[Federal Register Volume 62, Number 54 (Thursday, March 20, 1997)]
[Rules and Regulations]
[Pages 13307-13329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7035]
[[Page 13307]]
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DEPARTMENT OF JUSTICE
28 CFR Part 100
RIN 1105-AA39
Implementation of Section 109 of the Communications Assistance
for Law Enforcement Act
AGENCY: Federal Bureau of Investigation, DOJ.
ACTION: Final rule.
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SUMMARY: This rule implements section 109 of the Communications
Assistance for Law Enforcement Act (CALEA), which requires the Attorney
General to establish regulations which set forth the procedures that
telecommunications carriers must follow in order to receive
reimbursement under Sections 109 and 104 of CALEA. CALEA requires that
this rule enable carriers to receive payments in a timely and cost-
efficient manner while minimizing the cost to the Federal Government.
Specifically, this rule sets forth the means of determining allowable
costs, reasonable costs, and disallowed costs. Furthermore, it
establishes the requirements carriers must meet in their submission of
cost estimates and requests for payment to the Federal Government for
the disbursement of CALEA funds. In addition, this rule protects the
confidentiality of trade secrets and proprietary information from
unnecessary disclosure. Finally, it sets forth the means for
alternative dispute resolution.
EFFECTIVE DATE: April 21, 1997.
FOR FURTHER INFORMATION CONTACT:
Walter V. Meslar, Unit Chief, Telecommunications Contracts and Audit
Unit, Federal Bureau of Investigation, P.O. Box 221286, Chantilly, VA
20153-0450, telephone number (703) 814-4900.
SUPPLEMENTARY INFORMATION:
A. General Background
Recent and continuing advances in telecommunications technology and
the introduction of new digitally-based services and features have
impaired the ability of federal, state, and local law enforcement
agencies to fully and properly conduct various types of court-
authorized electronic surveillance. Therefore, on October 25, 1994, the
President signed into law the Communications Assistance for Law
Enforcement Act (CALEA) [Public Law 103-414, 108 Stat. 4279 (1994)
(codified as amended in scattered sections of 18 U.S.C. and 47
U.S.C.)]. This law requires telecommunications carriers, as defined in
CALEA, to ensure law enforcement's ability, pursuant to court order or
other lawful authorization, to intercept communications regardless of
advances in telecommunications technology.
Under CALEA, certain implementation responsibilities are conferred
upon the Attorney General; the Attorney General has, in turn, delegated
certain responsibilities set forth in CALEA to the Director, FBI, or
his designee, pursuant to 28 CFR 0.85(o). The Director, FBI, has
designated the Telecommunications Industry Liaison Unit of the
Information Resources Division and the Telecommunications Contracts and
Audit Unit of the Finance Division to carry out these responsibilities.
Definition of ``Telecommunications Carrier''
CALEA defines a ``telecommunications carrier'' as any ``person or
entity engaged in the transmission or switching of wire or electronic
communications as a common carrier for hire'' (section 102(8)(A)), and
includes any ``person or entity engaged in providing commercial mobile
service, (as defined in section 332(d) of the Communications Act of
1934, as amended (47 U.S.C. 332(d))'' (section 102(8)(B)). This
definition includes, but is not limited to, local exchange and
interchange carriers; competitive access providers; resellers, cable
operators, utilities, and shared tenant services providers, to the
extent that they offer telecommunications services as common carriers
for hire; cellular telephone companies; personal communications
services (PCS) providers; satellite-based mobile communications
providers; specialized mobile radio services (SMRS) providers and
enhanced SMRS providers; and paging service providers.
The Federal Communications Commission (FCC) may determine that a
person or entity who is not a common carrier is subject to CALEA if
that person or entity provides wire or electronic communication service
and the FCC concludes that such service is a replacement for a
substantial portion of the local telephone exchange service and that it
is in the public interest to deem such a person or entity to be a
telecommunications carrier for purposes of CALEA.
The definition does not include (1) persons or entities insofar as
they are engaged in providing information services such as electronic
publishing and massaging services; and (2) any class or category of
telecommunications carriers that the FCC exempts by rule after
consultation with the Attorney General.
Capability Requirement
CALEA requires telecommunications carriers to ensure that, within
four years of the date of enactment, their systems have the capability
to meet the Assistance Capability Requirements as described in Section
103 of CALEA. These requirements are that a telecommunications carrier
shall ensure that its equipment, facilities, or services that provide a
customer or subscriber with the ability to originate, terminate, or
direct communications are capable of--
(1) expeditiously isolating and enabling the government, pursuant
to a court order or other lawful authorization, to intercept, to the
exclusion of any other communications, all wire and electronic
communications carried by the carrier within a service area to or from
equipment, facilities, or services of a subscriber of such carrier
concurrently with their transmission to or from the subscriber's
equipment, facility, or service, or at such later time as may be
acceptable to the government.
(2) expeditiously isolating and enabling the government, pursuant
to a court order or other lawful authorization, to access call-
identifying information that is reasonably available to the carrier--
(A) before, during, or immediately after the transmission of a wire or
electronic communications (or at such later time as may be acceptable
to the government); and (B) in a manner that allows it to be associated
with the communication to which it pertains, except that, with regard
to information acquired solely pursuant to the authority for pen
registers and trap and trace devices (as defined in section 3127 of
Title 18, United States Code), such call-identifying information shall
not include any information that may disclose the physical location of
the subscriber (except to the extent that the location may be
determined from the telephone number);
(3) delivering intercepted communications and call-identifying
information to the government, pursuant to a court order or lawful
authorization, in a format such that they may be transmitted by means
of equipment, facilities, or services procured by the government to a
location other than the premises of the carrier; and
(4) facilitating authorized communication interceptions and access
to call-identifying information unobtrusively and with a minimum of
interference with any subscriber's telecommunications service and in a
manner that protects--(A) the privacy and security of communications
and
[[Page 13308]]
call-identifying information not authorized to be intercepted; and (B)
information regarding the government's interception of communications
and access to call-identifying information.
Under section 107(a)(2) of CALEA, a carrier will be deemed to be in
compliance if it adheres to publicly available technical requirements
or standards adopted by an industry association or standard-setting
organization to meet the requirements of section 103 of CALEA.
Telecommunications carriers may also adopt their own solutions. In any
case, carriers must meet the requirements set forth in Section 103 of
CALEA. If no technical requirements or standards are issued, or if they
are challenged as being deficient, upon petition, the FCC has authority
to develop them through a rule making.
Capacity Requirements
Section 104 of CALEA requires that the Attorney General, after
seeking public notice and comment, establish and publish:
(1) notice of the actual number of communications interceptions,
pen registers, and trap and trace devices, representing a portion of
the maximum capacity that the Attorney General estimates that
government agencies authorized to conduct electronic surveillance may
conduct and use simultaneously by the date that is 4 years after the
date of enactment of CALEA, and
(2) notice of the maximum capacity required to accommodate all of
the communication interceptions, pen registers, and trap and trace
devices that the Attorney General estimates that government agencies
authorized to conduct electronic surveillance may conduct and use
simultaneously after the date that is 4 years after the date of
enactment of CALEA.
On October 16, 1995 the FBI proposed for comment the Initial Notice
of Capacity (60 FR 53643). On November 9, 1995, the comment period for
the Initial Notice of Capacity was extended until January 16, 1996. In
response to comments received, the FBI restructured its approach and
published a Second Notice of Capacity for comment in the Federal
Register on January 14, 1997 (62 FR 1902).
Section 104 of CALEA also provides that within 180 days after the
publication of the Final Notice of Capacity, a telecommunications
carrier must submit to the Attorney General a statement (Carrier
Statement) identifying any of the systems or services that do not have
the capacity to accommodate simultaneously the number of interceptions,
pen registers, and trap and trace devices set forth in that notice. On
April 10, 1996, the FBI published an Initial Notice and Request for
Comment in accordance with the Paperwork Reduction Act of 1995
regarding the proposed information collection requirements of the
Carrier Statement submission (61 FR 15974). A Second Notice and Request
for Comment is forthcoming in the Federal Register. The FBI intends to
use these Carrier Statements as one of the criteria upon which it will
base its decisions to solicit cooperative agreements to reimburse
carriers pursuant to section 104(e), based upon available funding.
Industry Implementation
Industry's compliance with the requirements set forth in section
103 of CALEA is affected by a number of interrelated factors, including
whether the Attorney General has agreed to pay for needed modifications
and whether the equipment, facility, or service was installed or
deployed on or before January 1, 1995.
In the case of equipment, facilities, and services installed or
deployed after January 1, 1995, compliance is dependent upon whether
the necessary modifications are reasonably achievable as determined by
the FCC using criteria set forth in CALEA. These criteria are as
follows:
(1) The effect on public safety and national security.
(2) The effect on rates for basic residential telephone service.
(3) The need to protect the privacy and security of communications
not authorized to be intercepted.
(4) The need to achieve the capability assistance requirements of
section 103 of CALEA by cost effective methods.
(5) The effect on the nature and cost of the equipment, facility or
service at issue.
(6) The effect on the operation of the equipment, facility, or
service at issue.
(7) The policy of the United States to encourage the provision of
new technologies and services to the public.
(8) The financial resources of the telecommunications carrier.
(9) The effect on competition in the provision of
telecommunications services.
