rather than to sectional or local practices; and varieties, types or classes of the commodity will be disregarded. Profits or losses from sales of agricultural commodities in their exempt form or state, including sales of "futures" in such commodities, are excluded from consideration in renegotiation.

(c) A list of products which, subject to the foregoing interpretation, are considered exempt is set forth in § 1428.842 of this subchapter.

§ 1423.343-3 Cost allowance for raw materials and agricultural commodities in the case of integrated producers.

If a contractor (a) processes, refines, or treats a product of a mine, oil or gas well, or other mineral or natural deposit, or timber, to the first form or state suitable for industrial use, and further refines, processes or treats such product beyond the first form or state suitable for industrial use in order to perform his contract, or (b) produces or acquires an agricultural product and processes, refines or treats such agricultural product to and beyond the first form or state in which it is customarily sold or in which it has an established market, then in such cases for the purposes of renegotiation the value of the product at its last exempt state will be treated as an item of cost of the performance of such contract in such amount as, in the opinion of the renegotiating agency, fairly represents a properly applicable allowance. In determining the proper allowance, due consideration shall be given to the established sale or market price where there is a representative market for the product in the exempt state, and to which other factors as may be necessary to reflect the purpose and intent of the exemption. In general it is the purpose and intent of this provision to allow to the contractor engaged in an integrated process of the type described, an item of cost substantially equivalent to the amount excluded from renegotiation by the statute in the case of others who sell an exempt product, namely what he could have realized if he had sold the exempt product at the intermediate state.

§ 1423.343-4 Packaging materials and containers.

If raw materials or agricultural commodities in the exempt state, as described in §§ 1423.343-1 and 1423.343-2,

are delivered to the Government, the exemption of such raw materials or agricultural commodities extends to and includes the packages or containers in which such products are so delivered to the Government. (See also §§ 1423.333-2, 1423.333-4 and 1423.346 to 1423.346-2.) § 1423.344 Contracts or subcontracts with tax-exempt charitable, religious and educational institutions.

§ 1423.344-1 Statutory provision.

Subsection (i) (1) (D) of the Renegotiation Act of February 25, 1944, as amended, adopted by reference by subsection (d) of the 1948 Act, exempts the following:

(D) Any contract or subcontract with an organization exempt from taxation under Section 101 (6) of the Internal Revenue Code;

§ 1423.344-2 Internal Revenue Code. Section 101 (6) of the Internal Revenue Code exempts from taxation:

(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.

§ 1423.345

contracts

Construction awarded as a result of competitive bidding.

§ 1423.345-1 Statutory provision.

Subsection (i) (1) (E) of the Renegotiation Act of February 25, 1944, as amended, adopted by reference by subsection (d) of the 1948 Act, exempts the following:

(E) Any contract with a Department, awarded as a result of competitive bidding, for the construction of any building, structure, improvement or facility;

§ 1423.345-2 Interpretation.

(a) It is considered that any contract, otherwise subject to renegotiation, is exempt if it meets the following conditions:

(1) The contract is for the construction of a building, structure, improvement or similar facility. A contract will be deemed to be for the construction of a building, structure, improvement or similar facility if the subject matter of

the contract is the construction or installation of the whole or any integral part of a building, structure, improvement or similar facility. The exemption has, however, no applicability to contracts for the furnishing of materials or supplies, as such, even if such materials or supplies are to be used in the construction of a building, structure, improvement or similar facility; nor has the exemption any applicability to contracts for the furnishing of machinery or equipment which has or may have had a productive function in connection with processing within the principles stated in § 1423.333-3.

(2) The contract was awarded as a result of competitive bidding. A contract will be deemed to have been awarded as a result of competitive bidding when awarded in conformity with the requirements for procurement by formal advertising set forth in the Armed Services Procurement Regulations.

(b) In distinguishing a contract for the construction of a building, structure, improvement or similar facility from a contract for the furnishing of machinery or equipment as described in paragraph (a) (1) of this section, regard is to be had to the subject matter of the contract. To the extent that the subject matter of the contract involves the furnishing or the furnishing and installing of machinery or equipment which has or may have use in processing, within the principles stated in § 1423.333-3, the contract will not be deemed to be a contract for the construction of a building, structure, improvement or similar facility, but will be regarded as a contract for the furnishing of machinery or equipment, in accordance with the principles set forth in § 1423.335-2 (b) and (e). In a case where the construction or installation of the whole or any integral part of a building, structure, improvement or similar facility and the furnishing of machinery or equipment are embraced within a single contract, the undertaking for the construction or installation of the whole or any integral part of the building, structure, improvement or similar facility may be severed from the undertaking to furnish the machinery or equipment and an appropriate finding made as to that portion of the entire contract which may properly be deemed exempt.

