in accordance with the requirements of Subpart C of this part, that:

(a) The supplies are of a technical or special nature requiring a substantial initial investment or an extended period of preparation for manufacture; and

(b) Procurement by formal advertising either:

(1) Would be likely to result in additional cost to the Government by reason of duplication of investment, or

(2) Would result in duplication of necessary preparation which would unduly delay the procurement.

[28 F.R. 2094, Mar. 5, 1963]

§ 3.215 Negotiation after advertising.

Pursuant to 10 U.S.C. 2304(a) (15), purchases and contracts may be negotiated if

For property or services for which he (the Secretary) determines that the bid prices received after formal advertising are unreasonable as to all or part of the requirements, or were not independently reached in open competition, and for which (A) he has notified each responsible bidder of intention to negotiate and given him reasonable opportunity to negotiate; (B) the negotiated price is lower than the lowest rejected bid of any responsible bidder, as determined by the head of the agency; and (C) the negotiated price is the lowest negotiated price offered by any responsible supplier. §3.215-2

Limitation.

The authority of §3.215 shall not be used unless the Secretary has determined, in accordance with the requirements of Subpart C of this part, that the bid prices, after formal advertising for such supplies or services, are unreasonable or were not independently reached in open competition. Also, after such determination by the Secretary, and after rejection of all bids, no contract shall be negotiated under this authority unless:

(a) Prior notice of intention to negotiate and a reasonable opportunity to negotiate have been given by a contracting officer to each responsible bidder which submitted a bid in response to the invitation for bids;

(b) The negotiated price is lower than the lowest rejected bid price of a responsible bidder, as determined by the Secretary; and

(c) The negotiated price is the lowest negotiated price offered by any responsible supplier.

Moreover any evidence of bids not inde

pendently reached shall be forwarded to the Department of Justice, as provided in § 1.111 of this chapter.

§ 3.216 Purchases in the interest of national defense or industrial mobilization.

§ 3.216-1 Authority.

Pursuant to 10 U.S.C. 2304 (a) (16), purchases and contracts may be negotiated if

He [the Secretary] determines that (A) it is in the interest of national defense to have a plant, mine, or other facility, or a producer, manufacturer, or other supplier, available for furnishing property or services in case of a national emergency; or (B) the interest of industrial mobilization in case of such an emergency, or the interest of national defense in maintaining active engineering, research, and development, would otherwise be subserved.

The authority of § 3.216 may be used to effectuate such plans and programs as may be evolved under the direction of the Secretary to provide incentives to manufacturers to maintain, and keep active, engineering and design staffs and manufacturing facilities available for mass production. The following are illustrative of circumstances with respect to which this authority may be used:

(a) When procurement by negotiation is necessary to keep vital facilities or suppliers in business; or to make them available in the event of a national emergency;

(b) When procurement by negotiation with selected suppliers is necessary in order to train them in the furnishing of critical supplies to prevent the loss of their ability and employee skills, or to maintain active engineering, research, and development work; or

(c) When procurement by negotiation is necessary to maintain properly balanced sources of supply for meeting the requirements of procurement programs in the interest of industrial mobilization. (When the quantity required is substantially larger than the quantity which must be awarded in order to meet the objectives of this authority, that portion not required to meet such objectives will ordinarily be procured by formal advertising or by negotiation under another appropriate negotiation exception.) [25 F.R. 14128, Dec. 31, 1960, as amended at 30 F.R. 5971, Apr. 29, 1965]

The authority of §3.216 shall not be used unless and until the Secretary has determined, in accordance with the requirements of Subpart C of this part, that:

(a) It is in the interest of national defense to have a particular plant, mine, or other facility or a particular producer, manufacturer, or other supplier available for furnishing supplies or Aservices in case of a national emergency, and negotiation is necessary to that end; (b) The interest of industrial mobilization, in case of a national emergency, would be subserved by negotiation with a particular supplier; or

(c) The interest of national defense in maintaining active engineering, research, and development, would be subserved by negotiation with a particular supplier.

§ 3.216-4 Records and reports.

