(b) Approval of the contractor's purchasing system shall not constitute approval of the "make-or-buy" program. § 1-3.902-3 Contract clause.

The following clause shall be incorporated in all cost-reimbursement, price redetermination, or incentive type contracts as to which a "make-or-buy" program has been agreed upon:

CHANGES TO MAKE-OR-BUY PROGRAM

The Contractor agrees to perform this contract in accordance with the "make-or-buy" program attached to this contract, except as hereinafter provided. If the Contractor desires to change the "make-or-buy" program, he shall notify the Contracting Officer in writing of the proposed change reasonably in advance and shall submit justification in sufficient detail to permit evaluation of the proposed change. Changes in the place of performance of work on any "make" item in the "make-or-buy" program are subject to this requirement. With respect to items deferred at the time of negotiation of this contract for later addition to the "make-orbuy" program, the Contractor shall notify the Contracting Officer of each proposed addition at the earliest possible time, together with justification in sufficient detail to permit evaluation. The Contractor shall not, without the written consent of the Contracting Officer, make changes or additions to the program. However, in his discretion, the Contracting Officer may ratify in writing any changes or additions. The "make-orbuy" program attached to this contract shall be deemed to be modified in accordance with the written consent or ratification by the Contracting Officer.

(a) On applicable contracts, the cognizant contract administration office will establish a procedure with the contractor to assure timely compliance with the terms of the contract clause. This procedure will include provisions for processing changes to the established "make-or-buy" program and for obtaining "make-or-buy" decisions for items reserved for deferred decisions or unidentified at the time of contract negotiations.

(b) When a "make-or-buy" program is agreed upon with a contractor, or there are changes or additions to a "make-orbuy" program, the consideration given each item on such program will be documented in the contract file. If a contract (including supplemental agreements for new procurement) except one

specifically exempted by 1-3.902-1(b), does not include the Changes to Makeor-Buy Program clause, the contracting officer will document the contract file with a written statement of facts to sustain and make clear the appropriateness of the determination not to include the clause. Such determination will be based on one of the following: (1) the contract is on a firm fixed-price basis; (2) the contract is not exempt but there are no Items which can be identified as requiring a "make-or-buy" program as defined in § 1-3.902-1(a); or (3) a deviation has been approved.

§ 1-3.903 Review and approval of contractor's purchasing system and sub

contracts.

§ 1-3.903-1

[Reserved]

(a) When the prime contract is not to be placed on a firm fixed-price basis, review of subcontracts prior to placement may be desirable since the ultimate cost to the Government will depend in part on subcontract prices and performance. Contract provisions requiring advance notification to the contracting officer of proposed subcontracts for materials, components, and other purchases may be appropriate both for information as to sources and prices and to provide an opportunity for review and for approval or objection by the contracting officer prior to award of the subcontracts. Careful and thorough evaluation of subcontracts prior to placement is particularly necessary when:

(1) The prime contractor's purchasing system of performance thereunder is considered inadequate;

(2) Subcontracts are for items for which there is no competition or for which the proposed prices appear unreasonable, and the amounts involved are substantial (see § 1-3.807–10(b));

(3) Close working arrangements or business or ownership affiliations exist between the prime and the subcontractor which may preclude the free use of competition or result in higher subcontract prices than would otherwise be obtained;

(4) A subcontract is being proposed at a price less favorable than that which has been given by the subcontractor to the Government, all other factors such as manufacturing period and quantity being comparable; or

(5) A subcontract is to be placed on a fixed-price incentive, time and material, labor-hour, fixed-price redeterminable, or cost-reimbursement basis.

(b) (1) Prime contract provisions relating to subcontracts, including those requiring advance notification, review. or approval thereof, should be consistent with the amount and character of subcontract work and with the overall character and type of the prime contract and the conditions applicable to its use as described in Subpart 1-3.4; and should involve the Government to the minimum extent practicable in the contractor's exercise of management responsibility, but give reasonable assurance that adequate subcontracting opportunities have been afforded to small business and that the Government is receiving the greatest practical return for its expenditure. For example, if the contract is on a firm fixed-price basis except for a clause permitting price escalation resulting from cost increases for certain materials, the prime contract may limit the contracting officer's right of review of subcontracts to those for materials covered by the escalation clause. In the case of cost-reimbursement type contracts, advance notification, and prior consent or approval of subcontracts should be required. (Section 304(b) of the Act (41 U.S.C. 254(b)) requires that all such contracts shall provide for advance notification of any subcontract thereunder on a cost-plus-a-fixed-fee basis and of any fixed-price subcontract or purchase order which exceeds in dollar amount either $25,000 or 5 per centum of the total estimated cost of the prime contract.)