(c) If a construction contract is exempt from renegotiation under the pro

visions of this section, all modifying instruments thereto providing for additional or different construction of buildings, structures, improvements or facilities to be performed at or adjacent to the site of the original project are considered a part of the original construction contract and therefore are exempt from renegotiation: Provided, however, That the aggregate contract prices of all such modifying instruments do not exceed one-third of the contract price of the original construction contract.

(d) The foregoing exemption does not, in itself, apply to subcontracts. However, see §§ 1423.346 to 1423.346-2 with respect to the over-all provisions of subsection (i) (1) (F) of the Renegotiation Act of February 25, 1944, as amended. [14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950] § 1423.346 Subcontracts under exempt contracts and subcontracts.

§ 1423.346-1 Statutory provision.

Subsection (i) (1) (F) of the Renegotiation Act of February 25, 1944, as amended, adopted by reference by subsection (d) of the 1948 Act, exempts the following:

(F) any subcontract, directly or indirectly under a contract or subcontract to which this section does not apply by reason of this paragraph.

§ 1423.346-2 Interpretation.

(a) It should be noted that the foregoing exemption applies only where the subcontract is under a contract or subcontract exempted by reason of the provisions of subsection (d) of the 1948 Act and of subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended. In other words, the foregoing exemption applies only to subcontracts under mandatorily exempt contracts or subcontracts. It does not apply to contracts or subcontracts exempt under the permissive exemptions which the Secretary of Defense or his delegatee may make pursuant to the discretionary power vested in him by subsection (d) of the 1948 Act. (See Subpart E of this part.)

(b) Subcontracts for the furnishing of packaging materials and containers in which there are delivered materials or products which are exempt under the provisions of subsection (d) of the 1948 Act and subsection (i) (1) of the Renegotiation Act of February 25, 1944, as

amended, (see § 1423.341), constitute subcontracts under exempt contracts and are exempt from renegotiation.

§ 1423.347 Receipts or accruals less than $100,000.

§ 1423.347-1 Statutory provision.

Subsection (b) of the act provides, in part as follows:

The powers hereby conferred upon the Secretary shall be exercised with respect to the aggregate of the amounts received or accrued under all such contracts and subcontracts by the contractor or subcontractor during his fiscal year or upon such other basis as may be mutually agreed upon; except that this section shall not be applicable in the event that the aggregate of the amounts so received or accrued is less than $100,000 during any fiscal year.

§ 1423.347-2 Computation of aggregate receipts and accruals.

(a) The aggregate receipts or accruals of the contractor or subcontractor, under subject contracts or subcontracts, shall be determined in accordance with the method of accounting used for purposes of renegotiation. Total receipts or total billings under cost-plus-fixed-fee contracts are to be included in computing such aggregate receipts or accruals.

(b) If renegotiation of two or more contractors or subcontractors is conducted on a consolidated basis (see §§ 1423.309-1 to 1433.309-3), all members of the group will be required to agree that the foregoing $100,000 limitation will be applied to the aggregate gross receipts or accruals of all members of the group in the same manner as though a single contractor were involved, except that inter-company sales will not be eliminated.

(c) Receipts or accruals from contracts or subcontracts exempt from renegotiation pursuant to the provisions of subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended, adopted by reference by subsection (d) of the 1948 act, and from contracts or subcontracts exempted by the Secretary of Defense or by the Policy and Review Board, from the provisions of the act by general classes or types, shall not be included in computing the aggregate gross receipts or accruals for the purposes of the $100,000 limitation or for the purpose of the $100,000 "floor" described in § 1423.347-3. ceipts or accruals under individual contracts or subcontracts exempted by the

Re

Secretary of a Department are not excluded for either of these purposes. (See § 1423.352-2.)

[14 F. R. 1635, Apr. 7, 1949, as amended by Amdt. 5, 15 F. R. 170, Jan. 12, 1950]

§ 1423.347-3 No reduction by refund below $100,000 limitation (“floor”). (a) The amount of excessive profits to be eliminated with respect to a fiscal year from the aggregate amount of gross receipts or accruals under subject contracts or subcontracts for such fiscal year shall not exceed the amount by which such aggregate amount of gross receipts or accruals exceed $100,000.

(b) If renegotiation of two or more contractors or subcontractors is conducted on a consolidated basis (see §§ 1423.309-1 to 1423.309-3), all members of the group will be required to agree that the foregoing "floor" limitation of $100,000 will be applied to the aggregate gross receipts or accruals of all members of the group in the same manner as though a single contractor were involved, except that inter-company sales will not be eliminated.

