upon the contract price subject to a contract provision calling for adjustment of the contract price within a stipulated ceiling on the basis of subcontract or other cost or pricing data required to be submitted thereafter pursuant to paragraph (d)(5) of this § 1-3.807-3 or otherwise (see § 1-3.80710(c); (iv) consider another contract type; or (v) make other arrangements as he deems appropriate to provide an adequate basis for agreement upon contract price. Also, for each subcontract so excused, the contractor shall remain obligated to obtain subcontractor cost or pricing data as provided in § 1-3.807-3(d)(5).

(3) The requirements under § 13.807-(d) (1) and (2), modified as appropriate to relate to a higher tier subcontractor rather than the prime contractor, shall apply to lower tier subcontracts under subcontracts for which subcontractor cost or pricing data is required by § 1-3.807-3(d) (1) and (2).

(4) If the cost or pricing data required by paragraph (a) of this § 13.807-3 is not adequate for the purpose, the contractor shall be required to support subcontract cost estimates below the minimums set forth in § 13.807-3(d)(1)(i) and (ii) by any additional data or information needed to establish a reasonable contract (not necessarily subcontract) price. In the final analysis, contracting officers must satisfy themselves that the negotiated contract price is reasonable. For this purpose, the contracting officer should require whatever additional contractor or subcontractor data are reasonably necessary. Instructional material pertaining to the adequacy and completeness of cost or pricing data may be found in chapter 2E and pages 2B32 through 2B34 of the Armed Services Procurement Regulation Manual For Contract Pricing (ASPM No. 1) (see § 1-3.807-2(d)).

(5) Any contractor who has been required to submit and certify cost or pricing data in accordance with this § 1-3.807-3 shall also be required to obtain cost or pricing data from his subcontractors under the circumstances set forth in the appropriate clause in § 1-3.814-3, notwithstanding

any prior submission from subcontractors pursuant to this § 1-3.807-3(d).

(6) Cost or pricing data furnished by a subcontractor or a prospective subcontractor pursuant to this § 1-3.807-3 must be submitted to the prime contractor or higher-tier subcontractor. It is the responsibility of the prime contractor and higher-tier subcontractor to review and evaluate the subcontract proposal and accompanying cost or pricing data and furnish the results of such review and evaluation to the Government as part of their cost or pricing data submission.

(e)(1) When, in the contracting officer's opinion, the prime or higher-tier subcontractor's analysis of the subcontract proposal is inadequate, the contracting officer will return the analysis package to the prime for a re-accomplishment of the analysis. The contracting officer should indicate the areas of inadequacy of review.

(2) It is the prime contractor's responsibility to accomplish or cause the accomplishment of the additional review required and resubmission of the package to the contracting officer. (3) If the prime or higher-tier subcontractor is unable to accomplish the required additional analysis for justifiable reason, the Government will assist in the performance of the limited additional review required. The prime contractor must submit in these instances convincing evidence to the contracting officer that the prime or higher-tier subcontractor is unable to accomplish the additional analysis either because the additional review would jeopardize the subcontractor's competitive position or proprietary data is involved.

(4) There may be other occasions when a prospective prime contractor or higher-tier subcontractor will request the contracting officer's assistance to perform or assist in performing a limited or complete review and evaluation of a subcontractor's proposal, in lieu of performing this work himself. The contracting officer should make arrangements for such assistance only when, in his opinion, it would be in the best interests of the Government to perform this contractor responsibility. Such assistance

should generally be provided only when:

(i) There is a business relationship between the prime contractor and subcontractor which is not conducive to independence and objectivity, as in the case of a parent and subsidiary, or when the prime and subcontracting I roles of companies are frequently reversed; or

(ii) The contractor is a sole source and the subcontractor costs represent a substantial part of the prime contractor's costs.

