SUPPLY AND RESEARCH CONTRACTS WITH COMMERCIAL ORGANIZATIONS

(iii) costs of insurance or of any provision for a reserve covering the risk of loss of or damage to Government property are allowable only to the extent that the contractor is liable for such loss or damage and such insurance or reserve does not cover loss or damage which results from willful misconduct or lack of good faith on the part of any of the contractor's directors or officers, or other equivalent representatives, who has supervision or direction of (A) all or substantially all of the contractor's business, or (B) all or substantially all of the contractor's operations at any one plant or separate location in which the contract is being performed, or (C) a separate and complete industrial operation in connection with the performance of the contract;

(iv) provisions for a reserve under an approved self-insurance program are allowable to the extent that the types of coverage, extent of coverage, and the rates and premiums would have been allowed had insurance been purchased to cover the risks; and

(v) costs of insurance on the lives of officers, partners, or proprietors are allowable only to the extent that the insurance represents additional compensation (see 15.205-6).

(3) Actual losses which could have been covered by permissible insurance (through an approved self-insurance program or otherwise) are unallowable unless expressly provided for in the contract, except:

(i) costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound business practice, are allowable; and

(ii) minor losses not covered by insurance, such as spoilage, breakage, and disappearance of small hand tools, which occur in the ordinary course of doing business, are allowable.

(b) Indemnification includes securing the contractor against liabilities to third persons and any other loss or damage not compensated by insurance or otherwise. The Government is obligated to indemnify the contractor only to the extent expressly provided for in the contract, except as provided in (a)(3) above.

15.205-17 Interest and Other Financial Costs. Interest on borrowings (however represented), bond discounts, costs of financing and refinancing operations, legal and professional fees paid in connection with the preparation of prospectuses, costs of preparation and issuance of stock rights, and costs related thereto, are unallowable except for interest assessed by State or local taxing authorities under the conditions set forth in 15.205-41 (see 15.205-24).

15.205-18 Labor Relations Costs. Costs incurred in maintaining satisfactory relations between the contractor and his employees, including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable.

CONTRACT COST PRINCIPLES AND PROCEDURES

15.205-19 Losses on Other Contracts. An excess of costs over income under any other contract (including the contractor's contributed portion under cost-sharing contracts), whether such other contract is of a supply, research and development, or other nature, is unallowable.

15.205-20 Maintenance and Repair Costs.

(a) Costs necessary for the upkeep of property (including Government property unless otherwise provided for), which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are to be treated as follows (see 15.205-9): (i) normal maintenance and repair costs are allowable; and

(ii) extraordinary maintenance and repair costs are allowable, provided such are allocated to the periods to which applicable for purposes of determining contract costs (see 15.107).

(b) Expenditures for plant and equipment, including rehabilitation thereof, which, according to generally accepted accounting principles as applied under the contractor's established policy, should be capitalized and subjected to depreciation, are allowable only on a depreciation basis.

15.205-21 Manufacturing and Production Engineering Costs. Costs of manufacturing and production engineering, including engineering activities in connection with the following, are allowable:

(i) current manufacturing processes such as motion and time study, methods analysis, job analysis, and tool design and improvement; and

(ii) current production problems, such as materials analysis for production suitability and component design for purposes of simplifying production.

15.205-22 Material Costs.

(a) Material costs include the costs of such items as raw materials, parts, subassemblies, components, and manufacturing supplies, whether purchased outside or manufactured by the contractor, and may include such collateral items as inbound transportation and in-transit insurance. In computing material costs, consideration will be given to reasonable overruns, spoilage, or defective work (unless otherwise provided for in any provision of the contract relating to inspection and correction of defective work). These costs are allowable subject, however, to the provisions of (b) through (e) below.

(b) Costs of material shall be suitably adjusted for applicable portions of income and other credits, including available trade discounts, refunds, rebates, allowances, and cash discounts, and credits for scrap and salvage and material returned to vendors. Such income and other credits shall either be credited directly to the cost of the material involved or be allocated (as credits) to indirect costs. However, where the contractor can demonstrate that failure to take cash discounts was due to reasonable circumstances, such lost discounts need not be so credited.

SUPPLY AND RESEARCH CONTRACTS WITH COMMERCIAL ORGANIZATIONS

(c) Reasonable adjustments arising from differences between periodic physical inventories and book inventories may be included in arriving at costs, provided such adjustments relate to the period of performance of the contract. (d) When the materials are purchased specifically for and identifiable solely with performance under a contract, the actual purchase cost thereof should be charged to the contract. If material is issued from stores, any generally recognized method of pricing such material is acceptable if that method is consistently applied and the results are equitable. When estimates of material costs to be incurred in the future are required, either current market price or anticipated acquisition cost may be used, but the basis of pricing must be disclosed.

(e) Allowance for all materials, supplies and services which are sold or transferred between any division, subsidiary or affiliate of the contractor under a common control shall be on the basis of cost incurred in accordance with this Subpart 2, except that when it is the established practice of the transferring organization to price interorganization transfers of materials, supplies and services at other than cost for commercial work of the contractor or any division, subsidiary or affiliate of the contractor under a common control, allowance may be at a price when:

(i) it is or is based on an "established catalog or market price of commercial items sold in substantial quantities to the general public” in accordance with 3.807-1(b) (2); or

(ii) it is the result of "adequate price competition" in accordance with 3.807-1(b)(1) a and b (i) and (ii), and is the price at which an award was made to the affiliated organization after obtaining quotations on an equal basis from such organization and one or more outside sources which normally produce the item or its equivalent in significant quantity;

provided that in either case:

(1) the price is not in excess of the transferor's current sales price to his most favored customer (including any division, subsidiary or affiliate of the contractor under a common control) for a like quantity under comparable conditions, and

(2) the price is not determined to be unreasonable by the contracting officer; provided, however, that if the price is determined unreasonable, such determination must be supported by an enumeration of facts on which it is based and approved at a level above the contracting officer.

