office issuing them to the SWPC Procurement Specialist at that office, to the extent desired by SWPC.

§ 802.225-6 Action at the contracting office. (a) The contracting office and the SWPC Procurement Specialist at that office will mutually decide, on all procurements (secret and confidential procurements are excluded, except where specifically authorized under § 802.225-5 (b)):

(1) Whether a particular procurement is suitable for manufacture by small

concerns.

(2) The minimum portions of procurements found suitable under (1) which the contracting office will endeavor to place with designees of SWPC in compliance with §§ 802.223-1 to 802.223-8.

(3) In cases found suitable under (1) and (2), how many SWPC designations will be sought, from which SWPC regions they will be sought, and by what date such designations will be submitted to the contracting office.

(4) While emergency procurements are normally excluded under § 802.225-4 (a) (1) from further processing through SWPC, the contracting office may in its discretion allow the SWPC Procurement Specialist, if time permits, to suggest sources, when such action does not delay the procurement.

(b) Other action to be taken by the contracting office includes:

(1) A set of drawings, specifications and prints will be made available to the SWPC Procurement Specialist as soon as practicable after the SWPC Procurement Specialist requests them in connection with a particular procurement. Additional sets will be furnished, if available; and if not available, full descriptive information to the extent available will be given the SWPC Procurement Specialist.

(2) The contracting office will make available to the SWPC Procurement Specialist the names of small plant sources considered suitable by the contracting office for a particular procurement. SWPC will, under its procedures, designate or indicate reasons for refusing to designate such sources.

(3) Small concerns designated by SWPC in accordance with (a) (3) above will normally be given an opportunity to bid or negotiate. If a contracting office does not consider that a SWPC designee

should receive this opportunity, the SWPC Procurement Specialist shall be given the reasons therefor.

(4) On the date established under (a) (3) the contracting office will consider not only SWPC designations that have been submitted for the particular procurement by that date but also any other sources of the contracting office's choice, and will determine which of such firms will be given an opportunity to bid or negotiate.

(5) Opportunity will be given the SWPC Procurement Specialist to make representations to the contracting office in behalf of concerns designated by SWPC for the procurement involved after final bid prices have been received but before final choice of contract placement is made. Copies of abstracts of bids, if available, on procurements in which SWPC participates under (a) (3) will be furnished at this time to the SWPC Procurement Specialist; if a copy is not available, information will be made available so that the SWPC Procurement Specialist may make his own copy.

(6) Negotiation and placement of awards will be governed by the factors enumerated in §§ 802.223-1 to 802.223-8. While the contracting office will endeavor to fulfill the percentage allotment for SWPC designees, and to place contracts with such designees for as great a percentage as is practicable, first consideration shall be, in all cases, that of securing performance or deliveries at the time, in the quantity, and of the quality required by the war program, and nothing in §§ 802.225-1 to 802.225-9 shall detract from that consideration. In considering the factor referred to in § 802.223-7 with respect to small business concerns, the contracting office may determine that the "most effective utilization of the small plants of the nation" will be accomplished, in a particular instance, by the payment of a higher price (when such price is proved to result from a justifiably higher cost) to a capable small plant in need of business as against a lower price bid by another small plant with an ample work-load.

(7) The SWPC copy of the abstract or information indicated in (5) will be noted as to awards made and signed by the contracting office.

(c) In the event the SWPC Procurement Specialist does not agree with the position taken by a contracting officer on the points enumerated in (a) and

(b), or if small firms chosen by the contracting office to receive awards are considered by SWPC as not suitable to receive award under the procurement and the reasons given by SWPC for this decision are not acceptable to the contracting office, reasonable opportunity will be given SWPC, if military urgency permits, to submit the difference of opinion to the chief of procurement of the contracting office for final decision.

§ 802.225-7 Encouraging subcontracting to small concerns. (a) In order to promote subcontracting to small concerns, the chief of each technical service will instruct contracting personnel at all levels to bring to the attention of prospective contractors the policy of the War Department to encourage subcontracting to the greatest practicable degree. The attention of such prospective contractors will be called to the contract clauses set forth in §§ 803.367 to 803.368 of this chapter.

