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other contractual provisions pertaining to acceptance by the Government. Such a clause allows the Government additional time after acceptance in which to assert a right to correction of the defects, reperformance, an equitable adjustment in the contract price, or other remedies. This additional period of time may begin at the time of delivery or at the occurrence of a specified event, and may run for a given number of days or months or until occurrence of another specified event. The value of a warranty clause depends upon the circumstances and its use is influenced by many factors (see § 1.324-3 (b)). [29 F.R. 14816, Oct. 31, 1964] § 1.324-2

Policy.

(a) A warranty clause should be used only where it can be enforced and the potential increase in contract price is outweighed by the protection afforded the Government.

(b) A warranty clause shall not be included in cost-reimbursement type contracts, since the warranty aspects of the clause "Inspection of Supplies and Correction of Defects" in § 7.203-5 of this chapter, are sufficient to protect the interests of the Government.

(c) In negotiated procurements, the following clause shall be included in the solicitation when the procurement involves a commercial supply or service sold with a commercial warranty as a customary trade practice, and the contracting officer, after reviewing the factors listed in § 1.324-3(b), determines that the benefits of a commercial warranty should be obtained:

COMMERICAL Warranty (SEPT. 1964.)

The Contractor agrees that the supplies or services furnished under this contract shall be covered by the most favorable commercial warranties the Contractor gives to any customer for such supplies or services.

(d) Any warranty clause included in a contract shall not limit or be limited by any rights afforded to the Government by any other clause of the contract, especially the provisions of the "Inspection" clause relating to latent defects, fraud, and gross mistakes that amount to fraud. Care should be taken to insure that the clause used, and any other warranty provisions in the contract (e.g., in the specifications) are consistent, especially where performance specifications are used.

[29 F.R. 14816, Oct. 31, 1964]

§ 1.324-3 Determination to use a warranty.

(a) Except for the "Commercial Warranty" clause covered in § 1.324-2(c), a warranty clause shall be included in individual procurements or in classes of procurements only after a written determination by the head of the procuring activity or his designee that it is in the best interest of the Government.

(b) In making the determination required in paragraph (a) of this section, at least the following factors shall be considered:

(1) Nature of the item and its end use;

(2) Cost of the warranty and degree of price competition as it may affect this cost;

(3) Cost of correction or replacement, either by the contractor or another source, in the absence of a warranty;

(4) Administrative cost and difficulty of enforcing the warranty;

(5) Ability to take advantage of the warranty, as conditioned by storage time, distance of the using agency from the source, or other factors;

(6) Operation of the warranty as a deterrent against substitution of defective or nonconforming supplies;

(7) Whether the Government inspection system provides adequate protection without a warranty;

(8) Whether contractor's present quality program is reliable enough to provide adequate protection without a warranty, or, if not, whether a warranty would cause the contractor to institute an effective and reliable quality program;

(9) Reliance on "Brand-name" integrity;

(10) Whether a warranty is regularly given for a commercial component of a more complex end item;

(11) Criticality of item for protection of personnel, e.g., for safety in flight; (12) The stage of development of the item and the state of the art; and

(13) Customary trade practices. [29 F.R. 14816, Oct. 31, 1964]

§ 1.324-4 Scope of warranty clause.

(a) The terms and conditions of a warranty clause vary with the circumstances of the procurement. The clause must state the duration of the warranty. The clause may either provide that the contractor will be liable for defects or nonconformance to contract requirements existing at the time of delivery,

or provide that he will be liable for such defects or nonconformance which develop prior to the expiration of a specified period of time or before the occurrence of a specified event.

(b) A warranty clause shall also include a specified period during which notice must be given to the contractor of any defects or nonconformance to contract requirements. The interest of the Government normally will be protected if the notice period starts at the time of delivery, or where services are involved, upon acceptance thereof by the Government. In some cases, however, it may be necessary to start the notice period at a later time. For example, where conformance of supplies cannot be determined satisfactorily until they are used, the period should begin when the items are put to use, or where supplies are procured in lots under sampling procedures and delivered in increments for storage, the period may begin when the supplies are put to use or at the time of the last delivery.

(c) Where the Government specifies the design of the item and its precise measurements, tolerances, materials, tests, or inspection requirements, the contractor's liability for defects or nonconformance should usually be limited to those in existence at the time of delivery.

