Far 15.407-2

FAC 2005–13 SEPTEMBER 28, 2006
SUBPART 15.4—CONTRACT PRICING
(iv) In the demand letter, the contracting officer shall
separately include—
(A) The repayment amount;
(B) The penalty amount (if any);
(C) The interest amount through a specified date;
and
(D) A statement that interest will continue to
accrue until repayment is made.
(c) If, after award, the contracting officer learns or suspects
that the data furnished were not accurate, complete, and current, or were not adequately verified by the contractor as of the
time of negotiation, the contracting officer shall request an
audit to evaluate the accuracy, completeness, and currency of
the data. The Government may evaluate the profit-cost relationships only if the audit reveals that the data certified by the
contractor were defective. The contracting officer shall not
reprice the contract solely because the profit was greater than
forecast or because a contingency specified in the submission
failed to materialize.
(d) For each advisory audit received based on a postaward
review that indicates defective pricing, the contracting officer
shall make a determination as to whether or not the data submitted were defective and relied upon. Before making such a
determination, the contracting officer should give the contractor an opportunity to support the accuracy, completeness, and
currency of the data in question. The contracting officer shall
prepare a memorandum documenting both the determination
and any corrective action taken as a result. The contracting
officer shall send one copy of this memorandum to the auditor
and, if the contract has been assigned for administration, one
copy to the administrative contracting officer (ACO). A copy
of the memorandum or other notice of the contracting officer’s
determination shall be provided to the contractor.
(e) If both the contractor and subcontractor submitted, and
the contractor certified, or should have certified, cost or pricing data, the Government has the right, under the clauses at
52.215-10, Price Reduction for Defective Cost or Pricing
Data, and 52.215-11, Price Reduction for Defective Cost or
Pricing Data—Modifications, to reduce the prime contract
price if it was significantly increased because a subcontractor
submitted defective data. This right applies whether these data
supported subcontract cost estimates or supported firm agreements between subcontractor and contractor.
(f) If Government audit discloses defective subcontractor
cost or pricing data, the information necessary to support a
reduction in prime contract and subcontract prices may be
available only from the Government. To the extent necessary
to secure a prime contract price reduction, the contracting
officer should make this information available to the prime
contractor or appropriate subcontractors, upon request. If
release of the information would compromise Government
security or disclose trade secrets or confidential business
information, the contracting officer shall release it only under

15.407-2
conditions that will protect it from improper disclosure. Information made available under this paragraph shall be limited
to that used as the basis for the prime contract price reduction.
In order to afford an opportunity for corrective action, the contracting officer should give the prime contractor reasonable
advance notice before determining to reduce the prime contract price.
(1) When a prime contractor includes defective subcontract data in arriving at the price but later awards the subcontract to a lower priced subcontractor (or does not subcontract
for the work), any adjustment in the prime contract price due
to defective subcontract data is limited to the difference (plus
applicable indirect cost and profit markups) between the subcontract price used for pricing the prime contract, and either
the actual subcontract price or the actual cost to the contractor,
if not subcontracted, provided the data on which the actual
subcontract price is based are not themselves defective.
(2) Under cost-reimbursement contracts and under all
fixed-price contracts except firm-fixed-price contracts and
fixed-price contracts with economic price adjustment, payments to subcontractors that are higher than they would be had
there been no defective subcontractor cost or pricing data shall
be the basis for disallowance or nonrecognition of costs under
the clauses prescribed in 15.408(b) and (c). The Government
has a continuing and direct financial interest in such payments
that is unaffected by the initial agreement on prime contract
price.
15.407-2 Make-or-buy programs.
(a) General. The prime contractor is responsible for managing contract performance, including planning, placing, and
administering subcontracts as necessary to ensure the lowest
overall cost and technical risk to the Government. When
make-or-buy programs are required, the Government may
reserve the right to review and agree on the contractor’s makeor-buy program when necessary to ensure negotiation of reasonable contract prices, satisfactory performance, or implementation of socioeconomic policies. Consent to subcontracts
and review of contractors’ purchasing systems are separate
actions covered in Part 44.
(b) Definition. “Make item,” as used in this subsection,
means an item or work effort to be produced or performed by
the prime contractor or its affiliates, subsidiaries, or divisions.
(c) Acquisitions requiring make-or-buy programs.
(1) Contracting officers may require prospective contractors
to submit make-or-buy program plans for negotiated acquisitions requiring cost or pricing data whose estimated value is
$11.5 million or more, except when the proposed contract is
for research or development and, if prototypes or hardware are
involved, no significant follow-on production is anticipated.
(2) Contracting officers may require prospective contractors to submit make-or-buy programs for negotiated
15.4-13

