MAKE-OR-BUY PROGRAMS POLICIES AND PROCEDURES

3.901-5 Price Adjustments.

(a) The following subparagraphs apply only to fixed-price incentive and cost-plus-incentive-fee contracts.

(b) There may be cases where it is proper to agree that an item of significant value will be "bought" even though it would usually be more economical to have it "made", or vice versa. For instance, the contractor may have a unique capability for low-cost manufacture of a substantial component but his capacity may be full during the period necessary for contract performance, so the component must be subcontracted. In such cases it will be necessary that the "make-or-buy" program as approved by the contracting officer specifically call for what would usually be the more costly treatment of the item. In that event the consequent higher costs may be explicitly recognized in establishing the best obtainable contract or target price. Unforeseen changes in the circumstances may arise during the contract performance, however, which induce the contractor to propose changing the item from "buy" to "make" (or vice versa). If such a change is made, the element of the contract price which was intended to compensate the contractor for the higher costs flowing from the initial make-or-buy decision would instead constitute windfall profits to the contractor and unwarranted costs to the Government.

(c) When, during the review of the prospective contractor's "make-orbuy" program (see 3.901-3), a situation of the kind described in (b) above is found to exist, the clause set forth below shall be included in the contract, and any "make-or-buy" items of the kind described in (b) above shall be specifically designated in the Schedule (or elsewhere in the contract) as being either a "make" item or a "buy" item, and as being subject to this clause. The make-orbuy program itself and the clause in 3.901-4(b) shall not be included in the contract.

PRICE ADJUSTMENT FOR MAKE-OR-BUY CHANGES (AUGUST 1969)

This clause applies only to items that are designated elsewhere in this contract as being "make" items or "buy" items subject to this clause. If the Contractor desires to "make" any designated "buy" item or to "buy" any designated "make" item, he shall give written notice to the Contracting Officer reasonably in advance of the proposed change and shall include significant and reasonably available cost and pricing data in sufficient detail to permit evaluation of the proposed change. Promptly thereafter, if the Contractor proceeds with the change, the Contractor and the Contracting Officer shall negotiate an equitable reduction in the contract price* to reflect any decrease in costs which should reasonably result from the change, and the contract shall be modified in writing accordingly. Failure to agree on an equitable reduction shall be a dispute concerning a question of fact within the meaning of the "Disputes' clause of this contract.

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*Substitute "target cost and target fee" for "contract price" in cost-plus-incentive-fee

contracts.

Subpart 11-Acquisition of Automatic Data Processing Equipment 3.1100 Contractor Acquisition of Automatic Data Processing Equipment (ADPE).

(a) This paragraph 3.1100 is applicable to all ADPE, as defined in 1.235, except as components of end items to be delivered to the Government.

(b) If ADPE is purchased for the account of the Government or if title to the ADPE will pass to the Government, the acquisition must be approved as required by Part 13.

3.1102 Review of Decision To Lease.

(a) If the total cost of leasing the ADPE is to be reimbursed under one or more cost reimbursement type contracts, the contracting officer shall, prior to approval of the proposed lease agreement:

(i) prepare a lease versus purchase study in accordance with 3.8042(c) (2);

(ii) survey the GSA ADPE excess lists for availability of excess ADPE which could be issued as GFP (see 13.301) and which would fulfill the contractor's requirements (including timely availability and technical compatibility);

(iii) determine whether, under 15.205-48, leasing is the appropriate method of acquisition from the Government's standpoint;

(iv) consider whether the ADPE should be leased under a Federal Supply Schedule Contract (see Part 5, Subpart 9);

(v) if the rental of ADPE through a commercial contract is authorized, require the contractor to include a provision in the rental contract stating that the Government will have the initial option to utilize any purchase or other benefits earned through rental payments; and

(vi) obtain approval of the leasing arrangement of the ADPE from the head of the installation concerned in accordance with the procedures of NHB 2410.1, "Management Procedures for Automatic Data Processing Equipment."

(b) If the total cost of leasing ADPE in a single plant, division, or cost center exceeds $500,000 per year and 50 percent or more of the total cost is to be allocated to cost reimbursement type contracts, the contracting officer should arrange for:

(i) an initial review and an annual review thereafter of the contractor's ADPE system for the purpose of evaluating, under 15.205–48, his existing ADPE capability and the need to continue leasing; and (ii) submission by the contractor to the contracting officer of any proposed lease of a new system and any proposed major changes to an existing system, for advance determination of the validity of the stated requirement and the reasonableness of leasing and resulting cost.