[Title 48 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2002 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

                    48


          Chapter 1 (Parts 1 to 51)

                         Revised as of October 1, 2002

Federal Acquisition Regulations System





          Containing a codification of documents of general 
          applicability and future effect
          As of October 1, 2002
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002



  For sale by the Superintendent of Documents, U.S. Government Printing 
                                  Office
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      Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001



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                            Table of Contents



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

  Title 48:
          Chapter 1--Federal Acquisition Regulation                  3
  Finding Aids:
      Table of CFR Titles and Chapters........................    1043
      Alphabetical List of Agencies Appearing in the CFR......    1061
      List of CFR Sections Affected...........................    1071



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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.

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

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                               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, 2002), 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.

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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, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, 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). 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 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
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write to the Superintendent of Documents, Attn: New Orders, P.O. Box 
371954, Pittsburgh, PA 15250-7954. For GPO Customer Service call 202-
512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
Documents and the Privacy Act Compilation are available in electronic 
format at www.access.gpo.gov/nara (''GPO Access''). For more 
information, contact Electronic Information Dissemination Services, U.S. 
Government Printing Office. Phone 202-512-1530, or 888-293-6498 (toll-
free). E-mail, [email protected].

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.nara.gov/fedreg. The NARA 
site also contains links to GPO Access.

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

October 1, 2002.



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                               THIS TITLE

    Title 48--Federal Acquisition Regulations System is composed of 
seven 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, 2002.

    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.

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

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            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM




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

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

chapter 1--Federal Acquisition Regulation...................           1

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                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...................          38
4               Administrative matters......................          62
                   SUBCHAPTER B--ACQUISITION PLANNING
5               Publicizing contract actions................          78
6               Competition requirements....................          93
7               Acquisition planning........................         105
8               Required sources of supplies and services...         120
9               Contractor qualifications...................         137
10              Market research.............................         169
11              Describing agency needs.....................         171
12              Acquisition of commercial items.............         184
          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES
13              Simplified acquisition procedures...........         197
14              Sealed bidding..............................         214
15              Contracting by negotiation..................         243
16              Types of contracts..........................         292
17              Special contracting methods.................         319
18              [Reserved]

                  SUBCHAPTER D--SOCIOECONOMIC PROGRAMS
19              Small business programs.....................         333
20-21           [Reserved]

22              Application of labor laws to Government 
                    acquisitions............................         391
23              Environment, energy and water efficiency, 
                    renewable energy technologies, 
                    occupational safety, and drug-free 
                    workplace...............................         450
24              Protection of privacy and freedom of 
                    information.............................         461
25              Foreign acquisition.........................         463

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26              Other socioeconomic programs................         485
             SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS
27              Patents, data, and copyrights...............         489
28              Bonds and insurance.........................         529
29              Taxes.......................................         549
30              Cost accounting standards administration....         555
31              Contract cost principles and procedures.....         564
32              Contract financing..........................         620
33              Protests, disputes, and appeals.............         687
             SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING
34              Major system acquisition....................         700
35              Research and development contracting........         703
36              Construction and architect-engineer 
                    contracts...............................         713
37              Service contracting.........................         733
38              Federal supply schedule contracting.........         745
39              Acquisition of information technology.......         746
40              [Reserved]

41              Acquisition of utility services.............         750
                    SUBCHAPTER G--CONTRACT MANAGEMENT
42              Contract administration and audit services..         760
43              Contract modifications......................         794
44              Subcontracting policies and procedures......         799
45              Government property.........................         806
46              Quality assurance...........................         846
47              Transportation..............................         864
48              Value engineering...........................         898
49              Termination of contracts....................         906
50              Extraordinary contractual actions...........         948
51              Use of Government sources by contractors....         957
                FAR Index...................................         962

Cross Reference: 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.
1.108 FAR conventions.

                       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]



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, negotiation, and administration of contracts consistent with 
the Guiding

[[Page 8]]

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]



1.103  Authority.

    (a) The development of the FAR System is in accordance with the 
requirements of the Office of Federal Procurement Policy Act of 1974 
(Pub. L. 93-400), as amended by Pub. L. 96-83.
    (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, as amended at 65 FR 36014, 
June 6, 2000]



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 covers 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

[[Page 9]]

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 consist of 
parenthetical alpha numerics using the following sequence: 
(a)(1)(i)(A)(1)(i).
    (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, 
as amended at 65 FR 36015, June 6, 2000]



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 10 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
4.602......................................................    9000-0145
4.603......................................................    9000-0145
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
15.4.......................................................    9000-0013
15.404-1(f)................................................    9000-0080
15.407-2...................................................    9000-0078
15.408.....................................................    9000-0115
19.7.......................................................    9000-0006
19.12......................................................    9000-0150
22.103.....................................................    9000-0065
22.8.......................................................    1215-0072
22.11......................................................    9000-0066
22.13......................................................    1215-0072
22.14......................................................    1215-0072
23.9.......................................................    9000-0139
23.602.....................................................    9000-0107
27.3.......................................................    9000-0095
27.4.......................................................    9000-0090
28.1.......................................................    9000-0045
28.2.......................................................    9000-0045
29.304.....................................................    9000-0059
30.6.......................................................    9000-0129

[[Page 10]]

 
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
41.202(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
52.204-6...................................................    9000-0145
52.207-3...................................................    9000-0114
52.212-3...................................................    9000-0136
52.214-14..................................................    9000-0047
52.214-15..................................................    9000-0044
52.214-16..................................................    9000-0044
52.214-21..................................................    9000-0039
52.214-26..................................................    9000-0034
52.214-28..................................................    9000-0013
52.215-1(c)(2)(iv).........................................    9000-0048
52.215-1(d)................................................    9000-0044
52.215-2...................................................    9000-0034
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
52.215-19..................................................    9000-0115
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
52.219-22..................................................    9000-0150
52.219-23..................................................    9000-0150
52.219-25..................................................    9000-0150
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
52.222-32..................................................    9000-0154
52.222-35..................................................    1215-0072
52.222-36..................................................    1215-0072
52.222-41..................................................    1215-0017
                                                                     and
                                                               1215-0150
52.222-46..................................................    9000-0066
52.223-4...................................................    9000-0134
52.223-5...................................................    9000-0147
52.223-6(b)(5).............................................    9000-0101
52.233-7...................................................    9000-0117
52.223-9...................................................    9000-0134
52.223-13..................................................    9000-0139
52.223-14..................................................    9000-0139
52.225-2...................................................    9000-0023
                                                                     and
                                                               9000-0024
52.225-4...................................................    9000-0130
52.225-6...................................................    9000-0025
52.225-8...................................................    9000-0022
52.225-9...................................................    9000-0141
52.225-11..................................................    9000-0141
52.227-14..................................................    9000-0090
52.227-15..................................................    9000-0090
52.227-16..................................................    9000-0090
52.227-17..................................................    9000-0090
52.227-18..................................................    9000-0090
52.227-19..................................................    9000-0090
52.227-20..................................................    9000-0090
52.227-21..................................................    9000-0090
52.227-22..................................................    9000-0090
52.227-23..................................................    9000-0090
52.228-1...................................................    9000-0045
52.228-2...................................................    9000-0045
52.228-12..................................................    9000-0135
52.228-13..................................................    9000-0045
52.228-15..................................................    9000-0045
52.228-16..................................................    9000-0045
52.229-2...................................................    9000-0059
52.230-6...................................................    9000-0129
52.232-1...................................................    9000-0070
52.232-2...................................................    9000-0070
52.232-3...................................................    9000-0070
52.232-4...................................................    9000-0070
52.232-5...................................................    9000-0070
52.232-6...................................................    9000-0070
52.232-7...................................................    9000-0070
52.232-8...................................................    9000-0070
52.232-9...................................................    9000-0070
52.232-10..................................................    9000-0070
52.232-11..................................................    9000-0070
52.232-12..................................................    9000-0073
52.232-13..................................................    9000-0010
52.232-14..................................................    9000-0010

[[Page 11]]

 
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
52.241-1...................................................    9000-0126
52.241-3...................................................    9000-0122
52.241-7...................................................    9000-0123
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
52.247-48..................................................    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..................................................    9000-0061
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
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 312.....................................................    9000-0150
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 1413....................................................    9000-0014
SF 1416....................................................    9000-0045
SF 1417....................................................    9000-0037
SF 1418....................................................    9000-0045
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
------------------------------------------------------------------------


[[Page 12]]


[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; 63 FR 9050, 
9051, Feb. 23, 1998; 63 FR 35720, June 30, 1998; 63 FR 36121, July 1, 
1998; 63 FR 58602, Oct. 30, 1998; 63 FR 70292, Dec. 18, 1998; 64 FR 
10532, 10549, Mar. 4, 1999; 64 FR 32748, June 17, 1999; 64 FR 51850, 
Sept. 24, 1999; 64 FR 72416, 72417, Dec. 27, 1999; 65 FR 16286, Mar. 27, 
2000; 66 FR 2141, Jan. 10, 2001; 66 FR 53480, Oct. 22, 2001; 67 FR 
13050, Mar. 20, 2002]



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]



1.108  FAR conventions.

    The following conventions provide guidance for interpreting the FAR:
    (a) Words and terms. Definitions in Part 2 apply to the entire 
regulation unless specifically defined in another part, subpart, 
section, provision, or clause. Words or terms defined in a specific 
part, subpart, section, provision, or clause have that meaning when used 
in that part, subpart, section, provision, or clause. Undefined words 
retain their common dictionary meaning.
    (b) Delegation of authority. Each authority is delegable unless 
specifically stated otherwise (see 1.102-4(b)).
    (c) Dollar thresholds. Unless otherwise specified, a specific dollar 
threshold for the purpose of applicability is the final anticipated 
dollar value of the action, including the dollar value of all options. 
If the action establishes a maximum quantity of supplies or services to 
be acquired or establishes a ceiling price or establishes the final 
price to be based on future events, the final anticipated dollar value 
must be the highest final priced alternative to the Government, 
including the dollar value of all options.
    (d) Application of FAR changes to solicitations and contracts. 
Unless otherwise specified--
    (1) FAR changes apply to solicitations issued on or after the 
effective date of the change;
    (2) Contracting officers may, at their discretion, include the FAR 
changes in solicitations issued before the effective date, provided 
award of the resulting contract(s) occurs on or after the effective 
date; and
    (3) Contracting officers may, at their discretion, include the 
changes in any existing contract with appropriate consideration.
    (e) Citations. When the FAR cites a statute, Executive order, Office 
of Management and Budget circular, Office of Federal Procurement Policy 
policy letter, or relevant portion of the Code of Federal Regulations, 
the citation includes all applicable amendments, unless otherwise 
stated.
    (f) Imperative sentences. When an imperative sentence directs 
action, the contracting officer is responsible for the action, unless 
another party is expressly cited.

[65 FR 36015, June 6, 2000]



                       Subpart 1.2--Administration



1.201  Maintenance of the FAR.



1.201-1  The two councils.

    (a) Subject to the authorities discussed in 1.103, revisions to the 
FAR will be prepared and issued through the coordinated action of two 
councils, the Defense Acquisition Regulations 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

[[Page 13]]

    (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, Social Security Administration, 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 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; 62 FR 64940, Dec. 9, 1997; 63 FR 9069, Feb. 23, 1998; 65 FR 
16286, Mar. 27, 2000]



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).

[[Page 14]]

    (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
    (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(d), 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

[[Page 15]]

    (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; 
65 FR 16286, Mar. 27, 2000]



                  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 2.101), contract clause (see definition in 
2.101), 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 
definition of ``modification'' in 52.101(a) and definition of 
``alternate'' in 2.101(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 2.101 and 52.101(a)), if such use is 
inconsistent with the intent, principle, or substance of the 
prescription or related 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).

[48 FR 42103, Sept. 19, 1983, as amended at 66 FR 2118, Jan. 10, 2001]



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 30.201-3 and 30.201-4, or the requirements of the Cost 
Accounting Standards Board (CASB) rules and regulations (48 CFR Chapter 
99 (FAR Appendix)). 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; 
62 FR 64914, Dec. 9, 1997]



1.403  Individual deviations.

    Individual deviations affect only one contract action, and, unless 
1.405(e) is applicable, may be authorized by the agency head. The 
contracting officer must document the justification and agency approval 
in the contract file.

[67 FR 13053, Mar. 20, 2002]



1.404  Class deviations.

    Class deviations affect more than one contract action. When an 
agency knows that it will require a class deviation on a permanent 
basis, it should propose a FAR revision, if appropriate. Civilian 
agencies, other than NASA, must furnish a copy of each approved class 
deviation to the FAR Secretariat.

[[Page 16]]

    (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 Assistant 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; 67 FR 13053, 
13068, Mar. 20, 2002]



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 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.

[[Page 17]]

    (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 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.

[[Page 18]]



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;
    (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]

[[Page 19]]



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.



                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 contract 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.

[50 FR 1726, Jan. 11, 1985 (interim rule), and 50 FR 52429, Dec. 23, 
1985 (final rule), as amended at 67 FR 13053, Mar. 20, 2002]



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 contract actions. 
A class may consist of contract actions for the same or related supplies 
or services or

[[Page 20]]

other contract 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.

[50 FR 1726, Jan. 11, 1985 (interim rule), and 50 FR 52429, Dec. 23, 
1985 (final rule), as amended at 67 FR 13053, Mar. 20, 2002]



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) The contracting officer need not cancel the solicitation if the 
D&F, as modified, supports the contract action.

[50 FR 1726, Jan. 11, 1985 (interim rule), and 50 FR 52429, Dec. 23, 
1985 (final rule), as amended at 67 FR 13053, Mar. 20, 2002]



1.706  Expiration.

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

    (a) This part--
    (1) Defines words and terms that are frequently used in the FAR;
    (2) Provides cross-references to other definitions in the FAR of the 
same word or term; and
    (3) Provides for the incorporation of these definitions in 
solicitations and contracts by reference.

[[Page 21]]

    (b) Other parts, subparts, and sections of this regulation (48 CFR 
chapter 1) may define other words or terms and those definitions only 
apply to the part, subpart, or section where the word or term is defined 
(see the Index for locations).

[66 FR 2118, Jan. 10, 2001]



                        Subpart 2.1--Definitions



2.101  Definitions.

    (a) A word or a term, defined in this section, has the same meaning 
throughout this regulation (48 CFR chapter 1), unless--
    (1) The context in which the word or term is used clearly requires a 
different meaning; or
    (2) Another FAR part, subpart, or section provides a different 
definition for the particular part or portion of the part.
    (b) If a word or term that is defined in this section is defined 
differently in another part, subpart, or section of this regulation (48 
CFR chapter 1, the definition in--
    (1) This section includes a cross-reference to the other 
definitions; and
    (2) That part, subpart, or section applies to the word or term when 
used in that part, subpart, or section.
    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.
    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.
    Adequate evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.
    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 classified in one 
of the following definitional subdivisions:
    (1) Management and professional support services, i.e., contractual 
services that provide assistance, advice or training for the efficient 
and effective 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.
    (2) 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,

[[Page 22]]

methodologies, and related software supporting studies, analyses or 
evaluations.
    (3) 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.
    Affiliates means associated business concerns or individuals if, 
directly or indirectly--
    (1) Either one controls or can control the other; or
    (2) A third party controls or can control both.
    Agency head or head of the agency 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.
    Alternate means a substantive variation of a basic provision or 
clause prescribed for use in a defined circumstance. It adds wording to, 
deletes wording from, or substitutes specified wording for a portion of 
the basic provision or clause. The alternate version of a provision or 
clause is the basic provision or clause as changed by the addition, 
deletion, or substitution (see 52.105(a)).
    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, that are required to be 
performed or approved by a person licensed, registered, or certified to 
provide those 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) Those other professional services of an architectural or 
engineering nature, or incidental services, that 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.
    Assignment of claims 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.
    Basic research means that 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.
    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.
    Bid sample means a product sample required to be submitted by an 
offeror to show characteristics of the offered products that cannot 
adequately be described by specifications, purchase descriptions, or the 
solicitation (e.g., balance, facility of use, or pattern).
    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)).
    Bundled contract means a contract where the requirements have been 
consolidated by bundling. (See the definition of bundling.)
    Bundling means--
    (1) Consolidating two or more requirements for supplies or services, 
previously provided or performed under separate smaller contracts, into 
a solicitation for a single contract that is likely to be unsuitable for 
award to a small business concern due to--

[[Page 23]]

    (i) The diversity, size, or specialized nature of the elements of 
the performance specified;
    (ii) The aggregate dollar value of the anticipated award;
    (iii) The geographical dispersion of the contract performance sites; 
or
    (iv) Any combination of the factors described in paragraphs (1)(i), 
(ii), and (iii) of this definition.
    (2) ``Separate smaller contract'' as used in this definition, means 
a contract that has been performed by one or more small business 
concerns or that was suitable for award to one or more small business 
concerns.
    (3) This definition does not apply to a contract that will be 
awarded and performed entirely outside of the United States.
    Business unit means any segment of an organization, or an entire 
business organization that is not divided into segments.
    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.
    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.
    Claim 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. 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. 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.
    Classified acquisition means an acquisition in which offerors must 
have access to classified information to properly submit an offer or 
quotation, to understand the performance requirements, or to perform the 
contract.
    Classified contract means any contract in which the contractor or 
its employees must have access to classified information during contract 
performance. A contract may be a classified contract even though the 
contract document itself is unclassified.
    Classified information means any knowledge that can be communicated 
or any documentary material, regardless of its physical form or 
characteristics, that--
    (1)(i) Is owned by, is produced by or for, or is under the control 
of the United States Government; or
    (ii) Has been classified by the Department of Energy as privately 
generated restricted data following the procedures in 10 CFR 1045.21; 
and
    (2) Must be protected against unauthorized disclosure according to 
Executive Order 12958, Classified National Security Information, April 
17, 1995, or classified in accordance with the Atomic Energy Act of 
1954.
    Cognizant Federal agency means the Federal agency that, on behalf of 
all Federal agencies, is responsible for establishing final indirect 
cost rates and forward pricing rates, if applicable, and administering 
cost accounting standards for all contracts in a business unit.
    Commerce Business Daily (CBD) means the publication of the Secretary 
of Commerce used to fulfill statutory requirements to publish certain 
public notices in paper form.
    Commercial component means any component that is a commercial item.
    Commercial item means--
    (1) Any item, other than real property, that is of a type 
customarily used by the general public or by non-governmental entities 
for purposes other than governmental purposes, and--
    (i) Has been sold, leased, or licensed to the general public; or
    (ii) Has been offered for sale, lease, or license to the general 
public;
    (2) Any item that evolved from an item described in paragraph (1) of 
this

[[Page 24]]

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;
    (3) Any item that would satisfy a criterion expressed in paragraphs 
(1) or (2) of this definition, but for--
    (i) Modifications of a type customarily available in the commercial 
marketplace; or
    (ii) Minor modifications of a type not customarily available in the 
commercial marketplace made to meet Federal Government requirements. 
Minor modifications means modifications 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;
    (4) Any combination of items meeting the requirements of paragraphs 
(1), (2), (3), or (5) of this definition that are of a type customarily 
combined and sold in combination to the general public;
    (5) Installation services, maintenance services, repair services, 
training services, and other services if--
    (i) Such services are procured for support of an item referred to in 
paragraph (1), (2), (3), or (4) of this definition, regardless of 
whether such services are provided by the same source or at the same 
time as the item; and
    (ii) The source of such services provides similar services 
contemporaneously to the general public under terms and conditions 
similar to those offered to the Federal Government;
    (6) 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. For purposes of these services--
    (i) Catalog price means a price included in a catalog, price list, 
schedule, or other form that is regularly maintained by the manufacturer 
or vendor, is either published or otherwise available for inspection by 
customers, and states prices at which sales are currently, or were last, 
made to a significant number of buyers constituting the general public; 
and
    (ii) Market prices means current prices that are established in the 
course of ordinary trade between buyers and sellers free to bargain and 
that can be substantiated through competition or from sources 
independent of the offerors.
    (7) Any item, combination of items, or service referred to in 
paragraphs (1) through (6) of this definition, 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
    (8) 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 Government as part of an 
end item or of another component, except that for use in--
    (1) Part 25, see the definition in 25.003;
    (2) 52.225-1 and 52.225-3, see the definition in 52.225-1(a) and 
52.225-3(a); and
    (3) 52.225-9 and 52.225-11, see the definition in 52.225-9(a) and 
52.225-11(a).
    Computer software means computer programs, computer data bases, and 
related documentation.
    Consent to subcontract means the contracting officer's written 
consent for the prime contractor to enter into a particular subcontract.
    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

[[Page 25]]

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.
    Continued portion of the contract means the portion of a contract 
that the contractor must continue to perform following a partial 
termination.
    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 bilateral 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--
    (1) Assigned postaward functions related to the administration of 
contracts; and
    (2) Assigned preaward functions.
    Contract clause or clause means a term or condition used in 
contracts or in both solicitations and contracts, and applying after 
contract award or both before and after award.
    Contract modification means any written change in the terms of a 
contract (see 43.103).
    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 (except for use in part 48, 
see also 48.001).
    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 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 (48 CFR chapter 1) to administrative 
contracting officer or termination contracting officer does not--
    (1) Require that a duty be performed at a particular office or 
activity; or
    (2) Restrict in any way a contracting officer in the performance of 
any duty properly assigned.
    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. 
For use in subpart 23.5, see the definition at 23.503.
    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-

[[Page 26]]

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--
    (1) Vendor quotations;
    (2) Nonrecurring costs;
    (3) Information on changes in production methods and in production 
or purchasing volume;
    (4) Data supporting projections of business prospects and objectives 
and related operations costs;
    (5) Unit-cost trends such as those associated with labor efficiency;
    (6) Make-or-buy decisions;
    (7) Estimated resources to attain business goals; and
    (8) Information on management decisions that could have a 
significant bearing on costs.
    Cost realism means that the costs in an offeror's proposal--
    (1) Are realistic for the work to be performed;
    (2) Reflect a clear understanding of the requirements; and
    (3) Are consistent with the various elements of the offeror's 
technical proposal.
    Cost sharing means an explicit arrangement under which the 
contractor bears some of the burden of reasonable, allocable, and 
allowable contract cost.
    Day means, unless otherwise specified, a calendar day.
    Debarment 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 that is 
excluded is ``debarred.''
    Delivery order means an order for supplies placed against an 
established contract or with Government sources.
    Descriptive literature means information provided by an offeror, 
such as cuts, illustrations, drawings, and brochures, that shows a 
product's characteristics or construction of a product or explains its 
operation. The term includes only that information needed to evaluate 
the acceptability of the product and excludes other information for 
operating or maintaining the product.
    Design-to-cost means 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.
    Drug-free workplace means the site(s) for the performance of work 
done by the contractor in connection with a specific contract where 
employees of the contractor are prohibited from engaging in the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance.
    Effective date of termination means the date on which the notice of 
termination requires the contractor to stop performance under the 
contract. If the contractor receives the termination notice after the 
date fixed for termination, then the effective date of termination means 
the date the contractor receives the notice.
    Electronic and information technology (EIT) has the same meaning as 
``information technology'' except EIT also includes any equipment or 
interconnected system or subsystem of equipment that is used in the 
creation, conversion, or duplication of data or information. The term 
EIT, includes, but is not limited to, telecommunication products (such 
as telephones), information kiosks and transaction machines, worldwide 
websites, multimedia, and office equipment (such as copiers and fax 
machines).
    Electronic commerce means electronic techniques for accomplishing 
business transactions including electronic mail or messaging, World Wide 
Web technology, electronic bulletin boards, purchase cards, electronic 
funds transfer, and electronic data interchange.
    Electronic data interchange (EDI) means a technique for 
electronically transferring and storing formatted information between 
computers utilizing

[[Page 27]]

established and published formats and codes, as authorized by the 
applicable Federal Information Processing Standards.
    Electronic Funds Transfer (EFT) means any transfer of funds, other 
than a transaction originated by cash, check, or similar paper 
instrument, that is initiated through an electronic terminal, telephone, 
computer, or magnetic tape, for the purpose of ordering, instructing, or 
authorizing a financial institution to debit or credit an account. The 
term includes Automated Clearing House transfers, Fedwire transfers, and 
transfers made at automatic teller machines and point-of-sale terminals. 
For purposes of compliance with 31 U.S.C. 3332 and implementing 
regulations at 31 CFR part 208, the term ``electronic funds transfer'' 
includes a Governmentwide commercial purchase card transaction.
    End product means supplies delivered under a line item of a 
Government contract, except for use in part 25 and the associated 
clauses at 52.225-1, 52.225-3, and 52.225-5, see the definitions in 
25.003, 52.225-1(a), 52.225-3(a), and 52.225-5(a).
    Energy-efficient product means a product that--
    (1) Meets Department of Energy and Environmental Protection Agency 
criteria for use of the Energy Star trademark label; or
    (2) Is in the upper 25 percent of efficiency for all similar 
products as designated by the Department of Energy's Federal Energy 
Management Program.
    Energy-savings performance contract means a contract that requires 
the contractor to--
    (1) Perform services for the design, acquisition, financing, 
installation, testing, operation, and where appropriate, maintenance and 
repair, of an identified energy conservation measure or series of 
measures at one or more locations;
    (2) Incur the costs of implementing the energy savings measures, 
including at least the cost (if any) incurred in making energy audits, 
acquiring and installing equipment, and training personnel in exchange 
for a predetermined share of the value of the energy savings directly 
resulting from implementation of such measures during the term of the 
contract; and
    (3) Guarantee future energy and cost savings to the Government.
    Environmentally preferable means products or services that have a 
lesser or reduced effect on human health and the environment when 
compared with competing products or services that serve the same 
purpose. This comparison may consider raw materials acquisition, 
production, manufacturing, packaging, distribution, reuse, operation, 
maintenance, or disposal of the product or service.
    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 terms 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 is a 
Government system that provides user access, employs nationally and 
internationally recognized data formats, and allows the electronic data 
interchange of acquisition information between the private sector and 
the Federal Government.
    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).
    Federally Funded Research and Development Centers (FFRDC's) means 
activities that are sponsored under a 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 that receive 70 percent or more of their financial 
support from the Government; and--

[[Page 28]]

    (1) A long-term relationship is contemplated;
    (2) Most or all of the facilities are owned or funded by the 
Government; and
    (3) The FFRDC has access to Government and supplier data, employees, 
and facilities beyond that common in a normal contractual relationship.
    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. For 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.
    First article means a preproduction model, initial production 
sample, test sample, first lot, pilot lot, or 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.
    F.o.b. means free on board. This term is used in conjunction with a 
physical point to determine--
    (1) The responsibility and basis for payment of freight charges; and
    (2) Unless otherwise agreed, the point where title for goods passes 
to 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, the 
seller or consignor is responsible for the cost of shipping and risk of 
loss. For use in the clause at 52.247-34, see the definition at 52.247-
34(a).
    F.o.b. origin means free on board at origin; i.e., the seller or 
consignor places the goods on the conveyance. Unless the contract 
provides otherwise, the buyer or consignee is responsible for the cost 
of shipping and risk of loss. For use in the clause at 52.247-29, see 
the definition at 52.247-29(a).
    F.o.b. * * * (For other types of F.o.b., see 47.303).
    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. 
These 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.
    Freight means supplies, goods, and transportable property.
    Full and open competition, when used with respect to a contract 
action, means that all responsible sources are permitted to compete.
    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.
    Governmentwide acquisition contract (GWAC) means a task-order or 
delivery-order contract for information technology established by one 
agency for Governmentwide use that is operated--
    (1) By an executive agent designated by the Office of Management and 
Budget pursuant to section 5112(e) of the Clinger-Cohen Act, 40 U.S.C. 
1412(e); or
    (2) Under a delegation of procurement authority issued by the 
General Services Administration (GSA) prior to August 7, 1996, under 
authority granted GSA by the Brooks Act, 40 U.S.C. 759

[[Page 29]]

(repealed by Public Law 104-106). The Economy Act does not apply to 
orders under a Governmentwide acquisition contract.
    Governmentwide point of entry (GPE) means the single point where 
Government business opportunities greater than $25,000, including 
synopses of proposed contract actions, solicitations, and associated 
information, can be accessed electronically by the public. The GPE is 
located at http://www.fedbizopps.gov.
    Head of the agency (see ``agency head'').
    Head of the contracting activity means the official who has overall 
responsibility for managing the contracting activity.
    Historically black college or university means an institution 
determined by the Secretary of Education to meet the requirements of 34 
CFR 608.2. For the Department of Defense, the National Aeronautics and 
Space Administration, 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.
    HUBZone means a historically underutilized business zone that is an 
area located within one or more qualified census tracts, qualified 
nonmetropolitan counties, or lands within the external boundaries of an 
Indian reservation.
    HUBZone small business concern means a small business concern that 
appears on the List of Qualified HUBZone Small Business Concerns 
maintained by the Small Business Administration.
    In writing, writing, or written means any worded or numbered 
expression that can be read, reproduced, and later communicated, and 
includes electronically transmitted and stored information.
    Indirect cost means 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.
    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 (see also ``final indirect cost rate'').
    Ineligible means excluded from Government contracting (and 
subcontracting, if appropriate) pursuant to statutory, Executive order, 
or regulatory authority other than this regulation (48 CFR chapter 1) 
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.
    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.
    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.
    (1) 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 that requires--
    (i) Its use; or
    (ii) To a significant extent, its use in the performance of a 
service or the furnishing of a product.
    (2) The term ``information technology'' includes computers, 
ancillary equipment, software, firmware and similar procedures, services 
(including support services), and related resources.
    (3) The term ``information technology'' does not include any 
equipment that--
    (i) Is acquired by a contractor incidental to a contract; or

[[Page 30]]

    (ii) Contains imbedded information technology that is used as an 
integral part of the product, but the principal function of which is not 
the acquisition, storage, manipulation, management, movement, control, 
display, switching, interchange, transmission, or reception of data or 
information. For example, HVAC (heating, ventilation, and air 
conditioning) equipment, such as thermostats or temperature control 
devices, and medical equipment where information technology is integral 
to its operation, are not information technology.
    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.
    (1) An inherently governmental function involves, among other 
things, the interpretation and execution of the laws of the United 
States so as to--
    (i) Bind the United States to take or not to take some action by 
contract, policy, regulation, authorization, order, or otherwise;
    (ii) 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;
    (iii) Significantly affect the life, liberty, or property of private 
persons;
    (iv) Commission, appoint, direct, or control officers or employees 
of the United States; or
    (v) 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.
    (2) 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 
that are not inherently governmental functions.
    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.
    Insurance means a contract that provides that for a stipulated 
consideration, one party undertakes to indemnify another against loss, 
damage, or liability arising from an unknown or contingent event.
    Invoice means a contractor's bill or written request for payment 
under the contract for supplies delivered or services performed (see 
also ``proper invoice'').
    Irrevocable letter of credit 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 the 
Government's (the beneficiary) presentation of a written demand for 
payment. Neither the financial institution nor the offeror/contractor 
can revoke or condition the letter of credit.
    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-

[[Page 31]]

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.
    Latent defect means a defect that exists at the time of acceptance 
but cannot be discovered by a reasonable inspection.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs means a list compiled, maintained, and distributed by the 
General Services Administration 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.
    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 is a major system if--
    (1) 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);
    (2) 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
    (3) 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).
    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.
    Market research means collecting and analyzing information about 
capabilities within the market to satisfy agency needs.
    Master solicitation 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 repetitively.
    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 using 
simplified acquisition procedures, the aggregate amount of which does 
not exceed the micro-purchase threshold.
    Micro-purchase threshold means $2,500, except it means--
    (1) $2,000 for construction subject to the Davis-Bacon Act; and
    (2) $15,000 for acquisitions by or for the Department of Defense 
facilitating the defense against terrorism or biological or chemical 
attack as described in 13.201(g), except for construction subject to the 
Davis-Bacon Act.
    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. 1067k), including a Hispanic-serving institution of 
higher education, as defined in section 316(b)(1) of the Act (20 U.S.C. 
1101a).
    Multi-agency contract (MAC) means a task-order or delivery-order 
contract established by one agency for use by Government agencies to 
obtain supplies and services, consistent with the Economy Act (see 
17.500(b)). Multi-agency contracts include contracts for information 
technology established pursuant to section 5124(a)(2) of the Clinger-
Cohen Act, 40 U.S.C. 1424(a)(2).
    Must (see ``shall'').
    National defense means any activity related to programs for military 
or

[[Page 32]]

atomic energy production or construction, military assistance to any 
foreign nation, stockpiling, or space.
    Neutral person 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 must have no official, financial, or personal conflict of 
interest with respect to the issues in controversy, unless the interest 
is fully disclosed in writing to all parties and all parties agree that 
the neutral person may serve (5 U.S.C. 583).
    Nondevelopmental item means--
    (1) 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;
    (2) Any item described in paragraph (1) 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
    (3) Any item of supply being produced that does not meet the 
requirements of paragraphs (1) or (2) solely because the item is not yet 
in use.
    Novation agreement means a legal instrument--
    (1) Executed by the--
    (i) Contractor (transferor);
    (ii) Successor in interest (transferee); and
    (iii) Government; and
    (2) 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.
    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''; however, responses to requests for 
quotations (simplified acquisition) are ``quotations'', not offers. For 
unsolicited proposals, see subpart 15.6.
    Offeror means offeror or bidder.
    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.
    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.
    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, i.e., the 
difference between the contractor's regular rate of pay to an employee 
and the higher rate paid for extra-pay-shift work.
    Ozone-depleting substance means any substance the Environmental 
Protection Agency designates in 40 CFR part 82 as--
    (1) Class I, including, but not limited to, chlorofluorocarbons, 
halons, carbon tetrachloride, and methyl chloroform; or
    (2) Class II, including, but not limited to, 
hydrochlorofluorocarbons.
    Partial termination means the termination of a part, but not all, of 
the work that has not been completed and accepted under a contract.
    Performance-based contracting means structuring all aspects of an 
acquisition around the purpose of the work to be performed with the 
contract requirements set forth, in clear, specific, and objective terms 
with measurable outcomes 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

[[Page 33]]

administered, makes the contractor personnel appear to be, in effect, 
Government employees (see 37.104).
    Pollution prevention means any practice that--
    (1)(i) 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
    (ii) Reduces the hazards to public health and the environment 
associated with the release of such substances, pollutants, and 
contaminants;
    (2) Reduces or eliminates the creation of pollutants through 
increased efficiency in the use of raw materials, energy, water, or 
other resources; or
    (3) Protects natural resources by conservation.
    Possessions include 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.
    Power of attorney 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 that appoints an attorney-in-fact to act in behalf of a 
surety company in signing bonds (see also ``attorney-in-fact'' at 
28.001).
    Preaward survey means an evaluation of a prospective contractor's 
capability to perform a proposed contract.
    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.
    Pricing means the process of establishing a reasonable amount or 
amounts to be paid for supplies or services.
    Procurement (see ``acquisition'').
    Procuring activity 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'' is synonymous with ``contracting activity.''
    Projected average loss means the estimated long-term average loss 
per period for periods of comparable exposure to risk of loss.
    Proper invoice means an invoice that meets the minimum standards 
specified in 32.905(b).
    Purchase order, when issued by the Government, 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.
    Qualification requirement means a Government requirement for testing 
or other quality assurance demonstration that must be completed before 
award of a contract.
    Qualified products list (QPL) means a list of products that have 
been examined, tested, and have satisfied all applicable qualification 
requirements.
    Receiving report means written evidence that indicates Government 
acceptance of supplies delivered or services performed (see subpart 
46.6). Receiving reports must meet the requirements of 32.905(c).
    Recovered material means waste materials and by-products recovered 
or diverted from solid waste, but the term does not include those 
materials and by-products generated from, and commonly reused within, an 
original manufacturing process. For use in subpart 11.3 for paper and 
paper products, see the definition at 11.301.
    Renewable energy means energy produced by solar, wind, geothermal, 
and biomass power.
    Renewable energy technology means--
    (1) Technologies that use renewable energy to provide light, heat, 
cooling, or mechanical or electrical energy for use in facilities or 
other activities; or
    (2) The use of integrated whole-building designs that rely upon 
renewable energy resources, including passive solar design.
    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

[[Page 34]]

value is a current forecast of the residual value.
    Responsible audit agency means the agency that is responsible for 
performing all required contract audit services at a business unit.
    Responsible prospective contractor means a contractor that meets the 
standards in 9.104.
    Segment means one of two or more divisions, 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--
    (1) Government-owned contractor-operated (GOCO) facilities; and
    (2) Joint ventures and subsidiaries (domestic and foreign) in which 
the organization has--
    (i) A majority ownership; or
    (ii) Less than a majority 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.
    Senior procurement executive means the individual appointed pursuant 
to section 16(3) of the Office of Federal 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.
    Service-disabled veteran-owned small business concern--
    (1) Means a small business concern--
    (i) Not less than 51 percent of which is owned by one or more 
service-disabled veterans or, in the case of any publicly owned 
business, not less than 51 percent of the stock of which is owned by one 
or more service-disabled veterans; and
    (ii) The management and daily business operations of which are 
controlled by one or more service-disabled veterans or, in the case of a 
veteran with permanent and severe disability, the spouse or permanent 
caregiver of such veteran.
    (2) Service-disabled veteran means a veteran, as defined in 38 
U.S.C. 101(2), with a disability that is service-connected, as defined 
in 38 U.S.C. 101(16).
    Shall denotes the imperative.
    Shipment means freight transported or to be transported.
    Shop drawings means drawings submitted by the construction 
contractor or a subcontractor at any tier or required under a 
construction contract, showing in detail either or both of the 
following:
    (1) The proposed fabrication and assembly of structural elements.
    (2) The installation (i.e., form, fit, and attachment details) of 
materials or equipment.
    Should means an expected course of action or policy that is to be 
followed unless inappropriate for a particular circumstance.
    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 symbols.
    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--
    (1) 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(8) and 41 U.S.C. 259(d)), the 
term means $200,000; or
    (2) To facilitate the defense against terrorism or biological or 
chemical attack against the United States, for acquisitions--
    (i) Inside the United States, by or for the Department of Defense, 
for which award is made and funds are obligated on or before September 
30, 2003, in support of a contingency operation (as defined in 10 U.S.C. 
101(a)(13)), the term means $250,000; or
    (ii) Outside the United States, by or for the Department of Defense, 
for which award is made and funds are obligated on or before September 
30, 2003, in support of a contingency operation

[[Page 35]]

(as defined in 10 U.S.C. 101(a)(13)), the term means $500,000.
    Single, Governmentwide point of entry, means the one point of entry 
to be designated by the Administrator of OFPP that will allow the 
private sector to electronically access procurement opportunities 
Governmentwide.
    Small business subcontractor means a concern, including affiliates, 
that for subcontracts valued at--
    (1) $10,000 or less, does not have more than 500 employees; and
    (2) More than $10,000, does not have employees or average annual 
receipts exceeding the size standard in 13 CFR part 121 (see 19.102) for 
the product or service it is providing on the subcontract.
    Small disadvantaged business concern (except for 52.212-3(c)(2) and 
52.219-1(b)(2) for general statistical purposes and 52.212-3(c)(7)(ii), 
52.219-22(b)(2), and 52.219-23(a) for joint ventures under the price 
evaluation adjustment for small disadvantaged business concerns), means 
an offeror that represents, as part of its offer, that it is a small 
business under the size standard applicable to the acquisition; and 
either--
    (1) It has received certification as a small disadvantaged business 
concern consistent with 13 CFR part 124, subpart B; and
    (i) No material change in disadvantaged ownership and control has 
occurred since its certification;
    (ii) Where the concern is owned by one or more disadvantaged 
individuals, the net worth of each individual upon whom the 
certification is based does not exceed $750,000 after taking into 
account the applicable exclusions set forth at 13 CFR 124.104(c)(2); and
    (iii) It is identified, on the date of its representation, as a 
certified small disadvantaged business concern in the data base 
maintained by the Small Business Administration (PRO-Net); or
    (2) For a prime contractor, it has submitted a completed application 
to the Small Business Administration or a private certifier to be 
certified as a small disadvantaged business concern in accordance with 
13 CFR part 124, subpart B, and a decision on that application is 
pending, and that no material change in disadvantaged ownership and 
control has occurred since it submitted its application. In this case, a 
contractor must receive certification as a small disadvantaged business 
by the Small Business Administration prior to contract award.
    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.
    Solicitation means any request to submit offers or quotations to the 
Government. Solicitations under sealed bid procedures are called 
``invitations for bids.'' Solicitations under negotiated procedures are 
called ``requests for proposals.'' Solicitations under simplified 
acquisition procedures may require submission of either a quotation or 
an offer.
    Solicitation provision or provision means a term or condition used 
only in solicitations and applying only before contract award.
    Source selection information means any of the following information 
that is prepared for use by an agency for the purpose of evaluating a 
bid or proposal to enter into an 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 an agency invitation for 
bids, or lists of those bid prices before bid opening.
    (2) Proposed costs or prices submitted in response to an 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 2.101 and 3.104'' based on a case-

[[Page 36]]

by-case determination by the head of the agency or the contracting 
officer, that its disclosure would jeopardize the integrity or 
successful completion of the Federal agency procurement to which the 
information relates.
    Special competency means a special or unique capability, including 
qualitative aspects, developed incidental to the primary functions of 
the Federally Funded Research and Development Centers to meet some 
special need.
    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.
    Substantial evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.
    Substantially as follows or substantially the same as, when used in 
the prescription and introductory text of a provision or clause, means 
that authorization is granted to prepare and utilize a variation of that 
provision or clause to accommodate requirements that are peculiar to an 
individual acquisition; provided that the variation includes the salient 
features of the FAR provision or clause, and is not inconsistent with 
the intent, principle, and substance of the FAR provision or clause or 
related coverage of the subject matter.
    Supplemental agreement means a contract modification that is 
accomplished by the mutual action of the parties.
    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.
    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:
    (1) An individual surety is one person, as distinguished from a 
business entity, who is liable for the entire penal amount of the bond.
    (2) A corporate surety is licensed under various insurance laws and, 
under its charter, has legal power to act as surety for others.
    (3) 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.
    Suspension means action taken by a suspending official under 9.407 
to disqualify a contractor temporarily from Government contracting and 
Government-approved subcontracting; a contractor that is disqualified is 
``suspended.''
    Task order means an order for services placed against an established 
contract or with Government sources.
    Taxpayer Identification Number (TIN) means the number required by 
the IRS to be used by the offeror in reporting income tax and other 
returns. The TIN may be either a Social Security Number or an Employer 
Identification Number.
    Termination for convenience means the exercise of the Government's 
right to completely or partially terminate performance of work under a 
contract when it is in the Government's interest.
    Termination for default means the exercise of the Government's right 
to completely or partially terminate a contract because of the 
contractor's actual or anticipated failure to perform its contractual 
obligations.
    Terminated portion of the contract means the portion of a contract 
that the contractor is not to perform following a partial termination. 
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.
    Unallowable cost means any cost that, 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.
    Unique and innovative concept, when used relative to an unsolicited 
research proposal, means that--

[[Page 37]]

    (1) In the opinion and to the knowledge of the Government evaluator, 
the meritorious proposal--
    (i) Is the product of original thinking submitted confidentially by 
one source;
    (ii) Contains new, novel, or changed concepts, approaches, or 
methods;
    (iii) Was not submitted previously by another; and
    (iv) Is not otherwise available within the Federal Government.
    (2) In this context, the term does not mean that the source has the 
sole capability of performing the research.
    United States, when used in a geographic sense, means the 50 States 
and the District of Columbia, except as follows:
    (1) For use in subpart 22.8, see the definition at 22.801.
    (2) For use in subpart 22.10, see the definition at 22.1001.
    (3) For use in subpart 22.13, see the definition at 22.1301.
    (4) For use in part 25, see the definition at 25.003.
    (5) For use in subpart 47.4, see the definition at 47.401.
    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.
    Value engineering 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.). For use in the 
clause at 52.248-2, see the definition at 52.248-2(b).
    Value engineering change proposal (VECP)-(1) means a proposal that--
    (i) Requires a change to the instant contract to implement; and
    (ii) Results in reducing the overall projected cost to the agency 
without impairing essential functions or characteristics, provided that 
it does not involve a change--
    (A) In deliverable end item quantities only;
    (B) In research and development (R&D) items or R&D test quantities 
that are due solely to results of previous testing under the instant 
contract; or
    (C) To the contract type only.
    (2) For use in the clauses at--
    (i) 52.248-2, see the definition at 52.248-2(b); and
    (ii) 52.248-3, see the definition at 52.248-3(b).
    Veteran-owned small business concern means a small business concern-
-
    (1) Not less than 51 percent of which is owned by one or more 
veterans (as defined at 38 U.S.C. 101(2)) or, in the case of any 
publicly owned business, not less than 51 percent of the stock of which 
is owned by one or more veterans; and
    (2) The management and daily business operations of which are 
controlled by one or more veterans.
    Virgin material means--
    (1) Previously unused raw material, including previously unused 
copper, aluminum, lead, zinc, iron, other metal or metal ore; or
    (2) Any undeveloped resource that is, or with new technology will 
become, a source of raw materials.
    Warranty 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.
    Waste reduction means preventing or decreasing the amount of waste 
being generated through waste prevention, recycling, or purchasing 
recycled and environmentally preferable products.
    Women-owned small business concern means a small business concern--
    (1) That 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
    (2) Whose management and daily business operations are controlled by 
one or more women.

[[Page 38]]

    Writing or written (see ``in writing'').

[66 FR 2118, Jan. 10, 2001, as amended at 66 FR 20896, Apr. 25, 2001; 66 
FR 22083, May 2, 2001; 66 FR 27012, May 15, 2001; 66 FR 27409, May 16, 
2001; 66 FR 53484, 53486, 53488, Oct. 22, 2001; 66 FR 65350, 65352, 
65354, Dec. 18, 2001; 67 FR 6114, Feb. 8, 2002; 67 FR 13055, Mar. 20, 
2002; 67 FR 42313, June 27, 2002; 67 FR 56121, Aug. 30, 2002; 67 FR 
56118, Aug. 30, 2002]



                     Subpart 2.2--Definitions Clause



2.201  Contract clause.

    Insert the clause at 52.202-1, Definitions, in solicitations and 
contracts that exceed the simplified acquisition threshold. If the 
contract is for personal services, construction, architect-engineer 
services, or dismantling, demolition, or removal of improvements, use 
the clause with its Alternate I. The contracting officer may include 
additional definitions, provided they are consistent with the clause and 
the FAR.

[66 FR 2127, Jan. 10, 2001]



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 Definitions.
3.104-2 General.
3.104-3 Statutory and related prohibitions, restrictions, and 
          requirements.
3.104-4 Disclosure, protection, and marking of contractor bid or 
          proposal information and source selection information.
3.104-5 Disqualification.
3.104-6 Ethics advisory opinions regarding prohibitions on a former 
          official's acceptance of compensation from a contractor.
3.104-7 Violations or possible violations.
3.104-8 Criminal and civil penalties, and further administrative 
          remedies.
3.104-9 Contract clauses.

       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.

[[Page 39]]

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.



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 btain 
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

[[Page 40]]

    (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 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  Definitions.

    As used in this section--
    Agency ethics official means the designated agency ethics official 
described in 5 CFR 2638.201 or other designated person, including--
    (1) Deputy ethics officials described in 5 CFR 2638.204, to whom 
authority under 3.104-6 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

[[Page 41]]

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.
    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 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 constitutes 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;
    (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); or
    (4) A special Government employee, as defined in 18 U.S.C. 202.
    Participating personally and substantially in a Federal agency 
procurement means--
    (1) Active and significant involvement of an official 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 official'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

[[Page 42]]

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 official 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.
    (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.

[67 FR 13059, Mar. 20, 2002]



3.104-2  General.

    (a) This section implements section 27 of the Office of Federal 
Procurement Policy Act (the Procurement Integrity Act) (41 U.S.C. 423) 
referred to as ``the Act''). Agency supplementation of 3.104, including 
specific definitions to identify individuals who occupy positions 
specified in 3.104-3(d)(1)(ii), and any clauses required by 3.104 must 
be approved by the senior procurement executive of the agency, unless a 
law establishes a higher level of approval for that agency.
    (b) Agency officials 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 and 10 U.S.C. 2207. The acceptance of a gift, under 
certain circumstances, is prohibited by 5 U.S.C. 7353 and 5 CFR part 
2635;
    (2) Contacts with an offeror during the conduct of an acquisition 
may constitute ``seeking employment,''(see subpart F of 5 CFR part 2636 
and 3.104-3(c)(2)). Government officers and employees (employees) are 
prohibited by 18 U.S.C. 208 and 5 CFR part 2635 from participating 
personally and substantially in any particular matter that would affect 
the financial interests of any person with whom the employee is seeking 
employment. An employee who engages in negotiations or is otherwise 
seeking employment with an offeror or who has an arrangement concerning 
future employment with an offeror must comply with the applicable 
disqualification requirements of 5 CFR 2635.604 and 2635.606. The 
statutory prohibition in 18 U.S.C. 208 also may require an employee's 
disqualification from participation in the acquisition even if the 
employee's duties may not be considered ``participating personally and 
substantially,'' as this term is defined in 3.104-1;
    (3) Post-employment restrictions are covered by 18 U.S.C. 207 and 5 
CFR parts 2637 and 2641, that 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. 
Additional restrictions apply to certain senior Government employees and 
for particular matters under an employee's official responsibility;
    (4) Parts 14 and 15 place restrictions on the release of information 
related to procurements and other contractor information that must be 
protected under 18 U.S.C. 1905;

[[Page 43]]

    (5) Release of information both before and after award (see 3.104-4) 
may be prohibited by the Privacy Act (5 U.S.C. 552a), the Trade Secrets 
Act (18 U.S.C. 1905), and other laws; and
    (6) Using nonpublic information to further an employee's private 
interest or that of another and engaging in a financial transaction 
using nonpublic information are prohibited by 5 CFR 2635.703.

[67 FR 13059, Mar. 20, 2002]



3.104-3  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 must 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 3.104-4(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 must 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 when an agency official contacts or is 
contacted by an offeror regarding non-Federal employment (subsection 
27(c) of the Act). (1) If an agency official, 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 an offeror in that Federal agency procurement 
regarding possible non-Federal employment for that official, the 
official must--
    (i) Promptly report the contact in writing to the official's 
supervisor and to the agency ethics official; and
    (ii) Either reject the possibility of non-Federal employment or 
disqualify himself or herself from further personal and substantial 
participation in that Federal agency procurement (see 3.104-5) until 
such time as the agency authorizes the official to resume participation 
in that procurement, in accordance with the requirements of 18 U.S.C. 
208 and applicable agency regulations, because--
    (A) The person is no longer an offeror in that Federal agency 
procurement; or
    (B) All discussions with the offeror regarding possible non-Federal 
employment have terminated without an agreement or arrangement for 
employment.
    (2) A contact is any of the actions included as ``seeking 
employment'' in 5 CFR 2635.603(b). In addition, unsolicited 
communications from offerors regarding possible employment are 
considered contacts.
    (3) Agencies must retain reports of employment contacts for 2 years 
from the date the report was submitted.
    (4) Conduct that complies with subsection 27(c) of the Act may be 
prohibited by other criminal statutes and the Standards of Ethical 
Conduct for Employees of the Executive Branch. See 3.104-2(b)(2).
    (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 from a contractor that has 
been awarded a competitive or sole source contract, as an employee, 
officer, director, or consultant of the contractor within a period of 1 
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

[[Page 44]]

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 decision to--
    (A) 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) Establish overhead or other rates applicable to a contract or 
contracts for that contractor that are valued in excess of $10,000,000;
    (C) Approve issuance of a contract payment or payments in excess of 
$10,000,000 to that contractor; or
    (D) Pay or settle a claim in excess of $10,000,000 with that 
contractor.
    (2) The 1-year prohibition begins on the date--
    (i) Of contract award for positions described in paragraph (d)(1)(i) 
of this subsection, or the date of contractor selection if the official 
was not serving in the position on the date of award;
    (ii) The official last served in one of the positions described in 
paragraph (d)(1)(ii) of this subsection; or
    (iii) The official made one of the decisions described in paragraph 
(d)(1)(iii) of this subsection.
    (3) 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.

[67 FR 13059, Mar. 20, 2002]



3.104-4  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 agency head or the contracting officer to receive 
such information.
    (b) Contractor bid or proposal information and source selection 
information must be protected from unauthorized disclosure in accordance 
with 14.401, 15.207, applicable law, and agency regulations.
    (c) Individuals unsure if particular information is source selection 
information, as defined in 2.101, should consult with agency officials 
as necessary. Individuals responsible for preparing material that may be 
source selection information as described at paragraph (10) of the 
``source selection information'' definition in 2.101 must mark the cover 
page and each page that the individual believes contains source 
selection information with the legend ``Source Selection Information--
See FAR 2.101 and 3.104.'' Although the information in paragraphs (1) 
through (9) of the definition in 2.101 is considered to be source 
selection information whether or not marked, all reasonable efforts must 
be made to mark such material with the same legend.
    (d) Except as provided in paragraph (d)(3) of this subsection, the 
contracting officer must notify the contractor in writing if the 
contracting officer believes that proprietary information, contractor 
bid or proposal information, or information marked in accordance with 
52.215-1(e) has been inappropriately marked. The contractor that has 
affixed the marking must be 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 release the information.
    (2) If, after reviewing the contractor's justification, the 
contracting officer determines that the marking is not justified, the 
contracting officer must notify the contractor in writing before 
releasing the information.
    (3) For technical data marked as proprietary by a contractor, the 
contracting officer must follow the procedures in 27.404(h).
    (e) This section does not restrict or prohibit--

[[Page 45]]

    (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) This section does not 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 release 
containing contractor bid or proposal information or source selection 
information must clearly identify the information as contractor bid or 
proposal information or source selection information related to the 
conduct of a Federal agency procurement and notify the recipient that 
the disclosure of the information is restricted by section 27 of the 
Act;
    (2) The withholding of information from, or restricting its receipt 
by, the Comptroller General 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 that pertains to 
another procurement; or
    (4) The disclosure, solicitation, or receipt of bid or proposal 
information or source selection information after award if disclosure, 
solicitation, or receipt is prohibited by law. (See 3.104-2(b)(5) and 
subpart 24.2.)

[67 FR 13059, Mar. 20, 2002]



3.104-5  Disqualification.

    (a) Contacts through agents or other intermediaries. Employment 
contacts between the employee and the offeror, that are conducted 
through agents, or other intermediaries, may require disqualification 
under 3.104-3(c)(1). These contacts may also require disqualification 
under other statutes and regulations. (See 3.104-2(b)(2).)
    (b) Disqualification notice. In addition to submitting the contact 
report required by 3.104-3(c)(1), an agency official who must disqualify 
himself or herself pursuant to 3.104-3(c)(1)(ii) must promptly submit 
written notice of disqualification from further participation in the 
procurement to the contracting officer, the source selection authority 
if other than the contracting officer, and the agency official's 
immediate supervisor. As a minimum, the notice must--
    (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
    (3) Identify the offeror and describe its interest in the 
procurement.
    (c) Resumption of participation in a procurement. (1) The official 
must remain disqualified until such time as the agency, at its sole and 
exclusive discretion, authorizes the official to resume participation in 
the procurement in accordance with 3.104-3(c)(1)(ii).
    (2) After the conditions of 3.104-3(c)(1)(ii)(A) or (B) have been 
met, the head of the contracting activity (HCA), after consultation with 
the agency ethics official, may authorize the disqualified official to 
resume participation in the procurement, or may determine that an 
additional disqualification period is necessary to protect the integrity 
of the procurement process. In determining the disqualification period, 
the HCA must consider any factors that create an appearance that the 
disqualified official acted without complete impartiality in the 
procurement. The HCA's reinstatement decision should be in writing.

[[Page 46]]

    (3) Government officer or employee must also comply with the 
provisions of 18 U.S.C. 208 and 5 CFR part 2635 regarding any resumed 
participation in a procurement matter. Government officer or employee 
may not be reinstated to participate in a procurement matter affecting 
the financial interest of someone with whom the individual is seeking 
employment, unless the individual receives--
    (i) A waiver pursuant to 18 U.S.C. 208(b)(1) or (b)(3); or
    (ii) An authorization in accordance with the requirements of subpart 
F of 5 CFR part 2635.

[67 FR 13059, Mar. 20, 2002]



3.104-6  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 3.104-3(d)) from accepting compensation from a particular 
contractor may request advice from the appropriate agency ethics 
official before accepting such compensation.
    (b) The request for an advisory opinion must be in writing, include 
all relevant information reasonably available to the official or former 
official, and be dated and signed. The request must include information 
about the--
    (1) Procurement(s), or decision(s) on matters under 3.104-
3(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) 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) 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 receipt of a request containing complete 
information, or as soon thereafter as practicable, the agency ethics 
official should issue an opinion on whether the proposed conduct would 
violate subsection 27(d) of the Act.
    (d)(1) If complete information is not included in the request, the 
agency ethics official may ask the requester to provide more information 
or request information 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.
    (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 will 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.

[67 FR 13059, Mar. 20, 2002]



3.104-7  Violations or possible violations.

    (a) A contracting officer who receives or obtains information of a 
violation or possible violation of subsection 27(a), (b), (c), or (d) of 
the Act (see 3.104-3) must determine if the reported violation or 
possible violation has any impact on the pending award or selection of 
the contractor.
    (1) If the contracting officer concludes that there is no impact on 
the procurement, the contracting officer must forward the information 
concerning the violation or possible violation and documentation 
supporting a determination that there is no impact on the procurement to 
an individual designated in accordance with agency procedures.

[[Page 47]]

    (i) If that individual concurs, the contracting officer may proceed 
with the procurement.
    (ii) If that individual does not concur, the individual must 
promptly forward the information and documentation to the HCA and advise 
the contracting officer to withhold award.
    (2) If the contracting officer concludes that the violation or 
possible violation impacts the procurement, the contracting officer must 
promptly forward the information to the HCA.
    (b) The HCA must review all information available and, in accordance 
with agency procedures, take appropriate action, such as--
    (1) Advise the contracting officer to continue with the procurement;
    (2) Begin an investigation;
    (3) Refer the information disclosed to appropriate criminal 
investigative agencies;
    (4) Conclude that a violation occurred; or
    (5) Recommend that the agency head determine 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 an offeror, contractor, or person has 
violated the Act, the HCA may consider that the interests of the 
Government are best served by requesting information from appropriate 
parties regarding the violation or possible violation.
    (d) If the HCA concludes that section 27 of the Act has been 
violated, the HCA 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 under 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 
subsection 27(a) or (b) of the Act for the purpose of either--
    (1) Exchanging the information covered by the 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 agency head 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 suspending or debarring official.
    (e) The HCA should recommend or direct an administrative or 
contractual remedy commensurate with the severity and effect of the 
violation.
    (f) If the HCA determines that urgent and compelling circumstances 
justify an award, or award is otherwise in the interests of the 
Government, the HCA, in accordance with agency procedures, may authorize 
the contracting officer to award the contract or execute the contract 
modification after notifying the agency head.
    (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.

[67 FR 13059, Mar. 20, 2002]



3.104-8  Criminal and civil penalties, and further administrative remedies.

    Criminal and civil penalties, and administrative remedies, may apply 
to conduct that violates the Act (see 3.104-3). See 33.102(f) for 
special rules regarding bid protests. See 3.104-7 for administrative 
remedies relating to contracts.

[[Page 48]]

    (a) An official who knowingly fails to comply with the requirements 
of 3.104-3 is subject to the penalties and administrative action set 
forth in subsection 27(e) of the Act.
    (b) An offeror who engages in employment discussion with an official 
subject to the restrictions of 3.104-3, knowing that the official has 
not complied with 3.104-3(c)(1), is 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 
3.104-5) may be subject to agency administrative actions under 5 CFR 
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.

[67 FR 13059, Mar. 20, 2002]



3.104-9  Contract clauses.

    In solicitations and contracts for other than commercial items that 
exceed the simplified acquisition threshold, insert the clauses at--
    (a) 52.203-8, Cancellation, Rescission, and Recovery of Funds for 
Illegal or Improper Activity; and
    (b) 52.203-10, Price or Fee Adjustment for Illegal or Improper 
Activity.

[67 FR 13059, Mar. 20, 2002]



       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.

[[Page 49]]



         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]



3.302  Definitions.

    As used in this subpart--
    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 a 
solicitation, that the offeror must separately price.

[49 FR 12974, Mar. 30, 1984, as amended at 66 FR 2127, Jan. 10, 2001; 67 
FR 13055, Mar. 20, 2002]



3.303  Reporting suspected antitrust violations.

    (a) Agencies are required by 41 U.S.C. 253b(i) and 10 U.S.C. 
2305(b)(9) 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.

[[Page 50]]

    (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; 65 FR 36030, June 6, 2000]



                      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).



3.401  Definitions.

    As used in this subpart--
    Bona fide agency, 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, 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, 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, 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.

[48 FR 42108, Sept. 19, 1983, as amended at 66 FR 2127, Jan. 10, 2001]



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

[[Page 51]]

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]



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

[48 FR 42108, Sept. 19, 1983, as amended at 66 FR 2127, Jan. 10, 2001]



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]



3.502  Subcontractor kickbacks.



3.502-1  Definitions.

    As used in this section--

[[Page 52]]

    Kickback, 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, means a corporation, partnership, business association of 
any kind, trust, joint-stock company, or individual.
    Prime contract, 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, 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, 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, (1) means any person, other than the prime 
contractor, who offers to furnish or furnishes any supplies, materials, 
equipment, or services of any kind under a prime contract or a 
subcontract entered into in connection with such prime contract, and (2) 
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; 66 
FR 2127, Jan. 10, 2001]

    Editorial Note: At 66 FR 2127, Jan. 10, 2001, as amended at 66 FR 
14260, Mar. 9, 2001, Sec. 3.502-1 was amended by redesignating 
paragraphs (a) and (b) as (1) and (2). There are no designated 
paragraphs (a) and (b) in Sec. 3.502-1.



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

[[Page 53]]

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, 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

[[Page 54]]

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 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--

[[Page 55]]

    (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.
    (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 3.104-7); and

[[Page 56]]

    (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; 67 
FR 13063, Mar. 20, 2002]



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 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

[[Page 57]]

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.
    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.

[[Page 58]]

    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 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

[[Page 59]]

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, r 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 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.

[[Page 60]]



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]



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)), 3804-3808, and 3812, insofar as the provisions 
therein are not inconsistent with the requirements of this subpart.

[55 FR 3190, Jan. 30, 1990, as amended at 67 FR 6120, Feb. 8, 2002]



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

[[Page 61]]

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.

    As used in this supart--
    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.

[48 FR 42108, Sept. 19, 1983, as amended at 66 FR 2127, Jan. 10, 2001]



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).



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

[[Page 62]]

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 
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 information.

                      Subpart 4.3--Paper Documents

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

    Subpart 4.4--Safeguarding Classified Information Within Industry

4.401 [Reserved]
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 [Reserved]
4.502 Policy.

                     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 Construction contracts pay administration records.
4.705-3 Acquisition and supply records.
4.706 [Reserved]

                 Subpart 4.8--Government Contract Files

4.800 Scope of subpart.

[[Page 63]]

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 Procedures for closing out contract files.
4.805 Storage, handling, and disposal of contract files.

         Subpart 4.9--Taxpayer Identification Number Information

4.900 Scope of subpart.
4.901 Definition.
4.902 General.
4.903 Reporting contract information to the IRS.
4.904 Reporting payment information to the IRS.
4.905 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 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]

[[Page 64]]



                   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 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 information.

    (a) If the contractor has furnished a Taxpayer Identification Number 
(TIN) when completing the solicitation provision at 52.204-3, Taxpayer 
Identification, or paragraph (b) of the solicitation provision at 
52.212-3, Offeror Representations and Certifications--Commercial Items, 
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 payment office.
    (b) If the TIN or type of organization is derived from a source 
other than the provision at 52.204-3 or 52.212-3(b), the contracting 
officer shall annotate the last page of the contract or order forwarded 
to the payment office to state the contractor's TIN and type of 
organization, unless this information is otherwise provided to the 
payment office in accordance with agency procedures.
    (c) If the contractor provides its TIN or type of organization to 
the contracting officer after award, the contracting officer shall 
forward the information to the payment office within 7 days of its 
receipt.
    (d) Federal Supply Schedule contracts. Each contracting officer that 
places an order under a Federal Supply Schedule contract (see Subpart 
8.4) shall provide the TIN and type of organization information to the 
payment office in accordance with paragraph (b) of this section.
    (e) Basic ordering agreements and indefinite-delivery contracts 
(other than Federal Supply Schedule contracts).
    (1) Each contracting officer that issues a basic ordering agreement 
or

[[Page 65]]

indefinite-delivery contract (other than a Federal Supply Schedule 
contract) shall provide to contracting officers placing orders under the 
agreement or contract--
    (i) A copy of the agreement or contract with a copy of the completed 
solicitation provision at 52.204-3 or 52.212-3(b) as the last page of 
the agreement or contract; or
    (ii) The contractor's TIN and type of organization information.
    (2) Each contracting officer that places an order under a basic 
ordering agreement or indefinite-delivery contract (other than a Federal 
Supply Schedule contract) shall provide the TIN and type of organization 
information to the payment office in accordance with paragraph (a) or 
(b) of this section.

[63 FR 58588, Oct. 30, 1998]



                      Subpart 4.3--Paper Documents



4.300  Scope of subpart.

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

[60 FR 28493, May 31, 1995]



4.301  Definition.

    Printed or copied 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.

[65 FR 36017, June 6, 2000]



4.302  Policy.

    When electronic commerce methods (see 4.502) are not being used, a 
contractor should submit paper documents to the Government relating to 
an acquisition printed or copied double-sided on recycled paper whenever 
practicable. If the contractor cannot print or copy double-sided, it 
should print or copy single-sided on recycled paper.

[65 FR 36017, June 6, 2000]



4.303  Contract clause.

    Insert the clause at 52.204-4, Printed or Copied Double-Sided on 
Recycled Paper, in solicitations and contracts that exceed the 
simplified acquisition threshold.

[65 FR 36017, June 6, 2000]



    Subpart 4.4--Safeguarding Classified Information Within Industry



4.401  [Reserved]



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]

[[Page 66]]



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.
    (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

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

    Source: 63 FR 58592, Oct. 30, 1998, unless otherwise noted.



4.500   Scope of subpart.

    This subpart provides policy and procedures for the establishment 
and use of electronic commerce in Federal acquisition as required by 
Section 30 of the Office of Federal Procurement Policy (OFPP) Act (41 
U.S.C. 426).



4.501  [Reserved]



4.502   Policy.

    (a) The Federal Government shall use electronic commerce whenever 
practicable or cost-effective. 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. Contracting officers may 
supplement electronic transactions by using other media to meet

[[Page 67]]

the requirements of any contract action governed by the FAR (e.g., 
transmit hard copy of drawings).
    (b) Agencies may exercise broad discretion in selecting the hardware 
and software that will be used in conducting electronic commerce. 
However, as required by Section 30 of the OFPP Act (41 U.S.C. 426), the 
head of each agency, after consulting with the Administrator of OFPP, 
shall ensure that systems, technologies, procedures, and processes used 
by the agency to conduct electronic commerce--
    (1) Are implemented uniformly throughout the agency, to the maximum 
extent practicable;
    (2) Are implemented only after considering the full or partial use 
of existing infrastructures, (e.g., the Federal Acquisition Computer 
Network (FACNET));
    (3) Facilitate access to Government acquisition opportunities by 
small business concerns, small disadvantaged business concerns, and 
women-owned small business concerns;
    (4) Include a single means of providing widespread public notice of 
acquisition opportunities through the Governmentwide point of entry and 
a means of responding to notices or solicitations electronically; and
    (5) Comply with nationally and internationally recognized standards 
that broaden interoperability and ease the electronic interchange of 
information, such as standards established by the National Institute of 
Standards and Technology.
    (c) Before using electronic commerce, the agency head shall ensure 
that the agency systems are 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.

[63 R 58592, Oct. 30, 1998, as amended at 66 FR 27409, May 16, 2001]



                     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, 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) In addition to the information described in paragraphs (b), (c), 
and (d) of this section, agencies must be able to access information 
from the computer file to identify bundled contracts with a total 
contract value, including all options, exceeding $5,000,000.

[[Page 68]]

    (f) Agencies must transmit this information to the Federal 
Procurement Data System in accordance with its procedures.

[50 FR 52429, Dec. 23, 1985, as amended at 52 FR 19802, May 27, 1987; 60 
FR 42653, Aug. 16, 1995; 64 FR 72442, Dec. 27, 1999]



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, 
veteran-owned small, service-disabled veteran-owned small, HUBZone 
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 must 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 must 
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 must 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; 65 FR 60544, Oct. 11, 2000]



4.603  Solicitation provisions.

    (a)(1) The contracting officer shall insert the provision at 52.204-
6, Data Universal Numbering System (DUNS) Number, in solicitations that 
are expected to result in a requirement for the generation of an SF 279, 
Federal Procurement Data System (FPDS)--Individual Contract Action 
Report (see 4.602(c)), or a similar agency form.
    (2) For offerors located outside the United States, the contracting 
officer may modify paragraph (c) of the provision at 52.204-6 to provide 
the correct phone numbers for the Dun and Bradstreet offices in the 
areas from which offerors are anticipated to respond.
    (b) The contracting officer shall insert the provision at 52.204-5, 
Women-Owned Business (Other Than Small Business), in all solicitations 
that are not set aside for small business concerns and that exceed the 
simplified acquisition threshold, if the contract is to be performed 
inside the United States, its territories or possessions, Puerto Rico, 
the Trust Territory of the

[[Page 69]]

Pacific Islands, or the District of Columbia.

[61 FR 67412, Dec. 20, 1996, as amended at 63 FR 9050, Feb. 23, 1998; 64 
FR 10532, Mar. 4, 1999]



                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 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 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 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.

[[Page 70]]

    (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; 62 FR 64915, Dec. 9, 1997]



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 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

[[Page 71]]

vouchers and other supporting documents: Retain 2 years.



4.705-2  Construction contracts 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 3 years after completion 
of contract, unless contract performance is the subject of enforcement 
action.
    (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.

[48 FR 42113, Sept. 19, 1983, as amended at 65 FR 36022, June 6, 2000]



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 52.244-2): Retain 4 years.
    (g) Production records of quality control, reliability, and 
inspection: Retain 4 years.

[48 FR 42113, Sept. 19, 1983, as amended at 63 FR 34060, June 22, 1998]



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.

[65 FR 36022, June 6, 2000]



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--
    (1) The contracting office contract file, that documents 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, that documents 
actions reflecting the basis for and the performance of contract 
administration responsibilities; and

[[Page 72]]

    (3) The paying office contract file, that documents 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 must be maintained at organizational levels that 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 must 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 2.101 must be 
protected from disclosure to unauthorized persons (see 3.104-4).
    (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; 67 FR 13063, Mar. 20, 2002]



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 required by part 5 or a 
reference to the synopsis.
    (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.
    (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.

[[Page 73]]

    (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.
    (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.
    (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.
    (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; 63 FR 9052, Feb. 
23, 1998; 65 FR 46074, July 26, 2000; 66 FR 27409, May 16, 2001]

[[Page 74]]



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



4.804-5  Procedures for closing out contract files.

    (a) The contract administration office 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, the contract administration office must review the contract 
funds status and notify the

[[Page 75]]

contracting office of any excess funds the contract administration 
office might deobligate. When complete, the administrative closeout 
procedures must 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 excess funds 
deobligated.
    (b) When the actions in paragraph (a) above have been verified, the 
contracting officer administering the contract must 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 must 
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; 
64 FR 72445, Dec. 27, 1999]



4.805  Storage, handling, and disposal of contract files.

    (a) Agencies must prescribe procedures for the handling, storing, 
and disposing of contract files. These procedures must take into account 
documents held in all types of media, including microfilm and various 
electronic media. Agencies may change the original medium 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 must protect 
the original data from alteration. Unless law or other regulations 
require signed originals to be kept, they may be destroyed after the 
responsible agency official verifies that record copies on alternate 
media and copies reproduced from the record copy are accurate, complete, 
and clear representations of the originals. Agency procedures for 
contract file disposal must include provisions that the documents 
specified in paragraph (b) of this section may not be destroyed before 
the times indicated, and may be retained longer if the responsible 
agency official determines that the files have future value to the 
Government. When original documents have been converted to alternate 
media for storage, the requirements in paragraph (b) of this section 
also apply to the record copies in the alternate media.

[[Page 76]]

    (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 described in the following table are part of a subject or case 
file that documents activities that are not described in the table, they 
should be treated in the same manner as the files of which they are a 
part. The retention periods for acquisitions at or below the simplified 
acquisition threshold also apply to acquisitions conducted prior to July 
3, 1995, that used small purchase procedures. The retention periods for 
acquisitions above the simplified acquisition threshold also apply to 
acquisitions conducted prior to July 3, 1995, that used other than small 
purchase procedures.

------------------------------------------------------------------------
                 Document                         Retention period
------------------------------------------------------------------------
(1) Records pertaining to Contract          6 years and 3 months after
 Disputes Act actions.                       final action or decision
                                             for files created prior to
                                             October 1, 1979. 1 year
                                             after final action or
                                             decision for files created
                                             on or after October 1,
                                             1979.
-------------------------------------------
(2) Contracts (and related records or       6 years and 3 months after
 documents, including successful             final payment.
 proposals) exceeding the simplified
 acquisition threshold for other than
 construction.
-------------------------------------------
(3) Contracts (and related records or       3 years after final payment.
 documents, including successful
 proposals) at or below the simplified
 acquisition threshold for other than
 construction.
-------------------------------------------
(4) Construction contracts:
    (i) Above $2,000......................   6 years and 3 months after
                                             final payment.
-------------------------------------------
    (ii) $2,000 or less...................   3 years after final
                                             payment.
-------------------------------------------
    (iii) Related records or documents,      Same as contract file.
     including successful proposals,
     except for contractor's payrolls (see
     (b)(4)(iv)).
-------------------------------------------
    (iv) Contractor's payrolls submitted    3 years after contract
     in accordance with Department of        completion unless contract
     Labor regulations, with related         performance is the subject
     certifications, anti-kickback           of an enforcement action on
     affidavits, and other related papers.   that date.
-------------------------------------------
(5) Solicited and unsolicited unsuccessful
 offers, quotations, bids, and proposals:
    (i) Relating to contracts above the     If filed separately from
     simplified acquisition threshold.       contract file, until
                                             contract is completed.
                                             Otherwise, the same as
                                             related contract file.
-------------------------------------------
    (ii) Relating to contracts at or below  1 year after date of award
     the simplified acquisition threshold.   or until final payment,
                                             whichever is later.
-------------------------------------------
(6) Files for canceled solicitations......  5 years after cancellation.
-------------------------------------------
(7) Other copies of procurement file        Upon termination or
 records used by component elements of a     completion.
 contracting office for administrative
 purposes.
-------------------------------------------
(8) Documents pertaining generally to the   Until superseded or
 contractor as described at 4.801(c)(3).     obsolete.
-------------------------------------------
(9) Data submitted to the Federal           5 years after submittal to
 Procurement Data System (FPDS).             FPDS.
 Electronic data file maintained by fiscal
 year, containing unclassified records of
 all procurements other than simplified
 acquisitions, and information required
 under 4.601.
-------------------------------------------
(10) Investigations, cases pending or in    Until final clearance or
 litigation (including protests), or         settlement, or, if related
 similar matters.                            to a document identified in
                                             (b)(1)-(9), for the
                                             retention period specified
                                             for the related document,
                                             whichever is later.
------------------------------------------------------------------------


[65 FR 36022, June 6, 2000]



         Subpart 4.9--Taxpayer Identification Number Information

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

    Source: 63 FR 58589, Oct. 30, 1998, unless otherwise noted.



4.900  Scope of subpart.

    This subpart provides policies and procedures for obtaining--
    (a) Taxpayer Identification Number (TIN) information that may be 
used for debt collection purposes; and
    (b) Contract information and payment information for submittal to 
the payment office for Internal Revenue Service (IRS) reporting 
purposes.

[[Page 77]]



4.901  Definition.

    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.

[60 FR 28493, May 31, 1995, as amended at 66 FR 2127, Jan. 10, 2001]



4.902  General.

    (a) Debt collection. 31 U.S.C. 7701(c) requires each contractor 
doing business with a Government agency to furnish its TIN to that 
agency. 31 U.S.C. 3325(d) requires the Government to include, with each 
certified voucher prepared by the Government payment office and 
submitted to a disbursing official, the TIN of the contractor receiving 
payment under the voucher. The TIN may be used by the Government to 
collect and report on any delinquent amounts arising out of the 
contractor's relationship with the Government.
    (b) Information reporting to the IRS. The TIN is also required for 
Government reporting of certain contract information (see 4.903) and 
payment information (see 4.904) to the IRS.



4.903  Reporting contract information to the IRS.

    (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 TIN of the contractor;
    (2) Name and TIN of the 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).



4.904  Reporting payment information to the IRS.

    26 U.S.C. 6041 and 6041A, as implemented in 26 CFR, in part, require 
payors, including Government agencies, to report to the IRS, on Form 
1099, payments made to certain contractors. 26 U.S.C. 6109 requires a 
contractor to provide its TIN if a Form 1099 is required. The payment 
office is responsible for submitting reports to the IRS.



4.905  Solicitation provision.

    The contracting officer shall insert the provision at 52.204-3, 
Taxpayer Identification, in solicitations that are not conducted under 
the procedures of Part 12, unless the TIN, type of organization, and 
common parent information for each offeror will be obtained from some 
other source (e.g., centralized database) in accordance with agency 
procedures.



                  Subpart 4.10--Administrative Matters

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



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 78]]



                   SUBCHAPTER B--ACQUISITION PLANNING



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




Sec.
5.000 Scope of part.
5.001 Definition.
5.002 Policy.
5.003 Governmentwide point of entry.

                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 Notice of subcontracting 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 actions for additional 
supplies or services outside the existing contract scope, but not 
including actions that are within the scope and under the terms of the 
existing contract, such as contract modifications issued pursuant to the 
Changes clause, or funding and other administrative changes.

[67 FR 13053, Mar. 20, 2002]



5.002  Policy.

    Contracting officers must publicize contract actions in order to--
    (a) Increase competition;
    (b) Broaden industry participation in meeting Government 
requirements; and
    (c) Assist small business concerns, veteran-owned small business 
concerns, service-disabled veteran-owned small business concerns, 
HUBZone 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; 
65 FR 60544, Oct. 11, 2000]



5.003  Governmentwide point of entry.

    For any requirement in the FAR to publish a notice, the contracting 
officer may transmit the notice to the Commerce Business Daily (CBD) if 
the contracting office lacks the capability to access the Governmentwide 
point of entry (GPE) and the notice is issued prior to October 1, 2001. 
Effective October 1, 2001, the contracting officer must transmit all 
notices to the GPE.

[66 FR 27409, May 16, 2001]



                Subpart 5.1--Dissemination of Information



5.101  Methods of disseminating information.

    (a) As required by the Small Business Act (15 U.S.C. 637(e)) and the 
Office of Federal Procurement Policy Act (41

[[Page 79]]

U.S.C. 416), contracting officers must disseminate information on 
proposed contract actions as follows:
    (1) For proposed contract actions expected to exceed $25,000, by 
synopsizing in the GPE (see 5.201), unless covered by 5.003.
    (2) For proposed contract actions expected to exceed $10,000, but 
not expected to exceed $25,000, by displaying in a public place, or by 
any appropriate electronic means, an unclassified notice of the 
solicitation or a copy of the solicitation satisfying the requirements 
of 5.207(d) and (g). The notice must include a statement that all 
responsible sources may submit a response which, if timely received, 
must be considered by the agency. The information must be posted not 
later than the date the solicitation is issued, and must remain posted 
for at least 10 days or until after quotations have been opened, 
whichever is later.
    (i) If solicitations are posted instead of a notice, the contracting 
officer may employ various methods of satisfying the requirements of 
5.207(d) and (g). For example, the contracting officer may meet the 
requirements of 5.207(d) and (g) 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, when oral or Federal Acquisition 
Computer Network (FACNET) solicitations are used, or when providing 
access to a notice of proposed contract action and solicitation through 
the GPE and the notice permits the public to respond to the solicitation 
electronically.
    (iii) Contracting officers may use electronic posting of 
requirements in a place accessible by the general public at the 
Government installation to satisfy the public display requirement. 
Contracting offices using electronic systems for public posting that are 
not accessible outside the installation must periodically publicize the 
methods for accessing the 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; 63 FR 
58592, Oct. 30, 1998; 66 FR 27409, May 16, 2001]



5.102  Availability of solicitations.

    (a)(1) Except as provided in paragraph (a)(4) of this section, the 
contracting officer must make available through the GPE solicitations 
synopsized through the GPE, including specifications and other pertinent 
information determined necessary by the contracting officer. 
Transmissions to the GPE must be in accordance with the interface 
description available via the Internet at http://www.fedbizopps.gov.
    (2) The contracting officer is encouraged, when practicable and 
cost-effective, to make accessible through the GPE additional 
information related to a solicitation.

[[Page 80]]

    (3) The contracting officer must ensure that solicitations 
transmitted to FACNET are forwarded to the GPE to satisfy the 
requirements of paragraph (a)(1) of this section.
    (4) The contracting officer need not make a solicitation available 
through the GPE when--
    (i) Disclosure would compromise the national security (e.g., would 
result in disclosure of classified information) or create other security 
risks. The fact 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;
    (ii) The nature of the file (e.g., size, format) does not make it 
cost-effective or practicable for contracting officers to provide access 
through the GPE;
    (iii) The agency's senior procurement executive makes a written 
determination that access through the GPE is not in the Government's 
interest; or
    (iv) The contracting office lacks the capability to access the GPE 
and the synopsis is issued prior to October 1, 2001.
    (b) When the contracting officer does not make a solicitation 
available through the GPE pursuant to paragraph (a)(4) of this section, 
the contracting officer--
    (1) Should employ other electronic means (e.g., CD-ROM or electronic 
mail) whenever practicable and cost-effective. When solicitations are 
provided electronically on physical media (e.g., disks) or in paper 
form, the contracting officer must--
    (i) Maintain a reasonable number of copies of solicitations, 
including specifications and other pertinent information determined 
necessary by the contracting officer (upon request, potential sources 
not initially solicited should be mailed or provided copies of 
solicitations, if available);
    (ii) 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
    (iii) 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; and
    (2) May require payment of a fee, not exceeding the actual cost of 
duplication, for a copy of the solicitation document.
    (c) 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)--
    (1) A copy of the solicitation and 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;
    (2) The name and telephone number of an employee of the contracting 
office who will answer questions on the solicitation; and
    (3) Adequate citations to each applicable major Federal law or 
agency rule with which small business concerns must comply in performing 
the contract.
    (d) When electronic commerce (see subpart 4.5) is used in the 
solicitation process, availability of the solicitation may be limited to 
the electronic medium.
    (e) Provide copies of a solicitation issued under other than full 
and open competition 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.
    (f) This section 5.102 applies to classified contracts to the extent 
consistent with agency security requirements (see 5.202(a)(1)).

[66 FR 27409, May 16, 2001]



           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 must 
make notices of proposed contract actions available as specified in 
paragraph (b) of this section.
    (b)(1) For acquisitions of supplies and services, other than those 
covered by

[[Page 81]]

the exceptions in 5.202 and the special situations in 5.205, the 
contracting officer must transmit a notice to the GPE, for each 
proposed--
    (i) Contract action meeting the threshold in 5.101(a)(1);
    (ii) Modification to an existing contract for additional supplies or 
services that meets the threshold in 5.101(a)(1); or
    (iii) Contract action in any amount when advantageous to the 
Government.
    (2) When transmitting notices to the GPE before January 1, 2002, 
contracting officers must direct the GPE to forward the notice to the 
CBD.
    (3) When transmitting notices to FACNET, contracting officers must 
ensure the notice is forwarded to the GPE. For notices published before 
January 1, 2002, contracting officers must ensure that the notices are 
forwarded by the GPE to the CBD.
    (c) The primary purposes of the notice are to improve small business 
access to acquisition information and enhance competition by identifying 
contracting and subcontracting opportunities.
    (d)(1) The GPE may be accessed via the Internet at http://
www.fedbizopps.gov.
    (2) Subscriptions to the CBD must be placed with the Superintendent 
of Documents, Government Printing Office, Washington, DC 20402, 
Telephone (202) 512-1800.

