sept. 19, 1983, as amended at 55 FR 52797, Dec. 21, 1990]



49.108  Settlement of subcontract settlement proposals.



49.108-1  Subcontractor's rights.

    A subcontractor has no contractual rights against the Government 
upon the termination of a prime contract. A subcontractor may have 
rights against the prime contractor or intermediate subcontractor with 
whom it has contracted. Upon termination of a prime contract, the prime 
contractor and each subcontractor are responsible for the prompt 
settlement of the settlement proposals of their immediate 
subcontractors.



49.108-2  Prime contractor's rights and obligations.

    (a) Termination for convenience clauses provide that after receipt 
of a termination notice the prime contractor shall, unless directed 
otherwise by the TCO, terminate all subcontracts to the extent that they 
relate to the performance of prime work terminated. Therefore, prime 
contractors should include a termination clause in their subcontracts 
for their own protection. Suggestions regarding use of subcontract 
termination clauses are in subpart 49.5.
    (b) The failure of a prime contractor to include an appropriate 
termination

[[Page 962]]

clause in any subcontract, or to exercise the clause rights, shall not--
    (1) Affect the Government's right to require the termination of the 
subcontract; or
    (2) Increase the obligation of the Government beyond what it would 
have been if the subcontract had contained an appropriate clause.
    (c) In any case, the reasonableness of the prime contractor's 
settlement with the subcontractor should normally be measured by the 
aggregate amount due under paragraph (f) of the subcontract termination 
clause suggested in 49.502(e). The TCO shall allow reimbursement in 
excess of that amount only in unusual cases and then only to the extent 
that the terms of the subcontract did not unreasonably increase the 
rights of the subcontractor.



49.108-3  Settlement procedure.

    (a) Contractors shall settle with subcontractors in general 
conformity with the policies and principles relating to settlement of 
prime contracts in this subpart and subparts 49.2 or 49.3. However, the 
basis and form of the subcontractor's settlement proposal must be 
acceptable to the prime contractor or the next higher tier 
subcontractor. Each settlement must be supported by accounting data and 
other information sufficient for adequate review by the Government. In 
no event will the Government pay the prime contractor any amount for 
loss of anticipatory profits or consequential damages resulting from the 
termination of any subcontract (but see 49.108-5).
    (b) Except as provided in 49.108-4, the TCO shall require that--
    (1) All subcontractor termination inventory be disposed of and 
accounted for in accordance with part 45; and
    (2) The prime contractor submit, for approval or ratification, all 
termination settlements with subcontractors.
    (c) The TCO shall promptly examine each subcontract settlement 
received to determine that the subcontract termination was made 
necessary by the termination of the prime contract (or by issuance of a 
change order--see 49.002(b)). The TCO will also determine if the 
settlement was arrived at in good faith, is reasonable in amount, and is 
allocable to the terminated portion of the contract (or, if allocable 
only in part, that the proposed allocation is reasonable). In 
considering the reasonableness of any subcontract settlement, the TCO 
shall generally be guided by the provisions of this part relating to the 
settlement of prime contracts, and shall comply with any applicable 
requirements of 49.107 and 49.111 relating to accounting and other 
reviews. After the examination, the TCO shall notify the contractor in 
writing of (1) approval or ratification, or (2) the reasons for 
disapproval.
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997



49.108-4  Authorization for subcontract settlements without approval or ratification.

    (a)(1) The TCO may, upon written request, give written authorization 
to the prime contractor to conclude settlements of subcontracts 
terminated in whole or in part without approval or ratification when the 
amount of settlement (see 49.002(d)) is $100,000 or less, if--
    (i) The TCO is satisfied with the adequacy of the procedures used by 
the contractor in settling settlement proposals, including proposals for 
retention, sale, or other disposal of termination inventory of the 
immediate and lower tier subcontractors (the TCO shall obtain the advice 
and recommendations of (A) the appropriate audit agency relating to the 
adequacy of the contractor's audit administration, including personnel, 
and (B) the cognizant plant clearance officer relating to the adequacy 
of the contractor's procedures and personnel for the administration of 
property disposal matters);
    (ii) Any termination inventory included in determining the amount of 
the settlement will be disposed of as directed by the prime contractor, 
generally using the requirements of 45.614, except that the disposition 
of the inventory shall not (A) be subject to review by the TCO under 
49.108-3(c) or 45.607, or (B) be subject to the screening requirements 
in 45.608; and
    (iii) A certificate similar to the certificate in the settlement 
proposal

[[Page 963]]

form in 49.602-1(a) will accompany the settlement.
    (2) Except as provided in subparagraph (4) below, authority granted 
to a prime contractor under subparagraph (1) above by any TCO shall 
apply to all Executive agencies' prime contracts that are terminated, or 
modified by change orders.
    (3) Except as provided in subparagraph (4) below, the TCO shall 
accept, as part of the prime contractor's settlement proposal, 
settlements of terminated lower tier subcontracts concluded by any of 
the prime contractor's immediate or lower tier subcontractors who have 
been granted authority as prime contractors to settle subcontracts; 
provided, that the settlement is within the limit of the authority. 
Authorization to settle proposals of lower tier subcontractors shall not 
be granted directly to subcontractors. However, a prime contractor 
authorized to approve subcontractor settlements may also exercise this 
authority in its capacity as a subcontractor, with respect to its 
terminated subcontracts and orders. When exercising this authority as a 
subcontractor, the contractor shall notify the purchaser.
    (4) The provisions of subparagraphs (1), (2), and (3) above shall 
not apply to contracts under the administration of any contracting 
officer if the contracting officer so notifies the prime contractor 
concerned. This notice shall (i) be in writing, and (ii) if subparagraph 
(3) above is involved, specify any subcontractor affected.
    (b) Section 45.614 shall apply to disposal of completed end items 
allocable to the terminated subcontract. However, these items may be 
disposed of without review by the TCO under 49.108-3 or 45.607, and 
without screening under 45.608, if the total amount (at the subcontract 
price) when added to the amount of the settlement does not exceed the 
amount authorized under this subsection.
    (c) A TCO granting the authorization in subparagraph (a)(1) above 
shall periodically (at least annually) make a selective review of 
settlements and settlement procedures to determine if the contractor is 
making adequate reviews and fair settlements, and whether the 
authorization should remain in effect. The TCO shall obtain the advice 
and recommendations of the appropriate audit agency and the cognizant 
plant clearance officer. When it is determined that the contractor's 
procedures are not adequate, or that improper settlements are being 
made, or when the authority has not been used in the preceding 2 years, 
the TCO shall revoke the authorization by written notice to the 
contractor, effective on the date of receipt.
    (d) The contractor may make any number of separate settlements with 
a single subcontractor but shall not divide settlement proposals solely 
to bring them under an authorization limit. Separate settlement 
proposals that would normally be included in a single proposal, such as 
those based on a series of separate orders for the same item under one 
contract, shall be consolidated whenever possible.
    (e) Upon written request of the contractor, the TCO may increase an 
authorization granted under subparagraph (a)(1) of this subsection to 
authorize the contractor to conclude settlements under a particular 
prime contract. The TCO may limit the increased authorization to 
specific subcontracts or classes of subcontracts.
    (f) Authorizations granted under this 49.108-4 shall not authorize 
the settlement of requisitions or orders placed with any unit within the 
contractor's corporate entity.
    (g) Recommended formats for a request to settle subcontractor 
settlement proposals and the TCO's letter of authorization to the 
contractor are in 49.605 and 49.606, respectively.
[48 FR 42447, Sept. 19, 1983, as amended at 55 FR 52797, Dec. 21, 1990]



49.108-5  Recognition of judgments and arbitration awards.

    (a) When a subcontractor obtains a final judgment against a prime 
contractor, the TCO shall, for the purposes of settling the prime 
contract, treat the amount of the judgment as a cost of settling with 
the contractor, to the extent the judgment is properly allocable to the 
terminated portion of the prime contract, if--
    (1) The prime contractor has made reasonable efforts to include in 
the

[[Page 964]]

subcontract a termination clause described in 49.502(e), 49.503(c), or a 
similar clause excluding payment of anticipatory profits or 
consequential damages;
    (2) The provisions of the subcontract relating to the rights of the 
parties upon its termination are fair and reasonable and do not 
unreasonably increase the common law rights of the subcontractor;
    (3) The contractor made reasonable efforts to settle the settlement 
proposal of the subcontractor;
    (4) The contractor gave prompt notice to the contracting officer of 
the initiation of the proceedings in which the judgment was rendered and 
did not refuse to give the Government control of the defense of the 
proceedings; and
    (5) The contractor diligently defended the suit or, if the 
Government assumed control of the defense of the proceedings, rendered 
reasonable assistance requested by the Government.
    (b) If the conditions in subparagraphs (a)(1) through (5) above are 
not all met, the TCO may allow the contractor the part of the judgment 
considered fair for settling the subcontract settlement proposal, giving 
due regard to the policies in this part for settlement of proposals.
    (c) When a contractor and a subcontractor submit the subcontractor's 
settlement proposal to arbitration under any applicable law or contract 
provision, the TCO shall recognize the arbitration award as the cost of 
settling the proposal of the contractor to the same extent and under the 
same conditions as in paragraphs (a) and (b) above.



49.108-6  Delay in settling subcontractor settlement proposals.

    When a prime contractor's inability to settle with a subcontractor 
delays the settlement of the prime contract, the TCO may settle with the 
prime contractor. The TCO shall except the subcontractor settlement 
proposal from the settlement in whole or part and reserve the rights of 
the Government and the prime contractor with respect to the 
subcontractor proposal.



49.108-7  Government assistance in settling subcontracts.

    In unusual cases the TCO may determine, with the consent of the 
prime contractor, that it is in the Government's interest to provide 
assistance to the prime contractor in the settlement of a particular 
subcontract. In these situations, the Government, the prime contractor, 
and a subcontractor may enter into an agreement covering the settlement 
of one or more subcontracts. In these settlements, the subcontractor 
shall be paid through the prime contractor as part of the overall 
settlement with the prime contractor.



49.108-8  Assignment of rights under subcontracts.

    (a) The termination for convenience clauses in 52.249, except the 
short-form clauses, obligate the prime contractor to assign to the 
Government, as directed by the TCO, all rights, titles, and interest 
under any subcontract terminated because of termination of the prime 
contract. The TCO shall not require the assignment unless it is in the 
Government's interest.
    (b) The termination for convenience clauses (except the short-form 
clauses) also provide the Government the right, in its discretion, to 
settle and pay any settlement proposal arising out of the termination of 
subcontracts. This right does not obligate the Government to settle and 
pay settlement proposals of subcontractors. As a general rule, the prime 
contractor is obligated to settle and pay these proposals. However, when 
the TCO determines that it is in the Government's interest, the TCO 
shall, after notifying the contractor, settle the subcontractor's 
proposal using the procedures for settlement of prime contracts. An 
example in which the Government's interest would be served is when a 
subcontractor is a sole source and it appears that a delay by the prime 
contractor in settlement or payment of the subcontractor's proposal will 
jeopardize the financial position of the subcontractor. Direct 
settlements with subcontractors are not encouraged.

[[Page 965]]



49.109  Settlement agreements.



49.109-1  General.

    When a termination settlement has been negotiated and all required 
reviews have been obtained, the contractor and the TCO shall execute a 
settlement agreement on Standard Form 30 (Amendment of Solicitation/
Modification of Contract) (see 49.603). The settlement shall cover (a) 
any setoffs that the Government has against the contractor that may be 
applied against the terminated contract and (b) all settlement proposals 
of subcontractors, except proposals that are specifically excepted from 
the agreement and reserved for separate settlement.



49.109-2  Reservations.

    (a) The TCO shall--
    (1) Reserve in the settlement agreement any rights or demands of the 
parties that are excepted from the settlement;
    (2) Ensure that the wording of the reservation does not create any 
rights for the parties beyond those in existence before execution of the 
settlement agreement;
    (3) Mark each applicable settlement agreement with ``This settlement 
agreement contains a reservation'' and retain the contract file until 
the reservation is removed;
    (4) Ensure that sufficient funds are retained to cover complete 
settlement of the reserved items; and
    (5) At the appropriate time, prepare a separate settlement of 
reserved items and include it in a separate settlement agreement.
    (b) A recommended format for settlement of reservations appears in 
49.603-9.



49.109-3  Government property.

    Before execution of a settlement agreement, the TCO shall determine 
the accuracy of the Government property account for the terminated 
contract. If an audit discloses property for which the contractor cannot 
account, the TCO shall reserve in the settlement agreement the rights of 
the Government regarding that property or make an appropriate deduction 
from the amount otherwise due the contractor.



49.109-4  No-cost settlement.

    The TCO shall execute a no-cost settlement agreement (see 49.603-6 
or 49.603-7, as applicable) if (a) the contractor has not incurred costs 
for the terminated portion of the contract or (b) the contractor is 
willing to waive the costs incurred and (c) no amounts are due the 
Government under the contract.



49.109-5  Partial settlements.

    The TCO should attempt to settle in one agreement all rights and 
liabilities of the parties under the contract except those arising from 
any continued portion of the contract. Generally, the TCO shall not 
attempt to make partial settlements covering particular items of the 
prime contractor's settlement proposal. However, when a TCO cannot 
promptly complete settlement under the terminated contract, a partial 
settlement may be entered into if (a) the issues on which agreement has 
been reached are clearly severable from other issues and (b) the partial 
settlement will not prejudice the Government's or contractor's interests 
in disposing of the unsettled part of the settlement proposal.



49.109-6  Joint settlement of two or more settlement proposals.

    (a) With the consent of the contractor, the TCO or TCO's concerned 
may negotiate jointly two or more termination settlement proposals of 
the same contractor under different contracts, even though the contracts 
are with different contracting offices or agencies. In such cases, 
accounting work shall be consolidated to the greatest extent practical. 
The resulting settlement may be evidenced by one settlement agreement 
covering all contracts involved or by a separate agreement for each 
contract involved.
    (b) When the settlement agreement covers more than one contract, it 
shall (1) clearly identify the contracts involved, (2) assign an 
amendment modification number to each contract, (3) apportion the total 
amount of the settlement among the several contracts on some reasonable 
basis, (4) have attached or incorporated a schedule showing the 
apportionment, and (5) be

[[Page 966]]

distributed and attached to each contract involved in the same manner as 
other contract modifications.



49.109-7  Settlement by determination.

    (a) General. If the contractor and TCO cannot agree on a termination 
settlement, or if a settlement proposal is not submitted within the 
period required by the termination clause, the TCO shall issue a 
determination of the amount due consistent with the termination clause, 
including any cost principles incorporated by reference. The TCO shall 
comply with 49.109-1 through 49.109-6 in making a settlement by 
determination and with 49.203 in making an adjustment for loss, if any. 
Copies of determinations shall receive the same distribution as other 
contract modifications.
    (b) Notice to contractor. Before issuing a determination of the 
amount due the contractor, the TCO shall give the contractor at least 15 
days notice by certified mail (return receipt requested) to submit 
written evidence, so as to reach the TCO on or before a stated date, 
substantiating the amount previously proposed.
    (c) Justification of settlement proposal. (1) The contractor has the 
burden of establishing, by proof satisfactory to the TCO, the amount 
proposed.
    (2) The contractor may submit vouchers, verified transcripts of 
books of account, affidavits, audit reports, and other documents as 
desired. The TCO may request the contractor to submit additional 
documents and data, and may request appropriate accountings, 
investigations, and audits.
    (3) The TCO may accept copies of documents and records without 
requiring original documents unless there is a question of authenticity.
    (4) The TCO may hold any conferences considered appropriate (i) to 
confer with the contractor, (ii) to obtain additional information from 
Government personnel or from independent experts, or (iii) to consult 
persons who have submitted affidavits or reports.
    (d) Determinations. After reviewing the information available, the 
TCO shall determine the amount due and shall transmit a copy of the 
determination to the contractor by certified mail (return receipt 
requested), or by any other method that provides evidence of receipt. 
The transmittal letter shall advise the contractor that the 
determination is a final decision from which the contractor may appeal 
under the Disputes clause, except as shown in paragraph (f) below. The 
determination shall specify the amount due the contractor and will be 
supported by detailed schedules conforming generally to the forms for 
settlement proposals prescribed in 49.602-1 and by additional 
information, schedules, and analyses as appropriate. The TCO shall 
explain each major item of disallowance. The TCO need not reconsider any 
other action relating to the terminated portion of the contract that was 
ratified or approved by the TCO or another contracting officer.
    (e) Preservation of evidence. The TCO shall retain all written 
evidence and other data relied upon in making a determination, except 
that copies of original books of account need not be made. The TCO shall 
return books of account, together with other original papers and 
documents, to the contractor within a reasonable time.
    (f) Appeals. The contractor may appeal, under the Disputes clause, 
any settlement by determination, except when the contractor has failed 
to submit the settlement proposal within the time provided in the 
contract and failed to request an extension of time. The pendency of an 
appeal shall not affect the authority of the TCO to settle the 
settlement proposal or any part by negotiation with the contractor at 
any time before the appeal is decided.
    (g) Decision on the contractor's appeal. The TCO shall give effect 
to a decision of the Claims Court or a board of contract appeals, when 
necessary, by an appropriate modification to the contract. When 
appropriate, the TCO should obtain a release from the contractor. TCO's 
are authorized to modify the formats of settlement agreements in 49.603 
to agree with this provision.
[48 FR 42447, Sept. 19, 1983, as amended at 52 FR 19805, May 27, 1987]



49.110  Settlement negotiation memorandum.

    (a) The TCO shall, at the conclusion of negotiations, prepare a 
settlement

[[Page 967]]

negotiation memorandum describing the principal elements of the 
settlement for inclusion in the termination case file and for use by 
reviewing authorities. Pricing aspects of the settlement shall be 
documented in accordance with 15.406-3. The memorandum shall be 
distributed in accordance with 15.406-3.
    (b) If the settlement was negotiated on the basis of individual 
items, the TCO shall specify the factors considered for each item. If 
the settlement was negotiated on an overall lump-sum basis, the TCO need 
not evaluate each item or group of items individually, but shall support 
the total amount of the recommended settlement in reasonable detail. The 
memorandum shall include explanations of matters involving differences 
and doubtful questions settled by agreement, and the factors considered. 
The TCO should include any other matters that will assist reviewing 
authorities in understanding the basis for the settlement.
[48 FR 42447, Sept. 19, 1983, as amended at 56 FR 67135, Dec. 27, 1991; 
62 FR 51271, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
49.110, in paragraph (a), ``15.808(a)'' and ``15.808(b)'' were amended 
to read ``15.406-3'', effective Oct. 10, 1997.



49.111  Review of proposed settlements.

    Each agency shall establish procedures, when necessary, for the 
administrative review of proposed termination settlements. When one 
agency provides termination settlement services for another agency, the 
agency providing the services shall also perform the settlement review 
function.



49.112  Payment.



49.112-1  Partial payments.

    (a) General. If the contract authorizes partial payments on 
settlement proposals before settlement, a prime contractor may request 
them on the form prescribed in 49.602-4 at any time after submission of 
interim or final settlement proposals. The Government will process 
applications for partial payments promptly. A subcontractor shall submit 
its application through the prime contractor which shall attach its own 
invoice and recommendations to the subcontractor's application. Partial 
payments to a subcontractor shall be made only through the prime 
contractor and only after the prime contractor has submitted its interim 
or final settlement proposal. Except for undelivered acceptable finished 
products, partial payments shall not be made for profit or fee claimed 
under the terminated portion of the contract. In exercising discretion 
on the extent of partial payments to be made, the TCO shall consider the 
diligence of the contractor in settling with subcontractors and in 
preparing its own settlement proposal.
    (b) Amount of partial payment. Before approving any partial payment, 
the TCO shall obtain any desired accounting, engineering, or other 
specialized reviews of the data submitted in support of the contractor's 
settlement proposal. If the reviews and the TCO's examination of the 
data indicate that the requested partial payment is proper, reasonable 
payments may be authorized in the discretion of the TCO up to--
    (1) 100 percent of the contract price, adjusted for undelivered 
acceptable items completed before the termination date, or later 
completed with the approval of the TCO (see 49.205);
    (2) 100 percent of the amount of any subcontract settlement paid by 
the prime contractor if the settlement was approved or ratified by the 
TCO under 49.108-3(c) or was authorized under 49.108-4;
    (3) 90 percent of the direct cost of termination inventory, 
including costs of raw materials, purchased parts, supplies, and direct 
labor;
    (4) 90 percent of other allowable costs (including settlement 
expense and manufacturing and administrative indirect costs) allocable 
to the terminated portion of the contract and not included in 
subparagraphs (1), (2), or (3) above; and
    (5) 100 percent of partial payments made to subcontractors under 
this section.
    (c) Recognition of assignments. When an assignment of claims has 
been made under the contract, the Government shall not make partial 
payments to

[[Page 968]]

other than the assignee unless the parties to the assignment consent in 
writing (see 32.805(e)).
    (d) Security for partial payments. If any partial payment is made 
for completed end items or for costs of termination inventory, the TCO 
shall protect the Government's interest. This shall be done by obtaining 
title to the completed end items or termination inventory, or by the 
creation of a lien in favor of the Government, paramount to all other 
liens, on the completed end items or termination inventory, or by other 
appropriate means.
    (e) Deductions in computing amount of partial payments. The TCO 
shall deduct from the gross amount of any partial payment otherwise 
payable under 49.112-1(b)--
    (1) All unliquidated balances of progress and advance payments 
(including interest) made to the contractor, which are allocable to the 
terminated portion of the contract; and
    (2) The amounts of all credits arising from the purchase, retention, 
or sale of property, the costs of which are included in the application 
for payment.
    (f) Limitation on total amount. The total amount of all partial 
payments shall not exceed the amount that will, in the opinion of the 
TCO, become due to the contractor because of the termination.
    (g) Effect of overpayment. If the total of partial payments exceeds 
the amount finally determined due on the settlement proposal, the 
contractor shall repay the excess to the Government on demand, together 
with interest. The interest shall be computed at the rate established by 
the Secretary of the Treasury under 50 U.S.C. App. 1215(b)(2) from the 
date the excess payment was received by the contractor to the date of 
repayment. However, interest will not be charged for any (1) excess 
payment attributable to a reduction in the settlement proposal because 
of retention or other disposition of termination inventory, until 10 
days after the date of the retention or disposition, or a later date 
determined by the TCO, or (2) overpayment under cost-reimbursement 
research and development contracts without profit or fee if the 
overpayments are repaid to the Government within 30 days after demand.
    (h) Certification and approval of partial payments. (1) The 
contractor shall place the following certification on vouchers or 
invoices for partial payments:
    The payment covered by this voucher is a partial payment on the 
Contractor's settlement proposal under contract No. .......... made 
under part 49 of the Federal Acquisition Regulation.
    (2) The TCO shall approve the invoice or voucher by noting on it the 
following:
    Payment of $........ is approved.



49.112-2  Final payment.

    (a) Negotiated settlement. After execution of a settlement 
agreement, the contractor shall submit a voucher or invoice showing the 
amount agreed upon, less any portion previously paid. The TCO shall 
attach a copy of the settlement agreement to the voucher or invoice and 
forward the documents to the disbursing officer for payment.
    (b) Settlement by determination. If the settlement is by 
determination and--
    (1) There is no appeal within the allowed time, the contractor shall 
submit a voucher or invoice showing the amount determined due, less any 
portion previously paid; or
    (2) There is an appeal, the contractor shall submit a voucher or 
invoice showing the amount finally determined due on the appeal, less 
any portion previously paid. Pending determination of any appeal, the 
contractor may submit vouchers or invoices for charges that are not 
directly involved with the portion being appealed, without prejudice to 
the rights of either party on the appeal.
    (c) Construction contracts. In the case of construction contracts, 
before forwarding the final payment voucher, the contracting officer 
shall ascertain whether there are any outstanding labor violations. If 
so, the contracting officer shall determine the amount to be withheld 
from the final payment (see subpart 22.4).
    (d) Interest. The Government shall not pay interest on the amount 
due under a settlement agreement or a settlement by determination. The 
Government may, however, pay interest on a successful contractor appeal 
from a contracting officer's determination under the Disputes clause at 
52.233-1.

[[Page 969]]



49.113  Cost principles.

    The cost principles and procedures in the applicable subpart of part 
31 shall, subject to the general principles in 49.201, (a) be used in 
asserting, negotiating, or determining costs relevant to termination 
settlements under contracts with other than educational institutions, 
and (b) be a guide for the negotiation of settlements under contracts 
for experimental, developmental, or research work with educational 
institutions (but see 31.104).



49.114  Unsettled contract changes.

    (a) Before settlement of a completely terminated contract, the TCO 
shall obtain from the contracting office a list of all related unsettled 
contract changes. The TCO shall settle, as part of final settlement, all 
unsettled contract changes after obtaining the recommendations of the 
contracting office concerning the changes.
    (b) When the contract has been partially terminated, any outstanding 
unsettled contract changes will usually be handled by the contracting 
officer. However, the contracting officer may delegate this function to 
the TCO.



49.115  Settlement of terminated incentive contracts.

    (a) Fixed-price incentive contracts. The TCO shall settle terminated 
fixed-price incentive (FPI) contracts under the provisions of paragraph 
(j) of the clause at 52.216-16, Incentive Price Revision--Firm Target, 
and 52.249-2, Termination for Convenience of the Government (Fixed-
Price).
    (1) Partial termination. Under a partially terminated contract, the 
TCO shall negotiate a settlement as provided in the termination clause 
of the contract, and paragraph (j) of the clause at 52.216-16, Incentive 
Price Revision--Firm Target, or paragraph (1) of the clause at 52.216-
17, Incentive Price Revision--Successive Targets. The contracting 
officer shall apply the incentive price revision provisions to completed 
items accepted by the Government, including any for which the contractor 
may request reimbursement in the settlement proposal. The TCO shall 
reimburse the contractor at target price for completed articles included 
in the settlement proposal for which a final price has not been 
established. The TCO shall incorporate in the settlement agreement an 
appropriate reservation as to final price for these completed articles.
    (2) Complete termination. If any items were delivered and accepted 
by the Government, the contracting officer shall establish prices under 
the incentive provisions of the contract. On the terminated portion of 
the contract, the provisions of the termination clause (see 52.249-2, 
Termination for Convenience of the Government (Fixed-Price)) shall 
govern and the provisions of the incentive clause shall not apply. The 
TCO responsible for the termination settlement will ensure, on the basis 
of evidence considered proper (including coordination with the 
contracting officer), that no portion of the costs considered in the 
negotiations under the incentive provisions are included in the 
termination settlement.
    (b) Cost-plus-incentive-fee contracts. The TCO shall settle 
terminated cost-plus-incentive-fee contracts under the clause at 52.249-
6, Termination (Cost-Reimbursement).
    (1) Partial termination. Under a partial termination, the TCO shall 
limit the settlement to an adjustment of target fee as provided in 
paragraph (e) of the clause at 52.216-10, Incentive Fee. The settlement 
agreement shall include a reservation regarding any adjustment of target 
cost resulting from the partial termination. The contracting officer 
shall adjust the target cost, if required.
    (2) Complete termination. The parties shall negotiate the settlement 
under the provisions of subpart 49.3 and the clause at 52.249-6, 
Termination (Cost-Reimbursement). The fee shall be adjusted on the basis 
of the target fee, and the incentive provisions shall not be applied or 
considered.



Subpart 49.2--Additional Principles for Fixed-Price Contracts Terminated 
                             for Convenience



49.201  General.

    (a) A settlement should compensate the contractor fairly for the 
work done

[[Page 970]]

and the preparations made for the terminated portions of the contract, 
including a reasonable allowance for profit. Fair compensation is a 
matter of judgment and cannot be measured exactly. In a given case, 
various methods may be equally appropriate for arriving at fair 
compensation. The use of business judgment, as distinguished from strict 
accounting principles, is the heart of a settlement.
    (b) The primary objective is to negotiate a settlement by agreement. 
The parties may agree upon a total amount to be paid the contractor 
without agreeing on or segregating the particular elements of costs or 
profit comprising this amount.
    (c) Cost and accounting data may provide guides, but are not rigid 
measures, for ascertaining fair compensation. In appropriate cases, 
costs may be estimated, differences compromised, and doubtful questions 
settled by agreement. Other types of data, criteria, or standards may 
furnish equally reliable guides to fair compensation. The amount of 
recordkeeping, reporting, and accounting related to the settlement of 
terminated contracts should be kept to a minimum compatible with the 
reasonable protection of the public interest.



49.202  Profit.

    (a) The TCO shall allow profit on preparations made and work done by 
the contractor for the terminated portion of the contract but not on the 
settlement expenses. Anticipatory profits and consequential damages 
shall not be allowed (but see 49.108-5). Profit for the contractor's 
efforts in settling subcontractor proposals shall not be based on the 
dollar amount of the subcontract settlement agreements but the 
contractor's efforts will be considered in determining the overall rate 
of profit allowed the contractor. Profit shall not be allowed the 
contractor for material or services that, as of the effective date of 
termination, have not been delivered by a subcontractor, regardless of 
the percentage of completion. The TCO may use any reasonable method to 
arrive at a fair profit.
    (b) In negotiating or determining profit, factors to be considered 
include--
    (1) Extent and difficulty of the work done by the contractor as 
compared with the total work required by the contract (engineering 
estimates of the percentage of completion ordinarily should not be 
required, but if available should be considered);
    (2) Engineering work, production scheduling, planning, technical 
study and supervision, and other necessary services;
    (3) Efficiency of the contractor, with particular regard to--
    (i) Attainment of quantity and quality production;
    (ii) Reduction of costs;
    (iii) Economic use of materials, facilities, and manpower; and
    (iv) Disposition of termination inventory;
    (4) Amount and source of capital and extent of risk assumed;
    (5) Inventive and developmental contributions, and cooperation with 
the Government and other contractors in supplying technical assistance;
    (6) Character of the business, including the source and nature of 
materials and the complexity of manufacturing techniques;
    (7) The rate of profit that the contractor would have earned had the 
contract been completed;
    (8) The rate of profit both parties contemplated at the time the 
contract was negotiated; and
    (9) Character and difficulty of subcontracting, including selection, 
placement, and management of subcontracts, and effort in negotiating 
settlements of terminated subcontracts.
    (c) When computing profit on the terminated portion of a 
construction contract, the contracting officer shall--
    (1) Comply with paragraphs (a) and (b) above;
    (2) Allow profit on the prime contractor's settlements with 
construction subcontractors for actual work in place at the job site; 
and
    (3) Exclude profit on the prime contractor's settlements with 
construction subcontractors for materials on hand and for preparations 
made to complete the work.

[[Page 971]]



49.203  Adjustment for loss.

    (a) In the negotiation or determination of any settlement, the TCO 
shall not allow profit if it appears that the contractor would have 
incurred a loss had the entire contract been completed. The TCO shall 
negotiate or determine the amount of loss and make an adjustment in the 
amount of settlement as specified in paragraph (b) or (c) below. In 
estimating the cost to complete, the TCO shall consider expected 
production efficiencies and other factors affecting the cost to 
complete.
    (b) If the settlement is on an inventory basis (see 49.206-2(a)), 
the contractor shall not be paid more than the total of the amounts in 
subparagraphs (1), (2), and (3) below, less all disposal credits and all 
unliquidated advance and progress payments previously made under the 
contract:
    (1) The amount negotiated or determined for settlement expenses.
    (2) The contract price, as adjusted, for acceptable completed end 
items (see 49.205).
    (3) The remainder of the settlement amount otherwise agreed upon or 
determined (including the allocable portion of initial costs (see 
31.205-42(c)), reduced by multiplying the remainder by the ratio of (i) 
the total contract price to (ii) the total cost incurred before 
termination plus the estimated cost to complete the entire contract.
    (c) If the settlement is on a total cost basis (see 49.206-2(b)), 
the contractor shall not be paid more than the total of the amounts in 
subparagraphs (1) and (2) below, less all disposal and other credits, 
all advance and progress payments, and all other amounts previously paid 
under the contract:
    (1) The amount negotiated or determined for settlement expenses.
    (2) The remainder of the total settlement amount otherwise agreed 
upon or determined (lines 7 and 14 of SF 1436, Settlement Proposal 
(Total Cost Basis)) reduced by multiplying the remainder by the ratio of 
(i) the total contract price to (ii) the remainder plus the estimated 
cost to complete the entire contract.



49.204  Deductions.

    From the amount payable to the contractor under a settlement, the 
TCO shall deduct--
    (a) The agreed price for any part of the termination inventory 
purchased or retained by the contractor, and the proceeds from any 
materials sold that have not been paid or credited to the Government;
    (b) The fair value, as determined by the TCO, of any part of the 
termination inventory that, before transfer of title to the Government 
or to a buyer under part 45, is destroyed, lost, stolen, or so damaged 
as to become undeliverable (normal spoilage is excepted, as is inventory 
for which the Government has expressly assumed the risk of loss); and
    (c) Any other amounts as appropriate in the particular case.



49.205  Completed end items.

    (a) Promptly after the effective date of termination, the TCO shall 
(1) have all undelivered completed end items inspected and accepted if 
they comply with the contract requirements, and (2) determine which 
accepted end items are to be delivered under the contract. The 
contractor shall invoice accepted and delivered end items at the 
contract price in the usual manner and shall not include them in the 
settlement proposal. When completed end items, though accepted, are not 
to be delivered under the contract, the contractor shall include them in 
the settlement proposal at the contract price, adjusted for any saving 
of freight or other charges, together with any credits for their 
purchase, retention, or sale.
    (b) Work in place accepted by the Government under a construction 
contract is not considered a completed item even though that work may 
have been paid for at unit prices specified in the contract.



49.206  Settlement proposals.



49.206-1  Submission of settlement proposals.

    (a) Subject to the provisions of the termination clause, the 
contractor should promptly submit to the TCO a settlement proposal for 
the amount claimed because of the termination.

[[Page 972]]

The final settlement proposal must be submitted within one year from the 
effective date of the termination, unless the period is extended by the 
TCO. Termination charges under a single prime contract involving two or 
more divisions or units of the prime contractor may be consolidated and 
included in a single settlement proposal.
    (b) The settlement proposal must cover all cost elements including 
settlements with subcontractors and any proposed profit. With the 
consent of the TCO, proposals may be filed in successive steps covering 
separate portions of the contractor's costs. Such interim proposals 
shall include all costs of a particular type, except as the TCO may 
authorize otherwise.
    (c) Settlement proposals must be on the forms prescribed in 49.602 
unless the forms are inadequate for a particular contract. Settlement 
proposals must be in reasonable detail supported by adequate accounting 
data. Actual, standard (appropriately adjusted), or average costs may be 
used in preparing settlement proposals if they are determined under 
generally recognized accounting principles consistently followed by the 
contractor. When actual, standard, or average costs are not reasonably 
available, estimated costs may be used if the method of arriving at the 
estimates is approved by the TCO. Contractors shall not be required to 
maintain unduly elaborate cost accounting systems merely because their 
contracts may subsequently be terminated.
    (d) The contractor may use the Settlement Proposal (Short Form), SF 
1438 (see 49.602-1(d) and 53.249), when the total proposal is less than 
$10,000, unless otherwise instructed by the TCO. Settlement proposals 
that would normally be included in a single settlement proposal; e.g., 
those based on a series of separate orders for the same item under one 
contract, should be consolidated whenever possible and not divided to 
bring them below $10,000.
    (e) The Schedule of Accounting Information, SF 1439, must be 
submitted for each termination under a contract for which a settlement 
proposal is submitted, except when the Standard Form 1438 is used. 
Although several interim proposals may be submitted, SF 1439 need be 
submitted only once unless, subsequent to filing the original form, 
major changes occur in the information submitted.



49.206-2  Bases for settlement proposals.

    (a) Inventory basis. (1) Use of the inventory basis for settlement 
proposals is preferred. Under this basis, the contractor may propose 
only costs allocable to the terminated portion of the contract, and the 
settlement proposal must itemize separately--
    (i) Metals, raw materials, purchased parts, work in process, 
finished parts, components, dies, jigs, fixtures, and tooling, at 
purchase or manufacturing cost;
    (ii) Charges such as engineering costs, initial costs, and general 
administrative costs;
    (iii) Costs of settlements with subcontractors;
    (iv) Settlement expenses; and
    (v) Other proper charges.
    (2) An allowance for profit (49.202) or adjustment for loss 
(49.203(b)) must be made to complete the gross settlement proposal. All 
unliquidated advance and progress payments and all disposal and other 
credits known when the proposal is submitted must then be deducted.
    (3) This inventory basis is also appropriate for use under the 
following circumstances:
    (i) The partial termination of a construction or related 
professional services contract.
    (ii) The partial or complete termination of supply orders under any 
terminated construction contract.
    (iii) The complete termination of a unit-price (as distinguished 
from a lump-sum) professional services contract.
    (b) Total cost basis. (1) When use of the inventory basis is not 
practicable or will unduly delay settlement, the total-cost basis (SF-
1436) may be used if approved in advance by the TCO as in the following 
examples:
    (i) If production has not commenced and the accumulated costs 
represent planning and preproduction or get ready expenses.
    (ii) If, under the contractor's accounting system, unit costs for 
work in process and finished products cannot readily be established.

[[Page 973]]

    (iii) If the contract does not specify unit prices.
    (iv) If the termination is complete and involves a letter contract.
    (2) When the total-cost basis is used under a complete termination, 
the contractor must itemize all costs incurred under the contract up to 
the effective date of termination. The costs of settlements with 
subcontractors and applicable settlement expenses must also be added. An 
allowance for profit (49.202) or adjustment for loss (49.203(c)) must be 
made. The contract price for all end items delivered or to be delivered 
and accepted must be deducted. All unliquidated advance and progress 
payments and disposal and other credits known when the proposal is 
submitted must also be deducted.
    (3) When the total-cost basis is used under a partial termination, 
the settlement proposal shall not be submitted until completion of the 
continued portion of the contract. The settlement proposal must be 
prepared as in subparagraph (2) above, except that all costs incurred to 
the date of completion of the continued portion of the contract must be 
included.
    (4) If a construction contract or a lump-sum professional services 
contract is completely terminated, the contractor shall--
    (i) Use the total cost basis of settlement;
    (ii) Omit Line 10 ``Deduct-Finished Product Invoiced or to be 
Invoiced'' from Section II of Standard Form-1436) Settlement Proposal 
(Total Cost Basis); and
    (iii) Reduce the gross amount of the settlement by the total of all 
progress and other payments.
    (c) Other basis. Settlement proposals may not be submitted on any 
basis other than paragraph (a) or (b) above without the prior approval 
of the chief of the contracting or contract administration office.



49.206-3  Submission of inventory schedules.

    Subject to the terms of the termination clause and whenever 
termination inventory is involved, the contractor shall submit complete 
inventory schedules, to the TCO, reflecting inventory that is allocable 
to the terminated portion of the contract. The inventory schedules shall 
be submitted within 120 days from the effective date of termination 
unless otherwise extended by the TCO based on a written justification to 
support the extension. The inventory schedules shall be prepared on the 
forms prescribed in 49.602-2 and in accordance with 45.606-5.
[61 FR 39221, July 26, 1996]



49.207  Limitation on settlements.

    The total amount payable to the contractor for a settlement, before 
deducting disposal or other credits and exclusive of settlement costs, 
must not exceed the contract price less payments otherwise made or to be 
made under the contract.



49.208  Equitable adjustment after partial termination.

    Under the termination clause, after partial termination, a 
contractor may request an equitable adjustment in the price or prices of 
the continued portion of a fixed-price contract. The TCO shall forward 
the proposal to the contracting officer except when negotiation 
authority is delegated to the TCO. The contractor shall submit the 
proposal in the format of Table 15-2 of 15.408.
    (a) When the contracting officer retains responsibility for 
negotiating the equitable adjustment and executing a supplemental 
agreement, the contracting officer shall ensure that no portion of an 
increase in price is included in a termination settlement made or in 
process.
    (b) The TCO shall also ensure that no portion of the costs included 
in the equitable adjustment are included in the termination settlement.
[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 48218, Sept. 18, 1995; 
62 FR 51259, Sept. 30, 1997]

    Effective Date Note: At 62 FR 51259, Sept. 30, 1997, section 49.208 
was amended by revising the third sentence of the introductory 
paragraph, effective Oct. 10, 1997. For the convenience of the user, the 
superseded text is set forth as follows:

[[Page 974]]

49.208  Equitable adjustment after partial termination.

    * * * The contractor shall submit the proposal on SF 1411, Contract 
Pricing Proposal Cover Sheet (Cost or Pricing Data Required).

                                * * * * *



  Subpart 49.3--Additional Principles for Cost-Reimbursement Contracts 
                       Terminated for Convenience



49.301  General.

    Termination clauses for cost-reimbursement contracts (see 49.503(a)) 
provide for the settlement of costs and fee, if any. The contract 
clauses governing costs shall determine what costs are allowable.



49.302  Discontinuance of vouchers.

    (a) When the contract has been completely terminated, the contractor 
shall not use Standard Form 1034 (Public Voucher for Purchases and 
Services Other than Personal) after the last day of the sixth month 
following the month in which the termination is effective. The 
contractor may elect to stop using vouchers at any time during the 6-
month period. When the contractor has vouchered out all costs within the 
6-month period, a proposal for fee, if any, may be submitted on SF 1437 
(see 49.602-1) or by letter appropriately certified. The contractor must 
submit a substantiated proposal for fee to the TCO within 1 year from 
the effective date of termination, unless the period is extended by the 
TCO. When the use of vouchers is discontinued, the contractor shall 
submit all unvouchered costs and the proposed fee, if any, as specified 
in 49.303.
    (b) When the contract is partially terminated, 49.304 shall apply.



49.303  Procedure after discontinuing vouchers.



49.303-1  Submission of settlement proposal.

    The contractor shall submit a final settlement proposal covering 
unvouchered costs and any proposed fee to the TCO within 1 year from the 
effective date of termination, unless the period is extended by the TCO. 
The contractor shall use the form prescribed in 49.602-1, unless the TCO 
authorizes otherwise. The proposal shall not include costs that have 
been--
    (a) Finally disallowed by the contracting officer; or
    (b) Previously vouchered and formally questioned by the Government 
but not yet decided as to allowability.



49.303-2  Submission of inventory schedules.

    Subject to the terms of the termination clause and whenever 
termination inventory is involved, the contractor shall submit complete 
inventory schedules, to the TCO, reflecting inventory that is allocable 
to the terminated portion of the contract. The inventory schedules shall 
be submitted within 120 days from the effective date of termination 
unless otherwise extended by the TCO based on a written justification to 
support the extension. The inventory schedules shall be prepared on the 
forms prescribed in 49.602-2 and in accordance with 45.606-5.
[61 FR 39221, July 26, 1996]



49.303-3  Audit of settlement proposal.

    The TCO shall submit the settlement proposal to the appropriate 
audit agency for review (see 49.107). However, if the settlement 
proposal is limited to an adjustment of fee, no referral to the audit 
agency is required.
[48 FR 42447, Sept. 19, 1983. Redesignated at 61 FR 39221, July 26, 
1996]



49.303-4  Adjustment of indirect costs.

    (a) If the contract contains the clause at 52.216-7, Allowable Cost 
and Payment, and it appears that adjustment of indirect costs will 
unduly delay final settlement, the TCO, after obtaining information from 
the appropriate audit agency, may agree with the contractor to--
    (1) Negotiate the amount of indirect costs for the contract period 
for which final indirect cost rates have not been negotiated, or to use 
billing rates as final rates for this period if the billing rates appear 
reasonable; or
    (2) Reserve any indirect cost adjustment in the final settlement 
agreement, pending establishment of negotiated rates under subpart 42.7.

[[Page 975]]

    (b) When an amount of indirect cost is negotiated under subparagraph 
(a)(1) above, the contractor shall eliminate the indirect cost and the 
related direct costs on which it was based from the total pool and base 
used to compute indirect costs for other contracts performed during the 
applicable accounting period.
[48 FR 42447, Sept. 19, 1983. Redesignated at 61 FR 39221, July 26, 
1996]



49.303-5  Final settlement.

    (a) The TCO shall proceed with the settlement and execution of a 
settlement agreement upon receipt of the audit report, if applicable, 
and the contract audit closing statement covering vouchered costs.
    (b) The TCO shall adjust the fee as provided in 49.305.
    (c) The final settlement agreement may include all demands of the 
Government and proposals of the contractor under the terminated 
contract. However, no amount shall be allowed for any item of cost 
disallowed by the Government, nor for any other item of cost of the same 
nature.
    (d) If an overall settlement of costs is agreed upon, agreement on 
each element of cost is not necessary. If appropriate, differences may 
be compromised and doubtful questions settled by agreement. An overall 
settlement shall not include costs that are clearly not allowable under 
the terms of the contract.
[48 FR 42447, Sept. 19, 1983. Redesignated at 61 FR 39221, July 26, 
1996]



49.304  Procedure for partial termination.



49.304-1  General.

    (a) In a partial termination, the TCO shall limit the settlement to 
an adjustment of the fee, if any, and with the concurrence of the 
contracting office, to a reduction in the estimated cost. The TCO shall 
adjust the fee as provided in 49.304-2 and 49.305, unless--
    (1) The terminated portion is clearly severable from the balance of 
the contract; or
    (2) Performance of the contract is virtually complete, or 
performance of any continued portion is only on subsidiary items or 
spare parts, or is otherwise not substantial.
    (b) In the case of the exceptions in paragraph (a), the procedures 
in 49.302 and 49.303 apply.



49.304-2  Submission of settlement proposal (fee only).

    The contractor shall limit the settlement proposal to a proposed 
reduction in the amount of fee. The final settlement proposal shall be 
submitted to the TCO within one year from the effective date of 
termination, unless the period is extended by the TCO. The proposal may 
be submitted in the form prescribed in 49.602-1 or by letter 
appropriately certified. The contractor shall substantiate the amount of 
fee claimed (see 49.305).



49.304-3  Submission of vouchers.

    When a partial termination settlement is limited to adjustment of 
fee, the contractor shall continue to submit the SF 1034, Public Voucher 
for Purchases and Services Other than Personal, for costs reimbursable 
under the contract. The contractor shall not be reimbursed for costs of 
settlements with subcontractors unless required approvals or 
ratifications have been obtained (see 49.108).



49.305  Adjustment of fee.



49.305-1  General.

    (a) The TCO shall determine the adjusted fee to be paid, if any, in 
the manner provided by the contract. The determination is generally 
based on a percentage of completion of the contract or of the terminated 
portion. When this basis is used, factors such as the extent and 
difficulty of the work performed by the contractor (e.g., planning, 
scheduling, technical study, engineering work production and 
supervision, placing and supervising subcontracts, and work performed by 
the contractor in (1) stopping performance, (2) settling terminated 
subcontracts, and (3) disposing of termination inventory) shall be 
compared with the total work required by the contract or by the 
terminated portion. The contractor's adjusted fee shall not include an 
allowance for fee for subcontract effort

[[Page 976]]

included in subcontractors' settlement proposals.
    (b) The ratio of costs incurred to the total estimated cost of 
performing the contract or the terminated portion is only one factor in 
computing the percentage of completion. This percentage may be either 
greater or less than that indicated by the ratio of costs incurred, 
depending upon the evaluation by the TCO of other pertinent factors.



