Page images

81-15.501 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.

(b) “Facilities contract" means a 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.

portion of such indirect costs at the central or branch office location as are allowable in nature and properly allocable (see § 1-15.201-4) 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 supervi. sion 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.

$ 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

Subpart 1-15.5—Contracts for

Industrial Facilities

SOURCE: 33 FR 5456, Apr. 6, 1968, unless otherwise noted.

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. Where applicable, standards promulgated by the Cost Accounting Standards Board shall be considered in determining the allowability of individual items of cost. [33 FR 5456, Apr. 6, 1968, as amended at 39 FR 43075, Dec. 10, 1974)

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.

8 1-15.502-3 Allocation of indirect manu.

facturing 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 g 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

§ 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.

[ocr errors][merged small]

are acquired by the Government responsibility for employing whatev under the contract, the Government form of organization and manageme shall not pay any amount in excess of techniques may be necessary to assu the contractor's most favored custom proper and efficient administration. er price or the price of other suppliers for like quantities of the same, or sub § 1-15.701-3 Application. stantially the same items, whichever is These principles will be applied lower.

provided in § 1-15.108.

Subpart 1-15.6—[Reserved]

§ 1-15.702 Definitions.

As used in this subpart, words ar Subpart 1-15.7—Grants and Con phrases shall have the meanings s tracts With State and Local Gov

forth in the subsections of this se ernments

tion; provided however with respect 1

contracts subject to the regulatior SOURCE: 35 FR 18798, Dec. 11, 1970, unless and standards of the Cost Accountir otherwise noted.

Standards Board (CASB) (see Subpal

1-3.12), definitions established by th § 1-15.701 Purpose and scope.

CASB apply (see $ 1-15.109). § 1-15.701-1 Objectives.

[40 FR 14916, Apr. 3, 1975) This subpart sets forth principles for § 1-15.702-1 Approval or authorization determining the allowable costs of pro

the grantor Federal agency. grams administered by State or local governments under grants from and

“Approval or authorization of th contracts with the Federal Govern

grantor Federal agency" means docu ment. The principles are for the pur

mentation evidencing consent prior to pose of cost determination and are not

incurring specific cost. intended to identify the circumstances

§ 1-15.702–2 Cost allocation plan. or dictate the extent of Federal and State or local participation in the fi

"Cost allocation plan" means the nancing of a particular grant. They

documentation identifying, accumulat are designed to provide that federally

ing, and distributing allowable costi assisted programs bear their fair share

under grants and contracts together of costs recognized under these princi

with the allocation methods used. ples, except where restricted or pro

§ 1-15.702–3 Cost. hibited by law. No provision for profit or other increment above cost is in- “Cost," as used herein, means cost as tended.

determined on a cash, accrual, or

other basis acceptable to the Federal § 1-15.701–2 Policy guides.

grantor agency as a discharge of the The application of these principles is grantee's accountability for Federal based on the fundamental premise

funds. that: (a) State and local governments are

§ 1-15.702–4 Cost objective. responsible for the efficient and effec

“Cost objective" means a pool, tive administration of grant and con center, or area established for the actract programs through the applica- cumulation of cost. Such areas include tion of sound management practices.

organizational units, functions, objects (b) The grantee or contractor as or items of expense, as well as ultisumes the responsibility for seeing mate cost objectives including specific that federally assisted program funds grants, projects, contracts, and other have been expended and accounted for activities. consistent with underlying agreements and program objectives.

$ 1-15.702–5 Federal agency. (c) Each grantee or contractor orga "Federal agency" means any depart. nization, in recognition of its own ment, agency, commission, or instru. unique combination of staff facilities mentality in the executive branch of and experience, will have the primary the Federal Government which makes

grants to or contracts with State or ment, payroll, personnel functions, local governments.

maintenance and operation of space,

data processing, accounting, budget§ 1-15.702-6 Grant.

ing, auditing, mail and messenger serv“Grant" means an agreement be- ice, and the like. tween the Federal Government and a State or local government whereby

§ 1-15.703 Basic guidelines. the Federal Government provides funds or aid in kind to carry out speci

§ 1-15.703-1 Factors affecting allow, abilified programs, services, or activities.

ty of costs. The principles and policies stated in To be allowable under a grant prothis Subpart 1-15.7 as applicable to gram, costs must meet the following grants in general also apply to federal general criteria: ly sponsored cost reimbursement type (a) Be necessary and reasonable for of agreements performed by States or proper and efficient administration of local governments, including con the grant program, be allocable theretracts, subcontracts, and subgrants. to under these principles, and, except

as specifically provided herein, not be § 1-15.702-7 Grant program.

a general expense required to carry “Grant program" means those activ- out overall responsibilities of State or ities and operations of the grantee local governments; which are necessary to carry out the (b) Be authorized or not prohibited purpose of the grant, including any under State or local laws or regulaportion of the program financed by tions; the grantee.

