[Federal Register: May 31, 2011 (Volume 76, Number 104)]
[Rules and Regulations]
[Page 31402-31410]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31my11-20]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 4, 42, and 52
[FAC 2005-52; FAR Case 2008-020; Item II; Docket 2009-0031, Sequence 1]
RIN 9000-AL43
Federal Acquisition Regulation; Contract Closeout
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) procedures for closing out
contract files. This case revises procedures for clearing final patent
reports and quick-closeout procedure, and sets forth a description of
an adequate final indirect cost rate proposal and supporting data.
DATES: Effective Date: June 30, 2011.
FOR FURTHER INFORMATION CONTACT: Ms. Clare McFadden, Procurement
Analyst,
[[Page 31403]]
at (202) 501-0044, for clarification of content. For information
pertaining to status or publication schedules, contact the Regulatory
Secretariat at (202) 501-4755. Please cite FAC 2005-52, FAR Case 2008-
020.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 74 FR 42044 on August 20, 2009. Sixteen respondents
provided comments. The Civilian Agency Acquisition Council and the
Defense Acquisition Regulations Council (the Councils) reviewed the
comments in development of the final rule.
II. Discussion and Analysis of the Public Comments
Comments received were grouped under 13 general topics. A
discussion of the comments and the changes made to the rule as a result
of those comments are provided as follows:
A. ``Adequacy'' Definition
The final rule implements the changes published in the proposed
rule, without further amendments in response to comments in this
category.
Comment: One respondent recommends a new definition for
``adequacy'' at FAR 42.705-1. The respondent states that guidelines for
determining adequacy should be established in order to provide a
baseline against which the contracting officer can resolve differences
of opinion on adequacy between the auditor and the contractor.
Response: A new definition is not necessary, as specific
information has been provided in the clause to ensure uniformity,
consistency, and fairness for all contractors. This assures that
contractors are fully informed in advance of the Government's
parameters for the content of an adequate final indirect cost rate
proposal.
B. Adequacy Determination
The final rule implements the changes published in the proposed
rule, without further amendments in response to comments in this
category.
Comment: One respondent recommends the term ``adequate'' be
replaced with ``complete'' or ``detailed'' at FAR 42.705-1(b). The
respondent states that the phrase ``the contractor shall submit * * *
an adequate indirect cost rate proposal'' is inappropriate, as the
Defense Contract Audit Agency (DCAA) has historically interpreted the
term ``adequate'' to mean identical to DCAA's incurred cost model.
Response: Use of the term ``adequate'' for describing the
Government's requirements for submission of costs is more appropriate
than utilizing the terms ``complete'' or ``detailed''. The FAR already
required the submission of an adequate final indirect cost rate
proposal (FAR 42.705-1(b)). This final rule establishes the content of
an adequate submission.
C. Adequacy Determination and Roles
The final rule includes amendments to FAR 42.705-1(b) and 42.705-
2(b) in response to comments in this category.
Comment: One respondent recommends that the granting of an
extension to the contractor for submitting its indirect cost rate
proposal by the contracting officer be made in writing at FAR 42.705-
1(b)(1)(i).
Response: The language at FAR 42.705-1(b)(1)(ii) is revised
accordingly.
Comments: Five respondents question whether it is appropriate for
DCAA to have sole responsibility to determine the adequacy of indirect
cost rate proposals. One respondent believes a determination from the
auditor exceeds the auditor's authority under law.
Three respondents state that any final determination regarding
adequacy should be the responsibility of the contracting officer. One
respondent states that the contracting officer/auditor relationship
that is provided for in the audit process should be followed.
Response: The term ``determination'' in this case was not intended
to shift the authority to make determinations from the contracting
officer to the auditor; rather, the intent was for the auditor to offer
advice to the contracting officer regarding adequacy of the proposal.
The language in 42.705-1(b)(1)(iii), 42.705-1(b)(2), and 42.705-2(b)
has been revised to remove the term ``determination'' and to clarify
that the auditor reviews the proposal for adequacy and provides the
findings of inadequacy to the contracting officer and contractor.
Comment: One respondent states that the proposed rule creates a
review process within which there is little latitude for a contracting
officer to resolve administrative disagreements between auditors and
contractors.
Response: The rule does not diminish the latitude or the authority
that contracting officers have to resolve any and all matters arising
under the contract with respect to an indirect cost rate proposal. The
current FAR already allows flexibility for the content based on the
situation, e.g., complexity and size of the contractor.
Comment: One respondent states that the proposed changes at FAR
42.705-1(b)(1)(iv) and FAR 52.216-7(d) contradict FAR 42.705-
1(b)(1)(i), which requires the parties to work together to make the
proposal, audit, and negotiation process as efficient as possible. The
proposed default choice requiring data in FAR 52.216-7(d)(2)(iii) will
result in contractors trying to provide unrelated data to avoid an
auditor's automatic ``checklist'' determination of inadequate
proposals. Such rigid requirements will lead to an increase in
disagreements about the adequacy of final indirect cost rate proposals.
Response: The process of reviewing the proposal for adequacy,
performing the audit, and conducting negotiations has not changed.
Also, no new requirement is imposed on contractors by this rule. The
list of data (schedules) now included in FAR 52.216-7(d) requires the
same information previously cited in FAR 42.705-1(b).
D. Adequacy of Indirect Cost Rate Proposal
The final rule includes amendments to FAR 52.216-7(d)(2)(iv) in
response to comments in this category.
