46.707
Pricing aspects of fixed-price incentive contract warranties
All warranty costs must be included in the initial pricing of fixed-price incentive contracts, with no additional charges allowed after the final price is set.
Overview
FAR 46.707 addresses how warranties should be priced in fixed-price incentive contracts. When such a contract includes a warranty, the contractor's estimated costs for fulfilling the warranty must be factored into both the incentive target price and the contract's ceiling price. All actual or anticipated costs related to warranty compliance are to be included in determining the contract's total final price. Importantly, once the total final price is set, any further contractor actions to fulfill the warranty must be performed at no additional cost to the Government. This ensures that the Government is not subject to unexpected expenses related to warranty work after contract pricing is finalized.
Key Rules
- Inclusion of Warranty Costs in Pricing
- Estimated warranty costs must be considered when setting the incentive target and ceiling prices.
- Final Price Determination
- All warranty-related costs (incurred or estimated) must be included in the total final price.
- No Additional Government Cost Post-Final Price
- After the total final price is established, the contractor must fulfill warranty obligations at no extra cost to the Government.
Responsibilities
- Contracting Officers: Ensure warranty costs are included in pricing discussions and final contract price determinations.
- Contractors: Accurately estimate and account for all warranty-related costs in their proposals and comply with warranty terms without seeking additional compensation after final price is set.
- Agencies: Oversee that pricing and warranty compliance align with FAR requirements.
Practical Implications
- This section prevents cost overruns related to warranties by requiring all warranty costs to be included upfront in contract pricing. Contractors must be diligent in estimating warranty costs, as they cannot seek additional payment for warranty work after the final price is set. Failure to properly estimate can impact contractor profitability and compliance.