56314 Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Proposed Rules 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Parts 16, 32, and 52 

[FAR Case 2004–015] 

RIN 9000–AK32 

Federal Acquisition Regulation; 

Payments Under Time-and-Materials 

and Labor-Hour Contracts 

AGENCIES: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA). 

ACTION: Proposed rule with request for 

comments. 

SUMMARY: The Civilian Agency 

Acquisition Council and the Defense 

Acquisition Regulations Council 

(Councils) are proposing to amend the 

FAR regarding payments under Timeand-Materials (T&M) and Labor-Hour 

(LH) Contracts. 

DATES: Interested parties should submit 

written comments to the FAR 

Secretariat on or before November 25, 

2005, to be considered in the 

formulation of a final rule. 

ADDRESSES: Submit comments 

identified by FAR case 2004–015 by any 

of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Agency Web Site: http:// 

www.acqnet.gov/far/ProposedRules/ 

proposed.htm. Click on the FAR case 

number to submit comments. 

• E-mail: farcase.2004–015@gsa.gov. 

Include FAR case 2004–015 in the 

subject line of the message. 

• Fax: 202–501–4067. 

• Mail: General Services 

Administration, Regulatory Secretariat 

(VIR), 1800 F Street, NW., Room 4035, 

ATTN: Laurieann Duarte, Washington, 

DC 20405. 

Instructions: Please submit comments 

only and cite FAR case 2004–015 in all 

correspondence related to this case. All 

comments received will be posted 

without change to http:// 

www.acqnet.gov/far/ProposedRules/ 

proposed.htm, including any personal 

and/or business confidential 

information provided. 

Public Meeting: A public meeting will 

be held on Tuesday, October 18, 2005, 

from 9:00 a.m. to 4:00 p.m. Eastern 

Time, in the GS Building Auditorium, 

1800 F Street NW, Washington, DC 

20405, to facilitate an open dialogue 

between the Government and parties 

interested in the implementation of 

section 8002(d), FAR Case 2003–027, 

Additional Contract Types. Because 

they are so closely related, the public 

meeting will also cover this FAR 

proposed rule 2004–015, Payment 

Under Time-and-Materials and LaborHour Contracts. Interested parties are 

encouraged to attend and engage in 

discussions regarding these proposed 

rules. 

To facilitate discussions at the public 

meeting, interested parties are 

encouraged to provide written 

comments on issues they would like 

addressed at the public meeting no later 

than Tuesday, October 11, 2005. 

Interested parties may register and 

submit their input electronically at 

http://www.acq.osd.mil/dpap/dars/ 

index.htm. Attendees are encouraged, 

but not required, to register for the 

public meeting, to ensure adequate 

accommodations. 

Directions to the meeting can be 

found at the Web site. Participants are 

encouraged to check with the Web site 

prior to the public meeting to ensure the 

location has not been changed as a 

result of a large number of registrants. 

The public meeting is physically 

accessible to people with disabilities. 

Requests for sign language 

interpretation or other auxiliary aids 

should be directed to Mr. Jeremy Olson 

at 202–501–3221 at least 5 days prior to 

the meeting. 

FOR FURTHER INFORMATION CONTACT: The 

FAR Secretariat at (202) 501–4755 for 

information pertaining to status or 

publication schedules. For clarification 

of content, contact Mr. Jeremy Olson, at 

(202) 208–3221. Please cite FAR case 

2004–015. 

SUPPLEMENTARY INFORMATION: 

A. Background 

The amendments made under this 

case are intended to be applicable only 

to non-commercial item contracts. 

Policies applicable to commercial item 

T&M or LH contracts are being 

addressed separately under FAR case 

2003–027. 

The proposed amendments to FAR 

16.307, 16.601, 32.111, and the FAR 

clause at 52.232–7 are intended to 

amend the underlying policies and 

increase the clarity of the affected FAR 

language. The proposed rule addresses 

the areas related to payments made 

under T&M and LH contracts for noncommercial items, as described below. 

