Accounting Standards or to follow consistently his disclosed cost accounting practices has resulted or may result in any increased cost paid by the Government; and

(iv) A contractor's or subcontractor's proposed price changes, submitted as a result of changes made to previously disclosed or established cost accounting practices, are fair and reasonable.

[34 F.R. 2662, Feb. 27, 1969, as amended at 37 FR 13092, July 1, 1972; 39 FR 43058, Dec. 10, 1974]

§ 1-3.810 Exchange of information.

In appropriate cases it is desirable to exchange and coordinate specialized information regarding a contractor between procurement activities or agencies, since it will provide uniformity of treatment of major issues (see, for example, §§ 1-3.705 and 1-3.706). [34 F.R. 2664, Feb. 27, 1969] § 1-3.811

Record of price negotiation.

(a) At the conclusion of each negotiation of an initial, revised, or final price, the contracting officer shall prepare a memorandum setting forth the principal elements of the price negotiation, for Inclusion in the contract file and for the use of any reviewing authorities. The memorandum shall include the following information, to the extent applicable:

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

(2) The purpose of the negotiation; (3) If cost or pricing data was required to be submitted and certified pursuant to §§ 1-3.807-3 and 1-3.807-4, respectively, the memorandum shall reflect the extent to which the contracting officer:

(1) Did not rely on the factual cost or pricing data submitted and did not use such data in negotiating the price; and

(11) Recognized in the negotiation that any cost or pricing data submitted by the contractor was inaccurate, incomplete, or noncurrent; the action taken by the contracting officer and the contractor as a result; and the effect, if any, of such defective data on the price negotiated.

(4) If cost or pricing data was not required in the case of any price negotiation in excess of $100,000, the memorandum shall include a statement of the basis for determining that (i) the price resulted from or was 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 (see § 1-3.807-1), or (ii) information already available is adequate for the proposed procurement (see § 1-3.809(b) (1) (1));

(5) A summary of the contractor's proposal, the pertinent advisory audit report recommendations, and the reasons for variation (if any) from such recommendations:

(6) The most significant facts or considerations controlling the establishment of the initial, revised, or final price; and

(7) Appropriate explanation (in fixedprice type contracts) where the total price negotiated differs significantly from the total price objective.

(b) Whenever an audit review has been made pursuant to § 1-3.809, the contracting officer shall forward a copy of the record of negotiation to the cognizant contract audit office, for use by that office and the auditor to improve the usefulness of the audit work and related reports to negotiation officials. Where appropriate, the negotiation memorandum should include (or be supplemented by) information on how the contract audit advisory services can be made more effective in future negotiations with this (or other) contractor(s). [34 F.R. 2664, Feb. 27, 1969]

§ 1-3.812 Disposition of postaward audits.

An auditor's advisory report of postaward reviews of cost or pricing data may result either from a specific request of a contracting officer (see § 1-3.807-5(c)) or from audit action initiated independent of a contracting officer's request. The contracting officer shall prepare a memorandum on each audit report indicating (a) whether defective data was submitted and relied upon (see § 1-3.811), and (b) the results of any contract action taken. A copy of the memorandum shall be forwarded to the auditor issuing the report.

(b) Since an offeror may propose a price which does not include all preproduction and startup or other nonrecurring costs for the purpose of obtaining the first production contract and of gaining an advantage over competitors In negotiations for future procurements, it is important to know whether the offeror intends to absorb any portion of these costs or whether he plans to recover them in connection with subsequent pricing actions under the proposed or future contracts. This information is needed in evaluating competing proposals to determine which proposal is most likely to result in the lowest overall cost to the Government, particularly where the successful offeror is likely to become, in effect, a sole source for follow on procurement.

(c) When it is anticipated that such costs will be a significant factor in the evaluation of proposals for the procurement of an item, the request for proposals shall require the offeror to provide the following information:

(1) An estimate of the total of such costs;

(2) The extent to which these costs are included in the proposed price: and

(3) The intent to absorb, or plan for recovery, of any remaining costs. When entering into a contract with an offeror who has indicated that he intends to absorb any portion of these costs, the contract shall expressly provide that such portion will not be charged to the Government in any future noncompetitive procurement or other pricing action.

§ 1-3.814 Contract clauses.

Where any cost or pricing data is required in accordance with § 1-3.807-3, the applicable clauses in §§ 1-3.814-1, 1-3.814-2, and 1-3.814-3 shall be included in the solicitation and in any resultant contract (see § 1-3.807-3 (i)). [39 FR 1754, Jan. 14, 1974]

§ 1-3.814-1 Price reduction for defective cost or pricing data.

