tion, which is secondary to selecting the best qualified source.

[37 FR 15860, Aug. 5, 1972, as amended at 39 FR 6609, Feb. 21, 1974; 44 FR 36973, June 25, 1979]

§ 3-3.405-5 Cost-plus-a-fixed-fee contract. (a)-(b) [Reserved]

(c) Limitations. (1) [Reserved]

(2) Proposed coat-plus-a-fixed-fee contracts, or subsequent modifications to this type of contract, which provide for fixed fees in excess of the following amounts shall be submitted by the contracting officer to the principal official responsible for procurement for preaward review and approval to insure that the factors for determining fee set forth in § 1.3.808-2 have been considered:

(i) Ten percent (10) of the estimated cost, exclusive of fee, or any cost-plusa-fixed-fee contract for experimental, developmental, or research work.

(ii) Seven (7) percent of the estimated cost, exclusive of fee, for any other cost-plus-a-fixed-fee contract.

This review and approval requirement is not to be construed as an administrative limitation or establishment of a maximum fee ceiling.

(3) The contracting officer must consider all aspects which impacts upon the determination of fee as set forth in § 1-3.808 before submission to the principal official responsible for procurement for review and approval. The principal official responsible for procurement must also consider all aspects during the review process. The review and approval authority may not be delegated by the principal official responsible for procurement.

[44 FR 25455, May 1, 1979, as amended at 45 FR 15547, Mar. 11, 1980]

§ 3-3.408 Letter contract.

(a) Definition. A letter contract is a written preliminary contractual instrument which authorizes immediate commencement of work or services.

(b) Policy. The policy of the Department of Health, Education, and Welfare is not to issue letter contracts. Exceptions to this policy will be permitted only in those cases where all matters of a substantive nature, such as statements of work, delivery sched

ules, and general and special clauses have been resolved and agreed upon.

(c) Application. A letter contract may be entered into only when: (1) The urgency of the requirement necessitates that the contractor be given a binding commitment so that work can commence immediately, (2) preparation of a definitive contract in sufficient time to meet Departmental requirements is not possible, and (3) prior approval has been obtained. (For approval levels, see paragraph (d) of this section.)

(d) Approval. (1) Any letter contract which obligates more than 50 percent of the estimated cost of the procurement or provides for a period of effectiveness of more than 90 days must be approved by the appropriate official cited in § 3-3.303-51. (This authority is not delegable.) All requests for approval must be in writing, prepared by the contracting officer, and submitted to the appropriate official through normal procurement channels. Any letter contract which obligates up to 50 percent of the estimated cost of the procurement or provides for a period of effectiveness up to 90 days must be approved by the principal official responsible for procurement (not delegable).

(2) [Reserved]

(3) In no event will the individual signing the contractual document be the person who approves it.

(e) Limitations. (1) A letter contract shall not be entered into without competition when competition is practicable.

(2) A letter contract shall be superseded by a definitive contract at the earliest practicable date, but in no event later than 150 days after the date of execution of the letter contract.

(3) The maximum fund liability of the Government, stated in the letter contract, will be limited to only that amount determined essential to cover the contractor's requirements for funds prior to definitization.

(f) Information to be furnished when requesting authority to issue a letter contract. The following information should be included in any memorandum for approval to issue a letter contract:

(1) Name and address of proposed contractor.

(2) Location where contract is to be performed.

(3) Contract number, including modification number, if possible.

(4) Brief description of work and services to be performed.

(5) Performance or delivery schedule.

(6) Amount of letter contract.

(7) Estimated total amount of definitized contract.

(8) Type of definitive contract to be executed (fixed price, cost-reimbursement, etc.).

(9) Statement of the necessity and advantage to the Government of the use of the proposed letter contract.

(10) Statement of percentage of the estimated cost that the obligation of funds represents. In rare instances where the obligation represents 50 percent or more of the proposed estimated cost of the procurement, a justification for such obligation must be included which would indicate basis and necessity for the obligation, (e.g., the contractor requires a large initial outlay of funds for major subcontract awards or an extensive purchase of materials to meet an urgent delivery requirement). In every case, documentation must assure that the amount to be obligated is not in excess of an amount reasonably required to perform the work.

(11) Period of effectiveness of the proposed letter contract. If more than 90 days, complete justification must be given.

(12) Statement that the document meets the requirements of § 1-3.408(d) of this title.

(13) Statement of any substantive matters that need to be resolved.

(g) Approval for modifications to letter contracts. All letter contract modifications (amendments) must be approved by the appropriate official referenced in paragraph (d)(1) of this § 3-3.408. Requests for authority to issue letter contract modifications shall be processed in the same manner as requests for authority to issue letter contracts (see paragraph (d)(1) of this section) and shall include the following:

(1) Name and address of the contractor.

(2) Description of work and services. (3) Date original request was approved and indicate approving official. (4) Letter contract number and date issued.

(5) Complete justification as to why the letter contract cannot be definitized at this time.

