§ 1423.309-2 Allocation of excessive profits in cases of consolidated renegotiation.

(a) Excessive profits must be allocated among the entities included in the consolidated renegotiation, and the renegotiation agreement must disclose the allocation. The excessive profits must be so allocated even though some or all of the members of the consolidated group participate in filing a consolidated Federal tax return. (See § 1424.444 (b) of this subchapter.) If excessive profits have been realized and if the renegotiation agreement were to impose liability generally on the entire consolidated group for the profits found to be excessive, without fixing the separate liability, then the members of the group might not be allowed a deduction from their income for Federal tax purposes for the unallocated amounts of excessive profits to be eliminated under the agreement, or appropriate tax credits under section 3806 of the Internal Revenue Code.

(b) For this reason, even where a consolidated basis has been authorized, each of the entities included in the group must submit a standard form of contractors report covering its renegotiable business in addition to the consolidated report. To make the necessary allocations of the excessive profits, a review of the unconsolidated financial statements of each member of the group must be made. The renegotiating agency will require that fair and reasonable methods be employed in segregating costs and income among the entities included in the consolidated renegotiation, and will give particular attention to those cases in which the type of business conducted by one entity is materially different from the business conducted by others in the consolidated group.

(c) The form of the renegotiation agreement and method of execution in the case of a consolidated renegotiation is described in § 1425.502-11 (b) of this subchapter.

§ 1423.309-3 Where consolidated basis not used.

Whenever parent and subsidiary companies are renegotiated separately, renegotiations with the individual members of the group should be conducted by the same Renegotiation Division and concurrently if practicable.

§ 1423.310 Fiscal year beginning in 1950 and ending in 1951.

In the case of a fiscal year beginning in 1950 and ending in 1951, as in the case of any other fiscal year, renegotiation will generally be conducted on the fiscal year basis (see § 1423.301). However, no proceeding under the 1948 act will include any amounts received or accrued by the contractor after December 31, 1950 from its renegotiable prime contracts and subcontracts. Upon request of any contractor, the Board will enter into an agreement for combined renegotiation pursuant to section 102(c) of the Renegotiation Act of 1951 in any case of a fiscal year beginning in 1950 and ending in 1951 when such contractor has receipts or accruals before January 1, 1951 from prime contracts and subcontracts subject to the 1948 act and also has receipts or accruals after December 31, 1950 subject to the 1951 act, but only when, if no such agreement were made, a contractor would be renegotiated under one or both of such acts. Regulations pertaining to such agreements, including the form thereof, are set forth in § 1457.2 of the Renegotiation Board Regulations issued under the 1951 act. [17 F. R. 7218, Aug. 8, 1952] Subpart B-Methods of Segregating Sales Between Renegotiable and Non-Renegotiable Business.

§ 1423.320 Scope of subpart.

The Renegotiation Act of 1948, section 401 of the Second Deficiency Appropriation Act, 1948, section 622 of the National Military Establishment Appropriation Act, 1950, and section 618 of the General Appropriation Act, 1951, prescribe what contracts and subcontracts are subject to renegotiation, and also under what circumstances certain of such contracts and subcontracts may be exempted from renegotiation. Subparts C and D of this part discuss in detail the principles for determining whether or not particular contracts and subcontracts are subject to the act, and Subpart E of this part covers permissive exemptions from renegotiation. This subpart deals with the methods of segregating sales and gross receipts so as to determine the amount of such sales and gross receipts which apply to contracts and subcontracts subject to renegotiation.

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950]

The contractor has the primary responsibility for determining the sales subject to renegotiation and the allocable costs applicable thereto. A portion of these data is called for by the "Standard Form of Contractor's Report” required to be filed by contractors and subcontractors (see §§ 1422.222 to 1422.222-7 of this subchapter). These reports, and such additional data as may be requested by the renegotiating agency (see § 1422.224 of this subchapter) or otherwise submitted by the contractor, must be executed by him. He is also required to furnish an explanation of the methods used in determining the amount of sales and costs allocated to renegotiable contracts or subcontracts. The segregation of sales and allocation of costs upon which a determination is based must be satisfactory to the agency which concludes the renegotiation proceedings. Such agency shall afford reasonable assistance in suggesting methods of segregation and allocation. § 1423.322 Methods of segregating sales. § 1423.322-1 Basic approach.

