the same manner as if a qualified product were not involved, and will not be restricted to suppliers whose products have been qualified.

(4) Contracting officers shall forward requests from suppliers concerning qualification of products to the specification preparing activity.

§ 12-1.1157 Contract provisions.

(a) When qualified end products are to be procured, the provision in FPR 1-1.1101(b) shall be inserted in the solicitation, supplemented by the following:

The offeror shall insert the item name and the test number (if known) of each qualified product in the blank spaces below. Item Name— ---Test No.-

Any change in location or ownership of the plant at which a previously approved product is, or was, manufactured requires reevaluation of the qualification. Such reevaluation must be accomplished prior to the bid opening date in the case of advertised procurements and prior to the date of award in the case of negotiated procurements. Failure of offerors to arrange for such reevaluation shall preclude consideration of their offers.

If the procurement is formally advertised, the following statement shall also be included:

Any bid which does not identify the qualified product being offered, either above or elsewhere in the bid, will be rejected.

(b) When qualified products are to be procured as components of end items, insert the following provision in the solicitation:

QUALIFIED PRoducts-ComPONENTS

When any of the end items which are to be supplied to the Government by the Contractor will contain one or more components which are required by the applicable specification to be qualified products, such components shall have been tested and shall be qualified for inclusion in the Qualified Products List (whether or not actually inIcluded in the List) at the time of award of any subcontract by the Contractor for such components, or, in the event the Contractor plans to manufacture such components himself, shall have been so tested and have so qualified before the Contractor begins to manufacture such components for performance of this contract (not before manufacture of the prototype, preproduction model, or first article, for qualification testing). Unless required for interchangeability or

compatibility, the Contractor shall not cite brand names from any Qualified Products List in any subcontract solicitation, but shall refer to the pertinent specification so that optimum competition may be obtained. Delay resulting from the Contractor's awaiting qualification approval by the Government of a component shall not constitute excusable delay when a previously qualified component could have been procured in time to meet the end item delivery schedule. Any change in location or ownership of the plant at which a previously approved product is, or was, manufactured requires re-evaluation of the qualification. Such re-evaluation must be accomplished prior to the award of any subcontract by the Contractor for such components or prior to the beginning of manufacture if the Contractor manufactures such components himself.

§ 12-1.1158 Effect of debarment or suspension.

The inclusion of a product on the QPLS may be denied, and the qualification of a listed product may be withdrawn, by the Administration concerned, without notification to the manufacturer, if the name of the manufacturer appears on the lists of debarred or ineligible bidders which are maintained pursuant to FPR Subpart 1-1.6.

§ 12-1.1159 Waiver of qualification requirement.

When procuring a product under a specification which includes qualification requirements either for the end item or for components of the end item, such qualification requirements can be waived only by the activity that prepared the specification. In appropriate cases, when requested by the contracting officer, the preparing activity may waive qualification requirements. A notice, issued by the preparing activity, directing a waiver of the qualification requirement, constitutes adequate authorization for waiver of product qualification requirements. Where waivers have been granted, solicitations shall specifically indicate that the qualification requirement is inapplicable. Such information shall also be included in any Synopsis of the procurement.

§ 12-1.1160 Inadequate competition.

(a) Presolicitation. In connection with procurement of a qualified product as an end item, the contracting officer shall review the applicable QPL prior to solicitation to ascertain whether the number of sources is adequate for competition. If, in the opinion of the contracting officer, the number of sources is inadequate, action shall be taken as prescribed below unless he already has the necessary information.

(1) The contracting officer shall request the activity that prepared the specification to provide information concerning the status of tests on additional products, including the anticipated dates when such tests will be completed so that opening of bids or submission of proposals may be so scheduled as to allow completion of the tests.

(2) If no tests are being conducted or contemplated, the contracting officer shall further request the preparing activity to advise whether a means of quality assurance other than qualification approval may be substituted in the procurement.

(b) Postsolicitation. The contracting officer shall advise the specification preparing activity of the name and address of any concern which requested copies of the solicitation but was not included on the QPL. The specification preparing activity may then attempt to interest such concerns in becoming qualified.

12-1.1153(e), shall be reported promptly to the preparing activity.

Subpart 12-1.12-Responsible Prospective Contractors

§ 12-1.1204 Determination of responsibility or nonresponsibility.

§ 12-1.1204-1 Requirement.