1. FAR 16.307—Contract clauses. 

The Councils are proposing to amend 

FAR 16.307(a)(1) to specify that the 

Allowable Cost and Payment clause is 

included in T&M contracts. The clause 

is only applicable to the portion of the 

contract that provides for 

reimbursement of materials at actual 

cost. This change is being made to 

ensure that appropriate rights and 

responsibilities are provided in T&M 

contracts with respect to reimbursement 

for material cost. 

2. FAR 16.601—Time-and-materials 

contracts. 

The Councils are proposing to revise 

the language at FAR 16.601(a) to 

provide a description of ‘‘materials’’ as 

used in ‘‘time-and-materials contract.’’ 

FAR 16.601(a) currently describes a 

T&M contract as a contract that provides 

for acquiring supplies or services on the 

basis of— 

• Direct labor hours at specified fixed 

hourly rates that include wages, 

overhead, general and administrative 

expenses, and profit; and 

• Materials at cost, including, if 

appropriate, material handling costs as 

part of material costs. 

The current description does not 

address subcontract costs, even though 

such costs are often a significant part of 

the work performed and are provided 

for under the payments clause at FAR 

52.232–7. Also, the description does not 

address other direct costs and 

applicable indirect costs other than 

material handling (e.g., general and 

administrative expenses) that may be 

appropriate for the acquisition. Thus, 

the Councils are proposing to revise 

‘‘materials at cost’’ to include ‘‘direct 

materials, subcontracts for supplies and 

services, other direct costs, and 

applicable indirect costs’’. 

3. General structure of the FAR clause 

at 52.232–7—Payments under Timeand-Materials and Labor-Hour 

Contracts. 

The Councils are proposing to amend 

the current paragraph (b) of the FAR 

clause at 52.232–7 to specify that the 

term ‘‘materials,’’ as used in the clause, 

includes direct materials, subcontracts 

for supplies and services, other direct 

costs, and applicable indirect costs (this 

is consistent with the proposed changes 

to FAR 16.601). Materials also include 

supplies and services transferred 

between divisions, subdivisions, 

subsidiaries, or affiliates of the 

contractor under a common control. The 

current language has caused significant 

confusion because it does not 

adequately describe what is included in 

‘‘materials.’’ 

Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Proposed Rules 56315 

4. Contractor furnished material—

Alternate I. 

The Councils are proposing to move 

and amend the current Alternate I to 

paragraph (b)(3) of the clause. When a 

contractor furnishes its own materials 

that meet the definition of a commercial 

item at FAR 2.101, the price to be paid 

for such materials shall be the 

contractor’s established catalog or the 

market price. The ability of the 

contractor to bill at such prices should 

not be dependent on a contracting 

officer decision as to whether an 

alternate clause should be included in 

the contract. 

5. Profit or fee on materials. 

The Councils are proposing to revise 

paragraph (b)(8) of the FAR clause at 

52.232–7 to specifically state that the 

Government does not pay profit or fee 

to the prime contractor on materials 

(except for commercial items discussed 

in Item 4 above or as otherwise 

provided for in FAR 31.205–26). The 

Councils believe this is consistent with 

the historical intent of the clause and 

the concept of a T&M contract. The 

recovery of profit or fee is accomplished 

as part of the labor hour portion of the 

T&M/LH contract. 

6. Billing subcontracts and 

interdivisional transfers for incidental 

supplies or services. 

For subcontracts, the Councils are 

proposing to clarify that subcontracts for 

incidental services are to be reimbursed 

at the actual subcontract price, plus 

allowable indirect costs, per the 

requirements of the FAR clause at 

52.216–7, Allowable Cost and Payment. 

For interdivisional transfers, the 

Councils are proposing to revise the 

language to limit reimbursement to the 

actual rates or commercial prices of the 

division performing the work. 

7. Billing subcontracts and 

interdivisional transfers for services 

that comply with the labor hour 

requirements. 