49.305-2  Construction contracts.

    (a) The percentage of completion basis refers to the contractor's 
total effort and not solely to the actual construction work. Generally, 
the effort of a contractor under a cost-reimbursement construction or 
professional services contract can be segregated into factors such as 
(1) mobilization including organization, (2) use of finances, (3) 
contracting for and receipt of materials, (4) placement of subcontracts, 
(5) preparation of shop drawings, (6) work in place performed by own 
forces, (7) supervision of subcontractors' work (8) job administration, 
and (9) demobilization.
    (b) Each of the applicable factors in paragraph (a) above shall be 
assigned a weighted value depending on its importance and difficulty. 
The total weight value of all factors should be easily divisible (e.g., 
by 100) to determine percentages. The percentage of completion of each 
factor must be established based upon the specific facts of each 
contract. When totaled, the percentage of completion of each factor 
applied to the weighted value of each factor results in the overall 
percentage of contract completion. The percentage of completion is then 
applied to the total contract fee or to the fee applicable to the 
terminated portion of the contract to arrive at an equitable adjustment.



                  Subpart 49.4--Termination for Default



49.401  General.

    (a) Termination for default is generally the exercise of the 
Government's contractual right to completely or partially terminate a 
contract because of the contractor's actual or anticipated failure to 
perform its contractual obligations.
    (b) If the contractor can establish, or it is otherwise determined 
that the contractor was not in default or that the failure to perform is 
excusable; i.e., arose out of causes beyond the control and without the 
fault or negligence of the contractor, the default clauses prescribed in 
49.503 and located at 52.249 provide that a termination for default will 
be considered to have been a termination for the convenience of the 
Government, and the rights and obligations of the parties governed 
accordingly.
    (c) The Government may, in appropriate cases, exercise termination 
or cancellation rights in addition to those in the contract clauses (see 
for example, paragraph (h) of the Default clause at 52.249-8).
    (d) For default terminations of orders under Federal Supply Schedule 
contracts, see subpart 8.4.
    (e) Notwithstanding the provisions of this 49.401, the contracting 
officer may, with the written consent of the contractor, reinstate the 
terminated contract by amending the notice of termination, after a 
written determination is made that the supplies or services are still 
required and reinstatement is advantageous to the Government.



49.402  Termination of fixed-price contracts for default.



49.402-1  The Government's right.

    Under contracts containing the Default clause at 52.249-8, the 
Government has the right, subject to the notice requirements of the 
clause, to terminate the contract completely or partially for default if 
the contractor fails to (a) make delivery of the supplies or perform the 
services within the time specified in the contract, (b) perform any 
other provision of the contract, or (c) make progress and that failure 
endangers performance of the contract.



49.402-2  Effect of termination for default.

    (a) Under a termination for default, the Government is not liable 
for the contractor's costs on undelivered work and is entitled to the 
repayment of advance and progress payments, if any, applicable to that 
work. The Government may elect, under the Default

[[Page 977]]

clause, to require the contractor to transfer title and deliver to the 
Government completed supplies and manufacturing materials, as directed 
by the contracting officer.
    (b) The contracting officer shall not use the Default clause as 
authority to acquire any completed supplies or manufacturing materials 
unless it has been ascertained that the Government does not already have 
title under some other provision of the contract. The contracting 
officer shall acquire manufacturing materials under the Default clause 
for furnishing to another contractor only after considering the 
difficulties the other contractor may have in using the materials.
    (c) Subject to paragraph (d) below, the Government shall pay the 
contractor the contract price for any completed supplies, and the amount 
agreed upon by the contracting officer and the contractor for any 
manufacturing materials, acquired by the Government under the Default 
clause.
    (d) The Government must be protected from overpayment that might 
result from failure to provide for the Government's potential liability 
to laborers and material suppliers for lien rights outstanding against 
the completed supplies or materials after the Government has paid the 
contractor for them. To accomplish this, before paying for supplies or 
materials, the contracting officer shall take one or more of the 
following measures:
    (1) Ascertain whether the payment bonds, if any, furnished by the 
contractor are adequate to satisfy all lienors' claims or whether it is 
feasible to obtain similar bonds to cover outstanding liens.
    (2) Require the contractor to furnish appropriate statements from 
laborers and material suppliers disclaiming any lien rights they may 
have to the supplies and materials.
    (3) Obtain appropriate agreement by the Government, the contractor, 
and lienors ensuring release of the Government from any potential 
liability to the contractor or lienors.
    (4) Withhold from the amount due for the supplies or materials any 
amount the contracting officer determines necessary to protect the 
Government's interest, but only if the measures in subparagraphs (d)(1), 
(2), and (3) above cannot be accomplished or are considered inadequate.
    (5) Take other appropriate action considering the circumstances and 
the degree of the contractor's solvency.
    (e) The contractor is liable to the Government for any excess costs 
incurred in acquiring supplies and services similar to those terminated 
for default (see 49.402-6), and for any other damages, whether or not 
repurchase is effected (see 49.402-7).



49.402-3  Procedure for default.

    (a) When a default termination is being considered, the Government 
shall decide which type of termination action to take (i.e., default, 
convenience, or no-cost cancellation) only after review by contracting 
and technical personnel, and by counsel, to ensure the propriety of the 
proposed action.
    (b) The administrative contracting officer shall not issue a show 
cause notice or cure notice without the prior approval of the 
contracting office, which should be obtained by the most expeditious 
means.
    (c) Subdivision (a)(1)(i) of the Default clause covers situations 
when the contractor has defaulted by failure to make delivery of the 
supplies or to perform the services within the specified time. In these 
situations, no notice of failure or of the possibility of termination 
for default is required to be sent to the contractor before the actual 
notice of termination (but see paragraph (e) below). However, if the 
Government has taken any action that might be construed as a waiver of 
the contract delivery or performance date, the contracting officer shall 
send a notice to the contractor setting a new date for the contractor to 
make delivery or complete performance. The notice shall reserve the 
Government's rights under the Default clause.
    (d) Subdivisions (a)(1)(ii) and (a)(1)(iii) of the Default clause 
cover situations when the contractor fails to perform some of the other 
provisions of the contract (such as not furnishing a required 
performance bond) or so fails to make progress as to endanger 
performance of the contract. If the termination is predicated upon this 
type of failure, the contracting officer shall

[[Page 978]]

give the contractor written notice specifying the failure and providing 
a period of 10 days (or longer period as necessary) in which to cure the 
failure. When appropriate, this notice may be made a part of the notice 
described in subparagraph (e)(1) below. Upon expiration of the 10 days 
(or longer period), the contracting officer may issue a notice of 
termination for default unless it is determined that the failure to 
perform has been cured. A format for a cure notice is in 49.607.
    (e)(1) If termination for default appears appropriate, the 
contracting officer should, if practicable, notify the contractor in 
writing of the possibility of the termination. This notice shall call 
the contractor's attention to the contractual liabilities if the 
contract is terminated for default, and request the contractor to show 
cause why the contract should not be terminated for default. The notice 
may further state that failure of the contractor to present an 
explanation may be taken as an admission that no valid explanation 
exists. When appropriate, the notice may invite the contractor to 
discuss the matter at a conference. A format for a show cause notice is 
in 49.607.
    (2) When a termination for default appears imminent, the contracting 
officer shall provide a written notification to the surety. If the 
contractor is subsequently terminated for default, a copy of the notice 
of default shall be sent to the surety.
    (3) If requested by the surety, and agreed to by the contractor and 
any assignees, arrangements may be made to have future checks mailed to 
the contractor in care of the surety. In this case, the contractor must 
forward a written request to the designated disbursing officer 
specifically directing a change in address for mailing checks.
    (4) If the contractor is a small business firm, the contracting 
officer shall immediately provide a copy of any cure notice or show 
cause notice to the contracting office's small business specialist and 
the Small Business Administration Regional Office nearest the 
contractor. The contracting officer should, whenever practicable, 
consult with the small business specialist before proceeding with a 
default termination (see also 49.402-4).
    (f) The contracting officer shall consider the following factors in 
determining whether to terminate a contract for default:
    (1) The terms of the contract and applicable laws and regulations.
    (2) The specific failure of the contractor and the excuses for the 
failure.
    (3) The availability of the supplies or services from other sources.
    (4) The urgency of the need for the supplies or services and the 
period of time required to obtain them from other sources, as compared 
with the time delivery could be obtained from the delinquent contractor.
    (5) The degree of essentiality of the contractor in the Government 
acquisition program and the effect of a termination for default upon the 
contractor's capability as a supplier under other contracts.
    (6) The effect of a termination for default on the ability of the 
contractor to liquidate guaranteed loans, progress payments, or advance 
payments.
    (7) Any other pertinent facts and circumstances.
    (g) If, after compliance with the procedures in paragraphs (a) 
through (f) of this 49.402-3, the contracting officer determines that a 
termination for default is proper, the contracting officer shall issue a 
notice of termination stating--
    (1) The contract number and date;
    (2) The acts or omissions constituting the default;
    (3) That the contractor's right to proceed further under the 
contract (or a specified portion of the contract) is terminated;
    (4) That the supplies or services terminated may be purchased 
against the contractor's account, and that the contractor will be held 
liable for any excess costs;
    (5) If the contracting officer has determined that the failure to 
perform is not excusable, that the notice of termination constitutes 
such decision, and that the contractor has the right to appeal such 
decision under the Disputes clause;
    (6) That the Government reserves all rights and remedies provided by 
law or under the contract, in addition to charging excess costs; and

[[Page 979]]

    (7) That the notice constitutes a decision that the contractor is in 
default as specified and that the contractor has the right to appeal 
under the Disputes clause.
    (h) The contracting officer shall make the same distribution of the 
termination notice as was made of the contract. A copy shall also be 
furnished to the contractor's surety, if any, when the notice is 
furnished to the contractor. The surety should be requested to advise if 
it desires to arrange for completion of the work. In addition, the 
contracting officer shall notify the disbursing officer to withhold 
further payments under the terminated contract, pending further advice, 
which should be furnished at the earliest practicable time.
    (i) In the case of a construction contract, promptly after issuance 
of the termination notice, the contracting officer shall determine the 
manner in which the work is to be completed and whether the materials, 
appliances, and plant that are on the site will be needed.
    (j) If the contracting officer determines before issuing the 
termination notice that the failure to perform is excusable, the 
contract shall not be terminated for default. If termination is in the 
Government's interest, the contracting officer may terminate the 
contract for the convenience of the Government.
    (k) If the contracting officer has not been able to determine, 
before issuance of the notice of termination whether the contractor's 
failure to perform is excusable, the contracting officer shall make a 
written decision on that point as soon as practicable after issuance of 
the notice of termination. The decision shall be delivered promptly to 
the contractor with a notification that the contractor has the right to 
appeal as specified in the Disputes clause.
[48 FR 42447, Sept. 19, 1983, as amended at 54 FR 48990, Nov. 28, 1989]



49.402-4  Procedure in lieu of termination for default.

    The following courses of action, among others, are available to the 
contracting officer in lieu of termination for default when in the 
Government's interest:
    (a) Permit the contractor, the surety, or the guarantor, to continue 
performance of the contract under a revised delivery schedule.
    (b) Permit the contractor to continue performance of the contract by 
means of a subcontract or other business arrangement with an acceptable 
third party, provided the rights of the Government are adequately 
preserved.
    (c) If the requirement for the supplies and services in the contract 
no longer exists, and the contractor is not liable to the Government for 
damages as provided in 49.402-7, execute a no-cost termination 
settlement agreement using the formats in 49.603-6 and 49.603-7 as a 
guide.



49.402-5  Memorandum by the contracting officer.

    When a contract is terminated for default or a procedure authorized 
by 49.402-4 is followed, the contracting officer shall prepare a 
memorandum for the contract file explaining the reasons for the action 
taken.



49.402-6  Repurchase against contractor's account.

    (a) When the supplies or services are still required after 
termination, the contracting officer shall repurchase the same or 
similar supplies or services against the contractor's account as soon as 
practicable. The contracting officer shall repurchase at as reasonable a 
price as practicable, considering the quality and delivery requirements. 
The contracting officer may repurchase a quantity in excess of the 
undelivered quantity terminated for default when the excess quantity is 
needed, but excess cost may not be charged against the defaulting 
contractor for more than the undelivered quantity terminated for default 
(including variations in quantity permitted by the terminated contract). 
Generally, the contracting officer will make a decision whether or not 
to repurchase before issuing the termination notice.
    (b) If the repurchase is for a quantity not over the undelivered 
quantity terminated for default, the Default clause authorizes the 
contracting officer to use any terms and acquisition method deemed 
appropriate for the repurchase. However, the contracting officer shall

[[Page 980]]

obtain competition to the maximum extent practicable for the repurchase. 
The contracting officer shall cite the Default clause as the authority. 
If the repurchase is for a quantity over the undelivered quantity 
terminated for default, the contracting officer shall treat the entire 
quantity as a new acquisition. If the repurchase is for a quantity over 
the undelivered quantity terminated for default, the contracting officer 
shall treat the entire quantity as a new acquisition.
    (c) If repurchase is made at a price over the price of the supplies 
or services terminated, the contracting officer shall, after completion 
and final payment of the repurchase contract, make a written demand on 
the contractor for the total amount of the excess, giving consideration 
to any increases or decreases in other costs such as transportation, 
discounts, etc. If the contractor fails to make payment, the contracting 
officer shall follow the procedures in subpart 32.6 for collecting 
contract debts due the Government.
[48 FR 42447, Sept. 19, 1983, as amended at 50 FR 1745, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



49.402-7  Other damages.

    (a) If a contract is terminated for default or if a course of action 
in lieu of termination for default is followed (see 49.402-4), the 
contracting officer shall promptly ascertain and make demand for any 
liquidated damages to which the Government is entitled under the 
contract. Under the contract clauses for liquidated damages at 52.211-
11, these damages are in addition to any excess repurchase costs.
    (b) If the Government has suffered any other ascertainable damages, 
including administrative costs, as a result of the contractor's default, 
the contracting officer shall, on the basis of legal advice, take 
appropriate action as prescribed in subpart 32.6 to assert the 
Government's demand for the damages.
[48 FR 42447, Sept. 19, 1983, as amended at 56 FR 15154, Apr. 15, 1991; 
60 FR 48250, Sept. 18, 1995]



49.403  Termination of cost-reimbursement contracts for default.

    (a) The right to terminate a cost-reimbursement contract for default 
is provided for in the Termination for Default or for Convenience of the 
Government clause at 52.249-6. A 10-day notice to the contractor before 
termination for default is required in every case by the clause.
    (b) Settlement of a cost-reimbursement contract terminated for 
default is subject to the principles in subparts 49.1 and 49.3 the same 
as when a contract is terminated for convenience, except that--
    (1) The costs of preparing the contractor's settlement proposal are 
not allowable (see subparagraph (h)(3) of the clause); and
    (2) The contractor is reimbursed the allowable costs, and an 
appropriate reduction is made in the total fee, if any, (see 
subparagraph (h)(4) of the clause).
    (c) The contracting officer shall use the procedures in 49.402 to 
the extent appropriate in considering the termination for default of a 
cost-reimbursement contract. However, a cost-reimbursement contract does 
not contain any provision for recovery of excess repurchase costs after 
termination for default (but see paragraph (g) of the clause at 52.246-3 
with respect to failure of the contractor to replace or correct 
defective supplies).
[48 FR 42447, Sept. 19, 1983, as amended at 61 FR 39222, July 26, 1996]



49.404  Surety-takeover agreements.

    (a) The procedures in this section apply primarily, but not solely, 
to fixed-price construction contracts terminated for default.
    (b) Because of the surety's liability for damages resulting from the 
contractor's default, the surety has certain rights and interests in the 
completion of the contract work and application of any undisbursed 
funds. Accordingly, the contracting officer shall carefully consider 
proposals by the surety concerning completion of the work. The 
contracting officer shall take action on the basis of the Government's 
interest, including the possible effect of the action upon the 
Government's rights against the surety.

[[Page 981]]

    (c) If the surety offers to complete the contract work, this should 
normally be permitted unless the contracting officer has reason to 
believe that the persons or firms proposed by the surety to complete the 
work are not competent and qualified and the interests of the Government 
would be substantially prejudiced.
    (d) Because of the possibility of conflicting demands for unpaid 
prior earnings (retained percentages and unpaid progress estimates) of 
the defaulting contractor, the surety may condition its offer of 
completion upon the execution by the Government of a takeover agreement 
fixing the surety's rights to payment from those funds. In that event, 
the contracting officer may (but not before the effective date of 
termination) enter into a written agreement with the surety. The 
contracting officer should consider including in the agreement both the 
surety and the defaulting contractor in order to eliminate any 
disagreement concerning the contractor's residual rights, including 
assertions to unpaid prior earnings.
    (e) The agreement shall provide for the surety to complete the work 
according to all the terms and conditions of the contract and for the 
Government to pay the surety the balance of the contract price unpaid at 
the time of default, but not in excess of the surety's costs and 
expenses, in the manner provided by the contract subject to the 
following conditions:
    (1) Any unpaid earnings of the defaulting contractor, including 
retained percentages and progress estimates for work accomplished before 
termination, shall be subject to debts due the Government by the 
contractor, except to the extent that such unpaid earnings may be 
required to permit payment to the completing surety of its actual costs 
and expenses incurred in the completion of the work, exclusive of its 
payments and obligations under the payment bond given in connection with 
the contract.
    (2) The agreement shall not waive or release the Government's right 
to liquidated damages for delays in completion of the work, except to 
the extent that they are excusable under the contract.
    (3) If the contract proceeds have been assigned to a financing 
institution, the surety may not be paid from unpaid earnings, unless the 
assignee consents to the payment in writing.
    (4) The surety shall not be paid any amount in excess of its total 
expenditures necessarily made in completing the work and discharging its 
liabilities under the payment bond of the defaulting contractor. 
Furthermore, payments to the surety to reimburse it for discharging its 
liabilities under the payment bond of the defaulting contractor shall be 
only on authority of--
    (i) Mutual agreement between the Government, the defaulting 
contractor, and the surety;
    (ii) Determination of the Comptroller General as to payee and 
amount; or
    (iii) Order of a court of competent jurisdiction.



49.405  Completion by another contractor.

    If the surety does not arrange for completion of the contract, the 
contracting officer normally will arrange for completion of the work by 
awarding a new contract based on the same plans and specifications. The 
new contract may be the result of sealed bidding or any other 
appropriate contracting method or procedure. The contracting officer 
shall exercise reasonable diligence to obtain the lowest price available 
for completion.
[48 FR 42447, Sept. 19, 1983, as amended at 50 FR 1746, Jan. 11, 1985; 
50 FR 52429, Dec. 23, 1985]



49.406  Liquidation of liability.

    The contract provides that the contractor and the surety are liable 
to the Government for resultant damages. The contracting officer shall 
use all retained percentages of progress payments previously made to the 
contractor and any progress payments due for work completed before the 
termination to liquidate the contractor's and the surety's liability to 
the Government. If the retained and unpaid amounts are insufficient, the 
contracting officer shall take steps to recover the additional sum from 
the contractor and the surety.

[[Page 982]]



               Subpart 49.5--Contract Termination Clauses



49.501  General.

    This subpart prescribes the principal contract termination clauses. 
For contracts for the acquisition of commercial items, this part 
provides administrative guidance which may be followed when it is 
consistent with the requirements and procedures in the clause at 52.212-
4, Contract Terms and Conditions--Commercial Items. In appropriate 
cases, agencies may authorize the use of special purpose clauses, if 
consistent with this chapter.
[60 FR 48250, Sept. 18, 1995]



49.502  Termination for convenience of the Government.

    (a) Fixed-price contracts of $100,000 or less (short form).
    (1) General use. The contracting officer shall insert the clause at 
52.249-1, Termination for Convenience of the Government (Fixed-Price) 
(Short Form), in solicitations and contracts when a fixed-price contract 
is contemplated and the contract amount is expected to be $100,000 or 
less, except (i) if use of the clause at 52.249-4, Termination for 
Convenience of the Government (Services) (Short Form) is appropriate, 
(ii) in contracts for research and development work with an educational 
or nonprofit institution on a no-profit basis, (iii) in contracts for 
architect-engineer services, or (iv) if one of the clauses prescribed or 
cited at 49.505(a), (b), or (e), is appropriate.
    (2) Dismantling and demolition. If the contract is for dismantling, 
demolition, or removal of improvements, the contracting officer shall 
use the clause with its Alternate I.
    (b) Fixed-price contracts over $100,000.
    (1)(i) General use. The contracting officer shall insert the clause 
at 52.249-2, Termination for Convenience of the Government (Fixed-
Price), in solicitations and contracts when a fixed-price contract is 
contemplated and the contract amount is expected to be over $100,000, 
except in contracts for (i) dismantling and demolition, (ii) research 
and development work with an educational or nonprofit institution on a 
no-profit basis, or (iii) architect-engineer services; it shall not be 
used if the clause at 52.249-4, Termination for Convenience of the 
Government (Services) (Short Form), is appropriate (see 49.502(c)), or 
one of the clauses prescribed or cited at 49.505(a), (b), or (e), is 
appropriate.
    (ii) Construction. If the contract is for construction, the 
contracting officer shall use the clause with its Alternate I.
    (iii) Partial payments. If the contract is with an agency of the 
U.S. Government or with State, local, or foreign governments or their 
agencies, and if the contracting officer determines that the requirement 
to pay interest on excess partial payments is inappropriate, the 
contracting officer shall use the clause with its Alternate II. In such 
contracts for construction, the contracting officer shall use the clause 
with its Alternate III.
    (2) Dismantling and demolition. The contracting officer shall insert 
the clause at 52.249-3, Termination for Convenience of the Government 
(Dismantling, Demolition, or Removal of Improvements) in solicitations 
and contracts for dismantling, demolition, or removal of improvements, 
when a fixed-price contract is contemplated and the contract amount is 
expected to be over $100,000. If the contract is with an agency of the 
U.S. Government or with State, local, or foreign governments or their 
agencies, and if the contracting officer determines that the requirement 
to pay interest on excess partial payments is inappropriate, the 
contracting officer shall use the clause with its Alternate I.
    (c) Service contracts (short form). The contracting officer shall 
insert the clause at 52.249-4, Termination for Convenience of the 
Government (Services) (Short Form), in solicitations and contracts for 
services, regardless of value, when a fixed-price contract is 
contemplated and the contracting officer determines that because of the 
kind of services required, the successful offeror will not incur 
substantial charges in preparation for and in carrying out the contract, 
and would, if terminated for the convenience of the Government, limit 
termination settlement charges to services rendered before the date of 
termination. Examples of services

[[Page 983]]

where this clause may be appropriate are contracts for rental of 
unreserved parking space, laundry and drycleaning, etc.
    (d) Research and development contracts. The contracting officer 
shall insert the clause at 52.249-5, Termination for the Convenience of 
the Government (Educational and Other Nonprofit Institutions), in 
solicitations and contracts when either a fixed-price or cost-
reimbursement contract is contemplated for research and development work 
with an educational or nonprofit institution on a no-profit or no-fee 
basis.
    (e) Subcontracts. (1) General use. The prime contractor may find the 
clause at 52.249-1, Termination for Convenience of the Government 
(Fixed-Price) (Short Form), or at 52.249-2, Termination for Convenience 
of the Government (Fixed-Price), as appropriate, suitable for use in 
fixed-price subcontracts, except as noted in subparagraph (2) below; 
provided, that the relationship between the contractor and subcontractor 
is clearly indicated. Inapplicable conditions (e.g., paragraph (d)) in 
52.249-2 should be deleted and the periods reduced for submitting the 
subcontractor's termination settlement proposal (e.g., 6 months), and 
for requesting an equitable price adjustment (e.g., 45 days).
    (2) Research and development. The prime contractor may find the 
clause at 52.249-5, Termination for the Convenience of the Government 
(Educational and Other Nonprofit Institutions), suitable for use in 
subcontracts placed with educational or nonprofit institutions on a no-
profit or no-fee basis; provided, that the relationship between the 
contractor and subcontractor is clearly indicated. Inapplicable 
conditions (e.g., paragraph (h)) should be deleted, the period for 
submitting the subcontractor's termination settlement proposal should be 
reduced (e.g., 6 months), the subcontract should be placed on a no-
profit or no-fee basis, and the subcontract should incorporate or be 
negotiated on the basis of the cost principles in part 31 of the Federal 
Acquisition Regulation.
[48 FR 42447, Sept. 19, 1983, as amended at 61 FR 39222, July 26, 1996]



49.503  Termination for convenience of the Government and default.

    (a) Cost-reimbursement contracts.
    (1) General use. The contracting officer shall insert the clause at 
52.249-6, Termination (Cost-Reimbursement), in solicitations and 
contracts when a cost-reimbursement contract is contemplated, except in 
contracts for architect-engineer services and for research and 
development with an educational or nonprofit institution on a no-fee 
basis.
    (2) Construction. If the contract is for construction, the 
contracting officer shall use the clause with its Alternate I.
    (3) Partial payments. If the contract is with an agency of the U.S. 
Government or with State, local, or foreign governments or their 
agencies, and if the contracting officer determines that the requirement 
to pay interest on excess partial payments is inappropriate, the 
contracting officer shall use the clause with its Alternate II. In such 
contracts for construction, the contracting officer shall use the clause 
with its Alternate III.
    (4) Time-and-material and labor-hour contracts. If the contract is a 
time-and-material or labor-hour contract, the contracting officer shall 
use the clause with its Alternate IV. If the contract is with an agency 
of the U.S. Government or with State, local, or foreign governments or 
their agencies, and if the contracting officer determines that the 
requirement to pay interest on excess partial payments is inappropriate, 
the contracting officer shall use the clause with its Alternate V.
    (b) Fixed-price contracts. The contracting officer shall insert the 
clause at 52.249-7, Termination (Fixed-Price Architect-Engineer), in 
solicitations and contracts for architect-engineer services, when a 
fixed-price contract is contemplated.
    (c) Subcontracts. The prime contractor may find the clause at 
52.249-6, Termination (Cost-Reimbursement), suitable for use in cost-
reimbursement subcontracts; provided, that the relationship between the 
contractor and subcontractor is clearly indicated. Inapplicable 
conditions (e.g., paragraphs (e), (j) and (n)) should be deleted and

[[Page 984]]

the period for submitting the subcontractor's termination settlement 
proposal should be reduced (e.g., 6 months).
[48 FR 42447, Sept. 19, 1983, as amended at 61 FR 39222, July 26, 1996]



49.504  Termination of fixed-price contracts for default.

    (a)(1) Supplies and services. The contracting officer shall insert 
the clause at 52.249-8, Default (Fixed-Price Supply and Service), in 
solicitations and contracts when a fixed-price contract is contemplated 
and the contract amount is expected to exceed the simplified acquisition 
threshold. The contracting officer may use the clause when the contract 
amount is at or below the simplified acquisition threshold, if 
appropriate (e.g., if the acquisition involves items with a history of 
unsatisfactory quality).
    (2) Transportation. If the contract is for transportation or 
transportation-related services, the contracting officer shall use the 
clause with its Alternate I.
    (b) Research and development. The contracting officer shall insert 
the clause at 52.249-9, Default (Fixed-Price Research and Development), 
in solicitations and contracts for research and development when a 
fixed-price contract is contemplated and the contract amount is expected 
to exceed the simplified acquisition threshold, except those with 
educational or nonprofit institutions on a no-profit basis. The 
contracting officer may use the clause when the contract amount is at or 
below the simplified acquisition threshold, if appropriate (e.g., if the 
contracting officer believes that key personnel essential to the work 
may be devoted to other programs).
    (c)(1) Construction. The contracting officer shall insert the clause 
at 52.249-10, Default (Fixed-Price Construction), in solicitations and 
contracts for construction, when a fixed-price contract is contemplated 
and the contract amount is expected to exceed the simplified acquisition 
threshold. The contracting officer may use the clause when the contract 
amount is at or below the simplified acquisition threshold, if 
appropriate (e.g., if completion dates are essential).
    (2) Dismantling and demolition. If the contract is for dismantling, 
demolition, or removal of improvements, the contracting officer shall 
use the clause with its Alternate I.
    (3) National emergencies. If the contract is to be awarded during a 
period of national emergency, the contracting officer may use the clause 
(i) with its Alternate II when a fixed-price contract for construction 
is contemplated, or (ii) with its Alternate III when a contract for 
dismantling, demolition, or removal of improvements is contemplated.
[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 34760, July 3, 1995]



49.505  Other termination clauses.

    (a) Facilities. The contracting officer shall insert the clause at 
52.249-11, Termination of Work (Consolidated Facilities or Facilities 
Acquisition), in consolidated facilities contracts and facilities 
acquisition contracts. If the contract is with an agency of the U.S. 
Government or with State, local, or foreign governments or their 
agencies, and if the contracting officer determines that the requirement 
to pay interest on excess partial payments is inappropriate, the 
contracting officer shall use the clause with its Alternate I.
    (b) Personal service contracts. The contracting officer shall insert 
the clause at 52.249-12, Termination (Personal Services), in 
solicitations and contracts for personal services (see part 37).
    (c) Failure to perform. The contracting officer shall insert the 
clause at 52.249-13, Failure to Perform, in facilities contracts, except 
facilities use contracts with nonprofit educational institutions.
    (d) Excusable delays. The contracting officer shall insert the 
clause at 52.249-14, Excusable Delays, in solicitations and contracts 
for supplies, services, construction, and research and development on a 
fee basis, when a cost-reimbursement contract is contemplated. The 
contracting officer shall also insert the clause in time-and-material 
contracts, labor-hour contracts, consolidated facilities contracts, and 
facilities acquisition contracts.

[[Page 985]]

    (e) Communication service contracts. This regulation does not 
prescribe a clause for the cancellation or termination of orders under 
communication service contracts with common carriers because of special 
agency requirements that apply to these services. An appropriate clause, 
however, shall be prescribed at agency level, within those agencies 
contracting for these services.



          Subpart 49.6--Contract Termination Forms and Formats



49.601  Notice of termination for convenience.

    (See 49.402-3(g) for notice of termination for default.)



49.601-1  Telegraphic notice.

    (a) Complete termination. The following telegraphic notice is 
suggested for use if a supply contract is being completely terminated 
for convenience. If appropriately modified, the notice may be used for 
other than supply contracts.

DATE--------------------
XYZ Corporation
New York, NY 12345
    Contract No. ............... is completely terminated under clause 
..........., effective .......... [insert ``immediately'' or ``on 
..............., 19..'', or ``as soon as you have delivered, including 
prior deliveries, the following items:'' (list)]. Immediately stop all 
work, terminate subcontracts, and place no further orders except to the 
extent [insert if applicable ``necessary to complete items not 
terminated or''] that you or a subcontractor wish to retain and continue 
for your own account any work-in-process or other materials. Telegraph 
similar instructions to all subcontractors and suppliers. Detailed 
instructions follow.
 _______________________________________________________________________

                           Contracting Officer

    (b) Partial termination. The following telegraphic notice is 
suggested for use if a supply contract is being partially terminated for 
convenience. If appropriately modified, the notice may be used for other 
than supply contracts.

DATE--------------------
XYZ Corporation
New York, NY 12345
    Contract No. ..... is partially terminated under clause 
...................., effective .............. [insert ``immediately'' 
or ``on ..............., 19..'']. Reduce items to be delivered as 
follows: [insert instructions]. Immediately stop all work, terminate 
subcontracts, and place no further orders except as necessary to perform 
the portion not terminated or that you or a subcontractor wish to retain 
and continue for your account any work-in-process or other materials. 
Telegraph similar instructions to all subcontractors and suppliers. 
Detailed instructions follow.
 _______________________________________________________________________

                           Contracting Officer



49.601-2  Letter notice.

    The following letter notice of termination is suggested for use if a 
contract for supplies is being terminated for convenience. With 
appropriate modifications, it may be used in terminating contracts for 
other than supplies and in terminating subcontracts. This notice shall 
be sent by certified mail, return receipt requested. If no prior 
telegraphic notice was issued, use the alternate notice that follows 
this notice.

               NOTICE OF TERMINATION TO PRIME CONTRACTORS

    [At the top of the notice, set out all special details relating to 
the particular termination; e.g., name and address of company, contract 
number of terminated contract, items, etc.]
    (a) Effective date of termination. This confirms the Government's 
telegram to you dated .........., 19...., terminating .............. 
[insert ``completely'' or ``in part''] Contract No. ...... (referred to 
as ``the contract'') for the Government's convenience under the clause 
entitled ......... [insert title of appropriate termination clause]. The 
termination is effective on the date and in the manner stated in the 
telegram.
    (b) Cessation of work and notification to immediate subcontractors. 
You shall take the following steps:
    (1) Stop all work, make no further shipments, and place no further 
orders relating to the contract, except for--
    (i) The continued portion of the contract, if any;
    (ii) Work-in-process or other materials that you may wish to retain 
for your own account; or
    (iii) Work-in-process that the Contracting Officer authorizes you to 
continue (A) for safety precautions, (B) to clear or avoid damage to 
equipment, (C) to avoid immediate complete spoilage of work-in-process 
having a definite commercial value, or (D) to prevent any other undue 
loss to the Government. (If you believe this authorization is necessary 
or advisable, immediately notify

[[Page 986]]

the Contracting Officer by telephone or personal conference and obtain 
instructions.)
    (2) Keep adequate records of your compliance with subparagraph (1) 
above showing the--
    (i) Date you received the Notice of Termination;
    (ii) Effective date of the termination; and
    (iii) Extent of completion of performance on the effective date.
    (3) Furnish notice of termination to each immediate subcontractor 
and supplier that will be affected by this termination. In the notice--
    (i) Specify your Government contract number;
    (ii) State whether the contract has been terminated completely or 
partially;
    (iii) Provide instructions to stop all work, make no further 
shipments, place no further orders, and terminate all subcontracts under 
the contract, subject to the exceptions in subparagraph (1) above;
    (iv) Provide instructions to submit any settlement proposal 
promptly; and
    (v) Request that similar notices and instructions be given to its 
immediate subcontractors.
    (4) Notify the Contracting Officer of all pending legal proceedings 
that are based on subcontracts or purchase orders under the contract, or 
in which a lien has been or may be placed against termination inventory 
to be reported to the Government. Also, promptly notify the Contracting 
Officer of any such proceedings that are filed after receipt of this 
Notice.
    (5) Take any other action required by the Contracting Officer or 
under the Termination clause in the contract.
    (c) Termination inventory. (1) As instructed by the Contracting 
Officer, transfer title and deliver to the Government all termination 
inventory of the following types or classes, including subcontractor 
termination inventory that you have the right to take: [Contracting 
Officer insert proper identification or ``None''].
    (2) To settle your proposal, it will be necessary to establish that 
all prime and subcontractor termination inventory has been properly 
accounted for. For detailed information, see part 45.
    (d) Settlements with subcontractors. You remain liable to your 
subcontractors and suppliers for proposals arising because of the 
termination of their subcontracts or orders. You are requested to settle 
these settlement proposals as promptly as possible. For purposes of 
reimbursement by the Government, settlements will be governed by the 
provisions of part 49.
    (e) Completed end items. (1) Notify the Contracting Officer of the 
number of items completed under the contract and still on hand and 
arrange for their delivery or other disposal (see 49.205).
    (2) Invoice acceptable completed end items under the contract in the 
usual way and do not include them in the settlement proposal.
    (f) Patents. If required by the contract, promptly forward the 
following to the Contracting Officer:
    (1) Disclosure of all inventions, discoveries, and patent 
applications made in the performance of the contract.
    (2) Instruments of license or assignment on all inventions, 
discoveries, and patent applications made in the performance of the 
contract.
    (g) Employees affected. (1) If this termination, together with other 
outstanding terminations, will necessitate a significant reduction in 
your work force, you are urged to--
    (i) Promptly inform the local State Employment Service of your 
reduction-in-force schedule in numbers and occupations, so that the 
Service can take timely action in assisting displaced workers;
    (ii) Give affected employees maximum practical advance notice of the 
employment reduction and inform them of the facilities and services 
available to them through the local State Employment Service offices;
    (iii) Advise affected employees to file applications with the State 
Employment Service to qualify for unemployment insurance, if necessary;
    (iv) Inform officials of local unions having agreements with you of 
the impending reduction-in-force; and
    (v) Inform the local Chamber of Commerce and other appropriate 
organizations which are prepared to offer practical assistance in 
finding employment for displaced workers of the impending reduction-in-
force.
    (2) If practicable, urge subcontractors to take similar actions to 
those described in subparagraph (1) above.
    (h) Administrative. The contract administration office named in the 
contract will identify the Contracting Officer who will be in charge of 
the settlement of this termination and who will, upon request, provide 
the necessary settlement forms. Matters not covered by this notice 
should be brought to the attention of the undersigned.
    (i) Please acknowledge receipt of this notice as provided below.
 _______________________________________________________________________

                          (Contracting Officer)

 _______________________________________________________________________
________________________________________________________________________

                            (Name of Office)

 _______________________________________________________________________

[[Page 987]]

                                (Address)

                        Acknowledgment of Notice

    The undersigned acknowledges receipt of a signed copy of this notice 
on ............, l9....... Two signed copies of this notice are 
returned.
 _______________________________________________________________________

                          (Name of Contractor)

 By_____________________________________________________________________

                                 (Name)

 _______________________________________________________________________

                                 (Title)

                             (End of notice)

    Alternate notice. If no prior telegraphic notice was issued, 
substitute the following paragraph (a) for paragraph (a) of the notice 
above:

    (a) Effective date of termination. You are notified that Contract 
No. ...... (referred to as ``the contract'') is terminated 
.............. [insert ``completely'' or ``in part''] for the 
Government's convenience under the clause entitled .............. 
[insert title of appropriate termination clause]. The termination is 
effective .............. [insert either ``immediately upon receipt of 
this Notice'' or ``on ..........., l9...,'' or ``as soon as you have 
delivered, including prior deliveries, the following items:'' (list)]. 
Reduce items to be delivered as follows: [insert instructions].



49.602  Forms for settlement of terminated contracts.

    The standard forms listed below shall be used for settling 
terminated prime contracts. The forms at 49.602-1 and 49.602-2 may also 
be used for settling terminated subcontracts. Standard forms are 
illustrated in subpart 53.3.



49.602-1  Termination settlement proposal forms.

    (a) Standard Form 1435, Settlement Proposal (Inventory Basis), shall 
be used to submit settlement proposals resulting from the termination of 
fixed-price contracts if the proposals are computed on an inventory 
basis (see 49.206-2(a)).
    (b) Standard Form 1436, Settlement Proposal (Total Cost Basis), 
shall be used to submit settlement proposals resulting from the 
termination of fixed-price contracts if the proposals are computed on a 
total cost basis (see 49.206-2(b)).
    (c) Standard Form 1437, Settlement Proposal for Cost-Reimbursement 
Type Contracts, shall be used to submit settlement proposals resulting 
from the termination of cost-reimbursement contracts (see 49.302).
    (d) Standard Form 1438, Settlement Proposal (Short Form), shall be 
used to submit settlement proposals resulting from the termination of 
fixed-price contracts if the total proposal is less than $10,000 (see 
49.206-1(d)).



49.602-2  Inventory schedule forms.

    The following forms shall be used to support settlement proposals 
submitted on the forms specified in 49.602-1(a), (b), and (c) (see 
45.606):
    (a) Standard Form 1426, Inventory Schedule A (Metals in Mill Product 
Form), and Standard Form 1427, Inventory Schedule A--Continuation Sheet 
(Metals in Mill Product Form).
    (b) Standard Form 1428, Inventory Schedule B, and Standard Form 
1429, Inventory Schedule B--Continuation Sheet (used for reporting raw 
materials, purchased parts, finished components, finished product, plant 
equipment, and miscellaneous inventory).
    (c) Standard Form 1430, Inventory Schedule C--(Work-in-Process), and 
Standard Form 1431, Inventory Schedule C--Continuation Sheet (Work-in-
Process).
    (d) Standard Form 1432, Inventory Schedule D (Special Tooling and 
Special Test Equipment), and Standard Form 1433, Inventory Schedule D--
Continuation Sheet (Special Tooling and Special Test Equipment).
    (e) Standard Form 1434, Termination Inventory Schedule E (Short Form 
for use with SF 1438 Only).



49.602-3  Schedule of accounting information.

    Standard Form 1439, Schedule of Accounting Information, shall be 
filed in support of a settlement proposal unless the proposal is filed 
on Standard Form 1438, Settlement Proposal (Short Form) (see 49.206-
1(e)).

[[Page 988]]



49.602-4  Partial payments.

    Standard Form 1440, Application for Partial Payment, shall be used 
to apply for partial payments (see 49.112-1).



49.602-5  Settlement agreement.

    Standard Form 30 (SF 30), Amendment of Solicitation/Modification of 
Contract, shall be used to execute a settlement agreement (see 49.109-
1).



49.603  Formats for termination for convenience settlement agreements.

    The formats to be used for termination for convenience settlement 
agreements should be substantially as shown in this section (see 
49.109). Termination contracting officers (TCO's) may, however, modify 
the contents of these agreements to conform with special termination 
clauses prescribed or authorized by their agencies (e.g., see 49.501 and 
49.505(e)).



49.603-1  Fixed-price contracts--complete termination.

    [Insert the following in Block 14 of SF 30 for settlements of fixed-
price contracts completely terminated.]
    (a) This supplemental agreement settles the settlement proposal 
resulting from the Notice of Termination dated .......... .
    (b) The parties agree to the following:
    (1) The Contractor certifies that all contract termination inventory 
(including scrap) has been retained or acquired by the Contractor, sold 
to third parties, returned to suppliers, delivered to or stored for the 
Government, or otherwise properly accounted for, and that all proceeds 
and retention credits have been used in arriving at this agreement.
    (2) The Contractor certifies that each immediate subcontractor, 
whose settlement proposal is included in the proposal settled by this 
agreement, has furnished the Contractor a certificate stating (i) that 
all subcontract termination inventory (including scrap) has been 
retained or acquired by the subcontractor, sold to third parties, 
returned to suppliers, delivered to or stored for the Government, or 
otherwise properly accounted for, and that all proceeds and retention 
credits were used in arriving at the settlement of the subcontract, and 
(ii) that the subcontractor has received a similar certificate from each 
immediate subcontractor whose proposal was included in its proposal.
    (3) The Contractor certifies that all items of termination 
inventory, the costs of which were used in arriving at the amount of 
this settlement or the settlement of any subcontract settlement proposal 
included in this settlement, (i) are properly allocable to the 
terminated portion of the contract, (ii) do not exceed the reasonable 
quantitative requirements of the terminated portion of the contract, and 
(iii) do not include any items reasonably usable without loss to the 
Contractor on its other work. The Contractor further certifies that the 
Contracting Officer has been informed of any substantial change in the 
status of the items between the dates of the termination inventory 
schedules and the date of this agreement.
    (4) The Contractor transfers, conveys, and assigns to the Government 
all the right, title, and interest, if any, that the Contractor has 
received, or is entitled to receive, in and to subcontract termination 
inventory not otherwise properly accounted for.
    (5) The Contractor shall, within 10 days after receipt of the 
payment specified in this agreement, pay to each of its immediate 
subcontractors (or their respective assignees) the amounts to which they 
are entitled, after deducting any prior payments and, if the Contractor 
so elects, any amounts due and payable to the Contractor by those 
subcontractors.
    (6)(i) The Contractor has received $.......... for work and services 
performed, or items delivered, under the completed portion of the 
contract. The Government confirms the right of the Contractor, subject 
to paragraph (7) below, to retain this sum and agrees that it 
constitutes a portion of the total amount to which the Contractor is 
entitled in settlement of the contract.
    (ii) Further, the Government agrees to pay to the Contractor or its 
assignee, upon presentation of a proper invoice or voucher, the sum of 
$.......... [insert net amount of settlement], arrived

[[Page 989]]

at by deducting from the sum of $.......... [for proposals on an 
inventory basis insert gross amount of settlement; for proposals on a 
total cost basis, insert gross amount of settlement less amount shown in 
subdivision (6)(i) above], (A) the amount of $.......... for all 
unliquidated partial or progress payments previously made to the 
Contractor or its assignee and all unliquidated advance payments (with 
any interest) and (B) the amount of $.......... for all applicable 
property disposal credits [insert if appropriate, ``and (C) the amount 
of $.......... for all other amounts due the Government under this 
contract, except as provided in paragraph (7) below''].
    (iii) The net settlement of $........... in subdivision (ii) above, 
together with sums previously paid, constitutes payment in full and 
complete settlement of the amount due the Contractor for the complete 
termination of the contract and of all other demands and liabilities of 
the Contractor and the Government under the contract except as provided 
in paragraph (7) below.
    (7) Regardless of any other provision of this agreement, the 
following rights and liabilities of the parties under the contract are 
reserved:
    [The following list of reserved or excepted rights and liabilities 
is intended to cover those that should most frequently be reserved and 
that should be scrutinized at the time a settlement agreement is 
negotiated (see 49.109-2). The suggested language of the excepted items 
on the list may be varied at the discretion of the contracting officer. 
If accuracy or completeness can be achieved by referencing the number of 
a contract clause or provision covering the matter in question, then 
follow that method of enumerating reserved rights and liabilities. Omit 
any of the following that are not applicable and add any additional 
exceptions or reservations required.]
    (i) All rights and liabilities, if any, of the parties, as to 
matters covered by any renegotiation authority.
    (ii) All rights of the Government to take the benefit of agreements 
or judgments affecting royalties paid or payable in connection with the 
performance of the contract.
    (iii) All rights and liabilities, if any, of the parties under those 
clauses inserted in the contract because of the requirements of Acts of 
Congress and Executive Orders, including, without limitation, any 
applicable clauses relating to: labor law, contingent fees, domestic 
articles, and employment of aliens.'' [If the contract contains clauses 
of this character inserted for reasons other than requirements of Acts 
of Congress or Executive Orders, the suggested language should be 
appropriately modified.]
    (iv) All rights and liabilities of the parties arising under the 
contract and relating to reproduction rights, patent infringements, 
inventions, or applications for patents, including rights to 
assignments, invention reports, licenses, covenants of indemnity against 
patent risks, and bonds for patent indemnity obligations, together with 
all rights and liabilities under the bonds.
    (v) All rights and liabilities of the parties, arising under the 
contract or otherwise, and concerning defects, guarantees, or warranties 
relating to any articles or component parts furnished to the Government 
by the Contractor under the contract or this agreement.
    (vi) All rights and liabilities of the parties under the contract 
relating to any contract termination inventory stored for the 
Government.
    (vii) All rights and liabilities of the parties under agreements 
relating to the future care and disposition by the Contractor of 
Government-owned property remaining in the Contractor's custody.
    (viii) All rights and liabilities of the parties relating to 
Government property furnished to the Contractor for the performance of 
this contract.
    (ix) All rights and liabilities of the parties under the contract 
relating to options (except options to continue or increase the work 
under the contract), covenants not to compete, and covenants of 
indemnity.
    (x) All rights and liabilities, if any, of the parties under those 
clauses of the contract relating to price reductions for defective cost 
or pricing data.

                           (End of agreement)

[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 37773, July 21, 1995; 
60 FR 49723, Sept. 26, 1995]


[[Page 990]]





49.603-2  Fixed-price contracts--partial termination.

