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  • Question

    Since he is quoting the same rates for both Government agencies why should we have 2 sets of billing rates? It seems to me if DOD ends up questioning these cost so would the Civil Agencies.


    Answer

    With regard to external restructuring costs billing to the Federal Government the policies and procedures differ
    among the Civil Federal Agencies and the Department of Defense (DoD). According to
    FAR Part 31, costs are allowable
    when it is reasonable, allocable, Cost Accounting Standards (CAS) compliant, applicable to the terms of the
    contract, and does not exceed any limitation set forth in the FAR. There is no restriction in
    FAR Part 31
    disallowing contractor’s from charging restructuring costs and it is allocable under CAS. However, DFARS and
    the
    PGI 231.205-70 prescribe DoD’s policies and procedures for allowing contractors to charge external
    restructuring costs. In order for a contractor to charge external restructuring Costs to DoD contracts,
    like Civil Federal Agencies, the cost must be allowable in accordance with
    FAR Part 31 and DFARS Part 231.


    Furthermore, DFARS establishes limitations of cost allowability of external restructuring costs. The costs are
    not allowed unless: an audit of projected restructuring costs and restructuring savings is performed; and the
    Cognizant Administrative Contracting Officer (ACO) reviews the audit report and projected costs and projected
    savings, and negotiate an advance agreement. If the restructuring amount is expected to exceed $25 million over
    a 5-year period the Under Secretary of Defense (AT&L) or the Principal Deputy must determine in writing that the
    audited projected savings on a present value basis, for DoD resulting from the restructuring will exceed
    the cost allowed by a factor of at least two to one; or the cost allowed and the business combination will
    result in the preservation of a critical capability that might otherwise be lost to DoD. For cases where the
    restructuring cost is less than $25 million, the Director of the Defense contract Management Agency (DCMA) is
    the designated official who must put the audited findings in writing. Refer to the DFARS and PGI for procedures
    and ACO responsibilities regarding external restructuring cost.

    For additional information regarding DoD and industry restructuring costs refer to GAO reports:
    T-NSIAD-97-141, Apr 15, 1997 and NSIAD-99-22, Dec 1, 1998.

    Also, refer to your agency’s policy to determine if there are specific requirements that apply to your
    situation. Also consult with your legal office for further guidance.

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