**FAA Acquisition Management System Clauses**

**Change 20 --March 2001**

This document transmits revisions, additions, and deletions to FAA
Acquisition Management System clauses and provisions. Unless otherwise
specified, these changes are effective

March 1, 2001 and apply to all screening information requests and
contracts issued after March 1, 2001.

Revised or added clauses and provisions are denoted by November in the
title of the clause or

provision.

**A. [CLAUSES REVISED]{.underline}**

The following summarize clause revisions:

[3.2.4-5, Allowable Cost and Payment]{.underline} was revised to
eliminate \"paid cost\" application to new contracts.

[3.2.4-24, Payments of Allowable Costs Before
Definitization]{.underline} was revised to eliminate \"paid cost\"
application to new contracts.

[3.3.1-5, Payments Under Time-and-Materials and Labor-Hour
Contracts]{.underline} was revised to eliminate \"paid cost\" to new
contracts and to reduce the period for contractor submission of claims
to 2 years after submitting a release as precedent to final payment.

**B. [CLAUSES ADDED]{.underline}**

[Alternate I to 3.2.4-5, Allowable Cost and Payment]{.underline} was
added to eliminate \"paid cost\" requirements from existing contracts.

[Alternate III to 3.3.1-5, Payments Under Time-and-Materials and
Labor-Hour Contracts]{.underline} was added to

eliminate \"paid cost\" requirements from existing contracts.

[Alternate III to 3.3.1-31, Progress Payments]{.underline} was added to
eliminate \"paid cost\" requirements from existing contracts.

**C. [CLAUSES REMOVED]{.underline}**

None

D.  **[PRESCRIPTIONS CHANGED/DELETED]{.underline}**

None

**[E. DISPOSITION OF THIS CHANGE]{.underline}**

The following clauses are deleted in their entirety and the attached
revised or added clauses are substituted:

**Delete** **Replace with**

[Clause]{.underline} [Dated]{.underline} [Clause]{.underline}
[Dated]{.underline}

3.2.4-5 October 1996 3.2.4-5 March 2001

xxxx xxxx Alternate I to 3.2.4-5 March 2001

3.2.4-24 October 1996 3.2.4-24 March 2001

3.3.1-5 October 1996 3.3.1-5 March 2001

xxxx xxxx Alternate III to 3.3.1-5 March 2001

3.3.1-31 November 2000 3.3.1-31 March 2001

xxxx xxxx Alternate III to 3.3.1-31 March 2001

**F. [ATTACHMENT]{.underline}**

Thef ollowing revised/added clauses are attached to this change.

3.2.4-5 Allowable Cost and Payment

3.2.4-5, Alternate I Alternate I to Allowable Cost and Payment

3.2.4-24 Payments of Allowable Costs Before Definitization

3.3.1-5 Payments Under Time and Materials and Labor Hour Contracts

3.3.1-5, Alternate III Alternate III to Payments Under Time and
Materials and Labor Hours Contracts

3.3.1-31 Progress Payments

3.3.1-31, Alternate I Alternate I to Progress Payments

5.  Allowable Cost and Payment

**ALLOWABLE COST AND PAYMENT** (March 2001)

\(a\) Invoicing. The Government shall make payments to the Contractor
when requested as work progresses, but (except for small business
concerns) not more often than once every 2 weeks, in amounts determined
to be allowable by the Contracting Officer in accordance with the
Federal Aviation Administration\'s (FAA) \"Contract Cost Principles\" in
effect on the date of this contract and the terms of this contract (upon
request, the Contracting Officer will provide a copy of the FAA Contract
Cost Principles). The Contractor may submit to an authorized
representative of the Contracting Officer, in such form and reasonable
detail as the representative may require, an invoice or voucher
supported by a statement of the claimed allowable cost for performing
this contract. Any payments for costs under this contract, particularly
for costs of Indirect Rates under paragraph (d), shall be subject to the
provisions of the \"Limitation of Costs\" clause, or the \"Limitation of
Funds\" clause, if applicable. The Contractor shall be responsible to
manage and control the allowable cost of performance of the contract,
such that payments for any allowable costs, including Indirect Rates
under paragraph (d), shall not exceed the estimated cost set forth in
the schedule, or the funded amount, less an allowance for fee, if the
contract is incrementally funded.

