[Federal Register Volume 61, Number 146 (Monday, July 29, 1996)]
[Proposed Rules]
[Pages 39518-39520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18852]



[[Page 39517]]


_______________________________________________________________________

Part II

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Parts 4, 42, and 52



Federal Acquisition Regulations: Final Overhead Settlement; Proposed 
Rule

  Federal Register / Vol. 61, No. 146 / Monday, July 29, 1996 / 
Proposed Rules  

[[Page 39518]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 42 and 52

[FAR Case 95-017]
RIN 9000-AG87


Federal Acquisition Regulation; Final Overhead Settlement

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation to improve the process of final settlement of 
contractor overhead rates. This regulatory action was not subject to 
Office of Management and Budget review under Executive Order 12866, 
dated September 30, 1993. This is not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before September 27, 1996 to 
be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (VRS), 18th & F 
Streets, NW, Room 4037, Washington, DC 20405.
    Please cite FAR case 95-017 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Ms. Linda Klein at (202) 501-3775 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 FAR case 95-017.

SUPPLEMENTARY INFORMATION: 

A. Background

    This proposed rule amends FAR parts 4, 42 and 52 to improve the 
process of final settlement of contractor overhead rates. Cost 
reimbursement and fixed-price incentive contracts require that 
contractors' overhead rates be settled prior to establishment of final 
contract prices. At present, the contractor is required to submit a 
certified indirect cost rate proposal within 90 days after the end of 
its fiscal year, and a final audit is required of the contractor's 
proposed rates. However, late proposal submissions and incomplete 
supporting cost data are contributing to greatly extended cycle times 
on overhead settlements. As a result, the 90-day timeframe currently 
provided for submissions could be considered less than adequate time 
for contractors to complete their year-end closing and prepare an 
adequate proposal. In addition, there is currently no sanction or 
penalty for late submissions.
    Improvement of this process by extending the submission date from 
90 days to 6 months and identifying the minimum supporting cost data 
required to be submitted with the proposal can achieve a substantial, 
overall reduction in cycle time. This proposed rule implements 
recommendations of the Contract Administration Services Reform Process 
Action Team by (1) stating that failure to comply with the revised due 
date for submission of proposed final indirect cost rates may be 
considered as an indication of an inadequate accounting system and 
controls; (2) specifying the minimum data which is needed with the 
contractor's proposal in order to proceed efficiently with the audit; 
and (3) changing ``final indirect cost rate proposal'' to ``final 
incurred cost proposal'' to more closely reflect the terminology used 
by the Defense Contract Audit Agency.

B. Regulatory Flexibility Act

    This proposed rule is not expected to 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, 
generally, large businesses provide the types of supplies and services 
that are procured using cost-reimbursement and fixed-price incentive 
contracts which require final overhead settlement. An Initial 
Regulatory Flexibility Analysis has, therefore, not been performed. 
Comments from small entities concerning the affected FAR subpart will 
be considered in accordance with 5 U.S.C. 610 of the Act. Such comments 
must be submitted separately and should cite 5 U.S.C. 601 et seq. (FAR 
case 95-017), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose any substantial change in 
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. 3051 et seq.

List of Subject in 48 CFR Parts 4, 42 and 52

    Government procurement.

    Dated: July 18, 1996.
Edward C. Loeb,
Director, Office of Federal Acquisition Policy.

    Therefore, it is proposed that 48 CFR Parts 4, 42 and 52 be amended 
as set forth below:
    1. The authority citation for 48 CFR Parts 4, 42 and 52 continues 
to read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. 2301 to 2331; and 42 
U.S.C. 2473(c).

PART 4--ADMINISTRATIVE MATTERS

    2. Section 4.703 is amended by revising paragraph (b)(3) to read as 
follows:


4.703  Policy.

* * * * *
    (b) * * *
    (3) The contractor does not meet the original due date for 
submission of final incurred cost proposals specified in subparagraph 
(d)(2)(i) of the clause at 52.216-7, Allowable Cost and Payment, and 
subparagraph (c)(2)(i) of the clause at 52.216-13, Allowable Cost and 
Payment--Facilities. Under these circumstances, the retention periods 
in 4.705 shall be automatically extended one day for each day the 
proposal is not submitted after the original due date.
* * * * *

PART 42--CONTRACT ADMINISTRATION

    3. Section 42.705-1 is amended by revising paragraph (b)(1) to read 
as follows:


42.705-1  Contracting officer determination procedure.

