Last revised (Transmittal 14-021) December 1, 2023

Guide to Judiciary Policy

Vol. 14: Procurement

Ch. 4: Types of Contracts and Analysis of Offers

§ 410 Contract Types

§ 410.10 In General

§ 410.15 Selecting Contract Type

§ 410.20 Limitations

§ 410.25 Firm-Fixed-Price Contracts

§ 410.30 Indefinite-Delivery Contracts

§ 410.40 Labor-Hour Contracts

§ 410.45 Time-and-Materials Contracts

§ 410.50 Letter Contracts

§ 410.55 Fixed-Price Award Fee Contracts

§ 410.60 Fixed-Price Incentive Contracts

§ 410.65 Fixed-Price Contracts with Economic Price Adjustment

§ 410.70 Cost-Reimbursement Contracts

§ 410.75 Multi-Year Contracts

§ 420 Technical Analysis

§ 430 Price Evaluation

§ 430.20 Offer Analysis

§ 430.30 Adequate Price Competition

§ 440 Price Analysis

§ 440.20 Price Analysis Techniques

§ 450 Cost Analysis

§ 450.20 Cost Analysis Techniques

§ 450.30 Detailed Cost Information

§ 450.40 Profit

§ 460 Cost Principles

§ 460.20 Contract Costs

§ 470 Cost Allowability

§ 470.10 Determining Cost Allowability

§ 470.20 Determining Reasonableness

§ 470.30 Determining Allocability

§ 470.40 Selected Costs

§ 470.50 Accounting for Unallowable Costs
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 2

§ 410 Contract Types

§ 410.10 In General

(a) The terms "contract type" and "type of contract" refer to the contract 

compensation arrangement (i.e., the method of determining the amount 

that the judiciary must pay to the contractor under the contract). There is 

no single contract type that is right for every contracting situation.

(b) The choice of contract type should be based on the allocation of risks and 

responsibility between the judiciary and the contractor. Under a firm-fixedprice contract, the contractor assumes full cost and performance 

responsibility. The contractor undertakes less cost and performance risk 

from uncertainties under cost-reimbursement, labor-hour and time-andmaterial contracts. Where the contractor does not take on the cost and 

performance risk, it must be assumed by the judiciary (i.e., the contractor 

may be legally entitled to payment exceeding the original contract 

amount).

(c) The profit or fee calculations will also reflect the cost and performance 

cost responsibilities resulting from the contract type selected. Generally, a 

contractor may realize greater profit as it assumes increased cost risks 

and performance risks. For example, in a firm-fixed-price contract, the 

contractor usually realizes an additional dollar of profit for every dollar 

reduction in the cost of performance. At the opposite end of the risk 

spectrum, in a cost-plus-fixed-fee contract, the contractor does not realize 

any increase in profit if the actual cost of performance is less than 

estimated at the time of contract award.

§ 410.10.20 Required Documentation

The use of firm-fixed-price contracts requires no documentation explaining why that 

contract type was chosen. The use of any other contract type requires that the 

procurement file include a written determination, signed by the contracting officer (CO), 

explaining why a different contract type was chosen. The determination of contract type 

is one of the first steps in the procurement process, since most solicitations are required 

to notify prospective offerors of the planned contract type. See: § 410.15.20 

(Solicitation Requirements).

§ 410.10.30 Authorized Contract Types and Blanket Purchase Agreement

This chapter describes different contract types that are authorized for use in the 

judiciary. Contract types requiring pre-approval by the Procurement Management 

Division (PMD) of the AO’s Finance and Procurement Office (FPO) are listed in 

§ 410.20.10 (Written Approval). Any contract type not described in this chapter is not 

authorized for use in the judiciary. The most commonly used contract types include:
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 3

(a) firm-fixed-price (see: § 410.25 (Firm-Fixed-Price Contracts));

(b) indefinite-delivery (see: § 410.30 (Indefinite-Delivery Contracts));

(c) labor-hour (see: § 410.40 (Labor-Hour Contracts));

(d) time-and-materials (see: § 410.45 (Time-And-Materials Contracts)); and

(e) blanket purchase agreement (see: Guide, Vol 14, § 325.50 (Blanket 

Purchase Agreements) and § 310.50.53 (Blanket Purchase Agreements 

Under GSA Schedules)).

§ 410.10.35 Prohibited Contract Type

A cost-plus-a-percentage-of-cost contract may never be used. A cost-plus-apercentage-of-cost contract is a contract that contains some element that obligates the 

government to pay the contractor an amount (in the form of either profit or cost) 

undetermined at the time the contract was made and to be incurred in the future, based 

on a percentage of future costs.

§ 410.15 Selecting Contract Type

§ 410.15.10 Responsibility

The CO is responsible for selecting the contract type appropriate to the circumstances 

of the procurement.

§ 410.15.20 Solicitation Requirements

(a) Provision 4-1, Type of Contract, with the appropriate contract type inserted 

as indicated, must be included in all solicitations except:

(1) firm-fixed-price procurements that do not exceed the judiciary’s 

small purchase threshold (see: Guide, Vol. 14, § 140 (Contracting 

Officers Certification Program) and § 325.10 (Applicability)), and

(2) solicitations for information or planning purposes.

(b) For indefinite-delivery/indefinite-quantity and blanket purchase agreement 

(BPA) solicitations, indicate within this provision the contract types that will 

be allowed for the associated orders.

§ 410.15.30 Firm-Fixed-Price Contract Preference

A firm-fixed-price contract is generally preferred because it makes the contractor fully 

responsible for cost control and performance and minimizes the need for judiciary 

monitoring of cost performance. However, when there is no reasonable basis for firm-
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 4

fixed pricing, a solicitation requiring a firm-fixed-price contract may reduce competition. 

It may also lead to higher prices because offerors will include greater allowances for 

contingencies in their fixed price to protect themselves from real or perceived cost risks. 

Whenever the probable cost of performance cannot be reasonably estimated, a firmfixed-price contract should not be used.

Note: For example, where it is difficult to completely identify requirements before award 

of a contract, such as in developing a large information technology system like the Case 

Management/Electronic Case Files (CM/ECF) system, the labor to perform the work 

cannot be predicted with a sufficient degree of certainty for contractors to be willing to 

accept the risk of a firm-fixed-price contract. In these circumstances, other contract 

types should be considered.

§ 410.15.50 Factors in Selecting Contract Type

Factors to be considered include the following:

(a) reliability of cost estimate;

(b) extent of expected competition;

(c) nature of the required product or service (e.g., commercial or 

developmental);

(d) performance risks and uncertainties;

(e) complexity of the requirement;

(f) adequacy and firmness of specifications;

(g) likelihood of changes;

(h) previous experience (pricing and production);

(i) extent of subcontracting;

(j) adequacy of contractor's cost estimating and accounting system; and

(k) urgency of the requirement.

§ 410.20 Limitations

§ 410.20.10 Written Approval

COs must obtain the Procurement Executive’s (PE) written approval before using any of 

the following contract types:
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(a) indefinite-delivery (see: § 410.30 (Indefinite-Delivery Contracts));

(b) labor-hour (for exceptions to the requirement for PE written approval, see: 

§ 410.40.30 (Limitations));

(c) time-and-materials (see: § 410.45 (Time-and-Materials Contracts));

(d) letter contract (see: § 410.50 (Letter Contracts));

(e) fixed-price award fee (see: § 410.55 (Fixed-Price Award Fee Contracts));

(f) fixed-price incentive contract (see: § 410.60 (Fixed-Price Incentive 

Contracts));

(g) fixed-price contract with economic price adjustment (see: § 410.65 

(Fixed-Price Contracts with Economic Price Adjustment)); and

(h) all cost reimbursement contracts (see: § 410.70 (Cost-Reimbursement 

Contracts)).

§ 410.20.20 Requesting Approval

If a situation develops where the CO determines that one of the contract types listed 

above would benefit a particular procurement, a justification for the use of the specific 

contract type, along with a statement of work for the proposed procurement must be 

forwarded to the PE for review and written approval.

§ 410.20.30 Exceptions

The PE approval requirement does not apply to CO Certification Program (COCP) Level 

6 or COCP Level 7 appointees. (See: Guide, Vol. 14, § 140 (Contracting Officers 

Certification Program).)

§ 410.25 Firm-Fixed-Price Contracts

§ 410.25.10 Description

(a) A firm-fixed-price (FFP) contract is one in which the price is not subject to 

change or adjustment based on the contractor’s actual cost of 

performance, provided the specified requirements are not changed during 

performance, and both parties fulfill their obligations under the contract. 

The contractor assumes full responsibility for all costs and resulting profits 

or losses, maximizing the motive to control costs and perform effectively, 

economically, and efficiently. It is the least burdensome type of contract 

for the judiciary to administer when requirements are stable. However, if 

frequent changes are likely, administration will be difficult.
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(b) The obligation amount to be recorded is usually the full amount of the 

contract, delivery order, and/or task order price using funds available in 

the period awarded, regardless of whether performance will continue into 

future fiscal years. Incrementally funded FFP contracts must specifically 

authorize incremental funding by incorporation of Clause 4-170, Limitation 

of Judiciary's Obligation. For further guidance on the use of incrementally 

funded FFP contracts, and approval requirements, see: Guide, Vol. 14, 

§ 220.50.20 (Contract Funding Requirements).

§ 410.25.20 Application

An FFP contract is suitable for:

(a) commercial products or services;

(b) modified commercial products or services;

(c) products or services having reasonably definitive specifications or 

statements of work; and

(d) whenever fair and reasonable prices can be reasonably estimated at the 

procurement outset, such as when:

(1) adequate price competition is anticipated;

(2) there are reasonable price comparisons with previous purchases of 

the same or similar products or services made on a competitive 

basis;

(3) in noncompetitive procurement situations, it is anticipated that 

submission of detailed cost information will be adequate to permit 

realistic and reasonable estimates of the costs of performance; or

(4) the cost impact of performance uncertainties can be estimated 

closely enough to reach agreement on a reasonable price 

representing appropriate assumption of the risks involved.

§ 410.30 Indefinite-Delivery Contracts

§ 410.30.10 Description

(a) An indefinite-delivery contract is used for the procurement of supplies 

and/or services when the exact times and/or exact quantities of future 

requirements are not known at the time of award. It permits great 

flexibility in quantities, delivery scheduling and delivery points as well as 

the ability to order supplies and/or services only after specific 

requirements materialize.
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(b) The judiciary uses two types of open market indefinite-delivery contracts:

• indefinite-delivery/indefinite-quantity (IDIQ) contracts, and

• requirements contracts.

(c) The judiciary also uses other agency’s indefinite-delivery contracts:

• General Services Administration Federal Supply Schedule (GSA FSS) 

and

• Other Federal Agency Contracts (OFAC) (e.g., NASA SEWP).

