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may agree upon at the time of each option exercise.

The Govern

ment may exercise the option for the first successive period

without obligation to exercise the option for the second period.

The exercise in each case shall be by written notice signed by

the Contracting Officer and furnished to the Contractor on or

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(a) The Government-furnished property hereunder shall be all

existing Government-owned equipment and facilities on Kwajalein

Atoll which are required for the performance of this contract

and all existing Government-owned material on Kwajalein Atoll

which is required for performance of this contract.

(b) Upon depletion of existing supplies of Government-owned

material on Kwajalein Atoll, the Contractor shall procure supplies

for non-merchandizing functions within the inventory levels

established by the Contract Administrator through regular Navy


If the contractor determines that the required supplies

are not available from current Navy stocks at NSC Oakland,

procurement shall be from sources determined by the contractor

and consistent with the best interests of the Government.


Contractor shall procure supplies for the merchandizing facili

ties within the monetary inventory level established by the Con

tract Administrator.

Procurement of such supplies shall be through

channels determined by the Contractor and consistent with the

best interests of the Government.

(c) The Contractor's personnel shall be housed in Government

owned quarters on Kwajalein Atoll.

The assignment to quarters,

barracks, bachelor officer quarters or family housing shall be

made on an equitable basis considering the status, position and

requirements of individuals and available housing space.


family housing units are presently assigned to the Contractor and

occupied by its employees.

No less than 30 family units shall

be assigned to the Contractor for use by its employees after

such 50 family units occupied by Contractor's employees as of

1 July 1960 shall have been phased down to 30 by attrition or

expiration of contract of such employees occupying the excess

over 30. Notwithstanding the provisions of the above, the Con

tract Administrator may, when his judgment so determines, assign

additional quarters above 30 to the Contractor for his use, if

so desired by the Contractor, for such periods of time as may

be specifically designated.

A charge will be made for Contrac

tor employees occupying quarters at the rates set forth in

Schedule II of Exhibit C, and such charge will be deducted

from allowable wages under Schedule I of Exhibit C hereto.

Amounts so deducted from Employee's salaries will be credited

against amounts otherwise due the Contractor under this contract.

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(a) The costs of performance of this contract, as referred to

in paragraph (a) of the "Allowable Cost, Fixed Fee, and Pay

ment," clause hereof, are hereby defined as the cost of labor,

materials, and other items of the nature described in sub

paragraphs (1) through (9) below, incurred by the Contractor

and which are claimed by the Contractor and accepted as such

costs by the Comptroller of the Navy (Contract Audit Division),

as chargeable in accordance with Part 2 of Section XV of the

Armed Services Procurement Regulation revised 2 November 1959.

(1) The cost of material including (1) the net cost after deducting all discounts, of material, foodstuffs and parts

purchased directly for performance of this contract, whether

or not such materials, foodstuffs and parts are purchased through commercial channels or through the Navy Supply System; (II) the

cost of materials and parts withdrawn from the Contractor's

Stores or stock; and (III) the cost of transporting material

purchased by the Contractor for the performance of this con


(2) The salaries and wages of all personnel employed in the

performance of this contract except those personnel permanently

located in the Contractor's Corpus Christi, Texas and Honolulu,

Hawaii Offices, but excluding corporate officers.

The salary

of any employee permanently assigned to said Corpus Christi,

Texas or Honolulu, Hawaii Office except corporate officers of

the contractor, shall be an allowable cost hereunder for such ·

temporary period of time as he is assigned solely to the perform

ance of this contract away from Corpus Christi, Texas or

Honolulu, Hawaii including necessary travel time.

Such tem

porary assignments shall be made for business purposes only in

connection with the performance of this contract, and shall be

made in the sole discretion of the Contractor.

The salary

scales and fringe benefits allowable as costs hereunder shall

be those set forth in Exhibit C and/or D to the contract, how

ever, employees assigned temporarily to the performance of this

contract, the salary allowable as costs shall be that salary

normally paid by the Contractor for the performance of such


In the event any individual employed under this contract

is discharged because of inability to secure a security clear

ance from the United States Government, the salary and trans

portation of such individual during the time he was in the

employ of the Contractor shall be an allowable cost hereunder.

(3) The cost which the Government has agreed to assume under

the clauses hereof entitled "Government Property" and "Insurance

Liability to Third Persons", including the cost of such extra

hazardous insurance as may be approved by the Contracting

Officer under the provisions of subparagraph (9) of this section.

(4) Transportation and reasonable subsistence of personnel

employed in the performance of this contract while in travel


Transportation and subsistence costs of Corporate

Officers of the Contractor while in travel status in connection

with this contract.

(5) Charges for the use of equipment, other than Government

furnished equipment, utilized in the performance of the con

tract, provided, however that such charges shall not exceed the

cost of the services accomplished by the use of such equipment

if such services were procured commercially.

(6) The cost of maintaining offices in Oakland, California

and any other place or places as may be directed by the Contract

Administrator, in connection with the performance of this con


(7) For those employees required to wear specialized clothing

in the performance of their duties under this contract, the

cost of providing each such employee with an initial outfit

of three (3) sets.

(8) The costs of physical examination for new employees

where required by law to be paid by the employer.

(9) Such other items, not excluded by other provisions of

this contract or considered unallowable under Section XV,

Part 2, of the Armed Services Procurement Regulation, as

should, in the opinion of the Contracting Officer, be

included in the cost of the work called for by this contract.

Any such item allowed by the Contracting Officer shall be

specifically certified by the Contracting Officer as being

allowed under this subparagraph (9).

(b) The parties to this contract have mutually agreed that the

below listed costs shall be specifically unallowable under this


(1) Corpus Christi, Texas and Honolulu, Hawaii office

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contractor fails to secure prior or advance

approval or authorization is expressly required

by any provision of this contract, unless such action

is subsequently ratified by the Contracting Officer.

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