Home Office Allocation Policy

1. BACKGROUND

1.1. GovC through its subsidiaries conducts extensive business with the US Government (USG), both directly with US military agencies (and other government agencies), and indirectly through prime contractors. As a result, GovC is subject to numerous USG contracting rules and regulations including the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS).

1.2. As with many large multi-national corporations GovC has both Corporate Home Office costs and Intermediate Home Office costs which are allocated to contracts.

2. PURPOSE

The purpose of this Policy is to establish requirements for Home Offices for:

• Incurred Cost Submissions

• Disclosure Statements, and

• Allocation of Costs to Operational Units

3. DEFINITIONS

3.2. The following terms are defined as follows:

“Allocate” means to assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignments of cost and the reassignment of a share from an Indirect Cost Pool.

“Cost Objective” means a function, organizational subdivision, contract, or other work unit for which cost data are directly related and for which provision is made to accumulate and measure the cost to processes, products, jobs, capitalized projects, etc.

“Directly Associated Cost” means any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred.

“Direct Cost” means cost which is identified specifically with a particular final cost objective.

“Home Office” means an office responsible for directing or managing two or more Segments.

“Homogeneous Pools” means groups of indirect costs with a common cost objective that are capable of being allocated on the same basis as each other.

“Incurred Cost Submission” means an annual submission required from BUs to USG six months after the end of the fiscal year. The submission includes financial statements and other accounting records to compute indirect rates, direct costs by contract, and indirect costs by pool including Unallowable Costs (also known as indirect cost claim).

“Indirect Cost” means any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective.

"Indirect Cost Pool” means a grouping of indirect costs. “Operating Revenue” means amounts charged to customers for the sale of products, for services, and for rentals of property held primarily for leasing to others. Excludes interest dividends, royalty, rental income, and proceeds from the sale of assets.

“Segment” means BUs that benefit from activities performed by a Home Office.

4. Scope

4.1. This policy applies to all GovC entities that have costs allocated to US Government contracts either directly or indirectly.

5. POLICY

5.1. All Home Offices must establish procedures to be followed in the estimation, accumulation, and reporting of Home Office costs. The procedures need to include the absorption of these costs into the receiving entity.

5.2. Home Office Cost and Allocation methodology is as follows:

5.2.1. Home Office expenses should be allocated on the basis of the beneficial or causal relationship between the supporting and receiving activities. Such expenses should be allocated to segments to the maximum extent practical.

5.2.2. Expenses not directly allocated, if significant in amount and in relation to total home office expenses, shall be grouped in logical and homogeneous expense pools and allocated as follows:

• Centralized Service – Allocated based on service furnished or received by segment.
• Staff Management – Allocated over a base representative of the specific activity.
• Line Management – Allocated to segment(s) being managed or supervised.
• Central Payments or Accruals – Allocation base representative of factors to which total payment is based.
• Independent Research and Development and Bid and Proposal (IR&D/B&P) – Allocated as required by CAS 420.
• Residual Expenses –Residual Expenses shall be any cost that is not directly allocable and costs generally within the Chief Executive Office. Typical residual expenses are those of the Chief Executive, Chief Financial Officer, and other staff not identified with specific activities of segments.

5.2.3. Allocation Base of Residual Expenses  :· Base Representative of the Total Activity of Segments receiving the allocation, except, whereas.

• 3 Factor Formula if the total amount of such expenses for the previous fiscal year (before elimination of costs allocated via special or advance agreement) exceeds the following amounts based on revenue of all segments receiving the allocation.
• 3.35% of first 100M
• 0.95% of next 200M
• 0.30% of next 2.7B
• 0.20% of all amounts over 3B
• Where a particular segment receives significantly more or less benefit from residual expenses, Advance Agreement with the government through the cognizant Administrative Contracting Officer (ACO) will allow for alternative allocation bases allowing for more equitable allocation of costs

5.3. All Home Offices that fall within Cost Accounting Standards covered entities, are required to complete Section VIII of the CASB Disclosure Statement Form, and submit to the appropriate ACO.

5.3.1. To the extent that the Disclosure Statement, “discloses” the practice of that organization, the Procedures should reference and may allow for deference to those disclosures.