inspection system acceptable to the Government and records of all inspection work performed by the contractor. The contractor's inspection system should be such as to provide reasonable assurance that the supplies subject to inspection will conform to contract requirements and should include any quality control procedures necessary to this end.

(b) Where quality control procedures are considered necessary (as may be the case, for example, when complex items are being purchased), a clause specifically requiring the contractor to maintain a quality control system acceptable to the Government shall be include in the contract unless the items are being purchased under specifications which in themselves contain adequate quality control provisions. In addition, the contract shall specify the quality control requirements to be complied with by the contractor, including control measures for manufacturing processes and documenttation pertinent to quality, testing and inspection, fabrication, and delivery.

(c) Government inspection activities shall plan and conduct systematic evaluation and verification of contractors' inspection systems, quality control systems, and supplies, to the extent necessary to obtain maximum assurance of quality production by the contractor consistent with efficient use of manpower and facilities. In any case, however, the contractor shall be required to perform all examinations and tests called for by the contract requirements except those which are reserved for performance by the Government.

§ 1-14.105 Places of inspection. § 1-14.105-1 General.

(a) Inspection of supplies and services shall be made at such times and places (including any stage and period of manufacture, and including subcontractors' plants) as are necessary to determine that the supplies and services conform to contract requirements. Each contract shall designate the place or places at which the Government intends to perform inspection. Where the contract provides for inspection at source, the place or places of inspection may not be changed without the authorization of the contracting officer.

(b) Where a contract provides for delivery and acceptance at destination (see § 1-14.203) and the Government inspects the supplies for conformance with con

tract specifications at a place other than destination, the supplies shall not be reinspected at destination for such conformance. However, such supplies should be examined at destination for damage in transit, quantity, and possible substitution or fraud.

§ 1-14.105-2 Inspection at source.

Supplies and services shall be inspected at source where:

(a) Inspection at any other point 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 instruments, gauges, or facilities required for inspection are available only at source;

(d) Inspection at any other point would destroy or require the replacement of costly special packing and packaging;

(e) A quality control system is required by the contract or inspection during performance of the contract is essential;

(f) Supplies requiring technical inspection are destined for points of embarkation for overseas shipment; or

(g) It is otherwise determined to be in the best interest of the Government. § 1-14.105-3 Inspection at destination. Supplies and services shall be inspected at destination where:

(a) Deliveries of supplies purchased "off the shelf" are made from a point other than that of manufacture;

(b) Necessary testing equipment is located only at destination;

are

(c) Products being purchased processed under direct control of the National Institutes of Health or the Food and Drug Administration, Department of Health, Education, and Welfare;

(d) Perishable subsistence supplies are purchased within the United States, except that perishable subsistence supplies destined for overseas shipment will normally be inspected for condition and quantity at points of embarkation;

(e) Brand name products are purchased for authorized resale (through commissaries or similar facilities), except that where supplies are destined for direct overseas shipment, inspection (and acceptance) may be accomplished by the contracting officer or his 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; or

(f) It is otherwise determined to be in the best interest of the Government.

§ 1-14.106 Inspection of small purchases ($2,500 or less).

(a) This § 1-14.106 applies to all small purchases, including items described in Federal and military specifications, and qualified products. In determining the type and extent of Government inspection to be required on small purchases, the smallness of possible losses and the likelihood of uncontested replacement of defective articles shall be considered.

(b) Generally, inspection of small purchases shall be at destination. Purchasers, users, and installers may be considered inspectors for small purchase inspection purposes.

(c) Unless detailed technical inspection is necessary, inspection shall consist of examination of (1) type and kind; (2) quantity; (3) damage; (4) operability, if readily determinable; and (5) packaging and marking, if applicable.

(d) Detailed technical inspection shall be performed if special specifications are involved or if defective supplies are likely to harm personnel or equipment. Such inspection may also be necessary for other reasons (e.g., where the use of defective supplies may cause significant loss in program time or significant increase in program costs).

(e) Detailed technical inspection may be limited to those characteristics which are special or which are likely to cause harm. Where repetitive purchases are made of the same item from the same manufacturing source and there is good reason to rely upon the integrity of the manufacturer because of known safeguards and a significant history of defect-free purchases, such inspection may be further limited to a check of occasional purchases.

without additional cost to the Government. The standard inspection clause in 81-7.101-5 reserves to the Government the right to charge the contractor the cost of Government reinspection and retests because of prior rejection.

(b) Notices of rejection of nonconforming supplies or services shall be in writing if (1) the supplies have been delivered to a point other than the contractor's plant; (2) the contractor persists in offering nonconforming supplies or services for acceptance; or (3) delivery or performance is, or is likely to be, overdue without excusable cause. The reasons for rejection shall be stated. Since under certain circumstances acceptance may be implied where timely notice of rejection is not furnished, notices of rejection should be furnished promptly to contractors.

§ 1-14.108 Government inspection of supplies under subcontracts.

