Posted on 7/23/2011 12:24 PM

No Audit Rights Under FAR Part 12 Contracts

The government has no right to audit your FAR Part 12 commercial contract breach of contract or termination for convenience claims.  Pure and simple.

FAR 15.403-1(b)(3) and (5) prohibit obtaining cost or pricing data for commercial item contracts and when modifing a commercial contract.  FAR 12.503(c)(2) says the Truth in Negotiations Act and FAR 15.403 do not apply to Part 12 buys.  FAR 12.403(d)(1)(ii) says the government has no right to audit a termination for convenience settlement proposal.  FAR Part 12 does not address breach of contract claims and the changes clause says changes may be made by mutual agreement only.  Conclusion?  The government has no right to audit a termination for convenience settlement proposal/claim or breach of contract claim.

Some may argue FAR 15.404-1(a)(2) gives the government the right to conduct a price analysis of such proposals/claims.  Probably not.  In any event, this regulation only permits the contracting officer to request the advice and assistance of other experts in analyzing whether the price is right.  The contractor's submission of pricing information may be scrutinized in this way, but in this way only.

As you know, the onerous opinion in the Red River case has been reversed and remanded on appeal.  Your termination for convenience settlement proposal recovery rights under a Part 12 termination now more closely resemble the full recovery permitted under other types of government contracts.

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