Each Department is required to maintain a record of the name of each contractor with whom a contract has been entered into pursuant to the authority of § 3.216, together with the amount of the contract and (with due consideration given to the national security) a description of the work required to be performed thereunder. These records, and reports based thereon, are maintained through the Department of Defense procurement reporting system described in §§ 1.110 of this chaper.

[25 FR. 14128, Dec. 31, 1960, as amended at 27 FR. 8871, Sept. 6, 1962]

§ 3.217 Otherwise authorized by law. § 3.217-1

Authority.

Pursuant to 10 U.S.C. 2304(a) (17), purchases and contracts may be negotiated if—

otherwise authorized by law.

§ 3.217-2 Application.

The authority of §§ 3.217-3.217-2 shall be used only if, and to the extent, approved for any Military Department and in accordance with departmental pro⚫cedures except that, in the event of a joint total or partial small business setaside, this authority shall be used, with further citation of Section 15 of the Small Business Act, in preference to any other authority in this subpart (see § 1.706-2 of this chapter).

[29 F.R. 11816, Aug. 19, 1964]

Subpart C-Determinations and
Findings

§ 3.300 Scope of subpart.

This subpart (a) enumerates the particular determinations and findings to be made (1) by the Secretary of any Department, (2) by the head of any procuring activity signing as "a chief officer responsible for procurement," and (3) by a Contracting Officer; and (b) sets forth the requirements to be followed with respect to such determinations and findings.

[25 F.R. 14132, Dec. 31, 1960]

§ 3.301

Nature of determinations and findings.

The determinations and supporting findings that are referred to throughout this part are documents which justify the use of the authority (a) to enter into contracts by negotiation, (b) to make advance payments under negotiated contracts, (c) to determine the kind of contract to be used, or (d) to waive a requirement for submission of cost or pricing data and certification thereof. Determinations and findings shall ordinarily be made only with respect to individual purchases or contracts. However, except as limited by § 3.303, class determinations and findings may be used for a specified period only and in accordance with Departmental procedures to authorize negotiation of two or more contracts for supplies or services of the same or related type. Such determinations and findings shall not, however, be construed to authorize the procurement by negotiation of supplies or services within the class which feasibly and practicably could be procured through formal advertising (see § 1.300-2 of this chapter).

[28 F.R. 4883, May 16, 1963]

for experimentation, development, research, or test (but see § 3.303 (b) when the amount does not exceed $100,000);

(b) The determination required by §3.212 with respect to any negotiated contract that should not be publicly disclosed;

(c) The determination required by § 3.213 with respect to any negotiated contract for technical equipment requiring standardization and interchangeability of parts;

(d) The determination required by § 3.214 with respect to any negotiated contract for technical or specialized supplies requiring a substantial initial investment or an extended period of preparation for manufacture;

(e) The determination required by §3.215 with respect to any negotiated contract entered into after advertising has proved unsatisfactory;

(f) The determination required by §3.216 with respect to any negotiated contract entered into in the interest of national defense

mobilization;

or industrial

(g) The determination required with respect to advance payments under any negotiated contract (but see Defense Contract Financing Regulations, Subpart D, Part 163 of this chapter; and

(h) The determinations required with respect to waiving a requirement for submission of cost or pricing data and certification thereof (see § 3.807-3(b)) and for inclusion of the clauses required by §§ 7.104-29 and 7.104-42 of this chapter (but see § 3.303(a) for contracts with foreign governments or agencies thereof).

In addition to the foregoing determinations, the Secretary of any Department may also make any of the determinations, and written findings in support thereof, that may be made by the head of any procuring activity signing as a chief officer responsible for procurement or by a contracting officer.

[28 F.R. 2094, Mar. 5, 1963]

§ 3.303 Determinations and findings below the Secretarial level.

