An advance agreement must be negotiated whenever (1) a contractor expects to receive increased costs on any contracts that have been novated to it and (2) the costs of internal or external restructuring charges are to be amortized. The purpose of the agreement is to establish upfront the allowability, allocability and assignment of restructuring costs. The advance agreement must address at least the following nine items: (1) identification of covered contracts (current fixed price contracts will not be modified though future modifications to such contracts will be covered) (2) restructuring proposal requirements (3) impact on and updating forward-pricing rates (4) types of allowable restructuring costs (5) amortization of such costs (6) cost of money (7) allocation of restructuring costs (8) changes in cost accounting practices and (9) disclosure requirements.

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