Friday, May 3, 2013

Plant Reconversion Costs

Plant reconversion costs are those incurred in restoring or rehabilitating facilities to approximately the same condition existing immediately before the start of the Government contract, fair wear and tear excepted. Reconversion costs are unallowable except for the cost of removing Government property and the restoration or rehabilitation costs caused by such removal (see FAR 31.205-38).

FAR does provide one exception. In special circumstances where equity so dictates, additional costs may be allowed to the extent agreed upon before costs are incurred. Note this important qualification - agreed upon before the cost were incurred. FAR also cautions that "care should be exercised to avoid duplication through allowance as contingencies, additional profit or fee, or in other contracts.

This particular cost principle has not changed since it was first published in 1959 but at the time it was published, there was a bit of controversy. Contractors felt that reconversion costs should be allowable while the Government took the opposite position - that costs should be charged to future work.

Back in 1975, there was a case involving a terminated contract where the contractor claimed the costs of tearing down its production line which included sewing machines and tables. The ASBCA (Armed Services Board of Contract Appeals) ruled that moving the sewing machines represented allowable repair and maintenance while moving the tables represented unallowable plant reconversion costs. The sewing machines, you see, hand to be cleaned and drained of their oil carriages prior to storage while there was no reason why the tables could not remain in-place pending future work.

Even though this cost principle contains a provision that might allow plant reconversion costs in special circumstances so long as it is agreed upon before the costs were incurred, it seems unlikely to us that a contracting officer is going to entertain such a request. The cost principle does not define or identify "special circumstances" it would take an extremely convincing argument to move a contracting officer toward such an agreement.

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