(10) The extent to which the design and development of the
equipment, facility, or service was initiated before January 1, 1995.
(11) Such other factors as the FCC determines are appropriate.
Telecommunications carriers also may petition regulatory
authorities to adjust charges, practices, classifications, and
regulations to recover costs expended for making needed modifications
to equipment, facilities, or services pursuant to the assistance
capability requirements of CALEA section 103. CALEA also includes
provisions for exemption, extension of the compliance date,
consultation with industry, and systems security. Noncompliance may
lead to civil actions by the Attorney General and the imposition of
civil fines. In addition, CALEA requires telecommunications
transmission and switching equipment manufacturers, as well as
providers of the telecommunications support services, to cooperate with
telecommunications carriers in achieving the required capabilities and
capacities.
Section 109 of CALEA, Payment of Costs of Telecommunications
Carriers to Comply with Capability Requirements, authorizes the
Attorney General, subject to the availability of appropriations, to
agree to pay telecommunications carriers for: (1) all reasonable costs
directly associated with the modifications performed by carriers in
connection with equipment, facilities, and services installed or
deployed on or before January 1, 1995, to establish the capabilities
necessary to comply with section 103 of CALEA; (2) additional
reasonable costs directly associated with making the assistance
capability requirements found in section 103 of CALEA reasonably
achievable with respect to equipment, facilities, or services installed
or deployed January 1, 1995, in accordance with the procedures
established in CALEA section 109(b); and (3) reasonable costs directly
associated with modifications of any of a carrier's systems or
services, as identified in the Carrier Statement required by CALEA
section 104(d), which do not have the capacity to accommodate
simultaneously the number of interceptions, pen registers, and trap and
trace devices set forth in the Capacity Notice(s) published in
accordance with CALEA section 104.
CALEA section 109(e), Cost Control Regulations, authorizes the
Attorney General, after notice and comment, to establish regulations
necessary to effectuate timely and cost-efficient payment to
telecommunications carriers under CALEA, under 18 U.S.C. chapters 119
and 121, and under the Foreign Intelligence Surveillance Act of 1978
(50 U.S.C. 1801 et seq.). CALEA also directs the Attorney General to
consult with the FCC prior to the establishment of these
regulations.\1\
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\1\ CALEA Sec. 109(e)(2).
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The regulations must minimize the cost to the Federal Government
and
[[Page 13309]]
permit recovery by telecommunications carriers of the direct costs of
developing necessary modifications for CALEA compliance, including:
providing the capabilities requested; providing capacities requested,
training personnel in the use of such capabilities and capacities; and
deploying or installing such capabilities and capacities.
In the case of any modification that may be used for any purpose
other than lawfully authorized electric surveillance by a law
enforcement agency of a government, CALEA permits the recovery of only
the incremental cost of making the modification suitable for such law
enforcement purposes.
B. Establishment of Cost Recovery Rules and Procedures
Purpose and Intent
As directed by CALEA section 109(e)(1), the FBI has developed and
promulgated this rule to establish the procedures carriers must use to
seek reimbursement under sections 109(a), 109(b)(2), and 104(e) of
CALEA. Cost recovery payments under section 109(b)(2) of CALEA will be
determined pursuant to the procedures set forth in section 109(b)(1) of
CALEA and in accordance with this cost recovery rule. To the extent
possible, this rule allows carriers to use their existing accounting
procedures to record the costs of bringing equipment, facilities, and
services into compliance with CALEA.
This rule seeks to ensure that each carrier's practices used in
estimating costs for CALEA reimbursement purposes are consistent with
the current cost accumulating and reporting procedures utilized by the
carrier for the preparation of its financial statements. Further, it
establishes that not all amounts reportable in accordance with
generally accepted accounting principles will be eligible for
reimbursement. Consistency in the application of cost accounting
practices is necessary to enhance the likelihood that comparable
transactions are treated alike. Consistent application of internal cost
accounting practices will facilitate the preparation of reliable cost
estimates and allow comparison with the costs of performance. Such
comparisons provide an important basis for financial control over costs
and aid in establishing accountability for costs in the manner agreed
to by both parties.
This rule also ensures that each cost is allocated only once and on
only one basis to a cost group. The criteria for determining the
allocation of costs to a cost group should be the same for all similar
groupings.
In addition to setting forth the required accounting principles
regarding reasonableness and allowability of costs and requirements for
consistency in accounting, this rule establishes the reporting and
record keeping requirements necessary for reimbursement. By
establishing these requirements, the FBI ensures that it will be able
to meet the joint mandate of CALEA section 109(e) to (1) make timely
and cost-efficient payment to carriers while (2) minimizing the cost to
the Federal Government. Throughout the development of this rule, the
FBI sought to balance the need to minimize both the regulatory burden
placed upon carriers and the expenditure of public funds.
Specific carriers will be selected for reimbursement based upon law
enforcement priorities determined by the Attorney General. Several
criteria will be used to determined law enforcement priorities. These
include, but are not limited to: historical interceptions, features
offered, existing surveillance techniques, and product life-cycles of
telecommunications equipment, facilities, and services.
Cooperative Agreement Process
CALEA specifically states that the Attorney General ``may agree''
to pay carriers in the three circumstances discussed above
[Sec. 109(a), Sec. 109(b)(2), and Sec. 104(e)]. Therefore, the FBI
intends to enter into cooperative agreements with carries to accomplish
this reimbursement.\2\ This rule will be incorporated in all
cooperative agreements executed under sections 109 and 104 of CALEA and
entered into between the carriers and the FBI.
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\2\ The Federal Grant and Cooperative Agreement Act (31 U.S.C.
6301 et seq.) states that cooperative agreements are to be used when
``the principal purpose of the relationship is to transfer a thing
of value to the * * * recipient to carry out a public purpose of
support or stimulation authorized by a law of the United States,''
and ``substantial involvement is expected between the executive
agency and the * * * recipient when carrying out the activity
contemplated in the agreement.'' (31 U.S.C. 6305).
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The FBI will contact the carriers identifying the equipment,
facilities, and services which will require modification, and which are
eligible for reimbursement. The FBI will send requests for proposals to
these carriers regarding the necessary modifications. These requests
for proposals will identify the specific equipment, facilities and/or
services which are in need of modification in order to comply with
CALEA. They will also include instructions for submitting cost
estimates (Sec. 100.16 of the final rule) and proposed terms and
conditions for the cooperative agreement. Cost estimate submission is
necessary because: (1) carrier networks will require varying levels of
modification to achieve compliance; (2) carriers have great latitude in
developing and implementing CALEA-compliant solutions; and (3) CALEA's
authorization for appropriations is limited to $500 million\3\
Therefore, the FBI must have a clear idea of how much each modification
is expected to cost so that it may weigh the proposed costs of each
modification against the anticipated benefits to the public safety
prior to entering into each cooperative agreement.
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\3\ 31 U.S.C. 1341, commonly referred to as the Anti-Deficiency
Act, states that an officer or employee of the United States
Government may not ``make or authorize an expenditure or obligation
exceeding an amount available in an appropriation or fund for the
expenditure or obligation [31 U.S.C. 1341(a)(1)(A)].''
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Once a carrier has submitted a cost estimate for the needed
modifications, the FBI will enter into negotiations with that carrier
to arrive at a cooperative agreement for reimbursement. To the extent
possible, each cooperative agreement will be tailored to meet the
specific needs of the individual carrier based upon the carrier's
solution, existing accounting system, and size. For example, if a
carrier's solution requires implementation over several months, the
cooperative agreement with that carrier might include provisions for
progress or milestone payments. There are several items which will be
common to all cooperative agreements, including: the cost recovery
rules, the requirements of CALEA (section 103 and/or section 104); and
the protection of carrier patent rights. Once the carrier and the FBI
reach agreement, a cooperative agreement will be executed and work can
commence.
It must be noted that carriers are in no way obligated to expend
funds on modifications eligible for reimbursement prior to the
execution of a cooperative agreement. However, this in no way
alleviates the carriers' responsibilities of compliance with CALEA for
equipment, facilities, or services installed or deployed subsequent to
January 1, 1995.
Proposed Rule
In response to CALEA's mandate and in accordance with the
Administrative Procedures Act (5 U.S.C. 551 et seq.), the FBI published
for notice and comment a proposed rule in the Federal Register on May
10, 1996 (61 FR 21396). The proposed rule was developed after
consultation with other government entities, including the FCC, the
Office of
[[Page 13310]]
Management and Budget (OMB), and the General Accounting Office (GAO),
and with representatives of the telecommunications industry.
In response to the proposed rule, the FBI received comments from 16
representatives of the telecommunications industry, including wireline
and wireless carriers and associations. All comments have been
considered in preparing this final rule. In developing this final rule,
the FBI has also relied on the input of other governmental agencies,
telecommunications industry experts, and the many years of cost
accounting and auditing experience of its staff. Significant comments
received in response to the proposed rule and any significant changes
are discussed below.
C. Significant Comments or Changes
Comments by Section
1. Proposed Sec. 100.9 (``General''): Several commenters expressed
confusion as to the reimbursement process. Therefore, the FBI has
amended this section to clarify the requirement that a cooperative
agreement must be executed prior to the incurrence of costs. This
section now makes clear that reimbursement is subject to: (1) the
availability of funds; (2) the reasonableness of costs; and (3) the
execution of a cooperative agreement between the FBI and the carrier.
