Part 42 - Contract Administration and Audit

Services

42.000 Scope of part.

42.001 [Reserved]

42.002 Interagency agreements.

42.003 Cognizant Federal agency.

Subpart 42.1 - Contract Audit Services

42.101 Contract audit responsibilities.

42.102 Assignment of contract audit services.

42.103 Contract audit services directory.

Subpart 42.2 - Contract Administration Services

42.201 Contract administration responsibilities.

42.202 Assignment of contract administration.

42.203 Contract administration services directory.

Subpart 42.3 - Contract Administration Office Functions

42.301 General.

42.302 Contract administration functions.

Subpart 42.4 - Correspondence and Visits

42.401 Contract correspondence.

42.402 Visits to contractors’ facilities.

42.403 Evaluation of contract administration offices.

Subpart 42.5 - Postaward Orientation

42.500 Scope of subpart.

42.501 General.

42.502 Selecting contracts for postaward orientation.

42.503 Postaward conferences.

42.503-1 Postaward conference arrangements.
42.503-2 Postaward conference procedure.

42.503-3 Postaward conference report.

42.504 Postaward letters.

42.505 Postaward subcontractor conferences.

Subpart 42.6 - Corporate Administrative Contracting Officer

42.601 General.

42.602 Assignment and location.

42.603 Responsibilities.

Subpart 42.7 - Indirect Cost Rates

42.700 Scope of subpart.

42.701 Definition.

42.702 Purpose.

42.703 General.

42.703-1 Policy.

42.703-2 Certificate of indirect costs.

42.704 Billing rates.

42.705 Final indirect cost rates.

42.705-1 Contracting officer determination procedure.

42.705-2 Auditor determination procedure.

42.705-3 Educational institutions.

42.705-4 State and local governments.

42.705-5 Nonprofit organizations other than educational and state and local governments.

42.706 Distribution of documents.

42.707 Cost-sharing rates and limitations on indirect cost rates.

42.708 Quick-closeout procedure.

42.709 Penalties for Unallowable Costs.

42.709-1 Scope.

42.709-2 General.
42.709-3 Responsibilities.

42.709-4 Assessing the penalty.

42.709-5 Computing Interest.

42.709-6 Waiver of the penalty.

42.709-7 Contract clause.

Subpart 42.8 - Disallowance of Costs

42.800 Scope of subpart.

42.801 Notice of intent to disallow costs.

42.802 Contract clause.

42.803 Disallowing costs after incurrence.

Subpart 42.9 - Bankruptcy

42.900 Scope of subpart.

42.901 General.

42.902 Procedures.

42.903 Solicitation provision and contract clause.

Subpart 42.10 - [Reserved]

Subpart 42.11 - Production Surveillance and Reporting

42.1101 General.

42.1102 Applicability.

42.1103 Policy.

42.1104 Surveillance requirements.

42.1105 Assignment of criticality designator.

42.1106 Reporting requirements.

42.1107 Contract clause.

Subpart 42.12 - Novation and Change-of-Name Agreements

42.1200 Scope of subpart.

42.1201 [Reserved]

42.1202 Responsibility for executing agreements.
42.1203 Processing agreements.

42.1204 Applicability of novation agreements.

42.1205 Agreement to recognize contractor’s change of name.

Subpart 42.13 - Suspension of Work, Stop-Work Orders, and Government Delay of Work

42.1301 General.

42.1302 Suspension of work.

42.1303 Stop-work orders.

42.1304 Government delay of work.

42.1305 Contract clauses.

Subpart 42.14 - [Reserved]

Subpart 42.15 - Contractor Performance Information

42.1500 Scope of subpart.

42.1501 General.

42.1502 Policy.

42.1503 Procedures.

42.1504 Contract clause.

Subpart 42.16 - Small Business Contract Administration

42.1601 General.

Subpart 42.17 - Forward Pricing Rate Agreements

42.1701 Procedures.

Parent topic: Federal Acquisition Regulation

42.000 Scope of part.

This part prescribes policies and procedures for assigning and performing contract administration

and contract audit services.

42.001 [Reserved]
42.002 Interagency agreements.

(a) Agencies shall avoid duplicate audits, reviews, inspections, and examinations of contractors or

subcontractors, by more than one agency, through the use of interagency agreements.

(b) Subject to the fiscal regulations of the agencies and applicable interagency agreements, the

requesting agency shall reimburse the servicing agency for rendered services in accordance with the

Economy Act (31 U.S.C.1535).

(c) When an interagency agreement is established, the agencies are encouraged to consider

establishing procedures for the resolution of issues that may arise under the agreement.

42.003 Cognizant Federal agency.

(a) For contractors other than educational institutions and nonprofit organizations, the cognizant

Federal agency normally will be the agency with the largest dollar amount of negotiated contracts,

including options. For educational institutions (defined as institutions of higher education in the

OMB Uniform Guidance at 2 CFR part 200, subpart A, and 20 U .S.C. 1001) and nonprofit

organizations (as defined in the OMB Uniform Guidance at 2 CFR part 200), the cognizant Federal

agency for indirect costs is established according to the OMB Uniform Guidance at 2 CFR part 200,

appendices III and IV, respectively.

(b) Once a Federal agency assumes cognizance for a contractor, it should remain cognizant for at

least 5 years to ensure continuity and ease of administration. If, at the end of the 5-year period,

another agency has the largest dollar amount of negotiated contracts, including options, the two

agencies shall coordinate and determine which will assume cognizance. However, if circumstances

warrant it and the affected agencies agree, cognizance may transfer prior to the expiration of the 5-

year period.

Subpart 42.1 - Contract Audit Services

42.101 Contract audit responsibilities.

(a) The auditor is responsible for-

(1) Submitting information and advice to the requesting activity, based on the auditor’s analysis of

the contractor’s financial and accounting records or other related data as to the acceptability of the

contractor’s incurred and estimated costs;

(2) Reviewing the financial and accounting aspects of the contractor’s cost control systems; and

(3) Performing other analyses and reviews that require access to the contractor’s financial and

accounting records supporting proposed and incurred costs.

(b) Normally, for contractors other than educational institutions and nonprofit organizations, the

Defense Contract Audit Agency (DCAA) is the responsible Government audit agency. However, there
may be instances where an agency other than DCAA desires cognizance of a particular contractor. In

those instances, the two agencies shall agree on the most efficient and economical approach to meet

contract audit requirements. For educational institutions (defined as institutions of higher education

in the OMB Uniform Guidance at 2 CFR part 200, subpart A, and 20 U .S.C. 1001) and nonprofit

organizations (as defined in the OMB Uniform Guidance at 2 CFR part 200), audit cognizance will be

determined according to the provisions of the OMB Uniform Guidance at 2 CFR part 200, subpart F.

42.102 Assignment of contract audit services.

(a) As provided in agency procedures or interagency agreements, contracting officers may request

audit services directly from the responsible audit agency cited in the Directory of Federal Contract

Audit Offices. The audit request should include a suspense date and should identify any information

needed by the contracting officer.

(b) The responsible audit agency may decline requests for services on a case-by-case basis, if

resources of the audit agency are inadequate to accomplish the tasks. Declinations shall be in

writing.

42.103 Contract audit services directory.

(a) DCAA maintains and distributes the Directory of Federal Contract Audit Offices. The directory

identifies cognizant audit offices and the contractors over which they have cognizance. Changes to

audit cognizance shall be provided to DCAA so that the directory can be updated.

(b) Agencies may obtain a copy of the directory or information concerning cognizant audit offices by

contacting theDefense Contract Audit Agency ATTN: CMO Publications Officer 8725 John J. Kingman Road Suite

2135 Fort Belvoir, VA 22060-6219.

Subpart 42.2 - Contract Administration Services

42.201 Contract administration responsibilities.

(a) For each contract assigned for administration, the contract administration office (CAO) (see

2.101) shall-

(1) Perform the functions listed in 42.302(a) to the extent that they apply to the contract, except for

the functions specifically withheld;

(2) Perform the functions listed in 42.302(b) only when and to the extent specifically authorized by

the contracting officer; and

(3) Request supporting contract administration under 42.202(e) and (f) when it is required.

(b) The Defense Contract Management Agency and other agencies offer a wide variety of contract

administration and support services.
42.202 Assignment of contract administration.

(a) Delegating functions. As provided in agency procedures, contracting officers may delegate

contract administration or specialized support services, either through interagency agreements or

by direct request to the cognizant CAO listed in the Federal Directory of Contract Administration

Services Components. The delegation should include-

(1) The name and address of the CAO designated to perform the administration (this information

also shall be entered in the contract);

(2) Any special instructions, including any functions withheld or any specific authorization to

perform functions listed in 42.302(b);

(3) A copy of the contract to be administered; and

(4) Copies of all contracting agency regulations or directives that are-

(i) Incorporated into the contract by reference; or

(ii) Otherwise necessary to administer the contract, unless copies have been provided previously.

(b) Special instructions. As necessary, the contracting officer also shall advise the contractor (and

other activities as appropriate) of any functions withheld from or additional functions delegated to

the CAO.

(c) Delegating additional functions. For individual contracts or groups of contracts, the contracting

office may delegate to the CAO functions not listed in 42.302, provided that-

(1) Prior coordination with the CAO ensures the availability of required resources;

(2) In the case of authority to issue orders under provisioning procedures in existing contracts and

under basic ordering agreements for items and services identified in the schedule, the head of the

contracting activity or designee approves the delegation; and

(3) The delegation does not require the CAO to undertake new or follow-on acquisitions.

(d) Rescinding functions. The contracting officer at the requesting agency may rescind or recall a

delegation to administer a contract or perform a contract administration function, except for

functions pertaining to cost accounting standards and negotiation of forward pricing rates and

indirect cost rates (also see 42.003). The requesting agency must coordinate with the ACO to

establish a reasonable transition period prior to rescinding or recalling the delegation.

(e) Secondary delegations of contract administration.

(1) A CAO that has been delegated administration of a contract under paragraph (a) or (c) of this

section, or a contracting office retaining contract administration, may request supporting contract

administration from the CAO cognizant of the contractor location where performance of specific

contract administration functions is required. The request shall-

(i) Be in writing;

(ii) Clearly state the specific functions to be performed; and
(iii) Be accompanied by a copy of pertinent contractual and other necessary documents.

(2) The prime contractor is responsible for managing its subcontracts. The CAO’s review of

subcontracts is normally limited to evaluating the prime contractor’s management of the

subcontracts (see part 44). Therefore, supporting contract administration shall not be used for

subcontracts unless-

(i) The Government otherwise would incur undue cost;

(ii) Successful completion of the prime contract is threatened; or

(iii) It is authorized under paragraph (f) of this section or elsewhere in this regulation.

(f) Special surveillance. For major system acquisitions (see part 34), the contracting officer may

designate certain high risk or critical subsystems or components for special surveillance in addition

to requesting supporting contract administration. This surveillance shall be conducted in a manner

consistent with the policy of requesting that the cognizant CAO perform contract administration

functions at a contractor’s facility (see 42.002).

(g) Refusing delegation of contract administration. An agency may decline a request for contract

administration services on a case-by-case basis if resources of the agency are inadequate to

accomplish the tasks. Declinations shall be in writing.

42.203 Contract administration services directory.

The Defense Contract Management Agency (DCMA) maintains the Federal Directory of Contract

Administration Services Components. The directory lists the names and telephone numbers of those

DCMA and other agency offices that offer contract administration services within designated

geographic areas and at specified contractor plants. Federal agencies may access it on the Internet

at https://piee.eb.mil/pcm/xhtml/unauth/index.xhtml. For additional information contactDefense Contract Management Agency 3901 A Avenue Building 10500 Ft. Lee, VA 23801-1809.

Subpart 42.3 - Contract Administration Office Functions

42.301 General.

When a contract is assigned for administration under subpart 42.2, the contract administration

office (CAO) shall perform contract administration functions in accordance with 48 CFR Chapter 1,

the contract terms, and, unless otherwise agreed to in an interagency agreement (see 42.002), the

applicable regulations of the servicing agency.

42.302 Contract administration functions.

(a) The contracting officer normally delegates the following contract administration functions to a

CAO. The contracting officer may retain any of these functions, except those in paragraphs (a)(5),

(a)(9), (a)(11) and (a)(12) of this section, unless the cognizant Federal agency (see 2.101) has
designated the contracting officer to perform these functions.

(1) Review the contractor’s compensation structure.

(2) Review the contractor’s insurance plans.

(3) Conduct post-award orientation conferences.

(4) Review and evaluate contractors’ proposals under subpart 15.4 and, when negotiation will be

accomplished by the contracting officer, furnish comments and recommendations to that officer.

(5) Negotiate forward pricing rate agreements (see 15.407-3).

(6) Negotiate advance agreements applicable to treatment of costs under contracts currently

assigned for administration (see 31.109).

(7) Determine the allowability of costs suspended or disapproved as required (see subpart 42.8),

direct the suspension or disapproval of costs when there is reason to believe they should be

suspended or disapproved, and approve final vouchers.

(8) Issue Notices of Intent to Disallow or not Recognize Costs (see subpart 42.8).

(9) Establish final indirect cost rates and billing rates for those contractors meeting the criteria for

contracting officer determination in subpart 42.7.

(10) Attempt to resolve issues in controversy, using ADR procedures when appropriate (see subpart 

33.2); prepare findings of fact and issue decisions under the Disputes clause on matters in which the

administrative contracting officer (ACO) has the authority to take definitive action.

(11) In connection with Cost Accounting Standards (see 30.601 and 48 CFR chapter 99)-

(i) Determine the adequacy of the contractor’s disclosure statements;

(ii) Determine whether disclosure statements are in compliance with Cost Accounting Standards and

part 31;

(iii) Determine the contractor’s compliance with Cost Accounting Standards and disclosure

statements, if applicable; and

(iv) Negotiate price adjustments and execute supplemental agreements under the Cost Accounting

Standards clauses at 52.230-2, 52.230-3, 52.230-4, 52.230-5, and 52.230-6.

