FAR 27.202-1—Reporting of royalties.
Plain-English Summary
FAR 27.202-1 explains how the Government identifies, reviews, and acts on royalty charges that appear in contractor proposals, prime contracts, subcontract approvals, and royalty reports. Its purpose is to help the contracting officer determine whether royalties anticipated or actually paid under Government contracts are excessive, improper, or inconsistent with Government patent rights, and to ensure those issues are reviewed by the office with cognizance over patent matters. In practice, this section ties the solicitation requirement at FAR 52.227-6 to a review-and-referral process: contractors must furnish royalty information when requested, contracting officers must forward that information for patent review, and the cognizant patent office must advise on appropriate action. The section also makes clear that the contracting officer has an affirmative duty to take action to reduce or eliminate improper royalties, but may not need to delay subcontract consent while waiting for patent-office advice. Overall, this provision is a control mechanism to prevent the Government from paying unnecessary or unauthorized royalty costs and to protect Government patent rights across both prime and subcontract levels.
Key Rules
Royalty information must be furnished
The solicitation provision at FAR 52.227-6 requires prospective contractors to provide royalty information so the Government can evaluate whether the charges are excessive, improper, or inconsistent with Government patent rights. This is the starting point for the contracting officer’s review.
Contracting officer must act on excessive royalties
If royalties appear excessive or improper, the contracting officer must take appropriate action to reduce or eliminate them. The rule is not passive; it requires affirmative action to protect the Government’s interests.
Pre-award referral is required
When a proposal includes a royalty charge, the contracting officer must forward the information to the office with cognizance over patent matters before award. That office must promptly advise the contracting officer on the appropriate course of action.
Subcontract royalty review follows prime contract requirements
When considering approval of a subcontract, the contracting officer must require royalty information if the prime contract requires it. The information must be sent to the cognizant patent office for review.
Consent need not be delayed
The contracting officer does not have to wait for advice from the cognizant patent office before consenting to a subcontract. This allows procurement actions to continue while patent review is pending.
Royalty reports must be forwarded
Any royalty reports received must be sent to the office having cognizance of patent matters for the contracting activity. This ensures ongoing oversight after award, not just at proposal stage.
Responsibilities
Contracting Officer
Review royalty information in proposals, subcontract requests, and royalty reports; forward the information to the office having cognizance of patent matters; take appropriate action to reduce or eliminate excessive or improper royalties; and, when considering subcontract approval, require royalty information if the prime contract requires it. The contracting officer may proceed with subcontract consent without waiting for patent-office advice.
Prospective Contractor
Furnish royalty information when required by the solicitation provision at FAR 52.227-6, including charges for royalties included in its response to the solicitation.
Subcontractor / Prime Contractor in subcontract context
Provide royalty information when the contracting officer requires it as part of subcontract approval under a prime contract that contains the royalty-information requirement.
Office Having Cognizance of Patent Matters
Review royalty information referred by the contracting officer and promptly advise the contracting officer on appropriate action regarding excessive, improper, or inconsistent royalty charges.
Agency / Contracting Activity
Maintain the patent-matters cognizant office and ensure royalty reports and royalty-related information are routed for review and oversight.
Practical Implications
Royalty charges are not just a pricing issue; they can trigger patent-rights review and possible price reduction or removal before award.
Contracting officers should not ignore royalty line items in proposals or subcontract requests, because the regulation requires referral and action when charges look excessive or improper.
A common pitfall is delaying subcontract consent while waiting for patent-office input; FAR 27.202-1 specifically says consent need not be delayed.
Contractors should be prepared to explain the basis for any royalty charge, including who owns the patent, what is being licensed, and why the amount is reasonable.
Post-award royalty reports still matter, so agencies should route them promptly to the cognizant patent office rather than treating royalty review as a one-time pre-award task.
Official Regulatory Text
(a) To determine whether royalties anticipated or actually paid under Government contracts are excessive, improper, or inconsistent with Government patent rights the solicitation provision at 52.227-6 requires prospective contractors to furnish royalty information. The contracting officer shall take appropriate action to reduce or eliminate excessive or improper royalties. (b) If the response to a solicitation includes a charge for royalties, the contracting officer shall, before award of the contract, forward the information to the office having cognizance of patent matters for the contracting activity. The cognizant office shall promptly advise the contracting officer of appropriate action. (c) The contracting officer, when considering the approval of a subcontract, shall require royalty information if it is required under the prime contract. The contracting officer shall forward the information to the office having cognizance of patent matters. However, the contracting officer need not delay consent while awaiting advice from the cognizant office. (d) The contracting officer shall forward any royalty reports to the office having cognizance of patent matters for the contracting activity.