[Federal Register: September 30, 2005 (Volume 70, Number 189)]
[Rules and Regulations]
[Page 57470-57473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30se05-48]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005-06; FAR Case 2001-021; Item XI]
RIN 9000-AJ38
Federal Acquisition Regulation; Training and Education 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) by revising the
``training and education costs'' contract cost principle. The amendment
streamlines the cost principle and increases clarity by eliminating
restrictive and confusing language, and by restructuring the rule to
list only specifically unallowable costs. The final rule eliminates
several specific limitations on the allowability of costs associated
with the various categories of education, eliminates the disparate
treatment of full-time and part-time undergraduate education costs, and
limits allowable costs to training and education related to the field
in which the employee is working or may reasonably be expected to work.
The rule makes job-related training and education costs generally
allowable, except for six public policy exceptions that are retained
from the current cost principle. Except for the six expressly
unallowable cost exceptions, the reasonableness of specific contractor
training and education costs is assessed by reference to the FAR
section entitled ``Determining reasonableness.''
DATES: Effective Date: October 31, 2005.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755
for information pertaining to status or publication schedules. For
clarification of content, contact Mr. Jerry Olson at (202) 501-3221.
Please cite FAC 2005-06, FAR case 2001-021.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils published a proposed FAR rule in the Federal Register
(67 FR 34810) on May 15, 2002, with a request for comments by July 15,
2002. On June 11, 2002, an amendment was published in the Federal
Register (67 FR 40136) to correct an error in the Supplementary
Information section accompanying the proposed rule. Six respondents
submitted public comments. As a result of the comments received, the
Councils made significant changes to the proposed FAR rule and
published a second proposed FAR rule in the Federal Register (69 FR
4436) on January 29, 2004, with a request for comments by March 29,
2004.
Nine respondents submitted comments in response to the second
proposed FAR rule. A discussion of these public comments is provided
below. The Councils considered all comments and concluded that the
proposed rule should be converted to a final rule, with changes to the
proposed rule. Differences between the second proposed rule and final
rule are discussed in Section B, Comments 1, 2, 4, and 6, below.
B. Public Comments
Proposed paragraph (a): Education for sole purpose to obtain academic
degree or qualify for job.
Comment 1: Seven respondents generally supported the proposed rule;
however, they strongly recommended that proposed paragraph (a) be
deleted before issuing a final rule. Several of the respondents pointed
out that paragraph (a) is inconsistent with the Councils' own Federal
Register comments that they ``support upward mobility, job retraining,
and educational advancement.'' In this regard, one respondent stated
its concern that paragraph (a) would prevent it from providing ``the
educational opportunities that we have provided for decades.'' Some
respondents complained that it had ``no idea how one is to discern
whether the training and education relates `solely' to obtaining an
academic degree or to a particular position'' and that ``implementation
of this provision will be burdensome and lead to contested costs;
hardly a simplification that increases the clarity of the cost
principle.''
Several respondents challenged the fundamental notion that the
allowability of contractor employee training and education costs must
parallel exactly the treatment afforded Federal employees. One
respondent wrote--
``We believe that utilization of the test of whether the Federal
Government is willing to reimburse education costs for Federal
employees is an inappropriate basis for determining cost
allowability. The
[[Page 57471]]
benchmark for measuring the cost reasonableness of payments for
education and training should be based on commercial practices that
encourage the continued training and education of our workforce.
Accordingly, we recommend that paragraph 31.205-44(a) of the
proposed rule ... be deleted prior to issuing the final rule.''
To further support this position, another respondent pointed out
that Congress has long advocated increased use of commercial practices
in the Federal acquisition process:
``Congress has consistently endorsed and supported the adoption
of commercial practices--not Government practices--in the Government
procurement arena. The most recent example is the 2004 DoD
Authorization Legislation (P.L. 108-136), Section 1423. This section
prescribes the establishment of a panel to propagate the use of
commercial practices by, among other things, reviewing all
regulations.''
One respondent stated that the proposed paragraph (a) ``will
decrease industry's ability to assist the U.S. Government in ensuring
future economic strength'' through private sector training and
education which often involves employees ``in Government-authorized,
socioeconomic/disadvantaged programs that encourage upward mobility.''
In support of this assessment, the respondent provided a detailed
description of the benefits that accrue to the company, the Government,
and society in general from its Employee Scholar Program (ESP):
``There are over 9,000 U.S. employees (approximately 25% of whom
are hourly workers) currently participating in respondent's ESP.
These people are pursuing degrees from colleges and universities
that many undoubtedly could not have afforded to fund on their own.
