October 4, 1999
PURPOSE: To provide guidance concerning the actions that should be taken after contract award to ensure that contractor facilities requirements are not in excess of the contractor's needs, and the action to be taken if idle facilities are determined to exist.
BACKGROUND: Several NASA Office of the Inspector General reports have criticized the agency for paying for excessive leased contractor space, i.e., "idle facilities." One report recommended that procedures be established requiring contracting officers to periodically reevaluate facility requirements for contractors with leases. The Office of Procurement agrees that contracting officers should periodically reevaluate after contract award whether contractor facilities requirements, both leased and contractor owned, continue to be appropriate to meet the contractor's space needs.
GUIDANCE: FAR 31.205-17, Idle facilities and idle capacity costs, defines what idle facilities are and states that the costs for such facilities are generally unallowable after one year. Idle facilities generally do not occur until sometime after contract award due to some changed condition. Consequently, it is necessary for contracting officers to periodically review after award whether the contractor's facilities requirements continue to be appropriate in relation to its needs. This review should be of both the contractor's owned and leased facilities and may involve facilities used for a specific contract or those whose costs are charged as an indirect cost and allocated to the contract. Contracting officer reviews should only occur where facility costs represent a significant contract cost.
Contracting officers are expected to establish a schedule as to when the periodic reviews are to be performed, such as every three years for contracts with longer periods of performance. However, reviews may be appropriate at more frequent periods if the contracting officer becomes aware of changed conditions which could be expected to reduce the contractor's facilities needs. Such conditions include, but are not limited to: the scope of the contract has changed; the contractor has reorganized; the contractor has undergone an external (merger or business combination) or internal restructuring; the contractor has reduced its workforce; the contractor has contracts and/or subcontracts that have been terminated or completed and not replaced with new contract or subcontract awards; and performance of the contractor's contracts and/or subcontracts is moved from the contractor's facilities to Government or other facilities.
The contracting officer's review will generally entail discussions with the Administrative Contracting Officer (ACO), if the contractor has one, and/or with the contractor's cognizant audit activity. Based on those discussions, an audit may be requested, further review initiated, or a determination made by the contracting officer that no further action is warranted. The assistance of the ACO may be particularly useful where the facilities costs are an indirect cost, since the idle facilities generally will impact more than the contracting officer's individual contract.
If no idle facilities are found, no additional work is necessary until the next scheduled review, or when a condition becomes known that could reduce the contractor's facilities requirements. However, if idle facilities are found to exist, the contracting officer must ensure corrective action is taken by the contractor. The corrective action will entail the contractor use, lease, or disposal of the idle facilities. FAR 31.2025-17 states that idle facilities costs are allowable for a reasonable period, generally one year. However, idle facilities costs may be allowable beyond that period depending on initiatives taken by the contractor. Ideally a contractor would be able to use, sublease, or sell all of the idle facilities. However, there may be cases when the contractor may be able to take one or more of these actions for only a portion of the idle facilities, and there may be other cases, when because of the marketplace, none of these actions will be feasible. In those cases where there are idle facilities, the contracting officer must determine whether the contractor's initiatives to eliminate or reduce the idle facilities are reasonable. Since circumstances will vary, the contracting officer must evaluate the contractors initiatives in light of those circumstances in making his/her determination. If the contractor's initiatives are determined not to be reasonable, the contractor is to be put on notice and, if appropriate, costs disallowed. Even if the contractor's initiatives are originally determined to be reasonable, the contracting officer must continue to assess whether that remains true as long as there are idle facilities.
The contracting officer's determination of whether a review is warranted, the results of any review, the contractor's initiatives taken to eliminate or reduce the idle facilities, as well as the disallowance of any costs are expected to be documented in the contract file.
EFFECTIVE DATE: This PIC is effective as dated and shall remain in effect until canceled or superseded.
HEADQUARTERS CONTACT: Joe Le Cren, Code HK, (202) 358-0444, e-mail: email@example.com.
R. Scott Thompson
Director, Contract Management Division