252.242-7005 — Contractor business systems.

DFARS 252.242-7005 — Contractor business systems.. This clause is part of the Defense Federal Acquisition Regulation Supplement and applies specifically to Department of Defense contracts.

252.242-7005 Contractor business systems. As prescribed in 242.7001, use the following clause: Contractor Business Systems (Jan 2025) (a) This clause only applies to covered contracts that are subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix). (b) Definitions. As used in this clause— Acceptable contractor business systems means contractor business systems that comply with the terms and conditions of the applicable business system clauses listed in the definition of “contractor business systems” in this clause. Contractor business systems means— (1) Accounting system, if this contract includes the clause at 252.242-7006, Accounting System Administration; (2) Earned value management system, if this contract includes the clause at 252.234-7002, Earned Value Management System; (3) Estimating system, if this contract includes the clause at 252.215-7002, Cost Estimating System Requirements; (4) Material management and accounting system, if this contract includes the clause at 252.242-7004, Material Management and Accounting System; (5) Property management system, if this contract includes the clause at 252.245-7003, Contractor Property Management System Administration; and (6) Purchasing system, if this contract includes the clause at 252.244-7001, Contractor Purchasing System Administration. Material weakness means a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the likelihood of an event occurring is— (1) Probable; or (2) More than remote but less than likely (section 806 of Pub. L. 116-283). (c) General. The Contractor shall establish and maintain acceptable business systems in accordance with the terms and c

• The Contractor shall establish and maintain acceptable business systems in accordance with the terms and conditions of this contract.
• (1) The Contractor shall respond, in writing, within 30 days to an initial determination that there are one or more material weaknesses in one or more of the Contractor's business systems.
• (1) If the Contracting Officer issues the final determination with a notice to withhold payments for material weaknesses in a contractor business system required under this contract, the Contracting Officer will withhold 5 percent of amounts due from progress payments and performance-based payments, and direct the Contractor, in writing, to withhold 5 percent from its billings on interim cost vouchers on cost-reimbursement, labor-hour, and time-and-materials contracts until the Contracting Officer has determined that the Contractor has corrected all material weaknesses as directed by the Contracting Officer's final determination.
• The Contractor shall, within 45 days of receipt of the notice, either correct the weaknesses or submit an acceptable corrective action plan showing milestones and actions to eliminate the weaknesses.
• (i) The total percentage of payments withheld on amounts due under each progress payment, performance-based payment, or interim cost voucher on this contract shall not exceed— (A) Five percent for one or more material weaknesses in any single contractor business system; and (B) Ten percent for material weaknesses in multiple contractor business systems.
• (5) Payment withholding shall not apply to payments on fixed-price line items where performance is complete and the items were accepted by the Government.
• (6) The withholding of any amount or subsequent payment to the Contractor shall not be construed as a waiver of any rights or remedies the Government has under this contract.
• (1) The Contractor shall notify the Contracting Officer, in writing, when the Contractor has corrected the business system's weaknesses.
• (ii) If the Contracting Officer determines that the Contractor still has material weaknesses, the Contracting Officer will continue the withholding of progress payments and performance-based payments, and the Contractor shall continue withholding amounts from its billings on interim cost vouchers in accordance with paragraph (e) of this clause, and not bill for any monies previously withheld.