(a) The act requires the inclusion of the Renegotiation Article set forth therein in certain contracts and subcontracts (including purchase orders) under the circumstances specified in § 1423.331-1. Therefore, as a preliminary approach, a tabulation shall be made of receipts and accruals of the fiscal year under consideration (hereinafter in this section referred to as sales) applicable to contracts and subcontracts which contain the renegotiation article.

(b) As pointed out in §§ 1423.332-1 and 1423 334-1, the absence of the renegotiation article from a contract or subcontract does not preclude the application of the Act if the contract or subcontract should have contained the article. The contractor shall include in renegotiable business sales applicable to such contracts and subcontracts. In most cases, it is expected that the contractor will be able to make such inclusion in renegotiable sales because of his knowledge of the ultimate end use of the product involved, or of the prime contract under which he is a subcontractor.

(c) It must also be recognized that a contract or subcontract which contains the renegotiation article may, despite such article, be exempt from renegotia

tion (see § 1423.331-3). The information. as to whether such a contract or subcontract is subject to renegotiation generally will be more readily available to the contractor than to the renegotiating agency. Therefore, in such cases, it is the responsibility of the contractor to submit a list of such contracts or subcontracts together with an explanation of the basis of his opinion as to their non-renegotiability. Reference should

be made to Subpart E of this part for a discussion of contracts which have been exempted pursuant to statutory authority.

NOTE: In an effort to inform contractors and subcontractors as to which prime contracts are subject to renegotiation and thus assist them in segregating sales, the Policy and Review Board will cause a list of the numbers of such prime contracts together with the names of the contractors holding such contracts to be published in the FEDERAL REGISTER. The publication of the contract numbers and names will be brought. up to date periodically. Such publication is only for the purpose of disseminating information and although every effort will be made to have the lists complete and accurate the omission of the number of a contract. subject to the act will not thereby relieve the contractors and subcontractors thereunder from renegotiation. Controversely, the inclusion in the published list of the number of a contract which is not subject to the act will not make the contractor holding such contract and subcontractors thereunder subject to renegotiation. Furthermore, contractors and higher-tier subcontractors should assist their subcontractors in making segregations by advising such subcontractors of the prime contract number under which such contractors and subcontractors are operating.

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

§ 1423.322-2 Segregation other than specifically by contract or subcon

tract.

(a) If a contractor's business is such. that a segregation of sales can be made with reasonable accuracy without according specific consideration to separate contracts and subcontracts such other method may be employed if satisfactory to the renegotiating agency. For example, if a subcontractor's business is entirely with an enterprise known to be engaged in production under subject contracts or subcontracts, it may not be necessary to require the subcontractor to review his subcontracts and purchase orders separately. Similarly, it may be possible to omit such separate considera

tion of contracts and subcontracts for segments of the business, if sales and costs data for such segments are available.

(b) It is not possible to specify with exactitude all of the methods which may be employed to segregate sales without examination and consideration of each separate contract and subcontract. The contractor is best equipped to appraise the need for and practicability of general approaches to the problem. The contractor should feel free to consult the renegotiating agency involved as to these problems, and the renegotiating agency is authorized to accept segregations based on general approaches which are not contrary to the interests of the Government. However, general methods of segregation will be acceptable only if it is determined that analysis of separate contracts and subcontracts would be burdensome, or if it appears from the particular circumstances that detailed analysis by contracts and subcontracts could not result in a segregation materially different.

(c) The general approaches referred to in the subparagraph immediately preceding may include one or more of the following methods of classifying or analyzing sales:

(1) By industry, customer, or customer groups;

(2) By product or product group;

(3) By division, department or plant of the contractor, for separate and possibly different consideration of each as to renegotiable business;

(4) By use of Government, trade association, or other reports independently prepared, by which end use of products may be determined;

(5) By use of spot checks of detailed transactions of part of the fiscal year, after prior discussion with, and approval by, the renegotiating agency of the acceptability of the statistical procedure. § 1423.322-3 Overall consideration of segregation.

Regardless of the methods employed by the contractor in segregating sales, the renegotiating agency must determine that the result is reasonable on an overall basis, having regard to such of the general approaches outlined in § 1423.322-2 as are applicable, and also to segregations determined for other contractors and subcontractors known or believed to be comparable to the subject contractor as to pattern of business.

§ 1423.323

Segregation and exclusion of exempt contracts.

