[Federal Register: September 30, 2005 (Volume 70, Number 189)]
[Rules and Regulations]
[Page 57467-57470]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30se05-47]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005-06; FAR Case 2003-002; Item X]
RIN 9000-AJ81
Federal Acquisition Regulation; Reimbursement of Relocation Costs
on a Lump-Sum Basis
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) by revising the
relocation cost principle to permit contractors the option of being
reimbursed on a lump-sum basis for three types of employee relocation
costs: costs of finding a new home; costs of travel to the new
location; and costs of temporary lodging. These three types of costs
are in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted.
DATES: Effective Date: October 31, 2005.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755
for information pertaining to status or publication schedules. For
clarification of content, contact Mr. Jeremy Olson, Procurement
Analyst, at (202) 501-3221. Please cite FAC 2005-06, FAR case 2003-002.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils originally considered expanding the reimbursement of
relocation costs on a lump-sum basis under FAR case 1997-032,
Relocation Costs. However, the Councils decided to study this issue
further under a separate case and published a final rule on the
remainder of FAR case 1997-032 in the Federal Register at 67 FR 43516,
June 27, 2002. On October 24, 2002, the Councils published a Notice of
Request for Comments in the Federal Register (67 FR 65468) with a list
of questions regarding the use of a lump-sum approach for reimbursing
employee relocation expenses. After reviewing the public comments that
were submitted in response to that Federal Register notice, the
Councils held a public meeting on February 6, 2003, to further explore
the views of interested parties on this issue.
Public comments and the discussions at the public meeting revealed
that, in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted by FAR 31.205-35(b)(4), it is
common commercial practice to reimburse relocating employees on a lump-
sum basis for their house-hunting, final move, and temporary lodging
expenses. A FAR case was opened to expand the relocation cost principle
to permit lump-sum reimbursements for these three types of costs.
The Councils published a proposed FAR rule in the Federal Register
at 68 FR 69264, December 11, 2003, with a request for comments by
February 9, 2004. Seven respondents submitted comments on the proposed
FAR rule. Two respondents supported the proposed rule, four respondents
opposed it, and one respondent requested clarification. A discussion of
the comments is provided below. The Councils considered all comments
and concluded that the proposed rule should be converted to a final
rule, with changes to the proposed rule. Differences between the
proposed rule and final rule are discussed in Section B, Comment 1, and
Section C below.
B. Public Comments
No standard for measuring reasonableness
1. Comment: Four respondents opposed the proposed rule and
expressed the concern that with contractors spending significant
amounts on employee relocations, the Government would have no objective
standard for evaluating the reasonableness of the new lump-sum amounts
being claimed.
After conducting surveys that suggest ``contractors are incurring
hundreds of millions of dollars of relocation costs annually,'' the
first respondent expressed ``significant concern as to where an
auditor, contracting officer, or contractor could turn to gather
adequate data to make a determination as to the appropriateness and
reasonableness of the lump-sum method or resulting amount.'' The
respondent concluded its letter by stating it ``believes that paying a
lump-sum for such significant amounts places an unacceptable risk on
the Government and creates an excessive audit task to establish
allowability of relocation costs.''
Also citing the above mentioned survey of the large amounts of
relocation costs allocated to cost reimbursement contracts each year,
the second respondent stated that ``allowing lump-sum reimbursement of
these costs without supporting documentation is not in the best
interests of the Government'' because ``the proposed revision would
subject millions of dollars to a subjective test of reasonableness
requiring Government auditors, contracting officials, attorneys, and
others to expend significantly more resources to determine the
reasonableness of the claimed costs, review the determination, and
resolve disputes between the Government and the contractor involving
disallowed costs.'' The respondent went on to suggest ``contractors
will also incur additional expenses in excess of any administrative
costs saved supporting the reasonableness of the relocation costs.''
[[Page 57468]]
The third respondent based its opposition to the proposed rule on
``the millions of taxpayer dollars that will be wasted on this special
interest giveaway'' and suggested that the Government's motivation in
pursuing it was ``not wanting to disappoint contractors.'' The
respondent argued further that ``contractors favor this approach, not
because of any administrative burden reduction, but rather because it
leads to higher levels of reimbursement without any need to justify
costs.'' Finally, the respondent expressed its opinion that ``with few
exceptions, these (relocation) costs should only be reimbursed on an
`actual cost' basis.''
