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SBA representative. Where the SBA review results in a disagreement between the procuring activity (or, in the case of changes, the contracting officer) and the SBA representatives regarding a “make-or-buy” program decision, SBA may appeal such decision to the head of the procuring activity, or other appropriate level above the contracting officer in accordance with agency procedures. Decisions by the procuring activity shall be final.
(h) After agreement on the program is reached, the contracting officer shall notify the contractor as to the · Government's approval of the pro
gram and shall inform the contractor as to any requirement for further
review during performance of the coni tract. For example, if follow-on proi curements occur, the procuring activiity and the contractor will review the
existing “make-or-buy” program to determine whether it should be revised. [29 FR 10155, July 24, 1964, as amended at 37 FR 23543, Nov. 14, 1972)
§ 1-3.902-3 Contract clause.
The following clause shall be incorporated in all cost-reimbursement, price redetermination, or incentive type contracts as to which a "make-orbuy" program has been agreed upon:
CHANGES TO MAKE-OR-BUY PROGRAM The Contractor agrees to perform this contract in accordance with the "make-orbuy" program attached to this contract, except as hereinafter provided. If the Contractor desires to change the “make-or-buy" program, he shall notify the Contracting Officer in writing of the proposed change reasonably in advance and shall submit justification in sufficient detail to permit evaluation of the proposed change. Changes in the place of performance of work on any "make" item in the "make-or-buy” program are subject to this requirement. With respect to items deferred at the time of negotiation of this contract for later addition to the “make-or-buy" program, the Contractor shall notify the Contracting Officer of each proposed addition at the earliest possible time, together with justification in sufficient detail to permit evaluation. The Contractor shall not, without the written consent of the Contracting Officer, make changes or additions to the program. However, in his discretion, the Contracting Officer may ratify in writing any changes or additions. The "make-or-buy" program attached to this contract shall be deemed to be modified in accordance with the written consent or ratification by the Contracting Officer.
(End of Clause)
8 1-3.902–2 Approval of programs.
(a) Proposed "make” items shall not be agreed to when the products or services under consideration:
(1) Are not regularly manufactured I or provided by the contractor, and are Į available-quality, quantity, delivery, and other essential factors considered-from other firms at prices no higher than if the contractor makes or provides the product or service;
(2) Are regularly manufactured or provided by the contractor, and are available-quality, quantity, delivery, and other essential factors considered-from other firms at prices lower than if the contractor makes or provides the product or service; or Provided, That such items may be agreed to, notwithstanding paragraphs (a) (1) and (2) of this section, if in the opinion of the contracting officer the overall cost of the contract to the Government would be increased if the items were "bought”.
(b) Approval of the contractor's purchasing system shall not constitute approval of the "make-or-buy” program.
§ 1-3.902-4 Administration of program.
(a) On applicable contracts, the cog. nizant contract administration office will establish a procedure with the contractor to assure timely compliance with the terms of the contract clause. This procedure will include provisions for processing changes to the established “make-or-buy” program and for obtaining “make-or-buy” decisions for items reserved for deferred decisions or unidentified at the time of contract negotiations.
(b) When a “make-or-buy” program is agreed upon with a contractor, or there are changes or additions to a “make-or-buy” program, the consideration given each item on such program will be documented in the contract file. If a contract (including supplemental agreements for new procure
ment) except one specifically exempt. (4) A subcontract is being proposed ed by $ 1-3.902-1(b), does not include at a price less favorable than that the Changes to Make-or-Buy Program which has been given by the subconclause, the contracting officer will doc tractor to the Government, all other ument the contract file with a written factors such as manufacturing period statement of facts to sustain and make and quantity being comparable; or clear the appropriateness of the deter- (5) A subcontract is to be placed on a mination not to include the clause. fixed-price incentive, time and materiSuch determination will be based on al, labor-hour, fixed-price redeterminone of the following: (1) The contractable, or cost-reimbursement basis. is on a firm fixed-price basis; (2) the (b) (1) Prime contract provisions recontract is not exempt but there are lating to subcontracts, including those no items which can be identified as re- requiring advance notification, review, quiring a “make-or-buy" program as or approval thereof, should be consistdefined in § 1-3.902-1(a); or (3) a devi. ent with the amount and character of ation has been approved.