For services performed by employees 

of subcontractors, the Councils are 

proposing to amend the policies to 

provide the contracting parties two 

possible approaches that would be used 

depending on the contracting officer’s 

determination of circumstances 

applicable to an individual 

procurement. The first approach 

includes coverage in the FAR clause at 

52.232–7 applicable to subcontractors 

providing services compliant with the 

labor hour requirements of a T&M or LH 

contract. Under this approach, payment 

of subcontract costs would be at the 

contract fixed labor rate under the 

contract requirements applicable to the 

labor hour portion of the contract only 

if a subcontractor is listed in the 

payment clause. 

The contracting officer can select the 

second available approach by inserting 

‘‘None’’ in the clause, which would 

provide that any other labor provided by 

a subcontractor would be paid at actual 

cost (plus applicable indirect costs). 

The Councils believe this two option 

approach is appropriate for the 

following reasons: 

• The Government should have the 

authority to limit subcontractors that are 

authorized to perform labor hours to be 

paid at the LH rate under a T&M or LH 

contract. 

o The authority should be 

independent of the approval/ 

notification process in the 

‘‘Subcontracts’’ clause. 

o The limitation should appear as part 

of the T&M Payment clause and it 

should include (or refer to) the list of 

subcontractors approved to provide 

labor hours paid at the LH rate under 

the contract. 

o If the prime contractor wishes to 

add a new subcontractor, the 

contracting officer would have to agree 

(and make any necessary adjustment to 

the LH rates as a result). 

o Subcontracted labor hours paid at 

the LH rate should not be subject to 

further material handling fees or any 

other type of reimbursement of the sort 

authorized for material. 

o Subcontracted labor hours paid at 

the LH rate must be accounted for and 

substantiated under the same standards 

as labor hours provided by the prime 

contractor. 

• Subcontractors providing services 

that are ancillary to and not part of the 

LH portion of the contract should be 

paid actual costs, using the same 

procedures as are used for material (e.g., 

crane operators subcontracted as part of 

installation services, and drivers 

subcontracted to provide transportation 

to LH workers). 

8. Application of Prompt Payment Act. 

The Councils are proposing to add the 

language at paragraph (i) of the FAR 

clause at 52.232–7 to include 

application of the Prompt Payment Act 

for interim payments under T&M and 

LH contracts for services. The Prompt 

Payment Act has applied to fixed-price 

contracts for services for many years. 

Congress also recently amended the 

Prompt Payment Act to include cost 

reimbursement contracts for services. 

The Councils believe that since the 

Prompt Payment Act is applicable to 

both fixed-price and cost reimbursement 

contracts for services, it should also be 

applicable to T&M and LH contracts for 

services. 

B. Regulatory Planning and Review 

This is not a significant regulatory 

action and, therefore, was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804. 

C. Regulatory Flexibility Act 

The changes may have a significant 

economic impact on a substantial 

number of small entities within the 

meaning of the Regulatory Flexibility 

Act, 5 U.S.C. 601, et seq., because Time 

and Material or Labor Hour contracts are 

commonly awarded to small businesses. 

An Initial Regulatory Flexibility 

Analysis (IRFA) has been prepared. The 

analysis is summarized as follows: 

Initial Regulatory Flexibility Analysis 

1. Description of the reasons why action by 

the agency is being considered. This 

proposed rule would revise the Federal 

Acquisition Regulation to amend underlying 

policies and increase the clarity of payments 

made under T&M and LH contracts for noncommercial items. 

2. Succinct statement of the objectives of, 

and legal basis for, the proposed rule. The 

objectives of the amendment are to ensure 

fair and reasonable prices under T&M 

contracts and to eliminate the ambiguity in 

T&M contracts that has been responsible for 

confusion over payment amounts for 

subcontractor provided labor. 

3. Description of, and, where feasible, 

estimate of the number of small entities to 

which the proposed rule will apply. The 

changes may have a significant economic 

impact on a substantial number of small 

entities within the meaning of the Regulatory 

Flexibility Act, 5 U.S.C. 601, et seq., because 

T&M contracting is a common method of 

acquiring services from small entities. 

