(i) The "historical ratio" is the average of the two highest ratios of IR&D (or B&P) costs to sales for each of the preceding three years.

(ii) The "average" is the average of the two highest annual cost amounts for IR&D (or B&P) as incurred for each of the preceding three years.

(3) At the discretion of the contracting officer, the reasonableness (allocability) of IR&D and B&P costs may be negotiated when the contractor can demonstrate that the formula would produce an inequitable cost recovery. Such negotiations may be “afterthe-fact" or prior to incurrence of the cost.

(4) Where no DOE advance negotiation is required to establish reasonableness, but an advance ceiling requirement for allowability of IR&D exists due to other Government agency regulations, and such an agreement has been executed by that activity for the current year, the agreement may be recognized as meeting the reasonableness criterion of paragraph (d)(2) of this section and application of the formula need not be made.

(i) IR&D and B&P Interchangeability. Due to the similarity of IR&D and B&P costs regarding concept and system studies and the development of engineering and production engineering data, the allowable IR&D for allocation and recovery may exceed the required ceiling, provided the B&P ceiling provision is reduced by the same amount. Notwithstanding this provision, the recoverable IR&D amounts are still governed by paragraph (f) of this section. B&P shall not exceed the required ceiling.

(j) Appeals. DOE contracting officer determinations of allocable and allowable IR&D and B&P costs, when efforts for advance agreements are unsuccessful, are subject to appeals. Such appeals shall be directed to the Senior Procurement Official, Headquarters, Department of Energy, within 30 days of receipt of the written determi

nation.

89-15.205-41 Taxes.

(d) The cost of taxes on accumulated funding deficiencies of, or prohibited transactions involving, employee deferred compensation plans pursuant to Section 4971 or Section 4975 of the Internal Revenue Code of 1954, as amended, respectively, is unallowable.

§ 9-15.205-60 (Reserved)

Subpart 9-15.3 Contracts with Educational Institutions

§9-15.307 Determination and application of indirect cost rate or rates.

(a) Overhead rates shall be determined by after-the-fact audit, except as provided in paragraph (b) of this section.

(b) Predetermined fixed overhead rates may be used in cost-type research and development contracts with educational institutions (Public Law 87-638). The use of such rates is permissive and not mandatory. (See OMB Circular A-21.) In determining whether or not predetermined fixed overhead rates should be used in a particular contract, consideration should be given to the degree of stability shown in overhead rates and their bases over a period of years. All anticipated changes in the contractor's volume and overhead shall be taken into consideration. In establishing such predetermined overhead rates, the following guidelines shall be used:

(1) The contractor, as soon as possible, but not later than three (3) months after the expiration of each fiscal year, shall submit to the Contracting Officer a proposed predetermined overhead rate or rates for use during the contract year based on the contractor's actual cost experience during the immediately preceding fiscal year, together with supporting cost data.

(2) Negotiation of predetermined fixed overhead rates shall be for a period of 1 year only and should generally be based on an audit of the institution's costs for the year immediately preceding the year in which the rate is being negotiated. If this is not possible, an earlier audit may be used, but appropriate steps should be taken to identify and evaluate significant variations in costs incurred or bases used which may have a bearing on the reasonableness of the rate proposed by the contractor. (Audits by other Government agencies may be utilized.) In the case of small contracts ($100,000 or less), an audit made at an earlier date is acceptable, provided (i) there have been no significant changes in the contractor's organization, and (ii) it is reasonbly apparent that having another audit made would result in little effect on the rate to be finally agreed upon.

(3) Predetermined overhead rates shall not be used for operating contracts (see Subpart 9-50.15).

(4) The use of predetermined fixed overhead rates in the following circumstances must have the approval of the Head of the Procuring Activity:

(i) Where DOE-owned facilities and equipment exceed $1,000,000;

(ii) Where estimated reimburseable costs for the contract are expected to exceed $1 million annually;

(iii) Where there has been no recent audit of the overhead; or

(iv) Where there have been frequent or wide fluctuations in overhead rates and their bases over a period of years.