(a) Except as provided in § 1-3.8073(b), the following clause shall be included in (1) all negotiated contracts which when entered into exceed $100,000, (2) other negotiated contracts for which, in connection with the initial pricing of the contract, (i) a certificate of cost or pricing data is required in accordance with § 1-3.807-3 (c), or (ii) partial cost or pricing data is obtained in accordance with § 1-3.807-3.

PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA

If any price, including profit or fee, negotiated in connection with this contract or any cost reimbursable under this contract was increased by any significant sums be

cause:

(a) The Contractor furnished cost or pricing data which was not accurate, complete and current as certified in the Contractor's Certificate of Current Cost or Pricing Data;

(b) A subcontractor, pursuant to the clause of this contract entitled "Subcontractor Cost or Pricing Data" or "Subcontractor Cost or Pricing Data-Price Adjustments" or any subcontract clause therein required, furnished cost or pricing data which was not accurate, complete and current as certified in the subcontractor's Certificate of Current Cost or Pricing Data;

(c) A subcontractor or prospective subcontractor furnished cost or pricing data which was required to be accurate, complete and current and to be submitted to support a subcontract cost estimate furnished by the Contractor but which was not accurate, complete and current as of the date certified in the Contractor's Certificate of Current Cost or Pricing Data; or

(d) The Contractor or a subcontractor or prospective subcontractor furnished any data, not within (a), (b) or (c) above, which was not accurate as submitted; the price or cost shall be reduced accordingly and the contract shall be modified in writing as may be necessary to reflect such reduction. However, any reduction in the contract price due to defective subcontract data of a prospective subcontractor when the subcontract was not subsequently awarded to such subcontractor, will be limited to the amount (plus applicable overhead and profit markup) by which the actual subcontract, or actual cost to the Contractor if there was no subcontract, was less than the prospective subcontract cost estimate submitted by the Contractor: Provided, The actual subcontract price was not affected by defective cost or pricing data.

(NOTE: Since the contract is subject to reduction under this clause by reason of defective cost or pricing data submitted in connection with certain subcontracts, it is expected that the Contractor may wish to include a clause in each such subcontract requiring the subcontractor to appropriately indemnify the Contractor. It is also expected that any subcontractor subject to such indemnification will generally require substantially similar indemnification for defective cost or pricing data required to be submitted by his lower tier subcontractors.)

(b) The following clause shall be included in all contracts, both formally advertised and negotiated, which when entered into exceed $100,000, other than those described in § 1-3.814-1(a) (1) and (2) However, the clause need not be included where, in accordance with

§ 1-3.807-3(b), the requirement for obtaining cost or pricing data has (1) not been applied to a cost contract of the type specified therein, or (2) been waived by the head of the agency. In addition, the clause, with dollar amounts appropriately reduced, shall be included in contracts of this type which do not exceed $100,000 where any cost or pricing data is required in accordance with § 1-3.807-3 in connection with the pricing of contract modifications.

PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA-PRICE ADJUSTMENTS

(a) This clause shall become operative only with respect to any modification of this contract which involves aggregate increases and/or decreases in costs plus applicable profits in excess of $100,000 unless the modification is priced on the basis of 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. The right to price reduction under this clause is limited to defects in data relating to such modification.

(b) If any price, including profit, or fee, negotiated in connection with any price adjustment under this contract was increased by any significant sums because:

(1) The Contractor furnished cost or pricing data which was not accurate, complete and current as certified in the Contractor's Certificate of Current Cost or Pricing Data; the clause of this contract entitled "Subcontractor Cost or Pricing Data" or "Subcontractor Cost or Pricing Data-Price Adjustments" or any subcontract clause therein cost required, furnished or pricing data which was not accurate, complete and current as certified in the subcontractor's Certificate of Current Cost or Pricing Data;

(2) A subcontractor, pursuant to

(3) A subcontractor or prospective subcontractor furnished cost or pricing data which was required to be accurate, complete and current and to be submitted to support a subcontract cost estimate furnished by the Contractor but which was not accurate, complete and current as of the date certified in the Contractor's Certificate of Current Cost or Pricing Data; or

(4) The Contractor or a subcontractor or prospective subcontractor furnished any data, not within (1), (2) or (3) above, which was not accurate, as submitted; the price shall be reduced accordingly and the contract shall be modified in writing as may be necessary to reflect such reduction. However, any reduction in the contract price due to defective subcontract data of a prospective subcontractor, when the subcontract was not subsequently awarded to such subcontractor, will be limited to the amount (plus applicable overhead and profit markup) by

which the actual subcontract, or actual cost to the Contractor if there was no subcontract, was less than the prospective subcontract cost estimate submitted by the Contractor: Provided the actual subcontract price was not affected by defective cost or pricing data.

