FAR 46.407—Nonconforming supplies or services.
Plain-English Summary
FAR 46.407 explains how the Government should handle supplies or services that do not conform to contract requirements, including when to reject them, when to allow correction or replacement, when acceptance or conditional acceptance may still be in the Government’s interest, and how to document and price any resulting adjustment. It covers the distinction between minor, major, and critical nonconformances; the role of the contracting officer, contract administration office, technical activity, and health officials in deciding whether to accept; and the need to discourage repeated delivery of defective work. The section also addresses equitable price reductions, withholding amounts for conditional acceptance, and when a contract modification is not necessary for minor defects. In addition, it requires prompt rejection notices, specifies when those notices must be in writing, and warns that delay can create implied acceptance. Finally, it includes special handling for counterfeit or suspect counterfeit items, requiring disposition instructions consistent with agency policy and possible retention for investigative or evidentiary purposes. In practice, this section is the Government’s roadmap for balancing quality enforcement with mission needs, while protecting the Government’s rights, documenting decisions, and ensuring any acceptance of defective work is supported by the record and properly priced.
Key Rules
Reject nonconforming items
The default rule is rejection: supplies or services must conform in all respects to contract requirements, and nonconforming items should be rejected unless the Government determines acceptance is in its interest and the section authorizes it.
Allow correction or replacement first
When time permits, the contracting officer ordinarily must give the contractor an opportunity to correct or replace nonconforming supplies or services. Unless the contract says otherwise, the correction or replacement must be at no additional cost to the Government.
Accept only with proper support
For critical, major, or otherwise incomplete work not covered by the correction/replacement rule, acceptance or conditional acceptance is allowed only when the contracting officer determines it is in the Government’s best interest, based on technical advice, the nature and extent of the defect, contractor input if feasible, a recommendation with rationale, and an appropriate contract adjustment.
Obtain required concurrence
Before accepting nonconforming critical or major items, the contracting officer must get concurrence from the activity responsible for the technical requirements and, when health factors are involved, the responsible health official. Written support from the cognizant contract administration office or other involved activity is required, though urgent oral advice may be later confirmed in writing.
Minor defects may be handled administratively
If the nonconformance is minor, the cognizant contract administration office may decide whether to accept or reject unless that authority has been withheld. A joint contractor-contract administration review group may help, but it cannot be used to accept critical or major nonconformances.
Discourage repeat nonconformance
The contracting officer must take action to discourage repeated tender of defective supplies or services, including minor defects, such as rejection and documenting the contractor’s performance record.
Price reductions and withholding apply
When critical or major nonconforming items are accepted, the contract must be modified for an equitable price reduction or other consideration. For conditional acceptance, withheld amounts should generally cover the estimated cost and related profit to correct deficiencies and complete unfinished work, and the basis for withholding must be documented.
Prompt written rejection notices
Rejection notices must state the reasons and be sent promptly, because delay can create implied acceptance in some cases. Written notice is required when rejection occurs away from the contractor’s plant, when the contractor keeps offering nonconforming items, or when delivery or performance was late without excusable cause.
Counterfeit item disposition
For counterfeit or suspect counterfeit items, the contracting officer must follow agency policy for disposition instructions, and the agency may require the contractor to retain the items for investigative or evidentiary purposes.
Responsibilities
Contracting Officer
Default to rejection of nonconforming supplies or services; decide whether acceptance or conditional acceptance is in the Government’s interest; obtain required technical and health concurrence; ensure contract modifications, equitable reductions, or withholding are properly set; issue prompt rejection notices; discourage repeated nonconformance; and direct disposition of counterfeit or suspect counterfeit items under agency policy.
Contractor
Correct or replace nonconforming supplies or services when given the opportunity; request acceptance of nonconforming or incomplete items when feasible; provide any proposed adjustment or rationale supporting acceptance; and comply with rejection, correction, withholding, and counterfeit-item retention/disposition instructions.
Cognizant Contract Administration Office
For minor nonconformances, determine whether to accept or reject unless authority is withheld; provide written data and recommendations to the contracting officer for critical or major nonconformances; and may establish a joint contractor-contract administration review group to assist with minor defect determinations.
Technical Activity Responsible for Contract Requirements
Provide advice on whether the item is safe to use and will perform its intended purpose, and concur before the contracting officer accepts critical or major nonconforming supplies or services.
Responsible Health Official
When health factors are involved, concur before acceptance of critical or major nonconforming supplies or services.
Agency
Establish policy for disposition of counterfeit or suspect counterfeit items and may require retention of such items for investigative or evidentiary purposes; may also withhold minor-defect acceptance authority from the contract administration office.