(a) Except as provided in paragraph (c) of this section, the contracting officer shall, prior to award, prepare, sign, and place in the contract file, DOT Form F 4220.1 titled "Determination of Prospective Contractor Responsibility." Where a prospective contractor is determined to be nonresponsible, the form shall also be completed before notice of the rejection is furnished and the contract awarded to another.

(b) For each factor applicable to the procurement, the type of evaluation and the rating shall be checked. A completed form may include any combination of checks in the A, B, and C columns. Where the determination of responsibility is based on an SBA certificate of competency, a copy of the certificate shall be attached to the form and Block 6 of the form should not be completed except to reference the attachment.

(c) The form need not be completed in the case of:

(1) Procurements of the types listed in FPR 1-1.1201(b);

(2) Contracts of $10,000 or less, except that the form shall be prepared prior to the award of all contracts the primary purpose of which is research;

or

(3) Contracts for perishable subsistence supplies available for immediate shipment.

(d) Pending a revision of DOT Form F 4220.1, the reference in Block 7 to "FPR 1-1.310-6" shall be changed to read "FPR 1-1.1202".

Subpart 12-1.16-Report of Identical Bids

§ 12-1.1603 Reporting requirement.

§ 12-1.1603-3 Submission of reports.

The report required by FPR 11.1603-3(b) shall be sent by each Ad

§ 12-1.5002 Applicability.

(a) Option clauses may be included in contracts where increased requirements within the period of contract performance are foreseeable, or where continuing performance beyond the original period of contract performance may be in the best interest of the Government. Since options require offerors to guarantee prices for definite periods of time with no guarantee that orders will be placed, their improper use could result in prices which are unfair to either the Government or the contractor. When additional requirements are foreseeable and subsequent competition would be impracticable because of such factors as production lead time and delivery requirements, the use of options may be preferable to later negotiating a price with the contractor at a time when it is the only practical source.

(b) An option normally should not be used where it can reasonably be foreseen that (1) minimum economic production quantities will be procured at some future date, and (2) start-up costs, production lead time, and probably delivery requirements would not preclude adequate future competition.

(c) Option provisions and clauses shall not be included in contracts when:

(1) The supplies or services being purchased are readily available on the open market.

(2) The contractor would be required to incur undue risks: e.g., the price or availability of necessary materials or labor is not reasonably foreseeable.

(3) An indefinite quantity contract or requirements contract is appropriate except that options for continuing performance may be used in such contracts.

(4) Market prices for the supplies or services involved are likely to change substantially.

(5) The option quantities represent known firm requirements for which procurement funds are available.

(a) When a contract is to contain an option quantity, the solicitation must contain an appropriate option provision and the contract file shall be documented with a justification for the inclusion of the option. If the contract is to be negotiated, the determination and findings shall set forth the approximate quantity to be awarded and the extent of the increase to be permitted by the option. The contract shall limit the additional quantities of supplies or services which may be procured, or the duration of the period for which performance of the contract may be extended, under the option and will fix the period within which the option may be exercised. In fixing the period within which the option may be exercised, consideration shall be given to (1) necessary lead time in order to assure continuous production and (2) the time required for additional funding and other necessary approval action. The period specified for exercising the option shall in all cases be kept to a minimum.

(b) Solicitations containing option provisions should cover five basic points:

(1) Quantity of additional supplies or services which may be procured. Where the exercise of the option would result in increased quantities of supplies, the option quantity should be expressed in terms of a specified

number of additional units rather than as a percentage of the base quantity. Where exercise of the option would result in an increase in the performance of services, the option may be similarly expressed in terms of the units of work contained in the contract (e.g., man hours). Where exercise of the option would result in an extension of the duration of the contract, the option may be expressed in terms of a specific date or dates or of an additional time period such as days, weeks, or months. Generally the quantity subject to the option should not exceed the basic quantity by more than 25 percent.

(2) The period within which the option may be exercised. The contract shall fix the period within which the option may be exercised. The period specified shall in all cases be kept to a minimum (generally no longer than 6 months).

(3) Delivery terms for the option quantities.

(4) Prices for the option quantities. The clause shall provide for firm unit prices for any additional quantity that may be ordered up to the maximum quantity of the option, or for any increase in the performance of services or extension of the duration of the contract.

(5) A statement on the evaluation of bids or proposals. Solicitations shall state that evaluation will be on the basis of the firm quantity set forth in the schedule and the option quantity, if any, exercised at time of award.

