Overview
FAR 9.305 establishes the financial risk allocation between the Government and the contractor regarding the purchase of materials and the start of production prior to First Article Approval (FAA). It dictates that while the contractor typically bears this risk, the Contracting Officer has the authority to shift specific risks to the Government to meet urgent delivery timelines.
Key Rules
- Default Risk: Normally, the contractor bears 100% of the risk for any materials acquired or production started before the first article is officially approved.
- Scheduling Mandate: Contracting Officers (COs) are required to build enough time into the contract delivery schedule to allow for FAA to occur before full-scale production or material acquisition is necessary.
- Authorization Exception: If the Government's schedule does not allow for a sequential FAA process, the CO may authorize the contractor to begin production or buy materials early to the extent essential to meet the deadline.
- Clause Usage: This authorization is formalized through the use of Alternate II of clauses 52.209-3 (Contractor Testing) or 52.209-4 (Government Testing).
- Cost Recovery: If the CO provides early authorization, the associated costs are considered allocable to the contract for the purposes of progress payments and settlements if the contract is terminated for the Government's convenience.
Practical Implications
- Contractors should refrain from significant financial outlays before FAA unless the contract specifically includes the Alternate II version of the First Article clause and the CO provides written authorization.
- Without this specific authorization, a contractor cannot recover pre-approval production costs if the first article is rejected or the contract is terminated for convenience.