CODE OF FEDERAL REGULATIONS
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
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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
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.

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
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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. 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
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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, gpoaccess@gpo.gov.
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.

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.
48 CFR Ch. 1 (10-1-02 Edition)
Federal Acquisition Regulation

Title 48—Federal Acquisition Regulations System
(This book contains chapter 1, parts 1 to 51)
Part
chapter 1—Federal Acquisition Regulation
1

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
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.

SUBCHAPTER A—GENERAL
Pt. 1

PART 1—FEDERAL ACQUISITION REGULATIONS SYSTEM
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 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 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 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 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):
(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:
FAR segment | OMB control 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
| 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
| 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
[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
(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).
(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
(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.
(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.
(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.
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]
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 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.
Pt. 2

PART 2—DEFINITIONS OF WORDS AND TERMS
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.
(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, 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—
(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 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 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- 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 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'sFederal 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—
(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 (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
(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- 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 CircularA-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-BaconAct; 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 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 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 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 FederalProcurement 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 (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- 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 UnitedStates, 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—
(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 FederalGovernment.
(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 TechnologyTransfer 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.
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]
Pt. 3

PART 3—IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST
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.
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
(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 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 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 IntegrityAct) (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 subpartF of 5 CFR part 2636 and 3.104-3(c)(2)). Government officers and employees (employees) are prohibited by 18U.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;
(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 ExecutiveBranch. 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 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—
(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.
(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.
(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.
(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.

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.
(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 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—
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, § 3.502-1 was amended by redesignating paragraphs (a) and (b) as (1) and (2). There are no designated paragraphs (a) and (b) in § 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 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 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—
(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
(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 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.
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 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.
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 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 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.
Pt. 4

PART 4—ADMINISTRATIVE MATTERS
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.
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]

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

SUBCHAPTER B—ACQUISITION PLANNING
Pt. 5

PART 5—PUBLICIZING CONTRACT ACTIONS
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 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.
(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 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 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.
(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.
(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 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; 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 31/2 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.)
(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.
(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 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
(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 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;
(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 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.
Pt. 6

PART 6—COMPETITION REQUIREMENTS
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.

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.
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;
(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.)
(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, 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,
(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]
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 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 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—
(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.
(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 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]
Pt. 7

PART 7—ACQUISITION PLANNING
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 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—
(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 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 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).
(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 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 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 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 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.
(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 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 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 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;
(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)).
(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]
Pt. 8

PART 8—REQUIRED SOURCES OF SUPPLIES AND SERVICES
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.
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]
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 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: gsa.advantage@gsa.gov.
(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 SupplySchedule 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.
(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 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.
(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.
(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 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]
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]

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]
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.
(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]
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 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]
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 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—
(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]
Pt. 9

PART 9—CONTRACTOR QUALIFICATIONS
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.

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));
(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 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 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 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 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 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 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 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 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]
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 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;
(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.
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
(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 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 fromFederal 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
(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 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 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;
(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—
(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 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) 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.
(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]
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]
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 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 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 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]
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 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;
(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.
Pt. 10

PART 10—MARKET RESEARCH
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
(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;
(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.
Pt. 11

PART 11—DESCRIBING AGENCY NEEDS
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.

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 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 WastePrevention, Recycling, and Federal Acquisition, andExecutive 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 (seesubparts 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]
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;
(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]
§ 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.
(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 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 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;
(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 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 SafetyStandards 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 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 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.
(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 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).
Pt. 12

PART 12—ACQUISITION OF COMMERCIAL ITEMS
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.
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 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 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 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 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]
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;
(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 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 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 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
(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 31/2 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 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]

SUBCHAPTER C—CONTRACTING METHODS AND CONTRACT TYPES
Pt. 13

PART 13—SIMPLIFIED ACQUISITION PROCEDURES
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 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—
(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.
(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 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]
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, 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 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.
(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
(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 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—
(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—
(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.
(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 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 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)).
(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 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]
Pt. 14

PART 14—SEALED BIDDING
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.
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
(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 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).
(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 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.
(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 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 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 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
(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]
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 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 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]
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 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.
(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 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 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]
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.
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
(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 (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 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 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 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.
(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 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. 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.
(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]
Pt. 15

PART 15—CONTRACTING BY NEGOTIATION
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.
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]
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 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.

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 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 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, 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;
(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 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]
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 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 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 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—
(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 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—
(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 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 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. 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 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 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.
(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 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.
(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 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) 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 (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.
(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- 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 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 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, 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 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:
(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 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 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 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 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.
Pt. 15, Table 15-2

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 (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 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)
Cost elements | Proposed contract estimate—total cost | Proposed contract 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
Cost elements | Estimated cost of all work deleted | Cost of deleted work already performed | Net cost to be deleted | Cost of work added | Net cost of change | Reference
(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
Cutoff date | Number of units completed | Number of units to be completed | Contract amount | Redetermination proposal amount | Difference | Cost elements | Incurred cost—preproduction | Incurred cost—completed units | Incurred cost—work in process | Total incurred cost | Estimated cost to complete | Estimated total cost | Reference
(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 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;
(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 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 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 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;
(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;
(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 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]
Pt. 16

PART 16—TYPES OF CONTRACTS
Sec.
16.000
Scope of part.

Subpart 16.1—Selecting Contract Types
16.101
General.
16.102
Policies.
16.103
Negotiating contract type.
16.104
Factors in selecting contract types.
16.105
Solicitation provision.

Subpart 16.2—Fixed-Price Contracts
16.201
General.
16.202
Firm-fixed-price contracts.
16.202-1
Description.
16.202-2
Application.
16.203
Fixed-price contracts with economic price adjustment.
16.203-1
Description.
16.203-2
Application.
16.203-3
Limitations.
16.203-4
Contract clauses.
16.204
Fixed-price incentive contracts.
16.205
Fixed-price contracts with prospective price redetermination.
16.205-1
Description.
16.205-2
Application.
16.205-3
Limitations.
16.205-4
Contract clause.
16.206
Fixed-ceiling-price contracts with retroactive price redetermination.
16.206-1
Description.
16.206-2
Application.
16.206-3
Limitations.
16.206-4
Contract clause.
16.207
Firm-fixed-price, level-of-effort term contracts.
16.207-1
Description.
16.207-2
Application.
16.207-3
Limitations.

Subpart 16.3—Cost-Reimbursement Contracts
16.301
General.
16.301-1
Description.
16.301-2
Application.
16.301-3
Limitations.
16.302
Cost contracts.
16.303
Cost-sharing contracts.
16.304
Cost-plus-incentive-fee contracts.
16.305
Cost-plus-award-fee contracts.
16.306
Cost-plus-fixed-fee contracts.
16.307
Contract clauses.

Subpart 16.4—Incentive Contracts
16.401
General.
16.402
Application of predetermined, formula-type incentives.
16.402-1
Cost incentives.
16.402-2
Performance incentives.
16.402-3
Delivery incentives.
16.402-4
Structuring multiple-incentive contracts.
16.403
Fixed-price incentive contracts.
16.403-1
Fixed-price incentive (firm target) contracts.
16.403-2
Fixed-price incentive (successive targets) contracts.
16.404
Fixed-price contracts with award fees.
16.405
Cost-reimbursement incentive contracts.
16.405-1
Cost-plus-incentive-fee contracts.
16.405-2
Cost-plus-award-fee contracts.
16.406
Contract clauses.

Subpart 16.5—Indefinite-Delivery Contracts
16.500
Scope of subpart.
16.501-1
Definitions.
16.501-2
General.
16.502
Definite-quantity contracts.
16.503
Requirements contracts.
16.504
Indefinite-quantity contracts.
16.505
Ordering.
16.506
Solicitation provisions and contract clauses.

Subpart 16.6—Time-and-Materials, Labor-Hour, and Letter Contracts
16.601
Time-and-materials contracts.
16.602
Labor-hour contracts.
16.603
Letter contracts.
16.603-1
Description.
16.603-2
Application.
16.603-3
Limitations.
16.603-4
Contract clauses.

Subpart 16.7—Agreements
16.701
Scope.
16.702
Basic agreements.
16.703
Basic ordering agreements.