§ 410.30.20 Application

An IDIQ contract may be used when it is known or anticipated that there will be a 

recurring need for products or services over a period of time, but specific quantities, 

times, and/or places of delivery are not known at the time of contract award.

§ 410.30.25 Limitation

Indefinite-delivery contracts may be used only when approved in writing by the PE. For 

exceptions, see: § 410.20.30 (Exceptions).

§ 410.30.30 Indefinite-Delivery/Indefinite-Quantity Contracts

(a) An IDIQ contract provides for an indefinite quantity of specific products or 

services, within contract specified minimum and maximum limits, to be 

delivered during the contract period to designated locations when ordered. 

The judiciary must order the stated minimum, whether stated as a quantity 

or a dollar amount. However, the total estimated quantity or dollar amount 

is not guaranteed. This type is for use when precise quantities for 

products or services during the contract period, above known minimum 

requirements, cannot be determined before contract award.

(b) Funding for the guaranteed minimum quantity or amount must be 

obligated at contract award and must satisfy a bona fide need at the time 

of the obligation. As additional quantities are needed — up to the stated 

contract maximum — funds are obligated on individual delivery orders or 

task orders. Fixed-price orders must be obligated to the full amount of the 

order at the time it is issued, unless incremental funding is approved as 

appropriate and necessary under Guide, Vol. 14, § 220.50.20(b) (Contract 

Funding Requirements). Labor-hour or time-and-materials orders may be 

incrementally funded. For further guidance on incremental funding, see: 

Guide, Vol. 14, § 220.50.20(b) (Contract Funding Requirements).
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(c) Maximum contract limits may be stated on an individual order basis or for 

the contract as a whole, or both. Minimums and maximums may be stated 

in terms of quantities or in terms of dollars.

(d) The contract must require the judiciary to order, and the contractor to 

deliver, at least a stated minimum quantity or minimum dollar value of 

products or services during the contract period and require the contractor 

to deliver any additional quantities ordered, not to exceed a stated 

maximum quantity or dollar value. If the judiciary does not order the 

guaranteed minimum as stated in the terms of the contract, the contractor 

is entitled to payment of the guaranteed amount regardless of the 

circumstances.

(e) Therefore, the established minimum quantity or dollar value must not 

exceed known requirements and the maximum quantity or dollar value 

must be realistic. The contract may specify minimums or maximums for 

individual delivery orders and a maximum that may be ordered during a 

specified time. The contractor is not legally obligated to deliver or perform 

beyond the stated maximum amounts.

§ 410.30.40 Requirements Contracts

(a) A requirements contract is one in which the contractor agrees to provide 

all the requirements for a specific product or service and the judiciary 

agrees to purchase the specific product or service exclusively from the 

one contractor. It is for use when recurring requirements are anticipated 

during the contract period, but precise quantities cannot be determined 

before contract award. Note: This contract type must be used cautiously, 

as it obligates the designated judiciary office to place all their orders for 

the specific products or services during the life of the contract with the 

contractor.

(b) The solicitation and contract must state an estimated total quantity or 

dollar value, and, if feasible, the maximum quantity or dollar amount the 

contractor is obligated to deliver. The total quantity or dollar estimate 

must be as realistic as possible, based on records of previous 

requirements and current information. The contract may specify 

minimums or maximums for individual delivery orders and a maximum that 

may be ordered during a specified period. The estimates of a 

requirements contract are not a commitment that the estimated quantity or 

dollar value will be ordered, and there is no minimum order requirement.

(c) When a requirements contract is for repair, modification, or overhaul of 

items of judiciary property, the solicitation must state that failure of the 

judiciary to furnish such items in the amounts described as "estimated" or 
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"maximum" will not entitle the contractor to any price adjustment under 

any “Property” clause of the contract.

§ 410.30.50 Contract Terms

(a) Both IDIQ contracts and requirements contracts must identify the period 

during which orders may be issued and who is authorized to issue orders. 

The contract may restrict all ordering to a single contracting office or allow 

placement of orders by any judiciary CO with appropriate delegated 

authority. The contract must also state estimated quantities and describe 

the scope of the products or services to be provided. In addition to the 

clauses required by § 410.30.64 (Clauses), the contract must include all 

other appropriate terms and conditions (e.g., those listed in Guide, Vol. 14, 

§ 330.10.30 (Provisions and Clauses)). Where an indefinite-delivery

contract authorizes individual orders to be issued on either an FFP basis 

or a labor-hour basis, terms applicable to both contract types must be 

included and the order must identify which contract type applies to the 

individual order.

(b) IDIQ solicitations must state whether a single award or multiple awards 

are anticipated. In the case of multiple awards, the solicitation and 

resulting contracts must state the basis for competing task orders for an 

open market purchase (see: § 410.30.63 Competition Process for 

Delivery Orders and Task Orders – Open Market) and ensuring fair 

opportunity when using other federal agency contracts (OFACs), such as 

NASA SEWP, (see: § 410.30.65 (Fair Opportunity Process for Delivery 

Orders or Task Orders – OFAC)). For guidance on using Provision 3-135, 

Single or Multiple Awards, see: Guide, Vol. 14, § 330.10.30(t) (Provisions 

and Clauses).

§ 410.30.60 Delivery Orders or Task Orders

(a) Orders placed under indefinite-delivery contracts are generally referred to 

as delivery orders (for products) or task orders (for services). In either 

case, orders are generally placed using Form OF 347 (Order for Supplies 

and Services) or an equivalent form.

(b) Each order must be within the scope of the contract and issued within an 

authorized ordering period.

(c) When necessary, orders may be placed orally if they are promptly 

confirmed in writing. Orders must contain the following information:

(1) Date of order, contract number of the indefinite-delivery contract, 

and order number.
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(2) Item number and description, unit price, and total price. Task 

orders for services may include a Statement of Work, rather than 

an item number and description. The price may be established 

either by the contract itself or through competition and negotiation 

where there are multiple awards, such as the courtroom technology 

multiple award design IDIQ contracts.

(3) Place and date of delivery or performance.

(4) Packaging, packing, and shipping instructions (if these are not 

already defined in the indefinite-delivery contract).

(5) Accounting and fiscal data.

(6) A ceiling price limiting the judiciary’s obligation if the unit and total 

price in subparagraph (2) above cannot be negotiated before 

issuance of the order. The definitive price must be negotiated as 

soon as practicable.

(7) Any other relevant information.

(d) Blanket Delivery Orders

A blanket delivery order (BDO) may be used when an office 

anticipates there will be repetitive fixed price requirements within a 

single fiscal year, with little variation in the orders. BDOs may only 

be used with judiciary IDIQs. The contract establishes the 

applicable prices and the BDO obligates funds on a not-to-exceed 

basis to cover all orders placed within a specified period. BDOs 

must include the following information: 

(1) Date of order, contract number of the indefinite-delivery contract, 

and order number.

(2) The period of time covered by the BDO. (Note: BDOs may not 

cross fiscal years due to the bona fide need rule.)

(3) A high-level description of the products or services covered by the 

BDO.

(4) The named individuals who are authorized to order the delivery of 

products or services covered by the BDO.

(5) The applicable not-to-exceed ceiling amount and related 

accounting and fiscal data.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 11

§ 410.30.63 Competition Process for Delivery Orders and Task Orders – Open Market

(a) Delivery orders and task orders under a single award IDIQ contract need 

not be competed or advertised.

(b) Delivery orders and task orders under a multiple award IDIQ contract must 

follow the competition procedures in Guide, Vol. 14, § 325.20 (Competitive 

Small Purchase Procedures).

(c) Judiciary COs must justify a delivery order or task order in which the 

competition requirements of Guide, Vol. 14, § 325.20 (Competitive Small 

Purchase Procedures) are not met. See: Guide, Vol. 14, § 335.60.30 

(Justification for Limiting Open Market Competition).

(d) The judiciary-wide BPA or contract’s ordering procedures may differ. The 

CO should follow the directions detailed in the ordering procedures.

§ 410.30.64 Clauses

Clause Include in ...

(a) Clause 4-5, Ordering Requirements and IDIQ solicitations and contracts

(b) Clause 4-10, Order Limitations Requirements and IDIQ solicitations and contracts

(c) Clause 4-20, Requirements Requirements solicitations and contracts

(d) Clause 4-25, Indefinite Quantity IDIQ solicitations and contracts

§ 410.30.65 Fair Opportunity Process for Delivery Orders or Task Orders – OFAC

(a) Orders under a single award IDIQ contract need not be competed or 

advertised.

(b) Orders against a multiple award IDIQ contract (e.g., NASA SEWP), with 

an estimated price not exceeding the fair opportunity threshold of $10,000, 

need not provide fair opportunity or be advertised. However, COs are 

encouraged to rotate such orders among holders of multiple award IDIQ 

contracts.

(c) Orders against multiple award IDIQ contracts, with an estimated price 

exceeding the fair opportunity threshold of $10,000 are subject to fair 

opportunity as identified in the base contract. The CO must provide each 

awardee a fair opportunity to be considered for each order that exceeds 

the threshold.
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(d) Orders against multiple award IDIQ contracts with an estimated price 

exceeding the fair opportunity threshold (in paragraph (b) above) need not

be advertised. However, unless supported by a written determination that 

one of the circumstances described in § 410.30.70 (Exceptions to Fair 

Opportunity Requirement) applies to the order, the CO must provide a fair 

opportunity to each IDIQ contract holder to be awarded the order or 

prepare a justification according to § 410.30.73 (Documenting Exceptions 

to the Fair Opportunity Requirement).

(e) Sole sourced or limited competition orders against multiple award IDIQ 

contracts that exceed the fair opportunity threshold (in paragraph (b) 

above) must be justified and approved using a written determination that 

one of the circumstances described in § 410.30.70 (Exceptions to Fair 

Opportunity Requirement) exists. The justification must be prepared 

according to § 410.30.73 (Documenting Exceptions to the Fair Opportunity 

Requirement).

§ 410.30.70 Exceptions to Fair Opportunity Requirement 

Every contractor of a multi-award BPA or IDIQ contract must be given a fair opportunity 

to be considered for each order expected to exceed the fair opportunity threshold (see: 

§ 410.30.65(b)), except when:

(a) the agency need for the supplies or services is so urgent that providing a 

fair opportunity would result in unacceptable delays;

(b) only one awardee is capable of providing the supplies or services required 

at the level of quality required because the supplies or services ordered 

are unique or highly specialized;

(c) the order must be issued on a sole-source basis in the interest of 

economy and efficiency because it is a logical follow-on to an order 

already issued under the BPA or contract, provided that all awardees were 

given a fair opportunity to be considered for the original order; or

(d) it is necessary to place an order to satisfy a minimum guarantee under an 

IDIQ contract.

§ 410.30.73 Documenting Exceptions to Fair Opportunity Requirement 

The CO must justify when the requirements of § 410.30.65(c) (Fair Opportunity Process 

for Delivery Orders or Task Orders – OFAC) are not met, using Form AO 370B 

(Justification for Exception to Fair Opportunity (JEFO)).

