heads of technical services are authorized to issue letter contracts as indicated below.

(a) Letter contracts for other than research and development. Heads and acting heads of technical services are authorized to issue letter contracts for other than research and development in amounts not to exceed $2,500,000 when the total estimated definitive contract amount is $5,000,000. When the total estimated amount of the definitive contract is less than $5,000,000 the maximum amount of any letter contract which the heads of technical services may authorize is 50 percent of such total estimated definitive contract amount. When the total estimated definitive contract amount of any procurement exceeds $5,000,000, or it is desired to award a letter contract for an amount in excess of 50 percent of the total estimated amount of the definitive contract, irrespective of such total, prior approval of the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, is required before issuance of the letter contract. (For instructions as to information to be furnished in requesting authority to issue letter contracts as specified in this section, see § 592.408-54.)

(b) Letter contracts for research and development. Chiefs and acting chiefs of technical services are authorized to issue letter contracts for research and development within the scope of an authorized research and development project in amounts not to exceed $125,000 when the total estimated definitive contract amount is $250,000. When the total estimated amount of the definitive contract is less than $250,000, the maximum amount of any letter contract which the chiefs of technical services may authorize is 50 percent of such total estimated definitive contract amount. When the total estimated definitive contract amount of any procurement exceeds $250,000, or it is desired to award a letter contract for an amount in excess of 50 percent of the total estimated amount of the definitive contract, irrespective of such total, prior approval of the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, is required before issuance of the letter contract. (For instructions as to information to be furnished in requesting authority to issue letter contracts as specified in this section, see § 592.408-54.)

§ 592.408-51 Redelegation of authority. The authority delegated in § 592.408-50 (a) and (b) may be redelegated by chiefs of technical services to the extent deemed necessary to personally selected members of their organizations. Such selected members are not authorized to redelegate this authority.

§ 592.408-52 Supersedure by definitive contract. (a) Letter contracts will be superseded by definitive contracts at the earliest practicable date. Consequently, definitive contracts will be executed promptly after proper consideration has been given, when possible, to such factors as

(1) Reasonable assurance that the terms reached are the minimum acceptable to the contractor and are fair both to the Government and the Contractor;

(2) Relationship to precedents as to price redetermination and profit established by similar contracts with Army, Navy, Air Force, or other Government agencies;

(3) The effect on future contract negotiation with the Contractor; and

(4) The primary importance of meeting phased delivery requirements.

(b) Definitive contracts executed after 15 May 1951 will contain the Assignment of Claims clause set forth in § 596.103-8 of this subchapter.

§ 592.408-53 Conditions for use. Subject to §§ 592.408-50 and 592.408-51, the authority to issue letter contracts is contingent upon compliance with § 592.408 and the conditions set forth below:

(a) That the definitive contracts will contain all required standard clauses, in addition to such standard optional clauses as are necessary to protect fully the interest of the Government, and that this provision will be made a condition of each letter contract.

(b) That all fixed-price contracts, when there is no information upon which to base reasonableness of price, will contain applicable standard price redetermination clauses with upward limitations thereunder held to a minimum, but in no event to exceed 25 percent, and that this provision shall be made a condition of each applicable letter contract.

(1) Irrespective of total estimated definitive contract amount, a definitive contract or letter contract providing for a price redetermination clause with upward revision exceeding 25 percent must

have prior approval of the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch.

(2) Independent Government estimate, prepared prior to receiving estimate from the proposed Contractor, may be used to determine reasonableness of price.

(c) That the fixed-fee in a cost-plusa-fixed-fee type of contract will not exceed the limitations set forth in § 3.406-1 of this title, with further consideration given to the following:

(1) The absence of risk to the Contractor.

(2) The estimated quantity of the following as compared with the total estimated definitive contract price: (i) material, (ii) subcontracting, (iii) purchased parts, and (iv) "Off-the-Shelf" items.

(3) The size of the proposed contract.

