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under contracts subject to 970 (See (b) With respect to “off-site" work, 970.3102-10).

"direct costs" are as defined in FAR

31.202 and discussed in other sections Subpart 970.31—Contract Costs of this subpart. Principles and Procedures

“Indirect costs" of a management

and operating contract are defined as 970.3100 Scope and applicability of sub- follows: part.

(a) With respect to “on-site” work, The cost principles, procedures and

when it is desirable or necessary to disgeneral policy for the determination tinguish them from direct costs, “indiof reimbursable costs applicable to the

rect costs" are those items of material, administration of management and op- labor, and expenses not directly identierating contracts are set for in this fied with a single final cost accumulasubpart. The terms “reimbursement” tion point, but identified with applicaand “reimbursable" are used inter- bility to two or more objectives or with changeably in relation to "allowable at least one intermediate cost objeccosts" as a matter of editorial conven- tive. ience. No “reimbursement” is actually (b) With respect to “off-site" work, involved in those situations where the “indirect cost” are as defined in FAR cost-type contractor makes payments 31.203 and discussed in other sections for “allowable cost” from Government of this subpart. funds advanced to him by the DOE.

970.3100-2 Responsibilities. 970.3100-1 Definitions.

(a) The Procurement Executive is re"Off-site work” is contract required sponsible for developing and revising work (under a contract covered by

the policy and procedures for the deFAR Subpart 17.6) performed in con- termination of allowable costs reimtractor-owned facilities, such as a cen- bursable under a management and optral or branch office.

erating contract, and for seeing that On-site work” (under a contract

they are properly coordinated with covered by FAR Subpart 17.6) is work

other Headquarters' offices having performed at the Government-site.

joint interests. “Direct costs" of a management and

(b) The Head of the Contracting ACoperating contract are defined as fol

tivity is responsible for following the lows:

policy, principles and standards set (a) With respect to on-site work,

forth herein in establishing the com“direct costs" technically include all

pensation provisions of contracts and performance costs; that is, such costs

subcontracts and for submission of deare identified specifically for, or account of, the contract. However, in

viations for Headquarters consider

ation. some circumstances it may be desirable or necessary because of the re

970.3100-3 Deviation. quirements of the contract to distinguish between direct and indirect

Deviations from the policy and printypes of costs. “Direct costs," when

ciples set forth in this subpart shall the foregoing circumstances apply, are

not be made unless such action is authose which are identified as having

thorized by the Procurement Execubeen incurred specifically for, or on ac

tive, on the basis of a written justificacount of a designated cost objective,

tion stating clearly the special circumsuch as a particular product (or groups

stances involved. Where appropriate, of similar products), work order, job,

any approved deviation shall be reproject, program or contract. Materi. flected in the compensation provisions als, labors or expenses which relate

of the contract. specifically and solely to the manufacture of a particular product or to the

970.3101 General policy. performance of a distinct job or work The cost policies of the DOE regardare broad examples of direct costs. ing management and operating conDirect costs are not limited to items tracting are as discussed in this secincorporated in an end product.

tion:

e

charged directly to the contract or other work, indirect costs are those remaining to be allocated from an appropriate indirect cost accumulation account. The following principles and procedures shall apply to indirect costs to the extent that they are incurred under management and operating contracts.

(1) Indirect costs to the extent required to be or otherwise incurred in the accounting system of the operating contractor shall be accumulated by logical cost groupings with due consideration of the reasons for incurring such costs. Each grouping should be determined so as to permit distribution of the grouping on the basis of the benefits accruing to the cost objectives to which it is to be allocated. Generally, overhead and general and administrative (G&A) expenses are separately grouped. Similarly, the particular case may require subdivision of these groupings; e.g., building occupancy costs might be separable from those of personnel administration within a specific overhead group such as manufactoring overhead. This cessitates selecting a distribution base common to all cost objectives to which the grouping is to be allocated. The base should be selected so as to permit allocation of the grouping on the basis of the benefits accruing to the cost objectives. The number and composition of cost groupings should be governed by practical considerations and should not unduly complicate the allocation.

(2) Once an appropriate base for distributing indirect costs has been accepted, it shall not be fragmented by removing individual elements. For example, when a cost input base is used for the distribution of G&A costs, all items that would properly be part of the costs input base, whether allowable or unallowable, shall be included in the base and bear their pro rata share or G&A costs.

(3) The method of allocating indirect costs shall be in accordance with generally accepted accounting princi. ples which are consistently applied.

(4) A base period for allocating indi. rect costs is the cost accounting period during which such costs are incurred and accumulated for distribution to work performed in that period.

970.3101-1 Actual cost basis.

(a) DOE shall reimburse its contractors for costs incurred in the performance of a management and operating contract in accordance with its terms and the provisions of this subpart. Such costs are those allowable costs provided for in the contract to the extent that they are necessary or incident, and either directly attributable or equitably allocable to the work under the contract. This broad expression of the DOE's cost-reimbursement policy is further developed and elaborated upon throughout this subpart.