[66 FR 27410, May 16, 2001]



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 proposed 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;
    (3) The proposed 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 proposed 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 proposed contract action is for utility services other than 
telecommunications services and only one source is available;
    (6) The proposed contract action is an order placed under Subpart 
16.5;
    (7) The proposed contract action results from acceptance of a 
proposal under the Small Business Innovation Development Act of 1982 
(Pub. L. 97-219);
    (8) The proposed contract action results from the acceptance of an 
unsolicited research proposal that demonstrates a unique and innovative 
concept (see 2.101) 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 
proposed contract action results from an unsolicited research proposal 
and acceptance is based solely upon the unique capability of the

[[Page 82]]

source to perform the particular research services proposed (see 6.302-
1(a)(2)(i);
    (9) The proposed contract action is made for perishable subsistence 
supplies, and advance notice is not appropriate or reasonable;
    (10) The proposed 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 proposed 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 
proposed contract action;
    (12) The proposed contract action is by a Defense agency and the 
proposed 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 proposed contract actions 
subject to the Trade Agreements Act (see subpart 25.4). This exception 
also does not apply to North American Free Trade Agreement proposed 
contract actions, which will be synopsized in accordance with agency 
regulations;
    (13) The proposed contract action--
    (i) Is for an amount not expected to exceed the simplified 
acquisition threshold;
    (ii) Will be made through a means that provides access to the notice 
of proposed contract action through the GPE; and
    (iii) Permits the public to respond to the solicitation 
electronically; or
    (14) The proposed 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; 63 FR 
58592, 58593, Oct. 30, 1998; 66 FR 2127, Jan. 10, 2001; 66 FR 27410, May 
16, 2001]



5.203  Publicizing and response time.

    Whenever agencies are required to publicize notice of proposed 
contract actions under 5.201, they must proceed as follows:
    (a) An agency must transmit a notice of proposed contract action to 
the GPE (see 5.201). All publicizing and response times are calculated 
based on the date of publication. For notices published before January 
1, 2002, the publication date is the date the notice is published in the 
CBD. For notices published on or after January 1, 2002, the publication 
date is the date the notice appears on the GPE. The notice must be 
published 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 synopsis and solicitation procedure (see 
12.603).
    (b) The contracting officer must establish a solicitation response 
time that will afford potential offerors a reasonable opportunity to 
respond to each proposed contract action, (including actions via FACNET 
or for which the notice of proposed contract action and solicitation 
information is accessible through the GPE), in an amount estimated to be 
greater than $25,000, but not greater than the simplified acquisition 
threshold; or each contract action for the acquisition of commercial 
items in an amount estimated to be greater than $25,000. 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.

[[Page 83]]

    (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 
proposed 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 proposed contract 
action is expected to exceed the simplified acquisition threshold.
    (e) Agencies must 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 proposed contract actions categorized as research and 
development if the proposed 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 through the GPE or other means) 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 proposed 
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 must 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, 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; 63 
FR 58592, 58593, Oct. 30, 1998; 66 FR 27410, May 16, 2001]



5.204  Presolicitation notices.

    Contracting officers must provide access to presolicitation notices 
through the GPE (see 15.201 and 36.213-2). The contracting officer must 
synopsize a proposed contract action before issuing any resulting 
solicitation (see 5.201 and 5.203).

[66 FR 27411, May 16, 2001]



5.205  Special situations.

    (a) Research and development (R&D) advance notices. Contracting 
officers may transmit to the GPE advance notices of their interest in 
potential R&D programs whenever market research does not produce a 
sufficient number of concerns to obtain adequate competition. Advance 
notices must not be used where security considerations prohibit such 
publication. Advance notices will enable potential sources to learn of 
R&D programs and provide these sources with an opportunity to submit 
information which will permit evaluation of their capabilities. 
Potential sources which respond to advance notices must be added to the 
appropriate solicitation mailing list for subsequent solicitation. 
Advance notices must be entitled ``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 must synopsize (see 
5.201) 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.

[[Page 84]]

    (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 must transmit at least three notices over a 90-day period to the 
GPE 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 must indicate the scope and nature of the effort to be 
performed and request comments. Notice is not required where the action 
is required by law. When transmitting notices to the GPE before January 
1, 2002, contracting officers must direct the GPE to forward the notice 
to the CBD.
    (c) Special notices. Contracting officers may transmit to the GPE 
special notices of procurement matters such as business fairs, long-
range procurement estimates, prebid or preproposal conferences, 
meetings, and the availability of draft solicitations or draft 
specifications for review.
    (d) Architect-engineering services. Contracting officers must 
publish notices of intent to contract for architect-engineering services 
as follows:
    (1) Except when exempted by 5.202, contracting officers must 
transmit to the GPE a synopsis of each proposed contract action for 
which the total fee (including phases and options) is expected to exceed 
$25,000. When transmitting notices to the GPE before January 1, 2002, 
contracting officers must direct the GPE to forward the notice to the 
CBD. The notice must reference the appropriate CBD Numbered Note.
    (2) When the total fee is expected to exceed $10,000 but not exceed 
$25,000, the contracting officer must comply with 5.101(a)(2). When the 
proposed contract action is not required to be synopsized under 
paragraph (d)(1) of this section, the contracting officer must 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 must not arrive at a conclusion that there are no 
commercial sources capable of providing the required supplies or 
services until publicizing the requirement through the GPE at least 
three times in a 90 calendar-day period, with a minimum of 30 calendar 
days between notices. When necessary to meet an urgent requirement, this 
may be limited to a total of two notices through the GPE in a 30 
calendar-day period, with a minimum of 15 calendar days between each. 
When transmitting notices to the GPE before January 1, 2002, contracting 
officers must direct the GPE to forward the notice to the CBD.
    (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 must 
transmit a synopsis of the proposed contract action to the GPE. When 
transmitting notices to the GPE before January 1, 2002, contracting 
officers must direct the GPE to forward the notice to the CBD. The 
synopsis may be transmitted to the GPE concurrent with submission of the 
agency offering (see 19.804-2) to the Small Business Administration 
(SBA). The synopsis should also include information--
    (1) Advising that the acquisition is being offered for competition 
limited to eligible 8(a) concerns;
    (2) Specifying the North American Industry Classification System 
(NAICS) code;
    (3) Advising that eligibility to participate may be restricted to 
firms in either the developmental stage or the developmental and 
transitional stages; 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.

[66 FR 27411, May 16, 2001]



5.206  Notices of subcontracting opportunities.

    (a) The following entities may transmit a notice to the GPE, the 
CBD, or

[[Page 85]]

both to seek competition for subcontracts, to increase participation by 
qualified HUBZone small business, small, small disadvantaged, and small 
women-owned business concerns, and to meet established subcontracting 
plan goals:
    (1) A contractor awarded a contract exceeding $100,000 that is 
likely to result in the award of any subcontracts.
    (2) A subcontractor or supplier, at any tier, under a contract 
exceeding $100,000, that has a subcontracting opportunity exceeding 
$10,000.
    (b) The notices must describe--
    (1) The business opportunity, following the standard CDB format for 
items 7, 10, 11, and 17 in 5.207(b)(4);
    (2) Any prequalification requirements; and
    (3) Where to obtain technical data needed to respond to the 
requirement.

[64 FR 72442, Dec. 27, 1999, as amended at 65 FR 46054, July 26, 2000; 
66 FR 27412, May 16, 2001]



5.207  Preparation and transmittal of synopses.

    (a) Content. Each synopsis transmitted to the GPE or CBD must 
address the following data elements, as applicable:
    (1) Action Code.
    (2) Date.
    (3) Year.
    (4) Government Printing Office (GPO) Billing Account Code.
    (5) Contracting Office Zip Code.
    (6) Classification Code.
    (7) Contracting Office Address.
    (8) Subject.
    (9) Proposed Solicitation Number.
    (10) Opening and Closing Response Date.
    (11) Contact Point or Contracting Officer.
    (12) Contract Award and Solicitation Number.
    (13) Contract Award Dollar Amount.
    (14) Contract Line Item Number.
    (15) Contract Award Date.
    (16) Contractor.
    (17) Description.
    (18) Place of Contract Performance.
    (19) Set-aside Status.
    (b) Transmittal--(1) GPE. Transmissions must be in accordance with 
the interface description available via the Internet at http://
www.fedbizopps.gov.
    (2) CBD--(i) Electronic transmission. All synopses transmitted 
electronically to the CBD, other than through the GPE (see 5.003), must 
be in ASCII Code. Contact your agency's communications center for the 
appropriate transmission instructions or services.
    (ii) Hard copy transmission. When electronic transmission is not 
feasible (see 5.003), synopses should be sent to the CBD via mail or 
other physical delivery of hard copy and should be addressed to the 
Commerce Business Daily, U.S. Department of Commerce, P.O. Box 77880, 
Washington, DC 20013-8880.
    (c) Format for the CBD. The contracting officer must prepare the 
synopsis in the following style and format to assure 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;

[[Page 86]]

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.)
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(h). 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.)
18. PLACE OF CONTRACT PERFORMANCE.
    (Include where applicable; where not applicable, enter N/A.)
19. SET-ASIDES.
    (Identify if the proposed acquisition provides for a total or 
partial set-aside, a very small business set-aside, or a HUBZone small 
business set-aside. If not a set-aside, enter N/A.)


[[Page 87]]


    (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!!
    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. * * * * *

    (d) 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 proposed 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.
    (xviii) In the case of a very small business set-aside, identify the 
Designated Region (see subpart 19.9).
    (e) Set-asides. When the proposed acquisition provides for a total, 
partial, or very small business set-aside, or a HUBZone small business 
set-aside, the appropriate CBD Numbered Note will be cited.

[[Page 88]]

    (f) 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 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 proposed 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 proposed 
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.
    (g) 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).
    (h) 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

[[Page 89]]

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.
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.
    (i) Cancellation of synopsis. Contracting officers should not 
publish notices of solicitation cancellations (or indefinite 
suspensions) of proposed contract actions in the GPE or CBD. 
Cancellations of solicitations must be made in accordance with 14.209 
and 14.404-1.

[48 FR 42119, Sept. 19, 1983, as amended at 66 FR 27412, May 16, 2001; 
67 FR 13068, Mar. 20, 2002]

    Editorial Note: For Federal Register citations affecting section 
5.207, see the List of Sections Affected which appears in the Finding 
Aids section of the printed volume and on GPO Access.



                Subpart 5.3--Synopses of Contract Awards



5.301  General.

    (a) Except for contract actions described in paragraph (b) of this 
section and as provided in 5.003, contracting officers must synopsize 
through the GPE awards exceeding $25,000 that are--
    (1) Subject to the Trade Agreements Act (see Subpart 25.4); or

[[Page 90]]

    (2) 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;
    (6) The award is for utility services, other than telecommunications 
services, and only one source is available;
    (7) The contract action--
    (i) Is for an amount not greater than the simplified acquisition 
threshold;
    (ii) Was made through a means where access to the notice of proposed 
contract action was provided through the GPE; and
    (iii) Permitted the public to respond to the solicitation 
electronically; 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 must submit synopses in sufficient time to 
permit publication in the CBD, through the GPE, not later than 60 days 
after award.
    (d) When transmitting notices to the GPE before January 1, 2002, 
contracting officers must direct the GPE to forward the notice to the 
CBD.

[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; 63 FR 58593, Oct. 30, 1998; 64 FR 72418, Dec. 27, 1999; 66 FR 
27412, May 16, 2001]



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

[[Page 91]]

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]



                   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;
    (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;

[[Page 92]]

    (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 action is synopsized through the GPE 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 unit price, and the name of the last 
supplier.

[48 FR 42119, Sept. 19, 1983, as amended at 60 FR 48259, Sept. 18, 1995; 
66 FR 27412, May 16, 2001]



5.404-2  Announcements of long-range acquisition estimates.

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

[66 FR 27412, May 16, 2001]



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.

    As used in this subpart--
    Advertisement, means any single message prepared for placement in 
communication media, regardless of the number of placements.
    Publication, means (1) the placement of an advertisement in a 
newspaper, magazine, trade or professional journal, or any other printed 
medium, or (2) the broadcasting of an advertisement over radio or 
television.

[48 FR 42119, Sept. 19, 1983, as amended at 66 FR 2127, Jan. 10, 2001]



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

[[Page 93]]

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 by using electronic commerce or by using 
the Governmentwide commercial purchase card for micropurchases.
    (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 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; 63 FR 58593, Oct. 30, 1998]



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 [Reserved]

                 Subpart 6.1--Full and Open Competition

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

[[Page 94]]

    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.
6.205 Set-asides for HUBZone small business concerns.

            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.

                   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.



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. This 
part does not deal with the results of competition (e.g., adequate price 
competition), that are addressed in other parts (e.g., part 15).

[66 FR 2127, Jan. 10, 2001]



6.001  Applicability.

    This part applies to all acquisitions except--
    (a) Contracts awarded using the simplified acquisition procedures of 
part 13 (but see 13.501 for requirements pertaining to sole source 
acquisition of commercial items under subpart 13.5).
    (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; 62 FR 64917, Dec. 9, 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.

[[Page 95]]



6.003  [Reserved]



                 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]



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.

[64 FR 51831, Sept. 24, 1999]



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;

[[Page 96]]

    (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]



6.205  Set-asides for HUBZone small business concerns.

    (a) To fulfill the statutory requirements relating to the HUBZone 
Act of 1997 (15 U.S.C. 631 note), contracting officers in participating 
agencies (see 19.1302) may set aside solicitations to allow only 
qualified HUBZone small business concerns to compete (see 19.1305).
    (b) No separate justification or determination and findings is 
required under this part to set aside a contract action for qualified 
HUBZone small business concerns.

[63 FR 70267, Dec. 18, 1998]



            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 U.S. Code 
citation applicable to their agency. (See 6.302.)

[[Page 97]]

    (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 (see definition at 
2.101), 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.
    (2) The existence of limited rights in data, patent rights, 
copyrights, or secret processes; the control of basic raw material; or 
similar circumstances,

[[Page 98]]

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; 66 FR 2128, Jan. 10, 2001]



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 in case of a 
national emergency or to achieve industrial mobilization,

[[Page 99]]

    (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 or neutral person 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; 63 FR 58594, 58602, 
Oct. 30, 1998; 66 FR 2128, Jan. 10, 2001]

[[Page 100]]



6.302-4  International agreement.

    (a) Authority. (1) Citations: 10 U.S.C. 2304(c)(4) or 41 U.S.C. 
253(c)(4).
    (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 
Disabled--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).
    (6) Sole source awards under the HUBZone Act of 1997--15 U.S.C. 657a 
(see 19.1306).
    (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

[[Page 101]]

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, 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; 63 FR 70267, Dec. 18, 1998; 67 FR 13068, Mar. 20, 2002]



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

[[Page 102]]

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.
    (d) If 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 in an 
acquisition that would otherwise be subject to the Trade Agreements Act 
(see Subpart 25.4), the contracting officer must forward a copy of the 
justification, in accordance with agency procedures, to the agencys 
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; 64 FR 72418, Dec. 27, 1999]



 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 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; 66 FR 27412, May 16, 2001]



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 103]]

    (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 
for Acquisition, Technology, and Logistics, 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; 65 
FR 24325, Apr. 25, 2000]



6.305  Availability of the justification.

    (a) 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. 253(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.
    (b) 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; 65 FR 16286, Mar. 27, 2000]



          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.
    (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.
    (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.

[[Page 104]]

    (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; 64 FR 51833, Sept. 24, 1999]



                   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 
contract 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
    (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

[[Page 105]]

to motivate program managers, contracting officers, and others in 
authority to promote competition in acquisition.

[60 FR 48236, Sept. 18, 1995, as amended at 67 FR 13053, Mar. 20, 2002]



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.
7.107 Additional requirements for acquisitions involving bundling.

     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 [Reserved]
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.

    As used in this subpart--
    Acquisition streamlining, 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.
    Life-cycle cost means the total cost to the Government of acquiring, 
operating, supporting, and (if applicable) disposing of the items being 
acquired.
    Order means an order placed under a--
    (1) Federal Supply Schedule contract; or
    (2) Task-order contract or delivery-order contract awarded by 
another agency, (i.e., Governmentwide acquisition contract or multi-
agency contract).
    Planner, means the designated person or office responsible for 
developing and maintaining a written plan, or for the

[[Page 106]]

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; 66 FR 2128, Jan. 10, 2001; 67 FR 56118, Aug. 30, 2002]



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 systems basis, on an individual 
contract basis, or on an individual order 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.
    (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--

[[Page 107]]

    (1) Specify needs for printing and writing paper consistent with the 
minimum content standards specified in section 505 of Executive Order 
13101 of September 14, 1998, Greening the Government through Waste 
Prevention, Recycling, and Federal Acquisition (see 11.303); and
    (2) Comply with the policy in 11.002(d) regarding procurement of 
products containing recovered materials, and environmentally preferable 
and energy-efficient products and services.
    (o) Ensuring that acquisition planners specify needs and develop 
plans, drawings, work statements, specifications, or other product 
descriptions that address Electronic and Information Technology 
Accessibility Standards (see 36 CFR part 1194) in proposed acquisitions 
(see 11.002(e)) and that these standards are included in requirements 
planning, as appropriate (see subpart 39.2).
    (p) 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.
    (q) 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 or orders 
are adequately managed so as to ensure effective official control over 
contract or order performance.
    (r) 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.
    (s) Ensuring that acquisition planners, to the maximum extent 
practicable--
    (1) Structure contract requirements to facilitate competition by and 
among small business concerns; and
    (2) Avoid unnecessary and unjustified bundling that precludes small 
business participation as contractors (see 7.107) (15 U.S.C. 631(j)).
    (t) Ensuring that agency planners on information technology 
acquisitions comply with the capital planning and investment control 
requirements in 40 U.S.C. 1422 and OMB Circular A-130.

[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; 64 FR 
72442, Dec. 27, 1999; 65 FR 36017, June 6, 2000; 66 FR 20896, Apr. 25, 
2001; 67 FR 56118, Aug. 30, 2002]



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 or order placement 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 with 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 when awarding a 
contract, the plan shall

[[Page 108]]

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; 67 FR 56118, Aug. 30, 2002]



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 paragraph (b)(19) below). The plan must 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 must follow the applicable instructions 
in paragraphs (a) and (b) below, together with the agency's implementing 
procedures. Acquisition plans for service contracts or orders must 
describe the strategies for implementing performance-based contracting 
methods or must 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

[[Page 109]]

or services that can meet the need. Consider required sources of 
supplies or services (see part 8). Include consideration of small 
business, veteran-owned small business, service-disabled veteran-owned 
small business, HUBZone small business, small disadvantaged business, 
and women-owned small business concerns (see part 19), and the impact of 
any bundling that might affect their participation in the acquisition 
(see 7.107) (15 U.S.C. 644(e)). 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.
    (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) Acquisition considerations. (i) 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.
    (ii) For each order contemplated, discuss--
    (A) For information technology acquisitions, how the capital 
planning and investment control requirements of 40 U.S.C. 1422 and OMB 
Circular A-130 will be met (see 7.103(t) and part 39); and
    (B) Why this action benefits the Government, such as when--
    (1) The agency can accomplish its mission more efficiently and 
effectively (e.g., take advantage of the servicing agency's specialized 
expertise; or gain access to contractors with needed expertise); or
    (2) Ordering through an indefinite delivery contract facilitates 
access to small business concerns, including small disadvantaged 
business concerns, 8(a) contractors, women-owned small business 
concerns, HUBZone small business concerns, veteran-owned small business 
concerns, or service-disabled veteran-owned small business concerns.
    (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).

[[Page 110]]

    (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).
    (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

[[Page 111]]

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; 63 FR 70267, Dec. 18, 1998; 64 FR 72442, Dec. 27, 1999; 65 FR 
60544, Oct. 11, 2000; 67 FR 56118, Aug. 30, 2002]



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]



7.107  Additional requirements for acquisitions involving bundling.

    (a) Bundling may provide substantial benefits to the Government. 
However, because of the potential impact on small business 
participation, the head of the agency must conduct market research to 
determine whether bundling is necessary and justified (15 U.S.C. 
644(e)(2)). Market research may indicate that bundling is necessary and 
justified if an agency would derive measurably substantial benefits (see 
10.001(a)(2)(iv) and (a)(3)(vi)).
    (b) Measurably substantial benefits may include, individually or in 
any combination or aggregate, cost savings or price reduction, quality 
improvements that will save time or improve or enhance performance or 
efficiency, reduction in acquisition cycle times, better terms and 
conditions, and any other benefits. The agency must quantify the 
identified benefits and explain how their impact would be measurably 
substantial. Except as provided in paragraph (d) of this section, the 
agency may determine bundling to be necessary and justified if, as 
compared to the benefits that it would derive from contracting to meet 
those requirements if not bundled, it would derive measurably 
substantial benefits equivalent to--
    (1) Ten percent of the estimated contract value (including options) 
if the value is $75 million or less; or
    (2) Five percent of the estimated contract value (including options) 
or $7.5 million, whichever is greater, if the value exceeds $75 million.
    (c) Without power of delegation, the service acquisition executive 
for the

[[Page 112]]

military departments, the Under Secretary of Defense for Acquisition, 
Technology and Logistics for the defense agencies, or the Deputy 
Secretary or equivalent for the civilian agencies may determine that 
bundling is necessary and justified when--
    (1) The expected benefits do not meet the thresholds in paragraphs 
(b)(1) and (b)(2) of this section but are critical to the agency's 
mission success; and
    (2) The acquisition strategy provides for maximum practicable 
participation by small business concerns.
    (d) Reduction of administrative or personnel costs alone is not 
sufficient justification for bundling unless the cost savings are 
expected to be at least 10 percent of the estimated contract value 
(including options) of the bundled requirements.
    (e) Substantial bundling is any bundling that results in a contract 
with an average annual value of $10 million or more. When the proposed 
acquisition strategy involves substantial bundling, the acquisition 
strategy must--
    (1) Identify the specific benefits anticipated to be derived from 
bundling;
    (2) Include an assessment of the specific impediments to 
participation by small business concerns as contractors that result from 
bundling;
    (3) Specify actions designed to maximize small business 
participation as contractors, including provisions that encourage small 
business teaming;
    (4) Specify actions designed to maximize small business 
participation as subcontractors (including suppliers) at any tier under 
the contract or contracts that may be awarded to meet the requirements; 
and
    (5) Include a specific determination that the anticipated benefits 
of the proposed bundled contract justify its use.
    (f) The contracting officer must justify bundling in acquisition 
strategy documentation.
    (g) In assessing whether cost savings would be achieved through 
bundling, the contracting officer must consider the cost that has been 
charged or, where data is available, could be charged by small business 
concerns for the same or similar work.
    (h) The requirements of this section, except for paragraph (e), do 
not apply if a cost comparison analysis will be performed in accordance 
with OMB Circular A-76.

[64 FR 72443, Dec. 27, 1999, as amended at 65 FR 46054, July 26, 2000]



     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

[[Page 113]]

contracting officer determines that (a) 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 114]]

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 must 
assist in identifying private commercial sources.
    (b) In making all reasonable efforts to identify such sources, the 
contracting officer must assist in--
    (1) Synopsizing the requirement through the Governmentwide point of 
entry (GPE) in accordance with 5.205(e) until a reasonable number of 
potential sources are identified. If necessary, a synopsis must 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); and
    (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; 66 FR 27412, May 16, 2001]



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 115]]

    (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 116]]

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]



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 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

[[Page 117]]

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:
    (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

[[Page 118]]

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  [Reserved]



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.
    (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;

[[Page 119]]

    (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 
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)).

[[Page 120]]

    (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 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 General.
8.002 Priorities for use of Government supply sources.
8.003 Use of other Government supply sources.
8.004 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.

Subparts 8.2-8.3 [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.

[[Page 121]]

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.
8.716 Change-of-name and successor in interest procedures.

        Subpart 8.8--Acquisition of Printing and Related Supplies

8.800 Scope of subpart.
8.801 Definitions.
8.802 Policy.

Subparts 8.9-8.10 [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.



8.001  General.

    Regardless of the source of supplies or services to be acquired, 
information technology acquisitions shall comply with capital planning 
and investment control requirements in 40 U.S.C. 1422 and OMB Circular 
A-130.

[67 FR 56119, Aug. 30, 2002]



8.002  Priorities for use of Government supply sources.

    (a) Except as required by 8.003, 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; 66 FR 65367, Dec. 18, 2001. Redesignated and 
amended at 67 FR 56119, Aug. 30, 2002]

[[Page 122]]



8.003  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. Redesignated at 67 FR 56119, Aug. 
30, 2002]



8.004  Contract clause.

    Insert the clause at 52.208-9, Contractor Use of Mandatory Sources 
of Supply and Services that, in solicitations and contracts that require 
a contractor to provide supplies or services 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 supplies or services that must be purchased from a 
mandatory source and the specific source.

[66 FR 65368, Dec. 18, 2001. Redesignated and amended at 67 FR 56119, 
Aug. 30, 2002]



                  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 practicable, agencies must use excess personal property as the 
first source of supply for agency and cost-reimbursement contractor 
requirements. Agency personnel must make positive efforts to satisfy 
agency requirements by obtaining and using excess personal property 
(including that suitable for adaptation or substitution) before 
initiating a contract action.

[67 FR 13053, Mar. 20, 2002]



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.

Subparts 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 8.002). 
Indefinite

[[Page 123]]

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://www.fss.gsa.gov). For more information or assistance, 
contact GSA at Internet e-mail address: [email protected].
    (d) For administrative convenience, an ordering office contracting 
officer may add items not on the Federal Supply Schedule (also referred 
to as open market items) to a Federal Supply Schedule blanket purchase 
agreement (BPA) or an individual task or delivery order only if--
    (1) All applicable acquisition regulations pertaining to the 
purchase of the items not on the Federal Supply Schedule have been 
followed (e.g., publicizing (Part 5), competition requirements (Part 6), 
acquisition of commercial items (Part 12), contracting methods (Parts 
13, 14, and 15), and small business programs (Part 19));
    (2) The ordering office contracting officer has determined the price 
for the items not on the Federal Supply Schedule is fair and reasonable;
    (3) The items are clearly labeled on the order as items not on the 
Federal Supply Schedule; and
    (4) All clauses applicable to items not on the Federal Supply 
Schedule are included in the order.

[62 FR 44817, Aug. 22, 1997, as amended at 67 FR 43515, June 27, 2002; 
67 FR 56119, Aug. 30, 2002]



8.402  Applicability.

    Procedures in this subpart apply to orders placed against Federal 
Supply Schedules. Occasionally, GSA may establish special ordering 
procedures. The affected Federal Supply Schedules will outline these 
procedures.

[65 FR 36024, June 6, 2000]



8.402--8.403-4  [Reserved]



8.404  Using schedules.

    (a) General. (1) Parts 13 and 19 do not apply to orders placed 
against Federal Supply Schedules, except for the provision at 13.303-
2(c)(3). Orders placed against a Multiple Award Schedule (MAS), using 
the procedures in this subpart, are considered to be issued using full 
and open competition (see 6.102(d)(3)).
    (i) Ordering offices need not seek further competition, synopsize 
the requirement, make a separate determination of fair and reasonable 
pricing, or consider small business programs.
    (ii) 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.

[[Page 124]]

    (2) Orders placed under a Federal Supply Schedule contract are not 
exempt from the development of acquisition plans (see subpart 7.1), and 
an information technology acquisition strategy (see part 39).
    (b) Ordering procedures for optional use schedules--(1) Orders at or 
below the micro-purchase threshold. 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. Place orders with the schedule contractor 
that can provide the supply or service that represents the best value. 
Before placing an order, 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 or 
pricelists of at least three schedule contractors (see 8.404(b)(6)). 
Select the delivery and other options available under the schedule that 
meet the agency's needs. When selecting the supply or service 
representing the best value, the ordering office may consider--
    (i) Special features of the supply or service required for effective 
program performance;
    (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--
    (i) Review additional schedule contractors' catalogs or 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 seeking price reductions, 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). Agencies may establish BPAs 
(see 13.303-2(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 ordering frequency, invoicing, 
discounts, and delivery locations and times.
    (5) Price reductions. In addition to the circumstances in paragraph 
(b)(3) of this section, there may be other reasons to request a price 
reduction. For example, seek a price reduction when the supply or 
service is available elsewhere at a lower price or when establishing a 
BPA to fill recurring requirements. The potential volume of orders under 
BPAs, regardless of the size of the individual order, offer 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. When conducting evaluations and before placing 
an order, consider including, if available, one or more small, women-
owned small, and/or small disadvantaged business schedule contractor(s). 
Orders placed against the schedules may be credited toward the ordering 
agency's small business goals. 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

[[Page 125]]

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;
    (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; 62 FR 64917, Dec. 
9, 1997; 63 FR 34079, June 22, 1998; 64 FR 10536, Mar. 4, 1999; 65 FR 
36024, June 6, 2000; 67 FR 56119, Aug. 30, 2002]



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.
    (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.

[[Page 126]]

    (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 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.

[[Page 127]]

    (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.

    (a) Disputes pertaining to the performance of orders under a 
schedule contract. (1) Under the Disputes clause of the schedule 
contract, the ordering office contracting officer may--
    (i) Issue final decisions on disputes arising from performance of 
the order (but see paragraph (b) of this section); or
    (ii) Refer the dispute to the schedule contracting officer.
    (2) The ordering office contracting officer shall notify the 
schedule contracting officer promptly of any final decision.
    (b) Disputes pertaining to the terms and conditions of schedule 
contracts. The ordering office contracting officer shall refer all 
disputes that relate to the contract terms and conditions to the 
schedule contracting officer for resolution under the Disputes clause of 
the contract and notify the schedule contractor of the referral.
    (c) Appeals. Contractors may appeal final decisions to either the 
Board of Contract Appeals servicing the agency that issued the final 
decision or the U.S. Court of Federal Claims.
    (d) Alternative dispute resolution. The contracting officer should 
use the alternative dispute resolution (ADR) procedures, to the maximum 
extent practicable (see 33.204 and 33.214).

[67 FR 43515, June 27, 2002]



                   Subpart 8.5--Acquisition of Helium

    Source: 67 FR 13064, Mar. 20, 2002, unless otherwise noted.



8.500  Scope of subpart.

    This subpart implements the requirements of the Helium Act (50 
U.S.C. 167, et seq.) concerning the acquisition of

[[Page 128]]

liquid or gaseous helium by Federal agencies or by Government 
contractors or subcontractors for use in the performance of a Government 
contract (also see 43 CFR part 3195).



8.501  Definitions.

    As used in this subpart--
    Bureau of Land Management means the Department of the Interior, 
Bureau of Land Management, Amarillo Field Office, Helium Operations, 801 
South Fillmore Street, Suite 500, Amarillo, TX 79101-3545.
    Federal helium supplier means a private helium vendor that has an 
in-kind crude helium sales contract with the Bureau of Land Management 
(BLM) and that is on the BLM Amarillo Field Office's Authorized List of 
Federal Helium Suppliers available via the Internet at http://
www.nm.blm.gov/www/amfo/amfo--home.html.
    Major helium requirement means an estimated refined helium 
requirement greater than 200,000 standard cubic feet (scf) (measured at 
14.7 pounds per square inch absolute pressure and 70 degrees Fahrenheit 
temperature) of gaseous helium or 7510 liters of liquid helium delivered 
to a helium use location per year.



8.502  Policy.

    Agencies and their contractors and subcontractors must purchase 
major helium requirements from Federal helium suppliers, to the extent 
that supplies are available.



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.

    The contracting officer must forward the following information to 
the Bureau of Land Management within 45 days of the close of each fiscal 
quarter:
    (a) The name of any company that supplied a major helium 
requirement.
    (b) The amount of helium purchased.
    (c) The delivery date(s).
    (d) The location where the helium was used.



8.505  Contract clause.

    Insert the clause at 52.208-8, Required Sources for Helium and 
Helium Usage Data, 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.
    (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 8.002 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; 
67 FR 56119, Aug. 30, 2002]

[[Page 129]]



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).
    (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]

[[Page 130]]



 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.

    As used in this subpart--
    Allocation, 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, 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, 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, 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, as amended at 66 FR 2128, Jan. 10, 2001]



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
    (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]

[[Page 131]]



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 
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.

[[Page 132]]

    (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 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]

[[Page 133]]



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]



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

[[Page 134]]

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
(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]

[[Page 135]]



8.716  Change-of-name and successor in interest procedures.

    When the Committee recognizes a name change or a successor in 
interest for a JWOD participating nonprofit agency providing supplies or 
services on the Procurement List--
    (a) The Committee will provide a notice of a change to the 
Procurement List to the cognizant contracting officers; and
    (b) Upon receipt of a notice of a change to the Procurement List 
from the Committee, the contracting officer must--
    (1) Prepare a Standard Form (SF) 30, Amendment of Solicitation/
Modification of Contract, incorporating a summary of the notice and 
attaching a list of contracts affected; and
    (2) Distribute the SF 30, including a copy to the Committee.

[64 FR 51834, Sept. 24, 1999]



        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.

    As used in this subpart--
    Government printing means printing, binding, and blankbook work for 
the use of an executive department, independent agency, or establishment 
of the Government.
    Related supplies, 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; 
66 FR 2128, Jan. 10, 2001]



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]

Subparts 8.9-8.10 [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

[[Page 136]]

Standards and applicable State motor vehicle safety regulations. It does 
not apply to motor vehicles leased outside the United States.



8.1101  Definitions.

    As used in this subpart--
    Leasing, 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 (1) derives power from a 
self-contained power unit or (2) is designed to be towed by and used in 
conjunction with self-propelled equipment.

[48 FR 42129, Sept. 19, 1983, as amended at 66 FR 2128, Jan. 10, 2001]



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.
    (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--

[[Page 137]]

    (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 Definition.
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 Definition.
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 Definition.
9.502 Applicability.
9.503 Waiver.
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.

[[Page 138]]

                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  Definition.

    Surveying activity, as used in this subpart, means the cognizant 
contract administration office or, if there is no such office, another 
organization designated by the agency to conduct preaward surveys.

[48 FR 42142, Sept. 19, 1983, as amended at 66 FR 2128, Jan. 10, 2001]



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 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; 65 FR 80264, 
Dec. 20, 2000; 66 FR 17755, Apr. 3, 2001; 66 FR 66986, 66989, Dec. 27, 
2001]



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));

[[Page 139]]

    (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; 65 FR 80264, Dec. 20, 2000; 66 FR 17756, Apr. 3, 2001; 66 
FR 66986, 66989, Dec. 27, 2001]



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 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, The Small Business Subcontracting Program, the contracting officer 
shall also consider the prospective contractor's compliance with 
subcontracting plans under recent contracts.
    (c) Affiliated concerns. Affiliated concerns (see Concern in 19.001 
and Affiliates in 19.101) are normally considered separate entities in 
determining whether

[[Page 140]]

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; 
63 FR 70267, Dec. 18, 1998; 65 FR 80264, Dec. 20, 2000; 66 FR 66989, 
Dec. 27, 2001; 67 FR 13068, Mar. 20, 2002]



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 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

[[Page 141]]

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 or source 
selection information and should be marked with the appropriate legend 
and protected accordingly (see 3.104-4).

[48 FR 42142, Sept. 19, 1983, as amended by 54 FR 20496, May 11, 1989; 
62 FR 232, Jan. 2, 1997; 67 FR 13063, Mar. 20, 2002]



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

[[Page 142]]

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 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

[[Page 143]]

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.

    As used in this subpart--
    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 
have had their products examined and tested and who have satisfied all 
applicable qualification requirements for that product.

[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 34227, Sept. 2, 1988; 
66 FR 2128, Jan. 10, 2001]



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

[[Page 144]]

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 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

[[Page 145]]

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 Manual, FSPM-0001.
    (2) Defense Standardization Manual 4120.24-M, Appendix 2, as amended 
by Military Standards 961 and 962.
    (d) The publications listed in paragraphs (b) and (c) of this 
section are sold to the public. The publications in paragraphs (b)(1) 
and (c)(1) of this section may be obtained from the addressee in 
11.201(d)(1). The publications in paragraphs (b)(2) and (c)(2) of this 
section may be obtained from the addressee in 11.201(d)(2).

[50 FR 35476, Aug. 30, 1985, as amended at 53 FR 17857, May 18, 1988; 63 
FR 34062, June 22, 1998; 67 FR 6120, Feb. 8, 2002]



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 must--
    (1) Periodically furnish through the Governmentwide point of entry 
(GPE) a notice seeking additional sources or products for qualification 
unless the contracting officer determines that such publication would 
compromise the national security. When transmitting notices to the GPE, 
contracting officers must direct the GPE to forward the notice to the 
Commerce Business Daily (CBD) to satisfy the requirements of 10 U.S.C. 
2319(d)(1)(A) and 41 U.S.C. 253c(d)(1)(A).
    (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

[[Page 146]]

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.

[50 FR 35476, Aug. 30, 1985, as amended at 66 FR 27413, May 16, 2001]



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 must 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 must, before 
establishing any qualification requirement, furnish notice through the 
GPE. When transmitting notices to the GPE, contracting officers must 
direct the GPE to forward the notice to the CBD to satisfy the 
requirements of 10 U.S.C. 2319(d)(1)(A) and 41 U.S.C. 253c(d)(1)(A). The 
notice must 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;
    (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

[[Page 147]]

product passed or failed the qualification testing (see 9.202(a)(4)).
    (b) The activity responsible for establishing a qualification 
requirement must 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 the terms of the Trade Agreements Act (see Subpart 25.4).

[50 FR 35476, Aug. 30, 1985, as amended at 64 FR 72418, Dec. 27, 1999; 
66 FR 27413, May 16, 2001]



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 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]

[[Page 148]]



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 specified for qualification. This notice shall contain 
specific information why

[[Page 149]]

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  Definition.

    Approval, as used in this subpart, means the contracting officer's 
written notification to the contractor accepting the test results of the 
first article.

[48 FR 42142, Sept. 19, 1983, as amended at 66 FR 2128, Jan. 10, 2001]



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--
    (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;

[[Page 150]]

    (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 15.404-1(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]



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 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.

[[Page 151]]



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--
    (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 2.101); and

[[Page 152]]

    (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; 66 
FR 2128, Jan. 10, 2001]



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.

    As used in this subpart--
    Affiliates. Business concerns, organizations, or individuals are 
affiliates of each other if, directly or indirectly, (1) either one 
controls or has the power to control the other, or (2) 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 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 means any individual or other legal entity that--
    (1) 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 a 
subcontract under a Government contract; or
    (2) Conducts business, or reasonably may be expected to conduct 
business, with the Government as an agent or representative of another 
contractor.
    Debarring official means (1) an agency head or (2) 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

[[Page 153]]

charging a criminal offense is given the same effect as an indictment.
    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.
    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.
    Suspending official means (1) an agency head or (2) a designee 
authorized by the agency head to impose suspension.
    Unfair trade practices 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; 66 FR 2128, Jan. 10, 2001]



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

    (a) The General Services Administration (GSA)--
    (1) Compiles and maintains a current list of all parties debarred, 
suspended, proposed for debarment, or declared ineligible by agencies or 
by the General Accounting Office;
    (2) Periodically revises and distributes the list and issues 
supplements, if necessary, to all agencies and the General Accounting 
Office; and
    (3) Includes 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 includes the--
    (1) 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) Name of the agency or other authority taking the action;
    (3) 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) Effect of the action;
    (5) Termination date for each listing;
    (6) DUNS No.; and
    (7) Name and telephone number of the point of contact for the 
action.
    (c) Each agency must--
    (1) Provide GSA with the information required by paragraph (b) of 
this section 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

[[Page 154]]

    (6) Direct inquiries concerning listed contractors to the agency or 
other authority that took the action.
    (d) 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 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 is available via--
    (i) The internet at http://epls.arnet.gov; or
    (ii) Electronic bulletin board. Dial (202) 219-0132. The settings 
are N-8-1-F.
    (e) For general questions about entries on the List of Parties 
Excluded from Federal Procurement and Nonprocurement Programs or 
additional information on accessing the electronic bulletin board, call 
GSA at (202) 501-4873 or 501-4740.

[65 FR 16286, Mar. 27, 2000



9.405  Effect of listing.

    (a) Contractors debarred, suspended, or proposed for debarment are 
excluded 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 of Parties Excluded from Federal Procurement and 
Nonprocurement Programs 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; 65 FR 16286, Mar. 27, 2000]



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

[[Page 155]]

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 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

[[Page 156]]

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.
    (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;

[[Page 157]]

    (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 
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--

[[Page 158]]

    (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 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

[[Page 159]]

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 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)

[[Page 160]]

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) 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.

[[Page 161]]

    (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;
    (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]

[[Page 162]]



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 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).

[55 FR 42685, Oct. 22, 1990, as amended at 65 FR 36014, June 6, 2000]

[[Page 163]]



9.501  Definition.

    Marketing consultant, as used in this subpart, 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--
    (1) Services excluded in subpart 37.2;
    (2) Routine engineering and technical services (such as 
installation, operation, or maintenance of systems, equipment, software, 
components, or facilities);
    (3) Routine legal, actuarial, auditing, and accounting services; and
    (4) Training services.

[55 FR 42685, Oct. 22, 1990, as amended at 66 FR 2128, Jan. 10, 2001]



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;
    (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

[[Page 164]]

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 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 that was obtained from a Government 
official without proper authorization; or
    (2) Source selection information (as defined in 2.101) 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; 64 FR 32748, June 
17, 1999; 67 FR 13063, Mar. 20, 2002]



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

[[Page 165]]

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 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

[[Page 166]]

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 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]

[[Page 167]]



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 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

[[Page 168]]

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, as used in this subpart, means an 
arrangement in which--
    (1) Two or more companies form a partnership or joint venture to act 
as a potential prime contractor; or
    (2) 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.

[48 FR 42142, Sept. 19, 1983, as amended at 66 FR 2128, Jan. 10, 2001]



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--
    (1) Associated together in order to obtain and perform, jointly or 
in conjunction with each other, defense production or research and 
development contracts;

[[Page 169]]

    (2) Entered into an agreement governing their organization, 
relationship, and procedures; and
    (3) Obtained approval of the agreement by either--
    (i) 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
    (ii) 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; 
66 FR 2128, Jan. 10, 2001]



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.
    (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 must--
    (1) Ensure that legitimate needs are identified and trade-offs 
evaluated to acquire items that 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;
    (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

[[Page 170]]

    (iv) Before soliciting offers for acquisitions that could lead to a 
bundled contract (15 U.S.C. 644(e)(2)(A)); 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;
    (v) Ensure maximum practicable use of recovered materials (see 
subpart 23.4) and promote energy conservation and efficiency; and
    (vi) Determine whether bundling is necessary and justified (see 
7.107) (15 U.S.C. 644(e)(2)(A)).
    (vii) Assess the availability of electronic and information 
technology that meets all or part of the applicable accessibility 
standards issued by the Architectural and Transportation Barriers 
Compliance Board at 36 CFR part 1194(see Subpart 39.2).
    (b) When conducting market research, agencies should not request 
potential sources to submit more than the minimum information necessary.
    (c) If an agency contemplates awarding a bundled contract, the 
agency--
    (1) When performing market research, should consult with the local 
Small Business Administration procurement center representative (PCR) 
or, if a PCR is not assigned to the procuring activity, the SBA Office 
of Government Contracting Area Office serving the area in which the 
procuring activity is located; and
    (2) At least 30 days before release of the solicitation--
    (i) Must notify any affected incumbent small business concerns of 
the Government's intention to bundle the requirement; and
    (ii) Should notify any affected incumbent small business concerns of 
how the concerns may contact the appropriate Small Business 
Administration representative.

[60 FR 48237, Sept. 18, 1995, as amended at 64 FR 72443, Dec. 27, 1999; 
65 FR 46054, July 26, 2000; 66 FR 20896, Apr. 25, 2001]



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 
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;

[[Page 171]]

    (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.
11.103 Market acceptance.
11.104 Use of brand name or equal purchase descriptions.
11.105 Items peculiar to one manufacturer.
11.106 Purchase descriptions for service contracts.
11.107 Solicitation provision.

       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 Definitions.
11.302 Policy.
11.303 Special requirements for printing and writing paper.
11.304 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.

[[Page 172]]

                    Subpart 11.5--Liquidated Damages

11.500 Scope.
11.501 Policy.
11.502 Procedures.
11.503 Contract clauses.

                Subpart 11.6--Priorities and Allocations

11.600 Scope of subpart.
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--
    Reconditioned means restored to the original normal operating 
condition by readjustments and material replacement.
    Remanufactured means factory rebuilt to original specifications.

[62 FR 44810, Aug. 22, 1997, as amended at 63 FR 9051, Feb. 23, 1998; 65 
FR 36017, June 6, 2000]



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--
    (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

[[Page 173]]

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)(1) The Resource Conservation and Recovery Act of 1976 (42 U.S.C. 
6901, et seq.), Executive Order 13101 of September 14, 1998, Greening 
the Government through Waste Prevention, Recycling, and Federal 
Acquisition, and Executive Order 13123 of June 3, 1999, Greening the 
Government through Efficient Energy Management, establish requirements 
for acquiring
    (i) Products containing recovered materials;
    (ii) Environmentally preferable products and services;
    (iii) Energy-efficient products and services; and
    (iv) Products and services that utilize renewable energy 
technologies.
    (2) Executive agencies must consider use of recovered materials, 
energy- and water-efficient products and services, environmentally 
preferable purchasing criteria developed by the EPA, and environmental 
objectives (see subparts 23.2 and 23.4 and 23.703(b)) when
    (i) Developing, reviewing, or revising Federal and military 
specifications, product descriptions (including commercial item 
descriptions) and standards;
    (ii) Describing Government requirements for supplies and services; 
and
    (iii) Developing source-selection factors.
    (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.
    (f) In accordance with Section 508 of the Rehabilitation Act of 1973 
(29 U.S.C. 794d), requiring activities must prepare requirements 
documents for electronic and information technology that comply with the 
applicable accessibility standards issued by the Architectural and 
Transportation Barriers Compliance Board at 36 CFR part 1194 (see 
subpart 39.2).

[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; 65 FR 36017, June 6, 2000; 66 FR 20897, Apr. 25, 2001; 66 FR 
65352, Dec. 18, 2001]



      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 must prepare requirements documents to achieve maximum 
practicable--
    (1) Energy efficiency, including using renewable energy 
technologies; and
    (2) Use of recovered material, other materials that are 
environmentally preferable, energy- and water-efficient products, and 
renewable energy technologies (see subparts 23.2, 23.4, and 23.7).
    (c) In accordance with OMB Circular A-119, ``Federal Participation 
in the Development and Use of Voluntary Consensus Standards and in 
Conformity Assessment Activities,`` agencies must use voluntary 
consensus standards, when they exist, in lieu of Government-unique 
standards, except where inconsistent with law or otherwise impractical. 
The private sector manages and administers voluntary consensus 
standards. Such standards are not mandated by law (e.g., industry 
standards such as ISO 9000).

[60 FR 48238, Sept. 18, 1995, as amended at 62 FR 44810, Aug. 22, 1997; 
64 FR 51834, Sept. 24, 1999; 66 FR 65352, Dec. 18, 2001]

[[Page 174]]



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, FSPM-
0001, and, for DoD components, DoD 4120.3-M, Defense Standardization 
Program Policies and Procedures. The Federal Standardization Manual may 
be obtained from the General Services Administration (see address in 
11.201(d)(1)). DoD 4120.3-M may be obtained from DoD (see address in 
11.201(d)(2)).

[63 FR 34062, June 22, 1998]



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.
    (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   Use of brand name or equal purchase descriptions.

    (a) While the use of performance specifications is preferred to 
encourage offerors to propose innovative solutions, the use of brand 
name or equal purchase descriptions may be advantageous under certain 
circumstances.
    (b) Brand name or equal purchase descriptions must include, in 
addition to the brand name, a general description of those salient 
physical, functional, or performance characteristics of the brand name 
item that an ``equal'' item must meet to be acceptable for award. Use 
brand name or equal descriptions when the salient characteristics are 
firm requirements.

[64 FR 32742, June 17, 1999]



11.105  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;

[[Page 175]]

    (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. Redesignated and 
amended at 64 FR 32742, June 17, 1999]



11.106  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. Redesignated at 64 FR 32742, June 17, 1999]



Sec. 11.107   Solicitation provision.

    (a) Insert the provision at 52.211-6, Brand Name or Equal, when 
brand name or equal purchase descriptions are included in a 
solicitation.
    (b) Insert the provision at 52.211-7, Alternatives to Government-
Unique Standards, in solicitations that use Government-unique standards 
when the agency uses the transaction-based reporting method to report 
its use of voluntary consensus standards to the National Institute of 
Standards and Technology (see OMB Circular A-119, ``Federal 
Participation in the Development and Use of Voluntary Consensus 
Standards and in Conformity Assessment Activities''). Use of the 
provision is optional for agencies that report their use of voluntary 
consensus standards to the National Institute of Standards and 
Technology using the categorical reporting method. Agencies that manage 
their specifications on a contract-by-contract basis use the 
transaction-based method of reporting. Agencies that manage their 
specifications centrally use the categorical method of reporting. Agency 
regulations regarding specification management describe which method is 
used.

[64 FR 51835, Sept. 24, 1999]



       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;
    (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.

[[Page 176]]

    (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)(1) The GSA Index of Federal Specifications, Standards and 
Commercial Item Descriptions, FPMR Part 101-29, may be purchased from 
the--General Services Administration, Federal Supply Service, 
Specifications Section, Suite 8100, 470 East L'Enfant Plaza, SW, 
Washington, DC 20407, Telephone (202) 619-8925.
    (2) The DoDISS may be obtained from the--
    (i) ASSIST database via the Internet at http://assist.daps.mil; or
    (ii) Department of Defense Single Stock Point (DoDSSP), Building 4, 
Section D 700 Robbins Avenue, Philadelphia, PA 19111-5094, Telephone 
(215) 697-2667/2179, Facsimile (215) 697-1462.
    (e) Agencies may purchase some nongovernment standards, including 
voluntary consensus standards, from the National Technical Information 
Service's Fedworld Information Network. Agencies may also obtain 
nongovernment standards from the standards developing organization 
responsible for the preparation, publication, or maintenance of the 
standard, or from an authorized document reseller. The National 
Institute of Standards and Technology can assist agencies in identifying 
sources for, and content of, nongovernment standards. DoD activities may 
obtain from the DoDSSP those nongovernment standards, including 
voluntary consensus standards, adopted for use by defense activities.

[60 FR 48238, Sept. 18, 1995, as amended at 62 FR 40236, July 25, 1997; 
63 FR 34063, June 22, 1998; 64 FR 51835, Sept. 24, 1999; 64 FR 72446, 
Dec. 27, 1999]



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, FPMR Part 
101-29, in solicitations that 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) and Descriptions Listed in the Acquisition 
Management Systems and Data Requirements Control List, DoD 5010.12-L, in 
solicitations that cite specifications listed in the DoDISS or DoD 
5010.12-L that are not furnished with the solicitation.
    (c) The contracting officer shall insert a provision substantially 
the same 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

[[Page 177]]

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.

[60 FR 48238, Sept. 18, 1995, as amended at 63 FR 34063, June 22, 1998]



                    Subpart 11.3--Acceptable Material

    Source: 65 FR 36018, June 6, 2000, unless otherwise noted.



11.301  Definitions.

    As used in this subpart--
    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.'' For paper and 
paper products, postconsumer material means ``postconsumer fiber'' 
defined by the U.S. Environmental Protection Agency (EPA) as--
    (1) Paper, paperboard, and fibrous materials from retail stores, 
office buildings, homes, and so forth, after they have passed through 
their end-usage as a consumer item, including: used corrugated boxes; 
old newspapers; old magazines; mixed waste paper; tabulating cards; and 
used cordage; or
    (2) All paper, paperboard, and fibrous materials that enter and are 
collected from municipal solid waste; but not
    (3) Fiber derived from printers' over-runs, converters' scrap, and 
over-issue publications.
    Recovered material for paper and paper products, is defined by EPA 
in its Comprehensive Procurement Guideline as ``recovered fiber'' and 
means the following materials:
    (1) Postconsumer fiber.
    (2) Manufacturing wastes such as--
    (i) Dry paper and paperboard waste generated after completion of the 
papermaking process (that is, those manufacturing operations up to and 
including the cutting and trimming of the paper machine reel into 
smaller rolls or rough sheets) including: envelope cuttings, bindery 
trimmings, and other paper and paperboard waste resulting from printing, 
cutting, forming, and other converting operations; bag, box, and carton 
manufacturing wastes; and butt rolls, mill wrappers, and rejected unused 
stock; and
    (ii) Repulped finished paper and paperboard from obsolete 
inventories of paper and paperboard manufacturers, merchants, 
wholesalers, dealers, printers, converters, or others.



11.302  Policy.

    (a) Agencies must 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)(1) When acquiring other than commercial items, agencies must 
require offerors to identify used, reconditioned, or remanufactured 
supplies; or unused former Government surplus property proposed for use 
under the contract. These supplies or property may not be used in 
contract performance unless authorized by the contracting officer.
    (2) When acquiring commercial items, the contracting officer must 
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 the information must be included in the 
solicitation, and to the maximum extent practicable must be limited to 
information or standards consistent with normal commercial practices.
    (c) When the contracting officer needs additional information to 
determine whether supplies meet minimum recovered material standards 
stated in the solicitation, the contracting officer

[[Page 178]]

may require offerors to submit additional information on the recycled 
content or related standards. The request for the information must be 
included in the solicitation. When acquiring commercial items, limit the 
information to the maximum extent practicable to that available under 
normal commercial practices.



11.303  Special requirements for printing and writing paper.

    (a) Section 505 of Executive Order 13101, Greening the Government 
through Waste Prevention, Recycling, and Federal Acquisition, 
establishes minimum recovered material content standards for agency 
purchases of printing and writing paper. Section 505 requires that 100 
percent of an agency's purchases of printing and writing paper must meet 
or exceed one of the minimum content standards specified in paragraph 
(b) of this section.
    (b) For high-speed copier paper, offset paper, forms bond, computer 
printout paper, carbonless paper, file folders, white wove envelopes, 
writing and office paper, book paper, cotton fiber paper, and cover 
stock, the minimum content standard must be no less than 30 percent 
postconsumer materials. If paper containing 30 percent postconsumer 
material is not reasonably available, does not meet reasonable 
performance requirements, or is only available at an unreasonable price, 
then the agency must purchase paper containing no less than 20 percent 
postconsumer material.



11.304  Contract clause.

    Insert the clause at 52.211-5, Material Requirements, in 
solicitations and contracts for supplies that are not commercial items.



             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;

[[Page 179]]

    (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 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

[[Page 180]]

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 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: 65 FR 46064, July 26, 2000, unless otherwise noted.



11.500  Scope.

    This subpart prescribes policies and procedures for using liquidated 
damages clauses in solicitations and contracts for supplies, services, 
research and development, and construction. This subpart does not apply 
to liquidated damages for subcontracting plans (see 19.705-7) or 
liquidated damages related to the Contract Work Hours and Safety 
Standards Act (see subpart 22.3).



11.501  Policy.

    (a) The contracting officer must consider the potential impact on 
pricing, competition, and contract administration before using a 
liquidated damages clause. Use liquidated damages clauses only when--
    (1) The time of delivery or timely performance is so important 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 estimate accurately or prove.
    (b) Liquidated damages are not punitive and are not negative 
performance incentives (see 16.402-2). Liquidated damages are used to 
compensate the Government for probable damages. Therefore, the 
liquidated damages rate must be a reasonable forecast of just 
compensation for the harm that is caused by late delivery or untimely 
performance of the particular contract. Use a maximum amount or a 
maximum period for assessing liquidated damages if these limits reflect 
the maximum probable damage to the Government. Also, the contracting 
officer may use more than one liquidated damages rate when the 
contracting officer expects the probable damage to the Government to 
change over the contract period of performance.
    (c) The contracting officer must take all reasonable steps to 
mitigate liquidated damages. If the contract contains a liquidated 
damages clause and the contracting officer is considering terminating 
the contract for default, the contracting officer should seek 
expeditiously to obtain performance by the contractor or terminate the 
contract and repurchase (see subpart 49.4). Prompt contracting officer 
action will

[[Page 181]]

prevent excessive loss to defaulting contractors and protect the 
interests of the Government.
    (d) The head of the agency may reduce or waive the amount of 
liquidated damages assessed under a contract, if the Commissioner, 
Financial Management Service, or designee approves (see Treasury Order 
145-10).



11.502  Procedures.

    (a) Include the applicable liquidated damages clause and liquidated 
damages rates in solicitations when the contract will contain liquidated 
damages provisions.
    (b) Construction contracts with liquidated damages provisions must 
describe the rate(s) of liquidated damages assessed per day of delay. 
The rate(s) should include the estimated daily cost of Government 
inspection and superintendence. The rate(s) should also include an 
amount for other expected expenses associated with delayed completion 
such as--
    (1) Renting substitute property; or
    (2) Paying additional allowance for living quarters.



11.503  Contract clauses.

    (a) Use the clause at 52.211-11, Liquidated Damages--Supplies, 
Services, or Research and Development, in fixed-price solicitations and 
contracts for supplies, services, or research and development when the 
contracting officer determines that liquidated damages are appropriate 
(see 11.501(a)).
    (b) Use the clause at 52.211-12, Liquidated Damages--Construction, 
in solicitations and contracts for construction, other than cost-plus-
fixed-fee, when the contracting officer determines that liquidated 
damages are appropriate (see 11.501(a)). If the contract specifies more 
than one completion date for separate parts or stages of the work, 
revise paragraph (a) of the clause to state the amount of liquidated 
damages for delay of each separate part or stage of the work.
    (c) Use the clause at 52.211-13, Time Extensions, in solicitations 
and contracts for construction that use the clause at 52.211-12, 
Liquidated Damages--Construction, when that clause has been revised as 
provided in paragraph (b) of this section.



                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.

    As used in this subpart--
    Authorized program, 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, 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, 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; 
66 FR 2128, Jan. 10, 2001]



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 182]]

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 183]]

    (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 184]]

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, if authorizing a 
variation in quantity in fixed-price contracts for supplies or 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; 64 FR 10538, 
Mar. 4, 1999]



                          Subpart 11.8--Testing

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



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.
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 185]]

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) The definition of commercial item in section 2.101 uses the 
phrase ``purposes other than governmental purposes.'' These purposes are 
those that are not unique to a government.
    (e) This part shall not apply to the acquisition of commercial 
items--
    (1) At or below the micro-purchase threshold;
    (2) Using the Standard Form 44 (see 13.306);
    (3) Using the imprest fund (see 13.305);
    (4) Using the Governmentwide commercial purchase card; or
    (5) Directly from another Federal agency.
    (f) Contracting officers shall treat any acquisition by or for the 
Department of Defense of biotechnology supplies or biotechnology 
services, for use to facilitate the defense against terrorism or 
biological attack against the United States, as an acquisition of 
commercial items. The policies of this part shall apply to such 
acquisitions, including the requirement to use firm-fixed price 
contracts or fixed-price contracts with economic price adjustments. 
Nothing in this paragraph shall preclude a contracting officer from 
treating an acquisition described in this paragraph as one for a non-
commercial item if a determination is made by the contracting officer 
that the purchase cannot be made at a fair and reasonable price using 
the policies

[[Page 186]]

of this part. This paragraph applies only when award is made and funds 
are obligated on or before September 30, 2003.

[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 39192, July 26, 1996; 
62 FR 64917, Dec. 9, 1997; 64 FR 32743, June 17, 1999; 66 FR 53484, Oct. 
22, 2001; 67 FR 56121, Aug. 30, 2002]



  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 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.
    (d) Requirements documents for electronic and information technology 
must comply with the applicable accessibility standards issued by the 
Architectural and Transportation Barriers Compliance Board at 36 CFR 
part 1194 (see subpart 39.2).

[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997; 66 
FR 20897, Apr. 25, 2001]



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 13.5 to the maximum extent practicable.

[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997; 62 
FR 64917, Dec. 9, 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

[[Page 187]]

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), the contracting 
officer may allow fewer than 30 days response time for receipt of offers 
for commercial items, unless the acquisition is subject to NAFTA or the 
Trade Agreements Act (see 5.203(h)).

[60 FR 48241, Sept. 18, 1995, as amended at 62 FR 264, Jan. 2, 1997; 64 
FR 72418, Dec. 27, 1999]



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, 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; 62 FR 64917, Dec. 9, 1997]



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.

    While the contracting officer must establish price reasonableness in 
accordance with 13.106-3, 14.408-2, or subpart 15.4, as applicable, the 
contracting officer should be aware of customary commercial terms and 
conditions when pricing commercial items. Commercial item prices are 
affected by factors that include, but are not limited to, speed of 
delivery, length and extent of warranty, limitations of seller's 
liability, quantities ordered, length of the performance period, and 
specific performance requirements. The contracting officer must ensure 
that contract terms, conditions, and prices are commensurate with the 
Government's need.

[66 FR 53484, Oct. 22, 2001]



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

[[Page 188]]

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 and not otherwise precluded by law or Executive order.

[62 FR 264, Jan. 2, 1997]



12.214  Cost Accounting Standards.

    Cost Accounting Standards (CAS) do not apply to contracts and 
subcontracts for the acquisition of commercial items when these 
contracts and subcontracts are firm-fixed-price or fixed-price with 
economic price adjustment (provided that the price adjustment is not 
based on actual costs incurred). See 48 CFR 30.201-1 for CAS 
applicability to fixed-price with economic price adjustment contracts 
and subcontracts for commercial items when the price adjustment is based 
on actual costs incurred. When CAS applies, the contracting officer 
shall insert the appropriate provisions and clauses as prescribed in 48 
CFR 30.201.

[63 FR 9054, Feb. 23, 1998]



   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) 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

[[Page 189]]

to complete and return with their offer. This provision may not be 
tailored except in accordance with Subpart 1.4. Use the provision with 
its Alternate I in solicitations issued by DoD, NASA, or the Coast Guard 
that are expected to exceed the threshold at 4.601(a). Use the provision 
with its Alternate II in solicitations for acquisitions for which small 
disadvantaged business procurement mechanisms are authorized on a 
regional basis.
    (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 27, SF 1449). The contracting officer may tailor 
this clause in accordance with 12.302.
    (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. Use the 
clause with its Alternate I when the head of the agency has waived the 
examination of records by the Comptroller General in accordance with 
25.1001.
    (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, 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 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 16.506 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; 62 FR 64917, 
Dec. 9, 1997; 63 FR 35720, June 30, 1998; 63 FR 52427, Sept. 30, 1998; 
63 FR 70267, Dec. 18, 1998; 64 FR 32748, June 17, 1999; 64 FR 72418, 
Dec. 27, 1999; 67 FR 6120, Feb. 8, 2002; 67 FR 13065, Mar. 20, 2002; 67 
FR 21538, Apr. 30, 2002]

[[Page 190]]



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 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 a price evaluation adjustment for small 
disadvantaged business concerns is applicable (the contracting officer 
shall indicate the percentage(s) and applicable line item(s)), if an 
incentive subcontracting clause is used (the contracting officer shall 
indicate the applicable percentage), or if set aside for emerging small 
businesses, or set-aside for very small business concerns;
    (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;

[[Page 191]]

    (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; 63 FR 35720, June 30, 1997; 63 FR 36121, July 1, 1998; 64 
FR 10536, Mar. 4, 1999]



  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 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

[[Page 192]]

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.
    (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

[[Page 193]]

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.



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).
    (5) 31 U.S.C. 1354(a), Limitation on use of appropriated funds for 
contracts

[[Page 194]]

with entities not meeting veterans employment reporting requirements 
(see 22.1302).
    (b) Certain requirements of the following laws are not applicable to 
executive agency contracts for the acquisition of commercial items:
    (1) 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).
    (2) 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).
    (3) 49 U.S.C. 40118, Requirement for a 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; 64 FR 10532, Mar. 4, 1999; 64 FR 72416, Dec. 27, 1999; 
66 FR 53488, Oct. 22, 2001]



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) 31 U.S.C. 1352, Limitation on Payments to Influence Certain 
Federal Transactions (see subpart 3.8).
    (3) 41 U.S.C. 43, Walsh-Healey Act (see subpart 22.6).
    (4) 41 U.S.C. 253d, Validation of Proprietary Data Restrictions (see 
subpart 27.4).
    (5) 41 U.S.C. 254(a) and 10 U.S.C. 2306(b), Contingent Fees (see 
subpart 3.4).
    (6) 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)).
    (7) 41 U.S.C. 416(a)(6), Minimum Response Time for Offers under 
Office of Federal Procurement Policy Act (see subpart 5.2).
    (8) 41 U.S.C. 418a, Rights in Technical Data (see subpart 27.4).
    (9) 41 U.S.C. 701, et seq., Drug-Free Workplace Act of 1988 (see 
subpart 23.5).
    (10 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).
    (11) 49 U.S.C. 40118, Fly American provisions (see subpart 47.4).
    (b) The requirements for a certificate and clause under the Contract 
Work Hours and Safety Standards Act, 40 U.S.C. 327, et seq., (see 
Subpart 22.3) are not applicable to subcontracts at any tier for the 
acquisition of commercial items or commercial components.
    (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; 64 FR 72416, 
72418, Dec. 27, 1999; 65 FR 46069, July 26, 2000]



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

[[Page 195]]

    (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 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 performance 
shall be evaluated in accordance with the procedures in section 13.106 
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; 62 FR 64917, Dec. 
9, 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 synopsis required by 5.203 and the issuance 
of the solicitation into a single document. Section 5.207 limits 
descriptions in the CBD to 12,000 textual characters (approximately 3\1/
2\ single-spaced pages).
    (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 NAICS code 
and small business size standard. Also include a statement regarding the 
Small

[[Page 196]]

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 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 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 synopsis and solicitation are contained in a single 
document, it is not necessary to publicize a separate synopsis 15 days 
before the issuance of the solicitation.
    (ii) When using the combined synopsis and solicitation, contracting 
officers must establish a response time in accordance with 5.203(b) (but 
see 5.203(h)).
    (4) Publicize amendments to solicitations in the same manner as the 
initial synopsis and solicitation.

[60 FR 48241, Sept. 18, 1995, as amended at 61 FR 41469, Aug. 8, 1996; 
62 FR 264, Jan. 2, 1997; 65 FR 46056, July 26, 2000; 66 FR 27413, May 
16, 2001]

[[Page 197]]



          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES



PART 13--SIMPLIFIED ACQUISITION PROCEDURES--Table of Contents




Sec.
13.000 Scope of part.
13.001 Definitions.
13.002 Purpose.
13.003 Policy.
13.004 Legal effect of quotations.
13.005 Federal Acquisition Streamlining Act of 1994 list of inapplicable 
          laws.
13.006 Inapplicable provisions and clauses.

                        Subpart 13.1--Procedures

13.101 General.
13.102 Source list.
13.103 Use of standing price quotations.
13.104 Promoting competition.
13.105 Synopsis and posting requirements.
13.106 Soliciting competition, evaluation of quotations or offers, award 
          and documentation.
13.106-1 Soliciting competition.
13.106-2 Evaluation of quotations or offers.
13.106-3 Award and documentation.

     Subpart 13.2--Actions at or Below the Micro-Purchase Threshold

13.201 General.
13.202 Purchase guidelines.

              Subpart 13.3--Simplified Acquisition Methods

13.301 Governmentwide commercial purchase card.
13.302 Purchase orders.
13.302-1 General.
13.302-2 Unpriced purchase orders.
13.302-3 Obtaining contractor acceptance and modifying purchase orders.
13.302-4 Termination or cancellation of purchase orders.
13.302-5 Clauses.
13.303 Blanket purchase agreements (BPAs).
13.303-1 General.
13.303-2 Establishment of BPAs.
13.303-3 Preparation of BPAs.
13.303-4 Clauses.
13.303-5 Purchases under BPAs.
13.303-6 Review procedures.
13.303-7 Completion of BPAs.
13.303-8 Optional clause.
13.304 [Reserved]
13.305 Imprest funds and third party drafts.
13.305-1 General.
13.305-2 Agency responsibilities.
13.305-3 Conditions for use.
13.305-4 Procedures.
13.306 SF 44, Purchase Order--Invoice--Voucher.
13.307 Forms.

                  Subpart 13.4--Fast Payment Procedure

13.401 General.
13.402 Conditions for use.
13.403 Preparation and execution of orders.
13.404 Contract clause.

         Subpart 13.5--Test Program for Certain Commercial Items

13.500 General.
13.501 Special documentation requirements.

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

    Source: 62 FR 64917, Dec. 9, 1997, 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). Subpart 13.5 provides 
special authority for acquisitions of commercial items exceeding the 
simplified acquisition threshold but not exceeding $5,000,000, including 
options. See part 12 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-engineer 
services.



13.001  Definitions.

    As used in this part--
    Authorized individual means a person who has been granted authority, 
in accordance with agency procedures, to acquire supplies and services 
in accordance with this part.
    Governmentwide commercial purchase card 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 means a cash fund of a fixed amount established by an 
advance of funds, without charge to an

[[Page 198]]

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.
    Third party draft means an agency bank draft, similar to a check, 
that is used to acquire and to pay for supplies and services. (See 
Treasury Financial Management Manual, Section 3040.70.)

[62 FR 64917, Dec. 9, 1997 as amended at 66 FR 2128, Jan. 10, 2001]



13.002  Purpose.

    The purpose of this part is to prescribe simplified acquisition 
procedures in order to--
    (a) Reduce administrative costs;
    (b) Improve opportunities for small, small disadvantaged, 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.



13.003  Policy.

    (a) Agencies shall use simplified acquisition procedures to the 
maximum extent practicable for all purchases of supplies or services not 
exceeding the simplified acquisition threshold (including purchases at 
or below the micro-purchase threshold). This policy does not apply if an 
agency can meet its requirement using--
    (1) 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);
    (2) Existing indefinite delivery/indefinite quantity contracts; or
    (3) Other established contracts.
    (b)(1) Each acquisition of supplies or services that has an 
anticipated dollar value exceeding $2,500 ($15,000 for acquisitions as 
described in 13.201(g)) and not exceeding $100,000 is reserved 
exclusively for small business concerns and shall be set aside (see 
19.000 and subpart 19.5). See 19.502-2 for exceptions.
    (2) The contracting officer may set aside for HUBZone small business 
concerns (see 19.1305) an acquisition of supplies or services that has 
an anticipated dollar value exceeding the micro-purchase threshold and 
not exceeding the simplified acquisition threshold. The contracting 
officer's decision not to set aside an acquisition for HUBZone 
participation below the simplified acquisition threshold is not subject 
to review under subpart 19.4.
    (3) 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 in the 
provision shall be given to potential quoters.
    (c) The contracting officer shall not use simplified acquisition 
procedures to acquire supplies and services if the anticipated award 
will exceed the simplified acquisition threshold (or $5,000,000, 
including options, for acquisitions of commercial items using Subpart 
13.5). Do not break down requirements aggregating more than the 
simplified acquisition threshold (or for commercial items, the threshold 
in subpart 13.5) or the micro-purchase threshold into several purchases 
that are less than the applicable threshold merely to--
    (1) Permit use of simplified acquisition procedures; or
    (2) Avoid any requirement that applies to purchases exceeding the 
micro-purchase threshold.
    (d) An agency that has specific statutory authority to acquire 
personal services (see 37.104) may use simplified acquisition procedures 
to acquire those services.
    (e) Agencies shall use the Governmentwide commercial purchase card 
and electronic purchasing techniques to the maximum extent practicable 
in conducting simplified acquisitions.
    (f) Agencies shall maximize the use of electronic commerce when 
practicable and cost-effective (see Subpart 4.5). Drawings and lengthy 
specifications can be provided off-line in hard copy or through other 
appropriate means.
    (g) Authorized individuals shall make purchases in the simplified 
manner that is most suitable, efficient, and economical based on the 
circumstances of each acquisition. For acquisitions not expected to 
exceed--

[[Page 199]]

    (1) The simplified acquisition threshold for other than commercial 
items, use any appropriate combination of the procedures in parts 13, 
14, 15, 35, or 36, including the use of Standard Form 1442, 
Solicitation, Offer, and Award (Construction, Alteration, or Repair), 
for construction contracts (see 36.701(b)); or
    (2) $5 million for commercial items, use any appropriate combination 
of the procedures in parts 12, 13, 14, and 15 (see paragraph (d) of this 
section).
    (h) In addition to other considerations, contracting officers shall-
-
    (1) Promote competition to the maximum extent practicable (see 
13.104);
    (2) Establish deadlines for the submission of responses to 
solicitations that afford suppliers a reasonable opportunity to respond 
(see 5.203);
    (3) Consider all quotations or offers that are timely received. For 
evaluation of quotations or offers received electronically, see 13.106-
2(b)(3); and
    (4) Use innovative approaches, to the maximum extent practicable, in 
awarding contracts using simplified acquisition procedures.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998; 63 
FR 70267, Dec. 18, 1998; 67 FR 56121, Aug. 30, 2002]



13.004  Legal effect of quotations.

    (a) A quotation is not an offer and, consequently, cannot be 
accepted by the Government to form a binding contract. Therefore, 
issuance by the Government of an order 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 supplies or services upon 
specified terms and conditions. A contract is established when the 
supplier accepts the offer.
    (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 
13.302-4 for procedures on termination or cancellation of purchase 
orders.)



13.005  Federal Acquisition Streamlining Act of 1994 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 does not 
apply to contracts at or below the simplified acquisition threshold, 
alternative forms of payment protection for suppliers of labor and 
material (see 28.102) are still required if the contract exceeds 
$25,000.).
    (3) 40 U.S.C. 327--333 (Contract Work Hours and Safety Standards 
Act--Overtime Compensation).
    (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). (The requirement to 
provide an estimate of recovered material utilized in contract 
performance does not apply unless the contract value exceeds $100,000.)
    (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).
    (9) 15 U.S.C. 631 note (HUBZone Act of 1997), except for 15 U.S.C. 
657a(b)(2)(B), which is optional for the agencies subject to the 
requirements of the Act.

[[Page 200]]

    (10) 31 U.S.C. 1354(a) (Limitation on use of appropriated funds for 
contracts with entities not meeting veterans employment reporting 
requirements).
    (b) The Federal Acquisition Regulatory (FAR) Council will include 
any law enacted after October 13, 1994, that sets forth policies, 
procedures, requirements, or restrictions for the acquisition of 
property or services, on the list set forth in paragraph (a) of this 
section. The FAR Council may make exceptions when it determines in 
writing that it is in the best interest of the Government that the 
enactment should apply to contracts or subcontracts not greater than the 
simplified acquisition threshold.
    (c) The provisions of paragraph (b) of this section do not apply to 
laws that--
    (1) Provide for criminal or civil penalties; or
    (2) Specifically state that notwithstanding the language of Section 
4101, Public Law 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, Office of Federal 
Procurement Policy (OFPP), to include any applicable provision of law 
not included on the list set forth in paragraph (a) of this section 
unless the FAR Council has already determined in writing that the law is 
applicable. The Administrator, OFPP, will include the law on the list in 
paragraph (a) of this section unless the FAR Council makes a 
determination that it is applicable within 60 days of receiving the 
petition.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998; 63 
FR 70267, Dec. 18, 1998; 65 FR 36018, June 6, 2000; 66 FR 53488, Oct. 
22, 2001]



13.006  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) 52.203-5, Covenant Against Contingent Fees.
    (b) 52.203-6, Restrictions on Subcontractor Sales to the
    Government.
    (c) 52.203-7, Anti-Kickback Procedures.
    (d) 52.215-2, Audits and Records--Negotiation.
    (e) 52.222-4, Contract Work Hours and Safety Standards Act--Overtime 
Compensation.
    (f) 52.223-6, Drug-Free Workplace, except for individuals.
    (g) 52.223-9, Estimate of Percentage of Recovered Material Content 
for EPA-Designated Products.

[62 FR 64917, Dec. 9, 1997, as amended at 65 FR 36018, June 6, 2000]



                        Subpart 13.1--Procedures



13.101  General.

    (a) In making purchases, contracting officers shall--
    (1) Comply with the policy in 7.202 relating to economic purchase 
quantities, when practicable;
    (2) Satisfy the procedures described in subpart 19.6 with respect to 
Certificates of Competency before rejecting a quotation, oral or 
written, from a small business concern determined to be nonresponsible 
(see subpart 9.1); and
    (3) Provide for the inspection of supplies or services as prescribed 
in 46.404.
    (b) In making purchases, contracting officers should--
    (1) Include related items (such as small hardware items or spare 
parts for vehicles) in one solicitation and make award on an ``all-or-
none'' or ``multiple award'' basis provided suppliers are so advised 
when quotations or offers are requested;
    (2) Incorporate provisions and clauses by reference in solicitations 
and in awards under requests for quotations, provided the requirements 
in 52.102 are satisfied;
    (3) Make maximum effort to obtain trade and prompt payment discounts 
(see 14.408-3). Prompt payment discounts shall not be considered in the 
evaluation of quotations; and
    (4) Use bulk funding to the maximum extent practicable. Bulk funding 
is a system whereby the 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

[[Page 201]]

time rather than obtaining individual obligational authority on each 
purchase document. Bulk funding is particularly appropriate if numerous 
purchases using the same type of funds are to be made during a given 
period.

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 72418, Dec. 27, 1999]



13.102  Source list.

    (a) Each contracting office should maintain a source list (or lists, 
if more convenient). A list of new supply sources may be obtained from 
the Procurement Marketing and Access Network (PRO-Net) of the Small 
Business Administration. The list should identify the status of each 
source (when the status is made known to the contracting office) in the 
following categories:
    (1) Small business.
    (2) Small disadvantaged business.
    (3) Women-owned small business.
    (b) The status information may be used as the basis to ensure that 
small business concerns are provided the maximum practicable 
opportunities to respond to solicitations issued using simplified 
acquisition procedures.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998]



13.103  Use of standing price quotations.

    Authorized individuals do not have to obtain individual quotations 
for each purchase. Standing price quotations may be used if--
    (a) The pricing information is current; and
    (b) The Government obtains the benefit of maximum discounts before 
award.



13.104  Promoting competition.

    The contracting officer must promote competition to the maximum 
extent practicable to obtain supplies and services from the source whose 
offer is the most advantageous to the Government, considering the 
administrative cost of the purchase.
    (a) The contracting officer must not--
    (1) Solicit quotations based on personal preference; or
    (2) Restrict solicitation to suppliers of well-known and widely 
distributed makes or brands.
    (b) If using simplified acquisition procedures and neither using 
FACNET nor providing access to the notice of proposed contract action 
and solicitation information through the Governmentwide point of entry 
(GPE), maximum practicable competition ordinarily can be obtained by 
soliciting quotations or offers from sources within the local trade 
area. Unless the contract action requires synopsis pursuant to 5.101 and 
an exception under 5.202 is not applicable, consider solicitation of at 
least three sources to promote competition to the maximum extent 
practicable. Whenever practicable, request quotations or offers from two 
sources not included in the previous solicitation.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998; 66 
FR 27413, May 16, 2001]



13.105  Synopsis and posting requirements.

    (a) The contracting officer must comply with the public display and 
synopsis requirements of 5.101 and 5.203 unless--
    (1)(i) FACNET is used for an acquisition at or below the simplified 
acquisition threshold; or
    (ii) The GPE is used at or below the simplified acquisition 
threshold for providing widespread public notice of acquisition 
opportunities and offerors are provided a means of responding to the 
solicitation electronically; or
    (2) An exception in 5.202 applies.
    (b) When acquiring commercial items, the contracting officer may use 
a combined synopsis and solicitation. In these cases, a separate 
solicitation is not required. The contracting officer must include 
enough information to permit suppliers to develop quotations or offers.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998; 66 
FR 27413, May 16, 2001]

[[Page 202]]



13.106  Soliciting competition, evaluation of quotations or offers, award and documentation.



13.106-1  Soliciting competition.

    (a) Considerations. In soliciting competition, the contracting 
officer shall consider the guidance in 13.104 and the following before 
requesting quotations or offers:
    (1)(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.
    (2) When soliciting quotations or offers, the contracting officer 
shall notify potential quoters or offerors of the basis on which award 
will be made (price alone or price and other factors, e.g., past 
performance and quality). Contracting officers are encouraged to use 
best value. Solicitations are not required to state the relative 
importance assigned to each evaluation factor and subfactor, nor are 
they required to include subfactors.
    (b) Soliciting from a single source. (1) 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 (e.g., urgency, exclusive licensing agreements, or industrial 
mobilization).
    (2) For sole source acquisitions of commercial items in excess of 
the simplified acquisition threshold conducted pursuant to subpart 13.5, 
the requirements at 13.501(a) apply.
    (c) Soliciting orally. (1) The contracting officer shall solicit 
quotations orally to the maximum extent practicable, if--
    (i) The acquisition does not exceed the simplified acquisition 
threshold;
    (ii) Oral solicitation is more efficient than soliciting through 
available electronic commerce alternatives; and
    (iii) Notice is not required under 5.101.
    (2) However, an oral solicitation may not be practicable for 
contract actions exceeding $25,000 unless covered by an exception in 
5.202.
    (d) Written solicitations. If obtaining electronic or oral 
quotations is uneconomical or impracticable, the contracting officer 
should issue paper solicitations for contract actions likely to exceed 
$25,000. The contracting officer shall issue a written solicitation for 
construction requirements exceeding $2,000.
    (e) Use of options. Options may be included in solicitations, 
provided the requirements of subpart 17.2 are met and the aggregate 
value of the acquisition and all options does not exceed the dollar 
threshold for use of simplified acquisition procedures.
    (f) Inquiries. An agency should respond to inquiries received 
through any medium (including FACNET) if doing so would not interfere 
with the efficient conduct of the acquisition. For an acquisition 
conducted through FACNET, an agency must respond to telephonic or 
facsimile inquiries only if it is unable to receive inquiries through 
FACNET.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998]



13.106-2  Evaluation of quotations or offers.

    (a) General. (1) The contracting officer shall evaluate quotations 
or offers--
    (i) In an impartial manner; and
    (ii) Inclusive of transportation charges from the shipping point of 
the supplier to the delivery destination.
    (2) Quotations or offers shall be evaluated on the basis established 
in the solicitation.
    (3) All quotations or offers shall be considered (see paragraph (b) 
of this subsection).
    (b) Evaluation procedures. (1) 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,

[[Page 203]]

one or more, but not necessarily all, of the evaluation procedures in 
part 14 or 15 may be used.
    (2) If using price and other factors, ensure that quotations or 
offers can be evaluated in an efficient and minimally burdensome 
fashion. Formal evaluation plans and establishing a competitive range, 
conducting discussions, and scoring quotations or offers are not 
required. Contracting offices may conduct comparative evaluations of 
offers. Evaluation of other factors, such as past performance--
    (i) Does not require the creation or existence of a formal data 
base; and
    (ii) May be based on information such as the contracting officer's 
knowledge of and previous experience with the supply or service being 
acquired, customer surveys, or other reasonable basis.
    (3) For acquisitions conducted using FACNET or a method that permits 
electronic response to the solicitation, the contracting officer may--
    (i) After preliminary consideration of all quotations or offers, 
identify from all quotations or offers received one that is suitable to 
the user, such as the lowest priced brand name product, and quickly 
screen all lower priced quotations or offers based on readily 
discernible value indicators, such as past performance, warranty 
conditions, and maintenance availability; or
    (ii) Where an evaluation is based only on price and past 
performance, make an award based on whether the lowest priced of the 
quotations or offers having the highest past performance rating possible 
represents the best value when compared to any lower priced quotation or 
offer.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998]



13.106-3  Award and documentation.

