The Code of Federal Regulations of the United States of America

in that act, and in all subcontracts in excess of $1,000 under such contracts. (b) (1) Section 401 of the Second Deficiency Appropriation Act, 1948, provides as follows:

The Secretary of Defense is authorized and directed, whenever in his judgment the best interests of the United States so require, to direct the insertion of a clause incorporating the Renegotiating Act of 1948 in any contracts for the procurement of ships, aircraft, aircraft parts, and the construction of facilities or installations outside continental United States entered into by or in behalf of the Department of the Army, the Department of the Navy, or the Department of the Air Force which obligates any funds made available for obligation in the fiscal year 1949.

When the Secretary, pursuant to said section 401, directs the insertion of a clause incorporating the Renegotiation Act of 1948 in any contracts described in section 401, such contracts and all subcontracts thereunder, in excess of $1,000, thereby become subject to the Renegotiation Act of 1948 in all respects. Therefore, whenever in the regulations in this subchapter any of the terms "subject contract," or "subject to renegotiation," or "renegotiable contracts or subcontracts," or "renegotiable business" or similar language is used, such term shall be deemed to include any contract, or subcontract thereunder, made subject to the 1948 Act by virtue of the Secretary's action under section 401.

(2) On June 30, 1948 the Secretary of Defense issued the following directive:

Pursuant to the authority vested in me by Section 401 of Public Law 785 (80th Congress), I hereby adjudge that it is in the best interests of the United States, and accordingly, I direct the inclusion of a clause incorporating the Renegotiation Act of 1948 in all contracts for the procurement of aircraft and aircraft parts entered into by or on behalf of the Department of the Navy or the Department of the Air Force, which obligate any funds made available for obligation in the fiscal year 1949.

This order is effective 1 July 1948.

All negotiated contracts for procurement in excess of $1,000 entered into during the fiscal year 1950 by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, and Department of the Air Force), and all subcontracts thereunder in excess of $1,000 are hereby made subject to the Renegotiation Act of 1948 in the same manner and to the same

extent as if such contracts and subcontracts were required by such Act to contain the renegotiation article prescribed in subsection (a) of such Act.

(2) Whenever in the regulations in this subchapter any of the terms "subject contracts", or "subject to renegotiation", or "renegotiable contracts or subcontracts", or "renegotiable business", or similar language is used, such term shall be deemed to include any contract, or subcontract thereunder, made subject to the 1948 Act by section 622.

(d) (1) Section 618 of the General Appropriation Act, 1951, provides in part as follows:

All negotiated contracts for procurement in excess of $1,000 entered into during the current fiscal year by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, and Department of the Air Force), and all subcontracts thereunder in excess of $1,000 are hereby made subject to the Renegotiation Act of 1948 in the same manner and to the same extent as if such contracts and subcontracts were required by such act to contain the renegotiation article prescribed in subsection (a) of such act.

(e) Section 102 (c) of the Renegotiation Act of 1951 provides in part as follows:

The Renegotiation Act of 1948 shall not be applicable to any contract or subcontract to the extent of the amounts received or accrued by a contractor or subcontractor on or after the first day of January 1951, whether such contract or subcontract was made on, before or after such first day.

Whenever in this part any of the terms "subject contracts", or "subject to renegotiation", or "renegotiable contracts or subcontracts", or "renegotiable business", or similar language is used, such term shall not be deemed to include any amounts received or accrued by the contractor or subcontractor on or after the first day of January 1951 whether the contract or subcontract from which such receipt or accrual arose was made on, before or after such first day.

[14 F.R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F.R. 169, Jan. 12, 1950; Amdt. 10, 15 F.R. 6987, Oct. 19, 1950; 17 F.R. 7218, Aug. 8, 1952; 17 F.R. 8362, Sept. 17, 1952]

§ 1423.331-2 Agreements made prior to effective date of the act and extensions.

(a) The effective date of the Supplemental National Appropriation Act, 1948, is May 21, 1948. Therefore, contracts and subcontracts entered into prior to May 21, 1948, are not required to contain the Renegotiation Article and are not subject to the act.

(b) The effective date of the Directive of the Secretary of Defense issued pursuant to section 401 of Public Law 785, 80th Congress is July 1, 1948 (see § 1423.331-1 (b). Therefore, in order for contracts and subcontracts to be made subject to the Renegotiation Act of 1948 by said Directive, they must have been entered into on or after July 1, 1948.

