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volves access to information classified "Confidential" including "Confidential-Modified Handling Authorized" or higher.

(b) The Government shall notify the contractor of the security classification of this contract and the elements thereof, and of any subsequent revisions in such security classification, by the use of a Security Requirements Check List (DD Form 254), or other written notification.

(c) To the extent the Government has indicated as of the date of this contract or thereafter indicates security classification under this contract as provided in paragraph (b) above, the contractor shall safeguard all classified elements of this contract and shall provide and maintain a system of security controls within its own organization in accordance with the requirements of: (i) the Security Agreement (DD Form 441), including the Department of Defense Industrial Security Manual for Safeguarding Classified Information as in effect on date of this contract, and any modification to the Security Agreement for the purpose of adapting the Manual to the contractor's business; and (ii) any amendments to said Manual made after the date of this contract, notice of which has been furnished to the contractor by the Security Office of the Military Department having security cognizance over the facility.

(d) Representatives of the Military Department having security cognizance over the facility and representatives of the Federal Aviation Agency shall have the right to inspect at reasonable intervals the procedures, methods, and facilities utilized by the contractor in complying with the security requirements under this contract. Should the Government, through these representatives, determine that the contractor is not complying with the security requirements of this contract, the contractor shall be informed in writing by the Security Office of the cognizant Military Department of the proper action to be taken in order to effect compliance with such requirements.

(e) If subsequent to the date of this contract, the security classifications or security requirements under this contract are changed by the Government as provided in this clause and the security costs under this contract are thereby increased or decreased, the contract price shall be subject to an equitable adjustment by reason of such increased or decreased costs. Any equitable adjustment shall be accomplished in the same manner as if such changes were directed under the "Changes" clause in this contract.

(f) The contractor agrees to insert, in all subcontracts hereunder which involve access to classified information, provisions which shall conform substantially to the language of this clause, including this paragraph (f) but excluding the last sentence of paragraph (e) of this clause.

(g) The contractor also agrees that it shall determine that any subcontractor proposed by it for the furnishing of supplies and services which will involve access to classified information in the contractor's custody has been granted an appropriate facility security clearance, which is still in effect, prior to being accorded access to such classified information.

§ 2-7.150-16 Termination for convenience of the Government.

(a) In contracts exceeding $2,500 but not in excess of $10,000, the short-form clause set forth in § 1-8.705-1 of this title shall be used.

(b) In contracts exceeding $10,000, the clause set forth in § 1-8.701 of this title shall be used.

§ 2-7.150-17 Renegotiation.

(a) Except as provided in paragraphs (b) and (c) of this section, insert the following clause:

RENEGOTIATION

To the extent required by law, this contract is subject to the Renegotiation Act of 1951 (50 U.S.C. App. 1211, et seq), as amended, and to any subsequent act of Congress providing for the renegotiation of contracts. Nothing contained in this clause shall impose any renegotiation obligation with respect to this contract or any subcontract hereunder which is not imposed by an act of Congress heretofore or hereafter enacted. Subject to the

foregoing, this contract shall be deemed to contain all the provisions required by section 104 of the Renegotiation Act of 1951, and by any such other act, without subsequent contract amendment specifically incorporating such provisions.

The contractor agrees to insert the provisions of this clause, including this paragraph, in all subcontracts, as that term is defined in Section 103g of the Renegotiation Act of 1951, as amended.

(b) The Renegotiation clause is not required in

(1) Contracts with a State, Territory, possession, foreign government, agency or subdivision thereof;

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(2) Contracts or subcontracts for an agricultural commodity in its raw or natural state, or in its first form or state in which it is customarily sold;

(3) Contracts or subcontracts for the product of a mine, oil or gas well, or other mineral or natural deposit, or timber which has not been treated beyond its first form or state suitable for industrial use;

86-087 O-68-5

(4) Contracts or subcontracts with a common carrier for transportation or with a public utility for gas, electric energy, water, communications, or transportation if made at published rates regulated by a public body or at unregulated rates substantially as favorable to users as are regulated rates;

(5) Contracts or subcontracts with tax-exempt charitable, religious, and educational institutions, or for the prevention of cruelty to children or animals, providing the income from the contract or subcontract is not taxable as unrelated business net income;

(6) Contracts which the Renegotiation Board determines to have no direct and immediate connection with the national defense; examples-building maintenance and repair, laundry and cleaning services, and removal of waste material;

(7) Subcontracts under exempt contracts and subcontracts.

(c) Renegotiation is a complex subject. It is not therefore practicable to set forth in detail the many varied mandatory and permissive exemptions from the Renegotiation Act (for example, certain contracts for "standard commercial articles" and "standard commercial services" may not be subject to the Act). In any case where there is any doubt as to whether the contract is exempt from renegotiation, the clause shall be inserted in the contract.

