[Title 48 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 1998 Edition]
[From the U.S. Government Printing Office]


          48



          Federal Acquisition Regulations System



[[Page i]]

          CHAPTER 2 (201-299)

                         Revised as of October 1, 1998

          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT

          AS OF OCTOBER 1, 1998
          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration

          as a Special Edition of
          the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1998



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 48:
          Chapter 2--Department of Defense                           3
  Finding Aids:
      Table of CFR Titles and Chapters........................     671
      Alphabetical List of Agencies Appearing in the CFR......     689
      List of CFR Sections Affected...........................     699



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  48 CFR 201.103 
                       refers to title 48, part 
                       201, section 103.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, October 1, 1998), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
info@fedreg.nara.gov.

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call 202-512-1800, 
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Customer Service call 202-512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, The United States 
Government Manual, the Federal Register, Public Laws, Weekly Compilation 
of Presidential Documents and the Privacy Act Compilation are available 
in electronic format at www.access.gpo.gov/nara (``GPO Access''). For 
more information, contact Electronic Information Dissemination Services, 
U.S. Government Printing Office. Phone 202-512-1530, or 888-293-6498 
(toll-free). E-mail, gpoaccess@gpo.gov.

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.nara.gov/fedreg. The NARA 
site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 1998.



[[Page ix]]



                               THIS TITLE

    Title 48--Federal Acquisition Regulations System is composed of 
eight volumes. The chapters in these volumes are arranged as follows: 
Chapter 1 (parts 1 to 51), chapter 1 (parts 52 to 99), chapter 2 (parts 
201 to 299), chapters 3 to 6, chapters 7 to 14, chapters 15 to 28 and 
chapter 29 to end. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of October 1, 1998.

    The Federal acquisition regulations in chapter 1 are those 
government-wide acquisition regulations jointly issued by the General 
Services Administration, the Department of Defense, and the National 
Aeronautics and Space Administration. Chapters 2 through 99 are 
acquisition regulations issued by individual government agencies. Parts 
1 to 69 in each of chapters 2 through 99 are reserved for agency 
regulations implementing the Federal acquisition regulations in chapter 
1 and are numerically keyed to them. Parts 70 to 99 in chapters 2 
through 99 contain agency regulations supplementing the Federal 
acquisition regulations.

    The OMB control numbers for the Federal Acquisition Regulations 
System appear in section 1.106 of chapter 1. For the convenience of the 
user section 1.106 is reprinted in the Finding Aids section of the 
second volume containing chapter 1 (parts 52 to 99).

    The first volume, containing chapter 1 (parts 1 to 51), includes an 
index to the Federal acquisition regulations.

    For this volume, Cheryl E. Sirofchuck was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page x]]





[[Page 1]]



            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM




            (This book contains chapter 2, parts 201 to 299)

  --------------------------------------------------------------------
                                                                    Part

chapter 2--Department of Defense............................         201

[[Page 3]]



                    CHAPTER 2--DEPARTMENT OF DEFENSE




  --------------------------------------------------------------------

                          SUBCHAPTER A--GENERAL
Part                                                                Page
201             Federal Acquisition Regulations System......           7
202             Definitions of words and terms..............          12
203             Improper business practices and personal 
                    conflicts of interest...................          13
204             Administrative matters......................          16
                   SUBCHAPTER B--ACQUISITION PLANNING
205             Publicizing contract actions................          43
206             Competition requirements....................          45
207             Acquisition planning........................          48
208             Required sources of supplies and services...          52
209             Contractor qualifications...................          63
211             Describing agency needs.....................          70
212             Acquisition of commercial items.............          73
          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES
213             Simplified acquisition procedures...........          76
214             Sealed bidding..............................          79
215             Contracting by negotiation..................          80
216             Types of contracts..........................         102
217             Special contracting methods.................         113
                  SUBCHAPTER D--SOCIOECONOMIC PROGRAMS
219             Small business programs.....................         129
222             Application of labor laws to government 
                    acquisitions............................         140
223             Environment, conservation, occupational 
                    safety, and drug-free workplace.........         153
224             Protection of privacy and freedom of 
                    information.............................         159
225             Foreign acquisition.........................         160
226             Other socioeconomic programs................         200
             SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS
227             Patents, data, and copyrights...............         205
228             Bonds and insurance.........................         246

[[Page 4]]

229             Taxes.......................................         249
230             Cost accounting standards...................         252
231             Contract cost principles and procedures.....         255
232             Contract financing..........................         260
233             Protests, disputes, and appeals.............         275
             SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING
234             Major system acquisition....................         276
235             Research and development contracting........         276
236             Construction and architect-engineer 
                    contracts...............................         286
237             Service contracting.........................         293
239             Acquisition of information technology.......         303
241             Acquisition of utility services.............         312
                    SUBCHAPTER G--CONTRACT MANAGEMENT
242             Contract administration.....................         315
243             Contract modifications......................         330
244             Subcontracting policies and procedures......         332
245             Government property.........................         334
246             Quality assurance...........................         356
247             Transportation..............................         363
248             Value engineering...........................         372
249             Termination of contracts....................         373
250             Extraordinary contractual actions...........         380
251             Use of government sources by contractors....         385
                     SUBCHAPTER H--CLAUSES AND FORMS
252             Solicitation provisions and contract clauses         387
253             Forms.......................................         538
             SUBCHAPTER I--AGENCY SUPPLEMENTARY REGULATIONS
                Appendix A--Armed Services Board of Contract 
                    Appeals.................................         567
                Appendix B--Coordinated Acquisition 
                    Assignments.............................         576
  

Appendix C [Reserved]

                Appendix D--Component Breakout..............         586
                Appendix E--DoD Spare Parts Breakout Program         587
                Appendix F--Material Inspection and 
                    Receiving Report........................         609
                Appendix G--Activity Address Numbers........         623
                Appendix H--Debarment and Suspension 
                    Procedures..............................         658
                Appendix I--Policy and Procedures for the 
                    DOD Pilot Mentor-Protege Program........         660

  Note: Although the text of Manuals and Supplements to the Defense FAR 
Supplement are not published in the Code of Federal Regulations, they 
were listed for the convenience of the

[[Page 5]]

user. All of the Supplements have been deleted. The only manuals which 
remain in effect are: Armed Services Pricing Manual (1986) and Armed 
Services Pricing Manual, Volume 2, Price Analysis (1987).

[[Page 7]]



                          SUBCHAPTER A--GENERAL


PART 201--FEDERAL ACQUISITION REGULATIONS SYSTEM--Table of Contents




               Subpart 201.1--Purpose, Authority, Issuance

Sec.
201.103  Applicability.
201.104  Issuance.
201.104-3  Copies.
201.107  Certifications.

                      Subpart 201.2--Administration

201.201  Maintenance of the FAR.
201.201-1  The two councils.

              Subpart 201.3--Agency Acquisition Regulations

201.301  Policy.
201.303  Publication and codification.
201.304  Agency control and compliance procedures.

                 Subpart 201.4--Deviations From the FAR

201.402  Policy.
201.403  Individual deviations.
201.404  Class deviations.

        Subpart 201.6--Contracting Authority and Responsibilities

201.602  Contracting officers.
201.602-2  Responsibilities.
201.602-70  Contract clause.
201.603  Selection, appointment, and termination of appointment.
201.603-2  Selection.
201.603-3  Appointment.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36284, July 31, 1991, unless otherwise noted.



               Subpart 201.1--Purpose, Authority, Issuance



Sec. 201.103  Applicability.

    The FAR and the Defense Federal Acquisition Regulation Supplement 
(DFARS) also apply to purchases and contracts by DoD contracting 
activities made in support of foreign military sales or North Atlantic 
Treaty Organization cooperative projects without regard to the nature or 
sources of funds obligated, unless otherwise specified in this 
regulation.



Sec. 201.104  Issuance.



Sec. 201.104-3  Copies.

    Copies of the DFARS in loose-leaf and CFR form may be purchased from 
the Superintendent of Documents, Government Printing Office, Washington, 
DC 20402-9325. Purchase of a copy of DFARS includes a subscription for 
Defense Acquisition Circulars.



Sec. 201.107  Certifications.

    In accordance with Section 29 of the Office of Federal Procurement 
Policy Act (41 U.S.C. 425), a new requirement for a certification by a 
contractor or offeror may not be included in the DFARS unless--
    (1) The certification requirement is specifically imposed by 
statute; or
    (2) Written justification for such certification is provided to the 
Secretary of Defense by the Under Secretary of Defense (Acquisition and 
Technology), and the Secretary of Defense approves in writing the 
inclusion of such certification requirement.

[63 FR 11528, Mar. 9, 1998]



                      Subpart 201.2--Administration



Sec. 201.201  Maintenance of the FAR.



Sec. 201.201-1  The two councils.

    (c) The composition and operation of the DAR Council is prescribed 
in DoDI 5000.63, Defense Acquisition Regulations (DAR) System.
    (d)(i) Departments and agencies process proposed revisions of FAR or 
DFARS through channels to the Director of the DAR Council. Process the 
proposed revision as a memorandum in the following format, addressed to 
the Director, DAR Council, OUSD(A&T), 3062 Defense Pentagon, Washington, 
DC 20301-3062; datafax (703) 602-0350:

    I. PROBLEM: Succinctly state the problem created by current FAR and/
or DFARS coverage and describe the factual and/or legal reasons 
necessitating the change to the regulation.

[[Page 8]]

    II. Recommendation: Identify the FAR and/or DFARS citations to be 
revised. Attach as TAB A a copy of the text of the existing coverage, 
conformed to include the proposed additions and deletions. Indicate 
deleted coverage with dashed lines through the current words being 
deleted and insert proposed language in brackets at the appropriate 
locations within the existing coverage. If the proposed deleted portion 
is extensive, it may be outlined by lines forming a box with diagonal 
lines drawn connecting the corners.
    III. Discussion: Include a complete, convincing explanation of why 
the change is necessary and how the recommended revision will solve the 
problem. Address advantages and disadvantages of the proposed revision, 
as well as any cost or administrative impact on Government activities 
and contractors. Identify any potential impact of the change on 
automated systems, e.g., automated financial and procurement systems. 
Provide any other background information that would be helpful in 
explaining the issue.
    IV. Collaterals: Address the need for public comment (FAR 1.301(b) 
and subpart 1.5), the Paperwork Reduction Act, and the Regulatory 
Flexibility Act (FAR 1.301(c)).
    V. Deviations: If a recommended revision of DFARS is a FAR 
deviation, identify the deviation and include under separate TAB a 
justification for the deviation, which addresses the requirements of 
201.402(3). The justification should be in the form of a memorandum for 
the USD(A&T)DP.

    (ii) The public may offer proposed revisions of FAR or DFARS by 
submission of a memorandum, in the format (including all of the 
information) prescribed in paragraph (d)(i) of this subsection, to the 
Director of the DAR Council.

[56 FR 36284, July 31, 1991, as amended at 60 FR 61591, Nov. 30, 1995; 
61 FR 50451, Sept. 26, 1996; 63 FR 11528, Mar. 9, 1998]



              Subpart 201.3--Agency Acquisition Regulations



Sec. 201.301  Policy.

    (a) DoD implementation and supplementation of the FAR is issued in 
the Defense Federal Acquisition Regulation Supplement (DFARS) under 
authorization and subject to the authority, direction, and control of 
the Secretary of Defense.
    (b) When Federal Register publication is required for any policy, 
procedure, clause, or form, the department or agency requesting USD(A&T) 
approval for use of the policy, procedure, clause, or form (see 
201.304(1)) must include an analysis of the public comments in the 
request for approval.

[56 FR 36284, July 31, 1991, as amended at 60 FR 61591, Nov. 30, 1995]



Sec. 201.303  Publication and codification.

    (a)(i) The DFARS is codified under chapter 2 in title 48, Code of 
Federal Regulations.
    (ii) To the extent possible, all DFARS text (whether implemental or 
supplemental) is numbered as if it were implemental. Supplemental 
numbering is used only when the text cannot be integrated intelligibly 
with its FAR counterpart.
    (A) Implemental numbering is the same as its FAR counterpart, except 
when the text exceeds one paragraph, the subdivisions are numbered by 
skipping a unit in the FAR 1.104-2(b)(2) prescribed numbering sequence. 
For example, three paragraphs implementing FAR 19.501 would be numbered 
219.501 (1), (2), and (3) rather than (a), (b), and (c). Three 
paragraphs implementing FAR 19.501(a) would be numbered 219.501(a) (i), 
(ii), and (iii) rather than (a) (1), (2), and (3). Further subdivision 
of the paragraphs follows the prescribed numbering sequence, e.g., 
219.501(1)(i)(A)(1)(i).
    (B) Supplemental numbering is the same as its FAR counterpart, with 
the addition of a number of 70 and up or (S-70) and up. Parts, subparts, 
sections, or subsections are supplemented by the addition of a number of 
70 and up. Lower divisions are supplemented by the addition of a number 
of (S-70) and up. When text exceeds one paragraph, the subdivisions are 
numbered using the FAR 1.104-2(b)(2) prescribed sequence, without 
skipping a unit. For example, DFARS text supplementing FAR 19.501 would 
be numbered 219.501-70. Its subdivisions would be numbered 219.501-70 
(a), (b), and (c).
    (C) Subdivision numbering below the 4th level does not repeat the 
numbering sequence. It uses italicized Arabic numbers and then 
italicized lower case Roman numerals.
    (D) An example of DFARS numbering is in Table 1-1, DFARS Numbering.
    (iii) Department/agency and component supplements must parallel the

[[Page 9]]

FAR and DFARS numbering, except department/agency supplemental numbering 
uses subsection numbering of 90 and up, instead of 70 and up.

                       Table 1-1--DFARS Numbering
------------------------------------------------------------------------
       FAR             Is implemented as          Is supplemented as
------------------------------------------------------------------------
19                 219                        219.70
19.5               219.5                      219.570
19.501             219.501                    219.501-70
19.501-1           219.501-1                  219.501-1-70
19.501-1(a)        219.501-1(a)               219.501-1(a)(S-70)
19.501-1(a)(1)     219.501-1(a)(1)            219.501-1(a)(1)(S-70)
------------------------------------------------------------------------



Sec. 201.304  Agency control and compliance procedures.

    Departments and agencies and their component organizations may issue 
acquisition regulations as necessary to implement or supplement the FAR 
or DFARS.
    (1)(i) Approval of the Under Secretary of Defense (Acquisition and 
Technology) (USD(A&T)) is required before including in a department/
agency or component supplement, or any other contracting regulation 
document such as a policy letter or clause book, any policy, procedure, 
clause, or form that--
    (A) Has a significant effect beyond the internal operating 
procedures of the agency; or
    (B) Has a significant cost or administrative impact on contractors 
or offerors.
    (ii) Except as provided in paragraph (2) of this section, the 
USD(A&T) has delegated authority to the Director of Defense Procurement 
(USD(A&T)DP) to approve or disapprove the policies, procedures, clauses, 
and forms subject to paragraph (1)(i) of this section.
    (2) In accordance with Section 29 of the Office of Federal 
Procurement Policy Act (41 U.S.C. 425), a new requirement for a 
certification by a contractor or offeror may not be included in a 
department/agency or component procurement regulation unless--
    (i) The certification requirement is specifically imposed by 
statute; or
    (ii) Written justification for such certification is provided to the 
Secretary of Defense by USD(A&T), and the Secretary of Defense approves 
in writing the inclusion of such certification requirement.
    (3) Approval of USD(A&T)DP is required for any class deviation (as 
defined in FAR Subpart 1.4) from the FAR or DFARS, before its inclusion 
in a department/agency or component supplement or any other contracting 
regulation document such as a policy letter or clause book.
    (4) Each department and agency shall develop and, upon approval by 
USD(A&T)DP, implement, maintain, and comply with a plan for controlling 
the use of clauses other than those prescribed by FAR or DFARS.
    (5) Departments and agencies shall submit request for the Secretary 
of Defense, USD(A&T), and USD(A&T)DP approvals required by this section 
through the Director of the DAR Council.
    (6) Revisions to the DFARS are issued through Defense Acquisition 
Circulars or Departmental Letters.
    (i) Defense Acquisition Circulars--
    (A) Are issued on a quarterly basis to all recipients of the DFARS.
    (B) Are published in the Federal Register.
    (C) Include, in addition to DFARS revisions, policies, directives, 
and informational items.
    (D) Include the effective dates for use of the revisions, policies, 
or directives. The effective date means the date on which the revisions, 
policies, or directives must be applied. Unless stated otherwise in the 
circular, any new or revised clauses, provisions, or forms must be 
included in solicitations issued on or after that date.
    (ii) Departmental Letters--
    (A) Are issued as necessary to the departments and agencies when 
time is of essence in disseminating a revision, policy, or directive.
    (B) Are effective until the revision, policy, or directive is 
superseded by publication of the material in a Federal Acquisition 
Circular, Defense Acquisition Circular, or other directive or is 
specifically withdrawn.

[56 FR 36284, July 31, 1991, as amended at 60 FR 61591, Nov. 30, 1995; 
63 FR 11528, Mar. 9, 1998]

[[Page 10]]



                 Subpart 201.4--Deviations From the FAR



Sec. 201.402  Policy.

    (1) The Director of Defense Procurement, Office of the Under 
Secretary of Defense (Acquisition & Technology), USD(A&T)DP, is the 
approval authority within the DoD for--
    (i) Any individual deviation from--
    (A) FAR/DFARS Section 3.104, Procurement integrity;
    (B) FAR/DFARS Subpart 27.4, Rights in Data and Copyrights;
    (C) FAR/DFARS Subpart 31.1, Applicability (contract cost 
principles);
    (D) FAR/DFARS Subpart 31.2, Contracts with Commercial Organizations; 
or
    (E) FAR/DFARS Part 32, Contract Financing (except 32.7, 32.8, and 
the payment clauses prescribed by 32.1).
    (ii) Any class deviation.
    (2) Individual deviations.
    (i) Except as provided in paragraph (2)(ii) of this section, 
individual deviations, other than those in paragraph (1)(i) of this 
section, must be approved in accordance with the department/agency plan 
prescribed by 201.304(4).
    (ii) Contracting officers outside the United States are authorized 
to deviate from prescribed non-statutory FAR and DFARS clauses when 
contracting for support services, supplies, or construction, with the 
governments of North Atlantic Treaty Organization (NATO) countries or 
other allies (as described in 10 U.S.C. 2341(2)), or with United Nations 
or NATO organizations. This authority shall be exercised only if such 
governments or organizations will not agree to the standard clauses.
    (3) Submit requests for deviation approval through department/agency 
channels to the approval authority in paragraph (1) or (2), as 
appropriate. Submit deviations which require USD(A&T)DP approval through 
the Director of the DAR Council. At a minimum, each request must--
    (i) Identify the department/agency, and component if applicable, 
requesting the deviation;
    (ii) Identify the FAR or DFARS citation from which a deviation is 
needed, state what is required by that citation, and indicate whether an 
individual or class deviation is requested;
    (iii) Describe the deviation and indicate which of paragraphs (a) 
through (f) of FAR 1.401 best categorizes the deviation.
    (iv) State whether the deviation will have a significant effect 
beyond the internal operating procedures of the agency and/or a 
significant cost or administrative impact on contractors or offerors, 
and give reasons to support the statement;
    (v) State the period of time for which the deviation is required;
    (vi) State whether approval for the same deviation has been received 
previously, and if so, when;
    (vii) State whether the proposed deviation was published (see FAR 
subpart 1.5 for publication requirements) in the Federal Register and 
provide analysis of comments;
    (viii) State whether the request for deviation has been reviewed by 
legal counsel, and if so, state results; and
    (ix) Give detailed rationale for the request. State what problem or 
situation will be avoided, corrected, or improved if request is 
approved.

[56 FR 36284, July 31, 1991, as amended at 60 FR 61591, Nov. 30, 1995; 
61 FR 50451, Sept. 26, 1996]



Sec. 201.403  Individual deviations.

    See approval requirements in 201.402.



Sec. 201.404  Class deviations.

    See approval requirements in 201.402.



        Subpart 201.6--Contracting Authority and Responsibilities



Sec. 201.602  Contracting officers.



Sec. 201.602-2  Responsibilities.

    Contracting officers may designate qualified personnel as their 
authorized representatives to assist in the technical monitoring or 
administration of a contract. A contracting officer's representative 
(COR)--
    (1) Must be a Government employee, unless otherwise authorized in 
agency regulations.
    (2) Must be qualified by training and experience commensurate with 
the responsibilities to be delegated in accordance with department/
agency guidelines.

[[Page 11]]

    (3) May not be delegated responsibility to perform functions at a 
contractor's location that have been delegated under FAR 42.202(a) to a 
contract administration office.
    (4) May not be delegated authority to make any commitments or 
changes that affect price, quality, quantity, delivery, or other terms 
and conditions of the contract.
    (5) Must be designated in writing, and a copy furnished the 
contractor and the contract administration office,--
    (i) Specifying the extent of the COR's authority to act on behalf of 
the contracting officer;
    (ii) Identifying the limitations on the COR's authority;
    (iii) Specifying the period covered by the designation;
    (iv) Stating the authority is not redelegable; and
    (v) Stating that the COR may be personally liable for unauthorized 
acts.
    (6) Must maintain a file for each contract assigned. This file must 
include, as a minimum--
    (i) A copy of the contracting officer's letter of designation and 
other documentation describing the COR's duties and responsibilities; 
and
    (ii) Documentation of actions taken in accordance with the 
delegation of authority.



Sec. 201.602-70  Contract clause.

    Use the clause at 252.201-7000, Contracting Officer's 
Representative, in solicitations and contracts when appointment of a 
contracting officer's representative is anticipated.



Sec. 201.603  Selection, appointment, and termination of appointment.



Sec. 201.603-2  Selection.

    (1) Pursuant to 10 U.S.C. 1724, in order to qualify to serve as a 
contracting officer with authority to award or administer contracts for 
amounts above the simplified acquisition threshold, a person must--
    (i) Have completed all mandatory contracting courses required for a 
contracting officer at the grade level, or in the position within the 
grade of the General Schedule in which the person is serving;
    (ii) Have at least two years experience in a contracting position;
    (iii) Have--
    (A) Received a baccalaureate degree from an accredited educational 
institution;
    (B) Completed at least 24 semester credit hours, or equivalent, of 
study from an accredited institution of higher education in any of the 
following disciplines: Accounting, business finance, law, contracts, 
purchasing, economics, industrial management, marketing, quantitative 
methods, and organization and management; or
    (C) Passed an examination considered to demonstrate skills, 
knowledge, or abilities comparable to that of an individual who has 
completed at least 24 semester credit hours, or equivalent, of study 
from an accredited institution of higher education in any of the 
disciplines in paragraph (1)(iii)(B) of this subsection; and
    (iv) Meet such additional requirements, based on the dollar value 
and complexity of the contracts awarded or administered in the position 
as may be established by the Secretary of Defense.
    (2) The requirements in 201.603-2(1)(iii) do not apply to any 
employee who, as of October 1, 1991, had at least 10 years experience in 
acquisition positions, in comparable positions in other government 
agencies or the private sector, or in similar positions in which the 
individual obtained experience directly relevant to the field of 
contracting.
    (3) The requirements in 201.603-2(1) do not apply to any employee 
for purposes of qualifying to serve in the position in which the 
employee is serving on October 1, 1993, or any other position in the 
same grade and involving the same level of responsibilities as the 
position in which the employee is serving on that date.
    (4) Waivers may be authorized. Information on waivers is contained 
in DoD Manual 5000.52-M, Career Development Program for Acquisition 
Personnel.

[58 FR 28463, May 13, 1993, as amended at 62 FR 34121, June 24, 1997]



Sec. 201.603-3  Appointment.

    Certificates of Appointment executed under the Armed Services 
Procurement

[[Page 12]]

Regulation or the Defense Acquisition Regulation have the same effect as 
if they had been issued under FAR.



PART 202--DEFINITIONS OF WORDS AND TERMS--Table of Contents




    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.



                       Subpart 202.1--Definitions



Sec. 202.101  Definitions.

    Contracting activity for DoD also means elements designated by the 
director of a defense agency which has been delegated contracting 
authority through its agency charter. DoD contracting activities are--

                          Department of Defense

Real Estate and Facilities Directorate, Washington Headquarters Services
Defense Evaluation Support Activity
Department of Defense Office of Dependents Schools
Office of Civilian Health and Medical Program of the Uniformed Services

                                  Army

Contract Support Agency
Office of the Deputy Chief of Staff for Research, Development and 
Acquisition, Headquarters, U.S. Army Materiel Command
Aviation and Missile Command
Industrial Operations Command
Communications-Electronics Command
Troop Support Agency
Tank-Automotive and Armaments Command
Training and Doctrine Command
Forces Command
Health Services Command
Military District of Washington
U.S. Army, Europe
National Guard Bureau
Corps of Engineers
Information Systems Command
Medical Research and Development Command
U.S. Army, Pacific
Military Traffic Management Command
Space and Strategic Defense Command
Eighth U.S. Army
Intelligence and Security Command
U.S. Army, South
Defense Supply Service-Washington
Directorate of Information Systems for Command, Control, Communications 
and Computers, Office of the Secretary of the Army
U.S. Army Special Operations Command

                                  Navy

Deputy, Acquisition and Business Management, Office of the Assistant 
Secretary of the Navy (Research, Development, and Acquisition)
Directorate of Procurement Policy, Office of the Assistant Secretary of 
the Navy (Research, Development, and Acquisition)
Naval Air Systems Command
Space and Naval Warfare Systems Command
Naval Facilities Engineering Command
Naval Inventory Control Point
Naval Sea Systems Command
Naval Supply Systems Command
Office of Naval Research
Military Sealift Command
Strategic Systems Programs
Headquarters, U.S. Marine Corps
Marine Corps Systems Command
Installations and Logistics, Headquarters, U.S Marine Corps

                                Air Force

Office of the Deputy Assistant Secretary (Contracting)
Air Force Materiel Command
Air Combat Command
Air Mobility Command
Air Education and Training Command
Pacific Air Forces
United States Air Forces in Europe
Air Force Space Command

                Defense Advanced Research Projects Agency

Office of the Deputy Director, Management
Defense Finance and Accounting Service External Services, Defense 
Finance and Accounting Service

                   Defense Information Systems Agency

Defense Information Technology Contracting Organization

                       Defense Intelligence Agency

Office of Procurement

                        Defense Logistics Agency

Office of the Executive Director, Contract Management
Office of the Executive Director, Contracting
Defense Supply Centers
Defense Personnel Support Center

                   National Imagery and Mapping Agency

Procurement and Contracting Office

                     Defense Special Weapons Agency

Headquarters, Defense Special Weapons Agency

                        National Security Agency

Headquarters, National Security Agency

[[Page 13]]

                        On-Site Inspection Agency

Acquisition Management Office

                 Ballistic Missile Defense Organization

Headquarters, Ballistic Missile Defense Organization

                United States Special Operations Command

Headquarters, United States Special Operations Command

    Contracting officer's representative means an individual designated 
and authorized in writing by the contracting officer to perform specific 
technical or administrative functions.
    Departments and agencies, as used in DFARS, means the military 
departments and the defense agencies. The military departments are the 
Departments of the Army, Navy, and Air Force (the Marine Corps is a part 
of the Department of the Navy). The defense agencies are the Defense 
Advanced Research Projects Agency, the Defense Commissary Agency, the 
Defense Finance and Accounting Service, the Defense Information Systems 
Agency, the Defense Intelligence Agency, the Defense Investigative 
Service, the Defense Logistics Agency, the National Imagery and Mapping 
Agency, the Defense Special Weapons Agency, the National Security 
Agency, the On-Site Inspection Agency, the Ballistic Missile Defense 
Organization, and the United States Special Operations Command.
    Department of Defense (DoD), as used in DFARS, means the Department 
of Defense, the military departments, and the defense agencies.
    Executive agency means for DoD, the Department of Defense, the 
Department of the Army, the Department of the Navy, and the Department 
of the Air Force.
    Head of the agency, means for DoD, the Secretary of Defense, the 
Secretary of the Army, the Secretary of the Navy, and the Secretary of 
the Air Force. Subject to the direction of the Secretary of Defense, the 
Under Secretary of Defense (Acquisition & Technology), and the Director 
of Defense Procurement, the directors of the defense agencies have been 
delegated authority to act as head of the agency for their respective 
agencies (i.e., to perform functions under the FAR or DFARS reserved to 
a head of agency or agency head), except for such actions that by terms 
of statute, or any delegation, must be exercised within the Office of 
the Secretary of Defense.
    Senior procurement executive, means for DoD--
    Department of Defense (including the defense agencies)--Under 
Secretary of Defense (Acquisition & Technology);
    Department of the Army--Assistant Secretary of the Army (Research, 
Development and Acquisition);
    Department of the Navy--Assistant Secretary of the Navy (Research, 
Development and Acquisition);
    Department of the Air Force--Assistant Secretary of the Air Force 
(Acquisition).
    The directors of the defense agencies have been delegated authority 
to act as senior procurement executive for their respective agencies, 
except for such actions that by terms of statute, or any delegation, 
must be exercised by the Under Secretary of Defense (Acquisition & 
Technology).

[56 FR 36287, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991; 
57 FR 42629, Sept. 15, 1992; 59 FR 27668, May 27, 1994; 60 FR 29497, 
June 5, 1995; 60 FR 61591, Nov. 30, 1995; 61 FR 7741, Feb. 29, 1996; 61 
FR 50451, Sept. 26, 1996; 62 FR 34121, June 24, 1997; 63 FR 11528, Mar. 
9, 1998]



PART 203--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST--Table of Contents




                        Subpart 203.1--Safeguards

Sec.
203.103  Independent pricing.
203.103-2  Evaluating the certification.
203.104  Procurement integrity.
203.104-5  Disclosure of proprietary and source selection information.

      Subpart 203.2--Contractor Gratuities to Government Personnel

203.203  Reporting suspected violations of the Gratuities clause.

        Subpart 203.3--Reports of Suspected Antitrust Violations

203.301  General.

[[Page 14]]

                     Subpart 203.4--Contingent Fees

203.405  Misrepresentations or violations of the Covenant Against 
          Contingent Fees.

            Subpart 203.5--Other Improper Business Practices

203.502  Subcontractor kickbacks.
203.502-2  General.
203.570  Employment prohibitions on persons convicted of fraud or other 
          DoD contract-related felonies.
203.570-1  Scope.
203.570-2  Policy.
203.570-3  Waiver.
203.570-4  Reporting.
203.570-5  Contract clause.

             Subpart 203.7--Voiding and Rescinding Contracts

203.703  Authority.

             Subpart 203.70--Contractor Standards of Conduct

203.7000  Policy.
203.7001  Procedures.
203.7002  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36288, July 31, 1991, unless otherwise noted.



                        Subpart 203.1--Safeguards



Sec. 203.103  Independent pricing.



Sec. 203.103-2  Evaluating the certification.

    (b)(3) The contracting officer also shall report the matter in 
accordance with 209.406-3 and DoDD 7050.5, Coordination of Remedies for 
Fraud and Corruption Related to Procurement Activities.



Sec. 203.104  Procurement integrity.



Sec. 203.104-5  Disclosure of proprietary and source selection information.

    (d)(4) For purposes of FAR 3.104-5(d)(4) only, DoD follows the 
notification procedures in FAR 27.404(h). However, the first sentence in 
FAR 27.404(h) does not apply to DoD.

[56 FR 36288, July 31, 1991, as amended at 62 FR 2612, Jan. 17, 1997]



      Subpart 203.2--Contractor Gratuities to Government Personnel



Sec. 203.203  Reporting suspected violations of the Gratuities clause.

    Report suspected violations of the Gratuities clause in accordance 
with 209.406-3 and DoDD 7050.5, Coordination of Remedies for Fraud and 
Corruption Related to Procurement Activities.



        Subpart 203.3--Reports of Suspected Antitrust Violations



Sec. 203.301  General.

    (b) Report suspected antitrust violations in accordance with 
209.406-3 and DoDD 7050.5, Coordination of Remedies for Fraud and 
Corruption Related to Procurement Activities.



                     Subpart 203.4--Contingent Fees



Sec. 203.405  Misrepresentations or violations of the Covenant Against Contingent Fees.

    (b) Report suspected fraud or other criminal conduct in accordance 
with 209.406-3 and DoDD 7050.5, Coordination of Remedies for Fraud and 
Corruption Related to Procurement Activities.

[56 FR 36288, July 31, 1991. Redesignated at 62 FR 34121, June 24, 1997]



            Subpart 203.5--Other Improper Business Practices



Sec. 203.502  Subcontractor kickbacks.

    Report suspected violations of the Anti-Kickback Act in accordance 
with 209.406-3 and DoDD 7050.5, Coordination of Remedies for Fraud and 
Corruption Related to Procurement Activities.



Sec. 203.502-2  General.

    (h) The DoD Inspector General has designated Special Agents of the 
following investigative organizations as representatives for conducting 
inspections and audits under the Anti-Kickback Act of 1986:
    (i) U.S. Army Criminal Investigation Command.
    (ii) Naval Criminal Investigative Service.
    (iii) Air Force Office of Special Investigations.

[[Page 15]]

    (iv) Defense Criminal Investigative Service.

[56 FR 36288, July 31, 1991, as amended at 60 FR 29497, June 5, 1995]



Sec. 203.570  Employment prohibitions on persons convicted of fraud or other DoD contract-related felonies.



Sec. 203.570-1  Scope.

    This subpart prescribes policies and procedures to implement 10 
U.S.C. 2408.



Sec. 203.570-2  Policy.

    (a) Contractors or subcontractors shall not knowingly allow a 
person, convicted after September 29, 1988, of fraud or any other felony 
arising out of a contract with the DoD, to serve--
    (1) In a management or supervisory capacity on any DoD contract or 
first-tier subcontract; or,
    (2) On its board of directors; or
    (3) As a consultant, agent, or representative.
    (b) The period covered by the prohibition in paragraph (a) of this 
subsection is for five years from the date of conviction unless waived 
in the interest of national security by the agency head or designee.



Sec. 203.570-3  Waiver.

    (a) The contracting officer shall--
    (1) Review any request for waiver; and
    (2) Deny the request if the contracting officer decides the waiver 
is not required in the interests of national security; or
    (3) Forward the request to the head of the agency or designee for 
approval if the contracting officer decides the waiver may be in the 
interest of national security.
    (b) The head of the agency or designee shall report all waivers 
granted, and the reasons for granting the waiver, to the Under Secretary 
of Defense (Acquisition), who will forward the report to Congress as 
required by 10 U.S.C. 2408(a)(3).



Sec. 203.570-4  Reporting.

    When a Defense contractor or first-tier subcontractor is found in 
violation of the prohibition in 203.570-2, the contracting officer shall 
report the matter in accordance with 209.406-3 and DoDD 7050.5, 
Coordination of Remedies for Fraud and Corruption Related to Procurement 
Activities.



Sec. 203.570-5  Contract clause.

    Use the clause at 252.203-7001, Special Prohibition on Employment, 
in all solicitations and contracts exceeding the simplified acquisition 
threshold, except solicitations and contracts for commercial items.

[60 FR 61592, Nov. 30, 1995, as amended at 62 FR 34121, June 24, 1997]



             Subpart 203.7--Voiding and Rescinding Contracts



Sec. 203.703  Authority.

    The authority to act for the agency head under this subpart is 
limited to a level no lower than an official who is appointed by and 
with the advice of the Senate, without power of redelegation. For the 
defense agencies, for purposes of this subpart, the agency head designee 
is the Under Secretary of Defense (Acquisition & Technology).

[56 FR 36288, July 31, 1991, as amended at 60 FR 61592, Nov. 30, 1995]



             Subpart 203.70--Contractor Standards of Conduct



Sec. 203.7000  Policy.

    Government contractors must conduct themselves with the highest 
degree of integrity and honesty. Contractors should have standards of 
conduct and internal control systems that--
    (1) Are suitable to the size of the company and the extent of their 
involvement in Government contracting,
    (2) Promote such standards,
    (3) Facilitate timely discovery and disclosure of improper conduct 
in connection with Government contracts, and
    (4) Ensure corrective measures are promptly instituted and carried 
out.



Sec. 203.7001  Procedures.

    (a) A contractor's system of management controls should provide 
for--
    (1) A written code of business ethics and conduct and an ethics 
training program for all employees;

[[Page 16]]

    (2) Periodic reviews of company business practices, procedures, 
policies, and internal controls for compliance with standards of conduct 
and the special requirements of Government contracting;
    (3) A mechanism, such as a hotline, by which employees may report 
suspected instances of improper conduct, and instructions that encourage 
employees to make such reports;
    (4) Internal and/or external audits, as appropriate;
    (5) Disciplinary action for improper conduct;
    (6) Timely reporting to appropriate Government officials of any 
suspected or possible violation of law in connection with Government 
contracts or any other irregularities in connection with such contracts; 
and
    (7) Full cooperation with any Government agencies responsible for 
either investigation or corrective actions.
    (b) Contractors who are awarded a DoD contract of $5 million or more 
must display DoD Hotline Posters prepared by the DoD Office of the 
Inspector General unless--
    (1) The contract will be performed in a foreign country; or
    (2) The contractor has established an internal reporting mechanism 
and program, as described in paragraph (a) of this section.



Sec. 203.7002  Contract clause.

    Use the clause at 252.203-7002, Display of DoD Hotline Poster, in 
solicitations and contracts expected to exceed $5 million, except when 
performance will take place in a foreign country.



PART 204--ADMINISTRATIVE MATTERS--Table of Contents




                    Subpart 204.1--Contract Execution

Sec.
204.101  Contracting officer's signature.

                  Subpart 204.2--Contract Distribution

204.201  Procedures.
204.202  Agency distribution requirements.

   Subpart 204.4--Safeguarding Classified Information Within Industry

204.402  General.
204.404  Contract clause.
204.404-70  Additional contract clauses.

                    Subpart 204.6--Contract Reporting

204.600  Scope of subpart.
204.601  Record requirements.
204.602  Federal Procurement Data System.
204.602-70  Solicitation provision.
204.670  Defense Contract Action Data System (DCADS).
204.670-1  Definitions.
204.670-2  Reportable contracting actions.
204.670-3  Contracting office responsibilities.
204.670-4  Contract administration office responsibilities.
204.670-5  Departmental data collection point responsibilities.
204.670-6  Types of DD Form 350 reports.
204.670-7  Report formats.
204.670-8  Security classification.
204.670-9  Reporting of individual contracting actions of $25,000 or 
          less.

                      Subpart 204.8--Contract Files

204.802  Contract files.
204.804  Closeout of contract files.
204.804-1  Closeout by the office administering the contract.
204.804-2  Closeout of the contracting office files if another office 
          administers the contract.
204.805  Disposal of contract files.

  Subpart 204.9--Information Reporting to the Internal Revenue Service

204.902  General.

  Subpart 204.70--Uniform Procurement Instrument Identification Numbers

204.7000  Scope.
204.7001  Policy.
204.7002  Procedures.
204.7003  Basic PII number.
204.7004  Supplementary PII numbers.

       Subpart 204.71--Uniform Contract Line Item Numbering System

204.7100  Scope.
204.7101  Definitions.
204.7102  Policy.
204.7103  Contract line items.
204.7103-1  Criteria for establishing.
204.7103-2  Numbering procedures.
204.7104  Contract subline items.
204.7104-1  Criteria for establishing.
204.7104-2  Numbering procedures.
204.7105  Contract exhibits and attachments.
204.7106  Contract modifications.
204.7107  Contract accounting classification reference number (ACRN).

                Subpart 204.72--Contractor Identification

204.7200  Scope of subpart.

[[Page 17]]

204.7201  Definitions.
204.7202  General.
204.7202-1  CAGE codes.
204.7202-2  DUNS numbers.
204.7202-3  Taxpayer identification numbers.
204.7203  Responsibilities of contracting officers.
204.7204  Maintenance of the CAGE file.
204.7205  Novation agreements, mergers and sales of assets.
204.7206  Using CAGE codes to identify agents and brokers.

             Subpart 204.73--Central Contractor Registration

204.7300  Scope.
204.7301  Definitions.
204.7302  Policy.
204.7303  Procedures.
204.7304  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36289, July 31, 1991, unless otherwise noted.



                    Subpart 204.1--Contract Execution



Sec. 204.101  Contracting officer's signature.

    (a)(i) Include the contracting officer's telephone number on 
contracts and modifications.
    (ii) The contracting officer may sign bilateral modifications of a 
letter contract before signature by the contractor.



                  Subpart 204.2--Contract Distribution



Sec. 204.201  Procedures.

    (1) The procuring contracting officer (PCO) retains the original 
signed contract for the official contract file. Administrative 
contracting officers and terminations contracting officers provide the 
original of each modification to the PCO for retention in the official 
contract file. Unless otherwise directed by department/agency 
procedures, the office issuing the orders maintains the original of 
orders under basic ordering agreements and the original of provisioning 
orders.
    (2) Ensure that distribution of contracts and modifications is 
consistent with security directives.
    (c) Distribute one copy to each Defense Finance and Accounting 
Service (DFAS) accounting station cited in the contract, in addition to 
the copy provided to each DFAS funding office.
    (e)(i) Distribute one copy of each of the following types of 
contracts or modifications to the appropriate Defense Contract Audit 
Agency (DCAA) field audit office (listed in DCAAP 5100.1, Directory of 
DCAA Offices, available on the World Wide Web, Internet address http://
www.deskbook.osd.mil, under reference library documents)--
    (A) Cost reimbursement;
    (B) Time-and-materials;
    (C) Labor-hour;
    (D) Fixed-price contracts with provisions for redetermination, cost 
incentives, economic price adjustment based on cost, or cost 
allowability; and
    (E) Any other contract that requires audit service.
    (ii) If there is a question as to the appropriate DCAA field audit 
office, request the assistance of the DCAA procurement liaison auditor 
or the nearest DCAA field audit office.
    (f) Provide two copies to offices performing contract administration 
support functions.

[56 FR 36289, July 31, 1991, as amended at 59 FR 27668, May 27, 1994; 63 
FR 31935, June 11, 1998]



Sec. 204.202  Agency distribution requirements.

    (1) Distribute copies of contracts as follows--
    (i) Four copies to the contract administration office (send 
simultaneously with the copy furnished under FAR 4.201(b));
    (ii) One copy to each consignee indicated in the contract. A 
transshipping terminal is not a consignee.
    (A) Inventory control points that have an automated uniform 
inventory control point data base that interfaces with consignees may 
use their automated procedure rather than sending a written copy of the 
contract. However, when inspection is required at destination, send a 
written copy to the consignee.
    (B) The Defense Logistics Agency is authorized to prescribe 
alternate procedures for distribution of contract documents in Defense 
Supply Center Philadelphia European Region;

[[Page 18]]

    (iii) Two copies to the military interdepartmental purchase request 
requiring activity in the case of coordinated acquisition;
    (iv) One copy to the contract administration office (CAO) automatic 
data processing point, except when the DoDAAD code is the same as that 
of either the CAO or payment office; and
    (v) One copy, or an extract of the pertinent information, to the 
cognizant Defense Investigative Service office listed in DoD 5100.76-M, 
Physical Security of Sensitive Conventional Arms, Ammunition, and 
Explosives, when the clause at 252.223-7007, Safeguarding Sensitive 
Conventional Arms, Ammunition, and Explosives, is included in the 
contract.
    (2) The activity executing a contract modification shall furnish a 
copy of the basic contract and all modifications to--
    (i) The new and old payment office when adding or changing a payment 
office;
    (ii) The new contract administration office, a new consignee or 
other activity, based on the extent to which each activity is concerned 
with the basic contract and modifications.
    (3) Distribution of modifications issued to provide initial or 
amended shipping instructions under 204.7004(c)(3)(iii) and 204.7004(f) 
may be limited to the following--
    (i) Contractor, one copy;
    (ii) Receiving activity, one copy each;
    (iii) Contract administration office, one copy;
    (iv) Payment office, one copy; and
    (v) Contract administration office automatic data processing point, 
one copy.
    (4) Distribution of modifications generated by automated means 
(computer programs) may be limited to the following--
    (i) Contractor, one copy;
    (ii) Contract administration office, one copy;
    (iii) New payment office, one copy;
    (iv) Procuring contracting office, one copy;
    (v) Funding activities, one copy to each; and
    (vi) Consignee, one copy to each.

[56 FR 36289, July 31, 1991, as amended at 61 FR 7742, Feb. 29, 1996; 63 
FR 31935, June 11, 1998]



   Subpart 204.4--Safeguarding Classified Information Within Industry



Sec. 204.402  General.

    (1) Subpart 239.74 contains policy and procedures for securing 
telecommunications between Government agencies and contractors and 
subcontractors.
    (2) Pursuant to section 808 of Pub. L. 102-190, DoD employees or 
members of the Armed Forces who are assigned to or visiting a contractor 
facility and are engaged in oversight of an acquisition program will 
retain control of their work product. Classified work products of DoD 
employees or members of the Armed Forces shall be handled in accordance 
with DoD 5220.22-M, Industrial Security Manual, and DoD 5220.22-R, 
Industrial Security Regulation. Contractor procedures for protecting 
against unauthorized disclosure of information shall not require DoD 
employees or members of the Armed Forces to relinquish control of their 
work products, whether classified or not, to a contractor.

[57 FR 14992, Apr. 23, 1992]



Sec. 204.404  Contract clause.



Sec. 204.404-70  Additional contract clauses.

    (a) Use the clause at 252.204-7000, Disclosure of Information, in 
solicitations and contracts when the contractor will have access to or 
generate unclassified information that may be sensitive and 
inappropriate for release to the public.
    (b) Use the clause at 252.204-7003, Control of Government Personnel 
Work Product, in all solicitations and contracts.

[57 FR 14992, Apr. 23, 1992]



                    Subpart 204.6--Contract Reporting



Sec. 204.600  Scope of subpart.

    The Defense Contract Action Data System (DCADS) (see 204.670) is the 
DoD reporting system which supports

[[Page 19]]

the uniform reporting requirements for--
    (1) DD Form 350, Individual Contracting Action Report; and
    (2) DD Form 1057, Monthly Summary of Actions $25,000 or Less.



Sec. 204.601  Record requirements.

    (a) The DCADS meets these record retention requirements.
    (d) The Directorate for Information, Operation, and Reports (DIOR), 
of the Washington Headquarters Services (WHS) transmits required DoD 
information to the Federal Procurement Data System.



Sec. 204.602  Federal Procurement Data System.

    (c) DoD uses the DD Form 350, Individual Contracting Action Report, 
in lieu of the SF 279, Federal Procurement Data System (FPDS) Individual 
Contract Action Report. DoD uses the DD Form 1057, Monthly Contracting 
Summary of Actions $25,000 or Less, in lieu of the SF 281, FPDS Summary 
Contract Action Report ($25,000 or Less).



Sec. 204.602-70  Solicitation provision.

    When the Commercial and Government Entity codes for the prospective 
offerors are not available to the contracting office, use the provision 
at 252.204-7001, Commercial and Government Entity (CAGE) Code Reporting.

[61 FR 61592, Nov. 30, 1995]



Sec. 204.670  Defense Contract Action Data System (DCADS)



Sec. 204.670-1  Definitions.

    As used in this section and 253.204-70 and 253.204-71--
    (a) Contract administration office means an office, other than the 
contracting office, which awards or executes contracting actions on 
behalf of the contracting office, including actions relating to the 
settlement of terminated contracts.
    (b) Contracting action means any written action obligating or 
deobligating funds in connection with the purchasing, renting, or 
leasing of supplies, services, or construction. The term does not 
include grants or cooperative agreements. The term includes, but is not 
limited to--
    (1) Definitive contracts, including notices of award;
    (2) Letter contracts;
    (3) Purchase orders;
    (4) Orders under existing contracts or agreements, e.g.--
    (i) Orders against basic ordering agreements, including service 
orders issued on DD Form 1164 by installation transportation offices;
    (ii) Calls against blanket purchase agreements;
    (iii) Job orders;
    (iv) Task orders;
    (v) Delivery orders;
    (vi) Communication services authorizations; and
    (vii) Notices of termination or cancellation.
    (5) Contract modifications, e.g.--
    (i) Change orders;
    (ii) Supplemental agreements;
    (iii) Funding actions; and
    (iv) Option exercises.
    (c) Departmental data collection points are--
    (1) For the Army (including Corps of Engineers civil Works): U.S. 
Army Contracting Support Agency, Attn: SFAE-CSA-PPS, 5109 Leesburg Pike, 
Suite 916, Falls Church, VA 22041-3201
    (2) For the Navy: Fleet Industrial Supply Center, Norfolk Detachment 
Washington, Attn: PMRS, Washington Navy Yard, Bldg. 200, 4th 
Floor, 800 M Street, SW, Washington, DC 20374-2004
    (3) For the Air Force: SAF/AQCI, 1060 Air Force Pentagon, 
Washington, DC 20330-1060
    (4) For the Defense Logistics Agency: Headquarters, Defense 
Logistics Agency, Attn: Directorate of Procurement (Acquisition 
Operations Team), 8725 John J. Kingman Road, Suite 3147, Ft. Belvoir, VA 
22060-6221.
    (5) For other DoD contracting activities: U.S. Army Contracting 
Support Agency, Attn: SFAE-CSA-PPS, 5109 Leesburg Pike, Suite 916, Falls 
Church, VA 22041-3201.
    (d) United States and outlying areas is defined in Federal 
Information Processing Standard Publication (FIPS PUB) 55-2, Guideline: 
Codes for Named Populated Places, Primary County Divisions, and Other 
Locational Entities

[[Page 20]]

of the United States and Outlying Areas. Outlying areas are--
    (1) American Samoa;
    (2) The Federated States of Micronesia;
    (3) Guam;
    (4) The Marshall Islands;
    (5) Northern Mariana Islands;
    (6) The Trust Territory of Palau;
    (7) Puerto Rico;
    (8) The U.S. Minor Outlying Islands; and
    (9) The U.S. Virgin Islands.

[56 FR 36289, July 31, 1991, as amended at 60 FR 61592, Nov. 30, 1995; 
61 FR 51030, Sept. 30, 1996; 62 FR 34121, June 24, 1997]



Sec. 204.670-2  Reportable contracting actions.

    (a) Except as provided in paragraph (c) of this subsection, complete 
a DD Form 350 for--
    (1) All contracting actions, including actions executed by DoD for 
purchase of land, or rental or lease of real property, that obligate or 
deobligate more than $25,000; and
    (2) All contracting actions that obligate or deobligate $25,000 or 
less if the action is in a designated industry group under the small 
business competitiveness demonstration program (See 204.670-9 and FAR 
subpart 19.10).
    (b) Except as provided in paragraph (c) of this subsection, complete 
a DD Form 1057 for all contracting actions which obligate or deobligate 
$25,000 or less, including contracting actions reported on a DD Form 350 
under paragraph (a)(2) of this subsection.
    (c) Summarize on the monthly DD Form 1057, in accordance with the 
instructions in 253.204-71(a)(3), contracting actions that support a 
contingency operation (see 213.000) and that obligate or deobligate 
funds exceeding $25,000 but not exceeding $200,000.
    (d) The following contracting actions shall not be reported on 
either the DD Form 350 or DD Form 1057:
    (1) Imprest fund transactions, SF 44 purchases, and micro-purchases 
obtained through use of the purchase card;
    (2) Transactions that cite only nonappropriated funds (Funds held in 
trust accounts for foreign governments shall be treated as appropriated 
funds.);
    (3) Transactions for purchase of land, or rental or lease of real 
property, when the General Services Administration (GSA) executes the 
contracting action;
    (4) Orders from GSA stock and the GSA Consolidated Purchase Program;
    (5) Transactions that involve Government bills of lading or 
transportation requests, except orders placed under Regional Storage 
Management Office's (RSMO) BOAs;
    (6) Requisitions transferring supplies within or among the 
departments or agencies; and
    (7) Pursuant to 204.670-6(b), orders placed by other contracting 
activities against indefinite delivery contracts awarded by the--
    (i) Military Sealift Command;
    (ii) Defense Fuel Supply Center for petroleum and petroleum 
products; or
    (iii) Defense Supply Center, Richmond, for petroleum products.

[56 FR 36289, July 31, 1991, as amended at 57 FR 53598, Nov. 12, 1992; 
60 FR 61592, Nov. 30, 1995; 61 FR 51030, Sept. 30, 1996; 62 FR 34121, 
June 24, 1997; 62 FR 44222, Aug. 20, 1997]



Sec. 204.670-3  Contracting office responsibilities.

    (a) For DD Form 350, contracting offices--
    (1) Prepare the appropriate type of DD Form 350 (see 204.670-6), in 
accordance with the instructions in 253.204-70, on all reportable 
contracting actions (see 204.670-2(a)), including actions accomplished 
by contract administration offices on behalf of the contracting office.
    (2) Complete the DD Form 350 in the required format within three 
working days after the date on which the dollars were actually obligated 
or deobligated (see 204.670-7). Submit all contracting actions for the 
calendar month to the departmental data collection point (see 204.670-
1(c)) in accordance with departmental/agency procedures, except--
    (i) For Defense Fuel Supply Center major petroleum acquisitions 
which result in multiple awards, the due date is ten working days when 
permitted by the departmental data collection point;
    (ii) For actions executed in the month of September, due dates may 
be

[[Page 21]]

extended ten calendar days when permitted by the departmental data 
collection point; and
    (iii) For actions accomplished by a contract administration office, 
the due date is three working days after the receipt of the contractual 
instrument annotated ``DD FORM 350 REPORTING COPY.''
    (3) Prepare and submit a corrected or cancelling DD Form 350 as 
required in accordance with departmental data collection point 
instructions.
    (4) Establish a control system for assigning report numbers to DD 
Forms 350 (Block A2 of the DD Form 350). The number shall have four 
positions and may be any combination of alpha or numeric characters. If 
more than one activity within a contracting office utilizes the same 
reporting office code, the contracting office shall assign separate 
blocks of numbers to each activity in order to prevent duplication of 
report numbers.
    (5) Maintain a copy of the DD Form 350 in the contract file, in 
accordance with departmental/agency procedures.
    (b) For DD Form 1057, contracting offices--
    (1) Prepare a DD Form 1057, in accordance with the instructions in 
253.204-71, covering reportable contracting actions (see 204.670-2(b)), 
including actions accomplished by contract administration offices on 
behalf of the contracting office. An installation, base, or other 
activity may have more than one contracting office code to separate the 
various types of acquisitions, such as base and central contracting, or 
RDT&E and non-RDT&E acquisition. Each contracting office with a separate 
code must submit its own DD Form 1057.
    (2) Complete the DD Form 1057 in the required format within three 
working days after the cutoff of the reporting month (see 204.670-7 for 
alternate formats). Contracting offices are authorized to cut off the 
reporting month no earlier than the 25th calendar day. For September 
only, the cutoff date shall not be later than September 30. Submit the 
DD Form 1057 to the departmental data collection point in accordance 
with departmental/agency procedures.
    (3) Unless otherwise instructed by the departmental data collection 
point, do not submit revised DD Form 1057 reports. Include any required 
corrections or adjustments in following month's report.

[56 FR 36289, July 31, 1991, as amended at 61 FR 51030, Sept. 30, 1996]



Sec. 204.670-4  Contract administration office responsibilities.

    Contract administration offices executing actions subject to DD Form 
350 or DD Form 1057 reporting must submit an annotated copy of the 
contractual instrument to the contracting office so that the contracting 
office can submit the required report.
    (a) For DD Form 350, annotate in the heading of the contractual 
instrument in large block letters ``DD FORM 350 REPORTING COPY.'' Send 
the annotated copy to the contracting office within one working day 
after the action date.
    (b) For DD Form 1057, annotate in the heading of the contractual 
instrument in large block letters ``DD FORM 1057 REPORTING COPY.'' Send 
the annotated copy with the normal distribution.



Sec. 204.670-5  Departmental data collection point responsibilities.

    Departmental data collection points--
    (a) Collect DD Forms 350 and 1057 data provided by their contracting 
activities;
    (b) Electronically record the data in accordance with the 
instructions for recording and editing developed by WHS-DIOR with the 
majority agreement of the departments/agencies and prescribed by the 
Director of Defense Procurement; and
    (c) Submit monthly reports (noncumulative) to Washington 
Headquarters Services, ATTN: DIOR, within 18 days after the close of the 
reporting period, except the due date for September may be extended for 
no more than ten days. Reports control symbols, DD-P&L(M) 1014 and DD-
P&L(M) 1015, respectively, apply to reports submitted to WHS-DIOR for DD 
Form 350 actions and DD Form 1057.

[61 FR 51030, Sept. 30, 1996]

[[Page 22]]



Sec. 204.670-6  Types of DD Form 350 reports.

    There are three types of reports--single, consolidated, and 
multiple.
    (a) A single report is one DD Form 350 report per contracting 
action.
    (b) A consolidated report is one DD Form 350 report which combines 
several contracting actions.
    (1) Prepare consolidated reports for--
    (i) Air Mobility Command awards for international airlift services. 
The Command reports these at the end of each operating month with one DD 
Form 350 for each airlift contract.
    (ii) Military Sealift Command awards of indefinite delivery 
contracts for ocean transportation. The Command reports at the beginning 
of each fiscal year the estimated value of the orders for that fiscal 
year on one DD Form 350.
    (iii) Defense Fuel Supply Center or Defense Supply Center, Richmond, 
indefinite delivery contracts for petroleum or petroleum supplies. The 
Centers, at the time of award, report the estimated value of the orders 
to be placed against the contract on one DD Form 350.
    (iv) Orders placed by the Defense Commissary Agency (DeCA) for 
resale items in excess of $25,000. DeCA consolidates the orders monthly 
and reports the cumulative dollar amounts and actions on one DD Form 350 
in accordance with departmental/agency procedures. Defense Logistics 
Agency activities submit single rather than consolidated reports.
    (v) Vouchers processed by the U.S. Army Contracting Command, Europe 
(USACCE), for the purchase of utilities from municipalities (e.g., gas, 
electricity, water, sewage, steam, snow removal, and garbage 
collection). USACCE consolidates these transactions monthly and reports 
the cumulative dollar amount on one DD Form 350 in accordance with 
departmental/agency procedures.
    (2) Consolidated reports may be prepared in accordance with 
departmental/agency procedures for orders under communications service 
agreements for local dial tone services.
    (c) A multiple report is more than one DD Form 350 per contracting 
action. Prepare multiple reports if--
    (1) The contracting action includes foreign military sales (FMS) 
requirements in addition to non-FMS requirements (Block B9 on the DD 
Form 350). Submit one DD Form 350 report for the FMS requirements and 
another DD Form 350 report for the non-FMS requirements, except if 
either of the portions in $25,000 or less, report the $25,000 or less 
portion on a DD Form 1057 in lieu of a DD Form 350.
    (2) The contracting action includes more than one type of contract 
(Block C5 on the DD Form 350) and the type with the least dollar value 
exceeds $500,000. Prepare a separate DD Form 350 for each contract type.

[56 FR 36289, July 31, 1991, as amended at 59 FR 27668, May 27, 1994; 60 
FR 61592, Nov. 30, 1995; 61 FR 51031, Sept. 30, 1996; 62 FR 49304, Sept. 
19, 1997]



Sec. 204.670-7  Report formats.

    Contracting offices submit the signed original DD Forms 350 and 
1057, unless the data collection point approves use of an automated 
facsimile or electronic equivalent containing the information.



Sec. 204.670-8  Security classification.

    Submit DD Forms 350 as unclassified documents. Classified contracts 
are not exempt from reporting solely because the contract is classified. 
Contact the appropriate departmental data collection points for special 
instructions if it is necessary for security reasons to modify coding of 
all or any individual blocks on the DD Form 350. If contact cannot be 
made for security reasons, obtain instructions from the Office of the 
Deputy to the Under Secretary of Defense for Policy Support, ATTN: 
Director for Special Programs. Telephone number is (703) 614-0578/9 or 
DSN 224-0578/9.

[61 FR 51031, Sept. 30, 1996]



Sec. 204.670-9  Reporting of individual contracting actions of $25,000 or less.

    Under the Small Business Competitiveness Demonstration Program (see 
FAR subpart 19.10), contracting actions of $25,000 or less in four 
designated industry groups must be reported in the same manner as if the 
actions were in excess of $25,000.

[[Page 23]]

    (a) Report contracting actions of $25,000 or less in the designated 
industry groups on both the DD Form 350 and the DD Form 1057.
    (b) The following contracting actions are not subject to the 
additional DD Form 350 reporting, although they must still be reported 
on the DD Form 1057:
    (1) Contracting actions of $500 or less.
    (2) Foreign military sales.
    (3) Orders or modifications under a Federal schedule.
    (4) Actions with a government agency.
    (5) Actions with non-U.S. business firms.
    (6) Actions where the place of performance is other than the United 
States and its outlying areas.

[56 FR 36289, July 31, 1991, as amended at 61 FR 51031, Sept. 30, 1996; 
62 FR 34121, June 24, 1997]



                      Subpart 204.8--Contract Files



Sec. 204.802  Contract files.

    Official contract files shall consist of--
    (1) Only original, authenticated or conformed copies of contractual 
instruments--
    (i) Authenticated copies means copies that are shown to be genuine 
in one of two ways--
    (A) Certification as true copy by signature of an authorized person; 
or
    (B) Official seal.
    (ii) Conformed copies means copies that are complete and accurate, 
including the date signed and the names and titles of the parties who 
signed them.
    (2) Signed or official record copies of correspondence, memoranda, 
and other documents.



Sec. 204.804  Closeout of contract files.

    Normally, the closeout date for contract files is the date in Block 
9d on the DD Form 1594, Contract Completion Statement, or in columns 59-
65 on the PK9. If the contracting office must do a major closeout action 
that will take longer than three months after the date shown in Block 9d 
of the DD Form 1594, or in columns 59-65 of the PK9--
    (1) The closeout date for file purposes will be the date in Block 
10e of the DD Form 1594 or the date of the closeout statement executed 
when the MILSCAP PK9 is received.
    (2) The contracting office shall notify the contract administration 
office of the revised closeout date by either sending a copy of the 
completed DD Form 1594 or by preparing a MILSCAP Format Identifier PKZ, 
Contract Closeout Extension.



Sec. 204.804-1  Closeout by the office administering the contract.

    (1) For contracting offices administering their own contracts, 
locally developed forms or statement of completion may be used instead 
of the DD Form 1594, Contract Completion Statement. Whichever method is 
used, the form shall be retained in the official contract file.
    (2) For contracts valued above the small purchase threshold, prepare 
a DD Form 1597, Contract Closeout Check List, (or agency equivalent) to 
ensure that all required contract actions have been satisfactorily 
accomplished.



Sec. 204.804-2  Closeout of the contracting office files if another office administers the contract.

    (1) When an office, other than the contracting office, administers 
the contract, it shall--
    (i) Provide the contracting office an interim contract completion 
statement when the contract is physically completed and accepted. This 
notice may be in the form of either a DD Form 1594, Contract Completion 
Statement, or a MILSCAP Format Identifier Interim PK9, Contract Physical 
Completion. When the DD Form 1594 is used, the contracting officer--
    (A) Annotates Block 8, Remarks, with--
    (1) ``Notice of Physical Completion;''
    (2) Final acceptance date;
    (3) Signature of a responsible official; and
    (4) Date signed.
    (B) Does not complete Blocks 9 (b), (c), and (d) at this time;
    (ii) Prepare a DD Form 1597, Contract Closeout Check List, if 
necessary, to determine that all the required actions have been done;
    (iii) Initiate DD Form 1593, Contract Administration Completion 
Record, if

[[Page 24]]

necessary to obtain statements from other organizational elements that 
they have completed the actions they are responsible for; and
    (iv) Upon final payment--
    (A) Process the DD Form 1594 with Blocks 1 through 9 completed or 
the MILSCAP Format Identifier PK9 verifying that all contract 
administration office actions have been done; and
    (B) Send the original of the DD Form 1594 or the MILSCAP Format 
Identifier PK9 to the contracting office, and file a copy in the 
official contract file.
    (2) If the administrative contracting officer (ACO) cannot closeout 
a contract within the specified time period (see FAR 4.804-1), the ACO 
must notify the procuring contracting officer (PCO) within 45 days after 
the expiration of the time period of--
    (i) The reasons for the delay; and
    (ii) New target date for closeout. If MILSCAP procedures apply, the 
ACO shall use the MILSCAP Format Identifier PKX, Unclosed Contract 
Status, to provide this notice to the PCO.
    (3) If the contract still is not closed out by the new target date, 
the ACO shall again notify the PCO with the reasons for delay and new 
target date. If MILSCAP procedures apply, continue to use the MILSCAP 
Format Identifier PKX, Unclosed Contract Status, to provide this notice.



Sec. 204.805  Disposal of contract files.

    (1) The sources of the period for which official contract files must 
be retained are General Records Schedule 3 (Procurement, Supply, and 
Grant Records) and General Records Schedule 6 (Accountable Officers' 
Accounts Records). Copies of the General Records Schedule may be 
obtained from the National Archives and Records Administration, 
Washington, DC 20408.
    (2) Deviations from the periods cannot be granted by the Defense 
Acquisition Regulatory Council. Forward requests for deviations to both 
the General Accounting Office and the National Archives and Records 
Administration.
    (3) Hold completed contract files in the office responsible for 
maintaining them for a period of 12 months after completion. After the 
initial 12 month period, send the records to the local records holding 
or staging area until they are eligible for destruction. If no space is 
available locally, transfer the files to the General Services 
Administration Federal Records Center that services the area.
    (4) Duplicate or working contract files should contain no originals 
of materials that properly belong in the official files. Destroy working 
files as soon as practicable once they are no longer needed.
    (5) Retain pricing review files, containing documents related to 
reviews of the contractor's price proposals, subject to cost or pricing 
data (see FAR 15.403-4), for six years. If it is impossible to determine 
the final payment date in order to measure the six year period, retain 
the files for nine years.

[56 FR 36289, July 31, 1991, as amended at 62 FR 40472, July 29, 1997; 
63 FR 11528, Mar. 9, 1998]



  Subpart 204.9--Information Reporting to the Internal Revenue Service



Sec. 204.902  General.

    (b) DoD uses the DD Form 350, Individual Contract Action Report, 
(see 204.670) to meet these reporting requirements.



  Subpart 204.70--Uniform Procurement Instrument Identification Numbers



Sec. 204.7000  Scope.

    This subpart prescribes policies and procedures for assigning 
numbers to all solicitations, contracts, and related instruments. This 
subpart--
    (a) Does not apply to solicitations or contracts issued by the 
Defense Commercial Communications Office of the Defense Information 
Systems Agency; and
    (b) Is optional for solicitations and contracts that will be 
completely administered by the purchasing office or the consignee, 
except that--
    (1) The procurement instrument identification (PII) number, 
including supplemental modification numbers, shall not exceed 19 
characters (excluding hyphens); and

[[Page 25]]

    (2) The number shall begin with the purchasing office identifier and 
the fiscal year in accordance with 204.7003(a) (1) and (2) and appendix 
G.

[56 FR 36289, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991]



Sec. 204.7001  Policy.

    (a) Use the uniform PII numbering system prescribed by this subpart 
for the solicitation/contract instruments described in 204.7003 and 
204.7004.
    (b) Retain the basic PII number unchanged for the life of the 
instrument.



Sec. 204.7002  Procedures.

    (a) In assigning PII numbers--
    (1) Use only the alpha-numeric characters, as prescribed in this 
subpart; and
    (2) Do not use the letters ``I'' or ``O,'' except as noted in 
204.7003(a)(1)(i) (J) and (K).
    (b) If department/agency procedures require other identification on 
the solicitation, contract, or other related instrument forms, enter it 
in such a location so as to separate it clearly from the PII number.
    (c) Enter the basic PII number, including Federal supply contract 
numbers and any supplementary numbers, in the spaces provided on the 
solicitation, contract, or related instrument forms. Separate the major 
elements by dashes, e.g., N00023-90-D-0009. If there is no space 
provided on the form, enter the number in the upper right corner of the 
form and identify what it is (e.g., Supplementary Number N00023-90-F-
0120).



Sec. 204.7003  Basic PII number.

    (a) Elements of a number. The number consists of 13 alpha-numeric 
characters grouped to convey certain information.
    (1) Positions 1 through 6. The first of the six positions, in upper 
case letters, identify the department/agency and office issuing the 
instrument.
    (i) Department/agency identification:

(A) Department of the Army.................  DA
(B) Department of the Navy (except Marine    N
 Corps).
(C) Department of the Air Force............  F
(D) Defense Information Systems Agency.....  DCA
(E) Defense Logistics Agency...............  S
(F) Defense Special Weapons Agency.........  DSWA
(G) National Imagery and Mapping Agency....  NIMA
(H) Miscellaneous Defense Activities.......  MDA
(I) Marine Corps...........................  M
(J) Ballistic Missile Defense Organization.  HQ0006
(K) On Site Inspection Agency..............  OSIA
(L) Defense Commissary Agency..............  DECA
(M) United States Special Operations         USZA
 Command.
 


    (ii) Issuing office identification. The remaining positions are the 
alpha-numeric characters that identify the issuing office. These 
characters are in appendix G.
    (iii) Use all six positions. If necessary, enter zeros between the 
department/agency identifier and the issuing office identifier.
    (2) Positions 7 through 8. The seventh and eighth positions are the 
last two digits of the fiscal year in which the PII number was assigned.
    (3) Position 9. Indicate the type of instrument by entering one of 
the following upper case letters in position nine--

    (i) Blanket purchase agreements--A
    (ii) Invitations for bids--B
    (iii) Contracts of all types except indefinite delivery contracts, 
facilities contracts, sales contracts, and contracts placed with or 
through other Government departments or agencies or against contracts 
placed by such departments or agencies outside the DoD--C
    (iv) Indefinite delivery contracts--D
    (v) Facilities contracts--E
    (vi) Contracting actions placed with or through other Government 
departments or agencies or against contracts placed by such departments 
or agencies outside the DoD (including actions with the National 
Industries for the Blind (NIB), the National Industries for the Severely 
Handicapped (NISH), and the Federal Prison Industries (UNICOR))--F
    (vii) Basic ordering agreements--G
    (viii) Agreements, including basic agreements and loan agreements, 
but excluding basic purchasing agreements, basic ordering agreements, 
and leases--H
    (ix) Do not use--I
    (x) Reserved--J

[[Page 26]]

    (xi) Short form research contract--K
    (xii) Lease agreement--L
    (xiii) Purchase orders--manual (assign W when numbering capacity of 
M is exhausted during the fiscal year)--M
    (xiv) Notice of intent to purchase--N
    (xv) Do not use--O
    (xvi) Purchase order--automated (assign V when numbering capacity of 
P is exhausted during a fiscal year)--P
    (xvii) Request for quotation--manual--Q
    (xviii) Request for proposal--R
    (xix) Sales contract--S
    (xx) Request for quotation--automated (assign U when numbering 
capacity of T is exhausted during a fiscal year)--T
    (xxi) See T--U
    (xxii) See P--V
    (xxiii) See M--W
    (xxiv) Reserved for departmental use--X
    (xxv) Imprest fund--Y
    (xxvi) Reserved for departmental use--Z
    (4) Position 10 through 13. Enter the serial number of the 
instrument in these positions. A separate series of serial numbers may 
be used for any type of instrument listed in paragraph (a)(3) of this 
section. Activities shall assign such series of PII numbers 
sequentially. An activity may reserve blocks of numbers or alpha-numeric 
numbers for use by its various components.
    (b) Illustration of PII number. The following illustrates a properly 
configured PII number--

[[Page 27]]

[GRAPHIC] [TIFF OMITTED] TC01FE91.052

[56 FR 36289, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991; 
59 FR 27668, May 27, 1994; 60 FR 61592, Nov. 30, 1995; 61 FR 50451, 
Sept. 26, 1996; 62 FR 34121, June 24, 1997]



Sec. 204.7004  Supplementary PII numbers.

    (a) Uses of the supplementary number. Use supplementary numbers with 
the basic PII number, to identify--
    (1) Amendments to solicitations;
    (2) Modifications to contracts and agreements, including provisioned 
item orders; and
    (3) Calls or orders under contracts, basic ordering agreements, or 
blanket purchase agreements, issued by the contracting office or by a 
DoD activity other than the contracting office, including DoD orders 
against Federal supply schedules.
    (b) Amendments to solicitations. Number amendments to solicitations 
sequentially using a four position numeric serial number added to the 
basic PII number and beginning with 0001, e.g., N00062-91-R-1234-0001.
    (c) Modifications to contracts and agreements. (1) Number 
modifications to contracts and agreements using a six position alpha-
numeric added to the basic PII number.
    (2) Position 1. Identify the office issuing the modification--
    (i) Contract administration office--A
    (ii) Contracting office--P
    (3) Positions 2 through 3. These are the first two digits in a 
serial number. They may be either alpha or numeric. Use the letters K, 
L, M, N, P, Q, S, T, U, V, W, X, Y, or Z only in the second position and 
only in the following circumstances--
    (i) Use K, L, M, N, P, and Q in the second position only if the 
modification is issued by the Air Force and is a provisioned item order.
    (ii) Use S, and only S, in the second position to identify 
modifications issued to provide initial or amended shipping instructions 
when--
    (A) The contract has either FOB origin or destination delivery 
terms; and
    (B) The price changes.
    (iii) Use T, U, V, W, X, or Y, and only those characters, in the 
second position to identify modifications issued to provide initial or 
amended shipping instructions when--
    (A) The contract has FOB origin delivery terms; and
    (B) The price does not change.
    (iv) Only use Z in the second position to identify a modification 
which definitizes a letter contract.
    (4) Positions 4 through 6. These positions are always numeric. Use a 
separate series of serial numbers for each type of modification listed 
in paragraph (c)(3) of this section. Examples of proper numbering for 
positions 2-6 (the first position will be either ``A'' or ``P'') are as 
follows:

[[Page 28]]



------------------------------------------------------------------------
                                  Provisioned items
                                 order (reserved for       Shipping
      Normal modification          exclusive use by      instructions
                                 the Air Force only)
------------------------------------------------------------------------
00001-99999....................  K0001-K9999          S0001-S9999
  then.........................  KA001-KZ999          SA001-SZ999
A0001-A9999....................  L0001-L9999          T0001-T9999
B0001-B9999....................  LA001-LZ999          TA001-TZ999
  and so on to.................  M0001-M9999          U0001-U9999
H0001-H9999....................  MA001-MZ999          UA001-UZ999
  then.........................  N0001-N9999          V0001-V9999
J0001-J9999....................  NA001-NZ999          VA001-VZ999
  then.........................  P0001-P9999          W0001-W9999
R0001-R9999....................  PA001-PZ999          WA001-WZ999
  then.........................  Q0001-Q9999          X0001-X9999
AA001-HZ999....................  QA001-QZ999          XA001-XZ999
  then.........................                       Y0001-Y9999
JA001-JZ999....................                       YA001-YZ999
RA001-RZ999....................
------------------------------------------------------------------------

    (5) If the contract administration office is changing the contract 
administration or disbursement office for the first time and is using 
computer generated modifications to notify many offices, it uses the six 
position supplementary number ARZ999. If either office has to be changed 
again during the life of the contract, the supplementary number will be 
ARZ998, and on down as needed.
    (6) Each office authorized to issue modifications shall assign the 
supplementary identification numbers in sequence. Do not assign the 
numbers until it has been determined that a modification is to be 
issued.
    (d) Delivery orders under indefinite delivery contracts, orders 
under basic ordering agreements, and calls under blanket purchase 
agreements. (1) Calls or orders issued by the office issuing the 
contract or agreement. Use a four position alpha-numeric call or order 
serial number added to the basic PII number. These shall be identified 
by using serial numbers beginning 0001 through 9999. When the numeric 
identifiers run out, use alpha characters in the third and fourth 
positions. Never use alpha characters in the first and second positions.
    (2) Orders placed against another activity's contract or agreement.
    (i) If the office placing the order or call is different from the 
office identified in the basic PII number, assign a serial number to the 
order or call. The first and second positions contain the call/order 
code assigned to the ordering office by appendix G. Do not use the 
letters A or P in the first position. The third and fourth positions are 
a two position serial number assigned by the ordering office. The series 
will begin with 01. When the numbers exceed 99, the office will assign a 
uniform series of identifiers containing alpha and/or numeric 
characters, e.g., Basic : N00383-91-D-0001 serial : TU01.
    (ii) If an office is placing calls or orders with NIB, NISH, or 
UNICOR, the office shall identify the instrument with a 13 position 
supplementary PII number using an F in the 9th position. Modifications 
to these calls or orders shall be numbered in accordance with paragraph 
(c) of this section, e.g., Order : DLA100-91-F-0001 modification : 
A00001.
    (e) Modifications to calls or orders. Use a two position alpha-
numeric suffix, known as a call or order modification indicator, to 
identify a modification to a call or order.
    (1) Modifications to a call or order issued by a purchasing office 
begin with 01, 02, and so on through 99, then B1 through B9, BA through 
BZ, C1 through C9, and so on through ZZ.
    (2) Modifications to a call or order issued by a contract 
administration office begin with 1A, 1B, and so on through 9Z, followed 
by A1, A2, and so on to A9, then AA, AB, and so on through AZ.



       Subpart 204.71--Uniform Contract Line Item Numbering System



Sec. 204.7100  Scope.

    This subpart prescribes policies and procedures for assigning 
contract line item numbers.



Sec. 204.7101  Definitions.

    Accounting classification reference number (ACRN) means a two 
position alpha or alpha/numeric control code used as a method of 
relating the accounting classification citation to detailed line item 
information contained in the schedule.
    Attachment means any documentation, appended to a contract or 
incorporated by reference, which does not establish a requirement for 
deliverables.
    Definitized item, as used in this subpart, means an item for which a 
firm

[[Page 29]]

price has been established in the basic contract or by modification.
    Exhibit means a document, referred to in a contract, which is 
attached and establishes requirements for deliverables. The term shall 
not be used to refer to any other kind of attachment to a contract. The 
DD Form 1423, Contract Data Requirements List, is always an exhibit, 
rather than an attachment.
    Nonseverable deliverable, as used in this subpart, means a 
deliverable item that is a single end product or undertaking, entire in 
nature, that cannot be feasibly subdivided into discrete elements or 
phases without losing its identity.
    Undefinitized item, as used in this subpart, means an item for which 
a price has not been established in the basic contract or by 
modification.

[56 FR 36289, July 31, 1991, as amended at 60 FR 34468, July 3, 1995]



Sec. 204.7102  Policy.

    (a) The numbering procedures of this subpart shall apply to all--
    (1) Solicitations;
    (2) Solicitation line and subline item numbers, if practicable;
    (3) Contracts as defined in FAR Subpart 2.1;
    (4) Contract line and subline item numbers;
    (5) Exhibits;
    (6) Exhibit line and subline items; and
    (7) Any other document expected to become part of the contract.
    (b) The numbering procedures are mandatory for all contracts where 
separate contract line item numbers are assigned, unless--
    (1) There are no postaward contract administration functions that 
the contracting officer will assign to an office listed in the DoD 
Directory of Contract Administration Services Components;
    (2) The contract is an indefinite delivery type for petroleum 
products against which posts, camps, and stations issue delivery orders 
for products to be consumed by them; or
    (3) The contract is a communications service authorization issued by 
the Defense Information Systems Agency's Office of Defense Commercial 
Communications.

[56 FR 36289, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991; 
60 FR 34468, July 3, 1995]



Sec. 204.7103  Contract line items.



Sec. 204.7103-1  Criteria for establishing.

    Contracts shall identify the items or services to be acquired as 
separate contract line items unless it is not feasible to do so.
    (a) Contract line items shall have all four of the following 
characteristics; however, there are exceptions within the 
characteristics, which may make establishing a separate contract line 
item appropriate even though one of the characteristics appears to be 
missing--
    (1) Single unit price. The item shall have a single unit price or a 
single total price, except--
    (i) If the item is not separately priced (NSP) but the price is 
included in the unit price of another contract line item, enter NSP 
instead of the unit price;
    (ii) When there are associated subline items, established for other 
than informational reasons, and those subline items are priced in 
accordance with 204.7104;
    (iii) When the items or services are being acquired on a cost-
reimbursement contract;
    (iv) When the contract is for maintenance and repair services (e.g., 
a labor hour contract) and firm prices have been established for 
elements of the total price of an item but the actual number and 
quantity of the elements are not known until performance. The 
contracting officer may structure these contracts to reflect a firm or 
estimated total amount for each line item;
    (v) When the contract line item is established to refer to an 
exhibit or an attachment (if management needs dictate that a unit price 
be entered, the price shall be set forth in the item description block 
and enclosed in parentheses); or
    (vi) When the contract is an indefinite delivery type contract and 
provides that the price of an item shall be determined at the time a 
delivery

[[Page 30]]

order is placed and the price is influenced by such factors as the 
quantity ordered (e.g., 10-99 @ $1.00, 100-249 @ $.98, 250+ @ $.95), the 
destination, the FOB point, or the type of packaging required.
    (2) Separately identifiable. A contract line item must be identified 
separately from any other items or services on the contract.
    (i) Supplies are separately identifiable if they have no more than 
one--
    (A) National stock number (NSN);
    (B) Item description; or
    (C) Manufacturer's part number.
    (ii) Services are separately identifiable if they have no more than 
one--
    (A) Scope of work; or
    (B) Description of services.
    (iii) This requirement does not apply if there are associated 
subline items, established for other than informational reasons, and 
those subline items include the actual detailed identification in 
accordance with 204.7104. Where this exception applies, use a general 
narrative description instead of the contract item description.
    (3) Separate delivery schedule. Each contract line item or service 
shall have its own delivery schedule, period of performance, or 
completion date expressly stated (``as required'' constitutes an 
expressly stated delivery term).
    (i) The fact that there is more than one delivery date, destination, 
performance date, or performance point may be a determining factor in 
the decision as to whether to establish more than one contract line 
item.
    (ii) If a contract line item has more than one destination or 
delivery date, the contracting officer may create individual contract 
line items for the different destinations or delivery dates, or may 
specify the different delivery dates for the units by destination in the 
delivery schedule.
    (4) Single accounting classification citation. (i) Each contract 
line item shall reference a single accounting classification citation 
except as provided in paragraph (a)(4)(ii) of this subsection.
    (ii) The use of multiple accounting classification citations for a 
contract line item is authorized in the following situations:
    (A) A single, nonseverable deliverable to be paid for with R&D or 
other funds properly incrementally obligated over several fiscal years 
in accordance with DoD policy;
    (B) A single, nonseverable deliverable to be paid for with different 
authorizations or appropriations, such as in the acquisition of a 
satellite or the modification of production tooling used to produce 
items being acquired by several activities; or
    (C) A modification to an existing contract line item for a 
nonseverable deliverable that results in the delivery of a modified 
item(s) where the item(s) and modification are to be paid for with 
different accounting classification citations.
    (iii) When the use of multiple accounting classification citations 
is authorized for a single contract line item, establish informational 
subline items for each accounting classification citation in accordance 
with 204.7104-1(a).
    (b) Exhibits may be used as an alternative to putting a long list of 
contract line items in the schedule. If exhibits are used, create a 
contract line item citing the exhibit's identifier. See 204.7105(a).
    (c) If the contract involves a test model or a first article which 
must be approved, establish a separate contract line item or subline 
item for each item of supply or service which must be approved. If the 
test model or first article consists of a lot composed of a mixture of 
items, a single line item or subline item may be used for the lot.
    (d) If a supply or service involves ancillary functions, like 
packaging and handling, transportation, payment of state or local taxes, 
or use of reusable containers, and these functions are normally 
performed by the contractor and the contractor is normally entitled to 
reimbursement for performing these functions, do not establish a 
separate contract line item solely to account for these functions. 
However, do identify the functions in the contract schedule. If the 
offeror separately prices these functions, contracting officers may 
establish separate contract line items for the functions; however, the 
separate

[[Page 31]]

line items must conform to the requirements of paragraph (a) of this 
subsection.

[56 FR 36289, July 31, 1991, as amended at 60 FR 34468, July 3, 1995; 60 
FR 43191, Aug. 18, 1995]



Sec. 204.7103-2  Numbering procedures.

    (a) Contract line items shall consist of four numeric digits 0001 
through 9999. Do not use numbers beyond 9999. Within a given contract, 
the item numbers shall be sequential but need not be consecutive.
    (b) The contract line item number shall be the same as the 
solicitation line item number unless there is a valid reason for using 
different numbers.
    (c) Once a contract line item number has been assigned, it shall not 
be assigned to another, different, contract line item in the same 
contract.



Sec. 204.7104  Contract subline items.



Sec. 204.7104-1  Criteria for establishing.

    Contract subline items provide flexibility to further identify 
elements within a contract line item for tracking performance or 
simplifying administration. There are only two kinds of subline items: 
those which are informational in nature and those which consist of more 
than one item that requires separate identification.
    (a) Informational subline items. (1) This type of subline item 
identifies information that relates directly to the contract line item 
and is an integral part of it (e.g., parts of an assembly or parts of a 
kit). These subline items shall not be scheduled separately for 
delivery, identified separately for shipment or performance, or priced 
separately for payment purposes.
    (2) The informational subline item may include quantities, prices, 
or amounts, if necessary to satisfy management requirements. However, 
these elements shall be included within the item description in the 
supplies/services column and enclosed in parentheses to prevent 
confusing them with quantities, prices, or amounts that have contractual 
significance. Do not enter these elements in the quantity and price 
columns.
    (3) Informational subline items shall be used to identify each 
accounting classification citation assigned to a single contract line 
item number when use of multiple citations is authorized (see 204.7103-
1(a)(4)(ii)).
    (b) Separately identified subline items. (1) Subline items will be 
used instead of contract line items to facilitate payment, delivery 
tracking, contract funds accounting, or other management purposes. Such 
subline items shall be used when items bought under one contract line 
item number--
    (i) Are to be paid for from more than one accounting classification. 
A subline item shall be established for the quantity associated with the 
single accounting classification citation. Establish a line item rather 
than a subline item if it is likely that a subline item may be assigned 
additional accounting classification citations at a later date. Identify 
the funding as described in 204.7104-1(a)(3);
    (ii) Are to be packaged in different sizes, each represented by its 
own NSN;
    (iii) Have collateral costs, such as packaging costs, but those 
costs are not a part of the unit price of the contract line item;
    (iv) Have different delivery dates or destinations or requisitions, 
or a combination of the three; or
    (v) Identify parts of an assembly or kit which--
    (A) Have to be separately identified at the time of shipment or 
performance; and
    (B) Are separately priced.
    (2) Each separately identified contract subline item shall have its 
own--
    (i) Delivery schedule, period of performance, or completion date;
    (ii) Unit price or single total price or amount (not separately 
priced (NSP) is acceptable as an entry for price or amount if the price 
is included in another subline item or a different contract line item). 
This requirement does not apply--
    (A) If the subline item was created to refer to an exhibit or an 
attachment. If management needs dictate that a unit price be entered, 
the price shall be set forth in the item description block of the 
schedule and enclosed in parentheses; or

[[Page 32]]

    (B) In the case of indefinite delivery contracts described at 
204.7103-1(a)(1)(vi).
    (iii) Identification (e.g., NSN, item description, manufacturer's 
part number, scope of work, description of services).
    (3) Unit prices and extended amounts.
    (i) The unit price and total amount for all subline items may be 
entered at the contract line item number level if the unit price for the 
subline items is identical. If there is any variation, the subline item 
unit prices shall be entered at the subline item level only.
    (ii) The unit price and extended amounts may be entered at the 
subline items level.
    (iii) The two methods in paragraphs (b)(3) (i) and (ii) of this 
subsection shall not be combined in a contract line item.
    (iv) When the price for items not separately priced is included in 
the price of another subline item or contract line item, it may be 
necessary to withhold payment on the priced subline item until all the 
related subline items that are not separately priced have been 
delivered. In those cases, use the clause at 252.204-7002, Payment for 
Subline Items Not Separately Priced.

[56 FR 36289, July 31, 1991, as amended at 60 FR 34468, July 3, 1995]



Sec. 204.7104-2  Numbering procedures.

    (a) Number subline items by adding either two numeric characters or 
two alpha characters to the basic contract line item number.
    (1) Information subline item numbers. Use numeric characters only 
for information subline items, running 01 through 99. Do not use spaces 
or special characters to separate the subline item number from the 
contract line item number that is its root. For example, if the contract 
line item number is 0001, the first three subline items would be 000101, 
000102, and 000103. Do not use a designation more than once within a 
contract line item.
    (2) Separately identified subline items. Use alpha characters only 
for separately identified subline items, running AA through ZZ. Do not 
use spaces or special characters to separate the subline item number 
from the contract line item number that is its root. For example, if the 
contract line item number is 0001, the first three subline items would 
be 0001AA, 0001AB, and 0001AC.
    (i) Do not use the letters I or O as alpha characters.
    (ii) Use all 24 available alpha characters in the second position 
before selecting a different alpha character for the first position. For 
example, AA, AB, AC, through AZ before beginning BA, BB, and BC.
    (b) Within a given contract line item, the subline item numbers 
shall be sequential but need not be consecutive.
    (c) Exhibits may be used as an alternative to setting forth in the 
schedule a long list of contract subline items. If exhibits are used, 
create a contract subline item citing the exhibit's identifier. See 
204.7105.
    (d) If a contract line item involves ancillary functions, like 
packaging and handling, transportation, payment of state or local taxes, 
or use of reusable containers, and these functions are normally 
performed by the contractor and the contractor is normally entitled to 
reimbursement for performing these functions, do not establish a 
separate subline item solely to account for these functions. However, do 
identify the functions in the contract schedule. If offeror separately 
prices these functions, then contracting officers may establish separate 
subline items for the functions; however, the separate subline items 
must conform to the requirements of 204.7104-1.
    (e) The following examples illustrate subline items numbering--
    (1) Subline items structured to identify destinations for identical 
items, identically priced (delivery schedule shall be established for 
each subline item, not the contract line item).

----------------------------------------------------------------------------------------------------------------
         Item No.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0001                       NSN 1615-00-591-6620 Shim,   ...........                     ...........  ...........
                            Aluminum Alloy, Apbl,
                            Rotor, Helicopter PRON A1-
                            9-63821-M1-M1 ACRN:AA.
0001AA                     A3168R-9030-4025 A2537M               10  EA                     $100.00    $1,000.00
                            IPD: 2 RDD: 334 PROJ: 501.

[[Page 33]]

 
0001AB                     A3168R-9030-4026 A51AXBM              10  EA                     $100.00    $1,000.00
                            IPD: 2 RDD: 325 PROJ: 502.
0001AC                     A3168R-9030-4027 A67KBCM              15  EA                     $100.00    $1,500.00
                            IPD: 2 RDD: 349 PROJ: 503.
----------------------------------------------------------------------------------------------------------------

    (2) Subline items structured to identify destinations for identical 
items, not identically priced (delivery schedule shall be established 
for each subline item, not the contract line item).

----------------------------------------------------------------------------------------------------------------
         Item No.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0001                       NSN 1615-00-591-6620 Shim,   ...........                     ...........  ...........
                            Aluminum Alloy, Apbl,
                            Rotor, Helicopter PRON A1-
                            9-63821-M1-M1 ACRN:AA.
0001AA                     A3168R-9030-4025 A2537M               10  EA                     $100.00    $1,000.00
                            IPD: 2 RDD: 334 PROJ: 501.
0001AB                     A3168R-9030-4026 A51AXBM              20  EA                      $99.00    $1,980.00
                            IPD: 2 RDD: 325 PROJ: 502.
0001AC                     A3168R-9030-4027 A67KBCM              30  EA                      $98.00    $2,940.09
                            IPD: 2 RDD: 349 PROJ: 503.
----------------------------------------------------------------------------------------------------------------
Note: Difference in prices for identical items is due to separate destinations for FOB destination delivery.

    (3) Subline items structured to identify different sizes of an item 
that are identically priced (delivery schedule shall be established for 
each subline item, not the contract line item).

----------------------------------------------------------------------------------------------------------------
         Item No.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0013                       Boots Insulated, Cold        ...........  PR                      $38.35   $13,422.50
                            Weather White, Type II,
                            Class 1.
0013AA                     8430-00-655-5541 Size 5N...           50                     ...........  ...........
0013AB                     8430-00-655-5544 Size 8N...           70                     ...........  ...........
0013AC                     8430-00-655-5551 Size 9N...           30                     ...........  ...........
0013AD                     8430-00-655-5535 Size 9R...          200                     ...........  ...........
----------------------------------------------------------------------------------------------------------------
Note: Unit price and total amount shown at line item level rather than at subline item level.

    (4) Subline items structured to identify different sizes of an item 
that are not identically priced (delivery schedule shall be established 
for each subline item, not the contract line item).

----------------------------------------------------------------------------------------------------------------
         Item No.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0002                       Body Armor Ground Troops     ...........                     ...........  ...........
                            Variable Type Small Arms,
                            Fragmentation Protective
                            Nylon Felt Vest, Front and
                            Back Plates, Ceramic
                            Plate, Type I.
0002AA                     First Article..............            1  LO                         NSP  ...........
0002AB                     8470-00-141-0935, Medium            1936  SE                     $331.77  $642,306.72
                            Regular.
0002AC                     8470-00-141-0936, Large              625  SE                      355.77   222,356.25
                            Regular.
0002AD                     8470-00-141-0937, Medium            1237  SE                      346.77   428,954.49
                            Long.
0002AE                     8470-00-141-0938, Large              804  SE                      365.77   294,079.08
                            Long.
----------------------------------------------------------------------------------------------------------------

    (5) Subline items structured to provide the capability for relating 
subordinate separately priced packaging costs to the overall contract 
line item. (Separate delivery schedules shall be established for the 
subline item identifying the contractor's product and for the subline 
item identifying packaging. No schedule will be established for the 
contract line item.)

----------------------------------------------------------------------------------------------------------------
        Item No.              Supplies/service        Quantity         Unit         Unit price        Amount
----------------------------------------------------------------------------------------------------------------
0001                      6105-00-635-6568 50380
                          Ref No 63504-WZ Armature

[[Page 34]]

 
0001AA                    6105-00-635-6568 50380              2  Ea.............       $2,895.87       $5,791.74
                          Ref No 63504-WZ Armature
                           Motor ACRN:AA.
0001AB                    Packaging ACRN:AA.......            2  Ea.............         $289.58         $579.16
----------------------------------------------------------------------------------------------------------------

    (6) Subline items structured to identify different accounting 
classifications for identical items (delivery schedule shall be 
established for each subline item, not the contract line item).
AJ: 17X150518350315069100000192B000000000000000000
AK: 17X150518370317569100000192B000000000000000000
AL: 17X150519350314369100000192B000000000000000000

----------------------------------------------------------------------------------------------------------------
         Item no.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0002                       Pulse Decoder, KY-312/A5Q-   ...........  EA                   $3,037.40
                            19.
0002AA                     Pulse Decoder, KY-312/A5Q-             2                     ...........     6,074.80
                            19 ACRN: AJ.
0002AB                     Pulse Decoder, K1Y-312/A5Q-            6                     ...........    18,224.40
                            19 ACRN: AK.
0002AC                     Pulse Decoder, KY-312/A5Q-             2                     ...........    $6,074.80
                            19 ACRN: AL.
----------------------------------------------------------------------------------------------------------------
Note: Unit price may be shown at line item level and total amounts shown at subline item level.

    (7) Informational subline items established to identify multiple 
accounting classification citations assigned to a single contract line 
item.

----------------------------------------------------------------------------------------------------------------
         Item No.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0001                       Air Vehicle................            1  Ea                  $6,700,000   $6,700,000
000101                     ACRN:AA $3,300,000
000102                     ACRN:AB $2,000,000
000103                     ACRN:AC $1,400,000
----------------------------------------------------------------------------------------------------------------

    (8) Subline items structured to identify parts of an assembly 
(delivery schedule and price shall be established for each identified 
part at the subline item level, not for the assembly at the contract 
line item level).

----------------------------------------------------------------------------------------------------------------
         Item no.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0003                       Automatic Degausing System   ...........                     ...........  ...........
                            Consisting of: (2 ea @
                            $52,061; $104,122 total).
0003AA                     Switchboard................            2  EA                  $52,061.00  $104,122.00
0003AB                     Remote Control Panel.......            2  EA                         NSP  ...........
0003AC                     Power Supply (M Coil) SSM              2  EA                         NSP  ...........
                            Type 145 Amps, 220 V DC).
0003AF                     Power Supply (A Coil) SSM              2  EA                         NSP  ...........
                            Type (118 Amps, 220 V DC).
----------------------------------------------------------------------------------------------------------------

    (9) Subline items structured to identify parts of a kit (delivery 
schedule and price shall be established for each identified part at the 
subline item level, not for the kit at the contract line item level).

----------------------------------------------------------------------------------------------------------------
         Item no.                Supplies/service         Quantity          Unit         Unit price     Amount
----------------------------------------------------------------------------------------------------------------
0031                       Conversion Kit to Convert    ...........                     ...........  ...........
                            Torpedo MK 45 Mod 0 to
                            Torpedo MK 45 Mod 1, (50
                            Kt @ $10,868.52; $543,426
                            total).
0031AA                     Integrator Assy LD 620106..           50  EA                  $10,868.52  $543,426.00
0031AB                     Pulse Generator Assy LD               50  EA                         NSP  ...........
                            587569.
0031AC                     Drive Shaft Assy LD 587559.           50  EA                         NSP  ...........
0031BF                     Actual Panel Assy LD 542924           50  EA                         NSP  ...........
----------------------------------------------------------------------------------------------------------------
Note: In this example, the prices of subline items 0031AB through 0031BF are included in the Integrator
  Assembly.


[[Page 35]]


[56 FR 36289, July 31, 1991, as amended at 60 FR 34468, July 3, 1995]



Sec. 204.7105  Contract exhibits and attachments.

    (a) Use of exhibits. (1) Exhibits may be used instead of putting a 
long list of contract line items or subline items in the contract 
schedule. Exhibits are particularly useful in buying spare parts.
    (2) When using exhibits, establish a contract line or subline item 
and refer to the exhibit.
    (3) Identify exhibits individually.
    (4) Each exhibit shall apply to only one contract line item or 
subline item, except--
    (i) One exhibit may apply to one or more option line item(s) when 
the data required under the exhibits is identical in all respects except 
the period during which the option is to be exercised; and
    (ii) An exhibit may apply to more than one contract line item if the 
exhibit is not separately priced and the exhibit deliverable is 
identical for all applicable contract line items.
    (5) More than one exhibit may apply to a single contract line item.
    (6) Data items on a DD Form 1423, Contract Data Requirements List, 
may be either separately priced or not separately priced.
    (i) Separately priced. When data are separately priced, enter the 
price in only one place in the contract: in either Section B of the 
contract schedule or on the DD Form 1423. Whichever place, display the 
price there consistently.
    (A) Section B. If the prices are entered in section B of the 
schedule, detach Blocks 17 and 18 of the DD Form 1423 and file elsewhere 
in the contract file. If the prices are entered on the DD Form 1423, do 
not detach Blocks 17 and 18 of the DD Form 1423.
    (B) DD Form 1423. If the prices are entered on the DD Form 1423, the 
price of all separately priced deliverable data items attributable to a 
line item shall be totalled and included, for information purposes, in 
parentheses, below the supplies services for that line item, in section 
B of the schedule.
    (ii) NSP. Include prices in a priced contract line item or subline 
item. Detach Blocks 17 and 18 of the DD Form 1423 and retain them 
elsewhere as required.
    (7) The contracting officer may append attachments to exhibits, as 
long as the attachment does not identify a deliverable requirement which 
has not been established by a contract or exhibit line or subline item.
    (b) Numbering exhibits and attachments. (1) Use alpha characters to 
identify exhibits. The alpha characters shall be either single or double 
capital letters. Do not use the letters I or O.
    (2) Exhibit identifiers need not be either consecutive or 
sequential.
    (3) Once an identifier has been assigned to an exhibit, do not use 
it on another exhibit in the same contract.
    (4) The identifier shall always appear in the first or first and 
second positions of all applicable exhibit line item numbers.
    (5) If the exhibit has more than one page, cite the procurement 
instrument identification number, exhibit identifier, and applicable 
contract line or subline item number on each page.
    (6) Use numbers to identify attachments.
    (c) Numbering exhibit line items and subline items--(1) Criteria for 
establishing. The criteria for establishing exhibit line items and 
subline items is the same as those for establishing contract line items 
and subline items (see 204.7103 and 204.7104, respectively).
    (2) Procedures for numbering. (i) Number items in an exhibit in a 
manner similar to contract line items and subline items.
    (ii) Number line items using a four position number.
    (A) The first position or the first and second position contain the 
exhibit identifier.
    (B) The third and fourth positions contain the alpha or numeric 
character serial numbers assigned to the line item.
    (iii) Assign alpha or numeric characters to the line item on the 
basis of the same criteria outlined in contract subline items at 
204.7104.
    (iv) Exhibit line item numbers shall be sequential within the 
exhibit.
    (3) Examples--(i) Two position serial number for double letter 
exhibit identifier.

[[Page 36]]



------------------------------------------------------------------------
    Cumulative No. of line items            Serial number sequence
------------------------------------------------------------------------
1-33................................  01 thru 09, then OA thru OZ, then
34-67...............................  10 thru 19, then 1A thru 1Z, then
68-101..............................  20 thru 29, then 2A thru 2Z, then
102-135.............................  30 thru 39, then 3A thru 3Z, then
136-169.............................  40 thru 49, then 4A thru 4Z, then
170-203.............................  50 thru 59, then 5A thru 5Z, then
204-237.............................  60 thru 69, then 6A thru 6Z, then
238-271.............................  70 thru 79, then 7A thru 7Z, then
272-305.............................  80 thru 89, then 8A thru 8Z, then
306-339.............................  90 thru 99, then 9A thru 9Z, then
340-373.............................  A0 thru A9, then AA thru AZ, then
374-407.............................  B0 thru B9, then BA thru BZ, then
408-441.............................  C0 thru C9, then CA thru CZ, then
442-475.............................  D0 thru D9, then DA thru DZ, then
476-509.............................  E0 thru E9, then EA thru EZ, then
510-543.............................  F0 thru F9, then FA thru FZ, then
544-577.............................  G0 thru G9, then GA thru GZ, then
578-611.............................  H0 thru H9, then HA thru HZ, then
612-645.............................  J0 thru J9, then JA thru JZ, then
646-679.............................  K0 thru K9, then KA thru KZ, then
680-713.............................  L0 thru L9, then LA thru LZ, then
714-747.............................  M0 thru M9, then MA thru MZ, then
748-781.............................  N0 thru N9, then NA thru NZ, then
782-815.............................  P0 thru P9, then PA thru PZ, then
816-849.............................  Q0 thru Q9, then QA thru QZ, then
850-883.............................  R0 thru R9, then RA thru RZ, then
884-917.............................  S0 thru S9, then SA thru SZ, then
918-951.............................  T0 thru T9, then TA thru TZ, then
952-985.............................  U0 thru U9, then UA thru UZ, then
986-1019............................  V0 thru V9, then VA thru VZ, then
1020-1053...........................  W0 thru W9, then WA thru WZ, then
1054-1087...........................  X0 thru X9, then XA thru XZ, then
1088-1121...........................  Y0 thru Y9, then YA thru YZ, then
1122-1155...........................  Z0 thru Z9, then ZA thru ZZ
------------------------------------------------------------------------

    (ii) Three position numbers.

------------------------------------------------------------------------
    Cumulative No. of line items            Serial number sequence
------------------------------------------------------------------------
(ii) Three position numbers.
1-33................................  001 thru 009, then 00A thru 00Z,
                                       then
34-67...............................  010 thru 019, then 01A thru 101Z,
                                       then
68-101..............................  020 thru 029, then 02A thru 02Z,
                                       then
102-135.............................  030 thru 039, then 03A thru 03Z
                                       and so
136-305.............................  on to
306-339.............................  090 thru 099, then 09A thru 09Z,
                                       then
340-373.............................  0A0 thru 0A9, then 0AA thru 0AZ,
                                       then
374-407.............................  0B0 thru 0B9, then 0BB thru 0BZ,
                                       then
408-441.............................  0C0 thru 0C9, then 0CA thru 0CZ,
                                       and
442-1121............................  so on to
1122-1155...........................  0Z0 thru 0Z9, then 0ZA thru 0ZZ,
                                       then
1156-1189...........................  100 thru 109, then 10A thru 10Z,
                                       then
1190-1223...........................  110 thru 119, then 11A thru 11Z,
                                       then
1224-1257...........................  120 thru 129, then 12A thru 12Z,
                                       and
1258-1461...........................  so on to
1462-1495...........................  190 thru 199, then 19A thru 19Z,
                                       then
1496-1529...........................  1A0 thru 1A9, then 1AA thru 1AZ,
                                       then
1530-1563...........................  1B0 thru 1B9, then 1BA thru 1BZ,
                                       and
1564-2277...........................  so on to
2278-2311...........................  1Z0 thru 1Z9, then 1ZA thru 1ZB,
                                       then
2312-2345...........................  200 thru 109, then 10A thru 10Z,
                                       then
2346-2379...........................  210 thru 219, then 21A thru 21Z,
                                       then
2380-2413...........................  220 thru 229, then 22A thru 22Z,
                                       and
2414-2617...........................  so on to
2618-2651...........................  290 thru 299, then 29A thru 29Z,
                                       then
2652-2685...........................  2A0 thru 2A9, then 2AA thru 2AZ,
                                       then
2686-2719...........................  2B0 thru 2B9, then 2BA thru 2BZ,
                                       and
2720-3433...........................  so on to
3434-3467...........................  2Z0 thru 2Z9, then 2ZA thru 2ZZ,
                                       then
3468-3501...........................  300 thru 309, then 30Z thru 30Z,
                                       and
3502-10403..........................  so on to
10404-10437.........................  900 thru 909, then 90A thru 90Z,
                                       then
10438-10471.........................  910 thru 919, then 91A thru 91Z,
                                       and
10472-10709.........................  so on to
10710-10743.........................  990 thru 999, then 99A thru 99Z,
                                       then
10744-10777.........................  9A0 thru 9A9, then 9AA thru 9AZ,
                                       then
10778-10811.........................  9B0 thru 9B9, then 9BA thru 9BZ,
                                       and
10812-11525.........................  so on to
11526-11559.........................  9Z0 thru 9Z9, then 9ZA thru 9ZZ
------------------------------------------------------------------------



Sec. 204.7106  Contract modifications.

    (a) If new items are added, assign new contract line or subline item 
numbers or exhibit line item numbers, in accordance with the procedures 
established at 204.7103, 204.7104, and 204.7105.
    (b) Modifications to existing contract line items or exhibit line 
items. (1) If the modification relates to existing contract line items 
or exhibit line items, the modification shall refer to those item 
numbers.
    (2) If the contracting officer decides to assign new identifications 
to existing contract or exhibit line items, the following rules apply--
    (i) Definitized and undefinitized items. (A) The original line item 
or subline item number may be used if the modification applies to the 
total quantity of the original line item or subline.
    (B) The original line item or subline item number may be used if the 
modification makes only minor changes in the specifications of some of 
the items ordered on the original line item or subline item and the 
resulting changes in unit price can be averaged to provide a new single 
unit price for the total quantity. If the changes in the specifications 
make the item significantly distinguishable from the original item or 
the resulting changes in unit price cannot be averaged, create a new 
line item.
    (C) If the modification affects only a partial quantity of an 
existing contract or exhibit line item or subline item and the change 
does not involve either the delivery date or the ship-to/mark-for data, 
the original contract or exhibit line item or subline item number shall 
remain with the unchanged quantity. Assign the changed quantity the next 
available number.
    (ii) Undefinitized items. In addition to the rules in paragraph 
(b)(2)(i), the following additional rules apply to undefinitized items--

[[Page 37]]

    (A) If the modification is undefinitized and increases the quantity 
of an existing definitized item, assign the undefinitized quantity the 
next available number.
    (B) If the modification increases the quantity of an existing 
undefinitized item, the original contract or exhibit line item or 
subline item may be used if the unit price for the new quantity is 
expected to be the same as the price for the original quantity. If the 
unit prices of the two quantities will be different, assign the new 
quantity the next available number.
    (C) If the modification both affects only a partial quantity of the 
existing contract or exhibit line or subline item and definitizes the 
price for the affected portion, the definitized portion shall retain the 
original item number. If there is any undefinitized portion of the item, 
assign it the next available number. However, if the modification 
definitizes the price for the whole quantity of the line item, and price 
impact of the changed work can be apportioned equally over the whole to 
arrive at a new unit price, the quantity with the changes can be added 
into the quantity of the existing item.
    (D) If the modification affects only a partial quantity of an 
existing contract or exhibit line or subline item but does not change 
the delivery schedule or definitize price, the unchanged portion shall 
retain the original contract or exhibit line or subline item number. 
Assign the changed portion the next available number.



