[Federal Register Volume 60, Number 158 (Wednesday, August 16, 1995)]
[Rules and Regulations]
[Pages 42649-42652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19858]



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DEPARTMENT OF DEFENSE
48 CFR Parts 1, 4, 14, 15, 25, 50, and 52

[FAC 90-31; FAR Case 94-740; Item I]
RIN 9000-AG24


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

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

ACTION: Final rule.

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SUMMARY: This final rule is issued pursuant to the Federal Acquisition 
Streamlining Act of 1994, Public Law 103-355 (the Act). The Federal 
Acquisition Regulatory Council is amending the Federal Acquisition 
Regulation (FAR) to implement Sections 2201(a), 2251(a), 4102(c) and 
4103(d) of the Act. This regulatory action was subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993.

EFFECTIVE DATE: October 1, 1995.

FOR FURTHER INFORMATION CONTACT:
Mr. Daniel J. Tucciarone at (703) 767-2270 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-
31, 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, the Truth in Negotiations Act, and introduction of the 
Federal Acquisition Computer Network.
    Title 2, Subtitle C of the Act is entitled Audit and Access to 
Records. Section 2201(a) of the act merges the audit provision of TINA 
(10 U.S.C. 2306a) and the audit coverage in 10 U.S.C. Section 2313 into 
a single comprehensive section at 10 U.S.C. 2313. Section 2201(a) 
includes subsections that: (1) limit obtaining preaward information 
when the results of a recent audit are already available, (2) allow a 
contractor to store original records in electronic form, (3) allow the 
use of images as original records, and (4) provide a new definition of 
records.
    Section 2251(a) of the Act consolidates the audit rights for 
civilian agencies and conforms those rights with the provisions in 10 
U.S.C. Section 2313 to ensure identical audit authorities for both DOD 
and civilian agencies.
    Sections 2201(a) and 2251(a) both discuss subpoena authorities.
    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. FAR 52.215-
2(g), therefore, requires the flowdown of the Audit and Records--
Negotiation clause into all subcontracts of these types and into 
subcontracts when cost or pricing data are 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.
    An Alternate III was added to the clause at FAR 52.215-2 to provide 
for waiver of the right to examination of records by the Comptroller 
General.

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 within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq.,  because most contracts awarded 
to small businesses are awarded competitively on a firm-fixed-price 
basis and, therefore, are not subject to audit requirements.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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.

D. Public Comments

    A proposed rule was published in the Federal Register at 59 FR 
66408, December 23, 1994. During the public comment period, 11 comments 
were received. Comments were also received during two agency comment 
periods. Changes were made to the proposed rule 

[[Page 42650]]
to achieve clearer, more concise wording based on these comments.

List of Subjects in 48 CFR Parts 1, 4, 14, 15, 25, 50, and 52

    Government procurement.

    Dated: August 7, 1995.
Edward C. Loeb,
Deputy Project Manager for the Implementation of the Federal 
Acquisition Streamlining Act of 1994.

    Therefore, 48 CFR Parts 1, 4, 14, 15, 25, 50, and 52 are amended as 
set forth below:
    1. The authority citation for 48 CFR Parts 1, 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 1--FEDERAL ACQUISITION REGULATIONS SYSTEM


1.106  [Amended]

    2. Section 1.106 is amended under the ``FAR Segment'' and ``OMB 
Control Number'' headings by removing ``52.215-1'' and ``9000-0034''.

PART 4--ADMINISTRATIVE MATTERS

    3. 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).
* * * * *
    4. Section 4.703 is amended as follows:
    a. 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,'';
    b. In paragraph (b) introductory text and the first sentence of 
(b)(2) by removing the word ``documents'' and inserting in its place 
``records'';
    c. Revising paragraph (c); and
    d. Removing paragraph (d) and redesignating paragraph ``(e)'' as 
paragraph ``(d)''. The revised text reads 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 accurate images of the 
original records, including signatures and other written or graphic 
images, and that the imaging process is reliable and secure so as to 
maintain the integrity of the 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.
* * * * *


4.706 through 4.706-3  [Removed]

    5. Section 4.706 is removed and reserved, and sections 4.706-1 
through 4.706-3 are removed.

PART 14--SEALED BIDDING

    6. 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

    7. 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 Part 13; or (2) 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, the contracting officer shall use the clause 
with its Alternate III.
    8. Section 15.805-5 is amended in paragraph (a)(1) introductory 
text by inserting after the first sentence the following:


15.805-5  Field pricing support.

