REQUIREMENTS OF NEGOTIATED CONTRACTS SEC. 304. (a) Except as provided in subsection (b) of this section, contracts negotiated pursuant to section 302 (c) may be of any type which in the opinion of the agency head will promote the best interests of the Government. Every contract negotiated pursuant to section 302 (c) shall contain a suitable warranty, as determined by the agency head, by the contractor that no person or selling agency has been employed or retained to solicit or secure such contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business, for the breach or violation of which warranty the Government shall have the right to annul such contract without liability or in its discretion to deduct from the contract price or consideration the full amount of such commission, percentage, brokerage, or contingent fee. (b) The cost-plus-a-percentage-of-cost system of contracting shall not be used, and in the case of a cost-plus-a-fixed-fee contract the fee shall not exceed 10 per centum of the estimated cost of the contract, exclusive of the fee, as determined by the agency head at the time of entering into such contract (except that a fee not in excess of 15 per centum of such estimated cost is authorized in any such contract for experimental, developmental, or research work and that a fee inclusive of the contractor's costs and not in excess of 6 per centum of the estimated cost, exclusive of fees, as determined by the agency head at the time of entering into the contract, of the project to which such fee is applicable is authorized in contracts for architectural or engineering services relating to any public works or utility project). Neither a cost nor a cost-plus-a-fixed-fee contract nor an incentive-type contract shall be used unless the agency head determines that such method of contracting is likely to be less costly than other methods or that it is impractical to secure property or services of the kind or quality required without the use of a cost or cost-plus-a-fixed-fee contract or an incentive-type contract. All cost and cost-plus-a-fixed-fee contracts shall provide for advance notification by the contractor to the procuring agency of any subcontract thereunder on a cost-plus-afixed-fee basis and of any fixed-price subcontract or purchase order which exceeds in dollar amount either $25,000 or 5 per centum of the total estimated cost of the prime contract; and a procuring agency, through any authorized representative thereof, shall have the right to inspect the plans and to audit the books and records of any prime contractor or subcontractor engaged in the performance of a cost or cost-plus-a-fixed-fee contract. (c) All contracts negotiated without advertising pursuant to authority contained in this Act shall include a clause to the effect that the Comptroller General of the United States or any of his duly author 369771-56 77 ized representatives shall until the expiration of three years after final payment have access to and the right to examine any directly pertinent books, documents, papers and records of the contractor or any of his subcontractors engaged in the performance of and involving transactions related to such contracts or subcontracts. ANALYSIS Section 304. Requirements of negotiated contracts (Sec. 304, 63 Stat. 395, as amended by 65 Stat. 700, and sec. 1 (m), 66 Stat. 594; 41 U. S. C. 254) (a) Types of contracts; warranties against contingent fees, etc.-The right to use the most suitable type of contract is a necessary and inseparable adjunct to the right to negotiate and this subsection therefore permits negotiated contracts to be of any type which in the opinion of the agency head will promote the best interests of the Government, except as provided in subsection (b). Authority to negotiate contracts in the first instance carries with it equal authority to negotiate subsequent changes in the terms of negotiated contracts, and such amendments may also be of such type as the agency head believes will promote the best interests of the Government. This subsection also provides that every negotiated contract shall contain a suitable warranty against contingent fees, commissions, and like arrangements. (b) Restrictions against certain types of contracts.-This subsection prohibits the cost-plus-a-percentage-of-cost system of contracting and prescribes maximum fees in connection with cost-plus-a-fixed-fee contracts. Neither a cost nor a costplus-a-fixed-fee contract nor an incentive-type contract may be used unless it is determined that such method is likely to be less costly than other methods or that it is impracticable to secure property or services of the kind or quality required without the use of such type of contract. (c) Examination by Comptroller General of books, etc., of contractors.—This subsection was added to section 304 by Public Law 245, 82d Congress, 1st session, approved October 31, 1951 (65 Stat. 700), entitled "An Act To amend section 304 of the Federal Property and Administrative Services Act of 1949 and section 4 of the Armed Services Procurement Act of 1947". The requirement was thus established that all contracts negotiated without advertising shall include a clause to the effect that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of the three years after final payment, have access to, and the right to examine any directly pertinent books, documents, papers, and records of the contractor or any of his subcontractors engaged in the performance of and involving transactions related to such contracts or subcontracts. Public Law 245 also added a new subsection (c), identical in text with the above subsection (c), to section 4 of the Armed Services Procurement Act of 1947 (62 Stat. 23, 41 U. S. C. 153), which section is similar to section 304 of Public Law 152. ADVANCE PAYMENTS SEC. 305. (a) The agency head may make advance payments under negotiated contracts heretofore or hereafter executed in any amount not exceeding the contract price upon such terms as the parties shall agree: Provided, That advance payments shall be made only upon adequate security and if the agency head determines that provision for such advance payments is in the public interest or in the interest of the national defense and is necessary and appropriate in order to procure required property or services under the contract. (b) The terms governing advance payments may include as security provision for, and upon inclusion of such provision there shall thereby be created, a lien in favor of the Government, paramount to all other liens, upon the property contracted for, upon the credit balance in any special account in which such payments may be deposited and upon such of the material and other property acquired for performance of the contract as the parties shall agree. ANALYSIS Section 305. Advance payments (Sec. 305, 63 Stat. 396, as amended by sec. 1 (m), 66 Stat. 594; 41 U. S. C. 255) (a) Conditions upon making advance payments under negotiated contracts.