the cognizant contracting officer shall review the accounting change concurrently for adequacy and compliance in accordance with § 1-3.1205(d). Upon completion of the review indicating that the change is both adequate and in compliance, the contractor shall be notified and requested to furnish the cost impact proposal required pursuant to paragraph (b) of the Administration of Cost Accounting Standards clause. It shall be in sufficient detail to permit evaluation, determination and negotiation of the cost impact upon each contract and subcontract containing a cost accounting standards clause. It shall contain as a minimum the following information:

(1) Identification of all contracts and subcontracts containing a cost accounting standards clause, and

(2) The effect on each contract and subcontract from the effective date of the proposed change until completion of the contract or subcontract.

(c) Receipt of cost impact proposal. Upon receipt of an acceptable proposal from the contractor, the cognizant contracting officer shall promptly analyze the proposal with the assistance of the auditor to determine whether or not the proposed change will result in increased costs being paid by the United States. In considering the proposed adjustments to subcontracts containing a cost accounting standards clause to determine whether increased cost to the United States will result from the change, the cognizant contracting officer shall not consider the effect of the proposed adjustments upon the prime contracts and subcontracts under which the subcontracts were entered into. If the cognizant contracting officer determines that the proposed adjustments will not result in an increase in the aggregate cost to be paid under the contracts and subcontracts containing a cost accounting standards clause, he shall promptly negotiate the contract price adjustments pursuant to § 1-3.1207. If the cognizant contracting officer determines that the proposed adjustments will result in an increase in the aggregate cost to be paid under the contracts and subcontracts containing a cost accounting standards clause, he shall so notify the contractor and

advise him that the proposed change will not be recognized unless an agreement can be reached which will prevent an increase in the aggregate cost to be paid under such contracts and subcontracts. Contracts and subcontracts containing the equitable adjustment provisions of paragraph (a)(4)(C) of the Cost Accounting Standards clause, (a)(3) of the Disclosure and Consistency of Cost Accounting Practices clause, (a)(3)(C) of the Cost Ac counting Standards-Nondefense Contract clause, or (a)(2) of the Consistency of Cost Accounting Practices-Nondefense Contract clause may be equitably adjusted for changes if the contracting officer determines that the change is desirable and not detrimental to the interests of the Government (see § 1-3.1207(a)). When the cognizant contracting officer (ACO) makes such a determination, he shall notify the contractor and the parties will negotiate an equitable adjustment.

(d) Failure to submit cost impact proposal or reach agreement concerning cost impact. (1) If the contractor does not submit a proposal in the form and time specified or if the parties fail to agree concerning the cost impact, the cognizant contracting officer, with the assistance of the auditor, shall estimate the cost impact on contracts and subcontracts containing a cost accounting standards clause, and

(2) Upon completion of the estimate indicating the effect on contract costs, the cognizant contracting officer shall request agreement from the contrac tor as to the cost or price adjustment. The contractor shall also be advised that in the event no agreement on the cost or price adjustment is reached within 20 days, action may be taken in accordance with paragraph (b) of the Cost Accounting Standards clause. If a DOD cognizant contracting officer subsequently takes such action, he shall consider appropriate action to protect the interests of the Government, pursuant to DAR Appendix E, Part 6, (32 CFR Part 163, Subpart F) regarding any cost adjustment demanded by the United States. Cognizant contracting officers of civilian executive agencies shall consider the appropriateness of similar actions in regard to collection of contract debts

with respect to their affected contracts and subcontracts.

[47 FR 4081, Jan. 28, 1982]

§§ 1-3.1215-1-3.1218 [Reserved]

§ 1-3.1219 Guidance for implementation. This § 1-3.1219 will address specific topics where it has been determined that the contracting community might benefit from such treatment. In addition, the Cost Accounting Standards Board often included preambles in the FEDERAL REGISTER issue that promulgated rules, regulations, and standards in order to provide readers with historical information and pertinent commentary. These preambles are also included in Title 4 of the Code of Federal Regulations, which is for sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Temporary requirements or informational guidance may also be published from time to time in the Notices section of the FEDERAL REGISTER as FPR Temporary Regulations or FPR Bulletins. These temporary regulations and bulletins are subsequently distributed to subscribers of the looseleaf edition of the FPR.

[47 FR 4081, Jan. 28, 1982]

§ 1-3.1220 Standards and definitions prescribed by the Cost Accounting Standards Board.

(a) The text of the Cost Accounting Standards Board standards are set forth in the subsections following, using the numbering system of 4 CFR Subchapter G of Chapter III.

NOTE: This section of the FPR is included for the convenience of procurement personnel. Users are cautioned that changes to existing standards or new standards may be published from time to time by a successor agency to the CASB. They will become effective for both defense and nondefense contracts following publication in the FEDERAL REGISTER on the date specified by such successor agency, even though a standard has not on that date, been republished in the FPR.

