[Federal Register Volume 60, Number 158 (Wednesday, August 16, 1995)]
[Rules and Regulations]
[Pages 42659-42662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19861]



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DEPARTMENT OF DEFENSE
48 CFR Parts 31, 37, 42 and 52

[FAC 90-31; FAR Case 94-754; Item IV]
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: Final rule.

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SUMMARY: The Federal Acquisition Regulatory Council is amending the 
Federal Acquisition Regulation (FAR) to implement Section 2101 of the 
Federal Acquisition Streamlining Act of 1994. Section 2101 adds the 
costs of lobbying the legislative body of a political subdivision of a 
state to the list of unallowable costs; adds the cost of 
``conventions'' to the list of costs to be clarified in the cost 
principles; and expands the coverage to the Coast Guard and NASA. The 
provisions are made generally applicable to all other executive 
agencies. 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. 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. 

[[Page 42660]]
Please cite FAC 90-31, 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, the Truth in Negotiations Act, and 
introduction of the Federal Acquisition Computer Network.
    This notice announces revisions developed under FAR case 94-754, 
based on Section 2101 of the Act that adds the costs of lobbying the 
legislative body of a political subdivision of a state to the list of 
unallowable costs; adds the cost of ``conventions'' to the costs to be 
clarified in the cost principles; and 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 Regulation Supplement.

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 the FAR cost principles.

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.

D. Public Comments

    Eight public comments were received in response to the proposed 
rule published in the Federal Register on December 13, 1994 (59 FR 
64268). These comments were considered in the formulation of this final 
rule.

List of Subjects in 48 CFR Parts 31, 37, 42 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 31, 37, 42 and 52 are 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 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 solicitation provision at 52.237-8).
* * * * *


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 
paragraph (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.

[[Page 42661]]

    (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) Costs 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. Sections 37.113, 37.113-1 and 37.113-2 are added to read as 
follows:

Sec.
37.113  Severance payments to foreign nationals.
37.113-1  Waiver of cost allowability limitations.
37.113-2  Solicitation provision and contract clause.


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--
    (i) 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, 10 U.S.C. 1592, note).


37.113-2  Solicitation provision and contract clause.

    (a) Use the provision at 52.237-8, 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 52.237-9, 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) To ensure compliance with 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. Sections 52.237-8 and 52.237-9 are added to read as follows:


52.237-8  Restriction on Severance Payments to Foreign Nationals.

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

Restriction on Severance Payments to Foreign Nationals (Oct 1995)

    (a) The Federal Acquisition Regulation (FAR), at 31.205-6(g)(3), 
limits the cost allowability of severance payments to foreign 
nationals employed under a service contract 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 

[[Page 42662]]
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 provision)


52.237-9  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 (Oct 
1995)

    (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. 95-19861 Filed 8-15-95; 8:45 am]
BILLING CODE 6820-EP-M