Carriers are in no way obligated to expend funds on modifications that
are eligible for reimbursement under sections 109(a), 109(b)(2), and
104(e) prior to the execution of a cooperative agreement.
2. Proposed Sec. 100.10(a) (Definition of ``allocable''): One
commenter pointed out that ``allocable'' traditionally means chargeable
to one or more cost objectives, rather than to two or more cost
objectives. The FBI accepts this comment and the final rule is modified
accordingly. In addition, for the purposes of clarity, the FBI has
expanded the definition to include the descriptive phrase ``and can be
distributed to them in reasonable proportion to the benefits
received.''
3. Proposed Sec. 100.10(e) (Definition of ``directly allocable
costs''): One commenter pointed out that ``allocable'' traditionally
means chargeable to one or more cost objectives, rather than to two or
more cost objectives; therefore, the definition of ``directly allocable
costs'' should reflect this. The FBI accepts this comment and the final
rule is modified accordingly. In addition, for the purposes of clarity,
the FBI has expanded the definition to include the descriptive phrase
``and can be distributed to them in reasonable proportion to the
benefits received.''
4. Proposed Sec. 100.10(j) and (k) (Definitions of ``plant non-
specific costs'' and ``plant specific costs''): Several commenters
expressed concern in connection with the allowability of plant specific
and plant non-specific costs in proposed Sec. 110.11(b) (``Allowable
costs''; Allowable plant specific costs) and proposed Sec. 100.15(c)
(``Disallowed costs''; Plant non-specific costs). In order to effect
the changes necessary to clarify these issues, the FBI has removed the
definitions of these terms from Sec. 100.10, Definitions, and replaced
them with an all encompassing definition of ``plant costs.'' The
specifics of which costs are allowed and disallowed with regard to
these terms are addressed below in responses 12 and 28.
5. Proposed Sec. 100.10 (``Definitions''): In response to several
comments requesting further clarification of terms, the following
definitions have been added to this section in the final rule:
cooperative agreement; direct supervision; labor costs; network
operations costs; and provisioning costs.\4\ These definitions have
been inserted in the appropriate alphabetical order. It should also be
noted that the letter designations have been removed from Sec. 100.10,
Definitions, of the final rule at the suggestion of the Federal
Register.
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\4\ It should be noted that line costs associated with delivery
of intercepted communications to law enforcement are not
reimbursable under CALEA. However, it is anticipated that the
delivery costs associated with interceptions will continue to be
borne by the requesting law enforcement agency.
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6. Proposed Sec. 100.11(a)(1) (``Allowable costs''; Pre January 1,
1995 modifications; Plant specific costs): In conformance with the
changes to proposed Sec. 100.10(k), as discussed above in response 4,
the term ``plant specific costs'' has been replaced with the term
``plant costs.''
7. Proposed Sec. 100.11(a)(1) (``Allowable costs''; Pre January 1,
1995 modifications; General): This subsection establishes the
allowability of all reasonable plant costs directly associated with the
modifications performed by carriers in connection with equipment,
facilities, and services installed or deployed on or before January 1,
1995, to establish the capabilities necessary to comply with section
103 of CALEA, until the equipment, facility, or service is replaced or
significantly upgraded or otherwise undergoes major modifications.
Several commenters asserted that the January 1, 1995 cut-off date for
reimbursable modifications was inappropriate. In particular, several
commenters from the wireless industry noted that the dynamic nature of
their industry effectively, and unfairly, excluded them from the cost
reimbursement pool under this subsection.
The FBI must comply with CALEA, which mandates this date in section
109(a). It is, therefore, beyond the scope of the FBI's authority to
change this date.
8. Proposed Sec. 100.11(a)(1) (``Allowable costs''; Pre January 1,
1995 modifications; Significant upgrade): This subsection establishes
the allowability of all reasonable plant costs directly associated with
the modifications performed by carriers in connection with equipment,
facilities, and services installed or deployed on or before January 1,
1995, to establish the capabilities necessary to comply with section
103 of CALEA, until the equipment, facility, or service is replaced or
significantly upgraded or otherwise undergoes major modifications. Half
of the commenters requested that the FBI define the phrase ``replaced
or significantly upgraded or otherwise undergoes major modifications''
(hereafter referred to as ``significant upgrade or major
modification''). These commenters pointed out that eligibility for
reimbursement is dependent upon how the FBI interprets ``significant
upgrade or major modification.''
Given the dynamic nature of the telecommunications industry and the
potential impact on eligibility for reimbursement, the FBI acknowledges
that ``significant upgrade and major modification'' must be defined.
However, this issue affects only those carriers who have made
modifications or upgrades to their equipment, facilities, and/or
services installed or deployed on or before January 1, 1995. The
reimbursement eligibility of any equipment, facility, or service which
has undergone no modification or upgrade since January 1, 1995 is not
affected by this definition. In addition, ``significant upgrade or
major modification'' does not pertain to cases of reimbursement for
capability modifications which have been deemed not reasonably
achievable by the FCC under CALEA section 109(b)(2) or to reimbursement
for capacity modifications under CALEA section 104(e). Therefore, given
that many of the potential reimbursement scenarios allowed by CALEA,
and, therefore, by this rule, are not affected by the definition of
``significant upgrade and major modification,'' the FBI has elected, as
noted below, to handle this
[[Page 13311]]
issue separately in order to expedite the CALEA implementation process.
This decision is in both the best interests of the government and of
the carriers given that CALEA funds are now available to begin the
reimbursement effort.\5\ Severing the ``significant upgrade and major
modification'' issue from this rule for separate consideration allows
the FBI as soon as possible to begin reimbursing those carriers who
have made no modifications or upgrades since January 1, 1995.
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\5\ Public Law 104-208, Item 28: (16) ``Telecommunications
Carrier Compliance Fund.''
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On November 19, 1996, the FBI published an Advanced Notice of
Proposed Rulemaking (ANPRM) in the Federal Register (61 FR 58799),
which solicited the submission of potential definitions of
``significant upgrade or major modification'' from the
telecommunications industry and the general public. This ANPRM was also
sent to a large number of associations representing the interests of
the various telecommunications carriers, both wireline and wireless.
The FBI is currently considering the comments received and anticipates
making a determination with regard to this issue in the near future.
9. Proposed Sec. 100.11(a)(2) (``Allowable costs''; Post January 1,
1995 modifications; Plant specific costs): In conformance with the
changes to proposed Sec. 100.10(k), as discussed above in response 4,
the term ``plant specific costs'' has been replaced with the term
``plant costs.''
10. Proposed Sec. 100.11(a)(2) (``Allowable costs''; Post January
1, 1995, modifications; Additional reasonable costs): This subsection
establishes the allowability of the additional reasonable plant costs
directly associated with making the assistance capability requirements
found in section 103 of CALEA reasonably achievable with respect to
equipment, facilities, or services installed or deployed after January
1, 1995, in accordance with the procedures established in CALEA section
109(b). Several commenters wanted to know how the FBI planned to define
``additional reasonable costs.'' CALEA section 109(b)(1) places the
responsibility of determining whether modifications to equipment,
facilities, and services installed or deployed after January 1, 1995,
are ``reasonably achievable'' with the FCC, which will make its rulings
based on specific petitions by carriers. At its most basic level,
additional reasonable costs means those costs which are above and
beyond what the FCC determines to be ``reasonably achievable'' in each
instance. The specifics of this issue fall within the purview of the
FCC's CALEA implementation responsibilities; it would, therefore, be
inappropriate for the FBI to address this issue further in this rule.
11. Proposed Sec. 100.11(a)(3) (``Allowable costs''; Capacity
modifications; Plant specific costs): In conformance with the changes
to proposed Sec. 100.10(k), as discussed above in response 4, the term
``plant specific costs'' has been replaced with the term ``plant
costs.''
12. Proposed Sec. 100.11(b) (``Allowable costs''; Allowable plant
specific costs): Several commenters expressed concern over the use of
plant specific and plant non-specific as qualifiers for allowability
for reimbursement purposes under CALEA. These commenters pointed out
that there could be certain plant non-specific costs which could be
allowable.
The FBI is persuaded by these arguments and has amended the final
rule as follows.
First, the FBI has removed the definitions of plant specific and
plant non-specific costs from Sec. 100.10, Definitions, and has
replaced them with an all-encompassing definition of ``plant costs.''
Second, the FBI has amended Sec. 100.11(b) to reflect allowable plant
costs, whether plant specific or plant non-specific. Third, the FBI has
amended Sec. 100.15(c) to reflect disallowed plant costs, whether plant
specific or plant non-specific.
13. Proposed Sec. 100.11(b)(2) (``Allowable costs''; Allowable
plant specific costs; first-line supervision): One comment was received
from a small wireless carrier which expressed concern over the nature
and definition of ``first-line supervision.'' This commenter
interpreted this subsection as excluding from eligibility for
reimbursement the work of some individuals who, of necessity, perform
many different functions in a small business. The FBI has replaced this
term with ``direct supervision'' and has provided a definition of
``direct supervision'' in Sec. 100.10 of the final rule to clarify this
issue.
The FBI also wishes to note that, for the purposes of
reimbursement, it is not job title which matters, but rather the nature
of the work performed. Therefore, if the Chief Executive Officer (CEO)
of a company also happens to be the engineer responsible for network
engineering, the time that individual spends coordinating the
integration of the CALEA compliant solution into the network will be
reimbursable, while the time spent managing the general business
affairs of the company will not be reimbursable.
