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Every contract that is negotiated under the authority of §§ 3.210 through 3.210-3 shall be accompanied with a determination and findings justifying its use, signed by the contracting officer and prepared in accordance with the requirements of Subpart C of this part. [28 F.R. 12554, Nov. 23, 1963]

Prior Amendments

1961: 26 F.R. 2604, Mar. 28. 1962: 27 F.R. 1694, Feb. 22. § 3.211-3 Limitation.

The authority of this section and §§ 3.211-3.211-2 shall not be used for negotiated contracts with educational institutions or for quantity production, except that such quantities may be purchased hereunder as are necessary to permit complete and adequate experiment, development, research, or test; accordingly, research or development contracts which call for the production of a reasonable number of experimental or test models, or prototypes, shall not be regarded as contracts for quantity production. Negotiated contracts with educational institutions shall be negotiated in accordance with § 3.205. The authority of this section and §§ 3.2113.211-2 shall not be used when negotiation is authorized by the provisions of § 3.203 or § 3.206. In order for this authority to be used, the required determination must be made in accordance with the requirements of Subpart C of this part.

[28 F.R. 2094, Mar. 5, 1963]

§ 3.211-4 Records and reports.

CODIFICATION: In § 3.211-4, the reference in the last sentence was changed from "§§ 1.110 and 16.807 of this chapter." to "§ 1.110 and Subpart I, Part 16 of this chapter.", 26 F.R. 9635, Oct. 12, 1961. Subsequently, the reference was further amended to read "§ 1.110 of this chapter.", 27 F.R. 8871, Sept. 6, 1962. § 3.214-1

Authority.

Pursuant to 10 U.S.C. 2304 (a) (14), purchases and contracts may be negotiated if:

For technical or special property that he [the Secretary] determines to require a substantial initial investment or an extended period of preparation for manufacture and for which he determines that formal advertising would be likely to result in additional cost to the Government by reason of duplication of investment or would result in

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However, this exception should not be used to avoid duplication of private investment unless this duplication would be likely to result in additional cost to the Government.

[Sentence added, 26 F.R. 2604, Mar. 28, 1961] § 3.214-3 Limitation.

The authority of this section and §§ 3.214-3.214-2 shall not be used unless and until the Secretary has determined, in accordance with the requirements of Subpart C of this part, that:

(a) The supplies are of a technical or special nature requiring a substantial initial investment or an extended period of preparation for manufacture; and

(b) Procurement by formal advertising either:

(1) Would be likely to result in additional cost to the Government by reason of duplication of investment, or

(2) Would result in duplication of necessary preparation which would unduly delay the procurement.

[28 F.R. 2094, Mar. 5, 1963]

Prior Amendments 1961: 26 F.R. 2604, Mar. 28.

§ 3.216-4 Records and reports.

CODIFICATION: In § 3.216-4, the reference in the last sentence was changed from "§§ 1.110 and 16.807 of this chapter." to "§ 1.110 and Subpart I, Part 16 of this chapter.", 26 F.R. 9635, Oct. 12, 1961. Subsequently, the reference was further amended to read "§ 1.110 of this chapter.", 27 F.R. 8871, Sept. 6, 1962. § 3.217-2 Application.

The authority of § 3.217 shall be used only if, and to the extent, approved for any Military Department and in accordance with Departmental procedures except that, in the event of a joint total or partial small business set-aside, this authority shall be used, with further citation of section 15 of the Small Business Act, in preference to any other authority in this subpart (see § 1.706-8 of this subchapter).

[26 F.R. 5303, June 14, 1961]

§ 3.218-2 Limitation on authority to negotiate contracts.

(a) Work in the United States. Contracts for construction work to be per

formed within the United States shall be formally advertised and may not (except as provided below for small business setasides) be negotiated unless authorized pursuant to the following subsections of 10 U.S.C. 2304(a): (1), (2), (3), (10), (11), (12), or (15) (see respectively, §§3.201, 3.202, 3.203, 3.210, 3.211, 3.212 and 3.215 of this subpart). Construction contracts set aside for small business pursuant to a joint determination of the Small Business Administration and a Department may be negotiated pursuant to 10 U.S.C. 2304(a) (17) and section 15 of the Small Business Act (see §1.706-8 of this chapter).

[Paragraph (a) amended, 26 F.R. 2604, Mar. 28, 1961]

Subpart C-Determinations and Findings

§ 3.301

Nature of determinations and findings.

