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formats of inventory schedules set forth in § 1-8.803 may be used.

§ 1-8.513-3 Scrap and salvage.

The prime contractor and each higher tier subcontractor shall review any recommendations of their respective subcontractors concerning scrap and salvage. If the prime contractor or the higher tier subcontractor determines that any of the materials are serviceable or usable materials, he shall require the subcontractor to submit revised inventory data in accordance with such determination. The Government shall not be bound by any determination that material is scrap or salvage unless the determination and any sale of the material as scrap or salvage have the prior approval of the contracting officer. A scrap warranty running to the Government shall be obtained wherever such material is sold as scrap.

§ 1-8.513-4 Serviceable or usable property.

Subcontractor termination inven tory, which is not purchased or retained at cost and which is determined to be serviceable or useable property, shall be disposed of by:

(a) Submission for screening and possible redistribution within the Government or donation; or

(b) Sales to third parties (including purchases or retentions at less than cost by the subcontractor, a higher tier subcontractor, or the prime contractor) made in general conformity with § 1-8.507.

81-8.514-2 Right of Government to review

inventory schedules. (a) Regardless of any disposition of termination inventory pursuant to this Subpart 1-8.5, the Government shall continue to have the right, prior to final settlement, to require additional information concerning such inventory, to contest its allocability to the terminated portion of the contract, or to exclude such inventory from the settlement on any prior grounds.

(b) If, prior to final settlement, the Government determines that any portion of the termination inventory is not allocable to the terminated contract or should be excluded from the settlement on any other grounds, the cost thereof, and any credits related thereto, shall be excluded from the settlement. If the contractor has actually paid to the Government the proceeds realized from the disposition of such inventory, the Government shall repay such proceeds to the contractor. If such inventory has been delivered to the Government, normally it should be returned to the contractor at the contractor's expense and risk. § 1-8.515 Accounting for termination in

ventory. (a) Prior to final settlement with the prime contractor, all termination inventory of the prime contractor and his subcontractors must be accounted for as follows:

(1) By purchase or retention at cost by the contractor or subcontractor, or by return to suppliers, and omission or withdrawal of such inventory from the contractor's inventory schedules;

(2) By transfer to the Government;
(3) By donation (see § 1-8.508);

(4) By sale (including purchase or retention at less than cost by the contractor or subcontractor) and application of the proceeds or agreed value in reduction of the contractor's claim, or otherwise to the credit of the Gover ment;

(5) By destruction or abandonment; or

(6) By other disposition in accordance with the terms of the contract and of this Part 1-8.

(b) In the event that any termination inventory not disposed of is lost, destroyed, damaged, or for any reason

81-8.514 Adjustment prior to final settle



$ 1-8.514-1 Duty of contractors to inform

Government. By the terms of the inventory schedule certificate contained on the formats set forth in § 1-8.803 (also see § 18.503-4), the contractor or subcontractor is required to inform the Government of any substantial change in the status of his termination inventory arising between the date of submission of his termination inventory schedules and final disposition of such inventory.

cannot be delivered by the contractor fault or that the default was excusat the time of settlement of his termi- able, each of the clauses provides that nation claim, such termination inven the notice of termination shall be tory, unless the Government has ex- deemed to have been issued under the pressly assumed the risk involved or termination for convenience provisions unless the contract provides otherwise, of the contract, and that the rights shall be accounted for as inventory and obligations of the parties shall be purchased or retained by the contrac

governed accordingly. tor, and the fair value of the inven

(c) If no termination for convenience tory, as determined by the contracting

clause is included in the contract and officer, shall be deducted from the ter

if, after issuance of a notice of termimination claim.

nation for default, it is determined for

any reason that the contractor was Subpart 1-8.6—Termination for

not in default or if, in connection with Default.

a construction contract, it is deter

mined that the default was excusable, $ 1-8.600 Scope of subpart.