§ 2-7.150-18 Loss or damage to leased aircraft.

When the contract is for the lease of aircraft, the clause set forth in § 2-10.401 of this chapter shall be used under the conditions described therein.

§ 2-7.150-19 Price redetermination (prospective).

When it is determined, in accordance with §§ 1-3.404-5 of this title and 2-3.404-5 of this chapter to use a fixedprice contract providing for prospective redetermination of price, the following clause shall be included in the contract.

PRICE REDETERMINATION

(a) General. The unit prices and the total price set forth in this contract shall be periodically redetermined in accordance with

the provisions of this clause. The prices for supplies delivered and services performed prior to the first effective date of price redetermination shall remain fixed.

(b) Price redetermination periods. For the purpose of price redetermination the performance of this contract is divided into successive periods. The first period shall extend from the date of this contract to ____, and the second and each succeeding period shall extend for (----) months from the end of the last preceding period, except that the final period may be varied by agreement of the parties. The first day of the second and each succeeding period shall be the effective date of price redetermination for the period. (c) Price redetermination. Not more than 3 days nor less than 3 days before the end of each redetermination period, except the last, and as otherwise provided in (iii) below, the Contractor shall submit:

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(i) Proposed prices for supplies which may be delivered or services which may be performed in the next succeeding period under the contract, together with:

(A) An estimate and breakdown of the costs of such supplies or services on DD Form 784 or in any other form on which the parties may agree;

(B) Sufficient data to support the accuracy and reliability of such estimate; and

(C) An explanation of the differences between such estimate and the original (or last preceding) estimate for the same supplies or services.

(ii) A statement of all costs incurred in the performance of this contract through the end of the -month prior to the date

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2 This point may be expressed in terms of units delivered, or a calendar date, but in either case the period shall generally end on the last day of a month.

3 Insert in the blanks numbers of days so that the contractor's submission will be late enough to reflect recent cost experience (having in mind the contractor's accounting system), but early enough to review, audit if necessary, and negotiate prior to the start of the prospective period.

Insert the word "first" except the word "second" may be inserted if necessary to achieve compatability with the contractor's accounting system.

of the submission of proposed prices, on DD Form 784 or in any other form on which the parties may agree, together with sufficient supporting data to disclose unit costs and cost trends for:

(A) Supplies delivered and services performed, and

(B) Inventories of work in process and undelivered contract supplies on hand (estimated to the extent necessary).

(iii) Supplemental statements of costs incurred subsequent to the date set forth in (ii) above for:

(A) Supplies delivered and services performed; and

(B) Inventories of work in process and undelivered contract supplies on hand (estimated to the extent necesary);

as and to the extent that such information becomes available prior to the conclusion of negotiations on redetermined prices; and

(iv) Any other relevant data which may reasonably be required by the contracting officer.

Upon receipt of the data required by this subparagraph (c), the contractor and the contracting officer shall promptly negotiate to redetermine fair and reasonable contract prices for supplies which may be delivered and services which may be performed in the period following the effective date of price redetermination. Where the contractor fails to submit the data as required above within the time specified, payments under this contract may be suspended by the contracting officer until the data are furnished.

(d) Subcontracts. No subcontract placed under this contract shall provide for payment on a cost-plus-a-percentage-of-cost basis; and the contractor shall not, without the prior written consent of the contracting officer, place any subcontract which is on a cost-plus-a-fee basis and which would involve an estimated amount in excess of $10,000, including the fee. The contracting officer may, in his discretion, ratify in writing any such cost-plus-a-fee subcontract and such action shall constitute the consent of the contracting officer as required by this paragraph (d).

(e) Contract modifications. Each negotiated redetermination of prices shall be evidenced by a modification to this contract, signed by the contractor and the contracting officer, setting forth the redetermined prices for supplies delivered and services performed hereunder during the applicable price redetermination period.

(f) Adjustment of payments. Pending execution of the contract modification referred to in paragraph (e) above, the contractor shall submit invoices or vouchers in accordance with billing prices as provided in this paragraph. The billing prices

shall be the prices set forth in this contract; provided that, if at any time it appears that the then current billing prices do not provide for payments consistent with the provisions of subparagraph (g) (3) below, the parties may agree to greater or lesser billing prices, which shall be reflected in an amendment or supplemental agreement to this contract. Billing prices are for the sole purpose of providing for interim payments and shall not affect the redetermination of prices under this clause. After execution of the contract modification referred to in paragraph (e) above, the total amount paid or to be paid on all invoices or vouchers shall be adjusted to reflect the agreed prices, and any additional payments, refunds, or credits, resulting therefrom shall be promptly made.

