FAR 52.246-3—Inspection of Supplies-Cost-Reimbursement.
Plain-English Summary
FAR 52.246-3, Inspection of Supplies—Cost-Reimbursement, sets the inspection, acceptance, and correction framework for cost-reimbursement contracts that involve supplies or services furnishing supplies. It covers the required definitions of contractor’s managerial personnel and supplies, the contractor’s duty to maintain an acceptable inspection system and records, the Government’s right to inspect and test supplies and contractor/subcontractor facilities, the contractor’s duty to provide facilities and assistance for on-site inspection, acceptance timing and deemed acceptance, the Government’s right to require correction or replacement of nonconforming supplies after acceptance, the contractor’s obligation to disclose prior correction/replacement when retendering supplies, remedies if the contractor does not act promptly, special no-cost correction rules for fraud, lack of good faith, willful misconduct, or certain employee conduct, the treatment of corrected or replacement supplies, the contractor’s limited liability for pre-delivery nonconformance, and the separate treatment of Government-furnished property. In practice, this clause allocates quality-control and inspection responsibilities while preserving the Government’s ability to verify compliance and obtain correction of defective supplies. Because it is used in cost-reimbursement contracting, it also ties correction costs to allowable cost principles and generally does not add fee for corrective work, which matters directly to contractor pricing, accounting, and risk management. It is designed to prevent acceptance of defective supplies from becoming a shield against later correction when defects existed at delivery, while also limiting the contractor’s exposure unless the contract or the clause specifically provides otherwise. For contracting officers and contractors, the clause is a roadmap for inspection rights, recordkeeping, acceptance timing, post-acceptance remedies, and the consequences of nonconforming supplies.
Key Rules
Inspection system required
The contractor must provide and maintain an inspection system acceptable to the Government for supplies, fabricating methods, and special tooling. The contractor must also keep complete inspection records and make them available during performance and for any later period required by the contract.
Government inspection rights
The Government may inspect and test supplies as practicable at all places and times, including during manufacture, and always before acceptance. It may also inspect the contractor’s or subcontractor’s plants, but must do so without unduly delaying the work.
On-site support required
If inspection or testing occurs at the contractor’s or subcontractor’s premises, the contractor must provide, and require subcontractors to provide, all reasonable facilities and assistance for safe and convenient performance of the Government’s duties.
Acceptance timing rules
Unless the contract says otherwise, the Government must accept supplies as promptly as practicable after delivery, and supplies are deemed accepted 60 days after delivery if not accepted earlier. This creates a default acceptance deadline but does not eliminate the Government’s other rights under the clause.
Post-acceptance correction rights
For up to 6 months after acceptance, or a longer period if the contract states one, the Government may require the contractor to replace or correct supplies that were nonconforming at delivery. Nonconforming means defective in material or workmanship or otherwise not meeting contract requirements.
Cost and fee treatment
Unless paragraph (h) applies, the cost of replacement or correction is generally allowable under the Allowable Cost and Payment clause, but no additional fee is paid. The contractor must not retender corrected or replacement supplies without disclosing the prior correction requirement and, when required, the corrective action taken.
Government remedies for delay
If the contractor does not proceed with reasonable promptness, the Government may perform the correction itself and charge increased cost, reduce fixed fee, require delivery of undelivered supplies at an equitable fee reduction, or terminate for default. Disputes over the amount of increased cost or fee reduction are treated as disputes.
No-cost correction for serious fault
The Government may require correction or replacement without cost when the nonconformance results from fraud, lack of good faith, or willful misconduct by the contractor’s managerial personnel, or from certain employees retained despite known habitual carelessness or unqualified conduct.
Corrected items treated the same
Corrected or replacement supplies are subject to the same inspection and acceptance rules as the original supplies. The contractor’s liability for pre-delivery nonconforming supplies is limited to what this clause or the contract otherwise provides.
Government-furnished property separate
Unless the contract says otherwise, the contractor’s duty to correct or replace Government-furnished property is governed by the Government property clause, not this inspection clause.
Responsibilities
Contracting Officer / Government
Insert the clause when required for cost-reimbursement supply contracts; inspect and test supplies and facilities without unduly delaying work; accept supplies promptly or allow deemed acceptance after 60 days unless the contract states otherwise; require correction or replacement of nonconforming supplies within the stated period; determine whether no-cost correction is justified under the fraud/good-faith/willful misconduct provisions; and apply the appropriate remedy if the contractor does not act promptly.
Contractor
Maintain an acceptable inspection system and complete inspection records; allow Government inspection and testing; provide reasonable facilities and assistance for on-site inspection; correct or replace nonconforming supplies when required; disclose prior correction/replacement when retendering supplies; and comply with any longer or different contract-specified acceptance or correction periods.
Subcontractor
When performing under the contract, provide reasonable facilities and assistance for Government inspection or testing at its premises as required through the prime contractor’s flowdown obligations and contract performance arrangements.
