[Federal Register Volume 62, Number 109 (Friday, June 6, 1997)]
[Rules and Regulations]
[Pages 31308-31309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14773]
[[Page 31307]]
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Part VI
Office of Management and Budget
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48 CFR Part 9904
Cost Accounting Standards Board; Allocation of Contractor Restructuring
Costs; Final Rule
Federal Register / Vol. 62, No. 109 / Friday, June 6, 1997 / Rules
and Regulations
[[Page 31308]]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9904
Cost Accounting Standards Board; Allocation of Contractor
Restructuring Costs
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, OMB.
ACTION: Final rule; interpretation.
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SUMMARY: The Cost Accounting Standards (CAS) Board is issuing an
interpretation designed to address period cost assignment and
allocability criteria for restructuring costs incurred under certain
national defense contracts.
DATES: Effective Date: August 15, 1994.
FOR FURTHER INFORMATION CONTACT: Richard C. Loeb, Executive Secretary,
Cost Accounting Standards Board (telephone: 202-395-3254).
SUPPLEMENTARY INFORMATION:
A. Background
Section 818 of the National Defense Authorization Act for Fiscal
Year 1995, Pub. L. 103-337, restricts the Department of Defense from
reimbursing a contractor or subcontractor that decides to avail itself
of incurring restructuring costs associated with a business combination
unless certain ``net savings'' provisions are met. Questions have
arisen as to the methods to be used in measuring, assigning and
allocating such restructuring costs. This interpretation is designed to
address these questions, as well as the cost of restructuring
activities, in general.
This interpretation is based upon the interim interpretation (with
request for comment) issued by the CAS Board on March 8, 1995, 60 FR
12711. Ten sets of public comments were received in response to the
interim interpretation. None of the commenters identified any
substantive issues, although several requested more specificity with
respect to the relationship of the interim interpretation to the
provisions of CAS 9904.406--Cost Accounting Period. Accordingly, the
interim interpretation is being revised to clarify that it serves
principally as an interpretation of the provisions of CAS 9904.406 as
related to restructuring costs.
B. Authority To Issue an Interpretation
Authority for issuance of this interpretation is provided by 41
U.S.C. 422(f)(1) and 48 CFR 9901.302(b).
Richard C. Loeb,
Executive Secretary, Cost Accounting Standards Board.
List of Subjects in 48 CFR part 9904
Accounting, Government procurement.
Accordingly, 48 CFR part 9904 is amended as follows:
Part 9904--COST ACCOUNTING STANDARDS
Subpart 9904.406--Cost Accounting Standard--Cost Accounting Period
1. The authority citation for part 9904 of chapter 99 of title 48
continues to read as follows:
Authority: Pub. L. 100-679, 102 Stat. 4056, 41 U.S.C. 422.
2. Section 9904.406-61 is amended by adding text to read as
follows:
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 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
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(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.
[FR Doc. 97-14773 Filed 6-5-97; 8:45 am]
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