However, it is not feasible to estimate the 

number of small entities impacted. 

4. Description of projected reporting, 

record keeping, and other compliance 

requirements of the proposed rule, including 

an estimate of the classes of small entities 

which will be subject to the requirement and 

the type of professional skills necessary for 

preparation of the report or record. The 

current FAR policies require contractors to 

maintain records to support invoices 

presented to the Government for payment. 

Such records include original timecards, the 

contractor’s timekeeping procedures, 

distribution of labor, invoices for material, 

and so forth. These are standard records 

maintained by any company, large or small, 

and the fact that the contract would require 

that these records be made available to the 

Government should not place any additional 

record keeping burden on the entity. 

5. Identification, to the extent practicable, 

of all relevant Federal rules which may 

duplicate, overlap, or conflict with the 

proposed rule. There are no Federal rules 

56316 Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Proposed Rules 

that duplicate, overlap or conflict with the 

proposed rule. 

6. Description of any significant 

alternatives to the proposed rule which 

accomplish the stated objectives of 

applicable statutes and which minimize any 

significant economic impact of the proposed 

rule on small entities. Significant alternatives 

to the proposed rule include: 

• Not permitting any subcontractor to be 

paid at the labor hour rate and reimbursing 

all subcontractors at actual cost. 

• Incorporating a list of each Other Direct 

Cost (ODC) into each T&M contract that 

would be authorized for reimbursement 

under that contract and prohibiting 

reimbursement of any other ODC. 

• Not requiring a list of each Other Direct 

Cost (ODC) authorized for reimbursement 

and permitting any ODC to be reimbursed. 

The FAR Secretariat has submitted a 

copy of the IRFA to the Chief Counsel 

for Advocacy of the Small Business 

Administration. A copy of the IRFA may 

be obtained from the FAR Secretariat. 

The Councils will consider comments 

from small entities concerning the 

affected FAR parts in accordance with 5 

U.S.C. 610. Comments must be 

submitted separately and should cite 5 

U.S.C 601, et seq. (FAR case 2004–015), 

in correspondence. 

D. Paperwork Reduction Act 

The Paperwork Reduction Act does 

not apply because the proposed changes 

to the FAR do not impose information 

collection requirements that require the 

approval of the Office of Management 

and Budget under 44 U.S.C. 3501, et 

seq. 

List of Subjects in 48 CFR Parts 16, 32, 

and 52 

Government procurement. 

Dated: September 19, 2005. 

Gerald Zaffos, 

Acting Director, Contract Policy Division. 

Therefore, DoD, GSA, and NASA 

propose amending 48 CFR parts 16, 32, 

and 52 as set forth below: 

1. The authority citation for 48 CFR 

parts 16, 32, and 52 is revised to read 

as follows: 

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 42 U.S.C. 2473(c). 

PART 16—TYPES OF CONTRACTS 

2. Amend section 16.307 by revising 

paragraph (a)(1) to read as follows: 

16.307 Contract clauses. 

(a)(1) The contracting officer shall 

insert the clause at 52.216–7, Allowable 

Cost and Payment, in solicitations and 

contracts when a cost-reimbursement 

contract (other than a facilities contract) 

or a time-and-materials contract (other 

than a contract for a commercial item) 

is contemplated. If the contract is with 

an educational institution, modify the 

clause by deleting from paragraph (a) 

the words ‘‘Subpart 31.2’’ and 

substituting for them ‘‘Subpart 31.3.’’ If 

the contract is with a State or local 

government, modify the clause by 

deleting from paragraph (a) the words 

‘‘Subpart 31.2’’ and substituting for 

them ‘‘Subpart 31.6.’’ If the contract is 

with a nonprofit organization, other 

than an educational institution, a State 

or local government, or a nonprofit 

organization exempted under OMB 

Circular No. A–122, modify the clause 

by deleting from paragraph (a) the 

words ‘‘Subpart 31.2’’ and substituting 

for them ‘‘Subpart 31.7.’’ If the contract 

is a time-and-materials contract, the 

clause at 52.216–7 applies only to the 

portion of the contract that provides for 

reimbursement of materials (as defined 

in the clause at 52.232–7) at actual cost. 

