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on, the contracting of- fallure to comply

concerning the establishment of over and process; it re.
head rates (billing, provisional, or pre- detailed explanation tons taken in connection:
determined), when such rates are pro- lista on each individ- estimating surveys, if any.

(2) Preaward surveys (see $ 1-1.310-9) nolems, reduces the Ol corrective action (see
of potential contractor's competence to the cirmed by audit and (3)) required, shall be fur
information is required on the adequacy ineditis performed pur- quest) to other procurer
of the contractor's accounting system or heb ), the contract Any significant deficiencie
its suitability for administration of the lezine whether the con- not corrected by the contr
proposed type of contract, such informa- total systems of methods be considered in subseque
tracting officer from the auditor (see tato be considered in gotiating with, and in
tion shall always be obtained by the con- kes the Government, views, and by contractin
§ 1-3.801-3(b)(3)). The contracting of the pability of the es- reasonableness of price
ficer shall be responsible for compliance a to methods are the that contractor. Wheret

(3) (i) The establishment, mainte- shes bored in developing about corrective action nance, and consistent use of formal cost do the direct and inestimating systems by contractors is to the mutual benefit of the Government ance, de data used in devel. 3.12, Cost Accounting and industry, particularly where a large spateand in ensuring that Part 1-15, Contract CC portion of the contractor's business is the contentcomplete, and Procedures, the cogniz. ber of significant proposals requiring re- rental on developed ommendations to the view. Procuring activities should encour site contractor to svipa 85 to whether: good estimating procedures. It is recogent support of the PTO- ment (see 1-3.1203 nized that estimating procedures will helming approval of the & condition of conti

He utdynator's organization counting practices

the estimating counting Standard

ude dis statement, as prescribed by agency protakes of cedures or regulations, to the effect that tries to specific pro- ficer shall determine wheth ons, and

the notice constitutes a final decislon sat preparation of mating system survey should d in the of the contracting officer, the effective means with an accept- taken as a team effort in ;upport date of such decision, the contractor's zsa is of material contract auditor and othe

right to appeal therefrom, and the spea wh the contractor technical specialists) after co ontract cific procedure to be followed if the con- tyttat proposals are of criteria such as: ew of a tractor decides to make such an appeal. Stably priced, that (A) The significance (inc requires (11) The contract auditor shall be re- stends for utilizing mated cost of price) of all cost es sponsible for performing audits of con- 2 strmplete cost and estimated future Governme

plants tracts in which pricing or payment is nieking the proposal ments, provided, that if only :WS per

based upon cost or other financial Infor- Ekrstimating and procurement is involved, o •), such mation furnished by the contractor

, element costs are min- priate methods may be used gh audit

when such audit is required or considered an advantages of sound the reliability and reasonab sity for desirable. accord (111) The contract auditor shall be re- tex can normally be prime

sponsible for making appropriate recome say and reliability of to the Government in vier ews are

mendations to the contracting officer tal proposals; it ex- of the survey: and through made a

vided for in the contract (see Subpart i at the case of the

1-3.7, Negotiated Overhead Rates). nbursezbursetracts, perform proposed contracts shall be arr reim ranged by the contracting officer. Where aterials ated or eriodic ted by eliabilexperi-g sysudited with the agency's implementing policies hall be and procedures concerning the contrac

times tor's financial competence or credit needs sirable, (see also $ 1-1.310). ndered yearly. -t, are conactor's s, and yment Government work and there are a numsburs

quesallow age contractors to formalize and follow acting cation if he vary among contractors, and may vary shall between plants or divisions of a contracwrit tor due to differences in products, size

sus and methods of operations, production vs. use of research, and other factors. While formal lisap systems do not eliminate the need for d and judgmental factors to be applied by conannot tractors in developing cost proposals,

the they do provide a sound foundation for plete the systematic and orderly application

