[Federal Register: July 24, 2003 (Volume 68, Number 142)]
[Rules and Regulations]
[Page 43863-43867]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy03-22]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 22, 31, 37, and 52
[FAC 2001-15; FAR Case 2001-008; Item IV]
RIN 9000-AJ36
Federal Acquisition Regulation; Compensation 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) to revise the
``compensation for personal services'' cost principle by restructuring
the paragraphs, and by removing unnecessary and duplicative language.
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, Procurement Analyst, at (202) 501-
0650. Please cite FAC 2001-15, FAR case 2001-008.
SUPPLEMENTARY INFORMATION:
A. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 67 FR 19952, April 23, 2002, with request for comments.
Three respondents submitted public comments. A discussion of the
comments is provided below. Differences between the proposed and the
final rule are discussed in paragraphs 1, 5, 13, 15, and 19 below.
Public Comments:
1. Comment: Designate FAR 31.205-6(c) as Reserved. The current
paragraph designations, especially paragraph (j) for pensions, have
been cited in many court cases, Government contracts, and other
documents over the years. All the respondents expressed concerns that
the re-designation of paragraphs (d) through (p) within FAR 31.205-6 as
paragraphs (c) through (o) would create confusion.
Councils' response: Concur.
2. Comment: Move proposed FAR 31.205-6(g)(1) (Backpay) to FAR
31.205-6(a)(1). The respondent did not provide an explanation for this
recommendation.
Councils' response. Do not concur. The Councils believe there is
merit in maintaining a separate paragraph for backpay. See paragraph 16
for further discussion.
3. Comment: Delete proposed FAR 31.205-6(a)(2) (total
compensation). The language is duplicative of FAR 31.201-3,
Reasonableness, and the focus of the cost principle should be on the
reasonableness of a contractor's total compensation plan and not on
individual employees or job classes.
Councils' response. Do not concur. The proposed paragraph makes it
clear that, although compensation must conform to FAR 31.201-3, it must
also conform to the more specific provisions contained in this cost
principle. The Councils do not agree with the concept that the
reasonableness of compensation should be based ``solely'' on the
contractor's total compensation plan, without consideration of the
reasonableness of the compensation for individual employees or job
classes of employees. See paragraph 9 for further discussion.
4. Comment: Delete proposed FAR 31.205-6(a)(5) (unallowable cost).
The proposed language states: ``Costs that are unallowable under other
paragraphs of this Subpart 31.2 are not allowable under this subsection
31.205-6 solely on the basis that they constitute compensation for
personal services.'' In lieu of the above statement, the respondent
suggested adding the following language to FAR 31.204(c): ``Cost made
specifically unallowable under one cost principle in this subpart are
not allowable under any other cost principle.''
Councils' response: Do not concur. Similar proposals for such a
global policy statement were rejected in the past by both industry and
the Government. The current language at FAR 31.204(c) was adopted
instead, and the ``unallowable under other paragraphs'' statements in
individual cost principles were retained. The Councils agree with the
original drafters of the current FAR 31.205-6(a)(5) that this language
is needed to avoid a situation in which activity that is specifically
designated unallowable in another cost principle becomes allowable
merely because it meets the criteria for allowable ``compensation.''
5. Comment: Modify proposed FAR 31.205-6(a)(6)(i) (partners and
sole proprietors). Reinstate the following portion of the current
language included in FAR 31.205-6(b)(2)(i): ``Compensation in lieu of
salary for services rendered by partners and sole proprietors will be
allowed to the extent that it is reasonable and does not constitute a
distribution of profits.'' This insertion would become 31.205-
6(a)(6)(i)(C). ``Without this re-instatement costs previously allowed
could become unallowable since there are instances where these costs
are not distribution of profits and the deductible amount is zero.''
Councils' response: Partially concur. Historically, the tax
deductibility limitation on allowable compensation in the cost
principle is solely for closely held corporations. The Councils did not
intend to change the allowability of costs in this area. However, the
proposed rule inadvertently removed the qualifying phrase for ``closely
held corporations.'' In addition, the editorial restructuring
unintentionally changed the allowability of costs covered by this
subsection. Accordingly, the Councils have revised FAR 31.205-6(a)(6)
to clarify and rectify this situation.
6. Comment: Remove phrase in proposed FAR 31.205-6(a)(6)(ii)(A)
(distribution of profits). Remove the unnecessary phrase ``which is not
an allowable cost.''