* * * * * 

3. Amend section 16.601 by—

a. Redesignating paragraphs (a), (b), 

and (c) as (b), (c), and (d), respectively; 

b. Adding a new paragraph (a); and 

c. Revising newly redesignated 

paragraph (b)(2). 

The added and revised text reads as 

follows: 

16.601 Time-and-materials contracts. 

(a) Definitions for the purposes of 

Time-and-Materials Contracts. 

Direct materials means those 

materials that enter directly into the end 

product, or that are used or consumed 

directly in connection with the 

furnishing of the end product or service. 

Materials means—

(1) Direct materials, including 

supplies and services transferred 

between divisions, subsidiaries, or 

affiliates of the contractor under a 

common control; 

(2) Subcontracts for supplies and 

services; 

(3) Any other direct costs (e.g., travel, 

computer usage charges, etc.); and 

(4) Applicable indirect costs. 

(b) * * * 

(2) Actual cost for materials (except as 

provided for in 31.205–26(e) and (f)). 

* * * * * 

4. Revise section 16.602 to read as 

follows: 

16.602 Labor-hour contracts. 

Description. A labor-hour contract is a 

variation of the time-and-materials 

contract, differing only in that materials 

are not supplied by the contractor. See 

16.601(c) and 16.601(d) for application 

and limitations, respectively, for time 

and materials contracts that also apply 

to labor hour contracts. 

PART 32—CONTRACT FINANCING 

5. Amend section 32.111 in paragraph 

(a)(7) by—

a. Removing paragraph (i); 

b. Redesignating paragraphs (ii) and 

(iii) as (i) and (ii), respectively; and 

c. Revising newly designated 

paragraph (i). 

The revised text reads as follows: 

32.111 Contract clauses for noncommercial purchases. 

(a) * * * 

(7) * * * 

(i) If a labor-hour contract is 

contemplated, the contracting officer 

shall use the clause with its Alternate I. 

* * * * * 

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES 

6. Amend section 52.232–7 by—

a. Revising the date of the clause; 

b. Revising the introductory 

paragraph of the clause; 

c. Revising paragraphs (a), (b), (d), and 

(e) of the clause; 

d. Revising the heading of paragraph 

(h); 

e. Adding paragraph (i); and 

f. Removing Alternate I, and 

redesignating Alternate II as Alternate I 

and revising it to read as follows: 

52.232–7 Payments under Time-andMaterials and Labor-Hour Contracts. 

As prescribed in 32.111(a)(7), insert 

the following clause: 

PAYMENTS UNDER TIME-ANDMATERIALS AND LABOR-HOUR 

CONTRACTS (DATE) 

The Government will pay the Contractor as 

follows upon the submission of vouchers 

approved by the Contracting Officer or the 

Contracting Officer’s authorized 

representative: 

(a) Hourly rate. (1) The amounts shall be 

computed by multiplying the appropriate 

hourly rates prescribed in the Schedule by 

the number of direct labor hours performed. 

The rates shall include wages, indirect costs, 

general and administrative expense, and 

profit. Fractional parts of an hour shall be 

payable on a prorated basis. 

(2) Vouchers may be submitted once each 

month (or at more frequent intervals, if 

approved by the Contracting Officer), to the 

Contracting Officer or authorized 

representative. The Contractor shall 

substantiate vouchers (including any 

subcontractor hours reimbursed at the hourly 

rate in the schedule) by evidence of actual 

payment and by individual daily job 

timecards, records that verify the employees 

meet the qualifications for the labor 

categories specified in the contract or other 

substantiation approved by the Contracting 

Officer. 