Sec. 204.7107  Contract accounting classification reference number (ACRN).

    (a) When a contract contains more than one accounting classification 
citation, contracting offices shall use ACRNs. Assigning the ACRNs is 
the responsibility of the contracting office issuing the contract, basic 
ordering agreement, or blanket purchase agreement. This authority shall 
not be delegated. If more than one office will use the contract (e.g., 
ordering officers, other contracting officers), the contract must 
contain instructions for assigning ACRNs.
    (b) ACRNs are used to process certain contract data through the 
Military Standard Contract Administration Procedures (MILSCAP) system. 
The MILSCAP system uses the ACRN to relate certain contract 
administration records to the accounting classification citation used to 
obligate funds on the contract. Among these records are the accounting 
classification trailer record, the supplies schedules data record, and 
the services line item data record. ACRNs are also used to associate the 
various record formats of the contract payment notice as described in 
chapter 9 of the MILSCAP Manual, DoD 4000.25-5-M.
    (c) Procedures for establishing ACRNs. ACRNs consist of a two 
position alpha or alpha/numeric code assigned to each discrete 
accounting classification citation within each contract. ACRNs shall be 
established in accordance with the following guidelines:
    (1) Do not use the letters I and O.
    (2) In no case shall an ACRN apply to more than one accounting 
classification citation, nor shall more than one ACRN be assigned to one 
accounting classification citation.
    (d) Using the ACRN in the contract. (1) Show the ACRN as a detached 
prefix to the accounting classification citation in the accounting and 
appropriation data block or, if there are too many accounting 
classification citations to fit reasonably in that block, in section G 
(Contract Administration Data).
    (2) ACRNs need not prefix accounting classification citations if the 
accounting classification citations are present in the contract only for 
the transportation officer to cite to Government bills of lading.
    (3) If the contracting officer is making a modification to a 
contract and using the same accounting classification citations, which 
have had ACRNs assigned to them, the modification need cite only the 
ACRNs in the accounting and appropriations data block or on the 
continuation sheets.
    (e) Showing the ACRN in the contract. If there is more than one ACRN 
in a contract, all the ACRNs will appear in several places in the 
schedule (e.g., ACRN:AA).
    (1) Ship-to/mark-for block. Show the ACRN beside the identity code 
of each activity in the ship-to/mark-for block unless only one 
accounting classification citation applies to a line item or

[[Page 38]]

subline item. Only one ACRN may be assigned to the same ship-to/mark-for 
within the same contract line or subline item number unless multiple 
accounting classification citations apply to a single nonseverable 
deliverable unit such that the item cannot be related to an individual 
accounting classification citation.
    (2) Supplies/services column. (i) If only one accounting 
classification citation applies to a line item or a subline item, the 
ACRN may be shown in the supplies/services column near the item 
description.
    (ii) If more than one accounting classification citation applies to 
a single contract line item, identify each assigned ACRN and the amount 
of associated funds using informational subline items (see 204.7104-
1(a)).
    (3) Payment instructions. (i) When a contract line item is funded by 
multiple accounting classification citations, the contracting officer 
shall provide adequate instructions in section G (Contract 
Administration Data), under the heading ``Payment Instructions for 
Multiple Accounting Classification Citations,'' to permit the paying 
office to charge the accounting classification citations assigned to 
that contract line item (see 204.7104-1(a)) in a manner that reflects 
the performance of work on the contract. If additional accounting 
classification citations are subsequently added, the payment 
instructions must be modified to include the additional accounting 
classification citations.
    (ii) Payment instructions shall provide a methodology for the paying 
office to assign payments to the appropriate accounting classification 
citation(s), based on anticipated contract work performance. The method 
established should be consistent with the reasons for the establishment 
of the line items. The payment method may be based upon a unique 
distribution profile devised to reflect how the funds represented by 
each of the accounting classification citations support contract 
performance. Payment methods that direct that payments be made from the 
earliest available fiscal year funding sources, or that provide for 
proration across accounting classification citations assigned to the 
line item, or a combination thereof, may be used if that methodology 
reasonably reflects how each of the accounting classification citations 
supports contract performance.

[60 FR 34469, July 3, 1995; 60 FR 43191, Aug. 18, 1995]



                Subpart 204.72--Contractor Identification



Sec. 204.7200  Scope of subpart.

    This subpart prescribes uniform policies and procedures for 
identification of commercial and Government entities when it is 
necessary to:
    (a) Exchange data with another contracting activity, including 
contract administration activities and contract payment activities, or 
to comply with the reporting requirements of subpart 204.6; or
    (b) Identify contractors for the purposes of developing computerized 
acquisition systems or solicitation mailing lists.



Sec. 204.7201  Definitions.

    (a) Commercial and Government entity (CAGE) code means--
    (1) A code assigned by the Defense Logistics Services Center (DLSC) 
to identify a commercial or Government entity; or
    (2) A code assigned by a member of the North Atlantic Treaty 
Organization (NATO) and maintained by the Defense Logistics Services 
Center.
    (b) Contractor identification code means any code required by the 
contracting office for the purpose of identifying the offeror. CAGE 
codes and Data Universal Numbering System (DUNS) numbers are two 
examples of contractor identification codes.

[56 FR 36289, July 31, 1991, as amended at 61 FR 51031, Sept. 30, 1996; 
62 FR 48181, Sept. 15, 1997]



Sec. 204.7202  General.

    Various coding systems are in use to identify commercial and 
government entities. Codes are requested by contracting and contract 
administration offices for various reasons. This guidance is designed to 
improve the accuracy of the initial code assignment and

[[Page 39]]

to help ensure that the data are maintained accurately and are up-to-
date.



Sec. 204.7202-1  CAGE codes.

    (a) CAGE codes are assigned or maintained by the Defense Logistics 
Services Center (DLSC) to identify commercial and Government activities. 
Their use is prescribed by 253.204-70(b)(5)(ii)(C) and DoD 4000.25-5-M, 
Military Standard Contract Administration Procedures (MILSCAP).
    (b) CAGE codes have also been known in the past as federal supply 
codes for manufacturers (FSCM) and federal supply codes for 
nonmanufacturers (FSCNM).
    (c) If the CAGE code is not already available in the contracting 
office, and the apparent awardee does not respond to the provision at 
252.204-7001, Commercial and Government Entity (CAGE) Code Reporting, 
use the following procedures in the order listed--
    (1) Use the bimonthly H-8 microfiche or CD ROM publication issued by 
DLSC. (Their address is: DLSC-RP, Federal Center, 74 N. Washington, 
Battle Creek, MI 49017-3084. Their telephone numbers are: DSN 932-4725, 
FTS 552-4725, or commercial (616) 961-4725.);
    (2) Use the on-line access to the CAGE file through the Defense 
Logistics Information System;
    (3) Use the on-line access to the Defense Logistics Agency CAGE file 
through the DLA Network or dial-up capability; or
    (4) Ask DLSC to assign a CAGE code. Submit a DD Form 2051, Request 
for Assignment of a CAGE Code, (or electronic equivalent) to the address 
in paragraph (c)(1) of this subsection, ATTN: DLSC-SBB. The contracting 
activity completes Section A of the DD Form 2051, Request for Assignment 
of a Commercial and Government Entity (CAGE) Code, and the contractor 
completes section B. The contracting activity must verify section B 
before the form is submitted.
    (d) Direct questions on obtaining computer tapes, electronic 
updates, or code assignments to DLSC (DLSC-SBB) at DSN 932-4358, FTS 
552-4358, or commercial (616) 961-4358.

[56 FR 36289, July 31, 1991, as amended at 57 FR 53598, Nov. 12, 1992; 
61 FR 51031, Sept. 30, 1996; 62 FR 34121, June 24, 1997]



Sec. 204.7202-2  DUNS numbers.

    Requirements for use of DUNS numbers are contained in FAR 4.602(d) 
and 4.603.

[62 FR 48181, Sept. 15, 1997]



Sec. 204.7202-3  Taxpayer identification numbers.

    The taxpayer identification number (TIN) is prescribed in FAR 
subpart 4.9.



Sec. 204.7203  Responsibilities of contracting officers.

    (a) The contracting officer shall assist the offeror in obtaining 
the required contractor code(s).
    (b) Prospective offerors may not be denied a solicitation or bid set 
because the offeror does not have a contractor code.
    (c) The contracting officer or designee shall not request a new code 
assignment until the appropriate microfiche, hardcopy or computer files 
have been screened in an effort to identify a current code for the 
entity. If the contracting officer does not have access to the files or 
listings, then initiate action to obtain the files or listings and any 
equipment necessary to use those files and/or listings (see 204.7202-1 
and 2).
    (d) If a CAGE code is being requested, it is the responsibility of 
the contracting activity to request the assignment of the CAGE code by 
completing section A of the DD Form 2051, Request for Assignment of a 
Commercial and Government Entity (CAGE) Code (see 253.303-2051). The 
prospective contractor will complete section B of the form. The 
completed form or electronic equivalent will be submitted by the 
contracting activity to DLSC-SBB for processing and code assignment 
after the contracting activity has verified the data submitted by the 
contractor. CAGE codes may be requested at the time the offeror is sent 
a solicitation package or added to the mailing list to ensure that a 
code is assigned in sufficient time to process the DD Form 350, 
Individual Contracting Action Report, without delay.

[56 FR 36289, July 31, 1991, as amended at 57 FR 53598, Nov. 12, 1992; 
61 FR 51031, Sept. 30, 1996]

[[Page 40]]



Sec. 204.7204  Maintenance of the CAGE file.

    (a) Changes, except name changes, may be submitted in writing--
    (1) By the entity identified by the code, using company letterhead, 
through the contract administration office;
    (2) By the contracting office; or
    (3) By the contract administration office (see also FAR subpart 
42.12, Novation and Change-of-Name Agreements);
    (4) Using the DD Form 2051, facsimile or electronic equivalent, to: 
Defense Logistics Services Center, DLSC-SBB, Federal Center, 74 N. 
Washington, Battle Creek, MI 49017-3084, Telephone Numbers: DSN 932-
4358, FTS 552-4358, commercial (616) 961-4358, Facsimile: (616) 961-
4528, 4388, Internet: http://www.dlsc.dla.mil/form2051.htm
    (b) The change-of-name agreement shall be submitted to DLSC-SBB by 
the contracting officer responsible for execution of the agreement (see 
FAR subpart 42.12). In the event there are no current contracts in 
force, each contracting and contract administration office receiving 
notification of changes from the commercial entity shall forward a copy 
of the change notice annotated with the CAGE code to DLSC-SBB unless the 
change notice indicates that DLSC-SBB has already been notified.
    (c) Additional guidance for maintaining CAGE codes is set forth at 
Volume 7 of DoD 4100.39-M, Defense Integrated Data System (DIDS) Manual.

[62 FR 48181, Sept. 15, 1997]



Sec. 204.7205  Novation agreements, mergers and sales of assets.

    Contracting officers shall process and execute novation agreements 
in accordance with FAR Subpart 42.12, Novation and Change-of-Name 
Agreements. These actions are independent of code and name assignments 
made as a result of the occasion which created the need for the novation 
agreement. The maintenance activity will determine which entity(s) will 
retain the existing code(s) and which entities will be assigned new 
codes. The contracting officer responsible for processing the novation 
agreement shall provide the maintenance activity with the following 
information:
    (a) Name(s), address(es), and code(s) of the contractor(s) 
transferring the original contractual rights and obligations.
    (b) Name(s), address(es), and code(s) (if any) of the entity who is 
the successor in interest (transferor).
    (c) Name(s), address(es), and code(s) (if any) of the entity who is 
retaining or receiving the rights to the technical data.
    (d) Description of the circumstances surrounding the novation 
agreement and especially the relationship of each entity to the other.



Sec. 204.7206  Using CAGE codes to identify agents and brokers.

    Authorized agents and brokers are entities and, as such, may be 
assigned CAGE codes for identification and processing purposes.
    (a) A single CAGE code will be assigned to the agent/broker 
establishment in addition to any codes assigned to the entities 
represented by the agent/broker, i.e., only one code will be assigned to 
a specific agent/broker entity regardless of the number of firms 
represented by that agent/broker.
    (b) Additional codes may be assigned to an agent/broker if they meet 
the criteria for assigning additional codes for entities, e.g., 
different location.
    (c) Codes will not be assigned to an agent/broker in care of the 
entity being represented or in any way infer that the agent/broker is a 
separate establishment bearing the name of the entity represented by the 
agent/broker.

[56 FR 36289, July 31, 1991, as amended at 61 FR 51032, Sept. 30, 1996; 
62 FR 48182, Sept. 15, 1997]



             Subpart 204.73--Central Contractor Registration

    Source: 63 FR 15317, Mar. 31, 1998, unless otherwise noted.



Sec. 204.7300  Scope.

    This subpart prescribes policies and procedures for requiring 
contractor registration in the DoD Central Contractor Registration (CCR) 
database to

[[Page 41]]

comply with the Debt Collection Improvement Act of 1996 (31 U.S.C. 3332; 
31 U.S.C. 7701), and to increase visibility of vendor sources for 
specific supplies and services and their geographical locations.



Sec. 204.7301  Definitions.

    Central Contractor Registration (CCR) database, Data Universal 
Numbering System (DUNS) number, Data Universal Numbering System+4 
(DUNS+4) number, and Registered in the CCR database are defined in the 
clause at 252.204-7004, Required Central Contractor Registration.



Sec. 204.7302  Policy.

    After May 31, 1998, prospective contractors must be registered in 
the CCR database, prior to award of a contract, basic agreement, basic 
ordering agreement, or blanket purchase agreement, unless the award 
results from a solicitation issued on or before May 31, 1998. This 
policy applies to all types of awards except the following:
    (a) Purchases made with a Governmentwide commercial purchase card.
    (b) Awards made to foreign vendors for work performed outside the 
United States.
    (c) Classified contracts or purchases (see FAR 4.401).
    (d) Contracts awarded by deployed contracting officers in the course 
of military operations, including, but not limited to, contingency 
operations as defined in 10 U.S.C. 101(a)(13), or contracts awarded by 
contracting officers in the conduct of emergency operations, such as 
responses to natural disasters or national or civil emergencies.
    (e) Purchases to support unusual or compelling needs of the type 
described in FAR 6.302-2.



Sec. 204.7303  Procedures.

    (a)(1) Except as provided in 204.7302, the contracting officer shall 
require each offeror to provide a DUNS or, if applicable, a DUNS+4 
number, with its verbal or written offer, regardless of the dollar 
amount of the offer.
    (2) Prior to making an award of any contract, basic agreement, basic 
ordering agreement, or blanket purchase agreement after May 31, 1998, 
unless the award results from a solicitation issued on or before May 31, 
1998, the contracting officer shall verify that the prospective awardee 
is registered in the CCR database (but see paragraph (b) of this 
section). The contracting officer may verify registration using the DUNS 
number or, if applicable, the DUNS+4 number, by calling toll free: 1-
800-841-4431, commercial: 1-616-961-5757, or Defense Switched Network 
(DSN): 932-5757; via the Internet at http://ccr.edi,disa.mil/ccr/cgi-
bin/status.pi; or as otherwise provided by agency procedures.
    (3) Verification of registration is not required for orders or calls 
placed under contracts, basic agreements, basic ordering agreements, or 
blanket purchase agreements.
    (4) After May 31, 1998, as part of the annual review of basic 
agreements, basic ordering agreements, and blanket purchase agreements, 
contracting officers shall modify these agreements to incorporate the 
clause at 252.204-7004, Required Central Contractor Registration.
    (b) If the contracting officer determines that a prospective awardee 
is not registered in the CCR database, the contracting officer shall--
    (1) If the needs of the requiring activity allow for a delay, 
proceed to award after the contractor is registered; or
    (2) If the needs of the requiring activity do not allow for a delay, 
proceed to award to the next otherwise successful registered offeror, 
provided that written approval is obtained at one level above the 
contracting officer.
    (c) Agencies shall protect against improper disclosure of contractor 
CCR information.
    (d) The contracting officer, shall, on contractual documents 
transmitted to the payment office, provide either the Commercial and 
Government Entity code or the DUNS number in accordance with agency 
procedures.

[63 FR 15317, Mar. 31, 1998; 63 FR 20447, Apr. 24, 1998]



Sec. 204.7304  Contract clause.

    Except as provided in 204.7302, use the clause at 252.204-7004, 
Required Central Contractor Registration, in--
    (a) Solicitations issued after May 31, 1998;

[[Page 42]]

    (b) Contracts resulting from solicitations issued after May 31, 
1998; and
    (c) Basic agreements, basic ordering agreements, and blanket 
purchase agreements issued after May 31, 1998, unless they resulted from 
solicitations issued on or before May 31, 1998.

[[Page 43]]



                   SUBCHAPTER B--ACQUISITION PLANNING


PART 205--PUBLICIZING CONTRACT ACTIONS--Table of Contents




          Subpart 205.2--Synopses of Proposed Contract Actions

Sec.
205.203  Publicizing and response time.
205.207  Preparation and transmittal of synopses.

               Subpart 205.3--Synopses of Contract Awards

205.303  Announcement of contract awards.

                  Subpart 205.4--Release of Information

205.470  Contractor information to be provided cooperative agreement 
          holders.
205.470-1  Statutory requirement.
205.470-2  Contract clause.

                   Subpart 205.5--Paid Advertisements

205.502  Authority.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36302, July 31, 1991, unless otherwise noted.



          Subpart 205.2--Synopses of Proposed Contract Actions



Sec. 205.203  Publicizing and response time.

    (b) Allow at least 45 days response time when requested by a 
qualifying or designated country source (as these terms are used in part 
225) and the request is consistent with the Government's requirement.



Sec. 205.207  Preparation and transmittal of synopses.

    (d)(i) For historically black college and university and minority 
institution set-asides under 226.7003, use CBD Numbered Note 5.
    (ii) For acquisitions being considered for historically black 
college and university and minority institution set-aside, state:

    This proposed contract is being considered as a 100 percent set-
aside for historically black colleges and universities (HBCUs) and 
minority institutions (MIs), as defined by the clause at 252.226-7000 of 
the Defense Federal Acquisition Regulation Supplement. Interested HBCUs 
and MIs should provide the contracting office as early as possible, but 
not later than 15 days after this notice, evidence of their capability 
to perform the contract, and a positive statement of their eligibility 
as an HBCU or MI. If adequate response is not received from HBCUs and 
MIs, the solicitation will instead be issued, without further notice, 
as: ______________ (indicate if unrestricted, or restricted for small 
business or small disadvantaged business, etc.). Therefore, replies to 
this notice are also requested from
_______________________________________________________________________
(enter the types of firms to be solicited in the event an HBCU or MI 
set-aside is not made).''

    (iii) For broad agency announcement (BAA) (see 235.016) notices, 
indicate which, if any, portion of the BAA will be set-aside for 
historically black colleges and universities and minority institutions.
    (e) For acquisitions restricted to domestic sources under the 
authority of FAR 6.302-3, use CBD Numbered Note 13.

[56 FR 36302, July 31, 1991, as amended at 63 FR 41973, Aug. 6, 1998]



               Subpart 205.3--Synopses of Contract Awards



Sec. 205.303  Announcement of contract awards.

    (a) Public announcement. (i) The threshold for DoD awards is $5 
million. Report all contractual actions, including modifications, that 
have a face value, excluding unexercised options, of more than $5 
million.
    (A) For undefinitized contractual actions, report the not-to-exceed 
(NTE) amount. Later, if the definitized amount exceeds the NTE amount by 
more than $5 million, report only the amount exceeding the NTE.
    (B) For indefinite delivery, time and material, labor hour, and 
similar contracts, report the initial award if the estimated face value, 
excluding unexercised options, is more than $5 million. Do not report 
orders up to the estimated value, but after the estimated value is 
reached, report subsequent modifications and orders that

[[Page 44]]

have a face value of more than $5 million.
    (C) Do not report the same work twice.
    (ii) Departments and agencies submit the information--
    (A) To the Office of the Assistant Secretary of Defense (Public 
Affairs);
    (B) By the close of business the day before the date of the proposed 
award;
    (C) Using report control symbol DD-LA- (AR) 1279;
    (D) Including, as a minimum, the following--
    (1) Contract data. Contract number, modification number, or delivery 
order number, face value of this action, total cumulative face value of 
the contract, description of what is being bought, contract type, 
whether any of the buy was for foreign military sales (FMS) and 
identification of the FMS customer;
    (2) Competition information. Number of solicitations mailed and 
number of offers received;
    (3) Contractor data. Name, address, and place of performance (if 
significant work is performed at a different location);
    (4) Funding data. Type of appropriation and fiscal year of the 
funds, and whether the contract is multiyear (see FAR Subpart 17.1); and
    (5) Miscellaneous data. Identification of the contracting office, 
the contracting office point of contact, known congressional interest, 
and the information release date.
    (iii) Departments and agencies, in accordance with department/agency 
procedures and concurrent with the public announcement, shall provide 
information similar to that required by paragraph (a)(ii) of this 
section to members of Congress in whose state or district the contractor 
is located and the work is to be performed.

[56 FR 36302, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991]



                  Subpart 205.4--Release of Information



Sec. 205.470  Contractor information to be provided cooperative agreement holders.



Sec. 205.470-1  Statutory requirement.

    (a) As required by 10 U.S.C. 2413, the Defense Logistics Agency 
enters into cooperative agreements--
    (1) With--
    (i) State and local governments;
    (ii) Non-profit organizations;
    (iii) Indian tribal organizations; and
    (iv) Indian-owned economic enterprises
    (2) For the provision of technical assistance to business entities.
    (b) Contractors receiving defense contracts valued at more than 
$500,000 must provide cooperative agreement holders, at their request, 
the information specified in the clause at 252.205-7000, Provision of 
Information to Cooperative Agreement Holders.



Sec. 205.470-2  Contract clause.

    Use the clause at 252.205-7000, Provision of Information to 
Cooperative Agreement Holders, in solicitations and contracts expected 
to exceed $500,000.



                   Subpart 205.5--Paid Advertisements



Sec. 205.502  Authority.

    For paid advertisements to recruit civilian personnel, see section 
332-1-9 of the Federal Personnel Manual.
    (a) Newspapers. (i) Heads of contracting activities are delegated 
authority to approve the publication of paid advertisements in 
newspapers. They may redelegate this authority in accordance with agency 
procedures.
    (ii) Submit DD Form 1535, Request/Approval for Authority to 
Advertise, to the approval authority to obtain special or general 
authority.
    (A) Special authority permits the publication of a given 
advertisement

[[Page 45]]

for a specified number of times in designated newspapers.
    (B) General authority permits the publication of such advertisements 
as may be required during a designated fiscal year.



PART 206--COMPETITION REQUIREMENTS--Table of Contents




Sec.
206.001  Applicability.

   Subpart 206.2--Full and Open Competition After Exclusion of Sources

206.202  Establishing or maintaining alternative sources.
206.203  Set-asides for small business concerns.

           Subpart 206.3--Other Than Full and Open Competition

206.302  Circumstances permitting other than full and open competition.
206.302-1  Only one responsible source and no other supplies or services 
          will satisfy agency requirements.
206.302-2  Unusual and compelling urgency.
206.302-3  Industrial mobilization; or engineering, development, or 
          research capability.
206.302-3-70  Solicitation provision.
206.302-4  International agreement.
206.302-5  Authorized or required by statute.
206.302-7  Public interest.
206.303  Justifications.
206.303-1  Requirements.
206.303-2  Content.
206.304  Approval of the justification.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36303, July 31, 1991, unless otherwise noted.



Sec. 206.001  Applicability.

    (b) Contracts awarded using the procedures in 237.104(b)(ii) are 
expressly authorized by 10 U.S.C. 1091.

[60 FR 61592, Nov. 30, 1995]



   Subpart 206.2--Full and Open Competition After Exclusion of Sources



Sec. 206.202  Establishing or maintaining alternative sources.

    (a) Agencies may use this authority to totally or partially exclude 
a particular source from a contract action.
    (b) The determination and findings (D&F) and the documentation 
supporting the D&F must identify the source to be excluded from the 
contract action.
    (i) Include the following information, as applicable, and any other 
information that may be pertinent, in the supporting documentation:
    (A) The acquisition history of the supplies or services, including 
sources, prices, quantities, and dates of award;
    (B) The circumstances which make it necessary to exclude the 
particular source from the contract action, including--
    (1) The reasons for the lack of or potential loss of alternative 
sources; e.g., the technical complexity and criticality of the supplies 
or services; and
    (2) The current annual requirement and projected needs for the 
supplies or services;
    (C) Whether the existing source must be totally excluded from the 
contract action or whether a partial exclusion is sufficient;
    (D) The potential effect of exclusion on the excluded source in 
terms of loss of capability to furnish the supplies or services in the 
future;
    (E) When FAR 6.202(a)(1) is the authority, the basis for--
    (1) The determination of future competition; and
    (2) The determination of reduced overall costs. Include, as a 
minimum, a discussion of start-up costs, facility costs, duplicative 
administration costs, economic order quantities, and life cycle cost 
considerations; and
    (F) When FAR 6.202(a)(2) is the authority--
    (1) The current annual and mobilization requirements for the 
supplies or services, citing the source of, or the basis for, the data;
    (2) A comparison of current production capacity with that necessary 
to meet mobilization requirements;
    (3) An analysis of the risks of relying on the present source; and
    (4) A projection of the time required for a new source to acquire 
the necessary facilities and achieve the production capacity necessary 
to meet mobilization requirements.
    (ii) A sample format for Determination and Findings citing the 
authority

[[Page 46]]

of FAR 6.202(a) is in Table 6-1, Determinations and Findings.

                 Table 6-1--Determinations and Findings
                       Determinations and Findings
                      Authority to Exclude a Source
In accordance with 10 U.S.C. 2304(b)(1), it is my determination that the
 following contract action may be awarded using full and open
 competition after exclusion of ________\1\:
------------------------------------------------------------------------

    (Describe requirement.) Findings The exclusion of ________\1\
---------------------------------------------------------------------------

    \1\ Identify source being excluded.
---------------------------------------------------------------------------

    Alternate 1: will increase or maintain competition for this 
requirement and is expected to result in a reduction of $______ in 
overall costs for the present and future acquisition of these supplies 
or services. (Describe how estimate was derived.)
    Alternate 2: is in the interest of national defense because it will 
result in having a supplier available for furnishing these supplies or 
services in case of a national emergency or industrial mobilization. 
(Explain circumstances requiring exclusion of source.)
    Alternate 3: is in the interest of national defense because it will 
result in establishment or maintenance of an essential engineering, 
research or development capability to be provided by an educational or 
other nonprofit institution or a federally funded research and 
development center. (Explain circumstances requiring exclusion of 
source.)



Sec. 206.203  Set-asides for small business concerns.

    (b) Also no separate justification or determination and findings is 
required for contract actions processed as historically black college 
and university and minority institution set-asides (see 226.7003).

[63 FR 41973, Aug. 6, 1998]



           Subpart 206.3--Other Than Full and Open Competition



Sec. 206.302  Circumstances permitting other than full and open competition.



Sec. 206.302-1  Only one responsible source and no other supplies or services will satisfy agency requirements.

    (a) Authority. (2)(i) Section 8059 of Pub. L. 101-511 and similar 
sections in subsequent defense appropriations acts prohibit departments 
and agencies from entering into contracts for studies, analyses, or 
consulting services (see FAR subpart 37.2) on the basis of an 
unsolicited proposal without providing for full and open competition, 
unless--
    (1) The head of the contracting activity, or a designee no lower 
than chief of the contracting office, determines that--
    (i) Following thorough technical evaluation, only one source is 
fully qualified to perform the proposed work;
    (ii) The unsolicited proposal offers significant scientific or 
technological promise, represents the product of original thinking, and 
was submitted in confidence; or
    (iii) The contract benefits the national defense by taking advantage 
of a unique and significant industrial accomplishment or by ensuring 
financial support to a new product or idea;
    (2) A civilian official of the DoD, whose appointment has been 
confirmed by the Senate, determines the award to be in the interest of 
national defense; or
    (3) The contract is related to improvement of equipment that is in 
development or production.
    (b) Application. This authority may be used for acquisitions of test 
articles and associated support services from a designated foreign 
source under the DoD Foreign Comparative Testing Program.
    (4) Do not use this authority unless the equipment or parts have 
been adopted as standard items of supply in

[[Page 47]]

accordance with DoDI 5000.2, Defense Acquisition Management Policies and 
Procedures.

[56 FR 36303, July 31, 1991, as amended at 57 FR 14992, Apr. 23, 1992; 
58 FR 28463, May 13, 1993]



Sec. 206.302-2  Unusual and compelling urgency.

    (b) Application. The circumstances under which use of this authority 
may be appropriate include, but are not limited to, the following:
    (i) Supplies, services, or construction needed at once because of 
fire, flood, explosion, or other disaster;
    (ii) Essential equipment or repair needed at once to--
    (A) Comply with orders for a ship;
    (B) Perform the operational mission of an aircraft; or
    (C) Preclude impairment of launch capabilities or mission 
performance of missiles or missile support equipment.
    (iii) Construction needed at once to preserve a structure or its 
contents from damage;
    (iv) Purchase requests citing an issue priority designator under 
DoDD 4410.6, Uniform Material Movement and Issue Priority System, of 4 
or higher, or citing ``Electronic Warfare QRC Priority.''



Sec. 206.302-3  Industrial mobilization; or engineering, development, or research capability.



Sec. 206.302-3-70  Solicitation provision.

    Use the provision at 252.206-7000, Domestic Source Restriction, in 
all solicitations that are restricted to domestic sources under the 
authority of FAR 6.302-3.



Sec. 206.302-4  International agreement.

    (c) Limitations. Pursuant to 10 U.S.C. 2304(f)(2)(E), the 
justifications and approvals described in FAR 6.303 and 6.304 are not 
required if--
    (i) The head of the contracting activity prepares a document which 
describes the terms of an agreement or treaty or the written directions, 
such as a Letter of Offer and Acceptance, that have the effect of 
requiring the use of other than competitive procedures for the 
acquisition; and
    (ii) The document in paragraph (c)(i) of this subsection is approved 
by the competition advocate for the contracting activity.



Sec. 206.302-5  Authorized or required by statute.

    (b) Application. Agencies may use this authority to--
    (i) Acquire supplies and services from military exchange stores 
outside the United States for use by the armed forces outside the United 
States in accordance with 10 U.S.C. 2424(a) and subject to the 
limitations of 10 U.S.C. 2424(b). The limitations of 10 U.S.C. 2424(b) 
(1) and (2) do not apply to the purchase of soft drinks that are 
manufactured in the United States. For the purposes of 10 U.S.C. 2424, 
soft drinks manufactured in the United States are brand name carbonated 
sodas, manufactured in the United States, as evidenced by product 
markings.
    (ii) Acquire police, fire protection, airfield operation, or other 
community services from local governments at military installations to 
be closed under the circumstances in 237.7401 (Section 2907 of Fiscal 
Year 1994 Defense Authorization Act (Pub. L. 103-160)).
    (c) Limitations. (i) 10 U.S.C. 2361 precludes use of this exception 
for awards to colleges or universities for the performance of research 
and development, or for the construction of any research or other 
facility, unless--
    (A) The statute authorizing or requiring award specifically--
    (1) States that the statute modifies or supersedes the provisions of 
10 U.S.C. 2361,
    (2) Identifies the particular college or university involved, and
    (3) States that award is being made in contravention of 10 U.S.C. 
2361(a); and
    (B) The Secretary of Defense provides Congress written notice of 
intent to award. The contract cannot be awarded until 180 days have 
elapsed since the date Congress received the notice of intent to award. 
Contracting activities must submit a draft notice of intent with 
supporting documentation through channels to the Director of Defense 
Procurement, Office of the Under

[[Page 48]]

Secretary of Defense (Acquisition & Technology).
    (ii) The limitation in paragraph (c)(i) of this subsection applies 
only if the statute authorizing or requiring award was enacted after 
September 30, 1989.
    (iii) Subsequent statutes may provide different or additional 
constraints on the award of contracts to specified colleges and 
universities. Contracting officers should consult legal counsel on a 
case-by-case basis.

[56 FR 36303, July 31, 1991, as amended at 57 FR 14992, Apr. 23, 1992; 
58 FR 28463, May 13, 1993; 59 FR 36089, July 15, 1994; 60 FR 29497, June 
5, 1995; 60 FR 40107, Aug. 7, 1995]



Sec. 206.302-7  Public interest.

    (c) Limitations. For the defense agencies, the written determination 
to use this authority must be made by the Secretary of Defense.



Sec. 206.303  Justifications.



Sec. 206.303-1  Requirements.

    (b) Technical and requirements personnel must obtain any review and 
approval required by department or agency procedures before submission 
of a recommendation for other than full and open competition to the 
contracting officer.
    (c) When conditions warrant, a class justification may provide for 
award of multiple contracts extending across more than one program 
phase.

[56 FR 36303, July 31, 1991, as amended at 60 FR 61592, Nov. 30, 1995]



Sec. 206.303-2  Content.

    (a) Include sufficient information in the justification to permit 
its approval as a stand-alone document, even though agency procedures 
may require supplementary documentation.



Sec. 206.304  Approval of the justification.

    (a)(4) The Under Secretary of Defense (Acquisition & Technology) may 
delegate this authority to--
    (A) An Assistant Secretary of Defense; or
    (B) For a defense agency, an officer or employee serving in, 
assigned, or detailed to that agency who--
    (1) If a member of the armed forces, is serving in a rank above 
brigadier general or rear admiral (lower half); or
    (2) If a civilian, is serving in a position with a grade under the 
General Schedule (or any other schedule for civilian officers or 
employees) that is comparable to or higher than the grade of major 
general or rear admiral.

[61 FR 10285, Mar. 13, 1995, as amended at 61 FR 50451, Sept. 26, 1996]



PART 207--ACQUISITION PLANNING--Table of Contents




                    Subpart 207.1--Acquisition Plans

Sec.
207.102  Policy.
207.103  Agency-head responsibilities.
207.104  General procedures.
207.105  Contents of written acquisition plans.
207.106   Additional requirements for major systems.

               Subpart 207.4--Equipment Lease or Purchase

207.401  Acquisition considerations.
207.470  Statutory requirements.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36305, July 31, 1991, unless otherwise noted.



                    Subpart 207.1--Acquisition Plans



Sec. 207.102  Policy.

    When a class justification for other than full and open competition 
has been approved, planning for competition shall be accomplished 
consistent with the terms of that approval.

[60 FR 61592, Nov. 30, 1995]



Sec. 207.103  Agency-head responsibilities.

    (c)(i) Military departments and agencies shall prepare written 
acquisition plans for--
    (A) Acquisitions for development, as defined in FAR 35.001, when the 
total cost of all contracts for the acquisition program is estimated at 
$5 million or more;
    (B) Acquisitions for production or services when the total cost of 
all contracts for the acquisition program is estimated at $30 million or 
more for all years or $15 million or more for any fiscal year; and

[[Page 49]]

    (C) Any other acquisition considered appropriate by the department 
or agency.
    (ii) Written plans are not required in acquisitions for a final buy 
out or one-time buy. The terms ``final buy out'' and ``one-time buy'' 
refer to a single contract which covers all known present and future 
requirements. This exception does not apply to a multiyear contract or a 
contract with options or phases.
    (d) Prepare written acquisition plans for acquisition programs 
meeting the thresholds of paragraphs (c)(i) (A) and (B) of this section 
on a program basis. Other acquisition plans may be written on either a 
program or an individual contract basis.
    (f) The program manager, or other official responsible for the 
program, has overall responsibility for acquisition planning.
    (h)(i) Apply design-to-cost principles--
    (A) In all major defense acquisition programs (DoDD 5000.1, Defense 
Acquisition), unless exempted by the Secretary of Defense; and
    (B) To the acquisition of systems, subsystems, and components below 
the thresholds for major defense acquisition programs, to the extent 
prescribed by DoDD 5000.1.
    (ii) Consider life-cycle-cost in all acquisitions of systems and 
equipment.

[56 FR 36305, July 31, 1991, as amended at 61 FR 50451, Sept. 26, 1996]



Sec. 207.104  General procedures.

    (b) The planner should forward the requirements information to the 
contract administration organization when assistance in identification 
of potential sources of supply is necessary, when an existing contract 
is being modified or resolicited, or when contract administration 
resource requirements will be affected.

[61 FR 50451, Sept. 26, 1996]



Sec. 207.105  Contents of written acquisition plans.

    For acquisitions covered by 207.103(c)(i) (A) and (B), correlate the 
plan to the DoD Future Years Defense Program, applicable budget 
submissions, and the decision coordinating paper/program memorandum, as 
appropriate. It is incumbent upon the planner to coordinate the plan 
with all those who have a responsibility for the development, 
management, or administration of the acquisition. The acquisition plan 
should be provided to the contract administration organization to 
facilitate resource allocation and planning for the evaluation, 
identification, and management of contractor performance risk.
    (a) Acquisition background and objectives--(1) Statement of need. 
Include--
    (A) Applicability of a decision coordinating paper (DCP), 
acquisition decision memorandum, Defense Acquisition Board (DAB), and/or 
internal service reviews. Describe the options in the DCP/acquisition 
decision memorandum and delineate which option the acquisition plan 
supports.
    (B) The date approval for operational use has been or will be 
obtained. If waivers are requested, describe the need for the waivers.
    (C) A milestone chart depicting the acquisition objectives.
    (D) Milestones for updating the acquisition plan. Indicate when the 
plan will be updated. Program managers should schedule updates to 
coincide with DAB reviews and the transition from one phase to another 
(e.g., engineering and manufacturing development to production and 
deployment).
    (8) Acquisition streamlining. DoDD 5000.1, Defense Acquisition, and 
DoD 5000.2-R, Mandatory Procedures for Major Defense Acquisition 
Programs (MDAPs) and Major Automated Information System (MAIS) 
Acquisition Programs, contain policy direction on acquisition 
streamlining. See MIL-HDBK 248, Acquisition Streamlining, for guidance 
on streamlining performance requirements, the technical package, and the 
contract strategy.
    (b) Plan of action.--(5) Budgeting and funding. Include specific 
references to budget line items and program elements, where applicable, 
estimated production unit cost, and the total cost for remaining 
production.
    (6) Product descriptions. For development acquisitions, describe the 
market research undertaken to identify commercial items, commercial 
items with modifications, or nondevelopmental

[[Page 50]]

items (see FAR part 10) that could satisfy the acquisition objectives.
    (13) Logistics considerations. (i) Describe the extent of integrated 
logistics support planning to date, including references to approved 
plans.
    (ii) Discuss the mission profile, reliability, and maintainability 
(R&M) program plan, R&M predictions, redundancy, qualified parts lists, 
parts and material qualification, R&M requirements imposed on vendors, 
failure analysis, corrective action and feedback, and R&M design reviews 
and trade-off studies.
    (iv) See DoDD 5000.1, Defense Acquisition, and DoD 5000.2-R, 
Mandatory Procedures for Major Defense Acquisition Programs (MDAPs) and 
Major Automated Information System (MAIS) Acquisition Programs, for 
procedures on standardization and on the DoD Parts Control Program. See 
MIL-STD-965, Parts Control Program, for procedures on the Standardized 
Military Drawing Program.
    (S-70) Describe the extent of Computer-Aided Acquisition and 
Logistics Support (CALS) implementation (see MIL-HDBK 59, Department of 
Defense Computer-Aided Logistics Support (CALS) Program Guide, and MIL-
STD-1840A, Automated Interchange of Technical Information.
    (16) Environmental and energy conservation objectives. Discuss 
actions taken to ensure either elimination of or authorization to use 
class I ozone-depleting chemicals and substances (see 211.271).
    (18) Other considerations. (A) National Technology and Industrial 
Base. For major defense acquisition programs, address the following 
(Pub. L. 102-484, section 4220)--
    (1) An analysis of the capabilities of the national technology and 
industrial base to develop, produce, maintain, and support such program, 
including consideration of the following factors related to foreign 
dependency (Pub. L. 102-484, section 4219(h))--
    (i) The availability of essential raw materials, special alloys, 
composite materials, components, tooling, and production test equipment 
for the sustained production of systems fully capable of meeting the 
performance objectives established for those systems; the uninterrupted 
maintenance and repair of such systems; and the sustained operation of 
such systems.
    (ii) The identification of items specified in paragraph 
(b)(18)(A)(1)(i) of this section that are available only from sources 
outside the national technology and industrial base.
    (iii) The availability of alternatives for obtaining such items from 
within the national technology and industrial base if such items become 
unavailable from sources outside the national technology industrial 
base; and an analysis of any military vulnerability that could result 
from the lack of reasonable alternatives.
    (iv) The effects on the national technology and industrial base that 
result from foreign acquisition of firms in the United States.
    (2) Consideration of requirements for efficient manufacture during 
the design and production of the systems to be procured under the 
program.
    (3) The use of advanced manufacturing technology, processes, and 
systems during the research and development phase and the production 
phase of the program.
    (4) To the maximum extent practicable, the use of contract 
solicitations that encourage competing offerors to acquire, for use in 
the performance of the contract, modern technology, production 
equipment, and production systems (including hardware and software) that 
increase the productivity of the offerors and reduce the life-cycle 
costs.
    (5) Methods to encourage investment by U.S. domestic sources in 
advanced manufacturing technology production equipment and processes 
through--
    (i) Recognition of the contractor's investment in advanced 
manufacturing technology production equipment, processes, and 
organization of work systems that build on workers' skill and 
experience, and work force skill development in the development of the 
contract objective; and
    (ii) Increased emphasis in source selection on the efficiency of 
production.
    (6) Expanded use of commercial manufacturing processes rather than 
processes specified by DoD.

[[Page 51]]

    (7) Elimination of barriers to, and facilitation of, the integrated 
manufacture of commercial items and items being produced under DoD 
contracts.
    (8) Expanded use of commercial items, commercial items with 
modifications, or to the extent commercial items are not available, 
nondevelopmental items (see FAR part 10).
    (B) Industrial preparedness (IP).
    (1) Provide the program's IP strategy that assesses the capability 
of the U.S. industrial base to achieve identified surge and mobilization 
goals. If no IP strategy has been developed, provide supporting 
rationale for this position.
    (2) If in the IP strategy, the development of a detailed IP plan was 
determined to be applicable, include the plan by text or by reference. 
If the development of the IP plan was determined not to be applicable, 
summarize the details of the analysis forming the basis of this 
decision.
    (3) If the program involves peacetime and wartime hardware 
configurations which are supported by logistics support plans, identify 
their impact on the IP plan.
    (C) Ensure compliance with DoDD 4210.15, Hazardous Material 
Pollution Prevention.
    (D) Contract administration. Discuss the level of Government 
administration anticipated or currently performed and any change 
proposed by the contract administration office.

[56 FR 36305, July 31, 1991, as amended at 58 FR 28463, May 13, 1993; 58 
FR 32061, June 8, 1993; 60 FR 29497, June 5, 1995; 60 FR 61593, Nov. 30, 
1995; 61 FR 50451, Sept. 26, 1996]



Sec. 207.106  Additional requirements for major systems.

    (b)(1)(A) The contracting officer is prohibited by 10 U.S.C. 
2305(d)(4)(A) from requiring offers for development or production of 
major systems that would enable the Government to use technical data to 
competitively reprocure identical items or components of the system if 
the item or component were developed exclusively at private expense, 
unless the contracting officer determines that--
    (1) The original supplier of the item or component will be unable to 
satisfy program schedule or delivery requirements;
    (2) Proposals by the original supplier of the item or component to 
meet mobilization requirements are insufficient to meet the agency's 
mobilization needs; or
    (3) The Government is otherwise entitled to unlimited rights in 
technical data.
    (B) If the contracting officer makes a determination, under 
paragraphs (b)(1)(A) (1) and (2) of this section, for a competitive 
solicitation, 10 U.S.C. 2305(d)(4)(B) requires that the evaluation of 
items developed at private expense be based on an analysis of the total 
value, in terms of innovative design, life-cycle costs, and other 
pertinent factors, of incorporating such items in the system.



               Subpart 207.4--Equipment Lease or Purchase



Sec. 207.401  Acquisition considerations.

    If the equipment will be leased for more than 60 days, the requiring 
activity must prepare and provide the contracting officer with the 
justification supporting the decision to lease or purchase.



Sec. 207.470  Statutory requirements.

    (a) Limitation on contracts with terms of 18 months or more. As 
required by 10 U.S.C. 2401a, the contracting officer shall not enter 
into any contract for any vessel, aircraft, or vehicle, through a lease, 
charter, or similar agreement with a term of 18 months or more, or 
extend or renew any such contract for a term of 18 months or more, 
unless the head of the contracting activity has--
    (1) Considered all costs of such a contract (including estimated 
termination liability); and
    (2) Determined in writing that the contract is in the best interest 
of the Government.
    (b) Leasing of commercial vehicles and associated equipment. Except 
as provided in paragraph (a) of this section, the contracting officer 
may use leasing in the acquisition of commercial vehicles and associated 
equipment whenever the contracting officer determines

[[Page 52]]

that leasing of such vehicles is practicable and efficient (10 US.C. 
2401a).

[61 FR 16879, Apr. 18, 1996, as amended at 61 FR 50451, Sept. 26, 1996]



PART 208--REQUIRED SOURCES OF SUPPLIES AND SERVICES--Table of Contents




Sec.
208.001  Priorities for use of Government supply sources.
208.002  Use of other Government supply sources.

          Subpart 208.4--Ordering from Federal Supply Schedules

208.404  Using schedules.
208.404-1  Mandatory use.
208.404-2  Optional use.
208.405  Ordering office responsibilities.
208.405-2  Order placement.

Subpart 208.7--Acquisition from the Blind and Other Severely Handicapped

208.705  Procedures.

                 Subpart 208.70--Coordinated Acquisition

208.7000  Scope of subpart.
208.7001  Definitions.
208.7002  Assignment authority.
208.7002-1  Acquiring department responsibilities.
208.7002-2  Requiring department responsibilities.
208.7003  Applicability.
208.7003-1  Assignments under integrated material management (IMM).
208.7003-2  Assignments under coordinated acquisition.
208.7004  Procedures.
208.7004-1  Purchase authorization from requiring department.
208.7004-2  Acceptance by acquiring department.
208.7004-3  Use of advance MIPRs.
208.7004-4  Cutoff dates for submission of Category II MIPRs.
208.7004-5  Notification of inability to obligate on Category II MIPRs.
208.7004-6  Cancellation of requirements.
208.7004-7  Termination for default.
208.7004-8  Transportation funding.
208.7004-9  Status reporting.
208.7004-10  Administrative costs.
208.7005  MIPRs.
208.7006  Coordinated acquisition assignments.

     Subpart 208.71--Acquisition for National Aeronautics and Space 
                          Administration (NASA)

208.7100  Authorization.
208.7101  Policy.
208.7102  Procedures.
208.7103  Purchase request and acceptance.
208.7104  Changes in estimated total prices.
208.7105  Payments.

       Subpart 208.72--Industrial Preparedness Production Planning

208.7201  Definitions.
208.7202  General.
208.7203  Authority.
208.7204  Procedures.

         Subpart 208.73--Use of Government-Owned Precious Metals

208.7301  Definitions.
208.7302  Policy.
208.7303  Procedures.
208.7304  Refined precious metals.
208.7305  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36306, July 31, 1991, unless otherwise noted.



Sec. 208.001  Priorities for use of Government supply sources.

    (a)(1)(v) See subpart 208.70, Coordinated Acquisition.
    (2)(iii) Information on General Services Administration (GSA) 
schedules for maintenance, repair, and rehabilitation of personal 
property is in the GSA supply catalog. The types of personal property 
for which GSA, Federal Supply Service has schedule contracts for 
maintenance, repair, and/or rehabilitation are--
    (1) Furniture (office, household, quarters, institutional, and 
hospital type);
    (2) Typewriters (manual, electric, and electronic);
    (3) Repair and maintenance of Government owned vehicles; and
    (4) Tire retreading and repair (except aircraft).



Sec. 208.002  Use of other Government supply sources.

    (f) Detailed information on strategic and critical materials in 
excess of national stockpile requirements (e.g., metals, ores, 
chemicals) is available from the Defense National Stockpile Center, 8725 
John J. Kingman Road, Suite 4616, Fort Belvoir, VA 22060-6223.
    (g) Acquire helium (Pub. L. 86-777)--
    (i) In bulk from--
    (A) The Department of Interior (Bureau of Mines); or

[[Page 53]]

    (B) Eligible private helium distributors. A list of eligible private 
helium distributors is maintained by the Bureau of Mines, Helium Field 
Operations, 1100 South Fillmore Street, Amarillo, TX 79101.
    (ii) In cylinders or trailers, from--
    (A) The Department of Interior (Bureau of Mines); or
    (B) Through GSA Federal Supply Schedule contracts.

[56 FR 36306, July 31, 1991, as amended at 62 FR 34121, June 24, 1997]



          Subpart 208.4--Ordering From Federal Supply Schedules



Sec. 208.404  Using schedules.

    (a) When a schedule lists both foreign and domestic items that will 
meet the needs of the requiring activity, the ordering office must apply 
the procedures of part 225 and FAR part 25, Foreign Acquisition. When 
purchase of an item of foreign origin is specifically required, the 
requiring activity must furnish the ordering office sufficient 
information to permit the determinations required by part 225 and FAR 
part 25 to be made.



Sec. 208.404-1  Mandatory use.

    The DoD will not be a mandatory user of any schedule unless 
individual DoD activities elect to provide annual requirements estimates 
to GSA and become mandatory users. Examples of areas where this approach 
may be applied are:
    (1) Group 68--gases and chemicals;
    (2) Group 26--pneumatic tires and inner tubes;
    (3) Maintenance, repair, and/or rehabilitation of personal property; 
and
    (4) ``Just-in-time'' arrangements for delivery of material directly 
from vendors to users.



Sec. 208.404-2  Optional use.

    Make maximum use of the schedules. Other procedures may be used if 
further competition is judged to be in the best interest of the 
Government in terms of quality, responsiveness, or cost.



Sec. 208.405  Ordering office responsibilities.



Sec. 208.405-2  Order placement.

    (1) Ordering offices may use DD Form 1155, Order for Supplies or 
Services, to order items from schedules.
    (2) Orders may be placed orally if--
    (i) The order does not exceed the small purchase threshold at FAR 
13.000;
    (ii) The contractor agrees to furnish a delivery ticket for each 
shipment under the order (in the number of copies required by the 
ordering office). The ticket must include the--
    (A) Contract number;
    (B) Order number under the contract;
    (C) Date of order;
    (D) Name and title of person placing order;
    (E) Itemized listing of supplies or services furnished; and
    (F) Date of delivery or shipment.
    (iii) Invoicing procedures are agreed upon. Optional methods of 
submitting invoices for payment are permitted, such as--
    (A) An individual invoice with a receipted copy of the delivery 
ticket;
    (B) A summarized monthly invoice covering all oral orders made 
during the month, with receipted copies of the delivery tickets (this 
option is preferred if there are many oral orders); or
    (C) A contracting officer statement that the Government has received 
the supplies.
    (3) For purchases where cash payment is an advantage, the use of 
imprest funds (see FAR 13.4) is authorized when--
    (i) The order does not exceed the threshold at FAR 13.404(a); and
    (ii) The contractor agrees to the procedure.



Subpart 208.7--Acquisition From the Blind and Other Severely Handicapped



Sec. 208.705  Procedures.

    Ordering offices may use DD Form 1155, Order for Supplies or 
Services, to place orders with central nonprofit agencies or workshops.

[[Page 54]]



                 Subpart 208.70--Coordinated Acquisition



Sec. 208.7000  Scope of subpart.

    This subpart prescribes policy and procedures for acquisition of 
items for which contracting responsibility is assigned to one or more of 
the departments/agencies or the General Services Administration. 
Contracting responsibility is assigned through--
    (a) The Coordinated Acquisition Program (commodity assignments are 
listed in appendix B); or
    (b) The Integrated Materiel Management Program (assignments are in 
DoD 4140.26-M, Integrated Materiel Management for Consumable Items).



Sec. 208.7001  Definitions.

    For purposes of this subpart--
    Acquiring department means the department, agency, or General 
Services Administration which has contracting responsibility under the 
Coordinated Acquisition Program.
    Integrated materiel management means assignment of acquisition 
management responsibility to one department, agency, or the General 
Services Administration for all of DoD's requirements for the assigned 
item. Acquisition management normally includes computing requirements, 
funding, budgeting, storing, issuing, cataloging, standardizing, and 
contracting functions.
    Requiring department means the department or agency which has the 
requirement for an item.



Sec. 208.7002  Assignment authority.

    (a) Under the DoD Coordinated Acquisition Program, contracting 
responsibility for certain commodities is assigned to a single 
department, agency, or the General Services Administration (GSA). 
Commodity assignments are made--
    (1) To the departments and agencies, by the Assistant Secretary of 
Defense (Production and Logistics);
    (2) To the GSA, through agreement with GSA, by the Assistant 
Secretary of Defense (Production and Logistics);
    (3) Outside the continental United States, by the Unified 
Commanders; and
    (4) For acquisitions to be made in the United States for commodities 
not assigned under paragraphs (a) (1), (2), or (3) of this section, by 
agreement of agency heads (10 U.S.C. 2308).
    (i) Agreement may be on either a one-time or a continuing basis. The 
submission of a military interdepartmental purchase request (MIPR) by a 
requiring activity and its acceptance by the contracting activity of 
another department, even though based on an oral communication, 
constitutes a one-time agreement.
    (ii) Consider repetitive delegated acquisition responsibilities for 
coordinated acquisition assignment. If not considered suitable for 
coordinated acquisition assignment, formalize continuing agreements and 
distribute them to all activities concerned.
    (b) Under the Integrated Materiel Management Program, assignments 
are made by the Assistant Secretary of Defense (Production and 
Logistics)--
    (1) To the departments and agencies; and
    (2) To the GSA, through agreement with GSA.



Sec. 208.7002-1  Acquiring department responsibilities.

    The acquiring department generally is responsible under coordinated 
acquisition for--
    (a) Operational aspects of acquisition planning (Phasing the 
submission of requirements to contracting, consolidating or dividing 
requirements, analyzing the market, and determining patterns for the 
phased placement of orders to avoid unnecessary production fluctuations 
and meet the needs of requiring departments at the lowest price);
    (b) Purchasing;
    (c) Performing or assigning contract administration, including 
follow up and expediting of inspection and transportation; and
    (d) Obtaining licenses under patents and settling patent 
infringement claims arising out of the acquisition. (Acquiring 
departments must obtain approval from the department whose funds are to 
be charged for obtaining licenses or settling claims.)



Sec. 208.7002-2  Requiring department responsibilities.

    The requiring department is responsible for--

[[Page 55]]

    (a) Ensuring compliance with the order of priority in FAR 8.001 for 
use of Government supply sources before submitting a requirement to the 
acquiring department for contracting action.
    (b) Providing the acquiring department--
    (1) The complete and certified documentation required by FAR 6.303-
2(b). A requiring department official, equivalent to the appropriate 
level in FAR 6.304, must approve the documentation before submission of 
the military interdepartmental purchase request (MIPR) to the acquiring 
department;
    (2) Any additional supporting data which the acquiring department 
contracting officer requests (e.g., the results of any market survey or 
why none was conducted, and actions the requiring department will take 
to overcome barriers to competition in the future);
    (3) The executed determination and findings required by FAR 6.302-
7(c)(1);
    (4) When a requiring department requests an acquiring department to 
contract for supplies or services using full and open competition after 
exclusion of sources, all data required by FAR 6.202(b)(2);
    (5) When the requiring department specifies a foreign end product, 
any determinations required by part 225 or FAR part 25;
    (6) A complete definition of the requirements, including a list (or 
copies) of specifications, drawings, and other data required for the 
acquisition. The requiring department need not furnish Federal, 
military, departmental, or other specifications or drawings or data 
which are available to the acquiring department;
    (7) Justification required by FAR 17.205(a) for any option 
quantities requested;
    (8) A statement as to whether used or reconditioned material, former 
Government surplus property, or residual inventory will be acceptable, 
and if so--
    (i) A list of any supplies that need not be new; and
    (ii) The basis for determining the acceptability of such supplies, 
including an analysis of the factors at FAR 10.010(b);
    (9) A statement as to whether the acquiring department may exceed 
the total MIPR estimate, and if so, by what amount;
    (10) Unless otherwise agreed between the departments, an original 
and six copies of each MIPR and its attachments (except specifications, 
drawings, and other data); and
    (11) A list of all persons who have had access to proprietary or 
source selection information (see FAR 3.104-9(e)).



Sec. 208.7003  Applicability.



Sec. 208.7003-1  Assignments under integrated material management (IMM).

    (a) All items assigned for IMM must be acquired from the IMM manager 
except--
    (1) Items purchased under circumstances of unusual and compelling 
urgency as defined in FAR 6.302-2. After such a purchase is made, the 
requiring activity must send one copy of the contract and a statement of 
the emergency to the IMM manager;
    (2) Items for which the IMM manager assigns a supply system code for 
local purchase or otherwise grants authority to purchase locally; or
    (3) When purchase by the requiring activity is in the best interest 
of the Government in terms of the combination of quality, timeliness, 
and cost that best meets the requirement. This exception does not apply 
to items--
    (i) Critical to the safe operation of a weapon system;
    (ii) With special security characteristics; or
    (iii) Which are dangerous (e.g., explosives, munitions).
    (b) When an item assigned for IMM is to be acquired by the requiring 
activity under paragraph (a)(3) of this subsection, the contracting 
officer must--
    (1) Document the contract file with a statement of the specific 
advantage of local purchase for an acquisition exceeding the micro-
purchase threshold in FAR part 13; and
    (2) Ensure that a waiver is obtained from the IMM manager before 
initiating an acquisition exceeding the simplified acquisition threshold 
in FAR part 13, if the IMM assignment is to the General Services 
Administration (GSA), the Defense Logistics Agency (DLA), or the Army 
Materiel Command (AMC). Submit requests for waiver to--


[[Page 56]]


(i) For GSA:
    Commissioner (F), Federal Supply Service, Washington, DC 20406
(ii) For DLA:
    Defense Construction Supply Center, ATTN: DCSC-BDA, P.O. Box 3990, 
Columbus, OH 43216-5000
    Defense Electronics Supply Center, ATTN: DESC-ERM, 1507 Wilmington 
Pike, Dayton, OH 45444-5000
    Defense Fuel Supply Center, ATTN: DFSC-OI, Cameron Station, VA 
22304-6160
    Defense General Supply Center, ATTN: DGSC-X, Richmond, VA 23297-5000
    Defense Industrial Supply Center, ATTN: DISC-OPD, 700 Robbins 
Avenue, Philadelphia, PA 19111-5096
    Defense Personnel Support Center, ATTN: DPSC-CSH, 2800 South 20th 
Street, P.O. Box 8419, Philadelphia, PA 19101-8419
(iii) For AMC:
    Commander, U.S. Army Materiel Command, ATTN: AMCLG-S, 5001 
Eisenhower Avenue, Alexandria, VA 22333-0001

[60 FR 61593, Nov. 30, 1995]



Sec. 208.7003-2  Assignments under coordinated acquisition.

    Requiring departments must submit to the acquiring department all 
contracting requirements for items assigned for coordinated acquisition, 
except--
    (a) Items obtained through the sources in FAR 8.001(a)(1) (i) 
through (vii);
    (b) Items obtained under 208.7003-1(a);
    (c) Requirements not in excess of the simplified acquisition 
threshold in FAR part 13, when contracting by the requiring department 
is in the best interest of the Government;
    (d) In an emergency. When an emergency purchase is made, the 
requiring department must send one copy of the contract and a statement 
of the emergency to the contracting activity of the acquiring 
department;
    (e) Requirements for which the acquiring department's contracting 
activity delegates contracting authority to the requiring department;
    (f) Items in a research and development stage (as described in FAR 
part 35). Under this exception, the military departments may contract 
for research and development requirements, including quantities for 
testing purposes and items undergoing in-service evaluation (not yet in 
actual production, but beyond prototype). Generally, this exception 
applies only when research and development funds are used.
    (g) Items peculiar to nuclear ordnance material where design 
characteristics or test-inspection requirements are controlled by the 
Department of Energy (DoE) or by DoD to ensure reliability of nuclear 
weapons.
    (1) This exception applies to all items designed for and peculiar to 
nuclear ordnance regardless of agency control, or to any item which 
requires test or inspection conducted or controlled by DoE or DoD.
    (2) This exception does not cover items used for both nuclear 
ordnance and other purposes if the items are not subject to the special 
testing procedures.
    (h) Items to be acquired under FAR 6.302-6 (national security 
requires limitation of sources);
    (i) Items to be acquired under FAR 6.302-1 (supplies available only 
from the original source for follow-on contract);
    (j) Items directly related to a major system and which are design 
controlled by and acquired from either the system manufacturer or a 
manufacturer of a major subsystem;
    (k) Items subject to rapid design changes, or to continuous redesign 
or modification during the production and/or operational use phases, 
which require continual contact between industry and the requiring 
department to ensure that the item meets the requirements:
    (1) This exception permits the requiring department to contract for 
items of highly unstable design. For use of this exception, it must be 
clearly impractical, both technically and contractually, to refer the 
acquisition to the acquiring department. Anticipation that contracting 
by negotiation will be appropriate, or that a number of design changes 
may occur during contract performance is not in itself sufficient reason 
for using this exception.
    (2) This exception also applies to items requiring compatibility 
testing,

[[Page 57]]

provided such testing requires continual contact between industry and 
the requiring department;
    (l) Containers acquired only with items for which they are designed;
    (m) One-time buy of a noncataloged item.
    (1) This exception permits the requiring departments to contract for 
a nonrecurring requirement for a noncataloged item. This exception could 
cover a part or component for a prototype which may be stock numbered at 
a later date.
    (2) This exception does not permit acquisitions of recurring 
requirements for an item, based solely on the fact that the item is not 
stock numbered, nor may it be used to acquire items which have only 
slightly different characteristics than previously cataloged items.

[56 FR 36306, July 31, 1991, as amended at 60 FR 61593, Nov. 30, 1995]



Sec. 208.7004  Procedures.



Sec. 208.7004-1  Purchase authorization from requiring department.

    (a) Requiring departments send their requirements to acquiring 
departments on either a DD Form 448, Military Interdepartmental Purchase 
Request (MIPR), or a DD Form 416, Requisition for Coal, Coke or 
Briquettes. A MIPR or a DD Form 416 is the acquiring department's 
authority to acquire the supplies or services on behalf of the requiring 
department.
    (b) The acquiring department is authorized to create obligations 
against the funds cited in a MIPR without further referral to the 
requiring department. The acquiring department has no responsibility to 
determine the validity of a stated requirement in an approved MIPR, but 
it should bring apparent errors in the requirement to the attention of 
the requiring department.
    (c) Changes that affect the contents of the MIPR must be processed 
as a MIPR amendment regardless of the status of the MIPR. The requiring 
department may initially transmit changes electronically or by some 
other expedited means, but must confirm changes by a MIPR amendment.
    (d) The requiring department must submit requirements for additional 
line items of supplies or services not provided for in the original MIPR 
as a new MIPR. The requiring department may use a MIPR amendment for 
increased quantities only if--
    (1) The original MIPR requirements have not been released for 
solicitation; and
    (2) The acquiring department agrees.



Sec. 208.7004-2  Acceptance by acquiring department.

    (a) Acquiring departments formally accept a MIPR by DD Form 448-2, 
Acceptance of MIPR, as soon as practicable, but no later than 30 days 
after receipt of the MIPR. If the 30 day time limit cannot be met, the 
acquiring department must inform the requiring department of the reason 
for the delay, and the anticipated date the MIPR will be accepted. The 
acquiring department must accept MIPRs in writing before expiration of 
the funds.
    (b) The acquiring department in accepting a MIPR will determine 
whether to use Category I (reimbursable funds citation) or Category II 
(direct funds citation) methods of funding.
    (1) Category I method of funding is used under the following 
circumstances and results in citing the funds of the acquiring 
department in the contract--
    (i) Delivery is from existing inventories of the acquiring 
department;
    (ii) Delivery is by diversion from existing contracts of the 
acquiring department;
    (iii) Production or assembly is through Government work orders in 
Government-owned plants;
    (iv) Production quantities are allocated among users from one or 
more contracts, and the identification of specific quantities of the end 
item to individual contracts is not feasible at the time of MIPR 
acceptance;
    (v) Acquisition of the end items involves separate acquisition of 
components to be assembled by the acquiring department;
    (vi) Payments will be made without reference to deliveries of end 
items (e.g., cost-reimbursement type contracts and fixed price contracts 
with progress payment clauses); or
    (vii) Category II method of funding is not feasible and economical.

[[Page 58]]

    (2) Category II method of funding is used in circumstances other 
than those in paragraph (b)(1) of this subsection. Category II funding 
results in citation of the requiring department's funds and MIPR number 
in the resultant contract.
    (c) When the acquiring departments accepts a MIPR for Category I 
funding--
    (1) The DD Form 448-2, Acceptance of MIPR, is the authority for the 
requiring department to record the obligation of funds;
    (2) The acquiring department will annotate the DD Form 448-2 if 
contingencies, price revisions, or variations in quantities are 
anticipated. The acquiring department will periodically advise the 
requiring department, prior to submission of billings, of any changes in 
the acceptance figure so that the requiring department may issue an 
amendment to the MIPR, and the recorded obligation may be adjusted to 
reflect the current price;
    (3) If the acquiring department does not qualify the acceptance of a 
MIPR for anticipated contingencies, the price on the acceptance will be 
final and will be billed at time of delivery;
    (4) Upon receipt of the final billing (SF 1080, Voucher for 
Transferring Funds), the requiring department may adjust the fiscal 
records accordingly without authorization from or notice to the 
acquiring department.
    (d) When the MIPR is accepted for Category II funding, a conformed 
copy of the contract (see 204.802(1)(ii)) is the authority to record the 
obligation. When all awards have been placed to satisfy the total MIPR 
requirement, any unused funds remaining on the MIPR become excess to the 
acquiring department. The acquiring department will immediately notify 
the requiring department of the excess funds by submitting an Acceptance 
of MIPR (DD Form 448-2). This amendment is authorization for the 
requiring department to withdraw the funds. The acquiring department is 
prohibited from further use of such excess funds.
    (e) When the acquiring department requires additional funds to 
complete the contracting action for the requiring department, the 
request for additional funds must identify the exact items involved, and 
the reason why additional funds are required. The requiring department 
shall act quickly to--
    (1) Provide the funds by an amendment of the MIPR; or
    (2) Reduce the requirements.
    (f) The accepting activity of the acquiring department shall remain 
responsible for the MIPR even though that activity may split the MIPR 
into segments for action by other contracting activities.



Sec. 208.7004-3  Use of advance MIPRs.

    (a) An advance MIPR is an unfunded MIPR provided to the acquiring 
department in advance of the funded MIPR so that initial steps in 
planning the contract action can begin at an earlier date.
    (b) In order to use an advance MIPR, the acquiring department and 
the requiring department must agree that its use will be beneficial. The 
departments may execute a blanket agreement to use advance MIPRs.
    (c) The requiring department shall not release an advance MIPR to 
the acquiring department without obtaining proper internal approval of 
the requirement.
    (d) When advance MIPRs are used, mark ``ADVANCE MIPR'' prominently 
on the DD Form 448.
    (e) For urgent requirements, the advance MIPR may be transmitted 
electronically.
    (f) On the basis of an advance MIPR, the acquiring department may 
take the initial steps toward awarding a contract, such as obtaining 
internal coordination and preparing an acquisition plan. Acquiring 
departments may determine the extent of these initial actions but shall 
not award contracts on the basis of advance MIPRs.



Sec. 208.7004-4  Cutoff dates for submission of Category II MIPRs.

    (a) Unless otherwise agreed between the departments, May 31 is the 
cutoff date for the receipt of MIPRs citing expiring appropriations 
which must be obligated by September 30 of that fiscal year. If 
circumstances arise which require the submission of MIPRs citing 
expiring appropriations after the cutoff date, the requiring department 
will

[[Page 59]]

communicate with the acquiring department before submission to find out 
whether the acquiring department can execute a contract or otherwise 
obligate the funds by the end of the fiscal year. Acquiring departments 
will make every effort to obligate funds for all such MIPRs accepted 
after the cutoff date. However, acceptance of a late MIPR does not 
constitute assurance by the acquiring department that all such funds 
will be obligated.
    (b) Nothing in these instructions is intended to restrict the 
processing of MIPRs when the acquiring department is capable of 
executing contracts or otherwise obligating funds before the end of the 
fiscal year.
    (c) The May 31 cutoff date does not apply to MIPRs citing continuing 
appropriations.



Sec. 208.7004-5  Notification of inability to obligate on Category II MIPRs.

    On August 1, the acquiring department will advise the requiring 
department of any Category II MIPRs on hand citing expiring 
appropriations they will be unable to obligate prior to the fund 
expiration date. If an unforeseen situation develops after August 1 
which will prevent execution of a contract, the acquiring department 
will notify the requiring department as quickly as possible and return 
the MIPR. The letter of transmittal returning the MIPR will authorize 
purchase by the requiring department and state the reason that the 
acquisition could not be accomplished.



Sec. 208.7004-6  Cancellation of requirements.

    (a) Category I MIPRs. The requiring department will notify the 
acquiring department by electronic or other immediate means when 
cancelling all or part of the supplies or services requested in the 
MIPR. Within 30 days, the acquiring department will notify the requiring 
department of the quantity of items available for termination and the 
amount of funds in excess of the estimated settlement costs. Upon 
receipt of this information, the requiring department will issue a MIPR 
amendment to reduce the quantities and funds accordingly.
    (b) Category II MIPRs. The requiring department will notify the 
acquiring department electronically or by other immediate means when 
cancelling all or any part of the supplies or services requested in the 
MIPR.
    (1) If the acquiring department has not entered into a contract for 
the supplies or services to be cancelled, the acquiring department will 
immediately notify the requiring department. Upon receipt of such 
notification, the requiring department shall initiate a MIPR amendment 
to revoke the estimated amount shown on the original MIPR for the 
cancelled items.
    (2) If the items to be cancelled have already been placed under 
contract--
    (i) As soon as practicable, but in no event more than 45 days after 
receipt of the cancellation notice from the requiring department, the 
contracting officer shall issue a termination data letter to the 
requiring department (original and four copies) containing, as a 
minimum, the information in Table 8-1, Termination Data Letter.
    (ii) The termination contracting officer (TCO) will review the 
proceedings at least every 60 days to reassess the Government's probable 
obligation. If any additional funds are excess to the probable 
settlement requirements, or if it appears that previous release of 
excess funds will result in a shortage of the amount which will be 
required for settlement, the TCO will promptly notify the contracting 
office which will amend the termination data letter. The requiring 
department will process a MIPR amendment to reflect the reinstatement of 
funds within 30 days after receiving the amended termination data 
letter.
    (iii) Upon receipt of a copy of the termination settlement 
agreement, the requiring department will prepare a MIPR amendment, if 
required, to remove any remaining excess funds.

                   Table 8-1, Termination Data Letter
  SUBJECT: Termination Data Re:
  Contract No. ____________
  Termination No. ____________
  Contract ____________
  (a) As termination action is now in progress on the above contract,
 the following information is submitted:
  (1) Brief Description of items terminated.

[[Page 60]]

 
  (2) You are notified that the sum of $________ is available for
 release under the subject contract. This sum represents the difference
 between $________, the value of items terminated under the contract,
 and $________, estimated to be required for settlement of the
 terminated contract. The estimated amount available for release is
 allocated by the appropriations cited on the contract as follows:
  MIPR NO. ________ ACCOUNTING CLASSIFICATION ________ AMOUNT ________
  Total available for release at this time $________
  (b) Request you forward an amendment to MIPR ________ on DD Form 448-2
 to reflect the reduced quantity and amount of funds available for
 release.
  (c) Periodic reviews (not less than 60 days) will be made as
 termination proceedings progress to redetermine the Government's
 probable obligation.
  ________________________________________
  Contracting Officer
------------------------------------------------------------------------



Sec. 208.7004-7  Termination for default.

    (a) When the acquiring department terminates a contract for default, 
they will ask the requiring department if the supplies or services to be 
terminated are still required so that repurchase action can be started.
    (b) The requiring department will not deobligate funds on a contract 
terminated for default until receipt of a settlement modification or 
other written evidence from the acquiring department authorizing release 
of funds.
    (c) On the repurchase action, the acquiring department will not 
exceed the unliquidated funds on the defaulted contract without 
receiving additional funds from the requiring department.



Sec. 208.7004-8  Transportation funding.

    The requiring department will advise the acquiring department or the 
transportation officer in the contract administration office of the fund 
account to be charged for transportation costs. The requiring department 
may cite the fund account on each MIPR or provide the funding cite to 
the transportation officer at the beginning of each fiscal year for use 
on Government bills of lading. When issuing a Government bill of lading, 
show the requiring department as the department to be billed and cite 
the appropriate fund account.



Sec. 208.7004-9  Status reporting.

    (a) The acquiring department will maintain a system of MIPR follow 
up to inform the requiring department of the current status of its 
requests. In addition, the contract administration office will maintain 
a system of follow up in order to advise the acquiring department on 
contract performance.
    (b) If requested by the requiring department, the acquiring 
department will furnish the requiring department a copy of the 
solicitation when the MIPR is satisfied through Category II funding.
    (c) Any reimbursement billings, shipping document, contractual 
documents, project orders, or related documentation furnished to the 
requiring department will identify the requiring department's MIPR 
number, quantities of items, and funding information.



Sec. 208.7004-10  Administrative costs.

    The acquiring department bears the administrative costs of acquiring 
supplies for the requiring department. However, when an acquisition 
responsibility is transferred to another department, funds appropriated 
or to be appropriated for administrative costs will transfer to the 
successor acquiring department. The new acquiring department must assume 
budget cognizance as soon as possible.



Sec. 208.7005  MIPRs.

    Instructions on preparation and use of DD Form 448, Military 
Interdepartmental Purchase Request, and DD Form 448-2, Acceptance of 
MIPR, are in 253.208.



Sec. 208.7006  Coordinated acquisition assignments.

    See appendix B for coordinated acquisition assignments.



     Subpart 208.71--Acquisition for National Aeronautics and Space 
                          Administration (NASA)



Sec. 208.7100  Authorization.

    NASA is authorized by Public Law 85-568 to use the acquisition 
services, personnel, equipment, and facilities of DoD departments and 
agencies with

[[Page 61]]

their consent, with or without reimbursement, and on a similar basis to 
cooperate with the departments/agencies in the use of acquisition 
services, equipment, and facilities.



Sec. 208.7101  Policy.

    Departments and agencies will--
    (a) Cooperate fully with NASA in making acquisition services, 
equipment, personnel, and facilities available on the basis of mutual 
agreement.
    (b) Not claim reimbursement for administrative costs incident to 
acquisitions for NASA, unless agreed otherwise prior to the time 
services are performed.



Sec. 208.7102  Procedures.

    (a) When contracting or performing field service functions for NASA, 
the departments and agencies will use their own methods, except when 
otherwise required by the terms of the agreement.
    (b) Departments and agencies normally will use their own funds when 
contracting for or performing services for NASA and will not cite NASA 
funds on any defense obligation or payment document.



Sec. 208.7103  Purchase request and acceptance.

    (a) NASA will use NASA Form 523, NASA-Defense Purchase Request, to 
request acquisition of supplies or services.
    (b) Except as provided in paragraph (d) of this section, departments 
and agencies will respond within 30 days to a NASA purchase request by 
forwarding DD Form 448-2, Acceptance of MIPR. Forward each DD Form 448-2 
in quadruplicate and indicate action status as well as the name and 
address of the DoD acquisition activity for future use by the NASA 
initiator.
    (c) To the extent feasible, all documents related to the NASA action 
will reference the NASA-Defense Purchase Request number and the item 
number when appropriate.
    (d) Departments and agencies are not required to accept NASA-Defense 
Purchase Requests for common-use standard stock items which the 
supplying department has on hand or on order for prompt delivery at 
published prices.



Sec. 208.7104  Changes in estimated total prices.

    When a department or agency determines that the estimated total 
price (Block 6F, NASA Form 523) for NASA items is not sufficient to 
cover the required reimbursement, or is in excess of the amount 
required, the department/agency will forward a request for amendment to 
the NASA originating office. Indicate in the request a specific dollar 
amount, rather than a percentage, and include justification for any 
upward adjustment requested. Upon approval of a request, NASA will 
forward an amendment of its purchase request to the contracting 
activity.



Sec. 208.7105  Payments.

    Departments and agencies will submit SF 1080, Voucher for 
Transferring Funds, billings to the NASA office designated in Block 9 of 
the NASA-Defense Purchase Request, except where agreements provide that 
reimbursement is not required. Departments and agencies will support 
billings in the same manner as billings between departments and 
agencies.



       Subpart 208.72--Industrial Preparedness Production Planning



Sec. 208.7201  Definitions.

    As used in this subpart--
    Industrial base means that part of the total privately-owned and 
Government-owned industrial production and maintenance capacity of the 
United States and Canada, which will be available during national 
emergencies to manufacture and repair items required by the departments.
    Industrial preparedness production planning means planning designed 
to maintain an adequate industrial base to support DoD requirements for 
selected essential military items in a national emergency.
    National emergency means a condition declared by the President or 
the Congress which authorizes certain emergency action in the national 
interest, including partial or total mobilization of national resources.
    Planned item means any item selected for industrial preparedness 
planning

[[Page 62]]

under the criteria of DoDI 4005.3, Industrial Preparedness Planning.
    Planned producer means an industrial firm which has agreed by either 
non-binding memorandum of understanding or binding contract/contract 
clause to provide production capacity data, to maintain existing 
capacity for a negotiated period of time, and to accept contracts for 
planned items upon the request of the Government.



Sec. 208.7202  General.

    (a) Under the Industrial Preparedness Production Planning (IPPP) 
program, DoD components and industry work together to ensure essential 
military items are available during an emergency.
    (b) Departments and agencies select weapon systems and items for 
planning in accordance with DoDI 4005.3, Industrial Preparedness 
Planning. Planning is conducted only with U.S. or Canadian sources.
    (c) The use of privately-owned facilities is preferred to minimize 
the need for Government investment. Departments and agencies will 
include Government-owned production facilities in the industrial base 
only when--
    (1) Private industry is unable to provide the facilities necessary 
to support DoD requirements; or
    (2) The facilities are necessary--
    (i) For reasons of national security; or
    (ii) To ensure a quick response capability to meet fluctuating 
demands.



Sec. 208.7203  Authority.

    Authority under current contracting procedures to accomplish 
industrial planning actions includes--
    (a) Leasing of Government-owned property to planned emergency 
producers under the authority of the Military Leasing Act of 1947, 10 
U.S.C. 2667;
    (b) Acquisitions in the interest of national defense under FAR 
6.202(a)(2), or in case of a national emergency or to achieve industrial 
mobilization under FAR 6.302-3;
    (c) Acquisition of items restricted under 225.7010 and 225.71;
    (d) Use of multiyear contracting (FAR subpart 17.1);
    (e) Providing Government production and research property to 
contractors; and
    (f) Use of direct payment for idle facilities or idle capacities 
reserved for defense mobilization production (FAR 31.205-17(d)).

[56 FR 36306, July 31, 1991, as amended at 57 FR 42629, Sept. 15, 1992; 
62 FR 34121, June 24, 1997]



Sec. 208.7204  Procedures.

    (a) Planned producers shall be solicited for all acquisitions of 
their planned items, when the acquisition is over the small purchase 
threshold in FAR 13.000, except as provided in FAR or DFARS.
    (b) The contracting officer may contract for industrial planning 
efforts for selected essential military items. These efforts may 
include, but are not limited to, the maintenance of Government-owned 
industrial facilities (real and personal property) or production data 
packages. These planning efforts may be acquired through an individual 
service contract or as a line item on a contract for a planned item.



         Subpart 208.73--Use of Government-Owned Precious Metals



Sec. 208.7301  Definitions.

    As used in this subpart--
    Defense Industrial Supply Center (DISC) means the Defense Logistics 
Agency field activity located at 700 Robbins Avenue, Philadelphia, PA 
19111-5096, which is the assigned commodity integrated material manager 
for refined precious metals and is responsible for the storage and issue 
of such material.
    Dual pricing evaluation procedure means a procedure where offerors 
submit two prices for precious metals bearing items--one based on 
Government-furnished precious metals and one based on contractor-
furnished precious metals. The contracting officer evaluates the prices 
to determine which is in the Government's best interest.
    Precious Metals Indicator Code (PMIC) means a single digit, alpha-
numeric code assigned to national stock numbered items in The Defense 
Integrated

[[Page 63]]

Data System Total Item Record used to indicate the presence or absence 
of precious metals in the item. PMICs and the content value of 
corresponding items are listed in DoDD 4100.39M, Defense Integrated Data 
System (DIDS) Procedures Manual, chapter 10, Table 160.
    Refined precious metal means recovered silver, gold, platinum, 
palladium, iridium, rhodium, or ruthenium, in bullion, granulation or 
sponge form, which has been purified to at least .999 percentage of 
fineness.



Sec. 208.7302  Policy.

    DoD policy is for maximum participation in the Precious Metals 
Recovery Program (PMRP). DoD components shall furnish recovered precious 
metals contained in the DISC inventory to production contractors rather 
than use contractor-furnished precious metals whenever the contracting 
officer determines it to be in the Government's best interest. (See DoDD 
4160.22, Recovery and Utilization of Precious Metals.)



Sec. 208.7303  Procedures.

    (a) Item managers and contracting officers will use the PMIC and/or 
other relevant data furnished with a purchase request to determine the 
applicability of this subpart.
    (b) When an offeror advises of a precious metals requirement, the 
contracting officer shall use the procedures in chapter X of DoD 
4160.21-M, Defense Utilization and Disposal Manual, to determine 
availability of required precious metal assets and current government-
furnished materiel (GFM) unit prices. If the precious metals are 
available, the contracting officer shall evaluate offers and award the 
contract on the basis of the offer which is in the best interest of the 
Government.
    (c) When the clause prescribed by 208.7305 is included in a 
solicitation, the contracting officer will ensure that section B, 
Schedule of Supplies or Services and Prices, is structured to--
    (1) Permit insertion of alternate prices for each deliverable 
contract line item number that uses precious metals; and
    (2) Use dual pricing evaluation procedures.



Sec. 208.7304  Refined precious metals.

    The following refined precious metals are currently managed by DISC:

------------------------------------------------------------------------
                                                      National Stock No.
                   Precious metal                            (NSN)
------------------------------------------------------------------------
Silver Bullion/Granules.............................    9660-00-106-9432
Gold Bullion/Granules...............................    9660-00-042-7733
Platinum Granules...................................    9660-00-042-7768
Platinum Sponge.....................................    9660-00-151-4050
Palladium Granules..................................    9660-00-042-7765
Palladium Sponge....................................    9660-01-011-0320
Rhodium Sponge......................................    9660-01-011-2625
Iridium Sponge......................................    9660-01-011-1937
Ruthenium Sponge....................................    9660-01-039-0313
------------------------------------------------------------------------



Sec. 208.7305  Contract clause.

    (a) Use the clause at 252.208-7000, Intent to Furnish Precious 
Metals as Government-Furnished Material, in all solicitations and 
contracts except--
    (1) When the contracting officer has determined that the required 
precious metals are not available from DISC;
    (2) When the contracting officer knows that the items being acquired 
do not require precious metals in their manufacture; or
    (3) For acquisitions below the small purchase threshold in FAR 
13.000.
    (b) To make the determination in paragraph (a)(1) of this section, 
the contracting officer shall consult with the end item inventory 
manager and comply with the procedures in Chapter X, DoD 4160.21-M, 
Defense Utilization and Disposal Manual.



PART 209--CONTRACTOR QUALIFICATIONS--Table of Contents




           Subpart 209.1--Responsible Prospective Contractors

Sec.
209.101  Definitions.
209.103  Policy.
209.103-70  Contract clause.
209.104  Standards.
209.104-1  General standards.
209.104-4  Subcontractor responsibility.
209.104-70  Solicitation provisions.
209.106  Preaward surveys.
209.106-1  Conditions for preaward surveys.
209.106-2  Requests for preaward surveys.

               Subpart 209.2--Qualifications Requirements

209.202  Policy.

[[Page 64]]

            Subpart 209.3--First Article Testing and Approval

209.303  Use.
209.305  Risk.
209.306  Solicitation requirements.
209.308  Contract clauses.

         Subpart 209.4--Debarment, Suspension, and Ineligibility

209.402  Policy.
209.403  Definitions.
209.405  Effect of listing.
209.405-1  Continuation of current contracts.
209.405-2  Restrictions on subcontracting.
209.406  Debarment.
209.406-1  General.
209.406-2  Causes for debarment.
209.406-3  Procedures.
209.409  Solicitation provision and contract clause.
209.470  Military recruiting on campus.
209.470-1  Policy.
209.470-2  Procedures.
209.470-3  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36313, July 31, 1991, unless otherwise noted.



           Subpart 209.1--Responsible Prospective Contractors



Sec. 209.101  Definitions.

    ``Entity controlled by a foreign government,'' ``foreign 
government,'' and ``proscribed information,'' are defined in the 
provision at 252.209-7002, Disclosure of Ownership or Control by a 
Foreign Government.

[59 FR 51132, Oct. 7, 1994]



Sec. 209.103  Policy.

    (a)(i) Do not deny award to contractors subject to on-site 
inspection under the Intermediate-Range Nuclear Forces (INF) Treaty, or 
similar treaty, due to the actual or potential presence of Soviet 
inspectors at the contractor's facility unless--
    (A) Necessary for reasons of national security;
    (B) The decision is based on full information, including comment 
from the potential contractor or subcontractor on the security issues 
involved; and
    (C) The department or agency acquisition executive reviews the 
decision and the Under Secretary of Defense (Acquisition & Technology) 
approves the decision.
    (ii) Make any decision to deny consideration for award under 
paragraph (a)(i) of this section as early as possible in the acquisition 
process. Notify the firm in writing of any decision not to consider the 
firm for award of a contract or subcontract.
    (c) The additional cost of contract administration and audit due to 
a contractor's performance risk may be considered in evaluating the 
contractor's price.

[56 FR 36313, July 31, 1991, as amended at 60 FR 29497, June 5, 1995; 61 
FR 50452, Sept. 26, 1996]



Sec. 209.103-70  Contract clause.

    Use the clause at 252.209-7000, Acquisition from Subcontractors 
Subject to On-Site Inspection Under the Intermediate-Range Nuclear 
Forces (INF) Treaty, in all solicitations and contracts exceeding the 
simplified acquisition threshold, except solicitations and contracts for 
commercial items.

[60 FR 61593, Nov. 30, 1995, as amended at 61 FR 50452, Sept. 26, 1996]



Sec. 209.104  Standards.



Sec. 209.104-1  General standards.

    (e) For cost-reimbursement or incentive type contracts, or contracts 
which provide for progress payments based on costs or on a percentage or 
stage of completion, the prospective contractor's accounting system and 
related internal controls must provide reasonable assurance that--
    (i) Applicable laws and regulations are complied with;
    (ii) The accounting system and cost data are reliable;
    (iii) Risk of misallocations and mischarges are minimized; and
    (iv) Contract allocations and charges are consistent with invoice 
procedures.
    (g)(i) Ownership or control by the government of a terrorist 
country. (A) Under 10 U.S.C. 2327(b), a contracting officer shall not 
award a contract of $100,000 or more to a firm or to a subsidiary of a 
firm when a foreign government--
    (1) Either directly or indirectly, has a significant interest--
    (i) In the firm; or

[[Page 65]]

    (ii) In the subsidiary or the firm that owns the subsidiary; and
    (2) Has been determined by the Secretary of State under 50 U.S.C. 
App. 2405(j)(1)(A) to be a government of a country that has repeatedly 
provided support for acts of international terrorism.
    (B) The Secretary of Defense may waive the prohibition in paragraph 
(g)(i)(A) of this subsection in accordance with 10 U.S.C. 2327(c). This 
waiver authority may not be delegated.
    (ii) Ownership or control by a foreign government when access to 
proscribed information is required to perform the contract. (A) Under 10 
U.S.C. 2536(a), no DoD contract under a national security program may be 
awarded to an entity controlled by a foreign government if that entity 
requires access to proscribed information to perform the contract.
    (B) Whenever the contracting officer has a question about 
application of the provision at 252.209-7002, the contracting officer 
may seek advice from the Director, Defense Security Programs, Office of 
the Assistant Secretary of Defense for Command, Control, Communications 
and Intelligence.
    (C) In accordance with 10 U.S.C. 2536(b)(1)(A), the Secretary of 
Defense may waive the prohibition in paragraph (g)(ii)(A) of this 
subsection upon determining that the waiver is essential to the national 
security interest of the United States. The Secretary has delegated 
authority to grant this waiver to the Assistant Secretary of Defense 
Command, Control, Communications and Intelligence. Waiver requests, 
prepared by the requiring activity in coordination with the contracting 
officer, shall be processed through the Director of Defense Procurement, 
Office of the Under Secretary of Defense (Acquisition & Technology), and 
shall include a proposed national interest determination. The proposed 
national interest determination, prepared by the requiring activity in 
coordination with the contracting officer, shall include:
    (1) Identification of the proposed awardee, with a synopsis of its 
foreign ownership (include solicitation and other reference numbers to 
identify the action);
    (2) General description of the acquisition and performance 
requirements;
    (3) Identification of the national security interests involved and 
the ways award of the contract helps advance those interests;
    (4) The availability of another entity with the capacity, capability 
and technical expertise to satisfy defense acquisition, technology base, 
or industrial base requirements; and
    (5) A description of any alternate means available to satisfy the 
requirement, e.g., use of substitute products or technology or alternate 
approaches to accomplish the program objectives.
    (D) In accordance with 10 U.S.C. 2536(b)(1)(B), the Secretary of 
Defense may, in the case of a contract awarded for environmental 
restoration, remediation, or waste management at a DoD facility, waive 
the prohibition in paragraph (g)(ii)(A) of this subsection upon--
    (1) Determining that--
    (i) The waiver will advance the environmental restoration, 
remediation, or waste management objectives of DoD and will not harm the 
national security interests of the United States; and
    (ii) The entity to which the contract is awarded is controlled by a 
foreign government with which the Secretary is authorized to exchange 
Restricted Data under section 144c. of the Atomic Energy Act of 1954 (42 
U.S.C. 2164(c)); and
    (2) Notifying Congress of the decision to grant the waiver. The 
contract may be awarded only after the end of the 45-day period 
beginning on the date the notification is received by the appropriate 
Congressional committees.
    (iii) A contracting officer shall not enter into or renew a contract 
with a contractor that is subject to the reporting requirements of 38 
U.S.C. 4212(d) pertaining to employment of veterans, but has not 
submitted the most recent report required by 38 U.S.C. 4212(d) for 1997 
or a subsequent year (see 222.1304(b)).

[58 FR 28464, May 13, 1993, as amended at 59 FR 51131, 51132, Oct. 7, 
1994; 60 FR 29497, June 5, 1995; 62 FR 34121, June 24, 1997; 63 FR 
11851, Mar. 11, 1998; 63 FR 14837, Mar. 27, 1998]

[[Page 66]]



Sec. 209.104-4  Subcontractor responsibility.

    Generally, the Canadian Commercial Corporation's (CCC) proposal of a 
firm as its subcontractor is sufficient basis for an affirmative 
determination of responsibility. However, when the CCC determination of 
responsibility is not consistent with other information available to the 
contracting officer, the contracting officer shall request from CCC and 
any other sources whatever additional information is necessary to make 
the responsibility determination.



Sec. 209.104-70  Solicitation provisions.

    (a) Use the provision at 252.209-7001, Disclosure of Ownership or 
Control by the Government of a Terrorist Country, in all solicitations 
expected to result in contracts of $100,000 or more. Any disclosure that 
the government of a terrorist country has a significant interest in an 
offeror or a subsidiary of an offeror shall be forwarded through the 
head of the agency to the Director, Defense Procurement, ATTN: 
OUSD(A&T)DP/FC, 3060 Defense Pentagon, Washington, DC 20101-3060.
    (b) Use the provision at 252.209-7002, Disclosure of Ownership or 
Control by a Foreign Government, in all solicitations, including those 
subject to the procedures in FAR part 13, when access to proscribed 
information is necessary to perform a DoD contract under a national 
security program.
    (c) Use the provision at 252.209-7003, Compliance with Veterans' 
Employment Reporting Requirements, in solicitations with a value 
estimated to exceed the simplified acquisition threshold.

[58 FR 28464, May 13, 1993, as amended at 59 FR 51131, Oct. 7, 1994; 62 
FR 34122, June 24, 1997; 63 FR 11851, Mar. 11, 1998; 63 FR 14837, Mar. 
27, 1998]



Sec. 209.106  Preaward surveys.



Sec. 209.106-1  Conditions for preaward surveys.

    (a) If a preaward survey is requested, include the rationale in 
block 23 of the SF 1403, Preaward Survey of Prospective Contractor 
(General).

[60 FR 61593, Nov. 30, 1995]



Sec. 209.106-2  Requests for preaward surveys.

    (1) The surveying activity is the cognizant contract administration 
office as listed in DLAH 4105.4, DoD Directory of Contract 
Administration Services Components. When information is required as part 
of the survey on the adequacy of the contractor's accounting system or 
its suitability for administration of the proposed type of contract, the 
surveying activity will obtain the information from the auditor.
    (2) Limited information may be requested by telephone.
    (3) The contracting officer may request a formal survey by telephone 
but must confirm immediately with SF 1403, Preaward Survey of 
Prospective Contractor (General). For a formal survey, send original and 
three copies of SF 1403, including necessary drawings and 
specifications.
    (a) List additional factors in item H, section III of the SF 1403 
and explain them in block 23. For example--
    (i) Information needed to determine a prospective contractor's 
eligibility under the Walsh-Healey Public Contracts Act. (Note that the 
Walsh-Healey Public Contracts Act, block 12 of section I, only indicates 
what the contractor has represented its classification to be under 
Walsh-Healey.)
    (ii) Evaluation of a contractor as a planned producer when the 
offered item is or may appear on the Industrial Preparedness Planning 
List (IPPL). When the preaward survey results in a recommendation for 
award, ask the office responsible for industrial preparedness planning 
to consider designating the prospective contractor as a planned 
producer. If the item is already on the IPPL or the prospective 
contractor is already a planned producer, note the information in block 
23.
    (iii) Evaluation of the prospective contractor's performance against 
small business subcontracting plans.
    (c) On base level preaward surveys, technical personnel from the 
requiring installation should participate when there is concern about 
the ability of a prospective contractor to perform a base level service 
or construction contract.
    (d) Allow more time for--
    (i) Complex items;

[[Page 67]]

    (ii) New or inexperienced DoD contractors; and
    (iii) Surveys with time-consuming requirements, e.g., secondary 
survey, accounting system review, financial capability analysis, or 
purchasing office participation.
    (e) Only request those factors essential to the determination of 
responsibility. See 253.209-1(a) for an explanation of the factors in 
section III, blocks 19 and 20 of the SF 1403.

[56 FR 36313, July 31, 1991, as amended at 58 FR 28464, May 13, 1993]



               Subpart 209.2--Qualifications Requirements



Sec. 209.202  Policy.

    (a)(1) The inclusion of qualification requirements in specifications 
for products which are to be included on a Qualified Products List, or 
manufactured by business firms included on a Qualified Manufacturers 
List, requires approval by the departmental standardization office in 
accordance with DoD Manual 4120.3-M, Defense Standardization Program 
Policies and Procedures. The inclusion of other qualification 
requirements in an acquisition or group of acquisitions requires 
approval by the chief of the contracting office.

[60 FR 61593, Nov. 30, 1995]



            Subpart 209.3--First Article Testing and Approval



Sec. 209.303  Use.

    (d) The contracting officer may require that first articles be 
manufactured using the same facilities, production processes, methods, 
and materials to be used for production units under the contract.



Sec. 209.305  Risk.

    The contracting officer may give this authorization to a contractor 
only after approval by a level higher than the contracting officer.



Sec. 209.306  Solicitation requirements.

    (a)(1) To be sure that the contractor and the Government clearly 
understand and interpret contract terms and conditions in the same 
manner, avoid describing first article requirements exclusively in 
general terms such as ``visual,'' ``dimensional,'' ``workmanship,'' or 
``specification compliance.''



Sec. 209.308  Contract clauses.

    Alternate I of the clauses at FAR 52.209-3, First Article Approval--
Contractor Testing, or 52.209-4, First Article Approval--Government 
Testing, as appropriate, may be used when--
    (1) The form, fit, or function of the product would be adversely 
affected by contractor changes in the production facilities, processes, 
methods, or materials subsequent to first article approval; and
    (2) The Government has relied upon first article testing in the 
absence of complete design specifications to supplement a performance 
specification; or
    (3) It is essential to have an approved first article to serve as a 
manufacturing standard.



         Subpart 209.4--Debarment, Suspension, and Ineligibility



Sec. 209.402  Policy.

    (d) The uniform suspension and debarment procedures to be followed 
by all debarring and suspending officials are set out in appendix H to 
this chapter.
    (e) The department or agency shall provide a copy of the Debarment 
and Suspension Procedures at DFARS appendix H to this chapter to 
contractors at the time of their suspension or when they are proposed 
for debarment, and upon request to other interested parties.

[59 FR 27668, May 27, 1994]



Sec. 209.403  Definitions.

    Debarring official. (1) For DoD, the designees are--

Army--Commander, U.S. Army Legal Services Agency
Navy--the General Counsel of the Department of the Navy
Air Force--Deputy General Counsel (Contractor Responsibility)
Defense Advanced Research Projects Agency--The Director
Defense Information Systems Agency--The General Counsel

[[Page 68]]

Defense Logistics Agency--The Special Assistant for Contracting 
Integrity
National Imagery and Mapping Agency--The General Counsel
Defense Special Weapons Agency--The Director
National Security Agency--The Director
Ballistic Missile Defense Organization--The General Counsel
Overseas installations--as designated by the agency head

    (2) Overseas debarring officials--
    (i) Are authorized to debar or suspend contractors located within 
the official's geographic area of responsibility under any delegation of 
authority they receive from their agency head.
    (ii) Debar or suspend in accordance with the procedures in FAR 
subpart 9.4 or under modified procedures approved by the agency head 
based on consideration of the laws or customs of the foreign countries 
concerned.
    (iii) In addition to the bases for debarment in FAR 9.406-2, may 
consider the following additional bases--
    (A) The foreign country concerned determines that a contractor has 
engaged in bid-rigging, price-fixing, or other anti-competitive 
behavior; or
    (B) The foreign country concerned declares the contractor to be 
formally debarred, suspended, or otherwise ineligible to contract with 
that foreign government or its instrumentalities.

[56 FR 36313, July 31, 1991, as amended at 56 FR 67212, Dec. 30, 1991; 
59 FR 27669, May 27, 1994; 60 FR 61593, Nov. 30, 1995; 61 FR 50452, 
Sept. 26, 1996; 63 FR 11528, Mar. 9, 1998]



Sec. 209.405  Effect of listing.

    Under 10 U.S.C. 2393b, when a department or agency determines that a 
compelling reason exists for it to conduct business with a contractor 
that is on the list of parties excluded from procurement programs, it 
shall provide written notice of the determination to the General 
Services Administration, Office of Acquisition Policy. Examples of 
compelling reasons are--
    (1) Only a listed contractor can provide the supplies or services;
    (2) Urgency requires contracting with a listed contractor;
    (3) The contractor and a department or agency have an agreement 
covering the same events which resulted in the listing and the agreement 
includes the department/agency decision not to debar or suspend the 
contractor; or
    (4) The national defense requires continued business dealings with 
the listed contractor.



Sec. 209.405-1  Continuation of current contracts.

    (b) Unless the agency head makes a written determination that a 
compelling reason exists to do so, ordering activities shall not--
    (i) Place orders exceeding the guaranteed minimum under indefinite 
quantity contracts: or
    (ii) When the agency is an optional user, place orders against 
Federal Supply Schedule contracts.
    (c) This includes exercise of options.

[60 FR 29497, June 5, 1995, as amended at 60 FR 61593, Nov. 30, 1995]



Sec. 209.405-2  Restrictions on subcontracting.

    (a) The contracting officer shall not consent to any subcontract 
with a firm, or a subsidiary of a firm, that is identified by the 
Secretary of Defense as being owned or controlled by the government of a 
terrorist country unless the agency head states in writing the 
compelling reasons for the subcontract.

[63 FR 14837, Mar. 27, 1998]



Sec. 209.406  Debarment.



Sec. 209.406-1  General.

    (a)(i) When the debarring official decides that debarment is not 
necessary, the official may require the contractor to enter into a 
written agreement which includes--
    (A) A requirement for the contractor to establish, if not already 
established, and to maintain the standards of conduct and internal 
control systems prescribed by subpart 203.70; and
    (B) Other requirements the debarring official considers appropriate.
    (ii) Before the debarring official decides not to suspend or debar 
in the case of an indictment or conviction for a felony, the debarring 
official must determine that the contractor has addressed adequately the 
circumstances that gave rise to the misconduct, and that appropriate 
standards of ethics

[[Page 69]]

and integrity are in place and are working.

[57 FR 14992, Apr. 23, 1992]



Sec. 209.406-2  Causes for debarment.

    (a) Any person shall be considered for debarment if criminally 
convicted of intentionally affixing a label bearing a ``Made in 
America'' inscription to any product sold in or shipped to the United 
States that was not made in America (10 U.S.C. 2410f).
    (i) The debarring official will make a determination concerning 
debarment not later than 90 days after determining that a person has 
been so convicted.
    (ii) In cases where the debarring official decides not to debar, the 
debarring official will report that decision to the Director of Defense 
Procurement who will notify Congress within 30 days after the decision 
is made.

[58 FR 28464, May 13, 1993]



Sec. 209.406-3  Procedures.

    (a) Investigation and referral. (i) The contracting officer shall 
prepare a report containing the information required by paragraph 
(a)(ii) of this subsection when--
    (A) A contractor has committed, or is suspected of having committed, 
any of the acts described in FAR 9.406-2 and 9.407-2;
    (B) FAR 49.106 requires a report;
    (C) Part 203 requires a report;
    (D) The Government suspects a contractor of violating the Buy 
American Act (see FAR 25.204); or
    (E) The Government suspects a contractor of attempting to evade the 
prohibitions of debarment or suspension by changes of address, multiple 
addresses, formation of new companies, or by other devices.
    (ii) Include the following information, when available, in the 
report required by paragraph (a)(i) of this subsection--
    (A) Name, address, and telephone number of the point of contact for 
the activity making the report;
    (B) Name, contractor and Government entity (CAGE) code, and address 
of the contractor;
    (C) Name and addresses of the members of the board, principal 
officers, partners, owners, and managers;
    (D) Name and addresses of all known affiliates, subsidiaries, or 
parent firms, and the nature of the business relationship;
    (E) For each contract affected by the conduct being reported--
    (1) The contract number;
    (2) All office identifying numbers or symbols;
    (3) Description of supplies or services;
    (4) The amount;
    (5) The percentage of completion;
    (6) The amount paid the contractor;
    (7) Whether the contract is assigned under the Assignment of Claims 
Act and, if so, to whom; and
    (8) The amount due the contractor;
    (F) For any other contracts outstanding with the contractor or any 
of its affiliates--
    (1) The contract number;
    (2) The amount;
    (3) The amounts paid the contractor;
    (4) Whether the contract is assigned under the Assignment of Claims 
Act and, if so, to whom; and
    (5) The amount due the contractor;
    (G) A complete summary of all pertinent evidence and the status of 
any legal proceedings involving the contractor;
    (H) An estimate of any damages sustained by the Government as a 
result of the contractor's action (explain how the estimate was 
calculated);
    (I) The comments and recommendations of the contracting officer and 
of each higher level contracting review authority regarding--
    (1) Whether to suspend or debar the contractor;
    (2) Whether to apply limitations to the suspension or debarment;
    (3) The period of any recommended debarment; and
    (4) Whether to continue any current contracts with the contractor 
(explain why a recommendation regarding current contracts is not 
included);
    (J) When appropriate, as an enclosure to the report--
    (1) A copy or extracts of each pertinent contract;
    (2) Witness statements or affidavits;
    (3) Copies of investigative reports;

[[Page 70]]

    (4) Certified copies of indictments, judgments, and sentencing 
actions; and
    (5) Any other appropriate exhibits or documentation.
    (iii) Send three copies of each report, including enclosures, to the 
debarring official in 209.403.



Sec. 209.409  Solicitation provision and contract clause.

    Use the clause at 252.209-7004, Subcontracting with Firms That Are 
Owned or Controlled by the Government of a Terrorist Country, in 
solicitations and contracts with a value of $100,000 or more.

[63 FR 14837, Mar. 27, 1998]



Sec. 209.470  Military recruiting on campus.



Sec. 209.470-1  Policy.

    (a)(1) Section 558 of the National Defense Authorization Act for 
Fiscal Year 1995 (Public Law 103-337) provides that no funds available 
to DoD may be provided by grant or contract to any institution of higher 
education that has a policy of denying or that effectively prevents the 
Secretary of Defense from obtaining for military recruiting purposes--
    (i) Entry to campuses or access to students on campuses; or
    (ii) Access to directory information pertaining to students.
    (2) Section 541 of the National Defense Authorization Act for Fiscal 
Year 1996 (10 U.S.C. 983) provides that no funds appropriated or 
otherwise available to DoD may be obligated by contract or by grant, 
including a grant of funds to be available for student aid, to any 
institution of higher education that, as determined by the Secretary of 
Defense, has an anti-ROTC policy and at which, as determined by the 
Secretary, the Secretary would otherwise maintain or seek to establish a 
unit of the Senior Reserve Officer Training Corps, or at which the 
Secretary would otherwise enroll or seek to enroll students for 
participation in a unit of the Senior Reserve Officer Training Corps at 
another nearby institution of higher education. This prohibition applies 
to new contracts and all contract modifications. (See 243.105.) This 
prohibition shall cease to apply to that institution upon a 
determination by the Secretary that the institution no longer has an 
anti-ROTC policy.
    (b) Institutions of higher education that are determined under 32 
CFR part 216 to have the policy or practice in paragraph (a)(1) or 
(a)(2) of this subsection shall be listed as ineligible on the List of 
Parties Excluded from Federal Procurement and Nonprocurement Programs 
published by the General Services Administration. (See FAR 9.404.)
    (c) In cases where a determination is made under 32 CFR part 216 
that specific subordinate elements of an institution of higher 
education, rather than the institution as a whole, have the policy or 
practice in paragraph (a)(1) or (a)(2) of this subsection, 32 CFR part 
216 provides that the prohibition on use of DoD funds applies only to 
those subordinate elements.

