1
1.701 -- Definition.
"Determination and Findings" 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.
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 actions (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 provide 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.
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.
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.
2
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.
3
(2) If a contract has been awarded -(i) Effect appropriate contractual remedies, including profit recapture under the clause at 52.20310, 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 such subsections for anything of value; or
(2) Obtaining or giving anyone a competitive advantage in the award of a Federal agency
procurement contract; or
(B) The 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.
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
4
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.
4.502 -- Policy.
5
(a) The Federal Government shall use electronic commerce whenever practicable or costeffective. 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.
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
6
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.
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.
4.804 -- 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:
7
(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.
FAR -- Part 6
Competition Requirements
FAC 2001-06
(4 April 2002)
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), which are
addressed in other parts (e.g., Part 15).
6.001 -- Applicability.
8
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 acquisitions 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, including the exercise of priced options that were evaluated as part of
the initial competition (see 17.207(f)), that are within the scope and under the terms of an existing
contract;
(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.
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 appropriate under paragraph (a) of this
section, contracting officers shall request competitive proposals or use the other competitive procedures
under paragraph (c) or (d) of this section.
(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).
9
(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 or 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.
.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.
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.
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).
10
(b) No separate justification or determination and findings is required under this part to set aside
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.
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)).
11
(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
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.
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.
12
(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).
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
13
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).
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.
FAR -- Part 8
Required Sources of Supplies and Services
14
FAC 2001-09
(30 September 2002)
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.
8.002 Priorities for Use of Government Supply Sources.
(a) Except as required by 8.002, or as otherwise provided by law, agencies shall satisfy requirements
for supplies and services from or through the sources and publications listed below in descending order of
priority -(1) Supplies.
(i) Agency inventories;
(ii) Excess from other agencies (see Subpart 8.1);
(iii) Federal Prison Industries, Inc. (see Subpart 8.6);
(iv) Products available from the Committee for Purchase From People Who Are Blind or
Severely Disabled (see Subpart 8.7);
(v) Wholesale supply sources, such as stock programs of the General Services Administration
(GSA) (see 41 CFR 101-26.3), the Defense Logistics Agency (see 41 CFR 101-26.6), the
Department of Veterans Affairs (see 41 CFR 101-26.704), and military inventory control points;
(vi) Mandatory Federal Supply Schedules (see Subpart 8.4);
(vii) Optional use Federal Supply Schedules (see Subpart 8.4); and
(viii) Commercial sources (including educational and nonprofit institutions).
(2) Services.
(i) Services available from the Committee for Purchase From People Who Are Blind or Severely
Disabled (see Subpart 8.7);
(ii) Mandatory Federal Supply Schedules (see Subpart 8.4);
15
(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) of this section 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 or
services available from the Committee for Purchase From People Who Are Blind or Severely
Disabled also applies when contractors purchase the supplies or services for Government use.
FAR -- Part 9
Contractor Qualifications
FAC 2001-09
(30 August 2002)
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.
16
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.
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.
17
(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.
Subpart 9.2 --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; and
(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
18
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).
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 23.506(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 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.
19
(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.
FAR -- Part 10
Market Research
FAC 2001-12
(24 January 2003)
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 --
20
(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;
(iv) Before soliciting offers for acquisitions that could lead to a bundled contract (15 U.S.C.
644(e)(2)(A)); and
(v) Agencies shall conduct market research on an ongoing basis, and take advantage to the
maximum extent practicable of commercially available market research methods, to identify
effectively the capabilities, including the capabilities of small businesses and new entrants into
Federal contracting, that are available in the marketplace for meeting the requirements of the
agency in furtherance of defense against or recovery from terrorism or nuclear, biological,
chemical or radiological attack (Public Law 107-296, Sec. 858); 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;
21
(vi) Ensure maximum practicable use of recovered materials (see Subpart 23.4) and promote
energy conservation and efficiency; and
(vii) Determine whether bundling is necessary and justified (see 7.107) (15 U.S.C. 644(e)(2)(A)).
(viii) Assess the availability of electronic and information technology that meets all or part of the
applicability 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.
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
22
(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.
23
)
(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.
Subpart 11.5 -- Liquidated Damages
11.500 - Scope.
This subpart prescribes policies and procedures for using liquidated damages clauses in
solicitations and contracts for supplies, services, research and development, and construction.
This subpart does not apply to liquidated damages for subcontracting plans (see 19.705-7) or
liquidated damages related to the Contract Work Hours and Safety Standards Act (see Subpart 22.3).
11.501 -- Policy.
(a) The contracting officer must consider the potential impact on pricing, competition, and
contract administration before using a liquidated damages clause. Use liquidated damages
clauses only when-(1) The time of delivery or timely performance is so important that the Government may
reasonably expect to suffer damage if the delivery or performance is delinquent, and
(2) The extent or amount of such damage would be difficult or impossible to estimate accurately
or prove.