202

te dre; a greater de contractor's cost or pricing

(B) The benefits which

(C) The findings and

ce con

(iv) A copy of the surv de matice regarding ac- gether with a copy of the

and procurement agency procuring activity

ness with that contractor,

continue to exist and whe onetes filthin the con

verse effect on prices, th matin for originating, re- be brought to the atter su proping estimates:

ment oficials at a level

(4) In accordance

for shall be responsib)

W A contractor's

established to ensure describes the actual stance with estimating accounting practices el personnel training and lic Law 91-379, 50 t

Implemented by the o coordination and standards Board;

(II) A contractor

Alternating the various ele

are not acceptable

with Part 1-15 and

(I) A contracte

203

ficer shall determine whether an estiof these judgment factors to specific pro

mating system survey should be underposals. The consistent preparation of

taken as a team effort (including the proposals in accordance with an accept

contract auditor and other qualified able estimating system is of material

technical specialists) after consideration benefit in ensuring both the contractor

of criteria such as: and the Government that proposals are

(A) The significance (including estirealistically and reasonably priced, that the f 1-3.807–3 requirements for utilizing mated cost or price) of all present and

estimated future Government procurecurrent, accurate, and complete cost and pricing data in developing the proposal ments, provided, that if only a one-time are met, and that underestimating and procurement is involved, other appro. overestimating of contract costs are min priate methods may be used to establish Imized. Some of the advantages of sound the reliability and reasonableness of the estimating procedures are: a greater de contractor's cost or pricing data; gree of confidence can normally be (B) The benefits which might accrue placed in the accuracy and reliability of to the Government in view of the cost contractors' individual proposals; it ex of the survey: and pedites the negotiation process; it re (C) The findings and corrective acduces the amount of detailed explanation tions taken in connection with previous of estimating processes on each individ estimating surveys, if any. ual proposal; and, as in the case of the (iv) A copy of the survey report, towell established practice regarding ac gether with a copy of the official notice ceptable accounting systems, reduces the o! corrective action (see § 1-3.801-3(b) scope of reviews performed by audit and (3)) required, shall be furnished to each other technical and

procurement agency procuring activity having busipersonnel.

ness with that contractor, and (upon re(0) When an audit is performed pur quest) to other procurement agencies. suant to $ 1-3.8091b) (1), the contract Any significant deficiencies in the system auditor shall determine whether the con not corrected by the contractor shall also tractor's estimating systems or methods be considered in subsequent proposal reare acceptable to the Government. views, and by contracting officers in neAmong the matters to be considered in gotiating with, and in determining the determining the acceptability of the es reasonableness of prices proposed by, timating systems or methods are the that contractor. Where these deficiencies following:

continue to exist and where they have ad(A) Responsibilities within the con verse effect on prices, the problem should tractor's organization for originating, re be brought to the attention of procureviewing, and approving estimates;

ment oficials at a level necessary to bring (B) Procedures followed in developing estimates for each of the direct and in

about corrective action, direct elements of cost;

(4) In accordance with Subpart 1(C) The source of data used in devel

3.12, Cost Accounting Standards, and oping the estimates and in ensuring that

Part 1-15, Contract Cost Principles and such data are current, complete, and

Procedures, the cognizant contract audi

tor shall be responsible for making rec(D) The documentation developed

ommendations to the contracting officer and maintained by the contractor to s'ip as to whether:

(1) A contractor's disclosure state. (E) Management support of the pro

ment (see § 1-3.1203(a)), submitted as gram review including approval of the

a condition of contracting, adequately estimate, controls established to ensure

describes the actual or proposed cost consistent compliance with estimating procedures; and personnel training and

accounting practices as required by Public Law 91-379, 50 U.S.C. App. 2168,

implemented by the Cost Accounting (F) The extent of coordination and communication between the various ele

Standards Board;

(11) A contractor's disclosed cost acments of the contractor's organization counting practices are in compliance

with Part 1-15 and applicable Cost Ac(1) If the contractor's estimating systems or methods are not acceptable

counting Standards; to the Government, the contracting of

(10) A contractor's or subcontractor's failure to comply with applicable Cost 203

accurate:

port the estimate;

evaluation programs; and

as

responsible for the estimate.