[[Page 43864]]
Councils' response: Do not concur. The Councils' rationale for
keeping this phrase is to affirm the unallowability of profit
distributions.
7. Comment: Revise proposed FAR 31.205-6(b)(1) (labor-management
agreements). Reposition the word ``negotiated'' and add the word
``set'' to the first sentence.
Councils' response: Do not concur. The Councils do not believe it
improves the readability of this paragraph.
8. Comment: Express rationale for deletion of current FAR 31.205-
6(c)(1) and (c)(2) (unusual conditions). ``To make clear the contractor
still has the opportunity to justify cost and consideration of unusual
conditions(,) include express reason for language deletion of original
rule sections (c)(1) and (c)(2).''
Councils' response: These paragraphs (c)(1) and (c)(2) were deleted
because such guidance is not necessary in the cost principle.
9. Comment: Revise proposed FAR 31.205-6(b)(2) (total
compensation). Revise FAR 31.205-6(b)(2) to reflect the concept that
reasonableness of compensation should be reviewed at the total
compensation plan(s) level and not at an individual employee or job
class level.
Councils' response: Do not concur. Contractors should be able to
determine their own mix of wages, bonuses, and benefits to fit the
needs of their business and workforce. The Councils believe that
compensation should be reviewed for reasonableness in total by employee
or job class of employee and that ``offsets'' are implied in this
concept. It should be noted that the concept of ``review of total
compensation reasonableness'' does not waive the Government's right to
review individual compensation elements in order to determine total
reasonableness. It is impossible to determine the reasonableness of
total compensation without reviewing individual compensation elements
because reliable surveys of ``total compensation'' do not exist.
10. Comment: Revise proposed FAR 31.205-6(b)(2) (ACO
consideration). Eliminate ACO consideration of the listed
reasonableness factors and rely only on FAR 31.201-3 for determining
reasonableness since rule enforcement should not vary according to
individual ACO determination of relevancy. This list could cause
misapplication, e.g., have to consider all four factors in each
instance. Restore original language related to proposed FAR 31.205-
6(b)(2)(iv), if factors remain. New language is confusing, difficult to
understand, and may lead to negative impacts.
Councils' response: Do not concur. In determining the
reasonableness of compensation costs, both the criteria in FAR 31.201-3
and the criteria in FAR 31.205-6(b) should be used. The concept of
listing various factors to be considered by the ACO has been in the
cost principle for many years. The relevancy determination is an
important and proper ACO function. The cost principle should continue
to include coverage on the factors to be used in determining
reasonableness, as well as the authority of the contracting officer to
determine how to weigh such factors. We believe the proposed language
is very straightforward and easy to understand.
11. Comment: Change language in proposed FAR 31.205-6(c)(2)(i)
(valuation date). Suggest adding the phrase ``to the employee'' at FAR
31.205-6(c)(2)(i) to make clear that the award date is the date that
compensation (in the form of securities) is awarded to the employee.
Councils' response: Do not concur. The proposed rule is basically
the same language as in the current FAR. We merely deleted the term
``measurement date'' since the definition already included in the cost
principle, i.e., ``first date the number of shares awarded is known,''
is more precise. The proper measurement date is upon the award of the
stock; however, this award may be to an employee or to another entity,
such as a trust. The respondent's recommended change would radically
alter the current valuation methodology.
12. Comment: Delete proposed FAR 31.205-6(6)(d) (Income tax
differential pay). Affirmative statements of allowability, such as that
included in FAR 31.205-6(d)(1) for foreign differential pay, should not
be included in the cost principles. In addition, the provision at FAR
31.205-6(d)(2) making domestic differential pay unallowable is not
consistent with commercial practices or the allowability of foreign
differential pay.
Councils' response: Do not concur. The Councils revised this
paragraph to apply only to the allowability of differential pay to
cover income tax increases due to foreign or domestic assignments.
Normally, affirmative statements of allowability are not value-added in
a cost principle. However, in this case, coverage making foreign income
tax differentials explicitly allowable should remain. If there were no
coverage on foreign differentials, reviewers might use FAR 31.204(c) to
find the closest cost principle (domestic differentials) and improperly
disallow the costs of foreign differentials. The Councils continue to
believe domestic income tax differentials should be unallowable and do
not agree with the respondent's argument that the treatment of domestic
differentials has to be consistent with the treatment of foreign
differentials. We continue to believe that there should be an incentive
for employees to accept foreign assignments.
