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Defense Federal Acquisition Regulation Supplement

{Part 231}--Contract Cost Principles and Procedures

TABLE OF CONTENTS

SUBPART 231.1--APPLICABILITY

231.100 Scope of subpart.

231.100-70 Contract clause.

SUBPART 231.2--CONTRACTS WITH COMMERCIAL ORGANIZATIONS

231.205 Selected costs.

231.205-6 Compensation for personal services.

231.205-10 Cost of money.

231.205-18Independent research and development and bid and proposal costs.

231.205-22 Legislative lobbying costs.

231.205-70 Restructuring costs.

231.205-71 Defense capability preservation agreements.

SUBPART 231.3--CONTRACTS WITH EDUCATIONAL INSTITUTIONS

231.303 Requirements.

SUBPART 231.6--CONTRACTS WITH STATE, LOCAL, AND FEDERALLY RECOGNIZED INDIAN TRIBAL GOVERNMENTS

231.603 Requirements.

SUBPART 231.7--CONTRACTS WITH NONPROFIT ORGANIZATIONS

231.703 Requirements.

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Part 231--Contract Cost Principles and Procedures

PART 231 CONTRACT COST PRINCIPLES AND PROCEDURES

SUBPART 231.1--APPLICABILITY

{231.100} Scope of subpart.

{231.100-70} Contract clause.

Use the clause at 252.231-7000, Supplemental Cost Principles, in all solicitations and contracts, which are subject to the principles and procedures described in FAR Subparts 31.1, 31.2, 31.6, or 31.7.

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SUBPART 231.2--CONTRACTS WITH COMMERCIAL ORGANIZATIONS

{231.205} Selected costs.

[Amended per DFARS Case 96-D332, D.L. 96-020, 15 Nov 96]

{231.205-6} Compensation for personal services.

(a)(2)(i)Costs for individual compensation in excess of $250,000 per year are unallowable under DoD contracts that are awarded after April 15, 1995, and are funded by fiscal year 1995 DoD appropriations (Section 8117 of Pub. L. 103-335).

(ii)Costs for individual compensation in excess of $200,000 per year are unallowable under DoD contracts that are awarded after July 1, 1996, and are funded by fiscal year 1996 appropriations (Section 8086 of Pub. L. 104-61)

(f)(1)Costs for bonuses or other payments in excess of the normal salary paid by the contractor to an employee, that are part of restructuring costs associated with a business combination, are unallowable under DoD contracts funded by fiscal year 1996 appropriations (Section 8122 of Pub. L. 104-61)[or fiscal year 1997 aoorioruatuibs (Section 8095 of Pub.L. 104-208]. This limitation does not apply to severance payments or early retirement incentive payments. (See 231.205-70(b) for the definitions of "business combination" and "restructuring costs.")

{231.205-10} Cost of money.

The contractor also must comply with Subpart 230.70 and maintain records to demonstrate compliance.

{231.205-18} Independent research and development and bid and proposal costs.

(c)(1)(i)(C)(1)Total incurred IR&D/B&P costs, including total IR&D/B&P ceiling amounts which are negotiated pursuant to FAR 31.205-18(c)(1), are fully allocable to all final cost objectives of the contractor. The amount of IR&D/B&P costs allowable under contracts which are subject to advance agreements negotiated by DoD shall not exceed the lesser of--

(i)Such contracts allocable share of incurred IR&D/B&P costs;

(ii)Such contracts allocable share of the total IR&D/B&P ceiling; or

(iii)The amount of incurred IR&D/B&P costs for projects having potential interest to DoD.

(2)Allowable IR&D/B&P costs are limited to those for projects which are of potential interest to DoD, including activities that--

(i)Strengthen the defense industrial and technology base of the United States;

(ii)Enhance the industrial competitiveness of the United States;

(iii)Promote the development of technologies identified as critical in the plan required under 10 U.S.C. 2508;

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Part 231--Contract Cost Principles and Procedures

(iv)Increase the development of technologies useful for both the private commercial sector and the public sector; or

(v)Develop efficient and effective technologies for achieving such environmental benefits as improved environmental data gathering, environmental cleanup and restoration, pollution-reduction in manufacturing, environmental conservation, and environmentally safe management of facilities.

(3) The contracting officer will--

(i)Determine whether IR&D/B&P projects are of potential interest to DoD; and

(ii)Provide the results of the determination to the contractor.

(4)See 225.7303 for additional allowability provisions affecting foreign military sale contracts.

(2)Departments/agencies shall not supplement this regulation in any way that limits IR&D/B&P cost allowability. See 225.7303-2 for allowability exceptions for foreign military sales contracts.

