(b) The subcontracting policies and procedures in this Subpart should generally be applied to those procurements where (1) the item, system, or work is complex, the dollar value is substantial, or competition is restricted, and (2) either (i) a cost-reimbursement, price redetermination, or incentive type contract is to be used, or (ii) "make-orbuy" decisions are expected to have a substantial impact on negotiations.

§ 18-3.902 "Make-or-buy” program. § 18-3.902-1

General.

(a) A "make-or-buy" program is that part of a contractor's written plan for the development or production of an end item which outlines the subsystems and major components, assemblies, subassemblies, and parts to be manufactured (including testing, treating, and assembling) in its own facilities and those which will be obtained elsewhere by subcontract. A "make" item is any item produced, or work performed, by the contractor or his affiliate, subsidiary, or division.

(b) (1) Where the nature of the procurement is such that, in view of the factors referred to in § 18-3.901(b), review of the "make-or-buy" program is appropriate or is otherwise considered essential, the prospective contractor will be required to submit his proposed "makeor-buy" program, together with sufficient data to permit the contracting officer to evaluate such factors in paragraph (e) of this section as are pertinent.

(2) At the time a request for proposal is issued, contracting officers will request potential suppliers to furnish "make-orbuy" programs on all negotiated procurements, except as otherwise provided in subparagraph (3), (4), or (5) of this paragraph.

(3) A "make-or-buy" program will not be required when a proposed contract has a total estimated cost of less than $1,000,000, unless the contracting officer specifically determines that a "make-orbuy" program is appropriate.

(4) Except where their performance involves significant fabrication of hardware items, research and development contracts are not subject to the "makeor-buy" requirements of this Subpart.

(5) A "make-or-buy" program will not be required if the contracting officer determines that none of the factors in § 18-3.901 (b) is applicable.

(6) The requirement for submission of a "make-or-buy" program is an important factor to be considered in establishing a realistic date for submission of proposals.

(c) The contractor will be informed that the program he submits should be confined to important items which, because of their complexity, quantity, cost, or requirement for additional Government facilities, normally would require company management review of the "make-or-buy" decision. "Detail parts" or "off-the-shelf" items will not be incorporated in a "make-or-buy" program unless their potential impact on program or schedule makes their inclusion necessary. If the design status of the end item being procured is not sufficiently advanced to permit accurate precontract identification of all items that may be subject to "make-or-buy" decisions, the contractor shall be notified that such items must be submitted, when identifiable, under the terms of the contract clause entitled "Changes to Makeor-Buy Program."

(d) The contractor will submit, with his proposal, a "make-or-buy" program of important items, including, in addition to information required by paragraph (b) (1) of this section:

(1) A description by which each such item can be readily identified;

(2) A recommendation to make or buy the item or defer the decision, and the reasons therefor;

(3) When feasible, the names of proposed subcontractors, including the specific division, plant, and plant location in which the subcontractor proposes to perform the work; and

(4) The important items to be made by the contractor, including a designation of the specific division, plant, and plant location in which the contractor proposes to perform the work.

(e) "Make-or-buy" programs will be evaluated and agreed upon by the contractor and the contracting officer at the earliest practicable time during negotiations. In reviewing the "make-or-buy" program during negotiations, the effect of the following factors on the interests of the Government shall be considered:

(1) The effect of the contractor's plan to make or buy, as the case may be, on price, quality, delivery, and performance;

(2) Whether the contractor plans to broaden his base of subcontractors through competition;

(3) Whether the contractor has properly considered the competence, abilities, experience, and capacities available within other firms;

(4) Whether small business and labor surplus area concerns are given an equitable opportunity to compete for subcontracts;

(5) Whether the contractor or major subcontractors propose to do work in plant, the nature of which differs significantly from their normal in-plant operations or for which they are not historically suited;

(6) Whether production of the item or performance of the work will create a requirement, either directly or indirectly, for additional facilities to be furnished by the Government, or for the continued use of Government-owned facilities by the contractor or by subcontractors;

(7) Whether the contractor proposes to ask the Government to furnish additional facilities to do a type of work in plant for which there is capacity elsewhere which is competitive in quality, delivery, and overall cost, and is acceptable as a source to the contractor;

(8) Whether the item or work has been subcontracted on this or previous contracts; and

(9) Other factors, such as the nature of the item, experience with similar items, future requirements, engineering, tooling, starting load costs, market conditions, and the availability of personnel and material.