(c) The effective date of section 622 of the National Military Establishment Appropriation Act, 1950, is July 1, 1949. Therefore, contracts for procurement made subject to the Renegotiation Act by said section, and subcontracts thereunder, must have been entered into on or after July 1, 1949, in order to be subject to renegotiation.

(d) The effective date of section 618 of the General Appropriation Act, 1951, is July 1, 1950. Therefore, contracts for procurement made subject to the Renegotiation Act by said section, and subcontracts thereunder, must have been entered into on or after July 1, 1950, in order to be subject to renegotiation.

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19. 1950]

Subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended, describes certain classes of exempt contracts and subcontracts. Subsection (d) of the 1948 Act provides that the 1948 Act does not apply to such classes of contracts and subcontracts. In addition,

subsection (d) provides that the Secretary of Defense in his discretion may exempt from renegotiation any other contract or subcontract both individually and by general classes or types.

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F. R. 169, Jan. 12, 1950] § 1423.332 Subject contracts. [Arndt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.332-1 General.

All contracts required by the Renegotiation Act of 1948, as amended or supplemented, to contain a Renegotiation Article are subject to that act except to the extent of amounts received or accrued on or after January 1, 1951 (see section 102(c) of the Renegotiation Act of 1951). The absence of a Renegotiation Article from any contract does not, however, preclude the application of the act if such contract is one required to contain an Article.

[Amdt. 1, 15 F.R. 169, Jan. 12, 1950, as amended at 17 F.R. 7218, Aug. 8, 1952]

§ 1423.332-2 Amendments to nonsubject contracts.

However, even though a contract is not required to contain a Renegotiation Article, an amendment to such a contract is itself a contract subject to the act if such amendment provides for new or additional procurement in an amount in excess of $1,000, and (a) is made pursuant to the authority of the Supplemental National Defense Appropriation Act, 1948 (see § 1423.331-1(a)); or (b) is for procurement which has been made subject to the act pursuant to the provisions of section 401 of the Second Deficiency Appropriation Act, 1948 (§ 1423.331-1 (b)) or (c) is negotiated during the fiscal year 1950 or the fiscal year 1951 by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, or the Department of the Air Force). (See § 1423.3311 (c) and § 1423.331-1 (d).)

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950]

§ 1423.333 Interpretation of term "subcontract."

The terms "subcontract" and "subcontracts," as used in the act, mean all purchase orders or agreements in excess of $1,000 to perform all or any part of the work, or to make or furnish any article required for the performance of any other subject contract or subcontract. The term "article" as used in this subchapter shall be deemed to include any material, part, assembly, machinery, equipment, or other personal property. § 1423.333-2 Meaning of "required for performance."

An article or work is required for the performance of a subject contract or

subcontract if such contract or subcontract is:

(a) For the sale or processing of an end product or of an article incorporated therein,

(b) For the sale, furnishing or installation of machinery, equipment or materials used in the processing of an end product or of an article incorporated therein,

(c) For the sale, furnishing or installation of machinery used in the processing of other machinery to be used in the processing of an end product or of an article incorporated therein,

(d) For the sale, furnishing or installation of component parts of or subassemblies for machinery included in paragraph (c) of this section and machinery. equipment and materials included in paragraph (b) of this section, and

(e) For the performance of services directly required for the performance of contracts or subcontracts included in paragraphs (a), (b), (c), and (d) of this section.

The term "component part" as used in paragraph (d) of this section shall be deemed to include materials and ingredients.

§ 1423.333-3 When machinery, equipment or materials "used in processing."

Under this interpretation machinery, equipment or materials will be deemed to be used in the processing of an end product or an article incorporated in an end product in all cases where such machinery, equipment or materials are used:

(a) To produce or otherwise operate, directly on an end product or an article incorporated in an end product by chemical, physical or mechanical methods; such, for example, as shaping, cutting, constructing, combining, refining, assembling, testing, inspecting or (in the case of end products) packaging;

(b) To transport within the contractor's plant an end product or an article incorporated in an end product or other articles used in connection with the production thereof;

(c) In connection with the repair, maintenance, equipping, or operation in the contractor's plant of machinery or equipment used in the production of an end product, or an article incorporated in an end product.

