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15.407-2 Make-or-buy programs.

15.407-2 Make-or-buy programs.

      (a) General. The prime contractor is responsible for managing contract performance, including planning, placing, and administering subcontracts as necessary to ensure the lowest overall cost and technical risk to the Government. When make-or-buy programs are required, the Government may reserve the right to review and agree on the contractor’s make-or-buy program when necessary to ensure negotiation of reasonable contract prices, satisfactory performance, or implementation of socioeconomic policies. Consent to subcontracts and review of contractors’ purchasing systems are separate actions covered in part  44.

      (b) Definition. “Make item,” as used in this subsection, means an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions.

      (c) Acquisitions requiring make-or-buy programs.

(1) Contracting officers may require prospective contractors to submit make-or-buy program plans for negotiated acquisitions requiring certified cost or pricing data whose estimated value is $13.5 million or more, except when the proposed contract is for research or development and, if prototypes or hardware are involved, no significant follow-on production is anticipated.

           (2) Contracting officers may require prospective contractors to submit make-or-buy programs for negotiated acquisitions whose estimated value is under $13.5 million only if the contracting officer-

                (i) Determines that the information is necessary; and

                (ii) Documents the reasons in the contract file.

      (d) Solicitation requirements. When prospective contractors are required to submit proposed make-or-buy programs, the solicitation shall include-

           (1) A statement that the program and required supporting information must accompany the offer; and

           (2) A description of factors to be used in evaluating the proposed program, such as capability, capacity, availability of small, small disadvantaged, women-owned, veteran-owned, HUBZone, and service-disabled veteran-owned small business concerns for subcontracting, establishment of new facilities in or near labor surplus areas, delivery or performance schedules, control of technical and schedule interfaces, proprietary processes, technical superiority or exclusiveness, and technical risks involved.

      (e) Program requirements. To support a make-or-buy program, the following information shall be supplied by the contractor in its proposal:

           (1) Items and work included. The information required from a contractor in a make-or-buy program shall be confined to those major items or work efforts that normally would require company management review of the make-or-buy decision because they are complex, costly, needed in large quantities, or require additional equipment or real property to produce. Raw materials, commercial items (see 2.101), and off-the-shelf items (see 46.101) shall not be included, unless their potential impact on contract cost or schedule is critical. Normally, make-or-buy programs should not include items or work efforts estimated to cost less than 1 percent of the total estimated contract price or any minimum dollar amount set by the agency.

           (2) The offeror’s program should include or be supported by the following information:

                (i) A description of each major item or work effort.

                (ii) Categorization of each major item or work effort as “must make,” “must buy,” or “can either make or buy.”

                (iii) For each item or work effort categorized as “can either make or buy,” a proposal either to “make” or to “buy.”

                (iv) Reasons for categorizing items and work efforts as “must make” or “must buy,” and proposing to “make” or to “buy” those categorized as “can either make or buy.” The reasons must include the consideration given to the evaluation factors described in the solicitation and must be in sufficient detail to permit the contracting officer to evaluate the categorization or proposal.

                (v) Designation of the plant or division proposed to make each item or perform each work effort, and a statement as to whether the existing or proposed new facility is in or near a labor surplus area.

                (vi) Identification of proposed subcontractors, if known, and their location and size status (also see subpart  19.7 for subcontracting plan requirements).

                (vii) Any recommendations to defer make-or-buy decisions when categorization of some items or work efforts is impracticable at the time of submission.

                (viii) Any other information the contracting officer requires in order to evaluate the program.

      (f) Evaluation, negotiation, and agreement. Contracting officers shall evaluate and negotiate proposed make-or-buy programs as soon as practicable after their receipt and before contract award.

           (1) When the program is to be incorporated in the contract and the design status of the product being acquired does not permit accurate precontract identification of major items or work efforts, the contracting officer shall notify the prospective contractor in writing that these items or efforts, when identifiable, shall be added under the clause at 52.215-9, Changes or Additions to Make-or-Buy Program.

           (2) Contracting officers normally shall not agree to proposed “make items” when the products or services are not regularly manufactured or provided by the contractor and are available-quality, quantity, delivery, and other essential factors considered-from another firm at equal or lower prices, or when they are regularly manufactured or provided by the contractor, but are available-quality, quantity, delivery, and other essential factors considered-from another firm at lower prices. However, the contracting officer may agree to these as “make items” if an overall lower Governmentwide cost would result or it is otherwise in the best interest of the Government. If this situation occurs in any fixed-price incentive or cost-plus-incentive-fee contract, the contracting officer shall specify these items in the contract and state that they are subject to paragraph (d) of the clause at 52.215-9, Changes or Additions to Make-or-Buy Program (see 15.408(a)). If the contractor proposes to reverse the categorization of such items during contract performance, the contract price shall be subject to equitable reduction.

      (g) Incorporating make-or-buy programs in contracts. The contracting officer may incorporate the make-or-buy program in negotiated contracts for-

           (1) Major systems (see part  34) or their subsystems or components, regardless of contract type; or

           (2) Other supplies and services if-

                (i) The contract is a cost-reimbursable contract, or a cost-sharing contract in which the contractor’s share of the cost is less than 25 percent; and

                (ii) The contracting officer determines that technical or cost risks justify Government review and approval of changes or additions to the make-or-buy program.