priate price redetermination article shall be used in fixed-price contracts in those instances where: (1) There are insufficient data to indicate reasonableness of price. (2) The estimate of the low offeror, or the only offeror, exceeds the independent Government estimate by an unreasonable amount. (3) It is necessary or desirable to eliminate charges for contingencies from the price offered. (4) There are other circumstances which require protection of the interests of the Government by use of a price redetermination provision. The length of the contract period is an important factor to be considered in determining whether to provide for price redetermination. As a general rule, the longer the contract period, the greater may be the need for price redetermination. Thus, in contracts running for a year or more, a price redetermination article may well be the most appropriate means of properly protecting the Government's interest. In instances where deliveries will be made over a period of two or more years, it is generally desirable to provide for price redetermination on an annual basis as a minimum requirement.

(b) The price redetermination article set forth in AECPR 9-7.5006-34 permits upward as well as downward redetermination. Under such circumstances, provision is made for setting a limit on the amount of any upward price revision by fixing a ceiling price for the contract. Where upward price redetermination is allowed, a ceiling price should be set in order to encourage the contractor to perform efficiently. The range of allowable upward price revisions from the contract or target price (which should contain substantially no allowance for contingencies) to the ceiling price should be a reasonable measure of the contingencies against which the contractor is being protected. Any costs allowed the contractor in price redetermination above the contract or target price should be without profit. An upward price revision of 10 percent of the target price is generally regarded as a reasonable limit and, except for unusual circumstances, 20 percent should be considered the maximum allowable limit.

(c) The profit margin included in the original contract price should be a reasonable measure of the risk being assumed by the contractor. Thus, where there is evidence of close pricing in the original contract price, subject to downward redetermination only, the contractor is deserving of a larger profit margin than would be the case where such contract price is known to include a substantial contingency allowance. Simi. larly, the greater the spread between the contract or target price and the ceiling price, the greater the extent to which, as a general rule, the Government is assuming contingent risks, and the lower the profit margin should be. Again, in a case where provision is made for a single price redetermination during the contract period, the later such redetermination is effected, the greater usually is the percentage that actual costs constitute of total costs, as redetermined, and consequently the lower the profit margin should be. Normally, the profit included in the original contract price is carried through price redetermination. However, if the contractor has performed an especially efficient and economical job, he should be rewarded with an increased profit margin, and conversely, when this performance has been below reasonable standards, his profit margin should be reduced.

(d) Before agreeing to the use of a specific price redetermination article, the fact that the contractor has a cost accounting system of sufficient accuracy and reliability to allow the development of the cost information required by the provision of such article should be established. The price redetermination article provides for such examination and audit of the books, records, and accounts of the contractor as the Contracting Officer may deem necessary. The need and extent of such review of a contractor's accounting records is a matter of judgment to be determined in the light of such relevant factors as: (1) The nature and acceptability of cost and other data submitted by the contractor, (2) knowledge of the contractor's accounting policies and cost system, (3) reliability of the contractor's data on the basis of previous experience with the contractor, (4) any

unusual circumstances which might affect the Government's interests, and (5) dollar amount of the contract.

(e) Ceiling or maximum prices must be established at figures which will provide an effective incentive for economical performance. Accordingly, the need for close estimating in establishing maximum prices cannot be overemphasized. Abnormally high "ceilings," "maximum prices" or "upset prices" have the potential disadvantages of cost-plus-a-percentage-of-cost contracting which must be avoided.

(f) In order to keep the maximum price closely related to the cost of work currently required under the contract, provision should be made for adjusting the initial maximum price in the event of subsequent changes in quantity, plans or specifications, delivery schedule, or other elements of the scope of the work.

(g) At the point agreed upon for redetermining the price, the firm price to be agreed upon may include an adjustment of the original profit. Such adjustment of profit is not to be based on a percentage of cost contractually established in advance, but should reflect a fair return to the contractor which takes into account his performance, cost reductions, degree of risk or other incentive factors.

(h) (1) Multiple price redetermination, upward or downward, is accomplished by use of the article set forth in § 9-7.5006.34 with both subparagraphs (1) and (2) of paragraph (a) of this section included. Subparagraph (1) provides for a negotiated upward or downward redetermination of unit prices upon completion of delivery of a specified percentage of the principal items called for by the contract. Thereafter, under subparagraph (2), there may be upward or downward revision of prices upon the written demand of either party, subject to specified limitations on the frequency of such demands. The initial (mandatory) price redetermination is retroactive to the start of the contract period as well as prospective in its application; any subsequent redeterminations have a prospective effect only. This form of price redetermination is especially suitable for a supply contract where the quantity under procurement is large, the delivery schedule calls for deliveries over a prolonged period (usually over a year), and an accurate forecast of production costs is not feasible.

