[Federal Register Volume 59, Number 195 (Tuesday, October 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24931]
[[Page Unknown]]
[Federal Register: October 11, 1994]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 22, 31, and 42
[FAR Case 93-5]
Federal Acquisition Regulation; Employee Compensation Costs
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 (CAAC) and the Defense
Acquisition Regulations Council (DARC) are considering changes to the
Federal Acquisition Regulation to clarify the regulations concerning
the allowability of personal services compensation costs. This
regulatory action was subject to Office of Management and Budget (OMB)
review pursuant to Executive Order No. 12866 dated September 30, 1993.
DATES: Comments should be submitted on or before December 12, 1994 to
be considered in the formulation of a final rule.
ADDRESSES: Interested parties should submit written comments to:
General Services Administration, FAR Secretariat (VRS), 18th & F
Streets, NW, Room 4037, Washington, DC 20405.
Please cite FAR case 93-5 in all correspondence related to this
case.
FOR FURTHER INFORMATION CONTACT:
Jeremy F. Olson at (202) 501-3221 in reference to this FAR case. For
general information, contact the FAR Secretariat, Room 4037, GS
Building, Washington, DC 20405; telephone: (202) 501-4755. Please cite
FAR case 93-5.
SUPPLEMENTARY INFORMATION:
A. Background
The Federal Acquisition Regulation (FAR) currently requires
contracting officers to evaluate the compensation systems of a
contractor and to make a determination as to the allowability of
personal services compensation costs claimed by the contractor (FAR
31.205-6 and 42.302(a)(1)). The Defense Contract Audit Agency has
raised concerns that the language in FAR 31.205-6(b) may be susceptible
to differing interpretations and that the FAR does not provide adequate
guidance with regard to contractor compensation systems. Some have
misinterpreted the current cost principle to place equal weight on all
factors affecting the reasonableness of compensation. Others have held
that all the factors affecting reasonableness are stated in the cost
principle.
This proposed rule is intended to make it clear that the Government
requires contractors to maintain sound compensation systems that
consistently provide employee compensation costs that are reasonable,
complaint with laws and regulations, and subject to applicable
financial controls. The proposed rule does not require a contractor to
change its compensation practices or its compensation system. The basic
requirement that the contractor demonstrate the reasonableness of its
compensation costs for personal services still exist. An adequate
system requires documented compliance with the cost principle, enforced
by internal reviews. An inadequate system does not automatically mean
that the compensation claimed is unreasonable. However, an inadequate
system may be a factor in the contracting officer's evaluation of
whether the compensation claimed is reasonable. An inadequate system
generally indicates that a contractor lacks sufficient documentation to
support the reasonableness of its compensation costs and/or lacks
adequate controls to ensure that its established policies are properly
enforced.
This proposed rule clarifies existing language at FAR 22.101-2;
adds definitions at FAR 31.001; adds a new paragraph FAR 31.205-6(a)(6)
addressing contractor compensation systems and referencing a new FAR
subpart 42.13; clarifies the standard for reasonableness of labor-
management compensation agreements at FAR 31.205-6 (b) and (c); removes
the examples from FAR 31.205-6(b); revises FAR 31.205-6(b)(2) to
clarify what special circumstances are covered, provide guidance to
contracting officers confronted with those situations, remove
references to the Internal Revenue Code, and make unallowable or place
limitations on certain high-risk type of payments; revises FAR 31.205-
6(i) to remove the current series of allowable examples and substitute
a general allowability rule to preclude the need to add further
examples to paragraph (i); clarifies FAR 42.302(a)(1); and establishes
a new FAR subpart 42.13 which contains policies, procedures, and
minimum standards applicable to contractor compensation system and
reviews of such systems.
This proposed rule also makes editorial changes, corrects
administrative errors, and adds clarifying language throughout FAR
31.205-6. Most notable of these changes is the redesignation of FAR
31.205-6(f)(2) to a restructured and renamed FAR 31.205-6(d) to improve
the flow of the cost principle and provide a more logical placement of
the language.
B. Regulatory Flexibility Act
This proposed rule clarifies a condition of cost allowability for
contractors who wish to be reimbursed under Government contracts
subject to FAR 31.2. The Regulatory Flexibility Act, 5 U.S.C. 601, et
seq., applies, but the rule is not expected to have a significant
economic impact on a substantial number of small entities because most
contracts awarded to small entities are awarded on a competitive,
fixed-price basis and the cost principles do not apply. An Initial
Regulatory Flexibility Analysis has, therefore, not been performed.
