Sec.

1452.1

Part 1452 Prime Contracts and Subcontracts

Within the Scope of the Act

General coverage of the act.

1452.2 Application of the act to prime contracts.
1452.3 Application of the act to subcontracts.
1452.4

Subcontracts to perform work or furnish
materials.

1452.7 Brokers, manufacturers' agents and dealers. 1452.8 Effect of renegotiation clause.

AUTHORITY: Sections 1452.1 to 1452.8 issued under sec. 109, Pub. Law 9, 82d Cong. Interpret or apply sections 102 to 104. Pub. Law 9, 82d Cong.

1452.1 General coverage of the act.-(a) Coverage through December 31, 1956-Removed to Appendix.

(b) Coverage after December 31, 1956—(1) Statutory provisions.-(i) Section 102(a) of the act, as amended by Pub. Law 870, 84th Cong., approved August 1, 1956, effective December 31, 1956, provides as follows:

In general. The provisions of this title shall be applicable (1) to all contracts with the Departments specifically named in section 103 (a), and related subcontracts, to the extent of the amounts received or accrued by a contractor or subcontrator on or after the first day of January 1951, whether such contracts or subcontracts were made on, before, or after such first day, and (2) to all contracts with the Departments designated by the President under section 103 (a), and related subcontracts, to the extent of the amounts received or accrued by a contractor or subcontractor on or after the first day of the first month beginning after the date of such designation whether such contracts or subcontracts were made on, before, or after such first day.

(ii) Section 103 (a) of the act, as amended, provides as follows:

Department-The term "Department" means the Department of Defense, the Department of the Army, the Department of the Navy, the Department of the Air Force, the Maritime Administration, the Federal Maritime Board, the General Services Administration, the National Aeronautics and Space Administration, the Federal Aviation Agency, and the Atomic Energy Commission. Such term also includes any other agency of

the Government exercising fuctions having a direct and immediate connection with the national defense which is designated by the President during a national emergency proclaimed by the President, or declared by the Congress, after the date of the enactment of the Renegotiation Amendments Act of 1956; but such designation shall cease to be in effect on the last day of the month during which such national emergency is terminated.

(iii) Section 102 (c) of the act, as amended, provides as follows:

(c) Termination~(1) In general.-The provisions of this title shall apply only with respect to receipts and accruals, under contracts with the Departments and related subcontracts, which are determined under regulations prescribed by the Board to be reasonably attributable to performance prior to the close of the termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the termination date, shall be considered as having been received or accrued not later than the termination date. For the purposes of this title, the term "termination date" means June 30, 1968.

(2) Termination of status as Department.--When the status of any agency of the Government as a Department within the meaning of section 103 (a) is terminated, the provisions of this title shall apply only with respect to receipts and accruals, under contracts with such agency and related subcontracts, which are determined under regulations prescribed by the Board to be reasonably attributable to performance prior to the close of the status termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the status termination date, shall be considered as having been received or accrued not later than the status termination date. For the purposes of this paragraph, the term "status termination date" means, with respect to any agency, the date on which the status of such agency as a Department within the meaning of section 103 (a) is terminated.

1452.2 Application of the act to prime contracts. Except as exempted pursuant to section 106 of the act (see Parts 1453, 1454, and

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1 Except Maritime Administration and Federal Maritime Board. 2 Added by Pub. Law 85-930, 85th Cong., approved September 6, 1958, by amendment made applicable with respect to contracts entered into by the National Aeronautics and Space Administration and to contracts

1452.3 Application of the act to subcontracts. Sections 1452.4 to 1452.7 state when contracts, agreements or purchase orders constitute "subcontracts" within the meaning of section 103(g) of the act. Excepting those subcontracts which are exempted from renegotiation pursuant to section 106 of the act (see Parts 1453 and 1455 of this subchapter), and except as set forth in section 1457.3 of this suchapter, all subcontracts within the meaning of section 103(g) of the act are subject to renegotiation under the act to the extent of amounts received or accrued on or after the date set forth in section 1452.2 which is applicable to the prime contract to which the subcontract relates.

1452.4 Subcontracts to perform work or furnish materials. (a) Statutory provision. Section 103(g) of the act provides in part as follows:

The term "subcontract" means

(1) any purchase order or agreement (including

transferred to such Administration from a Department under section 301
or section 302 of the National Aeronautics and Space Act of 1958, and to
related subcontracts.

purchase orders or agreements antedating the related
prime contract or higher tier subcontract) to perform
all or any part of the work, or to make or furnish any
materials, required for the performance of any other
contract or subcontract, but such term does not include
any purchase order or agreement to furnish office
supplies;

(b) Interpretation of statutory provision.-
(1) In general.-The term "subcontract" in-
cludes all purchase orders or agreements to per-
form all or any part of the work or to make or
furnish any materials required for the perform-
ance of a renegotiable prime contract. An
agreement or purchase order to perform work
or to make or furnish materials is a renegotiable
subcontract if it is: (i) For the sale or process-
ing of an end product which is to be delivered
under a renegotiable prime contract; or (ii)
for the sale or processing of materials to be
physically incorporated in such end product;
or (iii) for the sale, furnishing or installa-
tion of machinery, equipment or other mate-
rials used in the processing of such end

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tory aspects of rates for the sale or furnishing
of such transportation, or the type and nature
of the contract for such furnishing or sale, are
such as to indicate, in the opinion of the Board,
that excessive profits are improbable. Any ap-
plication for such a finding shall be filed with
the Board not later than the date when the con-
tractor files the financial statement prescribed
in section 105 (e) (1) of the act (see § 1470.3
(a) of this subchapter) for the fiscal year in
which the contractor received or accrued the
amounts with respect to which the exemption
is claimed. In any financial statement so filed,
receipts or accruals under any contract with
respect to which the Board is requested to make
such a finding shall be included initially in com-
puting the aggregate renegotiable receipts or
accruals of the contractor for the fiscal year to
which such statement relates.

