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CONTRACT COST PRINCIPLES AND PROCEDURES

(2) Furthermore, the cost of leasing ADPE are allowable only to the extent that the contractor can annually demonstrate in accordance with (d) below that such costs meet the criteria set forth in (il through (iii) hereunder. The aforementioned requirement for an annual demonstration is applicable irrespective of whether the term of the lease was renewed or otherwise extended by the contractor.

(i) the costs are reasonable and necessary for the conduct of the contractor's business in light of such factors as the contractor's requirements for ADPE, costs of comparable facilities, the various types of leases available and the provisions of the rental agreement;

(ii) the costs do not give rise to a material equity in the facilities

(such

as an option to renew or purchase at a bargain rental or price) other than that normally given to industry at large but represent charges only for the current use of the equipment including but not limited to any incidental service costs such as, maintenance, insurance, and applicable taxes; and

(iii) if the total cost of leasing the ADPE is to be allocated to one or more Government contracts, requiring the negotiation or determination of costs, or if the total cost of leasing ADPE in a single plant division or cost center exceeds $500,000 per year and 50% or more of the total leasing cost is to be allocated to Government contracts, requiring the negotiation or determination of costs, the approval of the contracting officer was obtained for the leasing arrangement (see (d) (3) below, 15.107 and 3.1100).

(3) Rental costs under a sale and leaseback arrangement shall be allowable only up to the amount the

contractor would be allowed had he retained title to the ADPE, except that rental costs may be allowed in accordance with (b) (1) and (2) above (i) where the sale and leaseback immediately followed purchase of the ACPE, or (ii) where the sale and leaseback is otherwise in the best interest of the Government.

(4) Rental costs of ADPE which is leased from any division, subsidiary, or organization under common control shall be limited to the cost of ownership (excluding interest or other unallowable costs pursuant to Part 15, Subpart 2) except as provided in 1b) (5) below.

(5) Rental costs of ADPE which is leased from any division, subsidiary or organization under a common

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CFR TITLE 41 CHAPTER 18

CONTRACTS WITH COMMERCIAL ORGANIZATIONS

control which has an established practice of leasing the same or similar equipment to unaffiliated lessees shall be allowed in accordance with (b) (1) and (2) above, except the purchase price for the purposes of (b) (1) above and costs of ownership for the purpose of (c) (2) below shall be determined in accordance with 15. 205-22 (e).

(c) (1) An estimate of the anticipated useful life of the property may represent the application life (utility in a given function, technological life (utility before becoming obsolete in whole or in part). cr physical life (utility before physically wearing out), depending upon the facts and circumstances and the particular facilities involved. Therefore, each case must be evaluated individually. In estimating anticipated useful life, the contractor may use the application life if he can clearly demonstrate that the facility has utility only in a given function and the duration of the function can be determined. Technological life may be used by the contractor if he can demonstrate that existing facilities must be replaced because of:

(i) specific program objectives or contract requirements which cannot be accomplished with the existing facilities;

(ii) cost reductions which will produce identifiable savings in production or overhead costs;

(iii) increase in workload volume which cannot be accomplished efficiently by modifying or augmenting existing facilities; or

(iv) consistent pattern of capacity operation (2-1/2 to 3 shifts) on existing facilities. Technological advances per se will not justify replacement of existing facilities before the end of their physical life if such existing facilities will be able to satisfy future requirements or demands.

(2) In estimating the least cost to the Government for such useful life, the cumulative costs that would be allowed if the contractor owned the property should be compared with cumulative costs that would be allowed under any of the various types of leasing arrangements available, For the purposes of this comparison, the costs of ADPE exclude interest or other unallowable costs, pursuant to Part 15, Subpart 2; they include but are not limited to the costs of operation, maintenance, ins

surance, depreciation, and rental, and the cost of rrachine services, as applicable.

NASA PROCUREMENT REGULATION

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CONTRACT COST PRINCIPLES AND PROCEDURES

(3)

(a) (1) Except as provided in (3) below, the contractor's justification, under (b) (1) above, of his leasing decisions shall consist of but is not limited to the following supporting data, prepared prior to acquisition:

(i) analysis of utilization of existing ADPE;
(ii) application of the criteria in (b) above;

(iii) specific objectives or requirements, generally in the form of a data system study and data system specification;

(iv) solicitation of proposals from qualified sources based on the data system specification; and

(v) proposals received in response to the solicitation, and reasons for selection of the equipment chosen and for the decision to lease.

