CONTRACT CLAUSES AND SOLICITATION PROVISIONS provided in paragraph (c) below, the allowability of the cost of any such replacement or correction shall be determined as provided in the clause of this contract entitled “Allowable Cost, Fixed Fee, and Payment," but no additional fee shall be payable with respect thereto. Corrected articles shall not be tendered again for acceptance unless the former tender and the requirement of correction is disclosed. If the Contractor fails to proceed with reasonable promptness to perform such replacement or correction, the Government (i) may by contract or otherwise perform such replacement or correction and charge to the Contractor any increased cost occasioned the Government thereby, or may reduce any fixed fee payable under the contract (or require repayment of any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or (ii) in the case of articles not delivered, may require the delivery of such articles, and shall have the right to reduce any fixed fee payable under this contract (or to require repayment of any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or (iii) may terminate this contract for default. Failure to agree to the amount of any such increased cost to be charged to the Contractor or to such reduction in, or repayment of, the fixed fee shall be deemed to be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes."

(c) Notwithstanding the provisions of paragraph (b) above, the Government may at any time require the Contractor to remedy by correction or replacement, without cost to the Government, any failure by the Contractor to comply with the requirements of this contract, if such failure is due to fraud, lack of good faith or willful misconduct on the part of any of the Contractor's directors or officers, or on the part of any of his managers, superintendents, or other equivalent representatives, who has supervision or direction of (i) all or substantially all of the Contractor's business, or (ii) all or substantially all of the Contractor's operations at any one plant or separate location in which this contract is being performed, or (iii) a separate and complete major industrial operation in connection with the performance of this contract. The Government may at any time also require the Contractor to remedy by correction or replacement, without cost to the Government, any such failure caused by one or more individual employees selected or retained by the Contractor after any such supervisory personnel has reasonable grounds to believe that any such employee is habitually careless or otherwise unqualified.

(d) The provisions of paragraph (b) above shall apply to any corrected or replacement end item or component until six months after its acceptance.

(e) The Contractor shall make his records of all inspection work available to the Government during the performance of this contract and for such longer period as may be specified in this

contract.

(f) Except as provided in this clause and as may be provided in the Schedule, the Contractor shall have no obligation or liability to correct or replace articles which at the time of delivery are defective in material or workmanship or otherwise not in conformity with the requirements of this

contract.

(g) Except as otherwise provided in the Schedule, the Contractor's obligation to correct or replace Government-furnished property (which is property in the possession of or acquired directly by the Government and delivered or otherwise made available to the Contractor) shall be governed by the provisions of the clause of this contract entitled “Government Property."

(End of clause)

(2) In the foregoing clause, the words “Task Order" or other appropriate designation may be substituted for the word “Schedule,” as appropriate.

(3) In contracts not providing for payment of a fee, insert the following in lieu of paragraph (b) of the clause set forth in (1) above.

(b) At any time during performance of this contract, but not later than six (6) months (or such other period as may be provided in the Schedule) after acceptance of all of the end items (other than designs, drawings, or reports) to be delivered under this contract, the Government may require the Contractor to remedy by correction or replacement, as directed by the Contracting Officer, any failure by the Contractor to comply with the requirements of this contract. Any time devoted to such correction or replacement shall not be included in the computation of the period

7-402.5

ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

of time specified in the preceding sentence except as provided in (d) below. Except as provided in paragraph (c) below, the allowability of the cost of any such replacement or correction shall be as provided in the clause of this contract entitled “Allowable Cost and Payment." Corrected articles shall not be tendered again for acceptance unless the former tender and the requirement of correction is disclosed. If the Contractor fails to proceed with reasonable promptness to perform such replacement or correction, the Government (i) may by contract or otherwise perform such replacement or correction and charge to the Contractor any increased cost occasioned the Government thereby, or (ii) in the case of articles not delivered, may require the delivery of such articles, or (iii) may terminate this contract for default. Failure to agree to the amount of any such increased cost to be charged to the Contractor shall be deemed to be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes."