subcontract work and with the overall
character and type of the prime con8 1-3.903 Review and approval of contrac tract and the conditions applicable to
tor's purchasing system and subcon its use as described in Subpart 1-3.4; tracts.
and should involve the Government to
the minimum extent practicable in the § 1-3.903–1 (Reserved]
contractor's exercise of management
responsibility, but give reasonable as§ 1-3.903-2 Review and approval of sub
surance that adequate subcontracting contracts.
opportunities have been afforded to (a) When the prime contract is not small business and that the Governto be placed on a firm fixed-price ment is receiving the greatest practical basis, review of subcontracts prior to return for its expenditure. For examplacement may be desirable since the ple, if the contract is on a firm fixedultimate cost to the Government will price basis except for a clause permitdepend in part on subcontract prices ting price escalation resulting from and performance. Contract provisions cost increases for certain materials, requiring advance notification to the the prime contract may limit the concontracting officer of proposed sub tracting officer's right of review of contracts for materials, components, subcontracts to those for materials and other purchases may be appropri covered by the escalation clause. In ate both for information as to sources the case of cost-reimbursement type and prices and to provide an opportu- contracts, advance notification, and nity for review and for approval or ob prior consent or approval of subconjection by the contracting officer prior tracts should be required. (Section to award of the subcontracts. Careful 304(b) of the Act (41 U.S.C. 254(b)) reand thorough evaluation of subcon quires that all such contracts shall tracts prior to placement is particular provide for advance notification of any ly necessary when:
subcontract thereunder on a cost-plus(1) The prime contractor's purchas- a-fixed-fee basis and of any fixed-price ing system of performance thereunder subcontract or purchase order which is considered inadequate;
exceeds in dollar amount either (2) Subcontracts are for items for $25.000 or 5 per centum of the total eswhich there is no competition or for timated cost of the prime contract.) which the proposed prices appear un (2) Provisions in prime fixed-price reasonable, and the amounts involved contracts relating to subcontract are substantial (see § 1-3.807-10(b)); review may, as appropriate, be con
(3) Close working arrangements or fined to one major subcontract or to business or ownership affiliations exist certain classes of subcontracts; may between the prime and the subcon set a floor above which advance aptractor which may preclude the free proval of proposed subcontracts may use of competition or result in higher be required before placement; or may subcontract prices than would other be tailored to cover unusual or particwise be obtained;
(3) In those instances where a contractor's purchasing system, including its small business program has been deemed adequate, review of subcontracts generally may not be necessary. However, contracting officers shall conduct periodic reviews of the application of the system to insure conformance therewith.
(4) In instances where subcontracts have been placed on a cost-reimbursement or time and materials basis, contracting officers should be skeptical of approving the repetitive or unduly protracted use of such types of contracts and should follow the principles of § 1-3.803(b).
(c) In cases where the prime con tract reserves a right for the contracting officer to review or approve subcontracts, the prime contract shall also reserve to the Government the right to inspect and audit the books and records of such subcontractors. Whenever such first tier subcontracts are of the cost-reimbursement, fixedprice incentive, or time and material type, a similar right shall be reserved to the Government to inspect and audit the books and records of lower tier subcontractors: Provided, That such a right shall not be reserved contractually at or below the point where a firm fixed-price subcontract intervenes.
ards Board (see 4 CFR 331 et seq.) requires certain national defense contractors and subcontractors to comply with cost accounting standards published by the CASB and to disclose in writing and consistently follow their cost accounting practices.
(b) The obligation to comply with the cost accounting standards is extended to certain nondefense contractors and subcontractors as a matter of policy. Submission or revision of a Disclosure Statement is not required for any nondefense contract. However, disclosure of cost accounting practices made in connection with defense contracts shall also be used in connection with negotiated nondefense contracts. Further differences in application between national defense and nondefense contracts are explained in appropriate sections throughout this subpart.