(6) Complete justification as to why the level of funding must be increased. (7) Complete justification as to why the period of effectiveness is increased beyond 90 days, if applicable.

(8) If the funding of the letter contract is to be increased to more than 50 percent of the estimated cost of the procurement, the information set forth in paragraph (f)(10) of this section must be included in the memorandum.

[38 FR 29467, Oct. 25, 1973, as amended at 43 FR 49000, Oct. 20, 1978]

§ 3-3.410 Other types of agreements. [39 FR 43545, Dec. 16, 1974]

§ 3-3.410-1 Basic agreement.

(a) Description. A basic agreement is not a contract. It is a written instrument of understanding executed between DHEW and a contractor which sets forth the negotiated contract clauses which shall be applicable to future procurements entered into between the parties while the basic agreement is in effect. A basic agreement will apply to a particular procurement by the execution of a formal contractual document which will provide for the scope of work, price, delivery, and additional matters peculiar to the requirements of the specific procurement involved, and shall incorporate by reference or append the contract clauses agreed upon in the basic agreement as required or applicable. Basic agreements may be used with fixed-price or cost-reimbursement type contracts and need not be limited to specific types of services and supplies or categories of procurements.

(b) Applicability. (1) Basic agreements are appropriate for use when (i) past experience and future plans indicate that a substantial number of separate contracts may be entered into with a contractor during the life of

the basic agreement; (ii) peculiar recurring problems exist with a particular contractor regarding the standard general provisions or other terms and conditions of contracts and (iii) where it is beneficial for the contractor and the Government to do so.

(2) Except where particular and unique circumstances exist regarding an individual contract, a basic agreement shall be modified only by a modification of the basic agreement itself and shall not be modified or superseded by individual contracts entered into under and subject to the terms of such basic agreement. Any provision of a contract which conflicts with the terms of a basic agreement must be approved by the Office of Grants and Procurement Management (OGPM). Basic agreements may be modified at any time, however, it is generally desirable to modify them as infrequently as possible. Changes to clauses or new clauses resulting from statutes or Executive Orders should be incorporated as soon after issuance as feasible. Clauses pertaining to subjects not covered in a basic agreement but applicable to the contract or modifications to the contracts being negotiated, and clauses required by statute or Executive Order, if any, which have become effective after the last modification to the basic agreement shall be included in the contract and modifications as if no basic agreement existed. Other changes should be incorporated on an annual basis unless one of the parties specifically requests earlier consideration. As a minimum, basic agreements should be reviewed annually before the anniversary of their effective date and revised to conform with the current requirements of this section. Unless otherwise designated by OGPM, the agency negotiating the basic agreement will be responsible for negotiating all modifications thereto.

(3) Basic agreements shall continue in effect until terminated or superseded and shall provide for termination upon 30 days written notice by either party. Termination of a basic agreement will not affect any individual contract referencing or appending the basic agreement entered into prior to the effective date of termination.

(4) A basic agreement shall be used to cover all subsequent procurements which fall within its scope. Provisions of the basic agreement, including supplements thereto, shall be incorporated into a formal contractual document covering a particular procurement by referring therein to the number of the basic agreement and each of its supplements. When an existing contract is amended to effect new procurement, the contract modification shall incorporate the most recent basic agreement, including supplements thereto, to apply only to the work added by the contract modification.

(5) Contract modifications negotiated pursuant to the terms of an existing contract and not involving new procurement may, by mutual agreement of the parties and if determined to be in the interest of the Government, amend the existing contract to conform to a subsequently executed or supplemented basic agreement.

(6) If a clause, which properly deviates from a prescribed clause, must be replaced the replacement clause may deviate to the same extent as the original clause, if the revision is not related to the deviation, and if the deviation has not expired or been rescinded.

(7) Basic agreements may include negotiated overhead rates for cost-reimbursement type contracts. Where negotiated overhead rates are included the bases to which the rates apply and the period of applicability must also be stated. All pertinent provisions such as final rates for past periods, provisional rates for current or future periods, ceilings, and any specific items to be treated as indirect costs shall also be included as appropriate.

(8) Normally a basic agreement will continue in effect until terminated or superseded. Basic agreements for a specified term are not, however, precluded.

(c) Limitations. (1) Basic agreements shall neither cite appropriations to be charged nor be used alone for the purpose of obligating funds.

(2) Basic agreements shall not in any manner provide for or imply any agreement on the part of the Government to place future orders or contracts with the contractor involved,

60-119 0-80--5

BASIC AGREEMENT BETWEEN THE UNITED STATES OF AMERICA, AS REPRESENTED BY THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, and (Name of Contractor) THIS AGREEMENT, effective (Insert Date) by and between the UNITED STATES OF AMERICA, hereinafter called the "Government," as represented by the DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, and (Name of Contractor), a corporation organized and existing under the laws of the (State/Commonwealth) of with its principal

office in (City), (State), hereinafter called the "Contractor":

WITNESSETH THAT

WHEREAS, the Government and the Contractor desire to enter into a single basic agreement for use only in connection with negotiated (insert type of contract and categories of effort that the basic agreement will cover) entered into on or after the effective date of this Agreement, and prior to its termination; and

WHEREAS, the parties understand that this Agreement shall not in any manner provide for or imply any agreement on the part of the Government to place future orders or contracts with the Contractor.