(b) The following clause shall be inserted in all contracts subject to this Part when the clause in (a)(1) above is not used.

INSPECTION (1959 FEB)

The Government, through any authorized representatives, has the right at all reasonable times, to inspect, or otherwise evaluate the work performed or being performed hereunder and the premises in which it is being performed. If any inspection, or evaluation is made by the Government on the premises of the Contractor or a subcontractor, the Contractor shall provide and shall require his subcontractors to provide all reasonable facilities and assistance for the safety and convenience of the Government representatives in the performance of their duties. All inspections and evaluations shall be performed in such a manner as will not unduly delay the work.

(End of clause)

(c) When it is desired to require contractors to maintain an inspection system in accordance with Military Specification MIL-I-45208 (see 14-303), the clause set forth in (a) above shall be included in the contract except that the following shall be added as the third sentence of paragraph (a):

The inspection system shall be in accordance with the edition of Military Specification MIL1-45208 in effect on the date of this contract. (1967 AUG)

7-402.6 Assignment of Claims. In accordance with 7–103.8, insert the clause

therein.

7-402.7 Examination of Records. In accordance with 7-104.15, insert the clause therein. In the case of research and development contracts with nonprofit institutions and subcontracts thereunder, and pursuant to procedures approved by the Comptroller General, original documentary evidence in support of costs of the transportation of things will not be required pursuant to said clause. 7-402.8 Subcontracts.

(a) In accordance with the requirements in 23–201.2, and subject to the instructions in (b) and (c) below, insert the following clause.

SUBCONTRACTS (1974 APR)

(a) The Contractor shall notify the Contracting Officer reasonably in advance of entering into any subcontract which (i) is cost-reimbursement type, time and materials, or labor-hour, or (ii) is fixed-price type and exceeds in dollar amount either $25,000 or five percent (5%) of the total estimated cost of this contract, (iii) provides for the fabrication, purchase, rental, installation, or other acquisition of special test equipment having a value in excess of $1,000 or of any items of industrial facilities; or (iv) has experimental, developmental, or research work as one of its purposes.

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ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

(b) In the case of a proposed subcontract which (i) is cost-reimbursement, time and materials, or labor-hour which would involve an estimated amount in excess of $10,000, including any fee, (ii) is proposed to exceed $100,000, or (iii) is one of a number of subcontracts under this contract with a single subcontractor for the same or related supplies or services which, in the aggregate are expected to exceed $100,000, the advance notification required by (a) above shall include:

(1) a description of the supplies or services to be called for by the subcontract;
(2) identification of the proposed subcontractor and an explanation of why and how the
proposed subcontractor was selected, including the degree of competition obtained;
(3) the proposed subcontract price, together with the Contractor's cost or price analysis
thereof;

(4) the subcontractor's current, complete, and accurate cost or pricing data and Cer-
tificate of Current Cost or Pricing Data when such data and certificate are required
by other provisions of this contract to be obtained from the subcontractor;

(5) identification of the type of subcontract to be used;

