whether those excess cost were incurred during the course of
the contract or as a result of termination. When and to the
extent that the estimated cost set forth in the Schedule has
been increased, any costs incurred by the Contractor in
excess of the estimated cost prior to such increase shall be
allowable to the same extent as if such costs had been
incurred after the increase; unless the Contracting Officer
issues a termination or other notice and directs that the
increase is solely for the purpose of covering termination or
other specified expenses.

(c) Change orders issued pursuant to the Changes clause of
this contract shall not be considered an authorization to the
Contractor to exceed the estimated cost set forth in the
Schedule in the absence of a statement in the change order,
or other contract modification, increasing the estimated
cost.

(d) In the event that this contract is terminated or the estimated cost not increased, the Government and the Contractor shall negotiate an equitable distribution of all property produced or purchased under the contract based upon the share of costs incurred by each.

4 ALLOWABLE COST, FIXED-FEE, AND PAYMENT (1-7.202.4)

(a) For the performance of this contract, the Government
shall pay to the Contractor:

(b)

(1) The cost thereof (hereinafter referred to as

"allowable cost") determined by thg Contracting Officer to be allowable in accordance with:

(1) Subpart 1-15.2 of the Federal Procurement Regulations (41 CFR 1-15.2), as in effect on the date of this contract; and

(ii) The terms of this contract; and

(2) Such fixcd-fee, if any, as may be provided for in the Schedule.

Payments shall be made to the Contractor when requested as work progresses, but not more frequently than bi-weekly, in amounts approved by the Contracting Officer. The Contractor may submit to an authorized representative of the Contracting Officer, in such form and reasonable detail as such representative may require, an invoice or public voucher supported by a statement of cost. for the performance of this contract and claimed to constitute allowable cost. For this purpose, except as provided herein with respect to pension contributions, the term costs shall include at the time of the request for reimbursement, from payment by each, check, or other form of actual payment for items or services purchased directly for the contract, together with (when the

In

Contractor is not delinquent in payment of costs of contract performance in the ordinary course of business) costs incurred, but not necessarily paid, for materials which have been issued from the Contractor's stores inventory and placed in the production process for use on the contract for direct labor, for direct travel, for other direct inhouse costs, and for properly allocated and allowable indirect costs, as is shown by records maintained by the Contractor for purposes of obtaining reimbursement under Government contracts plus the amount of progress payments which have been paid to the Contractor's subcontractors under similar cost standards. addition, when pension contributions are paid by the Contractor to the retirement fund less frequently than quarterly, accrued costs therefor shall be excluded from indirect costs for payment purposes until such costs are paid. If pension contributions arg paid on a quarterly or more frequent basis, accruals therefor may be included in indirect costs for payment purposes provided that they are paid to the fund within 30 days after the close of the period covered. If payments are not made to the fund within such 30-day period, pension contribution costs shall be excluded from indirect cost for payment purposes until payment has been made. The restriction on payment more frequently than bi-weekly and the requirement of prior payment for items or services purchased directly for the contract shall not apply when the Contractor is a small business concern.

(c) Promptly after receipt of each invoice or voucher and statement of cost, the Government shall, except as otherwise provided in this contract subject to the provisions of (d), below, make payment thereon as approved by the Contracting Officer. Payment of the fixed fee, if any, shall be made to the Contractor as specified in the Schedule: Provided however, That after payment of 85 percent of the fixed-fee set forth in the Schedule, the Contracting Officer may withhold further payment of fee until a reserve shall have been set aside in an amount which he considers necessary to protect the interests of the Government, but such reserve shall not exceed 15 percent of the total fixed-fee, or $100,000, whichever is less.

(d) At any time or times prior to final payment under this contract the Contracting Officer may have the invoices or vouchers and statements of cost audited. Each payment theretofore made shall be subject to reduction for amounts included in the related invoice or voucher which are found by the Contracting Officer, on the basis of such audit, not to constitute allowable cost. Any payment may be reduced for overpayments or increased for underpayments, on preceding invoices or vouchers.

(e) On receipt and approval of the invoice or voucher designated by the Contractor as the "completion invoice" or "complction voucher" and upon compliance by the Contractor with all the provisions of this contract (including, without

limitation, the provisions relating to patents and the provisions of (f), below), the Government shall promptly pay to the Contractor any balance of allowable cost, and any part of the fixed-fee, which has been withheld pursuant to (c), above, or otherwise not paid to the Contractor. The completion invoice or voucher shall be submitted by the Contractor promptly following completion of the work under this contract but in no event later than 1 year (or such longer period as the Contracting Officer may in his discretion approve in writing) from the date of such completion.