[61 FR 25408, May 21, 1996]



Sec. 209.470-2  Procedures.

    (a) Agencies shall not solicit offers from, award contracts to, or 
consent to subcontracts with ineligible contractors.
    (b) After a determination of ineligibility under 209.470-1(a)(1), 
departments and agencies shall make no further payments under existing 
contracts with the institutions, and shall initiate termination action.

[61 FR 25408, May 21, 1996]



Sec. 209.470-3  Contract clause.

    Use the clause at 252.209-7005, Military Recruiting on Campus, in 
all solicitations and contracts with institutions of higher education.

[60 FR 13074, Mar. 10, 1995, as amended at 60 FR 51693, Nov. 30, 1995]



PART 211--DESCRIBING AGENCY NEEDS--Table of Contents




Sec.
211.002  Policy.
211.002-70  Contract clause.

       Subpart 211.2--Using and Maintaining Requirements Documents

211.201  Identification and availability of specifications.
211.204  Solicitation provisions and contract clauses.

[[Page 71]]

211.270  Brand name or equal purchase descriptions.
211.270-1  Policy.
211.270-2  Solicitation provision.
211.271  Elimination of use of class I ozone-depleting substances.
211.272  Alternate preservation, packaging, and packing.
211.273  Substitutions for military or Federal specifications and 
          standards.
211.273-1  Definition.
211.273-2  Policy.
211.273-3  Procedures.
211.273-4  Contract clause.

                    Subpart 211.5--Liquidated Damages

211.504  Contract clauses.

                Subpart 211.6--Priorities and Allocations

211.602  General.

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

    Source: 60 FR 61594, Nov. 30, 1995, unless otherwise noted.



Sec. 211.002  Policy

    All systems acquisition programs in the DoD are subject to the 
acquisition streamlining policies and procedures in DoDI 5000.2, Defense 
Acquisition Management Policies and Procedures.



Sec. 211.002-70  Contract clause.

    Use the clause at 252.211-7000, Acquisition Streamlining, in all 
solicitations and contracts for systems acquisition programs.



       Subpart 211.2--Using and Maintaining Requirements Documents



Sec. 211.201  Identification and availability of specifications.

    (a) The DoD index of data item descriptions is DoD 5010.12-L, 
Acquisition Management Systems and Data Requirements Control List 
(AMSDL).
    (b) Also, furnish data item descriptions which are not listed in the 
AMSDL, except when it is not feasible, e.g., documents are bulky or only 
a limited number of copies are available at the contracting activity.
    (d) The AMSDL, all unclassified specifications and standards listed 
in the DODISS, and data item descriptions listed in the AMSDL may also 
be purchased from the Standardization Documents Desk, Building 4D, 700 
Robbins Avenue, Philadelphia, PA 19111-5094. Include with the letter or 
DD Form 1425--
    (i) The requester's customer number; and
    (ii) Complete return mailing address, including any ``mark for'' 
instructions.



Sec. 211.204  Solicitation provisions and contract clauses.

    (c) When contract performance requires use of specifications and 
standards which are not listed in the DODISS and data item descriptions 
which are not listed in the AMSDL, use provisions, as appropriate, 
substantially the same as those at 252.211-7001, Availability of 
Specifications and Standards Not Listed in DODISS, Data Item 
Descriptions Not Listed in DoD 5010.12-L, and Plans, Drawings, and Other 
Pertinent Documents, and 252.211-7002, Availability for Examination of 
Specifications, Standards, Plans, Drawings, Data Item Descriptions, and 
Other Pertinent Documents.



Sec. 211.270  Brand name or equal purchase descriptions.



Sec. 211.270-1  Policy.

    When a ``brand name or equal'' purchase description is used--
    (a) The purchase description--
    (1) Should include a complete common generic identification of the 
item.
    (2) Should reference all known acceptable brand name products, to 
include--
    (i) Name of manufacturer, producer, or distributor of each brand 
name product referenced (and address if not well known); and
    (ii) Model, make, or catalog number for each, and identity of the 
commercial catalog in which it appears.
    (3) May, if necessary to adequately describe an item, use a 
commercial catalog description or an extract from the catalog. Ensure 
that a copy of each catalog referenced (except parts catalogs) is 
available at the contracting office for review by offerors.
    (4) Should give prospective offerors the opportunity to offer 
products other than those specifically referenced by brand name, as long 
as they meet the needs of the Government in essentially

[[Page 72]]

the same manner as the brand name product.
    (5) Must identify those salient physical, functional, or other 
characteristics which are essential to the needs of the Government.
    (b) The solicitation--
    (1) Shall be at or below the simplified acquisition threshold in FAR 
part 13.
    (2) May require bid samples for ``or equal'' offers, but not for 
``brand name'' offers.
    (3) Must provide for full consideration and evaluation of ``or 
equal'' offers against the salient characteristic specified in the 
purchase description. Do not reject offers for minor differences in 
design, construction, or features which do not affect the suitability of 
the product for its intended use.
    (4) Must include the following immediately after the item 
description--Offering:

Manufacturer's Name______ Brand______ Model or Part No.______

    (c) The contract shall--
    (1) Not exceed the simplified acquisition threshold in FAR part 13.
    (2) Identify, or incorporate by reference an identification of the 
specific products the contractor is to furnish. Include any brand name, 
make or model number, descriptive material, and any modifications of 
brand name products specified in the offer.



Sec. 211.270-2  Solicitation provision.

    (a) When a brand name or equal purchase description is included in a 
solicitation at or below the simplified acquisition threshold in FAR 
part 13, use the provision at 252.211-7003, Brand Name or Equal.
    (b) When component parts of an end item are described by brand name 
or equal purchase descriptions and application of the provision at 
252.211-7003 to some or all of the components is impracticable, either 
do not use the provision or limit its application to specified 
components.



Sec. 211.271  Elimination of use of class I ozone-depleting substances.

    (a) Contracts. No DoD contract may include a specification or 
standard that requires the use of a class I ozone-depleting substance or 
that can be met only through the use of such a substance unless the 
inclusion of the specification or standard is specifically authorized at 
a level no lower than a general or flag officer or member of the Senior 
Executive Service of the requiring activity in accordance with Section 
326, Public Law 102-484 (10 U.S.C. 2301 (repealed) note).
    (b) Modifications. (1) Contracts awarded before June 1, 1993, with a 
value in excess of $10 million, that are modified or extended (including 
option exercise) and, as a result of the modification or extension will 
expire more than one year after the effective date of the modification 
or extension, must be evaluated in accordance with agency procedures for 
the elimination of ozone-depleting substances.
    (i) The evaluation must be carried out within 60 days after the 
first modification or extension.
    (ii) No further modification or extension may be made to the 
contract until the evaluation is complete.
    (2) If, as a result of this evaluation, it is determined that an 
economically feasible substitute substance or alternative technology is 
available, the contracting officer shall modify the contract to require 
the use of the substitute substance or alternative technology.
    (3) If a substitute substance or alternative technology is not 
available, a written determination shall be made to that effect at a 
level no lower than a general or flag officer or member of the Senior 
Executive Service of the requiring activity.



Sec. 211.272  Alternate preservation, packaging, and packing.

    Use the provision at 252.211-7004, Alternate Preservation, 
Packaging, and Packing, in solicitations which include military 
preservation, packaging, or packing specifications when it is feasible 
to evaluate and award using commercial or industrial preservation, 
packaging, or packing.

[[Page 73]]



Sec.  211.273  Substitutions for military or Federal specifications and standards.



Sec. 211.273-1  Definition.

    SPI process, as used in this section, is defined in the clause at 
252.211-7005, Substitutions for Military or Federal Specifications and 
Standards.

[62 FR 44224, Aug. 20, 1997]



Sec. 211.273-2  Policy.

    (a) Under the Single Process Initiative (SPI), DoD accepts SPI 
processes in lieu of specific military or Federal specifications or 
standards that specify a management or manufacturing process.
    (b) DoD acceptance of an SPI process follows the decision of a 
Management Council, which includes representatives from the Defense 
Contract Management Command, the Defense Contract Audit Agency, and the 
military departments.
    (c) In procurements of previously developed items, SPI processes 
that previously were accepted by the Management Council shall be 
considered valid replacements for military or Federal specifications or 
standards, absent a specific determination to the contrary (see 211.273-
3(c)).

[62 FR 44224, Aug. 20, 1997]



Sec. 211.273-3  Procedures.

    (a) Solicitations for previously developed items shall encourage 
offerors to identify SPI processes for use in lieu of military or 
Federal specifications and standards cited in the solicitation. The 
solicitation shall require an offeror proposing to use an SPI process to 
include, in its response to the solicitation, documentation of the 
Government acceptance of the process.
    (b) Contracting officers shall ensure that--
    (1) Concurrence of the requiring activity has been or will be 
obtained for any proposed substitutions prior to contract award; and
    (2) Any necessary additional information regarding the SPI process 
identified in the proposal is obtained from the cognizant administrative 
contracting officer.
    (c) Any determination that an SPI process is not acceptable for a 
specific procurement shall be made at the head of the contracting 
activity or program executive officer level. This authority may not be 
delegated.

[62 FR 44224, Aug. 20, 1997]



Sec. 211.273-4  Contract clause.

    Use the clause at 252.211-7005, Substitutions for Military or 
Federal Specifications and Standards, in solicitations and contracts 
exceeding the micro-purchase threshold, when procuring previously 
developed items.

[62 FR 44224, Aug. 20, 1997]



                    Subpart 211.5--Liquidated Damages



Sec. 211.504  Contract clauses.

    (b) Use the clause at FAR 52.211-12, Liquidated Damages--
Construction, in all construction contracts exceeding $500,000, except 
cost-plus-fixed-fee contracts or contracts where the contractor cannot 
control the pace of the work. Use of the clause in contracts of $500,000 
or less is optional.



                Subpart 211.6--Priorities and Allocations



Sec. 211.602  General.

    DoD implementation of the Defense Priorities and Allocations System 
is in DoDI 4400.1, Priorities and Allocations--Delegation of DO and DX 
Priorities and Allocations Authorities, Rescheduling of Deliveries and 
Continuance of Related Manuals.



PART 212--ACQUISITION OF COMMERCIAL ITEMS--Table of Contents




 Subpart 212.2--Special Requirements for the Acquisition of Commercial 
                                  Items

Sec.
212.211  Technical data.

  Subpart 212.3--Solicitation Provisions and Contract Clauses for the 
                     Acquisition of Commercial Items

212.301  Solicitation provisions and contract clauses for the 
          acquisition of commercial items.

[[Page 74]]

212.302  Tailoring of provisions and clauses for the acquisition of 
          commercial items.

   Subpart 212.5--Applicability of Certain Laws to the Acquisition of 
                            Commercial Items

212.503  Applicability of certain laws to Executive Agency contracts for 
          the acquisition of commercial items.
212.504  Applicability of certain laws to subcontracts for the 
          acquisition of commercial items.

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

    Source: 60 FR 61595, Nov. 30, 1995, unless otherwise noted.



 Subpart 212.2--Special Requirements for the Acquisition of Commercial 
                                  Items



Sec. 212.211  Technical data.

    The DoD policy for acquiring technical data for commercial items is 
at 227.7102.



  Subpart 212.3--Solicitation Provisions and Contract Clauses for the 
                     Acquisition of Commercial Items



Sec. 212.301  Solicitation provisions and contract clauses for the acquisition of commercial items.

    (f)(i) Use one of the following provisions as prescribed in part 
225:
    (A) 252.225-7000, Buy American Act--Balance of Payments Program 
Certificate.
    (B) 252.225-7006, Buy American Act--Trade Agreements--Balance of 
Payments Program Certificate.
    (C) 252.225-7020, Trade Agreements Certificate.
    (D) 252.225-7035, Buy American Act--North American Free Trade 
Agreement Implementation Act--Balance of Payments Program Certificate.
    (ii) Use the provision at 252.212-7000, Offeror Representations and 
Certifications--Commercial Items, in all solicitations for commercial 
items exceeding the simplified acquisition threshold. If an exception to 
10 U.S.C. 2410i applies to a solicitation exceeding the simplified 
acquisition threshold (see 225.770-3), indicate on an addendum that 
``The certification in paragraph (b) of the provision at 252.225-7000 
does not apply to this solicitation.''
    (iii) Use the clause at 252.212-7001, Contract Terms and Conditions 
Required to Implement Statutes or Executive Orders Applicable to Defense 
Acquisitions of Commercial Items, in all solicitations and contracts for 
commercial items, completing paragraph (b), as appropriate.
    (iv) Use the clause at 252.204-7004, Required Central Contractor 
Registration, as prescribed in 204.7304.

[60 FR 61595, Nov. 30, 1995, as amended at 61 FR 50452, Sept. 26, 1996; 
62 FR 34122, June 24, 1997; 63 FR 11528, Mar. 9, 1998; 63 FR 15317, Mar. 
31, 1998]



Sec. 212.302  Tailoring of provisions and clauses for the acquisition of commercial items.

    (c) Tailoring inconsistent with customary commercial practice.
    The head of the contracting activity is the approval authority 
within the DoD for waivers under FAR 12.302(c).



   Subpart 212.5--Applicability of Certain Laws to the Acquisition of 
                            Commercial Items



Sec. 212.503  Applicability of certain laws to Executive Agency contracts for the acquisition of commercial items.

    (a) The following laws are not applicable to contracts for the 
acquisition of commercial items:
    (i) Section 806, Public Law 102-190 (10 U.S.C. 2301 (repealed) 
note), Payment Protections for Subcontractors and Suppliers.
    (ii) 10 U.S.C. 2306(b), Prohibition on Contingent Fees.
    (iii) 10 U.S.C. 2324, Allowable Costs Under Defense Contracts.
    (iv) 10 U.S.C. 2384(b), Requirement to Identify Suppliers.
    (v) 10 U.S.C. 2397(a)(1), Reports by Employees or Former Employees 
of Defense Contractors.
    (vi) 10 U.S.C. 2397b(f), Limits on Employment for Former DoD 
Officials.
    (vii) 10 U.S.C. 2397c, Defense Contractor Requirements Concerning 
Former DoD Officials.
    (viii) 10 U.S.C. 2408(a), Prohibition on Persons Convicted of 
Defense Related Felonies.

[[Page 75]]

    (ix) 10 U.S.C. 2410b, Contractor Inventory Accounting System 
Standards (see 252.242-7004).
    (x) 107 Stat 1720 (Section 843(a), Public Law 103-160), Reporting 
Requirement Regarding Dealings with Terrorist Countries.
    (xi) Domestic Content Restrictions in the National Defense 
Appropriations Acts for Fiscal Years 1996 and Subsequent Years.
    (xii) Section 8117, Pub. L. 105-56, Restriction on Use of Funds 
Appropriated for Fiscal Year 1998 (see 222.1304(b)).
    (c) The applicability of the following laws has been modified in 
regard to contracts for the acquisition of commercial items:
    (i) 10 U.S.C. 2402, Prohibition on Limiting Subcontractor Direct 
Sales to the United States (see FAR 3.503 and 52.203-6).
    (ii) 10 U.S.C. 2306a, Truth in Negotiations Act (see FAR 15.804).

[60 FR 61595, Nov. 30, 1995, as amended at 63 FR 11851, Mar. 11, 1998]



Sec. 212.504  Applicability of certain laws to subcontracts for the acquisition of commercial items.

    (a) The following laws are not applicable to subcontracts at any 
tier for the acquisition of commercial items or commercial components:
    (i) [Reserved]
    (ii) Section 806, Public Law 102-190 (10 U.S.C. 2301 (repealed) 
note), Payment Protections for Subcontractors and Suppliers.
    (iii) 10 U.S.C. 2306(b) Prohibition on Contingent Fees.
    (iv) 10 U.S.C. 2313(c), Examination of Records of a Contractor.
    (v) 10 U.S.C. 2320, Rights in Technical Data.
    (vi) 10 U.S.C. 2321, Validation of Proprietary Data Restrictions.
    (vii) 10 U.S.C. 2324, Allowable Costs Under Defense Contracts.
    (viii) 10 U.S.C. 2327, Reporting Requirement Regarding Dealings with 
Terrorist Countries.
    (ix) 10 U.S.C. 2384(b), Requirement to Identify Suppliers.
    (x) 10 U.S.C. 2391 note, Notification of Substantial Impact on 
Employment.
    (xi) 10 U.S.C. 2393, Prohibition Against Doing Business with Certain 
Offerors or Contractors.
    (xii) 10 U.S.C. 2397(a)(1), Reports by Employees or Former Employees 
of Defense Contractors.
    (xiii) 10 U.S.C. 2397b(f), Limits on Employment for Former DoD 
Officials.
    (xiv) 10 U.S.C. 2397c, Defense Contractor Requirements Concerning 
Former DoD Officials.
    (xv) 10 U.S.C. 2408(a) Prohibition on Persons Convicted of Defense 
Related Felonies.
    (xvi) 10 U.S.C. 2410b, Contractor Inventory Accounting System 
Standards.
    (xvii) 10 U.S.C. 2501 note, Notification of Proposed Program 
Termination.
    (xviii) 10 U.S.C. 2534, Miscellaneous Limitations on the Procurement 
of Goods Other Than United States Goods.
    (xix)-(xxi) [Reserved]
    (xxii) Effective May 1, 1996: 10 U.S.C. 2631, Transportation of 
Supplies by Sea.
    (xxiii) 19 U.S.C. 2512, Trade Agreements Act.
    (xxiv) 41 U.S.C. 10, Buy American Act.
    (xxv) 10 U.S.C. 2327 (Section 843(a), Public Law 103-160), Reporting 
Requirement Regarding Dealings with Terrorist Countries.
    (xxvi) Domestic Content Restrictions in the National Defense 
Appropriations Acts for Fiscal Years 1996 and Subsequent Years.
    (b) Certain requirements of the following laws have been eliminated 
for subcontracts at any tier for the acquisition of commercial items or 
commercial components:
    (i) 10 U.S.C. 2393(d), Subcontractor Reports Under Prohibition 
Against Doing Business with Certain Offerors (see FAR 52.209-6).
    (ii) 10 U.S.C. 2402, Prohibition on Limiting Subcontractor Direct 
Sales to the United States (see FAR 3.503 and 52.203-6).

[60 FR 61595, Nov. 30, 1995, as amended at 61 FR 58488, Nov. 15, 1996; 
62 FR 5780, Feb. 7, 1997]

[[Page 76]]



          SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES


PART 213--SIMPLIFIED ACQUISITION PROCEDURES--Table of Contents




Sec.
213.000  Scope of part.
213.005  Federal Acquisition Streamlining Act of 1994 list of 
          inapplicable laws.

                         Subpart 213.1--General

213.101  Definitions.

               Subpart 213.2--Blanket Purchase Agreements

213.203  Establishment of Blanket Purchase Agreements.
213.203-1  General.
213.203-2  Clauses.
213.204  Purchase under Blanket Purchase Agreements.

                  Subpart 213.3--Fast Payment Procedure

213.302  Conditions for use.

                       Subpart 213.4--Imprest Fund

213.401  General.
213.402  Agency responsibilities.
213.403  Conditions for use.

                     Subpart 213.5--Purchase Orders

213.503  Obtaining contractor acceptance and modifying purchase orders.
213.504  Termination or cancellation of purchase orders.
213.505  Purchase order and related forms.
213.505-1  Optional Form (OF) 347, Order for Supplies or Services, and 
          Optional Form 348, Order for Supplies or Services Schedule-
          Continuation.
213.505-3  Standard Form 44, Purchase Order-Invoice-Voucher.
213.507  Provisions and clauses.

Subpart 213.70--Simplified Acquisition Procedures Under the 8(a) Program

213.7001  Policy.
213.7002  Procedures.
213.7003  Purchase orders.
213.7003-1  Obtaining contractor acceptance and modifying purchase 
          orders.
213.7003-2  Contract clauses.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36324, July 31, 1991, unless otherwise noted.



Sec. 213.000  Scope of part.

    This part also implements 10 U.S.C. 2302(7) which increases the 
simplified acquisition threshold to $200,000 for any contract to be 
awarded and performed outside the United States in support of a 
contingency operation as defined in 10 U.S.C. 101(a)(13).

[59 FR 50851, Oct. 6, 1994, as amended at 61 FR 7742, Feb. 29. 1996]



Sec. 213.005  Federal Acquisition Streamlining Act of 1994 list of inapplicable laws.

    (a) The restriction on use of funds appropriated for fiscal year 
1998 in Section 8117 of the National Defense Appropriations Act for 
Fiscal Year 1998 (Pub. L. 105-56) is inapplicable to contracts at or 
below the simplified acquisition threshold (see 222.1304(b)).

[63 FR 11851, Mar. 11, 1998]



                         Subpart 213.1--General



Sec. 213.101  Definitions.

    Contingency operation is defined in 10 U.S.C. 101(a)(13) as a 
military operation that--
    (1) Is designated by the Secretary of Defense as an operation in 
which members of the armed forces are or may become involved in military 
actions, operations, or hostilities against an enemy of the United 
States or against an opposing military force; or
    (2) Results in the call or order to, or retention on, active duty of 
members of the uniformed services under section 688, 12301(a), 12302, 
12304, 12305, or 12406 of Title 10, chapter 15 of Title 10, or any other 
provision of law during a war or during a national emergency declared by 
the President or Congress.

[59 FR 50851, Oct. 6, 1994, as amended at 61 FR 7742, Feb. 29, 1996]

[[Page 77]]



               Subpart 213.2--Blanket Purchase Agreements



Sec. 213.203  Establishment of Blanket Purchase Agreements.



Sec. 213.203-1  General.

    (i) Prepare and issue blanket purchase agreements (BPAs) on DD Form 
1155, Order for Supplies or Services.



Sec. 213.203-2  Clauses.

    (a) The clauses prescribed at 213.507 for purchase orders also apply 
to BPAs.



Sec. 213.204  Purchase under Blanket Purchase Agreements.

    (b) Individual purchases for subsistence may be made at any dollar 
value; however, the contracting officer shall satisfy the competition 
requirements of FAR part 6 for any action not using simplified 
acquisition procedures.

[56 FR 36324, July 31, 1991, as amended at 61 FR 7742, Feb. 29, 1996]



                  Subpart 213.3--Fast Payment Procedure



Sec. 213.302  Conditions for use.

    (a) Individual orders may exceed $25,000 for--
    (i) Brand name commissary resale subsistence; and
    (ii) Medical supplies for direct shipment overseas.



                       Subpart 213.4--Imprest Fund



Sec. 213.401  General.

    See DoDD 7360.10, Disbursing Policies, and chapter 32 of the DoD 
Accounting Manual, DoD 7220.9-M.

[56 FR 36324, July 31, 1991. Redesignated at 61 FR 7742, Feb. 29, 1996]



Sec. 213.402  Agency responsibilities.

    (c) Installation commanders and commanders of other activities with 
contracting authority are responsible for approving the establishment of 
imprest funds.

[56 FR 36324, July 31, 1991. Redesignated at 61 FR 7742, Feb. 29, 1996]



Sec. 213.403  Conditions for use.

    (a) Overseas transactions in support of a contingency operation as 
defined in 10 U.S.C. 101(a)(13) may use imprest funds up to $2,500.
    (c)(i) Additional conditions for use include--
    (A) Availability for delivery within 60 days; and
    (B) No requirement for detailed technical specifications or 
technical inspections.
    (ii) When imprest funds are used for simplified acquisitions, the 
funds may also be used to pay charges for local delivery, parcel post, 
c.o.d. charges, and line haul or inter-city transportation charges when 
the supplier is to arrange for delivery.

[56 FR 36324, July 31, 1991, as amended at 59 FR 50851, Oct. 6, 1994. 
Redesignated and amended at 61 FR 7742, Feb. 29, 1996]



                     Subpart 213.5--Purchase Orders



Sec. 213.503  Obtaining contractor acceptance and modifying purchase orders.

    (a) Require written acceptance of purchase orders for classified 
acquisitions.
    (b) Use Standard Form 30, Amendment of Solicitation/Modification of 
Contract, to modify purchase orders.
    (d)(i) Unilateral modifications (see FAR 43.103) may also be used 
for--
    (A) No cost amended shipping instructions (ASI) if--
    (1) The ASI modifies a unilateral purchase order, and
    (2) The contractor agrees verbally or in writing.
    (B) Any change made before work begins if--
    (1) The change is within the scope of the original order;
    (2) The contractor agrees;
    (3) The modification references the contractor's verbal or written 
agreement; and
    (4) Block 13D of the Standard Form 30 is annotated to reflect the 
authority for issuance of the modification.
    (ii) A supplemental agreement converts a unilateral purchase order 
to a bilateral agreement. If not previously included in the purchase 
order, incorporate the clauses prescribed in 213.507(a)(ii) in the 
Standard Form 30,

[[Page 78]]

Amendment of Solicitation/Modification of Contract, and obtain the 
contractor's acceptance by signature on the Standard Form 30.



Sec. 213.504  Termination or cancellation of purchase orders.

    (b) Use Standard Form 30 to cancel a unilateral purchase order.



Sec. 213.505  Purchase order and related forms.



Sec. 213.505-1  Optional Form (OF) 347, Order for Supplies or Services, and Optional Form 348, Order for Supplies or Services Schedule-Continuation.

    Departments and agencies shall not use Optional Forms 347, Order for 
Supplies or Services, and 348, Order for Supplies or Services Schedule-
Continuation.
    (b)(i) Use DD Form 1155, Orders for Supplies or Services, (see 
253.213(e)), for purchases made using the simplified acquisition 
procedures of FAR part 13. The DD Form 1155 serves as--
    (A) A purchase order or a blanket purchase agreement, when used with 
the clauses prescribed at 213.507(a);
    (B) A delivery order under a Government contract or from Government 
agencies outside the DoD;
    (C) A receiving and inspection report;
    (D) A property voucher;
    (E) A document for acceptance by the supplier; and
    (F) A public voucher, when used as--
    (1) A delivery order;
    (2) The basis for payment of an invoice against blanket purchase 
agreements or basic ordering agreements when a firm price has been 
established; or
    (3) A purchase order for acquisitions using simplified acquisition 
procedures.
    (ii) The DD Form 1155 is also authorized for use for--
    (A) Classified acquisitions when the purchase is made within the 
United States, its possessions, and Puerto Rico. Attach the DD Form 254, 
Contract Security Classification Specification, to the purchase order.
    (B) Orders under departmental contracts or from Government agencies 
outside the DoD (see FAR subparts 8.4, 8.6, 8.7, and 16.5).

[56 FR 36324, July 31, 1991. Redesignated and amended at 61 FR 7742, 
Feb. 29, 1996; 61 FR 9532, Mar. 8, 1996]



Sec. 213.505-3  Standard Form 44, Purchase Order-Invoice-Voucher.

    (b)(1) The micro-purchase limitation applies to all purchases except 
that purchases up to the simplified acquisition threshold may be made 
for--
    (A) Aviation fuel and oil;
    (B) Overseas transactions by contracting officers in support of a 
contingency operation as defined in 10 U.S.C. 101(a)(13); and
    (C) Transactions in support of intelligence and other specialized 
activities addressed by Part 2.7 of Executive Order 12333.

[59 FR 50851, Oct. 6, 1994, as amended at 61 FR 7742, Feb. 29, 1996; 61 
FR 18195, Apr. 24, 1996 ]



Sec. 213.507  Provisions and clauses.

    (a) Use the clauses in paragraphs (a) (i) through (iii) of this 
section, as applicable, in all purchase orders and blanket purchase 
agreements. The clauses listed in the following paragraphs (i) and (ii) 
may be incorporated by reference, except for FAR 52.252-2, Clauses 
Incorporated by Reference. Any other clauses included in the purchase 
order shall be incorporated by reference or in full text as required by 
the matrix in FAR 52.3.
    (i) Unilateral purchase orders--
    (A) FAR 52.252-2, Clauses Incorporated by Reference (required only 
if other clauses are incorporated by reference);
    (B) FAR 52.203-3, Gratuities;
    (C) FAR 52.211-16, Variation in Quantity;
    (D) FAR 52.222-3, Convict Labor (unless the order will be subject to 
the Walsh-Healey Public Contracts Act (see FAR subpart 22.6));
    (E) FAR 52.222-26, Equal Opportunity (unless exempt under FAR 
22.807);
    (F) FAR 52.225-3, Buy American Act-Supplies;
    (G) FAR 52.232,-1, Payments;
    (H) FAR 52.232-25, Prompt Payment;
    (I) FAR 52.232-28, Electronic Funds Transfer Payment Methods;
    (J) FAR 52.233-1, Disputes;

[[Page 79]]

    (K) FAR 52.246-1, Contractor Inspection Requirements (except when an 
alternate level of quality assurance is necessary (see FAR 46.203 and 
46.204)); and
    (L) FAR 52.246-16, Responsibility for Supplies.
    (ii) Bilateral purchase orders--
    (A) The clauses in paragraph (a)(i) of this section;
    (B) FAR 52.204-2, Security Requirements (if the acquisition is 
classified);
    (C) FAR 52.243-1, Changes--Fixed Price (with appropriate alternate 
as necessary);
    (D) 252.243-7001, Pricing of Contract Modifications;
    (E) FAR 52.249-1, 52.249-4, or 52.249-5, Termination for Convenience 
of the Government; and
    (F) FAR 52.249-8, 52.249-9, or 52.249-10, Default.
    (iii) Any other clauses required by the prescription for their use.

[56 FR 36324, July 31, 1991, as amended at 61 FR 7742, Feb. 29, 1996]



Subpart 213.70--Simplified Acquisition Procedures Under the 8(a) Program

    Source: 63 FR 33587, June 19, 1998, unless otherwise noted.



Sec. 213.7001  Policy.

    For sole source acquisitions under the 8(a) Program, contracting 
officers may use the procedures established in the Memorandum of 
Understanding cited in 219.800.



Sec. 213.7002  Procedures.

    For acquisitions that are otherwise appropriate to be conducted 
using procedures set forth in this part, and also eligible for the 8(a) 
Program, contracting officers may use--
    (1)(i) For sole source purchase orders not exceeding the simplified 
acquisition threshold, the procedures in 219.804-2(2); or
    (ii) For other types of acquisitions, the procedures in subpart 
219.8, excluding the procedures in 219.804-2(2); or
    (2) The procedures for award to the Small Business Administration in 
FAR subpart 19.8.



Sec. 213.7003  Purchase orders.



Sec. 213.7003-1  Obtaining contractor acceptance and modifying purchase orders.

    The contracting officer need not obtain a contractor's written 
acceptance of a purchase order or modification of a purchase order for 
an acquisition under the 8(a) Program pursuant to 219.804-2(2).



Sec. 213.7003-2  Contract clauses.

    Use the clauses prescribed in 219.811-3(1) and (3) for purchase 
orders under the 8(a) Program pursuant to the Memorandum of 
Understanding cited in 219.800.



PART 214--SEALED BIDDING--Table of Contents




                   Subpart 214.2--Solicitation of Bids

Sec.
214.202  General rules for solicitation of bids.
214.202-5  Descriptive literature.

          Subpart 214.4--Opening of Bids and Award of Contract

214.404  Rejection of bids.
214-404-1  Cancellation of invitations after opening.
214.407  Mistakes in bids.
214.407-3  Other mistakes disclosed before award.

                 Subpart 214.5--Two-Step Sealed Bidding

214.503  Procedures.
214.503-1  Step one.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36326, July 31, 1991, unless otherwise noted.



                   Subpart 214.2--Solicitation of Bids



Sec. 214.202  General rules for solicitation of bids.



Sec. 214.202-5  Descriptive literature.

    (d) Requirements of invitation for bids. When brand name or equal 
purchase descriptions are used, use of the provision at 252.211-7003, 
Brand Name or Equal, satisfies this requirement.

[56 FR 36326, July 31, 1991, as amended at 63 FR 11528, Mar. 9, 1998]

[[Page 80]]



          Subpart 214.4--Opening of Bids and Award of Contract



Sec. 214.404  Rejection of bids.



Sec. 214.404-1  Cancellation of invitations after opening.

    The contracting officer shall make the written determinations 
required by FAR 14.404-1 (c) and (e).



Sec. 214.407  Mistakes in bids.



Sec. 214.407-3  Other mistakes disclosed before award.

    (e) Authority for making a determination under FAR 14.407-3(a), (b) 
and (d) is delegated for the defense agencies, without power of 
redelegation, as follows:
    (i) Defense Advanced Research Projects Agency: General Counsel, 
DARPA.
    (ii) Defense Information Systems Agency: General Counsel, DISA.
    (iii) Defense Intelligence Agency: Principal Assistant for 
Acquisition.
    (iv) Defense Logistics Agency:
    (A) General Counsel, DLA; and
    (B) Associate General Counsel, DLA.
    (v) National Imagery and Mapping Agency: General Counsel, NIMA.
    (vi) Defense Special Weapons Agency: General Counsel, DSWA.
    (vii) National Security Agency: Director of Procurement, NSA.
    (viii) On-Site Inspection Agency: General Counsel, OSIA.
    (ix) Ballistic Missile Defense Organization: General Counsel, BMDO.
    (h) Send a signed copy of the document authorizing correction of the 
bid to the appropriate finance center with its copy of the contract.

[57 FR 42629, Sept. 15, 1992, as amended at 59 FR 27669, May 27, 1994; 
61 FR 50452, Sept. 26, 1996. Redesignated and amended at 62 FR 34122, 
June 24, 1997]



                 Subpart 214.5--Two-Step Sealed Bidding



Sec. 214.503  Procedures.



Sec. 214.503-1  Step one.

    (a) Requests for technical proposals may be in the form of a letter.

[56 FR 36326, July 31, 1991, as amended at 57 FR 53599, Nov. 12, 1992]



PART 215--CONTRACTING BY NEGOTIATION--Table of Contents




   Subpart 215.4--Solicitation and Receipt of Proposals and Quotations

Sec.
215.401  Applicability.
215.406-2  Part I--The Schedule.
215.414  Forms.

                     Subpart 215.6--Source Selection

215.605  Evaluation factors and subfactors.
215.607  Disclosure of mistakes before award.
215.608  Proposal evaluation.
215.611  Best and final offers.
215.613  Alternate source selection procedures.
215.613-70  Four-step source selection procedures.

                   Subpart 215.7--Make-or-Buy Programs

215.704  Items and work included.

                    Subpart 215.8--Price Negotiation

215.804  Cost or pricing data and information other than cost or pricing 
          data.
215.804-1  Prohibition on obtaining cost or pricing data.
215.804-6  Procedural requirements.
215.804-7  Defective cost or pricing data.
215.804-8  Contract clauses.
215.805  Proposal analysis.
215.805-5  Field pricing support.
215.805-70  Cost realism analysis.
215.806  Subcontract pricing considerations.
215.806-1  General.
215.806-3  Field pricing reports.
215.807  Prenegotiation objectives.
215.808  Price negotiation memorandum.
215.809  Forward pricing rate agreements.
215.810  Should-cost review.
215.810-2  Program should-cost review.
215.810-3  Overhead should-cost review.
215.811  Estimating systems.
215.811-70  Disclosure, maintenance, and review requirements.
215.870-215.872  [Reserved]
215.873  Estimated data prices.

                          Subpart 215.9--Profit

215.902  Policy.
215.903  Contracting officer responsibilities.
215.905  Profit-analysis factors.
215.905-1  Common factors.
215.970  DD Form 1547, Record of Weighted Guidelines Method Application.
215.971  Weighted guidelines method.
215.971-1  General.
215.971-2  Performance risk.
215.971-3  Contract type risk and working capital adjustment.
215.971-4  Facilities capital employed.

[[Page 81]]

215.972  Modified weighted guidelines method for nonprofit 
          organizations.
215.973  Alternate structured approaches.
215.974  Fee requirements for cost-plus-award-fee contracts.
215.975  Reporting profit and fee statistics.

Subpart 215.10--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes

215.1001  Notifications to unsuccessful offerors.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36326, July 31, 1991, unless otherwise noted.



   Subpart 215.4--Solicitation and Receipt of Proposals and Quotations



Sec. 215.401  Applicability.

    See 225.872 for additional guidance on procedures for purchasing 
from qualifying countries.



Sec. 215.406-2  Part I--The Schedule.

    (g) When a contract contains both fixed-priced and cost-
reimbursement line items or subline items, the contracting officer shall 
provide, in Section B, Supplies or Services and Prices/Costs, an 
identification of contract type specified for each contract line item or 
subline item to facilitate appropriate payment.

[60 FR 34470, July 3, 1995; 60 FR 43191, Aug. 18, 1995]



Sec. 215.414  Forms.

    This does not preclude use of letter RFPs and RFQs, provided their 
use complies with other requirements of the FAR and this regulation.



                     Subpart 215.6--Source Selection



Sec. 215.605  Evaluation factors and subfactors.

    (b)(2)(A) In acquisitions which require use of the clause at FAR 
52.219-9, Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan, the extent of participation of small and small 
disadvantaged business in performance of the contact shall be addressed 
in source selection.
    (1) For acquisitions other than those based only on cost or price 
competition, the contracting officer shall evaluate the extent to which 
offerors identify and commit to small business and to small 
disadvantaged business, historically black college and university, or 
minority institution performance of the contract, whether as a joint 
venture, teaming arrangement, or subcontractor.
    (2) Criteria for evaluation may include--
    (i) The extent which such firms are specifically identified in 
proposals;
    (ii) The extent of commitment to use such firms (for example, 
enforceable commitments are to be weighted more heavily than non-
enforceable ones);
    (iii) The complexity and variety of the work small firms are to 
perform;
    (iv) The realism of the proposal;
    (v) When not otherwise required by 215.608(a)(2), past performance 
of the offerors in complying with requirements of the clauses at FAR 
52.219-8, Utilization of Small, Small Disadvantaged and Women-Owned 
Small Business Concerns, and 52.219-9, Small, Small Disadvantaged and 
Women-Owned Small Business Subcontracting Plan; and
    (vi) The extent of participation of such firms in terms of the value 
of the total acquisition.
    (3) Proposals addressing the extent of small and small disadvantaged 
business performance may be separate from subcontracting plans submitted 
pursuant to the clause at FAR 52.219-9 and should be structured to allow 
for consideration of offers from small businesses.
    (4) When an evaluation includes the criterion in paragraph 
(b)(2)(A)(2)(i) of this section, the small, small disadvantaged, or 
women-owned small businesses considered in the evaluation shall be 
listed in any subcontracting plan submitted pursuant to FAR 52.219-9 to 
facilitate compliance with 252.219-7003(g).
    (B) The costs or savings related to contract administration and 
audit may be considered when the offeror's past performance or 
performance risk is likely to result in significant costs or savings.

[[Page 82]]

    (c) In competitive acquisitions of services--
    (i) Evaluation and award should be based, to the maximum extent 
practicable, on best overall value to the Government in terms of quality 
and other factors.
    (ii) The weighting of costs must be commensurate with the nature of 
the services being acquired.
    (A) It may be appropriate to award to an offeror, based on technical 
and quality considerations, at other than the lowest price when--
    (1) The effort being contracted for departs from clearly defined 
efforts; or
    (2) Highly skilled personnel are required.
    (B) It may be appropriate to award to the technically acceptable 
offeror with the lowest price when--
    (1) Services being acquired are of a routine or simple nature;
    (2) Highly skilled personnel are not required; or
    (3) The product to be delivered is clearly defined at the outset of 
the acquisition.

[56 FR 36326, July 31, 1991, as amended at 56 FR 67213, Dec. 30, 1991; 
57 FR 14992, Apr. 23, 1992; 59 FR 27669, May 27, 1994; 61 FR 18687, Apr. 
29, 1996; 61 FR 50452, Sept. 26, 1996]



Sec. 215.607  Disclosure of mistakes before award.

    (c)(3) The designee is the head of the contracting activity, who may 
redelegate this authority to the chief of the contracting office.



Sec. 215.608  Proposal evaluation.

    (a)(1) Contracting officers shall ensure that the use of 
uncompensated overtime in contracts to acquire services on the basis of 
the number of hours provided (see FAR 37.115) will not degrade the level 
of technical expertise required to fulfill the Government's 
requirements. When acquiring such services, contracting officers shall 
conduct a risk assessment, and evaluate for award on that basis, any 
proposals received that reflect factors such as--
    (i) Unrealistically low labor rates or other costs that may result 
in quality or service shortfalls; and
    (ii) Unbalanced distribution of uncompensated overtime among skill 
levels and its use in key technical positions.
    (2) When a past performance evaluation is required by FAR 15.605, 
and the solicitation includes the clause at FAR 52.219-8, Utilization of 
Small, Small Disadvantaged and Women-Owned Small Business Concerns, the 
evaluation shall include the past performance of offerors in complying 
with requirements of that clause. When a past performance evaluation is 
required by FAR 15.605, and the solicitation includes the clause at FAR 
52.219-9, Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan, the evaluation shall include the past performance 
of offerors in complying with requirements of that clause.
    (b) Except for determinations based on violations or possible 
violations of section 27 of the Office of Federal Procurement Policy 
(OFPP) Act, and unless otherwise specified in department/agency 
regulations, the contracting officer shall make the written 
determination. Determinations based on violations or possible violations 
of Section 27 of the OFPP Act shall be made as specified in FAR 3.104.

[56 FR 36326, July 31, 1991, as amended at 56 FR 67213, Dec. 30, 1991; 
61 FR 18687, Apr. 29, 1996; 62 FR 2612, Jan. 17, 1997; 63 FR 11528, Mar. 
9, 1998]



Sec. 215.611  Best and final offers.

    (c)(i) Before requesting an additional (second or subsequent) best 
and final offer, the contracting officer shall obtain approval from--
    (A) The source selection authority and the senior procurement 
executive (SPE) for competitive negotiated acquisitions under formal 
source selection (see FAR 15.612). The SPE may delegate this authority 
to a level no lower than the head of the contracting activity.
    (B) The head of the contracting activity (HCA) for all other 
competitive negotiated acquisitions. The HCA may delegate this authority 
to the chief of the contracting office.
    (ii) Each HCA shall establish a system for reporting and documenting 
additional requests for best and final offers. Systems shall include as 
a minimum--

[[Page 83]]

    (A) The total number of competitive negotiated acquisitions awarded;
    (B) The number of those acquisitions for which an additional request 
for best and final offers was approved and issued; and
    (C) The reasons for approving each additional request for best and 
final offers.
    (iii) To ensure that additional requests for best and final offers 
are used only when necessary and unavoidable, HCAs shall--
    (A) Periodically analyze data collected under paragraph (c)(ii) of 
this section;
    (B) Take appropriate corrective action, e.g., training, revising 
approval levels; and
    (C) Provide periodic summary reports to the SPE as specified in 
department/agency regulations.



Sec. 215.613  Alternate source selection procedures.



Sec. 215.613-70  Four-step source selection procedures.

    (a) General. The four-step source selection procedure is designed 
for those situations where the Government wishes to focus on technical 
excellence. Proposals are evaluated, a competitive range established, 
and an apparent successful offeror selected without discussions of 
proposal deficiencies (a deficiency is defined as that part of an 
offeror's proposal which would not satisfy the Government's 
requirements). Negotiations are conducted only in the final step and 
only with the apparent successful offeror.
    (b) Applicability. Four-step source selection procedures may be used 
for--
    (1) Competitively negotiated research and development acquisitions 
with an estimated value of $2 million or more; or
    (2) Other acquisitions as permitted by department/agency 
regulations, except those in paragraph (c) of this subsection.
    (c) Restrictions. Four-step source selection procedures shall not be 
used for acquisitions which--
    (1) Will require extensive discussion and negotiations;
    (2) Use the authority of FAR 6.302-2;
    (3) Are solely for personal or nonpersonal services;
    (4) Are for architect-engineer services; or
    (5) Have an estimated value of less than $2 million.
    (d) Presolicitation. Establish early and open dialogue with 
prospective offerors to ensure their understanding of the Government's 
needs, since the evaluation will be conducted with limited discussions 
and without disclosing deficiencies in offeror proposals. Ways of 
establishing this dialogue are--
    (1) Presolicitation notices;
    (2) Presolicitation conferences;
    (3) Preproposal conferences;
    (4) Solicitations for information or planning purposes; and
    (5) Tailoring of specifications.
    (e) Solicitations. Include the following special provisions in four-
step source selection solicitations--
    (1) Explanation of the four-step concept and procedures;
    (2) Statement regarding the relative importance of technical/system 
performance criteria;
    (3) Notification that the contracting officer may reject proposals 
with unrealistic technical, schedule, cost, or price commitments since 
unrealistic commitments reflect an inherent lack of technical competence 
or indicate a failure to comprehend the complexity and risks of the 
requirements;
    (4) Schedule of planned source selection events, including specific 
dates for the sequential submission of separate technical and cost 
proposal.
    (5) Requirement for the technical proposal to include--
    (i) Identification, when appropriate, of trade-offs (with 
illustrative cost estimate impacts) among performance, production costs, 
operating and support costs, schedule and logistics support factors; and
    (ii) Information showing that the goals for design to cost and 
operating and support costs (when used) will be achieved when the item 
enters production.
    (6) Requirement for the cost proposal to include detailed cost 
information supporting the technical proposal and the cost factors in 
the evaluation criteria;
    (7) Statement that both technical and cost discussions will be 
limited as

[[Page 84]]

described in paragraphs (f) and (g) of this subsection; and
    (8) Notification that the contracting officer will only negotiate 
with the selected offeror, and that offerors' initial technical and cost 
proposals should be their best offer.
    (f) Step one--evaluation of technical proposals. (1) The sequence of 
step one--
    (i) Evaluate all technical proposals;
    (ii) Conduct limited discussions with all offerors; and
    (iii) Ask for any necessary clarifications and additional supporting 
data when necessary (normally, ask that this be submitted with the cost 
proposal).
    (2) In conducting step one--
    (i) Limit discussions to only what is necessary to ensure that both 
parties understand each other;
    (ii) Do not tell offerors about deficiencies in their proposals; and
    (iii) Provide written clarification to all offerors when it appears 
the Government's requirements have been misinterpreted.
    (g) Step two--evaluation of cost proposals. (1) The sequence of step 
two--
    (i) Request cost proposals;
    (ii) Evaluate all cost proposals;
    (iii) Establish the competitive range;
    (iv) Eliminate those proposals outside the range and advise those 
offerors;
    (v) Conduct limited discussions with remaining offerors; and
    (vi) Eliminate proposals which cannot be made acceptable and advise 
the offerors.
    (2) In conducting step two--
    (i) Limit discussions to--
    (A) Clarifying inconsistencies or correcting mathematical errors;
    (B) Correlating cost elements with technical effort in order to 
assess cost realism; and
    (C) Ensuring a complete understanding of the Government's 
requirements, the offeror's offer, and other contract terms;
    (ii) Do not tell an offeror that any of its cost elements are either 
too high or too low; and
    (iii) Follow the guidelines in paragraph (f) of this subsection if 
further discussions of technical proposals or clarifications are 
required.
    (h) Step three--common cut-off and selection of an offeror for final 
contract negotiations. (1) The sequence of step three--
    (i) Notify offerors of the common cut-off date for receipt of best 
and final offers (technical and cost);
    (ii) Evaluate the offers;
    (iii) Select the best offeror (see paragraph (h)(2)(iv) of this 
subsection for multiple sources);
    (iv) Tell the selected source that the decision is conditional based 
on negotiation of a definitive contract within the time period 
prescribed by the source selection authority; and
    (v) Advise the other offerors of the source selected.
    (2) In conducting step three--
    (i) Remind offerors, when notifying them of the common cut-off date, 
that any changes incorporated in the final proposal must be fully 
documented;
    (ii) Do not accept lump sum reductions in final cost proposals 
without supporting data;
    (iii) Do not request additional best and final offers without the 
approval required by 215.611(c); and
    (iv) Do not select two or more offerors, rather than a single 
source, for final contract negotiations, unless the HCA makes a written 
determination that final selection of a single source should not be made 
until the prospective contracts have been tentatively negotiated.
    (i) Step four--final negotiations and contract award. (1) The 
sequence of step four (single selectee)--
    (i) Negotiate the final contract price, terms, and conditions; and
    (ii) Award the contract.
    (2) The sequence of step four (multiple selectees)--
    (i) Negotiate tentative final contract terms and conditions;
    (ii) Select the best source; and
    (iii) Award.
    (3) In conducting step four--
    (i) Complete negotiations and award the contract within the time 
prescribed by the source selection authority;
    (ii) Terminate negotiations and make a new source selection decision 
if the condition in paragraph (i)(3)(i) cannot be met;
    (iii) Do not permit changes in the Government's requirements or the

[[Page 85]]

offeror's proposal which would affect the source selection decision; and
    (iv) Follow the procedures in FAR 15.606 if changes in the 
Government's requirements are necessary.



                   Subpart 215.7--Make-or-Buy Programs



Sec. 215.704  Items and work included.

    The minimum dollar amount is $1 million.



                    Subpart 215.8--Price Negotiation



Sec. 215.804  Cost or pricing data and information other than cost or pricing data.



Sec. 215.804-1  Prohibition on obtaining cost or pricing data.

    (b) Standards for exceptions from cost or pricing data 
requirements--(1) Adequate price competition. (A) An example of a price 
``based on'' adequate price competition is exercise of a priced option 
in a contract where adequate price competition existed, if the 
contracting officer has determined that the option price is reasonable 
in accordance with FAR 17.207(d);
    (B) Dual or multiple source programs.
    (1) In dual or multiple source programs, the determination of 
adequate price competition must be made on a case-by-case basis. 
Contracting officers must exercise deliberation and thorough review in 
making the determination. Even when adequate price competition exists, 
in certain cases it may be appropriate to obtain additional information 
to assist in price analysis.
    (2) Adequate price competition normally exists when--
    (i) Prices are solicited across a full range of step quantities, 
normally including a 0-100 percent split, from at least two offerors 
that are individually capable of producing the full quantity; and
    (ii) The reasonableness of all prices awarded is clearly established 
on the basis of price analysis (see FAR 15.805-2).
    (4) Exceptional cases.
    (A) The DoD has exempted the Canadian Commercial Corporation and its 
subcontractors from submission and certification of cost or pricing data 
on all acquisitions.
    (B) The DoD has waived certain cost or pricing data requirements for 
nonprofit organizations (including educational institutions) on cost-
reimbursement-no-fee contracts. The contracting officer shall require--
    (1) Submission of information other than cost or pricing data to the 
extent necessary to determine price reasonableness and cost realism; and
    (2) Cost or pricing data from subcontractors that are not nonprofit 
organizations.

[62 FR 40472, July 29, 1997]



Sec. 215.804-6  Procedural requirements.

    (b)(1)(A) When the solicitation requires contractor compliance with 
the Contractor Cost Data Reporting (CCDR) System (Army--AMCP 715-8, 
Navy--NAV PUB P-5241, and Air Force--AFMCP 800-15), require the 
contractor to submit DD Forms 1921 or 1921-1 with its SF 1411.
    (B) Contracting offices may develop contract pricing proposal 
supporting schedules for use by offerors in providing supporting data 
for the SF 1411. Schedules should only ask for data that are necessary 
and reasonable based on industry, company, or commodity practices.

[56 FR 36326, July 31, 1991, as amended at 59 FR 27669, May 27, 1994; 62 
FR 40472, July 29, 1997]



Sec. 215.804-7  Defective cost or pricing data.

    (b)(2) Unless there is clear evidence to the contrary, the 
contracting officer may presume the defective data were relied on and 
resulted in a contract price increase equal to the amount of the defect 
plus related overhead and profit or fee. The contracting officer is not 
expected to reconstruct the negotiation by speculating as to what would 
have been the mental attitudes of the negotiating parties if the 
nondefective data had been known.



Sec. 215.804-8  Contract clauses.

    If the solicitation or contract includes one of the clauses at FAR 
52.215-23, FAR 52.215-24, or FAR 52.215-25, also

[[Page 86]]

use the clause at 252.215-7000, Pricing Adjustments.

[60 FR 61596, Nov. 30, 1995]



Sec. 215.805  Proposal analysis.



Sec. 215.805-5  Field pricing support.

    (a)(1)(A) Contracting officers shall request field pricing reports 
for--
    (1) Fixed-price proposals exceeding the cost or pricing data 
threshold at FAR 15.403-4(a)(1);
    (2) Cost-type proposals exceeding the cost or pricing data threshold 
at FAR 15.403-4(a)(1) from offerors with significant estimating system 
deficiencies (see 215.811-70(a)(3) and (c)(2)(i); or
    (B) Contracting officers may, with adequate written justification, 
waive the requirement for these reports.
    (2)(A) The contract administration office price/cost analyst 
supports the administrative contracting officer in preparing a complete 
and accurate field pricing report for the contracting officer. The 
analyst--
    (1) In concert with the auditor and in consideration of the 
auditor's workload, establishes a deadline for the auditor's input, 
subject to adjustments when considered necessary;
    (2) Identifies areas for special consideration;
    (3) Arranges for exchanges of technical and audit information; and
    (4) Must be fully responsive to a request for technical information 
from the auditor.
    (B) The pricing report--
    (1) Details the price/cost analyst's comprehensive review and 
evaluation of the proposal;
    (2) Includes information specifically requested by the contracting 
officer; and
    (3) Summarizes what was analyzed, how it was analyzed, and the 
conclusions reached.
    (c)(i) In requesting field pricing support--
    (A) Mark all requests ``FIELD PRICING REQUEST'' in bold letters on 
the mailing envelope;
    (B) On urgent requests, provide facsimile numbers to facilitate 
return of the completed report; and
    (C) Send an advance copy to the audit activity.
    (ii) When the contracting officer knows in advance that field 
pricing support will be required, the contracting officer may request 
field pricing support before the offeror submits a proposal.
    (A) Give the administrative contracting officer (ACO) and auditor a 
copy of the solicitation;
    (B) Tell them when to expect the proposal; and
    (C) Tell the offeror to provide the ACO and auditor copies of the 
proposal.
    (iii) Where audit reports are received on contracting actions that 
are subsequently cancelled or unsuccessful, notify the cognizant auditor 
in writing.
    (iv) For spare parts or support equipment, identify all line items 
where the proposed price exceeds by 25 percent or more the lowest price 
the Government has paid within the most recent 12-month period. The 
field pricing report will include, as a minimum--
    (A) A detailed analysis of each line item identified by the 
contracting officer in the request;
    (B) A detailed analysis of those line items where a comparison of 
the item description and the proposed price indicates a potential for 
overpricing;
    (C) An analysis of the significant high-dollar-value items. If there 
are no obvious high-dollar-value items, include an analysis of a random 
sample of items; and
    (D) An analysis of a random sample of the remaining low-dollar value 
items. Sample size may be determined by subjective judgment, e.g., 
experience with the contractor and reliability of its estimating and 
accounting systems.
    (v) For spare parts proposals that have been identified as Spares 
Acquisition Integrated with Production (SAIP) items (see DoD Instruction 
4245.12, Spares Acquisition Integrated with Production (SAIP))--
    (A) Include a copy of the data entitled ``Contractor's Procurement 
Schedule for SAIP'' (Data Item DI-V-7200), or equivalent, in the request 
so that the benefits of combining new and in process quantities can be 
assured (these data are delivered by the contractor on contracts that 
include SAIP requirements); or

[[Page 87]]

    (B) Require the contractor to include these data in its proposal.
    (e)(6) The contract administration office price/cost analyst is 
responsible for providing a complete and accurate field pricing report. 
This includes quantifying technical findings; however, if the auditor 
requests a technical analysis, the auditor normally will incorporate the 
financial effect of the analysis in the audit report.
    (7) The contracting officer shall, with the advice of the ACO and 
auditor, ensure that the contractor initiates necessary corrective 
action before contract award.
    (8) The administrative contracting officer and auditor shall confer 
with the contractor during the course of the field pricing review to 
fully understand the basis for each item in the proposal and to remove 
any doubts as to the validity and accuracy of their conclusions and 
findings.
    (g) The audit activity sends the original to the administrative 
contracting officer and a copy to the contracting officer.

[56 FR 36326, July 31, 1991, as amended at 62 FR 40472, July 29, 1997; 
63 FR 11528, Mar. 9, 1998]



Sec. 215.805-70  Cost realism analysis.

    (a) In competitive acquisitions, even when adequate price 
competition exists, to ensure that proposed costs are consistent with 
the technical proposal, the contracting officer--
    (1) Should perform a cost realism analysis when--
    (i) A cost-reimbursement contract is anticipated;
    (ii) The solicitation contains new requirements that may not be 
fully understood by competing contractors;
    (iii) There are quality concerns; or
    (iv) Past experience indicates that contractors proposed costs have 
resulted in quality or service shortfalls.
    (2) May perform a cost realism analysis on other acquisitions.
    (b) The contracting officer should determine what information other 
than cost or pricing data is necessary for the cost realism analysis 
during acquisition planning and development of the solicitation. Unless 
such information is already available from Government sources, the 
contracting officer will need to ask the offerors for it.
    (1) Request only necessary data; and
    (2) Do not request submission of cost or pricing data.

[56 FR 36326, July 31, 1991, as amended at 62 FR 40472, July 29, 1997]



Sec. 215.806  Subcontract pricing considerations.



Sec. 215.806-1  General.

    Price redeterminable or fixed-price incentive contracts may include 
subcontracts placed on the same basis. When the contracting officer 
wants to reprice the prime contract even though the contractor has not 
yet established final prices for the subcontracts, the contracting 
officer may negotiate a firm contract price--
    (1) If cost or pricing data on the subcontracts show the amounts to 
be reasonable and realistic; or
    (2) If cost or pricing data on the subcontracts are too indefinite 
to determine whether the amounts are reasonable and realistic, but--
    (i) Circumstances require prompt negotiation; and
    (ii) A statement substantially as follows is included in the 
repricing modification of the prime contract:

    As soon as the Contractor establishes firm prices for each 
subcontract listed below, the Contractor shall submit (in the format and 
with the level of detail specified by the Contracting Officer) to the 
Contracting Officer the subcontractor's cost incurred in performing the 
subcontract and the final subcontract price. The Contractor and 
Contracting Officer shall negotiate an equitable adjustment in the total 
amount paid or to be paid under this contract to reflect the final 
subcontract price.

    (a)(1) Contractor and subcontractor proposals may reflect the 
selection of sources whose proposals offer the greatest value to the 
Government in terms of performance and other factors. If the selection 
is based on greatest value rather than lowest price, the analysis 
supporting subcontractor selection should include a discussion of the 
factors considered in the selection (see also FAR 15.605(c) and 
215.605(c)). If the contractor's analysis is not adequate, return it for 
correction of deficiencies.

[[Page 88]]

    (d) The contracting officer shall make every effort to ensure that 
fees negotiated by contractors for cost-plus-fixed-fee subcontracts do 
not exceed the fee limitations in FAR 15.903(d).

[56 FR 36326, July 31, 1991, as amended at 60 FR 29497, June 5, 1995]



Sec. 215.806-3  Field pricing reports.

    (a)(i) If, in the opinion of the contracting officer or auditor, the 
review of a prime contractor's proposal requires further review of 
subcontractors' cost estimates at the subcontractors' plants (after due 
consideration of reviews performed by the prime contractor), these 
reviews should be fully coordinated with the administrative contracting 
officer (ACO) having cognizance of the prime contractor before being 
initiated. The ACO for the prime contractor will initiate the request to 
the ACO for the subcontractor, with an information copy to the auditor 
for the subcontractor. The ACO for the subcontractor sends the resulting 
field pricing report to the prime ACO with an information copy to the 
prime auditor. Requests for field pricing support on lower tier 
subcontractors are handled in a like manner.
    (ii) Notify the appropriate contract administration activities when 
extensive, special, or expedited field pricing assistance will be needed 
to review and evaluate subcontractors' proposals under a major weapon 
system acquisition.



Sec. 215.807  Prenegotiation objectives.

    (a)(i) Also consider data resulting from application of work 
measurement systems in developing prenegotiation objectives.
    (ii) Consider field pricing support personnel participation in 
planned prenegotiation and negotiation activities.
    (b) Prenegotiation objectives, including objectives related to 
disposition of findings and recommendations contained in preaward and 
postaward contract audit and other advisory reports, shall be documented 
and reviewed in accordance with Departmental procedures.

[56 FR 36326, July 31, 1991, as amended at 59 FR 27669, May 27, 1994]



Sec. 215.808  Price negotiation memorandum.

    (a)(8) Include the principal factors related to the disposition of 
findings and recommendations contained in preaward and postaward 
contract audit and other advisory reports.
    (10) The memorandum--
    (A) Must document significant deviations from the prenegotiation 
profit objective;
    (B) Should include the DD Form 1547, Record of Weighted Guidelines 
Application (see subpart 215.9), if used, with supporting rationale; and
    (C) Must document the rationale for not using the weighted 
guidelines method when its use is required by 215.9.



Sec. 215.809  Forward pricing rate agreements.

    (e)(i) Use forward pricing rate agreement (FPRA) rates when such 
rates are available, unless waived on a case-by-case basis by the head 
of the contracting activity.
    (ii) Advise the ACO of each case waived.
    (iii) Contact the ACO for questions on FPRAs or recommended rates.



Sec. 215.810  Should-cost review.



Sec. 215.810-2  Program should-cost review.

    (b) DoD contracting activities should consider performing a program 
should-cost review before award of a definitive major systems contract 
exceeding $100 million.

[61 FR 7742, Feb. 29, 1996]



Sec. 215.810-3  Overhead should-cost review.

    (a) Contact the DCMC/DLA Overhead Center, Fort Belvoir, VA 22060-
6221, at (703) 767-3387, for questions on overhead should-cost analysis.
    (b)(i) The Defense Contract Management Command/Defense Logistics 
Agency (DCMC/DLA), or the military department responsible for performing 
contract administration functions (e.g., Navy SUPSHIP), should consider,

[[Page 89]]

based on risk assessment, performing an overhead should-cost review of a 
contractor business unit (as defined in FAR 31.001) when all of the 
following conditions exist:
    (A) Projected annual sales to DoD exceed $1 billion;
    (B) Projected DoD versus total business exceeds 30 percent;
    (C) Level of sole-source DoD contracts is high;
    (D) Significant volume of proposal activity is anticipated;
    (E) Production or development of a major weapon system or program is 
anticipated; and
    (F) Contractor cost control/reduction initiatives appear inadequate.
    (ii) The head of the contracting activity may request an overhead 
should-cost review for a business unit which does not meet the criteria 
in paragraph (b)(i) of this subsection.
    (iii) Overhead should-cost reviews are labor intensive. These 
reviews generally involve participation by the contracting, contract 
administration, and contract audit elements. The extent of availability 
of military department, contract administration, and contract audit 
resources to support DCMC/DLA-led teams should be considered when 
determining whether a review will be conducted. Overhead should-cost 
reviews generally shall not be conducted at a contractor business 
segment more frequently than every three years.

[61 FR 7743, Feb. 29, 1996; 61 FR 18195, Apr. 24, 1996]



Sec. 215.811  Estimating systems.



Sec. 215.811-70  Disclosure, maintenance, and review requirements.

    (a) Definitions. (1) Adequate estimating system means an estimating 
system that--
    (i) Is established, maintained, reliable, and consistently applied; 
and
    (ii) Produces verifiable, supportable, and documented cost 
estimates.
    (2) Contractor means a business unit as defined in FAR 31.001.
    (3) Estimating system is as defined in the clause at 252.215-7002 
Cost Estimating System Requirements.
    (4) Significant estimating system deficiency means a shortcoming in 
the estimating system which is likely to consistently result in proposal 
estimates for total cost or a major cost element(s) which do not provide 
an acceptable basis for negotiation of fair and reasonable prices.
    (b) Applicability. (1) DoD policy is that all contractors have 
estimating systems that--
    (i) Are adequate;
    (ii) Consistently produce well supported proposals that are 
acceptable as a basis for negotiation of fair and reasonable prices;
    (iii) Are consistent with and integrated with the contractor's 
related management systems; and
    (iv) Are subject to applicable financial control systems.
    (2) A large business contractor is subject to estimating system 
disclosure, maintenance, and review requirements if--
    (i) In its preceding fiscal year, the contractor received DoD prime 
contracts or subcontracts totaling $50 million or more for which cost or 
pricing data were required; or
    (ii) In its preceding fiscal year, the contractor received DoD prime 
contracts or subcontracts totaling $10 million or more (but less than 
$50 million) for which cost or pricing data were required and the 
contracting officer, with concurrence or at the request of the 
administrative contracting officer, determines it to be in the best 
interest of the Government (e.g., significant estimating problems are 
believed to exist or the contractor's sales are predominantly 
Government).
    (c) Responsibilities. (1) The contracting officer shall--
    (i) Through use of the clause at 252.215-7002 Cost Estimating System 
Requirements, apply the disclosure, maintenance and review requirements 
to large business contractors meeting the criteria in paragraph 
(b)(2)(i) of this subsection;
    (ii) Consider whether to apply the disclosure, maintenance, and 
review requirements to large business contractors under paragraph 
(b)(2)(ii) of this subsection; and
    (iii) Not apply the disclosure, maintenance, and review requirement 
to other than large business contractors.
    (2) The cognizant administrative contracting officer, for 
contractors subject

[[Page 90]]

to paragraph (b)(2) of this subsection, shall--
    (i) Determine the adequacy of the disclosure and system; and
    (ii) Pursue correction of any deficiencies.
    (3) The cognizant auditor, on behalf of the ACO, serves as team 
leader in conducting estimating system reviews.
    (4) A contractor subject to estimating system disclosure, 
maintenance, and review requirements shall--
    (i) Maintain an adequate system;
    (ii) Describe its system to the administrative contracting officer 
(ACO);
    (iii) Provide timely notice of changes in the system; and
    (iv) Correct system deficiencies identified by the ACO.
    (d) Characteristics of an adequate estimating system--(1) General. 
An adequate system should provide for the use of appropriate source 
data, utilize sound estimating techniques and good judgment, maintain a 
consistent approach, and adhere to established policies and procedures.
    (2) Evaluation. In evaluating the adequacy of a contractor's 
estimating system, the ACO should consider whether the contractor's 
estimating system, for example--
    (i) Establishes clear responsibility for preparation, review and 
approval of cost estimates;
    (ii) Provides a written description of the organization and duties 
of the personnel responsible for preparing, reviewing, and approving 
cost estimates;
    (iii) Assures that relevant personnel have sufficient training, 
experience and guidance to perform estimating tasks in accordance with 
the contractor's established procedures;
    (iv) Identifies the sources of data and the estimating methods and 
rationale used in developing cost estimates;
    (v) Provides for appropriate supervision throughout the estimating 
process;
    (vi) Provides for consistent application of estimating techniques;
    (vii) Provides for detection and timely correction of errors;
    (viii) Protects against cost duplication and omissions;
    (ix) Provides for the use of historical experience, including 
historical vendor pricing information, where appropriate;
    (x) Requires use of appropriate analytical methods;
    (xi) Integrates information available from other management systems, 
where appropriate;
    (xii) Requires management review including verification that the 
company's estimating policies, procedures and practices comply with this 
regulation;
    (xiii) Provides for internal review of and accountability for the 
adequacy of the estimating system, including the comparison of projected 
results to actual results and an analysis of any differences;
    (xiv) Provides procedures to update cost estimates in a timely 
manner throughout the negotiation process; and
    (xv) Addresses responsibility for review and analysis of the 
reasonableness of subcontract prices.
    (3) Indicators of potentially significant estimating deficiencies. 
The following examples indicate conditions that may produce or lead to 
significant estimating deficiencies--
    (i) Failure to ensure that historical experience is available to and 
utilized by cost estimators, where appropriate;
    (ii) Continuing failure to analyze material costs or failure to 
perform subcontractor cost reviews as required.
    (iii) Consistent absence of analytical support for significant 
proposed cost amounts;
    (iv) Excessive reliance on individual personal judgment where 
historical experience or commonly utilized standards are available;
    (v) Recurring significant defective pricing findings within the same 
cost element(s);
    (vi) Failure to integrate relevant parts of other management systems 
(e.g., production control or cost accounting) with the estimating system 
so that the ability to generate reliable cost estimates is impaired; and
    (vii) Failure to provide established policies, procedures, and 
practices to persons responsible for preparing and supporting estimates.
    (e) Review Procedures. Cognizant audit and contract administration 
activities shall--

[[Page 91]]

    (1) Establish and manage regular programs for reviewing selected 
contractors' estimating systems.
    (2) Conduct reviews as a team effort.
    (i) The contract auditor will be the team leader.
    (ii) The team leader will--
    (A) Coordinate with the ACO to ensure that team membership includes 
qualified contract administration technical specialists.
    (B) Advise the ACO and contractor of significant findings during the 
conduct of the review and during the exit conference.
    (C) Prepare a team report.
    (1) The ACO or a representative should--
    (i) Coordinate the contract administration activity's review;
    (ii) Consolidate findings and recommendations; and
    (iii) When appropriate, prepare a comprehensive written report for 
submission to the auditor.
    (2) The contract auditor will attach the ACO's report to the team 
report.
    (3) Tailor reviews to take full advantage of the day-to-day work 
done by both organizations.
    (4) Conduct a review every three years of contractors subject to the 
disclosure requirements. The ACO and auditor may lengthen or shorten the 
three-year period based on their joint risk assessment of the 
contractor's past experience and current vulnerability.
    (f) Disposition of survey team findings--(1) Reporting of survey 
team findings. The auditor will document the findings and 
recommendations of the survey team in a report to the ACO. If there are 
significant estimating deficiencies, the auditor will recommend 
disapproval of all or portions of the estimating system.
    (2) Initial notification to the contractor. The ACO will provide a 
copy of the team report to the contractor and, unless there are no 
deficiencies mentioned in the report, ask the contractor to submit a 
written response in 30 days, or a reasonable extension.
    (i) If the contractor agrees with the report, the contractor has 60 
days from the date of initial notification to correct any identified 
deficiencies or submit a corrective action plan showing milestones and 
actions to eliminate the deficiencies.
    (ii) If the contractor disagrees, the contractor should provide 
rationale in its written response.
    (3) Evaluation of contractor's response. The ACO, in consultation 
with the auditor, will evaluate the contractor's response to determine 
whether--
    (i) The estimating system contains deficiencies which need 
correction;
    (ii) The deficiencies are significant estimating deficiencies which 
would result in disapproval of all or a portion of the contractor's 
estimating system; or
    (iii) The contractor's proposed corrective actions are adequate to 
eliminate the deficiency.
    (4) Notification of ACO determination. The ACO will notify the 
contractor and the auditor of the determination and, if appropriate, of 
the Government's intent to disapprove all or selected portions of the 
system. The notice shall--
    (i) List the cost elements covered;
    (ii) Identify any deficiencies requiring correction; and
    (iii) Require the contractor to correct the deficiencies within 45 
days or submit an action plan showing milestones and actions to 
eliminate the deficiencies.
    (5) Notice of disapproval. If the contractor has neither submitted 
an acceptable corrective action plan nor corrected significant 
deficiencies within 45 days, the ACO shall disapprove all or selected 
portions of the contractor's estimating system. The notice of 
disapproval must--
    (i) Identify the cost elements covered;
    (ii) List the deficiencies which prompted the disapproval; and
    (iii) Be sent to the cognizant auditor, and each contracting and 
contract administration office having substantial business with the 
contractor.
    (6) Monitoring contractor's corrective action. The auditor and ACO 
will monitor the contractor's progress in correcting deficiencies. If 
the contractor fails to make adequate progress, the ACO shall take 
whatever action is necessary to ensure that the contractor corrects the 
deficiencies. Examples of actions the ACO can take are: Bringing the 
issue to the attention of higher

[[Page 92]]

level management, reducing or suspending progress payments (see FAR 
32.503-6), and recommending nonaward of potential contracts.
    (7) Withdrawal of estimating system disapproval. The ACO will 
withdraw the disapproval when the ACO determines that the contractor has 
corrected the significant system deficiencies. The ACO will notify the 
contractor, the auditor, and affected contracting and contract 
administration activities of the withdrawal.
    (g) Impact of estimating system deficiencies on specific proposals. 
(1) Field pricing teams will discuss identified estimating system 
deficiencies and their impact in all reports on contractor proposals 
until the deficiencies are resolved.
    (2) The contracting officer responsible for negotiation of a 
proposal generated by an estimating system with an identified deficiency 
shall evaluate whether the deficiency impacts the negotiations. If it 
does not, the contracting officer should proceed with negotiations. If 
it does, the contracting officer should consider other alternatives, 
e.g.--
    (i) Allowing the contractor additional time to correct the 
estimating system deficiency and submit a corrected proposal;
    (ii) Considering another type of contract, e.g., an FPIF instead of 
an FFP;
    (iii) Using additional cost analysis techniques to determine the 
reasonableness of the cost elements affected by the system's deficiency;
    (iv) Segregating the questionable areas as a cost reimbursable line 
item;
    (v) Reducing the negotiation objective for profit or fee; or
    (vi) Including a contract (reopener) clause that provides for 
adjustment of the contract amount after award.
    (3) The contracting officer who incorporates a reopener clause into 
the contract is responsible for negotiating price adjustments required 
by the clause. Any reopener clause necessitated by an estimating 
deficiency should--
    (i) Clearly identify the amounts and items which are in question at 
the time of negotiation;
    (ii) Indicate a specific time or subsequent event by which the 
contractor will submit a supplemental proposal, including cost or 
pricing data, identifying the cost impact adjustment necessitated by the 
deficient estimating system;
    (iii) Provide for the contracting officer to unilaterally adjust the 
contract price if the contractor fails to submit the supplemental 
proposal; and
    (iv) Provide that failure of the Government and the contractor to 
agree to the price adjustment shall be a dispute under the Disputes 
clause.
    (h) Contract clause. Use the clause at 252.215-7002, Cost Estimating 
System Requirements, in all solicitations and contracts to be awarded on 
the basis of cost or pricing data.

[56 FR 36326, July 31, 1991, as amended at 56 FR 67213, Dec. 30, 1991; 
62 FR 40472, July 29, 1997]



Sec. 215.870--215.872  [Reserved]



Sec. 215.873  Estimated data prices.

    (a) The Department of Defense requires estimates of the prices of 
data in order to evaluate the cost to the Government of data items in 
terms of their management, product, or engineering value.
    (b) When data are required to be delivered under a contract, the 
solicitation will include DD Form 1423, Contract Data Requirements List. 
The form and the provision included in the solicitation request the 
offeror to state what portion of the total price is estimated to be 
attributable to the production or development of the listed data for the 
Government (not to the sale of rights in the data). However, offerors' 
estimated prices may not reflect all such costs; and different offerors 
may reflect these costs in a different manner, for the following 
reasons--
    (1) Differences in business practices in competitive situations;
    (2) Differences in accounting systems among offerors;
    (3) Use of factors or rates on some portions of the data;
    (4) Application of common effort to two or more data items; and
    (5) Differences in data preparation methods among offerors.
    (c) Data price estimates should not be used for contract pricing 
purposes without further analysis.

[[Page 93]]

    (d) The contracting officer shall ensure that the contract does not 
include a requirement for data that the contractor has delivered or is 
obligated to deliver to the Government under another contract or 
subcontract, and that the successful offeror identifies any such data 
required by the solicitation. However, where duplicate data are desired, 
the contract price shall include the costs of duplication, but not of 
preparation, of such data.

[56 FR 36326, July 31, 1991, as amended at 62 FR 2613, Jan. 17, 1997]



                          Subpart 215.9--Profit



Sec. 215.902  Policy.

    Departments and agencies shall use a structured approach for 
developing a prenegotiation profit or fee objective (profit objective) 
on any negotiated contract action that requires cost analysis, except on 
cost-plus-award-fee contracts (but see 215.974). There are three 
approaches--
    (1) The weighted guidelines method;
    (2) The modified weighted guidelines method; and
    (3) An alternate structured approach.



Sec. 215.903  Contracting officer responsibilities.

    (a) Also, do not perform a profit analysis when assessing cost 
realism in competitive acquisitions.
    (b) The contracting officer--
    (1) Shall use the weighted guidelines method (see 215.971), unless--
    (A) The modified weighted guidelines method applies; or
    (B) An alternate approach is justified.
    (2) Shall use the modified weighted guidelines method (see 215.972) 
on contract actions with nonprofit organizations;
    (3) May use an alternate structured approach (see 215.973) when--
    (i) The contract action is--
    (A) Under $500,000;
    (B) For architect-engineer or construction work;
    (C) Primarily for delivery of material from subcontractors; or
    (D) A termination settlement; or
    (ii) The weighted guidelines method does not produce a reasonable 
overall profit objective and the head of the contracting activity 
approves use of the alternate approach in writing.
    (4) Shall use the weighted guidelines method to establish a basic 
profit rate under a formula type pricing agreement, and may then use the 
basic rate on all actions under the agreement, provided that conditions 
affecting profit do not change.
    (5) Shall document the profit analysis in the price negotiation 
memorandum.
    (e) Although specific agreement on the applied weights or values for 
individual profit factors shall not be attempted, the contracting 
officer may encourage the contractor to--
    (1) Present the details of its proposed profit amounts in the 
weighted guidelines format or similar structured approach; and
    (2) Use the weighted guidelines method in developing profit 
objectives for negotiated subcontracts.
    (f) The contracting officer must also verify that relevant variables 
have not materially changed (e.g., performance risk, interest rates, 
progress payment rates, distribution of facilities capital).



Sec. 215.905  Profit-analysis factors.



Sec. 215.905-1  Common factors.

    The common factors are embodied in the DoD structured approaches and 
need not be further considered by the contracting officer.



Sec. 215.970  DD Form 1547, Record of Weighted Guidelines Method Application.

    (a) The DD Form 1547--
    (1) Provides a vehicle for performing the analysis necessary to 
develop a profit objective;
    (2) Provides a format for summarizing profit amounts subsequently 
negotiated as part of the contract price; and
    (3) Serves as the principal source document for reporting profit 
statistics to DoD's management information system.
    (b) The Military Departments are responsible for establishing 
policies and procedures for feeding the DoD-wide management information 
system on profit and fee statistics (see 215.975).
    (c) The contracting officer shall--
    (1) Use and prepare a DD Form 1547 whenever a structured approach to

[[Page 94]]

profit analysis is required by 215.902. (See 215.971, 215.972, and 
215.973 for guidance on using the structured approaches.) Administrative 
instructions for completing the form are in 253.215-70.
    (2) Ensure that the DD Form 1547 is accurately completed. The 
contracting officer is responsible for the correction of any errors 
detected by the management system auditing process.



Sec. 215.971  Weighted guidelines method.



Sec. 215.971-1  General.

    (a) The weighted guidelines method focuses on three profit factors--
    (1) Performance risk;
    (2) Contract type risk; and
    (3) Facilities capital employed.
    (b) The contracting officer assigns values to each profit factor; 
the value multiplied by the base results in the profit objective for 
that factor. Each profit factor has a normal value and a designated 
range of values. The normal value is representative of average 
conditions on the prospective contract when compared to all goods and 
services acquired by DoD. The designated range provides values based on 
above normal or below normal conditions. In the price negotiation 
memorandum, the contracting officer need not explain assignment of the 
normal value, but should address conditions that justify assignment of 
other than the normal value.



Sec. 215.971-2  Performance risk.

    (a) Description. This profit factor addresses the contractor's 
degree of risk in fulfilling the contract requirements. The factor 
consists of three parts--
    (1) Technical--the technical uncertainties of performance.
    (2) Management--the degree of management effort necessary to ensure 
that contract requirements are met.
    (3) Cost control--the contractor's efforts to reduce and control 
costs.
    (b) Determination. The following extract from the DD Form 1547 is 
annotated to describe the process.

----------------------------------------------------------------------------------------------------------------
                                                                Assigned     Assigned    Base (Item     Profit
            Item                  Contractor Risk Factors      Weighting      Value         18)       Objective
----------------------------------------------------------------------------------------------------------------
21..........................  Technical.....................          (1)          (2)          N/A          N/A
22..........................  Management....................          (1)          (2)          N/A          N/A
23..........................  Cost Control..................          (1)          (2)          N/A          N/A
24..........................  Performance Risk (Composite)..          N/A          (3)          (4)          (5)
----------------------------------------------------------------------------------------------------------------

    (1) Assign a weight (percentage) to each element according to its 
input to the total performance risk. The total of the three weights 
equals 100%.
    (2) Select a value for each element from the list in paragraph (c) 
of this subsection using the evaluation criteria in paragraphs (d), (e), 
and (f) of this subsection.
    (3) Compute the composite as shown in the following example--

------------------------------------------------------------------------
                                       Assigned    Assigned    Weighted
             Assigned--                weighting     value       value
                                       (percent)   (percent)   (percent)
------------------------------------------------------------------------
Technical...........................          30         5.0         1.5
Management..........................          30         4.0         1.2
Cost Control........................          40         4.5         1.8
Composite Value.....................         100                     4.5
------------------------------------------------------------------------

    (4) Insert the amount from Block 18 of the DD Form 1547. Block 18 is 
total contract costs, excluding general and administrative expenses, 
contractor independent research and development/bid and proposal 
expenses, and facilities capital cost of money.
    (5) Multiply (3) by (4).
    (c) Values: Normal and designated ranges.

------------------------------------------------------------------------
                                         Normal
          Standard Alternate              value       Designated range
                                        (percent)        (percent)
------------------------------------------------------------------------
Standard.............................           4  2 to 6.
Alternate............................           6  4 to 8
------------------------------------------------------------------------

    (1) Standard. The standard designated range should apply to most 
contracts.
    (2) Alternate. Contracting officers may use the alternate designated 
range for research and development and service contractors when these 
contractors require relatively low capital investment in buildings and 
equipment when compared to the defense industry overall. If the 
alternate designated range is

[[Page 95]]

used, do not give any profit for facilities capital employed (see 
215.971-4(c)(3)).
    (d) Evaluation criteria for technical. (1) Review the contract 
requirements and focus on the critical performance elements in the 
statement of work or specifications. Factors to consider include--
    (i) Technology being applied or developed by the contractor;
    (ii) Technical complexity;
    (iii) Program maturity;
    (iv) Performance specifications and tolerances;
    (v) Delivery schedule; and
    (vi) Extent of a warranty or guarantee.
    (2) Above normal conditions. (i) The contracting officer may assign 
a higher than normal value in those cases where there is a substantial 
technical risk. Indicators are--
    (A) The contractor is either developing or applying advanced 
technologies;
    (B) Items are being manufactured using specifications with stringent 
tolerance limits;
    (C) The efforts require highly skilled personnel or require the use 
of state of the art machinery;
    (D) The services and analytical efforts are extremely important to 
the Government and must be performed to exacting standards;
    (E) The contractor's independent development and investment has 
reduced the Government's risk or cost;
    (F) The contractor has accepted an accelerated delivery schedule to 
meet DoD requirements; or
    (G) The contractor has assumed additional risk through warranty 
provisions.
    (ii) Extremely complex, vital efforts to overcome difficult 
technical obstacles which require personnel with exceptional abilities, 
experience, and professional credentials may justify a value 
significantly above normal.
    (iii) The following may justify a maximum value--
    (A) Development or initial production of a new item, particularly if 
performance or quality specifications are tight; or
    (B) A high degree of development or production concurrency.
    (3) Below normal conditions.
    (i) The contracting officer may assign a lower than normal value in 
those cases where the technical risk is low. Indicators are--
    (A) Acquisition is for off-the-shelf items;
    (B) Requirements are relatively simple;
    (C) Technology is not complex;
    (D) Efforts do not require highly skilled personnel;
    (E) Efforts are routine;
    (F) Programs are mature; or
    (G) Acquisition is a follow-on effort or a repetitive type 
acquisition.
    (ii) The contracting officer may assign a value significantly below 
normal for--
    (A) Routine services;
    (B) Production of simple items;
    (C) Rote entry or routine integration of Government furnished 
information; or
    (D) Simple operations with Government-furnished property.
    (e) Evaluation criteria for management. (1) The contracting officer 
should--
    (i) Assess the contractor's management and internal control systems 
using contracting office information and reviews made by field contract 
administration offices or other DoD field offices;
    (ii) Assess the management involvement expected on the prospective 
contract action;
    (iii) Consider the degree of cost mix as an indication of the types 
of resources applied and value-added by the contractor; and
    (iv) Consider the contractor's support of Federal socioeconomic 
programs.
    (2) Above normal conditions. (i) The contracting officer may assign 
a higher than normal value when the management effort is intense. 
Indicators of this are--
    (A) The contractor's value-added is both considerable and reasonably 
difficult;
    (B) The effort involves a high degree of integration or 
coordination; or
    (C) The contractor has a substantial record of active participation 
in Federal socioeconomic programs.
    (ii) The contracting officer may justify a maximum value when the 
effort--

[[Page 96]]

    (A) Requires large scale integration of the most complex nature;
    (B) Involves major international activities with significant 
management coordination (e.g., offsets with foreign vendors); or
    (C) Has critically important milestones.
    (3) Below normal conditions. (i) The contracting officer may assign 
a lower than normal value when the management effort is minimal. 
Indicators of this are--
    (A) The program is mature and many end item deliveries have been 
made;
    (B) The contractor adds minimum value to an item;
    (C) The efforts are routine and require minimal supervision;
    (D) The contractor provides poor quality, untimely proposals;
    (E) The contractor fails to provide an adequate analysis of 
subcontractor costs; or
    (F) The contractor does not cooperate in the evaluation and 
negotiation of the proposal.
    (ii) The following may justify a value significantly below normal--
    (A) Reviews performed by the field contract administration offices 
disclose unsatisfactory management and internal control systems (e.g., 
quality assurance, property control, safety, security); or
    (B) The effort requires an unusually low degree of management 
involvement.
    (f) Evaluation criteria for cost control. (1) The contracting 
officer should evaluate--
    (i) The expected reliability of the contractor's cost estimates 
(including the contractor's cost estimating system);
    (ii) The contractor's cost reduction initiatives (e.g., competition 
advocacy programs, dual sourcing, spare parts pricing reform, value 
engineering);
    (iii) The adequacy of the contractor's management approach to 
controlling cost and schedule; and
    (iv) Any other factors which affect the contractor's ability to meet 
the cost targets, e.g., foreign currency exchange rates and inflation 
rates.
    (2) Above normal conditions. The contracting officer may assign a 
higher than normal value if the contractor can demonstrate a highly 
effective cost control program. Indicators of this are--
    (i) The contractor provides fully documented and reliable cost 
estimates;
    (ii) The contractor has an aggressive cost reduction program that 
has demonstrable benefits;
    (iii) The contractor uses a high degree of subcontract competition 
(e.g., aggressive dual sourcing); or
    (iv) The contractor has a proven record of cost tracking and 
control.
    (3) Below normal conditions. The contracting officer may assign a 
lower than normal value if the contractor demonstrates minimal concern 
for cost control. Indicators are--
    (i) The contractor's cost estimating system is marginal;
    (ii) The contractor has made minimal effort to initiate cost 
reduction programs;
    (iii) The contractor's cost proposal is inadequate;
    (iv) The contractor has a record of cost overruns or other 
indication of unreliable cost estimates and lack of cost control.



Sec. 215.971-3  Contract type risk and working capital adjustment.

    (a) Description. The contract type risk factor focuses on the degree 
of cost risk accepted by the contractor under varying contract types. 
The working capital adjustment is an adjustment added to the profit 
objective for contract type risk. It only applies to fixed-price 
contracts that provide for progress payments. Though it uses a formula 
approach, it is not intended to be an exact calculation of the cost of 
working capital. Its purpose is to give general recognition to the 
contractor's cost of working capital under varying contract 
circumstances, financing policies, and the economic environment.
    (b) Determination. The following extract from the DD 1547 is 
annotated to explain the process.

[[Page 97]]



------------------------------------------------------------------------
                  Contractor risk    Assigned    Base (Item     Profit
      Item            factors         value         18)       objective
------------------------------------------------------------------------
25.............  Contract Type             (1)          (2)          (3)
                  Risk.
------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                  Cost        Length      Interest
                                                                financed      factor        rate
----------------------------------------------------------------------------------------------------------------
26..........................  Working Capital (4)...........          (5)          (6)          (7)          (8)
----------------------------------------------------------------------------------------------------------------

    (1) Select a value from the list of contract types in paragraph (c) 
of this subsection using the evaluation criteria in paragraph (d) of 
this subsection.
    (2) Insert the amount from Block 18, i.e., the total allowable costs 
excluding general and administrative expenses, independent research and 
development/bid proposal expenses, and facilities capital cost of money.
    (3) Multiply (1) by (2).
    (4) Only complete this Block when the prospective contract is a 
fixed-price contract containing provisions for progress payments.
    (5) Insert the amount computed per paragraph (e) of this subsection.
    (6) Insert the appropriate figure from paragraph (f) of this 
subsection.
    (7) Use the interest rate established by the Secretary of the 
Treasury (230.7101(a)). Do not use any other interest rate.
    (8) Multiply (5) by (6) by (7). This is the working capital 
adjustment. It shall not exceed 4 percent of the contract costs in Block 
20.
    (c) Values: Normal and designated ranges.

------------------------------------------------------------------------
                                               Normal
         Contract type              Notes       value       Designated
                                              (percent)  range (percent)
------------------------------------------------------------------------
Firm fixed-price, no financing.         (1)           5  4 to 6.
Firm fixed-price, with                  (2)           3  2 to 4.
 financing.
Fixed-price-incentive, no               (1)           3  2 to 4.
 financing.
Fixed-price with redeterminable         (3)
 provision.
Fixed-price-incentive, with             (2)           1  0 to 2.
 financing.
Cost-plus-incentive-fee........         (4)           1  0 to 2.
Cost-plus-fixed-fee............         (4)          .5  0 to 1.
Time and material contracts             (5)          .5  0 to 1.
 (including overhaul contracts
 priced on time and material
 basis).
Labor-hour contracts...........         (5)          .5  0 to 1.
Firm fixed-price-level-of-              (5)          .5  0 to 1.
 effort-term.
------------------------------------------------------------------------

    (1) No financing means that the contract either does not provide 
progress payments, or provides them only on a limited basis, such as 
financing of first articles. Do not compute a working capital 
adjustment.
    (2) With financing means progress payments. When progress payments 
are present, compute a working capital adjustment (Block 26).
    (3) For the purposes of assigning profit values, treat a fixed-price 
contract with redeterminable provisions as if it were a fixed-price-
incentive contract with below normal conditions.
    (4) Cost-plus contracts shall not receive the working capital 
adjustment.
    (5) These types of contracts are considered cost-plus-fixed-fee 
contracts for the purposes of assigning profit values. They shall not 
receive the working capital adjustment in Block 26. However, they may 
receive higher than normal values within the designated range to the 
extent that portions of cost are fixed.
    (d) Evaluation criteria--(1) General. The contracting officer should 
consider elements that affect contract type risk such as--
    (i) Length of contract;
    (ii) Adequacy of cost data for projections;
    (iii) Economic environment;
    (iv) Nature and extent of subcontracted activity;

[[Page 98]]

    (v) Protection provided to the contractor under contract provisions 
(e.g., economic price adjustment clauses);
    (vi) The ceilings and share lines contained in incentive provisions; 
and
    (vii) Risks associated with contracts for foreign military sales 
(FMS) which are not funded by U.S. appropriations.
    (2) Mandatory--The contracting officer shall assess the extent to 
which costs have been incurred prior to definitization of the contract 
action (see also 217.7404-6(a)). The assessment shall include any 
reduced contractor risk on both the contract before definitization and 
the remaining portion of the contract. When costs have been incurred 
prior to definitization, generally regard the contract type risk to be 
in the low end of the designated range. If a substantial portion of the 
costs have been incurred prior to definitization, the contracting 
officer may assign a value as low as 0%, regardless of contract type.
    (3) Above normal conditions. The contracting officer may assign a 
higher than normal value when there is substantial contract type risk. 
Indicators of this are--
    (i) Efforts where there is minimal cost history;
    (ii) Long-term contracts without provisions protecting the 
contractor, particularly when there is considerable economic 
uncertainty;
    (iii) Incentive provisions (e.g., cost and performance incentives) 
which place a high degree of risk on the contractor; or
    (iv) FMS sales (other than those under DoD cooperative logistics 
support arrangements or those made from U.S. Government inventories or 
stocks) where the contractor can demonstrate that there are substantial 
risks above those normally present in DoD contracts for similar items.
    (4) Below normal conditions. The contracting officer may assign a 
lower than normal value when the contract type risk is low. Indicators 
of this are--
    (i) Very mature product line with extensive cost history;
    (ii) Relatively short-term contracts;
    (iii) Contractual provisions which substantially reduce the 
contractor's risk; or
    (iv) Incentive provisions which place a low degree of risk on the 
contractor.
    (e) Costs financed. (1) Costs financed equal total costs multiplied 
by the portion (percent) of costs financed by the contractor.
    (2) Total costs equal Block 20 (i.e., all allowable costs, including 
general and administrative and independent research and development/bid 
and proposal, but excluding facilities capital cost of money), reduced 
as appropriate when--
    (i) The contractor has little cash investment (e.g., subcontractor 
progress payments liquidated late in period of performance);
    (ii) Some costs are covered by special financing provisions, such as 
advance payments; or
    (iii) The contract is multiyear and there are special funding 
arrangements.
    (3) The portion financed by the contractor is generally the portion 
not covered by progress payments, i.e., 100% minus the customary 
progress payment rate (FAR 32.501). For example, if a contractor 
receives progress payments at 75%, the portion financed by the 
contractor is 25%. On contracts that provide flexible progress payments 
(252.232-7003) or progress payments to small businesses, use the 
customary progress payment rate for large businesses.
    (f) Contract length factor. (1) This is the period of time that the 
contractor has a working capital investment in the contract. It--
    (i) Is based on the time necessary for the contractor to complete 
the substantive portion of the work;
    (ii) Is not necessarily the period of time between contract award 
and final delivery (or final payment), as periods of minimal effort 
should be excluded;
    (iii) Should not include periods of performance contained in option 
provisions; and
    (iv) Should not, for multiyear contracts, include periods of 
performance beyond that required to complete the initial program year's 
requirements.
    (2) The contracting officer--
    (i) Should use the following table to select the contract length 
factor;

[[Page 99]]

    (ii) Should develop a weighted average contract length when the 
contract has multiple deliveries; and
    (iii) May use sampling techniques provided they produce a 
representative result.

                                  Table
------------------------------------------------------------------------
                                                               Contract
     Period to perform substantive portion (in months)          length
                                                                factor
------------------------------------------------------------------------
21 or less.................................................          .40
22 to 27...................................................          .65
28 to 33...................................................          .90
34 to 39...................................................         1.15
40 to 45...................................................         1.40
46 to 51...................................................         1.65
52 to 57...................................................         1.90
58 to 63...................................................         2.15
64 to 69...................................................         2.40
70 to 75...................................................         2.65
76 or more.................................................         2.90
------------------------------------------------------------------------

    (3) Example: A prospective contract has a performance period of 40 
months with end items being delivered in the 34th, 36th, 38th, and 40th 
months of the contract. The average period is 37 months and the contract 
length factor is 1.15.

[56 FR 36326, July 31, 1991, as amended at 59 FR 27669, May 27, 1994]



Sec. 215.971-4  Facilities capital employed.

    (a) Description. This factor focuses on encouraging and rewarding 
aggressive capital investment in facilities that benefit DoD. It 
recognizes both the facilities capital that the contractor will employ 
in contract performance and the contractor's commitment to improving 
productivity.
    (b) Determination. The following extract from the DD Form 1547 has 
been annotated to explain the process.

------------------------------------------------------------------------
                    Contractor
      Item          facilities       Assigned      Amount       Profit
                 capital employed     value       employed    objective
------------------------------------------------------------------------
27.............  Land............          N/A          (2)          N/A
28.............  Buildings.......          (1)          (2)          (3)
29.............  Equipment.......          (1)          (2)          (3)
------------------------------------------------------------------------

    (1) Select a value from the list in paragraph (c) of this subsection 
using the evaluation criteria in paragraph (d) of this subsection.
    (2) Use the allocated facilities capital attributable to land, 
buildings, and equipment, as derived in DD Form 1861, ``Contract 
Facilities Capital Cost of Money'' (see 215.871-5 and 230.7001).
    (i) In addition to the net book value of facilities capital 
employed, consider facilities capital that is part of a formal 
investment plan if the contractor submits reasonable evidence that--
    (A) Achievable benefits to DoD will result from the investment; and
    (B) The benefits of the investment are included in the forward 
pricing structure.
    (ii) If the value of intracompany transfers has been included in 
Block 18 at cost (i.e., excluding general and administrative (G&A) 
expenses and profit), add to the contractor's allocated facilities 
capital, the allocated facilities capital attributable to the buildings 
and equipment of those corporate divisions supplying the intracompany 
transfers. Do not make this addition if the value of intracompany 
transfers has been included in Block 18 at price (i.e., including G&A 
expenses and profit).
    (3) Multiply (1) by (2).
    (c) Values: Normal and designated ranges.

------------------------------------------------------------------------
                                            Normal
      Notes              Asset type          value     Designated range
                                           (percent)
------------------------------------------------------------------------
(1)..............  Land.................           0  N/A.
(1)..............  Buildings............          15  10% to 20%.
(1)..............  Equipment............          35  20% to 50%.
(2)..............  Land.................           0  N/A.
(2)..............  Buildings............           5  0% to 10%.
(2)..............  Equipment............          20  15% to 25%.
(3)..............  Land.................           0  N/A.
(3)..............  Buildings............           0  0%.
(3)..............  Equipment............           0  0%.
------------------------------------------------------------------------

    (1) These are the normal values and ranges. They apply to all 
situations except those noted in (2) and (3).
    (2) These alternate values and ranges apply to situations where a 
highly facilitized manufacturing firm will be performing a research and 
development or services contract. They balance the method used to 
allocate facilities capital cost of money, which may produce

[[Page 100]]

disproportionate allocation of assets to these types of efforts.
    (3) When using a value from the alternate designated range for the 
performance risk factor (215.971-2(c)(2)), do not allow profit on 
facilities capital employed.
    (d) Evaluation criteria. (1) In evaluating facilities capital 
employed, the contracting officer--
    (i) Should relate the usefulness of the facilities capital to the 
goods or services being acquired under the prospective contract;
    (ii) Should analyze the productivity improvements and other 
anticipated industrial base enhancing benefits resulting from the 
facilities capital investment, including--
    (A) The economic value of the facilities capital, such as physical 
age, undepreciated value, idleness, and expected contribution to future 
defense needs; and
    (B) The contractor's level of investment in defense related 
facilities as compared with the portion of the contractor's total 
business which is derived from DoD;
    (iii) Should consider any contractual provisions that reduce the 
contractor's risk of investment recovery, such as termination protection 
clause, capital investment indemnification, and productivity saving 
rewards (215.870-3); and
    (iv) Shall ensure that increases in facilities capital investments 
are not merely asset revaluations attributable to mergers, stock 
transfers, take-overs, sales of corporate entities, or similar actions.
    (2) Above normal conditions. (i) The contracting officer may assign 
a higher than normal value if the facilities capital investment has 
direct, identifiable, and exceptional benefits. Indicators are--
    (A) New investments in state-of-the-art technology which reduce 
acquisition cost or yield other tangible benefits such as improved 
product quality or accelerated deliveries;
    (B) Investments in new equipment for research and development 
applications; or
    (C) Contractor demonstration that the investments are over and above 
the normal capital investments necessary to support anticipated 
requirements of DoD programs.
    (ii) The contracting officer may assign a value significantly above 
normal when there are direct and measurable benefits in efficiency and 
significantly reduced acquisition costs on the effort being priced. 
Maximum values apply only to those cases where the benefits of the 
facilities capital investment are substantially above normal.
    (3) Below normal conditions. (i) The contracting officer may assign 
a lower than normal value if the facilities capital investment has 
little benefit to DoD. Indicators are--
    (A) Allocations of capital apply predominantly to commercial item 
lines;
    (B) Investments are for such things as furniture and fixtures, home 
or group level administrative offices, corporate aircraft and hangars, 
gymnasiums; or
    (C) Facilities are old or extensively idle.
    (ii) The contracting officer may assign a value significantly below 
normal when a significant portion of defense manufacturing is done in an 
environment characterized by outdated, inefficient, and labor-intensive 
capital equipment.

[56 FR 36326, July 31, 1991, as amended at 60 FR 61596, Nov. 30, 1995]



Sec. 215.972  Modified weighted guidelines method for nonprofit organizations.

    (a) Definition. As used in this subpart, a nonprofit organization is 
a business entity--
    (1) Which operates exclusively for charitable, scientific, or 
educational purposes;
    (2) Whose earnings do not benefit any private shareholder or 
individual;
    (3) Whose activities do not involve influencing legislation or 
political campaigning for any candidate for public office; and
    (4) Which is exempted from Federal income taxation under section 501 
of the Internal Revenue Code.
    (b) For nonprofit organizations which are Federally funded research 
and development centers (FFRDCs), the contracting officer--
    (1) Should consider whether any fee is appropriate. Considerations 
shall include the FFRDC's--

[[Page 101]]

    (i) Proportion of retained earnings (as established under generally 
accepted accounting methods) that relates to DoD contracted effort;
    (ii) Facilities capital acquisition plans;
    (iii) Working capital funding as assessed on operating cycle cash 
needs;
    (iv) Contingency funding; and
    (v) Provision for funding unreimbursed costs deemed ordinary and 
necessary to the FFRDC.
    (2) Shall, when a fee is considered appropriate, compute the fee 
objective using the weighted guidelines method in 215.971, with the 
following modifications--
    (i) Modifications to performance risk (Blocks 21-24 of the DD Form 
1547). (A) If the contracting officer assigns a value from the standard 
designated range (215.971-2(c)), reduce the fee objective by an amount 
equal to 1% of the costs in Block 18 of the DD Form 1547. Show the net 
(reduced) amount on the DD Form 1547.
    (B) If the contracting officer assigns a value from the alternate 
designated range, reduce the fee objective by an amount equal to 2% of 
the costs in Block 18 of the DD Form 1547. Show the net (reduced) amount 
on the DD Form 1547.
    (ii) Modifications to contract type risk (Block 25 of the DD Form 
1547). Use a designated range of -1% to 0% in lieu of the values in 
215.971-3. There is no normal value.
    (c) For nonprofit organizations which are entities that have been 
identified by the Secretary of Defense or a Secretary of a Department as 
receiving sustaining support on a cost-plus-fixed-fee basis from a 
particular DoD department or agency, compute a fee objective for covered 
actions using the weighted guidelines method in 215.971, modified as 
described in paragraph (b)(2) of this section.
    (d) For all other nonprofit organizations, compute a fee objective 
for covered actions using the weighted guidelines method in 215.971, 
modified as described in paragraph (b)(2)(i) of this section.



Sec. 215.973  Alternate structured approaches.

    (a) The contracting officer may use an alternate structured approach 
under 215.903.
    (b) The contracting officer may design the structure of the 
alternate, but it shall include--
    (1) Consideration of the three basic components of profit--
performance risk, contract type risk (including working capital), and 
facilities capital employed. However, the contracting officer is not 
required to complete Blocks 21 through 30 of the DD Form 1547.
    (2) Offset for facilities capital cost of money.
    (i) The contracting officer shall reduce the overall prenegotiation 
profit objective by the lesser of 1% of total cost or the amount of 
facilities capital cost of money. The profit amount in the negotiation 
summary of the DD Form 1547 must be net of the offset.
    (ii) This adjustment is needed for the following reason: The values 
of the profit factors used in the weighted guidelines method were 
adjusted to recognize the shift in facilities capital cost of money from 
an element of profit to an element of contract cost (FAR 31.205-10) and 
reductions were made directly to the profit factors for performance 
risk. In order to ensure that this policy is applied to all DoD 
contracts which allow facilities capital cost of money, similar 
adjustments shall be made to contracts which use alternate structured 
approaches.



Sec. 215.974  Fee requirements for cost-plus-award-fee contracts.

    In developing a fee objective for cost-plus-award-fee contracts, the 
contracting officer shall--
    (a) Follow the guidance in FAR 16.404-2 and 216.404-2;
    (b) Not use the weighted guidelines method or alternate structured 
approach;
    (c) Apply the offset policy in 215.973(b)(2) for facilities capital 
cost of money, i.e., reduce the base fee by the lesser of 1% of total 
costs or the amount of facilities capital cost of money; and
    (d) Not complete a DD Form 1547.

[[Page 102]]



Sec. 215.975  Reporting profit and fee statistics.

    (a) Contracting officers in contracting offices which participate in 
the management information system for profit and fee statistics send 
completed DD Forms 1547 on actions of $500,000 or more, where the 
contracting officer used either the weighted guidelines method, an 
alternate structured approach, or the modified weighted guidelines 
method, to their designated office within 30 days after contract award.
    (b) Participating contracting offices and their designated offices 
are--

------------------------------------------------------------------------
            Contracting office                    Designated office
------------------------------------------------------------------------
Army:
  All                                       Army Procurement Research
                                             and Analysis Office, ATTN:
                                             SFRD-KPR(WGL), Bldg 12500,
                                             C Wing, Ft. Lee, VA 23801-
                                             6045.
Navy:
  Naval Air Systems Command \1\             Commander, Naval Supply
                                             Systems Command, ATTN: SUP
                                             026, Washington, DC 20376-
                                             5000.
  Naval Sea Systems Command \1\
  Space and Naval Warfare Systems Command
   \1\
  Naval Facilities Engineering Command \1\
  Naval Supply Systems Command \1\
  Office of Naval Research \1\
  Headquarters, United States Marine Corps
   \1\
  Strategic Systems Programs Office \1\
  Military Sealift Command \1\
  Automatic Data Processing Selection
   Office \1\
  Navy Regional Data Automation Center \1\
  Naval Research Laboratory \1\
  Navy Commercial Communications Center
   \1\
  Naval Aviation Depot Operations Center
   \1\
Air Force:
  Air Force Materiel Command (all field     Air Force Materiel Command,
   offices)                                  645 CCSG/SCOS, ATTN: J010
                                             Clerk, 2721 Sacramento
                                             Street, Wright-Patterson
                                             Air Force Base, Ohio 45433.
------------------------------------------------------------------------
\1\ Includes all subordinate field offices.

    (c) When negotiation of a contract action over $500,000 has been 
delegated to another contracting agency (e.g., to an administrative 
contracting officer), that agency shall ensure that a copy of the DD 
Form 1547 is provided to the delegating office for reporting purposes 
within 30 days from negotiation of the contract action.
    (d) Contracting offices outside the United States, its possessions, 
and Puerto Rico are exempt from reporting.
    (e) Designated offices send a quarterly (non-cumulative) report of 
DD Form 1547 data to: Washington Headquarters Service, Directorate for 
Information Operations and Reports (WHS/DIOR), 1215 Jefferson Davis 
Highway, suite 1204, Arlington, VA 22202-4302.
    (f) In preparing/sending the quarterly report, designated offices--
    (1) Perform the necessary audits to ensure information accuracy;
    (2) Do not enter classified information;
    (3) Transmit the report via computer magnetic tape using the 
procedures, format, and editing process issued by the Director of 
Defense Procurement; and
    (4) Send the reports not later than the 30th day after the close of 
the quarterly reporting periods.
    (g) These reporting requirements have been assigned report control 
symbol: P&L(Q) 1751.

[56 FR 36326, July 31, 1991, as amended at 57 FR 53599, Nov. 12, 1992; 
59 FR 27669, May 27, 1994]



Subpart 215.10--Preaward, Award, and Postaward Notifications, Protests, 
                              and Mistakes



Sec. 215.1001  Notifications to unsuccessful offerors.

    (b) Preaward notices.
    (2) Acquisitions processed under small purchase procedures are 
exempt from the requirements of FAR 15.1001(b)(2).



PART 216--TYPES OF CONTRACTS--Table of Contents




                 Subpart 216.1--Selecting Contract Types

Sec.
216.104  Factors in selecting contract types.
216.104-70  Research and development.

