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What type of subcontract is this and why do they include an audit clause?

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I have a client that has a subcontract which includes the following:

The SUBCONTRACTOR is hereby notified that effective on October 15, 2014, the

SUBCONTRACTOR is awarded a Fixed Price Subcontract (subject to the adjustment provisions of sections 4.2 Contract Definitization and 4.3 Cost Adjustments below) for the delivery/performance of the item(s) above in accordance with all the requirements and conditions set forth or by reference attached herein.

4.2 Contract Definitization

This Subcontract is awarded to allow work to proceed expeditiously. However, both parties agree to diligently strive to complete contract negotiations and to definitize the subcontract as soon as possible. This Subcontract is expected to be definitized by December 1, 2014, but in no case shall the time period exceed 180 days from the effective date of this Subcontract or when 40% of the work is completed, whichever is earlier.

4.3 Cost Adjustments

The costs, including direct and indirect rates and fixed fee, of this Subcontract are subject to adjustment based on the resolution of recommendations contained in any report of BUYER’S Audit in accordance with cost principles contained in the Department of Energy Acquisition Regulations (DEAR) and the Federal Acquisition Regulations (FAR). The SUBCONTRACTOR also agrees to negotiate in good faith to resolve any issues resulting from the audit of its accounting system.

Although the PO states that it is a fixed price contract for a little over $500,000 it looks like a letter contract to me.

I would appreciate your opinions.

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Although the PO states that it is a fixed price contract for a little over $500,000 it looks like a letter contract to me.

Yes, it reads like a letter contract. You can have a fixed-price letter contract. The parties have yet to "definitize" the contract by settling on the fixed price.

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