(b) Claims settlement. The recipient may incur costs (including legal, technical and administrative) to assess the merits of or to negotiate the settlement of a claim by or against the recipient under a contract, provided:

1. (1) The claim arises from work within the scope of the Cooperative Agreement;
2. (2) A formal Cooperative Agreement amendment is executed specifically covering the costs before they are incurred;
3. (3) The costs are not incurred to prepare documentation that should be prepared by the contractor to support a claim against the recipient; and
4. (4) The award official determines that there is a significant Federal interest in the issues involved in the claim.

(c) Claims defense. The recipient may incur costs (including legal, technical and administrative) to defend against a contractor claim for increased costs under a contract or to prosecute a claim to enforce a contract provided:

1. (1) The claim arises from work within the scope of the Cooperative Agreement;
2. (2) A formal Cooperative Agreement amendment is executed specifically covering the costs before they are incurred;
3. (3) Settlement of the claim cannot occur without arbitration or litigation;
4. (4) The claim does not result from the recipient's mismanagement;
5. (5) The award official determines that there is a significant Federal interest in the issues involved in the claim; and
6. (6) In the case of defending against a contractor claim, the claim does not result from the recipient's responsibility for the improper action of others.