Current Content
(a) Scope. This subsection—
(1) Prescribes policies and procedures for allowing contractor external restructuring costs when savings would result for DoD; and
(2) Implements 10 U.S.C. 3761.
(b) Definitions. As used in this subsection:
(1) “Business combination” means a transaction whereby assets or operations of two or more companies not previously under common ownership or control are combined, whether by merger, acquisition, or sale/purchase of assets.
(2) “External restructuring activities” means restructuring activities occurring after a business combination that affect the operations of companies not previously under common ownership or control. They do not include restructuring activities occurring after a business combination that affect the operations of only one of the companies not previously under common ownership or control, or, when there has been no business combination, restructuring activities undertaken within one company. External restructuring activities are a direct outgrowth of a business combination. They normally will be initiated within 3 years of the business combination.
(3) “Restructuring activities” means nonroutine, nonrecurring, or extraordinary activities to combine facilities, operations, or workforce, in order to eliminate redundant capabilities, improve future operations, and reduce overall costs. Restructuring activities do not include routine or ongoing repositionings and redeployments of a contractor’s productive facilities or workforce (e.g., normal plant rearrangement or employee relocation), nor do they include other routine or ordinary activities charged as indirect costs that would otherwise have been incurred (e.g., planning and analysis, contract administration and oversight, or recurring financial and administrative support).
(4) “Restructuring costs” means the costs, including both direct and indirect, of restructuring activities. Restructuring costs that may be allowed include, but are not limited to, severance pay for employees, early retirement incentive payments for employees, employee retraining costs, relocation expense for retained employees, and relocation and rearrangement of plant and equipment. For purposes of this definition, if restructuring costs associated with external restructuring activities allocated to DoD contracts are less than $2.5 million, the costs shall not be subject to the audit, review, and determination requirements of paragraph (c)(4) of this subsection; instead, the normal rules for determining cost allowability in accordance with FAR Part 31 shall apply.
(5) “Restructuring savings” means cost reductions, including both direct and indirect cost reductions, that result from restructuring activities. Reassignments of cost to future periods are not restructuring savings.
(c) Limitations on cost allowability. Restructuring costs associated with external restructuring activities shall not be allowed unless—
(1) Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231;
(2) An audit of projected restructuring costs and restructuring savings is performed;
(3) The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and
(4)(i) The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either—
(A) The costs allowed by a factor of at least two to one; or
(B) The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD.
(ii)(A) If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition and Sustainment) or the Principal Deputy. This authority may not be delegated below the level of an Assistant Secretary of Defense.
(B) For all other cases, the designated official is the Director of the Defense Contract Management Agency. The Director may not delegate this authority.
(d) Procedures and ACO responsibilities.As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall follow the procedures at PGI 231.205-70 (d).
(e) Information needed to obtain a determination.
(1) The novation agreement (if one is required).
(2) The contractor’s restructuring proposal.
(3) The proposed advance agreement.
(4) The audit report.
(5) Any other pertinent information.
(6) The cognizant ACO’s recommendation for a determination. This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection:
(i) The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis.
(ii) The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis.
(f) Contracting officer responsibilities.
(1) The contracting officer, in consultation with the cognizant ACO, should consider including a repricing clause in noncompetitive fixed-price contracts that are negotiated during the period between—
(i) The time a business combination is announced; and
(ii) The time the contractor’s forward pricing rates are adjusted to reflect the impact of restructuring.
(2) The decision to use a repricing clause will depend upon the particular circumstances involved, including—
(i) When the restructuring will take place;
(ii) When restructuring savings will begin to be realized;
(iii) The contract performance period;
(iv) Whether the contracting parties are able to make a reasonable estimate of the impact of restructuring on the contract; and
(v) The size of the potential dollar impact of restructuring on the contract.
(3) If the contracting officer decides to use a repricing clause, the clause must provide for a downward-only price adjustment to ensure that DoD receives its appropriate share of restructuring net savings.
Change History
| Detected | Type | Summary |
|---|---|---|
| detected 2026-04-17 | PGI_MODIFIED | PGI 231.205-70 updated: 34 lines added, 12 lines removed |
View diff--- previous +++ current @@ -1,13 +1,36 @@ -(d) Procedures and ACO responsibilities. The cognizant ACO shall-- -(i) Promptly execute a novation agreement, if one is required, in accordance with FAR Subpart 42.12 and DFARS Subpart 242.12 and include the provision at DFARS 242.1204(i). -(ii) Direct the contractor to segregate restructuring costs and to suspend these amounts from any billings, final contract price settlements, and overhead settlements until the determination in DFARS 231.205-70(c)(4)(i) is obtained. -(iii) Require the contractor to submit an overall plan of restructuring activities and an adequately supported proposal for planned restructuring projects. The proposal must include a breakout by year by cost element, showing the present value of projected restructuring costs and projected restructuring savings. -(iv) Notify major buying activities of contractor restructuring actions and inform them about any potential monetary impacts on major weapons programs, when known. -(v) Upon receipt of the contractor's proposal, as soon as practicable, adjust forward pricing rates to reflect the impact of projected restructuring savings. If restructuring costs are included in forward pricing rates prior to execution of an advance agreement in accordance with paragraph (d)(viii) of this subsection, the contracting officer shall include a repricing clause in each fixed-price action that is priced based on the rates. The repricing clause must provide for a downward price adjustment to remove restructuring costs if the determination required by DFARS 231.205-70(c)(4)(i) is not obtained. -(vi) Upon receipt of the contractor's proposal, immediately request an audit review of the contractor's