(12) Determine the adequacy of the contractor’s accounting system. The contractor’s accounting

system should be adequate during the entire period of contract performance. The adequacy of the

contractor’s accounting system and its associated internal control system, as well as contractor

compliance with the Cost Accounting Standards (CAS), affect the quality and validity of the

contractor data upon which the Government must rely for its management oversight of the

contractor and contract performance.

(13) Review and approve or disapprove the contractor’s requests for payments under the progress

payments or performance-based payments clauses.

(14) Make payments on assigned contracts when prescribed in agency acquisition regulations.
(15) Manage special bank accounts.

(16) Ensure timely notification by the contractor of any anticipated overrun or underrun of the

estimated cost under cost-reimbursement contracts.

(17) Monitor the contractor’s financial condition and advise the contracting officer when it

jeopardizes contract performance.

(18) Analyze quarterly limitation on payments statements and take action in accordance with

subpart 32.6 to recover overpayments from the contractor.

(19) Issue tax exemption forms.

(20) Ensure processing and execution of duty-free entry certificates.

(21) For classified contracts, administer those portions of the applicable industrial security program

delegated to the CAO (see subpart 4.4).

(22) Issue work requests under maintenance, overhaul, and modification contracts.

(23) Negotiate prices and execute supplemental agreements for spare parts and other items selected

through provisioning procedures when prescribed by agency acquisition regulations.

(24) Negotiate and execute contractual documents for settlement of partial and complete contract

terminations for convenience, except as otherwise prescribed by part 49.

(25) Negotiate and execute contractual documents settling cancellation charges under multiyear

contracts.

(26) Process and execute novation and change of name agreements under subpart 42.12.

(27) Perform property administration (see part 45).

(28) Perform necessary screening, redistribution, and disposal of contractor inventory.

(29) Issue contract modifications requiring the contractor to provide packing, crating, and handling

services on excess Government property. When the ACO determines it to be in the Government’s

interests, the services may be secured from a contractor other than the contractor in possession of

the property.

(30) When contractors request Government property-

(i) Evaluate the contractor’s requests for Government property and for changes to existing

Government property and provide appropriate recommendations to the contracting officer;

(ii) Ensure required screening of Government property before acquisition by the contractor;

(iii) Evaluate the use of Government property on a non-interference basis in accordance with the

clause at 52.245-9, Use and Charges;

(iv) Ensure payment by the contractor of any rental due; and

(v) Modify contracts to reflect the addition of Government-furnished property and ensure

appropriate consideration.
(31) Perform production support, surveillance, and status reporting, including timely reporting of

potential and actual slippages in contract delivery schedules.

(32) Perform preaward surveys (see subpart 9.1).

(33) Advise and assist contractors regarding their priorities and allocations responsibilities and

assist contracting offices in processing requests for special assistance and for priority ratings for

privately owned capital equipment.

(34) Monitor contractor industrial labor relations matters under the contract; apprise the

contracting officer and, if designated by the agency, the cognizant labor relations advisor, of actual

or potential labor disputes; and coordinate the removal of urgently required material from the

strikebound contractor’s plant upon instruction from, and authorization of, the contracting officer.

(35) Perform traffic management services, including issuance and control of Government bills of

lading and other transportation documents.

(36) Review the adequacy of the contractor’s traffic operations.

(37) Review and evaluate preservation, packaging, and packing.

(38) Ensure contractor compliance with contractual quality assurance requirements (see part 46).

(39) Ensure contractor compliance with contractual safety requirements.

(40) Perform engineering surveillance to assess compliance with contractual terms for schedule,

cost, and technical performance in the areas of design, development, and production.

(41) Evaluate for adequacy and perform surveillance of contractor engineering efforts and

management systems that relate to design, development, production, engineering changes,

subcontractors, tests, management of engineering resources, reliability and maintainability, data

control systems, configuration management, and independent research and development.

(42) Review and evaluate for technical adequacy the contractor’s logistics support, maintenance,

and modification programs.

(43) Report to the contracting office any inadequacies noted in specifications.

(44) Perform engineering analyses of contractor cost proposals.

(45) Review and analyze contractor-proposed engineering and design studies and submit comments

and recommendations to the contracting office, as required.

(46) Review engineering change proposals for proper classification, and when required, for need,

technical adequacy of design, producibility, and impact on quality, reliability, schedule, and cost;

submit comments to the contracting office.

(47) Assist in evaluating and make recommendations for acceptance or rejection of waivers and

deviations.

(48) Evaluate and monitor the contractor’s procedures for complying with procedures regarding

restrictive markings on data.

(49) Monitor the contractor’s value engineering program.
(50) Review, approve or disapprove, and maintain surveillance of the contractor’s purchasing system

(see part 44).

(51) Consent to the placement of subcontracts.

(52) Review, evaluate, and approve plant or division-wide small, small disadvantaged, women-owned,

veteran-owned, HUBZone, and service-disabled veteran-owned small business master

subcontracting plans.

(53) Obtain the contractor’s currently approved company- or division-wide plans for small, small

disadvantaged, women-owned, veteran-owned, HUBZone, and service-disabled veteran-owned small

business subcontracting for its commercial products, or, if there is no currently approved plan,

assist the contracting officer in evaluating the plans for those products.

(54) Assist the contracting officer, upon request, in evaluating an offeror’s proposed small, small

disadvantaged women-owned, veteran-owned, HUBZone, and service-disabled veteran-owned small

business subcontracting plans, including documentation of compliance with similar plans under

prior contracts.

(55) By periodic surveillance, ensure the contractor’s compliance with small, small disadvantaged,

women-owned, veteran-owned, HUBZone, and service-disabled veteran-owned small business

subcontracting plans and any labor surplus area contractual requirements; maintain documentation

of the contractor’s performance under and compliance with these plans and requirements; and

provide advice and assistance to the firms involved, as appropriate.

(56) Maintain surveillance of flight operations.

(57) Assign and perform supporting contract administration.

(58) Ensure timely submission of required reports.

(59) Issue administrative changes, correcting errors or omissions in typing, contractor address,

facility or activity code, remittance address, computations which do not require additional contract

funds, and other such changes (see 43.101).

(60) Cause release of shipments from contractor’s plants according to the shipping instructions.

When applicable, the order of assigned priority shall be followed; shipments within the same priority

shall be determined by date of the instruction.

(61) Obtain contractor proposals for any contract price adjustments resulting from amended

shipping instructions. Review all amended shipping instructions on a periodic, consolidated basis to

ensure that adjustments are timely made. Except when the ACO has settlement authority, the ACO

shall forward the proposal to the contracting officer for contract modification. The ACO shall not

delay shipments pending completion and formalization of negotiations of revised shipping

instructions.

(62) Negotiate and/or execute supplemental agreements, as required, making changes in packaging

subcontractors or contract shipping points.

(63) Cancel unilateral purchase orders when notified of nonacceptance by the contractor. The CAO

shall notify the contracting officer when the purchase order is canceled.

(64) Negotiate and execute one-time supplemental agreements providing for the extension of
contract delivery schedules up to 90 days on contracts with an assigned Criticality Designator of C

(see 42.1105). Notification that the contract delivery schedule is being extended shall be provided to

the contracting office. Subsequent extensions on any individual contract shall be authorized only

upon concurrence of the contracting office.

(65) Accomplish administrative closeout procedures (see 4.804-5).

(66) Determine that the contractor has a drug-free workplace program and drug-free awareness

program (see subpart 23.5).

(67) Support the program, product, and project offices regarding program reviews, program status,

program performance and actual or anticipated program problems.

(68) Monitor the contractor’s environmental practices for adverse impact on contract performance

or contract cost, and for compliance with environmental requirements specified in the contract. ACO

responsibilities include-

(i) Requesting environmental technical assistance, if needed;

(ii) Monitoring contractor compliance with specifications or other contractual requirements

requiring the delivery or use of environmentally preferable products, energy-efficient products,

products containing recovered materials, and biobased products. This must occur as part of the

quality assurance procedures set forth in part 46; and

(iii) As required in the contract, ensuring that the contractor complies with the reporting

requirements relating to recovered material content utilized in contract performance (see subpart 

23.4).

(69) Administer commercial financing provisions and monitor contractor security to ensure its

continued adequacy to cover outstanding payments, when on-site review is required.

(70) Deobligate excess funds after final price determination.

(71) Ensure that the contractor has implemented the requirements of 52.203-13, Contractor Code of

Business Ethics and Conduct.

(b) The CAO shall perform the following functions only when and to the extent specifically

authorized by the contracting office:

(1) Negotiate or negotiate and execute supplemental agreements incorporating contractor proposals

resulting from change orders issued under the Changes clause. Before completing negotiations,

coordinate any delivery schedule change with the contracting office.

(2) Negotiate prices and execute priced exhibits for unpriced orders issued by the contracting officer

under basic ordering agreements.

(3) Negotiate or negotiate and execute supplemental agreements changing contract delivery

schedules.

(4) Negotiate or negotiate and execute supplemental agreements providing for the deobligation of

unexpended dollar balances considered excess to known contract requirements.

(5) Issue amended shipping instructions and, when necessary, negotiate and execute supplemental
agreements incorporating contractor proposals resulting from these instructions.

(6) Negotiate changes to interim billing prices.

(7) Negotiate and definitize adjustments to contract prices resulting from exercise of an economic

price adjustment clause (see subpart 16.2).

(8) Issue change orders and negotiate and execute resulting supplemental agreements under

contracts for ship construction, conversion, and repair.

(9) Execute supplemental agreements on firm-fixed-price supply contracts to reduce required line

item quantities and deobligate excess funds when notified by the contractor of an inconsequential

delivery shortage, and it is determined that such action is in the best interests of the Government,

notwithstanding the default provisions of the contract. Such action will be taken only upon the

written request of the contractor and, in no event, shall the total downward contract price

adjustment resulting from an inconsequential delivery shortage exceed $250.00 or 5 percent of the

contract price, whichever is less.

(10) Execute supplemental agreements to permit a change in place of inspection at origin specified

in firm-fixed-price supply contracts awarded to nonmanufacturers, as deemed necessary to protect

the Government’s interests.

(11) Prepare evaluations of contractor performance in accordance with subpart 42.15.

(c) Any additional contract administration functions not listed in 42.302(a) and (b), or not otherwise

delegated, remain the responsibility of the contracting office.

Subpart 42.4 - Correspondence and Visits

42.401 Contract correspondence.

(a) The contracting officer (or other contracting agency personnel) normally shall (1) forward

correspondence relating to assigned contract administration functions through the cognizant

contract administration office (CAO) to the contractor, and (2) provide a copy for the CAO’s file.

When urgency requires sending such correspondence directly to the contractor, a copy shall be sent

concurrently to the CAO.

(b) The CAO shall send the contracting office a copy of pertinent correspondence conducted between

the CAO and the contractor.

42.402 Visits to contractors’ facilities.

(a) Government personnel planning to visit a contractor’s facility in connection with one or more

Government contracts shall provide the cognizant CAO with the following information, sufficiently in

advance to permit the CAO to make necessary arrangements. Such notification is for the purpose of

eliminating duplicative reviews, requests, investigations, and audits relating to the contract

administration functions in subpart 42.3 delegated to CAO’s and shall, as a minimum, include the

following (see also paragraph (b) of this section):
(1) Visitors’ names, official positions, and security clearances.

(2) Date and duration of visit.

(3) Name and address of contractor and personnel to be contacted.

(4) Contract number, program involved, and purpose of visit.

(5) If desired, visitors to a contractor’s plant may request that a representative of the CAO

accompany them. In any event, the CAO has final authority to decide whether a representative shall

accompany a visitor.

(b) If the visit will result in reviewing, auditing, or obtaining any information from the contractor

relating to contract administration functions, the prospective visitor shall identify the information in

sufficient detail so as to permit the CAO, after consultation with the contractor and the cognizant

audit office, to determine whether such information, adequate to fulfill the requirement, has recently

been reviewed by or is available within the Government. If so, the CAO will discourage the visit and

refer the prospective visitor to the Government office where such information is located. Where the

office is the CAO, such information will be immediately forwarded or otherwise made available to the

requestor.

(c) Visitors shall fully inform the CAO of any agreements reached with the contractor or other results

of the visit that may affect the CAO.

42.403 Evaluation of contract administration offices.

Onsite inspections or evaluations of the performance of the assigned functions of a contract

administration office shall be accomplished only by or under the direction of the agency of which

that office is a part.

Subpart 42.5 - Postaward Orientation

42.500 Scope of subpart.

This subpart prescribes policies and procedures for the postaward orientation of contractors and

subcontractors through-

(a) A conference; or

(b) A letter or other form of written communication.

42.501 General.

(a) A postaward orientation aids both Government and contractor personnel to (1) achieve a clear

and mutual understanding of all contract requirements, and (2) identify and resolve potential

problems. However, it is not a substitute for the contractor’s fully understanding the work

requirements at the time offers are submitted, nor is it to be used to alter the final agreement
arrived at in any negotiations leading to contract award.

(b) Postaward orientation is encouraged to assist (see part 19)-

(1) Small business concerns;

(2) Small disadvantaged business concerns;

(3) Veteran-owned small business concerns;

(4) Service-disabled veteran-owned small business concerns;

(5) HUBZone small business concerns; and

(6) Women-owned small business concerns (including economically disadvantaged women-owned

small business concerns and women-owned small business concerns eligible under the WomenOwned Small Business Program).

(c) While cognizant Government or contractor personnel may request the contracting officer to

arrange for orientation, it is up to the contracting officer to decide whether a postaward orientation

in any form is necessary.

(d) Maximum benefits will be realized when orientation is conducted promptly after award.

42.502 Selecting contracts for postaward orientation.

When deciding whether postaward orientation is necessary and, if so, what form it shall take, the

contracting officer shall consider, as a minimum, the-

(a) Nature and extent of the preaward survey and any other prior discussions with the contractor;

(b) Type, value, and complexity of the contract;

(c) Complexity and acquisition history of the product or service;

(d) Requirements for spare parts and related equipment;

(e) Urgency of the delivery schedule and relationship of the product or service to critical programs;

(f) Length of the planned production cycle;

(g) Extent of subcontracting;

(h) Contractor’s performance history and experience with the product or service;

(i) Contractor’s status, if any, as a small business, small disadvantaged, women-owned, veteranowned, HUBZone, or service-disabled veteran-owned small business concern;

(j) Contractor’s performance history with small, small disadvantaged, women-owned, veteran-owned,

HUBZone, and service-disabled veteran-owned small business subcontracting programs;

(k) Safety precautions required for hazardous materials or operations; and
(l) Complex financing arrangements, such as progress payments, advance payments, or guaranteed

loans.

