Strategic Aerospace and Defence Initiative (SADI) Contribution Agreement Template
Schedule 5 - Claims & Cost Principles
A — Claims
- Provided the Recipient is not in Default, the Minister will pay the Contribution, in respect of Eligible Costs, on the basis of claims that will:
- (a) be submitted on a [quarterly or monthly] basis ("Claim Period"), except for the first claim which will cover a longer period going back to [date];
- be submitted on SADI claim forms, within forty-five (45) days of the end of each Claim Period; and sent to the address specified in Article 7.1 of the Articles of Agreement;
- be accompanied with details of all costs being claimed, which will be substantiated by such documents as may be required by the Minister and presented in accordance with the structure, Activities and the Milestones contained in the Statement of Work;
- be certified, in a form satisfactory to the Minister, by the chief financial officer of the Recipient or other person satisfactory to the Minister;
- include a deduction for Eligible Costs included in a previous claim but which have not been paid by the Recipient within ninety (90) days of such claim; and,
- be accompanied by a report containing:
- the Recipient's revised projections of the Project cash flows for the current Government Fiscal Year.
- such other information as the Minister may request from time to time;
- an identification of any planned or completed transfer to commercial production, transfer outside of Canada, sale, lease or other disposal of Special Purpose Equipment (as defined in Schedule 7);
- an update to the list of current holdings of Special Purpose Equipment (Special Purpose Equipment Form in Schedule 7) if any modifications have been made since the last claim;
- an itemized list of foreign sub-contracting costs, if any;
- an itemized list of collaboration costs.
- (g) be accompanied by the representations noted in Schedule 1, Section 6.11 Renewal of Representations and a certification that there are no Defaults under any of the provisions of the Agreement (and no state of facts exist which, with the giving of notice or the passing of time, or both, would constitute an Event of Default).
- In regard to paragraph 1(e) above, the Minister may request at any time that the Recipient provide satisfactory evidence to demonstrate that Eligible Costs have been paid.
- The Recipient shall submit with the final claim an itemized statement certified by the Recipient's chief financial officer attesting to the Eligible Costs for the Project under the Agreement having been incurred and paid.
B — SADI Project Cost Principles>
1. General Principle
The Eligible Costs of the Project must be the sum of the applicable direct and indirect costs which, in the opinion of the Minister, are or must be reasonably and properly incurred and/or allocated, in the performance of the Project. These costs must be determined in accordance with the Recipient's cost accounting practices as accepted by the Minister and applied consistently over time.
2. Reasonable Costs
A cost is reasonable if the nature and amount do not exceed what would be incurred by an ordinary prudent person in the conduct of a competitive business.
In determining the reasonableness of a particular cost, consideration will be given to:
- whether the cost is of a type generally recognized as normal and necessary for the conduct of the Recipient's business or performance of the Project;
- the restraints and requirements by such factors as generally accepted sound business practices, arm's length bargaining, federal, provincial and local laws and regulations, and Agreement terms;
- the action that prudent business persons would take in the circumstances, considering their responsibilities to the owners of the business, their employees, customers, the Government and public at large;
- significant deviations from the established practices of the Recipient which may unjustifiably increase the Eligible Costs; and
- the specifications, delivery schedule and quality requirements of the particular Project as they affect costs.
2.1 Affiliated Persons
In the case of Eligible Costs incurred with an Affiliated Person, the amount of the costs incurred must be adjusted as follows:
- The cost of those goods or services must not exceed their Fair Market Value;
- If there is no Fair Market Value for the applicable goods or services, the Fair Market Value of Similar Goods must be used;
- If there is no Similar Good, Cost Plus Method (as defined below) must be used to determine the cost.
The Cost Plus Method means the sum of applicable direct and indirect costs, as described below in sections 4 and section 5, all as determined and measured consistently in accordance with generally accepted accounting principles, that were reasonably incurred or allocated in the performance of the Statement of Work plus Profit, as determined below.
Once the sum of those direct and indirect costs is determined ("Total Cost"), profit ("Profit") is calculated at five percent (5%) of the Total Cost.
Accordingly, the Cost Plus Method is equal to Total Cost plus Profit of 5%.
3. Methodology to Determine the Direct and Overhead Costs
The Eligible Costs of the Project are those direct and indirect (overhead) costs, which, in the opinion of the Minister, are reasonably and properly incurred and allocated, to the performance of the Project.