(2) Except as provided in (3) below, the contractor's annual justification, under (b) (2) above, of his decision to retain or change his existing ADPE capability and the need to continue leasing that capability shall consist of but is not limited to current data as specified in (i) through (iii) above.

When a contractor's prospective ADPE le a se cost equals or exceeds the thresholds specified in 15. 20548 (b) (2) (iii), data in support of the initial decision to lease, under (b) (1) above, shall be furnished in accordance with 3. 1101-3. If the total cost of leasing ADPE in a single plant, division, or cost center exceeds $500,000 per year, and 50% or more of the total leasing cost is allocated to Government contracts requiring the negotiation or determination of costs, data in support of the annual justification, under (b) (2) above, for retention or change of existing ADPE capability and the need to continue leasing that ca pability shall also be furnished in accordance with 3. 1101-3.

15. 205-49 Reserved
15, 205-50 Facilities_Capital cost of money,

(a) Facilities capital cost of money (Cost of capital Committed to Facilities) is an imputed cost determined by applying a cost of money rate to facilities capital employed in support of contracts. A cost of money rate is derived from a common source and uniformly imputed to all contractors. Capital employed is determined without regard to its source as between equity or borrowed capital. The resulting cost of money is an imputed cost and is not a form of interest on borrowing as discussed in 15. 205-17.

CFR TITLE 41 CHAPTER 18

CONTRACTS WITH COMMERCIAL ORGANIZATIONS

(b) Pacilities capital cost of money is allowable cost provided (i) the contractor's capital investment is measured, allocated to contracts, and costed in accordance with 3.1300, and (ii) the contractor ma intains adequate records to demonstrate compliance with item (i).

(c) Cost of money for facilities capital need not be entered on the company's books of account. However,

a memorandum entry of the cost shall be made. All relevant schedules, cost data and other data necessary to fully support the entry shall be maintained in a manner to permit audit and verification.

(d) cost of money which is calculated, allocated and documented in accordance with these regulations shall te deemed an "incurred cost" for reimbursement purposes under cost type contracts, and for progress payment purposes under fixed-price type contracts.

NASA PROCUREMENT REGULATION

Subpart 3-Determining Costs With Educational Institutions

15.301 Purpose and Scope.

15.301-1 Objectives. This Subpart provides principles for determining the costs applicable to research and development work performed by educational institutions under grants from and contracts with the Federal Government. These principles are confined to the subject of cost determination and make no attempt to identify the circumstances or dictate the extent of agency and institutional participation in the financing of a particular research or development project. The principles are designed to provide recognition of the full allocated costs of such research work under generally accepted accounting principles. No provision for profit or other increment above cost is intended. (See Appendix O for Cost Accounting Standards Board Cost Accounting Standards.)

15.301-2 Policy Guides. The successful application of these principles requires development of mutual understanding between representatives of universities and of the National Aeronautics and Space Administration as to their scope, implementation, and interpretation. It is recognized that

(a) The arrangements for NASA and institutional participation in the financing of a research and development project are properly subject to negotiation between NASA and the institution concerned in accordance with such Government-wide criteria as may be applicable.

(b) Each college and university, possessing its own unique combination of staff, facilities and experience, should be encouraged to conduct research in a manner consonant with its own academic philosophies and institutional objectives.

(c) Each institution, in the fulfillment of its obligations, should be expected to employ sound management practices.

(d) The application of the principles established herein should require no significant changes in the generally accepted accounting practices of colleges and universities.

(e) All NASA activities involved in negotiating indirect cost rates and auditing should assure that institutions are generally applying the cost principles and standards herein provided on a consistent basis. Where wide variations exist in the treatment of a given cost item among institutions, the reasonableness and equitableness of such treatments should be fully considered during the rate negotiations and audit.

15.301-3 Application. All NASA activities that sponsor research and development work at educational institutions should apply these principles and related policy guides in determining the costs incurred for such work under any type of research and development agreement. These principles should be used also as a guide in the pricing of fixed price contracts or lump sum agreements.

15.302 Definition of Terms.

15.302-1 Organized Research means all research activities of an institution that are separately budgeted and accounted for.

15.302-2 Departmental Research means research activities that are not separately budgeted and accounted for. Such research work, which includes all research activities not encompassed under the term organized research, is regarded for purposes of this document as a part of the instructional activities of the institution.

15.302-3 Research Agreement means any valid arrangement to perform Federally-sponsored research, including grants, cost-reimbursement type

NASA PROCUREMENT REGULATION

15.302-3

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