supplies are destined for direct overseas shipment, inspection (and acceptance) will be made by the contracting officer or the official charged with such responsibility on the basis of a tally sheet evidencing receipt of shipment signed by the port transportation officer or other designated official at the transshipment point; or

(f) Otherwise determined to be in the best interest of the Government.

§ 14.106 Inspection of small purchases ($2,500 or less).

(a) This section applies to all small purchases, including items described in Federal and Military specifications, and qualified products. In determining the type and extent of Government inspection to be required on small purchases, the smallness of possible losses and the likelihood of uncontested replacement of defective articles shall be considered.

(b) Generally, inspection of small purchases shall be at destination. Purchasers, users, and installers may be considered inspectors for small purchase inspection purposes.

(c) Unless detailed technical inspection is necessary, inspection shall consist of examination of (1) type and kind, (2) quantity, (3) damage, (4) operability, if readily determinable, and (5) packaging and marking, if applicable.

(d) Detailed technical inspection shall be performed if special specifications are involved or if defective supplies can harm personnel or equipment.

(e) Detailed technical inspection may be limited to a check of characteristics that require separate specifications and of those likely to cause harm. Such inspection may be limited to inspection of occasional purchases of the same item from the same manufacturing source when there is good reason to rely upon the integrity of the manufacturer because of known safeguards and a significant history of defect-free purchases.

(f) Adjustments for short shipments or defective supplies shall be requested from suppliers when recovery will benefit the Government.

schedule. Unless the contract provides otherwise, such correction or replacement shall be without additional cost to the Government. Notices of rejection of nonconforming supplies or services need not be in writing unless (a) the supplies have been delivered to a point other than the contractor's plant, (b) the contractor persists in offering nonconforming supplies or services for acceptance, or (c) delivery or performance is overdue without excusable cause. The reasons for rejection normally shall be stated, and the contractor may be given any suggestions that might help in eliminating the cause of rejection. If timely notice of rejection is not furnished to the contractor, acceptance may in certain cases be implied as a matter of law from such omission. Therefore, notices of rejection should be furnished promptly to contractors whenever rejection is intended.

§ 14.108 Government inspection under

subcontracts.

Government inspection of subcontracted supplies shall be made only when required in the interest of the Government. The primary purpose of subcontract inspection is to assist the Government inspector at the prime contractor's plant in determining the conformance of supplies with contract requirements. It does not relieve the prime contractor of any of his responsibilities under the contract. Supplies that do not qualify under the criteria in § 14.105-2 for Government inspection at source shall not be inspected by the Government at the subcontractor's plant. Supplies for which certificates, records, reports, and similar evidence of quality are available at the prime contractor's plant shall not be Government inspected at the subcontractor's plant except occasionally to verify such evidence. However, Government inspection shall be performed at a subcontractor's plant whenever the Government contract requires. All oral and written statements and contract provisions relating to the inspection of subcontracted supplies shall be worded as not to (a) affect the contractual relationship between the prime contractor and the Government or between the prime contractor and the subcontractor, (b) establish a contractual relationship between the Government and the subcontractor or (c) constitute a waiver of the Government's right to inspect or reject supplies.

§ 14.109 Inspection for foreign govern

ments.

Inspection will be performed only for friendly foreign governments or international agencies and shall be administered in accordance with the foreign policy and security objectives of the United States. Such inspection will be provided only where consistent with or required by legislation, executive orders, or Department of Defense or Departmental policies concerning mutual security programs, setting forth foreign policy and security objectives. When inspection is performed outside the United States, the levels of technical capability and the administrative procedures not already prescribed in existing laws, Executive Orders, or Department of Defense policies will be in accordance with arrangements suitable and acceptable to United States country teams or commanders of unified and special commands, as appropriate. Subpart B-Acceptance