Comment: One respondent agrees with the proposed language at FAR
42.705-1 as positive changes.
Comment: One respondent states that the proposed rule was not clear
as to whether the list of required data in FAR 52.216-7(d)(2)(iv) that
``may'' be submitted with the proposal will be considered in making a
determination of the adequacy of the contractor's proposal. The
respondent recommends clarification.
Response: The language at FAR 52.216-7(d)(2)(iv) has been revised
by replacing ``will'' with ``may''; however, clarification of FAR
42.705-1(b)(1)(ii) is not necessary. The supplemental information
listed in FAR 52.216-7(d)(2)(iv) is not required for a determination on
the adequacy for the contractor's proposal for audit.
Comment: One respondent states that the proposed statement at FAR
42.705-1(b)(1)(iii) ``The proposal must be supported with adequate
supporting data, which may be required subsequent to proposal
submission'' is repetitious of FAR 52.216-7(d)(iv) and unnecessary. The
respondent further states that the statement adds a level of
subjectivity as contractors guess at what information ``may be
required'' subsequent to submission.
Response: The contractor's requirements are located in the clause
at FAR 52.216-7(d)(2)(iv). The FAR 42.705-1(b)(1)(iv) text is directed
to the contracting officer, explaining the supplemental information
that is
[[Page 31404]]
required by contract clause, FAR clause 52.216-7, Allowable Cost and
Payment. The language directed to the contracting officer and the
contract clause serve different purposes; therefore, both are
necessary.
Comment: One respondent recommends rescinding the proposed rule and
revising the approach to determining adequacy. The respondent states
that the approach taken to set forth a description of an adequate final
indirect cost rate proposal and supporting data fails to improve the
process and unnecessarily creates additional and very significant
process and administrative problems.
Response: The rule will provide uniformity and consistency.
Further, the information is not new and should be readily available
from the contractor's books, records, and systems.
E. Data Requirements
The final rule includes amendments to FAR 52.216-7(d)(2)(iv) in
response to the comments in this category. Many respondents submitted
comments regarding data requirements.
Comments: Three respondents submitted comments objecting to the
volume of data required for determination of an adequate indirect cost
rate proposal.
Response: The revisions to FAR 42.705-1 and FAR 52.216-7 are
necessary to clarify the submission of an adequate indirect cost rate
proposal. While the information required may be considered lengthy, it
is not new, and it is essential information necessary for an adequate
claim for cost.
Comments: Four respondents believe the proposed rule is overly
prescriptive. One respondent specifically suggests the rule is a
regulation to legitimize DCAA's longstanding insistence that an
adequate final indirect cost rate proposal be inclusive of several
mandatory schedules and supplemental information as represented by DCAA
within its Model Incurred Cost Proposal rate as stipulated in DCAA
Pamphlet No. 7641.90. This respondent further takes the position that
use of the DCAA model schedule information eliminates any opportunity
for further variation in proposal content.
Response: The information required from the contractor for an
adequate indirect cost rate proposal is not new. No specific format is
prescribed for the submission. This information is readily available in
the contractor's books, records, and systems. DCAA has been the primary
provider of information necessary for contracting officers to
adequately perform their functions as stewards of public trust.
Furthermore, the revised language ``shall include the following data,
unless otherwise specified by the cognizant Federal agency official''
allows flexibility, depending on the circumstances of the contract
(e.g., size, complexity).
Comments: Four respondents submitted four comments objecting to the
inclusion of one or more schedule items and stated that some of the
information proposed to be required for an adequate submission is not
necessary for an adequate contractor rate submission.
Response: The information required in the schedules is the minimum
standard for an adequate indirect cost rate proposal. For example, the
information in FAR 52.216-7(d)(2)(iii) item G, reconciliation of books
of account and claimed direct costs, is necessary for an adequate
submission and different from the information requested for item H,
which is a schedule of direct costs by contract/subcontract and
indirect expenses applied. The rule language does not require the
reconciliation to be presented in a single schedule. An updated
schedule (as specified in FAR 52.216-7(d)(2)(v)) is necessary to ensure
timely adjustments to amounts claimed and billed by a contractor for
the period covered by the final indirect cost rate determination.
Comment: One respondent states that ``a requirement for the
adequacy of an indirect cost rate submission that final direct costs
must be submitted for audit is out of the scope of this clause'' at FAR
52.216-7(g).
Response: This rule does not amend paragraph (g) of the clause at
FAR 52.216-7, which has no bearing on the adequacy of an indirect cost
rate submission as required by FAR 52.216-7(d)(2)(iii). The Government
has the right to audit any invoice or voucher and statements of cost
prior to final payment pursuant to FAR 52.216-7.
Comments: Two respondents submitted comments in regard to
formatting. One respondent states that DCAA's insistence that data be
converted into other formats (such as spreadsheets using DCAA's ICE
Model) is in direct contradiction of FAR 52.215-2(d)(2) that access to
records ``may not be construed to require the contractor or
subcontractor to create or maintain any record that the contractor or
subcontractor does not maintain in the ordinary course of business or
pursuant to a provision of law.'' The other respondent suggests that
the proposed revision at FAR 42.705-1(b)(1) eliminates the suggestion
in the current rule that contractors can use the DCAA model incurred
cost rate proposal and supporting data for guidance on what constitutes
an adequate final indirect cost rate proposal. According to the
respondent, this proposed revision also refers the definition of
adequacy to the revised clause at FAR 52.216-7(d)(2), which makes
mandatory specific schedules and data requirements taken almost
verbatim from the DCAA ICE Model.
