1460.9

Uncompleted portions of terminated con-
tracts.

Application of statutory factors; general
policy.

Efficiency of contractor.

1460.10 Reasonableness of costs and profits. 1460.11 Capital employed.

1460.12 Extent of risk assumed.

1460.13 Contribution to the defense effort. 1460.14 Character of business.

1460.15 Additional factors.

to the contractor's business will be fully
developed.

AUTHORITY: Sections 1460.1 to 1460.15 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 103, Pub. Law 9, 82d Cong.

1460.2 Specific considerations.~(a) Profits before taxes.-In renegotiation the amount of excessive profits is determined before provision for Federal taxes on income. In determining the existence or amount of excessive profits, the effect of Federal income taxes on the retained profits will not be considered.

1460.1 General considerations.-In making determinations in renegotiation, the Board will proceed generally as follows:

(a) All the information necessary to a sound determination will be obtained.

(b) The contractor will be given an opportunity to develop and present whatever information is available to it which the contractor may consider pertinent to the determination.

(b) Separate consideration of certain types
of contracts. While renegotiation will be con-
ducted with respect to the aggregate of the con-
tractor's renegotiable business for the fiscal
year, separate consideration will be given to
cost-plus-a-fixed-fee contracts and other cost-
type contracts and to contracts, whether fixed
price or cost-plus-a-fixed-fee, which contain in-
centive provisions or provide for escalation,
redetermination, or other revision of the con-
tract price during the life of the con-
tract. Patent royalty income will also be
separately considered.

(c) Requests for additional information and the number of meetings held with the contractor or its representatives will be kept to a minimum.

(d) Financial and factual information will be reviewed with the contractor and its agreement to the accuracy of such information will be obtained.

(c) Comparisons.-In evaluating the contractor's performance, comparisons will be made with the prices, costs and profits of other contractors engaged in the production of the same or similar products or using the same or similar processes.

(e) The contractor will be given every reasonable assistance and all necessary information with respect to the technical requirements of renegotiation, the act, and the regulations in this subchapter.

(f) The facts and conclusions with respect

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(d) Significance of settlements or profits or losses in prior years.-Renegotiation settlements for prior years are not controlling precedents. Consideration will be given to profits or losses in prior years only to the extent provided elsewhere in these regulations. Except to that extent, determinations of excessive profits will be predicated on the facts and circumstances of the year under review.

(e) Reserves for possible renegotiation refund.-It is recognized that sound accounting principles may make it desirable for contractor's to establish reserves for possible renegotiation refunds and that the amount of such

reserves established in individual situations will
vary widely depending upon the policy of the
particular contractor concerned. Neither the ex-
istence nor the amount of such reserves is to be
considered directly or indirectly in connection
with the determination of excessive profits. The
Board recognizes that conservative practice
may result in setting up such reserves in excess
of the anticipated liability and will not permit
such a practice to prejudice the contractor in
any way.

1460.3 Adjustment of sales.-The amount
of excessive profits is always deducted from the
renegotiable receipts or accruals, as well as
from the profit thereon, for the purposes of de-
termining the relation of retained profits to
sales.

1460.4 Overextended contractors.-A contractor's lack of adequate working capital will not be taken into consideration in determining excessive profits to be eliminated.

1460.5 Minimum refund.-Except as hereinafter provided, and in the absence of unusual circumstances, no determination of excessive profits shall be made if such excessive profits before adjustment for State taxes measured by income amount to (paragraphs (a) and (b) removed to Appendix), or (c) less than $40,000 with respect to any fiscal year ending on or after June 30, 1953, or (d) less than $10,000 with respect to any fiscal year in the case of subcontracts described in section 103(g) (3) of the act. If a determination of excessive profits would be made at or in excess of the applicable minimum amount but for the limitation set forth in section 105 (f) (1) or (2) of the act and § 1458.3 (a) or (b) of this subchapter, the determination will be made in accordance with such limitation even though the amount of the determination is less than the minimum prescribed by this section. For example, if renegotiable receipts or accruals are $258,000, and excessive profits would be determined as $20,000 but for the statutory limitation that the excessive profits to be eliminated in such case shall not exceed $8,000 (the difference between $258,000 and $250,000) a determination in the amount of $8,000 will be made. In the renego

tiation of an affiliated or related group, whether or not consolidated, determinations of excessive profits with respect to individual members of the group may be made in amounts less than the applicable minimum specified in this section: Provided, That the aggregate of the determinations for all members of the group equals or exceeds such applicable minimum. If the fiscal year is a fractional part of twelve months, the applicable minimum specified in this section shall be reduced to the same fractional part thereof.