The determinations and supporting findings that are referred to throughout this part are documents which justify the use of the authority (a) to enter into contracts by negotiation, (b) to make advance payments under negotiated contracts, (c) to determine the kind of contract to be used, or (d) to waive a requirement for submission of cost or pricing data and certification thereof. Determinations and findings shall ordinarily be made only with respect to individual purchases or contracts. However, except as limited by § 3.303, class determinations and findings may be used for a specified period only and in accordance with Departmental procedures to authorize negotiation of two or more contracts for supplies or services of the same or related type. Such determinations and findings shall not, however, be construed to authorize the procurement by negotiation of supplies or services within the class which feasibly and practicably could be procured through formal advertising (see § 1.300-2 of this chapter).

[28 F.R. 4883, May 16, 1963]

Prior Amendments

1961: 26 F.R. 2604, Mar. 28. 1963: 28 F.R. 2094, Mar. 5.

§ 3.302 Determinations and findings by the Secretary of a Department. The following determinations, and written findings in support thereof, may

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be made only by the Secretary of a Department and not delegated hereunder except to the extent provided in paragraphs (a), (g), and (h) of this section:

(a) The determination required by § 3.211 with respect to any negotiated contract for experimental, developmental, or research work or for the manufacture or furnishing of supplies for experimentation, development, research, or test (but see § 3.303 (b) when the amount does not exceed $100,000);

(b) The determination required by § 3.212 with respect to any negotiated contract that should not be publicly disclosed;

(c) The determination required by § 3.213 with respect to any negotiated contract for technical equipment requiring standardization and interchangeability of parts;

(d) The determination required by §3.214 with respect to any negotiated contract for technical or specialized supplies requiring a substantial initial investment or an extended period of preparation for manufacture;

(e) The determination required by § 3.215 with respect to any negotiated contract entered into after advertising has proved unsatisfactory;

(f) The determination required by §3.216 with respect to any negotiated contract entered into in the interest of national defense or industrial mobilization;

(g) The determination required with respect to advance payments under any negotiated contract (but see Defense Contract Financing Regulations, Subpart D, Part 163 of this chapter; and

(h) The determinations required with respect to waiving a requirement for submission of cost or pricing data and certification thereof (see § 3.807-3(b)) and for inclusion of the clauses required by §§ 7.104-29 and 7.104-42 of this chapter (but see § 3.303 (a) for contracts with foreign governments or agencies thereof).

In addition to the foregoing determinations, the Secretary of any Department may also make any of the determinations, and written findings in support thereof, that may be made by the head of any procuring activity signing as a chief officer responsible for procurement or by a contracting officer. [28 F.R. 2094, Mar. 5, 1963]

§ 3.303

Determinations and findings below the Secretarial level.

(a) Determinations, and findings in support thereof, not required to be made by higher authority including those in subparagraphs (1) through (4) of this paragraph may be made with respect to individual purchases or contracts by the Head of a Procuring Activity signing as a chief officer responsible for procurement. Unless his authority is limited by higher authority, the contracting officer may make the determinations and findings in subparagraphs (2) through (4) of this paragraph with respect to individual purchases and contracts:

(1) The determination required with respect to waiving the requirements for submission of cost or pricing data and certification thereof and for the inclusion of the clauses required by §§ 7.10429 and 7.104-42 of this chapter for contracts with foreign governments or agencies thereof;

(2) Determinations and findings with respect to authority to enter into contracts by negotiation required by §§ 3.202-3, 3.207-3, 3.208-3, 3.210-3, and 3.211-3; provided, that under § 3.211-3 the basic contract or any single modification thereto does not obligate the Government to pay more than $100,000 (where it is known in advance that the scope of the contract will be expanded to include additional phases or where it is incrementally funded, the total estimated cost of all increments will be used as the basis for determining whether a determinations and finding will be made at the Secretarial level or by the contracting officer);

(3) Determinations and findings with respect to the use of a cost or a costplus-a-fixed-fee or an incentive-type contract required by §§ 3.404-4, 3.405, 3.405-4, and 3.405-5; and

and

(4) Any other determinations findings not required to be made by higher authority.

(b) The authority to make class determinations and findings with respect to authority to enter into contracts by negotiation pursuant to §§ 3.202, 3.207, 3.208 and 3.210 may be delegated by the Secretary of any Department.

CODIFICATION: § 3.303 was revised, 28 F.R. 4883, May 16, 1963. Subsequently, paragraph (a) (2) was amended, 28 F.R. 12554, Nov. 23, 1963.