Response: The information required from the contractor for an
adequate indirect cost rate proposal is not new. No specific format is
prescribed for the submission. This information should be readily
available in the contractor's books, records, and systems.
Comment: One respondent states that the list of requirements
proposed at FAR 52.216-7(d)(2) is contradictory to the definition of
supporting documentation for final indirect cost rate proposals in the
current FAR. According to FAR 31.201-2(d), supporting documentation
means records necessary to demonstrate the costs claimed in the
proposal have been incurred, are allocable to the contract, and comply
with applicable cost principles. This makes clear the meaning of the
current FAR 52.216-7(d), ``The contractor shall support its proposal
with adequate supporting documentation.''
Response: The cost principles are not intended to set forth the
submission requirements of an adequate indirect cost rate proposal.
Comment: One respondent states he does not believe that the
proposed rule is in line with the FAR objective of achieving a timely
settlement of final indirect rates. The rule delineates extensive
requirements and supplemental data related to the description of an
adequate final indirect cost rate proposal that are unnecessarily
burdensome and largely irrelevant to indirect cost rate proposals.
Levying requirements for the creation of new books and records as
supporting documentation for costs is contradictory to existing
provisions of FAR 52.215-2. The respondent is concerned that many of
the proposed data requirements under the proposed rule have no
connection to the indirect cost rates and may result in the unnecessary
disclosure of proprietary information, e.g., schedules O and L.
Response: The revisions to FAR 42.705-1 and FAR 52.216-7 are
necessary to clarify the submission of an adequate indirect cost rate
proposal. The information required is necessary for an adequate claim
for cost. The supplemental information, if applicable, is what auditors
expect to review in support of an adequate claim for cost. The proposed
language ``shall include
[[Page 31405]]
the following data, unless otherwise specified by the cognizant Federal
agency official'' allows flexibility depending on the circumstances of
the contract (e.g. size, complexity). The information being requested
should be readily available from the contractor's accounting system.
The information is not new and the format of the information has not
been designated for the contractor. The Government treats all audit
information from contractors as confidential and protects it against
all unauthorized disclosure.
Comment: One respondent states that the list of data required by
FAR 52.216-7 (regardless of type of business, sector, or accounting
system) is inconsistent and contradictory to FAR 42.705-1(b)(1)(i),
which states that the ``required content of the proposal and supporting
data will vary depending on such factors as business type, size, and
accounting system capabilities.'' The final rule should afford
contractors the flexibility to provide only that information necessary
to support an indirect cost rate proposal.
Response: The information required from the contractor for an
adequate indirect cost rate proposal is not new. No specific format is
prescribed for the submission. This information is readily available in
the contractor's books, records, and systems. DCAA has been the primary
provider for information necessary for contracting officers to
adequately perform their functions as stewards of the public trust.
Comment: One respondent takes exception to the statement in FAR
52.216-7(d)(2)(iv) that ``The following supplemental information which
will be required during the audit process * * *'' and suggests it
should be restated ``the following supplemental information may be
required * * *.''
Response: The language has been revised to read ``the following
supplemental information is not required to determine if a proposal is
adequate, but may be required during the audit process.''
F. Indirect Cost Rate Proposal
The final rule implements the changes published in the proposed
rule, without further amendments in response to the comments in this
category.
Comment: One respondent states that the indirect cost rate proposal
mandates at FAR 52.216-7 will result in an increase in proposal
rejections, administrative costs and burden, and will significantly
delay contract closeout.
Response: The information will provide uniformity, consistency,
timeliness, and reduce the number of proposals being returned as
inadequate.
Comment: One respondent agrees with the language to require a
completion invoice to be submitted within 120 days after all rates have
been settled for all years during a contract's period of performance
and require inclusion of settled subcontract amounts and rates at FAR
52.216-7(d)(5) may assist in more timely completion of indirect cost
audits and facilitate closeout. The respondent further agrees with the
list set forth for an adequate indirect cost rate proposal.
Response: No response required.
Comment: One respondent states that timely closeout of subcontracts
issued under a Government prime contract should be addressed and that
contracting officers should be empowered and encouraged to unilaterally
close out the prime contract, even if subcontracts have not been
settled.
Response: The prime contractor is responsible for resolution of
subcontract costs and rates prior to submission of final vouchers. FAR
52.216-7(d)(6)(i) allows the contracting officer to unilaterally close
out a prime contract, when the contractor fails to submit a final
voucher within 120 days.
G. Final Patent Report
The final rule implements the changes published in the proposed
rule, without further amendments in response to the comments in this
category.
Comment: One respondent states that if clearance by the contracting
officer is not received within 60 days of receipt of the final patent
report, the contract can be closed (FAR 4.804-5(a)(2)).
Two respondents recommend timelines be established (FAR 4.804-5).
One respondent states that patent reports are seldom, if ever, cleared
within 60 days and recommends timelines be established for both the
contractor and legal community with finite time constraints to respond.
The other respondent suggests establishing a time period for responding
to the contracting officer's notification.
Response: The final rule provides for 60 days for the clearance of
patent reports and allows for flexibility on a case-by-case basis. Any
further clarification, if needed, should be provided in agency
guidance.
Comment: One respondent suggests revising FAR 4.804-5(a)(2)(i) to
read ``Final Patent Reports, where no contractor invention is disclosed
should be cleared within 60 days of receipt.''
