(f) Settlement expenses including the following are generally allowable: (1) accounting, legal, clerical, and similar costs reasonably necessary for the preparation and presentation to contracting officers of settlement claims and supporting data with respect to the terminated portion of the contract, and the termination and settlement of subcontracts; and (2) reasonable costs for the storage, transportation, protection, and disposition of property provided by the Government or acquired or produced by the institution for the contract.

(g) Subcontractor claims, including the allocable portion of claims which are common to the contract and to other work of the contractor are generally allowable.

§ 1-15.309-46 Use allowances.

See § 1-15.309-10.

Subpart 1-15.4—Construction and

Architect-Engineer Contracts

SOURCE: The provisions of this Subpart 1-15.4 appear at 33 F.R. 5455, Apr. 6, 1968, unless otherwise noted.

§ 1-15.401 Definitions.

As used in this part, the following terms have the meanings stated:

(a) "Construction" means construction, alteration, or repair (including dredging, excavating, and painting) of buildings, structures, or other real property. For purposes of this definition, the terms "buildings, structures, or other real property" include but are not limited to buildings, structures, and improvements of all types, such as bridges, dams, plants, highways, parkways, streets, subways, tunnels, sewers, mains, powerlines, pumping stations, railways, airport facilities, terminals, docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, levees, canals, and channels. Construction does not include the manufacture, production, furnishing, construction, alteration, repair, processing, or assembling of vessels, aircraft, or other kinds of personal property.

(b) "Architect-engineer services" means architectural and/or engineering services related to construction.

(c) "Off-site architect-engineer services" means architectural and/or engineering services performed in the contractor's central or branch office.

(d) "Job-site architect-engineer services" means architectural and/or engineering services where performance of

the services requires relatively complete staffing for the contract work (including design, engineering, inspection) at office or location other than a central or branch office of the contractor, and where a minimum of support is required from the contractor's central or branch office staff.

§ 1-15.402 Basic considerations. § 1-15.402-1 Applicable cost principles.

Except as otherwise provided in this Subpart 1-15.4, because of the specialized nature of construction and architectengineer contracts, the allowability of costs shall be determined in accordance with Subpart 1-15.2 of this Part 1-15, except to the extent that the provisions of that subpart are clearly inappropriate to such contracts.

§ 1-15.402-2

Special factors affecting the allowability of costs.

The scope of the contract work required may vary from routine projects of short duration to be performed within the contractor's central or branch office locality to the erection of complex facilities at remote locations over a period of several years. Climate and terrain may vary greatly among construction sites. All of these factors involving the nature, size, duration, and location of a construction project generally affect the basic determination of the Government as to the type of contract to be awarded and the operating practices, techniques, and procedures to be employed by the contractor, particularly with respect to the incurrence of the selected costs set forth in § 1-15.403. Advance understandings as set forth in § 1-15.107 of such items as central and branch office expenses, travel, compensation for personal services of executive officers, partners, supervisory personnel, employment of consultants, and equipment usage are particularly important in construction and architect-engineer contracts in order to assure complete understanding of the parties and avoid possible subsequent disputes or disallowances.

§ 1-15.403 Selected costs.

§ 1-15.403-1 Job-site expenses.

Costs incurred at the job-site incident to the performance of the work, such as the cost of superintendence, time-keeping and clerical work, engineering, inspection, utility costs, supplies, material

handling, restoration, and cleanup, are allowable. There should be an advance understanding (see § 1-15.107) on the salaries (or salary ranges), by category of job, for all annual salaried personnel to be employed on the contract.

§ 1-15.403-2 Temporary use of land, structures, and facilities.

(a) Rental and any other costs, less any applicable credits, incurred in acquiring the temporary use of land, structures, and facilities are allowable;

(b) Costs, less any applicable credits, incurred in the construction or fabrication of structures and facilities of a temporary nature are allowable.

§ 1-15.403-3 Field personnel.

