MULTI-YEAR SALE OF SURPLUS SCRAP MATERIAL 

AT LOCATIONS NATIONWIDE 

DEFENSE REUTILIZATION AND MARKETING SERVICE 

INVITATION FOR BIDS 

NO. 99-4001 

STEP TWO OF TWO - STEP SOLICITATION 

MARCH 17, 2004 DRAFT 
MULTI-YEAR SALE OF SCRAP AT LOCATIONS NATIONWIDE 

INVITATION FOR BIDS 

No. 99-4001 

TABLE OF CONTENTS

I. STEP TWO OF TWO-STEP SEALED BIDDING.........................................................1

II. GENERAL STATEMENTS OF CONTRACT TERMS................................................2

A. INTRODUCTION..................................................................................................2

B. PRODUCT POOL AND PROPERTY FLOW....................................................3

C. DESIGNATION OF SCRAP VS. USEABLE ITEMS........................................5

D. PERFORMANCE PERIOD .................................................................................6

E. PURCHASER AND CONTRACTOR RESPONSIBILITIES...........................7

F. PRICING ................................................................................................................7

G. BID PRICE.............................................................................................................7

H. BIDDER DUE DILIGENCE.................................................................................8

I. NET PROCEEDS AND DIRECT COSTS ..........................................................8

J. SELLER INDIRECT COSTS...............................................................................9

J.1 RESOURCE RECOVERY AND RECYCLING PROGRAM (RRRP)..........11

K. OPERATING ACCOUNT AND DISTRIBUTIONS........................................11

L. WORKING CAPITAL ADVANCES AND REPAYMENTS ..........................12

M. DISTRIBUTIONS AND PAYMENTS...............................................................12

N. EARLY CANCELLATION OPTION ...............................................................13

O. PURCHASE ACCOUNT ....................................................................................13

P. PAYMENT DEPOSIT.........................................................................................13

Q. RETENTION FUND AND FINANCIAL GUARANTEE BOND ...................13

R. ABSENCE OF DRMS PRE-APPROVALS, AUTHORIZATIONS AND 

OPERATIONAL CONTROL.............................................................................14

S. COMPLIANCE MONITORING AND DISPUTE RESOLUTION................15

T. DELIVERY POINTS...........................................................................................16

U. LOGISTICS..........................................................................................................17

U.1 ADDITIONAL MATERIAL...............................................................................18

V. DEMIL “B” AND “Q” PROPERTY..................................................................19

W. DEMILITARIZATION.......................................................................................20

X. MISCELLANEOUS ............................................................................................22

Y. RISK FACTORS..................................................................................................24

III. BID SCHEDULE. ............................................................................................................27

A. BACKGROUND INFORMATION ...................................................................27

B. BID PROCESS.....................................................................................................27

C. ILLUSTRATIVE FINANCIAL MODEL..........................................................27

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IV. ITEM DESCRIPTION ....................................................................................................29

V. TERMS AND CONDITIONS OF SALE.......................................................................30

VI. ADDITIONAL TERMS AND CONDITIONS OF SALE............................................31

ARTICLE ONE. BIDDING AND CONTRACT AWARD .........................................31

Section 1. Bid Deposit. ....................................................................................................31

Section 2. Bids and Bid Evaluation. ..............................................................................31

(A) Bid Price................................................................................................................31

(B) Award....................................................................................................................31

Section 3. Contractor Credit Facility; Key Persons; Contract Award......................31

(A) Contractor Credit Facility. .................................................................................31

(B) Key Persons. .........................................................................................................32

(C) Contract Award. ..................................................................................................32

Section 4. Post-Award Conference. ...............................................................................32

Section 5. Purchaser Information..................................................................................32

Section 6. Formation of Purchaser; Covenant of Contractor.....................................33

(A) Formation of Purchaser. .....................................................................................33

(B) Covenant of Contractor.......................................................................................33

Section 7. Transfer and Hypothecation. .......................................................................33

(A) General Prohibition. ............................................................................................33

(B) Attempted Transfer. ............................................................................................34

(C) Consolidation with CV. .......................................................................................34

Section 8. Contract of Sale. ............................................................................................34

(A) Relationship of Parties.........................................................................................34

(B) Parties to Contract...............................................................................................34

Section 9. Authority of Sales Contracting Officer. ......................................................35

Section 10. Execution by Purchaser. .............................................................................35

Section 11. Replacement Contractor.............................................................................35

ARTICLE TWO. PERFORMANCE PERIOD; EARLY CANCELLATION 

OPTION; DRMS OPTION TO EXTEND ........................................................35

Section 1. Performance Period. .....................................................................................35

Section 2. Early Cancellation Option............................................................................36

Section 3. Indexed Prices and Indexed Market Value..................................................36

(B) Reporting Dates....................................................................................................36

(C) Indexed Price........................................................................................................37

(D) Indexing Report. ..................................................................................................37

Section 4. DRMS Option to Extend Performance. .......................................................37

Section 5. DRMS Options to Include Additional Property..........................................38

ARTICLE 2A. SMALL BUSINESS SALES PLAN ....................................................38

Section 1. Applicability...................................................................................................38

Section 2. Explanation of Terms. As used in this clause— ........................................38

(A) "Affiliates." ..........................................................................................................38

(B) "Small Business Concern"..................................................................................39

(C) "Failure to make a good faith effort to comply with the small business sales 

plan"..........................................................................................................39

Section 3. Small Business Sales Plan. ............................................................................39

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Section 4. Content of Plan. .............................................................................................39

Section 5. Incentive Provisions. .....................................................................................40

(A) Incentive 1.............................................................................................................40

(B) Incentive 2.............................................................................................................40

(C) Funding of Incentive Payments. .........................................................................40

Section 6. Quarterly Reports. ........................................................................................40

Section 7. Failure to Comply..........................................................................................41

Section 8. Review of Records. ........................................................................................41

ARTICLE THREE. REFERRAL AND REMOVAL OR ABANDONMENT OF 

PROPERTY; SPECIAL SITUATION PROPERTY; TITLE TO 

PROPERTY; RISK OF LOSS............................................................................41

Section 1. Pickup Notices and Invoices.........................................................................41

(A) Exclusive Sale. ......................................................................................................41

(B) Pickup Notices. .....................................................................................................41

(C) Outstanding Pickup Notice List..........................................................................42

(D) Invoices. ................................................................................................................42

Section 2. Delivery Points; DRMS Customer Liaison; Phase-In Period; DRMS 

Infrastructure Reduction. .......................................................................42

(A) Delivery Points. ....................................................................................................42

(B) Delivery Point Directory; DRMS Customer Liaison........................................43

(C) Phase-In Period. ...................................................................................................44

(D) DRMS Infrastructure. .........................................................................................46

(E) Maximum Number of DRMOs, DRMO Scrap Yards and DRMS Scrap 

Operations. ...............................................................................................46

Section 3. Property Storage; Delivery of Property to Purchaser and Passage of 

Title. ..........................................................................................................46

(A) Property Storage. .................................................................................................46

(B) Receipt of Property by Purchaser ......................................................................47

(C) Discrepancies; Correction of DEMIL Codes; Duty to Cooperate; Duties of 

Care and Loyalty; Administrative Efficiencies.....................................50

(D) Title ....................................................................................................................50

Section 4. Access to Property; Removal; On-Site Processing; Costs of Removal; 

Refrigerants..............................................................................................51

(A) Purchaser's Access to Property. .........................................................................51

(B) Re-Sale Buyers' Access to Property. ..................................................................52

(C) Removal; Packing and Loading..........................................................................52

(D) On-Site Processing. ..............................................................................................53

(E) DRMS Option to Permit On-Site Processing. ...................................................53

(F) Costs of Removal..................................................................................................54

(G) Government Furnished Property .......................................................................54

(H) Base Closures........................................................................................................55

(I) Damage to Government Property; Clean-Ups of Spills. ..................................55

Section 5. Delivery Documentation. ..............................................................................57

Section 6. Risk of Loss. ...................................................................................................57

Section 7. Initial Property Sales.....................................................................................58

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Section 8. Withdrawal or Re-Purchase of Property. ...................................................58

ARTICLE FOUR. PICKUP NOTICES........................................................................58

Section 1. Content of Pickup Notices. ...........................................................................58

(A) DRMO Name (DRMO_NAME). ........................................................................59

(B) DRMO RIC and RIC Suffix (DRMO_RIC and RIC_SFX).............................59

(C) Disposal Turn in Document Number (DTID_NO). ..........................................59

(D) SCL Code .............................................................................................................59

(E) National Stock Number [or] Local Stock Number. ..........................................59

(F) Inventory Item Name (INV_ITM_NAME). ......................................................60

(G) Item Unit of Issue (ITM_UI)...............................................................................60

(H) Quantity Available (QTY_AVAIL)....................................................................60

(I) Property Storage Location..................................................................................60

(J) Reimbursement Code. .........................................................................................60

(K) Hazardous Material Code. ..................................................................................60

(L) DEMIL Code. .......................................................................................................60

Section 2. Documentation and References....................................................................60

ARTICLE FIVE. PAYMENT BY PURCHASER FOR PROPERTY.......................61

Section 1. Payment of Bid Price and Payment Deposit. ..............................................61

(A) Payment of Bid Price. ..........................................................................................61

(B) Refund of Fractional Portion of Bid Price upon Contract Cancellation........61

(C) Refund of Fractional Portion of Bid Price upon Contract Termination........61

(D) Payment Deposit. .................................................................................................61

Section 2. Quarterly Payment by Purchaser................................................................61

(A) Invoices. ................................................................................................................61

(B) Amounts Payable to DRMS and to KGP; Timing of Payments......................62

(C) Quarterly Purchase Price....................................................................................62

Section 3. Failure to Make Timely Payments...............................................................62

Section 4. Payments. .......................................................................................................62

(A) Instructions for Payments to DRMS..................................................................62

(B) Instructions for Payments to KGP.....................................................................63

ARTICLE SIX. QUANTITY DELIVERABLE; DISCREPANCIES AND ANNUAL 

PRICING CORRECTION; SCRAP..................................................................63

Section 1. Sale by Reference Conditions.......................................................................63

Section 2. Discrepancies. ................................................................................................64

Section 3. Items not Available for Removal. ................................................................65

Section 4. Designation of Useable, Scrap and Refuse. .................................................65

(A) Downgrades Upon Receipt..................................................................................65

(B) Upgrades. ..............................................................................................................65

(C) Refuse....................................................................................................................66

Section 5. Resource Recovery and Recycling Program...............................................66

ARTICLE SEVEN. OPERATIONS..............................................................................67

Section 1. Compliance with Applicable Law and Regulations. ..................................67

(A) Compliance with Applicable Law.......................................................................67

(B) Licenses and Permits. ..........................................................................................67

(C) Responsibility for Keys........................................................................................67

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Section 2. Duties of Care and Loyalty...........................................................................67

(A) Duty of Care. ........................................................................................................67

(B) Duty of Loyalty.....................................................................................................68

Section 3. Prohibited Activities......................................................................................68

Section 4. Classified, Radioactive and Certain Other Material. ................................69

(A) Classified and Certain Dangerous Material......................................................69

(B) Radioactive Material. ..........................................................................................69

(C) Fluorocarbons ......................................................................................................69

Section 5. Munitions List Items and Commerce Control List Items. ........................70

(A) Acknowledgment of Export Restrictions...........................................................70

(B) Purchaser’s TSC Clearance and End Use Certificate......................................70

(C) Re-Sale Procedures. .............................................................................................70

(D) Compliance with EUC Requirements. ...............................................................71

(E) Shipping Containers. ...........................................................................................71

(F) Compliance with New Trade Security Control Requirements........................71

(G) Trade Security Control Records ........................................................................71

Section 6. Employee Compensation ..............................................................................71

(A) Base Compensation..............................................................................................71

(B) Bonuses..................................................................................................................72

(C) Benefits..................................................................................................................72

Section 7. Employee Expenses and Purchaser's Supplies, Furniture and Equipment.72

(A) Employee Expenses..............................................................................................72

(B) Supplies, Furniture and Equipment...................................................................72

Section 8. Commerce Control List Items (CCLI). .......................................................72

Section 9. Munitions and Commerce Control List Item (MLI/CCLI) Compliance. 73

ARTICLE EIGHT. PURCHASER'S RECORDS; INSPECTION AND AUDIT BY 

GOVERNMENT AND INDEPENDENT AUDITOR; ACCOUNTING 

PRINCIPLES AND REQUIRED REPORTS TO GOVERNMENT..............74

Section 1. Contractor Records Retention. ....................................................................74

Section 2. Inspection of Records and Workplace by Government.............................74

Section 3. Records Maintenance....................................................................................75

Section 4. Contracts with Third Parties........................................................................75

Section 5. Purchaser's Books of Account; Financial Reports.....................................75

(A) Transition Report. ...............................................................................................75

(B) Monthly Report....................................................................................................76

(C) Quarterly Report. ................................................................................................77

(D) Annual Report......................................................................................................77

(E) Closing Report......................................................................................................78

(F) Reporting Schedule..............................................................................................78

ARTICLE NINE. DIRECT COSTS..............................................................................79

Section 1. Definitions.................................................................................................79

(A) Direct Costs. .........................................................................................................79

(B) Seller Indirect Costs.............................................................................................79

(C) Contractor Indirect Costs. ..................................................................................79

Section 2. Documentation and Payment of Direct Costs and Seller Indirect Costs..79

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(A) Disbursements. .....................................................................................................79

(B) Supporting Documentation.................................................................................80

(C) Documentation Requirements. ...........................................................................80

(D) Payment. ...............................................................................................................80

(E) Written Certification to DRMS. .........................................................................80

(F) Contractor Indirect Costs. ..................................................................................81

ARTICLE TEN. CONFLICTS OF INTEREST..........................................................81

Section 1. Restriction on Participation. ........................................................................81

Section 2. Benefits to Contractor and Affiliated Parties. ............................................81

ARTICLE ELEVEN. FIDELITY BOND REQUIREMENTS; INSURANCE .........81

Section 1. Modification of Special Circumstance Conditions.....................................81

Section 2. Further Modifications...................................................................................82

ARTICLE TWELVE. SOFTWARE AND SYSTEMS................................................83

Section 1. Identification of Systems and Software Developed with Contractor 

Funds.........................................................................................................83

Section 2. License in Contractor Systems and Software. ............................................83

Section 3. Systems and Software Developed.................................................................84

Section 4. Third-Party Software....................................................................................85

Section 5. Software Documentation and Maintenance................................................86

ARTICLE THIRTEEN. OPERATING ACCOUNT; WORKING CAPITAL.........86

Section 1. Operating Account. .......................................................................................86

(A) Establishment. ......................................................................................................86

(B) Maintenance of Sufficient Funds........................................................................87

Section 2. Working Capital. ...........................................................................................87

Section 3. Funds in the Operating Account; Treatment of Interest...........................87

Section 4. Working Capital Advances...........................................................................87

Section 5. Limited Right to Borrow Funds...................................................................87

Section 6. Deposits to Operating Account. ...................................................................87

(A) Receipts. ................................................................................................................87

(B) Working Capital Advances. ................................................................................88

(C) Contractor's Responsibility for Funds...............................................................88

Section 7. Disbursements from Operating Account. ...................................................88

(A) Costs Payable from Operating Account. ...........................................................88

(B) Limitation on Disbursements..............................................................................88

(C) Signatures. ............................................................................................................88

Section 8. Transfer Accounts. ........................................................................................88

Section 9. Seller Indirect Cost Deductions and Reserves............................................89

ARTICLE FOURTEEN. PURCHASE ACCOUNT....................................................89

Section 1. Purchase Account. .........................................................................................89

(A) Establishment. ......................................................................................................89

Section 2. Purchase Advances........................................................................................89

Section 3. Funds in the Purchase Account; Treatment of Interest. ...........................89

Section 4. Treatment of Purchase Advances. ...............................................................89

Section 5. Disbursements from Purchase Account. .....................................................90

Section 6. Purchase Transfers........................................................................................90

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ARTICLE FIFTEEN. FINANCIAL GUARANTEE BOND; RETENTION FUND; 

ESTIMATED CONTINGENT LIABILITIES RESERVE..............................90

Section 1. Election of Contractor to Provide Financial Guarantee Bond in Lieu of 

Retention...................................................................................................90

Section 2. Financial Guarantee Bond............................................................................90

(B) Issuance and Renewal..........................................................................................90

(C) Liability and Release of Surety...........................................................................91

Section 3. Retention Fund. .............................................................................................91

(A) Establishment of Retention; Retention Rate; Retention Fund; Required 

Retention Fund Balance. .........................................................................91

(B) Insolvency of Contractor.....................................................................................91

(C) Increased Retention. ............................................................................................92

(D) Release of Retention Fund. .................................................................................92

Section 4. Estimated Contingent Liabilities Reserve...................................................92

ARTICLE SIXTEEN. DISTRIBUTIONS....................................................................92

Section 1. Monthly Distribution Statement. .................................................................92

Section 2. Calculate Cash Available for Distribution and Operating Net Worth.....93

(A) Calculate Cash Available for Distribution. .......................................................93

(B) Calculate Operating Net Worth. ........................................................................93

Section 3. Calculate Net Worth Allocations. ................................................................93

(A) Calculate Contractor Net Worth Allocation. ....................................................93

(B) Calculate DRMS Net Worth Allocation.............................................................93

(C) Calculate KGP Net Worth Allocation................................................................93

Section 4. Distribution Payments. .................................................................................93

ARTICLE SEVENTEEN. COMPLIANCE AND MONITORING ...........................96

Section 1. Purpose and Content of Compliance Reviews and Further Reviews. ......96

(A) Compliance Reviews and Further Reviews. ......................................................96

(B) Methods.................................................................................................................96

Section 2. Procedures for Compliance Reviews. ..........................................................96

(A) Procedures and Notice.........................................................................................96

(B) Scope. ....................................................................................................................97

Section 3. Further Reviews.............................................................................................97

Section 4. Compliance Notification. ..............................................................................97

Section 5. Costs of Oversight. ........................................................................................97

ARTICLE EIGHTEEN. AUDIT ADJUSTMENTS ....................................................97

Section 1. Notice of Audit Adjustment..........................................................................97

Section 2. Procedures for Adjudication of Audit Adjustments. .................................98

Section 3. Remedies for Audit Adjustments.................................................................98

ARTICLE NINETEEN. MATERIAL BREACH ........................................................98

Section 1. Notice of Material Breach.............................................................................98

Section 2. Response to Notice.........................................................................................98

(A) Cure. ....................................................................................................................98

(B) Submission of Dispute to Dispute Resolution Panel. ........................................98

Section 3. Termination. ..................................................................................................98

Section 4. Intentional Breach.........................................................................................99

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Section 5. DRMS Remedies for Material Breach by Contractor or Purchaser........99

Section 6. Indemnification of DRMS by Contractor and Purchaser. ........................99

Section 7. Indemnification of Contractor by DRMS. ................................................100

ARTICLE TWENTY. DISPUTE RESOLUTION.....................................................100

Section 1. Selection of Dispute Resolution Panel. ......................................................100

(A) Appointment of Arbitrators..............................................................................100

(B) Service of Arbitrators........................................................................................100

(C) Expenses..............................................................................................................101

Section 2. Location and Governing Rules...................................................................101

Section 3. Jurisdiction of the Dispute Resolution Panel............................................101

(A) Matters Committed to the Dispute Resolution Panel.....................................101

(B) Availability of Judicial Relief............................................................................101

Section 4. Submission of Disputes to the Dispute Resolution Panel.........................101

(A) Dispute. ...............................................................................................................101

(B) Process.................................................................................................................102

Section 5. Decision.........................................................................................................102

Section 6. Remedies Available to Dispute Resolution Panel. ....................................103

(A) Remedies in the Case of Disputes. ....................................................................103

(B) Remedies for Ineligible Disbursements............................................................103

(C) Award of Costs. ..................................................................................................103

Section 7. Effective Date...............................................................................................103

ARTICLE TWENTY-ONE. WIND-UP OF PURCHASER .....................................104

Section 1. Wind-Up Commencement Date. ................................................................104

Section 2. Cessation of Property Referrals.................................................................104

Section 3. Conduct of Wind-Up. ..................................................................................104

Section 4. Submission and Approval of Closing Report............................................104

(A) Preparation by Contractor. ..............................................................................104

(B) Preparation by DRMS.......................................................................................105

Section 5. Final Distributions; Refund of Remaining Balance of Payment Deposit 

and Remaining Balance of Retention Fund.........................................105

(A) Final Distributions; Dissolution of Purchaser.................................................105

(B) Refund of Payment Deposit and Retention Fund. ..........................................105

(C) Early Refund of Retention Fund. .....................................................................105

ARTICLE TWENTY-TWO. MISCELLANEOUS PROVISIONS..........................106

Section 1. Binding Effect. .............................................................................................106

Section 2. Notices...........................................................................................................106

Section 3. Severability; Consolidation with CV .........................................................107

Section 4. Headings. ......................................................................................................108

Section 5. Survival.........................................................................................................108

Section 6. Waiver. .........................................................................................................108

Section 7. Force Majeure..............................................................................................108

Section 8. Use of DRMS Name; Public Communications. ........................................108

Section 9. Tense and Gender........................................................................................109

Section 10. Entire Agreement; Modification..............................................................109

Section 11. Computation of Time. ...............................................................................109

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Section 12. Electronic Communication.......................................................................109

ARTICLE TWENTY-THREE. DEFINITIONS AND CROSS-REFERENCES TO 

DEFINITIONS ...................................................................................................109

VII. ATTACHMENTS AND SCHEDULES .......................................................................117

VIII. SCHEDULE VI.2.2.B ....................................................................................................124

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MULTI-YEAR SALE OF SCRAP AT LOCATIONS NATIONWIDE 

INVITATION FOR BIDS 

No. 99-4001 

I. STEP TWO OF TWO-STEP SEALED BIDDING 

This Invitation For Bids (IFB) is issued to initiate Step Two of two-step sealed bidding. The 

only bids that the DRMS Sales Contracting Officer (“SCO”) may consider for award of a 

contract are those received from bidders that have submitted acceptable technical proposals in 

Step One of this solicitation under RFTP 99-4001. 

The Key Personnel designations in the successful bidder’s technical proposal shall be 

incorporated into any contract awarded in response to this IFB. In all other respects, the 

provisions of this IFB shall govern the contract contemplated hereby without regard to 

assumptions, plans, forecasts, conditions or any other matters set forth in any prospective 

bidder’s technical proposal submitted in Step One.

Instructions and forms for submitting a bid are set forth in the accompanying “Bidding 

Instructions and Bid Forms.” Your Bid Forms and Bid Deposit in the form of immediately 

available funds (credit card, cashier’s check, guaranteed instrument or money order) payable to 

US Treasury in the amount of Twenty Thousand Dollars ($20,000) must be delivered to and 

received by DRMS before the bid opening at 9:00 a.m. EST on Tuesday, May 04, 2004. 

Address your Bid Forms and Bid Deposit to: 

Defense Reutilization and Marketing 

Service (DRMS) 

Federal Center, Room 2-4-4 

74 Washington Avenue N. 

Battle Creek, MI 49017-3092 

ATTN: Ms. Tina Aldrich 

1 
II. GENERAL STATEMENTS OF CONTRACT TERMS 

Certain of the contents and provisions of Parts III through VI of this IFB, including 

Appendices, Attachments and Schedules, are described in general and summary terms in this 

Part II. Statements in this Part II as to such contents and provisions are not intended to be 

complete. Reference is made to such contents and provisions for a complete description of the 

matters involved, and each such statement shall be deemed qualified in its entirety by such 

reference.

A. INTRODUCTION 

The structure of the sales described in this IFB are similar in many pertinent respects to 

the earlier sale contracts for surplus usable property that were awarded by DRMS in July of 1998 

to Levy/Latham LLC, and in June of 2001 to Surplus Acquisition Venture, LLC. Those sales are 

called the DRMS “Commercial Ventures” or “CVs.” As is described more specifically below, 

the CV-type structure is a “pipeline” sale, so named because the successful bidder pre-commits 

to purchase all of certain types of property that emerge from the DRMS “pipeline” at designated 

DRMS locations over a specified period of time. As is also described more specifically below, 

the CV-type structure is also a “net proceeds sharing sale” in that the successful bidder is 

obligated to share with DRMS a portion of the net proceeds realized from the re-sale of the 

property after deducting all of the costs of managing, transporting, protecting, improving and 

marketing the property. The CV-type sale structure is based upon a design originally developed 

for Resolution Trust Corporation and that RTC implemented in its largest and most successful 

asset sale transactions. 

This IFB for the DRMS “Scrap Venture” or “SV” sale concerns almost all “Scrap” 

material (as is more completely described in Section B below) that is designated as such by 

DRMS and that emerges from the DRMS “pipeline” at DRMS Scrap Yards1 and at other 

locations in the Continental United States (“CONUS”; but excluding locations in the “Control 

Group” as set forth below), plus locations in Alaska. 

All locations within the states of Tennessee, North Carolina, and South Carolina are 

considered the DRMS Scrap “Control Group.” All sites in the Control Group will employ 

traditional sales methods and are presently excluded from this Scrap Venture initiative. As set 

forth below, DRMS plans to conduct a 24-month review of the results of Scrap operations within 

the Control Group and may determine to combine the three-state Control Group into this SV sale 

transaction. 

The pertinent Scrap material is categorized as subject either to a DEMIL Code of “A” , 

“B” or “Q,” or to “DEMIL as a Condition of Sale” (see Section W below). As is the case in both 

CV sales, SV excludes Hazardous Material, Hazardous Waste, material in certain Scrap 

Classification List (SCL) codes and Federal Supply Classification (FSC) codes that present 

 

2 

1 DRMO Scrap Yards are listed in Part VII at Attachment IV. 
special hazards or handling difficulties, and certain types of Scrap that are excluded for other 

reasons. 

The successful offeror that is awarded the SV sale contract is termed the “Contractor.” 

The Contractor is required to establish a single-purpose Subchapter S corporation or limited 

liability company, termed the “Purchaser,” to perform the contract. 

Described very generally, under this proceeds-sharing sale contract structure, the 

Contractor pays to DRMS at the time that the contract is awarded a single “Bid Price” equal to 

the Contractor’s bid. In addition, the Contractor will provide funds to the Purchaser to enable 

the Purchaser to pay to DRMS each calendar quarter the “Quarterly Purchase Price” for the 

Property. In return, the Contractor is entitled to receive twenty percent (20%) of all 

Distributions of “Net Proceeds.” Net Proceeds equals all revenues obtained by the Purchaser 

(“Gross Proceeds”) less all of the Purchaser’s operating costs (“Direct Costs”). 

B. PRODUCT POOL AND PROPERTY FLOW 

The Scrap products sold under this IFB are categorized by Scrap Classification List 

(SCL) code and DEMIL Code. The included material identified by SCL Code and DEMIL Code 

constitutes the “Product Pool.”2

 Described generally, the Property in the Product Pool is (i) all 

“Scrap” material for which DRMS is accountable,3

 (ii) other than material and items in the list 

of excluded SCLs4

 and FSCs set forth in Part IV, 5 (iii) with DEMIL Codes “A,” “B” or “Q,” or 

subject to “Demilitarization as a Condition of Sale,” (iv) and a Hazardous Materials Code other 

than “W” (Hazardous Waste) or “M” (Hazardous Material), (v) that become available in the 

Continental United States (other than Tennessee and the Carolinas) and Alaska. 

The flow of Property in the Product Pool has varied since 1985. The data exhibited in 

Figures II-2 through II-17 present the scope of DRMS Scrap transactions in the pertinent 

geographic area by SCL Group,6

 Term Sales v. Spot Sales, and DEMIL Code (excluding DEMIL 

as a Condition of Sale).7

 These data, and other data presented herein, are derived using 

 

2

 Items that are subject to Demilitarization as a Condition of Sale are identified by FSC and by DEMIL Code, but 

not by SCL. 

3 See Section II.C, “Designation of Scrap vs. Useable Items;” see also Section II.J.1, “Resource Recovery and 

Recycling Program (RRRP).” 4 SCLs D5A, D5B, D5C, D5G, H15, H16, H17, & H18 contain Hazardous Material and are excluded from this sale. 

 

5

 In addition to certain FSCs, the sale will exclude SCLs beginning with P or V (precious metals) and SCL B00, 

B01, B02, B03 and B04 (rubbish, trash or any type of debris scheduled for A/D). The sale of tire material, classified 

in SCL Codes G01, G02, G03, G04, G05 and GST, wood material, classified in SCL Codes F01 and FSW, and glass 

material, classified in SCL Code H06, is subject to the provisions of Section 4(K) of Art. 3 to support DRMS solid 

waste management goals. 6

 An “SCL Group” is a grouping of SCL Codes determined by DRMS to have similar market characteristics. 

3 

7

 These data include all DRMS sales of “Scrap” material included in this SV sale in CONUS (excluding Tennessee 

and the Carolinas), plus the non-CONUS facilities as noted above in Section A. These data generally understate the 

total weights and sales revenues pertinent to this SV sale by excluding Demilitarization as a Condition of Sale 
sources that DRMS believes are reliable, but DRMS cannot guarantee the accuracy of such 

data. Prospective offerors should note that DRMS cannot predict either the volume of items 

that the Purchaser will sell, or the revenues obtainable therefrom, or whether the revenues 

from the disposition of Scrap will exceed the costs thereof. Each prospective offeror, 

therefore, must account for this risk in its bidding. DRMS expressly disavows any implicit 

prediction, projection or suggestion to the contrary.

Three primary descriptive variables are of interest in DRMS historical data:

 

(1) Weight (in pounds) 

(2) Gross Proceeds (in dollars) 

(3) Gross Proceeds per Pound. 

Figures II-2 through II-4 summarize DRMS Scrap data for these variables for Fiscal 

Years 1985-2003. (Figure II-1 is reserved and is not used in this IFB.) These three measures, 

plus the associated proportions expressed as percentages for Weight and Gross Proceeds, are 

exhibited repeatedly throughout the figures in the following dimensions: 

 by SCL Group (Figs. II-5 through II-7) 

 by Sale Type (Figs. II-8 through II-12) 

 by DEMIL Code (Figs. II-13 through II-17). 

Figures II-5 through II-7 show Scrap sales by SCL Group for the three primary variables. 

 Nine SCL Groups are shown: 

(1) Aluminum

(2) Brass and Copper 

(3) Steel and Iron 

(4) High Temp Alloys 

(5) Stainless Steel 

(6) Paper 

(7) Other (Metallic) 

(8) Other 

(9) Misc. Scrap, Not Otherwise Classified (SCL Code H13). 

Each SCL Group is composed of individual SCL Codes. (This mapping is detailed in 

Part IV, Table IV-1(a).) The SCL Codes were assigned to SCL Groups in such a way as to 

reduce the variability in Gross Proceeds and Proceeds per Pound within each Group. 

Notice that Figures II-5 through II-7 are exhibited using a “zoom” technique. That is, 

they focus at the broadest level (where the largest SCL Groups dominate) in the first figure, and 

then increase their focus in successive figures until the smallest SCL Groups dominate. For 

example, Figure II-5(a) shows all nine SCL Groups, no matter how large or small the volume; 

4 

material. These items generally account for an additional 5% to 15% measured by Gross Proceeds. See Table II-9 

in Section W, “Demilitarization,” for these estimates. 
Figure II-5(b) shows a subset of these with moderate volumes (close up); and Figure II-5(c) 

shows the subset of these with the smallest volumes (close up even further). 

 

Figures II-8 through II-12 present Scrap sales by Sale Type. Spot Sales (non-Term

Sales) are shown relative to Term Sales (those involving time-period contracts). This distinction 

indicates the market conditions and institutional norms effecting DRMS’s transactions. 

Figures II-13 through II-17 show Scrap sales by DEMIL Group. For example, Figure II16 shows that DEMIL Groups “A,” “B,” and “Other” have maintained relatively stable shares of 

Gross Proceeds with respect to each other over the years. 

Throughout the Performance Period of the contract, DRMS will have the contractual 

obligation to refer all such Property on DRMS records for purchase under the contract. The 

initial Performance Period is eighty-four (84) months, but DRMS may elect to exercise options 

to extend the Performance Period for up to an additional thirty-six months. 

The Purchaser will have the exclusive right to purchase all of the flow of such Property, 

and DRMS will not be able to divert any such Property to another buyer. Subject to certain 

limited exceptions, the Purchaser will have the corresponding contractual obligation to purchase

all of the flow of Property in the Product Pool after an initial six-month Phase-In Period. (See 

Part VI, “Additional Terms and Conditions of Sale,” Article 3; references to Articles in Part VI 

are hereinafter abbreviated “Art. ___.”) The Purchaser is encouraged to market the Property to 

traditional DRMS buyers. 

C. DESIGNATION OF SCRAP VS. USEABLE ITEMS 

An entity that turns property into DRMS for disposition is termed a “generator.” There 

are three ways that DRMS acquires Scrap from the military and from other federal activities that 

are generators. 

First, the generator tentatively designates an item as Useable or Scrap when the item is 

presented for turn-in to DRMS. The DRMS receiving personnel may either accept a Scrap 

designation or upgrade the item to Useable (an “Upgrade Upon Receipt”). The DRMS receiving 

personnel similarly may either accept a Useable designation or downgrade the item to Scrap (a 

“Downgrade Upon Receipt”). All items that are initially designated as Scrap by DRMS (either 

by reason of DRMS accepting the generator’s Scrap determination or by way of a Downgrade 

Upon Receipt) are presently sold as such by DRMS to Scrap purchasers by weight and SCL. 

Second, under DRMS operations, items that are designated as Useable upon receipt are 

offered at no charge to certain prospective claimants (“Reutilization, Transfer and Donation” or 

“R/T/D” claimants) such as other U.S. military organizations. Those items that are not claimed 

and removed during the R/T/D process are sold by DRMS to the Commercial Venture (CV) 

Purchaser. Some items, however, are withdrawn from the sale process because DRMS personnel 

5 
believe that they are not saleable. All of these unsold items are downgraded to Scrap and sold as 

such (each, a “Post-Receipt Downgrade”), also by weight and SCL.8

Third, many items of military property require demilitarization for reasons of safety, 

national security, or both. Such “DEMIL-required” items are turned in to DRMS identified as 

such by the generator. DRMS either performs the required destruction itself before sale of the 

residue as Scrap or obligates the buyer to do so before title passes to the item.

9

 See Section W

for more information about demilitarization. 

D. PERFORMANCE PERIOD 

The successful offeror will have three months (3) after award to arrange for the facilities, 

staffing and equipment that will initially be required to receive and process Property. (See Art. 3.) 

The minimum Performance Period for the contract is eighty-four (84) months. (See Art. 

2.) DRMS may exercise options to extend the Performance Period for up to an additional thirtysix (36) months. (See Art. 2.) 

The Purchaser will be required to accept referrals of Property initially at certain of the 

largest Scrap Yards measured by Gross Proceeds (the “Initial Delivery Points”). This list of 

Scrap Yards is specified in Art. 3. The Purchaser must begin accepting Property at these initial 

sites no later than three (3) months after the post-award conference. Moreover, the Purchaser 

may request an even more accelerated schedule. Subject to its ability to conclude existing term

sale contracts to accommodate such a request, and subject to certain other factors, DRMS will 

respond to such a request in the exercise of its sole discretion. (See Art. 3 and Table VI.3.2.C.) 

Subject to staffing and facilities constraints, DRMS intends to accumulate Property at a 

particular site in advance of the scheduled first referral of Property at that site. In other words, 

DRMS intends to provide the Purchaser with some beginning inventory to enable the Purchaser 

to begin its operations without necessarily waiting to accumulate a particular level of inventory. 

This applies to the Initial Delivery Points and to sites phased in later. (See Art. 3.) 

Within three (3) months of the post-award conference, the Purchaser must provide to 

DRMS a proposed schedule for phasing in referrals at the balance of all Scrap operations that are 

the subject of this sale. Unless DRMS exercises its sole discretion to extend the proposed 

schedule, such referrals must be accomplished no later than six (6) months after the post-award 

conference. The Purchaser may request an even more accelerated phase-in of the balance of the 

Scrap operations, and DRMS will respond to such a request in the exercise of its sole discretion. 

 

8

 The CV Purchaser also abandons Useable items to DRMS that DRMS downgrades to Scrap through Post-Receipt 

Downgrades. 

6 

9

 A small portion, ranging in recent years between approximately 5% and 15% of total DRMS Scrap Gross 

Proceeds, of DRMS Scrap items are sold subject to “Demilitarization as a Condition of Sale,” and the buyers must 

perform the demilitarization process themselves. See Section W.
DRMS and the Contractor will have an objectively defined early cancellation option 

discussed in Section II.N below. (See Art. 2.) 

E. PURCHASER AND CONTRACTOR RESPONSIBILITIES 

The successful offeror is referred to as the “Contractor”. The Contractor must form a 

single purpose Subchapter S corporation or limited liability company referred to as the 

“Purchaser.” The Contractor must own at least a fifty-one percent (51%) interest in the 

Purchaser and must control the Purchaser. (See Art. 1). 

The Purchaser will be the entity that purchases the Property, manages and disposes of the 

Property, and manages all financial affairs including receipts, payments, accounting systems, 

cashflow management, audits and cash distributions to the Contractor and DRMS. As provided 

in Part VI, the Purchaser also pays a portion of each DRMS Distribution to Kormendi \ Gardner 

Partners (“KGP”). (See Art. 16.) 

Although the Purchaser is the operational entity, both the Contractor and Purchaser are 

jointly responsible for the operations of the Purchaser. In particular, while the Contractor does 

not guarantee the business success of the Purchaser in any way, the Contractor does guarantee 

that the Purchaser will operate in total compliance with the contract. (See Art. 19.) 

The Contractor’s guarantee is secured in part by its Bid Deposit of Twenty Thousand 

Dollars ($20,000.00). Upon award the Bid Deposit is retained by DRMS as a “Payment 

Deposit” (see Art. 5) and, unless the Contractor posts a “Financial Guarantee Bond” in the 

amount of $1 million, by a provision for retaining a portion of the Contractor’s distributions in a 

“Retention Fund” held by DRMS up to a maximum of $500,000 in most circumstances (see Art. 

15). 

F. PRICING 

All of the Property will be sold to the Purchaser at a Quarterly Purchase Price equal to 

.01 cents per pound multiplied by Delivery Weight but not less than 1 cent per “DTID".10 The 

purpose of this pricing is to insulate both DRMS and the Contractor from the business risk 

presented by volatile re-sale prices in the recycling marketplace. Instead of bidding a per-pound 

price, therefore, offerors must offer a “Bid Price” as explained in the following section. 

G. BID PRICE 

Each offeror must specify a Bid Price that is a single lump-sum dollar amount to be paid 

by the successful offeror to DRMS upon award of the sale contract. The Bid Price will be 

 

7 

10The "DTID" is the official form (DD 1348-1) used by all military services to turn in excess property. Material or 

objects grouped together on a single DTID collectively constitute a single "Line Item" of Property. 
“repaid” from the Contractor’s 20% share of “Net Proceeds.” Apart from the Bid Price, the 

contract will be profitable each calendar quarter if (1) Gross Proceeds exceed Direct Costs (i.e., 

Net Proceeds exceed zero) and (2) the Contractor’s 20% share of Net Proceeds exceeds the 

Quarterly Purchase Price equal to the greater of .01 cents per pound or 1 cent per DTID. The 

amount of that profit will be affected in turn by the volume of the Property referred for sale to 

the Purchaser and the mix of relatively high-value and low-value Property that is referred. 

Offerors should carefully assess the risks inherent in these factors when determining their Bid 

Prices. 

H. BIDDER DUE DILIGENCE 

Prospective bidders will be provided detailed annual data on DRMS’s Scrap sales for 

weight, gross proceeds, and average proceeds per pound, by, SCL, SCL Group, Sale Type, 

DEMIL Code, and Scrap Yard for fiscal years 1994 – 2003 in a data supplement that will be 

issued with or shortly after this IFB. Preliminary sales data are presented in Tables II-1 through 

II-5 on the following pages. (Table II-6 is reserved and is not used in this IFB.) Prospective 

bidders will also be provided available data on recent DRMS Scrap inventory to assist 

prospective bidders with due diligence. 

Prospective bidders will be provided access to Scrap material in the physical custody of 

Scrap Yards in CONUS to be pre-arranged by DRMS. DRMS has yet to determine the date that 

bidders will have access to Puget Sound Naval Shipyard. Bidders will not be allowed access to 

Puget Sound Naval Shipyard at any other time, and should make arrangements to visit that 

facility on the determined date. Contact Tina Aldrich at (269) 961-7427 to make arrangements. 

I. NET PROCEEDS AND DIRECT COSTS 

Described generally, the Purchaser’s “Net Proceeds” is the Purchaser’s Gross Proceeds 

(obtained by the Purchaser from the Property’s sale, buyer’s premiums, insurance proceeds or by 

any other means), less all “Direct Costs.” Direct Costs are, generally, all costs, other than the 

cost of purchasing the Property and the compensation and travel expenses of the Purchaser’s 

Chief Executive Officer, that are actually incurred by the Purchaser solely for the management, 

preservation, handling, storage, improvement, transportation and disposition of the Property 

(e.g., payroll, office rent, travel, etc., including all costs commonly termed “overhead costs”), 

and paid either to a third party (including employees) or to an affiliate in connection with a 

“Permitted Affiliate Transaction.” (See Art. 9.) 

