[Federal Register Volume 60, Number 9 (Friday, January 13, 1995)]
[Rules and Regulations]
[Pages 3314-3316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-849]




[[Page 3313]]

_______________________________________________________________________

Part III

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 31



Federal Acquisition Regulation; Entertainment, Gift, and Recreation 
Costs for Contractor Employees; Interim Rule

  Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Rules 
and Regulations    
[[Page 3314]] 

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 90-25, FAR Case 94-750]
RIN 9000-AG33


Federal Acquisition Regulation; Entertainment, Gift, and 
Recreation Costs for Contractor Employees

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

ACTION: Interim rule with request for comment.

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SUMMARY: This interim rule amends the Federal Acquisition Regulation to 
revise the cost principles governing entertainment, gift and recreation 
costs for contractor employees. This regulatory action was not subject 
to Office of Management and Budget review under Executive Order 12866, 
dated September 30, 1993.

DATES: Effective Date: January 13, 1995.
    Comment Date: Comments should be submitted to the FAR Secretariat 
at the address shown below on or before March 14, 1995 to be considered 
in the formulation of a final rule.

ADDRESSES: All interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (VRS), 18th & F 
Streets, NW, Room 4035, Attn: Ms. Beverly Fayson, Washington, DC 20405.
    Please cite FAC 90-25, FAR case 94-750 in all correspondence 
related to this case.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence M. Belton, Team Leader, 
Cost Principles Team, 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 FAC 90-25, 
FAR case 94-750.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355, 
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.
    This notice announces Federal Acquisition Regulation (FAR) 
revisions developed under FAR case 94-750 to implement Section 2192 of 
the Act. This interim rule revises the cost principles at FAR 31.205-13 
and 31.205-14.
    To comply with the requirements of paragraph (a)(1) of Section 2192 
of the Act, the interim rule provides that the costs of gifts are 
expressly unallowable and that the costs of recreation are expressly 
unallowable, except for the costs of employee sports teams. The 
allowability of costs for employee sports teams is further limited to 
off-duty activities and to a nominal cost per participating employee. 
``Recreation'' is removed from the examples of allowable costs at 
31.205-13, and ``wellness/fitness centers'' are added to that listing 
to differentiate them from recreation costs. The entire listing of 
allowable costs for morale, health, welfare, food service, and 
dormitory costs is further limited in allowability to reasonable 
amounts per employee.
    To comply with the requirements of paragraph (a)(2) of Section 2192 
of the Act, the interim rule revises the cost principle at 31.205-14 to 
incorporate the statutory wording relating to unallowability of 
entertainment costs under any other cost principle.
    These revisions specifically disallow gift, recreation, and 
entertainment costs which some may have previously considered 
allowable.
    Paragraph (c) of Section 2192 of the Act states that ``[a]ny 
amendments to the FAR made pursuant to subsection (a) shall apply with 
respect to costs incurred after the date on which the amendments made 
by Section 2101 apply (as provided in Section 10001) or the date on 
which the amendments made by Section 2151 apply (as provided in Section 
10001), whichever is later.'' Therefore, this interim rule is being 
published now in order to meet the statutory deadlines imposed by 
paragraph (a) of Section 2192 and is effective immediately. However, 
the revised cost principles will apply only to costs incurred after all 
of the proposed rules implementing requirements of Sections 2101 and 
2151 become effective. The proposed rules at issue are being processed 
under FAR cases 94-751, 94-752, and 94-754.
    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 94-750). 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 
February 13, 1995. The FAR Council will consider such requests in 
determining whether a public meeting on this rule should be scheduled.

B. Regulatory Flexibility Act

    The interim 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 
where contracts are based on cost or pricing data. 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. Such comments must be 
submitted separately and cite 5 U.S.C 601, et seq. (FAR Case 94-750), 
in correspondence.

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 collection of information from offerors, contractors, 
or members of the public which require the approval of OMB under 44 
U.S.C. 3501, et seq.

D. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DOD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that compelling reasons exist to promulgate this interim rule 
without prior opportunity for public comment. This action is necessary 
because Section 2192 of the Federal Acquisition Streamlining Act of 
1994 specifically requires that the cost principle at FAR 31.205-14 be 
amended not later than 90 days after enactment of the Act and that 
other FAR revisions addressing contractor costs of gifts or recreation 
to improve employee morale or welfare be made within 120 days of 
enactment of the Act. Pubic Law 103-355 was enacted October 13, 1994.
[[Page 3315]]

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: January 9, 1995.
Edward Loeb,
Deputy Project Manager for the Implementation of the Federal 
Acquisition Streamlining Act of 1994.

Federal Acquisition Circular

Number 90-25

    Federal Acquisition Circular (FAC) 90-25 is issued under the 
authority of the Secretary of Defense, the Administrator of General 
Services, and the Administrator for the National Aeronautics and Space 
Administration.
    Unless otherwise specified, all Federal Acquisition Regulation 
(FAR) and other directive material contained in FAC 90-25 is effective 
January 13, 1995.

    Dated: January 4, 1995.
Thomas S. Luedtke,
Deputy Associate Administrator for Procurement, NASA.
    Dated: January 9, 1995.
Ida M. Ustad,
Associate Administrator, Office of Acquisition Policy.
    Dated: January 8, 1995.
Eleanor R. Spector,
Director, Defense Procurement.

    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 31.205-13 is revised to read as follows:


31.205-13  Employee morale, health, welfare, food service, and 
dormitory costs and credits.

