SECTION XV CONTRACT COST PRINCIPLES AND PROCEDURES 15-000 Scope of Section. This Section contains general cost principles and procedures for the pricing of contracts and contract modifications whenever cost analysis is performed (see 3-807.2), and for the determination, negotiation, or allowance of costs when such action is required by a contract clause. Part 1-Applicability 15-101 Scope of Part. This Part describes the applicability of succeeding Parts of this Section to the various types of contracts in connection with which cost principles and procedures are used. 15-102 Negotiated Supply, Service, Experimental, Developmental, and Research Contracts, and Contract Changes With Commercial Organizations. This category includes all contracts and contract modifications for supplies, services, or experimental, developmental, or research work negotiated on the basis of cost with organizations other than educational institutions (see 15–103) and State and local governments (see 15-108). It does not include facilities contracts (see 15-105) and construction contracts (see 15-104). The cost principles and procedures set forth in Part 2 of this Section shall be used in the pricing of negotiated supply, service, experimental, developmental, and research contracts and contract modifications with commercial organizations whenever cost analysis is to be performed pursuant to 3-807.2. In addition, the cost principles and procedures set forth in Part 2 of this Section shall be incorporated by reference in such contracts as the basis (i) for determination of reimbursable costs under cost reimbursement (ii) for the negotiation of overhead rates (Section III, Part 7); (iv) for the price revision of fixed price incentive contracts (3-404.4); (vi) for pricing changes and other contract modifications (see 7-103.26). 15-103 Contracts With Educational Institutions. This category includes all contracts and contract modifications for experimental, developmental, or research work with educational institutions. The cost principles and procedures set forth in Part 3 of this Section shall be incorporated by reference in cost reimbursement research contracts with educational institutions as the basis (i) for determination of reimbursable costs under cost reimbursement (ii) for the negotiation of overhead rates (Section III, Part 7); and contracts where the contractor elects to "voucher out" his costs In addition, Part 3 is to be used in determining the allowable costs of research and development performed by educational institutions under grants as a guide in the evaluation of costs in connection with the negotiation of fixed price type con. tracts and termination settlements. 15-104 Construction Contracts. This category includes all contracts for the construction, alteration, or repair of buildings, bridges, roads, or other kinds of real property. It also includes contracts for architect-engineer services related to such construction. It does not include contracts for vessels, aircraft, or other kinds of personal property. The cost principles and procedures set forth in Part 4 of this Section shall be used in the pricing of negotiated construction contracts and contract modifications with concerns other than educational institutions whenever cost analysis is to be performed pursuant to 3-807.2. In addition, the cost principles and procedures set forth in Part 4 of this Section shall be incorporated by reference in cost reimbursement and fixed price type construction contracts as the basis (i) for determination of reimbursable costs under cost reimbursement type contracts, including cost reimbursement type subcontracts thereunder (3—405); (ii) for the negotiation of overhead rates (Section III, Part 7); (iii) for claiming, negotiating, or determining costs under terminated fixed price and cost reimbursement type contracts (8-204 and 8-214); (iv) for the price revision of fixed price incentive contracts (3-404.4); and (v) for pricing changes and other contract modifications (see 7-103:26). 15-105 Facilities Contracts. Part 5 of this Section contains principles and procedures for the evaluation and determination of costs under facilities contracts (13-101.11) and subcontracts thereunder. Such principles and procedures shall be incorporated by reference in facilities contracts as the basis (i) for determination of reimbursable costs under facilities contracts in- (ii) for the negotiation of overhead rates (Section III, Part 7); and 15-106 Fixed Price Type Contracts. This Section shall be used in the pricing of fixed price type contracts and contract modifications whenever cost analysis is performed. It also will be used whenever a fixed price type contract clause requires the determination or negotiation of costs. However, application of these cost principles to fixed price type contracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of these cost principles, the objective will continue to be negotiate prices that are fair and reasonable, cost and other factors considered. 