42.503 Postaward conferences.

42.503-1 Postaward conference arrangements.

(a) The contracting officer who decides that a conference is needed is responsible for-

(1) Establishing the time and place of the conference;

(2) Preparing the agenda, when necessary;

(3) Notifying appropriate Government representatives (e.g., contracting/contract administration

office) and the contractor;

(4) Designating or acting as the chairperson;

(5) Conducting a preliminary meeting of Government personnel; and

(6) Preparing a summary report of the conference.

(b) When the contracting office initiates a conference, the arrangements may be made by that office

or, at its request, by the contract administration office.

42.503-2 Postaward conference procedure.

The chairperson of the conference shall conduct the meeting. Unless a contract change is

contemplated, the chairperson shall emphasize that it is not the purpose of the meeting to change

the contract. The contracting officer may make commitments or give directions within the scope of

the contracting officer’s authority and shall put in writing and sign any commitment or direction,

whether or not it changes the contract. Any change to the contract that results from the postaward

conference shall be made only by a contract modification referencing the applicable terms of the

contract. Participants without authority to bind the Government shall not take action that in any way

alters the contract. The chairperson shall include in the summary report (see 42.503-3) all

information and guidance provided to the contractor.

42.503-3 Postaward conference report.

The chairperson shall prepare and sign a report of the postaward conference. The report shall cover

all items discussed, including areas requiring resolution, controversial matters, the names of the

participants assigned responsibility for further actions, and the due dates for the actions. The

chairperson shall furnish copies of the report to the contracting office, the contract administration

office, the contractor, and others who require the information.
42.504 Postaward letters.

In some circumstances, a letter or other written form of communication to the contractor may be

adequate postaward orientation (in lieu of a conference). The letter should identify the Government

representative responsible for administering the contract and cite any unusual or significant

contract requirements. The rules on changes to the contract in 42.503-2 also apply here.

42.505 Postaward subcontractor conferences.

(a) The prime contractor is generally responsible for conducting postaward conferences with

subcontractors. However, the prime contractor may invite Government representatives to a

conference with subcontractors, or the Government may request that the prime contractor initiate a

conference with subcontractors. The prime contractor should ensure that representatives from

involved contract administration offices are invited.

(b) Government representatives-

(1) Must recognize the lack of privity of contract between the Government and subcontractors;

(2) Shall not take action that is inconsistent with or alters subcontracts; and

(3) Shall ensure that any changes in direction or commitment affecting the prime contract or

contractor resulting from a subcontractor conference are made by written direction of the

contracting officer to the prime contractor in the same manner as described in 42.503-2.

Subpart 42.6 - Corporate Administrative Contracting Officer

42.601 General.

Contractors with more than one operational location (e.g., division, plant, or subsidiary) often have

corporate-wide policies, procedures, and activities requiring Government review and approval and

affecting the work of more than one administrative contracting officer (ACO). In these

circumstances, effective and consistent contract administration may require the assignment of a

corporate administrative contracting officer (CACO) to deal with corporate management and to

perform selected contract administration functions on a corporate-wide basis.

42.602 Assignment and location.

(a) A CACO may be assigned only when (1) the contractor has at least two locations with resident

ACO’s or (2) the need for a CACO is approved by the agency head or designee (for this purpose, a

nonresident ACO will be considered as resident if at least 75 percent of the ACO’s effort is devoted

to a single contractor). One of the resident ACO’s may be designated to perform the CACO functions,

or a full-time CACO may be assigned. In determining the location of the CACO, the responsible

agency shall take into account such factors as the location(s) of the corporate records, corporate

office, major plant, cognizant government auditor, and overall cost effectiveness.
(b) A decision to initiate or discontinue a CACO assignment should be based on such factors as the-

(1) Benefits of coordination and liaison at the corporate level;

(2) Volume of Government sales;

(3) Degree of control exercised by the contractor’s corporate office over Government-oriented lowertier operating elements; and

(4) Impact of corporate policies and procedures on those elements.

(c) Responsibility for assigning a CACO shall be determined as follows:

(1) When all locations of a corporate entity are under the contract administration cognizance of a

single agency, that agency is responsible.

(2) When the locations are under the contract administration cognizance of more than one agency,

the agencies concerned shall agree on the responsible agency (normally on the basis of the agency

with the largest dollar balance, including options, of affected contracts). In such cases, agencies may

also consider geographic location.

(d) The directory of contract administration services components referenced in 42.203 includes a

listing of CACO’s and the contractors for which they are assigned responsibility.

42.603 Responsibilities.

(a) The CACO shall perform, on a corporate-wide basis, the contract administration functions as

designated by the responsible agency. Typical CACO functions include-

(1) The determination of final indirect cost rates for cost-reimbursement contracts;

(2) Establishment of advance agreements or recommendations on corporate/ home office expense

allocations; and

(3) Administration of Cost Accounting Standards (CAS) applicable to corporate-level and corporatedirected accounting practices.

(b) The CACO shall-

(1) Fully utilize the responsible contract audit agency financial and advisory accounting services,

including-

(i) Advice regarding the acceptability of corporate-wide policies; and

(ii) Advisory audit reports;

(2) Keep cognizant ACO’s and auditors informed of important matters under consideration and

determinations made; and

(3) Solicit their advice and participation as appropriate.
Subpart 42.7 - Indirect Cost Rates

42.700 Scope of subpart.

This subpart prescribes policies and procedures for establishing-

(a) Billing rates; and

(b) Final indirect cost rates.

42.701 Definition.

Billing rate, as used in this subpart, means an indirect cost rate-

(1) Established temporarily for interim reimbursement of incurred indirect costs; and

(2) Adjusted as necessary pending establishment of final indirect cost rates.

42.702 Purpose.

(a) Establishing final indirect cost rates under this subpart provides-

(1) Uniformity of approach with a contractor when more than one contract or agency is involved;

(2) Economy of administration; and

(3) Timely settlement under cost-reimbursement contracts.

(b) Establishing billing rates provides a method for interim reimbursement of indirect costs at

estimated rates subject to adjustment during contract performance and at the time the final indirect

cost rates are established.

42.703 General.

42.703-1 Policy.

(a) A single agency (see 42.705-1) shall be responsible for establishing final indirect cost rates for

each business unit. These rates shall be binding on all agencies and their contracting offices, unless

otherwise specifically prohibited by statute. An agency shall not perform an audit of indirect cost

rates when the contracting officer determines that the objectives of the audit can reasonably be met

by accepting the results of an audit that was conducted by any other department or agency of the

Federal Government (10 U.S.C. 3841(e) and 41 U.S.C.4706(e)).

(b) Billing rates and final indirect cost rates shall be used in reimbursing indirect costs under costreimbursement contracts and in determining progress payments under fixed-price contracts.
(c) To ensure compliance with 10 U.S.C. 3743(a) and 41 U.S.C.4303(a)-

(1) Final indirect cost rates shall be used for contract closeout for a business unit, unless the quickcloseout procedure in 42.708 is used. These final rates shall be binding for all cost-reimbursement

contracts at the business unit, subject to any specific limitation in a contract or advance agreement;

and

(2) Established final indirect cost rates shall be used in negotiating the final price of fixed-price

incentive and fixed-price redeterminable contracts and in other situations requiring that indirect

costs be settled before contract prices are established, unless the quick-closeout procedure in

42.708 is used.

42.703-2 Certificate of indirect costs.

(a) General. In accordance with 10 U.S.C. 3747 and 41 U.S.C.4307, a proposal shall not be accepted

and no agreement shall be made to establish final indirect cost rates unless the costs have been

certified by the contractor.

(b) Waiver of certification.

(1) The agency head, or designee, may waive the certification requirement when-

(i) It is determined to be in the interest of the United States; and

(ii) The reasons for the determination are put in writing and made available to the public.

(2) A waiver may be appropriate for a contract with-

(i) A foreign government or international organization, such as a subsidiary body of the North

Atlantic Treaty Organization;

(ii) A State or local government subject to the OMB Uniform Guidance at 2 CFR part 200, subpart E

and appendices V and VII;

(iii) An educational institution (defined as an institution of higher education in the OMB Uniform

Guidance at 2 CFR part 200, subpart A, and 20 U.S.C. 1001) subject to the OMB Uniform Guidance

at 2 CFR part 200, subpart E and appendix III; and

(iv) A nonprofit organization (as defined in the OMB Uniform Guidance at 2 CFR part 200) subject to

the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix IV.

(c) Failure to certify.

(1) If the contractor has not certified its proposal for final indirect cost rates and a waiver is not

appropriate, the contracting officer may unilaterally establish the rates.

(2) Rates established unilaterally should be-

(i) Based on audited historical data or other available data as long as unallowable costs are

excluded; and
(ii) Set low enough to ensure that unallowable costs will not be reimbursed.

(d) False certification. The contracting officer should consult with legal counsel to determine

appropriate action when a contractor’s certificate of final indirect costs is thought to be false.

(e) Penalties for unallowable costs. 10 U.S.C. 3743 and 41 U.S.C.4303 prescribe penalties for

submission of unallowable costs in final indirect cost rate proposals (see 42.709 for penalties and

contracting officer responsibilities).

(f) Contract clause.

(1) Except as provided in paragraph (f)(2) of this subsection, the clause at 52.242-4, Certification of

Final Indirect Costs, shall be incorporated into all solicitations and contracts which provide for

establishment of final indirect cost rates.

(2) The Department of Energy may provide an alternate clause in its agency supplement for its

Management and Operating contracts.

42.704 Billing rates.

(a) The contracting officer (or cognizant Federal agency official) or auditor responsible under 42.705

for establishing the final indirect cost rates also shall be responsible for determining the billing

rates.

(b) The contracting officer (or cognizant Federal agency official) or auditor shall establish billing

rates on the basis of information resulting from recent review, previous rate audits or experience, or

similar reliable data or experience of other contracting activities. In establishing billing rates, the

contracting officer (or cognizant Federal agency official) or auditor should ensure that the billing

rates are as close as possible to the final indirect cost rates anticipated for the contractor’s fiscal

period, as adjusted for any unallowable costs. When the contracting officer (or cognizant Federal

agency official) or auditor determines that the dollar value of contracts requiring use of billing rates

does not warrant submission of a detailed billing rate proposal, the billing rates may be established

by making appropriate adjustments from the prior year’s indirect cost experience to eliminate

unallowable and nonrecurring costs and to reflect new or changed conditions.

(c) Once established, billing rates may be prospectively or retroactively revised by mutual

agreement of the contracting officer (or cognizant Federal agency official) or auditor and the

contractor at either party’s request, to prevent substantial overpayment or underpayment. When

agreement cannot be reached, the billing rates may be unilaterally determined by the contracting

officer (or cognizant Federal agency official).

(d) The elements of indirect cost and the base or bases used in computing billing rates shall not be

construed as determinative of the indirect costs to be distributed or of the bases of distribution to be

used in the final settlement.

(e) When the contractor provides to the cognizant contracting officer the certified final indirect cost

rate proposal in accordance with 42.705-1(b) or 42.705-2(b), the contractor and the Government

may mutually agree to revise billing rates to reflect the proposed indirect cost rates, as approved by

the Government to reflect historically disallowed amounts from prior years’ audits, until the proposal

has been audited and settled. The historical decrement will be determined by either the cognizant
contracting officer (42.705-1(b)) or the cognizant auditor (42.705-2(b)).

42.705 Final indirect cost rates.

(a) Final indirect cost rates shall be established on the basis of-

(1) Contracting officer determination procedure (see 42.705-1), or

(2) Auditor determination procedure (see 42.705-2).

(b) Within 120 days (or longer period, if approved in writing by the contracting officer,) after

settlement of the final annual indirect cost rates for all years of a physically complete contract, the

contractor must submit a completion invoice or voucher reflecting the settled amounts and rates. To

determine whether a period longer than 120 days is appropriate, the contracting officer should

consider whether there are extenuating circumstances, such as the following:

(1) Pending closeout of subcontracts awaiting Government audit.

(2) Pending contractor, subcontractor, or Government claims.

(3) Delays in the disposition of Government property.

(4) Delays in contract reconciliation.

(5) Any other pertinent factors.

(c)

(1) If the contractor fails to submit a completion invoice or voucher within the time specified in

paragraph (b) of this section, the contracting officer may-

(i) Determine the amounts due to the contractor under the contract; and

(ii) Record this determination in a unilateral modification to the contract.

(2) This contracting officer determination must be issued as a final decision in accordance with

33.211.

42.705-1 Contracting officer determination procedure.

(a) Applicability and responsibility. Contracting officer determination shall be used for the following,

with the indicated cognizant contracting officer (or cognizant Federal agency official) responsible for

establishing the final indirect cost rates:

(1) Business units of a multidivisional corporation under the cognizance of a corporate

administrative contracting officer (see subpart 42.6), with that officer responsible for the

determination, assisted, as required, by the administrative contracting officers, assigned to the

individual business units. Negotiations may be conducted on a coordinated or centralized basis,

depending upon the degree of centralization within the contractor’s organization.
(2) Business units not under the cognizance of a corporate administrative contracting officer, but

having a resident administrative contracting officer (see 42.602), with that officer responsible for

the determination. For this purpose, a nonresident administrative contracting officer is considered

as resident if at least 75 percent of the administrative contracting officer’s time is devoted to a

single contractor.

(3) For business units not included in paragraph (a)(1) or (a)(2) of this subsection, the contracting

officer (or cognizant Federal agency official) will determine whether the rates will be contracting

officer or auditor determined.

(4) Educational institutions (see 42.705-3).

(5) State and local governments (see 42.705-4).

(6) Nonprofit organizations other than educational and state and local governments (see 42.705-5).

(b) Procedures.