(3) Promptly after receipt of each 

substantiated voucher, the Government shall, 

except as otherwise provided in this contract, 

Federal Register / Vol. 70, No. 185 / Monday, September 26, 2005 / Proposed Rules 56317 

and subject to the terms of paragraph (e) of 

this clause, pay the voucher as approved by 

the Contracting Officer. Unless otherwise 

prescribed in the Schedule, the Contracting 

Officer may unilaterally issue a contract 

modification requiring the Contractor to 

withhold amounts from its billings until a 

reserve is set aside in an amount that the 

Contracting Officer considers necessary to 

protect the Government’s interests. The 

Contracting Officer may require a withhold of 

5 percent of the amounts due under 

paragraph (a), but the total amount withheld 

for the contract shall not exceed $50,000. The 

amounts withheld shall be retained until the 

Contractor executes and delivers the release 

required by paragraph (f) of this clause. 

(4) Unless the Schedule prescribes 

otherwise, the hourly rates in the Schedule 

shall not be varied by virtue of the Contractor 

having performed work on an overtime basis. 

If no overtime rates are provided in the 

Schedule and overtime work is approved in 

advance by the Contracting Officer, overtime 

rates shall be negotiated. Failure to agree 

upon these overtime rates shall be treated as 

a dispute under the Disputes clause of this 

contract. If the Schedule provides rates for 

overtime, the premium portion of those rates 

will be reimbursable only to the extent the 

overtime is approved by the Contracting 

Officer. 

(b) Materials. For the purposes of this 

clause—

(1) Direct materials means those materials 

that enter directly into the end product, or 

that are used or consumed directly in 

connection with the furnishing of the end 

product or service. 

(2) Materials means—

(i) Direct materials, including supplies and 

services transferred between divisions, 

subsidiaries, or affiliates of the contractor 

under a common control; 

(ii) Subcontracts for supplies and services; 

(iii) Any other direct costs (e.g., travel, 

computer usage charges, etc.); and 

(iv) Applicable indirect costs. 

(3) If the Contractor furnishes its own 

materials that meet the definition of a 

commercial item at 2.101 of the FAR, the 

price to be paid for such materials shall be 

the Contractor’s established catalog or the 

market price, adjusted to reflect the—

(i) Quantities being acquired; and 

(ii) Actual cost of any modifications 

necessary because of contract requirements. 

(4) Subcontracts. (i) Unless the 

subcontractor is listed in paragraph (b)(4)(ii) 

of this clause, subcontract costs will be 

reimbursed at actual costs as specified in 

paragraph (b)(5). 

(ii) Provided the subcontract agreement 

requires the Contractor to substantiate the 

subcontract hours and employee 

qualification, the Contractor shall be 

reimbursed at the hourly rates prescribed in 

the schedule for the following 

subcontractors: 

[Insert subcontractor name(s)or, if no 

subcontracts are to be reimbursed at the 

hourly rates prescribed in the schedule, 

insert ‘‘None.’’] 

[If this is an indefinite delivery contract, 

the Contracting Officer may insert ‘‘Each 

order must list separately the 

subcontractor(s) for that order or, if no 

subcontracts under that order are to be 

reimbursed at the hourly rates prescribed in 

the schedule, insert ‘None’.’’] 

(5) Except as provided for in paragraphs 

(b)(3) and (4) of this clause, the Government 

will reimburse the Contractor for allowable 

cost of materials provided the Contractor—

(i) Has made payments for materials in 

accordance with the terms and conditions of 

the agreement; or 

(ii) Makes these payments within 30 days 

of the submission of the Contractor’s 

payment request to the Government and such 

payment is in accordance with the terms and 

conditions of the agreement or invoice. 

(6) Payment for materials is subject to the 

Allowable Cost and Payment clause of this 

contract. The Contracting Officer will 

determine allowable costs of materials in 

accordance with Subpart 31.2 of the Federal 

Acquisition Regulation (FAR) in effect on the 

date of this contract. 

(7) The Contractor may include allocable 

indirect costs and other direct costs to the 

extent they are—

(i) Comprised only of costs that are clearly 

excluded from the hourly rate; 

(ii) Allocated in accordance with the 

Contractor’s written or established 

accounting practices; and 

(iii) Indirect costs are not applied to 

subcontracts listed in paragraph (b)(4) for 

reimbursement at the labor hour rate. 