(c) Conform to any limitations or ex

clusions set forth in these principles, $ 1-15.702-8 Grantee.

Federal laws, or other governing limi“Grantee" means the department or tations as to types or amounts of cost agency of State or local government items; which is responsible for administra (d) Be consistent with policies, regution of the grant.

lations, and procedures that apply uni

formly to both federally assisted and § 1-15.702-9 Local unit.

other activities of the unit of govern"Local unit” means any political sub- ment of which the grantee is a part; division of government below the (e) Be accorded consistent treatment State level.

through application of generally ac

cepted accounting principles appropri81-15.702-10 Other State or local agen- ate to the circumstances; cies.

(f) Not be allocable to or included as “Other State or local agencies" a cost of any other federally financed means departments or agencies of the program in either the current or a State or local unit which provide prior period; and goods, facilities, and services to a (g) Be net of all applicable credits. grantee.

$ 1-15.703-2 Allocable costs. § 1-15.702-11 Services.

(a) A cost is allocable to a particular "Services," as used herein, means cost objective to the extent of benefits goods and facilities, as well as services. received by such objective.

(b) Any cost allocable to a particular $ 1-15.702-12 Supporting services.

grant or cost objective under the prin"Supporting services" means auxil- ciples provided for in this subpart may iary functions necessary to sustain the not be shifted to other Federal grant direct effort involved in administering programs to overcome fund deficiena grant program or an activity provid cies, avoid restrictions imposed by law ing services to the grant program. or grant agreements, or for other reaThese services may be centralized in sons. the grantee department or in some (c) Where an allocation of joint cost other agency, and include procure- will ultimately result in charges to a

[blocks in formation]
[blocks in formation]

grant program, an allocation plan will be required as prescribed in § 1-15.709. § 1-15.703-3 Applicable credits.

(a) Applicable credits refer to those receipts or reduction of expendituretype transactions which offset or reduce expense items allocable to grants as direct or indirect costs. Examples of such transactions are: Purchase discounts; rebates or allowances; recoveries or indemnities on losses; sale of publications, equipment, and scrap; income from personal or incidental services; and adjustments of overpayments or erroneous charges.

(b) Applicable credits may also arise when Federal funds are received or are available from sources other than the grant program involved to finance operations or capital items of the grantee. This includes costs arising from the use or depreciation of items donated or financed by the Federal Govern ment to fulfill matching requirements under another grant program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given grant.

$ 1-15.705-1 General.

Direct costs are those that can b identified specifically with a particula cost objective. These costs may b charged directly to grants, contracts or to other programs against whicl costs are finally lodged. Direct costi may also be charged to cost objective used for the accumulation of costi pending distribution in due course to grants and other ultimate cost objec tives. $ 1-15.705-2 Application.

Typical direct costs chargeable to grant programs are:

(a) Compensation of employees for the time and effort devoted specifically to the execution of grant programs;

(b) Cost of materials acquired, consumed, or expended specifically for the purpose of the grant;

(c) Equipment and other approved capital expenditures;

(d) Other items of expense incurred specifically to carry out the grant agreement; and

(e) Services furnished specifically for the grant program by other agencies, provided that such charges are consistent with criteria outlined in $ 115.707 of these principles. § 1-15.706 Indirect costs. $ 1-15.706-1 General.

Indirect costs are those (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefited, without effort disproportionate to the results achieved. The term "indirect costs," as used herein, applies to costs of this type originating in the grantee department, as well as those incurred by other departments in supplying goods, services, and facilities, to the grantee department. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies providing services to a grantee department. Indirect cost pools should be distributed to benefiting cost objec

§ 1-15.704 Composition of cost. § 1-15.704-1 Total cost.

The total cost of a grant program is comprised of the allowable direct cost incident to its performance plus its allocable portion of allowable indirect costs, less applicable credits.

$ 1-15.704-2 Classification of costs.

There is no universal rule for classifying certain costs as either direct or indirect under every accounting system. A cost may be direct with re. spect to some specific service or function, but indirect with respect to the grant or other ultimate cost objective. It is essential, therefore, that each item of cost be treated consistently either as a direct or an indirect cost. Specific guides for determining direct and indirect costs allocable under grant programs are provided in $8115.705 through 1-15.709.

« PreviousContinue »