ments Act of 1958; but such designation shall cease to be in effect on the last day of the month during which such national emergency is terminated.

(iii) Section 102 (c) of the act, as amended, provides as follows:

(c) Termination—(1) In general.-The provisions of this title shall apply only with respect to receipts and accruals, under contracts with the Departments and related subcontracts, which are determined under regulations prescribed by the Board to be reasonably attributable to performance prior to the close of the termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the termination date, shall be considered as having been received or accrued not later than the termination date. For the purposes of this title, the term "termination date" means June 30, 1964.

(2) Termination of status as Department.—When the status of any agency of the Government as a Department within the meaning of section 103 (a) is terminated, the provisions of this title shall apply only with respect to receipts and accruals, under contracts with such agency and related subcontracts, which are determined under regulations prescribed by the Board

Department of Defense -

Department

to be reasonably attributable to performance prior to the close of the status termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the status termination date, shall be considered as having been received or accrued not later than the status termination date. For the purposes of this paragraph, the term "status termination date" means, with respect to any agency, the date on which the status of such agency as a Department within the meaning of section 103 (a) is terminated.

1452.2 Application of the act to prime contracts.-Except as exempted pursuant to section 106 of the act (see Parts 1453, 1454 and 1455 of this subchapter), and except as set forth in 8 1457.3 of this subchapter, all contracts with the following Departments are subject to renegotiation under the act to the extent of amounts received or accrued on or after the applicable date, indicated below, and attributable to performance before the close of the termination date of the act or the status termination date indicated below (see section 102 (c) of the act):

tion pursuant to section 106 of the act (see Parts 1453 and 1455 of this subchapter), and except as set forth in section 1457.3 of this subchapter, all subcontracts within the meaning of section 103 (g) of the act are subject to renegotiation under the act to the extent of amounts received or accrued on or after the date set forth in section 1452.2 which is applicable to the prime contract to which the subcontract relates.

1452.4 Subcontracts to perform work or furnish materials. (a) Statutory provision.-Section 103 (g) of the act provides in part as follows:

The term "subcontract" means

(1) any purchase order or agreement (including purchase orders or agreements antedating the related prime contract or higher tier subcontract) to perform all or any part of the work, or to make or furnish any materials, required for the performance of any other contract or subcontract, but such term does not include any purchase order or agreement to furnish office supplies;

(b) Interpretation of statutory provision.— (1) In general.-The term "subcontract" includes all purchase orders or agreements to perform all or any part of the work or to make or furnish any materials required for the performance of a renegotiable prime contract. An agreement or purchase order to perform work or to make or furnish materials is a renegotiable subcontract if it is: (i) For the sale or processing of an end product which is to be delivered under a renegotiable prime contract; or (ii) for the sale or processing of materials to be physically incorporated in such end product; or (iii) for the sale, furnishing or installation of machinery, equipment or other materials used in the processing of such end product or materials incorporated therein; or (iv) for the sale, furnishing or installation of materials incorporated in machinery, equipment or other materials used in the processing of such end product or of materials incorporated therein; or (v) for the performance of services directly required for the performance of prime contracts and subcontracts included in subdivisions (i), (ii), (iii), or (iv) of this subparagraph. Materials will be deemed to be used in the processing of other materials when the materials are used: (a) To produce or other

wise operate directly on such other materials by chemical, physical or mechanical methods; such, for example, as shaping, cutting, constructing, combining, refining, assembling, testing, inspecting, or (in the case of end products) packaging; (b) to transport such other materials within a contractor's plant; or (c) in connection with the repair, maintenance, equipping or operation in a contractor's plant of such other materials.

(2) Indirect relation to renegotiable business.-The Board has determined that purchase orders or agreements for any of the following materials, when such materials are not to be ultimately delivered to a Department, are so indirectly related to the performance of renegotiable prime contracts and subcontracts as not to constitute subcontracts within the definition contained in section 103 (g) (1) of the

act:

(i) Materials used for general plant maintenance, including fuel and equipment to produce light, heat and general power requirements.