    (a) Basis for award. Before making award, the contracting officer 
must determine that the proposed price is fair and reasonable.
    (1) Whenever possible, base price reasonableness on competitive 
quotations or offers.
    (2) If only one response is received, include a statement of price 
reasonableness in the contract file. The contracting officer may base 
the statement on--
    (i) Market research;
    (ii) Comparison of the proposed price with prices found reasonable 
on previous purchases;
    (iii) Current price lists, catalogs, or advertisements. However, 
inclusion of a price in a price list, catalog, or advertisement does 
not, in and of itself, establish fairness and reasonableness of the 
price;
    (iv) A comparison with similar items in a related industry;
    (v) The contracting officer's personal knowledge of the item being 
purchased;
    (vi) Comparison to an independent Government estimate; or
    (vii) Any other reasonable basis.
    (3) Occasionally an item can be obtained only from a supplier that 
quotes a minimum order price or quantity that either unreasonably 
exceeds stated quantity requirements or results in an unreasonable price 
for the quantity 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.
    (b) File documentation and retention. Keep documentation to a 
minimum. 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). The following illustrate 
the extent to which quotation or offer information should be recorded:
    (1) Oral solicitations. The contracting office should establish and 
maintain 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.
    (2) Written solicitations (see 2.101). For acquisitions not 
exceeding the simplified acquisition threshold, limit written records of 
solicitations or offers to notes or abstracts to show prices, delivery, 
references to printed

[[Page 204]]

price lists used, the supplier or suppliers contacted, and other 
pertinent data.
    (3) Special situations. Include additional statements--
    (i) Explaining the absence of competition if only one source is 
solicited and the acquisition does not exceed the simplified acquisition 
threshold (does not apply to an acquisition of utility services 
available from only one source); or
    (ii) Supporting the award decision if other than price-related 
factors were considered in selecting the supplier.
    (c) Notification. For acquisitions that do not exceed the simplified 
acquisition threshold and for which automatic notification is not 
provided through FACNET or an electronic commerce method that employs 
widespread electronic public notice, notification to unsuccessful 
suppliers shall be given only if requested or required by 5.301.
    (d) Request for information. If a supplier requests information on 
an award that was based on factors other than price alone, a brief 
explanation of the basis for the contract award decision shall be 
provided (see 15.503(b)(2)).
    (e) Taxpayer Identification Number. If an oral solicitation is used, 
the contracting officer shall ensure that the copy of the award document 
sent to the payment office is annotated with the contractor's Taxpayer 
Identification Number (TIN) and type of organization (see 4.203), unless 
this information will be obtained from some other source (e.g., 
centralized database). The contracting officer shall disclose to the 
contractor that the TIN may be used by the Government to collect and 
report on any delinquent amounts arising out of the contractor's 
relationship with the Government (31 U.S.C. 7701(c)(3)).

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58589, 58593, Oct. 30, 
1998; 64 FR 51836, Sept. 24, 1999]



     Subpart 13.2--Actions at or Below the Micro-Purchase Threshold



13.201  General.

    (a) Agency heads are encouraged to delegate micro-purchase authority 
(see 1.603-3).
    (b) The Governmentwide commercial purchase card shall be the 
preferred method to purchase and to pay for micro-purchases (see 2.101).
    (c) Purchases at or below the micro-purchase threshold may be 
conducted using any of the methods described in subpart 13.3, provided 
the purchaser is authorized and trained, pursuant to agency procedures, 
to use those methods.
    (d) Micro-purchases do not require provisions or clauses, except as 
provided at 32.1110. This paragraph takes precedence over any other FAR 
requirement to the contrary, but does not prohibit the use of any 
clause.
    (e) The requirements in part 8 apply to purchases at or below the 
micro-purchase threshold.
    (f) The procurement requirements in the Resource Conservation and 
Recovery Act (42 U.S.C. 6962) and Executive Order 13101 of September 14, 
1998, Greening the Government through Waste Prevention, Recycling, and 
Federal Acquisition, apply to purchases at or below the micro-purchase 
threshold (see Subpart 23.4).
    (g) There is a temporary $15,000 micro-purchase threshold for the 
acquisition of supplies or services by or for the Department of Defense 
for which award is made and funds are obligated on or before September 
30, 2003, facilitating the defense against terrorism or biological or 
chemical attack against the United States (see 2.101). Purchases using 
this authority must have a clear and direct relationship to the defense 
against terrorism or biological or chemical attack.

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 10539, Mar. 4, 1999; 65 
FR 36018, June 6, 2000; 67 FR 56121, Aug. 30, 2002]



13.202  Purchase guidelines.

    (a) Solicitation, evaluation of quotations, and award. (1) To the 
extent practicable, micro-purchases shall be distributed equitably among 
qualified suppliers.
    (2) Micro-purchases may be awarded without soliciting competitive 
quotations if the contracting officer or individual appointed in 
accordance with 1.603-3(b) considers the price to be reasonable.

[[Page 205]]

    (3) The administrative cost of verifying the reasonableness of the 
price for purchases 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).
    (b) Documentation. If competitive quotations were solicited and 
award was made to other than the low quoter, documentation to support 
the purchase may be limited to identification of the solicited concerns 
and an explanation for the award decision.



              Subpart 13.3--Simplified Acquisition Methods



13.301  Governmentwide commercial purchase card.

    (a) The Governmentwide commercial purchase card is authorized for 
use in making and/or paying for purchases of supplies, services, or 
construction. The Governmentwide commercial purchase card may be used by 
contracting officers and other individuals designated in accordance with 
1.603-3. The card may be used only for purchases that are otherwise 
authorized by law or regulation.
    (b) Agencies using the Governmentwide commercial purchase card shall 
establish procedures for use and control of the card that comply with 
the Treasury Financial Manual for Guidance of Departments and Agencies 
(TFM 4-4500) and that are consistent with the terms and conditions of 
the current GSA credit card contract. Agency procedures should not limit 
the use of the Governmentwide commercial purchase card to micro-
purchases. Agency procedures should encourage use of the card in greater 
dollar amounts by contracting officers to place orders and to pay for 
purchases against contracts established under part 8 procedures, when 
authorized; and to place orders and/or make payment under other 
contractual instruments, when agreed to by the contractor. See 
32.1110(d) for instructions for use of the appropriate clause when 
payment under a written contract will be made through use of the card.
    (c) The Governmentwide commercial purchase card may be used to--
    (1) Make micro-purchases;
    (2) Place a task or delivery order (if authorized in the basic 
contract, basic ordering agreement, or blanket purchase agreement); or
    (3) Make payments, when the contractor agrees to accept payment by 
the card.

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 10539, Mar. 4, 1999; 67 
FR 6120, Feb. 8, 2002]



13.302  Purchase orders.



13.302-1  General.

    (a) Except as provided under the unpriced purchase order method (see 
13.302-2), purchase orders generally are issued on a fixed-price basis. 
See 12.207 for acquisition of commercial items.
    (b) Purchase orders shall--
    (1) Specify the quantity of supplies or scope of services ordered;
    (2) Contain a determinable date by which delivery of the supplies or 
performance of the services is required;
    (3) Provide for inspection as prescribed in part 46. Generally, 
inspection and acceptance should be at destination. Source inspection 
should be specified only if required by part 46. When inspection and 
acceptance will be performed at destination, advance copies of the 
purchase order or equivalent notice shall be furnished to the 
consignee(s) for material receipt purposes. Receiving reports shall be 
accomplished immediately upon receipt and acceptance of supplies;
    (4) Specify f.o.b. destination for supplies to be delivered within 
the United States, except Alaska or Hawaii, unless there are valid 
reasons to the contrary; and

[[Page 206]]

    (5) Include any trade and prompt payment discounts that are offered, 
consistent with the applicable principles at 14.408-3.
    (c) The contracting officer's signature on purchase orders shall be 
in accordance with 4.101 and the definitions at 2.101. Facsimile and 
electronic signature may be used in the production of purchase orders by 
automated methods.
    (d) Limit the distribution of copies of purchase orders and related 
forms to the minimum deemed essential for administration and 
transmission of contractual information.
    (e) In accordance with 31 U.S.C. 3332, electronic funds transfer 
(EFT) is required for payments except as provided in 32.1110. See 
Subpart 32.11 for instructions for use of the appropriate clause in 
purchase orders. When obtaining oral quotes, the contracting officer 
shall inform the quoter of the EFT clause that will be in any resulting 
purchase order.

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 10540, Mar. 4, 1999]



13.302-2  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 is 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 readily be 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 on paper 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 on 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 13.106-3(a)), process 
the invoice for payment.



13.302-3  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) Each purchase order modification shall identify the order it 
modifies and shall contain an appropriate modification number.
    (c) A contractor's written acceptance of a purchase order 
modification may be required only if--
    (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.



13.302-4  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 in accordance with--
    (1) 12.403(d) and 52.212-4(l) for commercial items; or
    (2) Part 49 or 52.213-4 for other than commercial items.
    (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

[[Page 207]]

performance under the purchase order, the contracting officer shall 
process the termination action as prescribed in paragraph (a) of this 
subsection.



13.302-5  Clauses.

    (a) Each purchase order (and each purchase order modification (see 
13.302-3)) shall incorporate all clauses prescribed for 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, 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.
    (d)(1) The contracting officer may use the clause at 52.213-4, Terms 
and Conditions--Simplified Acquisitions (Other Than Commercial Items), 
in simplified acquisitions exceeding the micro-purchase threshold that 
are for other than commercial items (see 12.301).
    (2) The clause--
    (i) Is a compilation of the most commonly used clauses that apply to 
simplified acquisitions; and
    (ii) May be modified to fit the individual acquisition to add other 
needed clauses, or those clauses may be added separately. Modifications 
(i.e., additions, deletions, or substitutions) must not create a void or 
internal contradiction in the clause. For example, do not add an 
inspection and acceptance or termination for convenience requirement 
unless the existing requirement is deleted. Also, do not delete a 
paragraph without providing for an appropriate substitute.
    (3)(i) When an acquisition for supplies for use within the United 
States cannot be set aside for small business concerns and trade 
agreements apply (see Subpart 25.4), substitute the clause at FAR 
52.225-3, Buy American Act--North American Free Trade Agreement--Israeli 
Trade Act, used with Alternate I or Alternate II, if appropriate, 
instead of the clause at FAR 52.225-1, Buy American Act--Supplies.
    (ii) When acquiring supplies for use outside the United States, 
delete clause 52.225-1 from the clause list at 52.213-4(b).

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 72418, Dec. 27, 1999; 67 
FR 21534, Apr. 30, 2002]



13.303  Blanket purchase agreements (BPAs).



13.303-1  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 an organization 
responsible for providing supplies for its own operations or for other 
offices, installations, projects, or functions. Such organizations, 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 an agency from the 
responsibility for keeping obligations and expenditures within available 
funds.



13.303-2  Establishment of 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.
    (3) The use of this procedure would avoid the writing of numerous 
purchase orders.
    (4) There is no 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--

[[Page 208]]

    (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, 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.



13.303-3  Preparation of BPAs.

    Prepare BPAs on the forms specified in 13.307. Do not cite 
accounting and appropriation data (see 13.303-5(e)(4)).
    (a) The following terms and conditions are mandatory:
    (1) 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.
    (2) Extent of obligation. A statement that the Government is 
obligated only to the extent of authorized purchases actually made under 
the BPA.
    (3) Purchase limitation. A statement that specifies the dollar 
limitation for each individual purchase under the BPA (see 13.303-5(b)).
    (4) 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.
    (5) Delivery tickets. A requirement that all shipments under the 
agreement, except those for newspapers, magazines, or other periodicals, 
shall be accompanied by delivery tickets or sales slips that shall 
contain the following minimum information:
    (i) Name of supplier.
    (ii) BPA number.
    (iii) Date of purchase.
    (iv) Purchase number.
    (v) Itemized list of supplies or services furnished.
    (vi) 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).
    (vii) Date of delivery or shipment.
    (6) Invoices. One of the following statements shall be included 
(except that the statement in paragraph (a)(6)(iii) of this subsection 
should not be used if the accumulation of the individual invoices by the 
Government materially increases the administrative costs of this 
purchase method):
    (i) 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.
    (ii) 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.
    (iii) When billing procedures provide for an individual invoice for 
each delivery, these invoices shall be accumulated, provided that--

[[Page 209]]

    (A) A consolidated payment will be made for each specified period; 
and
    (B) 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.
    (iv) 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.
    (b) If the fast payment procedure is used, include the requirements 
stated in 13.403.



13.303-4  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.



13.303-5  Purchases under BPAs.

    (a) Use a BPA only for purchases that are otherwise authorized by 
law or regulation.
    (b) Individual purchases shall not exceed the simplified acquisition 
threshold. However, agency regulations may establish a higher threshold 
consistent with the following:
    (1) The simplified acquisition threshold and the $5,000,000 
limitation for individual purchases do not apply to BPAs established in 
accordance with 13.303-2(c)(3).
    (2) The limitation for individual purchases for commercial item 
acquisitions conducted under subpart 13.5 is $5,000,000.
    (c) The existence of a BPA does not justify purchasing from only one 
source or avoiding small business set-asides. The requirements of 
13.003(b) and subpart 19.5 also apply to each order.
    (d) If, for a particular purchase greater than the micro-purchase 
threshold, there is an insufficient number of BPAs to ensure maximum 
practicable competition, the contracting officer shall--
    (1) Solicit quotations from other sources (see 13.105) and make the 
purchase as appropriate; and
    (2) Establish additional BPAs to facilitate future purchases if--
    (i) Recurring requirements for the same or similar supplies or 
services seem likely;
    (ii) Qualified sources are willing to accept BPAs; and
    (iii) It is otherwise practical to do so.
    (e) Limit documentation of purchases 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 necessary to ensure 
that the supplier and the purchaser agree concerning the transaction.
    (3) Unless a paper document is issued, record essential elements 
(e.g., date, supplier, supplies or services, price, delivery date) on 
the purchase requisition, in an informal memorandum, or on a form 
developed locally for the purpose.
    (4) Cite the pertinent purchase requisitions and the accounting and 
appropriation data.
    (5) When delivery is made or the services are performed, the 
supplier'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 supplies or services. However, if the 
purchase is assigned to another activity for administration, the 
authorized Government representative shall document receipt and 
acceptance of supplies or services by signing and dating the agency 
specified form after verification and after notation of any exceptions.



13.303-6  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.

[[Page 210]]

    (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 subsection are being 
followed.



13.303-7  Completion of BPAs.

    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.



13.303-8  Optional clause.

    The clause at 52.213-4, Terms and Conditions--Simplified 
Acquisitions (Other Than Commercial Items), may be used in BPAs 
established under this section.



13.304  [Reserved]



13.305  Imprest funds and third party drafts.



13.305-1  General.

    Imprest funds and third party drafts may be used to acquire and to 
pay for supplies or services. 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 Federal 
Agencies, and the agency implementing regulations. Agencies also shall 
be guided by the Manual of Procedures and Instructions for Cashiers, 
issued by the Financial Management Service, Department of the Treasury.



13.305-2  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.



13.305-3  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 13.305-1.



13.305-4  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

[[Page 211]]

approved method of ensuring that adequate funds are available for the 
purchase.
    (b) Normally, purchases should be placed orally and without 
soliciting competition if prices are considered reasonable.
    (c) Since there is, for all practical purposes, simultaneous 
placement of the order and delivery of the items, clauses are not 
required for purchases using imprest funds or third party drafts.
    (d) Forms prescribed at 13.307(e) 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, endorse 
it ``Payment to be made from Imprest Fund'' (or ``Payment to be made 
from Third Party Draft,'' as appropriate).
    (e) 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 paragraph (a) of this subsection 
annotated to reflect--
    (i) That an imprest fund or third party draft purchase has been 
made;
    (ii) The unit prices and extensions; and
    (iii) The supplier's name and address; and
    (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 supplied;
    (iii) Unit prices and extensions; and
    (iv) Cash discount, if any.



13.306  SF 44, Purchase Order--Invoice--Voucher.

    The SF 44, Purchase Order--Invoice--Voucher, is a multipurpose 
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 also can 
be used as a receiving report, invoice, and public voucher.
    (a) This form may be used if all of the following conditions are 
satisfied:
    (1) 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;
    (2) The supplies or services are immediately available;
    (3) One delivery and one payment will be made; and
    (4) Its use is determined to be more economical and efficient than 
use of other simplified acquisition procedures.
    (b) General procedural instructions governing the form's use are 
printed on the form and on the inside front cover of each book of forms.
    (c) Since there is, for all practical purposes, simultaneous 
placement of the order and delivery of the items, clauses are not 
required for purchases using this form.
    (d) Agencies shall provide adequate safeguards regarding the control 
of forms and accounting for purchases.



13.307  Forms.

    (a) Commercial items. For use of the SF 1449, Solicitation/Contract/
Order for Commercial Items, see 12.204.
    (b) Other than commercial items.
    (1) Except when quotations are solicited via FACNET, electronically, 
or orally, the SF 1449; SF 18, Request for Quotations; or an agency 
form/automated format may be used. Each agency request for quotations 
form/automated format should conform with the SF 18 or SF 1449 to the 
maximum extent practicable.
    (2) Both SF 1449 and OF 347, Order for Supplies or Services, are 
multipurpose forms used for negotiated purchases of supplies or 
services, delivery or task orders, inspection and receiving reports, and 
invoices. An agency form/automated format also may be used.
    (c) Forms used for both commercial and other than commercial items.
    (1) OF 336, Continuation Sheet, or an agency form/automated format 
may be used when additional space is needed.
    (2) OF 348, Order for Supplies or Services Schedule--Continuation, 
or an agency form/automated format may be

[[Page 212]]

used for negotiated purchases when additional space is needed. Agencies 
may print on these forms the clauses considered to be generally suitable 
for purchases.
    (3) SF 30, Amendment of Solicitation/Modification of Contract, or a 
purchase order form may be used to modify a purchase order, unless an 
agency form/automated format is prescribed in agency regulations.
    (d) SF 44, Purchase Order--Invoice--Voucher, is a multipurpose 
pocket-size purchase order form that may be used as outlined in 13.306.
    (e) SF 1165, Receipt for Cash--Subvoucher, or an agency purchase 
order form may be used for purchases using imprest funds or third party 
drafts.

[62 FR 64917, Dec. 9, 1997, as amended at 63 FR 58593, Oct. 30, 1998]



                  Subpart 13.4--Fast Payment Procedure



13.401  General.

    (a) 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 certification that the contractor--
    (1) Has delivered the supplies to a post office, common carrier, or 
point of first receipt by the Government; and
    (2) Shall replace, repair, or correct supplies not received at 
destination, damaged in transit, or not conforming to purchase 
agreements.
    (b) 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).



13.402  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.
    (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 passes to 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) Documentation of evidence of contractor performance under fast 
payment purchases;
    (2) Timely feedback to the contracting officer in case of contractor 
deficiencies; and
    (3) Identification of suppliers that have a current history of 
abusing the fast payment procedure (also see subpart 9.1).



13.403  Preparation and execution of orders.

    Priced or unpriced 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 13.302-2(c)).

[[Page 213]]

    (c) The following statement on the 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.



13.404  Contract clause.

    The contracting officer shall insert the clause at 52.213-1, Fast 
Payment Procedure, in solicitations and contracts when the conditions in 
13.402 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 13.5--Test Program for Certain Commercial Items



13.500  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 must 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 in subpart 12.3.
    (d) The authority to issue solicitations under this subpart expires 
on January 1, 2003. Contracting officers may award contracts after the 
expiration of this authority for solicitations issued before the 
expiration of the authority.

[62 FR 64917, Dec. 9, 1997, as amended at 64 FR 72448, Dec. 27, 1999; 67 
FR 6115, Feb. 8, 2002]



13.501  Special documentation requirements.

    (a) Sole source acquisitions. (1) Acquisitions conducted under 
simplified acquisition procedures are exempt from the requirements in 
part 6. However, contracting officers must--
    (i) Conduct sole source acquisitions, as defined in 2.101, under 
this subpart only if the need to do so is justified in writing and 
approved at the levels specified in paragraphs (a)(2)(i) and (a)(2)(ii) 
of this section; and
    (ii) 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 (section 4202 of the Clinger-Cohen Act of 
1996).
    (2) Justifications and approvals are required under this subpart 
only for sole source acquisitions.
    (i) 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 accordance with agency procedures.
    (ii) For a proposed contract exceeding $500,000, the competition 
advocate for the procuring activity, designated

[[Page 214]]

pursuant to 6.501, or an official described in 6.304(a)(3) or (a)(4) 
must approve the justification and approval. This authority is not 
delegable.
    (b) Contract file documentation. The contract file must include--
    (1) A brief written description of the procedures used in awarding 
the contract, including the fact that the test procedures in FAR subpart 
13.5 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 64917, Dec. 9, 1997, as amended at 64 FR 72448, Dec. 27, 1999; 66 
FR 2128, Jan. 10, 2001]



PART 14--SEALED BIDDING--Table of Contents




Sec.
14.000 Scope of part.

                   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 [Reserved]
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 Submission, modification, and withdrawal of bids.

           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.

[[Page 215]]

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.



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 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; 67 FR 6114, 
Feb. 8, 2002]



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

[[Page 216]]

    (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 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]



                   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

[[Page 217]]

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:
    (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).

[[Page 218]]

    (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]



14.201-6  Solicitation provisions.

    (a) The provisions prescribed in this subsection apply to 
preparation and submission of bids in general. See other FAR parts for 
provisions and clauses related to specific acquisition requirements.
    (b) Insert in all invitations for bids the provisions at--
    (1) 52.214-3, Amendments to Invitations for Bids; and
    (2) 52.214-4, False Statements in Bids.
    (c) 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.
    (d) [Reserved]
    (e) 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) Insert in invitations for bids to which the uniform contract 
format applies, the provision at 52.214-12, Preparation of Bids.
    (g)(1) Insert the provision at 52.214-13, Telegraphic Bids, in 
invitations for bids if the contracting officer decides to authorize 
telegraphic bids.
    (2) Use the 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) 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) 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) 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) [Reserved]
    (l) Insert the provision at 52.214-18, Preparation of Bids--
Construction, in invitations for bids for construction work.
    (m) Insert the provision at 52.214-19, Contract Award--Sealed 
Bidding--Construction, in all invitations for bids for construction 
work.
    (n) [Reserved]
    (o)(1) 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(e)(1) will apply 
and the contracting officer anticipates granting waivers and--
    (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, 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, use the provision 
with its Alternate II.
    (3) See 14.202-4(e)(2) regarding waiving the requirement for all 
bidders.
    (p)(1) 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

[[Page 219]]

literature for a bidder offering a previously supplied product that 
meets specification requirements of the current solicitation.
    (3) See 14.202-5(d)(2) regarding waiving the requirement for all 
bidders.
    (q) 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) Insert the provision at 52.214-23, Late Submissions, 
Modifications, Revisions, and Withdrawals of Technical Proposals under 
Two-Step Sealed Bidding, in solicitations for technical proposals in 
step one of two-step sealed bidding.
    (s) 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) 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) 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) Insert the provision at 52.214-31, Facsimile Bids, in 
solicitations if facsimile bids are authorized (see 14.202-7).
    (w) Insert the provision at 52.214-34, Submission of Offers in the 
English Language, in solicitations that include any of the clauses 
prescribed in 25.1101 or 25.1102. It may be included in other 
solicitations when the contracting officer decides that it is necessary.
    (x) Insert the provision at 52.214-35, Submission of Offers in U.S. 
Currency, in solicitations that include any of the clauses prescribed in 
25.1101 or 25.1102, unless the contracting officer includes the clause 
at 52.225-17, Evaluation of Foreign Currency Offers, as prescribed in 
25.1103(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; 63 FR 58589, Oct. 30, 1998; 64 FR 10532, Mar. 4, 1999; 
64 FR 51838, Sept. 24, 1999; 64 FR 72418, 72451, Dec. 27, 1999; 67 FR 
13055, Mar. 20, 2002]



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.

[[Page 220]]

    (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]



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:
    (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

[[Page 221]]

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 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) 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.
    (b) 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.
    (c) Justification. The reasons why acceptable products cannot be 
acquired without the submission of bid samples

[[Page 222]]

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.
    (d) 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).
    (e) 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.
    (f) 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.)
    (g) Handling 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 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; 67 FR 13055, Mar. 20, 2002]



14.202-5  Descriptive literature.

    (a) Policy. Contracting officers must not require bidders to furnish 
descriptive literature unless it is needed before award to determine 
whether the products offered meet the specification and to establish 
exactly what the bidder proposes to furnish.
    (b) Justification. The contracting officer must document in the 
contract file the reasons why product acceptability cannot be determined 
without the submission of descriptive literature, except when the 
contract specifications require submission.
    (c) Requirements of invitation for bids. (1) The invitation must 
clearly state--
    (i) What descriptive literature the bidders must furnish;
    (ii) The purpose for requiring the literature;
    (iii) The extent of its consideration 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 provided does not 
comply with the requirements of the invitation.
    (2) If bidders must furnish descriptive literature, see 14.201-6(p).
    (d) Waiver of requirement for descriptive literature. (1) The 
contracting officer may waive the requirement for descriptive literature 
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

[[Page 223]]

requirements of the current invitation for bids. When the contracting 
officer waives the requirement, see 14.201-6(p)(2).
    (2) When descriptive literature is not necessary and a waiver of 
literature requirements of a specification has been authorized, the 
contracting officer must include a statement in the invitation that, 
despite 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 furnished with the 
bid or a previously furnished product. If the bid is submitted on one 
basis, the bidder may not have it considered on the other basis after 
bids are opened.
    (e) Unsolicited descriptive literature. If descriptive literature is 
furnished when it is not required by the invitation for bids, the 
procedures set forth in 14.202-4(f) must be followed.

[67 FR 13055, Mar. 20, 2002]



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(v)). 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
    (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, as amended at 64 FR 51838, Sept. 24, 1999]



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 through the Governmentwide point of 
entry (GPE) are set forth in 5.101 and Subpart 5.2.
    (b) For procedures that apply to publicizing notices through the GPE 
to determine whether commercial sources are available, as prescribed by 
OMB Circular A-76, see 5.205(e) and 7.303(b).

[66 FR 27413, May 16, 2001]



14.203-3  Master solicitation.

    The master solicitation is provided to potential sources who are 
requested to retain it for continued and repetitive use. Individual 
solicitations must reference the date of the current master solicitation 
and identify any changes. The contracting officer must--
    (a) Make available copies of the master solicitation on request; and

[[Page 224]]

    (b) Provide the cognizant contract administration activity a current 
copy of the master solicitation.

[66 FR 2128, Jan. 10, 2001]



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 the requirements 
of the contracting office can be obtained through use of simplified 
acquisition procedures (see part 13); the requirements are nonrecurring; 
or electronic commerce methods are used that transmit solicitations or 
notices of procurement opportunities automatically to all interested 
sources. Lists may be established as a central list for 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; 63 FR 58594, 
Oct. 30, 1998]

[[Page 225]]



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 or suspended 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; 67 FR 6120, Feb. 8, 2002]



14.205-3  Reinstatement on solicitation mailing lists.

    Concerns that have been removed from solicitation mailing lists may 
be 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

[[Page 226]]

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  [Reserved]



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 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]



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

[[Page 227]]

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 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]

[[Page 228]]



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 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(v). 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

[[Page 229]]

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; 64 FR 51838, Sept. 24, 1999]



14.304  Submission, modification, and withdrawal of bids.

    (a) Bidders are responsible for submitting bids, and any 
modifications or withdrawals, so as to reach the Government office 
designated in the invitation for bid (IFB) by the time specified in the 
IFB. They may use any transmission method authorized by the IFB (i.e., 
regular mail, electronic commerce, or facsimile). If no time is 
specified in the IFB, the time for receipt is 4:30 p.m., local time, for 
the designated Government office on the date that bids are due.
    (b)(1) Any bid, modification, or withdrawal of a bid received at the 
Government office designated in the IFB after the exact time specified 
for receipt of bids is ``late'' and will not be considered unless it is 
received before award is made, the contracting officer determines that 
accepting the late bid would not unduly delay the acquisition; and--
    (i) If it was transmitted through an electronic commerce method 
authorized by the IFB, it 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; or
    (ii) There is acceptable evidence to establish that it was received 
at the Government installation designated for receipt of bids and was 
under the Government's control prior to the time set for receipt of 
bids.
    (2) However, a late modification of an otherwise successful bid, 
that makes its terms more favorable to the Government, will be 
considered at any time it is received and may be accepted.
    (c) Acceptable evidence to establish the time of receipt at the 
Government installation includes the time/date stamp of that 
installation on the bid wrapper, other documentary evidence of receipt 
maintained by the installation, or oral testimony or statements of 
Government personnel.
    (d) If an emergency or unanticipated event interrupts normal 
Government processes so that bids cannot be received at the Government 
office designated for receipt of bids by the exact time specified in the 
IFB, and urgent Government requirements preclude amendment of the bid 
opening date, the time specified for receipt of bids will be deemed to 
be extended to the same time of day specified in the IFB on the first 
work day on which normal Government processes resume.
    (e) Bids may be withdrawn by written notice received at any time 
before the exact time set for receipt of bids. If the IFB authorizes 
facsimile bids, bids may be withdrawn via facsimile received at any time 
before the exact time set for receipt of bids, subject to the conditions 
specified in the provision at 52.214-31, Facsimile Bids. A bid may be 
withdrawn in person by a bidder or its authorized representative if, 
before the exact time set for receipt of bids, the identity of the 
person requesting withdrawal is established and the person signs a 
receipt for the bid. Upon withdrawal of an electronically transmitted 
bid, the data received must not be viewed and, where practicable, must 
be purged from primary and backup data storage systems.
    (f) The contracting officer must promptly notify any bidder if its 
bid, modification, or withdrawal was received late, and must inform the 
bidder whether its bid will be considered, unless contract award is 
imminent and the notices prescribed in 14.409 would suffice.

[[Page 230]]

    (g) Late bids and modifications that are not considered must be held 
unopened, unless opened for identification, until after award and then 
retained with other unsuccessful bids. However, any bid bond or 
guarantee must be returned.
    (h) If available, the following must be included in the contract 
files for each late bid, modification, or withdrawal:
    (1) The date and hour of receipt.
    (2) A statement, with supporting rationale, regarding whether the 
bid was considered for award.
    (3) The envelope, wrapper, or other evidence of the date of receipt.

[64 FR 51838, Sept. 24, 1999]



           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 contracts.

[48 FR 42171, Sept. 19, 1983, as amended at 63 FR 58594, Oct. 30, 1998].



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.
    (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 general public may not attend bid openings for classified 
acquisitions. A bidder or its representative may attend and record the 
results if the individual has the appropriate security clearance. The 
contracting officer also may make the bids available at a later

[[Page 231]]

time to properly cleared individuals who represent bidders. No public 
record shall be made of bids or bid prices received in response to 
classified invitations for bids.

[67 FR 6114, Feb. 8, 2002]



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.
    (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

[[Page 232]]

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.
    (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]

[[Page 233]]



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 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; 65 
FR 80265, Dec. 20, 2000; 66 FR 17756, Apr. 3, 2001; 66 FR 66986, 66989, 
Dec. 27, 2001]



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.

[[Page 234]]



14.404-4  Restrictions on disclosure of descriptive literature.

    When a bid is accompanied by descriptive literature (as defined in 
2.101), 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(e)).

[48 FR 42171, Sept. 19, 1983, as amended at 67 FR 13056, Mar. 20, 2002]



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, quantity, quality, or 
delivery of the item bid upon; and
    (e) 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; 64 FR 10532, Mar. 4, 1999]



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

[[Page 235]]

    (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 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

[[Page 236]]

(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--
    (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

[[Page 237]]

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 modification 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:
    (1) The contracting officer shall request the contractor to support 
the alleged mistake by submission f 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

[[Page 238]]

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; 63 FR 58602, Oct. 30, 1998]



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.
    (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

[[Page 239]]

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]



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.
    (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.

[[Page 240]]

    (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 
25.408(a)(5)), agencies must 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, as amended at 64 FR 72418, Dec. 27, 1999; 
67 FR 6120, Feb. 8, 2002]



14.409-2  Award of classified contracts.

    In addition to 14.409-1, if classified information was furnished or 
created in

[[Page 241]]

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 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) The use of the price evaluation adjustment for small 
disadvantaged business concerns (see Subpart 19.11).
    (5) The use of a set-aside or price evaluation preference for 
HUBZone small business concerns (see subpart 19.13).
    (6) 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; 63 FR 35721, 
June 30, 1998; 63 FR 70267, Dec. 18, 1998]



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.

[[Page 242]]

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.
    (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.

[[Page 243]]

    (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), (c), and 
(f).
    (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; 64 FR 51839, Sept. 24, 1999]



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 through the Governmentwide point of entry 
(GPE) 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 through the GPE for the benefit of prospective 
subcontractors (see 5.207(b)(1)).

[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; 66 FR 27413, May 
16, 2001]



PART 15--CONTRACTING BY NEGOTIATION--Table of Contents




Sec.
15.000 Scope of part.
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 [Reserved]
15.302 Source selection objective.

[[Page 244]]

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 Pricing Proposals When 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.



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--
    Deficiency 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.
    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.
    Weakness means 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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]

[[Page 245]]



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.
    (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)(iv), 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

[[Page 246]]

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).

[62 FR 51230, Sept. 30, 1997, as amended at 64 FR 72443, Dec. 27, 1999]



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 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.

[[Page 247]]



   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 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 must 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 must 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 potential offeror in response to its request must not be disclosed if 
doing so would reveal the potential offeror's confidential business 
strategy, and is protected under 3.104

[[Page 248]]

or subpart 24.2. When conducting a presolicitation or preproposal 
conference, materials distributed at the conference should be made 
available to all potential offerors, upon request.

[62 FR 51230, Sept. 30, 1997, as amended at 67 FR 13056, Mar. 20, 2002]



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).
    (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

[[Page 249]]

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.
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,

[[Page 250]]

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 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;

[[Page 251]]

    (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 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

[[Page 252]]

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 proposals, and any 
revisions, and modifications, so as to reach the Government office 
designated in the solicitation by the time specified in the 
solicitation. Offerors may use any transmission method authorized by the 
solicitation (i.e., regular mail, electronic commerce, or facsimile). 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)(1) Any proposal, modification, or revision, that is received at 
the designated Government office after the exact time specified for 
receipt of proposals is ``late'' and will not be considered unless it is 
received before award is made, the contracting officer determines that 
accepting the late proposal would not unduly delay the acquisition; and-
-
    (i) If it was transmitted through an electronic commerce method 
authorized by the solicitation, it 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 proposals; or
    (ii) There is acceptable evidence to establish that it was received 
at the Government installation designated for receipt of proposals and 
was under the Government's control prior to the time set for receipt of 
proposals; or
    (iii) It was the only proposal received.
    (2) However, a late modification of an otherwise successful 
proposal, that makes its terms more favorable to the Government, will be 
considered at any time it is received and may be accepted.
    (c) Acceptable evidence to establish the time of receipt at the 
Government installation includes the time/date stamp of that 
installation on the proposal wrapper, other documentary evidence of 
receipt maintained by the installation, or oral testimony or statements 
of Government personnel.
    (d) If an emergency or unanticipated event interrupts normal 
Government processes so that proposals cannot be received at the 
Government 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.
    (e) Proposals may be withdrawn by written notice at any time before 
award. Oral proposals in response to oral solicitations may be withdrawn 
orally. The contracting officer must document the contract file when 
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 
offerors request. Where practicable, electronically transmitted 
proposals that are withdrawn must be purged from primary and backup data 
storage systems after a copy is made for the file. Extremely bulky 
proposals must only be returned at the offeror's request and expense.
    (f) The contracting officer must promptly notify any offeror if its 
proposal, modification, or revision was received late, and must inform 
the offeror whether its proposal will be considered, unless contract 
award is imminent and the notice prescribed in 15.503(b) would suffice.
    (g) Late proposals and modifications that are not considered must be 
held unopened, unless opened for identification, until after award and 
then retained with other unsuccessful proposals.
    (h) If available, the following must be included in the contracting 
office files for each late proposal, modification, revision, or 
withdrawal:
    (1) The date and hour of receipt.
    (2) A statement regarding whether the proposal was considered for 
award, with supporting rationale.
    (3) The envelope, wrapper, or other evidence of date of receipt.

[64 FR 51839, Sept. 24, 1999, as amended at 64 FR 72451, Dec. 27, 1999]

[[Page 253]]



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 State and local 
Governments, educational institutions, and other nonprofit 
organizations, the contracting officer shall use the clause with its 
Alternate II.
    (4) When the head of the agency has waived the examination of 
records by the Comptroller General in accordance with 25.1001, 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) [Reserved]
    (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.

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 9055, Feb. 23, 1998; 
63 FR 58589, Oct. 30, 1998; 64 FR 72418, Dec. 27, 1999]



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.



15.301  [Reserved]



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

[[Page 254]]

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)(iv) 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)(iv) 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) For solicitations involving bundling that offer a significant 
opportunity for subcontracting, the contracting officer must include a 
factor to evaluate past performance indicating the extent to which the 
offeror attained applicable goals for small business participation under 
contracts that required subcontracting plans (15 U.S.C. 
637(d)(4)(G)(ii)).
    (iv) Past performance need not be evaluated if the contracting 
officer documents the reason past performance is not an appropriate 
evaluation factor for the acquisition.
    (4) The extent of participation of small disadvantaged business 
concerns in performance of the contract shall be evaluated in 
unrestricted acquisitions expected to exceed $500,000 ($1,000,000 for 
construction) subject to certain limitations (see 19.201 and 19.1202).
    (5) For solicitations involving bundling that offer a significant 
opportunity for subcontracting, the contracting officer must include 
proposed small business subcontracting participation in the 
subcontracting plan as an

[[Page 255]]

evaluation factor (15 U.S.C. 637(d)(4)(G)(i)).
    (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)).

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 36121, July 1, 1998; 
64 FR 72443, Dec. 27, 1999; 65 FR 36014, June 6, 2000]



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)). (See 37.115 for 
uncompensated overtime evaluation.) 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. 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 256]]

may not be evaluated favorably or unfavorably on past performance.
    (v) The evaluation should include the past performance of offerors 
in complying with subcontracting plan goals for small disadvantaged 
business (SDB) concerns (see Subpart 19.7), monetary targets for SDB 
participation (see 19.1202), and notifications submitted under 19.1202-
4(b).
    (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.
    (5) Small business subcontracting evaluation. Solicitations must be 
structured to give offers from small business concerns the highest 
rating for the evaluation factors in 15.304(c)(3)(iii) and (c)(5).
    (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).

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 36121, July 1, 1998; 
64 FR 51842, 51850, Sept. 24, 1999; 65 FR 46054, July 26, 2000]



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--

[[Page 257]]

    (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 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 must 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) At a minimum, the contracting officer must, subject to 
paragraphs (d)(5) and (e) of this section and 15.307(a), indicate to, or 
discuss with, each offeror still being considered for award, 
deficiencies, significant weaknesses, and adverse past performance 
information to which the offeror has not yet had an opportunity to 
respond. The contracting officer also is encouraged to discuss other 
aspects of the offeror's proposal that could, in the opinion of the 
contracting officer, be altered or explained to enhance materially the 
proposal's potential for award. However, the contracting officer is not 
required to discuss every area where the proposal could be improved. The 
scope and extent of discussions are a matter of contracting officer 
judgment.
    (4) 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

[[Page 258]]

the excesses were removed and the offered price decreased.
    (5) 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 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).

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 65369, Dec. 18, 2001]



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.

    As used in this subpart--
    Price means cost plus any fee or profit applicable to the contract 
type.
    Subcontract (except as used in 15.407-2) 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)).

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001; 
66 FR 65369, Dec. 18, 2001]



15.402  Pricing policy.

    Contracting officers must--

[[Page 259]]

    (a) Purchase supplies and services from responsible sources at fair 
and reasonable prices. In establishing the reasonableness of the offered 
prices, the contracting officer must 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 must 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 2.101.
    (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 
must 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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]



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.
    (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

[[Page 260]]

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 (3)(i) or (ii) 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. If the contracting officer 
determines that an item claimed to be commercial is, in fact, not 
commercial and that no other exception or waiver applies, the 
contracting officer must require submission of 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 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--
    (i) An exception otherwise applies to the subcontract; or
    (ii) The waiver specifically includes the subcontract and the 
rationale supporting the waiver for that subcontract.

[62 FR 51230, Sept. 30, 1997, as amended at 64 FR 10545, Mar. 4, 1999; 
64 FR 51836, Sept. 24, 1999; 66 FR 2129, Jan. 10, 2001]



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, but the contracting officer 
should not obtain more information than is necessary (see 15.402(a)). If 
the contracting officer

[[Page 261]]

cannot obtain adequate information from sources other than the offeror, 
the contracting officer must require submission of information other 
than cost or pricing data from the offeror that is adequate to determine 
a fair and reasonable price (10 U.S.C. 2306a(d)(1) and 41 U.S.C. 
254b(d)(1)). Unless an exception under 15.403-1(b) (1) or (2) applies, 
the contracting officer must require that the information submitted by 
the offeror 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. To determine 
the information an offeror should be required to submit, the contracting 
officer should consider the guidance in Section 3.3, Chapter 3, Volume 
I, of the Contract Pricing Reference Guide cited at 15.404-1(a)(7).
    (2) The contractor's format for submitting the information should be 
used (see 15.403-5(b)(2)).
    (3) The contracting officer must 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.
    (4) As specified in Section 808 of Public Law 105-261, an offeror 
who does not comply with a requirement to submit information for a 
contract or subcontract in accordance with paragraph (a)(1) of this 
subsection is ineligible for award unless the HCA determines that it is 
in the best interest of the Government to make the award to that 
offeror, based on consideration of the following:
    (i) The effort made to obtain the data.
    (ii) The need for the item or service.
    (iii) Increased cost or significant harm to the Government if award 
is not made.
    (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) Commercial items. (1) At a minimum, the contracting officer must 
use price analysis to determine whether the price is fair and reasonable 
whenever the contracting officer acquires a commercial item (see 15.404-
1(b)). The fact that a price is included in a catalog does not, in and 
of itself, make it fair and reasonable. If the contracting officer 
cannot determine whether an offered price is fair and reasonable, even 
after obtaining additional information from sources other than the 
offeror, then the contracting officer must require the offeror to submit 
information other than cost or pricing data to support further analysis 
(see 15.404-1).
    (2) Limitations relating to commercial items (10 U.S.C. 2306a(d)(2) 
and 41 U.S.C. 254b(d)). (i) The contracting officer must limit requests 
for sales data relating to commercial items to data for the same or 
similar items during a relevant time period.
    (ii) The contracting officer must, 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.
    (iii) The Government must not disclose outside the Government 
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)).

[62 FR 51230, Sept. 30, 1997, as amended at 64 FR 51836, Sept. 24, 1999; 
65 FR 24321, Apr. 25, 2000]



15.403-4  Requiring cost or pricing data (10 U.S.C. 2306a and 41 U.S.C. 254b).

    (a)(1) The contracting officer must obtain cost or pricing data only 
if the contracting officer concludes that none of the exceptions in 
15.403-1(b) applies.

[[Page 262]]

However, if the contracting officer has sufficient information available 
to determine price reasonableness, then the contracting officer should 
consider requesting a waiver under the exception at 15.403-1(b)(4). The 
threshold for obtaining cost or pricing data is $550,000. Unless an 
exception applies, cost or pricing data are required before 
accomplishing any of the following actions expected to exceed the 
current threshold or, for 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 were required to submit 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 must consider both increases and decreases (e.g., a 
$200,000 modification resulting from a reduction of $400,000 and an 
increase of $200,000 is a pricing adjustment exceeding $550,000). 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--
    (A) The total final price agreement for such settlements or 
agreements exceeds the pertinent threshold set forth at paragraph (a)(1) 
of this subsection; or
    (B) 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 must not be 
considered cost or pricing data as defined in 2.101 and must 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.

[62 FR 51230, Sept. 30, 1997, as amended at 65 FR 60553, Oct. 11, 2000; 
66 FR 2129, Jan. 10, 2001]



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

[[Page 263]]

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 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 Reference 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. They are available via the 
internet at http://www.acq.osd.mil/dp/cpf.
    (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. Examples of such 
techniques include, but are not limited to, the following:
    (i) Comparison of proposed prices received in response to the 
solicitation. Normally, adequate price competition establishes price 
reasonableness (see 15.403-1(c)(1)).
    (ii) Comparison of previously proposed prices and previous 
Government and commercial contract prices with current proposed prices 
for the same or similar items, if both the validity of the comparison 
and the reasonableness

[[Page 264]]

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.
    (vii) Analysis of pricing information provided by the offeror.
    (3) The first two techniques at 15.404-1(b)(2) are the preferred 
techniques. However, if the contracting officer determines that 
information on competitive proposed prices or previous contract prices 
is not available or is insufficient to determine that the price is fair 
and reasonable, the contracting officer may use any of the remaining 
techniques as appropriate to the circumstances applicable to the 
acquisition.
    (4) Value analysis can give insight into the relative worth of a 
product and the Government may use it in conjunction with the price 
analysis techniques listed in paragraph (b)(2) of this section.
    (c) Cost analysis. (1) Cost analysis is the review and evaluation of 
the separate cost elements and profit in an 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.

[[Page 265]]

    (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 
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

[[Page 266]]

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.

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 58602, Oct. 30, 1998; 
64 FR 51837, Sept. 24, 1999; 65 FR 16286, Mar. 27, 2000]



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. 
The contracting officer must tailor requests to reflect the minimum 
essential supplementary information needed to conduct a technical or 
cost or pricing analysis.
    (2) The contracting officer must tailor the type of information and 
level of detail requested in accordance with the specialized resources 
available at the buying activity and the magnitude and complexity of the 
required analysis. Field pricing assistance is generally available to 
provide--
    (i) Technical, audit, and special reports associated with the cost 
elements of a proposal, including subcontracts;
    (ii) Information on related pricing practices and history;
    (iii) Information to help contracting officers determine 
commerciality and price reasonableness, including--
    (A) Verifying sales history to source documents;
    (B) Identifying special terms and conditions;
    (C) Identifying customarily granted or offered discounts for the 
item;
    (D) Verifying the item to an existing catalog or price list;
    (E) Verifying historical data for an item previously not determined 
commercial that the offeror is now trying to qualify as a commercial 
item; and
    (F) Identifying general market conditions affecting determinations 
of commerciality and price reasonableness.
    (iv) Information relative to the business, technical, production, or 
other capabilities and practices of an offeror.
    (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 2.101). This 
information must 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.

[[Page 267]]

    (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 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.

[62 FR 51230, Sept. 30, 1997, as amended at 64 FR 51837, Sept. 24, 1999; 
67 FR 13063, Mar. 20, 2002]



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

[[Page 268]]

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 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)

[[Page 269]]

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(d) 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.
    (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

[[Page 270]]

(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 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.

[[Page 271]]

    (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.

[62 FR 51230, Sept. 30, 1997, as amended at 67 FR 6120, Feb. 8, 2002]



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 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-

[[Page 272]]

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 
must require the contractor to execute a Certificate of Current Cost or 
Pricing Data, using the format in this paragraph, and must 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 2.101 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 f future costs or 
projections. It applies 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 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

[[Page 273]]

and shall not be certified in accordance with this subsection.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]



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).
    (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

[[Page 274]]

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 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 
32.001.
    (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,

[[Page 275]]

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, 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

[[Page 276]]

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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 65354, Dec. 18, 2001]



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) Definition. Make item, as used in this subsection, means an item 
or work effort to be produced or performed by the prime contractor or 
its affiliates, subsidiaries, or divisions.
    (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 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:

[[Page 277]]

    (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 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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]



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

[[Page 278]]

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 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

[[Page 279]]

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 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

[[Page 280]]

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) Pension Adjustments and Asset Reversions. The contracting 
officer shall insert the clause at 52.215-15, Pension Adjustments and 
Asset Reversions, 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 of 
the FAR.
    (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

[[Page 281]]

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 to Part 15--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.

    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

[[Page 282]]

(other than a noncompliance that the cognizant Federal agency official 
has determined to have an immaterial cost impact), 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 2.101). 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.
    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

[[Page 283]]

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 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)
----------------------------
 
----------------------------------------------------------------------------------------------------------------

                         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

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----------------------------------------------------------------------------------------------------------------
                                      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)
----------------
 
----------------------------------------------------------------------------------------------------------------

                         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

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Incurred
  Cutoff     Number of     Number of     Contract     Redetermination                      Cost      Incurred cost--     cost--     Incurred      Total     Estimated    Estimated
   date        units      units to be     amount      proposal amount     Difference     elements     preproduction    completed   cost--work   incurred     cost to     total cost   Reference
             completed     completed                                                                                     units     in process     cost       complete
(1)              (2)           (3)           (4)             (5)               (6)           (7)            (8)             (9)        (10)        (11)         (12)         (13)         (14)
----------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (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

[[Page 285]]

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.)

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 58596, Oct. 30, 1998; 
66 FR 2129, Jan. 10, 2001; 67 FR 6115, Feb. 8, 2002]



 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).



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 programs. (i) In addition to 
the notice in paragraph (a)(1) of this section, the contracting officer 
shall notify each offeror in writing prior to award, upon completion of 
negotiations, determinations of responsibility, and, if necessary, the 
process in 19.304(d)--
    (A) When using a small business set-aside (see subpart 19.5);
    (B) When a small disadvantaged business concern receives a benefit 
based on its disadvantaged status (see subpart 19.11 and 19.1202) and is 
the apparently successful offeror; or
    (C) When using the HUBZone procedures in 19.1305 or 19.1307.
    (ii) The notice shall state--
    (A) The name and address of the apparently successful offeror;
    (B) That the Government will not consider subsequent revisions of 
the offeror's proposal; and
    (C) That no response is required unless a basis exists to challenge 
the small business size status, disadvantaged status, or HUBZone status 
of the apparently successful offeror.
    (iii) 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;

[[Page 286]]

    (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.

[62 FR 51230, Sept. 30, 1997, as amended at 63 FR 35721, June 30, 1998; 
63 FR 36121, July 1, 1998; 63 FR 70267, Dec. 18, 1998; 65 FR 80265, Dec. 
20, 2000; 66 FR 17756, Apr. 3, 2001; 66 FR 66986, 66990, Dec. 27, 2001]



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 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

[[Page 287]]

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. 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

[[Page 288]]

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.



                   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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]



15.602  Policy.

    It is the policy of the Government to encourage the submission of 
new and innovative ideas in response to Broad

[[Page 289]]

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.
    (e) Agencies must evaluate unsolicited proposals for energy-savings 
performance contracts in accordance with the procedures in 10 CFR 
436.33(b).

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 65352, Dec. 18, 2002]



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 must make available to 
potential offerors of unsolicited proposals at least the following 
information:
    (1) Definition (see 2.101) 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.

[62 FR 51230, Sept. 30, 1997, as amended at 66 FR 2129, Jan. 10, 2001]



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;

[[Page 290]]

    (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.



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;

[[Page 291]]

    (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.
    (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

[[Page 292]]

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) Use the notice in paragraph (d) of this section solely as a 
manner of handling unsolicited proposals that will be compatible with 
this subpart. However, do not use this notice to justify withholding of 
a record, or to improperly deny the public access to a record, where an 
obligation is imposed by the Freedom of Information Act (5 U.S.C. 552). 
An 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 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.

[62 FR 51230, Sept. 30, 1997, as amended at 67 FR 13056, Mar. 20, 2002]



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.

[[Page 293]]

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.
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

[[Page 294]]

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, 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

[[Page 295]]

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 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]



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

[[Page 296]]

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 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

[[Page 297]]

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 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.

[[Page 298]]

    (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 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

[[Page 299]]

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.
    (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

[[Page 300]]

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.
    (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; 63 FR 34073, June 22, 1998]



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]

[[Page 301]]



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 contracting officer complies with all limitations in 15.404-
4(c)(4)(i) and 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; 63 FR 34073, June 22, 1998]



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

[[Page 302]]

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 (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

[[Page 303]]

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 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

[[Page 304]]

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]



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

[[Page 305]]

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 
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).

[[Page 306]]

    (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 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

[[Page 307]]

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.
    (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]



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 and the methodology 
for determining the award fee are unilateral decisions made solely at 
the discretion of the Government.
    (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; and
    (2) 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; 63 FR 34073, June 22, 1998; 64 FR 72449, Dec. 27, 1999]

[[Page 308]]



16.406  Contract clauses.

    (a) 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) 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) 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 provides that the award amount and the award-fee 
determination methodology are unilateral decisions made solely at the 
discretion of the Government.

[48 FR 42219, Sept. 19, 1983. Redesignated and amended at 62 FR 12696, 
Mar. 17, 1997; 64 FR 72449, Dec. 27, 1999]



               Subpart 16.5--Indefinite-Delivery Contracts



16.500  Scope of subpart.

    (a) This subpart prescribes policies and procedures for making 
awards of indefinite-delivery contracts and establishes a preference for 
making multiple awards of indefinite-quantity contracts.
    (b) This subpart does not limit the use of other than competitive 
procedures authorized by part 6.
    (c) Nothing in this subpart restricts 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.
    (d) The statutory multiple award preference implemented 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 are consistent with subpart 36.6.

[65 FR 24318, Apr. 25, 2000]



16.501-1  Definitions.

    As used in this subpart--
    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 specify a firm quantity of services (other than a minimum or 
maximum quantity) and that provides for the issuance of orders for the 
performance

[[Page 309]]

of tasks during the period of the contract.

[60 FR 49725, Sept. 26, 1995, as amended at 65 FR 24318, Apr. 25, 2000]



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 any supplies or services when the Government anticipates 
recurring requirements but cannot predetermine the

[[Page 310]]

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 
during a fixed period. The Government places orders for individual 
requirements. Quantity limits may be stated as number of units or as 
dollar values.
    (1) The contract must require the Government to order and the 
contractor to furnish at least a stated minimum quantity of supplies or 
services. In addition, if ordered, the contractor must furnish any 
additional quantities, not to exceed the stated maximum. The contracting 
officer should establish a reasonable maximum quantity based on market 
research, trends on recent contracts for similar supplies or services, 
survey of potential users, or any other rational basis.
    (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) A solicitation and contract for an indefinite quantity must--
    (i) Specify the period of the contract, including the number of 
options and the period for which the Government may extend the contract 
under each option;
    (ii) Specify the total minimum and maximum quantity of supplies or 
services the Government will acquire 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 the Government will 
acquire under the contract in a manner that will enable a prospective 
offeror to decide whether to submit an offer;
    (iv) State the procedures that the Government will use in issuing 
orders, including the ordering media, and, if multiple awards may be 
made, state the procedures and selection criteria that the Government 
will use to provide awardees a fair opportunity to be considered for 
each order (see 16.505(b)(1));
    (v) Include the name, address, telephone number, facsimile number, 
and e-mail address of the agency task and delivery order ombudsman (see 
16.505(b)(5)) if multiple awards may be made;

[[Page 311]]

    (vi) Include a description of the activities authorized to issue 
orders; and
    (vii) Include authorization for placing oral orders, if appropriate, 
provided that the Government has established procedures for obligating 
funds and that oral orders are confirmed in writing.
    (b) Application. Contracting officers may use an indefinite-quantity 
contract when the Government cannot predetermine, above a specified 
minimum, the precise quantities of supplies or services that the 
Government will require during the contract period, and it is 
inadvisable for the Government to commit itself for more than a minimum 
quantity. The contracting officer should use an indefinite-quantity 
contract only when a recurring need is anticipated.
    (c) Multiple award preference--(1) Planning the acquisition. (i) 
Except for indefinite-quantity contracts for advisory and assistance 
services as provided in paragraph (c)(2) of this section, the 
contracting officer must, 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.
    (ii)(A) The contracting officer must determine whether multiple 
awards are appropriate as part of acquisition planning. The contracting 
officer must avoid situations in which awardees specialize exclusively 
in one or a few areas within the statement of work, thus creating the 
likelihood that orders in those areas will be awarded on a sole-source 
basis; however, each awardee need not be capable of performing every 
requirement as well as any other awardee under the contracts. The 
contracting officer should consider the following when determining the 
number of contracts to be awarded:
    (1) The scope and complexity of the contract requirement.
    (2) The expected duration and frequency of task or delivery orders.
    (3) The mix of resources a contractor must have to perform expected 
task or delivery order requirements.
    (4) The ability to maintain competition among the awardees 
throughout the contracts' period of performance.
    (B) The contracting officer must not use the multiple award approach 
if--
    (1) Only one contractor is capable of providing performance at the 
level of quality required because the supplies or services are unique or 
highly specialized;
    (2) 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;
    (3) The expected cost of administration of multiple contracts 
outweighs the expected benefits of making multiple awards;
    (4) The projected orders are so integrally related that only a 
single contractor can reasonably perform the work;
    (5) The total estimated value of the contract is less than the 
simplified acquisition threshold; or
    (6) Multiple awards would not be in the best interests of the 
Government.
    (C) The contracting officer must document the decision whether or 
not to use multiple awards in the acquisition plan or contract file. The 
contracting officer may determine that a class of acquisitions is not 
appropriate for multiple awards (see subpart 1.7).
    (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 exceeds 3 years 
and $10 million, including all options, the contracting officer must 
make multiple awards unless--
    (A) The contracting officer or other official designated by the head 
of the agency determines in writing, as part of acquisition planning, 
that multiple awards are not practicable. The contracting officer or 
other official must determine that only one contractor can reasonably 
perform the work because either the scope of work is unique or highly 
specialized or the tasks so integrally related;
    (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.

[[Page 312]]

    (ii) The requirements of paragraph (c)(2)(i) of this section do not 
apply if the contracting officer or other official designated by the 
head of the agency determines that the advisory and assistance services 
are incidental and not a significant component of the contract.

[65 FR 24318, Apr. 25, 2000]



16.505  Ordering.

    (a) General. (1) The contracting officer does not synopsize orders 
under indefinite-delivery contracts.
    (2) Individual orders shall clearly describe all services to be 
performed or supplies to be delivered so the full cost or price for the 
performance of the work can be established when the order is placed. 
Orders shall be within the scope, issued within the period of 
performance, and be within the maximum value of the contract.
    (3) Performance-based work statements must be used to the maximum 
extent practicable, if the contract or order is for services (see 
37.102(a)).
    (4) When acquiring information technology and related services, 
consider the use of modular contracting to reduce program risk (see 
39.103(a)).
    (5) Orders may be placed by using any medium specified in the 
contract.
    (6) Orders placed under indefinite-delivery contracts must contain 
the following information:
    (i) Date of order.
    (ii) Contract number and order number.
    (iii) For supplies and services, contract item number and 
description, quantity, and unit price or estimated cost or fee.
    (iv) Delivery or performance schedule.
    (v) Place of delivery or performance (including consignee).
    (vi) Any packaging, packing, and shipping instructions.
    (vii) Accounting and appropriation data.
    (viii) Method of payment and payment office, if not specified in the 
contract (see 32.1110(e)).
    (7) Orders placed under a task-order contract or delivery-order 
contract awarded by another agency (i.e., a Governmentwide acquisition 
contract, or multi-agency contract)--
    (i) Are not exempt from the development of acquisition plans (see 
subpart 7.1), and an information technology acquisition strategy (see 
part 39); and
    (ii) May not be used to circumvent conditions and limitations 
imposed on the use of funds (e.g., 31 U.S.C. 1501(a)(1)).
    (8) 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 (10 U.S.C. 2304c(d) and 41 U.S.C. 253j(d)).
    (b) Orders under multiple award contracts--(1) Fair opportunity. (i) 
The contracting officer must provide each awardee a fair opportunity to 
be considered for each order exceeding $2,500 issued under multiple 
delivery-order contracts or multiple task-order contracts, except as 
provided for in paragraph (b)(2) of this section.
    (ii) The contracting officer may exercise broad discretion in 
developing appropriate order placement procedures. The contracting 
officer should keep submission requirements to a minimum. Contracting 
officers may use streamlined procedures, including oral presentations. 
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. 
The competition requirements in part 6 and the policies in subpart 15.3 
do not apply to the ordering process. However, the contracting officer 
must--
    (A) Develop placement procedures that will provide each awardee a 
fair opportunity to be considered for each order and that reflect the 
requirement and other aspects of the contracting environment;
    (B) Not use any method (such as allocation or designation of any 
preferred awardee) that would not result in fair consideration being 
given to all awardees prior to placing each order;
    (C) Tailor the procedures to each acquisition;

[[Page 313]]

    (D) Include the procedures in the solicitation and the contract; and
    (E) Consider price or cost under each order as one of the factors in 
the selection decision.
    (iii) The contracting officer should consider the following when 
developing the procedures:
    (A)(1) Past performance on earlier orders under the contract, 
including quality, timeliness and cost control.
    (2) Potential impact on other orders placed with the contractor.
    (3) Minimum order requirements.
    (4) The amount of time contractors need to make informed business 
decisions on whether to respond to potential orders.
    (5) Whether contractors could be encouraged to respond to potential 
orders by outreach efforts to promote exchanges of information, such as-
-
    (i) Seeking comments from two or more contractors on draft 
statements of work;
    (ii) Using a multiphased approach when effort required to respond to 
a potential order may be resource intensive (e.g., requirements are 
complex or need continued development), where all contractors are 
initially considered on price considerations (e.g., rough estimates), 
and other considerations as appropriate (e.g., proposed conceptual 
approach, past performance). The contractors most likely to submit the 
highest value solutions are then selected for one-on-one sessions with 
the Government to increase their understanding of the requirements, 
provide suggestions for refining requirements, and discuss risk 
reduction measures.
    (B) Formal evaluation plans or scoring of quotes or offers are not 
required.
    (2) Exceptions to the fair opportunity process. The contracting 
officer shall give every awardee a fair opportunity to be considered for 
a delivery-order or task-order exceeding $2,500 unless one of the 
following statutory exceptions applies:
    (i) The agency need for the supplies or services is so urgent that 
providing a fair opportunity would result in unacceptable delays.
    (ii) Only one awardee is capable of providing the supplies or 
services required at the level of quality required because the supplies 
or services ordered are unique or highly specialized.
    (iii) The order must be issued on a sole-source basis in the 
interest of economy and efficiency because it is 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.
    (iv) It is necessary to place an order to satisfy a minimum 
guarantee.
    (3) Pricing orders. If the contract did not establish the price for 
the supply or service, the contracting officer must establish prices for 
each order using the policies and methods in subpart 15.4.
    (4) Decision documentation for orders. The contracting officer shall 
document in the contract file the rationale for placement and price of 
each order, including the basis for award and the rationale for any 
tradeoffs among cost or price and non-cost considerations in making the 
award decision. This documentation need not quantify the tradeoffs that 
led to the decision. The contract file shall also identify the basis for 
using an exception to the fair opportunity process. If the agency uses 
the logical follow-on exception, the rationale shall describe why the 
relationship between the initial order and the follow-on is logical 
(e.g., in terms of scope, period of performance, or value).
    (5) Task-order and delivery-order ombudsman. The head of the agency 
shall designate a task-order and delivery-order ombudsman. The ombudsman 
must review complaints from contractors and ensure they are afforded a 
fair opportunity to be considered, consistent with the procedures in the 
contract. The ombudsman must 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 
paragraphs (c)(2) and (c)(3), the ordering period of a task-order 
contract for advisory and assistance services, including all options or 
modifications, normally may not exceed 5 years.
    (2) The 5-year limitation does not apply when--

[[Page 314]]

    (i) A longer ordering period is specifically authorized by a 
statute; or
    (ii) The contract is for an acquisition of supplies or services that 
includes the acquisition of advisory and assistance services and the 
contracting officer, or other official designated by the head of the 
agency, determines that the advisory and assistance services are 
incidental and not a significant component of the contract.
    (3) The contracting officer may extend the contract on a sole-source 
basis only once for a period not to exceed 6 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.

[65 FR 24319, Apr. 25, 2000, as amended at 67 FR 56119, Aug. 30, 2002]



16.506  Solicitation provisions and contract clauses.

    (a) 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) 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) Insert the clause at 52.216-20, Definite Quantity, in 
solicitations and contracts when a definite-quantity contract is 
contemplated.
    (d)(1) Insert the clause at 52.216-21, Requirements, in 
solicitations and contracts 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, 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, 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, use 
the clause with its Alternate III (but see subparagraph (5) below).
    (5) If the contract--
    (i) Includes subsistence for 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, use the clause 
with its Alternate IV.
    (e) Insert the clause at 52.216-22, Indefinite Quantity, in 
solicitations and contracts when an indefinite-quantity contract is 
contemplated.
    (f) Insert the provision at 52.216-27, Single or Multiple Awards, in 
solicitations for indefinite-quantity contracts that may result in 
multiple contract awards. Modify the provision to specify the estimated 
number of awards. Do not use this provision for advisory and assistance 
services contracts that exceed 3 years and $10 million (including all 
options).
    (g) 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 3 years and $10 million 
(including all options), unless a determination has been made under 
16.504(c)(2)(i)(A). Modify the provision to specify the estimated number 
of awards.

[48 FR 42219, Sept. 19, 1983; 60 FR 48260, Sept. 18, 1995. Redesignated 
and amended at 60 FR 49726, 49727, Sept. 26, 1995; 65 FR 24320, Apr. 25, 
2000]



   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.

[[Page 315]]

    (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;
    (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

[[Page 316]]

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]



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]



                        Subpart 16.7--Agreements



16.701  Scope.

    This subpart prescribes policies and procedures for establishing and 
using basic agreements and basic ordering agreements. (See 13.303 for 
blanket purchase agreements (BPA's) and see 35.015(b) for additional 
coverage of

[[Page 317]]

basic agreements with educational institutions and nonprofit 
organizations.)

[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 64926, Dec. 9, 1997]



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 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.

[[Page 318]]

    (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;
    (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 13.403.
    (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

[[Page 319]]

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; 62 FR 64926, 
Dec. 9, 1997]



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 [Reserved]
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
    (1) Notifies the contractor of nonavailability of funds for contract 
performance for any subsequent program year, or
    (2) Fails to notify the contractor that funds are available for 
performance of

[[Page 320]]

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 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.

[48 FR 42231, Sept. 19, 1983, as amended at 66 FR 2129, Jan. 10, 2001; 
67 FR 43514, June 27, 2002]



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 f contract award. This method may be used in 
sealed bidding or contracting by negotiation.
    (b) Multiyear contracting is a flexible contract 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 contract. 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.
    (d) The termination for convenience procedure 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 partial quantity (where as cancellation must 
be for all subsequent fiscal years' quantities).

[61 FR 39204, July 26, 1996, as amended at 67 FR 13054, Mar. 20, 2002; 
67 FR 43514, June 27, 2002]



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

[[Page 321]]

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.



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.

[[Page 322]]

    (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 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]



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)).

[[Page 323]]

    (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 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

[[Page 324]]

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 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  [Reserved]



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.

[[Page 325]]

    (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]



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) Include the value of options in determining if the acquisition 
will exceed 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; 64 FR 72419, Dec. 
27, 1999]



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.

[[Page 326]]

    (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]



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.

[[Page 327]]

    (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 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) 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) 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) 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) 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) 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.

[[Page 328]]

    (f) 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) 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 any or all of the 
following:
    (1) A requirement that the Government must give the contractor a 
preliminary written notice of its intent to extend the contract.
    (2) A statement that an extension of the contract includes an 
extension of the option.
    (3) 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; 64 FR 51843, Sept. 24, 1999]

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.

[[Page 329]]



      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--
    (1) Acquisitions from required or optional sources of supplies 
prescribed in Part 8, which have separate statutory authority (e.g., 
Federal Supply Schedule contracts); and
    (2) Acquisitions using Governmentwide acquisition contracts.

[60 FR 49721, Sept. 26, 1995, as amended at 67 FR 56120, Aug. 30, 2002]



17.501  Definition.

    Interagency acquisition, as used in this subpart, means a procedure 
by which an agency needing supplies or services (the requesting agency) 
obtains them from another agency (the servicing agency).

[60 FR 49721, Sept. 26, 1995, as amended at 66 FR 2129, Jan. 10, 2001]



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 contract action by the 
servicing agency, the D&F must also include a statement that at least 
one of the following circumstances applies:
    (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.

[60 FR 49721, Sept. 26, 1995, as amended at 67 FR 13054, Mar. 20, 2002]

[[Page 330]]



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 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.

[[Page 331]]



            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 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.
    (c) For use of project labor agreements, see 36.202(d).

[61 FR 39204, July 26, 1996, as amended at 66 FR 27415, May 16, 2001]



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

[[Page 332]]

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 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 333]]



                  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 Small Business Status for Small Business 
                                Programs

19.301 Representation by the offeror.
19.302 Protesting a small business representation.
19.303 Determining North American Industry Classification System (NAICS) 
          codes and size standards.
19.304 Disadvantaged business status.
19.305 Protesting a representation of disadvantaged business status.
19.306 Protesting a firm's status as a HUBZone small business concern.
19.307 Solicitation provisions.

    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 small business 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 for small business.
19.504 [Reserved]
19.505 Rejecting Small Business Administration recommendations.
19.506 Withdrawing or modifying small business set-asides.
19.507 Automatic dissolution of a small business 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--The Small Business Subcontracting Program

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 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.

[[Page 334]]

19.804-2 Agency offering.
19.804-3 SBA acceptance.
19.804-4 Repetitive acquisitions.
19.804-5 Basic ordering agreements.
19.804-6 Multiple award and Federal Supply Schedule contracts.
19.805 Competitive 8(a).
19.805-1 General.
19.805-2 Procedures.
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--Very Small Business Pilot Program

19.901 General.
19.902 Designated SBA district.
19.903 Applicability.
19.904 Procedures.
19.905 Solicitation provision and contract clause.

   Subpart 19.10--Small Business Competitiveness Demonstration Program

19.1001 General.
19.1002 Definitions.
19.1003 Purpose.
19.1004 Participating agencies.
19.1005 Applicability.
19.1006 Exclusions.
19.1007 Procedures.
19.1008 Solicitation provisions.

   Subpart 19.11--Price Evaluation Adjustment for Small Disadvantaged 
                            Business Concerns

19.1101 General.
19.1102 Applicability.
19.1103 Procedures.
19.1104 Contract clauses.

    Subpart 19.12--Small Disadvantaged Business Participation Program

19.1201 General.
19.1202 Evaluation factor or subfactor.
19.1202-1 General.
19.1202-2 Applicability.
19.1202-3 Considerations in developing an evaluation factor or 
          subfactor.
19.1202-4 Procedures.
19.1203 Incentive subcontracting with small disadvantaged business 
          concerns.
19.1204 Solicitation provisions and contract clauses.

   Subpart 19.13--Historically Underutilized Business Zone (HUBZone) 
                                 Program

19.1301 General.
19.1302 Applicability.
19.1303 Status as a qualified HUBZone small business concern.
19.1304 Exclusions.
19.1305 HUBZone set-aside procedures.
19.1306 HUBZone sole source awards.
19.1307 Price evaluation preference for HUBZone small business concerns.
19.1308 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 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), section 7102 
of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-
355), 10 U.S.C. 2323, 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 and HUBZone small business 
concerns, and sole source awards to HUBZone 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;
    (7) The use of women-owned small business concerns;
    (8) The use of a price evaluation adjustment for small disadvantaged 
business concerns, and the use of a price evaluation preference for 
HUBZone small business concerns;

[[Page 335]]

    (9) The Small Disadvantaged Business Participation Program;
    (10) The Very Small Business Pilot Program; and
    (11) The use of veteran-owned small business concerns and service-
disabled veteran-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; 63 FR 35721, June 30, 1998; 63 FR 36122, 
July 1, 1998; 63 FR 70268, Dec. 18, 1998; 64 FR 10536, Mar. 4, 1999; 65 
FR 60544, Oct. 11, 2000]



19.001  Definitions.

    As used in this part--
    Concern 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 means a price based on reasonable costs under 
normal competitive conditions and not on lowest possible cost (see 
19.202-6).
    Industry means all concerns primarily engaged in similar lines of 
activity, as listed and described in the North American Industry 
Classification system (NAICS) manual (available via the Internet at 
http://www.census.gov/epcd/www/naics.html).
    Nonmanufacturer rule means that a contractor under a small business 
set-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.
    Very small business concern means a small business concern--
    (1) Whose headquarters is located within the geographic area served 
by a designated SBA district; and
    (2) Which, together with its affiliates, has no more than 15 
employees and has average annual receipts that do not exceed $1 million.

[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; 63 FR 36122, July 
1, 1998; 63 FR 70268, Dec. 18, 1998; 63 FR 71723, Dec. 29, 1998; 64 FR 
10536, Mar. 4, 1999; 64 FR 36223, July 2, 1999; 65 FR 46056, July 26, 
2000; 65 FR 60544, Oct. 11, 2000; 66 FR 2129, Jan. 10, 2001]



                      Subpart 19.1--Size Standards



19.101  Explanation of terms.

    As used in this subpart--
    Affiliates. 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

[[Page 336]]

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.
    (1) 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.
    (2) 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.
    (3) Control through stock ownership. (i) 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.
    (ii) 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.
    (iii) If a concern's voting stock is distributed other than as 
described above, its management (officers and directors) is deemed to be 
in control of such concern.
    (4) 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.
    (5) 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.
    (6) 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.
    (i) 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.
    (ii) Common facilities. One concern shares common office space and/
or employees and/or other facilities with another concern, particularly 
where such

[[Page 337]]

concerns are in the same or related industry or field of operation, or 
where such concerns were formerly affiliated.
    (iii) 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.
    (7) Control through contractual relationships--(i) Definition of a 
joint venture for size determination purposes. A joint venture for size 
determination purposes is an association of persons 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.
    (A) For bundled requirements, apply size standards for the 
requirement to individual persons or concerns, not to the combined 
assets, of the joint venture.
    (B) For other than bundled requirements, apply size standards for 
the requirement to individual persons or concerns, not to the combined 
assets, of the joint venture, if--
    (1) A revenue-based size standard applies to the requirement and the 
estimated contract value, including options, exceeds one-half the 
applicable size standard; or
    (2) An employee-based size standard applies to the requirement and 
the estimated contract value, including options, exceeds $10 million.
    (ii) Joint venture--acquisition and property sale assistance. 
Concerns bidding on a particular acquisition or property sale as joint 
ventures 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. The rules governing 8(a) Program joint ventures are 
described in 13 CFR 124.513.
    (iii) 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).
    (iv) 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.
    (v) Size determination for teaming arrangements. For size 
determination purposes, apply the size standard tests in (7)(1)(A) and 
(B) of this section when a teaming arrangement of two or more business 
concerns submits an offer, as appropriate.
    Annual receipts. (1) 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

[[Page 338]]

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.
    (i) 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.
    (ii) 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.
    (2) 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 (1) of this definition, 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, as amended at 64 FR 32743, June 17, 1999; 64 
FR 72444, Dec. 27, 1999; 65 FR 46055, July 26, 2000; 66 FR 2129, Jan. 
10, 2001]



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 North American Industry 
Classification System (NAICS) Manual (available via the Internet at 
http://www.census.gov/epcd/www/naics.html), 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

[[Page 339]]

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 on SBA's Internet 
Homepage at http://www.sba.gov/gc. Contracting officers may request that 
the SBA waive the 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

[[Page 340]]

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) In the case of acquisitions set aside for very small business in 
accordance with 19.904, offerors may not have more than 15 employees and 
may not have average annual receipts that exceed $1 million.
    (h) The industry size standards are published by the Small Business 
Administration and are available via the Internet at http://www.sba.gov/
size.

[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; 63 FR 58602, Oct. 30, 1998; 63 FR 
70292, Dec. 18, 1998; 64 FR 10536, Mar. 4, 1999; 64 FR 51850, Sept. 24, 
1999; 65 FR 46056, July 26, 2000; 66 FR 65370, Dec. 18, 2001]



                         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, 
veteran-owned small business, service-disabled veteran-owned small 
business, HUBZone small business, small disadvantaged business, and 
women-owned small business concerns. Such concerns must 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) The Department of Commerce will determine on an annual basis, by 
North American Industry Classification System (NAICS) Industry 
Subsector, and region, if any, the authorized small disadvantaged 
business (SDB) procurement mechanisms and applicable factors 
(percentages). The Department of Commerce determination shall only 
affect solicitations that are issued on or after the effective date of 
the determination. The effective date of the Department of Commerce 
determination shall be no less than 60 days after its publication date. 
The Department of Commerce determination shall not affect ongoing 
acquisitions. The SDB procurement mechanisms are a price evaluation 
adjustment for SDB concerns (see Subpart 19.11), an evaluation factor or 
subfactor for participation of SDB concerns (see 19.1202), and monetary 
subcontracting incentive clauses for SDB concerns (see 19.1203). The 
Department of Commerce determination shall also include the applicable 
factors, by NAICS Industry Subsector, to be used in the price evaluation 
adjustment for SDB concerns (see 19.1104). The General Services 
Administration shall post the Department of Commerce determination at 
http://www.arnet.gov/References/sdbadjustments.htm. The authorized 
procurement mechanisms shall be applied consistently with the policies 
and procedures in this subpart. The agencies shall apply the procurement 
mechanisms determined by the Department of Commerce. The Department of 
Commerce, in making its determination, is not limited to the SDB 
procurement mechanisms identified in this section where the Department 
of Commerce has found substantial and persuasive evidence of--
    (1) A persistent and significant underutilization of minority firms 
in a particular industry, attributable to past or present 
discrimination; and
    (2) A demonstrated incapacity to alleviate the problem by using 
those mechanisms.
    (c) 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 business program 
requirements and take all reasonable action to increase

[[Page 341]]

participation in their activities' contracting processes by these 
businesses.
    (d) 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, 15, and 31 of the Small Business Act.
    (5) Work with the SBA procurement center representative to--
    (i) Identify proposed solicitations that involve bundling;
    (ii) Facilitate small business participation as contractors 
including small business contract teams, where appropriate; and
    (iii) Facilitate small business participation as subcontractors and 
suppliers where participation by small business concerns as contractors 
is unlikely;
    (6) Assist small business concerns in obtaining payments under their 
contracts, late payment, interest penalties, or information on 
contractual payment provisions;
    (7) Have supervisory authority over agency personnel to the extent 
that their functions and duties relate to sections 8, 15, and 31 of the 
Small Business Act.
    (8) 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, 15, and 31 of the Small Business Act;
    (9) Cooperate and consult on a regular basis with the SBA in 
carrying out the agency's functions and duties in sections 8, 15, and 31 
of the Small Business Act;
    (10) Make recommendations in accordance with agency procedures as to 
whether a particular acquisition should be awarded under subpart 19.5 as 
a small business set-aside, under subpart 19.8 as a Section 8(a) award, 
or under subpart 19.13 as a HUBZone set-aside.
    (e) Small Business Specialists must be appointed and act in 
accordance with agency regulations.
    (f)(1) Each agency shall designate, at levels it determines 
appropriate, personnel responsible for determining whether, in order to 
achieve the contracting agency's goal for SDB concerns, the use of the 
SDB mechanism in Subpart 19.11 has resulted in an undue burden on non-
SDB firms in one of the Industry subsectors and regions identified by 
Department of Commerce following paragraph (b) of this section, or is 
otherwise inappropriate. Determinations under this subpart are for the 
purpose of determining future acquisitions and shall not affect ongoing 
acquisitions. Requests for a determination, including supporting 
rationale, may be submitted to the agency designee. If the agency 
designee makes an affirmative determination that the SDB mechanism has 
an undue burden or is otherwise inappropriate, the determination shall 
be forwarded through agency channels to the OFPP, which shall review the 
determination in consultation with the Department of Commerce and the 
Small Business Administration. At a minimum, the following information 
should be included in any submittal:
    (i) A determination of undue burden or other inappropriate effect, 
including proposed corrective action.
    (ii) The Industry subsector affected.
    (iii) Supporting information to justify the determination, 
including, but not limited to, dollars and percentages of contracts 
awarded by the contracting activity under the affected Industry 
subsector for the previous two fiscal years and current fiscal year to 
date for--
    (A) Total awards;
    (B) Total awards to SDB concerns;

[[Page 342]]

    (C) Awards to SDB concerns awarded contracts under the SDB price 
evaluation adjustment where the SDB concerns would not otherwise have 
been the successful offeror;
    (D) Number of successful and unsuccessful SDB offerors; and
    (E) Number of successful and unsuccessful non-SDB offerors.
    (iv) A discussion of the pertinent findings, including any 
peculiarities related to the industry, regions or demographics.
    (v) A discussion of other efforts the agency has undertaken to 
ensure equal opportunity for SDBs in contracting with the agency.
    (2) After consultation with OFPP, or if the agency does not receive 
a response from OFPP within 90 days after notice is provided to OFPP, 
the contracting agency may limit the use of the SDB mechanism in Subpart 
19.11 until the Department of Commerce determines the updated price 
evaluation adjustment, as required by this section. This limitation 
shall not apply to solicitations that already have been synopsized.

[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; 
63 FR 35721, June 30, 1998; 63 FR 36122, July 1, 1998; 63 FR 52427, 
Sept. 30, 1998; 63 FR 56738, Oct. 22, 1998; 63 FR 70268, Dec. 18, 1998; 
64 FR 72444, Dec. 27, 1999; 65 FR 46056, July 26, 2000; 65 FR 60544, 
Oct. 11, 2000]



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, 
19.8 or 19.13. 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; 
63 FR 70268, Dec. 18, 1998]



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;
    (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; or
    (iii) The proposed acquisition is for a bundled requirement. (See 
10.001(c)(2)(i) for mandatory 30-day notice requirement to incumbent 
small business concerns.)
    (2) The contracting officer also must provide a statement explaining 
why the--

[[Page 343]]

    (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;
    (iv) Consolidated construction project cannot be acquired as 
separate discrete projects; or
    (v) Bundling is necessary and justified.
    (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 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; 64 FR 72444, Dec. 27, 1999; 65 FR 46055, 
July 26, 2000]



19.202-2  Locating small business sources.

    The contracting officer must, to the extent practicable, encourage 
maximum participation by small business, veteran-owned small business, 
service-disabled veteran-owned small business, HUBZone small business, 
small disadvantaged business, 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 and 
HUBZones, 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 through the 
Governmentwide point of entry (see subparts 5.2 and 5.3).

[48 FR 42240, Sept. 19, 1983, as amended at 63 FR 70268, Dec. 18, 1998; 
65 FR 60544, Oct. 11, 2000; 66 FR 27413, May 16, 2001]



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 must encourage maximum response to 
solicitations by small business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business, 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

[[Page 344]]

must comply when doing business with other than the Government.

[48 FR 42240, Sept. 19, 1983, as amended at 63 FR 70268, Dec. 18, 1998; 
65 FR 60544, Oct. 11, 2000]



19.202-5  Data collection and reporting requirements.

    Agencies must 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, veteran-owned small business, service-disabled veteran-
owned small business, HUBZone small business, small disadvantaged 
business, or women-owned small business concern (see the provision at 
52.219-1, Small Business Program Representations).
    (b) Accurately measure the extent of participation by small 
business, veteran-owned small business, service-disabled veteran-owned 
small business, HUBZone small business, small disadvantaged business, 
and women-owned small business concerns 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; 
63 FR 70268, Dec. 18, 1998; 65 FR 60544, Oct. 11, 2000]



19.202-6  Determination of fair market price.

