Page images

Part 1499

Renegotiation Rulings and Bulletins



1499.1 Renegotiation Rulings. 1499.1-1 Renegotiation Ruling No. 1: Receipts or

accruals; contract consideration partly paid by Government; extent renego

tiable. 1499.1-2 Renegotiation Ruling No. 2: Receipts or

accruals; recovery for breach of con

tract. 1499.1-3 Renegotiation Ruling No. 3: Receipts or

accruals; value engineering incentive

awards. 1499.1-4 Renegotiation Ruling No. 4: Prime con

tracts and subcontracts within scope of

act; consignment sales. 1499.1-5 Renegotiation Ruling No. 5: Subcon

tracts within the scope of the act; sales

and other transfers of patents. 1499.1-6 Renegotiation Ruling No. 6: Raw ma

terials cost allowance for unconsoli

dated affiliate. 1499.1-7 Renegotiation Ruling No. 7: Competi

tively bid construction contracts; scope of exemption; nonapplicability to ne

gotiated contracts. 1499.1-8 Renegotiation Ruling No. 8: Competi

tively bid construction contracts; small business restricted advertising ("set

asides"). 1499.1-9 Renegotiation Ruling No. 9: Federal

Supply Schedule contracts; applica

bility of 30-day, $1,000 exemption. 1499.1-10 Renegotiation Ruling No. 10: Exemption,

performance outside U.S.A.; effect of

control over foreign corporation. 1499.1-11 Renegotiation Ruling No. 11: New dura

ble productive equipment exemption;

determination of average useful life. 1499.1–12 Renegotiation Ruling No. 12: Exemption

of contracts where period of performance does not exceed 30 days; nonseparability of contract price or perform

ance period. 1499.1–13 Renegotiation Ruling No. 13: Treatment

of receipts or accruals under termina

tion claims; year of accrual, 1499.1-14 Renegotiation Ruling No. 14: Renegotia

tion loss carryforward; effect of completion of renegotiation of expiration of period of limitations on examination of loss in later year.

1499.1-15 Renegotiation Ruling No. 15: Relation

ship of $1 million and $25,000 statutory
"floors," and of gains or losses on sales
under one floor to profits on sales above

other floor.
1499.1-16 Renegotiation Ruling No. 16: Scope of

term "fiscal year.” 1499.1–17 Renegotiation Ruling No. 17: Fiscal

year, termination of; stock acquisition

by another corporation.
1499.1–18 Renegotiation Ruling No. 18: Joint ven-

ture; separate renegotiation status;
subcontracts or assignments to or from

1499.1-19 Renegotiation Ruling No. 19: Renegotia-

tion loss carryforward; effect on, when

loss sustained on sales below the floor. 1499.1–20 Renegotiation Ruling No. 20: Common

control; consolidated renegotiation of related contractors; effect of voting

trusts. 1499.1-21 Renegotiation Ruling No. 21: Accounting

methods; completed contract basis;

time of accrual. 1499.1-22 Renegotiation Ruling No. 22: Final com

pletion and acceptance; completed contract method of accounting; long-term

contracts, 1499.1–23 Renegotiation Ruling No. 23: Special ac

counting agreement; status of agreement with merged contractor or prede

cessor partnership. 1499.1-24 Renegotiation Ruling No. 24: Govern

ment-furnished materials, 1499.1-25 Renegotiation Ruling No. 25: Accounting

method, change in; distinguished from

change in rate of depreciation. 1499.1-26 Rengotiation Ruling No. 26: Advertising

expense; allocability to renegotiable

business. 1499.1-27 Renegotiation Ruling No. 27: Computa

tion of State tax credit for consolidated group; amount attributable to a member when no excessive profits are

allocated to such member. 1499.1-28 Renegotiation Ruling No. 28: Costs al

locable to and allowable against renegotiable business; costs of conversion and reconversion.


[blocks in formation]

1499.2–11 Renegotiation Bulletin No. 11: Compu

tation of cost allowance for pig iron. 1499.2–12 Renegotiation Bulletin No. 12: Guide to

the partial mandatory exemption for

new durable productive equipment. 1499.2–13 Renegotiation Bulletin No. 13: Voluntary

refunds and interim prepayments. 1499.2–14 Renegotiation Bulletin No. 14: The com

mercial exemption as applied to alum

inum and steel standard mill products. 1499.2–15 Renegotiation Bulletin No. 15: Assign

ment or withholding of contractors'

filings. 1499.2–16 Renegotiation Bulletin No. 16: Allowance

and allocation of advertising expenses. 1499.2–17 Renegotiation Bulletin No. 17: Procedure

for exemption of contracts with Military Airlift Command under $ 106(a)

(4) of the act. 1499.2–18 Renegotiation Bulletin No. 18: Concur

rent renegotiation.

TABLE OF CITATIONS. AUTHORITY: The provisions of this Part 1499 issued under sec. 109, 65 Stat. 22; 50 U.S.C., App. 1219.

