[Code of Federal Regulations]
[Title 48, Volume 7]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR9904.406-61]

[Page 349-350]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
     CHAPTER 99--COST ACCOUNTING STANDARDS BOARD, OFFICE OF FEDERAL 
           PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
 
Sec. 9904.406-61  Interpretation.

    (a) Questions have arisen as to the allocation and period cost 
assignment of certain contract costs (primarily under defense contracts 
and subcontracts). This section deals primarily with the assignment of 
restructuring costs to cost accounting periods. In essence, it clarifies 
whether restructuring costs are to be treated as an expense of the 
current period or as a deferred charge that is subsequently amortized 
over future periods.
    (b) Restructuring costs as used in this Interpretation means costs 
that are incurred after an entity decides to make a significant 
nonrecurring change in its business operations or structure in order to 
reduce overall cost levels in future periods through work force 
reductions, the elimination of selected operations, functions or 
activities, and/or the combination of ongoing operations, including 
plant relocations. Restructuring activities do not include ongoing 
routine changes an entity makes in its business operations or 
organizational structure. Restructuring costs are comprised both of 
direct and indirect costs associated with contractor restructuring 
activities taken after a business combination is effected or after a 
decision is made to execute a significant restructuring event not 
related to a business combination. Typical categories of costs that have 
been included in the past and may be considered in the future as 
restructuring charges include severance pay, early

[[Page 350]]

retirement incentives, retraining, employee relocation, lease 
cancellation, asset disposition and write-offs, and relocation and 
rearrangement of plant and equipment. Restructuring costs do not include 
the cost of such activities when they do not relate either to business 
combinations or to other significant nonrecurring restructuring 
decisions.
    (c) The costs of betterments or improvements of capital assets that 
result from restructuring activities shall be capitalized and 
depreciated in accordance with the provisions of 9904.404 and 9904.409.
    (d) When a procuring agency imposes a net savings requirement for 
the payment of restructuring costs, the contractor shall submit data 
specifying
    (1) The estimated restructuring costs by period,
    (2) The estimated restructuring savings by period (if applicable), 
and
    (3) The cost accounting practices by which such costs shall be 
allocated to cost objectives.
    (e) Contractor restructuring costs defined pursuant to this section 
may be accumulated as deferred cost, and subsequently amortized, over a 
period during which the benefits of restructuring are expected to 
accrue. However, a contractor proposal to expense restructuring costs 
for a specific event in a current period is also acceptable when the 
Contracting Officer agrees that such treatment will result in a more 
equitable assignment of costs in the circumstances.
    (f) If a contractor incurs restructuring costs but does not have an 
established or disclosed cost accounting practice covering such costs, 
the deferral of such restructuring costs may be treated as the initial 
adoption of a cost accounting practice (see 9903.302-2(a)). If a 
contractor incurs restructuring costs but does have an existing 
established or disclosed cost accounting practice that does not provide 
for deferring such costs, any resulting change in cost accounting 
practice to defer such costs may be presumed to be desirable and not 
detrimental to the interests of the Government (see 9903.201-6). Changes 
in cost accounting practices for restructuring costs shall be subject to 
disclosure statement revision requirements (see 9903.202-3), if 
applicable.
    (g) Business changes giving rise to restructuring costs may result 
in changes in cost accounting practice (see 9903.302). If a contract 
price or cost allowance is affected by such changes in cost accounting 
practice, adjustments shall be made in accordance with subparagraph 
(a)(4) of the CAS clause (see 9903.201-4(a)(2), 9903.201-4(c)(2) and 
9903.201-4(e)(2)).
    (h) The amortization period for deferred restructuring costs shall 
not exceed five years. The straight-line method of amortization should 
normally be used, unless another method results in a more appropriate 
matching of cost to expected benefits.
    (i) Restructuring costs that are deferred shall not be included in 
the computation to determine facilities capital cost of money (see 
9904.414). Specifically, deferred charges are not tangible or intangible 
capital assets and therefore are excluded from the facilities capital 
values for the computation of facilities capital cost of money.
    (j) Restructuring costs incurred at a home office level shall be 
treated in accordance with the provisions of 9904.403. Restructuring 
costs incurred at the segment level that benefit more than one segment 
should be allocated to the home office and treated as home office 
expense pursuant to 9904.403. Restructuring costs incurred at the 
segment level that benefit only that segment shall be treated in 
accordance with the provisions of 9904.418. If one or more indirect cost 
pools do not comply with the homogeneity requirements of 9904.418 due to 
the inclusion of the costs of restructuring activities, then the 
restructuring costs shall be accumulated in indirect cost pools that are 
distinct from the contractor's ongoing indirect cost pools.
    (k) This section is applicable to contractor ``restructuring costs'' 
paid or approved on or after August 15, 1994.

[62 FR 31308, June 6, 1997]