[Federal Register: January 26, 2000 (Volume 65, Number 17)]
[Proposed Rules]               
[Page 4327-4329]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[[Page 4327]]


Part III

Department of Defense


General Services Administration


National Aeronautics and Space Administration


48 CFR Part 31

Federal Acquisition Regulation; Deferred Research and Development 
Costs; Proposed Rule

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48 CFR Part 31

[FAR Case 1999-013]
RIN 9000-AI62

Federal Acquisition Regulation; Deferred Research and Development 

AGENCIES:  Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION:  Proposed rule.


SUMMARY:  The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to clarify and simplify the 
``Deferred research and development costs'' cost principle.

DATES:  Interested parties should submit comments in writing on or 
before March 27, 2000 to be considered in the formulation of a final 

ADDRESSES:  Submit written comments to: General Services 
Administration, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, 
ATTN: Laurie Duarte, Washington, DC 20405. Submit electronic comments 
via the Internet to: farcase.1999-013@gsa.gov Please submit comments 
only and cite FAR case 1999-013 in all correspondence related to this 

Building, Washington, DC 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAR case 1999-013.


A. Background

    This proposed rule amends the cost principle at FAR 31.205-48, 
Deferred research and development costs, to clarify and simplify its 
contents. The Councils propose to--
    (a) Delete the second sentence addressing precontract costs, as 
these types of costs are adequately addressed at FAR 31.205-32, 
Precontract costs;
    (b) Revise the last sentence to more clearly indicate that incurred 
costs in excess of the contract price or grant amount for research and 
development (R&D) effort are unallowable and accordingly, not 
reimbursable by the Government; and
    (c) Make several editorial revisions.
    The Councils initiated this rule to consider whether the cost 
principle was duplicative of FAR 31.205-32, Precontract costs, and FAR 
31.205-23, Losses on other contracts, and therefore, should be deleted 
in its entirety from the FAR. They concluded that the second sentence 
could be deleted since precontract costs are already addressed in FAR 
31.205-32. However, they also concluded that the last sentence, 
disallowing the reimbursement of R&D costs in excess of the contract 
price and grant amount, was not duplicative of FAR 31.205-23, and 
should be retained at FAR 31.205-48, Deferred research and development 
    A historical review of certain court rulings has disclosed that the 
Court of Claims and the Armed Services Board of Contract Appeals 
(ASBCA) tend to regard the excess of costs incurred over the contract 
price in R&D contracts, not necessarily as a loss but as an amount 
that, under certain circumstances, may be capitalized and amortized 
over future benefitting contracts. This view was held in a decision of 
the Court of Claims (Bell Aircraft v. U.S. 120 Ct. Cl. 398 (1951)) and 
in ASBCA decisions in the cases of Kellett Aircraft Corp. ASBCA No. 
5658, 60-1 BCA para.2584, Sperry Rand Corp., Ford Instrument Co. 
Division ASBCA 8689, 66-1 BCA para.5403, and G.C. Dewey ASBCA 13221, 
69-1 BCA para.7732. Since the courts had ruled that the excess costs 
did not represent a ``loss,'' these types of costs were considered 
outside the purview of Armed Services Procurement Regulation (ASPR) 15-
205.19, Losses on Other Contracts (currently known as FAR 31.205-23, 
Losses on other contracts.) Therefore, Defense Procurement Circular #95 
dated 29 November 1971, added ASPR 15.205-49, Deferred Research and 
Development Costs, to the ASPR to explicitly make these types of 
deferred R&D costs unallowable. The third sentence of FAR 31.205-48 
currently reflects this policy. Based on this historical review, the 
Councils concluded that elimination of this sentence could permit 
contractors to recover costs in excess of the contract price or grant 
amount for R&D effort under certain conditions in which the courts have 
ruled that the ``excess'' does not represent a ``loss''. Therefore, 
this cost principle should remain in the FAR.
    This rule was not subject to Office of Management and Budget review 
under Section 6(b) of Executive Order 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because most contracts awarded to small entities use simplified 
acquisition procedures or are awarded on a competitive, fixed-price 
basis, and do not require application of the cost principle contained 
in this rule. An Initial Regulatory Flexibility Analysis has, 
therefore, not been performed. Comments are invited from small 
businesses and other interested parties. The Councils will consider 
comments from small entities concerning the affected FAR subpart 31 in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 601, et seq. (FAR case 
1999-013), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: January 19, 2000.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, DoD, GSA, and NASA propose that 48 CFR part 31 be 
amended as set forth below:


    1. The authority citation for 48 CFR part 31 continues to read as 

    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

    2. Revise section 31.205-48 to read as follows:

31.205-48  Deferred research and development costs.

    Research and development, as used in this subsection, means the 
type of technical effort described in 31.205-18 but sponsored by a 
grant or required in the performance of a contract. When costs are 
incurred in excess of either the price of a contract or amount of a 
grant for research and development effort,

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such excess is unallowable under any other Government contract.

[FR Doc. 00-1741 Filed 1-25-00; 8:45 am]