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

Source:
48 FR 42219, Sept. 19, 1983, unless otherwise noted.
16.000
Scope of part.
This part describes types of contracts that may be used in acquisitions. It prescribes policies and procedures and provides guidance for selecting a contract type appropriate to the circumstances of the acquisition.
[48 FR 42219, Sept. 19, 1983, as amended at 60 FR 34756, July 3, 1995; 61 FR 39197, July 26, 1996]

Subpart 16.1—Selecting Contract Types
16.101
General.
(a) A wide selection of contract types is available to the Government and contractors in order to provide needed flexibility in acquiring the large variety and volume of supplies and services required by agencies. Contract types vary according to (1) the degree and timing of the responsibility assumed by the contractor for the costs of performance and (2) the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals.
(b) The contract types are grouped into two broad categories: fixed-price contracts (see subpart 16.2) and cost-reimbursement contracts (see subpart 16.3). The specific contract types range from firm-fixed-price, in which the contractor has full responsibility for the performance costs and resulting profit (or loss), to cost-plus-fixed-fee, in which the contractor has minimal responsibility for the performance costs and the negotiated fee (profit) is fixed. In between are the various incentive contracts (see subpart 16.4), in which the contractor's responsibility for the performance costs and the profit or fee incentives offered are tailored to the uncertainties involved in contract performance.
16.102
Policies.
(a) Contracts resulting from sealed bidding shall be firm-fixed-price contracts or fixed-price contracts with economic price adjustment.
(b) Contracts negotiated under part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted in this part (see 10 U.S.C. 2306(a) and 41 U.S.C. 254(a)). Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4.
(c) The cost-plus-a-percentage-of-cost system of contracting shall not be used (see 10 U.S.C. 2306(a) and 41 U.S.C. 254(b)). Prime contracts (including letter contracts) other than firm-fixed-price contracts shall, by an appropriate clause, prohibit cost- plus-a-percentage-of-cost subcontracts (see clauses prescribed in subpart 44.2 for cost-reimbursement contracts and subparts 16.2 and 16.4 for fixed-price contracts).
(d) No contract may be awarded before the execution of any determination and findings (D&F's) required by this part. Minimum requirements for the content of D&F's required by this part are specified in 1.704.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1741, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985]
16.103
Negotiating contract type.
(a) Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.
(b) A firm-fixed-price contract, which best utilizes the basic profit motive of business enterprise, shall be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. However, when a reasonable basis for firm pricing does not exist, other contract types should be considered, and negotiations should be directed toward selecting a contract type (or combination of types) that will appropriately tie profit to contractor performance.
(c) In the course of an acquisition program, a series of contracts, or a single long-term contract, changing circumstances may make a different contract type appropriate in later periods than that used at the outset. In particular, contracting officers should avoid protracted use of a cost-reimbursement or time-and-materials contract after experience provides a basis for firmer pricing.
(d) Each contract file shall include documentation to show why the particular contract type was selected. Exceptions to this requirement are:
(1) Fixed-price acquisitions made under simplified acquisition procedures,
(2) Contracts on a firm fixed-price basis other than those for major systems or research and development, and
(3) Awards on the set-aside portion of sealed bid partial set-asides for small business.
[48 FR 42219, Sept. 19, 1983, as amended at 50 FR 1742, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985; 54 FR 5054, Jan. 31, 1989; 60 FR 34756, July 3, 1995; 60 FR 48260, Sept. 18, 1995; 61 FR 39198, July 26, 1996]
16.104
Factors in selecting contract types.
There are many factors that the contracting officer should consider in selecting and negotiating the contract type. They include the following:
(a) Price competition. Normally, effective price competition results in realistic pricing, and a fixed-price contract is ordinarily in the Government's interest.
(b) Price analysis. Price analysis with or without competition, may provide a basis for selecting the contract type. The degree to which price analysis can provide a realistic pricing standard should be carefully considered. (See 15.404-1(b).)
(c) Cost analysis. In the absence of effective price competition and if price analysis is not sufficient, the cost estimates of the offeror and the Government provide the bases for negotiating contract pricing arrangements. It is essential that the uncertainties involved in performance and their possible impact upon costs be identified and evaluated, so that a contract type that places a reasonable degree of cost responsibility upon the contractor can be negotiated.
(d) Type and complexity of the requirement. Complex requirements, particularly those unique to the Government, usually result in greater risk assumption by the Government. This is especially true for complex research and development contracts, when performance uncertainties or the likelihood of changes makes it difficult to estimate performance costs in advance. As a requirement recurs or as quantity production begins, the cost risk should shift to the contractor, and a fixed-price contract should be considered.
(e) Urgency of the requirement. If urgency is a primary factor, the Government may choose to assume a greater proportion of risk or it may offer incentives to ensure timely contract performance.
(f) Period of performance or length of production run. In times of economic uncertainty, contracts extending over a relatively long period may require economic price adjustment terms.
(g) Contractor's technical capability and financial responsibility.
(h) Adequacy of the contractor's accounting system. Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor's accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type. This factor may be critical when the contract type requires price revision while performance is in progress, or when a cost-reimbursement contract is being considered and all current or past experience with the contractor has been on a fixed-price basis.
(i) Concurrent contracts. If performance under the proposed contract involves concurrent operations under other contracts, the impact of those contracts, including their pricing arrangements, should be considered.
(j) Extent and nature of proposed subcontracting. If the contractor proposes extensive subcontracting, a contract 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 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 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.
(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 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 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]
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 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 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 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 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).
(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 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]
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 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 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;
(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.
(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;
(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—
(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 MultipleAwards, 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.
(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 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 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.
(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 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]
Pt. 17

PART 17—SPECIAL CONTRACTING METHODS
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 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 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.
(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)).
(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 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.
(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.
(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.
(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.
(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.

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]
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.

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 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]

SUBCHAPTER D—SOCIOECONOMIC PROGRAMS
Pt. 19

PART 19—SMALL BUSINESS PROGRAMS
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.
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;
(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 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 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 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 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 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 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;
(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—
(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 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 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, 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]
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 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—
(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]
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 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
(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;
(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 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 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 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 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.
(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 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.
(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 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.

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
(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 Prote ge firm under the Department of Defense Pilot Mentor-Prote ge 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-prote ge 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 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 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]
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, 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.
(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 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, 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;
(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 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 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.
(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 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 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, 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 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 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 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]

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]
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]
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.
| 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 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—
(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 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 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 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;
(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]
Pt. 22

PART 22—APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS
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.
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.
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
(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.
(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.
(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.

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]
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 11/2 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.
(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 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 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, 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 11/2 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
(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
- 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 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.
(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 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 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—
(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 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.
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., 11/2 times the basic hourly rate of pay) the contractor shall use the basic hourly rate of pay in the wage determination, or the basic hourly rate actually paid by the contractor, if higher. The basic rate of pay includes employee contributions to fringe benefits, but excludes the contractor's contributions, costs, or payment of cash equivalents for fringe benefits. Overtime shall not be computed on a rate lower than the basic hourly rate in the wage determination.
22.406-3
Additional classifications.
(a) If any laborer or mechanic is to be employed in a classification that is not listed in the wage determination applicable to the contract, the contracting officer, pursuant to the clause at 52.222-6, Davis-Bacon Act, shall require that the contractor submit to the contracting officer, Standard Form (SF) 1444, Request for Authorization of Additional Classification and Rate, which, along with other pertinent data, contains the proposed additional classification and minimum wage rate including any fringe benefits payments.
(b) Upon receipt of SF 1444 from the contractor, the contracting officer shall review the request to determine whether it meets the following criteria:
(1) The classification is appropriate and the work to be performed by the classification is not performed by any classification contained in the applicable wage determination.
(2) The classification is utilized in the area by the construction industry.
(3) The proposed wage rate, including any fringe benefits, bears a reasonable relationship to the wage rates in the wage determination in the contract.
(c)(1) If the criteria in paragraph (b) of this section are met and the contractor and the laborers or mechanics to be employed in the additional classification (if known) or their representatives agree to the proposed additional classification, and the contracting officer approves, the contracting officer shall submit a report (including a copy of SF 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 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
(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;
(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 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]
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 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.
(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 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 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 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:
(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:
(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. 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 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 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]
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 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, 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.
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 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 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 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.
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 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]
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 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 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, 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.
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 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 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]

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 verify@vets100.com 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 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.
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 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]

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 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 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.
Pt. 23

PART 23— ENVIRONMENT, ENERGY AND WATER EFFICIENCY, RENEWABLE ENERGY TECHNOLOGIES, OCCUPATIONAL SAFETY, AND DRUG-FREE WORKPLACE
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
(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® 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® 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 ConservationPolicy 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.
(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.
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 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;
(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
(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.
(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.
(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.
(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]
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]
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.
Pt. 24

PART 24—PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION
Sec.
24.000
Scope of part.