13. Comment: Delete proposed FAR 31.205-6(e) (Bonuses and incentive
compensation). Specific limitations on bonuses and incentives are not
necessary because these situations are covered by the general
reasonableness provisions of FAR 31.201-3(b)(2), generally accepted
sound business practices, and the executive compensation cap at FAR
31.205-6(p). ``Streamlining should have the goal of defining what is
unallowable; illustration of what is allowable makes regulation
excessively detailed and cannot be comprehensive.'' There is no need to
state in the proposed FAR 31.205-6(e)(1)(ii) that the basis of the
award must be supported, since adequate documentation is required for
all costs. In addition, the proposed paragraph (e)(2) at FAR 31.205-6
regarding deferred bonus and incentive compensation payment is not
needed.
Councils' response. Do not concur. We have deleted those parts
(e.g., the listing of various types of incentive compensation) that the
Councils view as unnecessary. It is important for the cost principle to
continue to explicitly require that ``the basis for the award is
supported'' in order for the cost to be allowable. This requirement for
documenting the basis for the payment is separate and distinct from
documenting that the payment was made. In addition, the proposed
language at FAR 31.205-6(e)(2) is necessary to ensure deferred bonus
payments are subject to both the incentive compensation and the
deferred compensation allowability criteria.
However, this final rule is deleting the qualifying phrase ``based
on production, cost reduction, or efficient performance'' which is
current in the proposed rule at 31.205-6(e)(1). Although we generally
agree that such criteria may be good standards for determining
allowability, we do not believe that the current rule or proposed rule
actually accomplishes this. The wording of the current cost principle
or proposed rule may be read as not covering an incentive payment if it
doesn't fall within one of these three criteria, although this is
clearly not the intent.
[[Page 43865]]
14. Comment: Delete proposed FAR 31.205-6(f) except for legislative
coverage at (f)(5) (Severance pay). The deleted portion is adequately
covered by the reasonableness criteria at FAR 31.201-3.
Councils' response: Do not concur. This paragraph makes it clear
that, although severance pay must conform to the general reasonableness
criteria of FAR 31.201-3, it must also conform to the more specific
provisions contained in this cost principle.
15. Comment: Deletion of ``designee'' in FAR 31.205-6(f)(5). To
avoid confusion, suggest that the express reason for deleting the term
``designee'' in the waiver provision of the proposed FAR 31.205-6(f)(5)
be explained.
Councils' response: The term ``or designee'' is unnecessary because
paragraph (b) under FAR 1.108, FAR conventions, states that ``each
authority is delegable unless specifically stated otherwise (see 1.102-
3(b)).'' Accordingly, the term has been deleted from the final rule at
FAR 31.205-6(g)(6), FAR 37.113-1(a), and FAR 37.113-2(b). To avoid any
possible ambiguity in the clauses, ``head of the agency, or designee,''
was changed to ``agency'' at FAR provision 52.237-8(a) and (b).
16. Comment: Modify proposed FAR 31.205-6(g) (Backpay). Replace the
language at FAR 31.205-6(g) with the following sentence: ``Backpay
resulting from violations of Federal labor laws or the Civil Rights Act
of 1964 other than that for work performed is unallowable.'' Under the
current rule, the ``backpay'' provisions do not apply unless and until
there is a violation of Federal labor laws or the 1964 Civil Rights
Act. Until such a violation is found by a court, compensation costs are
not covered by these backpay provisions and they are allowable to the
extent they are reasonable as defined by the general reasonableness
provisions at FAR 31.201-3 and not limited by additional compensation
for work performed. This proposed change could be construed to expand
the definition of backpay to now cover retroactive adjustment to
salaries or wages for those instances in which there has been no
finding of a violation of the 1964 Civil Rights Act or other Federal
labor laws and limits recovery to the additional compensation for work
performed.
Contractors are currently being reimbursed for prudent decisions to
save litigation expense by settling wrongful discharge cases for
nominal amounts. It is in the Government's interest to continue to
incentivize contractors to make prudent decisions. If the Government
begins disallowing all settlements as unallowable ``backpay,''
contractors may be incentivized to spend more allowable money
litigating instead of settling.
Councils' response. Do not concur. The Councils rewrote this
paragraph to improve its clarity without changing its meaning. Our
intent was to emphasize that backpay for underpaid work is the only
allowable retroactive adjustment, subject to the specific criteria
listed in this paragraph. The current language might be improperly
interpreted to mean that if a survey shows an employee is underpaid in
a particular year, the contractor could make that underpayment up in a
future year. Accordingly, we revised the language of the regulation to
preclude such an interpretation.