(f) The contracting officer will review the "make-or-buy" program to determine if all appropriate items are included and if it contains items that should be deleted because of their relatively minor importance. In all considerations relative to a "make-or-buy" program, the contracting officer will obtain the advice and assistance of all appropriate personnel (including technical, pricing, and small business personnel) whose knowledge would contribute to the adequacy of all facets of the review. Before agreeing to a "make-or-buy" program (or consenting to any changes therein which, in the opinion of the contracting officer, would reduce the anticipated participation of small business), the contracting officer shall invite the advice and counsel of the SBA by permitting SBA representatives regularly assigned to the installation to review all pertinent facts

and make recommendations thereon. Such review should be concurrent with the review by the contracting officer. Where urgent circumstances do not permit such a current review, or where SBA fails to respond on a timely basis, the contracting officer shall include an explanatory statement in the contract file and shall furnish a copy to the SBA representative.

(g) Proposed "make" items shall not be agreed to when the products or service under consideration:

(1) Are not regularly manufactured or provided by the contractor, and in the opinion of the contracting officer are available quality, quantity, delivery, and other essential factors consideredfrom other firms at prices no higher than if the contractor should make or provide the product or service; or

(2) Are regularly manufactured or provided by the contractor, and are available-quality, quantity, delivery, and other essential factors consideredfrom other firms at prices lower than if the contractor should make or provide the product or services:

Provided, That such items may be agreed to, notwithstanding subparagraphs (1) and (2) of this paragraph, if in the opinion of the contracting officer the overall cost of the contract to the Government would be increased if the item were "bought."

(h) After agreement on the program is reached, the contracting officer shall notify the contractor of the Government's approval of the program and shall inform the contractor of any requirement for further review during performance of the contract. For example, if follow-on procurement occurs, the contracting officer and the contractor will review the existing "make-or-buy" program to determine whether it should be revised.

(i) The following clause shall be incorporated in all cost reimbursement, price redetermination, or incentive type contracts as to which a "make-or-buy" program has been agreed upon: CHANGES TO MAKE-OR-BUY PROGRAM (MARCH 1963)

The Contractor agrees to perform this contract in accordance with the "make-or-buy" program attached to this contract except as hereinafter provided. If the Contractor desires to change the "make-or-buy" program, he shall notify the Contracting Officer in

writing of the proposed change reasonably in advance and shall submit justification in sufficient detail to permit evaluation of the proposed change. Changes in the place of performance of work or any "make" item in the "make-or-buy" program are subject to this requirement. With respect to items deferred at the time of negotiation of this contract for later additions to the "make-orbuy" program, the Contractor shall notify the Contracting Officer of each proposed addition at the earliest possible time, together with justification in sufficient detail to permit evaluation. The Contractor shall not, without the written consent of the Contracting Officer, make changes or additions to the program: Provided, That in his discretion the Contracting Officer may ratify in writing any changes or additions and such ratification shall constitute the consent of the Contracting Officer required by this clause. The "make-or-buy" program attached to this contract shall be deemed to be modified in accordance with the written consent or ratification by the Contracting Officer.

(j) On applicable contracts, the office responsible for performing contract administration will establish a procedure with the contractor to ensure timely compliance with the terms of the contract clause. This procedure will include provisions for processing changes to the established "make-or-buy" program and for obtaining "make-or-buy" decisions for items reserved for deferred decisions or unidentified at the time of contract negotiation. The responsible contract administration officer will (1) receive requests from the contractor for changes in, or additions to, the established "make-or-buy" structure, (2) evaluate the contractor's proposals, and (3) forward them, with his recommendations, to the appropriate NASA contracting officer. When reviewing proposed changes in, or additions to, the established "make-or-buy" program, the NASA contracting officer shall consult with appropriate personnel, as provided in paragraph (f) of this section.

(k) Approval of the contractor's purchasing system shall not constitute approval of the "make-or-buy" program where the latter is required.