(1) In accordance with the Allowable Cost and Payment clause at 52.216-7, the contractor is

required to submit an adequate final indirect cost rate proposal to the contracting officer (or

cognizant Federal agency official) and to the cognizant auditor.

(i) The required content of the proposal and supporting data will vary depending on such factors as

business type, size, and accounting system capabilities. The contractor, contracting officer, and

auditor must work together to make the proposal, audit, and negotiation process as efficient as

possible.

(ii) Each contractor is required to submit the final indirect cost rate proposal within the six-month

period following the expiration of each of its fiscal years. The contracting officer may grant, in

writing, reasonable extensions, for exceptional circumstances only, when requested in writing by the

contractor.

(iii) Upon receipt of the proposal-

(A) The cognizant auditor will review the adequacy of the contractor’s proposal for audit in support

of negotiating final indirect cost rates and will provide a written description of any inadequacies to

the contractor and contracting officer.

(B) If the auditor and contractor are unable to resolve the proposal’s inadequacies identified by the

auditor, the auditor will elevate the issue to the contracting office to resolve the inadequacies.

(iv) The proposal must be supported with adequate supporting data, some of which may be required

subsequent to finding that the proposal is adequate for audit in support of negotiating final indirect

cost rates (e.g., during the course of the performance of the advisory audit). See the clause at

52.216-7(d)(2) for the description of an adequate final indirect cost rate proposal and supporting

data.

(2) Once a proposal has been determined to be adequate for audit in support of negotiating final

indirect cost rates, the auditor will audit the proposal and prepare an advisory audit report to the

contracting officer (or cognizant Federal agency official), including a listing of any relevant advance

agreements or restrictive terms of specific contracts.
(3) The contracting officer (or cognizant Federal agency official) shall head the Government

negotiating team, which includes the cognizant auditor and technical or functional personnel as

required. Contracting offices having significant dollar interest shall be invited to participate in the

negotiation and in the preliminary discussion of critical issues. Individuals or offices that have

provided a significant input to the Government position should be invited to attend.

(4) The Government negotiating team shall develop a negotiation position. Pursuant to 10 U.S.C.

3745 and 41 U.S.C.4305, the contracting officer shall-

(i) Not resolve any questioned costs until obtaining-

(A) Adequate documentation on the costs; and

(B) The contract auditor’s opinion on the allowability of the costs.

(ii) Whenever possible, invite the contract auditor to serve as an advisor at any negotiation or

meeting with the contractor on the determination of the contractor’s final indirect cost rates.

(5) The cognizant contracting officer shall-

(i) Conduct negotiations;

(ii) Prepare a written indirect cost rate agreement conforming to the requirements of the contracts;

(iii) Prepare, sign, and place in the contractor general file (see 4.801(c)(3)) a negotiation

memorandum covering-

(A) The disposition of significant matters in the advisory audit report;

(B) Reconciliation of all costs questioned, with identification of items and amounts allowed or

disallowed in the final settlement as well as the disposition of period costing or allocability issues;

(C) Reasons why any recommendations of the auditor or other Government advisors were not

followed; and

(D) Identification of certified cost or pricing data submitted during the negotiations and relied upon

in reaching a settlement; and

(iv) Distribute resulting documents in accordance with 42.706.

(v) Notify the contractor of the individual costs which were considered unallowable and the

respective amounts of the disallowance.

42.705-2 Auditor determination procedure.

(a) Applicability and responsibility.

(1) The cognizant Government auditor shall establish final indirect cost rates for business units not

covered in 42.705-1(a).

(2) In addition, auditor determination may be used for business units that are covered in 42.705-1(a)
when the contracting officer (or cognizant Federal agency official) and auditor agree that the

indirect costs can be settled with little difficulty and any of the following circumstances apply:

(i) The business unit has primarily fixed-price contracts, with only minor involvement in costreimbursement contracts.

(ii) The administrative cost of contracting officer determination would exceed the expected benefits.

(iii) The business unit does not have a history of disputes and there are few cost problems.

(iv) The contracting officer (or cognizant Federal agency official) and auditor agree that special

circumstances require auditor determination.

(b) Procedures.

(1) The contractor shall submit to the cognizant contracting officer (or cognizant Federal agency

official) and auditor a final indirect cost rate proposal in accordance with 42.705-1(b)(1).

(2) Once a proposal has been determined to be adequate for audit in support of negotiating final

indirect cost rates, the auditor shall-

(i) Audit the proposal and prepare an advisory audit report, including a listing of any relevant

advance agreements or restrictive terms of specific contracts;

(ii) Seek agreement on indirect costs with the contractor;

(iii) Prepare an indirect cost rate agreement conforming to the requirements of the contracts.The

agreement shall be signed by the contractor and the auditor;

(iv) If agreement with the contractor is not reached, forward the audit report to the contracting

officer (or cognizant Federal agency official) identified in the Directory of Contract Administration

Services Components (see 42.203), who will then resolve the disagreement; and

(v) Distribute resulting documents in accordance with 42.706.

42.705-3 Educational institutions.

(a) General.

(1) Postdetermined final indirect cost rates shall be used in the settlement of indirect costs for all

cost-reimbursement contracts with educational institutions, unless predetermined final indirect cost

rates are authorized and used (see paragraph (b) of this subsection).

(2) The OMB Uniform Guidance at 2 CFR part 200, appendix III assigns each educational institution

(defined as an institution of higher education in the OMB Uniform Guidance at 2 CFR part 200,

subpart A, and 20 U.S.C. 1001) to a single Government agency for the negotiation of indirect cost

rates and provides that those rates shall be accepted by all Federal agencies. Cognizant Government

agencies and educational institutions are listed in the Directory of Federal Contract Audit Offices

(see 42.103).
(3) The cognizant agency for indirect costs shall establish the billing rates and final indirect cost

rates at the educational institution (defined as an institution of higher education in 2 CFR 200,

subpart A, and 20 U.S.C. 1001) consistent with the requirements of this subpart, subpart 31.3, and

the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix III. The agency shall follow

the procedures outlined in 42.705-1(b).

(4) If the cognizant agency is unable to reach agreement with an institution, the appeals system of

the cognizant agency shall be followed for resolution of the dispute.

(b) Predetermined final indirect cost rates.

(1) Under cost-reimbursement research and development contracts with universities, colleges, or

other educational institutions (41 U.S.C.4708), payment for reimbursable indirect costs may be

made on the basis of predetermined final indirect cost rates. The cognizant agency is not required to

establish predetermined rates, but if they are established, their use must be extended to all the

institution’s Government contracts.

(2) In deciding whether the use of predetermined rates would be appropriate for the educational

institution concerned, the agency should consider both the stability of the institution’s indirect costs

and bases over a period of years and any anticipated changes in the amount of the direct and

indirect costs.

(3) Unless their use is approved at a level in the agency (see paragraph (a)(2) of this subsection)

higher than the contracting officer, predetermined rates shall not be used when-

(i) There has been no recent audit of the indirect costs;

(ii) There have been frequent or wide fluctuations in the indirect cost rates and the bases over a

period of years; or

(iii) The estimated reimbursable costs for any individual contract are expected to exceed $1 million

annually.

(4)

(i) If predetermined rates are to be used and no rates have been previously established for the

institution’s current fiscal year, the agency shall obtain from the institution a proposal for

predetermined rates.

(ii) If the proposal is found to be generally acceptable, the agency shall negotiate the predetermined

rates with the institution. The rates should be based on an audit of the institution’s costs for the year

immediately preceding the year in which the rates are being negotiated. If this is not possible, an

earlier audit may be used, but appropriate steps should be taken to identify and evaluate significant

variations in costs incurred or in bases used that may have a bearing on the reasonableness of the

proposed rates. However, in the case of smaller contracts (i.e., contracts that do not exceed the

simplified acquisition threshold), an audit made at an earlier date is acceptable if-

(A) There have been no significant changes in the contractor’s organization; and

(B) It is reasonably apparent that another audit would have little effect on the rates finally agreed

upon and the potential for overpayment of indirect cost is relatively insignificant.
(5) If predetermined rates are used-

(i) The contracting officer shall include the negotiated rates and bases in the contract Schedule; and

(ii) See 16.307(g), which prescribes the clause at 52.216-15, Predetermined Indirect Cost Rates.

(6) Predetermined indirect cost rates shall be applicable for a period of not more than fouryears. The

agency shall obtain the contractor’s proposal for new predetermined rates sufficiently in advance so

that the new rates, based on current data, may be promptly negotiated near the beginning of the

new fiscal year or other period agreed to by the parties (see paragraphs (b) and (d) of the clause at

52.216-15, Predetermined Indirect Cost Rates).

(7) Contracting officers shall use billing rates established by the agency to reimburse the contractor

for work performed during a period not covered by predetermined rates.

(8) The OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix III, provides additional

guidance on how long predetermined rates may be used.

42.705-4 State and local governments.

The OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix V, concerning cost

principles for state and local governments (see subpart 31.6) establishes the cognizant agency

concept and the procedures for determining a cognizant agency for approving State and local

government indirect costs associated with federally-funded programs and activities. The indirect

cost rates negotiated and approved by the cognizant agency for indirect costs will be used by all

Federal agencies that also award contracts to these same State and local governments.

42.705-5 Nonprofit organizations other than educational and state and local governments.

(See the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix IV; but see appendix

VIII for nonprofit organizations exempt from subpart E.)

42.706 Distribution of documents.

(a) The contracting officer or auditor shall promptly distribute executed copies of the indirect cost

rate agreement to the contractor and to each affected contracting agency and shall provide copies of

the agreement for the contract files, in accordance with the guidance for contract modifications in

subpart 4.2, Contract Distribution.

(b) Copies of the negotiation memorandum prepared under contracting officer determination or

audit report prepared under auditor determination shall be furnished, as appropriate, to the

contracting offices and Government audit offices.

42.707 Cost-sharing rates and limitations on indirect cost rates.

(a) Cost-sharing arrangements, when authorized, may call for the contractor to participate in the
costs of the contract by accepting indirect cost rates lower than the anticipated actual rates. In such

cases, a negotiated indirect cost rate ceiling may be incorporated into the contract for prospective

application. For cost sharing under research and development contracts, see 35.003(b).

(b)

(1) Other situations may make it prudent to provide a final indirect cost rate ceiling in a contract.

Examples of such circumstances are when the proposed contractor-

(i) Is a new or recently reorganized company, and there is no past or recent record of incurred

indirect costs;

(ii) Has a recent record of a rapidly increasing indirect cost rate due to a declining volume of sales

without a commensurate decline in indirect expenses; or

(iii) Seeks to enhance its competitive position in a particular circumstance by basing its proposal on

indirect cost rates lower than those that may reasonably be expected to occur during contract

performance, thereby causing a cost overrun.

(2) In such cases, an equitable ceiling covering the final indirect cost rates may be negotiated and

specified in the contract.

(c) When ceiling provisions are utilized, the contract shall also provide that-

(1) The Government will not be obligated to pay any additional amount should the final indirect cost

rates exceed the negotiated ceiling rates, and

(2) In the event the final indirect cost rates are less than the negotiated ceiling rates, the negotiated

rates will be reduced to conform with the lower rates.

42.708 Quick-closeout procedure.

(a) The contracting officer responsible for contract closeout shall negotiate the settlement of direct

and indirect costs for a specific contract, task order, or delivery order to be closed, in advance of the

determination of final direct costs and indirect rates set forth in 42.705, if-

(1) The contract, task order, or delivery order is physically complete;

(2) The amount of unsettled direct costs and indirect costs to be allocated to the contract, task

order, or delivery order is relatively insignificant. Cost amounts will be considered relatively

insignificant when the total unsettled direct costs and indirect costs to be allocated to any one

contract, task order, or delivery order does not exceed the lesser of-

(i) $1,000,000; or

(ii) 10 percent of the total contract, task order, or delivery order amount;

(3) The contracting officer performs a risk assessment and determines that the use of the quickcloseout procedure is appropriate. The risk assessment shall include-

(i) Consideration of the contractor’s accounting, estimating, and purchasing systems;
(ii) Other concerns of the cognizant contract auditors; and

(iii) Any other pertinent information, such as, documented history of Federal Government approved

indirect cost rate agreements, changes to contractor’s rate structure, volatility of rate fluctuations

during affected periods, mergers or acquisitions, special contract provisions limiting contractor’s

recovery of otherwise allowable indirect costs under cost reimbursement or time-and-materials

contracts; and

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

(b) Determinations of final indirect costs under the quick-closeout procedure provided for by the

Allowable Cost and Payment clause at 52.216-7 shall be final for the contract it covers and no

adjustment shall be made to other contracts for over- or under-recoveries of costs allocated or

allocable to the contract covered by the agreement.

(c) Indirect cost rates used in the quick closeout of a contract shall not be considered a binding

precedent when establishing the final indirect cost rates for other contracts.

42.709 Penalties for Unallowable Costs.

42.709-1 Scope.

(a) This section implements 10 U.S.C. 3743 and 41 U.S.C.4303. It covers the assessment of penalties

against contractors which include unallowable indirect costs in-

(1) Final indirect cost rate proposals; or

(2) The final statement of costs incurred or estimated to be incurred under a fixed-price incentive

contract.

(b) This section applies to all contracts in excess of $800,000, except fixed-price contracts without

cost incentives or any firm-fixed-price contracts for the purchase of commercial products or

commercial services.

42.709-2 General.

(a) The following penalties apply to contracts covered by this section:

(1) If the indirect cost is expressly unallowable under a cost principle in the FAR, or an executive

agency supplement to the FAR, that defines the allowability of specific selected costs, the penalty is

equal to-

(i) The amount of the disallowed costs allocated to contracts that are subject to this section for

which an indirect cost proposal has been submitted; plus

(ii) Interest on the paid portion, if any, of the disallowance.

(2) If the indirect cost was determined to be unallowable for that contractor before proposal

submission, the penalty is two times the amount in paragraph (a)(1)(i) of this section.
(b) These penalties are in addition to other administrative, civil, and criminal penalties provided by

law.

(c) It is not necessary for unallowable costs to have been paid to the contractor in order to assess a

penalty.

42.709-3 Responsibilities.

