Increasing Contractor Liability on Research and Development Contracts

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1846 and 1852

RIN 2700-AB41

Increasing Contractor Liability on Research and Development

Contracts

AGENCY: Office of Procurement, Procurement Policy Division, National

Aeronautics and Space Administration.

ACTION: Proposed rule.

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SUMMARY: In accordance with Public Law 102-588, NASA has carried out an

assessment of the allocation of risk, as currently prescribed by the

Federal Acquisition Regulation, between NASA and its contractors for

research and development contracts. This assessment included publishing

a concept paper in the Federal Register (58 FR 16715, March 30, 1993)

in order to solicit public and Federal comment on options for

allocating risk for correction of defects in materials and workmanship

or other failures to conform to contract requirements. As a result of

public comment and consistent with the requirement of Public Law 102-

588 to initiate rule making, NASA is proposing certain changes to the

clause, Inspection of Research and Development--Cost Reimbursement, and

the associated prescription.

Essentially these changes, modified as a result of public comment

on the concept paper, are made to the current FAR coverage:

(1) Allocate additional financial risks to the contractor;

(2) Assign the Government the burden of proof when disallowing the

costs of correction or replacement;

(3) Define ``routine'' operations clearly; and

(4) Prescribe the use of an advance agreement to identify routine

operations, to the maximum extent practical.

DATES: Comments are due on or before April 18, 1994.

ADDRESSES: Submit comments to: Headquarters, NASA, Washington, DC

20546, ATTN: CODE HP/MR. T. Deback.

FOR FURTHER INFORMATION CONTACT: Mr. T. Deback, Procurement Policy

Division, (202) 358-0431.

SUPPLEMENTARY INFORMATION:

Background

The proposed clause, which would be used as a substitute for the

clause at FAR 52.246-8, Inspection of Research and Development--Cost

Reimbursement, for certain procurements, adds two situations under

which the Contractor will bear additional financial responsibility to

remedy failures to comply with the requirements of this contract: (1)

The contractor did not apply best efforts toward the accomplishment of

the research and development objectives of the contract, and (2) the

contractor did not follow generally accepted industrial or engineering

practices in performing routine operations. The contractor's liability

will be limited to 50 percent of the cost to remedy the failure or 10

percent of the contract value at the time the failure occurred,

whichever is less. The proposed clause differs from the standard FAR

clause in paragraphs (a) and (h). Current cost principles preclude the

allowability of costs for insurance to cover these potential costs.

If after evaluating public comments, NASA decides to adopt the

revised clause proposed herein, NASA will also propose and appropriate

FAR revision to cover the matter, as required by FAR 1.404.

Impact

NASA certifies that this regulation will not have a significant

economic effect on a substantial number of small entities under the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The regulation

imposes no new burdens on the public within the ambit of the Paperwork

Reduction Act, as implemented at 5 CFR part 1320.

List of Subjects in 48 CFR Parts 1846 and 1852

Government procurement.

Deidre A. Lee,

Associate Administrator for Procurement.

1. The authority citation for 48 CFR parts 1846 and 1852 continues

to read as follows:

Authority: 42 U.S.C. 2473(c)(1).

PART 1846--QUALITY ASSURANCE

2. Subpart 1846.3 is added to read as follows:

Subpart 1846.3--Contract Clauses

1846.308-70 Cost reimbursement research and development contracts.

(a) With the prior approval of the Procurement Officer, the

contracting officer shall insert the clause at 1852.246-XX, Inspection

of High Risk Research and Development--Cost Reimbursement, in lieu of

the clause at (FAR) 48 CFR 52.246-8, in solicitations and contracts for

research and development when (1) the primary objective of the contract

is the delivery of end items other than designs, drawings, or reports,

(2) a cost-reimbursement contract is contemplated, and (3) the

estimated value of the contract is $50 million or more.

(b) In connection with this clause, an advance agreement should be

included in the contract which, to the maximum extent practicable,

identifies those particular tasks and activities which are categorized

as routine operations, as that term is defined in the clause at

1852.246-XX, and those tasks and activities which embody the contract's

research and development objectives. Routine operations include

activities such as moving or packaging pieces of equipment,

manufacturing standard parts, or conducting standardized tests.

Research and development activities encompass tasks, methods, or

technical approaches for which success in meeting the contract

objectives cannot be reasonably assured.

PART 1852--SOLICITATION PROVISIONS AND CLAUSES

3. Section 1852.246-XX is added to read as follows:

1852.246-XX Inspection of High Risk Research and Development--Cost

Reimbursement.