Government inspection of subcontracted supplies shall be made only when required in the interest of the Government. The primary purpose of subcontract inspection is to assist the Government inspector at the prime contractor's plant in determining the conformance of supplies with contract requirements. It does not relieve the prime contractor of any of his responsibilities under the contract. Supplies that do not qualify under the criteria in § 1-14.105-2 for Government inspection at source shall not be inspected by the Government at the subcontractor's plant. Supplies for which certificates, records, reports, and similar evidence of quality are available at the prime contractor's plant shall not be Government inspected at the subcontractor's plant except occasionally to verify such evidence. However, Government inspection shall be performed at a subcontractor's plant whenever the Government contract requires. All oral and written statements and contract provisions relating to the inspection of subcontracted supplies shall be so worded as not to (a) affect the contractual relationship between the prime contractor and the Government or between the prime contractor and the subcontractor, (b) establish a contractual relationship between the Government and the subcontractor, or (c) constitute a waiver of the Government's right to inspect or reject supplies.

ernments.

As used in Government contracts, "acceptance" generally means the act of an authorized representative of the Government by which the Government assents to ownership by it of existing and identified supplies, or approves specific services rendered, as partial or complete performance of the contract. Except as provided in § 1-14.206, and subject to other terms and conditions of the contract, the Government thereby acknowledges, among other things, that the supplies or services are in conformity with contract requirements, including those of quality, quantity, packaging, and marking. Depending upon the provisions of the contract, acceptance may be effected before delivery, at the time of delivery, or after delivery. However, supplies and services shall not be accepted prior to inspection, except as permitted by § 1-14.205. Acceptance shall ordinarily be evidenced by execution of an acceptance certification on an inspection or receiving report form. Where acceptance is accomplished at a point other than destination, supplies shall not be reinspected at destination for acceptance purposes. However, such supplies should be examined at destination for damage in transit, quantity, and possible substitution or fraud.

ance.

Acceptance is the responsibility of the contracting officer or his authorized representative. Where a contracting activity uses services of another Federal agency for the purpose of acceptance, the acceptance by the other agency is binding on the activity for which the services are performed.

§ 1-14.205 Certificates of conformance.

A contractor's certification that supplies or services comply with contract requirements may be considered a proper element incident to acceptance of supplies or services. Standard or commercial items, or supplies of a simple, noncritical nature, may be accepted solely on the basis of a contractor's certificate of conformance if:

(a) The contracting officer or his authorized representative determines (1) that acceptance on that basis is in the best interest of the Government, and (2) that, because of knowledge of the supplier's reputation or past performance, it is very likely that the supplies furnished will be acceptable and that any defective supplies would be replaced or corrected by the supplier without contest; and

(b) The contract (initially, or by amendment) (1) reserves to the Government the right after acceptance to inspect the supplies within a reasonable time after delivery and to reject defective items, and (2) imposes upon the contractor the obligation, in the event of such rejection, to promptly replace or correct the defective items or to reimburse the Government therefor.

§ 1-14.206 Acceptance of supplies or services not conforming with contract requirements.

Except as provided in this § 1-14.206, supplies or services tendered for acceptance which do not conform with contract requirements shall be rejected (see § 1-14.107). However, if it is in the Government's best interest, for reasons of economy or the urgency of the requirement, acceptance of supplies or services which do not meet all contract requirements may occasionally be desirable. Prior to such acceptance, the contracting officer shall obtain the approval of the requiring activity. If the nonconformity is a significant deviation from contract requirements, or if the contracting officer determines that a

price reduction is appropriate, the acceptance of nonconforming supplies or services shall be covered by an appropriate modification of the contract. A deviation is significant if it adversely affects safety; durability; performance; interchangeability of parts or assemblies; weight, where weight is a significant consideration; or any other basic objective of the specification. Where acceptance of nonconforming supplies or services is to be at a reduction in price, the amount of the reduction shall be fair and reasonable (see paragraph (b) of the standard inspection clause in § 17.101-5).

1-15.205-31

Precontract costs.

Professional service costs-legal, accounting, engineering, and other.

1-15.205-32 Profits and losses on disposi

1-15.205-33

1-15.205-34

tion of plant, equipment, or other capital assets.

Recruitment costs.

Rental costs (including sale and leaseback of facilities).

1-15.205-35 Research and

costs.

development

1-15.205-36 Royalties and other costs for

use of patents.

1-15.105

1-15.106

Use of cost principles for fixedprice type contracts.

1-15.205-37

Selling costs.

1-15.107

Advance understanding
particular cost items.

Subpart 1-15.2-Principles and Procedures for
Use in Cost-Reimbursement Type Supply and
Research Contracts With Commercial Organi-
zations

Basic considerations.

Composition of total cost.

Factors affecting allowability of costs.

Definition of reasonableness.

Definition of allocability.

Indirect costs.

Application of principles and

procedures.

Selected costs.

1-15.205-42

Service and warranty costs.
Severance pay.

Special tooling and special test

equipment costs.

Taxes.

Termination costs.

1-15.201

1-15.201-1

1-15.201-2

1-15.201-3

1-15.201-4

1-15.201-5

Credits.

1-15.203

1-15.204

1-15.205

1-15.205-1

1-15.205-2

Bad debts.

1-15.301-3

Advertising costs.

1-15.301

1-15.301-1

1-15.301-2

Purpose and scope. Objectives.

Policy guides.

Application.