15.505 Factors affecting allowability of costs. Allocation of indirect manufacturing and plant operational costs. General and administrative costs (including home office allocation). Contractor's commercial products. Subpart F-Guidelines for Application in the Negotiation and Administration of Fixed-Price Type Contracts and in the Negotiation of Termination Settlements 15.600 15.601 Scope of subpart. Definition of fixed-price type contracts. 15.602 Basic considerations. 15.603 Cost principles and their use. AUTHORITY: The provisions of this Part 15 issued under R.S. 161, sec. 2202, 70A Stat 120; 5 U.S.C. 22, 10 U.S.C. 2202. Interpret or apply secs. 2301-2314, 70A Stat. 127-133; 10 U.S.C. 2301-2314. § 15.000 Scope of part. This part contains general cost principles and procedures for the determination and allowance of costs in connection with the negotiation and administration of cost-reimbursement type contracts and contains guidelines for use, where appropriate, in the evaluation of costs in connection with certain negotiated fixedprice type contracts and contracts terminated for the convenience of the Government. [25 F.R. 14293, Dec. 31, 1960] Subpart A Applicability § 15.101 Scope of subpart. This subpart describes the applicability of succeeding subparts of this part to the various types of contracts in connection with which cost principles and procedures are used. [25 F.R. 14293, Dec. 31, 1960] § 15.102 Cost-reimbursement supply and research contracts with concerns other than educational institutions. This category includes all cost-reimbursement type contracts (§ 3.405 of this chapter) for supplies, services, or experimental, developmental, or research work (other than with educational institutions, as to which § 15.103 applies), except that it does not include facilities contracts (see § 15.105) or construction contracts (see § 15.104). The cost principles and procedures set forth in Subpart B of this part shall be incorporated by reference in cost-reimbursement supply and research contracts with other than educational institutions as the basis (a) For determination of reimbursable costs under such contracts, including cost-reimbursement type subcontracts thereunder, and the costreimbursement portion of time-andmaterials contracts (§ 3.406-1) of this chapter) except in such contracts where material is priced on a basis other than at cost in accordance with § 3.406-1(d) of this chapter; (b) For the negotiation of overhead rates (Subpart G, Part 3 of this chapter); and (c) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" its costs (Subpart D, Part 8, of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter). [25 F.R. 14239, Dec. 31, 1960, as amended at 26 F.R. 9641, Oct. 12, 1961; 27 F.R. 4015, Apr. 27, 1962] chapter) for experimental, developmental, or research work with educational institutions. The cost principles and procedures set forth in Subpart C of this part shall be incorporated by reference in cost-reimbursement research contracts with educational institutions as the basis (a) For determination of reimbursable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder; (b) For the negotiation of overhead rates (Subpart G, Part 3 of this chapter); and (c) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" its costs (Subpart D, Part 8, of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter). In addition, Subpart C of this part is to be used in determining the allowable costs of research and development performed by educational institutions under grants. [25 F.R. 14293, Dec. 31, 1960, as amended at 27 F.R. 4015, Apr. 27, 1962] § 15.104 Construction contracts. (a) Subpart D of this part contains principles and procedures for the evaluation and determination of costs in connection with contracts and subcontracts for construction. This category includes all contracts for the construction, alteration, or repair of buildings, bridges, roads, or other kinds of real property. It also includes contracts for architectengineer services related to such construction. It does not include contracts for vessels, aircraft, or other kinds of personal property. (b) The applicability of Subpart D of this part to fixed-price type contracts and subcontracts is set forth in Subpart F of this part. (c) Subpart D of this part applies to all cost-reimbursement type contracts (§ 3.405 of this chapter) for construction, as described in paragraph (a) of this section. The cost principles and procedures set forth in Subpart D of this part shall be incorporated by reference in cost-reimbursement construction contracts as the basis: (1) For determination of reimburseable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder: (2) For the negotiation of overhead rates (Subpart G, Part 3 of this chapter); and (3) For the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" his costs (Subpart D, Part 8 of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chapter). [26 F.R. 9641, Oct. 12, 1961] § 15.105 Facilities contracts. Subpart E of this part contains principles and procedures for the evaluation and determination of costs under facilities contracts (§ 13.101-11 of this chapter) and subcontracts thereunder. Such principles and procedures shall be incorporated by reference in facilities contracts as the basis (a) For determination of reimbursable costs under facilities contracts including cost-reimbursement type subcontracts thereunder; (b) For the ngeotiation of overhead rates (Subpart G, Part 3 of this chapter); and (c) For the determination of costs of terminated facilities contracts where the contractor elects to "voucher out" his cost (Subpart D, Part 8 of this chapter), and for settlement of such contracts