(a) Determinations, and findings in support thereof, not required to be made by higher authority including those in subparagraphs (1) through (4) of this paragraph may be made with respect to individual purchases or contracts by the Head of a Procuring Activity signing as a chief officer responsible for procure

ment. Unless his authority is limited by higher authority, the contracting of ficer may make the determinations and findings in subparagraphs (2) through (4) of this paragraph with respect to individual purchases and contracts:

(1) The determination required with respect to waiving the requirements fo submission of cost or pricing data and certification thereof and for the inclu sion of the clauses required by §§ 7.10429 and 7.104-42 of this chapter for con tracts with foreign governments or agen cies thereof;

(2) Determinations and findings with respect to authority to enter into con tracts by negotiation required §§ 3.202-3 3.207-3, 3.208-3, 3.210-3 and 3.211-3 Provided, That under § 3.211-3 the basi contract or any single modification thereto does not obligate the Govern ment to pay more than $100,000 (in { procurement under § 3.211, where it i known in advance that the scope of the contract will be expanded to include additional phases or where it is incre mentally funded, the total estimated cos of all increments will be used as the basis for determining whether a determination and finding will be made at the Secretarial level or by the contracting officer);

(3) Determinations and findings with respect to the use of a cost or a costplus-a-fixed-fee or an incentive-type contract required by §§ 3.404-4, 3.405 3.405-4, and 3.405-5; and

(4) Any other determinations and findings not required to be made by higher authority.

(b) The authority to make class de terminations and findings with respec to authority to enter into contracts by negotiation pursuant to §§ 3.202, 3.207 3.208 and 3.210 may be delegated by the Secretary of any Department.

[25 F.R. 14132, Dec. 31, 1960, as amended a 29 F.R. 2828, Feb. 29, 1964]

§ 3.305 Forms of determinations and findings.

(a) Each determinations and find ings-whether for (1) authority to nego tiate an individual contract, or (2) authority to negotiate a class of con tracts, or (3) kind of contract, or (4) any other purpose shall be prepared in accordance with Departmental proce dures, but determinations and finding for advance payments must be prepared in accordance with the format in § 163.60 of this chapter.

(b) Each determination and findings prepared in accordance with Departmental procedures shall set out enough facts and circumstances to justify clearly the specific determination made. Each determination and findings for authority to negotiate either an individual contract or a class of contracts shall clearly indicate that the use of formal advertising would be impracticable and the reasons therefor.

[26 F.R. 2604, Mar. 28, 1961]

§3.306 Procedure with respect to determinations and findings.

(a) Determinations and findings for authority to negotiate required by §§ 3.202, 3.207, 3.208, and 3.210 through 3.216 shall be signed by the appropriate official prior to issuance of a request for proposals or quotations. Any modifications of such determinations and findings subsequently found to be necessary will not require cancellation of the request for proposals or quotations, provided the determinations and findings as modified support negotiation under any one of the authorities cited in §§ 3.201 through 3.217. Where the facts continue to support the negotiation but under an exception for which a determination and findings is not required, cancellation of the determination and findings will not require cancellation of the request for proposals or quotations.

[29 F.R. 2828, Feb. 29, 1964]

§ 3.307 Distribution of copies of determinations and findings.

Copies of each Determination and Findings shall be distributed in accordance with procedures prescribed by each respective Department: Provided, That one copy thereof with respect to (a) negotiated contracts (whether by individual contract or by class of contracts), (b) advance payments, and (c) the use of a cost or a cost-plus-a-fixed-fee contract or an incentive-type contract, shall be sent to the General Accounting Office with the copy of the contract negotiated and executed thereunder. [25 FR. 14132, Dec. 31, 1960]

§ 3.308 Retention of copies and determinations and findings.

Executed originals of all determinations and findings, and copies of all supporting documents, shall be preserved in the cognizant procuring activity or in the Department concerned for six years

In order to provide maximum uniformity in application, implementations of §§ 3.401 through 3.405 and 3.407-2 shall not be issued. In the event need exists for more detailed coverage of the subjects contained in the sections referred to, appropriate recommendations should be submitted to the ASPR Committee.

§ 3.401 Types of contracts.

(a) To provide the flexibility needed in the purchase of the large variety and volume of military supplies and services, a wide selection of types of contracts is available to the contracting parties. The respective contract types vary as to (1) the degree and timing of responsibility assumed by the contractor for the costs of performance, and (2) the amount and type of profit incentive offered the contractor to achieve or exceed specified standards or goals. With regard to degree of cost responsibility, the various types of contracts may be arranged in order of decreasing contractor responsibility for the costs of performance. At one end is the firm fixedprice contract under which the parties agree that the contractor assumes full responsibility in the form of profits or losses, for all costs under or over the firm fixed price. At the other end of this range is the cost-plus-a-fixed-fee contract where profit, rather than price, is fixed and the contractor's cost responsibility is therefore minimal. In between are the various incentive contracts which provide for varying degrees of contractor cost responsibility, depending upon the degree of uncertainty involved in contract performance.