(b) Additional subcontracting to small concerns by existing contractors will be fostered to the degree practicable. When the chief of a technical service or his duly authorized representative determines that increased costs under such additional subcontracts are justifiable, he is authorized to enter into and approve supplemental agreements amending or modifying such existing contracts to provide for the payment of an increased price to the prime contractor to cover the increased costs of such subcontracting. Any such agreement will be made pursuant to the First War Powers Act. 1941, and Executive Order 9001, and may be made without consideration to the Government other than the promotion of the policies stated in Public Law 603, 77th Congress and § 802.225-7 (b) and (c).

(c) The procedures described in paragraph (b) above will be applied to subcontracts where it appears to be practicable to get a subcontractor to spread his load among more subcontractors.

§ 802.225-8 Limitations-(a) Standardization. While the SWPC Procurement Specialists will be afforded every practicable assistance in bringing about the further spread of work to smaller plants, consistent with the factors enumerated in §§ 802.223-1 to 802.223-8, inclusive, standardization programs on items where a flow of replacement parts is a factor will also be taken into account

in connection with applying the Small War Plants policy.

(b) Preventing abuses. In carrying out the policy of spreading the work to smaller war plants, contracting officers must take precautions to prevent abuse of the preferred position of such plants. For instance, a smaller war plant contractor should not be allowed to subcontract substantially the entire work to a large plant at a lower price and thereby to operate virtually as a contract broker.

§ 802.225-9 Policy matters in connection with the Smaller War Plants Acts. Matters of procedural disagreement will be referred to the headquarters of the technical service involved for settlement with the SWPC Procurement Specialist at that headquarters. If such disagreements cannot be settled at that level, reference will be made by the technical service to the Small War Plants Branch, Purchases Division, Headquarters, Army Service Forces. All matters of basic policy relating to prime contracting and subcontracting with smaller plants will be dealt with for SWPC by its Washington headquarters and for the War Department by the Small War Plants Branch, Purchases Division, Headquarters, Army Service Forces. On such matters, contact will be between these offices.

§ 802.225a. Policies for the protection of manufacturers of materials and components. (a) The Procurement Policy Board of the War Production Board has adopted the following policies for the protection of manufacturers of materials and components:

(1) Manufacturers and suppliers of certain materials and components (including certain B products as defined in the Controlled Materials Plan) used in war production have been obligated to carry stocks of such materials, finished components and work in process and to enter into commitments for work and supplies for the manufacture of such materials and components, in excess of requirements under firm orders of such components actually place with them by their war production customers.

(2) Without such inventory and commitments and without manufacture in anticipation of firm orders, the manufacturers in question would not be in a position to meet promptly the purchase orders which are placed with them by war producers, frequently on short notice or on a short-term basis. These manufacturers are thus faced with a continuing

large volume of short-term war production orders requiring the maintenance of an inventory of materials, completed components and work in process, but without the protection of a back-log of legal commitments from customers necessary to cover the production cycle involved. In the event of mass termination, such manufacturers would be unable to collect costs under existing termination procedures, except to the extent that they hold orders for such materials and components.

(3) In view of the administrative difficulties involved in direct dealings with the manufacturers of materials and components, the policy is to afford protection to such manufacturers of materials and components in the following manner:

(i) Such manufacturers will look for protection to the war contractors and subcontractors with whom they deal by requiring from them adequate placement of advance orders.

(ii) Prime war contractors and their subcontractors requiring use of such materials and components should place advance orders with their respective subcontractors and suppliers, from time to time (but within the total quantitative requirements of the particular contracts), sufficient to protect such subcontractors and suppliers throughout the cycle of production required to produce such materials and components.

(iii) In carrying out this policy it is important to avoid the unreasonable accumulation of excess inventories either by the manufacturers of such materials and components or by the war contractors and subcontractors to whom such manufacturers sell these materials and components. Accordingly, war contractors and subcontractors should carefully schedule production and deliveries under such advance orders and require the manufacturers of such materials and components to adhere reasonably to the schedules so arranged in accordance with sound production planning. However, in the event of the termination of such advance orders, inventories of such materials, components or work in process reasonably acquired for the performance of such orders should be taken into account and paid for in the termination settlement of such orders.

(iv) So far as possible, advance orders placed for such materials and components should contain the approved subcontract termination article for use in

fixed price orders or subcontracts. The inclusion of this provision is intended to provide fair compensation to the manufacturer of the materials and components in the event of termination, but the absence of this provision will not operate to deprive such manufacturers of fair compensation in the event of termination of orders placed with them.

