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responsibility is placed or assigned for $ 1-3.607 Interagency use of local term providing supplies for its own oper

contracts. ations or to other offices, installations,

(a) General. This $ 1-3.607 provides projects, or functions. Such levels may

for the cooperative use by the field be organized supply points, separate

office of one executive agency of the independent or detached field parties,

local term contracts of another or one-man posts or activities.

agency, or of another office of the (e) The use of blanket purchase ar same agency, under the circumstances rangements does not exempt the outlined, and establishes criteria for agency from responsibility for keeping local term contracting by an agency obligations and expenditures within for the combined needs of several available funds, but this should be ac- agency offices in the area. These concomplished by the use of simplified tracts provide a means of meeting the methods and by avoiding formal fiscal local requirements for supplies and recordation of individual deliveries

services not available from normal and transactions under blanket pur

agency internal supply channels or chase arrangements.

other prescribed sources of supply. All

Federal agencies are urged to partici(f) The use of a blanket purchase ar

pate in this program. rangement does not authorize pur

(b) General conditions warranting chases not otherwise authorized by

use. The use of term contracts usually law or regulation. For example, the

will be found expedient and economiblanket purchase arrangement, being cal under any or all of the following a method of simplifying the making of conditions: individual small purchases, shall not (1) When the day-to-day requirebe used to avoid the $10,000 limitation. ments for the supply or service are

(g) The blanket purchase arrange- continuing or recurring. ment method is primarily designed to (2) When the probable total requirereduce the amount of documentation ments only are known and it is expediin connection with small purchases. ent and economical to have a source of The same policies as to selection of supply and price determined in adsuppliers on the basis of price, time

vance of the individual instances of discounts, quality of merchandise, and

actual need. responsibility of suppliers pertain to

(3) When this method best meets

the needs for providing ordering ofblanket purchase arrangements and

fices with ready sources of supply. purchases thereunder as to purchases

(c) Use of existing contracts. In lieu made by other approved methods. In

of entering into a separate contract dividual purchases under blanket pur

for an item covered by a local term chase arrangements should be made

contract of another office or agency, only after making price comparisons

use of the term contract should be with other sources available to the

considered under any one of the folextent practicable, consistent with the lowing circumstances, if such use is apsize and nature of the purchase in proved by the contracting office and if volved.

the contract permits (or is amended to (h) Constant consideration should be permit) such use: given to possible changes in market (1) When such use will obviate the conditions, sources of supply, and administrative expense and time delay other pertinent factors which may incident to making a separate conwarrant making new arrangements tract. with different dealers or vendors, or

(2) When there is a price advantage modifying existing arrangements.

to be gained, freight and other costs (i) Individual purchases under blan

considered.

(3) When the requiring office has ket purchase arrangements shall not

local purchasing authority but is not be in excess of $5,000.

staffed or authorized to execute con(29 FR 10155, July 24, 1964 as amended at tracts. 39 FR 28438, Aug. 7, 1974; 40 FR 44139, (d) Multiple use contracts. In furSept. 25, 1975)

therance of the economical and other

(2) Other participating offices. (i) Placing of orders directly with contractor.

(ii) Arranging for inspection and acceptance.

(iii) Arranging for billing and paying the contractor.

Subpart 1-3.7—Negotiated Overhead

Rates

SOURCE: Subpart 1-3.7 appears at 31 FR 15805, Dec. 15, 1966, unless otherwise noted.

$ 1-3.700 Scope of subpart.

This subpart sets forth the policies and procedures governing the establishment of overhead rates by negotiation (including determination or settlement) for use in cost-reimbursement type contracts.

advantages to be gained from cross utilization of local term contracts, wherever possible the requirements of several offices in the same community should be combined and included in a single contract:

(1) When there is a local repetitive need for a particular article or service by the individual agencies;

(2) When an advantage accrues to requiring offices or activities through establishment of such contracts; and

(3) When it is expedient and practical for a single office to perform the contracting function for other offices, delivery or performance under the contract being arranged for by the participating offices as required.

(e) Selection of contracting agency. The following criteria usually will determine which of the agency offices in any given area having a common need for a given article or service should assume the responsibility for contracting for the requirements of the group in addition to its own needs:

(1) Current or potential preponderant use or consumption.

