[Federal Register Volume 60, Number 158 (Wednesday, August 16, 1995)]
[Rules and Regulations]
[Pages 42662-42663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19862]



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DEPARTMENT OF DEFENSE
48 CFR Part 31

[FAC 90-31, FAR Case 94-750; Item V]
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: Final rule.

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SUMMARY: This final rule amends the Federal Acquisition Regulation to 
revise the cost principles governing entertainment, gift and recreation 
costs for contractor employees. 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 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 90-31, FAR case 94-750.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994, Public Law 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. This notice announces Federal 
Acquisition Regulation (FAR) revisions developed under FAR case 94-750 
to implement Section 2192 of the Act.
    The final rule revisions to the cost principles at FAR 31.205-13 
and 31.205-14 are made as a result of Section 2192 of the Federal 
Acquisition Streamlining Act of 1994. An interim rule was promulgated 
to meet the 120-day and 90-day deadlines in Section 2192 for changes to 
FAR 31.205-13 and 31.205-14, respectively. The interim rule was 
published in the Federal Register on January 13, 1995, 60 FR 3314. This 
final rule replaces the interim rule in its entirety for any contracts 
containing the interim rule. Thus, the provisions of the interim rule 
will not apply to costs incurred under any contract under any 
circumstances.
    To comply with the requirements of paragraph (a)(1) of Section 
2192, the final rule provides that the costs of gifts are expressly 
unallowable (31.205-13(b)). To clarify that the rule does not disallow 
costs which meet the definition of and are properly accounted for as 
compensation or recognition awards, the final rule provides a reference 
to 31.205-6, which allows compensation awards recognizing performance 
but also allows for recognition awards pursuant to an established 
contractor plan or policy. Additionally, it makes the costs of 
recreation expressly unallowable with the exception of costs of company 
sponsored employee sports teams and employee organizations designed to 
improve company loyalty, team work, or physical fitness. The final rule 
retains the allowability of ``wellness/fitness centers'' found in the 
interim rule. The final rule eliminates the requirement that costs are 
only allowable to the extent that the net amount per employee must be 
reasonable for all categories of costs under this cost principle.
    To comply with the requirements of paragraph (a)(2) of Section 
2192, the final rule revises the cost principle at 31.205-14 to 
incorporate the statutory wording relating to the unallowability of 
entertainment costs and to delete the ``but see'' provision.

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 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. Public Comments

    Twenty-three public comments were received in response to the 
interim rule published in the Federal Register on January 13, 1995 (60 
FR 3314). These comments were considered in the formulation of this 
final rule.

List of Subjects in 48 CFR Part 31

    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 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) 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), (c), and (d) of this 
subsection. Some examples of allowable 

[[Page 42663]]
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.
    (b) Costs of gifts are unallowable. (Gifts do not include awards 
for performance made pursuant to 31.205-6(f) or awards made in 
recognition of employee achievements pursuant to an established 
contractor plan or policy.)
    (c) Costs of recreation are unallowable, except for the costs of 
employees' participation in company sponsored sports teams or employee 
organizations designed to improve company loyalty, team work, or 
physical fitness.
    (d) 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., where the contractor must provide food or 
dormitory services at remote locations where adequate commercial 
facilities are not reasonably available; or 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.
    (e) 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 (f) of this subsection).
    (f) 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) of this subsection 
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.

    Costs of amusement, diversions, 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. 95-19862 Filed 8-15-95; 8:45 am]
BILLING CODE 6820-EP-M