1499.1-29 Renegotiation Ruling No. 29: Consoli

dated renegotiation of partnership and

successor corporation. 1499.1-30 Renegotiation Ruling No. 30: Tax credit,

Federal; allocation of excessive profits when tax basis of accounting not used

for renegotiation. 1499.1-31 Renegotiation Ruling No. 31: Consoli

dated renegotiation; elimination of in

tercompany transactions. 1499.1-32 Renegotiation Ruling No. 32: Standard

commercial article exemption; composition of standard commercial class of

articles. 1499.1-33 Renegotiation Ruling No. 33: Standard

commercial service exemption; scope

of term “service." 1499.1-34 Renegotiation Ruling No. 34: Standard

commercial service exemption; appli

cation to leased equipment. 1499.1–35 Renegotiation Ruling No. 35: Filing of fi

nancial statement by sole proprietor of

two businesses. 1499.1–36 Renegotiation Ruling No. 36: Standard

Form of Contractor's Report; subcon

tract classification. 1499.1-37 Renegotiation Ruling No. 37: Brokers

and manufacturers' agents; full-time

employee defined. 1499.1–38 Renegotiation Ruling No. 38: Brokers

and manufacturers' agents; commis

sion sales. 1499.2 Renegotiation Bulletins. 1499.2-1. Renegotiation Bulletin No. 1: Advertis

ing. 1499.2-2 Renegotiation Bulletin No. 2: Use of de

fense materials system program identification symbols in segregating renego

tiable and nonrenegotiable subcontracts. 1499.2-3. Renegotiation Bulletin No. 3: Letter not

to proceed. 1499.2-4 Renegotiation Bulletin No. 4: The Stock

Item Exemption. 1499.2-5 Renegotiation Bulletin No. 5: Entertain

ment expenses, gratuities, and sales

commission. 1499.2-6 Renegotiation Bulletin No. 6: Cost allow

ances and disallowances. 1499.2-7 Renegotiation Bulletin No. 7: Renegotia

tion of construction and architect-en

gineer contracts. 1499.2-8 Renegotiation Bulletin No. 8: Renegotia

tion shipping operations. 1499.2-9 Renegotiation Bulletin No. 9: Deferred

payment of excessive profits pursuant

to agreement. 1499.2–10 Renegotiation Bulletin No. 10: Treat

ment of shorts and seconds in segregation of subcontractors' sales in the textile industry.

1499.1 Renegotiation Rulings.—This section contains Renegotiation Rulings, consisting of interpretations of general applicability formulated and adopted by the Board. The rulings explain or construe specific provisions of the Renegotiation Act of 1951, as amended, or of these regulations. They may be cited by section number (e.g., RBR 1499.1-12) or by ruling number (e.g., R. Rul. No. 12).

1499.1-1 Renegotiation Ruling No. 1: Receipts or accruals; contract consideration partly paid by Government; extent renegotiable (interprets act sections 101 and 102(a); $ 1452.2 of this chapter)–(a) This section prescribes the extent of renegotiability of a contract entered into by a shipbuilder with a private customer and the Government, with the Government paying only a part of the total contract price.

(b) The contract calls for the construction of certain vessels by the shipbuilder for the ultimate owner. Under the authority of the Merchant Marine Act of 1936, the Maritime Administration becomes a party to the contract and agrees to share the cost of the vessels to the extent of a construction differential subsidy and the cost of national defense

to the extent of the amounts received or accrued by a contractor or subcontractor on or after the first day of January 1951, * * *.

[merged small][ocr errors][merged small][merged small]

(c) The question, therefore, is whether an amount recovered as damages for breach of a contract is an amount received or accrued within the meaning of section 102 (a) of the act.

(d) In an action based upon the breach of a contract, it is customary in legal practice to allege that the plaintiff has been “damaged” by the failure or refusal of the defendant to pay, in whole or in part, the amount for which the suit has been brought. If the the amount recovered, however, is only what the plaintiff was entitled to receive by the terms of the contract, ascribing the word "damages" to the recovery does not alter the nature of the recovery; nor does the fact that the result may be described in another way:

* Where the defendant is under * * [an] obligation to pay a liquidated sum of money, the ordinary measure of damages for nonperformance is the sum of money itself with interest at the legal rate from the time when it was due." (Williston on Contracts, Rev. Ed., Vol. V, section 1410, p. 3925.)

(e) The distinction between an obligation to pay money and an obligation to do other things has always been recognized in the law. The same author points out that,


[ocr errors]


features to be built into the vessels. The agreement provides that Maritime will pay a stated percentage of the purchase price of the vessels, plus the cost of the defense features. The remainder of the contract price is to be paid by the shipowner, and the vessels are to become the property of the shipowner. The question is whether all the receipts or accruals of the shipbuilder under the contract are subject to renegotiation, or only the portion resulting from payments by Maritime.

(c) Section 102 (a) of the Renegotiation Act of 1951 subjects to renegotiation receipts or accruals under contracts with the named Departments, and related subcontracts. The fact that amounts are received or accrued by the shipbuilder from the ultimate shipowner under the same contract that provides the shipbuilder with receipts or accruals from the Government does not make the receipts or accruals from the shipowner renegotiable. If the two sets of obligations to pay the shipbuilder were set forth in two separate instruments, the receipts or accruals under the contract between the shipbuilder and the shipowner would not be subject to renegotiation, and those resulting from the contract between the shipbuilder and Maritime would be subject. The obligations of the two payers are clearly separable, and for renegotiation purposes they are separated.

