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 (1) 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 its 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.

(1) 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."

(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 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 (1) may by contract or otherwise perform such replacement or correction and charge to the Contractor any increased cost occasioned the Government thereby, or (11) in the case of articles not delivered, may require the delivery of such articles, or (1) 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 Subpart where the clause set forth in (a) (1) above is not used.

INSPECTION (FEB. 1959)

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 its 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.

(a) In accordance with the instructions in § 7.203-7, insert the contract clause set forth therein. In the case of contracts which establish separate periods of performance but which do not contain the alternate subparagraph (a) (4) authorized by § 7.203-7(b), such subparagraphs may be inserted by amendment or, in the alternative, the retention of records may be administered in accordance with the procedure set forth in the alternate subparagraph (a) (4) of the clause prescribed by § 7.203-7(a).

(b) 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 paragraph (a)(3) of said clause. [25 F.R. 14205, Dec. 31, 1960] § 7.402-8

Subcontracts.

(a) In accordance with the requirements in § 3.903-2 of this chapter, and subject to the instructions in paragraphs (b), (c), and (d) of this section, insert the following clause.

SUBCONTRACTS (APRIL 1964)

(a) The Contractor shall give advance notification to the Contracting Officer of any proposed subcontract hereunder which (1) 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.

(b) In the case of a proposed subcontract which (1) is cost-reimbursement type, time and materials, or labor-hour and which would involve an estimated amount in excess of $10,000 including any fee, or (11) 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 Certificate 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; and

(5) identification of the type of contract to be used.

(c) The Contractor shall not, without the prior written consent of the Contracting Officer, place any subcontract which (1) is cost-reimbursement type, time and materials, or labor-hour, or (ii) is fixed-price type and exceed in dollar amount either $25,000 or five percent (5%) of the total estimated cost of this contract, or (iii) provides for the fabrication, purchase, rental, installation, or other acquisition, of any item of industrial facilities, or of special tooling having a value in excess of $1,000, or (iv) has experimental, developmental or research work as one of its purposes. 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 consti. tutes 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 liti gation, related in any way to this contract with respect to which the Contractor may be entitled to reimbursement from the Goverment.

(g) Notwithstanding (c) above the Contractor may enter into subcontracts within (ii), or, if the subcontract is for special tooling, within (iii) of (c) above, without the prior written consent of the Contracting Offcer if the Contracting Officer has in writing approved the Contractor's purchasing system and the subcontract is within the limitations of such approval.

(h) The Contractor shall (1) 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 (1) 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.

(b) In contracts of the types listed in § 3.903-2(b) of this chapter, insert the following paragraph (g) in lieu of paragraph (g) of the clause set forth in paragraph (a) of this section:

(g) Notwithstanding (c) above, the Contractor may enter into subcontracts within (1), (11), or (iii) of (c) above without the prior written consent of the Contracting Officer, if the Contracting Officer has in writing approved the Contractor's purchasing system and the subcontract is within the limitations of such approval. (April 1964)

(c) In paragraph (c) of the foregoing clause, the dollar amount of percentage of contract cost relating to fixed-price type subcontracts may be varied, the dollar value of special tooling may be increased, and for the other types of subcontracts specified therein, dollar amounts not in excess of $10,000 may be established, in accordance with Departmental procedures, below which the prior written consent of the contracting officer need not be obtained.

(d) In contracts without fee with educational institutions, insert the following paragraph in lieu of paragraph (c) of the clause set forth in paragraph (a) of this section, and change "(iii)" in paragraph (g) to "(iv)".

(c) The Contractor shall not, without the prior written consent of the Contracting Officer, place any subcontract which (1) is costreimbursement 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, or (iii) provides for the construction, purchase, rental, installation, or other acquisition of nonseverable industrial facilities, or (iv) provides for the fabrication, purchase, rental, installation, or other acquisition, of any item of either (A) severable industrial facilities having a value in excess of $1,000 or the amount, if any, specified in the Schedule or Task Order, whichever is the lesser, or (B) special tooling having a value in excess of $1,000, or (v) has experimental, developmental, or research work as one of its purposes. The Contracting Officer may, in his discretion, ratify in writing any such subcontract; such action shall constitute the consent of the Contracting Officer required by this paragraph (c). (April 1964)

In the foregoing paragraph (c) of the clause, the percentage and amount set forth in (ii) thereof may be varied and, in (i) and (v) thereof, dollar amounts not in excess of $10,000 may be established below which the prior written consent of the contracting officer need not be obtained, in accordance with Departmental procedures. In (iv) thereof, the $1,000 limit may, in the discretion of the contracting officer, be decreased where it is determined to be in the interest of the Government, in view of such circumstances of each particular contract, as, for example, the nature of the contractor's operations, previous experience with the contractor on comparable procurements, the accounting and purchasing systems of the contractor, accounting and supply systems of the procurement activity, and the capability of the procuring activity to effect close surveillance of the contractor's purchasing and accounting practices. Also, in the discretion of the contracting officer, the cumulative total of such acquisitions of severable industrial facilities may be limited to a stated dollar amount or an amount equal to a stated percentage of the estimated cost beyond which the contractor will be required to obtain written consent of the contracting officer for any additional acquisitions of such facilities. With respect to special tooling, the $1,000 limit may be increased.

[29 F.R. 11821, Aug. 19, 1964]

§ 7.402-9 Utilization of small business

concerns.

