Section 22-B9803. CONTRACT COST PRINCIPLES

 

9803.1The CO shall incorporate the contract cost principles in contracts as the basis for:

 

(a)Determining reimbursable costs under cost-reimbursement contracts and cost-reimbursement subcontracts, and the cost-reimbursement portion of time-and-materials contracts, except when material is priced on a basis other than at cost;

 

(b)Negotiating indirect cost rates;

 

(c)Proposing, negotiating or determining costs under terminated contracts; and

 

(d)Pricing changes and other contract modifications.

 

9803.2The cost principles and procedures set forth in this section shall not apply to the following:

 

(a)The establishment of prices under contracts awarded on the basis of competitive sealed bidding;

 

(b)Prices fixed by law or regulations; or

 

(c)Prices based on established catalog prices or established market prices.

 

9803.3The CO may recommend, to the Executive Director, a deviation from the cost principles set forth in this section if the CO determines in writing that the deviation would be in the best interests of the Hospital.

 

9803.4The factors to be considered in determining whether a cost is allowable include reasonableness, allocability, the terms of the contract, consistency with generally accepted accounting principles and practices appropriate to the particular circumstances, consistency with the limitations set forth in this section, and consistency with any applicable law.

 

9803.5A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.

 

9803.6In determining reasonableness of a given cost, the CO shall consider the following factors:

 

(a)Whether the cost is of a type generally recognized as ordinary and necessary for the conduct of the contractor’s business or the performance of the contract;

 

(b)The restraints or requirements imposed by generally accepted sound business practices, arms length bargaining, and contract terms and specifications;

 

(c)The action that a prudent business person would take considering responsibilities to the owner of the business, employees, customers, the Hospital and the public at large;

 

(d)Any significant deviations from the established practices of the contractor that may unjustifiably increase the contract costs; and

 

(e)Any other relevant factors.

 

9803.7For purposes of this section, a cost is allocable to a contract if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship.

 

9803.8The CO shall consider a cost allocable to a Hospital contract if the cost meets one or more of the following criteria:

 

(a)The cost is incurred specifically for the contract;

 

(b)The cost benefits both the contract and other work, and can be distributed to both in reasonable proportion to the benefits received; or

 

(c)The cost is necessary to the overall operation of the business, although a direct relationship to any particular cost objective may not be evident.

 

9803.9The CO shall identify and exclude from each invoice, claim, and proposal, costs that are expressly unallowable under this section or mutually agreed to be unallowable under an advance cost agreement.

 

9803.10When costs are identified as unallowable or mutually agreed to be unallowable, all directly associated costs shall also be unallowable.

 

9803.11Direct costs associated with Hospital contracts shall be segregated from other costs and recorded in accounts identifying them with the particular contract or cost objective to the maximum extent possible.

 

9803.12Indirect costs shall not be allocated to a Hospital contract if other costs incurred for the same purpose in like circumstances have been included as a direct cost of that contract or any final cost objective not related to the Hospital contract.

 

9803.13Indirect costs shall be accumulated in logical groupings known as “indirect cost pools” and allocated in a method in accordance with generally accepted accounting principles.

 

9803.14The following is a treatment of certain specific cost categories:

 

(a)Bad debt, penalties and fines, and contingency costs shall not be allowable;

 

(b)Depreciation and use allowances made for fully depreciated assets shall not be allowable;

 

(c)Entertainment costs shall not be allowable;

 

(d)Advertising costs shall not be allowable unless incurred as a direct result of compliance with specific provisions of the contract or written instructions of the CO;

 

(e)Per diem costs for services directly related to a contract and as provided for in the contract shall be allowable;

 

(f)Interest expense incurred by contractors shall not be an allowable cost unless stated otherwise in the terms and conditions of the solicitation;

 

(g)Costs of material shall be allowable;

 

(h)Bonding costs shall be allowable when required under the terms of the contract; and

 

(i)The cost of required or approved insurance that is maintained by the contractor pursuant to the contract shall be allowable.

 

source

Final Rulemaking published at 41 DCR 4508, 4537 (July 8, 1994).