Practical Implications
This section is about more than simply rejecting bad work; it requires a structured decision process that balances mission urgency, safety, and cost against strict contract compliance.
Contracting officers should build a strong file: technical advice, defect descriptions, contractor requests, recommendations, concurrence, and the basis for any price reduction or withholding all matter if the decision is later challenged.
Prompt notice is critical. If rejection is delayed or poorly documented, the Government can lose leverage and, in some cases, risk implied acceptance.
Contractors should not assume minor defects will be ignored; repeated minor nonconformances can still lead to rejection, performance record impacts, and contract administration action.
For accepted defects, the Government should not forget the money side: equitable reductions, withheld amounts, and contract modifications are essential to avoid overpaying for incomplete or defective performance.
Counterfeit and suspect counterfeit items require special handling beyond ordinary rejection, so contracting personnel should follow agency-specific procedures immediately rather than treating them like routine nonconformances.
Official Regulatory Text
(a) The contracting officer should reject supplies or services not conforming in all respects to contract requirements (see 46.102 ). In those instances where deviation from this policy is found to be in the Government’s interest, such supplies or services may be accepted only as authorized in this section. (b) The contracting officer ordinarily must give the contractor an opportunity to correct or replace nonconforming supplies or services when this can be accomplished within the required delivery schedule. Unless the contract specifies otherwise (as may be the case in some cost-reimbursement contracts), correction or replacement must be without additional cost to the Government. Paragraph (e)(2) of the clause at 52.246-2 , Inspection of Supplies-Fixed-Price, reserves to the Government the right to charge the contractor the cost of Government reinspection and retests because of prior rejection. (c) (1) In situations not covered by paragraph (b) of this section, the contracting officer ordinarily must reject supplies or services when the nonconformance is critical or major or the supplies or services are otherwise incomplete. However, there may be circumstances ( e.g., reasons of economy or urgency) when the contracting officer determines acceptance or conditional acceptance of supplies or services is in the best interest of the Government. The contracting officer must make this determination based upon- (i) Advice of the technical activity that the item is safe to use and will perform its intended purpose; (ii) Information regarding the nature and extent of the nonconformance or otherwise incomplete supplies or services; (iii) A request from the contractor for acceptance of the nonconforming or otherwise incomplete supplies or services (if feasible); (iv) A recommendation for acceptance, conditional acceptance, or rejection, with supporting rationale; and (v) The contract adjustment considered appropriate, including any adjustment offered by the contractor. (2) The cognizant contract administration office, or other Government activity directly involved, must furnish this data to the contracting officer in writing, except that in urgent cases it may be furnished orally and later confirmed in writing. Before making a decision to accept, the contracting officer must obtain the concurrence of the activity responsible for the technical requirements of the contract and, where health factors are involved, of the responsible health official of the agency concerned. (d) If the nonconformance is minor, the cognizant contract administration office may make the determination to accept or reject, except where this authority is withheld by the contracting office of the contracting activity. To assist in making this determination, the contract administration office may establish a joint contractor-contract administrative office review group. Acceptance of supplies and services with critical or major nonconformances is outside the scope of the review group. (e) The contracting officer must discourage the repeated tender of nonconforming supplies or services, including those with only minor nonconformances, by appropriate action, such as rejection and documenting the contractor’s performance record. (f) When supplies or services are accepted with critical or major nonconformances as authorized in paragraph (c) of this section, the contracting officer must modify the contract to provide for an equitable price reduction or other consideration. In the case of conditional acceptance, amounts withheld from payments generally should be at least sufficient to cover the estimated cost and related profit to correct deficiencies and complete unfinished work. The contracting officer must document in the contract file the basis for the amounts withheld. For services, the contracting officer can consider identifying the value of the individual work requirements or tasks (subdivisions) that may be subject to price or fee reduction. This value may be used to determine an equitable adjustment for nonconforming services. However, when supplies or services involving minor nonconformances are accepted, the contract need not be modified unless it appears that the savings to the contractor in fabricating the nonconforming supplies or performing the nonconforming services will exceed the cost to the Government of processing the modification. (g) Notices of rejection must include the reasons for rejection and be furnished promptly to the contractor. Promptness in giving this notice is essential because, if timely nature of rejection is not furnished, acceptance may in certain cases be implied as a matter of law. The notice must be in writing if- (1) The supplies or services have been rejected at a place other than the contractor’s plant; (2) The contractor persists in offering nonconforming supplies or services for acceptance; or (3) Delivery or performance was late without excusable cause. (h) The contracting officer shall provide disposition instructions for counterfeit or suspect counterfeit items in accordance with agency policy. Agency policy may require the contracting officer to direct the contractor to retain such items for investigative or evidentiary purposes.