Since FAR 52.246-2 is in the contract doesn't the contractor have to follow the FAR when dispositioning non-conforming material even if it non-conforming to their drawings?
Answer: FAR 52.246-2 Inspection of Supplies does require the contractor to disclose to the Government if they are submitting for acceptance items that have been corrected or are rejected supplies. See para (g) The Contractor shall remove supplies rejected or required to be corrected. However, the Contracting Officer may require or permit correction in place, promptly after notice, by and at the expense of the Contractor. The Contractor shall not tender for acceptance corrected or rejected supplies without disclosing the former rejection or requirement for correction, and, when required, shall disclose the corrective action taken.
As you stated FAR 52.246-2 is in the contract so the contractor is required to comply with the clause.