each of the clauses in $$ 1-8.707, 1This subpart sets forth policies and 8.709-1, and 1-8.710 provides that the procedures for the utilization and ap contract shall be equitably adjusted to plication of the Default clause set compensate for such termination. forth in § 1-8.707 for fixed-price (d) Notwithstanding the provisions supply contracts, the Termination for of (b) and (c) of this $ 1-8.601, the conDefault-Damages for Delay-Time Ex

tract may be reinstated by mutual tensions clauses set forth in § 1-8.709

agreement where the contracting offifor fixed-price construction contracts,

cer determines that such reinstatethe Default clause set forth in § 1

ment is in the best interest of the Gov8.710 for certain fixed-price research

ernment. and development contracts, and the Termination for Default or for Con

(e) In addition to the termination

rights and remedies provided in the venience of the Government clause set forth in 8 1-8.702 for cost-reimburse

contract clauses set forth in $$ 1-8.702,

1-8.707, 1-8.709, and 1-8.710, the Govment type contracts. The scope of this subpart does not include default with

ernment may in appropriate cases respect to individual purchase orders pursue termination or cancellation issued under Federal Supply Schedule rights and remedies provided by law or contracts, for which there are special by other clauses of the contract. instructions in section 303.03, Chapter II. Title I. Personal Property Manage 1-8.602 Default termination of fixedment, Regulations of the General price supply contracts. Services Administration.

81-8.602-1 The Government's right to ter$ 1-8.601 General.

minate for default. (a) Termination for default is gener- Under contracts containing the Deally the exercise of a contractual right fault clause in § 1-8.707, the Governof the Government to terminate, in ment has the right, subject to the whole or in part, the contractor's right notice requirements of the clause with to proceed by reason of his failure, respect to (b) and (c) of this § 1-8.602actual or anticipatory, to perform his 1, to terminate the whole or any part obligations under the contract.

of the contract for default if the con(b) If the contract provides for its tractor (a) fails to make delivery of termination for convenience of the the supplies or to perform the services Government and if, after issuance of a within the time

within the time specified in the connotice of termination for default

tract, (b) fails to perform any other under one of the clauses set forth in

provision of the contract, or (c) fails to $ 1-8.702, § 1-8.707, § 1-8.709-1, or $ 1

make progress so as to endanger per8.710, it is determined for any reason

formance of the contract. that, under the provisions of the clause, the contractor was not in de

$ 1-8.602-2 Effect of termination for de ors' claims; or whether it is feasible to fault.

obtain similar bonds to cover out(a) Under a termination for default

standing liens;

(2) Require the contractor to furnish the Government is not liable for the

appropriate statements from laborers contractor's costs on undelivered work, and is entitled to the repayment of

and materialmen disclaiming any lien any advance payments and of any

rights they may have to the supplies

and materials; progress payments applicable to such work. The Government may elect, pur

(3) Obtain appropriate agreement by

the Government, the contractor, and suant to paragraph (d) of the Default clause set forth in § 1-8.707, to require

lienors assuring release of the Governthe contractor to transfer title and de

ment from any potential liability to liver to the Government completed

the contractor or lienors;

(4) Withhold from the amount othsupplies and manufacturing materials,

erwise due for the supplies or materi. in the manner and to the extent directed by the contracting officer. The

als such amounts as the contracting

officer determines to be necessary to contracting officer shall not use the Default clause as authority to acquire

protect the Government's interest, but any completed supplies or manufac

only if the measures set forth in paraturing materials unless he has made

graph (c) (1), (2), and (3) of this seccertain that the Government does not

tion cannot be accomplished or are already have title thereto under some

otherwise deemed inadequate; other provision of the contract. In the

(5) Take any other action the conevent manufacturing materials are to

tracting officer deems appropriate, be acquired by the Government under

considering the particular circumthe authority of the Default clause for

stances and the degree of the contracthe purpose of furnishing the materi

tor's solvency. als to any other contractor, the con

(d) The contractor is liable to the tracting officer shall take such action

Government for any excess costs for only after giving due consideration to supplies and services procured similar the difficulties that such contractor

to those terminated (see § 1-8.602-6), may encounter in making use of the

and for any other damages, whether materials.