(a) The cognizant contracting officer is responsible for—

(1) Determining whether the penalties in 42.709-2(a) should be assessed;

(2) Determining whether such penalties should be waived pursuant to 42.709-6; and

(3) Referring the matter to the appropriate criminal investigative organization for review and for

appropriate coordination of remedies, if there is evidence that the contractor knowingly submitted

unallowable costs.

(b) The contract auditor, in the review and/or the determination of final indirect cost proposals for

contracts subject to this section, is responsible for—

(1) Recommending to the contracting officer which costs may be unallowable and subject to the

penalties in 42.709-2(a);

(2) Providing rationale and supporting documentation for any recommendation; and

(3) Referring the matter to the appropriate criminal investigative organization for review and for

appropriate coordination of remedies, if there is evidence that the contractor knowingly submitted

unallowable costs.

42.709-4 Assessing the penalty.

Unless a waiver is granted pursuant to 42.709-6, the cognizant contracting officer shall-

(a) Assess the penalty in 42.709-2(a)(1), when the submitted cost is expressly unallowable under a

cost principle in the FAR or an executive agency supplement that defines the allowability of specific

selected costs; or

(b) Assess the penalty in 42.709-2(a)(2), when the submitted cost was determined to be unallowable

for that contractor prior to submission of the proposal. Prior determinations of unallowability may be

evidenced by-

(1) A DCAA Form1, Notice of Contract Costs Suspended and/or Disapproved (see 48 CFR 242.705-2),

or any similar notice which the contractor elected not to appeal and was not withdrawn by the

cognizant Government agency;

(2) A contracting officer final decision which was not appealed;

(3) A prior executive agency Board of Contract Appeals or court decision involving the contractor,

which upheld the cost disallowance; or
(4) A determination or agreement of unallowability under 31.201-6.

(c) Issue a final decision (see 33.211) which includes a demand for payment of any penalty assessed

under paragraph (a) or (b) of this section. The letter shall state that the determination is a final

decision under the Disputes clause of the contract. (Demanding payment of the penalty is separate

from demanding repayment of any paid portion of the disallowed cost.)

42.709-5 Computing Interest.

For 42.709-2(a)(1)(ii), compute interest on any paid portion of the disallowed cost as follows:

(a) Consider the overpayment to have occurred, and interest to have begun accumulating, from the

midpoint of the contractor’s fiscal year. Use an alternate equitable method if the cost was not paid

evenly over the fiscal year.

(b) Use the interest rate specified by the Secretary of the Treasury pursuant to Pub.L.92-41 (85 Stat.

97).

(c) Compute interest from the date of overpayment to the date of the demand letter for payment of

the penalty.

(d) Determine the paid portion of the disallowed costs in consultation with the contract auditor.

42.709-6 Waiver of the penalty.

The cognizant contracting officer shall waive the penalties at 42.709-2(a) when—

(a) The contractor withdraws the proposal before the Government formally initiates an audit of the

proposal and the contractor submits a revised proposal (an audit will be deemed to be formally

initiated when the Government provides the contractor with written notice, or holds an entrance

conference, indicating that audit work on a specific final indirect cost proposal has begun);

(b) The amount of the unallowable costs under the proposal which are subject to the penalty is

$10,000 or less (i.e., if the amount of expressly or previously determined unallowable costs which

would be allocated to the contracts specified in 42.709-1(b) is $10,000 or less); or

(c) The contractor demonstrates, to the cognizant contracting officer’s satisfaction, that-

(1) It has established policies and personnel training and an internal control and review system that

provide assurance that unallowable costs subject to penalties are precluded from being included in

the contractor’s final indirect cost rate proposals (e.g., the types of controls required for satisfactory

participation in the Department of Defense sponsored self governance programs, specific accounting

controls over indirect costs, compliance tests which demonstrate that the controls are effective, and

Government audits which have not disclosed recurring instances of expressly unallowable costs);

and

(2) The unallowable costs subject to the penalty were inadvertently incorporated into the proposal;

i.e., their inclusion resulted from an unintentional error, notwithstanding the exercise of due care.
42.709-7 Contract clause.

Use the clause at 52.242-3, Penalties for Unallowable Costs, in all solicitations and contracts over

$800,000 except fixed-price contracts without cost incentives or any firm-fixed-price contract for the

purchase of commercial products or commercial services. Generally, covered contracts are those

which contain one of the clauses at 52.216-7, 52.216-16, or 52.216-17, or a similar clause from an

executive agency’s supplement to the FAR.

Subpart 42.8 - Disallowance of Costs

42.800 Scope of subpart.

This subpart prescribes policies and procedures for-

(a) Issuing notices of intent to disallow costs; and

(b) Disallowing costs already incurred during the course of performance.

42.801 Notice of intent to disallow costs.

(a) At any time during the performance of a contract of a type referred to in 42.802, the cognizant

contracting officer responsible for administering the contract may issue the contractor a written

notice of intent to disallow specified costs incurred or planned for incurrence. However, before

issuing the notice, the contracting officer responsible for administering the contract shall make

every reasonable effort to reach a satisfactory settlement through discussions with the contractor.

(b) A notice of intent to disallow such costs usually results from monitoring contractor costs. The

purpose of the notice is to notify the contractor as early as practicable during contract performance

that the cost is considered unallowable under the contract terms and to provide for timely resolution

of any resulting disagreement. In the event of disagreement, the contractor may submit to the

contracting officer a written response. Any such response shall be answered by withdrawal of the

notice or by making a written decision within 60 days.

(c) As a minimum, the notice shall-

(1) Refer to the contract’s Notice of Intent to Disallow Costs clause;

(2) State the contractor’s name and list the numbers of the affected contracts;

(3) Describe the costs to be disallowed, including estimated dollar value by item and applicable time

periods, and state the reasons for the intended disallowance;

(4) Describe the potential impact on billing rates and forward pricing rate agreements;

(5) State the notice’s effective date and the date by which written response must be received;

(6) List the recipients of copies of the notice; and
(7) Request the contractor to acknowledge receipt of the notice.

(d) The contracting officer issuing the notice shall furnish copies to all contracting officers cognizant

of any segment of the contractor’s organization.

(e) If the notice involves elements of indirect cost, it shall not be issued without coordination with

the contracting officer or auditor having authority for final indirect cost settlement (see 42.705).

(f) In the event the contractor submits a response that disagrees with the notice (see paragraph (b)

of this section), the contracting officer who issued the notice shall either withdraw the notice or

issue the written decision, except when elements of indirect cost are involved, in which case the

contracting officer responsible under 42.705 for determining final indirect cost rates shall issue the

decision.

42.802 Contract clause.

The contracting officer shall insert the clause at 52.242-1, Notice of Intent to Disallow Costs, in

solicitations and contracts when a cost-reimbursement contract, a fixed-price incentive contract, or a

contract providing for price redetermination is contemplated.

42.803 Disallowing costs after incurrence.

Cost-reimbursement contracts, the cost-reimbursement portion of fixed-price contracts, letter

contracts that provide for reimbursement of costs, and time-and-material and labor-hour contracts

provide for disallowing costs during the course of performance after the costs have been incurred.

The following procedures shall apply:

(a) Contracting officer receipt of vouchers. When contracting officers receive vouchers directly from

the contractor and, with or without auditor assistance, approve or disapprove them, the process

shall be conducted in accordance with the normal procedures of the individual agency.

(b) Auditor receipt of vouchers.

(1) When authorized by agency regulations, the contract auditor may be authorized to (i) receive

reimbursement vouchers directly from contractors, (ii) approve for payment those vouchers found

acceptable, and (iii)suspend payment of questionable costs. The auditor shall forward approved

vouchers for payment to the cognizant contracting, finance, or disbursing officer, as appropriate

under the agency’s procedures.

(2) If the examination of a voucher raises a question regarding the allowability of a cost under the

contract terms, the auditor, after informal discussion as appropriate, may, where authorized by

agency regulations, issue a notice of contract costs suspended and/or disapproved simultaneously to

the contractor and the disbursing officer, with a copy to the cognizant contracting officer, for

deduction from current payments with respect to costs claimed but not considered reimbursable.

(3) If the contractor disagrees with the deduction from current payments, the contractor may-

(i) Submit a written request to the cognizant contracting officer to consider whether the

unreimbursed costs should be paid and to discuss the findings with the contractor;
(ii) File a claim under the Disputes clause, which the cognizant contracting officer will process in

accordance with agency procedures; or

(iii) Do both of the above.

Subpart 42.9 - Bankruptcy

42.900 Scope of subpart.

This subpart prescribes policies and procedures regarding actions to be taken when a contractor

enters into proceedings relating to bankruptcy. It establishes a requirement for the contractor to

notify the contracting officer upon filing a petition for bankruptcy. It further establishes minimum

requirements for agencies to follow in the event of a contractor bankruptcy.

42.901 General.

The contract administration office shall take prompt action to determine the potential impact of a

contractor bankruptcy on the Government in order to protect the interests of the Government.

42.902 Procedures.

(a) When notified of bankruptcy proceedings, agencies shall, as a minimum-

(1) Furnish the notice of bankruptcy to legal counsel and other appropriate agency offices (e.g.,

contracting, financial, property) and affected buying activities;

(2) Determine the amount of the Government’s potential claim against the contractor (in assessing

this impact, identify and review any contracts that have not been closed out, including those

physically completed or terminated);

(3) Take actions necessary to protect the Government’s financial interests and safeguard

Government property; and

(4) Furnish pertinent contract information to the legal counsel representing the Government.

(b) The contracting officer shall consult with legal counsel, whenever possible, prior to taking any

action regarding the contractor’s bankruptcy proceedings.

42.903 Solicitation provision and contract clause.

The contracting officer shall insert the clause at 52.242-13, Bankruptcy, in all solicitations and

contracts exceeding the simplified acquisition threshold.
Subpart 42.10 - [Reserved]

Subpart 42.11 - Production Surveillance and Reporting

42.1101 General.

Production surveillance is a function of contract administration used to determine contractor

progress and to identify any factors that may delay performance. Production surveillance involves

Government review and analysis of-

(a) Contractor performance plans, schedules, controls, and industrial processes; and

(b) The contractor’s actual performance under them.

42.1102 Applicability.

This subpart applies to all contracts for supplies or services other than construction contracts, and

Federal Supply Schedule contracts. See part 37, especially subpart 37.6, regarding surveillance of

contracts for services.

42.1103 Policy.

The contractor is responsible for timely contract performance. The Government will maintain

surveillance of contractor performance as necessary to protect its interests. When the contracting

office retains a contract for administration, the contracting officer administering the contract shall

determine the extent of surveillance.

42.1104 Surveillance requirements.

(a) The contract administration office determines the extent of production surveillance on the basis

of-

(1) The criticality (degree of importance to the Government) assigned by the contracting officer (see

42.1105) to the supplies or services; and

(2) Consideration of the following factors:

(i) Contract requirements for reporting production progress and performance.

(ii) The contract performance schedule.

(iii) The contractor’s production plan.

(iv) The contractor’s history of contract performance.
(v) The contractor’s experience with the contract supplies or services.

(vi) The contractor’s financial capability.

(vii) Any supplementary written instructions from the contracting office.

(b) Contracts at or below the simplified acquisition threshold should not normally require production

surveillance.

(c) In planning and conducting surveillance, contract administration offices shall make maximum use

of any reliable contractor production control or data management systems.

(d) In performing surveillance, contract administration office personnel shall avoid any action that

may-

(1) Be inconsistent with any contract requirement; or

(2) Result in claims of waivers, of changes, or of other contract modifications.

42.1105 Assignment of criticality designator.

Contracting officers shall assign a criticality designator to each contract in the space for designating

the contract administration office, as follows:

Criticality

Designator Criterion

A

Critical contracts, including DX-rated contracts (see subpart 11.6),

contracts citing the authority in 6.302-2 (unusual and compelling

urgency), and contracts for major systems.

B

Contracts (other than those designated "A") for items needed to maintain

a Government or contractor production or repair line, to preclude out-ofstock conditions or to meet user needs for nonstock items.

C All contracts other than those designated "A" or "B."

42.1106 Reporting requirements.

(a) When information on contract performance status is needed, contracting officers may require

contractors to submit production progress reports (see 42.1107(a)). Reporting requirements shall be

limited to that information essential to Government needs and shall take maximum advantage of

data output generated by contractor management systems.

(b) Contract administration offices shall review and verify the accuracy of contractor reports and

advise the contracting officer of any required action. The accuracy of contractor-prepared reports

shall be verified either by a program of continuous surveillance of the contractor’s reportpreparation system or by individual review of each report.
(c) The contract administration office may at any time initiate a report to advise the contracting

officer (and the inventory manager, if one is designated in the contract) of any potential or actual

delay in performance. This advice shall-

(1) Be in writing;

(2) Be provided in sufficient time for the contracting officer to take necessary action; and

(3) Provide a definite recommendation, if action is appropriate.

42.1107 Contract clause.

(a) The contracting officer shall insert the clause at 52.242-2, Production Progress Reports, in

solicitations and contracts when production progress reporting is required; unless a construction

contract, or a Federal Supply Schedule contract is contemplated.

(b) When the clause at 52.242-2 is used, the contracting officer shall specify appropriate reporting

instructions in the Schedule (see 42.1106(a)).

Subpart 42.12 - Novation and Change-of-Name Agreements

42.1200 Scope of subpart.

This subpart prescribes policies and procedures for-

(a) Recognition of a successor in interest to Government contracts when contractor assets are

transferred;

(b) Recognition of a change in a contractor’s name; and

(c) Execution of novation agreements and change-of-name agreements by the responsible

contracting officer.

42.1201 [Reserved]

42.1202 Responsibility for executing agreements.

The contracting officer responsible for processing and executing novation and change-of-name

agreements shall be determined as follows:

(a) If any of the affected contracts held by the transferor have been assigned to an administrative

contracting officer (ACO) (see 2.1 and 42.202), the responsible contracting officer shall be-

(1) This ACO; or

(2) The ACO responsible for the corporate office, if affected contracts are in more than one plant or

division of the transferor.
(b) If none of the affected contracts held by the transferor have been assigned to an ACO, the

contracting officer responsible for the largest unsettled (unbilled plus billed but unpaid) dollar

balance of contracts shall be the responsible contracting officer.

