(2) Under the monitorship of AFSC (SCKPF), authority to conduct such negotiations with colleges and universities has been delegated to OAR (RRMK) without redelegation authority.

(3) ACOS are authorized to negotiate final overhead rates to close out completed contracts provided the total of such actions does not become so significant as to have impact on final overhead rate negotiations. Generally, it may be considered that no substantial impact will occur when the total amount of indirect cost involved in closing the contracts does not exceed 10 to 15 percent of the total indirect cost allocable to cost type contracts for the contractor's fiscal year. Emphasis should be given to closing contracts with small dollar balances. However, in no event should such indirect costs applicable to any one contract in 1 fiscal year exceed $100,000. ACO will coordinate with the cognizant contract auditor to assure application of jointly acceptable rates.

(b) Advisory audit reports will be used in all final overhead negotiations except where AFSC (SCKPF) or OAR (RRMK), as appropriate, decides that the amount of overhead involved is so small that the cost of auditing is not justified and the cognizant audit agency is so notified.

(c) and (d) No implementation. (e) AFSC (SCKPF) or OAR (RRMK), as appropriate, will distribute the negotiation report to all Air Force and other military department buying activities holding affected contracts and audit activity.

[31 F.R. 13547, Oct. 20, 1966]

§ 1003.706 Coordination.

Where one or more military departments, other than the Air Force, have cost-reimbursement type contracts with a contractor, AFSC (SCKPF) will coordinate with the other military departments in determining the cognizant negotiating activity. If the determination is made that the Air Force will be the cognizant negotiating activity, SCKPF will (a) for negotiations pursuant to § 3.704-1 of this title, schedule the negotiation, or (b) for negotiations pursuant to § 3.704-2 of this title, notify OAR (RRMK) who will be responsible for scheduling the negotiation meeting, notifying the other interested services, and conducting the negotiation. [31 F.R. 13547, Oct. 20, 1966]

Subpart H-Price Negotiation Policies and Techniques

SOURCE: The provisions of this Subpart H appear at 28 F.R. 9583, Aug. 31, 1963, unless otherwise noted.

§ 1003.801 Basic policy.

§ 1003.801-2 Responsibility of contracting officers.

(a) No implementation.

(b) Simple and routine requests for specialized pricing assistance will be avoided so that price analysts can be used on more complex procurements. Requests for pricing assistance will be as specific as possible with regard to the extent and kind of analysis required, and will include all pertinent information. AFPI Form 4, "Request for Price Analysis" may be used in submitting requests. In the most demanding, complex procurement situations, the contracting officer may include a request that the price analyst lead in the negotiation of price and pricing items. Each procurement activity will establish appropriate controls to assure timely completion of requested pricing assistance.

(c) Where the situation described in Subchapter A, Chapter 1 of this title applies, and the contracting officer and the commander of the local activity have exhausted all possible actions within their authority, the case will be referred to AFSC (SCKPF), or AFLC (MCPKP), as appropriate. Referrals will include the information required by Subchapter A, Chapter 1 of this title.

[28 F.R. 9583, Aug. 31, 1963, as amended at 30 F.R. 1776, Feb. 9, 1965]

§ 1003.802 Preparation for negotiation. [28 F.R. 11067, Oct. 16, 1963]

§ 1003.802-2 Selection of prospective

sources.

See § 3.101 and Subparts G and H, Part 1 of this title, and § 1003.101 and Subparts G and H, Part 1001 of this subchapter.

[30 F.R. 1776, Feb. 9, 1965]

§ 1003.804 Conduct of negotiations.
General.
§ 1003.804-1

In scheduling a negotiation conference, contracting officer will give all members of the AF negotiating team as much time as possible for analysis of offeror's (or contractor's) proposal. As a rule, when only local personnel are involved, a minimum of 10 working days between receipt of a proposal and start of negotiations

(a) No implementation.

or

(b) Request for Secretarial waiver in exceptional cases of the requirements under 3.807-3(a) (1), (2), and (3) of this title will be forwarded to Hq USAF (AFSPPB). Requests will be routed (SCK-3). AFLC through AFSC (MCPC), as appropriate. For those procurements where Head of a Procuring Activity waiver is prescribed by Subchapter A, Chapter 1 of this title, requests will be forwarded directly to SCK-3 or MCPC.