 

8 

DRMS recognizes that a particular Contractor may own, or have access through an 

Affiliated Party to, facilities for the shredding, smelting or other processing of scrap material. If 

the Purchaser were to pay the Contractor or an Affiliated Party for such processing, that would 

be an Affiliate Transaction and generally prohibited as such. However, the Contractor may 

request DRMS approval for a Permitted Affiliate Transaction at any time after award. (See 

Article 9.) Such a request should fully specify the details of the proposed transaction, the 

opportunity presented to enhance Net Proceeds, any inherent risks to the Government in terms of 
pricing, accountability for Property or otherwise, and the controls to be put in place to offset 

such risks. 

The costs of any transaction with an “Affiliated Party” (as such term is defined in Art. 

23) will not be considered Direct Costs unless such transaction is a Permitted Affiliate 

Transaction (see Art. 9). 

Direct Costs are directly payable by the Purchaser out of Gross Proceeds and deductible 

from Gross Proceeds when calculating distributions payable to DRMS and the Contractor. (See 

Sections K, L and M below; see also Art. 9 and Art. 16.) 

J. SELLER INDIRECT COSTS 

The nature of DRMS’s business and the nature of the Property itself are such that, absent 

special provisions in this IFB, there would be certain business risks inherent in this sale structure 

that would be very difficult or impossible for prospective bidders to accept. As set forth below, 

these risks principally relate to the logistics costs of removing Property that the Purchaser might 

be obligated to pick up from “off-site” locations. This IFB accordingly provides that certain of 

the Purchaser’s costs are to be deemed “Seller Indirect Costs” and deducted in their entirety from

Distributions otherwise payable to DRMS (rather than shared between DRMS and the Contractor 

as Direct Costs). This mechanism largely leaves the risks associated with these issues with 

DRMS (where they are today) and accordingly should considerably ameliorate these concerns 

for prospective offerors. 

The logistics business risk that is addressed through the Seller Indirect Costs provisions 

is as follows: DRMS presently expects that Delivery of the majority of the Property that is 

referred for sale to the Purchaser will be at Scrap Yards and at generator locations accumulated 

in roll-offs, hoppers or other Containers. Subject to space constraints that are specific to each 

Scrap Yard and that may change over time, all Scrap Yards will be available to the Purchaser for 

use subject to Host Installation constraints. Moreover, the Purchaser will be able to sell and 

deliver Property to buyers directly at the Scrap Yard without transporting the Property any 

further. (If the Purchaser so elects, of course, it may instead move Property to another location 

for storage, consolidation, processing, re-sale or for any other purpose that does not contravene 

the express provisions of this IFB.) 

9 

Thus, DRMS generally expects that the Purchaser’s field activities will principally be 

located at Scrap Yards except to the extent that, in exercising its business judgment, the 

Purchaser decides to transport the Property to other locations before re-sale. Nevertheless, there 

will often be circumstances in which Delivery at a Scrap Yard is not possible. An illustrative 

example is the sale of heavy material that does not require demilitarization and that would be 

very expensive to move to the Scrap Yard from the generator’s premises. Ideally the Delivery of 

the material would be “in place” without moving it at all, and its re-sale would also be at the 

generator’s site. This may not be possible in all situations, however, especially in view of 

national security requirements and understandable limitations at particular military facilities. 

The Purchaser would then be required to take Delivery of the Property “in place” and to 
transport it (either to its Purchaser’s Dedicated Storage at a nearby Scrap Yard or to another 

Purchaser facility) before re-selling it. 

DRMS recognizes that the prospect of the Purchaser being obligated to incur inestimable 

(at the time of submitting a bid) and possibly very harmful transport costs for material that, for 

any reason, cannot be referred for sale and processed for re-sale at a Scrap Yard (or referred for 

sale and processed for re-sale “in place”) presents prospective bidders with a significant business 

risk. DRMS’s market research revealed that the magnitude of this risk is such that many 

potential bidders would simply not bid at all if subject to this risk, while others would deeply 

discount their Bid Prices to account for it. In either event, this risk would threaten the viability 

of a transaction that otherwise is viewed as extremely mutually beneficial. 

DRMS accordingly has significantly reduced this risk from the transaction through the 

mechanism of Seller Indirect Costs. Thus, one example of Seller Indirect Costs, described very 

generally, is comprised of the minimum reasonable costs incurred by the Purchaser for loading 

and removing Property from Restricted Access Facilities, and for removing Property from

Special Situation Locations when On-Site Processing is not permitted by DRMS. The Purchaser 

deducts the amount of Seller Indirect Costs incurred in a particular month, if any, from the 

Distribution Payment to DRMS for the month. (See Art. 9 and Art. 16.) 

DRMS intends that the Seller Indirect Costs mechanism should moderate much of the 

risk posed by “in place” or “off-site” referrals. Nevertheless, prospective offerors should be 

aware that DRMS increasingly receives items from generators at locations that are not full 

service Scrap Yards and that have only minimal part time staffs and limited operations. The 

Purchaser’s operating costs at these Special Situation Locations, termed “Receive In Place 

Locations” (“RIPLs,” of which there are 43 locations around CONUS), may be relatively higher 

than at Scrap Yards. Because RIPLs generally permit On-Site Processing, the Purchaser’s costs 

will be deemed Direct Costs. Prospective offerors should weigh this factor when formulating 

their bids. 

In addition, there is one site, Puget Sound Naval Shipyard (“PSNS”), where the Scrap 

operations are both substantial and specialized (the dismantling of ships), and where the Seller 

Indirect Costs mechanism will not apply. The Purchaser will be required to provide barges, 

railcars or other Containers on site as set forth in Schedule IV.3.1.B(2), into which employees of 

the shipyard or of demolition contractors will load the Scrap material, and to remove such 

Containers as they fill. The costs of the Containers and their removal will be Direct Costs, even 

though the material is delivered on-site and On-Site Processing is not permitted. (See Art. 3.) 

10 

Moreover, DRMS presently utilizes approximately 300 Containers of various sorts at 

locations other than PSNS. Some of these are owned and provided by generators or DRMS, but 

the majority are owned and provided by term sale re-sale buyers. The SV Purchaser will 

generally be free to determine where to utilize Containers other than at PSNS as a matter of

business judgment, and the costs thereof will be deemed Direct Costs. There may be instances, 

however, in which DRMS will require the Purchaser to utilize one or more Containers at 

particular locations in response to a request from a Host Installation or for another reason. To 

the extent that DRMS does require the Purchaser to utilize Containers such that the Purchaser is 
required to utilize more than 300 other than at PSNS, the actual and reasonable cost of providing 

the additional Containers will be deemed Seller Indirect Costs. (See Art. 3.) 

Provisions relating to Seller Indirect Costs are contained in Articles 3, 9 and 16. 

Prospective offerors are encouraged to review them in detail. In addition, prospective offerors 

should note that the prohibition on Affiliate Transactions extends to Seller Indirect Costs as well 

as to Direct Costs. (See Art. 9.) 

J.1 RESOURCE RECOVERY AND RECYCLING PROGRAM (RRRP) 

Certain Scrap material qualifies as Resource Recovery and Recycling Program material 

(“RRRP Material”). This includes ferrous, non-ferrous, and non-metallic materials. Those 

generators having a Qualified Recycling Program (“QRP”) may elect to sell the RRRP Material 

themselves. When QRPs elect this option, the material is not considered part of this sale contract 

and the Purchaser has no right or claim to material sold directly by QRPs. 

When the generator chooses to turn the RRRP Material into a DRMO instead of selling it 

directly to re-sale buyers, the generator is entitled to reimbursement from DRMS in the amount 

of the Gross Proceeds obtained from sale of the Scrap. When turned in to a DRMO, this material 

is designated as reimbursable on the accompanying form, the “Disposal Turn-In Document,” or 

“DTID.” DRMS desires that QRPs receive payment for RRRP Material as soon as reasonably 

possible after turn-in. Thus, twice monthly or on such other schedule as DRMS and the 

Purchaser agree, the Purchaser is required to notify DRMS of each receipt of RRRP Material and 

of the pricing received by the Purchaser and the Gross Proceeds obtained by the Purchaser for 

the sale of such quantity of corresponding material. This will enable DRMS to process a 

reimbursement to the generator as soon as is reasonably possible after turn-in (See Article 6.). 

K. OPERATING ACCOUNT AND DISTRIBUTIONS 

The Contractor is generally required to cause the Purchaser to maintain sufficient cash in 

the Operating Account to meet the Purchaser’s immediate cash needs. (See Art. 13.) Moreover, 

at the end of each month, the Purchaser must evaluate its ability to make cash Distributions. 

Described generally, on the one hand the Purchaser may not make any Distributions unless there 

is cash on hand in excess of the sum of (i) any amount owed to the Contractor for Working 

Capital Advances (the Working Capital Advance Balance), (ii) its liabilities under Generally 

Accepted Accounting Principles (“GAAP”), (iii) the “Estimated Contingent Liability Reserve” 

(defined in Art. 15), and (iv) the expected Direct Costs for the next month. On the other hand, 

again described generally, the Purchaser must distribute all of such excess. 

11 

The net effect of these cash reserve requirements is that all Net Proceeds will be 

distributed each month to DRMS and the Contractor except for increases in the cash reserve due 

to increases in GAAP liabilities, contingent liabilities or provisions for Direct Costs. If the 

required end-of-month cash reserve in the Operating Account is reduced due to reductions in 

GAAP liabilities, contingent liabilities or provisions for Direct Costs, the distributions that 
month will exceed Net Proceeds for the month by the amount of that reduction in the required 

cash balance. 

Note that provisions relating to Seller Indirect Costs affect DRMS Distributions. See 

Art. 16 for the complete provisions governing Distributions. 

L. WORKING CAPITAL ADVANCES AND REPAYMENTS 

Direct Costs and Seller Indirect Costs, as noted, are payable directly out of the 

Purchaser’s Gross Proceeds as such are available, or out of the Purchaser’s available cash 

reserves. From time to time, however, and especially during the initial phase of the Performance 

Period, the Contractor must advance funds to the Purchaser to pay for Direct Costs and Seller 

Indirect Costs. These advances are termed “Working Capital Advances.” (See Art. 13.) 

Working Capital Advances receive priority repayment directly out of available Gross 

Proceeds in the following month or months until fully repaid, but without interest thereon. 

M. DISTRIBUTIONS AND PAYMENTS 

The payment of Net Proceeds from the Purchaser to the Contractor is the source of return 

on the Contractor’s investment of capital and expertise in setting up the Purchaser as an 

operational entity. The payment of Net Proceeds to DRMS,11 and the Bid Price and the 

Quarterly Purchase Price, are the sources of recovery enhancement for DRMS. 

The Purchaser will pay to DRMS the Quarterly Purchase Price in accordance with the 

provisions of Art. 5. The Contractor is responsible for providing the Purchaser with the 

necessary funds for such purchases (“Purchase Advances;” see Art. 14 ). 

Note that the Quarterly Purchase Price is not a Direct Cost, and as such is borne 

solely by the Contractor and not by DRMS. 

The Purchaser must pay to DRMS eighty percent (80%)12 of all Net Proceeds (less any 

required increase in the cash reserve). The Purchaser must pay to the Contractor twenty percent 

(20%) of all Net Proceeds (less any such increase in the cash reserve). (See Art. 16.) 

The Contractor thus pays the Quarterly Purchase Price and receives 20% of all Net 

Proceeds. In this transactional structure, therefore, the Contractor’s financial incentives are fully 

aligned with those of DRMS (and thereby with those of the taxpayers) to maximize the Net 

Proceeds recovered from the management and disposition of the Property. 

 

11 A portion of each payment due to DRMS is paid directly to DRMS’s financial advisor, Kormendi \ Gardner 

Partners (“KGP”); see Art. 16. 

12 

12 See Art. 16 for the calculation of the portion of DRMS’s 80% payment that is paid directly to KGP. 
N. EARLY CANCELLATION OPTION 

Described generally, under this option either party may terminate the contract after 

twelve months, upon 30 days written notice, if the mandatory performance threshold is not 

exceeded. The first time the option can be exercised is twelve (12) months after the initial 

Pickup Notice, then quarterly thereafter. (See Art. 2.) 

The cancellation option threshold is set by formula with reference to the historical 

correlation of DRMS revenues with published price indices and is specified as a percentage of 

the Indexed Revenues obtainable through the sale at Indexed Prices of material with the same

combinations of SCL and DEMIL Code as those sold by the Purchaser during a particular period 

of time. (See Art. 2.) 

O. PURCHASE ACCOUNT 

The Purchaser must establish a Purchase Account for funding the Quarterly Purchase 

Price. (See Art. 14.) Described generally, the Contractor must transfer funds to the Purchase 

Account (“Purchase Advances”) in amounts sufficient to enable the Purchaser to pay DRMS for 

Property when payment is due. (See Art. 5 and Art. 14). Moreover, when cash is available for 

Distributions, the Purchaser must transfer Contractor Distributions into the Purchase Account as 

specified in Art. 14 to minimize the Purchase Advances required from the Contractor. 

P. PAYMENT DEPOSIT 

Upon award of the contract, the Contractor’s $20,000 Bid Deposit becomes a Payment 

Deposit that will be held by DRMS until the conclusion of the “Wind-Up” of the Purchaser (Art. 

21) to secure DRMS claims against the Purchaser and/or Contractor for Material Breaches of the 

contract, including specifically late payment for Property. If the Purchaser fails to pay for 

Property when payment is due, DRMS may apply the funds in the Payment Deposit against the 

late payment and the Purchaser must “cure” this breach by replenishing the Payment Deposit to 

its original level plus 20% of the amount of the late payment. The amount of the Payment 

Deposit is estimated to be approximately equal to the Quarterly Purchase Price for one average 

year’s flow of Property. At the conclusion of the Wind-Up, DRMS will return the Payment 

Deposit to the Contractor without interest and less the amount necessary to cover its claims, if 

any, against the Contractor. 

Q. RETENTION FUND AND FINANCIAL GUARANTEE BOND 

13 

To ensure that DRMS is protected against the adverse financial effects of a Material 

Breach of the contract by either the Purchaser or the Contractor, the Contractor will be required 

to capitalize a source of security for DRMS claims. To this end, the Contractor will have the 

option of either providing a Financial Guarantee Bond at the inception of the contract or 

instituting a Retention Fund. (See Art. 15.) 
The Financial Guarantee Bond must be in the amount of $1 million and issued for at least 

a full year at a time. DRMS must approve the form of the bond and the issuing surety. 

As more completely described in Art. 15, if a Financial Guarantee Bond cannot be 

obtained or if it is terminated without a replacement, the contract provides for a Retention Fund 

as follows: 

1) Once all of the Contractor’s Working Capital Advances have been repaid and the 

cumulative amount of the Contractor Distribution Payments equals or exceeds the 

cumulative amount of Purchase Advances - - i.e., once cumulative cashflow to the 

Contractor is positive -- 10% of each month’s Contractor Distribution Payment 

(net of certain adjustments) will be diverted into a Retention Fund held by 

DRMS. 

2) The maximum amount in the Retention Fund will be $500,000. 

3) At the end of the contract, DRMS will return the Retention Fund to the Contractor 

without interest and less the amount necessary to cover its claims, if any, against 

the Contractor. The Contractor may obtain the Retention Fund earlier only by 

providing a $1 million Financial Guarantee Bond issued for the entirety of the 

remaining overall contract period and that is otherwise acceptable to DRMS. 

R. ABSENCE OF DRMS PRE-APPROVALS, AUTHORIZATIONS AND 

OPERATIONAL CONTROL 

Subject to the conditions of this contract, full control of all aspects of operations rests 

with the Purchaser and Contractor. There are no required pre-approvals or authorizations 

from DRMS.

13 The transaction is a sale transaction and title to the Property passes to the 

Purchaser upon its “Delivery” to the Purchaser.14 (See Art. 1, Art. 3.) 

The Purchaser, however, will have to work effectively with designated Government 

representatives with respect to logistics (see Section U below) and trade security controls (see 

Section V below), and both the Purchaser and the Contractor must interact with DRMS 

personnel with respect to administration of contract terms and conditions, financial reporting, 

compliance monitoring and, perhaps, dispute resolution (see Section II.S below). Nonetheless, 

there are no requirements for including DRMS in any way in the Purchaser’s operational 

decision-making.

 

13 An exception is Permitted Affiliate Transactions, which require DRMS approval. See Article 9. 

14 

14 DRMS reserves the right, however, to re-purchase for the full amount of the applicable Quarterly Purchase Price 

any material that DRMS determines is critical to the mission of a military activity and that has not already been resold by the Purchaser to a re-sale buyer. See Article 7. 
The contract does provide for the Purchaser to fulfill certain requirements related to 

compliance review and financial auditing in certain provisions including: accounting statements 

(see Art. 8), inventory control and asset tracking procedures (see Art. 8), maintaining adequate 

insurance coverage (see Art. 11), employee compensation (see Art. 7), returning classified items

(see Art. 7), dealing appropriately with hazardous materials (see Art. 7), complying with federal, 

state and local laws and regulations (see Art. 7), etc. The contract also contains certain 

provisions regarding the logistical interface with DRMS and its generators in Art. 3. Such 

requirements notwithstanding, as long as the Purchaser and Contractor operate within the 

bounds of the contract, they will have full operational control. 

S. COMPLIANCE MONITORING AND DISPUTE RESOLUTION 

While full operational control resides with the Purchaser and Contractor, DRMS or its 

authorized representative will have the right under the contract to monitor performance in three 

ways. First, the Purchaser will be required to have audited financial statements and follow 

Generally Accepted Accounting Principles. (See Art. 8.) Second, DRMS will have the right to 

conduct (or contract for that service) Compliance Reviews of the Purchaser’s general compliance 

with the terms of the contract. (See Art. 17.) Third, DRMS may conduct audits of the 

Purchaser. (See Art. 8.) 

DRMS will have the option of conducting Compliance Reviews on a quarterly basis and 

the expectation should be that DRMS will exercise that option. The focus of a Compliance 

Review will be less with financial flows, which are the focus of the Purchaser’s financial audits, 

and more on observance of contractual terms such as those concerned with Affiliate 

Transactions, Direct Costs, inventory control and asset tracking, revenue tracking, the Purchase 

Account, cash reserves and the Estimated Contingent Liabilities Reserve (“ECLR”). In addition, 

DRMS may elect to review compliance with environmental, security and safety requirements. 

(See Art. 17.) 

In the event that disputes arise relating to contract compliance, the contract provides for a 

voluntary but binding dispute resolution mechanism. Under this elective mechanism, a panel of 

three arbitrators -- one chosen by the Contractor, one chosen by DRMS, and one jointly chosen 

by the Contractor and DRMS -- will receive the arguments from both sides and resolve the 

dispute by majority decision. It is anticipated that this mechanism will minimize conflict and 

reduce the cost of resolving any disagreements that arise. In addition, both Alternative Dispute 

Resolution and litigation are avenues available as necessary to resolve disagreements. (See Art. 

20.) 

15 
T. DELIVERY POINTS 

The following outline presents certain background information relevant to logistics. 

1. Scrap Yards

a. There are presently 67 DRMO Scrap Yards in CONUS outside of the 

Control Group (see Attachment IV).

b. DRMS is currently in the process of reducing its infrastructure. Thus, it is 

possible that there will be a reduction in the number of Scrap Yards over 

the Performance Period of the contract. 

c. The flow of Property in the Product Pool has been somewhat concentrated 

in certain Scrap Yards. For example, Table II-7 on the next page shows 

the sale of material in the Product Pool by Scrap Yard for fiscal 2003. 

2. Generators and Turn-ins

a. Every military and reserve activity is a potential “generator” of surplus 

Scrap material. Because the number of active generators is subject to 

change, the exact number cannot be known with precision. While the vast 

majority of generators are military related, there are some federal agencies 

that turn property in to DRMS as well. 

b. A “Line Item” is an object or group of objects, all with the same SCL, 

turned in individually or together by a generator, and either identified on a 

single Disposal Turn-In Document (“DTID,” a Department of Defense 

form), or on “Scrap Tally-in Sheets.” A Scrap Line Item will have a 

“quantity” expressed in weight (lbs.). 

c. All Scrap Yards are presently on military bases. Any given Scrap Yard will 

service its base generators as well as all other generators in its area. Scrap 

Yards are generally located so as to be near significant amounts of turn-ins of 

material. Table II-8 lists the DRMOs and FRAs pertinent to this sale. 

3. Property Flows

a. Between approximately 5% and 15% of recent DRMS Scrap Gross 

Revenues was from the sale of material with Demilitarization as a 

Condition of Sale (“DCS”; see Section II.W). 

b. Recently approximately 50% of DCS material is demilitarized by the 

buyer “in place” at generator sites. The other 50% is removed to the 

buyers’ facilities for demilitarization. 

16 
c. DRMS data sources indicate that, in FY 2003, approximately 80% of all 

DRMS Scrap Gross Proceeds derived from the top 20 Scrap Yards. 

See Art. 3 for more completely specified contractual provisions relating to logistics. 

Attachment II.U, Summary of Logistics Provisions, summarizes certain provisions set forth in 

Art. 3 that are pertinent to logistics. 

U. LOGISTICS 

Attachment II.U details many pertinent provisions of Art. 3 that govern logistical 

arrangements for handling the flow of Property. Except as otherwise provided, all of the 

Purchaser’s “logistics costs” – the costs incurred by the Purchaser for moving, storing, packing 

and removing Property – are Direct Costs. 

Most Property is turned in to DRMS by generators at a Scrap Yard. Subject to Host 

Installation and DRMS approval, all or part of the Scrap Yard may be available, and subject to 

DRMS use requirements, DRMS will provide use of the Scrap Yards without charge to the 

Purchaser. The Purchaser’s personnel will have access to the Scrap Yard during periods that it is 

open, which is usually five days per week. There is no fixed deadline for removing Property 

from the Scrap Yard, but the Purchaser or re-sale buyer must accomplish removal as necessary to 

accommodate the inflow of Property. The Purchaser may also be required to remove Property at 

the direction of the SCO. If the SCO provides a notice requiring property to be removed in less 

than 120 days, all associated costs will be deemed Seller Indirect Costs. DRMS will neither 

pack nor unpack, nor load or unload, Property for re-sale buyers. 

Because DRMS itself is in fact only a tenant on a military base, DRMS must follow the 

desires of the Base Commander when it comes to the appearance of the facilities. Certain 

installations place limits on the amounts of Scrap that are allowed in the Scrap Yard at any one 

time. 

The Purchaser may use and store its materials handling equipment in the Scrap Yards. 

Subject to applicable law and Host Installation regulations, the Purchaser may utilize without 

charge such government owned materials handling equipment (“GFE”) as is available at a 

particular Scrap Yard, but the Purchaser is responsible for required inspections, repairs, 

maintenance and as necessary replacement (and the costs thereof are Direct Costs), and DRMS 

may at any time relocate such equipment to another location for government use as determined 

by DRMS in the exercise of its sole discretion. The Purchaser shall request disposition 

instructions from the SCO when the Purchaser has determined that a particular item of GFE 

Equipment is no longer needed. See Art. 3, Sections 4 (A) and (G). 

The Purchaser is permitted to perform resorting and segregation of the Property on the 

Scrap Yard premises. Any industrial operation, such as shredding or baling, must be approved 

by DRMS. Subject to Host Installation constraints, generally speaking, if such an operation was 

in practice at the DRMO prior to award of this contract, the Purchaser will be permitted to 

17 
continue such operation.15 Any new industrial operation may require permission of the Base 

Commander. The Purchaser may permit re-sale customers to inspect the Property in the Scrap 

Yard, but a representative of the Purchaser must accompany customers at all times. Purchaser 

will be required to escort re-sale customers from installation gates to the Scrap Yard when it is 

required, and permitted, by the Host Installation. 

DCS Property is referred for sale at either a DRMS site or the generator’s site. The 

Purchaser will not be responsible for surveillance, verification or certification of 

demilitarization, as only properly trained government employees may perform these functions. 

The Purchaser will, however, coordinate with DRMS, the generator and the re-sale buyer to 

enable proper demilitarization and removal (or removal for demilitarization at the buyer’s 

facilities). 

There may be Property referred for sale at and requiring removal from Special Situation 

Locations and Restricted Access Facilities. Described very generally and subject to certain 

limitations and conditions, and as discussed more completely in Section II.J above, the actual 

and minimum reasonable costs incurred by the Purchaser for the packing, loading and removal of 

Property from such locations will be deducted from Distribution Payments to DRMS as Seller 

Indirect Costs unless DRMS arranges for the Purchaser to conduct On-Site Processing of such 

items. On-Site Processing means that, subject to certain conditions and described very generally, 

that the Purchaser and its prospective re-sale buyers are provided access to the site to allow the 

placement of a roll-off or similar Container. As described above, Puget Sound Naval Shipyard is 

treated uniquely under this contract, and it is not a Special Situation Location for the purpose of 

determining Seller Indirect Costs.

The Purchaser is responsible to DRMS for any damage that is caused to any government 

equipment or facilities that arises out of the negligence of the Purchaser, its vendors or re-sale 

buyers, and the Purchaser must clean up any spills of Hazardous Materials and arrange for their 

proper disposal. 

U.1 ADDITIONAL MATERIAL 

Certain additional material may be included within this contract, as follows. 

Additional Property. DRMS may elect in the exercise of its sole discretion to refer for 

sale under this contract such additional material (“Additional Property”) as DRMS determines 

would be in the best interest of the Government. (See Art. 2.) 

 

18 

16 DRMS currently has contracts with private sector firms and with UNICOR. 
V. DEMIL “B” AND “Q” PROPERTY 

Some of the material in the Product Pool is subject to trade security controls (i.e., export 

restrictions) because it could contain sensitive technology. This material is comprised of 

Munitions List Items (“MLI”) or Commerce Control List Items (“CCLI”) that have a DEMIL 

Code of “B” or “Q.” Prior to award of this contract, the Purchaser will be required to submit to 

the SCO a properly completed End Use Certificate (“EUC”) and obtain a Trade Security Control 

clearance. 

Described generally, export of this material requires an export license issued by the 

Department of State. DRMS presently sells such material within CONUS pursuant to the 

procedures described below. As is also described below and as is set forth in Art. 7, the 

Purchaser will also be required to comply with certain trade security control procedures. In 

addition, the Purchaser will be required to comply with any new trade security control 

requirements that may be mandated during the Performance Period. Such new requirements may 

impose new, higher costs upon the Purchaser. Prospective offerors should weigh this risk factor 

when determining their Bid Prices. 

All Property offered under this contract requires Mutilation, unless specifically excluded 

from Mutilation by the Government. The Mutilation requirement includes metallic DEMIL 

Code “A” Property. DEMIL Code “A” Property generally excluded from the Mutilation 

requirement includes: tires, lockers, ammunition cans, production stock/residue (bars, plate rod, 

wire, borings and turnings), wire and cable, pipe and tube construction material/residue (lumber, 

block, brick, windows, I-beams), vehicles, wood products, furniture, and white goods 

(appliances, e.g., refrigerators). The Purchaser may request from the SCO that other DEMIL 

“A” property be excluded from the Mutilation requirement. DRMS will evaluate such requests 

in the exercise of its sole discretion. 

Described very generally, pursuant to current DRMS procedures the winning bidder for 

DEMIL “B” and “Q” material is required before award of a sale contract (i) to be cleared by the 

Defense Logistics Agency (“DLA”) Trade Security Controls Office as a buyer of DEMIL “B” or 

“Q” material (clearances must be renewed every five years), and (ii) to submit to the SCO a 

properly completed “End-Use Certificate” (or “EUC”) in the form of DLA Form 1822 (A copy 

of this form is attached as Attachment VI.7.5.B.). Described generally, the EUC requires the 

prospective buyer to identify itself and the subject property, to describe the nature of the buyer’s 

business, to specify the expected disposition and specific end-use of the subject property, to 

acknowledge the applicability of the pertinent trade security export controls, and to certify that 

the information on the EUC is true. 

Prior to award of this contract, the Purchaser will be required to obtain a trade security 

control clearance and to submit to the SCO a properly completed EUC. The clearance will be 

effective for a five-year period unless the information in the EUC is materially changed (i.e., 

change of Purchaser’s officers, change of physical address, etc.). The clearance investigation 

determines that the entity is who it claims to be, doing business at the name and location claimed 

and that there are no disqualifying factors present (i.e., convictions for illegal export of military 

19 
technology, debarment by a Government activity, etc.). All secondary purchasers of MLI and 

CCLI from this contract will undergo a similar clearance. 

Re-sale trade security control procedures applicable to the Purchaser will be generally as 

follows. The Purchaser will be required to notify prospective buyers in catalogs and re-sale 

documents of the necessity to comply with TSC requirements and export controls. The 

Purchaser will be required to obtain a properly completed EUC from the prospective re-sale 

buyer of each lot (or group of lots at a single re-sale event) of DEMIL “B” or “Q” material 

before releasing such material to the prospective re-sale buyer. Upon receipt of the properly 

completed EUC, the Purchaser must confirm with the SCO that the prospective re-sale buyer is 

currently cleared to purchase export-controlled material. If not, the buyer must submit such 

information to the SCO who will submit the completed EUC to the DLA Trade Security Controls 

enforcement office as may be required for the buyer to be cleared before the buyer can receive 

any export controlled material. The DLA Trade Security Controls Office is the clearance 

authority and the determining authority relative to the proper completeness of EUCs. 

Material that has already been destructively “scrapped” before re-sale, either by the 

generator or by the Purchaser, in a manner that prevents recognition or reconstruction of the 

original item, will be considered DEMIL “A” and can then be immediately sold and/or released 

to a re-sale buyer without an EUC or further clearance processing. The Purchaser must place a 

certification of the destructive scrapping in the Records and make them available for review by 

appropriate authorities. (See Art. 7) 

If the material (DEMIL “B” and “Q” Property) has not been destructively scrapped 

before re-sale, the Purchaser must obtain from the (cleared) re-sale buyer an executed 

acknowledgement of the buyer’s responsibility to do so and of its responsibility to submit to the 

Purchaser a post-scrapping certification that the scrapping has been accomplished. (See Art. 7.) 

In recent years a significant portion of the DRMS Scrap Gross Proceeds was associated 

with items with a DEMIL Code of “B”. (See Figs. II-13 through II-17, and Tables II-5(a) 

through II-5(c) above.) 

W. DEMILITARIZATION 

20 

Federal law and/or DoD regulation or policy require that any item with a DEMIL Code 

other than “A,” “B” or “Q” must be “demilitarized” through such methods as melting, cutting, 

crushing, etc. before the resulting demilitarization “residue” is sold for its material content. In 

some cases of such “DEMIL-required” items, the military itself demilitarizes the item before 

turning in the residue to DRMS as Scrap. For most DEMIL-required items, however, either the 

demilitarization is performed at one of the four DRMS Demilitarization Centers (“DEMIL 

Centers”) within CONUS or DRMS sells the property with “Demilitarization as a Condition of 

Sale” (“DCS”; such property is termed “DCS Property”). As the term “Demilitarization as a 

Condition of Sale” suggests, the re-sale buyer itself must perform the destructive DEMIL 

procedure before title to the residue passes to the buyer. (See Part 6, Sections A and B of 

Attachment V.) 
The DRMS DEMIL Centers are presently located at Crane Naval Surface Warfare 

Center, Crane, Indiana; Red River Army Depot (Texarkana), Hooks, Texas; Anniston Army

Depot, Anniston, Alabama; and Davis-Monthan Air Force Base, Tucson, Arizona. DRMS 

transports certain lighter DEMIL-required items received at other locations to one of these 

DEMIL Centers to be demilitarized. Demilitarization is, and throughout the SV Performance 

Period will be, performed by federal employees or federal contractors. The resulting “DEMIL 

residue” will be referred for sale to the Purchaser as Scrap at Red River (Texarkana). At 

Anniston, Davis-Monthan (Tuscon) and Crane, however, the federal contractor that presently 

performs the demilitarization also sells the DEMIL residue on behalf of DRMS and, accordingly, 

such DEMIL residue is not available to be referred to Purchaser for sale. At any time during the 

Performance Period, DRMS may elect in its sole discretion to refer the DEMIL residue at 

Anniston, Davis-Monthan (Texarkana) and Crane for sale to the Purchaser under this sale 

contract as “Additional Property.” (See Art. 2.) In addition, DRMS may change the number and 

locations of its DEMIL centers from time to time in its sole discretion. Nevertheless, throughout 

the Performance Period all DEMIL residue that is produced at locations other than Anniston, 

Davis-Monthan (Texarkana) and Crane that are subject to an SV contract will be referred for sale 

to the Purchaser. Please note that all Property classified as “weapons” is excluded from this 

contract. 

Most DEMIL residue has a DEMIL Code of “B,” meaning that export controls apply to 

its sale. (See Section V.) Some DEMIL residue can receive a DEMIL Code of “A,” but it must 

be coded as “B” if it is commingled with other “B” items. 

A certain quantity of DEMIL-required items is sold by DRMS at locations other than 

DEMIL Centers without either the military or DRMS having performed the required 

demilitarization procedure. Instead such items are sold as DCS Property. Such DCS Property is 

generally too heavy to transport economically to a DEMIL Center. Examples could be naval gun 

turrets or substantial quantities of large caliber fired shell casings. Some DCS Property is 

demilitarized “in place” at the generating site by the buyer using equipment that it brings on-site. 

 Other DCS Property is transferred at the buyer’s expense to an off-site facility subject to the 

provisions of Section B of Part 6 of Attachment V. 

Some Property is designated with DEMIL Code “E.” This material includes, but is not 

limited to, items such as expended small arms cartridge cases, tank track, and road wheels. To 

be eligible to receive material with a DEMIL Code of “E,” all bidders must complete and submit 

the Certification, an example of which is attached at Attachment II.W.

Table II-9 below presents DCS Acquisition Values and Gross Proceeds for fiscal years 

1998 – 2003. Appendices in Part VII, Attachments and Schedules, present more detailed 

versions of these figures by DRMS Commodity Group 

Table II-10 presents the DRMOs that currently use DCS. 

21 
X. MISCELLANEOUS 

Prospective bidders should note that work performed on government premises, such as at 

DRMOs and other Delivery Points, may be subject to the provisions of Public Law 89-176, 

September 10, 1965 (18 U.S.C. 4082(c)(2)) and Executive Order 11755, December 29, 1973 

(convict labor), and/or the Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333) 

and regulations of the Secretary of Labor thereunder (overtime compensation). 

Prospective bidders should also note that, under applicable law, the export of property 

either directly or indirectly to the following countries is prohibited: Cuba, Iran, Iraq, Libya, 

North Korea, Sudan and UNITA (Angola). Moreover, the list of prohibited countries may 

change over the course of the Performance Period. 

RESOURCE CONSERVATION AND RECOVERY ACT NOTICE: EPA Hazardous 

Waste Regulations, 40 CFR Part 260 et seq. published at 45 Federal Register 33063-33285, May 

19, 1980, became effective on November 19, 1980. These cradle-to-grave regulations detail the 

responsibilities of generators, transporters, treaters, storers and disposers of hazardous waste. 

Civil and criminal penalties are available for noncompliance. DRMS does not intend to transfer 

any RCRA regulated hazardous waste under this contract as regulated waste is disposed of under 

DRMS's hazardous waste contracts. However, DRMS can make no representations as to when 

and under what circumstances state, federal or local environmental regulations may be 

applicable to Property transferred to and held by the Purchaser. 

CHEMICAL AGENT RESISTANT COATING (CARC) PAINT: Prospective offerors 

are cautioned that some items are, or likely to contain or be coated with a chemical agent 

resistant coatings containing trivalent chrome, lead, cobalt-zinc hexamethylene disocyanate and 

other chemicals which are a hazard to human health if not processed properly. The Government 

brings the following precautions/warnings to the attention of prospective offerors who plan to 

disturb the coating on the property in any way: 

(1) Air sampling must be conducted to determine the correct type of respirator to be 

used when processing (applying/sanding/torch cutting, etc.) metals treated or 

painted with CARC paint. 

(2) CARC paint should be isolated from heat, electrical equipment, sparks and open 

flame during storage or application. Local exhaust ventilation should be used for 

inside processing. 

(3) Exposure to vapor/mist/dust or fumes can cause irritation to respiratory tract 

(lung, nose, throat), edema, dermatitis, dizziness, rash, itching, swelling of 

extremities, eye irritation or damage to nervous system, kidney or liver. Coating 

may be fatal if swallowed. 

22 

REFRIGERANT: Refrigeration equipment and appliances are subject to the Clean Air 

Act (CAA) Amendments of 1990 which prohibit the venting or release to the environment of 

Class I or Class II ozone depleting substances, and are also subject to the Refrigerant Recycling 
Rule in 40 Code of Federal Regulations (CFR) Subpart F 82. 150-166, requiring the recovery 

and verification of refrigerant removal by a certified technician, using certified recovery 

equipment prior to final disposal as scrap or in a landfill. A copy of these records will be 

available for inspection by government personnel. 

AIRCRAFT INSIGNIA AND MARKINGS: The Purchaser will be required to 

permanently remove or obliterate all Military Service distinctive markings from aircraft prior to 

removal from the Government premises. The Purchaser may remove or obliterate the markings 

by scraping, grinding, use of paint removers, or by other means upon approval of the SCO. This 

requirement does not apply to aircraft which are required to be demilitarized. 

KITCHEN STOVES: In the event of sale or re-sale of Property identified on a Pickup 

Notice as “Article LN Kitchen Stoves,” Purchaser shall ensure that the warning statement which 

is affixed to such items regarding their design features and reuse will not be removed prior to 

sale to an ultimate user, and Purchaser shall include this clause in its entirety in any later sale or 

transfer of title, unless Purchaser modifies, replaces or repairs the stoves to remove or eliminate 

the hazard. 

Prospective offerors should also note that there are certain Public Laws that may impact 

the flow of items that otherwise would become “Property” that is subject to this sale: 

Public Law 98-575, Commercial Space Launch Act (“CSLA”), dated October 30, 1984. 

The purposes of the CSLA are to promote economic growth and entrepreneurial activity through 

the utilization of the space environment for peaceful purposes; encourage the private sector to 

provide launch vehicles and associated launch services; facilitate/encourage the acquisition (sale, 

lease, transaction in lieu of sale, or otherwise) by the private sector of launch property of the 

U.S. which is "excess or otherwise not needed for public use," in consultation with Secretary of 

Transportation. Donation screening is not required prior to sale. 

Wildfire Suppression Aircraft Transfer Act of 1996, dated January 3, 1996. 

This act authorizes the sale of excess Department of Defense (DoD) aircraft and aircraft parts to 

facilitate the suppression of wildfire. Prior to the sale, the Secretary of Agriculture must certify 

that the person or entity is capable of meeting the terms and conditions of a contract to deliver 

fire retardant by air. The buyer must certify that the aircraft and aircraft parts will be used only 

for wildfire suppression purposes. 

Public Law 106-181, Oil Spill Containment Act. 

This statute, also known as “The Wendell H. Ford Aviation Investment and Reform Act for the 

21st Century,” allows DoD, during the period 4 April 2000 through 30 September 2002, to sell 

aircraft and aircraft parts to a person or entity that provides oil spill response services (including 

the application of oil dispersants by air). 

23 
Y. RISK FACTORS 

A prospective offeror should be aware of certain risk factors that could affect an offeror’s 

assessment of this contract and the calculations supporting the offeror’s bid. Although DRMS 

does not represent that it has identified all such risk factors, the following, in addition to those 

risks identified elsewhere in this IFB, should be considered by a prospective offeror: 

The future volume, quality, condition, market value, types (i.e., 

distribution of Property referrals across SCLs), and geographic concentrations 

(i.e., referrals for sale at particular Delivery Points) of the Property cannot be 

predicted. Variability in any of these dimensions could adversely affect the 

Purchaser’s re-sale proceeds and costs, thereby reducing the prospective 

Contractor’s investment gains or increasing its losses. 

DRMS has endeavored to present historical data in this IFB that, subject 

to the descriptions and qualifications accompanying presentation of the data, are 

accurate. Nevertheless, DRMS cannot guarantee the accuracy of these data, and 

the data may contain material inaccuracies or omissions. 

The amounts and timing of Seller Indirect Costs incurred by the Purchaser 

cannot be predicted. Because the provisions of the contract require initial funding 

of Seller Indirect Costs by the Purchaser and/or the Contractor, unexpectedly high 

expenditures for Seller Indirect Costs may temporarily reduce investment gains or 

increase losses for the prospective Contractor. 

The amounts and timing of Direct Costs incurred by the Purchaser cannot 

be predicted. Moreover, historical data on proceeds obtained by DRMS from the 

sale of items in the pertinent SCLs are not necessarily accurate predictors of the 

re-sale proceeds obtainable by the Purchaser. 

