[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31532]


[[Page Unknown]]

[Federal Register: December 23, 1994]


_______________________________________________________________________

Part II

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 4, et al.




Federal Acquisition Regulation; Consolidation and Revision of the 
Authority to Examine Records; Proposed Rule
DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 14, 15, 25, 50, and 52

[FAR Case 94-740]
RIN 9000-AG24

 
Federal Acquisition Regulation; Consolidation and Revision of the 
Authority to Examine Records

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, Public Law 103-355 (the Act). The 
Federal Acquisition Regulatory Council is considering amending the 
Federal Acquisition Regulation (FAR) to implement Sections 2201(a) and 
2251(a) of the Act. 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 21, 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-
740 in all correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: Mr. Daniel J. Tucciarone at (703) 274-
7344 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 94-740.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355 
(the Act), provides authorities that streamline the acquisition process 
and minimize burdensome government-unique requirements. 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. In order to promptly achieve the benefits of the provisions of 
the Act, the Government is issuing implementing regulations on an 
expedited basis. We believe prompt publication of proposed rules 
provides the public the opportunity to participate more fully in the 
process of developing regulations.
    This notice announces FAR revisions developed under FAR case 94-
740. By its terms, the Act at Sections 2201(a) and 2251(a) provides 
that all cost-reimbursement, incentive, time-and-materials, labor-hour 
or price-redeterminable subcontracts will be subject to audit. 
Paragraph (g), therefore, requires the flowdown of the Audit and 
Records--Negotiation clause into all subcontracts of these types and 
into subcontracts when certified cost or pricing data is required, or 
when cost performance reports are required. This rule, however, exempts 
from the flowdown requirement all subcontracts below the simplified 
acquisition threshold. This conforms the audit rights at the 
subcontract level with those at the prime contract level.
    The foregoing flowdown provisions continue to recognize that 
individual flowdown paragraphs are self eliminating. This is 
beneficial. For example, this means that the access to records clause 
will be included in subcontracts prior to, and in anticipation of 
issuance of a subcontract modification that requires cost or pricing 
data. If the prime contract is modified and certified cost or pricing 
data is required, the prime contractor will be in a better position to 
obtain post award access to subcontractor records if the clause is 
already in the subcontract and the prime contractor does not have to 
negotiate the access to records clause into the subcontract at the time 
the modification is negotiated. The approach is administratively more 
convenient to the Government in that the burden of responsibility for 
ensuring that the clause is included at the time of issuance of a 
subcontract modification is removed from the contracting officer.
    An Alternate III was added to provide for the waiver of the 
examination of records by the Comptroller General.
    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 94-740) 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) on or before 
January 23, 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 the 
majority of contracts with small businesses are not subject to the 
audit requirement. 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 94-740), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose additional recordkeeping or 
information collection requirements, or additional 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. For civilian agency procurements, recordkeeping is 
reduced due to the higher cost or pricing data threshold. Overall, the 
recordkeeping requirements are the minimum required by the Federal 
Acquisition Streamlining Act.

D. Public Comments

    Public comments are necessary because the proposed coverage may 
have a significant cost or administrative impact on contractors or 
offerors.

List of Subjects in 48 CFR Parts 4, 14, 15, 25, 50, and 52

    Government procurement.


    Dated: December 12, 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 4, 14, 15, 25, 50, and 
52 be amended as set forth below:
    1. The authority citation for 48 CFR Parts 4, 14, 15, 25, 50, 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 4--ADMINISTRATIVE MATTERS

    2. Section 4.702 is amended by revising paragraph (a) to read as 
follows:


4.702  Applicability.

    (a) This subpart applies to records generated under contracts that 
contain one of the following clauses:
    (1) Audit and Records--Sealed Bidding (52.214-26).
    (2) Audit and Records--Negotiation (52.215-2).
    (3) Audit--Commercial Items (52.215-00).
* * * * *
    3. Section 4.703 is amended--

--in paragraph (a) by removing the phrase ``books, records, 
documents,'' and inserting in its place ``records, which includes 
books, documents, accounting procedures and practices, and other data, 
regardless of type and regardless of whether such items are in written 
form, in the form of computer data, or in any other form,'';
--in paragraph (b) introductory text and the first sentence of (b)(2) 
by removing the word ``documents'' and inserting in its place 
``records'';
--and revising paragraph (c) to read as follows:


