[Federal Register Volume 59, Number 238 (Tuesday, December 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30524]


[[Page Unknown]]

[Federal Register: December 13, 1994]


_______________________________________________________________________

Part IV

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Parts 31, 37, 42, 52




Federal Acquisition Regulation; Implementation of Various Cost 
Principle Provisions; Proposed Rules
DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 31, 37, 42 and 52

[FAR Case 94-754]
RIN 9000-AG21

 
Federal Acquisition Regulation; Implementation of Various Cost 
Principle Provisions

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule is issued pursuant to the Federal 
Acquisition Streamlining Act of 1994 to implement the requirements for 
unallowable costs and adds to the list of costs to be clarified in the 
cost principles. This regulatory action was not subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993.

DATES: Comments should be submitted on or before February 13, 1995 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 94-754 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, Cost Principles 
Team Leader, at (703) 602-2357, in reference to this FAR case. For 
general information, contact the FAR Secretariat, Room 4037, GS 
Building, Washington, DC 20405, (202) 501-4755. Please cite FAR case 
94-754.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994 (the Act), Pub. L. 
103-355, provides the authority to streamline the acquisition process 
and minimize burdensome requirements unique to the Federal Government. 
Major changes that can be expected in the acquisition process as a 
result of the Act's implementation include changes in the areas of 
Commercial Item Acquisition, Simplified Acquisition Procedures, the 
Truth in Negotiations Act, and introduction of the Federal Acquisition 
Computer Network.
    This notice announces FAR revisions developed under FAR case 94-
754, based on Section 2101 of the Act that (1) adds to the list of 
unallowable costs found at 10 U.S.C. 2324(e)(1), the costs of lobbying 
the legislative body of a political subdivision of a state; (2) adds to 
the list found at 10 U.S.C. 2324(f)(1) of costs to be clarified in the 
cost principles, the cost of ``conventions''; and (3) expands the 
coverage to the Coast Guard and the National Aeronautics and Space 
Administration. Section 2151 amends 41 U.S.C. 256 to include all the 
provisions of 10 U.S.C. 2324, as amended by Section 2101. Therefore, 
the provisions are made generally applicable to all other executive 
agencies. The new FAR language, with only minor variations, was 
transferred from the current coverage in the Defense Federal 
Acquisition Regulations (DFARS).
    The FAR Council is interested in an exchange of ideas and opinions 
with respect to the regulatory implementation of the Act. For that 
reason, the FAR Council is conducting a series of public meetings. 
However, the FAR Council has not scheduled a public meeting on this 
rule (FAR case 94-754) because of the clarity and non-controversial 
nature of the rule. If the public believes such a meeting is needed 
with respect to this rule, a letter requesting a public meeting and 
outlining the nature of the requested meeting shall be submitted to and 
received by the FAR Secretariat (see ADDRESSES caption, above) on or 
before January 12, 1995. The FAR Council will consider such requests in 
determining whether a public meeting on this rule should be scheduled.

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most 
contracts awarded to small businesses are awarded through sealed 
bidding on a firm fixed price basis. The cost principles apply only to 
contracts which are not firm fixed price. 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 5 U.S.C. 610 of the Act. Such comments must be 
submitted separately and should cite 5 U.S.C. 601, et seq. (FAR case 
94-754), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose recordkeeping or information 
collection requirements, or collections 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 31, 37, 42, and 52

    Government procurement.

    Dated: December 6, 1994.
Capt. Barry L. Cohen, SC, USN,
Project Manager for the Implementation of the Federal Acquisition 
Streamlining Act of 1994.

    Therefore, it is proposed that 48 CFR Parts 31, 37, 42, and 52 be 
amended as set forth below:
    1. The authority citation for 48 CFR Parts 31, 37, 42, and 52 
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 31--CONTRACT COST PRINCIPLES AND PROCEDURES


31.205-1  [Amended]

    2. Section 31.205-1(f)(3) is amended by adding ``conventions,'' 
after ``meetings,''.
    3. Section 31.205-6 is amended in paragraph (g)(2) by adding a 
sentence at the end of the introductory text and adding paragraph 
(g)(3) to read as follows:


31.205-6  Compensation for personal services.