(1) When a "make-or-buy" program is agreed upon with a contractor, or there are changes or additions to a "make-or-buy" program, the consideration given each item on such program will be documented in the contract file. If a contract (including supplemental

agreements for new procurement), except those specifically exempted by paragraph (b) of this section, does not inIclude the clause entitled "Changes to Make-or-Buy Program," the contracting officer will document the contract file with a written statement of facts to sustain and make clear the appropriateness of the determination not to include the clause. Such determination will be based on one of the following:

(1) The contract is on a firm fixedprice basis;

(2) The contract is not exempt but there are no items which can be identified as requiring a "make-or-buy" program as defined in paragraph (a) of this section; or

(3) A deviation has been approved pursuant to § 18-1.109.

For

(a) There may be cases where it is proper to agree that an item of significant value will be "bought" even though it would usually be more economical to have it "made" or vice versa. instance, the contractor may have a unique capability for low-cost manufacture of a substantial component but his capacity may already be full during the period necessary for contract performance, so the component must be subcontracted. Therefore, the agreedupon "make-or-buy" program may specifically call for what would usually be the more costly treatment of the item and the consequent higher costs may be explicitly recognized in establishing the best obtainable contract price. seen changes in the circumstances, however, may arise during contract performance and may induce the contractor to propose changing the item from "buy" to "make" (or vice versa). If such a change is made, the element of the contract price which was intended to compensate the contractor for the higher costs flowing from the initial “make-orbuy" decision will instead constitute windfall profits to the contractor and unwarranted costs to the Government.

Unfore

(b) In procurements where the prospective contractor's "make-or-buy” program is reviewed pursuant to § 18-3.902, if a situation of the kind described in paragraph (a) of this section obtains, the clause set forth below shall be included

in the contract (unless it is a cost-reimbursement type contract) and any "make-or-buy" items of the kind described in paragraph (a) of this section shall be specifically designated in the schedule (or elsewhere in the contract) both as being either a "make" item or a "buy" item and as being subject to this clause.

PRICE ADJUSTMENT FOR MAKE-OR-BUY

CHANGES (MARCH, 1963)

This clause applies only to items that are designated elsewhere in the contract as being "make" items or "buy" items subject to this clause. If the Contractor desires to "make" any designated "buy" item or to "buy" any designated "make" item, he will give written notice to the Contracting Officer of the proposed change reasonably in advance and will include significant and reasonably available cost and pricing data in sufficient detail to permit evaluation of the proposed change. Promptly thereafter, if the Contractor proceeds with the change, the Contractor and the Contracting Officer will negotiate an equitable reduction in the contract price to reflect any decrease in costs which should reasonably result from the change, and the contract will be modified in writing accordingly. Failure to agree on an equitable reduction shall be a dispute concerning a question of fact within the meaning of the "Disputes" clause of this contract.

§ 18-3.902-50 Special considerations research and development contracts. Research and development contracts shall, when source selection has been substantially predicated upon the possession by a given contractor of special capabilities, as represented by either key personnel or facilities, contain a schedule setting forth the designated personnel and facilities and the following clause shall be incorporated in such contracts: KEY PERSONNEL AND FACILITIES (MARCH 1963) The personnel and/or facilities specified in the schedule attached to this contract are considered to be essential to the work being performed hereunder. Prior to diverting any of the specified individuals or facilities to other programs the Contractor shall notify the Contracting Officer reasonably in advance and shall submit justification (including proposed substitutions) in sufficient detail to permit evaluation of the impact on the program. No diversion shall be made by the Contractor without the written consent of the Contracting Officer: Provided, That the Contracting Officer may ratify in writing such diversion and such ratification shall constitute the consent of the Contracting

Officer required by this clause. The schedule attached to this contract may, with the consent of the contracting parties, be amended from time to time during the course of the contract to either add or delete personnel and/or facilities, as appropriate.

§ 18-3.903

Review of subcontracting and contractor's purchasing systems. Examination of the contractor's purchasing system and plans for subcontracting, review of proposed subcontract sources and prices in the light of the factors indicated in § 18-3.901, and discussions with the contractor to bring about any adjustments which may be needed to clear the way for formal subcontract approval should generally be accomplished as part of the negotiation of the prime contract. Any resulting purchasing system approvals will be granted in accordance with § 18-3.903-3.

