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Part 1452 Prime Contracts and Subcontracts

Within the Scope of the Act

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Sec.

the Government exercising fuctions having a direct 1452.1 General coverage of the act.

and immediate connection with the national defense 1452.2 Application of the act to prime contracts.

which is designated by the President during a national 1452.3 Application of the act to subcontracts.

emergency proclaimed by the President, or declared by 1452.4 Subcontracts to perform work or furnish

the Congress, after the date of the enactment of the materials.

Renegotiation Amendments Act of 1956; but such 1452.5 Real property.

designation shall cease to be in effect on the last day 1452.6 Patent licenses.

of the month during which such national emergency is 1452.7 Brokers, manufacturers' agents and dealers.

terminated. 1452.8 Effect of renegotiation clause.

(iii) Section 102(c) of the act, as amended, AUTHORITY : Sections 1452.1 to 1452.8 issued under

provides as follows:
sec. 109, Pub. Law 9, 82d Cong. Interpret or apply
sections 102 to 104, Pub. Law 9, 82d Cong.

(c) Termination_(1) In general.—The provisions

of this title shall apply only with respect to receipts 1452.1 General coverage of the act.-(a)

and accruals, under contracts with the Departments Coverage through December 31, 1956-Re

and related subcontracts, which are determined under moved to Appendix.

regulations prescribed by the Board to be reasonably

attributable to performance prior to the close of the (b) Coverage after December 31, 1956—(1)

termination date. Notwithstanding the method of Statutory provisions.-(i) Section 102(a) of

accounting employed by the contractor or subcontracthe act, as amended by Pub. Law 870, 84th tor in keeping his records, receipts or accruals deter

mined to be so attributable, even if received or Cong., approved August 1, 1956, effective De

accrued after the termination date, shall be considered cember 31, 1956, provides as follows:

as having been received or accrued not later than the In general.The provisions of this title shall be ap termination date. For the purposes of this title, the plicable (1) to all contracts with the Departments term “termination date” means June 30, 1968. specifically named in section 103(a), and related sub (2) Termination of status as Department.When contracts, to the extent of the amounts received or the status of any agency of the Government as a accrued by a contractor or subcontrator on or after Department within the meaning of section 103(a) is the first day of January 1951, whether such contracts terminated, the provisions of this title shall apply only or subcontracts were made on, before, or after such with respect to receipts and accruals, under contracts first day, and (2) to all contracts with the Depart with such agency and related subcontracts, which are ments designated by the President under section 103 determined under regulations prescribed by the Board (a), and related subcontracts, to the extent of the to be reasonably attributable to performance prior to amounts received or accrued by a contractor or sub the close of the status termination date. Notwithcontractor on or after the first day of the first month standing the method of accounting employed by the beginning after the date of such designation whether contractor or subcontractor in keeping his records, resuch contracts or subcontracts were made on, before, ceipts or accruals determined to be so attributable, or after such first day.

even if received or accrued after the status termina(ii) Section 103(a) of the act, as amended,

tion date, shall be considered as having been received

or accrued not later than the status termination date. provides as follows:

For the purposes of this paragraph, the term “status DepartmentThe term “Department” means the De

termination date” means, with respect to any agency, partment of Defense, the Department of the Army, the

the date on which the status of such agency as a Department of the Navy, the Department of the Air Department within the meaning of section 103(a) is Force, the Maritime Administration, the Federal Mari

terminated. time Board, the General Services Administration, the

1452.2 Application of the act to prime conNational Aeronautics and Space Administration, the Federal Aviation Agency, and the Atomic Energy Com

tracts.-Except as exempted pursuant to secmission. Such term also includes any other agency of tion 106 of the act (see Parts 1453, 1454, and

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1455 of this subchapter), and except as set forth in § 1457.3 of this subchapter, all contracts with the following Departments are subject to renegotiation under the act to the extent of amounts received or accrued on or after the applicable

date, indicated below, and attributable to performance before the close of the termination date of the act or the status termination date indicated below (see section 102(c) of the act):

Department

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Department of Defense.
Department of the Army-
Department of the Navy-
Department of the Air Force-
General Services Administration.
Atomic Energy Commission.
Department of Commerce...
Reconstruction Finance Corporation.
Canal Zone Government.
Panama Canal Company -
Housing and Home Finance Agency
Federal Civil Defense Administration..
National Advisory Committee for Aeronautics.
Tennessee Valley Authority -
United States Coast Guard..
Defense Materials Procurement Agency -
Bureau of Mines..
(United States) Geological Survey -
Bonneville Power Administration..
Bureau of Reclamation..
Federal Facilities Corporation...
National Aeronautics and Space Administration ?
Federal Aviation Agency --

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| Except Maritime Administration and Federal Maritime Board.