(d) It follows that the Renegotiation Act applies only to the receipts or accruals of the shipbuilder from Maritime under the contract in question, and that the receipts or accruals of the shipbuilder from the shipowner are not subject to renegotiation.

1499.1–2 Renegotiation Ruling No. 2: Receipts or accruals; recovery for breach of contract (interprets act section 102(a); § 1452.2 of this chapter).-(a) This section concerns the question whether an amount recovered in an action for damages for breach of a renegotiable contract or subcontract is subject to renegotiation.

(b) Section 102 (a) of the act provides in part as follows:




* * * the common law in enforcing an obligation to pay an agreed sum of money conceived that the promise itself continued in effect after the time fixed for its performance had elapsed. On the other hand, when promise to deliver goods or do anything other than pay money is broken, the law substitutes for the obligation a right of action for damages. (Id. $ 1288, p. 3673.)

(f) In the light of these principles, section 102 (a) of the act is interpreted as follows:

(1) If a contractor has fully performed his obligations under a renegotiable contract, but his customer refuses to pay the agreed contract price, a recovery of that amount by suit is merely a recovery of the amount to which the contractor is entitled under the contract. An amount so recovered is considered a receipt or accrual attributable to performance under the contract. So, too, if a Government contracting officer refuses a price increase under the “Changes” articles

The provisions of this title shall be applicable (1) to all contracts with the Departments specifically named in section 103(a), and related subcontracts,


of a contract, and the contractor obtains by award thus becomes a receipt or accrual to suit an increase in the contract price, the the contractor pursuant to the terms of the amount of the recovery is considered a re contract, and, if the contract itself is subject ceipt or accrual attributable to performance to the act, the amount of the award is a under the contract.

renegotiable receipt or accrual. The efforts (2) If a contractor performs additional and accomplishments of the contractor unwork not required by the terms of the con derlying the value engineering award are tract, and the "extras" are accepted by his appropriate subjects for consideration under customer, the law implies from these acts a the applicable statutory factors for determincontract for the payment of the fair value of ing excessive profits. the services so performed. If the contractor 1499.1-4 Renegotiation Ruling No. 4: sues and recovers judgment, the amount re Prime contracts and subcontracts within covered is a receipt or accrual under the scope of act; consignment sales (interprets implied contract, although the contractor act section 102(a); and 88 1452.2 and 1452.4 might assert that he has been “damaged" by of this chapter).- (a) When a manufacturer the failure or refusal of his customer to pay. consigns goods to another for sale or return, Such receipts or accruals are subject to rene the terms of the arrangement between the gotiation. So, too, are amounts received in manufacturer and the consignee will detersettlement of such suits, or without suit. mine whether the transaction between them

(g) A somewhat similar problem may is a sale or a transfer of possession to an arise when a contract provides that certain agent for the purpose of sale. materials will be furnished to the contractor (b) If the ultimate sale to a third-party within a stated time. Assume that defective customer is accomplished by the consignee materials are furnished, or that the materials as agent of the manufacturer, and if the are furnished late. As a result, the contractor goods are sold for renegotiable use, the manuinsurs unanticipated additional costs for facturer is the principal and the proceeds of which he is refused compensation; he sues the sale are renegotiable receipts or accruals and recovers judgment. The amount re to him. The commission received by the covered, since it is attributable to perform consignee for his services is a renegotiable ance under the contract, is subject to rene receipt or accrual to the consignee, whether

such commission is deducted from the progotiation.

ceeds transmitted to the manufacturer or (h) To be distinguished from the forego

paid separately by him. In these circuming are recoveries of consequential damages,

stances, the amount received or accrued by or of punitive or exemplary damages. These

the manufacturer is subject to the $1 million are not receipts or accruals attributable to

"floor" prescribed in section 105 (f) (1) of performance under a contract; accordingly,

the act, and the commission received by the they are not renegotiable.

consignee is subject to the $25,000 floor pro1499.1-3 Renegotiation Ruling No. 3: Re

vided in section 105 (f) (2). ceipts or accruals; value engineering in

(c) Not infrequently, however, the transcentive awards (interprets act section 102(a);

action between the manufacturer and the $ 1452.2 of this chapter).-(a) The question

consignee is itself a sale, in which title to is whether a value engineering incentive

the goods is transferred to the consignee. In award received from a procurement Depart

such case, in the sale to the ultimate cusment is an amount "received or accrued

tomer, the consignee is himself the principal, within the meaning of section 102(a) of the

and the proceeds of the sale are renegotiable

receipts or accruals to him. Thus, in instances (b) When a value engineering recommen

of this type, the amount received by the

consignee from the customer, and the amount dation made by a contractor is adopted, the

received by the manufacturer from the concontract price is adjusted upward to allow

signee, are both subject to the $1 million the contractor a greater profit than he would

floor. otherwise have realized. The amount of the



« PreviousContinue »