The option clause should not contain a price control feature on the option quantities, such as a requirement that the option quantities be offered at prices no higher than those of the basic quantity. The use of price controls to avoid unreasonable offers on option quantities can be disadvantageous to the Government because the contractor may spread the cost of bona fide risks of option quantities to the basic quantity.

§ 12-1.5004 Exercise of options.

(a) The exercise of an option by the Government requires the contracting officer's written notification to the contractor within the time period specified in the contract.

(b) Where the contract provides for price escalation and the contractor requests revision of price pursuant to such provision, or the provision applies only to the option quantity, the effect of escalation on prices under the option must be ascertained before the option is exercised.

(c) Options should be exercised only if it is determined that:

(1) Funds are available,

(2) The requirement covered by the option fulfills an existing need of the Government, and

(3) The exercise of the option is most advantageous to the Government, price and other factors considered.

(d) Insofar as price is concerned, the determination under paragraph (c)(3) of this section shall be made on the basis of one of the following:

(1) A new solicitation fails to produce a better price than that offered by the option. When the contracting officer anticipates that the option price will be the best price available, he should not use this method of testing the market but should use one of the methods in paragraphs (d)(2), (3), or (4) of this section.

(2) An informal investigation of prices, or other examination of the market, indicates clearly that a better price than that offered by the option cannot be obtained.

(3) The time between the award of the contract containing the option and the exercise of the option is so short that it indicates the option price is the lowest price obtainable, considering such factors as market stability and a comparison of the time since award with the usual duration of contracts for such supplies and services.

(4) Established prices are readily ascertainable and clearly indicate that formal advertising or informal solicitation can obviously serve no useful purpose.

(e) Insofar as the "other factors" mentioned in paragraph (c)(3) of this section are concerned, the determination should, among other things, take into account the Government's need for continuity of operations and potential costs to the Government of disrupting operations, including the cost of relocating necessary Government

furnished property (as, for example, in certain repair and overhaul contracts for aircraft or other complex equipment).

(f) When it has been determined that an option may properly be exercised, such determination shall be set forth in writing and included in the contract file. Written notification to the contractor of the exercise of the option and any contract modification resulting therefrom shall cite the option clause contained in the contract as authority for the procurement of the option quantity, and no citation under 41 U.S.C. 252(c) or 10 U.S.C. 2304(a) is required.

(a) Value engineering (VE) is concerned with the elimination or modification of anything that contributes to the cost of a contract item or task but is not necessary for needed performance, quality, maintainability, reliability, or interchangeability. Specifically, (VE) as contemplated by this subpart constitutes a systematic and creative effort, not required by any other provision of the contract, directed toward analyzing each contract item or task to ensure that its essential function is provided at the lowest overall cost. Overall cost may include, but need not be limited to, the costs of acquiring, operating, and logistically supporting an item or system. VE provisions may be incorporated into a contract by using the VE incentive clause which set forth the methods by which a contractor may propose ways to perform the contract more economically and share in any resulting cost saving, or by using the VE program requirement clause which requires the contractor to establish a VE program aimed at identifying more economical ways to

perform the contract and which may include incentive sharing.

(b) In order to realize fully the cost saving potential of VE, it is DOT policy to:

(1) Incorporate provisions which encourage or require VE into all contracts for supplies, services and construction of sufficient size and duration which offer reasonable likelihood for cost savings.

(2) Assure contractors a substantive share in cost savings, ie., a fair proportion of the savings applied to a substantial base.

(3) Objectively and expeditiously process value engineering change proposals (VECPs) submitted by contractors.

(4) Encourage subcontractor participation through extension of VE incentives, by prime contractors, to appropriate subcontractors.

§ 12-1.5202 Value engineering incentives. § 12-1.5202-1 Description.

(a) The objective of a VE incentive provision is to encourage the contractor to submit VECPS by permitting the contractor to share in cost savings. To be acceptable, a VECP must involve some change in the contract specifications, purchase description, or statement of work; this may include the elimination or modification of any requirement found to be in excess of actual needs in the areas of, for example, design, components, materials, material processes, tolerances, packaging requirements, technical data requirements, or testing procedures and requirements, and consequent reduction in the contract cost. Furthermore, even when the contract cost may be increased, the incentive provisions encourage contractors to submit VECPs that are likely to lead to overall savings resulting from significant net reductions in collateral costs of Government-furnished property, operational requirements of logistic support requirements.

(b) VE proposals which satisfy the above requirements shall not be rejected on the ground that they also involve a termination, in whole or in part, of contract line items; moreover, the cost savings resulting from such