for civilian use, the seller's renegotiable accruals are 5/10ths of 40 percent of $1,000,000, or $200,000.

1456.5 How to determine receipts or accruals subject to renegotiation; materials other than new durable productive equipment not incorporated in end product. This section applies to materials which do not constitute new durable productive equipment and which are not incorporated in an end product delivered to a Department. Sales of such materials under prime contracts are wholly renegotiable unless otherwise exempted. Sales of such materials under subcontracts shall be considered renegotiable on the basis of the use of such materials (that is, whether the use is for renegotiable or nonrenegotiable production). When the extent of the use cannot be readily established, such sales shall be considered renegotiable in substantially the same proportion as the production of the purchasers of such material is subject to renegotiation. The extent to which equipment covered by this section is used or to be used in renegotiable production shall be determined according to the percentage of time that such equipment is used or to be used in renegotiable as compared

to non-renegotiable product during the first twelve months following the delivery of the equipment to the purchaser. For the purposes of this computation, periods during which the equipment is idle shall not be taken into consideration. When the seller does not know or it is not practicable for the seller to ascertain the extent of renegotiable use at the time the seller is required to file its financial statement for the fiscal year in which it has received or accrued payment for the equipment, the seller shall make such determination on the basis of estimates, supported so far as practicable by information available to the seller at the time of the delivery of the equipment or at any time thereafter. If the use or anticipated use of the equipment in renegotiable production for the first 12 months following delivery is less than 10 percent of the total use during such period, such use or anticipated use may be regarded as inconsequential and the sale of such equipment may be considered as wholly nonrenegotiable.

1456.6 How to determine receipts or ac cruals subject to renegotiation; brokers and manufacturers' agents.-The regulations on this subject are set forth in section 1490.6 of this subchapter.

Sec.

1457.1

1457.2

1457.3

Fiscal year basis for renegotiation.
Fiscal years beginning in 1950 and ending
in 1951.

Performance prior to July 1, 1950.

1457.4 Joint venture contracts.

1457.90 Agreement for combined renegotiation pursuant to section 102(c) of the act. AUTHORITY: Sections 1457.1 to 1457.90 issued under sec. 109, Pub. Law 9, 82d Cong. Interpret or apply sections 102, 103, and 105, Pub. Law 9, 82d Cong.

1457.1 Fiscal year basis for renegotiation. (a) Statutory provision.-Section 105(a) of the act provides in part as follows:

The Board shall exercise its powers with respect to the aggregate of the amounts received or accrued during the fiscal year (or such other period as may be fixed by mutual agreement) by a contractor or subcontractor under contracts with the Departments and subcontracts, and not separately with respect to amounts received or accrued under separate contracts with the Departments or subcontracts, except that the Board may exercise such powers separately with respect to amounts received or accrued by the contractor or subcontractor under any one or more separate contracts with the Departments or subcontracts at the request of the contractor or subcontractor.

(b) Application of statutory provision.This provision requires the Board to renegotiate on a fiscal year basis (or such other period as may be fixed by mutual agreement). It also requires that renegotiation be conducted on an over-all basis unless the contractor and the Board agree that renegotiation be conducted with respect to its contracts separately or as two or more groups. Generally, renegotiation

will be conducted on the basis of the amounts received or accrued by a contractor from its renegotiable prime contracts and subcontracts for a fiscal year. Under this method, excessive profits are determined by examining the contractor's financial position and the profits from such prime contracts and subcontracts taken as a whole for a particular fiscal year rather than on an individual contract basis. This avoids problems of allocation of costs and profits to each prime contract and subcontract, allows the contractor to offset the results of one contract against the results of another and simplifies administration. Any other procedure may be employed only if authorized by the Board pursuant to these regulations.