14. Proposed Sec. 100.11(c) (``Allowable costs''; Incremental
costs): Both CALEA \6\ and the proposed rule establish that ``[i]n the
case of any modification that may be used for any purpose other than
lawfully authorized electronic surveillance by a government law
enforcement agency, . . . only the incremental cost of making the
modification suitable for such law enforcement purposes'' is
recoverable. Some commenters wished to know the methodology the FBI
intends to use to determine (1) whether a modification could be used
for any other purpose; and (2) the nature and amount of these
``incremental costs.''
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\6\ Sec. 109(e)(2)(B)
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The determination of whether or not a modification could be used
for any purpose other than lawfully authorized electronic surveillance
by a government law enforcement agency is outside the scope of this
accounting rule.
In the case of any modification that may be used for any purpose
other than lawfully authorized electronic surveillance by a government
law enforcement agency, the carrier may only recover the incremental
cost of making the modification suitable for such law enforcement
purposes. With regard to the determination of the nature and amount of
the ``incremental costs,'' this determination will be dependent on the
nature of the proposed solution. Therefore, the nature and amount of
any ``incremental costs'' will be identified and proposed by specific
carriers as part of specific cooperative agreements.
15. Proposed Sec. 100.11(d) (``Allowable costs''): In the proposed
rule, ``direct cost'' was used interchangeably with ``directly
assignable cost'' which could potentially create confusion. Therefore,
in order to maintain consistency within the document and to clarify the
original intent of this subsection, ``direct and directly allocable
costs'' has been amended to read ``directly assignable and directly
allocable costs.''
16. Proposed Sec. 100.12 (``Reasonable costs''; General): In this
section, the FBI has set forth the guidelines for determining whether a
cost is reasonable for reimbursement purposes. Several commenters
requested that the FBI clarify how the ``reasonableness'' of costs will
be determined for the purposes of reimbursement. While the guidelines
set forth in Sec. 100.12 may seem somewhat vague and subjective, it
must be noted that they are consistent with the standard guidelines
used in
[[Page 13312]]
government contracting.\7\ It is not the Government's intent to
``second guess'' the carrier's judgement; the Government simply
requires that the carrier's decisions involve the use of reasonable and
prudent judgement. Stated another way, all the Government requires is
that the carrier treat the taxpayers' money with the same prudence and
care the carrier would apply to its own corporate funds. Therefore, no
change has been made in the final rule.
---------------------------------------------------------------------------
\7\ See, for example, the Federal Acquisition Regulation (FAR)
31.201-3 for procurement contracts and OMB Circulars A-122, ``Cost
Principles for Nonprofit Organizations'' and A-21, ``Principles for
Determining Costs Applicable to Grants, Cooperative Agreements, and
Other Agreements with Educational Institutions'' for grants and
cooperative agreements.
---------------------------------------------------------------------------
17. Proposed Sec. 100.12(a)(1) and (a)(2) (``Reasonable costs'';
Presumption of reasonableness and burden of proof): These subsections
establish that no presumption of reasonableness is attached to the
incurrence of costs by a carrier and that the burden of proof that a
cost is reasonable for the purposes of CALEA reimbursement rests with
the carrier. Some carriers objected to these requirements, arguing that
the burden of proof that a cost was not reasonable ought to rest with
the Government. These subsections follow standard Government cost
principles.\8\ Therefore, no change has been made in the final rule.
---------------------------------------------------------------------------
\8\ See FAR 31.201-3 for procurement contracts.
---------------------------------------------------------------------------
For purposes of clarity, however, it must be noted that the FBI is
not requiring that supplementary documentation necessary to meet the
burden of proof be submitted with the initial cost estimate or request
for payment; those submissions require only the level of supporting
documentation outlined in Sec. 100.16 and Sec. 100.17 of the final
rule. It is only when a review of these submissions results in a
question regarding a specific cost that the carrier will be required to
meet the burden of proof with appropriate supporting documentation.
In addition, the nature and extent of the supporting documentation
which might be required will be addressed during the cooperative
agreement process to allow flexibility (1) for the various accounting
systems in use throughout the industry and (2) for the special needs of
small entities as discussed in the Final Regulatory Flexibility
Analysis below.
18. Proposed Sec. 100.13(a)(3) (``Directly assignable costs'';
Burden of proof): This subsection establishes that the burden of proof
that a cost is directly assignable to the CALEA implementation effort
rests with the carrier. Some carriers objected to these requirements,
arguing that the burden of proof that a cost was not directly
assignable to the CALEA implementation effort ought to rest with the
Government. This subsection follows standard Government cost
principles.\9\ Therefore, no change has been made in the final rule.
---------------------------------------------------------------------------
\9\ Id.
---------------------------------------------------------------------------
For purposes of clarity, however, it must be noted that the FBI is
not requiring that supplementary documentation necessary to meet the
burden of proof be submitted with the initial cost estimate or request
for payment; those submissions require only the level of supporting
documentation outlined in Sec. 100.16 and Sec. 100.17 of the final
rule. It is only when a review of these submissions results in a
question regarding a specific cost that the carrier will be required to
meet the burden of proof with appropriate supporting documentation.
In addition, the nature and extent of the supporting documentation
which might be required will be addressed during the cooperative
agreement process to allow flexibility (1) for the various accounting
systems in use throughout the industry and (2) for the special needs of
small entities as discussed in the Final Regulatory Flexibility
Analysis below.
19. Proposed Sec. 100.13(b) (``Directly assignable costs''; Minor
dollar amounts): The FBI has stricken the reference to minor dollar
amounts in this subsection as unnecessary.
20. Proposed Sec. 100.13 (``Directly allocable costs''; General):
This section sets forth the requirements for treating costs as directly
allocable costs for the purposes of the CALEA reimbursement process.
One commenter argued that the definition of and requirements for
``directly allocable costs'' are largely meaningless in that they
appear to be inconsistent with the FAR. The FBI has, as noted above,
amended the definition of ``directly allocable costs'' in proposed
Sec. 100.10(e) in the final rule. In addition to this emendation, the
FBI wishes to point out that it is not possible for this rule to be
completely consistent with the FAR because CALEA specifically disallows
costs which the FAR treats as allowable. Furthermore, the treatment of
``directly allocable costs'' is the direct result of the FBI's intent
to allow carriers to use their existing accounting systems to comply
with these rules. Therefore, no change has been made in the final rule.
21. Proposed Sec. 100.14(b) (``Directly allocable costs''; Burden
of proof): This subsection establishes that burden of proof that a cost
is directly allocable (as defined in this rule) to the CALEA
implementation effort rests with the carrier. Some carriers objected to
these requirements, arguing that the burden of proof that a cost was
not directly allocable to the CALEA implementation effort ought to rest
with the Government. This subsection follows standard Government cost
principles.\10\ Therefore, no change has been made in the final rule.
---------------------------------------------------------------------------
\10\ See FAR 31.201-3 for procurement contracts.
---------------------------------------------------------------------------
For purposes of clarity, however, it must be noted that the FBI is
not requiring that supplementary documentation necessary to meet the
burden of proof be submitted with the initial cost estimate or request
for payment; those submissions require only the level of supporting
documentation outlined in Sec. 100.16 and Sec. 100.17 of the final
rule. It is only when a review of these submissions results in a
question regarding specific cost that the carrier will be required to
meet the burden of proof with appropriate supporting documentation.
In addition, the nature and extent of the supporting documentation
which might be required will be addressed during the cooperative
agreement process to allow flexibility (1) for the various accounting
systems in use throughout the industry and (2) for the special needs of
small entities as discussed in the Final Regulatory Flexibility
Analysis below.
22. Proposed Sec. 100.14(d)(4) (``Directly allocable costs'';
Distribution base): Some commenters objected to this subsection because
they interpreted it to mean that the FBI was reserving the right to
approve or disapprove of each carrier's entire cost accounting system
based on the phrase ``has been accepted by the FBI.'' This was never
the intent of the proposed rule, nor is it the intent of the final
rule. The FBI intended to ensure the following: (1) that the base for
distributing allocable costs is definitized in the cooperative
agreement between the carrier and the FBI and (2) that the carrier
makes no significant changes [i.e. changes which will affect the level
of reimbursement from the government] to this distribution base once it
has been agreed to without the written approval of the FBI. Given the
apparent misinterpretation on the part of some of the commenters, the
FBI has amended the final rule to more clearly reflect this intent.
23. Proposed Sec. 100.14(d)(5)(i) (``Directly allocable costs'';
Allocation methodology; cost patterns): One commenter asked whether
this subsection required that carriers submit to the FBI evidence of
how the carrier
[[Page 13313]]
allocated common costs on other projects as a mechanism for checking
the appropriateness of the proposed allocation methodology for CALEA
reimbursement. The FBI is not requiring submission of such evidence;
however, such evidence could be used as an example of the carrier's
typical practices if a question regarding the allocation methodology
arose.
24. Proposed Sec. 100.14(d)(5)(iii) (``Directly allocable costs'';
Allocation methodology; site-specific records): One commenter asserted
that the requirement of this subsection that carriers maintain CALEA-
specific records supporting cost allocations that are site-specific
would be burdensome to carriers with multiple switches requiring CALEA
modifications.
