(ii) Records which relate to (A) appeals under the "Disputes" clause of this contract, (B) litigation or the settlement of claims arising out of the performance of this contract, or (C) costs and expenses of this contract as to which exception has been taken by the Contracting Officer or any of his duly authorized representatives, shall be retained until such appeals, litigation, claims, or exceptions have been disposed of.

(d) (1) The Contractor shall insert the substance of this clause, including the whole of this paragraph (d), in each subcontract hereunder that is not firm fixed-price of fixed-price with escalation. When so inserted, changes shall be made to designate the higher-tier subcontractor at the level involved in place of the Contractor; to add "of the Government prime contract" in place of "this contract" in (B) of paragraph (c) above.

(2) The Contractor shall insert the substance of the following clause in each firm fixed-price or fixed-price with escalation subcontract hereunder which when entered into exceeds $100,000, except those subcontracts covered by subparagraph (3) below:

AUDIT

(a) For purposes of verifying that certified cost or pricing data submitted in conjunction with the negotiation of this contract or any contract change or other modification involving an amount in excess of $100,000 was accurate, complete, and current, the Contracting Officer of the Government prime contract, or his authorized representatives, shall, until the expiration of 3 years from the date of final payment under this contract, or of the time periods for the particular records specified in Part 1-20 of the Federal Procurement Regulations (41 CFR Part 1-20), whichever expires earlier, have the right to examine those books, records, documents, papers, and other supporting data which involve transactions related to this contract or which will permit adequate evaluation of the cost or pricing data submitted, along with the computations and projections used therein.

(b) The subcontractor agrees to insert this clause, including this paragraph (b), in all subcontracts hereunder which when entered into exceed $100,000 unless 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.

(3) The Contractor shall insert the following clause in each firm fixedprice or fixed-price with escalation subcontract hereunder which when entered into exceeds $100,000 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.

AUDIT-PRICE ADJUSTMENTS

(a) This clause shall become operative only with respect to any change or other modification of this contract, which involves a price adjustment in excess of $100,000 unless the price adjustment 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: PROVIDED. That such change or other modification to this contract must result from a change or other modification (1) to the Government prime contract, or (2) authorized under the provisions of the Government prime contract.

(b) For purposes of verifying that any certified cost or pricing data submitted in conjunction with a contract change or other modification were accurate, complete, and current, the Contracting Officer of the Government prime contract, or his authorized representatives, shall, until the expiration of 3 years from the date of final payment under this contract, or of the time periods for the particular records specified in Part 1-20 of the Federal Procurement Regulations (41 CFR Part 1-20),whichever expires earlier, have the right to examine those books, records, documents, papers, and other supporting data which involve transactions related to this contract or which will permit adequate evaluation of the cost or pricing data submitted, along with the computations and projections used therein.

(c) The subcontractor agrees to insert the substance of this clause including this paragraph (c) in all subcontracts hereunder which when entered into exceed $100,000.

Preparation Instructions

(Due in the office of the addressee in 2 copies not later than the 15th of the following month.)

1. For Month Ended. Delete month and insert "quarter" if contractor is reporting quarterly. Enter the ending date of the contractor's accounting month, e.g., July 31, July 25, etc.

2. No. of Work Days. Enter the number of work days included in the accounting period (month or quarter) being reported, e.g., 20 days, 61 days, etc.

3. Contract No. Enter the complete letter symbol or contract symbol, number, and number of the latest modification or amendment.

4. To. Enter the full name and address of the appropriate Federal Agency and organizational component or other designated recipient to whom the report is to be submitted.

5. From. Enter the full name and address of the contractor and, if applicable, the contractor's division performing the contract.

6. Contract Value. Enter the total definitized cost plus fee of all work to be performed under the contract as of the preparation date of the report. Include the most recent executed modification or amendment and indicate its number. For all incentive contracts, enter the total of the negotiated target cost and the target fee. For firm fixed-price contracts enter the total amount of the contract.

