[DoD Seal] OFFICE OF THE SECRETARY OF DEFENSE [DoD 50 YearSeal]

1000 DEFENSE PENTAGON

WASHINGTON, DC 20301­1000

February 26, 1996

ACQUISITION AND

TECHNOLOGY

DP(DAR)

In reply refer to

DFARS Case: 95­D309

D. L. 96­002

MEMORANDUM FOR DIRECTORS OF DEFENSE AGENCIES

DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,

ASN(RD&A)/ABM

DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE

(CONTRACTING), SAF/AQC

DIRECTOR, PROCUREMENT POLICY, ASA(RD&A)/SARD­PP

DEPUTY DIRECTOR (ACQUISITION), DEFENSE LOGISTICS

AGENCY

SUBJECT: Allowability of Costs

We have amended Part 231 of the Defense Federal AcquisitionRegulation Supplement (DFARS) to implement Section 8122 of theFY 1996 Defense Appropriations Act (Pub. L. 104­61). Section8122 prohibits the use of FY 1996 appropriated funds toreimburse a contractor for costs paid by the contractor to anemployee when such costs are for a bonus or otherwise in excessof the normal salary paid by the contractor to the employee, andsuch bonus is part of restructuring costs associated with abusiness combination. This prohibition does not apply to

severance or early retirement incentive payments.

This interim DFARS rule is effective immediately and willbe published in a future Defense Acquisition Circular.

/S/

Eleanor R. Spector

Director, Defense Procurement

Attachment

cc: DSMC, Ft. Belvoir


DFARS CASE 95­D309, Allowability of Costs

SUBPART 231.2­­CONTRACTS WITH COMMERCIAL ORGANIZATIONS

231.205­6 Compensation for personal services.

* * * * *

(f)(1) Costs for bonuses or other payments, that are in excess of the

normal salary paid by the contractor to the employee and that are part of

restructuring costs associated with a business combination, are unallowable

under DoD contracts funded by fiscal year 1996 appropriations (Public Law

104­61). This limitation does not apply to severance payments or early

retirement incentive payments. (See 231.205­70(b) for the definitions of

"business combination" and "restructuring costs.")