    [Insert the following in Block 14 of SF 30 for settlements of fixed-
price contracts partially terminated.]
    (a) This supplemental agreement settles the settlement proposal 
resulting from the Notice of Termination dated ............... .
    (b) The parties agree to the following:
    (1) The terminated portion of the contract is as follows: [specify 
the terminated portion clearly as to (i) item numbers, (ii) 
descriptions, (iii) quantity terminated, (iv) unit price of items, (v) 
total price of terminated items, and (vi) any other explanation 
necessary to avoid uncertainty or misunderstanding].
    (2) The Contractor certifies that all contract termination inventory 
(including scrap) has been retained or acquired by the Contractor, sold 
to third parties, returned to suppliers, delivered to or stored for the 
Government, or otherwise properly accounted for, and that all proceeds 
and retention credits have been used in arriving at this agreement.
    (3) The Contractor certifies that each immediate subcontractor, 
whose settlement proposal is included in the proposal settled by this 
agreement, has furnished the Contractor a certificate stating (i) that 
all subcontract termination inventory (including scrap) has been 
retained or acquired by the subcontractor, sold to third parties, 
returned to suppliers, delivered to or stored for the Government, or 
otherwise properly accounted for, and that all proceeds and retention 
credits were used in arriving at the settlement of the subcontract, and 
(ii) that the subcontractor has received a similar certificate from each 
immediate subcontractor whose proposal was included in its proposal.
    (4) The Contractor certifies that all items of termination 
inventory, the costs of which were used in arriving at the amount of 
this settlement or the settlement of any subcontract settlement proposal 
included in this settlement, (i) are properly allocable to the 
terminated portion of the contract, (ii) do not exceed the reasonable 
quantitative requirements of the terminated portion of the contract, and 
(iii) do not include any items reasonably usable without loss to the 
Contractor on its other work. The Contractor further certifies that the 
Contracting Officer has been informed of any substantial change in the 
status of the items between the dates of the termination inventory 
schedules and the date of this agreement.
    (5) The Contractor transfers, conveys, and assigns to the Government 
all the right, title, and interest, if any, that the Contractor has 
received, or is entitled to receive, in and to subcontract termination 
inventory not otherwise properly accounted for.
    (6) The Contractor shall, within 10 days after receipt of the 
payment specified in this agreement, pay to each of its immediate 
subcontractors (or their respective assignees) the amounts to which they 
are entitled, after deducting any prior payments and, if the Contractor 
so elects, any amounts due and payable to the Contractor by those 
subcontractors.
    (7)(i) The Government agrees to pay to the Contractor or its 
assignee, upon presentation of a proper invoice or voucher, the sum of 
$.......... [insert net amount of settlement], arrived at by deducting 
from $.......... [insert gross amount of settlement], (A) the amount of 
$.......... for all unliquidated partial or progress payments previously 
made to the Contractor or its assignee and all unliquidated advance 
payments (with any interest) applicable to the terminated portion of the 
contract and (B) the amount of $.......... for all applicable property 
disposal credits.
    (ii) The net settlement of $.......... in subdivision (i) above, 
together with sums previously paid, constitutes payment in full and 
complete settlement of the amount due the Contractor for the terminated 
portion of the contract, except as provided in subparagraph (8) below.
    (iii) Upon payment of the net settlement of $.........., all 
obligations of the Contractor to perform further work or services or to 
make further deliveries under the terminated portion of the contract and 
all obligations of the Government to make further payments or

[[Page 991]]

carry out other undertakings concerning the terminated portion of the 
contract shall cease; provided, that nothing in this agreement shall 
impair or affect any covenants, terms, or conditions of the contract 
relating to the completed or continued portion of this contract.
    (8) Regardless of any other provision of this agreement, the 
following rights and liabilities of the parties under the contract are 
reserved:
    [The following list of reserved or excepted rights and liabilities 
is intended to cover those that should most frequently be reserved and 
that should be scrutinized at the time a settlement agreement is 
negotiated (see 49.109-2). The suggested language of the excepted items 
on the list may be varied at the discretion of the contracting officer. 
If accuracy or completeness can be achieved by referencing the number of 
a contract clause or provision covering the matter in question, then 
follow that method of enumerating reserved rights and liabilities. Omit 
any of the following that are not applicable and add any additional 
exceptions or reservations required.]
    (i) All rights and liabilities, if any, of the parties, as to 
matters covered by any renegotiation authority.
    (ii) All rights of the Government to take the benefit of agreements 
or judgments affecting royalties paid or payable in connection with the 
performance of the contract.
    (iii) All rights and liabilities, if any, of the parties under those 
clauses inserted in the contract because of the requirements of Acts of 
Congress and Executive Orders, including, without limitation, any 
applicable clauses relating to: labor law, contingent fees, domestic 
articles, and employment of aliens. [If the contract contains clauses of 
this character inserted for reasons other than requirements of Acts of 
Congress or Executive Orders, the suggested language should be 
appropriately modified.]
    (iv) All rights and liabilities of the parties arising under the 
contract and relating to reproduction rights, patent infringements, 
inventions, or applications for patents, including rights to 
assignments, invention reports, licenses, covenants of indemnity against 
patent risks, and bonds for patent indemnity obligations, together with 
all rights and liabilities under the bonds.
    (v) All rights and liabilities of the parties, arising under the 
contract or otherwise, and concerning defects, guarantees, or warranties 
relating to any articles or component parts furnished to the Government 
by the Contractor under the contract or this agreement.
    (vi) All rights and liabilities of the parties under the contract 
relating to any contract termination inventory stored for the 
Government.
    (vii) All rights and liabilities, if any, of the parties under those 
clauses of the contract relating to price reductions for defective cost 
or pricing data.

                           (End of agreement)

[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 37773, July 21, 1995; 
60 FR 49723, Sept. 26, 1995]



49.603-3  Cost-reimbursement contracts--complete termination, if settlement includes cost.

    [Insert the following in Block 14 of SF 30 for settlement of cost-
reimbursement contracts that are completely terminated, if settlement 
includes costs.]
    (a) This supplemental agreement settles the settlement proposal 
resulting from the Notice of Termination dated .......... .
    (b) The parties agree to the following:
    (1) The Contractor certifies that all contract termination inventory 
(including scrap) has been retained or acquired by the Contractor, sold 
to third parties, returned to suppliers, delivered to or stored for the 
Government, or otherwise properly accounted for, and that all proceeds 
and retention credits have been used in arriving at this agreement.
    (2) The Contractor certifies that each immediate subcontractor, 
whose settlement proposal is included in the proposal settled by this 
agreement, has furnished the Contractor a certificate stating (i) that 
all subcontract termination inventory (including scrap) has been 
retained or acquired by the subcontractor, sold to third parties, 
returned to suppliers, delivered to or stored for the Government, or 
otherwise properly accounted for, and that

[[Page 992]]

all proceeds and retention credits were used in arriving at the 
settlement of the subcontract, and (ii) that the subcontractor has 
received a similar certificate from each immediate subcontractor whose 
proposal was included in its proposal.
    (3) The Contractor certifies that all items of termination 
inventory, the costs of which were used in arriving at the amount of 
this settlement or the settlement of any subcontract settlement proposal 
included in this settlement, (i) are properly allocable to the 
terminated portion of the contract, (ii) do not exceed the reasonable 
quantitative requirements of the terminated portion of the contract, and 
(iii) do not include any items reasonably usable without loss to the 
Contractor on its other work. The Contractor further certifies that the 
Contracting Officer has been informed of any substantial change in the 
status of the items between the dates of the termination inventory 
schedules and the date of this agreement.
    (4) The Contractor transfers, conveys, and assigns to the Government 
all the right, title, and interest, if any, that the Contractor has 
received, or is entitled to receive, in and to subcontract termination 
inventory not otherwise properly accounted for.
    (5) The Contractor shall, within 10 days after receipt of the 
payment specified in this agreement, pay to each of its immediate 
subcontractors (or their respective assignees) the amounts to which they 
are entitled, after deducting any prior payments and, if the Contractor 
so elects, any amounts due and payable to the Contractor by those 
subcontractors.
    (6)(i) The Contractor has received $.......... for work and services 
performed, or articles delivered, under the contract before the 
effective date of termination. The Government confirms the right of the 
Contractor, subject to paragraph (7) below, to retain this sum and 
agrees that it constitutes a portion of the total amount to which the 
Contractor is entitled in complete and final settlement of the contract.
    (ii) Further, the Government agrees to pay to the Contractor or its 
assignee, upon presentation of a proper invoice or voucher, the sum of 
$.......... [insert net amount of settlement], arrived at by deducting 
from the sum of $.......... [insert gross amount of settlement less 
amount shown in subdivision (6)(i) above] (A) the amount of $.......... 
for all unliquidated partial or progress payments previously made to the 
Contractor or its assignee and all unliquidated advance payments (with 
any interest), (B) the amount of $......... for all applicable property 
disposal credits [insert if appropriate, ``and (C) the amount of 
$.......... for all other amounts due the Government under this 
contract, except as provided in paragraph (7) below.'']
    (iii) The net settlement of $.......... in subdivision (ii) above, 
together with sums previously paid, constitutes payment in full and 
complete settlement of the amount due the Contractor for the complete 
termination of the contract and of all other demands and liabilities of 
the Contractor and the Government under the contract, except as provided 
in paragraph (7) below.
    (7) Regardless of any other provision of this agreement, the 
following rights and liabilities of the parties under the contract are 
reserved:
    [The following list of reserved or excepted rights and liabilities 
is intended to cover those that should most frequently be reserved and 
that should be scrutinized at the time a settlement agreement is 
negotiated (see 49.109-2). The suggested language of the excepted items 
on the list may be varied at the discretion of the contracting officer. 
If accuracy or completeness can be achieved by referencing the number of 
a contract clause or provision covering the matter in question, then 
follow that method of enumerating reserved rights and liabilities. Omit 
any of the following that are not applicable and add any additional 
exceptions or reservations required.]
    (i) All rights and liabilities, if any, of the parties, as to 
matters covered by any renegotiation authority.
    (ii) All rights of the Government to take the benefit of agreements 
or judgments affecting royalties paid or payable in connection with the 
performance of the contract.
    (iii) All rights and liabilities, if any, of the parties under those 
clauses inserted in the contract because of the

[[Page 993]]

requirements of Acts of Congress and Executive Orders, including, 
without limitation, any applicable clauses relating to: labor law, 
contingent fees, domestic articles, and employment of aliens.'' [If the 
contract contains clauses of this character inserted for reasons other 
than requirements of Acts of Congress or Executive Orders, the suggested 
language should be appropriately modified.]
    (iv) All rights and liabilities of the parties arising under the 
contract and relating to reproduction rights, patent infringements, 
inventions, or applications for patents, including rights to 
assignments, invention reports, licenses, covenants of indemnity against 
patent risks, and bonds for patent indemnity obligations, together with 
all rights and liabilities under the bonds.
    (v) All rights and liabilities of the parties, arising under the 
contract or otherwise, and concerning defects, guarantees, or warranties 
relating to any articles or component parts furnished to the Government 
by the Contractor under the contract or this agreement.
    (vi) All rights and liabilities of the parties under the contract 
relating to any contract termination inventory stored for the 
Government.
    (vii) All rights and liabilities of the parties under agreements 
relating to the future care and disposition by the Contractor of 
Government-owned property remaining in the Contractor's custody.
    (viii) All rights and liabilities of the parties relating to 
Government property furnished to the Contractor for the performance of 
this contract.
    (ix) All rights and liabilities of the parties under the contract 
relating to options (except options to continue or increase the work 
under the contract), covenants not to compete, and covenants of 
indemnity.
    (x) Unresolved demands or assertions by the Contractor against the 
Government for costs under General Accounting Office exceptions or other 
costs of the same nature that are excluded from the settlement without 
prejudice to the rights of either party, as follows: [Insert amount and 
describe charges not waived.]
    (xi) Claims by the Contractor against the Government, when the 
Contractor's rights of reimbursement are disputed, that are excluded 
without prejudice to the rights of either party are as follows: [Insert 
the amounts and describe the claims on which the Contracting Officer has 
made findings and has disallowed and on which the Contractor has taken, 
or intends to take, timely appeal.]
    (xii) Unresolved demands or assertions by the Contractor against the 
Government that are unknown in amount and involve costs alleged to be 
reimbursable under the contract are as follows: [Insert the estimated 
amounts and describe the charges.]
    (xiii) Unknown amounts alleged by the Contractor against the 
Government, based upon responsibility of the Contractor to third parties 
that involve costs reimbursable under the contract.
    (xiv) Debts due the Government by the Contractor that are based on 
refunds, rebates, credits, or other amounts not now known to the 
Government, with interest, now due or that may become due the Contractor 
from third parties, if the amounts arise out of transactions for which 
reimbursement has been made to the Contractor under the contract. The 
Contractor shall pay to the Government, within 30 days after receipt, 
any of these amounts that become due from any third party or any other 
source. Interest at the rate established by the Secretary of the 
Treasury under 50 U.S.C. (App.) 1215(b)(2) shall accrue and shall be 
paid to the Government on any amounts that remain unpaid after the 30-
day period.
    (xv) All rights and liabilities, if any, of the parties under those 
clauses of the contract relating to price reductions for defective cost 
or pricing data.

                           (End of agreement)

[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 37773, July 21, 1995; 
60 FR 49723, Sept. 26, 1995]



49.603-4  Cost-reimbursement contracts--complete termination, with settlement limited to fee.

    [Insert the following in Block 14 of SF 30 for settlement of cost-
reimbursement

[[Page 994]]

contracts that are completely terminated, if settlement is limited to 
fee.]
    (a) This supplemental agreement settles the amount of fee due under 
the contract, terminated in its entirety by Notice of Termination dated 
.......... .
    (b) The parties agree to the following:
    (1) The Contractor has received $.......... on account of its fee 
under the contract before the effective date of termination.
    (2) The Government agrees to pay to the Contractor or its assignee, 
upon presentation of a proper invoice or voucher, $.......... [insert 
net amount to be paid on account of fee]. This sum, with sums previously 
paid, constitutes payment in full and complete settlement of the amount 
due the Contractor on account of its fee under the contract.
    (3) The Contractor's allowable costs under the contract will be paid 
under the terms and conditions of the contract and parts 31 and 49 of 
the Federal Acquisition Regulation.
    [Insert subparagraph (3) only if there are costs to be vouchered out 
(see 49.302) or if there are costs to be covered later by a separate 
settlement agreement.]
    (4) Regardless of any other provision of this agreement, the 
following rights and liabilities of the parties under the contract are 
reserved:
    [The following list of reserved or excepted rights and liabilities 
is intended to cover those that should most frequently be reserved and 
that should be scrutinized at the time a settlement agreement is 
negotiated (see 49.109-2). The suggested language of the excepted items 
on the list may be varied at the discretion of the contracting officer. 
If accuracy or completeness can be achieved by referencing the number of 
a contract clause or provision covering the matter in question, then 
follow that method of enumerating reserved rights and liabilities. Omit 
any of the following that are not applicable and add any additional 
exceptions or reservations required.]
    (i) All rights and liabilities, if any, of the parties, as to 
matters covered by any renegotiation authority.
    (ii) All rights and liabilities, if any, of the parties under those 
clauses inserted in the contract because of the requirements of Acts of 
Congress and Executive Orders, including, without limitation, any 
applicable clauses relating to: labor law, contingent fees, domestic 
articles, and employment of aliens. [If the contract contains clauses of 
this character inserted for reasons other than requirements of Acts of 
Congress or Executive Orders, the suggested language should be 
appropriately modified.]
    (iii) All rights and liabilities of the parties arising under the 
contract and relating to reproduction rights, patent infringements, 
inventions, or applications for patents, including rights to 
assignments, invention reports, licenses, covenants of indemnity against 
patent risks, and bonds for patent indemnity obligations, together with 
all rights and liabilities under the bonds.
    (iv) All rights and liabilities of the parties, arising under the 
contract or otherwise, and concerning defects, guarantees, or warranties 
relating to any articles or component parts furnished to the Government 
by the Contractor under the contract or this agreement.
    (v) All rights and liabilities of the parties under agreements 
relating to the future care and disposition by the Contractor of 
Government-owned property remaining in the Contractor's custody.
    (vi) All rights and liabilities of the parties relating to 
Government property furnished to, or acquired by, the Contractor for the 
performance of the contract.
    (vii) All rights and liabilities of the parties under the contract 
relating to options (except options to continue or increase the work 
under the contract), covenants not to compete, and covenants of 
indemnity.
    (viii) All rights and liabilities, if any, of the parties under 
those clauses of the contract relating to price reductions for defective 
cost or pricing data.

                           (End of agreement)

[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 37773, July 21, 1995; 
60 FR 49723, Sept. 26, 1995]

[[Page 995]]



49.603-5  Cost-reimbursement contracts--partial termination.

    [Insert the following in Block 14 of SF 30, Amendment of 
Solicitation/Modification of Contract, for settlement agreements for 
cost-reimbursement contracts as a result of partial termination.]
    (a) This supplemental agreement settles the termination settlement 
proposal resulting from the Notice of Termination dated ......... .
    (b) The parties agree as follows:
    (1) The contract is amended by deleting the terminated portion as 
follows: [specify the terminated portion clearly as to (i) item numbers, 
(ii) descriptions, (iii) quantity terminated, (iv) unit and total price 
of terminated items, and (v) any other explanation necessary to avoid 
uncertainty or misunderstanding].
    (2) The fee stated in the contract is decreased by $.........., from 
$.......... to $.......... .
    [Insert, if appropriate, ``(3) The estimated cost of the contract is 
decreased by $.........., from $.......... to $.........''.]
    (c) The Contractor's allowable costs and earned fee, if any, for the 
terminated portion of the contract will continue to be reimbursed on SF 
1034, Public Voucher for Purchase and Services Other Than Personal, 
under the applicable provisions of the contract and part 31 of the 
Federal Acquisition Regulation.

                           (End of agreement)



49.603-6  No-cost settlement agreement--complete termination.

    [Insert the following in Block 14 of SF 30 if a no-cost settlement 
agreement, under a complete termination, is to be executed.]
    (a) This supplemental agreement .......... [insert ``modifies the 
contract to reflect a no-cost settlement agreement with respect to the 
Notice of Termination dated ..........'' or, if not previously 
terminated, ``terminates the contract in its entirety''.]
    (b) The parties agree as follows:
    The Contractor unconditionally waives any charges against the 
Government because of the termination of the contract and, except as set 
forth below, releases it from all obligations under the contract or due 
to its termination. The Government agrees that all obligations under the 
contract are concluded, except as follows:
    [List reserved or excepted rights and liabilities. See 49.109-2 and 
49.603-1(b)(7).]

                           (End of agreement)



49.603-7  No-cost settlement agreement--partial termination.

    [Insert the following in Block 14 of SF 30 if a no-cost settlement 
agreement, under a partial termination, is to be executed.]
    (a) This supplemental agreement modifies the contract to reflect a 
no-cost settlement agreement with respect to the Notice of Termination 
dated .......... .
    (b) The parties agree as follows:
    (1) The terminated portion of the contract is as follows: [Specify 
(i) item numbers, (ii) descriptions, (iii) quantity terminated, (iv) 
unit and total price of terminated items, and (v) any other explanation 
necessary to avoid uncertainty or misunderstanding.]
    (2) The Contractor unconditionally waives any charges against the 
Government arising under the terminated portion of the contract or by 
reason of its termination, including, without limitation, all 
obligations of the Government to make further payments or to carry out 
any further undertakings under the terminated portion of the contract. 
The Government acknowledges that the Contractor has no obligation to 
perform further work or services or to make further deliveries under the 
terminated portion of the contract. Nothing in this paragraph affects 
any other covenants, terms, or conditions of the contract. Under the 
terminated portion of the contract, the following rights and liabilities 
of the parties are reserved:
    [List reserved or excepted rights and liabilities. See 49.109-2 and 
49.603-1(b)(7).]

                           (End of agreement)



49.603-8  Fixed-price contracts--settlements with subcontractors only.

    [Insert the following in Block 14 of SF 30 for settlements of fixed-
price contracts covering only settlements with subcontractors.]
    (a) This agreement settles that portion of the settlement proposal 
of the

[[Page 996]]

Contractor that is based upon termination of the following subcontracts 
entered into in performing this contract:
    [Insert a list of the terminated subcontracts included in this 
settlement.]
    (b) The parties agree to the following:
    (1) The Contractor certifies that each immediate subcontractor, 
whose settlement proposal is included in the proposal settled by the 
agreement, has furnished the Contractor a certificate stating (i) that 
all subcontract termination inventory (including scrap) has been 
retained or acquired by the subcontractor, sold to third parties, 
returned to suppliers, delivered to or stored for the Government, or 
otherwise properly accounted for, and that all proceeds and retention 
credits were used in arriving at the settlement of the subcontract, and 
(ii) that the subcontractor has received a similar certificate from each 
immediate subcontractor whose proposal was included in its proposal.
    (2) The Contractor certifies that all items of termination 
inventory, the costs of which were used in arriving at the amount of 
this settlement or the settlement of any subcontract settlement proposal 
included in this settlement, (i) are properly allocable to the 
terminated portion of the contract, (ii) do not exceed the reasonable 
quantitative requirements of the terminated portion of the contract, and 
(iii) do not include any items reasonably usable without loss to the 
Contractor on its other work. The Contractor further certifies that the 
Contracting Officer has been informed of any substantial change in the 
status of the items between the dates of the termination inventory 
schedules and the date of this agreement.
    (3) The Contractor transfers, conveys, and assigns to the Government 
all the right, title, and interest, if any, that the Contractor has 
received or is entitled to receive, in and to subcontract termination 
inventory not otherwise properly accounted for.
    (4) The Contractor shall, within 10 days after receipt of the 
payment specified in this agreement, pay to each of its immediate 
subcontractors (or their respective assignees) the amounts to which they 
are entitled, after deducting any prior payments and, if the Contractor 
so elects, any amounts due and payable to the Contractor by those 
subcontractors.
    (5) The Government agrees to pay the Contractor or its assignee, 
upon presentation of a proper invoice or voucher, $.......... [insert 
net amount of settlement], which, together with the amount of 
$.......... previously paid the Contractor as partial, progress, or 
advance payments, constitutes payment in full and complete settlement, 
except as provided in subparagraph (b)(6) below, of the amount due the 
Contractor for that portion of its settlement proposal that is based 
upon termination of the subcontracts listed above.
    (6) Regardless of any other provision of this agreement, the 
following rights and liabilities of the parties under the contract are 
reserved: [List reserved or excepted rights and liabilities. See 49.109-
2 and 49.603-1(b)(7).]

                           (End of agreement)



49.603-9  Settlement of reservations.

    [Insert the following in Block 14 of SF 30 for settlement of 
reservations.]
    (a) Supplemental Agreement No. --------, dated --------, was 
executed to reflect the settlement of the termination of this contract. 
The supplemental agreement excepted from the settlement certain items 
described in the agreement including the items described in paragraph 
(b) below. This supplemental agreement settles those items listed in 
paragraph (b) below.
    (b) The parties agree to the following:
    (1) The Government agrees to pay the Contractor $ ------ for the 
following reserved or excepted items:* [List items.]
    (2) The Contractor releases and forever discharges the Government 
from all liability and from all existing and future claims and demands 
that it may have under this contract, insofar as it pertains to the 
contract, for the items described in subparagraph (1) above.*

[*When payment is due the Government, reverse the words Government and 
Contractor in subparagraphs (b)(1) and (b)(2).]


[[Page 997]]



                           (End of agreement)



49.604  Release of excess funds under terminated contracts.

    The following format shall be used to recommend the release of 
excess funds under terminated contracts, except if the contracting 
office retains responsibility for settlement of the termination:

FROM:  Termination Contracting Officer ------ [address]

TO:  Contracting office -------- [address]

SUBJ:  Terminated Contract No. ---- with ---- [Contractor]

Refs:
    (a) [Cite termination notice and effective date.]
    (b) [Cite prior letters releasing excess funds, if any.]
    1. Referenced termination notice, ------ [insert ``completely'' or 
``partially''] terminated contract ------.
    2. Based on the best information available, it is estimated that the 
gross settlement cost will be $ ------. The amount available for release 
as excess to the contract is $ ------. Any payments previously made to 
the Contractor for terminated items have been considered in arriving at 
the above amounts.
    [If prior letters recommending release of excess funds are cited, 
use the following as paragraph 2:
    ``The estimated settlement costs previously reported by reference 
(b) in the amount of $ ------ are revised. On the best evidence now 
available, it is estimated that the settlement costs will be $ ------. 
The additional amount available for release is $ ------''.]
    3. The related appropriations and amounts involved are:

                                                                        
                                                                        
        Appropriations                 Allocated Amounts                
                                                                        
                                ..............................  ........
                                ..............................  ........
                                                                        

    Copies to:
    Paying Office
    Accounting and Finance Office
    Other



49.605  Request to settle subcontractor settlement proposals.

    Contractors requesting authority to settle subcontractor settlement 
proposals shall furnish applicable information from the list below and 
any additional information required by the contracting officer:
    (a) Name of contractor and address of principal office.
    (b) Name and location of divisions of the applicant's plant for 
which authorization is requested.
    (c) An explanation of the necessity and justification for the 
authorization requested.
    (d) A full description of the applicant's organization for handling 
terminations, including the names of the officials in charge of 
processing and settling proposals.
    (e) The number and dollar amount (estimated if necessary) of 
uncompleted contracts with Government agencies and the percentage 
applicable to each agency.
    (f) The number and dollar amount (estimated if necessary) of 
uncompleted subcontracts under Government contracts and the percentage 
applicable to each agency.
    (g) The extent of the applicant's experience in termination matters, 
including the handling of proposals of subcontractors.
    (h) The approximate amount and general nature of terminations of the 
applicant currently in process.
    (i) A statement that no other application has been made for any 
division of the applicant's plant covered by the application or, if one 
has been made, a full statement of the facts.
    (j) The limit of authorization requested.



49.606  Granting subcontract settlement authorization.

    Contracting officers shall use the following format when granting 
subcontract settlement authorization:

                         LETTER OF AUTHORIZATION

    (a) Your request of ------ (date) is approved, and you are 
authorized, subject to the limitations of subsection 49.108-4 and those 
stated below, to settle, without further approval of the Government, all 
subcontracts and purchase orders terminated by you as a result of a 
Government contract being terminated or modified (1) for the convenience 
of the Government or (2) under any other circumstances that may require 
the

[[Page 998]]

Government to bear the cost of their settlement.
    (b) This authorization does not extend to the disposition of 
Government-furnished material or articles completed but undelivered 
under the subcontract or purchase order, as these require screening and 
approval of disposal actions by the Government, except that allocable 
completed articles may be disposed of without Government approval or 
screening if the total amount (at subcontract price) when added to the 
amount of settlement (as computed below) does not exceed $ -------- 
[insert limit of authorization being granted].
    (c) This authorization is subject to the following conditions and 
requirements:
    (1) The amount of the subcontract termination settlement does not 
exceed $ ------ [insert limit of authorization being granted], computed 
as follows:
    (i) Do not deduct advance or partial payments or credits for 
retention or other disposal of termination inventory allocated to the 
settlement proposal.
    (ii) Deduct amounts payable for completed articles or work at the 
contract price or for the settlement of termination proposals of 
subcontractors (except those settlements that have not been approved by 
the Government).
    (2) Any termination inventory involved has been disposed of under 
subsection 49.108-4, except that screening and Government approval of 
scrap and salvage determinations are not required.
    (3) The Contracting Officer may incorporate into each Notice of 
Termination specific instructions about the disposition of specific 
items of termination inventory, or the Contracting Officer may, at any 
time before final settlement, issue specific instructions. These 
instructions will not affect any disposal action taken by you or your 
subcontractors before their receipt.
    (4) The settlements made by you with your subcontractors and 
suppliers under this authorization, including sales, retention, or other 
dispositions of property involved in making these settlements, are 
reimbursable under part 49 and the Termination clause of the contract, 
and do not require approval of the Contracting Officer.
    (5) Any number of separate settlements of $ ------ [insert limit of 
authorization granted] or less may be made with a single subcontractor. 
Settlement proposals that would normally be included in a single 
proposal; e.g., those based on a series of separate orders for the same 
item under one contract, should be consolidated whenever possible and 
shall not be divided to bring them within the authorization.
    (6) This authorization does not apply if a subcontractor or supplier 
is affiliated with you. For this purpose, you should consider a 
contractor to be affiliated with you if you are under common control or 
if there is any common interest between you by reason of stock 
ownership, or otherwise, that is sufficient to create a reasonable doubt 
that the bargaining between you is completely at arm's length.
    (7) A representative of this office will, from time to time, review 
the methods used in negotiating settlements with your subcontractors and 
will make a selective examination of the settlements made by you. If the 
review indicates that you are not adequately protecting the Government's 
interest, this delegation will be revoked.

                             (End of letter)



49.607  Delinquency notices.

    The formats of the delinquency notices in this section may be used 
to satisfy the requirements of 49.402-3. All notices will be sent with 
proof of delivery requested. (See subpart 42.13 for stop-work orders.)
    (a) Cure notice. If a contract is to be terminated for default 
before the delivery date, a Cure Notice is required by the Default 
clause. Before using this notice, it must be ascertained that an amount 
of time equal to or greater than the period of cure remains in the 
contract delivery schedule or any extension to it. If the time remaining 
in the contract delivery schedule is not sufficient to permit a 
realistic cure period of 10 days or more, the Cure Notice should not be 
issued. The Cure Notice may be in the following format:

                               CURE NOTICE

    You are notified that the Government considers your ------ [specify 
the contractor's failure or failures] a condition that is endangering 
performance of the contract. Therefore, unless this condition is cured 
within 10 days after receipt of this notice [or insert any longer time 
that the Contracting Officer may consider reasonably necessary], the 
Government may terminate for default under the terms and conditions of 
the ------ [insert clause title] clause of this contract.

                             (End of notice)

    (b) Show cause notice. If the time remaining in the contract 
delivery schedule is not sufficient to permit a realistic cure period of 
10 days or more, the following Show Cause Notice may be

[[Page 999]]

used. It should be sent immediately upon expiration of the delivery 
period.

                            SHOW CAUSE NOTICE

    Since you have failed to ------ [insert ``perform Contract No. ----
-- within the time required by its terms'', or ``cure the conditions 
endangering performance under Contract No. ------ as described to you in 
the Government's letter of -------- (date)''], the Government is 
considering terminating the contract under the provisions for default of 
this contract. Pending a final decision in this matter, it will be 
necessary to determine whether your failure to perform arose from causes 
beyond your control and without fault or negligence on your part. 
Accordingly, you are given the opportunity to present, in writing, any 
facts bearing on the question to -------- [insert the name and complete 
address of the contracting officer], within 10 days after receipt of 
this notice. Your failure to present any excuses within this time may be 
considered as an admission that none exist. Your attention is invited to 
the respective rights of the Contractor and the Government and the 
liabilities that may be invoked if a decision is made to terminate for 
default.
    Any assistance given to you on this contract or any acceptance by 
the Government of delinquent goods or services will be solely for the 
purpose of mitigating damages, and it is not the intention of the 
Government to condone any delinquency or to waive any rights the 
Government has under the contract.

                             (End of notice)

[48 FR 42447, Sept. 19, 1983, as amended at 60 FR 48250, Sept. 18, 1995]



PART 50--EXTRAORDINARY CONTRACTUAL ACTIONS--Table of Contents




Sec.
50.000  Scope of part.
50.001  Definitions.

                          Subpart 50.1--General

50.101  Authority.
50.102  Policy.
50.103  [Reserved]
50.104  Reports.
50.105  Records.

  Subpart 50.2--Delegation of and Limitations on Exercise of Authority

50.201  Delegation of authority.
50.202  Contract adjustment boards.
50.203  Limitations on exercise of authority.

                   Subpart 50.3--Contract Adjustments

50.300  Scope of subpart.
50.301  General.
50.302  Types of contract adjustment.
50.302-1  Amendments without consideration.
50.302-2  Correcting mistakes.
50.302-3  Formalizing informal commitments.
50.303  Contract adjustment.
50.303-1  Contractor requests.
50.303-2  Contractor certification.
50.304  Facts and evidence.
50.305  Processing cases.
50.306  Disposition.
50.307  Contract requirements.

                      Subpart 50.4--Residual Powers

50.400  Scope of subpart.
50.401  Standards for use.
50.402  General.
50.403  Special procedures for unusually hazardous or nuclear risks.
50.403-1  Indemnification requests.
50.403-2  Action on indemnification requests.
50.403-3  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42471, Sept. 19, 1983, unless otherwise noted.



50.000  Scope of part.

    This part prescribes policies and procedures for entering into, 
amending, or modifying contracts in order to facilitate the national 
defense under the extraordinary emergency authority granted by Pub. L. 
85-804 as amended by Pub. L. 93-155 (50 U.S.C. 1431-1435), as amended, 
referred to in this part as the Act, and Executive Order (EO) 10789, 
dated November 14, 1958, as amended, referred to in this part as the 
Executive Order. It does not cover advance payments (see subpart 32.4).



50.001  Definitions.

    Approving authority, as used in this part, means an agency official 
or contract adjustment board authorized to approve actions under the Act 
and Executive Order.
    Secretarial level, as used in this part, means a level at or above 
the level of a deputy assistant agency head, or a contract adjustment 
board.

[[Page 1000]]



                          Subpart 50.1--General



50.101  Authority.

    (a) The Act empowers the President to authorize agencies exercising 
functions in connection with the national defense to enter into, amend, 
and modify contracts, without regard to other provisions of law related 
to making, performing, amending, or modifying contracts, whenever the 
President considers that such action would facilitate the national 
defense.
    (b) The Executive Order authorizes the heads of the following 
agencies to exercise the authority conferred by the Act and to delegate 
it to other officials within the agency: the Government Printing Office; 
the Federal Emergency Management Agency; the Tennessee Valley Authority; 
the National Aeronautics and Space Administration; the General Services 
Administration; the Defense, Army, Navy, Air Force, Treasury, Interior, 
Agriculture, Commerce, and Transportation Departments; the Department of 
Energy for functions transferred to that Department from other 
authorized agencies; and any other agency that may be authorized by the 
President.



50.102  Policy.

    (a) The authority conferred by the Act may not (1) be used in a 
manner that encourages carelessness and laxity on the part of persons 
engaged in the defense effort or (2) be relied upon when other adequate 
legal authority exists within the agency.
    (b) Actions authorized under the Act shall be accomplished as 
expeditiously as practicable, consistent with the care, restraint, and 
exercise of sound judgment appropriate to the use of such extraordinary 
authority.
    (c) Certain kinds of relief previously available only under the Act; 
e.g., recission or reformation for mutual mistake, are now available 
under the authority of the Contract Disputes Act of 1978. In accordance 
with subparagraph (a)(2) above, part 33 must be followed in preference 
to part 50 for such relief. In case of doubt as to whether part 33 
applies, the contracting officer should seek legal advice.



50.103  [Reserved]



50.104  Reports.

    (a) The Act and Executive Order require that each agency listed in 
50.101(b) shall submit to Congress annually by March 15 a report of 
actions taken on requests for relief, including indemnity, under the 
Act's authority.
    (b) The report shall contain the information in subparagraph (b)(1) 
below for all actions on approved requests, and in subparagraph (b)(2) 
below for all requests denied. In addition, for each approved request 
that involves actual or potential cost to the Government in excess of 
$50,000, the report shall include the name of the contractor, the actual 
cost or estimated potential cost, a description of the property or 
services involved, and a statement of the circumstances justifying the 
action.
    (1) For actions on approved requests, the report shall contain--
    (i) The total number of requests, total dollar amount requested, and 
total dollar amount approved; and
    (ii) By type of request (amendments without consideration, 
correction of mistakes, formalization of informal commitments, and other 
requests as appropriate), the number of requests, dollar amount 
requested, and dollar amount approved.
    (2) For requests denied, the report shall contain--
    (i) The total number of requests and total dollar amount requested; 
and
    (ii) By type of request, the number of requests and dollar amount 
requested.
    (c) The report should omit any information classified Confidential 
or higher.
    (d) A request is not reportable until a Memorandum of Decision is 
issued approving or denying relief.
[48 FR 42471, Sept. 19, 1983, as amended at 62 FR 40237, July 25, 1997]



50.105  Records.

    Agencies shall maintain complete records of all actions taken under 
this part 50. For each request for relief processed, these records shall 
include, as a minimum--
    (a) The contractor's request;
    (b) All relevant memorandums, correspondence, affidavits, and other 
pertinent documents;

[[Page 1001]]

    (c) The Memorandum of Decision (see 50.306 and 50.402); and
    (d) A copy of the contractual document implementing an approved 
request.



  Subpart 50.2--Delegation of and Limitations on Exercise of Authority



50.201  Delegation of authority.

    An agency head may delegate in writing authority under the Act and 
Executive Order, subject to the following limitations:
    (a) Authority delegated shall be to a level high enough to ensure 
uniformity of action.
    (b) Authority to approve requests to obligate the Government in 
excess of $50,000 may not be delegated below the secretarial level.
    (c) Regardless of dollar amount, authority to approve any amendment 
without consideration that increases the contract price or unit price 
may not be delegated below the secretarial level, except in 
extraordinary cases or classes of cases when the agency head finds that 
special circumstances clearly justify such delegation.
    (d) Regardless of dollar amount, authority to indemnify against 
unusually hazardous or nuclear risks, including extension of such 
indemnification to subcontracts, shall be exercised only by the 
Secretary or Administrator of the agency concerned, the Public Printer, 
or the Chairman of the Board of Directors of the Tennessee Valley 
Authority (see 50.403).



50.202  Contract adjustment boards.

    An agency head may establish a contract adjustment board with 
authority to approve, authorize, and direct appropriate action under 
this part 50 and to make all appropriate determinations and findings. 
The decisions of the board shall not be subject to appeal; however, the 
board may reconsider and modify, correct, or reverse its previous 
decisions. The board shall determine its own procedures and have 
authority to take all action necessary or appropriate to conduct its 
functions.



50.203  Limitations on exercise of authority.

    (a) The Act is not authority for--
    (1) Using a cost-plus-a-percentage-of-cost system of contracting;
    (2) Making any contract that violates existing law limiting profit 
or fees;
    (3) Providing for other than full and open competition for award of 
contracts for supplies or services; or
    (4) Waiving any bid bond, payment bond, performance bond, or other 
bond required by law.
    (b) No contract, amendment, or modification shall be made under the 
Act's authority--
    (1) Unless the approving authority finds that the action will 
facilitate the national defense;
    (2) Unless other legal authority within the agency concerned is 
deemed to be lacking or inadequate;
    (3) Except within the limits of the amounts appropriated and the 
statutory contract authorization (however, indemnification agreements 
authorized by an agency head (50.403) are not limited to amounts 
appropriated or to contract authorization); and
    (4) That will obligate the Government for any amount over $25 
million, unless the Senate and the House Committees on Armed Services 
are notified in writing of the proposed obligation and 60 days of 
continuous session of Congress have passed since the transmittal of such 
notification. However, this paragraph (b)(4) does not apply to 
indemnification agreements authorized under 50.403.
    (c) No contract shall be amended or modified unless the contractor 
submits a request before all obligations (including final payment) under 
the contract have been discharged. No amendment or modification shall 
increase the contract price to an amount higher than the lowest rejected 
bid of any responsible bidder, if the contract was negotiated under 10 
U.S.C. 2304(a)(15) or 41 U.S.C. 252(c)(14), or FAR 14.404-1(f).
    (d) No informal commitment shall be formalized unless--
    (1) The contractor submits a written request for payment within 6 
months after furnishing, or arranging to furnish, supplies or services 
in reliance upon the commitment; and

[[Page 1002]]

    (2) The approving authority finds that, at the time the commitment 
was made, it was impracticable to use normal contracting procedures.
    (e) The exercise of authority by officials below the secretarial 
level is subject to the following additional limitations:
    (1) The action shall not--
    (i) Release a contractor from performance of an obligation over 
$50,000;
    (ii) Result in an increase in cost to the Government over $50,000;
    (iii) Deal with, or directly affect, any matter that has been 
submitted to the General Accounting Office; or
    (iv) Involve disposal of Government surplus property.
    (2) Mistakes shall not be corrected by an action obligating the 
Government for over $1,000, unless the contracting officer receives 
notice of the mistake before final payment.
    (3) The correction of a contract because of a mistake in its making 
shall not increase the original contract price to an amount higher than 
the next lowest responsive offer of a responsible offeror.
[48 FR 42471, Sept. 19, 1983, as amended at 50 FR 1746, Jan. 1, 1985; 50 
FR 52429, Dec. 23, 1985; 56 FR 67135, Dec. 27, 1991; 62 FR 51271, Sept. 
30, 1997]

    Effective Date Note: At 62 FR 51271, Sept. 30, 1997, in section 
50.203, in paragraph (c), ``15.103'' was amended to read ``14.404-
1(f)'', effective Oct. 10, 1997.



                   Subpart 50.3--Contract Adjustments



50.300  Scope of subpart.

    This subpart prescribes standards and procedures for processing 
contractors' requests for contract adjustment under the Act and 
Executive Order.



50.301  General.

    The fact that losses occur under a contract is not sufficient basis 
for exercising the authority conferred by the Act. Whether appropriate 
action will facilitate the national defense is a judgment to be made on 
the basis of all of the facts of the case. Although it is impossible to 
predict or enumerate all the types of cases in which action may be 
appropriate, examples are included in 50.302 below. Even if all of the 
factors in any of the examples are present, other considerations may 
warrant denying a contractor's request for contract adjustment. The 
examples are not intended to exclude other cases in which the approving 
authority determines that the circumstances warrant action.



50.302  Types of contract adjustment.



50.302-1  Amendments without consideration.

    (a) When an actual or threatened loss under a defense contract, 
however caused, will impair the productive ability of a contractor whose 
continued performance on any defense contract or whose continued 
operation as a source of supply is found to be essential to the national 
defense, the contract may be amended without consideration, but only to 
the extent necessary to avoid such impairment to the contractor's 
productive ability.
    (b) When a contractor suffers a loss (not merely a decrease in 
anticipated profits) under a defense contract because of Government 
action, the character of the action will generally determine whether any 
adjustment in the contract will be made, and its extent. When the 
Government directs its action primarily at the contractor and acts in 
its capacity as the other contracting party, the contract may be 
adjusted in the interest of fairness. Thus, when Government action, 
while not creating any liability on the Government's part, increases 
performance cost and results in a loss to the contractor, fairness may 
make some adjustment appropriate.



50.302-2  Correcting mistakes.

    (a) A contract may be amended or modified to correct or mitigate the 
effect of a mistake. The following are examples of mistakes that may 
make such action appropriate:
    (1) A mistake or ambiguity consisting of the failure to express, or 
express clearly, in a written contract, the agreement as both parties 
understood it.
    (2) A contractor's mistake so obvious that it was or should have 
been apparent to the contracting officer.

[[Page 1003]]

    (3) A mutual mistake as to a material fact.
    (b) Amending contracts to correct mistakes with the least possible 
delay normally will facilitate the national defense by expediting the 
contracting program and assuring contractors that mistakes will be 
corrected expeditiously and fairly.



50.302-3  Formalizing informal commitments.

    Under certain circumstances, informal commitments may be formalized 
to permit payment to persons who have taken action without a formal 
contract; for example, when a person, responding to an agency official's 
written or oral instructions and relying in good faith upon the 
official's apparent authority to issue them, has furnished or arranged 
to furnish supplies or services to the agency, or to a defense 
contractor or subcontractor, without formal contractual coverage. 
Formalizing commitments under such circumstances normally will 
facilitate the national defense by assuring such persons that they will 
be treated fairly and paid expeditiously.



50.303  Contract adjustment.



50.303-1  Contractor requests.

    A contractor seeking a contract adjustment shall submit a request in 
duplicate to the contracting officer or an authorized representative. 
The request, normally a letter, shall state as a minimum--
    (a) The precise adjustment requested;
    (b) The essential facts, summarized chronologically in narrative 
form;
    (c) The contractor's conclusions based on these facts, showing, in 
terms of the considerations set forth in 50.301 and 50.302 above, when 
the contractor considers itself entitled to the adjustment; and
    (d) Whether or not--
    (1) All obligations under the contracts involved have been 
discharged;
    (2) Final payment under the contracts involved has been made;
    (3) Any proceeds from the request will be subject to assignment or 
other transfer, and to whom; and
    (4) The contractor has sought the same, or a similar or related, 
adjustment from the General Accounting Office or any other part of the 
Government, or anticipates doing so.
[48 FR 42471, Sept. 19, 1983. Redesignated at 60 FR 48230, Sept. 18, 
1995]



50.303-2  Contractor certification.

    A contractor seeking a contract adjustment that exceeds the 
simplified acquisition threshold shall, at the time the request is 
submitted, submit a certification by a person authorized to certify the 
request on behalf of the contractor that (a) the request is made in good 
faith and (b) the supporting data are accurate and complete to the best 
of that person's knowledge and belief.
[60 FR 48230, Sept. 18, 1995]



50.304  Facts and evidence.

    (a) General. When it is appropriate, the contracting officer or 
other agency official shall request the contractor to support any 
request made under 50.303-1 with any of the following information:
    (1) A brief description of the contracts involved, the dates of 
execution and amendments, the items being acquired, the price or prices, 
the delivery schedules, and any special contract provisions relevant to 
the request.
    (2) A history of performance indicating when work under the 
contracts or commitments began, the progress made to date, an exact 
statement of the contractor's remaining obligations, and the 
contractor's expectations regarding completion.
    (3) A statement of payments received, due, and yet to be received or 
to become due, including advance and progress payments; amounts withheld 
by the Government; and information as to any obligations of the 
Government yet to be performed under the contracts.
    (4) A detailed analysis of the request's monetary elements, 
including precisely how the actual or estimated dollar amount was 
determined and the effect of approval or denial on the contractor's 
profits before Federal income taxes.
    (5) A statement of the contractor's understanding of why the 
request's subject matter cannot now, and could

[[Page 1004]]

not at the time it arose, be disposed of under the contract terms.
    (6) The best supporting evidence available to the contractor, 
including contemporaneous memorandums, correspondence, and affidavits.
    (7) Relevant financial statements, cost analyses, or other such 
data, preferably certified by a certified public accountant, as 
necessary to support the request's monetary elements.
    (8) A list of persons connected with the contracts who have factual 
knowledge of the subject matter, including, when possible, their names, 
offices or titles, addresses, and telephone numbers.
    (9) A statement and evidence of steps taken to reduce losses and 
claims to a minimum.
    (10) Any other relevant statements or evidence that may be required.
    (b) Amendments without consideration--essentiality a factor. When a 
request involves possible amendment without consideration, and 
essentiality to the national defense is a factor (50.302-1(a)), the 
contractor may be asked to furnish, in addition to the facts and 
evidence listed in paragraph (a) of this section, any of the following 
information:
    (1) A statement and evidence of the contractor's original breakdown 
of estimated costs, including contingency allowances, and profit.
    (2) A statement and evidence of the contractor's present estimate of 
total costs under the contracts involved if it is enabled to complete 
them, broken down between costs accrued to date and completion costs, 
and between costs paid and those owed.
    (3) A statement and evidence of the contractor's estimate of the 
final price of the contracts, taking into account all known or 
contemplated escalation, changes, extras, and the like.
    (4) A statement of any claims known or contemplated by the 
contractor against the Government involving the contracts, other than 
those stated in response to subparagraph (3) above.
    (5) An estimate of the contractor's total profit or loss under the 
contracts if it is enabled to complete them at the estimated final 
contract price, broken down between profit or loss to date and 
completion profit or loss.
    (6) An estimate of the contractor's total profit or loss from other 
Government business and all other sources, from the date of the first 
contract involved to the estimated completion date of the last contract 
involved.
    (7) A statement of the amount of any tax refunds to date, and an 
estimate of those anticipated, for the period from the date of the first 
contract involved to the estimated completion date of the last contract 
involved.
    (8) A detailed statement of efforts the contractor has made to 
obtain funds from commercial sources to enable contract completion.
    (9) A statement of the minimum amount the contractor needs as an 
amendment without consideration to enable contract completion, and the 
detailed basis for that amount.
    (10) An estimate of the time required to complete each contract if 
the request is granted.
    (11) A statement of the factors causing the loss under the contracts 
involved.
    (12) A statement of the course of events anticipated if the request 
is denied.
    (13) Balance sheets, preferably certified by a certified public 
accountant, (i) for the contractor's fiscal year immediately preceding 
the date of the first contract, (ii) for each subsequent fiscal year, 
(iii) as of the request date, and (iv) projected as of the completion 
date of all the contracts involved (assuming the contractor is enabled 
to complete them at the estimated final prices), together with income 
statements for annual periods subsequent to the date of the first 
balance sheet. Balance sheets and income statements should be both 
consolidated and broken down by affiliates. They should show all 
transactions between the contractor and its affiliates, stockholders, 
and partners, including loans to the contractor guaranteed by any 
stockholder or partner.
    (14) A list of all salaries, bonuses, and other compensation paid or 
furnished to the principal officers or partners, and of all dividends 
and other withdrawals, and of all payments to stockholders in any form 
since the date of the first contract involved.

