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ship to the expanded volume. Increase in volume made possible by increased subcontracting may often not involve any cost savings, and will involve problems discussed under other factors. (See sections 1460.12 and 1460.14.)

(4) When the contractor is engaged in more than one class or type of business, the varied characteristics of the several classes of business will be taken into consideration.

1460.11 Capital employed.—(a) Statutory provision.-Section 103 (e) of the act provides that in determining excessive profits there shall be taken into consideration the following factor:

largely dependent upon these sources of capital. When a large part of the capital employed is supplied by the Government or by customers, the contractor's contribution tends to become one of management only and the profit will be considered accordingly.

1460.12 Extent of risk assumed.—(aStatutory provision.—Section 103 (e) of the act provides that in determining excessive profits there shall be taken into consideration the following factor:

(3) Extent of risk assumed, including the risk incident to reasonable pricing policies;

(2) The net worth, with particular regard to the amount and source of public and private capital employed;

(b) Comment.—(1) The amount of net worth employed, as well as the amount and source of capital employed, will, as a general rule, be that existing at the beginning of the fiscal year. However, if significant changes, in either capital or net worth, occur during the year, they will be reflected in the determination of the amount employed during such year. In determining net worth and capital employed, the Board will consider book values, and will disregard amounts arising from revaluations.

(2) The amount of net worth employed in renegotiable business will be estimated and considered whenever a reasonable estimate of that amount is possible.

(3) Capital employed is the total of net worth, debt, and any assets furnished by the Government or customers not contained in the contractor's records. The source of capital will be established in order that a determination may be made of the extent to which capital employed in renegotiable business came from public sources or from customers, or was furnished by the contractor.

(4) The relationship of profit realized on renegotiable business to the capital and net worth employed in renegotiable business will be used as one of the considerations in the final determination of what constitutes excessive profits. A contractor who is not dependent upon Government or customer financing of any type is entitled to more favorable consideration than a contractor who is

(b) Comment.-(1) The risks to be considered include but are not limited to risks incident to close pricing policies. For example, contractors in certain industries may attain maximum production only at the risk of saturating post-emergency markets. Contractors may assume risks by guaranteeing delivery schedules notwithstanding possible inability to obtain needed materials or labor. Contractors may guarantee quality and performance of the product notwithstanding uncertainties as to the quality obtainable from their plants, particularly with respect to products which may be more or less abnormal to them. In some cases a substantial degree of risk will be found in the temporary sacrifice of civilian markets to competitors, in order to accept more defense orders, or in the certainty of heavy reconversion expenses at the end of the emergency. Acceptance of contracts without escalation or similar protection may involve a risk that the cost of labor or materials may increase. Contractors who subcontract work, the performance of which they guarantee, in general assume a greater risk than contractors who retain performance entirely within their own control. In general, the Board will consider whether the contractor's performance of renegotiable business is free from risk, or subject to it, on the basis of actual experience and not mere speculative or unlikely possibilities. The Board will give special consideration to evidence showing risks through actual realization of losses incurred by the contractor in performing contracts in other years similar to the contracts undergoing renegotiation, and losses incurred in the same or other years

by concerns other than the contractor, es excessive profits there shall be taken into conpecially when connected with the contractor sideration the following factor: in any way, and in performing similar contracts.

(4) Nature and extent of contribution to the de

fense effort, including inventive and developmental (2) The risk assumed by the contractor as contribution and cooperation with the Government a result of its pricing policy will be given par

and other contractors (sic) in supplying technical ticular consideration. A contractor, having

assistance. initial prices calculated to yield a reasonable

(b) Comment. Consideration will be profit, who revises such initial prices down

given to the nature and extent of the conward periodically when circumstances war

tractor's contribution to the defense effort rant, will be given more favorable treatment

through its defense business. Favorable conunder this factor than a contractor who does

sideration for unusual contributions will be not follow such policy. In order that proper

possible only when the contribution is excepconsideration may be given, it is suggested

tional. Experimental and developmental work that contractors, when making such periodic

of high value to the defense effort and new price revisions, notify the Board of the action

inventions, techniques, and processes of untaken in this respect.

usual merit are examples of special contri(3) Consideration of the pricing policy of butions. The extent to which a contractor the contractor frequently involves the ques

cooperates with the Government and with tion of refunds made before renegotiation other contractors in developing and supplyunder the act. As stated in Part 1462, such ing technical assistance to alternative or comrefunds may be made as an integral part of petitive sources of supply is a factor which the repricing policy of the contractor or as will be given favorable consideration and the prepayments of excessive profits. In either

effect of such sharing of knowledge on such event, the effect upon the risk assumed by the contractor's future business will also be particular contractor depends entirely upon taken into account. the facts of each case, including the manner