The fourth respondent did not submit any original comments, but
simply forwarded the third respondent's comments with an accompanying
statement that it ``fully concurs in the substantive objections
expressed'' therein.
Councils' response: The Councils believe that a provision
permitting the expanded use of lump-sum reimbursements should be added
to the relocation cost principle. Such a provision is expected to
reduce the accounting and administrative burden of that cost principle
on contractors and lead to faster relocations.
The Councils are very receptive to the important concerns expressed
by the respondents. The Councils believe that the words ``on an
appropriate lump-sum basis to the individual employee'' in the proposed
rule were intended to condition the allowability of the new lump-sum
reimbursements on contractors by providing sufficient visibility into
the component cost projections used in developing the lump-sum amounts
to permit an audit determination of their reasonableness. However, the
comments make it abundantly clear that such a requirement needs to be
more explicit. The Councils certainly want to eliminate any possible
public perception of this proposed rule change as a ``blank check'' for
contractors and to ensure that the Government only reimburses
reasonable costs. Accordingly, the Councils have added language at FAR
31.205-35(b)(6)(i) that makes the costs of lump-sum payments to
relocating employees for house-hunting, final move, and temporary
lodging expenses allowable only when ``adequately supported by data on
the individual elements (e.g., transportation, lodging, and meals)
comprising the build-up of the lump-sum amount to be paid based on the
circumstances of the particular employee's relocation.'' This
requirement should provide essentially the same audit visibility into
the reasonableness of lump-sum payments as currently exists for actual
relocation costs.
Relocation lump-sums as a common commercial practice
2. Comment: In opposing the proposed rule, one respondent also
asserted that the use of lump-sum payments for travel and temporary
lodging related relocation costs ``is not a predominant industry
practice at this time.'' The respondent explained that it recently
reviewed the current relocation policies in place at four large
contractor locations and found that three of these four contractors use
a single corporate-wide policy for their employee relocation
reimbursement programs. Even though one of these three companies claims
it is a predominantly commercial company and the other two companies
also have a substantial commercial business base, the respondent
pointed out that none of the three has established a lump-sum option
for its commercial business segments.
In addition, the respondent cited an August 2003 news release from
a relocation management firm which stated that only 30 percent of the
companies it had recently surveyed said they were using lump-sums to
cover travel and temporary lodging expenses. Finally, the respondent
pointed out that it had recently been advised by a relocation
management firm that, shortly before Dr. John Hamre left the Department
of Defense, he ``shut down'' an effort by the relocation management
firm and the Defense Integrated Travel and Relocation Solutions (DITRS)
office to put together a plan for using lump-sums for DoD civilian
relocations.
After reviewing the responses to the October 24, 2002, Federal
Register Notice of Request for Comments (67 FR 65468), a respondent
questioned ``whether the FAR Council has obtained sufficient
information to support its assertion that it is now common commercial
practice to reimburse relocating employees on a lump-sum basis for
their house-hunting, final move, and temporary lodging expenses.'' The
respondent observed that of the eight respondents who responded to that
notice, one respondent's letter gave no specifics on the number of
companies using lump-sum reimbursements, and another respondent stated
that its 2001 survey showed that 55 companies out of 109 contacted were
using lump-sum reimbursements.
In supporting the proposed rule, one respondent agreed ``with the
Councils' statement that the use of lump-sum payments is a common
commercial practice'' and expressed the belief ``that the proposed rule
will help align relocation cost reimbursement policies with commercial
best practices.'' Another respondent also agreed that the proposed
changes ``are in keeping with current commercial business practice''
and explained that ``beginning in 1993 with the Revenue Reconciliation
Act, many companies moved to lump-sum allowances for what became
taxable reimbursements to the home-finding, temporary living, and final
move portions of relocation policy.'' The respondent concluded with its
opinion that ``the recommended revision will enable Government
contractors to implement this best practice and take advantage of a
tested and proven process efficiency that has been an accepted part of
the commercial sector's relocation programs for over a decade.''