* * * * *
    (b) * * *
    (1) In accordance with the Allowable Cost and Payment clause at FAR 
52.216-7 or FAR 52.216-13, the contractor shall submit to the 
contracting officer and, if required by agency procedures, to the 
cognizant auditor a final incurred cost proposal together with the 
supporting cost data specified in paragraphs (b)(1) (i) through (viii) 
of this subsection. Contractors who are delinquent in the submittal of 
final incurred cost proposals may be considered to have an inadequate 
accounting system and controls.
    (i) Schedule of proposed rates for each expense pool.
    (ii) Statement of pool and base costs for each proposed indirect 
expense rate, listing the proposed amount by account with unallowable 
costs specifically

[[Page 39519]]

identified and excluded from the proposed pool.
    (iii) Schedule of allowable direct costs for each cost-
reimbursement and fixed-price incentive contract (or reference to 
applicable accounting records if data is too voluminous).
    (iv) Schedule of allocation base amounts for each cost-
reimbursement and fixed-price incentive contract (if not otherwise 
covered by paragraph (b)(1)(iii) of the subsection).
    (v) Schedule of hours and costs proposed on time-and-materials and 
labor-hour contracts (if applicable).
    (vi) Schedule of Government contract participation in the indirect 
expense pools.
    (vii) Schedule of facilities capital cost of money factors 
computation (if applicable).
    (viii) Schedule or computation of allocable independent research 
and development and bid and proposal costs (if applicable).
    Note to paragraph (b)(1): These items represent the minimum data 
necessary to begin the required audit, and compliance with this 
requirement does not limit the contracting officer's right to require, 
on a case-by-case basis, submission of additional data considered 
necessary to support the proposal.
* * * * *
    4. Section 42.705-2 is amended by revising paragraph (b)(1) to read 
as follows:


42.705-2  Auditor determination procedures.

* * * * *
    (b) * * * (1) The contractor shall submit to the cognizant 
contracting officer and auditor a final incurred cost proposal 
reflecting actual cost experience during the covered period, together 
with supporting cost data in accordance with 42.705-1(b)(1).
* * * * *

PART 5--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    5. Section 52.216-7 is amended by revising the date of the clause 
and paragraph (d)(2) to read as follows:


52.216-7  Allowable Cost and Payment.

* * * * *

ALLOWABLE COST AND PAYMENT (DATE)

* * * * *
    (d) * * *
    (2) (i) The Contractor shall, within six months after the 
expiration of each of its fiscal years, or by a later date approved 
by the Contracting Officer in exceptional circumstances, submit to 
the cognizant Contracting Officer responsible for negotiating its 
final indirect rates and, if required by agency procedures, to the 
cognizant audit activity proposed final indirect cost rates for that 
period and the following supporting cost data:
    (A) Schedule of proposed rates for each expense pool.
    (B) Statement of pool and base costs for each proposed indirect 
expense rate, listing the proposed amount by account with 
unallowable costs specifically identified and excluded from the 
proposed pool.
    (C) Schedule of allowable direct costs for each cost-
reimbursement and fixed-price incentive contract (or reference to 
applicable accounting records if data is too voluminous).
    (D) Schedule of allocation base amounts for each cost-
reimbursement and fixed-price incentive contract (if not otherwise 
covered by paragraph (d)(2)(i)(C) of this clause).
    (E) Schedule of hours and costs proposed on time-and-materials 
and labor-hour contracts (if applicable).
    (F) Schedule of Government contract participation in the 
indirect expense pools.
    (G) Schedule of facilities capital cost of money factors 
computation (if applicable).
    (H) Schedule or computation of allowable independent research 
and development and bid and proposal costs (if applicable).
    (ii) Paragraphs (d)(2)(i) (A) through (H) of this clause specify 
the minimum data necessary to begin the required audit, and 
compliance with this requirement does not limit the Contracting 
Officer's right to require, on a case-by-case basis, submission of 
additional data considered necessary to support the proposal.
    (iii) The proposed rates shall be based on the Contractor's 
actual cost experience for that period. The appropriate Government 
representative and Contractor shall establish the final indirect 
cost rates as promptly as practical after receipt of the 
Contractor's proposal. Contractors who are delinquent in the 
submittal of final incurred cost proposals may be considered to have 
an inadequate accounting system and controls.
* * * * *
    6. Section 52.216-13 is amended by revising the date of the clause 
and paragraph (c)(2) to read as follows:


52.216-13  Allowable Cost and Payment--Facilities.