\(b\) Reimbursing costs.

\(1\) For the purpose of reimbursing allowable costs (except as provided
in subparagraph (2) below, with respect to pension, deferred profit
sharing, and employee stock ownership plan contributions**)**, the term
costs includes only:

\(i\) Those costs the Contractor has incurred and recorded at the time
of the request for reimbursement,;

\(ii\) When the Contractor is not delinquent in paying costs of contract
performance in the ordinary course of business, costs incurred, but not
necessarily paid for-

\(A\) Materials issued from the Contractor\'s inventory and placed in
the production process for use on the contract;

\(B\) Direct labor;

\(C\) Direct travel;

\(D\) Other direct in-house costs; and

\(E\) Properly allocable and allowable indirect costs, as shown in the
records maintained by the Contractor for purposes of obtaining
reimbursement under FAA contracts; and

\(iii\) The amount of payments that have been paid to the Contractor\'s
subcontractors under similar cost standards.

\(2\) Contractor contributions to any pension or other post retirement
benefit, profit-sharing or employee stock ownership plan funds that are
paid quarterly or more often may be included in indirect costs for
payment purposes: Provided, that the Contractor pays the contribution to
the fund within 30 days after the close of the period covered. Payments
made 31 days or more after the close of a period shall not be included
until the Contractor actually makes the payment. Accrued costs for such
contributions that are paid less often than quarterly shall be excluded
from indirect costs for payment purposes until the Contractor actually
makes the payment.

\(3\) Notwithstanding the audit and adjustment of invoices or vouchers
under paragraph (g) below, allowable indirect costs under this contract
shall be obtained by applying indirect cost rates established in
accordance with paragraph (d) below.

\(4\) Any statements in specifications or other documents incorporated
in this contract by reference designating performance of services or
furnishing of materials at the Contractor\'s expense or at no cost to
the Government shall be disregarded for purposes of cost-reimbursement
under this clause.

\(c\) Small business concerns. A small business concern may be paid more
often than every 2 weeks and may invoice and be paid for recorded costs
for items or services purchased directly for the contract, even though
the concern has not yet paid for those items or services.

\(d\) Final indirect cost rates.

\(1\) Final annual indirect cost rates and the appropriate bases shall
be established for the period covered by the indirect cost rate
proposal.

\(2\) The Contractor shall, within 90 days after the expiration of each
of its fiscal years, or by a later date approved by the Contracting
Officer, submit to the cognizant Contracting Officer responsible for
negotiating its final indirect cost rates and, if required by agency
procedures, to the cognizant audit activity proposed final indirect cost
rates for that period and supporting cost data specifying the contract
and/or subcontract to which the rates apply. The proposed rates shall be
based on the Contractor\'s actual cost experience for that period. The
appropriate Government representative and Contractor shall establish the
final indirect cost rates as promptly as practical after receipt of the
Contractor\'s proposal.

\(3\) The Contractor and the appropriate Government representative shall
execute a written understanding setting forth the final indirect cost
rates. The understanding shall specify (i) the agreed-upon final annual
indirect cost rates, (ii) the bases to which the rates apply, (iii) the
periods for which the rates apply, (iv) any specific indirect cost items
treated as direct costs in the settlement, and (v) the affected contract
and/or subcontract, identifying any with advance agreements or special
terms and the applicable rates. The understanding shall not change any
monetary ceiling, contract obligation, or specific cost allowance or
disallowance provided for in this contract. The understanding is
incorporated into this contract upon execution.

\(4\) Failure by the parties to agree on a final annual indirect cost
rate may be the basis of a claim under the \"Contract Disputes\" clause.