§ 1423.347-4 Subcontracts under contracts or subcontracts exempt by reason of $100,000 limitation.

The exemption of subcontracts provided in subsection (i) (1) (F) of the Renegotiation Act of February 25, 1944, as amended, adopted by subsection (d) of the 1948 Act, applies only to subcontracts under contracts or subcontracts exempt under subsection (i) (1) of the Renegotiation Act of February 25, 1944, as amended. Therefore, if A is a contractor or subcontractor who has subject contracts or subcontracts, the subcontracts thereunder are not exempt merely because A is not subject to renegotiation by reason of the $100,000 limitation. Subpart E-Permissive Exemptions From Renegotiation

§ 1423.350 Scope of subpart.

Subpart D of this part deals with mandatory exemptions and exclusions from the operation of the Renegotiation Act of 1948. The act contains certain provisions authorizing the Secretary of Defense to exempt other contracts and subcontracts from the operation of the act. This subpart will deal with those permissive exemptions. Such exempted contracts are excluded from consideration in determining whether excessive profits have been realized and the

amount thereof. Contracts and subcontracts exempted by the Secretary of Defense or by the Policy and Review Board from the provisions of the act by general classes and types are also excluded in applying the $100,000 limitation or "floor" discussed in §§ 1423.347 to 1423.347-4.

[Amdt. 6, 15 F. R. 1136, Mar. 2, 1950]

§ 1423.351 Statutory authority.

Subsection (d) of the act provides that the Secretary of Defense in his discretion may exempt from renegotiation any contract or subcontract both individually and by general classes or types.

§ 1423.352 Delegation of authority to make permissive exemptions.

§ 1423.352-1 By general classes

or

types of contracts or subcontracts. The authority of the Secretary of Defense under subsection (d) of the act to exempt any contracts or subcontracts by general classes or types has been delegated to the Military Renegotiation Policy and Review Board.

NOTE: Any such exemptions made by the Board will be published in the FEDERAL REGISTER.

§ 1423.352-2 By individual contract or subcontract.

The authority granted to the Secretary of Defense by subsection (d) of the act to exempt any individual contract or subcontract has been delegated by him to the respective Secretaries of the Departments of the Army, Navy and Air Force. § 1423.353 Request for exemption.

§ 1423.353-1 By general classes or types.

(a) An exemption of contracts and subcontracts by general classes or types will be granted by the Board upon such grounds as appear to the Board to warrant such exemption.

(b) As a general rule, an exemption of contracts and subcontracts by general classes or types of products will be granted only when, in the opinion of the Board, the economic conditions in the industry concerned, or the volume of business, or other conditions give reasonable assurance that excessive profits will not be realized on such contracts or subcontracts. Ordinarily, a petition for such an exemption will not be granted by the Board unless it appears that the justification therefor is applicable to a

substantial segment of the industry involved. Petitioners wishing to file a request should apply to the Military Renegotiation Policy and Review Board, The Pentagon, Washington 25, D. C. [Amdt. 3, 14 F. R. 5562, Sept. 10, 1949]

§ 1423.353-2 Individual contracts and subcontracts.

Requests for the exemption of an individual contract or subcontract should be addressed to the contracting officer. § 1423.354 Appendix A: General classes or types of contracts and subcontracts which have been exempted by the Military Renegotiation Policy and Review Board and by the Secretary of Defense.

Section 102 (c) of the Renegotiation Act of 1951 provides that 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. The following exemptions relate only to contracts and subcontracts to the extent of amounts received or accrued prior to January 1, 1951.

1. Sale, rental or exchange of certain property.

(a) Exemption. (1) Contracts for the sale or rental of any interest in existing real estate (see, however, § 1423.335-1, pertaining to subcontracts).

(ii) Contracts and subcontracts for the sale or exchange of tangible property used in the trade or business of the vendor, with respect to which depreciation is allowable under Section 23 (1) of the Internal Revenue Code (not including stock in trade of the vendor or other property which would properly be included in the inventory of the vendor if on hand at the close of his fiscal year, or property held by the vendor primarily for sale in his trade or business).