1457.2 Fiscal years beginning in 1950 and ending in 1951.-Removed to Appendix.

1457.3 Performance prior to July 1, 1950.Removed to Appendix.

1457.4 Joint venture contracts.-If two or more parties enter into an arrangement for the performance jointly of one or more prime contracts or subcontracts, the combination resulting from such arrangement is commonly referred to as a "joint venture." Such a joint venture is regarded as an entity which, with respect to its prime contracts or subcontracts within the scope of the act, is a prime contractor or subcontractor within the meaning of the act.

1457.5 Treatment of contracts with price adjustment provisions.—(a) Renegotiation status of such contracts.-Certain contracts contain incentive provisions or provide for escalation, redetermination or other revision of the contract price during or after the completion of performance of the contract. Such contracts are subject to renegotiation unless otherwise exempted.

(b) Allocation of price revision to fiscal year or years affected thereby.—(1) Price revision

allocable solely to fiscal year under review.—If the price adjustment provisions of a contract apply to the receipts or accruals of the contractor solely in the year under review, the amount of such price revision will be deemed allocable wholly to the fiscal year under review.

(2) Price revision allocable to more than one fiscal year. If the price adjustment provisions of a contract apply to the receipts or accruals of the contractor in more than one fiscal year, and if no special agreement shall have been made with the contractor for any other method of allocation, the amount of such price revision will be allocated to each such fiscal year as follows:

(i) If the contract provides a method for such allocation, the allocation will be made in accordance therewith.

(ii) If the contract does not provide any method for such allocation, the allocation will be made in such manner as the Board shall determine to be fair and equitable.

(3) Price revision not disclosed in renegotiation of allocable fiscal year.-Notwithstanding any other provisions of this section, if in the renegotiation of the fiscal year under review the contractor does not disclose to the Board either the occurrence or the possible future occurrence of an upward contract price revision relating in whole or in part to such fiscal year, the amount of any such price increase which is otherwise allocable to such fiscal year may be allocated, at the election of the Board, to the fiscal year in which the contract is modified to provide for such upward price revision.

(c) When price revision precedes renegotiation.-When, pursuant to the price adjustment provisions of a contract applicable in whole or in part to the fiscal year under review, the price payable by the Government to the contractor under such contract is decreased before the completion of renegotiation of the contractor for such fiscal year, the amount of such price decrease allocable to the fiscal year under review will be treated as a reduction of the renegotiable income of the contractor for such fiscal year, in accordance with the provisions of section 1481 of the Internal Revenue Code. When, pursuant to the price adjustment provisions of a contract applicable in whole or in part to the fiscal year under review, the price payable by the Government to the contractor under such

contract is increased before the completion of renegotiation of the contractor for such fiscal year, the amount of such price increase will, notwithstanding the provisions of §§ 1459.1 (b) (1) and 1466.4(c) (2) and (3) of this subchapter, be included in the renegotiable income of the contractor for the fiscal year under review in order properly to reflect the renegotiable income and profits of the contractor of such fiscal year.

(d) Special treatment required when renegotiation precedes price revision.—(1) Refund cases.—(i) If it is anticipated, pursuant to the price adjustment provisions of a contract applicable in whole or in part to the fiscal year under review that the price payable under such contract will be retroactively increased or decreased after the completion of renegotiation for such fiscal year, the amount of such anticipated price revision will be estimated and adjustment will be made as hereinafter provided for any portion thereof which is determined to be allocable to the fiscal year under review pursuant to the provisions of paragraph (b) of this section.