\(e\) Billing rates. Until final annual indirect cost rates are
established for any period, the Government shall reimburse the
Contractor at billing rates established by the Contracting Officer or by
an authorized representative (the cognizant auditor), subject to
adjustment when the final rates are established. These billing rates-

\(1\) Shall be the anticipated final rates; and

\(2\) May be prospectively or retroactively revised by mutual agreement,
at either party\'s request, to prevent substantial overpayment or
underpayment.

\(f\) Quick-close-out procedures. When the Contractor and Contracting
Officer agree, the quick-close-out procedures may be used.

\(1\) Procedures. Settlement of indirect cost rates shall apply to this
contract, in advance of the determination of final indirect cost rates,
if:

\(i\) The contract is physically complete;

\(ii\) The amount of unsettled indirect cost to be allocated to this
contract is not more than \$500,000 and the cumulative unsettled
indirect costs to be allocated to one or more contracts in a single
fiscal year do not exceed 15 percent of the estimated, total unsettled
indirect costs allocable to cost-type contracts for that fiscal year;
and

\(iii\) Agreement can be reached on a reasonable estimate of allocable
dollars.

\(2\) The settlement shall be final for this contract and no adjustment
shall be made to other contracts for over- or under-recoveries of costs
allocated or allocable to this contract.

\(3\) The settlement shall not be considered a binding precedent when
establishing the final indirect costs for other contracts.

\(g\) Audit. At any time or times before final payment, the Contracting
Officer may have the Contractor\'s invoices or vouchers and statements
of cost audited. Any payment may be (1) reduced by amounts found by the
Contracting Officer not to constitute allowable costs or (2) adjusted
for prior overpayments or underpayments.

\(h\) Final payment.

\(1\) The Contractor shall submit a completion invoice or voucher,
designated as such, promptly upon completion of the work, but no later
than one year (or longer, as the Contracting Officer may approve in
writing) from the completion date. Upon approval of that invoice or
voucher, and upon the Contractor\'s compliance with all terms of this
contract, the Government shall promptly pay any balance of allowable
costs and that part of the fee (if any) not previously paid.

\(2\) The Contractor shall pay to the Government any refunds, rebates,
credits, or other amounts (including interest, if any) accruing to or
received by the Contractor or any assignee under this contract, to the
extent that those amounts are properly allocable to costs for which the
Contractor has been reimbursed by the Government. Reasonable expenses
incurred by the Contractor for securing refunds, rebates, credits, or
other amounts shall be allowable costs if approved by the Contracting
Officer. Before final payment under this contract, the Contractor and
each assignee whose assignment is in effect at the time of final payment
shall execute and deliver-

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

\(ii\) A release discharging the Government, its officers, agents, and
employees from all liabilities, obligations, and claims arising out of
or under this contract, except-

\(A\) Specified claims stated in exact amounts, or in estimated amounts
when the exact amounts are not known;

\(B\) Claims (including reasonable incidental expenses) based upon
liabilities of the Contractor to third parties arising out of the
performance of this contract; provided, that the claims are not known to
the Contractor on the date of the execution of the release, and that the
Contractor gives notice of the claims in writing to the Contracting
Officer within 6 years following the release date or notice of final
payment date, whichever is earlier; and

\(C\) Claims for reimbursement of costs, including reasonable incidental
expenses, incurred by the Contractor under the patent clauses of this
contract, excluding, however, any expenses arising from the
Contractor\'s indemnification of the Government against patent
liability.

(End of clause)

Alternate I - 3.2.4-5 Allowable Cost and Payment

*Delete subparagraph (b)(1)(i) and insert the following in its place:*

\(b\) Reimbursing costs.

\(1\) For the purpose of reimbursing allowable costs (except as provided
in subparagraph (2) below, with respect to pension, deferred profit
sharing, and employee stock ownership plan contributions**)**, the term
costs include only:

\(i\) Those costs the Contractor has incurred and recorded at the time
of the request for reimbursement provided that the Contractor complies
with The Contractor requests application of this Alternate I
provisionthe following from the FAA Contracting Officer

\(A\) The Contractor requests application of this alternate provision
and the and FAA Contracting Officer\'s adopts this alternate via a
bilateral contract modification reflecting this Alternate III to the
basic clause.; and

\(B\) The Contractor flows down the provisions of this subparagraph to
its subcontractors at all tiers. The Contractor shall submit
documentation to this effect at the time it requests a contract
modification adopting this subparagraph (b)(1)(i).