(6) a memorandum of negotiation which sets forth the principal elements of the subcon-
tract price negotiations. A copy of this memorandum shall be retained in the Con-
tractor's file for the use of Government reviewing authorities. The memorandum
shall be in sufficient detail to reflect the most significant considerations controlling
the establishment of initial or revised prices. The memorandum should include an ex-
planation of why cost or pricing data was, or was not required, and, if it was not
required in the case of any price negotiation in excess of $100,000, a statement of
the basis for determining that the price resulted from or was based on adequate price
competition, established catalog or market prices of commercial items sold in sub-
stantial quantities to the general public, or prices set by law or regulation. If cost or
pricing data was submitted and a certificate of cost or pricing data was required, the
memorandum shall reflect the extent to which reliance was not placed upon the fac-
tual cost or pricing data submitted and the extent to which this data was not used by
the Contractor is determining the total price objective and in negotiating the final
price. The memorandum shall also reflect the extent to which it was recognized in
the negotiation that any cost or pricing data submitted by the subcontractor was not
accurate, complete, or current; the action taken by the Contractor and the subcon-
tractor as a result; and the effect, if any, of such defective data on the total price
negotiated. Where the total price negotiated differs significantly from the Contrac-
tor's total price objective, the memorandum shall explain this difference;
(7) when incentives are used, the memorandum of negotiation shall contain an explana-
tion of the incentive fee/profit plan identifying each critical performance element,
management decisions used to quantify each incentive element, reasons for incen-
tives on particular performance characteristics, and a brief summary of trade-off pos-
sibilities considered as to cost, performance, and time; and

(8) the subcontractor's Disclosure Statement or Certificate relating to Cost Accounting
Standards when such data are required by other provisions of this contract to be ob-
tained from the subcontractor.

(c) The Contractor shall obtain the written consent of the Contracting Officer prior to placing any subcontract for which advance notification is required under (a) above. The Contracting Officer may, in his discretion, ratify in writing any such subcontract; such action shall constitute the consent of the Contracting Officer as required by this paragraph (c).

(d) The Contractor agrees that no subcontract placed under this contract shall provide for payment on a cost-plus-a-percentage-of-cost basis.

(e) The Contracting Officer may, in his discretion, specifically approve in writing any of the provisions of a subcontract. However, such approval or the consent of the Contracting Officer obtained as required by this clause shall not be construed to constitute a determination of the allowability of any cost under this contract, unless such approval specifically provides that it constitutes a determination of the allowability of such cost.

(f) The Contractor shall give the Contracting Officer immediate notice in writing of any action or suit filed, and prompt notice of any claim made against the Contractor by any subcontractor or vendor which in the opinion of the Contractor, may result in litigation, related in any way to this

7-402.8

ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS contract, with respect to which the Contractor may be entitled to reimbursement from the Government.

(g) Notwithstanding (c) above, the Contractor may enter into subcontracts within (i) and (ii) of (a) above, without the consent of the Contracting Officer, if the Contracting Officer has approved in writing the Contractor's procurement system and the subcontract is within the scope of such approval. (This subparagraph (g) however, shall not be applicable to those subcontracts subject to subparagraph (j) below, if any.)

(h) The Contractor shall (i) insert in each price redetermination or incentive price revision subcontract hereunder the substance of the “Limitation on Payments" paragraph set forth in the appropriate clause prescribed by paragraph 7-108 of the Armed Services Procurement Regulation, including subparagraph (4) thereof, modified to omit mention of the Government and reflect the position of the Contractor as purchaser and of the subcontractor as vendor, and to omit that portion of subparagraph (3) thereof relating to tax credits, and (ii) include in each costreimbursement type subcontract hereunder a requirement that each price redetermination and incentive price revision subcontract thereunder will contain the substance of the "Limitation on Payments" provision, including subparagraph (4) thereof, modified as outlined in (i) above.

(i) To facilitate small business participation in subcontracting under this contract, the Contractor agrees to provide progress payments on the fixed-price types of subcontracts of those subcontractors which are small business concerns, in conformity with the standards for customary progress payments stated in paragraphs 503 and 514 of Appendix E of the Armed Services Procurement Regulation, as in effect on the date of this contract. The Contractor further agrees that the need for such progress payments will not be considered as a handicap or adverse factor in the award of subcontracts.

(End of clause)

(b) Insert the following additional subparagraph to the clause in (a) above, in accordance with 23-201.2(d).