NOW THEREFORE, the Government and the Contractor agree that the provisions and clauses of the Special Provisions, herein set forth, and the General Provisions (specify form number of applicable general provisions) attached hereto and as modified herein, shall be incorporated in and constitute the terms and conditions applicable to all negotiated (insert type of contract and categories of effort that the basic agreement will cover) entered into on or after the effective date of this agreement, and prior to its termination.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written:

(e) Procedures. (1) Negotiation of basic agreement may be undertaken by operating agencies of DHEW in behalf of the Department. When an operating agency decides to negotiate a basic agreement with an organization, prior authorization must be requested, in writing, from the Director, Division of Procurement Policy and Regulations Development (DPPRD), OGPM. When the Director, DPPRD, gives written authorization to the agency designated to conduct negotiations on behalf of the Department, all other agencies will be notified of this designation. If another agency elects, it may attend the negotiation or furnish special terms and conditions or provisions for inclusion in the proposed basic agreement by advising the designated negotiating agency in writing within ten (10) days from the date of the authorization. After review and resolution of all requests for inclusion of special terms and conditions or provisions, the designated negotiating agency will invite those operating agencies who expressed an interest in attending the negotiations and make the necessary arrangements for the negotiation of the basic agreement.

(2) Prior to the conclusion of negotiations, the designated negotiating agency shall furnish the other operating agencies a draft copy of the proposed basic agreement, together with: (i) A resume of all salient features of the basic agreement which will facilitate review;

(ii) Any of the operating agency's guides or procedures which are being considered for incorporation into the basic agreement by reference;

(iii) A listing of nonstandard clauses used, the genesis of such clauses, and

the reasons for such clauses in the basic agreement; and

(iv) The contractor's comments, including the basis for his requesting any deviation from the DHEW Procurement Regulations and the designated negotiating agency's position with respect thereto.

(3) The other operating agencies shall have fifteen (15) days from the date of the memorandum transmitting the aforesaid information to submit comments on the draft copy of the basic agreement. After receipt, analysis and resolution of the comments of the other operating agencies, the designated negotiating agency will proceed to conclude the negotiation of the basic agreement.

(4) After conclusion of the negotiation but prior to execution of the basic agreement, a copy of the basic agreement, together with the information specified in paragraph (e)(2) of this section, and the comments of the other operating agencies with the designated negotiating agency's analysis thereof and the basis for the action taken will be furnished to the Director, DPPRD, OGPM, for review by DPPRD, and the Office of General Counsel. Approval by the Deputy Assistant Secretary for Grants and Procurement Management or his designee must be given prior to the execution of the basic agreement. After approval and execution of the basic agreement, the designated negotiating agency will distribute the executed document to the other operating agencies, Office of General Counsel, and the Office of Grants and Procurement Management, OASAM. The basic agreement is mandatory for use by all agencies of the Department for all procurements falling within the scope of the basic agreement.

(f) Listing of basic agreements. Appendix A to this chapter lists all of the approved basic agreements. The appendix will be updated on a quarterly basis.

[39 FR 43545, Dec. 16, 1974]

§ 3-3.450 Unauthorized types of agreements.

[38 FR 1392, Jan. 12, 1973]

(a) Description. A letter of intent is an informal, unauthorized agreement between the Government and a prospective contractor which indicates that products or services will be produced after completion of funding and/or other contractual formalities. Such letters of intent are often solicited by prospective contractors or may be originated by Government personnel.

(b) Policy. (1) The practice of issuing letters of intent is not authorized by the Federal Procurement Regulations and is therefore prohibited. HEW personnel shall not issue such letters for the following reasons:

(i) While such letters of intent may disclaim Government liability, they may induce potential contractors to initiate costly preparations in anticipation of contract award.

(ii) Procurements announced in such letters do not always materialize. The result may be costly to the Government, the prospective contractor, or both. If the author of the letter of intent is an authorized contracting agent of the Department, the Government may be bound by his action, even though the action is contrary to sound procurement practices and/or fiscal regulations. If the author of the letter of intent lacks procurement authority, the prospective contractor may incur substantial expenditures for which he may not recover from the Government, but for which he may seek to hold the unauthorized author personally liable. (See Subparts 1-1.4, of this Title and 3-1.4 of this chapter.)

(iii) The issuance of a letter of intent may violate the "Anti-Deficiency Act" (31 U.S.C. 665).

(2) It is recognized that potential contractors have a need to obtain procurement information at the earliest possible moment in order to make timely preparations. To this end, procurement personnel are expected to move as efficiently and expeditiously as possible on all procurement actions. It is not permissible, however, to issue letters of intent to circumvent the requirements of FPR and HEWPR.

(c) Exceptions. The prohibition against letters of intent does not preclude the award of contracts condi