have been earned. To insure the collection of accurate and detailed information, the aforementioned data shall be included in the contract file as soon as it becomes available. The foregoing is not applicable to:

(1) Purchases made pursuant to the provisions of Subpart F, Part 3 of this chapter;

(2) Delivery orders placed under Federal Supply Schedule contracts; and

(3) Those contracts known to be exempt from renegotiation. (For additional information, see Chapter XIV of this title.)

(c) Processing renegotiation requests. The Renegotiation Board will, with respect to a particular contract, submit its request for procurement data and contractor performance information to the Contract Administration Office administering that contract. The Renegotiation Board will also furnish a copy of the request to the purchasing office awarding the contract. Within 30 days of the date of this request, the Contract Administration Office should forward the performance report to the Renegotiation Board, with copies to each purchasing office concerned. Within 20 days of receipt of a copy of the Contract Administration Office's report, the purchasing office should forward its report to the Renegotiation Board. If either of these time limits cannot be met, the appropriate office shall notify the Board as to the date by which the report will be submitted.

(d) Performance reports. The report shall be an objective and accurate evaluation of the contractor's performance, prepared by Government personnel from information and data in contract files. Under no circumstances shall the contractor be requested to furnish specifically for use in preparation of this report, information relative to the evaluation of his contract performance. However, when necessary, information may be solicited from a contractor regarding performance of his subcontractor. To provide full, accurate, and objective data to the Renegotiation Board, offices concerned shall furnish information substantially in accordance with the following checklist, including, favorable recommendations giving due credit for better than average contract performance and unfavorable recommendations for unsatisfactory performance:

(1) Date of report;

(2) Installation making report;

(3) Source and date of request for report;

(4) Name and address of contractor; (5) Period covered by report;

(6) List of contracts being performed during the period concerned, showing as to each:

(1) Contract number;

(ii) Date;

(iii) Total amount of contract;

(iv) Principal product or service;

(v) Method of procurement (advertised or negotiated, and extent of competition);

(vi) Type of contract;

(vii) Total billings during period; and (viii) Principal place of manufacture; (7) Brief description of manufacturing techniques and type of work normally performed by contractor (e.g., production, fabrication, assembly) and relative complexity of the work (state the percentage of work subcontracted);

(8) Information concerning contractor performance, including extent to which:

(i) The product exceeded, met or fell below the contract requirements;

(ii) Delivery schedules were met (indicate reasons for failures to meet schedules, and compliance with requests for early deliveries, if any);

(iii) Rejections and spoilage rates were high or low and reasons therefor; (iv) Contractor met targets under incentive contracts and reasons therefor;

(v) Contractor was economical in use of materials, facilities, and manpower, and was otherwise effective in controlling production costs;

(vi) Contractor made effective use of his facilities (state whether he expanded facilities to undertake renegotiable business and if so, was such expansion excessive);

(vii) Strikes, stoppages, or other significant developments in labor management affected contract performance;

(9) Information concerning reasonableness of cost and profits, including:

(i) Basis for use of particular type of contract in significant contracts (if an incentive contract, describe also the basis for negotiation of target and cost sharing formulas);

(ii) Adequacy and reliability of cost information furnished by contractor;

(iii) Unusual risks assumed by contractor in particular contracts, e.g., close pricing, labor and material cost in

creases, shortage of materials, inventory spoilage and obsolescence, cutbacks, terminations, and quality or performance guarantees (explain extent to which risks were reduced or minimized by types of contracts used);

(iv) Contingencies included in quoted prices;

(v) Experience as to profits received by contractor in significant contracts, especially incentive contracts, with appraisal as to whether or not profits were earned by contractor's efforts (state whether any important contracts were negotiated with no profit or at less than normal profit);

(vi) Significant refunds and voluntary price reductions, with circumstances of each;

(vii) Evaluation of contractor as a high, average, or low cost producer;

(viii) Reasonableness of contractor's pricing policies;

(ix) Comparison of prices with competitor's prices for same or similar products or services;

