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$9-15.5010-5 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 officer. The amount of such premiums charged to an ERDA 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 straight-time basis, inclusions in overhead for apportionment to all work of the plant or department, as the case may be, appears appropriate. When particular work, ERDA or other, is being specially expedited to a point that its fair share of the contractor's purely straight-time efforts on a single-shift 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 straighttime 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.

$9-15.5010-6

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 (however, see $9-50.704-13(e) (26); 9-50.704-14(e) (24); 9-50,704-15(b); and 9-50.704-16(e) (22) of this chapter regarding compensation of an individual who is employed by another contractor and concurrently performing work on a full-time annual basis under an ERDA cost-type contract): 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 ERDA contract, the cost of like items properly chargeable only to other work of the contractor must be eliminated from indirect costs allocable to the ERDA contract (see $9-15.5009-1).

$9-15.5010-7 Preparatory and make-ready costs.

Since indirect costs are usually apportioned to individual jobs wholly or substantially on the basis of the direct labor applied to the particular job, a contract will absorb no overhead by apportionment prior to the inception of the actual performance of direct work on the contract. The effort of the contractor's overhead organization in preparing for one job and in getting it underway will thus be absorbed by jobs previously commenced and still being performed; later the job which in its initial stages of preparation and make-ready was relieved of expenses that were actually applicable to it will partially absorb, through their apportionment as overhead, similar costs equally applicable in fact to other, subsequently undertaken jobs. This procedure is in accordance with generally accepted accounting practices and normally is reasonably equitable in its results. The initial advantages and subsequent disadvantages to the individual contract that result from consistent application of the procedure tend to offset each other and balance out. It is quite appropriate, however, to employ the direct charge method in connection with overhead costs in preparing for actual performance by segregating such preparatory and make-ready costs and identifying them specifically with the contract to which the effort actually pertains. However, if preparatory and make-ready costs are charged direct to an ERDA contract, care must be taken, as performance of the ERDA contract work proceeds toward completion, to segregate subsequent indirect expenses similarly applicable to the preparation for and commencement of other jobs and to account for them as direct charges to these other jobs.

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(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 acceptable in lieu of actual severance pay if the accruals are reasonable in the light of payments actually made due to normal severance over a representative past period.

(2) Those due to abnormal or mass terminations resulting from abrupt cessation of substantial work and inability of remaining work to afford continuing employment at the same level. The actual costs of such severance payments shall be regarded as expense applicable to the approximate average of the entire periods of employment of the terminated employees and equitably apportioned to the contractor's activities during such average period. (Accruals of such abnormal or mass severance pay are not allowable in view of its conjectural nature.)

(c) It will usually be acceptable to apportion severance payments on the basis of the ratio of total severance payments to a suitable base for the period established pursuant to paragraph (b)(1) or (2) of this section, such as payrolls of all employees, direct salaries and wages, etc. The rate so determined shall be applied to the corresponding element of cost on the individual contracts. The rate should be determined on the basis of the operations of individual activities or other organizational units, such as departments, where such separate computations effect more accurate and equitable results. Severance pay should ordinarily not be considered as directly applicable to any particular contract or contracts. The foregoing applies to cost-type supply and research contracts with commercial organizations.

(d) Subject to paragraph (a) of this section, the following standards apply in determining allowability of costs for severance pay plans of operating contractors:

(1) Payments should be made only upon involuntary termination by reduction in force (RIF) of an employee which results in a permanent separation from the employment of the contractor. However, payments may also be made upon voluntary separation of an employee within a RIF grouping but not otherwise scheduled for termination which thereby eliminates the need for terminating another employee involuntarily.

(2) Payments should not be provided for in the event of (i) temporary layoffs, (ii) employment with a replacement contractor (employer) where continuity of employment with credit for prior length of service is preserved under substantially equal conditions of employment, (iii) early or normal retirement, or (iv) continued

employment by the contractor at another facility, subsidiary, affiliate, or parent company of the contractor.

(e) The subject of severance pay with reference to educational institutions is discussed in FPR 1-15.309-36.

$9-15.5010-9 Precontract costs.

Precontract costs are those incurred prior to the effective date of the contract directly pursuant to the negotiation and in anticipation of the award of the contract where such incurrence is necessary to comply with the proposed contract delivery schedule. Such costs are allowable to the extent that they would have been allowable if incurred after the date of the contract. They do not include costs of preparing bids or of participation in the negotiation. The allowability of precontract costs is dependent upon appropriate coverage in the contract.

$9-15.5010-10 Plant reconversion costs.

Plant reconversion costs are those incurred in the restoration or rehabilitation of the contractor's facilities to approximately the same condition existing immediately prior to the commencement of the contract work, fair wear and tear excepted.

$9-15.5010-11 Depreciation.

(a) Depreciation is allowable subject to the following:

(1) The charge represents normal depreciation on a contractor's plant, and equipment.

(2) The charge to current operations is a distribution of the cost of acquisition of a tangible capital asset, less estimated residual value, over the estimated useful life of the asset in a systematic and logical manner.

(3) Any generally accepted accounting method consistently. applied to the assets concerned having the approval of the Internal Revenue Service for Federal income tax purposes, if subject to the Internal Revenue Code of 1954, as amended, may be used including:

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(ii) The declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in subdivision (i) of this subparagraph;

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(iv) Any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the use of the property and including the current year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in subdivision (ii) of this subparagraph.

(4) If a nonprofit or tax exempt organization, the method shall be such that it could have had the approval of the Internal Revenue Service had the organization been subject to the Internal Revenue Code of 1954, as amended.

(5) The contractor must use the same approved method of depreciation for costing his contract work as for costing his other work at the same facility.

(6) The method of depreciation shall produce equitable and reasonable results.

(b) Depreciation of the following is unallowable:

(1) Idle or excess facilities (machinery and equipment) other than reasonable standby facilities;

(2) Assets fully amortized or depreciated on the contractor's

books;

(3) Unrealized appreciation of values of assets;

(4) Accelerated amortization under Certificates of Necessity or other system in excess of normal depreciation as computed under paragraph (a) of this section.

(c) In entering into contracts involving the use of "special facilities" under section 161 of the Atomic Energy Act of 1954 as amended (section 7 of Public Law 85-681 approved Aug. 19, 1958), the percentage of the total cost of such special facilities devoted to contract performance and chargeable to the ERDA should not exceed the ratio between the period of contract deliveries and the anticipated useful life of such facilities.

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