production of delivery orders by automated methods, provided, specific authority for such use is obtained from the Director of Procurement, Office of the Assistant Secretary of the Army (Installations and Logistics) in the Army; Deputy Chief of Naval Material (Material and Facilities) in the Navy; the Director of Procurement Policy, Office of the Deputy Chief of Staff (Systems and Logistics) in the Air Force and the Executive Director, Procurement and Production, in the Defense Supply Agency.

§ 3.608-7 Use of DD Form 1155 as a public voucher.

DD Form 1155 is authorized for use as a public voucher (a) up to $2,500 when the form is used as a purchase order under § 3.608-2(b) (1), (b) up to $10,000 when the form is used as a purchase order by deployed units under conditions enumerated in § 3.608-2(b) (2), (c) without monetary limitation when the form is used as a delivery order, and (d) without monetary limitation as the basis for payment of an invoice against blanket purchase agreements.

§ 3.608-8 Order-invoice-voucher method. (a) Standard Form 44 (Purchase Order-Invoice-Voucher) is designed primarily for over-the-counter purchases by authorized individuals while away from the purchasing office or at isolated activities. It is a multipurpose form which can be used as a purchase order, receiving report, supplier's invoice and public voucher.

(b) Since there are no written terms and conditions included thereon, Standard Form 44 is authorized for use only when no other small purchase method is considered more suitable and all of the following conditions are satisfied:

(1) The transaction is not in excess of $2,500,

(2) Supplies or services are immediately available, and

(3) One delivery and one payment will be made.

(c) Instructions for completion of Standard Form 44 contained on the form may be supplemented in accordance with Departmental needs to satisfy internal procedural requirements. Negotiation authority need not be cited. In view of the negotiable character of the Standard Form 44, installations will maintain adequate safeguards to assure proper usage and availability of funds.

The terms negotiated final overhead rate, as used in this subpart, means a percentage or dollar factor which expresses the ratio(s) mutually agreed upon by the Government and the contractor, at the close of a regularly stated period (preferably the contractor's fiscal year), of indirect expense incurred in the period to direct labor manufacturing cost, cost of sales, or other appropriate base of the same period. Ordinarily, such rates are used as a means of determining the amount of reimbursement for the applicable indirect costs for such completed period; in such cases, they are termed "postdetermined" overhead rates. In certain circumstances involving educational institutions, negotiated final overhead rates may be used as a means of determining the amount of reimbursement for the applicable indirect costs to be incurred during a future period of contract performance; in such cases, they are termed "predetermined" overhead rates (see § 3.704-2(b)). [28 F.R. 2578, Mar. 16, 1963]

§ 3.701-2 Provisional overhead rates.

The term provisional overhead rate, as used in this part, means a tentative overhead rate established for interim billing purposes pending a negotiation of the final overhead rate.

§ 3.701-3 Overhead (indirect costs).

The term overhead (indirect costs) as used in this part, 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

I and, if applicable, indirect costs accumulated by cost centers within these general groups. In the case of contractors using fund accounting systems, the term includes, but is not limited to, the general groups of expenses such as general administration and general expense, maintenance and operation of physical plant, library expenses, and use charges for building and equipment.

§3.702 Purpose.

The major purposes of negotiated I final overhead rates are: (a) to effect uniformity of approach in cases where more than one contract or more than one Military Department is involved; (b) to effect economy in administrative effort; and (c) to promote timely settlement of reimbursement claims.

§3.703 Applicability.

Negotiated final overhead rates are authorized for use primarily in costreimbursement type contracts for research and development with commercial organizations and nonprofit or educational institutions. They may also be used in other cost-reimbursement type contracts, after a determination is made by the contracting officer that their use is advantageous to the Government. Where it is not apparent that any one of the major purposes enumerated in § 3.702 results or will result by the use of negotiated final overhead rates, the contracting officer will provide for settlement of overhead by audit determination.

§ 3.704 Contract clauses.

$ 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 (MARCH 1963)

(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 each period specified in the Schedule, 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 Part 2 of Section XV of the Armed Services Procurement Regulation 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, (ii) the bases to which the rates apply, and (iii) 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 Schedule 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, the provisional or billing rates may, at the request of either party, be revised by mutual agreement, either retroactively or prospectively. Any such revision of negotiated provisional rates provided in the Schedule shall be set forth in a modification to this contract.

(f) Any failure by the parties to agree on any final rate or 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.

In the case of a cost-plus-incentive-fee contract, substitute "Allowable Cost, Incentive Fee, and Payment" for "Allowable Cost, Fixed Fee, and Payment" in paragraph (a) of the foregoing clause. [30 F.R. 14889, Dec. 2, 1965]

§ 3.704-2 Contracts with educational

institutions.

