Difference between revisions of "DFAR 231.205-70 External Restructuring Costs"

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{{Cost Allowability
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|Allowable or Unallowable=Unallowable, Allowable
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|Regulation Source=Defense Federal Acquisition Regulation (DFAR)
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}}
 
==Regulation Citation<ref>DFAR 231.205-70 External Restructuring Costs</ref>==
 
==Regulation Citation<ref>DFAR 231.205-70 External Restructuring Costs</ref>==
 
==(a)  Scope.  This subsection—==
 
==(a)  Scope.  This subsection—==
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''(Click on the term to be taken to the definition, there will be a related link to get you back to this page)''
 
''(Click on the term to be taken to the definition, there will be a related link to get you back to this page)''
  
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*(1) [[Business Combination]]  
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(1) '''[[Business Combination]]'''
  
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*(2) [[External Restructuring Activities]]  
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(2) '''[[External Restructuring Activities]]'''
  
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*(3) [[Restructuring Activities]] means nonroutine, nonrecurring, or extraordinary activities to combine facilities, operations, or workforce, in order to eliminate redundant capabilities, improve future operations, and reduce overall costs.  Restructuring activities do not include routine or ongoing repositionings and redeployments of a contractor’s productive facilities or workforce (e.g., normal plant rearrangement or employee relocation), nor do they include other routine or ordinary activities charged as indirect costs that would otherwise have been incurred (e.g., planning and analysis, contract administration and oversight, or recurring financial and administrative support).
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(3) '''[[Restructuring Activities]]'''
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*(4) [[Restructuring Costs]] means the costs, including both direct and indirect, of restructuring activities.  Restructuring costs that may be allowed include, but are not limited to, severance pay for employees, early retirement incentive payments for employees, employee retraining costs, relocation expense for retained employees, and relocation and rearrangement of plant and equipment.  For purposes of this definition, if restructuring costs associated with external restructuring activities allocated to DoD contracts are less than $2.5 million, the costs shall not be subject to the audit, review, and determination requirements of paragraph (c)(4) of this subsection; instead, the normal rules for determining cost allowability in accordance with FAR Part 31 shall apply.
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(5) [[Restructuring Savings]] means cost reductions, including both direct and indirect cost reductions, that result from restructuring activities.  Reassignments of cost to future periods are not restructuring savings.
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(4) '''[[Restructuring Costs]]'''
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(5) '''[[Restructuring Savings]]'''
  
 
==(c)  Limitations on Cost Allowability==
 
==(c)  Limitations on Cost Allowability==
 
Restructuring costs associated with external restructuring activities shall not be allowed unless—
 
Restructuring costs associated with external restructuring activities shall not be allowed unless—
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*(1)  Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231;
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*(2)  An audit of projected restructuring costs and restructuring savings is performed;
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(1)  Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231;
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*(3)  The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and
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*(4)(i)  The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either¾
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(2)  An audit of projected restructuring costs and restructuring savings is performed;
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**(A)  The costs allowed by a factor of at least two to one; or
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**(B)  The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD.
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(3)  The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and
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***(ii)(A)  If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition, Technology, and Logistics) or the Principal Deputy.  This authority may not be delegated below the level of an Assistant Secretary of Defense.
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***(B)  For all other cases, the designated official is the Director of the Defense Contract Management Agency.  The Director may not delegate this authority.
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(4)(i)  The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either
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:*(A)  '''The costs allowed by a factor of at least two to one'''; or
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:*(B)  '''The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD.'''
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::*(ii)(A)  If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition, Technology, and Logistics) or the Principal Deputy.  This authority may not be delegated below the level of an Assistant Secretary of Defense.
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::*(B)  For all other cases, the designated official is the Director of the Defense Contract Management Agency.  The Director may not delegate this authority.
  
 
==(d)  Procedures and ACO Responsibilities==
 
==(d)  Procedures and ACO Responsibilities==
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As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall follow the procedures at PGI 231.205-70(d) (DFARS/PGI view).
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As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall follow the procedures at '''[[PGI 231.205-70 - External Restructuring Costs]]'''.
  
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==(e)  Information Needed to Obtain a Determination==
 
==(e)  Information Needed to Obtain a Determination==
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*(1)  The novation agreement (if one is required).
 
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*(2)  The contractor’s restructuring proposal.
 
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*(3)  The proposed advance agreement.
 
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*(4)  The audit report.
 
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*(5)  Any other pertinent information.
 
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*(6)  The cognizant ACO’s recommendation for a determination.  This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection:
 
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**(i)  The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis.
 
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**(ii)  The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis.
 