    (a) The fair market price shall be the price achieved in accordance 
with the reasonable price guidelines in 15.404-1(b) for--
    (1) Total and partial small business set-asides (see subpart 19.5);
    (2) HUBZone set-asides (see subpart 19.13);
    (3) Contracts utilizing the price evaluation adjustment for small 
disadvantaged business concerns (see subpart 19.11); and
    (4) Contracts utilizing the price evaluation preference for HUBZone 
small business concerns (see subpart 19.13).
    (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, 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; 63 FR 35722, 
June 30, 1998; 63 FR 70268, Dec. 18, 1998]



Subpart 19.3--Determination of Small Business Status for Small Business 
                                Programs



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, veteran-owned small business, HUBZone small business, small 
disadvantaged business, or 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

[[Page 345]]

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; 63 FR 70268, Dec. 18, 
1998; 65 FR 60545, Oct. 11, 2000]



19.302  Protesting a small business representation.

    (a) An offeror, the SBA, or another interested party may protest the 
small business representation of an offeror in a specific offer. 
However, for competitive 8(a) contracts, the filing of a protest is 
limited to an offeror, the contracting officer, or the SBA.
    (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 Government Contracting 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 
121.1004. SBA's regulations on timeliness related to protests of 
disadvantaged status are contained in 13 CFR 124, Subpart B.
    (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 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 
business 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 protester 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,

[[Page 346]]

the protester, and the challenged offeror of its decision by certified 
mail, return receipt requested.
    (2) The SBA Government Contracting Area Director, or designee, 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) of this section, 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 contract action. The contracting 
officer shall forward the protest to the SBA (see paragraph (c)(1) of 
this section) with a notation that the concern is not being considered 
for award, and shall notify the protester of this action.
    (i) An appeal from an SBA size determination may be filed by: any 
concern or other interested party whose protest of the small business 
representation of another concern has been denied by an SBA Government 
Contracting Area Director; any concern or other interested party that 
has been adversely affected by a Government Contracting Area Director's 
decision; or the SBA Associate Administrator for the SBA program 
involved. The appeal must be filed with the--

Office of Hearings and Appeals, Small Business Administration, Suite 
    5900, 409 3rd Street, SW., Washington, DC 20416


within the time limits and in strict accordance with the procedures 
contained in subpart C of 13 CFR Part 134. It is within the discretion 
of the SBA Judge whether to accept an appeal from a size determination. 
If the Judge decides not to consider such an appeal, the Judge will 
issue an order denying review and specifying the reasons for the 
decision. 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 that is not timely, even though received before award, 
shall be forwarded to the SBA Government Contracting Area Office (see 
paragraph (c)(1) of this section), with a notation on it that the 
protest is not timely. The protester 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 
SBA Government Contracting Area Office with a notation that award has 
been made. The protester 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; 63 FR 9053, 9055, Feb. 23, 1998; 63 FR 35722, 
June 30, 1998; 64 FR 32743, June 17, 1999; 67 FR 13054, Mar. 20, 2002]

[[Page 347]]



19.303  Determining North American Industry Classification System (NAICS) codes and size standards.

    (a) The contracting officer shall determine the appropriate NAICS 
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 follows:
    (1) An appeal from a contracting officer's NAICS code designation 
and the applicable size standard must be served and filed within 10 
calendar days after the issuance of the initial solicitation. SBA's 
Office of Hearings and Appeals (OHA) will dismiss summarily an untimely 
NAICS code appeal.
    (2)(i) The appeal petition must be in writing and must be addressed 
to the--

Office of Hearings and Appeals, Small Business Administration, Suite 
    5900, 409 3rd Street, SW., Washington, DC 20416

    (ii) There is no required format for the appeal; however, the appeal 
must include--
    (A) The solicitation or contract number and the name, address, and 
telephone number of the contracting officer;
    (B) A full and specific statement as to why the size determination 
or NAICS code designation is allegedly erroneous and argument supporting 
the allegation; and
    (C) The name, address, telephone number, and signature of the 
appellant or its attorney.
    (3) The appellant must serve the appeal petition upon--
    (i) The SBA official who issued the size determination;
    (ii) The contracting officer who assigned the NAICS code to the 
acquisition;
    (iii) The business concern whose size status is at issue;
    (iv) All persons who filed protests; and
    (v) SBA's Office of General Counsel.
    (4) Upon receipt of a NAICS code appeal, OHA will notify the 
contracting officer by a notice and order of the date OHA received the 
appeal, the docket number, and Judge assigned to the case. The 
contracting officer's response to the appeal, if any, must include 
argument and evidence (see 13 CFR Part 134), and must be received by OHA 
within 10 calendar days from the date of the docketing notice and order, 
unless otherwise specified by the Administrative Judge. Upon receipt of 
OHA's docketing notice and order, the contracting officer must 
immediately send to OHA a copy of the solicitation relating to the NAICS 
code appeal.
    (5) After close of record, OHA will issue a decision and inform the 
contracting officer. If OHA's decision is received by the contracting 
officer before the date the offers are due, the decision shall be final 
and the solicitation must be amended to reflect the decision, if 
appropriate. OHA's decision received after the due date of the initial 
offers shall not apply to the pending solicitation but shall apply to 
future solicitations of the same products or services.

[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; 63 FR 
9056, Feb. 23, 1998; 65 FR 46056, 46057, July 26, 2000]



19.304  Disadvantaged business status.

    (a) To be eligible to receive a benefit as a prime contractor based 
on its disadvantaged status, a concern, at the time of its offer, must 
either be certified as a small disadvantaged business (SDB) concern or 
have a completed SDB application pending at the SBA or a Private 
Certifier (see 19.001).
    (b) The contracting officer may accept an offeror's representation 
that it is an SDB concern for general statistical purposes. The 
provision at 52.219-1, Small Business Program Representations, or 
52.212-3(c)(4), Offeror Representations and Certifications-Commercial 
Items, is used to collect SDB data for general statistical purposes.
    (c) The provision at 52.219-22, Small Disadvantaged Business Status, 
or 52.212-3(c)(9), Offeror Representations and Certifications--
Commercial Items, is used to obtain SDB status when the

[[Page 348]]

prime contractor may receive a benefit based on its disadvantaged 
status. The mechanisms that may provide benefits on the basis of 
disadvantaged status as a prime contractor are a price evaluation 
adjustment for SDB concerns (see Subpart 19.11), and an evaluation 
factor or subfactor for SDB participation (see 19.1202).
    (1) If the apparently successful offeror has represented that it is 
currently certified as an SDB, the contracting officer may confirm that 
the concern is identified as a small disadvantaged business concern by 
accessing SBA's database (PRO-Net) or by contacting the SBA's Office of 
Small Disadvantaged Business Certification and Eligibility.
    (2) If the apparently successful offeror has represented that its 
SDB application is pending at the SBA or a Private Certifier, and its 
position as the apparently successful offeror is due to the application 
of the price evaluation adjustment, the contracting officer shall follow 
the procedure in paragraph (d) of this section.
    (d) Notifications to SBA of potential awards to offerors with 
pending SDB applications. (1) The contracting officer shall notify the 
Small Business Administration Assistant Administrator for SDBCE 409 
Third Street, SW Washington, DC 20416. The notification shall contain 
the name of the apparently successful offeror, and the names of any 
other offerors that have represented that their applications for SDB 
status are pending at the SBA or a Private Certifier and that could 
receive the award due to the application of a price evaluation 
adjustment if the apparently successful offeror is determined not to be 
an SDB by the SBA.
    (2) The SBA will, within 15 calendar days after receipt of the 
notification, determine the disadvantaged status of the apparently 
successful offeror and, as appropriate, any other offerors referred by 
the contracting officer and will notify the contracting officer.
    (3) If the contracting officer does not receive an SBA determination 
within 15 calendar days after the SBA's receipt of the notification, the 
contracting officer shall presume that the apparently successful 
offeror, and any other offerors referred by the contracting officer, are 
not disadvantaged, and shall make award accordingly, unless the 
contracting officer grants an extension to the 15-day response period. 
No written determination is required for the contracting officer to make 
award at any point following the expiration of the 15-day response 
period.
    (4) When the contracting officer makes a written determination that 
award must be made to protect the public interest, the contracting 
officer may proceed to contract award without notifying SBA or before 
receiving a determination of SDB status from SBA during the 15-day 
response period. In both cases, the contracting officer shall presume 
that the apparently successful offeror, or any other offeror referred to 
the SBA whose SDB application is pending, is not an SDB and shall make 
award accordingly.

[63 FR 35722, June 30, 1998, as amended at 63 FR 36122, July 1, 1998; 64 
FR 36223, July 2, 1999; 65 FR 60545, Oct. 11, 2000]



19.305  Protesting a representation of disadvantaged business status.

    (a) This section applies to protests of a small business concern's 
disadvantaged status as a prime contractor. Protests of a small business 
concern's disadvantaged status as a subcontractor are processed under 
19.703(a)(2). Protests of a concern's size as a prime contractor are 
processed under 19.302. Protests of a concern's size as a subcontractor 
are processed under 19.703(b). An offeror, the contracting officer, or 
the SBA may protest the apparently successful offeror's representation 
of disadvantaged status if the concern is eligible to receive a benefit 
based on its disadvantaged status (see Subpart 19.11 and 19.1202).
    (b) An offeror, excluding an offeror determined by the contracting 
officer to be non-responsive or outside the competitive range, or an 
offeror that SBA has previously found to be ineligible for the 
requirement at issue, may protest the apparently successful offeror's 
representation of disadvantaged status by filing a protest in writing 
with the contracting officer. SBA regulations concerning protests are 
contained in 13 CFR 124, Subpart B. The protest--

[[Page 349]]

    (1) Must be filed within the times specified in 19.302(d)(1); and
    (2) Must contain specific facts or allegations supporting the basis 
of protest.
    (c) The contracting officer or the SBA may protest in writing a 
concern's representation of disadvantaged status at any time following 
bid opening or notification of intended award.
    (1) If a contracting officer's protest is based on information 
provided by a party ineligible to protest directly or ineligible to 
protest under the timeliness standard, the contracting officer must be 
persuaded by the evidence presented before adopting the grounds for 
protest as his or her own.
    (2) The SBA may protest a concern's representation of disadvantaged 
status by filing directly with its Assistant Administrator for Small 
Disadvantaged Business Certification and Eligibility and notifying the 
contracting officer.
    (d) The contracting officer shall return premature protests to the 
protestor. A protest is considered to be premature if it is submitted 
before bid opening or notification of intended award. SBA normally will 
not consider a postaward protest. SBA may consider a postaward protest 
in its discretion where it determines that an SDB determination after 
award is meaningful (e.g., where the contracting officer agrees to 
terminate the contract if the protest is sustained).
    (e) Upon receipt of a protest that is not premature, the contracting 
officer shall withhold award and forward the protest to Small Business 
Administration, Assistant Administrator for SDBCE, 409 Third Street, SW, 
Washington, DC 20416. The contracting officer shall send to SBA--
    (1) The written protest and any accompanying materials;
    (2) The date the protest was received;
    (3) A copy of the protested concern's representation as a small 
disadvantaged business, and the date of such representation; and
    (4) The date of bid opening or date on which notification of the 
apparently successful offeror was sent to unsuccessful offerors.
    (f) When the contracting officer makes a written determination that 
award must be made to protect the public interest, award may be made 
notwithstanding the protest.
    (g) The SBA Assistant Administrator for Small Disadvantaged Business 
Certification and Eligibility will notify the protestor and the 
contracting officer of the date the protest was received and whether it 
will be processed or dismissed for lack of timeliness or specificity. 
For protests that are not dismissed, the SBA will, within 15 working 
days after receipt of the protest, determine the disadvantaged status of 
the challenged offeror and will notify the contracting officer, the 
challenged offeror, and the protestor. Award may be made on the basis of 
that determination. The determination is final for purposes of the 
instant acquisition, unless it is appealed and--
    (1) The contracting officer receives the SBA's decision on the 
appeal before award; or
    (2) The contracting officer has agreed to terminate the contract, as 
appropriate, based on the outcome of the appeal (see 13 CFR 124, Subpart 
B).
    (h) If the contracting officer does not receive an SBA determination 
within 15 working days after the SBA's receipt of the protest, the 
contracting officer shall presume that the challenged offeror is 
disadvantaged and may award the contract, unless the SBA requests and 
the contracting officer grants an extension to the 15-day response 
period.
    (i) An SBA determination may be appealed by--
    (1) The party whose protest has been denied;
    (2) The concern whose status was protested; or
    (3) The contracting officer.
    (j) The appeal must be filed with the SBA's Administrator or 
designee within five working days after receipt of the determination. If 
the contracting officer receives the SBA's decision on the appeal before 
award, the decision shall apply to the instant acquisition. If the 
decision is received after award, it will not apply to the instant 
acquisition (but see paragraph (g)(2) of this section).

[63 FR 35722, June 30, 1998, as amended at 63 FR 36122, July 1, 1998]

[[Page 350]]



19.306  Protesting a firm's status as a HUBZone small business concern.

    (a) For sole source acquisitions, the SBA or the contracting officer 
may protest the apparently successful offeror's HUBZone small business 
status. For all other acquisitions, an offeror, the contracting officer, 
or the SBA may protest the apparently successful offeror's HUBZone small 
business concern status.
    (b) Protests relating to whether a HUBZone small business concern is 
a small business for purposes of any Federal program are subject to the 
procedures of subpart 19.3. Protests relating to small business size 
status for the acquisition and the HUBZone qualifying requirements will 
be processed concurrently by SBA.
    (c) All protests must be in writing and must state all specific 
grounds for the protest. Assertions that a protested concern is not a 
qualified HUBZone small business concern, without setting forth specific 
facts or allegations, are insufficient. An offeror must submit its 
protest to the contracting officer. The contracting officer and the SBA 
must submit protests to SBA's Associate Administrator for the HUBZone 
Program (AA/HUB).
    (d) An offeror's protest must be received by close of business on 
the fifth business day after bid opening (in sealed bid acquisitions) or 
by close of business on the fifth business day after notification by the 
contracting officer of the apparently successful offeror (in negotiated 
acquisitions). Any protest received after these time limits is untimely. 
Any protest received prior to bid opening or notification of intended 
award, whichever applies, is premature and shall be returned to the 
protester.
    (e) Except for premature protests, the contracting officer must 
forward any protest received, notwithstanding whether the contracting 
officer believes that the protest is insufficiently specific or 
untimely, to: AA/HUB, U.S. Small Business Administration, 409 3rd 
Street, SW, Washington, DC 20416. The AA/HUB will notify the protester 
and the contracting officer of the date the protest was received and 
whether the protest will be processed or dismissed for lack of 
timeliness or specificity.
    (f) SBA will determine the HUBZone status of the protested HUBZone 
small business concern within 15 business days after receipt of a 
protest. If SBA does not contact the contracting officer within 15 
business days, the contracting officer may award the contract to the 
apparently successful offeror, unless the contracting officer has 
granted SBA an extension. The contracting officer may award the contract 
after receipt of a protest if the contracting officer determines in 
writing that an award must be made to protect the public interest.
    (g) SBA will notify the contracting officer, the protester, and the 
protested concern of its determination. The determination is effective 
immediately and is final unless overturned on appeal by SBA's Associate 
Deputy Administrator for Government Contracting and 8(a) Business 
Development (ADA/GC&8(a)BD).
    (h) The protested HUBZone small business concern, the protester, or 
the contracting officer may file appeals of protest determinations with 
SBA's ADA/GC&8(a)BD. The ADA/GC&8(a)BD must receive the appeal no later 
than 5 business days after the date of receipt of the protest 
determination. SBA will dismiss any appeal received after the 5-day 
period.
    (i) The appeal must be in writing. The appeal must identify the 
protest determination being appealed and must set forth a full and 
specific statement as to why the decision is erroneous or what 
significant fact the AA/HUB failed to consider.
    (j) The party appealing the decision must provide notice of the 
appeal to the contracting officer and either the protested HUBZone small 
business concern or the original protester, as appropriate. SBA will not 
consider additional information or changed circumstances that were not 
disclosed at the time of the AA/HUB's decision or that are based on 
disagreement with the findings and conclusions contained in the 
determination.
    (k) The ADA/GC&8(a)BD will make its decision within 5 business days 
of the receipt of the appeal, if practicable, and will base its decision 
only on the information and documentation in the protest record as 
supplemented by the

[[Page 351]]

appeal. SBA will provide a copy of the decision to the contracting 
officer, the protester, and the protested HUBZone small business 
concern. The SBA decision, if received before award, will apply to the 
pending acquisition. SBA rulings received after award will not apply to 
that acquisition. The ADA/GC&8(a)BD's decision is the final decision.

[63 FR 70269, Dec. 18, 1998, as amended at 64 FR 51831, Sept. 24, 1999]



19.307  Solicitation provisions.

    (a)(1) Insert the provision at 52.219-1, Small Business Program 
Representations, in solicitations exceeding the micro-purchase threshold 
when the contractor will perform the contract inside the United States, 
its territories or possessions, Puerto Rico, the Trust Territory of the 
Pacific Islands, or the District of Columbia.
    (2) Use the provision with its Alternate I in solicitations issued 
by DoD, NASA, or the Coast Guard that the contracting officer expects 
will exceed the threshold at 4.601(a).
    (b) Insert the provision at 52.219-22, Small Disadvantaged Business 
Status, in solicitations that include the clause at 52.219-23, Notice of 
Price Evaluation Adjustment for Small Disadvantaged Business Concerns, 
or 52.219-25, Small Disadvantaged Business Participation Program--
Disadvantaged Status and Reporting. Use the provision with its Alternate 
I in solicitations for acquisitions for which a price evaluation 
adjustment for small disadvantaged business concerns is authorized on a 
regional basis.
    (c) When contracting by sealed bidding, insert the provision at 
52.219-2, Equal Low Bids, in solicitations when the contractor will 
perform the contract inside the United States, its territories or 
possessions, Puerto Rico, the Trust Territory of the Pacific Islands, or 
the District of Columbia.

[64 FR 51832, Sept. 24, 1999, as amended at 67 FR 13066, Mar. 20, 2002]



    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, veteran-owned small , service-disabled 
veteran-owned small, HUBZone small, small disadvantaged, and women-owned 
small business sources, and

[[Page 352]]

    (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 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; 63 FR 70269, 
Dec. 18, 1998; 65 FR 60545, Oct. 11, 2000]



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;

[[Page 353]]

    (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;
    (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 small business set-aside may 
be open to all small businesses. A small business set-aside of a single 
acquisition or a class of acquisitions may be total or partial.
    (b) The determination to make a small business set-aside may be 
unilateral or joint. A unilateral determination is one that is made by 
the contracting officer. A joint determination is one that is 
recommended by the Small Business Administration (SBA) procurement 
center representative and concurred in by the contracting officer.
    (c) For acquisitions exceeding the simplified acquisition threshold, 
the requirement to set aside an acquisition for HUBZone small business 
concerns (see 19.1305) takes priority over the requirement to set aside 
the acquisition for small business concerns.
    (d) The contracting officer shall review acquisitions to determine 
if they

[[Page 354]]

can be set aside for small business, giving consideration to the 
recommendations of agency personnel having cognizance of the agency's 
small business programs. The contracting officer shall document why a 
small business set-aside is inappropriate when an acquisition is not set 
aside for small business, unless a HUBZone small business set-aside or 
HUBZone small business sole source award is anticipated. If the 
acquisition is set aside for small business 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.
    (e) 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.
    (f) 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.
    (g) All solicitations involving set-asides must specify the 
applicable small business size standard and NAICS code (see 19.303).
    (h) Except as authorized by law, a contract may not be awarded as a 
result of a small business 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 which appears in the 
Finding Aids section of the printed volume and on GPO Access.



19.502  Setting aside acquisitions.



19.502-1  Requirements for setting aside acquisitions.

    (a) The contracting officer shall set aside an individual 
acquisition or class of acquisitions for competition among small 
businesses when--
    (1) It is determined to be in the interest of maintaining or 
mobilizing the Nations full productive capacity, war or national defense 
programs; or
    (2) Assuring that a fair proportion of Government contracts in each 
industry category is placed with small business concerns; and the 
circumstances described in 19.502-2 or 19.502-3(a) exist.
    (b) This requirement does not apply to purchases of $2,500 or less 
($15,000 or less for acquisitions as described in 13.201(g)), 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).

[63 FR 70270, Dec. 18, 1998, as amended at 67 FR 56121, Aug. 30, 2002]



19.502-2  Total small business set-asides.

    (a) Except for those acquisitions set aside for very small business 
concerns (see subpart 19.9), each acquisition of supplies or services 
that has an anticipated dollar value exceeding $2,500 ($15,000 for 
acquisitions as described in 13.202(g)), but not over $100,000, is 
automatically reserved exclusively for small business concerns and shall 
be set aside for small business 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, under 19.1007(c), Solicitations equal to 
or less

[[Page 355]]

than the ESB reserve amount, or under 19.1305, HUBZone set-aside 
procedures.
    (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 small business set-asides other than for construction or 
services, any concern proposing to furnish a product that 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 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 small business set-asides cannot be 
considered for the four designated industry groups (see 19.1007(b)).

[60 FR 34757, July 3, 1995, as amended at 61 FR 39209, July 26, 1996; 63 
FR 70270, Dec. 18, 1998; 64 FR 10536, Mar. 4, 1999; 65 FR 16275, Mar. 
27, 2000; 67 FR 56121, Aug. 30, 2002]



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

[[Page 356]]

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 small business 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 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; 63 FR 70270, 
Dec. 18, 1998]



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 small business 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 small 
business 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 acquisition is classified.
    (f) Small business concerns are already receiving a fair proportion 
of the agency's contracts for supplies and services.
    (g) A class small business 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.

[48 FR 42240, Sept. 19, 1989, as amended at 63 FR 70270, 70292, Dec. 18, 
1998]



19.503  Setting aside a class of acquisitions for small business.

    (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

[[Page 357]]

19.502-1, 19.502-2, or 19.502-3(a). The determination to make a class 
small business 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 for small 
business may be either unilateral or joint.
    (c) Each class small business 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 small business 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 small business 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; 63 FR 70270, Dec. 18, 1998]



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.
    (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--
    (1) Within 1 working day, the SBA procurement center representative 
may 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 must 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) Must 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 is deemed that the SBA 
request to suspend the contract 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.

[[Page 358]]

    (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, as amended at 67 FR 13054, Mar. 20, 2002]



19.506  Withdrawing or modifying small business set-asides.

    (a) If, before award of a contract involving a small business 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 small business set-aside 
determination whether it was unilateral or joint. The contracting 
officer shall initiate a withdrawal of an individual small business 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 small business 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 small business set-asides (see 19.507) or 
dissolution of small business set-asides under $100,000.
    (c) The contracting officer shall prepare a written statement 
supporting any withdrawal or modification of a small business set-aside 
and include it in the contract file.

[60 FR 48262, Sept. 18, 1995, as amended at 63 FR 70270, Dec. 18, 1998]



19.507  Automatic dissolution of a small business set-aside.

    (a) If a small business 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 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; 63 FR 70270, Dec. 18, 1998]



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

[[Page 359]]

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]



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.

[[Page 360]]

    (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:
    (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

[[Page 361]]

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).
    (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.

[[Page 362]]



         Subpart 19.7--The Small Business Subcontracting Program



19.701  Definitions.

    As used in this subpart--
    Commercial plan means a subcontracting plan (including goals) that 
covers the offeror's fiscal year and that applies to the entire 
production of commercial items sold by either the entire company or a 
portion thereof (e.g., division, plant, or product line).
    Failure to make a good faith effort to comply with the 
subcontracting plan 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.
    Individual contract plan means a subcontracting plan that covers the 
entire contract period (including option periods), applies to a specific 
contract, and has goals that are based on the offeror's planned 
subcontracting in support of the specific contract, except that indirect 
costs incurred for common or joint purposes may be allocated on a 
prorated basis to the contract.
    Master plan means a subcontracting plan that contains all the 
required elements of an individual contract plan, except goals, and may 
be incorporated into individual contract plans, provided the master plan 
has been approved.
    Subcontract 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 performance of the contract, contract modification, or 
subcontract.

[63 FR 34064, June 22, 1998, as amended at 66 FR 2130, Jan. 10, 2001]



19.702  Statutory requirements.

    Any contractor receiving a contract for more than the simplified 
acquisition threshold must agree in the contract that small business, 
veteran-owned small business, service-disabled veteran-owned small 
business, HUBZone small business, small disadvantaged business, and 
women-owned small business concerns will 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, veteran-owned small business, service-disabled veteran-
owned small business, HUBZone small business, small disadvantaged 
business, and women-owned small business concerns.
    (a) Except as stated in paragraph (b) of this section, Section 8(d) 
of the Small Business Act (15 U.S.C. 637(d)) 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, that individually is 
expected to exceed $500,000 ($1,000,000 for construction) and that has 
subcontracting possibilities, shall require the apparently successful 
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 bidding acquisitions, each invitation for bids to 
perform a contract or contract modification, that 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

[[Page 363]]

    (4) For modifications to contracts within the general scope of the 
contract that do not contain the clause at 52.219-8, Utilization of 
Small Business Concerns (or equivalent prior clauses; e.g., contracts 
awarded before the enactment of Public Law 95-507).
    (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 
Under Secretary of Defense (Acquisition, Technology and Logistics), 1777 
N. Kent Street, Suite 9100, Arlington, VA 22209


before developmental assistance costs may be credited against 
subcontracting goals. A list of approved agreements may be obtained at 
http://www.acq.osd.mil/sadbu/mentor--protege/ or by calling 1-800-553-
1858.

[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; 63 FR 
36122, July 1, 1998; 63 FR 70270, Dec. 18, 1998; 64 FR 72451, Dec. 27, 
1999; 65 FR 60545, Oct. 11, 2000]



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, veteran-owned small business, 
service-disabled veteran-owned small business, HUBZone small business, 
small disadvantaged business, or woman-owned small business concern.
    (1) To represent itself as a small business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, or woman-owned small business concern, a concern must meet the 
appropriate definition (see 2.101 and 19.001).
    (2) In connection with a subcontract, or a requirement for which the 
apparently successful offeror received an evaluation credit for 
proposing one or more SDB subcontractors, the contracting officer or the 
SBA may protest the disadvantaged status of a proposed subcontractor. 
Such protests will be processed in accordance with 13 CFR 124.1015 
through 124.1022. Other interested parties may submit information to the 
contracting officer or the SBA in an effort to persuade the contracting 
officer or the SBA to initiate a protest. Such protests, in order to be 
considered timely, must be submitted to the SBA 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 
as a small business, veteran-owned small business, service-disabled 
veteran-owned small business, HUBZone small business, or a woman-owned 
small business concern. The clause at 52.219-25, Small Disadvantaged 
Business Participation Program--Disadvantaged Status and Reporting, 
requires the contractor to obtain representations of small disadvantaged 
status from subcontractors through use of a provision substantially the 
same as paragraph (b)(1)(i) of the provision at 52.219-22, Small 
Disadvantaged Business Status. The clause requires the contractor to 
confirm that a subcontractor representing itself as a small 
disadvantaged business concern is identified by SBA as a small

[[Page 364]]

disadvantaged business concern by accessing SBA's database (PRO-Net) or 
by contacting the SBA's Office of Small Disadvantaged Business 
Certification and Eligibility. 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 small 
disadvantaged business representation must be filed in accordance with 
13 CFR 124.1015 through 124.1022. Protests challenging HUBZone small 
business concerns status must be filed in accordance with 13 CFR 
126.800.

[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; 63 FR 34065, July 1, 1998; 63 FR 
70270, Dec. 18, 1998; 63 FR 71723, Dec. 29, 1998; 64 FR 36223, July 2, 
1999; 65 FR 60545, Oct. 11, 2000; 66 FR 2130, Jan. 10, 2001]



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, veteran-
owned small business, service-disabled veteran-owned small business, 
HUBZone small business, small disadvantaged business, and women-owned 
small business concerns as subcontractors;
    (2) A statement of the total dollars planned to be subcontracted and 
a statement of the total dollars planned to be subcontracted to small 
business, veteran-owned small business, service-disabled veteran-owned 
small business, HUBZone small business, small disadvantaged business, 
and women-owned small business concerns;
    (3) A description of the principal types of supplies and services to 
be subcontracted and an identification of types planned for 
subcontracting to small business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business concerns;
    (4) A description of the method used to develop the subcontracting 
goals;
    (5) A description of the method used to identify potential sources 
for solicitation purposes;
    (6) A statement as to whether or not the offeror included indirect 
costs in establishing subcontracting goals, and a description of the 
method used to determine the proportionate share of indirect costs to be 
incurred with small business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business concerns;
    (7) 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;
    (8) A description of the efforts the offeror will make to ensure 
that small business, veteran-owned small business, service-disabled 
veteran-owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business concerns have an 
equitable opportunity to compete for subcontracts;
    (9) Assurances that the offeror will include the clause at 52.219-8, 
Utilization of Small Business Concerns (see 19.708(a)), 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 that complies with the requirements of 
the clause at 52.219-9, Small Business Subcontracting Plan (see 
19.708(b));
    (10) Assurances that the offeror will--
    (i) Cooperate in any studies or surveys as may be required;
    (ii) Submit periodic reports so that the Government can determine 
the extent of compliance by the offeror with the subcontracting plan;
    (iii) Submit Standard Form (SF) 294, Subcontracting Report for 
Individual Contracts, and SF 295, Summary Subcontract Report, following 
the instructions on the forms or as provided in agency regulations; and
    (iv) Ensure that its subcontractors agree to submit SF 294 and SF 
295; and
    (11) A description of the types of records that will be maintained 
concerning procedures adopted to comply

[[Page 365]]

with the requirements and goals in the plan, including establishing 
source lists; and a description of the offeror's efforts to locate small 
business, veteran-owned small business, service-disabled veteran-owned 
small business, HUBZone small business, small disadvantaged business, 
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 plan (see 19.701) that contains all the elements required by the 
clause at 52.219-9, 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 apply to 
that contract throughout the life of the contract.
    (c) For multiyear contracts or 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 paragraph (a) of this section and shall contain separate 
statements and goals for the basic contract and for each option.
    (d) A commercial plan (as defined in 19.701) is the preferred type 
of subcontracting plan for contractors furnishing commercial items. The 
contractor shall--
    (1) Submit the commercial plan to either the first contracting 
officer awarding a contract subject to the plan during the contractor's 
fiscal year, or, if the contractor has ongoing contracts with commercial 
plans, to the contracting officer responsible for the contract with the 
latest completion date. The contracting officer shall negotiate the 
commercial plan for the Government. The approved commercial plan shall 
remain in effect during the contractor's fiscal year for all Government 
contracts in effect during that period; and
    (2) Submit a new commercial plan, 30 working days before the end of 
the fiscal year, to the contracting officer responsible for the 
uncompleted Government contract with the latest completion date. The 
contractor must provide to each contracting officer responsible for an 
ongoing contract subject to the plan, the identity of the contracting 
officer that will be negotiating the new plan. When the new commercial 
plan is approved, the contractor shall provide a copy of the approved 
plan to each contracting officer responsible for an ongoing contract 
that is subject to the plan.

[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; 63 FR 34065, June 22, 1998; 63 FR 70271, Dec. 18, 1998; 
65 FR 60545, Oct. 11, 2000; 66 FR 53493, Oct. 22, 2001; 67 FR 1858, Jan. 
14, 2002]



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)). This subsection does 
not apply to SDB subcontracting (see 19.1203). 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; 
63 FR 34065, June 22, 1998; 63 FR 36123, July 1, 1998]

[[Page 366]]



19.705-2  Determining the need for a subcontracting plan.

    The contracting officer must 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 must consider the 
integrity of the competitive process, the goal of affording maximum 
practicable opportunity for small business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, small disadvantaged business, 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; 63 FR 70271, Dec. 18, 1998; 65 FR 60545, Oct. 11, 2000; 66 FR 
53493, Oct. 22, 2001]



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 must 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 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 11 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 that incorporates the 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 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 11 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 business, 
veteran-owned small business, service-disabled veteran-owned small 
business,

[[Page 367]]

HUBZone small business, small disadvantaged business, and women-owned 
small business subcontractors to the maximum practicable extent. The 
contracting officer shall take particular care to ensure that the 
offeror has not submitted unreasonably low goals to minimize exposure to 
liquidated damages and to avoid the administrative burden of 
substantiating good faith efforts. Additionally, 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 business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, or women-owned small business concerns.
    (d) In determining the acceptability of a proposed subcontracting 
plan, the contracting officer should take the following actions:
    (1) Obtain information available from the cognizant contract 
administration office, as provided for in 19.706(a), and evaluate the 
offeror's past performance in awarding subcontracts for the same or 
similar products or services to small business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, small disadvantaged business, 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 and consider 
the performance of other contractors on similar efforts.
    (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) Ensure that the subcontracting goals are consistent with the 
offeror's cost or pricing data or information other than cost or pricing 
data.
    (4) 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.
    (5) Evaluate subcontracting potential, considering the offeror's 
make-or-buy policies or programs, the nature of the supplies or services 
to be subcontracted, the known availability of small business, veteran-
owned small business, service-disabled veteran-owned small business, 
HUBZone small business, small disadvantaged business, 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.
    (6) Advise the offeror of available sources of information on 
potential small business, veteran-owned small business, service-disabled 
veteran-owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business subcontractors, 
as well as any specific concerns known to be potential subcontractors. 
If the offerors proposed goals are questionable, the contracting officer 
must emphasize that the information should be used to develop realistic 
and acceptable goals.

[[Page 368]]

    (7) 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; 63 FR 
34066, June 22, 1998; 63 FR 36123, July 1, 1998; 63 FR 70271, Dec. 18, 
1998; 65 FR 60545, Oct. 11, 2000; 66 FR 53493, Oct. 22, 2001; 67 FR 
1858, Jan. 14, 2002]



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 who approved the 
plan is responsible for the following:
    (a) Notifying the SBA of the award by sending a copy of the award 
document to the Area Director, Office of Government Contracting, in the 
SBA area office where the contract will be performed.
    (b) Forwarding a copy of each commercial plan and any associated 
approvals to the Area Director, Office of Government Contracting, in the 
SBA area office where the contractor's headquarters is located.
    (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(f).

[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; 63 FR 34066, June 22, 1998; 
63 FR 70271, Dec. 18, 1998]



19.705-7  Liquidated damages.

    (a) Maximum practicable utilization of small business, veteran-owned 
small business, service-disabled veteran-owned small business, HUBZone 
small

[[Page 369]]

business, small disadvantaged business and women-owned small business 
concerns 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 subcontracting goal.
    (c) If, at completion of the basic contract or any option, or in the 
case of a commercial plan, at the close of the fiscal year for which the 
plan is applicable, a contractor has failed to meet its subcontracting 
goals, the contracting officer shall review all available information 
for an indication that the contractor has not made a good faith effort 
to comply with the plan. If no such indication is found, the contracting 
officer shall document the file accordingly. If 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 15 working 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.
    (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 business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business 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, though not all inclusive, may be 
considered as indicators of a failure to make a good faith effort: a 
failure to attempt to identify, contact, solicit, or consider for 
contract award small business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business or women-owned small business concerns; a failure 
to designate and maintain a company official to administer the 
subcontracting program and monitor and enforce compliance with the plan; 
a failure to submit Standard Form (SF) 294, Subcontracting Report for 
Individual Contracts, or SF 295, Summary Subcontract Report, in 
accordance with the instructions on the forms or as provided in agency 
regulations; a failure to maintain records or otherwise demonstrate 
procedures adopted to comply with the plan; or the adoption of company 
policies or procedures that 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 plans approved under the clause at 
52.219-9,

[[Page 370]]

Small Business Subcontracting Plan, the contracting officer that 
approved the plan shall--
    (1) Perform the functions of the contracting officer under this 
subsection on behalf of all agencies with contracts covered by the 
commercial plan;
    (2) Determine whether or not the goals in the commercial plan were 
achieved and, if they were not achieved, review all available 
information for an indication that the contractor has not made a good 
faith effort to comply with the plan, and document the results of the 
review;
    (3) If a determination is made to assess liquidated damages, in 
order to calculate and assess the amount of damages, the contracting 
officer shall ask the contractor to provide--
    (i) Contract numbers for the Government contracts subject to the 
plan;
    (ii) The total Government sales during the contractor's fiscal year; 
and
    (iii) The amount of payments made under the Government contracts 
subject to that plan that contributed to the contractor's total sales 
during the contractor's fiscal year; and
    (4) When appropriate, assess liquidated damages on the Government's 
behalf, based on the pro rata share of subcontracting attributable to 
the Government contracts. For example: The contractor's total actual 
sales were $50 million and its actual subcontracting was $20 million. 
The Government's total payments under contracts subject to the plan 
contributing to the contractor's total sales were $5 million, which 
accounted for 10 percent of the contractor's total sales. Therefore, the 
pro rata share of subcontracting attributable to the Government 
contracts would be 10 percent of $20 million, or $2 million. To continue 
the example, if the contractor failed to achieve its small business goal 
by 1 percent, the liquidated damages would be calculated as 1 percent of 
$2 million, or $20,000. The contracting officer shall make similar 
calculations for each category of small business where the contractor 
failed to achieve its goal and the sum of the dollars for all of the 
categories equals the amount of the liquidated damages to be assessed. A 
copy of the contracting officer's final decision assessing liquidated 
damages shall be provided to other contracting officers with contracts 
subject to the commercial plan.
    (g) Liquidated damages shall be in addition to any other remedies 
that the Government may have.
    (h) Every contracting officer with a contract that is subject to a 
commercial plan shall include in the contract file a copy of the 
approved plan and a copy of the final decision assessing liquidating 
damages, if applicable.

[54 FR 30709, July 21, 1989, as amended at 60 FR 48263, Sept. 18, 1995; 
63 FR 34066, June 22, 1998; 63 FR 70272, Dec. 18, 1998; 65 FR 60545, 
Oct. 11, 2000; 66 FR 53493, Oct. 22, 2001]



19.706  Responsibilities of the cognizant administrative contracting officer.

    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--
    (a) Documentation on the contractor's performance and compliance 
with subcontracting plans under previous contracts;
    (b) Information on the extent to which the contractor is meeting the 
plan's goals for subcontracting with eligible small business, veteran-
owned small business, service-disabled veteran-owned small business, 
HUBZone small business, small disadvantaged business, and women-owned 
small business concerns;
    (c) Information on whether the contractor's efforts to ensure the 
participation of small business, veteran-owned small business, service-
disabled veteran-owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business concerns are in 
accordance with its subcontracting plan;
    (d) Information on whether the contractor is requiring its 
subcontractors to adopt similar subcontracting plans;

[[Page 371]]

    (e) 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;
    (f) Immediate notice and rationale if, during performance, the 
contractor is failing to comply in good faith with the subcontracting 
plan; and
    (g) Immediate notice that performance under a contract is complete, 
that the goals were or were not met, and, if not met, whether there is 
any indication of a lack of a good faith effort to comply with the 
subcontracting plan.

[48 FR 42240, Sept. 19, 1983, as amended at 54 FR 30710, July 21, 1989; 
60 FR 48263, Sept. 18, 1995; 63 FR 34067, June 22, 1998; 63 FR 70272, 
Dec. 18, 1998; 65 FR 60545, Oct. 11, 2000; 66 FR 53493, Oct. 22, 2001]



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  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-8, 
Utilization of 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 Business 
Subcontracting Plan, in solicitations and contracts that offer 
subcontracting possibilities, are expected to exceed $500,000 
($1,000,000 for construction of any public facility), and are required 
to include the clause at 52.219-8, Utilization of 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 Business 
Subcontracting Plan, or the clause with its Alternate I or II.
    (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), and inclusion of a 
monetary incentive is, in the judgment of the contracting officer, 
necessary to increase subcontracting opportunities for small business, 
veteran-owned small business, service-disabled veteran-owned small 
business, HUBZone small business, and women-owned small business 
concerns, and is commensurate with the efficient

[[Page 372]]

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 
business, veteran-owned small business, service-disabled veteran-owned 
small business, HUBZone small business, 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 business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, 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; 63 FR 34067, June 22, 
1998; 63 FR 36123, July 1, 1998; 63 FR 70272, Dec. 18, 1998; 65 FR 
60545, Oct. 11, 2000; 66 FR 53493, Oct. 22, 2001]



 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.
    (d) The SBA refers to this program as the 8(a) Business Development 
(BD) Program.
    (e) Before deciding to set aside an acquisition in accordance with 
Subpart 19.5 or 19.13, the contracting officer should review the 
acquisition for offering under the 8(a) Program. If the acquisition is 
offered to the SBA, SBA regulations (13 CFR 126.607(b)) give first 
priority to HUBZone 8(a) concerns.
    (f) When SBA has delegated its 8(a) Program contract execution 
authority to an agency, the contracting officer must refer to its agency 
supplement or other policy directives for appropriate guidance.

[54 FR 46005, Oct. 31, 1989, as amended at 63 FR 70272, Dec. 18, 1998; 
64 FR 32743, June 17, 1999; 64 FR 51832, Sept. 24, 1999]



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 124.101-112.

[48 FR 42240, Sept. 19, 1983, as amended at 64 FR 32744, June 17, 1999]



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

[[Page 373]]

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 NAICS 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 NAICS 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 (but see 19.800(e)).

[54 FR 46005, Oct. 31, 1989, as amended at 55 FR 3882, Feb. 5, 1990; 61 
FR 67410, Dec. 20, 1996; 63 FR 70272, Dec. 18, 1998; 64 FR 32748, June 
17, 1999; 65 FR 46057, July 26, 2000]



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
    (2) Performance or delivery requirements, including required monthly 
production rates, when applicable.

[[Page 374]]

    (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 must 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 NAICS 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, 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 that have 
performed this requirement during the previous 24 months.
    (9) A statement that prior to the offering no solicitation for the 
specific acquisition has been issued as a small business or HUBZone set-
aside and that no other public communication (such as a notice through 
the Governmentwide point of entry (GPE)) has been made showing the 
contracting agency's clear intention to set-aside the acquisition for 
small business or HUBZone small business concerns.
    (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, including HUBZone 
8(a) concerns, that have expressed an interest in being considered for 
the specific requirement.
    (13) Identification of all SBA field offices that have asked for the 
acquisition for the 8(a) Program.
    (14) A request, if appropriate, that a requirement with an estimated 
contract value under the applicable competitive threshold be awarded as 
an 8(a) competitive contract (see 19.805-1(d)).
    (15) A request, if appropriate, that a requirement with a contract 
value over the applicable competitive threshold be awarded as a sole 
source contract (see 19.805-1(b)).
    (16) 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 375]]

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, must be synopsized through the GPE. For construction, the 
synopsis must 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; 64 FR 32744, June 17, 1999; 65 FR 46057, 
July 26, 2000; 66 FR 27413, May 16, 2001]



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 10 working days of receipt of 
the offer if the contract is likely to exceed the simplified acquisition 
threshold and within 2 days of receipt if the contract is at or below 
the simplified acquisition threshold. The contracting agency may grant 
an extension of these time periods. If SBA does not respond to an 
offering letter within 10 days, the contracting activity may seek SBA's 
acceptance through the Associate Administrator (AA)/8(a)BD.
    (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.
    (c) For acquisitions not exceeding the simplified acquisition 
threshold, when the contracting activity makes an offer to the 8(a) 
Program on behalf of a specific 8(a) firm and does not receive a reply 
to its offer within 2 days, the contracting activity may assume the 
offer is accepted and proceed with award of an 8(a) contract.
    (d) As part of the acceptance process, SBA will review the 
appropriateness of the NAICS code designation assigned to the 
requirement by the contracting activity.
    (1) SBA will not challenge the NAICS code assigned to the 
requirement by the contracting activity if it is reasonable, even though 
other NAICS codes may also be reasonable.
    (2) If SBA and the contracting activity are unable to agree on a 
NAICS code designation for the requirement, SBA may refuse to accept the 
requirement for the 8(a) Program, appeal the contracting officer's 
determination to the head of the agency pursuant to 19.810, or appeal 
the NAICS code designation to the SBA Office of Hearings and Appeals 
under subpart C of 13 CFR part 134.

[48 FR 42240, Sept. 19, 1983, as amended at 56 FR 55380, Oct. 25, 1991; 
61 FR 67421, Dec. 20, 1996; 64 FR 32744, June 17, 1999; 65 FR 46057, 
July 26, 2000]



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 determine--
    (a) Whether the requirement should be a competitive 8(a) award;
    (b) A nominated firm's eligibility, whether or not it is the same 
firm that performed the previous contract;
    (c) The effect that contract award would have on the equitable 
distribution of 8(a) contracts; and
    (d) Whether the requirement should continue under the 8(a) Program.
    10. Add sections 19.804-5 and 19.804-6 to read as follows:

[64 FR 32744, June 17, 1999]



19.804-5  Basic ordering agreements.

    (a) The contracting activity must offer, and SBA must accept, each 
order under a basic ordering agreement (BOA) in addition to offering and 
accepting the BOA itself.
    (b) SBA will not accept for award on a sole-source basis any order 
that would cause the total dollar amount of

[[Page 376]]

orders issued under a specific BOA to exceed the competitive threshold 
amount in 19.805-1.
    (c) Once an 8(a) concern's program term expires, the concern 
otherwise exits the 8(a) Program, or becomes other than small for the 
NAICS code assigned under the BOA, SBA will not accept new orders for 
the concern.

[64 FR 32744, June 17, 1999, as amended at 65 FR 46057, July 26, 2000]



19.804-6  Multiple award and Federal Supply Schedule contracts.

    (a) Separate offers and acceptances must not be made for individual 
orders under multiple award or Federal Supply Schedule (FSS) contracts. 
SBA's acceptance of the original multiple award or FSS contract is valid 
for the term of the contract.
    (b) The requirements of 19.805-1 do not apply to individual orders 
that exceed the competitive threshold as long as the original contract 
was competed.
    (c) An 8(a) concern may continue to accept new orders under a 
multiple award or FSS contract even after a concern's program term 
expires, the concern otherwise exits the 8(a) Program, or the concern 
becomes other than small for the NAICS code assigned under the contract.

[64 FR 32744, June 17, 1999, as amended at 65 FR 46057, July 26, 2000]



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 total value of the contract, including options, 
will exceed $5,000,000 for acquisitions assigned manufacturing North 
American Industry Classification System (NAICS) 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--
    (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) SBA accepts the requirement on behalf of a concern owned by an 
Indian tribe or an Alaska Native Corporation.
    (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 Associate Administrator for 8(a) Business Development 
(AA/8(a)BD) may approve an agency request for a competitive 8(a) award 
below the competitive thresholds. Such requests 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. In determining whether a request to 
compete below the threshold will be approved, the AA/8(a)BD will, in 
part, consider the extent to which the requesting agency is supporting 
the 8(a) Program on a noncompetitive basis. The agency may include 
recommendations for competition below the threshold in the offering 
letter or by separate correspondence to the AA/8(a)BD.

[54 FR 46005, Oct. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996; 
64 FR 32744, June 17, 1999; 65 FR 46056, July 26, 2000]



19.805-2  Procedures.

    (a) Offers shall be solicited from those sources identified in 
accordance with 19.804-3.
    (b) 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,

[[Page 377]]

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.
    (c) In any case in which a firm is determined to be ineligible, the 
SBA will notify the firm of that determination.
    (d) 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 124.517.

[54 FR 46005, Oct. 31, 1989, as amended at 61 FR 67421, Dec. 20, 1996; 
64 FR 32745, June 17, 1999]



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 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 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 within 10 
working days.
    (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; 
64 FR 32745, 32748, June 17, 1999]



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

[[Page 378]]

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. 
Conducting competitive negotiations among 8(a) firms prior to SBA's 
formal acceptance of the acquisition for the 8(a) Program may be grounds 
for SBA's not accepting the acquisition for the 8(a) Program.

[64 FR 32745, June 17, 1999]



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 must refer the matter to SBA for Certificate of Competency 
consideration under subpart 19.6.

[64 FR 32745, June 17, 1999]



19.810  SBA appeals.

    (a) The SBA Administrator may submit the following matters 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) A contracting officer's decision to reject a specific 8(a) firm 
for award of an 8(a) contract after SBA's acceptance of the requirement 
for the 8(a) Program.
    (3) The terms and conditions of a proposed 8(a) contract, including 
the contracting activity's NAICS code designation and estimate of the 
fair market price.
    (b) Notification of a proposed appeal 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 will provide the agency Director for Small and Disadvantaged 
Business Utilization a copy of this notification of the intent to 
appeal. The SBA must send the written appeal to the head of the 
contracting activity within 15 working days of SBA's notification of 
intent to appeal or the contracting activity may consider the appeal 
withdrawn. Pending issuance of a decision by the agency head, the 
contracting officer must suspend action on the acquisition. The 
contracting officer need not suspend action on the acquisition if the 
contracting officer makes a written determination that urgent and 
compelling circumstances that 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.

[54 FR 46005, Oct. 31, 1989, as amended at 64 FR 32745, June 17, 1999; 
65 FR 46057, July 26, 2000]



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

[[Page 379]]

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 paragraphs (a) and (b) of this 
subsection, 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 paragraphs (b) (1), 
(2), and (3) of this subsection. Appropriate blocks on the Standard Form 
(SF) 26 or 1442 will be asterisked and a continuation sheet appended as 
a tripartite agreement 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.
    (d) For acquisitions not exceeding the simplified acquisition 
threshold, the contracting officer may use the alternative procedures in 
paragraph (c) of this subsection with the appropriate simplified 
acquisition forms.

[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; 62 FR 64940, Dec. 9, 
1997; 64 FR 32745, June 17, 1999]



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 as a tripartite agreement 
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; 64 FR 32745, June 17, 1999]



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

[[Page 380]]

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 Federal Directory of Contract Administration Services Components 
(available via the Internet at http://www.dcma.mil/casbook/
casbook.htm)).
    (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) An 8(a) contract, whether in the base or an option year, must be 
terminated for convenience if the 8(a) concern to which it was awarded 
transfers ownership or control of the firm or if the contract is 
transferred or novated for any reason to another firm, unless the 
Administrator of the SBA waives the requirement for contract termination 
(13 CFR 124.515). The Administrator may waive the termination 
requirement only if certain conditions exist. Moreover, a waiver of the 
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, except in the case of death or incapacity where 
the waiver must be submitted within 60 days after such an occurrence. 
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 information that an 8(a) contractor is planning to transfer 
ownership or control to another firm, the contracting officer must take 
action 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 must either confirm or withdraw the 
request for waiver. Unless a waiver is approved by the SBA, the 
contracting officer must terminate the contract for convenience upon 
receipt of a written request by the SBA. This 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; 
64 FR 32745, June 17, 1999; 66 FR 2141, Jan. 10, 2001]

[[Page 381]]



             Subpart 19.9--Very Small Business Pilot Program

    Authority: 41 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source: 64 FR 10536, Mar. 4, 1999, unless otherwise noted.



 19.901  General.

    (a) The Very Small Business Pilot Program was established under 
Section 304 of the Small Business Administration Reauthorization and 
Amendments Act of 1994 (Public Law 103-403).
    (b) The purpose of the program is to improve access to Government 
contract opportunities for concerns that are substantially below SBA's 
size standards by reserving certain acquisitions for competition among 
such concerns.
    (c) This pilot program terminates on September 30, 2003. Therefore, 
any award under this program must be made on or before this date.

[64 FR 10536, Mar. 4, 1999, as amended at 66 FR 53500, Oct. 22, 2001]



19.902  Designated SBA district.

    A designated SBA district is the geographic area served by any of 
the following SBA district offices:
    (1) Albuquerque, NM, serving New Mexico.
    (2) Los Angeles, CA, serving the following counties in California: 
Los Angeles, Santa Barbara, and Ventura.
    (3) Boston, MA, serving Massachusetts.
    (4) Louisville, KY, serving Kentucky.
    (5) Columbus, OH, serving the following counties in Ohio: Adams, 
Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign, 
Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware, 
Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, 
Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence, 
Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe, 
Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry, Pickaway, 
Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union, Van Wert, 
Vinton, Warren, Washington, and Wyandot.
    (6) New Orleans, LA, serving Louisiana.
    (7) Detroit, MI, serving Michigan.
    (8) Philadelphia, PA, serving the State of Delaware and the 
following counties in Pennsylvania: Adams, Berks, Bradford, Bucks, 
Carbon, Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, 
Franklin, Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon, 
Lehigh, Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Montour, 
Northampton, Northumberland, Philadelphia, Perry, Pike, Potter, 
Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, 
and York.
    (9) El Paso, TX, serving the following counties in Texas: Brewster, 
Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio, Reeves, and 
Terrell.
    (10) Santa Ana, CA, serving the following counties in California: 
Orange, Riverside, and San Bernadino.

[64 FR 10536, Mar. 4, 1999, as amended at 66 FR 2130, Jan. 10, 2001]



19.903  Applicability.

    (a) The Very Small Business Pilot Program applies to acquisitions, 
including construction acquisitions, with an estimated value exceeding 
$2,500 but not greater than $50,000, when--
    (1) In the case of an acquisition for supplies, the contracting 
office is located within the geographical area served by a designated 
SBA district; or
    (2) In the case of an acquisition for other than supplies, the 
contract will be performed within the geographical area served by a 
designated SBA district.
    (b) The Very Small Business Pilot Program does not apply to--
    (1) Acquisitions that will be awarded pursuant to the 8(a) Program;
    (2) Any requirement that is subject to the Small Business 
Competitiveness Demonstration Program (see Subpart 19.10); or
    (3) Acquisitions of $15,000 or less facilitating the defense against 
terrorism or biological or chemical attack against the United States as 
described in 13.201(g).

[64 FR 10536, Mar. 4, 1999, as amended at 67 FR 56121, Aug. 30, 2002]

[[Page 382]]



19.904  Procedures.

    (a) A contracting officer must set-aside for very small business 
concerns each acquisition that has an anticipated dollar value exceeding 
$2,500 but not greater than $50,000 if--
    (1) In the case of an acquisition for supplies--
    (i) The contracting office is located within the geographical area 
served by a designated SBA district; and
    (ii) There is a reasonable expectation of obtaining offers from two 
or more responsible very small business concerns headquartered within 
the geographical area served by the designated SBA district that are 
competitive in terms of market prices, quality, and delivery; or
    (2) In the case of an acquisition for services--
    (i) The contract will be performed within the geographical area 
served by a designated SBA district; and
    (ii) There is a reasonable expectation of obtaining offers from two 
or more responsible very small business concerns headquartered within 
the geographical area served by the designated SBA district that are 
competitive in terms of market prices, quality, and delivery.
    (b) Contracting officers must determine the applicable designated 
SBA district office as defined at 19.902. The geographic areas served by 
the SBA Los Angeles and Santa Ana District offices will be treated as 
one designated SBA district for the purposes of this subpart.
    (c) If no reasonable expectation exists under paragraphs (a)(1)(ii) 
and (a)(2)(ii) of this section, the contracting officer must document 
the file and proceed with the acquisition in accordance with Subpart 
19.5.
    (d) If the contracting officer receives only one acceptable offer 
from a responsible very small business concern in response to a very 
small business set-aside, the contracting officer should make an award 
to that firm. If there is no offer received from a very small business 
concern, the contracting officer must cancel the very small business 
set-aside and proceed with the acquisition in accordance with Subpart 
19.5.

[64 FR 10536, Mar. 4, 1999, as amended at 64 FR 51830, Sept. 24, 1999]



19.905  Solicitation provision and contract clause.

    Insert the clause at 52.219-5, Very Small Business Set-Aside, in 
solicitations and contracts if the acquisition is set aside for very 
small business concerns.
    (a) Insert the clause at 52.219-5 with its Alternate I--
    (1) In construction or service contracts; or
    (2) 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)).
    (b) Insert the clause at 52.219-5 with its Alternate II when 
Alternate I does not apply, the acquisition is processed under 
simplified acquisition procedures, and the total amount of the contract 
does not exceed $25,000.

[64 FR 10536, Mar. 4, 1999, as amended at 64 FR 51830, Sept. 24, 1999]



   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 the Small Business Competitiveness Demonstration Program 
Act of 1988, Public Law 100-656 (15 U.S.C. 644 note). The program is 
implemented by a joint OFPP and SBA Policy Directive and Implementation 
Plan, dated May 25, 1999. The program consists of two major components--
    (a) Unrestricted competition in four designated industry groups; and
    (b) Enhanced small business participation in 10 agency targeted 
industry categories.

[63 FR 9057, Feb. 23, 1998, as amended at 65 FR 16276, Mar. 27, 2000]

[[Page 383]]



19.1002  Definitions.

    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 North American Industry 
Classification System (NAICS) code assigned to a contracting 
opportunity.
    Emerging small business reserve amount, for the designated groups 
described in 19.1005, means a threshold established by the Office of 
Federal Procurement Policy of--
    (1) $25,000 for construction, refuse systems and related services, 
and nonnuclear ship repair; and
    (2) $50,000 for architectural and engineering services.

[54 FR 5055, Jan. 31, 1989, as amended at 65 FR 16276, Mar. 27, 2000; 65 
FR 46056, July 26, 2000]



19.1003  Purpose.

    The purpose of the Program is to--
    (a) Assess 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) 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.
    (c) 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.

[54 FR 5055, Jan. 31, 1989, as amended at 55 FR 52792, Dec. 21, 1990; 63 
FR 9057, Feb. 23, 1998; 65 FR 16276, Mar. 27, 2000]



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 National Imagery and Mapping 
Agency.
    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; 63 FR 58602, Oct. 30, 1998]



19.1005  Applicability.

    (a) Designated industry groups.

------------------------------------------------------------------------
          NAICS code                        NAICS description
------------------------------------------------------------------------
                     Construction (except dredging)
      Subsector 233--Building, Developing, and General Contracting
------------------------------------------------------------------------
23311.........................  Land Subdivision and Land Development.
23321.........................  Single Family Housing Construction.
23322.........................  Multifamily Housing Construction.
23331.........................  Manufacturing and Industrial Building
                                 Construction.
23332.........................  Commercial and Institutional Building
                                 Construction.
-------------------------------
                    Subsector 234--Heavy Construction
------------------------------------------------------------------------
23411.........................  Highway and Street Construction.
23412.........................  Bridge and Tunnel Construction.
23491.........................  Water, Sewer, and Pipeline Construction.
23492.........................  Power and Communication Transmission
                                 Line Construction.
23493.........................  Industrial Nonbuilding Structure
                                 Construction.
23499.........................  All Other Heavy Construction.
-------------------------------
                Subsector 235--Special Trade Contractors
------------------------------------------------------------------------
23511.........................  Plumbing, Heating, and Air-Conditioning
                                 Contractors.

[[Page 384]]

 
23521.........................  Painting and Wall Covering Contractors.
23531.........................  Electrical Contractors.
23541.........................  Masonry and Stone Contractors.
23542.........................  Drywall, Plastering, Acoustical, and
                                 Insulation Contractors.
23543.........................  Tile, Marble, Terrazzo, and Mosaic
                                 Contractors.
23551.........................  Carpentry Contractors.
23552.........................  Floor Laying and Other Floor
                                 Contractors.
23561.........................  Roofing, Siding, and Sheet Metal
                                 Contractors.
23571.........................  Concrete Contractors.
23581.........................  Water Well Drilling Contractors.
23591.........................  Structural Steel Erection Contractors.
23592.........................  Glass and Glazing Contractors.
23593.........................  Excavation Contractors.
23594.........................  Wrecking and Demolition Contractors.
23595.........................  Building Equipment and Other Machinery
                                 Installation Contractors.
23599.........................  All Other Special Trade Contractors.
-------------------------------
                         Nonnuclear Ship Repair
336611........................  Ship Building and Repairing
Architectural and Engineering Services (including surveying and mapping)
------------------------------------------------------------------------
54131.........................  Architectural Services.
54133.........................  Engineering Services.
54136.........................  Geophysical Surveying and Mapping
                                 Services.
54137.........................  Surveying and Mapping (except
                                 Geophysical) Services.
-------------------------------
                   Refuse Systems and Related Services
------------------------------------------------------------------------
562111........................  Solid Waste Collection.
562119........................  Other Waste Collection.
562219........................  Other Nonhazardous Waste Treatment and
                                 Disposal.
------------------------------------------------------------------------

    (b) Targeted industry categories. Each participating agency, in 
consultation with the Small Business Administration, designates 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; 
64 FR 16276, Mar. 27, 2000; 65 FR 46056, July 26, 2000; 66 FR 65370, 
Dec. 18, 2001]



19.1006  Exclusions.

    This subpart does not apply to--
    (a) Orders placed against Federal Supply Schedules;
    (b) Contract awards to educational and nonprofit organizations; or
    (c) Contract awards to governmental entities.

[65 FR 16276, Mar. 27, 2000]



19.1007  Procedures.

    (a) General. (1) All solicitations must include the applicable NAICS 
code and size standards.
    (2) The face of each award made pursuant to the program must contain 
a statement that the award is being issued pursuant to the Small 
Business Competitiveness Demonstration Program.
    (b) Solicitations greater than the ESB reserve amount. (1) 
Solicitations for acquisitions in any of the four designated industry 
groups that have an anticipated dollar value greater than the emerging 
small business reserve amount must not be considered for small business 
set-asides under subpart 19.5. However, agencies may reinstate the use 
of small business set-asides as necessary to meet their assigned goals, 
but only within organizational units that failed to meet the small 
business participation goal.
    (2) Acquisitions in the designated industry groups must continue to 
be considered for placement under the 8(a) Program (see subpart 19.8) 
and the HUBZone Program (see subpart 19.13).
    (c) Solicitations equal to or less than the ESB reserve amount. (1) 
Solicitations for acquisitions in the four designated industry groups 
with an estimated value equal to or less than the emerging small 
business reserve amount must be set aside for ESBs, provided that the 
contracting officer determines that there is a reasonable expectation of 
obtaining offers from two or more

[[Page 385]]

responsible ESBs that will be competitive in terms of market price, 
quality, and delivery. If no such reasonable expectation exists, the 
contracting officer must--
    (i) For acquisitions $25,000 or less, proceed in accordance with 
subpart 19.5, 19.8, or 19.13; or
    (ii) For acquisitions greater than $25,000 and less than or equal to 
the ESB reserve amount, 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 must make the award. If there is no quote from an 
ESB, or the quote is not at a reasonable price, then the contracting 
officer must cancel the ESB set-aside and proceed in accordance with 
paragraph (c)(1)(i) or (ii) of this section.
    (d) Expanding small business participation in targeted industry 
categories. Each participating agency must 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 must 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.

[65 FR 16276, Mar. 27, 2000, as amended at 65 FR 46057, July 26, 2000]



19.1008  Solicitation provisions.

    (a) 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) 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 19.1007(c).
    (c) 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. Redesignated and amended at 65 FR 16276, 
Mar. 27, 2000]



   Subpart 19.11--Price Evaluation Adjustment for Small Disadvantaged 
                            Business Concerns

    Source: 63 FR 35724, June 30, 1998, unless otherwise noted.



19.1101  General.

    A price evaluation adjustment for small disadvantaged business 
concerns shall be applied as determined by the Department of Commerce 
(see 19.201(b)). Joint ventures may qualify provided the requirements 
set forth in 13 CFR 124.1002(f) are met.



19.1102  Applicability.

    (a) Use the price evaluation adjustment in competitive acquisitions 
in the authorized NAICS Industry Subsector.
    (b) Do not use the price evaluation adjustment in acquisitions--
    (1) That are less than or equal to the simplified acquisition 
threshold;
    (2) That are awarded pursuant to the 8(a) Program;
    (3) That are set aside for small business concerns;
    (4) That are set aside for HUBZone small business concerns;
    (5) Where price is not a selection factor so that a price evaluation 
adjustment would not be considered (e.g., architect/engineer 
acquisitions); or
    (6) Where all fair and reasonable offers are accepted (e.g., the 
award of multiple award schedule contracts).

[64 FR 36223, July 2, 1999, as amended at 65 FR 46057, July 26, 2000]



19.1103  Procedures.

    (a) Give offers from small disadvantaged business concerns a price 
evaluation adjustment by adding the factor determined by the Department 
of Commerce to all offers, except--

[[Page 386]]

    (1) Offers from small disadvantaged business concerns that have not 
waived the evaluation adjustment; or, if a price evaluation adjustment 
for small disadvantaged business concerns is authorized on a regional 
basis, offers from small disadvantaged business concerns, whose address 
is in such a region, that have not waived the evaluation adjustment;
    (2) An otherwise successful offer of eligible products under the 
Trade Agreements Act when the acquisition equals or exceeds the dollar 
threshold in 25.403;
    (3) An otherwise successful offer where application of the factor 
would be inconsistent with a Memorandum of Understanding or other 
international agreement with a foreign government;
    (4) For DoD, NASA, and Coast Guard acquisitions, an otherwise 
successful offer from a historically black college or university or 
minority institution; or
    (5) For DoD acquisitions, an otherwise successful offer of 
qualifying country end products (see DFARS 225.000-70 and 252.225-7001).
    (b) Apply the factor to a line item or a group of line items on 
which award may be made. Add other evaluation factors such as 
transportation costs or rent-free use of Government facilities to the 
offers before applying the price evaluation adjustment.
    (c) Do not evaluate offers using the price evaluation adjustment 
when it would cause award, as a result of this adjustment, to be made at 
a price that exceeds fair market price by more than the factor as 
determined by the Department of Commerce (see 19.202-6(a)).

[63 FR 35724, June 30, 1998, as amended at 63 FR 52427, Sept. 30, 1998; 
64 FR 36223, July 2, 1999; 64 FR 72419, Dec. 27, 1999]



19.1104  Contract clause.

    Insert the clause at 52.219-23, Notice of Price Evaluation 
Adjustment for Small Disadvantaged Business Concerns, in solicitations 
and contracts when the circumstances in 19.1101 and 19.1102 apply. If a 
price evaluation adjustment is authorized on a regional basis, the 
clause shall be included in the solicitation even if the place of 
performance is outside an authorized region. The contracting officer 
shall insert the authorized price evaluation adjustment factor. The 
clause shall be used with its Alternate I when the contracting officer 
determines that there are no small disadvantaged business manufacturers 
that can meet the requirements of the solicitation. The clause shall be 
used with its Alternate II when a price evaluation adjustment is 
authorized on a regional basis.

[63 FR 52427, Sept. 30, 1998, as amended at 64 FR 36223, July 2, 1999]



    Subpart 19.12--Small Disadvantaged Business Participation Program

    Source: 63 FR 36123, July 1, 1998, unless otherwise noted.



19.1201  General.

    This subpart addresses the evaluation of the extent of participation 
of small disadvantaged business (SDB) concerns in performance of 
contracts in the North American Industry Classification System (NAICS) 
Industry Subsectors as determined by the Department of Commerce (see 
19.201(b)), and to the extent authorized by law. Two mechanisms are 
addressed in this subpart--
    (a) An evaluation factor or subfactor for the participation of SDB 
concerns in performance of the contract; and
    (b) An incentive subcontracting program for SDB concerns.

[63 FR 36123, July 1, 1998, as amended at 65 FR 46057, July 26, 2000]



19.1202  Evaluation factor or subfactor.



19.1202-1  General.

    The extent of participation of SDB concerns in performance of the 
contract, in the NAICS Industry Subsector as determined by the 
Department of Commerce, and to the extent authorized by law, shall be 
evaluated consistent with this section. Participation in performance of 
the contract includes joint ventures, teaming arrangements, and 
subcontracts. Credit under the evaluation factor or subfactor is not 
available to SDB concerns that receive a price evaluation adjustment 
under Subpart 19.11. If an SDB concern waives the price evaluation 
adjustment

[[Page 387]]

at Subpart 19.11, participation in performance of that contract includes 
the work expected to be performed by the SDB concern at the prime 
contract level.

[63 FR 36123, July 1, 1998, as amended at 65 FR 46057, July 26, 2000]



19.1202-2  Applicability.

    (a) Except as provided in paragraph (b) of this subsection, the 
extent of participation of SDB concerns in performance of the contract 
in the authorized NAICS Industry Subsector shall be evaluated in 
competitive, negotiated acquisitions expected to exceed $500,000 
($1,000,000 for construction).
    (b) The extent of participation of SDB concerns in performance of 
the contract in the authorized NAICS Industry Subsector (see paragraph 
(a) of this subsection) shall not be evaluated in--
    (1) Small business set-asides (see subpart 19.5) and HUBZone set-
asides (see subpart 19.13);
    (2) 8(a) acquisitions (see Subpart 19.8);
    (3) Negotiated acquisitions where the lowest price technically 
acceptable source selection process is used (see 15.101-2); or
    (4) Contract actions 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.

[63 FR 36123, July 1, 1998, as amended at 63 FR 70272, Dec. 18, 1998; 65 
FR 46057, July 26, 2000]



19.1202-3  Considerations in developing an evaluation factor or subfactor.

    In developing an SDB participation evaluation factor or subfactor 
for the solicitation, agencies may consider--
    (a) The extent to which SDB concerns are specifically identified;
    (b) The extent of commitment to use SDB concerns (for example, 
enforceable commitments are to be weighted more heavily than non-
enforceable ones);
    (c) The complexity and variety of the work SDB concerns are to 
perform;
    (d) The realism of the proposal;
    (e) Past performance of offerors in complying with subcontracting 
plan goals for SDB concerns and monetary targets for SDB participation; 
and
    (f) The extent of participation of SDB concerns in terms of the 
value of the total acquisition.

[63 FR 36123, July 1, 1998, as amended at 64 FR 36224, July 2, 1999]



19.1202-4  Procedures.

    (a) The solicitation shall describe the SDB participation evaluation 
factor or subfactor. The solicitation shall require offerors to provide, 
with their offers, targets, expressed as dollars and percentages of 
total contract value, in each of the applicable, authorized NAICS 
Industry Subsector, and a total target for SDB participation by the 
contractor, including joint venture partners, and team members, and a 
total target for SDB participation by subcontractors. The solicitation 
shall require an SDB offeror that waives the SDB price evaluation 
adjustment in the clause at 52.219-23, Notice of Price Evaluation 
Adjustment for Small Disadvantaged Business Concerns, to provide with 
its offer a target for the work that it intends to perform as the prime 
contractor. The solicitation shall state that any targets will be 
incorporated into and become part of any resulting contract. Contractors 
with SDB participation targets shall be required to report SDB 
participation.
    (b) When an evaluation includes an SDB participation evaluation 
factor or subfactor that considers the extent to which SDB concerns are 
specifically identified, the SDB concerns considered in the evaluation 
shall be listed in the contract, and the contractor shall be required to 
notify the contracting officer of any substitutions of firms that are 
not SDB concerns.

[63 FR 36123, July 1, 1998, as amended at 65 FR 46057, July 26, 2000]



19.1203  Incentive subcontracting with small disadvantaged business concerns.

    The contracting officer may encourage increased subcontracting 
opportunities in the NAICS Industry Subsector as determined by the 
Department of Commerce for SDB concerns in negotiated acquisitions by 
providing monetary incentives (see the clause at

[[Page 388]]

52.219-26, Small Disadvantaged Business Participation Program Incentive 
Subcontracting, and 19.1204(c)). Monetary incentives shall be based on 
actual achievement as compared to proposed monetary targets for SDB 
subcontracting. The incentive subcontracting program is separate and 
distinct from the establishment, monitoring, and enforcement of SDB 
subcontracting goals in a subcontracting plan.

[63 FR 36123, July 1, 1998, as amended at 65 FR 46057, July 26, 2000]



19.1204  Solicitation provisions and contract clauses.

    (a) The contracting officer may insert a provision substantially the 
same as the provision at 52.219-24, Small Disadvantaged Business 
Participation Program Targets, in solicitations that consider the extent 
of participation of SDB concerns in performance of the contract. The 
contracting officer may vary the terms of this provision consistent with 
the policies in 19.1202-4.
    (b) The contracting officer shall insert the clause at 52.219-25, 
Small Disadvantaged Business Participation Program--Disadvantaged Status 
and Reporting, in solicitations and contracts that consider the extent 
of participation of SDB concerns in performance of the contract.
    (c) The contracting officer may, when contracting by negotiation, 
insert in solicitations and contracts containing the clause at 52.219-
25, Small Disadvantaged Business Participation Program--Disadvantaged 
Status and Reporting, a clause substantially the same as the clause at 
52.219-26, Small Disadvantaged Business Participation Program--Incentive 
Subcontracting, when authorized (see 19.1203). The contracting officer 
may include an award fee provision in lieu of the incentive; in such 
cases, however, the contracting officer shall not use the clause at 
52.219-26.



   Subpart 19.13--Historically Underutilized Business Zone (HUBZone) 
                                 Program

    Authority: 41 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 
2473(c).

    Source: 63 FR 70272, Dec. 18, 1998, unless otherwise noted.



19.1301  General.

    (a) The Historically Underutilized Business Zone (HUBZone) Act of 
1997 (15 U.S.C. 631 note) created the HUBZone Program (sometimes 
referred to as the ``HUBZone Empowerment Contracting Program'').
    (b) The purpose of the HUBZone Program is to provide Federal 
contracting assistance for qualified small business concerns located in 
historically underutilized business zones, in an effort to increase 
employment opportunities, investment, and economic development in those 
areas.



19.1302  Applicability.

    The procedures in this subpart apply to all Federal agencies that 
employ one or more contracting officers.

[67 FR 13066, Mar. 20, 2002]



19.1303  Status as a qualified HUBZone small business concern.

    (a) Status as a qualified HUBZone small business concern is 
determined by the Small Business Administration (SBA) in accordance with 
13 CFR part 126.
    (b) If the SBA determines that a concern is a qualified HUBZone 
small business concern, it will issue a certification to that effect and 
will add the concern to the List of Qualified HUBZone Small Business 
Concerns on its Internet website at http://www.sba.gov/hubzone. A firm 
on the list is eligible for HUBZone program preferences without regard 
to the place of performance. The concern must appear on the list to be a 
HUBZone small business concern.
    (c) A joint venture (see 19.101) may be considered a HUBZone small 
business if the business entity meets all the criteria in 13 CFR 
126.616.
    (d) Except for construction or services, any HUBZone small business 
concern (nonmanufacturer) proposing to furnish a product that it did not 
itself manufacture must furnish the product of a HUBZone small business 
concern

[[Page 389]]

manufacturer to receive a benefit under this subpart.

[63 FR 70272, Dec. 18, 1998, as amended at 64 FR 51832, Sept. 24, 1999]



19.1304  Exclusions.

    This subpart does not apply to--
    (a) Requirements that can be satisfied through award to--
    (1) Federal Prison Industries, Inc. (see subpart 8.6); or
    (2) Javits-Wagner-O'Day Act participating non-profit agencies for 
the blind or severely disabled (see subpart 8.7);
    (b) Orders under indefinite delivery contracts (see subpart 16.5);
    (c) Orders against Federal Supply Schedules (see subpart 8.4);
    (d) Requirements currently being performed by an 8(a) participant or 
requirements SBA has accepted for performance under the authority of the 
8(a) Program, unless SBA has consented to release the requirements from 
the 8(a) Program;
    (e) Requirements that do not exceed the micro-purchase threshold; or
    (f) Requirements for commissary or exchange resale items.



19.1305  HUBZone set-aside procedures.

    (a) A participating agency contracting officer shall set aside 
acquisitions exceeding the simplified acquisition threshold for 
competition restricted to HUBZone small business concerns when the 
requirements of paragraph (b) of this section can be satisfied. The 
contracting officer shall consider HUBZone set-asides before considering 
HUBZone sole source awards (see 19.1306) or small business set-asides 
(see subpart 19.5).
    (b) To set aside an acquisition for competition restricted to 
HUBZone small business concerns, the contracting officer must have a 
reasonable expectation that--
    (1) Offers will be received from two or more HUBZone small business 
concerns; and
    (2) Award will be made at a fair market price.
    (c) A participating agency may set aside acquisitions exceeding the 
micro-purchase threshold, but not exceeding the simplified acquisition 
threshold, for competition restricted to HUBZone small business concerns 
at the sole discretion of the contracting officer, provided the 
requirements of paragraph (b) of this section can be satisfied.
    (d) If the contracting officer receives only one acceptable offer 
from a qualified HUBZone small business concern in response to a set 
aside, the contracting officer should make an award to that concern. If 
the contracting officer receives no acceptable offers from HUBZone small 
business concerns, the HUBZone set-aside shall be withdrawn and the 
requirement, if still valid, set aside for small business concerns, as 
appropriate (see subpart 19.5).
    (e) The procedures at 19.202-1 and, except for acquisitions not 
exceeding the simplified acquisition threshold, at 19.402 apply to this 
section. When the SBA intends to appeal a contracting officer's decision 
to reject a recommendation of the SBA procurement center representative 
to set aside an acquisition for competition restricted to HUBZone small 
business concerns, the SBA procurement center representative shall 
notify the contracting officer, in writing, of its intent within 5 
working days of receiving the contracting officer's notice of rejection. 
Upon receipt of notice of SBA's intent to appeal, the contracting 
officer shall suspend action on the acquisition unless the head of the 
contracting activity makes a written determination that urgent and 
compelling circumstances, which significantly affect the interests of 
the Government, exist. Within 15 working days of SBA's notification to 
the contracting officer, SBA shall file its formal appeal with the head 
of the contracting activity, or that agency may consider the appeal 
withdrawn. The head of the contracting activity shall reply to SBA 
within 15 working days of receiving the appeal. The decision of the head 
of the contracting activity shall be final.



19.1306  HUBZone sole source awards.

    (a) A participating agency contracting officer may award contracts 
to HUBZone small business concerns on a sole source basis without 
considering small business set-asides (see subpart 19.5), provided--
    (1) Only one HUBZone small business concern can satisfy the 
requirement;

[[Page 390]]

    (2) The anticipated price of the contract, including options, will 
not exceed--
    (i) $5,000,000 for a requirement within the North American Industry 
Classification System (NAICS) codes for manufacturing; or
    (ii) $3,000,000 for a requirement within any other NAICS code;
    (3) The requirement is not currently being performed by a non-
HUBZone small business concern;
    (4) The acquisition is greater than the simplified acquisition 
threshold (see part 13);
    (5) The HUBZone small business concern has been determined to be a 
responsible contractor with respect to performance; and
    (6) Award can be made at a fair and reasonable price.
    (b) The SBA has the right to appeal the contracting officer's 
decision not to make a HUBZone sole source award.

[63 FR 70272, Dec. 18, 1998, as amended at 65 FR 46057, July 26, 2000]



19.1307  Price evaluation preference for HUBZone small business concerns.

    (a) The price evaluation preference for HUBZone small business 
concerns shall be used in acquisitions conducted using full and open 
competition. The preference shall not be used--
    (1) In acquisitions expected to be less than or equal to the 
simplified acquisition threshold;
    (2) Where price is not a selection factor so that a price evaluation 
preference would not be considered (e.g., Architect/Engineer 
acquisitions);
    (3) Where all fair and reasonable offers are accepted (e.g., the 
award of multiple award schedule contracts).
    (b) The contracting officer shall give offers from HUBZone small 
business concerns a price evaluation preference by adding a factor of 10 
percent to all offers, except--
    (1) Offers from HUBZone small business concerns that have not waived 
the evaluation preference;
    (2) Otherwise successful offers from small business concerns;
    (3) Otherwise successful offers of eligible products under the Trade 
Agreements Act when the acquisition equals or exceeds the dollar 
threshold in 25.403; and
    (4) Otherwise successful offers where application of the factor 
would be inconsistent with a Memorandum of Understanding or other 
international agreement with a foreign government (see agency 
supplement).
    (c) The factor of 10 percent shall be applied on a line item basis 
or to any group of items on which award may be made. Other evaluation 
factors, such as transportation costs or rent-free use of Government 
facilities, shall be added to the offer to establish the base offer 
before adding the factor of 10 percent.
    (d) A concern that is both a HUBZone small business concern and a 
small disadvantaged business concern shall receive the benefit of both 
the HUBZone small business price evaluation preference and the small 
disadvantaged business price evaluation adjustment (see subpart 19.11). 
Each applicable price evaluation preference or adjustment shall be 
calculated independently against an offeror's base offer. These 
individual preference and adjustment amounts shall both be added to the 
base offer to arrive at the total evaluated price for that offer.

[63 FR 70272, Dec. 18, 1998, as amended at 64 FR 72419, Dec. 27, 1999]



19.1308  Contract clauses.

    (a) The contracting officer shall insert the clause 52.219-3, Notice 
of Total HUBZone Set-Aside, in solicitations and contracts for 
acquisitions that are set aside for HUBZone small business concerns 
under 19.1305 or 19.1306.
    (b) The contracting officer shall insert the clause at 52.219-4, 
Notice of Price Evaluation Preference for HUBZone Small Business 
Concerns, in solicitations and contracts for acquisitions conducted 
using full and open competition. The clause shall not be used in 
acquisitions that do not exceed the simplified acquisition threshold.

                         PARTS 20-21 [RESERVED]

[[Page 391]]



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 Definition.
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.
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.
22.404-12 Labor standards for contracts containing construction 
          requirements and option provisions that extend the term of the 
          contract.
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.

[[Page 392]]

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.
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 [Reserved]

 Subpart 22.13--Special Disabled Veterans, Veterans of the Vietnam Era, 
                       and Other Eligible Veterans

22.1300 Scope of subpart.
22.1301 Definition.
22.1302 Policy.
22.1303 Applicability.

[[Page 393]]

22.1304 Procedures.
22.1305 Waivers.
22.1306 Department of Labor notices and reports.
22.1307 Collective bargaining agreements.
22.1308 Complaint procedures.
22.1309 Actions because of noncompliance.
22.1310 Solicitation provision and contract clauses.

         Subpart 22.14--Employment of Workers with Disabilities

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.

Subpart 22.15--Prohibition of Acquisition of Products Produced by Forced 
                        or Indentured Child Labor

22.1500 Scope.
22.1501 Definitions.
22.1502 Policy.
22.1503 Procedures for acquiring end products on the List of Products 
          Requiring Contractor Certification as to Forced or Indentured 
          Child Labor.
22.1504 Violations and remedies.
22.1505 Solicitation provision and 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 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)(1) 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.
    (2) For use of project labor agreements, see 36.202(d).
    (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

[[Page 394]]

    (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)).

[48 FR 42258, Sept. 19, 1983, as amended at 27415, May 16, 2001]



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 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.

[[Page 395]]

    (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  Definition.

    Normal workweek, as used in this subpart, means, generally, a 
workweek of 40 hours. Outside the United States, its possessions, and 
Puerto Rico, a workweek longer than 40 hours shall be considered normal 
if:
    (1) The workweek does not exceed the norm for the area, as 
determined by local custom, tradition, or law; and
    (2) The hours worked in excess of 40 in the workweek are not 
compensated at a premium rate of pay.

[48 FR 42258, Sept. 19, 1983 as amended at 51 FR 12293, Apr. 9, 1986; 66 
FR 2130, Jan. 10, 2001]



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.

[[Page 396]]

    (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 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.

[[Page 397]]



                       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 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]

[[Page 398]]



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) When an overtime computation discloses underpayments, the 
responsible contractor or subcontractor must pay the affected employee 
any unpaid wages and pay liquidated damages to the Government. The 
contracting officer must assess liquidated damages at the rate of $10 
per affected employee for each calendar day on which the employer 
required or permitted the employee to work in excess of the standard 
workweek of 40 hours without paying overtime wages required by the Act.
    (b) If the contractor or subcontractor fails or refuses to comply 
with overtime pay requirements of the Act and the funds withheld by 
Federal agencies for labor standards violations do not cover the unpaid 
wages due laborers and mechanics and the liquidated damages due the 
Government, make payments in the following order--
    (1) Pay laborers and mechanics the wages they are owed (or prorate 
available funds if they do not cover the entire amount owed); and
    (2) Pay liquidated damages.
    (c) If the head of an agency finds that the administratively 
determined liquidated damages due under paragraph (a) of this section 
are incorrect, or that the contractor or subcontractor inadvertently 
violated the Act despite the exercise of due care, the agency head may--
    (1) Reduce the amount of liquidated damages assessed for liquidated 
damages of $500 or less;
    (2) Release the contractor or subcontractor from the liability for 
liquidated damages of $500 or less; or
    (3) Recommend that the Secretary of Labor reduce or waive liquidated 
damages over $500.
    (d) After the contracting officer determines the liquidated damages 
and the contractor makes appropriate payments, disburse any remaining 
assessments in accordance with agency procedures.

[65 FR 46065, July 26, 2000]



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.

[[Page 399]]

    (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, alteration, 
or repair in section 22.401.) Labor relations requirements prescribed in 
other subparts of part 22 may also apply.

[53 FR 4935, Feb. 18, 1988; 65 FR 46074, July 26, 2000]



22.401  Definitions.

    As used in this subpart--
    Building or work 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, 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 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 includes--
    (1) 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;
    (2) Apprentices, trainees, helpers, and, in the case of contracts 
subject to the Contract Work Hours and Safety

[[Page 400]]

Standards Act, watchmen and guards. The terms ``apprentice'' and 
``trainee'' are defined as follows:
    (i) Apprentice means (A) 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 (B) 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.
    (ii) 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.
    (3) 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
    (4) 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 
(3) 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 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 is defined as follows:
    (1) 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 (2) 
of this definition, used by the contractor or subcontractor during 
construction that, because of proximity, can reasonably be included in 
the site.
    (2) Except as provided in paragraph (3) 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.
    (3) 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 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

[[Page 401]]

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; 66 FR 2130, Jan. 10, 2001]



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, 
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,

[[Page 402]]

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.



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.

    (a) 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--
    (b) The Department of Labor regulations include--
    (1) Part 1, relating to Davis-Bacon Act minimum wage rates;
    (2) 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;
    (3) Part 5, relating to enforcement of the Davis-Bacon Act, Contract 
Work Hours and Safety Standards Act, and Copeland (Anti-Kickback) Act;
    (4) 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

[[Page 403]]

    (5) Part 7, relating to rules of practice by which contractors and 
other interested parties may appeal to the Department of Labor 
Administrative Review 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.
    (c) Refer 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 to the Administrator, Wage and Hour Division.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 2141, Jan. 10, 2001; 66 
FR 53480, Oct. 22, 2001]



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, 
unless the contracting officer exercises an option to extend the term of 
the contract (see 22.404-12). 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 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

[[Page 404]]


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, 
unless the contracting officer exercises an option to extend the term of 
the contract (see 22.404-12).

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53480, Oct. 22, 2001]



22.404-2  General requirements.

    (a) The contracting officer must incorporate only the appropriate 
wage determinations in solicitations and contracts and must designate 
the work to which each determination or part thereof applies. The 
contracting officer must not include project wage determinations in 
contracts or options other than those for which they are issued. When 
exercising an option to extend the term of a contract, the contracting 
officer must select the most current wage determination(s) from the same 
schedule(s) as the wage determination(s) incorporated into the contract.
    (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 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

[[Page 405]]

in Department of Labor All Agency Memoranda Numbers 130 and 131.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53480, Oct. 22, 2001]



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 
or exercising an option to extend the term of a contract.
    (d) 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.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53480, Oct. 22, 2001]



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.
    (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.

