(b) Directors of Headquarters Divisions and Offices negotiating contracts, and Managers of Field Offices are responsible for following the policy, principles and standards set forth herein in establishing the compensation provisions of contracts and subcontracts and for submission of deviations for Headquarters consideration.

(c) The General Counsel is responsible for the preparation and interpretation of contracts.

$9-15.5003 Deviation.

Deviations from the policy and principles set forth in this subpart shall not be made unless such action is authorized by the Director of Procurement, after consultation with the Controller, General Counsel, and any other appropriate Headquarters office, on the basis of a written justification stating clearly the special circumstances involved. Where appropriate, any approved deviation shall be reflected in the compensation provisions of the contract.

The general policy of the ERDA in connection with cost-type contracts and with cost-type subcontracts is as follows:

(a) ERDA reimburses its contractors for allowable costs actually incurred in the peformance of their contracts in accordance with their terms. Such allowable costs are those provided for in the contract to the extent that they are necessary or incident and either directly attributable or equitably allocable to the work under the contract. This broad expression of the ERDA's reimbursement policy is further developed and elaborated upon throughout this subpart.

(b)(1) ERDA uses retrospective or after-the-fact determination, usually called the "actual cost basis," to establish the amount reimbursable to its contractors for their allowable costs. This general policy precludes the use of predetermined fixed-overhead percentage rates except for provisional payment under paragraph (d) of this section.

(2) It is recognized, however, that the total volume of work with a particular contractor in some cases may be so small that computation of the actual indirect costs may not be justified. In such cases it may be administratively desirable to adopt some alternative, such as a predetermined amount for indirect costs. However, a

departure from the actual cost basis under a cost-type contract is considered administratively undesirable if the amounts involved are significant, and the use of either a predetermined amount for indirect costs, except under the circumstances noted above, or other alternatives (such as a fixed billing rate for labor and overhead per direct labor hour) shall be submitted to Headquarters for approval. Any firm amount established for indirect costs, whether small or significant, and any other alternative, shall be supported by a wellconsidered conclusion that the firm amount or other alternative will result in approximately the same compensation for the costs concerned as would likely result from determination on the actual cost basis. The negotiation of predetermined fixed amounts, fixed billing rates, etc., shall be made on the basis of actual cost experience and satisfactory cost projections, and in accordance with the principles and standards set forth in this subpart. Such amounts, rates, etc., will cover allowances only for allowable costs.

(c) When firm compensation for any otherwise allowable cost is negotiated, the items of such cost covered by the fixed amount shall be set forth in the contract or appropriate appendices as unallowable with maximum clarity in order to distinguish between allowable costs subject to reimbursement and costs which are covered by the negotiated fixed amount, and hence excluded from allowable cost in the case of the particular contract.

(d) Provisional payments on account of indirect costs incurred under the contract shall be provided for only after review of the contractor's system of accounting,

including items treated as indirect costs and methods of distributing them or on the basis of previous audits or past experience with the particular contractor. Based on such a review, a provisional overhead rate or rates shall be established taking into consideration the prior year's experience adjusted to eliminate nonrecurring costs and to any new conditions which may be applicable to the future. Such rate or rates shall be applied to an appropriate base or bases for computation of the provisional payments. The elements of indirect cost and the base or bases used in computing provisional payments, shall not be construed as indicating the elements of expense to be distributed or the base or bases of distribution to be employed in the periodic determination of actual overhead. The actual overhead shall be determined not less often than annually and the provisional payments made shall be adjusted accordingly. Prior to final settlement of the entire contract the actual overhead so determined periodically shall be subject to appropriate subsequent adjustment including errors subsequently becoming known. The amount of any adjustment shall promptly be paid or credited by the ERDA to the contractor or by the contractor to the ERDA as the review has determined.

$9-15.5005-2 Compensation through fee.

(a) ERDA compensates operating, construction and on-site architect-engineer contractors through the fixed fee for general and administrative expenses incurred in the general management and administration of the contractor's business as a whole by the contractor's home, divisional or branch offices.

(b) In a particular case, the contractor may be compensated on the basis of allowable cost, rather than through the fixed fee for some or all of the expenses described in paragraph (a) of this section if the Director of Procurement, the Manager of the Field Office, or a representative having the authority to approve the contract, authorizes use of this alternative approach and determines that the negotiated fixed fee reflects proper downward adjustment from that which would otherwise have been established. In the case of no-fee contracts (including contracts providing for nominal or token fees), this category of expense may be either reimbursed on the basis of actual costs or compensated through a predetermined fixed amount.

(c) The above-stated policy does not preclude the payment of expenses merely because they are incurred or accounted for at or by the contractor's home, divisional or branch offices; where expenses of a type typically incurred at construction or operation sites in support of the contract work, are, by reason of a particular contractor's greater centralization, incurred at such offices, rather than at the operation site, such expenses may be reimbursed.

