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15-206 Notice of Intent to Disallow or Not Recognize Costs

(a) Purpose. The clause entitled "Notice of Intent to Disallow

or Not Recognize Costs" is a required clause for all cost-type contracts

and fixed price incentive contracts and contracts providing for price

redetermination (see 7-203.xx). A Notice of Intent to Disallow or Not Recognize Costs provides the basis under a contract for the contractor to appeal, prior to final settlement of costs of the contract, a determination of exception to costs either incurred or to be incurred. It thereby provides a vehicle for disputes to be settled in a more timely


(b) At any time during the performance of the contract, the cognizant contracting officer may issue a Notice of Intent to Disallow or Not Recognize Costs stating his intent to take exception to specific costs or portions thereof, under the contract. Usually, the decision to issue a Notice of Intent to Disallow or Not Recognize Costs results from activities performed through monitorship of contractors' indirect cost (see Section XX, Part 10), or on advice of auditors or technical personnel. Also, the decision to issue & Notice of Intent to Disallow or Not Recognize Costs

shall only be made after oral discussion between the contracting officer

and the contractor. The notice should be specific as to the type of cost

to which exception is taken, the amount of such exception (if applicable), reasons for exception, applicable time period of the exception, and should reference the Notice of Intent to Disallow or Not Recognize Costs clause

of the contract. When such notification involves elements of indirect

costs, the approval of the contracting officer having authority for. final settlement of overhead shall be obtained prior to issuance of the notice except that a Corporate Administrative Contracting Officer (CACO) need not obtain the approval of local cognizant ACOs for items of corporate expense. When the Notice of Intent to Disallow or Not Recognize Costs 18 issued, the originating contracting officer (CACO or ACO) will distribute information copies to all administrative contracting officers cognizant of that corporation. The notice will allow the contractor sixty days in which to contest the exception in writing and provide justification why the proposed expenditure is justifiable and reasonable. The ACO will then consider the contractor's position and shall within sixty days either modify his original position or issue a decision under the Disputes clause of the contract. When elements of indirect cost are involved, such decision will be rendered by the contracting officer with authority for final overhead settlement (see 3-700). A contractor shall not be paid for indirect costs upon which the ACO has served such notice until the final question has been resolved.

(c) As a minimum the Notice of Intent to Disallow or Not Recognize Costs should contain the following information:

(1) contractor identification;
(11) contract(s) affected;
(iii) description of cost(8) exception(s);
(1v) estimated dollar value by Item;
(v) reason(s) for the exception;
(vi) applicable time period(s) involved;

· (vil) impact on billing rates and FPRAS;

(viii) effective date of notice; (ix) provision for acknowledgement of receipt; (x) date when formal reply must be received; and (xi) recipients of copies of notice.

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I am pleased to provide answers to the eight questions attached to your letter of October 7th. With regard to the information for the record requested in the body of your cover letter concerning our plans for the sale of government-owned plants and the termination settlement of the B-70 program, please be advised that this was provided on October 14th with our return of the corrected transcript of the Joint Committee on Defense Production hearings. As indicated in the information provided for the record on the B-70 question, program files have been retired. In order to: respond to the additional requirements of Question 2 in your cover letter the Air Force will have to withdraw the B-70 files from storage. The Air Force estimates that the search of the files for the requested information will require 45 to 60 days.

The answer to Question 3 in your cover letter, pertaining to the Defense Department's activities with respect to Title III of the Defense Production Act, is appended to the answers to the eight questions previously mentioned.

Thank you again for the opportunity to appear before the Joint Committee to discuss how the Department of Defense procurement policies affect the industrial base of the United States. I look forward to the continuation of the advice and support of you and your Committee members and staff under the Banking Committee.

Dale W. Churches,
Deputy Dirucior (Acquisition Policy)

Joint Committee on Defense

Subject: DoD Procurement Practices
Hearing Transcript, September 30, 1977
Supplemental Question

1. Senator Proxmire: What are the seven plants which are currently under

negotiation to be sold?

Mr. Church: The seven plants where negotiations are being conducted with the using contractors are:

Air Force Plant #3 - McDonnell Douglas Corp., Tulsa, OK

Air Force Plant #13 - Boeing, Wichita, KA
Air Force Plant 128 - General Electric Co., Everett, MA
Air Force Plant #29 - General Electric Co., Lynn, MA
Air Force Plant #36 - General Electric Co., Evandale, Ohio
Air Force Plant #65 - Teledyae, CAE, Neosho, MD
cct Aerospace Corp (Marquardt) Van Nuys, Calif.

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