(2) Provisions in prime fixed-price contracts relating to subcontract review may, as appropriate, be confined to one major subcontract or to certain classes of subcontracts; may set a floor above which advance approval of proposed subcontracts may be required before placement; or may be tailored to cover unusual or particular circumstances.

(3) In those instances where a contractor's purchasing system, including its small business program has been deemed adequate, review of subcontracts generally may not be necessary. However, contracting officers shall conduct periodic reviews of the application of the system to insure conformance therewith. (4) In instances where subcontracts have been placed on a cost-reimbursement or time and materials basis, con

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tracting officers should be skeptical of approving the repetitive or unduly protracted use of such types of contracts and should follow the principles of § 1-3.803(b).

(c) In cases where the prime contract reserves a right for the contracting officer to review or approve subcontracts, the prime contract shall also reserve to the Government the right to inspect and audit the books and records of such subcontractors. Whenever such first tier subcontracts are of the cost-reimbursement, fixed-price incentive, or time and material type, a similar right shall be reserved to the Government to inspect and audit the books and records of lower tier subcontractors: Provided, That such a right shall not be reserved contractually at or below the point where a firm fixed-price subcontract intervenes.

Subpart 1-3.12-Cost Accounting Standards

SOURCE: 37 FR 13092, July 1, 1972, unless otherwise noted.

§ 1-3.1201 General.

Public Law 91-379, 50 U.S.C. App. 2168, as implemented by the Cost Accounting Standards Board (see 4 CFR Part 331 et seq.) requires the development of cost accounting standards to be used in connection with negotiated national defense contracts and disclosure of cost accounting practices to be used in such contracts. Such cost accounting standards and disclosure of cost accounting practices shall also be used in connection with negotiated nondefense contracts.

§ 1-3.1202 Definitions.

When used in this subpart, the words and terms defined in 4 CFR Part 331 et seq. shall have the meanings set forth therein. In addition, the words and terms defined in this paragraph shall have the meanings set forth below:

(a) "Net awards" means the obligated value of negotiated national defense prime contracts, awarded in the reporting period, minus cancellations, terminations, and other credit transactions relating thereto.

(b) "Company" includes all divisions, subsidiaries, and affiliates of the contractor under common control.

§ 1-3.1203 Prime contractor disclosure

statement.

The notice entitled Disclosure Statement Cost Accounting Practices and

Certification set forth in Attachment A shall be inserted in all solicitations which are likely to result in negotiated contracts exceeding $100,000, except contracts which are exempt under the provisions of paragraph 5 of this regulation.

(a) Solicitation notice. The notice entitled Disclosure Statement-Cost Accounting Practices and Certification set forth in Attachment A shall be inserted in all solicitations which are likely to result in a negotiated contract exceeding $100,000, except when the price is (1) based on established catalog or market prices of commercial items sold in substantial quantities to the general public, or (2) set by law or regulation.

(b) Preaward submission of disclosure statements. Each offeror submitting an offer which could result in a negotiated contract exceeding $100,000, except when the price is based on established catalog or market prices of commercial items sold in substantial quantities to the general public or prices set by law or regulation, shall furnish copies of his disclosure statements to the offices listed in § 1-3.1203 (c) concurrently with the submission of his proposal to the contracting officer. However, the offeror need not furnish the disclosure statement when he has executed the certificate of monetary exemption or the certificate of previously submitted disclosure statement (see Attachment A) More than one disclosure statement may be required in connection with the award of a contract (see 4 CFR 351.4(a)) Award of a contract shall not be made until a determination has been made by the contracting officer or his authorized representative that a disclosure statement is adequate (see § 1-3.1205(a)) unless, in order to protect the interests of the Government, the contracting officer waives this requirement. In this event a determination shall be made as soon after award as possible.

(c) Distribution of disclosure statements. The offeror shall distribute his Disclosure Statements as follows:

(1) Original and one copy to the cognizant contracting officer;

(2) One copy to the cognizant contract auditor; and

(3) One copy to the Cost Accounting Standards Board, 441 G Street, NW.. Washington, DC 20548.