[[Page 1005]]

    (c) Amendments without consideration--essentiality not a factor. 
When a request involves possible amendment without consideration because 
of Government action, and essentiality to the national defense is not a 
factor (50.302-1(b)), the contractor may be asked to furnish, in 
addition to the facts and evidence listed in paragraph (a) of this 
section, any of the following information:
    (1) A clear statement of the precise Government action that the 
contractor considers to have caused a loss under the contract, with 
evidence to support each essential fact.
    (2) A statement and evidence of the contractor's original breakdown 
of estimated costs, including contingency allowances, and profit.
    (3) The estimated total loss under the contract, with detailed 
supporting analysis.
    (4) The estimated loss resulting specifically from the Government 
action, with detailed supporting analysis.
    (d) Correcting mistakes. When a request involves possible correction 
of a mistake (50.302-2), the contractor may be asked to furnish, in 
addition to the facts and evidence listed in paragraph (a) of this 
section, any of the following information:
    (1) A statement and evidence of the precise error made, ambiguity 
existing, or misunderstanding arising, showing what it consists of, how 
it occurred, and the intention of the parties.
    (2) A statement explaining when the mistake was discovered, when the 
contracting officer was given notice of it, and whether this notice was 
given before completion of work under, or the effective termination date 
of, the contract.
    (3) An estimate of profit or loss under the contract, with detailed 
supporting analysis.
    (4) An estimate of the increase in cost to the Government resulting 
from the adjustment requested, with detailed supporting analysis.
    (e) Formalizing informal commitments. When a request involves 
possible formalizing of an informal commitment (50.302-3), the 
contractor may be asked to furnish, in addition to the facts and 
evidence listed in paragraph (a) of this section, any of the following 
information:
    (1) Copies of any written instructions or assurances (or a sworn 
statement of any oral instructions or assurances) given the contractor, 
and identification of the Government official who gave them.
    (2) A statement as to when the contractor furnished or arranged to 
furnish the supplies or services involved, and to whom.
    (3) Evidence that the contractor relied upon the instructions or 
assurances, with a full description of the circumstances that led to 
this reliance.
    (4) Evidence that, when performing the work, the contractor expected 
to be compensated directly for it by the Government and did not 
anticipate recovering the costs in some other way.
    (5) A cost breakdown supporting the amount claimed as fair 
compensation for the work performed.
    (6) A statement and evidence of the impracticability of providing, 
in an appropriate contractual instrument, for the work performed.
[48 FR 42471, Sept. 19, 1983, as amended at 60 FR 48230, Sept. 18, 1995]



50.305  Processing cases.

    (a) In response to a contractor request made in accordance with 
50.303-1, the contracting officer or an authorized representative shall 
make a thorough investigation to establish the facts necessary to decide 
a given case. Facts and evidence, including signed statements of 
material facts within the knowledge of individuals when documentary 
evidence is lacking, and audits if considered necessary to establish 
financial or cost facts, shall be obtained from contractor and 
Government personnel.
    (b) When a case involves matters of interest to more than one 
Government agency, the interested agencies should maintain liaison with 
each other to determine whether joint action should be taken.
    (c) When additional funds are required from another agency, the 
contracting agency may not approve adjustment requests before receiving 
advice that the funds will be available. The request for this advice 
shall give the contractor's name, the contract

[[Page 1006]]

number, the amount of proposed relief, a brief description of the 
contract, and the accounting classification or fund citation. If the 
other agency makes additional funds available, the agency considering 
the adjustment request shall be solely responsible for any action taken 
on the request.
    (d) When essentiality to the national defense is an issue (50.302-
1(a)), agencies considering requests for amendment without consideration 
involving another agency shall obtain advice on the issue from the other 
agency before making the final decision. When this advice is received, 
the agency considering the request for amendment without consideration 
shall be responsible for taking whatever action is appropriate.
[48 FR 42471, Sept. 19, 1983, as amended at 60 FR 48230, Sept. 18, 1995]



50.306  Disposition.

    When approving or denying a contractor's request made in accordance 
with 50.303-1, the approving authority shall sign and date a Memorandum 
of Decision containing--
    (a) The contractor's name and address, the contract identification, 
and the nature of the request;
    (b) A concise description of the supplies or services involved;
    (c) The decision reached and the actual cost or estimated potential 
cost involved, if any;
    (d) A statement of the circumstances justifying the decision;
    (e) Identification of any of the foregoing information classified 
Confidential or higher (instead of being included in the memorandum, 
such information may be set forth in a separate classified document 
referenced in the memorandum); and
    (f) If some adjustment is approved, a statement in substantially the 
following form: ``I find that the action authorized herein will 
facilitate the national defense.'' The case files supporting this 
statement will show the derivation and rationale for the dollar amount 
of the award. When the dollar amount exceeds the amounts supported by 
audit or other independent reviews, the approving authority will further 
document the rationale for deviating the recommendation.
[48 FR 42471, Sept. 19, 1983, as amended at 51 FR 31426, Sept. 3, 1986; 
60 FR 48230, Sept. 18, 1995]



50.307  Contract requirements.

    (a) The Act and Executive Order require that every contract entered 
into, amended, or modified under this part 50 shall contain--
    (1) A citation of the Act and Executive Order;
    (2) A brief statement of the circumstances justifying the action; 
and
    (3) A recital of the finding that the action will facilitate the 
national defense.
    (b) The authority in 50.101(a) shall not be used to omit from 
contracts, when otherwise required, the clauses at 52.203-5, Covenant 
Against Contingent Fees; 52.215-2, Audit and Records--Negotiation; 
52.222-4, Contract Work Hours and Safety Standards Act--Overtime 
Compensation; 52.222-6, Davis-Bacon Act; 52.222-10, Compliance With 
Copeland Act Requirements; 52.222-20, Walsh-Healey Public Contracts Act; 
52.222-26, Equal Opportunity; and 52.232-23, Assignment of Claims.
[48 FR 42471, Sept. 19, 1983, as amended at 51 FR 31426, Sept. 3, 1986; 
53 FR 4945, Feb. 18, 1988; 60 FR 42651, Aug. 16, 1995]



                      Subpart 50.4--Residual Powers



50.400  Scope of subpart.

    This subpart prescribes standards and procedures for exercising 
residual powers under the Act. The term residual powers includes all 
authority under the Act except (a) that covered by subpart 50.3 and (b) 
the authority to make advance payments (see subpart 32.4).



50.401  Standards for use.

    Subject to the limitations in 50.203, residual powers may be used in 
accordance with the policies in 50.102 when necessary and appropriate, 
all circumstances considered. In authorizing the inclusion of the clause 
at 52.250-1, Indemnification Under Pub. L. 85-804, in a contract or 
subcontract, an agency head may require the indemnified contractor to 
provide and maintain financial protection of the type and amount

[[Page 1007]]

determined appropriate. In deciding whether to approve use of the 
indemnification clause, and in determining the type and amount of 
financial protection the indemnified contractor is to provide and 
maintain, an agency head shall consider such factors as self-insurance, 
other proof of financial responsibility, workers' compensation 
insurance, and the availability, cost, and terms of private insurance. 
The approval and determination shall be final.



50.402  General.

    (a) When approving or denying a proposal for the exercise of 
residual powers, the approving authority shall sign and date a 
Memorandum of Decision containing substantially the same information 
called for by 50.306.
    (b) Every contract entered into, amended, or modified under residual 
powers shall comply with the requirements of 50.307.



50.403  Special procedures for unusually hazardous or nuclear risks.



50.403-1  Indemnification requests.

    (a) Contractor requests for the indemnification clause to cover 
unusually hazardous or nuclear risks should be submitted to the 
contracting officer and shall include the following information:
    (1) Identification of the contract for which the indemnification 
clause is requested.
    (2) Identification and definition of the unusually hazardous or 
nuclear risks for which indemnification is requested, with a statement 
indicating how the contractor would be exposed to them.
    (3) A statement, executed by a corporate official with binding 
contractual authority, of all insurance coverage applicable to the risks 
to be defined in the contract as unusually hazardous or nuclear, 
including--
    (i) Names of insurance companies, policy numbers, and expiration 
dates;
    (ii) A description of the types of insurance provided (including the 
extent to which the contractor is self-insured or intends to self-
insure), with emphasis on identifying the risks insured against and the 
coverage extended to persons or property, or both;
    (iii) Dollar limits per occurrence and annually, and any other 
limitation, for relevant segments of the total insurance coverage;
    (iv) Deductibles, if any, applicable to losses under the policies;
    (v) Any exclusions from coverage under such policies for unusually 
hazardous or nuclear risks; and
    (vi) Applicable workers' compensation insurance coverage.
    (4) The controlling or limiting factors for determining the amount 
of financial protection the contractor is to provide and maintain, with 
information regarding the availability, cost, and terms of additional 
insurance or other forms of financial protection.
    (5) Whether the contractor's insurance program has been approved or 
accepted by any Government agency; and whether the contractor has an 
indemnification agreement covering similar risks under any other 
Government program, and, if so, a brief description of any limitations.
    (6) If the contractor is a division or subsidiary of a parent 
corporation, (i) a statement of any insurance coverage of the parent 
corporation that bears on the risks for which the contractor seeks 
indemnification and (ii) a description of the precise legal relationship 
between parent and subsidiary or division.
    (b) If the dollar value of the contractor's insurance coverage 
varies by 10 percent or more from that stated in an indemnification 
request submitted in accordance with paragraph (a) above, or if other 
significant changes in insurance coverage occur after submission and 
before approval, the contractor shall immediately submit to the 
contracting officer a brief description of the changes.



50.403-2  Action on indemnification requests.

    (a) The contracting officer, with assistance from legal counsel and 
cognizant program office personnel, shall review the indemnification 
request and ascertain whether it contains all required information. If 
the contracting officer, after considering the facts and

[[Page 1008]]

evidence, denies the request, the contracting officer shall notify the 
contractor promptly of the denial and of the reasons for it. If 
recommending approval, the contracting officer shall forward the request 
(as modified, if necessary, by negotiation) through channels to the 
appropriate official specified in 50.201(d). The contracting officer's 
submission shall include all information submitted by the contractor 
and--
    (1) All pertinent information regarding the proposed contract or 
program, including the period of performance, locations, and facilities 
involved;
    (2) A definition of the unusually hazardous or nuclear risks 
involved in the proposed contract or program, with a statement that the 
parties have agreed to it;
    (3) A statement by responsible authority that the indemnification 
action would facilitate the national defense;
    (4) A statement that the contract will involve unusually hazardous 
or nuclear risks that could impose liability upon the contractor in 
excess of financial protection reasonably available;
    (5) A statement that the contractor is complying with applicable 
Government safety requirements;
    (6) A statement of whether the indemnification should be extended to 
subcontractors; and
    (7) A description of any significant changes in the contractor's 
insurance coverage (see 50.403-1(b)) occurring since submission of the 
indemnification request.
    (b) Approval of a request to include the indemnification clause in a 
contract shall be by a Memorandum of Decision executed by the 
appropriate official specified in 50.201(d).
    (c) When use of the indemnification clause is approved under 
paragraph (b) above, the definition of unusually hazardous or nuclear 
risks (see subparagraph (a)(2) above) shall be incorporated into the 
contract, along with the clause.
    (d) When approval is (1) authorized in the Memorandum of Decision 
and (2) justified by the circumstances, the contracting officer may 
approve the contractor's written request to provide for indemnification 
of subcontractors, using the same procedures as those required for 
contractors.



50.403-3  Contract clause.

    The contracting officer shall insert the clause at 52.250-1, 
Indemnification Under Public Law 85-804, in contracts whenever the 
approving official determines that the contractor shall be indemnified 
against unusually hazardous or nuclear risks (also see 50.403-2(c)). In 
cost-reimbursement contracts, the contracting officer shall use the 
clause with its Alternate I.



PART 51--USE OF GOVERNMENT SOURCES BY CONTRACTORS--Table of Contents




Sec.
51.000  Scope of part.

        Subpart 51.1--Contractor Use of Government Supply Sources

51.100  Scope of subpart.
51.101  Policy.
51.102  Authorization to use Government supply sources.
51.103  Ordering from Government supply sources.
51.104  Furnishing assistance to contractors.
51.105  Payment for shipments.
51.106  Title.
51.107  Contract clause.

  Subpart 51.2--Contractor Use of Interagency Fleet Management System 
                                 (IFMS)

51.200  Scope of subpart.
51.201  Policy.
51.202  Authorization.
51.203  Means of obtaining service.
51.204  Use of interagency fleet management system (IFMS) vehicles and 
          related services.
51.205  Contract clause.

    Authority: 40 U.S.C. 486(c); 10 U.S.C. Chapter 137; and 42 U.S.C. 
2473(c).

    Source: 48 FR 42476, Sept. 19, 1983, unless otherwise noted.



51.000  Scope of part.

    This part prescribes policies and procedures for the use by 
contractors of Government supply sources and interagency motor pool 
vehicles and related services.

[[Page 1009]]



        Subpart 51.1--Contractor Use of Government Supply Sources



51.100  Scope of subpart.

    This subpart prescribes policies and procedures for the use of 
Government supply sources (see 51.102(c)) by contractors. In this 
subpart, the terms contractors and contracts include subcontractors and 
subcontracts.



51.101  Policy.

    (a) If it is in the Government's interest, and if supplies or 
services required in the performance of a Government contract are 
available from Government supply sources, contracting officers may 
authorize contractors to use these sources in performing--
    (1) Government cost-reimbursement contracts;
    (2) Other types of negotiated contracts when the agency determines 
that a substantial dollar portion of the contractor's contracts are of a 
Government cost-reimbursement nature; or
    (3) A contract under the Javits-Wagner-O'Day Act (41 U.S.C. 46, et 
seq.) if:
    (i) The nonprofit agency requesting use of the supplies and services 
is providing a commodity or service to the Federal Government, and
    (ii) The supplies or services received are directly used in making 
or providing a commodity or service, approved by the Committee for 
Purchase From People Who Are Blind or Severely Disabled, to the Federal 
Government (See Subpart 8.7).
    (b) Contractors with fixed-price Government contracts that require 
protection of security classified information may acquire security 
equipment through GSA sources (see 41 CFR 101-26.407).
    (c) Contracting officers shall authorize contractors purchasing 
supply items for Government use that are available from the Committee 
for Purchase from People Who Are Blind or Severely Disabled (see subpart 
8.7) to purchase such items from the Defense Logistics Agency (DLA), the 
General Services Administration (GSA), and the Department of Veterans 
Affairs (VA) if they are available from these agencies through their 
distribution facilities. Mandatory supplies that are not available from 
DLA/GSA/VA shall be ordered through the appropriate central nonprofit 
agency (see 52.208-9(c)).
[48 FR 42476, Sept. 19, 1983, as amended at 60 FR 42657, Aug. 16, 1995; 
61 FR 2631, Jan. 26, 1996]



51.102  Authorization to use Government supply sources.

    (a) Before issuing an authorization to a contractor to use 
Government supply sources in accordance with 51.101 (a) or (b), the 
contracting officer shall place in the contract file a written finding 
supporting issuance of the authorization. A written finding is not 
required when authorizing use of the Government supply sources in 
accordance with 51.101(c). Except for findings under 51.101(a)(3), the 
determination shall be based on, but not limited to, consideration of 
the following factors:
    (1) The administrative cost of placing orders with Government supply 
sources and the program impact of delay factors, if any.
    (2) The lower cost of items available through Government supply 
sources.
    (3) Suitability of items available through Government supply 
sources.
    (4) Delivery factors such as cost and time.
    (5) Recommendations of the contractor.
    (b) Authorizations to subcontractors shall be issued through, and 
with the approval of, the contractor.
    (c) Upon deciding to authorize a contractor to use Government supply 
sources, the contracting officer shall request, in writing, as 
applicable--
    (1) A FEDSTRIP activity address code, through the agency's central 
contact point for matters involving activity address codes, from the 
General Services Administration (GSA), FCSI, Washington, DC 20406;
    (2) A MILSTRIP activity address code from the appropriate Department 
of Defense (DOD) service point listed in Section 1 of the Introduction 
to the DOD Activity Address Directory;
    (3) Approval for the contractor to use Department of Veterans 
Affairs (VA) supply sources from the Deputy Assistant Secretary for 
Acquisition and Materiel Management (Code 90), Office of Acquisition and 
Materiel Management, Department of Veterans Affairs, 810

[[Page 1010]]

Vermont Avenue, NW., Washington, DC 20420;
    (4) Approval for the contractor to acquire helium from the 
Department of the Interior, Bureau of Land Management, Helium Field 
Operations, 801 S. Fillmore Street, Amarillo, TX 79101-3545 or
    (5) Approval from the appropriate agency for the contractor to use a 
Government supply source other than those identified in (1) through (4) 
above.
    (d) Each request made under paragraph (c) above shall contain--
    (1) The complete address(es) to which the contractor's mail, 
freight, and billing documents are to be directed;
    (2) A copy of the contracting officer's letter of authorization to 
the contractor;
    (3) The prime contract number(s); and
    (4) The effective date and duration of each contract.
    (e) In each authorization to the contractor, the contracting 
officer--
    (1) Shall cite the contract number(s) involved;
    (2) Shall, when practicable, limit the period of the authorization;
    (3) Shall specify, as appropriate, that--
    (i) When requisitioning from GSA or DOD, the contractor shall use 
FEDSTRIP or MILSTRIP, as appropriate, and include the activity address 
code assigned by GSA or DOD;
    (ii) When requisitioning from the VA, the contractor should use 
FEDSTRIP or MILSTRIP, as appropriate, Optional Form 347, Order for 
Supplies or Services (see 53.302-347), or an agency-approved form; and
    (iii) When placing orders for helium with the Bureau of Land 
Management, the contractor shall reference the Federal contract number 
on the purchase order;
    (4) May include any other limitations or conditions deemed 
necessary. For example, the contracting officer may--
    (i) Authorize purchases from Government supply sources of any 
overhead supplies, but no production supplies;
    (ii) Limit any authorization requirement to use Government sources 
to a specific dollar amount, thereby leaving the contractor free to make 
smaller purchases from other sources if so desired;
    (iii) Restrict the authorization to certain facilities or to 
specific contracts; or
    (iv) Provide specifically if vesting of title is to differ from 
other property acquired or otherwise furnished by the contractor for use 
under the contract; and
    (5) Shall instruct the contractor to comply with the applicable 
policies and procedures prescribed in this subpart.
    (f) After issuing the authorization, the authorizing agency shall be 
responsible for--
    (1) Ensuring that contractors comply with the terms of their 
authorizations and that supplies and services obtained from Government 
supply sources are properly accounted for and properly used;
    (2) Any indebtedness incurred for supplies or services and not 
satisfied by the contractor; and
    (3) Submitting, in writing, to the appropriate Government sources, 
address changes of the contractor and deletions when contracts are 
completed or terminated.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989; 
60 FR 42657, Aug. 16, 1995; 61 FR 2631, Jan. 26, 1996; 62 FR 40237, July 
25, 1997]



51.103  Ordering from Government supply sources.

    (a) Contractors placing orders under Federal Supply Schedules shall 
follow the terms of the applicable schedule and authorization and 
include with each order--
    (1) A copy of the authorization (unless a copy was previously 
furnished to the Federal Supply Schedule contractor); and
    (2) The following statement:
    This order is placed under written authorization 
from.......................dated............. In the event of any 
inconsistency between the terms and conditions of this order and those 
of your Federal Supply Schedule contract, the latter will govern.
    (b) If a Federal Supply Schedule contractor refuses to honor an 
order placed by a Government contractor under an agency authorization, 
the

[[Page 1011]]

contracting officer shall report the circumstances to the General 
Services Administration, FCO, Washington, DC 20406.
    (c) Contractors placing orders for Government stock shall--
    (1) Comply with the requirements of the contracting officer's 
authorization, using FEDSTRIP or MILSTRIP procedures, as appropriate;
    (2) Use only the Government activity address code obtained by the 
contracting officer in accordance with 51.102(e) along with the 
contractor's assigned access code, when ordering from GSA Customer 
Supply Centers.
    (3) Order only those items required in the performance of their 
contracts.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989; 
55 FR 52797, Dec. 21, 1990; 56 FR 55372, Oct. 25, 1991; 61 FR 41471, 
Aug. 8, 1996; 62 FR 44819, Aug. 22, 1997]

    Effective Date Note: At 62 FR 44819, Aug. 22, 1997, section 51.103 
was amended by removing paragraph (c) and redesignating paragraph (d) as 
(c), effective Oct. 21, 1997. For the convenience of the user, the 
superseded text is set forth as follows:

51.103  Ordering from Government supply sources.

                                * * * * *

    (c) Contractors placing orders under indefinite delivery contracts 
issued by GSA for automatic data processing equipment, software and 
maintenance, communications equipment and supplies, and teleprocessing 
services shall follow the terms of the applicable contract and the 
procedures in 51.103(a)(1) and (2).

                                * * * * *



51.104  Furnishing assistance to contractors.

    After receiving an activity address code, the contracting officer 
will notify the appropriate GSA regional office or military activity, 
which will contact the contractor and--
    (a) Provide initial copies of ordering information and instructions; 
and
    (b) When necessary, assist the contractor in preparing and 
submitting, as appropriate--
    (1) The initial FEDSTRIP or MILSTRIP requisitions, the Optional Form 
347, or the agency-approved forms;
    (2) A completed GSA Form 457, FSS Publications Mailing List 
Application, so that the contractor will automatically receive current 
copies of required publications; or
    (3) A completed GSA Form 3525, Application for Customer Supply 
Center Services and (Address Change).
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989]



51.105  Payment for shipments.

    GSA, DOD, and VA will not forward bills to contractors for supplies 
ordered from Government stock until after the supplies have been 
shipped. Receipt of billing is sufficient evidence to establish 
contractor liability and to provide a basis for payment. Contracting 
officers should direct their contractors to make payment promptly upon 
receipt of billings.



51.106  Title.

    (a) Title to all property acquired by the contractor under the 
contracting officer's authorization shall vest in the parties as 
provided in the contract, unless specifically provided for otherwise.
    (b) If contracts are with educational institutions and the 
Government Property clause at 52.245-2, Alternate II, or 52.245-5, 
Alternate I, is used, title to property having an acquisition cost of 
less than $5,000 shall vest in the contractor as provided in the clause. 
Agencies may provide higher thresholds, if appropriate.
[48 FR 42476, Sept. 19, 1983, as amended at 57 FR 60590, Dec. 21, 1992]



51.107  Contract clause.

    The contracting officer shall insert the clause at 52.251-1, 
Government Supply Sources, in solicitations and contracts when the 
contracting officer may authorize the contractor to acquire supplies or 
services from a Government supply source. If a facilities contract is 
contemplated, the contracting officer shall use the clause with its 
Alternate I.

[[Page 1012]]



  Subpart 51.2--Contractor Use of Interagency Fleet Management System 
                                 (IFMS)



51.200  Scope of subpart.

    This subpart prescribes policies and procedures for the use by 
contractors of interagency fleet management system (IFMS) vehicles and 
related services. In this subpart, the terms contractors and contracts 
include subcontractors and subcontracts (see 45.304).
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989; 
55 FR 52797, Dec. 21, 1990]



51.201  Policy.

    (a) If it is in the Government's interest, the contracting officer 
may authorize cost-reimbursement contractors to obtain, for official 
purposes only, interagency fleet management system (IFMS) vehicles and 
related services, including (1) fuel and lubricants, (2) vehicle 
inspection, maintenance, and repair, (3) vehicle storage, and (4) 
commercially rented vehicles for short-term use.
    (b) Complete rebuilding of major components of contractor-owned or -
leased equipment requires the approval of the contracting officer in 
each instance.
    (c) Government contractors shall not be authorized to obtain 
interagency fleet management system (IFMS) vehicles and related services 
for use in performance of any contract other than a cost-reimbursement 
contract, except as otherwise specifically approved by the Administrator 
of the General Services Administration at the request of the agency 
involved.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989]



51.202  Authorization.

    (a) The contracting officer may authorize a cost-reimbursement 
contractor to obtain interagency fleet management system (IFMS) vehicles 
and related services, if the contracting officer has--
    (1) Determined that the authorization will accomplish the agency's 
contractual objectives and effect demonstrable economies;
    (2) Received evidence that the contractor has obtained motor vehicle 
liability insurance covering bodily injury and property damage, with 
limits of liability as required or approved by the agency, protecting 
the contractor and the Government against third-party claims arising 
from the ownership, maintenance, or use of an interagency fleet 
management system (IFMS) vehicle;
    (3) Arranged for periodic checks to ensure that authorized 
contractors are using vehicles and related services exclusively under 
cost-reimbursement contracts;
    (4) Ensured that contractors shall establish and enforce suitable 
penalties for their employees who use or authorize the use of Government 
vehicles for other than performance of Government contracts (see 41 CFR 
101-38.301-1);
    (5) Received a written statement that the contractor will assume, 
without the right of reimbursement from the Government, the cost or 
expense of any use of interagency fleet management system (IFMS) 
vehicles and services not related to the performance of the contract; 
and
    (6) Considered any recommendations of the contractor.
    (b) The authorization shall--
    (1) Be in writing;
    (2) Cite the contract number;
    (3) Specify any limitations on the authority, including its 
duration, and any other pertinent information; and
    (4) Instruct the contractor to comply with the applicable policies 
and procedures provided in this subpart.
    (c) Authorizations to subcontractors shall be issued through, and 
with the approval of, the contractor.
    (d) Contracting officers authorizing contractor use of interagency 
fleet management system (IFMS) vehicles and related services subject 
their agencies to the responsibilities and liabilities provided in 41 
CFR 101-39.4 regarding accidents and claims.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989]



51.203  Means of obtaining service.

    (a) Authorized contractors shall submit requests for interagency 
fleet management system (IFMS) vehicles and

[[Page 1013]]

related services in writing to the appropriate GSA regional Federal 
Supply Service Bureau, Attention: Regional fleet manager, except that 
requests for more than five vehicles shall be submitted to General 
Services Administration, FBF, Washington, DC 20406, and not to the 
regions. Each request shall include the following:
    (1) Two copies of the agency authorization to obtain vehicles and 
related services from GSA.
    (2) The number of vehicles and related services required and period 
of use.
    (3) A list of the contractor's employees who are authorized to 
request vehicles and related services.
    (4) A listing of the make, model, and serial numbers of contractor-
owned or -leased equipment authorized to be serviced.
    (5) Billing instructions and address.
    (b) Contractors requesting unusual quantities of vehicles should do 
so as far in advance as possible to facilitate availability.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, 29283, July 11, 
1989]



51.204  Use of interagency fleet management system (IFMS) vehicles and related services.

    Contractors authorized to use interagency fleet management system 
(IFMS) vehicles and related services shall comply with the requirements 
of 41 CFR 101-39 and 41 CFR 101-38.301-1 and the operator's packet 
furnished with each vehicle. See 41 CFR 101-6.4 for additional guidance 
for home-to-work use of Government vehicles.
[55 FR 52797, Dec. 21, 1990]



51.205  Contract clause.

    The contracting officer shall insert the clause at 52.251-2, 
Interagency Fleet Management System (IFMS) Vehicles and Related 
Services, in solicitations and contracts when a cost-reimbursement 
contract is contemplated and the contracting officer may authorize the 
contractor to use interagency fleet management system (IFMS) vehicles 
and related services.
[48 FR 42476, Sept. 19, 1983, as amended at 54 FR 29282, July 11, 1989]

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[[Page 1093]]


                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected



[[Page 1095]]



                    Table of CFR Titles and Chapters




                   (Revised as of September 30, 1997)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2--[Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)
        II  Federal Claims Collection Standards (General 
                Accounting Office--Department of Justice) (Parts 
                100--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Advisory Committee on Federal Pay (Parts 1400--1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
       VII  Advisory Commission on Intergovernmental Relations 
                (Parts 1700--1799)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)

[[Page 1096]]

      XXIV  Federal Energy Regulatory Commission (Part 3401)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6--[Reserved]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Consumer Service, Department of Agriculture 
                (Parts 210--299)

[[Page 1097]]

       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
      XIII  Northeast Dairy Compact Commission (Parts 1300--1399)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  [Reserved]
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 1098]]

     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--499)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Meat and Poultry 
                Inspection, Department of Agriculture (Parts 300--
                599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
        XI  United States Enrichment Corporation (Parts 1100--
                1199)
        XV  Office of the Federal Inspector for the Alaska Natural 
                Gas Transportation System (Parts 1500--1599)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)

[[Page 1099]]

      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Thrift Depositor Protection Oversight Board (Parts 
                1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700-1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Export Administration, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)

[[Page 1100]]

            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)

[[Page 1101]]

        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development, International 
                Development Cooperation Agency (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Information Agency (Parts 500--599)
        VI  United States Arms Control and Disarmament Agency 
                (Parts 600--699)
       VII  Overseas Private Investment Corporation, International 
                Development Cooperation Agency (Parts 700--799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Board for International Broadcasting (Parts 1300--
                1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

[[Page 1102]]

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs and Section 202 Direct Loan Program) 
                (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--999)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Part 1001)

[[Page 1103]]

       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--799)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

[[Page 1104]]

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
        VI  Bureau of Mines, Department of the Interior (Parts 
                600--699)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)
      XXIX  Presidential Commission on the Assignment of Women in 
                the Armed Forces (Part 2900)

[[Page 1105]]

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100-1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
       XIV  Assassination Records Review Board (Parts 1400-1499)

[[Page 1106]]

             Title 37--Patents, Trademarks, and Copyrights

         I  Patent and Trademark Office, Department of Commerce 
                (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
         V  Council on Environmental Quality (Parts 1500--1599)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans 
                Employment and Training, Department of Labor 
                (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       301  Travel Allowances (Parts 301-1--301-99)
       302  Relocation Allowances (Parts 302-1--302-99)

[[Page 1107]]

       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Parts 303-1--303-2)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Health Care Financing Administration, Department of 
                Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)

[[Page 1108]]

         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  ACTION (Parts 1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
      XXII  Christopher Columbus Quincentenary Jubilee Commission 
                (Parts 2200--2299)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)

[[Page 1109]]

        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  United States Information Agency (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)

[[Page 1110]]

       III  Federal Highway Administration, Department of 
                Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            Acts Requiring Publication in the Federal Register
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 1111]]





           Alphabetical List of Agencies Appearing in the CFR




                   (Revised as of September 30, 1997)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

ACTION                                            45, XII
Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Commission on Intergovernmental          5, VII
     Relations
Advisory Committee on Federal Pay                 5, IV
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Consumer Service                       7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alaska Natural Gas Transportation System, Office  10, XV
     of the Federal Inspector
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 1112]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Arms Control and Disarmament Agency, United       22, VI
     States
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Assassination Records Review Board                36, XIV
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Board for International Broadcasting              22, XIII
Census Bureau                                     15, I
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee        45, XXII
     Commission
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Commerce Department                               44, IV
  Census Bureau                                   15, I`
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Export Administration, Bureau of                15, VII
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office                     37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 1113]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Defense Mapping Agency                          32, I
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Mapping Agency                            32, I
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Enrichment Corporation, United States             10, XI
Environmental Protection Agency                   5, LIV; 40, I
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                25, III, LXXVII; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export Administration, Bureau of                  15, VII
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV

[[Page 1114]]

Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               4, II
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II; 49, III
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Inspector for the Alaska Natural Gas      10, XV
     Transportation System, Office of
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Pay, Advisory Committee on                5, IV
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Property Management Regulations System    41, Subtitle C
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Consumer Service                         7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I, II
General Services Administration                   5, LVII
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Property Management Regulations System  41, 101, 105
  Federal Travel Regulation System                41, Subtitle F
  Payment From a Non-Federal Source for Travel    41, 304
     Expenses
[[Page 1115]]

  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Travel Allowances                               41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes Pilotage                              46, III
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Health Care Financing Administration            42, IV
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Health Care Financing Administration              42, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Information Agency, United States                 22, V
  Federal Acquisition Regulation                  48, 19
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Intergovernmental Relations, Advisory Commission  5, VII
     on
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II

[[Page 1116]]

  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  Mines, Bureau of                                30, VI
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
  International Development, United States        22, II; 48, 7
       Agency for
  Overseas Private Investment Corporation         5, XXXIII; 22, VII
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             4, II
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training, Office of    41, 61; 20, IX
       the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII

[[Page 1117]]

Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Mines, Bureau of                                  30, VI
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National and Community Service, Corporation for   45, XXV
National Council on Disability                    34, XII
National Credit Union Administration              12, VII
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Dairy Compact Commission                7, XIII
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office                       37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
     Acquisition Regulation
[[Page 1118]]

  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Commission on the Assignment of      32, XXIX
     Women in the Armed Forces
Presidential Documents                            3
Prisons, Bureau of                                28, V
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Depositor Protection Oversight Board       12, XV
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II; 49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X

[[Page 1119]]

Transportation, Office of                         7, XXXIII
Travel Allowances                                 41, 301
Treasury Department                               5, XXI; 17, IV
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
United States Enrichment Corporation              10, XI
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training, Office of the  41, 61; 20, IX
     Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1121]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
1986, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 1986, see the ``List of CFR Sections 
Affected, 1973-1985,'' published in four separate volumes.

                                  1986

48 CFR
                                                                   51 FR
                                                                    Page
Chapter 1
1.101  Amended.....................................................27116
1.102  (a) revised.................................................27116
1.105  Table amended (OMB numbers)...................12298, 27116, 36971
1.201-1  (b)(1) amended.............................................2649
2.101 (Subpart 2.1)  Amended........................................2649
3  Amendments confirmed............................................27116
3.700--3.705 (Subpart 3.7)  Added..................................27116
4.401  Amended......................................................2649
4.703  (b)(1) amended...............................................2649
5  Part transferred to Subchapter B.................................2649
5.101  Introductory text added.....................................27117
5.201  (d) revised.................................................27117
5.202  (a)(2) amended..............................................27117
5.203  (f) amended.................................................31425
5.205  (b) added...................................................27117
5.207  (a) and (b) revised; (c), (d), (e), and (f) redesignated as 
        (d), (e), (f), and (g); new (c) added; new (g)(1) 
        introductory text and (2) introductory text revised; new 
        (g)(2) list amended........................................27117
5.301  Corrected....................................................3071
5.302  (b) revised.................................................27119
6  Part transferred to Subchapter B.................................2649
6.102  (d)(2) amended..............................................27119
6.302-5  (c)(2) amended; (c)(2) (i) and (ii) added.................36971
7  Amendments confirmed............................................27116
7.306  (b) amended.................................................31425
8.300  Amended..............................................12293, 36971
8.403-4  Added.....................................................19713
8.404-1  (e)(3) revised; (f) redesignated as (g); new (f) added; 
        new (g) revised............................................19713
8.404-2  (a)(4) amended.............................................2649
8.408  (c) amended..................................................2649
8.703  (b) revised.................................................19713
8.704  (a) amended.................................................19713
8.708  (c) amended.................................................19713
8.712  (a), (b) introductory text and (1) revised; (c) and (d) 
        added......................................................19714
8.715  Added.......................................................19714
8.1104  (d) redesignated as (e); new (d) added.....................19714
9.104-1  (g) amended...............................................27119
9.105-1  (d) removed; (c)(6) added.................................27119
9.106-1  (a)(2) amended............................................27489
9.407-3  (c)(2) amended.............................................2649
9.407-4  (a) amended................................................2649
9.701  Amended......................................................2649
10.007  (a)(4) amended..............................................2649
12.300--12.304 (Subpart 12.3)  Revised.............................19714
13.104  (h) added..................................................27489
13.105  (a) amended.................................................2649
    (d)(2) amended.................................................36971
13.107  (a)(3) amended.............................................27119
13.204  (b) revised................................................31426
13.404  (a) revised................................................19715
13.507  (c) amended.................................................2649
14.201-2  (b) amended..............................................27119
14.201-6  (f) revised...............................................2649
14.201-7  (d) added.................................................2649

[[Page 1122]]

14.404-2  (k) amended...............................................2649
14.503-1  (i) amended...............................................2649
15.406-2  (b) amended..............................................27119
15.406-3  Revised...................................................2649
15.406-5  (c) revised..............................................19715
15.407  (f) removed; (g) and (h) redesignated as (f) and (g)........2650
    (h) added......................................................19715
15.605  (f) added..................................................19715
15.611  (a) amended................................................19715
15.704  Amended....................................................27119
15.801  Amended....................................................36971
15.804-3  (e)(2) amended............................................2650
15.804-6  (e) revised..............................................27119
15.805-5  (d), (e)(5), and (h) revised.............................27119
    (h) amended....................................................36971
15.806  (b) amended................................................27120
15.810  (a) and (e) revised; (c) redesignated as (f); new (c) 
        added......................................................36971
15.812  Revised....................................................27120
15.812-1  Revised..................................................27120
15.812-2  Revised..................................................27120
15.1004  Amended....................................................2650
16.603-3  Introductory text amended................................31426
17.102-1  (a) amended...............................................2650
17.103-2  (j)(1) amended............................................2650
17.500  Amended.....................................................2650
19  Amendments confirmed...........................................27116
19.001  Added.......................................................2650
19.1  Heading amended...............................................2650
19.101  Revised.....................................................2650
19.102  (a) amended; (f) and (g) revised............................2652
    (g) table amended.......................................27489, 31426
19.102-1--19.102-7  Removed.........................................2664
19.302  (d) introductory text amended; (d)(3) added; (d)(1)(ii), 
        (e) introductory text, and (i)(3) revised...................2664
19.303  (c)(2) introductory text, (i), (ii), and (v) revised; 
        (c)(2)(vi) added; (c)(3) amended............................2664
19.402  (a) revised................................................19715
19.403  Added......................................................19715
19.501  (a) revised; (g)(2) amended.................................2664
19.601  (a) and (b) redesignated as (b) and (c) and amended; new 
        (a) added...................................................2664
19.602-1  (a)(2) and (c)(2) revised................................27489
19.701  Heading revised; text amended...............................2664
19.703  (a)(1) and (2) amended......................................2664
19.704  (a) amended.................................................2664
19.705-2  (a) amended...............................................2664
    (b)(3) removed.................................................19716
19.705-4  (d)(3) revised...........................................19716
19.707  (a)(2) amended..............................................2664
19.708  (c)(1) amended..............................................2664
19.902  Revised....................................................31426
22.103-1  Amended; interim.........................................12293
22.300  Revised; interim...........................................12293
22.301  Amended; interim...........................................12293
22.302  Revised; interim...........................................12293
22.304  Revised; interim...........................................12293
22.305  Revised; interim...........................................12293
22.609  (i) amended.................................................2665
22.1101  Amended....................................................2665
24.202  Existing text designated as (a); (b) added.................31426
25.109  (d) amended.................................................2665
25.400  Revised; interim....................................16802, 30619
25.401  Amended; interim...........................................16802
25.402  (b), (c) and (d) redesignated as (c), (d) and (e); new (b) 
        added; new (c) revised; interim............................16803
    Revised; interim...............................................30619
25.403  (m) added; interim.........................................16803
    (a) amended; interim...........................................30619
25.404  Revised; interim...........................................30619
25.405  (d) revised; interim.......................................16803
    (d) corrected..................................................20976
    Nomenclature change; interim...................................30619
25.406  Amended.....................................................2665
    Amended; interim...............................................16803
25.501  (b) amended.................................................2665
27.203-3  Amended...................................................2665
27.302  (a)(2) amended..............................................2665
28.101-1  (b) amended...............................................2665
30.103  Revised.....................................................2665
30.201-1  (d) amended...............................................2665
30.203  (f) amended.................................................2665
30.302  (e) amended.................................................2665
31.109  (h)(8) revised; (h)(16) added..............................12298
    (h)(8) revised.................................................27489
31.205-1  Revised..................................................12298
31.205-6  (b) and (m) revised......................................12299
    (n) added......................................................31426
31.205-8  Revised..................................................12300
31.205-13  (b) revised.............................................12300
31.205-14  Revised.................................................12300
31.205-15  Revised.................................................12301
31.205-19  (a)(5) added............................................31426
31.205-22  Heading revised.........................................12301
31.205-33  (d) revised; (f) added..................................12301

[[Page 1123]]

31.205-36  (a) amended..............................................2665
31.205-38  (b) amended..............................................2665
    Revised........................................................12301
31.205-46  (a) amended..............................................2665
    (d) and (e) revised; (f) added.................................12301
    (a) revised....................................................27489
    (a)(2)(ii) amended.............................................36972
31.205-47  (b)(3) amended...........................................2665
    (b) and (d) revised............................................12302
31.205-50  Added...................................................12302
31.205-51  Added...................................................12302
32.103  Added......................................................19716
32.111  (b) amended.................................................2665
32.503-14  (c) amended..............................................2665
32.612  Amended.....................................................2665
32.616  Amended.....................................................2665
32.702  Amended.....................................................2665
32.703-3  Amended...................................................2665
32.704  (c) amended.................................................2665
32.800  Amended.....................................................2665
32.805  (c) amended.................................................2665
32.806  (b) amended.................................................2666
33.210  (b) revised................................................36972
34  Amendments confirmed...........................................27116
36.102  Amended....................................................36972
36.201  (a)(1) introductory text revised............................2666
36.302  (b)(1) amended.............................................19716
36.521  (b) amended.................................................2666
36.601  Existing text designated as (a); (b) added.................36972
38.102-4  Added....................................................19716
42.101  (d)(1) amended..............................................2666
42.1401  (b)(11) amended............................................2666
43.301  (b) amended................................................27120
44.201-1  (d) amended..............................................36972
45.101  (a) amended................................................19716
    (a) corrected..................................................33270
45.105  (b)(4) amended..............................................2666
45.401  Revised....................................................19717
45.502  (a) amended.................................................2666
46.202-1  (b) amended...............................................2666
46.306  Amended.....................................................2666
46.309  Revised....................................................27120
47.301-3  (a) amended...............................................2666
47.305-3  (f)(2) revised...........................................31426
48.102  (d) amended.................................................2666
49.001  Amended.....................................................2666
50.306  (f) amended................................................31426
50.307  Amended....................................................31426

                                  1987

48 CFR
                                                                   52 FR
                                                                    Page
Chapter 1
1.105  Table amended (OMB numbers)............18140, 19802, 30076, 35612
1.402  Amended.....................................................35612
2.101  Amended.....................................................19802
3.502  Revised......................................................6121
    Correctly designated......................................7063, 9989
3.502-1  Added......................................................6121
    Correctly designated......................................7063, 9989
3.502-2  Added......................................................6121
    (a) introductory text, (d) (1) and (2), (e), and (h) corrected
                                                                    9989
3.502-3  Added......................................................6121
4.601  (a) amended.................................................19802
5.101  (a) revised; interim........................................21885
5.201  (a) amended; (b) (1) and (3) revised; interim...............21886
5.205  (c) revised; interim........................................21886
5.206  (a)(2) amended..............................................19802
5.301  Revised.....................................................19802
5.303  (a) amended.................................................30076
6.302-1  (a)(2) introductory text and (b)(1) revised; (a)(2)(iii) 
        added......................................................21886
7.203  Revised.....................................................30076
7.305  (c) revised..................................................9037
8.800  Revised......................................................9037
8.801  Amended......................................................9037
8.802  (a) revised; (b) and (c) redesignated as (d) and (e); new 
        (b) and (c) added; new (d) revised..........................9037
9.105-1  (d) added..................................................9038
9.405  (a) amended..................................................9038
9.406-1  (a) amended................................................6122
13.104  (g) amended; interim.......................................21886
13.105  (a) amended; interim.......................................21886
13.106  (b)(2) amended.............................................19803
13.107  (d) added..................................................30076
13.203-1  (b) and (c) revised.......................................9038
13.402  Amended....................................................19803
14.205-5  (a) amended; interim.....................................38189
15.605  (b) revised................................................21886
    (b) corrected..................................................28225
15.704  Amended.....................................................9038
15.808  (a) (8) and (9) revised....................................19803
15.812-1  Revised..................................................21886
15.812-2  (a) revised..............................................21887
15.904  Revised....................................................35613
16.203-4  (b)(1)(i) amended........................................19803
19.001  Amended; interim...........................................38189
19.102  Table revised..............................................21888
19.202-6  Added; interim...........................................38189
    Amended........................................................30076
19.501  (f)(1) amended.............................................21902

[[Page 1124]]