§ 18-3.903-1 Contract clauses.

(a) The "Subcontracts" clauses, covering Government consent to subcontracts, are set forth in this chapter as follows:

(1) For fixed-price supply contracts which include a price redetermination or incentive provision, in § 18-7.104-23 (a) of this chapter;

(2) For cost-reimbursement type supply contracts, in § 18-7.203- of this chapter;

(3) For fixed-price research and development contracts which include a price redetermination or incentive provision, in § 18-7.303-12 of this chapter;

(4) For cost-reimbursement type research and development contracts, § 187.402-8 of this chapter; and

(5) For cost-reimbursement type research and development contracts with nonprofit institutions (including educational institutions), § 18-7.451-8 of this chapter.

(b) § 18-7.104-23 (b) sets forth a subcontract clause which may be used in fixed-price supply contracts which do not include a price redetermination or incentive provision. Such clause may also be used in fixed-price research and development contracts which do not include a price redetermination or incentive provision (see § 18-7.303-12 of this chapter).

shall be accorded by individual consent on a subcontract-by-subcontract basis. However, where the contractor's purchasing system has been approved, in whole or in part, such consent is not required for subcontracts within the scope of such approval, except in the case of cost-reimbursement type contracts containing one of the contract clauses set forth in § 18-7.203-8, § 187.402-8, or § 18-7.451-8 of this chapter; individual consent cannot be waived with respect to those types of subcontracts for which individual consent is specifically required to be obtained pursuant to such clauses.

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(b) The purposes of subcontract consent requirements are usually best served if review and analysis of the contractor's purchasing system and of his proposed subcontracts are carried out in conjunction with negotiation of the prime contract (and concurrently with any review of the contractor's "make-or-buy" program as required by § 18-3.902). though consent to subcontracts cannot always be formally accomplished prior to execution of the prime contract( since definitive subcontracts are not generally entered into until after execution of the prime), the review, analysis, and discussion leading up to such formal consent should, where feasible, be conducted during the negotiation process.

(c) Purchases by a contractor from General Services Administration supply sources under a written authorization by the contracting officer (see § 18-5.906 of this chapter) shall be treated as having been made with the consent of the contracting officer.

(d) The responsibility for subcontract selection, pricing, and administration rests with the prime contractor. Contracting officers must exercise the degree of review and surveillance necessary to assure that the contractor's responsibilities are being discharged effectively. Consequently, the responsibilities of contracting officers do not end with the consent to subcontracts. When a proposed subcontract is of substantial magnitude, or may reasonably be anticipated to have a significant impact on performance under the prime contract, contracting officers must concern themselves with the effectiveness of subcontract administration. In appropriate circumstances, contracting officers may require, as a

(a) The effectiveness of a potential contractor's purchasing system and his system for management of subcontracts will be regarded as one of the essential criteria in determining responsibility pursuant to § 18-1.903 of this chapter. Performance during the course of a contract, in the areas of purchasing and subcontract management, will be a relevant consideration in determining future awards. When an award is contemplated, the NASA contracting officer shall assure himself as to the adequacy of a contractor's purchasing system and subcontractor management either by reference to a survey previously conducted or by a review in accordance with the minimum standards prescribed in § 18-3.903-3(g) to the extent appropriate in the light of the contractor's proven procurement ability and the dollar value of the proposed contract.

(b) The Director of Procurement will establish a list of major contractors whose purchasing systems will be surveyed, and he will be responsible for directing the accomplishment of such surveys. Normally, performance of surveys will be assigned to a field installation, taking into consideration such factors as availability and qualifications of personnel, dollar volume of contracts with the contractor, and location of facilities to be surveyed. When unusual or special problems are expected or known to exist, the Director of Procurement may elect to have representatives of the Office of Procurement perform or participate in the survey. Selection of a contractor to be surveyed will be based on the dollar volume of current and anticipated contracts with NASA and the factors set forth in § 18-3.901(b).

(c) Procurement officers desiring to have a contractor's purchasing system approved by NASA shall forward a quest for such approval to the Director

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