(b) All prime contracts with the Military Sea Transportation Service for transportation of cargo at rates or charges based upon the manifest measurement or manifest weight of the cargo.

(ii) This exemption does not apply to time, voyage or bareboat charters.

(3) Exemption of individual prime contracts.-The Board will exempt any individual prime contract with a common carrier for transportation by water when the Board finds, upon application of the contractor, that the regula

for such services is not in excess of such regulated rate, the contract is exempt from renegotiation under this section even though the services in question are not subject to regulation. For example, a price contract entered into by a railroad for freight carriage at a rate negotiated under section 22 of the Interstate Commerce Act is exempt since section 22 permits a railroad to negotiate contracts with the Government at special rates which are below the public

rates.

(ii) If, under a contract at unregulated rates, the Government furnishes any benefits to the contractor or otherwise relieves the contractor from furnishing any of the services for which a rate has been published or filed with, fixed, approved or regulated by a public regulatory body, the contract is not exempt under this section unless the contract rate, aggregated with the prorated fair value of such benefits or other advantages, does not exceed the regulated

rate.

Example. An airline agrees to carry freight or personnel at charges below the regulated general or charter tariff rate for carrying similar loads for like distances. The services for which the tariff rate was established do not include the utilization by the airline of Government bases, facilities, or ground personnel. The contract, however, provides that the airline may utilize Government bases, facilities, and ground personnel, and thus the airline is not required to furnish services necessarily incident to the transportation for which the tariff rate was established. When the prorated fair value of the benefits thus provided by the Government is added to the contract rate, if the resulting aggregate exceeds the regulated rate, the contract is not exempt under this section.

(3) Unregulated rates substantially as favorable as regulated rates.-If a public utility furnishes services to Departments and to other consumers at rates which are unregulated but which are substantially as favorable as regulated rates for comparable services, a contract for the furnishing of such services is exempt under this section. For example, a gas company delivers gas to a Department in a state where gas sales are unregulated. The rates charged under the contract are the same as or lower than the rates offered by the contractor to the public generally and such public rates are substantially as favorable to consumers as comparable regulated rates in comparable areas. The contract with the Department is exempt from renegotiation under this section.

1453.4 Contracts or subcontracts with tax-exempt charitable, religious and educational institutions. (a) Statutory provision.-Section 106 (a) (5) of the act exempts the following:

(5) any contract or subcontract with an organization exempt from taxation under section 101 (6) of the Internal Revenue Code, but only if the income from such contract or subcontract is not includible under section 422 of such code in computing the unrelated business net income of such organization;

(b) Related statutory provisions.--For the text of sections 101 (6) and 422 of the Internal Revenue Code, see sections 1499.10 and 1499.11 of this subchapter, respectively.

(c) Limitation.-The exemption provided in paragraph (5) of section 106(a) of the act is limited to prime contracts or subcontracts for the procurement of materials or services from organizations exempt from taxation as prescribed in said paragraph (5). Subcontracts for the procurement of materials or services by such organizations from other persons are not exempt under such provision; such subcontracts are also specifically excluded from the subcontract exemption provided in section 106 (a) (7). See § 1453.6.

1453.5 Contracts that do not have a direct and immediate connection with the national defense. (a) Statutory provision.-Subsection 106 (a) (6) of the act exempts the following:

(6) any contract which the Board determines does not have a direct and immediate connection with the national defense. The Board shall prescribe regulations designating those classes and types of contracts which shall be exempt under this paragraph; and the Board shall, in accordance with regulations prescribed by it, exempt any individual contract not falling within any such class or type if it determines that such contract does not have a different and immediate connection with the national defense. In designating those classes and types of contracts which shall be exempt and in exempting any individual contract under this paragraph, the Board shall consider as not having a direct or immediate connection with national defense any contract for the furnishing of materials or services to be used by the United States, a Department or agency thereof, in the manufacture and sale of synthetic rubbers to a private person or to private persons which are to be used for nondefense purposes. If the use by such private person or persons shall be partly for defense and partly for nondefense purposes, the Board shall consider as not having a direct or immediate connection with national defense that portion of the contract which is determined not to have been used for national defense purposes. The method used in making such determination shall be subject to approval by the Board. Notwithstanding section 108 of this title, regulations prescribed by the Board under this paragraph, and any determination of the Board that a contract is or is not exempt under this paragraph, shall not be reviewed or redetermined by the Tax Court or

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Supply Schedule contracts and consolidated direct delivery contracts of the Federal Supply Service, General Services Administration, to the extent that deliveries thereunder are made to agencies of the Government other than the Department of Defense, Department of the Army, Department of the Navy, Department of the Air Force, Atomic Energy Commission, National Aeronautics and Space Administration and, with respect to deliveries made before January 1, 1957, United States Coast Guard. (9) Construction contracts.-Removed to Appendix.