1460.14 Character of business.-- (a) Statin which the refund is made. For example, a

utory provision.--Section 103 (e) of the act contractor who executes a legally binding

provides that in determining excessive profits agreement to pay the Government a rebate

there shall be taken into consideration the on articles delivered during a particular

following factor: period of time, has incurred a greater risk than a contractor who gives the Government (5) Character of business, including source and a nonbinding "statement of intention" or nature of materials, complexity of manufacturing

technique, character and extent of subcontracting, "statement of policy" indicating that it will

and rate of turn-over. make refunds, even though the final profit position of the two contractors at the end of (b) Comment.-- (1) Consideration will be the fiscal year is the same. On the other given to the character of the business of the hand, a contractor who makes a refund pur contractor. The manufacturing contribution suant to such a “statement of intention” or will vary with the nature of the product and "statement of policy” may have incurred a the degree of skill and precision required in greater risk than one who simply makes a re the work performed by the contractor. The fund. Similarly, a contractor who makes a re relative complexity of the manufacturing fund near the beginning of its current fiscal technique and the relative integration of the year has incurred a greater risk than one manufacturing process are the basic conwho makes a refund near the end of its fiscal siderations in evaluating this factor. year. The effect of the refund must, there

(2) A contractor who uses customer-furfore, be weighed in the light of all pertinent

nished materials generally is not entitled to facts.

as large a dollar profit as the dollar profit to 1460.13 Contribution to the defense ef which such contractor would have been en

titled had it furnished the materials itself. fort. (a) Statutory provision.---Section 103 (e) of the act provides that in determining In the latter case, the contractor would have

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order will accrue from and after 19. ------, pursuant to section 1461.3 of the Renegotiation Board Regulations.

The mailing hereof is the mailing of the notice of order required by section 1475.3(b) (5) of the Renegotiation Board Regulations and will start the running of the period within which you may petition The Tax Court of the United States for a redetermination as set forth in section 1476.1. This notice is being mailed to you on the date hereof. Very truly yours,

THE RENEGOTIATION BOARD

By
Registered mail. Return receipt requested.

(b) When Board has denied contractor's request for a review.

If the Board decides not to initiate a review of a determination of a Regional Board after receipt of a timely request from the contractor for a review, the notice given to the contractor will be in the same form as that set forth in paragraph (a) of this section, except that the first paragraph of such notice will be deleted and the following inserted in lieu thereof:

19.

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NOTICE THAT ORDER OF REGIONAL BOARD IS DEEMED

ORDER OF THE REENEGOTIATION BOARD GENTLEMEN: You are hereby notified by registered mail that the determination and Order Determining Excessive Profits in the amount of $. for your fiscal year ended

19. entered by the Regional Renegotiation Board on 19....--.., and mailed on pursuant to renegotiation under the Renegotiation Act of 1951, as amended or supplemented, is deemed to be the determination and order of The Renegotiation Board as of

19 under the provisions of section 1475.3 (b) (3) of the Renegotiation Board Regulations, since no review, as provided therein, was requested by you, and since The Renegotiation Board decided not to initiate a review.

The amount of tax credit which you will be allowed under the enclosed order pursuant to section 1481 of the Internal Revenue Code of 1954 has been computed by the Director of Internal Revenue to aggregate $.

according to letter dated 19. Therefore, the amount payable under the order is $.

Payment may be made by check to the order of the Treasurer of the United States and forwarded to the Washington, 25, D.C., who is responsible for the collection of such amount.

Interest at the rate of four (4%) per centum per annum on any amount due and unpaid under the

for your

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"You are hereby notified by registered mail that the determination and Order Determining Excessive Profits in the amount of $. fiscal year ended

19...---entered by the Regional Renegotiation Board on 19. ---, and mailed on

19. pursuant to renegotiation under the Renegotiation Act of 1951, as amended or supplemented, is deemed to be the determination and order of The Renegotiation Board as of the day of the mailing of this notice, under the provisions of section 1475.3 (b) (4) of the Renegotiation Board Regulations, since The Renegotiation Board, after due consideration of the request of the contractor for a review of such determination and order, decided not to initiate a review."

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