(x) Reasons for cost overruns and underruns in cost-reimbursement type contracts;

con

(10) List of capital funds and facilities employed by contractor, with particular reference to their source, e.g., tractor's equity capital, borrowed or rented, Government-financed, or Gov

ernment-furnished;

(11) Extent to which contractor has complied with Govermnent policies such as the small business program, labor surplus area program, competition in subcontracting, and make or buy program;

(12) Full information as to any terminations for default or for the convenience of the Goverment to include the status of appeals or claims, if any, and the extent to which payments were made during the period concerned;

(13) Status of price revision actions and the basis for any revision completed in the period concerned;

(14) Such pertinent information on defense subcontracts, as is available;

(15) Appraisal of contractor's contribution to the defense effort, with particular emphasis on work done by him in development of new materiel, invention of new devices, management of large weapon system contracts as prime or associate contractor, effective use of value engineering, and the like;

(16) A current appraisal of contractor's performance and recommendation as to reasonableness of contractor's

profits for the period under consideration under the listed contracts; and

(17) Such other information as may be particularly requested by the Renegotiation Board.

While all the contracts concerned will be listed at the beginning of a performance report (see subparagraph (6) of this paragraph), individual contracts need not thereafter be identified except where information as to unusual performance is set forth, especially in cases of incentive contracts.

(e) Departmental distribution of performance reports. A copy of each performance report on a contractor who is on the list of the 100 contractors awarded the largest dollar amount of defense contracts (which list is published annually in a Defense Procurement Circular) shall be sent to the Assistant Secretary of Defense (Installations and Logistics). A copy shall also be sent to the appropriate Departmental Secretary.

(f) Advanced-Development, Engineering-Development, and Operational-Systems-Development, and Production Contracts. Upon request of the Renegotiation Board, the Director of Contractor Performance Evaluation, Office of the Assistant Secretary of Defense (Installations and Logistics) (see § 1.908-1), shall furnish Contractor Performance Evaluation Reports on advanced-development contracts, engineering-development contracts, and operational-systems-development contracts and production contracts which follow or are concurrent with the development contracts that are evaluated.

[29 F.R. 11809, Aug. 19, 1964, as amended at 33 F.R. 15380, Oct. 17, 1968]

§ 1.320 Industrial security.

Certain required procedures designed to safeguard classified defense information are set forth in the Department of Defense Industrial Security Regulation, DoD 5220.22-R (Implemented for the Army by AR 380-131; for the Navy by OPNAV Instruction 5540-8E; for the Air Force by AFR 205-4; and for the Defense Supply Agency by DSAM 8500.1), and DD Form 441 "Security Agreement" and its attachment, the Department of Defense Industrial Security Manual together with Supplements thereto. Security requirements governing work to be performed outside the United States, its possessions, and Puerto Rico by United States or foreign nationals, or work to

be performed in the United States by foreign nationals (including companies located in the United States which are owned, controlled, or influenced by nationals of a foreign country), are subject to security agreements which the United States maintains with a number of foreign countries. The requirements of these agreements are set forth in the Department of Defense Industrial Security Regulation. The Defense Supply Agency administers the Industrial Security Program on behalf of all the Departments.

[34 F.R. 17880, Nov. 5, 1969]

§ 1.321

Procurements involving work to be performed in foreign countries by U.S. contractors.

(a) Except as otherwise provided in an international agreement, when a contract which requires work to be performed in a foreign country by personnel of a United States contractor is contemplated, coordination shall be effected with the appropriate component Commander of the unified Command concerned to assure compliance with international agreements (see § 1.320). Such coordination should be effected as early as possible.

(b) The contracting officer shall request the following information from the overseas Commander:

(1) The applicability of any international agreements to the requirement being procured;

(2) Applicability of taxes, duties, and charges for doing business;

(3) Security requirements applicable to the area concerned;

(4) Standards of conduct required to be observed by the prospective contractor and his employees, and any action that may be taken against them in the event required standards are not maintained, and

(5) Requirements pertaining to the use of foreign currencies, including applicability of U.S. holdings of excess foreign currencies.

