PART 15

CONTRACT COST PRINCIPLES AND PROCEDURES

Subpart 1-Applicability

15.000 Scope of Part. This Part contains general cost principles and procedures for the pricing of contracts and contract modifications whenever cost analysis is performed (see 3.807-2), and for the determination, negotiation, or allowance of costs when such action is required by a contract clause.

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.

15.102 Negotiated Supply, Service, Experimental, Developmental, and Research Contracts, and Contract Changes With Commercial Organizations. This category includes all contracts and contract modifications for supplies, services, or experimental, developmental, or research work negotiated on the basis of cost with organizations other than educational institutions (see 15.103) and State and local governments (see 15.108). It does not include facilities contracts (see 15.105) and construction contracts (see 15.104). The cost principles and procedures set forth in Subpart 2 of this Part shall be used in the pricing of negotiated supply, service, experimental, developmental, and research contracts and contract modifications with commercial organizations whenever cost analysis is to be performed pursuant to 3.807-2. In addition, the cost principles and procedures set forth in Subpart 2 of this Part shall be incorporated by reference in such contracts as the basis

(i) for determination of reimbursable costs under cost-reimbursement type contracts (3.405) including cost-reimbursement type subcontracts thereunder, and the cost-reimbursement portion of time and materials contracts (3.406-1) except in such contracts where material is priced on a basis other than at cost in accordance with 3.406-1(d);

(ii) for the negotiation of overhead rates (Part 3, Subpart 7);

(iii) for claiming, negotiating, or determining costs under terminated fixed-price and costreimbursement type contracts (8.204 and 8.214);

(iv) for the price revision of fixed-price incentive contracts (3.404-4);

(v) for price redetermination of prospective and retroactive price redetermination contracts (3.404-5 and 3.404-6); and

(vi) for pricing changes and other contract modifications (see 7.103-54).

15.103 Contracts With Educational Institutions. This category includes all contracts for experimental, developmental, or research work with educational institutions. The cost principles and procedures set forth in Subpart 3 of this Part shall be incorporated by reference in costreimbursement research contracts with educational institutions as the basis:

(i) for determination of reimbursable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder;

(ii) for the negotiation of overhead rates (Part 3, Subpart 7);

(iii) for the determination of costs of terminated cost-reimbursement type contracts where the contractor elects to "voucher out" his costs (Part 8, Subpart 4) and for settlement of such contracts by determination (8.210-7).

In addition, Subpart 3 is to be used in determining the allowable costs of research and development performed by educational institutions under grants as a guide in the evaluation of costs in connection with the negotiation of fixed-price type contracts and termination settlements.

15.104 Construction Contracts. 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 architect-engineer services related to such construction. It does not include contracts for vessels, aircraft, or other kinds of personal property. The cost principles and procedures set forth in Subpart 4 of this Part shall be used in the pricing of negotiated construction contracts and contract modifications with concerns other than educational institutions whenever cost analysis is to be performed pursuant to 3.807-2. In addition, the cost principles and procedures set NASA PROCUREMENT REGULATION

15.104

CONTRACT COST PRINCIPLES AND PROCEDURES

forth in Subpart 4 of this Part shall be incorporated by reference in cost-reimbursement and fixed-price type construction contracts as the basis

(i) for determination of reimbursable costs under cost-reimbursement type contracts, including cost-reimbursement type subcontracts thereunder (3.405);

(ii) for the negotiation of overhead rates (Part 3, Subpart 7);

(iii) for claiming, negotiating, or determining costs under terminated fixed-price and costreimbursement type contracts (8.204 and 8.214);

(iv) for the price revision of fixed-price incentive contracts (3.404-4); and

(v) for pricing changes and other contract modifications (7.103–54).

15.105 Facilities Contracts. Subpart 5 of this Part 15 contains principles and procedures for the evaluation and determination of costs under facilities contracts and subcontracts thereunder (13.111). Such principles and procedures shall be incorporated by reference in facility contracts as the basis

(i) for determination of reimbursable costs under facilities contracts including cost-reimbursement type subcontracts thereunder;

(ii) for the negotiation of overhead rates (Part 3, Subpart 7); and

(iii) for the determination of costs of terminated facilities contracts where the contractor elects to "voucher out” his cost (Part 8, Subpart 4), and for settlement of such contracts by determination (8.210-7).

15.106 Fixed-Price Type Contracts. This Part shall be used in the pricing of fixed-price type contracts and contract modifications whenever cost analysis is performed. It also will be used whenever a fixed-price type contract clause requires the determination or negotiation of costs. However, application of these cost principles to fixed-price type contracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of these cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered. 15.107 Advance Agreements on Particular Cost Items.

(a) The extent of allowability of the selected items of cost covered in Subparts 2 through 5 has been stated to apply broadly to many accounting systems in varying contract situations. Thus, as to any given contract, the reasonableness and allocability of certain items of cost may be difficult to determine, particularly in connection with firms or separate divisions thereof which may not be subject to effective competitive restraints. In order to avoid possible subsequent disallowance or dispute based on unreasonableness or nonallocability, it is desirable that contractors seek advance agreement with the Government as to the treatment to be accorded those special or unusual costs. Such agreements may also be initiated by the Government. Advance agreements may be negotiated either before or during a contract but should be negotiated before incurrence of the cost covered by the agreement. Any such agreement must be in writing, shall be executed by both contracting parties, and shall be incorporated in the present and future contracts to which it is applicable.

