(3) Correction of Deficiencies by Contractor. The Contractor shall promptly comply with any timely written direction by the Contracting Officer to correct or partially correct a deficiency, at no increase in the contract price. The Contractor shall also prepare and furnish to the Government data and reports applicable to any correction required under this clause (including revision and updating of all other affected data called for under this contract) at no increase in the contract price.

(4) Modification of Contract With Respect to Uncorrected Deficiencies. In the event of timely notice of a decision not to correct or only to partially correct, the Contractor shall promptly submit a technical and cost proposal to amend the contract to permit acceptance of the affected supplies or services in accordance with the revised requirements, and an equitable reduction in contract price shall promptly be negotiated by the parties and reflected in a supplemental agreement to this contract.

(d) Deficiencies in Supplies or Services Not Yet Accepted. If the Contractor becomes aware at any time before acceptance by the Government (whether before or after tender to the Government) that a deficiency exists in any supplies or services, he shall promptly correct the deficiency or, if he elects to invoke the procedures in (c) above, he shall promptly communicate information concerning the deficiency to the Contracting Officer in writing, together with his detailed recommendation for corrective action.

(e) No Extension in Time for Performance; No Increase in Contract Price. (1) In no event shall the Government be responsible for extension or delays in the scheduled deliveries or periods of performance under this contract as a result of the Contractor's obligations to correct deficiencies, nor shall there be any adjustment of the delivery schedule or period of performance as a result of such correction of deficiencies, except as may be agreed to by the Government in a supplemental agreement with adequate consideration.

(2) It is hereby specifically recognized and and agreed by the parties hereto that this clause shall not be construed as obligating the Government to increase the contract price of this contract.

(f) Transportation Charges. (1) When the Government returns supplies to the Contractor for correction or replacement pursuant to this clause, the Contractor shall be liable for transportation charges up to an amount equal to the cost of transportation by the usual commercial method of shipment from the designated destination point under this contract to the Contractor's plant, in addition to any charges provided for by (2)

• Insert the locations where correction may be directed.

below. The Contractor shall also bear the responsibility for the supplies while in transit.

(2) When compliance with the terms of this clause by the Contractor involves shipment of corrected or replacement supplies from the Contractor to the Government, the Contractor shall be liable for transportation charges up to an amount equal to the cost of transportation by the usual commercial method of shipment from the Contractor's plant to the designated destination point under this contract, in addition to any charges provided for by (1) above. The Contractor shall also bear the responsibility for the supplies while in transit.

(g) Failure To Correct. If the Contractor fails or refuses to (i) present a detailed recommendation for corrective action in accordance with (c) above, (ii) correct deficiencies in accordance with (c)(3) above, or (iii) prepare and furnish data and reports in accordance with paragraph (e)(3) above, the Contracting Officer shall give the Contractor written notice specifying the failure or refusal and setting a period after receipt of the notice within which it must be cured. If the failure or refusal is not cured within the specified period, the Contracting Officer may, by contract or otherwise, as required:

(1) Obtain detailed recommendations for corrective action;

(ii) (A) Correct the supplies or services, or (B) Replace the supplies or services-and if the Contractor fails to furnish timely disposition instructions, the Contracting Officer may dispose of nonconforming supplies for the Contractor's account in a reasonable manner, in which case the Government is entitled to reimbursement from the Contractor or from the proceeds for the reasonable expenses of care and disposition, as well as for excess costs incurred or to be incurred; and

(iii) Obtain applicable data and reports; and charge to the Contractor the cost occasioned to the Government thereby.

(h) Correction of Deficient Replacements and Re-performances. Any supplies or parts thereof corrected or furnished in replacement and any services reperformed pursuant to this clause shall also be subject to all the provisions of the clause to the same extent as supplies or services initially accepted.

(b) Depending on the circumstances of the procurement, one or more of the alternate paragraphs in § 1.324-7 (c), (d), or (e) may be substituted for the appropriate paragraphs in the "Correction of Deficiencies” clause in paragraph (a) of this section. Similarly, the alternate paragraph in § 1.324-7(f) may be added to the clause.

[33 F.R. 265, Jan. 9, 1968]

§ 1.324-10 Example of warranty clause for fixed-price construction contracts. The following clause is an example which is authorized for insertion in fixedprice type construction contracts in accordance with §§ 1.324-2 and 1.324-3.