Subpart 24.1—Protection of Individual Privacy
24.101
Definitions.
24.102
General.
24.103
Procedures.
24.104
Contract clauses.

Subpart 24.2—Freedom of Information Act
24.201
Authority.
24.202
Prohibitions.
24.203
Policy.

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

Source:
48 FR 42277, Sept. 19, 1983, unless otherwise noted.
24.000
Scope of part.
This part prescribes policies and procedures that apply requirements of the Privacy Act of 1974 (5 U.S.C. 552a) (the Act) and OMB Circular No. A-130, December 12, 1985, to Government contracts and cites the Freedom of Information Act (5 U.S.C. 552, as amended.)
[48 FR 42277, Sept. 19, 1983, as amended at 55 FR 38517, Sept. 18, 1990]

Subpart 24.1—Protection of Individual Privacy
24.101
Definitions.
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:
(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]
Pt. 25

PART 25—FOREIGN ACQUISITION
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.
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 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.
| Subpart | Supplies for use | Inside U.S. | Outside U.S. | Construction | Inside U.S. | Outside U.S. | Services performed | Inside U.S. | Outside U.S.
25.1 | Buy American Act—Supplies | X | | | | |
25.2 | Buy American Act—Construction Materials | | | X | | |
25.3 | [Reserved] | | — | | — | |
25.4 | Trade Agreements | X | X | X | X | X | X
25.5 | Evaluating Foreign Offers—Supply Contracts | X | X | | | |
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 Coordination | X | X | | X | | X
25.9 | Customs and Duties | X | | | | |
25.10 | Additional Foreign Acquisition Regulations | X | X | X | X | X | X
25.11 | Solicitation Provisions and Contract Clauses | X | X | X | X | X | X
[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 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—CaribbeanBasin 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:
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 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 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.
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 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 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, see25.403. 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—
(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 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).
(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 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 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 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.
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.
Item | Offers | 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:
Item | Offers | Low offer | Tentative award pattern 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.
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.
Item | Offers | 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);
(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 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 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.
(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 ActCertificate, 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 BuyAmerican 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.
(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 BuyAmerican 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]
Pt. 26

PART 26—OTHER SOCIOECONOMIC PROGRAMS

Subpart 26.1—Indian Incentive Program
Sec.
26.100
Scope of subpart.
26.101
Definitions.
26.102
Policy.
26.103
Procedures.
26.104
Contract clause.

Subpart 26.2—Disaster or Emergency Assistance Activities
26.200
Scope of subpart.
26.201
Policy.

Subpart 26.3—Historically Black Colleges and Universities and Minority Institutions
26.300
Scope of subpart.
26.301
[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.
(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, 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]

SUBCHAPTER E—GENERAL CONTRACTING REQUIREMENTS
Pt. 27

PART 27—PATENTS, DATA, AND COPYRIGHTS
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.

Subpart 27.1—General
27.101
Applicability.
The policies, procedures, and clauses prescribed by this part 27 are applicable to all agencies. Agencies are authorized to adopt alternate policies, procedures, and clauses, but only to the extent determined necessary to meet the specific requirements of laws, executive orders, treaties, or international agreements. Any agency action adopting such alternate policies, procedures, and clauses shall be covered in published agency regulations.
27.102
[Reserved]
27.103
Policy.
The policies pertaining to patents, data, and copyrights are set forth in this part 27 and the related clauses in part 52.
27.104
General guidance.
(a) The Government encourages the maximum practical commercial use of inventions made while performing Government contracts.
(b) Generally, the Government will not refuse to award a contract on the grounds that the prospective contractor may infringe a patent.
(c) Generally, the Government encourages the use of inventions in performing contracts and, by appropriate contract clauses, authorizes and consents to such use, even though the inventions may be covered by U.S. patents and indemnification against infringement may be appropriate.
(d) Generally, the Government should be indemnified against infringement of U.S. patents resulting from performing contracts when the supplies or services acquired under the contracts normally are or have been sold or offered for sale by any supplier to the public in the commercial open market or are the same as such supplies or services with relatively minor modifications.
(e) The Government acquires supplies or services on a competitive basis in accordance with part 6, but it is important that the efforts directed toward full and open competition not improperly demand or use data relating to private developments.
(f) The Government honors the rights in data resulting from private developments and limits its demands for such rights to those essential for Government purposes.
(g) The Government honors rights in patents, data, and copyrights, and complies with the stipulations of law in using or acquiring such rights.
(h) Generally, the Government requires that contractors obtain permission from copyright owners before including privately-owned copyrighted works in data required to be delivered under Government contracts.
[49 FR 12974, Mar. 30, 1984, as amended at 50 FR 1743, Jan. 11, 1985; 50 FR 52429, Dec. 23, 1985]

Subpart 27.2—Patents
27.200
Scope of subpart.
This subpart prescribes policy with respect to—
(a) Patent infringement liability resulting from work performed by or for the Government;
(b) Royalties payable in connection with performing Government contracts; and
(c) Security requirements covering patent applications containing classified subject matter filed by contractors.
27.201
Authorization and consent.
27.201-1
General.
(a) In those cases where the Government has authorized or consented to the manufacture or use of an invention described in and covered by a patent of the United States, any suit for infringement of the patent based on the manufacture or use of the invention by or for the United States by a contractor (including a subcontractor at any tier) can be maintained only against the Government in the U.S. Claims Court and not against the contractor or subcontractor (28 U.S.C. 1498). To ensure that work by a contractor or subcontractor under a Government contract may not be enjoined by reason of patent infringement, the Government shall give authorization and consent in accordance with this regulation. The liability of the Government for damages in any such suit against it may, 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]
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 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 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.
27.205
Adjustment of royalties.
(a) If at any time the contracting officer has reason to believe that any royalties paid, or to be paid, under an existing or prospective contract or subcontract are inconsistent with Government rights, excessive, or otherwise improper, the facts shall be promptly reported to the office having cognizance of patent matters for the contracting activity concerned. The cognizant office shall review the royalties thus reported and such royalties as are reported under 27.204 and 27.206 and, in accordance with agency procedures, shall either recommend appropriate action to the contracting officer or, if authorized, shall take appropriate action.
(b) In coordination with the cognizant office, the contracting officer shall promptly act to protect the Government against payment of royalties on supplies or services—
(1) With respect to which the Government has a royalty-free license;
(2) At a rate in excess of the rate at which the Government is licensed; or
(3) When the royalties in whole or in part otherwise constitute an improper charge.
(c) In appropriate cases, the contracting officer in coordination with the cognizant office shall obtain a refund pursuant to any refund of royalties clause in the contract (see 27.206) or negotiate for a reduction of royalties.
(d) For guidance in evaluating information furnished pursuant to 27.204 and 27.205(a) above, see 31.205-37 and 31.311-34. See also 31.109 regarding advance understandings on particular cost items, including royalties.
27.206
Refund of royalties.
27.206-1
General.
When a fixed-price contract is negotiated under circumstances that make it questionable whether or not substantial amounts of royalties will have to be paid by the contractor or a subcontractor, such royalties may be included in the target or contract price, provided the contract specifies that the Government will be reimbursed the amount of such royalties if they are not paid. Such circumstances might include, for example, either a pending Government anti-trust action or prospective litigation on the validity of a patent or patents or on the enforceability of an agreement (upon which the contractor or subcontractor bases the asserted obligation) to pay the royalties to be included in the target or contract price.
27.206-2
Clause for refund of royalties.
The contracting officer shall insert the clause at 52.227-9, Refund of Royalties, in negotiated fixed-price contracts and solicitations contemplating such contracts if the contracting officer determines that circumstances make it questionable whether or not substantial amounts of royalties will have to be paid by the contractor or a subcontractor at any tier.
27.207
Classified contracts.
27.207-1
General.
(a) Unauthorized disclosure of classified subject matter, whether in patent applications or resulting from the issuance of a patent, may be a violation of 18 U.S.C. 792 et seq. (Espionage and Censorship), and related statutes, and may be contrary to the interests of national security.
(b) Upon receipt from the contractor of a patent application, not yet filed, that has been submitted by the contractor in compliance with paragraph (a) or (b) of the clause at 52.227-10, Filing of Patent Applications—Classified Subject Matter, the contracting officer shall ascertain the proper security classification of the patent application. Upon a determination that the application contains classified subject matter, the contracting officer shall inform the contractor of any instructions deemed necessary or advisable relating to transmittal of the application to the United States Patent Office in accordance with procedures in the National Industrial Security Program Operating Manual. If the material is classified Secret or higher, the contracting officer shall make every effort to notify the contractor of the determination within 30 days, pursuant to paragraph (a) of the clause.
(c) In the case of all applications filed under the provisions of this section 27.207, the contracting officer, upon receiving the application serial 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.
(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 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.
(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 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 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.
(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 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 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.
(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 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 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 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.
(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.
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.
(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 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 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, 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 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 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, 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 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 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 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;
(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 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 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 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 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 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 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, 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, 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).
Pt. 28

PART 28—BONDS AND INSURANCE
Sec.
28.000
Scope of part.
28.001
Definitions.