(b) Liquidated damages are not punitive and are not negative performance incentives (see
16.402-2). Liquidated damages are used to compensate the Government for probable damages.
24
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).
Subpart 11.6 -- Priorities and Allocations
) 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.
25
(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).
FAR -- Part 12
Acquisition of Commercial Items
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.
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
26
(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 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.
) 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.
27
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 52.212-5(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 Tailoring 52.212-4, Contract Terms and Conditions -Commercial Items. The following paragraphs of the clause at52.212-4, 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.
25.1001. Contract Terms and Conditions -- Commercial Items (Feb 2002)
(a) Inspection/Acceptance. The Contractor shall only tender for acceptance those items that
conform to the requirements of this contract. The Government reserves the right to inspect or
test any supplies or services that have been tendered for acceptance. The Government may
require repair or replacement of nonconforming supplies or reperformance of nonconforming
services at no increase in contract price. The Government must exercise its post-acceptance
rights --
28
(1) Within a reasonable time after the defect was discovered or should have been discovered;
and
(2) Before any substantial change occurs in the condition of the item, unless the change is due
to the defect in the item.
(b) Assignment. The Contractor or its assignee may assign its rights to receive payment due as
a result of performance of this contract to a bank, trust company, or other financing institution,
including any Federal lending agency in accordance with the Assignment of Claims Act (31
U.S.C.3727). However, when a third party makes payment (e.g., use of the Governmentwide
commercial purchase card), the Contractor may not assign its rights to receive payment under
this contract.
(c) Changes. Changes in the terms and conditions of this contract may be made only by written
agreement of the parties.
(d) Disputes. This contract is subject to the Contract Disputes Act of 1978, as amended (41
U.S.C. 601-613). Failure of the parties to this contract to reach agreement on any request for
equitable adjustment, claim, appeal or action arising under or relating to this contract shall be a
dispute to be resolved in accordance with the clause at FAR 52.233-1, Disputes, which is
incorporated herein by reference. The Contractor shall proceed diligently with performance of
this contract, pending final resolution of any dispute arising under the contract.
(e) Definitions. The clause at FAR 52.202-1, Definitions, is incorporated herein by reference.
(f) Excusable delays. The Contractor shall be liable for default unless nonperformance is caused
by an occurrence beyond the reasonable control of the Contractor and without its fault or
negligence such as, acts of God or the public enemy, acts of the Government in either its
sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes,
unusually severe weather, and delays of common carriers. The Contractor shall notify the
Contracting Officer in writing as soon as it is reasonably possible after the commencement of
any excusable delay, setting forth the full particulars in connection therewith, shall remedy such
occurrence with all reasonable dispatch, and shall promptly give written notice to the Contracting
Officer of the cessation of such occurrence.
29
(g) Invoice.
(1) The Contractor shall submit an original invoice and three copies (or electronic invoice, if
authorized) to the address designated in the contract to receive invoices. An invoice must
include -(i) Name and address of the Contractor;
(ii) Invoice date and number;
(iii) Contract number, contract line item number and, if applicable, the order number;
(iv) Description, quantity, unit of measure, unit price and extended price of the items delivered;
(v) Shipping number and date of shipment, including the bill of lading number and weight of
shipment if shipped on Government bill of lading;
(vi) Terms of any discount for prompt payment offered;
(vii) Name and address of official to whom payment is to be sent;
(viii) Name, title, and phone number of person to notify in event of defective invoice; and
(ix) Taxpayer Identification Number (TIN). The Contractor shall include its TIN on the invoice
only if required elsewhere in this contract.
(x) Electronic funds transfer (EFT) banking information.
(A) The Contractor shall include EFT banking information on the invoice only if required
elsewhere in this contract.
(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 shall have submitted correct EFT banking information in
accordance with the applicable solicitation provision, 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.
30
(C) EFT banking information is not required if the Government waived the requirement to pay by
EFT.
(2) Invoices will be handled in accordance with the Prompt Payment Act (31 U.S.C. 3903) and
Office of Management and Budget (OMB) prompt payment regulations at 5 CFR part 1315.
(h) Patent indemnity. The Contractor shall indemnify the Government and its officers, employees
and agents against liability, including costs, for actual or alleged direct or contributory
infringement of, or inducement to infringe, any United States or foreign patent, trademark or
copyright, arising out of the performance of this contract, provided the Contractor is reasonably
notified of such claims and proceedings.
(i) Payment. Payment shall be made for items accepted by the Government that have been
delivered to the delivery destinations set forth in this contract. The Government will make
payment in accordance with the Prompt Payment Act (31 U.S.C. 3903) and OMB prompt
payment regulations at 5 CFR part 1315. In connection with any discount offered for early
payment, time shall be computed from the date of the invoice. For the purpose of computing the
discount earned, payment shall be considered to have been made on the date which appears on
the payment check or the specified payment date if an electronic funds transfer payment is
made.
(j) Risk of loss. Unless the contract specifically provides otherwise, risk of loss or damage to the
supplies provided under this contract 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) Delivery of the supplies to the Government at the destination specified in the contract, if
transportation is f.o.b. destination.
