52.203-10
Price or Fee Adjustment for Illegal or Improper Activity
FAR 52.203-10 empowers the Government to reduce contract prices or fees and terminate contracts if illegal or improper procurement activities are found, making compliance essential for contractors and their subcontractors.
Overview
FAR 52.203-10 establishes the Government’s right to reduce the price or fee of a contract if it determines that illegal or improper activities, such as violations of 41 U.S.C. 2102 or 2103 (related to procurement integrity), have occurred. This clause applies to both prime contractors and, in certain cases, their subcontractors. The reduction amount depends on the contract type and is specifically defined for cost-plus-fixed-fee, cost-plus-incentive-fee, cost-plus-award-fee, fixed-price-incentive, and firm-fixed-price contracts. The Government may also terminate the contract for default in addition to reducing the price or fee. These remedies are not exclusive and may be combined with other legal or contractual actions.
Key Rules
- Price or Fee Reduction for Violations
- The Government may reduce the contractor’s profit or fee if illegal or improper activity is found.
- Reduction Amounts Defined by Contract Type
- Specific formulas are provided for calculating reductions based on contract type (e.g., 10% for firm-fixed-price contracts, full fee for cost-plus-fixed-fee contracts).
- Subcontractor Violations
- The Government may also reduce the prime contractor’s price or fee for violations by subcontractors, up to the profit or fee in the subcontract.
- Additional Remedies
- The Government may terminate the contract for default and pursue other remedies as allowed by law or contract.
Responsibilities
- Contracting Officers: Must determine violations, calculate appropriate reductions, and may terminate contracts for default.
- Contractors: Must avoid illegal or improper activities and ensure compliance by subcontractors.
- Agencies: Oversee enforcement and ensure proper application of remedies.
Practical Implications
- This clause deters illegal or improper conduct by imposing financial penalties and potential contract termination.
- Contractors must maintain strict compliance and monitor subcontractors to avoid penalties.
- Failure to comply can result in significant financial loss and reputational damage.