WARRANTY OF CONSTRUCTION

(a) Except as otherwise expressly provided in this contract, the Contractor shall remedy at his own expense any failure of the work (including equipment) to conform to contract specifications and any defect of material, workmanship, or design in the work— but excluding any defect of any design furnished by the Government under the contract-provided that the Government gives the Contractor notice of any such failure or defect promptly after discovery but not later than one year after final acceptance of the work, except that in the case of defects or failures in a part of the work of which the Government takes possession prior to final acceptance, such notice shall be given not later than one year from the date the Government takes such possession. The Contractor, at his own expense, shall also remedy damage to equipment, the site, or the buildings or the contents thereof which is the result of any failure or defect, and restore any work damaged in fulfilling the terms of this clause. Should the Contractor fail to remedy any such failure or defect within a reasonable time after receipt of notice therof, the Government shall have the right to replace, repair, or otherwise remedy such failure or defect at the Contractor's expense. This warranty shall not delay final acceptance of or final payment for the contract work.

(b) All subcontractors', manufacturers' and suppliers' warranties and guaranties, express or implied, respecting any part of the work and any materials used therein shall be deemed obtained-and shall be enforced-by the Contractor as the agent and for the benefit of the Government without the necessity of separate transfer or assignment thereof, provided that, if directed by the Contracting Officer, the Contractor shall require such subcontractors, manufacturers and suppliers to execute such warranties and guaranties in writing to the Government.

(c) Any work repaired or replaced pursuant to this clause shall also be subject to the provisions of this clause to the same extent as work originally performed. The rights and remedies of the Government provided in this clause are in addition to and do not limit any rights afforded to the Government by any other clause of this contract. [33 F.R. 265, Jan. 9, 1968]

§ 1.324-11 Technical data warranty and extended liability provisions.

(a) The clause set forth in § 7.105-8 (a) of this chapter is authorized for use in contracts in which the contractor is required to deliver technical data. The factors contained in § 1.324-3 (b) shall

36-070-70- -5

be considered in deciding whether to use the clause.

(b) The factors of § 1.324-3 (b) should also be considered in determining whether the Extended Liability clause set forth in § 7.105-8(b) of this chapter should be added to the § 7.105-8 (a) Data Warranty clause. Particular emphasis should be placed on whether the extended liability is justified by (1) the likelihood that correction or replacement of the nonconforming data, or a price adjustment in lieu thereof, will not afford adequate protection to the Government and (2) the effectiveness of the additional remedy as a deterrent against furnishing nonconforming data.

[34 F.R. 17886, Nov. 5, 1969] Variation in quantity.

§ 1.325

[31 F.R. 7807, June 2, 1966] § 1.325-1

General.

To the extent that a variation is caused by the conditions specified in the clause in § 7.103-4 of this chapter, that quantity may be accepted only to the extent specified in the Schedule. Except as set forth in § 1.325-2, the permissible variation shall be stated as a percentage and may be an increase, a decrease, or a combination of both. There should be no standard or usual percentage or variation. Each procurement for which an overrun or underrun is permissible should be based upon the normal commercial practices of the particular industry for particular items, and the permitted percentage should be no larger than is necessary to afford a contractor reasonable protection. In no event shall the permissible variation exceed plus or minus 10 percent. The clause set forth below shall be included in the Schedule, only when one or more of the causes of quantity variation foreseeable exists at the time of solicitation.

EXTENT OF QUANTITY VARIATION (APRIL 1965)

The permissible variation under the clause of the General Provisions entitled "Variation in Quantity" shall be limited to:

Increase (Insert:
Percent or None).
Decrease (Insert:
Percent or None).
This increase or decrease shall apply

*Insert in the blank the designation(s) to which the percentages apply, such as: (1) The total contract quantity; (2) item 1 only; (3) each quantity specified in the delivery schedule of the "Time of Delivery" clause; (4) the total item quantity for each destination; (5) the total quantity of each item without regard to destination.

Consideration shall be given to the quantity to which the percentage variation applies. For example, when it is contemplated that delivery will be made to multiple destinations and it is desired that the quantity variation extend to the item quantity for each destination, this requirement must be set forth with particularity. Similarly, when it is desired that the quantity variation extend to the total quantity of each item and not to the quantity for each destination, it may be desirable to express a percentage limitation for each destination to prevent unrealistic distribution of any increase or decrease.

[31 F.R. 7807, June 2, 1966]

The permissible variation in the procurement of small quantities of subsistence may be stated in the Schedule as follows:

(a) Standard pack items purchased on a package, carton, can or other than pound basis: maximum variation for 250 units or less-ne a rest full shipping container.

(b) Non-standard pack items other than carcass meats not purchased on a package, carton, or can basis: maximum variation for 250 pounds or less-nearest piece or shipping container.