(b) DOE uses retrospective or afterthe-fact determination, usually called the actual cost basis, to establish the amount reimbursable. This general policy precludes the use of predetermined fixed percentage rates except for provisional payments.

(c) When a fixed compensation for any otherwise allowable cost is separately negotiated, the items of such costs covered by the fixed amount shall be identified with maximum clarity and set forth in an appropriate appendices to the contract as an amount otherwise excludable from other reimbursable costs (this is done in order to distinguish between those allowable costs subject to reimbursement and those costs which are covered by the negotiated fixed amount).

970.3101-2 Direct and indirect costs.

(a) Direct costs identified specifically with a management and operating contract are direct cost of performing that contract and are to be charged directly thereto. All costs specifically identified with other final cost objectives of the management and operating contractor are direct cost of those cost objectives and are not to be charged to the contract directly or indirectly. For reasons of practicality, any direct cost of minor dollar amount may be treated as an indirect cost if the accounting treatment

(1) Is consistently applied; and

(2) Produces substantially the same results as treating the cost as a direct cost.

(b) Indirect cost are not subject to treatment as a direct cost and thus directly chargeable to a contract. After direct costs have been determined and

[49 FR 12063, Mar. 28, 1984, as amended at 53 FR 24231, June 27, 1988)

ac

970.3101-3 General basis for reimburse

ment of costs. (a) The total reimbursable cost of a DOE management and operating contract is the sum of the allowable direct costs necessary or incident to the performance of the contract, plus any properly allocable portion of allowable indirect costs, (including corporate or home office G&A expense, or branch office indirect expenses), if any, less applicable income and other credits. In determining allowability and reimbursability of costs, the following shall be considered:

(1) Reasonableness, including the exercise of prudent business judgment;

(2) Allocability of a cost to management and operating contract. A cost is allocable if it is assignable or chargeable for work and performance of the contract in accordance with the relative benefits received or other equitable relationship;

(3) Application of generally accepted accounting principles and practices appropriate to identifying and measuring costs of performing the contract in accordance with this subpart;

(4) All exclusions of and limitations of types and amounts of items of cost set forth in the contract;

(5) Approvals by the contracting officer required under the contract terms; and

(6) Cost accounting standards if applicable.

970.3101-5 Contractor's system of

counting. (a) Careful DOE study of a management and operating contractor's usual accounting procedures shall be made prior to arriving at an understanding with the contractor as to the accounting system to be employed by the contractor during the period of contract performance.

(b) A contractor's customary accounting practices are usually accepted for management and operating contracts if they conform to generally accepted accounting principles, produce equitable results, are consistently applied, are not in conflict with the provisions of this subpart, are conducive to accurate costing of the contract work, and produce reports required by the DOE.

on

970.3101-4 Cost determination based on

audit. The amount reimbursable under management and operating contracts shall be determined in accordance with the principles set forth in this subpart and in accordance with the terms of the respective contract on the basis of audit. In the event that the contractual terms differ, or are inconsistent with (see 970.3100-3 for approval of deviations) the principles stated herein, the contractual terms control. It is expected however, contractual terms to be based on the principles therein. The audit may be performed directly by DOE (or by the cognizant Federal agency pursuant to arrangements made by the DOE).

970.3101-6 Advance understandings

particular cost items. (a) It is important that agreement between DOE and its management and operating contractors be reached in advance of the incurrence of costs in categories where reasonableness as to amounts or allocability to the management and operating contract are difficult to determine in order to avoid possible subsequent disallowance or dispute. Any such agreement should be incorporated in the contract. But the absence of such agreement on any element of cost will not, in itself, serve to make the element either allowable or unallowable. Examples of costs on which advance agreements may be particularly important are:

(1) Deferred maintenance costs; (2) Precontract costs;

(3) Professional or technical consulting services;

(4) Reconversion costs; (5) Research and development costs; (6) Royalties; (7) Selling and distribution costs;

(8) Unemployment insurance experience ratings;

(9) Employee compensation, including amounts of money or percentage of payment authorized to be expended annually for groups of employees for all types of wage and salary increases, travel, relocation expenses and other personnel costs.

(10) Lobbying costs;

(11) Public relations and advertising; and

(12) Travel and relocation costs as related to special or mass personnel movements and as related to travel via contractor-owned leased, or chartered aircraft.