proposal. -(vii) Upon receipt of the audit report, determine on a present value basis if-- (A) The audited projected restructuring savings for DoD will exceed the restructuring costs allowed by a factor of at least two to one, as required by DFARS 231.205-70(c)(4)(i)(A); or (B) If the audited projected restructuring savings will exceed the restructuring costs allowed in a case where the business combination will result in the preservation of a critical capability that otherwise might be lost to DoD, as required by DFARS 231.205-70(c)(4)(i)(B). -(viii) Negotiate an advance agreement with the contractor setting forth, at a minimum, a cumulative cost ceiling for restructuring projects and, when necessary, a cost amortization schedule. The costs may not exceed the amount of projected restructuring savings on a present value basis. The advance agreement shall not be executed until the determination required by DFARS 231.205-70(c)(4)(i) is obtained. (ix)(A) Submit a recommendation for determination to-- -(1) If DFARS 231.205-70(c)(4)(ii)(A) applies, submit the recommendation to the Office of the Principal Director, Defense Pricing, Contracting, and Acquisition Policy (Price, Cost and Finance) via email at osd.pentagon.ousd-a-s.mbx.dpc-pcf@mail.mil. +(a) Scope. This subsection-- +(1) Prescribes policies and procedures for allowing contractor external restructuring costs when savings would result for DoD; and +(2) Implements 10 U.S.C. 3761. +(b) Definitions. As used in this subsection: +(1) "Business combination" means a transaction whereby assets or operations of two or more companies not previously under common ownership or control are combined, whether by merger, acquisition, or sale/purchase of assets. +(2) "External restructuring activities" means restructuring activities occurring after a business combination that affect the operations of companies not previously under common ownership or control. They do not include restructuring activities occurring after a business combination that affect the operations of only one of the companies not previously under common ownership or control, or, when there has been no business combination, restructuring activities undertaken within one company. External restructuring activities are a direct outgrowth of a business combination. They normally will be initiated within 3 years of the business combination. +(3) "Restructuring activities" means nonroutine, nonrecurring, or extraordinary activities to combine facilities, operations, or workforce, in order to eliminate redundant capabilities, improve future operations, and reduce overall costs. Restructuring activities do not include routine or ongoing repositionings and redeployments of a contractor's productive facilities or workforce (e.g., normal plant rearrangement or employee relocation), nor do they include other routine or ordinary activities charged as indirect costs that would otherwise have been incurred (e.g., planning and analysis, contract administration and oversight, or recurring financial and administrative support). +(4) "Restructuring costs" means the costs, including both direct and indirect, of restructuring activities. Restructuring costs that may be allowed include, but are not limited to, severance pay for employees, early retirement incentive payments for employees, employee retraining costs, relocation expense for retained employees, and relocation and rearrangement of plant and equipment. For purposes of this definition, if restructuring costs associated with external restructuring activities allocated to DoD contracts are less than $2.5 million, the costs shall not be subject to the audit, review, and determination requirements of paragraph (c)(4) of this subsection; instead, the normal rules for determining cost allowability in accordance with FAR Part 31 shall apply. +(5) "Restructuring savings" means cost reductions, including both direct and indirect cost reductions, that result from restructuring activities. Reassignments of cost to future periods are not restructuring savings. +(c) Limitations on cost allowability. Restructuring costs associated with external restructuring activities shall not be allowed unless-- +(1) Such costs are allowable in accordance with FAR Part 31 and DFARS Part 231; +(2) An audit of projected restructuring costs and restructuring savings is performed; +(3) The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and (4)(i) The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either-- (A) The costs allowed by a factor of at least two to one; or (B) The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD. (ii)(A) If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition and Sustainment) or the Principal Deputy. This authority may not be delegated below the level of an Assistant Secretary of Defense. (B) For all other cases, the designated official is the Director of the Defense Contract Management Agency. The Director may not delegate this authority. +(d) Procedures and ACO responsibilities.As soon as it is known that the contractor will incur restructuring costs for external restructuring activities, the cognizant ACO shall follow the procedures at PGI 231.205-70 (d). +(e) Information needed to obtain a determination. -(2) If DFARS 231.205-70(c)(4)(ii)(B) applies, submit the recommendation to the Director of the Defense Contract Management Agency, ATTN: HQ DCMA-OCB. (B) Include the information described in DFARS 231.205-70(e). -(x) Consult with the Principal Director, Defense Pricing, Contracting, and Acquisition Policy, or with the Director of the Defense Contract Management Agency, as appropriate, when DFARS 231.205-70(c)(4)(i)(B) applies.+(1) The novation agreement (if one is required). +(2) The contractor's restructuring proposal. +(3) The proposed advance agreement. +(4) The audit report. +(5) Any other pertinent information. +(6) The cognizant ACO's recommendation for a determination. This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection: +(i) The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis. +(ii) The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis. +(f) Contracting officer responsibilities. + +(1) The contracting officer, in consultation with the cognizant ACO, should consider including a repricing clause in noncompetitive fixed-price contracts that are negotiated during the period between-- +(i) The time a business combination is announced; and +(ii) The time the contractor's forward pricing rates are adjusted to reflect the impact of restructuring. +(2) The decision to use a repricing clause will depend upon the particular circumstances involved, including-- +(i) When the restructuring will take place; +(ii) When restructuring savings will begin to be realized; +(iii) The contract performance period; +(iv) Whether the contracting parties are able to make a reasonable estimate of the impact of restructuring on the contract; and +(v) The size of the potential dollar impact of restructuring on the contract. +(3) If the contracting officer decides to use a repricing clause, the clause must provide for a downward-only price adjustment to ensure that DoD receives its appropriate share of restructuring net savings. |
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