(k) Taxes. The contract price includes all applicable Federal, State, and local taxes and duties.
(l) Termination for the Government's convenience. The Government reserves the right to
terminate this contract, or any part hereof, for its sole convenience. In the event of such
termination, the Contractor shall immediately stop all work hereunder and shall immediately
31
cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this
contract, the Contractor shall be paid a percentage of the contract price reflecting the
percentage of the work performed prior to the notice of termination, plus reasonable charges the
Contractor can demonstrate to the satisfaction of the Government using its standard record
keeping system, have resulted from the termination. The Contractor shall not be required to
comply with the cost accounting standards or contract cost principles for this purpose. This
paragraph does not give the Government any right to audit the Contractor's records. The
Contractor shall not be paid for any work performed or costs incurred which reasonably could
have been avoided.
(m) Termination for cause. The Government may terminate this contract, or any part hereof, for
cause in the event of any default by the Contractor, or if the Contractor fails to comply with any
contract terms and conditions, or fails to provide the Government, upon request, with adequate
assurances of future performance. In the event of termination for cause, the Government shall
not be liable to the Contractor for any amount for supplies or services not accepted, and the
Contractor shall be liable to the Government for any and all rights and remedies provided by law.
If it is determined that the Government improperly terminated this contract for default, such
termination shall be deemed a termination for convenience.
(n) Title. Unless specified elsewhere in this contract, title to items furnished under this contract
shall pass to the Government upon acceptance, regardless of when or where the Government
takes physical possession.
(o) Warranty. The Contractor warrants and implies that the items delivered hereunder are
merchantable and fit for use for the particular purpose described in this contract.
(p) Limitation of liability. Except as otherwise provided by an express warranty, the Contractor
will not be liable to the Government for consequential damages resulting from any defect or
deficiencies in accepted items.
(q) Other compliances. The Contractor shall comply with all applicable Federal, State and local
laws, executive orders, rules and regulations applicable to its performance under this contract.
32
(r) Compliance with laws unique to Government contracts. The Contractor agrees to comply with
31 U.S.C. 1352 relating to limitations on the use of appropriated funds to influence certain
Federal contracts; 18 U.S.C. 431 relating to officials not to benefit; 40 U.S.C. 327, et seq.,
Contract Work Hours and Safety Standards Act; 41 U.S.C. 51-58, Anti-Kickback Act of 1986; 41
U.S.C. 265 and 10 U.S.C. 2409 relating to whistleblower protections; 49 U.S.C. 40118, Fly
American; and 41 U.S.C. 423 relating to procurement integrity.
(s) Order of precedence. Any inconsistencies in this solicitation or contract shall be resolved by
giving precedence in the following order:
(1) The schedule of supplies/services.
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 52.212-4 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
33
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.
FAR -- Part 13
Simplified Acquisition Procedures
FAC 2001-12
34
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 ($7.500 for acquisitions as described in 13.201(g)(1)(i) and $15,000 for acquisitions as
described in 13.201(g)(1)(ii)) and not exceeding $100,000 ($200,000 for acquisitions described in
paragraph (2)(i) of the Simplified Acquisition Threshold definition at 2.101) 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.
35
(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.
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
36
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.)
(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.
Subpart 13.2 -- Actions at or Below the Micro-Purchase
Threshold
13.201 -(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.
1) For acquisitions of supplies or services that, as determined by the head of the agency, are to
be used to facilitate defense against or recovery from terrorism or nuclear, biological, chemical,
or radiological attack, the temporary micro-purchase thresholds are
37
(i) $7,500 for acquisitions by or for any agency if the award is made from January 24, 2003,
through November 24, 2003; and
(ii) $15,000 for acquisitions by or for the Department of Defense if award is made and funds are
obligated on or before September 30, 2003.
(2) Purchases using this authority must have a clear and direct relationship to the defense
against terrorism or nuclear, biological chemical, or radiological attack.
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.
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
38
(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.
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.
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.
39
(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:
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
13.304 -- [Reserved]
13.305 -- Imprest Funds and Third Party Drafts.
13.305-1 -- General.
40
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.
13.306 -- 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.
Subpart 13.4 -- Fast Payment Procedure
13.401 -- General.
41
(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).
FAR -- Part 14
Sealed Bidding
2001-09
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.
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:
42
(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.
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
43
(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 b
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.
44
(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.
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) of this
section, 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.
45
(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.
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.
FAR -- Part 15
Contracting by Negotiation
15.000 -- Scope of Part.
46
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).
15.002 -- 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).
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;
47
(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.
48
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.
15.402 -- 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
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).
49
(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 --
50
(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 that subcontract and the rationale supporting
15.403-3 -- Requiring Information Other Than Cost or Pricing Data.
51
(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, or the Contract Pricing Reference Guide cited at 15.4041(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-
52
1(b)). The fact that is 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)).