Subpart 28.1—Bonds and Other Financial Protections
28.100
Scope of subpart.
28.101
Bid guarantees.
28.101-1
Policy on use.
28.101-2
Solicitation provision or contract clause.
28.101-3
[Reserved]
28.101-4
Noncompliance with bid guarantee requirements.
28.102
Performance and payment bonds and alternative payment protections for construction contracts.
28.102-1
General.
28.102-2
Amount required.
28.102-3
Contract clauses.
28.103
Performance and payment bonds for other than construction contracts.
28.103-1
General.
28.103-2
Performance bonds.
28.103-3
Payment bonds.
28.103-4
Contract clause.
28.104
Annual performance bonds.
28.105
Other types of bonds.
28.105-1
Advance payment bonds.
28.105-2
Patent infringement bonds.
28.106
Administration.
28.106-1
Bonds and bond related forms.
28.106-2
Substitution of surety bonds.
28.106-3
Additional bond and security.
28.106-4
Contract clause.
28.106-5
Consent of surety.
28.106-6
Furnishing information.
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 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
(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 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
(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 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 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 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 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, 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 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 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.
(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 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 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: iccpub@interport.net
[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 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 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.)
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;
(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
(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.
Pt. 29

PART 29—TAXES
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.
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.
(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]
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 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]

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 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.
Pt. 30

PART 30—COST ACCOUNTING STANDARDS ADMINISTRATION
Sec.
30.000
Scope of part.

Subpart 30.1—General
30.101
Cost Accounting Standards.
30.102
Cost Accounting Standards Board publication.

Subpart 30.2—CAS Program Requirements
30.201
Contract requirements.
30.201-1
CAS applicability.
30.201-2
Types of CAS coverage.
30.201-3
Solicitation provisions.
30.201-4
Contract clauses.
30.201-5
Waiver.
30.201-6
Findings.
30.201-7
Cognizant Federal agency responsibilities.
30.202
Disclosure requirements.
30.202-1
General requirements.
30.202-2
Impracticality of submission.
30.202-3
Amendments and revisions.
30.202-4
Privileged and confidential information.
30.202-5
Filing disclosure statements.
30.202-6
Responsibilities.
30.202-7
Determinations.
30.202-8
Subcontractor disclosure statements.
Subpart 30.3—CAS Rules and Regulations [Reserved]
Subpart 30.4—Cost Accounting Standards [Reserved]
Subpart 30.5—Cost Accounting Standards for Educational Institutions [Reserved]

Subpart 30.6—CAS Administration
30.601
Responsibility.
30.602
Changes to disclosed or established cost accounting practices.
30.602-1
Equitable adjustments for new or modified standards.
30.602-2
Noncompliance with CAS requirements.
30.602-3
Voluntary changes.
30.603
Subcontract administration.

Source:
57 FR 39587, Aug. 31, 1992, unless otherwise noted.
30.000
Scope of part.
This part describes policies and procedures for applying the Cost Accounting Standards Board (CASB) rules and regulations (48 CFR chapter 99 (FAR appendix)) to negotiated contracts and subcontracts. This part does not apply to sealed bid contracts or to any contract with a small business concern (see 48 CFR 9903.201-1(b) (FAR appendix) for these and other exemptions).
[57 FR 39587, Aug. 31, 1992, as amended at 61 FR 18916, Apr. 29, 1996; 62 FR 40237, July 25, 1997]

Subpart 30.1—General
30.101
Cost Accounting Standards.
(a) Public Law 100-679 (41 U.S.C. 422) requires certain contractors and subcontractors to comply with Cost Accounting Standards (CAS) and to disclose in writing and follow consistently their cost accounting practices.
(b) Contracts that refer to this part 30 for the purpose of applying the policies, procedures, standards and regulations promulgated by the CASB pursuant to Public Law 100-679, shall be deemed to refer to the CAS, and any 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 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, 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]
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. 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 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]
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 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 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]
Pt. 31

PART 31—CONTRACT COST PRINCIPLES AND PROCEDURES
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.
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.
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, 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.
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 companycharged 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]
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);
(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 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 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 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—
(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 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;
(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]
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;
(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]
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 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.
(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.
(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 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 ContributionsAct 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 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 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 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, 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 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 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
(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—
(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]
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 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, 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]
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, 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 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 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.
(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 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, 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:
(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 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 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—
(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 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 FederalInsurance 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 undersubpart 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 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 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]
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 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 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.
(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 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.
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).
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 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 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 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.
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 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]
Pt. 32

PART 32—CONTRACT FINANCING
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.
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.
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 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 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.
(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;
(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.
(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.
(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 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 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 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
(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—
(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);
(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 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]
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 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.
(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.
(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 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.
(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 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]
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:
(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]
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.
(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.
(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]
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, 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 ContractingOfficer 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__.
[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]
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]
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 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]
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 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:
(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 been obligated) | 150,000
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
Total costs eligible for progress payments | 2,700,000
Loss ratio factor | ×83.3%
Recognized costs for progress payments | 2,249,100
Progress payment rate | ×80.0%
Alternate amount to be used | 1,799,280
Section III
Factored costs of items delivered* | 750,000
Recognized costs applicable to undelivered items ($2,249,100-750,000) | 1,499,100
* 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 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:
(ii) If the progress payment rate is 85 percent, the minimum liquidation rate should be 77.3 percent, computed as follows:
(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 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 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.
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 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 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 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
(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 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 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
(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]
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—
(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]
(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, 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 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 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.
(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.
If the items delivered are: | Payment must be made as close as possible to, but not later than:
(1) Meat or meat food products. As defined in section 2(a)(3) of the Packers and Stockyard Act of 1921 (7 U.S.C. 182(3)), and as further defined in Public Law 98-181, including any edible fresh or frozen poultry meat, any perishable poultry meat food product, fresh eggs, and any perishable egg product | 7th day after product delivery.
(2) Fresh or frozen fish. As defined in section 204(3) of the Fish and Seafood Promotion Act of 1986 (16 U.S.C. 4003(3)) | 7th day after product delivery.
(3) Perishable agricultural commodities. As defined in section 1(4) of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a(4)) | 10th day after product delivery, unless another date is specified in the contract.
(4) Dairy products. As defined in section 111(e) of the Dairy Production Stabilization Act of 1983 (7 U.S.C. 4502(e)), edible fats or oils, and food products prepared from edible fats or oils. 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 | 10th day after a proper invoice has been received.
(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.)
(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 otherGovernment 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 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.
(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.
(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 PromptPayment 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 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:
(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 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 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.
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 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.
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, 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.
Pt. 33

PART 33—PROTESTS, DISPUTES, AND APPEALS
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, 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]
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 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 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 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
(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 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, 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 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 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.
(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;
(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]

SUBCHAPTER F—SPECIAL CATEGORIES OF CONTRACTING
Pt. 34

PART 34—MAJOR SYSTEM ACQUISITION

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, 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.
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.
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.
Pt. 35

PART 35—RESEARCH AND DEVELOPMENT CONTRACTING
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 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 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;
(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]
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.
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]
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 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 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 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 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]
Pt. 36

PART 36—CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS
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.
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]
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 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]
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.
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]
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]
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:
(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.
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 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 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, 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 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.
(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]
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.
(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 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 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]
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:
(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]
Pt. 37

PART 37—SERVICE CONTRACTING
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 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).
(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 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]
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]
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 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 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, 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 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 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;
(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).
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).)
Pt. 38

PART 38—FEDERAL SUPPLY SCHEDULE CONTRACTING
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;
(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]
Pt. 39

PART 39—ACQUISITION OF INFORMATION TECHNOLOGY
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, 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 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.
(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 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]
Pt. 41

PART 41—ACQUISITION OF UTILITY SERVICES

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.