(NOTE: Since the contract is subject to reduction under this clause by reason of defective cost or pricing data submitted in connection with certain subcontracts, it is expected that the Contractor may wish to include a clause in each such subcontract requiring the subcontractor to appropriately indemnify the Contractor. It is also expected that any subcontractor subject to such indemnification will generally require substantially similar indemnification for defective cost or pricing data required to be submitted by his lower tier subcontractors.)

(c) The requirement for inclusion of the clauses in paragraphs (a) and (b) of this § 1-3.814-1 in contracts with foreign governments or agencies thereof may be waived in exceptional cases where the head of the agency or his designee authorizes such waiver and states in writing his reasons for such determination. [34 FR 2664, Feb. 27, 1969, as amended at 39 FR 1754, Jan. 14, 1974] § 1-3.814-2

Audit and records.

(a) The following clause shall be included in all contracts, both formally advertised and negotiated, which contain the contract clause in either § 1-3.814-1 (a) or (b) and may be used to determine the allowability of costs under cost-reimbursement type contracts.

AUDIT

(a) General. The Contracting Officer or his representatives shall have the audit and inspection rights described in the applicable paragraphs (b), (c) and (d) below.

(b) Examination of costs. If this is a cost-reimbursement type, incentive, time and materials, labor hour, or price redeterminable contract, or any combination thereof, the Contractor shall maintain, and the Contracting Officer or his representatives shall have the right to examine books, records, documents, and other evidence and accounting procedures and practices, sufficient to reflect properly all direct and indirect costs of whatever nature claimed to have been incurred and anticipated to be incurred for the performance of this contract. Such right of examination shall include inspection at all reasonable times of the Contractor's plants, or such parts thereof, as may be engaged in the performance of this contract.

(c) Cost or pricing data. If the Contractor submitted cost or pricing data in connection with the pricing of this contract or any change or modification thereto, unless

such pricing was 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, the Contracting Officer or his representatives who are employees of the United States Government shall have the right to examine all books, records, documents and other data of the Contractor related to the negotiation, pricIng or performance of such contract, change or modification, for the purpose of evaluating the accuracy, completeness and currency of the cost or pricing data submitted. Additionally, in the case of pricing any change or modification exceeding $100,000 to formally advertised contracts, the Comptroller General of the United States or his representatives who are employees of the United States Government shall have such rights. The right of examination shall extend to all documents necessary to permit adequate evaluation of the cost or pricing data submitted, along with the computations and projections used therein.

(d) Availability. The materials described in (b) and (c) above, shall be made available at the office of the Contractor, at all reasonable times, for inspection, audit or reproduction, until the expiration of 3 years from the date of final payment under this contract or such lesser time specified in Part 1-20 of the Federal Procurement Regulations (41 CFR Part 1-20) and for such longer period, if any, as is required by applicable statute, or by other clauses of this contract, or by (1) and (2) below:

(1) If this contract is completely or partially terminated, the records relating to the work terminated shall be made available for a period of 3 years from the date of any resulting final settlement.

(2) Records which relate to appeals under the "Disputes" clause of this contract, or litigation or the settlement of claims arising out of the performance of this contract, shall be made available until such appeals, litigation, or claims have been disposed of. (e) The Contractor shall insert a clause containing all the provisions of this clause, including this paragraph (e). in all subcontracts hereunder except altered as necessary for proper identification of the contracting parties and the Contracting Officer under the Government prime contract.

(b) The requirement for inclusion of the clause in paragraph (a) of this § 1-3.814-2 may be waived for contracts with foreign governments or agencies thereof under circumstances where the requirement for the clauses in §§ 1-3.814-1 and 1-3.814-3 may be waived.