The price determined in accordance with (i) above should be adjusted, when appropriate, to reflect the quantities being procured and may be adjusted upward or downward to reflect the actual cost of any modifications necessary because of contract requirements.

15.205-23 Organization Costs. Expenditures, such as incorporation fees, attorneys' fees, accountants' fees, brokers' fees, fees to promoters and organizers, in connection with (i) organization or reorganization of a business, or (ii) raising capital, are unallowable.

CONTRACT COST PRINCIPLES AND PROCEDURES

15.205-24 Other Business Expenses. Included in this item are such recurring expenses as registry and transfer charges resulting from changes in ownership of securities issued by the contractor, cost of shareholders' meetings, normal proxy solicitations, preparation and publication of reports to shareholders, preparation and submission of required reports and forms to taxing and other regulatory bodies, and incidental cost of directors' and committee meetings. The above and similar costs are allowable when allocated on an equitable basis.

(a) Relocation costs, for the purpose of this Subpart 2, are costs incident to the permanent change of duty assignment (for an indefinite period or for a stated period of not less than 12 months) of an existing employee or upon recruitment of a new employee. These costs may include, but are not limited to: (i) cost of travel of the employee and members of his immediate family (see 15.205-46) and transportation of his household and personal effects to the new location;

(ii) cost of finding a new home, such as advance trips by employees and spouses to locate living quarters, and temporary lodging during the transition period;

(iii) closing costs (i.e., brokerage fees, legal fees, appraisal fees, etc.) incident to the disposition of actual residence owned by the employee when notified of transfer;

(iv) other necessary and reasonable expenses normally incident to relocation, such as cost of canceling an unexpired lease, disconnecting and reinstalling household appliances, and purchase of insurance against damage to or loss of personal property;

(v) loss on sale of home;

(vi) acquisition of a home in a new location and all costs incident thereto;

(vii) continuing costs of ownership of the vacant former actual residence being sold, such as maintenance of building and grounds (exclusive of fixing-up expenses), utilities, taxes, property insurance, etc., after settlement date or lease date of new permanent residence; and

(viii) continuing mortgage principal and interest payments on residence being sold.

(b) Subject to (c) below, relocation costs of the type covered in (a) (i), (ii), (iii), (iv) and (vii) above are allowable, provided

(i) the move is for the benefit of the employer;

(ii) reimbursement is in accordance with an established policy or practice consistently followed by the employer, and such policy or practice is designed to motivate employees to relocate promptly and economically;

SUPPLY AND RESEARCH CONTRACTS WITH COMMERCIAL ORGANIZATIONS

(iii) the costs are not otherwise unallowable under the provisions of 15.205-33, or any other paragraph of Subpart 2 (see 15.107 as related to large scale contractor relocation); and

(iv) amounts to be reimbursed shall not exceed the employee's actual (or reasonably estimated) expenses.

(c) Costs otherwise allowable under (b) above are subject to the following additional provisions:

(i) the transition period for incurrence of costs of the type covered in (a)(ii) above shall be kept to the minimum number of days necessary under the circumstances, but shall not, in any event, exceed a cumulative total of 30 days including advance trip time; (ii) allowance for the combined total of costs of the type covered in (a)(iii) and (a)(vii) above shall not exceed 8% of the sales price of the property sold; and

(iii) costs of canceling an unexpired lease under (a) (iv) shall not exceed

3 times the monthly rental.

Costs of the type covered in (a) (iii), (a)(iv) and (a)(vii) above are allowable only in connection with the relocation of existing employees, and are not allowable for newly recruited employees.

(d) Costs of the type covered in (a)(v), (a)(vi), and (a)(viii) above are not allowable.

(e) Payments for employee income taxes incident to reimbursed relocation costs are unallowable.

(a) Costs of (i) preparing disclosures, reports, and other documents required by the contract and of searching the art to the extent necessary to make such invention disclosures, (ii) preparing documents and any other patent costs, in connection with the filing and prosecution of a United States patent application on an invention to which the Government acquires title or a royalty-free license pursuant to a government contract or Section 305 of the National Aeronautics and Space Act of 1958 (42 U.S.C. 2457), and (iii) general counseling services relating to patent matters, such as advice on patent laws, regulations, clauses, and employee agrements, are allowable (but see 15.205–31).

(b) Cost of preparing documents and any other patent costs, in connection with the filing and prosecution of any foreign patent application, or of a United States patent application on an invention to which the Government does not acquire title or a royalty-free license, are unallowable. (also see 15.205-36)

15.205-27 Pension Plans. See 15.205-6.

15.205-28 Plant Protection Costs. Costs of items such as (i) wages, uniforms, and equipment of personnel engaged in plant protection, (ii) depreciation on plant protection capital assets, and (iii) necessary expenses to comply with security requirements, are allowable.

15.205-29 Plant Reconversion Costs. Plant reconversion costs are those incurred in the restoration or rehabilitation of the contractor's facilities to

NASA PROCUREMENT REGULATION

115.205-29