[Federal Register Volume 60, Number 159 (Thursday, August 17, 1995)]
[Proposed Rules]
[Pages 42828-42830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20230]



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ENVIRONMENTAL PROTECTION AGENCY

48 CFR Parts 1516 and 1552

[FRL-5277-5]


Acquisition Regulation; Cost-Sharing Contracts

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: This document proposes to add coverage to the EPA Acquisition 
Regulation (EPAAR) on cost-sharing contracts. This rule is necessary to 
provide Contracting Officers guidance for awarding and administering 
cost-sharing contracts.

DATES: Written comments on this proposed rule must be received on or 
before October 16, 1995.

ADDRESSES: Comments should be addressed to the Environmental Protection 
Agency, 401 M Street, SW., Washington, DC 20460, attn: Paul Schaffer 
(Mail Code 3802F). Comments may also be transmitted electronically by 
electronic mail (e-mail) to Schaffer.paul @ epamail.epa.gov. Electronic 
comments must be submitted as an ASCII file avoiding the use of special 
characters and any form of encryption. Comments will also be accepted 
on disk in Wordperfect in 5.1 file format or ASCII file format. No 
Confidential Business Information (CBI) should be submitted through e-
mail. Electronic comments on the proposed rule may be filed online at 
many Federal Deposit Libraries.

FOR FURTHER INFORMATION CONTACT: Paul Schaffer at (202) 260-9032.

SUPPLEMENTARY INFORMATION:

A. Background

    Cost-sharing applies only to contracts awarded by EPA in which the 
Government and contractor agree to share in the costs of a project. 
Cost-sharing is relevant when a contractor has the opportunity to 
acquire technology, expertise or other benefits which will enable the 
contractor to profit after contract completion. Generally, potential 
benefits to the contractor are less likely where basic research is 
involved and the extent of commercial application is unknown.

B. Executive Order 12866

    This proposed rule is not a significant regulatory action as 
defined in Executive Order 12866. Therefore, no review is required at 
the Office of Information and Regulatory Affairs within OMB.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because this rule does 
not propose any information collection requirements which would require 
the approval of OMB under 44 U.S.C. 3501, et seq.

D. Regulatory Flexibility Act

    The EPA certifies this proposed rule does not exert a significant 
economic impact on a substantial number of small entities. The proposed 
rule primarily establishes EPA policies and internal procedures for 
awarding and administering cost sharing contracts. The proposed 
contract clause will require small entities to maintain records for 
costs claimed as its cost share.
    Most small entities should presently be compiling information in 
their accounting systems for all costs incurred under cost reimbursable 
contracts in order to monitor financial progress under a contract. Any 
adjustments to existing accounting systems should require only minimal 
cost and effort. The EPA certifies this 

[[Page 42829]]
rule will have no significant impact on small entities. Therefore, no 
regulatory flexibility analysis has been prepared.

E. Unfunded Mandates

    This proposed rule will not impose unfunded mandates on state or 
local entities, or others.

List of Subjects in 48 CFR Parts 1516 and 1552

    Government procurement, Solicitation provisions and contract 
clauses.

    For the reasons set out in the preamble, Chapter 15 of Title 48 
Code of Federal Regulations is proposed to be amended as set forth 
below:
    1. The authority citation for Parts 1516 and 1552 continues to read 
as follows:

    Authority: Sec 205(c), 63 Stat. 390, as amended, 40 U.S.C. 
486(c).

    2. Section 1516.303 is added to read as follows:


1516.303  Cost-sharing contracts.


1516.303-71  Definition.

    Cost-sharing is a generic term denoting any situation where the 
Government does not fully reimburse a contractor for all allowable 
costs necessary to accomplish the project under the contract. This term 
encompasses cost-matching and cost-limitations, in addition to cost-
sharing. Cost-sharing does not include usual contractual limitations 
such as indirect cost ceilings in accordance with FAR 42.707, or 
ceilings on travel or other direct costs. Cost-sharing contracts may be 
required as a result of Congressional mandate.