  
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(1) The novation agreement (if one is required).
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(2)  The contractor’s restructuring proposal.
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(3)  The proposed advance agreement.
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(4)  The audit report.
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(5)  Any other pertinent information.
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(6)  The cognizant ACO’s recommendation for a determination.  This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection:
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:*(i)  The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis.
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:*(ii)  The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis.
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==(f)  Contracting Officer Responsibilities==  
 
==(f)  Contracting Officer Responsibilities==  
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*(1)  The contracting officer, in consultation with the cognizant ACO, should consider including a repricing clause in noncompetitive fixed-price contracts that are negotiated during the period between¾
 
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**(i)  The time a business combination is announced; and
 
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**(ii)  The time the contractor’s forward pricing rates are adjusted to reflect the impact of restructuring.
 
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*(2)  The decision to use a repricing clause will depend upon the particular circumstances involved, including¾
 
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**(i)  When the restructuring will take place;
 
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**(ii)  When restructuring savings will begin to be realized;
 
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**(iii)  The contract performance period;
 
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**(iv)  Whether the contracting parties are able to make a reasonable estimate of the impact of restructuring on the contract; and
 
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**(v)  The size of the potential dollar impact of restructuring on the contract.
 
  
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(1) The contracting officer, in consultation with the cognizant ACO, should consider including a repricing clause in noncompetitive fixed-price contracts that are negotiated during the period between
  
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(3)  If the contracting officer decides to use a repricing clause, the clause must provide for a downward-only price adjustment to ensure that DoD receives its appropriate share of restructuring net savings.
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:*(i)  The time a business combination is announced; and
  
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:*(ii)  The time the contractor’s forward pricing rates are adjusted to reflect the impact of restructuring.
  
  
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(2)  The decision to use a repricing clause will depend upon the particular circumstances involved, including¾
  
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:*(i)  When the restructuring will take place;
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:*(ii)  When restructuring savings will begin to be realized;
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:*(iii)  The contract performance period;
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:*(iv)  Whether the contracting parties are able to make a reasonable estimate of the impact of restructuring on the contract; and
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:*(v)  The size of the potential dollar impact of restructuring on the contract.
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(3)  If the contracting officer decides to use a repricing clause, the clause must provide for a downward-only price adjustment to ensure that DoD receives its appropriate share of restructuring net savings.
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==Related Pages==
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[[Organization Costs]]
  
 
==References==
 
==References==
 
<References/>
 
<References/>
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[[Category:Restructuring Costs]]

Latest revision as of 20:34, 28 March 2015

Allowable or Unallowable: Unallowable, Allowable

Source: "Defense Federal Acquisition Regulation (DFAR)" is not in the list of possible values (Other, FAR, DFAR) for this property.

Contents

Regulation Citation[1]

(a) Scope. This subsection—

  • (1) Prescribes policies and procedures for allowing contractor external restructuring costs when savings would result for DoD; and
  • (2) Implements 10 U.S.C. 2325.

(b) Definitions

As used in this subsection:

(Click on the term to be taken to the definition, there will be a related link to get you back to this page)

(1) Business Combination

(2) External Restructuring Activities

(3) Restructuring Activities

(4) Restructuring Costs

(5) Restructuring Savings

(c) Limitations on Cost Allowability

Restructuring costs associated with external restructuring activities shall not be allowed unless—

(1) Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231;

(2) An audit of projected restructuring costs and restructuring savings is performed;

(3) The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and

(4)(i) The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either

  • (A) The costs allowed by a factor of at least two to one; or
  • (B) The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD.
  • (ii)(A) If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition, Technology, and Logistics) or the Principal Deputy. This authority may not be delegated below the level of an Assistant Secretary of Defense.
  • (B) For all other cases, the designated official is the Director of the Defense Contract Management Agency. The Director may not delegate this authority.

(d) Procedures and ACO Responsibilities

As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall follow the procedures at PGI 231.205-70 - External Restructuring Costs.

(e) Information Needed to Obtain a Determination

(1) The novation agreement (if one is required).

(2) The contractor’s restructuring proposal.

(3) The proposed advance agreement.

(4) The audit report.

(5) Any other pertinent information.

(6) The cognizant ACO’s recommendation for a determination. This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection:

  • (i) The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis.
  • (ii) The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis.

(f) Contracting Officer Responsibilities

(1) The contracting officer, in consultation with the cognizant ACO, should consider including a repricing clause in noncompetitive fixed-price contracts that are negotiated during the period between

  • (i) The time a business combination is announced; and
  • (ii) The time the contractor’s forward pricing rates are adjusted to reflect the impact of restructuring.


(2) The decision to use a repricing clause will depend upon the particular circumstances involved, including¾

  • (i) When the restructuring will take place;
  • (ii) When restructuring savings will begin to be realized;
  • (iii) The contract performance period;
  • (iv) Whether the contracting parties are able to make a reasonable estimate of the impact of restructuring on the contract; and
  • (v) The size of the potential dollar impact of restructuring on the contract.


(3) If the contracting officer decides to use a repricing clause, the clause must provide for a downward-only price adjustment to ensure that DoD receives its appropriate share of restructuring net savings.

Related Pages

Organization Costs

References

  1. ↑ DFAR 231.205-70 External Restructuring Costs
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