[[Page 406]]

    (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. 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. (1) The Department of Labor may modify a wage 
determination to make it current by specifying only the items being 
changed or by reissuing the entire determination with changes 
incorporated.
    (2) 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 
contracting agency must annotate the modification of the project wage 
determination with the date and time immediately upon receipt.
    (3) The need for inclusion of the 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 (annotated with the date and time immediately upon receipt) 
by the contracting agency, whichever occurs

[[Page 407]]

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 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).
    (d) The following applies when modifying a contract to exercise an 
option to extend the term of a contract:
    (1) A modified wage determination is effective if--
    (i) The contracting agency receives a written action from the 
Department of

[[Page 408]]

Labor prior to exercise of the option, or within 45 days after 
submission of a wage determination request (22.404-3(c)), whichever is 
later; or
    (ii) The Department of Labor publishes notice of modifications to 
general wage determinations in the Federal Register before exercise of 
the option.
    (2) If the contracting officer receives an effective modified wage 
determination either before or after execution of the contract 
modification to exercise the option, the contracting officer must modify 
the contract to incorporate the modified wage determination, and any 
changed wage rates, effective as of the date that the option to extend 
was effective.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53480, Oct. 22, 2001]



22.404-7  Correction of wage determinations containing clerical errors.

    Upon the Department of Labor'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 will be effective immediately, and will apply to any 
solicitation or active contract. Before contract award, the contracting 
officer must follow the procedures in 22.404-5(b)(1) or (2)(i) or (ii) 
in sealed bidding, and the procedures in 22.404-5(c)(3) or (4) in 
negotiations. After contract award, the contracting officer must follow 
the procedures at 22.404-6(b)(5), except that for contract modifications 
to exercise an option to extend the term of the contract, the 
contracting officer must follow the procedures at 22.404-6(d)(2).

[66 FR 53480, Oct. 22, 2001]



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.
    (b) The contracting officer shall--

[[Page 409]]

    (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 must keep a copy of the applicable wage determination 
(and any approved additional classifications) posted at the site of the 
work in a prominent place where the workers can easily see it. 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.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53481, Oct. 22, 2001]



22.404-11  Wage determination appeals.

    The Secretary of Labor has established an Administrative Review 
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.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53481, Oct. 22, 2001]



22.404-12   Labor standards for contracts containing construction requirements and option provisions that extend the term of the contract.

    (a) Each time the contracting officer exercises an option to extend 
the term of a contract for construction, or a contract that includes 
substantial and segregable construction work, the contracting officer 
must modify the contract to incorporate the most current wage 
determination.
    (b) If a contract with an option to extend the term of the contract 
has indefinite-delivery or indefinite-quantity construction 
requirements, the contracting officer must incorporate the wage 
determination incorporated into the contract at the exercise of the 
option into task orders issued during that option period. The wage 
determination will be effective for the complete period of performance 
of those task orders without further revision.
    (c) The contracting officer must include in fixed-price contracts a 
clause that specifies one of the following methods, suitable to the 
interest of the Government, to provide an allowance for any increases or 
decreases in labor costs that result from the inclusion of the current 
wage determination at the exercise of an option to extend the term of 
the contract:
    (1) The contracting officer may provide the offerors the opportunity 
to bid or propose separate prices for each option period. The 
contracting officer must not further adjust the contract price as a 
result of the incorporation of a new or revised wage determination at 
the exercise of each option to extend the term of the contract. 
Generally, this method is used in construction-only contracts (with 
options to extend the term) that are not expected to exceed a total of 3 
years.
    (2) The contracting officer may include in the contract a separately 
specified pricing method that permits an adjustment to the contract 
price or contract labor unit price at the exercise of each option to 
extend the term of the contract. At the time of option exercise, the 
contracting officer must incorporate a new wage determination into the 
contract, and must apply the specific pricing method to calculate the 
contract price adjustment. An example of a contract pricing method that 
the contracting officer might separately specify is incorporation in the 
solicitation and resulting contract of the pricing data from an annually 
published unit pricing book (e.g., the R.S. Means Cost Estimating 
System, or the U.S. Army Computer-Aided Cost Estimating System), which 
is multiplied in the contract by a factor proposed by the contractor 
(e.g., .95 or 1.1). At option exercise, the contracting officer

[[Page 410]]

incorporates the pricing data from the latest annual edition of the unit 
pricing book, multiplied by the factor agreed to in the basic contract. 
The contracting officer must not further adjust the contract price as a 
result of the incorporation of the new or revised wage determination.
    (3) The contracting officer may provide for a contract price 
adjustment based solely on a percentage rate determined by the 
contracting officer using a published economic indicator incorporated 
into the solicitation and resulting contract. At the exercise of each 
option to extend the term of the contract, the contracting officer will 
apply the percentage rate, based on the economic indicator, to the 
portion of the contract price or contract unit price designated in the 
contract clause as labor costs subject to the provisions of the Davis-
Bacon Act. The contracting officer must insert 50 percent as the 
estimated portion of the contract price that is labor unless the 
contracting officer determines, prior to issuance of the solicitation, 
that a different percentage is more appropriate for a particular 
contract or requirement. This percentage adjustment to the designated 
labor costs must be the only adjustment made to cover increases in wages 
and/or benefits resulting from the incorporation of a new or revised 
wage determination at the exercise of the option.
    (4) The contracting officer may provide a computation method to 
adjust the contract price to reflect the contractor's actual increase or 
decrease in wages and fringe benefits (combined) to the extent that the 
increase is made to comply with, or the decrease is voluntarily made by 
the contractor as a result of incorporation of, a new or revised wage 
determination at the exercise of the option to extend the term of the 
contract. Generally, this method is appropriate for use only if contract 
requirements are predominately services subject to the Service Contract 
Act and the construction requirements are substantial and segregable. 
The methods used to adjust the contract price for the service 
requirements and the construction requirements would be similar.

[66 FR 53481, Oct. 22, 2001]



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.

[[Page 411]]



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, 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.

[[Page 412]]

    (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 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.
    (e) In each option to extend the term of the contract, if any 
laborer or mechanic is to be employed during the option in a 
classification that is not listed (or no longer listed) on the wage 
determination incorporated in that option, the contracting officer must 
require that the contractor submit a request for conformance using the 
procedures noted in paragraphs (a) through (d) of this section.

[53 FR 4935, Feb. 18, 1988, as amended at 57 FR 44263, Sept. 24, 1992; 
59 FR 67038, Dec. 28, 1994; 66 FR 53481, Oct. 22, 2001]



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

[[Page 413]]

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 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.

    Conduct 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 agency responsibilities. Conduct an investigation 
when a compliance check indicates that substantial or willful violations 
may have occurred or violations have not been corrected.
    (1) The investigation must--
    (i) Include all aspects of the contractor's compliance with contract 
labor standards requirements;
    (ii) Not be limited to specific areas raised in a complaint or 
uncovered during compliance checks; and

[[Page 414]]

    (iii) Use personnel familiar with labor laws and their application 
to contracts.
    (2) Do not disclose contractor employees' oral or written statements 
taken during an investigation or the employee's identity to anyone other 
than an authorized Government official without that employee's prior 
signed consent.
    (3) Send a written request to the Administrator, Wage and Hour 
Division, to obtain--
    (i) Investigation and enforcement instructions; or
    (ii) Available pertinent Department of Labor files.
    (4) Obtain permission from the Department of Labor before disclosing 
material obtained from Labor Department files, other than computations 
of back wages and liquidated damages and summaries of back wages due, to 
anyone other than Government contract administrators.
    (b) Investigation report. The contracting officer must review the 
investigation report on receipt and make preliminary findings. The 
contracting officer normally must not base adverse findings solely on 
employee statements that the employee does not wish to have disclosed. 
However, if the investigation establishes a pattern of possible 
violations that are based on employees' statements that are not 
authorized for disclosure, the pattern itself may support a finding of 
noncompliance.
    (c) Contractor notification. After completing the review, the 
contracting officer must--
    (1) Provide the contractor any written preliminary findings and 
proposed corrective actions, and notice that the contractor has the 
right to request that the basis for the findings be made available and 
to submit written rebuttal information.
    (2) Upon request, provide the contractor with rationale for the 
findings. However, under no circumstances will the contracting officer 
permit the contractor to examine the investigation report. Also, the 
contracting officer must not disclose the identity of any employee who 
filed a complaint or who was interviewed, without the prior consent of 
the employee.
    (3)(i) The contractor may rebut the findings in writing within 60 
days after it receives a copy of the preliminary findings. The rebuttal 
becomes part of the official investigation record. If the contractor 
submits a rebuttal, evaluate the preliminary findings and notify the 
contractor of the final findings.
    (ii) If the contracting officer does not receive a timely rebuttal, 
the contracting officer must consider the preliminary findings final.
    (4) If appropriate, request the contractor to make restitution for 
underpaid wages and assess liquidated damages. If the request includes 
liquidated damages, the request must state that the contractor has 60 
days to request relief from such assessment.
    (d) Contracting officer's report. After taking the actions 
prescribed in paragraphs (b) and (c) of this subsection--
    (1) The contracting officer must prepare and forward a report of any 
violations, including findings and supporting evidence, to the agency 
head. Standard Form 1446, Labor Standards Investigation Summary Sheet, 
is the first page of the report; and
    (2) The agency head must process the report as follows:
    (i) The contracting officer must send a detailed enforcement report 
to the Administrator, Wage and Hour Division, within 60 days after 
completion of the investigation, if--
    (A) A contractor or subcontractor underpaid by $1,000 or more;
    (B) The contracting officer believes that the violations are 
aggravated or willful (or there is reason to believe that the contractor 
has disregarded its obligations to employees and subcontractors under 
the Davis-Bacon Act);
    (C) The contractor or subcontractor has not made restitution; or
    (D) Future compliance has not been assured.
    (ii) If the Department of Labor expressly requested the 
investigation and none of the conditions in paragraph (d)(2)(i) of this 
subsection exist, submit a summary report to the Administrator, Wage and 
Hour Division. The report must include--
    (A) A summary of any violations;
    (B) The amount of restitution paid;

[[Page 415]]

    (C) The number of workers who received restitution;
    (D) The amount of liquidated damages assessed under the Contract 
Work Hours and Safety Standards Act;
    (E) Corrective measures taken; and
    (F) Any information that may be necessary to review any 
recommendations for an appropriate adjustment in liquidated damages.
    (iii) If none of the conditions in paragraphs (d)(2)(i) or (ii) of 
this subsection are present, close the case and retain the report in the 
appropriate contract file.
    (iv) If substantial evidence is found that violations are willful 
and in violation of a criminal statute, (generally 18 U.S.C. 874 or 
1001), forward the report (supplemented if necessary) to the Attorney 
General of the United States for prosecution if the facts warrant. 
Notify the Administrator, Wage and Hour Division, when the report is 
forwarded for the Attorney General's consideration.
    (e) Department of Labor investigations. The Department of Labor will 
furnish the contracting officer an enforcement report detailing 
violations found and any corrective action taken by the contractor, in 
investigations that disclose--
    (1) Underpayments totaling $1,000 or more;
    (2) Aggravated or willful violations (or, when the contracting 
officer believes that the contractor has disregarded its obligations to 
employees and subcontractors under the Davis-Bacon Act); or
    (3) Potential assessment of liquidated damages under the Contract 
Work Hours and Safety Standards Act.
    (f) Other investigations. The Department of Labor will provide a 
letter summarizing the findings of the investigation to the contracting 
officer for all investigations that are not described in paragraph (e) 
of this subsection.

[65 FR 46065, July 26, 2000]



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 must withhold from payments 
due the contractor an amount equal to the estimated wage underpayment 
and estimated liquidated damages due the United States under the 
Contract Work Hours and Safety Standards Act. (See 22.302.)
    (1) If the contracting officer believes a violation exists or upon 
request of the Department of Labor, the contracting officer must 
withhold funds from any current Federal contract or Federally assisted 
contract with the same prime contractor that is subject to either Davis-
Bacon Act or Contract Work Hours and Safety Standards Act requirements.
    (2) If a subsequent investigation confirms violations, the 
contracting officer must adjust the withholding as necessary. However, 
if the Department of Labor requested the withholding, the contracting 
officer must not reduce or release the withholding without written 
approval of the Department of Labor.
    (3) Use withheld funds as provided in paragraph (c) of this 
subsection 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 the Department of Labor, 
must suspend any further payment, advance, or guarantee of funds until 
the violations cease or until the agency has withheld sufficient funds 
to compensate employees for back wages, and to cover any liquidated 
damages due.
    (c) Disposition of contract payments withheld or suspended. (1) 
Forwarding wage underpayments to the Secretary of the Treasury. Upon 
final administrative determination, if the contractor or subcontractor 
has not made restitution, the contracting officer must forward to the 
appropriate disbursing office Standard Form (SF) 1093, Schedule of 
Withholdings Under the Davis-Bacon Act (40 U.S.C. 276(a)) and/or 
Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333). Attach 
to the SF 1093 a list of the name, social security number, and last 
known address of

[[Page 416]]

each affected employee; the amount due each employee; employee claims if 
feasible; and a brief rationale for restitution. Also, the contracting 
officer must indicate if restitution was not made because the employee 
could not be located. The Government may assist underpaid employees in 
preparation of their claims. The disbursing office must submit the SF 
1093 with attached additional data and the funds withheld (by check) to 
the Secretary of the Treasury.
    (2) Returning of withheld funds to contractor. When funds withheld 
exceed the amount required to satisfy validated wage underpayments and 
assessed liquidated damages, return the funds to the contractor.
    (3) Limitation on forwarding or returning funds. If the Department 
of Labor requested the withholding or if the findings are disputed (see 
22.406-10(e)), the contracting officer must not forward the funds to the 
Secretary of the Treasury, or return them to the contractor without 
approval by the Department of Labor.
    (4) Liquidated damages. Upon final administrative determination, the 
contracting officer must dispose of funds withheld or collected for 
liquidated damages in accordance with agency procedures.

[65 FR 46066, July 26, 2000]



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 Administrative Review 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.

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53481, Oct. 22, 2001]

[[Page 417]]



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.



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

[[Page 418]]

45.301) may require covered construction work (see 22.402(b)) to be 
performed in the United States.
    (e) Insert the clause at 52.222-30, Davis-Bacon Act--Price 
Adjustment (None or Separately Specified Pricing Method), in 
solicitations and contracts if the contract is expected to be--
    (1) A fixed-price contract subject to the Davis-Bacon Act that will 
contain option provisions by which the contracting officer may extend 
the term of the contract, and the contracting officer determines the 
most appropriate contract price adjustment method is the method at 
22.404-12(c)(1) or (2); or
    (2) A cost-reimbursable type contract subject to the Davis-Bacon Act 
that will contain option provisions by which the contracting officer may 
extend the term of the contract.
    (f) Insert the clause at 52.222-31, Davis-Bacon Act--Price 
Adjustment (Percentage Method), in solicitations and contracts if the 
contract is expected to be a fixed-price contract subject to the Davis-
Bacon Act that will contain option provisions by which the contracting 
officer may extend the term of the contract, and the contracting officer 
determines the most appropriate contract price adjustment method is the 
method at 22.404-12(c)(3).
    (g) Insert the clause at 52.222-32, Davis-Bacon Act--Price 
Adjustment (Actual Method), in solicitations and contracts if the 
contract is expected to be a fixed-price contract subject to the Davis-
Bacon Act that will contain option provisions by which the contracting 
officer may extend the term of the contract, and the contracting officer 
determines the most appropriate method to establish contract price is 
the method at 22.404-12(c)(4).

[53 FR 4935, Feb. 18, 1988, as amended at 66 FR 53481, Oct. 22, 2001]

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 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.

[[Page 419]]

    (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 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

[[Page 420]]

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 contracting officers 
should contact them in all situations required by this subpart, unless 
otherwise specified:
    (a) The Region I and Region II office located in New York, New York, 
has jurisdiction for Connecticut, Maine, Massachusetts, New Hampshire, 
New Jersey, New York, Puerto Rico, Rhode Island, Vermont, and the Virgin 
Islands.
    (b) The Region III office located in Philadelphia, Pennsylvania, has 
jurisdiction for Delaware, the District of Columbia, Maryland, 
Pennsylvania, Virginia, and West Virginia.
    (c) The Region IV office located in Atlanta, Georgia, has 
jurisdiction for Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, and Tennessee.
    (d) The Region V and Region VII office located in Chicago, Illinois, 
has jurisdiction for Illinois, Indiana, Iowa, Kansas, Michigan, 
Minnesota, Missouri, Nebraska, Ohio, and Wisconsin.
    (e) The Region VI and Region VIII office located in Dallas, Texas, 
has jurisdiction for Arkansas, Colorado, Louisiana, Montana, New Mexico, 
North Dakota, Oklahoma, South Dakota, Texas, Utah, and Wyoming.
    (f) The Region IX and Region X office located in San Francisco, 
California, has jurisdiction for Alaska, Arizona, California, Guam, 
Hawaii, Idaho, Nevada, Oregon, and Washington.

[64 FR 32748, June 17, 1999]



22.610  Contract clause.

    The contracting officer shall insert the clause at 52.222-20, Walsh-
Healey 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 contractors and subcontractors.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70283, Dec. 18, 1998]



22.801  Definitions.

    As used in this subpart--
    Affirmative action program means a contractor's program that 
complies with Department of Labor regulations to ensure equal 
opportunity in employment to minorities and women.
    Compliance evaluation means any one or combination of actions that 
the Office of Federal Contract Compliance Programs (OFCCP) may take to 
examine a Federal contractor's compliance with one or more of the 
requirements of E.O. 11246.
    Contractor includes the terms ``prime contractor'' and 
``subcontractor.''
    Deputy Assistant Secretary means the Deputy Assistant Secretary for 
Federal Contract Compliance, U.S. Department of Labor, or a designee.
    Equal Opportunity clause means the clause at 52.222-26, Equal 
Opportunity, as prescribed in 22.810(e).
    E.O. 11246 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 E.O. 11246 by the Secretary of Labor or a designee.
    Prime contractor means any person who holds, or has held, a 
Government contract subject to E.O. 11246.
    Recruiting and training agency means any person who refers workers 
to any contractor or provides or supervises apprenticeship or training 
for employment by any contractor.
    Site of construction means the general physical location of any 
building, highway, or other change or improvement to real property that 
is undergoing

[[Page 421]]

construction, rehabilitation, alteration, conversion, extension, 
demolition, or repair; and any temporary location or facility at which a 
contractor or other participating party meets a demand or performs a 
function relating to a Government contract or subcontract.
    Subcontract 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)--
    (1) For the purchase, sale, or use of personal property or 
nonpersonal services that, in whole or in part, are necessary to the 
performance of any one or more contracts; or
    (2) Under which any portion of the contractor's obligation under any 
one or more contracts is performed, undertaken, or assumed.
    Subcontractor means any person who holds, or has held, a subcontract 
subject to E.O. 11246. The term first-tier subcontractor means a 
subcontractor holding a subcontract with a prime contractor.
    United States means the several states, the District of Columbia, 
the Virgin Islands, the Commonwealth of Puerto Rico, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, and Wake 
Island.

[63 FR 70283, Dec. 18, 1998]



22.802  General.

    (a) Executive Order 11246, as amended, sets forth the Equal 
Opportunity clause and requires that all agencies (1) include this 
clause in all nonexempt 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 Deputy 
Assistant Secretary for reasons of noncompliance with the requirements 
of E.O. 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 E.O. 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).

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70283, 70285, Dec. 18, 
1998]



22.803  Responsibilities.

    (a) The Secretary of Labor is responsible for the--
    (1) Administration and enforcement of prescribed parts of E.O. 
11246; and
    (2) Adoption of rules and regulations and the issuance of orders 
necessary to achieve the purposes of E.O. 11246.
    (b) The Secretary of Labor has delegated authority and assigned 
responsibility to the Deputy Assistant Secretary for carrying out the 
responsibilities assigned to the Secretary by E.O. 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 E.O. 11246 and implementing 
regulations is questioned, the contracting officer shall forward the 
matter to the Deputy Assistant Secretary, through agency channels, for 
resolution.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70283, 70285, Dec. 18, 
1998]



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 either a contract 
or subcontract of $50,000 or more, or 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. Each contractor and 
subcontractor shall develop its written affirmative action programs 
within 120 days from the commencement of its

[[Page 422]]

first such Government contract, subcontract, or Government bill of 
lading.

[63 FR 70284, Dec. 18, 1998]



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 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.
    (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.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70284, Dec. 18, 1998]



22.805  Procedures.

    (a) Preaward clearances for contracts and subcontracts of $10 
million or more (excluding construction). (1) Except as provided in 
paragraphs (a)(4) and (a)(8) of this section, if the estimated amount of 
the contract or subcontract is $10 million or more, the contracting 
officer shall request clearance from the appropriate OFCCP regional 
office before--
    (i) Award of any contract, including any indefinite delivery 
contract or letter contract; or
    (ii) Modificaton of an existing contract for new effort that would 
constitute a contract award.
    (2) Preaward clearance for each proposed contract and for each 
proposed first-tier subcontract of $10 million or more shall be 
requested by the contracting officer directly from the OFCCP regional 
office(s). Verbal requests shall be confirmed by letter or facsimile 
transmission.
    (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 clearance 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 clearance request action should be based on 
the location of the recruiting and training agency in the United States.
    (4) The contracting officer does not need to request a preaward 
clearance if--
    (i) The specific proposed contractor is listed in OFCCP's National 
Preaward Registry via the Internet at http://www.dol-esa.gov/preaward/;
    (ii) The projected award date is within 24 months of the proposed 
contractor's Notice of Compliance completion date in the Registry; and
    (iii) The contracting officer documents the Registry review in the 
contract file.
    (5) The contracting officer shall include the following information 
in the preaward clearance request:

[[Page 423]]

    (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 $10 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 performance of the prime contract and first-
tier subcontracts estimated at $10 million or more, if known.
    (vi) The estimated dollar amount of the contract and each first-tier 
subcontract, if known.
    (6) The contracting officer shall allow as much time as feasible 
before award for the conduct of necessary compliance evaluation by 
OFCCP. As soon as the apparently successful offeror can be determined, 
the contracting officer shall process a preaward clearance request in 
accordance with agency procedures, assuring, if possible, that the 
preaward clearance request is submitted to the OFCCP regional office at 
least 30 days before the proposed award date.
    (7) Within 15 days of the clearance request, OFCCP will inform the 
awarding agency of its intention to conduct a preaward compliance 
evaluation. If OFCCP does not inform the awarding agency within that 
period of its intention to conduct a preaward compliance evaluation, 
clearance shall be presumed and the awarding agency is authorized to 
proceed with the award. If OFCCP informs the awarding agency of its 
intention to conduct a preaward compliance evaluation, OFCCP shall be 
allowed an additional 20 days after the date that it so informs the 
awarding agency to provide its conclusions. If OFCCP does not provide 
the awarding agency with its conclusions within that period, clearance 
shall be presumed and the awarding agency is authorized to proceed with 
the award.
    (8) If the procedures specified in paragraphs (a)(6) and (a)(7) of 
this section 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 evaluation 
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 evaluation from the OFCCP regional office.
    (9) If, under the provisions of paragraph (a)(8) of this section, a 
postaward evaluation determines the contractor to be in noncompliance 
with E.O. 11246, the Deputy Assistant Secretary 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 
Employment Opportunity Is The Law. These shall be obtained in accordance 
with agency procedures.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70284, Dec. 18, 1998]



22.806  Inquiries.

    (a) An inquiry from a contractor regarding status of its compliance 
with E.O. 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 E.O. 11246 shall be 
referred to the Deputy Assistant Secretary.

[63 FR 70284, Dec. 18, 1998]



22.807  Exemptions.

    (a) Under the following exemptions, all or part of the requirements 
of E.O. 11246 may be excluded from a contract subject to E.O. 11246:

[[Page 424]]

    (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 Deputy Assistant Secretary in writing within 
30 days.
    (2) Specific contracts. The Deputy Assistant Secretary may exempt an 
agency from requiring the inclusion of one or more of the requirements 
of E.O. 11246 in any contract if the Deputy Assistant Secretary 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 
Deputy Assistant Secretary finds it impracticable to act upon each 
request individually or if group exemptions will contribute to 
convenience in the administration of E.O. 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 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 E.O. 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 
E.O. 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 E.O. 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 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 E.O. 11246, rules and regulations of the 
Secretary of Labor, and applicable clauses in the contract.
    (5) Facilities not connected with contracts. The Deputy Assistant 
Secretary may exempt from the requirements of E.O. 11246 any of a 
contractor's facilities that the Deputy Assistant Secretary finds to be 
in all respects separate and distinct from activities of the contractor 
related to performing the contract, provided, that the Deputy Assistant 
Secretary also finds that the exemption will not interfere with, or 
impede the effectiveness of, E.O. 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 paragraph (a)(2) or (b)(5) of this 
section, the contracting officer shall submit, under agency procedures, 
a detailed justification for omitting all, or part of, the requirements 
of E.O. 11246.

[[Page 425]]

Requests for exemptions under paragraph (a)(2) or (b)(5) of this section 
shall be submitted to the Deputy Assistant Secretary for approval.
    (d) The Deputy Assistant Secretary may withdraw the exemption for a 
specific contract, or group of contracts, if the Deputy Assistant 
Secretary deems that such action is necessary and appropriate to achieve 
the purposes of E.O. 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 days before the bid 
opening date.

[48 FR 42258, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987; 
63 FR 70284, 70285, Dec. 18, 1998]



22.808  Complaints.

    Complaints received by the contracting officer alleging violation of 
the requirements of E.O. 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.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70285, Dec. 18, 1998]



22.809  Enforcement.

    Upon the written direction of the Deputy Assistant Secretary, 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 E.O. 11246, the regulations of the Secretary of Labor, or the 
applicable contract clauses:
    (a) Publication of the names of the contractor or its 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 E.O. 11246 and the regulations of the Secretary of 
Labor.
    (d) Referral by the Deputy Assistant Secretary of any matter arising 
under E.O. 11246 to the Department of Justice or to the Equal Employment 
Opportunity Commission (EEOC) for the institution of appropriate civil 
or criminal proceedings.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 70285, Dec. 18, 1998]



22.810  Solicitation provisions and contract clauses.

    (a) When a contract is contemplated that will include the clause at 
52.222-26, Equal Opportunity, the contracting officer shall insert--
    (1) The clause at 52.222-21, Prohibition of Segregated Facilities, 
in the solicitation and contract; and
    (2) The provision at 52.222-22, Previous Contracts and Compliance 
Reports, in the solicitation.
    (b) The contracting officer shall insert the provision at 52.222-23, 
Notice of Requirement for Affirmative Action to Ensure Equal Employment 
Opportunity for Construction, 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 Evaluation, 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 be $10 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 
the contract is exempt from all of the requirements of E.O. 11246 (see 
22.807(a)). If the contract is exempt from one or more, but not

[[Page 426]]

all, of the requirements of E.O. 11246, the contracting officer shall 
use the 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, when the amount of the contract 
is expected to be in excess of $10,000.
    (g) The contracting officer shall insert the clause at 52.222-29, 
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; 63 FR 34060, June 22, 1998; 63 FR 70285, Dec. 
18, 1998]



             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 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.

    As used in this subpart--
    Act or Service Contract Act means the Service Contract Act of 1965.
    Agency labor advisor means an individual responsible for advising 
contracting agency officials on Federal contract labor matters.
    Contractor includes a subcontractor at any tier whose subcontract is 
subject to the provisions of the Act.
    Multiple year contracts 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 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 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

[[Page 427]]

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 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; 66 
FR 2130, Jan. 10, 2001]



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 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]

[[Page 428]]



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;
    (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

[[Page 429]]

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.
    (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,

[[Page 430]]

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.
    (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.

[[Page 431]]



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 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

[[Page 432]]

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 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

[[Page 433]]

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.
    (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

[[Page 434]]

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 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.

[[Page 435]]



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 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

[[Page 436]]

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 must 
submit the Notice to the Wage and Hour Division (see 22.1009-3 (a) and 
(b)).
    (b) Include the following information in the notice of contract 
action (see 5.207(g)(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.
    (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 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.

[54 FR 19816, May 8, 1989, as amended at 64 FR 51840, Sept. 24, 1999; 66 
FR 27414, May 16, 2001]

[[Page 437]]



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).



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

[[Page 438]]

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 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

[[Page 439]]

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 
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,

[[Page 440]]

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 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.

[[Page 441]]



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 
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

[[Page 442]]

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]



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

[[Page 443]]

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.

[48 FR 42258, Sept. 19, 1983, as amended at 51 FR 2665, Jan. 17, 1986; 
57 FR 60582, Dec. 21, 1992; 65 FR 36014, June 6, 2000]



22.1102  Definition.

    Professional employee, as used in this subpart, 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.

[48 FR 42258, Sept. 19, 1983, as amended at 66 FR 2130, Jan. 10, 2001]



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 [Reserved]

[[Page 444]]



 Subpart 22.13--Special Disabled Veterans, Veterans of the Vietnam Era, 
                       and Other Eligible Veterans

    Source: 66 FR 53488, Oct. 22, 2001, unless otherwise noted.



22.1300  Scope of subpart.

    This subpart prescribes policies and procedures for implementing the 
Vietnam Era Veterans' Readjustment Assistance Act of 1972 (38 U.S.C. 
4211 and 4212) (the Act); Executive Order 11701, January 24, 1973 (3 CFR 
1971-1975 Comp., p. 752); the regulations of the Secretary of Labor (41 
CFR Part 60-250 and Part 61-250); and the Veterans Employment 
Opportunities Act of 1998, Public Law 105-339.



22.1301  Definition.

    United States, as used in this subpart, means the States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
of the Northern Mariana Islands, American Samoa, Guam, the Virgin 
Islands of the United States, and Wake Island.



22.1302  Policy.

    (a) Contractors and subcontractors, when entering into contracts or 
subcontracts subject to the Act, must--
    (1) List all employment openings, with the appropriate local 
employment service office except for--
    (i) Executive and top management positions;
    (ii) Positions to be filled from within the contractor's 
organization; and
    (iii) Positions lasting three days or less.
    (2) Take affirmative action to employ, and advance in employment, 
qualified special disabled veterans, veterans of the Vietnam era, and 
other eligible veterans without discrimination based on their disability 
or veteran's status.
    (b) Except for contracts for commercial items or contracts that do 
not exceed the simplified acquisition threshold, contracting officers 
must not obligate or expend funds appropriated for the agency for a 
fiscal year to enter into a contract for the procurement of personal 
property and nonpersonal services (including construction) with a 
contractor that has not submitted a required annual Form VETS-100, 
Federal Contractor Veterans' Employment Report (VETS-100 Report), with 
respect to the preceding fiscal year if the contractor was subject to 
the reporting requirements of 38 U.S.C. 4212(d) for that fiscal year.



22.1303  Applicability.

    (a) The Act applies to all contracts and subcontracts for personal 
property and nonpersonal services (including construction) of $25,000 or 
more except as waived by the Secretary of Labor.
    (b) The requirements of the clause at 52.222-35, Equal Opportunity 
for Special Disabled Veterans, Veterans of the Vietnam Era, and Other 
Eligible Veterans, in any contract with a State or local government (or 
any agency, instrumentality, or subdivision) do not apply to any agency, 
instrumentality, or subdivision of that government that does not 
participate in work on or under the contract.
    (c) The Act requires submission of the VETS-100 Report in all cases 
where the contractor or subcontractor has received an award of $25,000 
or more, except for awards to State and local governments, and foreign 
organizations where the workers are recruited outside of the United 
States.



22.1304  Procedures.

    To verify if a proposed contractor is current with its submission of 
the VETS-100 Report, the contracting officer may--
    (a) Query the Department of Labor's VETS-100 Database via the 
Internet at http://www.vets100.cudenver.edu/vets100search.htm using the 
validation code ``vets'' to proceed with the search in the database; or
    (b) Contact the VETS-100 Reporting Systems via e-mail at 
[email protected] for confirmation, if the proposed contractor 
represents that it has submitted the VETS-100 Report and is not listed 
in the database.



22.1305  Waivers.

    (a) The Deputy Assistant Secretary for Federal Contract Compliance 
Programs, Department of Labor (Deputy Assistant Secretary of Labor), may

[[Page 445]]

waive any or all of the terms of the clause at 52.222-35, Equal 
Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, 
and Other Eligible Veterans for--
    (1) Any contract if a waiver is 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) The head of the agency 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 the agency must notify the Deputy Assistant Secretary of 
Labor in writing within 30 days.
    (c) The contracting officer must submit requests for waivers in 
accordance with agency procedures.
    (d) The Deputy Assistant Secretary of Labor may withdraw an approved 
waiver for a specific contract or group of contracts to be awarded, when 
in the Deputy's judgment such action is necessary to achieve the 
purposes of the Act. The withdrawal does not apply to awarded contracts. 
For procurements entered into by sealed bidding, such withdrawal does 
not apply unless the withdrawal is made more than 10 calendar days 
before the date set for the opening of bids.



22.1306  Department of Labor notices and reports.

    (a) The contracting officer must furnish to the contractor 
appropriate notices for posting when they are prescribed by the Deputy 
Assistant Secretary of Labor (see http://www2.dol.gov/dol/esa/public/
ofcp--org.htm).
    (b) The Act requires contractors and subcontractors to submit a 
report at least annually to the Secretary of Labor regarding employment 
of special disabled veterans, veterans of the Vietnam era, and other 
eligible veterans unless all of the terms of the clause at 52.222-35, 
Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam 
Era, and Other Eligible Veterans, have been waived (see 22.1305). The 
contractor and subcontractor must use Form VETS-100, Federal Contractor 
Veterans'' Employment Report, to submit the required reports.



22.1307  Collective bargaining agreements.

    If performance under the clause at 52.222-35, Equal Opportunity for 
Special Disabled Veterans, Veterans of the Vietnam Era, and Other 
Eligible Veterans, may necessitate a revision of a collective bargaining 
agreement, the contracting officer must 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 may discuss with the 
contractor or any labor representative any aspect of the collective 
bargaining agreement.



22.1308  Complaint procedures.

    Following agency procedures, the contracting office must forward any 
complaints received about the administration of the Act to the 
Veterans'' Employment and Training Service of the Department of Labor, 
or through the local Veterans' Employment Representative or designee, at 
the local State employment office. The Deputy Assistant Secretary of 
Labor is responsible for investigating complaints.



22.1309  Actions because of noncompliance.

    The contracting officer must 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, Equal Opportunity for 
Special Disabled Veterans, Veterans of the Vietnam Era, and Other 
Eligible Veterans. These sanctions (see 41 CFR 60-250.66) may include--
    (a) Withholding payments;
    (b) Termination or suspension of the contract; or
    (c) Debarment of the contractor.

[[Page 446]]



22.1310  Solicitation provision and contract clauses.

    (a)(1) Insert the clause at 52.222-35, Equal Opportunity for Special 
Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible 
Veterans, in solicitations and contracts if the expected value is 
$25,000 or more, except when--
    (i) Work is performed outside the United States by employees 
recruited outside the United States; or
    (ii) The Deputy Assistant Secretary of Labor has waived, in 
accordance with 22.1305(a) or the head of the agency has waived, in 
accordance with 22.1305(b) all of the terms of the clause.
    (2) If the Deputy Assistant Secretary of Labor or the head of the 
agency waives one or more (but not all) of the terms of the clause, use 
the basic clause with its Alternate I.
    (b) Insert the clause at 52.222-37, Employment Reports on Special 
Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible 
Veterans, in solicitations and contracts containing the clause at 
52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of 
the Vietnam Era, and Other Eligible Veterans.
    (c) Insert the provision at 52.222-38, Compliance with Veterans' 
Employment Reporting Requirements, in solicitations when it is 
anticipated the contract award will exceed the simplified acquisition 
threshold and the contract is not for acquisition of commercial items.



         Subpart 22.14--Employment of Workers with Disabilities



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 individuals with disabilities, without 
discrimination based on their physical or mental disability.

[63 FR 34074, June 22, 1998]



22.1402  Applicability.

    (a) Section 503 of the Act applies to all Government contracts in 
excess of $10,000 for supplies and services (including construction) 
except as waived by the Secretary of Labor. The clause at 52.222-36, 
Affirmative Action for Workers with Disabilities, implements the Act.
    (b) The requirements of the clause at 52.222-36, Affirmative Action 
for Workers with Disabilities, 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.

[63 FR 34074, June 22, 1998]



22.1403  Waivers.

    (a) The agency head, with the concurrence of the Deputy Assistant 
Secretary for Federal Contract Compliance of the U.S. Department of 
Labor (Deputy Assistant Secretary), may waive any or all of the terms of 
the clause at 52.222-36, Affirmative Action for Workers with 
Disabilities, 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 
Deputy Assistant Secretary, 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

[[Page 447]]

notify the Deputy Assistant Secretary 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 Deputy Assistant Secretary 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 days 
before the date set for bid opening.

[48 FR 42258, Sept. 19, 1983, as amended at 52 FR 19803, May 27, 1987; 
63 FR 34074, June 22, 1998]



22.1404  Department of Labor notices.

    The contracting officer shall furnish to the contractor appropriate 
notices that state the contractor's obligations and the rights of 
individuals with disabilities. The contracting officer may obtain these 
notices from the Office of Federal Contract Compliance Programs (OFCCP) 
regional office.

[63 FR 34074, June 22, 1998]



22.1405  Collective bargaining agreements.

    If performance under the clause at 52.222-36, Affirmative Action for 
Workers with Disabilities, 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.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 34074, June 22, 1998]



22.1406  Complaint procedures.

    Following agency procedures, the contracting office shall forward 
any complaints received about the administration of the Act to the 
Deputy Assistant Secretary for Federal Contract Compliance, 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.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 34074, June 22, 1998]



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 
Workers with Disabilities. These sanctions (see 41 CFR 60-741.66) may 
include--
    (a) Withholding from payments otherwise due;
    (b) Termination or suspension of the contract; or
    (c) Debarment of the contractor.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 34074, June 22, 1998]



22.1408  Contract clause.

    (a) The contracting officer shall insert the clause at 52.222-36, 
Affirmative Action for Workers with Disabilities, in solicitations and 
contracts that exceed $10,000 or are expected to exceed $10,000, except 
when--
    (1) Work is to be performed outside the United States by employees 
recruited outside the United States (for the purpose of this subpart, 
United States includes the several states, the District of Columbia, the 
Virgin Islands, the Commonwealth of Puerto Rico, Guam, American Samoa, 
the Commonwealth of the Northern Mariana Islands, and Wake Island); 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.

[48 FR 42258, Sept. 19, 1983, as amended at 63 FR 34074, June 22, 1998]

[[Page 448]]



Subpart 22.15--Prohibition of Acquisition of Products Produced by Forced 
                        or Indentured Child Labor

    Source: 66 FR 5347, Jan. 18, 2001, unless otherwise noted.



22.1500  Scope.

    This subpart applies to acquisitions of supplies that exceed the 
micro-purchase threshold.



22.1501  Definitions.

    As used in this subpart--
    Forced or indentured child labor means all work or service--
    (1) Exacted from any person under the age of 18 under the menace of 
any penalty for its nonperformance and for which the worker does not 
offer himself voluntarily; or
    (2) Performed by any person under the age of 18 pursuant to a 
contract the enforcement of which can be accomplished by process or 
penalties.
    List of Products Requiring Contractor Certification as to Forced or 
Indentured Child Labor means the list published by the Department of 
Labor in accordance with Executive Order 13126 of June 12, 1999, 
Prohibition of Acquisition of Products Produced by Forced or Indentured 
Child Labor. The list identifies products, by their country of origin, 
that the Departments of Labor, Treasury, and State have a reasonable 
basis to believe might have been mined, produced, or manufactured by 
forced or indentured child labor.



22.1502  Policy.

    Agencies must take appropriate action to enforce the laws 
prohibiting the manufacture or importation of products that have been 
mined, produced, or manufactured wholly or in part by forced or 
indentured child labor (19 U.S.C. 1307, 29 U.S.C. 201, et seq., and 41 
U.S.C. 35, et seq.). Agencies should make every effort to avoid 
acquiring such products.



22.1503  Procedures for acquiring end products on the List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor.

    (a) When issuing a solicitation for supplies expected to exceed the 
micro-purchase threshold, the contracting officer must check the List of 
Products Requiring Contractor Certification as to Forced or Indentured 
Child Labor (the List) (www.dol.gov/ilab/) (see 22.1505(a)). Appearance 
of a product on the List is not a bar to purchase of any such product 
mined, produced, or manufactured in the identified country, but rather 
is an alert that there is a reasonable basis to believe that such 
product may have been mined, produced, or manufactured by forced or 
indentured child labor.
    (b) The requirements of this subpart that result from the appearance 
of any end product on the List do not apply to a solicitation or 
contract if the identified country of origin on the List is--
    (1) Canada, and the anticipated value of the acquisition is $25,000 
or more (see 25.405);
    (2) Israel, and the anticipated value of the acquisition is $50,000 
or more (see 25.406);
    (3) Mexico, and the anticipated value of the acquisition is $56,190 
or more (see 25.405); or
    (4) Aruba, Austria, Belgium, Denmark, Finland, France, Germany, 
Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Korea, Liechtenstein, 
Luxembourg, Netherlands, Norway, Portugal, Singapore, Spain, Sweden, 
Switzerland, or the United Kingdom and the anticipated value of the 
acquisition is $169,000 or more (see 25.403(b)).
    (c) Except as provided in paragraph (b) of this section, before the 
contracting officer may make an award for an end product (regardless of 
country of origin) of a type identified by country of origin on the List 
the offeror must certify that--
    (1) It will not supply any end product on the List that was mined, 
produced, or manufactured in a country identified on the List for that 
product, as

[[Page 449]]

specified in the solicitation by the contracting officer in the 
Certification Regarding Knowledge of Child Labor for Listed End 
Products; or
    (2)(i) It has made a good faith effort to determine whether forced 
or indentured child labor was used to mine, produce, or manufacture any 
end product to be furnished under the contract that is on the List and 
was mined, produced, or manufactured in a country identified on the List 
for that product; and
    (ii) On the basis of those efforts, the offeror is unaware of any 
such use of child labor.
    (d) Absent any actual knowledge that the certification is false, the 
contracting officer must rely on the offerors' certifications in making 
award decisions.
    (e) Whenever a contracting officer has reason to believe that forced 
or indentured child labor was used to mine, produce, or manufacture an 
end product furnished pursuant to a contract awarded subject to the 
certification required in paragraph (c) of this section, the contracting 
officer must refer the matter for investigation by the agency's 
Inspector General, the Attorney General, or the Secretary of the 
Treasury, whichever is determined appropriate in accordance with agency 
procedures, except to the extent that the end product is from the 
country listed in paragraph (b) of this section, under a contract 
exceeding the applicable threshold.
    (f) Proper certification will not prevent the head of an agency from 
imposing remedies in accordance with section 22.1504(a)(4) if it is 
later discovered that the contractor has furnished an end product or 
component that has in fact been mined, produced, or manufactured, wholly 
or in part, using forced or indentured child labor.

[66 FR 5347, Jan. 18, 2001, as amended at 66 FR 65371, Dec. 18, 2001; 67 
FR 56123, 56126, Aug. 30, 2002]



22.1504  Violations and remedies.

    (a) Violations. The Government may impose remedies set forth in 
paragraph (b) of this section for the following violations (note that 
the violations in paragraphs (a)(3) and (a)(4) of this section go beyond 
violations of the requirements relating to certification of end 
products) (see 22.1503):
    (1) The contractor has submitted a false certification regarding 
knowledge of the use of forced or indentured child labor.
    (2) The contractor has failed to cooperate as required in accordance 
with the clause at 52.222-19, Child Labor Cooperation with Authorities 
and Remedies, with an investigation of the use of forced or indentured 
child labor by an Inspector General, the Attorney General, or the 
Secretary of the Treasury.
    (3) The contractor uses forced or indentured child labor in its 
mining, production, or manufacturing processes.
    (4) The contractor has furnished an end product or component mined, 
produced, or manufactured, wholly or in part, by forced or indentured 
child labor. Remedies in paragraphs (b)(2) and (b)(3) of this section 
are inappropriate unless the contractor knew of the violation.
    (b) Remedies. (1) The contracting officer may terminate the 
contract.
    (2) The suspending official may suspend the contractor in accordance 
with the procedures in subpart 9.4.
    (3) The debarring official may debar the contractor for a period not 
to exceed 3 years in accordance with the procedures in subpart 9.4.



22.1505  Solicitation provision and contract clause.

    (a) Except as provided in paragraph (b) of 22.1503, insert the 
provision at 52.222-18, Certification Regarding Knowledge of Child Labor 
for Listed End Products, in all solicitations that are expected to 
exceed the micro-purchase threshold and are for the acquisition of end 
products (regardless of country of origin) of a type identified by 
country of origin on the List of Products Requiring Contractor 
Certification as to Forced or Indentured Child Labor, except 
solicitations for commercial items that include the provision at 52.212-
3, Offeror Representations and Certifications--Commercial Items. The 
contracting officer must identify in paragraph (b) of the provision at 
52.222-18, Certification Regarding Knowledge of Child Labor for Listed 
End Products, or paragraph (i)(1) of

[[Page 450]]

the provision at 52.212-3, any applicable end products and countries of 
origin from the List. For solicitations estimated to equal or exceed 
$25,000, the contracting officer must exclude from the List in the 
solicitation end products from any countries identified at 22.1503(b), 
in accordance with the specified thresholds.
    (b) Insert the clause at 52.222-19, Child Labor--Cooperation with 
Authorities and Remedies, in all solicitations and contracts for the 
acquisition of supplies that are expected to exceed the micro-purchase 
threshold.



PART 23-- ENVIRONMENT, ENERGY AND WATER EFFICIENCY, RENEWABLE ENERGY TECHNOLOGIES, OCCUPATIONAL SAFETY, AND DRUG-FREE WORKPLACE--Table of Contents




Sec.
23.000 Scope.

Subpart 23.1 [Reserved]

     Subpart 23.2--Energy and Water Efficiency and Renewable Energy

23.200 Scope.
23.201 Authorities.
23.202 Policy.
23.203 Energy-efficient products.
23.204 Energy-savings performance contracts.

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 Definition.
23.402 Authorities.
23.403 Policy.
23.404 Agency affirmative procurement programs.
23.405 Procedures.
23.406 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.
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 Products and 
                                Services

23.700 Scope.
23.701 Definition.
23.702 Authorities.
23.703 Policy.
23.704 Application to Government-owned or -leased facilities.
23.705 Contract clause.

                Subpart 23.8--Ozone-Depleting Substances

23.800 Scope of subpart.
23.801 Authorities.
23.802 [Reserved]
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.

    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 by

[[Page 451]]

    (a) Controlling pollution;
    (b) Managing energy and water use in Government facilities 
efficiently;
    (c) Using renewable energy and renewable energy technologies;
    (d) Acquiring energy- and water-efficient products and services, 
environmentally preferable products, and products that use recovered 
materials; and
    (e) Requiring contractors to identify hazardous materials.

[66 FR 65352, Dec. 18, 2001]

Subpart 23.1 [Reserved]



     Subpart 23.2-- Energy and Water Efficiency and Renewable Energy

    Source: 66 FR 65352, Dec. 18, 2001, unless otherwise noted.



23.200  Scope.

    (a) This subpart prescribes policies and procedures for--
    (1) Acquiring energy- and water-efficient products and services, and 
products that use renewable energy technology; and
    (2) Using an energy-savings performance contract to obtain energy-
efficient technologies at Government facilities without Government 
capital expense.
    (b) This subpart applies to acquisitions in the United States, its 
possessions and territories, Puerto Rico, and the Northern Mariana 
Islands. Agencies conducting acquisitions outside of these areas must 
use their best efforts to comply with this subpart.



23.201  Authorities.

    (a) Energy Policy and Conservation Act (42 U.S.C.
    6361(a)(1)) and Resource Conservation and Recovery Act of 1976 (42 
U.S.C. 6901, et seq.).
    (b) National Energy Conservation Policy Act (42 U.S.C. 8253, 8262g, 
and 8287).
    (c) Executive Order 11912 of April 13, 1976, Delegations of 
Authority under the Energy Policy and Conservation Act.
    (d) Executive Order 13123 of June 3, 1999, Greening the Government 
through Efficient Energy Management.



23.202  Policy.

    The Government's policy is to acquire supplies and services that 
promote energy and water efficiency, advance the use of renewable energy 
products, and help foster markets for emerging technologies. This policy 
extends to all acquisitions, including those below the simplified 
acquisition threshold.



23.203  Energy-efficient products.

    (a) If life-cycle cost-effective and available--
    (1) When acquiring energy-using products, contracting officers must 
purchase ENERGY STAR[reg] or other energy-efficient products designated 
by the Department of Energy'sFederal Energy Management Program (FEMP); 
or
    (2) When contracting for services that will include the provision of 
energy-using products, including contracts for design, construction, 
renovation, or maintenance of a public building, the specifications must 
require that the contractor provide ENERGY STAR or other energy-
efficient products.
    (b) Information is available via the Internet on--
    (1) ENERGY STAR[reg] at http://www.energystar.gov/; and
    (2) FEMP at http://www.eren.doe.gov/femp/procurement.



23.204  Energy-savings performance contracts.

    (a) Section 403 of Executive Order 13123 of June 3, 1999, Greening 
the Government through Efficient EnergyManagement, requires an agency to 
make maximum use of the authority provided in the National Energy 
Conservation Policy Act (42 U.S.C. 8287) to use an energy-savings 
performance contract (ESPC), when life-cycle cost-effective, to reduce 
energy use and cost in the agency's facilities and operations.
    (b)(1) Under an ESPC, an agency can contract with an energy service 
company for a period not to exceed 25 years to improve energy efficiency 
in one or more agency facilities at no direct capital cost to the United 
States Treasury. The energy service company finances the capital costs 
of implementing energy conservation measures and receives, in return, a 
contractually determined share of the cost savings that result.

[[Page 452]]

    (2) Except as provided in 10 CFR 436.34, ESPC's are subject to 
subpart 17.1.
    (c) To solicit and award an ESPC, the contracting officer--
    (1) Must use the procedures, selection method, and terms and 
conditions provided in 10 CFR part 436, subpart B; at http://
www.eren.doe.gov/femp/resources/legislation.html; and
    (2) May use the ``Qualified List'' of energy service companies 
established by the Department of Energy and other agencies.



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.
    (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.

[[Page 453]]



23.400  Scope of subpart.

    This subpart prescribes policies and procedures for acquiring 
Environmental Protection Agency (EPA)--designated products through 
affirmative procurement programs required by the Resource Conservation 
and Recovery Act of 1976 (RCRA) (42 U.S.C. 6962) and Executive Order 
13101 of September 14, 1998, Greening the Government through Waste 
Prevention, Recycling, and Federal Acquisition.

[65 FR 36019, June 6, 2000]



23.401  Definition.

    EPA-designated product, as used in this subpart, means a product--
    (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).

[65 FR 36019, June 6, 2000]



23.402  Authorities.

    (a) The Resource Conservation and Recovery Act of 1976 (RCRA), 42 
U.S.C. 6962, requires agencies responsible for drafting or reviewing 
specifications used in agency acquisitions to--
    (1) Eliminate from those specifications any requirement excluding 
the use of recovered materials or requiring products to be manufactured 
from virgin materials; and
    (2) Require, for EPA-designated products, using recovered materials 
to the maximum extent practicable without jeopardizing the intended end 
use of the item.
    (b) RCRA also requires--
    (1) EPA to prepare guidelines on the availability, sources, and 
potential uses of recovered materials and associated products, including 
solid waste management services; and
    (2) Agencies to develop and implement affirmative procurement 
programs for EPA-designated products within 1 year after EPA's 
designation.
    (c) Executive Order 13101 requires that the agency head--
    (1) Work to increase and expand markets for recovered materials 
through greater Government preference and demand for such products 
consistent with the demands of efficiency and cost-effectiveness; and
    (2) Develop and implement affirmative procurement programs in 
accordance with direction in RCRA and the Executive order.

[65 FR 36019, June 6, 2000]



23.403  Policy.

    Government policy on the use of recovered materials considers cost, 
availability of competition, and performance. The objective is to 
acquire competitively, in a cost-effective manner, products that meet 
reasonable performance requirements and that are composed of the highest 
percentage of recovered materials practicable.

[65 FR 36019, June 6, 2000]



23.404  Agency affirmative procurement programs.

    (a) For EPA-designated products, an agency must establish an 
affirmative procurement program, if the agency's purchases meet the 
threshold in 23.405(a). Technical or requirements personnel and 
procurement personnel are responsible for the preparation, 
implementation, and monitoring of affirmative procurement programs. 
Agency affirmative procurement programs must include--
    (1) A recovered materials preference program;
    (2) An agency promotion program;
    (3) A program for requiring reasonable estimates, certification, and 
verification of recovered material used in the performance of contracts; 
and
    (4) Annual review and monitoring of the effectiveness of the 
program.
    (b) Agency affirmative procurement programs must require that 100 
percent of purchases of EPA-designated products contain recovered 
material, unless the item cannot be acquired--
    (1) Competitively within a reasonable time frame;
    (2) Meeting appropriate performance standards; or
    (3) At a reasonable price.
    (c) Agency affirmative procurement programs must provide guidance 
for purchases of EPA-designated products

[[Page 454]]

at or below the micro-purchase threshold.

[65 FR 36019, June 6, 2000]



23.405  Procedures.

    (a) These procedures apply to all agency acquisitions of EPA-
designated products, including micro-purchases, if--
    (1) The price of the product exceeds $10,000; or
    (2) The aggregate amount paid for products, or for functionally 
equivalent products, in the preceding fiscal year was $10,000 or more. 
RCRA requires that an agency include micro-purchases in determining if 
the aggregate amount paid was $10,000 or more. However, it is not 
recommended that an agency track micro-purchases unless it intends to 
claim an exemption from the requirement to establish an affirmative 
procurement program in the following fiscal year.
    (b) Contracting officers should refer to EPA's list of EPA-
designated products (available via the Internet at http://www.epa.gov/
cpg/) and to their agencies' affirmative procurement programs when 
purchasing supplies that contain recovered material or services that 
could include supplies that contain recovered material.
    (c) The contracting officer must place in the contract file a 
written justification if an acquisition of EPA-designated products above 
the micro-purchase threshold does not contain recovered material. If the 
agency has designated an Environmental Executive, the contracting 
officer must give a copy of the written justification to that official. 
The contracting officer must base the justification on the inability to 
acquire the product--
    (1) Competitively within a reasonable period of time;
    (2) At reasonable prices; or
    (3) To reasonable performance standards in the specifications, 
provided a written determination by technical or requirements personnel 
of the performance standard's reasonableness is included with the 
justification. The technical and requirements personnel must base their 
determination on National Institute of Standards and Technology 
guidelines, if available.
    (d) Agencies must establish procedures for consolidating and 
reporting contractor estimates required by the clause at 52.223-9, 
Estimate of Percentage of Recovered Material Content for EPA-Designated 
Products.

[65 FR 36019, June 6, 2000]



23.406  Solicitation provision and contract clause.

    (a) Insert the provision at 52.223-4, Recovered Material 
Certification, in solicitations that are for, or specify the use of, 
recovered materials.
    (b) Insert the clause at 52.223-9, Estimate of Percentage of 
Recovered Material Content for EPA-Designated Products, in solicitations 
and contracts exceeding $100,000 that include the provision at 52.223-4. 
If technical personnel advise that estimates can be verified, use the 
clause with its Alternate I.

[65 FR 36019, June 6, 2000]



                    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;

[[Page 455]]

    (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.

    As used in this subpart--
    Controlled substance 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.
    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; 66 
FR 2130, Jan. 10, 2001]



23.504  Policy.

    (a) No offeror other than an individual shall be considered a 
responsible source (see 9.104-1(g) and 19.602-1(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

[[Page 456]]

    (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.
    (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.

[[Page 457]]

    (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]



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 Products and 
                                Services

    Source: 60 FR 28497, May 31, 1995, unless otherwise noted.



23.700  Scope.

    This subpart prescribes policies for acquiring environmentally 
preferable products and services.

[66 FR 65353, Dec. 18, 2001]



23.701  Definition.

    Biobased product, as used in this subpart, means a commercial or 
industrial product (other than food or feed) that utilizes biological 
products or renewable domestic agricultural (plant, animal, and marine) 
or forestry materials.

[65 FR 36020, June 6, 2000]



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 12856, of August 3, 1993, Federal Compliance 
with Right-to-Know Laws and Pollution Prevention Requirements.
    (e) Executive Order 13101 of September 14, 1998, Greening the 
Government through Waste Prevention, Recycling, and Federal Acquisition.

[[Page 458]]

    (f) Executive Order 13123 of June 3, 1999, Greening the Government 
through Efficient Energy Management.

[60 FR 28497, May 31, 1995, as amended at 65 FR 36020, June 6, 2000; 66 
FR 65353, Dec. 18, 2001]



23.703  Policy.

    Agencies must--
    (a) Implement cost-effective contracting preference programs 
promoting energy-efficiency, water conservation, and the acquisition of 
environmentally preferable products and services; and
    (b) Employ acquisition strategies that affirmatively implement the 
following environmental objectives:
    (1) Maximize the utilization of environmentally preferable products 
and services (based on EPA-issued guidance).
    (2) Promote energy-efficiency and water conservation.
    (3) Eliminate or reduce the generation of hazardous waste and the 
need for special material processing (including special handling, 
storage, treatment, and disposal).
    (4) Promote the use of nonhazardous and recovered materials.
    (5) Realize life-cycle cost savings.
    (6) Promote cost-effective waste reduction when creating plans, 
drawings, specifications, standards, and other product descriptions 
authorizing material substitutions, extensions of shelf-life, and 
process improvements.
    (7) Consider the use of biobased products.

[65 FR 36020, June 6, 2000, as amended at 66 FR 65353, Dec. 18, 2001]



23.704  Application to Government-owned or -leased facilities.

    Executive Order 13101, Section 701, requires that contracts for 
contractor operation of a Government-owned or -leased facility and 
contracts for support services at a Government-owned or -operated 
facility include provisions that obligate the contractor to comply with 
the requirements of the order. Compliance includes developing programs 
to promote and implement cost-effective waste reduction and affirmative 
procurement programs required by 42 U.S.C. 6962 for all products 
designated in EPA's Comprehensive Procurement Guideline (40 CFR part 
247).

[65 FR 36020, June 6, 2000]



23.705  Contract clause.

    Insert the clause at 52.223-10, Waste Reduction Program, in all 
solicitations and contracts for contractor operation of Government-owned 
or -leased facilities and all solicitations and contracts for support 
services at Government-owned or -operated facilities.

[65 FR 36020, June 6, 2000]



                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]



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  [Reserved]



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.

[[Page 459]]

    (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 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, as used in this subpart, 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).

[60 FR 55307, Oct. 30, 1995, as amended at 66 FR 2130, Jan. 10, 2001]

[[Page 460]]



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) major groups 20 through 39 or their corresponding North American 
Industry Classification System (NAICS) sectors 31 through 33; 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 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; 65 
FR 46058, July 26, 2000]

[[Page 461]]



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, and other agency obligations under E.O. 12856.

[62 FR 12697, Mar. 17, 1997, as amended at 63 FR 9051, Feb. 23, 1998]



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 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

[[Page 462]]

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.

    As used in this subpart--
    Agency 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 means a citizen of the United States or an alien lawfully 
admitted for permanent residence.
    Maintain means maintain, collect, use, or disseminate.
    Operation of a system of records means performance of any of the 
activities associated with maintaining the system of records, including 
the collection, use, and dissemination of records.
    Record 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 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.

[48 FR 42277, Sept. 19, 1983, as amended at 66 FR 2130, Jan. 10, 2001]



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 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:

[[Page 463]]

    (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).)
    (c) A dispute resolution communication that is between a neutral 
person and a party to alternative dispute resolution proceedings, and 
that may not be disclosed under 5 U.S.C. 574, is exempt from disclosure 
under the Freedom of Information Act (5 U.S.C. 552(b)(3)).

[62 FR 257, Jan. 2, 1997, as amended at 62 FR 51270, Sept. 30, 1997; 63 
FR 58594, Oct. 30, 1998]



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 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.
25.001 General.
25.002 Applicability of subparts.
25.003 Definitions.

                Subpart 25.1--Buy American Act--Supplies

25.100 Scope of subpart.
25.101 General.
25.102 Policy.
25.103 Exceptions.
25.104 Nonavailable articles.
25.105 Determining reasonableness of cost.

         Subpart 25.2--Buy American Act--Construction Materials

25.200 Scope of subpart.
25.201 Policy.
25.202 Exceptions.
25.203 Preaward determinations.
25.204 Evaluating offers of foreign construction material.
25.205 Postaward determinations.

[[Page 464]]

25.206 Noncompliance.

Subpart 25.3--[Reserved]

                     Subpart 25.4--Trade Agreements

25.400 Scope of subpart.
25.401 Exceptions.
25.402 General.
25.403 Trade Agreements Act.
25.404 Caribbean Basin Trade Initiative.
25.405 North American Free Trade Agreement (NAFTA).
25.406 Israeli Trade Act.
25.407 Agreement on Trade in Civil Aircraft.
25.408 Procedures.

        Subpart 25.5--Evaluating Foreign Offers--Supply Contracts

25.501 General.
25.502 Application.
25.503 Group offers.
25.504 Evaluation examples.
25.504-1 Buy American Act.
25.504-2 Trade Agreements Act/Caribbean Basin Trade Initiative/NAFTA.
25.504-3 NAFTA/Israeli Trade Act.
25.504-4 Group award basis.

                      Subpart 25.6--Trade Sanctions

25.600 Scope of subpart.
25.601 Policy.
25.602 Exceptions.

                    Subpart 25.7--Prohibited Sources

25.701 Restrictions.
25.702 Source of further information.

      Subpart 25.8--Other International Agreements and Coordination

25.801 General.
25.802 Procedures.

                    Subpart 25.9--Customs and Duties

25.900 Scope of subpart.
25.901 Policy.
25.902 Procedures.
25.903 Exempted supplies.

        Subpart 25.10--Additional Foreign Acquisition Regulations

25.1001 Waiver of right to examination of records.
25.1002 Use of foreign currency.

       Subpart 25.11--Solicitation Provisions and Contract Clauses

25.1101 Acquisition of supplies.
25.1102 Acquisition of construction.
25.1103 Other provisions and clauses.

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

    Source: 64 FR 72419, Dec. 27, 1999, unless otherwise noted.



25.000  Scope of part.

    This part provides policies and procedures for acquiring foreign 
supplies, services, and construction materials. It implements the Buy 
American Act, trade agreements, and other laws and regulations.

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21534, Apr. 30, 2002]



25.001  General.

    (a) The Buy American Act--
    (1) Restricts the purchase of supplies, that are not domestic end 
products, for use within the United States. A foreign end product may be 
purchased if the contracting officer determines that the price of the 
lowest domestic offer is unreasonable or if another exception applies 
(see Subpart 25.1); and
    (2) Requires, with some exceptions, the use of only domestic 
construction materials in contracts for construction in the United 
States (see Subpart 25.2).
    (b) The restrictions in the Buy American Act are not applicable in 
acquisitions subject to certain trade agreements (see Subpart 25.4). In 
these acquisitions, end products and construction materials from certain 
countries receive nondiscriminatory treatment in evaluation with 
domestic offers. Generally, the dollar value of the acquisition 
determines which of the trade agreements applies. Exceptions to the 
applicability of the trade agreements are described in Subpart 25.4.
    (c) The test to determine the country of origin for an end product 
under the trade agreements is different from the test to determine the 
country of origin for an end product under the Buy American Act (see the 
various country ``end product'' definitions in 25.003). The Buy American 
Act uses a two-part test to define a ``domestic end product'' 
(manufacture in the United States and a formula based on cost of 
domestic components). Under the trade agreements, the test to determine 
country of origin is ``substantial transformation'' (i.e., transforming 
an article into a new and different article of

[[Page 465]]

commerce, with a name, character, or use distinct from the original 
article).
    (d) On April 22, 1992, the President made a determination under 
section 305 of the Trade Agreements Act to impose sanctions against some 
European Union countries for discriminating against U.S. products and 
services (see Subpart 25.6).

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.002  Applicability of subparts.

    The following table shows the applicability of the subparts. Subpart 
25.5 provides comprehensive procedures for offer evaluation and 
examples.

----------------------------------------------------------------------------------------------------------------
                                                            Supplies for use    Construction        Services
                                                           ------------------------------------     performed
                                      Subpart                                                  -----------------
                                                             Inside  Outside   Inside  Outside   Inside  Outside
                                                              U.S.     U.S.     U.S.     U.S.     U.S.     U.S.
----------------------------------------------------------------------------------------------------------------
25.1..................  Buy American Act--Supplies........        X  .......  .......  .......  .......  .......
25.2..................  Buy American Act--Construction      .......  .......        X  .......  .......  .......
                         Materials.
25.3..................  [Reserved]........................  .......       --  .......       --  .......  .......
25.4..................  Trade Agreements..................        X        X        X        X        X        X
25.5..................  Evaluating Foreign Offers--Supply         X        X  .......  .......  .......  .......
                         Contracts.
25.6..................  Trade Sanctions...................        X        X        X        X        X        X
25.7..................  Prohibited Sources................        X        X        X        X        X        X
25.8..................  Other International Agreements and        X        X  .......        X  .......        X
                         Coordination.
25.9..................  Customs and Duties................        X  .......  .......  .......  .......  .......
25.10.................  Additional Foreign Acquisition            X        X        X        X        X        X
                         Regulations.
25.11.................  Solicitation Provisions and               X        X        X        X        X        X
                         Contract Clauses.
----------------------------------------------------------------------------------------------------------------


[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.003  Definitions.

    As used in this part--
    Canadian end product means an article that--
    (1) Is wholly the growth, product, or manufacture of Canada; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, 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 the article, provided that the value of those 
incidental services does not exceed that of the article itself.
    Caribbean Basin country means any of the following countries: 
Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin 
Islands, Costa Rica, Dominica, El Salvador, Grenada, Guatemala, Guyana, 
Haiti, Jamaica, Montserrat, Netherlands Antilles, Nicaragua, St. Kitts 
and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and 
Tobago.
    Caribbean Basin country end product--
    (1) Means an article that--
    (i)(A) Is wholly the growth, product, or manufacture of a Caribbean 
Basin country; or
    (B) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed in a 
Caribbean Basin country 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; and
    (ii) Is not excluded from duty-free treatment for Caribbean 
countries under 19 U.S.C. 2703(b).
    (A) For this reason, the following articles are not Caribbean Basin 
country end products:
    (1) Tuna, prepared or preserved in any manner in airtight 
containers.
    (2) Petroleum, or any product derived from petroleum.
    (3) 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

[[Page 466]]

parts contain any material that is the product of any country to which 
the Harmonized Tariff Schedule of the United States (HTSUS) column 2 
rates of duty apply (i.e., Afghanistan, Cuba, Laos, North Korea, and 
Vietnam).
    (4) Certain of the following: textiles and apparel articles; 
footwear, handbags, luggage, flat goods, work gloves, and leather 
wearing apparel; or handloomed, handmade, and folklore articles.
    (B) Access to the HTSUS to determine duty-free status of articles of 
the types listed in paragraph (1)(ii)(A)(4) of this definition is 
available via the Internet at http://www.customs.ustreas.gov/impoexpo/
impoexpo.htm. In particular, see the following:
    (1) General Note 3(c), Products Eligible for Special Tariff 
treatment.
    (2) General Note 17, Products of Countries Designated as Beneficiary 
Countries under the United States--Caribbean Basin Trade Partnership Act 
of 2000.
    (3) Section XXII, Chapter 98, Subchapter II, Articles Exported and 
Returned, Advanced or Improved Abroad, U.S. Note 7(b).
    (4) Section XXII, Chapter 98, Subchapter XX, Goods Eligible for 
Special Tariff Benefits under the United States-Caribbean Basin Trade 
Partnership Act; and
    (2) Refers to a product offered for purchase under a supply 
contract, but for purposes of calculating the value of the acquisition, 
includes services (except transportation services) incidental to the 
article, provided that the value of those incidental services does not 
exceed that of the article itself.
    Civil aircraft and related articles means--
    (1) All aircraft other than aircraft to be purchased for use by the 
Department of Defense or the U.S. Coast Guard;
    (2) The engines (and parts and components for incorporation into the 
engines) of these aircraft;
    (3) Any other parts, components, and subassemblies for incorporation 
into the aircraft; and
    (4) 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.
    Component means an article, material, or supply incorporated 
directly into an end product or construction material.
    Construction material means an article, material, or supply brought 
to the construction site by a contractor or subcontractor for 
incorporation into the building or work. The term also includes an item 
brought to the site preassembled from articles, materials, or supplies. 
However, emergency life safety systems, such as emergency lighting, fire 
alarm, and audio evacuation systems, that are discrete systems 
incorporated into a public building or work and that are produced as 
complete systems, are evaluated as a single and distinct construction 
material regardless of when or how the individual parts or components of 
those systems are delivered to the construction site. Materials 
purchased directly by the Government are supplies, not construction 
material.
    Cost of components means--
    (1) For components purchased by the contractor, the acquisition 
cost, including transportation costs to the place of incorporation into 
the end product or construction material (whether or not such costs are 
paid to a domestic firm), and any applicable duty (whether or not a 
duty-free entry certificate is issued); or
    (2) For components manufactured by the contractor, all costs 
associated with the manufacture of the component, including 
transportation costs as described in paragraph (1) of this definition, 
plus allocable overhead costs, but excluding profit. Cost of components 
does not include any costs associated with the manufacture of the end 
product.
    Customs territory of the United States means the States, the 
District of Columbia, and Puerto Rico.
    Designated country means any of the following countries:

[[Page 467]]

    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, 
Iceland, Ireland, Israel, Italy, Japan, Kiribati, Korea, Republic of 
Lesotho, Liechtenstein, Luxembourg, Malawi, Maldives, Mali, Mozambique, 
Nepal, Netherlands, Niger, Norway, Portugal, 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 end product means an article that--
    (1) Is wholly the growth, product, or manufacture of a designated 
country; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed in a 
designated country 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 the article, provided that the value of those 
incidental services does not exceed that of the article itself.
    Domestic construction material means--
    (1) An unmanufactured construction material mined or produced in the 
United States; or
    (2) A construction material 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. 
Components of foreign origin of the same class or kind for which 
nonavailability determinations have been made are treated as domestic.
    Domestic end product means--
    (1) An unmanufactured end product mined or produced in the United 
States; or
    (2) 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. Components of 
foreign origin of the same class or kind as those that the agency 
determines are not mined, produced, or manufactured in sufficient and 
reasonably available commercial quantities of a satisfactory quality are 
treated as domestic. Scrap generated, collected, and prepared for 
processing in the United States is considered domestic.
    Domestic offer means an offer of a domestic end product. When the 
solicitation specifies that award will be made on a group of line items, 
a domestic offer means an offer where the proposed price of the domestic 
end products exceeds 50 percent of the total proposed price of the 
group.
    Eligible offer means an offer of an eligible product. When the 
solicitation specifies that award will be made on a group of line items, 
an eligible offer means a foreign offer where the combined proposed 
price of the eligible products and the domestic end products exceeds 50 
percent of the total proposed price of the group.
    Eligible product means a foreign end product that is not subject to 
discriminatory treatment under the Buy American Act due to applicability 
of a trade agreement to a particular acquisition.
    End product means those articles, materials, and supplies to be 
acquired for public use.
    Foreign construction material means a construction material other 
than a domestic construction material.
    Foreign contractor means a contractor or subcontractor organized or 
existing under the laws of a country other than the United States.
    Foreign end product means an end product other than a domestic end 
product.
    Foreign offer means any offer other than a domestic offer.
    Israeli end product means an article that--
    (1) Is wholly the growth, product, or manufacture of Israel; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed in 
Israel into a new and different article of commerce

[[Page 468]]

with a name, character, or use distinct from that of the article or 
articles from which it was transformed.
    Mexican end product means an article that--
    (1) Is wholly the growth, product, or manufacture of Mexico; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, 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 the article, provided that the value of those 
incidental services does not exceed that of the article itself.
    Noneligible offer means an offer of a noneligible product.
    Noneligible product means a foreign end product that is not an 
eligible product.
    North American Free Trade Agreement country means Canada or Mexico.
    North American Free Trade Agreement country end product means an 
article that--
    (1) Is wholly the growth, product, or manufacture of a North 
American Free Trade Agreement (NAFTA) country; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed in a 
NAFTA country 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 the article, provided that the value of those 
incidental services does not exceed that of the article itself.
    Sanctioned European Union country construction means construction to 
be performed in a sanctioned European Union member state.
    Sanctioned European Union country end product means an article that-
-
    (1) Is wholly the growth, product, or manufacture of a sanctioned 
European Union (EU) member state; or
    (2) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed in a 
sanctioned EU member state 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 the article, provided that the 
value of these incidental services does not exceed that of the article 
itself.
    Sanctioned European Union country services means services to be 
performed in a sanctioned European Union member state.
    Sanctioned European Union member state means Austria, Belgium, 
Denmark, Finland, France, Ireland, Italy, Luxembourg, the Netherlands, 
Sweden, or the United Kingdom.
    United States means the 50 States and the District of Columbia, U.S. 
territories and possessions, Puerto Rico, the Northern Mariana Islands, 
and any other place subject to U.S. jurisdiction, but does not include 
leased bases.
    U.S.-made end product means an article that is mined, produced, or 
manufactured in the United States or that is substantially transformed 
in the United States 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.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 24322, Apr. 25, 2000; 
66 FR 65371, Dec. 18, 2001; 66 FR 65350, 65371, Dec. 18, 2001; 67 FR 
6117, Feb. 8, 2002; 67 FR 21535, Apr. 30, 2002]



                Subpart 25.1--Buy American Act--Supplies



25.100  Scope of subpart.

    This subpart implements the Buy American Act (41 U.S.C. 10a-10d) and 
Executive Order 10582, December 17, 1954. It applies to supplies 
acquired for

[[Page 469]]

use in the United States, including supplies acquired under contracts 
set aside for small business concerns, if--
    (a) The supply contract exceeds the micro-purchase threshold; or
    (b) The supply portion of a contract for services that involves the 
furnishing of supplies (e.g., lease) exceeds the micro-purchase 
threshold.

[64 FR 72419, Dec. 27, 1999; 65 FR 4633, Jan. 31, 2000]



25.101  General.

    (a) The Buy American Act restricts the purchase of supplies that are 
not domestic end products. For manufactured end products, the Buy 
American Act uses a two-part test to define a domestic end product.
    (1) The article must be manufactured in the United States; and
    (2) The cost of domestic components must exceed 50 percent of the 
cost of all the components.
    (b) The Buy American Act applies to small business set-asides. A 
manufactured product of a small business concern is a U.S.-made end 
product, but is not a domestic end product unless it meets the component 
test in paragraph (a)(2) of this section.
    (c) Exceptions that allow the purchase of a foreign end product are 
listed at 25.103. The unreasonable cost exception is implemented through 
the use of an evaluation factor applied to low foreign offers that are 
not eligible offers. The evaluation factor is not used to provide a 
preference for one foreign offer over another. Evaluation procedures and 
examples are provided in Subpart 25.5.



25.102  Policy.

    Except as provided in 25.103, acquire only domestic end products for 
public use inside the United States.



25.103  Exceptions.

    When one of the following exceptions applies, the contracting 
officer may acquire a foreign end product without regard to the 
restrictions of the Buy American Act:
    (a) Public interest. The head of the agency may make a determination 
that domestic preference would be inconsistent with the public interest. 
This exception applies when an agency has an agreement with a foreign 
government that provides a blanket exception to the Buy American Act.
    (b) Nonavailability. (1) A nonavailability determination has been 
made for the articles listed in 25.104.
    (2)(i) The head of the contracting activity may make a determination 
that an article, material, or supply is not mined, produced, or 
manufactured in the United States in sufficient and reasonably available 
commercial quantities of a satisfactory quality.
    (ii) If the contracting officer considers that the nonavailability 
of an article is likely to affect future acquisitions, the contracting 
officer may submit a copy of the determination and supporting 
documentation to the appropriate council identified in 1.201-1 in 
accordance with agency procedures, for possible addition to the list in 
25.104.
    (3) A written determination is not required if all of the following 
conditions are present:
    (i) The acquisition was conducted through use of full and open 
competition.
    (ii) The acquisition was synopsized in accordance with 5.201.
    (iii) No offer for a domestic end product was received.
    (c) Unreasonable cost. The contracting officer may determine that 
the cost of a domestic end product would be unreasonable, in accordance 
with 25.105 and Subpart 25.5.
    (d) Resale. The contracting officer may purchase foreign end 
products specifically for commissary resale.



25.104  Nonavailable articles.

    (a) The following articles have been determined to be nonavailable 
in accordance with 25.103(b):

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.

[[Page 470]]

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.
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.
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.

    (b) The determination in paragraph (a) of this section does not 
apply if the contracting officer learns before the time designated for 
receipt of bids in sealed bidding or final offers in negotiation that an 
article on the list is available domestically in sufficient and 
reasonably available quantities of a satisfactory quality. The 
contracting officer must amend the solicitation if purchasing the 
article, or if purchasing an end product that could contain such an 
article as a component, and must specify in all new solicitations that 
the article is available domestically and

[[Page 471]]

that offerors and contractors may not treat foreign components of the 
same class or kind as domestic components. In addition, the contracting 
officer must submit a copy of supporting documentation to the 
appropriate council identified in 1.201-1 in accordance with agency 
procedures, for possible removal of the article from the list.



25.105  Determining reasonableness of cost.

    (a) The contracting officer--
    (1) Must use the evaluation factors in paragraph (b) of this section 
unless the head of the agency makes a written determination that the use 
of higher factors is more appropriate. If the determination applies to 
all agency acquisitions, the agency evaluation factors must be published 
in agency regulations; and
    (2) Must not apply evaluation factors to offers of eligible products 
if the acquisition is subject to a trade agreement under Subpart 25.4.
    (b) If there is a domestic offer that is not the low offer, and the 
restrictions of the Buy American Act apply to the low offer, the 
contracting officer must determine the reasonableness of the cost of the 
domestic offer by adding to the price of the low offer, inclusive of 
duty--
    (1) 6 percent, if the lowest domestic offer is from a large business 
concern; or
    (2) 12 percent, if the lowest domestic offer is from a small 
business concern. The contracting officer must use this factor, or 
another factor established in agency regulations, in small business set-
asides if the low offer is from a small business concern offering the 
product of a small business concern that is not a domestic end product 
(see Subpart 19.5).
    (c) The price of the domestic offer is reasonable if it does not 
exceed the evaluated price of the low offer after addition of the 
appropriate evaluation factor in accordance with paragraph (a) or (b) of 
this section. (See evaluation procedures at Subpart 25.5.)



         Subpart 25.2--Buy American Act--Construction Materials



25.200  Scope of subpart.

    This subpart implements the Buy American Act (41 U.S.C. 10a-10d) and 
Executive Order 10582, December 17, 1954. It applies to contracts for 
the construction, alteration, or repair of any public building or public 
work in the United States.



25.201  Policy.

    Except as provided in 25.202, use only domestic construction 
materials in construction contracts performed in the United States.



25.202  Exceptions.

    (a) When one of the following exceptions applies, the contracting 
officer may acquire foreign construction materials without regard to the 
restrictions of the Buy American Act:
    (1) Impracticable or inconsistent with public interest. The head of 
the agency may determine that application of the restrictions of the Buy 
American Act to a particular construction material would be 
impracticable or would be inconsistent with the public interest. The 
public interest exception applies when an agency has an agreement with a 
foreign government that provides a blanket exception to the Buy American 
Act.
    (2) Nonavailability. The head of the contracting activity may 
determine that a particular construction material is not mined, 
produced, or manufactured in the United States in sufficient and 
reasonably available commercial quantities of a satisfactory quality. 
The determinations of nonavailability of the articles listed at 
25.104(a) and the procedures at 25.104(b) also apply if any of those 
articles are acquired as construction materials.
    (3) Unreasonable cost. The contracting officer concludes that the 
cost of domestic construction material is unreasonable in accordance 
with 25.204.
    (b) Determination and findings. When a determination is made for any 
of the reasons stated in this section that certain foreign construction 
materials

[[Page 472]]

may be used, the contracting officer must list the excepted materials in 
the contract. The agency must make the findings justifying the exception 
available for public inspection.
    (c) Acquisitions under trade agreements. For construction contracts 
with an estimated acquisition value of $6,481,000 or more, see 25.403. 
If the acquisition value is $7,304,733 or more, also see 25.405.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 56123, Aug. 30, 2002]



25.203  Preaward determinations.

    (a) For any acquisition, an offeror may request from the contracting 
officer a determination concerning the inapplicability of the Buy 
American Act for specifically identified construction materials. The 
time for submitting the request is specified in the solicitation in 
paragraph (b) of either 52.225-10 or 52.225-12, whichever applies. The 
information and supporting data that must be included in the request are 
also specified in the solicitation in paragraphs (c) and (d) of either 
52.225-9 or 52.225-11, whichever applies.
    (b) Before award, the contracting officer must evaluate all requests 
based on the information provided and may supplement this information 
with other readily available information.



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 52.225-9, 
paragraph (b)(2), or 52.225-11, paragraph (b)(3), or excepted under the 
Trade Agreements Act or NAFTA (paragraph (b)(2) of 52.225-11), must 
provide the information required by paragraphs (c) and (d) of the 
respective clauses.
    (b) Unless the head of the agency specifies a higher percentage, the 
contracting officer must 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. In the case of a tie, the contracting 
officer must give preference to an offer that does not include foreign 
construction material excepted at the request of the offeror on the 
basis of unreasonable cost.
    (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 the contracting officer awards a contract to an offeror that 
proposed foreign construction material not listed in the applicable 
clause in the solicitation (paragraph (b)(2) of 52.225-9, or paragraph 
(b)(3) of 52.225-11), the contracting officer must add the excepted 
materials to the list in the contract clause.



25.205  Postaward determinations.

    (a) If a contractor requests a determination regarding the 
inapplicability of the Buy American Act after contract award, the 
contractor must explain why it could not request the determination 
before contract award or why the need for such determination otherwise 
was not reasonably foreseeable. If the contracting officer concludes 
that the contractor should have made the request before contract award, 
the contracting officer may deny the request.
    (b) The contracting officer must base evaluation of any request for 
a determination regarding the inapplicability of the Buy American Act 
made after contract award on information required by paragraphs (c) and 
(d) of the applicable clause at 52.225-9 or 52.225-11 and/or other 
readily available information.
    (c) If a determination, under 25.202(a), is made after contract 
award that an exception to the Buy American Act applies, the contracting 
officer must negotiate adequate consideration and modify the contract to 
allow use of the foreign construction material. When the basis for the 
exception is the unreasonable price of a domestic construction material, 
adequate consideration is at least the differential established in 
25.202(a) or in accordance with agency procedures.



25.206  Noncompliance.

    The contracting officer must--

[[Page 473]]

    (a) Review allegations of Buy American Act violations;
    (b) Unless fraud is suspected, notify the contractor of the apparent 
unauthorized use of foreign construction material and request a reply, 
to include proposed corrective action; and
    (c) If the review reveals that a contractor or subcontractor has 
used foreign construction material without authorization, take 
appropriate action, including one or more of the following:
    (1) Process a determination concerning the 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. A determination 
to retain foreign construction material does not constitute a 
determination that an exception to the Buy American Act applies, and 
this should be stated in the determination. Further, a determination to 
retain foreign construction material does not affect the Government's 
right to suspend 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 to 
the agency suspending or debarring official in accordance with Subpart 
9.4. If the noncompliance appears to be fraudulent, refer the matter to 
other appropriate agency officials, such as the officer responsible for 
criminal investigation.