    (j) and (k) added; interim.....................................38189
19.502-1  (c) revised; interim.....................................38189
19.508  (a)(2) amended.............................................21902
    (e) added; interim.............................................38189
19.705-6  (c)(1) amended...........................................19803
19.805  Existing text designated as (a); (b) added; interim........38189
19.806-1  (a) removed; (b) and (c) redesignated as (a) and (b); 
        interim....................................................38189
22.606-2  (b) revised..............................................30076
22.807  (d)(2) amended.............................................19803
22.810  (g) revised................................................19803
22.1303  (d) amended...............................................19803
22.1403  (d) amended...............................................19803
25.402  Correctly revised; interim..................................8567
25.403  (d) revised................................................19803
27.204-1  (a)(2) amended...........................................19803
27.400--27.409 (Subpart 27.4)  Revised.............................18140
28.101-1  (b) revised..............................................19803
    (c) added......................................................30076
28.101-3  (b) amended..............................................19803
30  Revised........................................................35613
30.401-61  Correctly designated....................................36675
30.402-61  Correctly designated....................................36675
30.403-61  Correctly designated....................................36675
30.414-61  Correctly designated....................................36675
30.418-61  Correctly designated....................................36675
30.420-61  Correctly designated....................................36675
31  Nomenclature change............................................35669
31.105  (d)(2)(i)(A) revised; (d)(2)(i)(B) amended.................19804
31.107  Heading and (a) revised....................................30076
31.109  (h) (14) and (16) amended; (h)(17) added....................9038
    (h)(14) correctly designated...................................27806
31.201-3  Revised..................................................19804
31.205-6  (i) revised..............................................19804
31.205-10  (a)(2)(i) and (b)(2)(i)(A) amended......................35669
31.205-22  (f) revised.............................................19804
31.205-35  (a) revised; (f) added...................................9038
31.205-38  (f) revised.............................................19805
31.205-44  Heading, (a), (b), (d), (e), (f), (h), and (j) revised; 
        (c)(3) redesignated as (c)(4); new (c)(3) added; (c)(2) 
        amended.....................................................9038
    (h)(2) corrected...............................................27806
    (i) amended....................................................30077
32.001  Added......................................................30077
32.102  (e)(2) revised.............................................30077
32.406  (a) amended................................................19805
32.501-1  (a) amended; (d) added...................................30077
32.502-4  (d) added................................................30077
32.503-6  (g)(4) amended...........................................30077
32.503-8  Amended..................................................30077
32.503-10  (b)(3) (i), (ii), and (iii) revised.....................30077
32.504  (d) amended.................................................9039
32.805  (c) amended.................................................9039
36.701  (a), (b), and (d) amended..................................19805
44.303  (g) and (h) amended; (i) added..............................9039
45.509-2  (b) introductory text and (1) revised....................30078
45.606-5  (e)(4) (i) and (ii) revised..............................30078
49.109-7  (g) amended..............................................19805

                                  1988

48 CFR
                                                                   53 FR
                                                                    Page
Chapter 1
1.105  Amended (OMB numbers)........................................4934
    Table amended (OMB numbers); eff. 10-3-88......................34226
1.602-3  Added......................................................3689
    Technical correction............................................4817
3.502-1  Amended; eff. 10-3-88.....................................34226
3.502-2  (i)(1) revised; eff. 10-3-88..............................34226
4.602  (c) revised; interim........................................43388
4.703  (a)(2) amended; interim.....................................43388
4.900--4.904 (Subpart 4.9)  Added; interim.........................43388
5.202  (a)(8) revised; interim.....................................27463
5.205  (a) revised; interim........................................43389
5.207  (a), (b) introductory text, (1) through (3), and (4) 
        introductory text, and (c)(2) revised; new (b)(6) revised; 
        (b)(5) and (c)(2) (iii) through (xvi) redesignated as 
        (b)(6) and (c)(2) (i) through (xiv); new (b)(5) added; new 
        (b)(6) revised.............................................17856
5.301  (a) amended; (c) added; interim.............................27463
6.003  Amended; interim............................................27463
6.102  (d)(2) revised; interim.....................................27463
6.302-1  (a)(2)(i) revised; interim................................27463
7.101  Amended; eff. 10-3-88.......................................34226

[[Page 1125]]

7.105  (b)(2)(iv) added............................................17856
    (a)(8) added; eff. 10-3-88.....................................34226
7.302  (d) revised.................................................17856
7.306  (b)(3) amended................................................661
8.302  (d) added; interim..........................................43389
8.405-1  (a) amended.................................................661
9.104-3  (c) amended; interim......................................27463
    (a) revised; eff. 10-3-88......................................34226
9.201  Amended; eff. 10-3-88.......................................34227
9.202  (a)(1)(ii) revised; eff. 10-3-88............................34227
9.203  (b)(1) revised..............................................17857
9.206-1  (b), (c) and (d) revised; eff. 10-3-88....................34227
9.206-2  Revised; eff. 10-3-88.....................................34227
9.207  (a)(3) revised; eff. 10-3-88................................34227
9.505-3  Heading revised; text amended; interim....................43389
9.507  (a) and (b) introductory text revised; interim..............43390
10.000  Revised; eff. 10-3-88......................................34227
10.001  Amended....................................................17857
10.002  (c) added; eff. 10-3-88....................................34227
10.003  (a) revised................................................17857
10.005  (c) amended................................................17857
10.006  (a)(1) amended.............................................17857
10.008  (a), (d) and (g) amended...................................17857
10.011  (a), (c) and (d) amended...................................17857
13.203-1  (f) amended; interim.....................................43390
13.203-2  (j)(5) revised.............................................661
13.205  (a) revised; interim.......................................43390
13.301  Introductory text amended; interim.........................27463
13.302  Introductory text and (a) revised; (b) and (c) 
        redesignated as (c) and (d); new (b), (e), and (f) added; 
        interim....................................................27463
13.501  (f) revised................................................17857
14.201-3  Amended..................................................17857
14.201-5  (b) amended..............................................17857
14.201-6  (g) redesignated as (g)(1); (g)(2) added.................43390
14.205-5  (b) amended................................................661
    (a) amended; interim...........................................43390
14.406-3  (c) revised..............................................17857
14.408-1  (a) revised; interim.....................................27463
15.402  (g) redesignated as (h); new (g) added.....................17857
15.406-1  (a)(6) redesignated as (a)(7); new (a)(6) added..........17857
15.406-2  (a)(1) revised...........................................17857
15.406-3  (c) amended..............................................17858
15.406-5  (b) amended..............................................17858
15.407  (e) redesignated as (e)(1); (e)(2) added; interim..........43390
15.605  (b) revision at 52 FR 21886 confirmed......................27462
15.801  Amended....................................................10829
15.802  (a) amended................................................10829
15.804-2  (a)(1)(iii) amended; (a)(2) revised; (c) added...........10829
15.804-3  (i) revised..............................................10829
15.804-6  (b)(2) Table 15-2 amended................................17858
15.804-7  (b) and (e) revised......................................10829
15.804-8  (a) and (b) revised......................................10830
15.806  (b) revised................................................10830
15.812  Revision at 52 FR 21886 confirmed..........................27462
15.1001  (c)(2) revised; interim...................................27464
17.200  Revised....................................................17858
17.202  (a) amended................................................17858
17.203  (h) added; interim.........................................27464
17.206  Revised....................................................17858
17.207  (f) revised................................................17858
17.208  (b) and (c) revised........................................17858
19.102  Table amended................................................661
    Table amended; eff. 10-3-88....................................34227
    Amended; interim...............................................43390
19.202-6  (a) revised; interim.....................................43390
19.501  (k) removed................................................17858
    (g)(2) revised; interim........................................43390
19.502-2  (b) amended; interim.....................................43390
19.502-3  (a)(3) amended; interim..................................43390
19.503  (d) amended; interim.......................................43390
19.506  (a) amended; interim.......................................43390
19.508  (a)(1) amended; interim....................................27464
    (e) revised; interim...........................................43390
19.705-6  (e) added; interim.......................................27464
    (a) and (b) revised; eff. 10-3-88..............................34228
19.806-1  (a) and (b) redesignated as (b) and (c); new (a) added; 
        interim....................................................43390
22.001  Added.......................................................4935
22.302  (c) and (d) added...........................................4935
22.305  (e) amended).................................................661
22.400--22.407 (Subpart 22.4)  Revised..............................4935
22.604-1  (a) amended...............................................4944
22.608-5  Revised; interim.........................................27464
22.1300  Amended.....................................................661
22.1304  Revised.....................................................661
22.1308  Heading revised; (b) redesignated as (c); new (b) added 
                                                                     662

[[Page 1126]]

23.104  (a) and (c) revised; interim...............................27464
25.101  Amended....................................................53340
25.103  Amended......................................................662
25.104  (a) amended..................................................662
25.105  (d) added; interim.........................................27464
    (e) added......................................................53340
25.304  (a) revised; (e) and (f) removed; interim..................43390
25.400  (a) and (b) amended; (c) added.............................53340
25.401  Amended....................................................53340
25.402  (a)(1), (c), and (d) revised; (a) (3) and (4) and (f) 
        added; interim.............................................27464
    (a)(1) amended; (a) (3) and (4) redesignated as (a) (4) and 
(5); new (a)(3) added..............................................53341
25.403  (a) and (b) revised; (k) removed; interim..................27465
25.405  Introductory text and (e) revised; interim.................27465
25.1000--25.1003 (Subpart 25.10)  Added; interim...................12129
    Technical correction...........................................14888
26  Added............................................................662
    Note corrected..................................................6219
28.101-4  (g), (h), and (i) added....................................662
28.106-3  (a) amended; interim.....................................43391
29.202  (b), (c), (d), and (f) amended...............................662
29.203  Added........................................................662
29.401-6  Added; eff. 10-3-88......................................34228
30.307  Amended; interim...........................................27465
30.401-62  Heading added; interim..................................27465
30.401-63  Heading added; interim..................................27465
30.402-62  Heading added; interim..................................27465
30.402-63  Heading added; interim..................................27465
30.403-62  Heading added; interim..................................27465
30.403-63  Heading added; interim..................................27465
30.404-40  (b)(1) amended; interim.................................27465
30.404-60  (a)(1) introductory text and (i) amended................27465
30.404-61  Heading added; interim..................................27465
30.404-62  Heading added; interim..................................27465
30.404-63  Added; interim..........................................27465
    Effective date note corrected..................................28403
30.405-61  Heading added; interim..................................27465
30.405-62  Heading added; interim..................................27465
30.405-63  Heading added; interim..................................27465
30.406-61  Heading added; interim..................................27465
30.406-62  Heading added; interim..................................27465
30.406-63  Heading added; interim..................................27465
30.407-61  Heading added; interim..................................27465
30.407-62  Heading added; interim..................................27465
30.407-63  Heading added; interim..................................27465
30.408-61  Heading added; interim..................................27465
30.408-62  Heading added; interim..................................27465
30.408-63  Heading added; interim..................................27465
30.409-61  Heading added; interim..................................27465
30.409-62  Heading added; interim..................................27465
30.409-63  Heading added; interim..................................27465
30.410-61  Heading added; interim..................................27465
30.410-62  Heading added; interim..................................27465
30.410-63  Heading added; interim..................................27465
30.411-61  Heading added; interim..................................27465
30.411-62  Heading added; interim..................................27465
30.411-63  Heading added; interim..................................27465
30.412-61  Heading added; interim..................................27465
30.412-62  Heading added; interim..................................27465
30.412-63  Heading added; interim..................................27465
30.413-61  Heading added; interim..................................27465
30.413-62  Heading added; interim..................................27465

[[Page 1127]]

30.413-63  Heading added; interim..................................27465
30.414-61  Redesignated as 30.414-62; interim......................27465
    Heading added; interim.........................................27466
30.414-62  Redesignated from 30.414-61; interim....................27465
30.414-63  Heading added; interim..................................27466
30.415-61  Heading added; interim..................................27466
30.415-62  Heading added; interim..................................27466
30.415-63  Heading added; interim..................................27466
30.416-50  (a)(3)(ii) revised; interim.............................27466
30.416-61  Heading added; interim..................................27466
30.416-62  Heading added; interim..................................27466
30.416-63  Added; interim..........................................27466
    Effective date note corrected..................................28403
30.417-61  Heading added; interim..................................27466
30.417-62  Heading added; interim..................................27466
30.417-63  Heading added; interim..................................27466
30.418-61  Redesignated as 30.418-62; new 30.418-61 heading added; 
        interim....................................................27466
30.418-62  Redesignated from 30.418-61; interim....................27466
30.418-63  Heading added; interim..................................27466
30.420-61  Redesignated as 30.420-62; new 30.420-61 heading added; 
        interim....................................................27466
30.420-62  Redesignated from 30.420-61; interim....................27466
30.420-63  Heading added; interim..................................27466
30  Appendix A added; interim......................................27466
31.204  (c) revised................................................17858
31.205-1  (g) redesignated as (h); new (g) added; interim..........12130
    (g) corrected..................................................13274
    Technical correction...........................................14888
31.205-6  (l) added................................................10830
    (g)(2)(i) amended; eff. 10-3-88................................34228
31.205-27  (a) revised.............................................10830
31.205-43  (c) revised; interim....................................27467
32.900--32.909 (Subpart 32.9)  Added................................3690
    Technical correction............................................4817
33.101  Amended; interim...........................................43391
33.104  (a) revised; (e), (f) and (g) redesignated as (f), (g) and 
        (h); new (e) added; interim................................43391
33.105  (a)(1) amended...............................................662
35.001  Amended; interim...........................................27467
35.016  Added; interim.............................................27467
36.402  (b)(1) revised; eff. 10-3-88...............................34228
36.501  (b) revised; interim.......................................43392
37.000  Amended; interim...........................................43392
37.101  (d) amended; (e) removed; (f) through (j) redesignated as 
        (e) through (i); interim...................................43392
37.200--37.207 (Subpart 37.2)  Revised; interim....................43392
38.102-3  (a) amended..............................................17859
39  Revised........................................................17859
42.101  (a) amended..................................................662
42.402  (a) introductory text revised; (b) redesignated as (c); 
        new (b) added................................................662
    (b) revised....................................................17859
42.1404-1  Heading revised; (a)(1) amended; interim................27467
45.101  (a) amended; interim.......................................27468
45.103  (b) (2) and (3) amended; (b)(4) added........................663
45.106  (b)(2) and (d) revised.......................................663
45.505  (c) revised; interim.......................................43394
47.303  Revised; eff. 10-3-88......................................34228
47.303-1  (a)(4) revised...........................................17859
47.303-3  (a)(1)(iv) revised.......................................17859
47.303-4  (a)(1)(iv) revised.......................................17859
47.303-5  (a)(1)(iv) revised.......................................17859
47.405  Amended; interim...........................................27468
50.307  (b) revised.................................................4945

                                  1989

48 CFR
                                                                   54 FR
                                                                    Page
Chapter 1
1  Authority citation revised.......................................5054
1.105  Table amended (OMB numbers); interim....4968, 13333, 20491, 25061
    Effective date corrected.......................................22282
    Table amended (OMB numbers).............................19813, 29280
    Suspended in part..............................................50718
1.201-1  (b)(2) amended............................................29280

[[Page 1128]]

1.301  (b) amended; (c) redesignated as (d); new (c) added; 
        interim.....................................................5054
2  Authority citation revised.......................................5054
2.101  Amended.....................................................48981
3  Authority citation revised.......................................5054
3.104  Added; interim..............................................20491
    Effective date corrected.......................................22282
3.104-1  Added; interim............................................20491
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-2  Added; interim............................................20491
    Effective date and text corrected..............................22282
    Amended........................................................50719
3.104-3  Added; interim............................................20491
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-4  Added; interim............................................20491
    Effective date, (c)(3), and (d) corrected......................22282
    Suspended......................................................50718
3.104-5  Added; interim............................................20493
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-6  Added.....................................................20493
    Section heading and (a) corrected; interim.....................21067
    Suspended......................................................50718
3.104-7  Added; interim............................................20494
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-8  Added; interim............................................20494
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-9  Added; interim............................................20494
    Effective date, (a), (b)(1)(iii), and (c)(2) certificate 
footnote corrected.................................................22282
    Suspended......................................................50718
3.104-10  Added; interim...........................................20496
    Effective date corrected.......................................22282
    Introductory text added........................................50719
3.104-11  Added; interim...........................................20496
    Effective date corrected.......................................22282
    Suspended......................................................50718
3.104-12  Added; interim...........................................20496
    (b) amended; interim...........................................21067
    Effective date corrected.......................................22282
    Suspended......................................................50718
4  Authority citation revised.......................................5054
4.203  Added.......................................................34752
4.602  (d) added...................................................29280
4.603  Added.......................................................29280
4.703  (b)(3) added; (d) revised...................................48982
4.802  (e) added; interim..........................................20496
    Effective date corrected.......................................22282
    (e) suspended..................................................50718
4.803  (a)(8) revised; (a)(10) introductory text amended; (a)(1) 
        (i) through (iv) added; interim.............................5054
4.804-1  (b) amended...............................................34752
4.804-5  (a) introductory text and (15) revised....................34752
4.805  (n) introductory text revised; interim.......................5054
4.901  Amended.....................................................34752
4.903  Amended.....................................................34753
5  Authority citation revised.......................................5054
5.202  (a)(4) revised..............................................46004
    Effective date corrected.......................................48105
5.204  Effective date corrected....................................48105
5.205  (c)(1) amended; interim.....................................25061
    (e) added......................................................46004
    Effective date corrected.......................................48105
5.206  (a) removed; (b) designation removed; interim...............25061
5.207  (f)(4) added................................................19813
    (b) (4) and (6) amended; (c)(2)(xv) added; (d), (e) (1) and 
(3), (g) (1) introductory text, and (2) introductory text revised; 
interim............................................................25061
5.503  (c)(1)(i) amended...........................................48982
6  Authority citation revised.......................................5054
6.204  Added.......................................................46005
    Effective date corrected.......................................48105
6.302-5  (b)(4) revised............................................46005
    Effective date corrected.......................................48105
6.304  (a) introductory text and (4) revised.......................13023
6.401  Introductory text revised; interim...........................5054
7  Authority citation revised.......................................5054
7.403  (b)(2) amended..............................................29280
8  Authority citation revised.......................................5054
8.001  (a)(1)(v) amended...........................................29280
8.401  (b) revised.................................................29280
8.404  (a) and (b) redesignated as (b) and (c); new (a) added......29280
8.404-3  (a) amended...............................................29280
8.406  Amended.....................................................29280
8.802  (a) and (c) removed; (b), (d), and (e) redesignated as (a), 
        (b), and (c); new (b) and new (c) amended..................48982
9  Authority citation revised.......................................5054
9.105-1  (c)(1) revised............................................19813
9.105-3  (c) added; interim........................................20496

[[Page 1129]]

    Effective date corrected.......................................22282
    (c) suspended..................................................50718
9.106-3  Existing text designated as (a); (b) added; interim.......20496
    Effective date corrected.......................................22282
    (b) suspended..................................................50718
9.306  (c) revised.................................................34753
9.400  (a)(2) revised..............................................19814
9.401  Revised.....................................................19814
9.402  (c) revised; (d) added......................................19814
9.403  Amended.....................................................19814
9.404  Heading, (a), (b), (c) (4) and (5) revised; (d) added.......19814
9.405  (a) amended; interim.........................................4968
    (a) revised; (b) amended.......................................19814
    (c) added......................................................48982
9.405-1  Revised...................................................19814
9.405-2  Revised...................................................19815
9.406-1  (c) revised; interim.......................................4968
    (c) revised; (d) added.........................................19815
9.406-2  (c) redesignated as (d); new (c) added; interim............4968
    (a) introductory text and (b) revised; (c) and (d) 
redesignated as (b)(2) and (c).....................................19815
9.406-3  (b)(2), (c) introductory text, (6), and (7) revised.......19815
9.406-4  (a) revised; interim.......................................4968
    (a) amended; (c)(2) revised....................................19815
9.407-1  (d) revised; interim.......................................4968
    (e) added......................................................19816
9.407-2  (a)(4) redesignated as (a)(5); new (a)(4) added; interim 
                                                                    4968
9.408  Added.......................................................19816
9.409  Added.......................................................19816
10  Authority citation revised......................................5054
10.002  (a) introductory text amended..............................48982
10.006  (a)(1)(ii) revised.........................................48982
11  Authority citation revised......................................5054
12  Authority citation revised......................................5054
12.401  (c) introductory text, (1), and (2) amended................34753
12.403  (b) amended................................................34753
13  Authority citation revised......................................5054
14  Authority citation revised......................................5054
14.201-1  (a)(5) added; (c) amended................................48982
14.201-2  (a) (1) and (2) revised; (b) amended.....................48982
14.201-6  (b)(3) amended; interim...................................5054
    (c)(3) and (r) revised; (c)(4), (u), (v), and (w) added; (i) 
introductory text amended..........................................48982
14.201-9  Added....................................................48983
14.202-7  Added....................................................48983
14.203-2  (a) amended..............................................48983
14.203-3  Added....................................................29280
14.213  Added......................................................48983
14.301  (a) revised; (c) redesignated as (d); new (c) added........48983
14.303  (a) revised................................................48983
14.304-1  (a) (1), (2), and (b) revised; (d) redesignated as (e); 
        new (a)(3) and (d) added...................................48984
14.304-2  Revised..................................................48984
14.403  (a) revised................................................29280
14.406-3  (g)(1)(iv) revised.......................................13023
14.407-1  (d) revised..............................................48984
15  Authority citation revised......................................5054
15.402  (i) and (j) added..........................................48984
15.406-1  (a)(8) added; (b) amended................................48984
15.406-2  (a)(3)(viii) revised.....................................29281
    (a)(1), (3) introductory text, and (vii) revised...............48985
15.407  (c)(4) amended; interim.....................................5054
    (c) (6) and (8) revised; (c)(9), (i), and (j) added; (f) 
amended............................................................48985
15.408  (d) added..................................................29281
15.412  (e) revised................................................48985
15.414  Revised....................................................48985
15.416  Added......................................................48985
15.703  (a) introductory text and (b) introductory text amended....34753
15.804-6  (b)(2) amended; (g) revised; (h) and (i) removed.........34753
15.804-8  (e) added................................................34753
15.805-5  (l) and (m) added; interim...............................20496
    Effective date corrected.......................................22282
    (i) revised; (j) and (k) removed; (l) and (m) redesignated as 
(j) and (k)........................................................34753
    (j) and (k) suspended..........................................50718
15.806  (a), (b), and (c) removed..................................34753
15.806-1  Added....................................................34753
15.806-2  Added....................................................34754
15.806-3  Added....................................................34754
16  Authority citation revised......................................5054
16.103  (d) revised; interim........................................5054
17  Authority citation revised......................................5054
17.204  (e) revised; interim........................................5055
17.208  (g) amended; interim........................................5055
    (f) revised....................................................29281
19.001  Amended; interim...........................................25062
19.102  Amended; interim............................................5055

[[Page 1130]]

    Amended........................................................13023
    (f)(1) amended; (f)(5) added; interim..........................25062
19.201  (c) (5), (6), and (7) redesignated as (c) (6), (7), and 
        (8); new (c)(5) added......................................13333
    (c)(5) revised; (c)(9) added; interim..........................25062
19.202  Revised; interim...........................................25062
19.202-6  (b) revised..............................................46005
    Effective date corrected.......................................48105
19.403  (a), (c) (4), and (7) amended; (c) (5) and (8) revised; 
        (c) (9) and (10) added; interim............................25062
19.501  (k) added; interim.........................................25063
19.502-2  Existing text designated as (a) and amended; (b) added; 
        interim....................................................25063
19.505  Heading and (a) revised; interim...........................25063
19.508  (f) added; interim.........................................25063
19.601  (c) amended................................................34754
19.701  Amended; interim...........................................30709
19.702  (c) revised; interim.......................................30709
19.704  (c) added..................................................29281
19.705-4  (c) revised; (d) (2), (3), (4) and (5) redesignated as 
        (d) (3), (4), (5) and (6); new (d)(2) added; interim.......30709
19.705-6  (f) added; interim.......................................30709
19.705-7  Added; interim...........................................30709
19.706  (a) (4) and (5) amended; (a)(6) added; interim.............30710
19.708  (b) introductory text, (1), (2), and (3) redesignated as 
        (b)(1), (i), (ii), and (iii); (b)(2) added; interim........30710
19.800--19.812 (Subpart 19.8)  Revised.............................46005
    Effective date corrected.......................................48105
19.809-1  (c) added................................................34754
19.809-2  (b) revised..............................................34755
19.1001--19.1005 (Subpart 19.10)  Added; interim....................5055
19.1004  Amended...................................................29281
20  Authority citation revised......................................5054
22  Authority citation revised......................................5054
22.608-2  (f)(3) revised; interim...................................5056
    (f)(2) amended.................................................29281
22.608-3  (b)(2) revised; (b)(3) added; (c) removed; interim........5056
    (b)(2) amended.................................................29281
22.608-4  Revised; interim..........................................5056
22.1000--22.1026 (Subpart 22.10)  Added............................19816
25.1000--25.1005 (Subpart 25.10)  Added; interim...................19826
23  Authority citation revised......................................5054
23  Heading revised; interim........................................4968
23.000  Revised; interim............................................4968
23.401  (a) revised................................................34755
23.500--23.506 (Subpart 23.5)  Added; interim.......................4968
24  Authority citation revised......................................5054
25  Authority citation revised......................................5054
25.102  (a)(4) amended.............................................48985
25.108  (a) and (b) revised; (d)(1) amended........................48985
25.202  (a)(3) amended.............................................48985
25.401  Amended....................................................34755
25.406  Amended....................................................29281
25.901--25.902 (Subpart 25.9)  Revised.............................29281
25.1000--25.1003 (Subpart 25.10)  Removed; interim..................5056
26  Authority citation revised......................................5054
27  Authority citation revised......................................5054
27.301  Amended; interim...........................................25063
27.302  (a), (b), (c), (d) introductory text, and (e) revised; (h) 
        and (i) redesignated as (i) and (j); new (h) added; new 
        (j) amended; interim.......................................25063
27.303  Revised; interim...........................................25065
27.304-1  Revised; interim.........................................25066
27.304-2  (b) amended; interim.....................................25068
27.304-5  (c) revised; interim.....................................25068
27.305-5  (c) added; interim.......................................25069
27.400  (b) removed; (c) redesignated as new (b)...................34755
28  Authority citation revised......................................5054
28.101-1  (a) and (c) revised......................................34755
28.101-4  Revised..................................................48985
28.106-1  Introductory text amended; (e), (h), (i), and (j) 
        revised; (n) and (o) added.................................48986
28.202  Removed; new 28.202 redesignated from 28.202-1 and heading 
        and (d) revised............................................48986
28.202-1  Redesignated as 28.202 and heading and (d) revised.......48986
28.202-2  Removed..................................................48986
28.203  Redesignated as 28.204; new 28.203 added...................48986
28.203-1  Redesignated as 28.204-1; new 28.203.1 added.............48986
28.203-2  Redesignated as 28.204-2; new 28.203-2 added.............48987
28.203-3  Added....................................................48987

[[Page 1131]]

28.203-4  Added....................................................48988
28.203-5  Added....................................................48988
28.203-6  Added....................................................48988
28.203-7  Added....................................................48988
28.204  Redesignated from 28.203...................................48986
28.204-1  Redesignated from 28.203-1...............................48986
    Amended........................................................48989
28.204-2  Redesignated from 28.203-2...............................48986
    Heading revised................................................48989
28.301  (c) added; interim..........................................5056
29  Authority citation revised......................................5054
30  Authority citation revised......................................5054
31  Authority citation revised......................................5054
31.001  Amended; interim...........................................13024
31.109  (h)(1) revised.............................................34755
31.201-5  Amended..................................................34755
31.205-1  (h) removed..............................................34755
31.205-6  (g)(2)(i), (j)(2) and (i) amended; (j)(3)(i) (A) and (B) 
        added; (j)(5) removed; (j)(6)(i) revised; interim..........13024
    (j)(3)(i) correctly amended....................................18507
    (j)(2) introductory text and (iii) amended; (j) (4) through 
(7) redesignated as (j) (5) through (8); new (j)(4) added..........34755
    Technical correction...........................................51401
31.205-15  Heading revised; existing text designated as (a); new 
        (b) added; interim.........................................13024
31.205-33  (a) revised; (d) and (f) removed; (e) redesignated as 
        (d); interim...............................................13024
31.205-47  (a) amended; (d) redesignated as (g); heading, (b), 
        (c), and new (g) revised; (d), (e), and (f) added; interim
                                                                   13024
32  Authority citation revised......................................5054
32.503-6  (g)(4) amended; interim...................................5056
    (b)(1) amended.................................................48989
32.608  (c) revised................................................34755
32.610  (c) amended................................................34755
32.900  Revised....................................................13333
32.901  Revised....................................................13333
32.902  Amended....................................................13333
32.903  Amended....................................................13333
32.905  Revised....................................................13334
32.907-1  (a)(4), (b), (c), (d), and (g) added.....................13336
32.908  Revised....................................................13336
    Heading revised................................................19827
32.909  Amended....................................................13336
33  Authority citation revised......................................5054
33.101  Amended....................................................19827
33.211  (a)(4) (iv) and (v) amended; (a)(4)(vi) added..............34755
34  Authority citation revised......................................5054
35  Authority citation revised......................................5054
36  Authority citation revised......................................5054
36.102  Amended; interim...........................................13336
    (b) and (c) amended............................................19827
36.201  (a)(1) revised.............................................48989
36.505  Revised....................................................48989
36.507  Revised....................................................48989
36.520  Removed; new 36.520; redesignated from 36.521..............48989
36.521  Redesignated as 36.520.....................................48989
36.601  (b) redesignated as (c); new (b) added; interim............13337
36.602-3  (c) amended..............................................48989
36.602-5  Heading and introductory text amended....................48989
36.700--36.702 (Subpart 36.7)  Subpart heading revised.............29282
36.700  Revised....................................................29282
36.701  Heading and (d) revised....................................29282
37  Authority citation revised......................................5054
37.110  (f) added; interim.........................................13025
37.111  Added......................................................29282
37.207  (d) and (e) amended; (f) added; interim....................20497
    Effective date corrected.......................................22282
    (f) suspended..................................................50718
37.208  Added; interim.............................................20497
    Effective date corrected.......................................22282
    Amended; interim...............................................21067
    Suspended......................................................50718
37.400--37.403 (Subpart 37.4)  Added; interim.......................5056
38  Authority citation revised......................................5054
38.101  (e) amended................................................29282
38.201  (b) amended................................................29282
38.202  (a) and (c) introductory text revised; (c)(5) amended......29282
39  Authority citation revised......................................5054
42  Authority citation revised......................................5054
42.302  (a)(59) revised; (a) (62) through (65), and (b) (9) and 
        (10) added.................................................34756
    (a)(39) revised................................................48989
42.1406-1  Amended.................................................48989
42.1406-2  Revised.................................................48989
43  Authority citation revised......................................5054
43.106  Redesignated as 43.107; new 43.106 added; interim..........20497

[[Page 1132]]

    Effective date corrected.......................................22282
    Suspended......................................................50718
43.107  Redesignated from 43.106...................................20497
    Effective date corrected.......................................22282
44  Authority citation revised......................................5054
44.303  (c) revised................................................19827
45  Authority citation revised......................................5054
45.302-1  (a) introductory text and (4) revised....................34756
45.305  Removed....................................................48989
45.306-2  Revised..................................................48989
45.306-3  Revised..................................................48989
45.306-4  Removed..................................................48989
45.306-5  Added....................................................48989
45.307-1  (b) amended..............................................48990
45.307-3  Added....................................................48990
45.308  (a) and (b) removed........................................48990
45.308-1  Added....................................................48990
45.308-2  Added....................................................48990
45.508  Amended; interim...........................................25069
45.606-5  (d)(3) amended; interim..................................25069
45.608-5  (f) removed..............................................34756
45.608-7  Revised..................................................34756
45.608-8  (b) amended..............................................34756
45.614  (a), (b), and (c) amended; (d) revised.....................34756
46  Authority citation revised......................................5054
47  Authority citation revised......................................5054
47.104-4  (b) revised..............................................48990
47.105  (a)(1) amended.............................................29282
47.305-16  Heading and (b) revised.................................48990
48  Authority citation revised......................................5054
48.001  Introductory text, (b), and (c) amended; interim............5057
48.101  (b)(2) amended; interim.....................................5057
48.102  (a), (b), and (c) revised; (e) removed; (d), (f), and (g) 
        redesignated as (e), (g), and (h); new (d) and (f) added; 
        interim.....................................................5057
48.103  (a) and (b) revised; interim................................5057
48.104-1  (a) (1), (2), (6), and (b) amended; interim...............5057
48.105  Amended; interim............................................5057
48.201  (a)(6); (f) (1), and (3) amended; (g) removed; interim......5057
49  Authority citation revised......................................5054
49.402-3  (e)(2) revised...........................................48990
50  Authority citation revised......................................5054
51  Authority citation revised......................................5054
51.102  (c)(3) amended.............................................29282
51.103  (a) introductory text, (1), and (2), (b), and (c) amended 
                                                                   29282
51.104  (b)(3) revised.............................................29282
51.200--51.205 (Subpart 51.2)  Subpart heading revised.............29282
51.200  Amended....................................................29282
51.201  (a) and (c) amended........................................29282
51.202  (a) introductory text, (2), (4), (5), and (d) amended......29282
51.203  (a) amended.........................................29282, 29283
51.204  Amended.............................................29282, 29283
51.205  Amended....................................................29282

                                  1990

48 CFR
                                                                   55 FR
                                                                    Page
Chapter 1
1.105  Regulation at 54 FR 4968 confirmed..........................21707
    Technical correction...........................................24092
    Regulation at 54 FR 25061 confirmed; amended; (OMB numbers)....25526
    Amended; interim (OMB numbers).................................52788
3  Effective date corrected........................................50279
3.103-1  (b) removed...............................................25526
3.103-2  (b)(1) revised............................................25526
3.104  Revised.....................................................36784
    Comment time extended; interim.................................45808
3.104-1  Revised...................................................36784
    Comment time extended; interim.................................45808
    (a) amended; interim...........................................49853
3.104-2  Revised...................................................36784
    Comment time extended; interim.................................45808
    Revised; interim...............................................49853
3.104-3  Revised...................................................36784
    Comment time extended; interim.................................45808
    (d) introductory text revised; interim.........................49854
3.104-4  Revised...................................................36785
    Comment time extended; interim.................................45808
    (a) amended; interim...........................................49854
3.104-5  Revised...................................................36787
    Comment time extended; interim.................................45808
3.104-6  Revised...................................................36788
    Comment time extended; interim.................................45808

[[Page 1133]]

3.104-7  Revised...................................................36789
    Comment time extended; interim.................................45808
    (b), (c) and (d)(6) amended; (d)(5) revised; interim...........49854
3.104-8  Revised...................................................36790
    Comment time extended; interim.................................45808
3.104-9  Revised...................................................36792
    Comment time extended; interim.................................45808
    (c)(2) amended; interim........................................49854
3.104-10  Revised..................................................36793
    Comment time extended; interim.................................45808
3.104-11  Revised..................................................36794
    Comment time extended; interim.................................45808
3.104-12  Revised..................................................36794
    Comment time extended; interim.................................45808
3.303  (e) and (f) redesignated as (f) and (g); new (e) added......25526
3.601  Revised.....................................................34864
3.800--3.808 (Subpart 3.8)  Added; interim..........................3190
    Comment time extended..........................................13277
3.802  (c)(1)(iv)(A) corrected......................................4936
3.803  (b)(3) revised..............................................38516
4.203  Existing text designated as (a) and amended; (b) added; 
        interim....................................................52788
4.602  (c) amended; interim........................................52788
4.802  (e) revised.................................................36794
    Comment time extended; interim.................................45808
4.803  (a)(42) and (43) added......................................36794
    Comment time extended; interim.................................45808
5.205  (b) through (e) redesignated as (c) through (f); new (b) 
        added.......................................................3881
    (d)(2) revised.................................................25526
    (c) revised; interim...........................................52789
5.206  Revised; interim............................................52789
5.207  (b)(4), (6) and (g)(2) amended; (c)(1), (2) introductory 
        text and (g)(1) revised; (g)(3) and (h) added; interim.....52789
5.302  Revised; interim............................................52790
5.303  (b) amended..................................................3881
6.001  (c) revised; interim........................................52790
6.302-4  (c) revised; interim......................................52790
6.303-1  (e) revised...............................................25526
6.304  (a)(1) revised...............................................3881
    (a)(4) revised; interim........................................52790
7.300  (b) revised.................................................25526
7.302  Introductory text and (c) amended...........................25526
7.303  (b) revised.................................................25526
7.304  (a) amended; (b)(1) revised; interim........................25526
7.306  (a)(1)(iii), (iv), and (b)(3) amended; (a)(2) and (3) 
        revised....................................................25526
7.307  (a) amended.................................................25526
8.404  (b) amended.................................................38516
8.1102  (a) introductory text revised; (b) redesignated as (c); 
        new (b) added..............................................25527
9  Technical correction............................................45808
9.106-3  (b) revised...............................................36795
    Comment time extended; interim.................................45808
9.306  (j) added...................................................25527
9.405  Regulation at 54 FR 4968 confirmed; (a) amended.............21707
    Technical correction...........................................24092
9.406-1  Regulation at 54 FR 4968 confirmed; (c) revised...........21707
    Technical correction...........................................24092
    (c) amended....................................................30465
9.406-2  Regulation at 54 FR 4968 confirmed; (b)(2)(iii) amended 
                                                                   21707
    Technical correction...........................................24092
9.406-4  Regulation at 54 FR 4968 confirmed; (a) amended...........21707
    Technical correction...........................................24092
9.407-1  Regulation at 54 FR 4968 confirmed........................21707
    Technical correction...........................................24092
9.407-2  Regulation at 54 FR 4968 confirmed; (a)(4)(iii) amended 
                                                                   21707
    Technical correction...........................................24092
9.500--9.509 (Subpart 9.5)  Heading revised; interim...............42685
9.500  Revised; interim............................................42685
9.501  Revised; interim............................................42685
9.502  (c) and (d) added; interim..................................42686
9.504  (b) and (c) amended; (e) added; interim.....................42686
9.505  introductory text amended; (b) revised; interim.............42686
9.505-3  Amended; interim..........................................42686
9.505-4  (a) and (b) redesignated as (b) and (a); new (b) amended; 
        (c) added; interim.........................................42686

[[Page 1134]]

9.506  Revised; interim............................................42686
9.507  Revised; interim............................................42687
9.507-1  Added; interim............................................42687
9.507-2  Added; interim............................................42687
9.508  Removed; new 9.508 redesignated from 9.509; interim.........42687
9.508-1  Removed; interim..........................................42687
9.508-2  Removed...................................................42687
9.509  Resignated as 9.508; interim................................42687
13.106  (a) heading, (4), (b) heading, and (c) heading amended.....25527
14.201-2  (a)(2) revised...........................................38516
14.201-6  (c) introductory text and (l) revised; (d) removed; (m) 
        amended....................................................25527
14.201-8  (c) amended..............................................25527
14.211  (a) amended................................................36795
    Comment time extended; interim.................................45808
14.214  Added......................................................25527
14.402-2  (m) added................................................36795
14.404-1  (c)(6) amended; (c)(8) and (9) redesignated as (c)(9) 
        and (10); new (c)(8) added; (e)(1) and (2) revised; 
        interim....................................................52790
14.404-2  (f) revised; (g) through (k) redesignated as (h) through 
        (l); new (g) added.........................................25527
    (m) added......................................................36795
    Comment time extended; interim.................................45808
14.405  (e) amended................................................25527
14.407-1  (c)(4) revised............................................3881
14.407-2  Existing text designated as (a); (b) added...............25527
15.103  Introductory text and (c) amended; interim.................52790
15.402  (i) amended................................................25527
15.406-2  (a)(3)(viii) revised.....................................38516
15.407  (d) revised; (k) added; interim............................52790
15.413  Added......................................................36795
    Comment time extended; interim.................................45808
15.413-1  (a) and (c) amended......................................36795
    Comment time extended; interim.................................45808
15.413-2  (f)(6) added.............................................36795
    Comment time extended; interim.................................45808
15.506  (b) amended................................................38516
15.508  (b) amended................................................36795
    Comment time extended; interim.................................45808
15.509  (d) and (h) amended; (f)(4) revised........................36795
    Comment time extended; interim.................................45808
15.605  (f) amended................................................38516
15.608  (b)(5) added...............................................36795
    Comment time extended; interim.................................45808
15.610  (d) introductory text and (d)(1) removed; (d)(2) and (3) 
        redesignated as (e)(1) and (2); (d) and (e) added..........36795
    Comment time extended; interim.................................45808
15.611  (b)(4) amended.............................................38516
15.612  (e) revised................................................36795
    Comment time extended; interim.................................45808
15.706  (d)(7) revised; interim....................................52790
15.801  Amended; interim...........................................52790
15.804-7  (b)(7) added; interim....................................52790
15.805-2  (b) revised; interim.....................................52791
15.805-5  (k) revised..............................................36796
    Comment time extended; interim.................................45808
    (a)(1) revised; interim........................................52791
15.808  (a)(4) revised; interim....................................52791
15.809  Heading, (e) and (f) revised; interim......................52791
15.813  Revised....................................................25527
15.813-1  Revised..................................................25527
15.813-2  Revised..................................................25527
15.813-3  Revised..................................................25528
15.813-4  Revised..................................................25528
15.813-5  Revised..................................................25528
15.813-6  Revised..................................................25528
15.813-7  Revised..................................................25529
15.814  Added......................................................25529
15.1002  Amended....................................................3881
15.1003  (a) revised; interim......................................52791
17.208  (g) amended................................................38516
17.504  (e) added...................................................3881
19.001  Amended; interim............................................3881
19.102  (f) introductory text, (1), (4), and (g) table amended......3882
    Regulation at 54 FR 25062 confirmed............................25525
    (f)(5) amended; interim........................................25529
19.301  (d) added; interim..........................................3882
19.303  (c)(1) amended.............................................38516
    (a) revised; interim...........................................52791
19.304  (d) added; interim.........................................52791
19.501  (d) amended; (h) removed; (i) through (k) redesignated ad 
        (h) through (j); interim...................................52792

[[Page 1135]]

19.502-2  Regulation at 54 FR 25063 confirmed......................25525
19.508  (b), (c), and (d) amended..................................25529
    (e) revised....................................................38516
19.703  (a)(2) revised; interim.....................................3882
    (a)(2) amended; (b) revised; interim...........................52792
19.705-4  (c) amended; interim.....................................52792
19.705-6  (g) added; interim.......................................52792
19.803  (a)(3) revised; interim.....................................3882
    Regulation at 55 FR 3882 confirmed.............................52788
19.808-1  (b) revised; interim......................................3883
    Regulation at 55 FR 3883 confirmed.............................52788
19.811-1  (b)(5) revised; interim...................................3883
    Regulation at 55 FR 3883 confirmed.............................52788
19.811-3  (a) and (b) amended; interim..............................3883
    Regulation at 55 FR 3883 confirmed.............................52788
    (d)(3) added...................................................25529
19.812  (d) added; interim..........................................3883
    (d) amended....................................................25530
19.1001  Amended...................................................38516
    Revised; interim...............................................52792
19.1003  (b) revised; interim......................................52792
19.1004  Amended...................................................38516
19.1005  Revised; interim..........................................52792
19.1006  Added; interim............................................52792
19.1007  Added; interim............................................52793
22.608-2  (f)(2) amended............................................3883
22.608-3  (b)(2) amended............................................3883
22.1308  (a) introductory text, (1), (2), and (c) redesignated as 
        (a)(1) introductory text, (i), (ii), and (2)...............38517
23.000  Regulation at 54 FR 4968 confirmed.........................21707
    Technical correction...........................................24092
23.500--23.506 (Subpart 23.5)  Regulation at 54 FR 4968 confirmed 
                                                                   21707
    Technical correction...........................................24092
23.501  Introductory text and (c) revised..........................21707
    Technical correction...........................................24092
23.503  Amended....................................................21707
    Technical correction...........................................24092
23.504  (a)(2) introductory text, (4), (5), and (6) revised; (d) 
        added......................................................21707
    Technical correction...........................................24092
    (a)(6) revised.................................................38517
23.505  Revised....................................................21707
    Technical correction...........................................24092
23.506  (e) amended................................................21708
    Technical correction...........................................24092
24.000  Amended....................................................38517
25.108  (d)(1) amended.............................................25530
    (d)(2) introductory text amended...............................38517
25.401  Amended; interim...........................................52793
25.406  Amended....................................................38517
27.301  Regulation at 54 FR 25063 confirmed........................25525
27.302  Regulation at 54 FR 25063 confirmed........................25525
27.303  Regulation at 54 FR 25063 confirmed........................25525
27.304-1  Regulation at 54 FR 25063 confirmed......................25525
27.304-2  Regulation at 54 FR 25063 confirmed......................25525
27.304-5  Regulation at 54 FR 25063 confirmed......................25525
27.305-5  Regulation at 54 FR 25063 confirmed......................25525
27.409  (e) and (r) amended........................................38517
28.201  (a)(2) amended.............................................25530
28.308  (a) amended.................................................3883
28.311-1  Revised; interim.........................................52793
28.311-2  Revised; interim.........................................52793
28.311-3  Added; interim...........................................52793
29.201  (b) and (c) revised; interim...............................52793
29.401-3  Revised; interim.........................................52793
29.401-4  Heading revised; text amended; interim...................52793
29.401-6  (c)(1) amended............................................3883
    (c)(1) amended.................................................38517
29.402-1  (a) and (b) amended; interim.............................52793
30.201-4  (b)(2) amended...........................................38517
31.205-10  (a)(2)(ii), (iii), (b)(2)(i)(B), and (C) amended; 
        (a)(2)(iv) and (b)(2)(i)(D) added; (a)(5) revised..........25530
31.205-11  (n) added...............................................25530
31.205-15  (b) revised; interim....................................52793
31.205-16  (a) and (e) revised.....................................25530
31.205-18  (c)(1)(i), (ii), and (v) amended........................25530
31.205-33  Revised..................................................3883
    Revised; interim...............................................52793
31.205-38  (f) amended.............................................38517
31.205-41  (d) amended..............................................3884

[[Page 1136]]

    (a)(4) added; interim..........................................52794
31.205-47  (a) amended; (b) introductory text, (2) and (f)(1) 
        revised; interim...........................................52794
31.205-52  Added...................................................25530
32.412  (f) revised................................................25530
32.501-5  (e) added; interim.......................................52794
32.606  (b) amended................................................38517
32.610  (b)(2) revised; interim....................................52794
32.613  (h)(3) revised; interim....................................52795
32.700  Heading revised............................................38517
32.902  Amended....................................................25530
33.102  (b)(3) amended.............................................38517
    (b) redesignated as (c); new (b) added; interim................52795
33.103  Revised; interim...........................................52795
33.104  (h)(2) amended.............................................38517
    (b)(3) amended; interim........................................52795
33.105  (f)(2) revised; interim....................................52795
35.000  (c) added...................................................3884
35.001  Amended.....................................................3884
35.010  (b) revised.................................................3884
35.017  Added.......................................................3885
35.017-1  Added.....................................................3885
35.017-2  Added.....................................................3885
35.017-3  Added.....................................................3886
35.017-4  Added.....................................................3886
35.017-5  Added.....................................................3886
35.017-6  Added.....................................................3886
35.017-7  Added.....................................................3886
36.520  Redesignated as 36.521.....................................25530
36.521  Redesignated from 36.520...................................25530
37.103  (c) added..................................................36796
    Comment time extended; interim.................................45808
37.110  (c) and (f) revised; interim...............................52795
37.207  (d) and (e) amended; (f) removed...........................36796
    Comment time extended; interim.................................45808
37.208  Removed....................................................36796
    Comment time extended; interim.................................45808
42.102  (a) amended................................................38517
42.302  (a)(65) amended......................................3886, 38517
    (a)(66) added..................................................21708
    Technical correction...........................................24092
42.708  (a)(2) revised; interim....................................52796
42.1401  (b)(10) amended; interim..................................52796
42.1403  Text redesignated from 42.1403-1 and amended; interim.....52796
42.1403-1  Heading removed; text redesignated as 42.1403 and 
        amended; interim...........................................52796
42.1403-2  Removed; interim........................................52796
44.202-1  (c) added; interim.......................................52796
45.302-3  (c) added; interim.......................................52796
45.304  Introductory text and (a) through (e) redesignated as (a) 
        introductory text and (a)(1) through (5); new (b) added; 
        interim....................................................52796
45.506  (c) amended................................................25530
45.605-2  Amended..................................................25530
45.606-3  (b)(4) amended...........................................25530
46.105  (a)(3) amended.............................................38517
46.805  (a) introductory text and (b) revised.......................3886
47.301-3  (c) introductory text amended............................38517
47.303-6  (a)(2) amended; interim..................................52796
47.303-17  Added; interim..........................................52796
47.500  Amended.....................................................3886
48.001  (c) amended.................................................3887
48.102  (h) redesignated as (i); new (h) added......................3887
48.104-1  (a)(3) amended; (c) added.................................3887
48.201  (f) revised.................................................3887
49.101  (c) and (d) amended; interim...............................52797
49.107  (a) and (b)(1) amended; interim............................52797
49.108-4  (a)(1) introductory text and (e) amended; interim........52797
51.103  (d)(2) revised; interim....................................52797
51.200  Amended; interim...........................................52797
51.204  Revised; interim...........................................52797