(d) That the profit to be paid shall be consistent with the protection afforded to the Contractor in the minimizing or removal of risk to him, with due consideration given to the estimated quantity of the following as compared to the total estimated contract price: (1) material, (2) subcontracting, (3) purchased parts, and (4) "Off-the-Shelf" items.

(e) That the duration of the letter contract will not exceed 120 days from the date of execution. Extensions which increase the duration beyond 120 days will not be made without prior approval of the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch.

§ 592.408-54 Information to be furnished when requesting approval of letter contracts. Requests for authority to award letter contracts submitted to the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, must indicate that the use will be in accordance with the basic policies set forth in § 3.408 of this title, and will include the following:

(a) Statement as to the necessity and advantage to the Government of the use of the proposed letter contract.

(b) Name and address of proposed Contractor.

(c) Location where contract is to be performed.

(d) Brief description of supplies and quantities to be furnished or services to be rendered.

(e) Duration of letter contract in number of days from date of execution. (f) Amount of letter contract.

(g) Total estimated definitive contract amount, including estimated cost of (1) facilities, (2) special tooling, equipment, etc., (3) activation or reactivation, (4) training of personnel, and (5) subcontracting.

(h) Estimated delivery schedule.

(i) Type of definitive contract proposed (fixed-price, cost-plus-a-fixed-fee, etc.).

(j) Statement as to whether the definitive contract will contain all required standard clauses in accordance with Subchapter A, Chapter I of this title and Subchapter G of this chapter, and other Department of the Army directives.

(k) List of all standard optional clauses which will be made a part of the definitive contract, including (1) Patent clauses, (2) Copyright clause, (3) Special Tooling clause, (4) Government Property clause, (5) Facility agreement, and (6) Price Redetermination clause (including form number and percentage of upward revision).

(1) Statement that the provisions of paragraphs (j) and (k) of this section will be made a condition of the subject letter contract.

(m) Statement that the minimization of risk, through inclusion of the price redetermination clause, will be given due consideration in determining the rate of profit to be allowed, with further attention given to the amount of each of the following as compared to the total estimated contract amount: (1) material, (2) subcontracting, (3) purchased parts, and (4) "Off-the-Shelf" items.

(n) Source of funds to be used in the proposed procurement, showing

(1) Total allocated, and

(2) Total obligated to date, exclusive of the proposed letter contract.

(0) Statement that research and development funds will not be used when the work to be covered is not for research and development.

(p) Statement that the definitive contract will be executed with a minimum of delay.

(q) Statement that the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, will be notified through the Head of the respective Procuring Activity, without delay, as

to the date of execution of the leter contract.

(r) Statement that request for approval of award, if required, will be forwarded in time to reach the Office of the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, no later than 15 days prior to the expiration of the letter contract.

(s) Statement that the letter contract will be reported on Individual Procurement Action Report (DD Form 350) in the amount of the letter contract; and that subsequent reports will be submitted, when and if changes are made in the amount of obligation of the letter contract, only in the amount of such change, whether plus or minus. Further, that when formal contract is executed, report will be made only in the amount of the definitive contract, less the cumulative obligation under the letter contract and any changes thereto. (See Subpart C, Part 606 of this subchapter.)

§ 592.408-55 Approval for modification of letter contracts. Letter contracts approved for issuance by the Deputy Chief of Staff for Logistics will not be extended or amended without prior approval of Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch. Requests for approval of extensions or increases will be submitted in the following form:

(a) Name and address of Contractor. (b) Description of work to be performed, showing quantity of items originally approved.

(1) If quantities have been increased subsequent to original approval, show such quantities, authority, and date.

(2) If additional quantities are to be procured, show such quantities and new total.

(c) Date originally approved.

(d) Date letter contract was executed (accepted by Contractor).

(e) Duration originally approved.

(1) If extensions in the duration have been made subsequent to original approval, show such extensions, authority, and dates.

(2) If additional days are required, show number required and new total.

(f) Amount of letter contract originally approved.

(1) If increases have been made subsequent to original approval, show each increase, authority, and dates.

(2) If additional increase is required, show amount and new total, and source of funds, including: (i) total allocated, and (ii) total obligated to date, exclusive of the proposed increase.