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 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 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).
(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 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
(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.
(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.

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]

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.

SUBCHAPTER G—CONTRACT MANAGEMENT
Pt. 42

PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES
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.
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]

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 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 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.
(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.
(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 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) 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 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 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 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
(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 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.
(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]
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—
(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).
(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 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).
(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;
(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 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.
(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:
(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;
(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.
(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.
(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 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]

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]
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.
(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 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 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 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). 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.
Pt. 43

PART 43—CONTRACT MODIFICATIONS
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).
(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, 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)).
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 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;
(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]
Pt. 44

PART 44—SUBCONTRACTING POLICIES AND PROCEDURES
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 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.
(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 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]

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 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).
(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 Components, in solicitations and contracts for supplies or services other than commercial items.
Pt. 45

PART 45—GOVERNMENT PROPERTY
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.
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, 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. 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.
(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 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 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 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 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]
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 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]
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 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 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.
(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 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.
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.
(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).
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 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 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 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.
(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.
(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.
(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.
(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
(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.
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).
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 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 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) 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 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 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 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 $1,000 or more ($500 for furniture) | 90 days/(see 45.608-2)
Agency | Special tooling, perishables, property bearing a security classification, property dangerous to public health and safety, regardless of acquisition cost, and agency-peculiar property. | 30 days/(See 45.608-3)
Limited | Special tooling, scrap 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). | 30 days/(see 45.608-4)
Special Items | Special test equipment with standard components. | (see 45.608-5(a))
| | Special test equipment without standard components. | (see 45.608-5(b))
| 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 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. 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.
(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)).
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 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.
Pt. 46

PART 46—QUALITY ASSURANCE
Sec.
46.000
Scope of part.

Subpart 46.1—General
46.101
Definitions.
46.102
Policy.
46.103
Contracting office responsibilities.
46.104
Contract administration office responsibilities.
46.105
Contractor responsibilities.

Subpart 46.2—Contract Quality Requirements
46.201
General.
46.202
Types of contract quality requirements.
46.202-1
Contracts for commercial items.
46.202-2
Government reliance on inspection by contractor.
46.202-3
Standard inspection requirements.
46.202-4
Higher-level contract quality requirements.
46.203
Criteria for use of contract quality requirements.
46.204
[Reserved]

Subpart 46.3—Contract Clauses
46.301
Contractor inspection requirements.
46.302
Fixed-price supply contracts.
46.303
Cost-reimbursement supply contracts.
46.304
Fixed-price service contracts.
46.305
Cost-reimbursement service contracts.
46.306
Time-and-material and labor-hour contracts.
46.307
Fixed-price research and development contracts.
46.308
Cost-reimbursement research and development contracts.
46.309
Research and development contracts (short form).
46.310
Facilities contracts.
46.311
Higher-level contract quality requirement.
46.312
Construction contracts.
46.313
Contracts for dismantling, demolition, or removal of improvements.
46.314
Transportation contracts.
46.315
Certificate of conformance.
46.316
Responsibility for supplies.

Subpart 46.4—Government Contract Quality Assurance
46.401
General.
46.402
Government contract quality assurance at source.
46.403
Government contract quality assurance at destination.
46.404
Government contract quality assurance for acquisitions at or below the simplified acquisition threshold.
46.405
Subcontracts.
46.406
Foreign governments.
46.407
Nonconforming supplies or services.
46.408
Single-agency assignments of Government contract quality assurance.

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 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]
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. 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;
(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]
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, 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 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 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—
(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 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 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 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 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.
(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 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]

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.
(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.
Pt. 47

PART 47—TRANSPORTATION
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.
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.
(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.
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.
(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]
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 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 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;
(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 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 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- 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 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 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—
(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
(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 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
(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;
(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;
(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 $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.
(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 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.
(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 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
(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 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.
(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 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 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 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 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):
(c) The justification requirement is satisfied by the contractor's use of a statement similar to the one contained in the clause at 52.247-63, Preference for U.S.-Flag Air Carriers. (See 47.405.)
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]
47.404
Air freight forwarders.
(a) Agencies may use air freight forwarders that are engaged in international air transportation (49 U.S.C. 1301(24)(c)) for U.S. Government-financed movements of property. The rule on disallowance of expenditures in 47.403-3(a) applies also to the air carriers used by these international air freight forwarders.
(b) Agency personnel shall inform international air freight forwarders that to facilitate prompt payments of their bills, they shall submit with their bills (1) a copy of the airway bill or manifest showing the air carriers used and (2) justification for the use of foreign-flag air carriers similar to the one shown in the clause at 52.247-63, Preference for U.S.-Flag Air Carriers.
[48 FR 42424, Sept. 19, 1983, as amended at 62 FR 237, Jan. 2, 1997]
47.405
Contract clause.
The contracting officer shall insert the clause at 52.247-63, “Preference for U.S.-Flag Air Carriers, in solicitations and contracts whenever it is possible that U.S. Government-financed international air transportation of personnel (and their personal effects) or property will occur in the performance of the contract.” This clause does not apply to contracts awarded using the simplified acquisition procedures in part 13 or contracts for commercial items (see part 12).
[48 FR 42424, Sept. 19, 1983, as amended at 53 FR 27468, July 20, 1988; 60 FR 48250, Sept. 18, 1995]

Subpart 47.5—Ocean Transportation by U.S.-Flag Vessels
47.500
Scope of subpart.
This subpart prescribes policy and procedures for giving preference to U.S.-flag vessels when transportation of supplies by ocean vessel is required. This subpart does not apply to the Department of Defense (DoD). Policy and procedures applicable to DoD appear in DFARS subpart 247.5.
[48 FR 42424, Sept. 19, 1983, as amended at 55 FR 3886, Feb. 5, 1990]
47.501
Definitions.
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 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.
(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.
Pt. 48

PART 48—VALUE ENGINEERING
Sec.
48.000
Scope of part.
48.001
Definitions.

Subpart 48.1—Policies and Procedures
48.101
General.
48.102
Policies.
48.103
Processing value engineering change proposals.
48.104
Sharing arrangements.
48.104-1
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 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]
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 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, 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]
Contract type | Sharing arrangement | Incentive (voluntary) | Instant contract rate | Concurrent and future contract rate | Program requirement (mandatory) | Instant contract rate | Concurrent and future contract rate
Fixed-price (includes fixed-price-award-fee; excludes other fixed-price incentive contracts) | ^1 50/50 | ^1 50/50 | 75/25 | 75/25
Incentive (fixed-price or cost) (other than award fee) | (^2) | ^1 50/50 | (^2) | 75/25
Cost-reimbursement (includes cost-plus-award-fee; excludes other cost-type incentive contracts) | ^3 75/25 | ^3 75/25 | 85/15 | 85/15
^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 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 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 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.
Pt. 49

PART 49—TERMINATION OF CONTRACTS
Sec.
49.000
Scope of part.
49.001
Definitions.
49.002
Applicability.

Subpart 49.1—General Principles
49.100
Scope of subpart.
49.101
Authorities and responsibilities.
49.102
Notice of termination.
49.103
Methods of settlement.
49.104
Duties of prime contractor after receipt of notice of termination.
49.105
Duties of termination contracting officer after issuance of notice of termination.
49.105-1
Termination status reports.
49.105-2
Release of excess funds.
49.105-3
Termination case file.
49.105-4
Cleanup of construction site.
49.106
Fraud or other criminal conduct.
49.107
Audit of prime contract settlement proposals and subcontract settlements.
49.108
Settlement of subcontract settlement proposals.
49.108-1
Subcontractor's rights.
49.108-2
Prime contractor's rights and obligations.
49.108-3
Settlement procedure.
49.108-4
Authorization for subcontract settlements without approval or ratification.
49.108-5
Recognition of judgments and arbitration awards.
49.108-6
Delay in settling subcontractor settlement proposals.
49.108-7
Government assistance in settling subcontracts.
49.108-8
Assignment of rights under subcontracts.
49.109
Settlement agreements.
49.109-1
General.
49.109-2
Reservations.
49.109-3
Government property.
49.109-4
No-cost settlement.
49.109-5
Partial settlements.
49.109-6
Joint settlement of two or more settlement proposals.
49.109-7
Settlement by determination.
49.110
Settlement negotiation memorandum.
49.111
Review of proposed settlements.
49.112
Payment.
49.112-1
Partial payments.
49.112-2
Final payment.
49.113
Cost principles.
49.114
Unsettled contract changes.
49.115
Settlement of terminated incentive contracts.