1516.303-72  Policy.

    (a) The Agency shall use cost-sharing contracts where the principal 
purpose is ultimate commercialization and utilization of technologies 
by the private sector. There should also be a reasonable expectation of 
future economic benefits for the contractor and the Government beyond 
the Government's contract.
    (b) Cost-sharing may be accomplished by a contribution to either 
direct or indirect costs, provided such costs are reasonable, allocable 
and allowable in accordance with the cost principles of the contract. 
Allowable costs which are absorbed by the contractor as its share of 
contract costs may not be charged directly or indirectly to the Agency 
or the Federal government.
    (c) Unsolicited proposals will be considered on a case-by-case 
basis by the Contracting Officer as to the appropriateness of cost-
sharing.


1516.303-73  Types of cost-sharing.

    (a) Cost-sharing may be accomplished in various forms or 
combinations. These include, but are not limited to: cash outlays, real 
property or interest therein, personal property or services, cost 
matching, or other in-kind contributions.
    (b) In-kind contributions represent non-cash contributions provided 
by the performing contractor which would normally be a charge against 
the contract. While in-kind contributions are an acceptable method of 
cost-sharing, should the booked costs of property appear unrealistic, 
the fair market value of the property shall be determined pursuant to 
1516.303-74.
    (c) In-kind contributions may be in the form of personal property 
(equipment or supplies) or services which are directly beneficial, 
specifically identifiable and necessary for the performance of the 
contract. In-kind contributions must meet all of the following criteria 
before acceptance.
    (1) Be verifiable from the contractor's books and records;
    (2) Not be included as contributions under any other Federal 
contract;
    (3) Be necessary to accomplish project objectives;
    (4) Provide for types of charges that would otherwise be allowable 
under applicable Federal cost principles appropriate to the 
contractor's organization; and
    (5) Not be paid for by the Federal Government under any contract, 
agreement or grant.


1516.303-74  Determining the value of in-kind contributions.

    In-kind contributions accepted from a contractor will be addressed 
on a case-by-case basis provided the established values do not exceed 
fair market values.
    (a) Where the Agency receives title to donated land, building, 
equipment or supplies and the property is not fully consumed during 
performance of the contract, the Contracting Officer should establish 
the property's value based on the contractor's booked costs (i.e., 
acquisition cost less depreciation, if any) at the time of donation. If 
the booked costs reflect unrealistic values when compared to current 
market conditions, the Contracting Officer may establish another 
appropriate value if supported by an independent appraisal of the fair 
market value of the donated property or property in similar condition 
and circumstances.
    (b) The Contracting Officer will monitor reports of in-kind costs 
as they are incurred or recognized during the contract period of 
performance to determine that the value of in-kind services does not 
exceed fair market values.
    (c) The value of any services or the use of personal or real 
property donated by a contractor should be established when necessary 
in accordance with generally accepted accounting policies and Federal 
cost principles.


1516.303-75  Amount of cost-sharing.

    (a) Contractors should contribute a reasonable amount of the total 
project cost covered under the contract. The ratio of cost 
participation should correlate to the apparent advantages available to 
performers and the proximity of implementing commercialization, i.e., 
the higher the potential for future profits, the higher the 
contractor's share should be.
    (b) Fee will not be paid to the contractor or any member of the 
contractor team (subcontractors and consultants) which has a 
substantial and direct interest in the contract, or is in a position to 
gain long term benefits from the contract. A vulnerability the 
Contracting Officer should consider in reviewing a prime contractor's 
request for consent to subcontract is whether subcontractors under 
prime cost-sharing contracts have a significant direct interest in the 
contract to gain long-term benefits from the contract.
    (c) The Contracting Officer, with the input of technical experts, 
may consider the following factors in determining reasonable levels of 
cost sharing:
    (1) The availability of the technology to competitors;
    (2) Improvements in the contractor's market share position;
    (3) The time and risk necessary to achieve success;
    (4) If the results of the project involve patent rights which could 
be sold or licensed;
    (5) If the contractor has non-Federal sources of funds to include 
as cost participation; and
    (6) If the contractor has the production and other capabilities to 
capitalize the results of the project.
    (d) A contractor's cost participation can be provided by other 
subcontractors with which it has contractual arrangements to perform 
the contract as long as the contractor's cost-sharing goal is met.