Comments from small entities concerning the affected FAR subpart will
be considered in accordance with Section 610 of the Act. Such comments
must be submitted separately and cite FAR Case 93-5 in correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 96-511) does not apply because
the proposed rule does not impose recordkeeping requirements or
information collection requirements or collection of information from
offerors, contractors, or members of the public which 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, and 42
Government procurement.
Dated: October 3, 1994.
Albert A. Vicchiolla,
Director, Office of Federal Acquisition Policy.
Therefore, it is proposed that 48 CFR parts 22, 31, and 42 be
amended as set forth below:
1. The authority citation for 48 CFR parts 22, 31, and 42 continues
to read as follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS
2. Section 22.101-2 is amended by revising paragraph (a) to read as
follows:
22.101-2 Contract pricing and administration.
(a) Contractor labor policies and compensation practices, whether
or not included in labor-management agreements, are not acceptable
bases for allowing costs in cost reimbursement contracts or for
recognition of costs in pricing fixed-price contracts if they result in
unreasonable or unallowable costs to the Government. For a discussion
of cost reasonableness, as it affects the allowability of costs
resulting from labor-management agreements, see 31.205-6(c).
* * * * *
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
3. Section 31.001 is amended by adding in alphabetical order the
definitions ``Compensation system'', ``Job'', ``Job class of
employees'', and ``Labor market'' to read as follows:
Sec. 31.001 Definitions.
* * * * *
Compensation system, as used in this part, means the contractor's
system(s) for planning, administering, and controlling all remuneration
paid currently or accrued, in whatever form and whether paid
immediately or deferred, for services rendered by employees of a
contractor during contract performance.
* * * * *
Job, as used in this part, means a homogeneous cluster of work
tasks, the completion of which serves an enduring purpose for the
organization. Taken as a whole, the collection of tasks, duties, and
responsibilities constitutes the assignment for one or more individuals
whose work is of the same nature and is performed at the same skill/
responsibility level--as opposed to a position, which is a collection
of tasks assigned to a specific individual. Within a job, there may be
pay categories which are dependent on the degree of supervision
required by the employee while performing assigned tasks which are
performed by all persons with the same job.
Job class of employees, as used in this part, means employees
performing in positions within the same job.
* * * * *
Labor market, as used in this part, means an arena where
individuals exchange their labor for compensation. Labor markets are
identified and defined by some complex combination of the following
factors: (1) geography, (2) education and/or technical background
required, (3) experience required by the job, (4) licensing or
certification requirements, (5) occupational membership, and (6)
industry.
* * * * *
4. Section 31.205-6 is amended by revising paragraph (a), (b), (c),
(d), (f), and (i), to read as follows:
31.205-6 Compensation for personal services.
(b) General. Compensation for personal services includes all
remuneration paid currently or accrued, in whatever form and whether
paid immediately or deferred, for services rendered by employees to the
contractor during the period of contract performance (except as
otherwise provided for in other paragraphs of this subsection). It
includes, but is not limited to, salaries; wages; director's and
executive committee members' fees; bonuses (including stock bonuses);
incentive awards; employee stock options and stock appreciation rights;
employee stock ownership plans; employee insurance; fringe benefits;
contributions to pension, other post-retirement benefits, annuity, and
employee incentive compensation plans; and allowances for off-site pay,
incentive pay, location allowances, hardship pay, severance pay, and
cost of living differential. Compensation for person 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
31.205-6(g), (h), (j), (k), (m), and (o) of this subsection). Each
element of compensation has a net present value for the current year
which expresses the cash value of the compensation paid to employees in
the year that it is earned.
(2) Compensation in total must be reasonable for the work
performed; however, specific restrictions on individual compensation
elements must be observed where they are prescribed.
(3) Each element of compensation must be based upon and conform to
the terms and conditions of the contractor's written compensation plan
that is followed consistently.
(4) No presumption of allowability will exist where the contractor
introduces major revisions to existing compensation plans or systems or
introduces new plans or systems (see 31.201-3). Advance agreements on
the allowability of increased costs are recommended (see 31.109).