(c) Carcass meats: maximum variation for 500 pounds or less-nearest piece, quarter, side or carcass.

131 F.R. 7807, June 2, 1966]

§ 1.326 Component breakout. [30 F.R. 14887, Dec. 2, 1965]

§ 1.326-1 Scope.

(a) Sections 1.326-1-1.326-5 set forth guidance for making decisions on whether or not components should be purchased by the Government directly and furnished to an end item contractor as Government-furnished material, for incorporation in the end item. Sections 1.326-1-1.326-5, however, do not pertain to all such decisions, but only to those which deal with whether components have been included as contractorfurnished material in a previous procurement of the end item should be "broken out" from a forthcoming end item procurement for direct Government purchase. Thus, §§ 1.3261-1.326-5 do not pertain to the initial Government-furnished equipment/contractor-furnished equipment decisions that must be made at the inception of a procurement program.

(b) Items procured as spare parts are governed by the "DOD High Dollar Spare Parts Breakout Program" described in DOD Joint Regulation AR 715-22, NAVMATINST P4200.33, AFR 57-6, MCO P4200.13, DSAM 4105.2, and are not covered by §§ 1.326-1-1.326-5.

(c) Sections 1.326-1-1.326-5 apply to procurements of weapons systems or other items of major equipment involving components whose direct purchase by the Government may result in substantial net cost savings over the life of the procurement program. Accordingly, they will seldom be applicable to a procurement of such a system or item of less than $1,000,000. The term "component", as used in §§ 1.326-1-1.326-5, includes subsystems, assemblies, subassemblies, and other major elements of an end item, but does not include elements of relatively small annual purchase value. [30 F.R. 14887, Dec. 2, 1965]

§ 1.326-2 Policy.

Whenever it is anticipated that the prime contract for a weapons system or other major end item will be awarded without adequate price competition, and the prime contractor is expected to acquire a component without such competition, it is Department of Defense policy to break out that component it:

(a) Substantial net cost savings will probably be achieved; and

(b) Such action will not jeopardize the quality, reliability, performance or timely delivery of the end item.

The desirability of breakout should also be considered (regardless of whether the prime contract or the component being purchased by the prime contractor is on the basis of price competition) whenever substantial net cost savings will result (1) from greater quantity purchase or (2) from such factors as improved logistics support through reduction in varieties of spare parts and economies in operations and training through standardization of design. Primary breakout consideration shall be given to those components of the end item representing the highest annual procurement costs and offering the largest potential net savings through breakout.

[30 F.R. 14887, Dec. 2, 1965]

§ 1.326-3 Responsibility for component breakout selection, review and decision.

The project manager (or if there is no project manager such other official as

may be designated by the Head of the Procuring Activity) supported by a project team (to include cognizant engineering, production, logistics, maintenance and other appropriate personnel, and the contracting officer or his designee) shall be responsible for:

(a) Earmarking as susceptible to break out those components potentially conforming to the criteria and policy set forth herein;

(b) Conducting the breakout review and evaluation described in § 1.326-4.

(c) Making the decision whether or not to break out the component; and

(d) Preparing records explaining such decision in compliance with § 1.326-5. [30 F.R. 14887, Dec. 2, 1965]

§ 1.326-4 Breakout guidelines.

(a) Each decision on whether or not to break out a component must embrace (1) assessment of the potential risks of degrading the end item through such contingencies as delayed delivery and reduced reliability of the component, (2) calculation of estimated net cost savings (i.e., estimated purchase savings less any offsetting costs), and (3) analysis of the technical, operational, logistic and administrative factors involved. As to each of these, the decision must be supported by adequate explanatory information, including an assessment by, and consultation with, the end item contractor where feasible.

(b) In deciding whether a component should be broken out, the guidelines set forth below (in the form of questions) should be considered. Answers will rarely be "positively yes" or "positively no" but usually "probably yes" or "probably no," with the degree of probability governed by the facts of the particular case. The decision will depend largely upon the degree and significance of the risks to quality performance, reliability and timely delivery of the end item which would be involved in breakout and upon the estimated overall cost savings. Where the risks, if any, are acceptable and breakout is expected to result in substantial overall cost savings, the component should be broken out. On the other hand, if such risks are unacceptable, the components should not be broken out.

(1) Are the design of the component (and the design of the end item insofar as it will affect the component) sufficiently stable that further design or en

gineering effort by the end item contractor in respect to the component is unlikely to be required?

(2) Is a suitable data package available with rights to use it for Government procurement? (Note that breakout may be warranted even though competitive procurement is not possible.) (See Subpart B, Part 9 of this chapter.)

