Overview
This section outlines the quality assurance and inspection requirements for various contract types, establishing that contractors are responsible for ensuring all supplies and services conform to contract specifications before tendering them to the Government. It defines the Government's rights to inspect, test, and either reject or require the correction of nonconforming deliverables across fixed-price, cost-reimbursement, and time-and-materials contracts.
Key Rules
- Contractor Responsibility: The Contractor must maintain an inspection system acceptable to the Government and keep complete records of all inspections available for review.
- Government Inspection Rights: The Government maintains the right to inspect and test all supplies and services at all practicable places and times, including during manufacture, though this does not relieve the Contractor of their primary responsibility.
- Fixed-Price Remedies: For fixed-price contracts, the Government may reject nonconforming items or require their correction at the Contractor’s expense. Failure to comply can lead to a reduction in price, termination for default, or the Government performing the correction at the Contractor’s expense.
- Cost-Reimbursement Remedies: Corrections are generally considered allowable costs (without additional fee) unless the defect resulted from fraud, lack of good faith, or willful misconduct by the Contractor's managerial personnel.
- Conclusiveness of Acceptance: Once the Government accepts a delivery, it is final and conclusive except in cases of latent defects, fraud, or gross mistakes amounting to fraud.
- T&M/Labor-Hour Adjustments: Under Time-and-Materials contracts, if the Government requires the correction of services, the "hourly rate" for the rework labor must be reduced to exclude the profit portion of the rate.
Practical Implications
- Documentation is Critical: Contractors must not only perform inspections but also maintain rigorous documentation, as the Government may evaluate the inspection system itself to determine compliance.
- Risk Allocation: The financial risk of quality failure shifts significantly with contract type; fixed-price contractors bear the full cost of rework, while cost-reimbursement contractors may recover rework costs but lose the potential for additional fee.
- Source Inspection Coordination: Contractors must provide advance notice (typically 2 to 7 days) for source inspections to ensure Government representatives can witness tests without delaying the production schedule.