(a) Insert the following clause in contracts with educational institutions where postdetermined overhead rates are to be used pursuant to this subpart. NEGOTIATED OVERHEAD RATES (POSTDETERMINED) (MAR. 1963)

(a) Notwithstanding the provisions of the clause of this contract entitled "Allowable Cost 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 six (6) months after the expiration of each period specified in the Schedule 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. Negotiations of final overhead rates by the Contractor and the Contracting Officer shall be undertaken 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 the Armed Services Procurement Regulation, Section XV, Part 3, 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, (11) the bases to which the rates apply, and (111) 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 Schedule 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, the provisional or billing rates may, at the request of either party, be revised by mutual agreement, either retroactively or prospectively. Any such revision of negotiated provisional rates provided in the Schedule shall be set forth in a modification to this contract.

(f) Any failure by the parties to agree on any final rate or 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.

(b) Provision may be made in cost reimbursement type research and development contracts with educational institutions for payment of reimbursable indirect costs on the basis of predetermined overhead rates, provided that this basis is used with respect to all contracts with an institution. Insert the following clause in contracts with educational institutions where such negotiated overhead rates are to be used pursuant to this subpart.

NEGOTIATED OVERHEAD RATES-PREDETERMINED (MAR. 1963)

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

(b) The Contractor, as soon as possible but not later than three (3) months after the expiration of his fiscal year shall submit to the Contracting Officer with a copy to the cognizant audit activity, a proposed

predetermined overhead rate or rates based on the Contractor's actual cost experience during that fiscal year, together with supporting cost data. Negotiation of predetermined 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 the Armed Services Procurement Regulation, Section XV, Part 3, 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 predetermined overhead rates, (ii) the bases to which the rates apply, (111) `the fiscal year unless the parties agree to a different period for which the rates apply, and (iv) the specific items treated as direct costs or any changes in the items previously agreed to be direct costs.

(e) Pending establishment of predetermined overhead rates for any fiscal year or different period agreed to by the parties, the Contractor shall be reimbursed either at the rates fixed for the previous fiscal year or other period or at billing rates acceptable to the Contracting Officer subject to appropriate adjustment when the final rates for that fiscal year or other period are established.

(f) Any failure by the parties to agree on any predetermined overhead rate or rates under this clause shall not 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. If for any fiscal year or other period specified in the Schedule of this contract the parties fail to agree to a predetermined overhead rate or rates it is agreed that the allowable indirect costs under this contract shall be obtained by applying negotiated final overhead rates in accordance with the terms of the "Negotiated Overhead Rates-Postdetermined" clause set forth in 3-704.2 of the Armed Services Procurement Regulation as in effect on the date of this contract.

(g) Allowable indirect costs for the period until the end of the Contractor's fiscal year during which performance begins shall be obtained by applying the predetermined overhead rate set forth in the Schedule to the bases set forth therein.

When predetermined overhead rates are to be used and no such rate or rates have been established for the contractor's current fiscal year, the contracting officer shall obtain from the contractor during the contract negotiations a proposal for a predetermined overhead rate or rates to be applied until the end of such fiscal year. As far as practicable such proposal should be based on the contractor's cost experience under similar

contracts together with supporting cost data. The overhead rate or rates for such initial period shall be predetermined by negotiation and set forth in the contract schedule. The schedule shall also include the bases to which the rates apply and the period for which the rates apply. Pending establishment of predetermined overhead rates for the initial period, the contractor shall be reimbursed at billing rates acceptable to the contracting officer, subject to appropriate adjustment when the final rates for that period are established. [28 F.R. 2578, Mar. 16, 1963, as amended at 28 F.R. 4884, May 16, 1963; 30 F.R. 14889, Dec. 2, 1965]

§ 3.704-3 Modification of contract clauses.

When a separate negotiated overhead rate agreement is used in accordance with § 3.705 (f), the clauses in §§ 3.704-1 and 3.704-2 may be appropriately modified.

[28 F.R. 2579, Mar. 16, 1963]

§3.705 Procedure.

The procedure for use of negotiated final overhead rates generally consists of submission by the contractor of an overhead rate proposal, submission of an advisory audit report, review of the contractor's proposal and the advisory audit report, conduct of negotiation, preparation of a negotiation report or summary, and execution of contract amendments or supplemental agreements.

(a) Where only one procurement activity is concerned the proposal shall be submitted to the contracting officer or his authorized representative, with a copy to the cognizant audit activity. Where coordinated negotiations as described under §3.706 are involved, contractors' overhead rate proposals may be submitted to the cognizant negotiating activity of the Department sponsoring the negotiation, with a copy to the cognizant audit activity.

