9.305 Risk
Source: FAR 9.305 on acquisition.gov
Contractors bear the risk for costs incurred before first article approval unless the contracting officer specifically authorizes early acquisition or production essential to meet delivery schedules.
Overview
FAR 9.305 addresses the allocation of risk to contractors before first article approval in contracts requiring first article testing. Generally, contractors bear the risk for acquiring materials, components, or starting production before the Government approves the first article. To mitigate this risk, contracting officers are instructed to allow sufficient time in the delivery schedule for contractors to acquire materials and begin production only after first article approval. However, if Government requirements make this impractical, the contracting officer may authorize limited acquisition or production before approval, but only to the extent necessary to meet the delivery schedule. In such cases, costs incurred under this authorization are considered allocable to the contract for progress payments and termination settlements if the contract is terminated for convenience. This section references Alternate II of the clauses at 52.209-3 and 52.209-4 for further guidance.
Key Rules
- Contractor Risk Before First Article Approval
- Contractors assume all risk for materials, components, or production started before first article approval unless specifically authorized by the contracting officer.
- Delivery Schedule Considerations
- Contracting officers must provide enough time in the delivery schedule for post-approval acquisition and production.
- Authorization for Early Acquisition/Production
- If necessary, contracting officers may authorize early acquisition or production, but only as essential to meet delivery requirements.
- Cost Allocability
- Authorized early costs are allocable for progress payments and termination settlements if the contract is terminated for convenience.
Responsibilities
- Contracting Officers: Structure delivery schedules to minimize contractor risk, and provide written authorization for any early acquisition or production.
- Contractors: Do not acquire materials or start production before first article approval unless specifically authorized; track and document any authorized early costs.
- Agencies: Ensure oversight of risk allocation and compliance with authorization procedures.
Practical Implications
- This section exists to clarify risk allocation and protect both the Government and contractors during first article testing.
- Contractors must be cautious about incurring costs before approval, as unauthorized costs may not be reimbursed.
- Failure to follow these procedures can result in financial loss or disputes over payment and termination settlements.
Before first article approval, the acquisition of materials or components, or commencement of production, is normally at the sole risk of the contractor. To minimize this risk, the contracting officer shall provide sufficient time in the delivery schedule for acquisition of materials and components, and for production after receipt of first article approval. When Government requirements preclude this action, the contracting officer may, before approval of the first article, authorize the contractor to acquire specific materials or components or commence production to the extent essential to meet the delivery schedule (see Alternate II of the clause at 52.209-3, First Article Approval-Contractor Testing, and Alternate II of the clause at 52.209-4, First Article Approval-Government Testing). Costs incurred based on this authorization are allocable to the contract for—
(a) Progress payments; and
(b) Termination settlements if the contract is terminated for the convenience of the Government.