(g) Estimated definitive contract total originally approved.

(1) If increases have been made subsequent to original approval, show each increase, authority, and date.

(2) If additional increase is required, show amount and new total.

(h) Complete justification for extension or increase requested, including reasons as to why definitive contract cannot be executed without such amendment.

con

NOTE: The requirements of this section shall not be construed to restrict Procuring Activities from approving definitive tracts, within the authority of § 606.204 of this subchapter, for which letter contracts were approved by the Deputy Chief of Staff for Logistics, Department of the Army, Chief, Purchases Branch, prior to the designation of such authority.

§ 592.409 Other types of contracts(a) Purchase order. A Purchase Order is a fixed-price contract, in the form of a written acceptance signed by the Contracting Officer, for the purchase of supplies or services from an established price list or following a written or oral quotation of prices. Purchase Orders shall be used only for negotiated purchases and as prescribed in Part 596 of this subchapter. DD Form 738 is a type of Purchase Order authorized for use for purchases not in excess of $5,000 (see Subpart F, §§ 592.601 to 592.652).

(b) Open-end contract. An open-end contract is an agreement for supplies or services which contains no or varying limits of time and quantity and which usually involves recurring order and charges in varying degree.

(c) Informal commitment. (1) An informal commitment is a verbal order or written communication by a Contracting Officer or his authorized agent, requesting a person or firm to furnish supplies or services to the Government or a defense Contractor.

(2) Informal commitments will be entered into under the circumstances only as authorized by § 606.409-1 (c) of this subchapter, and pursuant to instructions of the Head of a Procuring Activity issued under authority contained in this Procedure.

(3) Informal commitments will not be entered into for specific amounts. The basis of payment will be "fair compensation" as approved by the appropriate approving authority, depending upon the amount involved.

(4) Requests for formalization of informal commitments will be processed pursuant to § 606.409-2 of this subchapter within 10 days after completion of performance thereof.

(5) No payment will be made or certified in connection with an informal commitment until formalization has been approved and accomplished.

SUBPART E-ADVANCE PAYMENTS

§ 592.502 Authority to make advance payments. It is the policy of the Army to require Contractors furnishing supplies and services to be able to perform contracts with their own funds or with private financing. In negotiated procurements, Contractors may be assisted in financing needs by providing for expeditious reimbursement for proper expenditures under cost-reimbursement type contracts, and by use of progress payments in connection with fixed-price contracts. The policy with respect to the use of progress payments is set forth in § 596.150-1 of this subchapter. Exceptions to this general policy may be permitted in negotiated procurements in those instances in which the Contractor is particularly adapted to the supplying of items or services to be procured, but who is limited in working capital and is unable to obtain private commercial financing. In such cases, consideration may be given to the use of Government financing through advance payments as prescribed in Subpart E, Part 3 of this title and subpart.

(a) Authority to make advance payments is vested in the Under Secretary of the Army. Requests for such authority will, in each instance, be submitted to the Comptroller of the Army, through the Head of the Procuring Activity concerned and the Chief of Finance. The request including all supporting documents, submitted in original and two copies, will be supported by the following data:

(1) All requests for authority to make advance payments will contain a finding of fact and recommendation substantially as follows, signed by the Chief of the originating office and the Chief of each office through which the request is forwarded:

is proper; is in the interest of national defense and it is recommended that it be approved by the Assistant Secretary of the Army (Logistics and Research and Development).

(2) All requests for advance payment authorizations shall be accompanied by the following information attached as inclosures:

(i) Request for advance payment by Contractor.

(ii) Statement of Contractor's financial condition.

(iii) Breakdown of Contractor's estimated working capital requirements necessitating advance payments in the amount requested. (This may be evidenced by flow charts, planned schedules of expenditures, etc.)

(iv) Statement of terms of the proposed advance and method of repayment or liquidation.

(v) An original and two copies of the Determination and Findings required by § 3.302 (a) (7) of this title in the form set forth in § 592.305 (c).

(vi) Advance Payment Clause proposed.

