[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: 48CFR42.707]



[Page 798-799]

 

            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



[[Page 799]]



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).

    (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.