Inflows of Property at particular Scrap Yards may be sufficiently high relative to 

space availability as to cause removal and/or re-sale by the Purchaser on an expedited 

and less efficient schedule than desired by the Purchaser. Moreover, some Scrap Yards 

are likely to be closed during the prospective Performance Period as part of the DRMS 

infrastructure reduction program. This may lead to referrals of Property in place at 

Special Situation Locations, thus causing the Purchaser to incur above normal costs (if 

allowed to sell in place) or to incur Seller Indirect Costs that must be funded by the 

Purchaser and/or the prospective Contractor until such time as amounts otherwise 

distributable to DRMS are sufficient to reimburse such expenditures. 

Costs incurred to phase in Property purchases and re-sales, both during the 

Phase-In Period and beyond, may be higher than expected by the prospective 

Contractor. Moreover, the re-sale of Property, both during the Phase-In Period 

and thereafter, may take longer than anticipated by the prospective Contractor. 

24 
DRMS may not be able to add particular Delivery Points to the Phase-In 

Schedule as quickly as expected or desired by the prospective Contractor. 

The Purchaser is responsible for the cost associated with the disposal of 

material that is unsaleable. 

In several respects this contract requires cooperation between DRMS and 

the Purchaser, especially as regards the logistics of referring Property for sale to 

Purchaser, Delivery of the Property, arranging access to the Property for 

Purchaser and prospective re-sale buyers, removing Property from certain 

Delivery Points upon request or notice from DRMS, and in other respects. 

Moreover, the contract provides that DRMS may exercise its sole discretion to 

grant or deny certain requests by the Purchaser, including without limitation 

requests for On-Site Processing at certain Delivery Points. A prospective offeror 

should consider the risks that such cooperation may be less forthcoming, and that 

such requests are granted less often, or with respect to less important matters or 

subject to more burdensome conditions, than the prospective offeror had 

expected. 

The inflow of items to DRMS from generators cannot be predicted in 

terms of the initial designation of Property as “Scrap” or “Useable,” and DRMS 

policies and procedures with respect to such designations may change during the 

Performance Period. The pertinent provisions of the contract may not insulate the 

Contractor and Purchaser from the adverse consequences of such factors to the 

extent expected by the prospective Contractor. 

The complexity and costs of implementing, maintaining and operating the 

accounting and inventory control systems as required by pertinent provisions of the 

contract may be greater than anticipated by the prospective Contractor. In addition, the 

costs of complying with the contract’s requirements with respect to reporting, financial 

auditing and compliance auditing may be greater than anticipated by the prospective 

offeror. 

Subject to provisions governing early cancellation and termination, the 

Performance Period is seven years (84 months) with three - one (1) year options 

for the Government to extend the Performance Period. The Government can not 

exercise an extension of the contract beyond ten years. It may be more difficult 

or more costly for the Purchaser to hire and retain employees, especially near the 

end of the Performance Period, than anticipated by the prospective Contractor. 

The costs of compliance with present or future trade security control procedures 

may be higher than anticipated by the prospective Contractor, and such procedures may 

cause the revenue obtainable from the sale of material that is subject to trade security 

controls to be reduced or delayed. 

25 
Described generally, applicable statutes and regulations grant DRMS less 

flexibility to agree to amend a contract after award than a prospective offeror may 

have experienced in other contractual settings. Prospective offerors should 

assume that the provisions of the contract cannot be significantly amended after 

award. 

This IFB presents several examples of illustrative financial calculations 

based upon certain purely hypothetical assumptions concerning such matters as 

revenues, costs and other assumptions. These calculations are presented solely 

for the purpose of illustrating certain of the mechanics of the contract. DRMS 

cannot predict, and makes no representation concerning, any assumption that is 

material to projecting or calculating the performance of the Purchaser or the 

investment gains or losses for the prospective Contractor under this contract. 

Moreover, the illustrative calculations presented in this IFB are simplified for the 

purpose of illustrating certain mechanics of the contract and are not intended to 

identify all material assumptions or factors that may affect the performance of the 

Purchaser or investment gains or losses for the prospective Contractor. 

This IFB may be the subject of one or more protests to the U.S. General 

Accounting Office. Moreover, it is possible that, either pending or after award, 

one or more third parties that object to this contract could institute litigation 

involving both DRMS and the Contractor. DRMS cannot predict the likelihood 

or the possible outcome of such litigation. 

Applicable statutes, regulations, policies and inter-service agreements 

govern whether the disposition of particular items of surplus is through DRMS or 

through other disposition modes. The volume and nature of the Property referred 

for sale under this contract could be affected by changes in such governing 

statutes, regulations, policies and inter-service agreements. 

26 
III. BID SCHEDULE. 

A. BACKGROUND INFORMATION 

Most Scrap to be sold under this IFB is categorized by Scrap Classification Code (SCL) 

and DEMIL Code. The remainder of Scrap to be sold is DCS Scrap, which is categorized by 

Federal Supply Classification Code (FSC). The complete listing of SCL Codes and FSC Codes 

included in the contract is detailed in Table IV-1(a) and IV-1(b) respectively in Part IV below. 

B. BID PROCESS 

A bid must offer a Bid Price to be paid to DRMS upon award of a sale contract. The 

“Item Bid Page” in Attachment A of the accompanying “Bidding Instructions and Bid Forms” is 

for formally registering the offeror’s Bid Price. Award of the SV sale contract will be made to 

the responsive, responsible bidder that offers the highest Bid Price. The winning bid will be 

determined from the offered Bid Prices as set forth in Section Two of Article One (Bidding and 

Contract Award) below. 

27 

 

The accompanying “Bidding Instructions and Bid Forms” provide an illustration of the 

determination of the winning bid. 

C. ILLUSTRATIVE FINANCIAL MODEL 

Table II-1 below presents a scenario for a monthly illustrative financial model of the 

proposed transaction with certain assumptions listed at the beginning of each table. 

Figures used in this table, and all other forward-looking figures in the IFB, are for 

illustrative purposes only. DRMS cannot predict the flow of Property to be sold under this 

contract and DRMS expressly disavows any implication to the contrary. Moreover, historic 

DRMS operating data are not necessarily reliable indicators of future Property deliveries 

under this contract, the quality or resale value of such Property or future operating costs. 

DRMS does not make any representation of any character concerning the Property to be sold 

hereunder. 

 

17 The first quarter concludes three months after the date bids are due to the Government. 
[Page intentionally left blank] 

28 
IV. ITEM DESCRIPTION 

It has been determined that the material with the SCL Codes presented in Table IV-1(a) is no 

longer needed by the Federal Government. The data presented in and accompanying this IFB 

present a sales history of the subject SCL Codes and DEMIL Codes and other related 

information. Bidders are advised that any sales history information is provided for informational 

purposes only. Prior year material generations and sales data are not predictors of future 

generations or sales. 

29 
V. TERMS AND CONDITIONS OF SALE 

The following General Information and Instructions and Special Conditions of Sale 

contained in the Defense Reutilization and Marketing Service pamphlet entitled “Sale by 

Reference - Instructions, Terms and Conditions Applicable to Department of Defense Personal 

Property Offered for Sale by Defense Reutilization and Marketing Service, March 1994” 

(hereinafter, "Sale by Reference"; a copy of the Sale by Reference is included as Attachment V), 

are hereby incorporated by reference and become a part of this IFB and any resulting contract: 

Part 1: General Information and Instructions: All Conditions, except Condition Nos. 3 

and 4; and, No. 6 should conclude with, “. . .paid by the Purchaser.” 

Part 2: General Sale Terms and Conditions: All Conditions, except Condition Nos. 4, 7, 

12, 14, 28, 29, 30, and 33. 

Part 4: Special Sealed Bid - Term Conditions: All Conditions, except Articles A, D 

and E. 

Part 5: Additional Special Circumstance Conditions, as follows: 

Article D: Liability and Insurance 

Article F: Privacy Act Materials 

Article H: Radio Frequency Devices 

Article L: Medical Devices 

 

Part 6: Demilitarization and Mutilation: Articles A, B, G, H and I. 

The following Conditions from Part 7: Additional Special Circumstance Conditions - 

Hazardous and Dangerous Property: 

Article E: Dangerous Property 

Article Q: Cartridge Cases 

Article V: Certified and Non-Certified Radiation Emitting Electronic Products 

30 
VI. ADDITIONAL TERMS AND CONDITIONS OF SALE 

The following Articles (not part of the Sale By Reference) also apply and constitute 

terms and conditions of sale. 

ARTICLE ONE. BIDDING AND CONTRACT AWARD 

Section 1. Bid Deposit. 

Each bid must be accompanied by a refundable Bid Deposit in the form of a 

guaranteed instrument (credit card, cashier’s check or money order) payable to "U.S. 

Treasury," in the amount of twenty thousand dollars ($20,000.00). 

Section 2. Bids and Bid Evaluation. 

(A) Bid Price. 

Award of the sale contract will be made to the technically acceptable, responsive, 

responsible bidder that offers the bid with the highest “Bid Price” for the Property. The 

“Bid Price” shall be as set forth on the bidder’s Bid Forms, must be expressed in whole 

U.S. dollars, and must exceed zero. 

(B) Award. 

The Government reserves the right (i) not to award a contract if such contract is 

deemed not to be in the Government’s best interest, or (ii) to reject any particular bid if 

DRMS determines that accepting such bid would not be in the Government's best 

interest. 

Section 3. Contractor Credit Facility; Key Persons; Contract Award. 

(A) Contractor Credit Facility. 

After the bids are opened and evaluated by DRMS, the SCO will serve notice 

(“Notice of Intent to Award”) to the bidder offering the bid with the highest Bid Price. 

The Notice of Intent to Award shall notify the bidder that, within ten (10) days of such 

notice, the bidder must submit to the SCO a written commitment from a federally insured 

financial institution that, if a contract is awarded by DRMS to the bidder within the 

subsequent four months, and subject to such reasonable conditions that the financial 

institution specifies, such financial institution will provide to the bidder a credit facility 

available to finance operations under the contract for a minimum of one year in an 

amount not less than one million dollars ($1,000,000). If the bidder does not deliver the 

commitment within such time, or within such extended time that DRMS in its sole 

discretion specifies, or if DRMS in its sole discretion determines that the commitment is 

subject to an unreasonable condition, the SCO will so notify all bidders, the original 

Notice of Intent to Award shall be deemed withdrawn, and the SCO shall serve a 

replacement Notice of Intent to Award to the bidder offering the next highest Bid Price. 

31 
(B) Key Persons. 

The "Key Persons" provisions of Contractor's technical proposal are incorporated 

into, and made part of, the resultant contract. Substitutions of Key Persons will be 

permitted only with the approval of the Sales Contracting Officer “(SCO”), and such 

substitutions will be approved only if the replacement individual is as well or better 

qualified for a particular position as the original designee. 

(C) Contract Award. 

Prior to award of the contract, the SCO will determine whether the potential 

Contractor is a responsive, responsible prospective Contractor. If the SCO determines 

that a particular potential Contractor is not a responsive, responsible bidder, the 

responsibility of the bidder offering the bid with the next highest Bid Price shall be 

evaluated by the SCO to determine whether such bidder is a responsible prospective 

Contractor, and the SCO may award the contract to such next highest bidder if such 

award is otherwise determined to be in the Government's best interest, price and other 

factors considered. 

Section 4. Post-Award Conference. 

The Government shall conduct a post-award conference within approximately two 

weeks of award to ensure that Contractor understands the terms and conditions of the 

contract. The location and date of the conference will be determined by the Government 

and the costs incurred by personnel affiliated with Contractor and/or Purchaser to attend 

shall be Contractor Indirect Costs, paid by Contractor without reimbursement by DRMS 

or Purchaser. 

Section 5. Purchaser Information. 

Within thirty (30) Days of the date of award, Contractor shall provide the 

following to DRMS (collectively, the "Purchaser Information"), and Purchaser shall 

provide to DRMS updated Purchaser Information within ten (10) Days of any change 

thereto: 

(A) Notice to DRMS of Purchaser's complete legal name, type of business 

organization (corporation or limited liability company), place of formation (e.g., 

Delaware), Federal Employer Identification Number, and principal place of 

business. 

(B) Copies to DRMS of all documents evidencing: (i) Purchaser's legal 

formation and internal governance; (ii) if Purchaser is a corporation, Purchaser's 

election of Subchapter S status for federal income tax purposes; and (iii)

appointment of Purchaser's Registered Agent. 

(C) Notice to DRMS of Purchaser's Operating Account and Purchase Account, 

including the name, address and telephone contact information of the bank(s) of 

deposit, account numbers, and identification of the signatories on the accounts. 

32 
(D) Copies of all documents evidencing the opening of the Operating and 

Purchase Accounts, including without limitation copies of the signature card(s), 

resolutions and instructions to the bank. 

(E) Notice to DRMS of the designation of Key Persons, if any, in addition to 

those identified in Contractor's technical proposal. Two (2) Key Persons, 

including Purchaser's Chief Executive Officer, are required pursuant to the 

provisions of Article 13 to authorize certain payments and transfers from the 

Operating Account. 

Section 6. Formation of Purchaser; Covenant of Contractor. 

(A) Formation of Purchaser. 

Upon award of the contract to Contractor, Contractor shall cause the 

formation of a single purpose Subchapter S corporation or limited liability 

company (the "Purchaser"), over which Contractor shall retain control and in 

which Contractor shall retain at least a majority (51%) ownership interest 

throughout the Performance Period and until completion of the Wind-up, to 

perform the contract as provided herein. 

(B) Covenant of Contractor. 

Contractor hereby covenants and agrees that, from and after the date of 

award and until completion of the Wind-Up, Purchaser will remain a single 

purpose Subchapter S corporation or limited liability company, the sole purpose 

of which is to perform this contract, and which will not form or acquire any 

subsidiary business entity without written approval therefore by DRMS, which 

approval may be granted or withheld by DRMS in the exercise of the sole 

discretion. 

Section 7. Transfer and Hypothecation. 

(A) General Prohibition. 

Except as specifically provided herein or specifically approved by DRMS 

in writing, neither Purchaser nor Contractor may directly or indirectly sell, 

transfer, assign, pledge, offer as collateral or otherwise hypothecate all or any part 

of its rights or obligations under the contract, or, with respect to Contractor, its 

ownership interest in Purchaser, provided, however, that (i) Contractor may 

convey or hypothecate a portion of its ownership interest in Purchaser if, after 

such conveyance, or after transfer in accordance with such hypothecation, 

Contractor retains control over and a majority (51%) ownership interest in 

Purchaser; and (ii) hypothecation of Contractor's Distribution Payments for the 

sole purpose of obtaining financing necessary to perform the contract shall not be 

deemed violative of the provisions of this Article, and (iii) such sale, transfer, 

assignment or hypothecation is not to any individual or firm that is suspended, 

debarred or otherwise prohibited from participation in government contracts. For 

purposes of the general prohibition set forth in this Section 7(A), the sale, transfer 

33 
or hypothecation by Contractor of any voting stock of any corporation that 

directly or indirectly owns any interest in Purchaser or of any partnership interest 

in any general or limited partnership that directly or indirectly owns any interest 

in Purchaser shall constitute an assignment or transfer of an interest in Purchaser 

within the meaning of this Section 7(A). 

 (B) Attempted Transfer. 

Any attempted transfer in violation of the provisions of this Article shall 

be null and void, ab initio, and shall constitute a Material Breach of this contract. 

(C) Consolidation with CV. 

The Contractor shall not consolidate its contract or operations with the 

CV-2 transaction without the written consent of DRMS. Any Contractor that 

proposes any such consolidation shall submit a written proposal to the SCO that 

presents the business case that the Contractor advances in support of the proposed 

consolidation. The business case must present an analysis of and projections, for 

each year or portion thereof through the then remaining balance of the term of the 

Performance Period, of Gross Revenues, Direct Costs, Net Proceeds, and 

Distributions to DRMS. The business case shall expressly set forth reasonable 

assumptions underlying such projections and shall present the basis for each 

assumption. In addition to any other factors that the Contractor identifies as 

material to the business analysis of the proposed consolidation, the Contractor’s 

business case shall analyze any prospective cost savings and economies of scale 

that the Contractor expects from the consolidation. The SCO shall project the 

effects that DRMS expects from such consolidation upon DRMS costs, including 

without limitation its headquarters and field costs for SV and CV administration, 

monitoring, and reporting. The SCO shall assess the proposed consolidation with 

respect to the goal of maximizing Distributions to DRMS net of such costs, 

provided, however, that a Contractor proposing any such consolidation should not 

expect DRMS to contribute directly or indirectly to the cost thereof. 

Section 8. Contract of Sale. 

(A) Relationship of Parties. 

This contract is an agreement for the proceeds-sharing sale of the Property 

by DRMS as seller to Purchaser as buyer. Contractor and DRMS expressly 

disavow the creation of any other relationship, including without limitation 

principal-agent, master-servant, employer-employee, general or limited 

partnership, or joint venture, between DRMS and either Contractor or Purchaser. 

(B) Parties to Contract. 

The parties to this contract are DRMS, Contractor and, pursuant to the 

provisions of Section 10 of this Article 1, Purchaser. The exclusive representative 

of DRMS for all purposes under this contract is the SCO, and all notices, 

demands, requests, consents, approvals, declarations, reports and other 

communications to DRMS from Contractor or Purchaser shall be deemed 

34 
ineffective unless addressed to the SCO and delivered in compliance with the 

provisions of Article 22, Section 2. Kormendi\Gardner Partners ("KGP") is the 

DRMS Financial Advisor. KGP is neither a party to the contract nor an agent of 

DRMS for any purpose. Communications from Contractor or Purchaser to KGP 

shall not be deemed received by DRMS unless provided to DRMS in compliance 

with the provisions of Article 22, Section 2. 

Section 9. Authority of Sales Contracting Officer. 

The SCO has the authority on behalf of DRMS (i) with respect to matters committed by 

the provisions of this contract to the exercise of DRMS's sole discretion, to exercise such 

discretion, (ii) with respect to all matters hereunder, to represent DRMS and to commit DRMS to 

take such actions as are permitted or required hereunder, and (iii) to extend, waive or amend 

timing requirements, deadlines or administrative requirements as may reasonably be required 

under the circumstances. 

Section 10. Execution by Purchaser. 

Within thirty (30) Days of the date of award, Contractor shall cause Purchaser's Chief 

Executive Officer to execute on behalf of Purchaser and deliver to DRMS the Confirmation of 

Purchaser as Co-Signatory and Co-Obligor, the form of which is attached as Attachment VI.1.10. 

 Notwithstanding the failure to deliver or delay in delivering such properly executed document to 

DRMS, Purchaser shall be deemed to be a co-signatory and co-obligor with Contractor with 

respect to this contract effective from the date of award and Purchaser and Contractor shall be 

jointly and severally liable for the performance of their respective obligations under this 

contract. 

Section 11. Replacement Contractor. 

(A) All bids must remain open and awardable for no less than one hundred 

twenty days after bid opening. 

(B) In the event of a Termination (as defined in Section 3 of Article 19) of the 

original Contractor within sixty (60) Days of the date of award, the SCO may 

award the contract to the next highest bidder that is determined by the SCO to be 

responsible if such award is otherwise determined to be in the Government's best 

interest, price and other factors considered. 

ARTICLE TWO. PERFORMANCE PERIOD; EARLY CANCELLATION OPTION; 

DRMS OPTION TO EXTEND 

Section 1. Performance Period. 

Subject to the early cancellation option provisions of Section 2 of this Article 2, and the 

DRMS extension option provisions of Section 4 of this Article 2, the Government shall provide 

the Property for an eighty-four (84) month period (the "Performance Period") from the date of 

submission to Purchaser of the initial Pickup Notice. 

35 
Section 2. Early Cancellation Option. 

(A) Beginning with the fourth (4th) Quarterly Report and in each Quarterly 

Report thereafter, Purchaser shall calculate and report the “SV Performance 

Ratio” and the “Benchmark Performance Ratio” for “Performance Ratio 

Property” (as such terms are defined below) with respect to the immediately 

preceding four-calendar quarter period and for each of the two immediately 

preceding calendar quarter periods. 

(B) The "SV Performance Ratio" equals Gross Proceeds obtained by 

Purchaser during a particular such period from the sale of “Performance Ratio 

Property,” divided by the total Indexed Market Value of all such Property sold by 

Purchaser during such period. The “Indexed Market Value” of such Property 

equals the sum of the products, determined with respect to and weighted by the 

particular amounts of Performance Ratio Property identified by the particular 

combinations of SCL Code and DEMIL Code sold by the Purchaser during such 

period, of (x) Property Re-sale Weight multiplied by (y) “Indexed Price.” 

“Performance Ratio Property” means Property in the Product Pool with the 

combinations of SCL Code and DEMIL Code identified in the attached Schedule 

VI.2.2(B). 

(C) The "Benchmark Performance Ratio" equals (i) the sum of the products, 

determined with respect to and weighted by the particular amounts of 

Performance Ratio Property identified by the particular combinations of SCL 

Code and DEMIL Code sold by the Purchaser during such period, of (x) the 

“Performance Ratio Multiplier” set forth in such Schedule VI 2.2(B), multiplied 

by (y) Property Re-sale Weight, multiplied by (z) “Indexed Price,” which sum is 

divided by (ii) the total Indexed Market Value of all Performance Ratio Property 

sold by Purchaser during the period. 

(D) If the SV Performance Ratios for such four-calendar quarter period and for 

both such calendar quarter periods are less than the respective Benchmark 

Performance Ratios, either DRMS or Contractor may in its sole discretion cause 

Termination by notice served within ninety (90) Days of the delivery to DRMS of 

such Quarterly Report and effective five (5) Days after the date of service of the 

notice. 

Section 3. Indexed Prices and Indexed Market Value. 

(A) Price Indices. 

Table VI.2.3.A below identifies the “Price Index” that shall be used to 

determine the “Indexed Prices” and the “Indexed Market Values” that are used to 

calculate the SV Performance Ratio and Benchmark Performance Ratio. 

(B) Reporting Dates. 

The “Reporting Dates” for each Price Index are as provided in Table 

VI.2.3.A. 

36 
(C) Indexed Price. 

For each Price Index, the “Indexed Price” for a particular calendar quarter 

shall equal the average of the published values for such Price Index (expressed in 

dollars per pound) on all of the Reporting Dates during such calendar quarter. 

(D) Indexing Report. 

Within two (2) calendar months of the end of each calendar quarter, 

DRMS shall issue to Purchaser an “Indexing Report” for such calendar quarter. 

The Indexing Report shall report the calculation of the Indexed Price for each 

Price Index for the subject calendar quarter. There shall be no Indexing Report 

prepared with respect to the calendar quarter that contains the date of award. 

Price Index (Publication, Price Series) Selected City/Cities

Reporting

Dates

Aluminum

AMM American Metal Market , 

Aluminum (Old Sheet and Cast)

(Dealers' Buying Prices)

Chicago Weekly, each Friday

(in Monday's edition)

Brass and Copper

AMM American Metal Market , 

Average of Yellow Brass Solids, No.

2 Heavy Copper and Wire (Dealers'

Buying Prices)

Chicago Weekly, each Friday

(in Monday's edition)

Steel and Iron

AMM American Metal Market , 

Shredded Scrap Weekly Composite

(Consumer Buying Prices). Convert

"dollars per gross ton" to "dollars

per pound" by dividing by 2240.

Reported as an

average of five cities

(Birmingham, Chicago,

Houston,

Philadelphia,

Pittsburg)

Weekly, each Friday

(in Monday's edition)

Stainless Steel

AMM American Metal Market , 

Stainless Steel (18-8 Bundles,

Solids, Clips) (Dealers' Buying 

Prices)

Chicago Weekly, each Friday

(in Monday's edition)

Table VI.2.3.A

Price Indices

Section 4. DRMS Option to Extend Performance. 

The basic Performance Period under this contract is eighty-four (84) calendar months 

beginning with the date of submission to Purchaser of the initial Pickup Notice. The 

Government has the unilateral right to extend that eighty-four (84) calendar month Performance 

Period for three twelve month (12 month) option periods by notice thereof to Purchaser or 

Contractor. The SCO may exercise this option to extend the Performance Period by written 

notice to the Purchaser at least sixty (60) days before the end of the basic eighty-four (84) 

calendar month Performance Period , and sixty (60) days before the end of each subsequent 

37 
option period provided, however, that the parties may agree to permit a later notice of any 

particular extension to become effective. 

Section 5. DRMS Options to Include Additional Property. 

 (A) At any time within the Performance Period, by thirty (30) 

Days notice served in the exercise of its sole discretion, DRMS may elect to 

include within the definition of the Property that is identified in Table IV-1 in Part 

IV such additional material (“Additional Property”) as DRMS determines would 

be in the best interest of the Government. 

 (B) Additional Property shall be sold to Purchaser on such terms as DRMS 

and Contractor may mutually agree. 

 (C) DRMS expects to conduct a 24-month review of the results of operations 

within the three-state Control Group. Should DRMS determine that it is in the 

best interests of the Government to include the Control Group within the 

operations of this sale transaction, DRMS may elect in the exercise of its sole 

discretion to include as Additional Property the Scrap material generated within 

the three-state Control Group and otherwise identified by , which election shall be 

effective upon thirty (30) Days notice thereof, provided, however, that, such 

notice may be served at any time that no less than twelve months remain within 

the Performance Period (as the Performance Period may be extended pursuant to 

the provisions of Section 4 of this Article 2) or at such later time as the parties 

may agree. 

ARTICLE 2A. SMALL BUSINESS SALES PLAN 

Section 1. Applicability. 

This Article applies to both small and large business concerns. 

Section 2. Explanation of Terms. As used in this clause— 

(A) "Affiliates."

As used in this Article, business concerns are “Affiliates” of each other if, directly 

or indirectly, either one controls or has the power to control the other, or another 

concern controls or has the power to control both. In determining whether 

affiliation exists, consideration is given to all appropriate factors including 

common ownership, common management, and contractual relationships; 

provided, that restraints imposed by a franchise agreement are not considered in 

determining whether the franchiser controls or has the power to control the 

franchisee, if the franchisee has the right to profit from its effort, commensurate 

with ownership, and bears the risk of loss or failure. Any business entity may be 

found to be an affiliate, whether or not it is organized for profit or located inside 

the United States. (Refer to Article 23 for the definition of “Affiliate” as such 

term relates to the provisions of this Article 2A.) 

38 
(B) "Small Business Concern" 

“Small business concern” means a concern, including its affiliates, that is 

independently owned and operated. For the purposes of this contract DRMS has 

classified small business concerns into two levels: 

(1) Concerns with 100 or fewer employees. 

(2) Concerns with 25 or fewer employees. 

(C) "Failure to make a good faith effort to comply with the small business 

sales plan" 

As used in this clause, “failure to make a good faith effort to comply with the 

small business sales plan” means a willful or intentional failure to perform in 

accordance with the requirements of the small business sales plan approved and 

included in this contract, or willful or intentional action to frustrate the plan. 

Section 3. Small Business Sales Plan. 

Within fifteen (15) days after bid opening, each apparent successful bidder shall submit a 

small business sales plan to the SCO for approval. The plan shall be included in and made a 

part of any resultant contract with the bidder. Failure to obtain approval of a small business 

sales plan shall make the bidder ineligible for the award of the contract until such approval is 

obtained. 

Section 4. Content of Plan. 

Bidder's small business sales plan shall include, at a minimum, the following: 

(A) A description of the efforts the offeror will make to assure the small 

business sales goals are met (Section 5 below) and that small businesses have an 

equitable opportunity to compete for contracts. 

(B) A description of how size information on the firms will be collected. 

(Note, self-certification is acceptable. Any firm that does not provide a 

certification (if self-certification is the method utilized) would be assumed to be a 

large business). 

(C) The name or title of the position of the individual employed by the bidder 

who will administer the small business sales plan. 

(D) A description of the types of records that will be maintained concerning 

procedures that have been adopted to comply with the requirements and goals in 

the plan, including establishing source lists; and a description of the bidder's 

efforts to locate small business, i.e., source lists, organizations contacted, internal 

guidance and encouragement provided to individuals responsible for the 

arrangement of sales. 

(E) DRMS has established small business sales goals of 40 percent of the total 

gross proceeds to concerns with 100 or fewer employees and 20 percent of total 

gross proceeds to firms with fewer than 25 employees. 

39 
Section 5. Incentive Provisions. 

Commencing with the first 12-month anniversary of the date of award, and each 

anniversary thereafter, an adjustment based on gross sales to small business may be made to the 

amount of Distributions paid to the Contractor. These adjustments will be calculated if the 

Contractor achieves the following: 

(A) Incentive 1. 

If the Contractor exceeds the small business sales goal by achieving gross sales of 

60 percent or more to concerns with 100 or fewer employees, the Contractor will 

be entitled to an incentive payment in the amount of five percent (5%) of the total 

Distributions to the Contractor for the previous 12 months. 

(B) Incentive 2. 

If the Contractor meets the criterion for Incentive 1 above, and also sells 50 

percent or more of all small business sales to firms with 25 or fewer employees, 

the Contractor will be entitled to an additional incentive payment equal to the 

incentive payment for Incentive 1. 

(C) Funding of Incentive Payments. 

Incentive payments shall be funded and accounted for as Seller Indirect Costs. 

Section 6. Quarterly Reports. 

The Purchaser shall submit quarterly a report that contains, at a minimum, the following 

information: 

- Company Name

- Address 

- Contract Identification Number 

- Date of Report 

- Reporting Period 

- Proceeds: 

• Total gross proceeds during the reporting period 

• Total gross proceeds from sales to businesses with 100 or fewer employees 

and businesses with 25 or fewer employees during the reporting period 

• Percent of total gross proceeds sold to businesses with 100 or fewer 

employees and businesses with 25 or fewer employees during the reporting 

period. 

- Volume: 

• Total lbs. sold during the reporting period 

• Total lbs. sold to businesses with 100 or fewer employees and businesses with 

25 or fewer employees during the reporting period 

• Percent of total lbs. sold to businesses with 100 or fewer employee and 

businesses with 25 or fewer employees during the reporting period. 

- Contract Dispersion- 

• Total number of re-sale contracts during the reporting period. 

40 
• Total number of re-sale contracts with businesses with 100 or fewer 

employees and businesses with 25 or fewer employees during the reporting 

period. 

- Annual incentive payments made as the result of Section (5) above. 

Section 7. Failure to Comply. 

The failure to comply in good faith with the approved plan required by this clause shall 

be a Material Breach and DRMS shall have all rights and remedies afforded by the provisions of 

Article 19 below. 

Section 8. Review of Records. 

The Government has the right to review the Contractor’s Records to ensure compliance 

with its small business sales plan. 

ARTICLE THREE. REFERRAL AND REMOVAL OR ABANDONMENT OF 

PROPERTY; SPECIAL SITUATION PROPERTY; TITLE TO PROPERTY; RISK OF 

LOSS 

Section 1. Pickup Notices and Invoices 

 (A) Exclusive Sale. 

All DRMS material that conforms to the definition of the "Property" shall 

be sold by DRMS only to Purchaser as provided herein. 

 (B) Pickup Notices. 

(1) Purchaser shall receive written notices (each, a “Pickup Notice”) 

from generators or DRMS with respect to all Property referred for sale to 

Purchaser at locations other than at DRMO Scrap Yards that are not 

Restricted Access Facilities. Such Pickup Notices shall pertain to all 

Property referred for sale to Purchaser at Restricted Access Facilities, via 

Rolloffs and in-place (including at Puget Sound Naval Shipyard), and to 

all Demilitarization Residue and DCS Property. 

(2) Special loading, notification, Container, environmental, 

demurrage, work safety, and other requirements apply to Property referred 

for sale to Purchaser at Puget Sound Naval Shipyard (“PSNS”) as set forth 

at Schedule VI.3.1.B(2). The provisions of Schedule VI.3.1.B(2) may be 

changed by DRMS from time to time upon reasonable notice as may 

reasonably be required by the installation. DRMS shall from time to time 

designate a person as a Government Representative whom Purchaser shall 

treat as its point-of-contact for resolving administrative and logistical 

matters at PSNS that this sale contract does not reserve exclusively for 

decision by the SCO. All costs, if any, of providing, picking up and 

transporting Containers at PSNS as required in such Schedule shall be 

41 
Direct Costs, provided, however, that, for the convenience of the 

Government, DRMS and Purchaser may agree that certain costs shall be 

treated as Seller Indirect Costs. Any Property referred for sale to 

Purchaser at PSNS that Purchaser in its sole discretion determines is 

unsaleable or cannot be sold without reducing Net Proceeds shall be 

removed by Purchaser on a timely basis and the actual and reasonable 

costs of loading and transporting such Property shall be deemed Seller 

Indirect Costs, provided, however, that Purchaser shall notify the SCO 

thereof in advance before removing such Property. 

(3) Twice per calendar month, Purchaser shall provide to the SCO, or 

the SCO’s designee, copies of all Pickup Notices received. Such copies 

may be electronic, xerographic or facsimile. 

(C) Outstanding Pickup Notice List. 

At least once per calendar quarter, and no more than monthly, DRMS will 

issue an “Outstanding Pickup Notice List” to Purchaser that identifies Pickup 

Notices for which DRMS has not received documentation of the Delivery of 

Property to Purchaser in a form sufficient to create an Invoice to Purchaser 

therefor (“Delivery Documentation”). Within thirty (30) Days thereof, Purchaser 

shall provide to DRMS in writing either the corresponding Delivery 

Documentation, certification of disposal, or justification for Delivery not having 

yet occurred. 

 (D) Invoices. 

Once per calendar quarter, DRMS shall issue an Invoice to Purchaser 

based upon the Delivery Documentation received by DRMS during the preceding 

calendar quarter. The Invoice shall itemize all Deliveries effected during such 

quarter, and for each shall state location (DRMO name or other suitable 

identifier), SCL Code, Delivery Weight, and Quarterly Purchase Price of the 

subject Property. Preparation of the initial Delivery Documentation at particular 

locations, and of the initial Invoice to Purchaser under this contract, shall be 

governed by the provisions of Section 7 of this Article 3. 

Section 2. Delivery Points; DRMS Customer Liaison; Phase-In Period; DRMS 

Infrastructure Reduction. 

 (A) Delivery Points. 

(1) Property that is referred for sale to Purchaser shall be located 

within the United States, including Alaska but excluding Hawaii, North 

Carolina, South Carolina and Tennessee, as more particularly set forth in 

Attachment IV), at (i) a DRMO Scrap Yard, (ii) a scrap operation other 

than a DRMO that is operated by or on behalf of DRMS (“DRMS 

Warehouse”), (iii) other governmental locations, including without 

limitation military facilities and such other locations as may be designated 

in its sole discretion by DRMS (collectively, "Special Situation 

42 
Locations"), (iv) a scrap operation operated by or on behalf of Purchaser, 

or (v) PSNS. (DRMOs, DLA Depots, DRMS Warehouses, Special 

Situation Locations, Purchaser operations, and PSNS are hereinafter 

collectively termed "Delivery Points.") DRMS may elect in its sole 

discretion and at its sole expense to pack, load and transport Property to 

any Delivery Point either before or in connection with referring such 

Property for sale to Purchaser. DRMS and Purchaser may jointly decide 

to have material shipped by or on behalf of DRMS directly to Purchaser’s 

re-sale buyers and to allocate the costs thereof between DRMS and 

Purchaser as the parties may agree. 

(2) DRMS may elect in the exercise of its sole discretion to delete 

PSNS as a Delivery Point, and the Property there may be eliminated from

this sale contract, if Purchaser or its re-sale buyers create repeated 

instances of work stoppages there that, after notice thereof, Purchaser fails 

to cure on a timely basis. The provisions of Article 19 shall govern such 

notice and cure. 

(B) Delivery Point Directory; DRMS Customer Liaison. 

(1) Within thirty (30) days of award of this contract, DRMS shall 

provide to Contractor, in writing and in machine readable word processing 

(*.doc) file format, the listing (the "Delivery Point Directory") as of the 

date of award of all operating DRMOs and DRMS Scrap Operations in the 

pertinent geographic area with DRMO Name, DRMO RIC and RIC 

Suffix, the address and telephone for each such facility, an indication of 

whether such facility is initially designated by DRMS as a Restricted 

Access Facility, and with respect to each listed facility, the name of the 

DRMS employee or other government representative designated by 

DRMS to serve as the principal point of contact for Purchaser with respect 

to such facility (each, the "DRMS Customer Liaison" for such facility), 

the address and telephone of the DRMS Customer Liaison if either differs 

from that for the facility itself, the electronic mail address for the DRMS 

Customer Liaison if available, a supervisory contact for the DRMS 

Customer Liaison, and the date, if applicable, and if publicly available, 

that such facility is scheduled to be closed. 

(2) Throughout the Performance Period, DRMS shall provide notice to 

Purchaser reasonably promptly of changes in the Delivery Point Directory, 

including without limitation notice of any scheduled or actual 

establishment or closure of any DRMO or DRMS Scrap Operation in the 

pertinent geographic area, such notice to be provided within thirty (30) 

Days of the date that knowledge of such scheduled or actual establishment 

or closure becomes available to the public. 

(3) The DRMS Customer Liaison for the DRMO or DRMS scrap 

operation that is identified on a Pickup Notice as the accountable DRMS 

43 
facility for particular Property shall arrange or permit reasonable access 

for Purchaser to such Property as provided herein. 

 (C) Phase-In Period. 

Purchaser shall phase in its performance of the contract as provided in this 

Section. 

(1) Purchaser and DRMS shall make reasonable efforts to agree on a 

schedule for Purchaser to begin accepting Delivery of Property such that, 

no later than three (3) months after the post-award conference, Purchaser 

shall be accepting Delivery of Property at each of the fourteen (14) “Initial 

Delivery Points” identified in Table VI.3.2.C below. Also within three (3) 

months of the post-award conference, Purchaser shall serve notice to 

DRMS of Purchaser’s proposed schedule for accepting referrals of 

Property at the balance of the locations in the Delivery Point Directory. 

Table VI.3.2.C 

Initial Delivery Points 

No. Name City State

1 Lewis Tacoma WA

2 Oklahoma City Oklahoma City OK 

3 Anniston Anniston AL

4 Texarkana Hooks TX

5 Hood Killeen TX

6 Lakehurst Lakehurst NJ

7 Mechanicsburg Mechanicsburg PA

8 St. Juliens Portsmouth VA

9 Tucson Tucson AZ

10 Crane Crane IN

11 San Antonio San Antonio TX 

12 Benning Columbus GA

13 Jacksonville Jacksonville FL

14 Puget Sound

Naval Shipyard 

Bremerton WA

(2) Within fifteen (15) Days after receipt of such notice, DRMS shall 

serve notice to Purchaser of the schedule (the “Phase-In Schedule”) for 

phasing in referrals at all Delivery Points other than the Initial Delivery 

Points. Unless DRMS in the exercise of its sole discretion elects to extend 

the Purchaser’s proposed timetable, the Phase-In Schedule shall provide 

44 
for referrals to begin at all such Delivery Points no later than six (6) 

months after the post-award conference. 

(3) Purchaser may request that DRMS begin referrals at certain 

Delivery Points earlier than three (3) months after the post-award 

conference by serving its request therefor, and at any time Purchaser may 

request acceleration of referrals at any Delivery Point. DRMS shall 

respond to such requests in the exercise of its sole discretion, and DRMS 

and Purchaser shall cooperate to effect orderly cancellation of existing 

term sale contracts and an effective transition that does not unnecessarily 

impact service to generators. 

(4) DRMS shall refer Property for sale to Purchaser only as provided 

on the Phase-In Schedule until the date that is six (6) months after the date 

that the initial Pickup Notice is submitted to Purchaser (such six month 

period being the "Phase-In Period") except as the Phase-In Schedule may 

be modified by agreement reached by the parties in the exercise of the sole 

discretion of each. During the Phase-In Period DRMS reserves the right 

to sell to buyers, other than Purchaser, such Property that is located at 

Delivery Points that, pursuant to the Phase-In Schedule, are at the time not 

yet scheduled for referrals of Property for sale to Purchaser. 

(5) Subject to staffing and facilities constraints, DRMS intends to 

accumulate Property at each particular Delivery Point in advance of the 

scheduled first referral of Property there to provide the Purchaser with 

some beginning inventory with which to begin its operations. 

Nevertheless, DRMS cannot and does not represent that there will be any 

particular level of inventory, or necessarily any at all, at any particular site 

when referrals of Property begin there. 

(6) During the Phase-In Period, DRMS shall not refer Property that is 

located at Special Situation Locations for sale to Purchaser, provided, 

however, that Purchaser may request to receive Property at any such 

location by so notifying DRMS, and DRMS shall exercise reasonable 

efforts to accommodate any such request. 

(7) Upon the conclusion of the Phase-In Period and thereafter during 

the balance of the Performance Period, DRMS shall refer all Property at 

all Delivery Points for sale to Purchaser under the contract. 

(8) All costs of providing, picking up and transporting Containers that 

Purchaser elects to utilize in the exercise of its sole discretion shall be 

deemed Direct Costs, provided, however, that the provisions of Section 

1(B)(2) of this Article 3 shall apply to PSNS. In addition, DRMS in the 

exercise of its sole discretion may direct Purchaser upon reasonable notice 

to utilize a particular Container at any other Delivery Point. If, as a result, 

the number of Containers utilized by Purchaser other than at PSNS 

exceeds three hundred (300), including Containers provided by generators 

45 
or the Government, the actual and reasonable costs of providing, picking 

up and transporting any such additional Container shall be deemed Seller 

Indirect Costs. 