Indirect (overhead) costs shall be calculated at a fixed rate of 75% of Direct Labour Costs.
4. Direct Costs
There are three categories of direct costs:
- Direct Materials Cost meaning the cost of materials which can be specifically identified and measured as having been used or to be used in the performance of the Project and which are so identified and measured consistently by the Recipient's cost accounting practices as accepted by the Minister.
- These materials may include, in addition to materials purchased solely for the performance of the Project and processed by the Recipient, or obtained from subcontractors, any other materials issued from the Recipient's general stocks.
- Materials purchased solely for the performance of the Project or subcontracts must be charged to the Project at the net laid down cost to the Recipient, before any discounts for prompt payment.
- Materials issued from the Recipient's general stocks must be charged to the Project in accordance with the method as used consistently by the Recipient in pricing material inventories.
- Direct Labour Costs meaning the costs of the portion of gross wages or salaries incurred for activities which can be specifically identified and measured as having been incurred or to be incurred in the performance of the Project and which are so identified and measured consistently by the Recipient's cost accounting practices as accepted by the Minister.
- Other Direct Costs meaning those applicable costs, not falling within the categories of Direct Material Costs or Direct Labour Costs, but which can be specifically identified and measured as having been incurred or to be incurred in the performance of the Project activities and which are so identified and measured consistently by the Recipient's cost accounting practices as accepted by the Minister.
5. Indirect Costs (Overhead)
Indirect Costs (overhead) meaning those costs which, though necessarily having been incurred during the period of the performance of the Project activities for the conduct of the Recipient's business in general, cannot be identified and measured as directly applicable to the performance of the Project.
These Indirect Costs may include, but are not necessarily restricted to, such items as:
- indirect materials and supplies (For supplies of similar low-value, high-usage items the costs of which meet the above definition of Direct Material Costs but for which it is economically expensive to account for these costs in the manner prescribed for direct costs, then they may be considered to be indirect costs for the purposes of the Project);
- indirect labour;
- fringe benefits (the Recipient's contribution only);
- public services expenses: expenses of a general nature such as power, heat, light, operation and maintenance of general assets and facilities;
- fixed/period charges: recurring charges such as property taxes, rentals and reasonable provision for depreciation costs; and
- general and administrative expenses: including remuneration of executive and corporate officers, office wages and salaries and expenses such as stationery, office supplies, postage and other necessary administration and management expenses.
6. >Non-Eligible Costs
Despite that the following costs may have been or may be reasonably and properly incurred by the Recipient in the performance of the Project, they are considered non-eligible costs to the Project:
- allowance for interest on invested capital, bonds, debentures, bank or other loans together with related bond discounts and finance charges;
- legal, accounting and consulting fees in connection with financial reorganization, security issues, capital stock issues, obtaining of licenses and prosecution of claims against the Minister;
- losses on investments, bad debts and expenses for the collection charges;
- losses on other projects or contracts;
- federal and provincial income taxes, goods and services taxes, excess profit taxes or surtaxes and/or special expenses in connection with those taxes;
- provisions for contingencies;
- premiums for life insurance on the lives of officers and/or directors where proceeds accrue to the Recipient;
- amortization of unrealized appreciation of assets;
- depreciation of assets paid for by the Minister;
- fines and penalties;
- expenses and depreciation of excess facilities;
- unreasonable compensation for officers and employees;
- product development or improvement expenses not associated with the work being performed under the Project;
- advertising, except reasonable advertising of an industrial or institutional character placed in trade, technical or professional journals for the dissemination of information for the industry or institution;
- entertainment expenses;
- donations except those to charities registered under the Income Tax Act;;
- dues and other memberships other than regular trade and professional associations;
- fees, extraordinary or abnormal for professional advice in regard to technical, administrative or accounting matters, unless approval from the Minister is obtained; and
- any cost relating to land or buildings; and
- selling and marketing expenses associated with the products or services or both being developed under the Agreement.
Notwithstanding section 6(b) above, legal, accounting and consulting fees in connection with the obtaining of patents and statutory protection of other elements of the Intellectual Property are Eligible Costs.
7. Special Purpose Equipment
The Recipient shall identify all Special Purpose Equipment in accordance with Schedule 7.
For Eligible Costs in respect to Special Purpose Equipment, see Schedule 7 entitled Special Purpose Equipment.
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