OMB CONTROL No.: 1901-0021.

Subpart 9-15.50 Contract Cost Policies and Procedures

§9-15.5000 Scope of subpart.

(a) This subpart sets forth general policies and procedures to be used as guidance in determining allowable costs of cost type contracts, except for educational institutitions.

(b) This subpart also provides guidance for the evaluation of costs in negotiated fixed-price type contracts and subcontracts where costs incurred are a factor in determining the amount payable.

$9-15.5001 Definitions.

(a) "Cost-type contract" includes cost, cost sharing, cost plus-a-fixed-fee, cost plus award fee, and cost plus incentive fee contracts.

(b) "Cost-type subcontract" is a cost-type arrangement in any tier under a cost-type prime contract where all higher-tier arrangements are on a cost basis.

(c) "Construction contract" is a contract for the construction, alteration, or repair of public buildings and public works.

(d) "Architect-engineer contract" is a contract for architect-engineer services related to the construction, alteration, or repair of public buildings and public works.

(e) "Off-site architect-engineer contract" is a contract where the design work is performed in the contractor's central or branch office.

(f) "Supply contract" is a contract for supplies and services, other than operating, construction, onsite architect-engineer, experimental, developmental, or research work and personal services.

(g) "Research and development contract" is a contract for basic research (directed toward the increase of knowledge in science), applied research (involving the determination and expansion of the potentialities of new scientific discoveries or improvement in technology, materials, processes, methods, devices, and techniques including attempts to "advance the state of the art") or development (the systematic use of scientific knowledge which is directed toward the production of, or improvements in, useful products to meet specific performance. which is directed toward the production of, or improvements in, useful products to meet specific performance requirements, but exclusive of manufacturing and production engineering).

$9-15.5002 Responsibilities.

(a) The Senior Procurement Official, Headquarters, is responsible for developing and revising the policy and procedures for the determination of allowable costs, and for seeing that they are properly coordinated with the General Counsel, and other Headquarters offices having joint interests.

(b) The Head of the Procuring Activity is 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.

§9-15.5003 Deviations.

Deviations from the policy and principles set forth in this subpart shall not be made unless such action is authorized by the Senior Procurement Official, Headquarters, after consultation with the 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.

§9-15.5004 Advance understandings on particular cost items.

It is important that agreement between DOE and its contractors be reached in advance of the incurrence of costs in categories where reasonableness or allocability are difficult to determine in order to avoid possible subsequent disallowance or dispute. Any such agreement should be incorporated in cost-type contracts and should govern the cost treatment covered thereby. But the absence of such 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 are:

(a) Deferred maintenance costs;

(b) Precontract costs;

(c) Professional or technical consulting services;

(d) Reconversion costs;

(e) Research and development costs;

(f) Royalties;

(g) Selling and distribution costs;

(h) Unemployment insurance experience ratings;

(i) Employee compensation, travel including relocation costs, and other personnel costs. DOE generally utilizes two basic methods of achieving and recording understandings with contractors as to the allowability of employee compensation, travel, and other personnel costs: Negotiation of a personnel appendix to the contract which sets forth the policies, programs, and schedules which are accepted as the basis for determining the allowability of costs; or reviewing and reaching agreement on established policies, programs, and schedules (and any changes thereto during the contract term) applicable to the contractor's private operations which are acceptable for contract work and which will be consistently followed throughout the contractor's organization (See §9–15.5006–7). A personnel appendix to the contract setting forth advance understandings covering compensation for personal services shall be utilized in operating contracts (as defined in §9-50.001) and other contract situations when one or more of the following circumstances exist: When policies, programs, and schedules are established specifically for contract work; when the contractor's work is predominantly or exclusively made up of negotiated Government contract work; when contract work is so different from the organization's private work that existing established policies, programs, and schedules cannot reasonably be extended to and consistently applied on contract work; or, when established policies, programs, and schedules proposed for contract work are not sufficiently definitive to permit a clear advance mutual understanding of allowable costs and to provide a basis for audit. The head of the procuring activity is authorized to select the alternative method of achieving and recording advance understanding that they find most appropriate after considering the facts of the particular contract situation. Employee compensation, travel, and other personnel costs as used in this paragraph include:

(1) Compensation for personal services, including wages and salaries, bonuses and incentives, premium payments, pay for time not worked, and supplementary compensation and benefits, such as pension and retirement, group insurance, severance pay plans, and other forms of compensation;

(2) Morale, health, welfare, and food service and dormitory costs;

(3) Training and education costs; and

(4) Employee travel costs, including travel on official business, relocation of employees, foreign travel, travel of executive officers, and special or mass personnel movement.

89-15.5005 Direct and Indirect costs (See FPR 1-15.202 & 203)

§9-15.5006 Application of basic policies to particular situations

§9-15.5006-1 Overtime, shift, and holiday premiums.

(a) Overtime, shift, and holiday premiums are allowable only to the extent provided in the contract or approved by the Contracting ficer. The amount of such premiums charged to a DOE contract shall be equitable in relation to the amount of such costs charged to other work currently performed in the contractor's plant and the factors which necessitate this incurrence of the cost. When the necessity for overtime, shift, and holiday work arises from inadequacy of the contractor's plant or department to perform its total workload on a purely straighttime basis, inclusions in overhead for apportionment to all work of the plant or department, as the case may be, appears appropriate. When particular work, DOE or other, is being specially expedited to a point that its fair share of the contractor's purely straight-time efforts on a singleshift basis will not get the particular job completed within the time desired, direct charging of the related premiums appears appropriate.

(b) When premiums for overtime, shift, and holiday work are charged direct to the work concerned, if the operating overhead of the plant or related department is distributed on the basis of direct labor (cost or hours), the premiums should be excluded from the direct labor base for purposes of the overhead distribution. That is the direct labor base should be, as appropriate, direct labor straight-time costs or direct labor hours actually worked. While the premiums for authorized overtime, shift, and holiday work are acceptable as reimbursable costs, it is generally recognized that direct labor hours worked on an overtime, shift, or holiday basis should participate in indirect costs to the same extent as hours worked on a straight-time basis.

§9-15.5006-2 Outside technical and professional consultants.

Technical and professional consultants, as used here, refers to private individuals acting in their own behalf who make their services available on a fee or per diem basis. It does not refer to employees of firms acting in the firm's behalf whose services may be made available by the firm on, for example, a fixed rate basis. Consultant arrangements may permit bringing to contract work the services of outstanding specialists who would not be available on a full-time basis, or whose employment on a full-time basis would not be economically feasible. Costs of such outside consultant services are normally allowable: Provided, that, the services are essential to and will make a material contribution to the performance of contract work; the services may be performed more economically or more successfully by a consultant than by the contractor's regular personnel; the fee or per diem charged is reasonable; and when approved by the contracting officer. If the cost of such services is charged directly to the DOE contract, the cost of like items properly chargeable only to other work of the contractor must be eliminated from indirect costs allocable to the DOE contract.

§9-15.5006-3 Severance pay.

(a) Severance pay is a payment, in addition to regular salaries and wages but exclusive of payments for vested rights under pension plans, by an organization to personnel whose employment is terminated. Severance pay is allowable as a cost only to the extent that it is required by law, employer-employee agreement, or established policy that constitutes in effect an implied agreement on the contractor's part.

(b) Severance payments are divided into two categories as follows:

(1) Those due to normal, recurring turnover. The actual costs of such payments shall be regarded as expense applicable to the current fiscal year and equitably apportioned to the contractor's activities during that period. Accruals of such normal severance pay will be accept