Part 5231 - CONTRACT COST PRINCIPLES

AND PROCEDURES

Subpart 5231.1 - APPLICABILITY

5231.109 Advance agreements.

Subpart 5231.2 - CONTRACTS WITH COMMERCIAL ORGANIZATIONS

5231.205 Selected costs.

5231.205-90 Shipbuilding capability preservation agreements.

5231.205-91 Compensation for services.

Subpart 5231.1 - APPLICABILITY

5231.109 Advance agreements.

(a) Since advance agreements often deal with issues that are complex and/or unprecedented and

may require FAR/DFARS deviations, activities contemplating negotiation of advance agreements on

the treatment of special or unusual costs shall consult with DASN(P) before entering into any

negotiations. (g) Copies of all negotiated advance agreements shall be forwarded to DASN(P) within

15 days of their execution, together with appropriate supporting documents by email at

usn.pentagon.asstsecnavrdadc.mbx.pabt@us.navy.mil with the subject “[Activity Name] FAR 31.109

– Negotiated Advance Agreement.”

Subpart 5231.2 - CONTRACTS WITH COMMERCIAL

ORGANIZATIONS

5231.205 Selected costs.

5231.205-90 Shipbuilding capability preservation agreements.

(a) Scope and authority. Where it would facilitate the achievement of the policy objectives set forth

in 10 U.S.C. 2501(b), the Navy may enter into a shipbuilding capability preservation agreement with

a contractor. As authorized by Section 1027 of the National Defense Authorization Act (NDAA) for
FY 1998 (P.L. 105-85), such an agreement permits the contractor to claim certain indirect costs

attributable to its private sector work as allowable costs on Navy shipbuilding contracts.

(b) Definition. “Incremental indirect cost,” as used in this subsection, means an additional indirect

cost that results from performing private sector work described in a shipbuilding capability

preservation agreement.

(c) Purpose and guidelines. The purpose of a shipbuilding capability preservation agreement is to

broaden and strengthen the shipbuilding industrial base by providing an incentive for a shipbuilder

to obtain new private sector work, thereby reducing the Navy's cost of doing business. The Navy will

use the following guidelines to evaluate requests for shipbuilding capability preservation

agreements:

(1) ASN(RDA) must make a determination that an agreement would facilitate the achievement of the

policy objectives set forth in 10 U.S.C. 2501(b). The primary consideration in making this

determination is whether an agreement would promote future growth in the amount of private

sector work that a shipbuilder is able to obtain.

(2) An agreement generally will be considered only for a shipbuilder with little or no private sector

work.

(3) The agreement shall apply to prospective private sector work only and shall not extend beyond 5

years.

(4) The agreement must project an overall benefit to the Navy, including net savings. This would be

achieved by demonstrating that private sector work will absorb costs that otherwise would be

absorbed by the Navy.

(d) Cost-reimbursement rules. If the Navy enters into a shipbuilding capability preservation

agreement with a contractor, the following cost-reimbursement rules apply:

(1) The agreement shall require the contractor to allocate the following costs to private sector work:

(i) The direct costs attributable to the private sector work;

(ii) The incremental indirect costs attributable to the private sector work; and

(iii) The non-incremental indirect costs to the extent that the revenue attributable to the private

sector work exceeds the sum of the costs specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this

subsection.

(2) The agreement shall require that the sum of the costs specified in paragraphs (d)(1)(ii) and

(d)(1)(iii) of this subsection not exceed the amount of indirect costs that would have been allocated

to the private sector work in accordance with the contractor's established accounting practices.

(3) The Navy may agree to modify the amount calculated in accordance with paragraph (d)(1) of this

subsection if it determines that a modification is appropriate to the particular situation. In so doing,

the Navy may agree to the allocation of a smaller or larger portion of the amount calculated in

accordance with paragraph (d)(1) of this subsection, to private sector work.

(i) Any smaller amount shall not be less than the sum of the costs specified in paragraphs (d)(1)(i)

and (d)(1)(ii) of this subsection.
(ii) Any larger amount shall not exceed the sum of the costs specified in paragraph (d)(1)(i) of this

subsection and the amount of indirect costs that would have been allocated to the private sector

work in accordance with the contractor's established accounting practices.

(iii) In determining whether such a modification is appropriate, the Navy will consider factors such

as the impact of pre-existing firm-fixed-price Navy contracts on the amount of costs that would be

reimbursed by the Navy, the impact of pre-existing private sector work on the cost benefit that

would be received by the contractor, and the extent to which allocating a smaller or larger portion of

costs to private sector work would provide a sufficient incentive for the contractor to obtain

additional private sector work.

(e) Procedure. A contractor may submit a request for a shipbuilding capability preservation

agreement, together with appropriate justification, through the Deputy Assistant Secretary of the

Navy for Ships, to ASN(RDA), who has approval or disapproval authority. The contractor should also

provide an informational copy of any such request to the cognizant administrative contracting

officer.

5231.205-91 Compensation for services.

Submit annual reports for DoD Waivers of the Contractor Employee Compensation Cap to DASN(P)

no later than October 31 by email at usn.pentagon.asstsecnavrdadc.mbx.pabt@us.navy.mil with the

subject “[Activity Name] NMCARS 5231.205-91 DoD Waivers of the Contractor Employee

Compensation Cap” using the reporting guidance provided in Annex 23.