In accordance with the requirements of § 1.707-3 (a) of this subchapter, insert the clause set forth therein. [27 F.R. 3451, Apr. 11, 1962]

In accordance with the instructions in § 7.203-12, insert the clause set forth in § 7.103-12.

[25 F.R. 14206, Dec. 31, 1960]

§ 7.402-12 Renegotiation.

In accordance with the requirements of § 7.103-13, insert the appropriate contract clause set forth therein. [25 F.R. 14206, Dec. 31, 1960]

§ 7.402-13 Buy American Act.

In accordance with the requirements of § 6.104-5, insert the contract clause set forth therein.

[25 F.R. 14206, Dec. 31, 1960]

§ 7.402-14 Convict labor.

In accordance with the requirements of § 12.202, insert the contract clause set forth in § 12.203.

[25 F.R. 14206, Dec. 31, 1960]

In accordance with the requirements of § 9.107 of this chapter, insert the appropriate contract clause set forth therein with additional or alternate paragraphs as prescribed therein. However, in the case of contracts without fee, the percentage amount specified to be withheld under paragraph (g) of the clause set forth in § 9.107-5(a) of this chapter or paragraph (f) of the clause set forth in § 9.107-5(b) of this chapter may be changed from "ten percent (10%)" to "one percent (1%)". In contracts without fee with educational institutions. paragraphs (g) and (f) of the clauses set forth in § 9.107-5 (a), (b), and (c) of this chapter, respectively, may be omitted.

[30 F.R. 6968, May 25, 1965]

§ 7.402-23 Basic data clause.

In accordance with the requirements of § 9.202 of this chapter, insert the clause set forth in § 9.203 (b) of this chapter with appropriate additional or alternate paragraphs as prescribed by the instructions set forth in §§ 9.203 and 9.204-1 of this chapter, and the appropriate "Data-Withholding of Payment" clause as set forth in § 9.207 of this chapter.

[30 F.R. 6968, May 25, 1965]

§ 7.402-24 Military security require

ments.

(a) Except in contracts without fee with educational institutions, insert the clause set forth in § 7.104-12(a), modified in accordance with § 7.204-12: Provided, That the reference to "fixed fee" may be deleted in any contract not providing for the payment of a fixed fee: Provided further, That the provisions of § 7.104-12(b) shall apply with respect to contracts to be performed outside the United States, its possessions, and Puerto Rico.

(b) The following clause shall be used in all contracts without fee with educational institutions, except that with respect to contracts to be performed outside the United States, its possessions, and Puerto Rico, the following clause may be used as a guide, unless the AFISR sets forth a required clause (see § 1.320 of this chapter and § 7.104-12 (b)).

MILITARY SECURITY REQUIREMENTS (FEB. 1959)

(a) The provisions of this clause shall apply to the extent that this contract involves access to information classified "Confidential", including "Confidential-Modified Handling Authorized", or higher.

(b) The Government shall notify the Contractor of the security classification of this contract and the elements thereof, and of any subsequent revisions in such security classification, by the use of a Security Requirements Check List (DD Form 254), or other written notification.

(c) To the extent the Government has indicated as of the date of this contract, or thereafter indicates, security classification under this contract as provided in paragraph (b) above, the Contractor shall safeguard all classified elements of this contract and shall provide and maintain a system of security controls within its own organization in accordance with the requirements of:

(1) The Security Agreement (DD Form 441), including the Department of Defense Industrial Security Manual for Safeguarding Classified Information as in effect on the date of this contract, and any modification to the Security Agreement for the purpose of adapting the Manual to the Contractor's business; and

(ii) Any amendments to said Manual made after the date of this contract, notice of which has been furnished to the Contractor by the Security Office of the Military Department having security cognizance over the facility.

(d) Representatives of the Military Department having security cognizance over the facility and representatives of the contracting Military Department shall have the right to inspect at reasonable intervals the procedures, methods, and facilities, utilized by the Contractor in complying with the security requirements under this contract. Should the Government, through these representatives determine that the Contractor is not complying with the security requirements of this contract the Contractor shall be informed in writing by the Security Office of the cognizant Military Department of the proper action to be taken in order to effect compliance with such requirements.

(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 a nonclassified status

to a classified status or from a lower classification to a higher classification, or (ii) in more restrictive area controls than previously required, the Contractor shall exert every reasonable effort compatible with its 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 it 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 (ii) 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 whole or in part. Thereupon, the Contracting Officer shall terminate the contract in whole or in part, as may be appropriate, and such termination shall be deemed a termination under the provisions of the clause of this contract entitled, "Termination for the Convenience of the Government."

(h) The Contractor agrees to insert, in all subcontracts hereunder which involve access to classified information, provisions which shall conform substantially to the language of this clause, including this paragraph (h) but excluding paragraphs (e), (f), and (g) of this clause. In addition, the Contractor may insert in any subcontract, not involving fee or profit, with an educational institution, and any like lower-tier subcontract entered into thereunder may contain, in lieu of paragraphs (e), (f), and (g) of this clause, appropriate provisions extending to such subcontracts relief consistent with that provided for in those paragraphs, on account of changes in security classifications or requirements made under the provisions of this clause subsequent to the date of the subcontract involved. With respect to subcontracts other than those covered by the preceding sentence, "the mutually satisfactory method" provided for in paragraph (f) above may include a provision amending this contract to provide for an equitable adjustment on account of changes in security classifications or requirements made under the provisions of this clause subsequent to the date of the subcontract involved; and the Contractor may insert in any