* * * * *
    (g) * * *
    (2) * * * In addition, paragraph (g)(3), of this subsection, 
applies if the severance cost is for foreign nationals employed outside 
the United States.
* * * * *
    (3) Notwithstanding the reference to geographical area in 31.205-
6(b)(1), 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 or subcontract 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 which 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, or 
designee, to waive these cost allowability limitations under certain 
circumstances (see 37.113 and the clause at 52.237-XXX).
* * * * *


31.205-22  [Amended]

    4. Section 31.205-22 is amended in paragraphs (a) (3) and (4) by 
revising the phrase ``Federal or state'' to read ``Federal, state, or 
local'' each time it appears.


31.205-43  [Amended]

    5. Section 31.205-43 is amended in the introductory text of 
paragraphs (c) and (c)(3)(ii) by inserting ``convention'' after 
``meeting'' and in paragraph (c)(1) by inserting ``conventions'' after 
``meetings''.
    6. Section 31.603(b) is revised to read as follows:


31.603  Requirements.

* * * * *
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost. However, under 10 U.S.C. 2324(e) and 41 
U.S.C. 256(e), the following costs are unallowable--
    (1) Costs of entertainment, including amusement, diversion, and 
social activities and any costs directly associated with such costs 
(such as tickets to shows or sports events, meals, lodging, rentals, 
transportation, and gratuities).
    (2) Costs incurred to influence (directly or indirectly) 
legislative action on any matter pending before Congress, a State 
legislature, or a legislative body of a political subdivision of a 
State.
    (3) Costs incurred in defense of any civil or criminal fraud 
proceeding or similar proceeding (including filing of any false 
certification) brought by the United States where the contractor is 
found liable or has pleaded nolo contendere to a charge of fraud or 
similar proceeding (including filing of a false certification).
    (4) Payments of fines and penalties resulting from violations of, 
or failure to comply with, Federal, state, local, or foreign laws and 
regulations, except when incurred as a result of compliance with 
specific terms and conditions of the contract or specific written 
instructions from the contracting officer authorizing in advance such 
payments in accordance with applicable regulations in the FAR or an 
executive agency supplement to the FAR.
    (5) Costs of any membership in any social, dining, or country club 
or organization.
    (6) Costs of alcoholic beverages.
    (7) Contributions or donations, regardless of the recipient.
    (8) Costs of advertising designed to promote the contractor or its 
products.
    (9) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs.
    (10) Costs for travel by commercial aircraft which exceed the 
amount of the standard commercial fare.
    (11) Costs incurred in making any payment (commonly known as a 
``golden parachute payment'') which is--
    (i) In an amount in excess of the normal severance pay paid by the 
contractor to an employee upon termination of employment; and
    (ii) Is paid to the employee contingent upon, and following, a 
change in management control over, or ownership of, the contractor or a 
substantial portion of the contractor's assets.
    (12) Costs of commercial insurance that protects against the costs 
of the contractor for correction of the contractor's own defects in 
materials or workmanship.
    (13) Cost of severance pay paid by the contractor to foreign 
nationals employed by the contractor under a service contract performed 
outside the United States, to the extent that the amount of the 
severance pay paid in any case exceeds the amount paid in the industry 
involved under the customary or prevailing practice for firms in that 
industry providing similar services in the United States, as determined 
by regulations in the FAR or in an executive agency supplement to the 
FAR.
    (14) Costs of severance pay paid by the contractor to a foreign 
national employed by the contractor under a service contract performed 
in a foreign country if the termination of the employment of the 
foreign national is the result of the closing of, or curtailment of 
activities at a United States facility in that country at the request 
of the government of that country.
    (15) Costs incurred by a contractor in connection with any 
criminal, civil, or administrative proceedings commenced by the United 
States or a State, to the extent provided in 10 U.S.C. 2324(k) or 41 
U.S.C. 256(k).
    7. Section 31.703(b) is revised to read as follows:


31.703  Requirements.

* * * * *
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost. However, under 10 U.S.C. 2324(e) and 41 
U.S.C. 256(e), the costs cited in 31.603(b) are unallowable.

PART 37--SERVICE CONTRACTING

    8. Section 37.113 and subsections 37.133-1 and 37.113-2 are added 
to read as follows:


37.113  Severance payments to foreign nationals.


37.113-1  Waiver of cost allowability limitations.