(d) Postaward submission of disclosure statements. Postaward submission of disclosure statements may be authorized only when the contracting officer

has made a written determination that such authorization is essential (1) to the national defense, (2) because of the public exigency, or (3) to avoid undue hardship. Each determination shall set forth facts which clearly support the determination to authorize postaward submission, and a copy of the determination shall be included in the contract file. Authorization issued pursuant to this paragraph shall specify the period of time, not to exceed 90 days after contract award, within which disclosure must be made.

(e) Determination by agency head that it is impracticable to secure disclosure statements. If the head of the agency (see § 1-1.204) determines that it is impracticable to secure the disclosure statements in accordance with the clause set forth in Attachment B and this subpart, he may authorize award of such contract without obtaining such statements. This authority shall not be delegated. He shall, within 30 days thereafter, submit a report to the Cost Accounting Standards Board, setting forth all material facts.

(f) Privileged and confidential information in disclosure statements. If the offeror or contractor notifies the contracting officer that the disclosure statement contains trade secrets and commercial or financial information which is privileged and confidential, the disclosure statement will be protected and and will not be released outside the Government (see paragraph (a)(1) of the Cost Accounting Standards clause set forth in Attachment B).

(g) Amendment of disclosure statements. Amendments of a disclosure statement after contract award shall be processed in accordance with 4 CFR 351.12 and 1-3.1207.

[37 FR 13092, July 1, 1972, as amended at 37 FR 23544, Nov. 4, 1972] § 1-3.1204

Contract clause.

The Cost Accounting Standards clause set forth in Attachment B shall be inserted in all solicitations which are likely to result in negotiated contracts exceeding $100,000, except contracts which are exempt under the provisions of paragraph 5 of this regulation. [37 FR 23544, Nov. 4, 1972]

§ 1-3.1205 Review of prime contractor disclosure statements.

(a) Contracting officer and auditor support responsibility. When the Depart

ment of Defense (DOD) has contract administration cognizance of a contractor, required disclosure statements shall be reviewed by the cognizant administrative contracting officer and contract auditor for all Government agencies including, but not limited to, DOD, NASA, AEC, and GSA (see § 1-3.1208 with respect to contract administration by other Government agencies).

(b) Determination of adequacy. The cognizant contract auditor shall perform an initial review of a disclosure statement to ascertain whether it adequately describes the offeror's cost accounting practices. In order to be deemed adequate the disclosure statement must be current, accurate, and complete. Upon completion of this initial review the results shall be reported to the contracting officer. When he determines that adequate disclosure has not been made, he shall identify the areas of inadequacy and request a revised statement from the offeror, and so advise the auditor. When the contracting officer determines that the disclosure statement is adequate, he shall notify the offeror in writing with a copy to the auditor. In addition, the notice shall state that a disclosed practice shall not, by virtue of such disclosure, be deemed to be a proper, approved, or agreed to practice for pricing proposals or accumulating and reporting contract performance cost data. The contract may be awarded when it is determined that an adequate disclosure has been made (see § 1-3.1203(b)).

(c) Determination of compliance. Subsequent to the issuance of the above notification, a more detailed review of the disclosure statement shall be made by the auditor to ascertain whether the disclosed practices are in compliance with Part 1-15 or ASPR Section XV, as applicable, and the Cost Accounting Standards. The auditor shall advise the contracting officer of his findings. When it is determined by the contracting officer that any disclosed practice is not in compliance, he shall notify the offeror or contractor, with a copy to the auditor. This notice shall require the offeror or contractor to advice the contracting officer and the auditor of the corrective action taken or to be taken to bring the practices into compliance. A revised disclosure statement may be required. In addition, adjustment of the prime contract price or cost allowance in accordance with § 1-3.1207(b) may be required. Noncompliances which cannot be re

solved by the contracting officer should be referred to the Government department or agency having contract administration cognizance and, if necessary, coordinated with any other Government department or agency concerned. The contracting officer shall also advise higher authority of disclosed practices which are not in compliance and which would have any effect on the pricing of contracts under negotiation.

§ 1-3.1206 Subcontractor disclosure

statements.

(a) Disclosure statements furnished by a subcontractor pursuant to the Cost Accounting Standards clause should, except as provided in (b) or (c) of this § 1-3.1206, be submitted to the prime contractor or higher tier subcontractor.

(b) A subcontractor may satisfy the requirement to submit disclosure statements by identifying to the prime contractor or higher tier subcontractor the contracting officer to whom his disclosure statement was previously submitted.