                                  1991

48 CFR
                                                                   56 FR
                                                                    Page
Chapter 1
1  Technical correction.....................................33487, 37257
    Federal Acquisition Circular (FAC) 90-9........................67126
    Federal Acquisition Circular (FAC) 90-10.......................67412
1.105  Regulation at 55 FR 25526 confirmed; amended (OMB numbers) 
                                                                   15148
1.404  (b) and (c) revised.........................................15148
2.101  Amended.....................................................41744
2.201  Revised.....................................................41730

[[Page 1137]]

3.103-1  Regulation at 55 FR 25526 confirmed.......................15148
3.103-2  Regulation at 55 FR 25526 confirmed.......................15148
3.303  Regulation at 55 FR 25526 confirmed.........................15148
3.404  (b) revised.................................................41730
4.602  (b) amended.................................................41744
5  Technical correction.....................................33487, 37257
5.101  (a)(1) revised; interim.....................................41731
5.202  (a)(12) amended.............................................15148
    (a)(4) amended.................................................41744
5.205  Regulation at 55 FR 25526 confirmed.........................15148
    (d)(1) revised; interim........................................41731
5.207  (b)(4) amended..............................................67128
5.303  (a) amended.................................................67128
6.302-1  (c) redesignated as (d); new (c) added....................29127
6.303-1  Regulation at 55 FR 25526 confirmed.......................15148
7.300  Regulation at 55 FR 25526 confirmed.........................15148
7.302  Regulation at 55 FR 25526 confirmed.........................15148
7.303  Regulation at 55 FR 25526 confirmed.........................15148
7.304  Regulation at 55 FR 25526 confirmed.........................15148
7.305  (c) amended.................................................55372
7.306  Regulation at 55 FR 25526 confirmed.........................15148
    Introductory text amended......................................41744
7.307  Regulation at 55 FR 25527 confirmed.........................15148
8  Technical correction.....................................33487, 37257
8.001  (a)(1)(iv) and (2)(iv) amended..............................15148
8.401  (b) revised.................................................55372
8.404  (b) amended.................................................41744
8.405-1  (a) introductory text revised.............................15148
    (a) amended....................................................29127
8.601  (b) and (c) amended.........................................15148
8.602  (b) and (c) revised.........................................15148
8.603  (a)(2)(ii) revised; (a)(2)(iii) removed.....................15149
8.605  (a) and (c) amended.........................................15149
8.606  (d) amended.................................................15149
8.702  (a) amended.................................................67129
8.703  (a) amended.................................................41744
8.704  (a)(2)(ii) revised; (a)(2)(iii) removed.....................15149
8.705-2  Amended...................................................67136
8.705-4  (a) amended...............................................67136
8.1102  Regulation at 55 FR 25527 confirmed........................15148
9  Technical correction.....................................33487, 37257
9.104-1  (e) revised...............................................55374
9.104-3  (c) revised...............................................55378
9.107  Added.......................................................67129
9.207  (a)(9) revised..............................................15149
9.306  Regulation at 55 FR 25527 confirmed.........................15148
9.403  Amended.....................................................15149
9.405  (d) added...................................................29127
9.405-2  (b) introductory text amended.............................29127
9.406-1  (a) revised...............................................67129
9.407-1  (b) redesignated as (b)(1); (b)(2) added..................67130
9.502  (d) revised.................................................55377
9.504  (e) amended.................................................55377
9.505  (b)(1) and (2) revised......................................55377
9.505-4  (a) revised...............................................55377
9.507-1  (d) added.................................................55377
10  Technical correction....................................33487, 37257
10.001  Amended; interim...........................................67131
10.002  (c) redesignated as (d); new (c) added.....................15149
    (d) redesignated as (e) and amended; interim...................67131
10.004  (b)(2) revised.............................................29127
10.006  (a) revised; interim.......................................67131
12.104  (a)(1), (2) and (3) amended................................41732
12.300  Amended....................................................41744
12.302  (c) and (e) amended........................................41744
12.303  (c) introductory test, (d)(1), (2), (3) and (g) amended....41744
13.104  (g) revised; interim.......................................41731
13.106  Regulation at 55 FR 25527 confirmed........................15148
14  Technical correction....................................33487, 37257
14.201-6  Regulation at 55 FR 25527 confirmed......................15148
    (x) and (y) added..............................................15149
14.201-7  (a), (b)(1) and (c)(1) amended; interim..................67413
14.201-8  Regulation at 55 FR 25527 confirmed......................15148
14.201-9  (e)(3) revised; interim..................................41733
14.214  Regulation at 55 FR 25527 confirmed........................15148
14.404-2  Regulation at 55 FR 25527 confirmed......................15148
    (h) revised....................................................29127
14.405  Regulation at 55 FR 25527 confirmed........................15148

[[Page 1138]]

14.407-2  Regulation at 55 FR 25527 confirmed......................15148
14.408-1  (a)(2) introductory text revised.........................15149
14.503-1  (a)(4) revised; interim..................................41733
14.503-2  (b) amended..............................................15149
15  Technical correction....................................33487, 37257
15.402  Regulation at 55 FR 25527 confirmed........................15148
15.406-5  (c) amended; interim.....................................41733
15.407  (l) and (m) added..........................................15149
    (d)(4) revised; interim........................................41733
15.605  (e) amended; interim.......................................41733
15.610  (a)(2), (3) introductory text and (ii) amended; (a)(4) 
        added; interim.............................................41733
15.612  (c)(4) amended; interim....................................41733
15.804-2  (a) revised; interim.....................................67413
15.804-3  (c)(7) and (i) amended; (e) introductory text revised; 
        interim....................................................67414
15.804-4  (h) amended; interim.....................................67414
15.804-6  (b)(2) table amended.....................................15149
    Heading and (a) revised; (b)(2) Table 15-2 amended; interim....67414
15.804-8  (f) added................................................29127
15.805-1  (c) amended..............................................15150
15.805-5  (c)(4) added.............................................15150
15.806-1  (b) amended; interim.....................................67414
15.806-2  (a)(2) amended; interim..................................67414
15.808  (a)(6) and (7) amended; interim............................67414
15.812-1  (b) and (c) revised......................................15150
15.812-2  (a)(5) added.............................................15150
15.813  Regulation at 55 FR 25527..................................15148
15.813-1  Regulation at 55 FR 25527 confirmed......................15148
    Amended; interim...............................................41734
15.813-2  Regulation at 55 FR 25527 confirmed......................15148
    Amended; interim...............................................41734
15.813-3  Regulation at 55 FR 25528 confirmed......................15148
    Amended; interim...............................................41734
15.813-4  Regulation at 55 FR 25528 confirmed......................15148
15.813-5  Regulation at 55 FR 25528 confirmed......................15148
15.813-6  Regulation at 55 FR 25528 confirmed......................15148
    (c) removed; (d) through (g) redesignated as (c) through (f); 
interim............................................................41734
15.813-7  Regulation at 55 FR 25529 confirmed......................15148
15.814  Regulation at 55 FR 25529 confirmed........................15148
15.1001  (c)(2) revised............................................15150
16  Technical correction....................................33487, 37257
16.503  (b) revised................................................15150
16.504  (b) revised................................................15150
17  Technical correction....................................33487, 37257
17.202  (b) revised; (c)(1) and (3) removed; (c)(2), (4) and (5) 
        redesignated as (c)(1), (2) and (3)........................15150
19  Technical correction....................................33487, 37257
19.102  Regulation at 55 FR 25529 confirmed........................15148
19.202-1  (e) added................................................67132
19.402  (c)(2) through (5) redesignated as (c)(3) through (6); new 
        (c)(2) added...............................................67132
19.501  (j) revised................................................15150
19.508  Regulation at 55 FR 25529 confirmed........................15148
19.702  Introductory text amended; interim.........................41731
19.708  (a) amended; interim.......................................41731
19.804-3  (c)(2) amended...........................................55380
19.808-1  (b) amended..............................................55378
19.811-3  Regulation at 55 FR 25529 confirmed......................15148
19.812  Regulation at 55 FR 25530 confirmed........................15148
    (d) revised; interim...........................................15151
20.201-2  Revised..................................................41735
20.302  (a)(1) and (2) amended; (a)(3) added.......................29127
22.102-1  Introductory text revised................................55374
22.102-2  (c) added................................................55374
22.1003-5  (k) amended.............................................67136
23.301  Revised....................................................55374
23.302  Heading, (b) and (c) revised; (d) and (e) added............55374
23.303  Revised....................................................55374
23.601--23.602 (Subpart 23.6)  Added...............................55374
25  Technical correction....................................33487, 37257
25.102  (b) revised................................................41736
25.108  Regulation at 55 FR 25530 confirmed........................15148
    (d)(1) amended; interim........................................15151
    (d)(1) amended.................................................67133

[[Page 1139]]

25.109  (a) and (d) revised........................................55379
25.401  Corrected...................................................2443
25.402  (f) revised................................................15151
25.405  (a) revised................................................15151
25.407  (a) revised; (c) and (d) added.............................15151
25.701--25.704 (Subpart 25.7)  Revised; interim....................15152
25.703  (a) corrected..............................................33487
25.1000--25.1005 (Subpart 25.10)  Removed..........................67416
25.1001  Amended...................................................15152
25.1003  (c) introductory text and (d) revised.....................15152
25.1005  Revised...................................................15152
26  Revised; interim...............................................41737
27  Technical correction....................................33487, 37257
27.204-1  (b) and (c) amended......................................15152
27.204-2  Amended..................................................15153
27.204-4  Removed..................................................15153
28.201  Regulation at 55 FR 25530 confirmed........................15148
30.201-4  (c)(1) amended...........................................41744
31  Technical correction....................................33487, 37257
31.101  Amended....................................................67133
31.205-1  (d), (f)(1), (2) and (4) revised; (f)(8) and (g) removed
                                                                   15153
31.205-6  (m)(1) amended; (o) added................................29127
    (j)(4) amended; (o)(4) redesignated as (o)(5); (j)(3)(v) and 
new (o)(4) added; interim..........................................41739
31.205-10  Regulation at 55 FR 25530 confirmed.....................15148
    (a)(1)(ii)(C) amended..........................................29128
31.205-11  Regulation at 55 FR 25530 confirmed.....................15148
31.205-16  Regulation at 55 FR 25530 confirmed.....................15148
31.205-18  Regulation at 55 FR 25530 confirmed.....................15148
31.205-38  (b) revised; (f) removed; (c) and (g) redesignated as 
        (c)(1) and (f); (c)(2) added...............................15153
31.205-46  (a)(1) amended; (a)(4) revised; (a)(6) added............41739
31.205-52  Regulation at 55 FR 25530 confirmed.....................15148
32.412  Regulation at 55 FR 25530 confirmed........................15148
32.610  (b)(2) amended.............................................29128
32.613  (l) amended................................................29128
32.614-1  (c) amended..............................................29128
32.616  Amended....................................................29128
32.902  Regulation at 55 FR 25530 confirmed........................15148
33.103  (b)(1) amended.............................................67136
33.104  (g) and (h) revised........................................37260
33.201  Amended; interim...........................................67417
33.202  Revised....................................................67417
33.204  Revised; interim...........................................67417
33.207  (a) introductory text revised; interim.....................67417
33.214  Redesignated as 33.215; new 33.214 added; interim..........67417
33.215  Redesignated from 33.214; interim..........................67417
35  Technical correction....................................33487, 37257
35.015  (b)(3) removed.............................................15153
36  Technical correction....................................33487, 37257
36.102  Amended....................................................29128
36.513  Existing text designated as (a); (b) and (c) added.........55375
36.520  Regulation at 55 FR 25530..................................15148
36.521  Regulation at 55 FR 25530 confirmed........................15148
36.601  Text removed...............................................29128
36.601-1  Added....................................................29128
36.601-2  Added....................................................29128
36.601-3  Added....................................................29128
36.601-4  Added....................................................29128
36.604  (a) revised................................................15153
37.112  Added......................................................55380
38.201  (b) amended................................................55372
39  Note removed...................................................29129
39.002  Existing text designated as (a) and amended; (b) added.....29129
39  Appendix A added...............................................29129
42  Technical correction....................................33487, 37257
42.302  (a)(67) added..............................................15154
42.900--42.903 (Subpart 42.9)  Added...............................15154
42.1205  (a)(3) revised............................................67134
43  Technical correction....................................33487, 37257
43.104  (b) introductory text amended..............................41744
43.204  (b)(5) added...............................................15154
43.205  (f) amended................................................15154
44  Technical correction....................................33487, 37257
44.201-1  (d) introductory text revised; (d)(1) removed; (d)(2) 
        and (3) redesignated as (d)(1) and (2).....................15154
45  Technical correction....................................33487, 37257
45.506  Regulation at 55 FR 25530 confirmed........................15148
45.605-2  Regulation at 55 FR 25530 confirmed......................15148

[[Page 1140]]

45.606-1  (b) revised..............................................15154
45.606-3  Regulation at 55 FR 25530 confirmed......................15148
45.606-5  (c)(3)(iv) and (v) amended...............................41740
45.608-1  (b) table amended........................................41740
45.608-2  (a) amended..............................................41740
45.608-5  (d) revised..............................................41740
45.608-8  (b) amended..............................................41740
    (b) amended....................................................67136
49  Technical correction....................................33487, 37257
49.101  (f) added..................................................67134
49.105-2  Revised..................................................67134
49.110  Heading and (a) revised....................................67135
49.402-7  (b) revised..............................................15154
50.103  Removed....................................................41741
50.203  (b)(4) revised.............................................67135
51.103  (b) amended................................................55372

                                  1992

48 CFR
                                                                   57 FR
                                                                    Page
Chapter 1
Chapter 1  Summary presentation....................................20372
    Federal Acquisition Circular (FAC) 90-13.......................44258
    Chapter 1  Federal Acquisition Circular (FAC) 90-16............60570
4.602  (d) revised.................................................60572
4.603  Removed.....................................................60572
4.805  Introductory text revised; table amended....................60573
4.900--4.904 (Subpart 4.9)  Revised; interim.......................44260
5.101  Regulation at 56 FR 41731 confirmed; eff. 11-23-92..........44261
5.205  Regulation at 57 FR 41731 confirmed; eff. 11-23-92..........44261
5.206  Revised.....................................................60574
7.103  (l) added...................................................60574
7.300  Revised.....................................................60575
7.302  (d) revised.................................................60575
7.303  (b)(1) amended; (b)(3) added................................60575
7.304  (b)(1) and (c)(1) amended...................................60575
7.306  (a)(1)(i) through (iii), (v), (2), (4), (b) introductory 
        text, (1)(ii), (2)(ii) and (3) amended.....................60575
7.307  (a) revised.................................................60575
8.002  (f) revised.................................................60576
9.404  (d) revised.................................................60577
13.000  Amended....................................................60577
13.101  Amended....................................................60577
13.103  (c) added..................................................60577
13.104  Regulation at 56 FR 41731 confirmed; eff. 11-23-92.........44261
14.201-9  Regulation at 56 FR 41733 confirmed; eff.11-23-92........44261
14.503-1  Regulation at 56 FR 41733 confirmed; eff. 11-23-92.......44261
15.106-2  (a) revised; (b) amended.................................60578
15.407  Regulation at 56 FR 41733 confirmed; eff.11-23-92..........44261
15.605  Regulation at 56 FR 41733 confirmed; eff.11-23-92..........44261
15.610  Regulation at 56 FR 41733 confirmed; eff.11-23-92..........44261
15.804-2  (a)(1)(ii) amended; (a)(1)(iii) and (iv) revised; (a)(2) 
        through (4) redesignated as (a)(3) through (5); new (a)(2) 
        added......................................................60579
15.804-4  (a) corrected............................................60610
15.805-3  (d) amended..............................................39586
15.812-1  (a) amended..............................................39587
15.813-1  Regulation at 56 FR 41734 confirmed; eff.11-23-92........44262
15.813-2  Regulation at 56 FR 41734 confirmed; eff.11-23-92........44262
15.813-3  Regulation at 56 FR 41734 confirmed; eff.11-23-92........44262
15.813-6  Regulation at 56 FR 41734 confirmed; eff.11-23-92........44262
19.001  Amended....................................................60580
19.102  (f)(1) amended; (f)(5) revised.............................60580
    Corrected......................................................60610
19.202-1  (e)(2)(ii) amended.......................................60581
19.702  Regulation at 56 FR 41731 confirmed; eff. 11-23-92.........44261
19.708  Regulation at 56 FR 41731 confirmed; eff. 11-23-92.........44261
22.401  Amended; eff. 11-23-92.....................................44263
22.406-3  (b)(1) revised; (b)(4) added; eff. 11-23-92..............44263
22.501--22.507 (Subpart 22.5)  Added; interim......................55470
22.1101  Amended...................................................60582
22.1103  Revised...................................................60582
22.1500--22.1509 (Subpart 22.15)  Added; interim...................20373
25.108  Regulation at 56 FR 15151 confirmed; eff.11-23-92..........44264
    (d)(1) amended.................................................60583
25.201  Amended; interim...........................................20375

[[Page 1141]]

25.202  (a)(3) amended; (b) removed; (c) redesignated as (b).......60583
25.401  Amended....................................................48471
25.402  Regulation at 56 FR 15151 confirmed; eff. 11-23-92.........44264
25.405  Regulation at 56 FR 15151 confirmed; eff. 11-23-92.........44264
25.407  Regulation at 56 FR 15151 confirmed; eff. 11-23-92.........44264
25.701--25.704 (Subpart 25.7)  Regulation at 56 FR 15152 
        confirmed; eff. 11-23-92...................................44264
25.701  Removed....................................................20376
25.702  (a)(3) amended; (b) removed; (c) redesignated as (b).......20376
25.703  (a) paragraph designation and (b) removed..................20376
    (b) amended; eff. 11-23-92.....................................44264
25.1001  Regulation at 56 FR 15152 confirmed; eff. 11-23-92........44264
25.1003  Regulation at 56 FR 15152 confirmed; eff. 11-23-92........44264
26.103  (b) amended................................................20377
30  Revised........................................................39587
30.201  Corrected..................................................43495
30.201-1  Corrected................................................43495
30.201-2  Corrected................................................43495
30.201-3  Corrected................................................43495
30.201-4  (b)(1) and (d)(1) corrected..............................43409
    (a)(1) and(b)(2) corrected.....................................43495
30.201-5  Corrected................................................43495
30.202-2  Corrected................................................43495
30.202-3  Corrected................................................43495
30.602-2  (d)(3) corrected.........................................43495
    (D)(3) corrected...............................................43409
    Corrected......................................................47373
30.603  Corrected..................................................43495
31  Technical correction...........................................40344
31.201-2  (b) amended..............................................39590
31.203  (e) amended................................................39590
31.205-6  (j)(2), (3)(i)(A), (B), (ii), (iii) and (5)(i) amended 
                                                                   39590
    (k)(2) and (3) amended; (j)(3)(i) introductory text removed....39591
    (g)(2)(i)(D) amended...........................................60584
31.205-10  (a)(1)(ii), (2)(i), (b)(1)(ii) and (2)(i)(A) amended....39591
31.205-11  (b) and (m) amended.....................................39591
31.205-18  (b) introductory text, (1), (2) and (c)(1)(i) amended 
                                                                   39591
    Revised........................................................44265
31.205-19  (a) introductory text, (3)(i) and (c) amended...........39591
31.205-24  (b) amended.............................................39591
31.205-33  (f) introductory text corrected.........................60610
31.205-38  (e) amended.............................................39591
31.205-46  (a)(2)(i) and (6) concluding text amended...............20377
32.905  (d) introductory text revised; (d)(2) and (3) redesignated 
        as (d)(3)and (4); new (d)(2) added; (e) introductory text 
        amended....................................................44268
33.104  Revised....................................................60585
33.215  Corrected..................................................60610
36.101  (a) revised; interim.......................................55471
37.110  (f) removed................................................60584
42.1002  Revised...................................................44267
42.1404-1  (b) revised.............................................60587
45.105  (b) revised................................................60588
45.106  (d) amended; (e) revised...................................60588
45.301  Amended....................................................60589
45.302-3  (a) revised; (b) amended.................................60588
    (c) amended....................................................60589
45.307-2  (a) amended..............................................60588
45.506  Revised....................................................60588
45.606-1  (b) revised..............................................60590
51.106  (b) amended................................................60590

                                  1993

48 CFR
                                                                   58 FR
                                                                    Page
Chapter 1
14.201-6  (x) and (y) amended; interim.............................31141
15.407  (l) and (m) amended; interim...............................31141
17.203  (h) amended; interim.......................................31141
22.501--22.507 (Subpart 22.5)  Removed.............................12140
22.1500--22.1509 (Subpart 22.15)  Removed..........................12140
25.109  Heading and (d) revised; (e), (f) and (g) added; interim 
                                                                   31141
25.202  (c) added; interim.........................................31141
25.205  Revised; interim...........................................31141
25.400--25.408 (Subpart 25.4)  Heading revised; interim............31141
25.400  Revised; interim...........................................31141
25.401  Amended; interim...........................................31142

[[Page 1142]]

25.402  (a)(4) and (5) redesignated as (a)(5) and (6); new (a)(4) 
        added; (c) amended; interim................................31142
25.403  (e), (h) and (l) revised; interim..........................31142
25.406  Introductory text removed; interim.........................31142
25.407  Redesignated as 25.408; new 25.407 added; interim..........31142
25.408  Redesignated from 25.407; interim..........................31142
25.1000--25.1003 (Subpart 25.10)  Added; interim...................31142
31  Technical correction............................................3850
36.101  (a) amended................................................12140

                                  1994

48 CFR
                                                                   59 FR
                                                                    Page
Chapter 1
Chapter  1 Federal Acquisition Circular (FAC) 90-20................11368
    Technical corrections...................................13769, 17723
    Chapter  1 Federal Acquisition Circular 90-24..................64784
    Federal Acquisition Circular 90-23.............................67010
1.105  Revised (OMB numbers).......................................67065
1.404  (c) amended.................................................11387
1.601--1.603-4 (Subpart 1.6)  Heading revised......................67015
1.603-1  Revised...................................................67015
1.603-3  Revised; interim..........................................64787
3.104-4  (h)(5) added; interim.....................................64787
3.104-9  (c)(2) amended............................................11387
4.703  (d) redesignated as (e); new (d) added......................67015
4.800--4.805 (Subpart 4.8)  Heading revised........................67016
4.800  Amended; interim............................................64787
4.802  (f) added...................................................67016
4.805  Introductory text redesignated as (a); heading and new (a) 
        revised; (b) and (c) added; table amended..................67016
4.900--4.904 (Subpart 4.9)  Regulation at 57 FR 44260 confirmed....11370
5.202  (a)(12) amended; interim......................................545
5.207  (b) amended.................................................11387
5.303  (a) revised.................................................67017
6.102  (d)(3) revised..............................................53716
6.302-1  (b)(3) revised............................................67018
7.102  Amended; interim............................................64785
7.402  (b)(4) added................................................67026
7.404  Added.......................................................67026
8.001  (a) introductory text, (1)(iv) and (2)(i) revised...........53716
    (a)(1)(iv) and (2)(i) revised..................................67027
8.002  (b) revised.................................................67018
    (g) revised....................................................67030
8.300--8.309 (Subpart 8.3)  Removed................................67018
8.401--8.408 (Subpart 8.4)  Heading revised........................53716
8.401  (a) and (b) amended.........................................53716
8.402  (a) and (b) designation removed.............................53716
8.403  Removed.....................................................53716
8.403-1  Removed...................................................53716
8.403-2  Removed...................................................53716
8.403-3  Removed...................................................53716
8.403-4  Removed...................................................53716
8.404  Revised.....................................................53716
    (c)(1) and (2) correctly revised...............................60319
8.404-1  Removed...................................................53717
8.404-2  Removed...................................................53717
8.405  Existing text removed.......................................53717
8.405-1  Removed...................................................53717
8.405-4  Introductory text amended.................................53717
8.405-5  (a)(3) amended............................................53717
8.406  Removed.....................................................53717
8.407  Removed.....................................................53717
8.408  Removed.....................................................53717
8.500--8.505 (Subpart 8.5)  Added..................................67030
8.603  (a) revised.................................................67027
8.700--8.715 (Subpart 8.7)  Heading revised........................67027
8.700  Revised.....................................................67027
8.701  Revised.....................................................67027
8.702  Revised.....................................................67028
8.703  Revised.....................................................67028
8.704  (a) introductory text, (1)(ii), (2)(i) and (c) amended......67028
8.705-1  (a) revised...............................................67028
    (b) amended....................................................67029
8.705-2  Amended...................................................67029
8.705-3  (a) and (c) amended.......................................67029
8.705-4  (c) revised; (d) amended..................................67028
    (a) and (b) amended............................................67029
8.706  (a) amended; (b)(1) revised.................................67028
    (b)(2) amended.................................................67029
8.707  (a) amended.................................................67028
    (d) and (e) amended............................................67029

[[Page 1143]]

8.708  (d) revised.................................................67028
8.709  Revised.....................................................67028
8.710  Introductory text amended...................................67029
8.711  (a)(1), (2) revised and (b) amended.........................67029
8.712  (a) revised; (c) and (d) amended............................67029
8.713  (a) and (b) amended.........................................67029
8.714  Revised.....................................................67029
8.715  Amended.....................................................67029
8.802  (c) redesignated as (c)(1); (c)(2) added....................67032
9.107  Revised.....................................................67029
9.403  Amended; interim............................................11372
9.405  (a), (d)(2) and (3) amended.................................67033
9.405-1  (a) amended; (b) redesignated as (c); new (b) added; new 
        (c) revised................................................67033
9.405-2  (a) amended...............................................67033
9.406-1  (c) amended...............................................67033
9.406-2  (a)(3) amended; (a)(4) redesignated as (a)(5); new 
        (a)(4), (b)(3) and (4) added; interim......................11372
9.406-3  (e)(1)(iv) amended........................................67033
9.407-1  (d) amended...............................................67033
9.407-2  (a)(5) redesignated as (a)(7); new (a)(5) and (6) added; 
        interim....................................................11373
10.001  Regulation at 56 FR 67131 confirmed; amended...............11373
10.002  Regulation at 56 FR 67131 confirmed; (d) revised...........11373
10.006  Regulation at 56 FR 67131 confirmed........................11373
    Heading and (a) revised........................................11374
11.002  Amended; interim...........................................64785
13.101  Amended; interim...........................................64787
13.105  (c) amended................................................53717
    (a) revised; (d)(3) and (4) amended; interim...................64787
13.106  (a) removed; (b) and (c) redesignated as (a) and (b); 
        interim....................................................64787
13.203-1  (f) amended..............................................53717
13.502  (c) amended; interim.......................................64787
13.601--13.603 (Subpart 13.6)  Added; interim......................64787
14.201-6  (x) and (y) revised; interim...............................545
14.201-7  Regulation at 56 FR 67413 confirmed......................11374
    (a), (b)(1) and (c)(1) amended; (d) redesignated as (e); new 
(d) added; interim.................................................62499
14.202-3  (b) amended..............................................67033
14.214  Removed; interim...........................................62499
14.408-1  (a)(2) introductory text revised; interim..................545
15  Clarification..................................................11374
15.407  (l) and (m) revised; interim.................................545
15.408  (e) added..................................................67033
15.804-2  Regulation at 56 FR 67413 confirmed......................11374
    Regulation at 57 FR 60579 confirmed............................11375
15.804-2  (a)(1) and (2) revised; interim..........................62499
15.804-3  Regulation at 56 FR 67414 confirmed......................11374
15.804-4  Regulation at 56 FR 67414 confirmed......................11374
15.804-6  Regulation at 56 FR 67414 confirmed......................11374
    Table 15-2 amended.............................................11387
15.804-8  (g) added................................................67035
15.805-3  Regulation at 57 FR 39586 confirmed......................67042
15.806-1  Regulation at 56 FR 67414 confirmed......................11374
15.806-2  Regulation at 56 FR 67414 confirmed......................11374
15.808  Regulation at 56 FR 67414 confirmed........................11374
15.812-1  Regulation at 57 FR 39587 confirmed......................67042
15.812-2  (a)(3) amended...........................................67018
15.813  Removed; interim...........................................62499
15.813-1  Removed; interim.........................................62499
15.813-2  Removed; interim.........................................62499
15.813-3  Removed; interim.........................................62499
15.813-4  Removed; interim.........................................62499
15.813-5  Removed; interim.........................................62499
15.813-6  Removed; interim.........................................62499
15.813-7  Removed; interim.........................................62499
15.1001  (c)(2) revised; interim.....................................545
16.204  Amended....................................................11387
16.301-3  (a) and (b) amended; (c) removed; (d) redesignated as 
        (c); interim...............................................64785
16.403  (c) removed; (d) redesignated as (c); interim..............64785
16.403-1  (c)(1) and (2) amended; (c)(3) removed; interim..........64785
16.403-2  (c)(1) and (2) amended; (c)(3) removed; interim..........64785

[[Page 1144]]

17.203  (h) revised; interim.........................................545
19.000  (a) introductory text amended; interim.....................64785
    (b) revised....................................................67036
19.001  Regulation at 57 FR 60580 confirmed........................11376
19.102  Regulation at 57 FR 60580 confirmed; (f)(5)(i) amended; 
        (f)(5)(iii) and (iv) redesignated as (f)(6) and (7); new 
        (f)(7) revised.............................................11376
    Table amended..................................................11387
    (f)(7) corrected...............................................17723
19.502-4  (b) amended..............................................67037
19.601  (d) added..................................................67036
19.1001  (b) amended...............................................11376
    Introductory text and (b) revised; interim.....................67036
19.1005  (a)(3) revised; interim...................................67036
19.1006  (b)(1) amended; (c)(1) and (2) revised....................11376
    (b)(2) revised; interim........................................67037
22.401  (b) introductory text amended; (b)(3) removed..............67038
22.406-3  (b)(1) amended; (b)(4) removed...........................67038
22.606-2  (b) revised..............................................67039
22.1002-3  (a) revised.............................................67039
22.1008-3  (e) revised.............................................67040
22.1012-3  (d)(1) amended..........................................67040
22.1012-5  Amended.................................................67040
22.1021  Revised...................................................67041
25.100  Revised; interim...........................................64788
25.101  Amended; interim.............................................545
25.108  (d)(1) amended.............................................11377
25.109  (d) and (f) revised; (g)(2) redesignated as (g)(3); new 
        (g)(2) added; interim........................................545
25.201  Regulation at 57 FR 20375 confirmed........................11377
25.202  (c) amended; interim.........................................545
25.205  (b) revised; interim.........................................546
25.300  Amended; interim.............................................546
25.305  (a) and (c) amended; interim.................................546
25.400  (c) revised; interim.........................................546
25.401  Amended; interim.............................................546
25.402  (a)(1), (4) introductory text, (i), (ii), (5) introductory 
        text, (6), (f) introductory text and (2) amended; (a)(3) 
        revised; interim.............................................546
25.403  (a), (e) and (h) amended; (b) and (l) revised; interim.......546
25.405  Introductory text, (d) and (e) amended; interim..............546
25.406  Amended; interim.............................................547
25.407  Heading revised; introductory text removed; (a) through 
        (d) redesignated as (b) through (e); new (a), (f) and (g) 
        added; new (d) amended; interim..............................547
25.408  (a)(1), (2) and (d) amended; (a)(3) and (4) added; (c) 
        revised; interim.............................................547
25.901  (c) revised................................................11378
25.1003  (a)(2) and (b)(2) amended; interim..........................547
28.301  (a)(1) revised.............................................67043
30  Regulation at 57 FR 39587 confirmed............................67042
30.201-4  (b)(1) amended; (b)(2) and (d)(2) revised................67043
30.601  (b) amended................................................67043
30.602-1  (c)(1) amended...........................................67043
30.602-2  (a)(4) amended...........................................67043
30.602-3  (a) revised..............................................67043
31.109  (a) revised................................................67045
31.201-1  Existing text designated as (a); new (a) amended; (b) 
        added......................................................67045
31.201-2  Regulation at 57 FR 39590 confirmed......................67042
31.201-6  (c) revised..............................................67045
31.203  Regulation at 57 FR 39590 confirmed........................67042
31.205-6  Regulations at 57 FR 39590 and 39591 confirmed...........67042
    (o)(2) revised; (o)(3), (4) and (5) redesignated as (o)(4), 
(5) and (6); new (o)(3) added; new (o)(5) amended..................67046
31.205-10  Regulation at 57 FR 39590 confirmed.....................67042
31.205-11  Regulation at 57 FR 39591 confirmed.....................67042
31.205-18  (c)(2)(iii)(A) amended..................................11379
    Regulation at 57 FR 39591 confirmed............................67042
31.205-19  Regulation at 57 FR 39591 confirmed.....................67042
31.205-24  Regulation at 57 FR 39591 confirmed.....................67042
31.205-38  (c)(2)(iii) amended.....................................11387
    Regulation at 57 FR 39591 confirmed............................67042
32.402  (a) amended................................................67047
32.503-7  Introductory text amended................................67043
32.901  Revised; interim...........................................11380

[[Page 1145]]

33.201  Amended; interim...........................................11381
33.202  Amended; interim...........................................11381
33.204  Revised; interim...........................................11381
33.207  Revised; interim...........................................11381
33.208  Revised; interim...........................................11381
33.210  Introductory text revised; interim.........................11381
33.211  (a)(4)(v) revised; (e), (f) and (g) redesignated as (f), 
        (g) and (h); new (e) added; interim........................11382
33.214  Heading, (a)(5) and (b) revised; (a) introductory text 
        amended; (d) added; interim................................11382
34.000--34.005-6 (Subpart 34.0)  Heading added; interim............67048
34.100-34.104 (Subpart 34.1)  Added; interim.......................67048
35.010  (b) revised................................................67049
36.212  Added......................................................67049
36.305  Removed....................................................67050
36.522  Added......................................................67050
36.523  Added......................................................67050
37.101  Amended; interim...........................................67051
37.103  (d) added; interim.........................................67051
38.000  Revised....................................................53717
38.101  (a) and (b) amended; (d) removed; (e) redesignated as (d) 
                                                                   53717
38.102  Removed....................................................53717
38.102-1  Removed..................................................53717
38.102-2  Removed..................................................53717
38.102-3  Removed..................................................53717
38.102-4  Removed..................................................53717
38.201  (a) introductory text and (b) revised......................53718
38.202  Removed....................................................53718
38.203  Removed....................................................53718
38.204  Removed....................................................53718
38.205  Removed....................................................53718
41  Added..........................................................67018
42.203  (a) revised................................................67043
42.302  (a)(10) revised; interim...................................11382
    (a)(11) introductory text and (iv) revised.....................67043
42.701  Amended....................................................11387
42.705-2  (b)(2)(ii) removed; (b)(2)(iii) through (vi) 
        redesignated as (b)(2)(ii) through (v).....................67052
42.1401  (b)(11) revised...........................................11383
42.1402  (a)(2) amended............................................11383
42.1403  (c)(2) revised............................................11383
42.1405  (a) amended...............................................11383
44.201-1  (b) revised..............................................67052
44.201-2  (c) revised; (d) removed.................................67052
44.204  (a)(3) revised.............................................67053
44.205  Removed....................................................67053
44.302  (b) revised................................................67054
44.304  (a) and (b) amended........................................67054
44.305-3  (a)(2) revised...........................................67043
45.311  Added......................................................67054
45.501  Amended....................................................11384
45.505-1  Introductory text designated as (a); (a) through (g) 
        redesignated as (1) through (7); new (a) amended; new (b) 
        added......................................................11384
45.505-4  (a) revised..............................................11384
45.505-5  (a) revised..............................................11384
45.505-14  (a) revised.............................................11385
45.603  Introductory text amended..................................67054
47.103  (b)(2) revised.............................................11383
47.104-4  Heading revised; (c) added...............................67055
47.200  (e) amended................................................11383
47.305-6  (f)(1)(ii) amended.......................................11383
47.305-17  Added...................................................11386
48.104-1  (a)(2)(i) amended........................................11387

                                  1995

48 CFR
                                                                   60 FR
                                                                    Page
Chapter 1
Chapter  Technical correction.......................................5870
    Federal Acquisition Circular 90-23.............................14377
    Federal Acquisition Circular 90-27.............................28492
    Comment period shortened.......................................37292
    Federal Acquistion Circular 90-30..............................37772
    Federal Acquisition Circular 90-31.............................42648
    Federal Acquisition Circular 90-32.............................48206
    Federal Acquisition Circular 90-33.............................49706
1.102  Redesignated as 1.103; new 1.102 added......................34733
1.102-1  Added.....................................................34734
1.102-2  Added.....................................................34734
1.102-3  Added.....................................................34734
1.102-4  Added.....................................................34734
1.103  Redesignated as 1.104; new 1.103 redesignated from 1.102....34733

[[Page 1146]]

1.104  Redesignated as 1.105; new 1.104 redesignated from 1.103....34733
1.105  Redesignated as 1.106; new 1.105 redesignated from 1.104....34733
    Amended; interim...............................................34736
1.106  Redesignated from 1.105.....................................34733
    Table amended (OMB numbers)...............42650, 42665, 48211, 49710
1.601  Revised.....................................................49721
1.602-3  (c)(2) revised............................................48225
2.101  Amended; interim............................................34736
    Amended.................................................42653, 48235
2.201  Revised; interim............................................34744
3  Applicability date..............................................48258
3.102  Removed.....................................................37773
3.102-1  Removed...................................................37773
3.102-2  Amended; interim..........................................34744
    Removed........................................................37773
3.103-1  (a) revised; interim......................................34744
3.104-9  (b)(1)(iii) amended.......................................37774
3.104-10  (c) revised; interim.....................................34744
3.404  (b)(1) and (c) revised; interim.............................34744
    (b)(4) amended; (b)(5) redesignated as (b)(6); new (b)(5) 
added; (c) revised.................................................48235
3.502-2  (i) introductory text revised.............................48235
3.502-3  Revised; interim..........................................34744
    Revised........................................................48235
3.503-2  Revised; interim..........................................34744
    Revised........................................................48235
3.900--3.906 (Subpart 3.9)  Added..................................37776
4.000  Revised; interim............................................28493
4.101  Revised; interim............................................34736
4.201  (a)(1), (b) and (d) amended; interim........................34736
4.300--4.304  (Subart 4.3) Added; interim..........................28493
4.304  Amended; interim............................................34744
4.500--4.507 (Subpart 4.5)  Added; interim.........................34744
4.601  (d) redesignated as (e); new (d) added......................42653
4.602  (a)(2) revised..............................................48259
4.603  Added.......................................................48259
4.702  (a) revised.................................................42650
    (a)(3) added...................................................48211
4.703  (a), (b) introductory text and (2) amended; (c) revised; 
        (d) removed; (e) redesignated as (d).......................42650
4.706  Removed.....................................................42650
4.706-1  Removed...................................................42650
4.706-2  Removed...................................................42650
4.706-3  Removed...................................................42650
4.800  Revised; interim............................................34746
4.803  (a)(17) and (b)(4) revised..................................48211
4.804-1  (a)(1) and (2) revised; interim...........................34746
4.804-2  (a) revised; interim......................................34746
4.805  (b) table amended; interim..................................34746
5.002  (c) amended.................................................48259
5.101  (a)(2)(iv) added; interim...................................34736
    (a)(1), (2) introductory text and (ii) revised; interim........34746
5.102  (a)(4)(i) revised; interim..................................34737
5.201  (a) revised.................................................42653
5.202  (a)(11) and (12) amended; (a)(13) and (14) added; interim 
                                                                   34746
    (a)(13) and (14) amended; (a)(15) added........................42653
    (a)(6) amended.................................................49725
5.203  (b) through (f) redesignated as (c) through (g); new (b) 
        added; new (c), new (d) and new (e) revised; interim.......34747
    (a), (b) and (c) revised.......................................48236
5.205  (d)(1) revised; interim.....................................34747
5.207  (c)(2)(xvii) added; interim.................................34737
    (c)(2)(xi) through (xv) redesignated as (c)(2)(xii) through 
(xvi); new (c)(2)(xi) added; new (c)(2)(xiv) revised; interim......34747
    (e)(4) added...................................................48236
    (c)(2)(xiii) and (d) amended...................................48259
    (b)(4) and (6) amended.........................................48272
5.301  (b)(5) and (6) amended; (b)(7) added; interim...............34747
    (b)(6) and (7) amended; (b)(8) added...........................42653
    (b)(4) amended.................................................49725
5.303  (b) introductory text revised; interim......................34747
    (b)(2) amended.................................................42653
5.404-1  (b)(6)(ii) amended........................................48259
5.503  (c)(1) revised; interim.....................................34747
    (a) amended....................................................48259
6.001  (a) revised; interim........................................34747
    (f) added......................................................49725
6.202  (a)(1) revised; (a)(2) and (3) amended; (a)(4), (5) and (6) 
        added......................................................42653
6.203  Revised.....................................................48259

[[Page 1147]]

6.302-3  Heading and (a)(2) revised; (b)(3) added..................42654
    (a)(2)(ii) corrected...........................................44548
6.302-5  (c)(1) revised; (c)(3) added..............................42654
6.303-2  (a)(8) revised............................................48236
6.304  (a)(2) revised..............................................42654
    (a)(1)(i) through (iv) removed.................................42665
6.501  (c) amended.................................................48259
6.502  Revised.....................................................48236
7.101  Amended.....................................................48236
7.102  Revised; interim............................................28495
    Regulation at 59 FR 64785 confirmed............................37777
    Revised........................................................48236
7.103  (a) through (l) redesignated as (b) through (m); new (a) 
        and (n) added; interim.....................................28495
    (b) revised; (m) amended.......................................48236
    (o) added......................................................49721
7.105  (b)(15) revised; (b)(17) amended; interim...................28495
    (a)(5), (8)(iii), (b)(6) and (7) amended; (b)(1) and (12)(i) 
revised............................................................48237
7.304  (b)(3) amended; interim.....................................34737
7.306  (a)(1)(i) revised; interim..................................34737
7.307  (b) amended; interim........................................34737
8.203-1  (a)(1) revised; interim...................................34747
8.404  (a) amended; interim........................................34747
8.405-2  Introductory text amended; interim........................34737
8.705-3  (a) amended; interim......................................34737
8.1104  (e)(1) amended.............................................48237
9.104-1  (c) revised...............................................16718
9.104-3  (c) amended...............................................48260
9.105-1  (c) introductory text revised.............................16718
    (c)(1) revised.................................................33065
9.106-1  (a) revised...............................................48237
9.206-3  (b) amended; interim......................................34737
9.207  (a)(9) revised..............................................33065
9.306  (f) introductory text amended...............................48237
9.401  Revised.....................................................33065
9.403  Amended.....................................................33065
9.404  Heading, (a)(1), (b) introductory text, (c)(5), (d) 
        introductory text and (3) revised; (c)(3) amended..........33065
9.405  (b) and (d)(1) amended......................................33065
9.405-2  (b) introductory text, (2) and (3) amended................33066
    (b) introductory text amended; interim.........................34748
    (b) introductory text amended..................................48237
9.409  Revised; interim............................................34748
9.507-1  (c) revised; interim......................................34748
    (d)(1) revised.................................................49721
10  Revised........................................................48237
10.001  Amended; interim...........................................28495
10.002  (e) redesignated as (f); new (e) added; interim............28495
10.004  (a)(1) amended; interim....................................28495
10.010  Revised; interim...........................................28495
10.011  (f)(1) and (g)(1) revised; interim.........................28495
11  Revised........................................................48238
    Authority citation correctly added.............................54817
11.002  Regulation at 59 FR 64785 confirmed........................37777
11.004  (b) revised; (c)(2) through (6) redesignated as (c)(4) 
        through (8); new (c)(2) and new (3) added; interim.........28496
11.401  (a) and (c) amended........................................48241
11.401--11.404 (Subpart 11.4)  Redesignated from 12.101--12.104 
        (Subpart 12.1).............................................48241
11.402  (a)(2) and (5) revised.....................................48241
11.404  (a)(2), (3) and (b) amended................................48241
11.501--11.504 (Subpart 11.5)  Redesignated from 12.201--12.204 
        (Subpart 12.2).............................................48241
11.504  (a), (b) and (c) amended...................................48241
11.600--11.604 (Subpart 11.6)  Redesignated from 12.300--12.304 
        (Subpart 12.3).............................................48241
11.604  (a) and (b) amended........................................48241
11.701--11.703 (Subpart 11.7)  Redesignated from 12.401--12.403 
        (Subpart 12.4).............................................48241
11.703  (a), (b) and (c) amended...................................48241
12  Revised........................................................48241
12.101--12.104 (Subpart 12.1)  Redesignated as 11.401--11.404 
        (Subpart 11.4).............................................48241
12.103  (e) revised; interim.......................................34737
12.201--12.204 (Subpart 12.2)  Redesignated as 11.501--11.504 
        (Subpart 11.5).............................................48241
12.300--12.304 (Subpart 12.3)  Redesignated as 11.600--11.604 
        (Subpart 11.6).............................................48241

[[Page 1148]]