7. Contract Type. Enter the type of contract, e.g., Cost-Plus-Fixed-Fee, CostPlus-Incentive-Fee, Firm Fixed-Price, etc.

8. Funded Contract Amount. Enter, as of the preparation date of the report, the amount of contract funds made available for the work to be performed under the contract, including the most recent executed modification or amendment.

9. Amounts Billed. Enter the total amount of invoices billed by the contractor against this contract as of the preparation date of the report and the latest invoice number.

10. Program/Scope of Work. Enter a brief description of the program, contract scope of work, item or items purchased, or type of service being performed. 11. Signature and Title of Authorized Representative. The report should be signed by the authorized representative.

12. Preparation Date. Enter the preparation date of the report.

13. Payments Received. Enter the total amount of payments received by the contractor for this contract as of the preparation date of the report, excluding loans and advances outstanding.

14. Appropriation (or Fund Citation) and/or Reporting Category. Enter all appropriations or fund citations and/or the captions of the reporting categories where required under the terms of the contract. Where two or more appropriation sources are used for funding a single contract or line item and the contract specifies instructions for such reporting or segregation, data should be segregated by appropriation accounting reference. Line items or categories of additional information may be defined according to the needs of the Department or Agency, e.g., deliverable end-items, hardware systems, functional categories, elements of costs, performing organizations.

15. Costs Incurred/Contract Earnings. Enter in appropriate columns as defined below, the amounts of costs incurred or contract earnings on a line item basis as identified under the reporting category in column 14. The prime contractor is responsible for including the costs incurred or earnings of its subcontractors. The contractor should include all appropriate fees earned. Contractors reporting quarterly will delete the "monthly" references in columns 15a and b heading and insert "quarter".

a. Cumulative Actual End of Prior Month or Quarter. Enter the cumulative actual costs incurred or contractor earnings through the end of the prior accounting period (including fees earned on an equitable basis for all work performed under the contract) for all goods and services either delivered or undelivered, inplace or not in-place.

Reports which are prepared on a cash basis will be so identified by inserting the word "cash" in the columnar heading. The amounts reported in the column would be, for each reporting category, the cumulative disbursements incurred through the prior period.

b. Actual/Estimated Current Month or Quarter. Enter the actual or estimated costs incurred (including fees) or contractor earnings for the current period. All available pertinent actual cost data for the period will be used in developing the estimated figure.

Contractors preparing reports on a cash basis will provide the sum of the disbursements and the unpaid liabilities for each reporting category for the current period. If unpaid liabilities cannot be identified by reporting category, provide the aggregate amount as a single line item.

c. Cumulative Actual/Estimated to Date. Enter the actual or estimated total costs incurred (including fees) or contractor earnings through the end of the current accounting month or quarter (total of Columns 15a and 15b).

16. Planning Data (for Agency use only). These columns are provided for optional use by the Federal Agency to provide planning or other data considered desirable for management purposes. (The contractors should leave this blank.) 17. Total. Enter the totals of the respective columns.

Note. Any comments necessary to clarify the information contained in this report should be entered on the reverse of the form.

CLAUSE NO. 1-DEFINITIONS

As used throughout this contract, the following terms shall have the meanings set forth below:

(a) The term “Secretary” means the Secretary, the Under Secretary, or any Assistant Secretary of the Department of Health, Education, and Welfare; and the term "his duly authorized representative" means any person, persons, or board (other than the Contracting Officer) authorized to act for the Secretary.

(b) The term "Contracting Officer" means the person executing this contract on behalf of the Government, and any other officer or employee who is properly designated Contracting Officer; and the term includes, except as otherwise provided in this contract, the authorized representative of the Contracting Officer acting within the limits of his authority.

(c) The term "Project Officer" means the person representing the Government for the purpose of technical direction of contract performance. The Project Officer is not authorized to issue any instructions or directions which effect any increase or decrease in the cost of this contract or which change the period of performance of this contract.

(d) The term "Department" means the Department of Health, Education, and Welfare.

(c) Except as otherwise provided in this contract the term 'sub'contract" includes purchase orders under this contract.