3.2.4-24 Payments of Allowable Costs Before Definitization

**PAYMENTS OF ALLOWABLE COSTS BEFORE**

**DEFINITIZATION (March 2001)**

\(a\) Reimbursement rate. Pending the completion of the negotiation to
definitize the estimated cost and fee of this letter contract, the
Government shall promptly reimburse the Contractor for all allowable
costs under this contract at the following rates:

\(1\) One hundred percent of approved costs representing payments to
subcontractors under fixed-price subcontracts; provided, that the
Government\'s payments to the Contractor shall not exceed 80 percent of
the allowable costs of those subcontractors.

\(2\) One hundred percent of approved costs representing cost-
reimbursement subcontracts; provided, that the Government\'s payments to
the Contractor shall not exceed 85 percent of the allowable costs of
those subcontractors.

\(3\) Eighty-five percent of all other approved costs.

\(b\) Limitation of reimbursement. To determine the amounts payable to
the Contractor under this letter contract, the Contracting Officer shall
determine allowable costs in accordance with the applicable cost
principles in the FAA Acquisition Management System. The total
reimbursement made under this paragraph shall not exceed 85 percent of
the maximum amount of the Government\'s liability, as stated in this
contract.

\(c\) Invoicing. Payments shall be made promptly to the Contractor when
requested as work progresses, but (except for small business concerns)
not more often than every 2 weeks, in amounts approved by the
Contracting Officer. The Contractor may submit to an authorized
representative of the Contracting Officer, in such form and reasonable
detail as the representative may require, an invoice or voucher
supported by a statement of the claimed allowable cost incurred by the
Contractor in the performance of this contract.

\(d\) Allowable costs. For the purpose of determining allowable costs,
the term costs includes-

\(1\) Costs that the contractor has incurred and recorded at the time of
the request for reimbursement;

\(2\) When the Contractor is not delinquent in payment of costs of
contract performance in the ordinary course of business, costs incurred,
but not necessarily paid, for\--

\(i\) Materials issued from the Contractor\'s stores inventory and
placed in the production process for use on the contract;

\(ii\) Direct labor;

\(iii\) Direct travel;

\(iv\) Other direct in-house costs; and

\(v\) Properly allocable and allowable indirect costs as shown on the
records maintained by the Contractor for purposes of obtaining
reimbursement under Government contracts; and

\(3\) The amount of payments that have been paid to the Contractor\'s
subcontractors under similar cost standards.

\(e\) Small business concerns. A small business concern may receive more
frequent payments than every 2 weeks and may invoice and be paid for
recorded costs for items or services purchased directly for the
contract, even though it has not yet paid for such items or services.

\(f\) Audit. At any time before final payment, the Contracting Officer
may have the Contractor\'s invoices or vouchers and statements of costs
audited. Any payment may be (1) reduced by any amounts found by the
Contracting Officer not to constitute allowable costs or (2) adjusted
for overpayments or underpayments made on preceding invoices or
vouchers.

(End of clause)

3.3.1-5 Payments Under Time-and-Materials and Labor-Hour Contracts

**PAYMENTS UNDER TIME AND MATERIALS AND LABOR HOUR**

**CONTRACTS (MARCH 2001)**

The Government shall pay the Contractor as follows upon the submission
of invoices or vouchers approved by the Contracting Officer:

\(a\) Hourly rate.

\(1\) The amounts shall be computed by multiplying the appropriate
hourly rates prescribed in the \"Schedule\" by the number of direct
labor hours performed. The rates shall include wages, indirect costs,
general and administrative expense, and profit. Fractional parts of an
hour shall be payable on a prorated basis. Vouchers may be submitted
once each month (or at more frequent intervals, if approved by the
Contracting Officer), to the Contracting Officer or designee. The
Contractor shall substantiate vouchers by evidence of actual payment and
by individual daily job timecards, or other substantiation approved by
the Contracting Officer. Promptly after receipt of each substantiated
voucher, the Government shall, except as otherwise provided in this
contract, and subject to the terms of (e) below, pay the voucher as
approved by the Contracting Officer.