(b) Definitions promulgated by the Cost Accounting Standards Board are set forth herein. Unless the text of a particular standard demands a different definition or the definition is expressly modified for a particular

standard, terms defined herein whenever used in any standard shall have the meanings ascribed to them in paragraph (b) of this section. For convenience, the definitions of terms prominent in an individual standard are reprinted in that standard. The selection or nonselection of a particular definition to be reprinted in an individual standard, however, does not affect the applicability of all definitions in this paragraph (b) of this section to that standard.

(1) Accrued benefit cost method. An actuarial cost method under which units of benefit are assigned to each cost accounting period and are valued as they accrue; that is, based on the services performed by each employee in the period involved. The measure of normal cost under this method for each cost accounting period is the present value of the units of benefit deemed to be credited to employees for service in that period. The measure of the actuarial liability at a plan's inception date is the present value of the units of benefit credited to employees for service prior to that date. (This method is also known as the Unit Credit cost method.)

(2) Accumulating costs. The collecting of cost data in an organized manner, such as through a system of accounts.

(3) Actual cash value. The cost of replacing damaged property with other property of like kind and quality in the physical condition of the property immediately prior to the damage.

(4) Actual cost. An amount determined on the basis of cost incurred as distinguished from forecasted cost. Includes standard cost properly adjusted for applicable variance.

(5) Actuarial assumption. A prediction of future conditions affecting pension cost; for example, mortality rate, employee turnover, compensation levels, pension fund earnings, and changes in values of pension fund assets.

(6) Actuarial cost method. A technique which uses actuarial assumptions to measure the present value of future pension benefits and pension fund administrative expenses, and which assigns the cost of such benefits

and expenses to cost accounting periods.

(7) Actuarial gain and loss. The effect on pension cost resulting from differences between actuarial assumptions and actual experience.

(8) Actuarial liability. Pension cost attributable, under the actuarial cost method in use, to years prior to the date of a particular actuarial valuation. As of such date, the actuarial liability represents the excess of the present value of the future benefits and administrative expenses over the present value of future contributions, for the normal cost for all plan participants and beneficiaries. The excess of the actuarial liability over the value of the assets of a pension plan is the Unfunded Actuarial Liability.

(9) Actuarial valuation. The determination, as of a specified date, of the normal cost, actuarial liability, value of the assets of a pension fund, and other relevant values for the pension plan.

(10) Allocate. To assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool.

(11) Asset accountability unit. A tangible capital asset which is a component of plant and equipment that is capitalized when acquired or whose replacement is capitalized when the unit is removed, transferred, sold, abandoned, demolished, or otherwise disposed of.

(12) Bid and proposal (B&P) cost. The cost incurred in preparing, submitting, or supporting any bid or proposal which effort is neither sponsored by a grant, nor required in the performance of a contract.

(13) Business unit. Any segment of an organization, or an entire business organization which is not divided into segments.

(14) Category of material. A particular kind of goods, comprised of identical or interchangeable units, acquired or produced by a contractor, which are intended to be sold, or consumed or used in the performance of either direct or indirect functions.

(15) Compensated personal absence. Any absence from work for reasons

such as illness, vacation, holidays, jury duty, military training, or personal activities for which an employer pays compensation directly to an employee in accordance with a plan or custom of the employer.

(16) Cost input. The cost, except General and Administrative (G&A) expenses, which for contract costing purposes is allocable to the production of goods and services during a cost accounting period.

(17) Cost objective. A function, organizational subdivision, contract or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc.

(18) Cost of capital committed to facilities. An imputed cost determined by applying a cost of money rate to facilities capital.

An

(19) Deferred compensation. award made by an employer to compensate an employee in a future cost accounting period or periods for services rendered in one or more cost accounting periods prior to the date of the receipt of compensation by the employee. This definition shall not include the amount of year end accruals for salaries, wages, or bonuses that are to be paid within a reasonable period of time after the end of a cost accounting period.

(20) Defined-benefit pension plan. A pension plan in which the benefits to be paid or the basis for determining such benefits are established in advance and the contribution are intended to provide the stated benefits.

(21) Defined-contribution pension plan. A pension plan in which the contributions to be made are established in advance and the benefits are determined thereby.

(22) Direct cost. Any cost which is identified specifically with a particular final cost objective. Direct costs are not limited to items which are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract. All costs identified specifically with other final cost objectives of the contractor are direct costs of those cost objectives.

(23) Directly associated cost. Any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred.

(24) Entitlement. An employee's right, whether conditional or unconditional, to receive a determinable amount of compensated personal absence, or pay in lieu thereof.

(25) Estimating costs. The process of forecasting a future result in terms of cost, based upon information available at the time.

(26) Expressly unallowable cost. A particular item or type of cost which, under the express provisions of an applicable law, regulation, or contract, is specifically named and stated to be unallowable.

(27) Facilities capital. The net book value of tangible capital assets and of those intangible capital assets that are subject to amortization.

(28) Final cost objective. A cost objective which has allocated to it both direct and indirect costs, and, in the contractor's accumulation system is one of the final accumulation points.

(29) Fiscal year. The accounting period for which annual financial statements are regularly prepared, generally a period of 12 months, 52 weeks, or 53 weeks.