(d) Where a contract contains performance specifications and design is of minor importance, the contractor's liability may extend to defects or nonconformance to specifications which may arise after delivery of the supplies or acceptance of the services. Where appropriate, however, the warranty should be limited to defects or nonconformance existing at the time of delivery of the supplies or acceptance of the services.

(e) Ordinarily, the remedy provided under a warranty clause to return nonconforming supplies to the contractor for correction or replacement should satisfy the Government's needs. However, where the supplies are of such nature (e.g., subsistence or drugs) that correction or replacement does not afford adequate remedy to the Government, the clause should provide (1) that the contracting officer may either return the supplies to the contractor; dispose of them in a reasonable manner, or replace with similar supplies, and (2) that the contractor shall be liable for any cost occasioned to the Government thereby.

(f) When it can be foreseen that it will not be practical to return an article for correction or replacement because of the nature of its use or the cost of preparation for its return (e.g., where operating equipment installed in a vessel, aircraft or tank needs only a correction of adjustment, but to return it would require substantial expense of removal from where it is installed), the clause should provide that the Government may correct or require the contractor to correct the article in place at its location, at the contractor's expense.

(g) Where it is determined that a warranty for the entire item is not advisable, a warranty may be required for a particular aspect of the item which may need special protection, e.g., installation, components, accessories, parts, sub-assemblies and preservation, packaging and packing, etc.

[29 F.R. 14816, Oct. 31, 1964]

§ 1.324-5 Pricing aspects of fixed-price incentive contract warranty provisions.

In fixed-price incentive contracts, consideration should be given to the pricing aspects of the contract as they relate to a warranty. When it is determined to include a warranty clause, the estimated costs for the warranty shall normally be considered in establishing the incentive target price. Prior to the establishmert of the total final price, all costs incurred or to be incurred by the contractor in complying with the warranty clause shall be considered when negotiating the final total negotiated cost. the establishment of the total final price, contractor compliance with the warranty clause shall be at his expense and at no increase in the total final price. Equitable adjustments in the contract price under the warranty clause shall be governed by the paragraph entitled "Equitable Adjustments Under Other Clauses" in the incentive price revision clause. [29 F.R. 14817, Oct. 31, 1964]

§ 1.324-6 Warranty clauses.

After

(a) The following clause is an example of a warranty clause which is authorized for insertion in fixed-price supply contracts.

SUPPLY WARRANTY

(a) Notwithstanding inspection and acceptance by the Government of supplies furnished under the contract or any provision of this contract concerning the conclu

siveness thereof, the Contractor warrants that

(i) all supplies furnished under this contract will be free from defects in material or workmanship and will conform with the specifications and all other requirements of this contract; and

(11) the preservation, packaging, packing, and marking, and the preparation for and method of shipment of such supplies will conform with the requirements of this contract.

(b) The Contracting Officer shall give written notice to the Contractor of any breach of the warranties in paragraph (a) of this clause

(c) Within a reasonable time after such notice, the Contracting Officer may either:

(1) by written notice require the prompt correction or replacement of any supplies or part thereof (including preservation, packaging, packing, and marking) that do not conform with the requirements of this contract within the meaning of paragraph (a) of this clause; or

(ii) retain such supplies, whereupon the contract price thereof shall be reduced by an amount equitable under the circumstances and the Contractor shall promptly make appropriate repayment.

If the contract provides for inspection of supplies by sampling procedures, the Contracting Officer may, at his option, determine the quantity of supplies or parts thereof which are subject to this paragraph in accordance with such sampling procedures.

(d) When return, correction or replacement is required, the Contracting Officer shall return the supplies and transportation charges and responsibility for such supplies while in transit shall be borne by the Contractor. However, the Contractor's liability for such transportation charges shall not exceed an amount equal to the cost of transportation by the usual commercial method of shipment between the designated destination point under this contract and the Contractor's plant, and return.

(e) If the Contractor fails or refuses to correct or replace the nonconforming supplies within a period of ten (10) days (or such longer period as the Contracting Officer may authorize in writing) after receipt of notice

*State in the blank the specific warranty period, e.g., "at the time of delivery"; "for (insert period of time) after delivery" or the specified event whose occurrence will terminate the warranty period, e.g., the number of miles or hours of use, or combination of any applicable events or periods of time, as appropriate (see § 1.324-4(a)).