(a) Each JEFO must be prepared in writing using Form AO 370B.
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(b) Each Form AO 370B must include a certification by the CO that, to the 

best of the CO’s knowledge and belief, the justification is accurate and 

complete. The CO may require a signed certification on Form AO 370B 

by technical or requirements personnel that the technical information 

provided is, to the best of that person’s knowledge and belief, accurate 

and complete.

(c) Each JEFO must be signed by a CO holding COCP Level 3 authority and 

must be approved in writing by the judiciary official holding the court unit’s 

delegated procurement authority as identified in Guide, Vol. 14, 

§ 120.20.10(b) (Delegation to Chief Judges and Certain Judiciary 

Officials), or the PLO (if delegated). JEFOs for purchases exceeding 

$25,000 may only be signed by COCP Level 3 COs after obtaining a onetime delegation of procurement authority from PMD.

(d) Each JEFO signed by a CO holding delegated procurement authority at 

COCP Level 4 or above must be approved according to internal PMD 

approval procedures.

(e) Each JEFO must contain sufficient facts and rationale to justify the use of 

the specific authority cited.

§ 410.40 Labor-Hour Contracts

§ 410.40.10 Description

(a) A labor-hour contract provides for skill categories at fixed hourly rates that 

include actual wages plus overhead, general and administrative expense, 

and profit in the fixed rate. It purchases labor hours only and is used 

when the requirement does not involve any materials to be provided by 

the contractor.

(b) Labor-hour contracts include a description of services ordered and a notto-exceed ceiling amount, which may be fully funded at the time of award 

or may be incrementally funded, provided that:

(1) the funding balance is always at least equal to the cumulative value 

of the services ordered, and

(2) a clause reserving the right to fund incrementally is contained in the 

contract.

For further guidance on incremental funding, see: Guide, Vol. 14, 

§ 220.50.20(b) (Contract Funding Requirements).
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 14

§ 410.40.20 Application

A labor-hour contract is for use only when it is not possible to estimate in advance the 

extent or duration of the work required or to anticipate costs with any reasonable degree 

of confidence. This contract type does not encourage effective contractor management 

or control of costs. Therefore, it may be used only when provision is made for adequate 

monitoring by judiciary personnel during performance, to give reasonable assurance 

that efficient methods and effective cost controls are being used. Examples of 

situations in which this type of contract might be appropriate include:

(a) work to be done in emergency situations;

(b) development of custom computer software;

(c) development of specialized training programs;

(d) contracts for personal services or for expert or consultant services (see: 

Guide, Vol. 14, § 520 (Expert and Consultant Nonpersonal Services 

Contracts)); or

(e) contracts for temporary help support services (see: Guide, Vol. 12, § 560 

(Temporary Help Service Firms)).

§ 410.40.30 Limitations

(a) This type of contract may be used only if no other type of contract will 

meet the judiciary’s needs.

(b) Use of this contract type requires a one-time delegation of authority from 

PMD before issuance of the solicitation, unless:

(1) the contract is for temporary help support services;

(2) the contract is for expert services where the solicitation and 

contract are based upon approved templates (e.g., FPD caserelated expert services, employee dispute resolution services); or

(3) the contracting officer is appointed at COCP Level 6 or COCP 

Level 7.

(c) The contract must include a stated ceiling price, which the contractor 

exceeds at its own risk.

(d) Any contract modification to increase the ceiling amount must be 

supported by file documentation showing the reason for the change and 

how the new ceiling amount was determined.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 15

§ 410.40.35 Solicitation Considerations

(a) To ensure that fair and reasonable prices are being paid under labor-hour 

and time-and-materials contracts, the CO must determine at the time of 

solicitation the extent of price competition, since this will determine the 

proposal instructions with respect to hourly rates. The use of “blended” 

rates for the specified labor categories (i.e., a single rate per category 

without distinction as to whether the labor is performed by the prime 

contractor or a subcontractor) is not authorized when the contract is 

expected to be awarded without adequate price competition. Solicitations 

for labor-hour or time-and-materials contracts when there is not adequate 

price competition must require submission of separate hourly rates for 

each labor category for labor to be performed by:

• the contractor;

• each subcontractor; and

• each division, subsidiary, or affiliate of the contractor under a common 

control.

(Note: The fixed hourly rates for services transferred between divisions, 

subsidiaries, or affiliates of the contractor under a common control may

not include profit for the transferring organizations but may include profit 

for the prime contractor.)

(b) For clauses and provisions applicable to labor-hour contracts, see: 

§ 410.45.50 (Provisions and Clauses – Labor-Hour and Time-andMaterials Contracts).

§ 410.45 Time-and-Materials Contracts

§ 410.45.10 Description

(a) Time-and-materials contracts provide for payment to the contractor for 

labor at fixed hourly rates and for materials at cost. The contract must 

contain a not-to-exceed ceiling amount. It may be fully funded at the time 

of award or incrementally funded provided that:

(1) the funding balance is always at least equal to the cumulative value 

of the services and materials ordered, and

(2) a clause reserving the right to fund incrementally is contained in the 

contract.

For further guidance on incremental funding, see: Guide, Vol. 14, 

§ 220.50.20(b) (Contract Funding Requirements).
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 16

(b) A time-and-materials contract is similar to a labor-hour contract, except 

that it includes reimbursement at cost for materials. It provides for the 

purchase of:

(1) labor hours at fixed hourly rates, which include wages plus 

overhead, general and administrative expense, and profit; and

(2) materials at actual cost.

(Note: No profit is allowed on the material component of a time-andmaterials contract. When appropriate, material-handling costs are 

reimbursed as a part of material costs. Material-handling costs may 

include all indirect costs, including general and administrative expenses, 

allocated to direct materials according to the contractor's usual accounting 

practices. Such material-handling costs may only include costs clearly not 

included in the fully-burdened hourly labor rate.)

§ 410.45.20 Application

A time-and-materials contract is for use only when it is not possible to estimate in 

advance the extent or duration of the work required or to anticipate costs with any 

reasonable degree of confidence. Because it does not encourage effective 

management control of costs by the contractor, this contract type may be used only 

when there will be adequate monitoring by judiciary personnel during performance to 

give reasonable assurance that efficient methods and effective cost controls are being 

used. Examples of situations in which this type of contract might be appropriate are:

(a) repair, maintenance, and overhaul work in which the extent of the labor 

required and parts needed cannot be determined in advance; and

(b) work to be done in emergency situations.

§ 410.45.30 Limitations

(a) This type of contract may be used only if no other type of contract will 

meet the judiciary’s needs. Use of this contract type for situations outside 

of the two examples above requires a one-time delegation of authority 

from PMD before the solicitation is issued. For exceptions, see:

§ 410.20.30 (Exceptions).

(b) The contract must include a stated ceiling price that the contractor 

exceeds at its own risk. Any contract modification to increase the ceiling 

amount must be supported by file documentation showing the reason for 

the change and how the new ceiling amount was determined.

(c) The additional requirements at § 410.40.35 (Solicitation Considerations)

also apply to time-and-materials contracts.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 17

§ 410.45.40 Optional Method of Pricing Material

When the work to be performed requires the contractor to furnish material that is 

regularly sold to the public in the normal course of business by the contractor, the 

contract may authorize charging and reimbursement of material on a basis other than at 

cost if:

(a) the total estimated contract price does not exceed $25,000 or the 

estimated price of material so charged does not exceed 20 percent of the 

estimated contract price;

(b) the material to be so charged is identified in the contract;

(c) no element of profit on the material so charged is included in the fixed 

hourly labor rates; and

(d) the contract requires that the price to be paid for such material is, or is 

based on, an established catalog or list price in effect when the material is 

furnished, minus all applicable discounts, and not exceeding the lower of:

• the contractor's price to its most favored customer for the same item in 

like quantity, or

• the current market price.

§ 410.45.50 Provisions and Clauses –

Labor-Hour and Time-and-Materials Contracts

Provision or Clause Include in ...

(a) Provision 4-27, Timeand-Materials/LaborHour Proposal 

Requirements –

Competitive Pricing

solicitations for labor-hour or time-and-materials contracts 

when the award is expected to be based on competitive 

quotes or proposals. The contracting officer may amend 

this provision to make one of the three approaches in 

paragraph (c) of the provision mandatory, and/or to require 

the identification of all subcontractors, divisions, 

subsidiaries, or affiliates included in a blended labor rate.

(b) Provision 4-28, Timeand-Materials/LaborHour Proposal 

Requirements – NonCompetitive Pricing

solicitations for labor-hour or time-and-materials contracts 

when the award is not expected to be based on competitive 

quotes or proposals. This provision requires the offeror to 

establish separate individual labor-hour rates for prime 

contractor employees, employees of each subcontractor and 

employees from affiliates of the offeror. Use of a “blended” 

rate is not permissible.

(c) Clause 4-30, Payment 

(Time-and-Materials and 

Labor-Hour Contracts)

all time-and-materials solicitations and contracts (base 

clause) and all labor-hour solicitations and contracts (with 

Alternate I).
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 18

§ 410.50 Letter Contracts

§ 410.50.10 Description

A letter contract is a written preliminary contractual instrument that authorizes the 

contractor to begin work immediately, before negotiation of definitive contract terms 

(e.g., contract price and schedule). It generally includes a Statement of Work or 

specifications and an initial set of clauses and specifies the type of contract the parties 

anticipate (fixed-price, labor-hour, etc.). It obligates an initial funding amount pending 

final negotiation of the price and schedule.

§ 410.50.20 Application

A letter contract is for use when:

(a) the requirement demands that the contractor be given a binding 

commitment so that work can commence immediately; and

(b) it is not possible to negotiate all the terms and conditions necessary for a 

definitive contract in sufficient time to meet the requirement.

For example, a letter contract may be appropriate in an emergency, such as a natural 

disaster, when the urgency of the work required does not allow time for the normal 

solicitation process.

§ 410.50.30 In General

Each letter contract must be as complete and definitive as possible under the 

circumstances.

§ 410.50.40 Definitization Schedule

Definitizing a letter contract means negotiating each of the unsettled terms. Usually, at 

least the contract price — and often other terms, such as the schedule — may require 

negotiation. Each letter contract must contain a definitization schedule, negotiated with 

the contractor at the time of award, including all of the following information:

(a) Date for submission of the contractor's priced offer.

(b) Date for the start of negotiation.

(c) Target date for definitization, which must be the earliest practicable date.

(1) The target date for definitization must be within 180 days after the 

date of the letter contract or before completion of 40 percent of the 

work to be performed, whichever occurs first.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 19

(2) The PE may, in extreme cases, authorize an additional period if, 

after exhausting all reasonable efforts, the CO and the contractor 

cannot negotiate a definitive contract agreement because of failure 

to agree on price or fee. In this case, Clause 4-45, Contract 

Definitization requires the contractor to proceed with the work and 

provides that the CO may unilaterally determine a reasonable price 

or fee, subject to appeal as provided in Clause 7-235, Disputes.

