Current through Register Vol. 51, No. 19, September 20, 2024
A.
Scope. This regulation sets forth the policies and procedures governing the
establishment of overhead rates by negotiation (including determination or
settlement) for use in cost-reimbursement type contracts.
B. Definitions. For purposes of this
regulation, the following terms shall have the meanings indicated:
(1) "Billing overhead rate" means a tentative
percentage or dollar factor which is acceptable to the procurement officer and
is established for interim reimbursement purposes.
(2) "Negotiated final overhead rate" means a
percentage or dollar factor which expresses the ratio or ratios mutually agreed
upon by the procurement officer and the contractor after the close of the
contractor's fiscal year, unless the parties mutually agree to a different
period, of allowable indirect expense incurred for direct labor, manufacturing
cost, cost of sales, or other appropriate allocation or distribution
base.
(3) "Overhead or indirect
costs" means the general group of indirect expenses such as those generated in
manufacturing departments, engineering departments, tooling departments,
general and administrative departments, and, if applicable, indirect costs
accumulated by cost centers within these general groups.
(4) "Provisional overhead rate" means a
tentative percentage or dollar factor mutually agreed upon by the procurement
officer and the contractor that is negotiated for interim reimbursement pending
final settlement of the actual allowable overhead.
C. General. The negotiation, determination,
or settlement of the reimbursable amount of overhead under cost-reimbursement
type contracts is accomplished after the fact on an individual contract basis
and is based upon an audit of actual costs incurred during the period involved.
However, if a contractor performs work in the same time period under several
contracts for one or more procurement activities, it may be desirable and
appropriate, when mutually agreed to by the agencies and the contractor, to
negotiate uniform overhead rates for application to all the contracts. Nothing
contained in this section shall prevent any procurement agency from
establishing a maximum overhead rate.
D. Applicability.
(1) A billing overhead rate or negotiated
(provisional and final) overhead rate may be used in every cost-reimbursement
type contract when its use:
(a) Is
appropriate; and
(b) Will
accomplish one or more of the purposes enumerated in this section.
(2) A billing or provisional
overhead rate may be used for interim reimbursement only after the procurement
officer is satisfied either on the basis of a recent review, as a result of
previous audits or past experience with the particular contractor, or similar
reliable data or experience obtained from other State or federal sources and
included in the contract file, that:
(a) The
contractor's accounting system (including items treated as indirect costs and
the method of distributing them) conforms to generally accepted accounting
principles; and
(b) The
contractor's financial management policies and procedures, including contract
financial controls, are adequate for the timely reporting of potential cost
overruns and underruns to the contractor's management and to the
State.
(3) If consistent
with §D(2), above, a billing or provisional overhead rate or rates may be
established, taking into consideration the prior year's experience, adjusted to
eliminate nonrecurring costs and to reflect any new or changed conditions which
may be applicable to the future. The rate or rates shall be applied to an
appropriate base or bases for computation of the interim payments. The elements
of indirect cost and the base or bases used in computing interim payments may
not be construed as indicating the elements of expense to be distributed or the
base or bases of distribution to be employed in the determination or settlement
of actual allowable overhead. When the negotiated final overhead rate is
determined or settled, any interim payments shall be adjusted
accordingly.
E.
Procedure.
(1) The procedure for the
establishment of overhead rates generally consists of a review of the
contractor's overhead rate proposal and the related advisory audit report,
conduct of a negotiation conference, preparation of a negotiation report or
summary, and execution of contract amendments or supplemental
agreements.
(2) The determination
of the necessity and extent of an advisory audit report, and the extent of the
use of the report, is solely the responsibility of the procurement
officer.
(3) The procurement
officer shall arrange for appropriate legal, pricing, technical, or other
specialist personnel to assist him in the conducting the negotiation
conference.
(4) After the
completion of the negotiation conference, the procurement officer shall prepare
a report or summary of the conference for the contract file.
F. Limitation on Overhead Cost.
(1) Ceilings on overhead rates, beyond which
the contractor shall absorb costs, may be desirable in cases of cost-sharing,
new companies, recent rapid changes in rates, enhancing contractor's
competitive position, or other benefits to the State.
(2) If overhead rates resulting from an audit
are less than the negotiated ceiling rates, reimbursement shall be made at the
lower rates.