 (D) DRMS Infrastructure. 

Contractor acknowledges that DRMS intends to reduce its infrastructure, 

including without limitation by closure of some or all DRMOs and DRMO Scrap 

Yards and/or reduction of operating hours at particular DRMOs and DRMO Scrap 

Yards, or by establishment of DRMS Scrap Operation, or by other methods or 

combinations of methods. Contractor further acknowledges that this contract 

shall remain in force notwithstanding such infrastructure reduction measures that 

DRMS in its sole discretion may effect. 

(E) Maximum Number of DRMOs, DRMO Scrap Yards and DRMS 

Scrap Operations. 

DRMS does not expect to operate in excess of sixty-nine (69) DRMOs, 

DRMO Scrap Yards, and DRMS Scrap Operations, or in excess of forty (40) 

RIPLs, at any time during the Performance Period. At any time that such number 

is exceeded, all Property referred for sale to Purchaser at such facilities that are 

the then most recently established such facilities and comprise the excess thereof 

shall be deemed to be referred for sale at Special Situation Locations and not 

made available for On-Site Processing for the purpose of determining Seller 

Indirect Costs pursuant to the provisions of Section 4(F) of this Article 3. 

Section 3. Property Storage; Delivery of Property to Purchaser and Passage of Title. 

 (A) Property Storage. 

(1) Each DRMO, DRMS Scrap Yard and DRMS Scrap Operation 

other than Restricted Access Facilities shall provide to Purchaser (i) a 

portion of its administrative space to the extent that DRMS determines in 

the exercise of its sole discretion that such space can be made available, 

and (ii) a contiguous portion of its outdoor storage space ("Purchaser's 

Dedicated Storage”). DRMS shall specify on the Phase-In Schedule the 

initial space allocations for the facilities designated thereon, and DRMS 

shall notify Purchaser of the initial space allocations at all other DRMOs, 

DRMS Scrap Yards and DRMS Operations within ninety (90) Days of 

submission of the initial Pickup Notice to Purchaser. Such initial space 

allocations shall be specified by DRMS in the exercise of its sole 

discretion, provided, however, that DRMS expects that, except in unusual 

circumstances, the entirety of each DRMO Scrap Yard will be designated 

as Purchaser’s Designated Storage. After referrals of Property for sale to 

Purchaser have begun at any particular facility, including facilities 

established by DRMS after the date of award, DRMS and Purchaser shall 

adjust space allocations from time to time as is reasonably required in the 

circumstances to accommodate relative inflows to the facility of Property 

46 
and other DRMS items. Purchaser may use Purchaser's Dedicated Storage 

to store, inspect, lot, tag, sort, pack and load Property as provided herein, 

or for any other purpose that is desired by Purchaser in the exercise of its 

sole discretion and that is not inconsistent with the express provisions of 

this contract. Subject to Host Installation requirements and DRMS 

approval, Purchaser may use Purchaser’s Dedicated Storage for shredding, 

baling or other processing of the Property. 

(2) At DRMOs, DRMO Scrap Yards and DRMS Operations other 

than Restricted Access Facilities, DRMS shall provide reasonably 

necessary utility services to Purchaser to the extent that DRMS determines 

in the exercise of its sole discretion that such services, including water, 

electricity, heat and telephones, are available at a particular facility. 

Subject to approval by DRMS, which approval shall not be unreasonably 

withheld, and subject to Host Installation restrictions, Purchaser may 

arrange for additional services at any particular such facility in the 

exercise of its sole discretion and at Purchaser's sole expense. 

(3) Subject to approval by DRMS, which approval shall not be 

unreasonably withheld, and subject to Host Installation restrictions, 

Purchaser may install fixtures or make other improvements to the 

premises at any particular DRMO, DRMO Scrap Yard or DRMS 

Operation other than Restricted Access Facilities, provided, however that 

any such improvements permanently affixed to such premises shall 

become the property of the Government at the conclusion of the Wind-Up 

if so designated by DRMS in the exercise of its sole discretion at any time 

during the final ninety (90) Days of the Performance Period. 

(4) Except as otherwise provided herein, Purchaser shall not be 

provided Purchaser's Dedicated Storage or administrative space at Special 

Situation Locations or Restricted Access Facilities except as a particular 

facility's restrictions permit. 

(B) Receipt of Property by Purchaser 

(1) DRMO Scrap Yards other than Restricted Access Facilities. 

The Purchaser is responsible for assisting generators in unloading 

material at Government scrap operations. Receipt of Property at DRMO 

Scrap Yards other than Restricted Access Facilities shall be as follows. 

The personnel of DRMS and Purchaser shall cooperate as is reasonably 

required to implement these provisions. 

a. If the Contracting Officer’s Representative (“COR”) is 

available, the COR shall receive the Property from the generator 

on behalf of DRMS; for Property properly identified by one of the 

“High Value SCL Codes,” set forth in the attached schedule 

VI.3.3.B(1)(b), confirm or correct its SCL Code; for all SCL 

Codes, confirm or correct its DEMIL Code and Delivery Weight, 

47 
create or correct the turn-in documentation; and approve the load 

for unloading by the Purchaser. 

b. If the COR is unavailable, the generator shall be deemed to 

be referring the Property on behalf of DRMS. Purchaser shall, for 

Property properly identified by one of the High Value SCL Codes, 

confirm or correct its SCL Code; for all SCL Codes, confirm or 

correct the Property’s Delivery Weight, and create or correct the 

turn-in documentation as necessary, provided, however, that the 

generator concurs with the final entries thereon’ and proceed with 

the unloading. Absent such concurrence, Purchaser shall accept 

the Property on behalf of DRMS subject to the provisions of 

Section (3)(C) below. 

c. The turn-in documentation shall serve as the Delivery 

Documentation for such Property. 

(2) Containers. 

Receipt of Property in Containers shall be as follows:

a. Purchaser shall pick up the full Container, and replace it 

with an empty Container, within five (5) Business Days of its 

receipt of a Pickup Notice, unless otherwise agreed to by the 

parties. 

b. Purchaser shall have its transport vehicle and Container 

weighed immediately before and after pickup at a Scrap Yard if 

reasonably available or, if not, at a commercial scale. The 

difference in such weights shall be deemed to equal the Delivery 

Weight of the subject Property for pricing the Property on an 

Invoice. 

c. Purchaser shall create or correct the subject turn-in 

documentation as necessary, provided, however, that the generator 

concurs with the final entries thereon. Absent such concurrence, 

Purchaser shall accept the Property on behalf of DRMS subject to 

the provisions of Section (3)(C) below. Purchaser shall note the 

Delivery Weight and identify the corresponding Pickup Notice on 

the turn-in documentation, and, if the Delivery Weight was 

determined commercially, shall attach a copy of the documentation 

thereof. The turn-in documentation with its attachments shall 

collectively constitute the Delivery Documentation for such 

Property. 

48 
(3) Referral In-Place and at Restricted Access Facilities. 

Receipt of Property in-place and at Restricted Access Facilities at 

the generator’s premises shall be as follows: 

a. Purchaser shall have custody of and control over the 

Property upon receipt of a Pickup Notice from DRMS or the 

generator. 

b. The Property shall be weighed and the turn-in 

documentation completed upon removal of the Property. 

c. Purchaser shall have its transport vehicle weighed 

immediately before and after pickup at a DRMO Scrap Yard if 

reasonably available or, if not, at a commercial scale. The 

difference in such weights shall be deemed to equal the Delivery 

Weight of the subject Property for pricing the Property on an 

Invoice. 

d. Purchaser shall create or correct the subject turn-in 

documentation as necessary, provided, however, that the generator 

concurs with the final entries thereon. Absent such concurrence, 

Purchaser shall accept the Property on behalf of DRMS subject to 

the provisions of Section (3)(C) below. Purchaser shall note the 

Delivery Weight and identify the corresponding Pickup Notice on 

the turn-in documentation, and, if the Delivery Weight was 

determined commercially, shall attach a copy of the documentation 

thereof. The turn-in documentation with its attachments shall 

collectively constitute the Delivery Documentation for such 

Property. 

(4) Demilitarization Residue. 

Receipt at a DEMIL Center of residue that results from

demilitarization (“DEMIL Residue”) shall be as follows: 

a. Purchaser shall pick up the full Container, and replace it 

with an empty Container, within five (5) Business Days of its 

receipt of a Pickup Notice. 

b. Purchaser shall have its transport vehicle and Container 

weighed immediately before and after pickup at the DEMIL Center 

scale. If a DEMIL Center scale is not reasonably available or, if 

not, at a commercial scale. The difference in such weights shall be 

deemed to equal the Delivery Weight of the subject Property for 

pricing the Property on an Invoice. 

c. The Pick-up Notice and documentation of the Delivery 

Weight shall collectively constitute the Delivery Documentation 

for such Property. 

(5) Puget Sound Naval Shipyard. Receipt of Property at PSNS shall 

be as set forth in Schedule IV.3.1.B(2). As provided in Schedule 

49 
IV.3.1.B(2) and in Section 1(B)(2) above of this Article 3, employees of 

the shipyard or of the shipyard’s demolition contractors shall load the 

Scrap material into Containers provided by Purchaser and Purchaser is 

required to remove such Containers as they fill. The costs of the 

Containers and their removal shall be Direct Costs. 

(C) Discrepancies; Correction of DEMIL Codes; Duty to Cooperate; 

Duties of Care and Loyalty; Administrative Efficiencies 

(1) Discrepancies. Any dispute concerning the proper description of 

Property on Delivery Documentation shall be governed by the provisions 

of Section 2 of Article 6 concerning “Discrepancies.” 

(2) Correction of DEMIL Codes. In no event shall Purchaser be 

responsible for determining or correcting the DEMIL Code assigned to 

particular Property. Property that is received by Purchaser directly from a 

generator shall be deemed to be DEMIL “B” unless the generator specifies 

another DEMIL Code. 

(3) Duty to Cooperate. Purchaser shall cooperate reasonably with 

generator personnel to effect the receipt of Property. 

(4) Duties of Care and Loyalty. Purchaser may negotiate with 

generator personnel to resolve disagreements concerning the proper SCL 

Code applicable to particular Property received directly by Purchaser, 

provided, however, that in resolving such disagreements Purchaser is 

subject to the provisions of Section 2 of Article 7 that concern Purchaser’s 

duty of care and duty of loyalty toward DRMS. 

(5) The SCO may propose by notice such simplified administrative 

procedures for determining SCL Code and Delivery Weight at particular 

installations, with respect to certain types of Property, or in any other 

respect that the SCO determines would enhance Net Proceeds, provided, 

however, that such procedures would not unreasonably reduce Purchaser’s 

accountability for Property, and such procedures shall take effect upon 

notice of concurrence therewith by Purchaser. 

 (D) Title 

(1) DRMS shall transfer title to particular Property as provided in this 

Section 3(D). 

a. Except for DCS Property and Property that is referred for 

sale in-place at a generator’s premises or at a Restricted Access 

Facility, title shall pass to Purchaser upon receipt of the Property 

by Purchaser. 

b. Title to Property referred for sale in-place at a generator’s 

premises or at a Restricted Access Facility shall pass to Purchaser 

upon the removal by or on behalf of Purchaser or a re-sale buyer 

from its Delivery Point. 

50 
c. Title to DCS Property shall pass to Purchaser upon the 

completion and documentation of the required demilitarization and 

removal of the residue by or on behalf of Purchaser or a re-sale 

buyer from its Delivery Point, and removal of DCS Property is not 

permitted before the completion and documentation of the required 

demilitarization absent advance written permission from DRMS. 

(2) Any subsequent re-sale transactions are between Purchaser and the 

re-sale buyers, not between the Government and the re-sale buyers. Any 

disputes or claims resulting from such transactions are between Purchaser 

and re-sale buyers, not the Government. 

Section 4. Access to Property; Removal; On-Site Processing; Costs of Removal; 

Refrigerants 

(A) Purchaser's Access to Property. 

(1) Purchaser, Purchaser's subcontractors and Contractor shall have 

access to Property at each DRMO Scrap Yard and DRMS Operation 

during all hours that such facility normally staffs sales, warehousing, 

receiving or other functions, to inspect, lot, tag, sort, process, pack, load or 

ship such Property, and, except as otherwise provided herein, for such 

other purposes as Purchaser deems appropriate in its sole discretion. 

Purchaser shall coordinate such access with the management of each 

particular Scrap Yard. Except as otherwise provided herein, and subject 

to applicable law and Host Installation regulations, Purchaser may store 

and use Purchaser's materials handling equipment, on an as is if available 

basis, at DRMO Scrap Yards other than Restricted Access Facilities. 

(2) Due to Host Installation restrictions or for other reasons, a 

particular Scrap Yard may occasionally and temporarily be unable to 

provide storage as provided in Section 3 above of this Article 3 or access 

as provided in Subsection (1) above of this Section 4(A). Any such 

facility that is not reasonably able to provide such storage or access other 

than occasionally and temporarily shall be deemed a "Restricted Access 

Facility." Concurrently with award of this contract, DRMS shall provide 

to Contractor in writing a list of DRMO Scrap Yards that DRMS initially 

designates as Restricted Access Facilities. DRMS may add or delete 

entries on that list from time to time by written notice to Purchaser. 

(3) Except as provided in Sections 4(C) and 4(E) below of this Article 

3, Purchaser shall not be permitted access at any time to any Property at 

Special Situation Locations and Restricted Access Facilities, other than 

such access as is reasonably necessary for removal of Property when 

removal of such Property is requested by DRMS. Except as otherwise 

provided herein, Purchaser shall neither use nor store Purchaser's materials 

handling equipment at Special Situation Locations and Restricted Access 

51 
Facilities. Subject to applicable law and Host Installation regulations, 

DRMS shall provide to Purchaser, at government expense and at any such 

Delivery Point, the use of such materials handling equipment as is 

available for the materials handling tasks that are reasonably required of 

Purchaser at such Delivery Points. 

(4) Purchaser shall comply with all applicable inspection and safety 

regulations at Host Installations, including, without limitation, regulations 

pertaining to materials handling equipment. 

(B) Re-Sale Buyers' Access to Property. 

Except as provided in Sections (4)(C), 4(D) and 4(E) below of this Article 

3, Purchaser's prospective re-sale buyers shall not be permitted access to Property 

at any Delivery Point at any time. 

(C) Removal; Packing and Loading. 

(1) Removal. Except as provided in Section 4(E) below, and except 

in special circumstances that reasonably delay removal, Purchaser shall 

cause removal of Property as follows: 

a. With respect to Property that is located at a Scrap Yard, as 

is reasonably necessary from time to time to accommodate the 

inflow of Property to Purchaser's Dedicated Storage at any 

particular such facility, provided, however, that, except by special 

arrangement with a particular Restricted Access Facility, Property 

referred for sale at Restricted Access Facilities shall be removed 

no later than the earlier of (i) sixty (60) Days after submission to 

Purchaser of the corresponding Pickup Notice, or (ii) reasonably 

promptly upon request by DRMS. 

b. With respect to Property that is located at a Special 

Situation Location, within thirty (30) Days of delivery of the 

corresponding Pickup Notice unless DRMS directs earlier removal 

pursuant to the provisions of Subsection (c) below of this Section 

4(C)(1). The DRMS Customer Liaison shall timely notify 

Purchaser of whether Purchaser will be required to pack and/or 

load such Property. If Purchaser's initial attempt to remove the 

Property is unsuccessful because, notwithstanding such notice, the 

Property is inadequately packed by government personnel or 

loading by government personnel is unexpectedly unavailable, 

Purchaser shall return within thirty (30) Days with materials and 

equipment necessary to effect removal. 

c. Occasionally and as circumstances reasonably require, 

DRMS may direct removal of Property within shorter time periods 

than those provided in Subsections (b) and (c) above of this 

Section 4(C)(1). All such Property shall be deemed to be referred 

52 
for sale at a Restricted Access Facility for the purpose of applying 

the provisions of Section 4(F)(2) below of this Article 3.

(2) Packing and Loading. 

a. Property at Scrap Yards. Purchaser shall both pack and 

load Property at Scrap Yards for removal by Purchaser's re-sale 

buyers, and removal of Property from Scrap Yards other than 

Restricted Access Facilities by Purchaser's re-sale buyers shall be 

permitted throughout the Performance Period. Costs incurred by 

Purchaser for packing and loading Property at DRMOs and DRMS 

Operations shall be Direct Costs. 

b. Special Situation Locations; Restricted Access Facilities. 

Property referred for sale at Special Situation Locations and 

Restricted Access Facilities shall be packed and loaded suitably for 

transport by DRMS or other government personnel at government 

expense, provided, however, that Purchaser shall pack and/or load 

such Property as requested by DRMS upon reasonable notice, and 

the actual and minimum reasonable costs thereof shall be Seller 

Indirect Costs. Except as provided in Section 4(E) of this Article 3 

below, Purchaser's re-sale buyers may not pick up Property at 

Special Situation Locations and Restricted Access Facilities. 

 (D) On-Site Processing. 

Purchaser's prospective re-sale buyers shall be permitted access subject to 

Host Installation restrictions to each Scrap Yard other than Restricted Access 

Facilities to inspect the Property in connection with Purchaser's processing and 

marketing activities, including without limitation sorting, packing, processing, 

off-site auctions and negotiated sales. Such prospective re-sale buyers shall be 

accompanied within the Scrap Yard at all times by Purchaser or its designee, and 

Purchaser will be required to escort re-sale customers from installation gates to 

the Scrap Yard when it is required, and permitted, by the Host Installation. Resale buyer access at a particular Scrap Yard shall be permitted for at least two (2) 

Business Days each calendar week for at least eight (8) hours each, provided, 

however, that (i) Purchaser shall coordinate such access with the management of 

each particular Scrap Yard, (ii) Purchaser shall conduct such re-sale buyer access 

in a manner that is not unreasonably disruptive of the facility's operations, and 

(iii) such re-sale buyer access shall be permitted only during such times as 

Purchaser access is permitted pursuant to the provisions of Section (4)(A)(1) 

above of this Article 3. (Re-sale buyer access to Property as provided in this 

Section 4(D) is hereinafter termed "On-Site Processing.") 

(E) DRMS Option to Permit On-Site Processing. 

Throughout the Performance Period, DRMS in the exercise of its sole 

discretion may designate particular Property at a particular Special Situation 

Location or Restricted Access Facility as available for On-Site Processing by 

53 
serving notice thereof upon or after delivery of the Pickup Notice and before 

removal of such Property by Purchaser. On-Site Processing of such Property at 

such location shall be permitted for sixty (60) Days following service of such 

notice, and Purchaser shall cause removal of such Property within such sixty (60) 

Day period. The DRMS Customer Liaison for such Property shall arrange access 

to the Property for Purchaser and for prospective re-sale buyers throughout such 

sixty (60) Day period that is consistent with the provisions of Sections 4(A)(1) 

and 4(D) above of this Article 3. 

(F) Costs of Removal. 

(1) On-Site Processing. With respect to Property that is made 

available to Purchaser for On-Site Processing, the costs incurred by 

Purchaser to transport such Property from its Delivery Point are Direct 

Costs. 

(2) Other Property. With respect to Property referred for sale at (i)

Special Situation Locations that is not made available for On-Site 

Processing, and (ii) Restricted Access Facilities, the actual and minimum

reasonable costs incurred by Purchaser to pack, load and surface transport 

such Property from its Delivery Point to Purchaser's nearest storage 

facility (including a DRMO Scrap Yard) are Seller Indirect Costs, 

provided, however, that transport costs for transport in excess of five 

hundred (500) miles from the Delivery Point, shall be deemed Direct 

Costs. Purchaser shall notify DRMS within fifteen (15) Days of the 

establishment or closure of each storage facility operated by or for 

Purchaser, and for each newly established facility such notice shall 

include address, telephone and on-site management contact information. 

(G) Government Furnished Equipment 

(1) Attachment VI.3.4.G identifies government-owned equipment that 

that may be available to the Contractor ("GFE”). DRMS does not 

represent or warrant that such GFE is completely or accurately identified 

on such Attachment or is in fact available at the locations specified or any 

of them, that such equipment is useable or could be made useable for any 

particular purpose with any particular amount of parts, repairs or 

maintenance, that such equipment has received an appropriate amount of 

repairs or maintenance or any amount of repairs or maintenance 

whatsoever, or that such equipment is safe to operate. 

(2) Subject to applicable law and Host Installation instructions, 

including without limitation any required inspections, DRMS hereby 

grants a license to Purchaser to use, maintain, repair or modify such GFE 

as is identified in such attachment to the extent and in the manner that 

Purchaser elects in the exercise of its sole discretion, and the costs thereof 

shall be Direct Costs, provided, however, that such GFE shall be used 

solely to perform Purchaser's obligations under this contract, and provided 

54 
further that DRMS may at any time relocate such GFE to another location 

for government use as determined by DRMS in the exercise of its sole 

discretion. Should any GFE require replacement due to misuse and 

negligence by Purchaser, Purchaser shall be responsible for such 

replacement at no cost to the Government. 

(3) At such time that Purchaser determines that a particular item of

GFE is not economically repairable (defined as requiring repair costs in 

excess of 75 percent of the cost to replace such item), the Purchaser and a 

DRMS COR shall certify it to be in condemned condition and submit a 

report to the SCO. Before the conclusion of the Wind-Up, the remaining 

GFE shall be reported to the SCO according to FAR 45.6 or in such other 

format as the parties may agree. 

 (4) Within ninety (90) Days of award, Purchaser shall submit a report 

to DRMS that (i) identifies and provides a photograph of each particular 

item of GFE by location, and (ii) provides a good faith assessment of the 

condition of each such item of GFE. DRMS shall notify Purchaser of any 

objections to such report within ninety (90) Days of its receipt by DRMS. 

 The parties shall cooperate in good faith to resolve such objections and, 

with respect to objections that are resolved, shall document the resolution 

in writing. Reasonably promptly when so requested, Purchaser shall 

acknowledge receipt of the GFE in writing by executing, and annotating to 

the extent that Purchaser deems appropriate, a DLA Form 1311 (or similar 

form) prepared by DRMS for property accountability. 

 (H) Base Closures. 

(1) Contractor acknowledges that certain defense installations may be 

scheduled for closure (each, a "Base Closure") during the prospective 

Performance Period of this contract. Contractor further acknowledges that 

Base Closures often generate substantially increased volumes of surplus 

material that must be processed on accelerated schedules. 

(2) DRMS and Purchaser shall cooperate and institute special 

procedures as reasonably necessary in connection with Base Closures to 

process and re-sell Property efficiently. Such cooperation shall include, 

without limitation, extended access for Purchaser and re-sale buyers, onsite calls of auctions and spot bidding, and other special procedures as 

reasonably required to remove all property by the established closure date. 

(I) Damage to Government Property; Clean-Ups of Spills. 

(1) Purchaser shall be responsible to DRMS for any physical damage 

that is caused to any government equipment or facility or Scrap Yard that 

arises out of the negligence of Purchaser, its vendors or its re-sale buyers. 

Purchaser shall be responsible for cleaning up spills of hazardous material 

on a government installation that are caused by Purchaser, its vendors or 

its re-sale buyers, including spills from hydraulic lines on GFE, without 

55 
regard to degree of culpability, and, for any spill that occurs on a 

government installation that has provided to Purchaser its Spill Prevention 

Control and Countermeasures Plan and Spill Contingency Plan, such 

clean-up shall be in accordance with such plans. Purchaser shall notify 

the SCO or COR reasonably promptly of any such spill on a government 

installation that is caused by Purchaser, its vendors or a re-sale buyer and 

shall cooperate with the SCO to support the installation’s requirements for 

a report thereof. 

(2) DRMS shall indemnify, defend, and hold harmless Purchaser, 

Contractor, Affiliated Parties, and their owners, officers, employees, 

agents, vendors and subcontractors with respect to any claim brought by 

any third party, including without limitation any local, state, or federal 

governmental entity, that arises or is alleged to arise, directly or indirectly, 

from environmental contamination at any federally owned or controlled 

property or facility, provided, however, that DRMS shall be entitled to 

recover from Purchaser any amounts found by a court of competent 

jurisdiction and identified as such in its final judgment as having been 

caused solely by Purchaser’s failure to comply with applicable local, state 

or federal environmental law. 

(J) Refrigerants. Purchaser shall remove and arrange for the proper disposal 

of refrigerants in accordance with applicable law, regulation and Host Installation 

requirements. The actual and minimum reasonable costs of such removal and 

disposal shall be Seller Indirect Costs. 

(K) Tire, Wood, Glass and Unsaleable Material 

Purchaser is required to make reasonable periodic efforts to sell tire 

material, classified in SCL Codes G01, G02, G03, G04, G05 and GST, wood 

material, classified in SCL Codes F01 and FSW, and glass material, classified in 

SCL Code H06, that is referred for sale to Purchaser at locations that are subject 

to this sale transaction and that will generate Net Proceeds after deducting related 

costs. Purchaser shall accordingly confer periodically with the SCO about the 

availability of such material at particular locations and the markets for such 

material, and Purchaser shall prepare, and periodically update, for the SCO’s 

review and approval a plan for attempting sale of such material to reduce the 

DRMS solid waste stream and maximize Net Proceeds. Provided that Purchaser 

attempts such sale in accordance with such plan, Purchaser in its sole discretion 

may elect to take Delivery of all or part of such material that is available at any 

such location on such terms as the parties agree and DRMS shall then include 

such material on a subsequent Invoice. Should Purchaser determine in its sole 

discretion that any such material , or other material classified in another SCL 

Code, is unsaleable at particular locations or saleable only at such pricing or on 

such terms such that Net Proceeds would be reduced by such sale, Purchaser shall 

make such material available to DRMS for disposal in lieu of removal by 

56 
Purchaser, provided, however, that, should the SCO so direct, Purchaser shall 

dispose of such material within such reasonable time as the SCO requires and the 

actual and reasonable costs thereof shall be deemed Seller Indirect Costs. 

Purchaser acknowledges that it is responsible for compliance with all federal, 

state, local and installation laws and regulations pertaining to such material, 

including particularly applicable law governing the storage of tire material. 

Section 5. Delivery Documentation. 

Purchaser shall forward to the SCO photocopies of all Delivery Documentation obtained 

by Purchaser that was not previously furnished to the SCO. This will usually occur when 

Purchaser receives material from generator on behalf of DRMS. 

Section 6. Risk of Loss. 

DRMS shall bear the risk of loss, damage or destruction of the Property until title thereto 

transfers to Purchaser in accordance with the provisions of Section 3(C) above of this Article 3, 

and Purchaser shall bear such risk thereafter, provided, however, that (i) Purchaser shall pay to 

DRMS the full amount of the Quarterly Purchase Price for any item of Property lost or damaged 

before passage of title as a result of Purchaser's negligence, but DRMS shall have no claim for 

consequential damages against Purchaser or Contractor based upon such loss or damage, and (ii)

Purchaser shall be entitled to a refund for the full amount of the Quarterly Purchase Price for any 

item of Property that is lost or damaged while located at a Delivery Point as a result of 

negligence on the part of the Government or any contractor of the Government, but neither 

Purchaser nor Contractor shall have a claim against the Government for consequential damages 

based upon such loss or damage, and (iii) the party asserting a claim under the provisions of this 

Section 6 shall serve notice thereof to the other party within a reasonable time after the facts 

underlying such claim are discovered or, in the circumstances, should have been discovered. 

57 
Section 7. Initial Property Sales. 

(A) DRMS and Purchaser shall meet at a particular Scrap Yard on the date 

that is provided therefor in the Phase-In Schedule, or as agreed between DRMS 

and the Purchaser, and conduct an inventory (the “Initial Inventory” for that 

location), by SCL Code and approximate weight and, for DCS Property, DTID, 

NSN or LSN and DEMIL Code, of the initial Property at such location that 

DRMS elects in the exercise of its sole discretion to refer for sale to Purchaser. 

The Initial Inventories for the Initial Delivery Points shall be completed no later 

than the date that is three (3) months after the date of the post-award conference. 

The Initial Inventory for a particular location shall be deemed the initial Pickup 

Notice for that location, effective as of the date specified in the Phase-In Schedule 

or as otherwise agreed by DRMS and Purchaser, each in the exercise of its 

respective sole discretion. 

(B) Purchaser shall not remove any Property from any Scrap Yard before the 

Initial Inventory of Property at such Scrap Yard is created by DRMS and 

Purchaser. The Initial Inventory, as supplemented by documentation of receipts 

of Property at such location subsequent to the Initial Inventory but before 

Purchaser begins receiving referrals of Property at such location, shall constitute 

the Delivery Documentation for the initial Property referred for sale to Purchaser. 

 (C) The Phase-In Schedule shall be delayed as necessary to enable DRMS to 

receive and, as required in certain respects by the provisions of this contract, to 

approve, all of the materials and information required to be provided to DRMS 

under the provisions hereof. Such provisions include but are not necessarily 

limited to the provisions of Article 1 (Purchaser Information and Confirmation of 

Purchaser as Co-Signatory and Co-Obligor), Article 5 (Pre-Payment), Article 11 

(evidence of required insurance coverage), and Article 20 (designation of 

Contractor's Appointed Arbitrator). 

Section 8. Withdrawal or Re-Purchase of Property. 

Any Property that has been referred for sale to Purchaser may be withdrawn by the SCO 

upon notice at any time before Delivery of such Property. After Delivery of particular Property, 

but before its re-sale to a re-sale buyer, the SCO may by notice direct the re-purchase thereof by 

DRMS, and Purchaser shall receive a credit on the next Invoice, for the amount of the 

corresponding Quarterly Purchase Price. In the cases of both withdrawal and re-purchase of 

Property, the costs of compliance with the SCO’s directions shall be deemed Seller Indirect 

Costs. 

ARTICLE FOUR. PICKUP NOTICES 

Section 1. Content of Pickup Notices. 

At least twice monthly and no more often than weekly, DRMS shall provide to 

Purchaser, in machine readable, comma delimited text format, delivered by electronic mail or on 

58 
a removable magnetic or optical storage medium, such as a CD-ROM, a “Consolidated Pickup 

Notice” for all Property referred for sale under this contract since the issuance of the preceding 

Consolidated Pickup Notice that Purchaser has not received and for which no Pickup Notice has 

been issued by DRMS or a generator. All Pickup Notices, including Consolidated Pickup 

Notices, shall contain the following information: 

(A) DRMO Name (DRMO_NAME). 

The name of the accountable DRMO, DRMS Operation or DLA Depot in 

a 19 character field. 

(B) DRMO RIC and RIC Suffix (DRMO_RIC and RIC_SFX). 

Together these 3 and 1 character, respectively, alphanumeric fields 

provide the electronic name of the DRMO, DRMS Operation or DLA Depot 

where the turn-in of Property was processed. 

(C) Disposal Turn in Document Number (DTID_NO). 

The "DTID" is the official form (DD 1348-1) used by all military services 

to turn in excess property. DTID_NO is a 14 or 15 character alphanumeric code 

in a 15 character field. It consists of: 

(1) a 6 character Department of Defense Activity Account Code 

(DODAAC) that identifies the turn-in activity 

(2) a 4 digit Julian date 

(3) a 4 to 5 digit serial number. 

(4) in some cases, a one-character suffix 

A particular value for DTID_NO may be assigned to any weight of a particular 

material that is properly identified by a single SCL Code, or to any quantity of

items of DCS Property that are properly identified by a single FSC. Material or 

objects grouped together on a single DTID_NO collectively constitute a single 

"Line Item" of Property. Thus, a single DTID form, each of which bears a unique 

combination of DTID_NO, DRMO_RIC and RIC_SFX, could list any quantity or 

weight of a particular type of Property. That quantity constitutes one Line Item. 

(D) SCL Code . 

This three character alphanumeric field identifies the material content. 

(E) National Stock Number [or] Local Stock Number. 

This 13 character code identifies the particular type of DCS Property that 

comprises the Line Item and is constructed using the following two fields: 

 (1) Federal Supply Classification (FSC). This 4 digit numerical 

code identifies the general type of property (e.g., FSC 3411 is Boring 

Machines). 

 (2) National Item Identification Number Local Stock Number

(NIIN_LSN). A 9 position field that contains either: 

 (a) National Item Identification Number (NIIN). The 

federally assigned numerical code that identifies an item of 

Property as meeting certain specifications. Items that are not 

perfectly identical, and/or were produced by different 

59 
manufacturers, but which meet identical procurement 

specifications, may be identified by the same NIIN. 

-- or -- 

 (b) Local Stock Number (LSN): Items for which the NIIN is 

unknown or unavailable (in many cases, items that were locally 

purchased or fabricated) have a text identifier assigned by the 

generator or at the DRMO in this 9 character field. 

(F) Inventory Item Name (INV_ITM_NAME). 

For DCS Property, this 29 character field contains the name officially 

assigned to the item (e.g., Computer, Digital). 

(G) Item Unit of Issue (ITM_UI). 

For DCS Property, this 2 character field describes how all quantities are 

counted (e.g., each, box, dozen, hundred count, gross, etc.). 

(H) Quantity Available (QTY_AVAIL). 

For DCS Property, a 9 position numeric field containing the quantity 

(measured in the unit of issue) that is referred for sale to Purchaser. 

(I) Property Storage Location. 

This 11 character code provides the physical location of the Property as 

assigned by the accountable DRMO. It is constructed of the following two fields: 

 (1) Site Location Code (SITE_LOC_CD). This 2 character 

alphanumeric field identifies the storage site. 

 (2) Storage Location Code (STG_LOC_CD). This 9 character 

alphanumeric field identifies the actual storage location within the site. 

(J) Reimbursement Code. 

This one character alphanumeric field identifies whether or not a 

particular turn-in is reimbursable to a Qualified Recycling Program. A “1” 

indicates the item is reimbursable and a blank field indicates the item is nonreimbursable. 

(K) Hazardous Material Code. 

This one character field contains an “M” or a “W” if the corresponding 

item is deemed to be, or to be contaminated by, hazardous material or hazardous 

waste, respectively. The Property does not include any “M” or “W” items, so this 

field should always be blank. 

(L) DEMIL Code. 

This one character field contains the material’s DEMIL Code. If the 

DEMIL code is other than “A”, “B” or “Q”, the Property is DCS, and 

demilitarization instructions will be provided by DRMS to Purchaser. 

Section 2. Documentation and References. 

DRMS shall provide training (based on availability of training slots), documentation, 

manuals and references as reasonably requested by Purchaser to allow Purchaser to determine 

the meaning of coded information. 

60 
ARTICLE FIVE. PAYMENT BY PURCHASER FOR PROPERTY 

Section 1. Payment of Bid Price and Payment Deposit. 

(A) Payment of Bid Price. 

Upon contract award, Contractor shall pay to DRMS the amount of the 

Bid Price. The Bid Price is non-refundable except as provided in this Section 1, 

Sub-Sections (B) and (C). The Bid Price must be made via guaranteed instrument 

(cashier’s or certified check), wire transfer or electronic funds transfer (“EFT”). 

(B) Refund of Fractional Portion of Bid Price upon Contract 

Cancellation. 

Upon issuance or receipt by Contractor of a notice of Cancellation of the 

contract, Purchaser shall withhold from subsequent Distributions to DRMS and 

pay to Contractor as Seller Indirect Costs amounts sufficient to return to 

Contractor, without interest thereon, (i) that fractional portion of its Bid Price 

determined by dividing (x) the number of whole or partial months between the 

date of award and the effective date of such notice by (y) eighty-four (84), minus 

(ii) any amounts then owed to DRMS or to KGP for Invoice Payments or 

otherwise. 

(C) Refund of Fractional Portion of Bid Price upon Contract 

Termination. 

Upon Termination of the contract, DRMS and Contractor shall negotiate 

the amount, if any, of the refund of a portion of the Contractor’s Bid Price net of 

any DRMS claims against Contractor or Purchaser. 

(D) Payment Deposit. 

Upon award of the contract, the amount of the Contractor’s Bid Deposit 

shall be retained by DRMS as a “Payment Deposit” until the completion of the 

Wind-Up. DRMS will use the Payment Deposit to offset unpaid invoices or to 

offset any other claims by DRMS against Contractor or Purchaser. The 

Government shall return any available balance of the Payment Deposit, without 

interest thereon, to Contractor at the completion of the Wind-Up as provided in 

Article 21. 

Section 2. Quarterly Payment by Purchaser. 

 (A) Invoices. 

DRMS shall submit to Purchaser in machine readable, comma delimited 

ASCII file format, delivered by electronic mail or on a removable magnetic or 

optical storage medium, such as a CD-ROM, a quarterly billing ("Invoice") for 

payment for the Property referred for sale to Purchaser since the last preceding 

Invoice. The Invoice shall be in the total amount of the Quarterly Purchase Price 

61 
of the subject Property, determined pursuant to the provisions of Section 2 (C) 

below, less any credits to which the Purchaser is entitled and plus any debits to 

which DRMS is entitled (the balance being the "Total Invoiced Amount"). 

(B) Amounts Payable to DRMS and to KGP; Timing of Payments. 

Each Invoice shall identify (i) an amount (the "DRMS Invoiced Amount") 

equal to ninety-seven and seventy-five one-hundredths percent (97.75%) of the 

Total Invoiced Amount, and (ii) an amount (the "KGP Invoiced Amount") equal 

to two and twenty-five one-hundredths percent (2.25%) of the Total Invoiced 

Amount. Purchaser shall pay to DRMS and to KGP the full amounts of the 

DRMS Invoiced Amount and the KGP Invoiced Amount, respectively, on or 

before the date that is fifteen (15) Days after each Invoice is submitted to 

Purchaser. 

(C) Quarterly Purchase Price. 

The amount of the “Quarterly Purchase Price” with respect to a particular 

calendar quarter or portion thereof is the sum, determined with respect to all Line 

Items of Property referred for sale to the Purchaser during such period, of the 

greater of (i) the Delivery Weight of such Line Item multiplied by one onehundredth of of one cent per pound (.01¢/lb.), or (ii) one cent (1¢). 

Section 3. Failure to Make Timely Payments. 

With respect to any particular Invoice, should Purchaser fail to pay to DRMS and to KGP 

the full amounts of the DRMS Invoiced Amount and the KGP Invoiced Amount, respectively, on 

or before the date that such payments are due, DRMS may, in its sole discretion, (i) apply that 

portion of the Payment Deposit that is necessary to pay the Total Invoiced Amount, in which 

event DRMS shall pay to KGP the subject KGP Invoiced Amount, and (ii) notify Purchaser that 

such failure constitutes a Material Breach that Purchaser may cure within ten (10) Days of 

service of notice thereof by paying to DRMS an amount calculated based on Part 2, Condition 11 

of the SBR of the subject Total Invoiced Amount, which payment shall be applied by DRMS to 

replenish and increase the amount of the Payment Deposit. 

Section 4. Payments. 

Unless otherwise provided by notice, all payments to DRMS and to KGP shall be made 

and delivered pursuant to the following instructions, which instructions may be changed by 

written notice to Purchaser. 

(A) Instructions for Payments to DRMS. 

DRMS prefers payment be made via EFT; however, payments may also be made via wire 

transfer, cashier’s check payable to “U.S. Treasury,” or credit card. EFT and wire 

transfers should be made to the following account: 

Mellon Bank 

043000261 

Account # 9101019 

62 
Include in the addendum field of the EFT the following information: 

DRMS #99-4001 

Type of payment (i.e., Bid Price, Invoice payment, Distribution or 

other) 

A separate EFT transaction must be processed for each type of payment. 

A cashier’s check should be sent to: 

DRMS-RF ATTN: Cashier 

74 N. Washington Ave. 

Battle Creek, MI 49017-3092 

Include in the memorandum field of the check the following information: 

DRMS #99-4001 

Type of payment (i.e., Bid Price, Invoice payment, Distribution or 

other) 

Payments by credit card can be made by facsimile using the credit card form attached as 

Attachment VI.5.4.A and transmitted to (269) 961-7314. Credit card payments can also be made 

through the DRMS website at http://www.drms.com. Within the sale customer area, select the 

payments bar. Cards accepted are VISA, Discover, MasterCard and American Express. 

(B) Instructions for Payments to KGP. 

By: Wire transfer 

[KGP to provide details after award] 

63 

ARTICLE SIX. QUANTITY DELIVERABLE; DISCREPANCIES AND ANNUAL 

PRICING CORRECTION; SCRAP 

Section 1. Sale by Reference Conditions. 

Sale by Reference, Part 4, Condition D, Adjustment for Variation in Quantity or Weight 

Special Sealed Bid-Term Conditions (Standard Form 114C-2) is deleted, and Part 2, Condition 

No. 12, Adjustment for Variation or Weight (Standard Form 114-C) is modified to authorize the 

Government to vary the quantity or weight delivered as provided in Section 2 of this Article 6. 
Section 2. Discrepancies. 