Subpart 49.2—Additional Principles for Fixed-Price Contracts Terminated for Convenience
49.201
General.
49.202
Profit.
49.203
Adjustment for loss.
49.204
Deductions.
49.205
Completed end items.
49.206
Settlement proposals.
49.206-1
Submission of settlement proposals.
49.206-2
Bases for settlement proposals.
49.206-3
Submission of inventory schedules.
49.207
Limitation on settlements.
49.208
Equitable adjustment after partial termination.

Subpart 49.3—Additional Principles for Cost-Reimbursement Contracts Terminated for Convenience
49.301
General.
49.302
Discontinuance of vouchers.
49.303
Procedure after discontinuing vouchers.
49.303-1
Submission of settlement proposal.
49.303-2
Submission of inventory schedules.
49.303-3
Audit of settlement proposal.
49.303-4
Adjustment of indirect costs.
49.303-5
Final settlement.
49.304
Procedure for partial termination.
49.304-1
General.
49.304-2
Submission of settlement proposal (fee only).
49.304-3
Submission of vouchers.
49.305
Adjustment of fee.
49.305-1
General.
49.305-2
Construction contracts.

Subpart 49.4—Termination for Default
49.401
General.
49.402
Termination of fixed-price contracts for default.
49.402-1
The Government's right.
49.402-2
Effect of termination for default.
49.402-3
Procedure for default.
49.402-4
Procedure in lieu of termination for default.
49.402-5
Memorandum by the contracting officer.
49.402-6
Repurchase against contractor's account.
49.402-7
Other damages.
49.403
Termination of cost-reimbursement contracts for default.
49.404
Surety-takeover agreements.
49.405
Completion by another contractor.
49.406
Liquidation of liability.

Subpart 49.5—Contract Termination Clauses
49.501
General.
49.502
Termination for convenience of the Government.
49.503
Termination for convenience of the Government and default.
49.504
Termination of fixed-price contracts for default.
49.505
Other termination clauses.

Subpart 49.6—Contract Termination Forms and Formats
49.601
Notice of termination for convenience.
49.601-1
Telegraphic notice.
49.601-2
Letter notice.
49.602
Forms for settlement of terminated contracts.
49.602-1
Termination settlement proposal forms.
49.602-2
Inventory schedule forms.
49.602-3
Schedule of accounting information.
49.602-4
Partial payments.
49.602-5
Settlement agreement.
49.603
Formats for termination for convenience settlement agreements.
49.603-1
Fixed-price contracts—complete termination.
49.603-2
Fixed-price contracts—partial termination.
49.603-3
Cost-reimbursement contracts—complete termination, if settlement includes cost.
49.603-4
Cost-reimbursement contracts—complete termination, with settlement limited to fee.
49.603-5
Cost-reimbursement contracts—partial termination.
49.603-6
No-cost settlement agreement—complete termination.
49.603-7
No-cost settlement agreement—partial termination.
49.603-8
Fixed-price contracts—settlements with subcontractors only.
49.603-9
Settlement of reservations.
49.604
Release of excess funds under terminated contracts.
49.605
Request to settle subcontractor settlement proposals.
49.606
Granting subcontract settlement authorization.
49.607
Delinquency notices.

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

Source:
48 FR 42447, Sept. 19, 1983, unless otherwise noted.
49.000
Scope of part.
This part establishes policies and procedures relating to the complete or partial termination of contracts for the convenience of the Government or for default. It prescribes contract clauses relating to termination and excusable delay and includes instructions for using termination and settlement forms.
49.001
Definitions.
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 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 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 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 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 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 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.
(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 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 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 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 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.
(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.
(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 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.
(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 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.
(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.
(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 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 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 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
(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 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.
(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 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.
(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 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.
(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 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)

(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 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 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 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]
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 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.]
(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 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).]

(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.
(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 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]
Pt. 50

PART 50—EXTRAORDINARY CONTRACTUAL ACTIONS
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 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 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 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.
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 (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 (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—
(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.
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 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.
Pt. 51

PART 51—USE OF GOVERNMENT SOURCES BY CONTRACTORS
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:
(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—
(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—
(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;
(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 and kept up-to-date by the General Services Administration.
FAR Index

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
Chap.

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)
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)
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)
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)
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)
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)

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)

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)

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)
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)

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)

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)
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)

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)
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)
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)
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

Alphabetical List of Agencies Appearing in the CFR
(Revised as of October 1, 2002)
Agency
CFR Title, Subtitle or 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 States
22, II
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 Extension Service
7, XXXIV
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 Administration
7, VIII; 9, II
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 Compliance Board
36, XI
Arctic Research Commission
45, XXIII
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 Affairs, Office of
34, V
Blind or Severely Disabled, Committee for Purchase From People Who Are
41, 51
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 Administration
15, IX; 50, II, III, IV, VI
National Telecommunications and Information Administration
15, XXIII; 47, III
National Weather Service
15, IX
Patent and Trademark Office, United States
37, I
Productivity, Technology and Innovation, Assistant Secretary for
37, IV
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 Assistant Secretary for
24, V, VI
Community Services, Office of
45, X
Comptroller of the Currency
12, I
Construction Industry Collective Bargaining Commission
29, IX
Consumer Product Safety Commission
5, LXXI; 16, II
Cooperative State Research, Education, and Extension Service
7, XXXIV
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 for the District of Columbia
28, VIII
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
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 Offender Supervision Agency for the
28, VIII
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 Affairs, Office of
34, V
Civil Rights, Office for
34, I
Educational Research and Improvement, Office of
34, VII
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, Office of
34, III
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 for
24, I
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 States
15, XX
Export-Import Bank of the United States
5, LII; 12, IV
Family Assistance, Office of
45, II
Farm Credit Administration
5, XXXI; 12, VI
Farm Credit System Insurance Corporation
5, XXX; 12, XIV
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 Acquisition Regulation
48, 21
Federal Employees Health Benefits Acquisition Regulation
48, 16
Federal Energy Regulatory Commission
5, XXIV; 18, I
Federal Financial Institutions Examination Council
12, XI
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 Counsel of the Federal Labor Relations Authority
5, XIV; 22, XIV
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 United States
45, V
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
General
41, 300
Payment From a Non-Federal Source for Travel Expenses
41, 304
Payment of Expenses Connected With the Death of Certain Employees
41, 303
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 Administration
7, VIII; 9, II
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 Assistant Secretary for
24, V, VI
Equal Opportunity, Office of Assistant Secretary for
24, I
Federal Acquisition Regulation
48, 24
Federal Housing Enterprise Oversight, Office of
12, XVII
Government National Mortgage Association
24, III
Housing—Federal Housing Commissioner, Office of Assistant Secretary for
24, II, VIII, X, XX
Housing, Office of, and Multifamily Housing Assistance Restructuring, Office of
24, IV
Inspector General, Office of
24, XII
Public and Indian Housing, Office of Assistant Secretary for
24, IX
Secretary, Office of
24, Subtitle A, VII
Housing—Federal Housing Commissioner, Office of Assistant Secretary for
24, II, VIII, X, XX
Housing, Office of, and Multifamily Housing Assistance Restructuring, Office of
24, IV
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 Secretary
25, VI
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 Archives and Records Administration
32, XX
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 Trustee
25, VII
Endangered Species Committee
50, IV
Federal Acquisition Regulation
48, 14
Federal Property Management Regulations System
41, 114
Fish and Wildlife Service, United States
50, I, IV
Geological Survey
30, IV
Indian Affairs, Bureau of
25, I, V
Indian Affairs, Office of the Assistant Secretary
25, VI
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 of
30, III
Surface Mining Reclamation and Enforcement, Office of
30, VII
Internal Revenue Service
26, I
International Boundary and Water Commission, United States and Mexico, United States Section
22, XI
International Development, United States Agency for
22, II
Federal Acquisition Regulation
48, 7
International Development Cooperation Agency, United States
22, XII
International Fishing and Related Activities
50, III
International Investment, Office of
31, VIII
International Joint Commission, United States and Canada
22, IV
International Organizations Employees Loyalty Board
5, V
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 United States
45, V
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 of
41, 60
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, Office of the Assistant Secretary for
41, 61; 20, IX
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
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 National Environmental Policy Foundation
36, XVI
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 Science
45, XVII
National Council on Disability
34, XII
National Counterintelligence Center
32, XVIII
National Credit Union Administration
12, VII
National Crime Prevention and Privacy Compact Council
28, IX
National Drug Control Policy, Office of
21, III
National Foundation on the Arts and the Humanities
45, XI
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 and Technology Policy
47, II
National Telecommunications and Information Administration
15, XXIII; 47, III
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 Commission
10, XVIII
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 Expenses
41, 304
Payment of Expenses Connected With the Death of Certain Employees
41, 303
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 Acquisition Regulation
48, 21
Federal Employees Health Benefits Acquisition Regulation
48, 16
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 Fellowships
1, IV
Presidential Documents
3
Presidio Trust
36, X
Prisons, Bureau of
28, V
Procurement and Property Management, Office of
7, XXXII
Productivity, Technology and Innovation, Assistant Secretary
37, IV
Public Contracts, Department of Labor
41, 50
Public and Indian Housing, Office of Assistant Secretary for
24, IX
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 National Security Council
47, II
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, Office of
34, III
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, Office of
30, VII
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 Treasury
12, V
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
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 Fund
12, XVIII
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 Commission
22, IV
United States and Mexico, International Boundary and Water Commission, United States Section
22, XI
Utah Reclamation Mitigation and Conservation Commission
43, III
Veterans Affairs Department
38, I
Federal Acquisition Regulation
48, 8
Veterans' Employment and Training Service, Office of the Assistant Secretary for
41, 61; 20, IX
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
48 CFR (10-1-02 Edition)
List of CFR Sections Affected