15-107 Advance Agreements on Particular Cost Items. (a) The extent of allowability of the selected items of cost covered in Parts 2 through 5 has been stated to apply broadly to many accounting systems in varying contract situations. Thus, as to any given contract, the reasonableness and allocability of certain items of cost may be difficult to determine, particularly in connection with firms or separate divisions thereof which may not be subject to effective competitive restraints. In order to avoid possible subsequent disallowance or dispute based on unreasonableness or nonallocability, it is desirable that contractors seek advance agreement with the Government as to the treatment to be accorded those special or unusual costs. Such agreements may also be initiated by the Government. Advance agreements may be negotiated either before or during a contract but should be negotiated before incurrence of the cost covered by the agreement. Any such agreement must be in writing, shall be executed by both contracting parties, and shall be incorporated in the present and future contracts to which it is applicable. (b) The contracting officer is not authorized by this paragraph to agree to a treatment of costs inconsistent with Parts 2 through 5. For example, an advance agreement may not provide that, notwithstanding 15-205.17, interest shall be allowable. (c) An advance agreement entered into in accordance with this paragraph shall contain a suitable statement of its intended applicability and duration. The absence of an advance agreement on any element of cost will not, in itself, affect the reasonableness or allocability of that element. (d) Advance agreements may be negotiated to affect only a single contract, a group of contracts, or may be broad enough to affect all the contracts of a procuring activity, an agency, or the entire Department of Defense. An advance agreement which affects only one contract, or class of contract from a single buying office, shall be negotiated by the procuring contracting officer (PCO), his authorized representative, or an ACO when delegated this authority by the PCO. The proposed agreement shall be coordinated between the ACO and the PCO prior to execution. (e) Advance agreements, other than those negotiated by the PCO in accordance with (d) above, shall be negotiated by the cognizant ACO or the assigned Corporate Administrative Contracting Officer (CACO) (see 20-900) except when this responsibility is currently assigned in the master list published annually in a Defense Procurement Circular for Tri-Service Departmental negotiation. Agreements at corporate level with contractors other than those assigned for Tri-Service negotiations, and for which a CACO has not been established, shall be negotiated by an ACO determined by majority vote among the Departments concerned in general accordance with the procedures set forth in 20–903(b). (f) Prior to undertaking negotiation of an advance agreement under (e) above, the cognizant negotiator shall (i) determine whether there are other DOD or non-DOD departments or agencies that have a significant unliquidated dollar balance in contracts with the same contractor, (ii) inform any such department or agency of the cost item(s) or other matters to be negotiated, and (iii) invite the department or agency to participate in pre-negotiation discussions, or in the subsequent negotiations as appropriate. The results of the negotiation will be binding upon all departments. At the completion of the negotiation, the sponsor will prepare and distribute copies of the fully executed agreement to the departments' procuring activities and Defense Contract Audit Agency. (g) Examples of cost on which advance agreements may be particularly important are: (i) compensation for personal services including but not limited to allowances for off-site pay, incentive pay, location allowances, hardship pay and cost of living differential; (ii) use charge for fully depreciated assets; (iii) deferred maintenance costs; (iv) precontract costs; (v) independent research and development costs; (vi) royalties; (vii) selling and distribution costs; (viii) travel costs, as related to special or mass personnel movements; (ix) idle facilities and idle capacity; (x) automatic data processing equipment; (xi) bid and proposal costs; and (xii) severance pay to employees on support service contracts. 15-108 Grants and Contracts With State and Local Governments. Part 7 of this Section provides principles and standards for determining costs applicable to grants and contracts with State and local governments. They are designed to provide the basis for a uniform approach to the problem of determining costs and to promote efficiency and better relationships between grantees and the Government. These cost principles apply to all programs that involve grants and contracts with State and local governments. They do not apply to grants and contracts with: (i) publicly financed educational institutions subject to Part 3 of this Section; or (ii) publicly owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Government agencies. Any other exceptions will be approved by the Bureau of the Budget in particular cases when adequate justification is presented. 15-109 Definitions. As used in this Section XV (except for Part 3), the words and phrases defined in this paragraph shall have the meanings set forth below. (a) Profit Center - The smallest organizationally independent segment of a company which has been charged by management with profit and loss responsibilities. (b) Accumulating Costs - The collecting of cost data in an organized manner, such as through a system of accounts. (c) Actual Costs Amounts determined on the basis of costs incurred, as distinguished from forecasted costs. Includes standard costs properly adjusted for applicable variances. (d) Allocate - To assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool. (e) Cost Objective - A function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. 58-067 0-76-57 |