 (A) With respect to each discrepancy noted by Purchaser in terms of a Line 

Item of DCS Property on a Pickup Notice that is available for removal, but for 

which there is a material underage or overage in the "Quantity Available 

[QTY_AVAIL]," or product misidentification with respect to any High Value 

SCL Code on a Pickup Notice or DTID with respect to any Property (any such 

underage, overage, or misidentification being a "Discrepancy"), Purchaser shall 

provide notice to DRMS thereof with documentation of such Discrepancy within 

thirty (30) Days of issuance of the subject Pickup Notice and while such Property 

can be made available for inspection by DRMS at either a Delivery Point or a 

storage facility maintained by Purchaser. Failure to provide notice of an alleged 

Discrepancy in accordance with the criteria set forth in this subparagraph shall 

preclude inclusion thereof in any reports described in subsequent provisions of 

this Section 2 or assertion of any claim based thereupon. Within a reasonable 

period of time after such notification, DRMS shall review the asserted 

Discrepancy and notify Purchaser of acceptance or rejection thereof in whole or 

in part. Purchaser shall maintain such documentation as part of Purchaser's 

Records.

(B) Purchaser shall include with the initial Annual Report, with each Annual 

Report thereafter, and with the Closing Report, a compilation of all asserted 

Discrepancies during the period with respect to which such report is prepared, 

grouped by the DRMO or other location of the Property, which compilation 

includes a complete description of (i) each such Discrepancy accepted by DRMS 

in whole or in part and a calculation of the effect on the Quarterly Purchase Price 

of the corresponding Invoice if the Discrepancy were adjusted accordingly (a 

"Pricing Correction"), and (ii) each such Discrepancy rejected by DRMS in whole 

or in part. 

(C) If the sum of the Pricing Corrections for the subject time period (the 

"Total Pricing Discrepancy") exceeds the amount that is three percent (3%) of the 

total of the Quarterly Purchase Prices billed by DRMS to Purchaser with respect 

to Property sold to Purchaser during such period (the "Pricing Discrepancy 

Benchmark"), the amount of Purchaser's next payment of an Invoice shall be 

increased or decreased by the amount of such Total Pricing Discrepancy minus 

the Pricing Discrepancy Benchmark (the "Annual Pricing Correction"). If there 

are no more Invoices forthcoming, the next Distributions shall be adjusted for 

such Annual Pricing Correction. 

(D) If the Total Pricing Discrepancy for the subject time period is equal to or 

less than the Pricing Discrepancy Benchmark, the Annual Pricing Correction for 

the subject time period shall be zero. 

(E) Purchaser may seek administrative or judicial relief pursuant to the 

procedures specified in Part VI, Article 20 with respect to any asserted 

Discrepancy that is rejected in whole or in part by DRMS, provided, however, 

64 
that no such action shall be commenced by Purchaser more than thirty (30) Days 

after submission to DRMS of the corresponding compilation of such 

Discrepancies required to be reported to DRMS pursuant to the provisions of 

Section 2(B) above of this Article 6 unless the SCO serves notice of extending 

such deadline. 

Section 3. Items not Available for Removal. 

(A) Purchaser shall be credited the amount of the Quarterly Purchase Price 

attributable to any Line Item that is listed on a Pickup Notice or Invoice but that is 

not made available by DRMS for removal. Purchaser shall notify DRMS within 

thirty (30) Days of issuance of a particular Pickup Notice of Purchaser's 

determination that a Line Item thereon was unavailable for removal. DRMS shall 

review the underlying facts within a reasonable time after receipt of such 

notification and shall notify Purchaser of the resulting amount, if any, to be 

credited to Purchaser. 

(B) The amount of any credit to which Purchaser is entitled pursuant to the 

provisions of this Section 4 shall be deducted from the amount of Purchaser's next 

Invoice. If there are no more Invoices forthcoming, the next Distributions shall 

be adjusted for such credit. 

(C) Purchaser may seek administrative or judicial relief pursuant to the 

procedures specified in Part 2, Article 20 with respect to any credit sought 

pursuant to the provisions of this Section 4 that is rejected by DRMS. 

Section 4. Designation of Useable, Scrap and Refuse. 

(A) Downgrades Upon Receipt. 

Contractor acknowledges that DRMS reviews items that are designated as 

"Useable" by the generator when turned in to DRMS and, in the exercise of its 

sole discretion upon receipt of such items, DRMS downgrades certain items for 

sale as "Scrap" (each, a "Downgrade Upon Receipt," and coded as such in the 

DRMS automated inventory control records). Throughout the Performance 

Period DRMS shall exercise its sole discretion to determine the policies and 

procedures governing Downgrade Upon Receipt decisions, and Purchaser shall 

not be entitled to affect such policies, procedures or decisions. 

 (B) Upgrades. 

Contractor acknowledges that (i) DRMS reviews items that are designated 

as "Scrap" by the generator when turned in to DRMS and, in the exercise of its 

sole discretion upon receipt of such items, DRMS upgrades certain items to 

"Useable" (each, an "Upgrade Upon Receipt"), and (ii) from time to time in the 

exercise of its sole discretion DRMS reviews items received and accepted as 

"Scrap" and upgrades certain such items after receipt to "Useable" (each, a "PostReceipt Upgrade"). Throughout the Performance Period DRMS shall exercise its 

sole discretion to determine the policies and procedures governing Upgrade Upon 

65 
Receipt and Post-Receipt Upgrade decisions by DRMS receiving personnel, and 

Purchaser shall not be entitled to affect such policies or procedures, provided, 

however, that such policies and procedures, and such decisions as implemented 

by receiving personnel at any particular DRMS facility, shall designate "Scrap" 

and "Useable" items and determine Upgrades Upon Receipt and Post-Receipt 

Upgrades reasonably and in good faith pursuant to the usage of such terms in the 

particular marketplace for a particular item at the time. Purchaser is due an 

adjustment to the Quarterly Purchase Price paid for items upgraded to Useable. 

(C) Refuse. 

(1) Contractor acknowledges that DRMS reviews materials that are 

designated as "Scrap" by the generator when turned in to DRMS and, in 

the exercise of its sole discretion upon receipt of such items, DRMS 

reclassifies certain material to “Refuse” because it has zero or negative 

value, and DRMS disposes of it accordingly through means of disposal 

other than sale. Throughout the Performance Period DRMS shall exercise 

its sole discretion to determine the policies and procedures governing such 

decisions by DRMS receiving personnel, and Purchaser shall not be 

entitled to affect such policies or procedures, provided, however, that such 

policies and procedures, and such decisions as implemented by receiving 

personnel at any particular DRMS facility, shall designate "Scrap" and 

“Refuse” items reasonably and in good faith pursuant to the usage of such 

terms in the scrap marketplace at the time. 

(2) By written notice served upon the SCO, Purchaser may challenge 

the designation of a particular delivery of material as “Scrap” rather than 

“Refuse.” DRMS may respond to such challenge in the exercise of its 

sole discretion, including without limitation by referring the challenge to 

the DRMO Chief or to another DRMS official for determination of a 

recommendation to the SCO. If DRMS upholds the challenge, DRMS 

shall dispose of the material at the sole expense of DRMS. 

Section 5. Resource Recovery and Recycling Program. 

(A) RRRP Material; Qualified Recycling Programs. Certain Scrap material 

qualifies as Resource Recovery and Recycling Program material (“RRRP 

Material”). Those generators having a Qualified Recycling Program (“QRP”) 

may elect to sell the RRRP Material themselves. When QRPs elect this option, 

the material is not included within the definition of the Property and the Purchaser 

has no right or claim to such material sold directly by QRPs. 

(B) Reimbursable Property. When QRPs elect to turn the RRRP Material in 

to DRMS, such material is therefore included within the definition of the Property 

and deemed referred for sale to Purchaser under this contract. RRRP Material is 

properly identified as "Reimbursable" on the Pickup Notice. 

66 
(C) Reporting. Twice monthly, or on such other schedule as DRMS and 

Purchaser agree, Purchaser shall report to DRMS the weight and SCL of each 

turn-in of RRRP Material, the generator DoDAAC, the QRP DoDAAC, and the 

unit pricing and amount of Gross Proceeds available from the sale of such 

material based upon Purchaser’s sales records. Note: the generator DoDAAC 

and QRP DoDAAC will be different in many cases. It is important to give 

DRMS the QRP DoDAAC for proper reimbursements to occur.

ARTICLE SEVEN. OPERATIONS 

Section 1. Compliance with Applicable Law and Regulations. 

(A) Compliance with Applicable Law.

Contractor, Purchaser and its subcontractors shall comply with the 

requirements of all applicable federal, state, and local laws, regulations, 

ordinances, directives and instructions connected with the performance of this 

contract, including without limitation such requirements pertaining to income and 

payroll taxes, environmental matters and occupational safety. 

 (B) Licenses and Permits. 

Purchaser shall obtain any necessary licenses and permits, and comply 

with all federal, state, and local laws and regulations in connection with the 

prosecution of the work. This responsibility requirement will be a matter of 

inquiry during the SCO’s pre-award evaluation of the bidder’s capability to 

perform the contract satisfactorily. It will also be a continuing matter of inquiry 

by the SCO during the performance of the contract. 

(C) Responsibility for Keys. 

Issuance of “Keys” (as such term is defined below) will be at the 

Government’s sole discretion. Contractor shall establish and implement 

procedures that will preclude the loss, misplacement, or unauthorized use of all 

“Keys” issued to the Contractor or Purchaser by the Government for access to 

dedicated warehouse space. The term “Keys” shall be understood to include not 

only physical devices for opening or operating a locked item or space but also 

other types of individual authenticators such as key cards and passwords. 

Contractor will be responsible for any costs incurred from the loss, misplacement 

or unauthorized use of Keys. These costs will include but will not be limited to 

the costs of changing an individual lock and key.

Section 2. Duties of Care and Loyalty. 

(A) Duty of Care. 

Neither Contractor nor Purchaser shall cause or permit any action or 

omission in the course of performing the contract that damages Purchaser and 

constitutes gross negligence, recklessness or intentional harm. 

67 
(B) Duty of Loyalty. 

Contractor and Purchaser shall carry out their responsibilities under the 

contract with honesty, good faith and fairness toward DRMS. 

Section 3. Prohibited Activities. 

Purchaser shall not undertake the following activities without written permission from

the SCO, which permission may be granted or withheld by DRMS in the exercise of its sole 

discretion: 

(A) Enter into a partnership, joint venture or other arrangement the purpose or 

effect of which is to engage indirectly in a transaction that would be prohibited by 

the provisions of this contract if undertaken by Purchaser directly; or 

(B) Acquire any asset not related to DRMS or enter into any transaction not 

related to DRMS; or 

(C) Engage in any Affiliate Transaction, except for the Affiliate Transactions 

identified at Schedule VI.9.1.A, which are permissible on the terms and 

conditions set forth in such Schedule, provided, however, that Contractor may at 

any time request in writing a Permitted Affiliate Transaction in addition to those 

identified in such schedule, and DRMS may approve, disapprove, or conditionally 

approve such request in the exercise of its sole discretion; or 

(D) Enter into any transaction (i) other than on an arms-length basis or (ii)

with pricing or other terms less favorable to Purchaser than otherwise reasonably 

obtainable; or 

(E) Give any representations or warranties to a re-sale buyer concerning the 

condition or quality of an item of Property or re-sell any Property without a 

written affirmative disclaimer of any implied warranties of merchantability or 

fitness for a particular purpose, provided, however, that Purchaser may offer such 

representation or warranty as to a particular item or type of Property if Purchaser 

notifies the SCO of its intent to do so and the SCO does not object thereto within 

thirty (30) Days of such notice, which objection or lack of objection shall be 

determined by DRMS in the exercise of its sole discretion; or 

(F) Enter into any transaction with respect to any item of Property under terms 

that could obligate Purchaser to reacquire such Property after the Performance 

Period; or 

(G) Initiate, renew or extend any rental or lease of Property for a term that 

begins or ends on a date beyond the Performance Period; or 

(H) Enter into contracts or other arrangements that would assign all or 

substantially all responsibility for and control of performance of the contract to 

another party or parties, without the prior written approval of DRMS which will 

consider such request in accordance with the Assignment of Claims Act of 1940, 

as amended, 41 U.S.C. sec. 15, and the Government's best interests. In the event 

of any improper assignment without the written approval of DRMS, this contract 

68 
shall be voidable at the option of the Government in the exercise of its sole 

discretion; or 

(I) File a voluntary petition seeking liquidation, reorganization, arrangement 

or readjustment, in any form, of its debts under Title 11 of the United States Code 

(or corresponding provisions of future law) or any other federal or state 

insolvency law; file an answer consenting to or acquiescing in any such petition; 

make any assignment for the benefit of Purchaser's creditors; or admit in writing 

Purchaser's inability to pay its debts as they mature, without prior written notice 

to DRMS. 

Section 4. Classified, Radioactive and Certain Other Material. 

(A) Classified and Certain Dangerous Material 

Classified material, demilitarization required (other than DCS property), 

other hazardous and AEDA (ordinance / explosives) material is not within the 

meaning of the term “Property,” and is not material that is the subject of or sold 

pursuant to this contract. Title to such material does not pass to the Purchaser 

under any circumstances, and any such material found in the possession of 

Contractor, Purchaser or any subcontractor(s) in or among the Property must be 

immediately returned to government control as directed by the SCO at 

government expense. Purchaser shall be credited for such expense and for the 

Quarterly Purchase Price attributable to any such item on an Invoice submitted by 

the Government in the ordinary course of administering this contract within a 

reasonable time after the return of such Property. If there are no more Invoices 

forthcoming, the next Distributions shall be adjusted for such credit. 

(B) Radioactive Material. 

The Government shall indemnify, defend and hold harmless Contractor, 

Purchaser, and all of their representative employees, officers, agents and 

subcontractors with respect to any claims presented by third parties that allege 

damage arising out of radioactive Property. Purchaser shall exercise reasonable 

care in the circumstances to avoid accepting from DRMS or generators any 

material that available radioactivity test equipment indicates is radioactive above 

applicable legal limits. Any such material shall be returned to DRMS or the 

generator as directed by the SCO at government expense. Purchaser shall be 

credited for such expense and for the Quarterly Purchase Price of any such item

on an Invoice submitted by the Government in the ordinary course of 

administering this contract within a reasonable time after the return of such 

Property. If there are no more Invoices forthcoming, the next Distributions shall 

be adjusted for such credit. 

(C) Fluorocarbons 

The minimum reasonable costs of fluorocarbon removal by Purchaser as 

directed by DRMS shall be deemed Seller Indirect Costs. 

69 
Section 5. Munitions List Items and Commerce Control List Items. 

(A) Acknowledgment of Export Restrictions. 

Contractor and Purchaser acknowledge that many of the items in the 

Product Pool are subject to trade security controls (i.e., export restrictions), 

including both (i) Commerce Control List Items (“CCLI”) that are designated by 

the Department of Commerce pursuant to the provisions of the Export 

Administration Act of 1979, Executive Order 12924 and regulations promulgated 

thereunder and that have a DEMIL Code of “Q,” and (ii) Munitions List Items 

(“MLI”) that are designated by the Department of State pursuant to the provisions 

of the Arms Export Control Act and implementing regulations and that have a 

DEMIL Code of “B.” 

(B) Purchaser’s TSC Clearance and End Use Certificate. 

Prior to award of this sale contract, (i) Purchaser shall submit to the SCO a 

properly completed End-Use Certificate (EUC) DLA Form 1822 (copy of which 

form is attached as Attachment VI.7.5.B), and (ii) Purchaser shall obtain 

clearance from the DLA Trade Security Controls enforcement office as a buyer of 

DEMIL “B” and/or “Q” items. Such clearance and EUC shall be deemed 

effective for five (5) years unless there are material changes in the information on 

the EUC.

 (C) Re-Sale Procedures. 

(1) For all MLI and CCLI (i.e., DEMIL “B” and “Q”) Property not 

mutilated by the Purchaser, the Purchaser shall promulgate in all re-sale 

advertisements and catalogs, as well as in the terms and conditions of sale, 

a notice to prospective buyers that the terms may require export permits. 

The wording of such notice shall be approved in advance by DRMS in the 

exercise of its sole discretion. Before releasing a particular item of 

DEMIL “B” or “Q” Property to a prospective re-sale buyer, (i) Purchaser 

shall obtain a completed EUC from such buyer for each lot (or group of 

lots at a single re-sale event) of such Property and furnish a copy thereof 

to DRMS, (ii) Purchaser shall confirm with DRMS through the SCO that 

such buyer is cleared for the purchase of DEMIL “B” and “Q” items, and, 

no later than the release of the material for removal by the re-sale buyer, 

Purchaser shall obtain from the re-sale buyer and place in the Records an 

acknowledgement executed by the re-sale buyer of the buyer’s 

responsibility to destructively “scrap” the material in a manner that 

prevents recognition or reconstruction of the original item and of its 

responsibility to submit to the Purchaser a written post-scrapping 

certification that the scrapping has been accomplished. Purchaser shall 

place the completed post-scrapping certification in the Records and make 

available for review by the appropriate authorities. 

(2) Material (DEMIL “A” metallic and DEMIL “B” and “Q”) that has 

already been destructively “scrapped” before re-sale, either by the 

70 
generator or by the Purchaser, in a manner that prevents recognition or 

reconstruction of the original item will be considered DEMIL “A” and can 

then be sold and/or released to a re-sale buyer without an EUC or TSC 

clearance. The Purchaser shall place a certification of the destructive 

scrapping in the Records and make it available for review by the 

appropriate authorities. 

(D) Compliance with EUC Requirements. 

Subject to such additional or different requirements pertaining to DEMIL 

“B” and “Q” Property that DRMS may prescribe in its sole discretion, Purchaser 

shall comply with all of the provisions set forth on the EUC that Purchaser 

submits to DRMS through the SCO. 

(E) Shipping Containers. 

Purchaser shall notify the SCO or, in the alternative, the Trade Security 

Control Residence Office designated in a notice from the SCO, whenever a 

“Shipping Container” is used by a re-sale buyer to pick up MLI/CCLI material. 

A “Shipping Container” is defined as a 20 or 40 foot all steel receptacle, 

enclosable/sealable, used for transport of property by rail, sea, or ground. As 

much identification information as the Purchaser can reasonably obtain should be 

provided including the container number, container company, trucking company 

name/address, any other identification data known, date(s) of removal, and any 

interim or final destination port information. The SCO will serve notice to 

Purchaser of specific instructions regarding whom and how to notify (i.e., via fax 

or phone), to include identification and contact information and geographic areas 

of responsibility for each TSC investigator. 

(F) Compliance with New Trade Security Control Requirements 

Purchaser shall comply with all trade security control procedures, 

requirements and restrictions that DRMS prescribes in its sole discretion. All 

costs of such compliance shall be deemed Direct Costs. 

(G) Trade Security Control Records 

The documentation required by the provisions of this Section 5 of Article 

7 shall be placed in the Records and shall be kept available for review by DRMS 

or trade security control authorities throughout the Performance Period and until 

the conclusion of the Wind-Up and retained in accordance with Article 8, Section 

1. 

Section 6. Employee Compensation 

 (A) Base Compensation. 

Compensation of Purchaser's employees (including fringe benefits) that is 

determined on a salaried or hourly basis, and paid in an amount determined 

without regard for the performance of the employee, or the profitability or other 

performance of Purchaser or of Contractor ("Base Compensation"), shall be 

deemed a Direct Cost, provided, however, that no employee's Base Compensation 

71 
shall be plainly excessive when evaluated with regard for Purchaser's 

circumstances and such employee's qualifications and responsibilities. 

 (B) Bonuses. 

Compensation of Purchaser's employees other than Base Compensation, 

including without limitation, the total amount of any bonuses paid within any 

calendar year to a particular employee in excess of one-quarter (25 %) of such 

employee’s total compensation for such year, is a Contractor Indirect Cost and 

shall be borne solely by Contractor. 

 (C) Benefits. 

The cost of employer-paid benefits shall be deemed a Direct Cost, 

provided, however, that no employee’s benefits shall be plainly excessive when 

evaluated with regard for Purchaser's circumstances and such employee's 

qualifications and responsibilities. The provision of luxury automobiles and 

travel other than in economy class shall conclusively be deemed plainly 

excessive, and all of the costs thereof shall be deemed Contractor Indirect Costs. 

Section 7. Employee Expenses and Purchaser's Supplies, Furniture and Equipment. 

 (A) Employee Expenses. 

If any employee or former employee of Purchaser is hired by an Affiliated 

Party during the term of such employee's employment with Purchaser or within 

twelve (12) months following the termination of such employment, Contractor 

will pay to Purchaser a reasonable pro rata share of such employee's training 

costs, relocation expenses, and employment agency fees to the extent paid, 

reimbursed, or otherwise incurred by Purchaser in connection with such 

employee, provided, however, that no such reimbursement will be required if

such employee had been employed by Purchaser continuously for eighteen (18) 

months or longer after the date of award. 

(B) Supplies, Furniture and Equipment. 

Purchaser shall not purchase supplies, furniture or equipment except to the 

extent that such supplies, furniture or equipment will be used solely by Purchaser, 

and upon the sale of such furniture or equipment, the proceeds shall be the 

property of Purchaser. Purchaser shall not sell such supplies, furniture or 

equipment to an Affiliated Party. During the Wind-Up Purchaser shall sell any 

remaining supplies, furniture or equipment to a third party or parties. 

Section 8. Commerce Control List Items (CCLI). 

(A) Purchaser warrants and covenants that none of the CCLI items identified 

in this Invitation for Bids and listed on its sale contract will be directly or 

indirectly used or disposed of for military use or exported. 

(B) Purchaser understands and agrees that all material other than the 

categories listed in Section V require Mutilation and the Office of Export 

Administration may require the Purchaser to have or obtain an export license 

72 
before mutilated Property may be exported outside of the United States, Puerto 

Rico, American Samoa, Guam the Trust Territory of the Pacific Islands or the 

Virgin Islands. The disclosure must reference this Invitation for Bids and sale 

contract number, and be submitted to: 

 Office of Export Administration 

P.O. Box 273 

 Washington, DC 20044 

Section 9. Munitions and Commerce Control List Item (MLI/CCLI) Compliance. 

(A) The use, disposition, export and re-export of MLI/CCLI property is 

subject to all applicable United States laws and regulations, including the Export 

Administration Control Act of 1979 (50 U.S.C. Appx. 2401, et seq.); Arms

Export Control Act (22 U.S.C. 2651, et seq.); International Traffic in Arms

Regulation (22 C.F.R. 121); and Export Administration Regulation (15 C.F.R. 

368, et seq.), which in part prohibit: 

(1) Making false statements and concealment of any material information 

regarding the use, disposition, export or re-export of the property; 

(2) Any use, disposition, export or re-export of the property not 

authorized in accordance with the provisions of this contract. 

(B) Any false information provided and/or concealment of any material 

information regarding the use, disposition, or export of this property may 

constitute a violation of: 

(1) The provisions of 18 U.S.C. 1001, which provides a maximum penalty 

of five years imprisonment and/or a maximum fine of $10,000; 

(2) The provisions of 22 U.S.C. 22778, which provides a maximum

penalty of ten years imprisonment and/or a maximum fine of $1,000,000; 

or, 

(3) The provisions of 50 U.S.C. Appx. 2410, which provides a maximum

penalty of ten years imprisonment and/or a maximum fine of five times 

the value of the property exported or $1,000,000, whichever is greater, 

and which also provides for administrative sanctions, including civil 

penalties. 

Section 10. Large Caliber (over 30 mm) Shell Cases, Demilitarization as a Condition of 

Sale, and Hazardous Components/Constituents. 

(A) Large Caliber (over 30mm) Shell Cases 

The sale of the Property is entered into by the United States with the expressed 

declaration that the United States awards the Property to Purchaser relying on the 

following representation, warranties and covenants by Purchaser: Purchaser herein 

certifies that it is not purchasing any of the items (large caliber (over 30mm) shell cases) 

for military use; Purchaser warrants and covenants that it will not, directly or indirectly, 

73 
use or dispose of in any fashion the items for military use; Purchaser warrants and 

covenants that it will include this clause in its entirety in any later sale or transfer of title, 

or possession by Purchaser herein or its successor in title or interest; Purchaser warrants 

and covenants that the items will not be exported for military use, and if exported for any 

reason a full disclosure of their origin by reference to this IFB number will be made to 

the appropriate export licensing department or agency. 

(B) Demilitarization as a Condition of Sale.

Property requiring demilitarization as a condition of sale will be demilitarized by 

Purchaser or by the re-sale buyer when approved by the SCO. All demilitarization and 

surveillance plans must be coordinated with and approved by the SCO. All costs 

incurred by Purchaser to effect demilitarization shall be deemed Direct Costs. Costs 

incurred by the re-sale buyer are the sole responsibility of the re-sale 

buyer. Demilitarization will be effected by melting, popping, crushing, deforming or 

otherwise mutilating the property so as to completely destroy its lethal purposes. The use 

of precision torch fixtures, saws, tools of any kind to minimize 

mutilation/demilitarization is forbidden. 

(C) Hazardous Components/Constituents.

The government cautions that the Property may have components, parts, 

constituents or ingredients that may be corrosive, reactive, ignitable or exhibit other 

hazardous or toxic properties. Purchaser is cautioned to use and ultimately dispose of 

any hazardous components or constituents according to all applicable local, national or 

international laws and regulations in a manner safe for the public and the environment. 

Section 11. Statutory and Regulatory Notices 

The provisions of Attachment VI.3.11 are incorporated by reference. 

ARTICLE EIGHT. PURCHASER'S RECORDS; INSPECTION AND AUDIT BY 

GOVERNMENT AND INDEPENDENT AUDITOR; ACCOUNTING PRINCIPLES AND 

REQUIRED REPORTS TO GOVERNMENT 

Section 1. Contractor Records Retention. 

Contractor shall make available Purchaser's books, records, documents, and other 

supporting evidence, including without limitation all items required by the provisions of Article 

9 (the "Records"), to satisfy contract administration and audit requirements of the Department of 

Defense and the Comptroller General for six (6) years after the Wind-Up is concluded, or for 

such period of time as Contractor, for its own purposes, retains its books, records, documents, 

and other supporting evidence, whichever is longer. 

Section 2. Inspection of Records and Workplace by Government. 

To ensure that DRMS has a means to verify accuracy of the Records and inventory, 

DRMS or its authorized representative has the right to audit the Records and inventory the 

Property and to review Purchaser's operations with reasonable advance notice. The audit may 

74 
consist of a complete or random sample examination. Purchaser must ensure that, prior to resale, the Property is readily identifiable as formerly Government property. Inspections may be 

conducted by DLA Trade Security Control personnel with no notice. 

Section 3. Records Maintenance. 

Contractor shall maintain the Records accurately and in a manner that will allow clear 

and accurate auditing. The Records pertaining to all Deliveries, inventory, re-sales of Property 

and removal of Property shall contain, at a minimum, National Stock Number or Local Stock 

Number and quantity, if applicable, SCL Code, Disposal Turn-In Document Number, weight 

ticket, Re-sale Weight, re-sale price per unit of weight, date removed from the Delivery Point, 

date sold, price in total per re-sale transaction and, for each, re-sale price per unit of Re-sale 

Weight, date Purchaser received payment from the re-sale buyer, name and address of re-sale 

buyer, and storage location prior to re-sale. A separate inventory list must be maintained for 

each Scrap Yard and each of Purchaser’s storage facilities. The Government reserves the right to 

request and inspect these documents as it deems necessary with reasonable notice. In the event 

that Purchaser fails to maintain or provide any of these documents to the Government, the 

Government may in its sole discretion cause Termination. 

Section 4. Contracts with Third Parties. 

Purchaser shall ensure that all contracts entered into by Purchaser shall expire or shall be 

terminable by Purchaser within the Performance Period. If Purchaser reasonably anticipates that 

the annualized cost of payments by Purchaser to a particular third party will exceed one hundred 

thousand dollars ($100,000.00), Purchaser shall enter into a written contract with such third 

party that includes a provision requiring that, during the life of such contract and for a period of 

three (3) years following final payment under such contract, DRMS or its designated 

representative shall have access to, and the right to examine and copy, any directly pertinent 

books, documents, papers, records or other recorded information, and to examine any directly 

pertinent property within such third party's possession or control, involving transactions related 

to the contract. 

Section 5. Purchaser's Books of Account; Financial Reports. 

Purchaser shall maintain true and correct books and records of account. The books and 

records of account shall be maintained on an accrual basis in accordance with Generally 

Accepted Accounting Principles ("GAAP"), and reports by Purchaser to DRMS and KGP 

("Purchaser's Reports") shall consist of the following: 

(A) Transition Report. 

Within one hundred eighty (180) Days of the date of award, or on such 

date thereafter as DRMS specifies in the exercise of its sole discretion, Purchaser 

shall provide to DRMS in machine readable, comma delimited ASCII file format 

or, as appropriate, word processing (*.doc) file format, delivered on a removable 

magnetic or optical storage medium, such as a CD-ROM, a report (the "Transition 

Report") that specifies Purchaser's operating plan for performing the contract 

75 
through the balance of the Performance Period. The Transition Report shall 

address the following topics: 

(1) Storage facilities in place and projected. 

(2) Shipping arrangements in place and projected. 

(3) Logistical or administrative difficulties encountered to date, and 

proposed or effected resolution thereof. 

(4) Marketing opportunities and problems encountered to date, 

proposed resolution of the problems, and plans for adding value to the 

Property. 

(5) Any other logistical, administrative, marketing or other issues that 

Purchaser determines should be brought to the attention of DRMS. 

(B) Monthly Report. 

By the fifteenth (15th) Day of each calendar month, Purchaser shall 

provide to DRMS in machine readable, comma delimited ASCII file format or, as 

appropriate, word processing (*.doc) file format, delivered on a removable 

magnetic or optical storage medium, such as a CD-ROM, both financial 

statements (including a statement of cash flows) prepared according to GAAP and 

the following information (collectively, the "Monthly Report") with respect to the 

preceding calendar month, provided, however, that the initial Monthly Report 

shall pertain to the period from the date of award through the last Day of the 

calendar month that includes the date of award: 

(1) An "Inventory Status Report" that includes the following for each 

item of Property: 

a. Amounts and date(s) of all revenues received with respect 

to each sale of Property sold during the month, including, for each 

re-sale of Property, re-sale date, total re-sale revenue and re-sale 

price per unit of weight, weight (“Re-Sale Weight”), identification 

by SCL Code(s), and identification of the re-sale buyer of each 

such item.

b. Inventory on hand at the close of the month, 

(2) Seller Indirect Costs 

(3) ECLR statement 

(4) Income statement 

(5) Detail and summary of: 

a. Distributions 

b. Working Capital Advances and repayments thereof, and the 

Working Capital Advance Balance 

c. Purchase Advances and Purchase Transfers 

(6) Status report of progress in correcting any deficiencies identified 

by a DRMS inspection, regulatory inspection, audit or Compliance 

Review or Further Review, which must include Purchaser's plan to comply 

with discrepancies noted or questions asked in writing by the SCO or 

76 
Independent Auditor. 

(C) Quarterly Report. 

Purchaser shall provide to DRMS and to KGP the following quarterly 

financial information (the "Quarterly Report"), in machine readable, comma

delimited ASCII file format or, as appropriate, word processing (*.doc) file 

format, delivered on a removable magnetic or optical storage medium, such as a 

CD-ROM, and prepared in accordance with GAAP, within forty-five (45) Days of 

the close of each calendar quarter with respect to such calendar quarter, provided, 

however, that the initial Quarterly Report shall pertain to the period from the date 

of award through the last Day of the calendar quarter that includes the date of 

award: 

(1) Income statement 

(2) Balance sheet 

(3) Statement of cash flows 

(4) Notes to financial statements 

(5) Inventory status and disposition report 

(6) Detail and summary of: 

a. Distributions 

b. Working Capital Advances and repayments thereof, and the 

Working Capital Advance Balance 

c. Purchase Advances and Purchase Transfers 

(7) ECLR statement 

(D) Annual Report. 

Purchaser shall provide to DRMS and to KGP the following annual 

financial information (the "Annual Report"), in machine readable, comma

delimited ASCII file format or, as appropriate, word processing (*.doc) file 

format, delivered on a removable magnetic or optical storage medium, such as a 

CD-ROM, prepared in accordance with GAAP and audited by an independent 

national accounting firm (the "Independent Auditor") pursuant to American 

Institute of Certified Public Accountants ("AICPA") standards, within one 

hundred twenty (120) Days of the close of each twelve (12) calendar month 

period with respect to such period, provided, however, that the initial Annual 

Report shall pertain to the period from the date of award through 30 September 

2004: 

(1) Income statement 

(2) Balance sheet 

(3) Statement of cash flows 

(4) Notes to financial statements 

(5) Inventory status and disposition report 

(6) Detail and summary of: 

a. Distributions 

77 

b. Working Capital Advances and repayments thereof, and the 
Working Capital Advance Balance 

c. Purchase Advances and Purchase Transfers 

(7) ECLR statement 

(8) The Independent Auditor's (i) Management Letter and (ii) list of

Audit Adjustments whether posted to the Records or not 

(9) As soon as available, but no later than the last day permitted by 

law, Federal tax returns and all supporting schedules 

 (E) Closing Report. 

(1) Purchaser shall provide to DRMS and to KGP the following 

financial information (the "Closing Report") pursuant to the provisions of 

Section 4 of Article 21, in machine readable, comma delimited ASCII file 

format or, as appropriate, word processing (*.doc) file format, delivered 

on a removable magnetic or optical storage medium, such as a CD-ROM, 

prepared in accordance with GAAP and audited by the Independent 

Auditor pursuant to AICPA standards, with respect to the period since the 

then most recently filed Annual Report: 

a. Income statement 

b. Balance sheet 

c. Statement of cash flows 

d. Notes to financial statements 

e. Inventory status and disposition report 

f. Detail and summary of: 

(i) Distributions 

(ii) Working Capital Advances and repayments thereof, 

and the Working Capital Advance Balance 

(iii) Purchase Advances and Purchase Transfers 

g. ECLR statement 

h. The Independent Auditor's (i) Management Letter and (ii)

list of Audit Adjustments whether posted to the Records or not 

i. As soon as available, but no later than the last day 

permitted by law, closing Federal tax returns and all supporting 

schedules 

(2) Within sixty (60) Days of submission of the Closing Report or, as 

the case may be, within sixty (60) Days of the re-submission of a Closing 

Report initially disapproved by DRMS, DRMS shall either serve notice of

its disapproval of the Closing Report and state the reasons therefor, or 

serve notice of its approval. The Closing Report shall not be deemed final 

until approved by DRMS, which approval shall not be unreasonably 

withheld. 

 (F) Reporting Schedule. 

78 

Purchaser shall submit Monthly, Quarterly and Annual Reports in 

accordance with the provisions of this Section 5 to DRMS and to KGP with 
respect to each calendar month, each calendar quarter and each twelve (12) month 

period ending 30 September, respectively, from the date of award until DRMS 

approval of the Closing Report. 

ARTICLE NINE. DIRECT COSTS 

Section 1. Definitions. 

(A) Direct Costs. 

Except as otherwise provided herein, "Direct Costs" are all costs other 

than (i) amounts paid to DRMS and KGP for the purchase of Property, (ii) Seller 

Indirect Costs and (iii) compensation and transportation expenses of Purchaser's 

Chief Executive Officer, that are actually incurred by Purchaser for the sole 

purpose of performing this contract, including without limitation costs incurred 

for the management, storage, marketing, preservation, improvement, 

transportation and disposition of the Property (including all costs commonly 

termed "overhead costs") and either (x) paid to any Person that is not an Affiliated 

Party or (y) paid to an Affiliated Party and constituting one of the "Permitted 

Affiliate Transactions" identified at Schedule VI.9.1.A. At any time after award, 

the Purchaser may request that a particular transaction with an Affiliated Party be 

deemed a Permitted Affiliate Transaction. DRMS may grant, deny or condition 

approval thereof as it determines in the exercise of its sole discretion. Such a 

request should fully specify the details of the proposed transaction, the 

opportunity presented to enhance Net Proceeds, any inherent risks to the 

Government in terms of pricing, accountability for Property or otherwise, and the 

controls to be put in place to offset such risks. 

(B) Seller Indirect Costs. 

“Seller Indirect Costs” are (i) subject to the provisions and limitations of 

Section 4(F) of Article 3, all costs that are actually incurred by Purchaser for the 

packing, loading and transport of Property referred for sale to Purchaser at a 

Restricted Access Facility or Special Situation Location, that does not allow onsite processing, and either (x) paid to any Person that is not an Affiliated Party or 

(y) paid to an Affiliated Party and constituting one of the "Permitted Affiliate 

Transactions" identified at Schedule VI.9.1.A, or (ii) as otherwise provided 

herein. 

(C) Contractor Indirect Costs. 

"Contractor Indirect Costs" are all costs that are neither Direct Costs nor 

Seller Indirect Costs, and there shall be no amounts paid or payable by Purchaser 

therefor. 

Section 2. Documentation and Payment of Direct Costs and Seller Indirect Costs. 

(A) Disbursements. 

79 
Purchaser shall make all disbursements from the Operating Account or a 

Transfer Account. Disbursements for Direct Costs and Seller Indirect Costs shall 

be made pursuant to the provisions of Article 13; disbursements for Distributions 

and other adjustments shall be made pursuant to the provisions of Article 16; 

disbursements for repayment of Working Capital Advances shall be made 

pursuant to the provisions of Article 13; and Purchase Transfers shall be made 

pursuant to the provisions of Article 14. 

(B) Supporting Documentation. 

Subject to subsection (C) of this Article 9, each disbursement for a Direct 

Cost and a Seller Indirect Cost shall be supported in the Records by bona fide 

documentation (including, if appropriate, records in an electronic or magnetic 

medium) that adequately demonstrates that each such disbursement is in the 

proper amount for goods or services actually provided in advance of such 

disbursement if the disbursement is to an Affiliated Party or, if the disbursement 

is to a third party that is not an Affiliated Party, for goods or services actually 

provided or to be provided, or costs actually incurred or to be incurred. Purchaser 

shall place such documentation in the Records in advance of, or 

contemporaneously with, each such disbursement. 

(C) Documentation Requirements. 

Except in the case of a disbursement in the amount of Fifty Dollars ($50) 

or less, the supporting documentation required under this Article 9 shall include, 

at a minimum, a written invoice or comparable document from the provider that 

(i) identifies the payee and itemizes each particular invoiced product or service 

and the provider thereof, if different from the payee; and (ii) states the pricing and 

relevant terms as to each such product or service. Although the foregoing bona 

fide documentation shall as a matter of general principle be required for all 

disbursements, where the amount at issue is less than One Thousand Dollars 

($1,000) and where the documentation is missing or was inadvertently omitted, 

Purchaser may, in lieu of such documentation, provide a certificate in the Records 

executed by an authorized officer that: (x) identifies the payee and itemizes each 

particular invoiced product or service and the provider thereof, if different from

the payee, and (y) states the pricing and relevant terms as to each such product or 

service. 

(D) Payment. 

Upon placing the documentation and/or certificate required by this Article 

9 in the Records, Purchaser shall pay the proper amount of each Direct Cost and 

Seller Indirect Cost. 

(E) Written Certification to DRMS. 

Within fifteen (15) Days after the end of each calendar month that is in 

whole or in part within the Performance Period or the Wind-Up, Purchaser shall 

provide written certification to DRMS, in the form specified at Attachment 

VI.9.2.E and executed by a Key Person, that all disbursements have complied 

80 
with the provisions of this contract. 

(F) Contractor Indirect Costs. 

Contractor shall pay from its own funds before imposition of fine or 

penalty amounts due and payable for Contractor Indirect Costs. Contractor shall 

have no right of reimbursement for, and shall not use the Operating Account or 

any Transfer Account for, the payment of costs within the scope of this Section 

2(F). 

ARTICLE TEN. CONFLICTS OF INTEREST 

Section 1. Restriction on Participation. 

Once Property under this contract is re-sold by Purchaser, neither Purchaser nor an 

Affiliated Party shall knowingly purchase such material directly or indirectly for a period of one 

year after the completion of the Wind-Up. All re-sales of Property shall be bona fide, armslength transactions intended to provide both the Government and Purchaser maximum Net 

Proceeds. Purchaser may not re-sell Property directly or indirectly to an Affiliated Party. 

Purchaser shall not sell, consign, let, rent, lend or donate Property on terms that directly or 

indirectly provide any benefit to an Affiliated Party. 

Section 2. Benefits to Contractor and Affiliated Parties. 

Contractor shall assure that neither Contractor nor any Affiliated Party obtains goods, 

assets, tangible or intangible property or services from third-party vendors to Purchaser at prices 

or on terms more favorable than those that would otherwise be available to Contractor or the 

Affiliated Party absent the relationship between Purchaser and such third-party vendors. The 

foregoing requirement shall not apply to benefits from volume purchasing of goods, assets, 

tangible or intangible property or services by Contractor, Affiliated Parties and Purchaser where 

such volume purchasing does not benefit one purchasing party over another. 

ARTICLE ELEVEN. FIDELITY BOND REQUIREMENTS; INSURANCE 

Section 1. Modification of Special Circumstance Conditions. 

Sale by Reference (Attachment VI) Part 5: Additional Special Circumstance Conditions 

- Miscellaneous (DRMS Form 86, Oct 93), Article D, Liability and Insurance, paragraphs (a)(2) 

and (a)(3,) are modified as follows: 

(2) Bodily Injury Insurance in an amount of not less than two hundred fifty thousand 

dollars ($250,000.00) any one individual and one million dollars ($1,000,000) any one 

accident or occurrence. 