CLAUSE NO. 2-DISPUTES

(c) Except as otherwise provided in this contract, the term "subcontract" question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contactor. The decision of the Contracting Officer shall be final and conclusive unless within 30 days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to the Contracting Officer a written appeal addressed to the Secretary. The decision of the Secretary or his duly authorized representative for the determination of such appeals shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer's decision.

(b) This "Disputes" clause does not preclude consideration of law questions in connection with decisions provided for in paragraph (a) above; Provided, That nothing in this contract shall be construed as making final the decision of any administrative officer, representative, or board on a question of law.

CLAUSE NO. 3-LIMITATION OF COST

(a) It is estimated that the total cost to the Government, exclusive of any fixed fee, for the performance of this contract will not exceed the estimated

cost set forth in this contract and the Contractor agrees to use its best efforts to perform all work and all obligations under this contract within such estimated cost. If at any time the Contractor has reason to believe that the costs which it expects to incur in the performance of this contract in the next succeeding sixty (60) days, when added to all costs previously incurred, will exceed seventy-five percent (75%) of the estimated cost set forth in the contract, or, if at anytime the Contractor has reason to believe that the total cost to the Government exclusive of any fixed fee, for the performance of this contract, will be substantially greater or less than the then estimated cost thereof, the Contractor shall notify the Conracting Officer in writing to that effect, giving its revised estimate of such total cost for the performance of this contract.

(b) The Government shall not be obligated to reimburse the Contractor for costs incurred in excess of the estimated cost set forth in the contract and the Contractor shall not be obligated to continue performance under the contract or to incur costs in excess of such estimated cost unless and until the Contracting Officer shall have notified the Contractor in writing that such estimated cost has been increased and shall have specified in such notice a revised estimated cost which shall thereupon constitute the estimated cost of performance of this contract. When and to the extent that the estimated cost set forth in this contract has been increased by he Contracting Officer in writing, any cost incurred by the Contractor in excess of such estimated cost prior to the increase in estimated cost shall be allowable to the same extent as if such costs had been incurred after such increase in estimated cost.

(c) If, (1) the Contractor stops performance before completion of all work hereunder because it has incurred costs in the amount of or in excess of the estimated cost set forth in the contract, and (2) the Contracting Officer elects not to increase such estimated cost, the Contractor's fixed-fee will be equitably reduced to reflect the actual amount of work performed as compared with the full amount of the work required in the contract. In the event of failure to agree as to the amount of such reduction, the Contracting Officer shall determine the amount, subject to the right of the Contractor to appeal therefrom pursuant to the clause in the contract entitled "Disputes." This paragraph shall not, in any way, limit the rights of the Government under the clause in the contract entitled "Termination for Default or for the Convenience of the Government."

CLAUSE NO. 4-ALLOWABLE COST AND FIXED FEE

(a) Compensation for Contractors' services. Payment for the allowable cost as herein defined, and of the fixed fee, if any, set forth in this contract shall constitute full and complete compensation for the performance of the work under this contract.

(b) Allowable cost. The allowable cost of performing the work under this contract shall be the costs actually incurred by the Contractor, either directly incident or properly allocable to the contract, in the performance of this contract in accordance with its terms. The allowable cost, direct and indirect, including acceptability of cost allocation methods, shall be determined by the Contracting Officer in accordance with:

(1) Subpart 1-15.2 of Part 1-15 of the Federal Procurement Regulations (41 CFR 1-15.2), as in effect on the effective date of this contract: Provided, however, That costs of the Contractors' independent research and development, including their appropriate share of indirect and administrative costs, shall be unallowable unless otherwise expressly provided in the contract; and (2) The terms of this contract.

CLAUSE NO. 5-NEGOTIATED OVERHEAD RATES

(a) Notwithstanding the provisions of the clause of this contract entitled "Allowable Cost and Fixed Fee," the allowable indirect costs under this contract shall be obtained by applying negotiated overhead rates to bases agreed upon by the parties, as specified below.

(b) The Contractor, as soon as possible but not later than 90 days after the expiration of his fiscal year, or such other period as may be specified in the contract, shall submit to the Contracting Officer, with a copy to the