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Part 4-Construction and Architect-Engineer Contracts

15-400 Scope of Part. This Part prescribes general principles and procedures for the evaluation and determination of costs in connection with contracts and subcontracts for construction and architect-engineer services related to construction. The applicability of this Part to cost reimbursement and fixed price type contracts is set forth in 15-104 of this Section. In addition, because of the unique nature of certain aspects of construction contracts, guidance is provided with respect to some elements of cost wherein the basis for determination of cost under cost reimbursement type contracts differs from that used for evaluation of cost under fixed price type contracts.

15-401 Basic Considerations.

15-401.1 Applicable Cost Principles. Except as otherwise provided in this Part 4, because of the specialized nature of construction and architect-engineer contracts, the allowability of costs shall be determined in accordance with Part 2 of this Section, except to the extent that the provisions of that Part are clearly inappropriate to such contracts.

15-401.2 Special Factors Affecting the Allowability of Costs. The scope of the work required may vary from routine projects of short duration to be performed within the contractor's home office locality to the erection of complex military installations at remote overseas locations over a period of several years. Climate and terrain may vary greatly among construction sites. All of these factors involving the nature, size, duration and location of a construction project generally affect the basic determination of the Government as to the type of contract to be awarded and the operating practices, techniques and procedures employed by the contractor, particularly with respect to the incurrence of the selected costs set forth in 15-402.1 and 15-402.3. Advance understandings as set forth in 15-107, for such items as home office overhead, partner's compensation, employment of consultants, and equipment usage, are particularly important in construction and architect-engineer contracts in order to assure complete understanding of the parties and avoid possible subsequent disputes or disallowances.

15-402 Selected Costs.

15-402.1 Construction Plant and Equipment.

(a) The widely varying conditions of climate, terrain, etc. applicable to individual Government construction projects make it impracticable to determine accurately the actual costs of depreciation of construction plant and equipment used on individual contracts. In addition, in certain cases it may be extremely difficult to determine or allocate accurately the cost of overhaul or repairs applicable in an individual contract since the period of incidence of such cost may not correspond with the period of benefit derived therefrom. Therefore, predetermined rates covering depreciation, and where appropriate overhaul and repair costs, shall be used to provide equitable average compensation to contractors for the use of construction plant and equipment under Government contracts. The rate schedule referred to in subparagraph (c), published by the Associated General Contractors of America, Inc., is generally appropriate to the types of construction projects awarded under fixed price type contracts. Accordingly, unless the contract specifically provides to the contrary, usage costs for construction




plant and equipment under cost reimbursement type contracts and fixed price type contracts shall be determined as provided in subparagraphs (b) and (c), respectively.

(b) Allowable costs for construction plant and equipment in sound workable condition owned or controlled and furnished by a contractor or subcontractor with the approval of the contracting officer for use under cost reimbursement type contracts shall be the subject of an advance understanding as set forth in 15-107 with respect to (i) depreciation, overhead and profit, and (ii) the costs incident to major, minor and running repairs, complete and thorough overhaul, and, loss or destruction of equipment.

(c) Evaluation of costs for the use of construction plant and equipment, in sound and workable condition, which are owned or controlled by a contractor or subcontractor and are furnished or the proper and economical performance of a fixed-price type contract shall be based upon the "Contractors' Equipment Ownership Expense Schedule" Sixth Edition, 1966, published by the Associated General Contractors of America, Inc. This represents a percentage of acquisition cost per working month or fraction thereof for the period of time the equipment is required for the job. If the equipment has already exceeded the assigned service life indicated by the percentage used for depreciation, one year shall be added to the actual age of the equipment and the depreciation percentage shall be revised accordingly. The allowance for equipment ownership expense, computed as provided herein shall be considered to include all costs of depreciation, major repairs and overhaul, and overhead applicable to the equipment. Accordingly, there shall be eliminated from all direct and indirect charges under the contract all costs applicable to items of equipment which are included in the allowance for ownership expense. In considering total costs under any contract, no allowance for overhead shall be applied to the allowance for equipment ownership expense. Since costs incident to maintenance and minor and running repairs are not reflected in the ownership Schedule, separate allowance shall be made therefor. In periods of suspension of work for the convenience of the Government under an appropriate contract clause, the allowance for equipment ownership expense shall not exceed 50% of the amount computed as herein indicated. Notwithstanding any sale and leaseback, or the acquisition of construction plant and equipment by individuals, firms, corporations, or trusts, other than the contractor, and the leasing or rental of such construction plant and equipment to the contractor, the amount to be considered as a cost covering the use of such equipment shall not exceed the allowance for ownership expenses computed as indicated herein. Under certain circumstances, because of the long duration, special nature, or location of the work, it may be more economical to charge the net cost of items of construction plant and equipment directly against a contract in lieu of use of the ownership Schedule. In such cases, where the contract, record of negotiations, or attendant circumstances indicate that particular items of construction plant and equipment were purchased for use solely under a specific contract, the cost of such items, less their proper resale or salvage value, may be charged to the contract as a direct charge, together with costs of repairs, overhaul, and maintenance incident thereto.