? Added by Pub. Law 85-930, 85th Cong., approved September 6, 1958, by amendment made applicable with respect to contracts entered into by the National Aeronautics and Space Administration and to contracts

transferred to such Administration from a Department under section 301
or section 302 of the National Aeronautics and Space Act of 1958, and to
related subcontracts.

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1452.3 Application of the act to subcontracts.-Sections 1452.4 to 1452.7 state when contracts, agreements or purchase orders constitute "subcontracts” within the meaning of section 103(g) of the act. Excepting those subcontracts which are exempted from renegotiation pursuant to section 106 of the act (see Parts 1453 and 1455 of this subchapter), and except as set forth in section 1457.3 of this suchapter, all subcontracts within the meaning of section 103 (g) of the act are subject to renegotiation under the act to the extent of amounts received or accrued on or after the date set forth in section 1452.2 which is applicable to the prime contract to which the subcontract relates.

1452.4 Subcontracts to perform work or furnish materials.--(a) Statutory provision.-Section 103(g) of the act provides in part as follows: The term "subcontract" means(1) any purchase order or agreement (including

purchase orders or agreements antedating the related
prime contract or higher tier subcontract) to perform
all or any part of the work, or to make or furnish any
materials, required for the performance of any other
contract or subcontract, but such term does not include
any purchase order or agreement to furnish office
supplies ;

(b) Interpretation of statutory provision.-
(1) In general.-The term "subcontract” in-
cludes all purchase orders or agreements to per-
form all or any part of the work or to make or
furnish any materials required for the perform-
ance of a renegotiable prime contract. An
agreement or purchase order to perform work
or to make or furnish materials is a renegotiable
subcontract if it is: (i) For the sale or process-
ing of an end product which is to be delivered
under a renegotiable prime contract; or (ii)
for the sale or processing of materials to be
physically incorporated in such end product ;
or (iii) for the sale, furnishing or installa-
tion of machinery, equipment or other mate-
rials used in the processing of such end

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must be to perform services generally similar tory aspects of rates for the sale or furnishing to those performed by the prime contractor or of such transportation, or the type and nature subcontractor as a common carrier or public of the contract for such furnishing or sale, are utility. A contract which meets the tests pre such as to indicate, in the opinion of the Board, scribed herein qualifies for the exemption even that excessive profits are improbable. Any apthough it is a contract by a common carrier for plication for such a finding shall be filed with private carriage or is a contract by a public the Board not later than the date when the conutility on terms not offered to the general tractor files the financial statement prescribed public.

in section 105(e) (1) of the act (see § 1470.3 (d) Common carriers by water_(1) Fiscal (a) of this subchapter) for the fiscal year in years ending before December 31, 1953.-Re which the contractor received or accrued the moved to Appendix.

amounts with respect to which the exemption (2) Fiscal years ending on or after December is claimed. In any financial statement so filed, 31, 1953.-(i) With respect to fiscal years end receipts or accruals under any contract with ing on or after December 31, 1953, a contract respect to which the Board is requested to make with a common carrier for transportation by such a finding shall be included initially in comwater is exempt only if the furnishing or sale of puting the aggregate renegotiable receipts or such transportation is subject to the jurisdic accruals of the contractor for the fiscal year to tion of the Interstate Commerce Commission which such statement relates. under the Interstate Commerce Act or subject (e) Exempt rates: Regulated and unreguto the jurisdiction of the Federal Maritime lated.-Section 106(a)(4) of the act exempts Board before August 12, 1961, or the Federal prime contracts and subcontracts of a public Maritime Commission on or after August 12, utility or a common carrier only if the rates 1961, under the Intercoastal Shipping Act, 1933, charged thereunder fall into one of the three or if the Board finds that the regulatory aspects following types: (i) Rates filed with, fixed, apof rates for the sale or furnishing of such trans proved or regulated by a public regulatory portation, or the type and nature of the con body; (ii) unregulated rates charged for servtract for such furnishing or sale, are such as to ices for which published rates are filed with, indicate, in the opinion of the Board, that exces fixed, approved or regulated by a public regusive profits are improbable. Pursuant to the latory body and which unregulated rates are foregoing authority, the Board has exempted not in excess of such regulated rates; (iii) unfrom the provisions of the act, to the extent of regulated rates which are not in excess of unregamounts received or accrued before January 1, ulated rates offered generally by such a pub1965, in any fiscal year ending on or after De lic utility which are substantially as favorable cember 31, 1953:

to users and consumers as are comparable regu(a) All prime contracts for transportation

lated rates. by common carrier by water at, or at rates (1) Published rates. If a common carrier or below, rates or charges filed with, fixed, ap public utility enters into a prime contract or proved or regulated by the Federal Maritime subcontract to be performed at rates published Board before August 12, 1961, or by the Federal or filed with, fixed, approved or regulated by a Maritime Commission on or after August 12, public regulatory body, State, Federal, or local, 1961.