\(2\) Unless otherwise prescribed in the \"Schedule\", the Contracting
Officer shall withhold 5 percent of the amounts due under this paragraph
(a), but the total amount withheld shall not exceed \$50,000. The
amounts withheld shall be retained until the execution and delivery of a
release by the Contractor as provided in paragraph (f) below.

\(3\) Unless the \"Schedule\" prescribes otherwise, the hourly rates in
the \"Schedule\" shall not be varied by virtue of the Contractor having
performed work on an overtime basis. If no overtime rates are provided
in the \"Schedule\" and they are required for overtime work that is
approved in advance by the Contracting Officer, overtime rates shall be
negotiated. Failure to agree upon these overtime rates shall be treated
as a dispute. If the \"Schedule\" provides rates for overtime, the
premium portion of those rates will be reimbursable only to the extent
the overtime is approved by the Contracting Officer.

\(b\) Materials and subcontracts.

\(1\) Allowable costs of direct materials shall be determined by the
Contracting Officer in accordance with the Federal Aviation
Administration\'s (FAA) \"Contract Cost Principles\" in effect on the
date of this contract. Reasonable and allocable material handling costs
may be included in the charge for material to the extent they are
clearly excluded from the hourly rate. Material handling costs are
comprised of indirect costs, including, when appropriate, general and
administrative expense allocated to direct materials in accordance with
the Contractor\'s usual accounting practices consistent with FAA
\"Contract Cost Principles.\" The Contractor shall be reimbursed for
items and services purchased directly for the contract only. Direct
materials, as used in this clause, are those materials which enter
directly into the end product, or which are used or consumed directly in
connection with the furnishing of the end product.

\(2\) The cost of subcontracts that are authorized under the
subcontracts clause of this contract shall be reimbursable costs under
this clause; provided, that the costs are consistent with subparagraph
(3) below. Reimbursable costs in connection with subcontracts shall be
limited to the amounts incurred by the subcontractor in the same manner
as for items and services purchased directly for the contract under
subparagraph (1) above; however, this requirement shall not apply to a
Contractor that is a small business concern. Reimbursable costs shall
not include any costs arising from the letting, administration or
supervision of performance of the subcontract, if the costs are included
in the hourly rates payable under (a)(1) above.

\(3\) To the extent able, the Contractor shall-

\(i\) Obtain materials at the most advantageous prices available with
due regard to securing prompt delivery of satisfactory materials; and

\(ii\) Take all cash and trade discounts, rebates, allowances, credits,
salvage, commissions, and other benefits. When unable to take advantage
of the benefits, the Contractor shall promptly notify the Contracting
Officer and give the reasons. Credit shall be given to the Government
for cash and trade discounts, rebates, allowances, credits, salvage, the
value of any appreciable scrap, commissions, and other amounts that have
accrued to the benefit of the Contractor, or would have accrued except
for the fault or neglect of the Contractor. The benefits lost without
fault or neglect on the part of the Contractor, or lost through fault of
the Government, shall not be deducted from gross costs.

\(c\) Total cost. It is estimated that the total cost to the Government
for the performance of this contract shall not exceed the ceiling price
set forth in the \"Schedule\" and the Contractor agrees to use its best
efforts to perform the work specified in the \"Schedule\" and all
obligations under this contract within such ceiling price. If at any
time the Contractor has reason to believe that the hourly rate payments
and material costs that will accrue in performing this contract in the
next succeeding 30 days, if added to all other payments and costs
previously accrued, will exceed 85 percent of the ceiling price in the
\"Schedule\", the Contractor shall notify the Contracting Officer giving
a revised estimate of the total price to the Government for performing
this contract with supporting reasons and documentation. If at any time
during performing this contract, the Contractor has reason to believe
that the total price to the Government for performing this contract will
be substantially greater or less than the then stated ceiling price, the
Contractor shall so notify the Contracting Officer, giving a revised
estimate of the total price for performing this contract, with
supporting reasons and documentation. If at any time during performing
this contract, the Government has reason to believe that the work to be
required in performing this contract will be substantially greater or
less than the stated ceiling price, the Contracting Officer will so
advise the Contractor, giving the then revised estimate of the total
amount of effort to be required under the contract.