or not repurchase is effected (see $ 1(b) Subject to the provisions of (c) of

8.602-7). However, where the failure to this § 1-8.602-2, the Government shall

perform arises out of causes which are pay to the contractor the contract

excusable under paragraph (c) of the price for any completed supplies, and

clause set forth in § 1-8.707, the conthe amount agreed upon by the con tractor shall not be liable for any tracting officer and the contractor for excess costs. any manufacturing materials, acquired by the Government pursuant to the

§ 1-8.602-3 Procedure in case of default. Default clause.

(a) Subparagraph (a)(i) of the De(c) In order to protect the Govern- fault clause covers situations where ment from overpayment for any com the contractor has in fact defaulted by pleted supplies or manufacturing ma failure to make delivery of the supterials, that might result from failure plies or to perform the services within to make provision for the Govern the time specified by the contract or ment's potential liability to laborers any extension thereof. In such situaand materialmen for lien rights out tions, no notice of failure by the constanding against such supplies or ma tractor or of the possibility of terminaterials after the Government has paid tion for default is required by the the contractor therefor, the contract terms of the clause to be sent to the ing officer shall take one or more of contractor prior to the actual notice of the following measures before making termination. However, if the Governthe payment referred to in (b) of this ment has taken any action which § 1-8.602-2:

might be construed as a waiver of the (1) Ascertain whether the payment contract delivery or performance date, bonds, if any, furnished by the con- a preliminary notice shall be sent the tractor are adequate to satisfy all lien contractor setting a new date by which

the contractor will be permitted to ent such explanation may be taken as make delivery or complete perform an admission that no valid explanation ance, reserving the Government's exists, and (5) may invite the contracrights under the Default clause. De- tor to discuss the matter at a conferpendent upon the circumstances in ence. each case, such a preliminary notice (c) The contracting officer shall con(1) shall call the contractor's attention sider the following factors in deterto his contractual liabilities should the mining whether to terminate a concontract be terminated for default tract for default: under subparagraph (a)(i) of the (1) The provisions of the contract clause, (2) may request an explanation and applicable laws and regulations; of the contractor's failure, (3) may (2) The specific failure of the constate that failure of the contractor to tractor and the excuses, if any, made present such explanation may be by the contractor for such failure; taken as an admission that no valid ex- (3) The availability of the supplies planation exists, and (4) may invite or services from other sources; the contractor to discuss the matter at (4) The urgency of the need for the a conference.

supplies or services and the period of (b) Subparagraph (a)(ii) of the De- time which would be required to fault clause covers situations in which obtain the supplies or services from the contractor fails to perform any of other sources as compared with the the other provisions of the contract time in which delivery could be ob(such as not furnishing a required per- tained from the delinquent contractor; formance bond) or so fails to make (5) The degree of essentiality of the progress as to endanger performance contractor in the Government proof the contract in accordance with its curement program and the effect of a terms. In either of such situations, the termination for default upon the concontracting officer must formally tractor's capability as a supplier under notify the contractor of such failure other contracts; and allow at least 10 days for cure of (6) The effect of a termination for the failure before issuing a termina- default on the ability of the contraction notice. Such notification shall set tor to liquidate guaranteed loans, forth in concise but complete form all progress payments, or advance payof the provisions of the contract which ments; the contractor has failed to meet, or a (7) The availability of funds to fisummary of the findings which have nance repurchase costs which may demonstrated that the contractor has prove to be uncollectible from the defailed to make acceptable progress in faulted contractor, and the availability the performance of the contract, or of funds to finance termination costs both. The extent of detail to be includ- if the default is determined to be exed will vary depending upon the cusable; and nature and amount of previous corre- (8) Any other pertinent facts and spondence with the supplier; but any circumstances. such previous correspondence relied (d) If, after compliance with the proupon shall be specifically referenced cedures in (a) through (c) of this § 1in the preliminary notice. The prelimi- 8.602-3, the contracting officer deternary notice (1) shall state that a mines that termination for default is notice of termination for default may proper, he shall issue a notice of terbe issued upon expiration of the 10- mination which shall: day (or longer) period unless the fail- (1) Set forth the contract number ure to perform or to make adequate and date; progress toward performance has been (2) Describe the acts or omissions cured, (2) shall call the contractor's at constituting the default; tention to his contractual liabilities in (3) State that the contractor's right the event the contract is terminated to proceed further with performance for default, (3) shall request an expla- of the contract (or a specified portion nation of the contractor's failure to of the contract) is terminated; perform the contract, (4) may state (4) If the contracting officer has not that failure of the contractor to pres- determined whether the failure to per

