Overview
This section outlines the standards and procedures for exercising "residual powers" under Pub. L. 85-804, which primarily involves the government’s authority to indemnify contractors against unusually hazardous or nuclear risks to facilitate national defense. It encompasses all extraordinary contractual authorities granted by the law except for formal contract adjustments and advance payments.
Key Rules
- Definition of Residual Powers: Includes all authority under Pub. L. 85-804 except for contract adjustments (FAR 50.103) and the authority to make advance payments (FAR 32.4).
- Indemnification Criteria: The agency head may authorize the use of clause 52.250-1, Indemnification Under Public Law 85-804, for risks defined as "unusually hazardous" or "nuclear" after considering the contractor’s existing financial protections (e.g., private insurance, self-insurance, and workers' compensation).
- Documentation Requirements: Any exercise of residual powers requires a signed and dated Memorandum of Decision that justifies the action and includes specific information similar to contract adjustment records.
- Contractor Requests: Requests for indemnification must include exhaustive detail, including risk definitions, proof of all applicable insurance policies, deductibles, exclusions, and the legal relationship between parent and subsidiary companies.
- Subcontractor Coverage: Indemnification can be extended to subcontractors only if specifically authorized in the Memorandum of Decision and justified by the circumstances.
- Mandatory Clauses: The Contracting Officer must insert FAR clause 52.250-1 when indemnification is approved, using Alternate I specifically for cost-reimbursement contracts.
Practical Implications
- This section acts as a critical risk-management tool for contractors engaged in high-stakes national defense work (such as aerospace or nuclear development) where potential liabilities are so great that private insurance is either unavailable or prohibitively expensive.
- Contractors face a high administrative burden to prove their need for indemnification, requiring full transparency regarding their corporate insurance programs and immediate notification to the government if their insurance coverage changes by 10% or more.