(2) Actual or potential qualifications and experience of contracting person. nel, with due regard to adequacy of staff.

(3) Physical location of the contracting office in relation to market area serving the agencies.

(4) Consideration of the bid prices consistently received for a given article or service by individual contracting offices.

(f) Responsibilities of contracting office and participating offices. The responsibilities of the contracting agency and of the other participating offices with respect to common local term contracts, except where other arrangements have been made, normally will be:

(1) Contracting office. (i) Arranging with participating offices for submission of estimated requirements.

(ii) Soliciting and analyzing bids and awarding and executing contracts.

(iii) Exercising general contract administration, except followup and expediting.

(iv) Making available to the participating office such contract data as is required for placing orders, payment of invoices, etc.

§ 1-3.701 Definitions.

As used in this subpart:

(a) The term "overhead (indirect costs)" includes, but is not limited to, the general groups of indirect expenses such as those generated in manufacturing departments, engineering departments, tooling departments, general and administrative departments, and, if applicable, indirect costs accumulated by cost centers within those general groups (see § 1-15.203 of this chapter). In the case of contractors using fund accounting systems (e.g., educational institutions), the term includes, but is not limited to, the general groups of expenses such as: general administration and general; operation and maintenance of physical plant; library; and departmental administration (see $$ 1-15.305 and 115.306 of this chapter).

(b) The term “billing overhead rate" (or "billing rate”) means a tentative percentage or dollar factor which is acceptable to the contracting officer and is established for interim reimbursement purposes. For example, a "billing rate" could be used where the use of a "provisional overhead rate" is not appropriate or desirable, or where such a rate has not yet been negotiated (see § 1-3.703(b)), and pending final settlement of the actual allowable overhead. A "billing rate" is not negotiated and is not incorporated into a contract. It gives the contracting offi

cer a procedure which is more easilyvidual contract basis and is based upon administered and provides him with an audit of actual costs incurred greater flexibility (than would a "pro- during the period involved, in accordvisional overhead rate") for prompt ance with agency procedures (see $ 1adjustment to meet new or changed 3.705(c)). However, where a contractor circumstances during the rate period. performs work in the same period

(c) The term “provisional overhead under several contracts for one or rate" (or “provisional rate") means a more procurement activities or agententative percentage or dollar factor cies, it may be desirable and approprimutually agreed upon by the contract ate, when mutually agreed to by the ing officer and the contractor. It is ne- agencies and the contractor, to negotigotiated for interim reimbursement ate uniform overhead rates for applipending final settlement of the actual cation to all such contracts, in order allowable overhead (see § 1-3.703(b)). to: (a) Effect uniformity of approach, Such rate shall be incorporated in the (b) effect economy in administrative contract and changed, if necessary, by effort, and (c) promote timely settlecontract amendment.

ment of reimbursement claims. The (d) The term "negotiated final over foregoing objectives are not intended head rate" means a percentage or to preclude the use of an overhead dollar factor which expresses the rate which excludes elements of cost ratio(s) mutually agreed upon by the which are not allocable to a particular contracting officer and the contractor contract. (See, for example, $$ 1-3.807after the close of the contractor's 11 and 1-15.307-1 of this chapter.) The fiscal year, unless the parties mutually basis or justification for the latter agree to a different period, of allow shall be contained in the contract file able indirect expense incurred in the (see § 1-3.706). completed period to direct labor, manufacturing cost, cost of sales, or other § 1-3.703 Applicability. appropriate allocation or distribution (a) Billing overhead rates (see $ 1base of the same period (see 88 1- 3.701(b)) or negotiated (provisional 15.203 and 1-15.305-2 of this chapter). and final) overhead rates (see § 1-3.701 Ordinarily, such rates are used as a (c) and (d)) may be used in any cost-remeans of determining the amount of imbursement type contract (except reimbursement for the applicable indi facilities contracts) where such use, rect costs for such completed period; pursuant to the guidelines of this Subin such cases, they are termed "post part 1-3.7, is appropriate; where the determined" overhead rates. In certain use of negotiated rates will accomplish circumstances involving educational one or more of the purposes enumerinstitutions, negotiated final overhead ated in § 1-3.702; or where the use of rates may be used as a means of deter either billing or negotiated rates will mining the amount of reimbursement be otherwise advantageous to the Goy. for the applicable indirect costs to be ernment. (See paragraph (c) of this incurred during a future period of con section with respect to predetermined tract performance; in such cases, they fixed overhead rates with educational are termed "predetermined" overhead institutions.) rates (see § 1-3.703(c)).

