The Code of Federal Regulations of the United States of America

ceed $100,000 where any cost or pricing data is required in accordance with § 1-3.807-3 in connection with the pricing of contract modifications.

PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA-PRICE ADJUSTMENTS

(a) This clause shall become operative only with respect to any modification of this contract which involves aggregate increases and/or decreases in costs plus applicable profits in excess of $100,000 unless the modification is priced on the basis of adequate price competition, established catalog market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation. The right to price reduction under this clause is limited to defects in data relating to such modification.

(b) If any price, including profit, or fee, negotiated in connection with any price adjustment under this contract was increased by any significant sums because:

the

(1) The Contractor furnished cost or pricing data which was not accurate, complete and current as certified in the Contractor's Certificate of Current Cost or Pricing Data; (2) A subcontractor, pursuant to clause of this contract entitled "Subcontractor Cost or Pricing Data" or "Subcontractor Cost or Pricing Data-Price Adjustments" or any subcontract clause therein. required, furnished cost or pricing data which was not accurate, complete and current as certified in the subcontractor's Certificate of Current Cost or Pricing Data;

(3) A subcontractor or prospective subcontractor furnished cost or pricing data which was required to be accurate, complete and current and to be submitted to support a subcontract cost estimate furnished by the Contractor but which was not accurate, complete and current as of the date certified in the Contractor's Certificate of Current Cost or Pricing Data; or

was

(4) The Contractor or a subcontractor or prospective subcontractor furnished any data, not within (1), (2) or (3) above, which was not accurate, as submitted; the price shall be reduced accordingly and the contract shall be modified in writing as may be necessary to reflect such reduction. However, any reduction in the contract price due to defective subcontract data of a prospective subcontractor, when the subcontract not subsequently awarded to such subcontractor, will be limited to the amount (plus applicable overhead and profit markup) by which the actual subcontract, or actual cost to the Contractor if there was no subcontract, was less than the prospective subcontract cost estimate submitted by the Contractor: Provided the actual subcontract price was not affected by defective cost or pricing data.

(NOTE: Since the contract is subject to reduction under this clause by reason of defective cost or pricing data submitted in

connection with certain subcontracts, it is expected that the Contractor may wish to include a clause in each such subcontract requiring the subcontractor to appropriately indemnify the Contractor. It is also expected that any subcontractor subject to such indemnification will generally require substantially similar indemnification for defective cost or pricing data required to be submitted by his lower tier subcontractors.)

(c) The requirement for inclusion of the clauses in paragraphs (a) and (b) of this § 1-3.814-1 in contracts with foreign governments or agencies thereof may be waived in exceptional cases where the head of the agency or his designee authorizes such waiver and states in writing his reasons for such determination. [34 FR 2664, Feb. 27, 1969, as amended at 39 FR 1754, Jan. 14, 1974] § 1-3.814-2

Audit and records.

(a) The following clause shall be included in all contracts, both formally advertised and negotiated, which contain the contract clause in either § 1-3.814-1(a) or (b) and may be used to determine the allowability of costs under cost-reimbursement type contracts.

AUDIT

(a) General. The Contracting Officer or his representatives shall have the audit and inspection rights described in the applicable paragraphs (b), (c) and (d) below.

time

(b) Examination of costs. If this is a cost-reimbursement type, incentive, and materials, labor hour, or price redeterminable contract, or any combination thereof, the Contractor shall maintain, and the Contracting Officer or his representatives shall have the right to examine books, records, documents, and other evidence and accounting procedures and practices, sufficient to reflect properly all direct and indirect costs of whatever nature claimed to have been incurred and anticipated to be incurred for the performance of this contract. Such right of examination shall include inspection at all reasonable times of the Contractor's plants, or such parts thereof, as may be engaged in the performance of this contract.

(c) Cost or pricing data. If the Contractor submitted cost or pricing data in connection with the pricing of this contract or any change or modification thereto, unless such pricing was based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation, the Contracting. Officer or his representatives who are employees of the United States Government shall have the right to examine all books, records, documents and other data of the Contractor related to the. negotiation, pricing or performance of such contract, change

or modification, for the purpose of evaluating the accuracy, completeness and currency of the cost or pricing data submitted. Additionally, in the case of pricing any change or modification exceeding $100,000 to formally advertised contracts, the Comptroller General of the United States or his representatives who are employees of the United States Government shall have such rights. The right of examination shall extend to all documents necessary to permit adequate evaluation of the cost or pricing data submitted, along with the computations and projections used therein.