— This section permits the agency head to make advance payments under negotiated contracts upon adequate security if the agency head determines such payments to be in the public interest or in the interest of the national defense and necessary and appropriate in order to procure the required property or services. This authority is essential in periods of emergency and in peacetime it is often the only way in which it can be made possible for a small-business concern to handle Government contracts. Often institutions of learning, research laboratories, inventors, and similar contractors who perform most of the experimental, research, and developmental contracts need advance payments because they do not have sufficient funds to finance or are unwilling to finance such contracts completely out of their own resources. The power to make advance payments is permissive only, and under section 307 (b) of this title may not be delegated by the agency head. The Congressional intent was for the civilian agencies to be very sparing in the making of advance payments in normal times and to use the authority, even in times of national emergency, only when it is thoroughly justified. (b) Provision for creation of liens in favor of Government.-The additional form of security by way of lien which is provided for by this subsection is a permissive feature which may be very useful, especially in the event that a joint bank account, a controlled account, or a special bank account is established in connection with an advance payment. ized representatives shall until the expiration of three years after final payment have access to and the right to examine any directly pertinent books, documents, papers and records of the contractor or any of his subcontractors engaged in the performance of and involving transactions related to such contracts or subcontracts. ANALYSIS Section 304. Requirements of negotiated contracts (Sec. 304, 63 Stat. 395, as amended by 65 Stat. 700, and sec. 1 (m), 66 Stat. 594; 41 U. S. C. 254) (a) Types of contracts; warranties against contingent fees, etc.—The right to use the most suitable type of contract is a necessary and inseparable adjunct to the right to negotiate and this subsection therefore permits negotiated contracts to be of any type which in the opinion of the agency head will promote the best interests of the Government, except as provided in subsection (b). Authority to negotiate contracts in the first instance carries with it equal authority to negotiate subsequent changes in the terms of negotiated contracts, and such amendments may also be of such type as the agency head believes will promote the best interests of the Government. This subsection also provides that every negotiated contract shall contain a suitable warranty against contingent fees, commissions, and like arrangements. (b) Restrictions against certain types of contracts.-This subsection prohibits the cost-plus-a-percentage-of-cost system of contracting and prescribes maximum fees in connection with cost-plus-a-fixed-fee contracts. Neither a cost nor a costplus-a-fixed-fee contract nor an incentive-type contract may be used unless it is determined that such method is likely to be less costly than other methods or that it is impracticable to secure property or services of the kind or quality required without the use of such type of contract. (c) Examination by Comptroller General of books, etc., of contractors.-This subsection was added to section 304 by Public Law 245, 82d Congress, 1st session, approved October 31, 1951 (65 Stat. 700), entitled "An Act To amend section 304 of the Federal Property and Administrative Services Act of 1949 and section 4 of the Armed Services Procurement Act of 1947". The requirement was thus established that all contracts negotiated without advertising shall include a clause to the effect that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of the three years after final payment, have access to, and the right to examine any directly pertinent books, documents, papers, and records of the contractor or any of his subcontractors engaged in the performance of and involving transactions related to such contracts or subcontracts. Public Law 245 also added a new subsection (c), identical in text with the above subsection (c), to section 4 of the Armed Services Procurement Act of 1947 (62 Stat. 23, 41 U. S. C. 153), which section is similar to section 304 of Public Law 152. SEC. 305. (a) The negotiated contracts not exceeding the co agree: Provided, Th adequate security an: for such advance paym of the national defens procure required proper (b) The terms gove rity provision for, and thereby be created, a to all other liens, upor balance in any special a ited and upon such of performance of the con Section 305. Advance paymer. 66 Stat. 594; 41 U. S. C. (a) Conditions upon maki This section permits the agen contracts upon adequate sec to be in the public interest ori and appropriate in order to authority is essential in perio only way in which it can be ma Government contracts. Often ventors, and similar contractor and developmental contracts sufficient funds to finance or out of their own resources. only, and under section 307 head. The Congressional inter in the making of advance pay even in times of national eme (b) Provision for creation form of security by way of lie missive feature which may bank account, a controlled a connection with an advance pa |