§ 410.50.50 Maximum Liability

Each letter contract must state the judiciary’s maximum liability. This is the estimated 

amount needed to cover performance before contract definitization. This amount may 

not exceed 50 percent of the total estimated cost of the contract.

§ 410.50.60 Definitization of the Contract

Upon completion of negotiations of all the terms of the contract, a letter contract is 

definitized by issuance of a contract modification, using the Standard Form (SF) 30 

(Amendment of Solicitation/Modification of Contract).

§ 410.50.70 Limitations

A letter contract:

(a) may be used only if no other type of contract is suitable and if written preapproval is given by the PE;

(b) may not commit the judiciary to a definitive contract for more than the 

funds available at the time the letter contract is executed; and

(c) may not be modified to add new work unless the work added is 

inseparable from the work being performed under the letter contract.

§ 410.50.80 Clauses

A letter contract must include all clauses required for the type of definitive contract 

contemplated (e.g., firm-fixed-price, cost-reimbursement) and any clauses required by 

Guide, Vol. 14, § 330.10.30 (Provisions and Clauses). In addition, all letter contracts 

must also include the following clauses:

§ 410.50.80 Clauses

Clause Notes

(a) Clause 4-35, Execution 

and Commencement of 

Work (Letter Contract)

The CO will appropriately fill in the clause’s blank spaces.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 20

§ 410.50.80 Clauses

Clause Notes

(b) Clause 4-40, Limitation of 

Judiciary Liability (Letter 

Contract)

The maximum liability in the clause is the amount necessary 

to cover the contractor’s performance before definitization. 

The CO will appropriately fill in the clause’s blank spaces.

(c) Clause 4-45, Contract 

Definitization

The CO must enter the contract type and definitization 

schedule established according to § 410.50.40 

(Definitization Schedule).

(d) Clause 4-50, Payment of 

Allowable Costs Before 

Definitization

Include when the letter contract is expected to result in a 

definitive cost-reimbursement contract.

§ 410.55 Fixed-Price Award Fee Contracts

§ 410.55.10 Application

A fixed-price award fee contract is used in fixed-price contracts when the judiciary 

wishes to motivate a contractor and another incentive cannot be used because 

contractor performance cannot be measured objectively. Such contracts must:

(a) establish a fixed price (including normal profit) for the effort upon 

satisfactory contract performance; and

(Note: The award fee earned (if any) will be paid in addition to the fixed 

price.)

(b) provide for periodic evaluation of the contractor’s performance against an 

award-fee plan.

§ 410.55.20 Limitations

A fixed-price award fee contract type may be used only when:

(a) the administrative costs of conducting award-fee evaluations are not 

expected to exceed the expected benefits;

(b) procedures have been established for conducting the award-fee 

evaluation;

(c) the award-fee board has been established; and

(d) no other type of contract is suitable, and PMD has issued a one-time 

delegation of procurement authority. (Note: For exceptions to the onetime delegation requirement, see: § 410.20.30 (Exceptions).)
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 21

§ 410.60 Fixed-Price Incentive Contracts

§ 410.60.10 Description

(a) A fixed-price incentive (FPI) contract is a fixed-price contract that provides 

for adjusting profit and establishing the final contract price by application 

of a formula based on the relationship of total final negotiated cost to total 

target cost.

(b) The profit adjustment formula may be applied either at a pre-determined 

mid-point of performance (successive targets) or upon completion of 

performance to establish the final contract price (firm target). For each 

item subject to incentive price revision, the contract must specify a target 

cost, a target profit, a target price, a price ceiling, and a profit adjustment 

formula. The price ceiling is the maximum that may be paid to the 

contractor, except for adjustments specially provided for under other 

contract clauses (e.g., Clause 3-160, Service Contract Labor Standards).

§ 410.60.20 Application

An FPI contract is appropriate when the parties can negotiate at the outset an initial 

target cost, target profit, and profit adjustment formula that will provide a fair and 

reasonable incentive and a ceiling that provides for the contractor to assume an 

appropriate share of the risk. When the contractor assumes a considerable or major 

share of the cost responsibility under the adjustment formula, the target profit must 

reflect this responsibility.

§ 410.60.30 Limitations

This contract type may be used only when:

(a) the nature of the products or services being procured and other 

circumstances of the procurement make it advantageous for the judiciary 

to offer the contractor an economic incentive to establish effective cost 

control and efficient performance;

(b) the performance requirements offer a reasonable opportunity for the 

incentives to have a meaningful impact on the contractor’s management of 

the work where the contract also includes incentives on technical 

performance or delivery;

(c) the contractor’s accounting system is adequate for providing data for 

negotiating firm targets and a realistic profit adjustment formula, and later 

negotiation of final costs;

(d) adequate cost or pricing information for establishing a firm target is 

reasonably expected to be available for contract negotiations;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 22

(e) the CO determines that this type of contract would be less costly than 

another type or that it is impractical to obtain products or services of the 

kind or quality required without the use of this contract type; and

(f) no other type of contract is suitable, and PMD has issued a one-time 

delegation of procurement authority. (Note: For exceptions to the onetime delegation requirement, see: § 410.20.30 (Exceptions).)

§ 410.60.40 Fixed-Price Incentive – Firm Target

An FPI contract with a firm target must, at the outset of the contract, specify these 

negotiated elements:

(a) a target cost;

(b) a target profit;

(c) a price ceiling (but not a profit ceiling or floor);

(d) a profit adjustment formula that results in the following:

(1) when the final cost is less than the target cost, application of the 

formula will result in a final profit greater than the target profit;

(2) when the final cost is more than the target cost, application of the 

formula will result in a final profit less than the target profit or net 

loss; and

(3) if the final negotiated cost exceeds the price ceiling, the contractor 

will absorb the difference as a loss.

(e) the price ceiling must be the maximum that may be paid to the contractor, 

except for any adjustment under other contract clauses; and

(f) when the contractor completes contract performance, the CO and the 

contractor must negotiate the contractor’s final cost and establish the final 

price by applying the profit adjustment formula.

§ 410.60.50 Fixed-Price Incentive – Successive Targets

(a) An FPI contract with successive targets must, at the outset of the contract, 

specify these negotiated elements:

(1) an initial target cost;

(2) an initial target profit;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 23

(3) an initial profit adjustment formula to be used for establishing the 

firm target profit, including a ceiling and floor for the firm target 

profit;

(4) the production point at which the firm target cost and firm target 

profit will be negotiated;

(5) a ceiling price that is the maximum that may be paid to the 

contractor, except for any adjustment under any other contract 

clauses providing for equitable adjustment or other revision of the 

contract price under stated conditions.

(b) When the production point specified in the contract is reached, the parties 

negotiate the firm target cost, giving consideration to cost experience 

under the contract and other relevant factors. The firm target profit is 

established by the formula.

§ 410.65 Fixed-Price Contracts with Economic Price Adjustment

§ 410.65.10 Description

A fixed-price contract with economic price adjustment (EPA) provides for the upward 

and downward revision of the contract price based upon the occurrence of 

contingencies that are defined in the contract.

§ 410.65.15 Application

This type of contract is appropriate when there is serious doubt as to the stability of

market and labor conditions that will exist during an extended period of contract 

performance and contingencies that would otherwise be included in a firm-fixed-price 

contract are identifiable and can be covered separately. Its usefulness is limited by the 

difficulties of its administration.

§ 410.65.20 Limitation

This contract type may be used only when:

(a) the CO determines that it is necessary to protect the contractor and the 

judiciary against significant fluctuations in labor or material costs or to

provide for contract price adjustment in the event of changes in the 

contractor’s established prices;

(b) there is no major element of design engineering or development work 

involved;

(c) there are identifiable labor or material cost factors subject to change;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 24

(d) no other type of contract is suitable; and

(e) PMD has issued a one-time delegation of procurement authority. (For 

exceptions to this requirement, see: § 410.20.30 (Exceptions).)

§ 410.65.25 Types of Adjustments

An EPA may authorize contract price adjustments, upward or downward, based upon 

one of the following:

(a) increases or decreases from an agreed-upon level in published or 

otherwise established prices of specific items (e.g., the price of crude oil);

(b) increases or decreases in specified costs of labor or material that the 

contractor actually experiences during contract performance; or

(c) increases or decreases in labor or material cost standards or indices that 

are specifically identified in the contract (e.g., Consumer Price Index).

§ 410.65.30 Price Adjustments Based on Published Prices

Price adjustments based on published or otherwise established prices must be 

restricted to industry-wide contingencies. Industry-wide contingencies must be those 

affecting a particular industry as a whole and not be dependent on circumstances within 

the contractor’s control.

§ 410.65.35 Price Adjustments Based on Costs

Price adjustments based on labor and material costs must be limited to contingencies 

beyond the contractor’s control.

§ 410.65.40 Base Level Establishment

When establishing the base level from which price adjustments may be made, the CO 

must ensure that contingency allowances are not duplicated by inclusion in both the 

base price and the adjustment requested by the contractor. In contracts that do not 

require submission of detailed cost information, the CO must obtain adequate 

information to establish the base level from which adjustments will be made and may 

require verification of data submitted.

§ 410.65.50 Clauses

A solicitation for a fixed-price contract with EPA for standard products that have an 

established catalog or market price must include Clause 4-55, Economic Price 

Adjustment – Standard Products. The offeror must appropriately fill in the blank in 

paragraph (a) of the clause.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 25

§ 410.70 Cost-Reimbursement Contracts

§ 410.70.10 Description

(a) Cost-reimbursement contracts may be incrementally funded, if the amount 

obligated is always more than the cumulative cost that it is anticipated the 

contractor will accrue during the following voucher period. Costreimbursement contracts for non-severable services must be fully funded 

at the time of award. For further guidance on incremental funding, see: 

Guide, Vol. 14, § 220.50.20(b) (Contract Funding Requirements).

(b) These contracts establish an estimate of the total cost for the purpose of 

obligating funds. They also establish a total estimated reimbursement 

cost. The contractor may not exceed the total funded amount of the 

contract, except at its own risk, without the CO’s written pre-approval.

(c) Cost-reimbursement contracts are suitable for use only when uncertainties 

involved in contract performance do not permit the establishment of fixed 

prices. There are several types of cost-reimbursement contracts as 

described below. A cost-plus-percentage-of-cost contract type is not an 

authorized contract type under any circumstances.