(5) Costs that are otherwise unallowable under Subpart 31.2 shall
not be allowable under this subsection 31.205-6 solely on the basis
that they constitute compensation for personal services.
(6) Contractor compensation systems must have adequate internal and
administrative controls to ensure the integrity of the system and its
data (see 42.1304(b) for minimum standards).
(b) Reasonableness. The compensation for personal services paid or
accrued to each employee must be reasonable for the work performed.
Compensation will be considered reasonable if each of the allowable
elements making up the employee's compensation package is reasonable.
This paragraph addresses the reasonableness of compensation except when
the compensation is set by provisions of a labor-management agreement
under terms of the National Labor Relations Act or similar state
statues. The tests for reasonableness of labor-management agreements
are set forth in paragraph (c) of this subsection. In addition to the
provisions of 31.201-3, in testing the reasonableness of individual
elements for particular employees or job classes of employees,
consideration should be given to factors determined to be relevant by
the contracting officer.
(1) Among others, factors which may be relevant include the
adequacy of the contractor's compensation system (see subpart 42.13),
general conformity with the compensation paid by other firms of the
same size, the compensation paid by other firms in the same industry,
the compensation paid by firms in the same geographic area, the
compensation paid by firms engaged in predominantly non-Government
work, and the cost of comparable service obtainable from from outside
sources.
In addition to the adequacy of the compensation system, the
relative significance of other factors in evaluating the reasonableness
of compensation depends on the degree to which the factors are
representative of the labor market for the job being evaluated. In
administering this principle, it is recognized that not every
compensation case need be subjected in detail to the tests described in
this cost principle. The tests need be applied only when a general
review reveals amounts or types of compensation that appear
unreasonable or unjustified. Based on initial review of the facts,
contracting officers or their representatives may challenge the
reasonableness of any individual element or the sum of the individual
elements of compensation paid or accrued to particular employees or job
classes of employees. In such cases, there is no presumption of
reasonableness and, upon challenge, the contractor must demonstrate the
reasonableness of the compensation item in question. In doing so, the
contractor may introduce, and the contracting officer will consider,
not only any circumstances surrounding the compensation item
challenged, but also the magnitude of other compensation elements which
may be lower than would be considered reasonable in themselves.
However, the contractor's right to introduce offsetting compensation
elements into consideration is subject to the following limitations:
(i) Offsets will be considered only between the allowable elements
of an employee's (or a job class of employees') compensation package or
between the compensation packages of employees in jobs within the same
job grade or level.
(ii) Offsets will be considered only between the allowable portion
of the compensation elements of employees or job classes of employees.
However, any of the compensation elements or portions thereof, whose
amount is not measurable, shall not be introduced or considered as an
offset item. Compensation elements include:
(A) Wages and salaries.
(B) Incentive bonuses.
(C) Deferred compensation.
(D) Pension and savings plan benefits.
(E) Health insurance benefits.
(F) Life insurance benefits.
(G) Compensated personal absence benefits.
(iii) In considering offsets, the magnitude of the compensation
elements in question must be taken into account. In determining the
magnitude of compensation elements, the timing of receipt by the
employee must be considered.
(2) Compensation costs under certain conditions give rise to the
need for special consideration. Among such conditions are the
following:
(i) Compensation to sole proprietors, partners or persons who are
contractually entitled to acquire a partnership interest in a
contractor enterprise, persons who own 10 percent or more of an
incorporated contractor's stock, persons who are contractually entitled
to acquire at least 10 percent of an incorporated contractor's stock,
persons who are officers or directors of an incorporated contractor, or
persons who otherwise have a substantial financial interest in the
contractor's enterprise. To be allowable, compensation of each such
person or member of their family must be reasonable for the personal
services rendered. Such employees are assumed to have influence over
their own compensation and the compensation of their family members.
(A) The reasonableness of the compensation of each such employee or
family member must be separately supported for the cost to be
allowable. The determination of reasonableness for each such individual
will be based on the application of the provisions of this cost
principle to the individual with no offsets allowed from any other
employee, job class of employees, or other jobs within a job grade.
(B) If a contractor seeks to justify compensation for such
individuals in excess of the average compensation paid by comparable
firms (the reasonable compensation for the services rendered), it must
be based upon superior performance demonstrated by quantifiable
performance measurements which use comparisons with firms of similar
size and industry, consistently applied from year to year.