Response: The inclusion of the language ``where no contractor
invention is disclosed'' is not necessary because the patent report may
be cleared whether an invention is disclosed or not.
Comment: Two respondents concur with the proposed procedures for
clearing final patent reports.
Response: Comment noted.
H. Payment Withhold
The final rule implements the changes published in the proposed
rule, without further amendments in response to the comments in this
category.
Comment: One respondent states that the rule, in regard to payment
withholds, should allow the contracting officer to use their discretion
regarding whether to withhold payment so that the provision is applied
only when necessary.
Response: The institution of a uniform policy is more appropriate
because the contracting officer will know what is required, as a
minimum, for fee withholds for all contract types. This uniform policy
will help to facilitate contract closeout by encouraging timely
submission of final indirect cost rate proposals and final vouchers.
Comment: One respondent states that the retainage of a maximum of
$100,000 is a good start, but for large contractors it is not much of a
disincentive for the untimely submission of New Technology/Patent
Reports and recommends the retainage be changed to 15 percent of the
fee. This respondent also states that changes in the proposed rule may
facilitate closeout; however, withholding of $100,000 in fee is
insufficient to influence the actions of larger contractors.
Another respondent does not believe that the withhold changes in
FAR 52.216-8, 52.216-9, and 52.216-10 are necessary; the changes should
be rescinded; and, the current clauses remain in their current form.
Response: The intent of this FAR case is not to change the amount
of the withholdings. The intent is to make the fee withholds mandatory,
not optional, and to define an adequate indirect cost rate proposal.
Comments: Two respondents object to the allegedly arbitrary fee
withholds that will negatively impact cash flow, harm the industrial
base, and increase the amount of cancelled funds. Also, the other
respondent states that the prescribed withholding of fee will result in
contracting officers experiencing significant ongoing contract
administration issues with expiring funds with no clear benefit.
Response: The intent of this FAR case is not to change the amount
of the fee withholdings. The intent is to make the
[[Page 31406]]
fee withholds mandatory, not optional, and to define an adequate
indirect cost rate proposal. The proposed rule does not change the
current procedures in regard to expiring funds.
Comment: One respondent objects to making the proposed fee
withholds mandatory because there are existing FAR provisions that
already provide for fee withholds so no change is necessary. The
combined effect of adding an exhaustive, ill fitting list of
requirements for an adequate indirect cost rate proposal with mandatory
fee withholds for inadequacy means that inevitable differences in
interpreting the new rule will punish contractors unfairly and
unilaterally. It is contrary to FAR 42.705-1(b) and could result in
increases in the amount of cancelled funds.
Response: It is in the Government's best interest to set a uniform
policy to establish mandatory fee withholds and define an adequate
indirect cost rate proposal.
I. Quick-Closeout
The final rule includes amendments to FAR 42.708(a), in response to
comments in this category.
Five respondents provided comments in this category.
Comment: One respondent welcomes the change at FAR 42.708(a)
through (d) but requests clarification of direct costs to be allocated
to a cost contract as direct costs are normally assigned/charged rather
than allocated to contracts.
Response: The language is revised in FAR 42.708(a)(2) to read
``unsettled direct costs and indirect costs to be allocated to the
contract.''
Comment: One respondent states that setting the limitation at FAR
42.708(a)(2)(i) to 20 percent is inconsistent with the historical
intent of the provision to settle only an ``insignificant'' portion of
the costs in advance of determination of final costs and rates. The
respondent recommends a percentage of 10 or less.
Response: This rule changes the criteria for use of quick-closeout
procedures from unsettled indirect rates on the contract as a
percentage of total unsettled indirect costs, to both unsettled direct
and indirect contract costs as a percentage of total claimed contract
costs. The Councils believe this change expands the number of
contracting actions, which will meet the criteria for quick-closeout.
The limitation has been lowered from the proposed 20 percent to 10
percent of the total unsettled direct and indirect costs to be
allocated to any one contract. The coverage is also revised in FAR
42.708(a)(2) to state that ``Cost amounts will be considered relatively
insignificant when the total unsettled direct costs and indirect costs
to be allocated to any one contract, task order, or delivery order, do
not exceed the lesser of (i) $1,000,000; or (ii) 10 percent of the
total contract, task order, or delivery order amount.'' The Councils
believe the percentage and monetary threshold should be lower because
the lower percentage and dollar threshold will provide increased
oversight and reduced risk to the government. The $1,000,000 threshold
aligns with current inventories of physically-complete contracts that
are amenable to use of quick-closeout procedures.
Comments: Three respondents comment that the proposed revisions
limiting the use of quick-closeout procedures are counter-productive
and will decrease their use. One respondent recommends adopting the
Defense Contract Management Agency (DCMA) Class Deviation in FAR
42.703-1(b), 42.703-1(c)(2), and 42.708(a)(2) entitled ``use of quick-
closeout procedures for cost-reimbursement, fixed-price incentive,
fixed-price redeterminable, and time-and-material contracts.'' Another
respondent recommends deletion of the phrase ``other concerns of the
cognizant auditor'' at FAR 42.708(a)(2)(i) in the risk assessment
verbiage. The respondent also recommends that unsettled direct costs be
defined.
