As prescribed in 242.7001, use the clause at 252.242-7005, Contractor Business Systems, in solicitations and contracts (other than in contracts with educational institutions, Federally Funded Research and Development Centers (FFRDCs), or University Associated Research Centers (UARCs) operated by educational institutions) when—
(a) The resulting contract will be a covered contract as defined in 242.7000(a); and
(b) The solicitation or contract includes any of the following clauses:
(1) 252.215-7002, Cost Estimating System Requirements.
(2) 252.234-7002, Earned Value Management System.
(3) 252.242-7004, Material Management and Accounting System.
(4) 252.242-7006, Accounting System Administration.
(5) 252.244-7001, Contractor Purchasing System Administration.
(6) 252.245-7003, Contractor Property Management System Administration.
CONTRACTOR BUSINESS SYSTEMS (JAN 2025)
(a) This clause only applies to covered contracts that are subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix).
(b) Definitions. As used in this clause—
Acceptable contractor business systems means contractor business systems that comply with the terms and conditions of the applicable business system clauses listed in the definition of "contractor business systems" in this clause.
Contractor business systems means—
(1) Accounting system, if this contract includes the clause at 252.242-7006, Accounting System Administration;
(2) Earned value management system, if this contract includes the clause at 252.234-7002, Earned Value Management System;
(3) Estimating system, if this contract includes the clause at 252.215-7002, Cost Estimating System Requirements;
(4) Material management and accounting system, if this contract includes the clause at 252.242-7004, Material Management and Accounting System;
(5) Property management system, if this contract includes the clause at 252.245-7003, Contractor Property Management System Administration; and
(6) Purchasing system, if this contract includes the clause at 252.244-7001, Contractor Purchasing System Administration.
Material weakness means a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the likelihood of an event occurring is—
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L. 116-283).
(c) General. The Contractor shall establish and maintain acceptable business systems in accordance with the terms and conditions of this contract.
(e) Withholding payments.
(3) Payment withhold percentage limits.
(ii) If this contract contains pre-existing withholds, and the application of any subsequent payment withholds will cause withholding under this clause to exceed the payment withhold percentage limits in paragraph (e)(3)(i) of this clause, the Contracting Officer will reduce the payment withhold percentage in the final determination to an amount that will not exceed the payment withhold percentage limits.
(4) For the purpose of this clause, payment means any of the following payments authorized under this contract:
(i) Interim payments under—
(A) Cost-reimbursement contracts;
(B) Incentive type contracts;
(C) Time-and-materials contracts;
(D) Labor-hour contracts.
(ii) Progress payments.
(iii) Performance-based payments.
(5) Payment withholding shall not apply to payments on fixed-price line items where performance is complete and the items were accepted by the Government.
(6) The withholding of any amount or subsequent payment to the Contractor shall not be construed as a waiver of any rights or remedies the Government has under this contract.
(7) Notwithstanding the provisions of any clause in this contract providing for interim, partial, or other payment withholding on any basis, the Contracting Officer may withhold payment in accordance with the provisions of this clause.
(8) The payment withholding authorized in this clause is not subject to the interest-penalty provisions of the Prompt Payment Act.
(End of clause)
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