[Federal Register Volume 60, Number 158 (Wednesday, August 16, 1995)]
[Rules and Regulations]
[Pages 42663-42664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19863]



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DEPARTMENT OF DEFENSE
48 CFR Parts 42 and 52

[FAC 90-31; FAR Case 94-752; Item VI]
RIN 9000-AG29


Federal Acquisition Regulation; Contractor Overhead Certification

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 is issued pursuant to the Federal Acquisition 
Streamlining Act of 1994 (the Act) to implement the requirements for 
contractor certification of indirect costs (see proposed rule published 
at 59 FR 65464, December 19, 1994). Section 2151 of the Act amended 
Section 306 of the Federal Property and Administrative Services Act of 
1949 (41 U.S.C. 256). This provision extended to the civilian agencies 
the same certificate of indirect costs which is currently applicable to 
Department of Defense (DOD) contracts, pursuant to 10 U.S.C. 2324(h). 
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. Please cite FAC 90-31, 
FAR case 94-752.

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 (FACNET).
    Section 2151 of the Act amends Section 306 of the Federal Property 
and Administrative Services of 1949 (41 U.S.C. 256). It extends 
requirements for contractor certification of indirect costs to the 
civilian agencies. Pursuant to 10 U.S.C. 2324(h), the Department of 
Defense already determines or negotiates contractor indirect cost rates 
on the basis of a certified proposal.

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, do not require submission of indirect cost rate 
proposals.

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 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

    Seven public comments were received in response to the proposed 
rule published in the Federal Register on December 19, 1994 (59 FR 
65464). These comments were considered in the formulation of this final 
rule.

[[Page 42664]]


List of Subjects in 48 CFR Parts 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 42 and 52 are amended as set forth below:
    1. The authority citation for 48 CFR Parts 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 42--CONTRACT ADMINISTRATION


42.703  General.

    2. Section 42.703 is redesignated as 42.703-1 and a new section 
42.703 is added as a heading to read as set forth above.
    3. Section 42.703-2 is added to read as follows:


42.703-2  Certificate of indirect costs.

    (a) General. In accordance with 10 U.S.C. 2324(h) and 41 U.S.C. 
256(h), a proposal shall not be accepted and no agreement shall be made 
to establish billing rates or final indirect cost rates unless the 
costs have been certified by the contractor.
    (b) Waiver of certification. (1) The agency head, or designee, may 
waive the certification requirement when--
    (i) It is determined to be in the interest of the United States; 
and
    (ii) The reasons for the determination are put in writing and made 
available to the public.
    (2) A waiver may be appropriate for a contract with--
    (i) A foreign government or international organization, such as a 
subsidiary body of the North Atlantic Treaty Organization;
    (ii) A state or local government subject to OMB Circular A-87;
    (iii) An educational institution subject to OMB Circular A-21; and
    (iv) A nonprofit organization subject to OMB Circular A-122.
    (c) Failure to certify. (1) If the contractor has not certified its 
proposal for billing rates or indirect costs rates and a waiver is not 
appropriate, the contracting officer shall unilaterally establish the 
rates if they are necessary for continuation of the contract.
    (2) Rates established unilaterally should be--
    (i) Based on audited historical data or other available data as 
long as unallowable costs are excluded; and
    (ii) Set low enough to ensure that potentially unallowable costs 
will not be reimbursed.
    (d) False certification. The contracting officer should consult 
with legal counsel to determine appropriate action when a contractor 
certificate of indirect costs is thought to be false.
    (e) Penalties for unallowable costs. 10 U.S.C. 2324(a) through (d) 
and 41 U.S.C. 256 (a) through (d) prescribe penalties for submission of 
unallowable costs in final indirect cost rate proposals (see 42.709 for 
penalties and contracting officer responsibilities).
    (f) Contract clause. (1) Except as provided in paragraph (f)(2) of 
this subsection, the clause at 52.242-4, Certification of Indirect 
Costs, shall be incorporated into all solicitations and contracts which 
provide for--
    (i) Interim reimbursement of indirect costs;
    (ii) Establishment of final indirect costs rates; or
    (iii) Contract financing that includes interim payment of indirect 
costs, e.g., progress payments based on cost (Subpart 32.5) or progress 
payments based on percentage or stage of completion.
    (2) The Department of Energy may provide an alternate clause in its 
agency supplement for its Management and Operating contracts.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Section 52.242-4 is added to read as follows:


52.242-4  Certification of Indirect Costs.

    As prescribed in 42.703-2(f), insert the following clause:

Certification of Indirect Costs (Oct 1995)

    (a) The Contractor shall--
    (1) Certify any proposal to establish or modify billing rates or 
to establish final indirect cost rates;
    (2) Use the format in paragraph (c) of this clause to certify; 
and
    (3) Have the certificate signed by an individual of the 
Contractor's organization at a level no lower than a vice president 
or chief financial officer of the business segment of the Contractor 
that submits the proposal.
    (b) Failure by the Contractor to submit a signed certificate, as 
described in this clause, shall result in payment of indirect costs 
at rates unilaterally established by the Government.
    (c) The certificate of indirect costs shall read as follows:

Certificate of Indirect Costs

    This is to certify that to the best of my knowledge and belief:
    1. I have reviewed this indirect cost proposal;
    2. All costs included in this proposal (identify proposal and 
date) to establish billing or final indirect costs rates for 
(identify period covered by rate) are allowable in accordance with 
the requirements of contracts to which they apply and with the cost 
principles of the Federal Acquisition Regulation (FAR) and its 
supplements applicable to those contracts;
    3. This proposal does not include any costs which are 
unallowable under applicable cost principles of the FAR or its 
supplements, including, but not limited to: advertising and public 
relations costs, contributions and donations, entertainment costs, 
fines and penalties, lobbying costs, defense of fraud proceedings, 
and goodwill; and
    4. All costs included in this proposal are properly allocable to 
Government contracts on the basis of a beneficial or causal 
relationship between the expenses incurred and the contracts to 
which they are allocated in accordance with applicable acquisition 
regulations.
    I declare under penalty of perjury that the foregoing is true 
and correct.

Firm:------------------------------------------------------------------

Signature:-------------------------------------------------------------

Name of Certifying Official:-------------------------------------------

Title:-----------------------------------------------------------------

Date of Execution:-----------------------------------------------------

(End of clause)

[FR Doc. 95-19863 Filed 8-15-95; 8:45 am]
BILLING CODE 6820-EP-M