[Federal Register: January 26, 2000 (Volume 65, Number 17)]
[Proposed Rules]
[Page 4327-4329]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja00-38]
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Part III
Department of Defense
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General Services Administration
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National Aeronautics and Space Administration
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48 CFR Part 31
Federal Acquisition Regulation; Deferred Research and Development
Costs; Proposed Rule
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAR Case 1999-013]
RIN 9000-AI62
Federal Acquisition Regulation; Deferred Research and Development
Costs
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are proposing to amend the
Federal Acquisition Regulation (FAR) to clarify and simplify the
``Deferred research and development costs'' cost principle.
DATES: Interested parties should submit comments in writing on or
before March 27, 2000 to be considered in the formulation of a final
rule.
ADDRESSES: Submit written comments to: General Services
Administration, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035,
ATTN: Laurie Duarte, Washington, DC 20405. Submit electronic comments
via the Internet to: farcase.1999-013@gsa.gov Please submit comments
only and cite FAR case 1999-013 in all correspondence related to this
case.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC 20405, at (202) 501-4755 for information
pertaining to status or publication schedules. For clarification of
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAR case 1999-013.
SUPPLEMENTARY INFORMATION:
A. Background
This proposed rule amends the cost principle at FAR 31.205-48,
Deferred research and development costs, to clarify and simplify its
contents. The Councils propose to--
(a) Delete the second sentence addressing precontract costs, as
these types of costs are adequately addressed at FAR 31.205-32,
Precontract costs;
(b) Revise the last sentence to more clearly indicate that incurred
costs in excess of the contract price or grant amount for research and
development (R&D) effort are unallowable and accordingly, not
reimbursable by the Government; and
(c) Make several editorial revisions.
The Councils initiated this rule to consider whether the cost
principle was duplicative of FAR 31.205-32, Precontract costs, and FAR
31.205-23, Losses on other contracts, and therefore, should be deleted
in its entirety from the FAR. They concluded that the second sentence
could be deleted since precontract costs are already addressed in FAR
31.205-32. However, they also concluded that the last sentence,
disallowing the reimbursement of R&D costs in excess of the contract
price and grant amount, was not duplicative of FAR 31.205-23, and
should be retained at FAR 31.205-48, Deferred research and development
costs.
A historical review of certain court rulings has disclosed that the
Court of Claims and the Armed Services Board of Contract Appeals
(ASBCA) tend to regard the excess of costs incurred over the contract
price in R&D contracts, not necessarily as a loss but as an amount
that, under certain circumstances, may be capitalized and amortized
over future benefitting contracts. This view was held in a decision of
the Court of Claims (Bell Aircraft v. U.S. 120 Ct. Cl. 398 (1951)) and
in ASBCA decisions in the cases of Kellett Aircraft Corp. ASBCA No.
5658, 60-1 BCA para.2584, Sperry Rand Corp., Ford Instrument Co.
Division ASBCA 8689, 66-1 BCA para.5403, and G.C. Dewey ASBCA 13221,
69-1 BCA para.7732. Since the courts had ruled that the excess costs
did not represent a ``loss,'' these types of costs were considered
outside the purview of Armed Services Procurement Regulation (ASPR) 15-
205.19, Losses on Other Contracts (currently known as FAR 31.205-23,
Losses on other contracts.) Therefore, Defense Procurement Circular #95
dated 29 November 1971, added ASPR 15.205-49, Deferred Research and
Development Costs, to the ASPR to explicitly make these types of
deferred R&D costs unallowable. The third sentence of FAR 31.205-48
currently reflects this policy. Based on this historical review, the
Councils concluded that elimination of this sentence could permit
contractors to recover costs in excess of the contract price or grant
amount for R&D effort under certain conditions in which the courts have
ruled that the ``excess'' does not represent a ``loss''. Therefore,
this cost principle should remain in the FAR.
This rule was not subject to Office of Management and Budget review
under Section 6(b) of Executive Order 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
B. Regulatory Flexibility Act
The Councils do not expect this proposed rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
because most contracts awarded to small entities use simplified
acquisition procedures or are awarded on a competitive, fixed-price
basis, and do not require application of the cost principle contained
in this rule. An Initial Regulatory Flexibility Analysis has,
therefore, not been performed. Comments are invited from small
businesses and other interested parties. The Councils will consider
comments from small entities concerning the affected FAR subpart 31 in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C. 601, et seq. (FAR case
1999-013), in correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: January 19, 2000.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Therefore, DoD, GSA, and NASA propose that 48 CFR part 31 be
amended as set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
2. Revise section 31.205-48 to read as follows:
31.205-48 Deferred research and development costs.
Research and development, as used in this subsection, means the
type of technical effort described in 31.205-18 but sponsored by a
grant or required in the performance of a contract. When costs are
incurred in excess of either the price of a contract or amount of a
grant for research and development effort,
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such excess is unallowable under any other Government contract.
[FR Doc. 00-1741 Filed 1-25-00; 8:45 am]
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