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, in the case of
existing contracts, the threshold specified in the contract:
(i) The award of any negotiated contract (except for undefinitized actions such as letter
contracts).
(ii) The award of a subcontract at any tier, if the contractor and each higher-tier subcontractor
were required to furnish cost or pricing data (but see waivers at 15.403-1(c)(4)).
(iii) The modification of any sealed bid or negotiated contract (whether or not cost or pricing data
were initially required) or any subcontract covered by paragraph (a)(1)(ii) of this subsection.
Price adjustment amounts 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
53
(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.
(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.
54
(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
) 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
55
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, costeffective, 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
56
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
inFAR
57
-- Part 16
Types of Contracts
FAC 2001-13
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-fixedprice 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.
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
58
contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment
contracts when acquiring commercial items.
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. The contracting officer may use a
firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance
or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on
factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
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.
16.203 -- Fixed-Price Contracts with Economic Price Adjustment.
16.203-1 -- Description.
59
(a) 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:
(1) 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.
(2) 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.
(3) 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.
(b) The contracting officer may use a fixed-price contract with economic price adjustment in
conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see
16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The
contract type remains fixed-price with economic price adjustment when used with these incentives.
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.
60
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.
16.204 -- 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.
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.
61
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.
16.206-2 -- 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;
62
(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.
16.207 -- 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.
63
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).
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.
64
(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.
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.
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.
65
(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.
Subpart 16.4 -- Incentive Contracts
16.401 -- General.
66
(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.
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 cost-plus-award-fee contracts (see 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;
67
(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.
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.
68
(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.
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;
69
(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.
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 --
70
(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.
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).
71
(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.
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;
72
(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.
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.
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 also may apply to other
acquisitions, if the use of both cost and technical performance incentives is desirable and
administratively practical.
73
(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.
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.
74
(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.
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.
16.501-1 -- Definitions.
As used in this subpart --
75
"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.
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 indefinitedelivery 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.
76
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.
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
77
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.
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;
78
(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
79
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
80
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.
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.
81
(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 taskorder 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
82
(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 t
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 as
a logical follow-on to an order already issued under the contract, provided that all awardees
were given a fair opportunity to be considered for the original order.
(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.
83
(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 performance,
or value).
(5) Task and Delivery Order Ombudsman. The head of the agency shall designate a task-order
contract and delivery-order contract 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 followon contract
84
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 --
85
(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
86
(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.
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.
Subpart 16.7 -- Agreements
16.701 -- Scope.
87
This subpart prescribes policies and procedures for establishing and using basic agreements
and basic ordering agreements. (See Subpart 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.)
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 applicability 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 --
88
(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
89
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) of this section) 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
90
(iii) Sign or obtain any applicable justifications and approvals, and any determination and
findings, and comply with other requirements in accordance with 1.602-1(b), 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.
FAR -- Part 17
Special Contracting Methods
FAC 2001-09
(30 September 2002)
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
91
(c) Leader company contracting.
Subpart 17.1 -- Multi-Year Contracting
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 multi-year 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).
17.104 -- General.
(a) Multi-year contracting is a special contracting method to acquire known requirements in
quantities and total cost not over planned requirements for up to 5 years unless otherwise
authorized by statute, even though the total funds ultimately to be obligated may not be available
at the time of contract award. This method may be used in sealed bidding or contracting by
negotiation.
(b) Multi-year contracting is a flexible contracting method applicable to a wide range of
acquisitions. The extent to which cancellation terms are used in multi-year contracts will depend
on the unique circumstances of each contract. Accordingly, for multi-year contracts, the agency
head may authorize modification of the requirements of this subpart and the clause at 52.217-2,
Cancellation Under Multi-year Contracts.
(c) Agency funding of multi-year 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 multi-year contracts. As provided by that
guidance, the funds obligated for multi-year contracts must be sufficient to cover any potential
cancellation and/or termination costs; and multi-year 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
multi-year contracts. As contrasted with cancellation, termination can be effected at any time
92
during the life of the contract (cancellation is effected between fiscal years) and can be for the
total quantity or a partial quantity (where as cancellation must be for all subsequent fiscal years'
quantities).
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 multi-year 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 multi-year
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
multi-year contract are realistic.
(c) The multi-year 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.
93
17.105-2 -- Objectives.
Use of multi-year 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.
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.
94
(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
FAR -- Part 18
[Reserved]
FAR -- Part 19
Small Business Programs
FAC 2001-12
(24 January 2003)
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
95
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.
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
96
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 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 product 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 that 15 employees and has average annual
receipts that do not exceed $1 million.
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
97
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
98
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
99
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
100
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 paragraphs (7)(i)(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 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
101
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 section, 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.
19.102 -- Size Standards.
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.
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.
102
(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).
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.
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.
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
103
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.
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.
104
(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 (d)(1)(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 postmarked 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
105
(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.