4.703  Policy.

* * * * *
    (c) Nothing in this section shall be construed to preclude a 
contractor from duplicating or storing original records in electronic 
form unless they contain significant information not shown on the 
record copy. Original records need not be maintained or produced in an 
audit if the contractor or subcontractor provides photographic or 
electronic images of the original records and meets the following 
requirements:
    (1) The contractor or subcontractor has established procedures to 
ensure that the imaging process preserves the integrity, reliability, 
and security of the original records.
    (2) The contractor or subcontractor maintains an effective indexing 
system to permit timely and convenient access to the imaged records.
    (3) The contractor or subcontractor retains the original records 
for a minimum of one year after imaging to permit periodic validation 
of the imaging systems.
* * * * *

PART 14--SEALED BIDDING

    4. Section 14.201-7 is amended by revising paragraph (a), to read 
as follows:


14.201-7  Contract clauses.

    (a) When contracting by sealed bidding, the contracting officer 
shall insert the clause at 52.214-26, Audit and Records--Sealed 
Bidding, in solicitations and contracts if the contract amount is 
expected to exceed the threshold at 15.804-2(a)(1) for submission of 
cost or pricing data.
* * * * *

PART 15--CONTRACTING BY NEGOTIATION

    5. Section 15.106-1 is removed and 15.106-2 is redesignated as 
15.106-1 and revised to read as follows:


15.106-1  Audit and Records--Negotiation clause.

    (a) This subsection implements 10 U.S.C. 2313, 41 U.S.C. 254d, and 
OMB Circular No. A-133.
    (b) The contracting officer shall, if contracting by negotiation, 
insert the clause at 52.215-2, Audit and Records--Negotiation, in 
solicitations and contracts except those (1) not exceeding the 
simplified acquisition threshold in 48 CFR part 13; or (2) for 
commercial items under the conditions in 15.106-2; or (3) for utility 
services at rates not exceeding those established to apply uniformly to 
the general public, plus any applicable reasonable connection charge.
    (c) In facilities contracts, the contracting officer shall use the 
clause with its Alternate I. In cost-reimbursement contracts with 
educational institutions and other nonprofit organizations, the 
contracting officer shall use the clause with its Alternate II. If the 
examination of records by the Comptroller General is waived in 
accordance with 25.901, use the clause with its Alternate III.
    6. Section 15.805-5 is amended in paragraph (a)(1) introductory 
text by inserting a new second and third sentence to read as follows:


15.805-5  Field pricing support.

    (a)(1) * * * No preaward audit shall be performed to evaluate 
proposed indirect costs under any contract, subcontract, or 
modification to be entered into, in which the contracting officer 
determines that the objectives of the audit can be reasonably met by 
accepting the results of an audit conducted by any department or agency 
within one year preceding the date of the contracting officer's 
determination. The contracting officer should contact the cognizant 
audit office to determine the existence of audits addressing proposed 
indirect costs, and shall denote such determinations in field audit 
requests. * * *
* * * * *

PART 25--FOREIGN ACQUISITION

    7. Section 25.000 is amended by revising the last sentence to read 
as follows:


25.000  Scope of part.

* * * This part also provides policies and procedures for the 
application to foreign acquisitions of international agreements, 
customs and duties, the clause at 52.215-2, Audit and Records--
Negotiation, and use of local currency for payment.
    8. Section 25.901 is amended by revising paragraphs (b), (c), 
(d)(2), (d)(3), and (d)(5) to read as follows:


25.901  Omission of examination of records clause.

* * * * *
    (b) Policy. As required by 10 U.S.C. 2313, 41 U.S.C. 254d, and 
15.106-1(b), the contracting officer shall consider for use in 
negotiated contracts with foreign contractors, whenever possible, the 
basic clause at 52.215-2, Audit and Records--Negotiation, which 
authorizes examination of records by the Comptroller General. Use of 
the clause with Alternate III should be approved only after the 
contracting agency, having considered such factors as alternate sources 
of supply, additional cost, and time of delivery, has made all 
reasonable efforts to include the clause.
    (c) Conditions for use of Alternate III. The contracting officer 
may use the clause at 52.215-2, Audit and Records--Negotiation, with 
its Alternate III in contracts with foreign contractors--
    (1) If the agency head or designee determines, with the concurrence 
of the Comptroller General, that waiver of the right to examination of 
records by the Comptroller General will serve the public interest; or
    (2) If the contractor is a foreign government or agency thereof or 
is precluded by the laws of the country involved from making its 
records, as defined at 4.703(a), available for examination, and the 
agency head determines, after taking into account the price and 
availability of the property or services from United States sources, 
that waiver of the right to examination of records by the Comptroller 
General best serves the public interest.
    (d) * * *
    (2) Describe the efforts to include the basic clause;
    (3) State the reasons for the contractor's refusal to include the 
basic clause;
* * * * *
    (5) Determine that it will serve the interest of the United States 
to use the clause with its Alternate III.

PART 50--EXTRAORDINARY CONTRACTUAL ACTIONS


50.307  [Amended]

    9. Section 50.307 is amended in paragraph (b) by removing ``52.215-
1, Examination of Records by Comptroller General'' and inserting in its 
place ``52.215-2, Audit and Records--Negotiation''.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    10. Section 52.214-26 is revised to read as follows:


52.214-26  Audit and Records--Sealed Bidding.

    As prescribed in 14.201-7(a), insert the following clause:

Audit and Records--Sealed Bidding (Date)

    (a) As used in this clause, records include books, documents, 
accounting procedures and practices, and other data, regardless of 
type and regardless of whether such items are in written form, in 
the form of computer data, or in any other form.
    (b) Certified cost or pricing data. If the Contractor has been 
required to submit certified cost or pricing data in connection with 
the pricing of any modification to this contract, the Contracting 
Officer or an authorized representative of the Contracting Officer 
shall have the right to examine and audit all of the Contractor's 
records, including computations and projections, related to--
    (1) The development of the proposal for the modification;
    (2) The discussions conducted on the proposal(s), including 
those related to negotiating;
    (3) Pricing of the modification; or
    (4) Performance of the modification, that the Contracting 
Officer or an authorized representative of the Contracting Officer 
considers useful in the evaluation of the accuracy, completeness, 
and currency of the certified cost or pricing data. In the case of 
pricing any modification, the Comptroller General of the United 
States or a representative shall have the same rights.
    (c) Availability. The Contractor shall make available at its 
office at all reasonable times the materials described in paragraph 
(b) of this section, for examination, audit, or reproduction, until 
3 years after final payment under this contract, or for any other 
period specified in Subpart 4.7 of the Federal Acquisition 
Regulation (FAR). FAR Subpart 4.7, Contractor Records Retention, in 
effect on the date of this contract, is incorporated by reference in 
its entirety and made a part of this contract.
    (1) If this contract is completely or partially terminated, the 
records relating to the work terminated shall be made available for 
3 years after any resulting final termination settlement.
    (2) Records pertaining to appeals under the Disputes clause or 
to litigation or the settlement of claims arising under or relating 
to the performance of this contract shall be made available until 
disposition of such appeals, litigation, or claims.
    (d) The Contractor shall insert a clause containing all the 
provisions of this clause, including this paragraph (d), in all 
subcontracts expected to exceed the threshold in FAR 15.804-2(a)(1) 
for submission of cost or pricing data.

(End of clause)


52.215-1  [Reserved]

    11. Section 52.215-1 is removed and reserved.
    12. Section 52.215-2 is revised to read as follows:


52.215-2  Audit and Records--Negotiation.