Subpart 25.3--[Reserved]



                     Subpart 25.4--Trade Agreements



25.400  Scope of subpart.

    (a) This subpart provides policies and procedures applicable to 
acquisitions that are subject to--
    (1) The Trade Agreements Act (the Agreement on Government 
Procurement, as approved by Congress in the Trade Agreements Act of 1979 
(19 U.S.C. 2501, et seq.), and as amended by the Uruguay Round 
Agreements Act (Pub. L. 103-465));
    (2) The Caribbean Basin Trade Initiative (the determination of the 
U.S. Trade Representative that end products granted duty-free entry from 
countries designated by the President as beneficiaries under the 
Caribbean Basin Economic Recovery Act (19 U.S.C. 2701, et seq.), with 
the exception of the Dominican Republic, Honduras, and Panama must be 
treated as eligible products under the Trade Agreements Act);
    (3) NAFTA (the North American Free Trade Agreement, as approved by 
Congress in the North American Free Trade Agreement Implementation Act 
of 1993 (19 U.S.C. 3301 note));
    (4) The Israeli Trade Act (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)); or
    (5) The Agreement on Trade in Civil Aircraft (U.S. Trade 
Representative waiver of the Buy American Act for signatories of the 
Agreement on Trade in Civil Aircraft, as implemented in the Trade 
Agreements Act of 1979 (19 U.S.C. 2513)).
    (b) For application of the trade agreements that are unique to 
individual agencies, see agency regulations.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 24322, Apr. 25, 2000; 
67 FR 6118, Feb. 8, 2002]



25.401  Exceptions.

    (a) This subpart does not apply to--
    (1) Acquisitions set aside for small businesses;
    (2) Acquisitions of arms, ammunition, or war materials, or purchases 
indispensable for national security or for national defense purposes, 
including all

[[Page 474]]

services purchased in support of military forces located overseas;
    (3) Acquisitions of end products for resale;
    (4) Acquisitions 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;
    (5) Other acquisitions not using full and open competition, if 
authorized by Subpart 6.2 or 6.3, when the limitation of competition 
would preclude use of the procedures of this subpart (but see 6.303-
1(d)); or sole source acquisitions justified in accordance with 
13.501(a); and
    (6) Acquisitions of the following excluded services:
    (i) Automatic data processing (ADP) telecommunications and 
transmission services, except enhanced (i.e., value-added) 
telecommunications services.
    (ii) Research and development.
    (iii) Transportation services (including launching services, but not 
including travel agent services).
    (iv) Utility services.
    (b)(1) Other services not covered by the Trade Agreements Act are--
    (i) Dredging; and
    (ii) Management and operation contracts to certain Government or 
privately owned facilities used for Government purposes, including 
Federally Funded Research and Development Centers (FFRDCs).
    (2) Other services not covered by NAFTA are--
    (i) ADP teleprocessing and timesharing services (D305), 
telecommunications network management services (D316), automated news 
services, data services or other information services (D317), and other 
ADP and telecommunications services (D399) (Federal Service Code from 
the Federal Procurement Data System Product/Service Code Manual 
indicated in parentheses);
    (ii) Operation of all facilities by the Department of Defense, 
Department of Energy, or the National Aeronautics and Space 
Administration; and all Government-owned research and development 
facilities or Government-owned environmental laboratories;
    (iii) Maintenance, repair, modification, rebuilding and installation 
of equipment related to ships; and
    (iv) Nonnuclear ship repair.



25.402  General.

    The trade agreements waive the applicability of the Buy American Act 
for some foreign supplies and construction materials from certain 
countries. The Trade Agreements Act and NAFTA specify procurement 
procedures designed to ensure fairness. The value of the acquisition is 
a determining factor in the applicability of the trade agreements. When 
the restrictions of the Buy American Act are waived for eligible 
products, offers of those products (eligible offers) receive equal 
consideration with domestic offers. Under the Trade Agreements Act, only 
U.S.-made end products or eligible products may be acquired (also see 
25.403(c)). See Subpart 25.5 for evaluation procedures for supply 
contracts subject to trade agreements.

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.403  Trade Agreements Act.

    (a) General. The Agreement on Government Procurement of the Trade 
Agreements Act--
    (1) Waives application of the Buy American Act to the end products 
and construction materials of designated countries;
    (2) Prohibits discriminatory practices based on foreign ownership;
    (3) Restricts purchases to end products identified in 25.403(c);
    (4) Requires certain procurement procedures designed to ensure 
fairness (see 25.408).
    (b) Thresholds. (1) Except as provided in 25.401, the Trade 
Agreements Act applies to an acquisition for supplies or services if the 
estimated value of the acquisition is $169,000 or more; the Trade 
Agreements Act applies to an acquisition for construction if the 
estimated value of the acquisition is $6,481,000 or more. These dollar 
thresholds are subject to revision by the U.S. Trade Representative 
approximately every 2 years (see Executive Order 12260).

[[Page 475]]

    (2) To determine whether the Trade Agreements Act applies to the 
acquisition of products by lease, rental, or lease-purchase contract 
(including lease-to-ownership, or lease-with-option-to purchase), 
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 the acquisition.
    (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 the total number of months that 
ordering would be possible under the proposed contract, i.e., the 
initial ordering period plus any optional ordering periods.
    (iv) If there is any doubt as to the contemplated term of the 
contract, use the estimated monthly payment multiplied by 48.
    (3) The estimated value includes the value of all options.
    (4) If, in any 12-month period, recurring or multiple awards for the 
same type of product or products are anticipated, use the total 
estimated value of these projected awards to determine whether the Trade 
Agreements Act applies. Do not divide any acquisition with the intent of 
reducing the estimated value of the acquisition below the dollar 
threshold of the Trade Agreements Act.
    (c) Purchase restriction. (1) In acquisitions subject to the Trade 
Agreements Act, acquire only U.S.-made end products or eligible products 
(designated, Caribbean Basin, or NAFTA country end products) unless 
offers for such end products are either not received or are insufficient 
to fulfill the requirements.
    (2) This restriction does not apply to purchases by the Department 
of Defense from a country with which it has entered into a reciprocal 
agreement, as provided in departmental regulations.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 21535, Apr. 30, 2002; 67 FR 56123, Aug. 30, 2002]



25.404  Caribbean Basin Trade Initiative.

    Under the Caribbean Basin Trade Initiative, the United States Trade 
Representative has determined that, for acquisitions subject to the 
Trade Agreements Act, Caribbean Basin country end products must be 
treated as eligible products.

[65 FR 24322, Apr. 25, 2000, as amended at 67 FR 6118, Feb. 8, 2002]



25.405  North American Free Trade Agreement (NAFTA).

    (a) An acquisition of supplies is not subject to NAFTA if the 
estimated value of the acquisition is less than $25,000. For 
acquisitions subject to NAFTA, evaluate offers of NAFTA country end 
products without regard to the restrictions of the Buy American Act, 
except that for acquisitions with an estimated value of less than 
$56,190, only Canadian end products are eligible products. Eligible 
products from NAFTA countries are entitled to the nondiscriminatory 
treatment of the Trade Agreements Act. NAFTA does not prohibit the 
purchase of other foreign end products.
    (b) NAFTA applies to construction materials if the estimated value 
of the construction contract is $7,304,733 or more.
    (c) The procedures in 25.408 apply to the acquisition of NAFTA 
country services, other than services identified in 25.401. NAFTA 
country services are services provided by a firm established in a NAFTA 
country under service contracts with an estimated acquisition value of 
$56,190 or more ($7,304,733 or more for construction).

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 21535, Apr. 30, 2002; 67 FR 56124, Aug. 30, 2002]



25.406  Israeli Trade Act.

    Acquisitions of supplies by most agencies are subject to the Israeli 
Trade Act, if the estimated value of the acquisition is $50,000 or more 
but does not exceed the Trade Agreements Act threshold for supplies (see 
25.403(b)(1)). Agencies other than the Department of Defense, the 
Department of Energy, the Department of Transportation, the

[[Page 476]]

Bureau of Reclamation of the Department of the Interior, the Federal 
Housing Finance Board, and the Office of Thrift Supervision must 
evaluate offers of Israeli end products without regard to the 
restrictions of the Buy American Act. The Israeli Trade Act does not 
prohibit the purchase of other foreign end products.

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.407  Agreement on Trade in Civil Aircraft.

    Under the authority of Section 303 of the Trade Agreements Act, the 
U.S. Trade Representative has waived the Buy American Act for civil 
aircraft and related articles, that meet the substantial transformation 
test of the Trade Agreements Act, from countries that are parties to the 
Agreement on Trade in Civil Aircraft. Those countries are Austria, 
Belgium, Bulgaria, Canada, Denmark, Egypt, Finland, France, Germany, 
Greece, Ireland, Italy, Japan, Luxembourg, Macao, the Netherlands, 
Norway, Portugal, Romania, Spain, Sweden, Switzerland, and the United 
Kingdom.



25.408  Procedures.

    (a) If the Trade Agreements Act or NAFTA applies (see 25.401), the 
contracting officer must--
    (1) Comply with the requirements of 5.203, Publicizing and response 
time;
    (2) Comply with the requirements of 5.207, Preparation and 
Transmittal of Synopses, including the appropriate ``Numbered Note'' 
(5.207(e)(2)) for contracts that are subject to the Trade Agreements 
Act;
    (3) Not include technical requirements in solicitations solely to 
preclude the acquisition of eligible products;
    (4) Specify in solicitations that offerors must submit offers in the 
English language and in U.S. dollars (see 52.214-34, Submission of 
Offers in the English Language, and 52.214-35, Submission of Offers in 
U.S. Currency, or paragraph (c)(5) of 52.215-1, Instruction to Offerors-
-Competitive Acquisitions); and
    (5) Provide unsuccessful offerors from designated or NAFTA countries 
notice in accordance with 14.409-1 or 15.503.
    (b) See Subpart 25.5 for evaluation procedures and examples.



        Subpart 25.5--Evaluating Foreign Offers--Supply Contracts



25.501  General.

    The contracting officer--
    (a) Must apply the evaluation procedures of this subpart to each 
line item of an offer unless either the offer or the solicitation 
specifies evaluation on a group basis (see 25.503);
    (b) May rely on the offeror's certification of end product origin 
when evaluating a foreign offer;
    (c) Must identify and reject offers of end products that are 
prohibited or sanctioned in accordance with Subparts 25.6 and 25.7; and
    (d) Must not use the Buy American Act evaluation factors prescribed 
in this subpart to provide a preference for one foreign offer over 
another foreign offer.

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.502  Application.

    (a) Unless otherwise specified in agency regulations, perform the 
following steps in the order presented:
    (1) Eliminate all offers or offerors that are unacceptable for 
reasons other than price; e.g., nonresponsive, debarred or suspended, 
sanctioned (see Subpart 25.6), or a prohibited source (see Subpart 
25.7).
    (2) Rank the remaining offers by price.
    (3) If the solicitation specifies award on the basis of factors in 
addition to cost or price, apply the evaluation factors as specified in 
this section and use the evaluated cost or price in determining the 
offer that represents the best value to the Government.
    (b) For acquisitions subject to the Trade Agreements Act (see 25.401 
and 25.403(b))--
    (1) Consider only offers of U.S.-made, designated country, Caribbean 
Basin country, or NAFTA country end products, unless no offers of such 
end products were received;
    (2) If the agency gives the same consideration given eligible offers 
to offers of U.S.-made end products that are not

[[Page 477]]

domestic end products, award on the low offer. Otherwise, evaluate in 
accordance with agency procedures; and
    (3) If there were no offers of U.S.-made, designated country, 
Caribbean Basin country, or NAFTA country end products, make a 
nonavailability determination (see 25.103(b)(2)) and award on the low 
offer (see 25.403(c)).
    (c) For acquisitions not subject to the Trade Agreements Act, but 
subject to the Buy American Act (NAFTA or the Israeli Trade Act also may 
apply), the following applies:
    (1) If the low offer is a domestic offer or an eligible offer under 
NAFTA or the Israeli Trade Act, award on that offer.
    (2) If the low offer is a noneligible offer and there were no 
domestic offers (see 25.103(b)(3)), award on the low offer.
    (3) If the low offer is a noneligible offer and there is an eligible 
offer that is lower than the lowest domestic offer, award on the low 
offer. The Buy American Act provides an evaluation preference only for 
domestic offers.
    (4) Otherwise, apply the appropriate evaluation factor provided in 
25.105 to the low offer.
    (i) If the evaluated price of the low offer remains less than the 
lowest domestic offer, award on the low offer.
    (ii) If the price of the lowest domestic offer is less than the 
evaluated price of the low offer, award on the lowest domestic offer.
    (d) Ties. (1) If application of an evaluation factor results in a 
tie between a domestic offer and a foreign offer, award on the domestic 
offer.
    (2) If no evaluation preference was applied (i.e., offers afforded 
nondiscriminatory treatment under the Buy American Act), resolve ties 
between domestic and foreign offers by a witnessed drawing of lots by an 
impartial individual.
    (3) Resolve ties between foreign offers from small business concerns 
(under the Buy American Act, a small business offering a manufactured 
article that does not meet the definition of ``domestic end product'' is 
a foreign offer) or foreign offers from a small business concern and a 
large business concern in accordance with 14.408-6(a).

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.503  Group offers.

    (a) If the solicitation or an offer specifies that award can be made 
only on a group of line items or on all line items contained in the 
solicitation or offer, reject the offer--
    (1) If any part of the award would consist of sanctioned or 
prohibited end products (see Subparts 25.6 and 25.7); or
    (2) If the Trade Agreements Act applies and any part of the offer 
consists of items restricted in accordance with 25.403(c).
    (b) If an offer restricts award to a group of line items or to all 
line items contained in the offer, determine for each line item whether 
to apply an evaluation factor (see 25.504-4, Example 1).
    (1) First, evaluate offers that do not specify an award restriction 
on a line item basis in accordance with 25.502, determining a tentative 
award pattern by selecting for each line item the offer with the lowest 
evaluated price.
    (2) Evaluate an offer that specifies an award restriction against 
the offered prices of the tentative award pattern, applying the 
appropriate evaluation factor on a line item basis.
    (3) Compute the total evaluated price for the tentative award 
pattern and the offer that specified an award restriction.
    (4) Unless the total evaluated price of the offer that specified an 
award restriction is less than the total evaluated price of the 
tentative award pattern, award based on the tentative award pattern.
    (c) If the solicitation specifies that award will be made only on a 
group of line items or all line items contained in the solicitation, 
determine the category of end products on the basis of each line item, 
but determine whether to apply an evaluation factor on the basis of the 
group of items (see 25.504-4, Example 2).
    (1) If the proposed price of domestic end products exceeds 50 
percent of the total proposed price of the group, evaluate the entire 
group as a domestic

[[Page 478]]

offer. Evaluate all other groups as foreign offers.
    (2) For foreign offers, if the proposed price of domestic end 
products and eligible products exceeds 50 percent of the total proposed 
price of the group, evaluate the entire group as an eligible offer.
    (3) Apply the evaluation factor to the entire group in accordance 
with 25.502.



25.504  Evaluation Examples.

    The following examples illustrate the application of the evaluation 
procedures in 25.502 and 25.503. The examples assume that the 
contracting officer has eliminated all offers that are unacceptable for 
reasons other than price or a trade agreement (see 25.502(a)(1)). The 
evaluation factor may change as provided in agency regulations.

[67 FR 21535, Apr. 30, 2002]



25.504-1  Buy American Act.

    (a)(1) Example 1.

Offer A.............................     $12,000  Domestic end product,
                                                   small business.
Offer B.............................      11,700  Domestic end product,
                                                   small business.
Offer C.............................      10,000  U.S.-made end product
                                                   (not domestic), small
                                                   business.
 


    (2) Analysis: This acquisition is for end products for use in the 
United States and is set aside for small business concerns. The Buy 
American Act applies. Since the acquisition value is less than $25,000 
and the acquisition is set aside, none of the trade agreements apply. 
Perform the steps in 25.502(a). Offer C is evaluated as a foreign end 
product because it is the product of a small business, but is not a 
domestic end product (see 25.502(c)(4)). Since Offer B is a domestic 
offer, apply the 12 percent factor to Offer C (see 25.105(b)(2)). The 
resulting evaluated price of $11,200 remains lower than Offer B. The 
cost of Offer B is therefore unreasonable (see 25.105(c)). Award on 
Offer C at $10,000 (see 25.502(c)(4)(i)).

    (b)(1) Example 2.


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Offer A..........................      $11,000  Domestic end product,
                                                 small business
Offer B..........................      $10,700  Domestic end product,
                                                 small business
Offer C..........................      $10,200  U.S.-made end product
                                                 (not domestic), small
                                                 business
------------------------------------------------------------------------

    (2) Analysis: This acquisition is for end products for use in the 
United States and is set aside for small business concerns. The Buy 
American Act applies. Perform the steps in 25.502(a). Offer C is 
evaluated as a foreign end product because it is the product of a small 
business but is not a domestic end product (see 25.502(c)(4)). After 
applying the 12 percent factor, the evaluated price of Offer C is 
$11,424. Award on Offer B at $10,700 (see 25.502(c)(4)(ii)).

[64 FR 72419, Dec. 27, 1999, as amended at 67 FR 21535, Apr. 30, 2002]



25.504-2  Trade Agreements Act/Caribbean Basin Trade Initiative/NAFTA.

    Example 1.

Offer A.............................    $204,000  U.S.-made end product
                                                   (not domestic).
Offer B.............................     203,000  U.S.-made end product
                                                   (domestic), small
                                                   business.
Offer C.............................     200,000  Eligible product.
Offer D.............................     195,000  Noneligible product
                                                   (not U.S.-made).
 

    Analysis: Eliminate Offer D because the Trade Agreements Act applies 
and there is an offer of a U.S.-made or an eligible product (see 
25.502(b)(1)). If the agency gives the same consideration given eligible 
offers to offers of U.S.-made end products that are not domestic offers, 
it is unnecessary to determine if U.S.-made end products are domestic 
(large or small business). No further analysis is necessary. Award on 
the low remaining offer, Offer C (see 25.502(b)(2)).



25.504-3  NAFTA/Israeli Trade Act.

    (a) Example 1.

Offer A.............................    $105,000  Domestic end product,
                                                   small business.
Offer B.............................     100,000  Eligible product.
 


[[Page 479]]

    Analysis: Since the low offer is an eligible offer, award on the low 
offer (see 25.502(c)(1)).
    (b) Example 2.

Offer A.............................    $105,000  Eligible product.
Offer B.............................     103,000  Noneligible product.
 

    Analysis: Since the acquisition is not subject to the Trade 
Agreements Act, the contracting officer can consider the noneligible 
offer. Since no domestic offer was received, make a nonavailability 
determination and award on Offer B (see 25.502(c)(2)).
    (c) Example 3.

Offer A.............................    $105,000  Domestic end product,
                                                   large business.
Offer B.............................     103,000  Eligible product.
Offer C.............................     100,000  Noneligible product.
 

    Analysis: Since the acquisition is not subject to the Trade 
Agreements Act, the contracting officer can consider the noneligible 
offer. Because the eligible offer (Offer B) is lower than the domestic 
offer (Offer A), no evaluation factor applies to the low offer (Offer 
C). Award on the low offer (see 25.502(c)(3)).



25.504-4  Group award basis.

    (a) Example 1.

----------------------------------------------------------------------------------------------------------------
                                                                         Offers
                 Item                 --------------------------------------------------------------------------
                                                  A                        B                        C
----------------------------------------------------------------------------------------------------------------
1....................................             DO = $55,000             EL = $56,000            NEL = $50,000
2....................................             NEL = 13,000              EL = 10,000              EL = 13,000
3....................................             NEL = 11,500              DO = 12,000              DO = 10,000
4....................................             NEL = 24,000              EL = 28,000             NEL = 22,000
5....................................              DO = 18,000             NEL = 10,000              DO = 14,000
                                      --------------------------
                                                       121,500                  116,000                  109,000
----------------------------------------------------------------------------------------------------------------
Key: DO = Domestic end product; EL = Eligible product; NEL = Noneligible product.

    Problem: Offeror C specifies all-or-none award. Assume all offerors 
are large businesses. The Trade Agreements Act does not apply.

Analysis: (see 25.503)

    STEP 1: Evaluate Offers A & B before considering Offer C and 
determine which offer has the lowest evaluated cost for each line item 
(the tentative award pattern):
    Item 1: Low offer A is domestic; select A.
    Item 2: Low offer B is eligible; do not apply factor; select B.
    Item 3: Low offer A is noneligible and Offer B is a domestic offer. 
Apply a 6 percent factor to Offer A. The evaluated price of Offer A is 
higher than Offer B; select B.
    Item 4: Low offer A is noneligible. Since neither offer is a 
domestic offer, no evaluation factor applies; select A.
    Item 5: Low offer B is noneligible; apply a 6 percent factor to 
Offer B. Offer A is still higher than Offer B; select B.
    STEP 2: Evaluate Offer C against the tentative award pattern for 
Offers A and B:

----------------------------------------------------------------------------------------------------------------
                                                                         Offers
                                      --------------------------------------------------------------------------
                 Item                                           Tentative award pattern
                                              Low offer               from A and B                  C
----------------------------------------------------------------------------------------------------------------
1....................................                        A               DO=$55,000            * NEL=$53,000
2....................................                        B                EL=10,000                EL=13,000
3....................................                        B                DO=12,000                DO=10,000
4....................................                        A               NEL=24,000               NEL=22,000
5....................................                        B              *NEL=10,600                DO=14,000
                                      --------------------------
                                                                                111,600                  112,000
----------------------------------------------------------------------------------------------------------------
* Offer + 6 percent.

    On a line item basis, apply a factor to any noneligible offer if the 
other offer for that line item is domestic.
    For Item 1, apply a factor to Offer C because Offer A is domestic 
and the acquisition was not subject to the Trade Agreements Act. The 
evaluated price of Offer C, Item 1, becomes $53,000 ($50,000 plus 6 
percent). Apply a factor to Offer B, Item 5, because it is a noneligible 
product and Offer C is domestic. The evaluated price of Offer B is 
$10,600 ($10,000 plus 6 percent). Evaluate the remaining items without 
applying a factor.

[[Page 480]]

    STEP 3: The tentative unrestricted award pattern from Offers A and B 
is lower than the evaluated price of Offer C. Award the combination of 
Offers A and B. Note that if Offer C had not specified all-or-none 
award, award would be made on Offer C for line items 1, 3, and 4, 
totaling an award of $82,000.
    (b) Example 2.

----------------------------------------------------------------------------------------------------------------
                                                                         Offers
                 Item                 --------------------------------------------------------------------------
                                                  A                        B                        C
----------------------------------------------------------------------------------------------------------------
1....................................               DO=$50,000               EL=$50,500              NEL=$50,000
2....................................               NEL=10,300               NEL=10,000                EL=10,200
3....................................                EL=20,400                EL=21,000               NEL=20,200
4....................................                DO=10,500                DO=10,300                DO=10,400
                                      --------------------------
                                                        91,200                   91,800                   90,800
----------------------------------------------------------------------------------------------------------------

    Problem: The solicitation specifies award on a group basis. Assume 
the Buy American Act applies and the acquisition cannot be set aside for 
small business concerns. All offerors are large businesses.
    Analysis: (see 25.503(c))
    STEP 1: Determine which of the offers are domestic (see 
25.503(c)(1)):

------------------------------------------------------------------------
            Domestic  [percent]                   Determination
------------------------------------------------------------------------
  A  60,500/91,200=66.3%..............  Domestic
  B  10,300/91,800=11.2%..............  Foreign
  C  10,400/90,800=11.5%..............  Foreign
------------------------------------------------------------------------

    STEP 2: Determine whether foreign offers are eligible or noneligible 
offers (see 25.503(c)(2)):

------------------------------------------------------------------------
       Domestic + eligible  [percent]             Determination
------------------------------------------------------------------------
  A  N/A..............................  Domestic
  B  81,800/91,800=89.1%..............  Eligible
  C  20,600/90,800=22.7%..............  Noneligible
------------------------------------------------------------------------

    STEP 3: Determine whether to apply an evaluation factor (see 
25.503(c)(3)). The low offer (Offer C) is a foreign offer. There is no 
eligible offer lower than the domestic offer. Therefore, apply the 
factor to the low offer. Addition of the 6 percent factor (use 12 
percent if Offer A is a small business) to Offer C yields an evaluated 
price of $96,248 ($90,800 + 6 percent). Award on Offer A (see 
25.502(c)(4)(ii)). Note that, if Offer A were greater than Offer B, an 
evaluation factor would not be applied and award would be on Offer C 
(see 25.502(c)(3)).

[64 FR 72419, Dec. 27, 1999; 65 FR 4633, Jan. 31, 2000]



                      Subpart 25.6--Trade Sanctions



25.600  Scope of subpart.

    This subpart implements sanctions imposed by the President pursuant 
to Section 305(g)(1) of the Trade Agreements Act of 1979 (19 U.S.C. 
2515(g)(1)), on European Union (EU) member states that discriminate 
against U.S. products or services (sanctioned EU member states). This 
subpart does not apply to contracts for supplies or services awarded and 
performed outside the United States, or to the Department of Defense. 
For thresholds unique to individual agencies, see agency regulations.



25.601  Policy.

    (a) Except as provided in 25.602, agencies shall not award contracts 
for--
    (1) Sanctioned EU country end products with an estimated acquisition 
value less than $169,000;
    (2) Sanctioned EU country construction with an estimated acquisition 
value less than $6,481,000; or
    (3) Sanctioned EU country services as follows (Federal Service Code 
or Category from the Federal Procurement Data System Product/Service 
Code Manual is indicated in parentheses):
    (i) Service contracts regardless of acquisition value for--
    (A) All transportation services, including launching services (all V 
codes, J019, J998, J999, and K019);
    (B) Dredging (Y216 and Z216);
    (C) Management and operation 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 coproduction of program material for 
broadcasting, such as motion pictures (T006 and T016);
    (E) Research and development (all A codes);
    (F) Airport concessions (S203);
    (G) Legal services (R418);

[[Page 481]]

    (H) Hotel and restaurant services (S203);
    (I) Placement and supply of personnel services (V241 and V251);
    (J) Investigation and security services (S206, S211, and R423);
    (K) Education and training services (all U codes and R419);
    (L) Health and social services (all O and G codes);
    (M) Recreational, cultural, and sporting services (G003); or
    (N) Telecommunications services (encompassing only voice telephony, 
telex, radio telephony, paging, and satellite services) (S1, D304, D305, 
D316, D317, and D399).
    (ii) All other service contracts with an estimated acquisition value 
less than $169,000.
    (b) Determine the applicability of sanction thresholds in the manner 
provided at 25.403(b).

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 56124, Aug. 30, 2002]



25.602  Exceptions.

    (a) The sanctions in 25.601 do not apply to--
    (1) Purchases at or below the simplified acquisition threshold 
awarded using simplified acquisition procedures;
    (2) Total small business set-asides in accordance with 19.502-2;
    (3) Contracts in support of U.S. national security interests; or
    (4) Contracts for essential spare, repair, or replacement parts not 
otherwise available from nonsanctioned countries.
    (b)(1) The head of the agency, without power of redelegation, may 
authorize the award of a contract or class of contracts for sanctioned 
EU country end products, services, and construction, the purchase of 
which is otherwise prohibited by 25.601(a), if the head of the agency 
determines that such action is necessary--
    (i) In the public interest;
    (ii) To avoid the restriction of competition in a manner that would 
limit the acquisition 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 offerors to ensure the acquisition of services, 
articles, materials, or supplies of requisite quality at competitive 
prices.
    (2) When the head of the agency makes a determination in accordance 
with paragraph (b)(1) of this section, the agency must notify the U.S. 
Trade Representative within 30 days after contract award.



                    Subpart 25.7--Prohibited Sources



25.701  Restrictions.

    (a)(1) The Government generally does not acquire supplies or 
services that cannot be imported lawfully into the United States. 
Therefore, except as provided in paragraph (a)(2) of this section, even 
for overseas use, agencies and their contractors and subcontractors must 
not acquire any supplies or services originating from sources within, or 
that were located in or transported from or through
    (i) Cuba (31 CFR part 515);
    (ii) Iran (31 CFR part 560);
    (iii) Iraq (31 CFR part 575);
    (iv) Libya (31 CFR part 550);
    (v) North Korea (31 CFR part 500);
    (vi) Sudan (31 CFR part 538);
    (vii) Territory of Afghanistan controlled by the Taliban (Executive 
Order 13129 of July 4, 1999, Blocking Property and Prohibiting 
Transactions With the Taliban); or
    (viii) Serbia, excluding the territory of Kosovo (Executive Order 
13121 of April 30, 1999, Blocking Property of the Governments of the 
Federal Republic of Yugoslavia (Serbia and Montenegro), the Republic of 
Serbia, and the Republic of Montenegro, and Prohibiting Trade 
Transactions Involving the Federal Republic of Yugoslavia (Serbia and 
Montenegro) in Response to the Situation in Kosovo).
    (2)(i) Unless agency procedures require a higher level of approval, 
the contracting officer may, in unusual circumstances, acquire for use 
outside the United States supplies and services restricted in paragraph 
(a)(1) of this section. Examples of unusual circumstances are an 
emergency or when

[[Page 482]]

the supplies or services are not otherwise available and a substitute is 
not acceptable.
    (ii) The contracting officer must provide documentation in the 
contract file whenever this exception is used.
    (b) Agencies and their contractors and subcontractors must not 
acquire any supplies or services from entities controlled by the 
Government of Iraq or other specially designated nationals (31 CFR 
Chapter V, Appendix A).

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36028, June 6, 2000]



25.702  Source of further information.

    Refer questions concerning the restrictions in 25.701 to the 
Department of the Treasury, Office of Foreign Assets Control, 
Washington, D.C. 20220 (Telephone (202) 622-2520).

[65 FR 36028, June 6, 2000]



      Subpart 25.8--Other International Agreements and Coordination



25.801  General.

    Treaties and agreements between the United States and foreign 
governments affect the evaluation of offers from foreign entities and 
the performance of contracts in foreign countries.



25.802  Procedures.

    (a) When placing contracts with contractors located outside the 
United States, for performance outside the United States, contracting 
officers must--
    (1) Determine the existence and applicability of any international 
agreements and ensure compliance with these agreements; and
    (2) Conduct the necessary advance acquisition planning and 
coordination between the appropriate U.S. executive agencies and foreign 
interests as required by these agreements.
    (b) The Department of State publishes many international agreements 
in the ``United States Treaties and Other International Agreements'' 
series. Copies of this publication normally are available in overseas 
legal offices and U.S. diplomatic missions.
    (c) Contracting officers must award all contracts with Taiwanese 
firms or organizations through the American Institute of Taiwan (AIT). 
AIT is under contract to the Department of State.



                    Subpart 25.9--Customs and Duties



25.900  Scope of subpart.

    This subpart provides policies and procedures for exempting from 
import duties certain supplies purchased under Government contracts.



25.901  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 must use 
these exemptions when the anticipated savings to appropriated funds will 
outweigh the administrative costs associated with processing required 
documentation.



25.902  Procedures.

    For regulations governing importations and duties, see the Customs 
Regulations issued by the U.S. Customs Service, Department of the 
Treasury (19 CFR Chapter 1). 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 25.903), those shipments are also subject to duty.



25.903  Exempted supplies.

    (a) Subchapters VIII and X of Chapter 98 of the Harmonized Tariff 
Schedule of the United States (19 U.S.C. 1202) list 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 
Harmonized Tariff Schedule (see 19 CFR 10.102-104, 10.114, and 10.121 
and 15 CFR part 301 for requirements and formats).
    (b) Supplies (excluding equipment) for Government-operated vessels 
or aircraft may be withdrawn from any customs-bonded warehouse, from 
continuous customs custody elsewhere than

[[Page 483]]

in a bonded warehouse, or from a foreign-trade zone, free of duty and 
internal revenue tax as provided in 19 U.S.C. 1309 and 1317. The 
contracting activity must cite this authority on the appropriate customs 
form when making purchases (see 19 CFR 10.59--10.65).



        Subpart 25.10--Additional Foreign Acquisition Regulations



25.1001  Waiver of right to examination of records.

    (a) Policy. The clause at 52.215-2, Audit and Records--Negotiation, 
prescribed at 15.209(b), and paragraph (d) of the clause at 52.212-5, 
Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders--Commercial Items, prescribed at 12.301(b)(4), 
implement 10 U.S.C. 2313 and 41 U.S.C. 254d. The basic clauses authorize 
examination of records by the Comptroller General.
    (1) Insert the appropriate basic clause, whenever possible, in 
negotiated contracts with foreign contractors.
    (2) The contracting officer may use 52.215-2 with its Alternate III 
or 52.212-5 with its Alternate I after--
    (i) Exhausting all reasonable efforts to include the basic clause;
    (ii) Considering factors such as alternate sources of supply, 
additional cost, and time of delivery; and
    (iii) The head of the agency has executed a determination and 
findings in accordance with paragraph (b) of this section, with the 
concurrence of the Comptroller General. However, concurrence of the 
Comptroller General is not required if the contractor is a foreign 
government or agency thereof or is precluded by the laws of the country 
involved from making its records available for examination.
    (b) Determination and findings. The determination and findings must-
-
    (1) Identify the contract and its purpose, and identify if the 
contract is with a foreign contractor or with a foreign government or an 
agency of a foreign government;
    (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 supplies or services 
from the United States and other sources; and
    (5) Determine that it will best serve the interest of the United 
States to use the appropriate alternate clause in paragraph (a)(2) of 
this section.



25.1002  Use of foreign currency.

    (a) Unless an international agreement or the Trade Agreements Act 
(see 25.408(a)(3)) requires a specific currency, contracting officers 
must determine whether solicitations for contracts to be entered into 
and performed outside the United States will require submission of 
offers in U.S. currency or 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 generally 
should require all offers to be priced in the same currency. However, if 
the solicitation permits submission of offers in other than a specified 
currency, the contracting officer must convert the offered prices to 
U.S. currency for evaluation purposes. The contracting officer must use 
the current market exchange rate from a commonly used source in effect 
as follows:
    (1) For acquisitions conducted using sealed bidding procedures, on 
the date of bid opening.
    (2) For acquisitions conducted using negotiation procedures--
    (i) On the date specified for receipt of offers, if award is based 
on initial offers; otherwise
    (ii) On the date specified for receipt of final proposal revisions.
    (c) If a contract is priced in foreign currency, the agency must 
ensure that adequate funds are available to cover currency fluctuations 
to avoid a violation of the Anti-Deficiency Act (31 U.S.C. 1341, 1342, 
1511-1519).



       Subpart 25.11--Solicitation Provisions and Contract Clauses



25.1101  Acquisition of supplies.

    The following provisions and clauses apply to the acquisition of 
supplies and the acquisition of services involving the furnishing of 
supplies.

[[Page 484]]

    (a)(1) Insert the clause at 52.225-1, Buy American Act--
    Supplies, in solicitations and contracts with a value exceeding 
$2,500 ($15,000 for acquisitions as described in 13.201(g)) but not 
exceeding $25,000; and in solicitations and contracts with a value 
exceeding $25,000, if none of the clauses prescribed in paragraphs (b) 
and (c) of this section apply, except if--
    (i) The solicitation is restricted to domestic end products in 
accordance with Subpart 6.3;
    (ii) The acquisition is for supplies for use within the United 
States and an exception to the Buy American Act applies (e.g., 
nonavailability or public interest); or
    (iii) The acquisition is for supplies for use outside the United 
States.
    (2) Insert the provision at 52.225-2, Buy American Act Certificate, 
in solicitations containing the clause at 52.225-1.
    (b)(1)(i) Insert the clause at 52.225-3, Buy American Act--North 
American Free Trade Agreement--Israeli Trade Act, in solicitations and 
contracts if--
    (A) The acquisition is for supplies, or for services involving the 
furnishing of supplies, for use within the United States, and the 
acquisition value is $25,000 or more, but is less than $169,000; and
    (B) No exception in 25.401 applies. For acquisitions of agencies not 
subject to the Israeli Trade Act (see 25.406), see agency regulations.
    (ii) If the acquisition value is $25,000 or more but is less than 
$50,000, use the clause with its Alternate I.
    (iii) If the acquisition value is $50,000 or more but is less than 
$56,190, use the clause with its Alternate II.
    (2)(i) Insert the provision at 52.225-4, Buy American Act--North 
American Free Trade Agreement--Israeli Trade Act Certificate, in 
solicitations containing the clause at 52.225-3.
    (ii) If the acquisition value is $25,000 or more but is less than 
$50,000, use the provision with its Alternate I.
    (iii) If the acquisition value is $50,000 or more but is less than 
$56,190, use the provision with its Alternate II.
    (c)(1) Insert the clause at 52.225-5, Trade Agreements, in 
solicitations and contracts valued at $169,000 or more, if the Trade 
Agreements Act applies (see 25.401 and 25.403) and the agency has 
determined that the restrictions of the Buy American Act are not 
applicable to U.S.-made end products. If the agency has not made such a 
determination, the contracting officer must follow agency procedures.
    (2) Insert the provision at 52.225-6, Trade Agreements Certificate, 
in solicitations containing the clause at 52.225-5.
    (d) Insert the provision at 52.225-7, Waiver of Buy American Act for 
Civil Aircraft and Related Articles, in solicitations for civil aircraft 
and related articles (see 25.407), if the acquisition value is less than 
$169,000.
    (e) Insert the clause at 52.225-8, Duty-Free Entry, in solicitations 
and contracts for supplies that may be imported into the United States 
and for which duty-free entry may be obtained in accordance with 
25.903(a), if the value of the acquisition--
    (1) Exceeds $100,000; or
    (2) Is $100,000 or less, but the savings from waiving the duty is 
anticipated to be more than the administrative cost of waiving the duty. 
When used for acquisitions valued at $100,000 or less, the contracting 
officer may modify paragraphs (b)(1) and (i)(2) of the clause to reduce 
the dollar figure.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 21535, Apr. 30, 2002; 67 FR 56122, Aug. 30, 2002; 67 FR 56124, Aug. 
30, 2002]



25.1102  Acquisition of construction.

    (a) Insert the clause at 52.225-9, Buy American Act--Construction 
Materials, in solicitations and contracts for construction that is 
performed in the United States valued at less than $6,481,000.
    (1) List in paragraph (b)(2) of the clause all foreign construction 
material excepted from the requirements of the Buy American Act.
    (2) If the head of the agency determines that a higher percentage is 
appropriate, substitute the higher evaluation percentage in paragraph 
(b)(3)(i) of the clause.
    (b)(1) Insert the provision at 52.225-10, Notice of Buy American Act 
Requirement--Construction Materials, in solicitations containing the 
clause at 52.225-9.

[[Page 485]]

    (2) If insufficient time is available to process a determination 
regarding the inapplicability of the Buy American Act before receipt of 
offers, use the provision with its Alternate I.
    (c) Insert the clause at 52.225-11, Buy American Act-- Construction 
Materials under Trade Agreements, in solicitations and contracts for 
construction that is performed in the United States valued at $6,481,000 
or more.
    (1) List in paragraph (b)(3) of the clause all foreign construction 
material excepted from the requirements of the Buy American Act, other 
than designated country or NAFTA country construction material.
    (2) If the head of the agency determines that a higher percentage is 
appropriate, substitute the higher evaluation percentage in paragraph 
(b)(4)(i) of the clause.
    (3) For acquisitions valued at $6,481,000 or more, but less than 
$7,304,733, use the clause with its Alternate I.
    (d)(1) Insert the provision at 52.225-12, Notice of Buy American Act 
Requirement--Construction Materials under Trade Agreements, in 
solicitations containing the clause at 52.225-11.
    (2) If insufficient time is available to process a determination 
regarding the inapplicability of the Buy American Act before receipt of 
offers, use the provision with its Alternate I.
    (3) For acquisitions valued at $6,481,000 or more, but less than 
$7,304,733, use the clause with its Alternate II.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, June 6, 2000; 67 
FR 21536, Apr. 30, 2002; 67 FR 56124, Aug. 30, 2002]



25.1103  Other provisions and clauses.

    (a) Restrictions on certain foreign purchases. Insert the clause at 
52.225-13, Restrictions on Certain Foreign Purchases, in solicitations 
and contracts with a value exceeding $2,500 ($15,000 for acquisitions as 
described in 13.201(g)), unless an exception applies (see 25.701(a)(2)).
    (b) Translations. Insert the clause at 52.225-14, Inconsistency 
Between English Version and Translation of Contract, in solicitations 
and contracts if anticipating translation into another language.
    (c) Sanctions. (1) Except as provided in paragraph (c)(2) of this 
section, insert the clause at--
    (i) 52.225-15, Sanctioned European Union Country End Products, in 
solicitations and contracts for supplies valued at less than $169,000; 
or
    (ii) 52.225-16, Sanctioned European Union Country Services, in 
solicitations and contracts for services--
    (A) Listed in 25.601(a)(3)(i); or
    (B) Valued at less than $169,000.
    (2) Do not insert the clauses in paragraph (c)(1) of this section 
in--
    (i) Solicitations issued and contracts awarded by--
    (A) A contracting activity located outside of the United States, 
provided the supplies will be used or the services will be performed 
outside of the United States; or
    (B) The Department of Defense;
    (ii) Purchases at or below the simplified acquisition threshold 
awarded using simplified acquisition procedures;
    (iii) Total small business set-asides;
    (iv) Contracts in support of U.S. national security interests;
    (v) Contracts for essential spare, repair, or replacement parts 
available only from sanctioned EU member states; or
    (vi) Contracts for which the head of the agency has made a 
determination in accordance with 25.602(b).
    (d) Foreign currency offers. Insert the provision at 52.225-17, 
Evaluation of Foreign Currency Offers, in solicitations that permit the 
use of other than a specified currency. Insert in the provision the 
source of the rate to be used in the evaluation of offers.

[64 FR 72419, Dec. 27, 1999, as amended at 65 FR 36026, 36028, June 6, 
2000; 67 FR 21538, Apr. 30, 2002; 67 FR 56122, 56124, Aug. 30, 2002]



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.

[[Page 486]]

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 [Reserved]
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 that 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).
    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 constitutes 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, that 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; 
65 FR 24323, Apr. 25, 2000]



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 representation 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 representation 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.

[[Page 487]]

    (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 representation 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; 64 FR 10532, Mar. 
4, 1999]



26.104  Contract clause.

    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--
    (a) In the opinion of the contracting officer, subcontracting 
possibilities exist for Indian organizations or Indian-owned economic 
enterprises; and
    (b) Funds are available for any increased costs as described in 
paragraph (b)(2) of the clause at 52.226-1.

[65 FR 24323, Apr. 25, 2000]



        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,

[[Page 488]]

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  [Reserved]



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 in complying with the laws 
and requirements mentioned in the Executive order.



26.304  Solicitation provision.

    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. For DoD, NASA, and Coast Guard acquisitions, also insert 
the provision in solicitations that contain the clause at 52.219-23, 
Notice of Price Evaluation Adjustment for Small Disadvantaged Business 
Concerns.

[64 FR 36224, July 2, 1999]

[[Page 489]]



             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 490]]



                          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

[[Page 491]]

against it may, 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 492]]



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 493]]

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 494]]

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]



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]



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 495]]



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,

[[Page 496]]

upon receiving the application serial 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 497]]

    (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.

    As used in this subpart--
    Invention 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 when used in relation to any invention, means the conception or 
first actual reduction to practice of such invention.
    Nonprofit organization 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 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 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 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; 66 FR 2130, Jan. 10, 2001]



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 public availability of the inventions made in the 
United States by United States industry and labor; to ensure that the 
Government obtains sufficient

[[Page 498]]

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 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.

[[Page 499]]

    (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).
    (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

[[Page 500]]

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 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

[[Page 501]]

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 Government-owned 
facility, the contracting officer will include Alternate III in lieu of 
subparagraph (k)(3) of the clause.

[[Page 502]]

    (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.
    (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

[[Page 503]]

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 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

[[Page 504]]

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:
    (1) Promoting the utilization of inventions arising from federally-
supported research and development.

[[Page 505]]

    (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 
contractor a written notice of intention to revoke or modify the 
license, and the contractor will be allowed 30

[[Page 506]]

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 recommended determination. A copy of the findings of fact 
shall be sent to the

[[Page 507]]

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 shall be identified in the contract, and

[[Page 508]]

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 is to be 
performed overseas, any subcontract with a nonprofit organization would 
contain the clause at 52.227-11.

[[Page 509]]

    (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 510]]



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 511]]

    (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 512]]

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.

    As used in this subpart--
    Data 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 means data relating to items, 
components, processes that are sufficient to enable physical and 
functional interchangeability, as well as data identifying source, size, 
configuration, mating and attachment characteristics, functional 
characteristics, and performance requirements; except that for computer 
software it means data identifying

[[Page 513]]

source, functional characteristics, and performance requirements, but 
specifically excludes the source code, algorithm, process, formulae, and 
flow charts of the software.
    Limited rights 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 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 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 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 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 means data other than computer software, which are of 
a scientific or technical nature.
    Unlimited rights 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.

[52 FR 18140, May 13, 1987, as amended at 66 FR 2130, Jan. 10, 2001]



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 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,

[[Page 514]]

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 
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

[[Page 515]]

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 provision 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, 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

[[Page 516]]

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 provision 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 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,

[[Page 517]]

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 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

[[Page 518]]

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 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

[[Page 519]]

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 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

[[Page 520]]

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.

[52 FR 18140, May 13, 1987, as amended at 64 FR 10532, Mar. 4, 1999]



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 television recordings with or without accompanying sound, or for the 
preparation of motion picture scripts, musical compositions, sound 
tracks, translation, adaptation, and the like;

[[Page 521]]

    (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;
    (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; or
    (ix) The development of computer software programs, where the 
program--
    (A) May give a commercial advantage; or;
    (B) Is agency mission sensitive, and release could prejudice agency 
mission, programs, or follow-on acquisitions.
    (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

[[Page 522]]

contracts for the acquisition of existing computer software (i.e., 
privately developed software normally vended commercially under a 
license or lease 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

[[Page 523]]

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 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.

[52 FR 18140, May 13, 1987, as amended at 63 FR 34077, June 22, 1998]



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

[[Page 524]]

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 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

[[Page 525]]

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 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

[[Page 526]]

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, 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 
with27.404(d).

[52 FR 18140, May 13, 1987, as amended at 62 FR 51271, Sept. 30, 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

[[Page 527]]

Alternate I through Alternate V as may be required or authorized in 
accordance 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 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,

[[Page 528]]

Rights in Data--General. The contractor's response will provide an aid 
in determining whether the 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,

[[Page 529]]

design, or construction of Government-owned research, development, or 
production facilities, and in contracts and 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; 64 FR 10532, Mar. 4, 1999]

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.

[[Page 530]]

28.106-4 Contract clause.
28.106-5 Consent of surety.
28.106-6 Furnishing information.
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 contracts that result from the use of the sealed 
bid or negotiated methods. It covers bid guarantees, bonds, alternative 
payment protections, security for bonds, and insurance.

[67 FR 13056, Mar. 20, 2002]



28.001  Definitions.

    As used in this part--
    Attorney-in-fact 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 at 2.101).
    Bid means any response to a solicitation, including a proposal under 
a negotiated acquisition. See the definition of ``offer'' at 2.101.
    Bidder means any entity that is responding or has responded to a 
solicitation, including an offeror under a negotiated acquisition.
    Bid guarantee means a form of security assuring that the bidder (1) 
will not withdraw a bid within the period specified for acceptance and 
(2) 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:
    (1) An advance payment bond secures fulfillment of the contractor's 
obligations under an advance payment provision.
    (2) An annual bid bond is a single bond furnished by a bidder, in 
lieu of

[[Page 531]]

separate bid bonds, which secures all bids (on other than construction 
contracts) requiring bonds submitted during a specific Government fiscal 
year.
    (3) 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.
    (4) A patent infringement bond secures fulfillment of the 
contractor's obligations under a patent provision.
    (5) 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.
    (6) 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.
    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.
    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.

[48 FR 42286, Sept. 19, 1983, as amended at 61 FR 31652, June 20, 1996; 
62 FR 44806, Aug. 22, 1997; 66 FR 2130, Jan. 10, 2001; 67 FR 13056, Mar. 
20, 2002]



           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]



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

[[Page 532]]

    (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(a)). 
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, as amended at 65 FR 46070, July 26, 2000]



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 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]



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

[[Page 533]]

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 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) Definition. As used in this subsection--
    Original contract price means the award price of the contract; or, 
for requirements contracts, the price payable for the estimated total 
quantity; or, for indefinite-quantity contracts, the price payable for 
the specified minimum quantity. Original contract price does not include 
the price of any options, except those options exercised at the time of 
contract award.
    (b) Contracts exceeding $100,000 (Miller Act).
    (1) Performance bonds. Unless the contracting officer determines 
that a lesser amount is adequate for the protection of the Government, 
the penal amount of performance bonds must equal--
    (i) 100 percent of the original contract price; and
    (ii) If the contract price increases, an additional amount equal to 
100 percent of the increase.
    (2) Payment bonds. (i) Unless the contracting officer makes a 
written determination supported by specific findings that a payment bond 
in this amount is impractical, the amount of the payment bond must 
equal--
    (A) 100 percent of the original contract price; and
    (B) If the contract price increases, an additional amount equal to 
100 percent of the increase.
    (ii) The amount of the payment bond must be no less than the amount 
of the performance bond.
    (c) Contracts exceeding $25,000 but not exceeding $100,000. Unless 
the contracting officer determines that a lesser amount is adequate for 
the protection of the Government, the penal amount of the payment bond 
or the amount of alternative payment protection must equal--
    (1) 100 percent of the original contract price; and
    (2) If the contract price increases, an additional amount equal to 
100 percent of the increase.
    (d) Securing additional payment protection. If the contract price 
increases, the Government must secure any needed additional protection 
by directing the contractor to--
    (1) Increase the penal sum of the existing bond;
    (2) Obtain an additional bond; or

[[Page 534]]

    (3) Furnish additional alternative payment protection.
    (e) Reducing amounts. The contracting officer may reduce the amount 
of security to support a bond, subject to the conditions of 28.203-5(c) 
or 28.204(b).

[65 FR 46070, July 26, 2000]



28.102-3  Contract clauses.

    (a) 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 contracting officer may revise paragraphs (b)(1) and/or 
(b)(2) of the clause to establish a lower percentage in accordance with 
28.102-2(b). If the provision at 52.228-1 is not included in the 
solicitation, the contracting officer must 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. The contracting officer may 
revise paragraph (b) of the clause to establish a lower percentage in 
accordance with 28.102-2(c).

[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; 65 FR 46070, 
July 26, 2000]



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 (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

[[Page 535]]

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).
    (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

[[Page 536]]

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]



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
    (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

[[Page 537]]

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 due and 
owed, or a signed agreement between the parties as to amount due and 
owed.

[62 FR 44807, Aug. 22, 1997]



           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]



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]



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

[[Page 538]]

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 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,

[[Page 539]]

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]



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

[[Page 540]]

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 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

[[Page 541]]

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 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.

[[Page 542]]

    (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 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

[[Page 543]]

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 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]



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

[[Page 544]]

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.
    (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]



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

[[Page 545]]

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 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

[[Page 546]]

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 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.)

[[Page 547]]



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.
    (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 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;

[[Page 548]]

    (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.
    (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; 66 
FR 2131, Jan. 10, 2001]



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

[[Page 549]]

    (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]



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 [Reserved]
29.302 Application of State and local taxes to the Government.
29.303 Application of State and local taxes to Government contractors 
          and subcontractors.

[[Page 550]]

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 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.

[[Page 551]]

    (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 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  [Reserved]



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]

[[Page 552]]



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 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

[[Page 553]]

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 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]

[[Page 554]]



                     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]



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

[[Page 555]]

and contracts issued by the 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 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 Defense Special Weapons Agency;
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; 62 FR 64930, Dec. 9, 1997]



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 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.

[[Page 556]]

                          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 other regulations promulgated by the CASB (see 48 CFR 
chapter 99), all of which are hereby incorporated in this part 30.
    (c) The appendix to the FAR loose-leaf edition contains--
    (1) Cost Accounting Standards and Cost Accounting Standards Board 
Rules and Regulations Recodified by the Cost Accounting Standards Board 
at 48 CFR Chapter 99; and
    (2) The following preambles:
    (i) Part I--Preambles to the Cost Accounting Standards Published by 
the Cost Accounting Standards Board.
    (ii) Part II--Preambles to the Related Rules and Regulations 
Published by the Cost Accounting Standards Board.
    (iii) Part III--Preambles Published under the FAR System.
    (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; 
63 FR 9060, Feb. 23, 1998]



30.102  Cost Accounting Standards Board publication.

    Copies of the CASB Standards and Regulations are printed in title 48 
of

[[Page 557]]

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) 
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 $50 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,

[[Page 558]]

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; 
65 FR 36029, June 6, 2000]



30.201-5  Waiver.

    (a) The head of the agency--
    (1) May waive the applicability of CAS for a particular contract or 
subcontract under the conditions listed in paragraph (b) of this 
subsection; and
    (2) Must not delegate this waiver authority to any official in the 
agency below the senior contract policymaking level.
    (b) The head of the agency may grant a waiver when one of the 
following conditions exists:
    (1) The contract or subcontract value is less than $15,000,000, and 
the head of the agency determines, in writing, that the segment of the 
contractor or subcontractor that will perform the contract or 
subcontract--
    (i) Is primarily engaged in the sale of commercial items; and
    (ii) Has no contracts or subcontracts that are subject to CAS.
    (2) The head of the agency determines that exceptional circumstances 
exist whereby a waiver of CAS is necessary to meet the needs of the 
agency. Exceptional circumstances exist only when the benefits to be 
derived from waiving the CAS outweigh the risk associated with the 
waiver. The determination that exceptional circumstances exist must--
    (i) Be set forth in writing; and
    (ii) Include a statement of the specific circumstances that justify 
granting the waiver.
    (c) When one of the conditions in paragraph (b) of this subsection 
exists, the request for waiver should include the following:
    (1) The amount of the proposed award.
    (2) A description of the contract or subcontract type (e.g., firm-
fixed-price, cost-reimbursement).
    (3) Whether the segment(s) that will perform the contract or 
subcontract has CAS-covered contracts or subcontracts.
    (4) A description of the item(s) being procured.
    (5) When the contractor or subcontractor will not accept the 
contract or subcontract if CAS applies, a statement to that effect.
    (6) Whether cost or pricing data will be obtained, and if so, a 
discussion of how the data will be used in negotiating the contract or 
subcontract price.
    (7) The benefits to the Government of waiving CAS.
    (8) The potential risk to the Government of waiving CAS.
    (9) The date by which the waiver is needed.
    (10) Any other information that may be useful in evaluating the 
request.
    (d) When neither of the conditions in paragraph (b) of this 
subsection exists, the waiver request must be prepared in accordance 
with 48 CFR 9903.201-5(e) (FAR Appendix) and submitted to the CAS Board.
    (e) Each agency must report any waivers granted under paragraph (a) 
of this subsection to the CAS Board, on a fiscal year basis, not later 
than 90 days after the close of the Government's fiscal year.

[65 FR 36030, June 6, 2000]

[[Page 559]]



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]



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.

[[Page 560]]

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]

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

[[Page 561]]

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 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]

[[Page 562]]



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 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

[[Page 563]]

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.
    (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

[[Page 564]]

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.
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 [Reserved]
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.

[[Page 565]]

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.



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 (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]



31.001  Definitions.

    As used in this part--
    Accrued benefit cost method means an actuarial cost method under 
which units of benefits 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 accrued 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 without salary projection.)
    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 means (except for subpart 31.6) amounts determined on 
the basis of costs incurred, as distinguished from forecasted costs. 
Actual costs include standard costs properly adjusted for applicable 
variances.
    Actuarial accrued liability means pension cost attributable, under 
the actuarial cost method in use, to years prior to the current period 
considered by a particular actuarial valuation. As of such date, the 
actuarial accrued liability represents the excess of the present value 
of future benefits and administrative expenses over the present value of 
future normal costs for all plan participants and beneficiaries. The 
excess of the actuarial accrued liability over the actuarial value of 
the assets of a pension plan is the unfunded actuarial liability. The 
excess of the actuarial value of the assets of a pension plan over the 
actuarial accrued liability is an actuarial surplus and is treated as a 
negative unfunded actuarial liability.
    Actuarial assumption means an estimate of future conditions 
affecting pension cost; e.g., mortality rate, employee turnover, 
compensation levels, earnings on pension plan assets, and changes in 
values of pension plan assets.
    Actuarial cost method means a technique which uses actuarial 
assumptions to measure the present value of future pension benefits and 
pension plan administrative expenses, and that assigns the cost of such 
benefits and expenses to cost accounting periods. The actuarial cost 
method includes the asset valuation method used to determine the 
actuarial value of the assets of a pension plan.
    Actuarial gain and loss means the effect on pension cost resulting 
from differences between actuarial assumptions and actual experience.
    Actuarial valuation means the determination, as of a specified date, 
of the normal cost, actuarial accrued liability, actuarial value of the 
assets of a pension plan, and other relevant values for the pension 
plan.

[[Page 566]]

    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.
    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 means (except for subpart 31.6) 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.
    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 means (except for subparts 31.3 and 31.6) a 
cost objective that has allocated to it both direct and indirect costs 
and, in the contractors accumulation system, is one of the final 
accumulation points.
    Fiscal year 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 means the portion of pension cost for a current 
or prior cost accounting period that has been paid to a funding agency.
    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,

[[Page 567]]

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 means (except for subparts 31.3 and 31.6) 
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 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 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 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 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.
    Nonqualified pension plan means any pension plan other than a 
qualified pension plan as defined in this part.
    Normal cost means the annual cost attributable, under the actuarial 
cost method in use, to current and future years as of a particular 
valuation date excluding any payment in respect of an unfunded actuarial 
liability.
    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.

[[Page 568]]

    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.
    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.
    Profit center means (except for subparts 31.3 and 31.6) the smallest 
organizationally independent segment of a company charged by management 
with profit and loss responsibilities.
    Projected benefit cost method means either--
    (1) Any of the several actuarial cost methods that distribute the 
estimated total cost of all of the employees' prospective benefits over 
a period of years, usually their working careers; or
    (2) A modification of the accrued benefit cost method that considers 
projected compensation levels.
    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.
    Qualified pension plan means a pension plan comprising a definite 
written program communicated to and for the exclusive benefit of 
employees that meets the criteria deemed essential by the Internal 
Revenue Service as set forth in the Internal Revenue Code for 
preferential tax treatment regarding contributions, investments, and 
distributions. Any other plan is a nonqualified pension plan.
    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 of employment 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.
    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; 63 FR 58596, 
Oct. 30, 1998; 66 FR 2131, Jan. 10, 2001]

[[Page 569]]



31.002  Availability of accounting guide.

    Contractors needing assistance in developing or improving their 
accounting systems and procedures may request a copy of the Defense 
Contract Audit Agency Pamphlet No. 7641.90, Information for Contractors. 
The pamphlet is available via the Internet at http://www.dcaa.mil.

[67 FR 6120, Feb. 8, 2002]



                       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 
Assistant 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, Technology, and Logistics.

[48 FR 42301, Sept. 19, 1983, as amended at 56 FR 67133, Dec. 27, 1991; 
61 FR 31655, June 20, 1996; 65 FR 24325, Apr. 25, 2000; 67 FR 13068, 
Mar. 20, 2002]



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 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);

[[Page 570]]

    (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]



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 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

[[Page 571]]

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 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]



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

[[Page 572]]

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]



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 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

[[Page 573]]

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 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--

[[Page 574]]

    (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 responsible 
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; 63 FR 9061, Feb. 23, 
1998]



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 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

[[Page 575]]

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 
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;

[[Page 576]]

    (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 governing 
refund or credit to the Government associated with pension adjustments 
and asset reversions.

[48 FR 42301, Sept. 19, 1983, as amended at 54 FR 34755, Aug. 21, 1989; 
63 FR 58597, Oct. 30, 1998]



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.
    (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]

[[Page 577]]



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 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;

[[Page 578]]

    (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 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]

[[Page 579]]



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) Acquiring scarce items for contract performance; or
    (ii) 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 that are used 
primarily for entertainment rather than product promotion; or
    (3) Allowable in accordance with 31.205-34.
    (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
    (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

[[Page 580]]

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; 64 FR 10547, Mar. 4, 1999]



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  [Reserved]



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.

[[Page 581]]

    (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 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.

[[Page 582]]

    (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.
    (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

[[Page 583]]

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. 
(However, payments for increased employee income or Federal Insurance 
Contributions Act taxes incident to allowable reimbursed relocation 
costs are allowable under 31.205-35(a)(10).)
    (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.
    (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

[[Page 584]]

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 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, as defined in 31.001, is a 
deferred compensation plan. 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

[[Page 585]]

CFR 9904.412, Cost accounting standard for composition and measurement 
of pension cost, 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 and 48 CFR 9904.413. Pension costs are 
allowable subject to the referenced standards and the cost limitations 
and exclusions set forth in paragraphs (j)(2)(i) and (j)(3) through (8) 
of this subsection.
    (i) Except for nonqualified pension plans using the pay-as-you-go 
cost method, to be allowable in the current year, pension costs must be 
funded by the time set for filing of 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. For nonqualified pension plans using the pay-as-you-go 
cost method, to be allowable in the current year, pension costs must be 
allocable in accordance with 48 CFR 9904.412-50(d)(3).
    (ii) Pension payments must be reasonable in amount and must be paid 
pursuant to--an agreement entered into in good faith between the 
contractor and employees before the work or services are performed; and 
the terms and conditions of the established plan. The cost of changes in 
pension plans that 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 paragraph 
(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:
    (i)(A) Except for nonqualified pension plans, pension costs (see 48 
CFR 9904.412-40(a)(1)) assigned 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 portion of pension cost 
computed for a cost accounting period, that exceeds the amount required 
to be funded pursuant to a waiver granted under the provisions of the 
Employee's Retirement Income Security Act of 1974 (ERISA), will be 
allowable in those future accounting periods in which the funding of 
such excess amounts occurs (see 48 CFR 9904.412-50(c)(5)).
    (B) For nonqualified pension plans, except those using the pay-as-
you-go cost method, allowable costs are limited to the amount allocable 
in accordance with 48 CFR 9904.412-50(d)(2).
    (C) For nonqualified pension plans using the pay-as-you-go cost 
method, allowable costs are limited to the amounts allocable in 
accordance with 48 CFR 9904.412-50(d)(3).
    (ii) Any amount funded in excess of the pension cost assigned to a 
cost accounting period is not allowable and shall be accounted for as 
set forth at 48 CFR 9904.412-50(a)(4), and shall be allowable in the 
future period to which it is assigned, to the extent it is allocable, 
reasonable, and not otherwise unallowable.
    (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

[[Page 586]]

will be limited to that particular segment's calculation of pension 
costs as provided for in 48 CFR 9904.413-50(c). Determinations of 
unallowable costs shall be made in accordance with the actuarial cost 
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, 
or transfer of assets to another account within the same fund, are 
unallowable except to the extent authorized by an advance agreement. If 
the withdrawal of assets from a pension fund is a plan termination under 
ERISA, the provisions of paragraph (j)(4) of this subsection apply. The 
advance agreement shall--
    (A) State the amount of the Government's equitable share in the 
gross amount withdrawn or transferred; and
    (B) Provide that the Government receive a credit equal to the amount 
of the Government's equitable share of the gross withdrawal or transfer.
    (4) Pension adjustments and asset reversions. (i) For segment 
closings, pension plan terminations, or curtailment of benefits, the 
adjustment amount shall be the amount measured, assigned, and allocated 
in accordance with 48 CFR 9904.413-50(c)(12) for contracts and 
subcontracts that are subject to Cost Accounting Standards (CAS) Board 
rules and regulations (48 CFR Chapter 99). For contracts and 
subcontracts that are not subject to CAS, the adjustment amount shall be 
the amount measured, assigned, and allocated in accordance with 48 CFR 
9904.413-50(c)(12), except the numerator of the fraction at 48 CFR 
9904.413-50(c)(12)(vi) shall be the sum of the pension plan costs 
allocated to all non-CAS-covered contracts and subcontracts that are 
subject to Subpart 31.2 or for which cost or pricing data were 
submitted.
    (ii) For all other situations where assets revert to the contractor, 
or such assets are constructively received by it for any reason, the 
contractor shall, at the Government's option, 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 cost or pricing data were submitted or that are subject to Subpart 
31.2. Excise taxes on pension plan asset reversions or withdrawals under 
this paragraph (j)(4)(ii) are unallowable in accordance with 31.205-
41(b)(6).
    (5) Defined-contribution pension plans. This paragraph covers those 
pension plans in which the contributions 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) 
of this subsection.
    (i) Allowable pension cost is limited to the net contribution 
required to be made for a cost accounting period after taking into 
account dividends and other credits, where applicable. However, any 
portion of pension cost computed for a cost accounting period that 
exceeds the amount required to be funded pursuant to a waiver granted 
under the provisions of ERISA will be allowable in those future 
accounting periods in which the funding of such excess amounts occurs 
(see 48 CFR 9904.412-50(c)(5)).
    (ii) The provisions of paragraphs (j)(3) (ii) and (iv) of this 
subsection apply to defined-contribution plans.
    (6) Pension plans using the pay-as-you-go cost method. The cost of 
pension plans using the pay-as-you-go cost method shall be measured, 
allocated,

[[Page 587]]

and accounted for in accordance with 48 CFR 9904.412 and 9904.413. 
Pension costs for a pension plan using the pay-as-you-go cost method 
shall be allowable to the extent they are allocable, reasonable, and not 
otherwise unallowable.
    (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 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

[[Page 588]]

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 other than pensions. (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.
    (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

[[Page 589]]

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 cost or 
pricing data were required or which were subject to subpart 31.2.
    (p) Limitation on allowability of compensation for certain 
contractor personnel.

(Note that pursuant to Section 804 of Pub. L. 105-261, the definition of 
``senior executive'' in (p)(2)(ii) has been changed for compensation 
costs incurred after January 1, 1999.)

    (1) Costs incurred after January 1, 1998, for compensation of a 
senior executive in excess of the benchmark compensation amount 
determined applicable for the contractor fiscal year by the 
Administrator, Office of Federal Procurement Policy (OFPP), under 
Section 39 of the OFPP Act (41 U.S.C. 435) are unallowable (10 U.S.C. 
2324(e)(1)(P) and 41 U.S.C. 256(e)(1)(P)). This limitation is the sole 
statutory limitation on allowable senior executive compensation costs 
incurred after January 1, 1998, under new or previously existing 
contracts. This limitation applies whether or not the affected contracts 
were previously subject to a statutory limitation on such costs.
    (2) As used in this paragraph:
    (i) Compensation means the total amount of wages, salary, bonuses, 
deferred compensation (see paragraph (k) of this subsection), and 
employer contributions to defined contribution pension plans (see 
paragraphs (j)(5) and (j)(8) of this subsection), for the fiscal year, 
whether paid, earned, or otherwise accruing, as recorded in the 
contractor's cost accounting records for the fiscal year.
    (ii) Senior executive means--
    (A) Prior to January 2, 1999--
    (1) The Chief Executive Officer (CEO) or any individual acting in a 
similar capacity at the contractor's headquarters;
    (2) The four most highly compensated employees in management 
positions at the contractor's headquarters, other than the CEO; and

[[Page 590]]

    (3) If the contractor has intermediate home offices or segments that 
report directly to the contractor's headquarters, the five most highly 
compensated employees in management positions at each such intermediate 
home office or segment.
    (B) Effective January 2, 1999, the five most highly compensated 
employees in management positions at each home office and each segment 
of the contractor, whether or not the home office or segment reports 
directly to the contractor's headquarters.
    (iii) Fiscal year means the fiscal year established by the 
contractor for accounting purposes.
    (iv) Contractor's headquarters means the highest organizational 
level from which executive compensation costs are allocated to 
Government contracts.

[48 FR 42301, Sept. 19, 1983]

    Editorial Note: For Federal Register citations affection section 
31.205-6, see the List of CFR Sections Affected which appears in the 
Finding Aids section of the printed volume and on GPO Access.



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, facilities capital cost of money is allowable if--

[[Page 591]]

    (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 requirements of 31.205-52 shall be observed in determining 
the allowable cost of money attributable to including asset valuations 
resulting from business combinations in the facilities capital employed 
base.
    (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; 63 FR 9067, Feb. 23, 1998]

[[Page 592]]



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 593]]

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 594]]

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 595]]



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 596]]

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) Definitions. As used in this subsection--
    Costs of idle facilities or idle capacity means costs such as 
maintenance, repair, housing, rent, and other related costs; e.g., 
property taxes, insurance, and depreciation.
    Facilities 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 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 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.

[48 FR 42301, Sept. 19, 1983, as amended at 66 FR 2131, Jan. 10, 2001; 
67 FR 6120, Feb. 8, 2002]



31.205-18  Independent research and development and bid and proposal costs.

    (a) Definitions. As used in this subsection--
    Applied research 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 techniques, and (3) attempts to advance the state

[[Page 597]]

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, (See 2.101).
    Bid and proposal (B&P) costs 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 means all divisions, subsidiaries, and affiliates of the 
contractor under common control.
    Development 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) 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.
    Systems and other concept formulation studies 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.
    (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. Except as provided in paragraphs (d) and (e) 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.
    (d) Deferred IR&D costs. (1) IR&D costs that were incurred in 
previous accounting periods are unallowable, except when a contractor 
has developed a

[[Page 598]]

specific product at its own risk in anticipation of recovering the 
development costs in the sale price of the product provided that--
    (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.
    (3) Costs incurred in preparing, submitting, and supporting offers 
on potential cooperative arrangements are allowable to the extent they 
are allocable, reasonable, and not otherwise unallowable.

[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; 62 FR 64932, 
Dec. 9, 1997; 66 FR 2131, Jan. 10, 2001]



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.

[[Page 599]]

    (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 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

[[Page 600]]

amount (plus reasonable fronting company charges for services rendered) 
which the contractor would have been allowed had it insured directly 
with the captive insurer.
    (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, and costs of preparing and issuing stock rights 
are unallowable (but see 31.205-28). However, interest assessed by State 
or local taxing authorities under the conditions specified in 31.205-
41(a)(3) is allowable.

[64 FR 51844, Sept. 24, 1999]



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.

[48 FR 42301, Sept. 19, 1983, as amended at 65 FR 80265, Dec. 20, 2000; 
66 FR 66990, Dec. 27, 2001]



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,

[[Page 601]]

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 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:

[[Page 602]]

    (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
    (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]



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

[[Page 603]]

fees and costs of attorneys, accountants, brokers, promoters and 
organizers, management consultants and investment counselors, whether or 
not 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 means costs 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. These costs are allowable to the 
extent that they would have been allowable if incurred after the date of 
the contract (see 31.109).

[48 FR 42301, Sept. 19, 1983, as amended at 66 FR 2131, Jan. 10, 2001]



31.205-33  Professional and consultant service costs.

    (a) Definition. Professional and consultant services, as used in 
this subsection, means those services rendered

[[Page 604]]

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 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--

[[Page 605]]

    (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;
    (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, as amended at 66 FR 2131]



31.205-34  Recruitment costs.

    (a) Subject to paragraph (b) of this subsection, 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) Does not describe specific positions or classes of positions; or
    (2) Includes material that is not relevant for recruitment purposes, 
such as extensive illustrations or descriptions of the company's 
products or capabilities.

[48 FR 42301, Sept. 19, 1983, as amended at 64 FR 10547, Mar. 4, 1999]



31.205-35  Relocation costs.

    (a) Relocation costs are costs incident to the permanent change of 
assigned work location (for a period of 12 months or more) of an 
existing employee or upon recruitment of a new employee. The following 
types of relocation costs are allowable as noted, subject to the 
limitations in paragraphs (b) and (f) of this subsection:
    (1) Costs of travel of the employee and members of the employee's 
immediate family (see 31.205-46) and transportation of the household and 
personal effects to the new location.
    (2) Costs of finding a new home, such as advance trips by the 
employee or the spouse, or both, to locate living quarters, and 
temporary lodging during the transition period for the employee and 
members of the employee's immediate family.
    (3) Closing costs incident to the disposition of the actual 
residence owned by the employee when notified of the transfer (e.g., 
brokerage fees, legal fees, appraisal fees, points, and finance 
charges), except that these costs, when added to the costs described in 
paragraph (a)(4) of this subsection, 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, 
and mortgage interest, after the settlement date or lease date of a new 
permanent residence, except that these costs, when added to the costs 
described in paragraph (a)(3) of this subsection, 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 insurance against damage to or loss of 
personal property while in transit.
    (6) Costs incident to acquiring a home in the new work location, 
except that--
    (i) These costs are not allowable for existing employees or newly 
recruited employees who were not homeowners before the relocation; 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

[[Page 606]]

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) Costs of canceling an unexpired lease.
    (10) Payments for increased employee income or Federal Insurance 
Contributions Act (26 U.S.C. chapter 21) taxes incident to allowable 
reimbursed relocation costs.
    (11) Payments for spouse employment assistance.
    (b) The costs described in paragraph (a) of this subsection 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 be otherwise 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 
paragraph (a)(5) of this subsection, a flat amount, not to exceed 
$5,000, may be allowed in lieu of actual costs.
    (c) The following types of costs are unallowable:
    (1) Loss on the sale of a home.
    (2) Costs incident to acquiring a home in the new location as 
follows:
    (i) Real estate brokers' fees and commissions.
    (ii) Costs 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, the 
cost of a mortgage title policy is allowable.)
    (vi) Property taxes and operating or maintenance costs.
    (3) Continuing mortgage principal payments on a residence being 
sold.
    (4) 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--
    (1) The term of employment is 12 months or more;
    (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

[[Page 607]]

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; 
67 FR 43519, June 27, 2002]



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;
    (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

[[Page 608]]

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 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]

[[Page 609]]



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, 
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.

[48 FR 42301, Sept. 19, 1983, as amended at 66 FR 2131, Jan. 10, 2001]



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 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

[[Page 610]]

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, 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

[[Page 611]]

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.
    (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.

[[Page 612]]

    (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]



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
    (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

[[Page 613]]

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 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.

[[Page 614]]



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 of $75.00 or more. The approved 
justification required by paragraph (a)(3)(ii) and, if applicable, 
paragraph (a)(3)(iii) of this subsection 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.
    (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).

[[Page 615]]

    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. 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

[[Page 616]]

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; 62 FR 64933, Dec. 9, 1997]



31.205-47  Costs related to legal and other proceedings.

    (a) Definitions. As used in this subpart--
    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), or costs incurred in connection with any 
proceeding brought by a third party in the name of the United States 
under the False Claims Act, 31 U.S.C. 3730, 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)(1) 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.
    (2) In the event of a settlement of any proceeding brought by a 
third party under the False Claims Act in which the United States did 
not intervene, reasonable costs incurred by the contractor in connection 
with such a proceeding, that are not otherwise unallowable by regulation 
or by separate agreement with the United States, may be allowed if the 
contracting officer, in consultation with his or her legal advisor, 
determines that there was very little likelihood that the third party 
would have been successful on the merits.
    (d) To the extent that they are not otherwise unallowable, costs 
incurred in connection with any proceeding under paragraph (b) of this 
subsection

[[Page 617]]

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 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. Agreements reached under paragraph (c) of this subsection shall 
be subject to this limitation. If, however, an agreement described in 
paragraph (c)(1) of this subsection explicitly states the amount of 
otherwise allowable incurred legal fees and limits the allowable 
recovery to 80 percent or less of the stated legal fees, no additional 
limitation need be applied. The amount of reimbursement allowed for 
legal costs in connection with any proceeding described in paragraph 
(c)(2) of this subsection shall be determined by the cognizant 
contracting officer, but shall not exceed 80 percent of otherwise 
allowable legal costs incurred.
    (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 
2.101).
    (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 (i) an 
agreement or contract concerning a teaming arrangement, a joint venture, 
or similar arrangement of shared interest; or (ii) dual sourcing, 
coproduction, or similar programs, are unallowable, except when (A) 
incurred as a result of compliance with specific terms and conditions of 
the contract or written instructions from the contracting officer, or 
(B) 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

[[Page 618]]

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; 63 FR 58600, Oct. 30, 1998; 65 FR 80265, Dec. 20, 2000; 66 
FR 17754, 17756, Apr. 3, 2001; at 66 FR 2131, Jan. 10, 2001; 66 FR 
17756, Apr. 3, 2001; 66 FR 66986, 66990, Dec. 27, 2001; 67 FR 43514, 
June 27, 2002]



31.205-48  Deferred research and development costs.

    Research and development, as used in this section, means the type of 
technical effort described in 31.205-18 but sponsored by a grant or 
required in the performance of a contract. When costs are incurred in 
excess of either the price of a contract or amount of a grant for 
research and development effort, the excess is unallowable under any 
other Government contract.

[65 FR 46072, July 26, 2000]



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.

    (a) For tangible capital assets, when the purchase method of 
accounting for a business combination is used, whether or not the 
contract or subcontract is subject to CAS, the allowable depreciation 
and cost of money shall be based on the capitalized asset values 
measured and assigned in accordance with 48 CFR 9904.404-50(d), if 
allocable, reasonable, and not otherwise unallowable.
    (b) For intangible capital assets, when the purchase method of 
accounting for a business combination is used, allowable amortization 
and cost of money shall be limited to the total of the amounts that 
would have been allowed had the combination not taken place.

[63 FR 9068, Feb. 23, 1998]



          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.

[[Page 619]]

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 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

[[Page 620]]

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 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 Definition.
32.006-3 Responsibilities.
32.006-4 Procedures.
32.006-5 Reporting.
32.007 Contract financing payments.

          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 Payment of subcontractors under cost-reimbursement prime 
          contracts.
32.111 Contract clauses for noncommercial purchases.
32.112 Nonpayment of subcontractors under contracts for noncommercial 
          items.

[[Page 621]]

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.
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 account at a financial insitution.
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 [Reserved]
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 [Reserved]
32.503-14 Protection of Government title.
32.503-15 Application of Government title terms.
32.503-16 Risk of loss.
32.504 Subcontracts under prime contracts providing progress payments.

                      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.

[[Page 622]]

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 Responsibilities.
32.904 Determining payment due dates.
32.905 Payment documentation and process.
32.906 Making payments.
32.907 Interest penalties.
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 Procedures.
32.1005 Solicitation provision and contract clause.
32.1006 [Reserved]
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 Statutory requirements.
32.1102 Definitions.
32.1103 Applicability.
32.1104 Protection of EFT information.
32.1105 Assignment of claims.
32.1106 EFT mechanisms.
32.1107 Payment information.
32.1108 Payment by Governmentwide commercial purchase card.
32.1109 EFT information submitted by offerors.
32.1110 Solicitation provision and 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 part addresses--
    (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; 67 FR 13054, Mar. 20, 2002]



32.001  Definitions.

    As used in this part--
    Commercial interim payment means any payment that is not a 
commercial

[[Page 623]]

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.
    Contract action means an action resulting in a contract, as defined 
in subpart 2.1, including actions for additional supplies or services 
outside the existing contract scope, but not including actions that are 
within the scope and under the terms of the existing contract, such as 
contract modifications issued pursuant to the Changes clause, or funding 
and other administrative changes.
    Contract financing payment means an authorized Government 
disbursement of monies to a contractor prior to acceptance of supplies 
or services by the Government.
    (1) Contract financing payments include--
    (i) Advance payments;
    (ii) Performance-based payments;
    (iii) Commercial advance and interim payments;
    (iv) Progress payments based on cost under the clause at 52.232-16, 
Progress Payments;
    (v) Progress payments based on a percentage or stage of completion 
(see 32.102(e)), except 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
    (vi) Interim payments under a cost reimbursement contract, except 
for a cost reimbursement contract for services when Alternate I of the 
clause at 52.232-25, Prompt Payment, is used.
    (2) Contract financing payments do not include--
    (i) Invoice payments;
    (ii) Payments for partial deliveries; or
    (iii) Lease and rental payments.
    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.
    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.
    Designated billing office means the office or person (governmental 
or nongovernmental) designated in the contract where the contractor 
first submits invoices and contract financing requests. The contract 
might designate different offices to receive invoices and contract 
financing requests. The designated billing office might be--
    (1) The Government disbursing office;
    (2) The contract administration office;
    (3) The office accepting the supplies delivered or services 
performed by the contractor;
    (4) The contract audit office; or
    (5) A nongovernmental agent.
    Designated payment office means the office designated in the 
contract to make invoice payments or contract financing payments. 
Normally, this will be the Government disbursing office.
    Due date means the date on which payment should be made.
    Invoice payment means a Government disbursement of monies to a 
contractor under a contract or other authorization for supplies or 
services accepted by the Government.
    (1) Invoice payments include--
    (i) Payments for partial deliveries that have been accepted by the 
Government;
    (ii) Final cost or fee payments where amounts owed have been settled 
between the Government and the contractor;
    (iii) For purposes of subpart 32.9 only, 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; and
    (iv) Interim payments under a cost-reimbursement contract for 
services

[[Page 624]]

when Alternate I of the clause at 52.232-25, Prompt Payment, is used.
    (2) Invoice payments do not include contract financing payments.
    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; 
66 FR 2131, Jan. 10, 2001; 66 FR 65354, Dec. 18, 2001; 67 FR 13054, Mar. 
20, 2002]



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 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.

[[Page 625]]

    (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.
    (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  Definition.

    Remedy coordination official, as used in this section, 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).)

[60 FR 49729, Sept. 26, 1995, as amended at 66 FR 2132, Jan. 10, 2001]



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;

[[Page 626]]

    (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 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]



32.007  Contract financing payments.

    (a)(1) Unless otherwise prescribed in agency policies and procedures 
or otherwise specified in paragraph (b) of this section, the due date 
for making contract financing payments by the designated payment office 
is the 30th day after the designated billing office receives a proper 
contract financing request.
    (2) If 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 specified due date.
    (3) Agency heads may prescribe shorter periods for payment 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.
    (4) Agency heads must not prescribe a period shorter than 7 days or 
longer than 30 days.
    (b) For advance payments, loans, or other arrangements that do not 
involve recurrent submission of contract financing requests, the 
designated payment office will make payment in accordance with the 
applicable contract financing terms or as directed by the contracting 
officer.

[[Page 627]]

    (c) A proper contract financing request must comply with the terms 
and conditions specified by the contract. The contractor must correct 
any defects in requests submitted in the manner specified in the 
contract or as directed by the contracting officer.
    (d) The designated billing office and designated payment office must 
annotate each contract financing request with the date their respective 
offices received the request.
    (e) The Government will not pay an interest penalty to the 
contractor as a result of delayed contract financing payments.

[66 FR 65355, Dec. 18, 2001]



          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) Payments for accepted supplies and services that are only a part 
of the contract requirements (i.e., partial deliveries) are authorized 
under 41 U.S.C. 255 and 10 U.S.C. 2307. In accordance with 5 CFR 
1315.4(k), agencies must pay for partial delivery of supplies or partial 
performance of services unless specifically prohibited by the contract. 
Although payments for partial deliveries generally are treated as a 
method of payment and not as a method of contract financing, using 
partial delivery payments can assist contractors to participate in 
contracts without, or with minimal, contract financing. When 
appropriate, contract statements of work and pricing arrangements must 
permit acceptance and payment for discrete portions of the work, as soon 
as accepted (see 32.906(c)).
    (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.

[[Page 628]]

    (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; 66 FR 65355, 
Dec. 18, 2001]



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. Contracting officers must consider the criteria in this part 
in determining whether to include contract financing in solicitations 
and contracts. Resolve reasonable doubts by including contract financing 
in the solicitation. The contracting officer must--
    (1) Provide Government financing only to the extent actually needed 
for prompt and efficient performance, considering the availability of 
private financing and the probable impact on working capital of the 
predelivery expenditures and production lead-times associated with the 
contract, or groups of contracts or orders (e.g., issued under 
indefinite-delivery contracts, basic ordering agreements, or their 
equivalent);
    (2) Administer contract financing so as to aid, not impede, the 
acquisition;
    (3) Avoid any undue risk of monetary loss to the Government through 
the financing;
    (4) Include the form of contract financing deemed to be in the 
Government's best interest in the solicitation (see 32.106 and 32.113); 
and
    (5) Monitor the contractor's use of the contract financing provided 
and the contractor's financial status.
    (b) If the contractor is a small business concern, the contracting 
officer must 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 and paragraph (d) of this 
section, the contracting officer--
    (1) May provide customary contract financing in accordance with 
32.113; and
    (2) Must not provide unusual contract financing except as authorized 
in 32.114.
    (d) Unless otherwise authorized by agency procedures, the 
contracting officer may provide contract financing in the form of 
performance-based payments (see subpart 32.10) or customary progress 
payments (see subpart 32.5) if the following conditions are met:
    (1) The contractor--
    (i) Will not be able to bill for the first delivery of products for 
a substantial time after work must begin (normally 4 months or more for 
small business concerns, and 6 months or more for others), and will make 
expenditures for contract performance during the

[[Page 629]]

predelivery period that have a significant impact on the contractor's 
working capital; or
    (ii) Demonstrates actual financial need or the unavailability of 
private financing.
    (2) If the contractor is not a small business concern--
    (i) For an individual contract, the contract price is $2 million or 
more; or
    (ii) For an indefinite-delivery contract, a basic ordering agreement 
or a similar ordering instrument, the contracting officer expects the 
aggregate value of orders or contracts that individually exceed the 
simplified acquisition threshold to have a total value of $2 million or 
more. The contracting officer must limit financing to those orders or 
contracts that exceed the simplified acquisition threshold.
    (3) If the contractor is a small business concern--
    (i) For an individual contract, the contract price exceeds the 
simplified acquisition threshold; or
    (ii) For an indefinite-delivery contract, a basic ordering agreement 
or a similar ordering instrument, the contracting officer expects the 
aggregate value of orders or contracts to exceed the simplified 
acquisition threshold.

