[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.106-2]

[Page 572]
 
            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.
    (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.