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 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: 33 FR 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:

means industrial

(a) "Facilities" 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.

§ 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. 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]

§ 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.

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.

Subpart 1-15.6—[Reserved]

Subpart 1-15.7-Grants and Contracts With State and Local Governments

SOURCE: 35 FR 18798, Dec. 11, 1970, unless otherwise noted.

§ 1-15.701 Purpose and scope.

§ 1-15.701-1 Objectives.

This subpart sets forth principles for determining the allowable costs of programs administered by State or local governments under grants from and contracts with the Federal Government. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local participation in the financing of a particular grant. They are designed to provide that federally assisted programs bear their fair share of costs recognized under these principles, except where restricted or prohibited by law. No provision for profit or other increment above cost is intended.

§ 1-15.701-2 Policy guides.

The application of these principles is based on the fundamental premise that:

(a) State and local governments are responsible for the efficient and effective administration of grant and contract programs through the application of sound management practices.

(b) The grantee or contractor assumes the responsibility for seeing that federally assisted program funds have been expended and accounted for consistent with underlying agreements and program objectives.

(c) Each grantee or contractor organization, in recognition of its own unique combination of staff facilities and experience, will have the primary

responsibility for employing whatever form of organization and management techniques may be necessary to assure proper and efficient administration. § 1-15.701-3 Application.

These principles will be applied as provided in § 1-15.108.

§ 1-15.702 Definitions.

As used in this subpart, words and phrases shall have the meanings set forth in the subsections of this section; provided however with respect to contracts subject to the regulations and standards of the Cost Accounting Standards Board (CASB) (see Subpart 1-3.12), definitions established by the CASB apply (see § 1-15.109).

[40 FR 14916, Apr. 3, 1975]

§ 1-15.702-1 Approval or authorization of the grantor Federal agency.

"Approval or authorization of the grantor Federal agency" means documentation evidencing consent prior to incurring specific cost.

§ 1-15.702-2 Cost allocation plan.

"Cost allocation plan" means the documentation identifying, accumulating, and distributing allowable costs under grants and contracts together with the allocation methods used.

§ 1-15.702-3 Cost.

"Cost," as used herein, means cost as determined on a cash, accrual, or other basis acceptable to the Federal grantor agency as a discharge of the grantee's accountability for Federal funds.

§ 1-15.702-4 Cost objective.

"Cost objective" means a pool, center, or area established for the accumulation of cost. Such areas include organizational units, functions, objects or items of expense, as well as ultimate cost objectives including specific grants, projects, contracts, and other activities.

§ 1-15.702-5 Federal agency.

"Federal agency" means any department, agency, commission, or instrumentality in the executive branch of the Federal Government which makes

grants to or contracts with State or local governments. §1-15.702-6 Grant.

"Grant" means an agreement between the Federal Government and a State or local government whereby the Federal Government provides funds or aid in kind to carry out specified programs, services, or activities. The principles and policies stated in this Subpart 1-15.7 as applicable to grants in general also apply to federally sponsored cost reimbursement type of agreements performed by States or local governments, including contracts, subcontracts, and subgrants.

§ 1-15.702-7 Grant program.

"Grant program" means those activities and operations of the grantee which are necessary to carry out the purpose of the grant, including any portion of the program financed by the grantee.

§ 1-15.702-8 Grantee.

"Grantee" means the department or agency of State or local government which is responsible for administration of the grant.

§ 1-15.702-9 Local unit.

"Local unit” means any political subdivision of government below the State level.

§ 1-15.702-10 Other State or local agencies.

"Other State or local agencies" means departments or agencies of the State or local unit which provide goods, facilities, and services to a grantee.

§ 1-15.702-11 Services.

"Services," as used herein, means goods and facilities, as well as services.

§ 1-15.702-12 Supporting services.

"Supporting services" means auxiliary functions necessary to sustain the direct effort involved in administering a grant program or an activity providing services to the grant program. These services may be centralized in the grantee department or in some other agency, and include procure

ment, payroll, personnel functions, maintenance and operation of space, data processing, accounting, budgeting, auditing, mail and messenger service, and the like.

§ 1-15.703 Basic guidelines.

§ 1-15.703-1 Factors affecting allow, ability of costs.

To be allowable under a grant program, costs must meet the following general criteria:

(a) Be necessary and reasonable for proper and efficient administration of the grant program, be allocable thereto under these principles, and, except as specifically provided herein, not be a general expense required to carry out overall responsibilities of State or local governments;

(b) Be authorized or not prohibited under State or local laws or regulations;

(c) Conform to any limitations or exclusions set forth in these principles, Federal laws, or other governing limitations as to types or amounts of cost items;

(d) Be consistent with policies, regulations, and procedures that apply uniformly to both federally assisted and other activities of the unit of government of which the grantee is a part;

(e) Be accorded consistent treatment through application of generally accepted accounting principles appropriate to the circumstances;

(f) Not be allocable to or included as a cost of any other federally financed program in either the current or a prior period; and

(g) Be net of all applicable credits.

§ 1-15.703-2 Allocable costs.

(a) A cost is allocable to a particular cost objective to the extent of benefits received by such objective.

(b) Any cost allocable to a particular grant or cost objective under the principles provided for in this subpart may not be shifted to other Federal grant programs to overcome fund deficiencies, avoid restrictions imposed by law or grant agreements, or for other rea

sons.

(c) Where an allocation of joint cost will ultimately result in charges to a

40-104 0-79-46

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 Government 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.

§ 1-15.704 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 respect 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 §§ 115.705 through 1-15.709.

§ 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

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