                  Subpart 216.2--Fixed-Price Contracts

216.203  Fixed-price contracts with economic price adjustment.

[[Page 103]]

216.203-4  Contract clauses.
216.203-4  -70  Additional clauses.

               Subpart 216.3--Cost-Reimbursement Contracts

216.306  Cost-plus-fixed-fee contracts.

                   Subpart 216.4--Incentive Contracts

216.402  Application of predetermined, formula-type incentives.
216.402-2  Technical performance incentives.
216.403  Fixed-price incentive contracts.
216.403-2  Fixed-price incentive (successive targets) contracts.
216.404  Fixed-price contracts with award fees.
216.405  Cost-reimbursement incentive contracts.
216.405-1  Cost-plus-incentive-fee contracts.
216.405-2  Cost-plus-award-fee contracts.
216.470  Other applications of award fees.

              Subpart 216.5--Indefinite-Delivery Contracts

216.501  General.
216.505  Ordering.
216.506  Solicitation provisions and contract clauses.

   Subpart 216.6--Time-and-Materials, Labor-Hour, and Letter Contracts

216.603  Letter contracts.
216.603-3  Limitations.
216.603-4  Contract clauses.

                        Subpart 216.7--Agreements

216.703  Basic ordering agreements.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36340, July 31, 1991, unless otherwise noted.



                 Subpart 216.1--Selecting Contract Types



Sec. 216.104  Factors in selecting contract types.

    (d) Design stability should also be considered.



Sec. 216.104-70  Research and development.

    (a) General. There are several categories of research and 
development (R&D) contracts: research, exploratory development, advanced 
development, engineering development, and operational systems 
development (see 235.001 for definitions). Each category has a primary 
technical or functional objective. Different parts of a project may fit 
several categories. The contract type must fit the work required, not 
just the classification of the overall program.
    (b) Research and exploratory development. (1) Price is not 
necessarily the primary factor in determining the contract type.
    (2) The nature of the work to be performed will usually result in a 
cost-plus award fee, cost-plus fixed fee term, cost-no-fee, or cost-
sharing contract.
    (3) If the Government and the contractor can identify and agree upon 
the level of contractor effort required, the contracting officer may 
select a firm fixed-price level-of-effort contract, except see 235.006.
    (4) If the Government and the contractor agree that an incentive 
arrangement is desirable and capable of being evaluated after completion 
of the work, the contracting officer may use an incentive type contract.
    (c) Advanced development. (1) The nature of the work to be performed 
often results in a cost-plus fixed fee completion type contract.
    (2) Contracting officers may select incentive contracts if--
    (i) Realistic and measurable targets are identified; and
    (ii) Achievement of those targets is predictable with a reasonable 
degree of accuracy.
    (3) Contracting officers should not use contracts with only cost 
incentives where--
    (i) There will be a large number of major technical changes; or
    (ii) Actions beyond the control of the contractor may influence the 
contractor's achievement of cost targets.
    (d) Engineering development and operational systems development. (1) 
When selecting contract types, also consider--
    (i) The degree to which the project is clearly defined, which in 
turn affects the contractor's ability to provide accurate cost 
estimates;
    (ii) The need for effort that will overlap that of earlier stages;
    (iii) The need for firm technical direction by the Government; and
    (iv) The degree of configuration control the Government will 
exercise.
    (2) For development efforts, particularly for major defense systems, 
the

[[Page 104]]

preferred contract type is cost reimbursement.
    (3) Contracting officers should use fixed-price type contracts when 
risk has been reduced to the extent that realistic pricing can occur; 
e.g., when a program has reached the final stages of development and 
technical risks are minimal, except see 235.006.



                  Subpart 216.2--Fixed-Price Contracts



Sec. 216.203  Fixed-price contracts with economic price adjustment.



Sec. 216.203-4  Contract clauses.

    (a) Adjustment based on established prices-standard supplies. 
Generally, use the clause at FAR 52.216-2, Economic Price Adjustment-
Standard Supplies only when--
    (i) The total contract price is over the small purchase threshold in 
FAR 13.000; and
    (ii) Delivery will not be completed within 6 months after the 
contract date.
    (b) Adjustment based on established prices-semistandard supplies. 
Generally, use the clause at FAR 52.216-3, Economic Price Adjustment-
Semistandard Supplies, only when--
    (i) The total contract price is over the small purchase threshold in 
FAR 13.000; and
    (ii) Delivery will not be completed within 6 months after the 
contract date.
    (c) Adjustments based on actual cost of labor or material.
    (2) Limit use of the clause at FAR 52.216-4, Economic Price 
Adjustment-Labor and Material, to contracts in which the price exceeds 
$50,000 and the period of performance exceeds 6 months, unless otherwise 
approved by the chief of the contracting office. Use an appropriate 
modification of the clause in sealed bidding.
    (4) Apply the full amount of the decrease in the labor rates and 
fringe benefits or unit prices for materials.
    (d) Adjustments based on cost indexes of labor or material. Use the 
following guidelines--
    (i) Do not make the clause unnecessarily complex.
    (ii) Normally, the clause should not provide either a ceiling or a 
floor for adjustment unless adjustment is based on indices below the 
four digit level of the Bureau of Labor Statistics--
    (A) Producer Price Index;
    (B) Employment Cost Index for wages and salaries, benefits, and 
compensation costs for aerospace industries; or
    (C) Wage and Income Series by Standard Industrial Classification 
(Labor).
    (iii) Normally, the clause should cover all potential economic 
fluctuations within the original contract period of performance.
    (iv) The clause must accurately identify the index(es) upon which 
adjustments will be based.
    (A) It must provide for a means to adjust for appropriate economic 
fluctuation in the event publication of the movement of the designated 
index is discontinued. This might include the substitution of another 
index if the time remaining would justify doing so and an appropriate 
index is reasonably available, or some other method for repricing the 
remaining portion of work to be performed.
    (B) Normally, there should be no need to make an adjustment if 
computation of the identified index is altered. However, it may be 
appropriate to provide for adjustment of the economic fluctuation 
computations in the event there is such a substantial alteration in the 
method of computing the index that the original intent of the parties is 
negated.
    (C) When an index to be used is subject to revision (e.g., the 
Bureau of Labor Statistics Producer Price Indexes), the economic price 
adjustment clause must specify that any economic price adjustment will 
be based on a revised index and must identify which revision to the 
index will be used.
    (v) Construct the index to encompass a large sample of relevant 
items while still bearing a logical relationship to the type of contract 
costs being measured. The basis of the index should not be so large and 
diverse that it is significantly affected by fluctuations not relevant 
to contract performance, but it must be broad enough to minimize the 
effect of any single company, including the anticipated contractor(s).

[[Page 105]]

    (vi) Construction of an index is largely dependent upon three 
general series published by the U.S. Department of Labor, Bureau of 
Labor Statistics (BLS). These are the--
    (A) Industrial Commodities portion of the Producer Price Index;
    (B) Employment Cost Index for wages and salaries, benefits, and 
compensation costs for aerospace industries; and
    (C) Wage and Income Series by Standard Industrial Classification 
(Labor). Since there is no BLS published series currently available that 
relates directly to total prices of delivered DoD aircraft, ships, 
missiles, electronics, etc., it will be necessary to construct composite 
indices from major portions of the three series identified.
    (vii) Normally, do not use more than two indices, i.e., one for 
labor (direct and indirect) and one for material (direct and indirect).
    (viii) The clause must establish and properly identify a base period 
comparable to the contract periods for which adjustments are to be made 
as a reference point for application of an index.
    (ix) The clause should not provide for an adjustment beyond the 
original contract performance period, including options. The start date 
for the adjustment may be the beginning of the contract or a later time, 
as appropriate, based on the projected rate of expenditures.
    (x) The expenditure profile for both labor and material should be 
based on a predetermined rate of expenditure (expressed as the 
percentage of material or labor usage as it relates to the total 
contract price) in lieu of actual cost incurred.
    (A) If the clause is to be used in a competitive acquisition, 
determine the labor and material allocations, with regard to both mix of 
labor and material and rate of expenditure by percentage, in a manner 
which will, as nearly as possible, approximate the average expenditure 
profile of all companies to be solicited so that all companies may 
compete on an equal basis.
    (B) If the clause is to be used in a noncompetitive acquisition, the 
labor and material allocations may be subject to negotiation and 
agreement.
    (C) For multiyear contracts, establish predetermined expenditure 
profile tables for each of the annual increments in the multiyear buy. 
Each of the second and subsequent year tables must be cumulative to 
reflect the total expenditures for all increments funded through the 
latest multiyear funding.
    (xi) The clause should state the percentage of the contract price 
subject to price adjustment.
    (A) Normally, do not apply adjustments to the profit portion of the 
contract.
    (B) Examine the labor and material portions of the contract to 
exclude any areas that do not require adjustment. For example, it may be 
possible to exclude--
    (1) Subcontracting for short periods of time during the early life 
of the contract which could be covered by firm-fixed-priced 
subcontracting;
    (2) Certain areas of overhead, e.g., depreciation charges, prepaid 
insurance costs, rental costs, leases, certain taxes, and utility 
charges;
    (3) Labor costs for which a definitive union agreement exists; and
    (4) Those costs not likely to be affected by fluctuation in the 
economy.
    (C) Allocate that part of the contract price subject to adjustment 
to specific periods of time (e.g., quarterly, semiannually, etc.) based 
on the most probable expenditure or commitment basis (expenditure 
profile).
    (xii) The clause should provide for definite times or events that 
trigger price adjustments. Adjustments should be frequent enough to 
afford the contractor appropriate economic protection without creating a 
burdensome administrative effort. The adjustment period should normally 
range from quarterly to annually.
    (xiii) When the contract contains cost incentives, any sums paid to 
the contractor on account of economic price adjustment provisions must 
be subtracted from the total of the contractor's allowable costs for the 
purpose of establishing the total costs to which the cost incentive 
provisions apply. If the incentive arrangement is cited in percentage 
ranges, rather than dollar ranges, above and below target

[[Page 106]]

costs, structure the economic price adjustment clause to maintain the 
original contract incentive range in dollars.
    (xiv) The economic price adjustment clause should provide that once 
the labor and material allocations and the portion of the contract price 
subject to price adjustment have been established, they remain fixed 
through the life of the contract and shall not be modified except in the 
event of significant changes in the scope of the contract. The clause 
should state that pricing actions pursuant to the Changes clause or 
other provisions of the contract will be priced as though there were no 
provisions for economic price adjustment. However, subsequent 
modifications may include a change to the delivery schedule or 
significantly change the amount of, or mix of, labor or material for the 
contract. In such cases, it may be appropriate to prospectively apply 
economic price adjustment coverage. This may be accomplished by--
    (A) Using an economic price adjustment (EPA) clause that applies 
only to the effort covered by the modification;
    (B) Revising the baseline data or period in the EPA clause for the 
basic contract to include the new work; or
    (C) Using an entirely new EPA clause for the entire contract, 
including the new work.
    (xv) Consistent with the factors in paragraphs (d)(i) through (xiv) 
of this subsection, it may also be appropriate to provide in the prime 
contract for similar economic price adjustment arrangements between the 
prime contractor and affected subcontractors to allocate risks properly 
and ensure that those subcontractors are provided similar economic 
protection.
    (xvi) When economic price adjustment clauses are included in 
contracts that do not require submission of cost or pricing data as 
provided for in FAR 15.403-1, the contracting officer must obtain 
adequate information to establish the baseline from which adjustments 
will be made. The contracting officer may require verification of the 
data submitted to the extent necessary to permit reliance upon the data 
as a reasonable baseline.

[56 FR 36340, July 31, 1991, as amended at 62 FR 40472, July 29, 1997; 
63 FR 11529, Mar. 9, 1998]



Sec. 216.203-4-70  Additional clauses.

    (a) Price adjustment for basic steel, aluminum, brass, bronze, or 
copper mill products.
    (1) The price adjustment clause at 252.216-7000, Economic Price 
Adjustment--Basic Steel, Aluminum, Brass, Bronze, or Copper Mill 
Products, may be used in fixed-price supply contracts for basic steel, 
aluminum, brass, bronze, or copper mill products, such as sheets, 
plates, and bars, when an established catalog or market price exists for 
the particular product being acquired.
    (2) The 10 percent figure in paragraph (d)(1) of the clause shall 
not be exceeded unless approval is obtained at a level above the 
contracting officer.
    (b) Price adjustment for nonstandard steel items. (1) The price 
adjustment clause at 252.216-7001, Economic Price Adjustment--
Nonstandard Steel Items, may be used in fixed-price supply contracts 
when--
    (i) The contractor is a steel producer and actually manufacture the 
standard steel mill item referred to in the ``base steel index'' 
definition of the clause; and
    (ii) The items being acquired are nonstandard steel items made 
wholly or in part of standard steel mill items.
    (2) When this clause is included in invitations for bids, omit Note 
6 of the clause and all references to Note 6.
    (3) Solicitations shall instruct offerors to complete all blanks in 
accordance with the applicable notes.
    (4) When the clause is to provide for adjustment on a basis other 
than ``established price'' (see Note 6 of the clause), that price must 
be verified.
    (5) The ten percent figure in paragraph (e)(4) of the clause shall 
not be exceeded unless approval is obtained at a level above the 
contracting officer.
    (c) Price adjustment for wage rates or material prices controlled by 
a foreign government. (1) The price adjustment clause at 252.216-7003, 
Economic Price Adjustment--Wage Rates or Material

[[Page 107]]

Prices Controlled by a Foreign Government, may be used in fixed-price 
supply and service contracts when--
    (i) The contract is to be performed wholly or in part in a foreign 
country; and
    (ii) A foreign government controls wage rates or material prices and 
may, during contract performance, impose a mandatory change in wages or 
prices of material.
    (2) Verify the base wage rates and material prices prior to contract 
award and prior to making any adjustment in the contract price.

[56 FR 36340, July 31, 1991, as amended at 62 FR 34122, June 24, 1997; 
62 FR 40472, July 29, 1997]



               Subpart 216.3--Cost-Reimbursement Contracts



Sec. 216.306  Cost-plus-fixed-fee contracts.

    (c) Limitations.
    (i) Except as provided in paragraph (c)(ii) of this section, annual 
military construction appropriations acts prohibit the use of cost-plus-
fixed-fee contracts that--
    (A) Are funded by a military construction appropriations act;
    (B) Are estimated to exceed $25,000; and
    (C) Will be performed within the United States, except Alaska.
    (ii) The prohibition in paragraph (c)(i) of this section does not 
apply--
    (A) To contracts for environmental restoration at an installation 
that is being closed or realigned where payments are made from a Base 
Realignment and Closure Account; or
    (B) To contracts specifically approved in writing, setting forth the 
reasons therefor, in accordance with the following:
    (1) The Secretaries of the military departments are authorized to 
approve such contracts that are for environmental work only, provided 
the environmental work is not classified as construction, as defined by 
10 U.S.C. 2801.
    (2) The Secretary of Defense or designee must approve such contracts 
that are not for environmental work only or are for environmental work 
classified as construction.

[62 FR 1058, Jan. 8, 1997; 62 FR 1817, Jan. 13, 1997; 62 FR 49305, Sept. 
19, 1997]



                   Subpart 216.4--Incentive Contracts



Sec. 216.402  Application of predetermined, formula-type incentives.



Sec. 216.402-2  Technical performance incentives.

    Contractor performance incentives should relate to specific 
performance areas of milestones, such as delivery or test schedules, 
quality controls, maintenance requirements, and reliability standards.



Sec. 216.403  Fixed-price incentive contracts.

    (b) Application.
    (3) Individual line items may have separate incentive provisions; 
e.g., when dissimilar work calls for separate formulas.



Sec. 216.403-2  Fixed-price incentive (successive targets) contracts.

    (a) Description. (1)(iii) The formula does not apply for the life of 
the contract. It is used to fix the firm target profit for the contract. 
To provide an incentive consistent with the circumstances, the formula 
should reflect the relative risk involved in establishing an incentive 
arrangement where cost and pricing information were not sufficient to 
permit the negotiation of firm targets at the outset.



Sec. 216.404  Fixed-price contracts with award fees.

    Award-fee provisions may be used in fixed-price contracts as 
provided in 216.470

[63 FR 11529, Mar. 9, 1998]



Sec. 216.405  Cost-reimbursement incentive contracts.



Sec. 216.405-1  Cost-plus-incentive-fee contracts.

    (b) Application.
    (3) Give appropriate weight to basic acquisition objectives in 
negotiating the range of fee and the fee adjustment formula. For 
example--

[[Page 108]]

    (A) In an initial product development contract, it may be 
appropriate to provide for relatively small adjustments in fee tied to 
the cost incentive feature, but provide for significant adjustments if 
the contractor meets or surpasses performance targets.
    (B) In subsequent development and test contracts, it may be 
appropriate to negotiate an incentive formula tied primarily to the 
contractor's success in controlling costs.

[56 FR 36340, July 31, 1991. Redesignated at 63 FR 11529, Mar. 9, 1998]



Sec. 216.405-2  Cost-plus-award-fee contracts.

    (a) Description. (i) Normally, award fee is not earned when the fee-
determining official has determined that contractor performance has been 
submarginal or unsatisfactory.
    (ii) The basis for all award fee determinations shall be documented 
in the contract file.
    (b) Application. (1) The cost-plus-award-fee (CPAF) contract is also 
suitable for level of effort contracts where mission feasibility is 
established but measurement of achievement must be by subjective 
evaluation rather than objective measurement. See Table 16-1, 
Performance Evaluation Criteria, for sample performance evaluation 
criteria and Table 16-2, Contractor Performance Evaluation Report, for a 
sample evaluation report.
    (2) The contracting activity may--
    (A) Establish a board to--
    (1) Evaluate the contractor's performance; and
    (2) Determine the amount of the award or recommend an amount to the 
contracting officer.
    (B) Afford the contractor an opportunity to present information on 
its own behalf.
    (c) Limitations. The CPAF contract shall not be used--
    (i) To avoid--
    (A) Establishing CPFF contracts when the criteria for CPFF contracts 
apply, or
    (B) Developing objective targets so a CPIF contract can be used.
    (ii) For either engineering development or operational system 
development acquisitions which have specifications suitable for 
simultaneous research and development and production, except a CPAF 
contract may be used for individual engineering development or 
operational system development acquisitions ancillary to the development 
of a major weapon system or equipment, where--
    (A) It is more advantageous; and
    (B) The purpose of the acquisition is clearly to determine or solve 
specific problems associated with the major weapon system or equipment.
    (2)(A) Do not apply the weighted guidelines method to CPAF contracts 
for either the base (fixed) fee or the award fee.
    (B) The base fee shall not exceed three percent of the estimated 
cost of the contract exclusive of the fee.

[56 FR 36340, July 31, 1991. Redesignated at 63 FR 11529, Mar. 9, 1998]



Sec. 216.470  Other applications of award fees.

    The ``award amount'' portion of the fee may be used in other types 
of contracts under the following conditions--
    (1) The Government wishes to motivate and reward a contractor for 
management performance in areas which cannot be measured objectively and 
where normal incentive provisions cannot be used. For example, logistics 
support, quality, timeliness, ingenuity, and cost effectiveness are 
areas under the control of management which may be susceptible only to 
subjective measurement and evaluation.
    (2) The ``base fee'' (fixed amount portion) is not used.
    (3) The chief of the contracting office approves the use of the 
``award amount.''
    (4) An award review board and procedures are established for conduct 
of the evaluation.
    (5) The administrative costs of evaluation do not exceed the 
expected benefits.

[[Page 109]]



                                                       Table 16-1--Performance Evaluation Criteria
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Submarginal          Marginal              Good              Very good           Excellent
--------------------------------------------------------------------------------------------------------------------------------------------------------
A--Time of Delivery.............  (A-1) Adherence to  Consistently late   Late on 10% plans   Occasional plan     Meets plan          Delivers all plans
                                   plan schedule.      on 20% of plans.    w/o prior           late w/o            schedule.           on schedule &
                                                                           agreement.          justification.                          meets prod.
                                                                                                                                       change
                                                                                                                                       requirements on
                                                                                                                                       schedule.
                                  (A-2) Action on     Does not expose     Exposes changes     Anticipates         Keeps Yard posted   Anticipates in
                                   Anticipated         changes or          but is dilatory     changes, advise     on delays,          good time,
                                   delays.             resolve them as     in resolution on    Shipyard but        resolves            advises Shipyard,
                                                       soon as             plans.              misses completion   independently on    resolves
                                                       recognized.                             of design plans     plans.              independently and
                                                                                               10%.                                    meets production
                                                                                                                                       schedule.
                                  (A-3) Plan          Does not complete   System studies      Major work plans    Design changes      Design changes,
                                   Maintenance.        interrelated        completed but       coordinated in      from studies and    studies resolved
                                                       systems studies     constr. plan        time to meet        interrelated        and test data
                                                       concurrently.       changes delayed.    production          plans issued in     issued ahead of
                                                                                               schedules.          time to meet        production
                                                                                                                   product schedules.  requirements.
B--Quality of Work..............  (B-1) Work          25% dwgs. not       20% not compatible  10% not compatible  0% dwgs. prepared   0% dwgs. presented
                                   Appearance.         compatible with     with Shipyard       with Shipyard       by Des. agent not   incl. Des. agent,
                                                       Shipyard repro.     repro. processes    repro. processes    compatible with     vendors,
                                                       processes and use.  and use.            and use.            Shipyard repro.     subcontr. not
                                                                                                                   processes and use.  compatible with
                                                                                                                                       Shipyard repro.
                                                                                                                                       processes and
                                                                                                                                       use.
                                  (B-2) Thoroughness  Is brief on plans   Has followed        Has followed        Work complete with  Work of highest
                                   and Accuracy of     tending to leave    guidance, type      guidance, type      notes and           caliber
                                   Work.               questionable        and standard dwgs.  and standard        thorough            incorporating all
                                                       situations for                          dwgs. questioning   explanations for    pertinent data
                                                       Shipyard to                             and resolving       anticipated         required
                                                       resolve.                                doubtful areas.     questionable        including related
                                                                                                                   areas.              activities.
                                  (B-3) Engineering   Tendency to follow  Adequate engrg. to  Engineered to       Displays excellent  Exceptional
                                   Competence.         past practice       use & adapt         satisfy specs.,     knowledge of        knowledge of
                                                       with no variation   existing designs    guidance plans      constr. reqmts.     Naval shipwork &
                                                       to meet reqmts.     to suit job on      and material        considering         adaptability to
                                                       job in hand.        hand for routine    provided.           systems aspect,     work process
                                                                           work.                                   cost, shop          incorporating
                                                                                                                   capabilities and    knowledge of
                                                                                                                   procurement         future planning
                                                                                                                   problems.           in Design.
                                  (B-4) Liaison       Indifferent to      Satisfactory but    Maintains normal    Maintains           Maintains expert
                                   Effectiveness.      requirements of     dependent on        contact with        independent         contact, keeping
                                                       associated          Shipyard to force   associated          contact with all    Yard informed,
                                                       activities,         resolution of       activities          associated          obtaining info
                                                       related systems,    problems without    depending on        activities,         from equip.,
                                                       and Shipyard        constructive        Shipyard for        keeping them        supplies   w/o
                                                       advice.             recommendations     problems            informed to         prompting by
                                                                           to subcontr. or     requiring           produce             Shipyard.
                                                                           vendors.            military            compatible design
                                                                                               resolution.         with little
                                                                                                                   assistance for
                                                                                                                   Yard.

[[Page 110]]

 
                                  (B-5) Independence  Constant            Requires            Normal interest     Complete &          Develops complete
                                   and Initiative.     surveillance        occasional          and desire to       accurate job.       and accurate
                                                       req'd to keep job   prodding to stay    provide workable    Free of             plans, seeks out
                                                       from slipping--     on schedule &       plans with          incompatibilities   problem areas and
                                                       assign to low       expects Shipyard    average             with little or no   resolves with
                                                       priority to         resolution of       assistance &        direction by        assoc. act. ahead
                                                       satisfy needs.      most problems.      direction by        Shipyard.           of schedule.
                                                                                               Shipyard.
C--Effectiveness in Controlling   (C-1) Utilization   Planning of work    Supervision sets &  System planning by  Design parameters   Mods. to design
 and/or Reducing Costs.            of Personnel.       left to designers   reviews goals for   supervisory,        established by      plans limited to
                                                       on drafting         designers.          personnel,          system engineers    less than 5% as
                                                       boards.                                 studies checked     & held in design    result lack
                                                                                               by engineers.       plans.              engrg. system
                                                                                                                                       correlation.
                                  (C-2) Control       Expenditures not    Expenditures        Direct charges set  Provides services   No cost overruns
                                   Direct Charges      controlled for      reviewed            & accounted for     as part of normal   on original
                                   (Except Labor).     services.           occasionally by     on each work        design function     estimates absorbs
                                                                           supervision.        package.            w/o extra charges.  service demands
                                                                                                                                       by Shipyard.
                                  (C-3) Performance   Does not meet cost  Does not meet cost  Exceeds original    Exceeds original    Never exceeds
                                   to Cost Estimate.   estimate for        estimate for        est. on change      est. on change      estimates of
                                                       original work or    original work or    orders 10% time     orders 5% time.     original package
                                                       changes 30% time.   changes 20% time.   and meets                               or change orders.
                                                                                               original design
                                                                                               costs.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 111]]


                                                  Table 16-2.--Contractor Performance Evaluation Report
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Category
     Category                Criteria                  Rating             Item factor       Evaluation rating          factor         Efficiency rating
--------------------------------------------------------------------------------------------------------------------------------------------------------
A                  TIME OF DELIVERY...........
                   A-1 Adherence to Plan               ______          x          .40   =         ______
                    Schedule.
                   A-2 Action on Anticipated           ______          x          .30   =         ______
                    Delays.
                   A-3 Plan Maintenance.......         ______          x          .30   =         ______
 
                       Total Item Weighed       ....................  ..  ...........  ..         ______         x          .30   =         ______
                    Rating.
B                  QUALITY OF WORK............
                   B-1 Work Appearance........         ______          x          .15   =         ______
 
                   B-2 Thoroughness and                ______          x          .30   =         ______
                    Accuracy of Work.
                   B-3 Engineering Competence.         ______          x          .20   =         ______
 
                   B-4 Liaison Effectiveness..         ______          x          .15   =         ______
 
                   B-5 Independence and                ______          x          .20   =         ______
                    Initiative.
                       Total Item Weighed       ....................  ..  ...........  ..         ______         x          .40   =         ______
                    Rating.
C                  EFFECTIVENESS IN
                    CONTROLLING AND/OR
                    REDUCING COSTS.
                   C-1 Utilization of                  ______          x          .30   =         ______
                    Personnel.
                   C-2 Control of all Direct           ______          x          .30   =         ______
                    Charges Other than Labor.
                   C-3 Performance to Cost             ______          x          .40   =         ______
                    Estimate.
                       Total Item Weighed       ....................  ..  ...........  ..         ______         x          .30   =         ______
                    Rating.
TOTAL WEIGHED RATING:
Rated by:
Signature(s):--s0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ratings--Excellent; Very good; Good; Marginal; Submarginal;
Period of        19
Contract Number
Contractor
Date of Report
PNS Techical Monitor/s
Note: Provide supporting data and/or justification for below average or outstanding item ratings.


[[Page 112]]



              Subpart 216.5--Indefinite-Delivery Contracts



Sec. 216.501  General.

    (a)(i) For items with a shelf-life of less than 6 months, consider 
the use of indefinite-delivery type contracts with orders to be placed 
either--
    (A) Directly by the users; or
    (B) By central purchasing offices with deliveries direct to users.
    (ii) Whenever an indefinite-delivery contract is issued, the issuing 
office must furnish all ordering offices sufficient information for the 
ordering office to complete its contract reporting responsibilities 
under 204.670-2. This data must be furnished to the ordering activity in 
sufficient time for the activity to prepare its report for the action 
within 3 working days of the order.

[56 FR 36340, July 31, 1991, as amended at 57 FR 42630, Sept. 15, 1992; 
63 FR 11529, Mar. 9, 1998]



Sec. 216.505  Ordering.

    Orders placed under indefinite-delivery contracts may be issued on 
DD Form 1155, Order for Supplies or Services.

[63 FR 11529, Mar. 9, 1998]



Sec. 216.506  Solicitation provisions and contract clauses.

    (d) If the contract is for the preparation of personal property for 
shipment or storage (see 247.271-4), substitute paragraph (f) at 
252.247-7015, Requirements, for paragraph (f) of the clause at FAR 
52.216-21, Requirements.

[63 FR 11529, Mar. 9, 1998]



   Subpart 216.6--Time-And-Materials, Labor-Hour, and Letter Contracts



Sec. 216.603  Letter contracts.



Sec. 216.603-3  Limitations.

    See subpart 217.74 for additional limitations on the use of letter 
contracts.



Sec. 216.603-4  Contract clauses.

    (b)(2) See 217.7406(a) for additional guidance regarding use of the 
clause at FAR 52.216-24, Limitation of Government Liability.
    (3) Use the clause at 252.217-7027, Contract Definitization, in 
accordance with its prescription at 217.7406(b), instead of the clause 
at FAR 52.216-25, Contract Definitization.

[61 FR 7743, Feb. 29, 1996]



                        Subpart 216.7--Agreements



Sec. 216.703  Basic ordering agreements.

    (c) Limitations. The period during which orders may be placed 
against a basic ordering agreement may not exceed three years. The 
contracting officer, with the approval of the chief of the contracting 
office, may grant extensions for up to two years. No single extension 
shall exceed one year. See subpart 217.74 for additional limitations on 
the use of undefinitized orders under basic ordering agreements.
    (d) Orders. (i) The contracting officer issuing an order under a 
basic ordering agreement shall be responsible for ensuring compliance 
with the provisions and limitations of this section.
    (ii) Individual orders under a basic ordering agreement shall be 
individually closed following completion of the orders (see FAR 4.804).
    (1)(iii) The office issuing the agreement shall furnish all 
authorized ordering offices sufficient information for the ordering 
office to complete its contract reporting responsibilities under 
204.670-2 or, in the case of civilian agencies, the Federal Procurement 
Data System reporting requirement. Data furnished to civilian agencies 
must contain uncoded information about the data elements and the 
meanings of the codes to permit these users to translate the data into 
the federal format. This data must be furnished to the ordering activity 
in sufficient time for the activity to prepare its report for the action 
within 3 working days of the order.
    (2)(i) Any activity listed in the agreement may issue orders on DD 
Form 1155, Order for Supplies or Services, or Standard Form 26, Award/
Contract.

[[Page 113]]

    (3) Incentive provisions consistent with this part are permitted.

[56 FR 36340, July 31, 1991, as amended at 61 FR 7743, Feb. 29, 1996; 61 
FR 18195, Apr. 24, 1996]



PART 217--SPECIAL CONTRACTING METHODS--Table of Contents




                  Subpart 217.1--Multiyear Contracting

Sec.
217.103  Definitions.
217.170  All multiyear contracts.
217.171  Multiyear contracts for services.
217.172  Multiyear contracts for supplies.
217.173  Multiyear contracts for weapon systems.
217.174  Mulityear contracts that employ economic order quantity 
          procurement.

                         Subpart 217.2--Options

217.202  Use of options.
217.207  Exercise of options.
217.208  Solicitation provisions and contract clauses.
217.208-70  Additional clauses.

                Subpart 217.4--Leader Company Contracting

217.401  General.

      Subpart 217.5--Interagency Acquisitions Under the Economy Act

217.503  Determinations and findings requirements.
217.504  Ordering procedures.

            Subpart 217.6--Management and Operating Contracts

217.600  Scope of subpart.

              Subpart 217.70--Exchange of Personal Property

217.7000  Scope of subpart.
217.7001  Definitions.
217.7002  Policy.
217.7003  Purchase request.
217.7004  Solicitation and award.
217.7005  Solicitation provision.

  Subpart 217.71--Master Agreement for Repair and Alteration of Vessels

217.7100  Scope of subpart.
217.7101  Definitions.
217.7102  General.
217.7103  Procedures.
217.7103-1  Content and format.
217.7103-2  Period of agreement.
217.7103-3  Solicitations for job orders.
217.7103-4  Award of a job order.
217.7103-5  Emergency work.
217.7103-6  Repair costs not readily ascertainable.
217.7103-7  Modification of master agreements.
217.7104  Contract clauses.

                Subpart 217.72--Bakery and Dairy Products

217.7200  Scope.
217.7201  Contract requirements for dairy products.
217.7202  Contract type.
217.7203  Contract clauses.

           Subpart 217.73--Identification of Sources of Supply

217.7300  Scope.
217.7301  Policy.
217.7302  Procedures.
217.7303  Solicitation provision.

             Subpart 217.74--Undefinitized Contract Actions

217.7400  Scope.
217.7401  Definitions.
217.7402  Exceptions.
217.7403  Policy.
217.7404  Limitations.
217.7404-1  Authorization.
217.7404-2  Price ceiling.
217.7404-3  Definitization schedule.
217.7404-4  Limitations on obligations.
217.7404-5  Exceptions.
217.7404-6  Allowable profit.
217.7405  Definitizations.
217.7406  Contract clauses.

           Subpart 217.75--Acquisition of Replenishment Parts

217.7500  Scope of subpart.
217.7501  General.
217.7502  Spares acquisition integrated with production (SAIP).
217.7503  Acquisition of parts when data is not available.
217.7504  Limitations on price increases.

        Subpart 217.76--Contracts with Provisioning Requirements

217.7600  Scope of subpart.
217.7601  Definitions.
217.7602  Contracting requirements.
217.7602-1  Contractual provisions.
217.7602-2  Issuance of provisioned items orders.
217.7603  Contract administration requirements.
217.7603-1  Provisioning conferences.
217.7603-2  Contract administration office monitoring.

[[Page 114]]

217.7603-3  Negotiating and executing supplemental agreements.

                   Subpart 217.77--Over and Above Work

217.7700  Scope of subpart.
217.7701  Procedures.
217.7702  Contract clause.


    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36345, July 31, 1991, unless otherwise noted.



                  Subpart 217.1--Mulityear Contracting

    Source: 63 FR 11529, Mar. 9, 1998, unless otherwise noted.



Sec. 217.103  Definitions.

    Advance procurement, as used in this subpart, means an exception to 
the full funding policy that allows acquisition of long lead time items 
(advance long lead acquisition) or economic order quantities (EOQ) of 
items (advance EOQ acquisition) in a fiscal year in advance of that in 
which the related end item is to be acquired. Advance procurements may 
include materials, parts, components, and effort that must be funded in 
advance to maintain a planned production schedule.



Sec. 217.170  All multiyear contracts.

    (a) Before a multiyear contract is awarded, the cost of that 
contract shall be compared against the cost of an annual procurement 
approach, using a present value analysis. The multiyear contract shall 
not be awarded unless the analysis shows that it results in the lowest 
cost (Section 9021 of Pub. L. 101-165 and similar sections in subsequent 
Defense appropriations acts).
    (b) The head of the agency shall provide written notice to the 
Committees on Appropriations and National Security in the House of 
Representatives and in the Senate at least 10 days before termination of 
any multiyear contract (Section 9021 of Pub. L. 101-165 and similar 
sections in subsequent Defense appropriations acts).
    (c) The Secretary of Defense may instruct the head of the agency 
proposing a multiyear contract to include in that contract negotiated 
priced options for varying the quantities of end items to be procured 
over the life of the contract (10 U.S.C. 2306b(j)).
    (d) Every multiyear contract must comply with FAR 17.104(c), unless 
an exception is approved through the budget process in coordination with 
the cognizant comptroller.



Sec. 217.171  Multiyear contracts for services.

    (a) 10 U.S.C. 2306(g). (1) DoD may enter into multiyear acquisitions 
for the following services (and items of supply relating to such 
services), even though funds are limited by statute to obligation only 
during the fiscal year for which they were appropriated:
    (i) Operation, maintenance, and support of facilities and 
installations.
    (ii) Maintenance or modification of aircraft, ships, vehicles, and 
other highly complex military equipment.
    (iii) Specialized training requiring high quality instructor skills 
(e.g., training for pilots and other aircrew members or foreign language 
training).
    (iv) Base services (e.g., ground maintenance, in-plane refueling, 
bus transportation, and refuse collection and disposal).
    (2) This authority may be used as long as the contract does not 
extend beyond 5 years.
    (b) 10 U.S.C. 2829. (1) The head of the agency may enter into 
multiyear contracts for supplies and services required for management, 
maintenance, and operation of military family housing and may pay the 
costs of such contracts for each year from annual appropriations for 
that year.
    (2) This authority may be used as long as the contract does not 
extend beyond 4 years.
    (c) Award of a multiyear contract for services requires a written 
determination by the head of the agency (10 U.S.C. 2306(g)(1)) that--
    (1) There will be a continuing need for the services and incidental 
supplies;
    (2) Furnishing the services and incidental supplies will require--
    (i) A substantial initial investment in plant or equipment; or
    (ii) The incurrence of substantial contingent liabilities for the 
assembly, training, or transportation of a specialized work force; and

[[Page 115]]

    (3) Using a multiyear contract will be in the best interest of the 
United States by encouraging effective competition and promoting 
economical business operations (e.g., economic lot purchases and more 
efficient production rates).



Sec. 217.172  Multiyear contracts for supplies.

    (a) This section applies to all multiyear contracts for supplies, 
including weapon systems. For policies that apply only to multiyear 
contracts for weapon systems, see 217.173.
    (b) A multiyear contract for supplies may be used if, in addition to 
the conditions listed in FAR 17.105-1(b), the use of such a contract 
will promote the national security of the United States.
    (c) The head of the agency shall provide written notice to the 
Committees on Appropriations and National Security in the House of 
Representatives and in the Senate at least 30 days before the 
contracting officer awards a multiyear contract including an unfunded 
contingent liability in excess of $20 million (Section 9021 of Pub. L. 
101-165 and similar sections in subsequent Defense appropriations acts).
    (d) Agencies shall establish reporting procedures to meet the 
requirements of paragraph (c) of this section. Submit copies of the 
notifications to the Director of Defense Procurement, Office of the 
Under Secretary of Defense (Acquisition and Technology) (OUSD(A&T)DP), 
and to the Deputy Under Secretary of Defense (Comptroller) (Program/
Budget) (OUSD(C)(P/B)).



Sec. 217.173  Multiyear contracts for weapon systems.

    (a) As authorized by 10 U.S.C. 2306b(a) and subject to the 
conditions in paragraph (b) of this section, the head of the agency may 
enter into a multiyear contract for--
    (1) A weapon system and associated items, services, and logistics 
support for a weapon system; and
    (2) Advance procurement of components, parts, and materials 
necessary to manufacture a weapon system, including advance procurement 
to achieve economic lot purchases or more efficient production rates 
(see 217.174 regarding economic order quantity procurement).
    (b) The following conditions must be satisfied before a multiyear 
contract may be awarded under the authority described in paragraph (a) 
of this section:
    (1) The multiyear exhibits required by DoD 7000.14-R, Financial 
Management Regulation, are included in the agency's budget estimate 
submission and the President's budget request.
    (2) The Secretary of Defense certifies to Congress that the current 
5-year defense program fully funds the support costs associated with the 
multiyear program (10 U.S.C. 2306b(i)(1)(A)). Information supporting 
this certification shall be submitted to USD(C)(P/B) for transmission to 
Congress through the Secretary of Defense.
    (3) The proposed multiyear contract provides for production at not 
less than minimum economic rates, given the existing tooling and 
facilities (10 U.S.C. 2306b(i)(1)(B)). Information supporting the 
agency's determination that this requirement has been met shall be 
submitted to USD(C)(P/B) with the information supporting the 
certification required by paragraph (b)(2) of this section.
    (4) If the value of the multiyear contract exceeds $500,000,000, the 
applicable Defense appropriations act specifically provides that a 
multiyear contract may be used to procure the particular system or 
system component (Section 9021 of Pub. L. 101-165 and similar sections 
in subsequent Defense appropriations acts).
    (5) All other requirements of law are met and there are no other 
statutory restrictions on using a multiyear contract for the specific 
system or component (Section 9021 of Pub. L. 101-165 and similar 
sections in subsequent Defense appropriations acts). One such 
restriction may be the achievement of specified cost savings. If the 
agency finds, after negotiations with the contractor(s), that the 
specified savings cannot be achieved, the head of the agency shall 
assess the savings that, nevertheless, could be achieved by using a 
multiyear contract. If the savings are substantial, the head of the 
agency may request relief from the

[[Page 116]]

law's specific savings requirement. The request shall--
    (i) Quantify the savings that can be achieved;
    (ii) Explain any other benefits to the Government of using the 
multiyear contract;
    (iii) Include details regarding the negotiated contract terms and 
conditions; and
    (iv) Be submitted to OUSD(A&T)DP for transmission to Congress via 
the Secretary of Defense and the President (10 U.S.C. 2306b(i)(2)).



Sec. 217.174  Multiyear contracts that employ economic order quantity procurement.

    (a) The head of the agency shall provide written notice to the 
Committees on Appropriations and National Security in the House of 
Representatives and in the Senate at least 30 days before awarding--
    (1) A multiyear contract providing for economic order quantity 
purchases in excess of $20 million in any year; or
    (2) A contract for advance procurement leading to a mulityear 
contract that employs economic order quantity procurement in excess of 
$20 million in any year (Section 9021 of Pub. L. 101-165 and similar 
sections in subsequent Defense appropriations acts).
    (b) Before initiating an advance procurement, the contracting 
officer shall verify that it is consistent with DoD policy (e.g., Part 3 
of DoD 5000.2-R, Mandatory Procedures for Major Defense Acquisition 
Programs (MDAPs) and Major Automated Information System (MAIS) 
Acquisition Programs, and the full funding policy in Volume 2A, Chapter 
1, of DoD 7000.14-R, Financial Management Regulation).



                         Subpart 217.2--Options



Sec. 217.202  Use of options.

    (1) Options may be used for foreign military sales requirements.
    (2) Consider use of surge options to support the Industrial 
Preparedness Production Planning program (see subpart 208.72). A surge 
option allows the Government, prior to final delivery, to--
    (i) Accelerate the contractor's production rate in accordance with a 
surge production plan or a delivery schedule provided by the contractor 
under the terms of the contract; and
    (ii) Purchase additional quantities of supplies or services.
    (3) See subpart 217.74 for limitations on the use of undefinitized 
options.

[56 FR 36345, July 31, 1991, as amended at 61 FR 7743, Feb. 29, 1996]



Sec. 217.207  Exercise of options.

    (c) Except for contracts for the acquisition of commercial items, if 
the contractor has any contract containing the clause at FAR 52.222-37, 
Employment Reports on Disabled Veterans and Veterans of the Vietnam Era, 
the contracting officer may exercise an option with a value exceeding 
the simplified acquisition threshold only after determining that the 
contractor has submitted the most recent report required by that clause 
(see 222.1304(b)).

[63 FR 11851, Mar. 11, 1998]



Sec. 217.208  Solicitation provisions and contract clauses.

    Sealed bid solicitations shall not include provisions for 
evaluations of options unless the contracting officer determines that 
there is a reasonable likelihood that the options will be exercised (10 
U.S.C. 2301(a)(7)). This limitation also applies to sealed bid 
solicitations for the contracts excluded by FAR 17.200.



Sec. 217.208-70  Additional clauses.

    (a) Use the clause at 252.217-7000, Exercise of Option to Fulfill 
Foreign Military Sales Commitments, when an option may be used for 
foreign military sale requirements.
    (1) Use Alternate I when the foreign military sale country is not 
known at the time of solicitation or award.
    (2) Do not use this clause in contracts for establishment or 
replenishment of DoD inventories or stocks, or acquisitions made under 
DoD cooperative logistics support arrangements.
    (b) When a surge option is needed in support of industrial 
preparedness production planning (see subpart 208.72), use the clause at 
252.217-7001, Surge Option, in solicitations and contracts.

[[Page 117]]

    (1) Insert the percentage of increase the option represents in 
paragraph (a) of the clause.
    (2) Change 30 days in paragraphs (b)(2) and (d)(1) to longer 
periods, if appropriate.
    (3) Change the 24-month period in paragraph (c)(3), if appropriate.



                Subpart 217.4--Leader Company Contracting



Sec. 217.401  General.

    (1) When leader company contracting is to be considered, take 
special effort to select a small disadvantaged business (SDB) concern as 
the follower company if--
    (i) The follower company will be a subcontractor and the Standard 
Industrial Classification (SIC) Major Group of the acquisition is one in 
which use of a price evaluation adjustment is currently authorized (see 
FAR 19.201(b)).
    (2) If the follower company will be a subcontractor, or if a price 
evaluation adjustment in the SIC Major Group is authorized, and an SDB 
is not selected as the follower company, the contracting officer shall 
document the contract file to reflect--
    (i) The extent of actions taken to identify SDB concerns for 
participation in the acquisition; and
    (ii) The rationale for selection of a non-SDB as the follower 
company.

[63 FR 41973, Aug. 6, 1998]



      Subpart 217.5--Interagency Acquisitions Under the Economy Act

    Source: 63 FR 11530, Mar. 9, 1998, unless otherwise noted.



Sec. 217.503  Determinations and findings requirements.

    (c) If requested, the contracting officer who normally would 
contract for the requesting activity should advise in the determination 
process.



Sec. 217.504  Ordering procedures.

    (a) When the requesting agency is within DoD, a copy of the executed 
D&F shall be furnished to the servicing agency as an attachment to the 
order. When a DoD contracting office is acting as the servicing agency, 
a copy of the executed D&F shall be obtained from the requesting agency 
and placed in the contract file for the Economy Act order.



            Subpart 217.6--Management and Operating Contracts



Sec. 217.600  Scope of subpart.

    FAR subpart 17.6 does not apply to DoD.



              Subpart 217.70--Exchange of Personal Property



Sec. 217.7000  Scope of subpart.

    This subpart prescribes policy and procedures for exchange of 
nonexcess personal property concurrent with an acquisition. Section 
201(c) of the Federal Property and Administrative Services Act of 1949, 
63 Stat. 384, as amended (40 U.S.C. 481(c)) permits exchange of personal 
property and application of the exchange allowance to the acquisition of 
similar property. This subpart does not authorize the sale of nonexcess 
personal property.



Sec. 217.7001  Definitions.

    As used in this subpart,
    (a) Exchange (trade-in) property means property which--
    (1) Is not excess but is eligible for replacement (because of 
obsolescence, unserviceability, or other reason); and
    (2) Is applied as whole or partial payment toward the acquisition of 
similar items (i.e., items designed and constructed for the same 
purpose).
    (b) Property means items which fall within one of the generic 
categories listed in DoDI 4140.51, Exchange of Nonexcess Personal 
Property in the Department of Defense.



Sec. 217.7002  Policy.

    DoD policy is to exchange, rather than replace, eligible nonexcess 
property whenever exchange promotes economical and efficient program 
accomplishment. Exchange policy, authority, and applicability are 
governed by--
    (a) The Federal Property Management Regulations issued by the 
Administrator of the General Services Administration; and

[[Page 118]]

    (b) DoDI 4140.51, Exchange of Nonexcess Personal Property in the 
Department of Defense.



Sec. 217.7003  Purchase request.

    Ensure that the requiring activity provides all of the following in 
support of the purchase request--
    (a) A certification that the property is eligible for exchange and 
complies with all conditions and limitations of DoDI 4140.51;
    (b) A written determination of economic advantage indicating--
    (1) The anticipated economic advantage to the Government from use of 
the exchange authority;
    (2) That exchange allowances shall be applied toward, or in partial 
payment of, the items to be acquired; and
    (3) That, if required, the exchange property has been rendered safe 
or innocuous or has been demilitarized;
    (c) All applicable approvals for the exchange; and
    (d) A description of the property available for exchange (e.g., 
nomenclature, location, serial number, estimated travel value).



Sec. 217.7004  Solicitation and award.

    (a) Solicitations shall include a request for offerors to state 
prices--
    (1) For the new items being acquired without any exchange; and
    (2) For the new items with the exchange (trade-in allowance) for the 
exchange property listed.
    (b) The contracting officer is not obligated to award on an exchange 
basis. If the lowest evaluated offer is an offer for the new items 
without any exchange, the contracting officer may award on that basis 
and forgo the exchange.
    (c) Exchanges may be made only with the successful offeror. When the 
successful offer includes an exchange, award one contract for both the 
acquisition of the new property and the trade-in of the exchange 
property. The only exception is when the items must be acquired against 
a mandatory Federal supply schedule contract, in which case, award a 
separate contract for the exchange.



Sec. 217.7005  Solicitation provision.

    Use the provision at 252.217-7002, Offering Property for Exchange, 
when offering nonexcess personal property for exchange. Allow a minimum 
of 14 calendar days for the inspection period in paragraph (b) of the 
clause if the exchange property is in the continental United States. 
Allow at least 21 calendar days outside the United States.



  Subpart 217.71--Master Agreement for Repair and Alteration of Vessels



Sec. 217.7100  Scope of subpart.

    This subpart contains acquisition policies and procedures for master 
agreements for repair and alteration of vessels.



Sec. 217.7101  Definitions.

    (a) Master agreement for repair and alteration of vessels--
    (1) Is a written instrument of understanding, negotiated between a 
contracting activity and a contractor that--
    (A) Contains contract clauses, terms, and conditions applying to 
future contracts for repairs, alterations, and/or additions to vessels; 
and
    (B) Contemplates separate future contracts that will incorporate by 
reference or attachment the required and applicable clauses agreed upon 
in the master agreement.
    (2) Is not a contract.
    (b) Job order--
    (1) Is a fixed price contract incorporating, by reference or 
attachment, a master agreement for repair and alteration of vessels;
    (2) May include clauses pertaining to subjects not covered by the 
master agreement; but applicable to the job order being awarded; and
    (3) Applies to a specific acquisition and sets forth the scope of 
work, price, delivery date, and other appropriate terms that apply to 
the particular job order.



Sec. 217.7102  General.

    (a) Activities shall enter into master agreements for repair and 
alteration of vessels with all prospective contractors

[[Page 119]]

located within the United States, its possessions, or Puerto Rico, 
which--
    (1) Request ship repair work; and
    (2) Which possess the organization and facilities to perform the 
work satisfactorily. (Issuance of a master agreement does not indicate 
approval of the contractor's facility for any particular acquisition and 
is not an affirmative determination of responsibility under FAR subpart 
9.1 for any particular acquisition.)
    (b) Activities may use master agreements in work with prospective 
contractors located outside the United States, its possessions, or 
Puerto Rico.
    (c) Activities may issue job orders under master agreements to 
effect repairs, alterations, and/or additions to vessels belonging to 
foreign governments.
    (1) Contractors shall treat vessels of a foreign government as if 
they were vessels of the U.S. Government whenever requested to do so by 
the contracting officer.
    (2) Identify the vessel and the foreign government in the 
solicitation and job order.



Sec. 217.7103  Procedures.



Sec. 217.7103-1  Content and format.

    (a) A Master agreement shall contain all clauses required by 
217.7104(a), statute and executive order.
    (b) The following format may be adapted to fit specific 
circumstances:

          Master Agreement for Repair and Alteration of Vessels

    (1) This agreement is entered into this ______ day of __________ 
19____, by the United States of America (the ``Government'':) 
represented by ____________, the Contracting Officer, and, ____________ 
a corporation organized and existing under the laws of the State of 
____________ (the ``Contractor'').
    (2) The clauses in this agreement, shall be incorporated, by 
reference or attachment, in job orders issued under this agreement to 
effect repairs, alterations, and/or additions to vessels.
    (3) By giving 30 days written notice, either party to this agreement 
has the right to cancel it without affecting the rights and liabilities 
under any job order existing at the time of cancellation. The Contractor 
shall perform, under the terms of this agreement, all work covered by 
any job order awarded before the effective date of the cancellation.
    (4) This agreement may be modified only by mutual agreement of the 
parties. A modification of this agreement shall not affect any job order 
in existence at the time of modification, unless the parties agree 
otherwise.
    (5) The rights and obligations of the parties to this agreement are 
set forth in this agreement and the clauses of any job orders issued 
under this agreement. In the event there is an inconsistency between 
this agreement and any job order, the provisions of this agreement shall 
govern.
    (6) This agreement shall remain in effect until canceled by either 
party.

THE UNITED STATES OF AMERICA
by______________________________________________________________________
(Contracting Officer)
_______________________________________________________________________
(Contractor)
by______________________________________________________________________
(Authorized Individual)
_______________________________________________________________________
(Title)



Sec. 217.7103-2  Period of agreement.

    (a) Master agreements remain in effect until canceled by either the 
contractor or the contracting officer.
    (b) Master agreements can be canceled by either the contractor or 
the contracting officer by giving 30 days written notice to the other.
    (c) Cancellation of a master agreement does not affect the rights 
and liabilities under any job order existing at the time of 
cancellation. The contractor must continue to perform all work covered 
by any job order issued before the effective date of cancellation of the 
master agreement.



Sec. 217.7103-3  Solicitations for job orders.

    (a) When a requirement arises within the United States, its 
possessions, or Puerto Rico for the type of work covered by the master 
agreement, solicit offers from prospective contractors that--
    (1) Previously executed a master agreement; or
    (2) Have not previously executed a master agreement, but possess the 
necessary qualifications to perform the work and agree to execute a 
master agreement before award of a job order.
    (b) Prepare the solicitation in the uniform contract format and in 
accordance with FAR subparts 14.2 or 15.4, as applicable.
    (c) Include in the solicitation--

[[Page 120]]

    (1) The nature of the work to be performed;
    (2) The date the vessel will be available to the contractor;
    (3) The date the work is to be completed; and
    (4) Whether bulk ammunition is aboard the vessel.
    (d) Unless the solicitation states otherwise, offers are to be based 
on performance at the contractor's site.
    (e) Solicitations processed under negotiated acquisition procedures 
shall require offerors to include a breakdown of the price with 
reasonable supporting detail in whatever format and detail the 
contracting officer may request.
    (f) Where practicable, afford potential offerors an opportunity to 
inspect the item needing repair or alteration.



Sec. 217.7103-4  Award of a job order.

    Award job orders in accordance with FAR subparts 14.4 or 15.10.



Sec. 217.7103-5  Emergency work.

    (a) The contracting officer, without soliciting offers, may issue a 
written job order to a contractor that has previously executed a master 
agreement when--
    (i) Delay in the performance of necessary repair work would endanger 
a vessel, its cargo or stores; or
    (ii) Military necessity requires immediate work on a vessel.
    (b) Process this type of undefinitized contract action in accordance 
with subpart 217.74.
    (c) Negotiate a price as soon as practicable after the issuance of 
an undefinitized order and definitize the job order upon completing 
negotiations.



Sec. 217.7103-6  Repair costs not readily ascertainable.

    If the nature of any repairs is such that their extent and probable 
cost cannot be ascertained readily, the solicitation should--
    (a) Solicit offers for determining the nature and extent of the 
repairs;
    (b) Provide that upon determination by the contracting officer of 
what work is necessary, the contractor, if requested by the contracting 
officer, shall negotiate prices for performance of the repairs; and
    (c) Provide that prices for the repairs, if ordered, will be set 
forth in a modification of the job order.



Sec. 217.7103-7  Modification of master agreements.

    (a) Review each master agreement at least annually before the 
anniversary of its effective date and revise it as necessary to conform 
to the requirements of the FAR and DFARS. Statutory or other mandatory 
changes may require review and revision earlier than one year.
    (b) A master agreement shall be changed only by modifying the master 
agreement itself. It shall not be changed through a job order.
    (c) A modification to a master agreement shall not affect job orders 
issued before the effective date of the modification.



Sec. 217.7104  Contract clauses.

    (a) Use the following clauses in solicitations for, and in, master 
agreements for repair and alteration of vessels:
    (1) 252.217-7003, Changes.
    (2) 252.217-7004, Job Orders and Compensation.
    (3) 252.217-7005, Inspection and Manner of Doing Work.
    (4) 252.217-7006, Title.
    (5) 252.217-7007, Payments.
    (6) 252.217-7008, Bonds.
    (7) 252.217-7009, Default.
    (8) 252.217-7010, Performance.
    (9) 252.217-7011, Access to Vessel.
    (10) 252.217-7012, Liability and Insurance.
    (11) 252.217-7013, Guarantees.
    (12) 252.217-7014, Discharge of Liens.
    (13) 252.217-7015, Safety and Health.
    (14) 252.217-7016, Plant Protection, as applicable.
    (b)(1) Incorporate in solicitations for, and in, job orders, the 
clauses in the master agreement, and any other clauses on subjects not 
covered by the master agreement, but applicable to the job order to be 
awarded.
    (2) Use the clause at 252.217-7016, Plant Protection, in job orders 
where performance is to occur at the contractor's facility.

[[Page 121]]



                Subpart 217.72--Bakery and Dairy Products



Sec. 217.7200  Scope.

    This subpart provides special policies and requirements for 
acquisition of perishable bakery and dairy products.



Sec. 217.7201  Contract requirements for dairy products.

    (a) Include the following chemical and microbiological requirements 
in solicitations and resulting contracts for milk, milk products, and 
cultured products (as defined in the Veterinary/Medical Wholesomeness 
Assurance Program for Fresh and Cultured Dairy Products and Frozen 
Desserts (AR-40-70/NAVSUPINST 4355.6/AFR 161-46/MCO 10110.44)):
    (1) Chemical requirements. Products shall meet the chemical 
requirements for each specification cited in the contract on the date of 
award.
    (2) Microbiological requirements. Products shall meet 
microbiological requirements stated in Public Health Service Publication 
229, Grade A Pasteurized Milk Ordnance, in effect on the date of award. 
In the event of conflict between these requirements and individual 
product specifications, the requirements of Public Health Service 
Publication 229 take precedence.
    (b) When the contractor is required to furnish its own cabinets for 
dispensing milk from bulk containers--
    (1) Include the following information in the solicitation--
    (i) The number (or estimated number) of dispenser cabinets required;
    (ii) Whether metal stands for the cabinets are required;
    (iii) The number of cabinets required with a capacity of two 
containers each; and
    (iv) The number required with a capacity of three containers each.
    (2) Include the contractor's list of cabinet equipment in the 
schedule of the contract.
    (c) The contracting officer shall notify the Government quality 
assurance representative of code changes approved under the clause at 
252.217-7022, Code Dating.



Sec. 217.7202  Contract type.

    Normally use requirements contracts for bakery and dairy products. 
Other indefinite delivery contracts and other contract types may be used 
as appropriate.



Sec. 217.7203  Contract clauses.

    (a) Use the following additional clauses in solicitations and 
contracts for perishable bakery and dairy products--
    (1) 252.217-7017, Time of Delivery. Use Alternate I when the 
contract is other than a requirements contract. Insert the number of 
hours in paragraph (c) of Alternate I.
    (2) 252.217-7018, Change in Plant Location.
    (3) 252.217-7019, Sanitary Conditions. Use Alternate I when the 
contract is other than a requirements contract.
    (4) 252.217-7022, Code Dating. Use this clause only when the 
schedule or a specification requires labels showing the date of 
pasteurization, manufacture, production, or processing.
    (5) 252.217-7023, Marking. Do not use this clause when MIL-STD-129, 
Marking for Shipment and Storage, is required.
    (6) 252.217-7024, Responsibility for Containers and Equipment. Use 
when contractor is required to provide reusable containers and 
equipment.
    (b) Use the following additional clauses in solicitations and 
contracts for perishable dairy products--
    (1) 252.217-7020, Examination and Testing. Use Alternate I when the 
contract is an indefinite quantity contract.
    (2) 252.217-7021, Deficiency Adjustment.
    (3) 252.217-7025, Containers and Equipment.



           Subpart 217.73--Identification of Sources of Supply



Sec. 217.7300  Scope.

    This subpart implements 10 U.S.C. 2384. It contains policy and 
procedures for requiring contractors to identify the actual manufacturer 
of supplies furnished to DoD.

[[Page 122]]



Sec. 217.7301  Policy.

    Contractors shall identify their sources of supply in contracts for 
supplies. Contractor identification of sources of supply enables 
solicitation, in subsequent acquisitions, of actual manufacturers or 
other suppliers of items. This enhances competition and potentially 
avoids payment of additional costs for no significant added value.



Sec. 217.7302  Procedures.

    (a) Whenever practicable, include a requirement for contractor 
identification of sources of supply in all contracts for the delivery of 
supplies. The identification shall include--
    (1) The item's actual manufacturer or producer, or all the 
contractor's sources for the item;
    (2) The item's national stock number (if there is one);
    (3) The item identification number used by--
    (i) The actual manufacturer or producer of the item; or
    (ii) Each of the contractor's sources for the item; and
    (4) The source of any technical data delivered under the contract.
    (b) The requirement in paragraph (a) of this section does not apply 
to commercial items.

[56 FR 36345, July 31, 1991, as amended at 60 FR 61596, Nov. 30, 1995]



Sec. 217.7303  Solicitation provision.

    (a) Use the provision at 252.217-7026, Identification of Sources of 
Supply, or one substantially the same, in all solicitations for supplies 
when the acquisition is being conducted under other than full and open 
competition, except when--
    (1) Using FAR 6.302-5;
    (2) The contracting officer already has the information required by 
the provision (e.g., the information was obtained under other 
acquisitions);
    (3) The contract is for subsistence, clothing or textiles, fuels, or 
supplies purchased and used outside the United States;
    (4) The contracting officer determines that it would not be 
practicable to require offerors/contractors to provide the information, 
e.g., nonrepetitive local purchases; or
    (5) The contracting officer determines that the exception at 
217.7302(b) applies to all items under the solicitation.
    (b) If appropriate, use the provision at 252.217-7026, 
Identification of Sources of Supply, or one substantially the same, in 
service contracts requiring the delivery of supplies.



             Subpart 217.74--Undefinitized Contract Actions



Sec. 217.7400  Scope.

    This subpart prescribes policies and procedures implementing 10 
U.S.C. 2326.



Sec. 217.7401  Definitions.

    As used in this subpart--
    (a) Contract action means an action which results in a contract.
    (1) It includes contract modifications for additional supplies or 
services.
    (2) It does not include change orders, administrative changes, 
funding modifications, or any other contract modifications that are 
within the scope and under the terms of the contract, e.g., engineering 
change proposals, value engineering change proposals, and over and above 
work requests as described in subpart 217.77.
    (b) Definitization means the agreement on, or determination of, 
contract terms, specifications, and price, which converts the 
undefinitized contract action to a definitive contract.
    (c) Qualifying proposal means a proposal containing sufficient 
information for the DoD to do complete and meaningful analyses and 
audits of the--
    (1) Information in the proposal; and
    (2) Any other information that the contracting officer has 
determined DoD needs to review in connection with the contract.
    (d) Undefinitized contract action means any contract action for 
which the contract terms, specifications, or price are not agreed upon 
before performance is begun under the action. Examples are letter 
contracts, orders under basic ordering agreements, and provisioned item 
orders, for which the price has not been agreed upon before performance 
has begun.

[[Page 123]]



Sec. 217.7402  Exceptions.

    The following undefinitized contract actions (UCAs) are not subject 
to this subpart, but the contracting officer should apply the policy to 
them (and to changes under the Changes clause) to the maximum extent 
practicable--
    (a) UCAs for foreign military sales;
    (b) Purchases at or below the simplified acquisition threshold;
    (c) Special access programs;
    (d) Congressionally mandated long-lead procurement contracts.

[56 FR 36345, July 31, 1991, as amended at 61 FR 7743, Feb. 29, 1996]



Sec. 217.7403  Policy.

    DoD policy is that undefinitized contract actions shall--
    (a) Be used only when--
    (1) The negotiation of a definitive contract action is not possible 
in sufficient time to meet the Government's requirements; and
    (2) The Government's interest demands that the contractor be given a 
binding commitment so that contract performance can begin immediately.
    (b) Be as complete and definite as practicable under the particular 
circumstances.



Sec. 217.7404  Limitations.



Sec. 217.7404-1  Authorization.

    The contracting officer shall obtain approval from the head of the 
contracting activity before--
    (a) Entering into a UCA. The request for approval must fully explain 
the need to begin performance before definitization, including the 
adverse impact on agency requirements resulting from delays in beginning 
performance.
    (b) Including requirements for non-urgent spare parts and support 
equipment in a UCA. The request should show that inclusion of the non-
urgent items is consistent with good business practices and in the best 
interest of the United States.
    (c) Modifying the scope of a UCA when performance has already begun. 
The request should show that the modification is consistent with good 
business practices and in the best interests of the United States.



Sec. 217.7404-2  Price ceiling.

    UCAs shall include a not-to-exceed price.



Sec. 217.7404-3  Definitization schedule.

    (a) UCAs shall contain definitization schedules which provide for 
definitization by the earlier of the following dates--
    (1) The date which is 180 days after issuance of the action (this 
date may be extended but may not exceed the date which is 180 days after 
the contractor submits a qualifying proposal); or
    (2) The date on which the amount of funds obligated under the 
contract action is equal to more than 50 percent of the not-to-exceed 
price.
    (b) Submission of a qualifying proposal in accordance with the 
definitization schedule is a material element of the contract. If the 
contractor does not submit a timely qualifying proposal, the contracting 
officer may suspend or reduce progress payments under FAR 32.503-6, or 
take other appropriate action.

[56 FR 36345, July 31, 1991, as amended at 60 FR 29498, June 5, 1995; 61 
FR 7743, Feb. 29, 1996]



Sec. 217.7404-4  Limitations on obligations.

    The Government shall not obligate more than 50 percent of the not-
to-exceed price before definitization. However, if a contractor submits 
a qualifying proposal before 50 percent of the not-to-exceed price has 
been obligated by the Government, then the limitation on obligations 
before definitization may be increased to no more than 75 percent (see 
232.102-70 for coverage on provisional delivery payments).

[60 FR 29498, June 5, 1995]



Sec. 217.7404-5  Exceptions.

    (a) The limitations in 217.7404-2, 217.7404-3, and 217.7404-4 do not 
apply to UCAs for the purchase of initial spares.
    (b) The head of an agency may waive the limitations in 217.7404-2, 
217.7404-3, and 217.7404-4 for UCAs if the head of the agency determines 
that the waiver

[[Page 124]]

is necessary to support a contingency operation.

[60 FR 29498, June 5, 1995]



Sec. 217.7404-6  Allowable profit.

    When the final price of a UCA is negotiated after a substantial 
portion of the required performance has been completed, the head of the 
agency shall ensure the profit allowed reflects--
    (a) Any reduced cost risk to the contractor for costs incurred 
during contract performance before negotiation of the final price; and
    (b) The contractor's reduced cost risk for costs incurred during 
performance of the remainder of the contract.



Sec. 217.7405  Definitizations.

    For each definitization modification, the contracting officer shall 
include all data required by 243.171.

[60 FR 34470, July 3, 1995]



Sec. 217.7406  Contract clauses.

    (a) Use the clause at FAR 52.216-24, Limitation of Government 
Liability, in all UCAs, solicitations associated with UCAs, basic 
ordering agreements, indefinite delivery contracts, and any other type 
of contract providing for the use of UCAs.
    (b) Use the clause at 252.217-7027, Contract Definitization, in all 
UCAs, solicitations associated with UCAs, basic ordering agreements, 
indefinite delivery contracts, and any other type of contract providing 
for the use of UCAs. Insert the applicable information in paragraphs 
(a), (b), and (d) of the clause. If, at the time of entering into the 
UCA, the contracting officer knows that the definitive contract action 
will meet the criteria of FAR 15.804-1 for not requiring submission of 
cost or pricing data, the words ``and cost or pricing data'' may be 
deleted from paragraph (a) of the clause.

[61 FR 7743, Feb. 29, 1996]



           Subpart 217.75--Acquisition of Replenishment Parts



Sec. 217.7500  Scope of subpart.

    This subpart provides guidance on additional requirements related to 
acquisition of replenishment parts (as defined in appendix E).



Sec. 217.7501  General.

    Departments and agencies--
    (a) May acquire replenishment parts concurrently with production of 
the end item.
    (b) Shall provide for full and open competition when fully adequate 
drawings and any other needed data are available with the right to use 
for acquisition purposes (see part 227). However--
    (1) When data is not available for a competitive acquisition, use 
one of the procedures in 217.7503.
    (2) Replenishment parts must be acquired so as to ensure the safe, 
dependable, and effective operation of the equipment. Where this 
assurance is not possible with new sources, competition may be limited 
to the original manufacturer of the equipment or other sources that have 
previously manufactured or furnished the parts as long as the action is 
justified.
    (c) Shall follow the limitations on price increases in 217.7504.



Sec. 217.7502  Spares acquisition integrated with production (SAIP).

    (a) Spares acquisition integrated with production (SAIP) is a 
technique used to acquire replenishment parts concurrently with parts 
being produced for the end item.
    (b) DoD acquisition managers select parts for SAIP under the 
criteria in DoDI 4245.12, Spares Acquisition Integrated With Production 
(SAIP).
    (c) Include appropriately tailored provisions in the contract when 
SAIP is used.



Sec. 217.7503  Acquisition of parts when data is not available.

    When acquiring a part for which the Government does not have 
necessary data with rights to use in a specification or drawing for 
competitive acquisition, use one of the following procedures in order of 
preference--
    (a) When items of identical design are not required, the acquisition 
may still be conducted through full and open competition by using a 
performance specification or other similar

[[Page 125]]

technical requirement or purchase description that does not contain data 
with restricted rights. Two methods are--
    (1) Two-step sealed bidding; and
    (2) Brand name or equal purchase descriptions.
    (b) When other than full and open competition is authorized under 
FAR part 6, acquire the part from the firm which developed or designed 
the item or process, or its licensees, provided productive capacity and 
quality are adequate and the price is fair and reasonable.
    (c) When additional sources are needed and the procedures in 
paragraph (a) of this section are not practicable, consider the 
following alternatives--
    (1) Encourage the developer to license others to manufacture the 
parts;
    (2) Acquire the necessary rights in data;
    (3) Use a leader company acquisition technique (FAR subpart 17.4) 
when complex technical equipment is involved and establishing 
satisfactory additional sources will require technical assistance as 
well as data; or
    (4) Incorporate a priced option in the contract which allows the 
Government to require the contractor to establish a second source.
    (d) As a last alternative, the contracting activity may develop a 
design specification for competitive acquisition through reverse 
engineering. Contracting activities shall not do reverse engineering 
unless--
    (1) Significant cost savings can be demonstrated; and
    (2) The action is authorized by the head of the contracting 
activity.



Sec. 217.7504  Limitations on price increases.

    This section provides implementing guidance for section 1215 of 
Public Law 98-94 (10 U.S.C. 2452 note).
    (a) The contracting officer shall not award, on a sole source basis, 
a contract for any centrally managed replenishment part when the price 
of the part has increased by 25 percent or more over the most recent 12-
month period.
    (1) Before computing the percentage difference between the current 
price and the prior price, adjust for quantity, escalation, and other 
factors necessary to achieve comparability.
    (2) Departments and agencies may specify an alternate percentage or 
percentages for contracts within the small purchase limitation in FAR 
part 13.
    (b) The contracting officer may award a contract for a part, the 
price of which exceeds the limitation in paragraph (a) of this section, 
if the contracting officer certifies in writing to the head of the 
contracting activity before award that--
    (1) The contracting officer has evaluated the price of the part and 
concluded that the price increase is fair and reasonable; or
    (2) The national security interests of the United States require 
purchase of the part despite the price increase.
    (c) The fact that a particular price has not exceeded the limitation 
in paragraph (a) of this section does not relieve the contracting 
officer of the responsibility for obtaining a fair and reasonable price.
    (d) Contracting officers may include a provision in sole source 
solicitations requiring that the offeror supply with its proposal, price 
and quantity data on any government orders for the replenishment part 
issued within the most recent 12 months.



        Subpart 217.76--Contracts with Provisioning Requirements



Sec. 217.7600  Scope of subpart.

    This subpart contains contract requirements and procedures for items 
to be provisioned. For technical requirements of provisioning, see DoDD 
4140.40, Provisioning of End Items of Material. For breakout 
requirements, see appendix E.



Sec. 217.7601  Definitions.

    As used in this subpart,
    (a) Provisioning means the process of determining and acquiring the 
range and quantity of spare and repair parts, and support and test 
equipment required to operate and maintain an end item for an initial 
period of service.
    (b) Provisioned item means any item selected under provisioning 
procedures.
    (c) Provisioned items order (PIO) means an undefinitized order 
issued under a contract which includes the

[[Page 126]]

Government's requirements for provisioned items. (Provisioned items with 
firm prices are acquired by supplemental agreement or by separate 
contract.)
    (d) Provisioning activity means the organization responsible for 
selecting and determining requirements for provisioned items.
    (e) Provisioning requirements statement means the contractual 
document listing the specific provisioning requirements for that 
contract. The statement normally includes:
    (1) Instructions, such as the provisioning method to be used;
    (2) The extent of provisioning technical documentation and data 
needed (including administrative requirements for submission and 
distribution);
    (3) The type and location of provisioning conferences;
    (4) Sample article requirements;
    (5) The delivery schedule;
    (6) Packaging and marking requirements for provisioned items; and
    (7) Requirements for provisioning screening.
    (f) Provisioning technical documentation means the data needed for 
the identification, selection, determination of initial requirements, 
and cataloging of support items to be acquired through the provisioning 
process. It includes such things as provisioning lists and logistics 
support analysis summaries. Descriptive data such as drawings and 
photographs are referred to as supplementary provisioning technical 
documentation.



Sec. 217.7602  Contracting requirements.



Sec. 217.7602-1  Contractual provisions.

    Contracts containing provisioning requirements shall--
    (a) List the provisioning functions to be performed and who will 
perform them;
    (b) Include a provisioning requirements statement or specify a time 
limit for its incorporation into the contract by modification (revisions 
to the provisioning requirements statement shall also be incorporated by 
contract modification);
    (c) Include on the DD Form 1423, Contract Data Requirements List, a 
schedule for delivery of provisioning technical documentation, or 
provide for the schedule to be incorporated later by contract 
modification;
    (d) Require flowdown of the appropriate provisioning technical 
documentation requirement when the subcontractor prepares the 
documentation;
    (e) Specify any applicable procedures for interim release by the 
contractor of long lead time items, and include ordering and funding 
instructions for such items. As a minimum, the instructions shall 
require the contractor to advise the contracting officer or provisioning 
activity at least 30 days before release of the items, their estimated 
costs, and the effective date of release;
    (f) Specify the activity designated to issue provisioned items 
orders, i.e., contracting officer, provisioning activity, or 
administrative contracting officer. When it is expected that more than 
one activity will place provisioned items orders against the contract, 
state the requirements for provisioned items of each activity as 
separate contract line items;
    (g) Provide a definitization schedule (normally 120 days after 
receipt of the contractor's proposal), and a timeframe for the 
contractor to furnish price proposals for provisioned items orders 
(normally 60 days after order issuance);
    (h) Specify exhibit identifiers applicable to the contract line/
subline items; and
    (i) Include procedures for processing changes (including 
cancellations) in quantities of items ordered.



Sec. 217.7602-2  Issuance of provisioned items orders.

    (a) Use the Standard Form 30, Amendment of Solicitation/Modification 
of Contract, to--
    (1) Issue provisioned items orders;
    (2) Decrease or cancel quantities of items ordered; and
    (3) Cover the contractor's interim release of long lead items when 
the contracting officer approves the release (if the release is not 
approved, the contracting officer shall notify the contractor to cancel 
the items).
    (b) Include in Block 14 of the Standard Form 30--

[[Page 127]]

    (1) The term PROVISIONED ITEMS ORDER in capital letters and 
underlined; and
    (2) The appropriate exhibit identifier(s) for all attached exhibits.
    (c) Obligate funds to cover the estimated price of the items being 
ordered. Show individual estimated prices for each exhibit line item on 
the accounting and payment office copies.
    (d) Distribution is the same as for the basic contract (see FAR 
4.2). However, if the exhibits are voluminous, the contracting officer 
may restrict distribution of the exhibits to the contract administration 
office.
    (e) See subpart 217.74 for additional guidance and limitations on 
the use of undefinitized contract actions.



Sec. 217.7603  Contract administration requirements.



Sec. 217.7603-1  Provisioning conferences.

    When requested by the contracting officer or provisioning activity, 
the contract administration office shall assist the contracting officer 
or provisioning activity in scheduling and determining the types of 
provisioning conferences required, e.g., guidance meetings, long lead 
time items conferences, source coding meetings.



Sec. 217.7603-2  Contract administration office monitoring.

    The contract administration office (CAO) shall monitor contracts 
containing provisioning requirements. As a minimum the CAO shall--
    (a) Ensure that the contractor understands the provisioning 
requirements;
    (b) Review contractor progress in the preparation of provisioning 
technical documentation and, if requested by the contracting officer or 
provisioning activity, inspect it for format and content;
    (c) Ensure the prime contractor flows-down provisioning requirements 
to any subcontractor charged with preparation of documentation;
    (d) Advise the contracting office or provisioning activity of delays 
in delivery of provisioning technical documentation or other related 
problems (see FAR subpart 42.11);
    (e) Ensure contractor compliance with contract requirements 
concerning the assignment of national stock numbers; and
    (f) Ensure that the contractor complies with contractual criteria 
for release of long lead time items.



Sec. 217.7603-3  Negotiating and executing supplemental agreements.

    (a) The administrative contracting officer (ACO) shall definitize 
provisioned items orders within the prescribed schedule.
    (b) If the provisioned items order does not contain a delivery date, 
or the contractor cannot meet the date, the ACO shall coordinate the 
negotiated schedule with the contracting officer or provisioning 
activity before execution of the supplemental agreement.
    (c) The ACO shall maintain records of provisioned items orders 
showing--
    (1) The adequacy of obligated funds;
    (2) Due dates for price proposals; and
    (3) Actions taken to obtain additional funds or to deobligate excess 
funds.



                   Subpart 217.77--Over and Above Work



Sec. 217.7700  Scope of subpart.

    This subpart prescribes policies and procedures for acquisition of 
over and above work.



Sec. 217.7701  Procedures.

    (a) Contracts for the performance of maintenance, overhaul, 
modification, and repair of various items (e.g., aircraft, engines, 
ground support equipment, ships) generally contain over and above work 
requirements. When they do, the contracting officer shall establish a 
separate contract line item for the over and above work.
    (b) Over and above requirements task the contractor to identify 
needed repairs and recommend corrective action during contract 
performance. The contractor submits a work request to identify the over 
and above work and, as appropriate, the Government authorizes the 
contractor to proceed.
    (c) The clause at 252.217-7028, Over and Above Work, requires the 
contractor and the contracting officer responsible for administering the 
contract to negotiate specific procedures for Government administration 
and contractor

[[Page 128]]

performance of over and above work requests.
    (d) The contracting officer may issue a blanket work request 
authorization describing the manner in which individual over and above 
work requests will be administered and setting forth a dollar limitation 
for all over and above work under the contract. The blanket work request 
authorization may be in the form of a letter or contract modification 
(Standard Form 30).
    (e) Over and above work requests are within the scope of the 
contract. Therefore, procedures in subpart 217.74, Undefinitized 
Contractual Actions, do not apply.
    (f) To the maximum extent practical, over and above work shall be 
negotiated prior to performance of the work.



Sec. 217.7702  Contract clause.

    Use the clause at 252.217-7028, Over and Above Work, in 
solicitations and contracts containing requirements for over and above 
work, except as provided for in subpart 217.71.

[[Page 129]]



                  SUBCHAPTER D--SOCIOECONOMIC PROGRAMS


PART 219--SMALL BUSINESS PROGRAMS--Table of Contents




Sec.
219.000  Scope of part.
219.001  Definitions.

                         Subpart 219.2--Policies

219.201  General policy.
219.202  Specific policies.
219.202-1  Encouraging small business participation in acquisitions.
219.202-5  Data collection and reporting requirements.

    Subpart 219.4--Cooperation With the Small Business Administration

219.401  General.

              Subpart 219.5--Set-Asides for Small Business

219.502  Setting aside acquisitions.
219.502-1  Requirements for setting aside acquisitions.
219.502-2  Total set-asides.
219.502-3  Partial set-asides.
219.505  Rejecting Small Business Administration recommendations.

                Subpart 219.6--Certificates of Competency

219.602  Procedures.
219.602-1  Referral.
219.602-3  Resolving differences between the agency and the Small 
          Business Administration.

 Subpart 219.7--Subcontracting with Small Business, Small Disadvantaged 
            Business and Women-Owned Small Business Concerns

219.702  Statutory requirements.
219.703  Eligibility requirements for participating in the program.
219.704  Subcontracting plan requirements.
219.705  Responsibilities of the contracting officer under the 
          subcontracting assistance program.
219.705-2  Determining the need for a subcontracting plan.
219.705-4  Reviewing the subcontracting plan.
219.706  Responsibilities of the cognizant administrative contracting 
          officer.
219.708  Solicitation provisions and contract clauses.

 Subpart 219.8--Contracting With the Small Business Administration (The 
                              8(a) Program)

219.800  General.
219.803  Selecting acquisitions for the 8(a) Program.
219.804  Evaluation, offering, and acceptance.
219.804-1  Agency evaluation.
219.804-2  Agency offering.
219.804-3  SBA acceptance.
219.805  Competitive 8(a).
219.805-2  Procedures.
219.806  Pricing the 8(a) contract.
219.808  Contract negotiations.
219.808-1  Sole source.
219.811  Preparing the contracts.
219.811-1  Sole source.
219.811-2  Competitive.
219.811-3  Contract clauses.
219.812  Contract administration.

  Subpart 219.10--Small Business Competitiveness Demonstration Program

219.1005  Applicability.
219.1006  Procedures.

  Subpart 219.11--Price Evaluation Adjustments for Small Disadvantaged 
                            Business Concerns

219.1102  Applicability.

                       Subpart 219.70  [Reserved]

              Subpart 219.71--Pilot Mentor-Protege Program

219.7100  Scope.
219.7101  Policy.
219.7102  General.
219.7103  Procedures.
219.7103-1  General.
219.7103-2  Contracting officer responsibilities.
219.7104  Developmental assistance costs eligible for reimbursement or 
          credit.
219.7105  Reporting.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36353, July 31, 1991, unless otherwise noted.



Sec. 219.000  Scope of part.

    This part also implements 10 U.S.C. 2323, which sets a goal for DoD 
for each of fiscal years 1987 through 2000 to--
    (1) Award five percent of contract and subcontract dollars to small 
disadvantaged business (SDB) concerns,

[[Page 130]]

historically black colleges and universities (HBCUs), and minority 
institutions (MIs) (See part 226 for policy/procedures on HBCU/MIs); and
    (2) Maximize the number of such entities in DoD contracting and 
subcontracting.

[56 FR 36353, July 31, 1991, as amended at 59 FR 27670, May 27, 1994]



Sec. 219.001  Definitions.

    Small disadvantaged business concern, as used in Subpart 217.4 (if 
the follower company will be a prime contractor), Subpart 219.11, and 
Subpart 236.6 (if the small disadvantaged business concern is a prime 
contractor or a participant in a joint venture at the prime contract 
level), is defined at FAR 19.001, paragraph (b) of the definition of 
``small disadvantaged business concern.'' As used elsewhere in the 
DFARS, the term ``small disadvantaged business concern,'' for both prime 
contractors and subcontractors, is as defined at FAR 19.001, paragraph 
(b) of the definition of ``small disadvantaged business concern,'' 
except that the firm need not have received certification as a small 
disadvantaged business concern by the Small Business Administration or 
be listed on the register of small disadvantaged business concerns 
maintained by the Small Business Administration.

[63 FR 41973, Aug. 6, 1998]



                         Subpart 219.2--Policies



Sec. 219.201  General policy.

    (a) The DoD will use the Section 8(a) program, small disadvantaged 
business evaluation preferences, advance payments, outreach, and 
technical assistance to meet its five percent goal for contract and 
subcontract awards to small disadvantaged businesses.
    (c)(2) For the defense agencies, the director of the Office of Small 
and Disadvantaged Business Utilization shall be appointed by, be 
responsible to, and report directly to the director deputy director of 
the defense agency.
    (7) The responsibility for assigning small business technical 
advisors is delegated to the head of the contracting activity.
    (9) Contracting activity small business specialists perform this 
function by--
    (A) Reviewing and making recommendations for all acquisitions over 
$10,000, except small business-small purchase set-asides;
    (B) Making the review before issue of the solicitation or contract 
modification and documenting it on DD Form 2579, Small Business 
Coordination Record;
    (C) Referring recommendations which have been rejected by the 
contracting officer to the Small Business Administration (SBA) 
procurement center representative. However, in the case of a rejected 
small disadvantaged business set-aside recommendation or if an SBA 
representative is not assigned or available, the specialist refers the 
matter to the specialist's appointing authority.
    (d) Contracting and contract administration activities appoint small 
business specialists as directed by DoDD 4205.1, DoD Small Business and 
Small Disadvantaged Business Utilization Programs. Specialists--
    (i) Report directly and are responsible only to their appointing 
authority;
    (ii) Make sure that the contracting activity takes the necessary 
actions to implement small business, historically black college and 
university/minority institution, and labor surplus area programs;
    (iii) Advise and assist contracting, program manager, and 
requirements personnel on all matters which affect small businesses, 
historically black colleges and universities or minority institutions, 
and labor surplus area concerns;
    (iv) Aid, counsel, and assist small business, small disadvantaged 
business, historically black colleges and universities, and minority 
institutions by providing--
    (A) Advice concerning acquisition procedures;
    (B) Information regarding proposed acquisitions; and
    (C) Instructions on preparation of proposals in the interpretation 
of standard clauses, representations, and certifications;

[[Page 131]]

    (v) Maintain an outreach program (including participation in 
Government-industry conferences and regional interagency small business 
councils) designed to locate and develop information on the technical 
competence of small business, small disadvantaged business concerns, 
historically black colleges and universities, and minority institutions;
    (vi) Ensure that financial assistance, available under existing 
regulations, is offered and also assist small business concerns in 
obtaining payments under their contracts, late payment, interest 
penalties, or information on contractual payment provisions;
    (vii) Provide assistance to contracting officers in determining the 
need for and acceptability of subcontracting plans and assist 
administrative contracting officers (see 219.706(a)(ii)) in evaluating, 
monitoring, reviewing, and documenting contract performance to determine 
compliance with subcontracting plans; and
    (viii) Recommend to the appointing authority the activity's small 
and disadvantaged business program goals, including goal assignments to 
subordinate contracting offices; monitor the activity's performance 
against these goals; and recommend action to correct reporting errors/
deficiencies.
    (f) The Directors, Office of Small and Disadvantaged Business 
Utilization, of the military departments and defense agencies are 
responsible for determining whether use of the price evaluation 
adjustment to achieve a small disadvantaged business goal has caused 
non-SDB firms in a particular Standard Industrial Classification Major 
Group to bear an undue burden or other inappropriate effect. A copy of 
each determination shall be forwarded to the Office of Small and 
Disadvantaged Business Utilization, Office of the Under Secretary of 
Defense (Acquisition and Technology), simultaneously with submittal to 
the Office of Federal Procurement Policy.

[56 FR 36353, July 31, 1991, as amended at 63 FR 41973, Aug. 6, 1998]



Sec. 219.202  Specific policies.



Sec. 219.202-1  Encouraging small business participation in acquisitions.

    The DoD will maximize the use of small business concerns as planned 
producers in the Industrial Readiness Planning Program.



Sec. 219.202-5  Data collection and reporting requirements.

    Determine the premium percentage to be entered in Item D4E of the 
Individual Contracting Action Report (DD Form 350), (see 253.204-70), as 
follows:
    (1) For small disadvantaged business or historically black college 
and university/minority institution set-asides, divide the difference 
between the fair market price and the award price by the fair market 
price.
    (2) For price evaluation adjustment awards (see FAR Subpart 19.11), 
divide the difference between the low responsive offer and the award 
price by the low responsive offer.
    (3) For partial small business set-asides with preferential 
consideration for small disadvantaged business concerns, divide the 
difference between the award price on the non-set-aside portion and the 
award price on the set-aside portion by the award price on the non-set-
aside portion.
    (b) Within 60 days after the end of each fiscal year, departments 
and agencies shall submit the report to the Secretary of Defense, who 
will report to the SBA on behalf of all DoD departments and agencies. 
Reports must include--
    (i) Justification for failure to meet goals established by the 
Office of the Secretary of Defense; and

[[Page 132]]

    (ii) Planned actions for increasing participation by such firms in 
future contract awards.

[56 FR 36353, July 31, 1991, as amended at 63 FR 41973, Aug. 6, 1998]



    Subpart 219.4--Cooperation With the Small Business Administration



Sec. 219.401  General.

    (b) The contracting activity small business specialist is the 
primary activity focal point for interface with the SBA.



              Subpart 219.5--Set-Asides for Small Business



Sec. 219.502  Setting aside acquisitions.



Sec. 219.502-1  Requirements for setting aside acquisitions.

    Do not set aside acquisitions for--
    (1) Supplies which were developed and financed, in whole or in part, 
by Canadian sources under the U.S.-Canadian Defense Development Sharing 
Program; or
    (2) Architect-engineer services for military construction or family 
housing projects of $85,000 or more (10 U.S.C. 2855), including 
indefinite delivery and indefinite quantity contracts if the value of 
all anticipated orders is expected to total $85,000 or more.

[58 FR 28465, May 13, 1993]



Sec. 219.502-2  Total set-asides.

    (a) Unless the contracting officer determines that the criteria for 
set-aside cannot be met, set aside for small business concerns 
acquisitions for--
    (i) Construction, including maintenance and repairs, under $2 
million;
    (ii) Dredging under $1 million; and
    (iii) Architect-engineer services for military construction or 
family housing projects of under $85,000.

[58 FR 28465, May 13, 1993]



Sec. 219.502-3  Partial set-asides.

    (c)(1) If the Standard Industrial Classification Major Group of the 
acquisition is one in which use of a price evaluation adjustment for 
small disadvantaged business concerns is currently authorized (see FAR 
19.201(b)), the adjustment shall be applied to the non-set-aside 
portion.

[63 FR 41974, Aug. 6, 1998]



Sec. 219.505  Rejecting Small Business Administration recommendations.

    (b) The designee shall be at a level no lower than chief of the 
contracting office.



                Subpart 219.6--Certificates of Competency



Sec. 219.602  Procedures.



Sec. 219.602-1  Referral.

    When making a nonresponsibility determination on a small business 
concern, the contracting officer shall notify the contracting activity's 
small business specialist.

[58 FR 28465, May 13, 1993, as amended at 60 FR 40107, Aug. 7, 1995]



Sec. 219.602-3  Resolving differences between the agency and the Small Business Administration.

    (c)(i) If the contracting officer believes the agency should appeal, 
the contracting officer shall immediately inform the departmental 
director of the Office of Small and Disadvantaged Business Utilization, 
and send the director, through departmental channels--
    (A) A request for appeal, summarizing the issues. The request must 
be sent to arrive within five working days after receipt of the SBA 
Headquarters' written position.
    (B) An appeal file, documenting the contracting activity's position. 
The file must be sent to arrive within five working days after 
transmission of the request.
    (ii) The departmental director will determine whether the agency 
will appeal and will notify the SBA of the agency's intent.

[56 FR 36353, July 31, 1991, as amended at 62 FR 34122, June 24, 1997]

[[Page 133]]



 Subpart 219.7--Subcontracting with Small Business, Small Disadvantaged 
            Business and Women-Owned Small Business Concerns



Sec. 219.702  Statutory requirements.

    (a) Section 834 of Public Law 101-189, as amended, requires the DoD 
to establish a test program to determine whether comprehensive 
subcontracting plans on a corporate, division, or plant-wide basis will 
reduce administrative burdens while enhancing subcontracting 
opportunities for small and small disadvantaged business concerns.
    (i) The test program--
    (A) Will be conducted--
    (1) From October 1, 1990, through September 30, 2000;
    (2) In accordance with the DoD test plan, ``Test Program for 
Negotiation of Comprehensive Small Business Subcontracting Plans''; and
    (3) By the military departments and defense agencies through 
specifically designated contracting activities; and
    (B) Permits contractors selected for participation in the test 
program by the designated contracting activities to--
    (1) Negotiate plant, division, or company-wide comprehensive 
subcontracting plans instead of individual contract subcontracting 
plans; and
    (2) Use the comprehensive plans when performing any DoD contract or 
subcontract that requires a subcontracting plan.
    (ii) During the test period, comprehensive subcontracting plans 
will--
    (A) Be negotiated on an annual basis by the designated contracting 
activities;
    (B) Be incorporated by the contractors' cognizant contract 
administration activity into all of the contractors' active DoD 
contracts that require a plan;
    (C) Be accepted for use by contractors participating in the test, 
whether performing at the prime or subcontract level; and
    (D) Not be subject to application of liquidated damages during the 
period of the test program (Section 402, Pub. L. 101-574).

[56 FR 36353, July 31, 1991, as amended at 60 FR 35668, July 10, 1995; 
61 FR 39900, July 31, 1996; 63 FR 14640, Mar. 26, 1998]



Sec. 219.703  Eligibility requirements for participating in the program.

    (a) Qualified nonprofit agencies for the blind and other severely 
disabled, that have been approved by the Committee for Purchase from 
People Who Are Blind or Severely Disabled under the Javits-Wagner-O'Day 
Act (41 U.S.C. 46-48), are eligible to participate in the program as a 
result of 10 U.S.C. 2410d and Section 9077 of Pub. L. 102-396 and 
similar sections in subsequent Defense appropriations acts. Under this 
authority, subcontracts awarded to such entities may be counted toward 
the prime contractor's small business subcontracting goal through fiscal 
year 1999.
    (2)(A) To be eligible as an SDB subcontractor, a concern must meet 
the definition in 219.001.
    (B) To be eligible as a historically black college or university or 
minority institution subcontractor, such entity must meet the definition 
in the clause at 252.219-7003, Small Business and Small Disadvantaged 
Business Subcontracting Plan (DoD Contracts).
    (b) A contractor may also rely on the written representation as to 
status of--
    (i) A historically black college or university or minority 
institution; or
    (ii) A qualified nonprofit agency for the blind and other severely 
handicapped approved by the Committee for Purchase from the Blind and 
Other Severely Handicapped.

[57 FR 42630, Sept. 15, 1992, as amended at 58 FR 28465, May 13, 1993; 
60 FR 13075, Mar. 10, 1995; 60 FR 41157, Aug. 11, 1995; 60 FR 61596, 
Nov. 30, 1995; 61 FR 50535, Sept. 26, 1996; 63 FR 11530, Mar. 9, 1998; 
63 FR 41974, Aug. 6, 1998]



Sec. 219.704  Subcontracting plan requirements.

    (a)(1) The goal for use of small disadvantaged business concerns 
shall include subcontracts with historically black colleges and 
universities and minority institutions (see subpart 226.70), in addition 
to subcontracts with small

[[Page 134]]

disadvantaged business concerns. Subcontracts with historically black 
colleges and universities and minority institutions do not have to be 
included in the small disadvantaged business goal in commercial items 
subcontracting plans.
    (4) In those subcontracting plans which specifically identify small, 
small disadvantaged, and women-owned small businesses, prime contractors 
shall notify the administrative contracting officer of any substitutions 
of firms that are not small, small disadvantaged, or women-owned small 
businesses for the firms listed in the subcontracting plan. 
Notifications shall be in writing and shall occur within a reasonable 
period of time after award of the subcontract. Contractor-specified 
formats shall be acceptable.

[60 FR 61596, Nov. 30, 1995, as amended at 61 FR 18687, Apr. 29, 1996]



Sec. 219.705  Responsibilities of the contracting officer under the subcontracting assistance program.



Sec. 219.705-2  Determining the need for a subcontracting plan.

    (d) See 215.605 for unique DoD requirements.

[59 FR 27670, May 27, 1994]



Sec. 219.705-4  Reviewing the subcontracting plan.

    (d) Challenge any subcontracting plan that does not contain positive 
goals and consider the extent to which an offeror plans to use 
competition restricted to historically black colleges and universities 
or minority institutions. A small disadvantaged business goal of less 
than five percent must be approved two levels above the contracting 
officer.

[56 FR 36353, July 31, 1991, as amended at 63 FR 41974, Aug. 6, 1998]



Sec. 219.706  Responsibilities of the cognizant administrative contracting officer.

    (a)(i) The contract administration office also is responsible for 
reviewing, evaluating, and approving master subcontracting plans.
    (ii) The small business specialist supports the administrative 
contracting officer in evaluating a contractor's performance and 
compliance with its subcontracting plan.



Sec. 219.708  Solicitation provisions and contract clauses.

    (b)(1)(A) Use the clause at 252.219-7003, Small, Small Disadvantaged 
and Women-Owned Small Business Subcontracting Plan (DoD Contracts), in 
solicitations and contracts that contain the clause at FAR 52.219-9, 
Small, Small Disadvantaged and Women-Owned Small Business Subcontracting 
Plan.
    (B) In contracts with contractors which have comprehensive 
subcontracting plans approved under the test program described in 
219.702(a), use the clause at 252.219-7004, Small, Small Disadvantaged 
and Women-Owned Small Business Subcontracting Plan (Test Program), 
instead of the clauses at 252.219-7003, Small, Small Disadvantaged and 
Women-Owned Small Business Subcontracting Plan (DoD Contracts), and FAR 
52.219-9, Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan.
    (2) In contracts with contractors which have comprehensive 
subcontracting plans approved under the test program described in 
219.702(a), do not use the clause at FAR 52.219-16, Liquidated Damages--
Small Business Subcontracting Plan.
    (c)(1) Do not use the clause at FAR 52.219-10, Incentive 
Subcontracting Program for Small and Small Disadvantaged Business 
Concerns.
    (A) When contracting by negotiation, use the clause at 252.219-7005, 
Incentive for Subcontracting with Small Businesses, Small Disadvantaged 
Businesses, Historically Black Colleges and Universities, and Minority 
Institutions, in all solicitations and contracts that contain the clause 
at FAR 52.219-9, Small, Small Disadvantaged and Women-Owned Small 
Business Subcontracting Plan. Incentives for exceeding SDB 
subcontracting goals shall be paid only if an SDB subcontracting goal 
was exceeded as a result of actual subcontract awards to SDBs, and not 
as a result of developmental assistant credit under the Pilot Mentor-
Protege Program (see subpart 219.71).

[[Page 135]]

    (B) Use the clause at 252.219-7005 with its Alternate I when, in the 
judgement of the contracting officer, inclusion of an incentive is 
necessary to increase subcontracting opportunities for other small 
businesses.
    (C) Determine the percentage to be negotiated and used in the clause 
by considering the type and extent of effort required to exceed the 
goal, for example--
    (1) Unique outreach programs;
    (2) Use of small disadvantaged businesses, historically black 
colleges and universities, and minority institutions in nontraditional 
areas;
    (3) Technical assistance to qualify or assist these entities; and
    (4) Proximity of subcontractors to the prime.
    (D) Do not use the clauses at 252.219-7005 and FAR 52.219-10 in 
contracts with contractors which have comprehensive subcontracting plans 
approved under the test program described in 219.702(a).
    (c)(2) For negotiated acquisitions of $10 million or more, the 
contracting officer may use an award fee provision instead of the 
incentive provision required by (c)(1)(A). When an award fee provision 
is used, do not use the clauses at 252.219-7005, Incentive for 
Subcontracting with Small Businesses, Small Disadvantaged Businesses, 
Historically Black Colleges and Universities, and Minority Institutions, 
and FAR 52.219-10, Incentive Subcontracting Program for Small and Small 
Disadvantaged Business Concerns. Do not use award fee provisions in 
contracts with contractors which have comprehensive subcontracting plans 
approved under the test program described in 219.702(a).

[56 FR 36353, July 31, 1991, as amended at 56 FR 67213, Dec. 30, 1991; 
61 FR 39901, July 31, 1996]



 Subpart 219.8--Contracting With the Small Business Administration (The 
                              8(a) Program)



Sec. 219.800  General.

    (a) By Memorandum of Understanding (MOU) dated May 6, 1998, between 
the Small Business Administration (SBA) and the Department of Defense 
(DoD), the SBA delegated to the Under Secretary of Defense for 
Acquisition and Technology its authority under paragraph 8(a)(1)(A) of 
the Small Business Act (5 U.S.C. 637(a)) to enter into 8(a) prime 
contracts, and its authority under paragraph 8(a)(1)(B) of the Small 
Business Act to award the performance of those contracts to eligible 
8(a) Program participants. Consistent with the provisions of this 
subpart, this authority is hereby redelegated to DoD contracting 
officers within the United States, its territories and possessions, 
Puerto Rico, the Trust Territory of the Pacific Islands, and the 
District of Columbia, to the extent that it is consistent with any 
dollar or other restrictions established in individual warrants. This 
authority is being delegated and redelegated on a pilot test basis and 
shall expire on May 5, 2001. Notwithstanding this MOU, contracting 
officers may elect to award the contract pursuant to the provisions of 
FAR subpart 19.8.
    (b) Awards under the MOU may be awarded directly to the 8(a) 
participant on either a sole source or competitive basis.
    (c) Contracts awarded under the MOU may be awarded directly to the 
8(a) participant. An SBA signature on the contract is not required.

[63 FR 33587, June 19, 1998]



Sec. 219.803  Selecting acquisitions for the 8(a) Program.

    (b) Contracting activities should respond to SBA requests for 
contract support within 30 calendar days after receipt.
    (c) Before considering a small business set-aside, review the 
acquisition for offering under the 8(a) Program.

[56 FR 36353, July 31, 1991, as amended at 63 FR 41974, Aug. 6, 1998]



Sec. 219.804  Evaluation, offering, and acceptance.



Sec. 219.804-1  Agency evaluation.

    (f) The 8(a) firms should be offered the opportunity to give a 
technical presentation.

[63 FR 41974, Aug. 6, 1998]

[[Page 136]]



Sec. 219.804-2  Agency offering.

    (1) For requirements processed under the MOU cited in 219.80 (but 
see paragraph (2) of this subsection for procedures related to purchase 
orders that do not exceed the simplified acquisition threshold), the 
notification to the SBA shall clearly indicate that the requirement is 
being processed under the MOU. All notifications should be submitted in 
writing, using facsimile or electronic mail, when possible, and shall 
specify that--
    (i) Under the MOU, an SBA acceptance or rejection of the offering is 
required within 5 working days of receipt of the offering; and
    (ii)(A) For sole source requirements, an SBA acceptance shall 
include a size verification and a determination of the 8(a) firm's 
eligibility, and, upon acceptance, the contracting officer will solicit 
a proposal, conduct negotiations, and make award directly to the 8(a) 
firm; or
    (B) For competitive requirements, upon acceptance, the contracting 
officer will solicit offers, conduct source selection, and, upon receipt 
of an eligibility verification, award a contract directly to the 
selected 8(a) firm.
    (2) Under the MOU cited in 219.800, no separate agency offering or 
SBA acceptance is needed for requirements that are issued under purchase 
orders that do not exceed the simplified acquisition threshold. After an 
8(a) contractor has been identified, the contracting officer shall 
establish the prices, terms, and conditions with the 8(a) contractor and 
shall prepare a purchase order consistent with the procedures in part 
213 and FAR part 13, including the applicable clauses required by this 
subpart. No later than the day that the purchase order is provided to 
the 8(a) contractor, the contracting officer shall provide to the 
cognizant SBA Business Opportunity Specialist, using facsimile or 
electronic mail--
    (i) A copy of the purchase order; and
    (ii) A notice stating that the purchase order is being processed 
under the MOU. The notice also shall indicate that the 8(a) contractor 
will be deemed eligible for award and will automatically begin work 
under the purchase order unless, within 2 working days after SBA's 
receipt of the purchase order, the 8(a) contractor and the contracting 
officer are notified that the 8(a) contractor is ineligible for award.

[63 FR 33587, June 19, 1998]



Sec. 219.804-3  SBA acceptance.

    For requirements processed under the MOU cited in 219.800, SBA's 
acceptance is required within 5 working days (but see 219.804-2(2) for 
purchase orders that do not exceed the simplified acquisition 
threshold).

[63 FR 33587, June 19, 1998]



Sec. 219.805  Competitive 8(a).



Sec. 219.805-2  Procedures.

    (c) For requirements processed under the MOU cited in 219.800--
    (i) For sealed bid and negotiated acquisitions, the SBA will 
determine the eligibility of the firms and will advise the contracting 
officer within 2 working days after its receipt of a request for an 
eligibility determination; and
    (ii) For negotiated acquisitions, the contracting officer may submit 
a request for an eligibility determination on as many as three of the 
most highly rated offerors.

[63 FR 33588, June 19, 1998]



Sec. 219.806  Pricing the 8(a) contract.

    For requirements processed under the MOU cited in 219.800--
    (1) The contracting officer shall obtain cost or pricing data from 
the 8(a) contractor, if required by FAR subpart 15.4; and
    (2) SBA concurrence in the negotiated price is not required. 
However, except for purchase orders not exceeding the simplified 
acquisition threshold, the contracting officer shall notify the SBA 
prior to withdrawing a requirement from the 8(a) Program due to failure 
to agree on price or other terms and conditions.

[63 FR 33588, June 19, 1998]



Sec. 219.808  Contract negotiations.



Sec. 219.808-1  Sole source.

    For requirements processed under the MOU cited in 219.800--
    (1) The agency may negotiate directly with the 8(a) contractor. The

[[Page 137]]

contracting officer is responsible for initiating negotiations;
    (2) The 8(a) contractor is responsible for negotiating within the 
time established by the contracting officer;
    (3) If the 8(a) contractor does not negotiate within the established 
time and the agency cannot allow additional time, the contracting 
officer may, after notifying the SBA, proceed with the acquisition from 
other sources;
    (4) If requested by the 8(a) contractor, the SBA may participate in 
negotiations; and
    (5) SBA approval of the contract is not required.

[63 FR 33588, June 19, 1998]



Sec. 219.811  Preparing the contracts.



Sec. 219.811-1  Sole source.

    (a) Awards under the MOU cited in 219.800 may be made directly to 
the 8(a) contractor and, except as provided in paragraph (b) of this 
subsection and in 219.811-3, award documents shall be prepared in 
accordance with procedures established for non-8(a) contracts, using any 
otherwise authorized award forms. The ``Issued by'' block shall identify 
the awarding DoD contracting office. The contractor's name and address 
shall be that of the 8(a) participant.
    (b) Use the following alternative procedures for direct awards made 
under the MOU cited in 219.800:
    (i) Cite 10 U.S.C. 2304(c)(5) as the authority for use of other than 
full and open competition;
    (ii) Include the clause at 252.219-7009, which allows for direct 
award to the 8(a) contractor, and identify the cognizant SBA district 
office for the 8(a) contractor;
    (iii) No SBA contract number is required; and
    (iv) Do not require an SBA signature on the award document.

[63 FR 33588, June 19, 1998]



Sec. 219.811-2  Competitive.

    Awards made under the MOU cited in 219.800 shall be prepared in 
accordance with 219.811-1.

[63 FR 33588, June 19, 1998]



Sec. 219.811-3  Contract clauses.

    (1) Use the clause at 252.219-7009, Section 8(a) Direct Award, 
instead of the clauses at FAR 52.219-11, Special 8(a) Contract 
Conditions, FAR 52.219-12, Special 8(a) Subcontract Conditions, and FAR 
52.219-17, Section 8(a) Award, in solicitations and contracts processed 
in accordance with the MOU cited in 219.800.
    (2) Use the clause at FAR 52.219-18, Notification of Competition 
Limited to Eligible 8(a) Concerns, with 252.219-7010, Alternate A, in 
solicitations and contracts processed in accordance with the MOU cited 
in 219.800.
    (3) Use the clause at 252.219-7011, Notification to Delay 
Performance, in solicitations and purchase orders issued in accordance 
with 219.804-2(2).

[63 FR 33588, June 19, 1998]



Sec. 219.812  Contract administration.

