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certain indirect costs, the acceptability of the bases used in developing the overbead rates, the specific items to be treated as direct cost, or other matters, the contracting officer, before the negotiation conference with the contractor, shall;

(1) Solicit the comments and recommendations of other Government procurement activities or agencies (doing business with the same contractor) as to: (1) The proposals made by the contractor; and (1) the related advisory auidt report;

(2) Obtain the advisory comment and analyses of appropriate legal pricing, audit, and technical personnel as to the rate or rates of overhead, application of cost principles, treatment of particular Items of cost, and other pertinent issues; and

(3) Develop the position of the procurement agency in coordination with other interested procuring activities (1 any) of that agency. Failure of those procuring activities to agree as to the agency position shall be resolved in accordance with agency procedures.

(e) Generally, the negotiation conference should be conducted by a contracting oficer of the sponsoring activity (see $ 1-3.706). He shall arrange for appropriate legal, pricing, technical, or other specialist personnel of his agency to assist him in the preparation for and conduct of the negotiation conference. The audit activity also should be requested to render appropriate assistance and to participate in the negotiation conference. The negotiation shall be governed by the contract cost principles which are applicable to the contract. In the event provisional overhead rates were utilized to effect a termination settlement (see $1–8.404–4 of this chapter), that fact will not be considered a precedent when negotiating final rates.

(1) At the completion of the negotlation, the contracting omcer shall, as promptly as practicable, prepare, and distribute to all interested Government agencies (see § 1-706, & report or summary to become a part of the contract file, to record the results of the negotiation setting forth information such as the following, to the extent appropriate and applicable:

(1) The name, position, and organization of conferees representing the contractor and the Government;

(2) The purpose of the negotiation;

(3) A summary of the contractor's overhead rate proposal and the pertinent advisory audit report recommendations;

(4) The various overhead rates, and related bases and periods resulting from the negotiation (see $ $ 1-15.203 and 115.305 of this chapter);

(5) A discussion of the treatment given to cost items requiring specific consideration, including advance understandings (see § 1-15.107 of this chapter), special contract provisions or limitations, and cost-sharing arrangements (see this § 1-3.707); also, where applicable, similar data on the special treatment of cost items agreed upon for the succeeding period;

(6) The specific Items treated as die rect cost;

(7) The reasons for variation (11 any) from the recommendations of the ad. visory audit report;

(8) A list of the contracts affected by the negotiation, showing identification number and the estimated total dollar value, or a statement that such information is provided in the advisory audit report;

(9) A specific comment as to the percentage (or dollar factor) and amounts allowed for costs of the contractor's independent research and development programs and the effect of such allowance on rates and total amounts of the related overhead cost group (see $ 115.203(b) of this chapter); and

(10) Where applicable, the billing rates, the provisional rates, or, if appropriate, the predetermined rates, for application in the succeeding period.

(g) Contract administration may be simplified by including, as appropriate, provisional, final (as subsequently established), or predetermined negotiated overhead rates in basic agreements (see § 1-3.410–1) when such agreements exist. When no basic agreement exists and negotiated overhead rates are applicable to & substantial number of contracts, the rates may be set forth in a separate negotiated overhead rate agreement, which may be incorporated by reference in the individual contracts affected in the same way that basic agreements are incorporated in contracts. Any agreement that sets forth overhead rates shall state the bases to which they apply and the period of rate applicability, and the contract Alle shall contain the negotiation report or


intacts with are subject to a thin an agency. The sono

1 ts spart apply to negostral types of contracte, e diutaments thereunder, and a En el as initial prices

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iz picy of the Government to emate and services from re

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those subcontracts which are subject to the contracting officer considers unreaapproval or review within an agency. The sonable, the contracting oficer shall (1) principles in this subpart apply to nego determine the feasibility of developing tiation of prices on all types of contracts, an alternate source of supply, and (2) to equitable adjustments thereunder, and take such other action within his authorto revised prices as well as initial prices. ity as may be appropriate in the circum(34 PR. 2659. Feb. 27, 1969)

stances. If, after exhausting the above

course of action, a satisfactory solution § 1-3.801 Basic policy.