(b) Limitation on exemption. The exemption granted under subparagraph (a) above extends only to contracts and subcontracts under which profits can be established with reasonable certainty when the contract or subcontract price is established. The words "when the contract or subcontract price is established" in the preceding sentence of this paragraph are a qualification upon the scope of the exemption, and contemplate that the contract or subcontract price shall be established at the time the contract or subcontract is entered into. Accordingly, this exemption extends only to contracts and subcontracts under which the price is a fixed or determinable amount at the time the contract or subcontract is entered into, and does not apply to any contract or subcontract under which the price, at the time the contract or subcontract is

entered into, is contingent upon a subsequent event or is thereafter to be determined by reference to a variable element (as, for example, the lessee's sales or profits). 2. Contracts and subcontracts with public utilities for:

(a) The delivery of electric power;

(b) The delivery of gas;

(c) The furnishing of water or steam or the removal of sewage; or

(d) The furnishing of transportation by common carriers by railroad, motor vehicle, pipe line, air or water, when made at published rates or charges, fixed, approved or subject to regulation by a public regulatory body or Governmental agency, or at rates that are no higher than such published rates.

(e) The service of transmitting messages by telephone, telegraph, cable, or radio or furnishing other communication services or communication facilities, when made at published rates or charges, fixed, approved or subject to regulation by a public regulatory body or Governmental agency or at rates that are no higher than such published rates.

3. Individual services—(a) Exemption. All contracts entered into pursuant to the authority of section 2 (c) (1) or section 2 (c) (4) of the Armed Services Procurement Act of 1947, Public Law 413, 80th Congress, or other statutory authority, when such contracts call for the performance of services, whether personal or professional, by the individual contractor in person under the supervision of the Government and which are paid for on a time basis.

(b) Limitation on exemption. This exemption shall not apply to contracts which contemplate the performance thereof by a firm or organization, and subcontracts thereunder.

4. Supplies purchased for authorized resale-Exemption. All contracts subject to the Renegotiation Act of 1948 entered into in the fiscal years 1950 or 1951 pursuant to the authority of section 2 (c) (8) of the Armed Services Procurement Act of 1947, Public Law 413, 80th Congress, or which could have been entered into pursuant to the authority of such section 2 (c) (8), (even though the procuring agency actually cites another authority, such as section 2 (c) (1), 2 (c) (6), or 2 (c) (10) of the aforementioned act), and subcontracts thereunder.

5. Perishable subsistence supplies-Exemption. All contracts subject to the Renegotiation Act of 1948 entered into in the fiscal years 1950 or 1951 pursuant to the authority of section 2 (c) (9) of the Armed Services Procurement Act of 1947, Public Law 413, 80th Congress, or which could have been entered into pursuant to the authority of such section 2 (c) (9), (even though the procuring agency actually cites another authority, such as section 2 (c) (1), 2 (c) (6), or 2 (c) (10) of the aforementioned act), and subcontracts thereunder.

6-1 Collateral items. (With respect to the period May 21, 1948, through December 31, 1950.)

(a) Exemption. All subcontracts for:

(1) The sale, furnishing, or installation, of machinery, equipment or materials used in the processing of an end product or of an article incorporated therein; provided such machinery, equipment, or materials do not become a part of such end product or of an article incorporated therein.

(2) The sale, furnishing, or installation, of machinery used in the processing of other machinery to be used in the processing of an end product or of an article incorporated therein.

(3) The sale, furnishing, or installation of component parts of, or subassemblies for, machinery included in (2) above, and machinery, equipment and materials included in (1) above.

(4) The performance of services directly required for the performance of subcontracts included in (1), (2) and (8) above.

As used herein the phrase "used in processing" has the same meaning as that set forth in § 1423.333-8 of the Military Renegotiation Regulations.

(b) Limitations on exemptions. This exemption does not apply to subcontracts subject to the Renegotiation Act of 1948, under contracts entered into on or after January 1, 1951.

This exemption does not apply to subcontracts where the purchaser of such machinery, equipment, or materials, has acquired them for the account of the Government. As used herein the phrase "acquired them for the account of the Government" means acquired pursuant to an arrangement between the Government and the purchaser of such machinery, equipment, or materials, whereby title to such machinery, equipment, or materials will, or may, at the option of the Government, vest in the Government.

6-2. Collateral items. (With respect to the period January 1, 1951, through June 30, 1951.)

(a) Exemption. All subcontracts for:

(1) The sale, furnishing, or installation, of machinery used in the processing of other machinery to be used in the processing of an end product or of an article incorporated therein.

(2) The sale, furnishing, or installation of component parts of, or subassemblies for, machinery included in (1) above.

(3) The performance of services directly required for the performance of subcontracts included in (1) and (2) above.

As used herein the phrase "used in processing" has the same meaning as set forth in § 1423.333 of the Military Renegotiation Regulations.

(b) Limitations on Exemption. The termination date of this exemption is June 80, 1951.

This exemption does not apply to subcontracts where the purchaser of such machinery has acquired it for the account of the