12.303  (b)(2) through (5) corrected...............................54817
12.401--12.403 (Subpart 12.4)  Redesignated as 11.701--11.703 
        (Subpart 11.7).............................................48241
12.501--12.505 (Subpart 12.5)  Redesignated as 42.1301--42.1305 
        (Subpart 42.13)............................................48241
13  Heading revised; interim.......................................34748
13.000  Revised; interim...........................................34748
13.101  Amended; interim...........................................34748
13.102  Revised; interim...........................................34748
13.103  Revised; interim...........................................34748
13.104  Revised; interim...........................................34749
13.105  Revised; interim...........................................34749
13.106  Amended; interim...........................................34749
13.106-1  Added; interim...........................................34749
13.106-2  Added; interim...........................................34750
13.107  Revised; interim...........................................34750
13.108  Revised; interim...........................................34750
13.109  Revised; interim...........................................34751
13.110  Added; interim.............................................34751
13.111  Added; interim.............................................34751
13.112  Added; interim.............................................34751
13.201--13.206 (Subpart 13.2)  Revised; interim....................34751
13.301--13.305 (Subpart 13.3)  Revised; interim....................34753
13.401--13.404 (Subpart 13.4)  Revised; interim....................34754
13.501--13.507 (Subpart 13.5)  Revised; interim....................34754
14.201-2  (b), (c), (d) and (f) amended............................48248
14.201-6  (e)(1) revised; interim..................................34737
14.201-7  (a) revised..............................................42650
    (d) removed; (e) redesignated as (d)...........................48211
14.202-1  (b)(6) amended; interim..................................34737
14.202-2  (a)(1) revised; interim..................................34737
14.202-8  Added; interim...........................................34737
14.203-1  Revised; interim.........................................34737
14.205-1  (a) revised; interim.....................................34737
    (e) amended....................................................48260
14.205-4  (b) amended..............................................48260
14.206  Revised....................................................48260
14.209  (b) amended; interim.......................................34737
14.301  (e) added; interim.........................................34738
14.303  (a) amended; (c) added; interim............................34738
14.304-1  (a) introductory text, (2) and (3) amended; (a)(4) 
        added; interim.............................................34738
14.401  (a) amended; interim.......................................34738
14.402-3  (a)(1) revised; interim..................................34738
14.404-1  (b) amended..............................................48248
14.406  Redesignated as 14.407; interim............................34738
14.406-1  Redesignated as 14.407-1; new 14.406 added; interim......34738
14.406-2  Redesignated as 14.407-2; interim........................34738
14.406-3  Redesignated as 14.407-3; interim........................34738
14.406-4  Redesignated as 14.407-4; interim........................34738
14.407  Redesignated as 14.408; new 14.407 redesignated from 
        14.406; interim............................................34738
14.407-1  Redesignated as 14.408-1; new 14.407-1 redesignated from 
        14.406-1 and amended; interim..............................34738
14.407-2  Redesignated as 14.408-2; new 14.407-2 redesignated from 
        14.406-2; (c) added; interim...............................34738
14.407-3  Redesignated as 14.408-3; new 14.407-3 redesignated from 
        14.406-3; introductory text, (e), (h) and (i) amended; 
        interim....................................................34738
14.407-4  Redesignated as 14.408-4; new 14.407-4 redesignated from 
        14.406-4; (f) amended; interim.............................34738
14.407-5  Redesignated as 14.408-5; interim........................34738
14.407-6  Redesignated as 14.408-6; interim........................34738
14.407-7  Redesignated as 14.408-7; interim........................34738
14.407-8  Redesignated as 14.408-8; interim........................34738
14.408  Redesignated as 14.409; new 14.408 redesignated from 
        14.407; interim............................................34738
14.408-1  Redesignated as 14.409-1; new 14.408-1 redesignated from 
        14.407-1; interim..........................................34738
    (a)(1) and (d)(2) revised......................................42654
14.408-2  Redesignated as 14.409-2; new 14.408-2 redesignated from 
        14.407-2; interim..........................................34738
14.408-3  Redesignated from 14.407-3; interim......................34738

[[Page 1149]]

14.408-4  Redesignated from 14.407-4; interim......................34738
14.408-5  Redesignated from 14.407-5; interim......................34738
14.408-6  Redesignated from 14.407-6; (c) amended; interim.........34738
    (a)(3) removed; (a)(4) redesignated as (a)(3)..................48260
14.408-7  Redesignated from 14.407-7; interim......................34738
14.408-8  Redesignated from 14.408.7; interim......................34738
14.409  Redesignated from 14.408; interim..........................34738
14.409-1  Redesignated from 14.801-1; interim......................34738
    Revised........................................................42654
14.409-2  Redesignated from 14.408-2; amended; interim.............34738
14.502  (b)(3) amended.............................................48260
14.503-1  (g) amended..............................................42654
15.106-1  (b)(1) revised; interim..................................34756
    Removed; new 15.106-1 redesignated from 15.106-2 and revised 
                                                                   42650
    (b) correctly revised..........................................54045
15.106-2  (b) amended; interim.....................................34756
    Redesignated as 15.106-1.......................................42650
    Added..........................................................48211
15.401  (a) revised; interim.......................................34756
15.402  (k) added; interim.........................................34738
15.406-2  (c) through (f) amended..................................48248
15.406-5  (b) amended.......................................16718, 48211
    (c) amended....................................................42655
15.407  (d)(3) revised; interim....................................34738
    (d)(4) revised.................................................42655
15.410  (b) revised; interim.......................................34738
15.412  Heading revised; (h) added; interim........................34738
    (d) amended....................................................42655
15.501  Amended....................................................48248
15.503  (b) amended................................................48248
15.601  Amended; interim...........................................28496
15.602  (b) revised; interim.......................................34756
15.604  (b) and (c)(3) revised.....................................16718
15.605  (c) removed; (d), (e) and (f) redesignated as (c), (d) and 
        (e); (b) and new (d) revised...............................16719
    (b)(1)(iv) added; interim......................................28496
    Heading, (a), (b)(1) introductory text, (iii), (2) and (d) 
revised............................................................42655
15.607  (d) added; interim.........................................34738
    (a) amended; interim...........................................34739
15.608  (a) introductory text revised; (a)(2) redesignated as 
        (a)(3); new (a)(2) added...................................16719
    (c) amended; interim...........................................34739
15.609  (c) amended................................................42655
15.610  (c)(4) and (5) amended; (c)(6) added.......................16719
    (a) and (b) revised............................................42655
15.612  (f) revised................................................42655
15.703  (a)(2) revised.............................................48211
15.704  Amended....................................................48248
15.705  (b) amended................................................48260
15.706  (b) and (d)(4) amended.....................................48260
15.801  Amended....................................................48212
15.802  Revised....................................................48212
15.803  (a) amended................................................48212
15.804  Heading revised............................................48212
15.804-1  Revised..................................................48212
15.804-2  (a)(3) introductory text amended; (a)(4) and (5) 
        revised; interim...........................................34756
    Revised........................................................48214
15.804-3  Removed..................................................48214
15.804-4  (a) revised; (c), (e), (f) and (h) amended...............48214
15.804-5  Added....................................................48215
15.804-6  Heading, (a), (b) and (c) revised; (d) amended...........48215
15.804-7  (b)(7)(i), (ii)(B) and (iii) revised.....................48216
15.804-8  Heading revised; (h) and (i) added.......................48216
15.805-1  (a) amended; (d) added...................................48217
15.805-2  (f) added................................................48217
15.805-5  (a)(1) introductory text amended.........................42650
15.806-1  (a)(2) amended; (b) revised..............................48217
15.806-2  (a) and (d) revised; (c) amended.........................48217
15.808  (a)(5) introductory text amended; (a)(6) revised; (a)(7) 
        removed; (a)(8), (9) and (10) redesignated as (a)(7), (8) 
        and (9)....................................................48217
15.812-1  (b) revised; (c) amended.................................48217
15.812-2  (a)(1) revised; interim..................................34756
15.905-1  (c) amended..............................................48260
15.1001  (b)(1) amended, (c)(1) introductory text and (3) revised; 
        interim....................................................34756

[[Page 1150]]

    Redesignated as 15.1002; new 15.1001 added.....................42655
15.1002  Redesignated as 15.1003; new 15.1002 redesignated from 
        15.1001; (a) and (b)(2) revised; (c)(2) removed; (c)(3) 
        redesignated as (c)(2); new (c)(2) amended.................42655
15.1003  (b)(2) and (3) amended; (b)(4) added......................16719
    Redesignated as 15.1004; new 15.1003 redesignated from 15.1002
                                                                   42655
    Amended........................................................42656
15.1004  Redesignated as 15.1005; new 15.1004 redesignated from 
        15.1003....................................................42655
    Revised........................................................42656
15.1005  Amended; interim..........................................34739
    Redesignated as 15.1006; new 15.1005 redesignated from 15.1004
                                                                   42655
15.1006  Redesignated from 15.1005.................................42655
16.000  Amended; interim...........................................34756
16.103  (d)(1) revised; interim....................................34756
    (d)(3) amended.................................................48260
16.105  Revised; interim...........................................34756
16.201  Amended....................................................48248
16.202-2  Introductory text amended................................48248
16.203-2  Introductory text amended; interim.......................34739
16.203-4  (a)(1)(ii) and (b)(1)(ii) amended........................48217
16.301-3  Regulation at 59 FR 64785 confirmed......................37777
    Introductory text, (a), (b) and (c) redesignated as (a) 
introductory text, (1), (2) and (3); new (b) added.................48248
16.306  (c)(2) revised.............................................37777
16.403  Regulation at 59 FR 64785 confirmed........................37777
16.403-1  Regulation at 59 FR 64785 confirmed......................37777
16.403-2  Regulation at 59 FR 64785 confirmed......................37777
16.500  Added; interim.............................................49724
16.501  (c) amended................................................48217
    Redesignated as 16.501-2.......................................49725
16.501-1  Added....................................................49725
16.501-2  Redesignated from 16.501; (a) and (c) revised............49725
16.502  (a) amended................................................49725
16.503  (a) introductory text and (b) revised; (d) added...........49725
16.504  (a) introductory text revised; (a)(3) and (b) amended; 
        (a)(4) and (c) added;......................................49725
16.505  (d)(4) and (5)(ii) amended.................................48260
    Redesignated as 16.506; new 16.505 redesignated from 16.506 
and revised........................................................49725
16.506  (c) revised; interim.......................................34739
    Redesignated as 16.505; new 16.506 redesignated from 16.505; 
heading revised; (b) and (d)(3) amended; (f) and (g) added.........49726
16.603-2  (e) amended..............................................48248
16.603-4  (b)(3) amended...........................................48217
17.104-1  (a), (b) introductory text and (2) amended...............48260
17.202  (a) revised; (b)(1)(ii) amended............................42656
17.208  (b) and (c)(4) revised.....................................42656
17.500--17.505 (Subpart 17.5)  Revised.............................49721
19  Heading revised................................................48260
19.000  Regulation at 59 FR 64785 confirmed........................37777
19.001  Amended....................................................48260
19.102  (f)(3) removed; (f)(4) through (7) redesignated as (f)(3) 
        through (6); interim.......................................34756
19.201  (a), (b), (c)(9) and (d) revised...........................48260
19.202  Amended....................................................48260
19.202-3  Revised..................................................48261
19.202-5  (a) and (b) revised......................................48261
19.301  (d) amended................................................48261
19.302  (d)(1) introductory text amended...........................42656
19.303  (a) revised; interim.......................................34756
19.304  (a) through (d) amended; interim...........................34757
    Revised........................................................48261
19.401  (a) amended................................................48261
19.402  (c)(1)(ii) revised.........................................48261
19.501  (c) and (d) amended; (f) and (g) removed; (h), (i) and (j) 
        redesignated as (f), (g) and (h); interim..................34757
    (h)(1) and (2) amended.........................................42656
    (a) and (h) amended............................................48261
19.502-1  (c) amended; interim.....................................34757
19.502-2  Revised; interim.........................................34757
19.502-3  (a)(4) amended; interim..................................34757

[[Page 1151]]

19.502-4  (a) revised; interim.....................................34757
19.503  (c)(2) revised; interim....................................34757
19.504  Removed....................................................48261
19.505  Revised....................................................48261
19.506  (b) amended; interim.......................................34757
    Revised........................................................48262
19.508  (a) removed; (b) through (e) amended; interim..............34757
    (b) removed....................................................48262
19.701--19.708 (Subpart 19.7)  Heading revised.....................48262
19.702  Amended; interim...........................................34757
    Introductory text and (b)(4) revised...........................48262
19.703  (a) introductory text, (1) and (b) revised.................48262
19.704  (a)(1), (3), (4), (6) and (b) revised......................48262
19.705-1  Amended..................................................48262
19.705-2  Amended..................................................48262
19.705-4  (b), (c), (d)(1) and (5) amended; (d)(4) and (6) revised
                                                                   48262
19.705-7  (a), (d) and (f) amended.................................48263
19.706  (a)(2) and (3) revised.....................................48263
19.708  (a) introductory text amended; interim.....................34757
    (a) introductory text, (b) and (c) revised.....................48263
19.811-2  (a) introductory text amended; interim...................34739
19.811-3  (d)(3) amended...........................................48263
19.901--19.902 (Subpart 19.9)  Removed.............................48263
19.902  Amended; interim...........................................34757
19.1006  (c)(3) amended; interim...................................34757
20  Removed........................................................48263
20.103  (b) amended; interim.......................................34758
20.104  (f) amended; interim.......................................34739
    Introductory text amended; interim.............................34758
20.202  Amended; interim...........................................34758
20.301  (a) amended; interim.......................................34758
20.302  (a) introductory text amended; interim.....................34758
22.202  Introductory text amended; interim.........................34758
22.305  Introductory text amended; (a) revised; (b) removed; (c) 
        through (h) redesignated as (b) through (g); interim.......34758
    (g) redesignated as (h); new (g) added.........................48248
22.604-1  (a) revised..............................................48248
22.606-2  (b) corrected.............................................5870
22.1006  Heading revised; (c)(1) and (2) amended; interim..........34758
22.1025  Amended...................................................33066
23.101  Amended; interim...........................................34758
23.104  (a)(1) and (2)amended, (3) added...........................48248
23.201  Revised; interim...........................................28496
23.203  Revised; interim...........................................28496
23.400--23.405 (Subpart 23.4)  Revised; interim....................28496
23.501  (a) revised; interim.......................................34758
    (b), (c) and (d) redesignated as (c), (d) and (e); new (b) 
added..............................................................48248
23.504  (a) introductory text revised; interim.....................34758
23.505  (a)(2) revised; interim....................................34758
23.701--23.706 (Subpart 23.7)  Added; interim......................28497
23.800--23.804 (Subpart 23.8)  Added; interim......................28500
23.901--23.907 (Subpart 23.9)  Added; interim......................55307
25.000  Amended....................................................42650
25.101  Amended; interim...........................................67514
25.104  (a) revised; interim.......................................67515
25.105  (a)(1) and (2) amended.....................................48263
25.109  (e) and (f) removed; (g) redesignated as (e); (d), new (e) 
        introductory text and new (2) revised; new (e)(1) amended; 
        interim....................................................67515
25.202  (c) amended; interim.......................................67515
25.205  (b) revised; interim.......................................67515
25.302  (b)(1) revised; interim....................................34758
25.400  Revised; interim...........................................67515
25.401  Amended....................................................28502
    Amended; interim...............................................67515
25.402  (a)(1), (2), (3) and (c) revised; (a)(4) removed; (a)(5) 
        and (6) redesignated as (a)(4) and (5); interim............67516
25.403  Revised; interim...........................................67516
25.404  Removed....................................................48264
25.405  (e) amended; interim.......................................34739
    (e) revised....................................................42657
25.406  Removed; interim...........................................67517
25.407  Removed; interim...........................................67517
25.408  Heading, (a)(2) and (4) revised; interim...................67517
25.703  Amended; interim...........................................34758
25.901  Heading, (b), (c), (d)(2), (3) and (5) revised.............42650

[[Page 1152]]

25.1000  Amended; interim..........................................67517
25.1001  Amended............................................28502, 28503
    Revised; interim...............................................67517
25.1002  (a)(3)(i) removed; (a)(3)(ii) and (iii) redesignated as 
        (a)(3)(i) and (ii); (a)(1), (2), (3) introductory text and 
        new (i) revised; (c)(1) introductory text amended; interim
                                                                   67517
25.1003  Revised; interim..........................................67517
26  Note amended...................................................48264
26.104  (a) and (b) amended........................................48264
27.201-2  (a) revised; interim.....................................34758
27.202-2  Revised; interim.........................................34758
27.203-1  (b)(4) revised; interim..................................34759
28.101-4  (c)(5) amended; interim..................................34739
28.103-2  (a) amended; interim.....................................34759
28.106-4  Existing text designated as (a); (b) added...............48273
28.106-6  (d) added................................................48273
28.203-7  (c) and (d) amended......................................33066
28.310  (a) introductory text revised; interim.....................34759
29.401-3  Revised; interim.........................................34759
29.401-4  Amended; interim.........................................34759
31  Inflation rates notice.........................................64255
31.106-3  Heading and introductory text amended....................48248
31.110  Added......................................................42658
31.205-1  (f)(3) amended...........................................42660
31.205-6  (g)(2) introductory text amended; (g)(3) added...........42660
31.205-11  (e) amended; (o) added; interim.........................64255
31.205-13  Revised; interim.........................................3315
    (b)(4) corrected................................................7133
    Revised........................................................42662
31.205-14  Revised; interim.........................................3316
    Revised........................................................42663
31.205-16  Heading revised; (g) added; interim.....................64255
31.205-22  (a)(3) and (4) amended..................................42660
31.205-26  (e) revised; interim....................................28503
    (e) and (f) revised............................................48218
31.205-43  (c) introductory text, (1) and (3)(ii) amended..........42660
31.603  (b) revised................................................42660
31.703  (b) revised................................................42661
32.000  (e) and (f) amended; (g) and (h) added.....................49710
32.001  Amended; heading revised...................................49710
32.002  Added......................................................49710
32.003  Added......................................................49710
32.004  Added......................................................49710
32.005  Added......................................................49710
32.006  Added......................................................49728
32.006-1  Added....................................................49728
32.006-2  Added....................................................49729
32.006-3  Added....................................................49729
32.006-4  Added....................................................49729
32.006-5  Added....................................................49729
32.100--32.111 (Subpart 32.1)  Heading revised.....................49710
32.100  Revised....................................................49710
32.101  Amended....................................................49710
32.102  (a), (b)(2), (3) and (d) amended; (b)(4) and (f) added.....49711
32.103  Heading revised............................................49711
32.104  (c) and (d) added..........................................49711
32.106  Introductory text amended; (b) and (d) revised.............49711
32.110  Removed....................................................49711
32.111  Heading revised............................................49711
32.112  Added......................................................48273
32.112-1  Added....................................................48273
32.112-2  Added....................................................48274
32.113  Added......................................................49711
32.114  Added......................................................49711
32.200--32.207 (Subpart 32.2)  Added...............................49711
32.400--32.412 (Subpart 32.4)  Heading revised.....................49714
32.400  Amended....................................................49714
32.501-1  (d) revised..............................................49714
32.501-4  Removed..................................................49715
32.502-1  (b) introductory text and (1) revised; (c) removed; (d) 
        redesignated as (c); (a) introductory text and new (c)(1) 
        amended....................................................49715
32.503-1  (b) revised; interim.....................................34739
32.602  (h) added..................................................48275
32.603  Revised....................................................48275
32.605  (b) amended................................................48275
32.617  (a)(1) revised; interim....................................34759
32.703-3  Revised..................................................37778
32.801  Amended....................................................49730
32.803  (d) revised................................................49730
32.806  (a) revised................................................49730
32.901  Revised; interim...........................................34759
32.908  (c) revised; interim.......................................34759
32.1000--32.1010 (Subpart 32.10)  Added............................49715
33.101  Amended....................................................48225

[[Page 1153]]

33.102  (b) and (c) redesignated as (c) and (e); new (b) and (d) 
        added; (a), new (e)(2) and new (3) revised.................48226
    (b)(3) added...................................................48275
33.103  (b)(1), (2) and (4) amended; (b)(5) added..................48227
33.104  Introductory text, (a)(1), (3), (4)(ii)(A), (B), (5) 
        introductory text, (i), (ii), (iii), (6), (c)(1), (5) and 
        (e) through (h) revised; (a)(2) introductory text, (ii), 
        (4)(i) introductory text, (ii)(C), (b)(1)(ii) and (d) 
        amended....................................................48227
    (h)(7) added...................................................48275
33.105  (a)(2)(i), (ii), (b)(6), (c), (d)(1)(i) and (e) amended; 
        (f) and (g) redesignated as (g) and (h); Introductory 
        text, (d)(4) and new (f) added; (a)(1), (d)(1) 
        introductory text, new (g) and new (h) revised.............48229
    (g)(5) added...................................................48275
33.106  (a) amended; interim.......................................34759
33.201  Amended....................................................48230
33.206  Revised....................................................48230
33.207  (d) revised................................................48218
    (a)(1) amended.................................................48230
33.208  (c) amended................................................48230
33.211  (a)(4)(v), (c)(1), (2) and (e) amended; (f) revised........48230
33.214  (b), (c) and (d) redesignated as (c), (d) and (e); new (b) 
        added......................................................48230
36.202  (a) amended................................................48249
36.206  Amended....................................................48249
36.303  (c)(4) amended.............................................48249
36.304  Introductory text amended; interim.........................34739
    Introductory text revised......................................42657
36.402  (b) introductory text and (1) revised......................48218
36.502  Amended; interim...........................................34759
36.503  Amended; interim...........................................34759
36.506  Amended; interim...........................................34759
36.508  Amended; interim...........................................34759
36.509  Amended; interim...........................................34759
36.510  Amended; interim...........................................34759
36.511  Amended; interim...........................................34759
36.512  Amended; interim...........................................34759
36.513  (a) amended; interim.......................................34759
36.515  Amended; interim...........................................34759
36.521  Amended; interim...........................................34759
36.601-3  (a), (b) and (c) redesignated as (b), (c) and (d); new 
        (a) added; interim.........................................28498
36.602-1  (a)(6) redesignated as (a)(7); new (a)(6) added; interim
                                                                   28498
36.602-3  (c) revised; interim.....................................28498
36.602-5  Heading revised; interim.................................34759
    Introductory text amended; interim.............................34759
36.606  (a) amended................................................37777
36.607  Existing text designated as (a); (b) added.................42657
36.701  (b) and (c) amended; interim...............................34759
36.702  (b)(2) amended; interim....................................34759
37.106  Revised....................................................37778
37.113  Added......................................................42661
37.113-1  Added....................................................42661
37.113-2  Added....................................................42661
37.200--37.205 (Subpart 37.2)  Revised.............................49722
41.103  (a)(2) amended.............................................37777
41.201  (b) amended; interim.......................................34759
41.401  Amended; interim...........................................34759
42.302  (b)(11) added..............................................16719
    (a)(68) added; interim.........................................28498
    (a)(52) through (55) revised...................................48264
    (a)(12) revised; (a)(69) added.................................49717
42.501  (b) amended................................................48264
42.502  (i) and (j) revised........................................48264
42.703  (c)(2) revised.............................................42661
    Redesignated as 42.703-1; new 42.703 added.....................42664
42.703-1  Redesignated from 42.703.................................42664
42.703-2  Added....................................................42664
42.705-1  (b)(4) revised; (b)(5)(v) added..........................42661
42.709  Added......................................................42658
42.709-1  Added....................................................42658
42.709-2  Added....................................................42658
42.709-3  Added....................................................42659
42.709-4  Added....................................................42659
42.709-5  Added....................................................42659
42.709-6  Added....................................................42659
42.903  Amended; interim...........................................34759
42.1104  (b) amended; interim......................................34759
42.1105  Amended...................................................48249
42.1301--42.1305 (Subpart 42.13)  Redesignated from 12.501--12.505 
        (Subpart 12.5).............................................48241
42.1304  (a) and (d) amended.......................................48249
42.1305  (a), (b)(1), (c) and (d) amended..........................48249

[[Page 1154]]

42.1500--42.1503 (Subpart 42.15)  Added............................16719
42.1601 (Subpart 42.16)  Added.....................................48230
43.205  (d)(2) and (e) amended; interim............................34760
44.201-2  (b) amended; interim.....................................34760
44.202-2  (a)(13) amended..........................................33066
    (a)(4) amended.................................................48264
44.204  (e) amended; interim.......................................34760
44.303  (c) amended................................................33066
    (e) amended....................................................48264
44.400--44.403 (Subpart 44.4)  Added...............................48249
45.103  (b)(1) revised.............................................48218
45.106  (e) revised; interim.......................................34760
    (b)(2) revised.................................................48218
45.606-5  (b)(3) and (4) revised; interim..........................34739
46.101  Amended....................................................48249
46.102  (e) amended; (f) redesignated as (g); new (f) added........48249
46.202  Amended....................................................48249
46.202-1  (a) amended; interim.....................................34760
    Redesignated as 46.202-2; new 46.202-1 added...................48249
46.202-2  Redesignated as 46.202-3; new 46.202-2 redesignated from 
        46.202-1; (b)(1) amended...................................48249
46.202-3  Redesignated as 46.202-4; new 46.202-3 redesignated from 
        46.202-2...................................................48249
46.202-4  Redesignated from 46.202-3; (a)(1) amended...............48249
46.203  (a)(1) revised; (a)(2) and (3) amended.....................48249
46.204  Removed....................................................48250
46.301  Introductory text amended; interim.........................34760
    Amended........................................................48250
46.302  Amended; interim...........................................34760
46.304  Amended; interim...........................................34760
46.307  (a)(3) and (b) amended; interim............................34760
46.311  Amended....................................................48250
46.312  Amended; interim...........................................34760
46.316  Amended; interim...........................................34760
46.402  (e) amended................................................48250
46.404  Heading revised, (a) and (b)(1) amended; interim...........34760
    (a), (b) introductory text and (2) amended.....................48250
46.709  Revised....................................................48250
46.710  Introductory text amended; (a)(2) and (b)(2) removed; 
        (a)(3) through (6) and (b)(3), (4) and (5) redesignated as 
        (a)(2) through (5) and (b)(2), (3) and (4).................48250
46.804  Amended....................................................48218
46.805  (a) heading and introductory text amended; (b) revised; 
        interim....................................................34760
47.104-4  (a)(2) amended; interim..................................34760
47.200  (b)(4) amended; interim....................................34760
47.205  (b) amended; interim.......................................34760
47.305-16  (b)(1) amended; interim.................................34760
47.405  Amended; interim...........................................34760
    Amended........................................................48250
47.504  (d) revised; interim.......................................34760
    (e) added......................................................48250
49.208  Introductory text amended..................................48218
49.402-7  (a) amended..............................................48250
49.501  Revised....................................................48250
49.504  (a)(1), (b) and (c)(1) amended; interim....................34760
49.603-1  (b)(7)(iii) amended......................................37773
    (b)(7)(i) amended..............................................49723
49.603-2  (b)(8)(iii) amended......................................37773
    (b)(8)(i) amended..............................................49723
49.603-3  (b)(7)(iii) amended......................................37773
    (b)(7)(i) amended..............................................49723
49.603-4  (b)(4)(ii) amended.......................................37773
    (b)(4)(i) amended..............................................49723
49.607  Introductory text amended..................................48250
50.303  Redesignated as 50.303-1; new 50.303 heading added.........48230
50.303-1  Redesignated from 50.303.................................48230
50.303-2  Added....................................................48230
50.304  (a) introductory text amended..............................48230
50.305  (a) amended................................................48230
50.306  Introductory text amended..................................48230
50.307  (b) amended................................................42651
51.101  (a)(1) and (2) amended; (a)(3) added.......................42657
51.102  (a) introductory text amended..............................42657

[[Page 1155]]

                                  1996

48 CFR
                                                                   61 FR
                                                                    Page
Chapter 1
Chapter  1 Federal Acquisition Circular 90-37.......................2626
    Federal Acquisition Circular 90-38.............................18914
    Federal Acquisition Circular 90-39.............................31612
    Federal Acquisition Circular 90-40.............................39186
    Small entity compliance guide......39224, 41477, 45775, 67430, 69298
    Federal Acquisition Circular 90-41.............................41466
    Federal Acquisition Circular 90-43.............................67410
    Federal Acquisition Circular 90-44.............................69286
1.106  Table amended (OMB numbers)...................18916, 39188, 67430
    Table amended (OMB numbers) interim.....................67410, 69287
1.304  (a) revised.................................................39190
1.403  Amended.....................................................67411
1.404  Introductory text amended...................................67411
1.405  (d) and (e) revised.........................................67411
1.603-3  Regulation at 59 FR 64787 confirmed; revised..............39190
2.101  Amended..............................................39190, 69288
    Amended; interim...............................................41468
2.201  Regulation at 60 FR 34744 confirmed; amended................39190
3.102-2  Regulation at 60 FR 34744 confirmed.......................39190
3.103-1  Regulation at 60 FR 34744 confirmed.......................39190
3.104-4  Regulation at 59 FR 64787 confirmed.......................39190
    (h)(5) revised.................................................39191
3.104-10  Regulation at 60 FR 34744 confirmed......................39190
    (c) amended....................................................39191
3.202  Revised; interim............................................39200
3.404  Revised.....................................................39188
    Regulation at 60 FR 34744 confirmed............................39190
3.405  Removed; new 3.405 redesignated from 3.409..................39188
3.406  Removed; new 3.406 redesignated from 3.410 and amended......39188
3.407  Removed.....................................................39188
3.408  Removed.....................................................39188
3.408-1  Removed...................................................39188
3.408-2  Removed...................................................39188
3.409  Redesignated as 3.405.......................................39188
3.410  Redesignated as 3.406.......................................39188
3.502-2  Heading and (i) introductory text revised; (j) added......39191
3.502-3  Regulation at 60 FR 34744 confirmed; amended..............39190
3.503-2  Regulation at 60 FR 34744 confirmed; amended..............39190
4.000  Regulation at 60 FR 28493 confirmed.........................31616
4.300--4.304 (Subpart 4.3)  Regulation at 60 FR 28493 confirmed....31616
4.301  Amended.....................................................31616
4.304  Regulation at 60 FR 34744 confirmed..................31616, 39190
4.402  (a) and (b) revised; (c) amended............................31617
4.403  (a)(1)(i), (b)(1), (c)(1) and (2) amended...................31617
4.404  (d) amended.................................................31617
4.500--4.507 (Subpart 4.5)  Regulation at 60 FR 34744 confirmed....39190
4.501  Amended.....................................................39191
4.502  (a) revised; (b) and (c) removed; (d) redesignated as (b) 
                                                                   39191
4.503  Revised.....................................................39191
4.504  (a) introductory text and (b) introductory text revised.....39191
4.507  Removed.....................................................39191
4.602  (d) revised; interim........................................67412
4.603  Amended.....................................................39190
    Revised; interim...............................................67412
4.800  Regulations at 59 FR 64787 and 60 FR 34746 confirmed........39190
    Amended........................................................39191
4.803  (a)(11) revised.............................................39188
    (a)(11) amended................................................67430
4.804-1  Regulation at 60 FR 34746 confirmed.......................39190
4.804-2  Regulation at 60 FR 34746 confirmed.......................39190
4.805  Regulation at 60 FR 34746 confirmed; (b)(13) introductory 
        text amended...............................................39190
5.101  Regulation at 60 FR 34746 confirmed.........................39190
    (a)(2) introductory text amended; (a)(2)(ii) revised...........39191
5.202  Regulation at 60 FR 34746 confirmed.........................39190

[[Page 1156]]

    (a)(2) and (14) revised........................................39192
5.203  Regulation at 60 FR 34747 confirmed.........................39190
    (b) amended....................................................39192
5.205  Regulation at 60 FR 34747 confirmed.........................39190
    (d)(2) amended.................................................39192
5.207  Regulation at 60 FR 34747 confirmed.........................39190
    (c)(2)(xiv) revised; (e)(3) amended............................39192
    (g)(1) table and (2) table amended; interim....................41468
5.301  Regulation at 60 FR 34747 confirmed.........................39190
5.303  Regulation at 60 FR 34747 confirmed; (b) introductory text 
        amended....................................................39190
    (b)(2) amended.................................................69289
5.503  Regulation at 60 FR 34747 confirmed.........................39190
    (a) redesignated as (a)(1); (a)(2) added; (c) removed; (d) and 
(e) redesignated as (c) and (d)....................................39192
6.001  Regulation at 60 FR 34747 confirmed.........................39190
6.302-5  (b)(3) and (4) amended; (b)(5) added......................39200
6.304  (a)(1), (2) and (3) introductory text amended; (a)(4) 
        revised....................................................31618
7.000  (b) and (c) amended; (d) added...............................2628
7.103  (p) added....................................................2628
7.105  (b)(9) through (19) redesignated as (b)(10) through (20); 
        new (b)(9) added............................................2628
7.403  (b)(1) revised; interim.....................................41468
7.500--7.503 (Subpart 7.5)  Added...................................2628
8.001  (a)(2)(ii) and (iii) revised; (c) added......................2630
8.002  (d) removed; (e), (f) and (g) redesignated as (d), (e) and 
        (f); interim...............................................41468
8.003  Added........................................................2631
8.203-1  Regulation at 60 FR 34747 confirmed; (a)(1) amended.......39190
8.402  Removed; interim............................................41468
8.404  Regulation at 60 FR 34747 confirmed.........................39190
8.901--8.904 (Subpart 8.9)  Added; interim.........................41468
9.103  (b) amended; interim........................................67410
9.104-1  (a), (c), (e) and (f) amended; interim....................67410
9.104-3  (a) removed; (b) through (e) redesignated as (a) through 
        (d); interim...............................................67410
9.105-1  (c) introductory text amended; (c)(4), (5) and (6) 
        redesignated as (c)(5), (6) and (7); new (c)(4) added......39201
9.106-1  (a) revised...............................................39201
9.403  Regulation at 59 FR 11372 confirmed..........................2632
9.405-2  Regulation at 60 FR 34748 confirmed.......................39190
9.406-2  Regulation at 59 FR 11372 confirmed........................2632
    (a)(3) amended..................................................2633
    (a)(4) amended; (b) revised; interim...........................41473
    (b)(1)(ii) revised.............................................69291
9.406-4  (a) and (b) revised; interim..............................41473
9.407-2  Regulation at 59 FR 11373 confirmed........................2632
    (a)(3) amended..................................................2633
    (a)(4) revised.................................................69291
9.409  Regulation at 60 FR 34748 confirmed.........................39190
9.507-1  Regulation at 60 FR 34748 confirmed.......................39190
9.508  (e) revised; interim........................................41469
9.702  (d) removed; (e) and (f) redesignated as (d) and (e); 
        interim....................................................67410
11.002  (a)(1)(i) revised..........................................39192
11.104  (c) added..................................................39192
11.105  Added.......................................................2629
12.102  (d)(1), (2) and (4) amended................................39192
12.206  Amended....................................................39192
12.214  Added......................................................67418
12.301  (c)(2) amended.............................................39192
    (b)(1) and (3) amended.........................................67430
12.302  (b)(3) amended; interim....................................45772
    (d) amended....................................................67430
12.303  (c)(1) and (e)(1) amended..................................67430
12.503  (c)(3) revised.............................................67418
12.504  (c)(3) revised.............................................67418
12.602  (a) and (b) amended........................................39192
12.603  (c)(2)(xiii) revised; interim..............................41469
13  Regulation at 60 FR 34748 confirmed............................39190
13.000  Regulation at 60 FR 34748 confirmed........................39190

[[Page 1157]]

    Revised........................................................39192
13.101  Regulations at 59 FR 64787 and 60 FR 34748 confirmed.......39190
    Amended........................................................39192
13.102  Regulation at 60 FR 34748 confirmed........................39190
    (b) revised; (c) amended.......................................39192
13.103  Regulation at 60 FR 34748 confirmed........................39190
    Revised........................................................39193
    (a) amended; interim...........................................41469
13.104  Regulation at 60 FR 34749 confirmed........................39190
    (b), (e) and (f) revised.......................................39193
13.105  Regulations at 59 FR 64787 and 60 FR 34749 confirmed.......39190
    Revised........................................................39193
13.106  Regulations at 59 FR 64787 and 60 FR 34749 confirmed.......39190
    Revised........................................................39193
13.106-1  Regulation at 60 FR 34749 confirmed......................39190
    Revised........................................................39193
13.106-2  Regulation at 60 FR 34750 confirmed......................39190
    Revised........................................................39194
    (c)(3) amended.................................................69289
13.107  Regulation at 60 FR 34750 confirmed........................39190
    Revised........................................................39195
13.108  Regulation at 60 FR 34750 confirmed........................39190
    (b) amended....................................................39195
13.109  Regulation at 60 FR 34751 confirmed........................39190
    Amended........................................................39195
13.110  Regulation at 60 FR 34751 confirmed........................39190
    (a)(2) and (3) revised; (a)(8), (9), (11), (12) and (13) 
removed; (a)(10) redesignated as (a)(8)............................39195
13.111  (c) removed; (d) through (j) redesignated as (c) through 
        (i)........................................................39188
    Regulation at 60 FR 34751 confirmed............................39190
    (b) removed; (c) through (i) redesignated as (b) through (h); 
introductory text, (a) and new (e) revised; new (g) and new (h) 
amended; new (i) added.............................................39195
    (g) removed; (h) and (i) redesignated as (g) and (h)...........69292
13.112  Regulation at 60 FR 34751 confirmed........................39190
13.201--13.206 (Subpart 13.2)  Regulation at 60 FR 34751 confirmed
                                                                   39190
13.202  Revised....................................................39195
    (c)(3) revised; interim........................................41469
13.203  Removed; new 13.203 redesignated from 13.203-2; (b) 
        amended....................................................39196
13.203-1  Removed..................................................39196
13.203-2  Redesignated as 13.203...................................39196
13.204  (b) revised; (c), (e) introductory text, (1) and (4) 
        amended....................................................39196
13.301--13.305 (Subpart 13.3)  Regulation at 60 FR 34753 confirmed
                                                                   39190
13.302  (a) revised; (b) amended...................................39196
13.303  (a), (b) designation and (4) removed; (b)(1), (2) and (3) 
        redesignated as (a), (b) and (c)...........................39196
13.401--13.404 (Subpart 13.4)  Regulation at 60 FR 34754 confirmed
                                                                   39190
    Revised........................................................39196
13.501--13.507 (Subpart 13.5)  Regulation at 60 FR 34754 confirmed
                                                                   39190
13.501  (a), (c), (d) and (g) revised..............................39197
    (i) added; interim.............................................45772
13.502  Regulation at 59 FR 64787 confirmed........................39190
    (b)(1) removed; (b)(2) and (3) redesignated as (b)(1) and (2); 
(c) amended........................................................39197
13.503  (a) revised................................................39197
13.505  Revised....................................................39197
13.505-1  Removed..................................................39197
13.505-2  Removed..................................................39197
13.505-3  Removed..................................................39197

[[Page 1158]]

13.506  Removed; new 13.506 redesignated from 13.507...............39197
13.507  Redesignated as 13.506.....................................39197
13.601--13.603 (Subpart 13.6)  Regulation at 59 FR 64787 confirmed
                                                                   39190
    Removed........................................................39197
14.201-6  Regulations at 58 FR 31141 and 59 FR 545 confirmed.......31619
14.205-1  (d)(2) amended; interim..................................67410
14.304-1  (a)(2) and (c) revised...................................69293
14.402-3  (c) revised..............................................31619
14.408-1  Regulation at 59 FR 545 confirmed........................31619
14.503-1  (g) amended..............................................69289
15.106-1  Regulation at 60 FR 34756 confirmed; (b)(1) amended......39190
15.106-2  Regulation at 60 FR 34756 confirmed......................39190
15.401  Regulation at 60 FR 34756 confirmed........................39190
    (a) amended....................................................39197
15.407  Regulations at 58 FR 31141 and 59 FR 545 confirmed.........31619
15.411  (a) revised................................................31619
15.412  (b) revised................................................31619
    (d) amended....................................................69289
    (c)(2) revised.................................................69293
15.602  Regulation at 60 FR 34756 confirmed........................39190
    (b) amended....................................................39197
15.609  (c) amended................................................69289
15.612  (f) revised................................................69289
15.804-2  Regulation at 60 FR 34756 confirmed......................39190
15.804-8  (e) and (f) revised; (g) amended..........................2633
15.805-1  (d) revised..............................................31621
    (d) amended; interim...........................................41469
15.805-5  (c)(1) amended............................................2634
15.806-3  (a)(3) and (4) amended; (a)(5) and (6) added..............2635
15.810  Revised.....................................................2635
15.812-2  Regulation at 60 FR 34756 confirmed......................39190
15.1001--15.1008 (Subpart 15.10)  Revised..........................69289
15.1001  Regulation at 59 FR 545 confirmed.........................31619
    Regulation at 60 FR 34756 confirmed............................39190
16.000  Regulation at 60 FR 34756 confirmed........................39190
    Amended........................................................39197
16.103  Regulation at 60 FR 34756 confirmed........................39190
    (d)(1) revised.................................................39198
16.105  Regulation at 60 FR 34756 confirmed........................39190
    (a) amended....................................................39198
16.307  (i) amended................................................31622
    (a) redesignated as (a)(1); (a)(2) added.......................67419
16.500  Regulation at 60 FR 49724 confirmed; revised...............39203
    Amended; interim...............................................41469
16.504  (c)(1)(v) amended..........................................39190
    (c)(1) introductory text amended; (c)(1)(iv) and (vi) revised 
                                                                   39203
16.505  (b) amended................................................39203
16.703  (c)(1)(vi) amended.........................................39198
17.101--17.109 (Subpart 17.1)  Revised.............................39204
17.200  Revised; interim...........................................41469
17.203  Regulations at 58 FR 31141 and 59 FR 545 confirmed.........31619
17.204  (e) amended; interim.......................................41470
19.000  Amended; interim...........................................67410
19.001  Amended; interim...........................................67410
19.102  Table revised..............................................31622
    Regulation at 60 FR 34756 confirmed............................39190
    (f)(1) amended; (f)(4) revised; (f)(7) added...................39208
    (f)(1) amended; interim........................................67410
19.302  (d)(1) amended.............................................69289
19.303  Regulation at 60 FR 34756 confirmed........................39190
    (a) amended....................................................39198
19.304  Regulation at 60 FR 34757 confirmed........................39190
19.501  Regulation at 60 FR 34757 confirmed........................39190
    (d) amended....................................................39198
    (h)(1) and (2) amended.........................................69289
19.502-1  Regulation at 60 FR 34757 confirmed......................39190
    Amended; interim...............................................41470
    Introductory text amended......................................67430
19.502-2  Regulation at 60 FR 34757 confirmed......................39190
    (a) and (c) revised; (b)(2) amended............................39209
19.502-3  Regulation at 60 FR 34757 confirmed......................39190
19.502-4  Regulation at 60 FR 34757 confirmed......................39190

[[Page 1159]]

19.503  Regulation at 60 FR 34757 confirmed........................39190
19.506  Regulation at 60 FR 34757 confirmed........................39190
19.508  Regulation at 60 FR 34757 confirmed........................39190
    (c) and (d) amended.....................................39209, 67430
19.601--19.602-4 (Subpart 19.6)  Heading revised; interim..........67410
19.601  (c) removed; (d) redesignated as (c); interim..............67410
19.602-2  (a) designation and (b) removed; (a)(1), (2), (3) and 
        (c) redesignated as (a) through (d); new (d) revised........2637
19.702  (d) added; interim..........................................2638
    Regulation at 60 FR 34757 confirmed; introductory text amended
                                                                   39190
    Regulation at 61 FR 2638 confirmed; (d) amended................67420
19.704  (b) amended................................................31643
19.705-2  (d) revised...............................................2638
19.708  (b)(1)(iii) amended.........................................2639
    Regulation at 60 FR 34757 confirmed; (a) introductory text 
amended............................................................39190
19.801  Removed; interim...........................................67421
19.803  (a)(3) amended; interim....................................67410
19.804-2  (b) revised; (c) added; interim..........................67421
19.804-3  (c) removed; interim.....................................67421
19.805-1  (c) redesignated as (d); new (c) added; new (d) amended; 
        interim....................................................67421
19.805-2  (c) introductory text revised; interim...................67421
19.808-1  (b) revised; interim.....................................67421
19.809  Amended; interim...........................................67421
19.811-1  (b)(5) removed; interim..................................67421
19.811-3  (d)(3) revised...........................................39209
    (a), (b) and (d)(1) revised; (d)(2) removed; (d)(3) 
redesignated as (d)(2); new (d)(2) amended; interim................67421
19.902  Regulation at 60 FR 34757 confirmed........................39190
19.1001  Regulation at 59 FR 67036 confirmed.......................31643
    Amended........................................................67422
19.1005  Regulation at 59 FR 67036 confirmed.......................31643
19.1006  Regulation at 59 FR 67037 confirmed.......................31643
    Regulation at 60 FR 34757 confirmed............................39190
    (b)(1) amended.................................................67422
20.103  Regulation at 60 FR 34758 confirmed........................39190
20.104  Regulation at 60 FR 34758 confirmed........................39190
20.202  Regulation at 60 FR 34758 confirmed........................39190
20.301  Regulation at 60 FR 34758 confirmed........................39190
20.302  Regulation at 60 FR 34758 confirmed........................39190
22.201  Revised....................................................31644
22.202  Amended....................................................31644
    Regulation at 60 FR 34758 confirmed............................39190
22.305  Regulation at 60 FR 34758 confirmed........................39190
22.601  Removed; interim...........................................67410
22.602  Revised; interim...........................................67410
22.604-2  (b) removed; (c) redesignated as (b); interim............67410
22.606  Removed; interim...........................................67410
22.606-1  Removed; interim.........................................67410
22.606-2  Removed; interim.........................................67410
22.607  Removed; interim...........................................67410
22.608  Revised; interim...........................................67411
22.608-1  Removed; interim.........................................67411
22.608-2  Removed; interim.........................................67411
22.608-3  Removed; interim.........................................67411
22.608-4  Removed; interim.........................................67411
22.608-5  Removed; interim.........................................67411
22.608-6  Removed; interim.........................................67411
22.610  Revised; interim...........................................67411
22.1001  Amended...................................................39207
22.1003-4  (b)(4)(iii)(B) amended..................................39198
22.1005  Removed...................................................39198
22.1006  Regulation at 60 FR 34758 confirmed.......................39190
    (e)(1) amended; interim........................................41470
22.1022  Amended...................................................39198
23.101  Regulation at 60 FR 34758 confirmed........................39190
23.405  (b)(1) revised; (b)(2) and (3) amended.....................39198
23.501  Regulation at 60 FR 34758 confirmed........................39190
23.504  Regulation at 60 FR 34758 confirmed........................39190
    (a) introductory text, (3) and (b) revised; (c) removed; (d) 
redesignated as (c); (a)(4)(ii), (5), (6) and new (c) amended......69292

[[Page 1160]]