as

As used in Department of Defense contracts, "acceptance" generally means the act of an authorized representative of the Government by which the Government assents to ownership by it of existing and identified supplies, or approves specific services rendered, partial or complete performance of the contract. Except as provided in § 14.205, and subject to other terms and conditions of the contract, the Government thereby acknowledges that the supplies or services are in conformity with contract requirements, including those of quality, quantity, packaging, and marking. Depending upon the provisions of the contract, acceptance may be effected prior to, at the time of, or after delivery. However, supplies and services shall not be accepted prior to inspection, except as permitted in § 14.204. Acceptance shall ordinarily be accomplished by execution of an acceptance certificate on the applicable inspection and receiving report form (for example, DD Form 250, DD Form 1155, or Standard Form 44). Where acceptance is accomplished at a point other than destination, supplies shall not be reinspected at destination for acceptance purposes.

§ 14.202 Delivery under F.O.B. origin

contracts.

(a) Satisfactory evidence of delivery is required before payment other than

progress or advance payments may be made under fixed-price supply contracts. Under contracts calling for deliveries F.O.B. origin, the contracting officer or his authorized representative, in certifying that delivery has been made, may in his discretion rely on the contractor's signed statement on his invoice that delivery has been made on a specified date to a named carrier or to a representative of the Government. When necessary to protect the Government's interest, the contracting officer may require either that the contractor furnish a receipted copy of the bill of lading or postal receipt, or that a representative of the Government certify as to actual delivery on the applicable inspection and receiving report form. Invoicing instructions to F.O.B. origin contractors shall require that the contractor state on all invoices (1) the date of shipment, name of carrier, and bill of lading number, or (2) the name and title of the Government representative to whom delivery was made and date of such delivery.

(b) Where payment has been made on the basis of a certificate, and the supplies have not been received at destination, prompt follow-up and remedial action will be initiated.

§ 14.203 Point of acceptance.

Each contract shall specify the point of acceptance. Contracts which provide for delivery F.O.B. destination shall provide for acceptance at destination whether inspection is to occur at destination or at origin. Contracts which provide for delivery F.O.B. origin shall ordinarily provide for acceptance (and inspection) at origin.

§ 14.204 Responsibility for acceptance.

(a) Acceptance is the responsibility of the contracting officer, or his authorized representative. Where an activity uses services of another activity or Department for the purpose of acceptance, acceptance by the other activity or Department is binding on the activity for which the services are performed.

contracts requiring the contractor to certify that supplies comply with contract requirements. Where acceptance precedes inspection, however, a clause will be used to reserve the Governments' right after acceptance to inspect the supplies within a reasonable time after delivery and to reject defective items. Certificates of conformance shall be required by the contract when the value of supplies or the condition of purchase, delivery, receipt, or use thereof make it desirable to have additional assurance that supplies conform to contract requirements.

§ 14.205 Acceptance of supplies or services not conforming with contract requirements.

When supplies or services tendered for acceptance do not conform with contract requirements, the applicable contract provisions shall govern the action to be taken. See § 14.107. For reasons of economy or the urgency of the requirement, acceptance of supplies or services which do not meet all contract requirements may occasionally be desirable. Prior to such acceptance, the contracting officer shall obtain the approval of the requiring activity where the nonconformity with contract requirements (a) affects matters such as safety, durability, performance, or interchangeability of parts or assemblies, (b) results in material increases in weight, where weight is a significant consideration, or (c) affects the basic objectives of the specifications. Acceptance of these types of nonconforming supplies or services shall be covered by an appropriate modification of the contract. Acceptance of other types of nonconforming supplies and services shall be covered by contract modification if determined necessary by the contracting officer.

PART 15-CONTRACT COST PRINCIPLES AND PROCEDURES

Sec.

15.205-29 Plant reconversion costs.

15.205-30

Precontract costs.

15.205-31 Professional service costs; legal, accounting, engineering, and other. 15.205-32 Profits and losses on disposition of plant, equipment, or other capital assets. 15.205-33 Recruiting costs. 15.205-34

Rental costs (including sale and leaseback of facilities).

