CONTRACT COST PRINCIPLES AND PROCEDURES

(i) those which may arise from presently known and existing conditions, the effects of which are forseeable within reasonable limits of accuracy; e.g., anticipated costs of rejects and defective work; in such situations where they exist, contingencies of this category are to be included in the estimates of future cost so as to provide the best estimate of performance costs; and

(ii) those which may arise from presently known or unknown conditions the effect of which cannot be reasured so precisely as to provide equitable results to the contractor and to the Government; e.g., results pending litigation, and other general business risks. Contingencies of this category are to be excluded from cost estimates under the several items of cost, but should be disclosed separately, including the upon which the contingency is computed, in order to facilitate the negotiation of appropriate contractual coverage. (See, for example, 15.205-16, 15.205-20, and 15.205-39.)

15.205-8 Contributions and Donations. Contributions and donations are unallowable. 15.205-9 Depreciation.

of

(a) Depreciation is a charge to current operations which distributes the cost of a tangible capital asset, less estimated residual value, over the estimated useful life of the asset in a systematic and logical manner. It does not involve a process of valuation. Useful life has reference to the prospective period economic usefulness in the particular contractor's operations as distinguished from physical life and shall be evidenced by the actual or estimated retirement and replacement practice of the contractor. (b) Normal depreciation on a contractor's plant, equipment, and other capital facilities is an allowable element of contract. cost provided the contractor is and

able to demonstrate that such costs are reasonable properly allocable to the contract. Subject to (e) and (f) below:

(i) Depreciation will crdinarily be considered reasonable if the contractor follows depreciation policies and procedures which:

(A) are consistent with the policies and procedures he follows in the same cost center in connection with his business other than Government business;

(B) are reflected in his book s of accounts and financial statements; and

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(C) are used by him for Federal income tax purposes, and are acceptable for such proposes;

(ii) where the depreciation reflected on a contractor's books of account and financial statements differs from that used and acceptable for Federal income tax purposes, reimbursement shall be based upon the cost of the asset to the contractor amortized over the estimated useful life of the property using depreciation methods (straight line, sum of the years' digits, etc.) acceptable for income tax purposes. Allowable depreciation shall not exceed the amounts used for book and statement purposes and shall be determined in a manner consistent with the depreciation policies and procedures followed in the same cost center in connection with his business other than Government business.

(iii) Depreciation for reimbursement purposes in the case of tax-exempt organizations shall be determined on the basis outlined in (ii) above.

(c) Special considerations are required for assets acquired prior to the effective date of this principle where, on the effective date of this principle, the undepreciated balance of assets resulting from depreciation policies and procedures used previously for Government contracts and subcontracts is different from the undepreciated balance of such assets on the books and financial statements. Generally, the undepreciated balance for contract cost purposes shall te depreciated over the remaining life using the methods and lives followed for book purposes. The aagregate depreciation on any asset allowable after the effective date of this 15.205-9 shall not exceed the cost basis of the asset less any depreciation allowed cr allowable under prior procurement regulations.

(d) Depreciation should usually be allocated to the contract and other work as an indirect cost. The amount cf depreciation allowed in any accounting period may, consistent with the basic objectives set forth in (a) above, vary with volume of production use of multi shift operations.

or

(e) In the case of emergency facilities covered by certificates of necessity, a contractor may elect to use normal depreciation without requesting a determination of "true depreciation" or may elect to use either normal or "true depreciation" after a determination of "true depreciation" has been made by Emergency Facilities Depreciation Board. The method elected must be followed consistently throughout the

an

NASA PROCUREMENT REGULATION

CONTRACT COST PRINCIPLES AND PROCEDURFS

life of the emergency facility. When an election is made to use normal depreciation, the criteria in (b) above shall apply for both the emergency period and the post-emergency period. When an election is made to use "true depreciation", the amount allowable as depreciation

(i) with respect to the emergency period (five years), shall be computed in accordance with the determination of the Emergency Facilities Depreciation Poard and allocated rateably over the full five year emergency period; provided no other allowance is made which would duplicate the factors, such as extraordinary obsolescence, covered by the Board's

determination; and

(ii) after the end of the emergency period, shall be computed by distributing the remaining undepreciated Fortion of the cost of the emergency facility over the balance of its useful life provided the remaining undepreciated portion of such cost shall not include any amount of unrecovered "true depreciation."

