[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Rules and Regulations]
[Pages 269-270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33215]


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DEPARTMENT OF DEFENSE
48 CFR Part 31

[FAC 90-45; FAR Case 96-325; Item XI]
RIN 9000-AH50


Federal Acquisition Regulation; Compensation of Certain 
Contractor Personnel

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

ACTION: Interim rule with request for comment.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed to an interim rule amending 
the Federal Acquisition Regulation (FAR) to implement Section 809 of 
the Fiscal Year 1997 National Defense Authorization Act (Pub. L. 104-
201) by placing a Governmentwide ceiling on allowable compensation 
costs for contractor personnel in senior management positions under 
contracts that are awarded during fiscal year 1997. This regulatory 
action was not subject to Office of Management and Budget review under 
Executive Order 12866, dated September 30, 1993, and is not a major 
rule under 5 U.S.C. 804.

DATES: Effective Date: January 1, 1997.
    Comment Date: Comments should be submitted to the FAR Secretariat 
at the address shown below on or before March 3, 1997 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 4035, Attn: Ms. Beverly Fayson, Washington, DC 20405. 
Please cite FAC 90-45, FAR case 96-325 in all correspondence related to 
this case.

FOR FURTHER INFORMATION CONTACT: Mr. Ralph DeStefano at (202) 501-1758 
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 90-45, FAR case 96-325.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 809 of the Fiscal Year 1997 National Defense Authorization 
Act (Pub. L. 104-201) limits, during fiscal year 1997, allowable 
compensation costs to $250,000 per year for contractor personnel in 
senior management positions. Section 809 defines ``compensation'' as 
the total amount of wages and elective deferrals for the year 
concerned, as these terms are defined in Sections 3401(a) and 
402(g)(3), respectively, of the Internal Revenue Code of 1986. Section 
809 also limits the application of the compensation ceiling to an 
``officer'' of a company ``who is determined to be in a senior 
management position as established by regulation.'' The interim rule 
defines an ``officer in a senior management position'' as the 
contractor's Chief Executive Officer (CEO), or any individual acting in 
a similar capacity, and the contractor's four most highly compensated 
officers in senior management positions, other than the CEO. This 
definition is consistent with the standard employed by the United 
States Securities and Exchange Commission (SEC) in its executive 
compensation disclosure rules. The SEC requires that publicly traded 
companies disclose to their stockholders the compensation of the CEO 
(or any individual acting in a similar capacity) as well as that of 
their four most highly paid senior executive officers, other than the 
CEO, who earn more than $100,000 per year in salary and bonus.
    The interim FAR rule adds a new requirement at 31.205-6(p) to 
implement the statutory ceiling on allowable compensation costs for 
officers in senior management positions. This restriction applies to 
contracts awarded during fiscal year 1997, for compensation costs of 
certain contractor personnel that are incurred during fiscal year 1997, 
and that are in excess of $250,000 per year. This restriction also 
applies to the five most highly compensated individuals in senior 
management positions at intermediate home offices and/or segments if a 
contractor is organizationally subdivided into such units.

B. Regulatory Flexibility Act

    The interim 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 most 
contracts awarded to small entities use simplified acquisition 
procedures or are awarded on a competitive, fixed-price basis, and do 
not require application of the cost principle contained in this rule. 
In addition, this rule is limited to businesses that incur costs prior 
to October 1, 1997, under contracts awarded during fiscal year 1997, 
for compensation in excess of $250,000 per year for an officer in a 
senior management position. An Initial Regulatory Flexibility Analysis 
has, therefore, not been performed. Comments are invited from small 
businesses and other interested parties. Comments from small entities 
concerning the affected FAR subpart also will be considered in 
accordance with 5 U.S.C. 610. Such comments must be submitted 
separately and cite 5 U.S.C 601, et seq. (FAR Case 96-325), in 
correspondence.

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 OMB under 44 
U.S.C. 3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DOD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary to ensure that contracting activities become aware of the 
statutory ceiling on allowable compensation costs for certain 
contractor personnel when forward pricing contracts to be awarded 
during fiscal year 1997. This rule implements Section 809 of the Fiscal 
Year 1997 National Defense Authorization Act (Pub. L. 104-201) and 
applies to Governmentwide contracts awarded during fiscal year 1997. 
However, pursuant to Public Law 98-577 and FAR

[[Page 270]]

1.501, public comments received in response to this interim rule will 
be considered in the formation of the final rule.

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: December 24, 1996.
Edward C. Loeb,
Director, Office of Federal Acquisition Policy.

    .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 31.205-6 is amended by adding paragraph (p) to read as 
follows:


31.205-6   Compensation for personal services.

* * * * *
    (p) Limitation on allowability of compensation for certain 
contractor personnel. (1) For contracts awarded during fiscal year 
1997, costs incurred from October 1, 1996, through September 30, 1997, 
for compensation of an officer in a senior management position in 
excess of $250,000 per year are unallowable (Section 809 of Public Law 
104-201).
    (2) As used in this paragraph:
    (i) Compensation means--
    (A) The total amount of taxable wages paid to the employee for the 
year concerned; plus
    (B) The total amount of elective deferred compensation earned by 
the employee in the year concerned.
    (ii) Officer in a senior management position means--
    (A) The contractor's Chief Executive Officer (CEO) or any 
individual acting in a similar capacity;
    (B) The contractor's four most highly compensated officers in 
senior management positions, other than the CEO; and
    (C) If the contractor is organizationally subdivided into 
intermediate home offices and/or segments, the five most highly 
compensated individuals in senior management positions at each such 
intermediate home office and/or segment.
[FR Doc. 96-33215 Filed 12-31-96; 8:45 am]
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