(b) Billing or provisional overhead (e) The term “contracting officer” rates should be used for interim reimincludes the authorized representative bursement only after the contracting of a contracting officer.

officer is satisfied either on the basis

of a recent review or as a result of pre§ 1-3.702 General.

vious audits or past experience with Except for contracts with education the particular contractor, or similar al institutions where predetermined reliable data or experience obtained overhead rates may be used (see $ 1- from another Government agency and 3.703(c)), ordinarily the negotiation, included in the contract file, that the determination, or settlement of the re- contractor's accounting system (inimbursable amount of overhead under cluding items treated as indirect cost cost-reimbursement type contracts is and the method of distributing them) accomplished after the fact on an indi- conforms to generally accepted accounting principles; also, that its fi- until the end of such fiscal year or nancial management policies and pro other period, and (ii) complete data on cedures, including contract financial overhead for such preceding fiscal controls, are adequate for the timely years (or other periods) as the conreporting of potential cost overruns tracting officer may require, including and underruns to the contractor's overhead rates, bases, and supporting management and subsequently to the cost data. As far as practicable, the Government. Compliance with these contractor's proposal for the initial criteria is essential in order to avoid period, with supporting current cost the recovery of cost overruns by con data, shall be based on the contractractors. If consistent with the forego- tor's cost experience under similar ing guidelines, a billing or provisional contracts. Pending mutual agreement overhead rate or rates may be estab on predetermined overhead rates for lished, taking into consideration the the initial period, the contractor shall prior year's experience, adjusted to be reimbursed at billing rates accepteliminate nonrecurring costs and to re able to the contracting officer, subject flect any new or changed conditions to appropriate adjustment when the which may be applicable to the future. final rates for that period are estabSuch rate or rates shall be applied to lished. When mutual agreement is an appropriate base or bases for com- reached, the predetermined rates and putation of the interim payments. The the applicable bases and period shall elements of indirect cost and the base be specified in the contract. or bases used in computing interim (2) Pursuant to the contract clause payments shall not be construed as in- in § 1-3.704-2(b), the contractor, as dicating the elements of expense to be soon as possible, but not later than distributed or the base or bases of dis- three (3) months after the expiration tribution to be employed in the deter- of each fiscal year, shall submit to the mination or settlement of actual allow- contracting officer a proposed predeable overhead. The actual allowable termined overhead rate or rates for overhead shall be determined or set- use during the contract year based on tled not less often than annually and the contractor's actual cost experience any interim payments made shall be during the immediately preceding adjusted accordingly.

fiscal year, together with supporting (c) Predetermined overhead rates cost data. may be used in cost-type research and (3) Predetermined overhead rates development contracts with education shall be applicable for a period of not al institutions (Public Law 87-638; 10 more than 1 year, and should generalU.S.C. 2306 note). The use of such ly be based on an audit of the institurates is permissive and not mandatory. tion's costs for the year immediately In determining whether or not prede- preceding the year in which the rate is termined overhead rates should be being negotiated. If this is not possiused in one or more contracts with an ble, an earlier audit may be used, but institution, consideration should be appropriate steps should be taken to given to the degree of stability shown identify and evaluate significant variin overhead rates and their bases over ations in costs incurred or bases used a period of years. All anticipated which may have a bearing on the reachanges in the contractor's volume sonableness of the rate proposed by and overhead shall be taken into con the contractor. Audits by other Govsideration. In addition the following ernment agencies may be utilized. In procedures shall be employed:

the case of smaller contracts (e.g., (1) When predetermined overhead $100,000 or less), an audit made at an rates are proposed for the initial earlier date is acceptable provided (i) period of contract performance and no there have been no significant changes such rates have been established for in the contractor's organization, and the contractor's current fiscal year (or (ii) it is reasonably apparent that another appropriate period), the contrac- other audit would have little effect on tor shall provide the contracting offi the rate finally agreed upon. cer with (i) a proposal for predeter- (4) The use of predetermined overmined overhead rates to be applied head rates shall be approved at a level

above the contracting officer, in accordance with agency procedures, with respect to any of the following:

(i) Where estimated eimbursable costs for the contract are expected to exceed $1 million annually;

(ii) Where there has been no recent audit of the overhead; or

(iii) Where there have been frequent or wide fluctuations in overhead rates and their bases over a period of years.

apply, and (3) the periods for which the rates apply.