(2) This Article readily lends itself to modifications to meet the special needs of different situations where price redetermination, wholly or partly prospective in effect, is desirable. Thus, it might be considered desirable (or the contractor might insist) that price redeterminations be made at specified regular intervals, rather than at irregular intervals upon the demand of either party, after the initial price revision (in which event, subparagraph (2) of paragraph (a) should be reworded to specify the redetermination or target dates after the initial price redetermination); or that only one price redetermination upward or downward be made at a specified point in the contract period (in which event, subparagraph (2) of paragraph (a) should be omitted); or, further, that only one price redetermination downward only be made at a specified point in the contract period (in which event, subparagraph (2) of paragraph (a) should be omitted and the change noted in footnote 1 to the article should be made). Where provision is made for only one price revision during the contract period, such revision should be both retroactive and prospective in effect. In a case where only one or a limited number of price redeterminations will be allowed, care should be taken in setting the points of redetermination or target dates so that the contractor will have had sufficient production experience by each target date to develop actual cost information on the basis of which reasonable prices can be set for the next prospective period. For example, where provision is made for a single price redetermination, the target date should be so set that the contractor will be able to get through the startingup period, when costs are usually high, and be able to operate for a few months at the maximum capacity called for by the delivery requirements of the contract, when costs should be typical of expected experience for the balar.ce of the contract, before he will have to draw off his actual cost experience for price revision. A target date set at 40 percent to 50 percent of completion of deliveries is usually considered desirable under such circumstances.

(i) Single price redetermination downward only, wholly retroactive. This form of price redetermination is accomplished by omitting subparagraph (2) of paragraph (a) and making the

changes noted in footnotes 2 and 5 to the article, thereby providing for a single, negotiated, downward redetermination, wholly retroactive, after completion or termination of the contract. The price redetermination article, so modified, is designed primarily for use in small to moderate-sized contracts (approximately $100,000 or less) for experimental or developmental items or services. However, it may also be used in contracts of similar size for the procurement of any item or service when it is not possible to determine reasonableness of price at the time of negotiation.

(j) Single price redetermination upward or downward, wholly retroactive. This form of price redetermination is accomplished by omitting subparagraph (2) of paragraph (a) and making the change noted in footnote 5 to the article, thereby providing for a single, negotiated, upward or downward redetermination, wholly retroactive, after completion or termination of the contract. The price redetermination article, so modified, is designed for use in negotiated contracts for supplies or services, where the quantity under procurement may be either moderate or large, and where the contract period is not extended (usually less than a year) so that it is not feasible to attempt to redetermine the contract price during the period of the contract. Care should be taken to agree upon a contract or target price that will require the contractor to do an efficient job, and, since redetermination is wholly retroactive, it is essential that a limit be placed on any upward price revisions (normally an amount not in excess of 10 percent of the contract or target price).

[28 F.R. 2499, Mar. 14, 1963. Redesignated at 30 F.R. 6683, May 15, 1965]

(i) There is inadequate time to prepare, or other circumstances prevent the preparation of, plans and specifications that are sufficiently firm to provide assurance against an excessive number of change orders due to errors, discrepancies, omissions, and inadequate details. When the number of change orders increases, the advantages inherent in the fixed price form of contracting tend to disappear.

(ii) The work involves developmental or experimental services of such a scope or duration as to make likely an excessive number of change orders or developmental or experimental services related to the work under the contract are being performed by another contractor at the same time.

(iii) The standards of performance (e.g., extremely high standards of cleanliness, purity or quality control) are so much higher than normal industrial standards as to make it impracticable to prepare appropriate specifications clearly describing the standards required.

(b) The authority to determine under FPR 1-3.405–5(d) (1) (ix) that the application of the policy of limiting interim payments or cost reimbursement type contracts to 80 percent of costs incurred would impose undue hardship on the contractor or adversely affect the interests of the Government is delegated to Managers of Field Offices.

[28 F.R. 2498, Mar. 14, 1963, as amended at 30 F.R. 6683, May 15, 1965]

Subpart 9-3.6-Small Purchases SOURCE: The provisions of this Subpart 9-3.6 appear at 25 F.R. 14034, Dec. 31, 1960.

§ 9-3.600 Scope of subpart.

The policies and procedures for the purchase of supplies and non-personal services from commercial sources when the aggregate amount involved in any one transaction does not exceed $2,500 shall be those prescribed in FPR 1-3.6. They are applicable only to AEC direct procurement.

[25 F.R. 14034, Dec. 31, 1960, as amended at 30 F.R. 6683, May 15, 1965]

§ 9-3.603-2 Data to support small purchases.

The manner of securing quotations and the nature and extent of documentation to be required for small purchases are for determination by Heads of Divisions and Offices, Headquarters, and Managers of Operations, but should be limited to a minimum consistent with the objective of reducing the cost of handling small purchases. Normally, confirmation of purchase orders issued after the material has been received should not be required unless such confirmation is requested by the supplier. Documentation can be accomplished by the purchaser and receiver endorsing the invoice.

§ 9–3.604 Imprest funds (petty cash) method.

§ 9-3.604-3 Agency responsibilities.

The procedures for the establishment and use by the AEC of imprest funds are set forth in AEC Manual 1120-13. § 9-3.605-1 Standard Form 44.

The use of Standard Form 44 is optional within the AEC. Contracting and procurement officers shall be held accountable for books of Standard Form 44 issued to them. Heads of Divisions and Offices, Headquarters, and Managers of Operations shall issue detailed instructions, consistent with the provisions in Standard Form 44 and FPR 1-3.605-1, providing for accountability and safeguarding of the forms when used. Contracting and procurement officers, when using this form, will obtain any necessary obligation of funds and will limit procurement actions to items not otherwise restricted by law or regulation.

§ 9-3.605-2 Standard Forms 147 and 148.

The use of Standard Forms 147 and 148 is optional within the AEC. When in the judgment of the Director, Headquarters Services, or Managers of Operations the use of the forms will simplify the procurement process, they may authorize the use of the forms.