(g) Limitation on payments. (1) This paragraph (g) shall apply only during a period for which firm prices have not been established.

(2) Within 45 days after the end of each quarter of the contractor's fiscal year, beginning for the quarter in which a delivery is first made (or services are first performed) and accepted by the Government under this contract, and as of the end of each quarter, the contractor shall submit to the contracting officer a statement cumulative from the inception of the contract, setting forth:

(1) The total contract price of all supplies delivered (or services performed) and accepted by the Government for which final prices have been established;

(ii) The total costs (estimated to the extent necessary) reasonably incurred for and properly allocable solely to the supplies delivered (or services performed) and accepted by the Government for which final prices have not been established;

(iii) That portion of the total interim profit (used in establishing the initial contract price or agreed to for the purpose of this paragraph (g), Limitation on Payments), which is in direct proportion to the supplies delivered (or services performed) and accepted by the Government for which final prices have not been established; and

(iv) The total amount of all invoices or vouchers for supplies delivered (or services performed) and accepted by the Government (including amounts applied or to be applied to liquidate progress payments); provided that such statement need not be submitted for any quarter for which either no costs are to be reported under (ii) above or revised billing prices have been established in accordance with paragraph (g) above and do not exceed the existing contract price, the contractor's price-redetermination offer, or a price based on the most recent quarterly statement, whichever is least.

(3) Notwithstanding any provision of this contract authorizing greater payments, if on any quarterly statement the amount of (2)(iv) above exceeds the sum of (2)(1), (ii), and (iii) above, the contractor shall immediately refund or credit to the Government against existing unpaid invoices or vouchers covered by such statement the amount of such excess less (i) the cumulative total of any previous refunds or credits under this clause (exclusive of any applicable tax credits under Section 1481 of the Internal Revenue Code of 1954) and (ii) any applicable tax credits under Section 1481 of the Internal Revenue Code of 1954. If any portion of such excess has been applied to the liquidation of program payments, such amount (less all tax credits under the Internal Revenue Code) may be added or restored to the unliquidated progress payment account, to the extent consistent with the progress payments clause of this contract, instead of direct refund thereof.

(4) The Contractor shall (1) insert in each price redetermination or incentive price revision subcontract hereunder the substance of this "Limitation on Payments" provision, including this subparagraph (4), modified to omit mention of the Government and reflect the position of the contractor as purchaser and of the subcontractor as vendor, and to omit that portion of subparagraph (3) relating to tax credits, and (ii) include in each cost-reimbursement type subcontract hereunder a requirement that each price redetermination and incentive price revision subcontract thereunder will contain the substance of this "Limitation on Payments" provision, including this subparagraph (4), modified as outlined in (i) above.

(h) Disagreements. If the contractor and the contracting officer fail to agree upon redetermined prices for any price redetermination period within sixty (60) days after the date on which the data required by (c) above is to be filed, or within such further time as may be agreed upon by the parties, the failure to agree upon redetermined prices shall be deemed to be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes," and the contracting officer shall promptly issue a decision thereunder. For the purpose of (e), (f), and (g) above, and pending final settlement of the disagreement on appeal, or by failure to appeal, or by agreement, such a decision shall be treated as an executed contract modification. Pending such final settlement, price redetermination for subsequent periods, if any, shall continue to be negotiated as hereinbefore provided.

5 This period may be varied by the parties at the time of negotiating the contract. the contracting officer until the data are furnished.

(i) Termination. If this contract is terminated, prices shall continue to be established pursuant to this clause (1) for completed supplies accepted by the Government and services performed and accepted by the Government, and (ii) in the event of a partial termination, for supplies and services which are not terminated. All other elements of the termination shall be resolved pursuant to other applicable provisions of this contract.

§ 2-7.150-20 Price redetermination (retroactive).

When it is determined, in accordance with § 1-3.404-7 of this title, to use a fixed-price contract providing for retroactive redetermination of price, the following clause shall be included in the contract.

PRICE REDETERMINATION

(a) General. The unit prices and the total price set forth in this contract shall be redetermined in accordance with the provisions of this clause: Provided, That in no event shall the total amount paid under this contract exceed dollars

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(b) Price redetermination. Within

(----

--) days after delivery of all supplies to be delivered and completion of all services to be performed under this contract, the contractor shall submit (1) proposed prices, (ii) a statement of all costs incurred in the performance of this contract, on DD Form 784 or on any other form on which the parties may agree, and (iii) any other relevant data which may reasonably be required by the contracting officer. Upon receipt of the required data, the contractor and the contracting officer shall promptly negotiate to redetermine fair and reasonable contract prices for supplies delivered and services performed by the contractor under this contract. Where the contractor fails to submit the required data within the time specified, payment of all invoices may be suspended by the contracting officer until the data are finished.