When the services of personnel assigned to continuous field duty are necessary for the contract work, generally their allowable salaries or wages chargeable to the contract should not be burdened with all of the allowable indirect costs of the contractor's central or branch office. Usually the allocable indirect costs should be limited to the directly related payroll costs or fringe benefits for such field personnel, such as social security, vacation, sick leave, and insurance premiums. Any other indirect costs allocable to the contract for such personnel should cover only the actual or estimated cost of specific essential services or supplies provided for such personnel by the contractor's central or branch office, which services or supplies are not duplicated in the field, and which otherwise would have to be performed or procured in the field.

§ 1-15.403-4 Travel costs.

Travel costs include the actual cost of travel of persons (employees and, if authorized by the contracting officer, their dependents) and subsistence incident to such travel, and transportation of personal household goods and effects, in amounts not exceeding such limits as may be prescribed by the contracting officer (see §§ 1-15.205-25, 1-15.205-33, and 1-15.205-46). The cost of transportation between living quarters and the site of the construction project of persons employed at such site is not allowable unless specifically approved by the contracting officer. With respect to construction or job-site architect-engineer contracts, travel costs of the officers, proprietors, executives, administrative heads, and other employees of the con

Bidding and proposal costs are unallowable with respect to construction or job-site architect-engineer contracts.

§ 1-15.403-6 Special funds in the construction industry.

Costs of special funds (or industry advancement funds), financed by employer contributions in the construction industry for such purposes as methods and materials research, public and industry relations, market development, disaster relief, and contract standardization, are unallowable except to the extent that the contractor demonstrates that some or all of such activities benefit the contract work and are approved by the contracting officer.

(a) Under construction and job-site architect-engineer contracts (see § 1-15.401 (a) and (d)), the extent to which a contractor utilizes his central or branch office organization for the performance of general, administrative, and management functions applicable to individual Government construction projects is usually dependent upon the geographical location of the job-site in relation to the contractor's central or branch office, the magnitude and duration of the project. and related factors. Under the types of construction or job-site architect-engineer projects commonly awarded on a cost-reimbursement type contract basis, most general, administrative, management, and other indirect cost functions are usually performed at the job-site rather than at the contractor's central or branch office. Other minor or incidental services otherwise provided are considered to be compensated for in the fixed fee. Accordingly, expenses incurred in, or generated by, the contractor's central or branch office, such as compensation for personal services (and related expenses) of executive officers or administrative staff or travel, are not allowable under cost-reimbursement type construction and job-site architect-engineer contracts

except to the extent authorized by the contract, or specifically approved by the contracting officer as being essential to the job-site work and not duplicated there. For example, where services or expenses of a type normally performed or incurred at the job-site in support of the contract work are, by reason of a particular contractor's greater centralization performed, incurred, or accounted for at or by the contractor's central or branch office rather than at the job-site, such expenses may be reimbursed, subject to paragraphs (b) and (c) of this § 1-15.403-7.

(b) Reimbursement pursuant to paragraph (a) of this § 1-15.403-7, shall be in accordance with the principies in this paragraph (b). The direct costs of such work and an equitable portion of such indirect costs at the central or branch office location as are allowable in nature and properly allocable (see § 115.201-4) to the work are reimbursable. In such cases, the indirect costs attributable to the performance at a central or branch office location of work related directly and solely to individual contracts shall be distinguished with care from general and administrative expenses incurred by the contractor's central or branch offices in the general management, supervision, and conduct of its business, since the latter general administrative expenses are usually compensated for through fee and, in any event, where allowable in nature, are related and allocable to all work under the supervision of the office concerned.

(c) Where an officer, proprietor, partner, administrative head, responsible supervising representative, or other executive of the contractor participates directly in the performance of any of the following contract activities:

(1) Topographical or other field surveys, the preparation of topographic maps, test borings, and other subsurface investigations;

(2) Inspection of construction work at the site; or

(3) Services such as inspecting material and equipment at vendors' plants, expediting (when not covered by a separate procurement fee), and checking or expediting shop drawings at vendors' plants; he may be compensated for the time actually so engaged. The rate of compensation and related expenses to be reimbursed for such work, including the allocation of central or branch office expenses, if any, shall be subject to

approval by the contracting officer and shall be commensurate with the cost of employing another qualified person to do the particular work, but the salary portion of such compensation should not exceed the actual salary rate of the individual concerned.