    (a)(1) * * * The contracting officer should contact the cognizant 
audit office to determine the existence of audits addressing proposed 
indirect costs. In accordance with 41 U.S.C. 254d and 10 U.S.C. 2313, 
the contracting officer shall not request a preaward audit of such 
indirect costs unless the information available from any existing audit 
completed within the preceding 12 months is considered inadequate for 
determining the reasonableness of the proposed indirect costs. * * *
* * * * *
PART 25--FOREIGN ACQUISITION

    9. 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 pertaining to 
international agreements, customs and duties, the clause at 52.215-2, 
Audit and Records--Negotiation, and use of local currency for payment.
    10. Section 25.901 is amended by revising the section heading and 
paragraphs (b), (c), (d)(2), (d)(3), and (d)(5) to read as follows:


25.901  Omission of audit 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 basic clause.

[[Page 42651]]

    (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, or designee, 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]

    11. 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

    12. 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), inserting the following clause:

Audit and Records--Sealed Bidding (Oct 1995)

    (a) As used in this clause, records 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.
    (b) Cost or pricing data. If the Contractor has been required to 
submit 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, in order to 
evaluate the accuracy, completeness, and currency of the cost or 
pricing data, shall have the right to examine and audit all of the 
Contractor's records, including computations and projections, 
related to--
    (1) 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.
    (c) Comptroller General. In the case of pricing any 
modification, the Comptroller General of the United States, or an 
authorized representative, shall have the same rights as specified 
in paragraph (b) of this clause.
    (d) Availability. The Contractor shall make available at its 
office at all reasonable times the materials described in 
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 data 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.
    (e) The Contractor shall insert a clause containing all the 
provisions of this clause, including this paragraph (e), 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]

    13. Section 52.215-1 is removed and reserved.
    14. 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 (Oct 1995)

    (a) As used in this clause, records 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.
    (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 sufficient to reflect properly all costs 
claimed to have been incurred or anticipated to be incurred directly 
or indirectly in performance of this contract. 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) Cost or pricing data. If the Contractor has been required to 
submit 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, in order to evaluate the 
accuracy, completeness, and currency of the cost or pricing data, 
shall have the right to examine and audit all of the Contractor's 
records, including computations and projections, related to--
    (1) 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.
    (d) Comptroller General--(1) The Comptroller General of the 
United States, or an authorized representative, shall have access to 
and the right to examine any of the Contractor's directly pertinent 
records involving transactions related to this contract or a 
subcontract hereunder.
    (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 
clause, 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 (a), in all 
subcontracts under this contract that exceed the simplified 
acquisition threshold in FAR Part 13, and--

[[Page 42652]]

    (1) That are cost-reimbursement, incentive, time-and-materials, 
labor-hour, or price-redeterminable type or any combination of 
these;
    (2) For which cost or pricing data are required; or
    (3) That require the subcontractor to furnish reports as 
discussed in paragraph (e) of this clause.
    The clause may be altered only as necessary to identify properly 
the contracting parties and the Contracting Officer under the 
Government prime contract.

(End of clause)

    Alternate I (OCT 1995). As prescribed in 15.106-1(c), 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 (OCT 1995). As prescribed in 15.106-1(c), 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 (OCT 1995). As prescribed in 15.106-1(c), delete 
paragraph (d) of the basic clause and redesignate the remaining 
paragraphs accordingly.

[FR Doc. 95-19858 Filed 8-15-95; 8:45 am]
BILLING CODE 6820-EP-M