\(d\) Ceiling price. The Government shall not be obligated to pay the
Contractor any amount in excess of the ceiling price in the
\"Schedule\", and the Contractor shall not be obligated to continue
performance if to do so would exceed the ceiling price set forth in the
\"Schedule\", unless and until the Contracting Officer shall have
notified the Contractor in writing that the ceiling price has been
increased and shall have specified in the notice a revised ceiling that
shall constitute the ceiling price for performance under this contract.
When and to the extent that the ceiling price set forth in the
\"Schedule\" has been increased, any hours expended and material costs
incurred by the Contractor in excess of the ceiling price before the
increase shall be allowable to the same extent as if the hours expended
and material costs had been incurred after the increase in the ceiling
price.

\(e\) Audit. At any time before final payment under this contract the
Contracting Officer may request audit of the invoices or vouchers and
substantiating material. Each payment previously made shall be subject
to reduction to the extent of amounts, on preceding invoices or
vouchers, that are found by the Contracting Officer not to have been
properly payable and shall also be subject to reduction for overpayments
or to increase for underpayments. Upon receipt and approval of the
voucher or invoice designated by the Contractor as the completion
voucher or completion invoice and substantiating material, and upon
compliance by the Contractor with all terms of this contract (including,
without limitation, terms relating to patents and the terms of (f) and
(g) below), the Government shall promptly pay any balance due the
Contractor. The completion invoice or voucher, and substantiating
material, shall be submitted by the Contractor as promptly as
practicable following completion of the work under this contract, but in
no event later than 1 year (or such longer period as the Contracting
Officer may approve in writing) from the date of completion.

\(f\) Assignment. The Contractor, and each assignee under an assignment
entered into under this contract and in effect at the time of final
payment under this contract, shall execute and deliver, at the time of
and as a condition precedent to final payment under this contract, a
release discharging the Government, its officers, agents, and employees
of and from all liabilities, obligations, and claims arising out of or
under this contract, subject only to the following exceptions:

\(1\) Specified claims in stated amounts, or in estimated amounts if the
amounts are not susceptible of exact statement by the Contractor.

\(2\) Claims, together with reasonable incidental expenses, based upon
the liabilities of the Contractor to third parties arising out of
performing this contract, that are not known to the Contractor on the
date of the execution of the release, and of which the Contractor gives
notice in writing to the Contracting Officer not more than 2 years after
the date of the release or the date of any notice to the Contractor that
the Government is prepared to make final payment, whichever is earlier.

\(3\) Claims for reimbursement of costs (other than expenses of the
Contractor by reason of its indemnification of the Government against
patent liability), including reasonable incidental expenses, incurred by
the Contractor under the terms of this contract relating to patents.

\(g\) Refunds. The Contractor agrees that any refunds, rebates, or
credits (including any related interest) accruing to or received by the
Contractor or any assignee, that arise under the materials portion of
this contract and for which the Contractor has received reimbursement,
shall be paid by the Contractor to the Government. The Contractor and
each assignee, under an assignment entered into under this contract and
in effect at the time of final payment under this contract, shall
execute and deliver, at the time of and as a condition precedent to
final payment under this contract, an assignment to the Government of
such refunds, rebates, or credits (including any interest) in form and
substance satisfactory to the Contracting Officer.

(End of clause)

Alternate III - 3.3.1-5 Payments Under Time-and-Materials and Labor-Hour
Contracts (March 2001)

*Substitute the following subparagraph (b) for subparagraph (b) of the
basic clause.*

\(b\) Materials and subcontracts.