[65 FR 16278, Mar. 27, 2000]



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 must 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 contracting officer require the contractor 
to obtain private financing--
    (1) At unreasonable terms; or
    (2) From other agencies.
    (b) Customary contract financing other than loan guarantees and 
certain advance payments (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; 
65 FR 16279, Mar. 27, 2000]



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

[[Page 630]]

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  Payment of subcontractors under cost-reimbursement prime contracts.

    If the contractor makes financing payments to a subcontractor under 
a cost-reimbursement prime contract, the contracting officer should 
accept the financing payments as reimbursable costs of the prime 
contract only under the following conditions:
    (a) The payments are made under the criteria in subpart 32.5 for 
customary progress payments based on costs, 32.202-1 for commercial item 
purchase financing, or 32.1003 for performance-based payments, as 
applicable.
    (b) If customary progress payments are made, 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.
    (c) If customary progress payments are made, the subcontractor 
complies with the liquidation principles of 32.503-8, 32.503-9, and 
32.503-10.
    (d) If performance-based payments are made, the subcontractor 
complies with the liquidation principles of 32.1004(d).
    (e) The subcontract contains financing payments terms as prescribed 
in this part.

[65 FR 16279, Mar. 27, 2000]



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;
    (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

[[Page 631]]

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  Nonpayment of subcontractors under contracts for noncommercial 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;
    (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

[[Page 632]]

    (2) Properly classified pursuant to such Executive order.

[60 FR 48274, Sept. 18, 1995]



32.113  Customary contract financing.

    The solicitation must specify the customary contract financing 
offerors may propose. The following 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 through 
progress payments based on costs in accordance with subpart 32.5.
    (d) Financing of contracts for supplies or services awarded under 
the competitive negotiation method of procurement in accordance with 
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).
    (e) Financing of contracts for supplies or services awarded under a 
sole-source acquisition as defined in 2.101 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).
    (f) Financing of contracts for supplies or services through advance 
payments in accordance with subpart 32.4.
    (g) Financing of contracts for supplies or services through 
guaranteed loans in accordance with subpart 32.3.
    (h) 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.

[65 FR 16279, Mar. 27, 2000, as amended at 66 FR 2132, Jan. 10, 2001]



32.114  Unusual contract financing.

    Any contract financing arrangement that deviates from this part is 
unusual contract financing. Unusual contract 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--

[[Page 633]]

    (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 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, as used in this subsection, 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 (See 32.001.)
    Delivery payment (See 32.001).

[60 FR 49711, Sept. 26, 1995, as amended at 66 FR 2132, Jan. 10, 2001]



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);

[[Page 634]]

    (d) The basis for any payments equivalent to commercial interim 
payments (see 32.001), 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 
32.001).

[60 FR 49711, Sept. 26, 1995, as amended at 66 FR 2132, Jan. 10, 2001]



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.
    (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

[[Page 635]]

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]



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 must include in the 
solicitation the provision at 52.232-31, Invitation to Propose Financing 
Terms. The contracting officer must 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 contracting officer must calculate the time value of 
proposal-specified contract financing arrangements using as the interest 
rate the nominal discount rate specified in Appendix C of the Office of 
Management and Budget (OMB) Circular A-94, ``Guidelines and Discount 
Rates for Benefit-Cost Analysis of Federal Programs'', 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).

[60 FR 49711, Sept. 26, 1995, as amended at 65 FR 16279, Mar. 27, 2000]

[[Page 636]]



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.
    (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

[[Page 637]]

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 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.

[[Page 638]]

    (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.

    As used in this subpart--
    Borrower 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 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 means any agency that the President has 
authorized to guarantee loans, through Federal Reserve Banks, for 
expediting national defense production.

[48 FR 42328, Sept. 19, 1983, as amended at 66 FR 2132, Jan. 10, 2001]



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.

[[Page 639]]

    (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.
    (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

[[Page 640]]

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.
    (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.

[[Page 641]]

    (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.
    (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

[[Page 642]]

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]



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]

[[Page 643]]



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.
    (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:

[[Page 644]]

    (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)).
    (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]

[[Page 645]]



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 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 financial institution 
(depository) in which the special 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.

[[Page 646]]

    (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.

[48 FR 42328, Sept. 19, 1983, as amended at 66 FR 2138, Jan. 10, 2001]



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 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 financial institution 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 financial institution 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.

[48 FR 42328, Sept. 19, 1983, as amended at 66 FR 2138, Jan. 10, 2001]



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.

[[Page 647]]

    (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 special 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 accounts in 
which the advance payments are deposited.
    (c) In the terms of the agreement, the contracting officer should 
provide for a 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 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 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 account at a financial institution 
(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 account is not required; e.g., advance 
payment by a letter of credit, an agency may require a special account 
for an individual case, or classes of cases, if the circumstances 
warrant.

[48 FR 42328, Sept. 19, 1983, as amended at 66 FR 2138, Jan. 10, 2001]

[[Page 648]]



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 account at the Contractor's financial 
institution and that the Government will have a paramount lien on (i) 
the credit balance in the special 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 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,

[[Page 649]]

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; 66 FR 2138, Jan. 10, 2001]



32.411  Agreement for special account at a financial institution.

    The contracting officer must use substantially the following form of 
agreement for a special account for advance payments:

                      Agreement for Special Account

    This agreement is entered into this ---- day of ----, 20----, 
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 financial 
institution operating under the laws of --------, located at -------- 
(the financial institution).

                                Recitals

    (a) Under date of --------, 20--------, 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 financial institution.
    (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 Account at a member bank of the 
Federal Reserve System, any ``insured'' bank within the meaning of the 
Act creating the Federal Deposit Insurance Corporation (12 U.S.C. 1811), 
or a credit union insured by the National Credit Union Administration. 
The parties agree to deposit the amounts with the financial institution, 
which meets the requirement.
    (c) This Special Account is designated ``-------- [Insert the 
Contractor's name], -------- [Insert the name of the Government agency] 
Special Account.''

                                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 financial 
institution regarding the account.
    (b) The financial institution is bound by the terms of the contract 
relating to the deposit and withdrawal of funds in the Special Account, 
but is not responsible for the application of funds withdrawn from the 
account. The financial institution shall act on written directions from 
the Contracting Officer, the administering office, or a duly authorized 
representative of either. The financial institution is not liable to any 
party to this agreement for any action that complies with the written 
directions. Any written directions received by the financial institution 
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 financial institution are 
concerned, considered as being properly issued and filed with the 
financial institution 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 financial institution 
regarding the Special 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 financial institution shall 
preserve the books and records for a period of 6 years after the closing 
of this Special Account.
    (d) In the event of the service of any writ of attachment, levy of 
execution, or commencement of garnishment proceedings regarding the 
Special Account, the financial institution will promptly notify -------- 
[Insert the name of the administering office].
    (e) While this Special Account exists, the financial institution 
shall inform the Government each month of the financial institution's 
published prime interest rate and changes to the rate during the month. 
The financial institution shall give this information to the Contracting 
Officer on the last business day of the month. [This covenant will not 
be included in the Special Account Agreements covering interest-free 
advance payments.]
    Each of the parties to this agreement has executed the agreement on 
--------, 20----.

________________________________________________________________________
________________________________________________________________________

[[Page 650]]

[Signatures and Official Titles]

[66 FR 2138, Jan. 10, 2001]



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 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; 
66 FR 2138, Jan. 10, 2001]



             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, but see 32.110 for 
progress payments made to subcontractors under cost-reimbursement prime 
contracts; 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.

[48 FR 42328, Sept. 19, 1983, as amended at 65 FR 16279, Mar. 27, 2000]



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.
    (b) The contracting officer must--
    (1) Consider any rate higher than those permitted in paragraph (a) 
of this section an unusual progress payment; and
    (2) 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, the contracting officer must not authorize a progress 
payment rate higher than the customary rate.
    (d) In accordance with 10 U.S.C. 2307(e)(2) and 41 U.S.C. 255, the 
limit for progress payments is 80 percent on work accomplished under 
undefinitized contract actions. The contracting officer must not 
authorize a higher rate under unusual progress payments or other 
customary progress payments for the undefinitized actions.

[65 FR 16279, Mar. 27, 2000]

[[Page 651]]



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 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 contracting officer may use a Progress Payments clause in 
solicitations and contracts, in accordance with this subpart. The 
contracting officer must reject as nonresponsive bids conditioned on 
progress payments when the solicitation did not provide for progress 
payments.

[65 FR 16280, Mar. 27, 2000]

[[Page 652]]



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)(1) Insert the clause at 52.232-16, Progress Payments, in--
    (i) Solicitations that may result in contracts providing for 
progress payments based on costs; and
    (ii) Fixed-price contracts under which the Government will provide 
progress payments based on costs.
    (2) If advance agency approval has been given in accordance with 
32.501-1, the contracting officer may substitute a different customary 
rate for other than small business concerns for the progress payment and 
liquidation rate indicated.
    (3) If an unusual progress payment rate is approved for the prime 
contractor (see 32.501-2), substitute the approved rate for the 
customary rate in paragraphs (a)(1), (a)(6), and (b) of the clause.
    (4) If the liquidation rate is changed from the customary progress 
payment rate (see 32.503-8 and 32.503-9), substitute the new rate for 
the rate in paragraphs (a)(1), (a)(6), and (b) of the clause.
    (5) If an unusual progress payment rate is approved for a 
subcontract (see 32.504(c) and 32.501-2), modify paragraph (j)(6) of the 
clause to specify the new rate, the name of the subcontractor, and that 
the new rate shall be used for that subcontractor in lieu of the 
customary rate.
    (b) If the contractor is a small business concern, use the clause 
with its Alternate I.
    (c) If the contract is a letter contract, use the clause with its 
Alternate II.
    (d) If the contractor is not a small business concern, and progress 
payments are authorized under an indefinite-delivery contract, basic 
ordering agreement, or their equivalent, use the clause with its 
Alternate III.
    (e) 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), describe the application of separate progress payment 
rates in a supplementary special provision within the contract. The 
contractor must submit separate progress payment requests

[[Page 653]]

and subsequent invoices for the severable portions of work in order to 
maintain accounting integrity.

[65 FR 16280, Mar. 27, 2000, as amended at 65 FR 24325, Apr. 25, 2000]



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 must--
    (a) Be submitted on Standard Form 1443, Contractor's Request for 
Progress Payment, in accordance with the form instructions and the 
contract terms;
    (b) Include any additional information reasonably requested by the 
contracting officer; and
    (c) Be $2,500 or more, unless agency procedures authorize a lower 
amount.

[65 FR 16280, Mar. 27, 2000]



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 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 responsible 
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.

[48 FR 42328, Sept. 19, 1983, as amended at 63 FR 9061, Feb. 23, 1998]

[[Page 654]]



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 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) Under indefinite-delivery contracts, the contracting officer 
should administer progress payments made under each individual order as 
if the order constituted a separate contract, unless agency procedures 
provide otherwise.

[48 FR 42328, Sept. 19, 1983, as amended at 65 FR 16280, Mar. 27, 2000]



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

[[Page 655]]

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 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)(3) of the clause at 
52.232-16, Progress Payments, without regard to the provisions of 
32.503-6.
    (f) Fair value of undelivered work. Progress payments must be 
commensurate with the fair value of work accomplished in accordance with 
contract requirements. Governed by the principles of paragraphs (c) and 
(e) of this subsection, the contracting officer must adjust progress 
payments when necessary to ensure that the fair value of undelivered 
work equals or exceeds the amount of unliquidated progress payments. On 
loss contracts, the application of a loss ratio as described in 
paragraph (g) of this subsection constitutes this adjustment.
    (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:

[[Page 656]]

    (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.
    (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 (g)(3) of this subsection:

                               Section I
Contract price..........................................      $2,850,000
Change orders and unpriced orders (to extent funds have          150,000
 been obligated)........................................
Revised contract price..................................       3,000,000
 
                               Section II
 
Total costs incurred to date............................       2,700,000
Estimated additional costs to complete..................         900,000
Total costs to complete.................................       3,600,000
                                                          ..............
 

                                                          [GRAPHIC] [TIFF OMITTED] TR27MR00.000
                                                          

Total costs eligible for progress payments..............       2,700,000
Loss ratio factor.......................................          x83.3%
Recognized costs for progress payments..................       2,249,100
Progress payment rate...................................          x80.0%
Alternate amount to be used.............................       1,799,280
 
                               Section III
 
Factored costs of items delivered*......................         750,000
Recognized costs applicable to undelivered items              1,499,100
 ($2,249,100-750,000)...................................
 
* This amount must 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; 64 FR 72451, Dec. 
27, 1999; 65 FR 16280, Mar. 27, 2000]



32.503-7  [Reserved]



32.503-8  Liquidation rates--ordinary method.

    The Government recoups progress payments 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, the contracting officer applies a liquidation rate 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, the contracting officer must use 
this method.

[65 FR 16280, Mar. 27, 2000]



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

[[Page 657]]

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 must ensure that the liquidation rate 
is--
    (1) High enough to result in Government recoupment of the applicable 
progress payments on each billing; and
    (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) The contracting officer must compute the expected progress 
payments by multiplying the estimated cost of performing the contract by 
the progress payment rate.
    (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 must 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 $2,200,000 and total estimated costs eligible for 
progress payments of $2,000,000:
    (i) If the progress payment rate is 80 percent, the minimum 
liquidation rate should be 72.7 percent, computed as follows:

[[Page 658]]

[GRAPHIC] [TIFF OMITTED] TR27MR00.001

    (ii) If the progress payment rate is 85 percent, the minimum 
liquidation rate should be 77.3 percent, computed as follows:
[GRAPHIC] [TIFF OMITTED] TR27MR00.002

    (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; 65 
FR 16281, Mar. 27, 2000]



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:
    (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 responsible audit agency or 
office should be fully utilized, along with the services of qualified 
cost analysis and engineering personnel.

[48 FR 42328, Sept. 19, 1983, as amended at 63 FR 9061, Feb. 23, 1998]



32.503-13  [Reserved]



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

[[Page 659]]

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 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 under prime contracts providing progress payments.

    (a) Subcontracts may include either performance-based payments, 
provided they meet the criteria in 32.1003, or progress payments, 
provided they meet the criteria in subpart 32.5 for customary progress 
payments, but not both. Subcontracts for commercial purchases may 
include commercial item purchase financing terms, provided they meet the 
criteria in 32.202-1.
    (b) The contractor's requests for progress payments may include the 
full amount of commercial item purchase financing payments, performance-
based payments, or progress payments to a subcontractor, whether paid or 
unpaid, provided that unpaid amounts are limited to amounts that the 
contractor will pay--
    (1) In accordance with the terms and conditions of a subcontract or 
invoice; and
    (2) Ordinarily prior to the submission of the contractor's next 
progress payment request to the Government.
    (c) If the contractor is considering making unusual progress 
payments to

[[Page 660]]

a subcontractor, the parties will be guided by the policies in 32.501-2. 
If the Government approves unusual progress payments for the 
subcontract, the contracting officer must issue a contract modification 
to specify the new rate in paragraph (j)(6) of the clause at 52.232-16, 
Progress Payments, 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 is not a 
deviation and does not require the clearance prescribed in 32.502-2(b).
    (d) The contractor has a duty to ensure that financing 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 financing payments, except as provided in paragraph (c) of this 
section. However, the contracting officer must ensure that the 
contractor has installed the necessary management control systems, 
including internal audit procedures.
    (e) When financing payments are in the form of progress payments, 
the Progress Payments clause at 52.232-16 requires that the subcontract 
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 paragraph (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:
    (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) When financing payments are in the form of performance-based 
payments, the Performance-Based Payments clause at 52.232-32 requires 
that the subcontract terms include the substance of the Performance-
Based Payments clause, modified to indicate that the contractor, not the 
Government, awards the subcontract and administers the performance-based 
payments, and include appropriately worded modifications similar to 
those noted in paragraph (e) of this section.
    (g) When financing payments are in the form of commercial item 
purchase financing, the subcontract must include a contract financing 
clause structured in accordance with 32.206.

[65 FR 16281, Mar. 27, 2000]



                      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.

[[Page 661]]



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 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

[[Page 662]]

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]



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

[[Page 663]]

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 
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

[[Page 664]]

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 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

[[Page 665]]

    (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 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

[[Page 666]]

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 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

[[Page 667]]

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 
contract 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.

[48 FR 42328, Sept. 19, 1983, as amended at 67 FR 13054, Mar. 20, 2002]



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 (e.g., 
41 U.S.C. 11a, 31 U.S.C. 1308, 42 U.S.C. 2459a, 42 U.S.C. 3515, and 
paragraph (b) of this subsection), 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) The head of an executive agency, except NASA, may enter into a 
contract, exercise an option, or place an order under a contract for 
severable services for a period that begins in one fiscal year and ends 
in the next fiscal year if the period of the contract awarded, option 
exercised, or order placed does not exceed one year (10 U.S.C. 2410a and 
41 U.S.C. 253l). Funds made available for a fiscal year may be obligated 
for the total amount of an action entered into under this authority.

[63 FR 58601, Oct. 30, 1998]



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

[[Page 668]]

    (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) 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 contract action will 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--
    (1) Is funded by annual appropriations; and
    (2) Is to extend beyond the initial fiscal year (see 32.703-2(b)).

[48 FR 42328, Sept. 19, 1983, as amended at 63 FR 58602, Oct. 30, 1998; 
67 FR 13054, Mar. 20, 2002]



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.

    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; 
66 FR 2132, Jan. 10, 2001]

[[Page 669]]



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 
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--

[[Page 670]]

    (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 shall 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) Assignments by a partnership may be signed by one partner, if 
the assignment is accompanied by adequate evidence that the signer is a 
general partner of the partnership and is authorized to execute 
assignments on behalf of the partnership.
    (3) Assignments by an individual shall 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. 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 --
------, 20----.

________________________________________________________________________
                                                             [signature]
________________________________________________________________________
                                                                 [title]
________________________________________________________________________

    On behalf of

________________________________________________________________________
                                      [name of addressee of this notice]


[[Page 671]]


    (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; 64 FR 10533, Mar. 4, 
1999; 65 FR 24325, Apr. 25, 2000]



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 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: 66 FR 65355, Dec. 18, 2001, unless otherwise noted.



32.900  Scope of subpart.

    This subpart prescribes policies, procedures, and clauses for 
implementing Office of Management and Budget (OMB) prompt payment 
regulations at 5 CFR part 1315.



32.901  Applicability.

    (a) This subpart applies to invoice payments on all contracts, 
except contracts with payment terms and late payment penalties 
established by other governmental authority (e.g., tariffs).
    (b) This subpart does not apply to contract financing payments (see 
definition at 32.001).



32.902  Definitions.

    As used in this subpart--
    Discount for prompt payment means an invoice payment reduction 
offered by the contractor for payment prior to the due date.
    Mixed invoice means an invoice that contains items with different 
payment due dates.
    Payment date means the date on which a check for payment is dated 
or,

[[Page 672]]

for an electronic funds transfer (EFT), the settlement date.
    Settlement date, as it applies to electronic funds transfer, means 
the date on which an electronic funds transfer payment is credited to 
the contractor's financial institution.



32.903  Responsibilities.

    (a) Agency heads--
    (1) Must establish the policies and procedures necessary to 
implement this subpart;
    (2) May prescribe additional standards for establishing invoice 
payment due dates (see 32.904) 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 in this subpart;
    (4) Must inform contractors of points of contact within their 
cognizant payment offices to enable contractors to obtain status of 
invoices; and
    (5) May authorize the use of the accelerated payment methods 
specified at 5 CFR 1315.5.
    (b) When drafting solicitations and contracts, contracting officers 
must identify for each contract line item number, subline item number, 
or exhibit line item number--
    (1) The applicable Prompt Payment clauses that apply 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.



32.904  Determining payment due dates.

    (a) General. Agency procedures must ensure that, when specifying due 
dates, contracting officers give full consideration to the time 
reasonably required by Government officials to fulfill their 
administrative responsibilities under the contract.
    (b) Payment due dates. Except as prescribed in paragraphs (c) 
through (f) of this section, or as authorized in 32.908(a)(2) or (c)(2), 
the due date for making an invoice payment is as follows:
    (1) The later of the following two events:
    (i) The 30th day after the designated billing office receives a 
proper invoice from the contractor (except as provided in paragraph 
(b)(3) of this section).
    (ii) The 30th day after Government acceptance of supplies delivered 
or services performed.
    (A) For a final invoice, when the payment amount is subject to 
contract settlement actions, acceptance is deemed to occur on the 
effective date of the contract settlement.
    (B) For the sole purpose of computing an interest penalty that might 
be due the contractor--
    (1) Government acceptance is deemed to occur constructively on the 
7th day after the contractor delivers supplies or performs 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;
    (2) If actual acceptance occurs within the constructive acceptance 
period, the Government must base the determination of an interest 
penalty on the actual date of acceptance;
    (3) The constructive acceptance requirement does not compel 
Government officials to accept supplies or services, perform contract 
administration functions, or make payment prior to fulfilling their 
responsibilities; and
    (4) Except for a contract for the purchase of a commercial item, 
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 contracting officer must document in the contract file the 
justification for extending the constructive acceptance period beyond 7 
days. Extended acceptance periods

[[Page 673]]

must not be a routine agency practice and must be used only when 
necessary to permit proper Government inspection and testing of the 
supplies delivered or services performed.
    (2) If the contract does not require submission of an invoice for 
payment (e.g., periodic lease payments), the contracting officer must 
specify the due date in the contract.
    (3) 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 is the 30th day after the date of the contractor's 
invoice, provided the designated billing office receives a proper 
invoice and there is no disagreement over quantity, quality, or 
contractor compliance with contract requirements.
    (c) Architect-engineer contracts. (1) The due date for making 
payments on contracts that contain the clause at 52.232-10, Payments 
Under Fixed-Price Architect-Engineer Contracts, is as follows:
    (i) The due date for work or services completed by the contractor is 
the later of the following two events:
    (A) The 30th day after the designated billing office receives a 
proper invoice from the contractor.
    (B) The 30th day after Government acceptance of the work or services 
completed by the contractor.
    (1) For a final invoice, when the payment amount is subject to 
contract settlement actions (e.g., release of claims), acceptance is 
deemed to occur on the effective date of the settlement.
    (2) For the sole purpose of computing an interest penalty that might 
be due the contractor, Government acceptance is deemed to occur 
constructively on the 7th day after the contractor completes the work or 
services in accordance with the terms and conditions of the contract 
(see also paragraph (c)(2) of this section). If actual acceptance occurs 
within the constructive acceptance period, the Government must base the 
determination of an interest penalty on the actual date of acceptance.
    (ii) The due date for progress payments is 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 be due the contractor--
    (A) Government approval is deemed to occur constructively on the 7th 
day after the designated billing office receives the contractor 
estimates (see also paragraph (c)(2) of this section).
    (B) If actual approval occurs within the constructive approval 
period, the Government must base the determination of an interest 
penalty on the actual date of approval.
    (iii) 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 is the 30th day after the date of the 
contractor's invoice or payment request, provided the designated billing 
office receives a proper invoice or payment request and there is no 
disagreement over quantity, quality, or contractor compliance with 
contract requirements.
    (2) The constructive acceptance and constructive approval 
requirements described in paragraphs (c)(1)(i) and (ii) 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. The contracting officer 
must document in the contract file the justification for extending the 
constructive acceptance or approval period beyond 7 days.
    (d) Construction contracts. (1) The due date for making payments on 
construction contracts is 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, is 
14 days after

[[Page 674]]

the designated billing office receives a proper payment request.
    (A) 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 is the 14th day after the date of the contractor's 
payment request, provided the designated billing office receives a 
proper payment request and there is no disagreement over quantity, 
quality, or contractor compliance with contract requirements.
    (B) 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 
contracting officer must document in the contract file the justification 
for extending the due date beyond 14 days.
    (C) The contracting officer must 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, will be as specified in the 
contract or, if not specified, 30 days after approval by the contracting 
officer for release to the contractor. The contracting officer must base 
the release of retained amounts 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) is as follows:
    (A) The later of the following two events:
    (1) The 30th day after the designated billing office receives a 
proper invoice from the contractor.
    (2) The 30th day after Government acceptance of the work or services 
completed by the contractor. For a final invoice, when the payment 
amount is subject to contract settlement actions (e.g., release of 
contractor claims), acceptance is deemed to occur on the effective date 
of the contract settlement.
    (B) 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 is the 30th day after the date of the contractor's 
invoice, provided the designated billing office receives a proper 
invoice and there is no disagreement over quantity, quality, or 
contractor compliance with contract requirements.
    (2) For the sole purpose of computing an interest penalty that might 
be due the contractor for payments described in paragraph (d)(1)(iii) of 
this section--
    (i) Government acceptance or approval is deemed to occur 
constructively on the 7th day after the contractor completes the work or 
services in accordance with the terms and conditions of the contract, 
unless there is a disagreement over quantity, quality, contractor 
compliance with a contract requirement, or the requested amount;
    (ii) If actual acceptance occurs within the constructive acceptance 
period, the Government must base the determination of an interest 
penalty on the actual date of acceptance;
    (iii) The constructive acceptance requirement does not compel 
Government officials to accept work or services, approve contractor 
estimates, perform contract administration functions, or make payment 
prior to fulfilling their responsibilities; and
    (iv) 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. The contracting 
officer must document in the contract file the justification for 
extending the constructive acceptance or approval beyond 7 days.

[[Page 675]]

    (3) 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 must not 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.
    (4)(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. 
The Government must recover this interest from subsequent payments to 
the contractor. Therefore, contracting officers normally must make no 
demand for payment. Contracting officers must--
    (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 is responsible for making the deduction of 
interest. Amounts collected in accordance with these provisions revert 
to the United States Treasury.
    (e) Cost-reimbursement contracts for services. For purposes of 
computing late payment interest penalties that may apply, the due date 
for making interim payments on cost-reimbursement contracts for services 
is 30 days after the date of receipt of a proper invoice.
    (f) Food and specified items.

------------------------------------------------------------------------
                                               Payment must be made as
        If the items delivered are:           close as possible to, but
                                                   not later than:
------------------------------------------------------------------------
(1) Meat or meat food products. As defined   7th day after product
 in section 2(a)(3) of the Packers and        delivery.
 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.
(2) Fresh or frozen fish. As defined in      7th day after product
 section 204(3) of the Fish and Seafood       delivery.
 Promotion Act of 1986 (16 U.S.C. 4003(3)).
(3) Perishable agricultural commodities. As  10th day after product
 defined in section 1(4) of the Perishable    delivery, unless another
 Agricultural Commodities Act of 1930 (7      date is specified in the
 U.S.C. 499a(4)).                             contract.
(4) Dairy products. As defined in section    10th day after a proper
 111(e) of the Dairy Production               invoice has been received.
 Stabilization Act of 1983 (7 U.S.C.
 4502(e)), edible fats or oils, and food
 products prepared from edible fats or
 oils. 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. If questions arise regarding the
 proper classification of a specific
 product, the contracting officer must
 follow prevailing industry practices 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.
------------------------------------------------------------------------

    (g) Multiple payment due dates. Contracting officers may encourage, 
but not require, contractors to submit separate invoices for products 
with different payment due dates under the same contract or order. When 
an invoice contains items with different payment due dates (i.e., a 
mixed invoice), the payment office will, subject to agency policy--
    (1) Pay the entire invoice on the earliest due date; or
    (2) Split invoice payments, making payments by the applicable due 
dates.



32.905  Payment documentation and process.

    (a) General. Payment will be based on receipt of a proper invoice 
and satisfactory contract performance.
    (b) Content of invoices. (1) A proper invoice must include the 
following items (except for interim payments on cost reimbursement 
contracts for services):
    (i) Name and address of the contractor.
    (ii) Invoice date and invoice number. (Contractors should date 
invoices as close as possible to the date of mailing or transmission.)

[[Page 676]]

    (iii) Contract number or other authorization for supplies delivered 
or services performed (including order number and contract line item 
number).
    (iv) Description, quantity, unit of measure, unit price, and 
extended price of supplies delivered or services performed.
    (v) Shipping and payment terms (e.g., shipment number and date of 
shipment, discount for prompt payment terms). Bill of lading number and 
weight of shipment will be shown for shipments on Government bills of 
lading.
    (vi) 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).
    (vii) Name (where practicable), title, phone number, and mailing 
address of person to notify in the event of a defective invoice.
    (viii) Taxpayer Identification Number (TIN). The contractor must 
include its TIN on the invoice only if required by agency procedures. 
(See 4.9 TIN requirements.)
    (ix) Electronic funds transfer (EFT) banking information.
    (A) The contractor must include EFT banking information on the 
invoice only if required by agency procedures.
    (B) If EFT banking information is not required to be on the invoice, 
in order for the invoice to be a proper invoice, the contractor must 
have submitted correct EFT banking information in accordance with the 
applicable solicitation provision (e.g., 52.232-38, Submission of 
Electronic Funds Transfer Information with Offer), contract clause 
(e.g., 52.232-33, Payment by Electronic Funds Transfer--Central 
Contractor Registration, or 52.232-34, Payment by Electronic Funds 
Transfer--Other Than Central Contractor Registration), or applicable 
agency procedures.
    (C) EFT banking information is not required if the Government waived 
the requirement to pay by EFT.
    (x) Any other information or documentation required by the contract 
(e.g., evidence of shipment).
    (2) An interim payment request under a cost-reimbursement contract 
for services constitutes a proper invoice for purposes of this 
subsection if it includes all of the information required by the 
contract.
    (3) If the invoice does not comply with these requirements, the 
designated billing office must return it within 7 days after receipt (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 the reasons why it is not a proper invoice. If such notice 
is not timely, then the designated billing office must adjust the due 
date for the purpose of determining an interest penalty, if any.
    (c) Authorization to pay. All invoice payments, with the exception 
of interim payments on cost-reimbursement contracts for services, must 
be supported by a receiving report or other Government documentation 
authorizing payment (e.g., Government certified voucher). 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 must, 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 that the designated Government official--
    (i) Accepted the supplies or services; or
    (ii) Approved the progress payment request, if the request is being 
made under the clause at 52.232-5, Payments

[[Page 677]]

Under Fixed-Price Construction Contracts, or the clause at 52.232-10, 
Payments Under Fixed-Price Architect-Engineer Contracts.
    (6) Signature, printed name, title, mailing address, and telephone 
number of the designated Government official responsible for acceptance 
or approval functions.
    (d) Billing office. The designated billing office must immediately 
annotate each invoice with the actual date it receives the invoice.
    (e) Payment office. The designated payment office will annotate each 
invoice and receiving report with the actual date it receives the 
invoice.



32.906  Making payments.

    (a) General. The Government will not make invoice payments earlier 
than 7 days prior to the due dates specified in the contract unless the 
agency head determines--
    (1) To make earlier payment on a case-by-case basis; or
    (2) That the use of accelerated payment methods are necessary (see 
32.903(a)(5)).
    (b) Payment office. The designated payment office--
    (1) Will mail checks on the same day they are dated;
    (2) For payments made by EFT, will specify a date on or before the 
established due date for settlement of the payment at a Federal Reserve 
Bank;
    (3) When the due date falls on a Saturday, Sunday, or legal holiday 
when Government offices are closed, may make payment on the following 
working day without incurring a late payment interest penalty.
    (4) When it is determined that the designated billing office 
erroneously rejected a proper invoice and upon resubmission of the 
invoice, will enter in the payment system the original date the invoice 
was received by the designated billing office for the purpose of 
calculating the correct payment due date and any interest penalties that 
may be due.
    (c) Partial deliveries. (1) Contracting officers must, 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)).
    (2) Unless specifically prohibited by the contract, the clause at 
52.232-1, Payments, provides that 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.
    (d) Contractor identifier. Each payment or remittance advice will 
use the contractor invoice number in addition to any Government or 
contract information in describing any payment made.
    (e) Discounts. When a discount for prompt payment is taken, the 
designated payment office will make payment to the contractor as close 
as possible to, but not later than, the end of the discount period. The 
discount period is specified by the contractor and is calculated from 
the date of the contractor's proper 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 Government offices are closed, the designated payment 
office may make payment on the following working day and take a 
discount. Payment terms are specified in the clause at 52.232-8, 
Discounts for Prompt Payment.



32.907  Interest penalties.

    (a) Late payment. The designated payment office will pay an interest 
penalty automatically, without request from the contractor, when all of 
the following conditions, if applicable, have been met:
    (1) The designated billing office received a proper invoice.
    (2) The Government processed a receiving report or other Government 
documentation authorizing payment, and there was no disagreement over 
quantity, quality, or contractor compliance with any contract 
requirement.

[[Page 678]]

    (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.
    (5) In the case of interim payments on cost-reimbursement contracts 
for services, when payment is made more than 30 days after the 
designated billing office receives a proper invoice.
    (b) Improperly taken discount. The designated payment office will 
pay an interest penalty automatically, without request from the 
contractor, if the Government takes a discount for prompt payment 
improperly. The interest penalty is 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.
    (c) Failure to pay interest. (1) The designated payment office will 
pay a penalty amount, in addition to the interest penalty amount, only 
if--
    (i) The Government owes an interest penalty of $1 or more;
    (ii) The designated payment office does not pay the interest penalty 
within 10 days after the date the invoice amount is paid; and
    (iii) The contractor makes a written demand to the designated 
payment office for additional penalty payment in accordance with 
paragraph (c)(2) of this section, postmarked not later than 40 days 
after the date the invoice amount is paid.
    (2)(i) Contractors must support written demands for additional 
penalty payments with the following data. The Government must not 
request additional data. Contractors must--
    (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 is due; and
    (C) State that payment of the principal has been received, including 
the date of receipt.
    (ii) If there is no postmark or the postmark is illegible--
    (A) The designated payment office that receives the demand will 
annotate it with the date of receipt, provided the demand is received on 
or before the 40th day after payment was made; or
    (B) If the designated payment office fails to make the required 
annotation, the Government will determine the demand's validity based on 
the date the contractor has placed on the demand; provided such date is 
no later than the 40th day after payment was made.
    (d) Disagreements. (1) The payment office will not pay interest 
penalties if payment delays are due to disagreement between the 
Government and contractor concerning--
    (i) The payment amount;
    (ii) Contract compliance; or
    (iii) Amounts temporarily withheld or retained in accordance with 
the terms of the contract.
    (2) The Government and the contractor must resolve claims involving 
disputes, and any interest that may be payable in accordance with the 
Disputes clause.
    (e) Computation of interest penalties. The Government will compute 
interest penalties in accordance with OMB prompt payment regulations at 
5 CFR part 1315. These regulations are available via the Internet at 
http://www.fms.treas.gov/prompt/.
    (f) Unavailability of funds. The temporary unavailability of funds 
to make a timely payment does not relieve an agency from the obligation 
to pay interest penalties.



32.908  Contract clauses.

    (a) 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 32.904(c)(2), 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.

[[Page 679]]

    (2) As provided in 32.903, agency policies and procedures may 
authorize amendment of paragraphs (a)(1)(i) and (ii) of the clause to 
insert a period shorter than 30 days (but not less than 7 days) for 
making contract invoice payments.
    (b) Insert the clause at 52.232-27, Prompt Payment for Construction 
Contracts, in all solicitations and contracts for construction (see part 
36).
    (1) As authorized in 32.904(d)(1)(i)(B), 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 32.904(d)(2)(iv), 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.
    (c) Insert the clause at 52.232-25, Prompt Payment, in all other 
solicitations and contracts, except when the clause at 52.212-4, 
Contract Terms and Conditions--Commercial Items, applies, or when 
payment terms and late payment penalties are established by other 
governmental authority (e.g., tariffs).
    (1) As authorized in 32.904(b)(1)(ii)(B)(4), 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, including a 
brand-name commercial item for authorized resale (e.g., commissary 
items).
    (2) As provided in 32.903, agency policies and procedures may 
authorize amendment of paragraphs (a)(1)(i) and (ii) of the clause to 
insert a period shorter than 30 days (but not less than 7 days) for 
making contract invoice payments.
    (3) If the contract is a cost-reimbursement contract for services, 
use the clause with its Alternate I.



32.909  Contractor inquiries.

    (a) Direct questions involving--
    (1) Delinquent payments to the designated billing office or 
designated payment office; and
    (2) Disagreements in payment amount or timing to the contracting 
officer for resolution. The contracting officer must coordinate within 
appropriate contracting channels and seek the advice of other offices as 
necessary to resolve disagreements.
    (b) Small business concerns may contact the agency's local small 
business specialist or representative from the Office of Small and 
Disadvantaged Business Utilization to obtain additional assistance 
related to payment issues, late payment interest penalties, and 
information on the Prompt Payment Act.



                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 noncommercial 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; or
    (c) Contracts awarded through sealed bid procedures.

[60 FR 49715, Sept. 26, 1995, as amended at 65 FR 16281, Mar. 27, 2000]



32.1001  Policy.

    (a) Performance-based payments are the preferred Government 
financing method when the contracting officer

[[Page 680]]

finds them practical, and the contractor agrees to their use.
    (b) Performance-based payments are contract financing payments that 
are not payment for accepted items.
    (c) 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), the contracting officer must not use performance-based 
payments when other forms of contract financing are provided.
    (d) For Government accounting purposes, the Government should treat 
performance-based payments like progress payments based on costs under 
subpart 32.5.
    (e) 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, each agency must make these 
payments in accordance with the agency's policy for prompt payment of 
contract financing payments.

[65 FR 16281, Mar. 27, 2000]



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; 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.

[60 FR 49715, Sept. 26, 1995, as amended at 65 FR 16282, Mar. 27, 2000]



32.1004  Procedures.

    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 10 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 must be an 
integral and necessary part of contract performance and must 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 must not be events or criteria for 
performance-based payments. An event need not be a critical event in 
order to trigger a payment, but the Government must be able to readily 
verify successful performance of each such event or performance 
criterion.
    (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 contracting 
officer must include the following in the contract:

[[Page 681]]

    (i) The contract must not permit payment for a cumulative event or 
criterion until the dependent event or criterion has been successfully 
completed.
    (ii) The contract must specifically identify severable events or 
criteria.
    (iii) The contract must identify which events or criteria are 
preconditions for the successful achievement of each cumulative event or 
criterion.
    (iv) Because performance-based payments are contract financing, 
events or criteria must not serve as a vehicle to reward the contractor 
for completion of performance levels over and above what is required for 
successful completion of the contract.
    (v) If payment of performance-based finance amounts is on a 
deliverable item basis, each event or performance criterion must be part 
of the performance necessary for that deliverable item and must be 
identified to a specific contract line item or subline item.
    (b) Establishing performance-based finance payment amounts. (1) The 
contracting officer must 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 must adjust the performance-based 
payment schedule appropriately.
    (2) Total performance-based payments must--
    (i) Reflect prudent contract financing provided only to the extent 
needed for contract performance (see 32.104(a)); and
    (ii) 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.
    (3) The contract must specifically state the amount of each 
performance-based payment 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--
    (i) The total contract price is fair and reasonable, all factors 
considered; and
    (ii) Performance-based payment amounts are commensurate with the 
value of the performance event or performance criterion, and are not 
expected to result in an unreasonably low or negative level of 
contractor investment in the contract. To confirm sufficient investment, 
the contracting officer may request expenditure profile information from 
offerors, but only if other information in the proposal, or information 
otherwise available to the contracting officer, is expected to be 
insufficient.
    (4) Unless agency procedures prescribe the bases for establishing 
performance-based payment amounts, contracting officers may establish 
them on any rational basis, including (but 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.
    (5) When subsequent contract modifications are issued, the 
contracting officer must adjust the performance-based payment schedule 
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 must 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 must be liquidated by deducting a percentage or a 
designated dollar amount from the delivery payments. The contracting 
officer must specify

[[Page 682]]

the liquidation rate or designated dollar amount in the contract. The 
method of liquidation must ensure complete liquidation no later than 
final payment.
    (1) If the contracting officer establishes the performance-based 
payments on a delivery item basis, the liquidation amount for each line 
item is 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 is by predesignated liquidation amounts or 
liquidation percentages.
    (e) Competitive negotiated solicitations. (1) If a solicitation 
requests offerors to propose performance-based payments, the 
solicitation must specify--
    (i) What, if any, terms must be included in all offers; and
    (ii) The extent to which and how offeror-proposed performance-based 
payment terms will be evaluated. Unless agencies prescribe other 
evaluation procedures, if the contracting officer anticipates that the 
cost of providing performance-based payments would have a significant 
impact on determining the best value offer, the solicitation should 
include an adjustment of proposed prices to reflect the estimated cost 
to the Government of providing each offeror's proposed performance-based 
payments (see Alternate I to the provision at 52.232-28).
    (2) The contracting officer must--
    (i) Review the proposed terms to ensure they comply with this 
section; and
    (ii) Use the adjustment method in 32.205(c) if the price is to be 
adjusted for evaluation purposes in accordance with paragraph (e)(1)(ii) 
of this section.

[65 FR 16282, Mar. 27, 2000]



32.1005  Solicitation provision and contract clause.

    (a) Insert the clause at 52.232-32, Performance-Based Payments, with 
the description of the basis for payment and liquidation as required in 
32.1004 in--
    (1) Solicitations that may result in contracts providing for 
performance-based payments; and
    (2) Fixed-price contracts under which the Government will provide 
performance-based payments.
    (b)(1) Insert the solicitation provision at 52.232-28, Invitation to 
Propose Performance-Based Payments, in negotiated solicitations that 
invite offerors to propose performance-based payments.
    (2) Use the provision with its Alternate I in competitive negotiated 
solicitations if the Government intends to adjust proposed prices for 
proposal evaluation purposes (see 32.1004(e)).

[65 FR 16283, Mar. 27, 2000]



32.1006  [Reserved]



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

[[Page 683]]

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 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: 64 FR 10540, Mar. 4, 1999, unless otherwise noted.

[[Page 684]]



32.1100  Scope of subpart.

    This subpart provides policy and procedures for contract financing 
and delivery payments to contractors by electronic funds transfer (EFT).



32.1101  Statutory requirements.

    31 U.S.C. 3332 requires, subject to implementing regulations of the 
Secretary of the Treasury at 31 CFR part 208, that EFT be used to make 
all contract payments.



32.1102  Definitions.

    As used in this subpart--
    Electron Funds Transfer information (EFT) means information 
necessary for making a payment by EFT through specified EFT mechanisms.
    Governmentwide commercial purchase card means a card that is similar 
in nature to a commercial credit card that is used to make financing and 
delivery payments for supplies and services. The purchase card is an EFT 
method and it may be used as a means to meet the requirement to pay by 
EFT, to the extent that purchase card limits do not preclude such 
payments.
    Payment information means the payment advice provided by the 
Government to the contractor that identifies what the payment is for, 
any computations or adjustments made by the Government, and any 
information required by the Prompt Payment Act.

[64 FR 10540, Mar. 4, 1999, as amended at 66 FR 2132, Jan. 10, 2001]



32.1103  Applicability.

    The Government shall provide all contract payments through EFT 
except if--
    (a) The office making payment under a contract that requires payment 
by EFT, loses the ability to release payment by EFT. To the extent 
authorized by 31 CFR part 208, the payment office shall make necessary 
payments pursuant to paragraph (a)(2) of the clause at either 52.232-33 
or 52.232-34 until such time as it can make EFT payments;
    (b) The payment is to be received by or on behalf of the contractor 
outside the United States and Puerto Rico (but see 32.1106(b));
    (c) A contract is paid in other than United States currency (but see 
32.1106(b));
    (d) Payment by EFT under a classified contract could compromise the 
safeguarding of classified information or national security, or where 
arrangements for appropriate EFT payments would be impractical due to 
security considerations;
    (e) A contract is awarded by a deployed contracting officer in the 
course of military operations, including, but not limited to, 
contingency operations as defined in 10 U.S.C. 101(a)(13), or a contract 
is awarded by any contracting officer in the conduct of emergency 
operations, such as responses to natural disasters or national or civil 
emergencies, if--
    (1) EFT is not known to be possible; or
    (2) EFT payment would not support the objectives of the operation;
    (f) The agency does not expect to make more than one payment to the 
same recipient within a one-year period;
    (g) An agency's need for supplies and services is of such unusual 
and compelling urgency that the Government would be seriously injured 
unless payment is made by a method other than EFT;
    (h) There is only one source for supplies and services and the 
Government would be seriously injured unless payment is made by a method 
other than EFT; or
    (i) Otherwise authorized by Department of the Treasury Regulations 
at 31 CFR part 208.

[64 FR 10540, Mar. 4, 1999, as amended at 67 FR 6114, Feb. 8, 2002]



32.1104  Protection of EFT information.

    The Government shall protect against improper disclosure of 
contractors' EFT information.



32.1105  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 that 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

[[Page 685]]

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.



32.1106  EFT mechanisms.

    (a) Domestic EFT mechanisms. The EFT clauses at 52.232-33 and 
52.232-34 are designed for use with the domestic United States banking 
system, using United States currency, and only the specified mechanisms 
(U.S. Automated Clearing House, and Fedwire Transfer System) of EFT. 
However, the head of an agency may authorize the use of any other EFT 
mechanism for domestic EFT with the concurrence of the office or agency 
responsible for making payments.
    (b) Nondomestic EFT mechanisms and other than United States 
currency. The Government shall provide payment by other than EFT for 
payments received by or on behalf of the contractor outside the United 
States and Puerto Rico or for contracts paid in other than United States 
currency. However, the head of an agency may authorize appropriate use 
of EFT with the concurrence of the office or agency responsible for 
making payments if--
    (1) The political, financial, and communications infrastructure in a 
foreign country supports payment by EFT; or
    (2) Payments of other than United States currency may be made 
safely.



 32.1107  Payment information.

    The payment or disbursing office shall forward to the contractor 
available payment information that is suitable for transmission as of 
the date of release of the EFT instruction to the Federal Reserve 
System.



 32.1108  Payment by Governmentwide commercial purchase card.

    A Governmentwide commercial purchase card charge authorizes the 
third party (e.g., financial institution) that issued the purchase card 
to make immediate payment to the contractor. The Government reimburses 
the third party at a later date for the third party's payment to the 
contractor.
    (a) The clause at 52.232-36, Payment by Third Party, governs when a 
contractor submits a charge against the purchase card for contract 
payment. The clause provides that the contractor shall make such payment 
requests by a charge to a Government account with the third party at the 
time the payment clause(s) of the contract authorizes the contractor to 
submit a request for payment, and for the amount due in accordance with 
the terms of the contract. To the extent that such a payment would 
otherwise be approved, the charge against the purchase card should not 
be disputed when the charge is reported to the Government by the third 
party. To the extent that such payment would otherwise not have been 
approved, an authorized individual (see 1.603-3) shall take action to 
remove the charge, such as by disputing the charge with the third party 
or by requesting that the contractor credit the charge back to the 
Government under the contract.
    (b) Written contracts to be paid by purchase card should include the 
clause at 52.232-36, Payment by Third Party, as prescribed by 
32.1110(d). However, payment by a purchase card also may be made under a 
contract that does not contain the clause to the extent the contractor 
agrees to accept that method of payment.
    (c) The clause at 52.232-36, Payment by Third Party, requires that 
the contract--
    (1) Identify the third party and the particular purchase card to be 
used; and
    (2) Not include the purchase card account number. The purchase card 
account number should be provided separately to the contractor.



 32.1109  EFT information submitted by offerors.

    If offerors are required to submit EFT information prior to award, 
the successful offeror is not responsible for resubmitting this 
information after award of the contract except to make changes, or to 
place the information on invoices if required by agency procedures. 
Therefore, contracting officers shall forward EFT information provided 
by the successful offeror to the appropriate office.

[[Page 686]]



 32.1110  Solicitation provision and contract clauses.

    (a) Unless payment will be made exclusively through use of the 
Governmentwide commercial purchase card or other third party payment 
arrangement (see 13.301 and paragraph (d) of this section) or an 
exception listed in 32.1103(a) through (i) applies--
    (1) The contracting officer shall insert the clause at 52.232-33, 
Payment by Electronic Funds Transfer--Central Contractor Registration, 
in all solicitations and contracts if the payment office uses the 
Central Contractor Registration (CCR) database as its source of EFT 
information. The contracting officer also shall insert this clause if 
the payment office does not currently have the ability to make payment 
by EFT, but will use the CCR database as its source of EFT information 
when it begins making payments by EFT;
    (2)(i) The contracting officer shall insert the clause at 52.232-34, 
Payment by Electronic Funds Transfer--Other than Central Contractor 
Registration, in all other solicitations and contracts. The contracting 
officer also shall insert this clause if the payment office currently 
does not have the ability to make payment by EFT, but will use a source 
other than the CCR database for EFT information when it begins making 
payments by EFT.
    (ii)(A) If permitted by agency procedures, the contracting officer 
may insert in paragraph (b)(1) of the clause, a particular time after 
award, such as a fixed number of days, or event such as the submission 
of the first request for payment.
    (B) If no agency procedures are prescribed, the time period inserted 
in paragraph (b)(1) of the clause shall be ``no later than 15 days prior 
to submission of the first request for payment.''
    (b) If the head of the agency has authorized, in accordance with 
32.1106, to use a nondomestic EFT mechanism, the contracting officer 
shall insert in solicitations and contracts a clause substantially the 
same as 52.232-33 or 52.232-34 that clearly addresses the nondomestic 
EFT mechanism.
    (c) If EFT information is to be submitted to other than the payment 
office in accordance with agency procedures, the contracting officer 
shall insert in solicitations and contracts the clause at 52.232-35, 
Designation of Office for Government Receipt of Electronic Funds 
Transfer Information, or a clause substantially the same as 52.232-35 
that clearly informs the contractor where to send the EFT information.
    (d) If payment under a written contract will be made by a charge to 
a Government account with a third party such as a Governmentwide 
commercial purchase card, then the contracting officer shall insert the 
clause at 52.232-36, Payment by Third Party, in solicitations and 
contracts. Payment by a purchase card may also be made under a contract 
that does not contain the clause at 52.232-36, to the extent the 
contractor agrees to accept that method of payment.
    (e) If the contract or agreement provides for the use of delivery 
orders, and provides that the ordering office designate the method of 
payment for individual orders, the contracting officer shall insert, in 
the solicitation and contract or agreement, the clause at 52.232-37, 
Multiple Payment Arrangements, and, to the extent they are applicable, 
the clauses at--
    (1) 52.232-33, Payment by Electronic Funds Transfer--Central 
Contractor Registration;
    (2) 52.232-34, Payment by Electronic Funds Transfer--Other than 
Central Contractor Registration; and
    (3) 52.232-36, Payment by Third Party.
    (f) If more than one disbursing office will make payment under a 
contract or agreement, the contracting officer, or ordering office (if 
the contract provides for choices between EFT clauses on individual 
orders or classes of orders), shall include or identify the EFT clause 
appropriate for each office and shall identify the applicability by 
disbursing office and contract line item.
    (g) If the solicitation contains the clause at 52.232-34, Payment by 
Electronic Funds Transfer--Other than Central Contractor Registration, 
and an offeror is required to submit EFT information prior to award--
    (1) The contracting officer shall insert in the solicitation the 
provision at 52.232-38, Submission of Electronic Funds Transfer 
Information with Offer,

[[Page 687]]

or a provision substantially the same; and
    (2) For sealed bid solicitations, the contracting officer shall 
amend 52.232-38 to ensure that a bidder's EFT information--
    (i) Is not a part of the bid to be opened at the public opening; and
    (ii) May not be released to members of the general public who 
request a copy of the bid.



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.
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.

    As used in this subpart--
    Day means a calendar day, unless otherwise specified. In the 
computation of any period--
    (1) The day of the act, event, or default from which the designated 
period of time begins to run is not included; and
    (2) The last day after the act, event, or default is included 
unless--
    (i) The last day is a Saturday, Sunday, or Federal holiday; or
    (ii) 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.
    Filed 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 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 means a written objection by an interested party to any of 
the following:
    (1) A solicitation or other request by an agency for offers for a 
contract for the procurement of property or services.
    (2) The cancellation of the solicitation or other request.
    (3) An award or proposed award of the contract.
    (4) 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; 62 FR 64933, Dec. 9, 
1997; 66 FR 2132, Jan. 10, 2001]



33.102  General.

    (a) Contracting officers shall consider all protests and seek legal 
advice,

[[Page 688]]

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, and 19.305 for protests of 
disadvantaged 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 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; 63 FR 35724, June 30, 1998]

[[Page 689]]



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.
    (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

[[Page 690]]

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 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]



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

[[Page 691]]

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) At least 5 days prior to the filing of the report, in cases in 
which the protester has filed a request for specific documents, the 
agency shall provide to all parties and the GAO a list of those 
documents, or portions of documents, that the agency has released to the 
protester or intends to produce in its report, and those documents that 
the agency intends to withhold from the protester and the reasons for 
the proposed withholding. Any objection to the scope of the agency's 
proposed disclosure or nondisclosure of the documents must be filed with 
the GAO and the other parties within 2 days after receipt of this list.
    (iv) 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, 
including a best estimate of the contract value, 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; and
    (C) 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 2 days of receipt of the request.
    (B) The additional documents shall also be provided to the protester 
and other interested parties within this 2-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

[[Page 692]]

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 10 days, or 5 days if express option is used, after 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 5 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

[[Page 693]]

    (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 the agency 
report within 5 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 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) The protester shall file its claim for costs with the 
contracting agency within 60 days after receipt of the GAO's 
recommendation that the agency pay the protester its costs. Failure to 
file the claim within that time may result in forfeiture of the 
protester's right to recover its costs.
    (3) The agency shall attempt to reach an agreement on the amount of 
costs to be paid. If the agency and the protester are unable to agree on 
the amount to be paid, the GAO may, upon request of the protester, 
recommend to the agency the amount of costs that the agency should pay.
    (4) Within 60 days after the GAO recommends the amount of costs the 
agency should pay the protester, the agency shall notify the GAO of the 
action taken by the agency in response to the recommendation.
    (5) 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

[[Page 694]]

compensation for expert witnesses paid by the Government pursuant to 5 
U.S.C. 3109 and 5 CFR 304.105; or
    (ii) For attorney's 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 attorney's fees 
for small businesses.
    (6) Before paying a recommended award of costs, agency personnel 
should consult legal counsel. Section 33.104(h) applies to all 
recommended awards of costs that have not yet been paid.
    (7) 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.
    (8) 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; 62 FR 64933, Dec. 9, 
1997; 63 FR 1532, Jan. 9, 1998; 63 FR 58603, Oct. 30, 1998]



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.

    As used in this subpart--
    Accrual of a claim means the date when all events, that 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 type of procedure or 
combination of procedures voluntarily used to resolve issues in 
controversy. These procedures may include, but are not limited to, 
conciliation, facilitation, mediation, fact-finding, minitrials, 
arbitration, and use of ombudsmen.
    Defective certification 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 that (1) may result in a claim or (2) is 
all or part of an existing claim.
    Misrepresentation of fact 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,

[[Page 695]]

made with intent to deceive or mislead.

[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; 63 FR 58594, Oct. 30, 1998; 66 FR 2132, 
Jan. 10, 2001; 67 FR 43514, June 27, 2002]



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), 
(5 U.S.C. 571, et seq.), 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, as amended at 63 FR 58595, Oct. 30, 1998]



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 696]]

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 
paragraph (c) of this section when submitting any claim exceeding 
$100,000.
    (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; 63 FR 58595, Oct. 30, 1998]



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 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

[[Page 697]]

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.
    (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.

[[Page 698]]

    (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, the Act, at 41 U.S.C. 605(b), authorizes agencies to require a 
contractor to continue contract performance in accordance with the 
contracting officer's decision pending a final resolution of any claim 
arising under, or relating to, the contract. (A claim arising under a 
contract is a claim that can be resolved under a contract clause, other 
than the clause at 52.233-1, Disputes, that provides for the relief 
sought by the claimant; however, relief for such claim can also be 
sought under the clause at 52.233-1. A claim relating to a contract is a 
claim that cannot be resolved under a contract clause other than the 
clause at 52.233-1.) This distinction is recognized by the clause with 
its Alternate I (see 33.215).
    (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.

[48 FR 42349, Sept. 19, 1983. Redesignated at 50 FR 2270, Jan. 15, 1985, 
as amended at 64 FR 72451, Dec. 27, 1999; 67 FR 43514, June 27, 2002]



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;

[[Page 699]]

    (2) A voluntary election by both parties to participate in the ADR 
process;
    (3) An agreement on alternative procedures and terms to be used in 
lieu of formal litigation; and
    (4) Participation in the process by officials of both parties who 
have the authority to resolve the issue in controversy.
    (b) If the contracting officer rejects a contractor's request for 
ADR proceedings, the contracting officer shall provide the contractor a 
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.
    (f)(1) A solicitation shall not require arbitration as a condition 
of award, unless arbitration is otherwise required by law. Contracting 
officers should have flexibility to select the appropriate ADR procedure 
to resolve the issues in controversy as they arise.
    (2) An agreement to use arbitration shall be in writing and shall 
specify a maximum award that may be issued by the arbitrator, as well as 
any other conditions limiting the range of possible outcomes.
    (g) Binding arbitration, as an ADR procedure, may be agreed to only 
as specified in agency guidelines. Such guidelines shall provide advice 
on the appropriate use of binding arbitration and when an agency has 
authority to settle an issue in controversy through binding arbitration.

[56 FR 67417, Dec. 30, 1991, as amended at 59 FR 11382, Mar. 10, 1994; 
60 FR 48230, Sept. 18, 1995; 63 FR 58595, Oct. 30, 1998]



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 700]]



             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 
that exists when two or more contractors, acting independently, actively 
contend for the Government's business in a manner that 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; 66 FR 2132, Jan. 10, 
2001]



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 701]]

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 publicizing through the 
Governmentwide point of entry (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; 66 FR 27414, 
May 16, 2001]



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 702]]



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, as used in 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.''

[48 FR 42351, Sept. 19, 1983, as amended at 66 FR 2132, Jan. 10, 2001]



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 703]]



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.

[48 FR 42352, Sept. 19, 1983, as amended at 55 FR 3884, Feb. 5, 1990; 65 
FR 36014, June 6, 2000]



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.
    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.
    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; 66 FR 2132, Jan. 10, 2001]



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

[[Page 704]]

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 must, 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 publicizing through the Governmentwide point of 
entry (GPE) (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.

[48 FR 42352, Set. 19, 1983, as amended at 66 FR 27414, May 16, 2001]



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 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

[[Page 705]]

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 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;

[[Page 706]]

    (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 potential offerors 
fully understand the details of the work, especially the Government 
interpretation of the work statement. If the effort is complex, the 
contracting officer should provide potential 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 at a preproposal conference (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; 
67 FR 13056, Mar. 20, 2002]

[[Page 707]]



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]



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, prescribed for certain types of 
contracts at 44.204(a), requires the contracting officer's prior 
approval for the placement of certain subcontracts.

[48 FR 42352, Sept. 19, 1983, as amended at 63 FR 34060, June 22, 1998]



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.

[[Page 708]]



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 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]

[[Page 709]]



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 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 must be publicized through the 
Governmentwide point of entry (GPE) and, if authorized pursuant to 
subpart 5.5, may also be published in noted scientific, technical, or 
engineering periodicals. The notice must be published no less frequently 
than annually. When transmitting a notice to the GPE before January 1, 
2002, contracting officers must direct the GPE to forward the notice to 
the Commerce Business Daily.
    (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

[[Page 710]]

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, as amended at 66 FR 27414, May 16, 2001]



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 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. As used in this section--
    Nonsponsor 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 means the lead agency responsible for managing, 
administering, or monitoring overall use of the FFRDC under a multiple 
sponsorship agreement.
    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 as amended at 66 FR 2132, Jan. 10, 2001]



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

[[Page 711]]

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 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

[[Page 712]]

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.
    (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

[[Page 713]]

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.
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.

[[Page 714]]

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.

    As used in this part--
    Contract is intended to refer to a contract for construction or a 
contract for architect-engineer services, unless another meaning is 
clearly intended.
    Design 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 means the traditional delivery method where design 
and construction are sequential and contracted for separately with two 
contracts and two contractors.
    Design-build means combining design and construction in a single 
contract with one contractor.
    Firm 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 means drawings, specifications, and other 
data for and preliminary to the construction.
    Record drawings 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.
    Two-phase design-build selection procedures 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; 64 FR 72432, Dec. 27, 1999; 66 FR 
2132, Jan. 10, 2001]

[[Page 715]]



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, 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 (40 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, as amended at 64 FR 72451, Dec. 27, 1999]



      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

[[Page 716]]

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-name items 
which are considered essential to satisfying the requirement.
    (d) In accordance with Executive Order 13202, of February 17, 2001, 
Preservation of Open Competition and Government Neutrality Towards 
Government Contractors' Labor Relations on Federal and Federally Funded 
Construction Projects, as amended on April 6, 2001--
    (1) The Government, or any construction manager acting on behalf of 
the Government, must not--
    (i) Require or prohibit offerors, contractors, or subcontractors to 
enter into or adhere to agreements with one or more labor organizations 
(as defined in 42 U.S.C. 2000e(d)) on the same or other related 
construction projects; or
    (ii) Otherwise discriminate against offerors, contractors, or 
subcontractors for becoming, refusing to become, or remaining 
signatories or otherwise adhering to agreements with one or more labor 
organizations, on the same or other related construction projects.
    (2) Nothing in this paragraph prohibits offerors, contractors, or 
subcontractors from voluntarily entering into project labor agreements.
    (3) The head of the agency may exempt a construction project from 
this policy if the agency head finds that, as of February 17, 2001--
    (i) The agency or a construction manager acting on behalf of the 
Government had issued or was a party to bid specifications, project 
agreements, agreements with one or more labor organizations, or other 
controlling documents with respect to that particular project, which 
contained any of the requirements or prohibitions in paragraph (d)(1) of 
this section; and
    (ii) One or more construction contracts subject to such requirements 
or prohibitions had been awarded.
    (4) The head of the agency may exempt a particular project, 
contract, or subcontract from this policy upon a finding that special 
circumstances require an exemption in order to avert an imminent threat 
to public health or safety, or to serve the national security. A finding 
of ``special circumstances'' may not be based on the possibility or 
presence of a labor dispute concerning the use of contractors or 
subcontractors who are nonsignatories to, or otherwise do not adhere to, 
agreements with one or more labor organizations, or concerning employees 
on the project who are not members of or affiliated with a labor 
organization.

[48 FR 42356, Sept. 19, 1983, as amended at 60 FR 48249, Sept. 18, 1995; 
66 FR 27415, May 16, 2001]

    Effective Date Note: At 67 FR 10529, Mar. 7, 2002, paragraph (d) was 
stayed indefinitely.



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]

[[Page 717]]



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]



36.206  Liquidated damages.

    The contracting officer must 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; 
65 FR 46066, July 26, 2000]



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.

[[Page 718]]



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 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]

[[Page 719]]



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 must--
    (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 through the Governmentwide point of entry 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, as amended at 66 FR 27414, May 16, 2001]



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 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]

[[Page 720]]



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]



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]



        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:

[[Page 721]]

    (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 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]

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.

[[Page 722]]



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 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

[[Page 723]]

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 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

[[Page 724]]

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]



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,

[[Page 725]]

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]



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 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

[[Page 726]]

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 2.101 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 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; 66 FR 2132, Jan. 10, 2001]



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 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.

[[Page 727]]

    (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, as amended at 64 FR 32747, June 17, 1999]



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
    (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]



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]

[[Page 728]]



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 729]]

    (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 730]]

disclosed except as permitted by agency regulations.

[48 FR 42356, Sept. 19, 1983, as amended at 62 FR 44829, Aug. 22, 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).
    (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(b), Subcontractors and Outside Associates 
and Consultants (Architect-Engineer Services) (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 final proposal revision 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; 63 FR 34060, June 22, 1998; 67 FR 6120, 
Feb. 8, 2002; 67 FR 56126, Aug. 30, 2002]



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]



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

[[Page 731]]

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.
    (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 all architect-engineer 
contracts.

[50 FR 26903, June 28, 1985, as amended at 64 FR 51845, Sept. 24, 1999]

[[Page 732]]



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 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.

[48 FR 42356, Sept. 19, 1983, as amended at 64 FR 51845, Sept. 24, 1999]



     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 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:

[[Page 733]]

    (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 Definition.
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).

    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

[[Page 734]]

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]



                Subpart 37.1--Service Contracts--General



37.101  Definitions.

    As used in this part--
    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.
    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:
    (1) Maintenance, overhaul, repair, servicing, rehabilitation, 
salvage, modernization, or modification of supplies, systems, or 
equipment.
    (2) Routine recurring maintenance of real property.
    (3) Housekeeping and base services.
    (4) Advisory and assistance services.
    (5) Operation of Government-owned equipment, facilities, and 
systems.
    (6) Communications services.
    (7) Architect-Engineering (see subpart 36.6).
    (8) Transportation and related services (see part 47).
    (9) 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; 66 FR 2133, Jan. 
10, 2001]



37.102  Policy.

    (a) Performance-based contracting (see Subpart 37.6) is the 
preferred method for acquiring services (Public Law 106-398, section 
821). When acquiring services, including those acquired under supply 
contracts, agencies must--
    (1) Use performance-based contracting methods to the maximum extent 
practicable, except for--
    (i) Architect-engineer services acquired in accordance with 40 
U.S.C. 541-544 (see part 36);
    (ii) Construction (see part 36);
    (iii) Utility services (see part 41); or
    (iv) Services that are incidental to supply purchases; and
    (2) Use the following order of precedence (Public Law 106-398, 
section 821(a));
    (i) A firm-fixed price performance-based contract or task order.
    (ii) A performance-based contract or task order that is not firm-
fixed price.
    (iii) A contract or task order that is not performance-based.
    (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).

[[Page 735]]

    (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; 66 FR 22083, May 2, 2001]



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 at 2.101 and 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; 66 FR 2133, Jan. 10, 2001]



37.104  Personal services contracts.

    (a) 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 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

[[Page 736]]

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.

[48 FR 42365, Sept. 19, 2001, as amended at 66 FR 2133, Jan. 10, 2001]



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) The head of an executive agency, except NASA, may enter into a 
contract, exercise an option, or place an order under a contract for 
severable services for a period that begins in one fiscal year and ends 
in the next fiscal year if the period of the contract awarded, option 
exercised, or order placed does not exceed one year (10 U.S.C. 2410a and 
41 U.S.C. 253l). Funds made available for a fiscal year may be obligated 
for the total amount of an action entered into under this authority.
    (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; 
63 FR 58601, Oct. 30, 1998]

[[Page 737]]



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 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]

[[Page 738]]



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 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

[[Page 739]]

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]



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.
    (c) Contracting officers must ensure that the use of uncompensated 
overtime in contracts to acquire services on the basis of the number of 
hours provided will not degrade the level of technical expertise 
required to fulfill the Government's requirements (see 15.305 for 
competitive negotiations and 15.404-1(d) for cost realism analysis). 
When acquiring these services, contracting officers must conduct a risk 
assessment and evaluate, for award on that basis, any proposals received 
that reflect factors such as:
    (1) Unrealistically low labor rates or other costs that may result 
in quality or service shortfalls; and
    (2) Unbalanced distribution of uncompensated overtime among skill 
levels and its use in key technical positions.

[62 FR 44815, Aug. 22, 1997, as amended at 64 FR 51842, Sept. 24, 1999]



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]



             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  Definition.

    Covered personnel means--
    (1) An officer or an individual who is appointed in the civil 
service by one of the following acting in an official capacity:
    (i) The President;
    (ii) A Member of Congress;
    (iii) A member of the uniformed services;
    (iv) An individual who is an employee under 5 U.S.C. 2105;
    (v) The head of a Government-controlled corporation; or
    (vi) An adjutant general appointed by the Secretary concerned under 
32 U.S.C. 709(c).
    (2) A member of the Armed Services of the United States.
    (3) A person assigned to a Federal agency who has been transferred 
to another position in the competitive service in another agency.

[60 FR 49722, Sept. 26, 1995, as amended at 65 FR 24320, Apr. 25, 2000; 
66 FR 2133, Jan. 10, 2001]



37.202  Exclusions.

    The following activities and programs are excluded or exempted from

[[Page 740]]

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--
    (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,

[[Page 741]]

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, 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

[[Page 742]]

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.



             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

[[Page 743]]

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 2.101; 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. However, good 
management practices and contract administration techniques should be 
used regardless of the contracting method.

[62 FR 12694, Mar. 17, 1997, as amended at 66 FR 2133, Jan. 10, 2001]



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 Letter 92-1, Inherently 
Governmental Functions; and
    (d) Strategies are developed and necessary staff training is 
initiated to ensure effective implementation of the policies in 37.102.

[62 FR 12694, Mar. 17, 1997, as amended at 65 FR 36014, June 6, 2000]



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.



37.600  Scope of subpart.

    This subpart prescribes policies and procedures for use of 
performance-based contracting methods.

[62 FR 44815, Aug. 22, 1997, as amended at 65 FR 36014, June 6, 2000]



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;

[[Page 744]]

    (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 11.106). 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);
    (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.

[48 FR 42365, Sept. 19, 1983, as amended at 64 FR 32742, June 17, 1999]



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 15.304).

[62 FR 44815, Aug. 22, 1997, as amended at 63 FR 70292, Dec. 18, 1998]



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).

[[Page 745]]



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]



              Subpart 38.1--Federal Supply Schedule Program



38.101  General.

    (a) The Federal Supply Schedule program, pursuant to 41 U.S.C. 
259(b)(3)(A), provides Federal agencies with a simplified process of 
acquiring commonly used supplies and services in varying quantities 
while obtaining volume discounts. Indefinite-delivery contracts 
(including requirements contracts) are awarded using competitive 
procedures to commercial firms. The firms provide supplies and services 
at stated prices for given periods of time, for delivery within a stated 
geographic area such as the 48 contiguous states, the District of 
Columbia, Alaska, Hawaii, and overseas. The schedule contracting office 
issues Federal Supply Schedules that contain information needed for 
placing orders.
    (b) Each schedule identifies agencies that are required to use the 
contracts as primary sources of supply.
    (c) Federal agencies not identified in the schedules as mandatory 
users may issue orders under the schedules. 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. For example, the Department of Veterans Affairs awards 
schedule contracts for certain medical and nonperishable subsistence 
items.
    (e) When establishing Federal Supply Schedules, GSA, or an agency 
delegated that authority, is responsible for complying with all 
applicable statutory and regulatory requirements (e.g., Parts 5, 6, and 
19). The requirements of Parts 5, 6, and 19 apply at the acquisition 
planning stage prior to issuing the schedule solicitation and do not 
apply to orders and BPAs placed under resulting schedule contracts (see 
8.404).

[65 FR 36025, June 6, 2000]



  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;

[[Page 746]]

    (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 Modular contracting.
39.104 Information technology services.
39.105 Privacy.
39.106 Year 2000 complaints.
39.107 Contract clause.

           Subpart 39.2--Electronic and Information Technology

39.201 Scope of subpart.
39.202 Definition.
39.203 Applicability.
39.204 Exceptions.

    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--
    (a) Information technology, including financial management systems, 
consistent with other parts of this regulation, OMB Circular No. A-127, 
Financial Management Systems, and OMB Circular No. A-130, Management of 
Federal Information Resources; and
    (b) Electronic and information technology.

[66 FR 20897, Apr. 25, 2001]



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 accountability. These 
requirements are addressed in OMB Circular No. A-130.



39.002  Definitions.

    As used in this part--
    Modular contracting means use of one or more contracts to acquire 
information technology systems in successive, interoperable increments.
    National security system means any telecommunications or information 
system operated by the United States Government, the function, 
operation, or use of which--
    (1) Involves intelligence activities;
    (2) Involves cryptologic activities related to national security;
    (3) Involves command and control of military forces;
    (4) Involves equipment that is an integral part of a weapon or 
weapons system; or
    (5) 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 with respect to information technology, means 
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,

[[Page 747]]

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; 63 FR 9068, Feb. 23, 1998; 66 FR 2133, Jan. 10, 
2001]



                          Subpart 39.1--General



39.101  Policy.

    (a) Division A, Section 101(h), Title VI, Section 622 of the Omnibus 
Appropriations and Authorization Act for Fiscal Year 1999 (Pub. L. 105-
277) requires that agencies may not use appropriated funds to acquire 
information technology that does not comply with 39.106, unless the 
agency's Chief Information Officer determines that noncompliance with 
39.106 is necessary to the function and operation of the agency or the 
acquisition is required by a contract in effect before October 21, 1998. 
The Chief Information Officer must send to the Office of Management and 
Budget a copy of all waivers for forwarding to Congress.
    (b) 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.
    (c) Agencies must follow OMB Circular A-127, Financial Management 
Systems, when acquiring financial management systems. Agencies may 
acquire only core financial management software certified by the Joint 
Financial Management Improvement Program.

[61 FR 41470, Aug. 8, 1996, as amended at 64 FR 32748, June 17, 1999; 64 
FR 72446, Dec. 27, 1999]



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 
project cost, benefits and returns; and focusing on risks and returns 
using quantifiable measures.



39.103  Modular contracting.

    (a) This section implements Section 5202, Incremental Acquisition of 
Information Technology, of the Clinger-Cohen Act of 1996 (Public Law 
104-106). Modular contracting is intended to reduce program risk and to 
incentivize contractor performance while meeting the Governments need 
for timely access to rapidly changing technology. Consistent with the 
agency's information technology architecture, agencies should, to the 
maximum extent practicable, use modular contracting to acquire major 
systems (see 2.101) of information technology. Agencies may also use 
modular contracting to acquire non-major systems of information 
technology.
    (b) When using modular contracting, an acquisition of a system of 
information technology may be divided into

[[Page 748]]

several smaller acquisition increments that--
    (1) Are easier to manage individually than would be possible in one 
comprehensive acquisition;
    (2) Address complex information technology objectives incrementally 
in order to enhance the likelihood of achieving workable systems or 
solutions for attainment of those objectives;
    (3) Provide for delivery, implementation, and testing of workable 
systems or solutions in discrete increments, each of which comprises a 
system or solution that is not dependent on any subsequent increment in 
order to perform its principal functions;
    (4) Provide an opportunity for subsequent increments to take 
advantage of any evolution in technology or needs that occur during 
implementation and use of the earlier increments; and
    (5) Reduce risk of potential adverse consequences on the overall 
project by isolating and avoiding custom-designed components of the 
system.
    (c) The characteristics of an increment may vary depending upon the 
type of information technology being acquired and the nature of the 
system being developed. The following factors may be considered:
    (1) To promote compatibility, the information technology acquired 
through modular contracting for each increment should comply with common 
or commercially acceptable information technology standards when 
available and appropriate, and shall conform to the agency's master 
information technology architecture.
    (2) The performance requirements of each increment should be 
consistent with the performance requirements of the completed, overall 
system within which the information technology will function and should 
address interface requirements with succeeding increments.
    (d) For each increment, contracting officers shall choose an 
appropriate contracting technique that facilitates the acquisition of 
subsequent increments. Pursuant to Parts 16 and 17 of the Federal 
Acquisition Regulations, contracting officers shall select the contract 
type and method appropriate to the circumstances (e.g., indefinite 
delivery, indefinite quantity contracts, single contract with options, 
successive contracts, multiple awards, task order contracts). 
Contract(s) shall be structured to ensure that the Government is not 
required to procure additional increments.
    (e) To avoid obsolescence, a modular contract for information 
technology should, to the maximum extent practicable, be awarded within 
180 days after the date on which the solicitation is issued. If award 
cannot be made within 180 days, agencies should consider cancellation of 
the solicitation in accordance with 48 CFR 14.209 or 15.206(e). To the 
maximum extent practicable, deliveries under the contract should be 
scheduled to occur within 18 months after issuance of the solicitation.

[63 FR 9068, Feb. 23, 1998]



39.104  Information technology services.

    When acquiring information technology services, solicitations must 
not describe any minimum experience or educational requirement for 
proposed contractor personnel unless the contracting officer determines 
that the needs of the agency--
    (a) Cannot be met without that requirement; or
    (b) Require the use of other than a performance-based contract (see 
subpart 37.6).

[66 FR 22085, May 2, 2001]



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.

[[Page 749]]

    (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]



           Subpart 39.2--Electronic and Information Technology

    Source: 66 FR 20897, Apr. 25, 2001, unless otherwise noted.



39.201  Scope of subpart.

    (a) This subpart implements section 508 of the Rehabilitation Act of 
1973 (29 U.S.C. 794d), and the Architectural and Transportation Barriers 
Compliance Board Electronic and Information Technology (EIT) 
Accessibility Standards (36 CFR part 1194).
    (b) Further information on section 508 is available via the Internet 
at http://www.section508.gov.
    (c) When acquiring EIT, agencies must ensure that--
    (1) Federal employees with disabilities have access to and use of 
information and data that is comparable to the access and use by Federal 
employees who are not individuals with disabilities; and
    (2) Members of the public with disabilities seeking information or 
services from an agency have access to and use of information and data 
that is comparable to the access to and use of information and data by 
members of the public who are not individuals with disabilities.



39.202  Definition.

    Undue burden, as used in this subpart, means a significant 
difficulty or expense.



39.203  Applicability.

    (a) Unless an exception at 39.204 applies, acquisitions of EIT 
supplies and services must meet the applicable accessibility standards 
at 36 CFR part 1194.
    (b)(1) Exception determinations are required prior to contract 
award, except for indefinite-quantity contracts (see paragraph (b)(2) of 
this section).
    (2) Exception determinations are not required prior to award of 
indefinite-quantity contracts, except for requirements that are to be 
satisfied by initial award. Contracting offices that award indefinite-
quantity contracts must indicate to requiring and ordering activities 
which supplies and services the contractor indicates as compliant, and 
show where full details of compliance can be found (e.g., vendor's or 
other exact website location).
    (3) Requiring and ordering activities must ensure supplies or 
services meet the applicable accessibility standards at 36 CFR part 
1194, unless an exception

[[Page 750]]

applies, at the time of issuance of task or delivery orders. 
Accordingly, indefinite-quantity contracts may include noncompliant 
items; however, any task or delivery order issued for noncompliant items 
must meet an applicable exception.
    (c)(1) When acquiring commercial items, an agency must comply with 
those accessibility standards that can be met with supplies or services 
that are available in the commercial marketplace in time to meet the 
agency's delivery requirements.
    (2) The requiring official must document in writing the 
nonavailability, including a description of market research performed 
and which standards cannot be met, and provide documentation to the 
contracting officer for inclusion in the contract file.



39.204  Exceptions.

    The requirements in 39.203 do not apply to EIT that--
    (a) Is purchased in accordance with Subpart 13.2 (micro-purchases) 
prior to January 1, 2003. However, for micro-purchases, contracting 
officers and other individuals designated in accordance with 1.603-3 are 
strongly encouraged to comply with the applicable accessibility 
standards to the maximum extent practicable;
    (b) Is for a national security system;
    (c) Is acquired by a contractor incidental to a contract;
    (d) Is located in spaces frequented only by service personnel for 
maintenance, repair or occasional monitoring of equipment; or
    (e) Would impose an undue burden on the agency.
    (1) Basis. In determining whether compliance with all or part of the 
applicable accessibility standards in 36 CFR part 1194 would be an undue 
burden, an agency must consider--
    (i) The difficulty or expense of compliance; and
    (ii) Agency resources available to its program or component for 
which the supply or service is being acquired.
    (2) Documentation. (i) The requiring official must document in 
writing the basis for an undue burden decision and provide the 
documentation to the contracting officer for inclusion in the contract 
file.
    (ii) When acquiring commercial items, an undue burden determination 
is not required to address individual standards that cannot be met with 
supplies or service available in the commercial marketplace in time to 
meet the agency delivery requirements (see 39.203(c)(2) regarding 
documentation of nonavailability).

                           PART 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.

                          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.

[[Page 751]]



                          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;
    (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

[[Page 752]]

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(d)(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. 7251, 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; 
63 FR 58603, Oct. 30, 1998]



                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.)
    (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

[[Page 753]]

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 shall provide a representation that service can be 
provided in a manner consistent with section 8093 of Public Law 100-202 
(see 41.201(d)).

[59 FR 67018, Dec. 28, 1994, as amended at 60 FR 34759, July 3, 1995; 61 
FR 39190, July 26, 1996; 64 FR 10533, Mar. 4, 1999]



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 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).

[[Page 754]]

    (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 13.302; 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.

[59 FR 67018, Dec. 28, 1994, as amended at 62 FR 64926, Dec. 9, 1997]



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.
    (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

[[Page 755]]

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.
    (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

[[Page 756]]

    (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 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.

[[Page 757]]

    (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, 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.

[[Page 758]]



        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 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]

[[Page 759]]



                           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 760]]



                    SUBCHAPTER G--CONTRACT MANAGEMENT




PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES--Table of Contents




Sec.
42.000 Scope of part.
42.001 [Reserved]
42.002 Interagency agreements.
42.003 Cognizant Federal agency.

                  Subpart 42.1--Contract Audit Services

42.101 Contract audit responsibilities.
42.102 Assignment of contract audit services.
42.103 Contract audit services directory.

             Subpart 42.2--Contract Administration Services

42.201 Contract administration responsibilities.
42.202 Assignment of contract administration.
42.203 Contract administration services directory.

         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 Definition.
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 [Reserved]

          Subpart 42.11--Production Surveillance and Reporting

42.1101 General.
42.1102 Applicability.
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 [Reserved]
42.1202 Responsibility for executing agreements.
42.1203 Processing agreements.
42.1204 Applicability of novation agreements.

[[Page 761]]

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 policies and procedures for assigning and 
performing contract administration and contract audit services.

[63 FR 9062, Feb. 23, 1998]



42.001  [Reserved]



42.002  Interagency agreements.

    (a) Agencies shall avoid duplicate audits, reviews, inspections, and 
examinations of contractors or subcontractors, by more than one agency, 
through the use of interagency agreements.
    (b) Subject to the fiscal regulations of the agencies and applicable 
interagency agreements, the requesting agency shall reimburse the 
servicing agency for rendered services in accordance with the Economy 
Act (31 U.S.C. 1535).
    (c) When an interagency agreement is established, the agencies are 
encouraged to consider establishing procedures for the resolution of 
issues that may arise under the agreement.

[63 FR 9062, Feb. 23, 1998, as amended at 65 FR 36014, June 6, 2000]



42.003  Cognizant Federal agency.

    (a) For contractors other than educational institutions and 
nonprofit organizations, the cognizant Federal agency normally will be 
the agency with the largest dollar amount of negotiated contracts, 
including options. For educational institutions and nonprofit 
organizations, the cognizant Federal agency is established according to 
Subsection G.11 of OMB Circular A-21, Cost Principles for Educational 
Institutions, and Attachment A, Subsection E.2, of OMB Circular A-122, 
Cost Principles for Nonprofit Organizations, respectively.
    (b) Once a Federal agency assumes cognizance for a contractor, it 
should remain cognizant for at least 5 years to ensure continuity and 
ease of administration. If, at the end of the 5-year period, another 
agency has the largest dollar amount of negotiated contracts, including 
options, the two agencies shall coordinate and determine which will 
assume cognizance. However, if circumstances warrant it and the affected 
agencies agree, cognizance may transfer prior to the expiration of the 
5-year period.

[63 FR 9062, Feb. 23, 1998]

[[Page 762]]



                  Subpart 42.1--Contract Audit Services

    Source: 63 FR 9062, Feb. 23, 1998, unless otherwise noted.



42.101  Contract audit responsibilities.

    (a) The auditor is responsible for--
    (1) Submitting information and advice to the requesting activity, 
based on the auditor's analysis of the contractor's financial and 
accounting records or other related data as to the acceptability of the 
contractor's incurred and estimated costs;
    (2) Reviewing the financial and accounting aspects of the 
contractor's cost control systems; and
    (3) Performing other analyses and reviews that require access to the 
contractor's financial and accounting records supporting proposed and 
incurred costs.
    (b) Normally, for contractors other than educational institutions 
and nonprofit organizations, the Defense Contract Audit Agency (DCAA) is 
the responsible Government audit agency. However, there may be instances 
where an agency other than DCAA desires cognizance of a particular 
contractor. In those instances, the two agencies shall agree on the most 
efficient and economical approach to meet contract audit requirements. 
For educational institutions and nonprofit organizations, audit 
cognizance will be determined according to the provisions of OMB 
Circular A-133, Audits of Institutions of Higher Education and Other 
Non-Profit Institutions.