Sales and costs allocable to any contract or portion thereof which is exempt from renegotiation under subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended, or which is exempted by the Secretary of Defense or his delegatee pursuant to subsection (d) of the Renegotiation Act of 1948, shall be entirely excluded from consideration in determining whether excessive profits have been realized and the amount thereof. (However, see § 1423.385-4 for treatment of losses from the sale or exchange of facilities used in performing renegotiable contracts or subcontracts.) Sales under contracts and subcontracts which are individually exempted by the Secretary of a Department under the permissive exemption authority contained in subsection (d) of the act shall be included in applying the $100,000 limitation or the $100,000 "floor." (See §§ 1423.347-2 and 1423.347-3.) [Amdt. 6, 15 F.R. 1136, Mar. 2, 1950] Subpart C-Contracts and Subcontracts Within the Scope of the 1948 Act

§ 1423.330 Scope of subpart.

This subpart and Subparts D and E of this part deal with the contracts and subcontracts subject to renegotiation. This subpart discusses the kinds of prime contracts and subcontracts which are within the 1948 Act, aside from exemptions, and the following subparts cover the exemptions (mandatory and permissive, respectively) from renegotiation.

in that act, and in all subcontracts in excess of $1,000 under such contracts. (b) (1) Section 401 of the Second Deficiency Appropriation Act, 1948, provides as follows:

The Secretary of Defense is authorized and directed, whenever in his judgment the best interests of the United States so require, to direct the insertion of a clause incorporating the Renegotiating Act of 1948 in any contracts for the procurement of ships, aircraft, aircraft parts, and the construction of facilities or installations outside continental United States entered into by or in behalf of the Department of the Army, the Department of the Navy, or the Department of the Air Force which obligates any funds made available for obligation in the fiscal year 1949.

When the Secretary, pursuant to said section 401. directs the insertion of a clause incorporating the Renegotiation Act of 1948 in any contracts described in section 401, such contracts and all subcontracts thereunder. in excess of $1,000, thereby become subject to the Renegotiation Act of 1948 in all respects. Therefore, whenever in the regulations in this subchapter any of the terms "subject contract," or "subject to renegotiation," or "renegotiable contracts or subcontracts," or "renegotiable business" or similar language is used, such term shall be deemed to include any contract, or subcontract thereunder, made subject to the 1948 Act by virtue of the Secretary's action under section 401.

(2) On June 30, 1948 the Secretary of Defense issued the following directive:

Pursuant to the authority vested in me by Section 401 of Public Law 785 (80th Congress), I hereby adjudge that it is in the best interests of the United States, and accordingly, I direct the inclusion of a clause incorporating the Renegotiation Act of 1948 in all contracts for the procurement of aircraft and aircraft parts entered into by or on behalf of the Department of the Navy or the Department of the Air Force, which obligate any funds made available for obligation in the fiscal year 1949.

This order is effective 1 July 1948.

(c) (1) Section 622 of the National Military Establishment Appropriation Act, 1950, provides in part as follows:

All negotiated contracts for procurement in excess of $1,000 entered into during the fiscal year 1950 by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, and Department of the Air Force), and all subcontracts thereunder in excess of $1,000 are hereby made subject to the Renegotiation Act of 1948 in the same manner and to the same

extent as if such contracts and subcontracts were required by such Act to contain the renegotiation article prescribed in subsection (a) of such Act.

(2) Whenever in the regulations in this subchapter any of the terms "subject contracts", or "subject to renegotiation", or "renegotiable contracts or subcontracts", or "renegotiable business", or similar language is used, such term shall be deemed to include any contract, or subcontract thereunder, made subject to the 1948 Act by section 622.

(d) (1) Section 618 of the General Appropriation Act, 1951, provides in part as follows:

All negotiated contracts for procurement in excess of $1,000 entered into during the current fiscal year by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, and Department of the Air Force), and all subcontracts thereunder in excess of $1,000 are hereby made subject to the Renegotiation Act of 1948 in the same manner and to the same extent as if such contracts and subcontracts were required by such act to contain the renegotiation article prescribed in subsection (a) of such act.

(2) Whenever in the regulations in this subchapter any of the terms "subject contracts", or "subject to renegotiation”, or "renegotiable contracts or subcontracts", or "renegotiable business", or similar language is used, such term shall be deemed to include any contract, or subcontract thereunder, made subject to the 1948 Act by section 618.