Backpay for underpaid work that does not fall under the current FAR
31.205-6(h) criteria is unallowable, and the proposed FAR 31.205-6(g)
language would not change that fact. The respondent's argument that all
settlements would become unallowable is not correct. That part of the
settlement that represents backpay for work actually performed is
allowable.
17. Comment: Eliminate FAR 31.205-6(m) (Fringe benefits). Paragraph
(m)(1) is covered by the general reasonableness provisions at FAR
31.201-3, and definitions and examples of allowable cost are not
needed, only identification of unallowable cost. ``List[s] of
compensation elements have been eliminated throughout and should be
eliminated here as well.'' Paragraph (m)(2), which covers the personal
use of company furnished automobiles, should be eliminated unless
legislated.
Councils' response. Do not concur. This paragraph needs to be
retained as it includes needed criteria for allowability and not just
general reasonableness criteria. The language on company furnished
automobiles is required by 10 U.S.C. 2324(f)(1)(o).
18. Comment: Eliminate FAR 31.206-6(n) (Employee rebate and
purchase discount plans). In an effort to move toward commercial
practice, suggest the elimination of 31.205-6(n) ``on the basis of
immateriality and not cost efficient accounting.'' Also, employee
rebates and purchase discounts are sales reductions and not
compensation cost.
Councils' response. Do not concur. Employee rebates and discounts
should be considered as a sales reduction; however, Generally Accepted
Accounting Principles do allow such costs to be treated as compensation
in some limited cases. Therefore, we retained this provision to prevent
such sales reductions from being claimed as compensation costs.
19. Additional change: Reinstate and revise FAR 31.205-6(g)(2)(ii).
This paragraph was deleted in the proposed rule because it was thought
to be covered under FAR 31.201-4, Determining allocability. However,
upon further analysis, the Councils have reinstated FAR 31.205-
6(g)(2)(ii) (as FAR 31.205-6(g)(4) in the final rule) because the
language exceeds the requirement stated in FAR 31.201-4 by expressly
identifying what method equates to a proper allocation. The specific
identification of what constitutes an allocable allocation of normal
severance pay has worked and will continue to work to reduce disputes.
The paragraph has been revised, however, to enhance its clarity.
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 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.
C. 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 Parts 22, 31, 37, and 52
Government procurement.
Dated: July 16, 2003.
Laura Auletta,
Director, Acquisition Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 22, 31, 37, and 52 as
set forth below:
0
1. The authority citation for 48 CFR parts 22, 31, 37, and 52 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).
[[Page 43866]]
PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS
22.101-2 [Amended]
0
2. Amend section 22.101-2 in the last sentence of paragraph (a) by
removing ``31.205-6(c)'' and adding ``31.205-6(b)'' in its place.
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
3. Amend section 31.001 by adding, in alphabetical order, the
definition ``Compensation for personal services'' to read as follows:
31.001 Definitions.
* * * * *
Compensation for personal services means all remuneration paid
currently or accrued, in whatever form and whether paid immediately or
deferred, for services rendered by employees to the contractor.
* * * * *
0
4. Amend section 31.205-6 by--
0
a. Revising paragraphs (a) through (h);
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b. Removing the word ``subdivisions'' from the last sentence of the
introductory text of paragraph (j)(7) and adding ``paragraphs'' in its
place; and removing the word ``subdivision'' from paragraph (j)(8)(iii)
and adding ``paragraph'' in its place;
0
c. Removing the word ``section'' from the introductory text of
paragraph (o)(2) and adding ``subsection'' in its place; and removing
the word ``subdivision'' from the first sentence of paragraph (o)(5)
and adding ``paragraph'' in its place; and
d. Removing the colon from the end of the introductory text of
paragraph (p)(2) and adding ``--'' in its place.
The revised text reads as follows:
31.205-6 Compensation for personal services.
(a) General. Compensation for personal services is allowable
subject to the following general criteria and additional requirements
contained in other parts of this cost principle:
(1) Compensation for personal services must be for work performed
by the employee in the current year and must not represent a
retroactive adjustment of prior years' salaries or wages (but see
paragraphs (g), (h), (j), (k), (m), and (o) of this subsection).
(2) The total compensation for individual employees or job classes
of employees must be reasonable for the work performed; however,
specific restrictions on individual compensation elements apply when
prescribed.