(d) Availability. The materials described in (b) and (c) above, shall be made available at the office of the Contractor, at all reasonable times, for inspection, audit or reproduction, until the expiration of 3 years from the date of final payment under this contract or such lesser time specified in Part 1-20 of the Federal Procurement Regulations (41 CFR Part 1-20) and for such longer period, if any, as is required by applicable statute, or by other clauses of this contract, or by (1) and (2) below:

(1) If this contract is completely or partially terminated, the records relating to the work terminated shall be made available for a period of 3 years from the date of any resulting final settlement.

(2) Records which relate to appeals under the "Disputes" clause of this contract, or litigation or the settlement of claims arising out of the performance of this contract, shall be made available until such appeals, litigation, or claims have been disposed of. (e) The Contractor shall insert a clause containing all the provisions of this clause, including this paragraph (e), in all subcontracts hereunder except altered as necessary for proper identification of the contracting parties and the Contracting Officer under the Government prime contract.

(b) The requirement for inclusion of the clause in paragraph (a) of this § 1-3.814-2 may be waived for contracts with foreign governments or agencies thereof under circumstances where the requirement for the clauses in §§ 1-3.814-1 and 1-3.814-3 may be waived.

(c) Except as otherwise provided in Subpart 1-6.10 of this chapter, or when independent authority exists for the omission of such clause, the clause in §§ 1-7.103-3 and 1-7.602-7 shall be inserted in all negotiated fixed-price contracts in excess of $2,500, including contracts awarded under a total set-aside as defined in § 1-1.701-9) or a partial small business restricted advertising, set-aside (see §§ 1-1.706 and 1-1.804), and a clause containing substantially the same provisions shall be included in all

(a) Where the clause in § 1-3.814-1(a) is included in contracts in excess of $100,000, the clause in this § 1-3.814-3(a) also shall be included. In addition, the clause, appropriately modified, may be Included in contracts of $100,000 or less which contain the clause in § 1-3.8141(a).

SUBCONTRACTOR COST OR PRICING Data

(a) The Contractor shall require subcontractors hereunder to submit, actually or by specific identification in writing, cost or pricing data under the following circumstances:

(1) Prior to the award of any subcontract the amount of which is expected to exceed $100,000 when entered into;

(2) Prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.

(b) The Contractor shall require subcontractors to certify, in substantially the same form as that used in the certificate by the Prime Contractor to the Government, that to the best of their knowledge and belief, the cost and pricing data submitted under (a) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(c) The Contractor shall insert the substance of this clause including this paragraph (c) in each subcontract hereunder which exceeds $100,000 when entered into except where the price thereof is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation. In each such excepted subcontract hereunder in excess of $100,000, the Contractor shall insert the substance of the following clause:

SUBCONTRACTOR COST OR PRICING DATA

PRICE ADJUSTMENTS

(a) Paragraphs (b) and (c) of this clause shall become operative only with respect to any modification made pursuant to one or more provisions of this contract which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000. The requirements of this clause shall be limited to such contract modifications.

(b) The Contractor shall require subcontractors hereunder to submit, actually or by specific identification in writing, cost or pricing data under the following circum

stances:

(1) Prior to award of any subcontract, the amount of which is expected to exceed $100,000 when entered into;

(c) The Contractor shall require subcontractors to certify, in substantially the same form as that used in the certificate by the Prime Contractor to the Government, that to the best of their knowledge and belief the cost and pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract hereunder which exceeds $100,000 when entered into. (b) Where the clause in § 1-3.814-1 (b) is included in contracts in excess of $100,000, the clause in this § 1-3.814-3 (b) also shall be included. In addition, the clause, appropriately modified, may be included in contracts of $100,000 or less which contain the clause in § 1-3.814-1(b). SUBCONTRACTOR COST OR PRICING DATA-PRICE ADJUSTMENTS

(b) The Contractor shall require subcontractors hereunder to submit cost or pricing data under the following circumstances:

(1) Prior to the award of any subcontract the amount of which is expected to exceed $100,000 when entered into;

(c) The Contractor shall require subcontractors to certify that to the best of their knowledge and belief the cost or pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract which exceeds $100,000.