Given that CALEA restricts reimbursement to directly associated
costs only, it will be necessary for carriers to maintain CALEA-
specific records. As these records will, of necessity, need to indicate
work done on specific equipment, facilities, and services, there is no
apparent means of relieving carriers of the requirement to maintain
site-specific records. Therefore, no change has been made in the final
rule.
25. Proposed Sec. 100.14(d)(6) (``Directly allocable costs''; Base
periods): One commenter asserted that it did not use ``base periods''
for allocating allocable costs. However, whether this commenter calls
it a ``base period'' or not, the commenter does use a fiscal year for
financial reporting purposes. Therefore, in the case of this commenter,
the ``base period'' could be the fiscal year. The FBI crafted these
rules to allow the carriers as much flexibility as possible in
reporting requirements in order to minimize the burden imposed upon
them. Hence, the exact definition of the ``base period'' is left up to
each carrier.
26. Proposed Sec. 100.15 (``Disallowed costs''; General): Many
commenters questioned the restrictions set forth in this section. All
commenters addressing the issue had specific types of costs which they
believed should not be disallowed. Of these, most could be subsumed
into the areas of General and Administrative (G&A) costs and Plant Non-
Specific costs, which are addressed below. In general, the FBI wishes
to point out that it is the authority to expend funds found in CALEA
which limits reimbursable costs to directly associated costs. The FBI
would be in direct violation of law if it were to allow costs which
are, either expressly or implicitly, disallowed by CALEA. Therefore,
other than as discussed in response 28, below, with regard to the
clarification as to the definitions of plant specific and plant non-
specific costs, no costs disallowed in the proposed rule have been
removed from this section in the final rule.
27. Proposed Sec. 100.15(a) (``Disallowed costs''; G&A costs): G&A
costs are costs which are normally considered indirect (i.e. not
directly associated with final cost objectives). The FBI cannot
disburse funds to a carrier under CALEA for costs that the carrier
would have incurred (e.g. external relations and information management
costs) had CALEA not been enacted. However, the FBI recognizes that
certain CALEA-specific expenses, which might normally be considered G&A
costs, may, in accordance with Sec. 100.11 of these rules, be charged
directly to the CALEA implementation effort. Section 100.15, Directly
Allocable Costs, was written in order to provide the carriers with the
ability to recover these costs.
28. Proposed Sec. 100.15(c) (``Disallowed costs''; Plant non-
specific costs): Several commenters expressed concern over the use of
plant specific and plant non-specific as qualifiers for allowability
for reimbursement purposes under CALEA. These commenters pointed out
that there could be certain plant non-specific costs which would be
allowable. The FBI is persuaded by these arguments and has amended the
final rule as follows:
First, the FBI has removed the definitions of plant specific and
plant non-specific costs from Sec. 100.10, Definitions, and has
replaced them with an all-encompassing definition of ``plants costs.''
Second, the FBI has amended Sec. 100.11(b) to reflect allowable plants
costs, whether plant specific or plant non-specific. Third, the FBI has
amended Sec. 100.15(c) to reflect disallowed plant costs, whether plant
specific or plant non-specific.
29. Final Sec. 100.15(f) (``Additional costs''; Agreed upon): The
FBI has, for the purposes of clarity, changed ``agreed upon'' to
``agreed to by the government and the carrier.''
30. Final Sec. 100.15(h), formerly part of Proposed Sec. 100.20
(``Disallowed costs''; Accounting provisions): Some commenters asserted
that Proposed Sec. 100.20, Accounting for Unallowable Costs, was
unnecessary and burdensome because carriers must fully account for and
document allowable expenses.
The original intent of Proposed Sec. 100.20 was to ensure that,
should a carrier's accounting system require that unallowable costs be
used in any way to calculate the nature and amount of allowable costs
(i.e. to determine the level of allocable costs), the unallowable costs
were accurately identified as such, and were properly removed from the
calculation of the reimbursement amount. However, the FBI acknowledges
that this section appeared confusing and that it could be streamlined.
Therefore, Proposed Sec. 100.20, Accounting for Unallowable Costs, has
been deleted and the necessary elements have been added as new
subsection (h) to Final Sec. 100.15, Disallowed Costs.
31. Proposed Sec. 100.16 and Sec. 100.17 (``Cost estimate
submission'' and ``Request for payment''; General): Many commenters
stated that the reporting requirements of these sections are
unnecessarily duplicative of each other and generally require too much
detail.
Any expenditure of CALEA funds must meet minimal recordkeeping
requirements and must be auditable by the Inspector General of the
Department of Justice and the Comptroller General of the United
States.\11\ The rule defines the minimum amount of financial data and
supporting documentation that the FBI must retain if it is to reimburse
carriers. The FBI has required the least burdensome reporting level
possible which still allows it to meet its fiscal accountability
requirements.
---------------------------------------------------------------------------
\11\ 31 U.S.C. 712 authorizes the Comptroller General to
investigate all matters related to the receipt, disbursement, and
use of public money. 47 U.S.C. 1010(b) (as amended by Public Law
104-316) requires the Inspector General of the Department of Justice
to report to Congress on the ``reasonableness and cost-effectiveness
of the payments made by the Attorney General to telecommunications
carriers for modifications necessary to ensure compliance with
[CALEA].''
---------------------------------------------------------------------------
However, the FBI has also learned from the comments received that
certain aspects of these sections describing the requirements could
benefit from further explanation and some emendation for the purposes
of clarity with regard to the level of detail required to be submitted.
These explanations and emendations are addressed by subsection below.
As for the perceived duplicativeness of Sec. 100.16 and
Sec. 100.17, the commenters appear to have been confused by the
cooperative agreement process, an explanation of which appears above in
Section B, Establishment of Cost Recovery Rules and Procedures,
subheading ``Cooperative Agreement Process.'' In addition to the
explanation of the cooperative agreement process above, the FBI
presents the following additional clarification. Estimates are needed
because the FBI must have a clear idea of how much each proposed
modification is expected to cost so that it may weigh the proposed
costs of each modification against the anticipated
[[Page 13314]]
benefits to the pubic safety.\12\ Clearly, the FBI must require that
carriers submit sufficient information for cost-benefit analyses to be
performed. Furthermore, CALEA specifically requires that the cost
recovery regulations prescribed must ``seek to minimize the cost to the
Federal Government. . . .`` \13\ The FBI must, therefore, be able to
determine that the solution proposed and its associated costs are
appropriate and reasonable prior to entering into cooperative
agreements for reimbursement with carriers.
---------------------------------------------------------------------------
\12\ CALEA Sec. 109(c) states that ``The Attorney General shall
allocate funds appropriated to carry out this title in accordance
with law enforcement priorities determined by the Attorney
General.''
\13\ CALEA Sec. 109(e)(2)
---------------------------------------------------------------------------
The need for supporting documentation at the request for payment
stage is required by CALEA. While the FBI does not anticipate any
intentional fraud, honest mistakes are sometimes made and the FBI is
required to ensure that the Federal Government does not inappropriately
expend taxpayer funds on disallowed costs.
In addition, the similarities between the cost estimate and the
request for payment remarked upon by several commenters are intended to
simplify the reporting and recordkeeping done by carriers and will help
ensure that the request for payment can adequately be correlated to the
cost estimate for review purposes.
32. Proposed Sec. 100.16 and Sec. 100.17 (``Cost estimate
submissions'' and ``Request for payment''; General; Wireless Carrier
Concerns): Comments were received from representatives of the wireless
industry which expressed concern that the reporting requirements of
Sec. 100.16, Cost Estimate Submission, and Sec. 100.17, Request for
Payment, are too burdensome for wireless providers because their
accounting systems are not equipped to generate the level of detail
wireline providers' systems are.
As long as such carriers are using accounting systems which
generate financial statements which are in accordance with generally
accepted accounting principles, the final rule will allow wireless
providers to use their current accounting systems to meet these
reporting requirements.
33. Proposed Sec. 100.16 and Sec. 100.17 (``Cost estimate
submission'' and ``Request for payment''; General; Small Business
Concerns): Several commenters, either classified as small businesses
for regulatory purposes or representing the interests of such small
businesses, expressed concern that the reporting requirements of these
sections would place an undue burden on small businesses. While this
issue is addressed at length in the Final Regulatory Flexibility
Analysis below, a brief discussion is merited here. The reporting
requirements of these sections are flexible enough to allow small
carriers to submit cost estimates and requests for payment from the
level of detail available to their existing accounting systems. As
stated above in comment response 17, and as will be made clear by the
responses to specific comments which follow, the FBI only requires the
submission of supporting data if a question arises regarding specific
items. In addition, a Small Business Compliance Guide, as required by
Section 212 of the Small Business Regulatory Enforcement Fairness Act
of 1996 (SBREFA) (Title II of Public Law 104-121) will be forthcoming
from the FBI. This Guide, which will be tailored to the needs of small
businesses, will provide detailed instructions for complying with all
aspects of this final rule. The FBI has consulted with the Office of
Advocacy of the Small Business Administration (SBA) and the Office of
Communications Business Opportunities at the FCC regarding this final
rule and is committed to imposing the least regulatory burden possible
on small businesses and assisting them in achieving CALEA-compliance
with respect to this rule.
