[Federal Register: July 24, 2003 (Volume 68, Number 142)]
[Rules and Regulations]
[Page 43871-43872]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy03-24]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2001-15; FAR Case 2001-024; Item VI]
RIN 9000-AJ42
Federal Acquisition Regulation; Selling Cost Principle
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) ``selling costs''
cost principle by restructuring the paragraphs and removing unnecessary
and duplicative language to increase clarity.
DATES: Effective Date: August 25, 2003.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC, 20405, (202) 501-4755, for information
pertaining to status or publication schedules. For clarification of
content, contact Mr. Edward Loeb at (202) 501-0650. Please cite FAC
2001-15, FAR case 2001-024.
SUPPLEMENTARY INFORMATION:
A. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 67 FR 55682, August 29, 2002, with request for comments.
One respondent submitted comments; a discussion of the comments is
provided below. Differences between the proposed rule and final rule
are discussed in paragraph B.2. below.
B. Public Comments
Clarity of the Cost Principle
1. Comment: Revise proposed FAR 31.205-38(a). The cost principle's
readability and clarity can be improved by changing the second sentence
of the proposed paragraph (a) from ``The cost of any selling efforts
other than those addressed in this cost principle are unallowable'' to
``The costs of selling efforts are allowable unless expressly
identified as unallowable in this or any other cost principle.'' The
proposed wording will be difficult to apply in the field. The
respondent is unaware of any selling costs that are not already
included in the cost principle.
Councils' response: Nonconcur. The sentence in question was simply
moved from the current paragraph (d) to the beginning of the cost
principle. The sentence is not new; it was originally included to
comply with the provisions of section 911 of the Defense Procurement
Improvement Act of 1985 (codified at 10 U.S.C. 2324 (f)(1)(J)), which
required that the allowability of selling and marketing costs be
clarified. At that time, Congress and the General Accounting Office
(GAO) were concerned about potential negotiation of 50/50 splits of the
costs in this area due to unclear wording of the cost principle. The
intent was to ensure that any gray areas of selling costs would be
disallowed, particularly the costs of broadly targeted selling and
marketing. The current wording continues this intent.
Cost Principle Consistency
2. Comment: Delete portion of proposed FAR 31.205-38(a). The last
sentence in the proposed paragraph (a) is not needed as it reiterates
what is already included in 31.204(c) (Application of principles and
procedures).
Councils' response: Partially concur. Do not agree that the intent
of the sentence in question is adequately covered by 31.204(c).
However, the Councils concluded that the objective of this sentence is
already adequately achieved by the operation of the proposed paragraph
(b) which directs the reader to other specific cost principles
governing the allowability of the identified categories of costs, and
the second sentence of the proposed paragraph (a) which makes any
selling efforts other than those addressed in the cost principle
unallowable. Therefore, the last sentence of paragraph (a) is deleted.
Cost Principle Elimination
3. Comment: Delete proposed FAR 31.205-38. With the exception of
its last paragraph, the proposed cost principle defines selling costs
and expressly states they are allowable or refers the reader to other
cost principles for the determination of allowability of related costs.
Therefore, consideration should be given to completely eliminating the
cost principle, after moving the proposed paragraph (c) to another cost
principle, possibly 31.205-33(f) (Professional and consultant service
costs).
Councils' response: Nonconcur. This cost principle has disallowed
and should continue to disallow all selling costs not made specifically
allowable by it or the other cited cost principles. In addition, this
cost principle clarifying the allowability of selling and marketing
costs is statutorily required by 10 U.S.C. 2324(f)(1)(J) and 41 U.S.C.
256(f)(1)(J).
General Reformatting of FAR Part 31.205
4. Comment: The respondent also recommended that the Councils
consider a general reformatting of FAR Part 31, Contract Cost
Principles and Procedures. Specifically, consideration should be given
to establishing a uniform structure for the selected costs detailed in
FAR Subpart 31.205, which the respondent believes will increase the
clarity and understanding of the cost principles and thereby reduce
misinterpretation.
Councils' response: Nonconcur. The Councils are unaware of any
significant clarity problems with the current FAR cost principles and
see no benefit in this recommendation. While it is true that the cost
principles do not all share an identical format, it does not follow
that this makes them difficult to understand. Moreover, such a
comprehensive revision of the cost principles could actually increase
disputes by substituting new wording for longstanding, court-tested
language.