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
ChapterFederal Acquisition Circular No. 97-22
2116
Chapter1 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
1.106Table amended (OMB numbers)
2141, 53480
1.401(a), (c) and (d) amended
2118
Regulation at 66 FR 2118 eff. date delayed
14260
2.000Revised
2118
Regulation at 66 FR 2118 eff. date delayed
14260
2.101Amended
2118, 20896, 53484, 53488
Regulation at 66 FR 2118 eff. date delayed
14260
Amended; interim
22083, 27409, 53486, 65350, 65352, 65354
Corrected
27012
2.201Revised
2127
Regulation at 66 FR 2127 eff. date delayed
14260
3.302Introductory text added
2127
Regulation at 66 FR 2127 eff. date delayed
14260
3.401Amended; introductory text added
2127
Regulation at 66 FR 2127 eff. date delayed
14260
3.501-1Amended; introductory text revised
2127
Regulation at 66 FR 2127 eff. date delayed
14260
3.502-1Amended; introductory text revised
2127
Regulation at 66 FR 2127 eff. date delayed
14260
3.901Introductory text added
2127
4.501Removed
2127
Regulation at 66 FR 2127 eff. date delayed
14260
4.502(b)(4) amended; interim
27409
4.803(a)(4) revised; interim
27409
4.901Amended; heading revised
2127
Regulation at 66 FR 2127 eff. date delayed
14260
5.003Added; interim
27409
5.101Introductory text removed; (a) revised; interim
27409
5.102Revised; interim
27409
5.201Revised; interim
27410
5.202(a)(8) amended
2127
Regulation at 66 FR 2127 eff. date delayed
14260
(a)(13)(ii) revised; interim
27410
5.203Introductory text, (a), (b), (e) and (h) revised; (g) amended; interim
27410
5.204Revised; interim
27411
5.205Revised; interim
27411
Regulation at 65 FR 46056 confirmed
65370
5.206(a) introductory text revised; interim
27412
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
5.404-2Revised; interim
27412
5.501Amended; introductory text added
2127
Regulation at 66 FR 2127 eff. date delayed
14260
6.000Revised
2127
Regulation at 66 FR 2127 eff. date delayed
14260
6.003Removed
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
7.101Amended; 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
7.501Removed
2128
Regulation at 66 FR 2128 eff. date delayed
14260
8.001(c) revised
65367
8.003Revised
65368
8.501Amended; introductory text added
2128
Regulation at 66 FR 2128 eff. date delayed
14260
8.701Amended; introductory text added
2128
Regulation at 66 FR 2128 eff. date delayed
14260
8.801Amended; introductory text added
2128
Regulation at 66 FR 2128 eff. date delayed
14260
8.1101Amended; introductory text added
2128
Regulation at 66 FR 2128 eff. date delayed
14260
9.101Amended; heading revised
2128
Regulation at 66 FR 2128 eff. date delayed
14260
9.103Regulation 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
9.104-1Regulation 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
9.201Amended; 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
9.301Amended; 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
9.403Amended; introductory text added
2128
Regulation at 66 FR 2128 eff. date delayed
14260
9.501Amended; heading revised
2128
Regulation at 66 FR 2128 eff. date delayed
14260
9.601Amended
2128
Regulation at 66 FR 2128 eff. date delayed
14260
9.701Amended
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
11.601Amended; 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
12.209Revised
53484
12.503Heading 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
13.001Amended
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
14.203-2Revised; interim
27413
14.203-3Revised
2128
Regulation at 66 FR 2128 eff. date delayed
14260
14.404-2Regulation 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
15.001Amended
2129
Regulation at 66 FR 2129 eff. date delayed
14260
15.301Removed
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
15.401Amended; introductory text added
2129
Regulation at 66 FR 2129 eff. date delayed
14260
Amended
65369
15.402Introductory 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
15.408Table amended
2129
Regulation at 66 FR 2129 eff. date delayed
14260
15.503Regulation 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
15.601Amended
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
17.103Amended
2129
Regulation at 66 FR 2129 eff. date delayed
14260
17.201Removed
2129
Regulation at 66 FR 2129 eff. date delayed
14260
17.501Amended
2129
Regulation at 66 FR 2129 eff. date delayed
14260
17.603(c) added; interim
27415
19.001Amended; introductory text added
2129
Regulation at 66 FR 2129 eff. date delayed
14260
Regulation at 65 FR 46056 confirmed
65370
19.101Amended
2129
Corrected; CFR correction
13856
Regulation at 66 FR 2129 eff. date delayed
14260
19.102Regulation at 65 FR 46056 confirmed; (h) revised
65370
19.201Regulation at 65 FR 46056 confirmed
65370
19.202-2(c) revised; interim
27413
19.303Regulation at 65 FR 46056 and 46057 confirmed
65370
19.501Regulation at 65 FR 46056 confirmed
65370
19.701Amended; 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
19.803Regulation 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
19.805-1Regulation at 65 FR 46056 confirmed
65370
19.810Regulation at 65 FR 46057 confirmed
65370
19.812(a) revised
2141
19.901(c) amended
53500
19.902Heading and introductory text revised
2130
Regulation at 66 FR 2130 eff. date delayed
14260
19.1002Regulation at 65 FR 46056 confirmed
65370
19.1005Regulation at 65 FR 46057 confirmed; (a) table amended
65370
19.1007Regulation at 65 FR 46057 confirmed
65370
19.1102Regulation at 65 FR 46057 confirmed
65370
19.1201Regulation at 65 FR 46057 confirmed
65370
19.1202-1Regulation at 65 FR 46057 confirmed
65370
19.1202-2Regulation at 65 FR 46057 confirmed
65370
19.1202-4Regulation at 65 FR 46057 confirmed
65370
19.1203Regulation at 65 FR 46057 confirmed
65370
19.1306Regulation at 65 FR 46057 confirmed
65370
22.101-1(b) redesignated as (b)(1); (b)(2) added; interim
27415
22.103-1Amended; heading revised
2130
Regulation at 66 FR 2130 eff. date delayed
14260
22.401Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
22.403-4introductory 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
22.404-7Revised
53480
22.404-10Amended
53481
22.404-11Amended
53481
22.404-12Added
53481
22.406-3(e) added
53481
22.406-10(e) amended
53481
22.407(e), (f) and (g) added
53481
22.1001Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
22.1009-4(a) amended; (b) introductory text revised; interim
27414
22.1102Amended
2130
Regulation at 66 FR 2130 eff. date delayed
14260
22.1200—22.1208 (Subpart 22.12) Removed; interim
27417
22.1202Amended; 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
23Heading revised
65352
23.000Revised
65352
23.200—23.204 (Subpart 23.2)Revised
65352
23.503Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
23.700—23.705 (Subpart 23.7)Heading revised
65353
23.700Revised
65353
23.702(e) removed; (f) redesignated as (e); new (f) added
65353
23.703(a) and (b)(2) revised
65353
23.802Removed
2130
Regulation at 66 FR 2130 eff. date delayed
14260
23.904Amended
2130
Regulation at 66 FR 2130 eff. date delayed
14260
23.906Regulation at 65 FR 46058 confirmed
65370
24.101Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
25.003Amended
65350, 65371
26.301Removed
2130
Regulation at 66 FR 2130 eff. date delayed
14260
27.301Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
27.401Amended; introductory text added
2130
Regulation at 66 FR 2130 eff. date delayed
14260
28.001Amended; 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
29.301Removed
2131
Regulation at 66 FR 2131 eff. date delayed
14260
30.201-4Regulation at 65 FR 36029 confirmed
2137
30.201-5Regulation at 65 FR 36029 confirmed
2137
31.001Amended; introductory text added
2131
Regulation at 66 FR 2131 eff. date delayed
14260
31.205-17Amended; 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
31.205-21Regulation at 65 FR 80255 partially stayed until 12-29-01