(3) Property Damage Liability Insurance in the amount of two hundred fifty thousand 

dollars ($250,000.00) (which shall include any and all property whether or not in the 

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care, custody or control of Purchaser). The annual coverage shall be not less than one 

million dollars ($1,000,000). 

Section 2. Further Modifications. 

Sale by Reference Part 5, Article D, paragraph (a) is also amended as follows: 

(4) "All-Risk" coverage for fire and other property perils for all property owned by 

Purchaser with aggregate coverage of one million dollars ($1,000,000.00). 

(5) Umbrella liability coverage up to two million dollars ($2,000,000.00). 

(6) Fidelity Blanket Bond. Purchaser shall obtain, and maintain at all times until the 

completion of the Wind-Up, fidelity or blanket bond coverage in the amount of at least 

one million dollars ($1,000,000.00) (the "Fidelity Bond"). Purchaser shall obtain and 

maintain such coverage with a responsible surety company with respect to all of 

Purchaser's employees, officers and directors to protect Purchaser against losses, 

including, without limitation, those arising from theft, embezzlement, fraud, or 

misplacement of funds, money, or documents. The issuer, policy terms and forms and 

amounts of coverage, including applicable deductibles, shall be satisfactory to DRMS, 

and the policy shall include a provision that the issuer shall notify DRMS in writing 

within five (5) Business Days of the cancellation or termination of any such coverage or 

of any modification of such coverage. Purchaser shall notify DRMS in writing within 

five (5) Business Days after filing a claim under such coverage. 

(7) Other Insurance. Purchaser shall obtain, and maintain at all times until the 

completion of the Wind-Up, such comprehensive general liability, automobile liability, 

umbrella liability, worker's compensation and other insurance coverage as may be 

required by law. At its option, Purchaser may obtain and maintain such additional 

insurance, including directors and officers coverage and errors and omissions coverage, 

as Purchaser deems appropriate. 

(8) Costs of Required and Other Coverage. Purchaser shall pay from the Operating 

Account pursuant to the provisions of Article 13 all premiums and deductibles incurred 

for all insurance coverage (which shall be deemed to be Direct Costs) except directors 

and officers coverage and errors and omissions coverage, and such disbursements shall 

be treated as Direct Costs. Premiums and deductibles for directors and officers coverage 

and errors and omissions coverage shall be considered an Indirect Cost and such 

insurance shall be obtained and maintained at Contractor's sole cost and expense. 

(9) Evidence of Insurance. Within thirty (30) Days of the date of award, and 

annually thereafter, Purchaser shall provide to DRMS copies of policies, certificates of 

insurance or other proof evidencing the coverages required. 

(10) Purchaser must obtain the minimum coverages specified herein unless DRMS 

approves a variance from such minimum coverages. In the event that a specified 

coverage or limit is or in the future becomes commercially impractical, such approval 

shall not be unreasonably withheld. 

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ARTICLE TWELVE. SOFTWARE AND SYSTEMS 

Section 1. Identification of Systems and Software Developed with Contractor Funds. 

(A) All accounting or reporting systems (other than hardware and other 

equipment) or software (and all related User Documentation relating to such 

systems and software) owned by Contractor, or otherwise obtained or developed 

by Contractor solely at Contractor's expense, excluding Third-Party Software, that 

Contractor or Purchaser uses in the performance of this Contract (collectively, 

"Contractor Systems and Software") shall be the sole property of Contractor. 

Schedule VI.12.1.A identifies all Contractor Systems and Software that 

Contractor anticipates being used in the performance of this contract. From the 

date of award until completion of the Wind-Up, Contractor or Purchaser shall 

update Schedule VI.12.1.A to the extent necessary to reflect the use of Contractor 

Systems and Software accurately and shall quarterly inform DRMS in writing of 

any changes to Schedule VI.12.1.A. 

(B) Contractor may use, license, sublicense, assign, transfer or otherwise 

market Contractor Systems and Software to any other Person (including without 

limitation to any Affiliated Party) without DRMS's consent. Such use or 

marketing of Contractor Systems and Software shall be made upon such terms 

and conditions as Contractor may determine in its sole discretion and without 

compensation to Purchaser or to DRMS, provided, however, that such terms and 

conditions shall not prejudice DRMS's rights to use Contractor Systems and 

Software as set forth in Section 2 below. 

Section 2. License in Contractor Systems and Software. 

(A) DRMS shall have a non-exclusive, irrevocable and unconditional license, 

until the completion of the Wind-Up and for a period of three (3) years thereafter, 

and without additional cost to DRMS (except as otherwise provided herein), and a 

right to have delivered to it for DRMS and its designated representatives to use, 

solely on DRMS's own behalf in managing any “Remaining Assets” (as such term

is defined in Article 21 below) and in reviewing Contractor's and Purchaser's 

performance of their obligations under this contract, any and all Contractor 

Systems and Software used in the performance of Contractor's and Purchaser's 

services under this contract; provided, however, that such delivery shall be only in 

the format and structure that is used by Contractor and/or Purchaser in performing 

their services under this contract. 

(B) Contractor makes no representations, warranties or indemnities with 

respect to such Contractor Systems and Software, provided, however, that 

Contractor will use its best efforts to assure that Purchaser's computer data 

retention and transfer procedures maintain the integrity, reliability and security of

the original data. Contractor shall be responsible for training or for conversion or 

installation of such Contractor Systems and Software to Purchaser's systems or 

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equipment, and shall cause such training, conversion or installation to be 

performed from time to time as may be reasonably necessary for the effective and 

efficient operation of Purchaser's business. To the extent that such services are 

performed by an Affiliated Party, the costs thereof shall be Indirect Costs and 

borne solely by Contractor. Contractor shall not be responsible for training or for 

conversion or installation of such Contractor Systems and Software to DRMS's

systems or equipment or for any costs or expenses thereof. 

(C) Contractor shall not be responsible for maintaining or enhancing 

Contractor Systems and Software, either before or after completion of the WindUp, but Contractor shall cause such maintenance of Contractor Systems and 

Software to be performed as may be necessary for the effective and efficient 

operation of Purchaser's business. To the extent that such maintenance is 

performed by an Affiliated Party, the costs thereof shall be Indirect Costs borne 

solely by Contractor. To the extent that Contractor causes enhancements of 

Contractor Systems and Software to be performed, if Contractor elects to make 

them at its own expense, they shall be the property of Contractor and shall be 

subject to the provisions of Section 1 and this Section 2 pertaining to Contractor 

Systems and Software; if Contractor elects to make enhancements at Purchaser 

expense so that they fall within the definition of Purchaser Systems and Software 

set forth in Section 3, they shall be subject to the provisions of that Section. 

Section 3. Systems and Software Developed. 

(A) Costs associated with the development of any accounting or recording 

systems (other than hardware and equipment), application software or any other 

software or documentation in connection with this contract are deemed to be the 

sole responsibility of the Contractor and not to be reimbursed as part of this 

transaction. 

(B) Contractor shall have a non-exclusive, irrevocable and unconditional 

license, and without additional cost to Contractor, and a right to have delivered to 

it, to use, sublicense, transfer or otherwise market Purchaser Systems and 

Software. 

(C) If Purchaser develops any accounting or recording systems (other than 

hardware and equipment) or application software or any other software or 

documentation for use in connection with Purchaser's business that do not fall 

within the definition of Purchaser Systems and Software in this Section 3 ("Other 

Systems and Software"), such Other Systems and Software shall be the sole 

property of Contractor. Contractor may use, license, sublicense, assign, transfer 

or otherwise market Other Systems and Software to any other Person (including, 

without limitation, to any Affiliated Party) without DRMS’s consent. Such use or 

marketing of Other Systems and Software shall be made upon such terms and 

conditions as Contractor may determine in its sole discretion and without 

compensation to Purchaser or to DRMS, provided, however, that such terms and 

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conditions shall not prejudice DRMS's rights to use Contractor Systems and 

Software as set forth in Section 2, above. 

(D) DRMS shall have a non-exclusive, irrevocable and unconditional license, 

until completion of the Wind-Up and for a period of six (6) years thereafter, and 

without additional cost to Purchaser or to DRMS (except as otherwise provided 

herein), and a right to have delivered to it for DRMS and its designated 

representatives to use, solely on DRMS's own behalf in managing any Remaining 

Assets and in reviewing Contractor's and Purchaser's performance of their 

obligations under this contract, Other Systems and Software; provided, however, 

that such delivery shall be only in the format and structure that is used by 

Contractor and/or Purchaser in performing their services under this contract. 

(E) Contractor makes no representations, warranties, or indemnities with 

respect to Purchaser Systems and Software or Other Systems and Software, 

provided, however, that Contractor agrees that it will use its best efforts to assure 

that computer data retention and transfer procedures maintain the integrity, 

reliability and security of the original data. Contractor shall not be responsible 

for maintaining or enhancing Purchaser Systems and Software or Other Systems 

and Software, either before or after completion of the Wind-Up, but Contractor 

shall cause such maintenance of Purchaser Systems and Software and Other 

Systems and Software to be performed until completion of the Wind-Up as may 

be reasonably necessary for the effective and efficient operation of Purchaser's 

business. To the extent that Contractor causes enhancements of Purchaser 

Systems and Software or Other Systems and Software to be performed at 

Purchaser's expense, such enhancements shall be the property of Purchaser until 

completion of the Wind-Up. 

Section 4. Third-Party Software. 

All third party software that Contractor uses in the performance of its services under this 

contract is referred to herein collectively as "Third-Party Software." Schedule VI.12.4 identifies 

all Third-Party Software that Contractor anticipates will be used by Purchaser in the performance 

of its services under this Agreement. Until completion of the Wind-Up, Contractor shall update 

Schedule VI.12.4 to the extent necessary to reflect its use of Third-Party Software accurately and 

shall quarterly inform DRMS in writing of any such additions to Schedule VI.12.4. To the 

extent that Contractor elects to use any Third-Party Software under which it holds a use license 

on the date of award in connection with Purchaser's business, Contractor shall transfer to 

Purchaser any such existing use license for such Third-Party Software as soon as possible after 

the date of award. In addition, it shall use reasonable efforts to obtain, as part of such transfer 

and at the expense of Purchaser as a Direct Cost, a sublicense for DRMS and its designated 

representatives to access and use the Third-Party Software. To the extent that Contractor or 

Purchaser elects to acquire Third-Party Software for use in connection with Purchaser's business 

following the date of award, Contractor shall, at the expense of Purchaser as a Direct Cost, 

85 
obtain a use license for such Third-Party Software for Purchaser along with a sublicense for 

DRMS and its designated representatives to access and use the Third-Party Software. 

Section 5. Software Documentation and Maintenance. 

(A) Contractor or Purchaser shall retain all user documentation relating to any 

application or use of any and all accounting or recording systems or software, 

including without limitation all training manuals used or developed in connection 

with Contractor's or Purchaser's performance of services under this contract (the 

"User Documentation"). Contractor or Purchaser shall provide the originals or 

copies of such User Documentation, along with any updated non-third party 

source code with any related narratives, design level documents and schematics to 

all Contractor Systems and Software, all Other Systems and Software, and all 

Purchaser Systems and Software, to DRMS upon completion of the Wind-Up at 

DRMS's request; provided, however, that delivery of such User Documentation, 

source code and other materials by Contractor to DRMS shall be only in the 

format and structure that is used by Contractor and/or Purchaser in the 

performance of services under this Contract. 

(B) Contractor makes no representations, warranties, or indemnities with 

respect to such User Documentation, source code and other materials, provided, 

however, that Contractor agrees that it will use its best efforts to assure that the 

User Documentation, source code and other materials will be maintained to 

ensure the integrity, reliability and security of those items. Contractor shall not 

be responsible for any training, maintenance or enhancement with respect to such 

User Documentation, source code or other materials, either before or after 

completion of the Wind-Up, but Contractor shall cause such maintenance of the 

User Documentation to be performed until completion of the Wind-Up as may be 

reasonably necessary for the effective and efficient operation of Purchaser's 

business. To the extent that such training, maintenance or enhancements are 

performed by an Affiliated Party, the costs thereof shall be Indirect Costs and 

borne solely by Contractor. To the extent that Contractor causes enhancements of 

User Documentation to be undertaken at Purchaser expense as a Direct Cost, such 

enhancements shall be the property of Purchaser until completion of the WindUp. 

ARTICLE THIRTEEN. OPERATING ACCOUNT; WORKING CAPITAL 

Section 1. Operating Account. 

(A) Establishment. 

Within thirty (30) Days of the date of award Purchaser shall establish, and 

shall maintain throughout the Performance Period and for so long as may be 

necessary during the Wind-Up, a demand deposit account, interest bearing if 

86 
possible (the "Operating Account"), for the benefit of Purchaser, in such federally 

insured financial institution as Purchaser may select, provided, however, that such 

institution shall not be an Affiliated Party. 

(B) Maintenance of Sufficient Funds. 

Contractor shall cause Purchaser to maintain sufficient funds in the 

Operating Account to meet the cash needs of Purchaser for the payment of Direct 

Costs and Seller Indirect Costs. 

Section 2. Working Capital. 

If Purchaser determines on any Business Day during the Performance Period or Wind-Up 

that there is a shortfall in the amount of funds required to meet Purchaser's immediate cash needs 

for the payment of Direct Costs and Seller Indirect Costs, Contractor shall advance funds to the 

Operating Account to the extent necessary to fund such shortfall. 

Section 3. Funds in the Operating Account; Treatment of Interest. 

The funds in the Operating Account, and all interest earned thereon, shall be funds of 

Purchaser and no funds other than Purchaser funds shall be deposited into such account. 

Section 4. Working Capital Advances. 

Amounts transferred by Contractor to Purchaser to fund the payment of Direct Costs and 

Seller Indirect Costs are "Working Capital Advances" (the un-repaid balance being the "Working 

Capital Advance Balance"). Working Capital Advances are repayable to Contractor by 

Purchaser, but without interest thereon, as funds become available to Purchaser and as 

Contractor shall direct. Repayments of Working Capital Advances are not Direct Costs, and the 

Working Capital Advance Balance is not a Purchaser Liability. 

Section 5. Limited Right to Borrow Funds. 

Other than Working Capital Advances obtained from Contractor, Purchaser shall not 

borrow funds for any other purpose or from any party other than Contractor, and Purchaser shall 

not pledge or grant any security interest in the Property for any purpose whatsoever. 

Notwithstanding the foregoing, Purchaser shall have the right (i) to accept unsecured short-term

trade credit only from suppliers or vendors to Purchaser, which trade credit is extended in the 

ordinary course of such suppliers' or vendors' businesses, and (ii) to finance the purchase or 

lease of equipment and to grant a corresponding security interest therein. 

Section 6. Deposits to Operating Account. 

 (A) Receipts. 

Purchaser shall deposit all receipts of funds into the Operating Account or 

Sales Deposit Account reasonably promptly as determined with respect to 

prevailing commercial standards at the time. 

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(B) Working Capital Advances. 

No later than the close of business on the next Business Day following the 

Day of receipt of a Working Capital Advance, Purchaser shall deposit all such 

funds into the Operating Account. 

(C) Contractor's Responsibility for Funds. 

Contractor shall act as a fiduciary to Purchaser with respect to all funds 

that Purchaser receives, holds and/or disburses. 

Section 7. Disbursements from Operating Account. 

(A) Costs Payable from Operating Account. 

Purchaser shall timely pay from the Operating Account or a Transfer 

Account, and in accordance with the requirements of this Article 13, all amounts 

payable for Direct Costs and Seller Indirect Costs, which shall be paid in full 

when goods and services are provided or, in the case of suppliers extending trade 

credit pursuant to the provisions of Section 5, when invoiced. 

(B) Limitation on Disbursements. 

Purchaser shall make no disbursements from the Operating Account 

except for (i) payment of Distribution Payments and other adjustments pursuant to 

the provisions of Article 16, (ii) payment of Direct Costs and Seller Indirect 

Costs pursuant to the provisions of Article 9 and this Article 13, (iii) repayment of 

Working Capital Advances pursuant to the provisions of this Article 13, (iv)

Purchase Transfers pursuant to the provisions of Article 14, and (v) transfer of 

funds to a Transfer Account pursuant to the provisions of Article 9 and this 

Article 13. Except as specifically provided in this contract, no other expense shall 

be paid, money lent or reimbursement made by Purchaser to any party. 

(C) Signatures. 

Any payment, including a transfer, from the Operating Account shall 

require the signature of an employee of Purchaser who is a Key Person. Any 

payment in excess of twenty-five thousand dollars ($25,000.00) shall require the 

signatures of two of Purchaser's employees who are Key Persons, one of whom

must be Purchaser's Chief Executive Officer. 

Section 8. Transfer Accounts. 

Purchaser may in the exercise of its sole discretion establish a zero balance bank account 

to facilitate third party payroll administration (a “Payroll Account”), zero balance purchase card 

bank accounts (“P-Card Accounts”) to facilitate delegation of authority for expenditures and a 

zero balance sales depository account (a “Sales Deposit Account”) to facilitate deposits and 

payments from earned income (each Payroll Account, P-Card Account, Sales Deposit Account, 

and the “Reserve Account” that may be established pursuant to the provisions of Section 9 

below, being a “Transfer Account”). Each Transfer Account shall be established in such 

federally insured financial institution as Purchaser may select, provided, however, that such 

institution shall not be an Affiliated Party. 

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Section 9. Seller Indirect Cost Deductions and Reserves. 

DRMS may elect in the exercise of its sole discretion to direct Purchaser from

time to time to deduct from Distribution Payments to DRMS funds to serve as a source of 

payment for Seller Indirect Costs (each such deduction being a "Seller Indirect Cost 

Deduction"). As of any particular date, the unexpended cumulative amount of such Seller 

Indirect Cost Deductions shall be the amount of the "Seller Indirect Cost Reserve." 

ARTICLE FOURTEEN. PURCHASE ACCOUNT 

Section 1. Purchase Account. 

(A) Establishment. 

Within thirty (30) Days of the date of award Purchaser shall establish, and 

shall maintain throughout the Performance Period and for so long as may be 

necessary during the Wind-Up, a demand deposit account, interest bearing if 

possible (the "Purchase Account") for the benefit of Purchaser, in such federally 

insured financial institution as Purchaser may select, provided, however, that such 

institution shall not be an Affiliated Party. 

(B) Maintenance of Sufficient Funds. 

Contractor shall cause Purchaser to maintain sufficient funds in the 

Purchase Account to meet the cash needs of Purchaser for the timely payment of 

Invoices for the purchase of Property. 

Section 2. Purchase Advances. 

If Purchaser determines on any Business Day during the Performance Period or Wind-Up 

that Purchaser requires additional funds in the Purchase Account to meet Purchaser's immediate 

cash needs for the payment of an Invoice, Contractor shall transfer funds to the Purchase 

Account (each such transfer, a "Purchase Advance") immediately to the extent necessary to fund 

such shortfall. 

Section 3. Funds in the Purchase Account; Treatment of Interest. 

The funds in the Purchase Account, and all interest earned thereon, shall be funds of 

Purchaser. Interest earned thereon shall be applied to defray the amounts of Purchase Advances 

and Purchase Transfers that would otherwise be required. 

Section 4. Treatment of Purchase Advances. 

Purchase Advances shall not be treated as Purchaser Liabilities, and shall not be repaid 

by Purchaser other than through Contractor Distributions. Purchaser shall not pay to Contractor 

any interest on Purchase Advances. 

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Section 5. Disbursements from Purchase Account. 

Except during the Wind-Up as provided in Article 21, Purchaser shall make no 

disbursements or transfers from the Purchase Account other than payments to DRMS and to 

KGP for Invoices. 

Section 6. Purchase Transfers. 

At each time that a Contractor Distribution Payment is payable in an amount greater than 

zero after adjustment pursuant to the provisions of Subsections (1) and (2) of Section 4(D) of 

Article 16, Purchaser shall withhold therefrom and transfer from the Operating Account to the 

Purchase Account (a "Purchase Transfer") the amount reasonably estimated by Purchaser that, 

when added to the balance then available in the Purchase Account, will be required during the 

next succeeding thirty (30) Days for the timely payment of Invoices, provided, however, that the 

balance payable to Contractor shall not be less than zero. At any time that the Working Capital 

Advance Balance exceeds zero, Contractor in the exercise of its sole discretion may cause 

Purchaser to fund a Purchase Transfer in an amount less than or equal to the amount of the 

Working Capital Advance Balance, and the amount of the Working Capital Advance Balance 

shall be deemed reduced by the amount of such Purchase Transfer. 

ARTICLE FIFTEEN. FINANCIAL GUARANTEE BOND; RETENTION FUND; 

ESTIMATED CONTINGENT LIABILITIES RESERVE 

Section 1. Election of Contractor to Provide Financial Guarantee Bond in Lieu of 

Retention. 

Contractor shall either (i) obtain a performance bond or financial guarantee bond (the 

"Financial Guarantee Bond") issued within thirty (30) Days of the date of award in favor of 

DRMS and Purchaser on this contract in the amount of one million dollars ($1,000,000.00), or 

(ii) be subject to the withholding of a portion of Contractor Distributions as provided in Section 

3 hereof. The purpose of the Financial Guarantee Bond and the Retention Fund shall be to 

provide a source of payment to DRMS and/or to Purchaser in an amount reasonably sufficient to 

satisfy the financial obligations of Contractor. In lieu of a Financial Guarantee Bond, Contractor 

may post such alternative security, including without limitation a letter of credit, that is approved 

by the SCO. 

Section 2. Financial Guarantee Bond. 

(A) Surety and Form of Bond. 

The Financial Guarantee Bond shall be issued by such surety and in such 

form that are acceptable to DRMS in the exercise of its sole discretion. 

(B) Issuance and Renewal. 

The Financial Guarantee Bond shall be issued and, if applicable, renewed 

for periods of at least one year, renewable at the sole option of the surety. 

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(C) Liability and Release of Surety. 

The surety shall be liable to DRMS for damages arising out of a Material 

Breach by Contractor or Purchaser, and the surety's liability on the Financial 

Guarantee Bond shall terminate with respect to a particular period of time upon 

approval by DRMS of Purchaser's Annual Report or, if applicable, the Closing 

Report, pertaining to such period of time, provided, however, that such approval 

may be conditioned by DRMS upon the final resolution of claims that may arise 

or have arisen out of occurrences specified by DRMS in its notice of such 

conditional approval, which occurrences fall in whole or in part within such 

period of time, and the surety shall remain liable until such claims are finally 

resolved. 

Section 3. Retention Fund. 

(A) Establishment of Retention; Retention Rate; Retention Fund; 

Required Retention Fund Balance. 

Except as otherwise provided herein, beginning with the first calendar 

month (the "Retention Trigger Month") following the later of (i) the calendar 

month with respect to which the cumulative amount of Contractor Distribution 

Payments exceeds the cumulative amount of Purchase Advances or (ii) if

applicable, the calendar month in which the Financial Guarantee Bond lapses or is 

terminated, ten percent (10%) (the "Retention Rate") of all Contractor 

Distribution Payments otherwise payable to Contractor in an amount greater than 

zero after adjustment pursuant to the provisions of Subsections (1), (2) and (3) of 

Section 4(D) of Article 16 shall be paid to DRMS ("Retention Payments") to hold 

in a fund. 

(1) At the time of award and throughout the Performance Period and 

Wind-Up except as otherwise provided herein, the target balance for the 

Retention Fund (the "Required Retention Fund Balance") shall be two 

hundred and fifty thousand dollars ($250,000.00). 

(2) Except as otherwise provided herein, while a Financial Guarantee 

Bond that complies with the provisions of Sections 1 and 2 above of this 

Article 15 remains in effect, the Retention Rate shall be zero and the 

Required Retention Fund Balance shall be zero. 

(3) Retention Payments shall continue from the Retention Trigger 

Month until the balance in the Retention Fund equals the amount of the 

Required Retention Fund Balance, provided, however, that the amount of 

the Retention Payment shall be zero with respect to any month for which 

the Contractor Net Worth Allocation Balance exceeds zero. 

(B) Insolvency of Contractor. 

If Contractor voluntarily places itself or is involuntarily placed in 

proceedings under Title 11 of the United States Code (or corresponding 

provisions of future law) or any other federal or state insolvency law, Contractor 

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shall so notify DRMS and Purchaser within two (2) Days of the commencement 

of such proceedings. 

 (C) Increased Retention. 

If DRMS at any time after the Retention Trigger Month determines that 

the amount in the Retention Fund will likely not be sufficient to satisfy its 

purpose, it may submit the issues of the sufficiency of the amount of the 

Retention Fund or of the Retention Rate to the Dispute Resolution Panel in 

accordance with the provisions of Article 20 below. The Dispute Resolution 

Panel shall determine whether the total amount of the Retention Fund and/or the 

Retention Rate shall be increased in order to effectuate the purpose of Retention. 

(D) Release of Retention Fund. 

The balance in the Retention Fund shall be released to Contractor without 

interest thereon as provided in Article 21. 

Section 4. Estimated Contingent Liabilities Reserve. 

Effective as of the date of award, Purchaser shall establish an estimated contingent 

liabilities reserve account (the "ECLR") on its books of account. The ECLR shall represent an 

amount reasonably deemed from time to time by Purchaser to be sufficient to satisfy all of 

Purchaser's contingent, conditional and/or un-matured claims, liabilities and obligations that 

have not otherwise been accrued in accordance with GAAP. The ECLR shall be carried on the 

books of Purchaser as a liability, but shall not be included in the computation of Purchaser 

Liabilities. Purchaser shall maintain the ECLR throughout the Performance Period and Wind-Up 

until Contractor reasonably determines that all of the contingent, conditional and/or un-matured 

claims, liabilities and obligations of Purchaser have been satisfied, it being expressly understood 

that DRMS may submit to the Dispute Resolution Panel in accordance with the provisions of 

Article 20 a Dispute as to the appropriate duration or amount of the ECLR. So long as Purchaser 

maintains the ECLR on its books, it shall include within its Monthly, Quarterly and Annual 

Reports a written statement (the "ECLR Statement") of the amount of the ECLR and an 

itemization specifying the contingent, conditional and un-matured claims and obligations of 

Purchaser that the ECLR is intended to satisfy. 

ARTICLE SIXTEEN. DISTRIBUTIONS 

Section 1. Monthly Distribution Statement. 

Within fifteen (15) Days after the last Day of each calendar month that is in whole or in 

part within the Performance Period and Wind-Up, Purchaser shall prepare and submit to DRMS, 

KGP and Contractor the "Monthly Distribution Statement" with respect to such month in the 

form specified at Attachment VI.16.1. Purchaser shall perform the following calculations in 

preparing the Monthly Distribution Statement. Except as otherwise provided herein, all amounts 

shall be determined as of the close of business on the last Day of the subject month. 

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Section 2. Calculate Cash Available for Distribution and Operating Net Worth. 

(A) Calculate Cash Available for Distribution. 

Purchaser shall calculate the amount of Purchaser's "Cash Available for 

Distribution," equal to (x) the sum of the cash balances in the Operating Account 

and the Transfer Accounts (Purchaser’s “Operating Cash Balance”) minus (y) the 

sum of (i) the Working Capital Advance Balance, (ii) the amount of Purchaser 

Liabilities, (iii) Purchaser's reasonable estimate of the amount of cash required 

for the payment of Direct Costs for the next succeeding calendar month, (iv)

Purchaser's reasonable estimate of the amount of cash required for the payment of 

Seller Indirect Costs during the next succeeding calendar month, and (v) the 

Estimated Contingent Liability Reserve (ECLR). 

(B) Calculate Operating Net Worth. 

(1) Cash Available for Distribution is Less Than or Equal to Zero.

 If Cash Available for Distribution is less than or equal to zero, the 

amount of Purchaser's "Operating Net Worth" shall equal the amount of 

Seller Indirect Costs paid during the subject month. 

(2) Cash Available for Distribution is Greater Than Zero. If Cash 

Available for Distribution is greater than zero, the amount of Purchaser's 

"Operating Net Worth" shall equal (x) the Cash Available for Distribution 

plus (y) the amount of Seller Indirect Costs paid during the subject 

month. 

Section 3. Calculate Net Worth Allocations. 

(A) Calculate Contractor Net Worth Allocation. 

Purchaser shall calculate the amount of the "Contractor Net Worth 

Allocation" as Operating Net Worth multiplied by twenty percent (20.00%). 

(B) Calculate DRMS Net Worth Allocation. 

Purchaser shall calculate the amount of the "DRMS Net Worth 

Allocation" as Operating Net Worth multiplied by seventy-eight and twenty onehundredths percent (78.20%). 

(C) Calculate KGP Net Worth Allocation. 

Purchaser shall calculate the amount of the "KGP Net Worth Allocation" 

as Operating Net Worth multiplied by one and eighty one-hundredths percent 

(1.80%). 

Section 4. Distribution Payments. 

Purchaser shall make payments of Distributions (each, a "Distribution Payment") to 

DRMS, KGP and Contractor contemporaneously in accordance with the following provisions 

within fifteen (15) Days after the last Day of each calendar month that is in whole or in part 

within the Performance Period and Wind-Up: 

(A) As of the inception of the contract, the "Net Worth Allocation Balance" 

for DRMS, Contractor and KGP, respectively, shall be deemed equal to zero. 

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(B) DRMS Net Worth Allocation is Greater Than or Equal to the Sum of 

Seller Indirect Costs and DRMS Net Worth Allocation Balance.

If the DRMS Net Worth Allocation is greater than or equal to the sum of

Seller Indirect Costs paid during the subject month and DRMS Net Worth 

Allocation Balance for the preceding calendar month, Purchaser shall calculate 

the amounts of the Distribution Payments and the Net Worth Allocation Balances 

for the subject month as follows.

(1) Calculate Contractor Distribution Payment and Contractor 

Net Worth Allocation Balance. 

(a) Purchaser shall calculate the amount, of the "Contractor 

Distribution Payment" as the amount of (i) the Contractor Net 

Worth Allocation, plus (ii) the preceding calendar month's 

Contractor Net Worth Allocation Balance.

(b) The Contractor Net Worth Allocation Balance for the 

subject month shall equal zero.

(2) Calculate DRMS Distribution Payment and DRMS Net Worth 

Allocation Balance. 

(a) Purchaser shall calculate the amount, of the "DRMS 

Distribution Payment" as the amount of (i) the DRMS Net Worth 

Allocation, minus (ii) the preceding calendar month's DRMS Net 

Worth Allocation Balance, minus (iii) Seller Indirect Costs paid 

during the subject month. 

(b) The DRMS Net Worth Allocation Balance for the subject 

month shall equal zero.

(3) Calculate KGP Distribution Payment and KGP Net Worth 

Allocation Balance. 

(a) Purchaser shall calculate the amount, of the "KGP 

Distribution Payment" as the amount of (i) the KGP Net Worth 

Allocation, plus (ii) the preceding calendar month's KGP Net 

Worth Allocation Balance.

(b) The KGP Net Worth Allocation Balance for the subject 

month shall equal zero. 

(C) DRMS Net Worth Allocation is Less Than the Sum of Seller Indirect 

Costs and DRMS Net Worth Allocation Balance. 

If the DRMS Net Worth Allocation is less than the sum of Seller Indirect 

Costs paid during the subject month and DRMS Net Worth Allocation Balance 

for the preceding calendar month, Purchaser shall calculate the amounts of 

Distribution Payments and Net Worth Allocation Balances as follows.

(1) Calculate Contractor Distribution Payment and Contractor 

Net Worth Allocation Balance. 

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(a) Purchaser shall calculate the amount of the "Contractor 

Distribution Payment" as the amount of (i) ninety-one and seventy-
four one-hundredths percent (91.74%), multiplied by (ii) Cash 

Available for Distribution, provided, however, that the Contractor 

Distribution Payment shall not be less than zero. 

(b) Purchaser shall calculate the amount of the "Contractor Net 

Worth Allocation Balance" as the amount of (i) the Contractor Net 

Worth Allocation, plus (ii) the Contractor Net Worth Allocation 

Balance for the preceding calendar month, minus (iii) the 

Contractor Distribution Payment. 

(2) Calculate DRMS Distribution Payment and DRMS Net Worth 

Allocation Balance. 

(a) The amount of the "DRMS Distribution Payment" shall 

equal zero.

(b) Purchaser shall calculate the amount of the "DRMS Net 

Worth Allocation Balance" as the amount of (i) the DRMS Net 

Worth Allocation Balance for the preceding calendar month, minus

(ii) the DRMS Net Worth Allocation, plus (iii) Seller Indirect 

Costs paid during the subject month. 

(3) Calculate KGP Distribution Payment and KGP Net Worth 

Allocation Balance. 

(a) Purchaser shall calculate the amount of the "KGP 

Distribution Payment" as eight and twenty-six one-hundredths 

percent (8.26%) of the Cash Available for Distribution, provided, 

however, that the KGP Distribution Payment shall not be less than 

zero.

(b) Purchaser shall calculate the amount of the "KGP Net 

Worth Allocation Balance" as the amount of (i) the KGP Net 

Worth Allocation, plus (ii) the KGP Net Worth Allocation Balance 

for the preceding calendar month, minus (iii) the KGP Distribution 

Payment. 

(D) Adjustments to Distributions. 

(1) Purchaser shall deduct from the DRMS Distribution Payment and 

add to the Contractor Distribution Payment the amount of any credit for 

overpayments of Invoices owed by DRMS as required by the provisions 

hereof, provided, however, that the balance payable to DRMS shall not be 

less than zero. 

(2) Any amount that Contractor owes to Purchaser as the result of an 

undisputed Audit Adjustment, a Decision of the Dispute Resolution Panel, 

a final judgment or other undisputed obligation in an amount certain, shall 

be deducted from the Contractor Distribution Payment, provided, 

however, that the balance payable to Contractor shall not be less than zero. 

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(3) Purchaser shall deduct from the Contractor Distribution Payment 

the amount of any Purchase Transfer required by the provisions of Article 

14. 

(4) Purchaser shall deduct from the Contractor Distribution Payment 

and add to the DRMS Distribution Payment the amount, if any, of 

Retention required by the provisions of Article 15. 

ARTICLE SEVENTEEN. COMPLIANCE AND MONITORING 

Section 1. Purpose and Content of Compliance Reviews and Further Reviews. 

(A) Compliance Reviews and Further Reviews. 

DRMS shall have the right to conduct "Compliance Reviews" of 

Purchaser in accordance with, and as limited by, the provisions of this Article 17. 

 DRMS may actually conduct the Compliance Reviews, or use other Government 

agencies or private firms, as the SCO deems appropriate. DRMS shall also have 

the right to conduct "Further Reviews" as provided herein. The purpose of such 

Compliance Reviews and Further Reviews is to determine, after the fact, the 

extent of Purchaser's compliance with the terms and provisions of the contract, 

applicable laws and regulations, and applicable Host Installation requirements, 

including without limitation compliance with applicable environmental, security 

and safety laws, regulations and requirements. Such Compliance Reviews and 

Further Reviews are not intended to provide a mechanism for DRMS participation 

or involvement in ongoing decision-making regarding the affairs of Purchaser. 

No-notice Trade Security Control reviews and inspections conducted by DLA 

Trade Security Control personnel are separate and distinct from the Compliance 

Reviews described in this Section. 

(B) Methods. 

Compliance Reviews may include, without limitation: (i) examination of 

the Records, and (ii) personal interviews of persons who may have knowledge of 

facts regarding Purchaser's compliance with the provisions of this contract, 

including employees of Purchaser or of any supplier or re-sale buyer. 

Section 2. Procedures for Compliance Reviews. 

(A) Procedures and Notice. 

A Compliance Review shall be conducted at any time during normal 

business hours and on any Business Day upon reasonable notice. It is expressly 

agreed that a period of at least ten (10) Business Days shall constitute reasonable 

notice before a Compliance Review. Purchaser shall permit inspection of any 

physical location used by Purchaser, including, without limitation, the inventory 

(including the Records relating thereto), examination of the Records, making 

copies and abstracts therefrom, and discussions of the affairs, finances and 

96 
accounts of Purchaser with any employee, subcontracting attorney or certified 

public accountant of Purchaser. DRMS shall use its best efforts to assure that 

Compliance Reviews are conducted in a manner that does not unduly burden or 

unreasonably impinge upon the efficient operation of the affairs of Purchaser. 

 (B) Scope. 

The scope of Compliance Reviews shall be as necessary to confirm

Purchaser's and Contractor's compliance with the provisions of the contract. 

Section 3. Further Reviews. 

If a Compliance Review determines that there is a reasonable basis to believe that a 

default or breach of this contract has occurred, DRMS, upon written notice to Contractor, may 

conduct any such further investigation that it deems appropriate under the circumstances, using 

such outside consultants, including attorneys, as it deems necessary or advisable ("Further 

Review"). Purchaser shall permit such persons as are designated by DRMS to visit and inspect 

any physical location used by Purchaser, including, without limitation, the inventory (including 

the Records relating thereto), and to examine the Records, make copies and abstracts therefrom,

and discuss the affairs, finances and accounts of Purchaser with any employee, attorney or 

certified public accountant of Purchaser. Notwithstanding the foregoing, if Contractor gives 

notice to DRMS stating that a Further Review is not justified, DRMS shall delay the 

commencement of any such Further Review for a period of fourteen (14) Days after the delivery 

of its notice thereof to Purchaser to permit Contractor to seek a determination of the 

appropriateness of the Further Review pursuant to the provisions of Article 20. 

Section 4. Compliance Notification. 

After completing the Compliance Review and/or Further Review, DRMS shall notify 

Contractor in writing of any breach or default identified during the Compliance Review and/or 

Further Review. 

Section 5. Costs of Oversight. 

Except as provided in Article 20, DRMS shall pay all fees, costs and expenses incurred in 

connection with its Compliance Reviews and Further Reviews. 

ARTICLE EIGHTEEN. AUDIT ADJUSTMENTS 

Section 1. Notice of Audit Adjustment. 

If any party determines that the Records reflect any inaccuracies requiring entry of an 

adjustment thereto (an "Audit Adjustment"), including, without limitation, the disbursement of 

any amount from the Operating Account or a Transfer Account that is inconsistent with any 

provision of the contract ("Ineligible Disbursement") or the disposition of an item of Property 

that is inconsistent with any provision of the contract ("Ineligible Disposition"), such party shall 

give written notice thereof to the other party or parties (a "Notice of Audit Adjustment"). 

97 
Section 2. Procedures for Adjudication of Audit Adjustments. 

If either Contractor or DRMS disputes an asserted Audit Adjustment, it may submit such 

dispute for resolution pursuant to the provisions of Article 20. Upon resolution of such dispute 

or, if no party submits a dispute for resolution pursuant to the provisions of Article 20 within 

sixty (60) Days of the Notice of Audit Adjustment, the Audit Adjustment shall be deemed 

confirmed as asserted. 

Section 3. Remedies for Audit Adjustments. 

Upon confirmation of an Audit Adjustment, (i) Purchaser will pay to the party in 

question, or the party will pay to Purchaser, as the case may be, the amount required to restore 

the parties to their respective positions status quo ante, and (ii) Purchaser will correct the 

Records in accordance with the Audit Adjustment as confirmed. If, as a result of the Audit 

Adjustment, Contractor is to pay Purchaser or Purchaser is to pay DRMS, each such payment 

shall include interest at the treasury rate as computed and adjusted in accordance with SBR 

condition 11. 

ARTICLE NINETEEN. MATERIAL BREACH 

Section 1. Notice of Material Breach. 

In the event of a material failure to perform the provisions of the contract by Purchaser, 

Contractor or DRMS ("Material Breach"), the party asserting such Material Breach (the "NonBreaching Party") shall serve notice thereof upon the party that committed or is alleged in the 

notice to have committed such Material Breach (the "Breaching Party"). 

Section 2. Response to Notice. 

 (A) Cure. 

Except as otherwise provided herein, the Breaching Party may cure the 

Material Breach within thirty (30) Days of such notice (the "Cure Period") or 

within such longer Cure Period as the notice may provide unless, within the Cure 

Period, the Non-Breaching Party withdraws the notice in writing or extends the 

Cure Period in writing. 

(B) Submission of Dispute to Dispute Resolution Panel. 

Except as otherwise provided herein, the Breaching Party may dispute the 

asserted Material Breach by presenting such Dispute to the Dispute Resolution 

Panel as provided in Article 20. 

Section 3. Termination. 

Except as otherwise provided herein, referrals of Property by DRMS for sale to Purchaser 

hereunder shall terminate (a "Termination") upon notice thereof by the Non-Breaching Party to 

the Breaching Party served upon or after expiration of the Cure Period if the Breaching Party 

98 
fails to cure within the Cure Period or, if the Non-Breaching Party submits the asserted Material 

Breach to the Dispute Resolution Panel as provided in Article 20 and the Dispute Resolution 

Panel issues a Decision confirming the asserted Material Breach, Termination shall be effective 

upon notice thereof by the Non-Breaching Party to the Breaching Party served upon or after the 

date of such Decision. Except as otherwise provided herein, Contractor, Purchaser and DRMS 

shall continue to perform their respective duties under the contract during the Cure Period and 

while a Dispute is pending before the Dispute Resolution Panel. 

Section 4. Intentional Breach. 

