252.242-7005 Contractor Business Systems.

As prescribed in 242.7001 , use the following clause:

CONTRACTOR BUSINESS SYSTEMS (FEB 2012)

(a) This clause only applies to covered contracts that are subject to the Cost Accounting Standards

under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the

FAR Appendix).

(b) Definitions. As used in this clause—

“Acceptable contractor business systems” means contractor business systems that comply with the

terms and conditions of the applicable business system clauses listed in the definition of "contractor

business systems" in this clause.

“Contractor business systems” means—

(1) Accounting system, if this contract includes the clause at 252.242-7006 , Accounting System

Administration;

(2) Earned value management system, if this contract includes the clause at 252.234-7002 , Earned

Value Management System;

(3) Estimating system, if this contract includes the clause at 252.215-7002 , Cost Estimating System

Requirements;

(4) Material management and accounting system, if this contract includes the clause at

252.242-7004 , Material Management and Accounting System;

(5) Property management system, if this contract includes the clause at 252.245-7003 , Contractor

Property Management System Administration; and

(6) Purchasing system, if this contract includes the clause at 252.244-7001 , Contractor Purchasing

System Administration.

“Significant deficiency,” in the case of a contractor business system, means a shortcoming in the

system that materially affects the ability of officials of the Department of Defense to rely upon

information produced by the system that is needed for management purposes.

(c) General. The Contractor shall establish and maintain acceptable business systems in accordance

with the terms and conditions of this contract.

(d) Significant deficiencies. (1) The Contractor shall respond, in writing, within 30 days to an initial

determination that there are one or more significant deficiencies in one or more of the Contractor’s

business systems.

(2) The Contracting Officer will evaluate the Contractor's response and notify the Contractor, in

writing, of the final determination as to whether the Contractor’s business system contains

significant deficiencies. If the Contracting Officer determines that the Contractor’s business system

contains significant deficiencies, the final determination will include a notice to withhold payments.
(e) Withholding payments. (1) If the Contracting Officer issues the final determination with a notice

to withhold payments for significant deficiencies in a contractor business system required under this

contract, the Contracting Officer will withhold five percent of amounts due from progress payments

and performance-based payments, and direct the Contractor, in writing, to withhold five percent

from its billings on interim cost vouchers on cost-reimbursement, labor-hour, and time-and-materials

contracts until the Contracting Officer has determined that the Contractor has corrected all

significant deficiencies as directed by the Contracting Officer’s final determination. The Contractor

shall, within 45 days of receipt of the notice, either correct the deficiencies or submit an acceptable

corrective action plan showing milestones and actions to eliminate the deficiencies.

(2) If the Contractor submits an acceptable corrective action plan within 45 days of receipt of a

notice of the Contracting Officer’s intent to withhold payments, and the Contracting Officer, in

consultation with the auditor or functional specialist, determines that the Contractor is effectively

implementing such plan, the Contracting Officer will reduce withholding directly related to the

significant deficiencies covered under the corrective action plan, to two percent from progress

payments and performance-based payments, and direct the Contractor, in writing, to reduce the

percentage withheld on interim cost vouchers to two percent until the Contracting Officer

determines the Contractor has corrected all significant deficiencies as directed by the Contracting

Officer’s final determination. However, if at any time, the Contracting Officer determines that the

Contractor has failed to follow the accepted corrective action plan, the Contracting Officer will

increase withholding from progress payments and performance-based payments, and direct the

Contractor, in writing, to increase the percentage withheld on interim cost vouchers to the

percentage initially withheld, until the Contracting Officer determines that the Contractor has

corrected all significant deficiencies as directed by the Contracting Officer’s final determination.

(3) Payment withhold percentage limits.

(i) The total percentage of payments withheld on amounts due under each progress payment,

performance-based payment, or interim cost voucher, on this contract shall not exceed—

(A) Five percent for one or more significant deficiencies in any single contractor business system;

and

(B) Ten percent for significant deficiencies in multiple contractor business systems.

(ii) If this contract contains pre-existing withholds, and the application of any subsequent payment

withholds will cause withholding under this clause to exceed the payment withhold percentage limits

in paragraph (e)(3)(i) of this clause, the Contracting Officer will reduce the payment withhold

percentage in the final determination to an amount that will not exceed the payment withhold

percentage limits.