(j) Notwithstanding approval of the procurement system, the Contractor shall not enter into certain subcontracts or classes of subcontracts set forth elsewhere in this contract without the prior written consent of the Contracting Officer. (1967 APR)

(c) In contracts with educational institutions, change “(iii)” in paragraph (a) of the clause in (a) above to read:

(iii) provides for the fabrication, purchase, rental, installation, or other acquisition of equipment or of industrial facilities. (1975 OCT)

(d) In accordance with 23-201.4, insert the Equal Opportunity Pre-Award Clearance of Subcontracts clause in 7-104.22.

7-402.9 Utilization of Small Business Concerns. In accordance with 1-707.3 (a) and (b), insert one or both of the clauses in 7-104.14.

7-402.10 Termination. In accordance with 8-702 and 8-704, insert the appropriate clause set forth in either 7-203.10 or 7-302.10.

7-402.11 Disputes. In accordance with 7–103.12, insert the clause therein. 7-402.12 Renegotiation. In accordance with 7-103.13, insert the clause

therein.

7-402.13 Buy American Act. In accordance with 7-104.3, insert the clause

therein.

7-402.14 Convict Labor. In accordance with 12-201, insert the clause in 7-104.17.

7-402.14

ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

7-402.15 Walsh-Healey Public Contracts Act. In accordance with Section XII, Part 6, insert the clause in 7-103.17.

7-402.16 Contract Work Hours and Safety Standards Act-Overtime Compensation. In accordance with 12-301, 12-302, and 12-306, insert the clauses in 7-103.16.

7-402.17 Equal Opportunity. In accordance with 12-804, insert the applicable clause in 7-103.18.

7-402.18 Officials Not To Benefit. In accordance with 7-103.19, insert the clause therein.

7-402.19 Covenant Against Contingent Fees. In accordance with 7-103.20, insert the clause therein.

7-402.20 Authorization and Consent. In accordance with 9-102, insert the clause in 7-302.21.

7-402.21 Notice and Assistance Regarding Patent and Copyright Infringement. In accordance with 9–104, insert the clause in 7-103.23.

7-402.22 Patent Rights. In accordance with 9-107, insert the appropriate clause with additional or alternate paragraphs as prescribed therein as set forth in 7-302.23. However, in the case of contracts without fee, the percentage amount specified to be withheld under paragraph (h) of the clause in 7-302.23(a) or paragraph (h) of the clause in 7-302.23(b) may be changed from "five percent (5%)" to "one percent (1%)." In contracts with educational institutions and in contracts without fee with nonprofit organizations, paragraph (h) of the clauses in 7-302.23(a) and (b), respectively, may be omitted.

7-402.23 Reserved.

7-402.24 Military Security Requirements. Insert the Military Security Requirements clause in accordance with 7-104.12, modified in accordance with 7-204.12. In contracts without fee with educational institutions, add the following paragraphs (e), (f) and (g).

(e) In the event a change in security requirements, as provided in paragraphs (b) and (c), results (1) in a change in the security classification of this contract or any element thereof from an unclassified status to a classified status or from a lower classification to a higher classification, or (2) in more restrictive area controls than previously required, the Contractor shall exert every reasonable effort compatible with his established policies to continue the performance of work under the contract in compliance with such change in security classification or requirements. If, despite such reasonable efforts, the Contractor determines that the continuation of work under this contract is not practicable because of such change in security classification or requirements, he shall so notify the Contracting Officer in writing.

(f) After receiving such written notification, the Contracting Officer shall explore the circumstances surrounding the proposed change in security classification or requirements and shall endeavor to work out a mutually satisfactory method whereby the Contractor can continue performance of the work under this contract.

(g) If, upon the expiration of fifteen (15) days after receipt by the Contracting Officer of the notification of the Contractor's stated inability to proceed, (1) the application to this contract of such change in security classification or requirements has not been withdrawn, or (2) a mutually satisfactory method for continuing performance of work under this contract has not been agreed upon, the Contractor may request the Contracting Officer to terminate the contract in

7-402.24

ARMED SERVICES PROCUREMENT REGULATION