As prescribed in 1846.308-70, insert the following clause:

Inspection of High Risk Research and Development--Cost Reimbursement

(xxx 1994)

(a) Definitions. Contractor's managerial personnel, as used in

this clause, means the Contractor's directors, officers, managers,

superintendents, or equivalent representatives who have supervision

or direction of--

(1) All or substantially all of the Contractor's business;

(2) All or substantially all of the Contractor's operation at

any one plant or separate location at which the contract is being

performed; or

(3) A separate and complete major industrial operation connected

with performing this contract.

Routine operation means a task or activity which is performed in

accordance with customary or regular procedures and for which

successful performance is reasonably assured. Routine operations may

involve the performance of a service function or the fabrication of

an item.

Work, as used in this clause, includes data when the contract

does not include the Warranty of Data clause.

(b) The Contractor shall provide and maintain an inspection

system acceptable to the Government covering the work under this

contract. Complete records of all inspection work performed by the

Contractor shall be maintained and made available to the Government

during contract performance and for as long afterwards as the

contract requires.

(c) The Government has the right to inspect and test all work

called for by the contract, to the extent practicable at all places

and times, including the period of performance, and in any event

before acceptance. The Government may also inspect the plant or

plants of the Contractor or its subcontractors engaged in the

contract performance. The Government shall perform inspections and

tests in a manner that will not unduly delay the work.

(d) If the Government performs any inspection or test on the

premises of the Contractor or a subcontractor, the Contractor shall

furnish and shall require subcontractors to furnish all reasonable

facilities and assistance for the safe and convenient performance of

these duties.

(e) Unless otherwise provided in the contract, the Government

shall accept work as promptly as practicable after delivery, and

work shall be deemed accepted 90 days after delivery, unless

accepted earlier.

(f) At any time during contract performance, but no later than 6

months (or such other time as may be specified in the contract)

after acceptance of all of the end items (other than designs,

drawings, or reports) to be delivered under the contract, the

Government may require the Contractor to replace or correct work not

meeting contract requirements. Time devoted to the replacement or

correction of such work shall not be included in the computation of

the above time period. Except as otherwise provided in paragraph (h)

of this clause, the cost of replacement or correction shall be

determined as specified in the Allowable Cost and Payment clause,

but not additional fee shall be paid. The Contractor shall not

tender for acceptance work required to be replaced or corrected

without disclosing the former requirement for replacement or

correction, and, when required, shall disclose the corrective action

taken.

(g)(1) If the Contractor fail to proceed with reasonable

promptness to perform replacement or correction, the Government

may--

(i) By contract or otherwise, perform the replacement or

correction, charge to the Contractor any increased cost, or make an

equitable reduction in any fixed fee paid or payable under the

contract;

(ii) Require delivery of any undelivered articles and shall have

the right to make an equitable reduction in any fixed fee paid or

payable under the contract; or

(iii) Terminate the contract for default.

(2) Failure to agree on the amount of increased cost to be

charged the Contractor or to the reduction in fixed fee shall be a

dispute.

(h)(1) Notwithstanding paragraphs (f) and (g) of this clause,

the Government may at any time require the Contractor to remedy by

correction or replacement, without cost to the Government, any

failure to comply with the requirements of this contract, if the

failure is due to:

(i) Fraud, lack of good faith, or willful misconduct on the part

of the Contractor's managerial personnel;

(ii) The conduct of one or more of the Contractor's employees

selected or retained by the Contractor after any of the Contractor's

managerial personnel has reasonable grounds to believe that the

employee is habitually careless or unqualified;

(iii) The Contractor not applying best efforts toward the

accomplishment of the research and development objectives of the

contract (those for which success cannot be reasonably predicted at

the time of contract award); or

(iv) The Contractor not following generally accepted industrial

or engineering practices in performing routine operations as part of

contract performance.

(2) The contractor's liability for failures due to causes listed

in subparagraphs (h)(1) (iii) and (iv) is limited to the lesser of:

(i) 50 percent of the cost to remedy the failure, or (ii) 10 percent

of the contract value at the time the failure occurred.

(i) This clause shall apply in the same manner to a corrected or

replacement end item or components as to work originally delivered.

(j) The Contractor has no obligation or liability under the

contract to correct or replace articles not meeting contract

requirements at time of delivery, except as provided in this clause

or as may otherwise be specified in the contract.

(k) Unless otherwise provided in the contract, the Contractor's

obligations to correct or replace Government-furnished property

shall be governed by the clause pertaining to Government property.

[FR Doc. 94-3514 Filed 2-16-94; 8:45 am]

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