34. Proposed Sec. 100.16(c) (``Cost estimate submission''; Higher
authority): A few commenters pointed out that the reference to a
``higher authority'' was ambiguous. The FBI accepts this comment and
has amended the final rule accordingly.
35. Proposed Sec. 100.16(d)(1) (``Cost estimate submission'';
Supporting documentation): Several commenters were concerned about the
required submission of what they perceived as an extremely high level
of supporting documentation of Sec. 100.16(d)(1). The FBI accepts this
comment and has, for the purposes of clarity, removed the descriptive
phrase ``adequately cross-referenced, suitable for detailed analysis''
from this subsection.
36. Proposed Sec. 100.16(d)(2) (``Cost estimate submission''; Cost
element breakdown): One commenter was concerned that this subsection's
inclusion of the phrase ``and must reflect any specific requirements
established by the FBI'' gave the FBI too much latitude in requiring
additional documentation submission. While this was not the intent of
this phrase, the FBI accepts that it could be read in such a manner and
has, therefore, stricken it from the final rule.
37. Proposed Sec. 100.16(d)(5)(iii) (``Cost estimate submission'';
``Allocable direct costs''): A few commenters found the phrase
``showing trends and budgetary data'' both burdensome and requiring
further explanation. In the interests of minimizing the reporting
burden on carriers and clarifying the requirements, the FBI has
streamlined this subsection by removing this phrase and deleting the
requirement to ``indicate the rates used and provide an appropriate
explanation.''
38. Proposed Sec. 100.16(e)(1) (``Cost estimate submission'';
Judgmental factors): One commenter requested clarification of the term
``judgmental factors.'' The FBI has amended the final rule to include
an example of such judgmental factors in the text of this subsection.
39. Proposed Sec. 100.16(f) (``Cost estimate submission'';
Continuous submission of cost data): A few commenters interpreted this
subsection's requirement that cost data be submitted as it becomes
available up until the time of final reimbursement as requiring a
continuous submission of data. This was not the FBI's intent; rather,
the FBI sought to ensure that, in the event that information
significantly affecting the cost estimate should become available, the
carrier would provide that information to the FBI. However, the FBI has
determined that this requirement is met by Sec. 100.17(d)(2) of the
final rule and has, therefore, amended Proposed Sec. 100.16(d)(2)
accordingly.
40. Proposed Sec. 100.17(b)(1) (``Request for Payment''; Supporting
documentation): Several commenters were concerned about the required
submission of what they perceived as an extremely high level of
supporting documentation in Sec. 100.17(b)(1). The FBI accepts this
comment and has, for the purposes of clarity, removed the descriptive
phrase ``adequately cross-referenced, suitable for detailed analysis''
from this subsection.
41. Proposed Sec. 100.17(b)(2) (``Request for Payment''; Cost
element breakdown): One commenter was concerned that this subsection's
inclusion of the phrase ``and must reflect any specific requirements
established by the FBI'' gave the FBI too much latitude in requiring
additional documentation submission. While this was not the intent of
this phrase, the FBI accepts that it could be read in such a manner and
has, therefore, stricken it from the final rule.
42. Proposed Sec. 100.17(c) (``Request for Payment''; Forward
costing factors): The FBI has stricken the reference to forward costing
factors in this subsection as unnecessary.
[[Page 13315]]
43. Proposed Sec. 100.17(c)(2) (``Request for Payment''; Direct
labor): A few commenters found this subsection to be confusing and
requiring a potentially overburdensome submission of documentation. The
FBI has streamlined this subsection and clarified its document
submission requirements such that they impose the least burden
possible. Specifically, the FBI has added the phrase ``have available
for audit in accordance with Sec. 100.18'' to the text to better define
the documentation requirements. This phrase has also been added to
Proposed subsections 100.17(c) (3), (4), and (5) for the same purpose.
44. Proposed Sec. 100.17(d)(1) (``Request for Payment''; Specific
identification of cost data): The FBI has amended this subsection to
clarify the phrase ``by specific identification.''
45. Proposed Sec. 100.17(d)(2) (``Request for Payment''; Continuous
submission of cost data): A few commenters interpreted this
subsection's requirement that cost data be submitted as it becomes
available up until the time of final reimbursement as requiring a
continuous submission of data. This was not the FBI's intent; rather,
the FBI sought to ensure that, in the event that information
significantly affecting the cost estimate should become available, that
the carrier would provide that information to the FBI. This subsection
has been amended to better reflect that intent.
46. Proposed Sec. 100.17(e) (``Request for Payment''; Index): The
FBI has streamlined this subsection to minimize the indexing
requirements.
47. Proposed Sec. 100.18 (``Audit''; General): One commenter
questioned the FBI's right to audit with regard to CALEA
reimbursements. The right to audit is implicit in a federal agency's
stewardship responsibilities with respect to the disbursement of
taxpayer funds. Furthermore, conducting audits of CALEA reimbursements
is an important and integral part of the FBI's internal financial
controls, which are required under 31 U.S.C. Subtitle III, Financial
Management.
48. Proposed Sec. 100.18 (``Audit''; Attorney-Client Privileged
Material and Attorney Work Product): Two commenters seemed to interpret
this section as granting the FBI the right to examine attorney-client
privileged material and attorney work product during the normal course
of an audit. This is not the FBI's intent. Audit materials do not
include privileged communications or work product as protected by law.
It must be noted, however, that the burden proving that the
communication or material is privileged is on the party claiming the
privilege.\14\
---------------------------------------------------------------------------
\14\ SEC v. Gulf & Western Industries, Inc., 518 F. Supp. 675
(D.D.C. 1981). See also Olender v. United States, 210 F.2d 795 (9th
Cir. 1954) (privilege not applicable to communications with attorney
where he has been ``employed as an accountant solely and simply'' in
preparing tax returns).
---------------------------------------------------------------------------
49. Proposed Sec. 100.18(d) (``Audit''; ``Availability'';
Reasonable availability): A few commenters found the requirement that a
carrier ``shall make available at its office at all reasonable times
the cost and support material described herein, for examination, audit,
or reproduction . . .'' to be burdensome given that many carriers store
such information offsite. These commenters interpreted this subsection
as requiring carrier to store such information on-site, thereby
requiring them to alter their existing record keeping regimes.
The FBI agrees that requiring carriers to store such records on-
site would be burdensome; however, this was not the intent of Proposed
Sec. 100.18(d). The pivotal phrase here is ``at all reasonable times.''
Given the wide range of accounting and record keeping methods in use in
the telecommunications industry, the FBI recognizes that ``reasonable''
might be 24 hours for one carrier or 3-5 business days for another
carrier. Therefore, to meet the specific needs of individual carriers,
a ``reasonable'' time frame will be defined as part of the cooperative
agreement entered into with each carrier.
50. Proposed Sec. 100.18(d) (``Audit''; ``Availability''; Record
retention): Several commenters asserted that the five (5) year record
retention requirement was too long and inconsistent with other federal
regulatory record retention requirements. In the interest of minimizing
the regulatory burden on private industry, the FBI accepts this
comment. The record retention period in the final rule is amended to
three (3) years.
51. Proposed Sec. 100.19 (``Reduction for defective cost data''): A
few commenters expressed concern that this section could be interpreted
as a penalty clause. This was not the FBI's intent; rather, this
section was included to allow for equitable adjustments to an agreed-to
amount to reflect actual costs. To clarify this intent, the FBI has
expanded Sec. 100.19 to include adjustment procedures for revisions of
the agreed-to amount: (1) prior to the incurrence of a cost; (2)
subsequent to the incurrence of a cost; and (3) subsequent to the
discovery that cost data was defective.
52. Proposed Sec. 100.19(c)(1) (``Reduction for defective cost
data''; Sole source supplier): Several commenters, either classified as
small businesses for regulatory purposes or representing the interests
of such small businesses, expressed concern that holding small
businesses responsible for the cost data of their sole source suppliers
was unduly burdensome. This issue is addressed at length in the Final
Regulatory Flexibility Analysis below.
53. Proposed Sec. 100.19(c)(4) (``Reduction for defective cost
data''; Interest): A few commenters requested that a subsection be
added requiring the Government to pay the carrier interest in the event
of an underpayment or late payment by the Government. The FBI
originally believed that such payments were mandated by the Prompt
Payment Act (31 U.S.C. 3901 et seq., as amended), which requires the
payment of interest on the part of the Government and OMB Circular A-
125 (Revised), ``Prompt Payment,'' which establishes the procedures for
the payment of interest to parties in the event of late payment by the
Government. It has since determined, however, that both the Prompt
Payment Act and OMB Circular A-125 apply only to procurement contracts.
Given this, the FBI does not derive statutory authority to pay interest
under the Prompt Payment Act. However, the FBI may contractually bind
itself with such provisions. Therefore, the FBI can incorporate such a
clause into its cooperative agreements with carriers. Rather than
develop duplicate procedures, the FBI intends to incorporate the
procedures for the payment of interest on late payment of invoice
payments (including progress payments) set forth in OMB Circular A-125
into all cooperative agreements with carriers. Therefore, the FBI has
not amended the final rule.
54. Proposed Sec. 100.20 (``Accounting for unallowable costs''):
Some commenters asserted that Proposed Sec. 100.20, Accounting for
Unallowable Costs, was unnecessary and burdensome because carriers must
fully account for and document allowable expenses.