(c) Where applicable, cost accounting standards shall be used in negotiated nondefense contracts as the standards become effective and to the same extent that such standards are applicable to defense contracts. However, if deemed appropriate, the application of a particular standard to negotiated nondefense contracts may be limited by a modification or withdrawal of applicability. Waivers of cost accounting standards, rules, and regulations are treated in § 1-3.1211. [47 FR 4068, Jan. 28, 1982)
Subpart 1-3.12–Cost Accounting
SOURCE: 39 FR 43058, Dec. 10, 1974, unless otherwise noted.
§ 1-3.1200 Scope of subpart.
This subpart prescribes policies and procedures for applying the Cost Accounting Standards Board (CASB) standards and regulations (4 CFR 331 et seq.) to negotiated national defense and negotiated nondefense contracts and subcontracts. [47 FR 4068, Jan. 28, 1982] § 1-3.1201 Applicability.
(a) Public Law 91-379 (50 U.S.C. App. 2168) as implemented by the reg. Ulations of the Cost Accounting Stand
§ 1-3.1202 Definitions.
When used in this subpart, the words and terms defined in 4 CFR Part 331 et seq. shall have the meanings set forth therein (see also $ 13.1220(b)). In addition, the words and terms defined in this paragraph shall have the meanings set forth below:
(a) “Net awards” means the obligated value of negotiated national defense prime contracts and subcontracts awarded in the reporting period, minus cancellations, terminations, and other credit transactions relating thereto.
(b) “Contractor” and “subcontractor," as the words pertain to contract applicability requirements of cost accounting standards under the clauses set forth in § 1-3.1204, apply to busi
ness units, such as profit centers, divi. subcontractor after receiving offers sions, subsidiaries, or similar units of from at least two persons not associatan organization which perform the ed with each other or such contractor contract (including each corporate or or subcontractor, providing (1) the sogroup office whose costs are allocated licitation to all competitors is identito one or more corporate segments cal, (2) price is the only consideration performing under a contract with a in selecting the subcontractor from CAS clause), even in those cases where among the competitors solicited, and the contract was entered into on (3) the lowest of
(3) the lowest offer received in complibehalf of the overall organization ance with the solicitation from among rather than the business unit.
those solicited is accepted (see 4 CFR (c) For the purpose of determining
331.20(f)). whether a contract is a national defense or a nondefense contract, the
(47 FR 4068, Jan. 28, 1982) following CASB definitions appearing in 4 CFR 331.20 are set forth below.
§ 1-3.1202-1 Materiality. (1) A "relevant Federal agency” is Materiality shall be considered in any Federal agency making a national the application of regulations and defense procurement and any agency standards of the CASB to both nationwhose responsibilities include review, al defense and nondefense contracts. approval, or other action affecting The provisions of the CASB appearing such a procurement.
in 4 CFR 331.71 apply and are set (2) A "defense contractor” is any forth below. person who enters into a contract with
(a) In determining whether amounts the United States for the production
of cost are material or immaterial, the of material or the performance of
following criteria shall be considered services for the national defense.
where appropriate (No one criterion is (3) A “defense subcontractor” is any
necessarily determinative): person other than the United States
(1) The absolute dollar amount inwho contracts, at any tier, to perform
volved. The larger the dollar amount, any part of a defense contractor's con
the more likely that it will be materitract.
al. (4) "National defense" is any pro
(2) The amount of contract cost comgram for military and atomic energy
pared with the amount under considproduction or construction, military assistance to any foreign nations,
eration. The larger the proportion of
the amount under consideration to stockpiling, space, and directly related activity.
contract cost, the more likely it is to
be material. (d) A "small business concern” is any concern, firm, person, corporation,
(3) The relationship between a cost partnership, cooperative, or other
item and a cost objective. Direct cost business enterprise which pursuant to
items, especially if the amounts are 15 U.S.C. 637(b)(6) and the rules and
themselves part of a base for allocaregulations of the Small Business Ad
tion of indirect cost, will normally ministration set forth in 13 CFR Part
have more impact than the same 121 is determined to be a small busi
amount of indirect costs. ness concern for the purpose of Gov (4) The impact on Government fundernment procurement (see 4 CFR ing. Changes in accounting treatment 331.20(n) and 1-1.701).