form is excusable, state that the sup- notification that he has the right to plies or services terminated may be appeal the decision as specified in the procured against the contractor's ac. Disputes clause. (See § 1-8.601(b) with count, and that the contractor may be respect to the situation where the conheld liable for any excess costs;

tract contains a termination for con(5) If the contracting officer has de- venience clause and the causes of the termined that the failure to perform is failure to perform are excusable.) not excusable, state that the notice of termination constitutes such decision

§ 1-8.602-4 Procedure in lieu of terminaand state that the contractor will be

tion for default. held liable for any excess costs, and The following courses of action, also state that the contractor has the among others, are available to the conright to appeal such decision under tracting officer in lieu of termination the Disputes clause;

for default, when in the best interest (6) State that the Government re of the Government: serves all rights and remedies provided (a) Permit the contractor, his surety, by law or under the contract, in addi- or his guarantor to continue performtion to charging excess costs; and

ance of the contract under a revised (7) State that the notice constitutes delivery schedule; a decision that the contractor is in de (b) Permit the contractor to continfault as specified and that the contrac ue performance of the contract by tor has the right to appeal under the means of a subcontract or other busiDisputes clause.

ness arrangement with an acceptable (e) The same distribution shall be third party, provided the rights of the made of the termination notice, as was Government are adequately preserved; made of the contract. In addition, a

or copy shall be furnished to the surety,

(c) If the requirement for the supif any, and the procuring activity's plies and services specified in the confiscal office shall be advised to with tract no longer exists and the contrachold further payments under the ter- tor is not liable to the Government for minated contract pending additional damages as provided in § 1-8.602-7, exinstructions which shall be given when ecute a no-cost termination settlement sufficient information is available.

agreement utilizing the formats set (f) If the contracting officer deter forth in $$ 1-8.806-6 and 1-8.806-7 as a mines before issuance of the notice of guide. termination that the contractor's failure to perform arose from causes

1-8.602-5 Documentation in contract beyond his control and without his

file. fault or negligence and that termina In all cases where a contract is tertion is in the best interest of the Gov. minated for default or where a proceernment, the contracting officer shall dure authorized by $ 1-8.602-4 is foleither terminate the contract for con lowed, the contract file shall be well venience where the contract contains documented to explain fully the reaa termination for convenience clause sons for the action taken. or terminate the contract for default, without assessing excess costs, where

$ 1-8.602–6 Repurchase against contrac. the contract does not contain a termi

tor's account. nation for convenience clause.

(a) Where the supplies or services (g) If the contracting officer has not are still required after termination been able to determine, prior to issu- and the contractor is liable for excess ance of the notice of termination, costs, repurchase of supplies or servwhether the contractor's failure to ices which are the same as or similar perform arose from causes beyond his to those called for in the contract control and without his fault or negli- shall be made against the contractor's gence, he shall make a written deci. account as soon as practicable after sion on that point as soon as practica termination. Such repurchase shall be ble after issuance of the notice of ter at as reasonable a price as practicable mination. Such decision shall be deliv- considering the quality required by ered promptly to the contractor with a the Government and the time within

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