(5) There may also be situations when, in analyzing a contractor's proposal or negotiating a prime contract, the contracting officer considers it necessary to validate the prime contractor's review and evaluation of the subcontractor's proposal required under this § 1-3.807-3(d). The purpose would be to satisfy the Government, not the prime contractor, that these elements of the prime contractor's total proposed price are reasonable. This can be accomplished by the contracting officer requesting that a review of the proposal of one or more major subcontractors be performed by cognizant Government personnel (see § 1-3.801-3).

(f) When there is adequate price competition or when prices are set by law or regulation, cost or pricing data shall not be requested regardless of the dollar amount involved. As a general rule, cost or pricing data should not be requested when it has been determined that proposed prices are, or are based on, established catalog or market prices of commercial items sold in substantial quantities to the general public. Exceptions to the general rule include the following:

(1) Where, despite the willingness of a number of commercial purchasers to I buy an item as such at catalog or market price, the contracting officer finds that that price is not reasonable and supports such finding by an enumeration of the facts upon which it is based, cost or pricing data may be requested if necessary to establish a reasonable price: Provided, That such finding is approved at a level, if any, above the contracting officer.

(2) Cost or pricing data may be requested, if necessary, where there is

such a disparity between the quantity being procured and the quantity for which there is such a catalog or market price that the reasonableness of the proposed price cannot be determined by comparing the proposed price with the market or catalog price. Where an item is substantially similar to a commercial item for which there is an established catalog or market price at which substantial quantities are sold to the general public, but the offered price of the former is not considered to be "based on" the price of the latter in accordance with § 13.807-1(b)(2), any requirement for cost or pricing data should be limited to that pertaining to the differences between the items, if this limitation is consistent with ensuring reasonableness of the price.

(g)(1) Certified cost or pricing data shall not be requested prior to the award of any contract anticipated to be for $25,000 or less and generally should not be requested for modifications in those amounts. There should be relatively few instances where certified cost or pricing data and the inclusion of defective pricing clauses would be justified in awards between $25,000 and $100,000. In most such awards, the administrative costs will outweigh the benefits which might otherwise accrue from receipt of certified cost or pricing data. Accordingly, all other means of determining reasonableness of price should be utilized. When less than complete cost analysis (e.g., analysis of only specific factors) will provide a reasonable pricing result (see § 13.807-2(a)) on awards under $100,000 without the submission of complete cost or pricing data, the contracting officer shall request, without certification, only that data which he considers adequate to support the limited extent of the cost analysis required.

(2) Although cost or pricing data was requested in the solicitation, a certification of cost or pricing data shall not be requested in connection with the award of any contract of any dollar value where the price negotiated 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.

(h)(1) "Cost or pricing data" as used in this Subpart 1-3.8 consists of all facts existing up to the time of agreement on price which prudent buyers and sellers would reasonably expect to have a significant effect on the price negotiations. The definition of cost or pricing data embraces more than historical accounting data; it also includes, where applicable, such factors

as

vendor quotations, nonrecurring costs, changes in production methods and production or procurement volume, unit cost trends such as those associated with labor efficiency, makeor-buy decisions, and new source solicitations, rebates and discounts, or any other management decisions which could reasonably be expected to have a significant bearing on costs under the proposed contract. In short, cost or pricing data consists of all facts which can reasonably be expected to contribute to sound estimates of future costs as well as to the validity of costs already incurred. Cost or pricing data, being factual, is that type of information which can be verified. Because the contractor's certificate pertains to "cost or pricing data," it does not make representations as to the accuracy of the contractor's judgment regarding the estimated portion of future costs or projections. It does, however, apply to the data upon which the contractor's judgment is based. This distinction between fact and judgment should be clearly understood.

(2) The requirement for submission of cost or pricing data is met when all accurate cost or pricing data reasonably available (see § 1-3.807-5(a)(1)) to the contractor at the time of agreement on price is submitted in writing, or specifically identified in writing if actual submission of the data is impracticable, to the contracting officer or his representative. The distinction between the "submission" of cost or pricing data and the "making available" of records should be clearly understood. The mere availability of books, records, and other documents for verification purposes does not constitute submission of cost or pricing data.