1516.303-76  Fee on cost-sharing contracts by subcontractors.

    (a) Subcontractors under prime cost-sharing contracts who do not 
have a significant direct interest in the contract or who are not in a 
position to gain long-term benefits from the contract may earn a fee.
    (b) Contracting Officers should be alert to a potential 
vulnerability for the 

[[Page 42830]]
Government under cost-sharing contracts when evaluating proposed 
subcontractors or consenting to a subcontract during contract 
administration, where the subcontractor is a wholly-owned subsidiary of 
the prime. The vulnerability consists of the subsidiary earning a large 
amount of fee, which could be returned to the prime through stock 
dividends or other intercompany transactions. This could circumvent the 
objective of a cost-sharing contract.


1516.303-77  Administrative requirements.

    (a) The initial Procurement Request shall reflect the total 
estimated cost of the cost-sharing contract. The face page of the 
contract award shall indicate the total estimated cost of the contract, 
the Contractor's share of the cost, and the Government's share of the 
cost.
    (b) The manner of cost-sharing and how it is to be accomplished 
shall be set forth in the contract. Additionally, contracts which 
provide for cost-sharing shall require the contractor to maintain 
records adequate to reflect the nature and extent of their cost-sharing 
as well as those costs charged the Agency. Such records may be subject 
to an Agency audit.
    3. Section 1516.307 is amended to add paragraph (c) to read as 
follows:


1516.307  Contract clauses.

* * * * *
    (c) The Contracting Officer shall insert the clause at 1552.216-75, 
Estimated Cost and Cost-Sharing, in solicitations and contracts where 
the total incurred costs are shared by the contractor on a straight 
percentage basis. The Contracting Officer may develop other clauses, as 
appropriate, following the same approach, but reflecting different 
cost-sharing arrangements negotiated on specific contract actions.
    4. Subpart 1516.3 is amended by adding section 1516.370 to read as 
follows:


1516.370  Solicitation provision.

    The solicitation document shall state whether any cost-sharing is 
required, and may set forth a target level of cost-sharing. Although 
technical considerations are normally most important, the degree of 
cost-sharing may be considered in a selection decision when cost 
becomes a determinative factor in a selection decision.
    5. Part 1552 is amended to add section 1552.216-75 to read as 
follows:


1552.216-75  Estimated cost and cost-sharing.

    As prescribed in 1516.307(c), insert a clause to read substantially 
the same as follows:

Estimated Cost and Cost-Sharing (Aug 1995)

    (a) The total estimated cost of performing the work under this 
contract is $________. The Contractor's share of this cost shall not 
exceed $________. The Government's share of this cost shall not 
exceed $________.
    (b) For performance of the work under the contract, the 
Contractor shall be reimbursed for not more than ________ percent of 
the cost of performance determined to be allowable under the 
Allowable Cost and Payment clause. The remaining balance of 
allowable cost shall constitute the Contractor's share.
    (c) Fee shall not be paid to the prime contractor under this 
cost-sharing contract.
    (d) The Contractor shall maintain records of all costs incurred 
and claimed for reimbursement as well as any other costs claimed as 
part of its cost share. Those records shall be subject to audit by 
the Government.
    (e) Costs contributed by the Contractor shall not be charged to 
the Government under any other contract, grant or agreement 
(including allocation to other contracts as part of an independent 
research and development program) nor be included as contributions 
under any other Federal contract.
(End of Clause)

    Dated: August 9, 1995.
Jeanette L. Brown,
Acting Director, Office of Acquisition Management.
[FR Doc. 95-20230 Filed 8-16-95; 8:45 am]
BILLING CODE 6560-50-P