§ 1423.333-4 General effect of interpretation.

(a) In general it is intended to include as subject to renegotiation the sale of all machinery, equipment, materials and other articles which contribute directly to the actual production of an end item or an article incorporated therein, in connection with the physical handling of the item from the time of entry of the component materials to departure of the item from the plant in question and to include all machinery so used. Packaging materials and containers are regarded as a component part of the end product when they are used to package or contain the end product and are delivered with the end product to the Government; on the other hand, sales of packaging materials and containers which are not ultimately delivered to the Government are excluded from renegotiation.

(b) It is intended to exclude the sale of articles which contribute only indirectly to the actual manufacturing process, such as products used for general plant maintenance, including fuel and equipment to produce light, heat and general power requirements and such as equipment needed for general office maintenance, including all types of office machinery and supplies, and such as safety equipment and clothing. It is not intended to exclude from renegotiation any article sold to a contractor when the items are to be ultimately resold to the Government either as end products or as component parts included therein. § 1423.334 Subject subcontracts. [Amdt. 5, 15 F. R. 169, Jan. 12, 1950] § 1423.334-1 General.

All subcontracts required to contain the Renegotiation Article are subject to the Renegotiation Act of 1948. The absence of the Renegotiation Article from any subcontract does not, however, preclude the application of the act if such subcontract is one required to contain the Article.

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.334-2 Amendments to non-subject subcontracts.

An amendment to a subcontract not required to contain a Renegotiation Article is itself a subcontract subject to the act if it provides for new or additional procurement, is in excess of $1,000, and is under a subject contract or subcontracts. For example if A and B entered into a subcontract on May 1, 1948, for

the sale and purchase of 100 units at $5.00 per unit and they amend such subcontract on June 1, 1948, to obligate themselves to buy and sell 500 additional units at the same price, such increase being under a subject contract or subcontract, there is a subcontract subject to renegotiation for the 500 additional units.

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.334-3 Subcontracts under contracts made subject to renegotiation under Second Deficiency Appropriation Act, 1948.

Section 401 of the Second Deficiency Appropriation Act, 1948, provides that the Secretary of Defense may direct the insertion of an article incorporating the Renegotiation Act of 1948 in any contracts for the procurement of ships, aircraft, aircraft parts, and the construction of facilities or installations outside the continental United States. The Secretary of Defense by memorandum dated 30 June 1948 directed that a clause incorporating the Renegotiation Act of 1948 be included in all contracts for the procurement of aircraft and aircraft parts entered into by or on behalf of the Department of the Navy or the Department of the Air Force which obligate any funds made available for obligation in the fiscal year 1949. (See 1423.331-1 (b)). All subcontracts in excess of $1,000 under contracts made subject to renegotiation pursuant to this authority are subject to the Renegotiation Act of 1948 and the regulations in this subchapter to the same extent and in the same manner as subcontracts under contracts entered into under the authority of the Supplemental National Defense Appropriation Act, 1948.

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.334-4 Patent licenses as sub

contracts.

Licenses or other agreements for the use of processes or inventions used in performing subject contracts and subcontracts are subcontracts subject to renegotiation unless exempted. [Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.335 Contracts and subcontracts involving real property.

§ 1423.335-1 Subcontracts for existing real property.

(a) The term "subcontract" is construed to exclude agreements for the purchase or rental of real property by contractors and subcontractors since the

term refers to the making or furnishing of any article which is construed to mean "any material * * or other personal property." (See § 1421.122(g) of this subchapter.)

(b) The exclusion discussed in this section governs agreements for existing real property, but does not apply to agreements for fixtures or for improvements to or construction of real property which are discussed in § 1423.335-2. § 1423.335-2 Agreements for fixtures, construction and improvements on real property.

(a) If an agreement is for work or articles which become real property in the course of its performance, as distinguished from existing real property, the principles stated in this section govern.

(b) If an agreement to sell, furnish or install machinery, equipment, materials or other personal property would otherwise constitute a renegotiable contract or subcontract, the fact that such property is to be installed in a building or otherwise affixed to real estate and will be treated as real property for some purposes does not exclude the agreement from renegotiation.