(c) If several transferors are involved, the responsible contracting officer shall be-

(1) The ACO administering the largest unsettled dollar balance; or

(2) The contracting officer (or ACO) designated by the agency having the largest unsettled dollar

balance, if none of the affected contracts have been assigned to an ACO.

42.1203 Processing agreements.

(a) If a contractor wishes the Government to recognize a successor in interest to its contracts or a

name change, the contractor must submit a written request to the responsible contracting officer

(see 42.1202). If the contractor received its contract under subpart 8.7 under 41 U.S.C. chapter 85,

Committee for Purchase from People Who Are Blind or Severely Disabled, use the procedures at

8.716 instead.

(b) The responsible contracting officer shall-

(1) Identify and request that the contractor submit the information necessary to evaluate the

proposed agreement for recognizing a successor in interest or a name change. This information

should include the items identified in 42.1204(e) and (f) or 42.1205(a), as applicable;

(2) Notify each contract administration office and contracting office affected by a proposed

agreement for recognizing a successor in interest, and provide those offices with a list of all affected

contracts; and

(3) Request submission of any comments or objections to the proposed transfer within 30 days after

notification. Any submission should be accompanied by supporting documentation.

(c) Upon receipt of the necessary information, the responsible contracting officer shall determine

whether or not it is in the Government’s interest to recognize the proposed successor in interest on

the basis of-

(1) The comments received from the affected contract administration offices and contracting offices;

(2) The proposed successor’s responsibility under subpart 9.1, Responsible Prospective Contractors;

and

(3) Any factor relating to the proposed successor’s performance of contracts with the Government

that the Government determines would impair the proposed successor’s ability to perform the

contract satisfactorily.

(d) The execution of a novation agreement does not preclude the use of any other method available

to the contracting officer to resolve any other issues related to a transfer of contractor assets,

including the treatment of costs.

(e) Any separate agreement between the transferor and transferee regarding the assumption of

liabilities (e.g., long-term incentive compensation plans, cost accounting standards noncompliances,

environmental cleanup costs, and final overhead costs) should be referenced specifically in the
novation agreement.

(f) Before novation and change-of-name agreements are executed, the responsible contracting

officer shall ensure that Government counsel has reviewed them for legal sufficiency.

(g) The responsible contracting officer shall-

(1) Forward a signed copy of the executed novation or change-of-name agreement to the transferor

and to the transferee; and

(2) Retain a signed copy in the case file.

(h) Following distribution of the agreement, the responsible contracting officer shall-

(1) Prepare a Standard Form 30, Amendment of Solicitation/Modification of Contract, incorporating

a summary of the agreement and attaching a complete list of contracts affected;

(2) Retain the original Standard Form 30 with the attached list in the case file;

(3) Send a signed copy of the Standard Form 30, with attached list to the transferor and to the

transferee; and

(4) Send a copy of this Standard Form 30 with attached list to each contract administration office or

contracting office involved, which shall be responsible for further appropriate distribution.

42.1204 Applicability of novation agreements.

(a) 41 U.S.C.6305 prohibits transfer of Government contracts from the contractor to a third party.

The Government may, when in its interest, recognize a third party as the successor in interest to a

Government contract when the third party’s interest in the contract arises out of the transfer of-

(1) All the contractor’s assets; or

(2) The entire portion of the assets involved in performing the contract. (See 14.404-2(l) for the

effect of novation agreements after bid opening but before award.) Examples of such transactions

include, but are not limited to-

(i) Sale of these assets with a provision for assuming liabilities;

(ii) Transfer of these assets incident to a merger or corporate consolidation; and

(iii) Incorporation of a proprietorship or partnership, or formation of a partnership.

(b) A novation agreement is unnecessary when there is a change in the ownership of a contractor as

a result of a stock purchase, with no legal change in the contracting party, and when that

contracting party remains in control of the assets and is the party performing the contract. However,

whether there is a purchase of assets or a stock purchase, there may be issues related to the change

in ownership that appropriately should be addressed in a formal agreement between the contractor

and the Government (see 42.1203(e)).

(c) When it is in the Government’s interest not to concur in the transfer of a contract from one

company to another company, the original contractor remains under contractual obligation to the
Government, and the contract may be terminated for reasons of default, should the original

contractor not perform.

(d) When considering whether to recognize a third party as a successor in interest to Government

contracts, the responsible contracting officer shall identify and evaluate any significant

organizational conflicts of interest in accordance with subpart 9.5. If the responsible contracting

officer determines that a conflict of interest cannot be resolved, but that it is in the best interest of

the Government to approve the novation request, a request for a waiver may be submitted in

accordance with the procedures at 9.503.

(e) When a contractor asks the Government to recognize a successor in interest, the contractor shall

submit to the responsible contracting officer three signed copies of the proposed novation

agreement and one copy each, as applicable, of the following:

(1) The document describing the proposed transaction, e.g., purchase/sale agreement or

memorandum of understanding.

(2) A list of all affected contracts between the transferor and the Government, as of the date of sale

or transfer of assets, showing for each, as of that date, the-

(i) Contract number and type;

(ii) Name and address of the contracting office;

(iii) Total dollar value, as amended; and

(iv) Approximate remaining unpaid balance.

(3) Evidence of the transferee’s capability to perform.

(4) Any other relevant information requested by the responsible contracting officer.

(f) Except as provided in paragraph (g) of this section, the contractor shall submit to the responsible

contracting officer one copy of each of the following documents, as applicable, as the documents

become available:

(1) An authenticated copy of the instrument effecting the transfer of assets; e.g., bill of sale,

certificate of merger, contract, deed, agreement, or court decree.

(2) A certified copy of each resolution of the corporate parties’ boards of directors authorizing the

transfer of assets.

(3) A certified copy of the minutes of each corporate party’s stockholder meeting necessary to

approve the transfer of assets.

(4) An authenticated copy of the transferee’s certificate and articles of incorporation, if a

corporation was formed for the purpose of receiving the assets involved in performing the

Government contracts.

(5) The opinion of legal counsel for the transferor and transferee stating that the transfer was

properly effected under applicable law and the effective date of transfer.

(6) Balance sheets of the transferor and transferee as of the dates immediately before and after the

transfer of assets, audited by independent accountants.
(7) Evidence that any security clearance requirements have been met.

(8) The consent of sureties on all contracts listed under paragraph (e)(2) of this section if bonds are

required, or a statement from the transferor that none are required.

(g) If the Government has acquired the documents during its participation in the pre-merger or preacquisition review process, or the Government’s interests are adequately protected with an

alternative formulation of the information, the responsible contracting officer may modify the list of

documents to be submitted by the contractor.

(h) When recognizing a successor in interest to a Government contract is consistent with the

Government’s interest, the responsible contracting officer shall execute a novation agreement with

the transferor and the transferee. It shall ordinarily provide in part that-

(1) The transferee assumes all the transferor’s obligations under the contract;

(2) The transferor waives all rights under the contract against the Government;

(3) The transferor guarantees performance of the contract by the transferee (a satisfactory

performance bond may be accepted instead of the guarantee); and

(4) Nothing in the agreement shall relieve the transferor or transferee from compliance with any

Federal law.

(i) The responsible contracting officer shall use the following format for agreements when the

transferor and transferee are corporations and all the transferor’s assets are transferred. This

format may be adapted to fit specific cases and may be used as a guide in preparing similar

agreements for other situations.

Novation Agreement

The ABC Corporation (Transferor), a corporation duly organized and existing under the laws of

__________ [insert State] with its principal office in ____________ [insert city]; the XYZ Corporation

(Transferee), [if appropriate add "formerly known as the EFG Corporation"] a corporation duly

organized and existing under the laws of _________ [insert State] with its principal office in

____________ [insert city]; and the United States of America (Government) enter into this Agreement

as of ____________ [insert the date transfer of assets became effective under applicable State law].

(a) The parties agree to the following facts:

(1) The Government, represented by various Contracting Officers of the ______________ [insert

name(s) of agency(ies)], has entered into certain contracts with the Transferor, namely: ____________

[insert contract or purchase order identifications]; [or delete "namely" and insert "as shown in the

attached list marked ‘Exhibit A’ and incorporated in this Agreement by reference."]. The term "the

contracts," as used in this Agreement, means the above contracts and purchase orders and all other

contracts and purchase orders, including all modifications, made between the Government and the

Transferor before the effective date of this Agreement (whether or not performance and payment

have been completed and releases executed if the Government or the Transferor has any remaining

rights, duties, or obligations under these contracts and purchase orders). Included in the term "the

contracts" are also all modifications made under the terms and conditions of these contracts and

purchase orders between the Government and the Transferee, on or after the effective date of this

Agreement.
(2) As of ____________, 20___, the Transferor has transferred to the Transferee all the assets of the

Transferor by virtue of a __________ [insert term descriptive of the legal transaction involved]

between the Transferor and the Transferee.

(3) The Transferee has acquired all the assets of the Transferor by virtue of the above transfer.

(4) The Transferee has assumed all obligations and liabilities of the Transferor under the contracts

by virtue of the above transfer.

(5) The Transferee is in a position to fully perform all obligations that may exist under the contracts.

(6) It is consistent with the Government’s interest to recognize the Transferee as the successor party

to the contracts.

(7) Evidence of the above transfer has been filed with the Government. [When a change of name is

also involved; e.g.,a prior or concurrent change of the Transferee’s name, an appropriate statement

shall be inserted (see example in paragraph(8) of this Agreement)].

(8) A certificate dated _________, 20___, signed by the Secretary of State of ___________ [insert State],

to the effect that the corporate name of EFG Corporation was changed to XYZ Corporation on

_____________, 20__, has been filed with the Government.

(b) In consideration of these facts, the parties agree that by this Agreement-

(1) The Transferor confirms the transfer to the Transferee, and waives any claims and rights against

the Government that it now has or may have in the future in connection with the contracts.

(2) The Transferee agrees to be bound by and to perform each contract in accordance with the

conditions contained in the contracts. The Transferee also assumes all obligations and liabilities of,

and all claims against, the Transferor under the contracts as if the Transferee were the original

party to the contracts.

(3) The Transferee ratifies all previous actions taken by the Transferor with respect to the contracts,

with the same force and effect as if the action had been taken by the Transferee.

(4) The Government recognizes the Transferee as the Transferor’s successor in interest in and to the

contracts. The Transferee by this Agreement becomes entitled to all rights, titles, and interests of

the Transferor in and to the contracts as if the Transferee were the original party to the contracts.

Following the effective date of this Agreement, the term "Contractor," as used in the contracts, shall

refer to the Transferee.

(5) Except as expressly provided in this Agreement, nothing in it shall be construed as a waiver of

any rights of the Government against the Transferor.

(6) All payments and reimbursements previously made by the Government to the Transferor, and all

other previous actions taken by the Government under the contracts, shall be considered to have

discharged those parts of the Government’s obligations under the contracts. All payments and

reimbursements made by the Government after the date of this Agreement in the name of or to the

Transferor shall have the same force and effect as if made to the Transferee, and shall constitute a

complete discharge of the Government’s obligations under the contracts, to the extent of the

amounts paid or reimbursed.

(7) The Transferor and the Transferee agree that the Government is not obligated to pay or
reimburse either of them for, or otherwise give effect to, any costs, taxes, or other expenses, or any

related increases, directly or indirectly arising out of or resulting from the transfer or this

Agreement, other than those that the Government in the absence of this transfer or Agreement

would have been obligated to pay or reimburse under the terms of the contracts.

(8) The Transferor guarantees payment of all liabilities and the performance of all obligations that

the Transferee-

(i) Assumes under this Agreement; or

(ii) May undertake in the future should these contracts be modified under their terms and

conditions. The Transferor waives notice of, and consents to, any such future modifications.

(9) The contracts shall remain in full force and effect, except as modified by this Agreement. Each

party has executed this Agreement as of the day and year first above written.

United States of America,

By _______________________________________________

Title _____________________________________________

ABC Corporation,

By _______________________________________________

Title _____________________________________________

[Corporate Seal]

XYZ Corporation,

By _______________________________________________

Title _____________________________________________

[Corporate Seal]

Certificate

I, ___________, certify that I am the Secretary of ABC Corporation, that ________________, who signed

this Agreement for this corporation, was then _____________ of this corporation; and that this

Agreement was duly signed for and on behalf of this corporation by authority of its governing body

and within the scope of its corporate powers. Witness my hand and the seal of this corporation this

day of __________________ 20 ___.

By _______________________________________________

[Corporate Seal]

Certificate

I, ____________, certify that I am the Secretary of XYZ Corporation, that ________________, who signed

this Agreement for this corporation, was then _____________ of this corporation; and that this
Agreement was duly signed for and on behalf of this corporation by authority of its governing body

and within the scope of its corporate powers. Witness my hand and the seal of this corporation this

day of ____________________20___.

By _______________________________________________

[Corporate Seal]

42.1205 Agreement to recognize contractor’s change of name.

(a) If only a change of the contractor’s name is involved and the Government’s and contractor’s

rights and obligations remain unaffected, the parties shall execute an agreement to reflect the name

change. The contractor shall forward to the responsible contracting officer three signed copies of

the Change-of-Name Agreement, and one copy each of the following:

(1) The document effecting the name change, authenticated by a proper official of the State having

jurisdiction.

(2) The opinion of the contractor’s legal counsel stating that the change of name was properly

effected under applicable law and showing the effective date.

(3) A list of all affected contracts and purchase orders remaining unsettled between the contractor

and the Government, showing for each the contract number and type, and name and address of the

contracting office. The contracting officer may request the total dollar value as amended and the

remaining unpaid balance for each contract.

(b) The following suggested format for an agreement may be adapted for specific cases:

Change-of-Name Agreement

The ABC Corporation (Contractor), a corporation duly organized and existing under the laws of

__________ [insert State], and the United States of America (Government), enter into this Agreement

as of __________ [insert date when the change of name became effective under applicable State law].