Prior Amendments 1961: 26 F.R. 2604, Mar. 28. 1963: 28 F.R. 2094, Mar. 5.

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[Revoked, 28 F.R. 2094, Mar. 5, 1963] § 3.305 Forms of determinations and findings.

(a) Each determinations and findings-whether for (1) authority to nego(2) tiate an individual contract, or authority to negotiate a class of contracts, or (3) kind of contract, or (4) any other purpose shall be prepared in accordance with Departmental procedures, but determinations and findings for advance payments must be prepared in accordance with the format in § 163.60 of this chapter.

(b) Each determination and findings prepared in accordance with Departmental procedures shall set out enough facts and circumstances to justify clearly the specific determination made. Each determination and findings for authority to negotiate either an individual contract or a class of contracts shall clearly indicate that the use of formal advertising would be impracticable and the reasons therefor.

[26 F.R. 2604, Mar. 28, 1961]

§ 3.308 Retention of copies and determinations and findings.

Executed originals of all determinations and findings, and copies of all supporting documents, shall be preserved in the cognizant procuring activity or in the Department concerned for six years following the date of each respective determination.

[27 F.R. 11649, Nov. 27, 1962]

Subpart D-Types of Contracts
[Revised]

AUTHORITY: §§ 3.400 to 3.410-1 issued under R.S. 161, sec. 2202, 70A Stat. 120; 5 U.S.C. 22, 10 U.S.C. 2202. Interpret or apply secs. 2301-2314, 70A Stat. 127-133; 10 U.S.C. 23012314.

SOURCE: §§3.400 to 3.410-1 appear at 27 F.R. 4015, Apr. 27, 1962, except as otherwise noted. Prior Amendments

1961: 26 F.R. 5303, June 14; 26 F.R. 9635, Oct. 12.

§ 3.400 Implementation.

In order to provide maximum uniformity in application, implementations of §§ 3.401 through 3.405 and 3.407-2 shall not be issued. In the event need exists for more detailed coverage of the subjects contained in the sections re

ferred to, appropriate recommendations should be submitted to the ASPR Committee.

§ 3.401 Types of contracts.

(a) To provide the flexibility needed in the purchase of the large variety and volume of military supplies and services, a wide selection of types of contracts is available to the contracting parties. The respective contract types vary as to (1) the degree and timing of responsibility assumed by the contractor for the costs of performance, and (2) the amount and type of profit incentive offered the contractor to achieve or exceed specified standards or goals. With regard to degree of cost responsibility, the various types of contracts may be arranged in order of decreasing contractor responsibility for the costs of performance. At one end is the firm fixedprice contract under which the parties agree that the contractor assumes full responsibility in the form of profits or losses, for all costs under or over the firm fixed price. At the other end of this range is the cost-plus-a-fixed-fee contract where profit, rather than price, is fixed and the contractor's cost responsibility is therefore minimal. In between are the various incentive contracts which provide for varying degrees of contractor cost responsibility, depending upon the degree of uncertainty involved in contract performance.

(b) Pursuant to the authority of 10 U.S.C. 2306, a contract negotiated under this part may be of any type or combination of types described herein which will promote the best interests of the Government, subject to the restrictions described below. Types of contracts not described herein shall not be used, unless pursuant to a deviation under § 1.109 of this chapter. The cost-plusa-percentage-of-cost system of contracting shall not be used. Accordingly, all prime contracts (including letter contracts) on other than a firm fixedprice basis shall prohibit cost-plus-apercentage-of-cost subcontracts by an appropriate clause.

§ 3.402 Basic principles for use of contract types.

(a) General. (1) Profit, generally, is the basic motive of business enterprise. Both the Government and its defense contractors should be concerned with harnessing this motive to work for the truly effective and economical contract

performance required in the interest of national defense. To this end, the parties should seek to negotiate and use the contract type best calculated to stimulate outstanding performance. The objective should be to insure that outstandingly effective and economical performance is met by high profits, mediocre performance by mediocre profits, and poor performance by low profits or losses. The proper application of these objectives on a contract by contract basis should normally result in range of profit rates.