such prime contract or subcontract is exempt. (6) All prime contracts with the Military Example: A prime contract entered into by a Sea Transportation Service for transportation railroad for transporting Government personof cargo at rates or charges based upon the nel at rates not in excess of the tariff rates availmanifest measurement or manifest weight of the able to the general public is exempt from

renegotiation under this section. cargo.

(ii) This exemption does not apply to time, (2) Unregulated rates not in excess of reguvoyage or bareboat charters.

lated rates.-(i) If a common carrier or public (3) Exemption of individual prime con utility enters into a contract for the furnishing tracts.—The Board will exempt any individual of services which are the same as those for which prime contract with a common carrier for trans a rate has been published or filed with, fixed, portation by water when the Board finds, upon approved, or regulated by a public regulatory application of the contractor, that the regula body and the rate provided by the transaction

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for such services is not in excess of such regulated rate, the contract is exempt from renegotiation under this section even though the services in question are not subject to regulation. For example, a price contract entered into by a railroad for freight carriage at a rate negotiated under section 22 of the Interstate Commerce Act is exempt since section 22 permits a railroad to negotiate contracts with the Government at special rates which are below the public rates.

(ii) If, under a contract at unregulated rates, the Government furnishes any benefits to the contractor or otherwise relieves the contractor from furnishing any of the services for which a rate has been published or filed with, fixed, approved or regulated by a public regulatory body, the contract is not exempt under this section unless the contract rate, aggregated with the prorated fair value of such benefits or other advantages, does not exceed the regulated rate.

Example. An airline agrees to carry freight or personnel at charges below the regulated general or charter tariff rate for carrying similar loads for like distances. The services for which the tariff rate was established do not include the utilization by the airline of Government bases, facilities, or ground personnel. The contract, however, provides that the airline may utilize Government bases, facilities, and ground personnel, and thus the airline is not required to furnish services necessarily incident to the transportation for which the tariff rate was established. When the prorated fair value of the benefits thus provided by the Government is added to the contract rate, if the resulting aggregate exceeds the regulated rate, the contract is not exempt under this section.

(3) Unregulated rates substantially as favorable as regulated rates. If a public utility furnishes services to Departments and to other consumers at rates which are unregulated but which are substantially as favorable as regulated rates for comparable services, a contract for the furnishing of such services is exempt under this section. For example, a gas company delivers gas to a Department in a state where gas sales are unregulated. The rates charged under the contract are the same as or lower than the rates offered by the contractor to the public generally and such public rates are substantially as favorable to consumers as comparable regulated rates in comparable areas. The contract with the Department is exempt from renegotiation under this section.

1453.4 Contracts or subcontracts with tax-exempt charitable, religious and educational institutions.-(a) Statutory provision.-Section 106(a)(5) of the act exempts the following:

(5) any contract or subcontract with an organization exempt from taxation under section 101 (6) of the Internal Revenue Code, but only if the income from such contractor subcontract is not includible under section 422 of such code in computing the unrelated business net income of such organization;

(b) Related statutory provisions. For the text of sections 101 (6) and 422 of the Internal Revenue Code, see sections 1499.10 and 1499.11 of this subchapter, respectively.

(c) Limitation.—The exemption provided in paragraph (5) of section 106(a) of the act is limited to prime contracts or subcontracts for the procurement of materials or services from organizations exempt from taxation as prescribed in said paragraph (5). Subcontracts for the procurement of materials or services by such organizations from other persons are not exempt under such provision; such subcontracts are also specifically excluded from the subcontract exemption provided in section 106(a)(7). See $ 1453.6.