will have more impact if they influ(e) A “CAS covered contract” is any ence the distribution of costs between negotiated contract or subcontract Government and non-Government which pursuant to the requirements of
cost objectives than if all cost objecthe Cost Accounting Standards Board tives have Government financial supor agency regulations includes a cost port. accounting standards clause (see $$ 1 (5) The cumulative impact of indi3.1204-1 and 1-3.1204-2).
vidually immaterial items. It is appro(f) A “negotiated subcontract" is any priate to consider whether such imsubcontract except a firm fixed-price pacts (i) tend to offset one another, or subcontract made by a contractor or (ii) tend to be in the same direction
and hence to accumulate into a mate. rial amount.
(6) The cost of administrative processing of the price adjustment modification shall be considered. If the cost to process exceeds the amount to be recovered, it is less likely the amount will be material.
(b)(1) A contract modification for price adjustment or cost allowance under the Cost Accounting Standards clause is required only if the cost impact is material.
(2) Where a contractor is in noncompliance and does not change a cost accounting practice because the cost impact is immaterial, the contracting agency is not relieved of its responsibilities to ensure that an appropriate price adjustment is obtained if the cost impact of the noncompliance subsequently becomes material. The contractor shall be notified that the Government's decision to forbear action for noncompliance is solely because the cost impact at the time of the notice is immaterial. If at any time thereafter, the Government determines that the cost impact of noncompliance with respect to the practice in question is material, the Government then must require action under paragraph (a)(5) of the contract clause for any cost accounting period in which the cost impact is material. The fact that the Government does not pursue a price adjustment does not excuse the contractor from his obligation to comply with the Standard involved.
(3) Whether cost impact is recognized by modifying a single contract, several but not all contracts, or all contracts, or any other suitable technique, is a contract administration matter. The Standards, rules, and reg. ulations of the Board do not in any way restrict the capacity of the parties to select the method by which the cost impact attributable to a change in cost accounting practice is recognized. (47 FR 4069, Jan. 28, 1982)
CAS covered contracts and are set forth below:
(a) A “cost accounting practice” is any disclosed or established accounting method or technique which is used for measurement of cost, assignment of cost to cost accounting periods, or allocation of cost to cost objectives.
(1) Measurement of cost encompasses accounting methods and techniques used in defining the components of cost, determining the basis for cost measurement, and establishing criteria for use of alternative cost measurement techniques. The determination of the amount paid or a change in the amount paid for a unit of goods and services is not a cost accounting practice. Examples of cost accounting practices which involve measurement of costs are:
(i) The use of either historical cost, market value, or present value;
(ii) The use of standard cost or actual cost; or
(iii) The designation of those items of cost which must be included or excluded from tangible capital assets or pension cost.
(2) Assignment of cost to cost accounting periods refers to a method or technique used in determining the amount of cost to be assigned to individual cost accounting periods. Examples of cost accounting practices which involve the assignment of cost to cost accounting periods are requirements for the use of specified accrual basis accounting or cash basis accounting for a cost element.
(3) Allocation of cost to cost objectives includes both direct and indirect allocation of cost. Examples of cost accounting practices involving allocation of cost to cost objectives are the accounting methods or techniques used to accumulate cost, to determine whether a cost is to be directly or indirectly allocated, to determine the composition of cost pools, and to determine the selection and composition of the appropriate allocation base.
(b) A “change to a cost accounting practice” is any alteration in a cost accounting practice, as defined in paragraph (a) of this section, whether or not such practices are covered by a Disclosure Statement, except that:
§ 1-3.1202–2 Cost accounting practice.
The definitions of "cost accounting practice” and “change to either a disclosed cost accounting practice or an established cost accounting practice" appearing in 4 CFR 331.20 apply to both national defense and nondefense