Response: Previously, the FAR limited the use of quick-closeout
procedures to instances where only indirect cost rates remain
unsettled. This final rule allows the contracting officer to close
contracts with unaudited direct costs and unsettled indirect cost
rates. The intent of the rule is to increase the use of quick-closeout
procedures for instances involving relatively insignificant amounts of
unaudited costs under certain circumstances. DCMA's deviation does not
allow the contracting officer to close out contracts without audit of
all direct costs. The contracting officer's risk assessment plan
includes coordination with the cognizant auditor. There is no need for
a definition of ``unsettled direct costs'' because unsettled direct
costs are identified on a case-by-case basis.
J. Timelines for the Government
The final rule implements the changes published in the proposed
rule, without further amendments in response to the comments in this
category.
Comment: One respondent states that the ``provision at FAR 42.705-
1(b)(ii) does not state a time limitation for the auditor to make a
written determination of adequacy.'' Also, according to the respondent,
time limitations should be established for completing audits.
Another respondent states that the Government needs to emphasize
its role, including timely finalization of indirect rates, which
includes DCAA completing audits of indirect costs proposals and
administrative contracting officer's settling rates, signing off on
reports, doing plant clearances, etc. Another respondent states that
the rule does not define time requirements which all parties, not just
contractors, must meet.
Response: Timelines should not be instituted for auditors to make a
written determination of adequacy or for completion of audits, and for
administrative contracting officers to settle rates, sign off on
reports, do plant clearances, etc., in order to ensure quality and
allow flexibility, based on the size and complexity of each contract.
Comment: One respondent does not believe that the proposed rule
will achieve any predictable reduction of time or resources associated
with contract closeout.
Response: This rule clarifies the contract closeout process.
K. Regulatory Flexibility Act
Comments: One respondent questions the statement within the
Regulatory Flexibility Act section of the preamble to the proposed rule
that the rule is intended to ``clarify and streamline'' closeout
procedures. The respondent further suggests that adoption of the DCAA
Model Incurred Cost Proposal rate is not justified. Another respondent
does not agree that the rule will not have a significant impact on a
substantial number of small entities. The respondent believes that the
numbers of schedules and the imposition of a six-month time constraint
will have significant impact on small businesses. The third respondent
also strongly disagrees with the conclusion that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. Requiring preparation and submittal of DCAA's Model Indirect
Cost Proposal rate and withholding fees, the proposed rule will have a
significant economic impact on a substantial number of small entities.
The respondent encourages the Councils to prepare and make available
for public comment an initial regulatory flexibility analysis.
Response: Contractors are already required to support their
indirect cost rate proposals with adequate supporting data. (See FAR
42.705-1(b).) No new requirement is imposed on contractors
[[Page 31407]]
by this rule. The changes to FAR parts 4 and 42 clarify and streamline
closeout procedures. The model for an adequate indirect cost rate
proposal is contained in the DCAA Model Incurred Cost Proposal rate.
The data required in this model is not new to contractors nor is there
evidence of any effect on small businesses when this information is
required. In fact, because the information required is not new and the
format of the information has not been designated for the contractor,
this should be helpful to small businesses. The information being
requested should be readily available from the contractor's accounting
system. The inclusion of this information list should improve
consistency, efficiency, and timeliness in contractor submissions. The
clauses at FAR 52.216-8, 52.216-9, and 52.216-10 are being changed to
make the reserve mandatory. However, the reserve amount set aside in
the proposed rule has not changed. No small businesses commented on the
changes to the clauses at FAR 52.216-8, 52.216-9, and 52.216-10 as
published in the proposed rule. Therefore, the Councils conclude that
this change will not have a significant impact on small businesses.
L. Paperwork Reduction Act
Comments: Several respondents disagree with the preamble to the
proposed rule, which stated that the proposed changes to the FAR would
not impose additional information collection requirements to the
paperwork burden previously approved by the Office of Management and
Budget (OMB). According to one respondent, mandating preparation and
submittal of DCAA's model indirect cost rate proposal for every
contract that requires an indirect cost rate proposal will
significantly increase the paperwork burdens.
Response: No new requirement is imposed on contractors by this
proposed rule. The schedules now contained in FAR 52.216-7(d) require
the same information previously cited in FAR 42.705-1(b). FAR 42.705-
1(b) requires contractors to submit an adequate final indirect cost
rate proposal to the contracting officer and auditor within the 6-month
period following the expiration of each of its fiscal years. This
requirement is contained in OMB Clearance 9000-0013. The clause at FAR
52.216-7, Allowable Cost and Payment, is covered by OMB Clearance 9000-
0069. The clause at FAR 52.216-10, Incentive Fee, is covered by OMB
Clearance 9000-0067.
M. General
There are no revisions to the FAR based on this comment category.
Comment: One respondent inquires as to why the FAR case and new
clause are limited to DoD, GSA, and NASA and that other civilian
agencies would benefit from the new streamlined procedures as well.
Response: By law, 41 U.S.C. 1302 (formerly 41 U.S.C. 421(b)), DoD,
GSA, and NASA are the signatories of the FAR. GSA signs on behalf of
all the other civilian agencies that are subject to the FAR except
NASA. The final rule is applicable Government-wide to those executive
agencies under the Federal Acquisition Regulations System.
Comment: One respondent recommends that ``contracting officers
should be encouraged to unilaterally de-obligate cancelling funds as an
administrative action without fear of violating anti-deficiency or
other contracting protocols.''
Another respondent recommends that a timeframe should be targeted
for the replacement of cancelled funds.
Response: These comments on funding are outside the scope of this
case.
Comments: Two respondents question the application of this rule to
the FAR guiding principles in FAR 1.102.
