[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30648]


[Federal Register: December 28, 1994]


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DEPARTMENT OF DEFENSE
DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 90-23; FAR Case 91-45; Item XXI]
RIN 9000-AE81


Federal Acquisition Regulation; Advance Agreements, Composition 
of Total Cost, and Accounting for Unallowable Costs

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

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense 
Acquisition Regulations Council (DARC) have agreed on revisions of the 
Federal Acquisition Regulation (FAR) concerning advance agreements, 
cost principles, composition of total cost, and accounting for 
unallowable costs. This final rule represents the first in a series 
resulting from the Councils' ongoing review of industry recommendations 
concerning the FAR's contract cost principles and procedures. This 
regulatory action was not subject to Office of Management and Budget 
review under Executive Order 12866, dated September 30, 1993.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Jeremy 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 (202) 501-
4755. Please cite FAC 90-23, FAR case 91-45.

SUPPLEMENTARY INFORMATION:

A. Background

    A proposed rule was published in the Federal Register at 56 FR 
43739, September 4, 1991. The proposed rule, which amends FAR 31.109, 
Advance agreements; 31.201-1, Composition of total cost; and 31.201-6, 
Accounting for unallowable costs, is being adopted as a final rule 
without change.
    This rule is the first in a series resulting from the Councils' 
ongoing review of industry recommendations, submitted as part of the 
Defense Management Review, concerning FAR Part 31, Contract Cost 
Principles and Procedures. After considering public comments, the 
Councils have agreed to finalize and publish FAR changes as the 
deliberations on each increment are completed.
    Language is added at FAR 31.109(a) to address the use of advance 
agreements to clarify allowability issues under the specific cost 
principles, in order to minimize subsequent disputes. The phrase in FAR 
31.109(a), ``particularly for firms or their divisions that may not be 
under effective competitive constraints,'' is deleted because the 
determination of the reasonableness, allocability, or allowability of a 
cost under the specific cost principles is not significantly impacted 
by the business environment in which the industry operates. Changes in 
FAR 31.201-1 include deleting the word ``allowable'' in its first 
sentence; redesignating the existing paragraph as ``(a)''; and 
inserting a new paragraph ``(b)'' which makes it clear that while the 
total cost of a contract includes all allocable costs, the total 
allowable costs on a Government contract are limited to those allocable 
costs which are allowable pursuant to Part 31 and agency supplements. 
FAR 31.201-6(c) is revised to clarify that there is no intended 
difference in the accounting and presentation of unallowable costs 
between contracts which are covered by the Cost Accounting Standards 
and those which are not.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities under the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq., because most contracts awarded to small entities are 
awarded on a competitive, fixed-price basis and the cost principles do 
not apply.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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 Part 31

    Government procurement.

    Dated: December 7, 1994.
Albert A. Vicchiolla,
Director, Office of Federal Acquisition Policy.

    Therefore, 48 CFR part 31 is amended as set forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    1. The authority citation for 48 CFR part 31 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).

    2. Section 31.109 is amended by revising paragraph (a) to read as 
follows:


31.109  Advance agreements.

    (a) The extent of allowability of the costs covered in this part 
applies broadly to many accounting systems in varying contract 
situations. Thus, the reasonableness, the allocability and the 
allowability under the specific cost principles at subparts 31.2, 31.3, 
31.6, and 31.7 of certain costs may be difficult to determine. To avoid 
possible subsequent disallowance or dispute based on unreasonableness, 
unallocability or unallowability under the specific cost principles at 
subparts 31.2, 31.3, 31.6, and 31.7, contracting officers and 
contractors should seek advance agreement on the treatment of special 
or unusual costs. However, an advance agreement is not an absolute 
requirement and the absence of an advance agreement on any cost will 
not, in itself, affect the reasonableness, allocability or the 
allowability under the specific cost principles at subparts 31.2, 31.3, 
31.6, and 31.7 of that cost.
    3. Section 31.201-1 is amended by revising the first sentence of 
the existing paragraph and designating the paragraph as paragraph (a); 
and adding paragraph (b) to read as follows:


31.201-1  Composition of total cost.

    (a) The total cost of a contract is the sum of the direct and 
indirect costs allocable to the contract, incurred or to be incurred, 
less any allocable credits, plus any allocable cost of money pursuant 
to 31.205-10. * * *
    (b) While the total cost of a contract includes all costs properly 
allocable to the contract, the allowable costs to the Government are 
limited to those allocable costs which are allowable pursuant to part 
31 and applicable agency supplements.
    4. Section 31.201-6 is amended by revising paragraph (c) to read as 
follows:


31.201-6  Accounting for unallowable costs.

* * * * *
    (c) The practices for accounting for and presentation of 
unallowable costs will be those as described in 48 CFR 9904.405-50, 
Accounting for Unallowable Costs.
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[FR Doc. 94-30648 Filed 12-27-94; 8:45 am]
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