(a) The parties agree to the following facts:

(1) The Government, represented by various Contracting Officers of the _______________ [insert

name(s) of agency(ies)], has entered into certain contracts and purchase orders with the XYZ

Corporation, namely: ____________ [insert contract or purchase order identifications]; [or delete

"namely" and insert "as shown in the attached list marked "Exhibit A" and incorporated in this

Agreement by reference."]. The term "the contracts," as used in this Agreement, means the above

contracts and purchase orders and all other contracts and purchase orders, including all

modifications, made by the Government and the Contractor before the effective date of this

Agreement (whether or not performance and payment have been completed and releases executed if

the Government or the Contractor has any remaining rights, duties, or obligations under these

contracts and purchase orders).

(2) The XYZ Corporation, by an amendment to its certificate of incorporation, dated _________ 20___,

has changed its corporate name to ABC Corporation.

(3) This amendment accomplishes a change of corporate name only and all rights and obligations of

the Government and of the Contractor under the contracts are unaffected by this change.
(4) Documentary evidence of this change of corporate name has been filed with the Government.

(b) In consideration of these facts, the parties agree that-

(1) The contracts covered by this Agreement are amended by substituting the name "ABC

Corporation" for the name "XYZ Corporation" wherever it appears in the contracts; and

(2) Each party has executed this Agreement as of the day and year first above written.

United States of America,

By _______________________________________________

Title _____________________________________________

ABC Corporation,

By _______________________________________________

Title _____________________________________________

[Corporate Seal]

Certificate

I, ___________, certify that I am the Secretary of ABC Corporation; that ___________, who signed this

Agreement for this corporation, was then _____________ of this corporation; and that this Agreement

was duly signed for and on behalf of this corporation by authority of its governing body and within

the scope of its corporate powers. Witness my hand and the seal of this corporation this ________ day

of ____________ 20___.

By _______________________________________________

[Corporate Seal]

Subpart 42.13 - Suspension of Work, Stop-Work Orders, and

Government Delay of Work

42.1301 General.

Situations may occur during contract performance that cause the Government to order a suspension

of work, or a work stoppage. This subpart provides clauses to meet these situations and a clause for

settling contractor claims for unordered Government caused delays that are not otherwise covered

in the contract.

42.1302 Suspension of work.

A suspension of work under a construction or architect-engineer contract may be ordered by the

contracting officer for a reasonable period of time. If the suspension is unreasonable, the contractor
may submit a written claim for increases in the cost of performance, excluding profit.

42.1303 Stop-work orders.

(a) Stop-work orders may be used, when appropriate, in any negotiated fixed-price or costreimbursement supply, research and development, or service contract if work stoppage may be

required for reasons such as advancement in the state-of-the-art, production or engineering

breakthroughs, or realignment of programs.

(b) Generally, a stop-work order will be issued only if it is advisable to suspend work pending a

decision by the Government and a supplemental agreement providing for the suspension is not

feasible. Issuance of a stop-work order shall be approved at a level higher than the contracting

officer. Stop-work orders shall not be used in place of a termination notice after a decision to

terminate has been made.

(c) Stop-work orders should include-

(1) A description of the work to be suspended;

(2) Instructions concerning the contractor’s issuance of further orders for materials or services;

(3) Guidance to the contractor on action to be taken on any subcontracts; and

(4) Other suggestions to the contractor for minimizing costs.

(d) Promptly after issuing the stop-work order, the contracting officer should discuss the stop-work

order with the contractor and modify the order, if necessary, in light of the discussion.

(e) As soon as feasible after a stop-work order is issued, but before its expiration, the contracting

officer shall take appropriate action to-

(1) Terminate the contract;

(2) Cancel the stop-work order (any cancellation of a stop-work order shall be subject to the same

approvals as were required for its issuance); or

(3) Extend the period of the stop-work order if it is necessary and if the contractor agrees (any

extension of the stop-work order shall be by a supplemental agreement).

42.1304 Government delay of work.

(a) The clause at 52.242-17, Government Delay of Work, provides for the administrative settlement

of contractor claims that arise from delays and interruptions in the contract work caused by the acts,

or failures to act, of the contracting officer. This clause is not applicable if the contract otherwise

specifically provides for an equitable adjustment because of the delay or interruption; e.g., when the

Changes clause is applicable.

(b) The clause does not authorize the contracting officer to order a suspension, delay, or interruption

of the contract work and it shall not be used as the basis or justification of such an order.
(c) If the contracting officer has notice of an unordered delay or interruption covered by the clause,

the contracting officer shall act to end the delay or take other appropriate action as soon as

practicable.

(d) The contracting officer shall retain in the file a record of all negotiations leading to any

adjustment made under the clause, and related certified cost or pricing data, or data other than

certified cost or pricing data.

42.1305 Contract clauses.

(a) The contracting officer shall insert the clause at 52.242-14, Suspension of Work, in solicitations

and contracts when a fixed-price construction or architect-engineer contract is contemplated.

(b)

(1) The contracting officer may, when contracting by negotiation, insert the clause at 52.242-15,

Stop-Work Order, in solicitations and contracts for supplies, services, or research and development.

(2) If a cost-reimbursement contract is contemplated, the contracting officer shall use the clause

with its AlternateI.

(c) The contracting officer shall insert the clause at 52.242-17, Government Delay of Work, in

solicitations and contracts when a fixed-price contract is contemplated for supplies other than

commercial or modified-commercial products. The clause use is optional when a fixed-price contract

is contemplated for services, or for supplies that are commercial or modified-commercial products.

Subpart 42.14 - [Reserved]

Subpart 42.15 - Contractor Performance Information

42.1500 Scope of subpart.

This subpart provides policies and establishes responsibilities for recording and maintaining

contractor performance information. This subpart does not apply to procedures used by agencies in

determining fees under award or incentive fee contracts. See subpart 16.4. However, the fee amount

paid to contractors should be reflective of the contractor’s performance and the past performance

evaluation should closely parallel and be consistent with the fee determinations.

42.1501 General.

(a) Past performance information (including the ratings and supporting narratives) is relevant

information, for future source selection purposes, regarding a contractor’s actions under previously

awarded contracts or orders. It includes, for example, the contractor’s record of-

(1) Conforming to requirements and to standards of good workmanship;
(2) Forecasting and controlling costs;

(3) Adherence to schedules, including the administrative aspects of performance;

(4) Reasonable and cooperative behavior and commitment to customer satisfaction;

(5) Complying with the requirements of the small business subcontracting plan (see 19.705-7(b));

(6) Reporting into databases (see subpart 4.14, and reporting requirements in the solicitation

provisions and clauses referenced in 9.104-7);

(7) Integrity and business ethics; and

(8) Business-like concern for the interest of the customer.

(b) Agencies shall monitor their compliance with the past performance evaluation requirements (see

42.1502), and use the Contractor Performance Assessment Reporting System (CPARS) metric tools

to measure the quality and timely reporting of past performance information. CPARS is the official

source for past performance information.

42.1502 Policy.

(a) General. Past performance evaluations shall be prepared at least annually and at the time the

work under a contract or order is completed. Past performance evaluations are required for

contracts and orders as specified in paragraphs (b) through (f) of this section, including contracts

and orders performed outside the United States. These evaluations are generally for the entity,

division, or unit that performed the contract or order. Past performance information shall be entered

into CPARS, the Governmentwide evaluation reporting tool for all past performance reports on

contracts and orders. Instructions for submitting evaluations into CPARS are available at

http://www.cpars.gov/.

(b) Contracts. Except as provided in paragraphs (e), (f), and (h) of this section, agencies shall

prepare evaluations of contractor performance for each contract (as defined in FAR part 2) that

exceeds the simplified acquisition threshold and for each order that exceeds the simplified

acquisition threshold. Agencies are required to prepare an evaluation if a modification to the

contract causes the dollar amount to exceed the simplified acquisition threshold.

(c) Orders under multiple-agency contracts. Agencies shall prepare an evaluation of contractor

performance for each order that exceeds the simplified acquisition threshold that is placed under a

Federal Supply Schedule contract or placed under a task-order contract or a delivery-order contract

awarded by another agency (i.e., Governmentwide acquisition contract or multi-agency contract).

Agencies placing orders under their own multiple-agency contract shall also prepare evaluations for

their own orders. This evaluation shall not consider the requirements under paragraph (g) of this

section. Agencies are required to prepare an evaluation if a modification to the order causes the

dollar amount to exceed the simplified acquisition threshold.

(d) Orders under single-agency contracts. For single-agency task-order and delivery-order contracts,

the contracting officer may require performance evaluations for each order in excess of the

simplified acquisition threshold when such evaluations would produce more useful past performance

information for source selection officials than that contained in the overall contract evaluation (e.g.,

when the scope of the basic contract is very broad and the nature of individual orders could be
significantly different). This evaluation need not consider the requirements under paragraph (g) of

this section unless the contracting officer deems it appropriate.

(e) Past performance evaluations shall be prepared for each construction contract of $750,000 or

more, and for each construction contract terminated for default regardless of contract value. Past

performance evaluations may also be prepared for construction contracts below $750,000.

(f) Past performance evaluations shall be prepared for each architect-engineer services contract of

$35,000 or more, and for each architect-engineer services contract that is terminated for default

regardless of contract value. Past performance evaluations may also be prepared for architectengineer services contracts below $35,000.

(g) Past performance evaluations shall include an assessment of the contractor's-

(1) Performance against, and efforts to achieve, the goals identified in the small business

subcontracting plan when the contract includes the clause at 52.219-9, Small Business

Subcontracting Plan; and

(2) Reduced or untimely payments (as defined in 19.701), made to small business subcontractors,

determined by the contracting officer to be unjustified. The contracting officer shall-

(i) Consider and evaluate a contractor's written explanation for a reduced or an untimely payment

when determining whether the reduced or untimely payment is justified; and

(ii) Determine that a history of unjustified reduced or untimely payments has occurred when the

contractor has reported three or more occasions of unjustified reduced or untimely payments under

a single contract within a 12-month period (see 42.1503(h)(1)(vi) and the evaluation ratings in Table 

42-2). The following payment or nonpayment situations are not considered to be unjustified:

(A) There is a contract dispute on performance.

(B) A partial payment is made for amounts not in dispute.

(C) A payment is reduced due to past overpayments.

(D) There is an administrative mistake.

(E) Late performance by the subcontractor leads to later payment by the prime contractor.

(h) Agencies shall not evaluate performance for contracts awarded under subpart 8.7.

(i) Agencies shall promptly report other contractor information in accordance with 42.1503(h).

42.1503 Procedures.

(a)

(1) Agencies shall assign responsibility and management accountability for the completeness of past

performance submissions. Agency procedures for the past performance evaluation system shall-

(i) Generally provide for input to the evaluations from the technical office, contracting office,
program management office, and where appropriate, quality assurance and end users of the product

or service;

(ii) Identify and assign past performance evaluation roles and responsibilities to those individuals

responsible for preparing and reviewing interim evaluations, if prepared, and final evaluations (e.g.,

contracting officers, contracting officer representatives, project managers, and program managers).

Those individuals identified may obtain information for the evaluation of performance from the

program office, administrative contracting office, audit office, end users of the product or service,

and any other technical or business advisor, as appropriate; and

(iii) Address management controls and appropriate management reviews of past performance

evaluations, to include accountability for documenting past performance on CPARS.

(2) If agency procedures do not specify the individuals responsible for past performance evaluation

duties, the contracting officer is responsible for this function.

(3) Interim evaluations may be prepared as required, in accordance with agency procedures.

(b)

(1) The evaluation should include a clear, non-technical description of the principal purpose of the

contract or order. The evaluation should reflect how the contractor performed. The evaluation

should include clear relevant information that accurately depicts the contractor’s performance, and

be based on objective facts supported by program and contract or order performance data. The

evaluations should be tailored to the contract type, size, content, and complexity of the contractual

requirements.

(2) Evaluation factors for each assessment shall include, at a minimum, the following:

(i) Technical (quality of product or service).

(ii) Cost control (not applicable for firm-fixed-price or fixed-price with economic price adjustment

arrangements).

(iii) Schedule/timeliness.

(iv) Management or business relations.

(v) Small business subcontracting, including reduced or untimely payments to small business

subcontractors when 19.702(a) requires a subcontracting plan (as applicable, see Table 42-2).

(vi) Other (as applicable) (e.g., trafficking violations, tax delinquency, failure to report in accordance

with contract terms and conditions, defective cost or pricing data, terminations, suspension and

debarments, and failure to comply with limitations on subcontracting).

(3) Evaluation factors may include subfactors.

(4) Each factor and subfactor used shall be evaluated and a supporting narrative provided. Each

evaluation factor, as listed in paragraph (b)(2) of this section, shall be rated in accordance with a

five scale rating system (i.e., exceptional, very good, satisfactory, marginal, and unsatisfactory). The

ratings and narratives must reflect the definitions in the tables Table 42-1 or Table 42-2 of this

section.
(c)

(1) When the contract provides for incentive fees, the incentive-fee contract performance evaluation

shall be entered into CPARS.

(2) When the contract provides for award fee, the award fee-contract performance adjectival rating

as described in 16.401(e)(3) shall be entered into CPARS.

(d) Agency evaluations of contractor performance, including both negative and positive evaluations,

prepared under this subpart shall be provided to the contractor as soon as practicable after

completion of the evaluation. The contractor will receive a CPARS-system generated notification

when an evaluation is ready for comment. Contractors shall be afforded up to 14 calendar days from

the date of notification of availability of the past performance evaluation to submit comments,

rebutting statements, or additional information. Agencies shall provide for review at a level above

the contracting officer to consider disagreements between the parties regarding the evaluation. The

ultimate conclusion on the performance evaluation is a decision of the contracting agency. Copies of

the evaluation, contractor response, and review comments, if any, shall be retained as part of the

evaluation. These evaluations may be used to support future award decisions, and should therefore

be marked "Source Selection Information". Evaluation of Federal Prison Industries (FPI)

performance may be used to support a waiver request (see 8.604) when FPI is a mandatory source in

accordance with subpart 8.6. The completed evaluation shall not be released to other than

Government personnel and the contractor whose performance is being evaluated during the period

the information may be used to provide source selection information. Disclosure of such information

could cause harm both to the commercial interest of the Government and to the competitive position

of the contractor being evaluated as well as impede the efficiency of Government operations.