(vii) Other pertinent information (to include but not be limited to)

(a) Date and identifying symbol of the approval of the award, together with citation of the appropriation available.

(b) Type of contract (fixed price, CPFF, or cost-reimbursable; if fixed price or CPFF, state percentage rate of profit or fee).

(c) Rate of interest to be charged on advance payment.

(d) If contract includes fee or profit element and no interest is to be charged on advance payment, statement of justification therefor.

(e) Dollar amount of the contract, the items to be supplied and a schedule of deliveries.

(viii) Copy of the Contracting Officer's report on the advance payment request, if any.

(3) Letter or forwarding indorsement from the Head of the Procuring Activity shall also include statements as to the following:

To be included when applicable.

(i) Existence of requirement for the goods or services.

(ii) That no other contractor with other means of financing is available on an equally desirable basis.

(iii) Security proposed to protect the Government against loss, together with definite recommendation as to the adequacy thereof and negative covenants, if any, needed for further protection of the Government against loss.

(iv) That definitive contract will contain an Advance Payment Article in the form inclosed.

(v) General character and responsibility of the Contractor, as well as his technical ability to perform the contract, including statement of prior or existing contracts entered into with contractor. Contracts so listed shall indicate

(a) Whether contract contained provision for advance payments; and if so, the amount thereof and were advances made with or without interest.

(b) Type of contract (fixed price with profit, CPFF or cost-reimbursable).

(b) Requests for approval of the authorization of an advance payment may be presented during the negotiation of a contract and prior to completion thereof. If the proposed contract is available, a copy thereof shall be attached to the request. If copy of the contract is not available at the time the request is forwarded, a copy shall be submitted promptly to the Chief of Finance for review and filing subsequent to execution.

§ 592.503 Limitations on authority to make advance payments. A request for authorization to make advance payments shall not be forwarded unless it comes within the provisions of § 3.503 of this title. It should be noted that § 3.503 (b) of this title makes an exception which permits advance payments in connection with nonprofit research and development contracts with educational institutions.

§ 592.504 Security provisions. (a) Advance payments shall be authorized only on the furnishing of adequate security by the Contractor. This security shall be that required under provisions of the contract involved. A guarantee by, or bond of, a parent corporation is desirable if the subsidiary corporation has limited financial responsibility, especially in the case of a newly formed subsidiary corporation. Whether or not

guarantees, subordination agreements, or other security devices shall be required in connection with advance payments is within the discretion of the Secretary. Advance payment bonds shall be required only in the most exceptional circumstances.

(b) When contract clause provides for deposit of monies from the advance payment to be placed in a special bank account, the contractor shall obtain, execute, and turn over to the Contracting Officer for transmittal, through the Head of the Procuring Activity concerned and the Chief of Finance, to the Comptroller of the Army two copies of an agreement executed by each bank in which a control bank account is established. an agreement shall be prepared substantially in the following form:

AGREEMENT

Agreement entered into this

Such

day of

195, between the United States of America, represented by the Contracting Officer executing this agreement, hereinafter called the Government,

------)

or

the

State of hereinafter

195, the

(a) Under date of Government and the Contractor entered into Contract No. a supplemental Agreement thereto, providing for the making of certain advance payments to the Contractor.

(b) Said Contract or Supplemental Agreement requires that amounts advanced to the Contractor thereunder be deposited in a Special Bank Account or accounts at a member bank or banks of the Federal Reserve System or any "insured" bank within the meaning of the Act creating the Federal Deposit Insurance Corporation (Act of August 23, 1935; 49 Stat. 684, as amended; 12 U. S. C. 264), separate from the Contractor's general or other funds; and, the bank being such a bank, the parties are agreeable to so depositing said amounts with the bank.

(c) It is further agreed that the Government shall have a lien upon the credit balance in said account to secure repayment of all advance payments made to the Contractor, which lien shall be superior to any lien or claim of the bank with respect to such account. In the event of the service of any writ of attachment, levy of execution or commencement of garnishment proceedings with respect to the Special Bank Account, the bank will promptly notify the office administering the advance payment thereof.