Response: This guidance helps to clarify the requirements of an
adequate submission of an indirect cost rate proposal. The guidance for
the proper submission of an adequate indirect cost rate proposal is
provided to contractors in the clause at FAR 52.216-7. The inclusion of
this list of information should help to provide consistency,
efficiency, and more timely submission.
N. Summary of Changes
The Councils made the following changes to the FAR as a result of
the public comments:
1. Revised FAR 42.705-1(b)(1) to be consistent with language at FAR
52.216-7(d)(2).
2. Revised FAR 42.705-1(b) and 42.705-2(b)(2) to clarify the role
of the auditor.
The term ``determination'' was removed from proposed
42.705-1(b)(1)(ii);
FAR 42.705-1(b)(1)(iii), 42.705-1(b)(2), and 42.705-2(b)
clarify that the auditor--
[cir] Reviews the proposal for adequacy and provides the findings
of inadequacy to the contractor and contracting officer; and
[cir] Prepares an advisory audit report, after the proposal has
been determined to be adequate for audit.
3. Revised FAR 42.708(a)(2) to lower the percentage limitation in
the existing quick-closeout criteria. FAR 42.708 (a)(2)(i) dollar
limitation reverts to $1,000,000, instead of $4,000,000 in the proposed
rule. Renumbered FAR 42.708(a)(3) as FAR 42.708(a)(4) and added a new
paragraph FAR 42.708(a)(3). Provided examples of other pertinent
information at new paragraph FAR 42.708(a)(3)(iii).
4. Revised FAR 52.216-7(d)(2)(iii) to further illustrate the data.
5. Revised FAR 52.216-7(d)(2)(iv) to clarify that the supplemental
information listed, although it may not be required for a determination
on the adequacy of the contractor's proposal, may be required during
the audit process.
6. Revised FAR 52.216-7(d)(2)(iii) and (d)(2)(iv) to clarify items
provided for adequate final indirect cost rate proposal at FAR 52.216-
7(d)(2)(i).
III. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
IV. 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 the rule does not
impose any additional requirements on small businesses. The changes to
FAR parts 4 and 42 clarify and streamline closeout procedures. The
changes to the clauses at FAR 52.216-8, 52.216-9, and 52.216-10 allow
for a reserve to be set-aside to protect the Government's interest.
Contracting Officers already may set aside a reserve under current FAR
procedures.
[[Page 31408]]
V. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply;
however these changes to the FAR do not impose additional information
collection requirements to the paperwork burden previously approved
under the following:
OMB Control Number 9000-0013, titled: Cost or Pricing Data
Requirements Information Other Than Cost or Pricing Data;
OMB Control Number 9000-0067, titled: Incentive Contract;
and
OMB Control Number 9000-0069, titled: Indirect Cost Rates.
List of Subjects in 48 CFR Parts 4, 42, and 52
Government procurement.
Dated: May 18, 2011.
Millisa Gary,
Acting Director, Office of Governmentwide Acquisition Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 4, 42, and 52 as
set forth below:
0
1. The authority citation for 48 CFR parts 4, 42, and 52 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).
PART 4--ADMINISTRATIVE MATTERS
0
2. Amend section 4.804-5 by revising paragraph (a)(2) to read as
follows.
4.804-5 Procedures for closing out contract files.
(a) * * *
(2) Final patent report is cleared. If a final patent report is
required, the contracting officer may proceed with contract closeout in
accordance with the following procedures, or as otherwise prescribed by
agency procedures:
(i) Final patent reports should be cleared within 60 days of
receipt.
(ii) If the final patent report is not received, the contracting
officer shall notify the contractor of the contractor's obligations and
the Government's rights under the applicable patent rights clause, in
accordance with 27.303. If the contractor fails to respond to this
notification, the contracting officer may proceed with contract
closeout upon consultation with the agency legal counsel responsible
for patent matters regarding the contractor's failure to respond.
* * * * *
PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES
0
3. Amend section 42.705-1 by revising paragraphs (b)(1) and (b)(2) to
read as follows:
42.705-1 Contracting officer determination procedure.
* * * * *
(b) Procedures. (1) In accordance with the Allowable Cost and
Payment clause at 52.216-7, the contractor is required to submit an
adequate final indirect cost rate proposal to the contracting officer
(or cognizant Federal agency official) and to the cognizant auditor.
(i) The required content of the proposal and supporting data will
vary depending on such factors as business type, size, and accounting
system capabilities. The contractor, contracting officer, and auditor
must work together to make the proposal, audit, and negotiation process
as efficient as possible.
(ii) Each contractor is required to submit the final indirect cost
rate proposal within the six-month period following the expiration of
each of its fiscal years. The contracting officer may grant, in
writing, reasonable extensions, for exceptional circumstances only,
when requested in writing by the contractor.
(iii) Upon receipt of the proposal--
(A) The cognizant auditor will review the adequacy of the
contractor's proposal for audit in support of negotiating final
indirect cost rates and will provide a written description of any
inadequacies to the contractor and contracting officer.
(B) If the auditor and contractor are unable to resolve the
proposal's inadequacies identified by the auditor, the auditor will
elevate the issue to the contracting office to resolve the
inadequacies.
(iv) The proposal must be supported with adequate supporting data,
some of which may be required subsequent to finding that the proposal
is adequate for audit in support of negotiating final indirect cost
rates (e.g., during the course of the performance of the advisory
audit). See the clause at 52.216-7(d)(2) for the description of an
adequate final indirect cost rate proposal and supporting data.