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 ($7,500 for
acquisitions as described in 13.201(g)(1)(i) or $15,000 for acquisitions as described in 13.201(g)(1)(ii)),
but not over $100,000, ($200,000 for acquisitions described in paragraph (2)(i) of the Simplified
Acquisition Threshold definition at 2.101), 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 setasides, 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
106
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)).
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 setasides 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)
107
(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. Negotiations shall be conducted with small
business concerns in the order of priority as indicated in the solicitation (but see (c)(2)(ii) of this
section). 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.
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. 19.805 -Competitive 8(a).
19.805-1 -- General.
108
(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;
(2) SBA accepts the requirement on behalf of a concern owned by an Indian tribe or an Alaska
Native Corporation; or
(3) The acquisition is conducted under the authority of the Homeland Security Act (Public Law
107-296) and (i) The acquisition is for supplies or services that, as determined by the head of the agency, are
to be used facilitate defense against or recovery from terrorism or nuclear, biological, chemical,
or radiological attack;
(ii) The solicitation is issued during the period of January 24, 2003, through November 24, 2003;
and
(iii) There is either an approved 13.501 justification for sole source acquisition, or an approved 6.303
justification using one of the authorities at 6.302-1, 6.302-2, 6-302-6, or 6.302-7.
(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
recommendations will be approved only on a limited basis and will be primarily granted where
technical competitions are appropriate or where a large number of responsible 8(a) firms are
available for competition. In determining whether a request to compete below the threshold will
109
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.
Subpart 19.9 -- Very Small Business Pilot Program
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.
Subpart 19.11 - Price Evaluation Adjustment for Small
Disadvantaged Business Concerns
DEVIATION:
OFFICE OF THE UNDER SECRETARY OF DEFENSE
3000 DEFENSE, PENTAGON
WASHINGTON, DC, 20301-3000
January 24, 2003
ACQUISTION AND TECHNOLOGY
In reply refer to:
DAR Tracking Number: 2003-O0001
MEMORANDUM FOR DIRECT'ORS OF DEFEENSE AGENCIES
DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,ASN (RD&A)
DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE (CONTRACTING) SAF/AQC
ACTING DEPUTY ASSISTANT SECRETARY OF THE ARMY (POLICY AND PROCUREMENT)
ASA(ALT)
SUBJECT : Suspension of the Price Evaluation Adjustment for Small Disadvantaged Businesses
Effective 30 days after the date of this memorandum, all Department of Defense (DoD) contracting.
activities shall suspend the use of the price evaluation adjustment for small disadvantaged businesses
110
(SDBs) in DoD procurements, as prescribed in the Federal Acquisition Regulation (FAR), Subpart 19.11
and Defense Federal Acquisition Regulation Supplement (DFARS) subpart 219.11.
Subsection 2323(e) of title 10, United States Code (USC) as amended by section 801 of the
Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 and section 816 of the
Bob Stump National Defense Authorization Act for Fiscal Year 2003, requires DoD to suspend
the regulation implementing the authority to enter into a contract for a price exceeding fair
market cost if the Secretary determines at the beginning of the fiscal year that DoD achieved the
5 percent goat established by subsection 2323(a) in the most recent fiscal year for which data
are available. The determination has been made that in fiscal year 2002 DoD exceeded the 5
percent goal established in 10 USC 2323(a) for contract awards to SDBs. Accordingly, the use
of the price adjustment prescribed in FAR 19.11 and Defense Federal Acquisition Regulation
Supplement (DFARS) subpart 219.11 is suspended for DoD.
This suspension applies to all solicitations issued during the period from February 24, 2003, to
February 23, 2004.
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
111
business concerns, the HUBZone set-aside shall be withdrawn and the requirement, if still valid,
set aside or small business concerns, as appropriate (see Subpart 19.5).
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) Except as provided in paragraph (c) of this section, 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.
(c) The contracting officer may award contracts exceeding the limits in paragraph (a)(2) of this
section to HUBZone small business concern on a sole source basis if the acquisition is
conducted under the authority of the Homeland Security Act (Public Law 107-296, Sec. 856(b))
and (1) The acquisition is for supplies or services that, as determined by the head of the agency, are
to be used to facilitate defense against or recovery from terrorism or nuclear, biological,
chemical, or radiological attack;
(2) The solicitation is issued, during the period of January 24, 2003, through November 24,
2003; and
112
(3) There is either an approved 13.501 justification for sole source acquisition, or an approved 6.303
justification using one of the authorities at 6.302-1, 6.302-2, 6.302-6, or 6.302-7.
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
113
FAR -- Part 20
[Reserved]
FAR -- Part 21
[Reserved]
FAR -- Part 22
Application of Labor Laws to Government
Acquisitions
FAC 2001-09
(30 September 2002)
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.
22.102 -- 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;
114
(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.
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.
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 multi-shifts 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
115
(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.
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.
22.301 -- Statutory Requirement.
The Act requires that certain contracts contain a clause specifying that no laborer or mechanic
doing any part of the work contemplated by the contract shall be required or permitted to work
more than 40 hours in any workweek unless paid for all such overtime hours at not less than 1
1/2 times the basic rate of pay.
