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the contractor and the Government auditor.

Prior to establishing or changing the billing rates, the contracting officer should seek the advice of the Agency's audit function as to the acceptability of the billing rates proposed by the contractor.

(b) The following clause shall be used when the contractor's normal method of interim overhead reimbursement is based on negotiated provisional rates. The provisional rates will remain in effect until such time as the contract is amended. The rates shall be listed immediately below the clause along with the base of applications for each rate listed:

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INDIRECT COSTS (PROVISIONAL RATES) Pending establishment of final overhead rates as provided for in the clause titled "Negotiated Overhead Rates", the contractor shall be reimbursed for indirect costs on the basis of the negotiated provisional rates set forth below, which rates shall remain in effect until the contract is amended to incorporate either (a) final overhead rates for a specific period or periods or (b) revised negotiated provisional overhead rates as provided for in paragraph (e) of the clause of this contract entitled "Negotiated Overhead Rates".

Prior to establishing or revising the negotiated provisional rates, the contracting officer should request the contractor to submit for review his proposed overhead rates with supporting cost data, with a copy to the cognizant audit activity. Provisional overhead rates may be revised after the contracting officer has either (1) received advice that the Department of Defense or other Government office sponsoring overhead negotiations with the contractor has negotiated acceptable overhead rates or (2) if the FAA is sponsoring the negotiations, the FAA contracting officer has arrived at an agreement with the contractor on the rates to be used (see also § 2-3.704–5).

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§ 2-3.702 results or will result by the use of negotiated final overhead rates, the contracting officer will provide for settlement of overhead by audit determination. In these cases the following clause shall be used in lieu of the "Negotiated Overhead Rate" clause prescribed in §§ 2-3.704-1 and 2-3.704-2:

INDIRECT COSTS (ACTUAL)

In addition to all costs reimbursable under the "Allowable Cost, Fixed Fee and Payment" clause of the contract, the contractor shall be paid his actual overhead cost. Allowable overhead cost will be determined in accordance with the principles set forth in Subpart 1-15.2 of the Federal Procurement Regulation. Any failure of the parties hereto to agree as to what constitute actual overhead costs shall be considered a dispute covering a question of fact within the meaning of the clause of this contract entitled "Disputes".

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Cost-sharing arrangements are frequently made wherein the cost participation by the contractor is evidenced by an agreement to accept overhead rates which are lower than the anticipated actual overhead rates. In such cases a negotiated fixed-ceiling overhead rate may be used for application prospectively: Provided, That in the event overhead rates developed by the cognizant audit activity on the basis of actual allowable costs are less than the negotiated rates, the negotiated rates will be reduced. Where reductions are necessary they will be accomplished in accordance with 2-56.556 of this chapter. The Government will not be obligated to pay any additional amounts on account of overhead above the negotiated fixedceiling rates.

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(a) Agency Order 1800.1, particularly Chapter I thereof, describes and defines various stages and types of research and development procurement. Agency Order 4400.4 defines equipment models and outlines specific responsibility for development and procurement of various types of equipment used in the National Airspace System (NAS).

(b) The following definitions and descriptions contained in Order 4400.4 are for general Agency application:

(1) Development contract. A contract for the development of equipment or systems with no provision for quantity production. (This type of contract is used to develop or procure hardware and sys

tems for evaluation and/or consideration for incorporation into the NAS.) Because of the type of models involved, there is no consideration given to production procurement in this type of contract and R&D funds are normally used. Facilities and equipment funds may be used in the case of a development model which is to be installed at a field facility with the expectation of commissioning. Only services having development responsibility may use this type of contract.

(2) Prototype production contract (two-phase contract). A contract for the development of equipment with provision for quantity production following acceptance of the prototype. This type of contract is used to procure hardware and systems for incorporation into the NAS after successful completion of a development contract, or where because of relative simplicity no development contract is required. It is a two-phase contract in which the second or production phase is contingent upon the successful completion of the first or prototype phase.

(3) Production contract. A contract not involving development and intended for quantity production only. This type of contract is used to procure hardware and systems where neither the developing nor procuring service feels the need for a prototype model. It is particularly appropriate for the simpler types of hardware, the contractor's commercial product, and second or add-on rounds of procurement when complete specifications and/or drawings with parts lists are available. Facilities and equipment funds are applicable and funding actions are initiated by the procuring service.

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§ 2-4.5004 Publicizing procurement actions and expanding sources.

The Agency shall continually search for and develop information on sources (including small business concerns) competent to perform research and development. Advance publicity, including use of the Commerce Business Daily to the fullest extent practicable, shall be given for this purpose. The search should include (a) a review of relevant data or brochures furnished by sources seeking research and development work and (b) a cooperative effort by technical personnel, small business specialists, and contracting officers to obtain information and recommendations with respect to potential sources and to consider the desirability for seeking other sources by publication of proposed procurements, ir. addition to the synopsis requirement. § 2-4.5005 Method of contracting.