    (a) This paragraph (a) applies to costs incurred before the 
effective date of implementation in FAR of sections 2101 and 2151 of 
the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355).
    (1) Aggregate costs incurred on activities designed to improve 
working conditions, employer-employee relations, employee morale, and 
employee performance (less income generated by these activities) are 
allowable, except as limited by paragraph (a)(2) of this section, and 
to the extent that the net amount is reasonable. Some examples are 
house publications, health clinics, recreation, employee counseling 
services, and food and dormitory services, which include operating or 
furnishing facilities for cafeterias, dining rooms, canteens, lunch 
wagons, vending machines, living accommodations, or similar types of 
services for the contractor's employees at or near the contractor's 
facilities.
    (2) Losses from operating food and dormitory services may be 
included as costs only if the contractor's objective is to operate such 
services on a break-even basis. Losses sustained because food services 
or lodging accommodations are furnished without charge or at prices or 
rates which obviously would not be conducive to the accomplishment of 
the above objective are not allowable. A loss may be allowed, however, 
to the extent that the contractor can demonstrate that unusual 
circumstances exist (e.g., (i) where the contractor must provide food 
or dormitory services at remote locations where adequate commercial 
facilities are not reasonably available, or (ii) where charged but 
unproductive labor costs would be excessive but for the services 
provided or where cessation or reduction of food or dormitory 
operations will not otherwise yield net cost savings) such that even 
with efficient management, operating the services on a break-even basis 
would require charging inordinately high prices, or prices or rates 
higher than those charged by commercial establishments offering the 
same services in the same geographical areas. Costs of food and 
dormitory services shall include an allocable share of indirect 
expenses pertaining to these activities.
    (3) When the contractor has an arrangement authorizing an employee 
association to provide or operate a service, such as vending machines 
in the contractor's plant and retain the profits, such profits shall be 
treated in the same manner as if the contractor were providing the 
service (but see paragraph (a)(4) of this section).
    (4) Contributions by the contractor to an employee organization, 
including funds from vending machine receipts or similar sources, may 
be included as costs incurred under paragraph (a)(1) of this section 
only to the extent that the contractor demonstrates that an equivalent 
amount of the costs incurred by the employee organization would be 
allowable if directly incurred by the contractor.
    (b) This paragraph (b) implements section 2192 of the Federal 
Acquisition Streamlining Act of 1994 (Pub. L. 103-355). It applies to 
costs incurred after the effective date of implementation in FAR of 
sections 2101 and 2151 of Pub. L. 103-355.
    (1) Aggregate costs incurred on activities designed to improve 
working conditions, employer-employee relations, employee morale, and 
employee performance (less income generated by these activities) are 
allowable, except as limited by paragraphs (b)(2), (3), and (4) of this 
section, and to the extent that the net amount per employee is 
reasonable. Some examples of allowable activities are house 
publications, health clinics, wellness/fitness centers, employee 
counseling services, and food and dormitory services, which include 
operating or furnishing facilities for cafeterias, dining rooms, 
canteens, lunch wagons, vending machines, living accommodations, or 
similar types of services for the contractor's employees at or near the 
contractor's facilities.
    (2) Costs of gifts are unallowable.
    (3) Costs of recreation are unallowable, except for the costs of 
contractor employees' participation in sports teams designed to improve 
company loyalty, team work, or employee physical fitness, conducted 
during off duty hours at a nominal cost per participating employee.
    (4) Losses from operating food and dormitory services may be 
included as costs only if the contractor's objective is to operate such 
services on a break-even basis. Losses sustained because food services 
or lodging accommodations are furnished without charge or at prices or 
rates which obviously would not be conducive to the accomplishment of 
the above objective are not allowable. A loss may be allowed, however, 
to the extent that the contractor can demonstrate that unusual 
circumstances exist (e.g., (i) where the contractor must provide food 
or dormitory services at remote locations where adequate commercial 
facilities are not reasonably available, or (ii) where charged but 
unproductive labor costs would be excessive but for the services 
provided or where cessation or reduction of food or dormitory 
operations will not otherwise yield net cost savings) such that even 
with efficient management, operating the services on a break-even basis 
would require charging inordinately high prices, establishments 
offering the same services in the same geographical areas. Costs of 
food and dormitory services shall include an allocable share of 
indirect expenses pertaining to these activities.
    (5) When the contractor has an arrangement authorizing an employee 
association to provide or operate a service, such as vending machines 
in the contractor's plant and retain the profits, such profits shall be 
treated in the same manner as if the contractor were providing the 
service (but see paragraph (b)(6) of this section). [[Page 3316]] 
    (6) Contributions by the contractor to an employee organization, 
including funds from vending machine receipts or similar sources, may 
be included as costs incurred under paragraph (b)(1) of this section 
only to the extent that the contractor demonstrates that an equivalent 
amount of the costs incurred by the employee organization would be 
allowable if directly incurred by the contractor.
    3. Section 31.205-14 is revised to read as follows:


31.205-14  Entertainment costs.

    (a) This paragraph (a) applies to costs incurred before the 
effective date of implementation in FAR of sections 2101 and 2151 of 
the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355). 
Costs of amusement, diversion, social activities, and any directly 
associated costs such as tickets to shows or sports events, meals, 
lodging, rentals, transportation, and gratuities are unallowable (but 
see 31.205-1 and 31.205-13). Costs of membership in social, dining, or 
country clubs or other organizations having the same purposes are also 
unallowable, regardless of whether the cost is reported as taxable 
income to the employees.
    (b) This paragraph (b) implements section 2192 of the Federal 
Acquisition Streamlining Act of 1994 (Pub. L. 103-355). It applies to 
costs incurred after the effective date of implementation in FAR of 
sections 2101 and 2151 of Pub. L. 103-355. Costs of amusement, 
diversion, social activities, and any directly associated costs such as 
tickets to shows or sports events, meals, lodging, rentals, 
transportation, and gratuities are unallowable. Costs made specifically 
unallowable under this cost principle are not allowable under any other 
cost principle. Costs of membership in social, dining, or country clubs 
or other organizations having the same purposes are also unallowable, 
regardless of whether the cost is reported as taxable income to the 
employees.

[FR Doc. 95-849 Filed 1-12-95; 8:45 am]
BILLING CODE 6820-34-U