Councils' response: While the use of lump-sum reimbursements for
selected relocation expenses may not be the predominant commercial
practice at this time, the Councils believe there is ample evidence
that the use of such payments is a common and growing commercial
practice. The survey data cited by the respondents support this
assessment. In addition, a relocation management firm that has been in
business for more than 70 years stated at the February 6, 2003, public
meeting and in its subsequent public comments that lump-sum
reimbursement is now a common commercial practice for house-hunting,
final move, and temporary lodging costs.
The Councils do not find it surprising that contractors who wish to
maintain a single, corporate-wide policy for reimbursing relocation
costs continue to apply a policy which parallels the current cost
principle, even though they may have significant commercial business.
The revised relocation cost principle will give such firms an
additional option for the first time on Government contracts that could
well become their corporate-wide standard in the future.
Finally, it is the Councils' understanding that DoD terminated its
two-year initiative to reengineer relocation policies and procedures
and disbanded the DITRS office which oversaw that effort due to a lack
of funds and interest from the military departments. And while the
relocation management firm stated during its presentation at the
February 6, 2003, public meeting that the Federal Deposit Insurance
Corporation is currently using lump-sum reimbursements for its
employees' relocation costs, this appears to be an exception within the
[[Page 57469]]
Federal Government. However, even if lump-sum reimbursements for
Federal employee relocation expenses are relatively rare, the purpose
of this case is to recognize a common and growing commercial best
practice in the relocation cost principle that should benefit both
contractors and the Government.
Allowability of lump-sum payments
3. Comment: While supporting the effort to expand the use of lump-
sum reimbursements for contractor employee relocation costs, one
respondent suggested that the revised paragraph (b)(4) needs to include
``a clear affirmative statement that the lump-sum payments are
allowable costs'' to avoid any possible confusion. In addition, the
respondent recommended that the words ``to the individual employee'' be
deleted from the revised paragraph (b)(4) because ``contractors should
not have to demonstrate on an individual basis that the lump-sum
payments are reasonable and appropriate for each relocating employee.''
Finally, the respondent recommended that the Councils eliminate the
current ceilings on allowable home sale and purchase costs of 14
percent and 5 percent, respectively.
Councils' response: Nonconcur. The Councils do not agree that any
additional language is necessary to avoid confusion regarding the
allowability of the specified lump-sum payments. The Councils believe
it is very clear from the language at FAR 31.205-35(b)(6)(i) that lump-
sum payments to employees for any of these three types of relocation
costs will be allowable if the requisite criteria are met. The Councils
also believe that the data provided by the contractor on the component
cost projections used in developing its lump-sum amounts must be
``based on the circumstances of the particular employee's relocation,''
such as family size, city, and number of vehicles. Otherwise, the lump-
sum amount paid could be excessive, and therefore unreasonable, for a
given relocation. Finally, the current ceilings on allowable home sale
and purchase costs are outside the scope of this case. (Incidentally,
the relocation management firm indicated at the February 6, 2003,
public meeting that such costs are seldom included in lump-sum
relocation payments.)
Add the three types of employee relocation costs to current lump-
sum cap for miscellaneous expenses
4. Comment: One respondent suggested that if the proposed rule is
not withdrawn, it ``does not object to adding the three additional
types of employee relocation costs, i.e., (1) the costs of finding a
new home, (2) costs of travel to the new location, and (3) costs of
temporary lodging, in addition to the existing `miscellaneous expenses'
that would be subject to a $5,000 lump-sum reimbursement, per employee
move.'' The respondent offered this alternative ``in the interest of
promoting greater flexibility within the existing relocation cost
principle, but without increasing overall costs to taxpayers.''
Councils' response: Nonconcur. Under its cost-type contracts, the
Government is obligated to pay the contractor's allocable and
reasonable costs of contract performance. Not only would the
respondent's proposal be fundamentally unfair to contractors, but it
would also severely undermine the basic rationale for this proposed
rule change. The current cap on miscellaneous relocation costs at FAR
31.205-35(b)(4) was increased to $5,000 in June 2002 based on survey
data published by the Employee Relocation Council regarding the median
amount of such payments in the commercial sector. There is no logical
reason to arbitrarily add house-hunting, final travel, and temporary
lodging costs to this separate lump-sum cap. The cost principles should
ensure that contractors are treated fairly, consistent with sound
public policy.