[28 F.R. 9583, Aug. 31, 1963, as amended at 30 F.R. 16003, Dec. 23, 1965]

§ 1003.807-6 Refusal to provide cost or pricing data.

When the situation described in Subchapter A, Chapter 1 of this title applies, and the contracting officer and the Commander of the local activity have exhausted all means available to them to secure the required data, the case will be referred to AFSC (ASXKF) WrightPatterson AFB, Ohio, or Hq AFLC (MCPKP), as appropriate. Referrals will include the information required by Subchapter A, Chapter 1 of this title. [30 F.R. 1776, Feb. 9, 1965]

§ 1003.809 Audit as a pricing aid. (a) No implementation.

(b) Application. (1) For procedures to be followed when requesting audit assistance, see § 1003.850-3.

(2) Contract management activity (CMD/AFPRO) will support auditor's requests to contractor for access to contractor records and data and will be responsible for furnishing auditor's comments or report to procuring activity, except for audit reports covering price revisions where the provisions of Subpart T of this part apply. Procuring activity will be responsible for inviting auditor attendance at principal negotiation conferences.

(1) Audit as

(c) Conditions for use. sistance will be requested (i) Prior to the award of a contract to a sole source, or definitization of a letter contract awarded to a sole source, where definitive price negotiations in excess of $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract) are contemplated, (ii) whenever a cost-reimbursement, incentive, or redeterminable type contract is contemplated and compatibility of contractor's accounting system with the particular contract type is in doubt, or (iii) on any change or group of changes to be covered by a single amendment to a contract for which any individual increase or decrease for any individual change exceeds $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract), if the contracting officer and auditor agree that an audit is necessary. In all other negotiations, the contracting officer (or price analyst reviewing the proposal at the contracting officer's request) will determine the need for requesting audit assistance after evaluation of the entire procurement situation including, but not limited to, the conditions discussed in Subchapter A, Chapter I of this title.

[28 F.R. 9583, Aug. 31, 1963, as amended at 30 F.R. 793, Jan. 26, 1965]

§ 1003.850 Special pricing instructions. [28 F.R. 14316, Dec. 27, 1963]

§ 1003.850-2 Pricing changes to fixed. price and cost-reimbursement type

contract. The term "no cost change" can be a misnomer for a charge or credit will accrue to the Government from most changes.

(2) As a rule, all contract changes will be priced and contract price adjusted within a reasonable and specified time after change is authorized. (See §§ 1054.307 and 1054.308 of this subchapter.)

(3) For procedures applicable to engineering changes resulting in termination claims or property disposal.

(b) Responsibility. See § 1054.307(b) of this subchapter. To facilitate PCO evaluation and action, ACO recommendations should be supported by sufficient information to indicate the extent and nature of analysis effort accomplished. If ACO analysis has indicated that adjustments proposed by the contractor are unsatisfactory, and discussions with contractor personnel have failed to result in submission of a revised acceptable proposal, a detailed summary of the ACOs position also should be sent to the PCO for further review and resolution.

(c) Procedures. (1) Dollar value of any change is arrived at by considering the difference between the article or work deleted and the article or work added. Because dollar value of any change will be determined by negotiation with the contractor, tests of reasonableness and equity should guide every time.

(2) Knowledge of contractor's estimating system is of great importance in pricing changes.

(3) Price analyst and auditor will be used in reviewing change proposals as necessary. Every quotation requires some degree of price analysis regardless of dollar value; the degree of price analysis and the need for audit assistance depends upon individual circumstances. When the increase or decrease for any individual change exceeds $250,000 ($500,000 where it is known that the procurement will be made on a costreimbursement type contract), the designated representative of the chief CMD/ AFPRO and the auditor will hold a preanalysis review to determine the requirement for audit assistance or approach to the analysis. The complexity of the change, as well as its dollar value, are factors governing the need for price analyst or auditor support. Complexity and dollar value, however, cannot be construed to be the only governing factors since a proposed no-cost change or

a seemingly insignificant price adjustment may, in fact, result in a significant price decrease. Adequate review thus requires a knowledge and understanding of a contractor's cost estimating and accounting procedures.

(4) Evaluation of the profit factors under § 3.808-2 of this title is required when analyzing each change proposal. Profit patterns considered in establishing original negotiation objective will not be accepted automatically when pricing a change.