    (a) The head of any agency, or designee, may waive the 31.205-
6(g)(3) cost allowability limitations on severance payments to foreign 
nationals for contracts that--
    (1) Provide significant support services for (i) members of the 
armed forces stationed or deployed outside the United States, or (ii) 
employees of an executive agency posted outside the United States; and
    (2) Will be performed in whole or in part outside the United 
States.
    (b) Waivers can be granted only before contract award.
    (c) Waivers cannot be granted for--
    (1) Military banking contracts, which are covered by 10 U.S.C. 
2324(e)(2); or
    (2) Severance payments made by a contractor to a foreign national 
employed by the contractor under a DoD service contract in the Republic 
of the Philippines, if the discontinuation of the foreign national is 
the result of the termination of basing rights of the United States 
military in the Republic of the Philippines (section 1351(b) of Public 
Law 102-484).


37.113-2  Contract clauses.

    (a) Use the clause at 52.237-XXX, Restriction on Severance Payments 
to Foreign Nationals, in all solicitations that meet the criteria in 
37.113-1(a), except for those excluded by 37.113-1(c).
    (b) When the head of an agency, or designee, has granted a waiver 
pursuant to 37.113-1, use the clause at 52.237-YYY, Waiver of 
Limitation on Severance Payments to Foreign Nationals.

PART 42--CONTRACT ADMINISTRATION

    9. Section 42.703(c)(2) is revised to read as follows:


42.703  Policy.

* * * * *
    (c) * * *
    (2) Pursuant to 10 U.S.C. 2324(a) and 41 U.S.C. 256(a), use 
established final indirect cost rates in negotiating the final price of 
fixed-price incentive and fixed-price redeterminable contracts and in 
other situations requiring that indirect costs be settled before 
contract prices are established.

    10. Section 42.705-1 is amended by revising paragraph (b)(4) and 
adding (b)(5)(v) to read as follows:


42.705-1  Contracting officer determination procedure.

* * * * *
    (b) * * *
    (4) The Government negotiating team shall develop a negotiation 
position. Pursuant to 10 U.S.C. 2324(f) and 41 U.S.C. 256(f), the 
contracting officer shall--
    (i) Not resolve any questioned costs until obtaining--
    (A) Adequate documentation on the costs; and
    (B) The contract auditor's opinion on the allowability of the 
costs.
    (ii) Whenever possible, invite the contract auditor to serve as an 
advisor at any negotiation or meeting with the contractor on the 
determination of the contractor's final indirect cost rates.
    (5) * * *
    (v) Notify the contractor of the individual costs which were 
considered unallowable and the respective amounts of the disallowance.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    11. Section 52.237 is amended by adding 52.237-XXX and 52.237-YYY 
to read as follows:
* * * * *


52.237-XXX  Restriction on Severance Payments to Foreign Nationals.

    As prescribed in 37.113-2(a), use the following clause:

Restriction on Severance Payments to Foreign Nationals (XXX 1994)

    (a) The FAR at 31.205-6(g)(3) limits the cost allowability of 
severance payments to foreign nationals employed under a service 
contract or subcontract performed outside the United States unless 
the head of the agency, or designee, grants a waiver pursuant to FAR 
37.113-1 before contract award.
    (b) In making the determination concerning the granting of a 
waiver, the head of the agency, or designee, will determine that--
    (1) The application of the severance pay limitations to the 
contract would adversely affect the continuation of a program, 
project, or activity that provides significant support services for 
(i) members of the armed forces stationed or deployed outside the 
United States, or (ii) employees of an executive agency posted 
outside the United States;
    (2) The contractor has taken (or has established plans to take) 
appropriate actions within its control to minimize the amount and 
number of incidents of the payment of severance pay to employees 
under the contract who are foreign nationals; and
    (3) The payment of severance pay is necessary in order to comply 
with a law that is generally applicable to a significant number of 
businesses in the country in which the foreign national receiving 
the payment performed services under the contract or is necessary to 
comply with a collective bargaining agreement.

(End of clause)


52.237-YYY  Waiver of Limitation on Severance Payments to Foreign 
Nationals.

    As prescribed in 37.113-2(b), use the following clause;

Waiver of Limitation on Severance Payments to Foreign Nationals (XXX 
1994)

    (a) Pursuant to 10 U.S.C. 2324(e)(3)(A) or 41 U.S.C. 
256(e)(2)(A), as applicable, the cost allowability limitations in 
FAR 31.205-6(g)(3) are waived.
    (b) This clause may be incorporated into subcontracts issued 
under this contract, if approved by the Contracting Officer.

(End of clause)

[FR Doc. 94-30524 Filed 12-12-94; 8:45 am]
BILLING CODE 6820-34-M