(30) Funded pension cost. The portion of pension costs for a current or prior cost accounting period that has been paid to a funding agency or, under a pay-as-you-go plan, to plan participants or beneficiaries.

(31) Funding agency. An organization or individual which provides facilities to receive and accumulate assets to be used either for the payment of benefits under a pension plan, or for the purchase of such benefits.

(32) General and administrative (G&A) expense. Any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. G&A expense does not include those management expenses whose beneficial or causal relationship to cost objectives can be more directly measured by a base other than a cost input base rep

resenting the total activity of a business unit during a cost accounting period.

(33) Home office. An office responsible for directing or managing two or more, but not necessarily all, segments of an organization. It typically establishes policy for, and provides guidance to the segments in their operations. It usually performs management, supervisory, or administrative functions, and may also perform service functions in support of the operations of the various segments. An organization which has intermediate levels, such as groups, may have several home offices which report to a common home office. An intermediate organization may be both a segment and a home office.

(34) Immediate-gain actuarial cost method. Any of the several actuarial cost methods under which actuarial gains and losses are included as part of the unfunded actuarial liability of the pension plan, rather than as part of the normal cost of the plan.

(35) Independent research and development (IR&D) cost. The cost of effort which is neither sponsored by a grant, nor required in the performance of a contract, and which falls within any of the following three areas:

(i) Basic and applied research, (ii) Development, and

(iii) Systems and other concept formulation studies.

(36) Indirect cost. Any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective.

(37) Indirect cost pool. A grouping of incurred costs identified with two or more objectives but not identified specifically with any final cost objective.

(38) Insurance administration expenses. The contractor's costs of administering an insurance program; e.g., the costs of operating an insurance or risk-management department, processing claims, actuarial fees, and service fees paid to insurance companies, trustees, or technical consultants.

(39) Intangible capital assets. An asset that no physical substance, has more than minimal value, and is expected to be held by an enterprise for continued use or possession beyond

the current accounting period for the benefits it yields.

(40) Labor cost at standard. A preestablished measure of the labor element of cost, computed by multiplying labor-rate standard by labor-time standard.

(41) Labor-rate standard. A preestablished measure, expressed in monetary terms, of the price of labor.

(42) Labor-time standard. A preestablished measure, expressed in temporal terms, of the quantity of labor.

(43) Material cost at standard. A preestablished measure of the material elements of cost, computed by multiplying material-price standard by

material-quantity standard.

(44) Material inventory record. Any record used for the accumulation of actual or standard costs of a category of material recorded as an asset for subsequent cost allocation to one or more cost objectives.

(45) Material-price standard. A preestablished measure, expressed in monetary terms, of the price of material.

(46) Material-quantity standard. A preestablished measure, expressed in physical terms, of the quantity of material.

(47) Moving average cost. An inventory costing method under which an average unit cost is computed after each acquisition by adding the cost of the newly acquired units to the cost of the units of inventory on hand and dividing this figure by the new total number of units.

(48) Multiemployer pension plan. A plan to which more than one employer contributes and which is maintained pursuant to one or more collective bargaining agreements between an ployee organization and more than one employer.

em

(49) Normal cost. The annual cost attributable, under the actuarial cost method in use, to years subsequent to a particular valuation date.

(50) Operating revenue. Amounts accrued or charged to customers, clients, and tenants, for the sale of products manufactured or purchased for resale, for services, and for rentals of property held primarily for leasing to others. It includes both reimbursable costs and fees under cost-type contracts and

percentage-of-completion sales accruals except that it includes only the fee for management contracts under which the contractor acts essentially as an agent of the Government in the erection or operation of Governmentowned facilities. It excludes incidental interest, dividends, royalty, and rental income, and proceeds from the sale of assets used in the business.

(51) Original complement of low cost equipment. A group of items acquired for the initial outfitting of a tangible capital asset or an operational unit, or a new addition to either. The items in the group individually cost less than the minimum amount established by the contractor for capitalization for the classes of assets acquired but in the aggregate they represent a material investment. The group, as a complement, is expected to be held for continued service beyond the current period. Initial outfitting of the unit is completed when the unit is ready and available for normal operations.

(52) Pay-as-you-go cost method. A method of recognizing pension cost only when benefits are paid to retired employees or their beneficiaries.

(53) Pension plan. A deferred compensation plan established and maintained by one or more employers to provide systematically for the payment of benefits to plan participants after their retirement, Provided, That the benefits are paid for life or are payable for life at the option of the employees. Additional benefits such as permanent and total disability and death payments, and survivorship payments to beneficiaries of deceased employees may be an integral part of a pension plan.

(54) Pension plan participant. Any employee or former employee of an employer or any member or former member of an employee organization, who is or may become eligible to receive a benefit from a pension plan which covers employees of such employer or members of such organization who have satisfied the plan's participation requirements, or whose beneficiaries are receiving or may be eligible to receive any such benefit. A participant whose employment status with the employer has not been termi