§ 410.70.20 Limitations

Any of the cost-reimbursement contracts described below may be used only when:

(a) the contractor's accounting system is adequate for recording and 

segregating costs applicable to the contract;

(b) appropriate judiciary monitoring during performance will provide 

reasonable assurance that efficient methods and effective cost controls 

are used;

(c) the CO determines in writing, that:

(1) the use of a cost-reimbursement type contract is likely to be less 

costly than any other type; or

(2) it is impractical to obtain products or services of the kind or quality 

required without the use of this contract type;

(d) no other type of contract is suitable; and 

(e) PMD has issued a one-time delegation of procurement authority. (Note: 

For exceptions to this requirement, see: § 410.20.30 (Exceptions).)
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 26

§ 410.70.30 Cost Contract

A cost contract is a cost-reimbursement contract under which the contractor receives no 

fee (profit).

§ 410.70.40 Cost-Sharing Contract

A cost-sharing contract is a cost-reimbursement type contract under which the 

contractor does not receive a fee and is reimbursed only for an agreed upon portion of 

its allowable costs. It is suitable for use where there is a high probability that the 

contractor will receive substantial commercial benefits from contract performance.

§ 410.70.50 Cost-Plus-Incentive-Fee Contract

(a) Description

A cost-plus-incentive-fee contract is a cost-reimbursement contract that 

provides for the initially negotiated fee to be adjusted later by application 

of a formula based on the relationship of total allowable performance costs 

to target costs. This contract type specifies a target cost, a target fee, 

minimum and maximum fees, and a fee adjustment formula.

(b) Application

A cost-plus-incentive-fee contract is suitable when a cost-reimbursement 

contract is appropriate and a target cost and fee adjustment formula likely 

to motivate the contractor to manage the contract effectively can be 

negotiated. The fee adjustment formula must provide an incentive 

effective over the full range of reasonably foreseeable variations from 

target cost. If a high maximum fee is negotiated, the contract must 

provide for a low minimum fee, or even a zero or negative fee.

§ 410.70.60 Cost-Plus-Fixed-Fee Contract

(a) Description

A cost-plus-fixed-fee contract is a cost-reimbursement contract that 

provides for payment to the contractor of a negotiated fee in a fixed 

amount. The fixed fee amount does not vary with actual performance 

costs incurred but may be adjusted as a result of changes made in 

contract requirements. This contract type gives the contractor only a 

minimum incentive to control costs.

(b) Application

The CO may use a cost-plus-fixed-fee contract when contracting for 

efforts that might otherwise present too great a risk to the contractor, such 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 27

as when the contract is for a study and the level of effort cannot be 

reasonably estimated.

(c) Completion or Term Form

A cost-plus-fixed-fee contract must be in one of two basic forms: the 

completion form, or the level-of-effort or term form.

(1) Completion Form

The completion contract form describes the scope of work by 

stating a definite goal or target and specifying an end product 

deliverable. This form of contract normally requires the contractor 

to complete and deliver the specified end product within the 

estimated cost, if possible, as a condition for payment of the entire 

fixed fee. If the work cannot be completed within the estimated 

cost, the judiciary may require more effort with an appropriate 

increase in the estimated cost and associated funding, but without 

any increase in fee.

(2) Term Form

The term form describes the scope of work in general terms and 

obligates the contractor to devote a specified level of effort for a 

stated time period. Under this form, if performance is satisfactory, 

the fixed fee is payable at the expiration of the agreed upon period, 

upon contractor certification that the level of effort specified in the 

contract has been expended in performing the contract work. It 

does not require a deliverable end product. Renewal for further 

periods of performance requires new cost and fee arrangements 

and is treated as a new purchase.

(d) Preference

Because of the greater risks and obligation assumed by the contractor, the 

completion form is preferred over the term form whenever the work can be 

defined well enough to permit a reasonable cost estimate within which the 

contractor can be expected to complete the work.

§ 410.70.70 Cost-Plus-Award-Fee Contract

(a) Description

A cost-plus-award-fee contract is a cost-reimbursement contract that 

provides for a fee consisting of:
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 28

(1) a base fee amount (which may be zero) fixed at inception of the 

contract; and

(2) an award fee amount that the contractor may earn in whole or in 

part during performance and that is sufficient to provide motivation 

for excellence in such areas as quality, timeliness, technical 

ingenuity, and cost-effective management. 

(Note: The amount of the award fee to be paid is determined by 

the judiciary’s judgmental evaluation of the contractor’s 

performance based on the contract’s stated criteria. This 

determination and the methodology for determining the award fee 

are unilateral decisions made solely at the judiciary’s discretion.)

(b) Application

(1) The cost-plus-award-fee contract is suitable for use when:

(A) the work to be performed is such that it is neither feasible 

nor effective to devise predetermined, objective incentive 

targets applicable to cost, technical performance, or 

schedule;

(B) the likelihood of meeting procurement objectives will be 

enhanced by using a contract that effectively motivates the 

contractor toward exceptional performance and provides the 

judiciary with the flexibility to evaluate both actual 

performance and the conditions under which it was 

achieved; and

(C) any additional administrative effort and cost required to 

monitor and evaluate performance are justified by the 

expected benefits.

(2) The number of award-fee evaluation criteria and the requirements 

they represent will differ widely among contracts. The criteria and 

rating plan must motivate the contractor to improve performance in 

the areas rated, but not at the expense of at least minimum 

acceptable performance in all other areas.

(3) Cost-plus-award-fee contracts must provide for evaluation at stated 

intervals during performance, so that the contractor will periodically 

be informed of the quality of its performance and the areas in which 

improvement is expected. Partial payment of fee must generally 

correspond to the evaluation periods. Payment of the fee in this 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 29

manner can induce the contractor to improve poor performance or 

to continue good performance.

(c) Additional Limitation

In addition to the general limitations on cost-reimbursement contracts in 

§ 410.70.20 (Limitations), when using cost-plus-award-fee contracts, the 

contract amount, performance period, and expected benefits must be 

sufficient to warrant the additional administrative effort and cost involved.

§ 410.70.80 Cost Contract Clauses

Clause Include in ...

(a) Clause 4-60, Allowable Cost and 

Payment

All cost reimbursement solicitations and contracts. 

(b) Clause 4-65, Fixed Fee Solicitations and contracts when a cost-plus-fixedfee contract is contemplated.

(c) Clause 4-70, Incentive Fee Solicitations and contracts when a cost-plusincentive-fee contract is contemplated. The CO will 

appropriately fill in the clause’s blank spaces.

(d) Clause 4-75, Cost Contract – No 

Fee

Solicitations and contracts when a cost contract with 

no fee is contemplated.

(e) Clause 4-80, Cost-Sharing 

Contract – No Fee

Solicitations and contracts when a cost-sharing 

contract is contemplated.

(f) Clause 4-85, Limitation of Cost Solicitations and contracts when a fully funded cost 

reimbursable contract is contemplated, whether or 

not the contract provides for payment of a fee.

(g) Clause 4-90, Limitation of Funds Solicitations and contracts when an incrementally 

funded cost reimbursable contract is contemplated.

§ 410.75 Multi-Year Contracts

§ 410.75.10 Definition

(a) A multi-year contract is defined as one that, at the time of award, 

purchases more than one year’s requirement of a product or service, 

without having to exercise an option for each year after the first. Multiyear contracts may be awarded for known requirements for a period of up 

to five years. Multi-year contracts are considered an exception to the 

bona fide needs rule. Use of this contract type by the judiciary is 

authorized by 28 U.S.C. § 604(g)(4)(B) and 28 U.S.C. § 612(e)(2).

(b) A multi-year contract is not:
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 30

• an indefinite-quantity or requirements contract (see: § 410.30 

(Indefinite-Delivery Contracts: Indefinite-Quantity and 

Requirements)); 

• a contract for a non-severable requirement that will take more than

one year to complete (e.g., construction of a new courthouse); 

• a contract for 12 months (or less) that includes one or more options 

to extend the period of performance for additional periods of up to 

12 months each (see: Guide, Vol. 14, § 220.40 (Options)); or

• a contract for less than 12 months that starts in one fiscal year and 

is completed in the following fiscal year.

§ 410.75.20 Terminology Unique to Multi-Year Contracts

(a) Cancellation

Cancellation results when the contracting officer notifies the contractor 

that funds will not be made available for contract performance for a 

subsequent contract year. A cancellation of any one year results in 

cancellation of all remaining contract years.

(b) Cancellation Ceiling

The maximum cancellation charge that the contractor can receive in the 

event of cancellation. The cancellation ceiling must be established and 

fully funded at the time of contract award.

§ 410.75.30 Limitations on Use of Multi-Year Contracts

(a) One-Time Delegation of Procurement Authority

With the exception of awards meeting the criteria stated at § 410.75.30(c) 

(Exception to One-Time Delegation), all multi-year contract awards require 

a one-time delegation of procurement authority from PMD. Obtaining this 

delegation is a two-step process and only after both steps are completed 

will the one-time delegation of procurement authority be issued.

(1) Before issuing the solicitation, the CO must request PMD approval 

of the solicitation document.

(2) Upon receipt and evaluation of offers, the CO must provide the 

evaluation and the determination and finding required by 

§ 410.75.30(b) (Determination and Finding) for PMD approval.

(b) Determination and Finding
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 31

All multi-year contracts, including those meeting the criteria stated below 

in paragraph (c), must be supported by a determination and finding signed 

by the CO confirming:

(1) funds are available and obligated for the contract for:

(A) the full period of the contract or the first fiscal year in which 

the contract is in effect, and

(B) the estimated costs associated with a necessary termination 

of the contract;

(2) the need for the products or services is reasonably firm and is 

expected to continue over the entire period of the contract; and

(3) a multiyear contract will best serve the judiciary organization’s 

interests by encouraging full and open competition or promoting 

economy in the organization’s administration, performance, and 

operations.

(c) Exception to One-Time Delegation

(1) A one-time delegation is not required for a multi-year award for 

services where:

(A) the award will be funded with no-year funds (e.g., the 

Judiciary Information Technology Fund (JITF)); and

(B) either:

(i) the award is an order under a Judiciary-Wide BPA or 

contract, a GSA schedule, or a contract awarded 

under another agency’s multi-award authority (e.g., 

SEWP, NITAAC); or

(ii) the total amount for all years is less than the 

judiciary’s competition threshold (see: Guide, Vol. 14, 

§ 325.15.10 (Competition Threshold)).

(2) The above exception does not apply to multi-year awards for 

products, which are always subject to the one-time delegation 

requirement.

(3) Procurement files for awards made under the exceptions to the 

one-time delegation requirement must include the contracting 

officer’s determination and finding required by § 410.75.30(b) 

(Determination and Finding).
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 32

(d) Congressional Notification

A multi-year contract that includes a cancellation ceiling over $10.0 million 

may not be awarded until the AO Director provides written notification to 

Congress of the proposed contract and the proposed cancellation ceiling 

for that contract. The contract may not be awarded until the 31st day after 

the date of Congressional notification.

§ 410.75.40 Competitive Multi-Year Solicitation Requirements

(a) Competitive multi-year solicitations must require dual price proposals from 

all offerors, one price proposal based upon a multi-year award and one 

based on pricing for award of a base year and options for each 

subsequent year. The sole exception is the purchase of commercial 

services where published catalog prices clearly show lower pricing for a 

multi-year term versus contracting on an annual basis. In this case, the 

solicitation may require only multi-year pricing.

