(£) Allowability of costs and acceptability of cost allocation methods relevant to establishment of final overhead rate (s) shall be established in accordance with Part of Section XV of the Armed Services Procurement Regulation in effect on the date of this contract.

Such

(g) Final annual overhead rate (s) which are established shall be set forth in a written overhead rate understanding executed by either the Contractor and the Contracting Officer or the Contractor and the Auditor-In-Charge. understanding is automatically incorporated in this contract upon execution and shall specify (i) the agreed final annual rate(s), (ii) the base(s) to which the rate(s) apply, (iii) the periods for which the rate (s) apply, (iv) any specific overhead items treated as direct costs in the settlement, and (v) a list of affected contracts, identifying any with advance agreements or special provisions and the rates applicable thereto. The overhead rate understanding shall not change any monetary ceiling, contract obligation, or specific cost allowance or disallowance provided for in this

contract.

(h) Pending establishment of final annual overhead rate(s) for any period, the Contractor shall be reimbursed at billing rate(s) established by the Contracting Officer or the auditor, subject to appropriate adjustment when final rate (s) for that period are established. To prevent

substantial over or under payment billing rate(s) may, at the request of either party, be revised by mutual agreement, either retroactively or prospectively. However, billing

rates will recognize the anticipated annual rates that will

(i)

Notwithstanding any other provisions of this

clause, the quick closeout procedures set forth in Section
3-700 of the Armed Services Procurement Regulation in effect
on the date of this contract, may be used when mutually agree-
able to the Contractor and the Contracting Officer.

[(j)] At any time or times prior to final payment under this contract, the Contracting Officer
may have the invoices or vouchers and statements of cost audited. Each payment theretofore
made shall be subject to reduction for amounts included in the related invoice or voucher which
are found by the Contracting Officer, on the basis of such audit, not to constitute allowable cost.
Any payment may be reduced for overpayments, or increased for underpayments, on preceding
invoices or vouchers.
[(k)] +On receipt and approval of the invoice or voucher designated by the Contractor as the
"completion invoice" or "completion voucher" and upon compliance by the Contractor with all
the provisions of this contract (including, without limitation, the provisions relating to patents and
the provisions of [1] below), the Government shall promptly pay to the Contractor any balance of
allowable cost, and any part of the fixed fee, which has been withheld pursuant to (c) above or
otherwise not paid to the Contractor. The completion invoice or voucher shall be submitted by
the Contractor promptly following completion of the work under this contract but in no event
later than one (1) year (or such longer period as the Contracting Officer may in his discretion ap-
prove in writing) from the date of such completion.

[(1)] The Contractor agrees that any refunds, rebates, credits, or other amounts (including any
interest thereon) accruing to or received by the Contractor or any assignee under this contract
shall be paid by the Contractor to the Government, to the extent that they are properly allocable
to costs for which the Contractor has been reimbursed by the Government under this contract.
Reasonable expenses incurred by the Contractor for the purpose of securing such refunds,
rebates, credits, or other amounts shall be allowable costs hereunder when approved by the Con-
tracting Officer. Prior to final payment under this contract, the Contractor and each assignee
under this contract whose assignment is in effect at the time of final payment under this contract
shall execute and deliver:

(i) an assignment to the Government, in form and substance satisfactory to the Con-
tracting Officer, of refunds, rebates, credits, or other amounts (including any interest
thereon) properly allocable to costs for which the Contractor has been reimbursed
by the Government under this contract; and

(ii) a release discharging the Government, its officers, agents, and employees from all lia-
bilities, obligations, and claims arising out of or under this contract, subject only to
the following exceptions:

(A) specified claims in stated amounts or in estimated amounts where the amounts
are not susceptible of exact statement by the Contractor;

(B) claims, together with reasonable expenses incidental thereto, based upon liabili
ties of the Contractor to third parties arising out of the performance of this con-
tract, provided, that such claims are not known to the Contractor on the date [Of]
the execution of the release; and provided further that the Contractor gives
notice of such claims in writing to the Contracting Officer not more than six (6)
years after the date of the release or the date of any notice to the Contractor
that the Government is prepared to make final payment, whichever is earlier,
and

(C) claims for reimbursement of costs (other than expenses of the Contractor by
reason of his indemnification of the Government against patent liability), includ-
ing reasonable expenses incidental thereto, incurred by the Contractor under the
provisions of this contract relating to patents.

[(m)] Any cost incurred by the Contractor under the terms of this contract which would con-
stitute allowable cost under the provisions of this clause shall be included in determining the
amount payable under this contract, notwithstanding any provisions contained in the specifica-
tions or other documents incorporated in this contract by reference, designating services to be
performed or materials to be furnished by the Contractor at his expense or without cost to the
Government.

[(n) Any failure by the parties to agree on a final overhead rate under this clause shall be considered a dispute concerning a question of fact for decision by the Contract

ing Officer within the meaning of the "Disputes" clause of this contract.]