(i) Solicitations, including invitations for bids, requests for proposals, or

requests for quotations for procurements expected to exceed $100,000 shall (1) contain information as to the requirements for cost or pricing data and (2) incorporate the (i) applicable clauses in §§ 1-3.814-1, 1-3.814-2, and 1-3.814-3, and (ii) certificate in § 13.807-4 if certification of cost or pricing data is required. These criteria shall be modified, as appropriate, when any cost or pricing data is required in accordance with § 1-3.807-3 for negotiated contracts (or modifications to formally advertised or negotiated contracts) not expected to exceed $100,000 (see § 1-3.814).

(j) [Reserved]

(k) Negotiated final pricing actions, such as total final price agreements under fixed-price incentive and redeterminable contracts or termination settlement agreements under terminated contracts, are contract modifications for which certified cost or pricing data are required in accordance with paragraph (a)(2) of this § 1-3.8073. A certificate in accordance with § 13.807-4 shall be submitted as soon as practicable after agreement is reached on the amount of the modification. A certificate is required when the amount of the total price agreement or of the final termination settlement agreement exceeds $100,000.

[34 FR 2660, Feb. 27, 1969, as amended at 37 FR 610, Jan. 14, 1972; 39 FR 1752, Jan. 14, 1974; 39 FR 44453, Dec. 24, 1974; 43 FR 11987, Mar. 23, 1978; 43 FR 46304, Oct. 6, 1978; 45 FR 8602, Feb. 8, 1980]

§ 1-3.807-4 Certificate of current cost or pricing data.

Where a certification of cost or pricing data is required in accordance with § 1-3.807-3, a certificate in the form set forth below shall be included in the contract file along with the documents supporting the negotiation. The contractor shall be required to submit only one certificate which shall be submitted as soon as practicable after agreement is reached on the contract price.

CERTIFICATE OF CURRENT COST OR PRICING

DATA

This is to certify that, to the best of my knowledge and belief, cost or pricing data submitted in writing, or specifically identi

'For definition of "cost or pricing data," see FPR § 1-3.807-3.

2Describe the proposal, quotation, request for price adjustments, or other submission involved, giving appropriate identifying number (e.g., RFP No.

This date shall be the date when the price negotiations were concluded and the contract price was agreed to. The responsibility of the contractor is not limited by the personal knowledge of the contractor's negotiator if the contractor had information reasonably available (see § 1-3.807-5(a)) at the time of agreement, showing that the negotiated price is not based on accurate, complete, and current data.

"This date should be as close as practicable to the date when the price negotiations were concluded and the contract price was agreed upon.

[34 FR 2661, Feb. 27, 1969]

§ 1-3.807-5 Defective cost or pricing data. (a) Where any price to the Government must be negotiated largely on the basis of cost or pricing data submitted by the contractor, it is essential that the data be accurate, complete, and current and in appropriate cases so certified by the contractor or subcontractor (see §§ 1-3.807-3 and 13.807-4). If such certified cost or pricing data is subsequently found to have been inaccurate, incomplete or noncurrent as of the effective date of the certificate, the Government is entitled to an adjustment of the negotiated price, including profit or fee, to exclude any significant sum by which the price was increased because of the defective data. The clauses set forth in § 1-3.814-1 give the Government in such a case an enforceable contract right to a price adjustment; that is, to a reduction in the price to what it would have been if the contractor had submitted accurate, complete and current data. They also give the Government a right to a price adjustment for defects in cost or pricing data submitted by a prospective or actual subcontractor and, in some cases, for inaccu

rate data furnished by a contractor. In arriving at a price adjustment under a clause, the contracting officer should, after review of the record of the contract negotiation (see § 1-3.811), consider the following:

