27.202-3 Adjustment of royalties
Source: FAR 27.202-3 on acquisition.gov
Contracting officers must promptly address and correct any improper or excessive royalty payments to protect government interests.
Overview
FAR 27.202-3 outlines the procedures contracting officers must follow when they suspect that royalties paid or to be paid under a government contract or subcontract are inconsistent with government rights, excessive, or otherwise improper. The regulation requires prompt reporting to the office responsible for patent matters and mandates coordinated action to protect the government from improper royalty payments. This includes situations where the government already has a royalty-free license, is being charged above the licensed rate, or where the royalty is otherwise improper. The contracting officer may demand a refund or negotiate a reduction in royalties as appropriate, and should consult related FAR sections for guidance on evaluating royalty information and advance cost understandings.
Key Rules
- Reporting Suspected Improper Royalties
- Contracting officers must promptly report any suspected improper royalty payments to the cognizant patent office.
- Coordinated Action to Protect Government Interests
- Officers must act with the patent office to prevent payment of improper royalties, including those covered by royalty-free licenses or excessive rates.
- Refunds and Reductions
- Officers may demand refunds or negotiate royalty reductions when improper charges are identified.
- Reference to Related Guidance
- Officers should consult FAR 31.205-37 and 31.109 for evaluating royalty information and advance cost understandings.
Responsibilities
- Contracting Officers: Monitor royalty payments, report concerns, coordinate with patent offices, and take corrective action as needed.
- Contractors: Ensure royalty charges are proper, justified, and consistent with government rights.
- Agencies: Oversee patent matters and support contracting officers in royalty evaluations.
Practical Implications
- This section exists to prevent the government from overpaying or improperly paying royalties, protecting taxpayer funds and government rights.
- It impacts daily contracting by requiring vigilance and coordination regarding intellectual property costs.
- Common pitfalls include failing to identify improper royalties or neglecting to coordinate with the patent office, leading to potential overpayments.
(a) If at any time the contracting officer believes that any royalties paid, or to be paid, under a contract or subcontract are inconsistent with Government rights, excessive, or otherwise improper, the contracting officer shall promptly report the facts to the office having cognizance of patent matters for the contracting activity concerned.
(b) In coordination with the cognizant office, the contracting officer shall promptly act to protect the Government against payment of royalties-
(1) With respect to which the Government has a royalty-free license;
(2) At a rate in excess of the rate at which the Government is licensed; or
(3) When the royalties in whole or in part otherwise constitute an improper charge.
(c) In appropriate cases, the contracting officer in coordination with the cognizant office shall demand a refund pursuant to any refund of royalties clause in the contract (see 27.202-4) or negotiate for a reduction of royalties.
(d) For guidance in evaluating information furnished pursuant to 27.202-1, see 31.205-37. See also 31.109 regarding advance understandings on particular cost items, including royalties.