by determination (§ 8.209-7 of this chap or subsequent disallowance or dispute based on unreasonableness or nonallocability, it is important that prospective contractors, particularly those whose work is predominantly or substantially with the Government, seek agreement with the Government in advance of the incurrence of special or unusual costs in categories where reasonableness or allocability are difficult to determine. Such agreement may also be initiated by contracting officers individually, jointly, for all defense work of the contractor, as appropriate. Any such agreement should be incorporated in cost-reimbursement type contracts, or made a part of the contract file in the case of negotiated fixed-price type contracts, and should govern the cost treatment covered thereby throughout the performance of the contract. But the absence of such an advance agreement on any element of cost will not, in itself, serve to make that element either allowable or unallowable. Examples of costs on which advance agreements may be particularly important: (a) Compensation for personal services; (b) Use charge for fully depreciated assets; (c) Deferred maintenance costs; (e) Research and development costs; (g) Selling and distribution costs; and (h) Travel costs, as related to special or mass personnel movement. [25 F.R. 14294, Dec. 31, 1960] Subpart B-Principles and Procedures for Use in Cost-Reimbursement Type Supply and Research Contracts With Commercial Organizations SOURCE: The provisions of this Subpart B appear at 25 F.R. 14294, Dec. 31, 1960, except as otherwise noted. § 15.201 Basic considerations. § 15.201-1 Composition of total cost. The total cost of a contract is the sum of the allowable direct and indirect costs allocable to the contract, incurred or to be incurred, less any allocable credits. In ascertaining what constitutes costs, any generally accepted method of determining or estimating costs that is equitable under the circumstances may be used, including standard costs properly adjusted for applicable variances. § 15.201-2 Factors affecting allowability of costs. Factors to be considered in determining the allowability of individual items of cost include (a) reasonableness, (b) allocability, (c) application of those generally accepted accounting principles and practices appropriate to the particular circumstances, and (d) any limitations or exclusions set forth in this subpart, or otherwise included in the contract as to types or amounts of cost items. § 15.201-3 Definition of reasonableness. A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by an ordinarily prudent person in the conduct of competitive business. The question of the reasonableness of specific costs must be scrutinized with particular care in connection with firms or separate divisions thereof which may not be subject to effective competitive restraints. What is reasonable depends upon a variety of considerations and circumstances in-volving both the nature and amount of the cost in question. In determining the reasonableness of a given cost, consideration shall be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the conduct of the contractor's business or the performance of the contract; (b) The restraints or requirements imposed by such factors as generally accepted sound business practices, arm's length bargaining, Federal and State laws and regulations, and contract terms and specifications; (c) The action that a prudent business man would take in the circumstances, considering his responsibilities to the owners of the business, his employees, his customers, the Government and the public at large; and (d) Significant deviations from the established practices of the contractor which may unjustifiably increase the contract costs. § 15.201-4 Definition of allocability. A cost is allocable if it is assignable or chargeable to a particular cost objective, such as a contract, product, product line, process, or class of customer or activity, in accordance with the relative benefits received or other equitable rela* tionship. Subject to the foregoing, a cost is allocable to a Government contract if it (a) A direct cost is any cost which can be identified specifically with a particular cost objective. Direct costs are not limited to items which are incorporated in the end product as material or labor. Costs identified specifically with the contract are direct costs of the contract and are to be charged directly thereto. Costs identified specifically with other work of the contractor are direct costs of that work and are not to be charged to the contract directly or indirectly. When items ordinarily chargeable as indirect costs are charged to Government work as direct costs, the cost of like items applicable to other work of the contractor must be eliminated from indirect costs allocated to Government work. (b) This definition shall be applied to all items of cost of significant amount unless the contractor demonstrates that the application of any different current practice achieves substantially the same results. Direct cost items of minor amount may be distributed as indirect costs as provided in § 15.203. § 15.203 Indirect costs. (a) An indirect cost is one which, because of its incurrence for common or joint objectives, is not readily subject to treatment as a direct cost. Minor direct cost items may be considered to be indirect costs for reasons of practicality. After direct costs have been determined and charged directly to the contract or other work as appropriate, indirect costs are those remaining to be allocated to the several classes of work. (b) Indirect costs shall be accumulated by logical cost groupings with due con |