1453.5 Contracts that do not have a direct and immediate connection with the national defense.—(a) Statutory provision.-Subsection 106(a)(6) of the act exempts the following:

(6) any contract which the Board determines does not have a direct and immediate connection with the national defense. The Board shall prescribe regulations designating those classes and types of contracts which shall be exempt under this paragraph; and the Board shall, in accordance with regulations prescribed by it, exempt any individual contract not falling within any such class or type if it determines that such contract does not have a different and immediate connection with the national defense. In designating those classes and types of contracts which shall be exempt and in erempting any individual contract under this paragraph, the Board shall consider as not having a direct or immediate connection with national defense any contract for the furnishing of materials or services to be used by the United States, a Department or agency thereof, in the manufacture and sale of synthetic rubbers to a private person or to private persons which are to be used for nondefense purposes. If the use by such private person or persons shall be partly for defense and partly for nondefense purposes, the Board shall consider as not having a direct or immediate connection with national defense that portion of the contract which is determined not to have been used for national defense purposes.

The method used in making such determination shall be subject to approval by the Board. Notwithstanding section 108 of this title, regulations prescribed by the Board under this paragraph, and any determination of the Board that a contract is or is not exempt under this paragraph, shall not be reviewed or redetermined by the Tax Court or

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of standby facilities or facilities acquired after Supply Schedule contracts and consolidated June 30, 1950, or for the substantial enlarge direct delivery contracts of the Federal Supply ment, alteration or expansion of facilities. Service, General Services Administration, to

(2) Contracts for other Departments.-Con the extent that deliveries thereunder are made tracts to the extent that they obligate funds of to agencies of the Government other than the another Department named in or designated Department of Defense, Department of the pursuant to section 103 of the act or to the ex Army, Department of the Navy, Department of tent that the contracting Department is to be the Air Force, Atomic Energy Commission, reimbursed by such other Department, pro National Aeronautics and Space Administravided that the contracts would be exempt under tion and, with respect to deliveries made before this section if made by such other Department. January 1, 1957, United States Coast Guard.

(3) Contracts for other persons or agencies. (9) Construction contracts. Removed to
(i) Subject to the limitation contained in sub Appendix.
division (ii) of this subparagraph, contracts to (10) Canal Zone Government and Panama
the extent that they obligate funds of another Canal Company.-Removed to Appendix.
agency of the Government, other than a Depart (11) Housing and Home Finance Agency.-
ment named in or designated pursuant to section Removed to Appendix.
103 of the act, or to the extent that the contract (12) Corps of Engineers.—(Opening lan-
ing Department is to be reimbursed by such guage removed to Appendix); and all contracts
other Government agency or other person.

to the extent that they obligate funds appro-
(ii) Contracts which obligate funds appro priated for the civil functions of the Corps of
priated under or to carry out the purposes of Engineers, Department of the Army and were
foreign aid programs, insofar as such funds are entered into after June 30, 1950, and (i) obli-
obligated for military assistance, are not ex gated funds appropriated or allotted for pur-
empt under this subparagraph (3) of this poses other than for one of the projects on list
paragraph.

A as set forth below, or (ii) in the case of any Note.--It is the responsibility of any Department

project on list A, were for work or materials administering a contract which is exempt under sub required for the construction or operation of paragraph (2) or (3) of this paragraph to so notify the navigation or flood control works, located elsecontractor, and contractors must assume that Depart where than on the site of the main power ments employ funds appropriated to them, except

facility as determined by the Corps of Engiwhen contractors are informed otherwise by such

neers. The Board has determined that conDepartments.

tracts related to the following projects on list (4) Materials for authorized resale.-Con

A are directly and immediately connected with tracts for the purchase of materials for author

defense, except to the extent indicated above, ized resale except contracts for the purchase

for the reason that such projects have as part of of materials to be issued or to be sold under the

their purposes the increase of power facilities monetary clothing allowance system of any of

for defense. New projects having as part of the armed services.

their purposes the increase of power facilities (5) Removal of waste materials.-Contracts

for defense may be added to the list if aufor the removal of waste materials.

thorized and approved.
(6) Laundry and cleaning services.-Con-
tracts for laundry, cleaning and pressing

LISTA
services.

Project
Albeni Falls, Idaho.-

Columbia. (7) Department of Commerce.- Removed to

Allatoona, Ga---

Alabama Coosa. Appendix.

Barkley, Ky. and Tenn.

Cumberland. (8) General Services Administration.—All

Beaver, Ark.

White. contracts of the Public Buildings Service and

Big Bend, s, Dak...

Missouri. the National Archives and Records Service, Blakely Mountain, Ark--

Quachita. Bonneville, Oreg. and Wash

Columbia. General Services Administration; all contracts

Broken Bow, Okla..

Mountain Fork. of the Federal Supply Service, General Serv

Buford, Ga.

Chattahoochee. ices Administration, for store stock to be de

Bull Shoals, Ark..

White. livered to its Supply Centers; and all Federal Carters, Ga.

Cousawattee.

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