22.302 -- Liquidated Damages and Overtime Pay.
(a) When an overtime computation discloses under-payments, 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
116
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.
Subpart 22.4 -- Labor Standards for Contracts Involving
Construction
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.
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
117
shall contain a clause (see 52.222-10) requiring contractors and subcontractors to comply with the
regulations issued by the Secretary of Labor under the Copeland Act.
22.403-3 -- Contract Work Hours and Safety Standards Act.
The Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333) requires that certain
contracts (see 22.305) contain a clause (see 52.222-4) specifying that no laborer or mechanic doing any
part of the work contemplated by the contract shall be required or permitted to work more than 40 hours in
any workweek unless paid for all additional hours at not less than 1 1/2 times the basic rate of pay (see
22.301).
22.403-4 -- Department of Labor Regulations.
(a) Under the statutes referred to in this 22.403 and Reorganization Plan No. 14 of 1950 (3 CFR
1949-53 Comp., p. 1007), the Secretary of Labor has issued regulations in Title 29, Subtitle A,
Code of Federal Regulations, prescribing standards and procedures to be observed by the
Department of Labor and the Federal contracting agencies. Those standards and procedures
applicable to contracts involving construction are implemented in this subpart.
(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.
118
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.
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
119
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.
Subpart 22.7 -- [Reserved]
Subpart 22.8 -- Equal Employment Opportunity
22.800 -- Scope of Subpart.
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).
22.804 -- Affirmative Action Programs.
120
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.
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.
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.
22.1002 -- Statutory Requirements.
121
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.
22.1002-4 -- Application of the Fair Labor Standards Act Minimum Wage.
122
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.
22.1003-6 -- 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.
FAR -- Part 23
Environment, Conservation, Occupational
Safety, and Drug-Free Workplace
FAC 2001-02
23.000 -- Scope of Part.
123
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.
23.000 -- Scope of Part.
This part prescribes acquisition policies and procedures supporting the Government's program
for ensuring a drug-free workplace and for protecting and improving the quality of the
environment 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.
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's Federal 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-
124
(1) ENERGY STAR® at http://www.energystar.gov/; and
(2) FEMP at http://www.eren.doe.gov/femp/procurement.
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
23.302 -- 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)) 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.
125
(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
Subpart 23.4 -- Use of Recovered Materials
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. 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 matter, products
that meet reasonable performance requirements and that are composed of the highest
percentage of recovered materials practicable.
23.404 - Agency Affirmative Procurement Programs.
(a) For EPA-designated products, and 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) Recovered materials preference program;
(2) And 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-
126
(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 EPAdesignated products at or below the micro-purchase threshold.
Subpart 23.5 -- Drug-Free Workplace
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. 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
127
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 subparagraph (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 position 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
128
(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.
Subpart 23.7 -- Contracting for Environmentally Preferable and
Energy-Efficient Products and Services
23.700 - Scope.
This subpart prescribes policies for acquiring environmentally preferable and products and
services.
23.703 - Policy.
Agencies must--
129
(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 EPAissued 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 shelflife, and process improvements.
(7) Consider the use of biobased products.
Subpart 23.8 -- Ozone-Depleting Substances
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-dep
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:
130
(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).
Subpart 23.9 -- Toxic Chemical Release Reporting
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).)
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 the EPCRA, section 313 (42 U.S.C. 11023), and the PPA, section 6607 (42 U.S.C.
13106), the owner or operator of certain manufacturing facilities required to submit annual
reports on toxic chemical releases and waste management activities to the Environmental
Protection Agency (EPA) and the States.
Subpart 23.9 -- Toxic Chemical Release Reporting
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).)
131
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 the EPCRA, section 313 (42 U.S.C. 11023), and the PPA, section 6607 (42 U.S.C.
13106), the owner or operator of certain manufacturing facilities required to submit annual
reports on toxic chemical releases and waste management activities to the Environmental
Protection Agency (EPA) and the States.
Subpart 23.9 -- Toxic Chemical Release Reporting
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).)
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 the EPCRA, section 313 (42 U.S.C. 11023), and the PPA, section 6607 (42 U.S.C.
13106), the owner or operator of certain manufacturing facilities required to submit annual
reports on toxic chemical releases and waste management activities to the Environmental
Protection Agency (EPA) and the States.
132
FAR -- Part 24
Protection of Privacy and Freedom of
Information
24.000 -- Scope of Part.
FAR -- Part 25
Foreign Acquisition
FAC 2001-12
(24 January 2003)
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.
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,
133
the dollar value of the acquisition determines which of the trade agreement 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
FAR -- Part 26
Other Socioeconomic Programs
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, 20, 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.
134
"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, 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.
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.
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.
Subpart 26.3 -- Historically Black Colleges and Universities and
Minority Institutions
26.300 -- Scope of Subpart.