(b) In connection with the foregoing policies, reference is made to § 803.309a of this subchapter providing for the inclusion in subcontracts and sub-subcontracts of a reference to the number of the applicable prime contract. [Proc. Reg. 2, C 51, Aug. 23, 1945, 10 F.R. 11419]

§ 802.225b Purchases from or through jobbers, distributors or other intermediaries. The policy of the War Department is not to pay for functions or services which are of no benefit to it. During the period following VE-day, some manufacturers who formerly dealt directly with the War Department have attempted to require that contracts for their products be placed with intermediaries, such as jobbers, brokers and distributors. Intervention of an intermediary in this manner will not be permitted unless the intermediary performs a necessary and substantial function or service for the War Department or such intervention will not result in a contract price higher than that which would properly be payable by the War Department if the contract were placed directly with the manufacturer. [Proc. Reg. 2,

C 51, Aug. 23, 1945, 10 F.R. 11419] § 802.226 Debarred bidders.

§ 802.226-1 Persons disqualified. Contracts will not be placed with persons who are on any of the following lists of debarred bidders.

(a) List of bidders debarred from bidding on War Department contracts by reason of violations of the Walsh-Healey Act. (See 809.916 and following.)

(b) List of bidders debarred from bidding on War Department contracts by reason of violations of the Davis-Bacon Act. (See § 809.910 and following.)

(c) War Department confidential list of bidders to whom awards will not be made.

(d) The proclaimed list of blocked nationals which the Secretary of State from time to time publishes listing persons and organizations deemed to be acting directly or indirectly for the benefit of the enemy. (See § 811.1185.)

§ 802.226-2 Distribution of lists. The Adjutant General will distribute to the technical services lists of bidders debarred by the Comptroller General by reason of violations of the Walsh-Healey Act or the Davis-Bacon Act and copies of the War Department confidential list of debarred bidders. Copies of the proclaimed list of blocked nationals will also be made available to the chiefs of the technical services.

§ 802.226-3 Procedures for placing bidders on confidential list—(a) Authority. The Adjutant General will place a bidder upon the confidential list of bidders to whom awards will not be made (1) where the Director, Purchases Division, Headquarters, Army Service Forces, determines that the bidder has been guilty of fraud or attempted fraud against the United States, or (2) for the duration of the present war, in any instance where the Director, Purchases Division, determines that the best interests of the United States require that contracts be not awarded to the bidder. In recommending that a bidder's name be placed on the list, the chief of a technical service will submit to the Director, Purchases Division, a full report of the specific instances of the bidder's alleged dereliction together with any available evidence relating to the contract concerned and the complaint against the bidder.

(b) Notice. If such action has not already been taken, the Director, Purchases Division, will send to the bidder by registered mail, a notice stating (1) that a recommendation has been made that the bidder's name be placed on the War Department's confidential list of bidders to whom awards will not be made, (2) the specific contract, bid, or action of the bidder as to which complaint is made, and the specific nature of the complaint in reasonable detail, and (3) that the bidder may make a statement in writing with respect to the complaint on or before a date fixed in the notice. The bidder will not be given access to any evidence in the hands of the War Department, except in the notice and statement required by this paragraph.

(c) Direction. The Director may make such investigations and study of the complaint, either directly or through The Judge Advocate General or The Inspector General, as he deems proper. If the Director determines that the bidder's name should be placed on the con

fidential list, he will transmit to The Adjutant General (1) the complete file, including any statement filed by the bidder, together with the direction to place the bidder's name on this list, and (2) drafts of notices of the action taken to be sent by The Adjutant General to the bidder, the technical services and the Comptroller General.

