[Federal Register: May 22, 2003 (Volume 68, Number 99)]
[Proposed Rules]
[Page 28107-28109]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my03-44]
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Part V
Department of Defense
General Services Administration
National Aeronautics and Space Administration
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48 CFR Part 31
Federal Acquisition Regulation; Application of Cost Pr
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inciples and Procedures and Accounting for Unallowable Costs; Proposed
Rule
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAR Case 2002-006]
RIN: 9000-AJ65
Federal Acquisition Regulation; Application of Cost Principles
and Procedures and Accounting for Unallowable 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) sections relating to accounting
for unallowable costs and application of cost principles and
procedures.
DATES: Interested parties should submit comments in writing on or
before July 21, 2003 to be considered in the formulation of a final
rule.
ADDRESSES: Submit written comments to--General Services Administration,
FAR Secretariat (MVA), 1800 F Street, NW., Room 4035, Attn: Laurie
Duarte, Washington, DC 20405.
Submit electronic comments via the Internet to--farcase.2002-
006@gsa.gov. Please submit comments only and cite FAR case 2002-006 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 Mr. Edward Loeb at (202) 501-0650. Please cite FAR
case 2002-006.
SUPPLEMENTARY INFORMATION:
A. Background
The DoD Director of Defense Procurement established a special
interagency ad hoc committee to perform a comprehensive review of
policies and procedures in FAR Part 31, Contract Cost Principles and
Procedures, related to cost measurement, assignment, and allocation to
evaluate the need for each specific requirement in light of the
evolution of generally accepted accounting principles and experience
gained from implementation.
The Director of Defense Procurement announced a series of public
meetings in the Federal Register at 66 FR 13712, March 7, 2001 (with a
``correction to notice'' published in the Federal Register at 66 FR
16186, March 23, 2001). Attendees at the public meetings (held on April
19, 2001, May 10-11, 2001, and June 12, 2001) included representatives
from industry, Government, and other interested parties who provided
views on potential areas for revision in FAR part 31. The ad hoc
committee reviewed the cost principles and procedures and the public
comments; identified potential changes to the FAR; and submitted
several reports, including draft proposed rules for consideration by
the Councils.
The Councils have reviewed the reports related to FAR 31.201-6,
Accounting for unallowable costs, and FAR 31.204, Application of
principles and procedures, and propose the following revisions:
[sbull] Add paragraph (c)(2) to FAR 31.201-6 to provide specific
criteria on the use of sampling as a method to identify unallowable
costs and the acceptability of contractor sampling methods.
[sbull] Revise the current paragraph (b) of FAR 31.204, which
addresses the allowability of subcontract costs, to clarify the
language.
[sbull] Make a number of editorial changes.
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.
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 principles and
procedures that are discussed in this rule. An Initial Regulatory
Flexibility Analysis has, therefore, not been performed. We invite
comments from small businesses and other interested parties. The
Councils will consider comments from small entities concerning the
affected FAR part 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 2002-006), 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: May 16, 2003.
Laura G. Smith,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA propose amending 48 CFR part 31 as
set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
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).
2. Revise section 31.201-6 to read as follows:
31.201-6 Accounting for unallowable costs.
(a) Costs that are expressly unallowable or mutually agreed to be
unallowable, including mutually agreed to be unallowable directly
associated costs, shall be identified and excluded from any billing,
claim, or proposal applicable to a Government contract. A directly
associated cost is any cost that is generated solely as a result of
incurring another cost, and that would not have been incurred had the
other cost not been incurred. When an unallowable cost is incurred, its
directly associated costs are also unallowable.
(b) Costs that specifically become designated as unallowable or as
unallowable directly associated costs of unallowable costs as a result
of a written decision furnished by a contracting officer shall be
identified if included in or used in computing any billing, claim, or
proposal applicable to a Government contract. This identification
requirement applies also to any costs incurred for the same purpose
under like circumstances as the costs specifically identified as
unallowable under either this paragraph or paragraph (a) of this
subsection.
(c)(1) The practices for accounting for and presentation of
unallowable costs must be those described in 48 CFR 9904.405,
Accounting for Unallowable Costs.
(2) Statistical sampling is an acceptable practice for accounting
and
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presenting unallowable costs provided--
(i) The statistical sampling results in an unbiased sample that
accurately represents the sampling universe; and
(ii) The statistical sampling permits audit verification.
(d) If a directly associated cost is included in a cost pool that
is allocated over a base that includes the unallowable cost with which
it is associated, the directly associated cost shall remain in the cost
pool. Since the unallowable costs will attract their allocable share of
costs from the cost pool, no further action is required to assure
disallowance of the directly associated costs. In all other cases, the
directly associated costs, if material in amount, must be purged from
the cost pool as unallowable costs.
(e)(1) In determining the materiality of a directly associated
cost, consideration should be given to the significance of--
(i) The actual dollar amount;
(ii) The cumulative effect of all directly associated costs in a
cost pool; and
(iii) The ultimate effect on the cost of Government contracts.
(2) Salary expenses of employees who participate in activities that
generate unallowable costs shall be treated as directly associated
costs to the extent of the time spent on the proscribed activity,
provided the costs are material in accordance with paragraph (f)(1) of
this subsection (except when such salary expenses are, themselves,
unallowable). The time spent in proscribed activities should be
compared to total time spent on company activities to determine if the
costs are material. Time spent by employees outside the normal working
hours should not be considered except when it is evident that an
employee engages so frequently in company activities during periods
outside normal working hours as to indicate that such activities are a
part of the employee's regular duties.
(3) When a selected item of cost under 31.205 provides that
directly associated costs be unallowable, such directly associated
costs are unallowable only if determined to be material in amount in
accordance with the criteria provided in paragraphs (f)(1) and (f)(2)
of this subsection, except in those situations where allowance of any
of the directly associated costs involved would be considered to be
contrary to public policy.
3. Amend section 31.204 in the first sentence of paragraph (a) by
removing ``shall be allowed'' and adding ``are allowable'' in its
place; revising paragraph (b); and redesignating paragraph (c) as
paragraph (d) and adding a new paragraph (c) to read as follows:
31.204 Application of principles and procedures.
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(b)(1) For the following subcontract types, costs incurred as
reimbursements or payments to a subcontractor are allowable to the
extent the reimbursements or payments are for costs incurred by the
subcontractor that are consistent with part 31:
(i) Cost-reimbursement.
(ii) Fixed-price incentive.
(iii) Price redeterminable (i.e., fixed-price contracts with
prospective price redetermination and fixed-ceiling-price contracts
with retroactive price redetermination).
(2) The requirements of paragraph (b)(1) of this section apply to
any tier above the first firm-fixed-price subcontract or fixed-price
subcontract with economic price adjustment provisions.
(c) Costs incurred as payments under firm-fixed-price subcontracts
or fixed-price subcontracts with economic price adjustment provisions
or modifications thereto, for which subcontract cost analysis was
performed, are allowable if the price was negotiated in accordance with
31.102.
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[FR Doc. 03-12892 Filed 5-21-03; 8:45 am]