ESP is encouraging educational pursuits that support social,
political, and business needs, for example:
Approximately 40% of the respondent's employees
participating from the aerospace and defense business units in the
ESP are obtaining first degrees;
Over 80% of the degrees awarded to the respondent's
employees from the aerospace and defense business units over the
last 3 years are in the business/management or technical/engineering
areas (less than 3% of degrees awarded were not in current or
possible future job-related areas);
Female and Hispanic employees participate in the ESP at
about 11/2 times their proportion in the respondent's workforce;
ESP participants have increased loyalty and motivation
to remain with the respondent. They leave their jobs at a lower rate
than the general population, thereby enhancing retention and
reducing allowable recruiting, relocation, and job training costs;
ESP graduates are promoted at a higher rate than the
general population;
The average age of a ESP participant is 39 years old
(suggesting that most participants are of an age where they are able
to use their education on the job, and seek further education in the
future to keep their skills current).''
Finally, one respondent summarized the confusion expressed by
several respondents over the purpose and effect of the proposed
paragraph (a):
``However, we are troubled by the statement in the comment
section that the Councils' intent is also to ''... make it (the
rule) consistent with recent statutory changes that cover the
payment of costs for Federal employee academic degree training.''
This statement and the resulting proposed paragraph 31.205-44(a)
nullify the benefits of simplification and adopting commercial
practices. We are perplexed as to how the costs for allowing and
encouraging employees to obtain degrees and take classes to provide
for future opportunities is against public policy and how these
costs potentially could be classified as unallowable.''
Councils' response: The Councils agree that the allowability of
contractor employee training and education costs, to the extent that it
is job related, should be rooted in sound commercial practices that
encourage upward mobility in the private sector workforce. The Councils
also are acutely sensitive to the concern about the appearance of
disparate treatment of contractor and Federal employees' full-time
undergraduate level educational expenses. Therefore, the Councils
carefully examined the comments of the largest Federal employee union,
the American Federation of Government Employees (AFGE), and noted that
the inclusion of the statutory limitations on agency payment of Federal
employee educational costs in paragraph (a) apparently did little to
temper the union's strong opposition to the proposed rule. Instead,
AFGE focused its criticism primarily on the lack therein of a job-
relatedness requirement for allowable contractor employee full-time
undergraduate educational costs, while it asserted that a demonstration
of job-relatedness would be essential before the Government would pay
these expenses for a Federal employee (see Comment 6, below).
Accordingly, the Councils have deleted the proposed paragraph (a) and
added the following allowability requirement for all training and
education costs in the introductory sentence of the final rule: ``Costs
of training and education that are related to the field in which the
employee is working or may reasonably be expected to work are
allowable, except as follows:'' The Councils believe that this broad
accommodation of AFGE's principal criticism of the proposed rule
constitutes sound public policy.
Proposed paragraph (d): Full-time graduate level education.
Comment 2: Three respondents expressed concern that the proposed
paragraph (d) would make currently allowable full-time graduate level
educational costs unallowable. They pointed out that under the current
coverage for such education, only the costs in excess of two years or
the length of the graduate degree program, whichever is less, are
unallowable. They argued that, in contrast, the proposed paragraph (d)
would make the entire cost (not just the excess) of the graduate
program unallowable if it exceeded two years or the length of the
degree program.
Councils' response: Concur. There was never any intent to change
this aspect of the current allowability criteria for full-time graduate
level educational costs. Accordingly, the Councils have revised this
coverage (now paragraph (c) of the final rule) to clarify that only the
costs in excess of two school years or the length of the degree
program, whichever is less, are unallowable.
Proposed paragraph (e): Grants.
Comment 3: Two respondents recommended that the proposed paragraph
(e) on grants to educational or training institutions be deleted
``because this subject matter is adequately covered by FAR 31.205-8,
Contributions or donations.''
Councils' response: Nonconcur. The Councils believe that the
proposed paragraph (e) (which is essentially the same as the current
paragraph (g), Grants) provides very helpful guidance regarding
specific types of unallowable grants to educational or training
institutions which should be retained. To avoid confusion, the Councils
have also added back the explanatory words ``are considered
contributions and'' from the current paragraph (g) to this provision
(now paragraph (d) of the final rule).
Proposed paragraph (g): Employee dependents college savings plans.
Comment 4: Three respondents expressed concern that the proposed
paragraph (g), which makes costs of university and college plans for
employee dependents unallowable, could be misinterpreted to make the
administrative costs of such plans unallowable. One of the respondents
suggested changing the words ``Costs of'' to ``Contractor contributions
to'' to clarify the intent of this provision.