(End of clause)

7-203.4 (cont.)

(b) When, in accordance with 3-405.4, incentive revision of the fee in a cost-reimbursement type supply contract is to be provided, insert the following clause. Additional instructions for use of the clause are in (c) below.

ALLOWABLE COST, INCENTIVE FEE, AND PAYMENT (1973 JUL) [

7

(a)(1) For the performance of this contract, the Government shall pay to the Contractor:
(i) the cost thereof (hereinafter referred to as "allowable cost") determined by the Con-
tracting Officer to be allowable in accordance with:

(A) Part 2 of Section XV of the Armed Services Procurement Regulation as in effect
on the date of this contract [, provided that the allowable
indirect costs under this contract shall be obtained
by applying overhead rates established under (e)
below to bases agreed upon under (f) below;] and

(B) the terms of this contract; and

(ii) a fee determined as provided in this contract.

(2) The target cost and target fee of this contract are set forth in the Schedule and shall be

subject to adjustment in accordance with th) (m)] and i✈ [(n) below. As used throughout

this contract the term

(i) "target cost" means the estimated cost of this contract initially negotiated, adjusted
in accordance with (h)/(m)7 below; and

(ii) "target fee" means the fee which was initially negotiated on the assumption that this
contract would be performed for a cost equal to the estimated cost of this contract

initially negotiated, adjusted in accordance with th) (m) below.

(b) Payments shall be made to the Contractor when requested as work progresses, but not more frequently than bi-weekly, in amounts approved by the Contracting Officer. The Contractor may submit to an authorized representative of the Contracting Officer, in such form and reasonable detail as such representative may require, an invoice or public voucher supported by a statement of cost for the performance of this contract and claimed to constitute allowable cost. For this purpose, except as provided herein with respect to pension contributions, the term "costs" shall include only those recorded costs which result, at the time of the request for reimbursement, from payment by cash, check, or other form of actual payment for items or services purchased directly for the contract, together with (when the Contractor is not delinquent in payment of costs of contract performance in the ordinary course of business) costs incurred, but not necessarily paid, for materials which have been issued from the Contractor's stores inventory and placed in the production process for use on the contract, for direct labor, for direct travel, for other direct inhouse costs, and for properly allocable and allowable indirect costs, as is shown by records maintained by the Contractor for purposes of obtaining reimbursement under Government contracts plus the amount of progress payments which have been paid to Contractor's subcontractors under similar cost standards. In addition, when pension contributions are paid by the Contractor to the retirement fund less frequently than quarterly, accrued costs therefor shall be excluded from indirect costs for payment purposes until such costs are paid. If pension contributions are paid on a quarterly or more frequent basis, accruals therefor may be included in indirect costs for payment purposes provided that they are paid to the fund within thirty (30) days after the close of the period covered. If payments are not made to the fund within such thirty-day period, pension contribution costs shall be excluded from indirect cost for payment purposes until payment has been made. The restriction on payment more frequently than bi-weekly and the requirement of prior payment for items or services purchased directly for the contract shall not apply where the Contractor is a small business concern.

(c) Promptly after receipt of each invoice or voucher and statement of cost, the Government shall, except as otherwise provided in this contract, subject to the provisions of (d) below, make payment thereon as approved by the Contracting Officer. Normally, payment of fee shall be made to the Contractor as specified in the Schedule. However, when in the opinion of the Contracting Officer, the Contractor's performance or cost indicates that target will not be achieved, the Government shall pay on the basis of such lesser fee as is appropriate. Further when the Contractor demonstrates that his performance or cost clearly indicates that he will earn a fee significantly in excess of target fee, the Government may, in the sole discretion of the Contracting Officer, pay on the basis of such higher fee as is appropriate. After payment of eighty-five percent (85%) of the applicable fee, the Contracting Officer may withhold further payment of fee until a reserve shall have been set aside in an amount which he considers necessary to protect the interests of the Government, but such reserve shall not exceed fifteen percent (15%) of the total applicable fee or one hundred thousand dollars ($100,000) whichever is less.

[(d) Final annual overhead rates and the appropriate bases shall be established by procurement or audit determination in accordance with the procedures of Section 3-700 of the Armed Services Procurement Regulation in effect for the period covered by the proposal for final overhead rates.] (e) The Contractor, as soon as possible but not later than ninety (90) days after the expiration of each of its fiscal years for estimating, accumulating, and reporting contract costs, shall submit to the Contracting Officer with a copy to the cognizant DCAA/activity a proposed final overhead rate(s) for that period based on the Contractor's actual cost experience during that period, together with supporting costs data - including a list of contracts and applicable base costs to which the proposed rates apply as well as identification of costs voluntarily deleted by the contractor. Establishment of final annual overhead rate)s) shall be undertaken as promptly as practicable after receipt