(4) For the purpose of this clause, payment means any of the following payments authorized under

this contract:

(i) Interim payments under—

(A) Cost-reimbursement contracts;

(B) Incentive type contracts;

(C) Time-and-materials contracts;

(D) Labor-hour contracts.
(ii) Progress payments.

(iii) Performance-based payments.

(5) Payment withholding shall not apply to payments on fixed-price line items where performance is

complete and the items were accepted by the Government.

(6) The withholding of any amount or subsequent payment to the Contractor shall not be construed

as a waiver of any rights or remedies the Government has under this contract.

(7) Notwithstanding the provisions of any clause in this contract providing for interim, partial, or

other payment withholding on any basis, the Contracting Officer may withhold payment in

accordance with the provisions of this clause.

(8) The payment withholding authorized in this clause is not subject to the interest-penalty

provisions of the Prompt Payment Act.

(f) Correction of deficiencies. (1) The Contractor shall notify the Contracting Officer, in writing,

when the Contractor has corrected the business system’s deficiencies.

(2) Once the Contractor has notified the Contracting Officer that all deficiencies have been

corrected, the Contracting Officer will take one of the following actions:

(i) If the Contracting Officer determines that the Contractor has corrected all significant deficiencies

as directed by the Contracting Officer’s final determination, the Contracting Officer will, as

appropriate, discontinue the withholding of progress payments and performance-based payments,

and direct the Contractor, in writing, to discontinue the payment withholding from billings on

interim cost vouchers under this contract associated with the Contracting Officer’s final

determination, and authorize the Contractor to bill for any monies previously withheld that are not

also being withheld due to other significant deficiencies. Any payment withholding under this

contract due to other significant deficiencies, will remain in effect until the Contracting Officer

determines that those significant deficiencies are corrected.

(ii) If the Contracting Officer determines that the Contractor still has significant deficiencies, the

Contracting Officer will continue the withholding of progress payments and performance-based

payments, and the Contractor shall continue withholding amounts from its billings on interim cost

vouchers in accordance with paragraph (e) of this clause, and not bill for any monies previously

withheld.

(iii) If the Contracting Officer determines, based on the evidence submitted by the Contractor, that

there is a reasonable expectation that the corrective actions have been implemented and are

expected to correct the significant deficiencies, the Contracting Officer will discontinue withholding

payments, and release any payments previously withheld directly related to the significant

deficiencies identified in the Contractor notification, and direct the Contractor, in writing, to

discontinue the payment withholding from billings on interim cost vouchers associated with the

Contracting Officer’s final determination, and authorize the Contractor to bill for any monies

previously withheld.

(iv) If, within 90 days of receipt of the Contractor notification that the Contractor has corrected the

significant deficiencies, the Contracting Officer has not made a determination in accordance with

paragraphs (f)(2)(i), (ii ), or (iii) of this clause, the Contracting Officer will reduce withholding

directly related to the significant deficiencies identified in the Contractor notification by at least 50

percent of the amount being withheld from progress payments and performance-based payments,
and direct the Contractor, in writing, to reduce the payment withholding from billings on interim

cost vouchers directly related to the significant deficiencies identified in the Contractor notification

by a specified percentage that is at least 50 percent, but not authorize the Contractor to bill for any

monies previously withheld until the Contracting Officer makes a determination in accordance with

paragraphs (f)(2)(i), (ii), or (iii) of this clause.

(v) At any time after the Contracting Officer reduces or discontinues the withholding of progress

payments and performance-based payments, or directs the Contractor to reduce or discontinue the

payment withholding from billings on interim cost vouchers under this contract, if the Contracting

Officer determines that the Contractor has failed to correct the significant deficiencies identified in

the Contractor's notification, the Contracting Officer will reinstate or increase withholding from

progress payments and performance-based payments, and direct the Contractor, in writing, to

reinstate or increase the percentage withheld on interim cost vouchers to the percentage initially

withheld, until the Contracting Officer determines that the Contractor has corrected all significant

deficiencies as directed by the Contracting Officer’s final determination.

(End of clause)

Parent topic: 252.242 RESERVED