Overview
Subpart 12.4 provides specialized guidance for the administration and tailoring of terms and conditions for commercial products and services, specifically focusing on how they differ from standard FAR requirements. It establishes unique procedures for acceptance, warranties, and contract terminations to align government procurement more closely with customary commercial marketplace practices.
Key Rules
- Acceptance (FAR 12.402): The government generally relies on the contractor’s assurance of conformity for noncomplex items. For complex or critical applications, Contracting Officers (COs) must include alternative inspection procedures in a contract addendum.
- Termination Procedures (FAR 12.403): Standard termination rules found in FAR Part 49 do not apply to commercial acquisitions. Instead, COs must follow the specific procedures in 12.403, using Part 49 only as non-conflicting guidance.
- Termination for Cause: A Cure Notice is mandatory for reasons other than late delivery. The government is entitled to all marketplace remedies, including reprocurement costs (cover) and incidental or consequential damages.
- Termination for Convenience (T4C): Contractors are paid a percentage of the contract price reflecting work performed (for fixed-price) or direct labor hours expended (for T&M), plus any charges resulting from the termination. Contractors are not required to comply with Cost Accounting Standards (CAS) or FAR Part 31 cost principles for these settlements.
- Implied Warranties (FAR 12.404): Commercial contracts include implied warranties of Merchantability (fit for ordinary purposes) and Fitness for a Particular Purpose (fit for the government's specific use if the seller was aware of that use).
- Express Warranties: COs are required by law to take advantage of commercial warranties and should ensure they are cost-effective and adequate for the government’s needs.
Responsibilities
- Contracting Officer (CO):
- Tailoring clause 52.212-4 when it does not align with market practices.
- Determining if complex products require specialized inspection addenda.
- Consulting with legal counsel prior to terminating a contract for cause or asserting a claim for breach of an implied warranty.
- Evaluating express warranties for adequacy, administratability, and cost-effectiveness.
- Reporting terminations for cause in accordance with agency procedures (e.g., CPARS/FAPIIS).
- Contractor:
- Notifying the CO as soon as possible regarding any excusable delays.
- Providing the government with at least the same warranty terms offered to the general public.
- Demonstrating termination charges using their standard record-keeping system (no special government accounting systems required).
Practical Implications
- Audit Protection: Under a Termination for Convenience, the government expressly has no right to audit a contractor’s records solely because of the termination. This reduces the administrative burden on commercial entities doing business with the government.
- Streamlined Settlements: Because FAR Part 31 and CAS do not apply to commercial T4C settlements, the process is generally faster and relies on "mutual agreement" and "simple and expeditious settlement" rather than rigorous cost audits.
- Commercial Parity: This subpart limits the government's "sovereign" power by restricting it to the remedies available to any buyer in the commercial marketplace, making the government a more attractive customer for high-end commercial tech and service providers.
- Risk Management: For "as-is" or complex acquisitions, the burden is on the CO to proactively draft addenda; otherwise, the default "reliance on contractor assurance" may leave the government vulnerable if a product fails to perform.