(ii) In any case in which an agreement is made for the elimination of excessive profits, if a retroactive downward price revision is anticipated, the contractor will be permitted to set up a reserve to cover the refund of the portion of the estimated price revision which is allocable to the fiscal year under review and to charge the amount of such reserve against renegotiable business for such fiscal year: Provided, That, if the amount of such reserve is substantial, there will be included in the renegotiation agreement a clause providing that, in the event the final downward price revision is less than the amount of such reserve, the difference between the amount of such final price revision and the amount of such reserve shall be deemed to be additional profits for the fiscal year under review to be eliminated pursuant to the act. As used in this section, the word "reserve" refers only to the amount agreed upon and allowed to the contractor at the time of renegotiation as a provision for reasonably anticipated net downward price revision under contracts containing price adjustment provisions, irrespective of any provision the contractor may have made on its books for such purpose; the reserve is the amount by which the aggregate of the amounts accruable before

adjustment for price redetermination exceeds the amount used for purposes of the renegotiation agreement as the receipts or accruals of the contractor under such contracts.

(iii) In any case in which an agreement is made for the elimination of excessive profits, if a retroactive upward price revision is anticipated and the estimated amount thereof is substantial, there will be included in the renegotiation agreement a clause providing that any amounts thereafter received or accrued by the contractor as a result of such price revision shall be deemed to be additional profits for the fiscal year under review to be eliminated pursuant to the act.

(iv) Whenever more than one price revision allocable in whole or in part to the fiscal year under review is pending at the time renegotiation is completed for such fiscal year, with downward price revision anticipated under some contracts and upward price revision anticipated under other contracts, the provisions of subdivisions (ii) and (iii) of this subparagraph will be applied to the aggregate net downward or upward revision so estimated.

(v) Section 105 (a) of the act provides, in part, that an agreement may include provisions with respect to the elimination of excessive profits likely to be received or accrued. No similar provision is contained in the act for the elimination by order of excessive profits likely to be received or accrued. Accordingly, in refund cases not concluded by agreement, it is not practicable to make provision for anticipated price revisions as prescribed in subdivisions (ii) and (iii) of this subparagraph. In such cases the Board will inform the procurement agency of the status of the renegotiation and will request its cooperation in effecting prompt completion of any pending price revisions allocable in whole or in part to the fiscal year under review. If necessary, in the most exceptional cases, at the request of the contractor and the procurement agency, when excessive profits are determined by order, the Board will also determine the portion thereof, if any, attributable to contracts providing for price revisions not yet completed. Notwithstanding any other provisions of this section, when an order is issued before the completion of any price revision allocable in whole or in part to the fiscal year under review, the Board

may elect to allocate the amount of such price revision not to the fiscal year under review but to the fiscal year in which such price revision is completed.

(2) Other cases.-If, for the fiscal year under review, the contractor sustains an overall loss or realizes an amount of profits which is not determined to be excessive, so that the case is either withheld from assignment or, if assigned, is concluded by the issuance of a clearance (see §§ 1471.1 and 1473.1 of this subchapter), and if at such time the receipts or accruals of the contractor for the fiscal year under review are subject to adjustment pursuant to contract price adjustment provisions applicable in whole or in part to such fiscal year, the following rules will apply: If a net upward price revision is reasonably anticipated, the amount thereof will be estimated and included in renegotiable sales for the fiscal year under review to the extent allocable to such year. If a net downward price revision is reasonably anticipated, the amount thereof will be estimated and allowed to the contractor as a reduction of renegotiable sales for the fiscal year under review to the extent allocable to such year. In either case, if the outcome of the pending price adjustment is sufficiently uncertain so that it is believed that the contractor may realize additional profits allocable to the fiscal year under review by receiving more than the amount of an anticipated net upward revision or by not being required to pay the full allocable amount of an anticipated net downward revision, and if the amount of such additional profits is considered to be sufficiently substantial to affect the result of renegotiation for the fiscal year under review, a determination will be made by the Board or Regional Board of the amount of additional profits which the contractor may thereby realize without incurring any liability for excessive profits for such year. This will be done only when it is considered that by the operation of such contract price adjustment provisions the contractor may realize additional profits in an amount sufficient to bring its total renegotiable profits for the fiscal year under review above the clearance level so determined. Any such case will not be withheld from assignment or closed by a notice of clearance, but will be assigned and closed by a clearance agreement containing a clause in