(f) No depreciation, rental, or use charge shall be allowed on property acquired at nc cost from the Government by the contractor or by any division, subsidiary or affiliate of the contractor under a

common control.

(a) The depreciation on any item which meets the criteria for allowance at a "price" in accordance with 15.205-22 (e) may be based on such price, provided the same depreciation policies and procedures are used for costing purposes for all business of the using division, subsidiary or organization under common control.

(h) ΝΟ depreciation or rental shall be allowed on property fully depreciated by the contractor or by any division, Subsidiary or affiliate of the contractor under a common control; however, a reasonable charge for the use of fully depreciated property may be agreed upon and allowed (but see 15.107). In determining this charge, consideration should be given to cost, total estimated useful life at time of negotiation, effect of any increased maintenance charges or decreased efficiency due to age and the amount of depreciation, if any, previously charged to Government contracts or subcontracts.

15.205-10 Employee Morale, Health, Welfare and Food Service and Dormitory Costs and Credits.

(a) Employee morale, health and welfare activities are those services or benefits provided by the

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contractor

to its employees to improve working conditions, employer-employee relations, employee morale and employee performance. Such activities include house publications, health or first-aid clinics, recreation, employee counseling services and, for the purpose of this paragraph 15.205-10, food and dormitory services. Food and dormitory services include operating or furnishing facilities for cafeterias, dining rooms, canteens lunch wagons, vending machines, living accommodations or similar types of services for the contractor's employees at or near the contractor's

facilities.

(b) Except as limited by (c) below, the aggregate of costs incurred on account of all activities mentioned in (a) above, less income generated by all such activities is allowable to the extent that the net amount is reasonable.

(c) Losses from the operation of food and dormitory services may be included as Cost incurred under (b) above, only if the contractor's objective is to operate such services on a break-even basis. Losses sustained because food services or lodging accommodations are furnished without charge or at prices or rates which civiously would not be conducive to accomplishment of the above objective, are not allowable, except that a loss may be allowed to the extent the contractor can demonstrate that unusual circumstances exist (e.g. (i) where the contractor must provide food or dormitory services at remote locations where adequate commercial facilities are not reasonably available or (ii) where it is necessary to operate a facility at a lower volume than the facility could economically support) such that, even with efficient management, operation of the services on a break-even basis would require charging inordinately high prices or prices or rates higher than those charged by commercial establishments offering the same services in the same geographical areas. Cost food and dormitory services shall include an allocable share of indirect expenses pertaining to these activities.

of

(d) In those situations where the contractor has an arrangement authorizing an employee association to provide or operate a service such as vending machines in the contractor's plant, and retain the profits derived therefrom, such profits shall be treated in the same manner as if the contractor were providing the service (but see (e)).

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CONTRACT COST PRINCIPLES AND PROCEDURES

(e) Contributions by the contractor to an employee crganization, including funds set over from vending rachine receipts or similar sources, may be included as cost incurred under (b) above only to the extent that the contractor demonstrates that an equivalent amount of the costs incurred by the employee organization would be allowable if incurred by the contractor directly.

15.205-11 Entertainment Costs. Costs of amusement, diversion, social activities, and incidental costs relating thereto, such as meals, lodging, rentals, transportation, and gratuities, are unallowable (see 15.205-10 and 15.205-43).

15.205-12 Cost of Idle Facilities and Idle Capacity. (a) As used in this paragraph the words and phrases defined in this subparagraph (a) shall have meanings set forth below.

the

(1) Facilities means plant or any portion thereof (inclusive of land integral to the operation); equipment individually or collectively; or any other tangible capital asset, wherever located, ar.d whether cwned or leased by the contractor.

(2) Idle Facilities means completely facilities that are excess to the contractor's needs.

unused

current

(3) Idle Capacity means the unused capacity of partially used facilities. It is the difference between that which a facility could achieve under 100 percent operating time on a one shift basis* less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays, and the extent to which the facility was actually used to meet demands during the accounting period. (*A multiple shift basis may be used if it can te shown that this amount of usage could normally be expected for the type of facility involved.)

and

(4) Costs of Idle Facilities cr Idle Capacity are costs such as maintenance, repair, housing, rent, cther related costs, e.g., property taxes, insurance, and depreciation.

(b) The costs of idle facilities are unallowable Except to the extent that:

(i) they are necessary to meet workload: or

fluctuations in

(ii) although not necessary to meet fluctuations in workload, they were necessary when acquired and are now idle because of changes in program requirements, contractor efforts to produce more economically,

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