* * * * *

ALLOWABLE COST AND PAYMENT--FACILITIES (DATE)

* * * * *
    (c) * * *
    (2) (i) The Contractor shall within six months after the 
expiration of each of its fiscal years, or by a later date approved 
by the Contracting Officer in exceptional circumstances, submit to 
the Contracting Officer and to the cognizant audit activity proposed 
final indirect cost rates for that period and the following 
supporting cost data:
    (A) Schedule of proposed rates for each expense pool.
    (B) Statement of pool and base costs for each proposed indirect 
expense rate, listing the proposed amount by account with 
unallowable costs specifically identified and excluded from the 
proposed pool.
    (C) Schedule of allowable direct costs for each cost-
reimbursement and fixed-price incentive contract (or reference to 
applicable accounting records if data is too voluminous).
    (D) Schedule of allocation base amounts for each cost-
reimbursement and fixed-price incentive contract (if not otherwise 
covered by paragraph (c)(2)(i)(C) of this clause).
    (E) Schedule of hours and costs proposed on time-and-materials 
and labor-hour contracts (if applicable).
    (F) Schedule of Government contract participation in the 
indirect expense pools.
    (G) Schedule of facilities capital cost of money factors 
computation (if applicable).
    (H) Schedule or computation of allocable independent research 
and development and bid and proposal costs (if applicable).
    (ii) Paragraphs (c)(2)(i)(A) through (H) of this clause specify 
the minimum data necessary to begin the required audit, and 
compliance with this requirement does not limit the Contracting 
Officer's right to require, on a case-by-case basis, submission of 
additional data considered necessary to support the proposal.
    (iii) The proposed rates shall be based on the Contractor's 
actual cost experience for that period. The appropriate Government 
representative and Contractor shall establish the final indirect 
cost rates as promptly as practical after receipt of the 
Contractor's proposal. Contractors who are delinquent in the 
submittal of final incurred cost proposals may be considered to have 
an inadequate accounting system and controls.
* * * * *
    7. Section 52.216-15 is amended by revising the date of the clause 
and paragraph (b) to read as follows:


52.216-15  Predetermined Indirect Cost Rates.

* * * * *

PREDETERMINED INDIRECT COST RATES (DATE)

* * * * *
    (b) (1) Not later than six months after the expiration of the 
Contractor's fiscal year, the Contractor shall submit to the 
cognizant Contracting Officer under Subpart 42.7 of the Federal 
Acquisition Regulation (FAR) and, if required by agency procedures 
to, to the cognizant Government audit activity, proposed 
predetermined indirect cost rates and the following supporting cost 
data:
    (i) Schedule of proposed rates for each expense pool.
    (ii) Statement of pool and base costs for each proposed indirect 
expense rate, listing the proposed amount by account with 
unallowable costs specifically identified and excluded from the 
proposed pool.
    (iii) Schedule of allowable direct costs for each cost-
reimbursement and fixed-price incentive contract (or reference to 
applicable accounting records if data is too voluminous).
    (iv) Schedule of allocation base amounts for each cost-
reimbursement and fixed-price incentive contract (if not otherwise 
covered by paragraph (b)(1)(iii) of this clause).

[[Page 39520]]

    (v) Schedule of hours and costs proposed on time-and-materials 
and labor-hour contracts (if applicable).
    (vi) Schedule of Government contract participation in the 
indirect expense pools.
    (vii) Schedule of facilities capital cost of money factors 
computation (if applicable).
    (viii) Schedule of computation of allocable independent research 
and develop and bid and proposal costs (if applicable).
    (2) Paragraphs (b)(1) (i) through (viii) of this clause specify 
the minimum data necessary to begin the required audit, and 
compliance with this requirement does not limit the Contracting 
Officer's right to require, on a case-by-case basis, submission of 
additional data considered necessary to support the proposal.
    (3) The proposed rates shall be based on the Contractor's actual 
cost experience during that fiscal year. Negotiations of 
predetermined indirect cost rates shall begin as soon as practical 
after receipt of the Contractor's proposal. Contractors who are 
delinquent in the submittal of final incurred cost proposals may be 
considered to have an inadequate accounting system and controls.
* * * * *
[FR Doc. 96-18852 Filed 7-26-96; 8:45 am]
BILLING CODE 6820-EP-M