(3) The compensation must be based upon and conform to the terms
and conditions of the contractor's established compensation plan or
practice followed so consistently as to imply, in effect, an agreement
to make the payment.
(4) No presumption of allowability will exist where the contractor
introduces major revisions of existing compensation plans or new plans
and the contractor has not provided the cognizant ACO, either before
implementation or within a reasonable period after it, an opportunity
to review the allowability of the changes.
(5) Costs that are unallowable under other paragraphs of this
Subpart 31.2 are not allowable under this subsection 31.205-6 solely on
the basis that they constitute compensation for personal services.
(6)(i) Compensation costs for certain individuals give rise to the
need for special consideration. Such individuals include:
(A) Owners of closely held corporations, members of limited
liability companies, partners, sole proprietors, or members of their
immediate families; and
(B) Persons who are contractually committed to acquire a
substantial financial interest in the contractor's enterprise.
(ii) For these individuals, compensation must--
(A) Be reasonable for the personal services rendered; and
(B) Not be a distribution of profits (which is not an allowable
contract cost).
(iii) For owners of closely held companies, compensation in excess
of the costs that are deductible as compensation under the Internal
Revenue Code (26 U.S.C.) and regulations under it is unallowable.
(b) Reasonableness--(1) Compensation pursuant to labor-management
agreements. If costs of compensation established under ``arm's length''
labor-management agreements negotiated under the terms of the Federal
Labor Relations Act or similar state statutes are otherwise allowable,
the costs are reasonable unless, as applied to work in performing
Government contracts, the costs are unwarranted by the character and
circumstances of the work or discriminatory against the Government. The
application of the provisions of a labor-management agreement designed
to apply to a given set of circumstances and conditions of employment
(e.g., work involving extremely hazardous activities or work not
requiring recurrent use of overtime) is unwarranted when applied to a
Government contract involving significantly different circumstances and
conditions of employment (e.g., work involving less hazardous
activities or work continually requiring use of overtime). It is
discriminatory against the Government if it results in employee
compensation (in whatever form or name) in excess of that being paid
for similar non-Government work under comparable circumstances.
(2) Compensation not covered by labor-management agreements.
Compensation for each employee or job class of employees must be
reasonable for the work performed. Compensation is reasonable if the
aggregate of each measurable and allowable element sums to a reasonable
total. In determining the reasonableness of total compensation,
consider only allowable individual elements of compensation. In
addition to the provisions of 31.201-3, in testing the reasonableness
of compensation for particular employees or job classes of employees,
consider factors determined to be relevant by the contracting officer.
Factors that may be relevant include, but are not limited to,
conformity with compensation practices of other firms--
(i) Of the same size;
(ii) In the same industry;
(iii) In the same geographic area; and
(iv) Engaged in similar non-Government work under comparable
circumstances.
(c) [Reserved]
(d) Form of payment. (1) Compensation for personal services
includes compensation paid or to be paid in the future to employees in
the form of--
(i) Cash;
(ii) Corporate securities, such as stocks, bonds, and other
financial instruments (see paragraph (d)(2) of this subsection
regarding valuation); or
(iii) Other assets, products, or services.
(2) When compensation is paid with securities of the contractor or
of an affiliate, the following additional restrictions apply:
(i) Valuation placed on the securities is the fair market value on
the first date the number of shares awarded is known, determined upon
the most objective basis available.
(ii) Accruals for the cost of securities before issuing the
securities to the employees are subject to adjustment according to the
possibilities that the employees will not receive the securities and
that their interest in the accruals will be forfeited.
(e) Income tax differential pay. (1) Differential allowances for
additional income taxes resulting from foreign assignments are
allowable.
[[Page 43867]]
(2) Differential allowances for additional income taxes resulting
from domestic assignments are unallowable. (However, payments for
increased employee income or Federal Insurance Contributions Act taxes
incident to allowable reimbursed relocation costs are allowable under
31.205-35(a)(10).)
(f) Bonuses and incentive compensation. (1) Bonuses and incentive
compensation are allowable provided the--
(i) Awards are paid or accrued under an agreement entered into in
good faith between the contractor and the employees before the services
are rendered or pursuant to an established plan or policy followed by
the contractor so consistently as to imply, in effect, an agreement to
make such payment; and
(ii) Basis for the award is supported.
(2) When the bonus and incentive compensation payments are
deferred, the costs are subject to the requirements of paragraphs
(f)(1) and (k) of this subsection.