(b) Pursuant to the authority of 10 U.S.C. 2306, a contract negotiated under this part may be of any type or combination of types described herein which will promote the best interests of the Government, subject to the restrictions described below. Types of contracts not described herein shall not be used, unless pursuant to a deviation under

§ 1.109 of this chapter. The cost-plusa-percentage-of-cost system of Colitracting shall not be used. Accordingly, all prime contracts (including letter contracts) on other than a firm fixedprice basis shall prohibit cost-plus-apercentage-of-cost subcontracts by an appropriate clause.

§ 3.402 Basic principles for use of contract types.

(a) General. (1) Profit, generally, is the basic motive of business enterprise. Both the Government and its defense contractors should be concerned with harnessing this motive to work for the truly effective and economical contract performance required in the interest of national defense. To this end, the parties should seek to negotiate and use the contract type best calculated to stimulate outstanding performance. The objective should be to insure that outstandingly effective and economical performance is met by high profits, mediocre performance by mediocre profits, and poor performance by low profits or losses. The proper application of these objectives on a contract by contract basis should normally result in range of profit rates.

(2) Success in harnessing the profit motive begins with the negotiation of sound performance goals and standards. This objective is met if the contractor either benefits or loses in relation to achieving or failing to achieve realistic targets. Where award is based on effective price competition, there is reasonable assurance that the contract price represents a realistic pricing standard, including a profit factor which reflects an appropriate return to the contractor for the financial risk assumed in undertaking performance at the competitive price. In the absence of competitive forces, however, the contract type selected should provide for a profit factor that will tie profits to the contractor's efficiency in controlling costs and meeting desired standards of performance, reliability, quality, and delivery. Therefore, in noncompetitive situations, the degree to which available cost estimates are realistic should be carefully considered in determining which type of contract should be selected and how it should be used-especially where the contractor is to assume substantial cost responsibility. If estimated costs are negotiated on the basis of a full consideration of all significant cost or pric

ing data that are reasonably available at the time of negotiation, a contract type providing a high profit potential and concomitant contract risks may be entirely appropriate even though there is a possibility that actual costs will vary widely from the estimate.

(3) The policies in subparagraphs (1) and (2) of this paragraph require that the contractor assume a reasonable degree of cost responsibility as early in contract performance as is possible. This can be achieved only through vigorous contract administration and effort on the part of both parties to assure timely pricing. Particularly in fixedprice type contracts providing for price revisions, delays in pricing actions by either party may distort the type of contract which has been agreed upon, and such delays must be avoided.

(4) Where a contract type providing for a reasonable degree of contractor cost responsibility cannot be negotiated on a timely basis, due to the contractor's unwillingness to assume reasonable risk, profits should be negotiated so as to reflect this fact (see § 3.808-2(b)).

(b) Preferred contract types. (1) The firm fixed-price contract is the most preferred type because the contractor accepts full cost responsibility, and the relationship between cost control and profit dollars is established at the outset of the contract. Accordingly, whenever a reasonable basis for firm pricing exists (see § 3.404-2), the firm fixed-price contract shall be used, because its use under these circumstances will provide the contractor with a maximum profit incentive to control the costs of performance. However, the contracting officer must be alert to the fact that in certain situations the use of special contract incentive provisions may be more appropriate. While maximum incentive to a contractor exists in a firm fixed-price contract, the basis for the application of firm fixed-price is the knowledge that the price has been arrived at either through competition or through sound pricing techniques which keep pricing uncertainties to a minimum. In those situations in which price competition is not present, and (1) where the cost or pricing data available does not permit sufficiently realistic estimates of the probable cost of performance, or (ii) where uncertainties surrounding the contract performance cannot be sufficiently identified to evaluate their impact on price, the use of a type of contract other than firm fixed-price should