(c) The requirements for inclusion of the clauses in paragraphs (a) and (b) of this § 1-3.814-3 in contracts with foreign governments or agencies thereof may be waived where the head of the agency or his designee authorizes such waiver and states in writing his reasons for such determination.

[30 FR 6584, May 13, 1965, as amended at 39 FR 1755, Jan. 14, 1974]

Subpart 1-3.9-Subcontracting
Policies and Procedures

§ 1-3.900 Scope of subpart.

This subpart sets forth policies and procedures for the evaluation, review, and approval of contractors' "make-orbuy" programs, purchasing systems, and proposed subcontracts.

(a) Information as to the contractor's "make-or-buy" program, purchasing system, and proposed subcontracts may be important to (1) negotiation of reasonable contract prices (see §§ 1-3.807-10 and 1-3.808-2(h)), (2) assurance of satisfactory contract performance or (3) carrying out Government policies regarding small business (see § 1-1.710-1), labor surplus areas (see § 1-1.805-1), acquisition and use of Government facilities, maintenance of mobilization base, or other policies which may be appropriate to the particular procurement. Therefore, Government surveillance of a contractor's "make-or-buy" program, purchasing system, and proposed sub

contracts is required as set forth in this Subpart 1-3.9. Where "make-or-buy" decisions and subcontracting will have a substantial impact on any of the above mentioned factors, the contractor's "make-or-buy" program and subcontracting should, to the extent practicable, be evaluated and agreed on during negotiations.

(b) The subcontracting policies and procedures in this Subpart 1-3.9 should generally be applied to procurement where (1) the item, system, or work is complex, the dollar value is substantial, or competition is restricted, and (2) either (i) cost-reimbursement, price redetermination, or incentive-type contracts are to be used, or (ii) "make-orbuy" decisions are expected to have a substantial impact on negotiations leading to a firm fixed-price contract. § 1-3.902 "Make-or-buy” programs. § 1-3.902-1

Review of program.

(a) A "make-or-buy" program is that part of a contractor's written plan for the development or production of an end item which outlines the major components, assemblies, subassemblies, and parts to be manufactured (including testing, treating, and assembling) in his own facilities, and those which will be obtained elsewhere by subcontract. A "make" item is any item produced, or work performed, by the contractor or his affiliate, subsidiary, or division.

(b) (1) Where the nature of the procurement is such that, in view of the factors referred to in § 1-3.901 (b), review of the "make-or-buy" program is appropriate or is otherwise considered essential, the prospective contractor shall be required to submit his proposed "make-orbuy" program, together with sufficient related data, to the contracting officer for evaluation of such factors in (e) of this § 1-3.902-1 as are pertinent.

(2) At the time a request for proposals is issued, the procuring agency shall request potential suppliers to furnish a "make-or-buy" program on all negotiated procurements except as otherwise provided in (3), (4), or (5) of this § 1-3.902-1(b).

(3) A "make-or-buy" program will not be required when a proposed contract has a total estimated value of less than $1,000,000 unless the contracting officer specifically determines that a "make-orbuy" program is appropriate.

(4) Research and development contracts are exempt from the provisions of this § 1-3.902 unless it can reasonably be anticipated that follow-on quantities of the product will be procured.

(5) A "make-or-buy" program will not be required if the contracting officer determines that none of the factors in § 1-3.901(b) are applicable.

(c) The contractor will be informed that the program he submits should be confined to important items which, because of their complexity, quantity, cost or requirement for additional Government facilities, normally would require company management review of the "make-or-buy" decision. "Detail parts" or "off-the-shelf" items will not be incorporated in a "make-or-buy" program unless their potential impact on such program or production schedule makes their inclusion necessary. If the design status of the end item being procured is not sufficiently advanced to permit accurate precontract identification of all items that may be subject to "make-orbuy" decisions, the contractor shall be notified that such items must be submitted when identifiable under the terms of the Changes to Make-or-Buy Program clause (see § 1-3.902-3).