Evaluations used in determining award or incentive fee payments may also be used to satisfy the

requirements of this subpart. A copy of the annual or final past performance evaluation shall be

provided to the contractor as soon as it is finalized.

(e) Agencies shall require frequent evaluation (e.g., monthly, quarterly) of agency compliance with

the reporting requirements in 42.1502, so agencies can readily identify delinquent past performance

reports and monitor their reports for quality control.

(f) Agencies shall prepare and submit all past performance evaluations electronically in CPARS at

https://www.cpars.gov. These evaluations, including any contractor-submitted information (with

indication whether agency review is pending), become available for source selection officials not

later than 14 days after the date on which the contractor is notified of the evaluation's availability

for comment. The Government shall update CPARS with any contractor comments provided after 14

days, as well as any subsequent agency review of comments received. Past performance evaluations

for classified contracts and special access programs shall not be reported in CPARS, but will be

reported as stated in this subpart and in accordance with agency procedures. Agencies shall ensure

that appropriate management and technical controls are in place to ensure that only authorized

personnel have access to the data and the information safeguarded in accordance with 42.1503(d).

(g) Agencies shall use the past performance information in CPARS. that is within three years (six for

construction and architect-engineer contracts) of the completion of performance of the evaluated

contract or order, and information contained in the Federal Awardee Performance and Integrity

Information System (FAPIIS), e.g., terminations for default or cause.

(h) Other contractor performance information.

(1) Agencies shall ensure information is accurately reported in the FAPIIS module of CPARS within 3
calendar days after a contracting officer-

(i) Issues a final determination that a contractor has submitted defective cost or pricing data;

(ii) Makes a subsequent change to the final determination concerning defective cost or pricing data

pursuant to 15.407-1(d);

(iii) Issues a final termination for cause or default notice;

(iv) Makes a subsequent withdrawal or a conversion of a termination for default to a termination for

convenience;

(v) Receives a final determination after an administrative proceeding, in accordance with

22.1704(d)(1), that substantiates an allegation of a violation of the trafficking in persons prohibitions

in 22.1703(a) and 52.222-50(b); or

(vi) Determines that a contractor has a history of three or more unjustified reduced or untimely

payments to small business subcontractors under a single contract within a 12-month period (see

42.1502(g)(2)).

(2) The information to be posted in accordance with this paragraph (h) is information relating to

contractor performance, but does not constitute a "past performance review," which would be

exempted from public availability in accordance with section 3010 of the Supplemental

Appropriations Act, 2010 (Pub. L. 111-212). Therefore, all such information posted in FAPIIS will be

publicly available, unless covered by a disclosure exemption under the Freedom of Information Act

(see 9.105-2(b)(2)).

(3) Agencies shall establish CPARS focal points who will register users to report data into the FAPIIS

module of CPARS (available at https://www.cpars.gov/).

(4) With regard to information that may be covered by a disclosure exemption under the Freedom of

Information Act, the contracting officer shall follow the procedures at 9.105-2(b)(2)(iv).

Table 42-1 -Evaluation Rating Definitions

Rating Definition Note

(a) Exceptional

Performance meets contractual

requirements and exceeds many

to the Government’s benefit.

The contractual performance of

the element or sub-element

being evaluated was

accomplished with few minor

problems for which corrective

actions taken by the contractor

were highly effective.

To justify an Exceptional rating,

identify multiple significant events

and state how they were of benefit to

the Government. A singular benefit,

however, could be of such magnitude

that it alone constitutes an

Exceptional rating. Also, there should

have been NO significant weaknesses

identified.
Rating Definition Note

(b) Very Good

Performance meets contractual

requirements and exceeds some

to the Government’s benefit.

The contractual performance of

the element or sub-element

being evaluated was

accomplished with some minor

problems for which corrective

actions taken by the contractor

were effective.

To justify a Very Good rating, identify

a significant event and state how it

was a benefit to the Government.

There should have been no significant

weaknesses identified.

(c) Satisfactory

Performance meets contractual

requirements. The contractual

performance of the element or

sub-element contains some

minor problems for which

corrective actions taken by the

contractor appear or were

satisfactory.

To justify a Satisfactory rating, there

should have been only minor

problems, or major problems the

contractor recovered from without

impact to the contract/order. There

should have been NO significant

weaknesses identified. A fundamental

principle of assigning ratings is that

contractors will not be evaluated with

a rating lower than Satisfactory solely

for not performing beyond the

requirements of the contract/order.

(d) Marginal

Performance does not meet

some contractual requirements.

The contractual performance of

the element or sub-element

being evaluated reflects a

serious problem for which the

contractor has not yet identified

corrective actions. The

contractor’s proposed actions

appear only marginally effective

or were not fully implemented.

To justify Marginal performance,

identify a significant event in each

category that the contractor had

trouble overcoming and state how it

impacted the Government. A Marginal

rating should be supported by

referencing the management tool that

notified the contractor of the

contractual deficiency (e.g.,

management, quality, safety, or

environmental deficiency report or

letter).
Rating Definition Note

(e)

Unsatisfactory

Performance does not meet

most contractual requirements

and recovery is not likely in a

timely manner. The contractual

performance of the element or

sub-element contains a serious

problem(s) for which the

contractor’s corrective actions

appear or were ineffective.

To justify an Unsatisfactory rating,

identify multiple significant events in

each category that the contractor had

trouble overcoming and state how it

impacted the Government. A singular

problem, however, could be of such

serious magnitude that it alone

constitutes an unsatisfactory rating.

An Unsatisfactory rating should be

supported by referencing the

management tools used to notify the

contractor of the contractual

deficiencies (e.g., management,

quality, safety, or environmental

deficiency reports, or letters).

NOTE 1: Plus or minus signs may be used to indicate an improving (+) or worsening (-) trend

insufficient to change the evaluation status.

NOTE 2: N/A (not applicable) should be used if the ratings are not going to be applied to a particular

area for evaluation.

Table 42-2 -Evaluation Rating Definitions[For the small business subcontracting evaluation factor,

when 52.219-9 is used]
Rating Definition Note

(a) Exceptional

Exceeded all statutory goals or

goals as negotiated. Had

exceptional success with

initiatives to assist, promote, and

utilize small business (SB), small

disadvantaged business (SDB),

women-owned small business

(WOSB), HUBZone small

business, veteran-owned small

business (VOSB) and service

disabled veteran owned small

business (SDVOSB). Complied

with FAR 52.219-8, Utilization of

Small Business Concerns.

Exceeded any other small

business participation

requirements incorporated in the

contract/order, including the use

of small businesses in mission

critical aspects of the program.

Went above and beyond the

required elements of the

subcontracting plan and other

small business requirements of

the contract/order. Completed

and submitted Individual

Subcontract Reports and/or

Summary Subcontract Reports in

an accurate and timely manner.

Did not have a history of three or

more unjustified reduced or

untimely payments to small

business subcontractors within a

12-month period.

To justify an Exceptional rating,

identify multiple significant events

and state how they were a benefit to

small business utilization. A singular

benefit, however, could be of such

magnitude that it constitutes an

Exceptional rating. Small businesses

should be given meaningful and

innovative work directly related to

the contract, and opportunities

should not be limited to indirect

work such as cleaning offices,

supplies, landscaping, etc. Also,

there should have been no

significant weaknesses identified.
Rating Definition Note

(b) Very Good

Met all of the statutory goals or

goals as negotiated. Had

significant success with initiatives

to assist, promote and utilize SB,

SDB, WOSB, HUBZone, VOSB,

and SDVOSB. Complied with FAR

52.219-8, Utilization of Small

Business Concerns. Met or

exceeded any other small

business participation

requirements incorporated in the

contract/order, including the use

of small businesses in mission

critical aspects of the program.

Endeavored to go above and

beyond the required elements of

the subcontracting plan.

Completed and submitted

Individual Subcontract Reports

and/or Summary Subcontract

Reports in an accurate and timely

manner. Did not have a history of

three or more unjustified reduced

or untimely payments to small

business subcontractors within a

12-month period.

To justify a Very Good rating,

identify a significant event and state

how it was a benefit to small

business utilization. Small

businesses should be given

meaningful and innovative

opportunities to participate as

subcontractors for work directly

related to the contract, and

opportunities should not be limited

to indirect work such as cleaning

offices, supplies, landscaping, etc.

There should be no significant

weaknesses identified.

(c)

Satisfactory

Demonstrated a good faith effort

to meet all of the negotiated

subcontracting goals in the

various socio-economic categories

for the current period. Complied

with FAR 52.219-8, Utilization of

Small Business Concerns. Met

any other small business

participation requirements

included in the contract/order.

Fulfilled the requirements of the

subcontracting plan included in

the contract/order. Completed

and submitted Individual

Subcontract Reports and/or

Summary Subcontract Reports in

an accurate and timely manner.

Did not have a history of three or

more unjustified reduced or

untimely payments to small

business subcontractors within a

12-month period.

To justify a Satisfactory rating, there

should have been only minor

problems, or major problems the

contractor has addressed or taken

corrective action. There should have

been no significant weaknesses

identified. A fundamental principle of

assigning ratings is that contractors

will not be assessed a rating lower

than Satisfactory solely for not

performing beyond the requirements

of the contract/order.
Rating Definition Note

(d) Marginal

Deficient in meeting key

subcontracting plan elements.

Deficient in complying with FAR

52.219-8, Utilization of Small

Business Concerns, and any other

small business participation

requirements in the

contract/order. Did not submit

Individual Subcontract Reports

and/or Summary Subcontract

Reports in an accurate or timely

manner. Failed to satisfy one or

more requirements of a corrective

action plan currently in place;

however, does show an interest in

bringing performance to a

satisfactory level and has

demonstrated a commitment to

apply the necessary resources to

do so. Required a corrective

action plan. Did not have a history

of three or more unjustified

reduced or untimely payments to

small business subcontractors

within a 12-month period.

To justify a Marginal rating, identify

a significant event that the

contractor had trouble overcoming

and how it impacted small business

utilization. A Marginal rating should

be supported by referencing the

actions taken by the Government

that notified the contractor of the

contractual deficiency.

(e)

Unsatisfactory

Noncompliant with FAR 52.219-8

and 52.219-9, and any other small

business participation

requirements in the

contract/order. Did not submit

Individual Subcontract Reports

and/or Summary Subcontract

Reports in an accurate or timely

manner. Showed little interest in

bringing performance to a

satisfactory level or is generally

uncooperative. Required a

corrective action plan. Had a

history of three or more

unjustified reduced or untimely

payments to small business

subcontractors within a 12-month

period.

To justify an Unsatisfactory rating,

identify multiple significant events

that the contractor had trouble

overcoming and state how it

impacted small business utilization.

A singular problem, however, could

be of such serious magnitude that it

alone constitutes an Unsatisfactory

rating. An Unsatisfactory rating

should be supported by referencing

the actions taken by the Government

to notify the contractor of the

deficiencies. When an Unsatisfactory

rating is justified, the contracting

officer must consider whether the

contractor made a good faith effort

to comply with the requirements of

the subcontracting plan required by

FAR 52.219-9 and follow the

procedures outlined in 52.219-16,

Liquidated Damages-Subcontracting

Plan.

NOTE 1: Plus or minus signs may be used to indicate an improving (+) or worsening (-) trend

insufficient to change evaluation status.
NOTE 2: Generally, zero percent is not a goal unless the contracting officer determined when

negotiating the subcontracting plan that no subcontracting opportunities exist in a particular socioeconomic category. In such cases, the contractor shall be considered to have met the goal for any

socio-economic category where the goal negotiated in the plan was zero.

42.1504 Contract clause.

Insert the clause at 52.242-5, Payments to Small Business Subcontractors, in all solicitations and

contracts containing the clause at 52.219-9, Small Business Subcontracting Plan.

Subpart 42.16 - Small Business Contract Administration

42.1601 General.

The contracting officer shall make every reasonable effort to respond in writing within 30 days to

any written request to the contracting officer from a small business concern with respect to a

contract administration matter. In the event the contracting officer cannot respond to the request

within the 30-day period, the contracting officer shall, within the period, transmit to the contractor a

written notification of the specific date the contracting officer expects to respond. This provision

shall not apply to a request for a contracting officer decision under 41 U.S.C. chapter 71, Contract

Disputes.

Subpart 42.17 - Forward Pricing Rate Agreements

42.1701 Procedures.

(a) Negotiation of forward pricing rate agreements (FPRA’s) may be requested by the contracting

officer or the contractor or initiated by the administrative contracting officer (ACO). In determining

whether or not to establish such an agreement, the ACO should consider whether the benefits to be

derived from the agreement are commensurate with the effort of establishing and monitoring it.

Normally, FPRA’s should be negotiated only with contractors having a significant volume of

Government contract proposals. The cognizant contract administration agency shall determine

whether an FPRA will be established.

(b) The ACO shall obtain the contractor’s forward pricing rate proposal and require that it include

cost or pricing data that are accurate, complete, and current as of the date of submission (but see

15.407-3(c)). The ACO shall invite the cognizant contract auditor and contracting offices having a

significant interest to participate in developing a Government objective and in the negotiations.

Upon completing negotiations, the ACO shall prepare a price negotiation memorandum (PNM) (see

15.406-3) and forward copies of the PNM and FPRA to the cognizant auditor and to all contracting

offices that are known to be affected by the FPRA.

(c) The FPRA shall provide specific terms and conditions covering expiration, application, and data

requirements for systematic monitoring to ensure the validity of the rates. The agreement shall

provide for cancellation at the option of either party and shall require the contractor to submit to the
ACO and to the cognizant contract auditor any significant change in cost or pricing data used to

support the FPRA.

(d) When an FPRA is invalid, the contractor should submit and negotiate a new proposal to reflect

the changed conditions. If an FPRA has not been established or has been invalidated, the ACO will

issue a forward pricing rate recommendation (FPRR) to buying activities with documentation to

assist negotiators. In the absence of an FPRA or FPRR, the ACO shall include support for rates

utilized.

(e) The ACO may negotiate continuous updates to the FPRA. The FPRA will provide specific terms

and conditions covering notification, application, and data requirements for systematic monitoring to

ensure the validity of the rates.