(2) Once a proposal has been determined to be adequate for audit in
support of negotiating final indirect cost rates, the auditor will
audit the proposal and prepare an advisory audit report to the
contracting officer (or cognizant Federal agency official), including a
listing of any relevant advance agreements or restrictive terms of
specific contracts.
* * * * *
0
4. Amend section 42.705-2 by--
0
a. Revising the introductory text of paragraph (b)(2) and (b)(2)(i);
and
0
b. Redesignating paragraphs (b)(2)(ii) through (iv) as paragraphs
(b)(2)(iii) through (v), respectively; and adding a new paragraph
(b)(2)(ii) to read as follows:
42.705-2 Auditor determination procedure.
* * * * *
(b) * * *
(2) Once a proposal has been determined to be adequate for audit in
support of negotiating final indirect cost rates, the auditor shall--
(i) Audit the proposal and prepare an advisory audit report,
including a listing of any relevant advance agreements or restrictive
terms of specific contracts;
(ii) Seek agreement on indirect costs with the contractor;
* * * * *
0
5. Amend section 42.708 by revising paragraph (a) to read as follows:
42.708 Quick-closeout procedure.
(a) The contracting officer responsible for contract closeout shall
negotiate the settlement of direct and indirect costs for a specific
contract, task order, or delivery order to be closed, in advance of the
determination of final direct costs and indirect rates set forth in
42.705, if--
(1) The contract, task order, or delivery order is physically
complete;
(2) The amount of unsettled direct costs and indirect costs to be
allocated to the contract, task order, or delivery order is relatively
insignificant. Cost amounts will be considered relatively insignificant
when the total unsettled direct costs and indirect costs to be
allocated to any one contract, task order, or delivery order does not
exceed the lesser of--
(i) $1,000,000; or
(ii) 10 percent of the total contract, task order, or delivery
order amount;
(3) The contracting officer performs a risk assessment and
determines that the use of the quick-closeout procedure is appropriate.
The risk assessment shall include--
(i) Consideration of the contractor's accounting, estimating, and
purchasing systems;
(ii) Other concerns of the cognizant contract auditors; and
(iii) Any other pertinent information, such as, documented history
of Federal Government approved indirect cost rate agreements, changes
to contractor's rate
[[Page 31409]]
structure, volatility of rate fluctuations during affected periods,
mergers or acquisitions, special contract provisions limiting
contractor's recovery of otherwise allowable indirect costs under cost
reimbursement or time-and-materials contracts; and
(4) Agreement can be reached on a reasonable estimate of allocable
dollars.
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
6. Amend section 52.216-7 by--
0
a. Revising the date of the clause;
0
b. Adding paragraphs (d)(2)(iii) through (d)(2)(v); and
0
c. Adding two sentences to the end of paragraph (d)(5) to read as
follows:
52.216-7 Allowable Cost and Payment.
* * * * *
Allowable Cost and Payment (JUN 2011)
* * * * *
(d) * * *
(2) * * *
(iii) An adequate indirect cost rate proposal shall include the
following data unless otherwise specified by the cognizant Federal
agency official:
(A) Summary of all claimed indirect expense rates, including
pool, base, and calculated indirect rate.
(B) General and Administrative expenses (final indirect cost
pool). Schedule of claimed expenses by element of cost as identified
in accounting records (Chart of Accounts).
(C) Overhead expenses (final indirect cost pool). Schedule of
claimed expenses by element of cost as identified in accounting
records (Chart of Accounts) for each final indirect cost pool.
(D) Occupancy expenses (intermediate indirect cost pool).
Schedule of claimed expenses by element of cost as identified in
accounting records (Chart of Accounts) and expense reallocation to
final indirect cost pools.
(E) Claimed allocation bases, by element of cost, used to
distribute indirect costs.
(F) Facilities capital cost of money factors computation.
(G) Reconciliation of books of account (i.e., General Ledger)
and claimed direct costs by major cost element.
(H) Schedule of direct costs by contract and subcontract and
indirect expense applied at claimed rates, as well as a subsidiary
schedule of Government participation percentages in each of the
allocation base amounts.
(I) Schedule of cumulative direct and indirect costs claimed and
billed by contract and subcontract.
(J) Subcontract information. Listing of subcontracts awarded to
companies for which the contractor is the prime or upper-tier
contractor (include prime and subcontract numbers; subcontract value
and award type; amount claimed during the fiscal year; and the
subcontractor name, address, and point of contact information).
(K) Summary of each time-and-materials and labor-hour contract
information, including labor categories, labor rates, hours, and
amounts; direct materials; other direct costs; and, indirect expense
applied at claimed rates.
(L) Reconciliation of total payroll per IRS form 941 to total
labor costs distribution.
(M) Listing of decisions/agreements/approvals and description of
accounting/organizational changes.
(N) Certificate of final indirect costs (see 52.242-4,
Certification of Final Indirect Costs).
(O) Contract closing information for contracts physically
completed in this fiscal year (include contract number, period of
performance, contract ceiling amounts, contract fee computations,
level of effort, and indicate if the contract is ready to close).
(iv) The following supplemental information is not required to
determine if a proposal is adequate, but may be required during the
audit process:
(A) Comparative analysis of indirect expense pools detailed by
account to prior fiscal year and budgetary data.