(d) See § 16.813 of this title for instructions regarding use of DD Form 1107 "Change Order Price Analysis." Exact types of pertinent supporting information to be submitted will be the subject of agreement between Air Force and contractor with ACO the coordinator.

[28 F.R. 9583, Aug. 31, 1963, as amended at 30 F.R. 793, Jan. 26, 1965]

§ 1003.850-3 Planning and coordination.

The team approach to pricing requires adequate planning and coordination to prevent duplication of effort or inadequate analysis.

(a) The following planning and coordination procedures are required prior to PCO award of a contract to a sole source, or definitization of a letter contract awarded to a sole source, where definitive price negotiations in excess of $250,000 ($500,000 where it is known that the procurement will be made on a costreimbursement type contract) are anticipated. In addition, these procedures are applicable in multi-source procurements or where definitive price negotiations not in excess of $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract) are contemplated, provided the PCO (or price analyst) has first determined that the services of technical specialists in field contract management activities or audit field officers are required. Such determination will be made after consideration of the conditions set forth in § 3.809 (c) of this title and § 1003.809 (c), and evaluation of such other factors as types and availability of cost and pricing data required for analysis, complexity of the procurement, contract type contemplated, and extent of price competition, if any, obtained. In situations where a complete analysis is not mandatory and only factual information is required, such information may be obtained by telephone if other means of communica

tion would unduly delay the procurement action. All such telephone requests and responses will be confirmed in writing as soon as possible. Indiscriminate release of pricing information, by any means of communication, is prohibited.

Step 1. This step applies only to sole source negotiations in excess of $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract) (but see Step 2(iii)). Procuring activities will distribute two copies of each request for proposal to the CMD/ AFPRO. The request for proposal will include instructions that the contractor submit two copies of the proposal to the CMD/ AFPRO at the same time it furnishes the original proposal to the procuring activity. Upon receipt, the CMD/AFPRO will distribute one copy of each request for proposal and of each proposal to the responsible field auditor.

Step 2. The PCO (or price analyst) will prepare a single, detailed request for analysis support and send it to the CMD/AFPRO.

(1) In sole source negotiations expected to exceed $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract), inclusion of a request for audit assistance is mandatory, and an information copy of the request will be furnished to the Auditor General representative at the procuring activity.

(ii) In sole source negotiations under $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract) and in multisource negotiations, one copy each of the request for proposal (s) and the proposal to be analyzed will be attached to the request. If audit review is requested, an additional copy of each will be attached, and an information copy of the request will be furnished to the Auditor General representative at the procuring activity.

(iii) If a procuring activity negotiates repeatedly with the same source, agreements may be reached with the concerned CMD/ AFPRO as to types of sole source proposals under $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract) requiring field analysis, if any, and the extent and areas of analysis required. Where these agreements exist and are applicable, this Step may be omitted by the PCO unless audit review is desired; however, the procedures in Step 1 will be followed.

Step 3. Upon receipt of a request for support analysis that includes a request for audit review, the designated representative of the CMD chief/AFPR and the auditor will hold a pre-analysis review. This meeting may be as formal or informal as desired. The procurement situation and the procuring activity's request will be discussed and a mutually agreeable approach to analysis determined. Following this review,

the CMD/AFPRO representative will advise the PCO of target date for submission of requested support. If, during pre-analysis review, it is agreed that pertinent information requested by the PCO has been furnished in prior unclassified analysis and audit reports, that this information is still valid, and that neither the CMD/AFPRO nor the auditor can contribute any other significant information, the CMD/AFPRO representative will advise the PCO accordingly. In such cases, he will advise the PCO that a pre-analysis review was held with the auditor, will reference the earlier reports and, where the earlier reports were prepared for procuring activities other than the requesting activity, attach information copies.