An asserted Material Breach comprised of an intentional breach of the Duty of Loyalty or 

the Duty of Care prescribed in Article 7 (an "Intentional Breach") may not be cured unless 

DRMS, in its sole discretion, specifies a Cure Period in the notice thereof. Termination shall be 

effective upon the later of the date of service of such notice or the expiration of the Cure Period, 

if any, unless Contractor or Purchaser presents a Dispute regarding such asserted Intentional 

Breach to the Dispute Resolution Panel as provided in Article 20 within five (5) Days of such 

notice or within the Cure Period specified in such notice, if any, whichever is longer. If such 

Dispute is presented to the Dispute Resolution Panel and the Dispute Resolution Panel issues a 

Decision confirming such Intentional Breach, Termination shall be effective upon the date of 

such Decision. 

Section 5. DRMS Remedies for Material Breach by Contractor or Purchaser. 

If the Breaching Party is Purchaser or Contractor, DRMS may take any one, any 

combination or all of the following actions to satisfy its claims for any non-payments or other 

damages: 

(i) Apply the proceeds of the sale of Purchaser's property; 

(ii) Apply the Payment Deposit and/or Retention; 

(iii) Present a claim for indemnity against Contractor as provided in Section 6 

below; 

(iv) Present a claim upon the Fidelity or Blanket Bond or any other applicable 

insurance or surety policy; 

(v) Seek appointment of a receiver or trustee for Purchaser; 

(vi) Seek monetary damages, restitution or any other legal or equitable remedy 

to which it is entitled; 

(vii) Assert any other right, claim, or remedy available pursuant to the Contract 

Disputes Act. 

(viii) Termination. 

Section 6. Indemnification of DRMS by Contractor and Purchaser. 

Contractor guarantees that Purchaser will comply fully with the provisions of this 

contract. If the Breaching Party is Purchaser or Contractor, both Purchaser and Contractor shall 

indemnify and hold DRMS harmless for all damages arising therefrom.

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Section 7. Indemnification of Contractor by DRMS. 

If the Breaching Party is DRMS, DRMS shall indemnify and hold Contractor harmless 

for its damages. 

ARTICLE TWENTY. DISPUTE RESOLUTION 

The procedure provided in this Article is intended to be elective and not to supplant any 

Contract Disputes Act rights of any party. DRMS's Sale by Reference, Part 2, Condition 32, 

continues to apply.

Section 1. Selection of Dispute Resolution Panel. 

The Dispute Resolution Panel shall consist of three (3) persons chosen as follows: 

(A) Appointment of Arbitrators. 

Within thirty (30) Days following service of notice of a “Dispute” (as such 

term is defined in Section 4(A) below of this Article 20), DRMS and Contractor 

shall each notify the other of its designee to serve as its representative (each, an 

"Appointed Arbitrator") on the Dispute Resolution Panel. Within thirty (30) Days 

thereafter, the two Appointed Arbitrators shall agree to designate a third person 

(the "Neutral Arbitrator") to serve on the Dispute Resolution Panel and each party 

shall provide notice to the other confirming such designation. If the two 

Appointed Arbitrators cannot agree on the Neutral Arbitrator, either party may 

submit to the Washington, D.C. office of the American Arbitration Association 

(the "AAA") a written joint request for the selection of the Neutral Arbitrator 

pursuant to AAA's Rules for Commercial Arbitration ("AAA Rules"). 

(B) Service of Arbitrators. 

DRMS and Contractor each may replace its respective Appointed 

Arbitrator at any time except during the pendency of a proceeding before the 

Dispute Resolution Panel (unless such replacement is necessitated by the death or 

disability of the Appointed Arbitrator or, in the case of DRMS's Appointed 

Arbitrator, by reason of job transfer, reassignment or similar circumstance, or in 

the case of Contractor's Appointed Arbitrator, by reason of termination of 

employment or resignation by the Appointed Arbitrator). The Neutral Arbitrator 

shall serve on the Dispute Resolution Panel for a one year term unless 

reappointed or unless replaced by the mutual consent of DRMS and Contractor. 

At the end of each one-year term, the Appointed Arbitrators may agree either to 

reappoint the Neutral Arbitrator for another one-year term, or select a replacement 

as Neutral Arbitrator as provided in Section 1(A) above. If at any time the 

Neutral Arbitrator becomes unable or unwilling to continue service on the 

Dispute Resolution Panel, the parties shall, within thirty (30) Days of receipt of 

notice thereof from the Neutral Arbitrator (or if the Neutral Arbitrator fails to give 

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such notice, from the Appointed Arbitrators), designate a replacement as provided 

in Section 1(A) above. 

 (C) Expenses. 

Contractor and DRMS shall each bear the costs of its respective 

Appointed Arbitrator and shall equally share the costs of the Neutral Arbitrator. 

Neither such costs nor any other cost, fee or expense of any character whatsoever 

that is incurred to support, present or document a party's position in a proceeding 

before a court, Board, the Dispute Resolution Panel or any other tribunal shall be 

a Direct Cost. 

Section 2. Location and Governing Rules. 

The Dispute Resolution Panel shall conduct proceedings in Battle Creek, Michigan 

pursuant to the AAA Rules. 

Section 3. Jurisdiction of the Dispute Resolution Panel. 

(A) Matters Committed to the Dispute Resolution Panel. 

Except as set forth in Section 3(B) below, any Dispute may be submitted 

to the Dispute Resolution Panel for voluntary, binding arbitration. 

(B) Availability of Judicial Relief. 

Either DRMS or Contractor may bypass the Dispute Resolution Panel and 

seek relief in connection with a Dispute including, without limitation, emergency 

relief, monetary damages, and/or the Wind-Up of Purchaser, from a court of 

competent jurisdiction. It is expressly provided, however, that the party seeking 

such relief shall provide written notice to the opposing party specifying the facts 

giving rise to the Dispute, and, except in emergency circumstances or unless 

otherwise provided herein, the opposing party shall have thirty (30) Days 

following receipt of such notice in which to cure the facts underlying the Dispute 

before the party serving such notice may seek such judicial relief. 

Section 4. Submission of Disputes to the Dispute Resolution Panel. 

 (A) Dispute. 

Any dispute, controversy or claim arising under or relating to this contract 

between the parties, including, but not limited to, a dispute relating to the 

interpretation of any provision of this contract, a dispute relating to the scope or 

conduct of Purchaser's or Contractor's duties under this contract, a dispute 

regarding DRMS's exercise of its oversight powers under Article 17, and a 

dispute relating to any Audit Adjustment, shall constitute a "Dispute". 

101 
 (B) Process. 

(1) Notice. Except as to matters explicitly committed to the 

"discretion" or "option" of a party, as to which such party's exercise of its 

discretion or option shall not be subject to the following dispute resolution 

process, if a Dispute arises between the parties, either may serve notice 

upon the other that it wishes to present the Dispute to the Dispute 

Resolution Panel for resolution, provided, however, that no such notice 

shall be served beyond completion of the Wind-Up. 

(2) Response. Within fifteen (15) Days after service of a notice, the 

party upon which it is served shall respond in writing ("Response"). The 

Response shall state whether such responding party agrees to binding 

arbitration as provided in this Article 20 and, if such party so agrees, the 

Response shall describe the responding party’s position with respect to 

such matter and shall designate the attorney(s) or other representative 

("Designated Representative") that such party has selected to represent it 

in connection with such matter. A Response that does not expressly state 

that the responding party does not agree to binding arbitration shall be 

deemed to constitute such party's agreement to participate in binding 

arbitration as provided in this Article 20. 

(3) Negotiation. Within fifteen (15) Days after service of the 

Response, the Designated Representatives shall meet and attempt to 

resolve the matter. Within the same fifteen (15) Day period, the 

Designated Representatives also shall deliver copies of their respective 

notices and Responses to each member of the Dispute Resolution Panel. 

If the Designated Representatives fail to resolve the dispute within ten 

(10) Business Days after service of the Response, each party shall within 

five (5) Business Days so notify the Dispute Resolution Panel and deliver 

to the Dispute Resolution Panel such written information, arguments, 

documentary evidence, and other written documentation, as it may deem

appropriate. 

(4) Request for Immediate Action by the Dispute Resolution 

Panel. If a party believes that a situation has arisen that requires 

immediate action by the Dispute Resolution Panel, any party may serve a 

notice upon each member of the Dispute Resolution Panel and upon the 

other party to request such immediate action. 

Section 5. Decision. 

The Dispute Resolution Panel shall issue a written decision (the "Decision") 

endorsed by a majority of the Dispute Resolution Panel as promptly as possible, but in no 

event later than forty-five (45) Days after the close of the arbitration hearing for the 

matter. Within thirty (30) Days of the issuance of a Decision, either party may bring suit 

in a court of competent jurisdiction under the federal Contract Disputes Act for 

102 
enforcement of the Decision. It is not the intent of the parties that such court will engage 

in de novo review of the underlying matter. Absent such suit, upon the expiration of such 

thirty (30) Day period the Decision shall be binding on both parties and enforceable by a 

court of competent jurisdiction. Immediately upon expiration of such thirty (30) Day 

period, Purchaser shall correct the Records as necessary to comply with the Decision, the 

respective parties shall pay to the other such sums as ordered by the Decision, and the 

parties shall cooperate to take all such actions that in other respects may be necessary to 

comply with the Decision. 

Section 6. Remedies Available to Dispute Resolution Panel. 

(A) Remedies in the Case of Disputes. 

Upon the request of either party, the Dispute Resolution Panel may issue a 

Decision declaring the rights and obligations of the parties with respect to any 

Dispute submitted to the Dispute Resolution Panel, or a Decision ordering either 

party to take any action that the Dispute Resolution Panel deems appropriate 

within the scope of the contract, including without limitation payment of 

damages, or to refrain from taking certain actions specified by the Dispute 

Resolution Panel. In addition, and without limiting the foregoing, the Dispute 

Resolution Panel also may issue an order directing any party to comply with the 

requirements of the contract and may specify the actions necessary to constitute 

compliance. 

(B) Remedies for Ineligible Disbursements. 

If the Dispute Resolution Panel confirms a disputed Audit Adjustment 

arising out of an Ineligible Disbursement, the Dispute Resolution Panel may order 

Contractor to pay Purchaser from Contractor's own funds the amount of any such 

Ineligible Disbursement. 

(C) Award of Costs. 

In addition to the remedies described in Subsections (A) and (B) above, 

the Dispute Resolution Panel shall award the reasonable fees, costs and expenses 

("Awarded Costs") actually incurred in the prosecution or defense of a Dispute to 

the prevailing party. Awarded Costs shall be calculated from the commencement 

of preparation of the notice as defined in Section 4(B) through the conclusion of 

proceedings before the Dispute Resolution Panel. Awarded Costs shall not 

constitute Direct Costs and shall be borne by the non-prevailing party. 

Section 7. Effective Date. 

Disputes that are resolved or confirmed by a Decision shall be deemed confirmed as of 

the date that is thirty (30) Days after the date of issuance of the relevant Decision. 

Section 8. Agreement to Use Alternative Dispute Resolution. 

The parties agree to use their best efforts to resolve any disputes that may arise without 

litigation. If unassisted negotiations are unsuccessful, the parties will use alternative dispute 

103 
resolution (“ADR”) techniques in an attempt to resolve the dispute. Litigation will only be 

considered as a last resort when ADR is unsuccessful or has been documented by the party 

rejecting ADR to be inappropriate for resolving the dispute. If the ADR is not successful, the 

parties retain their existing rights. 

ARTICLE TWENTY-ONE. WIND-UP OF PURCHASER 

Section 1. Wind-Up Commencement Date. 

Beginning with the date (the "Wind-Up Commencement Date") that is the earlier of (1) 

the end of the Performance Period or (2) the effective date of Termination by reason of DRMS or 

Contractor exercising the early cancellation option as provided in Article 2 or by reason of a 

Material Breach, the contract shall be wound up as provided herein. 18 

Section 2. Cessation of Property Referrals. 

There shall be no further referrals of Property by DRMS for sale to Purchaser from the 

Wind-Up Commencement Date forward. Submission of Monthly, Quarterly and Annual Reports 

shall continue as before the Wind-Up Commencement Date until the Wind-Up is completed. 

DRMS will no longer make it’s facilities available 30 days following termination. Purchaser 

will have to relocate any remaining property. Any costs incurred to dispose of property will be 

charged as Purchaser Direct Costs. 

Section 3. Conduct of Wind-Up. 

From the Wind-Up Commencement Date forward, Purchaser and Contractor shall 

perform their remaining obligations hereunder in accordance with the provisions of this contract. 

If Purchaser and Contractor are unable or unwilling to do so, or if DRMS reasonably concludes 

that the value of its remaining interest in Purchaser's Net Proceeds is at risk by reason of actual 

or threatened failure to comply with provisions of the contract, DRMS may seek administrative 

or judicial relief to preserve the value of such remaining interest in Purchaser's Net Proceeds. 

Section 4. Submission and Approval of Closing Report. 

(A) Preparation by Contractor. 

Within one hundred twenty (120) Days of Contractor's determination that 

(i) the sale or other disposition of all of Property and all other assets owned by 

Purchaser as of the Wind-Up Commencement Date (the “Remaining Assets,” 

including such Property that, as of the Wind-Up Commencement Date, has been 

referred for sale to Purchaser but as to which the Purchaser has not taken 

Delivery) has been completed, (ii) all Purchaser Liabilities have been paid in full, 

 

104 

18 DRMS and or DRMS contractors may need Government scrap facilities to conduct continued scrap processing 

operations during the Wind-Up period. Accordingly, Purchaser should recognize that DRMS might require the use 

of space and equipment previously used by Purchaser. Purchaser shall vacate and turn over equipment during the 

Wind-Up period reasonably soon after the SCO so requests. 
(iii) the ECLR has properly been removed from Purchaser's books of account as 

provided in Article 15, and (iv) all amounts owed by Purchaser have been paid in 

full, Contractor shall prepare and submit to DRMS and to KGP the Closing 

Report. 

 (B) Preparation by DRMS. 

If Contractor is unable or unwilling to prepare the Closing Report, DRMS 

may take such steps as are reasonably necessary to enable the calculation and 

payment of final amounts payable to DRMS, KGP and Contractor as determined 

by application of the provisions of Article 16 and of Section 5(B) below of this 

Article 21. 

Section 5. Final Distributions; Refund of Remaining Balance of Payment Deposit and 

Remaining Balance of Retention Fund. 

(A) Final Distributions; Dissolution of Purchaser. 

Upon DRMS approval of the Closing Report, Contractor shall take, or as 

may be appropriate, Contractor shall cause Purchaser to take, each of the 

following actions: 

(1) Final Distributions. Distribute all of Purchaser's remaining cash 

in accordance with the provisions of Article 16, and refund to Contractor 

the remaining cash in the Purchase Account, if any. 

(2) Close Operating Account and Purchase Account. Close 

Purchaser's Operating Account, Transfer Accounts and Purchase Account. 

(3) Final Tax Returns. File closing tax returns and any other 

documents required by applicable law. 

(4) Dissolution of Purchaser. File such documents as are necessary 

to conclude Purchaser's legal existence. 

(5) Documentation and Payment Provided to DRMS. Provide to 

DRMS and to KGP copies of all documents evidencing compliance with 

the provisions of this Article 21 and payment of any Distribution 

Payments owed to DRMS under Article 16. 

(B) Refund of Payment Deposit and Retention Fund. 

Upon receipt by DRMS and KGP of all amounts payable thereto and all 

documentation to be provided pursuant to the provisions hereof, DRMS shall pay 

to Contractor the remaining balances, if any, of the Payment Deposit and 

Retention Fund without interest. 

(C) Early Refund of Retention Fund. 

Contractor may obtain payment from DRMS of the balance in the 

Retention Fund without interest at any time before conclusion of the Wind-Up by 

providing a Financial Guarantee Bond in the amount of one million dollars 

($1,000,000.00) that is issued for the remaining Performance Period through the 

conclusion of the Wind-Up, or in such other amount and on such terms that are 

otherwise acceptable to DRMS in the exercise of its sole discretion. 

105 
ARTICLE TWENTY-TWO. MISCELLANEOUS PROVISIONS 

Section 1. Binding Effect. 

Subject to the restrictions on transfers and encumbrances set forth herein, this contract 

shall inure to the benefit of and be binding upon DRMS, Contractor and Purchaser, and their 

respective legal representatives, successors and assigns. Whenever this contract refers to any 

party, such reference shall be deemed to include a reference to the legal representatives, 

successors and assigns of such party. 

Section 2. Notices. 

All notices, demands, requests, consents, approvals, declarations, reports and other 

communications required hereunder shall be in writing except as otherwise provided herein and 

addressed as follows, and the same shall be given and shall be deemed to have been served and 

given if (i) delivered in person, (ii) delivered by registered or certified U.S. mail, return receipt 

requested, postage prepaid, (iii) deposited into the custody of Federal Express Corporation or 

other reputable overnight carrier ("Overnight Carrier") for next Business Day delivery, 

(iv) telecopied, or (iv) electronically transmitted: 

If to DRMS: 

Tina Aldrich 

Sales Contracting Officer 

DRMS - BP

74 Washington Avenue N 

Battle Creek, MI 49017-3092 

Telecopy No. (269) 961-4162 

With a copy of each such material communication to: 

Kormendi \ Gardner Partners 

1025 Connecticut Avenue, N.W.

Suite 308 

Washington, D.C. 20036 

Attention: Cyrus J. Gardner and Roger C. Kormendi 

Telecopy No. (202) 331-1151 

106 
If to Contractor or Purchaser to: 

[CONTRACTOR CONTACT INFORMATION FROM CONTRACTOR'S ITEM BID AND 

AWARD PAGE; MAY BE AMENDED BY CONTRACTOR AFTER AWARD AS 

PROVIDED BELOW]

With a copy of each such material communication to: 

Kormendi \ Gardner Partners 

1025 Connecticut Avenue, N.W.

Suite 308 

Washington, D.C. 20036 

Attention: Cyrus J. Gardner and Roger C. Kormendi 

Telecopy No. (202) 331-1151 

or at such other address as may be substituted by giving not less than five (5) Business Days 

advance written notice of such change of address in accordance with the provisions hereof. The 

giving of any notice required hereunder may be waived in writing by the party entitled to receive 

such notice. Except as otherwise provided in this contract, every notice, demand, request, 

consent, approval, declaration or other communication provided pursuant to the provisions 

hereof shall be acknowledged by the recipient by an original writing or photocopy thereof, by 

telecopy or by electronic transmission, with date of receipt indicated thereon, and shall be 

deemed to have been duly served, delivered and received on the earlier of (x) the date of such 

acknowledgement of receipt by an original writing or photocopy thereof, by telecopy or by 

electronic transmission, regardless of the original mode of delivery, or (y) the date on which 

telecopied and confirmed by telecopy answerback, or on the second Business Day after being 

deposited with an Overnight Carrier, or five (5) Business Days after being deposited in the U.S. 

mail, provided, however, that Invoices, Pickup Notices, and Purchaser's Reports delivered 

electronically need not be acknowledged and shall be deemed received, delivered and served 

upon such transmission. Failure or delay in delivering any notice, demand, request, consent, 

approval, declaration or other communication to a party or to any persons designated above to 

receive a copy thereof shall in no way adversely affect the effectiveness of such notice, demand, 

request, consent, approval, declaration or other communication. 

Section 3. Severability; Consolidation with CV 

(A) If any provision of this contract or the application thereof to any Person or 

circumstance shall be invalid or unenforceable to any extent, the remainder of this 

contract and the application of such provisions to other Persons or circumstances 

107 
shall not be affected thereby, and the intent of this contract shall be enforced to 

the greatest extent permitted by law, provided, however, that, if any of the 

provisions of Article 5, Section 1 ("Payment Deposit") or the application thereof 

to any Person or circumstance shall be determined in a final judgment rendered by 

a court or other tribunal of competent jurisdiction to be invalid or unenforceable 

to any extent, DRMS may in the exercise of its sole discretion cause Termination 

by notice served within thirty (30) days of the date upon which such judgment 

becomes final, such Termination to be effective five (5) Days after the date of 

service of such notice. 

(B) In the event that a CV transaction or operations are 

consolidated in whole or in part with this SV sale contract, conflicting provisions 

of the respective contracts shall be resolved as the parties shall reasonably agree. 

Section 4. Headings. 

The headings appearing in this contract are inserted only as a matter of convenience and 

in no way define, limit, construe or describe the scope or intent of any article or section of this 

contract. 

Section 5. Survival. 

The rights and obligations of the parties under this contract shall survive for a period of 

six (6) years after the completion of the Wind-Up. 

Section 6. Waiver. 

No consent or waiver, express or implied, by any party to or of any breach or default by 

any other party in the performance by such other party of its obligations under this contract shall 

be deemed or construed to be a consent or waiver to or of any other breach or default in the 

performance by such other party of the same or any other obligations of such other party under 

this contract. Failure on the part of any party to complain of any act or failure to act by any of 

the other parties or to declare any of the other parties in default, regardless of how long such 

failure continues, shall not constitute a waiver by such party of its rights hereunder. 

Section 7. Force Majeure. 

The parties shall be excused for the period of any delay in the performance of any 

obligations under this contract when prevented from performing such obligations by cause or 

causes beyond their reasonable control, including, without limitation, civil commotion, war, 

invasion, rebellion, hostilities, military or usurped power, sabotage, pestilence, riots, fire or other 

casualty or acts of God. 

Section 8. Use of DRMS Name; Public Communications. 

Neither Contractor nor Purchaser shall use the name of DRMS or its logos for any 

marketing or other purposes without the express prior written consent of DRMS, which consent 

may be withheld for any reason whatsoever and is subject to the sole discretion of DRMS. 

108 
Neither Contractor nor Purchaser shall publicly denigrate the surplus property disposition 

program of the U.S. Department of Defense or the conduct thereof by DRMS. 

Section 9. Tense and Gender. 

Unless the context clearly indicates otherwise, the singular shall include the plural and 

vice versa. Whenever the masculine, feminine or neuter gender is used inappropriately in this 

contract, this contract shall be read as if the appropriate gender had been used. 

Section 10. Entire Agreement; Modification. 

This contract, and the materials incorporated herein by reference, constitute the entire 

agreement between the parties regarding the matters contained in this contract. If there is any 

inconsistency between the terms of this contract and those of any Appendix, Schedule or Exhibit 

hereto, the terms of this contract shall govern. There are no promises or other agreements, oral 

or written, express or implied, between the parties other than as set forth in this contract. No 

change or modification of, or waiver or compromise under, this contract shall be valid unless it is 

in writing and signed by a duly authorized representative of the party against which it is to be 

enforced. Contractor understands and agrees to submit a written request for contract 

modification to the SCO prior to effecting any change from that stated in its technical proposal 

(including any subcontractors identified therein), and/or Sale of Government Property-Item Bid 

Page, whether occurring before or after the release of the Property. Contractor further agrees not 

to effect such changes without first receiving the written approval of the SCO. 

Section 11. Computation of Time. 

In computing any period of time prescribed or allowed by this contract, the Day of the 

act, event, or default from which the designated period of time begins to run shall not be 

included. The last Day of the period so computed shall be included unless it is not a Business 

Day, in which event the period runs until the end of the next Business Day. 

Section 12. Electronic Communication. 

DRMS and Purchaser shall cooperate to facilitate delivery of Pickup Notices, Invoices 

and Purchaser's Reports to the extent reasonably practical by electronic transmission, such as by 

electronic mail or file transfer, rather than by delivery of a physical removable magnetic or 

optical storage medium. 

ARTICLE TWENTY-THREE. DEFINITIONS AND CROSS-REFERENCES TO 

DEFINITIONS 

AAA Rules: As defined in Article 20. 

Additional NSN Data: As defined in Article 4. 

Additional Property: As defined in Article 2. 

109 
ADR: As defined in Article 20. 

Affiliate Transaction: Either (i) any sale by or on behalf of Purchaser of goods, assets, 

property or services to, or purchase by or on behalf of Purchaser of goods, assets, property or 

services from, an Affiliated Party, including, without limitation, the purchase or sale of, or of any 

interest in, any of the subject Property, or (ii) any transaction on behalf of Purchaser conditioned 

upon or involving any action or transaction entered into by any Affiliated Party, including, 

without limitation, a transaction that directly or indirectly benefits an Affiliated Party. 

Affiliated Party: (i) Contractor or any other Person that directly, or indirectly through 

one or more intermediaries, controls, is controlled by or is under common control with, 

Contractor or Purchaser; or (ii) any Person that is a director, officer, management official, 

employee, trustee or general partner of, or an owner of an equity interest of one percent (1%) or 

more or a beneficiary of a trust owning an equity interest of one percent (1%) or more in, 

Contractor or any other Person specified in clause (i) above; or (iii) any individual Person related 

by blood, marriage or guardianship within two (2) degrees of affinity to any individual Person 

specified in clauses (i) or (ii) above. For purposes of this definition, a Person shall be presumed 

to have control when such Person possesses the power, directly or indirectly, or has the power to 

direct, or cause the direction of, the management or policies of a Person, whether through the 

ownership of voting securities, by contract, or otherwise. In addition, and without limiting the 

foregoing, an employee or subcontractor of Purchaser or Contractor shall be deemed to be an 

Affiliated Party if he, she or it derives fifty percent (50%) or more of its gross compensation or 

revenues in any twelve (12) months within the Performance Period or the Wind-Up from

Purchaser or from an Affiliated Party. 

Annual Pricing Correction: As defined in Article 6. 

Annual Report: As defined in Article 8. 

Appointed Arbitrator: As defined in Article 20. 

 Audit Adjustment: As defined in Article 18. 

Awarded Costs: As defined in Article 20. 

Base Closure: As defined in Article 3. 

Base Compensation: As defined in Article 7. 

Benchmark Performance Ratio: As defined in Article 2. 

Bid Category: As defined in Part III.A.

Bid Deposit: As defined in Article 1. 

Bid Forms: As set forth in the Attachment to the “Bidding Instructions and Bid Forms” 

that accompany this IFB. 

Bid Price: As defined in Article 1. 

Bid Schedule Pool: As defined in Part III.B 

BRAC: Base Realignment and Closure Commission. 

Breaching Party: As defined in Article 19. 

110 

Business Day: Any Day that is not a Saturday, a Sunday or a holiday observed by the 

federal government. Federal holidays presently are New Year’s Day, Martin Luther King, Jr. 

Day, President’s Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran’s 

Day, Thanksgiving Day and Christmas Day. 
Closing Report: As defined in Article 8. 

Compliance Review Firm: As defined in Article 17. 

Compliance Review: As defined in Article 17. 

Concluded Contract: As defined in Article 2. 

Consolidated Pickup Notice: As defined in Article 4. 

Container: A receptacle that can hold material or cargo, including without limitation a 

rolloff, trailer, hopper, compacting or baling rolloff, railcar or barge. 

Contractor: The bidder that is selected for the award of the contract. 

Contractor Distribution Payment: As defined in Article 16. 

Contractor Indirect Cost: Each cost that is not a Direct Cost and is to be paid solely by 

Contractor.

Contractor Insolvency Retention Payment: As defined in Article 15. 

Contractor Systems and Software: As defined in Article 12. 

Control Group: All locations generating Scrap in the states of Tennessee, North 

Carolina and South Carolina. These locations are excluded from this transaction, and DRMS 

will conduct traditional sales of Scrap generated in these states for as long as DRMS elects to do 

so in the exercise of its sole discretion. 

COR: As defined in Article 3. 

Cure Period: As defined in Article 19. 

SV Performance Ratio: As defined in Article 2. 

CV: Sale contract awarded by DRMS on June 13, 2001 between DRMS as seller, and 

Surplus Acquisition Venture as “Contractor” and Government Liquidation as “Purchaser” and 

buyer.

Day: A calendar day. 

DCS Property: Items that must be demilitarized pursuant to applicable DoD regulations 

before title to the residue can pass to Purchaser or a re-sale buyer. 

Decision: As defined in Article 20. 

Delivery: As defined in Article 3. 

Delivery Documentation: As defined in Article 3. 

Delivery Point: As defined in Article 3. 

Delivery Weight: The weight of a particular amount of material, which weight is 

applied for the purpose of determining pricing on an Invoice. 

Demilitarization Code (DEMIL Code): A single character alphabetical code assigned 

to each item of Property by federal procurement authorities that signifies the applicability of 

particular demilitarization, mutilation or trade security (export) control requirements. 

Department of Defense Activity Account Code: As defined in Article 4. 

Designated Representative: As defined in Article 20. 

Direct Cost: As defined in Article 9. 

Discrepancy: As defined in Article 6. 

Disposal Turn in Document Number: As defined in Article 4.

Dispute: As defined in Article 20. 

111 
Distribution: A Distribution Payment as adjusted pursuant to the provisions of Article 

16. 

Distribution Amount: As defined in Article 16. 

Distribution Payment: As defined in Article 16. 

DLA: Defense Logistics Agency. 

DoD: U.S. Department of Defense

DRMO: Defense Reutilization and Marketing Office. 

DRMO Name: As defined in Article 4. 

DRMS Scrap Operation : As defined in Article 3. 

DRMO RIC and RIC Suffix: As defined in Article 4. 

DTID: As defined in Article 4. 

ECLR: The Estimated Contingent Liabilities Reserve, as defined in Article 15. 

EFT: As defined in Article 5. 

End Use Certificate (EUC): DLA Form 1822 (copies of which form is attached as 

Attachment VI.7.5.B). 

Estimated Contingent Liabilities Reserve: As defined in Article 15. 

EUC: End Use Certificate; a DLA Form 1822 (copies of which form is attached as 

Attachment VI.7.5.B). 

Federal Supply Classification (FSC): The federal government's system of identifying 

and categorizing items of tangible personal property; FSCs that pertain to the Property are set 

forth at Table IV-1 in Part IV, "Item Description." 

Fidelity Bond: As defined in Article 11. 

Fiscal Year: For a particular calendar year, the twelve (12) calendar month period 

concluding on 30 September of such year. 

FSC: Federal Supply Classification; FSCs that pertain to the Property are set forth at 

Table IV-1 in Part IV, "Item Description." 

Further Review: As defined in Article 17. 

GAAP: As defined in Article 8. 

GFE: As defined in Article 3. 

Gross DRMS Distributions: As defined in Article 16. 

Gross Proceeds: With respect to a particular period of time, all revenues obtained by 

Purchaser from any source whatsoever excepting (i) Purchase Advances and (ii) Working 

Capital Advances, but including without limitation all revenues from the sale or rental of 

Property, buyers' premiums and insurance proceeds. 

High Value SCL Code: SCL Codes identified in Schedule IV.3.3.B(1)(b). 

Host Installation: The federal installation that hosts a particular DRMS activity. 

Hypothetical Material Weights: As set forth in Table III-2. 

Independent Auditor: Independent national accounting firm engaged by Purchaser to 

audit Purchaser's Records. 

Indexed Market Value: As defined in Article 6. 

Indexed Price: As defined in Article 2. 

112 

Indexed Revenues: As defined in Article 6. 
Ineligible Disbursement: As defined in Article 18. 

Ineligible Disposition: As defined in Article 18. 

Initial Delivery Point: As set forth in Table VI.3.2.C 

Inventory Item Name: As defined in Article 4.

Inventory Status Report: As defined in Article 8. 

Invoice: As defined in Article 5. 

Item Unit of Issue: As defined in Article 4. 

Item Unit Price: As defined in Article 4. 

Key: As defined in Article 7. 

Key Person: Each individual who is identified as such in Contractor's technical 

proposal. 

Line Item: As defined in Article 4. 

Local Stock Number: As defined in Article 4.

Material Breach: As defined in Article 19. 

Monthly Distribution Statement: As defined in Article 16; see Attachment VI.16.1. 

Monthly Report: As defined in Article 8. 

Mutilation: The act of making an item unfit for its intended purpose by cutting, tearing, 

scratching, crushing, breaking, punching, shearing, burning or neutralizing the item.

National Item Identification Number: As defined in Article 4. 

National Stock Number [or] Local Stock Number: As defined in Article 4.

Net DRMS Distributions: As defined in Article 16. 

Net Proceeds: With respect to a particular period of time, the amount of Gross Proceeds 

less the amount of Direct Costs. 

Neutral Arbitrator: As defined in Article 20. 

Non-Breaching Party: As defined in Article 19. 

Notice of Audit Adjustment: As defined in Article 18. 

Notice of Intent to Award: As defined in Article 1. 

On-Site Processing: As defined in Article 3. 

Operating Account: As defined in Article 13. 

Operating Cash Balance: As defined in Article 16. 

Operating Net Worth: As defined in Article 16. 

Other Systems and Software: As defined in Article 3. 

Outstanding Pickup Notice List: As defined in Article 3. 

Overnight Carrier: As defined in Article 22. 

Panel: As defined in Article 20. 

Payment Deposit: As defined in Article 5. 

Payroll Account: As defined in Article 13. 

P-Card Account: As defined in Article 13. 

Performance Period: As defined in Article 2. 

Performance Ratio Multiplier: As defined in Article 2. 

Performance Ratio Property: As defined in Article 2.; see Schedule VI.2.2(B).

113 
Permitted Affiliate Transaction: As defined in Article 9; see Schedule VI.7.3(C). 

Person: Either (i) an individual, or (ii) a business entity of any form of organization 

whatsoever. 

Phase-In Period: As defined in Article 3. 

Phase-In Schedule: As defined in Article 3. 

Pickup Notice: As defined in Article 3. 

Post-Receipt Downgrade: As defined in Part II, Section B. 

Post-Receipt Upgrade: As defined in Part II, Section B. 

Pre-Payment: As defined in Article 5. 

Pricing Correction: As defined in Article 6. 

Pricing Discrepancy Benchmark: As defined in Article 6. 

Pricing Adjustment Ratio: As defined in Article 5. 

Product Subpool: As defined in Part III.A. 

Product Subpool Acquisition Value: As defined in Part III.B. 

Product Subpool Bid Category: As defined in Part III.A. 

Product Subpool Weight: As defined in Part III.A. 

Property: All material declared excess to the needs of the Department of Defense and 

surplus to the needs of the Federal Government, designated as “Scrap” and received by DRMS 

on its accountable record, with a DRMS Hazardous Materials Code other than "W" or “M,” at 

the locations within the Continental United States (except North Carolina, South Carolina and 

Tennessee) and Alaska, and identified by the combinations of DRMS Demilitarization Codes 

and SCL Codes, that are designated in Table IV-1. At all times the Property includes pallets, 

boxes, packing material and rigging for such items, provided, however, that if the SCO so 

requests, pallets shall be returned to a particular DRMO. 

Property Storage Location: As defined in Article 4. 

PSNS: Puget Sound Naval Shipyard. 

Purchase Transfer: As defined in Article 14. 

Purchaser: As defined in Article 1. 

Purchaser Liabilities: The total of Purchaser's liabilities that are determined pursuant to 

GAAP exclusive of un-repaid Working Capital Advances and Purchase Advances. 

Purchaser Systems and Software: As defined in Article 12.

Purchaser Scrap Operation: As defined in Article 3.

Purchaser's Dedicated Storage: As defined in Article 3.

Purchaser's Reports: As defined in Article 8. 

Qualified Recycling Program: As defined in Article 6. 

Quantity Available: As defined in Article 4. 

Quarterly Purchase Price: As defined in Article 5. 

Quarterly Report: As defined in Article 8. 

Records: As defined in Article 8. 

Refuse: Material that has zero or negative value. 

Remaining Assets: As defined in Article 21. 

114 

Required Retention Fund Balance: As defined in Article 15. 
Reserve Account: As defined in Article 13. 

Resource Recovery and Recycling Program material (“RRRP Material”): As 

defined in Article 6. 

Response: As defined in Article 20. 

Restricted Access Facility: Due to Host Installation restrictions or for other reasons, a 

particular DRMO or DRMS Operation may occasionally and temporarily be unable to provide 

storage as provided in Section 3 of Article 3 or access as provided in Subsection (1) of Section 

4(A) of Article 3. Any such facility that is not reasonably able to provide such storage or access 

other than occasionally and temporarily shall be deemed a "Restricted Access Facility.” 

Retention Fund: As defined in Article 15. 

Retention Rate: As defined in Article 15. 

Retention Trigger Month: As defined in Article 15. 

Retention Payment: As defined in Article 15. 

RIPL: Former DRMO locations that are not full service DRMO Scrap Yards but that 

have minimal part time staffs and limited DRMS operations. 

RRRP Material: As defined in Article 6.

Sale by Reference: As defined in Part VI, "Terms and Conditions of Sale;" see 

Attachment VI. 

Sales Contracting Officer: The individual person accepting the bid in whole or in part 

on behalf of the Government, and any other officer or civilian employee who is a properly 

designated Sales Contracting Officer, including, except as otherwise provided in this contract, 

the authorized representative of a Sales Contracting Officer acting within the limits of the 

representative's authority. 

Sales Deposit Account: As defined in Article 13. 

SCL: Scrap Classification List. 

SCL Code: Standard Waste and Scrap Classification Code. 

SCL Group: As defined in Part II, Section B. 

SCO: Sales contracting officer. 

Scrap: With respect to a particular item of Property, a designation assigned by or with 

the approval of DRMS personnel meaning that the item has no value other than for its material 

content. 

Scrap Yard: A place where scrap is collected. 

Seller Indirect Cost: As defined in Article 9. 

Seller Indirect Cost Reserve: As defined in Article 13. 

Shipping Container: As defined in Article7.

Site Location Code: As defined in Article 4. 

Special Situation Locations: Locations that are designated as Delivery Points by 

DRMS in the exercise of its sole discretion and that are neither a DRMO, a DRMS Scrap 

Operation, nor a Purchaser Scrap Operation. 

Stand-Alone Bid: As defined in Article 1. 

Storage Location Code: As defined in Article 4. 

115 

Termination: As defined in Article 19. 
Third Party Software: As defined in Article 12. 

Traditional Sales: Sales methods generally employed by DRMS prior to this 

transaction, including either sealed-bid or negotiated sales that typically provide that Scrap will 

either be sold on a term sale with “purchaser loading” or sold on a one-time sale with 

“Government loading.” 

Transfer Account: As defined in Article 13. 

Upgrade Upon Receipt: As defined in Article 6. 

Useable: With respect to a particular item of Property, a designation assigned by or with 

the approval of DRMS personnel meaning that the item has value in excess of that of the item’s 

material content. 

User Documentation: As defined in Article 12. 

Wind-Up Commencement Date: As defined in Article 21. 

Working Capital Advance: As defined in Article 13. 

Working Capital Advance Balance: As defined in Article 13. 

116 
VII. ATTACHMENTS AND SCHEDULES 

117 
ATTACHMENT II.W 

CERTIFICATION RE: DEMIL “E” PROPERTY 

118 
ATTACHMENT IV 

 LOADING LEGEND

DRMO SCRAP YARDS

Anchorage Hill Offutt

Anniston Holloman Oklahoma City

Barstow Homestead Patrick

Benning Hood Port Hueneme

Campbell Huntsville Portsmouth

Cannon Keesler Richmond

Colorado Springs Kirtland Riley 

Columbus, OH Knox Rock Island 

Corpus Christi Lakehurst San Antonio 

Crane Lejeune San Diego

Drum Letterkenny N.A. 

Duluth Lewis Selfridge

Dyess March Sierra

Eglin McClellan Sparta

Ellsworth Meade St Julien’s Creek 

Fairbanks Mechanicsburg Stewart

Fairchild Minot Stockton

Great Falls Mountain Home Texarkana 

Great Lakes Nellis Tobyhanna 

Groton Norfolk Tucson

North Island Vandenberg 

Warner Robins 

Whiteman 

Wright-Patterson 

119 
* Scrap Yards listed without a leading dash (“-“) are at DRMOs presently termed by 

DRMS as “Central” DRMOs; those with the leading dash are at the corresponding “Satellite” 

DRMOs. or purposes of this sale contract, there is no practical distinction between the two types 

of DRMO. 

120 
121 
(1) ATTACHMENT V 

SALE BY REFERENCE - INSTRUCTIONS, TERMS AND CONDITIONS APPLICABLE 

TO DEPARTMENT OF DEFENSE PERSONAL PROPERTY OFFERED FOR SALE BY 

DEFENSE REUTILIZATION AND MARKETING SERVICE, MARCH 1994

122 
ATTACHMENT VI.1.10 

CONFIRMATION OF PURCHASER AS 

CO-SIGNATORY AND CO-OBLIGOR 

[ Name of Purchaser ], a [ corporation/limited liability company ] organized and doing 

business pursuant to the laws of the state of [ state ] ("Purchaser"), hereby confirms that it is a 

co-signatory and co-obligor with [ name of Contractor ], a [ corporation/limited liability 

company/general partnership/limited partnership/joint venture ] organized and doing business 

pursuant to the laws of the state of [ state ] ("Contractor"), with respect to DRMS Contract 

No. [ contract number ] and all duties, obligations and responsibilities thereunder. 

PURCHASER: 

Dated: 

By: 

[name of Chief Executive Officer], 

Chief Executive Officer 

123 
SCHEDULE VI.2.2.B 

PERFORMANCE RATIO PROPERTY 

124 
SCHEDULE VI.3.1(B) 

PUGET SOUND NAVAL SHIPYARD SPECIAL REQUIREMENTS 

Following are the material types, approximate annual generations (in lbs.) and applicable 

special requirements pertinent to Property referred for sale to Purchaser at Puget Sound Naval 

Shipyard. 