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In research and development procurements it is generally not possible to formulate precise specifications necessary for formal advertising and, therefore, negotiation is necessary. herent difficulties in obtaining research and development by formal advertising are recognized by the exception for negotiation in § 1-3.211 of this title. However, two-step formal advertising as stated in Subpart 1-2.5 of this title may be useful, for example, in the case of an advanced developmental project. While the use of negotiation is the general rule for research and development contract, this does not diminish the obligation to obtain competition to the maximum practicable extent.

§ 2-4.5006 Selection of research and development contractors.

§ 2-4.5006-1 Selection of sources.

(a) General. Through its research and development program, the FAA must seek the most advanced scientific knowledge attainable and the best possible equipment and systems that can be devised and produced. This means two things. First, it means seeking the best scientific and technological sources consistent with the demands of the proposed procurement for the best mix of cost, performances and schedules. Second, it means unremitting efforts to increase the number of qualified sources, and to

encourage participation by small business concerns, as well as others, in FAA research and development.

(b) Small business sources. (1) Contracting officers, technical personnel, and small business specialist shall cooperatively seek and develop information on the technical competence of small business concerns for research and development contracts. Small business specialists shall regularly bring to the attention of contracting officers and technical personnel descriptive data, brochures, and other information as to small business concerns that are apparently competent to perform research or development work in fields in which the purchasing activity is interested.

(2) In order to cooperate with the Small Business Administration in carrying out its responsibility of assisting small business concerns to obtain contracts for research and development, contracting officers, technical personnel and small business specialists shall, upon request, provide to authorized SBA representatives through the cognizant Small Business Specialist information necessary to understand the Government's needs concerning research and development programs under consideration for specific future procurement actions.

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In soliciting proposals for the conduct of research and exploratory development, it may be desirable for the Government to furnish prospective contractors with certain information to elaborate on the proposed statement of work, permit optimum response by offerors, and allow more timely and comparable evaluation of proposals by the Government. This information normally should consist of the Government's estimate of the scientific and technical man-effort, or other reasonable indicators, it envisions when it is not possible to describe the magnitude of the proposed work to a sufficiently definitive degree. For example, the estimated effort may be expressed in terms of numbers of man-months or years in particular occupational categories. This technique may be appropriate in cases of contracts for research studies, investigations, or laboratory scale evaluations of feasibility where the Government desires to limit the scope of effort

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(a) Generally, research and development contracts should be awarded to those organizations, including educational organizations, which have the highest competence in the specific field of science or technology involved. However, awards should not be made for research or development capabilities that exceed those needed for the successful performance of the work.

(b) Before determining the technical competence of prospective contractors, and recommending to the contracting officer the concern or concerns that they consider most technically competent, cognizant technical personnel shall consider the following:

(1) The contractor's understanding of the scope of the work as shown by the scientific or technical approach proposed;

(2) Availability and competence of experienced engineering, scientific, or other technical personnel;

(3) Availability, from any source, of necessary research, test, and production facilities;

(4) Experience or pertinent novel ideas in the specific branch of science or technology involved; and

(5) The contractor's willingness to devote his resource to the prepared work with appropriate diligence.

(c) Agency Order 4400.6 prescribes procedures to be applied when evaluating technical proposals. In determining

to whom the contract shall be awarded, the contracting officer shall consider not only technical competence, but also all other pertinent factors including management capabilities, cost controls including the nature and effectiveness of any cost reduction program and past performance in adhering to contract requirements, weighing each factor in accordance with the requirements of the particular procurement. The contracting officer shall notify those sources whose proposal or offers have been determined to be unacceptable of that decision.

§ 2-4.5007 Placing subcontracts for research and development effort.

Since the selection of research or development contractors is based upon seeking the best scientific and technological sources, it is important that the contractor selected on this basis does not in turn subcontract technical or scientific work without prior approval of the contracting officer. The clause prescribed in § 2-7.250-21 of this title for cost-reimbursement type research and development contracts, requires prior written consent of the contracting officer for the placement of any subcontract which has experimental, developmental, or research work as one of its purposes. During the negotiation of the contract, it is imperative that the contracting officer obtain complete information concerning the contractor's plans for subcontracting any portion of the research or development effort.

§ 2-4.5008 Technical reports.

(a) Technical reports are documents written for the permanent record to document results obtained from and recommendations made on scientific and technical activities relating to a single project, task, or contract.

(b) FAA Specification FAA-D-2129, dated June 12, 1964, establishes the requirements for the preparation of technical reports by FAA contractors, and requires that such reports be prepared in accordance therewith. The types of reports shall be as specified in the contract. A contractor may not modify or deviate from the requirements specified in FAA-D-2129 without approval of the contracting officer.

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