1460.6 Reserved.

1460.7 Uncompleted portions of terminated contracts.-(a) Separate consideration. When a segregation of the items allocable to the uncompleted portions of terminated prime contracts and subcontracts is made in accordance with the principles set forth in sections 1457.6 and 1459.1 (c) of this subchapter, separate consideration will be given to such items in the light of the applicable factors in determining excessive profits. The evaluation of the contractor's performance with respect to the uncompleted portions of terminated prime contracts and subcontracts will be considered in connection with the evaluation of the contractor's performance of the completed portions of such prime contracts and subcontracts and with that of other prime contracts and subcontracts in determining the excessive profits, if any, the period involved in the renegotiation.

for

(b) Evaluation of performance.-The evaluation of the contractor's performance with respect to the uncompleted portions of terminated prime contracts and subcontracts will be measured by the nature and extent thereof. The more nearly the nature and extent of such performance approximate the nature and extent of the contractor's performance of completed contracts and subcontracts of the same type, the more nearly the evaluation of such performance will approach that given to the contractor's performance of the completed prime contracts and subcontracts. On the other hand, if the contractor's performance under the uncompleted portions of terminated prime contracts and subcontracts has consisted largely of the acquisition

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Part 1461 Recovery of Excessive Profits After Determination

Sec.

1461.1 Collection authority.

1461.2 Recovery of refund pursuant to agreement.
1461.3 Recovery of refund pursuant to unilateral
order.

1461.4 Withholding as a method of recovery.
1461.5 Administration of determinations by agree-
ment or order.

AUTHORITY: Sections 1461.1 to 1461.5 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 105, Pub. Law 9, 82d Cong.

1461.1 Collection authority.-Section 105 (b) of the act provides in part as follows:

(1) In general.-Upon the making of an agreement, or the entry of an order, *** determining excessive profits, the Board shall forthwith authorize and direct the Secretaries or any of them to eliminate such excessive profits

(A) by reductions in the amounts otherwise payable to the contractor under contracts with the Departments, or by other revision of their terms;

(b) Interest—(1) In general.—Except as set
forth in this paragraph, and in the absence of
unusual circumstances, renegotiation agree-
ments will not provide for the payment of in-
terest on any refund of excessive profits.

(2) Installment payments. When a rene-
gotiation agreement provides for a refund of
excessive profits in installments, the agreement
will require the payment of interest at the rate
of 4 per centum per annum upon the amount
of any such installment (other than the first
installment payable under the agreement)
which is provided to be paid more than two
years after the close of the fiscal year to which
the agreement relates, such interest to accrue
and be payable from and after the date which
is two years after the last day of the fiscal year
to which the agreement relates, or from and
after the date on which the first installment is
due and payable, whichever is later.

(B) by withholding from amounts otherwise due to the contractor any amount of such excessive profits; (C) by directing any person having a contract with any agency of the Government, or any subcontractor thereunder, to withhold for the account of the United States from any amounts otherwise due from such person or such subcontractor to a contractor, or subcontractor, having excessive profits to be eliminated, and every such person or subcontractor receiving such direction shall withhold and pay over to the United States the amounts so required to be withheld;

(D) by recovery from the contractor or subcontractor, or from any person or subcontractor directed under subparagraph (C) to withhold for the account of the United States, through payment, repayment, credit, or suit any amount of such excessive profits realized by the contractor or subcontractor or directed under subparagraph (C) to be withheld for the account of the United States; or

(E) by any combination of these methods, as is deemed desirable.

(3) Default.-Pursuant to section 105 (b) (2) of the act, in cases of default, interest at the rate of 4 per centum per annum shall accrue and be paid on any amount due and unpaid under a renegotiation agreement from the date of such default to the date of payment. Such interest shall accrue and be paid whether or not the agreement contains a provision for the payment of interest.

1461.3 Recovery of refund pursuant to unilateral order.-Pursuant to section 105(b) (2) of the act, interest at the rate of 4 per centum per annum shall accrue and be payable on the amount of excessive profits determined from the thirtieth calendar day after the date of the order of the Board or, in Class B cases (see § 1471.2(b) of this subchapter), if the Board does not initiate a review of a determination made by a Regional Board, from the thirtieth calendar day after the date that the order embodying such determination is deemed to be the order of the Board pursuant to the provisions of § 1475.3(b) (3) or (4) of this subchapter, respectively.