(C) Severance payments (see 31.205-6(g)) paid to such individuals
or to members of their families are not allowable in excess of the
payments otherwise allowable and paid in accordance with the provisions
of the contractor's severance policy in effect for the majority of the
contractor's employees for the three year period prior to the
individual's dismissal. However, severance payments are not allowable
if paid to sole proprietors, partners (or persons contractually
entitled to acquire a partnership interest in the contractor), or
persons who hold (or are contractually entitled to acquire) at least 10
percent of a corporate contractor's stock.
(D) Early retirement incentive payments (see 31.205-6(j)(7)) paid
to such individuals or to members of their families are not allowable
unless the payments are otherwise allowable, paid in accordance with
the provisions of a contractor early retirement incentive plan made
available to all other employees with similar eligibility. If the total
paid to all such individuals and members of their families exceeds 10
percent of the plan's cost, the excess over the 10 percent is not
allowable cost. However, early retirement incentive payments are not
allowable if paid to sold proprietors, partners (or persons
contractually entitled to acquire a partnership interest in the
contractor), or persons who hold (or are contractually entitled to
acquire) at least 10 percent of a corporate contractor's stock.
(E) Payment in lieu of salary for services rendered by partners and
sole proprietors is allowable as compensation to the extent that it
would otherwise be allowable and reasonable as compensation for the
same personal services if those services had been rendered by an
employee of the contractor.
(ii) Substantially increased compensation resulting from a change
in a contractor's compensation policy or system, particularly when it
is concurrent with an increase in the ratio of Government contracts to
other business, or any change in the treatment of allowability of
specific types of compensation related to changes in Government policy.
Contracting officers or their representatives should question such
increased costs unless the contractor presents supporting data to show
to the contracting officer's satisfaction that the changed compensation
plan or system produces reasonable costs to the Government (see also
31.201-3 and 31.205-6(a)(4)).
(iii) The contractor's business is such that its compensation
levels are not subject to the restraints that normally occur in the
conduct of competitive business.
(c) Labor-management agreements. If costs of compensation
established under ``arm's length'' negotiated labor-management
agreements are otherwise allowable, the costs are reasonable if, as
applied to work in performing Government contracts, they are not
determined to be 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. Disallowance of costs will not be made
under this paragraph (c) unless--
(1) The contractor has been permitted an opportunity to justify the
costs; and
(2) Due consideration has been given to whether unusual conditions
pertain to Government contract work, imposing burdens, hardships, or
hazards on the contractor's employees, for which compensation that
might otherwise appear unreasonable is required to attract and hold
necessary personnel.
(d) Form of payment. (1) Compensation for current services includes
compensation paid (or to be paid in the future) to employees in the
form of cash, corporate securities, such as stocks, bonds, and other
financial instruments (see subparagraph (d)(2) of this subsection
regarding valuation), or other assets, products, or services valued at
fair market value.
(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 shall be the fair market
value on the measurement date (e.g., the first date the number of
shares awarded is known) determined upon the most objective basis
available; and
(ii) Accruals for the cost of the securities before issuing the
securities to the employees shall be 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.
* * * * *
(f) Bonuses and incentive compensation. (1) Incentive compensation
for management employees, cash bonuses, suggestion awards, safety
awards, and incentive compensation based on production, cost reduction,
or efficient performance are allowable provided the awards are paid or
accrued under a written plan established before the services are
rendered and the basis for the award is supported in writing according
to the criteria in the plan (see also 31.205-6(a)(3)).
(2) When the bonus and incentive compensation payments are
deferred, the costs are subject to the requirements of subparagraph
(f)(1) and paragraph (k) of this subsection.
* * * * *
(i) Compensation based on changes in the prices of corporate
securities or corporate security ownership.
(1) Any compensation which is calculated, or valued, based on
change in the price of corporate securities is unallowable.
(2) Any compensation represented by dividend payments or which is
calculated based on dividend payments is unallowable.
(3) If a contractor pays an employee in lieu of the employee
receiving or exercising a right, option, or benefit which would have
been unallowable under this paragraph (i), such payments are also
unallowable.
(4) See subparagraph (d)(2) of this subsection for valuation of
corporate securities provided as compensation and subparagraph (j)(8)
of this subsection for valuation of contributions to employee stock
ownership plans.
