[Code of Federal Regulations]
[Title 48, Volume 6]
[Revised as of October 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR1631.203-70]

[Page 136-137]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
  CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH 
                     BENEFITS ACQUISITION REGULATION
 
PART 1631_CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents
 
         Subpart 1631.2_Contracts With Commercial Organizations
 
Sec. 1631.203-70  Allocation techniques.

    (a) Carriers shall use the following methods for allocating 
groupings of business unit indirect costs. Carriers shall consistently 
apply the methods and techniques established to classify direct and 
indirect costs, to group indirect costs and to allocate indirect costs 
to cost objectives.
    (1) Input method. The preferred allocation technique is one that 
shows the consumption of resources in performance of the activities 
(input) for the function(s) represented by the cost grouping. This 
allocation technique should be used in circumstances where there is a 
direct and definitive relationship between the function(s) and the 
benefiting cost objectives. Measures of input ordinarily may be 
expressed in terms such as labor hours or square footage. This means 
costs may be allocated by use of a rate, such as a rate per labor hour 
or cost per square foot.
    (2) Output method. Where input measures are unavailable or 
impractical to determine, the basis for allocation may be a measure of 
the output of the function(s) represented by the cost grouping. The 
output becomes a substitute measure for the use of resources and is a 
reasonable alternative when a direct measure of input is impractical. 
Output may be measured in terms of units of end product produced by the 
function(s). Examples of output measures include number of claims 
processed by a claims processing center, number of pages printed in a 
print shop, number of purchase orders processed by a purchasing 
department, or number of hires by a personnel office.
    (3) Surrogate method. Where neither activity (input) nor output of 
the function(s) can be measured practically, a surrogate must be used to 
measure the resources utilized. Surrogates used to represent the 
relationship generally measure the benefit to the cost objectives 
receiving the service and should vary in proportion to the services 
received. For example, if a personnel department provides various 
services that cannot be measured practically on an activity (input) or 
output basis, number of personnel served might reasonably represent the 
use of resources of the personnel function for the cost objectives 
receiving the service, where this base varies in proportion to the 
services performed.
    (4) Other method. Some cost groupings cannot readily be allocated on 
measures of specific beneficial or causal relationships under paragraph 
(a)(1), (a)(2), or (a)(3) of this section. Such costs do not have a 
direct and definitive relationship to the benefiting cost objectives. 
Generally, the cost of overall management activities falls in this 
category. Overall management costs should be grouped in relation to the 
activities managed. The base selected to measure the allocation of these 
indirect costs to cost objectives should be a base representative of the 
entire activity being managed. For example, the total operating expenses 
of activities managed might be a reasonable base for allocating the 
general indirect costs of a business unit. Another reasonable method for 
allocating general indirect costs might be to base them on a percentage 
of contracts. These examples are not meant to be exhaustive, but rather 
are examples of allocation methods that may be acceptable under 
individual circumstances. See also General and Administrative (G&A) 
expenses, FEHBAR 1631.203-71.
    (b) Carriers that use multiple cost centers to accumulate and 
allocate costs shall apply the techniques in paragraph (a) of this 
section at each step of the allocation process. Accordingly, the 
allocation of costs among cost centers at the initial entry into the 
cost accounting system shall be made in compliance with paragraph (a) of 
this section. Likewise, the allocation of the cost of interim cost 
centers to final cost centers is subject to paragraph (a) of this 
section. If costs of final cost centers are allocated among final cost 
objectives, the allocation shall also be made in accordance with 
paragraph (a) of this section. It is possible that carriers using 
multiple cost centers to accumulate and allocate costs may not have any 
direct costs, i.e., costs identified specifically with a final cost 
objective.
    (c) The allocation of business unit general and administrative 
expenses and the allocation of home office expenses to segments are also 
subject to

[[Page 137]]

FEHBAR 1631.203-71 and FEHBAR 1631.203-72, respectively.

[70 FR 31391, June 1, 2005]