    (d) Awards under the MOU cited in 219.800 are subject to Section 407 
of Pub. L. 100-656. These contracts include the clause at 252.219-7009, 
Section 8(a) Direct Award, which requires the 8(a) contractor to notify 
the SBA and the contracting officer when ownership of the firm is being 
transferred.

[63 FR 33588, June 19, 1998]



  Subpart 219.10--Small Business Competitiveness Demonstration Program



Sec. 219.1005  Applicability.

    (a)(3)(A) Architect-engineering services in support of military 
construction projects or military family housing projects are exempt 
from the Small Business Competitiveness Demonstration Program, except 
for the emerging small business (ESB) set-aside requirements. 
Accordingly, these shall--
    (1) Be reviewed for possible award under the 8(a) Program regardless 
of dollar value.
    (2) Not be set aside for small business if the estimated value is 
$85,000 or more (including indefinite delivery-indefinite quantity 
contracts if the value of all anticipated orders exceeds $85,000).
    (3) Be considered for ESB set-aside if the estimated value is both 
less than

[[Page 138]]

the emerging small business reserve amount and less than $85,000.
    (4) Be considered for small business set-aside if the estimated 
value is less than $85,000, regardless of whether small business set-
asides for other architect-engineer services are prohibited under the 
Small Business Competitiveness Demonstration Program, when an ESB set-
aside is not appropriate.
    (B) All requirements of the Small Business Competitiveness 
Demonstration Program apply to architect-engineer services in support of 
other than military construction projects or military housing objects, 
which otherwise meet criteria at FAR 19.1005(a)(3).
    (b) The targeted industry categories for DoD are:

------------------------------------------------------------------------
                                                                   SIC
            Standard industrial classification (SIC)               Code
------------------------------------------------------------------------
(1) Pharmaceutical preparations................................     2834
(2) Ammunition, except for small arms..........................     3483
(3) Ordnance and accessories, not elsewhere classified.........     3489
(4) Turbines and turbine generator sets........................     3511
(5) Aircraft engines and engine parts..........................     3724
(6) Guided missiles and space vehicles.........................     3761
(7) Space vehicle equipment, NEC...............................     3769
(8) Tanks and tank components..................................     3795
(9) Search and navigation equipment............................     3812
(10) Communication services, NEC...............................     4899
------------------------------------------------------------------------


[56 FR 36353, July 31, 1991, as amended at 59 FR 27670, May 27, 1994; 62 
FR 34122, June 24, 1997; 63 FR 41974, Aug. 6, 1998]



Sec. 219.1006  Procedures.

    (b)(2) The Director, Small and Disadvantaged Business Utilization, 
Office of the Under Secretary of Defense (Acquisition and Technology), 
will determine whether reinstatement of small business set-asides are 
necessary to meet the agency goal and will recommend reinstatement to 
the Director, Defense Procurement. Military departments and defense 
agencies shall not reinstate small business set-asides unless directed 
by the Director, Defense Procurement.
    (d) Reporting requirements are at 204.670-9.

[58 FR 28466, May 13, 1993, as amended at 61 FR 18687, Apr. 29, 1996; 62 
FR 34122, June 24, 1997; 63 FR 41974, Aug. 6, 1998]



  Subpart 219.11--Price Evaluation Adjustment for Small Disadvantaged 
                            Business Concerns



Sec. 219.1102  Applicability.

    (b) The price evaluation adjustment also shall not be used in 
acquisitions that are for commissary or exchange resale.

[63 FR 41974, Aug. 6, 1998]



                       Subpart 219.70  [Reserved]



              Subpart 219.71--Pilot Mentor-Protege Program

    Source: 59 FR 27670, May 27, 1994, unless otherwise noted.



Sec. 219.7100  Scope.

    This subpart implements the Pilot Mentor-Protege Program established 
under section 831 of the National Defense Authorization Act for Fiscal 
Year 1991, Public Law 101-510, as amended. The purpose of the Program is 
to provide incentives for DoD contractors to assist small disadvantaged 
businesses in enhancing their capabilities and to increase participation 
of such firms in Government and commercial contracts. Qualified 
organizations employing the severely disabled, as defined in section 
8064A of Public Law 102-172, are also eligible to participate as protege 
firms.



Sec. 219.7101  Policy.

    DoD policy and procedures for implementation of the Program are 
contained in appendix I to chapter 2, Policy and Procedures for the DoD 
Pilot Mentor-Protege Program.



Sec. 219.7102  General.

    The Program includes--
    (a) Mentor firms, which are prime contractors with at least one 
active subcontracting plan negotiated under FAR subpart 19.7.
    (b) Protege firms, which are small disadvantaged business (SDB) 
concerns or qualified organizations employing the severely disabled, 
eligible for receipt of Federal contracts and selected by the mentor 
firm.

[[Page 139]]

    (c) Mentor-protege agreements, which establish a developmental 
assistance program for a protege firm.
    (d) Incentives, which may be provided to mentor firms by the DoD 
including:
    (1) Reimbursement for developmental assistance costs through--
    (i) A separate contract;
    (ii) A separately priced contract line item on a DoD contract; or
    (iii) Inclusion of program cost in indirect expense pools.
    (2) Credit toward SDB subcontracting goals, established under a 
subcontracting plan negotiated under FAR subpart 19.7, for developmental 
assistance costs which are either reimbursed through indirect expense 
pools or are not reimbursed; or
    (3) A combination of reimbursement and credit.



Sec. 219.7103  Procedures.



Sec. 219.7103-1  General.

    The procedures for application, acceptance, and participation in the 
program are in appendix I to chapter 2, Policy and Procedures for the 
DoD Pilot Mentor-Protege Program. The Director of Small and 
Disadvantaged Business Utilization, Office of the Under Secretary of 
Defense (Acquisition and Technology) approves contractors as mentor 
firms, approves mentor-protege agreements, and forwards approved mentor-
protege agreements to the contracting officer when program funding is 
available through a DoD Program Manager.



Sec. 219.7103-2  Contracting officer responsibilities.

    Contracting officers shall--
    (a) Negotiate an advance agreement on the treatment of developmental 
assistance costs for credit, reimbursement, or both, if the mentor firm 
proposes such an agreement, or delegate authority to negotiate to the 
administrative contracting officer (see FAR 31.109).
    (b) Modify (without consideration) applicable contract(s) to 
incorporate the clause at 252.232-7005, Reimbursement of Subcontractor 
Advance Payments-DoD Pilot Mentor-Protege Program, when advance payments 
are provided by a mentor firm to a protege firm under the Program and 
the mentor firm requests reimbursement of advance payments.
    (c) Modify (without consideration) applicable contract(s) to 
incorporate other than customary progress payments for small 
disadvantaged businesses in accordance with FAR 32.504(c) if such 
payments are provided by a mentor firm to a protege firm and the mentor 
firm requests reimbursement.
    (d) Modify applicable contract(s) to establish a contract line item 
for reimbursement of developmental assistance costs--
    (1) When funds have been made available for that purpose by a DoD 
program manager; and
    (2) The contractor has an approved mentor-protege agreement.
    (e) Advise contractors of reporting requirements in appendix I to 
chapter 2.



Sec. 219.7104  Developmental assistance costs eligible for reimbursement or credit.

    (a) Developmental assistance provided under an approved mentor-
protege agreement is distinct from, and shall not duplicate, any effort 
that is the normal and expected product of the award and administration 
of the mentor firm's subcontracts. Costs associated with the latter 
shall be accumulated and charged in accordance with the contractor's 
approved accounting practices. Mentor firm costs which are eligible for 
reimbursement are set forth in appendix I to chapter 2.
    (b) Before incurring any costs under the Program, mentor firms need 
to establish the accounting treatment of developmental assistance costs 
eligible for reimbursement or credit. Advance agreements are encouraged. 
To be eligible for reimbursement under the Program, costs must be 
incurred before October 1, 2000.
    (c) If the mentor firm is suspended or debarred while performing 
under an approved mentor-protege agreement, the mentor firm may not be 
reimbursed or credited for developmental assistance costs incurred more 
than 30 days after the imposition of the suspension or debarment.

[[Page 140]]

    (d) Developmental assistance costs, incurred by a mentor firm before 
October 1, 2000, that are eligible for crediting under the Program may 
be credited towards subcontracting plan goals as set forth in appendix I 
to chapter 2.

[59 FR 27670, May 27, 1994, as amended at 61 FR 54346, Oct. 18, 1996; 63 
FR 11530, Mar. 9, 1998]



Sec. 219.7105  Reporting.

    Mentor firms shall report on the progress made under active mentor-
protege agreements semi-annually as indicated in section I-111 of 
appendix I to chapter 2.



PART 222--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS--Table of Contents




Sec.
222.001  Definition.

                   Subpart 222.1--Basic Labor Policies

222.101  Labor relations.
222.101-1  General.
222.101-3  Reporting labor disputes.
222.101-3-70  Impact of labor disputes on defense programs.
222.101-4  Removal of items from contractors' facilities affected by 
          work stoppages.
222.101-70  Acquisition of stevedoring services during labor disputes.
222.102  Federal and State labor requirements.
222.102-1  Policy.
222.103  Overtime.
222.103-4  Approvals.

       Subpart 222.3--Contract Work Hours and Safety Standards Act

222.302  Liquidated damages and overtime pay.

   Subpart 222.4--Labor Standards for Contracts Involving Construction

222.402  Applicability.
222.402-70  Installation support contracts.
222.403  Statutory and regulatory requirements.
222.403-4  Department of Labor regulations.
222.404  Davis-Bacon Act wage determinations.
222.404-2  General requirements.
222.404-3  Procedures for requesting wage determinations.
222.404-11  Wage determination appeals.
222.406  Administration and enforcement.
222.406-1  Policy.
222.406-6  Payrolls and statements.
222.406-8  Investigations.
222.406-9  Withholding from or suspension of contract payments.
222.406-10  Disposition of disputes concerning construction contract 
          labor standards enforcement.
222.406-13  Semiannual enforcement reports.
222.407  Contract clauses.

            Subpart 222.6--Walsh-Healey Public Contracts Act

222.604  Exemptions.
222.604-2  Regulatory exemptions.
222.608  Procedures.
222.608-4  Award pending final determination.

               Subpart 222.8--Equal Employment Opportunity

222.804  Affirmative action programs.
222.804-2  Construction.
222.805  Procedures.
222.806  Inquiries.
222.807  Exemptions.

        Subpart 222.10--Service Contract Act of 1965, as Amended

222.1003  Applicability.
222.1003-1  General.
222.1003-7  Questions concerning applicability of the Act.
222.1008  Procedures for preparing and submitting Notice (SF 98/98a).
222.1008-2  Preparation of SF 98a.
222.1008-7  Required time of submission of notice.
222.1014  Delay of acquisition dates over 60 days.

        Subpart 222.13--Special Disabled and Vietnam Era Veterans

222.1303  Waivers.
222.1304  Department of Labor notices and reports.
222.1306  Complaint procedures.
222.1308  Contract clauses.

              Subpart 222.14--Employment of the Handicapped

222.1403  Waivers.
222.1406  Complaint procedures.

Subpart 222.70--Restrictions on the Employment of Personnel for Work on 
           Construction/Service Contracts in Alaska and Hawaii

222.7000  Scope of subpart.
222.7001  General.
222.7002  Waivers.
222.7003  Contract clause.

[[Page 141]]

          Subpart 222.71--Right of First Refusal of Employment

222.7100  Scope of subpart.
222.7101  Policy.
222.7102  Contract clause.

    Subpart 222.72--Compliance with Labor Laws of Foreign Governments

222.7200  Scope of subpart.
222.7201  Contract clauses.

 Subpart 222.73--Base Operations Support for Military Installations on 
                                  Guam

222.7300  Scope of subpart.
222.7301  General.
222.7302  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36358, July 31, 1991, unless otherwise noted.



Sec. 222.001  Definition.

    Labor advisor, as used in this part, means the departmental or 
agency headquarters labor advisor.



                   Subpart 222.1--Basic Labor Policies



Sec. 222.101  Labor relations.



Sec. 222.101-1  General.

    (a) Contracting offices shall--
    (i) Obtain departmental approval before contacting a national office 
of a labor organization, a Government agency headquarters, or any other 
organization on a labor relations matter;
    (ii) Notify departmental headquarters as required in departmental 
procedures when contacted by the national office of any labor 
organization or Government agency headquarters;
    (iii) Obtain the approval of the agency head on major policy 
decisions regarding labor relations matters such as recommendations for 
plant seizure or injunctive action relating to potential or actual work 
stoppages; and
    (iv) Submit questions involving FAR part 22 or other contractor 
labor relations matters to the labor advisor.



Sec. 222.101-3  Reporting labor disputes.

    The contract administration office shall--
    (1) Notify the labor advisor, the contracting officer, and the head 
of the contracting activity when interference is likely;
    (2) Disseminate information on labor disputes in accordance with 
departmental procedures; and
    (3) File an initial labor dispute report using DD Form 1507, Work 
Stoppage Report, when a work stoppage is imminent or when a work 
stoppage occurs. File a follow-up report when a significant change 
occurs in the dispute. This reporting requirement is assigned Report 
Control Symbol DD-ACQ (AR) 1153.

[56 FR 36358, July 31, 1991, as amended at 56 FR 67215, Dec. 30, 1991; 
59 FR 27671, May 27, 1994]



Sec. 222.101-3-70  Impact of labor disputes on defense programs.

    (a) Each department and agency shall determine the degree of impact 
of potential or actual labor disputes on its own programs and 
requirements. In making these determinations, consider, for example--
    (1) Whether the dispute involves a product, project (including 
construction), or service which must be obtained in order to meet 
schedules for urgently needed military programs or requirements; and
    (2) Whether alternative sources of supply for the product, project, 
or service are reasonably available to fulfill the requirement or 
program in time to maintain essential military schedules.
    (b) Each contracting activity involved shall obtain and develop data 
reflecting the impact of a labor dispute on its requirements and 
programs. Upon determining the impact, the head of the contracting 
activity shall submit a report of findings and recommendations to the 
labor advisor. The report must be in narrative form and include--
    (1) Location of dispute and name of contractor or subcontractor 
involved;
    (2) A description of the impact, including how the specific items or 
services affect the specific programs or requirements;
    (3) Identity of alternate sources available to furnish the supply or 
service within the time required; and
    (4) A description of any action taken to reduce the impact.

[[Page 142]]

    (c) The head of the contracting activity shall submit impact reports 
to the agency head when--
    (1) Specifically requested; or
    (2) The department or agency considers the impact to be of 
sufficient urgency to warrant the attention of the agency head.
    (d) The labor advisor will expand the report submitted under 
paragraph (c) of this subsection by addressing the following, as 
appropriate--
    (1) Description of military program, project, or service. Identify 
item, project, or service which will be or is being affected by the work 
stoppage. Describe its normal use and current functions in combat, 
combat support, or deterrent operations. For components or raw 
materials, identify the end item(s) for which they are used.
    (2) Requirements and assets. Identify requirements and assets in 
appropriate detail in terms commonly used by the DoD component.
    (i) For production programs, include requirements for each using 
military service. Where applicable, state in detail production schedule, 
inventory objectives, assets against these objectives, and critical 
shortages. For spares and highly expendable items, such as ground and 
air ammunition, show usage (consumption) rates and assets in absolute 
terms and in terms of daily, weekly, or monthly supplies. For 
components, include requirements for spares.
    (ii) For projects, describe the potential adverse effects of a delay 
in meeting schedules, and its impact on the national security.
    (iii) For services, describe how a loss or interruption affects the 
ability to support Defense operations in terms of traffic requirements, 
assets, testing programs, etc.
    (3) Possible measures to minimize strike impact. Describe--
    (i) Capabilities, if any, to substitute items or to use alternate 
sources and indicate the number of other facilities available and the 
relative capabilities of such facilities in meeting total requirements;
    (ii) How much time would be required to replace the loss of the 
facilities or service affected by a work stoppage; and
    (iii) The feasibility of transferring assets from theater to theater 
to relieve deficits in some areas of urgency.
    (4) Conclusion. (i) Describe the impact on operations of a 15-30, 
30-60, and a 60-90 day work stoppage.
    (ii) Project the degree of criticality of a program, project, or 
service resulting from a work stoppage on a calendar basis, indicating 
the increased impact, if any, as the stoppage lengthens. Criticality is 
measured by the number of days required for the work stoppage to have an 
effect on operational capability. This time must be stated in terms of 
days.



Sec. 222.101-4  Removal of items from contractors' facilities affected by work stoppages.

    (a) When a contractor is unable to deliver urgent and critical items 
because of a work stoppage at its facility, the contracting officer, 
before removing any items from the facility, shall--
    (i) Before initiating any action, contact the labor advisor to 
obtain the opinion of the national office of the Federal Mediation and 
Conciliation Service or other mediation agency regarding the effect 
movement of the items would have on labor negotiations. Normally 
removals will not be made if they will adversely affect labor 
negotiations.
    (ii) Upon the recommendation of the labor advisor, provide a written 
request for removal of the material to the cognizant contract 
administration office. Include the following information in the 
request--
    (A) Contract number;
    (B) A statement as to the urgency and criticality of the item 
needed;
    (C) A description of the items to be moved (nature of the item, 
amount, approximate weight and cubic feet, item number, etc.);
    (D) Mode of transportation by which the items are to be moved, if 
different than in the contract, and whether by Government or commercial 
bill of lading; and
    (E) Destination of the material, if different from that specified in 
the contract.
    (iii) With the assistance of the labor advisor or the commander of 
the contract administration office, attempt to

[[Page 143]]

have both the management and the labor representatives involved agree to 
shipment of the material by normal means.
    (iv) If agreement for removal of the needed items cannot be reached 
following the procedures in paragraphs (a) (i) through (iii) of this 
subsection, the commander of the contract administration office, after 
obtaining approval from the labor advisor, may seek the concurrence of 
the parties to the dispute to permit movement of the material by 
military vehicles with military personnel. On receipt of such 
concurrences, the commander may proceed to make necessary arrangements 
to move the material.
    (v) If agreement for removal of the needed items cannot be reached 
following any of the procedures in paragraphs (a) (i) through (iv) of 
this subsection, refer the matter to the labor advisor with the 
information required by 222.101-3-70(b). If the labor advisor is 
unsuccessful in obtaining concurrence of the parties for the movement of 
the material and further action to obtain the material is deemed 
necessary, refer the matter to the agency head. Upon review and 
verification that the items are urgently or critically needed and cannot 
be moved with the consent of the parties, the agency head, on a 
nondelegable basis, may order removal of the items from the facility.



Sec. 222.101-70  Acquisition of stevedoring services during labor disputes.

    (a) Use the following procedures only in the order listed when a 
labor dispute delays performance of a contract for stevedoring services 
which are urgently needed.
    (1) Attempt to have management and labor voluntarily agree to exempt 
military supplies from the labor dispute by continuing the movement of 
such material.
    (2) Divert vessels to alternate ports able to provide necessary 
stevedoring services.
    (3) Consider contracting with reliable alternative sources of supply 
within the stevedoring industry.
    (4) Utilize civil service stevedores to perform the work performed 
by contract stevedores.
    (5) Utilize military personnel to handle the cargo which was being 
handled by contract stevedores prior to the labor dispute.
    (b) Notify the labor advisor when a deviation from the procedures in 
paragraph (a) of this subsection is required.



Sec. 222.102  Federal and State labor requirements.



Sec. 222.102-1  Policy.

    (1) The Department of Labor is responsible for the administration 
and enforcement of the Occupational Safety and Health Act (OSHA). 
Contracting officers shall--
    (i) Direct all inquiries from contractors or contractor employees 
regarding the applicability or interpretation of the OSHA regulations to 
the Department of Labor; and
    (ii) Upon request, provide the address of the appropriate field 
office of the Occupational Safety and Health Administration of the 
Department of Labor.
    (2) Do not initiate any application for the suspension or relaxation 
of labor requirements without prior coordination with the labor advisor.



Sec. 222.103  Overtime.



Sec. 222.103-4  Approvals.

    (a) The department/agency approving official shall--
    (i) Obtain the concurrence of other appropriate approving officials; 
and
    (ii) Seek agreement as to the contracts under which overtime 
premiums will be approved when--
    (A) Two or more contracting offices have current contracts at the 
same contractor facility; and
    (B) The approval of overtime by one contracting office will affect 
the performance or cost of contracts of another office. In the absence 
of evidence to the contrary, a contracting officer may rely on a 
contractor's statement that approval of overtime premium pay for one 
contract will not affect performance or payments under any other 
contract.

[[Page 144]]



       Subpart 222.3--Contract Work Hours and Safety Standards Act



Sec. 222.302  Liquidated damages and overtime pay.

    Upon receipt of notification of Contract Work Hours and Safety 
Standards Act violations, the contracting officer shall--
    (1) Immediately withhold such funds as are available;
    (2) Give the contractor written notification of the withholding and 
a statement of the basis for the liquidated damages assessment. The 
written notification shall also inform the contractor of its 60 days 
right to appeal the assessment, through the contracting officer, to the 
agency official responsible for acting on such appeals; and
    (3) If funds available for withholding are insufficient to cover 
liquidated damages, ask the contractor to pay voluntarily such funds as 
are necessary to cover the total liquidated damage assessment.
    (d)(i) The assessment shall become the final administrative 
determination of contractor liability for liquidated damages when--
    (A) The contractor fails to appeal to the contracting agency within 
60 days from the date of the withholding of funds;
    (B) The department agency, following the contractor's appeals, 
issues a final order which affirms the assessment of liquidated damages 
or waives damages of $500 or less; or
    (C) The Secretary of Labor takes final action on a recommendation of 
the agency head to waive or adjust liquidated damages in excess of $500.
    (ii) Upon final administrative determination of the contractor's 
liability for liquidated damages, the contracting officer shall transmit 
withheld or collected funds determined to be owed the Government as 
liquidated damages to the servicing finance and accounting officer for 
crediting to the appropriate Government Treasury account. The 
contracting officer shall return any excess withheld funds to the 
contractor.



   Subpart 222.4--Labor Standards for Contracts Involving Construction



Sec. 222.402  Applicability.



Sec. 222.402-70  Installation support contracts.

    (a) Apply both the Service Contract Act (SCA) and the Davis-Bacon 
Act (DBA) to installation support contracts if--
    (1) The contract is principally for services but also requires a 
substantial and segregable amount of construction, alteration, 
renovation, painting, or repair work; and
    (2) The aggregate dollar value of such construction work exceeds or 
is expected to exceed $2,000.
    (b) SCA coverage under the contract. Contract installation support 
requirements, such as plant operation and installation services (i.e., 
custodial, snow removal, etc.) are subject to the SCA. Apply SCA clauses 
and minimum wage and fringe benefit requirements to all contract service 
calls or orders for such maintenance and support work.
    (c) DBA coverage under the contract. Contract construction, 
alteration, renovation, painting, and repair requirements (i.e., roof 
shingling, building structural repair, paving repairs, etc.) are subject 
to the DBA. Apply DBA clauses and minimum wage requirements to all 
contract service calls or orders for construction, alteration, 
renovation, painting, or repairs to buildings or other works.
    (d) Repairs versus maintenance. Some contract work may be 
characterized as either DBA painting/repairs or SCA maintenance. For 
example, replacing broken windows, spot painting, or minor patching of a 
wall could be covered by either the DBA or the SCA. In those instances 
where a contract service call or order requires construction trade 
skills (i.e., carpenter, plumber, painter, etc.), but it is unclear 
whether the work required is SCA maintenance or DBA painting/repairs, 
apply the following rules--
    (1) Individual service calls or orders which will require a total of 
32 or more

[[Page 145]]

work-hours to perform shall be considered to be repair work subject to 
the DBA.
    (2) Individual service calls or orders which will require less than 
32 work-hours to perform shall be considered to be maintenance subject 
to the SCA.
    (3) Painting work of 200 square feet or more to be performed under 
an individual service call or order shall be considered to be subject to 
the DBA regardless of the total work-hours required.
    (e) The determination of labor standards application shall be made 
at the time the solicitation is prepared in those cases where 
requirements can be identified. Otherwise, the determination shall be 
made at the time the service call or order is placed against the 
contract. The service call or order shall identify the labor standards 
law and contract wage determination which will apply to the work 
required.
    (f) Contracting officers may not avoid application of the DBA by 
splitting individual tasks between orders or contracts.



Sec. 222.403  Statutory and regulatory requirements.



Sec. 222.403-4  Department of Labor regulations.

    Direct all questions regarding Department of Labor regulations to 
the labor advisor.



Sec. 222.404  Davis-Bacon Act wage determinations.

    Not later than April 1 of each year, each department and agency 
shall furnish the Administrator, Wage and Hour Division, with a general 
outline of its proposed construction program for the coming fiscal year. 
The Department of Labor uses this information to determine where general 
wage determination surveys will be conducted.
    (1) Indicate by individual project of $500,000 or more--
    (i) The anticipated type of construction;
    (ii) The estimated dollar value; and
    (iii) The location in which the work is to be performed (city, town, 
village, county, or other civil subdivision of the state).
    (2) The report format is contained in Department of Labor All Agency 
Memo 144, December 27, 1985.
    (3) The report control number is 1671-DOL-AN.



Sec. 222.404-2  General requirements.

    (c)(5) Information concerning the proper application of wage rate 
schedules to the type or types of construction involved shall be 
obtained from the appropriate district commander, Corps of Engineers, 
for the Army; from the cognizant Naval Facilities Engineering Command 
division for the Navy; from the appropriate Regional Industrial 
Relations Office for the Air Force; and from the appropriate Defense 
Contract Management District, ATTN: Industrial Labor Relations Office, 
for the Defense Logistics Agency.



Sec. 222.404-3  Procedures for requesting wage determinations.

    (b) Requests for project wage determinations. Submit requests for 
project wage determinations directly to the Department of Labor.



Sec. 222.404-11  Wage determination appeals.

    Send a copy of a petition for review filed by the contracting agency 
to the labor advisor.



Sec. 222.406  Administration and enforcement.



Sec. 222.406-1  Policy.

    (a) General. The program shall also include--
    (i) Training appropriate contract administration, labor relations, 
inspection, and other labor standards enforcement personnel in their 
responsibilities; and
    (ii) Periodic review of field enforcement activities to ensure 
compliance with applicable regulations and instructions.
    (b) Preconstruction letters and conferences. (1) Promptly after 
award of the contract, the contracting officer shall provide a 
preconstruction letter to the prime contractor. This letter should 
accomplish the following, as appropriate--
    (A) Indicate that the labor standards requirements contained in the 
contract

[[Page 146]]

are based on the following statutes and regulations--
    (1) Davis-Bacon Act;
    (2) Contract Work Hours and Safety Standards Act;
    (3) Copeland (Anti-Kickback) Act;
    (4) Parts 3 and 5 of the Secretary of Labor's Regulations (parts 3 
and 5, subtitle A, title 29, CFR); and
    (5) Executive Order 11246 (Equal Employment Opportunity);
    (B) Call attention to the labor standards requirements in the 
contract which relate to--
    (1) Employment of foremen, laborers, mechanics, and others;
    (2) Wages and fringe benefits payments, payrolls, and statements;
    (3) Differentiation between subcontractors and suppliers;
    (4) Additional classifications;
    (5) Benefits to be realized by contractors and subcontractors in 
keeping complete work records;
    (6) Penalties and sanctions for violations of the labor standards 
provisions; and
    (7) The applicable provisions of FAR 22.403; and
    (C) Ensure that the contractor sends a copy of the preconstruction 
letter to each subcontractor.
    (2) Before construction begins, the contracting officer shall confer 
with the prime contractor and any subcontractor designated by the prime 
to emphasize their labor standards obligations under the contract when--
    (A) The prime contractor has not performed previous Government 
contracts;
    (B) The prime contractor experienced difficulty in complying with 
labor standards requirements on previous contracts; or
    (C) It is necessary to determine whether the contractor and its 
subcontractors intend to pay any required fringe benefits in the manner 
specified in the wage determination or to elect a different method of 
payment. If the latter, inform the contractor of the requirements of FAR 
22.406-2.



Sec. 222.406-6  Payrolls and statements.

    (a) Submission. Contractors who do not use Department of Labor Form 
WH 347 or its equivalent must submit a DD Form 879, Statement of 
Compliance, with each payroll report.



Sec. 222.406-8  Investigations.

    (a) The following guidance and procedures apply to investigations 
conducted by the contracting activity. (i) Beginning of the 
investigation. The investigator shall--
    (A) Inform the contractor of the investigation in advance;
    (B) Verify the exact legal name of the contractor, its address, and 
the names and titles of its principal officers;
    (C) Outline the general scope of the investigation and that it 
includes examining pertinent records and interviewing employees; and
    (D) Inform the contractor that the names of the employees to be 
interviewed will not be divulged to the contractor;
    (E) When requested, provide a letter from the contracting officer 
verifying the investigator's authority.
    (ii) Conduct of the investigation--(A) Review of the contract.
    (1) Verify that all required labor standards and clauses and the 
wage determination are included in the contract.
    (2) Review the following items in the contract file, if applicable--
    (i) List of subcontractors;
    (ii) Payroll statements for the contractor and subcontractors;
    (iii) Approvals of additional classifications;
    (iv) Data regarding apprentices and trainees as required by FAR 
22.406-4;
    (v) Daily inspector's report or other inspection reports;
    (vi) Employee interview statements; and
    (vii) SF 1413, Statement and Acknowledgement.
    (B) Interview of the complainant. Interview the complainant except 
when this is impractical. The interview shall cover all aspects of the 
complaint to ensure that all pertinent information is obtained. Whenever 
an investigation does not include an interview of the complainant, 
explain such omission in the investigator's report.
    (C) Interview of employees and former employees. (1) Interview a 
sufficient

[[Page 147]]

number of employees or former employees, who represent all 
classifications, to develop information regarding the method and amount 
of payments, deductions, hours worked, and the type of work performed.
    (2) Interview employees at the job site if the interviews can be 
conducted privately and in such a manner so as to cause the least 
inconvenience to the employer and employees.
    (3) Former employees may be interviewed elsewhere.
    (4) Do not disclose to any employee any information, finding, 
recommendation, or conclusion relating to the investigation except to 
the extent necessary to obtain required information.
    (5) Do not disclose any employee's statement to anyone, except a 
Government representative working on the case, without the employee's 
written permission.
    (6) Obtain information by mail when personal interviews are 
impractical.
    (7) Use SF 1445, Labor Standards Interview, for employee interviews.
    (8) Request employees to sign their statements and to initial any 
changes.
    (9) Provide an evaluation of each employee's credibility.
    (D) Interview of foremen. Interview foremen to obtain information 
concerning the contractor's compliance with the labor standards 
provisions with respect to employees under the foreman's supervision and 
the correctness of the foreman's classification as a supervisory 
employee. All procedures established for the conduct of employee 
interviews, and the recording and use of information obtained, apply to 
foremen interviews.
    (E) Interview of the contractor. (1) Interview the contractor 
whenever the investigation indicates the possibility of a violation.
    (2) Inform the contractor that--
    (i) The interview does not mean that a violation has been found or 
that a requirement for corrective action exists; and
    (ii) The purpose of the interview is to obtain only such data as the 
contractor may desire to present in connection with the investigation.
    (3) Do not disclose the identity of any individual who filed a 
complaint or was interviewed.
    (F) Review of contractor and subcontractor records. (1) Review 
contractor and subcontractor records such as basic time cards, books, 
cancelled payroll checks, fringe benefits, and payment records. Compare 
them with submitted payrolls. When discrepancies are found, include 
pertinent excerpts or copies of the records in the investigation report 
with a statement of the discrepancy and any explanation the investigator 
obtains. When wages include contributions or anticipated costs for 
fringe payments requiring approval of the Secretary of Labor, examine 
the contractor records to ensure such approval has been obtained and 
that any requirements specified in the approval have been met. (See FAR 
22.406-2(a)(3)).
    (2) Review contractor's and subcontractor's weekly payrolls and 
payroll statements for completeness and accuracy regarding the 
following--
    (i) Identification of employees, payroll amount, the contract, 
contractor, subcontractor, and payroll period;
    (ii) Inclusion of only job classifications and wage rates specified 
in the contract specifications, or otherwise established for the 
contract or subcontract;
    (iii) Computation of daily and weekly hours;
    (iv) Computation of time-and-one half for work in excess of 40 hours 
per week in accordance with FAR 22.406-2(c);
    (v) Gross weekly wages;
    (vi) Deductions;
    (vii) Computation of net weekly wages paid to each employee;
    (viii) Ratio of helpers, apprentices, and trainees to laborers and 
mechanics;
    (ix) Apprenticeship and trainee registration and ratios; and
    (x) Computation of fringe benefits payments.
    (3) Transcribe the contractor's records whenever they contain 
information at variance with payrolls or other submitted documents.
    (i) Make the transcriptions in sufficient detail to permit them to 
be used to check computations of restitution and to determine amounts to 
be withheld from the contractor.
    (ii) Follow the form used by the contractor.

[[Page 148]]

    (iii) Place comments or explanations concerning the transcriptions 
on separate memoranda or in the narrative report.
    (iv) Determine whether the wage determination, any modifications of 
the determination, and any additional classifications are posted as 
required.
    (iii) Submission of the report of investigation. The investigator 
shall submit a report of the investigation in accordance with agency 
procedures. Each report shall include at least the--
    (A) Basis for the investigation, including the name of the 
complainant;
    (B) Names and addresses of prime contractors and subcontractors 
involved, and names and titles of their principal officers;
    (C) Contract number, date, dollar value of prime contract, and date 
and number of wage determination included in the contract;
    (D) Description of the contract and subcontract work involved;
    (E) Summary of the findings with respect to each of the items listed 
in 222.406-8(a)(ii);
    (F) Concluding statement concerning--
    (1) The types of violations, including the amount of kickbacks under 
the Copeland Act, underpayments of basic hourly rates and fringe 
benefits under the Davis-Bacon Act, or underpayments and liquidated 
damages under the Contract Work Hours and Safety Standards Act;
    (2) Whether violations are considered to be willful or due to the 
negligence of the contractor or its agent;
    (3) The amount of funds withheld from the contractor; and
    (4) Other violations found.
    (G) Exhibits indexed and appropriately tabbed, including copies of 
the following, when applicable--
    (1) Complaint letter;
    (2) Contract wage determination;
    (3) Preconstruction letter and memorandum of preconstruction 
conference;
    (4) Payrolls and statements indicating violations;
    (5) Transcripts of pertinent records of the contractor, and 
approvals of fringe benefit payments;
    (6) Employee interview statements;
    (7) Foreman interview statements;
    (8) Statements of others interviewed, including Government 
personnel;
    (9) Detailed computations showing kickbacks, underpayments, and 
liquidated damages;
    (10) Summary of all payments due to each employee or to a fund plan 
or program, and liquidated damages; and
    (11) Receipts and cancelled checks.
    (c) Notification to the contractor.
    (4)(A) Notify the contractor by certified mail of any finding that 
it is liable for liquidated damages under the Contract Work Hours and 
Safety Standards Act (CWHSSA). The notification shall inform the 
contractor that--
    (1) It has 60 days after receipt of the notice to appeal the 
assessment of liquidated damages; and
    (2) The appeal must demonstrate either that the alleged violations 
did not occur at all, occurred inadvertently notwithstanding the 
exercise of due care, or the assessment was computed improperly.
    (B) If an appeal is received, the contracting officer shall process 
the appeal in accordance with department or agency regulations.
    (d) Contracting officer's report. (1) In accordance with agency 
procedures, the contracting officer shall forward a detailed enforcement 
report or summary report in duplicate. These reports shall include at 
least the following--
    (A) SF 1446, Labor Standards Investigation Summary Sheet;
    (B) Contracting officer's findings;
    (C) Statement as to the disposition of any contractor rebuttal to 
the findings;
    (D) Statement as to whether the contractor has accepted the findings 
and has paid any restitution or liquidated damages;
    (E) Statement as to the disposition of funds available;
    (F) Recommendations as to disposition or further handling of the 
case (when appropriate, include recommendations as to the reduction, 
waiver, or assessment of liquidated damages, whether the contractor 
should be debarred, and whether the file should be referred for possible 
criminal prosecution); and
    (G) When applicable the following exhibits--

[[Page 149]]

    (1) Investigator's report;
    (2) Copy of the contractor's written rebuttal or a summary of the 
contractor's oral rebuttal of the contracting officer's findings;
    (3) Copies of correspondence between the contractor and contracting 
officer, including a statement of specific violations found, corrective 
action requested, and the contractor's letter of acceptance or 
rejection;
    (4) Evidence of the contractor's payment of restitution or 
liquidated damages. (Copies of receipts, canceled checks, or 
supplemental payrolls); and
    (5) Letter from the contractor requesting relief from the liquidated 
damage provisions of the CWHSSA.



Sec. 222.406-9  Withholding from or suspension of contract payments.

    (a) Withholding from contract payments. The contracting officer 
shall contact the labor advisor for assistance when payments due a 
contractor are not available to satisfy that contractor's liability for 
Davis-Bacon or CWHSSA wage underpayments or liquidated damages.
    (c) Disposition of contract payments withheld or suspended.
    (3) Limitation on forwarding or returning funds. When disposition of 
withheld funds remains the final action necessary to close out a 
contract, the Department of Labor has given blanket approval to forward 
withheld funds to the Comptroller General pending completion of an 
investigation or other administrative proceedings.
    (4) Liquidated damages.
    (A) The agency head may adjust liquidated damages of $500 or less 
when the amount assessed is incorrect or waive the assessment when the 
violations--
    (1) Were nonwillful or inadvertent; and
    (2) Occurred notwithstanding the exercise of due care by the 
contractor, its subcontractor, or their agents.
    (B) The agency head may recommend to the Administrator, Wage and 
Hour Division, that the liquidated damages over $500 be adjusted because 
the amount assessed is incorrect. The agency head may also recommend the 
assessment be waived when the violations--
    (1) Were nonwillful or inadvertent; and
    (2) Occurred notwithstanding the exercise of due care by the 
contractor, the subcontractor, or their agents.



Sec. 222.406-10  Disposition of disputes concerning construction contract labor standards enforcement.

    (d) Forward the contracting officer's findings and the contractor's 
statement through the labor advisor.



Sec. 222.406-13  Semiannual enforcement reports.

    Forward these reports through the head of the contracting activity 
to the labor advisor within 15 days following the end of the reporting 
period. These reports shall not include information from investigations 
conducted by the Department of Labor. These reports shall contain the 
following information, as applicable, for construction work subject to 
the Davis-Bacon Act and the CWHSSA--
    (1) Period covered;
    (2) Number of prime contracts awarded;
    (3) Total dollar amount of prime contracts awarded;
    (4) Number of contractors/subcontractors against whom complaints 
were received;
    (5) Number of investigations conducted;
    (6) Number of contractors/subcontractors found in violation;
    (7) Amount of wage restitution found due under--
    (i) Davis-Bacon Act
    (ii) CWHSSA;
    (8) Number of employees due wage restitution under--
    (i) Davis-Bacon Act
    (ii) CWHSSA;
    (9) Amount of liquidated damages assessed under the CWHSSA--
    (i) Total amount
    (ii) Number of contracts involved;
    (10) Number of employees and amount paid/withheld under--
    (i) Davis-Bacon Act
    (ii) CWHSSA
    (iii) Copeland Act; and
    (11) Preconstruction activities--
    (i) Number of compliance checks performed
    (ii) Preconstruction letters sent.

[[Page 150]]



Sec. 222.407  Contract clauses.

    In contracts with a State or political subdivision, use the contract 
clauses prescribed in FAR 22.407, but preface these clauses with the 
following--

    The Contractor agrees to comply with the requirements of the 
Contract Work Hours and Safety Standards Act and to insert the following 
clauses in all subcontracts under this contract with private persons or 
firms.



            Subpart 222.6--Walsh-Healey Public Contracts Act



Sec. 222.604  Exemptions.



Sec. 222.604-2  Regulatory exemptions.

    (c) Submit all applications for such exemptions through contracting 
channels to the labor advisor.



Sec. 222.608  Procedures.



Sec. 222.608-4  Award pending final determination.

    (b)(1) The head of the contracting activity is the approval 
authority for the contracting officer's certification.



               Subpart 222.8--Equal Employment Opportunity



Sec. 222.804  Affirmative action programs.



Sec. 222.804-2  Construction.

    (b) Contracting officers forward requests for instructions directly 
to the servicing Office of Federal Contract Compliance Programs (OFCCP) 
regional office (see FAR 22.609).



Sec. 222.805  Procedures.

    (a)(2) See FAR 22.609 for a list of OFCCP regional offices.



Sec. 222.806  Inquiries.

    (b) Refer inquiries through the labor advisor.



Sec. 222.807  Exemptions.

    (c) Submit the request for exemption with a justification through 
contracting channels to the labor advisor who will forward them to the 
agency head. If the request is submitted under FAR 22.807(a)(1), the 
agency head shall act on the request. If the exemption is granted, the 
agency head shall notify the Director, OFCCP of such action within 30 
days. If the request is submitted under FAR 22.807(a)(2) or (b)(5), the 
agency head will forward it to the Director, OFCCP for action.



        Subpart 222.10--Service Contract Act of 1965, as Amended



Sec. 222.1003  Applicability.



Sec. 222.1003-1  General.

    For contracts having a substantial amount of construction, 
alteration, renovation, painting, or repair work, see 222.402-70.



Sec. 222.1003-7  Questions concerning applicability of the Act.

    Contracting officers may contact the labor advisor by telephone for 
informal advice. Submit requests for formal determinations as to the 
Act's applicability to the labor advisor in writing through appropriate 
channels.



Sec. 222.1008  Procedures for preparing and submitting Notice (SF 98/98a).



Sec. 222.1008-2  Preparation of SF 98a.

    (b)(1) The contracting officer shall secure the assistance of 
cognizant customer/technical personnel to ensure maximum use of the 
Service Contract Act Directory of Occupations (Directory) and 
incorporation of all service employee classes (Directory and 
nondirectory) expected to be utilized.
    (2)(A) When the statement of work job title, for which there is a 
Directory equivalent, differs from the Directory job title, make a 
written cross-reference either directly on the SF 98a file copy or on an 
attached sheet to the SF 98a file copy.
    (B) Include and note as such any classifications and minimum hourly 
wage rates conformed under any predecessor contract. Where a previously 
conformed classification is not included in the Directory, attach the 
job description to the SF 98a.



Sec. 222.1008-7  Required time of submission of notice.

    (d) Submit requests for immediate wage determination responses for 
emergency acquisitions through the

[[Page 151]]

labor advisor. If the request is justified, the labor advisor will 
contact Department of Labor headquarters officials.



Sec. 222.1014  Delay of acquisition dates over 60 days.

    Send update requests in writing directly to the Wage and Hour 
Division and provide a copy to the labor advisor. The update request 
shall--
    (1) State that one or more dates on the original notice have been 
delayed more than 60 days;
    (2) List the new dates; and
    (3) Include a copy of the original notice and SF 98a as enclosures.



        Subpart 222.13--Special Disabled and Vietnam Era Veterans



Sec. 222.1303  Waivers.

    (c) The contracting officer shall submit a waiver request through 
contracting channels to the labor advisor. If the request is justified, 
the labor advisor will endorse the request and forward it for action 
to--
    (i) The agency head for waivers under FAR 22.1303(a); or
    (ii) The Secretary of Defense, without the power of redelegation, 
for waivers under FAR 22.1303(b).



Sec. 222.1304  Department of Labor notices and reports.

    (b) As provided in Section 8117 of the National Defense 
Appropriations Act for Fiscal Year 1998 (Pub. L. 105-56), no funds made 
available in that Act may be obligated or expended to enter into or 
renew a contract with a contractor that is subject to the reporting 
requirements of 38 U.S.C. 4212(d) (i.e., the VETS-100 report required by 
FAR 52.222-37, Employment Reports on Disabled Veterans and Veterans of 
the Vietnam Era) but has not submitted the most recent report required 
by 38 U.S.C. 4212(d) for 1997 or a subsequent year.

[63 FR 11851, Mar. 11, 1998]



Sec. 222.1306  Complaint procedures.

    The contracting officer shall--
    (1) Forward each complaint received as indicated in FAR 22.1306; and
    (2) Notify the complainant of the referral. The contractor in 
question shall not be advised in any manner or for any reason of the 
complainant's name, the nature of the complaint, or the fact that the 
complaint was received.



Sec. 222.1308  Contract clauses.

    (a)(1) Use of the clause at FAR 52.222-35, Affirmative Action for 
Special Disabled and Vietnam Era Veterans, with its paragraph (c), 
Listing Openings, also satisfies the requirement of 10 U.S.C. 2410d.

[58 FR 28466, May 13, 1993]



              Subpart 222.14--Employment of the Handicapped



Sec. 222.1403  Waivers.

    (c) The contracting officer shall submit a waiver request through 
contracting channels to the labor advisor. If the request is justified, 
the labor advisor will endorse the request and forward it for action 
to--
    (i) The agency head for waivers under FAR 22.1403(a). For the 
defense agencies, waivers must be approved by the Under Secretary of 
Defense for Acquisition.
    (ii) The Secretary of Defense, without the power of redelegation, 
for waivers under FAR 22.1403(b).



Sec. 222.1406  Complaint procedures.

    The contracting officer shall--
    (1) Forward each complaint received as indicated in FAR 22.1406 (see 
FAR 22.609 for a listing of Department of Labor regional/area offices); 
and
    (2) Notify the complainant of such referral. The contractor in 
question shall not be advised in any manner or for any reason of the 
complainant's name, the nature of the complaint, or the fact that the 
complaint was received.



Subpart 222.70--Restrictions on the Employment of Personnel for Work on 
           Construction/Service Contracts in Alaska and Hawaii



Sec. 222.7000  Scope of subpart.

    (a) This subpart implements section 8078 of the 1986 Defense 
Appropriations

[[Page 152]]

Act, Public Law 99-190, and similar sections in subsequent Defense 
Appropriations Acts.
    (b) This subpart applies only--
    (1) To construction and service contracts to be performed in whole 
or in part within the states of Alaska or Hawaii; and
    (2) When the unemployment rate in the state is in excess of the 
national average rate of unemployment as determined by the Secretary of 
Labor.

[56 FR 36358, July 31, 1991, as amended at 57 FR 14993, Apr. 23, 1992]



Sec. 222.7001  General.

    A contractor awarded a contract subject to this subpart must employ 
for the purpose of performing that portion of the contract work within 
the state, individuals who are residents of that state, and who, in the 
case of any craft or trade, possess or would be able to acquire promptly 
the necessary skills to perform the contract.



Sec. 222.7002  Waivers.

    Waivers may be granted, in the interest of national security, at a 
level no lower than the Assistant Secretary of any department.



Sec. 222.7003  Contract clause.

    Use the clause at 252.222-7000, Restrictions on Employment of 
Personnel, in all solicitations and contracts subject to this subpart.



          Subpart 222.71--Right of First Refusal of Employment

    Source: 57 FR 52593, Nov. 4, 1992, unless otherwise noted.



Sec. 222.7100  Scope of subpart.

    This subpart prescribes policies and procedures for use in 
acquisitions arising from closure of military installations.



Sec. 222.7101  Policy.

    (a) DoD policy is to minimize the adverse impact on civil service 
employees affected by the closure of military installations. One means 
of implementing this policy is to give employees adversely affected by 
closure of a military installation the right of first refusal for jobs 
created by award of contracts arising from the closure effort that the 
employee is qualified to fill.
    (b) Closure efforts include the acquisitions for preparing the 
installation for closure (such as environmental restoration and 
utilities modification) and maintaining the property after closure (such 
as security and fire prevention services).



Sec. 222.7102  Contract clause.

    Use the clause at 252.222-7001, Right of First Refusal of 
Employment--Closure of Military Installations, in all solicitations and 
contracts arising from the closure of the military installation where 
the contract will be performed.



    Subpart 222.72--Compliance with Labor Laws of Foreign Governments



Sec. 222.7200  Scope of subpart.

    This subpart prescribes contract clauses, with respect to labor laws 
of foreign governments, for use when contracting for services or 
construction within a foreign country.

[62 FR 34122, June 24, 1997]



Sec. 222.7201  Contract clauses.

    (a) Use the clause at 252.222-7002, Compliance with Local Labor Laws 
(Overseas), in solicitations and contracts for services or construction 
to be performed outside the United States, its possessions, and Puerto 
Rico.
    (b) Use the clause at 252.222-7003, Permit from Italian Inspectorate 
of Labor, in solicitations and contracts for porter, janitorial, or 
ordinary facility and equipment maintenance services to be performed in 
Italy.
    (c) Use the clause at 252.222-7004, Compliance with Spanish Social 
Security Laws and Regulations, in solicitations and contracts for 
services or construction to be performed in Spain.

[62 FR 34122, June 24, 1997]

[[Page 153]]



 Subpart 222.73--Base Operations Support for Military Installations on 
                                  Guam

    Source: 63 FR 31936, June 11, 1998, unless otherwise noted.



Sec. 222.7300   Scope of subpart.

    (a) This subpart implements Section 390 of the National Defense 
Authorization Act for Fiscal Year 1998 (Pub. L. 105-85).
    (b) This subpart applies to base operations support contracts that--
    (1) Are to be performed on Guam; and
    (2) Are entered into or modified on or after November 18, 1997.



Sec. 222.7301   General.

    Work under a contract for base operations support on Guam may not be 
performed by any alien who is issued a visa or otherwise provided 
nonimmigrant status under Section 101(a)(15)(H)(ii) of the Immigration 
and Nationality Act (8 U.S.C. 1101(a)(15)(H)(ii)).



Sec. 222.7302   Contract clause.

    Use the clause at 252.222-7005, Prohibition on Use of Nonimmigrant 
Aliens--Guam, in all solicitations and contracts subject to this 
subpart.



PART 223--ENVIRONMENT, CONSERVATION, OCCUPATIONAL SAFETY, AND DRUG-FREE WORKPLACE--Table of Contents




        Subpart 223.1--Pollution Control and Clean Air and Water

Sec.
223.104  Exemptions.

  Subpart 223.3--Hazardous Material Identification and Material Safety 
                                  Data

223.300  Scope of subpart.
223.302  General.
223.303  Contract clause.
223.370  Safety precautions for ammunition and explosives.
223.370-1  Scope.
223.370-2  Definition.
223.370-3  Policy.
223.370-4  Procedures.
223.370-5  Contract clauses.

                Subpart 223.4--Use of Recovered Materials

223.404  Procedures.

                   Subpart 223.5--Drug-Free Workplace

223.570  Drug-free work force.
223.570-1  Definitions.
223.570-2  Policy.
223.570-3  General.
223.570-4  Contract clause.

                Subpart 223.8--Ozone-Depleting Substances

223.803  Policy.

                Subpart 223.70--Hazardous Waste Disposal

223.7000  Scope of subpart.
223.7001  Definitions.
223.7002  Contract clause.

  Subpart 223.71--Storage and Disposal of Toxic and Hazardous Materials

223.7100  Policy.
223.7101  Procedures.
223.7102  Exceptions.
223.7103  Contract clause.

 Subpart 223.72--Safeguarding Sensitive Conventional Arms, Ammunition, 
                             and Explosives

223.7200  Definition.
223.7201  Policy.
223.7202  Preaward responsibilities.
223.7203  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36365, July 31, 1991, unless otherwise noted.



        Subpart 223.1--Pollution Control and Clean Air and Water



Sec. 223.104  Exemptions.

    (c) The authority to act for the agency head under this subpart is 
limited to a level no lower than an official who is appointed by and 
with the advice of the Senate. For the defense agencies, this is the 
Under Secretary of Defense (Acquisition and Technology).

[60 FR 61596, Nov. 30, 1995]

[[Page 154]]



  Subpart 223.3--Hazardous Material Identification and Material Safety 
                                  Data



Sec. 223.300  Scope of subpart.

    DoD procedures for use in acquisitions involving ammunition and 
explosives are in 223.370.



Sec. 223.302  General.

    (b) Successful offerors are also required to submit hazard warning 
labels under the clause at 252.223-7001, Hazard Warning Labels.
    (e) The contracting officer shall also provide hazard warning labels 
received from apparent successful offerors to the cognizant safety 
officer or other designated official in order to facilitate--
    (i) Inclusion of relevant data in the department/agency's material 
safety data sheet information system or label information system; and
    (ii) Other control, safety, or information purposes.

[56 FR 67215, Dec. 30, 1991]



Sec. 223.303  Contract clause.

    Use the clause at 252.223-7001, Hazard Warning Labels, in 
solicitations and contracts which require submission of hazardous 
material data sheets (see FAR 23.302(c)).

[56 FR 67215, Dec. 30, 1991]



Sec. 223.370  Safety precautions for ammunition and explosives.



Sec. 223.370-1  Scope.

    (a) This section applies to all acquisitions involving the use of 
ammunition and explosives, including acquisitions for--
    (1) Development;
    (2) Testing;
    (3) Research;
    (4) Manufacturing;
    (5) Handling or loading;
    (6) Assembling;
    (7) Packaging;
    (8) Storage;
    (9) Transportation;
    (10) Renovation;
    (11) Demilitarization;
    (12) Modification;
    (13) Repair;
    (14) Disposal;
    (15) Inspection; or
    (16) Any other use, including acquisitions requiring the use or the 
incorporation of materials listed in paragraph (b) of this subsection 
for initiation, propulsion, or detonation as an integral or component 
part of an explosive, an ammunition, or explosive end item or weapon 
system.
    (b) This section does not apply to acquisitions solely for--
    (1) Inert components containing no explosives, propellants, or 
pyrotechnics;
    (2) Flammable liquids;
    (3) Acids;
    (4) Oxidizers;
    (5) Powdered metals; or
    (6) Other materials having fire or explosive characteristics.



Sec. 223.370-2  Definition.

    Ammunition and explosives, as used in this section, is defined in 
the clause at 252.223-7002, Safety Precautions for Ammunition and 
Explosives.



Sec. 223.370-3  Policy.

    (a) DoD policy is to ensure that its contractors take reasonable 
precautions in handling ammunition and explosives so as to minimize the 
potential for mishaps that could--
    (1) Interrupt DoD operations;
    (2) Delay project or product completion dates;
    (3) Adversely impact DoD mission readiness, production base, or 
production capabilities;
    (4) Damage or destroy DoD property; or
    (5) Cause injury to DoD personnel.
    (b) This policy is implemented by DoD Manual 4145.26-M, DoD 
Contractors' Safety Manual for Ammunition and Explosives, which is 
incorporated into contracts under which ammunition and explosives are 
handled. The manual contains mandatory safety requirements for 
contractors. When work is to be performed on a Government-owned 
installation, the contracting officer may use the ammunition and 
explosives regulation of the DoD component or installation as a 
substitute for, or supplement to, DoD Manual 4145.26-M, as long as the 
contract cites these regulations.

[[Page 155]]



Sec. 223.370-4  Procedures.

    (a) Preaward phase--(1) Waiver of the mandatory requirements. (i) 
Before either omitting the clause at 252.223-7002, Safety Precautions 
for Ammunition and Explosives, from solicitations and contracts or 
waiving the mandatory requirements of the manual, obtain approval of--
    (A) The safety personnel responsible for ammunition and explosives 
safety; and
    (B) The head of the contracting activity.
    (ii) If the contracting officer decides to waive the mandatory 
requirements before award, the contracting officer shall set forth in 
the solicitation, or in an amendment of the solicitation, the specific 
requirements to be waived.
    (iii) If the head of the contracting activity declines to approve a 
request for waiver, but the prospective contractor agrees to take 
corrective action to bring the operation into compliance, make the 
corrective action a part of the resulting contract.
    (2) Transportation considerations--If shipment of ammunition and 
explosives is involved in the contract, address in the schedule of the 
contract the applicable Department of Transportation or Military Traffic 
Management Command requirements and any other requirements for 
transportation, packaging, marking, and labeling.
    (3) Disposition of excess--Include instructions within the contract 
concerning final disposition of excess Government furnished material 
containing ammunition and explosives, including defective or rejected 
supplies.
    (4) Preaward survey--Before awarding any contract, including 
purchase orders, involving ammunition and explosives, obtain a preaward 
ammunition and explosives safety survey. If the prospective contractor 
proposes subcontracting any ammunitions or explosive work, include a 
review of the subcontractor's facility in the preaward survey.
    (b) Postaward phase--(1) Contract administration office 
responsibility. (i) The contract administration office is responsible 
for verifying that the safety requirements of the clause at 252.223-
7002, Safety Precautions for Ammunition and Explosives, are being 
implemented in a manner that will reduce, to the maximum extent 
practicable, or eliminate the probability of a mishap occurring.
    (ii) The clause at 252.223-7002, Safety Precautions for Ammunition 
and Explosives, requires the contractor to submit to the administrative 
contracting officer (ACO) any postaward requests for a waiver of the 
contract safety standards, a site plan modification, or a construction 
review. The ACO shall review any request and make recommendations to the 
contracting officer. The contracting officer shall make a decision after 
considering recommendations of the ACO and safety personnel responsible 
for ammunition and explosive safety.
    (A) If the request arrives at the contracting office without 
evidence that the ACO has seen it, immediately send it to the ACO for 
review and recommendations.
    (B) When the contracting officer has made a determination approving 
or disapproving the contractor's request, send the determination to the 
ACO for transmission to the contractor.
    (2) Subcontracts--(i) The clause at 252.223-7002, Safety Precautions 
for Ammunition and Explosives, requires the contractor to notify the 
contracting officer when placing a subcontract for ammunition and 
explosives. The contracting officer should coordinate with the safety 
personnel and request supporting contract administration in accordance 
with FAR 42.204. If the contracting officer believes the nature of the 
subcontract work poses a potential danger to Government property, 
Government personnel, production capability, or contract completion, 
request supporting contract administration.
    (ii) If the preaward safety survey identified areas in which a 
subcontractor was not complying with the manual, and the subcontractor 
was supposed to correct the deficiencies before start-up, the 
contracting officer shall require a preoperations survey to verify that 
the corrections were made.
    (iii) When postaward safety reviews by the Government uncover any 
safety deficiencies in the subcontractor's operation, the review team 
shall inform the ACO cognizant of the subcontractor, who shall 
immediately notify the

[[Page 156]]

ACO cognizant of the prime contractor. The ACO cognizant of the prime 
shall inform the prime contractor of deficiencies requiring correction. 
The notifications shall be made by the most expeditious means 
appropriate to the circumstance. If a critical safety deficiency poses 
an imminent danger, the ACO cognizant of the prime shall make the 
notifications by the most expeditious means available.

[56 FR 36365, July 31, 1991, as amended at 59 FR 27671, May 27, 1994]



Sec. 223.370-5  Contract clauses.

    Use the clauses at 252.223-7002, Safety Precautions for Ammunition 
and Explosives, and 252.223-7003, Change in Place of Performance--
Ammunition and Explosives, in all solicitations and contracts for 
acquisition to which this section applies.



                Subpart 223.4--Use of Recovered Materials



Sec. 223.404  Procedures.

    (b)(3) A contract for an EPA designated item that does not meet the 
EPA minimum recovered material standards shall not be awarded before 
approval of the written determination required by FAR 23.404(b)(3). The 
approving official shall be--
    (A) A general or flag officer, or a member of the Senior Executive 
Service, of the requiring activity; or
    (B) For requiring activities without a general or flag officer or 
member of the Senior Executive Service, the commander of the activity.
    (4) Departments and agencies shall centrally collect information 
submitted in accordance with the clause at FAR 52.223-9 for reporting to 
the cognizant activity in the Office of the Secretary of Defense.

[60 FR 61596, Nov. 30, 1995, as amended at 63 FR 11531, Mar. 9, 1998]



                   Subpart 223.5--Drug-Free Workplace

    Source: 57 FR 32737, July 23, 1992, unless otherwise noted.



Sec. 223.570  Drug-free work force.



Sec. 223.570-1  Definitions.

    Employee in a sensitive position and illegal drugs, as used in this 
section, are defined in the clause at 252.223-7004, Drug-Free Work 
Force.



Sec. 223.570-2  Policy.

    DoD policy is to ensure that its contractors maintain a program for 
achieving a drug-free work force.



Sec. 223.570-3  General.

    (a) The use of illegal drugs is inconsistent with the law-abiding 
behavior expected of all citizens. Employees who use illegal drugs tend 
to be less productive, less reliable, and prone to greater absenteeism. 
The use of illegal drugs by contractor employees results in the 
potential for increased cost, delay, and risk in the performance of a 
Government contract.
    (b) If a contractor's employees use illegal drugs at any time, it 
can--
    (1) Impair their ability to perform tasks that are critical to 
proper contract performance;
    (2) Increase the potential for accidents and for failures that can 
pose a serious threat to the national security, health, and safety;
    (3) Cause less than the complete reliability, stability, and good 
judgment required of an individual who has access to sensitive 
information;
    (4) Create the possibility of coercion, influence, and irresponsible 
action under pressure that may post a serious risk to national security, 
health, and safety.



Sec. 223.570-4  Contract clause.

    (a) Use the clause at 252.223-7004, Drug-Free Work Force, in all 
solicitations and contracts--
    (1) That involve access to classified information; or
    (2) When the contracting officer determines that the clause is 
necessary for reasons of national security or for the purpose of 
protecting the health or safety of those using or affected by the 
product of, or performance of, the contract.
    (b) Do not use the clause in solicitations and contracts for--
    (1) Commercial items; or

[[Page 157]]

    (2) Performance or partial performance outside the United States, 
its territories, and possessions, unless the contracting officer 
determines such inclusion to be in the best interest of the Government.

[57 FR 32737, July 23, 1992, as amended at 60 FR 61597, Nov. 30, 1995]



                Subpart 223.8--Ozone-Depleting Substances



Sec. 223.803  Policy.

    Section 211.271, Elimination of use of class I ozone-depleting 
substances, places restrictions on award or modification of DoD 
contracts requiring the use of class I ozone-depleting substances. These 
restrictions are in addition to any imposed by the Clean Air Act and 
apply after June 1, 1993, to all DoD contracts, regardless of place of 
performance.

[61 FR 50452, Sept. 26, 1996]



                Subpart 223.70--Hazardous Waste Disposal



Sec. 223.7000  Scope of subpart.

    This subpart implements section 331 of the Defense Authorization Act 
for Fiscal Year 1992 (Pub. L. 102-190) and similar sections in 
subsequent Defense authorization acts.

[58 FR 28466, May 13, 1993]



Sec. 223.7001  Definitions.

    As used in this subpart--
    (a) Remedial action has the meaning given that term by section 
101(24) of the Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980 (42 U.S.C. 9601(24)).
    (b) Corrective action has the meaning given that term under section 
3004(u) of the Solid Waste Disposal Act (42 U.S.C. 6924(u)).

[57 FR 14993, Apr. 23, 1992]



Sec. 223.7002  Contract clause.

    (a) Use the clause at 252.223-7005, Hazardous Waste Liability, in 
all solicitations and contracts for the offsite treatment or disposal of 
hazardous waste from a facility under the jurisdiction of the Secretary 
of Defense--
    (1) Entered into during or after fiscal year 1992;
    (2) With an owner or operator of a hazardous waste treatment or 
disposal facility.
    (b) The clause at 252.223-7005 does not apply to contracts--
    (1) For performance of remedial action or corrective action under--
    (i) The Defense Environmental Restoration Program;
    (ii) Other programs or activities of the Department of Defense; or
    (iii) Authorized State hazardous waste programs;
    (2) Under which the generation of the hazardous waste to be disposed 
of is incidental to the performance of the contract; or
    (3) For disposition of ammunition or solid rocket motors.
    Use of the clause at 252.223-7005 may be waived if the Secretary of 
Defense or the Secretary of the military department concerned determines 
that--
    (1) There is only one responsible offeror or there is no responsible 
offeror willing to provide the reimbursement required by paragraph (b) 
of the clause; or
    (2) Failure to award the contract would place the facility concerned 
in violation of any requirement of the Solid Waste Disposal Act (42 
U.S.C. 6901 et seq.).

[57 FR 14993, Apr. 23, 1992, as amended at 57 FR 53599, Nov. 12, 1992; 
58 FR 28466, May 13, 1993]



  Subpart 223.71--Storage and Disposal of Toxic and Hazardous Materials

    Source: 58 FR 28466, May 13, 1993, unless otherwise noted.



Sec. 223.7100  Policy.

    10 U.S.C. 2692 prohibits storage or disposal of non-DoD-owned toxic 
or hazardous materials on DoD installations, except as provided in 
223.7102. DoD Directive 6050.8, Storage and Disposal of Non-DoD-Owned 
Hazardous or Toxic Materials on DoD Installations, implements 10 U.S.C. 
2692.

[[Page 158]]



Sec. 223.7101  Procedures.

    (a) If the contracting officer is uncertain as to whether particular 
activities are prohibited or fall under one of the exceptions in 
223.7102, the contracting officer should seek advice from the cognizant 
office of counsel.
    (b) When storage, treatment, or disposal of non-DoD-owned toxic or 
hazardous materials is authorized in accordance with this subpart, the 
contract or authorization should specify the types, conditions, and 
quantities of toxic or hazardous materials that may be temporarily 
stored, treated, or disposed of in connection with the contract or as a 
result of the authorized commercial use of a DoD industrial-type 
facility.

[60 FR 61597, Nov. 30, 1995]



Sec. 223.7102  Exceptions.

    (a) The prohibition of 10 U.S.C. 2692 does not apply to--
    (1) The storage of strategic and critical materials in the National 
Defense Stockpile under an agreement for such storage with the 
Administrator of General Services Administration;
    (2) The temporary storage or disposal of explosives in order to 
protect the public or to assist agencies responsible for Federal law 
enforcement in storing or disposing of explosives when no alternative 
solution is available, if such storage or disposal is made in accordance 
with an agreement between the Secretary of Defense and the head of the 
Federal agency concerned;
    (3) The temporary storage or disposal of explosives in order to 
provide emergency lifesaving assistance to civil authorities;
    (4) The disposal of excess explosives produced under a DoD contract, 
if the head of the military department concerned determines, in each 
case, that an alternative feasible means of disposal is not available to 
the contractor, taking into consideration public safety, available 
resources of the contractor, and national defense production 
requirements;
    (5) The temporary storage of nuclear materials or nonnuclear 
classified materials in accordance with an agreement with the Secretary 
of Energy;
    (6) The storage of materials that constitute military resources 
intended to be used during peacetime civil emergencies in accordance 
with applicable DoD regulations;
    (7) The temporary storage of materials of other Federal agencies in 
order to provide assistance and refuge for commercial carriers of such 
material during a transportation emergency;
    (8) The storage of any material that is not owned by DoD, if the 
Secretary of the military department concerned determines that the 
material is required or generated by a private person in connection with 
the authorized and compatible use by that person of an industrial-type 
DoD facility; or
    (9) The treatment and disposal of any non-DoD-owned material if the 
Secretary of the military department concerned--
    (i) Determines that the material is required or generated by a 
private person in connection with the authorized and compatible 
commercial use by that person of an industrial-type facility of that 
military department; and
    (ii) Enters into a contract with that person that--
    (A) Is consistent with the best interest of national defense and 
environmental security; and
    (B) Provides for that person's continued financial and environmental 
responsibility and liability with regard to the material.
    (b) The Secretary of Defense, where DoD Directive 6050.8 applies, 
may grant exceptions to the prohibition of 10 U.S.C. 2692 when essential 
to protect the health and safety of the public from imminent danger.

[58 FR 28466, May 13, 1993, as amended at 60 FR 13076, Mar. 10, 1995; 60 
FR 61597, Nov. 30, 1995]



Sec. 223.7103  Contract clause.

    (a) Use the clause at 252.223-7006, Prohibition on Storage and 
Disposal of Toxic and Hazardous Materials, in all solicitations and 
contracts which require, may require, or permit contractor performance 
on a DoD installation.
    (b) Use the clause at 252.223-7006 with its Alternate I, when the 
Secretary of

[[Page 159]]

the military department issues a determination under the exception at 
223.7102(a)(9).

[60 FR 13076, Mar. 10, 1995]



 Subpart 223.72--Safeguarding Sensitive Conventional Arms, Ammunition, 
                             and Explosives

    Source: 61 FR 7743, Feb. 29, 1996, unless otherwise noted.



Sec. 223.7200  Definition.

    ``Arms, ammunition, and explosives (AA&E),'' as used in this 
subpart, means those items within the scope (chapter 1, paragraph B) of 
DoD 5100.76-M, Physical Security of Sensitive Conventional Arms, 
Ammunition, and Explosives.



Sec. 223.7201  Policy.

    (a) The requirements of DoD 5100.76-M, Physical Security of 
Sensitive Conventional Arms, Ammunition, and Explosives, shall be 
applied to contracts when--
    (1) AA&E will be provided to the contractor or subcontractor as 
Government-furnished property; or
    (2) The principal development, production, manufacture, or purchase 
of AA&E is for DoD use.
    (b) The requirements of DoD 5100.76-M need not be applied to 
contracts when--
    (1) The AA&E to be acquired under the contract is a commercial item 
within the meaning of FAR 2.101; or
    (2) The contract will be performed in a Government-owned contractor-
operated ammunition production facility. However, if subcontracts issued 
under such a contract will meet the criteria of paragraph (a) of this 
section, the requirements of DoD 5100.76-M shall apply.



Sec. 223.7202  Preaward responsibilities.

    When an acquisition involves AA&E, technical or requirements 
personnel shall specify in the purchase request--
    (a) That AA&E is involved; and
    (b) Which physical security requirements of DoD 5100.76-M apply.



Sec. 223.7203  Contract clause.

    Use the clause at 252.223-7007, Safeguarding Sensitive Conventional 
Arms, Ammunition, and Explosives, in all solicitations and contracts to 
which DoD 5100.76-M applies, in accordance with the policy at 223.7201. 
Complete paragraph (b) of the clause based on information provided by 
cognizant technical or requirements personnel.

[61 FR 7743, Feb. 29, 1996; 61 FR 18195, Apr. 24, 1996]



PART 224--PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION--Table of Contents




             Subpart 224.1--Protection of Individual Privacy

Sec.
224.102  General.
224.103  Procedures.

                Subpart 224.2--Freedom of Information Act

224.203  Policy.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36367, July 31, 1991, unless otherwise noted.



             Subpart 224.1--Protection of Individual Privacy



Sec. 224.102  General.

    The Act does not apply to--
    (1) Systems of records the contractor maintains on its employees; or
    (2) The records generated by a State or private educational 
organization under a contract with the Government to provide training, 
when the records (admission forms, grade reports) are similar to and 
commingled with those maintained on other students.



Sec. 224.103  Procedures.

    (b)(2) DoD rules and regulations are contained in DoDD 5400.11, 
Department of Defense Privacy Program, and DoD 5400.11-R, Department of 
Defense Privacy Program.

[[Page 160]]



                Subpart 224.2--Freedom of Information Act



Sec. 224.203  Policy.

    (a) DoD implementation is in DoDD 5400.7, DoD Freedom of Information 
Act Program, and DoD 5400.7-R, DoD Freedom of Information Act Program.

[56 FR 36367, July 31, 1991. Redesignated at 62 FR 34122, June 24, 1997]



PART 225--FOREIGN ACQUISITION--Table of Contents




Sec.
225.000  Scope of part.
225.000-70  Definitions.
225.000-71  General guidelines.

                Subpart 225.1--Buy American Act--Supplies

225.102  Policy.
225.103  Agreements with certain foreign governments.
225.105  Evaluating offers.
225.107  Acquisition from or through other Government agencies.
225.108  Excepted articles, materials, and supplies.
225.109  Solicitation provisions and contract clauses.
225.109-70  Additional provisions and clauses.

         Subpart 225.2--Buy American Act--Construction Materials

225.202  Policy.

               Subpart 225.3--Balance of Payments Program

225.302  Policy.
225.303  Procedures.
225.305  Solicitation provision and contract clause.
225.305-70  Additional clause.

     Subpart 225.4--Purchase Under the Trade Agreements Act of 1979

225.401  Definitions.
225.402  Policy.
225.403  Exceptions.
225.403-70  Products subject to trade agreement acts.
225.405  Procedures.
225.408  Solicitation provisions and contract clauses.

                    Subpart 225.6--Customs and Duties

225.602  Policy.
225.603  Procedures.
225.604  Exempted supplies.
225.605  Contract clause.
225.605-70  Additional solicitation provisions and contract clauses.

        Subpart 225.7--Restrictions on Certain Foreign Purchases

225.702  Restrictions.
225.770  Secondary Arab boycott of Israel.
225.770-1  Restriction.
225.770-2  Procedures.
225.770-3  Exceptions.
225.770-4  Waivers
225.770-5  Solicitation provision and contract clause.

        Subpart 225.8--International Agreements and Coordination

225.801  International agreements.
225.802  Procedures.
225.802-70  Contracts for performance outside the United States and 
          Canada.
225.802-71  End user certificates.
225.870  Contracting with Canadian contractors.
225.870-1  General.
225.870-2  Solicitation of Canadian contractors.
225.870-3  Submission of offers.
225.870-4  Contracting procedures.
225.870-5  Contract administration.
225.870-6  Termination procedures.
225.870-7  Acceptance of Canadian supplies.
225.870-8  Industrial security.
225.871  North Atlantic Treaty Organization (NATO) cooperative projects.
225.871-1  Scope.
225.871-2  Definitions.
225.871-3  General.
225.871-4  Statutory waivers.
225.871-5  Directed subcontracting.
225.871-6  Disposal of property.
225.871-7  Congressional notification.
225.872  Contracting with qualifying country sources.
225.872-1  General.
225.872-2  Applicability.
225.872-3  Solicitation procedures.
225.872-4  Evaluation of offers.
225.872-5  Contract administration.
225.872-6  Audit.
225.872-7  Industrial security for qualifying countries.
225.872-8  Subcontracting with qualifying country sources.
225.873  Waiver of United Kingdom commercial exploitation levies.
225.873-1  Policy.
225.873-2  Procedures.
225.873-3  Contract clause.

              225.9--Additional Foreign Acquisition Clauses

225.970  Clause deviations in overseas contracts.
225.971  Correspondence in English.

[[Page 161]]

225.972  Authorization to perform.

   Subpart 225.70--Authorization Acts, Appropriations Acts, and Other 
              Statutory Restrictions on Foreign Acquisition

225.7000  Scope of subpart.
225.7001  Definitions.
225.7002-1  Restrictions.
225.7002-2  Exceptions.
225.7002-3  Contract clauses.
225.7003  Restriction on overseas military construction.
225.7004  Restriction on overseas architect-engineer services.
225.7005  Waiver of certain restrictions.
225.7006  Restrictions on construction or repair of vessels in foreign 
          shipyards.
225.7007  Restriction on acquisition of foreign buses.
225.7007-1  Restriction.
225.7007-2  Applicability.
225.7007-3  Exceptions.
225.7007-4  Waiver.
225.7008  Restriction on research and development.
225.7009  [Reserved]
225.7010  Restriction on certain chemical weapons antidote.
225.7010-1  Restriction.
225.7010-2  Exception.
225.7010-3  Waiver.
225.7011  Restriction on Ballistic Missile Defense research, 
          development, test, and evaluation.
225.7011-1  Definitions.
225.7011-2  Restriction.
225.7011-3  Exceptions.
225.7011-4  Procedures.
225.7011-5  Solicitation provision.
225.7012  Restrictions on anchor and mooring chain.
225.7012-1  Restrictions.
225.7012-2  Waiver.
225.7012-3  Contract clauses.
225.7013--225.7014  [Reserved]
225.7015  Restriction on night vision image intensifier tubes and 
          devices.
225.7015-1  Restriction.
225.7015-2  Exception.
225.7015-3  Contract clause.
225.7016  Restriction on air circuit breakers for naval vessels.
225.7016-1  Restriction.
225.7016-2  Exceptions.
225.7016-3  Waiver.
225.7016-4  Contract clause.
225.7017  Restriction on carbon, alloy, and armor steel plate.
225.7017-1  Restriction.
225.7017-2  Exceptions.
225.7017-3  Waiver.
225.7017-4  Contract clause.
225.7018  Restriction on four ton dolly jacks.
225.7018-1  Restriction.
225.7018-2  Waiver.
225.7018-3  Contract clause.
225.7019  Restrictions on ball and roller bearings.
225.7019-1  Restrictions.
225.7019-2  Exceptions.
225.7019-3  Waiver.
225.7019-4  Contract clause.
225.7020  [Reserved]
225.7021  Restriction on aircraft fuel cells.
225.7021-1  Restriction.
225.7021-2  Waiver.
225.7021-3  Contract clause.
225.7022  Restrictions on totally enclosed lifeboat survival systems.
225.7022-1  Restrictions.
225.7022-2  Exceptions.
225.7022-3  Waiver.
225.7022-4  Contract clause.
225.7023  Restriction on supercomputers.
225.7023-1  Restriction.
225.7023-2  Waiver.
225.7023-3  Contract clause.

        Subpart 225.71--Other Restrictions on Foreign Acquisition

225.7100  Scope of subpart.
225.7101  Definitions.
225.7102  Forgings.
225.7102-1  Policy.
225.7102-2  Exceptions.
225.7102-3  Waiver.
225.7102-4  Contract clause.
225.7103  Polyacrylonitrile (PAN) carbon fiber.
225.7103-1  Policy.
225.7103-2  Waivers.
225.7103-3  Contract clause.

Subpart 225.72--Reporting Contract Performance Outside the United States

225.7200  Scope of subpart.
225.7201  Exception.
225.7202  Distribution of reports.
225.7203  Contract clause.

         Subpart 225.73--Acquisitions for Foreign Military Sales

225.7300  Scope of subpart.
225.7301  General.
225.7302  Procedures.
225.7303  Pricing acquisitions for FMS.
225.7303-1  Contractor sales to other foreign customers.
225.7303-2  Cost of doing business with a foreign government or an 
          international organization.
225.7303-3  Government-to-government agreements.
225.7303-4  Contingent fees.
225.7303-5  Acquisitions wholly paid for from nonrepayable funds.
225.7304  Source selection.
225.7305  Limitation of liability.
225.7306  Exercise of options for FMS.
225.7307  Offset arrangements.

[[Page 162]]

225.7308  Contract clauses.

   Subpart 225.74--Antiterrorism/Force Protection Policy for Defense 
                  Contractors Outside the United States

225.7400  Scope of subpart.
225.7401  General.
225.7402  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36367, July 31, 1991, unless otherwise noted.



Sec. 225.000  Scope of part.

    This part also provides policy and procedures for--
    (1) Purchasing foreign defense supplies, services, and construction 
materials;
    (2) Foreign military sale acquisitions;
    (3) Coordinating acquisitions involving work to be performed in 
foreign countries;
    (4) Cooperative programs.



Sec. 225.000-70  Definitions.

    As used in this part--
    (a) Defense equipment means any equipment, item of supply, 
component, or end product purchased by the DoD.
    (b) Domestic concern means a concern incorporated in the United 
States or an unincorporated concern having its principal place of 
business in the United States.
    (c) Domestic end product has the meaning given in the clauses at 
252.225-7001, Buy American Act and Balance of Payments Program; 252.225-
7007, Buy American Act--Trade Agreements--Balance of Payments Program; 
and 252.225-7036, Buy American Act--North American Free Trade Agreement 
Implementation Act--Balance of Payments Program, instead of the meaning 
in FAR 25.101.
    (d) Foreign concern means any concern other than a domestic concern.
    (e) Nondesignated country end product means any end product which is 
not a U.S. made end product or a designated country end product.
    (f) Nonqualifying country means a country other than the United 
States or a qualifying country.
    (g) Nonqualifying country end product means an end product which is 
neither a domestic nor qualifying country end product.
    (h) Nonqualifying country offer means an offer of a nonqualifying 
country end product, including the price of transportation to 
destination.
    (i) Qualifying country is a term used to describe certain countries 
with memoranda of understanding or international agreements with the 
United States. These countries are listed in 225.872-1.
    (j) Qualifying country component and qualifying country end product 
are defined in the clauses at 252.225-7001, Buy American Act and Balance 
of Payments Program; 252.225-7007, Buy American Act--Trade Agreements--
Balance of Payments Program; and 252.225-7036, Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of Payments 
Program. ``Qualifying country end product'' is also defined in the 
clause at 252.225-7021, Trade Agreements.
    (k) Qualifying country offer means an offer of a qualifying country 
end product, including the price of transportation to destination.
    (l) Source, when restricted by such words as foreign, domestic, 
qualifying country, etc., refers to the actual manufacturer or producer 
of the end product or component.
    (m) U.S. made end product is defined in the clause at 252.225-7007, 
Buy American Act--Trade Agreements--Balance of Payments Program and; 
252.225-7021, Trade Agreements.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1289, Jan. 10, 1994; 63 
FR 11531, Mar. 9, 1998]



Sec. 225.000-71  General guidelines.

    To apply the policies and procedures of this part, analyze and 
evaluate offers of foreign end products generally as follows--
    (a) Statutory or policy restrictions. (1) Determine whether the 
product is restricted by--
    (i) Defense authorization or appropriations acts (see Subpart 
225.70); or
    (ii) DoD policy (see subpart 225.71 and FAR 6.302-3).
    (2) Where an exception to or waiver of a restriction would result in 
award

[[Page 163]]

of a foreign end product, apply the policies and procedures of the Buy 
American Act or the Balance of Payments Program, and, if applicable, the 
trade agreements.
    (b) Memoranda of understanding or other international agreements. 
(1) Determine whether the offered product is the product of one of the 
countries (qualifying country), listed in 225.872-1.
    (2) If the product is the product of a qualifying country, evaluate 
the offer under 225.105 and 225.872-4.
    (c) Trade agreements. (1) Determine whether the product is covered 
by the Trade Agreements Act or the North American Free Trade Agreement 
Implementation Act (see subpart 225.4).
    (2) If the product is an eligible product under Subpart 225.4, 
evaluate the offer under FAR 25.402, 225.105, and 225.402.
    (3) If the product is not an eligible product, a qualifying country 
end product, or a U.S. made end product, purchase of the foreign end 
product may be prohibited (see FAR 25.402(c) and 225.402(c)).
    (d) Contractors controlled by terrorist nations. (1) Determine 
whether the contractor is controlled by a terrorist nation.
    (2) If the contractor is controlled by a terrorist nation, comply 
with 209.104-1(g).
    (e) Buy American Act and Balance of Payments Program. See the 
evaluation procedures in 225.105.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1289, Jan. 10, 1994; 63 
FR 11531, Mar. 9, 1998]



                Subpart 225.1--Buy American Act--Supplies



Sec. 225.102  Policy.

    (a)(2) The cost of a domestic end product is unreasonable if it is 
not the low evaluated offer when evaluated under 225.105.
    (3)(A) Specific public interest exceptions for DoD for certain 
countries are in 225.872.
    (B) The Under Secretary of Defense (Acquisition and Technology) has 
determined that, for procurements subject to the Trade Agreements Act, 
it is inconsistent with the public interest to apply the Buy American 
Act to information technology products in Federal Supply Group 70 or 74 
that are substantially transformed in the United States.
    (C) Normally, use the evaluation procedures in 225.105, but consider 
recommending a public interest exception where the purposes of the Buy 
American Act are not served, or in order to meet a need set forth in 10 
U.S.C. 2533. For example, a public interest exception may be 
appropriate--
    (1) If accepting the low domestic offer will involve substantial 
foreign expenditures, or accepting the low foreign offer will involve 
substantial domestic expenditures;
    (2) To ensure access to advanced state-of-the-art commercial 
technology; or
    (3) To maintain the same source of supply for spare and replacement 
parts (also see paragraph (b)(iii)(B) of this section)--
    (i) For an end item that qualifies as an American good; or
    (ii) In order not to impair integration of the military and 
commercial industrial base.
    (D) A determination whether to grant a public interest exception 
shall be made after consideration of the factors in 10 U.S.C. 2533--
    (1) At a level above the contracting officer for acquisitions valued 
at less than $100,000;
    (2) By the head of the contracting activity for acquisitions valued 
at $100,000 or more but less than $1,000,000; or
    (3) By the agency head for acquisitions valued at $1,000,000 or 
more.
    (b)(i) A determination that an article, material, or supply is not 
reasonably available is required where no domestic offer is received or 
when domestic offers are insufficient to meet the requirement and award 
is to be made on a nonqualifying country end product.
    (ii) Except as provided in FAR 25.102(b)(1), the determination must 
be approved--
    (A) At a level above the contracting officer, if the acquisition is 
estimated not to exceed $25,000;
    (B) By the chief of the contracting office if the acquisition is 
estimated not to exceed $250,000;

[[Page 164]]

    (C) By the head of the contracting activity (HCA) or immediate 
deputy if the acquisition is estimated not to exceed $2 million; or
    (D) By the head of the agency, or designee at a level no lower than 
an HCA, if the acquisition is estimated to exceed $2 million.
    (iii) A determination as to whether an article, material, or supply 
is reasonably available is not required for--
    (A) End products or components listed in 225.108(d)(1) or FAR 
25.108(d)(1);
    (B) Acquisitions for spare/replacement parts when the acquisition is 
restricted to the original manufacturer or supplier; or
    (C) Acquisition of foreign drugs by the Defense Personnel Support 
Center when the Chief of the Technical Operations Division, Directorate 
of Medical Materiel, determines that only the requested foreign drug 
will fulfill the requirements.
    (iv) Under coordinated acquisition (see 208.70), the determination 
is the responsibility of the requiring department when the requiring 
department specifies acquisition of a foreign end product.

[56 FR 36367, July 31, 1991, as amended at 56 FR 67215, Dec. 30, 1991; 
60 FR 34470, July 3, 1995; 63 FR 11531, Mar. 9, 1998]



Sec. 225.103  Agreements with certain foreign governments.

    See 225.872.



Sec. 225.105  Evaluating offers.

    Use the following procedures instead of those in FAR 25.105. These 
procedures do not apply to acquisitions of information technology end 
products in Federal Supply Group 70 or 74 that are subject to the Trade 
Agreements Act.
    (1) Treat offers of eligible end products under acquisitions subject 
to the Trade Agreements Act or NAFTA as if they were qualifying country 
offers. As used in this section, the term ``nonqualifying country 
offer'' may also apply to an offer that is not an eligible offer under a 
trade agreement (see Example 4 in Table 25-1, Evaluation).
    (2) Except as provided in paragraph (3) of this section, evaluate 
offers by adding a 50 percent factor to the price (including duty) of 
each nonqualifying country offer (see Example 1 in Table 25-1, 
Evaluation).
    (i) Nonqualifying country offers include duty in the offered price. 
When applying the factor, evaluate based on the inclusion of duty, 
whether or not duty is to be exempted. If award is made on the 
nonqualifying country offer and duty is to be exempted through inclusion 
of the clause at FAR 52.225-10, Duty-Free Entry, award at the offered 
price minus the amount of duty identified in the provision at 252.225-
7003, Information for Duty-Free Entry Evaluation. See Example 1, 
Alternate II, in Table 25-1, Evaluation.
    (ii) When a nonqualifying country offer includes more than one line 
item, apply the 50 percent factor--
    (A) On an item-by-item basis; or
    (B) On a group of items, if the solicitation specifically provides 
for award on a group basis.
    (3) When application of the factor would not result in the award of 
a domestic end product, i.e., when no domestic offers are received (see 
Example 3 of Table 25-1, Evaluation) or when a qualifying country offer 
is lower than the domestic offer (see Example 2 of Table 25-1, 
Evaluation), evaluate nonqualifying country offers without the 50 
percent factor.
    (i) If duty is to be exempted through inclusion of the clause at FAR 
52.225-10, Duty-Free Entry, evaluate the nonqualifying country offer 
exclusive of duty by reducing the offered price by the amount of duty 
identified in the clause at 252.225-7003, Information for Duty-Free 
Entry Evaluation (see Examples 2 and 3, Alternate II, of Table 25-1, 
Evaluation). If award is made on the nonqualifying country offer, award 
at the offered price minus duty.
    (ii) If duty is not to be exempted, evaluate the nonqualifying 
country offer inclusive of duty. (See Examples 2 and 3, Alternate I, of 
Table 25-1, Evaluation.)
    (4) If these evaluation procedures result in a tie between a 
nonqualifying country offer and a domestic offer, make award on the 
domestic offer.
    (5)(i) There are two tests that must be met to determine whether a 
manufactured item is a domestic end product--

[[Page 165]]

    (A) The end product must have been manufactured in the United 
States; and
    (B) The cost of its U.S. and qualifying country components must 
exceed 50 percent of the cost of all of its components. This test is 
applied to end products only, and not to individual components.
    (ii) Because of the component test, the definition of ``domestic end 
product'' is more restrictive than the definition for--
    (A) ``U.S. made end product'' under trade agreements;
    (B) ``Domestically produced or manufactured products'' under small 
business set-asides or small business-small purchase set-asides; and
    (C) Products of small businesses under FAR part 19.
    (iii) If an offer is for a ``U.S. made end product,'' ``domestically 
produced end product,'' or the product of a small business, but is not a 
``domestic end product'' as defined in the clause at 252.225-7001, Buy 
American Act and Balance of Payments Program, treat the offer as a 
nonqualifying country offer. (See Example 4 of Table 25-1, Evaluation.)

                         Table 25-1, Evaluation

                                Example 1

Alternate I: Duty Not Exempted for Nonqualifying Country Offers:
    Nonqualifying Country Offer (including $100 duty)--$6,000
    Domestic Offer--$8,900
    Qualifying Country Offer--$9,100
    Award on Domestic Offer. The 50% evaluation factor is added to the 
nonqualifying country offer, inclusive of duty, yielding an evaluated 
price of $9,000.
Alternate II: Duty Exempted:
    Nonqualifying Country Offer (including $1,000 duty)--$600,000
    Domestic Offer--$910,000
    Qualifying Country Offer--$920,000
    Award on Nonqualifying Country Offer. The addition of the evaluation 
factor yields an evaluated price of $900,000. Since duty is being 
exempted for nonqualifying country offers, the duty is subtracted from 
the offered price which is awarded at $599,000.

                                Example 2

Alternate I: Duty Not Exempted for Nonqualifying Country Offers:
    Nonqualifying Country Offer (including $100 duty)--$6,000
    Domestic Offer--$8,500
    Qualifying Country Offer--$7,800
    Award on Nonqualifying Country Offer. Since the qualifying country 
offer is lower than the domestic offer, the nonqualifying country offer 
is evaluated without the factor. Since duty is not being exempted for 
nonqualifying country offers, the offer is evaluated and award is made 
at the price inclusive of duty ($6,000).
Alternate II: Duty Exempted:
    Nonqualifying Country Offer (including $1,000 duty)--$880,500
    Domestic Offer--$950,000
    Qualifying Country Offer--$880,000
    Award on Nonqualifying Country Offer. Again, the qualifying country 
offer is lower than the domestic offer. The nonqualifying country offer 
is, therefore, evaluated without the factor. Since duty is being 
exempted for nonqualifying country offers, the duty identified by the 
offeror is subtracted from the offered price, which is evaluated and 
awarded at $879,500.

                                Example 3

Alternate I: Duty Not Exempted for Nonqualifying Country Offers:
    Nonqualifying Country Offer (including $150 duty)--$9,600
    Qualifying Country Offer--$9,500
    Award on Qualifying Country Offer. Since no domestic offers are 
received, the nonqualifying country offer is evaluated without the 
evaluation factor. Since duty is not being exempted and would be paid by 
the Government, the nonqualifying country offer is evaluated inclusive 
of duty.
Alternate II: Duty Exempted:
    Nonqualifying Country Offer (including $1,000 duty)--$880,500
    Qualifying Country Offer--$880,000
    Award on Nonqualifying Country Offer. Since no domestic offers are 
received, the nonqualifying country offer is evaluated without the 
evaluation factor. Since duty is being exempted, duty is subtracted from 
the nonqualifying country offer, which is evaluated and awarded at 
$879,500.

                                Example 4

Alternate I:
    Offer of U.S. Made End Product which is not a Domestic Offer--
$800,000
    Domestic Offer--$820,000
    Eligible Product--$830,000
    Award on Domestic End Product. U.S. made end products which are not 
also domestic end products are evaluated the same as nonqualifying 
country end products. Adding the 50% evaluation factor yields an 
evaluated price of $1,200,000.
Alternate II:
    Offer of U.S. Made End Product which is not a Domestic Offer--
$800,000
    Eligible Product--$820,000
    Domestic Offer--$830,000

[[Page 166]]

    Award on U.S. Made End Product. Adding the 50% evaluation factor to 
the U.S. made end product would not result in the award of a domestic 
end product since the eligible product, which is evaluated the same as a 
qualifying country offer, is lower. All offers are evaluated without the 
factor.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1289, Jan. 10, 1994; 63 
FR 11531, Mar. 9, 1998]



Sec. 225.107  Acquisition from or through other Government agencies.

    Contracting activities must apply the evaluation procedures in 
225.105 when using Federal supply schedules.



Sec. 225.108  Excepted articles, materials, and supplies.

    (a)(i)DoD has determined that the articles, materials, and supplies 
listed in FAR 25.108(d)(1) and in paragraph (d)(1) of this section, when 
purchased as end items or components, are not mined, produced, or 
manufactured in the United States in sufficient and reasonably available 
commercial quantities of a satisfactory quality. Regard these items or 
components as being of domestic origin when incorporated in--
    (A) An end product or construction material manufactured in the 
United States; or
    (B) A qualifying country end product or construction material. (For 
construction material, see FAR 25.2.)
    (ii) Scrap is domestic in origin if generated in, collected in, and 
prepared for processing in the United States.
    (d)(1) Aluminum clad steel wire. Sperm oil.



Sec. 225.109  Solicitation provisions and contract clauses.

    (a) Use the provision at 252.225-7000, Buy American Act--Balance of 
Payments Program Certificate, instead of the provisions at FAR 52.225-1, 
Buy American Certificate, and FAR 52.225-6, Balance of Payments Program 
Certificate. Use the provision in any solicitation that includes the 
clause at 252.225-7001, Buy American Act and Balance of Payments 
Program.
    (b) For oral solicitations inform prospective vendors that only 
domestic and qualifying country end products are acceptable, except 
nonqualifying country end products are acceptable if--
    (i) The items are excepted either on a blanket or an individual 
basis; or
    (ii) The price of the nonqualifying country end product is the low 
offer under the evaluation procedures in 225.105.
    (d) Use the clause at 252.225-7001, Buy American Act and Balance of 
Payments Program, instead of the clauses at FAR 52.225-3, Buy American 
Act-Supplies, and FAR 52.225-7, Balance of Payments Program, in 
solicitations and contracts for supplies or services that require the 
furnishing of supplies.
    (i) Do not use the clause if an exception to the Buy American Act or 
Balance of Payments Program is known to apply or if using the clause at 
252.225-7007, Buy American Act--Trade Agreements--Balance of Payments 
Program; 252.225-7021, Trade Agreements; or 252.225-7036, Buy American 
Act--North American Free Trade Agreement Implementation Act--Balance of 
Payments Program.
    (ii) The clause need not be used if nonqualifying country end 
products are ineligible for award, including--
    (A) End products restricted to domestic or domestic and qualifying 
country sources under Appropriations and Authorization Act restrictions 
(see 225.70);
    (B) End products restricted to domestic or domestic and Canadian 
sources (see 225.71); and
    (C) End products restricted under the authority of FAR 6.302-3.
    (iii) The clause may be used if the contracting officer anticipates 
a waiver of the restrictions in paragraphs (d)(ii) (A) or (B) of this 
section.

[56 FR 36367, July 31, 1991, as amended at 57 FR 42630, Sept. 15, 1992; 
59 FR 1289, Jan. 10, 1994; 63 FR 11532, Mar. 9, 1998]



Sec. 225.109-70  Additional provisions and clauses.

    (a) Use the clause at 252.225-7002, Qualifying Country Sources as 
Subcontractors, in solicitations and contracts that include one of the 
following clauses:
    (1) 252.225-7001, Buy American Act and Balance of Payments Program.
    (2) 252.225-7007, Buy American Act--Trade Agreements--Balance of 
Payments Program.
    (3) 252.225-7021, Trade Agreements.

[[Page 167]]

    (4) 252.225-7036, Buy American Act--North American Trade Agreement 
Implementation Act--Balance of Payments Program.
    (b) When only domestic end products are acceptable, the solicitation 
must make a statement to that effect.

[63 FR 11532, Mar. 9, 1998]



         Subpart 225.2--Buy American Act--Construction Materials



Sec. 225.202  Policy.

    (a)(3) A nonavailability determination is not required for 
construction materials listed in FAR 25.108(d)(1) or in 225.108(d)(1). 
For other materials, a nonavailability determination must be approved at 
the levels specified in 225.102(b)(ii). Use the estimated value of the 
construction materials to determine the approval level.

[56 FR 36367, July 31, 1991, as amended at 62 FR 34122, June 24, 1997]



               Subpart 225.3--Balance of Payments Program



Sec. 225.302  Policy.

    (a) DoD implements the Balance of Payments Program using evaluation 
factors similar to those which implement the Buy American Act. The 
Balance of Payments Program restrictions--
    (i) Apply to acquisitions for foreign military sales;
    (ii) Do not apply to services, except services which primarily 
involve the acquisition of supplies;
    (iii) Do not apply to qualifying country end products;
    (iv) Do not apply to articles, materials, or supplies produced or 
manufactured in Panama when purchased by and for the use of U.S. forces 
in Panama; and
    (v) For acquisitions subject to the Trade Agreements Act, do not 
apply to information technology products in Federal Supply Group 70 or 
74 that are substantially transformed in the United States.
    (b)(i) Before solicitation, the determinations required by FAR 
25.302(b)(2) and (3), or a determination that the cost of acquiring 
domestic end products or services is unreasonable (FAR 25.303(b)), may 
be made by the following individuals or their immediate deputies--

                                  Army

Deputy Chief of Staff for Research, Development and Acquisition, 
          Headquarters, U.S. Army Material Command
Commander-in-Chief, U.S. Army, Europe and DCSLOG, U.S. Army, Europe
Commander, Eighth U.S. Army and Chief of Staff, Eighth U.S. Army
Commander, Corps of Engineers Command
Commander, U.S. Army, Japan
Commander, U.S. Army Medical Research and Development Command
Commander, U.S. Army Forces Command
Commander, U.S. Army, South

                                  Navy

Commander-in-Chief, U.S. Naval Forces, Europe
Commander, U.S. Naval Forces, Japan
Commander, U.S. Naval Forces, Philippines
Commander-in-Chief, U.S. Atlantic Fleet
Commander-in-Chief, U.S. Pacific Fleet
Commander, Military Sealift Command
Commandant, U.S. Marine Corps
Commander, Naval Facilities Engineering Command
Commanding General, III Marine Amphibious Force

                                Air Force

Commander, U.S. Air Forces in Europe
Commander, Pacific Air Force
Commander, Air Mobility Command
Commander, Air Force Materiel Command
Commander, Air Combat Command
Commander, Air Force Space Command

                    Advanced Research Projects Agency

Director, Contracts Management Office

                   Defense Information Systems Agency

Director

                        Defense Logistics Agency

Executive Director, Procurement

                   National Imagery and Mapping Agency

Deputy Director for Acquisition, Installations, and Logistics

           Department of Defense Office of Dependents Schools

Director

                        On-Site Inspection Agency

Principal Deputy Director

    (ii) The authority to make the determinations required by 
225.302(b)(i) may

[[Page 168]]

be redelegated below the levels in paragraph (b)(i) for acquisitions 
estimated at $500,000 or less in foreign cost.
    (3)(A) This authority is not intended for use in making repetitive 
supply acquisitions or acquisitions of total annual supply requirements 
of items available in the United States but not available within the 
time required.
    (B) DoD has determined that requirements for the items on the lists 
at FAR 25.108(d)(1) and at 225.108(d)(1) can only be filled by a foreign 
end product.
    (4) DoD has determined the following items can only be acquired or 
performed in the country concerned--
    (A) Maintenance and repair of, and acquisition of spare parts for, 
foreign-manufactured vehicles, equipment, machinery, and systems; 
provided, in the case of spare parts, the acquisition is restricted to 
the original manufacturer or its supplier in accordance with DoD 
standardization policy (see DoD Directive 4120.3, Defense 
Standardization and Specification Program);
    (B) Industrial gases;
    (C) Brand drugs specified by the Defense Medical Materiel Board;
    (D) Bulk construction materials: sand, gravel, and other soil 
materials, stone, concrete masonry units, and fired brick; and
    (E) Overhaul and repair of vessels, aircraft, and vehicles which--
    (1) Are home-ported/stationed/deployed overseas; and
    (2) Cannot practically return to the United States or to U.S. 
operated repair facilities.
    (F) Ready-mixed asphalt and portland cement concrete, provided that 
foreign cost is estimated at not more than $100,000.
    (c)(i) Purchase of materials, equipment, and supplies for 
construction overseas shall generally be the responsibility of the 
contractor performing the work; but where necessary to comply with 
foreign law, to avoid taxation, or to obtain other advantages, consider 
direct purchase. Consider savings that may be obtained by exemptions 
from import and other taxes and, to the extent economical, take 
advantage of tax exemptions available under existing agreements.
    (ii) When purchase of materials is the responsibility of the 
construction contractor, the evaluation differential is determined 
through the estimating process and applied before solicitation.

[56 FR 36367, July 31, 1991, as amended at 56 FR 67215, Dec. 30, 1991; 
57 FR 42630, Sept. 15, 1992; 59 FR 27671, May 27, 1994; 60 FR 61597, 
Nov. 30, 1995; 63 FR 11532, Mar. 9, 1998]



Sec. 225.303  Procedures.

    (a) Solicitation of offers. When soliciting orally, advise vendors 
that only domestic and qualifying country end products are acceptable 
unless an exception applies or the price of a domestic end product is 
unreasonable.
    (b) Evaluation. (i) Use the evaluation procedures in 225.105 instead 
of the evaluation procedures in FAR 25.303(b). Treatment of duty may 
differ when delivery is overseas.
    (A) Duty may not be applicable to nonqualifying country offers.
    (B) The U.S. Government cannot guarantee the exemption of duty for 
components or end products imported into foreign countries.
    (C) Foreign governments may impose duties, and offers including such 
duties must be evaluated as offered.
    (ii) Where the evaluation procedures in 225.105 result in the award 
of a nonqualifying country end product, the acquisition of domestic end 
products is unreasonable or inconsistent with public interest. If no 
domestic end product offers are received, the determination in FAR 
25.302(b)(3) is not required.



Sec. 225.305  Solicitation provision and contract clause.



Sec. 225.305-70  Additional clause.

    In order to allow accurate reporting, by cognizant accounting and 
disbursing officers, of foreign and domestic expenditures, use the 
clause at 252.225-7005, Identification of Expenditures in the United 
States, in all negotiated contracts over $25,000 where--
    (a) For supply contracts, the contract requires end products 
manufactured or produced in the United States; and
    (1) The contractor is a foreign concern; or
    (2) The contractor is a domestic concern and the Government will 
take title outside the United States.

[[Page 169]]

    (b) For contracts for construction, repair, and maintenance of real 
property, or services to be performed outside the United States--
    (1) The contractor is a domestic concern; or
    (2) The contractor is a foreign concern and the contract requires 
acquisition of materials, equipment, or services from U.S. sources.



     Subpart 225.4--Purchases Under the Trade Agreements Act of 1979



Sec. 225.401  Definitions.

    Caribbean Basin country end product includes petroleum or any 
product derived from petroleum.
    Eligible product means, instead of the definition at FAR 25.401, a 
designated, NAFTA, or Caribbean Basin country end product in the 
categories listed in 225.403.70.

[59 FR 1289, Jan. 10, 1994, as amended at 59 FR 23169, May 5, 1994]



Sec. 225.402  Policy.

    (a) To estimate the value of the acquisition, use the total 
estimated value of end products subject to trade agreement acts (see 
225.403-70).
    (1) See 225.105 for evaluation of eligible products and U.S. made 
end products, except when acquiring information technology end products 
in Federal Supply Group 70 or 74 that are subject to the Trade 
Agreements Act.
    (c)(i) Except as provided in paragraphs (c) (ii) and (iii) of this 
section, do not purchase nondesignated country end products subject to 
the Trade Agreements Act unless they are NAFTA, Caribbean Basin, or 
qualifying country end products (see 225.872-1).
    (ii) The prohibition in paragraph (c)(i) of this section does not 
apply when the contracting officer determines that offers of U.S. made, 
qualifying country, or eligible products from responsive, responsible 
offerors are either--
    (A) Not received; or
    (B) Insufficient to fill the Government's requirements. In these 
cases, accept all responsive, responsible offers of U.S. made, 
qualifying country, and eligible products before accepting any other 
offers.
    (iii) National interest waivers under Section 302(b)(2) of the Trade 
Agreements Act are approved on a case-by-case basis. Except as delegated 
in paragraphs (c)(iii) (A) and (B) of this section, a request for a 
national interest waiver shall include supporting rationale and be 
submitted under department/agency procedures to the Director of Defense 
Procurement.
    (A) The head of the contracting activity may approve a national 
interest waiver for a purchase by an overseas purchasing activity of 
products critical to the support of U.S. forces stationed abroad. The 
waiver must be supported by a written statement from the requiring 
activity stating that the requirement is critical for the support of 
U.S. forces stationed abroad.
    (B) The Commander, Defense Fuel Supply Center, may approve national 
interest waivers for purchases of fuel for use by U.S. forces overseas.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1289, Jan. 10, 1994; 59 
FR 39974, Aug. 5, 1994; 61 FR 130, Jan. 3, 1996; 61 FR 7744, Feb. 29, 
1996; 63 FR 11532, Mar. 9, 1998]



Sec. 225.403  Exceptions.

    (c)(1)(A) If a department or agency considers an individual 
acquisition of a product to be indispensable for national security or 
national defense purposes and appropriate for exclusion from the 
provisions of FAR subpart 25.4, it may submit a request with supporting 
rationale to the Director of Defense Procurement (USD(A&T)DP).
    (B) The following national security/national defense exceptions do 
not require approval by USD(A&T)DP--
    (1) Where purchase from foreign sources is restricted by the DoD 
annual Appropriations or Authorization Acts (see subpart 225.70) or by 
the establishment of required sources of supplies and services under FAR 
part 8.
    (2) Where competition from foreign sources is restricted under the 
authority of FAR 6.302-3(a)(2)(i). Provide USD(A&T)DP a copy of the 
justification for restricting competition in accordance with FAR 
25.402(e) and FAR 6.303-1(d).
    (3) Where competition from foreign sources is restricted under 
subpart 225.71.

[[Page 170]]

    (g)(4) In accordance with Section 8094 of the Fiscal Year 1994 
Defense Appropriations Act (Public Law 103-139), the exception for 
petroleum and any product derived from petroleum does not apply.

[56 FR 36367, July 31, 1991, as amended at 59 FR 23169, May 5, 1994; 60 
FR 61597, Nov. 30, 1995; 61 FR 37841, July 22, 1996; 61 FR 50453, Sept. 
26, 1996; 62 FR 34122, June 24, 1997; 63 FR 41974, Aug. 6, 1998]



Sec. 225.403-70  Products subject to trade agreement acts.

    Foreign end products subject to the Trade Agreements Act and NAFTA 
are those in the following Federal supply groups (FSG). If a product is 
not in one of the listed groups, the Trade Agreements Act and NAFTA do 
not apply. The definition of Caribbean Basin country end products in FAR 
25.401 excludes those end products which are not eligible for duty-free 
treatment under 19 U.S.C. 2703(b). However, 225.401 expands the 
definition of Caribbean Basin country end products to include petroleum 
and any product derived from petroleum. The list of products has been 
annotated to indicate those products which are eligible for designated 
and NAFTA countries, but are not presently eligible for Caribbean Basin 
countries.