(e) Pending establishment of final overhead rates for any period, the Contractor shall be reimbursed either at negotiated provisional rates as provided in the contract, or at billing rates acceptable to the Contracting Officer, subject to appropriate adjustment when the final rates for that period are established. To prevent substantial over or under payment, and to apply either retroactively or prospectively: (1) Provisional rates may, at the request of either party, be revised by mutual agreement and (2) billing rates may be adjusted at any time by the Contracting Officer. Any such revision of negotiated provisional rates provided in the contract shall be set forth in a modification to this contract.

(f) Any failure by the parties to agree on any final rates under this clause shall be considered a dispute concerning a question of fact for decision by the Contracting Officer within the meaning of the “Disputes" clause of this contract.

§ 1-3.704 Contract clauses.

§ 1-3.704-1 Contracts with concerns other

than educational institutions. Insert the following clause in contracts with concerns other than educational institutions where negotiated overhead rates are to be used pursuant to this subpart.

NEGOTIATED OVERHEAD RATES (a) Notwithstanding the provisions of the clause of this contract entitled “Allowable Cost, Fixed Fee, and Payment,” the allowable indirect costs under this contract shall be obtained by applying negotiated overhead rates to bases agreed upon by the parties, as specified below.

(b) The Contractor, as soon as possible but not later than ninety (90) days after the expiration of his fiscal year, or such other period as may be specified in the contract, shall submit to the Contracting Officer, with a copy to the cognizant audit activity, a proposed final overhead rate or rates for that period based on the Contractor's actual cost experience during that period, together with supporting cost data. Negotiation of overhead rates by the Contractor and the Contracting Officer shall be undertaken as promptly as practicable after receipt of the Contractor's proposal.

(c) Allowability of costs and acceptability of cost allocation methods shall be determined in accordance with 2----as in effect on the date of this contract.

(d) The results of each negotiation shall be set forth in a modification to this contract, which shall specify (1) the agreed final rates, (2) the bases to which the rates

$ 1-3.704-2 Contracts with educational in.

stitutions. (a) Insert the following clause in contracts with educational institutions where postdetermined overhead rates (see § 1-3.701(d) are to be used pursuant to this subpart. NEGOTIATED OVERHEAD RATES

POSTDETERMINED (a) Notwithstanding the provisions of the clause of this contract entitled “Allowable Cost and Payment,"3 the allowable indirect costs under this contract shall be obtained by applying negotiated overhead rates to bases agreed upon by the parties, as specified below.

(b) The Contractor, as soon as possible but not later than six (6) months after the close of his fiscal year, or such other period as may be specified in the contract, shall submit to the Contracting Officer, with a copy to the cognizant audit activity, a proposed final overhead rate or rates for that period based on the Contractor's actual cost experience during that period, together with supporting cost data. Negotiation of final overhead rates by the Contractor and the Contracting Officer shall be undertaken as promptly as practicable after receipt of the Contractor's proposal.

(c) Allowability of costs and acceptability of cost allocation methods shall be determined in accordance with Subpart 1-15.3 of

The contracting agency may substitute the title of its own parallel clause when the title is other than “Allowable Cost, Fixed Fee, and Payment."

? In paragraph (c), insert the reference which is appropriate to the agency: Subpart 1-15.2 of the Federal Procurement Regulations (41 CFR 1-15.2), or the corresponding agency regulations, or both; or to an "Allow able Cost" clause in the contract, which lists allowable and unallowable costs.

The contracting agency may substitute the title of its own parallel clause when the title is other than “Allowable Cost and Pay. ment."

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