(e) Section 102 (c) of the Renegotiation Act of 1951 provides in part as follows:

The Renegotiation Act of 1948 shall not be applicable to any contract or subcontract to the extent of the amounts received or accrued by a contractor or subcontractor on or after the first day of January 1951, whether such contract or subcontract was made on, before or after such first day.

Whenever in this part any of the terms "subject contracts”, or “subject to renegotiation", or "renegotiable contracts or subcontracts", or "renegotiable business", or similar language is used, such term shall not be deemed to include any amounts received or accrued by the contractor or subcontractor on or after the first day of January 1951 whether the contract or subcontract from which such receipt or accrual arose was made on, before or after such first day.

[14 F.R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F.R. 169, Jan. 12, 1950; Amdt. 10, 15 F.R. 6987, Oct. 19, 1950; 17 F.R. 7218, Aug. 8, 1952; 17 F.R. 8362, Sept. 17, 1952]

§ 1423.331-2 Agreements made prior to effective date of the act and extensions.

(a) The effective date of the Supplemental National Appropriation Act, 1948, is May 21, 1948. Therefore, contracts and subcontracts entered into prior to May 21, 1948, are not required to contain the Renegotiation Article and are not subject to the act.

(b) The effective date of the Directive of the Secretary of Defense issued pursuant to section 401 of Public Law 785, 80th Congress is July 1, 1948 (see § 1423.331-1 (b). Therefore, in order for contracts and subcontracts to be made subject to the Renegotiation Act of 1948 by said Directive, they must have been entered into on or after July 1, 1948.

(c) The effective date of section 622 of the National Military Establishment Appropriation Act, 1950, is July 1, 1949. Therefore, contracts for procurement made subject to the Renegotiation Act by said section, and subcontracts thereunder, must have been entered into on or after July 1, 1949, in order to be subject to renegotiation.

(d) The effective date of section 618 of the General Appropriation Act, 1951, is July 1, 1950. Therefore, contracts for procurement made subject to the Renegotiation Act by said section, and subcontracts thereunder, must have been entered into on or after July 1, 1950, in order to be subject to renegotiation. [Amdt. 5, 15 F. R. 169, Jan. 12, 1950, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950]

Subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended, describes certain classes of exempt contracts and subcontracts. Subsection (d) of the 1948 Act provides that the 1948 Act does not apply to such classes of contracts and subcontracts. In addition, subsection (d) provides that the Secretary of Defense in his discretion may exempt from renegotiation any other contract or subcontract both individually and by general classes or types.

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F. R. 169, Jan. 12, 1950] § 1423.332 Subject contracts. [Amdt. 5, 15 F. R. 169, Jan. 12, 1950]

All contracts required by the Renegotiation Act of 1948, as amended or supplemented, to contain a Renegotiation Article are subject to that act except to the extent of amounts received or accrued on or after January 1, 1951 (see section 102(c) of the Renegotiation Act of 1951). The absence of a Renegotiation Article from any contract does not, however, preclude the application of the act if such contract is one required to contain an Article.

[Amdt. 1, 15 F.R. 169, Jan. 12, 1950, as amended at 17 F.R. 7218, Aug. 8, 1952]

§ 1423.332-2 Amendments to nonsubject contracts.

However, even though a contract is not required to contain a Renegotiation Article, an amendment to such a contract is itself a contract subject to the act if such amendment provides for new or additional procurement in an amount in excess of $1,000, and (a) is made pursuant to the authority of the Supplemental National Defense Appropriation Act, 1948 (see § 1423.331-1(a)); or (b) is for procurement which has been made subject to the act pursuant to the provisions of section 401 of the Second Deficiency Appropriation Act, 1948 (§ 1423.331-1 (b)) or (c) is negotiated during the fiscal year 1950 or the fiscal year 1951 by or on behalf of the Department of Defense (including the Department of the Army, Department of the Navy, or the Department of the Air Force). (See § 1423.3311 (c) and § 1423.331-1 (d).)

[Amdt. 5, 15 F. R. 169, Jan. 12, 1950, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950]

§ 1423.333 Interpretation of term "subcontract."

The terms "subcontract" and "subcontracts," as used in the act, mean all purchase orders or agreements in excess of $1,000 to perform all or any part of the work, or to make or furnish any article required for the performance of any other subject contract or subcontract. The term "article" as used in this subchapter shall be deemed to include any material, part, assembly, machinery, equipment, or other personal property. § 1423.333-2 Meaning of "required for performance."

An article or work is required for the performance of a subject contract or