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of these judgment factors to specific
posals

. The consistent preparation
proposals in accordance with an acc
able estimating system is of mate
benefit in ensuring both the contra
and the Government that proposals
realistically and reasonably priced,
the $ 1-3.807–3 requirements for utili:
current, accurate, and complete cost
pricing data in developing the prop
are met, and that underestimating
overestimating of contract costs are n
imized. Some of the advantages of so
estimating procedures are: a greater
gree of confidence can normally
placed in the accuracy and reliabilit
contractors' individual proposals; it

ide dis statement, as prescribed by agency protakes of cedures or regulations, to the effect that ons, and the notice constitutes a final decision d in the of the contracting officer, the effective support date of such decision, the contractor's

right to appeal therefrom, and the speontract cific procedure to be followed if the conew of a tractor decides to make such an appeal. requires (il) The contract auditor shall be recost es sponsible for performing audits of con

plants tracts in which pricing or payment is ws per based upon cost or other financial Infor. -), such mation furnished by the contractor, gh audit when such audit is required or considered sity for desirable. accord (iii) The contract auditor shall be re

prime sponsible for making appropriate recomews are mendations to the contracting officer -hrough concerning the establishment of over

head rates (billing, provisional, or premade a

determined), when such rates are pro

vided for in the contract (see Subpart -e con 1-3.7, Negotiated Overhead Rates). burse (2) Preaward surveys (see $ 1-1.310-9) burse of potential contractor's competence to atracts, perform proposed contracts shall be arr reim

ranged by the contracting officer. Where aterials information is required on the adequacy ated or of the contractor's accounting system or

its suitability for administration of the eriodic proposed type of contract, such informaated by tion shall always be obtained by the coneliabil

tracting officer from the auditor (see experi § 1-3.801-3(b) (3)). The contracting ofg sys ficer shall be responsible for compliance udited with the agency's implementing policies nall be and procedures concerning the contrac

times tor's financial competence or credit needs irable. (see also $ 1-1.310), ndered (3) (i) The establishment, mainteyearly. nance, and consistent use of formal cost t, ar estimating systems by contractors is to e con the mutual benefit of the Government actor's and industry, particularly where a large Es, and portion of the contractor's business is yment Government work and there are a numsburs ber of significant proposals requiring reques

view. Procuring activities should encourallow age contractors to formalize and follow acting good estimating procedures. It is recogcation nized that estimating procedures will if he vary among contractors, and may vary shall between plants or divisions of a contracwrit tor due to differences in products, size

sus and methods of operations, production vs. ase of research, and other factors. While formal lisap systems do not eliminate the need for d and judgmental factors to be applied by conannot tractors in developing cost proposals, o the they do provide a sound foundation for plete the systematic and orderly application

202

pedites the negotiation process; it
duces the amount of detailed explana
of estimating processes on each indi
ual proposal; and, as in the case of
well established practice regarding
ceptable accounting systems, reduces
scope of reviews performed by audit
other technical

and

procurer
personnel.

(ii) When an audit is performed
suant to $ 1-3.809(b) (1), the con
auditor shall determine whether the
tractor's estimating systems or met
are acceptable to the Govern
Among the matters to be considere
determining the acceptability of th
Himating systems or methods are

following:

(A) Responsibilities within the tractor's organization for originatin viewing, and approving estimates;

(B) Procedures followed in devel estimates for each of the direct an direct elements of cost;

(C) The source of data used in oping the estimates and in ensuring such data are current, complete

accurate;

(D) The documentation deve and maintained by the contractor tu port the estimate;

(E) Management support of the gram review including approval estimate, controls established to consistent compliance with estin procedures; and personnel trainin evaluation programs; and

(F) The extent of coordinatio communication between the vario ments of the contractor's organi responsible for the estimate.

