[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR42.707]

[Page 774-775]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 42_CONTRACT ADMINISTRATION AND AUDIT SERVICES--Table of Contents
 
                    Subpart 42.7_Indirect Cost Rates
 
Sec.  42.707  Cost-sharing rates and limitations on indirect cost rates.

    (a) Cost-sharing arrangements, when authorized, may call for the 
contractor to participate in the costs of the contract by accepting 
indirect cost rates lower than the anticipated actual rates. In such 
cases, a negotiated indirect cost rate ceiling may be incorporated into 
the contract for prospective application. For cost sharing under 
research and development contracts, see 35.003(b).

[[Page 775]]

    (b)(1) Other situations may make it prudent to provide a final 
indirect cost rate ceiling in a contract. Examples of such circumstances 
are when the proposed contractor--
    (i) Is a new or recently reorganized company, and there is no past 
or recent record of incurred indirect costs;
    (ii) Has a recent record of a rapidly increasing indirect cost rate 
due to a declining volume of sales without a commensurate decline in 
indirect expenses; or
    (iii) Seeks to enhance its competitive position in a particular 
circumstance by basing its proposal on indirect cost rates lower than 
those that may reasonably be expected to occur during contract 
performance, thereby causing a cost overrun.
    (2) In such cases, an equitable ceiling covering the final indirect 
cost rates may be negotiated and specified in the contract.
    (c) When ceiling provisions are utilized, the contract shall also 
provide that (1) the Government will not be obligated to pay any 
additional amount should the final indirect cost rates exceed the 
negotiated ceiling rates and, (2) in the event the final indirect cost 
rates are less than the negotiated ceiling rates, the negotiated rates 
will be reduced to conform with the lower rates.