(d) The contractor shall be required to submit, with his proposal, a "make-orbuy" program of important items including in addition to information required by § 1-3.902-1(b), (1) a description by which each such item can be readily identified, (2) a recommendation to make or buy the item or defer the decision, (3) when feasible, the names of proposed subcontractors, and (4) the important items to be made by the contractor, including a designation of the plant and division in which the contractor proposes to perform the work. (e) "Make-or-buy" programs shall be evaluated and agreed upon by the contractor and the procuring activity at the earliest practicable time during negotiations. In reviewing the "make-orbuy" program during the negotiations, the effect of the following factors on the interests of the Government shall be considered:

(1) The effect of the contractor's plan to "make-or-buy," as the case may be, on price, quality, delivery, and performance.

(2) Whether the contractor plans to broaden his base of subcontractors through competition.

(3) Whether the contractor has properly considered the competence, abilities, experience, and capacities available within other firms.

(4) Whether small business concerns can produce the item or perform the work in question and at what price.

(5) Whether the contractor or major subcontractors propose to do work in plant, the nature of which differs significantly from their normal in-plant operations or for which they are not historically suited.

(6) Whether production of the item or performance of the work will create a requirement, either directly or indirectly, for additional facilities to be furnished by the Government, or the continued use of Government-owned facilities, by the contractor or by subcontractors.

(7) Whether the contractor proposed to ask the Government to furnish additional facilities to do the work in plant for which there is capacity elsewhere which is competitive in quality, delivery, and overall cost, and is acceptable as a source to the contractor.

(8) Whether the item or work has been subcontracted on this or previous contracts.

(9) Other factors, such as the nature of the item, experience with similar items, future requirements, engineering, tooling, starting load costs, market conditions, and the availability of personnel and material.

(f) The procuring agency will review the "make-or-buy" program to determine if all appropriate items are included or if it contains items that should be deleted because of their relatively minor importance. In all considerations relative to a "make-or-buy" program, the procuring agency will obtain the advice and assistance of all appropriate personnel whose knowledge would contribute to the adequacy of the review.

(g) Before agreeing to a "make-orbuy” program (or consenting to any change therein which, in the opinion of the contracting officer, would reduce the anticipated participation of small business), the procuring activity shall invite the advice and counsel of the SBA by permitting SBA representatives (regularly assigned to the activity) to review all pertinent facts and make recommendations thereon. Such review by SBA should be concurrent with the review by

the procuring activity (or, in the case of changes, the contracting officer). Where urgent circumstances do not permit such a concurrent review, or where SBA fails to respond on a timely basis, the contracting officer shall include an explanatory statement in the contract file and shall transmit a copy to the SBA representative. Where the SBA review results in a disagreement between the procuring activity (or, in the case of changes, the contracting officer) and the SBA representatives regarding a "makeor-buy" program decision, SBA may appeal such decision to the head of the procuring activity, or other appropriate level above the contracting officer in accordance with agency procedures. Decisions by the procuring activity shall be final.

(h) After agreement on the program is reached, the contracting officer shall notify the contractor as to the Government's approval of the program and shall inform the contractor as to any requirement for further review during performance of the contract. For example, if follow-on procurements occur, the procuring activity and the contractor will review the existing "make-or-buy" program to determine whether it should be revised.

[29 FR 10155, July 24, 1964, as amended at 37 FR 23543, Nov. 14, 1972]

§ 1-3.902-2 Approval of programs.

(a) Proposed "make" items shall not be agreed to when the products or services under consideration:

(1) Are not regularly manufactured or provided by the contractor, and are available-quality, quantity, delivery, and other essential factors consideredfrom other firms at prices no higher than if the contractor makes or provides the product or service;

(2) Are regularly manufactured or provided by the contractor, and are available-quality, quantity, delivery, and other essential factors consideredfrom other firms at prices lower than if the contractor makes or provides the product or service; or

Provided, That such items may be agreed to, notwithstanding (1) and (2), if in the opinion of the contracting officer the overall cost of the contract to the Government would be increased if the items were "bought".

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