1461.2 Recovery of refund pursuant to agreement.~(a) In general.-The elimination of excessive profits ordinarily will be effected pursuant to an agreement providing for a refund in renegotiation proceedings with respect to a completed fiscal period. Such refund may be made by the contractor in a single payment or in installments as the agreement may provide.

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1461.4 Withholding as a method of re-
covery. (a) Excessive profits may be elimi-
nated by withholding the amount thereof from
amounts otherwise due to a prime contractor
or by directing any person having a contract
with any agency of the Government, or any
subcontractor thereunder, to withhold for the
account of the United States amounts otherwise
due from such person or such subcontractor to
a prime contractor, or subcontractor, having ex-
cessive profits to be eliminated. Excessive profits
to be eliminated by such direction shall include
the interest thereon, if any, as provided by sec-
tion 1461.2(c).

(b) Withholding by any person having a
contract with any agency of the Government,
or by any subcontractor thereunder, will be
effected by such person or such subcontractor
upon a direction issued by a Secretary of a
Department or pursuant to his authority. No
amounts shall be withheld, in accordance with
the provisions of this section, by any such per-
son or any such subcontractor other than by
authority of a direction issued by, or pursuant
to the authority of, a Secretary of a Depart-
ment. Any amount so withheld by any person or
any such subcontractor shall be held by him
for the account of the United States and shall
be paid only upon a direction issued by or pur-
suant to the authority of a Secretary of a De-
partment. The act indemnifies each person
against all claims on account of amounts so
withheld and paid over to the United States.

(c) Action to withhold under prime contracts and subcontracts may be taken upon default in the elimination of excessive profits determined by agreement as well as in cases of determinations of excessive profits made by unilateral order.

(d) Any withholding or recovery under any prime contract with any Department or agency, or related subcontract, when claims under such prime contract or subcontract have been assigned to any bank, trust company, or other financing institution, shall be subject to the

applicable provisions of section 105(b) (5) of the act and also to the applicable provisions of the Assignment of Claims Act of 1940, as amended.

1461.5 Administration of determinations by agreement or order.-(a) The Secretary of each of the Departments is authorized to eliminate, by any of the methods set forth in section 105(b) of the act, all excessive profits which he is directed by the Board to eliminate.

(b) When an agreement is made, or when the Board makes and enters an order determining excessive profits, or when an order of a Regional Board determining excessive profits is deemed to be the order of the Board pursuant to the provisions of section 1475.3 (b) (3) or (4) of this subchapter, respectively, the Board will direct the Secretary of one of the Departments to eliminate such excessive profits by any of the methods set forth in section 105 (b) of the act. (c) Pursuant to each direction referred to in paragraph (b) of this section, in the case of an agreement, the Secretary shall first endeavor to effect the collection of the amount of excessive profits determined by such agreement in accordance with the terms and conditions of the agreement and to secure the performance by the contractor of any other provisions which may be included therein. If the contractor does not pay the full amount of such excessive profits in accordance with the terms and conditions of the agreement, the Secretary may use such of the other methods for the elimination of excessive profits set forth in section 105(b) of the act as he in his discretion shall deem necessary or appropriate to effect the collection of the amount unpaid. If, however, within the time provided in § 1474.6 of this subchapter, the contractor has made a timely request for an extension of time to pay any amount due and payable under the agreement, the Secretary will not, before such request is acted upon by the Board, use any of such collection methods other than the withholding of such amount, or any part thereof, from amounts otherwise due to the contractor

(b) Section 3806 of the Internal Revenue Code requires, as a general rule, that the amount of a contractor's Federal income tax, which has been assessed for the taxable year under renegotiations in respect of excessive profits realized in such year, be allowed as a credit against the total excessive profits to be eliminated.

1462.3 Renegotiation after filing of Federal tax returns.-(a) Allowance of credit for Federal taxes.-(1) The allowance of a credit for Federal taxes is provided by section 3806 of the Internal Revenue Code for the purpose of relieving contractors from double payments of excessive profits to the United States, once in the form of taxes and again as excessive profits, and to avoid the necessity for tax refunds by the Treasury.