1. STEEL, HEAVY, UNPREPARED, SCRAP:

Including plate, structural materials, stands, brackets, cylinders, railroad rails, machine parts 

(with non-metallic attachments), some light steel attached and various sizes of cut pieces (nonHY-80) from ship hull sections. Average/approximate size of pieces - 8 feet x 15 feet, 12,000 to 

15,000 pounds. 

Estimated annual generation: 7,000,000 lbs 

SPECIAL REQUIREMENTS:

Government will load open top rail car (Gondola) or "end dump" truck trailer. Purchaser will be 

required to contact the Burlington Northern Railroad Trainmaster (253) 591-2556 for railcars. 

Demurrage: An allowance of 24 hours for Government loading of the Purchaser provided 

Burlington Northern rail line car is established. The clock for this allowance begins at 7:00 AM 

on the day following the car being spotted outside the Shipyard fence. The clock stops after the 

Government representative notifies Burlington Northern that the rail car is ready for pick up and 

has been returned to the Burlington rail line. This notification takes place before 7:00 AM the 

following day. In the event that the Government is untimely with respect to this loading 

allowance (24 hours), demurrage will accrue. The Government will allow the Purchaser to 

deduct these Government responsible charges as Seller Indirect Costs. A statement of account 

for demurrage billed by Burlington Northern for Government accrued charges must be 

represented to the Sales Contracting Officer, Defense Reutilization and Marketing Service, 

International Sales Office, Battle Creek, MI for adjudication/concurrence. Current demurrage 

rates are $75.00 per day. Loading hours are between 8:00 AM and 3:00 PM, Monday thru 

Friday. 

2. STEEL, HEAVY & LIGHT, UNPREPARED, SCRAP:

Including galvanized pipe, tanks, pallets, stands, structural steel, hardware fittings and screens, 

wire rope, gutters, and sheet strips with non-ferrous attachments. 

Estimated annual generation: 7,000,000 lbs 

SPECIAL REQUIREMENTS: 

125 

The Government will load open top roll-off tubs that use a cable bale system only or "end dump" 

truck and trailer. The Purchaser will provide open top 20-30 cubic yard capacity roll-off tubs that 

use a cable bale system only. The Purchaser will maintain a quantity of two tubs or more at the 

Shipyard for accumulation of scrap products. The Purchaser will label its containers with the 

company name, the container tare weight and with an identifying number. Labeling will be of a 

permanent nature. PSNS reserves the right to verify all tare weights of containers when 
delivered to the Shipyard. Containers may be moved into dry docks by means of a crane. For 

the safety of personnel and material, the containers will require testing and certification of lifting 

capacity. The Purchaser may be asked to consult with the PSNS Structural Engineering 

Department to assist in the development of an appropriate device for lifting roll off tubs. PSNS 

reserves the right to refuse any roll-off tubs determined to be in an unsafe or poor condition. The 

Purchaser will be required to replace any roll-off tubs in an unsafe or poor condition within 72 

hours of notification of the subject containers. The Purchaser is required to remove full roll-off 

tubs and replace them with empty tubs within two (2) workdays of oral notification and within 

five (5) workdays of written notification by the Sales Contracting Officer when removal is 

required. Written notification via fax will be considered the same as oral notification and 

removal will be required within two (2) workdays. Loading hours are between 8:00 AM and 

3:00 PM, Monday thru Friday. 

3. STEEL, HEAVY, UNPREPARED, SCRAP: 

HY80/HY100. Consisting of various sizes of cut pieces from submarine hull sections with 

foreign material. Sections may range in size up to 8 ft X 15 ft with approximate average weight 

of 13,500 Lbs. Some sections (missile crowns) will be larger in size and weight and may weigh 

between 42,000 lbs and 45,000 lbs. Hull sections will include missile tube bottoms, missile tube 

caps and hinges. 

NOTE: Some hull sections may contain an epoxy adhesive with residual rubber resulting from

removal of sound damping tile. The rubber residual is approximately 3/16 inch thick. Estimated 

annual generation of hull sections with adhesive is 25% of weight. A hardened adhesive of nonfriable asbestos mastic may be found on the surface of some sections of steel. Subject sections 

are required to be processed in accordance with all applicable local, state, and federal 

regulations. The HY-80/HY-100 material previously contained PCB which has been cleaned to 

levels less than 100ug/100cm2 as required by EPA. This material is restricted from shipment 

overseas as per Title 40 CFR-761. End use of this material is domestic smelting only. Caution, 

missile tube bottoms along with other various sections may contain polyurethane foam (vulta / 

syntactic foam) which is non-hazardous in its present state. Syntactic foam consists of either 

epoxy of polyester resin heavily filled with glass or phenolic micro-balloons cured in place to fill 

a void. Where this material has been used on ship structures, it presents a hazard during ship 

breaking and subsequent components salvage. Oxy-fuel and carbon arc cutting of steel 

structures may overheat or ignite this material, resulting in the evolution of toxic gases, vapors, 

and fumes. These toxic materials can be reduced by minimizing heat input. Protection from

carbon monoxide, hydrogen, cyanide and oxides of nitrogen requires air supplied respirators, 

other toxic materials generated may be safely averted by use of organic vapor cartridge. The 

simple expediency of working up wind also may be effective in avoiding exposure to these toxic 

products of combustion. Missile tube caps hinges contain general-purpose grease, Mil-G23549C. 

Due to security requirements the HY-80 / HY-100 steel hull sections must be smelted within the 

United States, and Certificates of Destruction (smelting) must be provided to the SCO, or their 

designated representative, within 90 days after receipt of material at smelting facility. Point of 

contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

126 
Estimated annual generation: 465,000 lbs 

SPECIAL REQUIREMENTS: 

Government will load open top rail cars only (gondolas). Purchaser must be prepared to start 

removal of material at the onset of the contract. PSNS has extremely limited storage capacity 

and failure to promptly remove material will have a severe impact on the Shipyard’s ability to 

conduct daily business. Purchaser will be required to contact the Burlington Northern Railroad 

Trainmaster (253) 591-2556 for railcars. Demurrage: An allowance of 24 hours for Government 

loading of the Purchaser provided Burlington Northern rail line car is established. The clock for 

this allowance begins at 7:00AM on the day following the car being spotted outside the Shipyard 

fence. The clock stops after the Government representative notifies Burlington Northern that the 

rail car is ready for pick-up and has been returned to the Burlington rail line. This notification 

takes place before 7:00 AM the following day. In the event that the Government is untimely 

with respect to this loading allowance (24 hours), demurrage will accrue. The Government will 

allow the Purchaser to deduct these Government responsible charges as Seller Indirect Costs. A 

statement of account for demurrage billed by Burlington Northern for Government accrued 

charges must be presented to the SCO, or their designated representative, for 

adjudication/concurrence. Note: SATURDAY, SUNDAY AND HOLIDAYS ARE 

INCLUDED IN DEMURRAGE. 

4. COPPER BEARING, SCRAP: 

Including motors generators, rotors, electric uncanned transformers, electric buss bars, and 

generator housing with other foreign material. Point of contact on-site is Daniel Sheehan (360) 

476-7338, Fax (360) 476-1753 or e-mail Sheehand@psns.navy.mil or contact the SCO. 

NOTE: Copper Bearing material may include non-friable asbestos in the form of mastic and 

insulating material. Items suspected of containing asbestos material will be labeled with warning 

stickers prior to shipment. Suspect materials required to be transported, handled, and disposed 

of per applicable local, state, and federal regulations. All scrap material containing lead-based 

paint described in this sale must be smelted in the U.S.A. 

Estimated annual generation: 200,000 lbs 

SPECIAL REQUIREMENTS:

The Purchaser will provide two (2) open top 20-30 cubic yard capacity roll-off containers that 

use a cable bale system. The container must be labeled (permanent) with the company name, the 

container tare weight and with an individual identifying number of the container. Any Container 

determined to be in an unsafe or poor condition will be refused and must be replaced 

immediately. 

5. MIXED METALS, PIPING, SCRAP : 

127 

Including cupro-nickel, monel, stainless steel, copper, brass/bronze, and steel. From pipe, 

tubing, plate, pump casing, flanges, valve bodies, and other shapes, with other ferrous and nonferrous attachments and foreign material. Foreign material consists of packing, gaskets, O-rings. 

 Installed packing and gaskets contain non-friable asbestos. Caution: Installed gaskets and valve 

packing may contain non-friable asbestos. Suspect materials are required to be transported, 

handled and disposed of per applicable local, state, and Federal regulations. 
Estimated annual generation: 300,000 lbs 

SPECIAL REQUIREMENTS:

The Purchaser will provide six open top 20-30 cubic yard capacity roll-off tubs that use a cable 

bale system only. The Purchaser will maintain a quantity of six tubs at the Shipyard for 

accumulation of scrap products. The Purchaser will label its containers with the company name, 

the container tare weight and with an identifying number. Labeling will be of a permanent 

nature. PSNS reserves the right to verify all tare weights of containers when delivered to the 

shipyard. PSNS reserves the right to refuse any roll-off tubs determined to be in an unsafe or 

poor condition. The Purchaser will be required to replace any roll-off tubs in an unsafe or poor 

condition within 72 hours of notification of the subject containers. The Purchaser is required to 

remove full roll-off tubs and replace them with empty tubs within three (3) workdays of oral 

notification and within five (5) workdays of written notification by the SCO when removal is 

required. Written notification via fax will be considered the same as oral notification and 

removal will be required within three (3) workdays. Loading hours are between 7:30 AM - 3:00 

PM, Monday thru Friday. 

6. CUPRO-NICKEL, MONEL, 70/30, SCRAP: 

Including plate, pump casings, large tubes, castings, structural shapes and configurations with 

ferrous and other non-ferrous attachments and foreign material. Approximately 20% brass, 

stainless, aluminum, and/or iron/steel. 

Estimated annual generation: 100,000 lbs 

SPECIAL REQUIREMENTS:

The Purchaser will provide two open top 20-30 cubic yard capacity roll-off tubs that use a cable 

bale system only. The Purchaser will maintain a quantity of two tubs at the Shipyard for 

accumulation of scrap products. The Purchaser will label its containers with the company name, 

the container tare weight and with an identifying number. Labeling will be of a permanent 

nature. PSNS reserves the right to verify all tare weights of containers when delivered to the 

shipyard. PSNS reserves the right to refuse any roll-off tubs determined to be in an unsafe or 

poor condition. The Purchaser will be required to replace any roll-off tubs in an unsafe or poor 

condition within 72 hours of notification of the subject containers. The Purchaser is required to 

remove full roll-off tubs and replace them with empty tubs within three (3) workdays of oral 

notification and within five (5) workdays of written notification by the SCO when removal is 

required. Written notification via fax will be considered the same as oral notification and 

removal will be required within three (3) workdays. Loading hours are between 7:30 am - 3:00 

pm, Monday thru Friday. 

7. LEAD, BAGGED BRICK, SCRAP: 

Consisting of lead ballast weight. Approximate dimensions 14" long X 3.125" wide, 50-60 

pounds each. Including smaller pieces of various sizes and shapes. Approximately 1.8 million 

pounds of brick and 200,000 pounds of lead (BB) shot. 

128 

NOTE: May contain rust preventative compounds Mil-C-1176A (non-slich), Mil- C-1567A 
(pigmented petroleum) which has a low flash point; or Mil-C-16173 with red lead compound. 

Lead is to be transported, handled and disposed of in accordance with all local, state, and federal 

regulations. 

Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 2,000,000 lbs 

SPECIAL REQUIREMENTS:

Government will load open top rail car only. Purchaser will be required to contact the 

Burlington Northern Railroad Trainmaster at1-800-234-8440, Fax 1-800-736-7967 for rail cars. 

Demurrage: An allowance of 24 hours for Government loading of railcar is required. The clock 

for this allowance begins at 7:00 AM on the day following the rail car being spotted outside the 

perimeters on PSNS. The clock stops after the Government representative notifies Burlington 

Northern that the railcar is ready for pickup and has been returned to the area immediately 

outside the perimeters of PSNS. This notification will occur before 7:00 AM the following day. 

In the event that the Government is untimely with respect to this loading allowance (24 hours), 

demurrage will accrue. The Government will allow the Purchaser to deduct these Government 

responsible charges as Seller Indirect Costs. A statement of account for demurrage, as billed by 

Burlington Northern, of Government accrued demurrage charges must be presented to the SCO, 

or their designated representative, for adjudication/concurrence. Approximate demurrage 

charged by Burlington Northern are as follows: 1 to 4 days: $20.00 per day; 5 and 6 days: 

$30.00 per day; 7 and subsequent days: $60.00 per day. NOTE: Saturdays, Sundays and 

Holidays are included in demurrage. All property available at the time of award must be 

removed within the first 15 days of the contract period. Thereafter property must be removed 

within two (2) working days of oral notification and within five (5) working days of written 

notification. Written notification via facsimile (fax) will be considered the same as oral 

notification and removal will be required within two (2) working days. Loading is MondayFriday, 7:00 AM - 3:00 PM. 

8. ALUMINUM, CLEAN, SCRAP: 

Including but not limited to sheets, plates, clippings, shearings, punchings, tubes, angles, and 

other shapes. Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or 

e-mail Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 100,000 lbs 

SPECIAL REQUIREMENTS:

129 

The Purchaser will provide one open top 20-30 cubic yard capacity roll-off container that uses a 

cable bale system only. The Purchaser will maintain a quantity of one container at the Shipyard 

for accumulation of scrap products. The Purchaser will label its containers with the company 

name, the container tare weight and with an identifying number. Labeling will be of a 

permanent nature. PSNS reserves the right to verify all tare weights of containers when 

delivered to the shipyard. PSNS reserves the right to refuse any roll-off containers determined to 

be in an unsafe or poor condition. The Purchaser will be required to replace any roll-off 

container in an unsafe or poor condition within 72 hours of notification of the subject containers. 
 Loading hours are between 7:30 AM - 3:00 PM, Monday thru Friday, excluding Federal 

Holidays. 

9. COPPER BEARING, SCRAP: 

Including copper radiators, cooling coils with ferrous and nonferrous attachments and foreign 

material. Foreign material may be in the form of gaskets and may contain non-friable asbestos 

product. Non-friable asbestos products will be sealed with duct tape and have asbestos warning 

label affixed to the material prior to shipment. Suspect items are required to be transported, 

handled and disposed of in accordance with applicable local, state and federal regulations. 

Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 75,000 lbs 

SPECIAL REQUIREMENTS: 

The Purchaser will provide two open top 20-30 cubic yard capacity roll-off containers that use a 

cable bale system only. The Purchaser will maintain a quantity of one container at the Shipyard 

for accumulation of scrap products. The Purchaser will label its containers with the company 

name, the container tare weight and with an identifying number. Labeling will be of a 

permanent nature. PSNS reserves the right to verify all tare weights of containers when 

delivered to the shipyard. PSNS reserves the right to refuse any roll-off containers determined to 

be in an unsafe or poor condition. The Purchaser will be required to replace any roll-off 

containers in an unsafe or poor condition within 72 hours of notification of the subject 

containers. Loading hours are between 7:30 AM - 3:00 PM, Monday thru Friday. 

10. BORINGS, TURNINGS, AND SHAVINGS, SCRAP: 

Including steel, aluminum, brass and cupro-nickel/monel. An estimated 70% of total contract 

weight will be steel. Estimating product to be 95% segregated by metal type. Point of contact 

on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 120,000 lbs 

SPECIAL REQUIREMENTS: 

Puget Sound Naval Shipyard will begin the contract by furnishing heavy duty wooden containers 

with covers that are forklift portable, with and estimated average tare weight of 680 lbs, and an 

estimated size of 4' x 3' x 8'. Purchaser will be required to exchange 1 empty container for 1 full 

container until boxes are damaged beyond repair, then the Purchaser will be required to furnish 

its own containers consisting of 6 each metal boxes, 2 cubic yard capacity with covers, capable 

of being transported by forklift, and marked with the Purchasers name and tare weight. Loading 

hours are between 7:30 AM - 3:00 PM, Monday thru Friday. 

11. STAINLESS STEEL, SCRAP: 

130 

Magnetic and non-magnetic, including, but not limited to coolers, kitchen equipment, counters, 

sinks, piping, tubing, and other hardware, with other shapes of ferrous and non-ferrous 

attachments with some foreign materials (approximately 10%). 
Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 750,000 lbs 

SPECIAL REQUIREMENTS: 

The Purchaser will provide two open top 20-30 cubic yard capacity roll-off tubs that use a cable 

bale system only. The Purchaser will maintain a quantity of two tubs at the Shipyard for 

accumulation of scrap products. The Purchaser will label its containers with the company name, 

the container tare weight and with an identifying number. Labeling will be of a permanent 

nature. PSNS reserves the right to verify all tare weights of containers when delivered to the 

shipyard. PSNS reserves the right to refuse any roll-off tubs determined to be in an unsafe or 

poor condition. The Purchaser will be required to replace any roll-off tubs in an unsafe or poor 

condition within 72 Hours of notification of the subject containers. Loading hours are between 

7:30 AM - 3:00 PM, Monday thru Friday. 

12. STEEL, LIGHT, UNPREPARED, SCRAP: 

Including, but not limited to 1/4" inch thick or less clippings, strapping, wire rope cable in six 

foot lengths, cans, drums, non-pressurized light cylinders, brackets, stands, desks, chairs, storage 

bins, lockers, and cabinets with non-ferrous attachments. 

Estimated annual generation: 1,000,000 lbs 

SPECIAL REQUIREMENTS: 

The Purchaser will provide two open top 40 cubic yard capacity roll-off containers that use a 

cable bale system only. The Purchaser will maintain a quantity of two containers at the Shipyard 

for accumulation of scrap products. The Purchaser will label its containers with the company 

name, the container tare weight and with an identifying number. Labeling will be of a 

permanent nature. PSNS reserves the right to verify all tare weights of containers when 

delivered to the shipyard. PSNS reserves the right to refuse any roll-off container determined to 

be in an unsafe or poor condition. The Purchaser will be required to replace any roll-off 

container in an unsafe or poor condition within 72 hours of notification of the subject containers. 

 Loading hours are between 7:30 AM - 3:00 PM, Monday thru Friday. 

13. ALUMINUM, IRONY, SCRAP: 

Including bunks, lockers, furniture, electrical cabinets and structural pieces and shapes, with 

other foreign material. Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 

476-1753 or e-mail Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 250,000 lbs 

SPECIAL REQUIREMENTS: 

131 

The Purchaser will provide two open top 40 cubic yard capacity roll-off containers that use a 

cable bale system only. The Purchaser will maintain a quantity of two containers at the Shipyard 

for accumulation of scrap products. The Purchaser will label its containers with the company 

name, the container tare weight and with an identifying number. Labeling will be of a 
permanent nature. PSNS reserves the right to verify all tare weights of containers when 

delivered to the shipyard. PSNS reserves the right to refuse any roll-off container determined to 

be in an unsafe or poor condition. The Purchaser will be required to replace any roll-off 

container in an unsafe or poor condition within 72 hours of notification of the subject containers. 

 Loading hours are between 7:30 AM - 3:00 PM, Monday thru Friday. 

14. MANGANESE, NICKEL, ALUMINUM & SILICONE BRONZE: 

Consisting primarily of rings, hatch doors, valves and other shapes, with ferrous and other nonferrous attachments, with other foreign material. 

NOTE: Non-friable asbestos products will be sealed with duct tape and have asbestos warning 

labels affixed prior to shipment. Suspect items are required to be transported, handled and 

disposed of in accordance with applicable local, state and federal regulations. Point of contact 

on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 120,000 lbs 

SPECIAL REQUIREMENTS: 

The Purchaser will provide one open top 20-30 cubic yard capacity roll-off tub that uses a cable 

bale system only. The Purchaser will maintain a quantity of one tub at the Shipyard for 

accumulation of scrap products. The Purchaser will label its containers with the company name, 

the container tare weight and with an identifying number. Labeling will be of a permanent 

nature. PSNS reserves the right to verify all tare weights of containers when delivered to the 

shipyard. PSNS reserves the right to refuse any roll-off container determined to be in an unsafe 

or poor condition. The Purchaser will be required to replace any roll-off container in an unsafe 

or poor condition within 72 hours of notification of the subject containers. Loading hours are 

between 7:30 AM - 3:00 PM, Monday thru Friday. 

15. CUPRO-NICKEL MONEL, SCRAP: 

Including, but not limited to cupro-nickel valves with titanium valve balls and heat exchangers; 

may also contain ferrous and other non-ferrous attachments and other foreign material. Point of 

contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 50,000 lbs 

SPECIAL REQUIREMENTS: 

132 

The Purchaser will provide two open top 20 cubic yard capacity roll-off tubs that use a cable 

bale system only. The Purchaser will maintain a quantity of two tubs at the Shipyard for 

accumulation of scrap products. The Purchaser will label its containers with the company name, 

the container tare weight and with an identifying number. Labeling will be of a permanent 

nature. PSNS reserves the right to verify all tare weights of containers when delivered to the 

shipyard. PSNS reserves the right to refuse any roll-off container determined to be in an unsafe 

or poor condition. The Purchaser will be required to replace any roll-off container in an unsafe 

or poor condition within 72 hours of notification of the subject containers. Loading hours are 

between 7:30 AM - 3:00 PM, Monday thru Friday. 
16. MIXED METALS, SCRAP: 

Consisting primarily of steel with other ferrous and non-ferrous attachments. Attachments may 

be brass/bronze, copper, cupro/nickel, stainless steel, aluminum and other foreign materials. 

Foreign material may consist of non-friable asbestos products in the form of gaskets, valve 

packing, mastic and cable stubs. Also may contain rubber products, plastic graphite tile, and 

fiberglass compression plates. Size and weights may vary from very small pieces, 10ft x 9ft x 

8ft, larger individual pieces may weigh up to approximately 40,000 Lbs 

 NOTE: Non-friable asbestos products will be sealed with duct tape and have asbestos warning 

labels affixed prior to shipment. Suspect items are required to be transported, handled and 

disposed of in accordance with applicable local, state and federal regulations. Point of contact 

on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 

Sheehand@psns.navy.mil or contact the SCO. 

Estimated annual generation: 250,000 lbs 

SPECIAL REQUIREMENTS: 

The Purchaser will provide four, open top 20-30 cubic yard capacity roll-off containers that use a 

cable bale system only. The Purchaser will maintain a quantity of two containers at the Shipyard 

for accumulation of scrap products. Low boys trailers and flat bed trailers shall be used for 

larger or oversize material, Purchaser will be responsible for obtaining necessary permits 

pursuant to local, state, and federal requirements. The Purchaser will label its containers with 

the company name, the container tare weight and with an identifying number. Labeling will be 

of a permanent nature. PSNS reserves the right to verify all tare weights of containers when 

delivered to the shipyard. PSNS reserves the right to refuse any roll-off container determined to 

be in an unsafe or poor condition. The Purchaser will be required to replace any roll-off 

container in an unsafe or poor condition within 72 hours of notification of the subject containers. 

 Loading hours are between 7:30 AM - 3:00 PM, Monday thru Friday. 

17. LEAD, STEEL ENCASED, SCRAP: 

Consisting of lead brick, poured lead or lead shot encased in steel containers welded to HY 80 

and / or HTS steel submarine hull sections. Average size and weight per piece: 8ft x 8ft and 

30,000 pounds. Some sections up to 11ft x 20ft may weigh a maximum of 60,000 pounds. 

Additionally, there will be approximately (40-45) 6 foot diameter lead disks, thickness ranging 

between 12" and 22", with a weight range of 20-35,000 pounds. The disks have a 1" thick steel 

plate on the bottom that has tapped lifting rods penetrating the lead to facilitate lifting. The 

generator will provide 1 set of lifting rods to the Purchaser for lifting these disks. Estimated 

percentage of lead to steel is approximately 76% lead and 24% Steel. 

NOTE: may contain rust preventative compound Mil-C- 1176A, CLI A (non-slick), MIL-C15167A (pigmented petrolatum) which has a low flash point, or MIL-C-16173 with red lead 

compound. 

NOTE: HY80 steel must be smelted in the U.S.A. 

Estimated annual generation: 1,600,000 lbs 

133 
SPECIAL REQUIREMENTS: 

1. Material shall be placed by Puget Sound Naval Shipyard into railcars, weighed and 

documented (DD Form 1348-1). Documentation and weight slip will be provided to the DRMO. 

2. DLA Form 1367, Shipment Receipt/Delivery Pass shall be prepared for each railcar 

shipment by the PSNS and telexed to the Purchaser. 

3. The Purchaser shall weigh each railcar upon receipt at the final destination. Any 

discrepancy of more than 1000 pounds shall be immediately reported to the originating 

DRMO. 

4. Due to security requirements, HY80 steel hull sections must be smelted in the U.S.A. 

Once the lead has been removed from the HY80 steel sections no restrictions apply as to 

where the lead may be processed, smelted or melted. 

5. A completed certification of destruction for the HY80 steel with the following shall be 

provided to the originating DRMO by the Purchaser: 

a. Printed name of person completing certificate. 

b. Contract Number 

c. Railcar Number 

d. Weight (Pounds) 

e. Place of destruction 

f. Date of destruction 

g. Completed certificate of destruction with signature and date shall be provided to 

the DRMO within twenty-four (24) hours after destruction is complete. 

Government will load open top rail car only (Gondolas). Purchaser must be prepared to start 

removal of material at the onset of the contract, the Puget Sound Naval Shipyard has extremely 

limited storage capacity and failure to promptly remove material will have a severe impact on the 

shipyards ability to conduct daily business. Purchaser will be required to contact the Burlington 

Northern Railroad Trainmaster at 1-800-234-8440, Fax 1-800-736-7967 for rail cars (gondolas). 

 Demurrage: An allowance of 24 hours for Government loading of the Purchaser provided 

Burlington Northern Line railcar is established. The clock for this allowance begins at 7:00 AM 

on the day following the rail car being spotted outside the Puget Sound Naval Shipyard fence. 

The clock stops after the Government representative notifies the Burlington Northern that the 

railcar is ready for pickup and has been returned to the Burlington Northern Rail Line. This 

notification takes place before 7:00 AM the following day. In the event that the Government is 

untimely with respect to this loading allowance (24 hours), demurrage will accrue. The 

Government will allow the Purchaser to deduct these Government responsible charges against 

the sale price of the property. A statement of account for demurrage billed by Burlington 

Northern of Government accrued charges must be presented to the SCO, or their designated 

representative, for adjudication/concurrence to decrease the sale price. NOTE: Saturdays, 

Sundays and Holidays are included in demurrage. Loading hours are between 7:30 AM - 3:00 

PM, Monday thru Friday. 

134 

Point of contact on site is Daniel Sheehan (360) 476-7338, Fax (360) 476-1753 or e-mail 
Sheehand@psns.navy.mil or contact the SCO. 

135 
SCHEDULE VI.3.3.B(1)(b) 

HIGH VALUE SCL CODES 

136 
ATTACHMENT VI.3.4.G 

[Government furnished equipment ("GFE") that may be available at such locations] 

137 
ATTACHMENT VI.3.11 

STATUTORY AND REGULATORY NOTICES 

RESOURCE CONSERVATION AND RECOVERY ACT NOTICE: EPA Hazardous 

Waste Regulations, 40 CFR Part 260 et seq. published at 45 Federal Register 33063-33285, May 

19, 1980, became effective on November 19, 1980. These cradle-to-grave regulations detail the 

responsibilities of generators, transporters, treaters, storers and disposers of hazardous waste. 

Civil and criminal penalties are available for noncompliance. DRMS does not intend to transfer 

any RCRA regulated hazardous waste under this contract as regulated waste is disposed of under 

DRMS's hazardous waste contracts. However, DRMS can make no representations as to when 

and under what circumstances state, federal or local environmental regulations may be 

applicable to Property transferred to and held by the Purchaser. 

CHEMICAL AGENT RESISTANT COATING (CARC) PAINT: Prospective offerors 

are cautioned that some items are, or likely to contain or be coated with a chemical agent 

resistant coatings containing trivalent chrome, lead, cobalt-zinc hexamethylene disocyanate and 

other chemicals which are a hazard to human health if not processed properly. The Government 

brings the following precautions/warnings to the attention of prospective offerors who plan to 

disturb the coating on the property in any way: 

(1) Air sampling must be conducted to determine the correct type of respirator to be 

used when processing (applying/sanding/torch cutting, etc.) metals treated or 

painted with CARC paint. 

(2) CARC paint should be isolated from heat, electrical equipment, sparks and open 

flame during storage or application. Local exhaust ventilation should be used for 

inside processing. 

(3) Exposure to vapor/mist/dust or fumes can cause irritation to respiratory tract 

(lung, nose, throat), edema, dermatitis, dizziness, rash, itching, swelling of 

extremities, eye irritation or damage to nervous system, kidney or liver. Coating 

may be fatal if swallowed. 

REFRIGERANT: Refrigeration equipment and appliances are subject to the Clean Air 

Act (CAA) Amendments of 1990 which prohibit the venting or release to the environment of 

Class I or Class II ozone depleting substances, and are also subject to the Refrigerant Recycling 

Rule in 40 Code of Federal Regulations (CFR) Subpart F 82. 150-166, requiring the recovery 

and verification of refrigerant removal by a certified technician, using certified recovery 

equipment prior to final disposal as scrap or in a landfill. A copy of these records will be 

available for inspection by government personnel. 

138 

AIRCRAFT INSIGNIA AND MARKINGS: The Purchaser will be required to 

permanently remove or obliterate all Military Service distinctive markings from aircraft prior to 

removal from the Government premises. The Purchaser may remove or obliterate the markings 

by scraping, grinding, use of paint removers, or by other means upon approval of the SCO. This 

requirement does not apply to aircraft which are required to be demilitarized. 
KITCHEN STOVES: In the event of sale or re-sale of Property identified on a Pickup 

Notice as “Article LN Kitchen Stoves,” Purchaser shall ensure that the warning statement which 

is affixed to such items regarding their design features and reuse will not be removed prior to 

sale to an ultimate user, and Purchaser shall include this clause in its entirety in any later sale or 

transfer of title, unless Purchaser modifies, replaces or repairs the stoves to remove or eliminate 

the hazard. 

139 
ATTACHMENT VI.5.4.A 

[DRMS CREDIT CARD FORM] 

140 
ATTACHMENT VI.7.5.B 

FORM OF END-USE CERTIFICATE 

(DLA Form 1822) 

141 
SCHEDULE VI.9.1.A 

PERMITTED AFFILIATE TRANSACTIONS

The following are Permitted Affiliate Transactions as such term is used in the contract. 

Affiliate Transactions that conform to the provisions below are permissible. Payments that are 

otherwise consistent with the provisions of this contract by Purchaser from the Operating 

Account to an Affiliated Party in connection with these transactions are permissible and the 

amounts thereof are Direct Costs, provided, however, that (i) complete documentation of such 

transactions, including without limitation all supporting compilations, calculations and estimates, 

are placed in Purchaser's Records pursuant to the provisions of Article 9, and (ii) access is 

afforded to the Independent Auditor and to the firm or entity conducting Compliance Reviews 

and Further Reviews to each such Affiliated Party's books and records that are relevant to such 

transactions. 

1. Employees of Affiliated Parties. Purchaser may from time to time engage an 

employee or employees of an Affiliated Party (other than Purchaser's Chief

Executive Officer) to work for Purchaser on a temporary basis, provided, 

however, that (i) each such temporary engagement is for a minimum of five (5) 

consecutive Business Days, (ii) for the period of such engagement, such employee 

works exclusively for Purchaser and performs no services of any character for any 

Affiliated Party either during or outside of Purchaser's working hours, and (iii)

within five (5) Business Days of the last Day of each such engagement, each such 

employee certifies compliance with clause (ii) above with respect to such 

engagement in the form of Attachment VI.9.1.A(1). Purchaser may pay 

reimbursements to such Affiliated Party from the Operating Account for the 

actual pro rata portion of such employee's Base Compensation attributable to the 

period of such engagement at the rate of one two-hundred-fortieth (1/240th) of the 

employee's actual annual Base Compensation paid to such employee by such 

Affiliated Party for each Business Day for which the employee is engaged by 

Purchaser, and such payments shall be Direct Costs. Such payments may include 

a surcharge for the applicable employer's share of payroll taxes, but there shall be 

no surcharge for general, administrative or other expenses. 

2. Employee Benefits. Purchaser may obtain from an Affiliated Party the same

health and other insurance coverages for Purchaser's employees, including its 

Chief Executive Officer, as Contractor provides for Contractor's employees. 

Purchaser may pay reimbursements to such Affiliated Party from the Operating 

Account for the actual premiums paid for such employees' insurance, but without 

 surcharge for general, administrative or other expenses, and such payments shall 

be Direct Costs. No other employee benefits may be provided by Purchaser 

through an Affiliate Transaction without advance written permission from DRMS 

142 
in response to a written request from Purchaser therefor, which permission may 

be granted or withheld in the sole discretion of DRMS. 

3. Rented Office Space. Purchaser's employees may share rented office space with 

an Affiliated Party. Purchaser may pay reimbursements to such Affiliated Party 

from the Operating Account for the pro rata share of rent, utilities, taxes, 

insurance and operating expenses for the square footage of space that is 

reasonably estimated by Purchaser no less frequently than once each calendar 

quarter to be actually, exclusively and reasonably used by Purchaser's employees 

in the performance of this contract, and such payments shall be Direct Costs, 

provided, however, that any space used by employees of an Affiliated Party while 

engaged temporarily by Purchaser pursuant to the provisions of para. 1 above 

shall not be included in such estimate or subject to such reimbursements. 

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ATTACHMENT VI.9.1.A(1) 

CERTIFICATION BY EMPLOYEE 

OF AFFILIATED PARTY

I, [name of employee], am an employee of [name of Affiliated Party employer]. I was 

assigned to [name of Purchaser] ("Purchaser") for the period beginning on [beginning date] and 

continuing through [ending date] (a minimum of five (5) consecutive Business Days). 

Throughout such time period, I worked exclusively for Purchaser and I performed no 

services of any character for [name of Affiliated Party employer] or any Affiliated Party (as such 

term is used in Purchaser's contract with DRMS) either during or outside of Purchaser's working 

hours. 

I certify that the foregoing is true and correct. 

Dated: ___________________________ 

 Signature of Employee: ___________________________ 

[name of employee] 

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ATTACHMENT VI.9.2.E 

CERTIFICATION OF DISBURSEMENTS 

FROM OPERATING ACCOUNT 

[ month and year ]

I, [ name ], [ title ], of [ name of Purchaser ] ("Purchaser"), hereby 

certify, to the best of my knowledge and belief upon due inquiry, that all disbursements from

Purchaser's Operating Account during [ month, year ] were solely for purposes that are 

permissible under the provisions of DRMS Contract No. [number] and that such disbursements 

fully comply with all such provisions. 

Dated: 

By: 

 [name, title]

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SCHEDULE VI.12.1.A 

CONTRACTOR SYSTEMS AND SOFTWARE

[TO BE PROVIDED BY CONTRACTOR] 

146 
SCHEDULE VI.12.4 

THIRD PARTY SOFTWARE

[TO BE PROVIDED BY CONTRACTOR] 

147 
ATTACHMENT VI.16.1 

MONTHLY DISTRIBUTION STATEMENT

[MONTH, YEAR]

1. Monthly Distribution Statement is due within 15 Days after the last Day of each 

calendar month.

2. Calculate Cash Available For Distributions and Operating Net Worth

(A). Calculate Cash Available for Distribution 

1. Operating Cash Balance ____________ 

Minus 2. Working Capital Advance Balance ____________ 

Minus 3. Purchaser Liabilities ____________ 

Minus 4. Estimated Direct Costs for 

 following Months ____________ 

Minus 5. Estimated Seller Indirect Costs for 

 Following Months ____________ 

Minus 6. ECLR ____________ 

Equals 7. Cash Available for Distribution ____________ 

(B). Calculate Operating Net Worth 

(1). If Cash Available for Distribution is less than or equal to zero 

1. Seller Indirect Costs ____________ 

Equals 2. Operating Net Worth ____________ 

(2). If Cash Available for Distribution is greater than zero 

 1. Cash Available for Distribution ____________ 

Plus 2. Seller Indirect Costs ____________ 

148 
Equals 3. Operating Net Worth ____________ 

3. Calculate Net Worth Allocations 

(A). Calculate Contractor Net Worth Allocation 

1. Operating Net Worth ____________ 

Multiplied by x 20.00% 

Equals 2. Contractor Net Worth ____________ 

(B). Calculate DRMS Net Worth Allocation 

1. Operating Net Worth ____________ 

Multiplied by x 78.20% 

Equals 2. DRMS Net Worth Allocation ____________ 

(C). Calculate KGP Net Worth Allocation 

1. Operating Net Worth ____________ 

Multiplied by x 1.80% 

Equals 2. KGP Net Worth Allocation ____________ 

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4. Calculate Distribution Payments

 (A). As of the inception of the contract, the “Net Worth Allocation Balance” for 

Contractor, DRMS and KGP, respectively equals zero. 

(B). If DRMS Net Worth Allocation is greater than or equal to the sum of Seller 

Indirect Costs and DRMS Net Worth Allocation Balance 

 (1). Calculate Contractor Distribution Payment and Contractor Net Worth 

Allocation Balance 

(a). Calculate Contractor Distribution Payment 

 

 1. Contractor Net Worth Allocation ____________ 

 

 Plus 

 2. Contractor Net Worth 

 Allocation Balance for Preceding Month ____________ 

 Equals 

 3. Contractor Distribution Payment ____________ 

(b). Contractor Net Worth Allocation Balance equals zero 

 

(2). Calculate DRMS Distribution Payment and DRMS Net Worth 

 Allocation Balance 

 

(a). Calculate DRMS Distribution Payment 

150 
 1. DRMS Net Worth Allocation ____________ 

 Minus 

2. DRMS Net Worth 

 Allocation Balance for preceding month ____________ 

 Minus 

 3. Seller Indirect Costs ____________ 

 Equals 

 4. DRMS Distribution Payment ____________ 

(b). DRMS Net Worth Allocation Balance equals zero 

(3). Calculate KGP Distribution Payment and KGP Net Worth Allocation Balance 

(a). Calculate KGP Distribution Payment 

 1. KGP Net Worth Allocation ____________ 

 Plus 

 2. KGP Net Worth 

 Allocation Balance for preceding month ____________ 

 Equals 

 3. KGP Distribution Payment ____________ 

(b). KGP Net Worth Allocation Balance equals zero 

(C). If DRMS Net Worth Allocation is less than the sum of Seller Indirect Costs 

and DRMS Net Worth Allocation Balance 

(1). Calculate Contractor Distribution Payment and Contractor Net Worth Allocation 

 Balance

(a). Calculate Contractor Distribution Payment 

 1. Cash Available for Distribution ____________ 

Multiplied by x 91.74% 

151 
 Equals 

2. Contractor Distribution Payment, 

 but not less than zero ____________ 

(b). Calculate Contractor Net Worth Allocation Balance 

 1. Contractor Net Worth Allocation ____________ 

 Plus 

2. Contractor Net Worth 

 Allocation Balance for preceding month ____________ 

 Minus 

 3. Contractor Distribution Payment ____________ 

 Equals 

 4. Contractor Net Worth 

 Allocation Balance ____________ 

(2). Calculate DRMS Distribution Payment and DRMS Net Worth Allocation 

 Balance

(a). DRMS Distribution Payment equals zero. 

(b). Calculate DRMS Net Worth Allocation Balance 

 DRMS Net Worth 

 Allocation Balance for preceding month ____________ 

 Minus 

 2. DRMS Net Worth Allocation ____________ 

 Plus 

 3. Seller Indirect Costs ____________ 

 Equals 

152 

 4. DRMS Net Worth 
 Allocation Balance ____________ 

(3). Calculate KGP Distribution Payment and KGP Net Worth Allocation 

 Balance

(a). Calculate KGP Distribution Payment 

 1. Cash Available for Distribution ____________ 

Multiplied by x 8.26% 

 Equals 

2. KGP Distribution Payment, 

 but not less than zero ____________ 

(b). Calculate KGP Net Worth Allocation Balance 

 1. KGP Net Worth Allocation ____________ 

 Plus 

 2. KGP Net Worth 

 Allocation Balance for preceding month ____________ 

 Minus 

 3. KGP Distribution Payment ____________ 

 Equals 

4. KGP Net Worth 

 Allocation Balance ____________ 

 (D). Adjustments to Distributions 

 Contractor 

 Contractor Distribution Payment ____________ 

 Plus 

 (1). Credit for overpayment of Invoices ____________ 

153 

 Minus 
 (2). Amount owed to Purchaser ____________ 

 Minus 

 (3). Purchase Transfer ____________ 

 Minus 

 (4). Retention ____________ 

 Equals 

Balance payable to Contractor, but 

not less than zero ____________ 

DRMS 

DRMS Distribution Payment ____________ 

Minus 

(1). Credit to Contractor for 

 overpayment of Invoices ____________ 

Plus 

(4). Retention ____________ 

Equals 

Balance payable to DRMS, but 

not less than zero ____________ 

154