FAC 2005–17 JUNE 14, 2007
15.407-2
acquisitions whose estimated value is under $11.5 million
only if the contracting officer—
(i) Determines that the information is necessary; and
(ii) Documents the reasons in the contract file.
(d) Solicitation requirements. When prospective contractors are required to submit proposed make-or-buy programs,
the solicitation shall include—
(1) A statement that the program and required supporting information must accompany the offer; and
(2) A description of factors to be used in evaluating the
proposed program, such as capability, capacity, availability of
small, small disadvantaged, women-owned, veteran-owned,
HUBZone, and service-disabled veteran-owned small business concerns for subcontracting, establishment of new facilities in or near labor surplus areas, delivery or performance
schedules, control of technical and schedule interfaces, proprietary processes, technical superiority or exclusiveness, and
technical risks involved.
(e) Program requirements. To support a make-or-buy program, the following information shall be supplied by the contractor in its proposal:
(1) Items and work included. The information required
from a contractor in a make-or-buy program shall be confined
to those major items or work efforts that normally would
require company management review of the make-or-buy
decision because they are complex, costly, needed in large
quantities, or require additional equipment or real property to
produce. Raw materials, commercial items (see 2.101), and
off-the-shelf items (see 46.101) shall not be included, unless
their potential impact on contract cost or schedule is critical.
Normally, make-or-buy programs should not include items or
work efforts estimated to cost less than 1 percent of the total
estimated contract price or any minimum dollar amount set by
the agency.
(2) The offeror’s program should include or be supported by the following information:
(i) A description of each major item or work effort.
(ii) Categorization of each major item or work effort
as “must make,” “must buy,” or “can either make or buy.”
(iii) For each item or work effort categorized as “can
either make or buy,” a proposal either to “make” or to “buy.”
(iv) Reasons for categorizing items and work efforts
as “must make” or “must buy,” and proposing to “make” or to
“buy” those categorized as “can either make or buy.” The reasons must include the consideration given to the evaluation
factors described in the solicitation and must be in sufficient
detail to permit the contracting officer to evaluate the categorization or proposal.
(v) Designation of the plant or division proposed to
make each item or perform each work effort, and a statement
as to whether the existing or proposed new facility is in or near
a labor surplus area.
15.4-14

FEDERAL ACQUISITION REGULATION
(vi) Identification of proposed subcontractors, if
known, and their location and size status (also see
Subpart 19.7 for subcontracting plan requirements).
(vii) Any recommendations to defer make-or-buy
decisions when categorization of some items or work efforts
is impracticable at the time of submission.
(viii) Any other information the contracting officer
requires in order to evaluate the program.
(f) Evaluation, negotiation, and agreement. Contracting
officers shall evaluate and negotiate proposed make-or-buy
programs as soon as practicable after their receipt and before
contract award.
(1) When the program is to be incorporated in the contract and the design status of the product being acquired does
not permit accurate precontract identification of major items
or work efforts, the contracting officer shall notify the prospective contractor in writing that these items or efforts, when
identifiable, shall be added under the clause at 52.215-9,
Changes or Additions to Make-or-Buy Program.
(2) Contracting officers normally shall not agree to proposed “make items” when the products or services are not regularly manufactured or provided by the contractor and are
available—quality, quantity, delivery, and other essential factors considered—from another firm at equal or lower prices,
or when they are regularly manufactured or provided by the
contractor, but are available—quality, quantity, delivery, and
other essential factors considered—from another firm at
lower prices. However, the contracting officer may agree to
these as “make items” if an overall lower Governmentwide
cost would result or it is otherwise in the best interest of the
Government. If this situation occurs in any fixed-price incentive or cost-plus-incentive-fee contract, the contracting officer
shall specify these items in the contract and state that they are
subject to paragraph (d) of the clause at 52.215-9, Changes or
Additions to Make-or-Buy Program (see 15.408(a)). If the
contractor proposes to reverse the categorization of such items
during contract performance, the contract price shall be subject to equitable reduction.
(g) Incorporating make-or-buy programs in contracts. The
contracting officer may incorporate the make-or-buy program
in negotiated contracts for—
(1) Major systems (see Part 34) or their subsystems or
components, regardless of contract type; or
(2) Other supplies and services if—
(i) The contract is a cost-reimbursable contract, or a
cost-sharing contract in which the contractor’s share of the
cost is less than 25 percent; and
(ii) The contracting officer determines that technical
or cost risks justify Government review and approval of
changes or additions to the make-or-buy program.