The original intent of Proposed Sec. 100.20 was to ensure that,
should a carrier's accounting system require that unallowable costs be
used in any way to calculate the nature and amount of allowable costs
(i.e. to determine the level of allocable costs), the unallowable costs
were accurately identified as such, and were properly removed from the
calculation of the reimbursement amount. However, the FBI acknowledges
that this section appeared confusing and that it could be streamlined.
Therefore, Proposed Sec. 100.20, Accounting for Unallowable
[[Page 13316]]
Costs, has been deleted and the necessary elements have been added as
new subsection (h) to Final Sec. 100.15, Disallowed Costs.
55. Proposed Sec. 100.21 (``Confidentiality of trade secrets/
proprietary information''): One commenter requested that the FBI amend
this section to ensure that company proprietary information is not
indiscriminately disclosed to Government employees. While this was not
the FBI's intent, it accepts the comment and has amended the final rule
accordingly.
General Comments
1. Capacity Requirements: Several commenters felt that they could
not adequately comment on the proposed cost recovery rules without
knowing what the final capacity requirements were. These commenters
asserted that they needed to know the estimated costs prior to
assessing the proposed rule.
These comments are not accepted. The Cost Recovery Rules are
accounting principles addressing allowability and reasonableness which
will be applied universally to carriers' costs, regardless of amount.
2. Takings: Two commenters asserted that carrier compliance with
CALEA would require the carriers to expend funds or lose profits which
would constitute a taking for which the carriers would be entitled to
full compensation pursuant to the Just Compensation Clause of the Fifth
Amendment of the Constitution of the United States. One commenter
asserted that this was so regardless of whether Congress provides
funding for CALEA cost reimbursement.
No set formula exists for identifying when Government regulatory
action constitutes a ``taking'' under the Constitution; the Supreme
Court has instead generally relied on an ad hoc, factual inquiry into
the circumstances of each particular case. The Supreme Court has,
however, indicated that the following factors have particular
significance: (1) the severity of the economic impact of the regulation
on the claimant; (2) the extent to which the regulation has interfered
with distinct investment-backed expectations; and (3) the character of
the government action. See Concrete Pipe and Products of California,
Inc. v. Construction Laborers Pension Trust for So. California, 508
U.S. 602, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993); Connolly v. Pension
Benefit Guaranty Corp. 475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166
(1986); see also Lucas v. South Carolina Coastal Commission, 505 U.S.
1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992).
In response to the comments received, the FBI has analyzed these
factors and has concluded that CALEA's requirements do not amount to a
compensable taking. First, the FBI does not believe that the economic
impact of these CALEA regulations on carriers will rise to the level of
a taking requiring compensation. These regulations will not
significantly impair the economically beneficial use of the carrier's
property, and the value of such property will not be substantially
reduced. If any such reduction does occur, these regulations provide
that it may be offset by Congressional funding available to reimburse
carriers. Moreover, it has been held that ``mere diminution in the
value of property, however serious, is insufficient to demonstrate a
taking.'' Concrete Pipe, 508 U.S. at 645. Second, these regulations
will not interfere with investment-backed expectations of the carriers.
Carriers have cooperated with the execution of court-ordered electronic
surveillance for some time now. Carriers could, consequently, readily
anticipate that such wiretapping would continue and that the mechanisms
of such wiretapping would evolve as telecommunications technology
advanced. These regulations do not expand law enforcement authority but
merely maintain the ability of law enforcement to conduct court-ordered
surveillance. Carriers had no reasonable expectation that they would
not be required to continue to provide assistance to law enforcement.
Finally, the character of the government action involved suggests that
these regulations do not involve a compensable taking. In carrying out
CALEA, no law enforcement agency will physically invade any carriers'
property or appropriate any carriers' assets for its own use. The FBI
feels that these CALEA regulations substantially advance the Nation's
legitimate interests in preserving public safety and national security.
These interests would unquestionably be jeopardized without the ability
to conduct court-ordered electronic surveillance. Such wiretaps are
critical to saving lives and solving crimes. In sum, the FBI does not
believe that the carriers are being forced to bear a burden ``which, in
all fairness and justice, should be borne by the public as a whole.''
Armstong v. United States, 364 U.S. 40, 49 (1960).
3. Manufacture Date of Equipment: One commenter seemed to assert
that it was the manufacture date of the equipment which determined its
eligibility for reimbursement. This comment is non-germane given that
CALEA specifically addresses ``equipment, facilities, and services
installed or deployed on or before January 1, 1995'' [Sec. 109(a),
emphasis added], and ``equipment, facilit[ies] and service[s] installed
or deployed after January 1, 1995'' [Sec. 109(b)(1), emphasis added].
Clearly, it is the installation or deployment date rather than the
manufacture date which determines eligibility for reimbursement.
4. Dispute Resolution: A few commenters requested that the FBI
identify a means of dispute resolution should a disagreement occur
between a carrier and the FBI regarding the cooperative agreement
process. As discussed above, carriers are in no way obligated to expend
funds on modifications that are eligible for reimbursement under
sections 109 and 104 prior to the execution of a cooperative agreement.
Furthermore, should a carrier and the FBI fail to reach agreement as to
the terms of the cooperative agreement, that carrier will remain in
compliance with CALEA until such time as the equipment, facility or
service in question is no longer eligible for reimbursement, either
because it has undergone a ``significant upgrade or major
modification'' or because the modification required has been determined
to be reasonably achievable by the FCC.\15\ Nevertheless, if a dispute
does arise which has resulted in an impasse to the negotiations, there
may be benefits to both the FBI and the carrier that would warrant
additional efforts at resolving the dispute, so that a cooperative
agreement could be agreed upon. The FBI is also aware of the Attorney
General's April 6, 1995 Policy on Alternative Dispute Resolution (ADR),
as well as Executive Order 12988, and the Congressional endorsement of
ADR as found in the recently reauthorized Administrative Dispute
Resolution Act of 1996. For all these reasons, the FBI has decided
that, where an impasse in the negotiations precludes it from executing
a cooperative agreement with a carrier, it will consider using
mediation (where the carrier agrees) to achieve, in a timely fashion, a
consensual resolution of all outstanding issues through facilitated
negotiations. The FBI expects that the costs of mediation would be
shared equally by the parties, and that each mediation would be
governed by a separate mediation agreement prepared by the FBI and the
carrier. Accordingly, Sec. 100.21 ``Alternative Dispute Resolution''
has been added to the Final Rule.
---------------------------------------------------------------------------
\15\ CALEA Sec. 109(d) and Sec. 109(b)(1).
---------------------------------------------------------------------------
[[Page 13317]]
5. ESI Document: Two commenters expressed concern about the FBI's
Electronic Surveillance Interface (ESI) document. The commenters
asserted their belief that the requirements in the ESI exceeded those
of CALEA. The ESI document is not a requirements document, rather it is
law enforcement's recommendation for the delivery interface between
carrier systems and the law enforcement collection equipment. It
relates only to the delivery of intercepted communications. It does not
dictate interception solutions. The ESI document is merely a
contribution to the standard setting process by law enforcement. The
FBI coordinated the development of the ESI document with the law
enforcement community and the Department of Justice to ensure that the
recommendations were consistent with the scope and intent of CALEA and
with existing electronic surveillance laws. As such, all costs directly
associated with this approach will be eligible for reimbursement.
6. Safe Harbor. Two commenters requested a blanket statement that
all costs associated with meeting a ``safe harbor'' standard as
described in CALEA Sec. 107(a)(2) are reimbursable. Once an industry
standard has been established in accordance with CALEA Sec. 107, the
costs associated with the implementation of that standard will be
reviewed for allowability and reasonableness under this rule.
D. Applicable Administrative Procedures and Executive Orders
Executive Order 12612
This final rule will not have a substantial direct effect on the
States, on the relationship between the national Government and the
States, or on distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 12612, it is determined that this rule does not have sufficient
federalism implications to warrant the preparation of a Federalism
Assessment.
Executive Order 12866
The FBI has completed its examination of this final rule in light
of Executive Order 12866 and has found that it constitutes a
significant regulatory action only under section 3(f)(4). In accordance
with section 6 of Executive Order 12866, the FBI has submitted this
rule, and the proposed rule which preceded it to the Office of
Information and Regulatory Affairs (OIRA), OMB, for review, and has met
all of the requirements of this section.
Unfunded Mandates Reform Act of 1995
The FBI has completed its examination of this final rule in light
of the Unfunded Mandates Reform Act of 1995 and has determined, after
consultation with OIRA, that it does not impose an unfunded mandate as
defined in that Act.
Paperwork Reduction Act of 1995
In accordance with the Paperwork Reduction Act of 1995, public
comment has twice been solicited on the reporting and recordkeeping
requirements of this final rule (61 FR 21396 and 61 FR 58592). As noted
above, all comments have been considered in preparing this final rule,
and significant comments received have been discussed above in Section
C of the Supplementary Information. These reporting and recordkeeping
requirements have been assigned OMB Control Number 1110-0022 which
expires on September 30, 1998.
Regulatory Flexibility Act--Final Regulatory Flexibility Analysis
As required by section 603 of the Regulatory Flexibility Act (RFA),
5 U.S.C. 603, a summary of the Initial Regulatory Flexibility Analysis
(IRFA) was incorporated into the NPRM. The FBI's Final Regulatory
Flexibility Analysis (FRFA) conforms with the RFA as amended by the
Contract with America Advancement Act of 1996 (CWAAA), Public Law 104-
121, 110 Stat. 847 (1996).\16\
---------------------------------------------------------------------------
\16\ Subtitle II of the CWAAA is ``The Small Business Regulatory
Enforcement Fairness Act of 1996'' (SBREFA), codified at 5 U.S.C.