135
(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
FAR -- Part 27
Patents, Data, and Copyrights
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.
136
(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.
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.
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.
27.203 -- 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.
27.204 -- Reporting of Royalties -- Anticipated or Paid.
137
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.
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.
Subpart 27.4 -- Rights in Data and Copyrights
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
138
(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.
FAR -- Part 28
Bonds and Insurance
FAC 2001-06
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 insurance28.102-1 - 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).
139
(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.
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.
Subpart 28.3 -- Insurance
28.301 -- Policy.
Contractors shall be required to carry insurance under the following circumstances:
(a)
140
(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 selfcoverage, 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.
) 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).
FAR -- Part 29
Taxes
FAC 2001 13
(17 April 2003)
29.000 -- Scope of Part.
141
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.
FAR -- Part 30
Cost Accounting Standards Administration
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.
142
(iii) Part III -- Preambles Published under the FAR System.
FAR -- Part 31 Contract Cost Principles and
Procedures
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.
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.
143
(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));
144
(15) Costs of public relations and advertising; and
(16) Training and education costs (see 31.205-44(h)).
) 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.
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
145
(4) Any significant deviations from the contractor's established practices.
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.
FAR -- Part 32
Contract Financing
FAC 2001-13
(17 April 2003)
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
146
(i) Electronic funds transfer payments.
32.001 -- Definitions.
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 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.
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
147
(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.
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.
32.104 -- Providing Contract Financing.
148
(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
149
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 or $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.
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)).
Subpart 32.3 -- Loan Guarantees for Defense Production
150
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
FAR -- Part 33
Protests, Disputes, and Appeals
FAC 2001-08
FAR -- Part 34
Major System Acquisition
Subpart 34.0 -- General
34.000 -- Scope of Part.
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
151
(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.
34.005-3 -- 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 fullscale 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
152
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
FAR -- Part 35
Research and Development Contracting
FAC 2001-06
(4 April 2002)
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.
153
(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
FAR -- Part 36 Construction and Architect -Engineer Contracts
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.
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.
Subpart 36.2 -- Special Aspects of Contracting for Construction
36.201 -- Evaluation of Contractor Performance.
154
(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
Subpart 36.3 -- Two-Phase Design-Build Selection Procedures
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 twophase design-build selection procedures, the contracting officer shall conduct the evaluation in
paragraph (b) of this section.
155
(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.
Subpart 36.6 -- Architect-Engineer Services
36.600 -- Scope of Subpart.
This subpart prescribes policies and procedures applicable to the acquisition of architectengineer services.
36.601 -- Policy.
36.601-1 -- Public Announcement.
156
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. 92582, as amended; 40 U.S.C. 541-544.)
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).)
FAR -- Part 37
Service Contracting
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
37.102 -- Policy.
(a) Performance-based contracting methods (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 extend 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.
157
(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.
37.102 -- Policy.
(a) Performance-based contracting methods (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 extend 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.
(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.
158
(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.
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;
159
(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 FFRDC's contract meets the criteria of 35.017-3;
or
(3) Such functions are otherwise authorized by law.
FAR -- Part 38
Federal Supply Schedule Contracting
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
160
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
FAR -- Part 39
FAR -- Part 39
Acquisition of Information Technology
FAC 2001-11
(January 1, 2003)
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.
FAR -- Part 40
[Reserved]
FAR -- Part 41
Acquisition of Utility Services
Subpart 41.1 -- General
41.100 -- Scope of Part.
161
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.
FAR -- Part 42
Contract Administration and Audit Services
FAC 2001-04
(20 February 2002)
42.000 -- Scope of Part.
This part prescribes policies and procedures for assigning and performing contract
administration and contract audit services.
42.001 - [Reserved].
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.
Subpart 42.1 -- Contract Audit Services
162
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.
42.003 -- 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.
Subpart 42.1 -- Contract Audit Services
163
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.
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.
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.
164
(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 allow ability 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.
165
(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 multiyear
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 52.2459, 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.
166
(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 transportation 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.
167
(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.
168
(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) Negotiate and execute one-time supplemental agreements providing for the extension of
contract delivery schedules up to 90 days on contracts with an assigned Criticality 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;
169
(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 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
170
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 change 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.
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.
42.1103 -- Policy.
The contractor is responsible for timely contract performance. The Government
will maintain surveillance of contractor performance as necessary to protect its
171
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.
172
FAR -- Part 43
Contract
Modifications
43.000 -- Scope of Part.
FAR -- Part 44
Subcontracting
Policies and
Procedures
FAC 2001-02
(19 February 2002)
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.
Subpart 44.2 -- Consent to Subcontracts
44.201 -- Consent and Advance Notification Requirements.
44.201-1 -Consent requirements.
[*see DoD deviation below]
173
(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
the subcontract is required for cost-reimbursement, time-and-materials, laborhour, or letter contracts, and also for unpriced actions (including unpriced
modifications and unprice 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 architectengineer services.