42.102  Assignment of contract audit services.

    (a) As provided in agency procedures or interagency agreements, 
contracting officers may request audit services directly from the 
responsible audit agency cited in the Directory of Federal Contract 
Audit Offices. The audit request should include a suspense date and 
should identify any information needed by the contracting officer.
    (b) The responsible audit agency may decline requests for services 
on a case-by-case basis, if resources of the audit agency are inadequate 
to accomplish the tasks. Declinations shall be in writing.



42.103  Contract audit services directory.

    (a) DCAA maintains and distributes the Directory of Federal Contract 
Audit Offices. The directory identifies cognizant audit offices and the 
contractors over which they have cognizance. Changes to audit cognizance 
shall be provided to DCAA so that the directory can be updated.
    (b) Agencies may obtain a copy of the directory or information 
concerning cognizant audit offices by contacting the--Defense Contract 
Audit Agency, ATTN: CMO, Publications Officer, 8725 John J. Kingman 
Road, Suite 2135, Fort Belvoir, VA 22060-6219.



             Subpart 42.2--Contract Administration Services

    Source: 63 FR 9062, Feb. 23, 1998, unless otherwise noted.



42.201  Contract administration responsibilities.

    (a) For each contract assigned for administration, the contract 
administration office (CAO) (see 48 CFR 2.101) shall--
    (1) Perform the functions listed in 42.302(a) to the extent that 
they apply to the contract, except for the functions specifically 
withheld;
    (2) Perform the functions listed in 42.302(b) only when and to the 
extent specifically authorized by the contracting officer; and
    (3) Request supporting contract administration under 42.202(e) and 
(f) when it is required.
    (b) The Defense Contract Management Agency and other agencies offer 
a wide variety of contract administration and support services.

[63 FR 9062, Feb. 23, 1998, as amended at 66 FR 2141, Jan. 10, 2001]



42.202  Assignment of contract administration.

    (a) Delegating functions. As provided in agency procedures, 
contracting officers may delegate contract administration or specialized 
support services, either through interagency agreements or by direct 
request to the cognizant CAO listed in the Federal Directory of Contract 
Administration Services

[[Page 763]]

Components. The delegation should include--
    (1) The name and address of the CAO designated to perform the 
administration (this information also shall be entered in the contract);
    (2) Any special instructions, including any functions withheld or 
any specific authorization to perform functions listed in 42.302(b);
    (3) A copy of the contract to be administered; and
    (4) 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 provided previously.
    (b) Special instructions. As necessary, the contracting officer also 
shall advise the contractor (and other activities as appropriate) of any 
functions withheld from or additional functions delegated to the CAO.
    (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) Rescinding functions. The contracting officer at the requesting 
agency may rescind or recall a delegation to administer a contract or 
perform a contract administration function, except for functions 
pertaining to cost accounting standards and negotiation of forward 
pricing rates and indirect cost rates (also see 42.003). The requesting 
agency must coordinate with the CAO to establish a reasonable transition 
period prior to rescinding or recalling the delegation.
    (e) Secondary delegations of contract administration. (1) A CAO that 
has been delegated administration of a contract under paragraph (a) or 
(c) of this section, or a contracting office retaining contract 
administration, 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--
    (i) Be in writing;
    (ii) Clearly state the specific functions to be performed; and
    (iii) Be accompanied by a copy of pertinent contractual and other 
necessary documents.
    (2) The prime contractor is responsible for managing its 
subcontracts. The CAO's review of subcontracts is normally limited to 
evaluating the prime contractor's management of the subcontracts (see 
Part 44). Therefore, supporting contract administration shall not be 
used for subcontracts unless--
    (i) The Government otherwise would incur undue cost;
    (ii) Successful completion of the prime contract is threatened; or
    (iii) It is authorized under paragraph (f) of this section or 
elsewhere in this regulation.
    (f) Special surveillance. For major system acquisitions (see Part 
34), the contracting officer may designate certain high risk or critical 
subsystems or components for special surveillance in addition to 
requesting supporting contract administration. This surveillance shall 
be conducted in a manner consistent with the policy of requesting that 
the cognizant CAO perform contract administration functions at a 
contractor's facility (see 42.002).
    (g) Refusing delegation of contract administration. An agency may 
decline a request for contract administration services on a case-by-case 
basis if resources of the agency are inadequate to accomplish the tasks. 
Declinations shall be in writing.



42.203  Contract administration services directory.

    The Defense Contract Management Agency (DCMA) maintains and 
distributes the Federal Directory of Contract Administration Services 
Components. The directory lists the names and telephone numbers of those 
DCMA and other agency offices that offer contract

[[Page 764]]

administration services within designated geographic areas and at 
specified contractor plants. Federal agencies may obtain a free copy of 
the directory on disk by writing to--Defense Contract Management Agency, 
ATTN: DCMA-FBP, 8725 John J. Kingman Road, Fort Belvoir, VA 22060-6221, 
or access it on the Internet at http://www.dcma.mil/casbook/casbook.htm.

[63 FR 9062, Feb. 23, 1998, as amended at 66 FR 2141, Jan. 10, 2001]



         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 48 CFR Chapter I, the 
contract terms, and, unless otherwise agreed to in an interagency 
agreement (see 42.002), the applicable regulations of the servicing 
agency.

[63 FR 9063, Feb. 23, 1998]



42.302  Contract administration functions.

    (a) The contracting officer normally delegates the following 
contract administration functions to a CAO. The contracting officer may 
retain any of these functions, except those in paragraphs (a)(5), 
(a)(9), and (a)(11) of this section, unless the cognizant Federal agency 
(see 2.101) has designated the contracting officer to perform these 
functions.
    (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 48 CFR 30.601 
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 48 CFR 52.230-2, 52.230-
3, 52.230-4, 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.
    (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.

[[Page 765]]

    (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 delegated to the CAO (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).
    (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 preaward 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.

[[Page 766]]

    (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.
    (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. Review all amended 
shipping instructions on a periodic, consolidated basis to ensure 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 CAO 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

[[Page 767]]

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) Monitor the contractor's environmental practices for adverse 
impact on contract performance or contract cost, and for compliance with 
environmental requirements specified in the contract. ACO 
responsibilities include--
    (i) Requesting environmental technical assistance, if needed;
    (ii) Monitoring contractor compliance with specifications requiring 
the use of environmentally preferable products, energy-efficient 
products, and materials or delivery of end products with specified 
recovered material content. This must occur as part of the quality 
assurance procedures set forth in Part 46; and
    (iii) As required in the contract, ensuring that the contractor 
complies with the reporting requirements relating to recovered material 
content utilized in contract performance (see subpart 23.4).
    (69) Administer commercial financing provisions and monitor 
contractor security to ensure its continued adequacy to cover 
outstanding payments, when on-site review is required.
    (70) Deobligate excess funds after final price determination.
    (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)

[[Page 768]]

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; 63 FR 
9063, Feb. 23, 1998; 64 FR 72445, Dec. 27, 1999; 66 FR 2133, Jan. 10, 
2001; 66 FR 65353, Dec. 18, 2001]



                 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 769]]

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 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 (see 
42.503-3

[[Page 770]]

below) all information and guidance provided to the contractor.

[66 FR 42370, Sept. 19, 1983, as amended at 66 FR 2133, Jan. 10, 2001]



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 771]]

more than one agency, the agencies concerned shall agree on the 
responsible agency (normally on the basis of the agency with the largest 
dollar balance, including options, of affected contracts). In such 
cases, agencies may also consider geographic location.
    (d) The directory of contract administration services components 
referenced in 42.203 includes a listing of CACO's and the contractors 
for which they are assigned responsibility.

[48 FR 42370, Sept. 19, 1983, as amended at 63 FR 9064, Feb. 23, 1998]



42.603  Responsibilities.

    (a) The CACO shall perform, on a corporate-wide basis, the contract 
administration functions 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 responsible 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.

[48 FR 42370, Sept. 19, 1983, as amended at 63 FR 9064, Feb. 23, 1998]



                    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  Definition.

    Billing rate as used in this subpart means an indirect cost rate (1) 
established temporarily for interim reimbursement of incurred indirect 
costs and (2) adjusted as necessary pending establishment of final 
indirect cost rates.

[48 FR 42370, Sept. 19, 1983, as amended at 59 FR 11387, Mar. 10, 1994; 
63 FR 9064, Feb. 23, 1998; 66 FR 2133, Jan. 10, 2001]



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) shall be responsible for 
establishing final 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 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) To ensure compliance with 10 U.S.C. 2324(a) and 41 U.S.C. 
256(a)--
    (1) Final indirect cost rates shall be used for contract closeout 
for a business unit, unless the quick-closeout procedure in 42.708 is 
used. These final rates shall be binding for all cost-reimbursement 
contracts at the business unit, subject to any specific limitation in a 
contract or advance agreement; and

[[Page 772]]

    (2) Established final indirect cost rates shall be used 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, unless the 
quick-closeout procedure in 42.708 is used.

[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; 63 FR 9064, Feb. 23, 1998]



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's 
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; 63 FR 9064, Feb. 23, 1998]



42.704  Billing rates.

    (a) The contracting officer (or cognizant Federal agency official) 
or auditor responsible under 42.705 for establishing the final indirect 
cost rates also shall be responsible for determining the billing rates.
    (b) The contracting officer (or cognizant Federal agency official) 
or auditor shall establish billing rates on the basis of information 
resulting from recent review, previous rate audits or experience, or 
similar reliable data or experience of other contracting activities. In 
establishing billing rates, the contracting officer (or cognizant 
Federal agency official) or auditor should ensure that the billing rates 
are as close as possible to the final indirect cost rates anticipated 
for the contractor's fiscal period, as adjusted for any unallowable 
costs. When the contracting officer (or cognizant Federal agency 
official) or auditor determines that the dollar value of contracts 
requiring use of billing rates does not warrant submission of a detailed 
billing rate proposal, the billing rates 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

[[Page 773]]

revised by mutual agreement of the contracting officer (or cognizant 
Federal agency official) or auditor and the contractor at either party's 
request, to prevent substantial overpayment or underpayment. When 
agreement cannot be reached, the billing rates may be unilaterally 
determined by the contracting officer (or cognizant Federal agency 
official).
    (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; 
63 FR 9064, Feb. 23, 1998]



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 (or longer period, if approved in writing by the 
contracting officer,) after settlement of the final annual indirect cost 
rates for all years of a physically complete contract, the contractor 
must submit a completion invoice or voucher reflecting the settled 
amounts and rates. To determine whether a period longer than 120 days is 
appropriate, the contracting officer should consider whether there are 
extenuating circumstances, such as the following:
    (1) Pending closeout of subcontracts awaiting Government audit.
    (2) Pending contractor, subcontractor, or Government claims.
    (3) Delays in the disposition of Government property.
    (4) Delays in contract reconciliation.
    (5) Any other pertinent factors.
    (c)(1) If the contractor fails to submit a completion invoice or 
voucher within the time specified in paragraph (b) of this section, the 
contracting officer may--
    (i) Determine the amounts due to the contractor under the contract; 
and
    (ii) Record this determination in a unilateral modification to the 
contract.
    (2) This contracting officer determination must be issued as a final 
decision in accordance with 33.211.

[61 FR 69296, Dec. 31, 1996, as amended at 67 FR 6119, Feb. 8, 2002]



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 (or cognizant Federal agency official) 
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.

[[Page 774]]

    (3) For business units not included in paragraph (a)(1) or (a)(2) of 
this subsection, the contracting officer (or cognizant Federal agency 
official) will determine whether the rates will be contracting officer 
or auditor determined.
    (4) Educational institutions (see 42.705-3).
    (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 (or cognizant Federal agency official) and to 
the cognizant auditor a final indirect cost rate proposal. The required 
content of the proposal and supporting data will vary depending on such 
factors as business type, size, and accounting system capabilities. The 
contractor, contracting officer, and auditor must work together to make 
the proposal, audit, and negotiation process as efficient as possible. 
Accordingly, each contractor shall submit an adequate proposal to the 
contracting officer (or cognizant Federal agency official) and auditor 
within the 6-month period following the expiration of each of its fiscal 
years. Reasonable extensions, for exceptional circumstances only, may be 
requested in writing by the contractor and granted in writing by the 
contracting officer. A contractor shall support its proposal with 
adequate supporting data. For guidance on what generally constitutes an 
adequate final indirect cost rate proposal and supporting data, 
contractors should refer to the Model Incurred Cost Proposal in Chapter 
6 of the Defense Contract Audit Agency Pamphlet No. 7641.90, Information 
for Contractors, available via the Internet at http://www.dcaa.mil.
    (2) The auditor shall submit to the contracting officer (or 
cognizant Federal agency official) an advisory audit report identifying 
any relevant advance agreements or restrictive terms of specific 
contracts.
    (3) The contracting officer (or cognizant Federal agency official) 
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; 63 FR 9064, Feb. 23, 1998; 67 FR 6120, Feb. 
8, 2002]

[[Page 775]]



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 (or 
cognizant Federal agency official) 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 (or cognizant Federal agency official) 
and auditor agree that special circumstances require auditor 
determination.
    (b) Procedures. (1) The contractor shall submit to the cognizant 
contracting officer (or cognizant Federal agency official) and auditor a 
final indirect cost rate proposal in accordance with 42.705-1(b)(1).
    (2) Upon receipt of a proposal, the auditor shall--
    (i) Audit the proposal and seek agreement on indirect costs with the 
contractor;
    (ii) Prepare an indirect cost rate agreement conforming to the 
requirements of the contracts. The agreement shall be signed by the 
contractor and the auditor;
    (iii) If agreement with the contractor is not reached, forward the 
audit report to the contracting officer (or cognizant Federal agency 
official) identified in the Directory of Contract Administration 
Services Components (see 42.203), 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; 63 FR 9065, Feb. 23, 1998]



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-21, Cost Principles for Educational 
Institutions, assigns each educational institution to a single 
Government agency for the negotiation of indirect cost rates and 
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 42.103).
    (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--

[[Page 776]]

    (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 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; 
63 FR 9065, Feb. 23, 1998]



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).

[[Page 777]]

    (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 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

[[Page 778]]

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.
    (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).

[[Page 779]]

    (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]



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;

[[Page 780]]

    (2) State the contractor's name and list the numbers of the affected 
contracts;
    (3) Describe the costs to be disallowed, including estimated dollar 
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

[[Page 781]]

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 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 [Reserved]



          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]



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:
    (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.

[[Page 782]]

    (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.



42.1201  [Reserved]



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:

[[Page 783]]

    (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) If a contractor wishes the Government to recognize a successor 
in interest to its contracts or a name change, the contractor must 
submit a written request to the responsible contracting officer (see 
42.1202). If the contractor received its contract under Subpart 8.7 
under the Javits-Wagner-O'Day Act, use the procedures at 8.716 instead.
    (b) The responsible contracting officer shall--
    (1) Identify and request that the contractor submit the information 
necessary to evaluate the proposed agreement for recognizing a successor 
in interest or a name change. This information should include the items 
identified in 42.1204 (e) and (f) or 42.1205(a), as applicable;
    (2) Notify each contract administration office and contracting 
office affected by a proposed agreement for recognizing a successor in 
interest, and provide those offices with a list of all affected 
contracts; and
    (3) Request submission of any comments or objections to the proposed 
transfer within 30 days after notification. Any submission should be 
accompanied by supporting documentation.
    (c) Upon receipt of the necessary information, 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;
    (2) The proposed successor's responsibility under subpart 9.1, 
Responsible Prospective Contractors; and
    (3) Any factor relating to the proposed successor's performance of 
contracts with the Government that the Government determines would 
impair the proposed successor's ability to perform the contract 
satisfactorily.
    (d) The execution of a novation agreement does not preclude the use 
of any other method available to the contracting officer to resolve any 
other issues related to a transfer of contractor assets, including the 
treatment of costs.
    (e) Any separate agreement between the transferor and transferee 
regarding the assumption of liabilities (e.g., long-term incentive 
compensation plans, cost accounting standards noncompliances, 
environmental cleanup costs, and final overhead costs) should be 
referenced specifically in the novation agreement.
    (f) Before novation and change-of-name agreements are executed, the 
responsible contracting officer shall ensure that Government counsel has 
reviewed them for legal sufficiency.
    (g) 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.
    (h) 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;

[[Page 784]]

    (3) Send a signed copy of the Standard Form 30, with attached list 
to the transferor and to the transferee; and
    (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.

[48 FR 42370, Sept. 19, 1983, as amended at 62 FR 64934, Dec. 9, 1997; 
63 FR 1533, Jan. 9, 1998; 64 FR 51834, Sept. 24, 1999]



42.1204  Applicability of novation agreements.

    (a) 41 U.S.C. 15 prohibits transfer of Government contracts from the 
contractor to a third party. The Government may, when 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(l) for the effect of novation agreements after 
bid opening but before award.) Examples of such transactions 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) A novation agreement is unnecessary when there is a change in 
the ownership of a contractor as a result of a stock purchase, with no 
legal change in the contracting party, and when that contracting party 
remains in control of the assets and is the party performing the 
contract. However, whether there is a purchase of assets or a stock 
purchase, there may be issues related to the change in ownership that 
appropriately should be addressed in a formal agreement between the 
contractor and the Government (see 42.1203(e)).
    (c) 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.
    (d) When considering whether to recognize a third party as a 
successor in interest to Government contracts, the responsible 
contracting officer shall identify and evaluate any significant 
organizational conflicts of interest in accordance with subpart 9.5. If 
the responsible contracting officer determines that a conflict of 
interest cannot be resolved, but that it is in the best interest of the 
Government to approve the novation request, a request for a waiver may 
be submitted in accordance with the procedures at 9.503.
    (e) When a contractor asks the Government to recognize a successor 
in interest, the contractor shall submit to the responsible contracting 
officer three signed copies of the proposed novation agreement and one 
copy each, as applicable, of the following:
    (1) The document describing the proposed transaction, e.g., 
purchase/sale agreement or memorandum of understanding.
    (2) A list of all affected contracts between the transferor and the 
Government, as of the date of sale or transfer of assets, showing for 
each, as of that date, the--
    (i) Contract number and type;
    (ii) Name and address of the contracting office;
    (iii) Total dollar value, as amended; and
    (iv) Approximate remaining unpaid balance.
    (3) Evidence of the transferee's capability to perform.
    (4) Any other relevant information requested by the responsible 
contracting officer.
    (f) Except as provided in paragraph (g) of this section, the 
contractor shall submit to the responsible contracting officer one copy 
of each of the following documents, as applicable, as the documents 
become available:
    (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.

[[Page 785]]

    (2) A certified copy of each resolution of the corporate parties' 
boards of directors authorizing the transfer of assets.
    (3) A certified copy of the minutes of each corporate party's 
stockholder meeting necessary to approve the transfer of assets.
    (4) 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.
    (5) 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.
    (6) Balance sheets of the transferor and transferee as of the dates 
immediately before and after the transfer of assets, audited by 
independent accountants.
    (7) Evidence that any security clearance requirements have been met.
    (8) The consent of sureties on all contracts listed under paragraph 
(e)(2) of this section if bonds are required, or a statement from the 
transferor that none are required.
    (g) If the Government has acquired the documents during its 
participation in the pre-merger or pre-acquisition review process, or 
the Government's interests are adequately protected with an alternative 
formulation of the information, the responsible contracting officer may 
modify the list of documents to be submitted by the contractor.
    (h) 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.
    (i) The responsible contracting officer shall use the following 
format for 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 --------, 20--, 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.

[[Page 786]]

    (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 --------, 20--, 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 --------, 20--, 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 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 -------- 20--.

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

[[Page 787]]

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 -------- 20--.

By______________________________________________________________________


[CORPORATE SEAL]


[48 FR 42370, Sept. 19, 1983, as amended at 62 FR 64935, Dec. 9, 1997; 
65 FR 24325, Apr. 25, 2000]



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 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 --------, 20--, 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 --
------ 20--.

By______________________________________________________________________

[CORPORATE SEAL]

[48 FR 42370, Sept. 19, 1983, as amended at 56 FR 67134, Dec. 27, 1991; 
65 FR 24325, Apr. 25, 2000]

[[Page 788]]



  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.
    (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]

[[Page 789]]



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;
    (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.

[[Page 790]]

    (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 
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

[[Page 791]]

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]



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

[[Page 792]]

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. This 
subpart does not apply to procedures used by agencies in determining 
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.

[60 FR 16719, Mar. 31, 1995, as amended at 65 FR 36014, June 6, 2000]



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

[[Page 793]]

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]



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 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]



          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.



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).

[[Page 794]]

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 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.

    As used in this part--
    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).

[[Page 795]]

    (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.

[48 FR 42386, Sept. 19, 1983, as amended at 66 FR 2133, Jan. 10, 2001]



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, or Suspension of Work clause); 
and
    (4) Issue termination notices.

[48 FR 42386, Sept. 19, 1983, as amended at 66 FR 2133, Jan. 10, 2001]



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,

[[Page 796]]

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 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)).

[[Page 797]]



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 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

[[Page 798]]

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]



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 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) 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. The contracting officer may vary 
the 30-day period in paragraph (c) of the clause according to agency 
procedures.
    (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; 65 FR 46072, July 
26, 2000]



                           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;

[[Page 799]]

    (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 13.302-3.
    (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.
    (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; 62 FR 64926, 
Dec. 9, 1997]



PART 44--SUBCONTRACTING POLICIES AND PROCEDURES--Table of Contents




Sec.
44.000 Scope of part.

                          Subpart 44.1--General

44.101 Definitions.

                  Subpart 44.2--Consent to Subcontracts

44.201 Consent and advance notification requirements.
44.201-1 Consent requirements.
44.201-2 Advance notification requirements.
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.

    (a) This part prescribes policies and procedures for consent to 
subcontracts or advance notification of subcontracts, and for review, 
evaluation, and approval of contractors' purchasing systems.
    (b) The consent and advance notification requirements of subpart 
44.2 are not applicable to prime contracts for commercial items acquired 
pursuant to part 12.

[63 FR 34060, June 22, 1998]



                          Subpart 44.1--General



44.101  Definitions.

    As used in this part--
    Approved purchasing system means a contractor's purchasing system 
that has been reviewed and approved in accordance with this part.
    Contractor 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 means any contract as defined in subpart 2.1 entered 
into by a subcontractor to furnish supplies or

[[Page 800]]

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 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; 
66 FR 2133, Jan. 10, 2001]



                  Subpart 44.2--Consent to Subcontracts



44.201  Consent and advance notification requirements.



44.201-1  Consent requirements.

    (a) If the contractor has an approved purchasing system, consent is 
required for subcontracts specifically identified by the contracting 
officer in the subcontracts clause of the contract. The contracting 
officer may require consent to subcontract if the contracting officer 
has determined that an individual consent action is required to protect 
the Government adequately because of the subcontract type, complexity, 
or value, or because the subcontract needs special surveillance. These 
can be subcontracts for critical systems, subsystems, components, or 
services. Subcontracts may be identified by subcontract number or by 
class of items (e.g., subcontracts for engines on a prime contract for 
airframes).
    (b) If the contractor does not have an approved purchasing system, 
consent to subcontract is required for cost-reimbursement, time-and-
materials, labor-hour, or letter contracts, and also for unpriced 
actions (including unpriced modifications and unpriced delivery orders) 
under fixed-price contracts that exceed the simplified acquisition 
threshold, for--
    (1) Cost-reimbursement, time-and-materials, or labor-hour 
subcontracts; and
    (2) Fixed-price subcontracts that exceed--
    (i) For the Department of Defense, the Coast Guard, and the National 
Aeronautics and Space Administration, the greater of the simplified 
acquisition threshold or 5 percent of the total estimated cost of the 
contract; or
    (ii) For civilian agencies other than the Coast Guard and the 
National Aeronautics and Space Administration, either the simplified 
acquisition threshold or 5 percent of the total estimated cost of the 
contract.
    (c) Consent may be required for subcontracts under prime contracts 
for architect-engineer services.
    (d) The contracting officer's written authorization for the 
contractor to purchase from Government sources (see part 51) constitutes 
consent.

[63 FR 34060, June 22, 1998]



44.201-2  Advance notification requirements.

    Under cost-reimbursement contracts, even if the contractor has an 
approved purchasing system and consent to subcontract is not required 
under 44.201-1, the contractor is required by statute (10 U.S.C. 2306(e) 
or 41 U.S.C. 254(b)) to notify the agency before the award of--
    (a) Any cost-plus-fixed-fee subcontract; or
    (b) Any fixed-price subcontract that exceeds--
    (1) For the Department of Defense, the Coast Guard, and the National 
Aeronautics and Space Administration, the greater of the simplified 
acquisition threshold or 5 percent of the total estimated cost of the 
contract; or
    (2) For civilian agencies other than the Coast Guard and the 
National Aeronautics and Space Administration, either the simplified 
acquisition threshold or 5 percent of the total estimated cost of the 
contract.

[63 FR 34060, June 22, 1998]



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.

[[Page 801]]

    (b) The contracting officer responsible for consent shall review the 
contractor's notification and supporting data to ensure that the 
proposed subcontract is appropriate for the risks involved and 
consistent with current policy and sound business judgment.
    (c) Designation of specific subcontractors during contract 
negotiations does not in itself satisfy the requirements for advance 
notification or consent pursuant to the clause at 52.244-2. 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 identify those 
subcontracts in paragraph (k) of the clause at 52.244-2.

[48 FR 42388, Sept. 19, 1983, as amended at 55 FR 52796, Dec. 21, 1990; 
63 FR 34060, June 22, 1998]



44.202-2  Considerations.

    (a) The contracting officer responsible for consent must, at a 
minimum, 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--
    (i) Small business subcontracting, including, if applicable, its 
plan for subcontracting with small, veteran-owned, service-disabled 
veteran-owned, HUBZone, small disadvantaged and women-owned small 
business concerns (see part 19); and
    (ii) Purchase from nonprofit agencies designated by the Committee 
for Purchase From People Who Are Blind or Severely Disabled (Javits-
Wagner-O'Day Act (JWOD) (41 U.S.C. 48))(see part 8)?
    (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?
    (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; 63 FR 34060, 
June 22, 1998; 66 FR 65368, Dec. 18, 2001]



44.203  Consent limitations.

    (a) The contracting officer's consent to a subcontract or approval 
of the

[[Page 802]]

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)(1) The contracting officer shall insert the clause at 52.244-2, 
Subcontracts, in solicitations and contracts when contemplating--
    (i) A cost-reimbursement contract;
    (ii) A letter contract that exceeds the simplified acquisition 
threshold;
    (iii) A fixed-price contract that exceeds the simplified acquisition 
threshold under which unpriced contract actions (including unpriced 
modifications or unpriced delivery orders) are anticipated;
    (iv) A time-and-materials contract that exceeds the simplified 
acquisition threshold; or
    (v) A labor-hour contract that exceeds the simplified acquisition 
threshold.
    (2) If a cost-reimbursement contract is contemplated--
    (i) For the Department of Defense, the Coast Guard, and the National 
Aeronautics and Space Administration, the contracting officer shall use 
the clause with its Alternate I; or
    (ii) For civilian agencies other than the Coast Guard and the 
National Aeronautics and Space Administration, the contracting officer 
shall use the clause with its Alternate II.
    (3) Use of this clause is not required in--
    (i) Fixed-price architect-engineer contracts; or
    (ii) 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.
    (b) The contracting officer may insert the clause at 52.244-4, 
Subcontractors and Outside Associates and Consultants (Architect-
Engineer Services), in architect-engineer contracts.
    (c) 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 time-and-materials, labor-hour, or architect-engineer contract 
is contemplated.

[63 FR 34060, June 22, 1998, as amended at 64 FR 51845, Sept. 24, 1999]

[[Page 803]]



          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) The ACO shall determine the need for a CPSR based on, but not 
limited to, the past performance of the contractor, and the volume, 
complexity and dollar value of subcontracts. If a contractor's sales to 
the Government (excluding competitively awarded firm-fixed-price and 
competitively awarded fixed-price with economic price adjustment 
contracts and sales of commercial items pursuant to Part 12) are 
expected to exceed $25 million during the next 12 months, perform a 
review to determine if a CPSR is needed. 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 it is considered to 
be in the Government's best interest.
    (b) Once an initial determination has been made under paragraph (a) 
of this section, at least every three years the ACO shall determine 
whether a purchasing system review is necessary. If necessary, the 
cognizant contract administration office will conduct a purchasing 
system review.

[63 FR 70288, Dec. 18, 1998]



44.303  Extent of review.

    A CPSR requires an evaluation of the contractor's purchasing system. 
Unless segregation of subcontracts is impracticable, this evaluation 
shall not include subcontracts awarded by the contractor exclusively in 
support of Government contracts that are competitively awarded firm-
fixed-price, competitively awarded fixed-price with economic price 
adjustment, or awarded 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; 63 FR 70288, Dec. 18, 1998]



44.304  Surveillance.

    (a) The ACO shall maintain a sufficient level of surveillance to 
ensure

[[Page 804]]

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--
    (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).

[[Page 805]]

    (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]



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
    (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

[[Page 806]]

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]
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.

[[Page 807]]

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.
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,

[[Page 808]]

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 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.

[[Page 809]]

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]



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.
    (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.

[[Page 810]]

    (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 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]



                   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

[[Page 811]]

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 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

[[Page 812]]

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 (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

[[Page 813]]

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 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

[[Page 814]]

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;
    (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]



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]

[[Page 815]]



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 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

[[Page 816]]

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 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]

[[Page 817]]



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.
    (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

[[Page 818]]

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, 
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

[[Page 819]]

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 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.

[[Page 820]]

    (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 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

[[Page 821]]

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.
    (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.

[[Page 822]]

    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, 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.

[[Page 823]]

    (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.
    (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).

[[Page 824]]



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 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

[[Page 825]]

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 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

[[Page 826]]

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.
    (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

[[Page 827]]

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--
    (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.

[[Page 828]]

    (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 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.

[[Page 829]]

    (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:
    (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.

[[Page 830]]

    (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.



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.

[[Page 831]]

    (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 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

[[Page 832]]

    (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 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.

[[Page 833]]



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 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).

[[Page 834]]

    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.
    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

[[Page 835]]

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).
    (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

[[Page 836]]

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]



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)

[[Page 837]]

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, 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

[[Page 838]]

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 
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

[[Page 839]]

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 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

[[Page 840]]

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 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: 
DLSC-LC, 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; 
63 FR 34080, June 22, 1998]



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..

[[Page 841]]

 
                     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. 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

[[Page 842]]

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 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.

[[Page 843]]

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 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.

[[Page 844]]

    (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.
    (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)).

[[Page 845]]



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
    (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

[[Page 846]]

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, 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.

[[Page 847]]

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.

                        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 [Reserved]
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.
46.805 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.

    As used in this part--
    Acceptance 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.
    Conditional acceptance means acceptance of supplies or services that 
do not conform to contract quality requirements, or are otherwise 
incomplete, that the contractor is required to correct or otherwise 
complete by a specified date.
    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.
    Major nonconformance means a nonconformance, other than critical, 
that

[[Page 848]]

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.
    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; 64 FR 51846, Sept. 24, 1999; 66 FR 2133, 
Jan. 10, 2001]



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 42.201), 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; 63 FR 9065, Feb. 23, 1998]

[[Page 849]]



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 46.103(c)).

[48 FR 42415, Sept. 19, 1983, as amended at 63 FR 9065, Feb. 23, 1998]



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.

[[Page 850]]

The type and extent of contract quality requirements needed depends on 
the 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 851]]

    (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) Requiring compliance with higher-level quality standards is 
appropriate in solicitations and contracts for complex or critical items 
(see 46.203(b) and (c)) or when the technical requirements of the 
contract 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) When the contracting officer, in consultation with technical 
personnel, finds it is in the Government's interest to require that 
higher-level quality standards be maintained, the contracting officer 
shall use the clause prescribed at 46.311. The contracting fficer shall 
indicate in the clause which higher-level quality standards will satisfy 
the Government's requirement. Examples of higher-level quality standards 
are ISO 9001, 9002, or 9003; ANSI/ISO/ASQ Q9001-2000; ANSI/ASQC Q9001, 
Q9002, or Q9003; QS-9000; AS-9000; ANSI/ASQC E4; and ANSI/ASME NQA-1.

[63 FR 70289, Dec. 18, 1998, as amended at 67 FR 6120, Feb. 8, 2002]



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 852]]



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 853]]

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, in solicitations and 
contracts when the inclusion of a higher-level contract quality 
requirement is appropriate (see 46.202-4).

[63 FR 70289, Dec. 18, 1998]



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 exceed the simplified acquisition

[[Page 854]]

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]



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) Government inspection during contract performance is essential; 
or
    (f) 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; 
63 FR 70290, Dec. 18, 1998]



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

[[Page 855]]

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--
    (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--

[[Page 856]]

    (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) The contracting officer 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) The contracting officer ordinarily must give the contractor 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 must 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 ordinarily must reject supplies or services when 
the nonconformance is critical or major or the supplies or services are 
otherwise incomplete. However, there may be circumstances (e.g., reasons 
of economy or urgency) when the contracting officer determines 
acceptance or conditional acceptance of supplies or services is in the 
best interest of the Government. The contracting officer must make this 
determination based upon--
    (i) Advice of the technical activity that the item is safe to use 
and will perform its intended purpose;
    (ii) Information regarding the nature and extent of the 
nonconformance or otherwise incomplete supplies or services;
    (iii) A request from the contractor for acceptance of the 
nonconforming or otherwise incomplete supplies or services (if 
feasible);
    (iv) A recommendation for acceptance, conditional 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, must, 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 must, 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.
    (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) The contracting officer must discourage the repeated tender of 
nonconforming supplies or services, including those with only minor

[[Page 857]]

nonconformances, by appropriate action, such as rejection and 
documenting the contractor's performance record.
    (f) When supplies or services are accepted with critical or major 
nonconformances as authorized in paragraph (c) of this section, the 
contracting officer must modify the contract to provide for an equitable 
price reduction or other consideration. In the case of conditional 
acceptance, amounts withheld from payments generally should be at least 
sufficient to cover the estimated cost and related profit to correct 
deficiencies and complete unfinished work. The contracting officer must 
document in the contract file the basis for the amounts withheld. 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 need not be modified unless 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.
    (g) Notices of rejection must 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 must, 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; 64 FR 51846, Sept. 24, 1999]



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 officer. When this responsibility is assigned to a cognizant 
contract administration office or to another agency (see 42.202(g)), 
acceptance by that office or agency is binding on the Government.

[48 FR 42415, Sept. 19, 1983, as amended at 63 FR 9065, Feb. 23, 1998]



46.503  Place of acceptance.

    Each contract shall specify the place of acceptance. Contracts that 
provide

[[Page 858]]

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  [Reserved]



46.702  General.

    (a) The principal purposes of a warranty in a Government contract 
are (1) 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 f 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

[[Page 859]]

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;
    (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

[[Page 860]]

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 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.

[[Page 861]]

    (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 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. If the contractor's 
design rather than the Government's design will be used, insert the word 
``design'' before ``material'' in paragraph (b)(1)(i).
    (2) If it is desirable to specify that necessary transportation 
incident to

[[Page 862]]

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. If the contractor's design rather than the 
Government's design will be used, insert the word ``design'' before 
``material'' in paragraph (b)(1).
    (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 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; 
66 FR 2133, Jan. 10, 2001]

[[Page 863]]



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 commercial items.
    (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; 
66 FR 53484, Oct. 22, 2001]



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.



46.805  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.

[[Page 864]]

    (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.
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.

[[Page 865]]

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).

    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.

[[Page 866]]

    (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.

    As used in this part--
    Carrier or commercial carrier means a common carrier or a contract 
carrier.
    Common carrier 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.

[48 FR 42424, Sept. 19, 1983, as amended at 66 FR 2133, Jan. 10, 2001]



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 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.

[[Page 867]]



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]



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.

[[Page 868]]

    (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
    (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]

[[Page 869]]



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;
    (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.

    As used in this subpart--
    General freight means supplies, goods, and transportable property 
not encompassed in the definitions of household goods or office 
furniture.
    Household goods 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 means furniture, equipment, fixtures, records, and 
other

[[Page 870]]

equipment and materials used in Government offices, hospitals, and 
similar establishments.

[48 FR 42424, Sept. 19, 1983, as amended at 66 FR 2133, Jan. 10, 2001]



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 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

[[Page 871]]

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 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;

[[Page 872]]

    (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 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

[[Page 873]]

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 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

[[Page 874]]

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 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-

[[Page 875]]

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, 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

[[Page 876]]

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(a)) 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; 63 FR 9065, Feb. 23, 1998]



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 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

[[Page 877]]

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 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--

[[Page 878]]

    (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 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

[[Page 879]]

    (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;
    (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

[[Page 880]]

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.
    (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

[[Page 881]]

    (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 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;

[[Page 882]]

    (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
    (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;

[[Page 883]]

    (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 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 $100 or less.
    (2) A Government agency may pay an invoiced but unsupported 
transportation charge of $250 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

[[Page 884]]

$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 paragraph 
(d)(2) of this subsection for unsupported transportation charges of $250 
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; 62 
FR 64936, Dec. 9, 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.
    (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.

[[Page 885]]

    (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;
    (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

[[Page 886]]

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 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.

[[Page 887]]

    (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.



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

[[Page 888]]

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;
    (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

[[Page 889]]

    (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 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

[[Page 890]]

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 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.

[[Page 891]]

    (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 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

[[Page 892]]

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 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

[[Page 893]]

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 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.

    As used in this subpart--
    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

[[Page 894]]

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 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).

[48 FR 42424, Sept. 19, 1983, as amended at 66 FR 2134, Jan. 10, 2001]



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 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

[[Page 895]]

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 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]

[[Page 896]]



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.

    As used in this subpart--
    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.
    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 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 means a vessel (1) 
registered and operated under the laws of the United States, (2) used in 
commercial trade of the United States, (3) owned and operated by U.S. 
citizens, including a vessel under voyage or time charter to the 
Government, and (4) 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 when used independently means either a Government 
vessel or a privately owned U.S.-flag commercial vessel.

[48 FR 42424, Sept. 19, 1983, as amended at 66 FR 2134, Jan. 10, 2001]



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

[[Page 897]]

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.
    (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.

[[Page 898]]

    (d) 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; 65 FR 24324, Apr. 25, 2000]

    Editorial Note: At 65 FR 36031, June 6, 2000, section 47.504 was 
amended in the first sentence of paragraph (e) by removing ``(see 
12.504(a)(13))'' and adding ``(see 12.504(a)(11))''. However, prior to 
this amendment paragraph (e) was redesignated as (d).



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 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.

[[Page 899]]

48.102 Policies.
48.103 Processing value engineering change proposals.
48.104 Sharing arrangements.
48.104-1 Determining sharing period.
48.104-2 Sharing acquisition savings.
48.104-3 Sharing collateral savings.
48.104-4 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.

    As used in this subpart--
    Acquisition savings 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--
    (1) Instant contract savings, that are the net cost reductions on 
the contract under which the VECP is submitted and accepted, and that 
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;
    (2) Concurrent contract savings, that are net reductions in the 
prices of other contracts that are definitized and ongoing at the time 
the VECP is accepted; and
    (3) Future contract savings, that are the product of the future unit 
cost reduction multiplied by the number of future contract units in the 
sharing base. On an instant contract, future contract savings include 
savings on increases in quantities after VECP acceptance that are due to 
contract modifications, exercise of options, additional orders, and 
funding of subsequent year requirements on a multiyear contract.
    Collateral costs means agency costs of operation, maintenance 
logistic support, or Government-furnished property.
    Collateral savings 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 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.
    Contractor's development and implementation costs 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 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 (1) 
throughout the sharing period, unless the contracting officer decides 
that recalculation is necessary because conditions are significantly 
different from those previously anticipated or (2) to the calculation of 
a lump-sum payment, that cannot later be revised.
    Government costs 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, except that for use in 52.248-3, see 
the definition at 52.248-3(b).
    Instant contract 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

[[Page 900]]

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 means the number of affected end items on contracts of 
the contracting office accepting the VECP.
    Sharing period means the period beginning with acceptance of the 
first unit incorporating the VECP and ending at a calendar date or event 
determined by the contracting officer for each VECP.
    Unit means the item or task to which the contracting officer and the 
contractor agree the VECP applies.
    Value engineering proposal 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; 64 FR 51847, Sept. 
24, 1999; 66 FR 2134, Jan. 10, 2001]



                  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]

[[Page 901]]



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 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) The contracting officer determines the sharing periods and 
sharing rates on a case-by-case basis using the guidelines in 48.104-1 
and 48.104-2, respectively. In establishing a sharing period and sharing 
rate, the contracting officer must consider the following, as 
appropriate, and must insert supporting rationale in the contract file:
    (1) Extent of the change.
    (2) Complexity of the change.
    (3) Development risk (e.g., contractor's financial risk).
    (4) Development cost.
    (5) Performance and/or reliability impact.
    (6) Production period remaining at the time of VECP acceptance.
    (7) Number of units affected.
    (h) Contracts for architect-engineer services must require a 
mandatory value engineering program to reduce total ownership cost in 
accordance with 48.101(b)(2). However, there must 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; 64 FR 51847, Sept. 24, 1999]



48.103  Processing value engineering change proposals.

    (a) Instructions to the contractor for preparing a VECP and 
submitting it to

[[Page 902]]

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.
    (c) The following Government decisions are unilateral decisions made 
solely at the discretion of the Government:
    (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.
    (4) The contracting officer's determination of the duration of the 
sharing period and the contractor's sharing rate.

[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989; 
64 FR 72449, Dec. 27, 1999]



48.104  Sharing arrangements.



48.104-1  Determining sharing period.

    (a) Contracting officers must determine discrete sharing periods for 
each VECP. If more than one VECP is incorporated into a contract, the 
sharing period for each VECP need not be identical.
    (b) The sharing period begins with acceptance of the first unit 
incorporating the VECP. Except as provided in paragraph (c) of this 
section, the end of the sharing period is a specific calendar date that 
is the later of--
    (1) 36 to 60 consecutive months (set at the discretion of the 
contracting officer for each VECP) after the first unit affected by the 
VECP is accepted; or
    (2) 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.
    (c) For engineering-development contracts and contracts containing 
low-rate-initial-production or early production units, the end of the 
sharing period is based not on a calendar date, but on acceptance of a 
specified quantity of future contract units. This quantity is the number 
of units affected by the VECP that are scheduled to be delivered over a 
period of between 36 and 60 consecutive months (set at the discretion of 
the contracting officer for each VECP) that spans the highest planned 
production, based on planning and programming or production 
documentation at the time the VECP is accepted. The specified quantity 
begins with the first future contract unit affected by the VECP and 
continues over consecutive deliveries until the sharing period ends at 
acceptance of the last of the specified quantity of units.
    (d) For contracts (other than those in paragraph (c) of this 
subsection) for items requiring a prolonged production schedule (e.g., 
ship construction, major system acquisition), the end of the sharing 
period is determined according to paragraph (b) of this subsection. 
Agencies may prescribe sharing of future contract savings on all future 
contract units to be delivered under contracts awarded within the 
sharing period for essentially the same item,

[[Page 903]]

even if the scheduled delivery date is outside the sharing period.

[64 FR 51847, Sept. 24, 1999]



48.104-2  Sharing acquisition savings.

    (a) Supply or service contracts. (1) The sharing base for 
acquisition savings is 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            Concurrent
                               Instant  and future   Instant  and future
                              contract   contract   contract   contract
                                rate       rate       rate       rate
------------------------------------------------------------------------
Fixed-price (includes fixed-  \1\ 50/   \1\ 50/50     75/25      75/25
 price-award-fee; excludes         50
 other fixed-price incentive
 contracts)
Incentive (fixed-price or       (\2\)   \1\ 50/50     (\2\)      75/25
 cost) (other than award
 fee)
Cost-reimbursement (includes  \3\ 75/   \3\ 75/25     85/15      85/15
 cost-plus-award-fee;              25
 excludes other cost-type
 incentive contracts)
------------------------------------------------------------------------
\1\ The contracting officer may increase the contractor's sharing rate
  to as high as 75 percent for each VECP. (See 48.102(g) (1) through
  (7).)
\2\ Same sharing arrangement as the contract's profit or fee adjustment
  formula.
\3\ The contracting officer may increase the contractor's sharing rate
  to as high as 50 percent for each VECP. (See 48.102(g) (1) through
  (7).)

    (2) Acquisition savings may be realized on the instant contract, 
concurrent contracts, and future contracts. The contractor is entitled 
to a percentage share (see paragraph (a)(1) of this section) 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. 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 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

[[Page 904]]

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.

[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. Redesignated and 
amended at 64 FR 51847, 51848, Sept. 24, 1999]



48.104-3   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 may range from 20 
to 100 percent of the estimated savings to be realized during a typical 
year of use but must not exceed the greater of--
    (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.
    (c) The contracting officer must determine the sharing rate for each 
VECP.
    (d) In determining collateral savings, the contracting officer must 
consider any degradation of performance, service life, or capability.

[64 FR 51848, Sept. 24, 1999]



48.104-4  Sharing alternative--no-cost settlement method.

    In selecting an appropriate mechanism for incorporating a VECP into 
a contract, the contracting officer shall analyze the different 
approaches available to determine which one would be in the Government's 
best interest. Contracting officers should balance the administrative 
costs of negotiating a settlement against the anticipated savings. A no-
cost settlement may be used if, in the contracting officer's judgment, 
reliance on other VECP approaches likely would not be more cost-
effective, and the no-cost settlement would provide adequate 
consideration to the Government. 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 with 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.

[63 FR 34079, June 22, 1998. Redesignated at 64 FR 51847, Sept. 24, 
1999]



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

[[Page 905]]

other incentives are rewarded under a value engineering clause.

[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989]



                     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.
    (g) Engineering-development solicitations and contracts. For 
engineering-development solicitations and contracts, and solicitations 
and contracts containing low-rate-initial-production or

[[Page 906]]

early production units, the contracting officer must modify the clause 
at 52.248-1, Value Engineering, by--
    (1) Revising paragraph (i)(3)(i) of the clause by substituting ``a 
number equal to the quantity required to be delivered over a period of 
between 36 and 60 consecutive months (set at the discretion of the 
Contracting Officer for each VECP) that spans the highest planned 
production, based on planning and programming or production 
documentation at the time the VECP is accepted;'' for ``the number of 
future contract units scheduled for delivery during the sharing 
period;'' and
    (2) Revising the first sentence under paragraph (3) of the 
definition of ``acquisition savings'' by substituting ``a number equal 
to the quantity to be delivered over a period of between 36 and 60 
consecutive months (set at the discretion of the Contracting Officer for 
each VECP) that spans the highest planned production, based on planning 
and programming or production documentation at the time the VECP is 
accepted.'' for ``the number of future contract units in the sharing 
base.''
    (h) Extended production period solicitations and contracts. In 
solicitations and contracts for items requiring an extended period for 
production (e.g., ship construction, major system acquisition), if 
agency procedures prescribe sharing of future contract savings on all 
units to be delivered under contracts awarded during the sharing period 
(see 48.104-1(c)), the contracting officer must modify the clause at 
52.248-1, Value Engineering, by revising paragraph (i)(3)(i) of the 
clause and the first sentence under paragraph (3) of the definition of 
``acquisition savings'' by substituting ``under contracts awarded during 
the sharing period'' for ``during the sharing period.''

[48 FR 42443, Sept. 19, 1983, as amended at 54 FR 5057, Jan. 31, 1989; 
55 FR 3887, Feb. 5, 1990; 64 FR 51848, Sept. 24, 1999]



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 $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.

[[Page 907]]

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.
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.

[[Page 908]]



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.

    As used in this part--
    Other work means any current or scheduled work of the contractor, 
whether Government or commercial, other than work related to the 
terminated contract.
    Settlement agreement means a written agreement in the form of a 
contract modification settling all or a severable portion of a 
settlement proposal.
    Settlement proposal 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).
    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; 
66 FR 2134, Jan. 10, 2001; 67 FR 43514, June 27, 2002]



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 13.302-4).
    (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.

[48 FR 42447, Sept. 19, 1983, as amended at 62 FR 64927, Dec. 9, 1997]



                    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

[[Page 909]]

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 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

[[Page 910]]

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;
    (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

[[Page 911]]

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;
    (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]



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

[[Page 912]]

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 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

[[Page 913]]

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 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

[[Page 914]]

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 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.

[[Page 915]]

    (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 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

[[Page 916]]

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.



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

[[Page 917]]

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 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

[[Page 918]]

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 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]



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

[[Page 919]]

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 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.

[[Page 920]]

    (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.



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.

[[Page 921]]

    (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 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

[[Page 922]]

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.



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.

[[Page 923]]

    (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. 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

[[Page 924]]

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.
    (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.

[[Page 925]]

    (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]



  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 926]]

    (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 927]]

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 928]]

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 929]]

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 930]]

    (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 931]]

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 the contracting officer terminates a contract for default or 
follows a course of action instead of termination for default (see 
49.402-4), the contracting officer promptly must assess and demand any 
liquidated damages to which the Government is entitled under the 
contract. Under the contract clause 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 must, 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; 65 FR 46066, July 26, 2000]



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) Since the surety is liable 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. Therefore, the contracting officer must consider carefully the 
surety's proposals for completing the contract. The contracting officer 
must take action on the basis of the Government's interest, including 
the possible effect upon the Government's rights against the surety.

[[Page 932]]

    (c) The contracting officer should permit surety offers to complete 
the contract, unless the contracting officer believes that the persons 
or firms proposed by the surety to complete the work are not competent 
and qualified or the proposal is not in the best interest of the 
Government.
    (d) There may be conflicting demands for the defaulting contractor's 
assets, including unpaid prior earnings (retained percentages and unpaid 
progress estimates). Therefore, the surety may include a ``takeover'' 
agreement in its proposal, fixing the surety's rights to payment from 
those funds. 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 using a tripartite agreement among 
the Government, the surety, and the defaulting contractor to resolve the 
defaulting contractor's residual rights, including assertions to unpaid 
prior earnings.
    (e) Any takeover agreement must require the surety to complete the 
contract and the Government to pay the surety's costs and expenses up to 
the balance of the contract price unpaid at the time of default, subject 
to the following conditions:
    (1) Any unpaid earnings of the defaulting contractor, including 
retained percentages and progress estimates for work accomplished before 
termination, must be subject to debts due the Government by the 
contractor, except to the extent that the unpaid earnings may be used to 
pay the completing surety its actual costs and expenses incurred in the 
completion of the work, but not including its payments and obligations 
under the payment bond given in connection with the contract.
    (2) The surety is bound by contract terms governing liquidated 
damages for delays in completion of the work, unless the delays are 
excusable under the contract.
    (3) If the contract proceeds have been assigned to a financing 
institution, the surety must not be paid from unpaid earnings, unless 
the assignee provides written consent.
    (4) The contracting officer must not pay the surety more than the 
amount it expended completing the work and discharging its liabilities 
under the defaulting contractor's payment bond. Payments to the surety 
to reimburse it for discharging its liabilities under the payment bond 
of the defaulting contractor must be only on authority of--
    (i) Mutual agreement among 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.

[65 FR 46067, July 26, 2000]



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.



               Subpart 49.5--Contract Termination Clauses



49.501  General.

    This subpart prescribes the principal contract termination clauses. 
This subpart does not apply to contracts that use the clause at 52.213-
4, Terms and

[[Page 933]]

Conditions--Simplified Acquisitions (Other Than Commercial Items). 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, as amended at 62 FR 64927, Dec. 9, 1997]



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 where this clause may be appropriate 
are contracts for rental of unreserved parking space, laundry and 
drycleaning, etc.

[[Page 934]]

    (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. Insert the clause 
at 52.249-6, Termination (Cost-Reimbursement), in solicitations and 
contracts when a cost-reimbursement contract is contemplated, except 
contracts 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) 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 the 
period for submitting the subcontractor's termination settlement

[[Page 935]]

proposal should be reduced (e.g., 6 months).

[48 FR 42447, Sept. 19, 1983, as amended at 61 FR 39222, July 26, 1996; 
64 FR 51845, Sept. 24, 1999]



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 936]]

    (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 
..............., 20..'', 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 ..............., 20..'']. 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

[48 FR 42447, Sept. 19, 1983, as amended at 65 FR 36031, June 6, 2000]



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 .........., 20...., 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

[[Page 937]]

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 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)

________________________________________________________________________
________________________________________________________________________

[[Page 938]]

                            (Name of Office)

________________________________________________________________________

                                (Address)

                        Acknowledgment of Notice

    The undersigned acknowledges receipt of a signed copy of this notice 
on ............, 20....... 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 ..........., 20...,'' or ``as soon as you have 
delivered, including prior deliveries, the following items:'' (list)]. 
Reduce items to be delivered as follows: [insert instructions].

[48 FR 42447, Sept. 19, 1983, as amended at 65 FR 36031, June 6, 2000]



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

[[Page 939]]

support of a settlement proposal unless the proposal is filed on 
Standard Form 1438, Settlement Proposal (Short Form) (see 49.206-1(e)).



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 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

[[Page 940]]

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]



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

[[Page 941]]

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 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]


[[Page 942]]





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 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

[[Page 943]]

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) 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 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.]

[[Page 944]]

    (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]



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

[[Page 945]]

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 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).]

[[Page 946]]

                           (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).]

                           (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.

[[Page 947]]

    (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 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

[[Page 948]]

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 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.
50.103-50.104 [Reserved]
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

[[Page 949]]

granted by Public Law 85-804 (50 U.S.C. 1431-1434), referred to in this 
part as the ``Act'', and Executive Order 10789, dated November 14, 1958, 
referred to in this part as ``the Executive order'', It does not cover 
advance payments (see subpart 32.4).

[65 FR 46073, July 26, 2000]



50.001  Definitions.

    As used in this part--
    Approving authority means an agency official or contract adjustment 
board authorized to approve actions under the Act and Executive Order.
    Secretarial level means a level at or above the level of a deputy 
assistant agency head, or a contract adjustment board.

[48 FR 42471, Sept. 19, 1983, as amended at 66 FR 2134, Jan. 10, 2001]



                          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.



50.103-50.104  [Reserved]



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;
    (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

[[Page 950]]

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
    (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

[[Page 951]]

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]



                   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.
    (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.

[[Page 952]]



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 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

[[Page 953]]

(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.
    (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

[[Page 954]]

(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 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--

[[Page 955]]

    (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 
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.

[[Page 956]]



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 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

[[Page 957]]

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.



        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:

[[Page 958]]

    (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 101-26.507).
    (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; 67 FR 6121, Feb. 8, 2002]



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 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--

[[Page 959]]

    (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) 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; 67 FR 43516, June 27, 2002]



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--

[[Page 960]]

    (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.



  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;

[[Page 961]]

    (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 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]

    Editorial Note: This listing is provided for information purposes 
only. It is compiled

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

[[Page 1041]]



                              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 1043]]



                    Table of CFR Titles and Chapters




                     (Revised as of October 1, 2002)

                      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)

                   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)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      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)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 1044]]

    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)
    LXXIII  Department of Agriculture (Part 8301)
     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)

[[Page 1045]]

        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       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)
       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  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)

[[Page 1046]]

      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     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--599)

                 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, 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)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      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)

[[Page 1047]]

         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)
      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  Department of the Treasury (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)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    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)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 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)

[[Page 1048]]

       VII  Bureau of Industry and Security, 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)
            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)

[[Page 1049]]

                     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)
        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 (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (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)
       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)

[[Page 1050]]

                          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)

                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)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         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, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         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)

[[Page 1051]]

                           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 (Parts 1000--1199)
       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--899)

           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)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            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)

[[Page 1052]]

        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)

                      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)
       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)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

[[Page 1053]]

                      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)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       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)

               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)

[[Page 1054]]

                        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)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States 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)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)

[[Page 1055]]

       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          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 Service, 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)
       102  Federal Management Regulation (Parts 102-1--102-299)
       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
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       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  Centers for Medicare & Medicaid Services, 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)

[[Page 1056]]

                   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)
         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  Corporation for National and Community Service (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)

[[Page 1057]]

     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)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        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)
        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  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)

[[Page 1058]]

        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)
       III  Federal Motor Carrier Safety 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)

[[Page 1059]]

        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Transportation (Parts 1500--1599)

                   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
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 1061]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of October 1, 2002)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
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                            5, LXXIII
  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 Nutrition 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
  Procurement and Property Management, Office of  7, XXXII
  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
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
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

[[Page 1062]]

Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
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
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
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
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  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, United States      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
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 1063]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  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 Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
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
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
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
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  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                5, III, LXXVII; 14, VI; 
                                                  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-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II

[[Page 1064]]

Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
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               31, IX
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
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
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 Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
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 Nutrition 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
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulation          41, 101
  Federal Travel Regulation System                41, Subtitle F

[[Page 1065]]

  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) 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
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  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
  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
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
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  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
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
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
Industry and Security, Bureau of                  15, VII
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
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

[[Page 1066]]

  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  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 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, XI; 40, 
                                                  IV
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  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 Service,      41, 61; 20, IX
       Office of 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; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II

[[Page 1067]]

Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
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 and Community Service, Corporation for   45, XII, XXV
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 Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
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 Imagery and Mapping Agency               32, I
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, VI
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 Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
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
Oklahoma City National Memorial Trust             36, XV
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, United States        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
[[Page 1068]]

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
  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 Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
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; 28, XI
  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 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
  Coast Guard (Great Lakes Pilotage)              46, III
  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

[[Page 1069]]

  Federal Motor Carrier Safety Administration     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
  Transportation Security Administration          49, XII
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  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
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the 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 1071]]



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, 
2001, 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, 2001, see the ``List of CFR Sections 
Affected, 1973-1985, and 1986-2000'' published in four separate volumes.

                                  2001

48 CFR
                                                                   66 FR
                                                                    Page
Chapter 1
Chapter Federal Acquisition Circular No. 97-22......................2116
Chapter 1 Summary disposition......................................53478
    Small entity compliance guide.......2141, 5349, 17757, 20898, 22085, 
                                                     27417, 53500, 65372
    Federal Acquisition Circular 97-25.............................22082
    Federal Acquisition Circular 2001-02....................65348, 65352
    Federal Acquisition Circular 2001-03....................66984, 66990
1.106 Table amended (OMB numbers)............................2141, 53480
1.401 (a), (c) and (d) amended......................................2118
    Regulation at 66 FR 2118 eff. date delayed.....................14260
2.000 Revised.......................................................2118
    Regulation at 66 FR 2118 eff. date delayed.....................14260
2.101 Amended..................................2118, 20896, 53484, 53488
    Regulation at 66 FR 2118 eff. date delayed.....................14260
    Amended; interim............22083, 27409, 53486, 65350, 65352, 65354
    Corrected......................................................27012
2.201 Revised.......................................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
3.302 Introductory text added.......................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
3.401 Amended; introductory text added..............................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
3.501-1 Amended; introductory text revised..........................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
3.502-1 Amended; introductory text revised..........................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
3.901 Introductory text added.......................................2127
4.501 Removed.......................................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
4.502 (b)(4) amended; interim......................................27409
4.803 (a)(4) revised; interim......................................27409
4.901 Amended; heading revised......................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
5.003 Added; interim...............................................27409
5.101 Introductory text removed; (a) revised; interim..............27409
5.102 Revised; interim.............................................27409
5.201 Revised; interim.............................................27410
5.202 (a)(8) amended................................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
    (a)(13)(ii) revised; interim...................................27410
5.203 Introductory text, (a), (b), (e) and (h) revised; (g) 
        amended; interim...........................................27410
5.204 Revised; interim.............................................27411
5.205 Revised; interim.............................................27411
    Regulation at 65 FR 46056 confirmed............................65370
5.206 (a) introductory text revised; interim.......................27412

[[Page 1072]]

5.207 (a) through (h) redesignated as (b) through (i); new (a) and 
        (c) Items 18 and 19 added; new (b), (c) introductory text, 
        and (i) revised; interim...................................27412
5.301 (a) introductory text, (b)(7)(ii) and (c) revised; (d) 
        added; interim.............................................27412
5.404-1 (b)(3)(iii) revised; interim...............................27412
5.404-2 Revised; interim...........................................27412
5.501 Amended; introductory text added..............................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
6.000 Revised.......................................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
6.003 Removed.......................................................2127
    Regulation at 66 FR 2127 eff. date delayed.....................14260
6.302-1 (a)(2)(i)(A) revised........................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
6.302-3 (a)(2)(iii) amended.........................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
6.303-2 (a)(6) amended; interim....................................27412
7.101 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
7.103 (o) through (r) redesignated as (p) through (s); new (o) 
        added......................................................20896
7.303 (a) introductory text and (b) introductory text amended; 
        (b)(1) revised; interim....................................27412
7.501 Removed.......................................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
8.001 (c) revised..................................................65367
8.003 Revised......................................................65368
8.501 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
8.701 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
8.801 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
8.1101 Amended; introductory text added.............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.101 Amended; heading revised......................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.103 Regulation at 65 FR 80255 stayed until 12-29-01..............17754
    (c) redesignated as (d); new (c) added; interim................17755
    Regulation at 65 FR 80264 and 66 FR 17755 stay terminated......66985
    (c) removed; (d) redesignated as (c)...........................66986
    (b) amended....................................................66989
9.104-1 Regulation at 65 FR 80255 stayed until 12-29-01............17754
    (e), (f) and (g) redesignated as (f), (g) and (h); new (e) 
added; interim.....................................................17756
    Regulation at 65 FR 80264 and 66 FR 17756 stay terminated......66985
    (e) removed; (f), (g) and (h) redesignated as (e), (f) and (g)
                                                                   66986
    (d) revised....................................................66989
9.104-3 (c) removed; (d) and (e) redesignated as new (c) and (d) 
                                                                   66989
9.201 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.204 (a) introductory text amended; (a)(1) revised; interim.......27413
9.205 (a) introductory text revised; interim.......................27413
9.301 Amended; heading revised......................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.400 (a)(2) amended................................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.403 Amended; introductory text added..............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.501 Amended; heading revised......................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.601 Amended.......................................................2128

[[Page 1073]]

    Regulation at 66 FR 2128 eff. date delayed.....................14260
9.701 Amended.......................................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
10.001 (a)(3)(vii) added...........................................20896
11.002 (f) added...................................................20897
    (d) revised....................................................65352
11.101 (b) revised.................................................65352
11.601 Amended; introductory text added.............................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
12.102 (d) redesignated as (e); new (d) added......................53484
12.202 (d) added...................................................20897
12.209 Revised.....................................................53484
12.503 Heading and (a) introductory text amended; (a)(5) added.....53488
12.603 (a), (c)(2)(xv), (3) and (4) revised; interim...............27413
    Regulation at 65 FR 46056 confirmed............................65370
13.001 Amended......................................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
13.005 (a)(10) added...............................................53488
13.104 (a) introductory text and (b) amended; interim..............27413
13.105 (a) introductory text, (1)(ii) and (b) amended; interim.....27413
13.501 (a)(1)(i) amended............................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
14.203-2 Revised; interim..........................................27413
14.203-3 Revised....................................................2128
    Regulation at 66 FR 2128 eff. date delayed.....................14260
14.404-2 Regulation at 65 FR 80255 stayed until 12-29-01...........17754
    (j), (k) and (l) redesignated as (k), (l) and (m); new (j) 
added; interim.....................................................17756
    Regulation at 65 FR 80265 and 66 FR 17756 stay terminated......66985
    (j) removed; (k), (l) and (m) redesignated as (j), (k) and (l)
                                                                   66986
    (i) revised....................................................66989
14.503-2 (a)(4) and (b) revised; interim...........................27413
15.001 Amended......................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.301 Removed......................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.306 (d)(1) amended; (d)(3) revised; (d)(4) redesignated as 
        (d)(5); new (d)(4) added...................................65369
15.401 Amended; introductory text added.............................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
    Amended........................................................65369
15.402 Introductory text, (a) introductory text, (2)(ii) and (3) 
        amended.....................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.403-1 (c)(3) amended.............................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.403-4 (c) amended................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.406-2 (a) amended................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.407-1 (b)(7)(i) Amended.........................................65354
15.407-2 (b) revised................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.408 Table amended................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.503 Regulation at 65 FR 80255 stayed until 12-29-01.............17754
    (a)(2) redesignated as (a)(3); new (a)(2) added; interim.......17756
    Regulation at 65 FR 80265 and 66 FR 17756 stay terminated......66985
    (a)(2) removed; (a)(3) redesignated as (a)(2)..................66986
    (a)(1) revised.................................................66990
15.601 Amended......................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
15.603 (e) added...................................................65352
15.604 (a) introductory text and (1) amended........................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
17.103 Amended......................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
17.201 Removed......................................................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
17.501 Amended......................................................2129

[[Page 1074]]

    Regulation at 66 FR 2129 eff. date delayed.....................14260
17.603 (c) added; interim..........................................27415
19.001 Amended; introductory text added.............................2129
    Regulation at 66 FR 2129 eff. date delayed.....................14260
    Regulation at 65 FR 46056 confirmed............................65370
19.101 Amended......................................................2129
    Corrected; CFR correction......................................13856
    Regulation at 66 FR 2129 eff. date delayed.....................14260
19.102 Regulation at 65 FR 46056 confirmed; (h) revised............65370
19.201 Regulation at 65 FR 46056 confirmed.........................65370
19.202-2 (c) revised; interim......................................27413
19.303 Regulation at 65 FR 46056 and 46057 confirmed...............65370
19.501 Regulation at 65 FR 46056 confirmed.........................65370
19.701 Amended; introductory text added.............................2130
    Regulation at 66 FR 2129 eff. date delayed.....................14260
19.703 (a)(1) amended...............................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
19.704 (a)(1), (2), (3), (6), (8) and (11) amended; interim........53493
19.705-2 (d) amended; interim......................................53493
19.705-4 (c), (d)(1) and (d)(5) amended; interim...................53493
19.705-7 (a) and (d) amended; interim..............................53493
19.706 (b) and (c) amended; interim................................53493
19.708 (c)(1), (2) and (3) amended; interim........................53493
19.803 Regulation at 65 FR 46057 confirmed.........................65370
19.804-2 (a) introductory text, (9) and (c) amended; interim.......27413
    Regulation at 65 FR 46057 confirmed............................65370
19.805-1 Regulation at 65 FR 46056 confirmed.......................65370
19.810 Regulation at 65 FR 46057 confirmed.........................65370
19.812 (a) revised..................................................2141
19.901 (c) amended.................................................53500
19.902 Heading and introductory text revised........................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
19.1002 Regulation at 65 FR 46056 confirmed........................65370
19.1005 Regulation at 65 FR 46057 confirmed; (a) table amended.....65370
19.1007 Regulation at 65 FR 46057 confirmed........................65370
19.1102 Regulation at 65 FR 46057 confirmed........................65370
19.1201 Regulation at 65 FR 46057 confirmed........................65370
19.1202-1 Regulation at 65 FR 46057 confirmed......................65370
19.1202-2 Regulation at 65 FR 46057 confirmed......................65370
19.1202-4 Regulation at 65 FR 46057 confirmed......................65370
19.1203 Regulation at 65 FR 46057 confirmed........................65370
19.1306 Regulation at 65 FR 46057 confirmed........................65370
22.101-1 (b) redesignated as (b)(1); (b)(2) added; interim.........27415
22.103-1 Amended; heading revised...................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
22.401 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
22.403-4 introductory text and (a) through (e) redesignated as (a) 
        and (b)(1) through (5); new (a) and (b)(5) amended; (b) 
        introductory text and (c) added.............................2141
    (b)(5) amended.................................................53480
22.404-1 (a)(1) and (b) amended....................................53480
22.404-2 (a) revised...............................................53480
22.404-3 (c) amended; (d) removed; (e) redesignated as new (d).....53480
22.404-6 (a) revised; (d) added....................................53480
22.404-7 Revised...................................................53480
22.404-10 Amended..................................................53481
22.404-11 Amended..................................................53481
22.404-12 Added....................................................53481
22.406-3 (e) added.................................................53481
22.406-10 (e) amended..............................................53481
22.407 (e), (f) and (g) added......................................53481
22.1001 Amended; introductory text added............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
22.1009-4 (a) amended; (b) introductory text revised; interim......27414

[[Page 1075]]

22.1102 Amended.....................................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
22.1200--22.1208 (Subpart 22.12) Removed; interim..................27417
22.1202 Amended; introductory text added............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
22.1300--22.1310 (Subpart 22.13) Revised...........................53488
22.1500--22.1505 (Subpart 22.15) Added..............................5347
22.1503 (b)(4) amended.............................................65371
23 Heading revised.................................................65352
23.000 Revised.....................................................65352
23.200--23.204 (Subpart 23.2) Revised..............................65352
23.503 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
23.700--23.705 (Subpart 23.7) Heading revised......................65353
23.700 Revised.....................................................65353
23.702 (e) removed; (f) redesignated as (e); new (f) added.........65353
23.703 (a) and (b)(2) revised......................................65353
23.802 Removed......................................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
23.904 Amended......................................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
23.906 Regulation at 65 FR 46058 confirmed.........................65370
24.101 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
25.003 Amended..............................................65350, 65371
26.301 Removed......................................................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
27.301 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
27.401 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
28.001 Amended; introductory text added.............................2130
    Regulation at 66 FR 2130 eff. date delayed.....................14260
28.308 (a) amended..................................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
29.301 Removed......................................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
30.201-4 Regulation at 65 FR 36029 confirmed........................2137
30.201-5 Regulation at 65 FR 36029 confirmed........................2137
31.001 Amended; introductory text added.............................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-17 Amended; Introductory text added..........................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-18 (a) amended...............................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-21 Regulation at 65 FR 80255 partially stayed until 12-29-
        01.........................................................17754
    Amended........................................................66990
31.205-32 Amended...................................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-33 (a) amended...............................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-39 Amended...................................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
31.205-47 (a) amended...............................................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
    Regulation at 65 FR 80255 stayed until 12-29-01................17754
    (a) amended; (b)(3), (4) and (5) redesignated as (b)(4), (5) 
and (6); new (b)(3) added; interim.................................17756
    Regulation at 65 FR 80265 and 66 FR 17756 stay terminated......66985
    (a) amended; (b)(3) removed; (b)(4), (5) and (6) redesignated 
as (b)(3), (4) and (5).............................................66986
    (a) amended; (b)(2) revised....................................66990
32.001 Amended; introductory text added.............................2131
    Regulation at 66 FR 2131 eff. date delayed.....................14260
    Amended........................................................65354

[[Page 1076]]

32.006-2 Amended; introductory text removed.........................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.007 Added.......................................................65355
32.102 (d) revised.................................................65355
32.113 (e) amended..................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.202-2 Amended....................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.202-3 (d) and (e) amended........................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.301 Amended; introductory text added.............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.407 (a)(1) revised...............................................2138
32.408 (b)(4) amended...............................................2138
32.409-3 (a), (b)(2), (c)(2), (e) and (g) amended; (f)(1) revised 
                                                                    2138
32.410 Amended......................................................2138
32.411 Revised......................................................2138
32.412 (f) amended..................................................2138
32.801 Amended......................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
32.900 Revised.....................................................65355
32.901 Revised.....................................................65355
32.902 Amended; introductory text added.............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
    Amended; interim...............................................53486
    Revised........................................................65355
32.903 Removed; new 32.903 redesignated from 32.904 and revised....65355
32.904 Redesignated as 32.903; new 32.904 redesignated from 32.905 
        and revised................................................65355
32.905 (e) through (j) redesignated as (f) through (k); (a) 
        introductory text, new (f) introductory text and (g) 
        introductory text amended; new (e) added; interim..........53486
    Redesignated as 32.904; new 32.905 redesignated from 32.906 
and revised........................................................65355
32.906 Redesignated as 32.905; new 32.906 added....................65355
32.907 Revised.....................................................65355
32.907-1 (a)(5) added; (b)(1) and (2) amended; interim.............53486
    Removed........................................................65355
32.907-2 Removed...................................................65355
32.908 (c)(4) added; interim.......................................53486
    Revised........................................................65355
32.909 Revised.....................................................65355
32.1102 Amended; introductory text added............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
33.101 Amended; introductory text added.............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
33.201 Amended; introductory text added.............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
34.001 Amended......................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
34.005-2 (a)(1) amended; interim...................................27414
34.101 Amended......................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
35.001 Amended......................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
35.004 (a) introductory text amended; (a)(1) revised; interim......27414
35.016 (c) revised; interim........................................27414
35.017 Amended; (b) introductory text added.........................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
36.102 Amended; introductory text added.............................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
36.202 (d) added; interim..........................................27415
36.213-2 (b) introductory text amended; (b)(9) revised; interim....27414
36.601-3 (d) amended................................................2132
    Regulation at 66 FR 2132 eff. date delayed.....................14260
37.101 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
    Amended; interim...............................................22083
    Corrected......................................................27012
37.102 (a) revised; interim........................................22083
37.103 (a)(1) amended...............................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260

[[Page 1077]]

37.104 (a) amended..................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
37.201 Amended......................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
37.502 (a)(3) amended...............................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
39.000 Revised.....................................................20897
39.002 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
39.104 Added; interim..............................................22085
39.201--39.204 (Subpart 39.2) Added................................20897
42.001 Removed......................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
42.201 (b) revised..................................................2141
42.203 Revised......................................................2141
42.302 (a) introductory text amended................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
    (a)(68) revised................................................65353
42.503-2 Amended....................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
42.701 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
42.1201 Removed.....................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
43.101 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
43.103 (b)(3) amended...............................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
44.101 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
44.202-2 (a) introductory text amended; (a)(4) revised.............65368
46.101 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
46.701 Removed......................................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
46.710 (a)(1) and (b)(1) amended....................................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
46.801 (a) amended.................................................53484
46.804 Removed.....................................................53484
47.001 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
47.201 Amended; introductory text added.............................2133
    Regulation at 66 FR 2133 eff. date delayed.....................14260
47.401 Amended; introductory text added.............................2134
    Regulation at 66 FR 2134 eff. date delayed.....................14260
47.501 Amended; introductory text added.............................2134
    Regulation at 66 FR 2134 eff. date delayed.....................14260
48.001 Amended; introductory text added.............................2134
    Regulation at 66 FR 2134 eff. date delayed.....................14260
49.001 Amended; introductory text added.............................2134
    Regulation at 66 FR 2134 eff. date delayed.....................14260
50.001 Amended; introductory text added.............................2134
    Regulation at 66 FR 2134 eff. date delayed.....................14260

                                  2002

  (Regulations published from January 1, 2002, through October 1, 2002)

48 CFR
                                                                   67 FR
                                                                    Page
Chapter 1
Chapter Summary disposition........................................43512
    Federal Acquisition Circular 2001-04............................6112
    Small entity compliance guide......6121, 10529, 13068, 21539, 43521, 
                                                                   56126
    Federal Acquisition Circular 2001-06...........................13048
    Federal Acquisition Circular 2001-07...........................21532
    Federal Acquisition Circular 2001-09...........................56116
    Technical correction...........................................46710

[[Page 1078]]

1.106 Table amended (OMB numbers)..................................13050
1.403 Revised......................................................13053
1.404 Introductory text revised....................................13053
    (c) amended....................................................13068
1.701 Amended......................................................13053
1.703 (a) amended..................................................13053
1.705 (b) revised..................................................13053
2.101 Amended...........................6114, 13055, 13059, 43513, 56118
    Regulation at 66 FR 22083 confirmed............................21533
    Amended; interim...............................................56121
    Regulation at 65 FR 60544 confirmed............................56122
3.104 Revised......................................................13059
3.104-1 Revised....................................................13059
3.104-2 Revised....................................................13059
3.104-3 Revised....................................................13059
3.104-4 Revised....................................................13059
3.104-5 Revised....................................................13059
3.104-6 Revised....................................................13059
3.104-7 Revised....................................................13059
3.104-8 Revised....................................................13059
3.104-9 Revised....................................................13059
3.104-10 Removed...................................................13059
3.104-11 Removed...................................................13059
3.302 Amended......................................................13055
3.704 (c)(1) amended...............................................13063
3.807 Amended.......................................................6120
4.401 Removed.......................................................6114
4.602 Regulation at 65 FR 60544 confirmed..........................56122
4.802 (a)(1), (2), (3), (c) introductory text and (d) amended; (e) 
        revised....................................................13063
5.001 Revised......................................................13053
5.002 Regulation at 65 FR 60544 confirmed..........................56122
5.207 (c)(4) amended...............................................13068
6.302-5 (b)(2) amended.............................................13068
6.502 (b)(1)(iv) amended...........................................13053
7.101 Amended......................................................56118
7.103 (e) and (q) revised; (t) added...............................56118
7.104 (a), (b) and (c) amended.....................................56118
7.105 (b)(4) amended...............................................21534
    Introductory text amended; (b)(4) revised......................56118
    Regulation at 65 FR 60544 confirmed............................56122
8.001 Redesignated as 8.002........................................56119
8.002 Redesignated as 8.003; new 8.002 redesignated from 8.001; 
        (a) introductory text amended..............................56119
8.003 Redesignated as 8.004; new 8.003 redesignated from 8.002.....56119
8.004 Redesignated from 8.003......................................56119
8.102 Revised......................................................13053
8.401 (d) added....................................................43515
    (a) amended....................................................56119
8.404 (a) revised..................................................56119
8.405-7 Revised....................................................43515
8.500--8.505 (Subpart 8.5) Revised.................................13064
8.602 (b) introductory text amended................................56119
9.104-3 (c) amended................................................13068
9.105-3 (c) amended................................................13063
9.203 (c)(2) revised................................................6120
9.505 (b)(2) amended...............................................13063
12.102 (f) added; interim..........................................56121
12.301 (e)(1) amended...............................................6120
    (b) introductory text and (2) revised..........................13065
    (b)(1) through (3) amended.....................................21538
13.003 (b)(1) and (2) amended; interim.............................56121
13.201 (g) added; interim..........................................56121
13.301 (b) amended..................................................6120
13.302-5 (d)(3)(i) revised.........................................21534
13.500 (d) amended..................................................6115
14.103-1 (c) amended................................................6114
14.201-6 (a), (o)(2) introductory text and (3) revised; (b)(1) and 
        (2) removed; (b)(3) and (4) redesignated as (b)(1) and 
        (2); (p)(3) amended........................................13055
14.202-4 (a) removed; (b) through (h) redesignated as (a) through 
        (g); new (g) heading amended...............................13055
14.202-5 Revised...................................................13055
14.205-2 (b) amended................................................6120
14.402-2 Revised....................................................6114
14.404-2 Revised....................................................6114
14.404-4 Amended...................................................13056
14.409-1 (a)(2) introductory text amended...........................6120
15.201 (f) revised; undesignated text removed......................13056
15.404-2 (a)(5) revised............................................13063
15.404-4 (c)(4)(i) introductory text amended........................6120
15.408 Table 15-2 amended...........................................6115
15.609 (e) revised.................................................13056

[[Page 1079]]

16.505 (a)(2), (b)(2) introductory text, (iii), (4) and (5) 
        heading revised; (a)(3), (b)(2)(i), (ii) and (5) amended; 
        (a)(4), (5) and (6) redesignated as (a)(5), (6) and (8); 
        (b)(1)(iii)(A)(4) and (5) added............................56119
17.103 Amended.....................................................43514
17.104 (b) amended.................................................13054
    (d) added......................................................43514
17.500 (b) revised.................................................56120
17.503 (b) introductory text revised...............................13054
19.000 Regulation at 65 FR 60544 confirmed.........................56122
19.001 Regulation at 65 FR 60544 confirmed.........................56122
19.201 Regulation at 65 FR 60544 confirmed.........................56122
19.202-2 Regulation at 65 FR 60544 confirmed.......................56122
19.202-4 Regulation at 65 FR 60544 confirmed.......................56122
19.202-5 Regulation at 65 FR 60544 confirmed.......................56122
19.301 Regulation at 65 FR 60545 confirmed.........................56122
19.302 (h)(4) amended..............................................13054
19.304 Regulation at 65 FR 60545 confirmed.........................56122
19.307 (a)(2) removed; (a)(3) redesignated as (a)(2); new (a)(2) 
        and (c) amended............................................13066
19.402 Regulation at 65 FR 60545 confirmed.........................56122
19.502-1 (b) revised; interim......................................56121
19.502-2 (a) amended; interim......................................56121
19.505 (c) revised.................................................13054
19.702 Regulation at 65 FR 60545 confirmed.........................56122
19.703 Regulation at 65 FR 60545 confirmed.........................56122
19.704 (a)(1) amended...............................................1858
    Regulations at 65 FR 60545, 66 FR 53493 and 67 FR 1858 
confirmed..........................................................56122
19.705-2 Regulations at 65 FR 60545 and 66 FR 53493 confirmed......56122
19.705-4 (d)(6) amended.............................................1858
    Regulations at 65 FR 60545, 66 FR 53493 and 67 FR 1858 
confirmed..........................................................56122
19.705-7 Regulations at 65 FR 60545 and 66 FR 53493 confirmed......56122
19.706 Regulations at 65 FR 60545 and 66 FR 53493 confirmed........56122
19.708 Regulations at 65 FR 60545 and 66 FR 53493 confirmed........56122
19.903 (b)(1) and (2) amended; (b)(3) added; interim...............56121
19.1302 Revised....................................................13066
22.1200--22.1208 (Subpart 22.12) Regulation at 66 FR 27417 
        confirmed...................................................6116
22.1503 (a) amended................................................56126
    (b)(3) and (4) amended.........................................56123
25.000 Amended.....................................................21534
25.001 (b) removed; (c) through (e) redesignated as (b) through 
        (d); new (b) amended.......................................21535
25.002 Table amended...............................................21535
25.003 Amended; interim.............................................6117
    Amended........................................................21535
25.202 (c) amended.................................................56123
25.300--25.304 (Subpart 25.3) Removed..............................21535
25.400 (a)(2) amended; interim......................................6118
25.402 Amended.....................................................21535
25.403 (a)(1) amended..............................................21535
    (b)(1) amended.................................................56123
25.404 Amended; interim.............................................6118
25.405 (a) amended.................................................21535
    (a), (b) and (c) amended.......................................56124
25.406 Amended.....................................................21535
25.501 (d) amended.................................................21535
25.502 (c) introductory text, (c)(3), (4) introductory text, 
        (d)(2) and (3) amended.....................................21535
25.504 Revised.....................................................21535
25.504-1 Heading, (b)(1) and (2) revised...........................21535
25.601 (a) introductory text, (1), (2) and (3)(ii) amended.........56124
25.1101 (a), (b) and (c)(1) revised................................21535
    (a)(1) introductory text amended; interim......................56122
    (b)(1)(i)(A), (ii), (iii), (2)(ii) and (iii) revised; (c)(1) 
and (d) amended....................................................56124
25.1102 (a) introductory text, (b), (c) introductory text, (d)(1) 
        and (2) revised............................................21536
    (a) introductory text and (c) introductory text, (3) and 
(d)(3) amended.....................................................56124
25.1103 (c)(2)(i) revised..........................................21538
    (a) amended; interim...........................................56122
    (c)(1)(i) and (ii)(B) amended..................................56124
28.000 Revised.....................................................13056
28.001 Amended.....................................................13056

[[Page 1080]]

31.002 Revised......................................................6120
31.101 Amended.....................................................13068
31.205-6 (e)(2) revised............................................43519
31.205-17 (a) designated; (1), (i), (ii), (2) and (3) redesignated 
        as (b), (1), (2), (c) and (d)...............................6120
31.205-35 (a), (b), (c) and (f)(1) revised.........................43519
31.205-47 (f)(1) amended...........................................43514
32.000 Introductory text revised...................................13054
32.001 Amended.....................................................13054
32.703-2 (a) introductory text amended.............................13054
32.705-1 (a) revised...............................................13054
32.1103 (d) amended.................................................6114
33.201 Amended.....................................................43514
33.213 (a) revised.................................................43514
35.007 (g) revised.................................................13056
36.202 Regulation at 66 FR 27415 eff. date delayed.................10528
36.606 (f) amended..................................................6120
    (a) and (c)(2) amended.........................................56126
37.101 Regulation at 66 FR 22083 confirmed.........................21533
37.102 Regulation at 66 FR 22083 confirmed.........................21533
42.705 (b) revised; (c) added.......................................6119
42.705-1 (b)(1) revised.............................................6120
46.202-4 (b) amended................................................6120
49.001 Amended.....................................................43514
51.101 (b) amended..................................................6121
51.103 (b) removed; (c) redesignated as new (b)....................43516


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