    As prescribed in 15.106(1)(b), insert the following clause:

Audit and Records--Negotiation (Date)

    (a) As used in this clause, records include books, documents, 
accounting procedures and practices, and other data, regardless of 
type and regardless of whether such items are in written form, in 
the form of computer data, or in any other form.
    (b) Examination of costs. If this is a cost-reimbursement, 
incentive, time-and-materials, labor-hour, or price redeterminable 
contract, or any combination of these, the Contractor shall maintain 
and the Contracting Officer or an authorized representative of the 
Contracting Officer shall have the right to examine and audit all 
records and other evidence which reflect properly all costs claimed 
to have been incurred or anticipated to be incurred directly or 
indirectly in performance of this contract, or which may contain 
information useful in the evaluation of the allowability of such 
costs. This right of examination shall include inspection at all 
reasonable times of the Contractor's plants, or parts of them, 
engaged in performing the contract.
    (c) Certified cost or pricing data. If the Contractor has been 
required to submit certified cost or pricing data in connection with 
any pricing action relating to this contract, the Contracting 
Officer or an authorized representative of the Contracting Officer 
shall have the right to examine and audit all of the Contractor's 
records, including computations and projections, related to--
    (1) The development of the proposal for the contract, 
subcontract, or modification;
    (2) The discussions conducted on the proposal(s), including 
those related to negotiating;
    (3) Pricing of the contract, subcontract, or modification; or
    (4) Performance of the contract, subcontract or modification, 
that the Contracting Officer or an authorized representative of the 
Contracting Officer considers useful in the evaluation of the 
accuracy, completeness, and currency of the certified cost or 
pricing data.
    (d) Comptroller General--(1) The Comptroller General of the 
United States, or a duly authorized representative of the 
Comptroller General, shall have access to and the right to examine 
any of the Contractor's directly pertinent records involving 
transactions related to this contract or subcontract.
    (2) This paragraph may not be construed to require the 
Contractor or Subcontractor to create or maintain any record that 
the Contractor or Subcontractor does not maintain in the ordinary 
course of business or pursuant to a provision of law.
    (e) Reports. If the Contractor is required to furnish cost, 
funding, or performance reports, the Contracting Officer or an 
authorized representative of the Contracting Officer shall have the 
right to examine and audit the supporting records and materials, for 
the purpose of evaluating (1) the effectiveness of the Contractor's 
policies and procedures to produce data compatible with the 
objectives of these reports and (2) the data reported.
    (f) Availability. The Contractor shall make available at its 
office at all reasonable times the records, materials, and other 
evidence described in paragraphs (a), (b), (c), (d), and (e) of this 
section, for examination, audit, or reproduction, until 3 years 
after final payment under this contract or for any shorter period 
specified in Subpart 4.7, Contractor Records Retention, of the 
Federal Acquisition Regulation (FAR), or for any longer period 
required by statute or by other clauses of this contract. In 
addition--
    (1) If this contract is completely or partially terminated, the 
records relating to the work terminated shall be made available for 
3 years after any resulting final termination settlement; and
    (2) Records relating to appeals under the Disputes clause or to 
litigation or the settlement of claims arising under or relating to 
this contract shall be made available until such appeals, 
litigation, or claims are finally resolved.
    (g) The Contractor shall insert a clause containing all the 
terms of this clause, including this paragraph (g), in all 
subcontracts under this contract--
    (1) That are cost-reimbursement, incentive, time-and-materials, 
labor-hour, or price-redeterminable type or any combination of 
these;
    (2) For which certified cost or pricing data are required; or
    (3) That require the subcontractor to furnish reports as 
discussed in (e) altering the clause only as necessary to identify 
properly the contracting parties and the Contracting Officer under 
the Government prime contract. Subcontracts not exceeding the 
simplified acquisition threshold in Part 13 are exempt from this 
flowdown requirement.

(End of clause)

    Alternate I (Date). As prescribed in 15.106-1(b), in facilities 
contracts, add the following sentence at the end of paragraph (b) of 
the basic clause:
    The obligations and rights specified in this paragraph shall 
extend to the use of, and charges for the use of, the facilities 
under this contract.
    Alternate II (Date). As prescribed in 15.106-1(b), in cost-
reimbursement contracts with educational and other non-profit 
institutions, add the following paragraph (h) to the basic clause:
    (h) The provisions of OMB Circular No. A-133, ``Audits of 
Institutions of Higher Learning and Other Nonprofit Institutions,'' 
apply to this contract.
    Alternate III (Date). As prescribed in 15.106-1(b), delete 
paragraph (d) of the basic clause and renumber the remaining 
paragraphs accordingly.

[FR Doc. 94-31532 Filed 12-22-94; 8:45 am]
[BILLING CODE 6820-34-P]