(8) To the extent able, the Contractor 

shall—

(i) Obtain direct materials and subcontracts 

at the most advantageous prices available 

with due regard to securing prompt delivery 

of satisfactory materials; and 

(ii) Take all cash and trade discounts, 

rebates, allowances, credits, salvage, 

commissions, and other benefits. When 

unable to take advantage of the benefits, the 

Contractor shall promptly notify the 

Contracting Officer and give the reasons. The 

Contractor shall give credit to the 

Government for cash and trade discounts, 

rebates, scrap, commissions, and other 

amounts that have accrued to the benefit of 

the Contractor, or would have accrued except 

for the fault or neglect of the Contractor. The 

Contractor shall not deduct from gross costs 

the benefits lost without fault or neglect on 

the part of the Contractor, or lost through 

fault of the Government. 

(9) Except as provided for in 31.205–26(e) 

and (f) of the FAR, the Government will not 

pay profit or fee to the prime contractor on 

materials. 

(10) If the Contractor enters into any 

subcontract that requires consent under the 

clause at 52.244–2, Subcontracts, without 

obtaining such consent, the Government is 

not required to reimburse the Contractor for 

any costs incurred under the subcontract 

prior to the date the Contractor obtains the 

required consent. Any reimbursement of 

subcontract costs incurred prior to the date 

the consent was obtained shall be at the sole 

discretion of the Government. 

* * * * * 

(d) Ceiling price. The Government will not 

be obligated to pay the Contractor any 

amount in excess of the ceiling price in the 

Schedule, and the Contractor shall not be 

obligated to continue performance if to do so 

would exceed the ceiling price set forth in 

the Schedule, unless and until the 

Contracting Officer notifies the Contractor in 

writing that the ceiling price has been 

increased and specifies in the notice a 

revised ceiling that shall constitute the 

ceiling price for performance under this 

contract. When and to the extent that the 

ceiling price set forth in the Schedule has 

been increased, any hours expended and 

material costs incurred by the Contractor in 

excess of the ceiling price before the increase 

shall be allowable to the same extent as if the 

hours expended and material costs had been 

incurred after the increase in the ceiling 

price. 

(e) Audit. At any time before final payment 

under this contract, the Contracting Officer 

may request audit of the vouchers and 

supporting documentation. Each payment 

previously made shall be subject to reduction 

to the extent of amounts, on preceding 

vouchers, that are found by the Contracting 

Officer not to have been properly payable 

and shall also be subject to reduction for 

overpayments or to increase for 

underpayments. Upon receipt and approval 

of the voucher designated by the Contractor 

as the ‘‘completion voucher’’ and supporting 

documentation, and upon compliance by the 

Contractor with all terms of this contract 

(including, without limitation, terms relating 

to patents and the terms of (f) and (g) of this 

section), the Government shall promptly pay 

any balance due the Contractor. The 

completion voucher, and supporting 

documentation, shall be submitted by the 

Contractor as promptly as practicable 

following completion of the work under this 

contract, but in no event later than 1 year (or 

such longer period as the Contracting Officer 

may approve in writing) from the date of 

completion. 

* * * * * 

(h) Interim payments on contracts for other 

than services. * * * 

* * * * * 

(i) Interim payments on contracts for 

services. For interim payments made prior to 

the final payment under this contract, the 

Government will make payment in 

accordance with the Prompt Payment Act (31 

U.S.C. 3903) and prompt payment 

regulations at 5 CFR part 1315. 

(End of clause) 

Alternate I (Date). If a labor-hour contract 

is contemplated, the Contracting Officer shall 

add the following paragraph (i) to the basic 

clause: 

(i) The terms of this clause that govern 

reimbursement for materials furnished are 

considered to have been deleted. 

[FR Doc. 05–18964 Filed 9–23–05; 8:45 am] 

BILLING CODE 6820–EP–S