* * * * *
PART 42--CONTRACT ADMINISTRATION
5. Section 42.302(a)(1) is revised to read as follows:
Sec. 42.302 Contract administration functions.
(a) * * *
(1) Review the contractor's compensation system(s), as set forth in
Subpart 42.13.
* * * * *
6. Subpart 42.13 and the Table of Contents, consisting of sections
42.1300 through 42.1306, are added to read as follows:
Sec.
42.1300 Scope of subpart
42.1301 Definitions
42.1302 Policy
42.1303 Applicability
42.1304 General
42.1305 Responsibilities
42.1306 Procedures
SUBPART 42.13--CONTRACTOR COMPENSATION SYSTEMS
Sec. 42.1300 Scope of subpart.
This subpart prescribes policies, procedures, and standards for
evaluating contractor compensation systems.
42.1301 Definitions.
Compensation system has the same meaning as in 31.001.
Job has the same meaning as in 31.001.
Job analysis, as used in this subpart, means a systematic process
of collecting and evaluating relevant information about jobs to be used
in job evaluation processes.
Job evaluation, as used in this subpart, means a systematic process
of establishing the relative value of jobs within an organization based
on job analysis data and assigning jobs to a hierarchical order such as
job grades so that pay rates can be established.
Labor market has the same meaning as in 31.001.
42.1302 Policy.
All contractors subject to 42.1303 must have compensation systems
that consistently provide employee compensation costs that are
reasonable under 31.205-6, compliant with Government laws and
regulations, and subject to applicable financial control systems.
42.1303 Applicability.
(a) The specific requirements of this subpart apply to the extent
specified by the agency responsible for contract administration.
(b) This subpart applies to the total contractor organization or a
separate entity of it such as an affiliate, division, or subdivision
that performs its own compensation system administration.
(c) This subpart does not apply to small businesses; those portions
of contractor compensation systems that cover employees whose
compensation is subject to collective bargaining agreements; or
educational institutions and nonprofit organizations, unless the Office
of Management and Budget has authorized such entities to use the
commercial cost principles in Subpart 31.2.
(d) All contractors who receive prime contracts or subcontracts
must have a compensation system which conforms to the standards at
42.1304, except when all contracts and subcontracts are--
(1) Awarded under the set-aside, or section 8(a), procedures of
Part 19;
(2) Less than the small purchase threshold set forth in 13.000; or
(3) Other than cost type contracts or fixed-price contracts covered
by 31.102.
42.1304 General.
(a) Compensation system reviews are conducted to ensure that
contractor compensation systems comply with the policies in 42.1302.
(b) Compensation systems may be appropriately tailored, as
determined by the contracting officer, based on the size of the
contractor. As a minimum, such systems should--
(1) Adequately describe the policies, procedures, and operating
instructions regarding--
(i) Design and operation of job analysis and job evaluation
processes, wage and salary pay structure(s), and performance appraisal
and merit pay systems;
(ii) Pay policies, bases, and methods used to formulate pay
increases and starting rates;
(iii) Approval levels, guidelines, and supporting documentation for
all compensation actions; and
(iv) Compliance with laws, regulations, and contract requirements.
(2) Have jobs which--
(i) Are defined with valid, up-to-date documentation;
(ii) Have accurate job evaluation documentation;
(iii) Are accurately assigned to a job grade or level as determined
by job evaluation results; and
(iv) Assure that pay rates are competitive with comparable external
labor market average pay rates (i.e., are based on relevant labor
market survey data obtained, analyzed, and compared with the
contractor's benchmark jobs, including the five jobs with the highest
aggregate cost impact on the contractor).
(3) Not exceed the average of benchmark job pay rates within job
grades or levels by more than 10 percent of the average of relevant
labor market data without justification that there is no material harm
to the Government;
(4) Require periodic internal reviews of policy compliance,
administrative process measures, adequacy of documentation, and reports
to management on the results of reviews and recommendations for
improvements, and require corrective action plans to be developed,
implemented, and tested; and
(5) Provide audit trails and maintain records necessary to evaluate
and to verify through testing that the system is operating as desired.
42.1305 Responsibilities.
(a) The administrative contracting officer (ACO) will neither
approve nor disapprove a contractor's compensation system, but only
determine whether it adequately conforms to the standards set forth in
42.1304.