(b) The contracting officer is not authorized by this paragraph to agree to a treatment of costs inconsistent with Subparts 2 through 5. For example, an advance agreement may not provide that, notwithstanding 15.205-17, interest shall be allowable.

(c) An advance agreement entered into in accordance with this paragraph shall contain a suitable statement of its intended applicability and duration. The absence of an advance agreement on any element of cost will not, in itself, affect the reasonableness or allocability of that element.

(d) Advance agreements may be negotiated to affect only a single contract, a group of contracts, or may be broad enough to affect all the contracts of a procurement office, all NASA procurement offices, or of another Government agency. An advance agreement which affects only one contract, or class of contracts from a single procurement office, shall be negotiated by the contracting officer or his authorized representative.

(e) Advance agreements, other than those negotiated by the contracting officer in accordance with (d) above, shall be negotiated by the Office of Procurement, NASA Headquarters (Code HC-1), or such other office as may be designated by the Office of Procurement, NASA Headquarters.

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APPLICABILITY

(f) Prior to undertaking negotiation of an advance agreement under (e) above, the Office of Procurement, NASA Headquarters or its designee shall (i) determine whether there are other NASA installations or Government agencies that have a significant unliquidated dollar balance in contracts with the same contractor, (ii) inform any such Government agency of the cost item(s) or other matters to be negotiated, and (iii) invite the Government agency to participate in prenegotiation discussions, or in the subsequent negotiations as appropriate. The results of the negotiation will be binding upon all NASA procurement offices. At the completion of the negotiation, the Office of Procurement, NASA Headquarters or its designee will prepare and distribute copies of the fully executed agreement to all NASA procurement offices and other Government agencies affected by the negotiation.

(g) Examples of cost on which advance agreements may be particularly important are:

(i) compensation for personal services including but not limited to allowances for off-site pay, incentive pay, location allowances, hardship pay and cost of living differential;

(ii) use charge for fully depreciated assets;

(iii) deferred maintenance costs;

(iv) precontract costs;

(v) independent research and development costs;

(vi) royalties;

(vii) selling and distribution costs;

(viii) travel costs, as related to special or mass personnel movements;

(ix) idle facilities and idle capacity;

(x) automatic data processing equipment;

(xi) bid and proposal costs; and

(xii) severance pay to employees on support service contracts.

15.108 Grants and Contracts With State and Local Governments. Subpart 7 of this Part provides principles and standards for determining costs applicable to grants and contracts with State and local governments. They are designed to provide the basis for a uniform approach to the problem of determining costs and to promote efficiency and better relationships between grantees and the Government. These cost principles apply to all programs that involve grants and contracts with State and local governments. They do not apply to grants and contracts with:

(i) publicly financed educational institutions subject to Subpart 3 of this Part; or

(ii) publicly owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Government agencies. Any other exceptions will be approved by the Office of Management and Budget in particular cases when adequate justification is presented. 15.109 Definitions. As used in this Part 15 (except for Subpart 3), the words and phrases defined in this paragraph shall have the meanings set forth below.

(a) Profit Center. The smallest organizationally independent segment of a company which has been charged by management with profit and loss responsibilities.

(b) Accumulating Costs. The collecting of cost data in an organized manner, such as through a system of accounts.

(c) Actual Costs. Amounts determined on the basis of costs incurred, as distinguished from forecasted costs. Includes standard costs properly adjusted for applicable variances.

(d) Allocate. To assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool.

(e) Cost Objective. A function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc.

(f) Direct Cost. Any cost which is identified specifically with a particular final cost objective. Direct costs are not limited to items which are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract. All costs identified specifically with other final cost objectives of the contractor are direct costs of those cost objectives.

(g) Estimating Costs. The process of forecasting a future result in terms of cost, based upon information available at the time.

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CONTRACT COST PRINCIPLES AND PROCEDURES

(h) Final Cost Objective. A cost objective which has allocated to it both direct and indirect costs, and, in the contractor's accumulation system, is one of the final accumulation points. (i) Indirect Cost. Any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective.

(j) Indirect Cost Pools. Groupings of incurred costs identified with two or more cost objectives but not identified specifically with any final cost objective.

(k) Pricing. The process of establishing the amount or amounts to be paid in return for goods or services.

(1) Proposal. Any offer or other submission used as a basis for pricing a contract, contract modification, or termination settlement, or for securing payments thereunder.

(m) Reporting Costs. Provision of cost information to others. The reporting of costs involves selecting relevant cost data and presenting it in an intelligible manner for use by the recipient.

15.109

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Subpart 2-Contracts With Commercial Organizations

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 (i) reasonableness, (ii) allocability, (iii) standards promulgated by the Cost Accounting Standards Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the particular circumstances, and (iv) any limitations or exclusions set forth in this Subpart 2, or otherwise included in the contract as to types or amounts of cost items. When a contractor has disclosed his accounting practices in accordance with Cost Accounting Standards Board Rules, Regulations, and Standards and any such practices are inconsistent with any of the provisions of this Subpart 2, costs resulting from such inconsistent practices shall not be allowed in excess of the amount that Would have resulted from the use of practices consistent with this Subpart 2.

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 involving both the nature and amount of the cost in question. In determining the reasonableness of a given cost, consideration shall be given

to

(1) 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;

(ii) 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;

(iii) the action that a prudent businessman 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

of

(iv) significant deviations from the established practices the contractor which may unjustifiably. increase the

contract costs.

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15.201-3