(c) Except as otherwise provided in Subpart 1-6.10 of this chapter, or when independent authority exists for the omission of the clause, the clause in § 17.103-3 shall be inserted in all negotiated fixed-price contracts in excess of $10,000,

including contracts awarded under a total set-aside small business restricted advertising, as defined in § 1-1.701-9, or a partial small business restricted advertising set aside (see §§ 1-1.706 and 11.804), and a clause containing substantially the same provisions shall be included in all other negotiated contracts in excess of $10,000 (the clause prescribed by § 1-7.103-3 of this chapter satisfies this requirement). In addition, the right of the contracting agency to inspect the plant and to audit the books and records of any prime contractor or subcontractor engaged in the performance of a costtype contract shall be expressly reserved in any such contract. The audit clause in this § 1-3.814-2(a) may be used for that purpose.

[39 FR 1755, Jan. 14, 1974, as amended at 41 FR 19312, May 12, 1976] § 1-3.814-3

ing data.

Subcontractor cost or pric

(a) Where the clause in § 1-3.814-1(a) is included in contracts in excess of $100,000, the clause in this § 1-3.814-3 (a) also shall be included. In addition, the clause, appropriately modified, may be Included in contracts of $100,000 or less which contain the clause in § 1-3.8141(a).

SUBCONTRACTOR COST OR PRICING Data

(a) The Contractor shall require subcontractors hereunder to submit, actually or by specific identification in writing, cost or pricing data under the following circumstances:

(1) Prior to the award of any subcontract the amount of which is expected to exceed $100,000 when entered into;

(2) Prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price 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.

(b) The Contractor shall require subcontractors to certify, in substantially the same form as that used in the certificate by the Prime Contractor to the Government, that to the best of their knowledge and belief, the cost and pricing data submitted under (a) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(c) The Contractor shall insert the substance of this clause including this paragraph (c) in each subcontract hereunder which exceeds $100.000 when entered into except where the price thereof 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. In each such excepted subcontract hereunder in excess of $100,000, the Contractor shall insert the substance of the following clause: SUBCONTRACTOR COST OR PRICING Data

PRICE ADJUSTMENTS

(a) Paragraphs (b) and (c) of this clause shall become operative only with respect to any modification made pursuant to one or more provisions of this contract which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000. The requirements of this clause shall be limited to such contract modifications.

(b) The Contractor shall require subcontractors hereunder to submit, actually or by specific identification in writing, cost or pricing data under the following circumstances:

(1) Prior to award of any subcontract, the amount of which is expected to exceed $100,000 when entered into;

(2) Prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price 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.

(c) The Contractor shall require subcontractors to certify, in substantially the same form as that used in the certificate by the Prime Contractor to the Government, that to the best of their knowledge and belief the cost and pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract hereunder which exceeds $100,000 when entered into.

(b) Where the clause in § 1-3.814-1 (b) is included in contracts in excess of $100,000, the clause in this § 1-3.814-3 (b) also shall be included. In addition, the clause, appropriately modified, may be included in contracts of $100,000 or less which contain the clause in § 1-3.814-1(b).

SUBCONTRACTor Cost oR PRICING DATA-PRICE ADJUSTMENTS

(a) Paragraphs (b) and (c) of this clause shall become operative only with respect to any modification made pursuant to one or more provisions of this contract which involves aggregate increases and/or decreases in costs plus applicable profits expected to

exceed $100,000. The requirements of this clause shall be limited to such modifications. (b) The Contractor shall require subcontractors hereunder to submit cost or pricing data under the following circumstances:

(1) Prior to the award of any subcontract the amount of which is expected to exceed $100,000 when entered into;

(2) Prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price 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.

(c) The Contractor shall require subcontractors to certify that to the best of their knowledge and belief the cost or pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract which exceeds $100,000.

(c) The requirements for inclusion of the clauses in paragraphs (a) and (b) of this § 1-3.814-3 in contracts with foreign governments or agencies thereof may be waived where the head of the agency or his designee authorizes such waiver and states in writing his reasons for such determination.

[30 FR 6584, May 13, 1965, as amended at 39 FR 1755, Jan. 14, 1974]

Subpart 1-3.9—Subcontracting
Policies and Procedures

(a) Information as to the contractor's "make-or-buy" program, purchasing system, and proposed subcontracts may be important to (1) negotiation of reasonable contract prices (see §§ 1-3.807-10 and 1-3.808-2(h)), (2) assurance of satisfactory contract performance or (3) carrying out Government policies regarding small business (see § 1-1.710–1), labor surplus areas (see § 1-1.805-1), acquisition and use of Government facilitles, maintenance of mobilization base, or other policies which may be appropri