FAR 27.202—Royalties.

Reporting of royalties.

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.

Notice of Government as a licensee.

FAR 27.202-2 tells contracting officers how to handle solicitations when the Government is already obligated to pay a patent royalty under an existing license agreement and the licensed patent may apply to the prospective contract. The section covers three related topics: giving offerors notice of the Government’s license, identifying the patent number and royalty rate, and requiring offerors to disclose whether they are the patent owner or a licensee under that patent. Its purpose is to make competition fair and pricing transparent when a royalty cost may affect the Government’s total acquisition cost. In practice, this rule helps the Government avoid hidden or duplicated royalty charges, compare offers on an equal basis, and determine whether an offeror’s price should be adjusted upward for royalty costs or reduced when the offeror already holds a lower-cost license. It is especially important in procurements where patented technology is likely to be used and royalty obligations could materially affect evaluated price.

Adjustment of royalties.

FAR 27.202-3 explains how the Government should respond when royalties charged under a contract or subcontract may be inconsistent with Government rights, excessive, or otherwise improper. It covers the contracting officer’s duty to identify questionable royalty charges, promptly report them to the office with patent cognizance, and work in coordination with that office to protect the Government from paying royalties it does not owe. The section specifically addresses three problem situations: royalties for which the Government already has a royalty-free license, royalties charged above the licensed rate, and royalties that are otherwise improper in whole or in part. It also authorizes the contracting officer, in appropriate cases, to seek a refund under a contract’s refund-of-royalties clause or to negotiate a reduction in royalties. Finally, it points readers to FAR 31.205-37 for cost allowability guidance and FAR 31.109 for advance understandings on royalties, making this section important both for contract administration and for cost analysis.

Refund of royalties.

FAR 27.202-4 explains how the government handles royalty costs when the contract includes the clause at 52.227-9, Refund of Royalties. In practical terms, this section covers two related subjects: paying royalties that are properly due under the contract and recovering royalties that were included in the contractor’s fixed price but were not actually paid by the contractor. Its purpose is to prevent the government from overpaying for intellectual property rights-related costs and to make sure royalty charges are handled consistently with the contract terms. This matters most in fixed-price contracting, where royalty amounts may be embedded in the price and later need to be verified, adjusted, or refunded. The section also signals that royalty treatment is not automatic; it depends on the contract clause and on whether the contractor actually incurred and paid the royalty obligation. In practice, contracting officers and contractors need to track royalty claims carefully, document what was included in price, and reconcile what was truly paid versus what was only estimated or embedded in the negotiated price.

Solicitation provisions and contract clause.

FAR 27.202-5 tells contracting officers when to include patent and royalty-related solicitation provisions and contract clauses, and which version to use. It covers three main subjects: the Royalty Information provision at 52.227-6, including its Alternate I for common carrier communication services; the Patents-Notice of Government Licensee provision at 52.227-7 when the Government must pay a patent royalty; and the Refund of Royalties clause at 52.227-9 for negotiated fixed-price contracts, with limited use in cost-reimbursement contracts. The section also explains when royalty information may be requested in sealed bid procurements, and when higher-level approval is needed before doing so. In practice, this section is about protecting the Government from unnecessary or excessive royalty costs, ensuring offerors disclose royalty information when needed, and making sure other offerors receive fair notice when a patent license obligation may affect pricing. It matters because failure to include the right provision or clause can lead to incomplete pricing data, avoidable disputes over royalty payments, or missed opportunities to recover improper royalties.