**Insert in the blank the specific period of time in which notice shall be given to the contractor, e.g., "within (insert period of time) after delivery of the nonconforming supplies"; "within (insert period of time) of the last delivery under this contract", as appropriate (see § 1.324-4(b)).

from the Contracting Officer specifying such failure or refusal, the Contracting Officer may, by contract or otherwise, correct or replace them with similar supplies and charge to the Contractor the cost occasioned to the Government thereby. In addition, if the Contractor fails to furnish timely disposition instructions, the Contracting Officer may dispose of the 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 the care and disposition of the nonconforming supplies, as well as for excess costs incurred or to be incurred.

(f) Any supplies or parts thereof corrected or furnished in replacement pursuant to this clause shall also be subject to all the provisions of this clause to the same extent as supplies initially delivered.

(g) Failure to agree upon any determination to be made under this clause shall be a dispute concerning a question of fact within the meaning of the "Disputes" clause of this contract.

(h) The word "supplies" as used herein includes related services.

(1) The rights and remedies of the Government provided in this clause do not limit any rights afforded to the Government by any other clause of the contract.

(b) When the contractor's design is to be used rather than a Government design, insert the word "design," before "material" in paragraph (a) (i) of the clause in paragraph (a) of this section

(c) The following paragraph (c) may be substituted for the paragraph (c) of the clause in paragraph (a) of this section when the contract provides for inspection of supplies by sampling procedures:

(c) Conformance of supplies or parts thereof subject to warranty action shall be determined in accordance with the applicable sampling procedures contained in the contract except as provided herein. For sampling purposes, the Contracting Officer may group any supplies delivered under this contract. The size of the sample shall be that required by sampling procedure specified in the contract for the quantity of supplies on which warranty action is proposed. Warranty sampling results may be projected over supplies in the same shipment or other supplies contained in other shipments even though all of such supplies are not present at the point of reinspection, provided, the supplies remaining are reasonably representative of the quantity on which warranty action is proposed. The original inspection lots need not be reconstituted nor shall the Contracting Officer be required to use the same lot size as on original inspection. Within a reasonable time after notice of any breach of warranties in paragraph (a) of this

clause as determined herein, the Contracting Officer may exercise one or more of the following options:

(1) require an equitable adjustment in the contract price for any group of supplies;

(ii) screen the supplies grouped under this clause at Contractor's expense and return all nonconforming supplies to the Contractor for correction or replacement;

(iii) require the Contractor to screen the supplies at depots designated by the Government within the continental United States and to correct or replace all nonconforming supplies;

(iv) return the supplies grouped under this clause to the Contractor for screening and correction or replacement.

(d) The following paragraph (d) may be substituted for paragraph (d) of the clause in paragraph (a) of this section when it is desirable to provide that necessary transportation incident to correction or replacement will be at the Government's expense. This may be appropriate, for instance, when the cost of a warranty would otherwise be prohibited.

(d) When correction or replacement is required, and transportation of supplies in connection with such correction or replacement is necessary, transportation charges and responsibility for such supplies while in transit shall be borne by the Government.

(e) The following paragraph (e) may be substituted for paragraph (e) of the clause in paragraph (a) of this section when the supplies cannot be obtained from another source.

(e) If the Contractor does not agree as to his responsibility to correct or replace the supplies delivered, he shall nevertheless proceed in accordance with the written request issued by the Contracting Officer under paragraph (c) to correct or replace the defective or nonconforming supplies. In the event it is later determined that such supplies were not defective or nonconforming within the provisions of this clause, the contract price will be equitably adjusted. Failure to agree to such an equitable adjustment of price shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes".

(f) The following paragraph should be added when the clause in paragraph (a) of this section is included in a fixedprice incentive contract.

(1) Prior to the establishment of the total final price, all costs incurred, or to be incurred by the Contractor in complying with this clause shall be considered when negotiating the final total negotiated cost under the Incentive Price Revision clause of this contract. After the establishment of the total final price, Contractor compliance with this clause shall be at the Contractor's ex

pense and at no increase in the total final price. Any equitable adjustments made pursuant to paragraph (c) of this clause shall be governed by the paragraph entitled "Equitable Adjustments Under Other Clauses" in the Incentive Price Revision clause of this contract.

(g) The following clause is an example of a warranty clause which is authorized for insertion in fixed-price services contract.