Proposed rule would make Federal employees second class citizens
5. Comment: One respondent expressed concern ``that this proposal
would make Federal employees second class citizens vis-[aacute]-vis
their contractor counterparts with respect to relocation expenses.''
The respondent concluded by stating that ``in no case should increases
in lump-sum payments beyond $5,000 per contractor employee be
considered until ... Federal employees are afforded the same advantages
as their contractor counterparts.''
Councils' response: Nonconcur. While the Councils understand that
the respondent is particularly sensitive to what it perceives to be
preferential treatment of contractor employees, the Councils do not
believe the allowability of contractor relocation costs must parallel
exactly the treatment afforded Federal employees. It is now a common
commercial practice to reimburse relocating employees on a lump-sum
basis for their house-hunting, final move, and temporary lodging
expenses, and the Councils believe the relocation cost principle should
be revised to permit contractors the option of using this methodology.
The language added at FAR 31.205-35(b)(6)(i) will ensure that, just as
when reimbursement is based on actual expenses, only reasonable amounts
are allowed for lump-sum reimbursements of these three types of
relocation costs. This additional flexibility should help promote
increased entry into the Federal marketplace by firms that have
previously been hesitant to do so, resulting in increased competition
on future purchases.
Clarification of current lump-sum cap for miscellaneous expenses
6. Comment: A respondent asked: ``Is the proposed lump-sum amount
of $5K applicable to both the continental United States (CONUS) and
outside CONUS relocations?''
Councils' response: The $5,000 cap on allowable lump-sum
reimbursements for miscellaneous relocation expenses is a current, not
proposed, limitation at FAR 31.205-35(b)(4). It applies to all
contractor employee relocations, regardless of location.
C. Additional Change--No adjustments
The Councils are concerned that contractors who reimburse employee
relocation costs on a lump-sum basis could make additional after-the-
fact payments to employees whose actual costs exceeded the lump-sum
amount. To address this concern, the Councils added the following
limitation at FAR 31.205-35(b)(6)(ii): ``When reimbursement on a lump-
sum basis is used, any adjustments to reflect actual costs are
unallowable.''
D. Regulatory Planning and Review
This is not a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
E. 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. For Fiscal Year 2003, only
2.4 percent of all contract actions were cost contracts awarded to
small businesses.
F. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 104-13) does not apply because
the
[[Page 57470]]
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: September 22, 2005.
Julia B. Wise,
Director, Contract Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137;
and 42 U.S.C. 2473(c).
0
2. Amend section 31.205-35 by revising paragraph (b)(4); and adding
paragraphs (b)(5) and (b)(6) to read as follows:
31.205-35 Relocation costs.
* * * * *
(b)* * *
(4) Amounts to be reimbursed shall not exceed the employee's actual
expenses, except as provided for in paragraphs (b)(5) and (b)(6) of
this subsection.
(5) For miscellaneous costs of the type discussed in paragraph
(a)(5) of this subsection, a lump-sum amount, not to exceed $5,000, may
be allowed in lieu of actual costs.
(6)(i) Reimbursement on a lump-sum basis may be allowed for any of
the following relocation costs when adequately supported by data on the
individual elements (e.g., transportation, lodging, and meals)
comprising the build-up of the lump-sum amount to be paid based on the
circumstances of the particular employee's relocation:
(A) Costs of finding a new home, as discussed in paragraph (a)(2)
of this subsection.
(B) Costs of travel to the new location, as discussed in paragraph
(a)(1) of this subsection (but not costs for the transportation of
household goods).
(C) Costs of temporary lodging, as discussed in paragraph (a)(2) of
this subsection.
(ii) When reimbursement on a lump-sum basis is used, any
adjustments to reflect actual costs are unallowable.
* * * * *
[FR Doc. 05-19477 Filed 9-29-05; 8:45 am]
BILLING CODE 6820-EP-S