 
              FSG                          Category/Description
 
22                               Railway equipment
23                               Motor vehicles, trailers, and cycles
                                  (except 2350 and buses under 2310)
24                               Tractors
25                               Vehicular equipment components
26                               Tires and tubes
29                               Engine accessories
30                               Mechanical power transmission equipment
32                               Woodworking machinery and equipment
34                               Metalworking machinery
35                               Service and trade equipment
36                               Special industry machinery (except
                                  3690)
37                               Agricultural machinery and equipment
38                               Construction, mining, excavating, and
                                  highway maintenance equipment
39                               Materials handling equipment
40                               Rope, cable, chain and fittings
41                               Refrigeration and air conditioning
                                  equipment
42                               Fire fighting, rescue and safety
                                  equipment
43                               Pumps and compressors
44                               Furnace, steam plant and drying
                                  equipment (except 4470)
45                               Plumbing, heating, and sanitation
                                  equipment
46                               Water purification and sewage treatment
                                  equipment
47                               Piping, tubing, hose, and fitting
48                               Valves
49                               Maintenance and repair shop equipment
                                  (except 4920-4927, 4931-4935, 4960)
53                               Hardware and abrasives
54                               Prefabricated structures and
                                  scaffolding
55                               Lumber, millwork, plywood, and veneer
56                               Construction and building materials
61                               Electric wire, and power and
                                  distribution equipment
62                               Lighting fixtures and lamps
63                               Alarm and signal systems
65                               Medical, dental, and veterinary
                                  equipment and supplies
66                               Instruments and laboratory equipment
                                  (except aircraft clocks under 6645)--
                                  See FAR 25.401 exclusion of certain
                                  watches and watch parts for certain
                                  Caribbean Basin countries
67                               Photographic equipment
68                               Chemicals and chemical products
69                               Training aids and devices
70                               General purpose ADPE, software,
                                  supplies, and support equipment
71                               Furniture
72                               Household and commercial furnishings
                                  and appliances
73                               Food preparation and serving equipment
74                               Office machines, visible record
                                  equipment and ADP equipment
75                               Office supplies and devices
76                               Books, maps, and other publications
77                               Musical instruments, phonographs, and
                                  home type radios
78                               Recreational and athletic equipment
79                               Cleaning equipment and supplies
80                               Brushes, paints, sealers, and adhesives
81                               Containers, packaging and packing
                                  supplies (except 8140)
84                               Luggage (only 8460)--See FAR 25.401 for
                                  exclusion of luggage for Caribbean
                                  Basin countries
85                               Toiletries
87                               Agricultural supplies
88                               Live animals
91                               Fuels, oils and waxes
93                               Nonmetallic fabricated materials
94                               Nonmetallic crude materials
96                               Ores, minerals, and their primary
                                  products
99                               Miscellaneous
 


[[Page 171]]


[56 FR 36367, July 31, 1991, as amended at 59 FR 1289, Jan. 10, 1994; 59 
FR 23169, May 5, 1994; 61 FR 37841, July 22, 1996; 62 FR 2615, Jan. 17, 
1997]



Sec. 225.405  Procedures.

    (d) The requirements of FAR 25.405(d) do not apply to offshore 
acquisitions or to Defense Fuel Supply Center post, camp, or station 
overseas requirements.



Sec. 225.408  Solicitation provisions and contract clauses.

    (a)(i) Use the provision at 252.225-7006, Buy American Act--Trade 
Agreements--Balance of Payments Program Certificate, instead of the 
provision at FAR 52.225-8, Buy American Act--Trade Agreements--Balance 
of Payments Program Certificate, in all solicitations that include the 
clause at 252.225-7007, Buy American Act--Trade Agreements--Balance of 
Payments Program.
    (ii) Except as provided in paragraph (a)(iv) of this section, use 
the clause at 252.225-7007, Buy American--Trade Agreements--Balance of 
Payment Program, instead of the clause at FAR 52.225-9, Buy American 
Act-Trade Agreements-Balance of Payment Program. The clause need not be 
used where purchase from foreign sources is restricted (see 
225.403(c)(1)(B)). The clause may be used where the contracting officer 
anticipates a waiver of the restriction. For procurements by the U.S. 
Army Corps of Engineers, use the clause with its Alternate I.
    (iii) Use the provision at 252.225-7020, Trade Agreements 
Certificate, in all solicitations that include the clause at 252.225-
7021, Trade Agreements.
    (iv) Use the clause at 252.225-7021, Trade Agreements, instead of 
the clause at FAR 52.225-9, Buy American Act--Trade Agreements--Balance 
of Payments Program, when acquiring information technology products in 
Federal Supply Group 70 or 74. For procurements by the U.S. Army Corps 
of Engineers, use the clause with its Alternate I.
    (v)(A) Use the provision at 252.225-7035, Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of Payment 
Program Certificate, instead of the provision at FAR 52.225-20, Buy 
American Act--North American Free Trade Agreement Implementation Act--
Balance of Payments Program Certificate, in all solicitations that 
include the clause at 252.225-7036, Buy American Act--North American 
Free Trade Agreement Implementation Act--Balance of Payments Program.
    (B)(1) Use the basic provision when the basic clause at 252.225-7036 
is used.
    (2) Use the provision with its Alternate I when the clause at 
252.225-7036 is used with its Alternate I.
    (vi)(A) Use the clause at 252.225-7036, Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of Payments 
Program, instead of the clause at FAR 52.225-21, Buy American Act--North 
American Free Trade Agreement Implementation Act--Balance of Payments 
Program. The clause need not be used where purchase from foreign sources 
is restricted (see 225.403(c)(1)(B)). The clause may be used where the 
contracting officer anticipates a waiver of the restriction.
    (B)(1) Use the clause in all solicitations and contracts for the 
items listed at 225.403-70, when the estimated value is $53,150 or more 
and the Trade Agreements Act does not apply. Include the clause in 
solicitations for multiple line items if any line item is subject to 
NAFTA.
    (2) Use the clause with its Alternate I when the estimated value is 
between $25,000 and $53,150.
    (C) Application of the procedures in 225.402(a) and the acquisition 
of noneligible and eligible products under the same solicitation may 
result in the application of the North American Free Trade Agreement 
Implementation Act to only some of the items solicited. In such case, 
indicate in the schedule those items covered by the Act.

[63 FR 11532, Mar. 9, 1998]



                    Subpart 225.6--Customs and Duties



Sec. 225.602  Policy.

    (1) Section XXII, chapter 98, subchapter VIII, Item 9808.00.30 of 
the Harmonized Tariff Schedule of the United States authorizes duty-free 
importation of defense supplies.

[[Page 172]]

    (2) 19 U.S.C. 1309 authorizes duty-free importation of certain 
supplies (not including equipment) for vessels or aircraft operated by 
the United States (see FAR 25.604(b)).
    (3) Unless the supplies are entitled to duty-free treatment under a 
special category in the Harmonized Tariff Schedule of the United States 
(e.g., the Caribbean Basin Economic Recovery Act or NAFTA), or unless 
the supplies already have entered into the customs territory of the 
United States and duty already has been paid, DoD will issue duty-free 
entry certificates for--
    (i) Qualifying country supplies (end products and components) on all 
defense contracts;
    (ii) Eligible products (end products but not components) on defense 
contracts subject to the Trade Agreements Act or NAFTA; and
    (iii) Other foreign supplies, if there is reasonable assurance that 
the administrative and other costs of processing and controlling the 
certificates will not exceed the amount of duty that would be paid.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1290, Jan. 10, 1994; 63 
FR 11533, Mar. 9, 1998]



Sec. 225.603  Procedures.

    (a) General--(i) Preaward. (A) Unless duty was paid prior to 
submission of the offer, an offer of domestic end products with no 
nonqualifying country components, an offer of qualifying country end 
products, or an offer of eligible products under the Trade Agreements 
Act or NAFTA, should not include duty.
    (B) Offers of U.S. made end products with nonqualifying country 
components, and offers that are neither qualifying country offers nor 
offers of eligible products under a trade agreement, should contain 
applicable duty.
    (C) Exclude from the evaluation of domestic end products, or 
information technology end products in Federal Supply Group 70 or 74 in 
acquisitions subject to the Trade Agreements Act, any duty for 
nonqualifying country components listed in the provision at 252.225-
7003, Information for Duty-Free Entry Evaluation, for which duty-free 
entry will be granted.
    (D) Except for acquisitions of information technology end products 
in Federal Supply Group 70 or 74 subject to the Trade Agreements Act, 
apply the evaluation procedures for the Buy American Act in accordance 
with 225.105.
    (ii) Award. Exclude duty from the contract price for supplies (end 
products or components) that are to be accorded duty-free entry. If 
duty-free entry is granted to the successful offeror in accordance with 
the clause at FAR 52.225-10, Duty-Free Entry, and the clause at 252.225-
7003, Information for Duty-Free Entry Evaluation, request that the 
offeror provide the list of foreign supplies that are subject to such 
duty-free entry, and list such supplies in the contract clause at 
252.225-7008, Supplies to be Accorded Duty-Free Entry.
    (iii) Postaward. (A) Issue duty-free entry certificates for all 
qualifying country supplies in accordance with the policy at 
225.602(3)(i) and the clause at 252.225-7009, Duty-Free Entry--
Qualifying Country Supplies (End Products and Components); for all 
eligible products subject to trade agreements in accordance with the 
policy at 225.602(3)(ii) and the clause at 252.225-7037, Duty-Free 
Entry--Eligible End Products; and for other foreign supplies in 
accordance with the policy at 225.602(3)(iii) on contracts containing 
the clause at FAR 52.225-10, Duty-Free Entry; or (following to the 
extent practicable the procedures required by the clause at FAR 52.225-
10, Duty-Free Entry, and the clause at 252.225-7010, Duty-Free Entry--
Additional Provisions) on other contracts--
    (1) That fall within one of the following categories:
    (i) Direct purchases of foreign supplies under a DoD prime contract, 
whether title passes at point of origin or at destination in the United 
States, provided the contract states that the final price is exclusive 
of duty.
    (ii) Purchases of foreign supplies by a domestic prime contractor 
under a cost-reimbursement type contract or by a cost-reimbursement type 
subcontractor (where no fixed-price prime or fixed-price subcontract 
intervenes between the purchaser and the Government), whether title 
passes at point of

[[Page 173]]

origin or at destination in the United States. If a fixed-price prime or 
fixed-price subcontract intervenes, follow the criteria stated in 
paragraph (a)(iii)(A)(1)(iii) of this section.
    (iii) Purchases of foreign supplies by a fixed-price domestic prime 
contractor, a fixed-price subcontractor, or a cost-type subcontractor 
where a fixed-prime contract or fixed-price subcontract intervenes, 
provided the fixed-price prime contract and, where applicable, fixed-
price subcontract prices are, or are amended to be, exclusive of duty.
    (2) For which the supplies so purchased will be delivered to the 
Government or incorporated in Government-owned property or in an end 
product to be furnished to the Government, and for which duty will be 
paid if such supplies or any portion are used for other than the 
performance of the Government contract or disposed of other than for the 
benefit of the Government in accordance with the contract terms; and
    (3) For which such acquisition abroad is authorized by the terms of 
the contract or subcontract or by the contracting officer.
    (B) Under a fixed-price contract, negotiate an equitable reduction 
in the contract price if duty-free entry is granted for any 
nonqualifying country component not listed in the Schedule as duty-free, 
even if contract award was based on furnishing a domestic component or a 
qualifying country component.
    (b) Formal entry and release. (i) The administrative contracting 
officer must--
    (A) Ensure that prime contractors are aware of and understand any 
Duty-Free Entry clause requirements. Contractors should understand that 
failure by them or their subcontractors to include the data required by 
the clause will result in treatment of the shipment as without benefit 
of free entry under section XXII, chapter 98, subchapter VIII, Item 
9808.00.30 of the Harmonized Tariff Schedule of the United States.
    (B) Upon receipt of the required notice of purchase of foreign 
supplies from the contractor or any tier subcontractor--
    (1) Verify the duty-free entitlement of goods entering under the 
contract; and
    (2) Review the prime contract to ensure that performance of the 
contract requires the foreign supplies (quantity and price) identified 
in the notice.
    (C) Upon receipt of notification from the contractor that it is 
placing a foreign purchase that was not identified at the time of 
contract award--
    (1) Determine whether a reduction in the contract price is required 
under the clause at FAR 52.225-10, Duty-Free Entry;
    (2) If so, make an equitable adjustment in the contract price, 
unless the procuring contracting officer waives this adjustment;
    (3) Determine the price of the foreign supplies exclusive of duty, 
and advise the contractor that that amount will be the maximum dollar 
value of supplies for which duty-free entry certificates will be issued.
    (D) Within 20 days after receiving the notification of purchase of 
foreign supplies, forward the following information in the format 
indicated to the Commander, DCMC New York, ATTN Customs Team, DCMDN-
GNIC, 207 New York Avenue, Staten Island, NY 10305-5013--

We have received a contractor notification of the purchase of foreign 
supplies. I have verified that foreign supplies are required for the 
performance of the contract. If required, the prime contract price has 
been or will be adjusted.
Prime Contractor Name and Address:
Prime Contractor CAGE Code:
Prime Contract Number plus Delivery Order Number, if applicable:
Total Dollar Value of the Prime Contract or Delivery Order:
Expiration Date of the Prime Contract or Delivery Order:
Foreign Supplier Name and Address:
Number of Subcontract/Purchase Order for Foreign Supplies:
Total Dollar Value of the Subcontract for Foreign Supplies:
Expiration Date of the Subcontract for Foreign Supplies:
CAO Activity Address Number:
ACO Name and Telephone Number:
ACO Code:
Signature:
Title:

    (E) If a contract modification results in a change to any data 
verifying duty-

[[Page 174]]

free entitlement previously furnished, forward a revised notification 
including the changed data to DCMC New York.
    (ii) The responsibility for issuing duty-free entry certificates for 
foreign supplies purchased under a DoD contract or subcontract rests 
with the Customs Team, DCMDN-GNIC, DCMC New York. Upon receipt of import 
documentation for incoming shipments from the contractor, its agent, or 
the U.S. Customs Service, DCMC New York will verify the duty-free 
entitlement and execute the duty-free entry certificate.
    (iii) Upon arrival of foreign supplies at ports of entry, the 
consignee, generally the contractor or its agent (import broker) for 
shipments to other than a military installation, will file U.S. Customs 
Form 7501, 7501A, or 7506, with the District Director of Customs.
    (c) Immediate entry and release. Importations made in the name of a 
DoD military facility or being shipped directly to a military facility 
are entitled to release under the immediate delivery procedure.
    (i) A DoD immediate delivery application has been approved and is on 
file at Customs Headquarters.
    (ii) The application is for an indefinite period and is good for all 
Customs districts, areas, and ports.

[56 FR 36367, July 31, 1991, as amended at 59 FR 1290, Jan. 10, 1994; 60 
FR 29498, June 5, 1995; 62 FR 2613, Jan. 17, 1997; 63 FR 11533, Mar. 9, 
1998]



Sec. 225.604  Exempted supplies.

    (b)(i) The term ``supplies''--
    (A) Includes articles known as ``stores,'' such as food, medicines, 
and toiletries, as well as all consumable articles necessary and 
appropriate for the propulsion, operation, and maintenance of the vessel 
or aircraft, such as fuel, oil, gasoline, grease, paint, cleansing 
compounds, solvents, wiping rags, and polishes.
    (B) Does not include portable articles necessary and appropriate for 
the navigation, operation, or maintenance of vessel or aircraft and for 
the comfort and safety of the persons on board, such as rope, bolts and 
nuts, bedding, china and cutlery, which are included in the term 
``equipment.''
    (ii) The duty-free certificate shall be printed, stamped, or typed 
on the face of Customs Form 7501, or attached, and shall be executed by 
a duly designated officer or civilian official of the appropriate 
department or agency in the following form--

    (Date)____________________
    I certify that the acquisition of this material constituted a 
purchase of supplies by the United States for vessels or aircraft 
operated by the United States, and is admissible free of duty pursuant 
to 19 U.S.C. 1309.
    (Name)____________________
    (Title)____________________
    (Organization)____________________



Sec. 225.605  Contract clause.

    (b) The dollar amount in paragraphs (b)(1) and (i)(2) of the FAR 
52.225-10 clause may be reduced appropriately in solicitations and 
contracts of $100,000 or less.



Sec. 225.605-70  Additional solicitation provisions and contract clauses.

    (a) Use the clause at 252.225-7009, Duty-Free Entry--Qualifying 
Country Supplies (End Products and Components), in solicitations and 
contracts for supplies and in solicitations and contracts for services 
involving the furnishing of supplies, except for solicitations and 
contracts for supplies for exclusive use outside the United States.
    (b) Use the clause at 252.225-7037, Duty-Free Entry--Eligible End 
Products, in solicitations and contracts for supplies and services when 
the clause at 252.225-7007, Buy American Act--Trade Agreements--Balance 
of Payments Program; 252.225-7021, Trade Agreements; or 252.225-7036, 
Buy American Act--North American Free Trade Agreement Implementation 
Act--Balance of Payments Program, is used.
    (c) Use the clause at 252.225-7010, Duty-Free Entry--Additional 
Provisions, in solicitations and contracts that include the clause at 
FAR 52.225-10, Duty-Free Entry.
    (d) Use the provision at 252.225-7003, Information for Duty-Free 
Entry Evaluation, in solicitations that include the clause at FAR 
52.225-10, Duty-Free Entry. Use the provision with its Alternate I when 
the clause at 252.225-7021, Trade Agreements, is used.

[[Page 175]]

    (e) Use the clause at 252.225-7008, Supplies to be Accorded Duty-
Free Entry, in solicitations and contracts that provide for duty-free 
entry and that include the clause at FAR 52.225-10, Duty-Free Entry.

[63 FR 11534, Mar. 9, 1998]



        Subpart 225.7--Restrictions on Certain Foreign Purchases



Sec. 225.702  Restrictions.

    See 209.104-1(g)(i) for restrictions on contracting with firms owned 
or controlled by foreign governments that support terrorism. See 
209.104-1(g)(ii) for prohibition on award of a DoD contract under a 
national security program to an entity controlled by a foreign 
government when access to proscribed information is required to perform 
the contract.

[59 FR 51133, Oct. 7, 1994]



Sec. 225.770  Secondary Arab boycott of Israel.



Sec. 225.770-1  Restriction.

    In accordance with 10 U.S.C. 2410i, do not enter into a prime 
contract with a foreign person, company, or entity unless it has 
certified that it does not comply with the secondary Arab boycott of 
Israel.

[58 FR 28467, May 13, 1993]



Sec. 225.770-2  Procedures.

    For contracts awarded to the Canadian Commercial Corporation (CCC), 
the CCC will submit a certification from its proposed subcontractor with 
the other required precontractual material (see 225.870).

[57 FR 53599, Nov. 12, 1992]



Sec. 225.770-3  Exceptions.

    The restriction does not apply to--
    (a) Purchases below the small purchase threshold in FAR 13.101;
    (b) Contracts for consumable supplies, provisions, or services for 
the support of the United States or of allied forces in a foreign 
country; or
    (c) Contracts pertaining to any equipment, technology, data, or 
services for intelligence or classified purposes, or the acquisition or 
lease thereof in the interest of national security.

[57 FR 53599, Nov. 12, 1992]



Sec. 225.770-4  Waivers.

    The Secretary of Defense may waive the restriction on the basis of 
national security interests. Waiver requests should be forwarded to the 
Director of Defense Procurement, OUSD(A&T)DP.

[57 FR 53599, Nov. 12, 1992, as amended at 60 FR 61597, Nov. 30, 1995]



Sec. 225.770-5  Solicitation provision and contract clause.

    Unless an exception applies or a waiver has been granted, use the 
clause at 252.225-7031, Secondary Arab Boycott of Israel, in all 
solicitations and contracts.

[57 FR 53599, Nov. 12, 1992]



        Subpart 225.8--International Agreements and Coordination



Sec. 225.801  International agreements.

    (1) Treaties and agreements between the U.S. and foreign governments 
affect both--
    (i) The way offers from foreign contractors are evaluated in DoD 
acquisitions; and
    (ii) Performance of DoD contracts in foreign countries.
    (2) This subpart covers acquisition policy and procedures based on 
treaties and international agreements.
    (3) Information on specific agreements is available as follows--
    (i) Memoranda of understanding (MOU) and other international 
agreements between the United States and the countries listed in 
225.872-1 are maintained in the Office of the Deputy Assistant Secretary 
of Defense (Procurement) (Foreign Contracting) (703) 697-9351, DSN 227-
9351).
    (ii) Military Assistance Advisory Groups, Naval Missions, and Joint 
U.S. Military Aid Groups normally have copies of the agreements 
applicable to the countries concerned.
    (iii) Copies of international agreements covering existing 
agreements in the United Kingdom of Great Britain and Northern Ireland, 
Western European countries, North Africa, and in

[[Page 176]]

the Middle East are filed with the U.S. European Command (EUCOM).
    (iv) Agreements with countries in the Pacific and Far East are filed 
with the U.S. Pacific Command (CINCPAC).



Sec. 225.802  Procedures.



Sec. 225.802-70  Contracts for performance outside the United States and Canada.

    (a) When a purchasing activity anticipates placement of a contract 
for performance outside the United States or Canada and the contracting 
activity is not under the command jurisdiction of a unified or specified 
command for the country involved, the purchasing activity shall maintain 
liaison with the cognizant contract administration office (CAO) (as 
specified in DLAH 4105.5) during preaward negotiations and postaward 
administration. The CAO will provide pertinent information for contract 
negotiations, effect appropriate coordination, and obtain required 
approvals for the performance of the contract.
    (b) Where the acquisition requires the performance of work in the 
foreign country by U.S. personnel or a third country contractor, or 
where the acquisition will require logistics support for contract 
employees, source inspection, or additional Government employees--
    (1) The contracting activity must coordinate with the cognizant 
contract administration office before contract award.
    (2) The contracting officer shall request the following information 
from the contract administration office--
    (i) The applicability of any international agreements to the 
acquisition;
    (ii) Security requirements applicable to the area;
    (iii) The standards of conduct required to be observed by the 
prospective contractor and its employees, and any action that may be 
taken in the event required standards are not maintained;
    (iv) Requirements for use of foreign currencies, including 
applicability of U.S. holdings of excess foreign currencies;
    (v) Availability of logistics support for contractor employees; and
    (vi) Information on taxes and duties from which the Government may 
be exempt.
    (3) The contracting officer shall furnish the following information 
to the contract administration office--
    (i) A synopsis of the work to be performed and, if practical, a copy 
of the solicitation;
    (ii) Any contractor logistical support desired in support of U.S. or 
foreign military sale requirements;
    (iii) Contract performance period and estimated contract value;
    (iv) Number and nationality of contractor employees and date of 
planned arrival of contractor personnel;
    (v) Contract security requirements; and
    (vi) Other pertinent information to effect complete coordination and 
cooperation.



Sec. 225.802-71  End user certificates.

    Contracting officers considering the purchase of an item from a 
foreign source may encounter a request for the signing of a certificate 
to the effect that the Armed Forces of the United States is the end user 
of the equipment, and that it will not be transferred to third parties 
without authorization from the Government of the country selling the 
item. When encountering this situation, refer to DoD Directive 2040.3, 
End User Certificates, for guidance.

[57 FR 42630, Sept. 15, 1992]



Sec. 225.870  Contracting with Canadian contractors.



Sec. 225.870-1  General.

    (a) The Canadian Government guarantees to the U.S. Government all 
commitments, obligations, and covenants of the Canadian Commercial 
Corporation under any contract or order issued to the Corporation by any 
contracting activity of the U.S. Government. The Canadian Government has 
waived notice of any change or modification which may be made, from time 
to time, in these commitments, obligations, or covenants.
    (b) For production planning purposes, Canada is considered to be 
part of the defense industrial base (see 225.870-2(b)).

[[Page 177]]

    (c) Contracts with contractors located in Canada should be awarded 
to and administered by the Canadian Commercial Corporation, except for--
    (1) Negotiated purchases for experimental, developmental, or 
research work unless the contract is for a project under the Defense 
Development Sharing Program;
    (2) Purchases of unusual or compelling urgency;
    (3) Small purchases; or
    (4) Purchases made by DoD activities located in Canada.
    (d) The Canadian Commercial Corporation, in placing contracts with 
Canadian or U.S. concerns, uses provisions in the contracts that give 
DoD the same production rights, data, and information that DoD would 
obtain in contracts with U.S. concerns.
    (e) When contracts are placed with the Canadian Commercial 
Corporation, the government of Canada will provide the following 
services, without charge to DoD departments and agencies--
    (1) Contract administration services, including--
    (i) Cost and pricing analysis;
    (ii) Industrial security;
    (iii) Accountability and disposal of Government property;
    (iv) Production expediting;
    (v) Compliance with Canadian labor laws;
    (vi) Processing termination claims and disposing of termination 
inventory;
    (vii) Customs documentation;
    (viii) Processing of disputes and appeals; and
    (ix) Such other related contract administration functions as may be 
required with respect to the Canadian Commercial Corporation contract 
with the Canadian supplier; and
    (2) Audits. When required, audits are performed by the Audit Service 
Group, Supply and Services Canada. Requests for audit on non-Canadian 
Commercial Corporation contracts should be routed through the cognizant 
contract administration office of Defense Contract Management Command.
    (3) Inspection. The Department of National Defence (Canada) provides 
inspection personnel, services, and facilities, at no charge to DoD 
departments and agencies (see 225.870-7).



Sec. 225.870-2  Solicitation of Canadian contractors.

    (a) Except for the acquisitions in 225.870-1(c) (1) through (4), 
include Canadian firms on bidders mailing lists and comparable source 
lists only at the request of the Canadian Commercial Corporation.
    (b) Include Canadian planned producers under the Industrial 
Readiness Planning Program on bidders mailing lists for their planned 
items (see FAR 14.205-1).
    (c) Send solicitations directly to Canadian firms appearing on the 
appropriate bidders mailing lists. Send a complete copy of the 
solicitation and a listing of Canadian firms solicited to the Canadian 
Commercial Corporation, 11th Floor, 50 O'Connor Street, Ottawa, Ontario, 
K1A-0S6, Canada.
    (d) Furnish a solicitation, if requested, to the Canadian Commercial 
Corporation even if no Canadian firm is solicited.
    (e) Handle small purchases (see FAR part 13) directly with Canadian 
firms and not through the Canadian Commercial Corporation.

[56 FR 36367, July 31, 1991, as amended at 57 FR 42630, Sept. 15, 1992]



Sec. 225.870-3  Submission of offers.

    (a) As indicated in 225.870-4, the Canadian Commercial Corporation 
is the prime contractor. To indicate acceptance of offers by individual 
Canadian companies, the Canadian Commercial Corporation issues a letter, 
supporting the Canadian offer, containing the following information--
    (1) Name of the Canadian offeror;
    (2) Confirmation and endorsement of the offer in the name of the 
Canadian Commercial Corporation; and
    (3) A statement that the Corporation shall subcontract 100 percent 
with the offeror.
    (b) When a Canadian offer cannot be processed through the Canadian 
Commercial Corporation in time to meet the bid-opening requirement or 
the closing date for receipt of proposals, the Corporation may permit 
Canadian firms to submit offers directly. The Canadian Commercial 
Corporation's endorsement of award, however, must be

[[Page 178]]

received by the contracting officer before contract award.
    (c) All sealed bids will be submitted by the Canadian Commercial 
Corporation in terms of U.S. currency. Do not adjust contracts awarded 
under sealed bidding for losses or gains from fluctuation in exchange 
rates.
    (d) Except for sealed bids, all offers and quotations submitted by 
the Canadian Commercial Corporation are normally in terms of Canadian 
currency. The Corporation may, at the time of submitting an offer, elect 
to quote and receive payment in terms of U.S. currency, in which case 
the contract shall--
    (1) Provide for payment in U.S. currency; and
    (2) Shall not be adjusted for losses or gains from fluctuation in 
exchange rates.



Sec. 225.870-4  Contracting procedures.

    (a) Award individual contracts covering purchases from suppliers 
located in Canada, except for those in 225.870-1(c)(1) through (4), to 
the Canadian Commercial Corporation, 11th Floor, 50 O'Connor Street, 
Ontario, Canada, K1A-0S6.
    (b) Direct communication with the Canadian supplier is authorized 
and encouraged in connection with all technical aspects of the contract; 
provided, that the Corporation's approval is obtained on any matters 
involving changes to the contract.
    (c) Identify in the contract, the type of currency, i.e., U.S. or 
Canadian. Contracts that provide for payment in Canadian currency shall 
quote the contract price in terms of Canadian dollars and shall identify 
the amount by the initials CN; e.g., $1,647.23CN. The contract shall 
clearly indicate on its face the U.S./Canadian conversion rate at the 
time of award and the U.S. dollar equivalent of the Canadian dollar 
contract amount.

[56 FR 36367, July 31, 1991, as amended at 57 FR 42630, Sept. 15, 1992]



Sec. 225.870-5  Contract administration.

    (a) Assign contract administration in accordance with part 242. When 
contract administration is performed in Canada by the cognizant contract 
administration office of the Defense Contract Management Command, the 
paying office to be named in the contract for disbursement of DoD funds 
(DoD Department Code: 17-Navy; 21-Army; 57-Air Force; 97-all other DoD 
components), whether payment is in Canadian or U.S. dollars, shall be: 
Disbursing Office, Defense Contract Management Area Office, Cleveland 
1240 East 9th Street, Anthony J. Celebrezze Federal Building, Cleveland, 
Ohio 44199.
    (b) For cost-reimbursement type contracts--
    (1) Audits on contracts with the Canadian Commercial Corporation 
(CCC) are automatically arranged by the Department of Supplies and 
Services (DSS), Canada. Audit reports are furnished to DSS. Upon advice 
from DSS, the CCC will certify the invoice and forward it with SF 1034, 
Public Voucher, to the administrative contracting officer for further 
processing and transmittal to the disbursing office.
    (2) On contracts placed directly with Canadian firms, the 
administrative contracting officer requests audits from the Audit 
Services Bureau (ASB), Ottawa, Ontario, Canada.
    (i) Invoices are approved by the ASB/DSS auditor on a provisional 
basis pending completion of the contract and final audit.
    (ii) The ASB/DSS forwards these invoices, accompanied by SF 1034, 
Public Voucher, to the administrative contracting officer for further 
processing and transmittal to the disbursing officer.
    (iii) ASB/DSS furnishes periodic advisory audit reports directly to 
the administrative contracting officer.



Sec. 225.870-6  Termination procedures.

    (a) The Canadian Commercial Corporation will continue administering 
contracts that may be terminated by the U.S. contracting officer.
    (b) The Corporation will settle all Canadian subcontracts in 
accordance with the policies, practices, and procedures of the Canadian 
Government.
    (c) The U.S. agency administering the contract with the Canadian 
Commercial Corporation shall provide any services required by the 
Canadian Commercial Corporation, including disposal of inventory, for 
settlement of any subcontracts placed in the United States.

[[Page 179]]

Settlement of such U.S. subcontracts is made under this regulation.



Sec. 225.870-7  Acceptance of Canadian supplies.

    (a) When contracts placed in Canada, either with the Canadian 
Commercial Corporation or directly with Canadian suppliers, require 
contract quality assurance (CQA) and/or acceptance before shipment, CQA 
and/or acceptance, as applicable, will be performed by the Department of 
National Defence (Canada), under paragraph 6 of the Letter of Agreement.
    (b) Signature by the Department of National Defence (Canada) quality 
assurance representative on the DoD inspection and acceptance form is 
satisfactory evidence of acceptance for payment purposes.



Sec. 225.870-8  Industrial security.

    Industrial security for Canada shall be in accordance with the U.S.-
Canada Industrial Security Agreement of March 31, 1952, as amended.



Sec. 225.871  North Atlantic Treaty Organization (NATO) cooperative projects.



Sec. 225.871-1  Scope.

    (a) This section provides guidance on awarding contracts based on 
NATO cooperative projects.
    (b) The authority is 22 U.S.C. 2767 and 10 U.S.C. 2350b.



Sec. 225.871-2  Definitions.

    (a) Cooperative project means a jointly managed arrangement--
    (1) Described in a written agreement between the parties;
    (2) Undertaken to further the objectives of standardization, 
rationalization, and interoperability of the armed forces of North 
Atlantic Treaty Organization member countries; and
    (3) Providing for--
    (i) One or more of the other participants to share with the United 
States the cost of research and development, testing, evaluation, or 
joint production (including follow-on support) of certain defense 
articles;
    (ii) Concurrent production in the United States and in another 
member country of a defense article jointly developed; or
    (iii) Acquisition by the United States of a defense article or 
defense service from another member country.
    (b) Other participant means a cooperative project participant other 
than the United States.



Sec. 225.871-3  General.

    (a) Cooperative project authority. (1) Departments or agencies, that 
have authority to do so, may enter into a cooperative project agreement 
with NATO or with one or more member countries of that organization 
under DoD Directive 5530.3, International Agreements.
    (2) Under laws and regulations governing the negotiation and 
implementation of cooperative project agreements, departments and 
agencies may enter into contracts, or incur other obligations, on behalf 
of other participants without charge to any appropriation or contract 
authorization.
    (3) Agency heads have authority to solicit and award contracts to 
implement cooperative projects.
    (b) Contracts implementing cooperative projects shall comply with 
all applicable laws relating to Government acquisition, unless a waiver 
is granted under 225.871-4. A waiver of certain laws and regulations may 
be obtained if--
    (1) Required by the terms of a written cooperative project 
agreement;
    (2) It will significantly further NATO standardization, 
rationalization, and interoperability; and
    (3) It is approved by the appropriate DoD official.



Sec. 225.871-4  Statutory waivers.

    (a) The Deputy Secretary of Defense may waive for contracts or 
subcontracts placed outside the United States any provision of law that 
specifically prescribes--
    (1) Procedures for the formation of contracts;
    (2) Terms and conditions for inclusion in contracts;
    (3) Requirements for, or preferences to be given--
    (i) To goods grown, produced, or manufactured in the United States 
or in U.S. Government-owned facilities; or
    (ii) For services to be performed in the United States; or

[[Page 180]]

    (4) Requirements regulating the performance of contracts.
    (b) There is no authority for waiver of--
    (1) Any provision of the Arms Export Control Act (22 U.S.C. 2751);
    (2) Any provision of 10 U.S.C. 2304;
    (3) The cargo preference laws of the United States, including the 
Military Cargo Preference Act of 1904 (10 U.S.C. 2631) and the Cargo 
Preference Act of 1954 (46 U.S.C. 1241(b)); or
    (4) Any of the financial management responsibilities administered by 
the Secretary of the Treasury.
    (c) If a waiver is contemplated under the terms of a cooperative 
project agreement, forward a request for the waiver to the Deputy 
Secretary of Defense, through the Director of Defense Procurement. The 
waiver request must include a draft Determination and Findings for 
signature by the Deputy Secretary of Defense establishing that the 
waiver is necessary to significantly further NATO standardization, 
rationalization, and interoperability.
    (d) The approval of the Deputy Secretary of Defense must be obtained 
before committing to make waivers in an agreement or an amendment to an 
agreement or contract.



Sec. 225.871-5  Directed subcontracting.

    (a) The Director of Defense Procurement may authorize the direct 
placement of subcontracts with particular subcontractors. Directed 
subcontracting is not authorized unless specifically addressed in the 
cooperative project agreement.
    (b) In some instances, it may not be feasible to name specific 
subcontractors at the time the agreement is concluded. The general 
provisions for work sharing at the prime and subcontractor level, 
however, must be clearly delineated in the agreement. This will provide 
the authority necessary to implement such arrangements during the 
acquisition phase.
    (c) The agreement is the authority necessary for including a 
contractual provision requiring the prime contractor to place certain 
subcontracts with particular subcontractors. No separate justification 
and approval during the acquisition process is required.



Sec. 225.871-6  Disposal of property.

    Dispose of property that is jointly acquired by the members of a 
cooperative project under the procedures established in the agreement or 
in a manner consistent with the terms of the agreement.



Sec. 225.871-7  Congressional notification.

    (a) Congress must be notified whenever DoD determines to award a 
prime contract or subcontract to a particular contractor if the 
determination was not part of the certification made under Section 27(f) 
of the Arms Export Control Act before finalizing the cooperative 
agreement.
    (1) Departments and agencies must provide a proposed Congressional 
notice to USD(A&T)DP in sufficient time to forward to Congress before 
the time of contract award.
    (2) The proposed notice shall include the reason why the authority 
to designate a particular contractor or subcontractor should be used.
    (b) Congressional notification is also required each time a 
statutory waiver is exercised under 225.871-4, if such information was 
not provided in the certification to Congress before finalizing the 
cooperative agreement. Exercise of the waiver means a contract award or 
modification which provides for a statutory exception.

[56 FR 36367, July 31, 1991, as amended at 60 FR 61597, Nov. 30, 1995]



Sec. 225.872  Contracting with qualifying country sources.



Sec. 225.872-1  General.

    (a) As a result of memoranda of understanding and other 
international agreements, the DoD has determined it inconsistent with 
the public interest to apply restrictions of the Buy American Act/
Balance of Payments Program to the acquisition of defense equipment 
which is mined, produced, or manufactured in any of the following 
countries (referred to in this part as ``qualifying countries'')--

    Australia
    Belgium
    Canada
    Denmark
    Egypt
    Federal Republic of Germany

[[Page 181]]

    France
    Greece
    Israel
    Italy
    Luxembourg
    Netherlands
    Norway
    Portugal
    Spain
    Turkey
    United Kingdom of Great Britain and Northern Ireland

    (b) Individual acquisitions for products of the following qualifying 
countries may, on a purchase-by-purchase basis, be exempted from 
application of the Buy American Act and Balance of Payments Program as 
inconsistent with the public interest--

    Austria
    Finland
    Sweden
    Switzerland

    (c) The determination in paragraph (a) of this subsection does not 
limit the authority of the cognizant Secretary to restrict acquisitions 
to domestic sources or reject an otherwise acceptable offer from a 
qualifying country source in instances where considered necessary for 
national defense reasons.

[56 FR 36367, July 31, 1991, as amended at 57 FR 53599, Nov. 12, 1992; 
60 FR 61597, Nov. 30, 1995; 62 FR 34122, June 24, 1997; 63 FR 5745, Feb. 
4, 1998]



Sec. 225.872-2  Applicability.

    (a) This section applies to all acquisitions of supplies except 
where restricted by--
    (1) Provision of U.S. National Disclosure Policy (NDP), DOD 
Directive 5230.11, Disclosure of Classified Military Information to 
Foreign Governments and International Organizations;
    (2) U.S. defense mobilization base requirements purchased under the 
authority of FAR 6.302-3(a)(2)(i) except for quantities in excess of 
that required to maintain the defense mobilization base. This 
restriction does not apply to Canadian planned producers--
    (i) Review individual solicitations to determine whether this 
restriction applies.
    (ii) Information concerning restricted items may be obtained from 
the Deputy Assistant Secretary of Defense (Industrial Affairs);
    (3) Other U.S. laws or regulations (e.g., the annual defense 
appropriations act); and
    (4) U.S. industrial security requirements.
    (b) This section does not apply to construction contracts.

[56 FR 36367, July 31, 1991, as amended at 60 FR 61597, Nov. 30, 1995; 
62 FR 34123, June 24, 1997]



Sec. 225.872-3  Solicitation procedures.

    (a) Include qualifying country sources on bidders mailing lists and 
comparable source lists upon their request (see FAR 14.205).
    (b) Except for items developed under the U.S./Canadian Development 
Sharing Program, use the criteria for soliciting and making awards under 
FAR part 19 for small business concerns without regard to whether there 
are potential qualifying country sources for the end product. Do not 
consider an offer of a qualifying country end product if the 
solicitation is identified for the exclusive participation of small 
business firms.
    (c) Send solicitations directly to qualifying country sources. 
Solicit Canadian sources through the Canadian Commercial Corporation in 
accordance with 225.870.
    (d) Use international air mail if solicitation destinations are 
outside the United States and security classification permits such use 
(see FAR 14.202 and FAR 14.203).
    (e) If unusual technical or security requirements preclude the 
acquisition of otherwise acceptable defense equipment from qualifying 
country sources, review the need for such requirements. Do not impose 
unusual technical or security requirements solely for the purpose of 
precluding the acquisition of defense equipment from qualifying 
countries.
    (f) Do not automatically exclude qualifying country sources from 
submitting offers because their supplies have not been tested and 
evaluated by the department/agency.
    (1) Consider the adequacy of qualifying country service testing on a 
case-by-case basis. Departments or agencies that must limit 
solicitations to sources whose items have been service tested

[[Page 182]]

and evaluated by the department/agency shall consider supplies from 
qualifying country sources that have been tested and accepted by the 
qualifying country for service use.
    (2) The department/agency may perform a confirmatory test, if 
necessary.
    (3) Apply U.S. test and evaluation standards, policies, and 
procedures when the department/agency decides that confirmatory tests of 
qualifying country end products are necessary.
    (4) Where it appears that these provisions might adversely delay 
service programs, obtain the concurrence of the DoD Acquisition 
Executive, Under Secretary of Defense (Acquisition & Technology), before 
excluding the qualifying country source from consideration.
    (g) Permit industry representatives from a qualifying country to 
attend symposia, program briefings, prebid conferences (FAR 14.207 and 
FAR 15.409), and similar meetings that address U.S. defense equipment 
needs and requirements. When practical, structure these meetings to 
allow attendance by representatives of qualifying country concerns.

[56 FR 36367, July 31, 1991, as amended at 60 FR 61597, Nov. 30, 1995]



Sec. 225.872-4  Evaluation of offers.

    (a) Qualifying country sources competing for DoD requirements must 
be responsive to the terms and conditions of DoD solicitations.
    (b) Evaluate offers of end products from the qualifying country 
sources in 225.872-1(a) without application of the 50 percent Buy 
American Act or Balance of Payments Program evaluation factor, in 
accordance with 225.105 and 225.303.
    (c) Evaluate offers of end products from the qualifying country 
sources in 225.872-1(b) without application of the 50 percent Buy 
American Act or Balance of Payments Program evaluation factor. If the 
offer, as evaluated, is low or otherwise eligible for award, the 
contracting officer shall request an exemption of the Buy American Act/
Balance of Payments Program as inconsistent with the public interest, 
unless another exception such as the Trade Agreements Act applies.
    (1) To obtain an exemption, process a Determination and Findings for 
signature--
    (i) At a level above the contracting officer, for acquisitions of 
$25,000 or less;
    (ii) By the chief of the contracting office, for acquisitions of 
$250,000 or less;
    (iii) By the head of the contracting activity (HCA), for 
acquisitions of $2 million or less; or
    (iv) By the head of the agency, or designee at a level no lower than 
an HCA, for acquisitions over $2 million.
    (2) The Determination and Findings shall be substantially as follows 
for end items, or modified as necessary for components--

                            Service or Agency

      Exemption of the Buy American Act/Balance of Payments Program

                       Determination and Findings

    Upon the basis of the following findings and determination which I 
hereby make in accordance with the provisions of FAR 25.102, acquisition 
of (qualifying country--identify country) (describe item) may be made as 
provided below.

                                Findings

    1. The (contracting activity) proposes to purchase under contract 
number, ____________, mined, produced, or manufactured in (country of 
origin). The total estimated cost of this acquisition is ____________ .
    2. The United States Government and the Government of 
____________ have agreed to remove barriers to procurement at the prime 
and subcontract level for defense equipment produced in each other's 
countries insofar as laws and regulations permit.
    3. The agreement provides that competitive offers of (qualifying 
country) end products will be evaluated by the Department of Defense 
without imposing any price differential under the Buy American Act or 
Balance of Payments Program and without taking applicable U.S. customs 
and duties into consideration so that (qualifying country) items may 
better compete for sales of defense equipment to the Department of 
Defense. In addition, the Agreement stipulates that acquisitions of 
(qualifying country) items must fully satisfy Department of Defense 
requirements for performance, quality, and delivery and shall cost the 
Department of Defense no more than would comparable U.S. source or other 
foreign source defense equipment eligible for award.
    4. To achieve the above objectives, the solicitation contained the 
(title and number of the Buy American Act clause contained in the

[[Page 183]]

contract). Offers were solicited from other sources and the offer 
received for (qualifying country end item) is found to be otherwise 
eligible for award.

                              Determination

    Pursuant to the Buy American Act and Balance of Payments Program, I 
hereby determine that it is inconsistent with the public interest to 
apply the restrictions of the Buy American Act or the Balance of 
Payments Program to the proposed offer.
_______________________________________________________________________

    (Date)

[56 FR 36367, July 31, 1991, as amended at 57 FR 42630, Sept. 15, 1992; 
63 FR 11534, Mar. 9, 1998]



Sec. 225.872-5  Contract administration.

    (a) Arrangements exist with some qualifying countries to provide 
reciprocal contract administration services. Some arrangements are at no 
cost to either government. To determine whether such an arrangement has 
been negotiated and what contract administration functions are covered, 
contact the Deputy Director of Defense Procurement (Foreign 
Contracting), ((703) 697-9351, DSN 227-9351).
    (b) When contract administration services are required on contracts 
to be performed in qualifying countries, direct the request to the 
cognizant activity under DLAH 4105.4, section II, part 2 (DoD Directory 
of Contract Administration Services Components). Contract administration 
services for DoD subcontracts placed by qualifying country sources in 
the United States will be arranged by the cognizant activity under DLAH 
4105.4, section II, part 2.
    (c) The contract administration activity receiving a delegation or 
secondary delegation shall review the delegation to determine whether 
any portion of the delegation are covered by memoranda of understanding 
annexes, and delegate those functions to the appropriate organization in 
the qualifying country's government.
    (d) Information on quality assurance delegations to foreign 
governments is in subpart 246.4, Government Contract Quality Assurance.

[56 FR 36367, July 31, 1991, as amended at 60 FR 29498, June 5, 1995]



Sec. 225.872-6  Audit.

    (a) Memoranda of understanding with some qualifying countries 
contain annexes that provide for reciprocal ``no-cost'' audits of 
contracts and subcontracts (pre- and post-award).
    (b) To determine if such an annex is applicable to a particular 
qualifying country, contact the Deputy Director of Defense Procurement 
(Foreign Contracting) ((703) 697-9351, DSN 227-9351).
    (c) Handle requests for audits in qualifying countries under 
215.805-5(c)(1).
    (1) Except for the United Kingdom (UK), send the request to the 
administrative contracting officer at the cognizant activity listed in 
DLAH 4105.4, section II, part 2 (DoD Directory of Contract 
Administration Services Components). Send the request for audit from the 
UK directly to their Ministry of Defence. See section VII, DLAH 4105.4 
for guidance.
    (2) Send an advance copy of the request to the focal point 
identified by the Foreign Contracting Directorate, Office of the 
Director of Defense Procurement.

[56 FR 36367, July 31, 1991, as amended at 60 FR 29498, June 5, 1995]



Sec. 225.872-7  Industrial security for qualifying countries.

    The required procedures for safeguarding classified defense 
information necessary for the performance of contracts awarded to 
qualifying country sources are in the DoD Industrial Security Regulation 
DoD 5220.22-R (implemented for the Army by AR 380-49; for the Navy by 
OPNAV Instruction 5540.8L; for the Air Force by AFR 205-4; for the 
Defense Information Systems Agency by DCA Instruction 240-110-8; and for 
the Defense Mapping Agency by DMA Instruction 5220.22).

[56 FR 36367, July 31, 1991, as amended at 56 FR 67215, Dec. 30, 1991]



Sec. 225.872-8  Subcontracting with qualifying country sources.

    In reviewing contractor subcontracting procedures, the contracting 
officer shall ensure that the prime contract does not preclude 
qualifying country sources from competing for subcontracts, except when 
restricted by

[[Page 184]]

national security interest reasons, mobilization base considerations, or 
applicable U.S. laws or regulations. (See the clause at 252.225-7002, 
Qualifying Country Sources as Subcontractors.)



Sec. 225.873  Waiver of United Kingdom commercial exploitation levies.



Sec. 225.873-1  Policy.

    DoD and the Government of the United Kingdom (U.K.) have agreed to 
waive U.K. commercial exploitation levies and U.S. nonrecurring cost 
recoupment charges on a reciprocal basis. In order for U.K. levies to be 
waived, they must be identified and a waiver must be requested before 
award of the contract or subcontract under which the levies are charged.

[57 FR 53599, Nov. 12, 1992]



Sec. 225.873-2  Procedures.

    (a) Waiver of U.K. levies must be approved by the Government of the 
U.K. When an offeror or contractor identifies a levy included in an 
offered or contract price, the contracting officer shall provide written 
notification to the Defense Security Assistance Agency, Operations 
Management Division, room 4B740, the Pentagon, Washington, DC 20301-
2800, telephone (703) 697-8108, which will request a waiver of the levy 
from the Government of the U.K. The notification shall include--
    (1) Name of the U.K. firm;
    (2) Prime contract number;
    (3) Description of item for which waiver is being sought;
    (4) Quantity being acquired; and
    (5) Amount of levy.
    (b) Waiver may occur after contract award. Where levies are waived 
before contract award, the offer will be evaluated without the levy. 
Where levies are identified but not waived before contract award, the 
offer will be evaluated inclusive of the levies.

[57 FR 53599, Nov. 12, 1992]



Sec. 225.873-3  Contract clause.

    Use the clause at 252.225-7032, Waiver of United Kingdom Levies, in 
all solicitations and contracts for supplies--
    (a) Where U.K. firms are expected to participate as offerors/prime 
contractors; or
    (b) If a subcontract over $1 million with a U.K. firm is 
anticipated.

[57 FR 53599, Nov. 12, 1992]



          Subpart 225.9--Additional Foreign Acquisition Clauses



Sec. 225.970  Clause deviations in overseas contracts.

    See 201.402(2) for approval authority for clause deviations in 
overseas contracts with governments of North Atlantic Treaty 
Organization (NATO) countries or other allies or with United Nations or 
NATO organizations.

[61 FR 50453, Sept. 26, 1996]



Sec. 225.971  Correspondence in English.

    Use the clause at 252.225-7041, Correspondence in English, in 
solicitations and contracts when contract performance will be wholly or 
in part in a foreign country.

[62 FR 34123, June 24, 1997]



Sec. 225.972  Authorization to perform.

    Use the clause at 252.225-7042, Authorization to Perform, in 
solicitations and contracts when contract performance will be wholly or 
in part in a foreign country.

[62 FR 34123, June 24, 1997]



   Subpart 225.70--Authorization Acts, Appropriations Acts, and Other 
              Statutory Restrictions on Foreign Acquisition



Sec. 225.7000  Scope of subpart.

    (a) This subpart contains restrictions on the acquisition of foreign 
products and services, imposed by Defense appropriations and 
authorization acts and other statutes. Refer to the acts to verify 
current applicability of the restrictions.
    (b) Nothing in this subpart affects the applicability of the Buy 
American Act or Balance of Payments Program.

[56 FR 36367, July 31, 1991, as amended at 62 FR 2856, Jan. 17, 1997]



Sec. 225.7001  Definitions.

    As used in this subpart--
    (a) Bearing components and miniature and instrument ball bearings 
are defined

[[Page 185]]

in the clause at 252.225-7016, Restriction on Acquisition of Ball and 
Roller Bearings.
    (b) Hand or measuring tools means those tools listed in Federal 
supply classifications 51 and 52, respectively.
    (c) Possessions, as used in the phrase ``United States or its 
possessions,'' includes Puerto Rico.
    (d) Specialty metals is defined in the clause at 252.225-7014, 
Preference for Domestic Specialty Metals.

[61 FR 10899, Mar. 18, 1996, as amended at 61 FR 50453, Sept. 26, 1996]



Sec. 225.7002-1  Restrictions.

    (a) In accordance with Section 9005 of Public Law 102-396, as 
amended (10 U.S.C. 2241 note, Limitations on Food, Clothing, and 
Specialty Metals Not Produced in the United States), and Section 8109 of 
Public Law 104-208, do not acquire supplies consisting in whole or in 
part of any of the following, that have not been grown or produced in 
the United States or its possessions--
    (1) Food, but this does not restrict acquisition of foods 
manufactured or processed in the United States or its possessions;
    (2) Clothing;
    (3) Tents, tarpaulins, or covers;
    (4) Cotton and other natural fiber products, or wool (whether in the 
form of fiber or yarn or contained in fabrics, materials, or 
manufactured articles), but this does not restrict acquisition of cotton 
or wool reprocessed or reused in the United States or its possessions;
    (5) Woven silk or woven silk blends;
    (6) Spun silk yarn for cartridge cloth;
    (7) Synthetic fabric or coated synthetic fabric, including all 
textile fibers and yarns that are for use in such fabrics;
    (8) Canvas products; or
    (9) Any item of individual equipment (Federal Supply Class 8465) 
manufactured from or containing any of the listed fibers, yarns, 
fabrics, or materials.
    (b) Do not acquire specialty metals, including stainless steel 
flatware, that were not melted in steel manufacturing facilities located 
within the United States or its possessions.
    (c) Do not acquire hand or measuring tools that were not produced in 
the United States or its possessions.

[56 FR 36367, July 31, 1991, as amended at 59 FR 27671, May 27, 1994; 62 
FR 5780, Feb. 7, 1997; 62 FR 47154, Sept. 8, 1997]



Sec. 225.7002-2  Exceptions.

    Acquisitions in the following categories are not subject to the 
restrictions in 225.7002-1--
    (a) Any of the items in 225.7002-1(a) or (b), if the Secretary 
concerned, or designee, determines that they cannot be acquired when 
needed in a satisfactory quality and sufficient quantity grown or 
produced in the United States or its possessions at U.S. market prices.
    (b) Outside the United States--
    (1) In support of combat operations;
    (2) Perishable foods by activities located outside the United States 
for their personnel; or
    (3) Emergency acquisitions by such activities for their personnel.
    (c) Acquisitions by vessels in foreign waters.
    (d) Acquisitions of those supplies listed in FAR section 
25.108(d)(1), unless the supplies are hand or measuring tools.
    (e) Acquisitions not exceeding the simplified acquisition threshold.
    (f) Acquisitions of end items incidentally incorporating cotton or 
wool, for which the estimated value of the cotton or wool is not more 
than 10 percent of the total price of the end item; provided the 
estimated value of the cotton or wool does not exceed the simplified 
acquisition threshold.
    (g) Supplies purchased specifically for commissary resale.
    (h) Purchases of specialty metals by subcontractors at any tier for 
programs, except--
    (1) Aircraft;
    (2) Missile and space systems;
    (3) Ships;
    (4) Tank-automotive;
    (5) Weapons; and
    (6) Ammunition.
    (i) Purchases of specialty metals and chemical warfare protective 
clothing when the acquisition furthers an agreement with a qualifying 
country (see section 225.872).

[[Page 186]]

    (j) Purchases of fibers and yarns that are for use in synthetic 
fabric or coated synthetic fabric (but not the purchase of the synthetic 
or coated synthetic fabric itself), if such fabric is to be used as a 
component of an end item that is not a textile product. Examples of 
textile products, made in whole or in part of fabric, include--
    (1) Draperies, floor coverings, furnishings, and bedding (Federal 
Supply Group 72, Household and Commercial Furnishings and Appliances);
    (2) Items made in whole or in part of fabric in Federal Supply Group 
83, Textile/leather/furs/apparel/findings/tents/flags, or Federal Supply 
Group 84, Clothing, Individual Equipment and Insignia;
    (3) Upholstered seats (whether for household, office, or other use); 
and
    (4) Parachutes (Federal Supply Class 1670).

[56 FR 36367, July 31, 1991, as amended at 58 FR 28467, May 13, 1993; 59 
FR 27671, May 27, 1994; 60 FR 61597, Nov. 30, 1995; 61 FR 50453, Sept. 
26, 1996; 62 FR 5780, Feb. 7, 1997; 62 FR 47154, Sept. 8, 1997]



Sec. 225.7002-3  Contract clauses.

    Unless an exception is known to apply--
    (a) Use the clause at 252.225-7012, Preference for Certain Domestic 
Commodities, in all solicitations and contracts which meet or exceed the 
simplified acquisition threshold.
    (b) Use the clause at 252.225-7014, Preference for Domestic 
Specialty Metals, in all solicitations and contracts over the simplified 
acquisition threshold that require delivery of an article containing 
specialty metals. Use the clause with its Alternate I in all 
solicitations and contracts over the simplified acquisition threshold 
requiring delivery, for one of the following major programs, of an 
article containing specialty metals--
    (1) Aircraft;
    (2) Missile and space systems;
    (3) Ships;
    (4) Tank-automotive;
    (5) Weapons; or
    (6) Ammunition.
    (c) Use the clause at 252.225-7015, Preference for Domestic Hand or 
Measuring Tools, in all solicitations and contracts over the simplified 
acquisition threshold calling for delivery of hand or measuring tools.

[61 FR 50453, Sept. 26, 1996]



Sec. 225.7003  Restriction on overseas military construction.

    For restriction on award of military construction contracts to be 
performed in the United States territories and possessions in the 
Pacific and on Kwajalein Atoll, or in countries bordering the Arabian 
Gulf, see 236.274(a).

[62 FR 2856, Jan. 17, 1997]



Sec. 225.7004  Restriction on overseas architect-engineer services.

    For restriction on award of architect-engineer contracts to be 
performed in Japan, in any North Atlantic Treaty Organization member 
country, or in countries bordering the Arabian Gulf, see 236.602-70.

[62 FR 2857, Jan. 17, 1997]



Sec. 225.7005  Waiver of certain restrictions.

    (a) Where provided for elsewhere in this subpart, the restrictions 
on certain foreign purchases under 10 U.S.C. 2534(a) may be waived as 
follows:
    (1)(i) The Under Secretary of Defense (Acquisition and Technology), 
without power of delegation, may waive the restriction for a particular 
item for a particular foreign country upon determination that--
    (A) United States producers of the item would not be jeopardized by 
competition from a foreign country, and that country does not 
discriminate against defense items produced in the United States to a 
greater degree than the United States discriminates against defense 
items produced in that country; or
    (B) Application of the restriction would impede cooperative programs 
entered into between DoD and a foreign country, or would impede the 
reciprocal procurement of defense items under a memorandum of 
understanding providing for reciprocal procurement of defense items 
under 225.872, and that country does not discriminate against defense 
items produced in the United States to a greater degree than the United 
States discriminates against defense items produced in that country.

[[Page 187]]

    (ii) A notice of determination to exercise the waiver authority must 
be published in the Federal Register and submitted to the congressional 
defense committees at least 15 days before the effective date of the 
waiver.
    (iii) Such waiver shall be in effect for a period not greater than 1 
year.
    (iv) For contracts entered into prior to the effective date of a 
waiver, provided adequate consideration is received to modify the 
contract, such waiver shall be applied as directed or authorized in the 
waiver to--
    (A) Subcontracts entered into on or after the effective date of the 
waiver; and
    (B) Options for the procurement of items that are exercised after 
the effective date of the waiver, if the option prices are adjusted for 
any reason other than the application of the waiver.
    (2) The head of the contracting activity may waive the restriction 
on a case-by-case basis upon execution of a determination and findings 
that any of the following applies:
    (i) The restriction would cause unreasonable delays.
    (ii) Satisfactory quality items manufactured in the United States or 
Canada are not available.
    (iii) Application of the restriction would result in the existence 
of only one source for the item in the United States or Canada.
    (iv) Application of the restriction is not in the national security 
interests of the United States.
    (v) Application of the restriction would adversely affect a U.S. 
company.
    (3) The restriction is waived when it would cause unreasonable 
costs. The cost of the item of U.S. or Canadian origin is unreasonable 
if it exceeds 150 percent of the offered price, inclusive of duty, of 
items which are not of U.S. or Canadian origin.
    (b) In accordance with the provisions of paragraphs (a)(1)(i) 
through (a)(1)(iii) of this section, the Under Secretary of Defense 
(Acquisition and Technology) has waived the restrictions of 10 U.S.C. 
2534(a) for certain items manufactured in the United Kingdom, including 
air circuit breakers for naval vessels and totally enclosed lifeboats 
(see 225.7016 and 225.7022). This waiver applies to--
    (1) Procurements under solicitations issued on or after August 4, 
1998; and
    (2) Subcontracts and options under contracts entered into prior to 
August 4, 1998, under the conditions described in paragraphs (a)(1)(iv) 
of this section.

[63 FR 5745, Feb. 4, 1998, as amended at 63 FR 28284, May 22, 1998; 63 
FR 43888, Aug. 17, 1998]



Sec. 225.7006  Restrictions on construction or repair of vessels in foreign shipyards.

    10 U.S.C. 7309 restricts constructing or repairing vessels in 
foreign shipyards.
    (a) Do not award a contract to construct either of the following in 
a foreign shipyard--
    (1) A vessel constructed for any of the armed forces; or
    (2) A major component of the hull or superstructure of any such 
vessel.
    (b) Do not overhaul, repair, or maintain in a foreign shipyard, a 
naval vessel (or any other vessel under the jurisdiction of the 
Secretary of the Navy) homeported in the United States. This restriction 
does not apply to voyage repairs.



Sec. 225.7007  Restriction on acquisition of foreign buses.



Sec. 225.7007-1  Restriction.

    In accordance with 10 U.S.C. 2534, do not acquire a multipassenger 
motor vehicle (bus) unless it is manufactured in the United States or 
Canada.

[63 FR 5745, Feb. 4, 1998]



Sec. 225.7007-2  Applicability.

    Apply this restriction if the buses are purchased, leased, rented, 
or made available under contracts for transportation services.

[60 FR 19533, Apr. 19, 1995]



Sec. 225.7007-3  Exceptions.

    This restriction does not apply in any of the following 
circumstances:
    (a) Buses manufactured outside the United States and Canada are 
needed for temporary use because buses manufactured in the United States 
or Canada are not available to satisfy requirements that cannot be 
postponed. Such use may not, however, exceed the lead

[[Page 188]]

time required for acquisition and delivery of buses manufactured in the 
United States or Canada.
    (b) The requirement for buses is temporary in nature. For example, 
to meet a special, nonrecurring requirement or a sporadic and infrequent 
recurring requirement, buses manufactured outside the United States and 
Canada may be used for temporary periods of time. Such use may not, 
however, exceed the period of time needed to meet the special 
requirement.
    (c) Buses manufactured outside the United States and Canada are 
available at no cost to the U.S. Government.
    (d) The acquisition is for an amount that does not exceed the 
simplified acquisition threshold.

[63 FR 5745, Feb. 4, 1998]



Sec. 225.7007-4  Waiver.

    The waiver criteria at 225.7005(a) apply to this restriction.

[63 FR 43888, Aug. 17, 1998]



Sec. 225.7008  Restriction on research and development.

    (a) Public Law 92-570 precludes use of DoD appropriations for award 
to any foreign corporation, organization, person, or entity for research 
and development in connection with any weapon system or other military 
equipment if there is a U.S. corporation, organization, person, or 
entity--
    (1) Equally competent; and
    (2) Willing to perform at a lower cost.
    (b) The statutory restriction in paragraph (a) of this section does 
not change the rules for selecting research and development contractors 
in FAR part 35. However, when a U.S. source and a foreign source are 
equally competent, award to the source that will provide the services at 
the lower cost.



Sec. 225.7009  [Reserved]



Sec. 225.7010  Restriction on certain chemical weapons antidote.



Sec. 225.7010-1  Restriction.

    In accordance with 10 U.S.C. 2534 and defense industrial 
mobilization requirements (see subpart 208.72), do not acquire chemical 
weapons antidote contained in automatic injectors, or the components for 
such injectors, unless the chemical weapons antidote or component is 
manufactured in the United States or Canada by a company that--
    (a) Is a producer under the industrial preparedness program at the 
time of contract award;
    (b) Has received all required regulatory approvals; and
    (c) Has the plant, equipment, and personnel to perform the contract 
in the United States or Canada at the time of contract award.

[60 FR 19533, Apr. 19, 1995, as amended at 62 FR 34123, June 24, 1997; 
63 FR 5745, Feb. 4, 1998]



Sec. 225.7010-2  Exception.

    The restriction of 225.7010-1 does not apply if--the acquisition is 
for an amount that does not exceed the simplified acquisition threshold.

[63 FR 5745, Feb. 4, 1998]



Sec. 225.7010-3  Waiver.

    The waiver criteria at 225.7005(a) apply to this restriction.

[63 FR 43888, Aug. 17, 1998]



Sec. 225.7011  Restriction on Ballistic Missile Defense research, development, test, and evaluation.



Sec. 225.7011-1  Definitions.

    Competent, foreign firm, and U.S. firm have the meanings given in 
the provision at 252.225-7018, Notice of Prohibition of Certain 
Contracts with Foreign Entities for the Conduct of Ballistic Missile 
Defense RDT&E.

[56 FR 36367, July 31, 1991, as amended at 59 FR 27672, May 27, 1994]



Sec. 225.7011-2  Restriction.

    (a) Section 222 of the Defense Authorization Act for FY1988 and 1989 
(Pub. L. 100-180) prohibits the award of certain contracts for the 
conduct of Ballistic Missile Defense (BMD) Program research, 
development, test, and evaluation (RDT&E), to foreign governments or 
firms unless the Secretary of Defense certifies to Congress in writing 
at any time during the applicable fiscal year that work cannot be 
competently performed by a U.S. firm at a price equal to or less than 
the price of the foreign government or firm.

[[Page 189]]

    (b) For purposes of implementing this section, heads of contracting 
activities are authorized to make this certification (see 225.7011-
3(b)).
    (c) Except as provided in 225.7011-3, do not use any funds 
appropriated to, or for the use of, DoD to enter into or carry out any 
contract, including any contract awarded as a result of a broad agency 
announcement, with a foreign government or firm if the contract provides 
for the conduct of RDT&E in connection with the BMD.
    (d) This prohibition is not intended to deny access to foreign 
expertise when contract performance requires a level of competency 
unavailable in the United States.

[56 FR 36367, July 31, 1991, as amended at 59 FR 27672, May 27, 1994]



Sec. 225.7011-3  Exceptions.

    This prohibition shall not apply--
    (a) To contracts awarded to a foreign government or firm if the 
contracting officer determines that--
    (1) The contract will be performed within the United States;
    (2) The contract is exclusively for RDT&E in connection with 
antitactical ballistic missile systems; or
    (3) The foreign government or foreign firm agrees to share a 
substantial portion of the total contract cost. Consider the foreign 
share as substantial if it is equitable with respect to the relative 
benefits to be derived from the contract by the United States and the 
foreign parties. For example, if the contract is more beneficial to the 
foreign party, its share of the cost should be correspondingly higher; 
or
    (b) If the head of the contracting activity certifies in writing, 
before contract award, that a contract for research, development, 
testing, or evaluation (other than for RDT&E described in paragraph 
(a)(2) of this subsection) cannot be competently performed by a U.S. 
firm at a price equal to or less than the price at which the RDT&E would 
be performed by a foreign government or firm.



Sec. 225.7011-4  Procedures.

    (a) When awarding a prime contract to a foreign government or firm 
under 225.7011-3(b), the contracting officer or source selection 
authority, as applicable, shall make a determination that will be the 
basis for the certification.
    (1) The determination must--
    (i) Describe the contract effort;
    (ii) State the number of proposals solicited and received from both 
U.S. and foreign firms;
    (iii) Identify the proposed awardee and the amount of the contract;
    (iv) State that selection of the contractor was based on the 
evaluation factors contained in the solicitation, or the criteria 
contained in the broad agency announcement; and
    (v) State that the effort cannot be competently performed by a U.S. 
firm at a price equal to, or less than, the price at which it would be 
performed by the foreign awardee.
    (2) When either a broad agency announcement (BAA) or program 
research and development announcement (PRDA) is used, or when the 
determination is otherwise not based on direct competition between 
foreign and domestic proposals, the determination must not be merely 
conclusory.
    (i) The determination must specifically explain its basis, include a 
description of the method used to determine the competency of U.S. 
firms, and describe the cost or price analysis performed.
    (ii) Alternately, the determination may contain--
    (A) A finding, including the basis for such finding, that the 
proposal was submitted solely in response to the terms of a BAA or PRDA, 
or other solicitation document without any technical guidance from the 
program office; and
    (B) A finding, including the basis for such finding, that disclosure 
of the information in the proposal for the purpose of conducting a 
competitive acquisition is prohibited.
    (b) Forward a copy of the certification (from 225.7011-3(b)) and, as 
appropriate, the determination or justification and approval (J&A) 
within 30 days of contract award to the Ballistic Missile Defense 
Organization, Attn: BMDO/DRI, 7100 Defense Pentagon, Washington, DC 
20301-7100, if award is based on--
    (1) A determination under paragraph (a) of this subsection;

[[Page 190]]

    (2) Other than full and open competition under FAR subpart 6.3; or
    (3) An unsolicited proposal under FAR subpart 15.6.

[56 FR 36367, July 31, 1991, as amended at 59 FR 27672, May 27, 1994; 61 
FR 50453, Sept. 26, 1996; 63 FR 11534, Mar. 9, 1998]



Sec. 225.7011-5  Solicitation provision.

    Use the provision at 252.225-7018, Notice of Prohibition of Certain 
Contracts With Foreign Entities for the Conduct of Ballistic Missile 
Defense RDT&E, in all competitively negotiated BMD solicitations for 
research, development, test, and evaluation, unless foreign 
participation is otherwise excluded.

[56 FR 36367, July 31, 1991, as amended at 59 FR 27672, May 27, 1994]



Sec. 225.7012  Restrictions on anchor and mooring chain.



Sec. 225.7012-1  Restrictions.

    (a) Under Public Law 101-511, Section 8041, and similar sections in 
subsequent Defense appropriations acts, DoD appropriations for fiscal 
years 1991 and after may not be used to acquire welded shipboard anchor 
and mooring chain, four inches in diameter and under, unless--
    (1) It is manufactured in the United States, including cutting, heat 
treating, quality control, testing, and welding (both forging and shot 
blasting process); and
    (2) The cost of the components manufactured in the United States 
exceeds 50 percent of the total cost of components.
    (b) Acquisition of welded shipboard anchor and mooring chain, four 
inches in diameter and under, when used as a component of a naval 
vessel, is also restricted under 10 U.S.C. 2534(a)(3)(ii). However, the 
more stringent restriction under 225.7012-1(a) takes precedence.

[61 FR 13107, Mar. 26, 1996]



Sec. 225.7012-2  Waiver.

    The restriction in 225.7012-1(a) may be waived by the Secretary of 
the Department responsible for acquisition, on a case-by-case basis, 
where sufficient domestic suppliers are not available to meet DoD 
requirements on a timely basis and the acquisition is necessary to 
acquire capability for national security purposes.
    (a) Document the waive in a written D&F containing--
    (1) The factors supporting the waiver; and
    (2) A certification that the acquisition must be made in order to 
acquire capability for national security purposes.
    (b) Provide a copy of the D&F to the House and Senate Committees on 
Appropriations.

[61 FR 13107, Mar. 26, 1996]



Sec. 225.7012-3  Contract clause.

    Use the clause at 252.225-7019, Restriction on Acquisition of 
Foreign Anchor and Mooring Chain, in all solicitations and contracts--
    (a) Using fiscal year 1991 or later funds; and
    (b) Requiring welded shipboard anchor or mooring chain of four 
inches in diameter or less.

[61 FR 13107, Mar. 26, 1996, as amended at 61 FR 50453, Sept. 26, 1996]



Sec. 225.7013--225.7014  [Reserved]



Sec. 225.7015  Restriction on night vision image intensifier tubes and devices.



Sec. 225.7015-1  Restriction.

    In accordance with Pub. L. 101-165 and 101-511, fiscal years 1990 
and 1991 funds may not be used to acquire second and third generation 
night vision image intensifier tubes and devices unless they are 
manufactured in the United States or Canada.

[58 FR 28467, May 13, 1993]



Sec. 225.7015-2  Exception.

    Second and third generation night vision image intensifier tubes and 
devices manufactured outside the United States or Canada may be acquired 
if--
    (a) Adequate domestic supplies are not available to meet DoD 
requirements on a timely basis; and
    (b) The Secretary of the Department responsible for the acquisition 
certifies to the House and Senate Committees on Appropriations that the 
acquisition of tubes and devices manufactured outside the United States 
or Canada is

[[Page 191]]

necessary in order to acquire capability for national security purposes.



Sec. 225.7015-3  Contract clause.

    Use the clause at 252.225-7024, Restriction on Acquisition of Night 
Vision Image Intensifier Tubes and Devices, in all solicitations and 
contracts which--
    (a) Use fiscal year 1990 or 1991 funds; and
    (b) Require second and third generation night vision image 
intensifier tubes and devices.

[58 FR 28467, May 13, 1993]



Sec. 225.7016  Restriction on air circuit breakers for naval vessels.



Sec. 225.7016-1  Restriction.

    In accordance with 10 U.S.C. 2534 and 225.7005(b), do not acquire 
air circuit breakers for naval vessels unless they are manufactured in 
the United States, Canada, or the United Kingdom.

[63 FR 43888, Aug. 17, 1998]



Sec. 225.7016-2  Exceptions.

    This restriction does not apply if--
    (a) The acquisition is for an amount that does not exceed the 
simplified acquisition threshold; or
    (b) Spare or repair parts are needed to support air circuit breakers 
manufactured outside the United States. Support includes the purchase of 
spare air circuit breakers where those from alternate sources are not 
interchangeable.

[62 FR 34124, June 24, 1997, as amended at 63 FR 5746, Feb. 4, 1998; 63 
FR 43888, Aug. 17, 1998]



Sec. 225.7016-3  Waiver.

    The waiver criteria at 225.7005(a) apply to this restriction.

[63 FR 43888, Aug. 17, 1998]



Sec. 225.7016-4  Contract clause.

    Use the clause at 252.225-7029, Preference for United States or 
Canadian Air Circuit Breakers, in all solicitations and contracts 
requiring air circuit breakers for naval vessels, unless--
    (a) An exception under 225.7016-2 is known to apply; or
    (b) A waiver has been granted in accordance with 225.7016-3.

[60 FR 19534, Apr. 19, 1995]



Sec. 225.7017  Restriction on carbon, alloy, and armor steel plate.



Sec. 225.7017-1  Restriction.

    In accordance with section 8111 of Pub. L. 102-172, and similar 
sections in subsequent appropriations acts, all carbon, alloy, and armor 
steel plate in Federal stock class 9515 or described by American Society 
for Testing Materials (ASTM) or American Iron and Steel Institute (AISI) 
specifications, purchased by the Government or a contractor for use in a 
Government-owned facility or in a facility controlled (e.g., leased) by 
DoD, shall be melted and rolled in the United States or Canada.

[58 FR 28468, May 13, 1993]



Sec. 225.7017-2  Exceptions.

    This restriction does not apply to--
    (a) Contracts in effect as of November 26, 1991;
    (b) Direct purchases by DoD using other than fiscal year 1992 or 
subsequent year funds; or
    (c) Purchases by contractors unless the prime contract uses fiscal 
year 1992 or subsequent year funds.

[58 FR 28468, May 13, 1993]



Sec. 225.7017-3  Waiver.

    The restriction may be waived by the Secretary of the department 
responsible for acquisition, on a case-by-case, by certifying to the 
House and Senate Committees on Appropriations that--
    (a) Adequate U.S. or Canadian supplies are not available to meet DoD 
requirements on a timely basis; and
    (b) The acquisition must be made in order to acquire capability for 
national security purposes.

[57 FR 14994, Apr. 23, 1992]



Sec. 225.7017-4  Contract clause.

    Unless an exception under 225.7017-2 is known to apply or a waiver 
has been granted in accordance with 225.7017-3, use the clause at 
252.225-7030, Restriction on Acquisition of Carbon, Alloy, and Armor 
Steel Plate, in all solicitations and contracts which--

[[Page 192]]

    (a) Require the delivery to the Government of carbon, alloy, or 
armor steel plate which will be used in a facility owned by the 
Government or under the control of DoD; or
    (b) Require contractors operating in a Government-owned facility or 
a facility under the control of DoD to purchase carbon, alloy, or armor 
steel plate.

[57 FR 14994, Apr. 23, 1992, as amended at 57 FR 53600, Nov. 12, 1992]



Sec. 225.7018  Restriction on four ton dolly jacks.



Sec. 225.7018-1  Restriction.

    In accordance with section 9108 of Public Law 102-396, no fiscal 
year 1993 funds shall be used to procure four ton dolly jacks 
manufactured outside the United States.

[59 FR 27672, May 27, 1994]



Sec. 225.7018-2  Waiver.

    The restriction is 225.7018-1 may be waived on a case-by-case basis 
where the Secretary of the Military Department or the Under Secretary of 
Defense (Acquisition & Technology) certifies to the Committees on 
Appropriations of the House and Senate that--
    (a) Adequate domestic supplies are available to meet requirements on 
a timely basis; and
    (b) The acquisition must be made in order to acquire capability for 
national security purposes.

[58 FR 28468, May 13, 1993, as amended at 60 FR 61597, Nov. 30, 1995]



Sec. 225.7018-3  Contract clause.

    Use the clause at section 252.225-7033, Restriction on Acquisition 
of Four Ton Dolly Jacks, in solicitations and contracts that use fiscal 
year 1993 funds for the acquisition of four ton dolly jacks.

[59 FR 27672, May 27, 1994]



Sec. 225.7019  Restrictions on ball and roller bearings.



Sec. 225.7019-1  Restrictions.

    (a) In accordance with 10 U.S.C. 2534 and 225.7019-3(b)(5), through 
fiscal year 2000, do not acquire ball and roller bearings or bearing 
components that are not manufactured in the United States, Canada, or 
the United Kingdom.
    (b) In accordance with Section 8099 of Public Law 104-61 and similar 
sections in subsequent Defense appropriations acts, do not use fiscal 
year 1996 or subsequently appropriated funds to acquire ball and roller 
bearings other than those produced by a domestic source and of domestic 
origin, i.e., bearings and bearing components manufactured in the United 
States or Canada.

[61 FR 10900, Mar. 18, 1996, as amended at 61 FR 58489, Nov. 15, 1996; 
62 FR 34124, June 24, 1997; 63 FR 43888, Aug. 17, 1998]



Sec. 225.7019-2  Exceptions.

    (a) The restriction in 225.7019-1(a) does not apply to--
    (1) Acquisitions using simplified acquisition procedures, unless 
ball or roller bearings or bearing components are the end items being 
purchased;
    (2) Purchases of commercial items incorporating ball or roller 
bearings;
    (3) Miniature and instrument ball bearings when necessary to meet 
urgent military requirements;
    (4) Items acquired overseas for use overseas; or
    (5) Ball and roller bearings or bearing components or items 
containing bearings for use in a cooperative or co-production project 
under an international agreement. This exception does not apply to 
miniature and instrument ball bearings.
    (b) The restriction in 225.7019-1(b) does not apply to contracts for 
acquisition of commercial items or subcontracts for acquisition of 
commercial items or subcontracts for acquisition of commercial items or 
commercial components (see 212.503(a)(xi) and 212.504(a)(xxxvi)).

[61 FR 50453, Sept. 26, 1996]



Sec. 225.7019-3  Waiver.

    (a) The head of the contracting activity may waive the restriction 
in 225.7019-1(a)--
    (1) Upon execution of a determination and findings that--
    (i) No domestic (U.S. or Canadian) bearing manufacturer meets the 
requirement;

[[Page 193]]

    (ii) It is not in the best interests of the United States to qualify 
a domestic bearing to replace a qualified nondomestic bearing. This 
determination must be based on a finding that the qualification of a 
domestically manufactured bearing would cause unreasonable costs or 
delay. A finding that a cost is unreasonable should take into 
consideration DoD policy to assist the domestic industrial mobilization 
base. Contracts should be awarded to domestic bearing manufacturers to 
increase their capability to reinvest and become more competitive;
    (iii) Application of the restriction would result in the existence 
of only one source for the item in the United States or Canada;
    (iv) Application of the restriction is not in the national security 
interests of the United States; or
    (v) Application of the restriction would adversely affect a U.S. 
company.
    (2) If the acquisition is for an amount less than the simplified 
acquisition threshold and simplified acquisition procedures are being 
used.
    (3) For multiyear contracts or contracts exceeding 12 months, except 
those for miniature and instrument ball bearings, only if--
    (i) The head of the contracting activity executes a determination 
and findings in accordance with paragraph (a) of this subsection;
    (ii) The contractor submits a written plan for transitioning from 
the use of nondomestic to domestically manufactured bearings;
    (iii) The plan--
    (A) States whether a domestically manufactured bearing can be 
qualified, at a reasonable cost, for use during the course of the 
contract period;
    (B) Identifies any bearings that are not domestically manufactured, 
their application, and source of supply; and
    (C) Describes, including cost and timetable, the transition to a 
domestically manufactured bearing. (The timetable for the transition 
should normally take no longer than 24 months from the date the waiver 
is granted); and
    (iv) The contracting officer accepts the plan and incorporates it in 
the contract.
    (4) For miniature and instrument ball bearings, only if the 
contractor agrees to acquire a like quantity and type of domestic 
manufacture for nongovernmental use.
    (b)(1) The Under Secretary of Defense (Acquisition and Technology), 
without power of delegation, may waive the restriction in 225.7019-1(a) 
for a particular foreign country upon determination that--
    (i) United States producers of the item would not be jeopardized by 
competition from a foreign country, and that country does not 
discriminate against defense items produced in the United States to a 
greater degree than the United States discriminates against defense 
items produced in that country; or
    (ii) Application of the restriction would impede cooperative 
programs entered into between DoD and a foreign country, or would impede 
the reciprocal procurement of defense items under a memorandum of 
understanding providing for reciprocal procurement of defense items 
under 225.872, and that country does not discriminate against defense 
items produced in the United States to a greater degree than the United 
States discriminates against defense items produced in that country.
    (2) A notice of the determination to exercise the waiver authority 
must be published in the Federal Register and submitted to the 
congressional defense committees at least 15 days before the effective 
date of the waiver.
    (3) Such waiver shall be in effect for a period not greater than 1 
year.
    (4) For contracts entered into prior to the effective date of a 
waiver, provided adequate consideration is received to modify the 
contract, such waiver shall be applied as directed or authorized in the 
waiver to--
    (i) Subcontracts entered into on or after the effective date of the 
waiver; and
    (ii) Options for the procurement of items that are exercised after 
the effective date of the waiver, if the option prices are adjusted for 
any reason other than the application of the waiver.
    (5) In accordance with the provisions of paragraphs (b)(1) through 
(b)(3) of this subsection, the Under Secretary of

[[Page 194]]

Defense (Acquisition and Technology) has waived the restrictions of 10 
U.S.C. 2534(a)(5) for ball and roller bearings manufactured in the 
United Kingdom. This waiver applies to--
    (i) Procurements under solicitations issued on or after August 4, 
1998; and
    (ii) Subcontracts and options under contracts entered into prior to 
August 4, 1998, under the conditions described in paragraph (b)(4) of 
this subsection.
    (c) The Secretary of the department responsible for the acquisition 
may waive the restriction in 225.7019-1(b) on a case-by-case basis, by 
certifying to the House and Senate Committees on Appropriations that--
    (1) Adequate domestic supplies are not available to meet DoD 
requirements on a timely basis; and
    (2) The acquisition must be made in order to acquire capability for 
national security purposes.

[61 FR 10900, Mar. 18, 1996, as amended at 61 FR 50453, Sept. 26, 1996; 
62 FR 34124, June 24, 1997; 63 FR 5746, Feb. 4, 1998; 63 FR 28285, May 
22, 1998; 63 FR 43888, Aug. 17, 1998]



Sec. 225.7019-4  Contract clause.

    Use the clause at 252.225-7016, Restriction on Acquisition of Ball 
and Roller Bearings, in all solicitations and contracts, unless--
    (a) The restrictions in 225.7019-1 do not apply or a waiver has been 
granted; or
    (b) The contracting officer knows that the items being acquired do 
not contain ball or roller bearings.

[61 FR 10900, Mar. 18, 1996]



Sec. 225.7020  [Reserved]



Sec. 225.7021  Restriction on aircraft fuel cells.



Sec. 225.7021-1  Restriction.

    In accordance with section 8090 of the Fiscal Year 1994 Defense 
Appropriations Act (Pub. L. 103-139) and section 8075 of the Fiscal Year 
1995 Defense Appropriations Act (Pub. L. 103-335), do not purchase 
aircraft fuel cells unless they are produced or manufactured in the 
United States by a domestic-operated entity.

[60 FR 29498, June 5, 1995]



Sec. 225.7021-2  Waiver.

    The restriction may be waived by the Secretary of the department 
responsible for the acquisition, on a case-by-case basis, by certifying 
to the House and Senate Committees on Appropriations that--
    (a) Adequate U.S. supplies are not available to meet requirements on 
a timely basis; and
    (b) The acquisition must be made in order to acquire capability for 
national security purposes.

[59 FR 11729, Mar. 14, 1994]



Sec. 225.7021-3  Contract clause.

    Unless a waiver has been granted in accordance with 225.7021-2, use 
the clause at 252.225-7038, Restriction on Acquisition of Aircraft Fuel 
Cells, in all solicitations and contracts which--
    (a) Use fiscal year 1994 or 1995 funds; and
    (b) Require delivery of aircraft fuel cells.

[60 FR 29498, June 5, 1995]



Sec. 225.7022  Restrictions on totally enclosed lifeboat survival systems.



Sec. 225.7022-1  Restrictions.

    (a) In accordance with Section 8124 of the Fiscal Year 1994 Defense 
Appropriations Act (Public Law 103-139) and Section 8093 of the Fiscal 
Year 1995 Defense Appropriations Act (Public Law 103-335), do not 
purchase a totally enclosed lifeboat survival system, which consists of 
the lifeboat and associated davits and winches, unless 50 percent or 
more of the components are manufactured in the United States, and 50 
percent or more of the labor in the final manufacture and assembly of 
the entire system is performed in the United States.
    (b) In accordance with 10 U.S.C. 2534(a)(3)(B) and 225.7005(b), do 
not purchase a totally enclosed lifeboat that is a component of a naval 
vessel, unless it is manufactured in the United States, Canada, or the 
United Kingdom.In accordance with 10 U.S.C. 2534(h), this restriction 
may not be implemented through the use of a contract clause or 
certification. Implementation shall be effected through management and 
oversight techniques that achieve the

[[Page 195]]

objective of the restriction without imposing a significant management 
burden on the Government or the contractor involved.

[61 FR 13107, Mar. 26, 1996, as amended at 62 FR 34124, June 24, 1997; 
63 FR 43888, Aug. 17, 1998]



Sec. 225.7022-2  Exceptions.

    The restriction in 225.7022-1(b) does not apply if--
    (a) The acquisition is for an amount that does not exceed the 
simplified acquisition threshold; or
    (b) Spare or repair parts are needed to support totally enclosed 
lifeboats manufactured outside the United States.

[62 FR 34124, June 24, 1997, as amended at 63 FR 5746, Feb. 4, 1998; 63 
FR 43888, Aug. 17, 1998]



Sec. 225.7022-3  Waiver.

    The waiver criteria at 225.7005(a) apply only to the restriction of 
225.7022-1(b).

[63 FR 43888, Aug. 17, 1998]



Sec. 225.7022-4  Contract clause.

    Use the clause at 252.225-7039, Restriction on Acquisition of 
Totally Enclosed Lifeboat Survival Systems, in all solicitations and 
contracts which require delivery of totally enclosed lifeboat survival 
systems.

[61 FR 13107, Mar. 26, 1996]



Sec. 225.7023  Restriction on supercomputers.



Sec. 225.7023-1  Restriction.

    In accordance with section 8112 of Pub. L. 100-202, and similar 
sections in subsequent Defense Appropriations Acts, do not purchase any 
supercomputer that is not manufactured in the United States.

[60 FR 34471, July 3, 1995, as amended at 60 FR 61597, Nov. 30, 1995]



Sec. 225.7023-2  Waiver.

    The restriction in 225.7023-1 may be waived by the Secretary of 
Defense on a case-by-case basis, after the Secretary of Defense 
certifies to the Armed Services and Appropriations Committees of 
Congress that--
    (a) Adequate U.S. supplies are not available to meet requirements on 
a timely basis; and
    (b) The acquisition must be made in order to acquire capability for 
national security purposes.

[60 FR 34471, July 3, 1995]



Sec. 225.7023-3  Contract clause.

    Use the clause at 252.225-7011, Restriction on Acquisition of 
Supercomputers, in solicitations and contracts for the acquisition of 
supercomputers.

[60 FR 34471, July 3, 1995, as amended at 60 FR 61597, Nov. 30, 1995]



        Subpart 225.71--Other Restrictions on Foreign Acquisition

    Source:  62 FR 34124, June 24, 1997, unless otherwise noted.



Sec. 225.7100  Scope of subpart.

    This subpart contains foreign product restrictions which are based 
on policies designed to protect the defense industrial base.



Sec. 225.7101  Definitions.

    Relevant definitions are in the clause at 252.225-7025, Restriction 
on Acquisition of Forgings.



Sec. 225.7102  Forgings.



Sec. 225.7102-1  Policy.

    DoD requirements for the following forging items, whether as end 
items or components, shall be acquired from domestic sources (as 
described in the clause at 252.225-7025) to the maximum extent 
practicable--

------------------------------------------------------------------------
                   Items                             Categories
------------------------------------------------------------------------
Ship propulsion shafts....................  Excludes service and landing
                                             craft shafts.
Periscope tubes...........................  All.
Ring forgings for bull gears..............  All greater than 120 inches
                                             in diameter.
------------------------------------------------------------------------



Sec. 225.7102-2  Exceptions.

    The policy in 225.7102-1 does not apply to acquisitions--
    (a) Using simplified acquisition procedures, unless the restricted 
item is the end item being purchased;
    (b) Overseas for overseas use; or

[[Page 196]]

    (c) When the quantity acquired exceeds the amount needed to maintain 
the U.S. defense mobilization base (provided such quantity is an 
economical purchase quantity). The restriction to domestic sources does 
not apply to the quantity above that required to maintain the base, in 
which case, qualifying country sources may compete.



Sec. 225.7102-3  Waiver.

    Upon request from a prime contractor, the contracting officer may 
waive the requirement for domestic manufacture of the items covered by 
the policy in 225.7102-1.



Sec. 225.7102-4  Contract clause.

    (a) Use the clause at 252.225-7025, Restriction on Acquisition of 
Forgings, in solicitations and contracts, except for acquisitions--
    (1) Excepted in 225.7102-2; or
    (2) Where the contracting officer knows that the supplies being 
acquired do not contain the restricted items.
    (b) If an exception under 225.7102-2 applies to any portion of the 
acquisition, specify the exception in the solicitation and contract.



Sec. 225.7103  Polyacrylonitrile (PAN) carbon fiber.



Sec. 225.7103-1  Policy.

    All new major systems must use U.S. or Canadian manufacturers or 
producers for all PAN carbon fiber requirements.



Sec. 225.7103-2  Waivers.

    Contracting officers may, with the approval of the chief of the 
contracting office, waive, in whole or in part, the requirement of the 
clause at 252.225-7022. For example, a waiver may be justified if a 
qualified U.S. or Canadian source cannot meet scheduling requirements.



Sec. 225.7103-3  Contract clause.

    Use the clause at 252.225-7022, Restriction on Acquisition of 
Polyacrylonitrile (PAN) Carbon Fiber, in all acquisitions for major 
systems (as defined in FAR part 2) that are not yet in production 
(milestone III as defined in DoD 50002.2-R, Mandatory Procedures for 
Major Defense Acquisition Programs (MDAPS) and Major Automated 
Information system (MAIS) Acquisition Programs). Also use the clause in 
contracts for major systems if the clause was used in prior program 
contracts.



Subpart 225.72--Reporting Contract Performance Outside the United States

    Source: 58 FR 28469, May 13, 1993, unless otherwise noted.



Sec. 225.7200  Scope of subpart.

    This subpart prescribes procedures for contractor reporting and DoD 
monitoring of the volume, type, and nature of contract performance 
outside the United States, to include subcontracts, purchases, and 
intracompany transfers. It implements 10 U.S.C. 2410g which requires 
advance notification of contract performance outside the United States 
and Canada when the contract could have been performed inside the United 
States or Canada.



Sec. 225.7201  Exception.

    This subpart does not apply to contracts for commercial items, 
construction, ores, natural gas, utilities, petroleum products and 
crudes, timber (logs), or subsistence.

[60 FR 61597, Nov. 30, 1995]



Sec. 225.7202  Distribution of reports.

    The contracting officer shall forward a copy of reports submitted by 
successful offerors as required by the clause at 252.225-7026, Reporting 
of Contract Performance Outside the United States, to the Deputy 
Director of Defense Procurement (Foreign Contracting), OUSD(A&T)DP(FC), 
Washington, DC 20301-3060. This is necessary to satisfy the requirement 
of 10 U.S.C. 2410g that the notifications (or copies) be maintained in 
compiled form for five years after the date of submission.

[58 FR 28469, May 13, 1993, as amended at 60 FR 29499, June 5, 1995]



Sec. 225.7203  Contract clause.

    Except for acquisitions in 225.7201, use the clause at 252.225-7026, 
Reporting

[[Page 197]]

of Contract Performance Outside the United States, in all solicitations 
and contracts with an estimated or actual value exceeding $500,000, 
including those modified to exceed $500,000.



         Subpart 225.73--Acquisitions for Foreign Military Sales



Sec. 225.7300  Scope of subpart.

    (a) This subpart contains policies and procedures for acquisitions 
for foreign military sales (FMS) under the Arms Export Control Act (22 
U.S.C. Chapter 39). Section 22 of the Arms Export Control Act (22 U.S.C. 
2762) authorizes DoD to enter into contracts for resale to foreign 
countries or international organizations.
    (b) This subpart does not apply to--
    (1) FMS made from inventories or stocks;
    (2) Acquisitions for replenishment of inventories or stocks; or
    (3) Acquisitions made under DoD cooperative logistic supply support 
arrangements.

[63 FR 43889, Aug. 17, 1998]



Sec. 225.7301  General.

    (a) The U.S. Government sells defense articles and services to 
foreign governments or international organizations through FMS 
agreements. The agreement is documented in a Letter of Offer and 
Acceptance (LOA) (see DoD 5105.38-M, Security Assistance Management 
Manual). The LOA--
    (1) Lists the items and services, estimated costs, and terms and 
conditions of the sale;
    (2) Is presented to the foreign customer; and
    (3) Provides for signature of the foreign customer to indicate 
acceptance.
    (b) Acquisitions for FMS are conducted under the same acquisition 
and contract management procedures as other defense acquisitions.
    (c) Solicitations shall separately identify known FMS requirements 
and the FMS customer.
    (d) Contracts for known FMS requirements shall clearly be marked 
``FMS requirement'' on the face of the contract along with the FMS 
customer and the case identifier code.

[56 FR 36367, July 31, 1991, as amended at 63 FR 43889, Aug. 17, 1998]



Sec. 225.7302  Procedures.

    On FMS programs that will require an acquisition, the contracting 
officer assists the departmental/agency activity responsible for 
preparing the LOA by--
    (a) Working with prospective contractors to--
    (1) Identify, in advance of the LOA, any unusual provisions or 
deviations.
    (2) Advise the contractor if the departmental/agency activity 
expands, modifies, or does not accept any requirements proposed by the 
contractor;
    (3) Identify any logistics support necessary to perform the 
contract; and
    (4) For acquisitions over $10,000 that are to be awarded 
noncompetitively, asking the prospective contractor(s) for information 
on price, delivery, and other relevant factors. The request for 
information must identify the fact that the information is for a 
potential foreign military sale and must identify the foreign customer.
    (b) Working with the departmental/agency activity responsible for 
preparing the LOA to--
    (1) Assist, as necessary, in preparation of the LOA;
    (2) Identify and explain all unusual contractual requirements or 
requests for deviations; and
    (3) Assist in preparing the price and availability data.

[56 FR 36367, July 31, 1991, as amended at 62 FR 2617, Jan. 17, 1997; 63 
FR 43889, Aug. 17, 1998]



Sec. 225.7303   Pricing acquisitions for FMS.

    Price FMS contracts using the same principles as are used in pricing 
other defense contracts. Application of the pricing principles in FAR 
parts 15 and 31 to an FMS contract, however, may result in prices that 
differ from other defense contract prices for the same item due to the 
considerations in this section.

[56 FR 36367, July 31, 1991, as amended at 61 FR 50453, Sept. 26, 1996]

[[Page 198]]



Sec. 225.7303-1  Contractor sales to other foreign customers.

    If the contractor has made sales of the item required for the 
foreign military sale to foreign customers under comparable conditions, 
including quantity and delivery, price the FMS contract in accordance 
with FAR part 15.



Sec. 225.7303-2  Cost of doing business with a foreign government or an international organization.

    (a) In pricing FMS contracts where non-U.S. Government prices as 
described in 225.7303-1 do not exist, except as provided in 225.7303-5, 
recognize the reasonable and allocable costs of doing business with a 
foreign government or international organization, even though such costs 
might not be recognized in the same amounts in pricing other defense 
contracts. Examples of such costs include, but are not limited to--
    (1) Selling expenses (not otherwise limited by FAR part 31), e.g.--
    (i) Maintaining international sales and service organizations;
    (ii) Sales commissions and fees in accordance with FAR subpart 3.4;
    (iii) Sales promotions, demonstrations, and related travel for sales 
to foreign governments. Paragraph 126.8 of the International Traffic in 
Arms Regulations (ITAR) (22 CFR part 121) may require Government 
approval for these costs to be allowable. If Government approval is 
required for promotion or demonstration costs to be allowable, the 
approval must be obtained.
    (iv) Configuration studies and related technical services undertaken 
as a direct selling effort to a foreign country.
    (2) Product support and post-delivery service expenses, such as--
    (i) Operations or maintenance training, training or tactics films, 
manuals, or other related data; and
    (ii) Technical field services provided in a foreign country related 
to accident investigations, weapon system problems, operations/tactics 
enhancement, and related travel to foreign countries.
    (3) Offset implementation costs.
    (i) A U.S. defense contractor may recover costs incurred to 
implement its offset agreement with a foreign government or 
international organization if the LOA is financed wholly with customer 
cash or repayable foreign military finance credits.
    (ii) The U.S. Government assumes no obligation to satisfy or 
administer the offset requirement or to bear any of the associated 
costs.
    (4) Costs that are the subject of advance agreement under the 
appropriate provisions of FAR part 31; or where the advance 
understanding places a limit on the amounts of cost that will be 
recognized as allowable in defense contract pricing, and the agreement 
contemplated that it will apply only to DoD contracts for the U.S. 
Government's own requirement (as distinguished from contracts for FMS).
    (b) Costs not allowable under FAR part 31 are not allowable in 
pricing FMS contracts, except as noted in paragraph (c) of this 
subsection.
    (c) The provisions of 10 U.S.C. 2372 do not apply to contracts for 
FMS. Therefore, the cost limitations on independent research and 
development and bid and proposal (IR&D/B&P) costs in FAR 31.205-18 do 
not apply to such contracts, except as provided in 225.7303-5. The 
allowability of IR&D/B&P costs on contracts for FMS not wholly paid for 
from funds made available on a nonrepayable basis shall be limited to 
the contract's allocable share of the contractor's total IR&D/B&P 
expenditures. In pricing contracts for such FMS--
    (1) Use the best estimate of reasonable costs in forward pricing.
    (2) Use actual expenditures, to the extent that they are reasonable, 
in determining final cost.
    (d) Under paragraph (e)(1)(A) of Section 21 of the Arms Export 
Control Act (22 U.S.C. 2761), the United States must charge for 
administrative services to recover the estimated cost of administration 
of sales made under the Army Export Control Act.

[56 FR 36367, July 31, 1991, as amended at 56 FR 67216, Dec. 30, 1991; 
57 FR 42631, Sept. 15, 1992; 57 FR 53600, Nov. 12, 1992; 59 FR 50511, 
Oct. 4, 1994; 61 FR 7744, Feb. 29, 1996; 61 FR 18987, Apr. 30, 1996; 63 
FR 43889, Aug. 17, 1998]



Sec. 225.7303-3  Government-to-government agreements.

    If a government-to-government agreement between the United States 
and a foreign government for the sale,

[[Page 199]]

coproduction, or cooperative logistic support of a specifically defined 
weapon system, major end item, or support item, contains language in 
conflict with the provisions of this section, the language of the 
government-to-government agreement prevails.



Sec. 225.7303-4  Contingent fees.

    (a) Except as provided in paragraph (b) of this subsection, 
contingent fees are generally allowable under DoD contracts, provided 
the fees are determined by the contracting officer to be fair and 
reasonable and are paid to a bona fide employee or a bona fide 
established commercial or selling agency maintained by the prospective 
contractor for the purpose of securing business (see FAR Part 31 and FAR 
Subpart 3.4).
    (b)(1) Under DoD 5105.38-M, LOAs for requirements for the 
governments of Australia, Taiwan, Egypt, Greece, Israel, Japan, Jordan, 
Republic of Korea, Kuwait, Pakistan, Philippines, Saudi Arabia, Turkey, 
Thailand, or Venezuela (Air Force) must provide that all U.S. Government 
contacts resulting from the LOAs prohibit the reimbursement of 
contingent fees as an allowable cost under the contract, unless the 
payments have been identified and approved in writing by the foreign 
customer before contract award (see 225.7308(a)).
    (2) For FMS to countries not listed in paragraph (b)(1) of this 
subsection, contingent fees exceeding $50,000 per FMS case shall be 
unallowable under DoD contracts, unless payment has been identified and 
approved in writing by the foreign customer before contract award.

[63 FR 11534, Mar. 9, 1998, as amended at 63 FR 43890, Aug. 17, 1998]



Sec. 225.7303-5  Aquisitions wholly paid for from nonrepayable funds.

    (a) In accordance with 22 U.S.C. 2762(d), FMS wholly paid for from 
funds made available on a nonrepayable basis shall be priced on the same 
costing basis with regard to profit, overhead, IR&D/B&P, and other 
costing elements, as is applicable to acquisitions of like items 
purchased by DoD for its own use.
    (b) Direct costs associated with meeting a foreign customer's 
additional or unique requirements will be allowable under such 
contracts. Indirect burden rates applicable to such direct costs shall 
be permitted at the same rates applicable to acquisitions of like items 
purchased by DoD for its own use.
    (c) A U.S. defense contractor may not recover costs incurred to 
implement its offset agreement with a foreign government or 
international organization if the LOA is financed with funds made 
available on a nonrepayable basis.

[61 FR 18988, Apr. 30, 1996; 61 FR 49531, Sept. 20, 1996, as amended at 
63 FR 43890, Aug. 17, 1998]



Sec. 225.7304  Source selection.

    (a) FMS customers may request that a defense article or defense 
service be obtained from a particular contractor. In such cases, FAR 
6.302-4 provides authority to contract without full-and-open 
competition. The FMS customer may also request that a subcontract be 
placed with a particular firm. The contracting officer shall honor such 
requests from the FMS customer only if the LOA or other written 
direction sufficiently fulfills the requirements of FAR subpart 6.3.
    (b) Do not allow representatives of the FMS customer to--
    (1) Direct the deletion of names of firms from bidders mailing lists 
or slates of proposed architect-engineer firms. (They may suggest the 
inclusion of certain firms);
    (2) Interfere with a contractor's placement of subcontracts; or
    (3) Participate in the price negotiations between the U.S. 
Government and the contractor.
    (c) Do not accept directions from the FMS customer on source 
selection decisions or contract terms (except that, upon timely notice, 
the contracting officer may attempt to obtain any special contract 
provisions and warranties requested by the FMS customer).
    (d) Do not honor any requests by the FMS customer to reject any bid 
or proposal.

[56 FR 36367, July 31, 1991, as amended at 63 FR 43890, Aug. 17, 1998]



Sec. 225.7305  Limitation of liability.

    The contracting officer must advise the contractor whenever the 
foreign

[[Page 200]]

customer will assume the risk for loss or damage under the appropriate 
limitation of liability clause(s) (see FAR subpart 46.8). Consider the 
costs of necessary insurance, if any, obtained by the contractor to 
cover the risk of loss or damage in establishing the FMS contract price.



Sec. 225.7306  Exercise of options for FMS.

    Consider changes to cost and profit attributable to pricing 
differences between U.S. and FMS requirements when exercising an option 
to satisfy an FMS requirement. Also consider such changes if the option 
is already identified for FMS, but it is exercised for country B 
requirements instead of the country A requirements for which it was 
priced.



Sec. 225.7307  Offset arrangements.

    In accordance with the Presidential policy statement of April 16, 
1990, DoD does not encourage, enter into, or commit U.S. firms to FMS 
offset arrangements. The decision whether to engage in offsets, and the 
responsibility for negotiating and implementing offset arrangements, 
resides with the companies involved.

[62 FR 34125, June 24, 1997]



Sec. 225.7308  Contract clauses.

    (a) Use the clause at 252.225-7027, Restriction on Contingent Fees 
for Foreign Military Sales, in all solicitations and contracts for FMS.
    (b) Use the clause at 252.225-7028, Exclusionary Policies and 
Practices of Foreign Governments, in all solicitations and contracts for 
the purchase of goods and services for international military education 
training and FMS.

[56 FR 36367, July 31, 1991, as amended at 62 FR 2617, Jan. 17, 1997; 63 
FR 43890, Aug. 17, 1998]



   Subpart 225.74--Antiterrorism/Force Protection Policy for Defense 
                  Contractors Outside the United States

    Source: 63 FR 31937, June 11, 1998, unless otherwise noted.



Sec. 225.7400  Scope of subpart.

    This subpart pertains to antiterrorism/force protection policy for 
contracts that require performance or travel outside the United States.



Sec. 225.7401  General.

    Information and guidance pertaining to DoD antiterrorism/force 
protection can be obtained from the following offices:
    (a) For Navy contracts: Naval Criminal Investigative Service (NCIS), 
Code 24; telephone, DSN 228-9113 or commercial (202) 433-9113.
    (b) For Army contracts: HQDA (DAMO-ODL)/ODCSOP; telephone, DSN 225-
8491 or commercial (703) 695-8491.
    (c) For Marine Corps contracts: CMC Code POS-10; telephone, DSN 224-
4177 or commercial (703) 614-4177.
    (d) For Air Force contracts: HQ AFSFC/SFPT; telephone, DSN 473-0927/
0928 or commercial (210) 671-0927/0928.
    (e) For Combatant Command contracts: The appropriate Antiterrorism 
Force Protection Office at the Command Headquarters.
    (f) For Defense Agencies: The appropriate agency security office.
    (g) For additional information: Assistant Secretary of Defense for 
Special Operations and Low Intensity Conflict, ASD (SOLIC); telephone, 
DSN 255-0044 or commercial (703) 695-0044.



Sec. 225.7402  Contract clause.

    Use the clause at 252.225-7043, Antiterrorism/Force Protection 
Policy for Defense Contractors Outside the United States, in 
solicitations and contracts that require performance or travel outside 
the United States, except for contracts with--
    (a) Foreign governments;
    (b) Representatives of foreign governments; or
    (c) Foreign corporations wholly owned by foreign governments.



PART 226--OTHER SOCIOECONOMIC PROGRAMS--Table of Contents




                 Subpart 226.1--Indian Incentive Program

Sec.
226.103  Procedures.
226.104  Contract clause.

[[Page 201]]

    Subpart 226.70--Historically Black Colleges and Universities and 
                          Minority Institutions

226.7000  Scope of subpart.
226.7001  Definitions.
226.7002  General policy.
226.7003  Set-asides for HBCUs and MIs.
226.7003-1  Set-aside criteria.
226.7003-2  Set-aside procedures.
226.7004  [Reserved]
226.7005  Eligibility as an HBCU or MI.
226.7006  Protesting an HBCU or MI representation.
226.7007  Goals and incentives for subcontracting with HBCU/MIs.
226.7008  Solicitation provision and contract clause.

