What statute/regulation can we site to the oversight agency to advise the inappropriateness of this request (CAS, Guarantee/Warranty, etc). We have sited various impacts, but they still are requiring a statute/regulation.
This is a complex question and requires a review of the contract's terms and conditions to answer it. In a general sense, there would have to be a modification to the existing contract to modify the scope of work, and the contracting officer would have to determine if this reduction in service would be within scope. If it is a commercial contract, then the change would have to be agreed upon by the contractor since all changes on commercial contracts must be bilateral. If it is a noncommercial contract, then the applicable changes clause would apply. Only contracting officers can modify the contract, that is clear in FAR 43.102. Any reduction of scope would have to be negotiated, to include the change in price to the contract.
Additionally, the payment terms and how the CLINs were established will dictate how the contractor will need to be paid. If there is a wage determination or a collective bargaining agreement incorporated into the contract, then there could be legal ramifications, refer to FAR part 22. The Government cannot have Government personnel start performing tasks on a contract unless the contract allows for it, such as contractors providing services designated as essential contractor services IAW DFARS clause 252.237-7023.