[Federal Register: December 20, 2004 (Volume 69, Number 243)]
[Rules and Regulations]
[Page 76356-76358]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de04-32]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 42
[FAC 2001-26; FAR Case 2001-018; Item VI]
RIN 9000-AJ77
Federal Acquisition Regulation; Applicability of the Cost
Principles and Penalties for Unallowable Costs
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) by increasing the
contract dollar threshold for assessing a penalty if the contractor
includes expressly unallowable costs in its claim for reimbursement.
DATES: Effective Date: January 19, 2005.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755
for information pertaining to status or publication schedules. For
clarification of content, contact Mr. Richard C. Loeb at (202) 208-
3810. Please cite FAC 2001-26, FAR case 2001-018.
SUPPLEMENTARY INFORMATION:
A. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 68 FR 66988 on November 28, 2003, with request for
comments. The Councils proposed to amend the FAR to: (1) remove the
requirement to apply the cost principles and procedures at FAR Part 31
when pricing a contract if cost or pricing data are not obtained; (2)
add a definition to FAR Part 31 for fixed-price contracts,
subcontracts, and modifications; and (3) increase the contract dollar
threshold for assessing a penalty if the contractor includes expressly
unallowable costs in its claim for reimbursement (FAR Part 42). Three
respondents submitted comments on the proposed FAR rule; a discussion
of the comments are provided below. The Councils considered all
comments and decided not to adopt the proposed revisions to FAR Parts
15 and 31, and to convert the proposed rule at FAR Part 42 to a final
rule. Differences between
[[Page 76357]]
the proposed rule and final rule are discussed in comments 1, 2, and 3,
below.
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.
Public Comments:
Applicability of FAR Part 31
1. Comment: Two of the three respondents believe the change should
not be made.
The first respondent urged the withdrawal of the proposed rule and
expressed the position that the need for the proposed change was not
clearly and fully disclosed. The respondent strongly believes that the
Government's prenegotiation objective for cost based fixed-price
contracts should continue to be predicated on the consistent
application of applicable FAR Part 31 cost principles. Whether a
contractor's submitted cost data is ``certified'' or ``uncertified''
should not alter the basis for determining the Government's
prenegotiation objective, or a determination on whether the negotiated
fixed-price is fair and reasonable.
The respondent noted that FAR Part 31 has more than just
unallowable costs within it, e.g., allocability, consistency, direct
vs. indirect, and accounting methods. The respondent also made the
following points:
If FAR Subpart 31.2 policies and procedures are not
consistently applied to cost-based fixed-price contracts, what are the
alternate policies, procedures and principles to be applied when
performing a ``cost analysis'' of the ``uncertified'' information other
than cost or pricing data?
What fundamental constructs will the proposing contractor
have to comply with?
What will guide the cost analyst and/or auditor when
performing the ``cost analysis'' of the contractor's uncertified data?
After referencing the Councils' stated goal ``...to reduce
Government unique regulations when the risk to the Government is low,''
the respondent opined:
When negotiating fixed-price contracts based on a prenegotiation
objective that was predicated on a ``cost analysis'' of contractor
submitted information other than cost or pricing cost data, the
respondent believes that the risk to the Government is higher, not
lower, than if ``certified'' cost or pricing data had been obtained.
Without certified data, there is less assurance that contractor
submitted data are current, complete and accurate.
The respondent concluded that FAR Part 31 contract cost principles
should continue to be applied to pricing contracts whenever cost data
is submitted to support a contract price, regardless of whether the
contract type is fixed-price.
The second respondent believes that the Government's policy
objective should be clarified, and that the mention of cost analysis is
potentially confusing and unnecessary. The respondent characterized the
phrasing of the proposed rule as terribly awkward (due to using the
passive voice) and suggested alternative language.
The third respondent was concerned that the proposed coverage at
FAR 31.000 appears to restrict in some way the underlying Truth in
Negotiations Act (TINA) mandate to obtain cost or pricing data in the
first place (as to both negotiated contracts and negotiated
modifications).