(c) If a contract for the construction of a building or improvements on or to real property is entered into by the Government under the authority of the Supplemental National Defense Appropriation Act, 1948 (or is otherwise made subject to renegotiation pursuant to section 401 of the Second Deficiency Appropriation Act, 1948, or by section 622 of the National Military Establishment Appropriation Act, 1950 or by section 618 of the General Appropriation Act, 1951), such contract is subject to renegotiation unless exempted. If a contract for the construction of a building or improvements on or to real property is entered into by someone other than the Government, such contract is nevertheless subject to renegotiation if, at the time such contract was made, the Government pursuant to a contract entered into under the authority of the Supplemental National Defense Appropriation Act, 1948, (or otherwise made subject to renegotiation pursuant to section 401 of the Second Deficiency Appropriation Act, 1948, or by section 622 of the National Military Establishment Appropriation Act, 1950 or by section 618 of the General Appropriation Act, 1951) is to obtain title to such building or improvements either immediately or ultimately. Likewise all

subcontracts under such a renegotiable contract, for furnishing services, or articles, such as building materials and structural steel, which are personal property when furnished, but which became real property during the course of construction, are renegotiable unless exempted, and so are subcontracts for furnishing any machinery and equipment installed in the building.

(d) If an agreement is for the construction of a building or improvement on or to real property for a contractor or subcontractor for the purpose of performing a renegotiable contract or subcontract and if the Government is not to acquire title to such building or improvements, either immediately or ultimately, pursuant to a contract entered into under the authority of the Supplemental National Defense Appropriation Act, 1948, (or a contract otherwise made subject to renegotiation pursuant to section 401 of the Second Deficiency Appropriation Act, 1948, or by section 622 of the National Military Establishment Appropriation Act, 1950 or by section 618 of the General Appropriation Act, 1951) then except as provided in paragraph (b) of this section, such agreement and subcontracts thereunder are not subject to renegotiation.

(e) If the subject matter of a subcontract comprises components which would ordinarily be regarded as machinery, equipment, materials or other personal property and also components such as buildings, structures or similar improvements to real estate then that part of the receipts or accruals under the subcontract attributable to the components determined by the renegotiating agency to be machinery, equipment, materials or other personal property will not be excluded from renegotiation, although no segregation of the consideration for such components is made in the subcontract, and although such machinery, equipment, materials or other personal property are to be installed in a building, structure or similar improvement to real estate or otherwise affixed to real estate. In making such a segregation, there will ordinarily be deemed attributable to machinery, equipment, materials or other personal property that part of the receipts or accruals under the subcontract allocable to the sale or installation of components used in processing within the meaning of § 1423.3333, and there will be deemed attributable to real property that part of the receipts

or accruals under the subcontract allocable to the sale or construction of land, buildings, structures and similar non-productive items.

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F. R. 169, Jan. 12, 1950, Amdt. 10, 15 F. R. 6987, Oct. 19, 1950]

§ 1423.336 Manufacturers' agents and dealers; subcontracts.

(a) Contracts between manufacturers and their representatives are subject to renegotiation as subcontracts if the representative is performing, or agrees to make available on request, engineering, mechanical, or other services related to the performance of one or more subject contracts or subcontracts. For example, manufacturers' agents in the machine tool industry customarily hold themselves ready to furnish engineering advice, mechanical service, and advice on training in the use of tools. By contract or custom the manufacturer usually pays the commissions of the agent whether or not these services are used, and charges the amount into the cost of the tool. These activities comprise part of the work required for the performance of a subject contract or subcontract.

(b) When a manufacturer's representative also acts as dealer his sales of articles under a subject contract or subcontract are subject to renegotiation whether the articles are delivered from his own inventory or shipped direct by the manufacturer.

Subpart D-Mandatory Exemptions and Exclusions from Renegotiation § 1423.340 Scope of subpart.

Subpart C of this part deals with the general interpretation of the coverage of the act and with the meaning of the terms "contract" and "subcontract". Subsection (d) of the act contains two provisions dealing with exemptions:

(a) Contracts and subcontracts of the class or type described in subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended, are exempt from renegotiation. Such exemptions, generally referred to as "mandatory exemptions", are described in this subpart.

(b) The Secretary, in his discretion, may exempt "any other contract or subcontract both individually and by general classes or types". Such exemptions, generally referred to as "permissive exemptions", are described in Subpart E of this part.

[14 F. R. 1635, Apr. 7, 1949, as amended at 14 F. R. 3080, June 8, 1949]

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