(1) Certain data such as overhead expenses and production records may not be reasonably available except on normal periodic closing dates. Also, the data on numerous minor material items, each of which by itself would be insignificant, may be reasonably available only as of a cutoff date prior to agreement on price because the volume of transactions would make the use of any later date impracticable. Furthermore, except where a single item is used in substantial quantities, the net effect of any changes to the prices of such minor items would likely be insignificant. Closing or cutoff dates should be included as part of the data submitted with the contractor's proposal and should be updated by the contractor to the latest closing or cutoff dates, preceding agreement on price, for which such data are available. The contracting officer and contractor are encouraged to reach a prior understanding on criteria for establishing closing or cutoff dates, and to the extent possible the understanding should relate to the contractor's formal estimating system. Notwithstanding the foregoing, matters which are significant to contractor management and to Government and any related data within the contractor's organization or the organization of a subcontractor or prospective subcontractor would be expected to be current on the date of agreement on price and therefore will be treated as reasonably available as of that date. Although changes in the labor base or in prices of major material items are generally significant matters, no hard and fast rule can be laid down since what is significant can depend upon such circumstances as the size and nature of the procurement.

(2) In establishing that the defective data caused an increase in the contract price, the contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the cor

rect data had been submitted at the time of agreement on price. In the absence of evidence to the contrary, the natural and probable consequence of defective data is an increase in the contract price in the amount of the defect plus the amount of the related burden and profit or fee; therefore, unless there is a clear indication that the defective data was not used, or was not relied upon, the contract price should be reduced by the aggregate of these amounts.

(3) In determining the amount of an adjustment in the contract price because of defective cost or pricing data, the contracting officer shall consider any understated cost or pricing data submitted in support of price negotiations for the same pricing action (e.g., for the initial pricing of the same contract or for pricing the same change order) up to the amount of the Government's claim for overstated cost or pricing data arising out of the same pricing action. Such offsets, however, need not be in the same cost groupings (e.g., material, labor, or overhead).

(b) If, at any time prior to agreement on price, the contracting officer learns through audit or otherwise that any cost or pricing data submitted is inaccurate, incomplete, or noncurrent, he shall immediately call it to the attention of the contractor whether that defective data tends to increase or decrease the contract price. Thereafter, the contracting officer shall negotiate on the basis of any new data submitted, or on a basis which in his opinion makes satisfactory allowance for the incorrect data as he considers appropriate and shall reflect these facts in his record of negotiation.

(c) After award, if the contracting officer obtains information which leads him to believe that the data furnished may not have been accurate, complete, and current, or if he considers that the data may not have been adequately verified as of the time of negotiation, he should request an audit to evaluate the accuracy, completeness, and currency of such data. In the case of negotiated firm fixedprice contracts, postaward cost performance audits, pursuant to a clause set forth in § 1-3.814-2, shall be limited to the single purpose of determin

ing whether or not defective cost or pricing data was submitted. Such audits shall not be for the purpose of evaluating profit-cost relationships, nor shall any repricing of such contracts be made because the realized profit was greater than was forecast, or because some contingency cited by the contractor in his submission failed to materialize, unless the audit reveals that the cost or pricing data certified by the contractor was, in fact, defective (see § 1-3.812).

(d) Under the Price Reduction for Defective Cost or Pricing Data" clauses in § 1-3.814-1, the Government's right to reduce the prime contract price extends to cases where the prime contract price was increased by any significant sums because a subcontractor furnished defective cost or pricing data. In exercising the Government's rights in such cases, the contracting officer will consider the following:

(1) In some instances, the prime contractor may have already reached agreement on price with a subcontractor before the prime contractor and the Government agree on a definitive price. This might occur, for example, if the prime contractor commenced performance under a letter contract or under an unpriced change order. In such cases the subcontractor's cost or pricing data must be submitted with the prime contractor's submission. If any such subcontractor data is subsequently found to be defective, the prime contract is subject to price adjustment in the same manner as would be the case if any other cost or pricing data submitted by the prime contractor proved to be defective.

(2) The Government and the prime contractor will normally agree on the price of a contract prior to final agreement on price between the prime contractor and his subcontractor. In such cases, the prime contract price will be based, in part, on subcontract cost estimates. The prime contractor will be expected to support his subcontract cost estimates with subcontractor cost or pricing data as provided in § 13.807-3(d). The prime contract price will be subject to adjustment on the basis of defective subcontractor cost or