(f) The Contractor agrees that any refunds, rebates, credits, or other amounts (including any interest thercon) accruing to or received by the Contractor or any assignce under this contract shall be paid by the Contractor to the Government, to the extent that they are properly allocable to costs for which the Contractor has been reimbursed by the Government under this contract. Reasonable expenses incurred by the Contractor for the purpose of securing such refunds, rebates, credits, or other amounts shall be allowable costs hereunder when approved by the Contracting Officer. Prior to final payment under this contract, the Contractor and each assignee under this contract whose assignment is in effect at the time of final payment under this contract shall execute and deliver:

(1) An assignment to the Government, in form and substance satisfactory to the Contracting Officer, of refunds, rebates, credits, or other amounts (including any interest thereon) properly allocable to costs for which the Contractor has been reimbursed by the Government under this contract; and

(2) A release discharging the Government, its officers, agents, and employees from all liabilities, obligations, and claims arising out of or under this contract, subject only to the following exceptions:

(1) Specified claims in stated amounts or in
estimated amounts where the amounts are not
susceptible of exact statement by the Contractor;

(ii) Claims, together with reasonable expenses
incidental thereto, based upon liabilities of the
Contractor to third parties arising out of the
performance of this contract: Provided, however,
That such claims are not known to the Contractor on
the date of the execution of the release; and
provided further, that the Contractor gives notice of
such claims in writing to the Contracting Officer not
more than 6 years after the date of the release or
the date of any notice to the Contractor that the
Government is prepared to make final payment,
whichever is carlier; and

(iii) Claims for reimbursement of costs (other than expenses of the Contractor by reason of its indemnification of the Government against patcnt. liability), including reasonable expenses incidental thereto, incurred by the Contractor under the

provisions of this contract relating to patents.

(g) Any cost incurred by the Contractor under the terms of this contract which would constitute allowable cost under the provisions of this clause shall be included in determining the amount payable under this contract, notwithstanding any provisions contained in the specifications or other documents incorporated in this contract by reference, designating services to be performed or materials to be furnished by the Contractor at his expense or without cost to the Government.

L-5 INSPECTION OF SUPPLIES AND CORRECTION OF DEFECTS (1-7-202.5)

(a) All supplies (which term throughout this clause includes
without limitation raw materials, components, intermediate
assemblies, and end products) shall be subject to inspection
and test by the Government, to the extent practicable at all
times and places including the period of manufacture, and in
any event prior to acceptance. The Contractor shall provide
and maintain an inspection system acceptable to the
Government covering the supplies, fabricating methods, and
special tooling hereunder. The Government through any
authorized representative, may inspect the plant or plants of
the Contractor or any of his subcontractors engaged in the
performance of this contract. If any inspection or test is

made by the Government on the premises of the Contractor or a
subcontractor, the Contractor shall provide and shall require
subcontractors to provide all reasonable facilitics and
assistance for the safety and convenience of the Government
inspectors in the performance of their duties. All
inspectors and tests by the Government shall be performed in
such a manner as will not unduly delay the work. Except as
otherwise provided in this contract, acceptance of any
supplies or lots of supplies shall be made as promptly as
practicable after delivery thereof and shall be deemed to
have been made no later than 60 days after the date of such
delivery, if acceptance has not been made earlier within such
period.

(b) At any time during performance of this contract but not later than 6 months (or such other period as may be provided in the Schedule) after acceptance of the supplies or lots of supplies last delivered in accordance with the requirements of this contract, the Government may require the Contractor to remedy by correction or replacement, as directed by the Contracting Officer, any supplics or lots of supplies which at the time of delivery thereof are defective in material or workmanship or otherwise not in conformity with the requirements of this contract. Except as otherwise provided in paragraph (c) hercof, the cost of any such replacement or

36-804 - 79- 17

If

correction shall be included in allowable cost determined as provided in the clause of this contract entitled "Allowable Cost, Fixed-Fee, and Payment," but no additional fee shall be payable with respect thereto. Such supplics or lots of supplies shall not be tendered thereafter for acceptance unless the former requirement of correction is disclosed. the Contractor fails to proceed with reasonable promptness to replace or correct such supplies or lots of supplics, the Government (1) may by contract or otherwise replace or correct such supplics and charge to the Contractor any increased cost occasioned the Government thereby, or may reduce any fixed fee payable under this contract (or require repayment of any fixed fce theretofore paid) in such amount as may be equitable under the circumstances, or (2) in the case of supplies not delivered, may require the delivery of such supplies, and shall have the right to reduce any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or (3) may terminate this contract for Default as provided in the clause of this contract entitled "Termination for Default or Convenience of the Government." Failure to agree to the amount of any such increased cost to be charged to the Contractor or to such reduction in, or repayment of, the fixed fee shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes."

(c) Notwithstanding the provisions of paragraph (b) hereof, the Government may at any time require the correction or replacement by the Contractor, without cost to the Government, of supplics or lots of supplies which are defective in material or workmanship, or otherwise not in conformity with the requirements of this contract, if such defects or failures are due to fraud, lack of good faith, or willful misconduct on the part of any of the Contractor's directors or officers, or on the part of any of his managers, superintendents, or other equivalent representatives, who has supervision or direction of (1) all or substantially all of the Contractor's business, or (2) all or substantially all of the Contractor's operations at any one plant or separate location in which this contract is being performed, or (3) a separate and complete major industrial operation in connection with the performance of this contract. The Government may at any time also require correction or replacement by the Contractor, without cost to the Government, of any such defective supplies or lots of supplies if the defects or failures are caused by one or more individual employees selected or retained by the Contractor after any such supervisory personnel has reasonable grounds to believe that such employee is habitually careless or otherwise unqualified.

(d) Corrected supplies or replaced supplics shall be subject to the provisions of this clause in the same manner and to the same extent as supplies originally delivered under this contract.