(2) Success in harnessing the profit motive begins with the negotiation of sound performance goals and standards. This objective is met if the contractor either benefits or loses in relation to achieving or failing to achieve realistic targets. Where award is based on effective price competition, there is reasonable assurance that the contract price represents a realistic pricing standard, including a profit factor which reflects an appropriate return to the contractor for the financial risk assumed in undertaking performance at the competitive price. In the absence of competitive forces, however, the contract type selected should provide for a profit factor that will tie profits to the contractor's efficiency in controlling costs and meeting desired standards of performance, reliability, quality, and delivery. Therefore, in noncompetitive situations, the degree to which available cost estimates are realistic should be carefully considered in determining which type of contract should be selected and how it should be used-especially where the contractor is to assume substantial cost responsibility. If estimated costs are negotiated on the basis of a full consideration of all significant cost or pricing data that are reasonably available at the time of negotiation, a contract type providing a high profit potential and concomitant contract risks may be entirely appropriate even though there is a possibility that actual costs will vary widely from the estimate.

[Subparagraph (2) amended, 28 F.R. 4883, May 16, 1963]

Prior Amendments 1962: 27 F.R. 6123, June 29.

(3) The policies in subparagraphs (1) and (2) of this paragraph require that the contractor assume a reasonable degree of cost responsibility as early in contract performance as is possible.

This can be achieved only through vigorous contract administration and effort on the part of both parties to assure timely pricing. Particularly in fixedprice type contracts providing for price revisions, delays in pricing actions by either party may distort the type of contract which has been agreed upon, and such delays must be avoided.

(4) Where a contract type providing for a reasonable degree of contractor cost responsibility cannot be negotiated on a timely basis, due to the contractor's unwillingness to assume reasonable risk, profits should be negotiated so as to reflect this fact (see § 3.808-2(b)).

(b) Preferred contract types. (1) The firm fixed-price contract is the most preferred type because the contractor accepts full cost responsibility, and the relationship between cost control and profit dollars is established at the outset of the contract. Accordingly, whenever a reasonable basis for firm pricing exists (see § 3.404-2), the firm fixedprice contract shall be used, because its use under these circumstances will provide the contractor with a maximum profit incentive to control the costs of performance. Similarly, a profit incentive to control costs can be achieved through use of the fixed-price incentive contract, and to a lesser degree, the cost-plus-incentive-fee contract, where appropriate target costs and incentive arrangements can be negotiated.

(2) In many procurement situations objectives other than cost control, for example, performance and time goals in the case of development projects, may also be significant. Such objectives may be (i) performance with a view toward a better or more reliable product; (ii) delivery when it is necessary to obtain supplies or services with the utmost speed to meet military needs; or (iii) a combination of any of the objectives of cost, performance, and delivery (see § 3.407). A contractual arrangement can be used to provide incentive to obtain these objectives in addition to effective cost control. Thus, by providing for increased profit for exceeding predetermined target levels and decreased profit for failing to meet target levels, an additional incentive is credited for maximum effort on the part of the contractor to accomplish the desired objectives. When additional objectives are made a part of the various types of incentive contracts described in this subpart (§§ 3.404-4 and 3.405-4),

particular care must be taken by the contracting officer to maintain an appropriate balance between the various incentives, by weighting incentive objectives to apportion the total incentive profits or fee in accordance with the emphasis desired by, and inaximum benefit to, the Government. Without proper balancing of the incentive objectives, the Government may receive at unwarranted expense, a product of greater quality than desired or delivery before needed. § 3.403 Negotiation of contract type.

(a) General. The selection of contract type is generally a matter for negotiation and requires the exercise of judgment. Type of contract and pricing are interrelated and should be considered together in negotiation in accordance with 3.803. Because the type of contract affects the resulting price to the Government, use of an appropriate type is of primary importance in obtaining fair and reasonable prices. Each contract file shall include documentation to show why the particular contract type was used, except for the following: First, small purchases (Subpart F of this part); second, repetitive types of procurement usually accomplished on a firm fixedprice basis, such as subsistence procurement; or third, awards made on the setaside portion of formally advertised procurements partially set aside for either small business, labor surplus or disaster areas. Although no absolute rules can be laid down, there are many factors which should be considered in the use of an appropriate type of contract, including those which follow:

(1) Price analysis. See 3.807-2(b). Price analysis may provide a basis for selection of contract type. The degree to which price analysis can provide a realistic pricing standard should be carefully considered, even where there may not be full and free competition.

(2) The cost estimate. In the absence of effective price competition and where price analysis if not sufficient, the cost estimates of the offeror and of the Government are the bases for negotiation of many pricing arrangements. As a minimum, the uncertainties involved in performing at the cost estimated, and their possible impact on costs, must be identified and evaluated so that a pricing arrangement can be negotiated which imposes a reasonable degree of cost responsibility upon the contractor. The

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