SERVICE WARRANTY

Notwithstanding inspection and acceptance by the Government or any provision concerning the conclusiveness thereof, the Contractor warrants that all services performed under this contract will be free from defects in workmanship and will conform to the requirements of th's contract at time of acceptance. The Contracting Officer shall give written notice of any or nonconformance to the

such defect Contractor Such notice shall state either (i) that the Contractor shall correct or reperform any defective or nonconforming services, or (ii) that the Government does not require correction or replacement. If the Contractor is required to correct or reperform, it shall be at no cost to the Government, and any services corrected or reperformed by the Contractor pursuant to this clause shall be subject to all provisions of this clause to the same extent as work initially performed. If the Contractor fails or refuses to correct or reperform, the Contracting Officer may, by contract or otherwise, correct or replace with similar services and charge to the Contractor the cost occasioned to the Government thereby or obtain an equitable adjustment in the contract price. If the Government does not require correction or reperformance, the Contracting Officer shall make an equitable adjustment in the contract price. Failure to agree upon any determination to be made under this clause shall be a dispute concerning a question of fact within the meaning of the "Disputes" clause of this contract.

(h) When the contractor's design is to be used rather than a Government design, insert the words "design and" before "workmanship" in the first sentence of the clause in paragraph (g) of this section.

[29 F.R. 14817, Oct. 31, 1964]

*Insert in the blank the specific period of time in which notice shall be given to the contractor, e.g., "within (insert period of time) from the date of acceptance by the Government"; "within (insert number of hours) of use by the Government"; or other specified event whose occurrence will terminate the period of notice, or combination of any applicable events or periods of time, as appropriate.

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Except as otherwise prescribed by procedures of each respective Department, the head of each procuring activity, as now or hereafter established, is responsible for the procurement of supplies and services under or assigned to the procurement cognizance of his activity. The head of each procuring activity is authorized, within limits imposed by his Department, to designate such person or persons as he may select as Contracting Officers, within the meaning of that term as used throughout this subchapter. § 1.402 General authority of contracting officers.

In accordance with the provisions of § 1.401 and subject to the requirements prescribed in §§ 1.403 and 1.404, any Contracting Officer is hereby authorized to enter into contracts for supplies or services, in accordance with procedures prescribed by the Department concerned, on behalf of the Government and in the name of the United States of America, whether by formal advertising or by negotiation or by coordinated or interdepartmental procurement as provided in this subchapter.

§ 1.403 Requirements to be met before entering into contracts.

Irrespective of whether procurement is to be effected by formal advertising or by negotiation, no contract shall be entered into unless:

(a) All applicable requirements of law, of this subchapter, and of procedures prescribed by each respective Department have been met; and

(b) Such business clearance or approval as is prescribed by applicable Department procedures has been obtained.

§ 1.404 Special requirements to be met before entering into negotiated con

tracts.

In addition to the requirements set forth in § 1.403, no contract shall be entered into as a result of negotiation until such determinations and findings as may be required with respect to the circumstances justifying negotiation and with respect to the use of a special method of contracting have been made by the persons and in the manner prescribed in Subparts C and D of Part 3 of this subchapter.

Subpart E-Contingent or Other Fees

SOURCE: The provisions of this Subpart E appear at 25 F.R. 14086, Dec. 31, 1960, except as otherwise noted.

$ 1.500 Scope of subpart.

This subpart sets forth the procedures to be followed and prescribes the form to be used for obtaining information concerning contingent or other fees paid by contractors for soliciting or securing contracts from the Department of Defense, including the Departments of the Army, the Navy, the Air Force, and the Defense Supply Agency.

[27 F.R. 11644, Nov. 27, 1962] § 1.502 Applicability.

This subpart applies to all contracts. § 1.503 Covenant against contingent fees clause.

Every contract shall contain the clause entitled "Covenant Against Contingent Fees", as set forth in § 7.103-20 of this subchapter, except as provided

§ 16.401-4(g) of this subchapter. § 1.504 Improper influence.

in

The term "improper influence" means influence, direct or indirect, which induces or tends to induce consideration or action by any employee or officer of the United States with respect to any Government contract on any basis other than the merits of the matter.

§ 1.505 General principles and standards applicable to the covenant. The principles and standards set forth in this subpart are intended to be used as a guide in the negotiation, awarding, administration or enforcement, of all contracts.

§ 1.505-1 Contingent character of the fee.

Any fee whether called commission, percentage, brokerage, or contingent fee,

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