(c) The contracting officer shall furnish the overseas Commander the following information prior to any contract performance:

(1) Any contractor logistical support desired,

(2) Contract performance period, (3) Date of planned arrival of contractor personnel,

(4) Contract security requirements, and

(5) Other pertinent information to effect complete coordination and cooperation.

[31 F.R. 9851, July 21, 1966]

§ 1.322 Multi-year procurement. [29 F.R. 2809, Feb. 29, 1964]

§ 1.322-1 General.

(a) Description of procedure. Multiyear procurement is a method for competitive contracting for known requirements for military supplies or services in quantities and total cost not in excess of planned requirements for 5 years, set forth in or in support of, the Department of Defense 5-Year Defense Program, even though the total funds ultimately to be obligated by the contract are not available to the contracting officer at the time of entering into the contract. Under this method, contract quantities are budgeted for and financed in accordance with the program year for which each quantity is authorized. This procedure provides for solicitation of prices based either on award of the current 1-year program quantity only, or, in the alternative, on the total multiyear quantities. Award is made on whichever of these two alternative bases reflects the lowest unit prices to the Government. If award is made on the multiyear basis, funds are obligated only for the first year's quantity, with succeeding years' contract quantities funded annually thereafter. In the event funds are not made available to support one or more succeeding year's quantities, cancellation is effected. The contractor is protected against loss resulting from cancellation by contract provisions allowing reimbursement of unrecovered nonrecurring costs included in prices for canceled items.

(b) Policy. (1) Multiyear procurement shall be used to the maximum extent consistent with paragraphs (c), (d), and (e) of this section. Advantages of this method include, for example:

(i) Lower costs;

(ii) Enhancement of standardization; (iii) Reduction of administrative burden in the placement and administration of contracts;

(iv) Substantial continuity of production or performance;

(v) Stabilization of work forces; and (vi) Broadening the competitive base with opportunity for participation by firms not otherwise willing or able to compete for lesser quantities, particu

larly in cases involving high startup costs.

(2) The principal objective of the multi-year procedure is to generate realistic competition by minimizing competitive disadvantage and by increasing contractor interest in particpating in procurements which involve high startup costs and make-ready expense and which also may require substantial capital investment by contractors for expansion of their facilities. Under this procedure:

(i) Nonrecurring costs are distributed over a large number of units, thus narrowing any price advantage of a firm already in production or performance;

(ii) There is greater assurance of depreciation recovery for capital investment; and

(iii) The competitive base is broadened with better prospects for lower prices, where firms otherwise might be unwilling or unable to compete.

(3) Another major objective is to obtain lower prices in those procurements which do not necessarily involve high startup cost but which do provide opportunity for substantial cost savings and other advantages through assurance of continiuty for production or performance over longer periods of time. In determining whether substantial cost savings and related advantages can be realized, consideration may be given to whether:

(i) Production or performance closeout or shutdown costs, including employee severance pay, represent a substantial cost contingency in prices quoted on only 1 year's program;

(ii) Stabilization of work forces will provide greater assurance of sustaining and improving efficiency and quality;

(iii) Substantial cost and quality advantage will accrue through avoidance of the possible need for establishing and "proving out" quality control techniques and procedures for a new contract each year;

(iv) Costly preproduction or pilot testing will be avoided;

(v) The ability to recruit and retain highly skilled personnel will be enhanced through assurance to employees of longer periods of employment than would be the case in single-year procurement, thereby avoiding costs of repeated training of new personnel;

(vi) The ability to vary production or performance rates during peak and offpeak periods in each program year will result in economies; and

(vii) Substantial in-house savings in maintenance and supply operations will accrue from standardization of supplies or services accomplished by procurement from a single source throughout the multiyear period.