(g) Severance pay. (1) Severance pay is a payment in addition to
regular salaries and wages by contractors to workers whose employment
is being involuntarily terminated. Payments for early retirement
incentive plans are covered in paragraph (j)(7) of this subsection.
(2) Severance pay is allowable only to the extent that, in each
case, it is required by--
(i) Law;
(ii) Employer-employee agreement;
(iii) Established policy that constitutes, in effect, an implied
agreement on the contractor's part; or
(iv) Circumstances of the particular employment.
(3) Payments made in the event of employment with a replacement
contractor where continuity of employment with credit for prior length
of service is preserved under substantially equal conditions of
employment, or continued employment by the contractor at another
facility, subsidiary, affiliate, or parent company of the contractor
are not severance pay and are unallowable.
(4) Actual normal turnover severance payments shall be allocated to
all work performed in the contractor's plant. However, if the
contractor uses the accrual method to account for normal turnover
severance payments, that method will be acceptable if the amount of the
accrual is--
(i) Reasonable in light of payments actually made for normal
severances over a representative past period; and
(ii) Allocated to all work performed in the contractor's plant.
(5) Abnormal or mass severance pay is of such a conjectural nature
that accruals for this purpose are not allowable. However, the
Government recognizes its obligation to participate, to the extent of
its fair share, in any specific payment. Thus, the Government will
consider allowability on a case-by-case basis.
(6) Under 10 U.S.C. 2324(e)(1)(M) and 41 U.S.C. 256(e)(1)(M), the
costs of severance payments to foreign nationals employed under a
service contract performed outside the United States are unallowable to
the extent that such payments exceed amounts typically paid to
employees providing similar services in the same industry in the United
States. Further, under 10 U.S.C. 2324(e)(1)(N) and 41 U.S.C.
256(e)(1)(N), all such costs of severance payments that are otherwise
allowable are unallowable if the termination of employment of the
foreign national is the result of the closing of, or the curtailment of
activities at, a United States facility in that country at the request
of the government of that country; this does not apply if the closing
of a facility or curtailment of activities is made pursuant to a
status-of-forces or other country-to-country agreement entered into
with the government of that country before November 29, 1989. 10 U.S.C.
2324(e)(3) and 41 U.S.C. 256(e)(2) permit the head of the agency to
waive these cost allowability limitations under certain circumstances
(see 37.113 and the solicitation provision at 52.237-8).
(h) Backpay. Backpay is a retroactive adjustment of prior years'
salaries or wages. Backpay is unallowable except as follows:
(1) Payments to employees resulting from underpaid work actually
performed are allowable, if required by a negotiated settlement, order,
or court decree.
(2) Payments to union employees for the difference in their past
and current wage rates for working without a contract or labor
agreement during labor management negotiation are allowable.
(3) Payments to nonunion employees based upon results of union
agreement negotiation are allowable only if--
(i) A formal agreement or understanding exists between management
and the employees concerning these payments; or
(ii) An established policy or practice exists and is followed by
the contractor so consistently as to imply, in effect, an agreement to
make such payments.
PART 37--SERVICE CONTRACTING
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5. Amend section 37.113-1 by revising the introductory text of
paragraph (a) to read as follows:
37.113-1 Waiver of cost allowability limitations.
(a) The head of the agency may waive the 31.205-6(g)(6) cost
allowability limitations on severance payments to foreign nationals for
contracts that--
* * * * *
37.113-2 [Amended]
0
6. Amend section 37.113-2 in paragraph (b) by removing ``, or
designee,''.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
7. Amend section 52.237-8 by revising the date of the provision,
paragraph (a) and the introductory text of paragraph (b) of the
provision to read as follows:
52.237-8 Restriction on Severance Payments to Foreign Nationals.
* * * * *
Restriction on Severance Payments to Foreign Nationals (Aug 2003)
(a) The Federal Acquisition Regulation (FAR), at 31.205-6(g)(6),
limits the cost allowability of severance payments to foreign
nationals employed under a service contract performed outside the
United States unless the agency grants a waiver pursuant to FAR
37.113-1 before contract award.
(b) In making the determination concerning the granting of a
waiver, the agency will determine that--
52.237-9 [Amended]
0
8. Amend section 52.237-9 by revising the date of the clause to read
``(Aug 2003); and by removing from paragraph (a) of the clause
``31.205-6(g)(3)'' and adding ``31.205-6(g)(6) in its place.
[FR Doc. 03-18536 Filed 7-23-03; 8:45 am]