() If the contractor's esth systems or methods are not acce to the Government, the contract.

of these judgment factors to specific pro ficer shall determine whether an estiposals. The consistent preparation of mating system survey should be underproposals in accordance with an accept taken as a team effort (including the able estimating system is of material contract auditor and other qualified benefit in ensuring both the contractor technical specialists) after consideration and the Government that proposals are of criteria such as: realistically and reasonably priced, that (A) The significance (including estithe $ 1-3.807-3 requirements for utilizing mated cost or price) of all present and current, accurate, and complete cost and estimated future Government procurepricing data in developing the proposal ments, provided, that if only a one-time are met, and that underestimating and procurement is involved, other appro. overestimating of contract costs are min priate methods may be used to establish Imized. Some of the advantages of sound the reliability and reasonableness of the estimating procedures are: a greater de contractor's cost or pricing data; gree of confidence can normally be (B) The benefits which might accrue placed in the accuracy and reliability of to the Government in view of the cost contractors' individual proposals; it ex of the survey: and pedites the negotiation process; it re (C) The findings and corrective acduces the amount of detailed explanation tions taken in connection with previous of estimating processes on each individ estimating surveys, if any. ual proposal; and, as in the case of the (iv) A copy of the survey report, towell established practice regarding ac gether with a copy of the official notice ceptable accounting systems, reduces the o! corrective action (see § 1-3.801-3(b) scope of reviews performed by audit and (3)) required, shall be furnished to each other technical

and

procurement agency procuring activity having busipersonnel.

ness with that contractor, and (upon re(ii) When an audit is performed pur quest) to other procurement agencies. suant to § 1-3.8091b) (1), the contract Any significant deficiencies in the system auditor shall determine whether the con not corrected by the contractor shall also tractor's estimating systems or methods be considered in subsequent proposal reare acceptable to the Government. views, and by contracting officers in neAmong the matters to be considered in gotiating with, and in determining the determining the acceptability of the es reasonableness of prices proposed by, timating systems or methods are the that contractor. Where these deficiencies following:

continue to exist and where they have ad(A) Responsibilities within the con verse effect on prices, the problem should tractor's organization for originating, re be brought to the attention of procureviewing, and approving estimates;

ment officials at a level necessary to bring (B) Procedures followed in developing

about corrective action. estimates for each of the direct and in

(4) In accordance with Subpart idirect elements of cost;

3.12, Cost Accounting Standards, and (C) The source of data used in developing the estimates and in ensuring that

Part 1-15, Contract Cost Principles and such data are current, complete, and

Procedures, the cognizant contract audiaccurate;

tor shall be responsible for making rec(D) The documentation developed ommendations to the contracting officer and maintained by the contractor to siip as to whether: port the estimate;

(1) A contractor's disclosure state(E) Management support of the pro ment (see § 1-3.1203(a)), submitted as gram review including approval of the a condition of contracting, adequately estimate, controls established to ensure describes the actual or proposed cost consistent compliance with estimating accounting practices as required by Pubprocedures; and personnel training and lic Law 91-379, 50 U.S.C. App. 2168, as evaluation programs; and

implemented by the Cost Accounting (F) The extent of coordination and Standards Board; communication between the various ele (11) A contractor's disclosed cost acments of the contractor's organization counting practices are in compliance responsible for the estimate.

with Part 1-15 and applicable Cost Ac(11) If the contractor's estimating counting Standards; systems or methods are not acceptable (14) A contractor's or subcontractor's to the Government, the contracting of failure to comply with applicable Cost

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ter the successful offeror is likely to
aze

, in effect, a sole source for fol-
Ten procurement.
b) When it is anticipated that such

alation of proposals for the procure-
ist of an item, the request for pro-
pals shall require the offeror to pro-
te the following information:
D) An estimate of the total of such