(c) Subcontracts. No subcontract under this contract shall provide for payment on a cost-plus-a-percentage-of-cost basis; and the contractor shall not, without the prior written consent of the contracting officer, place any subcontract which is on a cost-plus-a-fee basis and which would involve an estimated amount in excess of $10,000 including the fee. The contracting officer may, in his discretion, ratify in writing any such cost-plus-a-fee subcontract and such action shall constitute the consent of the contracting officer as required by this paragraph (c).

(d) Contract modification. The negotiated redetermination of price shall be evidenced by a modification to this contract. signed by the contractor and the contracting

officer, setting forth the redetermined prices which shall apply to supplies delivered and to services performed by the contractor hereunder.

(e) Adjustment of payments. Pending execution of the contract modification referred to in paragraph (d) above, the contractor shall submit invoices or vouchers in accordance with billing prices as provided in this paragraph. The billing prices shall be the prices set forth in this contract: Provided, That, if at any time it appears that the then current billing prices do not provide for payments consistent with the provisions of subparagraph (f)(3) below, the parties may agree to greater or lesser billing prices, which shall be reflected in an amendment or supplemental agreement to this contract. Billing prices are for the sole purpose of providing for interim payments and shall not affect the redetermination of prices under this clause. After execution of the contract modification referred to in paragraph (d) above, the total amount paid or to be paid on all invoices or vouchers shall be adjusted to reflect the agreed prices, and any additional payments, refunds, or credits, resulting therefrom shall be promptly made.

(f) Limitation on payments. (1) This paragraph (f) shall apply until final price redetermination to the full extent permitted by this contract.

(2) Within 45 days after the end of each quarter of the contractor's fiscal year, beginning for the quarter in which a delivery is first made (or services are first performed) and accepted by the Government under this contract, and as of the end of each quarter, the contractor shall submit to the contracting officer a statement cumulative from the inception of the contract, setting forth:

(1) The total contract price of all supplies delivered (or services performed) and accepted by the Government for which final prices have been established;

(ii) The total costs (estimated to the extent necessary) reasonably incurred for and properly allocable solely to the supplies delivered (or services performed) and accepted by the Government for which final prices have not been established.

(iii) That portion of the total interim profit (used in establishing the initial contract price or agreed to for the purpose of this paragraph (f), Limitation on Payments), which is in direct proportion to the supplies delivered (or services performed) and accepted by the Government for which final prices have not been established; and

(iv) The total amount of all invoices or vouchers for supplies delivered (or services performed) and accepted by the Government (including amounts applied or to be applied to liquidate progress payments).

(3) Notwithstanding any provision of this contract authorizing greater payments, if on any quarterly statement the amount of 2(iv) above exceeds the sum of (2) (i), (ii), and (iii) above, the contractor shall immediatedly refund or credit to the Government

against existing unpaid invoices or vouchers covered by such statement the amount of such excess less (1) the cumulative total of any previous refunds or credits under this clause (exclusive of any applicable tax credits under section 1481 of the Internal Revenue Code of 1954) and (ii) any applicable tax credits under section 1481 of the Internal Revenue Code of 1954. If any portion of such excess has been applied to the liquidation of progress payments, such amount (less all tax credits under the Internal Revenue Code) may be added or restored to the unliquidated progress payment account, to the extent consistent with the progress payments clause of this contract, instead of direct refund thereof.

(4) The contractor shall (i) insert in each price redetermination or incentive price revision subcontract hereunder the substance of this "Limitation on Payments" provision, including this subparagraph (4), modified to omit mention of the Government and reflect the position of the contractor as purchaser and of the subcontractor as vendor, and to omit that portion of subparagraph (3) relating to tax credits, and (ii) include in each cost-reimbursement type subcontract hereunder a requirement that each price redetermination and incentive price revision subcontract thereunder will contain the substance of this "Limitation on Payments" provision, including this subparagraph (4), modified as outlined in (i) above.

(g) Disagreements. If the contractor and the contracting officer fail to agree upon redetermined prices within sixty (60)1 days after the date on which the data required by (b) above is to be filed, or within such further time as may be agreed upon by the parties, the failure to agree upon redetermined prices shall be deemed to be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes," and the contracting officer shall promptly issue a decision thereunder. For the purpose of paragraphs (d), (e), and (f) above, and pending final settlement of the disagreement on appeal, or by failure to appeal, or by agreement, such a decision shall be treated as an executed contract modification.

(h) Termination. If this contract is terminated prior to price redetermination, prices shall be established pursuant to this clause for completed supplies and services which are not terminated. All other elements of the termination shall be resolved pursuant to other applicable provisions of this contract.

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