Agency / Government inspectors
Conduct inspections and tests in a way that does not unduly delay the work; inspect at practicable times and places, including during manufacture; and document findings that support acceptance, rejection, or correction actions.
Practical Implications
Contractors need a real quality-control system, not just paper procedures, because the clause requires an inspection system and records that can be reviewed during and after performance.
Acceptance is not the end of the story: even after deemed or actual acceptance, the Government can still require correction or replacement of pre-delivery nonconforming supplies within the clause’s time limit.
Cost-reimbursement does not mean the Government pays for every fix automatically; correction costs are generally allowable, but no extra fee is paid, and serious misconduct can trigger no-cost correction.
Contractors should track and disclose any prior correction or replacement when retendering items, because failing to do so can create compliance problems and credibility issues with the Government.
If the contractor delays corrective action, the Government has strong remedies, including self-help correction, fee reduction, and default termination, so prompt response and documented corrective action are critical.
Official Regulatory Text
As prescribed in 46.303 , insert the following clause in solicitations and contracts for supplies, or services that involve the furnishing of supplies, when a cost-reimbursement contract is contemplated: Inspection of Supplies-Cost-Reimbursement (May 2001) (a) Definitions. As used in this clause- Contractor’s managerial personnel means any of the Contractor’s directors, officers, managers, superintendents, or equivalent representatives who have supervision or direction of- (1) All or substantially all of the Contractor’s business; (2) All or substantially all of the Contractor’s operation at a plant or separate location where the contract is being performed; or (3) A separate and complete major industrial operation connected with performing this contract. Supplies includes but is not limited to raw materials, components, intermediate assemblies, end products, lots of supplies, and, when the contract does not include the Warranty of Data clause, data. (b) The Contractor shall provide and maintain an inspection system acceptable to the Government covering the supplies, fabricating methods, and special tooling under this contract. Complete records of all inspection work performed by the Contractor shall be maintained and made available to the Government during contract performance and for as long afterwards as the contract requires. (c) The Government has the right to inspect and test the contract supplies, to the extent practicable at all places and times, including the period of manufacture, and in any event before acceptance. The Government may also inspect the plant or plants of the Contractor or any subcontractor engaged in the contract performance. The Government shall perform inspections and tests in a manner that will not unduly delay the work. (d) If the Government performs inspection or test on the premises of the Contractor or a subcontractor, the Contractor shall furnish and shall require subcontractors to furnish all reasonable facilities and assistance for the safe and convenient performance of these duties. (e) Unless otherwise specified in the contract, the Government shall accept supplies as promptly as practicable after delivery, and supplies shall be deemed accepted 60 days after delivery, unless accepted earlier. (f) At any time during contract performance, but no later than 6 months (or such other time as may be specified in the contract) after acceptance of the supplies to be delivered under the contract, the Government may require the Contractor to replace or correct any supplies that are nonconforming at time of delivery. Supplies are nonconforming when they are defective in material or workmanship or are otherwise not in conformity with contract requirements. Except as otherwise provided in paragraph (h) of this clause, the cost of replacement or correction shall be included in allowable cost, determined as provided in the Allowable Cost and Payment clause, but no additional fee shall be paid. The Contractor shall not tender for acceptance supplies required to be replaced or corrected without disclosing the former requirement for replacement or correction, and, when required, shall disclose the corrective action taken. (g) (1) If the Contractor fails to proceed with reasonable promptness to perform required replacement or correction, the Government may- (i) By contract or otherwise, perform the replacement or correction and charge to the Contractor any increased cost or make an equitable reduction in any fixed fee paid or payable under the contract; (ii) Require delivery of undelivered supplies at an equitable reduction in any fixed fee paid or payable under the contract; or (iii) Terminate the contract for default. (2) Failure to agree on the amount of increased cost to be charged to the Contractor or to the reduction in the fixed fee shall be a dispute. (h) Notwithstanding paragraphs (f) and (g) of this clause, the Government may at any time require the Contractor to correct or replace, without cost to the Government, nonconforming supplies, if the nonconformances are due to- (1) Fraud, lack of good faith, or willful misconduct on the part of the Contractor’s managerial personnel; or (2) The conduct of one or more of the Contractor’s employees selected or retained by the Contractor after any of the Contractor’s managerial personnel has reasonable grounds to believe that the employee is habitually careless or unqualified. (i) This clause applies in the same manner to corrected or replacement supplies as to supplies originally delivered. (j) The Contractor shall have no obligation or liability under this contract to replace supplies that were nonconforming at the time of delivery, except as provided in this clause or as may be otherwise provided in the contract. (k) Except as otherwise specified in the contract, the Contractor’s obligation to correct or replace Government-furnished property shall be governed by the clause pertaining to Government property. (End of clause)