(b) The cognizant auditor will advise and assist the ACO in
evaluating both the contractor's compensation system and the
contractor's correction of any deficiencies. Auditors shall assess the
significance of contractor deficiencies and provide the ACO an estimate
of any adverse material impact to the Government resulting from such
deficiencies.
(c) If the contractor notifies the Government that disclosed
information relative to its compensation system contains employee,
commercial, or financial information which it regards as privileged and
confidential, such information shall be protected. Such information
shall not be released outside the Government except in accordance with
established agency procedures.
42.1306 Procedures.
(a) System evaluation. Cognizant audit and contract administration
activities will jointly establish and manage programs for evaluating
contractor compensation systems. Evaluations will be based on the
information provided by the contractor. Evaluations and reports shall
be accomplished as a contract audit and contract administration office
team effort. The ACO shall appoint a team leader and ensure
representation of appropriate functional specialties. Evaluations shall
be tailored to take full advantage of the day-to-day work done as an
integral part of both the contract audit and contract administration
activities. A system evaluation shall be conducted at least every three
years, except where the ACO, in consultation with the auditor,
determines that past experience and a current vulnerability assessment
of the contractor discloses low risk. If the ACO determines that the
Government is subject to high risk, compensation system evaluations
should be done more frequently. To the extent possible, the evaluation
team leader should inform the contractor and the ACO of significant
findings during the conduct of the evaluation. The team leader should
apprise the contractor during an exit conference of any significant
findings.
(b) Disposition of evaluation team findings--(1) Reporting on
findings. The report shall address the evaluation team findings and
recommendations. If there are significant compensation system
deficiencies, the report shall provide an estimate of any adverse
material impact to the Government resulting from those deficiencies and
a recommendation as to the acceptability of the contractor's corrective
action plan.
(2) Field pricing reports. When the report of an evaluation
indicates that there is a significant compensation system deficiency,
all field pricing reports for that contractor will contain a
recommendation relating to proposed cost and pricing data adjustments
necessary to protect the interest of the Government, until the
deficiency(ies) is (are) corrected.
(3) Initial notification to contractor. Upon receipt of the system
evaluation report, the ACO shall provide a copy to the contractor and
allow 30 days, or a reasonable extension thereto, for submission of its
written response. If no significant deficiencies are identified, the
ACO will notify the contractor in a timely manner.
(i) Contractor agreement. If the contractor agrees with the report
findings and recommendations, the contractor should be provided 60 days
from the original notification date to correct any identified
deficiencies or submit a corrective action plan showing milestones and
actions to eliminate the deficiencies.
(ii) Contractor disagreement. If the contractor disagrees with the
report findings and recommendations, the contractor's response should
contain the rationale for each area of disagreement.
(4) Evaluation of contractor's response. The ACO, in consultation
with the auditor, will evaluate the contractor's written response and
determine whether--
(i) The compensation system contains deficiencies which need
correction;
(ii) Any deficiencies are significant enough to result in the
disallowance of costs or suspension of payments under public vouchers;
and
(iii) Proposed corrective actions are adequate to correct the
deficiencies.
(5) Contracting officer responsibility. (i) When the ACO determines
that there is a significant compensation system deficiency, the ACO may
disallow, or suspend payment of, costs claimed on public vouchers in
accordance with 42.803. The disallowance or suspension of payment shall
remain in effect until the ACO determines that the contractor's
corrective action plan is adequate.
(ii) When a compensation system report indicates that there is a
significant deficiency, the ACO should ensure that the effect or the
deficiency(ies) is (are) considered in the review of the contractor's
estimating system pursuant to 15.811.
(6) Notification of determination. The ACO shall notify the
contractor and the auditor of the determination and any decision to
disallow costs or suspend payments under public vouchers. The notice
shall identify the deficiencies requiring correction and indicate
acceptance or rejection of the contractor's corrective action plan.
(7) Monitoring contractor's corrective action. The auditor and ACO
will monitor the contractor's progress toward correction of
deficiencies. If the contractor fails to make adequate progress toward
corrective action, the ACO shall take further appropriate action to
ensure that the contractor corrects the deficiency(ies). Actions which
should be considered by the ACO include, but are not limited to,
bringing the issue to the attention of higher level management,
disapproval of the contractor's cost estimating system, and/or
recommendations concerning award of future contracts.
[FR Doc. 94-24931 Filed 10-7-94; 8:45 am]
BILLING CODE 6820-34-M