Subpart 1-15.5-Contracts for
Industrial Facilities

SOURCE: The provisions of this Subpart 1-15.5 appear at 33 F.R. 5456, Apr. 6, 1968, unless otherwise noted.

§ 1-15.501 Definitions.

For the purposes of this subpart, the terms listed below have the following meanings:

(a) "Facilities" means industrial property (other than material, special tooling, military property, and special test equipment) for production, maintenance, research, development, or test, including real property and rights therein, buildings, structures, improvements, and plant equipment.

a

(b) "Facilities contract" means contract under which Government facilities, and occasionally special tooling and special test equipment, are provided to a contractor or a subcontractor by the Government for use in connection with the performance of a separate contract or contracts for supplies or services. § 1-15.502 Basic considerations.

§ 1-15.502-1 Applicable cost principles.

Except as otherwise provided in this subpart, the allowability of cost will be determined in accordance with Subparts 1-15.2, 1-15.3, or 1-15.4 of this Part 1-15, as appropriate.

§ 1-15.502-2 Factors affecting allowability of costs.

A contractor's established accounting system and procedures are normally directed to the equitable allocation of costs to the types of products which he produces or services which he renders in the course of his normal operating activities. The acquisition of, or work on, facilities for the Government normally does not involve the manufacturing processes, plant departmental operations, cost patterns of work, administrative and managerial control, or clerical effort usual to production of the contractor's normal products or services. These operating and administrative differences affect the equitable allocation of indirect costs to facility contracts and

make it desirable that advance understandings, as provided in § 1-15.107, be agreed to between the contractor and the contracting officer as to such indirect cost items to be applied to the facilities acquisition. A contractor's normal accounting practice for allocating indirect costs to the acquisition of his own facilities may range from charging all such costs to this acquisition, to not charging any such costs thereto. Where necessary to produce an equitable result, the contractor's usual method of allocating indirect cost will be varied and appropriate adjustment will be made to the pools of indirect cost and the bases of their distribution. § 1-15.502-3

Allocation of indirect manufacturing and plant operational

cost.

(a) Facilities contracts may involve: (1) The purchase of facilities, or services in connection therewith, on a completed basis from outside sources;

(2) The purchase of completed facilities from outside sources, installation to be accomplished by the contractor's own employees;

(3) Rehabilitation of existing facilities by the contractor's own employees;

or

(4) Construction or manufacture of facilities by the contractor from purchased components.

Guidelines for the allocation of indirect costs in these particular circumstances are set forth in paragraphs (b) through (d) of this § 1-15.502.

(b) The purchase of facilities, or services in connection therewith, from outside sources on a completed basis does not involve the contractor's direct labor or indirect plant maintenance personnel. Accordingly, indirect manufacturing and plant overhead costs which are primarily incurred or generated by reason of direct labor or maintenance labor operations are not allocable to the acquisition of such facilities.

(c) Contracts providing for the installation of new facilities or the rehabilitation of existing facilities may involve the use of the contractor's plant maintenance labor, as distinguished from direct labor engaged in the production of the company's normal products. In such instances, only those types of indirect manufacturing and plant operating costs that are related to or incurred by reason of the expenditure

of the classes of labor utilized for the performance of the facilities work may be allocated to the facilities work. Thus, a facilities contract which involves the use of plant maintenance labor only would not be subject to an allocation of such cost items as direct productive labor supervision, depreciation, and maintenance expense applicable to productive machinery and equipment, or raw material and finished goods storage costs.

(d) Where a facilities contract calls for the construction, production, or rehabilitation of equipment or other items which are involved in the regular course of the contractor's business by the use of the contractor's direct labor and manufacturing processes, the indirect costs normally allocated to all such work may be allocated to the facilities contract.