§ 802.227 Exceptions. Upon specific request the Director, Purchases Division, Headquarters, Army Service Forces may grant authority to depart from the policies stated in this subpart. Requests for such authority stating the reasons therefor will be forwarded to the Purchases Division, Headquarters, Army Service Forces. One such specific exemption granted to The Quartermaster General is referred to in QMS paragraph 2-2-3d (June 29, 1943). [Proc. Reg. 2, revised to Aug. 10, 1945, 10 F.R. 10466, as amended by C 51, Aug. 23, 1945, 10 F.R. 11419]

§ 802.228 Transfers of production to and from other war procurement agencies. Under a statement of policy adopted by the Procurement Policy Board of the War Production Board, the War Department has appointed a Liaison Officer for Transfer and an Alternate charged with the responsibility of administration of a system of coordinating, supplying and utilizing information concerning terminations or cutbacks of other war procurement agencies and of the War Department so that when desired, practicable and economical, transfers of such cutback and terminated production can be effected. The policy is set forth in detail in § 842.241-3 (d) of this chapter and Procurement Policy Board Document No. 164, reproduced in JTR (PR 15) Appendix C. [Proc. Reg. 2, C 51, Aug. 23, 1945, 10 F.R. 11419]

Subpart C-Contract Price Policies

§ 802.230 Basic objectives. Policies regarding contract prices have three main objectives: to maintain incentives for efficiency, reductions in costs and maximum production; to obtain fair prices and prevent excessive profits; and to contribute to the control of inflation.

§ 802.230-1 Incentives. Increasing shortages in materials and manpower imperatively require that all producers be encouraged to operate at their highest attainable efficiency with the minimum waste or misuse of materials and labor, if

maximum production of war equipment is to be reached and maintained. Increased efficiency, improved methods, and lower costs mean better use of available resources and savings in labor, materials and facilities and can be encouraged by making profits depend on efficiency. This requires careful purchasing and contracting to keep prices close enough to costs so that producers must exercise careful management and ingenuity to increase production and decrease costs in order to earn a reasonable profit.

§ 802.230-2 Profit control. In spending public money the War Department has the duty to see that its purchases are made at fair prices. In addition, pursuant to the Renegotiation Act, the War Department is charged with the responsibility for eliminating excessive profits on renegotiable business of contractors assigned to it for renegotiation. In many cases, skillful and careful negotiation of contracts will prevent excessive profits from accruing and make their renegotiation unnecessary.

§ 802.230-3 Inflation. For many types of military commodities ordinary methods of price control by maximum price regulations, formulas and ceilings become extremely complex and difficult to administer, and divide procurement responsibility. At the request of the War and Navy Departments the Office of Price Administration has agreed to refrain from further extending its price control over strictly military items, and in return the War and Navy Departments have undertaken the responsibility for maintaining control of prices in this limited exempted area. (See § 811.1132-2.)

§ 802.231-1 Sound pricing. The three objectives stated in $ 802.230 are all closely related and must be handled accordingly. In order to promote efficiency and prevent inflation, it is vitally necessary to obtain sound contract prices reasonably close to costs, since recapture of profits for past periods on renegotiation will not operate to control costs or inflationary tendencies. This requires effective purchasing and price supervision to obtain well-negotiated original contracts. The chief of each technical service will see that this policy is implemented and followed in his service. This will require the use of

appropriate contracts and contract provisions (discussed in this subpart), adequate methods of negotiation (discussed in Subpart D of this part) and effective price supervision (discussed in Subpart E of this part).

§ 802.231-2 Relation to contract placement policies. This basic policy of emphasizing the price element in negotiating contracts, stated in the preceding paragraph, is not inconsistent with the relatively minor importance of price in selecting contractors, stated in § 802.223-8. The selection of a contractor for a particular contract from among the qualified producers is based primarily on policies regarding speed and quality in performance and efficient use of manpower, materials and facilities. (See §§ 802.223-1 to 802.223-7.) In making this choice among producers the price of a particular producer as compared to other available producers is considered as less important than these other policies. When these other policies are satisfied by several producers, however, choice is based on comparative price. Moreover, the price to be fixed in the contract with the producer selected on these bases is vitally important. The fact that the war program requires that contractors be selected on bases other than comparative prices, makes it especially necessary to have sound methods of negotiation and price supervision to ensure that the contract prices agreed upon with such contractors will be close enough to their costs to encourage efficient operations, to prevent excessive profits and to restrain inflationary influences.

§ 802.232-1 Disadvantages. Fixed-fee contracts have the following disadvantages:

(a) The fixed-fee contract does not encourage efficiency to the same extent as the closely priced fixed price contract. While the fixed-fee contractor is obligated to perform in an efficient manner, he does not have the same direct financial inducement to economize in the use of materials, machinery or manpower, or to keep down material and labor costs, or to use ingenuity and inventiveness in finding substitutes and improvements.

(b) Such contracts require uneconomical use of auditing and administrative