15-402.2 Construction Plant and Equipment Rented From Others. Costs incurred in connection with rental of construction plant and equipment from others (not under sale and leaseback arrangements) are allowable. Under cost-reimbursement type contracts, rental arrangements are subject to approval by the contracting officer. Costs, such as maintenance and minor or running repairs incident to the operation of such rented equipment, that are not included in the rental rate are allowable. Costs incident to major repair and overhaul are not allowable.

15-402.3 Home Office Expense. The extent to which a contractor utilizes his home office or central office organization for the performance of general, administrative and management functions applicable to individual Government construction contracts is dependent upon the geographical location of the job site in relation to the contractor's home office, the magnitude and duration of the project and other similar factors. Under the types of construction projects awarded on a cost-reimbursement type contract basis, most general, administrative, management and other indirect cost functions are usually performed at the job site rather than at the contractor's home or central office. Other minor or incidental services otherwise provided are considered to be compensated for in the fixed fee. Accordingly, expenses incurred in the contractor's central or home office, including compensation and traveling expenses of officers and central office employees, are not allowable under cost-reimbursement type contracts except to the extent authorized by the contract or approved by the contracting officer. Under fixed-price type construction contracts which are performed at least in part through the use of the contractor's central office organization, the costs incurred by the contractor's central office are acceptable to the extent that they are allocable and reasonable in relation to the contract, and provided they do not exceed any limitations of cost stated in the contract or an advance understanding.

15-402.4 Job Site Expenses. Costs incurred at the job site incident to the performance of the work, such as the cost of superintendence, time-keeping and clerical work, engineering, utility costs, supplies, material handling, restoration and cleanup, etc., are allowable as a direct charge.

15-402.5 Temporary Use of Land, Structures and Facilities.

(a) Rental and any other costs, less any applicable credits, incurred in acquiring the temporary use of land, structures and facilities are allowable.

(b) Costs, less any applicable credits, incurred in the construction or fabrication of structures and facilities of a temporary nature are allowable.




Part 5-Contracts for Industrial Facilities

15-501 Applicable Cost Principles. Except as otherwise provided in this Part, the allowability of cost will be determined in accordance with Part 2, 3, or 4 of this Section XV, as appropriate.

15-502 Factors Affecting Allowability of Costs. A contractor's established accounting system and procedures are normally directed to the equitable allocation of costs to the types of products which he produces or services which he renders in the course of his normal operating activities. The acquisition of, or work on, facilities for the Government normally does not involve the manufacturing processes, plant departmental operations, cost patterns of work, administrative and managerial control, or clerical effort usual to production of the contractor's normal products or services. These operating and administrative differences affect the equitable allocation of indirect costs to facility contracts and make it desirable that advance understandings, as provided in 15-107, be agreed to between the contractor and the contracting Officer as to such indirect cost items to be applied to the facilities acquisition. A contractor's normal accounting practice for allocating indirect costs to the acquisition of his own facilities may range from charging all such costs to this acquisition to not charging any such costs thereto. Where necessary to produce an equitable result, the contractor's usual method of allocating indirect cost will be varied and appropriate adjustment will be made to the pools of indirect cost and the bases of their distribution.

15-503 Allocation of Indirect Manufacturing and Plant Operational Cost. (a) Facilities contract operations may involve:

(i) the purchase of facilities, or services in connection therewith, on a completed basis from outside source;

(ii) the purchase of completed facilities from outside sources, installation

to be accomplished by the contractor's own employees;

(iii) rehabilitation of existing facilities by the contractor's own em

ployees; or

(iv) construction or manufacture of facilities by the contractor from purchased components.

Guidelines for the allocation of indirect costs in these particular circumstances are set forth in (b) through (d) below.

(b) The purchase of facilities, or services in connection therewith, from outside sources on a completed basis does not involve the contractor's direct labor or indirect plant maintenance personnel. Accordingly, indirect manufacturing and plant overhead costs, which are primarily incurred or generated by reason of direct labor or maintenance labor operations, are not allocable to the acquisition of such facilities.

(c) Contracts providing for the installation of new facilities or the rehabilitation of existing facilities may involve the use of the contractor's plant maintenance labor, as distinguished from direct labor engaged in the production of the company's normal products. In such instances, only those types of indirect manufacturing and plant operating costs that are related to or incurred by reason of the expenditure of the classes of labor utilized for the performance of the facilities work may be allocated to the facilities work. Thus, a facilities contract which in




volves the use of plant maintenance labor only would not be subject to an allocation of such cost items as direct productive labor supervision, depreciation and maintenance expense applicable to productive machinery and equipment, or raw material and finished goods storage costs.

(d) Where a facilities contract calls for the construction, production, or rehabilitation of equipment or other items which are involved in the regular course of the contractor's business by the use of the contractor's direct labor and manufacturing processes, the indirect costs normally allocated to all such work may be allocated to the facilities contract.

15-504 Reserved.

15-505 Contractor's Commercial Products. If facilities which constitute the contractor's usual commercial products (or only minor modifications thereof) are acquired by the Government under the contract, the Government shall not pay any amount in excess of the contractor's most favored customer price or the price of other suppliers for like quantities of the same or substantially the same items, whichever is lower.




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