Councils' response: Concur. The Federal Register notice
accompanying
[[Page 57472]]
the January 29, 2004, proposed rule provided the following response to
essentially this same industry concern:
``The cost principle does not address the administrative costs
of such plans; therefore, the administrative costs are allowable,
subject to the reasonableness criteria at FAR 31.201-3. However, any
contributions to the plan by the company for employee dependents
would be unallowable under the redesignated paragraph (g) in this
second proposed rule.''
Even though the Councils are unaware of any problems involving the
misapplication of this provision to the administrative costs of college
savings plans, they see no problem in making the suggested clarifying
change. As stated above, the intent of the proposed paragraph (g)
(which is the same as that of the current paragraph (j), Employee
dependent education plans) is to make contractor contributions to
college savings plans for employee dependents unallowable. Reasonable
administrative costs for college savings plans funded by employee
contributions should continue to be allowable. In revising this
provision (now paragraph (f) of the final rule), the Councils have also
used the appropriate financial planning term, ``college savings
plans.''
Current paragraph (h): Advance agreements.
Comment 5: Two respondents argued that in view of the potential
changes in the allowability of full-time graduate level educational
costs in the proposed paragraph (d), it is necessary to retain the
current paragraph (h), Advance agreements, in order to keep currently
allowable costs from becoming unallowable. This is because the current
paragraph (h) permits advance agreements that would make costs
allowable ``in excess of those otherwise allowable under paragraphs (c)
and (d)'' of the current cost principle.
Councils' response: Nonconcur. Since the Councils have revised the
coverage for full-time graduate level educational costs in the final
rule to prevent a possible ``all or nothing'' interpretation (see
Comment 2, above), this should no longer be a concern for industry.
Job-relatedness.
Comment 6: In opposing the proposed rule, one respondent
categorized it as ``another attempt on the part of the Director of
Procurement and Acquisition Policy at DoD to accord contractors and
contractor employees further benefits not granted to Federal employees
in similar circumstances.'' Continuing that theme, the respondent
expressed its principal criticism of the proposed rule as follows:
``The proposed rule makes at least one extremely offensive
change to the contract cost allowability rules that is not accorded
to Federal employees, despite the misleading statement contained in
the proposal's preamble. Permitting contractors to claim as an
allowable cost, the costs of providing employees with full-time
undergraduate education, amounts to nothing more than a contractor
scholarship program, at taxpayer expense. While the respondent, as a
matter of public policy, encourages Federal employees to further
their education and training, it is well understood, that when
taxpayers pick up these costs, such education and training must
reasonably relate to the employee's actual or anticipated duties.''
Councils' response: Partially concur. The Councils see significant
benefits to both the Government and industry in publishing the final
rule in this case. However, the Councils agree with the respondent that
job-relatedness should be a requirement for allowable contractor
employee full-time undergraduate level educational costs. In fact, the
Councils have added such an allowability requirement for all training
and education costs in the introductory sentence of the recommended
final rule (see Comment 1, above). The Councils believe this change
constitutes sound public policy.
Applicability to Federal employees.
Comment 7: One respondent stated ``The combination of training and
education for the 1102 series is critical, without the Government
paying for the required courses and training, most employees could not
afford to get the degree required.'' The respondent concluded with the
request to ``Please reconsider and completely fund the education and
training of current employees.''
Councils' response: The respondent apparently confused the proposed
rule as applying to Federal employees. The proposed rule does not apply
to Federal employees.
C. Regulatory Planning and Review
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.
D. 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.
E. 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: September 22, 2005.
Julia B. Wise,
Director, Contract Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:
PART 31-CONTRACT COST PRINCIPLES AND PROCEDURES
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1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
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2. Revise section 31.205-44 to read as follows:
31.205-44 Training and education costs.
Costs of training and education that are related to the field in
which the employee is working or may reasonably be expected to work are
allowable, except as follows:
(a) Overtime compensation for training and education is
unallowable.
(b) The cost of salaries for attending undergraduate level classes
or part-time graduate level classes during working hours is
unallowable, except when unusual circumstances do not permit attendance
at such classes outside of regular working hours.
(c) Costs of tuition, fees, training materials and textbooks,
subsistence, salary, and any other payments in connection with full-
time graduate level education are unallowable for any portion of the
program that exceeds two school years or the length of the degree
program, whichever is less.
(d) Grants to educational or training institutions, including the
donation of facilities or other properties, scholarships, and
fellowships are considered contributions and are unallowable.
(e) Training or education costs for other than bona fide employees
are unallowable, except that the costs incurred for educating employee
dependents (primary and secondary
[[Page 57473]]
level studies) when the employee is working in a foreign country where
suitable public education is not available may be included in overseas
differential pay.
(f) Contractor contributions to college savings plans for employee
dependents are unallowable.
[FR Doc. 05-19478 Filed 9-29-05; 8:45 am]
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