Of the 48 current FAR cost principles, 16 are only one paragraph
long, and 11 more are only two or three paragraphs long. The Councils
question the need to ``force-fit'' such short cost principles into a
uniform format, particularly in the absence of any significant clarity
problems. Not only would the recommended general reformatting of the
cost principles be difficult to accomplish, but it would also offer no
obvious benefit to either industry or the Government.
The Councils recommend instead that industry continue to identify
those individual cost principles which it
[[Page 43872]]
views as problematic and to provide specific proposals for appropriate
revisions. It should be noted that the continuing Defense Procurement
and Acquisition Policy initiative to reduce accounting and
administrative burdens in the cost principles, without jeopardizing the
Government's interests, has resulted in significant changes or
deletions involving more than 20 different cost principles to date,
including the recent major revisions to the relocation cost principle
(FAR 31.205-35) that made employee ``tax gross-ups'' and spouse
employment assistance payments allowable for the first time, as well as
increased the maximum allowable lump-sum amount for miscellaneous
expenses from $1,000 to $5,000. In addition, cost principle
streamlining cases are currently in process regarding compensation (FAR
31.205-6), training and education (FAR 31.205-44), depreciation (FAR
31.205-11), expanded relocation lump-sum (FAR 31.205-35), and travel
(FAR 31.205-46) costs. The Councils continue to believe that such a
case-by-case cooperative effort with industry offers the best
opportunity for meaningful change in this often controversial area.
This is not a significant regulatory action and, therefore, was not
subject to 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.
C. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not 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 discussed in this rule.
D. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the 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: July 16, 2003.
Laura Auletta,
Director, Acquisition Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 31 is revised to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
31.205-1 [Amended]
0
2. Amend section 31.205-1 in paragraph (f)(1) by removing from the
parenthetical ``31.205-38(c)'' and adding ``31.205-38(b)(5)'' in its
place.
31.205-12 [Amended]
0
3. Amend section 31.205-12 in paragraph (a) by removing the word
``generalized'' and adding ``general'' in its place.
0
4. Amend section 31.205-33 by revising the first sentence of the
introductory text of paragraph (f); and removing the parenthetical
sentence. The revised text reads as follows:
31.205-33 Professional and consultant service costs.
* * * * *
(f) Fees for services rendered are allowable only when supported by
evidence of the nature and scope of the service furnished (see also
31.205-38(c)). * * *
* * * * *
0
5. Revise section 31.205-38 to read as follows:
31.205-38 Selling costs.
(a) ``Selling'' is a generic term encompassing all efforts to
market the contractor's products or services, some of which are covered
specifically in other subsections of 31.205. The costs of any selling
efforts other than those addressed in this cost principle are
unallowable.
(b) Selling activity includes the following broad categories:
(1) Advertising. Advertising is defined at 31.205-1(b), and
advertising costs are subject to the allowability provisions of 31.205-
1(d) and (f).
(2) Corporate image enhancement. Corporate image enhancement
activities, including broadly targeted sales efforts, other than
advertising, are included within the definition of public relations at
31.205-1(a), and the costs of such efforts are subject to the
allowability provisions at 31.205-1(e) and (f).
(3) Bid and proposal costs. Bid and proposal costs are defined at
31.205-18 and are subject to the allowability provisions of that
subsection.
(4) Market planning. Market planning involves market research and
analysis and general management planning concerned with development of
the contractor's business. Long-range market planning costs are subject
to the allowability provisions of 31.205-12. Other market planning
costs are allowable.
(5) Direct selling. Direct selling efforts are those acts or
actions to induce particular customers to purchase particular products
or services of the contractor. Direct selling is characterized by
person-to-person contact and includes such efforts as familiarizing a
potential customer with the contractor's products or services,
conditions of sale, service capabilities, etc. It also includes
negotiation, liaison between customer and contractor personnel,
technical and consulting efforts, individual demonstrations, and any
other efforts having as their purpose the application or adaptation of
the contractor's products or services for a particular customer's use.
The cost of direct selling efforts is allowable.
(c) Notwithstanding any other provision of this subsection,
sellers' or agents' compensation, fees, commissions, percentages,
retainer or brokerage fees, whether or not contingent upon the award of
contracts, are allowable only when paid to bona fide employees or
established commercial or selling agencies maintained by the contractor
for the purpose of securing business.
[FR Doc. 03-18538 Filed 7-23-03; 8:45 am]