52.246-3 Inspection of Supplies-Cost-Reimbursement
Source: FAR 52.246-3 on acquisition.gov
In cost-reimbursement supply contracts, contractors must maintain a Government-acceptable inspection system and may have to correct nonconforming supplies after acceptance—sometimes at no cost if the defect stems from misconduct or knowingly careless staffing.
Overview
- FAR 52.246-3 establishes the inspection, testing, acceptance, and correction framework for cost-reimbursement contracts for supplies and for services that require furnishing supplies.
- Its purpose is to ensure the Government can verify conformance before acceptance while defining when the contractor must correct or replace nonconforming supplies and who bears the cost.
Key Rules
- Inspection system and records
- The contractor must maintain a Government-acceptable inspection system covering supplies, fabrication methods, and special tooling, and keep complete inspection records available during performance and afterward as required by the contract.
- Government inspection and acceptance
- The Government may inspect and test supplies at practicable times and places, including during manufacture and at subcontractor plants, and supplies are deemed accepted 60 days after delivery unless accepted earlier.
- Correction or replacement of nonconforming supplies
- Up to 6 months after acceptance (unless the contract specifies another period), the Government may require correction or replacement of supplies that were nonconforming at delivery. Normally, those correction costs are allowable costs, but no additional fee is paid.
- Failure to act and misconduct exceptions
- If the contractor does not promptly correct or replace, the Government may perform the work, reduce fee, require delivery at reduced fee, or terminate for default. If nonconformance results from fraud, bad faith, willful misconduct, or knowingly retaining habitually careless or unqualified employees, correction must be made at no cost to the Government.
Responsibilities
- Contracting Officers: ensure the clause is used in applicable cost-reimbursement supply contracts; enforce inspection rights, acceptance timing, and remedies for nonconforming supplies.
- Contractors: maintain an acceptable inspection system, provide facilities for Government inspection, preserve records, disclose prior correction requirements when retendering supplies, and promptly correct or replace nonconforming items when required.
- Agencies: conduct inspections without unduly delaying work and resolve disputes over increased costs or fee reductions under the contract disputes process.
Practical Implications
- This clause balances Government quality assurance rights with the cost principles unique to cost-reimbursement contracts.
- Contractors should expect oversight at their own and subcontractor facilities and should document inspections thoroughly to defend quality decisions.
- Common pitfalls include weak inspection records, failing to support Government access, retendering corrected items without disclosure, and assuming acceptance eliminates all post-delivery correction risk.
As prescribed in 46.303 , insert the following clause in solicitations and contracts for supplies, or services that involve the furnishing of supplies, when a cost-reimbursement contract is contemplated:
Inspection of Supplies-Cost-Reimbursement (May 2001)
(a) Definitions. As used in this clause-
Contractor’s managerial personnel means any of the Contractor’s directors, officers, managers, superintendents, or equivalent representatives who have supervision or direction of-
(1) All or substantially all of the Contractor’s business;
(2) All or substantially all of the Contractor’s operation at a plant or separate location where the contract is being performed; or
(3) A separate and complete major industrial operation connected with performing this contract.
Supplies includes but is not limited to raw materials, components, intermediate assemblies, end products, lots of supplies, and, when the contract does not include the Warranty of Data clause, data.
(b) The Contractor shall provide and maintain an inspection system acceptable to the Government covering the supplies, fabricating methods, and special tooling under this contract. Complete records of all inspection work performed by the Contractor shall be maintained and made available to the Government during contract performance and for as long afterwards as the contract requires.
(c) The Government has the right to inspect and test the contract supplies, to the extent practicable at all places and times, including the period of manufacture, and in any event before acceptance. The Government may also inspect the plant or plants of the Contractor or any subcontractor engaged in the contract performance. The Government shall perform inspections and tests in a manner that will not unduly delay the work.
(d) If the Government performs inspection or test on the premises of the Contractor or a subcontractor, the Contractor shall furnish and shall require subcontractors to furnish all reasonable facilities and assistance for the safe and convenient performance of these duties.
(e) Unless otherwise specified in the contract, the Government shall accept supplies as promptly as practicable after delivery, and supplies shall be deemed accepted 60 days after delivery, unless accepted earlier.
(f) At any time during contract performance, but no later than 6 months (or such other time as may be specified in the contract) after acceptance of the supplies to be delivered under the contract, the Government may require the Contractor to replace or correct any supplies that are nonconforming at time of delivery. Supplies are nonconforming when they are defective in material or workmanship or are otherwise not in conformity with contract requirements. Except as otherwise provided in paragraph (h) of this clause, the cost of replacement or correction shall be included in allowable cost, determined as provided in the Allowable Cost and Payment clause, but no additional fee shall be paid. The Contractor shall not tender for acceptance supplies required to be replaced or corrected without disclosing the former requirement for replacement or correction, and, when required, shall disclose the corrective action taken.
(g)
(1) If the Contractor fails to proceed with reasonable promptness to perform required replacement or correction, the Government may-
(i) By contract or otherwise, perform the replacement or correction and charge to the Contractor any increased cost or make an equitable reduction in any fixed fee paid or payable under the contract;
(ii) Require delivery of undelivered supplies at an equitable reduction in any fixed fee paid or payable under the contract; or
(iii) Terminate the contract for default.
(2) Failure to agree on the amount of increased cost to be charged to the Contractor or to the reduction in the fixed fee shall be a dispute.
(h) Notwithstanding paragraphs (f) and (g) of this clause, the Government may at any time require the Contractor to correct or replace, without cost to the Government, nonconforming supplies, if the nonconformances are due to-
(1) Fraud, lack of good faith, or willful misconduct on the part of the Contractor’s managerial personnel; or
(2) The conduct of one or more of the Contractor’s employees selected or retained by the Contractor after any of the Contractor’s managerial personnel has reasonable grounds to believe that the employee is habitually careless or unqualified.
(i) This clause applies in the same manner to corrected or replacement supplies as to supplies originally delivered.
(j) The Contractor shall have no obligation or liability under this contract to replace supplies that were nonconforming at the time of delivery, except as provided in this clause or as may be otherwise provided in the contract.
(k) Except as otherwise specified in the contract, the Contractor’s obligation to correct or replace Government-furnished property shall be governed by the clause pertaining to Government property.
(End of clause)