(b) Competitive multi-year solicitations must identify all the evaluation factors 

to be used in selecting offer(s) for award. Price must always be included 

as an evaluation factor. The cancellation ceiling must not be used as an 

evaluation factor.

§ 410.75.50 Multi-Year Contract Administration

(a) Funding and Payment

(1) Multi-year contracts may either be fully funded for the entire multiyear period at the time of award or may be funded annually. When

the contract is funded annually, the funding must include the 

maximum liability incurred by the judiciary each year. This means 

fully funding the cancellation ceiling amount that would apply under 

Clause 4-160, Cancellation Ceilings, if the contract were cancelled 

during the year being funded.

(2) Authority to award a multi-year contract requirement and fully fund 

it at the time of award does not automatically include authority to 

pay the contractor in advance. For limitations on advance 

payment, see: Guide, Vol. 14, § 220.55.50 (Limitations).

(b) Cancellation Procedures

All contract years except the first are subject to cancellation. The contract 

award must state a cancellation ceiling for each contract year subject to 

cancellation in Clause 4-160, Cancellation Ceilings.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 33

(c) Payment of Cancellation Charges

If a multi-year contract is cancelled, the judiciary’s liability will be 

determined under Clause 4-150, Cancellation Under Multi-Year Contracts, 

but may in no case exceed the cancellation ceiling established at the time 

of contract award in Clause 4-160, Cancellation Ceilings. Final agreement 

on a cancellation settlement must be reviewed and approved by the PE.

(d) Termination for Convenience or Default

Multi-year contracts are subject to termination for convenience or default. 

Unlike cancellation, which can only be effective at the end of a contract 

year, termination for convenience or default may be done at any time 

during the life of the contract. In addition, a termination for convenience 

may be issued for less than the entire remainder of the contract, while

cancellation must be for the entirety of all subsequent contract years. PE 

review and approval is required for any termination. See: Guide, Vol. 14, 

§ 755.10.40 (Review and Approval).

§ 410.75.60 Contract Clauses and Provisions

Include the following clauses in solicitations and contracts for multi-year contracts 

unless the prescription indicates otherwise:

§ 410.75.60 Contract Clauses and Provisions

Provision or Clause Include in ...

(a) Clause 4-150, Cancellation 

Under Multi-Year Contracts

All multi-year solicitations and contracts.

(b) Clause 4-55, Economic Price

Adjustment – Standard 

Products

Fixed-price multi-year solicitations and contracts when 

the CO considers inclusion appropriate under § 410.65 

(Fixed-price Contract with Economic Price Adjustment).

(c) Clause 3-175, Fair Labor 

Standards Act and Service 

Contract Labor Standards –

Price Adjustment (Multi-Year 

and Option Contracts)

Multi-year solicitations and contracts when contracting for 

services on a fixed-price, labor-hour or time-andmaterials basis and the contract includes Clause 3-160 

(Service Contract Labor Standards).

(d) Provision 4-155, Alternate 

Awards

All multi-year solicitations.

(e) Clause 4-160, Cancellation 

Ceilings

All multi-year solicitations and contracts. The clause may

be tailored as appropriate to fit the actual number of 

years of a specific multi-year award. The ceilings must

be incorporated at the time of award based upon 

information provided in the offeror’s proposal.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 34

§ 410.75.60 Contract Clauses and Provisions

Provision or Clause Include in ...

(f) Provision 4-165, Price 

Proposal Instruction – MultiYear Contract

All multi-year solicitations.

§ 420 Technical Analysis

(a) A technical analysis may be necessary to assist in price and/or cost 

analysis. The CO will rely on the technical expertise of the requesting 

activity’s designated expert(s) or other appropriate advisors.

(b) Technical analysis of offers may range from evaluating technical offers 

according to evaluation factors specified in the solicitation (competitive 

offers) to extensive analysis of materials, number of labor hours and the 

proposed mix of labor categories, special tooling and facilities, and other 

factors.

(1) At a minimum, the technical analysis should examine the types and 

quantities of material proposed and the need for the types and 

quantities of labor hours and the proposed mix of labor categories.

(2) Any other data that may be relevant to an assessment of the 

offeror’s ability to accomplish the technical requirements or to the 

cost or price analysis of the service or product being proposed 

should also be included in the analysis.

§ 430 Price Evaluation

This section describes procedures for evaluating initial prices, subcontract prices, and 

pricing modifications. COs are responsible for ensuring that prices are fair and 

reasonable. To carry out this responsibility, COs must:

(a) evaluate proposed prices using the methods of price or cost analysis 

described in this chapter; and

(b) evaluate the proposed price of each contract separately and 

independently without considering:

(1) proposed price reductions under other contracts held by the same 

contractor; or

(2) losses or profits on other contracts held by the same contractor.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 35

§ 430.20 Offer Analysis

(a) The CO exercises sole responsibility for the final pricing decision with 

advice and assistance appropriately obtained according to the complexity 

and dollar value of the offer to be analyzed. As circumstances warrant, 

the CO must obtain and evaluate the advice of specialists in areas such 

as contracting, finance, law, audit, quality assurance, engineering, and 

pricing.

(b) The CO must coordinate the team effort involved in the analysis. When 

complex problems involving significant matters will be addressed, the CO 

must have appropriate specialists in attendance for advice during the 

negotiations. The CO may assign responsibility to a negotiator or price 

analyst for:

(1) determining the necessary extent of specialists' advice;

(2) evaluating the specialists’ advice;

(3) coordinating a team of experts;

(4) consolidating pricing data;

(5) developing a pre-negotiation objective; and

(6) conducting negotiations.

§ 430.30 Adequate Price Competition

§ 430.30.10 General

Price competition exists when:

(a) at least three offers are solicited;

(b) two or more independent and responsible offerors submit priced offers 

meeting the solicitation's requirements; and

(c) the solicitation identifies price as an evaluation factor for award.

§ 430.30.20 Presumption of Adequacy

If price competition exists, it is presumed as adequate unless:

(a) the solicitation is made under conditions that unreasonably deny one or 

more known and qualified offerors an opportunity to compete;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 36

(b) the low offeror has such a decided advantage that it is practically immune 

from competition; or

(c) the CO determines that the lowest price is not fair and reasonable.

§ 440 Price Analysis

(a) Price analysis (see: Guide, Vol. 14, § 345.40 (Price Analysis)), rather 

than cost analysis (see: § 345.50 (Cost Analysis)), is the preferred 

method of evaluating and negotiating pricing for the following:

(1) firm-fixed-price contracts;

(2) the unit prices of many indefinite-delivery contracts;

(3) the burdened hourly rates contained in labor-hour and time-andmaterial contracts; and

(4) other contract instruments where prices can be compared to prices 

for the same or similar products or services sold in substantial 

quantities in the same time frame elsewhere in the market place.

(b) Price analysis is a method of determining that the overall price is fair and 

reasonable without a detailed analysis of its cost and profit components.

§ 440.20 Price Analysis Techniques

(a) The CO is responsible for selecting and using appropriate price analysis 

techniques to ensure a fair and reasonable price.

(b) One or more of the following techniques may be used to perform price 

analysis:

(1) comparison of proposed prices received from two or more offerors 

in response to the solicitation;

(2) comparison of previous proposed prices with current proposed 

prices for the same or similar end items in comparable quantities;

(3) comparison with similar products or services purchased previously;

(4) comparison with similar products or services purchased at other 

federal agencies;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 37

(5) application of estimating metrics (such as dollars per pound or per 

horsepower, or other units) to highlight significant inconsistencies 

that may warrant additional pricing inquiry;

(6) comparison with competitive published catalogs or price lists, 

published market prices or commodities, similar indices, and 

discount or rebate arrangements;

(7) comparison of proposed prices with independent judiciary 

estimates (see: Guide, Vol. 14, § 210.30(d) (Requesting Office 

Responsibilities)); or

(8) ascertaining that the price is set by law or regulation.

(c) Comparison of competed prices will ordinarily suffice to meet price 

analysis requirements.

(d) If a determination of fair and reasonable price is based solely upon 

subparagraph (b)(7) above, significant differences between the price 

awarded and the independent judiciary estimate must be explained in the 

negotiation memorandum.

§ 450 Cost Analysis

Cost analysis must be performed when it is necessary to examine individual cost 

elements, such as labor or material prices and indirect cost rates and profit, to 

determine the reasonableness of price. Cost analysis and requests for supporting data 

must be limited only to those cost elements that the CO decides need analysis.

§ 450.20 Cost Analysis Techniques

Cost analysis involves the following techniques and procedures as appropriate:

(a) Verifying and evaluating of individual cost elements, including:

(1) the necessity for, and reasonableness of, proposed costs, including 

allowances for contingencies;

(2) projection of the offeror's cost trends based on current and 

historical detailed cost information;

(3) a technical appraisal of the estimated labor, material, tooling, and 

facilities requirements and of the reasonableness of scrap and 

spoilage factors; and
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 38

(4) the application of audited or negotiated indirect cost rates and labor 

rates.

(b) Evaluating the effect of the offeror's current practices on future costs. In 

conducting this evaluation, the CO must ensure that the effects of 

inefficient or uneconomical past practices are not projected into the future. 

In pricing the production of recently developed, complex equipment, the 

CO must make a trend analysis of basic labor and materials even in 

periods of relative price stability.

(c) Comparing costs proposed by the offeror for individual cost elements with:

(1) actual costs previously incurred by the same offeror;

(2) previous cost estimates from the offeror or from other offerors for 

the same or similar items;

(3) independent judiciary cost estimates; and

(4) forecasts of planned expenditures.

(d) Analyzing contractor make-or-buy decisions in evaluating subcontract 

costs.

(e) Verifying that the offeror's cost submissions comply with the cost 

principles in this section.

(f) Reviewing the offer to determine if the contractor has neglected to submit 

or identify in writing any detailed cost information necessary to make the 

offer accurate, complete, and current. If the contractor has omitted such 

data, the CO must attempt to obtain it. If the CO cannot obtain it, 

satisfactory allowance for the incomplete information must be made in 

negotiations.

§ 450.30 Detailed Cost Information

§ 450.30.10 Exceptions

The CO may determine that detailed cost information is not required if:

(a) the price reasonableness can be determined by adequate competitive 

offers;

(b) prices are set by law or regulation;

(c) the prices are based on established catalog or market prices; or
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 39

(d) a waiver is granted by the CO.

§ 450.30.20 In General

(a) The CO may obtain detailed cost information before the award of any 

competitive contract or contract modification if required for the analysis 

and determination of price reasonableness. Only the detailed information 

needed to make that determination will be obtained. Requesting detailed 

cost information is not necessary if the price reasonableness can be 

determined by one of the following factors:

(1) adequate price competition;

(2) prices are set by law or regulation; or

(3) a commercial item is being acquired.