(i)In addition to the limitations in FAR 31.205-18(c)(2)(i), for major contractors--

(1)The amount of IR&D/B&P costs allowability under DoD contracts shall not exceed the lesser of--

(i)Such contracts' allocable share of incurred IR&D/B&P costs;

(ii)Such contracts' allocable share of the contractor's total maximum allowable amount; or

(iii)The amount of incurred IR&D/B&P costs for projects having potential interest to DoD.

(2)Allowable IR&D/B&P costs are limited to those for projects which are of potential interest to the DoD, including activities intended to accomplish any of the following--

(i)Enable superior performance of future U.S. weapon systems and components;

(ii)Reduce acquisition costs and life-cycle costs of military systems;

(iii)Strengthen the defense industrial and technology base of the United States;

(iv)Enhance the industrial competitiveness of the United States;

(v)Promote the development of technologies identified as critical under 10 U.S.C. 2522;

(vi)Increase the development and promotion of efficient and effective applications of dual-use technologies;

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(vii)Provide efficient and effective technologies for achieving such environmental benefits as: improved environmental data gathering, environmental cleanup and restoration, pollution reduction in manufacturing, environmental conservation, and environmentally safe management of facilities.

(ii)The cognizant contract administration office shall furnish contractors with guidance on financial information needed to support IR&D/B&P costs and on technical information needed from major contractors to support the potential interest to DoD determination (see also 242.771-3(a)).

(iii)The total maximum allowable amount limitation may be waived at a level above the contracting officer. A waiver may be appropriate for contractors whose significant growth in sales or IR&D/B&P spending justify higher levels of reimbursement.

{231.205-22} Legislative lobbying costs.

(a)Preparing any material, report, list, or analysis on the actual or projected economic or employment impact in a particular State or congressional district of an acquisition program for which all research, development, testing and evaluation has not been completed (Section 9048 of Pub. L. 102-396).

{231.205-70} External restructuring costs.

(a) Scope.

This subsection prescribes policies and procedures for allowing contractor external restructuring costs when net savings would result for DoD. This subsection also implements Section 818 of the National Defense Authorization Act for Fiscal Year 1995 (Pub. L. 103-337).

(b)Definitions.

As used in this subsection:

(1)"Business combination" means a transaction whereby assets or operations of two or more companies not previously under common ownership or control are combined, whether by merger, acquisition, or sale/purchase of assets.

(2)"External restructuring activities" means restructuring activities occurring after a business combination that affect the operations of companies not previously under common ownership or control. They do not include restructuring activities occurring after a business combination that affect the operations of only one of the companies not previously under common ownership or control, or, when there has been no business combination, restructuring activities undertaken within one company. External restructuring activities are a direct outgrowth of a business combination. They normally will be initiated within 3 years of the business combination.

(3)"Restructuring activities" means nonroutine, nonrecurring, or extraordinary activities to combine facilities, operations, or workforce, in order to eliminate redundant capabilities, improve future operations, and reduce overall costs. Restructuring activities do not include routine or ongoing repositionings and redeployments of a contractor's productive facilities or workforce (e.g., normal plant rearrangement or employee relocation), nor do they include other routine or ordinary activities charged

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as indirect costs that would otherwise have been incurred (e.g., planning and analysis, contract administration and oversight, or recurring financial and administrative support).

(4)"Restructuring costs" means the costs, including both direct and indirect, of restructuring activities. Restructuring costs that may be allowed include, but are not limited to, severance pay for employees, early retirement incentive payments for employees, employee retraining costs, relocation expense for retained employees, and relocation and rearrangement of plant and equipment. For purposes of this definition, if restructuring costs associated with external restructuring activities allocated to DoD contracts are less than $2.5 million, the costs shall not be subject to the audit, review, and certification requirements of 231.205-70(c)(1); instead, the normal rules for determining cost allowability in accordance with FAR Part 31 shall apply.

(5)"Restructuring savings" means cost reductions, including both direct and indirect cost reductions, that result from restructuring activities. Reassignments of cost to future periods are not restructuring savings.

(c)Limitations on cost allowability.

(1)Restructuring costs associated with external restructuring activities shall not be allowed unless--

(i)Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231;

(ii)An audit of projected restructuring costs and restructuring savings is performed;

(iii)The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, determines that overall reduced costs should result for DoD, and negotiates an advance agreement in accordance with 231.205-70(d)(8); and

(iv)A certification is made by the Under Secretary of Defense (Acquisition & Technology), his Principal Deputy or designee (in all cases, an individual appointed by the President and confirmed by the Senate), that projections of future restructuring savings resulting for DoD from the business combination are based on audited cost data and should result in overall reduced costs for DoD.

(2)The audit, review, and certification required by 231.205-70(c)(1) shall not apply to any business combination for which payments for restructuring costs were made before August 15, 1994, or for which the cognizant ACO executed an advance agreement establishing cost ceilings based on audit/negotiation of detailed cost proposals for individual restructuring projects before August 15, 1994.