\(1\) Allowable costs of direct materials shall be determined by the
Contracting Officer in accordance with the Federal Aviation
Administration\'s (FAA) \"Contract Cost Principles\" in effect on the
date of this contract. Reasonable and allocable material handling costs
may be included in the charge for material to the extent they are
clearly excluded from the hourly rate. Material handling costs are
comprised of indirect costs, including, when appropriate, general and
administrative expense allocated to direct materials in accordance with
the Contractor\'s usual accounting practices consistent with FAA
\"Contract Cost Principles.\" Direct materials, as used in this clause,
are those materials which enter directly into the end product, or which
are used or consumed directly in connection with the furnishing of the
end product.

\(2\) The Contractor shall be reimbursed for costs incurred for items
and services purchased directly for the contract only, subject to the
following:

\(i\) The Contractor requests application of this alternate provision
and the and FAA Contracting Officer\'s adopts this alternate via a
bilateral contract modification reflecting this Alternate III to the
basic clause.; and

\(ii\) The Contractor flows down the provisions of this subparagraph to
its subcontractors at all tiers. The Contracotr shall submit
documentation to this effect at the time it requests a contract
modification adopting this subparagraph (b)(2).

\(3\) The cost of subcontracts that are authorized under the
subcontracts clause of this contract shall be reimbursable costs under
this clause; provided, that the costs are consistent with subparagraph
(3) below. Reimbursable costs in connection with subcontracts shall be
limited to the amounts incurred by the subcontractor in the same manner
as for items and services purchased directly for the contract under
subparagraph (1) above; however, this requirement shall not apply to a
Contractor that is a small business concern. Reimbursable costs shall
not include any costs arising from the letting, administration or
supervision of performance of the subcontract, if the costs are included
in the hourly rates payable under (a)(1) above.

\(4\) To the extent able, the Contractor shall-

\(i\) Obtain materials at the most advantageous prices available with
due regard to securing prompt delivery of satisfactory materials; and

\(ii\) Take all cash and trade discounts, rebates, allowances, credits,
salvage, commissions, and other benefits. When unable to take advantage
of the benefits, the Contractor shall promptly notify the Contracting
Officer and give the reasons. Credit shall be given to the Government
for cash and trade discounts, rebates, allowances, credits, salvage, the
value of any appreciable scrap, commissions, and other amounts that have
accrued to the benefit of the Contractor, or would have accrued except
for the fault or neglect of the Contractor. The benefits lost without
fault or neglect on the part of the Contractor, or lost through fault of
the Government, shall not be deducted from gross costs.

Alternate III - 3.3.1-31 Progress Payments

*Replace subparagraph (a)(2) with the following:*

\(2\) Payment of costs

\(i\) *Elimination of paid cost provisions*. Paid cost requirements in
existence prior to November 2000 may be deleted from contracts existing
prior to elimination of paid cost requirements subject to the following:

> \(A\) The Contractor requests application of this Alternate I
> provision from the FAA Contracting Officer\'s who will execute a
> bilateral contract modification if adopted; and

\(B\) The Contractor flows down the provisions of this subparagraph to
its subcontractors at all tiers. The Contractor shall submit
documentation to this effect at the time it requests a contract
modification adopting this subparagraph (b)(1)(i).

\(ii\) The following conditions apply to the timing of including costs
in progress payment requests:

\(A\) The costs of supplies and services purchased by the Contractor
from subcontractors directly for this contract may be included whether
or not actually paid.

\(B\) Costs for the following may be included when incurred, even if
before payment, when the Contractor is not delinquent in payment of the
costs of contract performance in the ordinary course of business: In
support of this, the Contractor shall include a certification in its
request for progress payment indicating that it is not delinquent in
payment of costs of contract performance in the ordinary course of
business.

\(1\) Materials issued from the Contractor\'s stores and placed in the
production process for use on this contract.

\(2\) Direct labor, direct travel, and other direct in-house costs.

\(3\) Properly allocable and allowable indirect costs.

**END OF CHANGE 20 -- MARCH 2001**