52.203-10 Price or Fee Adjustment for Illegal or Improper Activity
Source: FAR 52.203-10 on acquisition.gov
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.
As prescribed in 3.104-9(b), insert the following clause:
Price or Fee Adjustment for Illegal or Improper Activity (May 2014)
(a) The Government, at its election, may reduce the price of a fixed-price type contract and the total cost and fee under a cost-type contract by the amount of profit or fee determined as set forth in paragraph (b) of this clause if the head of the contracting activity or designee determines that there was a violation of http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section2102&num=0&edition=prelim" target="_blank">41 U.S.C.2102 or 2103, as implemented in section 3.104 of the Federal Acquisition Regulation.
(b) The price or fee reduction referred to in paragraph (a) of this clause shall be-
(1) For cost-plus-fixed-fee contracts, the amount of the fee specified in the contract at the time of award;
(2) For cost-plus-incentive-fee contracts, the target fee specified in the contract at the time of award, notwithstanding any minimum fee or "fee floor" specified in the contract;
(3) For cost-plus-award-fee contracts-
(i) The base fee established in the contract at the time of contract award;
(ii) If no base fee is specified in the contract, 30 percent of the amount of each award fee otherwise payable to the Contractor for each award fee evaluation period or at each award fee determination point.
(4) For fixed-price-incentive contracts, the Government may-
(i) Reduce the contract target price and contract target profit both by an amount equal to the initial target profit specified in the contract at the time of contract award; or
(ii) If an immediate adjustment to the contract target price and contract target profit would have a significant adverse impact on the incentive price revision relationship under the contract, or adversely affect the contract financing provisions, the Contracting Officer may defer such adjustment until establishment of the total final price of the contract. The total final price established in accordance with the incentive price revision provisions of the contract shall be reduced by an amount equal to the initial target profit specified in the contract at the time of contract award and such reduced price shall be the total final contract price.
(5) For firm-fixed-price contracts, by 10 percent of the initial contract price or a profit amount determined by the Contracting Officer from records or documents in existence prior to the date of the contract award.
(c) The Government may, at its election, reduce a prime contractor’s price or fee in accordance with the procedures of paragraph (b) of this clause for violations of the statute by its subcontractors by an amount not to exceed the amount of profit or fee reflected in the subcontract at the time the subcontract was first definitively priced.
(d) In addition to the remedies in paragraphs (a) and (c) of this clause, the Government may terminate this contract for default. The rights and remedies of the Government specified herein are not exclusive, and are in addition to any other rights and remedies provided by law or under this contract.
(End of clause)