(b) When warranted, and before an agreement on price can be reached, the 

CO must require the contractor to update the cost information as of the 

latest dates for which information is reasonably available.

§ 450.30.30 Subcontracts

The CO must require offerors or contractors to obtain detailed cost information for 

proposed subcontracts or subcontract modifications only when necessary to determine 

the reasonableness of the proposed subcontract price, including negotiated final pricing 

actions (e.g., termination settlements and total final price agreements for fixed-price 

incentive contracts).

§ 450.30.40 Subcontract Offer Analysis

As part of its detailed cost information, the offeror or contractor is responsible for 

submitting to the CO its price analysis or cost analysis on subcontract offers, including 

the results of its subcontract price reviews and analysis. In unusual circumstances, to 

ensure that adequate analysis is performed, the CO may require the offeror or 

contractor to submit, along with its own detailed cost information, detailed cost 

information obtained from its subcontractor(s). This in no way diminishes the offeror's 

or contractor's responsibility to perform subcontract cost or price analysis and negotiate 

fair and reasonable subcontract prices.

§ 450.30.50 Refusal to Provide Data

If the offeror or contractor refuses to provide detailed cost information despite repeated 

requests, the CO must withhold the award or contract modification and refer the matter 

to the PE. The CO must document the ultimate disposition of the matter.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 40

§ 450.40 Profit

§ 450.40.10 In General

(a) Except for architect-engineer contracts (see: Guide, Vol. 14, § 530 

(Architect-Engineer Contracts)), predetermined percentages or limitations 

on profit or fee must not be used. However, for cost-plus-fixed-fee 

contracts, the fee must not exceed 10 percent of the contract’s estimated 

cost, excluding fee.

(b) When adequate price competition is obtained or price analysis techniques 

are sufficient to ensure a fair and reasonable price, then analysis of profit 

is not appropriate.

§ 450.40.20 Including Profit in Cost Analysis

When cost analysis is required for price negotiations, profit must also be analyzed. 

Profit must be analyzed with the objective of rewarding contractors for:

(a) financial and other risks they assume;

(b) resources they use; and

(c) organization, performance, and management capabilities they employ.

§ 450.40.30 Profit Considerations

Due consideration must be given to:

(a) the complexity of materials requirements;

(b) the extent of subcontracting;

(c) the ratio of indirect costs to direct costs;

(d) the contribution of capital investments to contract performance; and

(e) profit analysis.

§ 450.40.40 Contract Changes

The profit or fee may be established on the basis of the basic contract's profit or fee rate

if the pricing action:

(a) involves a contract change or modification that requires essentially the 

same type and mix of work as the basic contract, and

(b) is of relatively small dollar value compared to the total contract amount.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 41

§ 460 Cost Principles

This section contains the principles for determining or negotiating the allowability of 

costs. When the CO determines that price analysis is not sufficient, then the CO will 

request detailed cost information and analyze all cost elements to determine the 

allowability of each proposed element of cost. These principles apply to the:

(a) determination of allowable costs under cost-reimbursement contracts and 

subcontracts;

(b) determination or negotiation of cost or price when required by a contract 

clause;

(c) pricing or estimation of costs in change orders or contract modifications; 

and

(d) settlement of contract costs for contracts that have been terminated.

§ 460.20 Contract Costs

The total cost of a contract is the sum of the allowable direct and indirect costs allocable 

to the contract, incurred or to be incurred, less any allowable credits. Total cost does 

not include profit, or fee.

§ 460.20.20 Cost Estimating Methodology

A contractor may use any consistently applied, generally accepted method of 

determining or estimating costs that is equitable under the circumstances.

§ 460.20.30 Pricing or Cost Estimating Requirements

Whenever a contractor is required by the judiciary to submit a detailed cost proposal, 

the contractor must:

(a) estimate costs in a manner consistent with generally accepted cost 

accounting principles;

(b) consistently apply the cost accounting principles to its pricing;

(c) follow its Defense Contract Audit Agency (DCAA) audited rates; and

(d) comply with the provisions of this chapter.

§ 460.20.40 Direct Cost

(a) A direct cost is any cost that can be specifically identified directly with 

delivery or performance of a specific contract.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 42

(b) Direct costs are segregated from other costs, recorded into separate 

accounts, and are identified as costs for a particular contract. They are 

not mingled with costs associated with other contracts, nor with indirect, 

administrative or management costs of the business.

§ 460.20.50 Indirect Costs

(a) Indirect costs are those costs that, because of their incurrence for 

common or joint contractor objectives, are neither readily segregable nor 

subject to treatment as direct costs. Indirect costs are generally allocated 

to contracts as a percentage of direct cost and are allowable based on 

necessity to the overall operation of the contractor's business.

(b) An indirect cost must not be allocated to a judiciary contract if:

(1) other costs incurred for the same purpose, in like circumstances, 

have been included as a direct cost of that contract or any other 

contract; or

(2) the costs have been included as any final cost objective not related 

to the judiciary contract.

(c) Indirect costs must be accumulated into logical groupings known as 

“indirect cost pools.”

(d) The contractor’s method of allocating indirect costs must comply with 

generally accepted accounting principles that are consistently applied 

according to the provisions of this chapter.

(e) The CO must examine the contractor’s method of allocating indirect costs 

when any of the following apply:

(1) A substantial difference exists between the cost patterns of work 

performed under the contract and the contractor’s other work.

(2) A significant change occurs in:

• the nature of the contractor’s business;

• extent of subcontracting;

• fixed asset improvement programs;

• inventories;

• volume of sales and production;

• manufacturing processes;

• products; or

• other relevant circumstances.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 43

(3) Indirect cost groups developed for a contractor’s primary location 

are applied to off-site locations. Then separate cost groups for 

costs allocable to off-site locations may be necessary to distribute 

the contractor’s costs based on the benefits accruing to the 

appropriate cost objective.

(f) The CO must consider the base period for indirect cost allocation as the 

one in which the costs are incurred and accumulated for distribution to 

work performed in that period.

§ 460.20.60 Credits

A credit is the applicable portion of any income, rebate, allowance, or other credit 

relating to any allowable cost and received by or accruing to the contractor.

§ 470 Cost Allowability

§ 470.10 Determining Cost Allowability

(a) Allowability Factors

When determining whether an incurred cost is allowable, the CO must 

consider the following factors:

• reasonableness;

• allocability;

• consistency with generally accepted accounting principles and 

practices appropriate to the particular circumstances;

• consistency with the requirements and terms of the contract; and

• consistency with the limitations provided in this chapter.

(b) Inconsistent Practices

If a contractor’s accounting practices are inconsistent with this chapter, the 

CO must not allow costs resulting from those practices over the amount 

that would have resulted from using practices consistent with this chapter.

§ 470.20 Determining Reasonableness

§ 470.20.10 Definition

A cost is reasonable if, in its nature and amount, it does not exceed what would be 

incurred by a prudent person in the conduct of competitive business.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 44

§ 470.20.20 Reviewing Specific Costs

In determining the reasonableness of a specific cost, matters to consider include the 

following:

(a) Whether it is the type of cost generally recognized as ordinary and 

necessary for the conduct of the contractor's business or contract 

performance.

(b) The restraints or requirements imposed by such factors as:

• generally accepted sound business practices,

• arm's-length bargaining, or

• federal and state laws and regulations.

(c) The action that a prudent business person would take under the 

circumstances considering responsibilities to:

• the owners of the business,

• employees,

• customers,

• the judiciary, or

• the public at large.

(d) Any deviations from the established practices of the contractor that may 

unjustifiably increase the contract costs.

(e) Any other relevant factors.

§ 470.30 Determining Allocability

§ 470.30.10 In General

An incurred cost is allocable to a contract if it:

(a) is incurred specifically for performance of the contract;

(b) benefits both the contract and other work, and can be distributed to them 

in reasonable proportion to the benefits received; or

(c) is necessary to the overall operation of the business, even though a direct 

relationship to the contract cannot be shown.

§ 470.30.20 Advance Agreements

(a) Because the reasonableness or allocability of costs may be difficult to 

determine in some cases, the contracting parties must reach advance 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 45

agreement on the treatment of special or unusual costs to avoid later 

disputes and disallowances.

(b) Advance agreements may be negotiated before or during a contract but 

must be negotiated before contractor incurrence of the costs involved. 

The agreements must be in writing, signed by both parties, and 

incorporated into applicable current and future contracts. An advance 

agreement must contain a statement of its applicability and duration.

(c) Advance agreements may be negotiated with a particular contractor for a 

single contract, a group of contracts, or all the contracts of one or more 

purchasing activities.

(d) Advance agreements may not provide for treatment of costs inconsistent 

with this chapter.

(e) The absence of an advance agreement on any cost will not, in itself, affect 

the reasonableness or allocability of that cost.

(f) Examples of costs for which advance agreements may be particularly 

important are:

(1) compensation for personal service (e.g., allowances for off-site pay, 

incentive pay, relocation allowances, hardship pay, and cost-ofliving differentials);

(2) use charges for fully depreciated assets;

(3) deferred maintenance costs;

(4) pre-contract costs;

(5) independent research and development and bid and proposal 

costs;

(6) royalties and other costs for use of patents;

(7) selling and distribution costs;

(8) travel and relocation costs;

(9) costs of idle facilities and idle capacity;

(10) costs of information technology;

(11) severance pay to employees on support services contracts;
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 46

(12) professional services (e.g., legal, accounting, engineering);

(13) general administrative costs (e.g., corporate, division, or branch 

allocations attributable to the general management, supervision, 

and conduct of the contractor's business as a whole, particularly in 

construction, job-site, architect-engineer, and facilities contracts);

(14) costs of construction plant and equipment; and

(15) costs of public relations and advertising.

§ 470.40 Selected Costs

This section discusses certain types of costs and whether or not they are allowable. It 

does not cover every element of cost, nor does the omission of a specific type of cost 

from this section imply that it is either allowable or unallowable. A determination of 

allowability must be based upon the principles and standards of this chapter and 

treatment of similar or related items.

§ 470.40.10 Public Relations and Advertising Costs

Incurred public relations and advertising costs are unallowable, except costs of:

(a) responding to inquiries concerning company policies and activities;

(b) essential communication with the public, press, stockholders, creditors, 

and customers, including communication on matters of public concern;

(c) participation in community service activities such as blood bank drives, 

charity drives, and disaster assistance (but not contribution to civil defense 

funds and projects);

(d) recruitment of personnel needed for contract performance;

(e) acquiring scarce items for contract performance; and

(f) disposing of scrap or surplus materials acquired for contract performance.

§ 470.40.15 Bad Debt

Bad debt costs, including actual or estimated losses arising from uncollectible accounts 

receivable due from customers and other claims, and any directly associated costs such 

as collection costs and legal costs are not allowable.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 47

§ 470.40.20 Contributions or Donations

Contractor contributions or donations (e.g., cash, property, services) are not allowable, 

except as provided in § 470.40.10(c) (Public Relations and Advertising Costs).