has not been obtained, the contracting § 1-3.801-1 General.

officer shall proceed in accordance with It is the policy of the Government to

agency regulations. With regard to a conprocure property and services from re

tractor's refusal to provide cost or pricsponsible sources at fair and reasonable

ing data, see § 1-3.807-6. prices calculated to result in the lowest (94 PR. 2659. Feb. 27, 1969) ultimate overall cost to the Government. § 1-3.801-3 Responsibility of other per. Sound pricing depends primarily upon sonnel. the exercise of sound judgment by all

(a) Requirements and other logistics personnel concerned with the procurement.

personnel. Personnel, other than the con[ 34 PR. 2859, Feb. 27, 1969)

tracting officer, who determine type,

quality, quantity, and delivery require§ 1-3.801-2 Responsibility of contract ments for property and services to be ing officers.

procured, can influence the degree of (a) Contracting officers, acting within competition obtainable and exert a matethe scope of their appointments (and in

rial effect upon prices. Failure to detersome cases acting through their author

mine requirements in suficient time to ized representatives) are the exclusive allow (1) a reasonable period for prepagents of their respective agencies to en

aration of requests for proposals, (2) ter into and administer contracts on preparation of quotations by offerors, (3) behalf of the Government in accordance

contract negotiation and preparation, or with agency procedures. Each contracting

(4) adequate lead time for manufacturomcer is responsible for performing or

ing or performance causes delays in dehaving performed all administrative ac

liveries and uneconomical prices. Retions necessary for effective contracting.

quirements issued on an urgent basis or The contracting oficer shall exercise

with unrealistic delivery schedules should reasonable care, skill, and judgment and

be avoided since they generally increase shall avail himself of all of the organiza

prices or restrict desired competition. tional tools (such as the advice of special.

Personnel determining requirements, ists in the fields of contracting, finance,

specifications, adequacy of sources of law, contract audit, engineering, traffic

supply, and like matters have responsimanagement, and cost or price analysis)

bility in such areas for timely, sound, necessary to accomplish the purpose as,

and economical procurements. in his discretion, will best serve the

(b) Pricing personnel. To the extent interests of the Government.

they are available and their use is ap(b) To the extent services of special.

propriate, the services of pricing personists are utilized in the negotiation of con

nel shall be utilized as provided in this tracts, the contracting officer must co

paragraph (b). ordinate a team of experts, requesting

(1) The contract pricing team to supadvice from them, evaluating their

port the contracting officer in the review counsel, and Availing himself of their

and analysis of pricing proposals may skills as much as possible. The contract include a price specialist (or analyst), ing officer shall obtain simultaneous co

negotiator, buyer, project engineer, conordination of the specialists' efforts to the

tract auditor, and other professional and greatest practical extent. He shall not,

technical specialists, such as production, however, transfer his own responsibilities quality control, packaging, and transporto them. Thus, determination of the suit

tation specialists. ability of the contract price to the Gov

(2) The advice and assistance of ernment always remains the responsibil pricing personnel (such as a price ity of the contracting officer.

specialist or analyst, or contract auditor) (c) When the contractor insists on a should be obtained when complex pricing price or demands a profit or fee which techniques are indicated, including the


manner which will minimize duplication ay only. The contracting officer is
of analysis (see § 1-3.809(b) (3)). The prible for the exercise of the req.
analyses by technical and audit personnel judgments and is solely respon-
relating thereto shall be exchanged se instances where the contracting
throughout the review process. It is a does not adopt audit or other
recognized that the duties of auditors alistrecommendations that have
in many cases require both to evaluate 14, appropriate comments shall be in-
and those of other technical specialists keular significance on the contract
While they shall review the data jointly 11-3.811).