(d)* The contracting officer's written authorization for the contractor to purchase
from Government sources (see Part 51) constitutes consent
44.202-2 -- Considerations.
174
(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?
175
(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) of this
section 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-andmaterials, or labor-hour basis
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
176
value of the 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
FAR -- Part 45
Government
Property
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 nonGovernment 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
45.102 -- Policy.
177
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
178
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) of this section 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) of this section, 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 (FixedPrice 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 LaborHour 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.
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.
179
(b) The contracting officer or the representative assigned the responsibility as
property administrator shall review contractors' property control systems to
ensure 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) of this section.
(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.
180
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
designee 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.
181
(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 costplus-fee basis;
(3) A contractor is performing on a Government establishment or
installation;
182
(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.
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.
FAR -- Part 46
Quality Assurance
FAC 2001-04
(8 February 2002)
46.000 -- Scope of Part.
This part prescribes policies and procedures to ensure that supplies and services
acquired
Agencies shall ensure that --
183
(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).
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;
184
(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)).
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).
185
(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)).
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 --
186
(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.
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
187
(f) It is determined for other reasons to be in the Government's interest.
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.
FAR -- Part 47
Transportation
188
FAC 2001 13
(17 April 2003)
47.000 -- Scope of Part.
(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.
47.104-2 -- 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 con-tracts, 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.
189
(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) of this section.
(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
FAR -- Part 48
Value Engineering
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 part--
190
"Acquisition savings" means savings resulting from the application of a value
engineering change proposal (VECP) to contracts awarded by the same
contracting office or its successor for essentially the same unit. Acquisition
savings include -(1) Instant contract savings, which are the net cost reductions on the
contract under which the VECP is submitted and accepted, and which are
equal to the instant unit cost reduction multiplied by the number of instant
contract units affected by the VECP, less the contractor's allowable
development and implementation costs;
(2) Concurrent contract savings, which are net reductions in the prices of
other contracts that are definitized and ongoing at
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.
191
(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 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.
48.104 -- 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-rateinitial-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
192
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.
48.104-2 -- Sharing Acquisition Savings.
(a) Supply or service contracts.
(1) The sharing base for acquisition savings is the number of affected end
items on contracts of the contracting office accepting the VECP. The
sharing rates (Government/contractor) for net acquisition savings for
supplies and services are based on the type of contract, the value
engineering clause or alternate used, and the type of savings, as follows:
Government/Contractor Shares of Net Acquisition Savings
(Figures in Percent)
Sharing Agreement
Contract Type
Incentive (Voluntary)
Program Requirement
(Mandatory)
Instant
Concurrent and
Instant
Concurrent and
193
contract rate
future rate
contract rate
future contract
rate
Fixed-price
* 50/50
* 50/50
75/25
* 75/25
(**)
* 50/50
(**
75/25
*** 75/25
*** 75/25
85/15
85/15
(includes fixedprice-award-fee;
excludes other
fixed-price
incentive
contracts).
Incentive (fixedprice or cost)
(other than
award fee)
Costreimbursement
(includes costplus-award-fee;
excludes other
cost-type
incentive
contracts)
* The Contracting Officer may increase the Contractor's sharing rate to as
high as 75 percent for each VECP.
** Same sharing arrangement as the contract's profit or fee adjustment
formula.
194
FAR -- Part
49
Termination
of Contracts
FAC 2001-08
(29 July 02)
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. 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 acknowledgement 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
195
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.
196
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 --
197
(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;
198
(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
199
(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.
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
200
(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.
201
(c) When computing profit on the terminated portion of a construction contract,
the contracting officer shall -(1) Comply with paragraphs (a) and (b) of this section;
(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) of this section. 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 (b)(1), (2), and (3) of this
section, 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 (c)(1) and (2) of this section,
202
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.
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.
203
(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.
204
(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) of this section, 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) of this section cannot be accomplished or are
considered inadequate.
205
(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 49.4027).
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) of this section).
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,
206
this notice may be made a part of the notice described in subparagraph (e)(1) of
this section. 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,
207
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
208
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.
49.402-4 -- Procedure in Lieu of Termination for Default.
209
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.
49.402-6 -- Repurchase Against Contractors 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
210
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 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.
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
shall, on the basis of legal advice, take appropriate action as prescribed in
Subpart 32.6 to assert the Government's demand for the damages.
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).
211
(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).
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 resolve the defaulting contractor's residual rights, including assertions
to unpaid prior earnings.
212
(e) Any takeover agreement must require the surety to complete the contract and
the Government to pay the surety's cost 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 such
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.
49.405 -- Completion by Another Contractor.
213
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.
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.
FAR -- Part 50
Extraordinary
Contractual Actions
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).
50.001 -- Definitions.
214
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.
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.
215
(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., rescission
or reformation for mutual mistake, are now available under the authority of the
Contract Disputes Act of 1978. In accordance with subparagraph (a)(2) of this
section, 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.
50.203 -- 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 House Committees on Armed Services are notified
216
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.
217
(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.