§ 470.40.25 Dividends

Dividend provisions or payments and distribution of profits are not allowable when part 

of an employee’s compensation if that compensation is based on changes in stock 

prices or corporate ownership.

§ 470.40.30 Entertainment Costs

(a) Contractor costs of amusement, diversion, social activities, and directly 

associated costs such as tickets to shows or sports events, meals, 

lodging, rentals, transportation, and gratuities are not allowable.

(b) Costs of membership in social, dining, or country clubs or other 

organizations having the same purposes are not allowable, regardless of 

whether or not the cost is reported as taxable income to the employees.

§ 470.40.35 Fines and Penalties

Contractor costs of fines and penalties resulting from violations of, or failure of, the 

contractor to comply with, federal, state, local, or foreign laws and regulations are not 

allowable, unless incurred because of compliance with specific terms and conditions of 

the contract or written instructions from the CO.

§ 470.40.40 Life Insurance

Contractor costs for insurance on the lives of officers, partners, or proprietors are not 

allowable, unless the insurance represents additional compensation.

§ 470.40.45 Interest and Other Financial Costs

Contractor interest costs on borrowings (however represented), bond discounts, costs 

of financing and refinancing capital, and the costs of preparing and issuing 

prospectuses and stock rights, are not allowable.

§ 470.40.50 Lobbying Costs

(a) Contractor costs associated with attempts to influence the outcome of any 

federal, state, or local election, referendum, initiative, or similar procedure 

through contributions, endorsements, publicity, or similar activities are not 

allowable.

(b) Costs associated with establishing, administering, contributing to, or 

paying the expenses of a political party, campaign, political action 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 48

committee, or other organization established to influence the outcomes of 

elections are not allowable.

(c) Costs are not allowable if associated with any attempt to influence:

(1) the introduction of federal or state legislation, or

(2) the enactment or modification of any pending federal or state 

legislation through communication with:

(A) any member or employee of the Congress or state 

legislature (including efforts to influence state or local 

officials to engage in similar lobbying activity), or

(B) any government official or employee about a decision to sign 

or veto enrolled legislation.

(d) Costs associated with any attempt to influence the introduction of federal 

or state legislation, or the enactment or modification of pending federal or 

state legislation by preparing, distributing, or using publicity or 

propaganda, or by urging members of the public to contribute to or 

participate in any mass demonstration, march, rally, fund-raising drive, 

lobbying campaign, or letter-writing or telephone campaigns are not 

allowable.

(e) Costs associated with legislation liaison activities, including attendance at 

legislative sessions or committee hearings, gathering information 

regarding legislation, and analyzing the effect of legislation, when such 

activities are carried on in support of, or knowledge of preparation, for an 

effort to engage in activities for which the unallowable costs are not 

allowable.

(f) The costs of providing a technical and factual presentation of information 

on a topic directly related to the performance of a contract through hearing 

testimony, statements, or letters to the Congress or a state legislature, or 

its subdivision, member, or cognizant staff member, in response to a 

documented request (including a Congressional Record notice requesting 

testimony or statements for the record at a regularly scheduled hearing) 

made by the recipient member, legislative body or subdivision, or its

cognizant staff member are allowable.

(g) The costs for transportation, lodging or meals related to the activities 

authorized under § 470.40.50 (Lobbying Costs) are not allowable unless 

incurred offering testimony at a regularly scheduled congressional hearing 

in response to a written request for such presentation made by the chair or 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 49

ranking minority member of the committee or subcommittee conducting 

such hearing.

(h) The costs of lobbying to influence state legislation to directly reduce 

contract cost, or to avoid material impairment of the contractor's authority 

to perform the contract are allowable.

(i) The costs of any activity specifically authorized by statute to be 

undertaken with funds from the contract are allowable.

§ 470.40.55 Losses on Other Contracts

An excess of costs over income under any other contract (including the contractor's 

contributed portion under cost-sharing contracts) are not allowable.

§ 470.40.60 Taxes

The following costs are not allowable:

(a) federal income and excess-profits taxes;

(b) taxes in connection with financing, refinancing, refunding operations, or 

reorganizations;

(c) taxes from which exemptions are available to the contractor directly, or 

available to the contractor based on an exemption afforded the judiciary, 

except when the CO determines that the administrative burden incident to 

obtaining the exemption outweighs the corresponding benefits accruing to 

the judiciary;

(Note: The term "exemption" means freedom from taxation in whole or in 

part and includes a tax abatement or reduction resulting from mode of 

assessment, method of calculation, or otherwise.)

(d) special assessments on land that represent capital improvements;

(e) taxes (including excises) on real or personal property or its value, use, 

possession, or sale, which is used solely in connection with work other 

than on judiciary contracts;

(f) taxes on accumulated funding deficiencies of, or prohibited transactions 

involving, employee deferred compensation plans; and

(g) income tax accruals designed to account for the tax effect of differences 

between taxable income and pretax income as reflected by the books of 

account and financial statements.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 50

§ 470.40.65 Defense of Fraud Proceedings

Contractor costs incurred in connection with defense of any of the following are not 

allowable:

(a) criminal or civil investigation, grand jury proceeding, or prosecution;

(b) civil litigation; or

(c) administrative proceedings such as suspension or debarment, or any 

combination of the foregoing, brought by the judiciary against a contractor, 

its agents or employees, are unallowable when the charges that are the 

subject of the investigation, proceedings, or prosecution:

(1) involve fraud or similar criminal offenses (including filing of a false 

certification) on the part of the contractor or its agents or 

employees, and

(2) result in conviction (including conviction entered on a plea of nolo 

contendere), judgment against the contractor, its agents or 

employees, or decision to debar or suspend, or are resolved by 

consent or compromise. (Note: When the charges of fraud are 

resolved by consent or compromise, the parties may agree on the 

extent of allowability of such costs as a part of such resolution.)

§ 470.40.70 Termination Costs

(a) General

Contract terminations generally give rise to the occurrence of costs or the 

need for special treatment of costs that would not have arisen if the 

contract had not been terminated. This part describes the cost principles 

peculiar to termination situations to be used in conjunction with the other 

cost principles.

(b) Common Items

The costs of items reasonably usable on the contractor's other work are 

not allowable unless the contractor submits evidence that the items could 

not be retained at cost without sustaining a loss. The CO must consider 

the contractor's plans and orders for current and planned production when 

determining if items can reasonably be used on other work of the 

contractor.
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 51

(c) Costs Continuing after Termination

Costs that cannot be discontinued immediately after the effective date of 

termination are generally allowable. However, any costs continuing after 

the effective date of the termination because of the negligent or willful 

failure of the contractor to discontinue them are unallowable.

(d) Start-Up Costs

Reasonable start-up and preparatory costs are generally allowable. When 

included in the settlement offer as a direct charge, they must not also be 

included in overhead. Start-up costs for one contract must not be 

allocated to others.

(e) Loss of Useful Value

Loss of useful value of special tooling and special machinery and 

equipment is generally allowable provided the:

(1) special tooling or special machinery and equipment is not 

reasonably capable of use in the other work of the contractor;

(2) judiciary’s interest is protected by transfer of title or by other means 

deemed appropriate by the CO; and

(3) loss of useful value for any one terminated contract is limited to that 

portion of the equipment cost that bears the same ratio to the total 

cost as the terminated portion of the contract bears to the entire 

terminated contract and to other judiciary contracts for which the 

special tooling or special machinery and equipment were acquired.

(f) Rental Costs Under Unexpired Leases

Rental costs under unexpired leases, less the residual value of such 

leases, are generally allowable when shown to have been reasonably 

necessary for the performance of the terminated contract when:

(1) the amount of rental claimed does not exceed the reasonable use 

value of the property leased for the period of the contract and such 

further period as may be reasonable; and

(2) the contractor makes all reasonable efforts to terminate, assign, 

settle, or otherwise reduce the cost of such lease.

(g) Alterations of Leased Property
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 52

The cost of alterations and reasonable restorations required by the lease 

may be allowed when the alterations are necessary for performing the 

contract.

(h) Settlement Expenses

Settlement expenses such as the following are generally allowable:

(1) Accounting, legal, clerical, and similar costs reasonably necessary 

for the:

• preparation and presentation, including supporting data, of 

settlement claims to the CO; and

• termination and settlement of subcontracts.

(2) Reasonable costs for storage, transportation, protection and 

disposition of property acquired or produced for the contract.

(3) Indirect costs related to salary and wages incurred as settlement 

expenses under subparagraphs (1) and (2) above. Normally, such 

indirect costs must be limited to payroll taxes, fringe benefits, 

occupancy costs, and immediate supervision costs.

Note: If settlement expenses are significant, a cost account or work order 

must be established to identify and accumulate them separately.

(i) Subcontractor Claims

Subcontractor claims, including the allocable portion of the claims 

common to the contract and to other work of the contractor are generally 

allowable. An appropriate share of the contractor's indirect expenses may 

be allocated to the amount of settlements with subcontractors, provided 

that the amount allocated is reasonably proportionate to the relative 

benefits received and is otherwise consistent with the principles of this 

chapter. The indirect expense so allocated must exclude the same and 

similar costs claimed directly or indirectly as settlement expenses.

§ 470.40.75 Self-Insurance Costs

(a) Programs of self-insurance covering a contractor’s insurable risks, 

including the deductible portion of purchased insurance, may be approved 

and the costs considered allowable when examination of a program 

indicates that its application is in the judiciary’s interest.

(b) However, programs of self-insurance for catastrophic risks or to protect a 

contractor against the costs of correcting its own defects in materials or 
Guide to Judiciary Policy, Vol. 14, Ch. 4 Page 53

workmanship are not allowable. Should performance of a judiciary 

contract create the risk of catastrophic losses, the judiciary may, to the 

extent authorized by law, agree to indemnify the contractor or recognize 

an appropriate share of premiums for purchased insurance, or both.

§ 470.50 Accounting for Unallowable Costs

The CO must identify and exclude from each billing, claim, and offer those costs that 

are expressly unallowable under this chapter or as mutually agreed to be unallowable 

under an advance cost agreement. See: § 470.30.20 (Advance Agreements).

(a) When costs are identified as unallowable or mutually agreed to be 

unallowable, all directly associated costs are also unallowable.

(b) Costs and directly associated costs specifically designated as unallowable 

as a result of a written decision by a CO must be identified when included 

in or used in computing any billing, claim, or offer applicable to a judiciary 

contract.

(c) For those costs that have been identified as unallowable, the CO must 

require records as support for claims, billings, and offers. These must be 

adequate to establish and maintain visibility of those costs and directly 

associated costs.

(d) The CO must identify unallowable costs involved in determining rates 

used for standard costs, indirect cost offers, or billings at the time rates 

are proposed, established, revised, or adjusted.