(ii) Materials used for general office purposes, including all types of office machinery, furniture, equipment, and supplies.

(iii) Safety equipment and clothing. (iv) Packaging materials and containers. (v) Materials used in processing other than those used in the processing of an end product or of materials incorporated therein.

(3) Office supplies.-It is not intended to exclude from renegotiation any materials sold to a contractor when such materials are ultimately to be resold to a Department either as end products or as component parts thereof. However, subcontracts to furnish office supplies are specifically excluded from the statutory definition of a subcontract. Therefore, subcontracts for office supplies, even though such office supplies are ultimately sold to a Department, are not subject to renegotiation. The term "office supplies" includes paper, ink, typewriter ribbons, binders, covers, blotters, paper clips, staples, and other items of a consumable character, as well as related items of relatively short life and minor cost, such as pens, penholders, pencils, blotter pads and calendars; the term "office supplies" does not include office furniture, machin

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ery and equipment, such as desks, chairs, lamps, rugs, wastebaskets, filing cases, typewriters and calculating, recording, reproducing and dictating machines.

1452.5 Real property.-(a) Existing real property.-The term "subcontract" does not include contracts for the purchase or rental of any interest in existing real estate by prime contractors and subcontractors since the term refers to the making or furnishing of "materials", the definition of which term is limited to personal property. (See sec. 1451.18 of this subchapter.) The term "subcontract" does include contracts for fixtures or for improvements to or construction of real property. Those contracts are discussed in paragraph (b) of this section.

(b) Fixtures, construction and improvements on real property.—(1) If a contract is for work or materials which become real property in the course of its performance, as distinguished from existing real property, the principles stated in this paragraph govern.

(2) If a contract to sell, furnish or install materials would otherwise constitute a renegotiable contract or subcontract, the fact that such property is to be installed in a building or otherwise affixed to real estate and will be treated as real property for some purposes does not exclude the contract from renegotiation.

(3) If a contract for the construction of a building or improvements on or to real property is entered into by a Department, such contract is subject to renegotiation unless exempted. If a contract for the construction of a building or improvements on or to real property is entered into by someone other than a Department, such contract is nevertheless subject to renegotiation if, at the time such contract is made, the Government pursuant to a contract entered into by a Department is to obtain title to such building or improvements either immediately or ultimately. Likewise, all subcontracts under such a renegotiable contract, for furnishing services or materials such as building materials and structural steel, which are personal property when furnished but which become real property during the course of construction, are renegotiable unless exempted, and so are subcontracts for furnishing any machinery or equipment installed in the building.

(4) If a contract is for the construction of a building or improvement on or to real property for a contractor or subcontractor for the purpose of performing a renegotiable contract or subcontract, and if the Government is not to acquire title to such building or improvements, either immediately or ultimately, pursuant to a contract entered into by a Department, then except as provided in subparagraph (2) of this paragraph, such contract and subcontracts thereunder are not subject to renegotiation.

1452.6 Patent licenses.-(a) Statutory provision.-Section 103 (g) of the act provides in part as follows:

The term "subcontract" means

(b) Interpretation.-Any contract or arrangement covering the right to use any patented or secret method, formula, or device for the performance of a renegotiable prime contract or subcontract is a subcontract within the meaning of section 103 (g) (2) of the act. It is not a subcontract within the meaning of section 103 (g) (3) of the act. (See sec. 1452.7.) In any case where license and an agreement by the licensor to furnish any technical or other services to the licensee are embraced within a single contract, the agreement to furnish technical or other services may be a subcontract under section 103 (g) (3) of the act. In any such case, the license may be severed from the agreement to furnish technical or other services, and an appropriate finding made as to that portion of the consideration payable under the contract which is payable on account of the license and that portion of the consideration which is ayable on account of the services.