17754
Amended
66990
31.205-32Amended
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
31.205-39Amended
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
32.001Amended; introductory text added
2131
Regulation at 66 FR 2131 eff. date delayed
14260
Amended
65354
32.006-2Amended; introductory text removed
2132
Regulation at 66 FR 2132 eff. date delayed
14260
32.007Added
65355
32.102(d) revised
65355
32.113(e) amended
2132
Regulation at 66 FR 2132 eff. date delayed
14260
32.202-2Amended
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
32.301Amended; 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
32.410Amended
2138
32.411Revised
2138
32.412(f) amended
2138
32.801Amended
2132
Regulation at 66 FR 2132 eff. date delayed
14260
32.900Revised
65355
32.901Revised
65355
32.902Amended; introductory text added
2132
Regulation at 66 FR 2132 eff. date delayed
14260
Amended; interim
53486
Revised
65355
32.903Removed; new 32.903 redesignated from 32.904 and revised
65355
32.904Redesignated 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
32.906Redesignated as 32.905; new 32.906 added
65355
32.907Revised
65355
32.907-1(a)(5) added; (b)(1) and (2) amended; interim
53486
Removed
65355
32.907-2Removed
65355
32.908(c)(4) added; interim
53486
Revised
65355
32.909Revised
65355
32.1102Amended; introductory text added
2132
Regulation at 66 FR 2132 eff. date delayed
14260
33.101Amended; introductory text added
2132
Regulation at 66 FR 2132 eff. date delayed
14260
33.201Amended; introductory text added
2132
Regulation at 66 FR 2132 eff. date delayed
14260
34.001Amended
2132
Regulation at 66 FR 2132 eff. date delayed
14260
34.005-2(a)(1) amended; interim
27414
34.101Amended
2132
Regulation at 66 FR 2132 eff. date delayed
14260
35.001Amended
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
35.017Amended; (b) introductory text added
2132
Regulation at 66 FR 2132 eff. date delayed
14260
36.102Amended; 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
37.101Amended; 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
37.104(a) amended
2133
Regulation at 66 FR 2133 eff. date delayed
14260
37.201Amended
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
39.000Revised
20897
39.002Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
39.104Added; interim
22085
39.201—39.204 (Subpart 39.2)Added
20897
42.001Removed
2133
Regulation at 66 FR 2133 eff. date delayed
14260
42.201(b) revised
2141
42.203Revised
2141
42.302(a) introductory text amended
2133
Regulation at 66 FR 2133 eff. date delayed
14260
(a)(68) revised
65353
42.503-2Amended
2133
Regulation at 66 FR 2133 eff. date delayed
14260
42.701Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
42.1201Removed
2133
Regulation at 66 FR 2133 eff. date delayed
14260
43.101Amended; 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
44.101Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
44.202-2(a) introductory text amended; (a)(4) revised
65368
46.101Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
46.701Removed
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
46.804Removed
53484
47.001Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
47.201Amended; introductory text added
2133
Regulation at 66 FR 2133 eff. date delayed
14260
47.401Amended; introductory text added
2134
Regulation at 66 FR 2134 eff. date delayed
14260
47.501Amended; introductory text added
2134
Regulation at 66 FR 2134 eff. date delayed
14260
48.001Amended; introductory text added
2134
Regulation at 66 FR 2134 eff. date delayed
14260
49.001Amended; introductory text added
2134
Regulation at 66 FR 2134 eff. date delayed
14260
50.001Amended; 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
ChapterSummary 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
1.106Table amended (OMB numbers)
13050
1.403Revised
13053
1.404Introductory text revised
13053
(c) amended
13068
1.701Amended
13053
1.703(a) amended
13053
1.705(b) revised
13053
2.101Amended
6114, 13055, 13059, 43513, 56118
Regulation at 66 FR 22083 confirmed
21533
Amended; interim
56121
Regulation at 65 FR 60544 confirmed
56122
3.104Revised
13059
3.104-1Revised
13059
3.104-2Revised
13059
3.104-3Revised
13059
3.104-4Revised
13059
3.104-5Revised
13059
3.104-6Revised
13059
3.104-7Revised
13059
3.104-8Revised
13059
3.104-9Revised
13059
3.104-10Removed
13059
3.104-11Removed
13059
3.302Amended
13055
3.704(c)(1) amended
13063
3.807Amended
6120
4.401Removed
6114
4.602Regulation at 65 FR 60544 confirmed
56122
4.802(a)(1), (2), (3), (c) introductory text and (d) amended; (e) revised
13063
5.001Revised
13053
5.002Regulation 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
7.101Amended
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
8.001Redesignated as 8.002
56119
8.002Redesignated as 8.003; new 8.002 redesignated from 8.001; (a) introductory text amended
56119
8.003Redesignated as 8.004; new 8.003 redesignated from 8.002
56119
8.004Redesignated from 8.003
56119
8.102Revised
13053
8.401(d) added
43515
(a) amended
56119
8.404(a) revised
56119
8.405-7Revised
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
14.202-5Revised
13055
14.205-2(b) amended
6120
14.402-2 Revised
6114
14.404-2Revised
6114
14.404-4Amended
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
15.408Table 15-2 amended
6115
15.609(e) revised
13056
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
17.103Amended
43514
17.104(b) amended
13054
(d) added
43514
17.500(b) revised
56120
17.503(b) introductory text revised
13054
19.000Regulation at 65 FR 60544 confirmed
56122
19.001Regulation at 65 FR 60544 confirmed
56122
19.201Regulation at 65 FR 60544 confirmed
56122
19.202-2Regulation at 65 FR 60544 confirmed
56122
19.202-4Regulation at 65 FR 60544 confirmed
56122
19.202-5Regulation at 65 FR 60544 confirmed
56122
19.301Regulation at 65 FR 60545 confirmed
56122
19.302(h)(4) amended
13054
19.304Regulation at 65 FR 60545 confirmed
56122
19.307(a)(2) removed; (a)(3) redesignated as (a)(2); new (a)(2) and (c) amended
13066
19.402Regulation 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
19.702Regulation at 65 FR 60545 confirmed
56122
19.703Regulation 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
19.705-2Regulations 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
19.705-7Regulations at 65 FR 60545 and 66 FR 53493 confirmed
56122
19.706Regulations at 65 FR 60545 and 66 FR 53493 confirmed
56122
19.708Regulations at 65 FR 60545 and 66 FR 53493 confirmed
56122
19.903(b)(1) and (2) amended; (b)(3) added; interim
56121
19.1302Revised
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
25.000Amended
21534
25.001(b) removed; (c) through (e) redesignated as (b) through (d); new (b) amended
21535
25.002Table amended
21535
25.003Amended; 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
25.402Amended
21535
25.403(a)(1) amended
21535
(b)(1) amended
56123
25.404Amended; interim
6118
25.405(a) amended
21535
(a), (b) and (c) amended
56124
25.406Amended
21535
25.501(d) amended
21535
25.502(c) introductory text, (c)(3), (4) introductory text, (d)(2) and (3) amended
21535
25.504Revised
21535
25.504-1Heading, (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
28.000Revised
13056
28.001Amended
13056
31.002Revised
6120
31.101Amended
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
32.000Introductory text revised
13054
32.001Amended
13054
32.703-2(a) introductory text amended
13054
32.705-1(a) revised
13054
32.1103(d) amended
6114
33.201Amended
43514
33.213(a) revised
43514
35.007(g) revised
13056
36.202Regulation at 66 FR 27415 eff. date delayed
10528
36.606(f) amended
6120
(a) and (c)(2) amended
56126
37.101Regulation at 66 FR 22083 confirmed
21533
37.102Regulation 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
49.001Amended
43514
51.101(b) amended
6121
51.103(b) removed; (c) redesignated as new (b)
43516
○