        Subpart 226.71--Preference for Local and Small Businesses

226.7100  Scope of subpart.
226.7101  Definition.
226.7102  Policy.
226.7103  Procedure.
226.7104  Other considerations.

             Subpart 226.72--Base Closures and Realignments

226.7200  Scope.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36388, July 31, 1991, unless otherwise noted.



                Subpart 226.1--Indian Incentive Program.



Sec. 226.103  Procedures.

    (f) The contracting officer shall submit a request for funding of 
the Indian incentive to the Office of Small and Disadvantaged Business 
Utilization, Office of the Under Secretary of Defense for Acquisition 
and Technology, OUSD(A&T)SADBU, Room 2A340, 3061 Defense Pentagon, 
Washington, DC 20301-3061. Upon receipt of funding from OUSD(A&T)SADBU, 
the contracting officer shall issue a contract modification to add the 
Indian incentive funding for payment of the contractor's request for 
equitable adjustment as described at FAR 52.226-1, Utilization of Indian 
Organizations and Indian-Owned Economic Enterprises.

[63 FR 11534, Mar. 9, 1998]



Sec. 226.104  Contract clause.

    (a) Also use the clause at FAR 52.226-1, Utilization of Indian 
Organizations and Indian-Owned Economic Enterprises, in contracts--
    (i) With contractors that have comprehensive subcontracting plans 
approved under the test program described at 219.702(a); and
    (ii) That contain the clause at 252.219-7004, Small, Small 
disadvantaged and Women-Owned Small Business Subcontracting Plan (Test 
Program).

[63 FR 11534, Mar. 9, 1998]



    Subpart 226.70--Historically Black Colleges and Universities and 
                          Minority Institutions



Sec. 226.7000  Scope of subpart.

    This subpart implements the historically black college and 
university (HBCU) and minority institution (MI) provisions of 10 U.S.C. 
2323, which--
    (a) Set a goal for DoD for each of fiscal years 1987 through 2000 to 
award five percent of contract and subcontract dollars to small 
disadvantaged business concerns and HBCU/MIs; and
    (b) Require a separate goal, for each of fiscal years 1991 through 
2000, as a subset of the five percent goal, for the participation of 
HBCUs and MIs.

[59 FR 27672, May 27, 1994]



Sec. 226.7001  Definitions.

    Definitions of HBCUs and MIs are in the clause at 252.226-7000.



Sec. 226.7002  General policy.

    The DoD will use outreach efforts, technical assistance programs, 
advance payments, HBCU/MI set-asides, and evaluation preferences to meet 
its contract and subcontract goal for use of HBCUs and MIs. In addition, 
DoD will establish ``infrastructure assistance'' (e.g., scholarships, 
faculty development, teaming agreements with defense laboratories, and 
laboratory renovation) at colleges, universities, and institutions that 
agree to bear a substantial portion of the costs associated with the 
progams.

[56 FR 67216, Dec. 30, 1991]

[[Page 202]]



Sec. 226.7003  Set-asides for HBCUs and MIs.



Sec. 226.7003-1  Set-aside criteria.

    Set-aside acquisitions for exclusive HBCU and MI participation when 
the acquisition is for research, studies, or services of the type 
normally acquired from higher educational institutions and there is a 
reasonable expectation that--
    (a) Offers will be submitted by at least two responsible HBCUs or 
MIs which can comply with the subcontracting limitations in the clause 
at FAR 52.219-14;
    (b) Award will be made at not more than ten percent above fair 
market price; and
    (c) Scientific and/or technological talent consistent with the 
demands of the acquisition will be offered.



Sec. 226.7003-2  Set-aside procedures.

    (a) As a general rule, use competitive negotiation for HBCU/MI set-
asides.
    (b) When using a broad agency announcement (FAR 35.016) for basic or 
applied research, make partial set-asides for HBCU/MIs as explained in 
235.016.
    (c) Follow the special synopsis instructions in 205.207(d) (iii), 
(iv), and (v).
    (d) Cancel the set-aside if the low responsible offer exceeds the 
fair market price (defined in FAR part 19) by more than ten percent.



Sec. 226.7004  [Reserved]



Sec. 226.7005  Eligibility as an HBCU or MI.

    (a) To be eligible for award as an HBCU or MI under the preference 
procedures of this subpart, an offeror must--
    (1) Be an HBCU or MI, as defined in the clause at 252.226-7000, 
Notice of Historically Black College or University and Minority 
Institution Set-Aside, at the time of submission of its initial offer 
including price; and
    (2) Provide the contracting officer with evidence of its HBCU or MI 
status upon request.
    (b) The contracting officer shall accept an offeror's HBCU or MI 
status under the provision at 252.226-7001, unless--
    (1) Another offeror challenges the status; or
    (2) The contracting officer has reason to question the offeror's 
HBCU/MI status. (A list of HBCUs is published periodically by the 
Department of Education.)

[56 FR 36388, July 31, 1991, as amended at 59 FR 22131, Apr. 29, 1994; 
62 FR 2613, Jan. 17, 1997]



Sec. 226.7006  Protesting an HBCU or MI representation.

    Any offeror or other interested party may challenge an offeror's 
HBCU or MI representation by filing a protest with the contracting 
officer. The protest must contain specific detailed evidence supporting 
the basis for the challenge. Such protests are handled in accordance 
with FAR 33.103 and are decided by the contracting officer.



Sec. 226.7007  Goals and incentives for subcontracting with HBCU/MIs.

    (a) In reviewing subcontracting plans submitted under the clause at 
FAR 52.219-9, Small Business and Small Disadvantaged Business 
Subcontracting Plan, the contracting officer shall--
    (1) Ensure that the contractor included anticipated awards to HBCU/
MIs in the small disadvantaged business goal;
    (2) Consider whether subcontracts are contemplated which involve 
research or studies of the type normally performed by higher educational 
institutions.
    (b) Use of incentives for subcontracting with HBCU/MIs is prescribed 
in 219.708(c)(1).



Sec. 226.7008  Solicitation provision and contract clause.

    (a) Use the clause at 252.226-7000, Notice of Historically Black 
College or University and Minority Institution Set-Aside, in 
solicitations and contracts set-aside for HBCU/MIs.
    (b) Use the provision at FAR 52.226-2, Historically Black College or 
University and Minority Institution Representation, in solicitations set 
aside for HBCU/MIs and in solicitations that contain the clause at FAR 
52.219-23, Notice of Price Evaluation Adjustment

[[Page 203]]

for Small Disadvantaged Business Concerns.

[56 FR 36388, July 31, 1991, as amended at 57 FR 42631, Sept. 15, 1992; 
62 FR 2613, Jan. 17, 1997; 63 FR 41974, Aug. 6, 1998]



        Subpart 226.71--Preference for Local and Small Businesses

    Source: 59 FR 12192, Mar. 16, 1994, unless otherwise noted.



Sec. 226.7100  Scope of subpart.

    This subpart implements section 2912 of the Fiscal Year 1994 Defense 
Authorization Act (Pub. L. 103-160) and section 817 of the Fiscal Year 
1995 Defense Authorization Act (Pub. L. 103-337).

[60 FR 5870, Jan. 31, 1995]



Sec. 226.7101  Definition.

    Vicinity, as used in this subpart, means the county or counties in 
which the military installation to be closed or realigned is located and 
all adjacent counties, unless otherwise defined by the agency head.

[60 FR 29499, June 5, 1995]



Sec. 226.7102  Policy.

    Businesses located in the vicinity of a military installation that 
is being closed or realigned under a base closure law, including 10 
U.S.C. 2687, and small and small disadvantaged businesses shall be 
provided maximum practicable opportunity to participate in acquisitions 
that support the closure or realignment, including acquisitions for 
environmental restoration and mitigation.



Sec. 226.7103  Procedure.

    In considering acquisitions for award through the section 8(a) 
program (subpart 219.8 and FAR subpart 19.8) or in making set-aside 
decisions under subpart 219.5 and FAR subpart 19.5 for acquisitions in 
support of a base closure or realignment, the contracting officer 
shall--
    (a) Determine whether there is a reasonable expectation that offers 
will be received from responsible business concerns located in the 
vicinity of the military installation that is being closed or realigned.
    (b) If offers can not be expected from business concerns in the 
vicinity, proceed with section 8(a) or set-aside consideration as 
otherwise indicated in part 219 and FAR part 19.
    (c) If offers can be expected from business concerns in the 
vicinity--
    (1) Consider section 8(a) only if the 8(a) contractor is located in 
the vicinity.
    (2) Set aside the acquisition for small business only if one of the 
expected offers is from a small business located in the vicinity.

[60 FR 29499, June 5, 1995, as amended at 63 FR 41974, Aug. 6, 1998]



Sec. 226.7104  Other considerations.

    When planning for contracts for services related to base closure 
activities at a military installation affected by a closure or 
realignment under a base closure law, contracting officers shall 
consider including, as a factor in source selection, the extent to which 
offerors specifically identify and commit, in their proposals, to a plan 
to hire residents of the vicinity of the military installation that is 
being closed or realigned.

[60 FR 61598, Nov. 30, 1995]



             Subpart 226.72--Base Closures and Realignments



Sec. 226.7200  Scope.

    This subpart identifies the various policies and statutory 
authorities that affect contracts associated with the closure and 
realignment of military installations. These policies and authorities 
are--
    (a) Right of first refusal of employment. This authority is embodied 
in a clause for use in solicitations and contracts arising from the 
closure of a military installation. The clause establishes employment 
rights for Government employees who are adversely affected by closure of 
the installation (see subpart 222.71).
    (b) Preference for local and small business. This authority allows 
contracting officers, when entering into a contract as part of the 
closure or realignment of a military installation, to give preference, 
to the greatest extent practicable, to qualified businesses located

[[Page 204]]

in the vicinity of the installation and to small and small disadvantaged 
business concerns (see subpart 226.71).
    (c) Services at installations being closed. This authority allows 
DoD, under certain conditions, to contract with local governments for 
police, fire protection, airfield operations and other community 
services at installations being closed (see subpart 237.74).

[59 FR 36089, July 15, 1994, as amended at 60 FR 29499, June 5, 1995]

[[Page 205]]



             SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS


PART 227--PATENTS, DATA, AND COPYRIGHTS--Table of Contents




         Subpart 227.3--Patent Rights Under Government Contracts

Sec.
227.303  Contract clauses.
227.304  Procedures.
227.304-1  General.
227.304-4  Subcontracts.

              Subpart 227.4--Rights in Data and Copyrights

227.400  Scope of subpart.

   Subpart 227.6--Foreign License and Technical Assistance Agreements

227.670  Scope.
227.671  General.
227.672  Policy.
227.673  Foreign license and technical assistance agreements between the 
          Government and domestic concerns.
227.674  Supply contracts between the Government and a foreign 
          government or concern.
227.675  Foreign license and technical assistance agreements between a 
          domestic concern and a foreign government or concern.
227.675-1  International Traffic in Arms Regulations.
227.675-2  Review of agreements.
227.676  Foreign patent interchange agreements.

     Subpart 227.70--Infringement Claims, Licenses, and Assignments

227.7000  Scope.
227.7001  Policy.
227.7002  Statutes pertaining to administrative claims of infringement.
227.7003  Claims for copyright infringement.
227.7004  Requirements for filing an administrative claim for patent 
          infringement.
227.7005  Indirect notice of patent infringement claims.
227.7006  Investigation and administrative disposition of claims.
227.7007  Notification and disclosure to claimants.
227.7008  Settlement of indemnified claims.
227.7009  Patent releases, license agreements, and assignments.
227.7009-1  Required clauses.
227.7009-2  Clauses to be used when applicable.
227.7009-3  Additional clauses--contracts except running royalty 
          contracts.
227.7009-4  Additional clauses--contracts providing for payment of a 
          running royalty.
227.7010  Assignments.
227.7011  Procurement of rights in inventions, patents, and copyrights.
227.7012  Contract format.
227.7013  Recordation.

                Subpart 227.71--Rights in Technical Data

227.7100  Scope of subpart.
227.7101  Definitions.
227.7102  Commercial items, components, or processes.
227.7102-1  Policy.
227.7102-2  Rights in technical data.
227.7102-3  Contract clause.
227.7103  Noncommercial items or processes.
227.7103-1  Policy.
227.7103-2  Acquisition of technical data.
227.7103-3  Early identification of technical data to be furnished to 
          the Government with restrictions on use, reproduction or 
          disclosure.
227.7103-4  License rights.
227.7103-5  Government rights.
227.7103-6  Contract clauses.
227.7103-7  Use and non-disclosure agreement.
227.7103-8  Deferred delivery and deferred ordering of technical data.
227.7103-9  Copyright.
227.7103-10  Contractor identification and marking of technical data to 
          be furnished with restrictive markings.
227.7103-11  Contractor procedures and records.
227.7103-12  Government right to establish conformity of markings.
227.7103-13  Government right to review, verify, challenge and validate 
          asserted restrictions.
227.7103-14  Conformity, acceptance, and warranty of technical data.
227.7103-15  Subcontractor rights in technical data.
227.7103-16  Providing technical data to foreign governments, foreign 
          contractors, or international organizations.
227.7103-17  Overseas contracts with foreign sources.
227.7104  Contracts under the Small Business Innovative Research (SBIR) 
          Program.
227.7105  Contracts for the acquisition of existing works.
227.7105-1  General.
227.7105-2  Acquisition of existing works without modification.
227.7105-3  Acquisition of modified existing works.
227.7106  Contracts for special works.
227.7107  Contracts for architect-engineer services.

[[Page 206]]

227.7107-1  Architectural designs and data clauses for architect-
          engineer or construction contracts.
227.7107-2  Contracts for construction supplies and research and 
          development work.
227.7107-3  Approval of restricted designs.
227.7108  Contractor data repositories.

   Subpart 227.72--Rights in Computer Software and Computer Software 
                              Documentation

227.7200  Scope of subpart.
227.7201  Definitions.
227.7202  Commercial computer software and commercial computer software 
          documentation.
227.7202-1  Policy.
227.7202-2  [Reserved]
227.7202-3  Rights in commercial computer software or commercial 
          computer software documentation.
227.7202-4  Contract clause.
227.7203  Noncommercial computer software and noncommercial computer 
          software documentation.
227.7203-1  Policy.
227.7203-2  Acquisition of noncommercial computer software and computer 
          software documentation.
227.7203-3  Early identification of computer software or computer 
          software documentation to be furnished to the Government with 
          restrictions on use, reproduction or disclosure.
227.7203-4  License rights.
227.7203-5  Government rights.
227.7203-6  Contract clauses.
227.7203-7  Reserved.
227.7203-8  Deferred delivery and deferred ordering or computer software 
          and computer software documentation.
227.7203-9  Copyright.
227.7203-10  Contractor identification and marking of computer software 
          or computer software documentation to be furnished with 
          restrictive markings.
227.7203-11  Contractor procedures and records.
227.7203-12  Government right to establish conformity of markings.
227.7203-13  Government right to review, verify, challenge and validate 
          asserted restrictions.
227.7203-14  Conformity, acceptance, and warranty of computer software 
          and computer software documentation.
227.7203-15  Subcontractor rights in computer software or computer 
          software documentation.
227.7203-16  Providing computer software or computer software 
          documentation to foreign governments, foreign contractors, or 
          international organizations.
227.7203-17  Overseas contracts with foreign sources.
227.7204  Contracts under the Small Business Innovative Research 
          Program.
227.7205  Contracts for special works.
227.7206  Contracts for architect-engineer services.
227.7207  Contractor data repositories.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36389, July 31, 1991, unless otherwise noted.



         Subpart 227.3--Patent Rights Under Government Contracts



Sec. 227.303  Contract clauses.

    (a) Pursuant to FAR 27.304-1(e), the contracting officer shall 
insert the clause at 252.227-7039, Patents--Reporting of Subject 
Inventions, in solicitations and contracts containing the clause at FAR 
52.227-11, Patent Rights--Retention by the Contractor (Short Form).



Sec. 227.304  Procedures.



Sec. 227.304-1  General.

    Interim and final invention reports and notification of all 
subcontracts for experimental, developmental, or research work (FAR 
27.304-1(e)(2)(ii)) may be submitted on DD Form 882, Report of 
Inventions and Subcontracts.

[56 FR 36389, July 31, 1991, as amended at 57 FR 53600, Nov. 12, 1992]



Sec. 227.304-4  Subcontracts.

    The contracting officer shall insert the clause at 252.227-7034, 
Patents-Subcontracts, in solicitations and contracts containing the 
clause at FAR 52.227-11, Patent Rights--Retention by the Contractor 
(Short Form).



              Subpart 227.4--Rights in Data and Copyrights



Sec. 227.400  Scope of subpart.

    DoD activities shall use the guidance in subparts 227.71 and 227.72 
instead of the guidance in FAR subpart 27.4.

[60 FR 33471, June 28, 1995]

[[Page 207]]



   Subpart 227.6--Foreign License and Technical Assistance Agreements



Sec. 227.670  Scope.

    This subpart prescribes policy with respect to foreign license and 
technical assistance agreements.



Sec. 227.671  General.

    In furtherance of the Military Assistance Program or for other 
national defense purposes, the Government may undertake to develop or 
encourage the development of foreign additional sources of supply. The 
development of such sources may be accomplished by an agreement, often 
called a foreign licensing agreement or technical assistance agreement, 
wherein a domestic concern, referred to in this subpart as a ``primary 
source,'' agrees to furnish to a foreign concern or government, herein 
referred to as a ``second source;'' foreign patent rights; technical 
assistance in the form of data, know-how, trained personnel of the 
primary source, instruction and guidance of the personnel of the second 
source, jigs, dies, fixtures, or other manufacturing aids, or such other 
assistance, information, rights, or licenses as are needed to enable the 
second source to produce particular supplies or perform particular 
services. Agreements calling for one or more of the foregoing may be 
entered into between the primary source and the Government, a foreign 
government, or a foreign concern. The consideration for providing such 
foreign license and technical assistance may be in the form of a lump 
sum payment, payments for each item manufactured by the second source, 
an agreement to exchange data and patent rights on improvements made to 
the article or service, capital stock transactions, or any combination 
of these. The primary source's bases for computing such consideration 
may include actual costs; charges for the use of patents, data, or know-
how reflecting the primary source's investment in developing and 
engineering and production techniques; and the primary source's 
``price'' for setting up a second source. Such agreements often refer to 
the compensation to be paid as a royalty or license fee whether or not 
patent rights are involved.



Sec. 227.672  Policy.

    It is Government policy not to pay in connection with its contracts, 
and not to allow to be paid in connection with contracts made with funds 
derived through the Military Assistance Program or otherwise through the 
United States Government, charges for use of patents in which it holds a 
royalty-free license or charges for data which it has a right to use and 
disclose to others, or which is in the public domain, or which the 
Government has acquired without restriction upon its use and disclosure 
to others. This policy shall be applied by the Departments in 
negotiating contract prices for foreign license technical assistance 
contracts (227.675) or supply contracts with second sources (227.674); 
and in commenting on such agreements when they are referred to the 
Department of Defense by the Department of State pursuant to section 414 
of the Mutual Security Act of 1954 as amended (22 U.S.C. 1934) and the 
International Traffic in Arms Regulations (see 227.675).



Sec. 227.673  Foreign license and technical assistance agreements between the Government and domestic concerns.

    (a) Contracts between the Government and a primary source to provide 
technical assistance or patent rights to a second source for the 
manufacture of supplies or performance of services shall, to the extent 
practicable, specify the rights in patents and data and any other rights 
to be supplied to the second source. Each contract shall provide, in 
connection with any separate agreement between the primary source and 
the second source for patent rights or technical assistance relating to 
the articles or services involved in the contract, that--
    (1) The primary source and his subcontractors shall not make, on 
account of any purchases by the Government or by others with funds 
derived through the Military Assistance Program or otherwise through the 
Government, any charge to the second source for royalties or 
amortization for patents or inventions in which the Government

[[Page 208]]

holds a royalty-free license; or data which the Government has the right 
to possess, use, and disclose to others; or any technical assistance 
provided to the second source for which the Government has paid under a 
contract between the Government and the primary source; and
    (2) The separate agreement between the primary and second source 
shall include a statement referring to the contract between the 
Government and the primary source, and shall conform to the requirements 
of the International Traffic in Arms Regulations (see 227.675-1).
    (b) The following factors, among others, shall be considered in 
negotiating the price to be paid the primary source under contracts 
within (a) of this section:
    (1) The actual cost of providing data, personnel, manufacturing 
aids, samples, spare parts, and the like;
    (2) The extent to which the Government has contributed to the 
development of the supplies or services, and to the methods of 
manufacture or performance, through past contracts for research and 
development or for manufacture of the supplies or performance of the 
services; and
    (3) The Government's patent rights and rights in data relating to 
the supplies or services and to the methods of manufacture or of 
performance.



Sec. 227.674  Supply contracts between the Government and a foreign government or concern.

    In negotiating contract prices with a second source, including the 
redetermination of contract prices, or in determining the allowability 
of costs under a cost-reimbursement contract with a second source, the 
contracting officer:
    (a) Shall obtain from the second source a detailed statement (see 
FAR 27.204-1(a)(2)) of royalties, license fees, and other compensation 
paid or to be paid to a primary source (or any of his subcontractors) 
for patent rights, rights in data, and other technical assistance 
provided to the second source, including identification and description 
of such patents, data, and technical assistance; and
    (b) Shall not accept or allow charges which in effect are--
    (1) For royalties or amortization for patents or inventions in which 
the Government holds a royalty-free license; or
    (2) For data which the Government has a right to possess, use, and 
disclose to others; or
    (3) For any technical assistance provided to the second source for 
which the Government has paid under a contract between the Government 
and a primary source.



Sec. 227.675  Foreign license and technical assistance agreements between a domestic concern and a foreign government or concern.



Sec. 227.675-1  International Traffic in Arms Regulations.

    Pursuant to section 414 of the Mutual Security Act of 1954, as 
amended (22 U.S.C. 1934), the Department of State controls the 
exportation of data relating to articles designated in the United States 
Munitions List as arms, ammunition, or munitions of war. (The Munitions 
List and pertinent procedures are set forth in the International Traffic 
in Arms Regulations, 22 CFR, et seq.) Before authorizing such 
exportation, the Department of State generally requests comments from 
the Department of Defense. On request of the Office of the Assistant 
Secretary of Defense (International Security Affairs), each Department 
shall submit comments thereon as the basis for a Department of Defense 
reply to the Department of State.



Sec. 227.675-2  Review of agreements.

    (a) In reviewing foreign license and technical assistance agreements 
between primary and second sources, the Department concerned shall, 
insofar as its interests are involved, indicate whether the agreement 
meets the requirements of Secs. 124.07-124.10 of the International 
Traffic in Arms Regulations or in what respects it is deficient. 
Paragraphs (b) through (g) of this subsection provide general guidance.
    (b) When it is reasonably anticipated that the Government will 
purchase from the second source the supplies or services involved in the 
agreement, or that Military Assistance Program

[[Page 209]]

funds will be provided for the procurement of the supplies or services, 
the following guidance applies.
    (1) If the agreement specifies a reduction in charges thereunder, 
with respect to purchases by or for the Government or by others with 
funds derived through the Military Assistance Program or otherwise 
through the Government, in recognition of the Government's rights in 
patents and data, the Department concerned shall evaluate the amount of 
the reduction to determine whether it is fair and reasonable in the 
circumstances, before indicating its approval.
    (2) If the agreement does not specify any reduction in charges or 
otherwise fails to give recognition to the Government's rights in the 
patents or data involved, approval shall be conditioned upon amendment 
of the agreement to reflect a reduction, evaluated by the Department 
concerned as acceptable to the Government, in any charge thereunder with 
respect to purchases made by or for the Government or by others with 
funds derived through the Military Assistance Program or otherwise 
through the Government, in accordance with Sec. 124.10 of the 
International Traffic in Arms Regulations.
    (3) If the agreement provides that no charge is to be made to the 
second source for data or patent rights to the extent of the 
Government's rights, the Department concerned shall evaluate the 
acceptability of the provision before indicating its approval.
    (4) If time or circumstances do not permit the evaluation called for 
in (b) (1), (2), or (3) of this subsection, the guidance in (c) of this 
subsection shall be followed.
    (c) When it is not reasonably anticipated that the Government will 
purchase from the second source the supplies or services involved in the 
agreement nor that Military Assistance Program funds will be provided 
for the purchase of the supplies or services, then the following 
guidance applies.
    (1) If the agreement provides for charges to the second source for 
data or patent rights, it may suffice to fulfill the requirements of 
Sec. 124.10 insofar as the Department of Defense is concerned if:
    (i) The agreement requires the second source to advise the primary 
source when he has knowledge of any purchase made or to be made from him 
by or for the Government or by others with funds derived through the 
Military Assistance Program or otherwise through the Government;
    (ii) The primary source separately agrees with the Government that 
upon such advice to him from the second source or from the Government or 
otherwise as to any such a purchase or prospective purchase, he will 
negotiate with the Department concerned an appropriate reduction in his 
charges to the second source in recognition of any Government rights in 
patents or data; and
    (iii) The agreement between the primary and second sources further 
provides that in the event of any such purchase and resulting reduction 
in charges, the second source shall pass on this reduction to the 
Government by giving the Government a corresponding reduction in the 
purchase price of the article or service.
    (2) If the agreement provides that no charge is to be made to the 
second source for data or patent rights to the extent to which the 
Government has rights, the Department concerned shall:
    (i) Evaluate the acceptability of the provision before indicating 
its approval; or
    (ii) Explicitly condition its approval on the right to evaluate the 
acceptability of the provision at a later time.
    (d) When there is a technical assistance agreement between the 
primary source and the Government related to the agreement between the 
primary and second sources that is under review, the latter agreement 
shall reflect the arrangements contemplated with respect thereto by the 
Government's technical assistance agreement with the primary source.
    (e) Every agreement shall provide that any license rights 
transferred under the agreement are subject to existing rights of the 
Government.
    (f) In connection with every agreement referred to in (b) of this 
section, a request shall be made to the primary source--

[[Page 210]]

    (1) To identify the patents, data, and other technical assistance to 
be provided to the second source by the primary source or any of his 
subcontractors,
    (2) To identify any such patents and data in which, to the knowledge 
of the primary source, the Government may have rights, and
    (3) To segregate the charges made to the second source for each such 
category or item of patents, data, and other technical assistance.

Reviewing personnel shall verify this information or, where the primary 
source does not furnish it, obtain such information from Governmental 
sources so far as practicable.
    (g) The Department concerned shall make it clear that its approval 
of any agreement does not necessarily recognize the propriety of the 
charges or the amounts thereof, or constitute approval of any of the 
business arrangements in the agreement, unless the Department expressly 
intends by its approval to commit itself to the fairness and 
reasonableness of a particular charge or charges. In any event, a 
disclaimer should be made to charges or business terms not affecting any 
purchase made by or for the Government or by others with funds derived 
through the Military Assistance Program or otherwise through the 
Government.



Sec. 227.676  Foreign patent interchange agreements.

    (a) Patent interchange agreements between the United States and 
foreign governments provide for the use of patent rights, compensation, 
free licenses, and the establishment of committees to review and make 
recommendations on these matters. The agreements also may exempt the 
United States from royalty and other payments. The contracting officer 
shall ensure that royalty payments are consistent with patent 
interchange agreements.
    (b) Assistance with patent rights and royalty payments in the United 
States European Command (USEUCOM) area of responsibility is available 
from HQ USEUCOM, ATTN: ECLA, Unit 30400, Box 1000, APO AE 09128; 
Telephone: DSN 430-8001/7263, Commercial 49-0711-680-8001/7263; Telefax: 
49-0711-680-5732.

[62 FR 34125, June 24, 1997, as amended at 63 FR 11534, Mar. 9, 1998]



     Subpart 227.70--Infringement Claims, Licenses, and Assignments



Sec. 227.7000  Scope.

    This subpart prescribes policy, procedures, and instructions for use 
of clauses with respect to processing licenses, assignments, and 
infringement claims.



Sec. 227.7001  Policy.

    Whenever a claim of infringement of privately owned rights in 
patented inventions or copyrighted works is asserted against any 
Department or Agency of the Department of Defense, all necessary steps 
shall be taken to investigate, and to settle administratively, deny, or 
otherwise dispose of such claim prior to suit against the United States. 
This subpart 227.70 does not apply to licenses or assignments acquired 
by the Department of Defense under the Patent Rights clauses.



Sec. 227.7002  Statutes pertaining to administrative claims of infringement.

    Statutes pertaining to administrative claims of infringement in the 
Department of Defense include the following: the Foreign Assistance Act 
of 1961, 22 U.S.C. 2356 (formerly the Mutual Security Acts of 1951 and 
1954); the Invention Secrecy Act, 35 U.S.C. 181-188; 10 U.S.C. 2386; 28 
U.S.C. 1498; and 35 U.S.C. 286.



Sec. 227.7003  Claims for copyright infringement.

    The procedures set forth herein will be followed, where applicable, 
in copyright infringement claims.



Sec. 227.7004  Requirements for filing an administrative claim for patent infringement.

    (a) A patent infringement claim for compensation, asserted against 
the United States under any of the applicable statutes cited in 
227.7002, must be actually communicated to and received by a Department, 
agency, organization,

[[Page 211]]

office, or field establishment within the Department of Defense. Claims 
must be in writing and should include the following:
    (1) An allegation of infringement;
    (2) A request for compensation, either expressed or implied;
    (3) A citation of the patent or patents alleged to be infringed;
    (4) A sufficient designation of the alleged infringing item or 
process to permit identification, giving the military or commercial 
designation, if known, to the claimant;
    (5) A designation of at least one claim of each patent alleged to be 
infringed; or
    (6) As an alternative to (a) (4) and (5) of this section, a 
declaration that the claimant has made a bona fide attempt to determine 
the item or process which is alleged to infringe, but was unable to do 
so, giving reasons, and stating a reasonable basis for his belief that 
his patent or patents are being infringed.
    (b) In addition to the information listed in (a) of this section, 
the following material and information is generally necessary in the 
course of processing a claim of patent infringement. Claimants are 
encouraged to furnish this information at the time of filing a claim to 
permit the most expeditious processing and settlement of the claim.
    (1) A copy of the asserted patent(s) and identification of all 
claims of the patent alleged to be infringed.
    (2) Identification of all procurements known to claimant which 
involve the alleged infringing item or process, including the identity 
of the vendor or contractor and the Government procuring activity.
    (3) A detailed identification of the accused article or process, 
particularly where the article or process relates to a component or 
subcomponent of the item procured, an element by element comparison of 
the representative claims with the accused article or process. If 
available, this identification should include documentation and drawings 
to illustrate the accused article or process in suitable detail to 
enable verification of the infringement comparison.
    (4) Names and addresses of all past and present licenses under the 
patent(s), and copies of all license agreements and releases involving 
the patent(s).
    (5) A brief description of all litigation in which the patent(s) has 
been or is now involved, and the present status thereof.
    (6) A list of all persons to whom notices of infringement have been 
sent, including all departments and agencies of the Government, and a 
statement of the ultimate disposition of each.
    (7) A description of Government employment or military service, if 
any, by the inventor and/or patent owner.
    (8) A list of all Government contracts under which the inventor, 
patent owner, or anyone in privity with him performed work relating to 
the patented subject matter.
    (9) Evidence of title to the patent(s) alleged to be infringed or 
other right to make the claim.
    (10) A copy of the Patent Office file of each patent if available to 
claimant.
    (11) Pertinent prior art known to claimant, not contained in the 
Patent Office file, particularly publications and foreign art.

In addition in the foregoing, if claimant can provide a statement that 
the investigation may be limited to the specifically identified accused 
articles or processes, or to a specific procurement, it may materially 
expedite determination of the claim.
    (c) Any Department receiving an allegation of patent infringement 
which meets the requirements of this paragraph shall acknowledge the 
same and supply the other Departments which may have an interest therein 
with a copy of such communication and the acknowledgement thereof.
    (1) For the Department of the Army--Chief, Patents, Copyrights, and 
Trademarks Division, U.S. Army Legal Services Agency;
    (2) For the Department of the Navy--The Patent Counsel for Navy, 
Office of Naval Research;
    (3) For the Department of the Air Force--Chief, Patents Division, 
Office of The Judge Advocate General;
    (4) For the Defense Logistics Agency--The Office of Counsel; for the 
National Security Agency, the General Counsel;
    (5) For the Defense Information Systems Agency--the Counsel;

[[Page 212]]

    (6) For the Defense Special Weapons Agency--The General Counsel; and
    (7) For the Defense Mapping Agency--The Counsel.
    (d) If a communication alleging patent infringement is received 
which does not meet the requirements set forth in paragraph (c) of this 
section, the sender shall be advised in writing--
    (1) That his claim for infringement has not been satisfactorily 
presented, and
    (2) Of the elements considered necessary to establish a claim.
    (e) A communication making a proffer of a license in which no 
infringement is alleged shall not be considered as a claim for 
infringement.

[56 FR 36389, July 31, 1991, as amended at 56 FR 67216, Dec. 30, 1991; 
61 FR 50454, Sept. 26, 1996; 62 FR 2613, Jan. 17, 1997]



Sec. 227.7005  Indirect notice of patent infringement claims.

    (a) A communication by a patent owner to a Department of Defense 
contractor alleging that the contractor has committed acts of 
infringement in performance of a Government contract shall not be 
considered a claim within the meaning of 227.7004 until it meets the 
requirements specified therein.
    (b) Any Department receiving an allegation of patent infringement 
which meets the requirements of 227.7004 shall acknowledge the same and 
supply the other Departments (see 227.7004(c)) which may have an 
interest therein with a copy of such communication and the 
acknowledgement thereof.
    (c) If a communication covering an infringement claim or notice 
which does not meet the requirements of 227.7004(a) is received from a 
contractor, the patent owner shall be advised in writing as covered by 
the instructions of 227.7004(d).



Sec. 227.7006  Investigation and administrative disposition of claims.

    An investigation and administrative determination (denial or 
settlement) of each claim shall be made in accordance with instructions 
and procedures established by each Department, subject to the following:
    (a) When the procurement responsibility for the alleged infringing 
item or process is assigned to a single Department or only one 
Department is the purchaser of the alleged infringing item or process, 
and the funds of that Department only are to be charged in the 
settlement of the claim, that Department shall have the sole 
responsibility for the investigation and administrative determination of 
the claim and for the execution of any agreement in settlement of the 
claim. Where, however, funds of another Department are to be charged, in 
whole or in part, the approval of such Department shall be obtained as 
required by 208.7002. Any agreement in settlement of the claim, approved 
pursuant to 208.7002 shall be executed by each of the Departments 
concerned.
    (b) When two or more Departments are the respective purchasers of 
alleged infringing items or processes and the funds of those Departments 
are to be charged in the settlement of the claim, the investigation and 
administrative determination shall be the responsibility of the 
Department having the predominant financial interest in the claim or of 
the Department or Departments as jointly agreed upon by the Departments 
concerned. The Department responsible for negotiation shall, throughout 
the negotiation, coordinate with the other Departments concerned and 
keep them advised of the status of the negotiation. Any agreement in the 
settlement of the claim shall be executed by each Department concerned.



Sec. 227.7007  Notification and disclosure to claimants.

    When a claim is denied, the Department responsible for the 
administrative determination of the claim shall so notify the claimant 
or his authorized representative and provide the claimant a reasonable 
rationale of the basis for denying the claim. Disclosure of information 
or the rationale referred to above shall be subject to applicable 
statutes, regulations, and directives pertaining to security, access to 
official records, and the rights of others.



Sec. 227.7008  Settlement of indemnified claims.

    Settlement of claims involving payment for past infringement shall 
not be

[[Page 213]]

made without the consent of, and equitable contribution by, each 
indemnifying contractor involved, unless such settlement is determined 
to be in the best interests of the Government and is coordinated with 
the Department of Justice with a view to preserving any rights of the 
Government against the contractors involved. If consent of and equitable 
contribution by the contractors are obtained, the settlement need not be 
coordinated with the Department of Justice.



Sec. 227.7009  Patent releases, license agreements, and assignments.

    This section contains clauses for use in patent release and 
settlement agreements, license agreements, and assignments, executed by 
the Government, under which the Government acquires rights. Minor 
modifications of language (e.g., pluralization of ``Secretary'' or 
``Contracting Officer'') in multi-departmental agreements may be made if 
necessary.



Sec. 227.7009-1  Required clauses.

    (a) Covenant Against Contingent Fees. Insert the clause at FAR 
52.203-5.
    (b) Gratuities. Insert the clause at FAR 52.203-3.
    (c) Assignment of Claims. Insert the clause at FAR 52.232-23.
    (d) Disputes. Pursuant to FAR 33.014, insert the clause at FAR 
52.233-1.
    (e) Non-Estoppel. Insert the clause at 252.227-7000.

[56 FR 36389, July 31, 1991, as amended at 61 FR 50454, Sept. 26, 1996]



Sec. 227.7009-2  Clauses to be used when applicable.

    (a) Release of past infringement. The clause at 252.227-7001, 
Release of Past Infringement, is an example which may be modified or 
omitted as appropriate for particular circumstances, but only upon the 
advice of cognizant patent or legal counsel. (See footnotes at end of 
clause.)
    (b) Readjustment of payments. The clause at 252.227-7002, 
Readjustment of Payments, shall be inserted in contracts providing for 
payment of a running royalty.
    (c) Termination. The clause at 252.227-7003, Termination, is an 
example for use in contracts providing for the payment of a running 
royalty. This clause may be modified or omitted as appropriate for 
particular circumstances, but only upon the advice of cognizant patent 
or legal counsel (see 227.7004(c)).



Sec. 227.7009-3  Additional clauses--contracts except running royalty contracts.

    The following clauses are examples for use in patent release and 
settlement agreements, and license agreements not providing for payment 
by the Government of a running royalty.
    (a) License Grant. Insert the clause at 252.227-7004.
    (b) License Term. Insert one of the clauses at 252.227-7005 
Alternate I or Alternate II, as appropriate.



Sec. 227.7009-4  Additional clauses--contracts providing for payment of a running royalty.

    The clauses set forth below are examples which may be used in patent 
release and settlement agreements, and license agreements, when it is 
desired to cover the subject matter thereof and the contract provides 
for payment of a running royalty.
    (a) License grant--running royalty. No Department shall be obligated 
to pay royalties unless the contract is signed on behalf of such 
Department. Accordingly, the License Grant clause at 252.227-7006 should 
be limited to the practice of the invention by or for the signatory 
Department or Departments.
    (b) License term--running royalty. The clause at 252.227-7007 is a 
sample form for expressing the license term.
    (c) Computation of royalties. The clause at 252.227-7008 providing 
for the computation of royalties, may be of varying scope depending upon 
the nature of the royalty bearing article, the volume of procurement, 
and the type of contract pursuant to which the procurement is to be 
accomplished.
    (d) Reporting and payment of royalties. (1) The contract should 
contain a provision specifying the office designated within the specific 
Department involved to make any necessary reports to the contractor of 
the extent of use of the licensed subject matter by the entire 
Department, and such office shall be charged with the responsibility of 
obtaining from all procuring offices

[[Page 214]]

of that Department the information necessary to make the required 
reports and corresponding vouchers necessary to make the required 
payments. The clause at 252.227-7009 is a sample for expressing 
reporting and payment of royalties requirements.
    (2) Where more than one Department or Government Agency is licensed 
and there is a ceiling on the royalties payable in any reporting period, 
the licensing Departments or Agencies shall coordinate with respect to 
the pro rata share of royalties to be paid by each.
    (e) License to other government agencies. When it is intended that a 
license on the same terms and conditions be available to other 
departments and agencies of the Government, the clause at 252.227-7010 
is an example which may be used.



Sec. 227.7010  Assignments.

    (a) The clause at 252.227-7011 is an example which may be used in 
contracts of assignment of patent rights to the Government.
    (b) To facilitate proof of contracts of assignments, the 
acknowledgement of the contractor should be executed before a notary 
public or other officer authorized to administer oaths (35 U.S.C. 261).



Sec. 227.7011  Procurement of rights in inventions, patents, and copyrights.

    Even though no infringement has occurred or been alleged, it is the 
policy of the Department of Defense to procure rights under patents, 
patent applications, and copyrights whenever it is in the Government's 
interest to do so and the desired rights can be obtained at a fair 
price. The required and suggested clauses at 252.227-7004 and 252.227-
7010 shall be required and suggested clauses, respectively, for license 
agreements and assignments made under this paragraph. The instructions 
at 227.7009-3 and 227.7010 concerning the applicability and use of those 
clauses shall be followed insofar as they are pertinent.



Sec. 227.7012  Contract format.

    The format at 252.227-7012 appropriately modified where necessary, 
may be used for contracts of release, license, or assignment.



Sec. 227.7013  Recordation.

    Executive Order No. 9424 of 18 February 1944 requires all executive 
Departments and agencies of the Government to forward through 
appropriate channels to the Commissioner of Patents and Trademarks, for 
recording, all Government interests in patents or applications for 
patents.



                Subpart 227.71--Rights in Technical Data

    Source: 60 FR 33471, June 28, 1995, unless otherwise noted.



Sec. 227.7100  Scope of subpart.

    This subpart--
    (a) Prescribes policies and procedures for the acquisition of 
technical data and the rights to use, modify, reproduce, release, 
perform, display, or disclose technical data. It implements requirements 
in the following laws and Executive Order:
    (1) 10 U.S.C. 2302(4).
    (2) 10 U.S.C. 2305 (subsection (d)(4)).
    (3) 10 U.S.C. 2320.
    (4) 10 U.S.C. 2321.
    (5) 10 U.S.C. 2325.
    (6) Pub. L. 103-355.
    (7) Executive Order 12591 (Subsection 1(b)(6)).
    (b) Does not apply to computer software or technical data that is 
computer software documentation (see subpart 227.72).



Sec. 227.7101  Definitions.

    (a) As used in this subpart, unless otherwise specifically 
indicated, the terms ``offeror'' and ``contractor'' include an offeror's 
or contractor's subcontractors, suppliers, or potential subcontractors 
or suppliers at any tier.
    (b) Other terms used in this subpart are defined in the clause at 
252.227-7013, Rights in Technical Data--Noncommercial Items.

[56 FR 36389, July 31, 1991, as amended at 60 FR 61598, Nov. 30, 1995]



Sec. 227.7102  Commercial items, components, or processes.

    Section 2320(b)(1) of Title 10 U.S.C. establishes a presumption that 
commercial items are developed at private expense whether or not a 
contractor

[[Page 215]]

submits a justification in response to a challenge notice. Therefore, do 
not challenge a contractor's assertion that a commercial item, 
component, or process was developed at private expense unless the 
Government can demonstrate that it contributed to development of the 
item, component or process. Follow the procedures in 227.7103-13 and the 
clause at 252.227-7037, Validation of Restrictive Markings on Technical 
Data, when information provided by the Department of Defense 
demonstrates that an item, component, or process was not developed 
exclusively at private expense. However, when a challenge is warranted, 
a contractor's or subcontractor's failure to respond to the challenge 
notice cannot be the sole basis for issuing a final decision denying the 
validity of an asserted restriction.



Sec. 227.7102-1  Policy.

    (a) DoD shall acquire only the technical data customarily provided 
to the public with a commercial item or process, except technical data 
that--
    (1) Are form, fit, or function data;
    (2) Are required for repair or maintenance of commercial items or 
processes, or for the proper installation, operating, or handling of a 
commercial item, either as a stand alone unit or as a part of a military 
system, when such data are not customarily provided to commercial users 
or the data provided to commercial users is not sufficient for military 
purposes; or
    (3) Describe the modifications made at Government expense to a 
commercial item or process in order to meet the requirements of a 
Government solicitation.
    (b) To encourage offerors and contractors to offer or use commercial 
products to satisfy military requirements, offerors, and contractors 
shall not be required, except for the technical data described in 
paragraph (a) of this subsection, to--
    (1) Furnish technical information related to commercial items or 
processes that is not customarily provided to the public; or
    (2) Relinquish to, or otherwise provide, the Government rights to 
use, modify, reproduce, release, perform, display, or disclose technical 
data pertaining to commercial items or processes except for a transfer 
of rights mutually agreed upon.



Sec. 227.7102-2  Rights in technical data.

    (a) The clause at 252.227-7015, Technical Data--Commercial Items, 
provides the Government specific license rights in technical data 
pertaining to commercial items or processes. DoD may use, modify, 
reproduce, release, perform, display, or disclose data only within the 
Government. The data may not be used to manufacture additional 
quantities of the commercial items and, except for emergency repair or 
overhaul, may not be released or disclosed to, or used by, third parties 
without the contractor's written permission. Those restrictions do not 
apply to the technical data described in 227.7102-1(a).
    (b) If additional rights are needed, contracting activities must 
negotiate with the contractor to determine if there are acceptable terms 
for transferring such rights. The specific additional rights granted to 
the Government shall be enumerated in a license agreement made part of 
the contract.



Sec. 227.7102-3  Contract clause.

    (a) Except as provided in paragraph (b) of this subsection, use the 
clause at 252.227-7015, Technical Data--Commercial Items, in all 
solicitations and contracts when the contractor will be required to 
deliver technical data pertaining to commercial items, components, or 
processes. Do not require the contractor to include this clause in its 
subcontracts.
    (b) Use the clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items, in lieu of the clause at 252.227-7015 if the 
Government will pay any portion of the development costs. Do not require 
the contractor to include this clause in its subcontracts for commercial 
items or commercial components.
    (c) Use the clause at 252.227-7037, Validation of Restrictive 
Markings on Technical Data, in all solicitations and contracts for 
commercial items that include the clause at 252.227-7015 or the clause 
at 252.227-7013. Do not require the contractor to include this clause in

[[Page 216]]

its subcontracts for commercial items or commercial components.

[56 FR 36389, July 31, 1991, as amended at 60 FR 61598, Nov. 30, 1995]



Sec. 227.7103  Noncommercial items or processes.



Sec. 227.7103-1  Policy.

    (a) DoD policy is to acquire only the technical data, and the rights 
in that data, necessary to satisfy agency needs.
    (b) Solicitations and contracts shall--
    (1) Specify the technical data to be delivered under a contract and 
delivery schedules for the data;
    (2) Establish or reference procedures for determining the 
acceptability of technical data;
    (3) Establish separate contract line items, to the extent 
practicable, for the technical data to be delivered under a contract and 
require offerors and contractors to price separately each deliverable 
data item; and
    (4) Require offerors to identify, to the extent practicable, 
technical data to be furnished with restrictions on the Government's 
rights and require contractors to identify technical data to be 
delivered with such restrictions prior to delivery.
    (c) Offerors shall not be required, either as a condition of being 
responsive to a solicitation or as a condition for award, to sell or 
otherwise relinquish to the Government any rights in technical data 
related to items, components or processes developed at private expense 
except for the data identified at 227.7103-5(a)(2) and (a)(4) through 
(9).
    (d) Offerors and contractors shall not be prohibited or discouraged 
from furnishing or offering to furnish items, components, or processes 
developed at private expense solely because the Government's rights to 
use, modify, release, reproduce, perform, display, or disclose technical 
data pertaining to those items may be restricted.
    (e) As provided in 10 U.S.C. 2305, solicitations for major systems 
development contracts shall not require offerors to submit proposals 
that would permit the Government to acquire competitively items 
identical to items developed at private expense unless a determination 
is made at a level above the contracting officer that--
    (1) The offeror will not be able to satisfy program schedule or 
delivery requirements; or
    (2) The offeror's proposal to meet mobilization requirements does 
not satisfy mobilization needs.



Sec. 227.7103-2  Acquisition of technical data.

    (a) Contracting officers shall work closely with data managers and 
requirements personnel to assure that data requirements included in 
solicitations are consistent with the policy expressed in 227.7103-1.
    (b)(1) Data managers or other requirements personnel are responsible 
for identifying the Government's minimum needs for technical data. Data 
needs must be established giving consideration to the contractor's 
economic interests in data pertaining to items, components, or processes 
that have been developed at private expense; the Government's costs to 
acquire, maintain, store, retrieve, and protect the data; reprocurement 
needs; repair, maintenance and overhaul philosophies; spare and repair 
part considerations; and whether procurement of the items, components, 
or processes can be accomplished on a form, fit, or function basis. When 
it is anticipated that the Government will obtain unlimited or 
government purpose rights in technical data that will be required for 
competitive spare or repair parts procurements, such data should be 
identified as deliverable data items. Reprocurement needs may not be a 
sufficient reason to acquire detailed manufacturing or process data when 
items or components can be acquired using performance specifications, 
form, fit and function data, or when there are a sufficient number of 
alternate sources which can reasonably be expected to provide such items 
on a performance specification or form, fit, or function basis.
    (2) When reviewing offers received in response to a solicitation or 
other request for data, data managers must balance the original 
assessment of the Government's data needs with data prices contained in 
the offer.

[[Page 217]]

    (c) Contracting officers are responsible for ensuring that, wherever 
practicable, solicitations and contracts--
    (1) Identify the type and quantity of the technical data to be 
delivered under the contract and the format and media in which the data 
will be delivered;
    (2) Establish each deliverable data item as a separate contract line 
item (this requirement may be satisfied by listing each deliverable data 
item on an exhibit to the contract);
    (3) Identify the prices established for each deliverable data item 
under a fixed-price type contract;
    (4) Include delivery schedules and acceptance criteria for each 
deliverable data item; and
    (5) Specifically identify the place of delivery for each deliverable 
item of technical data.



Sec. 227.7103-3  Early identification of technical data to be furnished to the Government with restrictions on use, reproduction or disclosure.

    (a) 10 U.S.C. 2320 requires, to the maximum extent practicable, an 
identification prior to delivery of any technical data to be delivered 
to the Government with restrictions on use.
    (b) Use the provision at 252.227-7017, Identification and Assertion 
of Use, Release, or Disclosure Restrictions, in all solicitations that 
include the clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items. The provision requires offerors to identify any 
technical data for which restrictions, other than copyright, on use, 
release, or disclosure are asserted and to attach the identification and 
assertions to the offer.
    (c) Subsequent to contract award, the clause at 252.277-7013 permits 
a contractor, under certain conditions, to make additional assertions of 
use, release, or disclosure restrictions. The prescription for the use 
of that clause and its alternate is at 227.7103-6 (a) and (b).



Sec. 227.7103-4  License rights.

    (a) Grant of license. The Government obtains rights in technical 
data, including a copyright license, under and irrevocable license 
granted or obtained for the Government by the contractor. The contractor 
or licensor retains all rights in the data not granted to the 
Government. For technical data that pertain to items, components, or 
processes, the scope of the license is generally determined by the 
source of funds used to develop the item, component, or process. When 
the technical data do not pertain to items, components, or processes, 
the scope of the license is determined by the source of funds used to 
create the data.
    (1) Techical data pertaining to items, components, or processes. 
Contractors or licensors may, with some exceptions (see 227.7103-5(a)(2) 
and (a)(4) through (9)), restrict the Government's rights to use, 
modify, release, reproduce, perform, display or disclose technical data 
pertaining to items, components, or processes developed exclusively at 
private expense (limited rights). They may not restrict the Government's 
rights in items, components, or processes developed exclusively at 
Government expense (unlimited rights) without the Government's approval. 
When an item, component, or process is developed with mixed funding, the 
Government may use, modify, release, reproduce, perform, display or 
disclose the data pertaining to such items, components, or processes 
within the Government without restriction but may release or disclose 
the data outside the Government only for government purposes (government 
purpose rights).
    (2) Technical data that do not pertain to items, components, or 
processes. Technical data may be created during the performance of a 
contract for a conceptual design or similar effort that does not require 
the development, manufacture, construction, or production of items, 
components or processes. The Government generally obtains unlimited 
rights in such data when the data were created exclusively with 
Government funds, government purpose rights when the data were created 
with mixed funding, and limited rights when the data were created 
exclusively at private expense.
    (b) Source of funds determination. The determination of the source 
of development funds for technical data pertaining to items, components, 
or processes should be made at any practical sub-item or subcomponent 
level or for any

[[Page 218]]

segregable portion of a process. Contractors may assert limited rights 
in a segregable sub-item, sub-component, or portion of a process which 
otherwise qualifies for limited rights under the clause at 252.227-7013, 
Rights in Technical Data--Noncommercial Items.



Sec. 227.7103-5  Government rights.

    The standard license rights that a licensor grants to the Government 
are unlimited rights, government purpose rights, or limited rights. 
Those rights are defined in the clause at 252.227-7013, Rights in 
Technical Data--Noncommercial Items. In unusual situations, the 
standards rights may not satisfy the Government's needs or the 
Government may be willing to accept lesser rights in data in return for 
other consideration. In those cases, a special license may be 
negotiated. However, the licensor is not obligated to provide the 
Government greater rights and the contracting officer is not required to 
accept lesser rights than the rights provided in the standard grant of 
license. The situations under which a particular grant of license 
applies are enumerated in paragraphs (a) through (d) of this subsection.
    (a) Unlimited rights. The Government obtains unlimited rights in 
technical data that are--
    (1) Data pertaining to an item, component, or process which has been 
or will be developed exclusively with Government funds;
    (2) Studies, analyses, test data, or similar data produced in the 
performance of a contract when the study, analysis, test, or similar 
work was specified as an element of performance;
    (3) Created exclusively with Government funds in the performance of 
a contract that does not require the development, manufacture, 
construction, or production of items, components, or processes;
    (4) Form, fit, and function data;
    (5) Necessary for installation, operation, maintenance, or training 
purposes (other than detailed manufacturing or process data);
    (6) Corrections or changes to technical data furnished to the 
contractor by the Government;
    (7) Publicly available or have been released or disclosed by the 
contractor or subcontractor without restrictions on further use, release 
or disclosure other than a release or disclosure resulting from the 
sale, transfer, or other assignment of interest in the software to 
another party or the sale or transfer of some or all of a business 
entity or its assets to another party;
    (8) Data in which the Government has obtained unlimited rights under 
another Government contract or as a result of negotiations; or
    (9) Data furnished to the Government, under a Government contract or 
subcontract thereunder, with--
    (i) Government purpose license rights or limited rights and the 
restrictive condition(s) has/have expired; or
    (ii) Government purpose rights and the contractor's exclusive right 
to use such data for commercial purposes has expired.
    (b) Government purpose rights. (1) The Government obtains government 
purpose rights in technical data--
    (i) That pertain to items, components, or processes developed with 
mixed funding except when the Government is entitled to unlimited rights 
as provided in paragraphs (a)(2) and (a)(4) through (9) of this 
subsection; or
    (ii) Created with mixed funding in the performance of a contract 
that does not require the development, manufacture, construction, or 
production of items, components, or processes.
    (2) The period during which government purpose rights are effective 
is negotiable. The clause at 252.227-7013 provides a nominal five-year 
period. Either party may request a different period. Changes to the 
government purpose rights period may be made at any time prior to 
delivery of the technical data without consideration from either party. 
Longer periods should be negotiated when a five-year period does not 
provide sufficient time to apply the data for commercial purposes or 
when necessary to recognize subcontractors' interests in the data.
    (3) The government purpose rights period commences upon execution of 
the contract, subcontract, letter contract (or similar contractual 
instrument), contract modification, or option exercise that required the 
development. Upon expiration of the Government rights period, the 
Government

[[Page 219]]

has unlimited rights in the data including the right to authorize others 
to use the data for commercial purposes.
    (4) During the government purpose rights period, the government may 
not use, or authorize other persons to use, technical data marked with 
government purpose rights legends for commercial purposes. The 
Government shall not release or disclose data in which it has government 
purpose rights to any person, or authorize others to do so, unless--
    (i) Prior to release or disclosure, the intended recipient is 
subject to the use and non-disclosure agreement at 227.7103-7; or
    (ii) The intended recipient is a Government contractor receiving 
access to the data for performance of a Government contract that 
contains the clause at 252.227-7025, Limitations on the Use or 
Disclosure of Government-Furnished Information Marked with Restrictive 
Legends.
    (5) When technical data marked with government purpose rights 
legends will be released or disclosed to a Government contractor 
performing a contract that does not include the clause at 252-227-7025, 
the contract may be modified, prior to release or disclosure, to include 
that clause in lieu of requiring the contractor to complete a use and 
non-disclosure agreement.
    (6) Contracting activities shall establish procedures to assure that 
technical data marked with government purpose rights legends are 
released or disclosed, including a release or disclosure through a 
Government solicitation, only to persons subject to the use and non-
disclosure restrictions. Public announcements in the Commerce Business 
Daily or other publications must provide notice of the use and non-
disclosure requirements. Class use and non-disclosure agreements (e.g., 
agreements covering all solicitations received by the XYZ company within 
a reasonable period) are authorized and may be obtained at any time 
prior to release or disclosure of the government purpose rights data. 
Documents transmitting government purpose rights data to persons under 
class agreements shall identify the technical data subject to government 
purpose rights and the class agreement under which such data are 
provided.
    (c) Limited rights. (1) The Government obtains limited rights in 
technical data--
    (i) That pertain to items, components, or processes developed 
exclusively at private expense except when the Government is entitled to 
unlimited rights as provided in paragraphs (a)(2) and (a)(4) through (9) 
of this subsection; or
    (ii) Created exclusively at private expense in the performance of a 
contract that does not require the development, manufacture, 
construction, or production of items, components, or processes.
    (2) Data in which the Government has limited rights may not be used, 
released, or disclosed outside the Government without the permission of 
the contractor asserting the restriction except for a use, release or 
disclosure that is--
    (i) Necessary for emergency repair and overhaul; or
    (ii) To a foreign government, other than detailed manufacturing or 
process data, when use, release, or disclosure is in the interest of the 
United States and is required for evaluation or informational purposes.
    (3) The person asserting limited rights must be notified of the 
Government's intent to release, disclose, or authorize others to use 
such data prior to release or disclosure of the data except notification 
of an intended release, disclosure, or use for emergency repair or 
overhaul which shall be made as soon as practicable.
    (4) When the person asserting limited rights permits the Government 
to release, disclose, or have others use the data subject to 
restrictions on further use, release, or disclosure, or for a release 
under paragraph (c)(2)(i) or (ii) of this subsection, the intended 
recipient must complete the use and non-disclosure agreement at 
227.7103-7 prior to release or disclosure of the limited rights data.
    (d) Specifically negotiated license rights. (1) Negotiate specific 
licenses when the parties agree to modify the standard license rights 
granted to the government or when the government wants to obtain rights 
in data in which

[[Page 220]]

it does not have rights. When negotiating to obtain, relinquish, or 
increase the Government's rights in technical data, consider the 
acquisition strategy for the item, component, or process, including 
logistics support and other factors which may have relevance for a 
particular procurement. The Government may accept lesser rights when it 
has unlimited or government purpose rights in data but may not accept 
less than limited rights in such data. The negotiated license rights 
must stipulate what rights the Government has to release or disclose the 
data to other persons or to authorize others to use the data. Identify 
all negotiated rights in a license agreement made part of the contract.
    (2) When the Government needs additional rights in data acquired 
with government purpose or limited rights, the contracting officer must 
negotiate with the contractor to determine whether there are acceptable 
terms for transferring such rights. Generally, such negotiations should 
be conducted only when there is a need to disclose the data outside the 
Government or if the additional rights are required for competitive 
reprocurement and the anticipated savings expected to be obtained 
through competition are estimated to exceed the acquisition cost of the 
additional rights. Prior to negotiating for additional rights in limited 
rights data, consider alternatives such as--
    (i) Using performance specifications and form, fit, and function 
data to acquire or develop functionally equivalent items, components, or 
processes;
    (ii) Obtaining a contractor's contractual commitment to qualify 
additional sources and maintain adequate competition among the sources; 
or
    (iii) Reverse engineering, or providing items from Government 
inventories to contractors who request the items to facilitate the 
development of equivalent items through reverse engineering.



Sec. 227.7103-6  Contract clauses.

    (a) Use the clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items, in solicitations and contracts when the successful 
offeror(s) will be required to deliver technical data to the Government. 
Do not use the clause when the only deliverable items are computer 
software or computer software documentation (see 227.72), commercial 
items (see 227.7102-3), existing works (see 227.7105), special works 
(see 227.7106), or when contracting under the Small Business Innovation 
Research Program (see 227.7104). Except as provided in 227.7107-2, do 
not use the clause in architect-engineer and construction contracts.
    (b) Use the clause at 252.227-7013 with its Alternate I in research 
contracts when the contracting officer determines, in consultation with 
counsel, that public dissemination by the contractor would be--
    (1) In the interest of the government; and
    (2) Facilitated by the Government relinquishing its right to publish 
the work for sale, or to have others publish the work for sale on behalf 
of the Government.
    (c) Use the clause at 252.227-7025, Limitations on the Use or 
Disclosure of Government Furnished Information Marked with Restrictive 
Legends, in solicitations and contracts when it is anticipated that the 
Government will provide the contractor, for performance of its contract, 
technical data marked with another contractor's restrictive legend(s).
    (d) Use the provision at 252.227-7028, Technical Data or Computer 
Software Previously Delivered to the Government, in solicitations when 
the resulting contract will require the contractor to deliver technical 
data. The provision requires offerors to identify any technical data 
specified in the solicitations as deliverable data items that are the 
same or substantially the same as data items the offeror has delivered 
or is obligated to deliver, either as a contractor or subcontractor, 
under any other federal agency contract.
    (e) Use the following clauses in solicitations and contracts that 
include the clause at 252.227-7013:
    (1) 252.227-7016, Rights in Bid or Proposal Information;
    (2) 252.227-7030, Technical Data--Withholding of Payment;
    (3) 252.227-7036, Declaration of Technical Data Conformity; and

[[Page 221]]

    (4) 252.227-7037, Validation of Restrictive Markings on Technical 
Data (paragraph (e) of the clause contains information that must be 
included in a challenge).

[60 FR 33471, June 28, 1995; 60 FR 41157, Aug. 11, 1995; 60 FR 61598, 
Nov. 30, 1995; 62 FR 2613, Jan. 17, 1997]



Sec. 227.7103-7  Use and non-disclosure agreement.

    (a) Except as provided in paragraph (b) of this subsection, 
technical data or computer software delivered to the Government with 
restrictions on use, modification, reproduction, release, performance, 
display, or disclosure may not be provided to third parties unless the 
intended recipient completes and signs the use and non-disclosure 
agreement at paragraph (c) of this subsection prior to release, or 
disclosure of the data.
    (1) The specific conditions under which an intended recipient will 
be authorized to use, modify, reproduce, release, perform, display, or 
disclose technical data subject to limited rights or computer software 
subject to restricted rights must be stipulated in an attachment to the 
use and non-disclosure agreement.
    (2) For an intended release, disclosure, or authorized use of 
technical data or computer software subject to special license rights, 
modify paragraph (1)(d) of the use and non-disclosure agreement to enter 
the conditions, consistent with the license requirements, governing the 
recipient's obligations regarding use, modification, reproduction, 
release, performance, display or disclosure of the data or software.
    (b) The requirement for use and non-disclosure agreements does not 
apply to Government contractors which require access to a third party's 
data or software for the performance of a Government contract that 
contains the clause at 252.227-7025, Limitations on the Use or 
Disclosure of Government-Furnished Information Marked with Restrictive 
Legends.
    (c) The prescribed use and non-disclosure agreement is:

                    Use and Non-Disclosure Agreement

    The undersigned, ________________ (Insert Name) ________________, an 
authorized representative of the ________________ (Insert Company Name) 
________________, (which is hereinafter referred to as the 
``Recipient'') requests the Government to provide the Recipient with 
technical data or computer software (hereinafter referred to as 
``Data'') in which the Government's use, modification, reproduction, 
release, performance, display or disclosure rights are restricted. Those 
Data are identified in an attachment to this Agreement. In consideration 
for receiving such Data, the Recipient agrees to use the Data strictly 
in accordance with this Agreement:
    (1) The Recipient shall--
    (a) Use, modify, reproduce, release, perform, display, or disclose 
Data marked with government purpose rights or SBIR data rights legends 
only for government purposes and shall not do so for any commercial 
purpose. The Recipient shall not release, perform, display, or disclose 
these Data, without the express written permission of the contractor 
whose name appears in the restrictive legend (the ``Contractor''), to 
any person other than its subcontractors or suppliers, or prospective 
subcontractors or suppliers, who require these Data to submit offers 
for, or perform, contracts with the Recipient. The Recipient shall 
require its subcontractors or suppliers, or prospective subcontractors 
or suppliers, to sign a use and non-disclosure agreement prior to 
disclosing or releasing these Data to such persons. Such agreement must 
be consistent with the terms of this agreement.
    (b) Use, modify, reproduce, release, perform, display, or disclose 
technical data marked with limited rights legends only as specified in 
the attachment to this Agreement. Release, performance, display, or 
disclosure to other persons is not authorized unless specified in the 
attachment to this Agreement or expressly permitted in writing by the 
Contractor. The Recipient shall promptly notify the Contractor of the 
execution of this Agreement and identify the Contractor's Data that has 
been or will be provided to the Recipient, the date and place the Data 
were or will be received, and the name and address of the Government 
office that has provided or will provide the Data.
    (c) Use computer software marked with restricted rights legends only 
in performance of Contract Number ________________ (insert contract 
number(s)) ________________. The recipient shall not, for example, 
enhance, decompile, disassemble, or reverse engineer the software; time 
share, or use a computer program with more than one computer at a time. 
The recipient may not release, perform, display, or disclose such 
software to others unless expressly permitted in writing

[[Page 222]]

by the licensor whose name appears in the restrictive legend. The 
Recipient shall promptly notify the software licensor of the execution 
of this Agreement and identify the software that has been or will be 
provided to the Recipient, the date and place the software were or will 
be received, and the name and address of the Government office that has 
provided or will provide the software.
    (d) Use, modify, reproduce, release, perform, display, or disclose 
Data marked with special license rights legends (To be completed by the 
contracting officer. See 227.7103-7(a)(2). Omit if none of the Data 
requested is marked with special license rights legends).
    (2) The Recipient agrees to adopt or establish operating procedures 
and physical security measures designed to protect these Data from 
inadvertent release or disclosure to unauthorized third parties.
    (3) The Recipient agrees to accept these Data ``as is'' without any 
Government representation as to suitability for intended use or warranty 
whatsoever. This disclaimer does not affect any obligation the 
Government may have regarding Data specified in a contract for the 
performance of that contract.
    (4) The Recipient may enter into any agreement directly with the 
Contractor with respect to the use, modification, reproduction, release, 
performance, display, or disclosure of these Data.
    (5) The Recipient agrees to indemnify and hold harmless the 
Government, its agents, and employees from every claim or liability, 
including attorneys fees, court costs, and expenses arising out of, or 
in any way related to, the misuse or unauthorized modification, 
reproduction, release, performance, display, or disclosure of Data 
received from the Government with restrictive legends by the Recipient 
or any person to whom the Recipient has released or disclosed the Data.
    (6) The Recipient is executing this Agreement for the benefit of the 
Contractor. The Contractor is a third party beneficiary of this 
Agreement who, in addition to any other rights it may have, is intended 
to have the rights of direct action against the Recipient or any other 
person to whom the Recipient has released or disclosed the Data, to seek 
damages from any breach of this Agreement or to otherwise enforce this 
Agreement.
    (7) The Recipient agrees to destroy these Data, and all copies of 
the Data in its possession, no later than 30 days after the date shown 
in paragraph (8) of this Agreement, to have all persons to whom it 
released the Data do so by that date, and to notify the Contractor that 
the Data have been destroyed.
    (8) This Agreement shall be effective for the period commencing with 
the Recipient's execution of this Agreement and ending upon ________ 
(Insert Date) ________. The obligations imposed by this Agreement shall 
survive the expiration or termination of the Agreement.
Recipient's Business Name_______________________________________________
By______________________________________________________________________
Authorized Representative

_______________________________________________________________________
Date

Representative's Typed Name_____________________________________________
and Title_______________________________________________________________

(End of use and non-disclosure agreement)



Sec. 227.7103-8  Deferred delivery and deferred ordering of technical data.

    (a) Deferred delivery. Use the clause at 252.227-7026, Deferred 
Delivery of Technical Data or Computer Software, when it is in the 
Government's interests to defer the delivery of technical data. The 
clause permits the contracting officer to require the delivery of 
technical data identified as ``deferred delivery'' data at any time 
until two years after acceptance by the Government of all items (other 
than technical data or computer software) under the contract or contract 
termination, whichever is later. The obligation of subcontractors or 
suppliers to deliver such technical data expires two years after the 
date the prime contractor accepts the last item from the subcontractor 
or supplier for use in the performance of the contract. The contract 
must specify which technical data is subject to deferred delivery. The 
contracting officer shall notify the contractor sufficiently in advance 
of the desired delivery date for such data to permit timely delivery.
    (b) Deferred ordering. Use the clause at 252.227-7027, Deferred 
Ordering of Technical Data or Computer Software, when a firm requirement 
for a particular data item(s) has not been established prior to contract 
award but there is a potential need for the data. Under this clause, the 
contracting officer may order any data that has been generated in the 
performance of the contract or any subcontract thereunder at any time 
until three years after acceptance of all items (other than technical 
data or computer software) under the contract or contract termination, 
whichever is later. The obligation of subcontractors to deliver such 
data expires three years after the date the contractor accepts the last

[[Page 223]]

item under the subcontract. When the data are ordered, the delivery 
dates shall be negotiated and the contractor compensated only for 
converting the data into the prescribed form, reproduction costs, and 
delivery costs.



Sec. 227.7103-9  Copyright.

    (a) Copyright license. (1) The clause at 252.227-7013, Rights in 
Technical Data--Noncommercial Items, requires a contractor to grant or 
obtain for the Government license rights which permit the Government to 
reproduce data, distribute copies of the data, publicly perform or 
display the data or, through the right to modify data, prepare 
derivative works. The extent to which the Government, and others acting 
on its behalf, may exercise these rights varies for each of the standard 
data rights licenses obtained under the clause. When non-standard 
license rights in technical data will be negotiated, negotiate the 
extent of the copyright license concurrent with negotiations for the 
data rights license. Do not negotiate a copyright license that provides 
less rights than the standard limited rights license in technical data.
    (2) The clause at 252.227-7013 does not permit a contractor to 
incorporate a third party's copyrighted data into a deliverable data 
item unless the contractor has obtained an appropriate license for the 
Government and, when applicable, others acting on the Government's 
behalf, or has obtained the contracting officer's written approval to do 
so. Grant approval to use third party copyrighted data in which the 
Government will not receive a copyright license only when the 
Government's requirements cannot be satisfied without the third party 
material or when the use of the third party material will result in cost 
savings to the Government which outweigh the lack of a copyright 
license.
    (b) Copyright considerations--acquisition of existing and special 
works. See 227.7105 or 227.7106 for copyright considerations when 
acquiring existing or special works.



Sec. 227.7103-10  Contractor identification and marking of technical data to be furnished with restrictive markings.

    (a) Identification requirements. (1) The solicitation provision at 
252.227-7017, Identification and Assertion of Use, Release, or 
Disclosure Restrictions, requires offerors to identify to the 
contracting officer, prior to contract award, any technical data that 
the offeror asserts should be provided to the Government with 
restrictions on use, modification, reproduction, release or disclosure. 
This requirement does not apply to restrictions based solely on 
copyright. The notification and identification must be submitted as an 
attachment to the offer. If an offeror fails to submit the attachment or 
fails to complete the attachment in accordance with the requirements of 
the solicitation provision, such failure shall constitute a minor 
informality. Provide offerors an opportunity to remedy a minor 
informality in accordance with the procedures at FAR 14.405 or 15.607. 
An offeror's failure to correct the informality within the time 
prescribed by the contracting officer shall render the offer ineligible 
for award.
    (2) The procedures for correcting minor informalities shall not be 
used to obtain information regarding asserted restrictions or an 
offeror's suggested asserted rights category. Questions regarding the 
justification for an asserted restriction or asserted rights category 
must be pursued in accordance with the procedures at 227.7103-13.
    (3) The restrictions asserted by a successful offeror shall be 
attached to its contract unless, in accordance with the procedures at 
227.7103-13, the parties have agreed that an asserted restriction is not 
justified. The contract attachment shall provide the same information 
regarding identification of the technical data, the asserted rights 
category, the basis for the assertion, and the name of the person 
asserting the restrictions as required by paragraph (d) of the 
solicitation provision at 252.227-7017. Subsequent to contract award, 
the clause at 252.227-7013, Rights in Technical Data--Noncommercial 
Items, permits the contractor to make

[[Page 224]]

additional assertions under certain conditions. The additional 
assertions must be made in accordance with the procedures and in the 
format prescribed by that clause.
    (4) Neither the pre- or post-award assertions made by the 
contractor, nor the fact that certain assertions are identified in the 
attachment to the contract, determine the respective rights of the 
parties. As provided at 227.7103-13, the Government has the right to 
review, verify, challenge and validate restrictive markings.
    (5) Information provided by offerors in response to the solicitation 
provision may be used in the source selection process to evaluate the 
impact on evaluation factors that may be created by restrictions on the 
Government's ability to use or disclose technical data. However, 
offerors shall not be prohibited from offering products for which the 
offeror is entitled to provide the Government limited rights in the 
technical data pertaining to such products and offerors shall not be 
required, either as a condition of being responsive to a solicitation or 
as a condition for award, to sell or otherwise relinquish any greater 
rights in technical data when the offeror is entitled to provide the 
technical data with limited rights.
    (b) Contractor marking requirements. The clause at 252.227-7013, 
Rights in Technical Data--Noncommercial Items--
    (1) Requires a contractor that desires to restrict the Government's 
rights in technical data to place restrictive markings on the data, 
provides instructions for the placement of the restrictive markings, and 
authorizes the use of certain restrictive markings; and
    (2) Requires a contractor to deliver, furnish, or otherwise provide 
to the Government any technical data in which the Government has 
previously obtained rights with the Government's pre-existing rights in 
that data unless the parties have agreed otherwise or restrictions on 
the Government's rights to use, modify, reproduce, release, perform, 
display, or disclose the data have expired. When restrictions are still 
applicable, the contractor is permitted to mark the data with the 
appropriate restrictive legend for which the data qualified.
    (c) Unmarked technical data. (1) Technical data delivered or 
otherwise provided under a contract without restrictive markings shall 
be presumed to have been delivered with unlimited rights and may be 
released or disclosed without restriction. To the extent practicable, if 
a contractor has requested permission (see paragraph (c)(2) of this 
subsection) to correct an inadvertent omission of markings, do not 
release or disclose the technical data pending evaluation of the 
request.
    (2) A contractor may request permission to have appropriate legends 
placed on unmarked technical data at its expense. The request must be 
received by the contracting officer within six months following the 
furnishing or delivery of such data, or any extension of that time 
approved by the contracting officer. The person making the request must:
    (i) Identify the technical data that should have been marked;
    (ii) Demonstrate that the omission of the marking was inadvertent, 
the proposed marking is justified and conforms with the requirements for 
the marking of technical data contained in the clause at 252.227-7013; 
and
    (iii) Acknowledge, in writing, that the Government has no liability 
with respect to any disclosure, reproduction, or use of the technical 
data made prior to the addition of the marking or resulting from the 
omission of the marking.
    (3) Contracting officers should grant permission to mark only if the 
technical data were not distributed outside the Government or were 
distributed outside the Government with restrictions on further use or 
disclosure.



Sec. 227.7103-11  Contractor procedures and records.

    (a) The clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items, requires a contractor, and its subcontractors or 
suppliers that will deliver technical data with other than unlimited 
rights, to establish and follow written procedures to assure that 
restrictive markings are used only when authorized and to maintain

[[Page 225]]

records to justify the validity of asserted restrictions on delivered 
data.
    (b) The clause at 252.227-7037, Validation of Restrictive Markings 
on Technical Data requires contractors and their subcontractors at any 
tier to maintain records sufficient to justify the validity of 
restrictive markings on technical data delivered or to be delivered 
under a Government contract.



Sec. 227.7103-12  Government right to establish conformity of markings.

    (a) Nonconforming markings. (1) Authorized markings are identified 
in the clause at 252.227-7013, Rights in Technical Data--Noncommercial 
Items. All other markings are nonconforming markings. An authorized 
marking that is not in the form, or differs in substance, from the 
marking requirements in the clause at 252.227-7013 is also a 
nonconforming marking.
    (2) The correction of nonconforming markings on technical data is 
not subject to 252.227-7037, Validation of Restrictive Markings on 
Technical Data. To the extent practicable, the contracting officer 
should return technical data bearing nonconforming markings to the 
person who has placed the nonconforming markings on such data to provide 
that person an opportunity to correct or strike the nonconforming 
marking at that person's expense. If that person fails to correct the 
nonconformity and return the corrected data within 60 days following the 
person's receipt of the data, the contracting officer may correct or 
strike the nonconformity at that person's expense. When it is 
impracticable to return technical data for correction, contracting 
officers may unilaterally correct any nonconforming markings at 
Government expense. Prior to correction, the data may be used in 
accordance with the proper restrictive marking.
    (b) Unjustified markings. (1) An unjustified marking is an 
authorized marking that does not depict accurately restrictions 
applicable to the Government's use, modification, reproduction, release, 
performance, display, or disclosure of the marked technical data. For 
example, a limited rights legend placed on technical data pertaining to 
items, components, or processes that were developed under a Government 
contract either exclusively at Government expense or with mixed funding 
(situations under which the Government obtains unlimited or government 
purpose rights) is an unjustified marking.
    (2) Contracting officers have the right to review and challenge the 
validity of unjustified markings. However, at any time during 
performance of a contract and notwithstanding existence of a challenge, 
the contracting officer and the person who has asserted a restrictive 
marking may agree that the restrictive marking is not justified. Upon 
such agreement, the contracting officer may, at his or her election, 
either--
    (i) Strike or correct the unjustified marking at that person's 
expense; or
    (ii) Return the technical data to the person asserting the 
restriction for correction at that person's expense. If the data are 
returned and that person fails to correct or strike the unjustified 
restriction and return the corrected data to the contracting officer 
within 60 days following receipt of the data, the unjustified marking 
shall be corrected or stricken at that person's expense.



Sec. 227.7103-13  Government right to review, verify, challenge and validate asserted restrictions.

    (a) General. An offeror's assertion(s) of restrictions on the 
Government's rights to use, modify, reproduce, release, or disclose 
technical data do not, by themselves, determine the extent of the 
Government's rights in the technical data. Under 10 U.S.C. 2321, the 
Government has the right to challenge asserted restrictions when there 
are reasonable grounds to question the validity of the assertion and 
continued adherence to the assertion would make it impractical to later 
procure competitively the item to which the data pertain.
    (b) Pre-award considerations. The challenge procedures required by 
10 U.S.C. 2321 could significantly delay awards under competitive 
procurements. Therefore, avoid challenging asserted restrictions prior 
to a competitive contract award unless resolution of the assertion is 
essential for successful completion of the procurement.

[[Page 226]]

    (c) Challenge and validation. Contracting officers must have 
reasonable grounds to challenge the current validity of an asserted 
restriction. Before issuing a challenge to an asserted restriction, 
carefully consider all available information pertaining to the 
assertion. All challenges must be made in accordance with the provisions 
of the clause at 252.227-7037, Validation of Restrictive Markings on 
Technical Data.
    (1) Challenge period. Asserted restrictions should be reviewed 
before acceptance of technical data deliverable under the contract. 
Assertions must be challenged within three years after final payment 
under the contract or three years after delivery of the data, whichever 
is later. However, restrictive markings may be challenged at any time if 
the technical data--
    (i) Are publicly available without restrictions;
    (ii) Have been provided to the United States without restriction; or
    (iii) Have been otherwise made available without restriction other 
than a release or disclosure resulting from the sale, transfer, or other 
assignment of interest in the technical data to another party or the 
sale or transfer of some or all of a business entity or its assets to 
another party.
    (2) Pre-challenge requests for information. (i) After consideration 
of the situation described in paragraph (c)(3) of this subsection, 
contracting officers may request the person asserting a restriction to 
furnish a written explanation of the facts and supporting documentation 
for the assertion in sufficient detail to enable the contracting officer 
to ascertain the basis of the restrictive markings. Additional 
supporting documentation may be requested when the explanation provided 
by the person making the assertion does not, in the contracting 
officer's opinion, establish the validity of the assertion.
    (ii) If the person asserting the restriction fails to respond to the 
contracting officer's request for information or additional supporting 
documentation, or if the information submitted or any other available 
information pertaining to the validity of a restrictive marking does not 
justify the asserted restriction, a challenge should be considered.
    (3)Transacting matters directly with subcontracts. The clause at 
252.227-7037 obtains the contractor's agreement that the Government may 
transact matters under the clause directly with a subcontractor, at any 
tier, without creating or implying privity of contract. Contracting 
officers should permit a subcontractor or supplier to transact challenge 
and validation matters directly with the Government when--
    (i) A subcontractor's or supplier's business interests in its 
technical data would be compromised if the data were disclosed to a 
higher tier contractor;
    (ii) There is reason to believe that the contractor will not respond 
in a timely manner to a challenge and an untimely response would 
jeopardize a subcontractor's or suppliers right to assert restrictions; 
or
    (iii) Requested to do so by a subcontractor or supplier.
    (4) Challenge notice. Do not issue a challenge notice unless there 
are reasonable grounds to question the validity of an assertion. 
Assertions may be challenged whether or not supporting documentation was 
requested from the person asserting the restriction. Challenge notices 
must be in writing and issued to the contractor or, after consideration 
of the situations described in paragraph (c)(3) of this subsection, the 
person asserting the restriction. The challenge notice must include the 
information in paragraph (e) of the clause at 252.227-7037.
    (5) Extension of response time. The contracting officer, at his or 
her discretion, may extend the time for response contained in a 
challenge notice, as appropriate, if the contractor submits a timely 
written request showing the need for additional time to prepare a 
response.
    (6) Contracting officer's final decision. Contracting officers must 
issue a final decision for each challenged assertion, whether or not the 
assertion has been justified.
    (i) A contracting officer's final decision that an assertion is not 
justified must be issued a soon as practicable following the failure of 
the person asserting the restriction to respond to the contracting 
officer's challenge within 60 days, or any extension to

[[Page 227]]

that time granted by the contracting officer.
    (ii) A contracting officer who, following a challenge and response 
by the person asserting the restriction, determines that an asserted 
restriction is justified, shall issue a final decision sustaining the 
validity of the asserted restriction. If the asserted restriction was 
made subsequent to submission of the contractor's offer, add the 
asserted restriction to the contract attachment.
    (iii) A contracting officer who determine that the validity of an 
asserted restriction has not been justified shall issue a contracting 
officer's final decision within the time frames prescribed in 252.227-
7037. As provided in paragraph (g) of that clause, the Government is 
obligated to continue to respect the asserted restrictions through final 
disposition of any appeal unless the agency head notifies the person 
asserting the restriction that urgent or compelling circumstances do not 
permit the Government to continue to respect the asserted restriction.
    (7) Multiple challenges to an asserted restriction. When more than 
one contracting officer challenges an asserted restriction, the 
contracting officer who made the earliest challenge is responsible for 
coordinating the Government challenges. That contracting officer shall 
consult with all other contracting officers making challenges, verify 
that all challenges apply to the same asserted restriction and, after 
consulting with the contractor, subcontractor, or supplier asserting the 
restriction, issue a schedule that provides that person a reasonable 
opportunity to respond to each challenge.
    (8) Validation. Only a contracting officer's final decision, or 
actions of an agency board of contract appeals or a court of competent 
jurisdiction, that sustain the validity of an asserted restriction 
constitute validation of the asserted restriction.



Sec. 227.7103-14  Conformity, acceptance, and warranty of technical data.

    (a) Statutory requirements. 10 U.S.C. 2320--
    (1) Requires contractors to furnish written assurance, at the time 
technical data are delivered or are made available to the Government, 
that the technical data are complete, accurate, and satisfy the 
requirements of the contract concerning such data;
    (2) Provides for the establishment of remedies applicable to 
technical data found to be incomplete, inadequate, or not to satisfy the 
requirements of the contract concerning such data; and
    (3) Authorizes agency heads to withhold payments (or exercise such 
other remedies an agency head considers appropriate) during any period 
if the contractor does not meet the requirements of the contract 
pertaining to the delivery of technical data.
    (b) Conformity and acceptance. (1) Solicitations and contracts 
requiring the delivery of technical data shall specify the requirements 
the data must satisfy to be acceptable. Contracting officers, or their 
authorized representatives, are responsible for determining whether 
technical data tendered for acceptance conform to the contractual 
requirements.
    (2) The clause at 252.227-7030, Technical Data--Withholding of 
Payment, provides for withholding up to 10 percent of the contract price 
pending correction or replacement of the nonconforming technical data or 
negotiation of an equitable reduction in contract price. The amount 
subject to withholding may be expressed as a fixed dollar amount or as a 
percentage of the contract price. In either case, the amount shall be 
determined giving consideration to the relative value and importance of 
the data. For example--
    (i) When the sole purpose of a contract is to produce the data, the 
relative value of that data may be considerably higher than the value of 
data produced under a contract where the production of the data is a 
secondary objective; or
    (ii) When the Government will maintain or repair items, repair and 
maintenance data may have a considerably higher relative value than data 
that merely describe the item or provide performance characteristics.
    (3) Do not accept technical data that do not conform to the 
contractual requirements in all respects. Except for nonconforming 
restrictive markings (see paragraph (b)(4) of this subsection), 
correction or replacement of

[[Page 228]]

nonconforming data or an equitable reduction in contract price when 
correction or replacement of the nonconforming data is not practicable 
or is not in the Government's interests, shall be accomplished in 
accordance with--
    (i) The provisions of a contract clause providing for inspection and 
acceptance of deliverables and remedies for nonconforming deliverables; 
or
    (ii) The procedures at FAR 46.407(c) through (g), if the contract 
does not contain an inspection clause providing remedies for 
nonconforming deliverables.
    (4) Follow the procedures at 227.7103-12(a)(2) if nonconforming 
markings are the sole reason technical data fail to conform to 
contractual requirements. The clause at 252.227-7030 may be used to 
withhold an amount for payment, consistent with the terms of the clause, 
pending correction of the nonconforming markings.
    (c) Warranty. (1) The intended use of the technical data and the 
cost, if any, to obtain the warranty should be considered before 
deciding to obtain a data warranty (see FAR 46.703). The fact that a 
particular item, component, or process is or is not warranted is not a 
consideration in determining whether or not to obtain a warranty for the 
technical data that pertain to the item, component, or process. For 
example, a data warranty should be considered if the Government intends 
to repair or maintain an item and defective repair or maintenance data 
would impair the Government's effective use of the item or result in 
increased costs to the Government.
    (2) As prescribed in 246.710, use the clause at 252.246-7001, 
Warranty of Data, and its alternates, or a substantially similar clause 
when the Government needs a specific warranty of technical data.



Sec. 227.7103-15  Subcontractor rights in technical data.

    (a) 10 U.S.C. 2320 provides subcontractors at all tiers the same 
protection for their rights in data as is provided to prime contractors. 
The clauses at 252.227-7013, Rights in Technical Data--Noncommercial 
Items, and 252.227-7037, Validation of Restrictive Markings on Technical 
Data, implement the statutory requirements.
    (b) 10 U.S.C. 2321 permits a subcontractor to transact directly with 
the Government matters relating to the validation of its asserted 
restrictions on the Government's rights to use or disclose technical 
data. The clause at 252.227-7037 obtains a contractor's agreement that 
the direct transaction of validation or challenge matters with 
subcontractors at any tier does not establish or imply privity of 
contract. When a subcontractor or supplier exercise its right to 
transact validation matters directly with the Government, contracting 
officers shall deal directly with such persons, as provided at 227.7103-
13(c)(3).
    (c) Require prime contractors whose contracts include the following 
clauses to include those clauses, without modification except for 
appropriate identification of the parties, in contracts with 
subcontractors or suppliers, at all tiers, who will be furnishing 
technical data for non-commercial items in response to a Government 
requirement:
    (1) 252.227-7013, Rights in Technical Data--Noncommercial Items;
    (2) 252.227-7025, Limitations on the Use or Disclosure of 
Government-Furnished Information Marked with Restrictive Legends;
    (3) 252.227-7028, Technical Data or Computer Software Previously 
Delivered to the Government; and
    (4) 252.227-7037, Validation of Restrictive Markings on Technical 
Data.
    (d) Do not require contractors to have their subcontractors or 
suppliers at any tier relinquish rights in technical data to the 
contractor, a higher tier subcontractor, or to the Government, as a 
condition for award of any contract, subcontract, purchase order, or 
similar instrument except for the rights obtained by the Government 
under the Rights in Technical Data--Noncommercial Items clause contained 
in the contractor's contract with the Government.

[56 FR 36389, July 31, 1991, as amended at 60 FR 61598, Nov. 30, 1995]

[[Page 229]]



Sec. 227.7103-16  Providing technical data to foreign governments, foreign contractors, or international organizations.

    Technical data may be released or disclosed to foreign governments, 
foreign contractors, or international organizations only if release or 
disclosure is otherwise permitted both by Federal export controls and 
other national security laws or regulations. Subject to such laws and 
regulations, the Department of Defense--
    (a) May release or disclose technical data in which it has obtained 
unlimited rights to such foreign entities or authorize the use of such 
data by those entities; and
    (b) Shall not release or disclose technical data for which 
restrictions on use, release, or disclosure have been asserted to 
foreign entities, or authorize the use of technical data by those 
entities, unless the intended recipient is subject to the same 
provisions as included in the use and non-disclosure agreement at 
227.7103-7 and the requirements of the clause at 252.227-7103, Rights in 
Technical Data--Noncommercial Items, governing use, modification, 
reproduction, release, performance, display, or disclosure of such data 
have been satisfied.



Sec. 227.7103-17  Overseas contracts with foreign sources.

    (a) The clause at 252.227-7032, Rights in Technical Data and 
Computer Software (Foreign), may be used in contracts with foreign 
contractors to be performed overseas, except Canadian purchases (see 
paragraph (c) of this subsection), in lieu of the clause at 252.227-
7013, Rights in Technical Data--Noncommercial Items, when the Government 
requires the unrestricted right to use, modify, reproduce, perform, 
display, release or disclose all technical data to be delivered under 
the contract. Do not use the clause in contracts for existing or special 
works.
    (b) When the Government does not require unlimited rights, the 
clause at 252.227-7032 may be modified to accommodate the needs of a 
specific overseas procurement situation. The Government should obtain 
rights in the technical data that are not less than the rights the 
Government would have obtained under the data rights clause(s) 
prescribed in this part for a comparable procurement performed within 
the United States or its possessions.
    (c) Contracts for Canadian purchases shall include the appropriate 
data rights clause prescribed in this part for a comparable procurement 
performed within the United States or its possessions.



Sec. 227.7104  Contracts under the Small Business Innovation Research (SBIR) Program.

    (a) Use the clause at 252.227-7018, Rights in Noncommercial 
Technical Data and Computer Software--Small Business Innovation Research 
(SBIR) Program, when technical data or computer software will be 
generated during performance of contracts under the SBIR program.
    (b) Under the clause at 252.227-7018, the Government obtains a 
royalty-free license to use technical data marked with an SBIR data 
rights legend only for government purposes during the period commencing 
with contract award and ending five years after completion of the 
project under which the data were generated. Upon expiration of the 
five-year restrictive license, the Government has unlimited rights in 
the SBIR data. During the license period, the Government may not release 
or disclose SBIR data to any person other than its support services 
contractors except--
    (1) For evaluational purposes;
    (2) As expressly permitted by the contractor; or
    (3) A use, release, or disclosure that is necessary for emergency 
repair or overhaul of items operated by the Government.
    (c) Do not make any release or disclosure permitted by paragraph (b) 
of this section unless, prior to release or disclosure, the intended 
recipient is subject to the use and nondisclosure agreement at 227.7103-
7.
    (d) Use the clause at 252.227-7018 with its Alternate I in research 
contracts when the contracting officer determines, in consultation with 
counsel, that public dissemination by the contractor would be--
    (1) In the interest of the Government; and

[[Page 230]]

    (2) Facilitated by the Government relinquishing its right to publish 
the work for sale, or to have others publish the work for sale on behalf 
of the Government.
    (e) Use the following provision and clauses in SBIR solicitations 
and contracts that include the clause at 252.227-7018:
    (1) 252.227-7016, Rights in Bid or Proposal Information;
    (2) 252.227-7017, Identification and Assertion of Use, Release, or 
Disclosure Restrictions;
    (3) 252.227-7019, Validation of Asserted Restrictions--Computer 
Software;
    (4) 252.227-7030, Technical Data--Withholding of Payment;
    (5) 252.227-7036, Declaration of Technical Data Conformity; and
    (6) 252.227-7037, Validation of Restrictive Markings on Technical 
Data (paragraph (e) of the clause contains information that must be 
included in a challenge).
    (f) Use the following clauses and provision in SBIR solicitations 
and contracts in accordance with the guidance at 227.7103-6 (c) and (d):
    (1) 252.227-7025, Limitations on the Use or Disclosure of 
Government-Furnished Information Marked with Restrictive Legends; and
    (2) 252.227-7028, Technical Data or Computer Software Previously 
Delivered to the Government.

[56 FR 36389, July 31, 1991, as amended at 60 FR 61598, Nov. 30, 1995; 
62 FR 2614, Jan. 17, 1997]



Sec. 227.7105  Contracts for the acquisition of existing works.



Sec. 227.7105-1  General.

    (a) Existing works include motion pictures, television recordings, 
video recordings, and other audiovisual works in any medium; sound 
recordings in any medium; musical, dramatic, and literary works; 
pantomimes and choreographic works; pictorial, graphic, and sculptural 
works; and works of a similar nature. Usually, these or similar works 
were not first created, developed, generated, originated, prepared, or 
produced under a Government contract. Therefore, the Government must 
obtain a license in the work if it intends to reproduce the work, 
distribute copies of the work, prepare derivative works, or perform or 
display the work publicly. When the Government is not responsible for 
the content of an existing work, it should require the copyright owner 
to indemnify the Government for liabilities that may arise out of the 
content, performance, use, or disclosure of such data.
    (b) Follow the procedures at 227.7106 for works which will be first 
created, developed, generated, originated, prepared, or produced under a 
Government contract and the Government needs to control distribution of 
the work or has a specific need to obtain indemnity for liabilities that 
may arise out of the creation, content, performance, use, or disclosure 
of the work or from libelous or other unlawful material contained in the 
work. Follow the procedures at 227.7103 when the Government does not 
need to control distribution of such works or obtain such indemnities.



Sec. 227.7105-2  Acquisition of existing works without modification

    (a) Use the clause at 252.227-7021, Rights in Data--Existing Works, 
in lieu of the clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items, in solicitations and contracts exclusively for 
existing works when--
    (1) The existing works will be acquired without modification; and
    (2) The Government requires the right to reproduce, prepare 
derivative works, or publicly perform or display the existing works; or
    (3) The Government has a specific need to obtain indemnity for 
liabilities that may arise out of the content, performance, use, or 
disclosure of such data.
    (b) The clause at 252.227-7021 provides the Government, and others 
acting on its behalf, a paid-up, non-exclusive, irrevocable, world-wide 
license to reproduce, prepare derivative works and publicly perform or 
display the works called for by a contract and to authorize others to do 
so for government purposes.
    (c) A contract clause is not required to acquire existing works such 
as books, magazines and periodicals, in any storage or retrieval medium, 
when the Government will not reproduce the

[[Page 231]]

books, magazines or periodicals, or prepare derivative works.



Sec. 227.7105-3  Acquisition of modified existing works.

    Use the clause at 252.227-7020, Rights in Special Works, in 
solicitations and contracts for modified existing works in lieu of the 
clause at 252.227-7021, Rights in Data--Existing Works.



Sec. 227.7106  Contracts for special works.

    (a) Use the clause at 252.227-7020, Rights in Special Works, in 
solicitations and contracts where the Government has a specific need to 
control the distribution of works first produced, created, or generated 
in the performance of a contract and required to be delivered under that 
contract, including controlling distribution by obtaining an assignment 
of copyright, or a specific need to obtain indemnity for liabilities 
that may arise out of the creation, delivery, use, modification, 
reproduction, release, performance, display, or disclosure of such 
works. Use the clause--
    (1) In lieu of the clause at 252.227-7013, Rights in Technical 
Data--Noncommercial Items, when the Government must own or control 
copyright in all works first produced, created, or generated and 
required to be delivered under a contract; or
    (2) In addition to the clause at 252.227-7013 when the Government 
must own or control copyright in a portion of a work first produced, 
created, or generated and required to be delivered under a contract. The 
specific portion in which the Government must own or control copyright 
must be identified in a special contract requirement.
    (b) Although the Government obtains an assignment of copyright and 
unlimited rights in a special work under the clause at 252.227-7020, the 
contractor retains use and disclosure rights in that work. If the 
Government needs to restrict a contractor's rights to use or disclose a 
special work, it must also negotiate a special license which 
specifically restricts the contractor's use or disclosure rights.
    (c) The clause at 252.227-7020 does not permit a contractor to 
incorporate into a special work any works copyrighted by others unless 
the contractor obtains the contracting officer's permission to do so and 
obtains for the Government a non-exclusive, paid up, world-wide license 
to make and distribute copies of that work, to prepare derivative works, 
to perform or display publicly any portion of the work, and to permit 
others to do so for government purposes. Grant permission only when the 
Government's requirements cannot be satisfied unless the third party 
work is included in the deliverable work.
    (d) Examples of works which may be procured under the Rights in 
Special Works clause include, but are not limited, to audiovisual works, 
computer data bases, computer software documentation, scripts, 
soundtracks, musical compositions, and adaptations; histories of 
departments, agencies, services or units thereof; surveys of Government 
establishments; instructional works or guidance to Government officers 
and employees on the discharge of their official duties; reports, books, 
studies, surveys or similar documents; collections of data containing 
information pertaining to individuals that, if disclosed, would violate 
the right of privacy or publicity of the individuals to whom the 
information relates; or investigative reports.



Sec. 227.7107  Contracts for architect-engineer services.

    This section sets forth policies and procedures, pertaining to data, 
copyrights, and restricted designs unique to the acquisition of 
construction and architect-engineer services.



Sec. 227.7107-1  Architectural designs and data clauses for architect-engineer or construction contracts.

    (a) Except as provided in paragraph (b) of this subsection and in 
227.7107-2, use the clause at 252.227-7022, Government Rights 
(Unlimited), in solicitations and contracts for architect-engineer 
services and for construction involving architect-engineer services.
    (b) When the purpose of a contract for architect-engineer services, 
or for construction involving architect-engineer services, is to obtain 
a unique architectural design of a building, a monument, or construction 
of similar nature, which for artistic, aesthetic or other special 
reasons the Government

[[Page 232]]

does not want duplicated, the Government may acquire exclusive control 
of the data pertaining to the design by including the clause at 252.227-
7023, Drawings and Other Data to Become Property of Government, in 
solicitations and contracts.
    (c) The Government shall obtain unlimited rights in shop drawings 
for construction. In solicitations and contracts calling for delivery of 
shop drawings, include the clause at 252.227-7033, Rights in Shop 
Drawings.



Sec. 227.7107-2  Contracts for construction supplies and research and development work.

    Use the provisions and clauses required by 227-7103-6 and 227.7203-6 
when the acquisition is limited to--
    (a) Construction supplies or materials;
    (b) Experimental, developmental, or research work, or test and 
evaluation studies of structures, equipment, processes, or materials for 
use in construction; or
    (c) Both.



Sec. 227.7107-3  Approval of restricted designs.

    The clause at 252.227-7024, Notice and Approval of Restricted 
Designs, may be included in architect-engineer contracts to permit the 
Government to make informed decisions concerning noncompetitive aspects 
of the design.



Sec. 227.7108  Contractor data repositories.

    (a) Contractor data repositories may be established when permitted 
by agency procedures. The contractual instrument establishing the data 
repository must require, as a minimum, the data repository management 
contractor to--
    (1) Establish and maintain adequate procedures for protecting 
technical data delivered to or stored at the repository from 
unauthorized release or disclosure;
    (2) Establish and maintain adequate procedures for controlling the 
release or disclosure of technical data from the repository to third 
parties consistent with the Government's rights in such data;
    (3) When required by the contracting officer, deliver data to the 
Government on paper or in other specified media;
    (4) Be responsible for maintaining the currency of data delivered 
directly by Government contractors or subcontractors to the repository;
    (5) Obtain use and non-disclosure agreements (see 227.7103-7) from 
all persons to whom government purpose rights data is released or 
disclosed; and
    (6) Indemnify the Government from any liability to data owners or 
licensors resulting from, or as a consequence of, a release or 
disclosure of technical data made by the data repository contractor or 
its officers, employees, agents, or representatives.
    (b) If the contractor is or will be the data repository manager, the 
contractor's data management and distribution responsibilities must be 
identified in the contract or the contract must reference the agreement 
between the Government and the contractor that establishes those 
responsibilities.
    (c) If the contractor is not and will not be the data repository 
manager, do not require a contractor or subcontractor to deliver 
technical data marked with limited rights legends to a data repository 
managed by another contractor unless the contractor or subcontractor who 
has asserted limited rights agrees to release the data to the repository 
or has authorized, in writing, the Government to do so.
    (d) Repository procedures may provide for the acceptance, delivery, 
and subsequent distribution of technical data in storage media other 
than paper, including direct electronic exchange of data between two 
computers. The procedures must provide for the identification of any 
portions of the data provided with restrictive legends, when 
appropriate. The acceptance criteria must be consistent with the 
authorized delivery format.



   Subpart 227.72--Rights in Computer Software and Computer Software 
                              Documentation

    Source: 60 FR 33482, June 28, 1995, unless otherwise noted.



Sec. 227.7200  Scope of subpart.

    This subpart--

[[Page 233]]

    (a) Prescribes policies and procedures for the acquisition of 
computer software and computer software documentation, and the rights to 
use, modify, reproduce, release, perform, display, or disclose such 
software or documentation. It implements requirements in the following 
laws and Executive Order:
    (1) 10 U.S.C. 2302(4).
    (2) 10 U.S.C. 2305 (subsection (d)(4)).
    (3) 10 U.S.C. 2320.
    (4) 10 U.S.C. 2321.
    (5) 10 U.S.C. 2325.
    (6) Executive Order 12591 (subsection 1(b)(6)).
    (b) Does not apply to computer software or computer software 
documentation acquired under GSA schedule contracts.



Sec. 227.7201  Definitions.

    (a) As used in this subpart, unless otherwise specifically 
indicated, the terms ``offeror'' and ``contractor'' include an offeror's 
or contractor's subcontractors, suppliers, or potential subcontractors 
or suppliers at any tier.
    (b) Other terms used in this subpart are defined in the clause at 
252.227-7014, Rights in Noncommercial Computer Software and 
Noncommercial Computer Software Documentation.



Sec. 227.7202  Commercial computer software and commercial computer software documentation.



Sec. 227.7202-1  Policy.

    (a) Commercial computer software or commercial computer software 
documentation shall be acquired under the licenses customarily provided 
to the public unless such licenses are inconsistent with Federal 
procurement law or do not otherwise satisfy user needs.
    (b) Commercial computer software and commercial computer software 
documentation shall be obtained competitively, to the maximum extent 
practicable, using firm-fixed-price contracts or firm-fixed-priced 
orders under available pricing schedules.
    (c) Offerors and contractors shall not be required to--
    (1) Furnish technical information related to commercial computer 
software or commercial computer software documentation that is not 
customarily provided to the public except for information documenting 
the specific modifications made at Government expense to such software 
or documentation to meet the requirements of a Government solicitation; 
or
    (2) Relinquish to, or otherwise provide, the Government rights to 
use, modify, reproduce, release, perform, display, or disclose 
commercial computer software or commercial computer software 
documentation except for a transfer of rights mutually agreed upon.



Sec. 227.7202-2  [Reserved]



Sec. 227.7202-3  Rights in commercial computer software or commercial computer software documentation.

    (a) The Government shall have only the rights specified in the 
license under which the commercial computer software or commercial 
computer software documentation was obtained.
    (b) If the Government has a need for rights not conveyed under the 
license customarily provided to the public, the Government must 
negotiate with the contractor to determine if there are acceptable terms 
for transferring such rights. The specific rights granted to the 
Government shall be enumerated in the contract license agreement or an 
addendum thereto.



Sec. 227.7202-4  Contract clause.

    A specific contract clause governing the Government's rights in 
commercial computer software or commercial computer software 
documentation is not prescribed. As required by 227.7202-3, the 
Government's rights to use, modify, reproduce, release, perform, 
display, or disclose computer software or computer software 
documentation shall be identified in a license agreement.



Sec. 227.7203  Noncommercial computer software and noncommercial computer software documentation.



Sec. 227.7203-1  Policy.

    (a) DoD policy is to acquire only the computer software and computer 
software documentation, and the rights in such software or 
documentation, necessary to satisfy agency needs.
    (b) Solicitations and contracts shall--

[[Page 234]]

    (1) Specify the computer software or computer software documentation 
to be delivered under a contract and the delivery schedules for the 
software or documentation;
    (2) Establish or reference procedures for determining the 
acceptability of computer software or computer software documentation;
    (3) Establish separate contract line items, to the extent 
practicable, for the computer software or computer software 
documentation to be delivered under a contract and require offerors and 
contractors to price separately each deliverable data item; and
    (4) Require offerors to identify, to the extent practicable, 
computer software or computer software documentation to be furnished 
with restrictions on the Government's rights and require contractors to 
identify computer software or computer software documentation to be 
delivered with such restrictions prior to delivery.
    (c) Offerors shall not be required, either as a condition of being 
responsive to a solicitation or as a condition for award, to sell or 
otherwise relinquish to the Government any rights in computer software 
developed exclusively at private expense except for the software 
identified at 227.7203-5(a) (3) through (6).
    (d) Offerors and contractors shall not be prohibited or discouraged 
from furnishing or offering to furnish computer software developed 
exclusively at private expense solely because the Government's rights to 
use, modify, release, reproduce, perform, display, or disclose the 
software may be restricted.



Sec. 227.7203-2  Acquisition of noncommercial computer software and computer software documentation.

    (a) Contracting officers shall work closely with data managers and 
requirements personnel to assure that computer software and computer 
software documentation requirements included in solicitations are 
consistent with the policy expressed in 227.7203-1.
    (b)(1) Data managers or other requirements personnel are responsible 
for identifying the Government's minimum needs. In addition to desired 
software performance, compatibility, or other technical considerations, 
needs determinations should consider such factors as multiple site or 
shared use requirements, whether the Government's software maintenance 
philosophy will require the right to modify or have third parties modify 
the software, and any special computer software documentation 
requirements.
    (2) When reviewing offers received in response to a solicitation or 
other request for computer software or computer software documentation, 
data managers must balance the original assessment of the Government's 
needs with prices offered.
    (c) Contracting officers are responsible for ensuring that, wherever 
practicable, solicitations and contracts--
    (1) Identify the types of computer software and the quantity of 
computer programs and computer software documentation to be delivered, 
any requirements for multiple users at one site or multiple site 
licenses, and the format and media in which the software or 
documentation will be delivered;
    (2) Establish each type of computer software or computer software 
documentation to be delivered as a separate contract line item (this 
requirement may be satisfied by an exhibit to the contract);
    (3) Identify the prices established for each separately priced 
deliverable item of computer software or computer software documentation 
under a fixed-price type contract;
    (4) Include delivery schedules and acceptance criteria for each 
deliverable item; and
    (5) Specifically identify the place of delivery for each deliverable 
item.



Sec. 227.7203-3  Early identification of computer software or computer software documentation to be furnished to the Government with restrictions on use, 
          reproduction or disclosure.

    (a) Use the provision at 252.227-7017, Identification and Assertion 
of Use, Release, or Disclosure Restrictions, in all solicitation that 
include the clause at 252.227-7014, Rights in Noncommercial Computer 
Software and Noncommercial Computer Software Documentation. The 
provision requires offerors to identify any computer software or 
computer software documentation for

[[Page 235]]

which restrictions, other than copyright, on use, modification, 
reproduction, release, performance, display, or disclosure are asserted 
and to attach the identification and assertion to the offer.
    (b) Subsequent to contract award, the clause at 252.227-7014 permits 
a contractor, under certain conditions, to make additional assertions of 
restrictions. The prescriptions for the use of that clause and its 
alternates are at 227.7203-6(a).