(c) Royalty Adjustment Act agreements or orders.-If the rates or amounts of the royalties received or accrued for the period involved in the renegotiation have been fixed as fair and just in a Royalty Adjustment Act order or agreement applicable to such period or any part thereof, the Board will ordinarily find that no excessive profits have been derived from that part of the royalties covered by such order or agreement. Rates or amounts of royalties

(3) Any contract or arrangement (other than a contract or arrangement between two contracting parties, one of whom is found by the Board to be a bona fide executive officer, partner, or full-time employee of the other contracting party) under which

(A) any amount payable is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts; or

(B) any amount payable is determined with reference to the amount of a contract or contracts with a Department or of a subcontract or subcontracts; or (C) any art of the services performed or to be

performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts.

(b) Cross reference.-Special regulations pertaining to this subject are set forth in section 1471.2 (d) and Part 1490 of this subchapter.

1452.8 Effect of renegotiation clause.The obligations assumed by the prime contractor or subcontractor under the renegotiation clause required by section 104 of the act to be inserted in prime contracts and subcontracts, shall be binding on the prime contractor or subcontractor only if the prime contract or subcontract is subject to the act. Whether or not the renegotiation clause is inserted in a prime contract or subcontract to which the act applies, such prime contract or subcontract shall be considered as having been made subject to the act in the same manner and to the same extent as if the renegotiation clause had been inserted.

Sec.

(1) any contract by a Department with any Territory, possession, or State, or any agency or political subdivision thereof, or with any foreign government or any agency thereof;

(b) Interpretation and application of exemption. This provision is construed to exclude from renegotiation any contract by a Department with any Territory, possession or State or any agency or political subdivision thereof or with any foreign government or any agency thereof. A municipal corporation, whether acting in a proprietary or governmental capacity, is a political subdivision of a State for the purposes of this exemption.

1453.2 Contracts and subcontracts for certain agricultural commodities and raw materials. (a) Agricultural commodities.—(1) Statutory provision.-Section 106 (a) (2) of the act exempts the following:

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(2) any contract or subcontract for an agricultural commodity in its raw or natural state, or if the commodity is not customarily sold or has not an established market in its raw or natural state, in the first form or state, beyond the raw or natural state, in which it is customarily sold or in which it has an established market. The term "agricultural commodity" as used herein shall include but shall not be limited to

(A) commodities resulting from the cultivation of the soil such as grains of all kinds, fruits, nuts, vegetables, hay, straw, cotton, tobacco, sugarcane, and sugar beets;

(B) natural resins, saps, and gums of trees;

(C) animals, such as cattle, hogs, poultry, and sheep, fish and other marine life, and the produce of live animals, such as wool, eggs, milk and cream;

(2) Interpretation of exemption.—The purpose of this provision is to exempt from renegotiation farmers, fruit growers, livestock raisers, fishermen, and other basic producers of agricultural commodities and those who trade in such products or store, handle, or transport such products without processing them before the acquisition of such products by a Department; it is not intended to exempt canners, manufacturers, and others who acquire such products and process them to a higher form or state, or those who store, handle, or transport such products pursuant to a prime contract with a Department. In order to qualify for exemption the product contracted for must be an agricultural commodity in its raw or natural state, or if such a commodity is not customarily sold or does not have an established market in its raw or natural state, in the first form or state beyond the raw or natural state in which it is customarily sold or in which it has an established market.

(3) Application of exemption.-A commodity will be deemed to be an agricultural commodity in its raw or natural state only so long as it has not undergone some process of treatment or fabrication. In the case of fruits, vegetables and other like products this state does not ordinarily extend beyond the state in which said products are harvested. In the case of livestock, it terminates at the time the animal is slaughtered. When an agricultural commodity is not customarily sold or does not have an established market in its raw or natural state as above defined and is no longer in such state, the exempt status of such commodity will terminate with the state in which the commodity is first customarily sold or has an established market, and, with the exception of the produce of live animals which are specifically exempted, the exemption will not apply to any derivative products which are derived from such commodity in the state in which it is first sold, whether as a result of division, separation or further treatment or processing. For the purposes of determining whether an agricultural commodity is customarily sold or has an established market, regard will be given to the entire field in which such commodity is

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