(d) In the case of on-site architect-engineer contracts, the contracting officer may approve performance of some of the work in the contractor's central or branch office location. The direct costs of such work and an equitable portion of such indirect costs at the central office or branch office location as are properly applicable and apportionable to such work are allowable. In such cases, the indirect costs attributable to the performance at a central office 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 home or branch offices in the general management, supervision, and conduct of its business, since these general administrative expenses are usually compensated for through fee and, in any event, where allowable, are related to and apportionable over all work under the supervision of the office concerned.

(e) As to work performed by an operating contractor in its own facilities, see $9-15.5007-3.

$9-15.5005-3

General basis for determination of costs.

The total reimbursable cost of an ERDA cost-type contract is the sum of the allowable direct costs necessary or incident to the performance of the contract, plus the properly allocable portion of the allowable indirect costs, less applicable income and other credits. In determining allowability and reimbursability of costs, there shall be considered also:

(a) Reasonableness, including the exercise of prudent business judgment;

(b) Application of generally accepted accounting principles and practices appropriate to identify and measure costs of performing the contract in accordance with this subpart;

(c) All exclusions of and limitations on types and amounts of items of cost set forth in the contract; and

(d) Approvals by the contracting officer required under the contract terms. (For examples of allowable and unallowable costs see $9-50.704-13 through 9-50.704-16.)

$9-15.5005-4 Cost determination based on audit.

(a) The amount reimbursable under cost-type contracts shall be determined in accordance with the terms of the respective contracts on the basis of audit. In the event that the contractual terms differ or are inconsistent (see §9-15.5003 for approval of deviations) with the principles stated herein the contractual terms control. The audit is performed directly by ERDA (or by the cognizant Federal agency pursuant to arrangements made by the ERDA) in the case of cost-type contracts. Contracting officers shall assure that cost-type prime contractors assume the responsibility for audit of subcontractors (and provide for the audit of lower tier subcontractors by the subcontractor immediately preceding in the contractual chain) except as noted in this paragraph. Exceptions may be made to this general principle of subcontractors being audited by the next higher-tier contractor, where the latter is interrelated with the subcontractor involved, does not have the necessary audit facilities or for other reasons is not in a position to perform the subcontract audit in a manner satisfactory to to the ERDA. In the event of such exception, the subcontract audit responsibility shall rest with the successively higher-tier contractor (or ultimately ERDA), but responsibility for determining the costs reimbursable to the subcontractor remains with the next higher-tier contractor on the basis of such audit.

(b) Audit by other Federal agencies: Where the amount of costtype work to be performed for ERDA in a particular facility is less

than tnat being performed at the same facility for other Federal agencies, arrangements may be made to have the cognizant agency perform the audit of the ERDA contract or subcontract. These arrangements shall be made administratively between ERDA and the other agency involved, and wherever possible shall provide for the cognizant agency to audit against the ERDA cost principles. In no case, however, shall the arrangements preclude determination by the ERDA contracting officer of the allowable and unallowable costs in accordance with ERDA cost principles set forth in §9-50.704-13 through 9-50.704-16. Steps appropriate in the light of the magnitude and nature of the costs shall be taken by the contracting officer to ascertain that the audit results properly reflect the application of ERDA cost principles (particularly as to types and amounts of items of cost including incidence, allocability, and equitable distribution thereof).

$9-15.5005-5 Contractor's system of accounting.

(a)(1) Careful ERDA study of the contractor's usual accounting procedures shall be made prior to arriving at an understanding with the contractor as to the accounting system to be employed by the contractor during the period of contract performance.

(2) The contractor's customary accounting practices are usually accepted if they conform to generally accepted accounting principles, produce equitable results, are consistently applied, are not in conflict with the provisions of this subpart, are conducive to accurate costing of the contract work, and produce reports required by the ERDA.

(b) It is ERDA's policy to discourage firm contractual provisions relating to the contractor's accounting system (including methods for computing indirect costs) which preclude appropriate retrospective modification. No firm contractual provision shall be included in the contract where there is no previous Government contracting experience with the contractor's methods of operation and accounting. Contracting officers may, however, include firm contractual provisions when there is a comprehensive understanding of the contractor's methods of operation and accounting as a result of Government contracting experience in dealing with the contractor and the contracting officer makes a determination, based on an ERDA study thereof, that the contractor's accounting procedures are likely to produce equitable results in the future as in the past. Such firm contractual provisions shall be subject to adjustment retroactively at the request of either party to the contract when the method of overhead determination has become inequitable as a result of

cost

(1) Any substantial difference accruing between the patterns of work under the contract and other work of the contractor;

or