15.205-35 Research and development costs. 15.205-36 Royalties and other costs for use of patents.

15.205-37

15.205-38

Selling costs.

Service and warranty costs.

tion and allowance of costs in connection with the negotiation and administration of cost-reimbursement type contracts and contains guidelines for use, where appropriate, in the evaluation of costs in connection with certain negotiated fixedprice type contracts and contracts terminated for the convenience of the Government.

Subpart A-Applicability

§ 15.101 Scope of subpart.

This subpart describes the applicability of succeeding subparts of this part to the various types of contracts in connection with which cost principles and procedures are used.

§ 15.102 Cost-reimbursement supply and research contracts with concerns other than educational institutions. This category includes all cost-reimbursement type contracts (§ 3.404 of this chapter) for supplies, services, or experimental, developmental, or research work (other than with educational institutions, as to which § 15.103 applies), except that it does not include facilities contracts (see § 15.105) or construction contracts (see § 15.104). The cost principles and procedures set forth in Subpart B of this part shall be incorporated by reference in cost-reimbursement supply and research contracts with other than educational institutions as the basis

(a) For determination of reimbursable costs under such contracts, including cost-reimbursement type subcontracts thereunder, and the cost-reimbursement portion of time-and-materials contracts (§ 3.405-1 of this chapter);

(b) For the negotiation of overhead rates (Subpart G, Part 3 of this chapter); and

(c) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" its costs (Subpart D, Part 8, of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter).

procedures set forth in Subpart C of this part shall be incorporated by reference in cost-reimbursement research contracts with educational institutions as the basis

(a) For determination of reimbursable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder;

(b) For the negotiation of overhead rates (Subpart G, Part 3 of this chapter); and

(c) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" its costs (Subpart D, Part 8, of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter).

In addition, Subpart C of this part is to be used in determining the allowable costs of research and development performed by educational institutions under grants.

This category includes all cost-reimbursement type contracts (§ 3.404 of this chapter) for the construction, alteration, or repair of buildings, bridges, roads, or other kinds of real property. It also includes cost-reimbursement type contracts for architect-engineer services related to such construction. It does not include contracts for vessels, aircraft, or other kinds of personal property. The cost principles and procedures set forth in Subpart D of this part, shall be incorporated by reference in cost-reimbursement construction contracts as the basis

(a) For determination of reimbursable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder;

(b) For the negotiation of overhead rates (Subpart G, Part 3, of this chapter); and

(c) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" its costs (Subpart D, Part 8, of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter).

The extent of allowability of the selected items of cost covered in Subparts B to E of this part has been stated to apply broadly to many accounting systems in varying contract situations. Thus, as to any given contract, the reasonableness and allocability of certain items of cost may be difficult to determine, particularly in connection with firms or separate divisions thereof which may not be subject to effective competitive restraints. In order to avoid possible subsequent disallowance or dispute based on unreasonableness or nonallocability, it is important that prospective contractors, particularly those whose work is predominantly or substantially with the Government, seek agreement with the Government in advance of the incurrence of special or unusual costs in categories where reasonableness or allocability are difficult to determine. Such agreement may also be initiated by contracting officers individually, jointly, for all defense work of the contractor, as appropriate. Any such agreement should be incorporated in cost-reimbursement type contracts, or made a part of the contract file in the case of negotiated fixed-price type contracts, and should govern the cost treatment covered thereby throughout the performance of the contract. But the absence of such an advance agreement on any element of cost will not, in itself, serve to make that element either allowable or unallowable. Examples of costs on which advance agreements may be particularly important:

or

(a) Compensation for personal serv

ices;

(b) Use charge for fully depreciated assets;

(c) Deferred maintenance costs;

(d) Pre-contract costs;

(e) Research and development costs; (f) Royalties;

(g) Selling and distribution costs; and