23.505  Regulation at 60 FR 34758 confirmed........................39190
    (a)(2) amended; (b) removed; (c) redesignated as (b); heading, 
(a) introductory text and new (b) introductory text revised........69292
23.506  (d) revised................................................69292
23.800--23.804 (Subpart 23.8)  Regulation at 60 FR 28501 confirmed
                                                                   31645
23.800  Amended....................................................31645
23.802  Revised....................................................31645
23.803  (b)(2) amended.............................................31645
23.804  Revised....................................................31645
23.901  Amended; eff. 10-7-96......................................41474
23.902  Existing text designated in part as (a) and (b); new (a) 
        amended; new (b) revised; eff. 10-7-96.....................41474
23.903  (b)(1) revised; eff. 10-7-96...............................41474
23.906  (a), (b) and (c) revised; eff. 10-7-96.....................41474
23.907  Introductory text and (a) revised; eff. 10-7-96............41474
25.100  Regulation at 59 FR 64788 confirmed........................39190
25.101  Regulations at 59 FR 545 and 60 FR 67514 confirmed.........31619
25.104  Regulation at 60 FR 67515 confirmed........................31619
25.109  Regulations at 58 FR 31141, 59 FR 545 and 60 FR 67515 
        confirmed..................................................31619
25.202  Regulations at 58 FR 31141, 59 FR 545 and 60 FR 67515 
        confirmed..................................................31619
25.205  Regulations at 58 FR 31141, 59 FR 546 and 60 FR 67515 
        confirmed..................................................31619
25.300  Regulation at 59 FR 546 confirmed..........................31619
25.302  Regulation at 60 FR 34758 confirmed........................39190
    (b)(1) revised.................................................39198
25.305  Regulation at 59 FR 546 confirmed..........................31619
    Heading and (c) amended; (c) redesignated as (c)(1); (c)(2) 
added; interim.....................................................31647
25.400--25.408 (Subpart 25.4)  Regulation at 58 FR 31141 confirmed
                                                                   31619
25.400  Regulations at 58 FR 31141, 59 FR 546 and 60 FR 67515 
        confirmed..................................................31619
25.401  Regulations at 58 FR 31142, 59 FR 546 and 60 FR 67515 
        confirmed..................................................31619
25.402  Regulations at 58 FR 31142, 59 FR 546 and 60 FR 67516 
        confirmed..................................................31619
    (g) added; interim.............................................31647
    (b) amended....................................................31650
25.403  Regulations at 58 FR 31142, 59 FR 546 and 60 FR 67516 
        confirmed..................................................31619
25.405  Regulation at 59 FR 546 confirmed..........................31619
    (e) amended....................................................69289
25.406  Regulations at 58 FR 31142, 59 FR 547 and 60 FR 67517 
        confirmed..................................................31619
25.407  Regulations at 58 FR 31142, 59 FR 547 and 60 FR 67517 
        confirmed..................................................31619
25.408  Regulations at 58 FR 31142, 59 FR 547 and 60 FR 67517 
        confirmed..................................................31619
    (a)(3) and (4) revised; interim................................31647
25.501 (Subpart 25.5)  Heading revised.............................31650
25.501  Revised....................................................31650
25.502  Added......................................................31651
25.701--25.702 (Subpart 25.7)  Revised; eff. 10-7-96...............41476
25.703  Regulation at 60 FR 34758 confirmed........................39190
25.1000--25.1003 (Subpart 25.10)  Regulation at 58 FR 31142 
        confirmed..................................................31619
25.1001  Regulation at 60 FR 67517 confirmed.......................31619
25.1002  Regulation at 60 FR 67517 confirmed.......................31619
25.1003  Regulations at 59 FR 547 and 60 FR 67517 confirmed........31619
26  Regulation at 56 FR 41737 confirmed............................39210
26.101  Amended....................................................39210
26.102  Revised....................................................39211
26.103  (b) and (c) amended; (f) added.............................39211
26.104  (b) introductory text revised..............................39211

[[Page 1161]]

26.200--26.201 (Subpart 26.2)  Added...............................39200
27.201-2  Regulation at 60 FR 34758 confirmed......................39190
27.202-2  Regulation at 60 FR 34758 confirmed......................39190
27.203-1  Regulation at 60 FR 34759 confirmed......................39190
27.207-1  (b) amended..............................................31617
27.208  Added; interim.............................................31648
27.209  Added......................................................39212
28.001  Amended; interim...........................................31652
28.101-1  (c) revised..............................................39213
28.101-2  Revised..................................................39213
28.101-3  Removed..................................................39213
28.102  Heading revised; interim...................................31652
28.102-1  (b) redesignated as (c); (a) introductory text and new 
        (c) amended; new (b) added; interim........................31652
28.102-2  (b) heading and (1) introductory text revised; (b)(2), 
        (3), (c)(1) and (2) amended; (d) added; interim............31652
28.102-3  Heading revised; introductory text, (a), (b) and (c) 
        redesignated as (a) introductory text, (1), (2) and (3); 
        new (b) added; interim.....................................31652
    (a) revised....................................................39213
28.103-2  Regulation at 60 FR 34759 confirmed......................39190
    (b) removed; (c) and (d) redesignated as (b) and (c)...........39213
28.103-3  (b) and (c) removed; (d) redesignated as (b).............39213
28.103-4  Added....................................................39213
28.106-1  (c) and (m) revised; (n) and (o) redesignated as (o) and 
        (p); new (n) added.........................................39213
28.106-2  (a) revised..............................................39213
28.106-3  Heading revised; (c) added; interim......................31652
    (b) revised....................................................39213
28.106-5  (b) redesignated as (c); new (b) added; interim..........31652
28.106-8  Added; interim...........................................31652
28.203-5  (a)(2) redesignated as (a)(3); new (a)(2) added; new 
        (a)(3) heading revised; (c) amended; interim...............31652
28.204  Revised; interim...........................................31653
28.204-3  Added; interim...........................................31653
28.204-4  Added; interim...........................................31653
28.310  Regulation at 60 FR 34759 confirmed; (a) introductory text 
        amended....................................................39190
28.311-1  Removed; new 28.311-1 redesignated from 28.311-2 and 
        amended.....................................................2639
28.311-2  Redesignated as 28.311-1; new 28.311-2 redesignated from 
        28.311-3....................................................2639
28.311-3  Redesignated as 28.311-2..................................2639
29.401-3  Regulation at 60 FR 34759 confirmed; amended.............39190
29.401-4  Regulation at 60 FR 34759 confirmed; amended.............39190
29.402-1  (a) and (b) amended......................................39198
30.000  Amended....................................................18916
30.201  Amended....................................................18916
30.201-1  Revised..................................................18916
30.201-2  Revised..................................................18916
30.201-3  Revised..................................................18917
30.201-4  Revised..................................................18917
30.201-5  Revised..................................................18917
30.201-6  Added....................................................18917
30.201-7  Added....................................................18917
30.202-1  Revised..................................................18917
30.202-2  Revised..................................................18917
30.202-3  Revised..................................................18917
30.202-4  Revised..................................................18917
30.202-5  Revised..................................................18917
30.202-6  (a) amended..............................................18917
30.202-7  (a) and (b) amended......................................18917
30.202-8  (a) amended; (b) revised.................................18918
30.3  (Subpart) Revised............................................18918
30.4  (Subpart) Revised............................................18918
30.5  (Subpart) Revised............................................18918
30.602  Introductory text amended..................................18918
30.602-1  (a)(2), (b)(1) and (2) amended...........................18918
30.602-2  (a)(1), (3), (b)(1), (c)(1), (2), (d)(1) and (3) amended
                                                                   18918
30.602-3  (b)(1), (2) and (d)(1) amended...........................18918
30.603  Amended....................................................18918
31.001  Amended....................................................39217
    Amended; interim...............................................69288
31.002  Added.......................................................2640
31.101  Amended....................................................31655
31.109  (h)(10) removed; (h)(11) through (17) redesignated as 
        (h)(10) through (16); interim..............................69288
31.201-2  (d) added................................................31656

[[Page 1162]]

31.205-1  (f)(5) revised...........................................67423
31.205-2  Removed; interim.........................................69288
31.205-6  (a) introductory text, (1), (b)(1), (c) introductory 
        text, (d) and (i) revised; (a)(5) amended; (b) 
        introductory text added; (f)(2) removed; (f)(3) 
        redesignated as (f)(2).....................................39217
    (g)(1) amended.................................................67430
    (e)(2) revised; interim........................................69295
31.205-11  Regulation at 60 FR 64255 confirmed; (o) revised........67424
31.205-16  Regulation at 60 FR 64255 confirmed; (g) revised........67424
31.205-22  Heading revised; (a)(4) and (5) amended; (a)(6) added; 
        (f) removed; (g) redesignated as (f).......................31657
    (b)(2) revised; interim........................................67425
31.205-36  (a) amended; interim....................................69288
31.205-38  (f) amended.............................................39189
31.205-41  (b)(6) revised...........................................2641
31.205-46  (a)(1) revised; (a)(3)(iv) amended; (a) heading and (7) 
        added......................................................31657
31.205-47  (f)(8) added; eff. 10-7-96..............................41477
31.205-50  Removed.................................................31657
32.000  (g) and (h) amended; (i) added; interim....................45772
32.002  (a)(7) added; interim......................................45772
32.202-1  (b)(2) amended...........................................39190
32.602  (h) revised; interim.......................................41470
32.603  Revised; interim...........................................41470
32.610  (b)(2) revised.............................................18922
32.613  (h)(3) revised.............................................18922
32.614-1  (c) introductory text amended............................18922
32.617  Regulation at 60 FR 34759 confirmed.................31658, 39190
32.803  (d) revised................................................18921
32.806  (a)(2) revised.............................................18921
32.901  Regulation at 59 FR 11380 and 60 FR 34759 confirmed........31658
    Regulation at 60 FR 34759 confirmed............................39190
    Amended........................................................39198
32.902  Amended; interim...........................................45772
32.903  Amended; interim...........................................45772
32.908  Regulation at 60 FR 34759 confirmed........................31658
    Regulation at 60 FR 34759 confirmed; (c) amended...............39190
    (d) removed; interim...........................................45772
32.1100--32.1103 (Subpart 32.11)  Added; interim...................45772
33.102  (a), (b)(3)(i) and (c) amended; (e) revised; interim.......41470
    (a) amended; interim...........................................67411
33.103  Revised; interim...........................................39219
    (f)(3) amended.................................................69289
33.104  (a)(3)(i) introductory text and (f) amended; interim.......41470
    (c)(1) amended.................................................69289
33.105  Removed; interim...........................................41470
33.106  Regulation at 60 FR 34759 confirmed........................39190
33.201  Regulations at 56 FR 67417 and 59 FR 11381 confirmed.......31659
33.202  Regulations at 56 FR 67417 and 59 FR 11381 confirmed.......31659
33.204  Regulations at 56 FR 67417 and 59 FR 11381 confirmed.......31659
33.207  Regulations at 56 FR 67417 and 59 FR 11381 confirmed.......31659
33.208  Regulation at 59 FR 11381 confirmed........................31659
33.210  Regulation at 59 FR 11381 confirmed........................31659
33.211  Regulation at 59 FR 11382 confirmed........................31659
33.214  Regulations at 56 FR 67417 and 59 FR 11382 confirmed.......31659
33.215  Regulation at 56 FR 67417 confirmed........................31659
34.000--34.005-6 (Subpart 34.0)  Regulation at 59 FR 67048 
        confirmed..................................................31659
34.001  Amended; interim...........................................41470
34.100--34.104 (Subpart 34.1)  Regulation at 59 FR 67048 confirmed
                                                                   31659
36.502  Regulation at 60 FR 34759 confirmed........................39190
36.503  Regulation at 60 FR 34759 confirmed........................39190
36.506  Regulation at 60 FR 34759 confirmed........................39190
36.508  Regulation at 60 FR 34759 confirmed........................39190

[[Page 1163]]

36.509  Regulation at 60 FR 34759 confirmed........................39190
36.510  Regulation at 60 FR 34759 confirmed........................39190
36.511  Regulation at 60 FR 34759 confirmed........................39190
36.512  Regulation at 60 FR 34759 confirmed........................39190
36.513  Regulation at 60 FR 34759 confirmed........................39190
36.515  Regulation at 60 FR 34759 confirmed........................39190
36.521  Regulation at 60 FR 34759 confirmed........................39190
36.602-5  Regulation at 60 FR 34759 confirmed......................39190
36.607  (b) revised................................................69291
36.701  Regulation at 60 FR 34759 confirmed........................39190
    (c) amended....................................................39198
36.702  Regulation at 60 FR 34759 confirmed........................39190
37.101  Regulation at 59 FR 67051 confirmed........................31660
37.102  Revised.....................................................2630
37.103  Regulation at 59 FR 67051 confirmed........................31660
37.114  Added.......................................................2630
37.202  (a) revised; interim.......................................41470
38.000  Amended; interim...........................................41470
39  Revised; interim...............................................41470
41.201  Regulation at 60 FR 34759 confirmed; (b) amended...........39190
41.401  Regulation at 60 FR 34759 confirmed........................39190
42.302  (a)(11) introductory text and (iv) amended.................18918
    Regulation at 59 FR 11382 confirmed............................31659
42.704  (e) added..................................................69296
42.705  Revised....................................................69296
42.705-3  (b)(4)(i) and (6) revised................................31622
42.708  (a) introductory text amended; (a)(2)(i) and (ii) revised 
                                                                   31661
42.903  Regulation at 60 FR 34759 confirmed; amended...............39190
42.1104  Regulation at 60 FR 34759 confirmed.......................39190
43.102  (c) added; interim.........................................18915
    (c) revised; interim...........................................69298
43.205  Regulation at 60 FR 34760 confirmed; (d)(2) and (e) 
        amended....................................................39190
44.201-2  (a)(1) amended............................................2642
    Regulation at 60 FR 34760 confirmed; (b)(2) amended............39190
44.204  Regulation at 60 FR 34760 confirmed; (e) amended...........39190
44.302  (a) amended.................................................2642
45.106  Regulation at 60 FR 34760 confirmed; (e) amended...........39190
45.608-1  Table amended; interim...................................41471
45.608-5  (d) removed; (e) redesignated as (d); interim............41471
46.101  Amended....................................................31662
46.103  (c) and (d) amended; (e) added.............................31663
46.202-1  Regulation at 60 FR 34760 confirmed......................39190
46.301  Regulation at 60 FR 34760 confirmed........................39190
46.302  Regulation at 60 FR 34760 confirmed........................39190
46.304  Regulation at 60 FR 34760 confirmed........................39190
46.307  Regulation at 60 FR 34760 confirmed........................39190
46.312  Regulation at 60 FR 34760 confirmed........................39190
46.316  Regulation at 60 FR 34760 confirmed........................39190
46.404  Regulation at 60 FR 34760 confirmed........................39190
46.407  (c)(1) introductory text and (f) amended; (d) revised......31663
46.801  (a) amended; interim.......................................41471
46.805  Regulation at 60 FR 34760 confirmed; (a) heading and 
        introductory text and (b) heading and introductory text 
        amended....................................................39190
46.806  Removed....................................................67425
47.104-4  Regulation at 60 FR 34760 confirmed; (a)(2) and (b) 
        amended....................................................39190
47.200  Regulation at 60 FR 34760 confirmed; (b)(4) amended........39190
47.205  Regulation at 60 FR 34760 confirmed........................39190
    (b) amended....................................................39198
47.305-16  Regulation at 60 FR 34760 confirmed; (b) amended........39190
47.405  Regulation at 60 FR 34760 confirmed........................39190
47.504  Regulation at 60 FR 34760 confirmed........................39190

[[Page 1164]]

48.001  Amended....................................................39220
48.102  (a) amended................................................39221
49.105  (c)(13) amended............................................39221
49.206-3  Added....................................................39221
49.303-2  Redesignated as 49.303-3; new 49.303-2 added.............39221
49.303-3  Redesignated as 49.303-4; new 49.303-3 redesignated from 
        49.303-2...................................................39221
49.303-4  Redesignated as 49.303-5; new 49.303-4 redesignated from 
        49.303-3...................................................39221
49.303-5  Redesignated from 49.303-4...............................39221
49.403  (b)(1) and (2) amended.....................................39222
49.502  (e)(1) and (2) amended.....................................39222
49.503  (c) amended................................................39222
49.504  Regulation at 60 FR 34760 confirmed........................39190
51.101  (c) added...................................................2631
51.102  (a) introductory text amended; (c)(3) revised...............2631
51.103  (c) revised; interim.......................................41471

                                  1997

  (Regulations published from January 1, 1997, through October 1, 1997)

48 CFR
                                                                   62 FR
                                                                    Page
Chapter 1
Chapter  Federal Acquisition Circular No. 90-45......................224
    Small entity compliance guide...............275, 12721, 44831, 51272
    Federal Acquisition Circular 90-46.............................12690
    Federal Acquisition Circular 97-01.............................44802
1.102-2  (c)(3) added; eff. 10-10-97...............................51229
1.102-4  (e) amended; eff. 10-21-97................................44804
1.105-3  Amended...................................................40236
1.106  Table amended (OMB numbers).........................227, 235, 271
    Regulation at 61 FR 67410 confirmed............................44805
    Table amended (OMB numbers); eff. 10-21-97..............44806, 44810
    Regulation at 61 FR 69287 confirmed............................44809
    Table amended (OMB numbers); eff. 10-10-97..............51229, 51270
1.107  Added; eff. 10-21-97........................................44813
1.201-2  (b)(2) removed; (b)(3), (4) and (5) redesignated as 
        (b)(2), (3) and (4)........................................40236
2.101  Amended.......................................................256
    Amended; eff. 10-10-97..................................51230, 51270
3.104  Revised.......................................................227
3.104-1  Revised.....................................................227
3.104-2  Revised.....................................................227
3.104-3  Revised.....................................................227
    Corrected......................................................10709
    Amended; eff. 10-10-97.........................................51270
3.104-4  Revised.....................................................228
3.104-5  Revised.....................................................229
    (b) and (d)(3) introductory text amended; eff. 10-10-97........51270
3.104-6  Revised.....................................................230
3.104-7  Revised.....................................................230
3.104-8  Revised.....................................................231
3.104-9  Revised.....................................................231
3.104-10  Revised....................................................231
3.104-11  Revised....................................................231
3.104-12  Removed....................................................227
3.202  Regulation at 61 FR 39200 confirmed.........................12691
3.501-2  (c) amended; eff. 10-10-97................................51270
3.502-2  (i)(1) revised..............................................235
3.700  (a) revised...................................................232
3.701  Revised.......................................................232
3.703  Existing text designated as (a); (b) added....................232
3.704  (b) amended; (c) added........................................232
3.705  (c)(3) amended; (d)(3) revised................................232
4.102  (d) amended...................................................235
4.602  (b) amended.................................................40236
4.702  (a)(3) removed................................................258
4.802  (e) revised...................................................232
4.803  (a)(42) removed; (a)(43) redesignated as (a)(42)..............232
4.1001 (Subpart 4.10)  Added; eff. 10-10-97........................51230
5.101  (a)(2)(iv) amended..........................................12692
5.102  (a)(7) added; eff. 10-10-97.................................51230
5.201  (d) amended.................................................40236
5.202  Regulation at 59 FR 545 confirmed.............................261
5.203  (a) revised; (h) added........................................263
    (a) corrected..................................................10710
5.204  Amended.......................................................271
    Amended; eff. 10-10-97.........................................51270
5.207  (e)(3) revised................................................263
    (a)(2) amended.................................................40236
5.303  (b)(2) amended; eff. 10-10-97...............................51270

[[Page 1165]]

6.001  (a) revised...................................................263
    (d) and (e)(2) corrected.......................................10710
6.101  (b) revised; eff. 10-10-97..................................51230
6.302-1  (d)(2) amended; eff. 10-10-97.............................51270
6.302-3  (b)(1)(vi) and (vii) amended; (b)(1)(viii) removed..........235
6.305  (1) amended...................................................257
7.102  Regulation at 60 FR 28495 confirmed.........................44810
7.103  (m) amended.................................................40236
    Regulation at 60 FR 28495 confirmed............................44810
    (q) added; eff. 10-21-97.......................................44814
7.105  (b)(13)(ii) and (iii) amended...............................40236
    Regulation at 60 FR 28495 confirmed............................44810
    Introductory text amended, (a)(1), (4) and (b)(6) revised; 
(b)(18), (19) and (20) redesignated as (b)(19), (20) and (21); new 
(b)(18) added; eff. 10-21-97.......................................44814
    (b)(5) revised; eff. 10-10-97..................................51230
    (a)(3)(iii), (b)(3) and (11) amended; eff. 10-10-97............51270
7.306  (b) amended; eff. 10-10-97..................................51270
7.307  (b) amended.................................................40236
7.403  (b)(2) revised..............................................40236
7.503  (d)(11) amended.............................................40236
8.002  (a) removed; (b) through (f) redesignated as (a) through 
        (e); new (a) and new (d) revised.............................235
8.201--8.203-3 (Subpart 8.2)  Removed................................235
8.401  Revised; eff. 10-21-97......................................44817
8.402  Added; eff. 10-21-97........................................44818
8.404  (a), (b) and (c) heading revised; eff. 10-21-97.............44818
8.501  Amended.....................................................40236
8.502  Introductory text, (b)(1)(i) and (ii) amended...............40236
8.504  (a) and (b) amended.........................................40236
8.901  (b) amended.................................................40236
9.103  Regulation at 61 FR 67410 confirmed.........................44805
    (b) amended; interim...........................................44819
    (b) corrected..................................................48921
9.104-1  Regulation at 61 FR 67410 confirmed.......................44805
9.104-3  Regulation at 61 FR 67410 confirmed.......................44805
    (a) amended; (d) existing text redesignated as (d)(1); (d)(2) 
added; interim.....................................................44820
9.105-3  (c) amended.................................................232
9.106-3  (a) designation and (b) removed.............................232
9.306  (j) amended; eff. 10-10-97..................................51270
9.404  (d)(1)(ii) amended..........................................40236
9.406-2  Regulation at 61 FR 41473 confirmed.........................267
9.406-4  Regulation at 61 FR 41473 confirmed.........................267
9.505  (b)(1) and (2) amended........................................232
9.505-3  Revised...................................................12694
9.505-4  (c) amended.................................................235
9.506  (a) and (d)(3) amended; (d)(4) removed........................235
9.507-1  (b), (c) and (d) removed; (a) introductory text and (1) 
        through (4) redesignated as introductory text and (a), new 
        (b), new (c) and new (d).....................................235
    Corrected......................................................10710
9.702  Regulation at 61 FR 67410 confirmed.........................44805
10.001  Regulation at 60 FR 28495 confirmed........................44810
10.002  Regulation at 60 FR 28495 confirmed........................44810
10.004  Regulation at 60 FR 28495 confirmed........................44810
10.010  Regulation at 60 FR 28495 confirmed........................44810
10.011  Regulation at 60 FR 28496 confirmed........................44810
11.001  Revised; eff. 10-21-97.....................................44810
11.002  (a)(1)(ii) revised; (e) added................................263
    (d) amended; eff. 10-21-97.....................................44810
    (d) amended; eff. 10-10-97.....................................51230
11.004  Regulation at 60 FR 28496 confirmed........................44810
11.101  (b) revised; eff. 10-21-97.................................44810
11.104  (a) revised..................................................263
    (a) and (b) corrected..........................................10710
11.201  (d) amended................................................40236
11.301--11.302 (Subpart 11.3)  Added; eff. 10-21-97................44810
11.701  (c) introductory text amended..............................40236
11.801 (Subpart 11.8)  Added; eff. 10-10-97........................51230
12.202  (b) revised..................................................264

[[Page 1166]]

12.203  Amended......................................................264
12.204  Revised......................................................264
12.205  (c) revised..................................................264
12.206  Amended; eff. 10-10-97.....................................51270
12.209  Revised......................................................258
    Amended; eff. 10-10-97.........................................51270
12.213  Revised......................................................264
12.214  Amended....................................................40236
12.301  (c)(2) amended; eff. 10-10-97..............................51270
12.302  (a) revised..................................................264
    (d) amended....................................................67430
12.303  (c)(a) amended.............................................67430
12.503  (b)(4) removed; (b)(5) and (6) redesignated as (b)(4) and 
        (5)..........................................................232
    (b)(1) and (4) revised...........................................236
    (b)(4) corrected...............................................10710
    (c)(2) amended; eff. 10-10-97..................................51270
12.504  (b)(3) removed; (b)(4) redesignated as (b)(3)................232
    (a)(16) removed..................................................236
    (a)(9) and (c)(2) amended; eff. 10-10-97.......................51270
12.602  (a) revised..................................................264
    (b) amended; eff. 10-10-97.....................................51270
12.603  (c)(3)(ii) revised...........................................264
13.000  Revised......................................................264
13.103  (b), (c) and (j) revised.....................................264
13.104  (b) revised..................................................265
13.106-2  (a)(1), (2), (3), (4) introductory text, (5), (6), 
        (b)(1), (3), (c)(1), (2), (d)(3) and (4)(ii) revised; 
        (a)(6), (7) and (8) redesignated as (a)(7), (8) and (9); 
        new (a)(6) and (10) added....................................265
    (a)(3), (5) and (b)(1) corrected...............................10710
    (c)(3) amended; eff. 10-10-97..................................51270
13.107  (a) revised..................................................266
13.108  (a) amended; eff. 10-10-97.................................51270
13.111  (h) revised; eff. 10-21-97.................................44810
13.202  (b)(2) revised...............................................266
    (a)(4) added; (c)(3) revised; eff. 10-21-97....................44818
13.204  (a) and (b) revised..........................................266
13.601--13.602 (Subpart 13.6)  Added.................................266
13.602  (a) introductory text corrected............................12720
14.103-1  (d) amended; eff. 10-10-97...............................51270
14.105  Amended; eff. 10-10-97.....................................51270
14.201-6  Regulation at 59 FR 545 confirmed..........................261
    (n) removed; eff. 10-10-97.....................................51230
14.201-7  (a), (b)(1) and (c)(1) amended; eff. 10-10-97............51270
14.202-1  (a) amended................................................272
14.205-1  Regulation at 61 FR 67410 confirmed......................44805
14.207  Amended; eff. 10-10-97.....................................51270
14.209  (b) revised................................................12692
14.211  (a) amended..................................................272
14.304-1  (a)(4) revised...........................................12693
14.404-1  (e)(1) amended; (f) added; eff. 10-10-97.................51230
14.404-2  (m) removed................................................232
    (g) amended; eff. 10-10-97.....................................51270
14.405  (f) amended..................................................236
14.408-1  Regulation at 59 FR 545 confirmed..........................261
14.408-2  (a) and (b) amended; eff. 10-10-97.......................51270
14.503-1  (c)(2), (g) and (h) amended; eff. 10-10-97...............51270
15  Revised; eff. 10-10-97.........................................51230
15.106  Revised......................................................258
15.106-1  Removed....................................................258
15.106-2  Removed....................................................258
15.407  Regulation at 59 FR 545 confirmed............................261
15.410  (b) amended................................................12693
15.413  Revised......................................................233
15.413-2  (f)(6) removed.............................................233
15.509  (f)(4) revised; (h)(3) removed...............................233
    (h)(1) and (2) corrected.......................................10710
15.601  Regulation at 60 FR 28496 confirmed; amended; eff. 10-21-
        97.........................................................44810
15.605  Regulation at 60 FR 28496 confirmed; (b)(1)(iv) revised; 
        eff. 10-21-97..............................................44810
15.802  (a) introductory text and (1) amended........................258
15.804-1  (b)(2), (c) and (d) removed; (b)(3) through (6) 
        redesignated as (b)(2) through (5); (a), new (b)(3) and 
        new (5) revised..............................................258
15.804-2  (a)(1) introductory text and (ii) amended; (a)(2) 
        revised......................................................258
15.804-5  Revised....................................................258
15.804-6  (a)(5) amended.............................................259
    Table 15-2 amended.............................................40236
15.805-5  (j) revised; (k) removed...................................233

[[Page 1167]]

15.812-1  (b) revised; (c) amended...................................259
15.812-2  (a)(3) and (5) revised; (a)(6) added.......................259
15.1001  Regulation at 59 FR 545 confirmed...........................261
15.1006  (e) introductory text amended...............................257
16.104  (k) added; eff. 10-21-97...................................44814
    (b) amended; eff. 10-10-97.....................................51270
16.203-4  (a)(1)(ii) and (b)(1)(ii) revised..........................259
16.204  Amended....................................................12695
16.301-3  (a)(3) amended; eff. 10-10-97............................51270
16.304  Amended....................................................12695
16.305  Amended....................................................12695
16.306  (d)(2) amended...............................................236
    (c) revised; eff. 10-10-97.....................................51258
16.401  (c) amended; (d) added.....................................12695
16.402-1  (b) amended..............................................12696
    (b) introductory text corrected................................51379
16.402-2  (b) through (g) redesignated as (c) through (h); new (b) 
        added; heading, (a) and new (e) revised; eff.10-21-97......44815
16.404  Redesignated as 16.405; new 16.404 added...................12696
16.404-1  Redesignated as 16.405-1.................................12696
16.404-2  Redesignated as 16.405-2.................................12696
16.405  Redesignated as 16.406; new 16.405 redesignated from 
        16.404.....................................................12696
16.405-1  Redesignated from 16.404-1...............................12696
    (b)(1) introductory text; (b)(2) amended; eff. 10-21-97........44815
16.405-2  Redesignated from 16.404-2...............................12696
16.406  Redesignated from 16.405; (e) introductory text revised....12696
16.505  (b)(3) amended; eff. 10-10-97..............................51270
16.603-2  (c)(3) amended; eff. 10-10-97............................51270
16.603-4  (b)(3) amended; eff. 10-10-97............................51270
17.106-1  (c)(1) amended; eff. 10-10-97............................51270
17.203  Regulation at 59 FR 545 confirmed............................261
19.001  (b) amended..................................................236
    Regulation at 61 FR 67410 confirmed............................44805
    Amended; interim...............................................44820
    Amended; eff. 10-21-97.........................................44822
19.102  Regulation at 61 FR 67410 confirmed........................44805
19.201  (c) introductory text amended; interim.....................44820
19.202-6  (a) amended; eff. 10-10-97...............................51270
19.301  (a) amended..................................................236
19.302  (c)(1), (d) introductory text, (g)(2), (i)(1), (2), (3) 
        and (j) amended; interim...................................44820
    (d)(1) amended; eff. 10-10-97..................................51270
19.303  (c)(2) introductory text revised; (c)(2)(vi) and (3) 
        amended......................................................236
    (c)(2)(iv) corrected...........................................10710
19.501  (h) removed..................................................236
19.508  (f) removed..................................................236
    (e) revised; interim...........................................44820
19.601--19.602-4 (Subpart 19.6)  Regulation at 61 FR 67410 
        confirmed..................................................44805
    Heading revised; interim.......................................44820
19.601  Regulation at 61 FR 67410 confirmed........................44805
    (a) revised; (c) redesignated as (e); new (c) and (d) added; 
interim............................................................44820
19.602-1  (a) introductory text, (2), (c) introductory text and 
        (2) revised; (e) added; interim............................44820
19.602-2  Revised; interim.........................................44820
19.602-3  Revised; interim.........................................44821
19.702  (d) amended................................................40236
19.703  (a)(2) amended...............................................236
19.801  Regulation at 61 FR 67421 confirmed........................44823
19.803  Regulation at 61 FR 67410 confirmed........................44805
19.804-2  Regulation at 61 FR 67421 confirmed; (b)(2) and (c) 
        revised; interim; eff. 10-21-97............................44823
19.804-3  Regulation at 61 FR 67421 confirmed......................44823
19.805-1  Regulation at 61 FR 67421 confirmed......................44823
19.805-2  Regulation at 61 FR 67421 confirmed......................44823
19.806  (a) amended; eff. 10-10-97.................................51270

[[Page 1168]]

19.808-1  Regulation at 61 FR 67421 confirmed......................44823
19.809  Regulation at 61 FR 67421 confirmed........................44823
19.811-1  (d) removed................................................233
    Regulation at 61 FR 67421 confirmed............................44823
19.811-2  (b) removed; (c) redesignated as (b).......................233
19.811-3  Regulation at 61 FR 67421 confirmed......................44823
22.601  Regulation at 61 FR 67410 confirmed........................44805
22.602  Regulation at 61 FR 67410 confirmed........................44805
22.604-2  Regulation at 61 FR 67410 confirmed......................44805
22.606  Regulation at 61 FR 67410 confirmed........................44805
22.606-1  Regulation at 61 FR 67410 confirmed......................44805
22.606-2  Regulation at 61 FR 67410 confirmed......................44805
22.607  Regulation at 61 FR 67410 confirmed........................44805
22.608  Regulation at 61 FR 67411 confirmed........................44805
22.608-1  Regulation at 61 FR 67411 confirmed......................44805
22.608-2  Regulation at 61 FR 67411 confirmed......................44805
22.608-3  Regulation at 61 FR 67411 confirmed......................44805
22.608-4  Regulation at 61 FR 67411 confirmed......................44805
22.608-5  Regulation at 61 FR 67411 confirmed......................44805
22.608-6  Regulation at 61 FR 67411 confirmed......................44805
22.610  Regulation at 61 FR 67411 confirmed........................44805
22.1200--22.1208 (Subpart 22.12)  Added; interim...................44824
23.102  (d) amended..................................................236
23.201  Regulation at 60 FR 28496 confirmed........................44810
23.203  Regulation at 60 FR 28496 confirmed........................44811
23.302  (d)(1) revised...............................................236
23.400--23.405 (Subpart 23.4)  Regulation at 60 FR 28496 confirmed
                                                                   44810
23.400  Revised; eff. 10-21-97.....................................44811
23.401  (c) amended; eff. 10-21-97.................................44811
23.402  Amended; eff. 10-21-97.....................................44811
23.404  Revised; eff. 10-21-97.....................................44811
23.405  Revised; eff. 10-21-97.....................................44811
23.601  (c) revised..................................................236
23.701--23.706 (Subpart 23.7)  Regulation at 60 FR 28497 confirmed
                                                                   44810
23.703  Amended; eff. 10-21-97.....................................44811
23.704  Revised; eff. 10-21-97.....................................44811
23.1001--23.1005 (Subpart 23.10)  Added; interim...................12697
24.202  Redesignated as 24.203; new 24.202 added.....................257
    (b) amended; eff. 10-10-97.....................................51270
24.203  Redesignated from 24.202.....................................257
25  Technical correction...........................................10710
25.101  Regulation at 59 FR 545 confirmed............................261
25.108  (b) amended................................................12698
25.109  Regulation at 59 FR 545 confirmed............................261
25.201  Amended....................................................12698
25.202  Regulation at 59 FR 545 confirmed............................261
    Revised........................................................12698
25.203  Revised....................................................12698
25.204  Revised....................................................12699
25.205  Regulation at 59 FR 546 confirmed............................261
    Revised........................................................12699
25.206  Added......................................................12699
25.207  Added......................................................12699
25.300  Regulation at 59 FR 546 confirmed............................261
25.305  Regulations at 59 FR 546 and 61 FR 31647 confirmed...........261
25.400  Regulation at 59 FR 546 confirmed............................261
25.401  Regulation at 59 FR 546 confirmed............................261
    Amended...................................................268, 44828
25.402  Regulations at 59 FR 546 and 61 FR 31647 confirmed...........261
    (b) revised......................................................269
25.403  Regulation at 59 FR 546 confirmed............................261
25.405  Regulation at 59 FR 546 confirmed............................261
    (e) amended; eff. 10-10-97.....................................51271
25.406  Regulation at 59 FR 547 confirmed............................261
25.407  Regulation at 59 FR 547 confirmed............................261

[[Page 1169]]

25.408  Regulations at 59 FR 547 and 61 FR 31647 confirmed; (a)(3) 
        amended......................................................261
25.901  (b) amended..................................................259
    (b) amended; eff. 10-10-97.....................................51271
25.1003  Regulation at 59 FR 547 confirmed...........................261
26.103  (b) amended................................................40236
26.300--26.304 (Subpart 26.3)  Added...............................12703
27.204-1  (b) amended; eff. 10-10-97...............................51271
27.204-2  Amended; eff. 10-10-97...................................51271
27.208  Regulation at 59 FR 547 confirmed............................261
27.302  (a) amended................................................40237
27.303  (e) revised..................................................236
27.406  (c) revised; (d)(1), (2) and (3) amended.....................236
27.407  (a)(1) and (b) amended; eff. 10-10-97......................51271
27.409  (q) amended..................................................236
28.000  Revised; eff. 10-21-97.....................................44806
28.001  Regulation at 61 FR 31652 confirmed; amended; eff. 10-21-
        97.........................................................44805
28.100--28.106-8 (Subpart 28.1)  Heading revised; eff. 10-21-97....44806
28.100  Revised; eff. 10-21-97.....................................44806
28.101-4  (b) amended; eff. 10-10-97...............................51271
28.102-2  (b)(1) introductory text, (2), (c)(1) and (2) revised; 
        eff. 10-21-97..............................................44806
28.102-3  Heading revised; (b) amended; eff. 10-21-97..............44806
28.106-3  Revised; eff. 10-21-97...................................44806
28.106-8  Revised; eff. 10-21-97...................................44807
28.200--28.204-4 (Subpart 28.2)  Heading revised; eff. 10-21-97....44807
28.200  Revised; eff. 10-21-97.....................................44807
28.201  Heading revised; (b) amended; eff. 10-21-97................44807
28.204  (a) amended; eff. 10-21-97.................................44807
28.204-3  (b), (c), (f) introductory text, (2) introductory text, 
        (ii)(B), (g) introductory text, (1) and (h) revised; eff. 
        10-21-97...................................................44807
29.302  (b) amended..................................................237
29.304  (d)(3) amended.............................................40237
29.305  (a)(3) amended; (b)(3) revised...............................237
30.000  Amended....................................................40237
30.101  (c) amended................................................40237
30.102  Amended....................................................40237
30.201  Amended....................................................40237
30.201-1  Amended..................................................40237
30.201-2  Amended..................................................40237
30.201-3  (a) and (b) amended......................................40237
30.201-4  (a)(1), (2), (b)(1), (2), (c), (e)(1) and (2) amended....40237
30.201-5  Amended..................................................40237
30.201-6  Amended..................................................40237
30.201-7  Amended..................................................40237
30.202-1  Amended..................................................40237
30.202-2  Amended..................................................40237
30.202-3  Amended..................................................40237
30.202-4  Amended..................................................40237
30.202-5  Amended..................................................40237
30.202-6  (a) amended..............................................40237
30.202-7  (a) amended..............................................40237
30.202-8  (b) amended..............................................40237
30.3  (Subpart) Note amended.......................................40237
30.4  (Subpart) Note amended.......................................40237
30.5  (Subpart) Note amended.......................................40237
30.602  Introductory text amended..................................40237
31.000  Amended; eff. 10-10-97.....................................51271
31.001  Regulation at 61 FR 69288 confirmed........................44809
31.103  (a) amended; eff. 10-10-97.................................51271
31.105  (b) amended; eff. 10-10-97.................................51271
31.106-1  Introductory text amended; eff. 10-10-97.................51271
31.109  Regulation at 61 FR 69288 confirmed........................44809
    (g) amended; eff. 10-10-97.....................................51271
31.110  (a) amended..................................................237
31.204  (b) amended; eff. 10-10-97.................................51271
31.205-1  (d)(2) amended...........................................12704
31.205-2  Regulation at 61 FR 69208 confirmed......................44809
31.205-6  (p) added; interim.........................................270
    Regulation at 61 FR 69295 confirmed............................44828
    (j)(4) amended; eff. 10-10-97..................................51271
31.205-18  (e) revised.............................................12705
    (c)(1)(i)(A) and (B) amended; eff. 10-10-97....................51271
31.205-22  (d) removed; (e) and (f) redesignated as (d) and (e); 
        new (d) amended..............................................237

[[Page 1170]]

    Regulation at 61 FR 67425 confirmed............................44829
31.205-26  (f) revised;  ............................................259
    (e) amended; eff. 10-10-97.....................................51271
31.205-33  (c)(1) amended; eff. 10-10-97...........................51271
31.205-36  Regulation at 61 FR 69288 confirmed.....................44809
31.205-38  (c)(2) revised..........................................12704
31.205-42  (c) introductory text amended; eff. 10-10-97............51271
31.205-46  (a)(2)(i) amended.......................................40237
32.102  (d) revised................................................12706
32.204  Amended; eff. 10-10-97.....................................51271
32.304-8  (b)(3) amended.............................................237
32.503-7  Introductory text amended................................40237
32.805  (a)(1)(iii) amended..........................................237
32.902  Amended....................................................12706
32.903  Revised....................................................12706
32.904  Revised....................................................12707
32.905  Revised....................................................12707
32.906  (a) amended................................................12709
32.907-1  (a), (b), (d) and (g) revised............................12709
    (g)(3)(i) revised..............................................40237
32.908  Revised....................................................12710
33.102  (f) added....................................................233
    Regulation at 61 FR 67411 confirmed............................44805
33.103  (c), (e), (f)(1) and (2) amended; (f)(4) added; (d)(2)(i), 
        (4), (g) and (h) revised.....................................270
    (f)(4) corrected...............................................10710
    (f)(3) amended; eff. 10-10-97..................................51271
33.104  (h)(3) introductory text revised...........................12718
    (c)(1) amended; eff. 10-10-97..................................51271
33.207  (d) amended; eff. 10-10-97.................................51271
34.005-2  (a)(2) amended; eff. 10-10-97............................51271
35.007  (d), (e) introductory text, (g) and (i) amended; eff. 10-
        10-97......................................................51271
35.008  (d) and (e) amended; eff. 10-10-97.........................51271
35.017-2  (i) revised..............................................12694
36.102  Amended......................................................272
36.104  Added........................................................272
36.203  (a) amended; eff. 10-21-97.................................44829
36.205  (b)(3) revised...............................................237
36.213  Redesignated from 36.301--36.304 (Subpart 36.3) heading 
        and revised..................................................272
36.213-1  Redesignated from 36.301...................................272
36.213-2  Redesignated from 36.302...................................272
36.213-3  Redesignated from 36.303...................................272
36.213-4  Redesignated from 36.304...................................272
36.214  Redesignated from 36.402; heading revised....................272
    (b)(1) amended; eff. 10-10-97..................................51271
36.215  Redesignated from 36.403; heading revised....................272
    Amended; eff. 10-10-97.........................................51271
36.300--36.303-2 (Subpart 36.3)  Added...............................272
36.301--36.304 (Subpart 36.3)  Heading redesignated as 36.213........272
36.301  Redesignated as 36.213-1.....................................272
36.302  Redesignated as 36.213-2.....................................272
36.303  Redesignated as 36.213-3.....................................272
36.303-1  Introductory text corrected..............................10710
36.303-2  (a) amended; eff. 10-10-97...............................51271
36.304  Redesignated as 36.214-1.....................................272
36.402--36.403 (Subpart 36.4)  Heading removed.......................272
36.402  Redesignated as 36.214.......................................272
36.403  Redesignated as 36.215.......................................272
36.520  Added; eff. 10-10-97.......................................51258
36.601-3  Regulation at 60 FR 28498 confirmed......................44810
    (a) revised; eff. 10-21-97.....................................44812
36.602-1  Regulation at 60 FR 28498 confirmed......................44810
    (a)(2) revised; eff. 10-21-97..................................44812
    (a)(6) correctly removed; (a)(7) correctly redesignated as new 
(a)(6).............................................................51379
36.602-3  Regulation at 60 FR 28498 confirmed......................44810
    (c) revised; eff. 10-21-97.....................................44812
36.605  (a) amended; eff. 10-21-97.................................44829
36.606  (a) amended; eff. 10-10-97.................................51271
36.607  (b) amended; eff. 10-10-97.................................51271
37.000  Revised....................................................12694
    Amended; eff. 10-21-97.........................................44815

[[Page 1171]]

37.101  Amended; eff. 10-21-97.....................................44815
37.102  (d) through (g) added......................................12694
    (a) through (g) as (b) through (h); new (a) added; eff. 10-21-
97.................................................................44815
37.103  (c) removed; (d) redesignated as (c).........................233
    (c) redesignated as (d); new (c) added; eff. 10-21-97..........44815
    Corrected......................................................51379
37.106  (c) added; eff. 10-21-97...................................44815
37.115  Added; eff. 10-21-97.......................................44815
37.115-1  Added; eff. 10-21-97.....................................44815
37.115-2  Added; eff. 10-21-97.....................................44815
37.115-3  Added; eff. 10-21-97.....................................44815
37.402  Revised......................................................237
37.500--37.504 (Subpart 37.5)  Added...............................12694
37.600--37.602-5 (Subpart 37.6)  Added; eff. 10-21-97..............44815
38.101  (a) amended................................................40237
38.201  (b) amended................................................40237
39.002  Amended; interim.............................................274
    Regulation at 62 FR 274 confirmed; amended; eff. 10-21-97......44830
39.106  Redesignated as 39.107; new 39.106 added; interim............274
    Regulation at 62 FR 274 confirmed..............................44830
39.107  Redsignated from 39.106; interim.............................274
    Regulation at 62 FR 274 confirmed..............................44830
42.102  (a) amended................................................40237
42.302  (a)(18) amended..............................................237
    (a)(11) introductory text amended..............................40237
    Regulation at 60 FR 28498 confirmed............................44810
    (a)(68) introductory text and (i) revised; interim; eff. 10-
21-97..............................................................44812
    (a)(4) and (5) amended; eff. 10-10-97..........................51271
42.703-1  (a) revised................................................274
42.703-2  (a), (c)(1) and (f) revised; (c)(2)(ii) and (d) amended 
                                                                     237
    (f)(1) corrected...............................................10710
42.705-1  (b)(2) revised; eff. 10-10-97............................51258
42.705-2  (b)(2)(iii) removed; (b)(2)(iv) and (v) redesignated as 
        (b)(2)(iii) and (iv); eff. 10-10-97........................51258
42.1102  Amended; eff. 10-21-97....................................44816
42.1502  (a) amended; eff. 10-10-97................................51258
42.1503  (b) amended; eff. 10-10-97................................51258
42.1701 (Subpart 42.17)  Added; eff. 10-10-97......................51258
43.102  Regulation at 61 FR 69298 confirmed........................44831
43.106  Removed......................................................233
43.204  (b)(4) amended; eff. 10-10-97..............................51271
43.301  (a)(1) introductory text revised; eff. 10-10-97............51259
44.202-2  (a)(1) amended; eff. 10-10-97............................51271
44.302  Revised....................................................12719
44.303  Introductory text revised..................................12719
44.304  (a) revised................................................12719
44.305-1  Revised..................................................12719
44.305-2  (a) revised..............................................12719
44.305-3  (a)(1) amended; eff. 10-10-97............................51271
44.306  Revised....................................................12719
44.307  Revised....................................................12719
45.103  (b)(1) amended; eff. 10-10-97..............................51271
45.106  (b)(2)(i) amended; eff. 10-10-97...........................51271
45.302-2  (c) amended; eff. 10-10-97...............................51271
45.606-1  (a) designation and (b) removed............................237
45.606-5  (a)(2) amended.............................................237
45.607-2  (b) amended..............................................40237
45.608-6  (b) amended..............................................40237
46.103  (a) revised; eff. 10-21-97.................................44816
46.401  (a) revised; eff. 10-21-97.................................44816
46.407  (f) introductory text amended; eff. 10-21-97...............44816
46.601  Designation and heading added..............................40237
46.804  Amended......................................................259
47.303-17  (d)(3)(ii) revised........................................237
47.305-11  Introductory text amended; (a) designation removed; 
        (a)(1), (2) and (3) redesignated as (a), (b) and (c).........237
47.403-3  (a) amended; (c) revised...................................237
47.404  (b)(2) revised...............................................237
48.102  (e) amended; eff. 10-10-97.................................51271

[[Page 1172]]

49.105  (c)(15) amended; eff. 10-10-97.............................51271
49.108-3  (b) revised................................................237
49.110  (a) amended; eff. 10-10-97.................................51271
49.208  Introductory text amended; eff. 10-10-97...................51259
50.104  (b) introductory text amended..............................40237
50.203  (c) amended; eff. 10-10-97.................................51271
51.102  (c)(1), (4) and (e)(3)(iii) amended........................40237
51.103  (c) removed; (d) redesignated as (c); eff. 10-21-97........44819