(B) General Organizational information and Executive
compensation for the five most highly compensated executives. See
31.205-6(p). Additional salary reference information is available at
http://www.whitehouse.gov/omb/procurement_index_exec_comp/.
(C) Identification of prime contracts under which the contractor
performs as a subcontractor.
(D) Description of accounting system (excludes contractors
required to submit a CAS Disclosure Statement or contractors where
the description of the accounting system has not changed from the
previous year's submission).
(E) Procedures for identifying and excluding unallowable costs
from the costs claimed and billed (excludes contractors where the
procedures have not changed from the previous year's submission).
(F) Certified financial statements and other financial data
(e.g., trial balance, compilation, review, etc.).
(G) Management letter from outside CPAs concerning any internal
control weaknesses.
(H) Actions that have been and/or will be implemented to correct
the weaknesses described in the management letter from subparagraph
(G) of this section.
(I) List of all internal audit reports issued since the last
disclosure of internal audit reports to the Government.
(J) Annual internal audit plan of scheduled audits to be
performed in the fiscal year when the final indirect cost rate
submission is made.
(K) Federal and State income tax returns.
(L) Securities and Exchange Commission 10-K annual report.
(M) Minutes from board of directors meetings.
(N) Listing of delay claims and termination claims submitted
which contain costs relating to the subject fiscal year.
(O) Contract briefings, which generally include a synopsis of
all pertinent contract provisions, such as: Contract type, contract
amount, product or service(s) to be provided, contract performance
period, rate ceilings, advance approval requirements, pre-contract
cost allowability limitations, and billing limitations.
(v) The Contractor shall update the billings on all contracts to
reflect the final settled rates and update the schedule of
cumulative direct and indirect costs claimed and billed, as required
in paragraph (d)(2)(iii)(I) of this section, within 60 days after
settlement of final indirect cost rates.
* * * * *
(5) * * * The completion invoice or voucher shall include
settled subcontract amounts and rates. The prime contractor is
responsible for settling subcontractor amounts and rates included in
the completion invoice or voucher and providing status of
subcontractor audits to the contracting officer upon request.
* * * * *
0
7. Amend section 52.216-8 by revising the date of the clause and
paragraph (b) to read as follows:
52.216-8 Fixed Fee.
* * * * *
Fixed Fee (JUN 2011)
* * * * *
(b) Payment of the fixed fee shall be made as specified in the
Schedule; provided that the Contracting Officer withholds a reserve
not to exceed 15 percent of the total fixed fee or $100,000,
whichever is less, to protect the Government's interest. The
Contracting Officer shall release 75 percent of all fee withholds
under this contract after receipt of an adequate certified final
indirect cost rate proposal covering the year of physical completion
of this contract, provided the Contractor has satisfied all other
contract terms and conditions, including the submission of the final
patent and royalty reports, and is not delinquent in submitting
final vouchers on prior years' settlements. The Contracting Officer
may release up to 90 percent of the fee withholds under this
contract based on the Contractor's past performance related to the
submission and settlement of final indirect cost rate proposals.
* * * * *
0
8. Amend section 52.216-9 by revising the date of the clause and
paragraph (c) to read as follows:
52.216-9 Fixed Fee--Construction.
* * * * *
Fixed Fee--Construction (JUN 2011)
* * * * *
(c) The Contracting Officer shall withhold a reserve not to
exceed 15 percent of the total fixed fee or $100,000, whichever is
less, to protect the Government's interest. The Contracting Officer
shall release 75 percent of all fee withholds under this contract
after receipt of an adequate certified final indirect cost rate
proposal covering the year of physical completion of this contract,
provided the Contractor has satisfied all other contract terms and
conditions, including the submission of the final patent
[[Page 31410]]
and royalty reports, and is not delinquent in submitting final
vouchers on prior years' settlements. The Contracting Officer may
release up to 90 percent of the fee withholds under this contract
based on the Contractor's past performance related to the submission
and settlement of final indirect cost rate proposals.
* * * * *
0
9. Amend section 52.216-10 by revising the date of the clause and
paragraph (c) to read as follows:
52.216-10 Incentive Fee.
* * * * *
Incentive Fee (JUN 2011)
* * * * *
(c) Withholding of payment. (1) Normally, the Government shall
pay the fee to the Contractor as specified in the Schedule. However,
when the Contracting Officer considers that performance or cost
indicates that the Contractor will not achieve target, the
Government shall pay on the basis of an appropriate lesser fee. When
the Contractor demonstrates that performance or cost clearly
indicates that the Contractor will earn a fee significantly above
the target fee, the Government may, at the sole discretion of the
Contracting Officer, pay on the basis of an appropriate higher fee.
(2) Payment of the incentive fee shall be made as specified in
the Schedule; provided that the Contracting Officer withholds a
reserve not to exceed 15 percent of the total incentive fee or
$100,000, whichever is less, to protect the Government's interest.
The Contracting Officer shall release 75 percent of all fee
withholds under this contract after receipt of an adequate certified
final indirect cost rate proposal covering the year of physical
completion of this contract, provided the Contractor has satisfied
all other contract terms and conditions, including the submission of
the final patent and royalty reports, and is not delinquent in
submitting final vouchers on prior years' settlements. The
Contracting Officer may release up to 90 percent of the fee
withholds under this contract based on the Contractor's past
performance related to the submission and settlement of final
indirect cost rate proposals.
* * * * *
[FR Doc. 2011-12852 Filed 5-27-11; 8:45 am]
BILLING CODE 6820-EP-P