FAR 52.246-5—Inspection of Services-Cost-Reimbursement.
Plain-English Summary
FAR 52.246-5, Inspection of Services—Cost-Reimbursement, sets the quality-control and acceptance framework for cost-reimbursement service contracts. It covers the definition of "services," the contractor’s duty to maintain an acceptable inspection system and keep inspection records, the Government’s right to inspect and test services during performance, the Government’s remedies when services do not conform, and the consequences if the contractor does not promptly correct defects or prevent recurrence. In practice, this clause is important because cost-reimbursement contracts place more direct oversight on the Government while still requiring the contractor to manage quality and document compliance. The clause gives the Government flexibility to verify performance throughout the contract, but it also limits inspection to a manner that does not unduly delay the work. It matters to contractors because poor quality can lead to reperformance at no additional fee, fee reductions, or even default termination. It matters to contracting officers because it provides a structured set of remedies for nonconforming services without waiting until the end of performance.
Key Rules
Services Are Broadly Defined
For this clause, "services" includes not only the labor or tasks being performed, but also workmanship and any material furnished or used in performing the services. That means quality requirements can reach both the work product and the means used to produce it.
Contractor Must Maintain Inspection System
The contractor must provide and maintain an inspection system acceptable to the Government for the services covered by the contract. The system must be supported by complete inspection records that are available to the Government during performance and for any later period required by the contract.
Government May Inspect Throughout Performance
The Government has the right to inspect and test all services called for by the contract, to the extent practicable, at all places and times during the contract term. Government inspections and tests must be conducted so they do not unduly delay the contractor’s work.
Nonconforming Services May Require Reperformance
If services do not conform to contract requirements, the Government may require the contractor to perform them again at no additional fee. This is the primary remedy when defects can be corrected by doing the work over.
Government May Reduce Fee for Reduced Value
When defects cannot be corrected by reperformance, the Government may require corrective action to prevent future nonconformance and may reduce the fee payable to reflect the reduced value of the services actually received. Fee reduction is tied to the diminished value of the nonconforming performance.
Failure to Correct Can Lead to Government Action or Default
If the contractor does not promptly reperform the services or take necessary action to ensure future compliance, the Government may have the services performed by others or otherwise and reduce the fee by an equitable amount. The Government may also terminate the contract for default.
Responsibilities
Contractor
Establish and maintain an inspection system acceptable to the Government; inspect and control the quality of services, workmanship, and materials used; keep complete inspection records; make those records available during performance and for any required period afterward; promptly reperform nonconforming services at no additional fee when directed; take corrective action to prevent recurrence when defects cannot be corrected by reperformance; and avoid conduct that could justify fee reduction or default termination.
Contracting Officer / Government
Exercise the right to inspect and test services during performance to the extent practicable; conduct inspections in a way that does not unduly delay the work; determine whether services conform to contract requirements; direct reperformance when appropriate; assess whether corrective action or fee reduction is warranted when defects cannot be corrected; and decide whether to obtain substitute performance or terminate for default if the contractor fails to act promptly.
Agency / Government Quality Personnel
Support contract administration by performing inspections and tests, documenting nonconformances, coordinating with the contracting officer on corrective actions and acceptance decisions, and ensuring inspection activities are timely and do not unnecessarily disrupt performance.
Practical Implications
Contractors should treat quality control as a contract requirement, not just an internal best practice, because the clause requires an acceptable inspection system and records that can be reviewed by the Government.
A common pitfall is assuming that only the final deliverable matters; under this clause, workmanship and materials used in performing services are also within scope.
If the Government identifies defects, the contractor may have to redo the work at no extra fee, so pricing and staffing should account for the risk of rework.
When defects cannot be fixed by reperforming the same task, the Government can reduce the fee, so contractors should document the value delivered and any mitigating circumstances.
Contracting officers should use inspection rights actively but reasonably; inspections that slow the work unnecessarily can create performance and administration problems even though the Government has broad oversight rights.
Official Regulatory Text
As prescribed in 46.305 , insert the following clause in solicitations and contracts for services, or supplies that involve the furnishing of services, when a cost-reimbursement contract is contemplated: Inspection of Services-Cost-Reimbursement (Apr 1984) (a) Definition. "Services," as used in this clause, includes services performed, workmanship, and material furnished or used in performing services. (b) The Contractor shall provide and maintain an inspection system acceptable to the Government covering the services 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 all services called for by the contract, to the extent practicable at all places and times during the term of the contract. The Government shall perform inspections and tests in a manner that will not unduly delay the work. (d) If any of the services performed do not conform with contract requirements, the Government may require the Contractor to perform the services again in conformity with contract requirements, for no additional fee. When the defects in services cannot be corrected by reperformance, the Government may- (1) Require the Contractor to take necessary action to ensure that future performance conforms to contract requirements; and (2) Reduce any fee payable under the contract to reflect the reduced value of the services performed. (e) If the Contractor fails to promptly perform the services again or take the action necessary to ensure future performance in conformity with contract requirements, the Government may- (1) By contract or otherwise, perform the services and reduce any fee payable by an amount that is equitable under the circumstances; or (2) Terminate the contract for default. (End of clause)