Sec. 227.7203-4  License rights.

    (a) Grant of license. The Government obtains rights in computer 
software or computer software documentation, including a copyright 
license, under an irrevocable license granted or obtained by the 
contractor which developed the software or documentation or the licensor 
of the software or documentation if the development contractor is not 
the licensor. The contractor or licensor retains all rights in the 
software or documentation not granted to the Government. The scope of a 
computer software license is generally determined by the source of funds 
used to develop the software. Contractors or licensors may, with some 
exceptions, restrict the Government's rights to use, modify, reproduce, 
release, perform, display, or disclose computer software developed 
exclusively or partially at private expense (see 227.7203-5 (b) and 
(c)). They may not, without the Government's agreement (see 227.7203-
5(d)), restrict the Government's rights in computer software developed 
exclusively with Government funds or in computer software documentation 
required to be delivered under a contract.
    (b) Source of funds determination. The determination of the source 
of funds used to develop computer software should be made at the lowest 
practicable segregable portion of the software or documentation (e.g., a 
software sub-routine that performs a specific function). Contractors may 
assert restricted rights in a segregable portion of computer software 
which otherwise qualifies for restricted rights under the clause at 
252.227-7014, Rights in Noncommercial Computer Software and 
Noncommercial Computer Software Documentation.



Sec. 227.7203-5  Government rights.

    The standard license rights in computer software that a licensor 
grants to the Government are unlimited rights, government purpose 
rights, or restricted rights. The standard license in computer software 
documentation conveys unlimited rights. Those rights are defined in the 
clause at 252.227-7014, Rights in Noncommercial Computer Software and 
Noncommercial Computer Software Documentation. In unusual situations, 
the standard rights may not satisfy the Government's needs or the 
Government may be willing to accept lesser rights in return for other 
consideration. In those cases, a special license may be negotiated. 
However, the licensor is not obligated to provide the Government greater 
rights and the contracting officer is not required to accept lesser 
rights than the rights provided in the standard grant of license. The 
situations under which a particular grant of license applies are 
enumerated in paragraphs (a) through (d) of this subsection.
    (a) Unlimited rights. The Government obtains an unlimited rights 
license in--
    (1) Computer software developed exclusively with Government funds;
    (2) Computer software documentation required to be delivered under a 
Government contract;
    (3) Corrections or changes to computer software or computer software 
documentation furnished to the contractor by the Government;
    (4) Computer software or computer software documentation that is 
otherwise publicly available or has been released or disclosed by the 
contractor or subcontractor without restrictions on further use, release 
or disclosure other than a release or disclosure resulting from the 
sale, transfer, or other assignment of interest in the software to 
another party or the sale or transfer of some or all of a business 
entity or it assets to another party;
    (5) Computer software or computer software documentation obtained 
with unlimited rights under another Government contract or as a result 
of negotiations; or
    (6) Computer software or computer software documentation furnished 
to

[[Page 236]]

the Government, under a Government contract or subcontract with--
    (i) Restricted rights in computer software, limited rights in 
technical data, or government purpose license rights and the restrictive 
conditions have expired; or
    (ii) Government purpose rights and the contractor's exclusive right 
to use such software or documentation for commercial purposes has 
expired.
    (b) Government purpose rights. (1) Except as provided in paragraph 
(a) of this subsection, the Government obtains government purpose rights 
in computer software developed with mixed funding.
    (2) The period during which government purpose rights are effective 
is negotiable. The clause at 252.227-7014 provides a nominal five-year 
period. Either party may request a different period. Changes to the 
government purpose rights period may be made at any time prior to 
delivery of the software without consideration from either party. Longer 
periods should be negotiated when a five-year period does not provide 
sufficient time to commercialize the software or, for software developed 
by subcontractors, when necessary to recognize the subcontractors' 
interests in the software.
    (3) The government purpose rights period commences upon execution of 
the contract, subcontract, letter contract (or similar contractual 
instrument), contract modification, or option exercise that required 
development of the computer software. Upon expiration of the government 
purpose rights period, the Government has unlimited rights in the 
software including the right to authorize others to use data for 
commercial purposes.
    (4) During the government purpose rights period, the Government may 
not use, or authorize other persons to use, computer software marked 
with government purpose rights legends for commercial purposes. The 
Government shall not release or disclose, or authorize others to release 
or disclose, computer software in which it has government purpose rights 
to any person unless--
    (i) Prior to release or disclosure, the intended recipient is 
subject to the use and non-disclosure agreement at 227.7103-7; or
    (ii) The intended recipient is a Government contractor receiving 
access to the software for performance of a Government contract that 
contains the clause at 252.227-7025, Limitations on the Use or 
Disclosure of Government-Furnished Information Marked with Restrictive 
Legends.
    (5) When computer software marked with government purpose rights 
legends will be released or disclosed to a Government contractor 
performing a contract that does not include the clause at 252.227-7025, 
the contract may be modified, prior to release or disclosure, to include 
such clause in lieu of requiring the contractor to complete a use and 
non-disclosure agreement.
    (6) Contracting activities shall establish procedures to assure that 
computer software or computer software documentation marked with 
government purpose rights legends are released or disclosed, including a 
release or disclosure through a Government solicitation, only to persons 
subject to the use and non-disclosure restrictions. Public announcements 
in the Commerce Business Daily or other publications must provide notice 
of the use and non-disclosure requirements. Class use and non-disclosure 
agreements (e.g., agreements covering all solicitations received by the 
XYZ company within a reasonable period) are authorized and may be 
obtained at any time prior to release or disclosure of the government 
purpose rights software or documentation. Documents transmitting 
government purpose rights software or documentation to persons under 
class agreements shall identify the specific software or documentation 
subject to government purpose rights and the class agreement under which 
such software or documentation are provided.
    (c) Restricted rights. (1) The Government obtains restricted rights 
in noncommercial computer software required to be delivered or otherwise 
provided to the Government under a contract that were developed 
exclusively at private expense.
    (2) Contractors are not required to provide the Government 
additional rights in computer software delivered

[[Page 237]]

or otherwise provided to the Government with restricted rights. When the 
Government has a need for additional rights, the Government must 
negotiate with the contractor to determine if there are acceptable terms 
for transferring such rights. List or describe all software in which the 
contractor has granted the Government additional rights in a license 
agreement made part of the contract (see paragraph (d) of this 
subsection). The license shall enumerate the specific additional rights 
granted to the Government.
    (d) Specifically negotiated license rights. Negotiate specific 
licenses when the parties agree to modify the standard license rights 
granted to the Government or when the Government wants to obtain rights 
in computer software in which it does not have rights. When negotiating 
to obtain, relinquish, or increase the Government's rights in computer 
software, consider the planned software maintenance philosophy, 
anticipated time or user sharing requirements, and other factors which 
may have relevance for a particular procurement. If negotiating to 
relinquish rights in computer software documentation, consider the 
administrative burden associated with protecting documentation subject 
to restrictions from unauthorized release or disclosure. The negotiated 
license rights must stipulate the rights granted the Government to use, 
modify, reproduce, release, perform, display, or disclose the software 
or documentation and the extent to which the Government may authorize 
others to do so. Identify all negotiated rights in a license agreement 
made part of the contract.
    (e) Rights in derivative computer software or computer software 
documentation. The clause at 252.227-7014 protects the Government's 
rights in computer software, computer software documentation, or 
portions thereof that the contractor subsequently uses to prepare 
derivative software or subsequently embeds or includes in other software 
or documentation. The Government retains the rights it obtained under 
the development contract in the unmodified portions of the derivative 
software or documentation.



Sec. 227.7203-6  Contract clauses.

    (a)(1) Use the clause at 252.227-7014, Rights in Noncommercial 
Computer Software and Noncommercial Computer Software Documentation, in 
solicitations and contracts when the successful offeror(s) will be 
required to deliver computer software or computer software 
documentation. Do not use the clause when the only deliverable items are 
technical data (other than computer software documentation), commercial 
computer software or commercial computer software documentation, 
commercial items (see 227.7102-3), special works (see 227.7205), or 
contracts under the Small Business Innovative Research Program (see 
227.7104), Except as provided in 227.7107-2, do not use the clause in 
architect-engineer and construction contracts..
    (2) Use the clause at 252.227-7014 with its Alternate I in research 
contracts when the contracting officer determines, in consultation with 
counsel, that public dissemination by the contractor would be--
    (i) In the interest of the Government; and
    (ii) Facilitated by the Government relinquishing its right to 
publish the work for sale, or to have others publish the work for sale 
on behalf of the Government.
    (b) Use the clause at 252.227-7016, Rights in Bid or Proposal 
Information, in solicitations and contracts that include the clause at 
252.227-7014.
    (c) Use the clause at 252.227-7019, Validation of Asserted 
Restrictions--Computer Software, in solicitations and contracts that 
include the clause at 252.227-7014. The clause provides procedures for 
the validation of asserted restrictions on the Government's rights to 
use, release, or disclose computer software.
    (d) Use the provision at 252.227-7025, Limitations on the Use or 
Disclosure of Government-Furnished Information Marked with Restrictive 
Legends, in solicitations and contracts when it is anticipated that the 
Government will provide the contractor, for performance of its contract, 
computer software or computer software documentation marked with another 
contractor's restrictive legend(s).

[[Page 238]]

    (e) Use the provision at 252.227-7028, Technical Data or Computer 
Software Previously Delivered to the Government, in solicitations when 
the resulting contract will require the contractor to deliver computer 
software or computer software documentation. The provision requires 
offerors to identify any software or documentation specified in the 
solicitation as deliverable items that are the same or substantially the 
same as software or documentation which the offeror has delivered or is 
obligated to deliver, either as a contractor or subcontractor, under any 
other federal agency contract.
    (f) Use the clause at 252.227-7037, Validation of Restrictive 
Markings on Technical Data, in solicitations and contracts that include 
the clause at 252.227-7014 when the contractor will be required to 
deliver noncommercial computer software documentation (technical data). 
The clause implements statutory requirements under 10 U.S.C. 2321. 
Paragraph (e) of the clause contains information that must be included 
in a formal challenge.



Sec. 227.7203-7  [Reserved]



Sec. 227.7203-8  Deferred delivery and deferred ordering of computer software and computer software documentation.

    (a) Deferred delivery. Use the clause at 252.227-7026, Deferred 
Delivery of Technical Data or Computer Software, when it is in the 
Government's interests to defer the delivery of computer software or 
computer software documentation. The clause permits the contracting 
officer to require the delivery of data identified as ``deferred 
delivery'' data or computer software at any time until two years after 
acceptance by the Government of all items (other than technical data or 
computer software) under the contract or contract termination, whichever 
is later. The obligation of subcontractors or suppliers to deliver such 
data expires two years after the date the prime contractor accepts the 
last item from the subcontractor or supplier for use in the performance 
of the contract. The contract must specify the computer software or 
computer software documentation that is subject to deferred delivery. 
The contracting officer shall notify the contractor sufficiently in 
advance of the desired delivery date for such software or documentation 
to permit timely delivery.
    (b) Deferred ordering. Use the clause at 252.227-7027, Deferred 
Ordering of Technical Data or Computer Software, when a firm requirement 
for software or documentation has not been established prior to contract 
award but there is a potential need for computer software or computer 
software documentation. Under this clause the contracting officer may 
order any computer software or computer software documentation generated 
in the performance of the contract or any subcontract thereunder at any 
time until three years after acceptance of all items (other than 
technical data or computer software) under the contract or contract 
termination, whichever is later. The obligation of subcontractors to 
deliver such technical data or computer software expires three years 
after the date the contractor accepts the last item under the 
subcontract. When the software or documentation are ordered, the 
delivery dates shall be negotiated and the contractor compensated only 
for converting the software or documentation into the prescribed form, 
reproduction costs, and delivery costs.



Sec. 227.7203-9  Copyright.

    (a) Copyright license. (1) The clause at 252.227-7014, Rights in 
Noncommercial Computer Software and Noncommercial Computer Software 
Documentation, requires a contractor to grant, or obtain for the 
Government license rights which permit the Government to reproduce the 
software or documentation, distribute copies, perform or display the 
software or documentation and, through the right to modify data, prepare 
derivative works. The extent to which the Government, and others acting 
on its behalf, may exercise these rights varies for each of the standard 
data rights licenses obtained under the clause. When non-standard 
license rights in computer software or computer software documentation 
will be negotiated, negotiate the extent of the copyright license 
concurrent with negotiations for the data rights license. Do not 
negotiate copyright licenses for computer software that provide less

[[Page 239]]

rights than the standard restricted rights in computer software license. 
For computer software documentation, do not negotiate a copyright 
license that provides less rights than the standard limited rights in 
technical data license.
    (2) The clause at 252.227-7013, Rights in Technical Data--
Noncommercial Items, does not permit a contractor to incorporate a third 
party's copyrighted software into a deliverable software item unless the 
contractor has obtained an appropriate license for the Government and, 
when applicable, others acting on the Government's behalf, or has 
obtained the contracting officer's written approval to do so. Grant 
approval to use third party copyrighted software in which the Government 
will not receive a copyright license only when the Government's 
requirements cannot be satisfied without the third party material or 
when the use of the third party material will result in cost savings to 
the Government which outweigh the lack of a copyright license.
    (b) Copyright considerations--special works. See 227.7205 for 
copyright considerations when acquiring special works.



Sec. 227.7203-10  Contractor identification and marking of computer software or computer software documentation to be furnished with restrictive markings.

    (a) Identification requirements. (1) The solicitation provision at 
252.227-7017, Identification and Assertion of Use, Release, or 
Disclosure Restrictions, requires offerors to identify, prior to 
contract award, any computer software or computer software documentation 
that an offeror asserts should be provided to the Government with 
restrictions on use, modification, reproduction, release or disclosure. 
This requirement does not apply to restrictions based solely on 
copyright. The notification and identification must be submitted as an 
attachment to the offer. If an offeror fails to submit the attachment or 
fails to complete the attachment in accordance with the requirements of 
the solicitation provision, such failure shall constitute a minor 
informality. Provide offerors an opportunity to remedy a minor 
informality in accordance with the procedures at FAR 14.405 or 15.607. 
An offeror's failure to correct an informality within the time 
prescribed by the contracting officer shall render the offer ineligible 
for award.
    (2) The procedures for correcting minor informalities shall not be 
used to obtain information regarding asserted restrictions or an 
offeror's suggested asserted rights category. Questions regarding the 
justification for an asserted restriction or asserted rights category 
must be pursued in accordance with the procedures at 227.7203-13.
    (3) The restrictions asserted by a successful offeror shall be 
attached to its contract unless, in accordance with the procedures at 
227.7203-13, the parties have agreed that an asserted restriction is not 
justified. The contract attachment shall provide the same information 
regarding identification of the computer software or computer software 
documentation, the asserted rights category, the basis for the 
assertion, and the name of the person asserting the restrictions as 
required by paragraph (d) of the solicitation provision at 252.227-7017. 
Subsequent to contract award, the clause at 252.227-7014, Rights in 
Noncommercial Computer Software and Noncommercial Computer Software 
Documentation, permits a contractor to make additional assertions under 
certain conditions. The additional assertions must be made in accordance 
with the procedures and in the format prescribed by that clause.
    (4) Neither the pre- or post-award assertions made by the contractor 
nor the fact that certain assertions are identified in the attachment to 
the contract, determine the respective rights of the parties. As 
provided at 227.7203-13, the Government has the right to review, verify, 
challenge and validate restrictive markings.
    (5) Information provided by offerors in response to the solicitation 
provision at 252.227-7017 may be used in the source selection process to 
evaluate the impact on evaluation factors that may be created by 
restrictions on the Government's ability to use or disclose computer 
software or computer software documentation.
    (b) Contractor marking requirements. The clause at 252.227-7014, 
Rights in Noncommercial Computer Software

[[Page 240]]

and Noncommercial Computer Software Documentation--
    (1) Requires a contractor who desires to restrict the Government's 
rights in computer software or computer software documentation to place 
restrictive markings on the software or documentation, provides 
instructions for the placement of the restrictive markings, and 
authorizes the use of certain restrictive markings. When it is 
anticipated that the software will or may be used in combat or 
situations which simulate combat conditions, do not permit contractors 
to insert instructions into computer programs that interfere with or 
delay operation of the software to display a restrictive rights legend 
or other license notice; and
    (2) Requires a contractor to deliver, furnish, or otherwise provide 
to the Government any computer software or computer software 
documentation in which the Government has previously obtained rights 
with the Government's pre-existing rights in that software or 
documentation unless the parties have agreed otherwise or restrictions 
on the Government's rights to use, modify, produce, release, or disclose 
the software or documentation have expired. When restrictions are still 
applicable, the contractor is permitted to mark the software or 
documentation with the appropriate restrictive legend.
    (c) Unmarked computer software or computer software documentation. 
(1) Computer software or computer software documentation delivered or 
otherwise provided under a contract without restrictive markings shall 
be presumed to have been delivered with unlimited rights and may be 
released or disclosed without restriction. To the extent practicable, if 
a contractor has requested permission (see paragraph (c)(2) of this 
subsection) to correct an inadvertent omission of markings, do not 
release or disclose the software or documentation pending evaluation of 
the request.
    (2) A contractor may request permission to have appropriate legends 
placed on unmarked computer software or computer software documentation 
at its expense. The request must be received by the contracting officer 
within six months following the furnishing or delivery of such software 
or documentation, or any extension of that time approved by the 
contracting officer. The person making the request must--
    (i) Identify the software or documentation that should have been 
marked;
    (ii) Demonstrate that the omission of the marking was inadvertent, 
the proposed marking is justified and conforms with the requirements for 
the marking of computer software or computer software documentation 
contained in the clause at 252.227-7014; and
    (iii) Acknowledge, in writing, that the Government has no liability 
with respect to any disclosure, reproduction, or use of the software or 
documentation made prior to the addition of the marking or resulting 
from the omission of the marking.
    (3) Contracting officers should grant permission to mark only if the 
software or documentation were not distributed outside the Government or 
were distributed outside the Government with restrictions on further use 
or disclosure.



Sec. 227.7203-11  Contractor procedures and records.

    (a) The clause at 252.227-7014, Rights in Noncommercial Computer 
Software and Noncommercial Computer Software Documentation, requires a 
contractor, and its subcontractors or suppliers that will deliver 
computer software or computer software documentation with other than 
unlimited rights, to establish and follow written procedures to assure 
that restrictive markings are used only when authorized and to maintain 
records to justify the validity of restrictive markings.
    (b) The clause at 252.227-7019, Validation of Asserted 
Restrictions--Computer Software, requires contractors and their 
subcontractors or suppliers at any tier to maintain records sufficient 
to justify the validity of markings that assert restrictions on the use, 
modification, reproduction, release, performance, display, or disclosure 
of computer software.



Sec. 227.7203-12  Government right to establish conformity of markings.

    (a) Nonconforming markings. (1) Authorized markings are identified 
in the

[[Page 241]]

clause at 252.227-7014, Rights in Noncommercial Computer Software and 
Noncommercial Computer Software Documentation. All other markings are 
nonconforming markings. An authorized marking that is not in the form, 
or differs in substance, from the marking requirements in the clause at 
252.227-7014 is also a nonconforming marking.
    (2) The correction of nonconforming markings on computer software is 
not subject to 252.227-7019, Validation of Asserted Restrictions--
Computer Software, and the correction of nonconforming markings on 
computer software documentation (technical data) is not subject to 
252.227-7037, Validation of Restrictive Markings on Technical Data. To 
the extent practicable, the contracting officer should return computer 
software or computer software documentation bearing nonconforming 
markings to the person who has placed the nonconforming markings on the 
software or documentation to provide that person an opportunity to 
correct or strike the nonconforming markings at that person's expense. 
If that person fails to correct the nonconformity and return the 
corrected software or documentation within 60 days following the 
person's receipt of the software or documentation, the contracting 
officer may correct or strike the nonconformity at the person's expense. 
When it is impracticable to return computer software or computer 
software documentation for correction, contracting officers may 
unilaterally correct any nonconforming markings at Government expense. 
Prior to correction, the software or documentation may be used in 
accordance with the proper restrictive marking.
    (b) Unjustified markings. (1) An unjustified marking is an 
authorized marking that does not depict accurately restrictions 
applicable to the Government's use, modification, reproduction, release, 
or disclosure of the marked computer software or computer software 
documentation. For example, a restricted rights legend placed on 
computer software developed under a Government contract either 
exclusively at Government expense or with mixed funding (situations 
under which the Government obtains unlimited or government purpose 
rights) is an unjustified marking.
    (2) Contracting officers have the right to review and challenge the 
validity of unjustified markings. However, at any time during 
performance of a contract and notwithstanding existence of a challenge, 
the contracting officer and the person who has asserted a restrictive 
marking may agree that the restrictive marking is not justified. Upon 
such agreement, the contracting officer may, at his or her election, 
either----
    (i) Strike or correct the unjustified marking at that person's 
expense; or
    (ii) Return the computer software or computer software documentation 
to the person asserting the restriction for correction at that person's 
expense. If the software or documentation are returned and that person 
fails to correct or strike the unjustified restriction and return the 
corrected software or documentation to the contracting officer within 60 
days following receipt of the software or documentation, the unjustified 
marking shall be corrected or stricken at that person's expense.



Sec. 227.7203-13  Government right to review, verify, challenge and validate asserted restrictions.

    (a) General. An offeror's or contractor's assertion(s) of 
restrictions on the Government's rights to use, modify, reproduce, 
release, or disclose computer software or computer software 
documentation do not, by themselves, determine the extent of the 
Government's rights in such software or documentation. The Government 
may require an offeror or contractor to submit sufficient information to 
permit an evaluation of a particular asserted restriction and may 
challenge asserted restrictions when there are reasonable grounds to 
believe that an assertion is not valid.
    (b) Requests for information. Contracting officers should have a 
reason to suspect that an asserted restriction might not be correct 
prior to requesting information. When requesting information, provide 
the offeror or contractor the reason(s) for suspecting that an asserted 
restriction might not

[[Page 242]]

be correct. A need for additional license rights is not, by itself, a 
sufficient basis for requesting information concerning an asserted 
restriction. Follow the procedures at 227.7203-5(d) when additional 
license rights are needed but there is no basis to suspect that an 
asserted restriction might not be valid.
    (c) Transacting matters directly with subcontractors. The clause at 
252.227-7019, Validation of Asserted Restrictions--Computer Software, 
obtains the contractor's agreement that the Government may transact 
matters under the clause directly with a subcontractor or supplier, at 
any tier, without creating or implying privity of contract. Contracting 
officers should permit a subcontractor or supplier to transact challenge 
and validation matters directly with the Government when--
    (1) A subcontractor's or supplier's business interests in its 
technical data would be compromised if the data were disclosed to a 
higher tier contractor.
    (2) There is reason to believe that the contractor will not respond 
in a timely manner to a challenge and an untimely response would 
jeopardize a subcontractor's or supplier's right to assert restrictions; 
or
    (3) Requested to do so by a subcontractor or supplier.
    (d) Challenging asserted restrictions--(1) Pre-award considerations. 
The challenge procedures in the clause at 252.227-7019 could 
significantly delay competitive procurements. Therefore, avoid 
challenging asserted restrictions prior to a competitive contract award 
unless resolution of the assertion is essential for successful 
completion of the procurement.
    (2) Computer software documentation. Computer software documentation 
is technical data. Challenges to asserted restrictions on the 
Government's rights to use, modify, reproduce, release, perform, 
display, or disclose computer software documentation must be made in 
accordance with the clause at 252.227-7037, Validation of Restrictive 
Markings on Technical Data, and the guidance at 227.7103-13. The 
procedures in the clause at 252.227-7037 implement requirements 
contained in 10 U.S.C. 2321. Resolution of questions regarding the 
validity of asserted restrictions using the process described at 
227.7103-12(b)(2) is strongly encouraged.
    (3) Computer software. (i) Asserted restrictions should be reviewed 
before acceptance of the computer software deliverable under a contract. 
The Government's right to challenge an assertion expires three years 
after final payment under the contract or three years after delivery of 
the software, whichever is later. Those limitations on the Government's 
challenge rights do not apply to software that is publicly available, 
has been furnished to the Government without restrictions, or has been 
otherwise made available without restrictions.
    (ii) Contracting officers must have reasonable grounds to challenge 
the current validity of an asserted restriction. Before challenging an 
asserted restriction, carefully consider all available information 
pertaining to the asserted restrictions. Resolution of questions 
regarding the validity of asserted restrictions using the process 
described at 227.7203-12(b)(2) is strongly encouraged. After 
consideration of the situations described in paragraph (c) of this 
subsection, contracting officers may request the person asserting a 
restriction to furnish a written explanation of the facts and supporting 
documentation for the assertion in sufficient detail to enable the 
contracting officer to determine the validity of the assertion. 
Additional supporting documentation may be requested when the 
explanation provided by that person does not, in the contracting 
officer's opinion, establish the validity of the assertion.
    (iii) Assertions may be challenged whether or not supporting 
documentation was requested. Challenges must be in writing and issued to 
the person asserting the restriction.
    (4) Extension of response time. The contracting officer, at his or 
her discretion, may extend the time for response contained in a 
challenge, as appropriate, if the contractor submits a timely written 
request showing the need for additional time to prepare a response.
    (e) Validating or denying asserted restrictions. (1) Contracting 
officers must promptly issue a final decision denying

[[Page 243]]

or sustaining the validity of each challenged assertion unless the 
parties have agreed on the disposition of the assertion. When a final 
decision denying the validity of an asserted restriction is made 
following a timely response to a challenge, the Government is obligated 
to continue to respect the asserted restrictions through final 
disposition of any appeal unless the agency head notifies the person 
asserting the restriction that urgent or compelling circumstances do not 
permit the Government to continue to respect the asserted restriction. 
See 252.227-7019(g) for restrictions applicable following a 
determination of urgent and compelling circumstances.
    (2) Only a contracting officer's final decision, or actions of an 
agency Board of Contract Appeals or a court of competent jurisdiction, 
that sustain the validity of an asserted restriction constitute 
validation of the restriction.
    (f) Multiple challenges to an asserted restriction. When more than 
one contracting officer challenges an asserted restriction, the 
contracting officer who made the earliest challenge is responsible for 
coordinating the Government challenges. That contracting officer shall 
consult with all other contracting officers making challenges, verify 
that all challenges apply to the same asserted restriction and, after 
consulting with the contractor, subcontractor, or supplier asserting the 
restriction, issue a schedule that provides that person a reasonable 
opportunity to respond to each challenge.



Sec. 227.7203-14  Conformity, acceptance, and warranty of computer software and computer software documentation.

    (a) Computer software documentation. Computer software documentation 
is technical data. See 227.7103-14 for appropriate guidance and 
statutory requirements.
    (b) Computer software. (1) Conformity and acceptance. Solicitations 
and contracts requiring the delivery of computer software shall specify 
the requirements the software must satisfy to be acceptable. Contracting 
officers, or their authorized representatives, are responsible for 
determining whether computer software tendered for acceptance conforms 
to the contractual requirements. Except for nonconforming restrictive 
markings (follow the procedures at 227.7203-12(a) if nonconforming 
markings are the sole reason computer software tendered for acceptance 
fails to conform to contractual requirements), do not accept software 
that does not conform in all respects to applicable contractual 
requirements. Correction or replacement of nonconforming software, or an 
equitable reduction in contract price when correction or replacement of 
the nonconforming data is not practicable or is not in the Government's 
interests, shall be accomplished in accordance with--
    (i) The provisions of a contract clause providing for inspection and 
acceptance of deliverables and remedies for nonconforming deliverables; 
or
    (ii) The procedures at FAR 46.407(c) through (g), if the contract 
does not contain an inspection clause providing remedies for 
nonconforming deliverables.
    (2) Warranties--(i) Weapon systems. Computer software that is a 
component of a weapon system or major subsystem should be warranted as 
part of the weapon system warranty. Follow the procedures at 246.770.
    (ii) Non-weapon systems. Approval of the chief of the contracting 
office must be obtained to use a computer software warranty other than a 
weapon system warranty. Consider the factors at FAR 46.703 in deciding 
whether to obtain a computer software warranty. When approval for a 
warranty has been obtained, the clause at 252.246-7001, Warranty of 
Data, and its alternates, may be appropriately modified for use with 
computer software or a procurement specific clause may be developed.



Sec. 227.7203-15  Subcontractor rights in computer software or computer software documentation.

    (a) Subcontractors and suppliers at all tiers should be provided the 
same protection for their rights in computer software or computer 
software documentation as are provided to prime contractors.
    (b) The clauses at 252.227-7019, Validation of Asserted 
Restrictions--Computer Software, and 252.227-7037, Validation of 
Restrictive Markings on

[[Page 244]]

Technical Data, obtain a contractor's agreement that the Government's 
transaction of validation or challenge matters directly with 
subcontractors at any tier does not establish or imply privity of 
contract. When a subcontractor or supplier exercises its right to 
transact validation matters directly with the Government, contracting 
officers shall deal directly with such persons, as provided at 227.7203-
13(c) for computer software and 227.7103-13(c)(3) for computer software 
documentation (technical data).
    (c) Require prime contractors whose contracts include the following 
clauses to include those clauses, without modification except for 
appropriate identification of the parties, in contracts with 
subcontractors or suppliers who will be furnishing computer software in 
response to a Government requirement (see 227.7103-15(c) for clauses 
required when subcontractors or suppliers will be furnishing computer 
software documentation (technical data)):
    (1) 252.227.7014, Rights in Noncommercial Computer Software and 
Noncommercial Computer Software Documentation;
    (2) 252.227.7019, Validation of Asserted Restrictions--Computer 
Software;
    (3) 252.227.7025, Limitations on the Use or Disclosure of Government 
Furnished Information Marked with Restrictive Legends; and
    (4) 252.227.7028, Technical Data or Computer Software Previously 
Delivered to the Government.
    (d) Do not require contractors to have their subcontractors or 
suppliers at any tier relinquish rights in technical data to the 
contractor, a higher tier subcontractor, or to the Government, as a 
condition for award of any contract, subcontract, purchase order, or 
similar instrument except for the rights obtained by the Government 
under the provisions of the Rights in Noncommercial Computer Software 
and Noncommercial Computer Software Documentation clause contained in 
the contractor's contract with the Government.



Sec. 227.7203-16  Providing computer software or computer software documentation to foreign governments, foreign contractors, or international organizations.

    Computer software or computer software documentation may be released 
or disclosed to foreign governments, foreign contractors, or 
international organizations only if release or disclosure is otherwise 
permitted both by Federal export controls and other national security 
laws or regulations. Subject to such laws and regulations, the 
Department of Defense--
    (a) May release or disclose computer software or computer software 
documentation in which it has obtained unlimited rights to such foreign 
entities or authorize the use of such data by those entities; and
    (b) Shall not release or disclose computer software or computer 
software documentation for which restrictions on use, release, or 
disclosure have been asserted to such foreign entities or authorize the 
use of such data by those entities, unless the intended recipient is 
subject to the same provisions as included in the use and non-disclosure 
agreement at 227.7103-7 and the requirements of the clause at 252.227-
7014, Rights in Noncommercial Computer Software and Noncommercial 
Computer Software Documentation, governing use, modification, 
reproduction, release, performance, display, or disclosure of such data 
have been satisfied.



Sec. 227.7203-17  Overseas contracts with foreign sources.

    (a) The clause at 252.227-7032, Rights in Technical Data and 
Computer Software (Foreign), may be used in contracts with foreign 
contractors to be performed overseas, except Canadian purchases (see 
paragraph (c) of this subsection) in lieu of the clause at 252.227-7014, 
Rights in Noncommercial Computer Software and Noncommercial Computer 
Software Documentation, when the Government requires the unrestricted 
right to use, modify, reproduce, release, perform, display, or

[[Page 245]]

disclose all computer software or computer software documentation to be 
delivered under the contract. Do not use the clause in contracts for 
special works.
    (b) When the Government does not require unlimited rights, the 
clause at 252.227-7032 may be modified to accommodate the needs of a 
specific overseas procurement situation. The Government should obtain 
rights to the computer software or computer software documentation that 
are not less than the rights the Government would have obtained under 
the software rights clause(s) prescribed in this part for a comparable 
procurement performed within the United States or its possessions.
    (c) Contracts for Canadian purchases shall include the appropriate 
software rights clause prescribed in this part for a comparable 
procurement performed within the United States or its possessions.



Sec. 227.7204  Contracts under the Small Business Innovative Research Program.

    When contracting under the Small Business Innovative Research 
Program, follow the procedures at 227-7104.



Sec. 227.7205  Contracts for special works.

    (a) Use the clause at 252.227-7020, Rights in Special Works, in 
solicitations and contracts where the Government has a specific need to 
control the distribution of computer software or computer software 
documentation first produced, created, or generated in the performance 
of a contract and required to be delivered under that contract, 
including controlling distribution by obtaining an assignment of 
copyright, or a specific need to obtain indemnity for liabilities that 
may arise out of the creation, delivery, use, modification, 
reproduction, release, performance, display, or disclosure of such 
software or documentation. Use the clause--

    (1) In lieu of the clause at 252.227-7014, Rights in Noncommercial 
Computer Software and Noncommercial Computer Software Documentation, 
when the Government must own or control copyright in all computer 
software or computer software documentation first produced, created, or 
generated and required to be delivered under a contract; or

    (2) In addition to the clause at 252.227-7014 when the Government 
must own or control copyright in some of the computer software or 
computer software documentation first produced, created, or generated 
and required to be delivered under a contract. The specific software or 
documentation in which the Government must own or control copyright must 
be identified in a special contract requirement.

    (b) Although the Government obtains an assignment of copyright and 
unlimited rights in the computer software or computer software 
documentation delivered as a special work under the clause at 252.227-
7020, the contractor retains use and disclosure rights in that software 
or documentation. If the Government needs to restrict a contractor's 
rights to use or disclose a special work, it must also negotiate a 
special license which specifically restricts the contractor's use or 
disclosure rights.

    (c) The clause at 252.227-7020 does not permit a contractor to 
incorporate into a special work any work copyrighted by others unless 
the contractor obtains the contracting officer's permission to do so and 
obtains for the Government a non-exclusive, paid up, world-wide license 
to make and distribute copies of that work, to prepare derivative works, 
to perform or display any portion of that work, and to permit others to 
do so for government purposes. Grant permission only when the 
Government's requirements cannot be satisfied unless the third party 
work is included in the deliverable work.
    (d) Examples of other works which may be procured under the clause 
at 252.227-7020 include, but are not limited to, audiovisual works, 
scripts, soundtracks, musical compositions, and adaptations; histories 
of departments, agencies, services or units thereof; surveys of 
Government establishments; instructional works or guidance to Government 
officers and employees on the discharge of their official duties; 
reports, books, studies, surveys or similar documents; collections of 
data containing information pertaining to individuals that, if 
disclosed, would violate the right of privacy or publicity of the

[[Page 246]]

individuals to whom the information relates; or investigative reports.



Sec. 227.7206  Contracts for architect-engineer services.

    Follow 227.7107 when contracting for architect-engineer services.



Sec. 227.7207  Contractor data repositories.

    Follow 227.7108 when it is in the Government's interests to have a 
data repository include computer software or to have a separate computer 
software repository. Contractual instruments establishing the repository 
requirements must appropriately reflect the repository manager's 
software responsibilities.



PART 228--BONDS AND INSURANCE--Table of Contents




                          Subpart 228.1--Bonds

Sec.
228.102  Performance and payment bonds for construction contracts.
228.102-1  General.
228.105  Other types of bonds.
228.106  Administration.
228.106-7  Withholding contract payments.
228.170  Solicitation provision.

                        Subpart 228.3--Insurance

228.304  Risk-pooling arrangements.
228.305  Overseas workers' compensation and war-hazard insurance.
228.307  Insurance under cost-reimbursement contracts.
228.307-1  Group insurance plans.
228.311  Solicitation provision and contract clause on liability 
          insurance under cost-reimbursement contracts.
228.311-1  Contract clause.
228.370  Additional clauses.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36404, July 31, 1991, unless otherwise noted.



                          Subpart 228.1--Bonds



Sec. 228.102  Performance and payment bonds for construction contracts.



Sec. 228.102-1  General.

    For Defense Environmental Restoration Program construction contracts 
entered into pursuant to 10 U.S.C. 2701 and executed between December 5, 
1991, and December 31, 1999--
    (1) Any rights of action under the performance bond shall only 
accrue to, and be for the exclusive use of, the obligee named in the 
bond.
    (2) In the event of default, the surety's liability on the 
performance bond is limited to the cost of completion of the contract 
work, less the balance of unexpended funds. Under no circumstances shall 
the liability exceed the penal sum of the bond.
    (3) The surety shall not be liable for indemnification or 
compensation of the obligee for loss or liability arising from personal 
injury or property damage, even if the injury or damage was caused by a 
breach of the bonded contract.
    (4) Once it has taken action to meet its obligations under the bond, 
the surety is entitled to any indemnification and identical standard of 
liability to which the contractor was entitled under the contract or 
applicable laws and regulations.
    (a) The requirement for performance and payment bonds is waived for 
cost-reimbursement contracts. However, for cost type contracts with 
fixed-price construction subcontracts over $25,000, require the prime 
contractor to obtain from each of its construction subcontractors--
    (i) A payment bond in favor of the prime contractor sufficient to 
pay labor and material costs; and
    (ii) A performance bond in an equal amount if available at no 
additional cost.

[56 FR 36404, July 31, 1991, as amended at 57 FR 42631, Sept. 15, 1992; 
58 FR 28469, May 13, 1993; 60 FR 29499, June 5, 1995]



Sec. 228.105  Other types of bonds.

    Fidelity and forgery bonds generally are not required but may be 
used when--
    (1) Necessary for the protection of the Government or the 
contractor; or
    (2) The investigative and claims services of a surety company are 
desired.

[[Page 247]]



Sec. 228.106  Administration.



Sec. 228.106-7  Withholding contract payments.

    (a) Withholding may be appropriate in other than construction 
contracts (see 232.970-1(b)).

[57 FR 42707, Sept. 16, 1992]



Sec. 228.170  Solicitation provision.

    When a requirement for a performance bond or other security is 
included in a solicitation for dismantling, demolition, or removal of 
improvements (see FAR 37.300), use the provision at 252.228-7004, Bonds 
or Other Security. Set a period of time (normally ten days) for return 
of executed bonds.



                        Subpart 228.3--Insurance



Sec. 228.304  Risk-pooling arrangements.

    The DoD has established the National Defense Projects Rating Plan, 
also known as the Special Casualty Insurance Rating Plan, as a risk-
pooling arrangement to minimize the cost to the Government of purchasing 
the liability insurance listed in FAR 28.307-2. Use the plan in 
accordance with the following guidelines when it provides the necessary 
coverage more advantageously than commercially available coverage.
    (1) The plan--
    (i) Is implemented by attaching an endorsement to standard insurance 
policy forms for workers' compensation, employer's liability, 
comprehensive general, and automobile liability. The endorsement states 
that the instant policy is subject to the National Defense Projects 
Rating Plan.
    (ii) Applies to eligible Defense projects of one or more 
departments/agencies. For purposes of this section, a Defense project is 
any eligible contract or group of contracts with the same contractor.
    (A) A Defense project is eligible when--
    (1) Eligible contracts represent, at the inception of the plan, at 
least 90 percent of the payroll for the total operations at project 
locations; and
    (2) The annual insurance premium is estimated to be at least 
$10,000.
    (B) A contract is eligible when it is--
    (1) Either domestic or foreign;
    (2) Cost-reimbursement type; or
    (3) Fixed price with redetermination provisions.
    (2) Under construction contracts, include construction 
subcontractors in the prime contractor's plan only when subcontractor 
operations are at the project site, and the subcontract provides that 
the prime contractor will furnish insurance.
    (3) Use the agreement in Table 28-1, Insurance Rating Plan 
Agreement, when the Government assumes contractor premium payments upon 
contract termination or completion.
    (4) The Federal Tort Claims Act provides protection for Government 
employees while driving Government-owned vehicles in the performance of 
their assigned duties. Include the endorsement in Table 28-2, Automobile 
Insurance Policy Endorsement, in automobile liability insurance policies 
provided under the National Defense Projects Rating Plan.

           Table 28-1.--Insurance Rating Plan Rating Agreement

Special Casualty Insurance Rating Plan Assignment-Assumption of Premium 
                               Obligations

    It is agreed that 100 percent * of the return premiums and premium 
refunds (and dividends) due or to become due the prime contractor under 
the policies to which the National Defense Projects Rating Plan 
Endorsement made a part of policy ____________ applies are hereby 
assigned to and shall be paid to the United States of America, and the 
prime contractor directs the Company to make such payments to the office 
designated for contract administration acting for and on account of the 
United States of America.

    * In the event the Government has less than a 100 percent interest 
in premium funds or dividends, modify the assignment to reflect the 
percentage of interest and extent of the Government's assumption of 
additional premium obligation.

    The United States of America hereby assumes and agrees to fulfill 
all present and future obligations of the prime contractor with respect 
to the payment of 100 percent  of the premiums under said policies.
    This agreement, upon acceptance by the prime contractor, the United 
States of America, and the Company shall be effective from ____________
Accepted________________________________________________________________
    (Date)


[[Page 248]]


(Name of Insurance Company)_____________________________________________
By______________________________________________________________________
    (Title of Official Signing)
Accepted________________________________________________________________
    (Date)
        United States of America
By______________________________________________________________________
    (Authorized Representative)
Accepted________________________________________________________________
    (Date)
(Prime Contractor)______________________________________________________
By______________________________________________________________________
    (Authorized Representative)

          Table 28-2.--Automobile Insurance Policy Endorsement

    It is agreed that insurance provided by the policy with respect to 
the ownership, maintenance, or use of automobiles, including loading and 
unloading thereof, does not apply to the following as insureds: The 
United States of America, any of its agencies, or any of its officers or 
employees.



Sec. 228.305  Overseas workers' compensation and war-hazard insurance.

    (d) Submit requests for waiver through department/agency channels. 
Include the following--
    (i) Name and address of contractor;
    (ii) Contract number;
    (iii) Date of award;
    (iv) Place of performance;
    (v) Name of insurance company providing Defense Base Act coverage;
    (vi) Nationality of employees to whom waiver is to apply; and
    (vii) Reason for waiver.



Sec. 228.307  Insurance under cost-reimbursement contracts.



Sec. 228.307-1  Group insurance plans.

    The Defense Department Group Term Insurance Plan is available for 
contractor use under cost-reimbursement type contracts when approved as 
provided in department or agency regulations. A contractor is eligible 
if--
    (a) The number of covered employees is 500 or more; and
    (b) The contractor has all cost-reimbursement contracts; or
    (c) At least 90 percent of the payroll for contractor operations to 
be covered by the Plan is under cost-reimbursement contracts.



Sec. 228.311  Solicitation provision and contract clause on liability insurance under cost-reimbursement contracts.



Sec. 228.311-1  Contract clause.

    Use the clause at FAR 52.228-7, Insurance--Liability to Third 
Persons, in solicitations and contracts, other than those for 
construction and those for architect-engineer services, when a cost-
reimbursement contract is contemplated, unless the head of the 
contracting activity waives the requirement for use of the clause.

[56 FR 36404, July 31, 1991. Redesignated at 61 FR 50454, Sept. 26, 
1996]



Sec. 228.370  Additional clauses.

    (a) Use the clause at 252.228-7000, Reimbursement for War-Hazard 
Losses, when--
    (1) The clause at FAR 52.228-4, Worker's Compensation and War-Hazard 
Insurance Overseas, is used; and
    (2) The head of the contracting activity decides not to allow the 
contractor to buy insurance for war-hazard losses.
    (b)(1) Use the clause at 252.228-7001, Ground and Flight Risk, in 
negotiated fixed-price contracts for aircraft production, modification, 
maintenance, repair, or overhaul, unless--
    (i) The aircraft is being acquired for a foreign military sale and 
the foreign government has not agreed to assume the risk; or
    (ii) The cost of insurance for damage, loss, or destruction of 
aircraft does not exceed $500, and the contracting officer agrees to 
recognize the insurance costs.
    (2) If appropriate, revise the clause at 252.228-7001, Ground and 
Flight Risk, as follows--
    (i) Include a modified definition of ``aircraft'' if the contract 
covers other than conventional types of winged aircraft, i.e., 
helicopters, vertical take-off aircraft, lighter-than-air airships or 
other nonconventional aircraft. The modified definition should describe 
a stage of manufacture comparable to the standard definition.
    (ii) Modify ``in the open'' to include ``hush houses,'' test hangars 
and comparable structures, and other designated areas.
    (iii) Expressly define the ``contractor's premises'' where the 
aircraft will

[[Page 249]]

be located during and for contract performance. These locations may 
include contract premises which are owned, leased, or premises where the 
contractor is a permittee or licensee or has a right to use, including 
Government airfields.
    (iv) Revise paragraph (d)(iii) of the clause to provide Government 
assumption of risk for transportation by conveyance on streets or 
highways when transportation is--
    (A) Limited to the vicinity of contractor premises; and
    (B) Incidental to work performed under the contract.
    (c)(1) Use the clause at 252.228-7002, Aircraft Flight Risk, in cost 
reimbursement contracts--
    (i) For the development, production, modification, maintenance, 
repair, or overhaul of aircraft; or
    (ii) Otherwise involving the furnishing of aircraft to the 
contractor by the Government.
    (iii) With the definition of ``aircraft'' modified, if appropriate, 
to include helicopters, vertical take-off aircraft, lighter-than-air 
airships or other nonconventional aircraft.
    (2) Use the clause at 252.228-7002, Aircraft Flight Risk, 
appropriately modified, in fixed price contracts when--
    (i) The clause at 252.228-7001, Ground and Flight Risk, is not used; 
and
    (ii) Contract performance involves the flight of Government 
furnished aircraft.
    (d) The clause at 252.228-7003, Capture and Detention, may be used 
when contractor employees are subject to capture and detention and may 
not be covered by the War Hazards Compensation Act (42 U.S.C. 1701 et 
seq.).
    (e) The clause at 252.228-7005, Accident Reporting and Investigation 
Involving Aircraft, Missiles, and Space Launch Vehicles, may be used in 
solicitations and contracts which involve the manufacture, modification, 
overhaul, or repair of these items.
    (f) Use the clause at 252.228-7006, Compliance with Spanish Laws and 
Insurance, in solicitations and contracts for services or construction 
to be performed in Spain by other than a Spanish contractor or 
subcontractor.

[56 FR 36404, July 31, 1991, as amended at 57 FR 42631, Sept. 15, 1992; 
62 FR 34125, June 24, 1997]



PART 229--TAXES--Table of Contents




                         Subpart 229.1--General

Sec.
229.101  Resolving tax problems.

                     Subpart 229.4--Contract Clauses

229.402  Foreign contracts.
229.402-1  Foreign fixed-price contracts.
229.402-70  Additional clauses.

        Subpart 229.70--Special Procedures for Overseas Contracts

229.7000  Scope of subpart.
229.7001  Tax exemption in Spain.
229.7002  Tax exemption in the United Kingdom.
229.7002-1  Value added tax.
229.7002-2  Import duty.
229.7002-3  Value added tax or import duty problem resolution.
229.7002-4  Information required by HM Customs and Excise.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36405, July 31, 1991, unless otherwise noted.



                         Subpart 229.1--General



Sec. 229.101  Resolving tax problems.

    (a) Within DoD, the agency-designated legal counsels are the defense 
agency General Counsels, the General Counsels of the Navy and Air Force, 
and for the Army, the Chief, Contract Law Division, Office of the Judge 
Advocate General.
    (c) The contracting officer may direct the contractor to litigate 
the applicability of a particular tax if--
    (i) The contract is either a cost reimbursement type or a fixed 
price type with a tax escalation clause; and
    (ii) The direction is coordinated with the agency-designated legal 
counsel through the DoD Tax Policy and Advisory Group.
    (d)(i) Tax relief agreements between the United States and foreign 
governments in Europe that exempt the United States from payment of 
specific

[[Page 250]]

taxes on purchases made for common defense purposes are maintained by 
the United States European Command (USEUCOM). For further information 
contact HQ USEUCOM, ATTN: ECLA, Unit 30400, Box 1000, APO AE 09128; 
Telephone: DSN 430-8001/7263, Commercial 49-0711-680-8001/7263; Telefax. 
49-0711-680-5732.
    (ii) Tax relief also may be available in countries that have not 
signed tax relief agreements. The potential for such relief should be 
explored in accordance with paragraph (d)(iii) of this section.
    (iii) Review DoDD 5100.64, Department of Defense Foreign Tax Relief 
Program, before contracting with a foreign source. Refer questions on 
implementation of the program to the Commanding Officers in Table 29-1, 
Designated Commanding Officers, which have been designated under 
subsection E.7 of DoDD 5100.64 to serve as--
    (A) Single point of contact for U.S. contracting offices for 
investigation and resolution of specific foreign tax relief matters; and
    (B) Liaison with responsible diplomatic mission and local foreign 
tax authorities.
    (iv) Refer foreign tax relief questions which have not been resolved 
by the designated Commanding Officer to the agency-designated legal 
counsel.
    (v) When an acquisition is for a contract to be performed in a 
country or area listed in Table 29-1, Designated Commanding Officers--
    (A) Obtain from the designated Commanding Officer detailed 
information concerning the taxes and duties from which the Government of 
the United States is exempt, and
    (B) Provide the information to prospective offerors.
    (C) Do not provide prospective offerors any other information about 
foreign taxes or duties.
    (D) Issue tax exemption certificates, as appropriate, to assist the 
contractor in obtaining relief from foreign taxes and duties which were 
excluded from the contract price.
    (E) Seek advice and assistance from the designated Commanding 
Officer and, if necessary, the agency-designated legal counsel if the 
contractor notifies the contracting officer that it has been assessed a 
tax or duty by a foreign government which could increase the contract 
price.
    (vi) Also see subpart 229.70 for special procedures for obtaining 
tax relief and duty-free import privileges when conducting U.S. 
Government acquisitions in certain foreign countries.

               Table 29-1--Designated Commanding Officers
------------------------------------------------------------------------
                                                Designated commanding
              Country or area                          officer
------------------------------------------------------------------------
Australia.................................  Commander in Chief, Pacific
                                             Representative, Australia.
Azores....................................  Commander, U.S. Forces,
                                             Azores.
Bahrain...................................  Commander in Chief, U.S.
                                             Naval Forces, Europe.
Belgium...................................  Commander in Chief, U.S.
                                             Army, Europe.
Bermuda...................................  Commanding Officer, U.S.
                                             Naval Air Station, Bermuda.
Canada....................................  Commander, Space Command.
Caribbean Islands (including Bahamas).....  Commander, Antilles Defense
                                             Command.
Denmark...................................  Commander in Chief, U.S. Air
                                             Forces, Europe.
Ethiopia..................................  Commander in Chief, U.S.
                                             Army, Europe.
France....................................  Commander in Chief, U.S.
                                             Army, Europe.
Germany...................................  Commander in Chief, U.S.
                                             Army, Europe.
Greece....................................  Commander in Chief, U.S. Air
                                             Forces, Europe.
Greenland.................................  Commander, Space Command.
Iceland...................................  Commander, Iceland Defense
                                             Force.
Iran......................................  Commander in Chief, U.S.
                                             Army, Europe.
Italy.....................................  Commander in Chief, U.S.
                                             Naval Forces, Europe.
Japan.....................................  Commander, U.S. Forces,
                                             Japan.
Korea.....................................  Commander, U.S. Forces,
                                             Korea.
Luxembourg................................  Commander in Chief, U.S.
                                             Army, Europe.
Morocco...................................  Commander in Chief, U.S.
                                             Naval Forces, Europe.
Netherlands...............................  Commander in Chief, U.S. Air
                                             Forces, Europe.
New Zealand...............................  Commander, U.S. Naval
                                             Support Forces, Antarctica.
Norway....................................  Commander in Chief, U.S. Air
                                             Forces, Europe.
Philippines...............................  Commander in Chief, Pacific
                                             Representative,
                                             Philippines.
Portugal..................................  Commander in Chief, U.S.
                                             Naval Forces, Europe.
Spain.....................................  Commander in Chief, U.S. Air
                                             Forces, Europe.
Taiwan....................................  Commander, U.S. Military
                                             Assistance Command,
                                             Thailand.
Turkey....................................  Commander in Chief, U.S. Air
                                             Forces, Europe.
United Kingdom............................  Commander in Chief, U.S. Air
                                             Forces, Europe.
------------------------------------------------------------------------


[56 FR 36405, July 31, 1991, as amended at 62 FR 34125, June 24, 1997; 
63 FR 11535, Mar. 9, 1998]



                     Subpart 229.4--Contract Clauses

    Source:  62 FR 34125, June 24, 1997, unless otherwise noted.

[[Page 251]]



Sec. 229.402  Foreign contracts.



Sec. 229.402-1  Foreign fixed-price contracts.

    Use the clause at 252.229-7000, Invoices Exclusive of Taxes or 
Duties, in solicitations and contracts when a fixed-price contract will 
be awarded to a foreign concern.



Sec. 229.402-70  Additional clauses.

    (a) Use the clause at 252.229-7001, Tax Relief, in solicitations and 
contracts when a contract will be awarded to a foreign concern in a 
foreign country. When contract performance will be in Germany, use the 
clause with its Alternate I.
    (b) Use the clause at 252.229-7002, Customs Exemptions (Germany), in 
solicitations and contracts requiring the import of U.S. manufactured 
products into Germany.
    (c) Use the clause at 252.229-7003, Tax Exemptions (Italy), in 
solicitations and contracts when contract performance will be in Italy.
    (d) Use the clause at 252.229-7004, Status of Contractor as a Direct 
Contractor (Spain), in solicitations and contracts requiring the import 
into Spain of supplies for construction, development, maintenance, or 
operation of Spanish-American installations and facilities.
    (e) Use the clause at 252.229-7005, Tax Exemptions (Spain), in 
solicitations and contracts when contract performance will be in Spain.
    (f) Use the clause at 252.229-7006, Value Added Tax Exclusion 
(United Kingdom), in solicitations and contracts when contract 
performance will be in the United Kingdom.
    (g) Use the clause at 252.229-7007, Verification of United States 
Receipt of Goods, in solicitations and contracts when contract 
performance will be in the United Kingdom.
    (h) Use the clause at 252.229-7008, Relief from Import Duty (United 
Kingdom), in solicitations issued and contracts awarded in the United 
Kingdom.
    (i) Use the clause at 252.229-7009, Relief from Customs Duty and 
Value Added Tax on Fuel (Passenger Vehicles) (United Kingdom), in 
solicitations issued and contracts awarded in the United Kingdom for 
fuels (gasoline or diesel) and lubricants used in passenger vehicles 
(excluding taxis).
    (j) Use the clause at 252.229-7010, Relief from Customs Duty on Fuel 
(United Kingdom), in solicitations issued and contracts awarded in the 
United Kingdom that require the use of fuels (gasoline or diesel) and 
lubricants in taxis or vehicles other than passenger vehicles.



        Subpart 229.70--Special Procedures for Overseas Contracts

    Source:  62 FR 34125, June 24, 1997, unless otherwise noted.



Sec. 229.7000  Scope of subpart.

    This subpart prescribes procedures to be used by contracting 
officers to obtain tax relief and duty-free import privileges when 
conducting U.S. Government acquisitions in certain foreign countries.



Sec. 229.7001  Tax exemption in Spain.

    (a) The Joint United States Military Group (JUSMG), Spain Policy 
Directive 400.4, or subsequent directive, applies to U.S. contracting 
offices acquiring supplies or services in Spain when the introduction of 
material or equipment into Spain is required for contract performance.
    (b) Upon award of a contract with a Direct Contractor, as defined in 
the clause at 252.229-7004, the contracting officer will notify JUSMG-
MAAG Madrid, Spain, and HQ 16AF/LGTT and forward three copies of the 
contract to JUSMG-MAAG, Spain.
    (c) If copies of the contract are not available and duty-free import 
of equipment or materials is urgent, the contracting officer will send 
JUSMG-MAAG three copies of the Letter of Intent or a similar document 
indicating the pending award. In these cases, authorization for duty-
free import will be issued by the Government of Spain. Upon formal 
award, the contracting officer will forward three copies of the 
completed contract to JUSMG-MAAG, Spain.
    (d) The contracting officer will notify JUSMG-MAAG, Spain, and HQ 
16AF/LGTT of ports-of-entry and identify the customs agents who will 
clear property on their behalf. Additional

[[Page 252]]

documents required for port-of-entry and customs clearance can be 
obtained by contacting HQ 16AF/LGTT. This information will be passed to 
the Secretaria General Tecnica del Ministerio de Hacienda (Technical 
General Secretariat of the Ministry of Finance). A list of customs 
agents may be obtained from the 600 ABG, APO AE 90646.



Sec. 229.7002  Tax exemption in the United Kingdom.

    This section contains procedures to be followed in securing relief 
from the British value added tax and import duties.



Sec. 229.7002-1  Value added tax.

    (a) U.S. Government purchases qualifying for tax relief are 
equipment, materials, facilities, and services for the common defense 
effort and for foreign aid programs.
    (b) To facilitate the resolution of issues concerning specific 
waivers of import duty or tax exemption for U.S. Government purchases 
(see 229.7002-3), contracting offices shall provide the name and 
activity address of personnel who have been granted warranted 
contracting authority to Her Majesty's (HM) Customs and Excise at the 
following address: HM Customs and Excise, International Customs Division 
G, Branch 4, Adelaide House, London Bridge, London EC4R 9DB.



Sec. 229.7002-2  Import duty.

    No import duty shall be paid by the United States and contract 
prices shall be exclusive of duty, except when the administrative cost 
compared to the low dollar value of a contract makes it impracticable to 
obtain relief from contract import duty. In this instance, the 
contracting officer shall document the contract file with a statement 
that--
    (a) The administrative burden of securing tax relief under the 
contract was out of proportion to the tax relief involved;
    (b) It is impracticable to secure tax relief;
    (c) Tax relief is therefore not being secured; and
    (d) The acquisition does not involve the expenditure of any funds to 
establish a permanent military installation.



Sec. 229.7002-3  Value added tax or import duty problem resolution.

    In the event a value added tax or import duty problem cannot be 
resolved at the contracting officer's level, refer the issue to HQ Third 
Air Force, Staff Judge Advocate, Unit 4840, Box 45, APO AE 09459. Direct 
contact with HM Customs and Excise in London is prohibited.



Sec. 229.7002-4  Information required by HM Customs and Excise.

    (a) School bus contacts. Provide one copy of the contract and all 
modifications to HM Customs and Excise.
    (b) Road fuel contracts. For contracts that involve an application 
for relief from duty on the road fuel used in performance of the 
contract, provide--
    (1) To HM Customs and Excise--
    (i) Contract number;
    (ii) Name and address of contractor;
    (iii) Type of work (e.g., laundry, transportation);
    (iv) Area of work; and
    (v) Period of performance.
    (2) To the regional office of HM Custom and Excise to which the 
contractor applied for relief from the duty on road fuel--copy of the 
contract.
    (c) Other contracts awarded to United Kingdom firms. Provide 
information when requested by HM Customs and Excise.



PART 230--COST ACCOUNTING STANDARDS--Table of Contents




    Subpart 230.70--Facilities Capital Employed for Facilities in Use

Sec.
230.7000  Contract facilities capital estimates.
230.7001  Use of DD Form 1861.
230.7001-1  Purpose.
230.7001-2  Completion instructions.
230.7002  Preaward facilities capital applications.
230.7003  Postaward facilities capital applications.
230.7003-1  Interim billings based on costs incurred.
230.7003-2  Final settlement.
230.7004  Administrative procedures.
230.7004-1  Forms CASB-CMF.

[[Page 253]]

230.7004-2  DD Form 1861.

    Subpart 230.71--Facilities Capital Employed for Facilities Under 
                              Construction

230.7100  Definitions.
230.7101  Calculations.
230.7101-1  Cost of money.
230.7101-2  Representative investment.
230.7102  Determining imputed cost of money.
230.7103  Preaward capital employed application.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36406, July 31, 1991, unless otherwise noted.



    Subpart 230.70--Facilities Capital Employed for Facilities in Use



Sec. 230.7000  Contract facilities capital estimates.

    (a) The contracting officer will estimate the facilities capital 
cost of money and capital employed using--
    (1) An analysis of the appropriate Forms CASB-CMF and cost of money 
factors; and
    (2) DD Form 1861, Contract Facilities Capital Cost of Money.



Sec. 230.7001  Use of DD Form 1861.



Sec. 230.7001-1  Purpose.

    The DD Form 1861 provides a means of linking the Form CASB-CMF and 
DD Form 1547, Record of Weighted Guidelines Application. It--
    (a) Enables the contracting officer to differentiate profit 
objectives for various types of assets (land, buildings, equipment). The 
procedure is similar to applying overhead rates to appropriate overhead 
allocation bases to determine contract overhead costs.
    (b) Is designed to record and compute the contract facilities 
capital cost of money and capital employed which is carried forward to 
DD Form 1547.



Sec. 230.7001-2  Completion instructions.

    Complete a DD Form 1861 only after evaluating the contractor's cost 
proposal, establishing cost of money factors, and establishing a 
prenegotiation objective on cost. Complete the form as follows:
    (a) List overhead pools and direct-charging service centers (if 
used) in the same structure as they appear on the contractor's cost 
proposal and Form CASB-CMF. The structure and allocation base units-of-
measure must be compatible on all three displays.
    (b) Extract appropriate contract overhead allocation base data, by 
year, from the evaluated cost breakdown or prenegotiation cost objective 
and list against each overhead pool and direct-charging service center.
    (c) Multiply each allocation base by its corresponding cost of money 
factor to get the facilities capital cost of money estimated to be 
incurred each year. The sum of these products represents the estimated 
contract facilities capital cost of money for the year's effort.
    (d) Total contract facilities cost of money is the sum of the yearly 
amounts.
    (e) Since the facilities capital cost of money factors reflect the 
applicable cost of money rate in Column 1 of Form CASB-CMF, divide the 
contract cost of money by that same rate to determine the contract 
facilities capital employed.



Sec. 230.7002  Preaward facilities capital applications.

    To establish cost and price objectives, apply the facilities capital 
cost of money and capital employed, as determined under 230.7000, as 
follows:
    (a) Cost of Money--(1) Cost Objective. Use the imputed facilities 
capital cost of money, with normal, booked costs, to establish a cost 
objective or the target cost when structuring an incentive type 
contract. Do not adjust target costs established at the outset even 
though actual cost of money rates become available during the period of 
contract performance.
    (2) Profit Objective. When measuring the contractor's effort for the 
purpose of establishing a prenegotiation profit objective, restrict the 
cost base to normal, booked costs. Do not include cost of money as part 
of the cost base.
    (b) Facilities Capital Employed. Assess and weight the profit 
objective or risk associated with facilities capital employed in 
accordance with the profit guidelines at 215.970-1(c).

[[Page 254]]



Sec. 230.7003  Postaward facilities capital applications.



Sec. 230.7003-1  Interim billings based on costs incurred.

    (a) The contractor may include contract facilities capital cost of 
money in cost reimbursement and progress payment invoices. To determine 
the amount that qualifies as cost incurred, multiply the incurred 
portions of the overhead pool allocation bases by the latest available 
cost of money factors. These cost of money calculations are interim 
estimates subject to adjustment.
    (b) As actual cost of money factors under CAS 414 and FAR 31.205-10 
are finalized, use the new factors to calculate contract facilities cost 
of money for the next accounting period.



Sec. 230.7003-2  Final settlement.

    (a) Contract facilities capital cost of money for final cost 
determination or repricing is based on each year's final cost of money 
factors determined under CAS 414 and supported by separate Forms CASB-
CMF.
    (b) Separately compute contract facilities cost of money in a manner 
similar to yearly final overhead rates. Also like overhead costs, 
include in the final settlement an adjustment from interim to final 
contract cost of money. Do not, however, adjust estimated or target 
cost.



Sec. 230.7004  Administrative procedures.



Sec. 230.7004-1  Forms CASB-CMF.

    (a) Forms CASB-CMF are normally initiated by the contractor under 
the same circumstances as Forward Pricing Rate Agreements (see FAR 
15.809) and evaluated as complementary documents and procedures.
    (b) Separate forms are required for each prospective cost accounting 
period of contract performance.
    (c) The contractor may submit annually or with individual contract 
price proposals, as agreed with the administrative contracting officer 
(ACO).
    (d) The contractor must submit a final form under CAS 414 as soon as 
possible after the end of each accounting period, together with a 
proposal for actual overhead costs and rates.



Sec. 230.7004-2  DD Form 1861.

    (a) The contracting officer may ask the ACO to complete the forms as 
part of field pricing support.
    (b) When the Weighted Guidelines Method is used, completion of the 
DD Form 1861 requires information not included on the Form CASB-CMF, 
i.e., distribution percentages of land, building, and equipment for the 
business unit performing the contract. Choose the most practical method 
for obtaining this information, for example--
    (1) Contract administration offices could obtain the information 
through the process used to establish factors for facilities capital 
cost of money or could establish advance agreements on distribution 
percentages for inclusion in field pricing reports;
    (2) The corporate ACO could obtain distribution percentages; or
    (3) The contracting officer could request the information through a 
solicitation provision.



    Subpart 230.71--Facilities Capital Employed for Facilities Under 
                              Construction



Sec. 230.7100  Definitions.

    (a) Intangible capital asset is an asset that has no physical 
substance, has more than minimal value, and is expected to be held by an 
enterprise for continued use or possession beyond the current accounting 
period for the benefit it yields.
    (b) Tangible capital asset is an asset that has physical substance, 
more than minimal value, and is expected to be held by an enterprise for 
continued use or possession beyond the current accounting period for the 
service it yields.
    (c) Cost of money rate is either--
    (1) The interest rate determined by the Secretary of the Treasury 
under Public Law 92-41 (85 Stat. 97); or
    (2) The time-weighted average of the interest rate for each cost 
accounting period during which the asset is being constructed, 
fabricated, or developed.
    (d) Representative investment is the calculated amount considered 
invested by the contractor during the cost accounting period to 
construct, fabricate, or develop the asset.

[[Page 255]]



Sec. 230.7101  Calculations.



Sec. 230.7101-1  Cost of money.

    (a) The interest rate in 230.7100(c)(1) is established semi-annually 
and is published in the Federal Register during the fourth week of 
December and June.
    (b) To calculate the time-weighted average interest rate--
    (1) Multiply the various rates in effect during the months of 
construction by the number of months each rate was in effect; and
    (2) Divide the sum of the products by the total number of months in 
which the rates were experienced.



Sec. 230.7101-2  Representative investment.

    (a) The calculation of the representative investment requires 
consideration of the rate or expenditure pattern of the costs to 
construct, fabricate, or develop a capital asset.
    (b) If a majority of the costs were incurred toward the beginning, 
middle, or end of the cost accounting period, the contractor shall 
either--
    (1) Determine a representative investment amount for the cost 
accounting period by calculating the average of the month-end balances 
for that cost accounting period; or
    (2) Treat month-end balances as individual representative investment 
amounts.
    (c) If the costs were incurred in a fairly uniform expenditure 
pattern throughout the construction, fabrication, or development period, 
the contractor may--
    (1) Determine a representative investment amount for the cost 
accounting period by averaging the beginning and ending balances of the 
construction, fabrication, or development cost account for the cost 
accounting period; or
    (2) Treat month-end balances as individual representative investment 
amounts.



Sec. 230.7102  Determining imputed cost of money.

    (a) Determine the imputed cost of money for an asset under 
construction, fabrication, or development by applying a cost of money 
rate (see 230.7101-1) to the representative investment amount (see 
230.7101-2).
    (1) When a representative investment amount is determined for a cost 
accounting period in accordance with 230.7101-2(b)(1) or 230.7101-
2(c)(1), the cost of money will be the time-weighted average rate.
    (2) When a monthly representative investment amount is used in 
accordance with 230.7101-2(b)(2) or 230.7101-2(c)(2), the cost of money 
will be the interest rate in effect each month. (Under this method, the 
cost of money is determined monthly and the total for the cost 
accounting period is the sum of the monthly amounts.)
    (b) The imputed cost of money will be capitalized only once in any 
cost accounting period, either at the end of the period or at the end of 
the construction, fabrication, or development period, whichever comes 
first.
    (c) When the construction of an asset takes more than one cost 
accounting period, the cost of money capitalized for the first cost 
accounting period will be included in determining the representative 
investment amount for any future cost accounting periods.



Sec. 230.7103  Preaward capital employed application.

    An offset to the profit objectives as set forth in FAR Subpart 15.9 
is not required for CAS 417 cost of money.



PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents




                      Subpart 231.1--Applicability

Sec.
231.100  Scope of subpart.
231.100-70  Contract clause.

         Subpart 231.2--Contracts With Commercial Organizations

231.205  Selected costs.
231.205-6  Compensation for personal services.
231.205-10  Cost of money.
231.205-18  Independent research and development and bid and proposal 
          costs.
231.205-22  Legislative lobbying costs.
231.205-70  External restructuring costs.

         Subpart 231.3--Contracts With Educational Institutions

231.303  Requirements.

[[Page 256]]

  Subpart 231.6--Contracts With State, Local, and Federally Recognized 
                        Indian Tribal Governments

231.603  Requirements.

          Subpart 231.7--Contracts With Nonprofit Organizations

231.703  Requirements.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36408, July 31, 1991, unless otherwise noted.



                      Subpart 231.1--Applicability



Sec. 231.100  Scope of subpart.



Sec. 231.100-70  Contract clause.

    Use the clause at 252.231-7000, Supplemental Cost Principles, in all 
solicitations and contracts which are subject to the principles and 
procedures described in FAR subpart 31.1, 31.2, 31.6, or 31.7.

[59 FR 27672, May 27, 1994]



         Subpart 231.2--Contracts With Commercial Organizations



Sec. 231.205  Selected costs.



Sec. 231.205-6  Compensation for personal services.

    (f)(1) In accordance with Section 8122 of Pub. L. 104-61, and 
similar sections in subsequent Defense appropriations acts, costs for 
bonuses or other payments in excess of the normal salary paid by the 
contractor to an employee, that are part of restructuring costs 
associated with a business combination, are unallowable under DoD 
contracts funded by fiscal year 1996 or subsequent appropriations. This 
limitation does not apply to severance payments or early retirement 
incentive payments. (See 231.205-70(b) for the definitions of ``business 
combination'' and ``restructuring costs.'')

[57 FR 53600, Nov. 12, 1992, as amended at 58 FR 28469, May 13, 1993; 60 
FR 2331, Jan. 9, 1995; 60 FR 61598, Nov. 30, 1995; 61 FR 7077, Feb. 26, 
1996; 61 FR 36306, July 10, 1996; 61 FR 50454, Sept. 26, 1996; 61 FR 
58490, Nov. 15, 1996; 61 FR 65479, Dec. 13, 1996; 62 FR 63036, Nov. 26, 
1997; 63 FR 14641, Mar. 26, 1998]



Sec. 231.205-10  Cost of money.

    The contractor also must comply with subpart 230.70 and maintain 
records to demonstrate compliance.



Sec. 231.205-18  Independent research and development and bid and proposal costs.

    (c)(1)(i)(C)(1) Total incurred IR&D/B&P costs, including total IR&D/
B&P ceiling amounts which are negotiated pursuant to FAR 31.205-
18(c)(1), are fully allocable to all final cost objectives of the 
contractor. The amount of IR&D/B&P costs allowable under contracts which 
are subject to advance agreements negotiated by DoD shall not exceed the 
lesser of--
    (i) Such contracts' allocable share of incurred IR&D/B&P costs;
    (ii) Such contracts' allocable share of the total IR&D/B&P ceiling; 
or
    (iii) The amount of incurred IR&D/B&P costs for projects having 
potential interest to DoD.
    (2) Allowable IR&D/B&P costs are limited to those for projects which 
are of potential interest to DoD, including activities that--
    (i) Strengthen the defense industrial and technology base of the 
United States;
    (ii) Enhance the industrial competitiveness of the United States;
    (iii) Promote the development of technologies identified as critical 
in the plan required under 10 U.S.C. 2508;
    (iv) Increase the development of technologies useful for both the 
private commercial sector and the public sector; or
    (v) Develop efficient and effective technologies for achieving such 
environmental benefits as improved environmental data gathering, 
environmental cleanup and restoration, pollution-reduction in 
manufacturing, environmental conservation, and environmentally safe 
management of facilities.
    (3) The contracting officer will--
    (i) Determine whether IR&D/B&P projects are of potential interest to 
DoD; and
    (ii) Provide the results of the determination to the contractor.
    (4) See 225.7303 for additional allowability provisions affecting 
foreign military sale contracts.

[[Page 257]]

    (2) Departments/agencies shall not supplement this regulation in any 
way that limits IR&D/B&P cost allowability. See 225.7303-2 for 
allowability exceptions for foreign military sales contracts.
    (i) In addition to the limitations in FAR 31.205-18(c)(2)(i), for 
major contractors--
    (1) The amount of IR&D/B&P costs allowability under DoD contracts 
shall not exceed the lesser of--
    (i) Such contracts' allocable share of incurred IR&D/B&P costs;
    (ii) Such contracts' allocable share of the contractor's total 
maximum allowable amount; or
    (iii) The amount of incurred IR&D/B&P costs for projects having 
potential interest to DoD.
    (2) Allowable IR&D/B&P costs are limited to those for projects which 
are of potential interest to the DoD, including activities intended to 
accomplish any of the following--
    (i) Enable superior performance of future U.S. weapon systems and 
components;
    (ii) Reduce acquisition costs and life-cycle costs of military 
systems;
    (iii) Strengthen the defense industrial and technology base of the 
United States;
    (iv) Enhance the industrial competitiveness of the United States;
    (v) Promote the development of technologies identified as critical 
under 10 U.S.C. 2522;
    (vi) Increase the development and promotion of efficient and 
effective applications of dual-use technologies;
    (vii) Provide efficient and effective technologies for achieving 
such environmental benefits as: improved environmental data gathering, 
environmental cleanup and restoration, pollution reduction in 
manufacturing, environmental conservation, and environmentally safe 
management of facilities.
    (ii) The cognizant contract administration office shall furnish 
contractors with guidance on financial information needed to support 
IR&D/B&P costs and on technical information needed from major 
contractors to support the potential interest to DoD determination (see 
also 242.771-3(a)).
    (iii) The total maximum allowable amount limitation may be waived at 
a level above the contracting officer. A waiver may be appropriate for 
contractors whose significant growth in sales or IR&D/B&P spending 
justify higher levels of reimbursement.

[56 FR 67217, Dec. 30, 1991, as amended at 57 FR 53600, Nov. 12, 1992; 
59 FR 27672, May 27, 1994]



Sec. 231.205-22  Legislative lobbying costs.

    (a) Preparing any material, report, list, or analysis on the actual 
or projected economic or employment impact in a particular State or 
congressional district of an acquisition program for which all research, 
development, testing, and evaluation has not been completed (10 U.S.C. 
2249).

[62 FR 47155, Sept. 8, 1997]



Sec. 231.205-70  External restructuring costs.

    (a) Scope. This subsection prescribes policies and procedures for 
allowing contractor external restructuring costs when savings would 
result for DoD. This subsection also implements 10 U.S.C. 2325, Section 
818 of the National Defense Authorization Act for Fiscal Year 1995 (Pub. 
L. 103-337) (10 U.S.C. 2324 note), Section 8115 of the National Defense 
Appropriations Act for Fiscal Year 1997 (Pub. L. 104-208), and Section 
8092 of the National Defense Appropriations Act for Fiscal Year 1998 
(Pub. L. 105-56).
    (b) Definitions. As used in this subsection:
    (1) Business combination means a transaction whereby assets or 
operations of two or more companies not previously under common 
ownership or control are combined, whether by merger, acquisition, or 
sale/purchase of assets.
    (2) External restructuring activities means restructuring activities 
occurring after a business combination that affect the operations of 
companies not previously under common ownership or control. They do not 
include restructuring activities occurring after a business combination 
that affect the operations of only one of the companies not previously 
under common ownership or control, or, when there has been no

[[Page 258]]

business combination, restructuring activities undertaken within one 
company. External restructuring activities are a direct outgrowth of a 
business combination. They normally will be initiated within 3 years of 
the business combination.
    (3) Restructuring activities means nonroutine, nonrecurring, or 
extraordinary activities to combine facilities, operations, or 
workforce, in order to eliminate redundant capabilities, improve future 
operations, and reduce overall costs. Restructuring activities do not 
include routine or ongoing repositionings and redeployments of a 
contractor's productive facilities or workforce (e.g., normal plant 
rearrangement or employee relocation), nor do they include other routine 
or ordinary activities charged as indirect costs that would otherwise 
have been incurred (e.g., planning and analysis, contract administration 
and oversight, or recurring financial and administrative support).
    (4) Restructuring costs means the costs, including both direct and 
indirect, of restructuring activities. Restructuring costs that may be 
allowed include, but are not limited to, severance pay for employees, 
early retirement incentive payments for employees, employee retraining 
costs, relocation expense for retained employees, and relocation and 
rearrangement of plant and equipment. For purposes of this definition, 
if restructuring costs associated with external restructuring activities 
allocated to DoD contracts are less than $2.5 million, the costs shall 
not be subject to the audit, review, certification, and determination 
requirements of paragraph (c)(1) of this subsection; instead, the normal 
rules for determining cost allowability in accordance with FAR part 31 
shall apply.
    (5) Restructuring savings means cost reductions, including both 
direct and indirect cost reductions, that result from restructuring 
activities. Reassignments of cost to future periods are not 
restructuring savings.
    (c) Limitations on cost allowability. (1) Restructuring costs 
associated with external restructuring activities shall not be allowed 
unless--
    (i) Such costs are allowable in accordance with FAR part 31 and 
DFARS part 231;
    (ii) An audit of projected restructuring costs and restructuring 
savings is performed;
    (iii) The cognizant administrative contracting officer (ACO) reviews 
the audit report and the projected costs and projected savings, and 
negotiates an advance agreement in accordance with paragraph (d)(8) of 
this subsection; and
    (iv) For business combinations that occur--
    (A) Prior to October 1, 1996, the Under Secretary of Defense 
(Acquisition & Technology) or the Principal Deputy certifies that 
projections of future restructuring savings resulting for DoD from the 
business combination are based on audited cost data and should result in 
overall reduced costs for DoD.
    (B) October 1, 1996, through November 18, 1997, the Under Secretary 
of Defense (Acquisition & Technology) or the Principal Deputy--
    (1) Certifies that projections of future restructuring savings 
resulting for DoD from the business combination are based on audited 
cost data and should result in overall reduced costs for DoD; and
    (2) Determines in writing that the audited projected savings for DoD 
resulting from the restructuring will exceed either--
    (i) The costs allowed by a factor of at least two to one; or
    (ii) The costs allowed, and the business combination will result in 
the preservation of a critical capability that might otherwise be lost 
to DoD.
    (C) After November 18, 1997, the Under Secretary of Defense 
(Acquisition & Technology) or the Principal Deputy determines in writing 
that the audited projected savings for DoD resulting from restructuring 
will exceed either--
    (1) The costs allowed by a factor of at least two to one; or
    (2) The costs allowed, and the business combination will result in 
the preservation of a critical capability that might otherwise be lost 
to DoD.
    (2) The audit, review, certification, and determination required by 
paragraph (c)(1) of this subsection shall not

[[Page 259]]

apply to any business combination for which payments for restructuring 
costs were made before August 15, 1994, or for which the cognizant ACO 
executed an advance agreement establishing cost ceilings based on audit/
negotiation of detailed cost proposals for individual restructuring 
projects before August 15, 1994.
    (d) Procedures and ACO responsibilities. As soon as it is known that 
the contractor will incur restructuring costs for external restructuring 
activities, the cognizant ACO shall:
    (1) Promptly execute a novation agreement, if one is required, in 
accordance with FAR subpart 42.12 and DFARS subpart 242.12 and include 
the provision at DFARS 242.1204(e).
    (2) Direct the contractor to segregate restructuring costs and to 
suspend these amounts from any billings, final contract price 
settlements, and overhead settlements until the certification, or 
determination, or both, as applicable, in paragraph (c)(1)(iv) of this 
subsection is obtain.
    (3) Require the contractor to submit an overall plan of 
restructuring activities and an adequately supported proposal for 
planned restructuring projects. The proposal must include a breakout by 
year by cost element, showing the present value of projected 
restructuring costs and projected restructuring savings.
    (4) Notify major buying activities of contractor restructuring 
actions and inform them about any potential monetary impacts on major 
weapons programs, when known.
    (5) Upon receipt of the contractor's proposal, as soon as 
practicable, adjust forward pricing rates to reflect the impact of 
projected restructuring savings. If restructuring costs are included in 
forward pricing rates prior to execution of an advance agreement in 
accordance with paragraph (d)(8) of this subsection, the contracting 
officer shall include a repricing clause in each fixed-price action that 
is priced based on the rates. The repricing clause must provide for a 
downward price adjustment to remove restructuring costs if the 
certification, or determination, or both, as applicable, required by 
paragraph (c)(1)(iv) of this subsection is not obtained.
    (6) Upon receipt of the contractor's proposal, immediately request 
an audit review of the contractor's proposal.
    (7) Upon receipt of the audit report, determine if restructuring 
savings will exceed restructuring costs on a present value basis. 
However, for business combinations that occur on or after October 1, 
1996, the audited projected savings for DoD must exceed the costs 
allowed by a factor of at least two to one on a present value basis, 
unless the determination in paragraph (c)(1)(iv)(B) (2)(ii) or 
(c)(1)(iv)(C) (2) of this subsection applies.
    (8) Negotiate an advance agreement with the contractor setting 
forth, at a minimum, a cumulative cost ceiling for restructuring 
projects and, when necessary, a cost amortization schedule. The costs 
may not exceed the amount of projected restructuring savings on a 
present value basis. The advance agreement shall not be executed until 
the certification, or determination, or both, as applicable, required by 
paragraph (c)(1)(iv) of this subsection is obtained.
    (9) Submit to the Director of Defense Procurement, Office of the 
Under Secretary of Defense (Acquisition & Technology), ATTN: OUSD (A&T) 
DP/CPF, a recommendation for certification, or determination, or both, 
as applicable. Include the information described in paragraph (e) of 
this subsection.
    (10) Consult with the Director of Defense Procurement, Office of the 
Under Secretary of Defense (Acquisition & Technology), when paragraph 
(c)(1) (iv)(B) (2)(ii) or (c)(1)(iv)(C) (2) of this subsection applies.
    (e) Information needed to obtain certification and determination. 
(1) The novation agreement (if one is required).
    (2) The contractor's restructuring proposal.
    (3) The proposed advance agreement.
    (4) The audit report.
    (5) Any other pertinent information.
    (6) The cognizant ACO's recommendation for certification, or 
determination, or both, as applicable. This recommendation must clearly 
indicate one of the following, consistent with paragraph (c)(1)(iv) of 
this subsection:
    (i) Contractor projections of future cost savings resulting for DoD 
from the

[[Page 260]]

business combination are based on audited cost data and should result in 
overall reduced costs for the Department.
    (ii) The audited projected savings for DoD will exceed the costs 
allowed by a factor of at least two to one.
    (iii) The business combination will result in the preservation of a 
critical capability that might otherwise be lost to DoD, and the audited 
projected savings will exceed the costs allowed.

[63 FR 7309, Feb. 13, 1998; 63 FR 12862, Mar. 16, 1998]



         Subpart 231.3--Contracts With Educational Institutions



Sec. 231.303  Requirements.

    (1) Pursuant to section 841 of the National Defense Authorization 
Act for Fiscal Year 1994 (Pub. L. 103-160), no limitation may be placed 
on the reimbursement of otherwise allowable indirect costs incurred by 
an institution of higher education under a DoD contract awarded on or 
after November 30, 1993, unless that same limitation is applied 
uniformly to all other organizations performing similar work under DoD 
contracts. The 26 percent limitation imposed on administrative indirect 
costs by OMB Circular No. A-21 shall not be applied to DoD contracts 
awarded on or after November 30, 1993, to institutions of higher 
education because the same limitation is not applied to other 
organizations performing similar work.
    (2) The cognizant administrative contracting officer may waive the 
prohibition in 231.303(1) if the governing body of the institution of 
higher education requests the waiver to simplify the institution's 
overall management of DoD cost reimbursements under DoD contracts.
    (3) Under 10 U.S.C. 2249, the costs cited in 231.205-22(a) are 
unallowable.

[59 FR 26144, May 19, 1994, as amended at 60 FR 2331, Jan. 9, 1995; 61 
FR 36306, July 10, 1996; 62 FR 47155, Sept. 8, 1997; 63 FR 14641, Mar. 
26, 1998]



  Subpart 231.6--Contracts With State, Local, and Federally Recognized 
                        Indian Tribal Governments



Sec. 231.603  Requirements.

    Under 10 U.S.C. 2249, the costs cited in 231.205-22(a) are 
unallowable.

[61 FR 36306, July 10, 1996, as amended at 62 FR 47155, Sept. 8, 1997; 
63 FR 14641, Mar. 26, 1998]



          Subpart 231.7--Contracts With Nonprofit Organizations



Sec. 231.703  Requirements.

    Under 10 U.S.C. 2249, the costs cited in 231.205-22(a) are 
unallowable.

[61 FR 36306, July 10, 1996, as amended at 62 FR 47155, Sept. 8, 1997; 
63 FR 14641, Mar. 26, 1998]



PART 232--CONTRACT FINANCING--Table of Contents




Sec.
232.006  Reduction or suspension of contract payments upon finding of 
          fraud.
232.006-5  Reporting.
232.070  Responsibilities.
232.071  Contract Finance Committee.
232.072  Financial responsibility of contractors.
232.072-1  Required financial reviews.
232.072-2  Appropriate information.
232.072-3  Cash flow forecasts.

          Subpart 232.1--Non-Commercial Item Purchase Financing

232.102  Description of contract financing methods.
232.102-70  Provisional delivery payments.
232.108  Financial consultation.

            Subpart 232.2--Commercial Item Purchase Financing

232.202-4  Security for Government financing.
232.206  Solicitation provisions and contract clauses.
232.207  Administration and payment of commercial financing payments.

          Subpart 232.3--Loan Guarantees for Defense Production

232.302  Authority.

[[Page 261]]

                     Subpart 232.4--Advance Payments

232.404  Exclusions.
232.409  Contracting officer action.
232.409-1  Recommendation for approval.
232.410  Findings, determination, and authorization.
232.412  Contract clause.
232.412-70  Additional clauses.
232.470  Advance payment pool.

             Subpart 232.5--Progress Payments Based on Costs

232.501  General.
232.501-1  Customary progress payment rates.
232.501-2  Unusual progress payments.
232.501-3  Contract price.
232.502  Preaward matters.
232.502-1  Use of customary progress payments.
232.502-1-70  Customary foreign military sale progress payments.
232.502-1-71  Customary flexible progress payments.
232.502-4  Contract clauses.
232.502-4-70  Additional clauses.
232.503  Postaward matters.
232.503-6  Suspension or reduction of payments.
232.503-15  Application of Government title terms.

                      Subpart 232.6--Contract Debts

232.605  Responsibilities and cooperation among Government officials.
232.606  Debt determination and collection.
232.610  Demand for payment of contract debt.
232.616  Compromise actions.
232.617  Contract clause.
232.670  Transfer of responsibility for debt collection.
232.671  Bankruptcy reporting.

                     Subpart 232.7--Contract Funding

232.702  Policy.
232.703  Contract funding requirements.
232.703-1  General.
232.703-70  Military construction appropriations act restriction.
232.704  Limitation of cost or funds.
232.704-70  Incrementally funded fixed-price contracts.
232.705  Contract clauses.
232.705-70  Clause for limitation of Government's obligation.

                   Subpart 232.8--Assignment of Claims

232.803  Policies.
232.805  Procedure.
232.806  Contract clause.

                      Subpart 232.9--Prompt Payment

232.903  Policy.
232.905  Invoice payments.
232.906  Contract financing payments.

               Subpart 232.10--Performance-Based Payments

232.1001  Policy.
232.1004  Procedure.
232.1007  Administration and payment of performance-based payments.

                Subpart 232.11--Electronic Funds Transfer

232.1101  Policy.
232.1103  Contract clause.

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

    Source: 56 FR 36409, July 31, 1991, unless otherwise noted.



Sec. 232.006  Reduction or suspension of contract payments upon finding of fraud.



Sec. 232.006-5  Reporting.

    Departments and agencies in accordance with department/agency 
procedures, shall prepare and submit to the Under Secretary of Defense 
(Acquisition and Technology), through the Director of Defense 
Procurement, annual reports (Report Control Symbol DD-ACQ(A) 1891) 
containing the information required by FAR 32.006-5.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.070  Responsibilities.

    (a) The Director of Defense Procurement, Office of the Under 
Secretary of Defense (Acquisition and Technology) (OUSD(A&T)DP) is 
responsible for ensuring uniform administration of DoD contract 
financing, including DoD contract financing policies and important 
related procedures. Agency discretion under FAR Part 32 is at the DoD 
level and is not delegated to the departments and agencies. Proposals by 
the departments and agencies, to exercise agency discretion, shall be 
submitted to OUSD(A&T)DP through the DoD Contract Finance Committee (see 
232.071).
    (b) Departments and agencies are responsible for their day-to-day 
contract financing operations. Refer specific cases involving financing 
policy or important procedural issues to

[[Page 262]]

OUSD(A&T)DP for consideration through the department/agency Contract 
Finance Committee members (also see Subpart 204.1 for deviation request 
and approval procedures).
    (c) The Under or Assistant Secretary, or other designated official, 
responsible for the comptroller function within the department or agency 
is the focal point for financing matters at the department/agency 
headquarters. Departments and agencies may establish contract financing 
offices at operational levels.
    (1) Department/agency contract financing offices are--
    (i) Army: Office of the Assistant Secretary of the Army (Financial 
Management);
    (ii) Navy: Office of the Assistant Secretary of the Navy (Financial 
Management and Comptroller), Office of Financial Operations;
    (iii) Air Force: Air Force Contract Financing Office (SAF/FMPB);
    (iv) Defense agencies: Office of the agency comptroller.
    (2) Contract financing offices should participate in--
    (i) Developing regulations for contract financing;
    (ii) Developing contract provisions for contract financing; and
    (iii) Resolving specific cases that involve unusual contract 
financing requirements.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.071  Contract Finance Committee.

    (a) The Contract Finance Committee consists of--
    (1) A representative of OUSD(A&T)DP, serving as the Chair;
    (2) A representative of the Comptroller of the Department of 
Defense;
    (3) A representative of the Defense Finance and Accounting Service;
    (4) A representative of the Civilian Agency Acquisition Council (for 
matters pertaining to the FAR);
    (5) A representative of the National Aeronautics and Space 
Administration (for matters pertaining to the FAR);
    (6) An advisory consultant from the Defense Contract Audit Agency; 
and
    (7) Two representatives of each military department and the Defense 
Logistics Agency (one representing contracting and one representing the 
contract finance office).
    (b) The Committee--
    (1) Advises and assists OUSD(A&T)DP in ensuring proper and uniform 
application of policies, procedures, and forms;
    (2) Is responsible for formulating, revising, and promulgating 
uniform contract financing regulations;
    (3) May recommend to the Secretary of Defense through OUSD(A&T)DP 
further policy directives on financing; and
    (4) Meets at the request of the Chair or a member.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.072  Financial responsibility of contractors.

    Use the policies and procedures in this section in determining the 
financial capability of current or prospective contractors.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.072-1  Required financial reviews.

    The contracting officer shall perform a financial review when the 
contracting officer does not otherwise have sufficient information to 
make a positive determination of financial responsibility. In addition, 
the contracting officer shall consider performing a financial review--
    (a) Prior to award of a contract, when--
    (1) The contractor is on a list requiring preaward clearance or 
other special clearance before award;
    (2) The contractor is listed on the Consolidated List of Contractors 
Indebted to the Government (Hold-Up List), or is otherwise known to be 
indebted to the Government;
    (3) The contractor may receive Government assets such as contract 
financing payments or Government property;
    (4) The contractor is experiencing performance difficulties on other 
work; or
    (5) The contractor is a new company or a new supplier of the item.
    (b) At periodic intervals after award of a contract, when--
    (1) Any of the conditions in paragraphs (a)(2) through (a)(5) of 
this subsection are applicable; or

[[Page 263]]

    (2) There is any other reason to question the contractor's ability 
to finance performance and completion of the contract.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.072-2  Appropriate information.

    (a) The contracting officer shall obtain the type and depth of 
financial and other information that is required to establish a 
contractor's financial capability or disclose a contractor's financial 
condition. While the contracting officer should not request information 
that is not necessary for protection for the Government's interests, the 
contracting officer must insist upon obtaining the information that is 
necessary. The unwillingness or inability of a contractor to present 
reasonably requested information in a timely manner, especially 
information that a prudent business person would be expected to have and 
to use in the professional management of a business, may be a material 
fact in the determination of the contractor's responsibility and 
prospects for contract completion.
    (b) The contracting officer shall obtain the following information 
to the extent required to protect the Government's interest. In 
addition, if the contracting officer concludes that information not 
listed in paragraphs (b)(1) through (b)(10) of this subsection is 
required to comply with 232.072-1, that information should be requested. 
The information must be for the person(s) who are legally liable for 
contract performance. If the contractor is not a corporation, the 
contracting officer shall obtain the required information for each 
individual/joint venturer/partner:
    (1) Balance sheet and income statement--
    (i) For the current fiscal year (interim);
    (ii) For the most recent fiscal year and, preferably, for the 2 
preceding fiscal years. These should be certified by an independent 
public accountant or by an appropriate officer of the firm; and
    (iii) Forecasted for each fiscal year for the remainder of the 
period of contract performance.
    (2) Summary history of the contractor and its principal managers, 
disclosing any previous insolvencies--corporate or personal, and 
describing its products or services.
    (3) Statement of all affiliations disclosing--
    (i) Material financial interests of the contractor;
    (ii) Material financial interests in the contractor;
    (iii) Material affiliations of owners, officers, directors, major 
stockholders; and
    (iv) The major stockholders if the contractor is not a widely-
traded, publicly-held corporation.
    (4) Statement of all forms of compensation to each officer, manager, 
partner, joint venturer, or proprietor, as appropriate--
    (i) Planned for the current year;
    (ii) Paid during the past 2 years; and
    (iii) Deferred to future periods.
    (5) Business base and forecast that--
    (i) Shows, by significant markets, existing contracts and 
outstanding offers, including those under negotiation; and
    (ii) Is reconcilable to indirect cost rate projections.
    (6) Cash forecast for the duration of the contract (see 232.072-3).
    (7) Financing arrangement information that discloses--
    (i) Availability of cash to finance contract performance;
    (ii) Contractor's exposure to financial crisis from creditor's 
demands;
    (iii) Degree to which credit security provisions could conflict with 
Government title terms under contract financing;
    (iv) Clearly stated confirmations of credit with no unacceptable 
qualifications;
    (v) Unambiguous written agreement by a creditor if credit 
arrangements include deferred trade payments or creditor subordinations/
repayment suspensions.
    (8) Statement of all state, local, and Federal tax accounts, 
including special mandatory contributions, e.g., environmental 
superfund.
    (9) Description and explanation of the financial effect of issues 
such as--
    (i) Leases, deferred purchase arrangements, or patent or royalty 
arrangements;
    (ii) Insurance, when relevant to the contract;

[[Page 264]]

    (iii) Contemplated capital expenditures, changes in equity, or 
contractor debt load;
    (iv) Pending claims either by or against the contractor;
    (v) Contingent liabilities such as guarantees, litigation, 
environmental, or product liabilities;
    (vi) Validity of accounts receivable and actual value of inventory, 
as assets; and
    (vii) Status and aging of accounts payable.
    (10) Significant ratios such as--
    (i) Inventory to annual sales;
    (ii) Inventory to current assets;
    (iii) Liquid assets to current assets;
    (iv) Liquid assets to current liabilities;
    (v) Current assets to current liabilities; and
    (vi) Net worth to net debt.

[63 FR 11535, Mar. 9, 1998]



Sec. 232.072-3  Cash flow forecasts.

    (a) A contractor must be able to sustain a sufficient cash flow to 
perform the contract. When there is doubt regarding the sufficiency of a 
contractor's cash flow, the contracting officer should require the 
contractor to submit a cash flow forecast covering the duration of the 
contract.
    (b) A contractor's inability of refusal to prepare and provide cash 
flow forecasts or to reconcile actual cash flow with previous forecasts 
is a strong indicator of serious managerial deficiencies or potential 
contract cost or performance problems.
    (c) Single or one-time cash flow forecasts are of limited 
forecasting power. As such, they should be limited to preaward survey 
situations. Reliability of cash flow forecasts can be established only 
by comparing a series of previous actual cash flows with the 
corresponding forecasts and examining the causes of any differences.
    (d) Cash flow forecasts must--
    (1) Show the origin and use of all material amounts of cash within 
the entire business unit responsible for contract performance, period by 
period, for the length of the contract (or until the risk of a cash 
crisis ends); and
    (2) Provide an audit trail to the data and assumptions used to 
prepare it.
    (e) Cash flow forecasts can be no more reliable than the assumptions 
on which they are based. Most important of these assumptions are--
    (1) Estimated amounts and timing of purchases and payments for 
materials, parts, components, subassemblies, and services;
    (2) Estimated amounts and timing of payments of purchase or 
production of capital assets, test facilities, and tooling;
    (3) Amounts and timing of fixed cash charges such as debt 
installments, interest, rentals, taxes, and indirect costs;
    (4) Estimated amounts and timing of payments for projected labor, 
both direct and indirect;
    (5) Reasonableness of projected manufacturing and production 
schedules;
    (6) Estimated amounts and timing of billings to customers (including 
progress payments), and customer payments;
    (7) Estimated amounts and timing of cash receipts from lenders or 
other credit sources, and liquidation of loans; and
    (8) Estimated amount and timing of cash receipt from other sources.
    (f) The contracting officer should review the assumptions underlying 
the cash flow forecasts. In determining whether the assumptions are 
reasonable and realistic, the contracting officer should consult with--
    (1) The contractor;
    (2) Government personnel in the areas of finance, engineering, 
production, cost, and price analysis; or
    (3) Prospective supply, subcontract, and loan or credit sources.

[63 FR 11536, Mar. 9, 1998]



          Subpart 232.1--Non-Commercial Item Purchase Financing

    Source: 63 FR 11536, Mar. 9, 1998, unless otherwise noted.



Sec. 232.102  Description of contract financing methods.

    (e)(2) Progress payments based on percentage or stage of completion 
are authorized only for contracts for construction (as defined in FAR 
36.102),

[[Page 265]]

shipbuilding, and ship conversion, alteration, or repair. However, 
percentage or state of completion methods of measuring contractor 
performance may be used for performance-based payments in accordance 
with FAR Subpart 32.10.



Sec. 232.102-70  Provisional delivery payments.

    (a) The contracting officer may establish provisional delivery 
payments to pay contractors for the costs of supplies and services 
delivered to and accepted by the Government under the following contract 
actions if undefinitized:
    (1) Letter contracts contemplating a fixed-price contract.
    (2) Orders under basic ordering agreements.
    (3) Spares provisioning documents annexed to contracts.
    (4) Unpriced equitable adjustments on fixed-price contracts.
    (5) Orders under indefinite-delivery contracts.
    (b) Provisional delivery payments shall be--
    (1) Used sparingly;
    (2) Priced conservatively; and
    (3) Reduced by liquidating previous progress payments in accordance 
with the Progress Payments clause.
    (c) Provisional delivery payments shall not--
    (1) Include profit;
    (2) Exceed funds obligated for the undefinitized contract action; or
    (3) Influence the definitized contract price.



Sec. 232.108  Financial consultation.

    See 232.070 for offices to be consulted regarding financial matters 
with DoD.



            Subpart 232.2--Commercial Item Purchase Financing

    Source: 63 FR 11537, Mar. 9, 1998, unless otherwise noted.



Sec. 232.202-4  Security for Government financing.

    (a)(2) When determining whether an offeror's financial condition is 
adequate security, see 232.072-2 and 232.072-3 for guidance. It should 
be noted that an offeror's financial condition may be sufficient to make 
the contractor responsible for award purposes, but may not be adequate 
security for commercial contract financing.



Sec. 232.206  Solicitation provisions and contract clauses.

    (d) Instructions for multiple appropriations. If the contract 
contains foreign military sales requirements, the contracting officer 
shall provide instructions for distribution of the contract financing 
payments to each country's account.
    (f) Prompt payment for commercial purchase payments. The contracting 
officer shall incorporate the following standard prompt payment terms 
for commercial item contract financing:
    (i) Commercial advance payments: The contractor entitlement date 
specified in the contract, or 30 days after receipt by the designated 
billing office of a proper request for payment, whichever is later.
    (ii) Commercial interim payments: The contractor entitlement date 
specified in the contract, or 14 days after receipt by the designated 
billing office of a proper request for payment, whichever is later. The 
prompt payment standards for commercial delivery payments shall be the 
same as specified in FAR Subpart 32.9 for invoice payments for the item 
delivered.
    (g) Installment payment financing for commercial items. Installment 
payment financing shall not be used for DoD contracts, unless market 
research has established that this form of contract financing is both 
appropriate and customary in the commercial marketplace. When 
installment payment financing is used, the contracting officer shall use 
the ceiling percentage of contract price that is customary in the 
particular marketplace (not to exceed the maximum rate established in 
FAR 52.232-30).



Sec. 232.207  Administration and payment of commercial financing payments.

    (b)(2) If the contract contains foreign military sales requirements, 
each approval shall specify the amount of contract financing to be 
charged to each country's account.

[[Page 266]]



          Subpart 232.3--Loan Guarantees for Defense Production



Sec. 232.302  Authority.

    (a) The use of guaranteed loans as a contract financing mechanism 
requires the availability of certain congressional authority. The DoD 
has not requested such authority in recent years, and none is now 
available.



                     Subpart 232.4--Advance Payments



Sec. 232.404  Exclusions.

    (a)(9) The requirements of FAR subpart 32.4 do not apply to 
advertisements in high school and college publications for military 
recruitment efforts under 10 U.S.C. 503 when the contract cost does not 
exceed $500.



Sec. 232.409  Contracting officer action.



Sec. 232.409-1  Recommendation for approval.

    To ensure uniform application of this subpart (see FAR 
32.402(e)(1)), the departmental/agency contract financing office shall 
prepare the documents required by FAR 32.409-1 (e) and (f).



Sec. 232.410  Findings, determination, and authorization.

    (b) If an advance payment procedure is used without a special bank 
account, replace paragraph (a)(4) of the Findings, Determination, and 
Authorization for Advance Payments at FAR 32.410 with:

    (4) The proposed advance payment clause contains appropriate 
provisions as security for advance payments. These provisions include a 
requirement that the outstanding advance payments will be liquidated 
from cost reimbursements as they become due the contractor. This 
security is considered adequate to protect the interest of the 
Government.



Sec. 232.412  Contract clause.



Sec. 232.412-70  Additional clauses.

    (a) Use the clause at 252.232-7000, Advance Payment Pool, in any 
contract that will be subject to the terms of an advance payment pool 
agreement with a nonprofit organization or educational institution. 
Normally, use the clause in all cost reimbursement type contracts with 
the organization or institution.
    (b) Use the clause at 252.232-7001, Disposition of Payments, in 
contracts when payments under the contract are to be made by a 
disbursing office not designated in the advance payment pool agreement.
    (c) Use the clause at 252.232-7005, Reimbursement of Subcontractor 
Advance Payments-DoD Pilot Mentor-Protege Program, when advance payments 
will be provided by the contractor to a subcontractor pursuant to an 
approved mentor-protege agreement (See subpart 219.71).

[56 FR 36409, July 31, 1991, as amended at 56 FR 67217, Dec. 30, 1991]



Sec. 232.470  Advance payment pool.

    (a) An advance payment pool agreement--
    (1) Is a means of financing the performance of more than one 
contract held by a single contractor;
    (2) Is especially convenient for the financing of cost-type 
contracts with nonprofit educational or research institutions for 
experimental or research and development work when several contracts 
require financing by advance payments. When appropriate, pooled advance 
payments may also be used to finance other types of contracts held by a 
single contractor; and
    (3) May be established--
    (i) Without regard to the number of appropriations involved;
    (ii) To finance contracts for one or more department(s) or 
contracting activity(ies); or
    (iii) In addition to any other advance payment pool agreement at a 
single contractor location when it is more convenient or otherwise 
preferable to have more than one agreement.



             Subpart 232.5--Progress Payments Based on Costs



Sec. 232.501  General.

    In DoD, customary progress payments may be either uniform or 
flexible (FAR 32.501-1(a)). See also 232.501-1 and 232.502-1-71.

[[Page 267]]



Sec. 232.501-1  Customary progress payment rates.

    (a)(i) The customary uniform progress payment rate for DoD contracts 
is 75 percent for large businesses, 90 percent for small businesses, and 
95 percent for small disadvantaged businesses.
    (ii) The progress payment rates applicable to foreign military sale 
requirements are the same rates applicable to DoD requirements.
    (iii) For customary flexible progress payments, determine the 
appropriate rate using the appropriate CASH computer program (see 
232.502-1-71).

[56 FR 36409, July 31, 1991, as amended at 56 FR 67217, Dec. 30, 1991; 
58 FR 62046, Nov. 24, 1993]



Sec. 232.501-2  Unusual progress payments.

    (a) Unusual progress payment arrangements require the advance 
approval of the USD(A&T)DP. Contracting officers shall submit all 
unusual progress payment requests to the department or agency contract 
financing office for approval, coordination with the Contract Finance 
Committee (232.171), and submission to the USD(A&T)DP.

[56 FR 36409, July 31, 1991, as amended at 60 FR 61598, Nov. 30, 1995]



Sec. 232.501-3  Contract price.

    (b) The contracting officer may approve progress payments when the 
contract price exceeds the funds obligated under the contract; provided, 
the contract contains an appropriate Limitation of Funds clause. 
However, the contracting officer shall limit such payments to the lesser 
of--
    (i) The applicable rate (i.e., the lower of the progress payment 
rate, the liquidation rate, or the loss-ratio adjusted rate); or
    (ii) 100 percent of the funds obligated.



Sec. 232.502  Preaward matters.



Sec. 232.502-1  Use of customary progress payments.

    (b)(1) If the contractor is a small disadvantaged business, progress 
payments may be provided when the contract will involve $50,000 or more.



Sec. 232.502-1-70  Customary foreign military sale progress payments.

    (a) Foreign military sale (FMS) progress payments apply to DoD 
acquisitions on behalf of foreign governments or international 
organizations (Section 22 of the Arms Export Control Act).
    (b) FMS progress payments do not apply to acquisitions--
    (1) For replenishing U.S. Government inventories or stocks; and
    (2) Made under DoD cooperative logistic support arrangements.



Sec. 232.502-1-71  Customary flexible progress payments.

    (a) General. (1) Progress payments reduce contractor investment in 
work in process inventory. In addition to progress payments, other 
factors influence a contractor's actual investment in work in process 
inventory, e.g., delivery schedules, cash management practices, and 
Government payment practices.
    (2) Progress payment amounts that are determined by using customary 
uniform rates are insensitive to the other factors influencing 
contractor investment in work in process inventory. Consequently, 
contractor investments in work in process inventory vary among 
contractors and contracts.
    (3) Flexible progress payment rates are designed to tailor the 
progress payment rate to more closely match the contractor's cash needs 
for financing contract performance. The flexible rate is expressed as a 
perc