(b) DOE generally utilizes two basic methods of achieving and recording understandings with contractors as to the allowability of employee compensation, travel, relocation, and other personnel costs: (1) Negotiation of a personnel appendix to the contract, which sets forth the policies, programs, and schedules which are accepted as the basis for determining the allowability of costs; or (2) reviewing and reaching agreements on established policies, programs, and schedules (and any changes thereto during the contract term) applicable to contractor's private operations which are acceptable for contract work and which will be consistently followed throughout the contractor's organization. A personnel appendix to the contract setting forth advance understandings covering compensation for personal services shall be utilized in management and operating contracts (as defined in FAR 17.601) when one or more of the following circumstances exist: when policies, programs, and schedules are established specifically for contract work; when the contractor's work is predominantly or exclusively made up of negotiated Government contract work; when contract work is so different from the organization's private work that existing established policies, programs, and schedules cannot reasonably be extended to and consistently applied on contract work; or, when established policies, programs, and schedules proposed for contract work are not sufficiently definitive to permit a clear advance mutual understanding of allowable costs and to provide a basis for audit. The Head of the Contracting Activity is authorized to select the alternative method of achieving and recording advance understanding that they find most appropriate, after considering

the facts of the particular contract situation. As used in this paragraph:

(c) With regard to the costs at (a)(9) of this section:

(1) Compensation for personal services includes wages and salaries, bonuses and incentives, premium payments, pay for time not worked, and supplementary compensation and benefits, such as pension and retirement, group insurance, severance pay plans, and other forms of compensation covered by 970.3102-2.

(2) Employee travel costs include transportation expenses incurred while on official business, within the U.S. or outside the U.S. as necessary. Travel of executive officers is covered in 970.3102-17. Contractor travel policies must be acceptable to the Department, and result in reasonable cost necessary for contract performance. To avoid disputes and to clearly state the treatment that applies to travel cost, advance understandings should be reached with the management and operating contractor. They should be sufficiently definitive to evidence the contractor's responsibility to minimize costs consistent with contract performance. The allowability to certain travel costs, such as air travel, are specifically limited by Department policy. For example, the added cost of first class air travel is prohibited as a reimbursable cost, except under stringent conditions, which must be justified in writing. Contractually enforceable understandings concerning the allowability and reimbursement of other potentially significant travel costs (such as the use of Government-furnished automobiles or Government-contract provided rental automobiles) should be reached with the contractor. A reasonable basis for such understandings is the Federal travel policy applicable to Government and directly paid contractor employees.

(3) Other personnel costs include:

(i) Morale, health, welfare, food service and dormitory costs covered in 970.3102-5;

(ii) Training and education costs covered in 970.5204-13 and 970.5204-14;

(iii) Relocation costs for relocating employees as discussed in 970.3102–16; and special or mass personnel movement covered in 970.3102-2(i).

(49 FR 12063, Mar. 28, 1984, as amended at 52 FR 1607, Jan. 14, 1987)

970.3102 Application of cost principles.

The incurred costs of performing management and operating contracts shall be reimbursed to the extent they are reasonable, allocable, and determined to be allowable under the provisions of this subpart and the terms of the contract. The DOE principles on allowability of selected items or classification of cost or situations expected to be associated with the performance of contract work as stated in this section.

970.3102-1 General and administrative ex

penses. (a) For on-site work, the DOE considers that its fee allowance for management and operating contracts provides for the recognition of appropriate compensation for home or corporate office general and administrative expenses incurred in the general management of the contractor's business as a whole.

(b) The above policy is intended to preclude the payment of general and administrative expenses merely because they are incurred or accounted for at or by a contractor's home or corporate office and not the operating site. The DOE recognizes some benefit of such cost to the DOE program. The basis of recognition through fee allowance is associated with the difficulty of determining and assessing the dollar value of such expenses that might be applicable to or have benefit to a management and operating contract. Conventional allocation techniques; i.e., total operating costs, labor dollars or hours, etc., are generally not considered appropriate because they normally distribute such expenses over a base representative or contractor investment (in terms of its own resources, including labor, material, overhead, etc.). Contractor investments and home office contributions are minimal under DOE's operating and management contracts in as much as they are totally financed and supported by DOE advance payments under the letter-of-credit method and by DOE's provision of government

owned and project-exclusive facilities, property, and other needed resources.

(c) Notwithstanding the concept in (a) above, it is recognized that from time to time the fee amounts established for a management and operating contract, to meet the purpose cited in 970.1509-1 and consideration of the factors in 970.1509-4, may be considered insufficient to adquately recognize a contractor's general and administrative expenses incurred in general management and administration of the contractor's business as a whole and which appear to have a directly benefiting relationship to the DOE program. Such recognitions may be the basis of requesting fee amounts in excess of the limitations set forth in 970.1509-5 or alternatively, in any particular case, the contractor may be compensated on the basis of cost in accordance with $70.3101-1 if the Head of the Contracting Activity or other approving contract official authorizes or approves the procedure and a fair and reasonable amount can be agreed up Such amount shall normally be in addition to the applicable fee amounts.

(d) The DOE allows company general and administrative expenses under off-site architect-engineer, supply and research contracts with commercial contractors performing the work in their own facilities. Contractor's general and administrative expenses, may, however, be included for reimbursement under such DOE off-site architect-engineer, supply and research contracts, only to the extent that they are established, after careful examination, to be allowable in nature an properly allocable to the work. Work performed in a contractor's own facilities under a management and operating or construction contract may likewise be allowed to bear the properly allocable portion of allowable company general and administrative expense.

970.3102-2 Compensation for personal

services. (a) General. Compensation for personal services includes all remuneration paid currently or accrued, in whatever form and whether paid im

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