PE con public, or prices set by law or regula # Since an offeror may propose a inting tion (see § 1-3.807-1), or (1) Information

ashlch does not include all preult in already available is adequate for the

naction and startup or other nonre 1: vern proposed procurement (see $ 1-3.809(b)

mong costs for the purpose of obtain tia (1) (1)); .ctor's

The first production contract and of (5) A summary of the contractor's pro

ning an advantage over competitors | as a posal, the pertinent advisory audit re

negotiations for future procurements, y disport recommendations, and the reasons

13 important to know whether the inting for variation (if any) from such recom

ing

ter intends to absorb any portion of mendations:

2 costs or whether he plans to reded at (6) The most significant facts or con.

CE

them in connection with subse43058, siderations controlling the establishment

Et pricing actions under the proposed of the initial, revised, or final price; and

tuture contracts. This information is n. (7) Appropriate explanation (in fixed

eland in evaluating competing pro

С price type contracts) where the total ble to

talk to determine which proposal is price negotiated differs significantly from ed in

is likely to result in the lowest overall the total price objective. or be

it to the Government, particularly (b) Whenever an audit review has agen

been made pursuant to § 1-3.809, the nity of

contracting officer shall forward a copy or ex

of the record of negotiation to the cogni.
zant contract audit office, for use by that will be a significant factor in the

office and the auditor to improve the useiation.

fulness of the audit work and related reegotia ports to negotiation officials. Where ap

price, propriate, the negotiation memorandum are & should include (or be supplemented by) ncipal information on how the contract audit n, for

advisory services can be made more elnd for

fective in future negotiatio with this Es. The

(or other) contractor(s). lowing

(84 F.R. 2864, Feb. 27, 1989) ole: aniza § 1–3.812 Disposition of postaward e con

audits.

An auditor's advisory report of postcion;

award reviews of cost or pricing data may quired

result either from a specific request of a nant to

contracting officer (see 1-3.807-5(c)) etively,

or from audit action initiated independextent

ent of a contracting officer's request. The cost or

contracting officer shall prepare a memo. ot use

randum on each audit report indicate; and

ing (a) whether defective data was subon that

mitted and relied upon (see § 1-3.811). ted by and (b) the results of any contract ac. ncom tion taken. A copy of the memorandum ken by shall be forwarded to the auditor issuing cractor the report. of such

(34 FR 2664, Feb. 27, 1969] ated. not re

f 1-3.813 P'reproduction and startup egotia

and other nonrecurring costs. noran (a) Estimates of preproduction and of the startup costs include such costs as pree price production engineering, special tooling, equate special plant rearrangement, training alog or programs, and such nonrecurring costs as sold as initial rework, initial spoilage, and general pilot runs.

204

The extent to which these costs
si included in the proposed price; and
3) The intent to absorb, or plan for
watery

, of any remaining costs. When
sterling into a contract with an offeror
Tho has indicated that he intends to ab-
srb any portion of these costs, the con-
net shall expressly provide that such
portion will not be charged to the Gov
inment in any future noncompetitiv

rocurement or other pricing action. | 11-3.814 Contract clauses.

Where any cost or pricing data is r mired in accordance with $ 1-3.807the applicable clauses in $$ 1-3.814. 1-3.814-2, and 1-3.814-3 shall be includ

o the solicitation and in any resulta
contract (see $ 1-3.807-3(i)).

| 133 PR. 1754, Jan. 14, 1974)
11-3.814-1 Price reduction for de

tive cost or pricing data.
() Except as provided in § 1-3.
186), the following clause shall be
cluded in (1) all negotiated conti
which when entered into exceed $100
other negotiated contracts for w
in connection with the initial prici
the contract, (i) a certificate of c
pricing data is required in accor
with $ 1-3.807-3(c), or (ii) partia
or pricing data is obtained in accoi

with $ 1-3.807-3.

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