trant in amount, he shall reques
11-3.802 Preparation for negotiatio
the product or service, and its us
sential to sound pricing. Before
helting quotations, every contra
her should develop, where feasib
stimate of the proper price les
value of the product or service

specifications, job process shee

use of contract types involving the skill counting system or estimating methods wh the future. The account. prlor pro ful balancing of price, cost, and perform are such that the proposed contract can

ein of trends based on cost orsary, reg ance incentive arrangements. Such pric- not be adequately priced or administered,


, together with any known clalists sh Ing personnel or negotiators supporting he shall

, with the advice of the contract lik pralsal, others being cations a

a tein, is only one method of responsib the contracting officer may be designated auditor, ensure that necessary corrective to develop a Government pricing objec

action is initiated prior to the award of the stimated labor and material and tech

la egineering appraisal of the must ne tive prior to the negotiation. In such such contract. Generally, the auditor has case, this may include the responsibility responsibility for performing that part

And toling and facilities, and tracting for:

of reviews and cost or price analyses

wateness of scrap and spoilage effect

固 (i) Determining the extent of advice which requires access to the contractor's

prices & required from other specialists, request books and financial records supporting

1 Iz preparation of Independ to awe ing, obtaining, and considering such ad proposed cost or pricing data, regardless

tinates by competent technical nical g vice, and for obtaining pricing data, of the dollar amount involved. This does

which omission of such clause, the clause in not preclude the contracting officer or his seal, differences of opinion will compe torical cost or pricing data, independent technical representatives from request at only on the reasonableness of (b) Government cost estimates, economic ing any data from, or reviewing records tristions but also on the account. Select analyses and the like; and

of, the contractor (such as cost or pric- simtes on which they are based. tion (ii) Consolidating and evaluating the ing data, list of labor operations, proc item

, it is normally not possible Prop findings of the pricing team members, ess sheets, etc.) necessary to the dis state a pricing result which is in cient and for the analysis of proposed prices charge of their responsibilities. in consideration of, but not limited to, (4) In order to provide the contract de specialists, or even with the Gov

kward with all of the opinions of our such factors as the need for quantities ing officer with maximum support, it is tets prieing objective. Reasonable


1-3 and kinds of materials included in the essential that there be close cooperaproposal; the need for the number and tion and communication between the last must be understood by all memkinds of man-hours; the need for special contract auditors and

the production and filtbe team. For all of these reasons

ap tooling and facilities; and the reason other technical specialists. Such coableness of scrap and spoilage factors.

fo ordination will be accomplished in a These analyses shall be based on the team members' knowledge of production, quality control, engineering and manufacturing practices and techniques and are of mutual interest, and information information as to plant capacity, scheduling, engineering and production "know-how," Government property, make-or-buy considerations, and industrial security, particularly as these relate to the practices of the specific prospec the same elements of estimated costs. tive contractor.

(3) The contract auditor is respon or concurrently wherever possible, each sible for submission of information and shall render his services within his own advice, based on his analysis of the con area of responsibility. For example, on tractor's books and accounting records quantitative factors (such as labor or other related data, as to the accept hours), the auditor will frequently find ability of the contractor's incurred and It necessary to compare proposed hours estimated costs. The auditor shall report with hours actually expended on the any denial by the contractor of access same or similar products in the past as to records or cost or pricing data which reflected on the cost records of the conthe auditor considers essential to the tractor. From this information he can preparation of a satisfactory report. If often project trend data. The technical the auditor believes that the contractor's specialist may also analyze the proposed estimating methods or accounting system hours on the basis of his knowledge of are inadequate to produce valid support such things as shop practices, industrial for the proposal or to permit satisfac engineering, time and motion factors, tory administration of the type of con and the contractor's plant organization tract contemplated, this shall be stated and capabilities. The interchange of this in the audit report and concurrently information will not only prevent made known to the contractor so that he duplication but will ensure adequate and may have the opportunity of presenting complementary analysis. his views to the contracting officer. (5) Pricing based on cost analysis Where the contracting officer determines Involves, among other things, an apthat deficiencies in the contractor's ac praisal of estimates of costs expected to


