DFAR 231.205-70 External Restructuring Costs

Allowable or Unallowable: Unallowable, Allowable

Source: Defense Federal Acquisition Regulation (DFAR)

(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