(3) Can any problems of quality control and reliability of the component be resolved without requiring effort by the end item contractor?

(4) Is it anticipated that requirements for technical support (i.e., functions such as development of proposed detailed specifications; development of test requirements to prove design adequacy or compliance with design; monitoring tests to assure compliance with established requirements; definition of quality assurance requirements for production of articles; and analysis and correction of service-revealed deficiencies) heretofore performed by the end item contractor will be negligible? If not, does the Government have the resources (manpower, technical competence, facilities, etc.) to provide such support, or can such support be obtained from the end item contractor (even though the component is broken out) or other

source?

(5) Can breakout be accomplished without causing unacceptable difficulties in logistics support (e.g., be jeopardizing requisite standardization of components)?

(6) Can breakout be accomplished without causing overfragmentation of the end item that might materially impede administration, management, and performance of the end item contact (e.g., by unduly complicating production scheduling or identifying (and fixing responsibility for) end item failure that may be caused by a defective component)?

(7) Can breakout be accomplished without jeopardizing delivery requirements of the end item?

(8) If a decision is made to break out a component and to acquire it from a new source, can advance procurement funds be made available to provide that source any necessary additional lead time?

(9) Is there a source other than the present manufacturer capable of supplying the component?

(10) Has the component been (or is it known that it is going to be) purchased

directly by the Government as a support item in the supply system or as GFE in other end items?

(11) Would the financial risks and other responsibilities being assumed by the prime contractor that will have to be assumed by the Government if the item is broken out be acceptable?

(12) Will breakout result in substantial net cost savings? Estimates of probable savings in cost should be developed for each case on its own facts, with consideration given to any estimated off-setting costs such as increases in the cost of requirements determination and control, contracting, contract administration, data package purchase, material inspection, qualification or preproduction testing, ground support and test equipment, transportation, security, storage, distribution, and technical support.

to

(c) If application of the guidelines in paragraph (b) of this section reveals conditions currently unfavorable breakout, the feasibility of eliminating such conditions should be considered. For example, where adequate technical support is not available from Government resources, or similar assistance must be obtained in order to successfully accomplish breakout, consideration should be given to the procurement of the necessary services, such as product assurance suitability services, from the end item contractor or other qualified

source.

[30 F.R. 14887, Dec. 2, 1965, as amended at 33 F.R. 7348, May 18, 1968]

§ 1.326-5 Records and review procedure.

The records of the purchasing activity shall contain documentation of:

(a) Those components which have been reviewed and determined to have no potential for breakout;

(b) Those components which have been reviewed and earmarked as being susceptible to breakout pursuant to § 1.326-3; and

(c) Those components for which a decision to break out has been made. Documentation of these three categories, and for those components once earmarked but no longer considered susceptible to breakout, shall be signed by the cognizant project manager or other designated official and reflect the facts and conditions of the case, including any assessment by the contractor, and the basis for the decision. Components that

have been earmarked for potential breakout shall be reviewed well in advance of each successive procurement, with a decision made as to whether the component will be broken out for the ensuing procurement. Such reviews, made preferable in the course of requirements determination, but in any event before procurement of the requirement is initiated, shall be repeated until a final decision on whether or not to break out is reached, and shall be documented. When breakout is delayed or postponed, the documentation shall include a description of the actions required to accomplish breakout, identify the activities responsible for such actions, and indicate the fiscal year when breakout should be effected.

[30 F.R. 14888, Dec. 2, 1965, as amended at 31 F.R. 1039, Jan. 27, 1966]

§ 1.327 Use of excess aluminum in National stockpile.

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

§ 1.327-1 Government Use Program.

It has been determined to be in the public interest to establish a Government Use Program requiring, to the maximum practicable extent, purchase of excess aluminum in the Government stockpile by defense contractors, directly or through subcontractors or suppliers, equal in weight to the weight of aluminum products as defined in § 1.327-2, purchased by the Government or used in the production of items delivered under defense contracts. In implementation of this Program, all contracts in the categories listed below, shall contain the clause in § 1.327-2, or in the case of construction contracts, the clause as modified in § 1.327-3:

(a) Purchases in the amount of $500 or more of aluminum products as defined in § 1.327-2.

(b) Purchases of supplies or construction in the amount of $25,000 or more where the aluminum products used in the production of items delivered under the contract or in the production of items incorporated in construction performed under the contract are estimated by the contracting officer to approximate 10,000 pounds or more.

These provisions do not apply to procurements of supplies or construction effected by procuring activities located outside, for use outside, the United States, its possessions, and Puerto Rico.