(c) When a subcontractor considers that his disclosure statement contains information that is privileged and confidential, he may, with the approval of the prime contractor, submit it direct to the contracting officer and auditor having cognizance of the prime contractor's facility. The contracting officer for the prime contractor shall furnish copies to the contracting officer and auditor cognizant of the subcontractor for use in administration of the Cost Accounting Standards clause.

(d) Postaward submission of the subcontractor's disclosure statement (see § 1-3.1203 (d)) must be approved by the contracting officer having cognizance of the prime contractor.

(e) A determination that it is impracticable to secure a subcontractor's disclosure statement must be made in accordance with § 1-3.1203(e).

§ 1-3.1207 Contract price adjustments.

(a) Modifications to disclosure statements or established practices. Paragraph (a) (4) of the Cost Accounting Standards clause (Attachment B) provides for adjustment of the contract price due to changes in the disclosure statement. The cognizant contracting officer is responsible for obtaining the contractor's proposal and for the conduct of all negotiations of such adjustments to all Government prime contracts. When a prime contractor is also a subcontractor,

the contracting officer shall advise the contracting officer having cognizance of the applicable prime contract of the results of his negotiations.

(b) Failure to comply with Cost Accounting Standards clause. Paragraph (a) (5) of the Cost Accounting Standards clause (Attachment B) provides for an adjustment of the prime contract price or cost allowance, as appropriate, if the contractor or a subcontractor fails to comply with an applicable cost accounting standard or fails to follow any disclosed accounting practice and such failure results in any increased cost paid by the Government. The cognizant contract auditor shall be responsible for the conduct of audits as necessary to disclose such failures. The cognizant contracting officer shall negotiate all resultant prime contract adjustments, including applicable interest.

(c) Conduct of negotiations of defense and nondefense contracts and execution of supplemental agreements. Negotiations pursuant to (a) and (b) of this § 1-3.1207 shall be conducted on behalf of all Government agencies including, but not limited to, DOD, NASA, AEC, and GSA. The cognizant contracting officer shall invite representatives of the Government agencies involved to participate in negotiations of adjustments when the price of any of their contracts will be increased or decreased by $10,000 or more. At the conclusion of negotiations the following actions shall be taken by the administrative contracting officer:

(1) Execute supplemental agreements to DOD contracts. If additional funds are required, request them from the appropriate procurement contracting officer; and

(2) Prepare a negotiation memorandum in accordance with § 1-3.811. This negotiation memorandum is of particular importance in that it will be used in reviewing the effectiveness of cost accounting standards, rules, and regulations. Copies of the memorandum shall be furnished to cognizant auditors and contracting officers of other agencies which have contracts affected by the negotiation. Those agencies shall execute supplemental agreements in the amounts negotiated.

[37 FR 13092, July 1, 1972, as amended at 38 FR 8741, Apr. 6, 1973]

§ 1-3.1208 Contract administration by other Government agencies.

In some instances the contracting officer cognizant of a contractor will be the representative of a Government agency other than DOD. A list of such assignments will be published from time to time in DOD Defense Procurement Circulars and in FPR Bulletins. In such cases, contracting officers of other Government agencies shall perform for DOD all functions in §§ 1-3.1205, 1-3.1206, and 1-3.1207 which DOD contracting officers perform for other Government agencies. § 1-3.1209 Additional documentation.

The cognizant contracting officer shall prepare a memorandum indicating action taken on advisory audit reports which do not result in contract price adjustments.

[38 FR 8741, Apr. 6, 1973]

§ 1-3.1210 Cost Accounting Standards Board report.

(a) An annual report is required to be furnished to the Cost Accounting Standards Board (CASB) by all Government agencies within 120 days after the close of each calendar year to provide the CASB with information to assess the effectiveness of the CASB publications and to reveal problem areas requiring new or revised CASB standards, rules, and regulations. Each agency's report will include information for all affected contracts, including other Federal agencies' contracts for which the reporting agency has cognizance. The first report will cover the 6-month period ending December 31, 1972. Subsequent reports will cover the full calendar year. Reports will be submitted to the Cost Accounting Standards Board, 441 G Street NW., Washington, D.C. 20548.

(b) Each civilian executive agency shall implement this regulation to ensure that (1) its cognizant contracting officers (if any) collect and report to a designated office for consolidation all of the information required by paragraph (c) of this § 1-3.1210 and (2) its cognizant contract auditors (if any) and its purchasing activities also provide information to the designated office with respect to subparagraph (c) (5) of this § 1-3.1210. If an agency has neither cognizant contracting officers nor cog