(c) Set-asides. Total small business set-asides are compatible with the multiyear method of procurement and may be used when both procedures are appropriate. Partial set-aside procedures (both small business and labor surplus area) generally are not compatible with the multiyear procedure when high startup costs are involved because of the potential duplication of such costs by the setaside contractor and the non-set-aside contractor. However, when the multiyear procedure is based not on high startup costs but on the opportunity for cost savings through assurance of continuity of production over longer periods of time, partial set-aside procedures are compatible with the multiyear procedure. Furthermore, even when high startup costs are involved, use of partial set-aside procedures together with the multiyear procedure may be appropriate in exceptional circumstances, such as where the criteria for partial set-asides are met under Subparts G and H of this part, and it is likely that broader or more realistic competition will result from a combination of both procedures, and this broader competition is likely to more than offset any duplication of startup costs. When reviewing a proposed procurement involving possible use of this procedure, in addition to consideration of the criteria established in this paragraph and paragraph (b) of this section, the contracting officer shall invite the advice and counsel of the activity's small business specialist and the SBA representative, if one is assigned to that activity, permitting either or both to review all pertinent facts and make recommendations thereon.

(d) Multiyear subcontracts. The same benefits and advantages that are derived from multiyear prime contracts may frequently be increased by multiyear subcontracts thereunder. The prime contractor in the exercise of his management responsibilities must freely choose the subcontract types that best satisfy his needs. However, multiyear prime contractors should be encouraged to employ multiyear subcontracts selectively and only when:

(1) The subcontract item or service is of stable design and specification;

(2) The quantity required is known and firm;

(3) Effective competition is assured; and

(4) The use of multiyear subcontracts can reasonably be expected to result in reduced prices.

In such cases, the prime contractor is adequately protected against cancellation since appropriate cancellation charges for such multiyear subcontracts are included within the cancellation charge of the multiyear prime contract. Multiyear subcontracts may be particularly desirable under a sole source multiyear prime contract since effective competition at the subcontract level may thereby be enhanced and the attendant cost reductions realized by the prime contractor and the Government.

(e) Use of options. (1) The use of options can be of assistance to the contracting officer when some future requirements are definite and additional quantities are likely, though not definitive as to amount: Provided, The option quantities are not disproportionately large in relation to the known requirements.

(2) The solicitation document (IFB or RFP) shall contain language to require the bidders (offerors) to submit prices for option quantities which reflect only the recurring costs to produce additional items, and specifically excludes those costs of a startup and nonrecurring nature which have been amortized in the unit prices of the definitive program year quantities.

[34 F.R. 17880, Nov. 5, 1969]

§ 1.322-2 Procedures for supply con

tracts.

(a) Except as provided in paragraph (j) of this section, the multiyear procurement method for supplies should be used when all of the following criteria are present:

(1) Reduced unit prices can reasonably be anticipated over annual buys by reason of continuity of production or elimination of repetitive substantial startup costs, including such costs as preproduction engineering, special tooling, plant rearrangement, initial rework, initial spoilage, and pilot runs;

(2) There is reasonable expectation that effective competition can be obtained;

(3) There are known requirements for the quantities to be purchased under the multiyear contract;

(4) The design and specifications of the item are not expected to change to an extent that would involve a major impact on contract price; and

(5) The items being procured are not regularly manufactured and offered for sale in substantial quantities in the commercial market, except that (i) when quantities to be procured by the Government represent a substantial portion of the total market and would require special manufacturing runs for all or substantially all of the Government's requirements and (ii) significant cost savings would result from multiyear procurement; this procedure may be authorized by the head of a procuring activity or his designee with the procurement file fully documented as to reasons why the expected substantial savings are not obtainable under annual procurements.

(b) Formal advertising, including twostep formal advertising, is the preferred method for use in multiyear procurement. In cases where the period of production is such that a contingency for labor and material costs is likely otherwise to be included in the multiyear contract price, the contracting officer should normally use a provision for price escalation.

(c) Solicitations shall include:

(1) A statement of the requirements, separately identified by bid or proposal item in the schedule, for

(i) The first program year; and

(ii) The multiyear procurement including the quantities for each program year thereunder;

(2) When previous production procurements of the item have been made with competition

(i) A provision that a price may be submitted for the total requirements of the first program year, or for the total multiyear requirements, or both, or

(ii) When competition in future procurements of the items would be impracticable after award of a contract covering the first program year quantity alone and the head of a procuring activity determines that, in order to eliminate the possibility of a first program year "buy-in," these provisions will be in the best interests of the Governmentprovisions that a price may be submitted only for the total multiyear quantity and