(b) The determination as to the necessity of an advisory audit report for overhead rate negotiation purposes and the extent of the use of such report is the sole responsibility of the contracting officer. Unless advised to the contrary by the contracting officer, the cognizant audit activity shall submit an audit advisory report to the contracting officer or his authorized representative. Such report shall set forth the findings of the audit activity including the results of

discussion of such findings with the contractor. The audit or accounting review will be governed by the provisions of Part 15 of this subchapter.

(c) Where there is a significant difference of opinion between the auditor and the contractor concerning the allowability of indirect costs or the acceptability of the bases used in developing the overhead rates, representatives of the audit activity and the negotiating activity will discuss the areas of disagreement prior to the negotiation conference with the contractor. As a further aid to the negotiating activity, a representative of the audit activity will, upon request, attend the negotiation conference.

(d) The negotiation conference will be conducted by the contracting officer or his authorized representative. Where coordinated negotiation is involved (see § 3.706), the sponsoring negotiating activity will be the authorized representative of those procuring activities not represented. The negotiation shall be governed by Part 15 of this chapter and shall encompass an agreement on final overhead rates, the specific items to be treated as direct charges, and the provisional overhead rates if such rates are to be specified in the contract. In the event provisional rates were utilized to effect a termination settlement (see § 8.404-4 of this chapter), that fact will not be considered a precedent when negotiating final rates.

(e) At the completion of the negotiation, the contracting officer or his authorized representative shall prepare a negotiation report or summary, setting forth the rates negotiated; the reasons for variation from the audit report, if any; the period of rate applicability; the basis for the determination of such rates; the specific items treated as direct cost; and where applicable, the provisional rates agreed upon for application in the succeeding period. Such report or summary shall be the basis for amending the affected contracts; it shall become a part of the contract file; and copies shall be distributed to any interested procurement activities and the audit activity.

(f) Contract administration may be simplified by including, as appropriate, provisional and final or predetermined negotiated overhead rates in basic agreements (see § 3.410-1) when such agreements exist. When no basic agreement exists and negotiated overhead rates are applicable to a substantial number of

When more than one Military Department contemplates the use of negotiated final overhead rates with the same contractor, the service having the preponderance of cost-reimbursement type work will, generally, sponsor and conduct the negotiation. Each Department having an interest will be notified of the pending negotiation and will be invited to participate in the negotiation. If a Department does not have a representative at the negotiation, the sponsoring Department will represent the absentee Department. The results of the negotiation will be binding upon all Departments. At the completion of the negotiation, the sponsoring Department will prepare and distribute to the other Departments a Negotiation Report or Summary as provided for in § 3.705(e). Each Military Department shall thereupon amend or supplement the affected contracts in accordance with the rates and other data set forth in the negotiation report or summary.

§3.707 Cost-sharing rates.

Cost-sharing arrangements are frequently made wherein the cost participation by the contractor is evidenced by an agreement to accept overhead rates which are lower than the anticipated actual overhead rates. In such cases, a negotiated fixed-ceiling overhead rate may be used for application prospectively, provided that, in the event overhead rates developed by the cognizant audit activity on the basis of actual allowable costs are less than the negotiated rates, the negotiated rates will be reduced. Where reductions are necessary, they will be accomplished in accordance with § 3.705. The Government will not be obligated to pay any additional amounts on account of overhead above the negotiated fixed-ceiling rates.

(For cost sharing practices under Research and Development Contracts, see § 4.208 of this chapter.) [27 F.R. 6123, June 29, 1962]

Subpart H-Price Negotiation Policies and Techniques

§ 3.800 Scope of subpart.

This subpart sets forth the price negotiation policies and techniques applicable to negotiated prime contracts and those subcontracts which are subject to approval or review within a Department. The principles in this subpart apply to negotiation of prices on all types of contracts and to revised prices as well as initial prices. [25 F.R. 14142, Dec. 31, 1960] § 3.801 Basic policy. [25 F.R. 12142, Dec. 31, 1960] § 3.801-1

General.

(a) Contracting officers, or their authorized representatives acting within the scope of their authority, are the exclusive agents of their respective Departments to enter into and administer contracts on behalf of the Government in accordance with this subchapter and Departmental procedures. Each contracting officer is responsible for performing or having performed all administrative actions necessary for effective contracting. The contracting officer shall avail himself of all appropriate organizational tools such as the advice of specialists in the fields of contracting, finance, law, contract audit, packaging, engineering, traffic management, and price analysis. For purposes of this subpart, the contracting officer is (1) the procuring contracting officer (PCO) or (2) the administrative contracting officer (ACC) when authorized to perform the duties of a procuring contracting officer.