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(d)Procedures and ACO responsibilities.

As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall:

(1)Promptly execute a novation agreement, if one is required, in accordance with FAR Subpart 42.12 and DFARS Subpart 242.12 and include the provision at DFARS 242.1204(e).

(2)Direct the contractor to segregate restructuring costs and to suspend these amounts from any billings, final contract price settlements, and overhead settlements until the certification in 231.205-70(c)(1)(iv) is obtained.

(3)Require the contractor to submit an overall plan of restructuring activities and an adequately supported proposal for planned restructuring projects. The proposal must include a breakout by year by cost element, showing the projected restructuring costs and projected restructuring savings.

(4)Notify major buying activities of contractor restructuring actions and inform them about any potential monetary impacts on major weapons programs, when known.

(5)Upon receipt of the contractor's proposal, as soon as practicable, adjust forward pricing rates to reflect the impact of projected restructuring savings. If restructuring costs are included in forward pricing rates prior to execution of an advance agreement in accordance with 231.205-70(d)(8), the contracting officer shall include a repricing clause in each fixed-price action that is priced based on the rates. The repricing clause must provide for a downward price adjustment to remove restructuring costs if the certification required by 231.205-70(c)(1)(iv) is not obtained.

(6)Upon receipt of the contractor's proposal, immediately request an audit review of the contractor's proposal.

(7)Upon receipt of the audit report, determine if restructuring savings will exceed restructuring costs on a present value basis.

(8)Negotiate an advance agreement with the contractor setting forth, at a minimum, a cumulative cost ceiling for restructuring projects and, when necessary, a cost amortization schedule. The cost may not exceed the amount of projected restructuring savings on a present value basis. The advance agreement shall not be executed until the certification required by 231.205-70(c)(1)(iv) is obtained.

(9)Submit to the Director of Defense Procurement, Office of the Under Secretary of Defense (Acquisition & Technology), ATTN: OUSD(A&T)DP/CPF, a recommendation for certification of net benefit. Include the information described in 231.205-70(e).

(e)Information needed to obtain certification of net benefit.

(1)The novation agreement (if one is required).

(2)The contractor's restructuring proposal.

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(3) The proposed advance agreement.

(4)The audit report.

(5)Any other pertinent information.

(6)The cognizant ACO's recommendation for certification. This recommendation must clearly indicate that contractor projections of future cost savings resulting for DoD from the business combination are based on audited cost data and should result in overall reduced costs for the Department.

{231.205-71} Defense capability preservation agreements.

(a)Scope and authority.

Where it would facilitate the achievement of the policy objectives relating to defense reinvestment, diversification, and conversion set forth in 10 U.S.C. 2501(b), DoD may enter into a "defense capability preservation agreement" with a contractor. As authorized by Section 808 of the National Defense Authorization Act for Fiscal Year 1996 (Pub. L. 104-106), such an agreement would permit the contractor to claim certain indirect costs attributable to its private sector work as allowable costs on its defense contracts.

(b)Procedure.

A contractor may submit a request for such an agreement, together with appropriate justification, through the Deputy Under Secretary of Defense for Industrial Affairs and Installations, to the Under Secretary of Defense for Acquisition and Technology, who has exclusive approval or disapproval authority. The contractor should also provide an informational copy of any such request to the cognizant administrative contracting officer.

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SUBPART 231.3--CONTRACTS WITH EDUCATIONAL INSTITUTIONS

{231.303} Requirements.

(1)Pursuant to section 841 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160, no limitation may be placed on the reimbursement of otherwise allowable indirect costs incurred by an institution of higher education under a DoD contract awarded on or after November 30, 1993, unless that same limitation is applied uniformly to all other organizations performing similar work under DoD contracts. The 26 percent limitation imposed on administrative indirect costs by OMB Circular No. A-21 shall not be applied to DoD contracts awarded on or after November 30, 1993, to institutions of higher education because the same limitation is not applied to other organizations performing similar work.

(2)The cognizant administrative contracting officer may waive the prohibition in 231.303(1) if the governing body of the institution of higher education requests the waiver to simplify the institution's overall management of DoD cost reimbursements under DoD contracts.

(3)The limitations on allowable individual compensation at 231.205-6(a)(2)(i) and (ii) also apply to this subpart.

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SUBPART 231.6--CONTRACTS WITH STATE, LOCAL, AND FEDERALLY

RECOGNIZED INDIAN TRIBAL GOVERNMENTS

{231.603} Requirements.

The limitations on allowable individual compensation at 231.205-6(a)(2)(i) and (ii) also apply to this subpart.

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SUBPART 231.7--CONTRACTS WITH NONPROFIT ORGANIZATIONS

{231.703} Requirements.

The limitations on allowable individual compensation at 231.205-6(a)(2)(i) and (ii) also apply to this subpart.

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