Councils' response: Concur that the proposed change should not be
made. The Councils believe that the Government needs a consistent
playing field when dealing with cost data whether ``certified'' or not.
The Councils are also concerned that the proposed language could be
construed as limiting the Government's use of FAR Part 31 for its
prenegotiation positions. This would adversely affect any requests for
audit support made by the contracting officer. The General Accepted
Government Auditing Standards (GAGAS) under attestation standards AT
101.23, ``Suitability of Criteria,'' require auditors to have
objective, measurable, complete, and relevant criteria to apply during
their work. The Councils believe that the guidance in FAR Part 31 meets
these requirements, as General Accepted Accounting Principles (GAAP)
alone does not go to the level necessary to support contract pricing.
Therefore, the Councils have withdrawn the proposed revisions to FAR
Parts 15 and 31.
Definition of fixed-price contracts
2. Comment: Two respondents believe the proposed FAR 31.001
definition of fixed-price contracts, subcontracts and modifications
would lead to confusion in the area of Time-and-Material (T&M) type
contracting actions.
The first respondent stated that it strongly opposes the proposed
``redefinition'' of fixed-price contracts to include the fixed hourly
portion of a T&M and labor-hour (LH) contract, and that it flies in the
face of law and common sense. The respondent cited GSBCA decision CACI,
Inc.--Federal v. General Services Administration, dated December 13,
2002, to support its position that T&M/LH contracts are not fixed-
price. The respondent believes that the Council's attempt to
rationalize a portion a T&M/LH contract as ``fixed-price'' is a
shameful capitulation to contractors interests, and an abrogation of
the Council's duty to taxpayers.
The second respondent was concerned the proposed definition may
impact T&M orders placed under GSA's Multiple Award Schedule (MAS)
contracts. The proposed definition would include the fixed hourly rate
portion of the T&M and LH contracts and subcontracts in FAR Subpart
16.6. The respondent believes this may suggest that time-and-material
orders with a fixed labor hour component are fixed-price in nature for
any contracting or FAR purpose. GSA mandates that all T&M orders placed
under MAS contracts include the contract clause at FAR 52.232-7,
Payments under Time-and-Materials and Labor-Hour Contracts. This clause
provides contracting officers with an ability to require more
substantiation of hours worked under a time-and-materials order.
Because such task orders have fixed labor components, the respondent is
concerned that contracting officers may--based on this proposed FAR
change--consider such task orders to be fixed price and not invoke the
controls attendant with this clause or other necessary safeguards to
the use of such vehicles.
Councils' response: Partially concur. The Councils believe there is
a limited risk that contracting officers could be confused by the
inclusion of the ``fixed rate portion'' of a T&M contracting action in
the proposed definition. However, due to the Council's decision not to
adopt the proposed revisions discussed at Comment 1, above, this
definition is no longer required.
Dollar threshold for assessing penalties--FAR 42.709
3. Comment: One respondent stated that it had no objection to the
proposed change in the threshold from the current $500,000 to $550,000
to adjust for inflation. The other two respondents did not address the
proposed change.
Councils' response: Concur. The Councils agree that the contract
dollar threshold for assessing a penalty if the contractor includes
expressly unallowable costs in its claim for reimbursement should be
increased from $500,000 to $550,000, to adjust for inflation. This
increase is authorized by 10 U.S.C. 2324(l) and 41 U.S.C. 256(1).
Therefore, the dollar threshold amounts
[[Page 76358]]
in FAR 42.709(b) and FAR 42.709-6 are increased from $500,000 to
$550,000.
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 principles 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 Part 42
Government procurement.
Dated: December 9, 2004.
Laura Auletta,
Director, Contract Policy Division.
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Therefore, DoD, GSA, and NASA amend 48 CFR part 42 as set forth below:
PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES
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1. The authority citation for 48 CFR part 42 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).
42.709 and 42.709-6 [Amended]
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2. Amend sections 42.709(b) and 42.709-6 by removing ``$500,000'' and
adding ``$550,000'' in its place.
[FR Doc. 04-27638 Filed 12-17-04; 8:45 am]