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used in the record of the negotiation

Whenever it becomes apparent to contracting officer that the negotiaya will require the resolution of com la problems which involve items sig andance by audit and other appropr

representatives at the negotiatic

b) Product or service. Knowledg

purchased. Such estimates may be 22 A physical Inspection of the and review of such items as dr

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ceipt and consideration of propo

award that are received after th

be incurred in the future. The account prior procurement data. When ne ing projection of trends based on cost or sary, requirements and technical pricing data, together with any known cialists should be consulted. The prim changes therein, is only one method of responsibility for the adequacy of spe conducting this appraisal, others being : cations and for the delivery requirem

(1) An engineering appraisal of the must necessarily rest with requirem need for the estimated labor and material and technical groups. However, the costs and of tooling and facilities, and tracting officer should be aware of the reasonableness of scrap and spoilage effect which these factors may hav factors; and

prices and competition, and should, (II) The preparation of Independ to award, inform requirements and t ent estimates by competent technical nical groups of any unsatisfactory e personnel.

which their decisions have on price of Occasionally, differences of opinion will

competition. exist not only on the reasonableness of

(b) Selection of prospective sou cost projections but also on the account.

Selection of qualified sources for soll Ing techniques on which they are based.

tion of proposals is basic to sound pi In addition, it is normally not possible

Proposals should be invited from a to negotiate a pricing result which is in

cient number of competent pote strict accord with all of the opinions of

sources to insure adequate compet all the specialists, or even with the Gov

(see $$ 1-1.302, 1-1.702, 1-1.1203, ernment's pricing objective. Reasonable

1-3.101). The bidder's mailing lists compromises are normally necessary and

scribed by § 1-2.205 should be used this fact must be understood by all mem

appropriate. bers of the team. For all of these reasons

(c) Requests for proposals. Reg audit reports or pricing recommenda

for proposals shall contain the i tions by others must be considered to be

mation necessary to enable a prospe advisory only. The contracting officer is

offeror to properly prepare a quot responsible for the exercise of the reg

or proposal. The request for prop uisite judgments and is solely respon

shall be as complete as possible wit sible for the final pricing decision. In

spect to: Item description or state these instances where the contracting

of work; specifications; Governo officer does not adopt audit or other

furnished property, if any; require specialist recommendations that have

livery schedule; special provisions particular significance on the contract

or pricing data requirements (see

807-3); and contract clauses. Re price, appropriate comments shall be in

for proposals shall specify a dat cluded in the record of the negotiation

time for submission of proposals (see § 1-3.811).

extension of time granted to one (6) Whenever it becomes apparent to

spective offeror shall be granted the contracting officer that the negotia

formly to all. Each request for pro tions will require the resolution of com

shall be released to all prospecti plex problems which involve items sig

ferors at the same time and no nificant in amount, he shall request

shall be given the advantage of a attendance by audit and other appropri

knowledge that proposals are to ate representatives at the negotiation

quested. Requests for proposals sh meeting.

in writing except in those cases (34 F.R. 2659, Feb. 27, 1969)

the urgency of the procurement i

that there is not sufficient time t $ 1-3.802 Preparation for negotiation.

pare a written request. In such cas (a) Product or service. Knowledge of

requests are authorized. the product or service, and Its use, is

129 F.R. 10156, July 24, 1984, as ame

36 FR 17422, Aug. 31, 1971; 38 FR essential to sound pricing. Before so

Sept. 27, 1973)
Uciting quotations, every contracting
officer should develop, where feasible, an

81–3.802-1 Consideration of ls estimate of the proper price leve! or

value of the product or service to be
purchased. Such estimates may be based
on & physical Inspection of the product
and review of such items as drawings,
specifications, job process sheets, and

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(a) Except as provided in 81the following provision regarding

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