[Code of Federal Regulations]

[Title 48, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR31.106-2]



[Page 597-598]

 

            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

 

                CHAPTER 1--FEDERAL ACQUISITION REGULATION

 

PART 31_CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents

 

                       Subpart 31.1_Applicability

 

Sec. 31.106-2  Exceptions to general rules on allowability and allocability.



    (a) A contractor's established accounting system and procedures are 

normally directed to the equitable allocation of costs to the types of 

products which the contractor produces or services rendered in the 

course of normal operating activities. The acquisition of, or work on, 

facilities for the Government normally does not involve the 

manufacturing processes, plant departmental operations, cost patterns of 

work, administrative and managerial control, or clerical effort usual to 

production of the contractor's normal products or services.

    (b) Advance agreements (see 31.109) should be made between the 

contractor and the contracting officer as to indirect cost items to be 

applied to the facilities acquisition. A contractor's normal accounting 

practice for allocating indirect costs to the acquisition of contractor 

facilities may range from charging all these costs to this acquisition 

to not charging any. When necessary to produce an equitable result, the 

contractor's usual method of allocating indirect cost shall be varied, 

and appropriate adjustment shall be made to the pools of indirect cost 

and the bases of their distribution.

    (c) The purchase of completed facilities (or services in connection 

with the facilities) from outside sources does not involve the 

contractor's direct labor or indirect plant maintenance personnel. 

Accordingly, indirect manufacturing and plant overhead costs, which are 

primarily incurred or generated by reason of direct labor or maintenance 

labor operations, are not allocable to the acquisition of such 

facilities.

    (d) Contracts providing for the installation of new facilities or 

the rehabilitation of existing facilities may involve the use of the 

contractor's plant maintenance labor, as distinguished from direct labor 

engaged in the production of the company's normal products. In such 

instances, only those types of indirect manufacturing and plant 

operating costs that are related to or incurred by reason of the 

expenditures of the classes of labor used for the performance of the 

facilities work may be allocated to the facilities contract. Thus, a 

facilities contract which involves the use of plant maintenance labor 

only would not be subject to an allocation of such cost items as direct 

productive labor supervision, depreciation, and maintenance expense 

applicable to productive machinery and equipment, or raw material and 

finished goods storage costs.



[[Page 598]]



    (e) Where a facilities contract calls for the construction, 

production, or rehabilitation of equipment or other items that are 

involved in the regular course of the contractor's business by the use 

of the contractor's direct labor and manufacturing processes, the 

indirect costs normally allocated to all that work may be allocated to 

the facilities contract.