§ 1-15.502-4 General and administrative costs (including central and branch office allocations).

General and administrative costs consist of items of cost attributable to the overall management, supervision, and conduct of the business. Such costs in connection with the acquisition of, or work on, industrial facilities shall be allowed only when and to the extent specifically provided for in the contract. In allocating general and administrative costs, consideration should be given to (a) all work to which such costs are common, including acquisition of, or work on, facilities by the contractor for his own account, and (b) any difference in the amount of administrative effort expended by the contractor on his various activities, such as between production and fixed asset improvement programs or between the acquisition of facilities by purchase and by construction or manufacture. However, in no event will prices charged pursuant to § 1-15.502-5 be increased by the allocation of additional general and administrative costs. § 1-15.502-5

products.

Contractor's commercial

If facilities which constitute the contractor's usual commercial products (or only minor modifications thereof) are acquired by the Government under the contract, the Government shall not pay any amount in excess of the contractor's most favored customer price or the price of other suppliers for like quantities of the same, or substantially the same items, whichever is lower.

This subpart provides guidance for the use of Subparts 1-15.2, 1–15.3, and 1-15.4 in (a) the evaluation of costs in pricing of negotiated fixed-price type contracts and subcontracts in those instances where such evaluation is required to establish prices for such contract; (b) the negotiation of termination settlements; and (c) the negotiation of any adjustment in price required by the contract, such as issuance of change orders, a suspension of work for the convenience of the Government under an appropriate contract clause, and equitable adjustments under a Government-furnished property clause.

§ 1-15.601 Definition of fixed-price type contracts.

"Fixed-price type" contracts include, for purpose of this subpart, the following:

(a) Firm fixed-price contracts;

(b) Fixed-price contracts with escalation;

(c) Fixed-price contracts providing for the redetermination of price;

(d) Fixed-price incentive contracts; (e) Non-cost-reimbursable portion of time and materials contracts; and (f) Labor-hour contracts.

(a) Under fixed-price type contracts, the negotiated price is the basis for payment to a contractor whereas allowable costs are the basis for reimbursement under cost-reimbursement type contracts. Accordingly, the policies and procedures of Subpart 1-3.8 are applicable in the negotiation of fixed-price type contracts. Cost and accounting data may provide guides for ascertaining fair compensation but are not rigid measures of it. Other types of data, criteria, or standards may furnish reliable guides to fair compensation. The ability to apply standards of business judgment as distinct from strict accounting principles is at the heart of a negotiated price or settlement.

(b) Among the different types of fixed-price type contracts, the need for

consideration of costs varies considerably as indicated below:

(1) Retrospective pricing and settlements. In negotiating firm fixed prices or settlements for work which has been completed at the time of negotiation (e.g., final negotiations under fixed-price incentive contracts, redetermination of price after completion of the work, or negotiation of a settlement agreement under a contract terminated for the convenience of the Government), the treatment of costs is a major factor in arriving at the amount of the price or settlement. However, even in these situations, the finally agreed price or settlement may represent something other than the sum total of acceptable costs plus profit, since the final price accepted by each party does not necessarily reflect agreement on the evaluation of each element of cost, but rather a final resolution of all issues in the negotiation process.

(2) Forward pricing. The extent to which costs influence forward pricing varies greatly from case to case. In negotiations covering future work, actual costs cannot be known and the importance of cost estimates depends on the circumstances. The contracting officer must consider all the factors affecting the reasonableness of the total proposed price, such as the technical, production, or financial risk assumed, the complexity of work, the extent of competitive pricing, and the contractor's record, for efficiency, economy, and ingenuity, as well as available cost estimates. He must be free to bargain for a total price which equitably distributes the risks between the contractor and the Government and provides incentives for efficiency and cost reduction. In negotiating such a price, it is not possible to identify the treatment of specific cost elements since the bargaining is on a total price basis. Thus, while cost data is often a valuable aid, it will not control negotiation of prices for work to be performed, or a target price under an incentive contract.