Applicability: This FAR solicitation provision, which is incorporated into the contract and thus becomes a clause, is included in all solicitations and contracts unless the contract is (a) at or below the simplified acquisition threshold, (b) for utility services at rates established by the general public plus a reasonable connection charge, and/or (c) for the acquisition of commercial items when such acquisitions are exempt from the requirements to submit certified cost or pricing data. For cost-reimbursement contracts with State and local Governments, educational institutions, and other nonprofit organizations, the clause is included with its Alternate II.
Key Requirements: From a proposal standpoint, when the offeror is required to submit certified cost or pricing data in connection with any pricing action relating to the contract, the contracting officer (or authorized representative) has the right to examine and audit all of the records (including computations and projections) in order to evaluate the accuracy, completeness, and currency of the certified cost or pricing data. This includes records related to the proposal, discussions/negotiations conducted on the proposal, and pricing of the proposal. From a contract performance standpoint, for cost-reimbursement, incentive, time-and-materials, labor-hour, or price redeterminable contracts (or any combination thereof), the contracting officer (or his authorized representative) has the right to examine and audit all records and other evidence sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred directly or indirectly in performance of the contract. This right of examination includes inspection at all reasonable times of the contractor’s plants, or parts of them, engaged in performing the contract. In addition, the clause also provides access by the Comptroller General of the United States. This access includes the right to examine any of the contractor’s directly pertinent records involving transactions related to the contract and to interview any current employee regarding such transactions. However, the clause specifically states that this access may not be construed to require the contractor to create or maintain any record that the contractor does not maintain in the ordinary course of business or pursuant to a provision of law.
Compliance Verification: There are no specific audits for compliance with this clause. Rather, compliance verification of the clause arises when the Government requests a particular record or records. Those requests may come from the contracting officer, the contracting officer’s technical representative, the cognizant auditor, the agency Inspector General, or the GAO.
Remedies: When the Government requests and is denied access to a particular record or records during the proposal stage of the contract, potential remedies include determining that the contractor’s proposal is inadequate. During contract performance, remedies for failure to provide access to the required records are generally applied by withholding some percentage of interim payments due under the contract.
Background: The purpose of the solicitation provision/contract clause is to assure that the Government has access to the records needed to (a) assess the currency, accuracy, and completeness of contractor submissions of certified cost and pricing data under the Truth in Negotiations Act, and (b) assess whether amounts claimed for reimbursement on cost-based contracts are allowable under applicable FAR requirements.
Other Key Information: The key issue that arises with the clause is the extent to which the Government has access to contractor records. Companies maintain thousands of different records: Some are specifically related to commercial business, while others are specifically related to Government business. However, a large number are not so easy to identify (e.g., records related to the overall running of the company may impact the Government in various ways). The extent to which the Government is entitled to access all or some of these records is often a point of debate. A good example of the issues that arise from application of this clause is access to contractor internal audit reports. Historically, the Government has not been entitled to simply say “give me all your internal audit reports.” Conversely, the contractor has not been entitled to simply say “I will provide no internal audit reports.” Generally, where the Government can show a specific need, it has obtained access. For example, if the internal audit is a review of the contractor’s billing system for Government contracts, the Government would have access. On the other hand, if the review is of the contractor’s commercial sales division, the Government would not have access. Unfortunately, most reviews do not provide such a clear demarcation between Government and commercial business. As a result, the debate over access to internal audit reports continues to be an issue in the Government contracting arena.