Step 4. If review of any subcontract cost estimate is necessary during AF field analysis of a prime proposal, efforts will be made by the CMD/AFPRO to obtain the required support information from the prime before requesting assist analyses. However, if assist analyses are necessary, requests for and any followup required will be prepared by the CMD/AFPRO representative and sent to the CMD/AFPRO having cognizance over the s'ibcontractor's facility. If the prime is a sole source and its proposal exceeds $250,000 ($500,000 where it is known that the procurement will be made on a cost-reimbursement type contract), or if a requirement for audit review of a subcontract proposal is included in the request for assist analysis, the request will be coordinated with and an information copy furnished to the audit activity located at or responsible for audit of the prime's facility. Upon receipt of a request for assist analysis that includes a request for audit review, the subcontractor's CMD/AFPRO and the local auditor will follow the procedure outlined in Step 3.

[28 F.R. 9583, Aug. 31, 1963, as amended at 30 F.R. 793, Jan. 26, 1965]

§ 1003.850-4 Packaging costs.

USAF Packaging Cost Standards, covering direct material costs and direct labor for all of the packaging and preservation methods in Specification MIL-P116, Preservation, Methods of, are available to packaging specialists located in contract management activities (CMDs/ AFPROS), AFSC divisions, and AFLC AMAS (Packaging Control Components). By referring to the Cost Standard, packaging specialists can develop independent estimates in these direct cost areas. These estimates can be a useful tool in the overall evaluation and analysis of contractor posed direct packaging costs, and will be requested whenever appropriate. Requests will include sufficient information to permit the packaging specialist to make a proper appraisal of packaging effort required. As a minimum, information about the size and

(a) When, in any procurement cycle, a meeting is held with the contractor to reach agreement upon terms and conditions of a proposed contract or upon adjusted price on an existing contract, meeting will be preceded by a prenegotiation conference of Government's pricing team. Purpose of this meeting will be to: (1) Discuss proposal in detail to achieve full understanding, (2) to express opinions and air problems that have developed during review and analysis of proposal, and (3) to determine unified negotiation objectives and course of action to be followed during conference with contractor.

8

(b) Those to whom the authority to manually approve contracts has been delegated (§ 1001.457(a) of this subchapter) by the Director of Procurement and Production, Hq AFLC, or the Deputy Chief of Staff, Procurement and Production, Hq AFSC, will establish a system for briefings by AF negotiating team after negotiation objectives have been firmed but before conclusion of negotiation conference. Procedures and requirement for prenegotiation reviews will be determined locally. However, briefings will be appropriate in following situations:

(1) A new contract follows contract(s) where contractor's performance has been unsatisfactory.

(2) A new procurement substantially increases a contractor's annual sales and production volume.

(3) Costs have increased substantially beyond those originally estimated.

(4) Items procured have performed poorly and required modification and retrofit.

(5) Performance indicates justification for additional or reduced profit.

(6) The procurement obligates a significant portion of the AF budget.

(a) In those maintenance, overhaul, and modification contracts where services and indirect materials are procured on a fixed-price basis and it is agreed that contractor will furnish, as needed, certain direct materials and parts on a cost-reimbursement basis, profit consideration on fixed price negotiated will represent reasonable reward for total contract effort. Subsequent reimbursement for contractor-furnished direct materials or parts will be limited to direct material costs. Reasonable and allocable material handling costs may be included in the charge for direct materials at cost to the extent they are clearly excluded from the fixed price for services and indirect materials. (See § 1007.4503-3(b)(1) of this subchapter for contract clause and § 15.205-22(e) of this title for discussion on pricing intercompany sales or transfers of materials.)

(b) In sole source procurements and procurements where manufacturer of item being repaired is quoting in competition with contractor(s) who must procure parts from such manufacturer to perform, exception to procedure outlined in paragraph (a) of this section is appropriate if review and negotiation reveals that compliance would prohibit an award at lowest overall price to Government, all factors considered. Under these conditions only, it may be agreed in advance to reimburse contractor at a later date for profit considerations applicable to furnishing direct materials and parts, as well as costs. However, in multiple source situation described, all sources must first be given an opportunity to requote on revised basis. Whenever such prospective agreement is reached, care must be exercised to insure that contract clearly reflects intent of both parties.

(c) Paragraph (a) of this section does not apply to contract changes authorizing the contractor to procure or fabricate direct materials or parts that were previously designated as Government-furnished. Such a change increases contract scope originally contemplated and payment of additional profit is appropriate.

[28 F.R. 9583, Aug. 31, 1963, as amended at 29 F.R. 15258, Nov. 13, 1964; 30 F.R. 11038, Aug. 26, 1965]