601 et seq.
---------------------------------------------------------------------------
A. Need for and Objectives of this Final Rule
This rule implements section 109 of the Communications Assistance
for Law Enforcement Act (CALEA) which requires the Attorney General to
establish regulations which set forth the procedures telecommunications
carriers must follow in order to receive reimbursement under sections
109 and 104 of CALEA. CALEA requires that this rule enable carriers to
recover costs in a timely and cost-efficient manner while minimizing
the cost to the Federal Government. Specifically, this rule sets forth
the means of determining allowable costs, reasonable costs, and
disallowed costs. Furthermore, it establishes the requirements carriers
must meet in their submission of cost estimates and requests for
payment to the Federal Government for the disbursement of CALEA funds.
Finally, this rule protects the confidentiality of trade secrets and
proprietary information from unnecessary disclosure. The FBI seeks to
subject all carriers to the same regulatory policy, while allowing
carriers to use their existing accounting systems in the reimbursement
process. Pursuant to the goal of imposing the least burden on carriers
while also fulfilling the obligation to adhere to Government fiscal
accountability requirements, this rule specifies reporting objectives
rather than specifying the manner in which these records must be kept.
B. Description and Estimates of the Number of Small Entities Affected
by this Final Rule
The RFA defines a ``small business'' to be the same as a ``small
business concern'' under the Small Business Act, 15 U.S.C. Sec. 632,
unless the regulating agency has developed or adopted one or more
definitions that are appropriate to its activities and are approved by
the Small Business Administration.\17\ Under the Small Business Act, a
``small business concern'' is one that: (1) Is independently owned and
operated; (2) is not dominant in its field of operation; and (3) meets
any additional criteria established by the SBA.\18\ The SBA has defined
a small business for Standard Industrial Classification (SIC)
categories 4812 (Radiotelephone Communications) and 4813 (Telephone
Communications, Except Radiotelephone) to be small entities when they
have fewer than 1,500 employees.\19\ The total number of small
telephone companies falling within both of those SIC categories in
general is discussed first. The number of small businesses within the
two subcategories an attempt to refine further those estimates to
correspond with the categories of telephone companies that are commonly
used by the FCC follows.
---------------------------------------------------------------------------
\17\ See 5 U.S.C. 601(3) (incorporating by reference the
definition of ``small business concern'' in 5 U.S.C. 632).
\18\ 15 U.S.C. 632. See, e.g., Brown Transport Truckload, Inv.
V. Southern Wipers, Inc., 176 B.R. 82 (N.D. Ga. 1994).
\19\ 13 CFR 121.201.
---------------------------------------------------------------------------
1. Telephone Companies (SIC 481)
Total Number of Telephone Companies Affected. The rules adopted
herein may have a significant effect on a substantial number of the
small telephone companies identified by the SBA. The United States
Bureau of the Census (``the Census Bureau'') reports that, at the end
of 1992, there were 3,497 firms engaged in providing telephone
services, as defined therein,
[[Page 13318]]
for at least one year.\20\ This number contains a variety of different
categories of carriers, including local exchange carriers,
interexchange carriers, competitive access providers, cellular
carriers, mobile service carriers, operator service providers, pay
telephone operators, PCS providers, covered SMRS providers, and
resellers. It seems certain that some of those 3,497 telephone service
firms may not qualify as small entities because they are not
``independently owned and operated.'' \21\ For example, a PCS provider
that is affiliated with an interexchange carrier having more than 1,500
employees would not meet the definition of a small business. It seems
reasonable to conclude, therefore, that fewer than 3,497 telephone
service firms are small entity telephone service firms that may be
affected by this rule.
---------------------------------------------------------------------------
\20\ United States Department of Commerce, Bureau of Census,
1992 Census of Transportation, Communications, and Utilities:
Establishment and Firm Size, at Firm Size 1-123 (1995) (1992
Census).
\21\ 15 U.S.C. 632(a)(1).
---------------------------------------------------------------------------
Wireless Carriers and Service Providers. The SBA has developed a
definition of small entities for telephone communications companies
other than radiotelephone (wireless) companies. The Census Bureau
reports that, there were 2,321 such telephone companies in operation
for at least one year at the end of 1992.\22\ According to the SBA's
definition, a small business telephone company other than a
radiotelephone company is one employing fewer than 1,500 persons.\23\
All but 26 of the 2,321 non-radiotelephone companies listed by the
Census Bureau were reported to have fewer than 1,000 employees. Thus,
even if all 26 of those companies had more than 1,500 employees, there
would still be 2,295 non-radiotelephone companies that might qualify as
small entities. Although it seems certain that some of these carriers
are not independently owned and operated, the FBI is unable at this
time to estimate with greater precision the number of wireline carriers
and service providers that would qualify as small business concerns
under the SBA's definition. Consequently, the FBI estimates that there
are fewer than 2,295 small entity telephone communications companies
other than radiotelephone companies that may be affected by this rule.
---------------------------------------------------------------------------
\22\ 1992 Census, supra, at Firm Size 1-123.
\23\ 13 CFR 121.201, Standard Industrial Classification (SIC)
Code 4812.
---------------------------------------------------------------------------
Local Exchange Carriers. Neither the FCC nor the SBA has developed
a definition of small providers of local exchange services (LECs). The
closest applicable definition under SBA rules is for telephone
communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number
of LECs nationwide of which the FBI is aware appears to be the data
that the FCC collects annually in connection with the
Telecommunications Relay Service (TRS). According to the FCC's most
recent data, 1,347 companies reported that they were engaged in the
provision of local exchange services.\24\ Although it seems certain
that some of these carriers are not independently owned and operated,
or have more than 1,500 employees, the FBI is unable at this time to
estimate with greater precision the number of LECs that would qualify
as small business concerns under the SBA's definition. Consequently,
the FBI estimates that there are fewer than 1,347 small incumbent LECs
that may be affected by this rule.
---------------------------------------------------------------------------
\24\ Federal Communications Commission, CCB, Industry Analysis
Division, Telecommunications Industry Revenue: TRS Fund Worksheet
Data, Tbl. 21 (Average Total Telecommunications Revenue Reported by
Class of Carrier) (Feb. 1996) (TRS Worksheet).
---------------------------------------------------------------------------
Interexchange Carriers and Resellers. Neither the FCC nor the SBA
has developed a definition of small entities specifically applicable to
providers of interexchange services (IXCs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies.
The most reliable source of information regarding the number of
IXCs only nationwide of which the FBI is aware appears to be the data
that the FCC collects annually in connection with TRS. According to the
FCC's most recent data, 97 companies reported that they were engaged in
the provision of interexchange services.\25\ Although it seems certain
that some of these carriers are not independently owned and operated,
or have fewer than 1,500 employees, the FBI is unable at this time to
estimate with greater precision the number of IXCs only that would
qualify as small business concerns under the SBA's definition.
Consequently, the FBI estimates that there are fewer than 97 small
entity IXCs only that may be affected by this rule.
---------------------------------------------------------------------------
\25\ Id.
---------------------------------------------------------------------------
Neither the FCC nor the SBA has developed a definition of small
entities specifically applicable to resellers. The closest applicable
definition under SBA rules is for all telephone communications
companies. The most reliable source of information regarding the number
of resellers only nationwide of which the FBI is aware appears to be
the data that the FCC collects annually in connection with the TRS.
According to the FCC's most recent data, 206 companies reported that
they were engaged in the resale of telephone services.\26\ Although it
seems certain that some of these carriers are not independently owned
and operated, or have more than 1,500 employees, the FBI is unable at
this time to estimate with greater precision the number of resellers
only that would qualify as small business concerns under the SBA's
definition. Consequently, the FBI estimates that there are fewer than
206 small entity resellers only that may be affected by this rule.
---------------------------------------------------------------------------
\26\ Id.
---------------------------------------------------------------------------
However, the FCC does have more recent data which combines IXCs and
resellers. According to the FCC's most recent combined data, 583
companies were determined to be either IXCs or resellers.\27\ Although
it seems certain that some of these carriers are not independently
owned and operated, or have more than 1,500 employees, the FBI is
unable at this time to estimate with greater precision the combined
number of IXCs and resellers that would qualify as small business
concerns under the SBA's definition. Consequently, the FBI estimates
that there are fewer than 583 small entity IXCs and resellers that may
be affected by this rule.
---------------------------------------------------------------------------
\27\ Federal Communications Commission, CCB, Industrial Analysis
Division, Long Distance Market Shares, 2nd Quarter, 1996,
(September, 1996).
---------------------------------------------------------------------------
Competitive Access Providers. Neither the FCC nor the SBA has
developed a definition of small entities specifically applicable to
providers of competitive access services (CAPs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable
source of information regarding the number of CAPs nationwide of which
the FBI is aware appears to be the data that the FCC collects annually
in connection with the TRS. According to the FCC's most recent data, 30
companies reported that they were engaged in the provision of
competitive access services.\28\ Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, the FBI is unable at this time to estimate with
greater precision the number of CAPs that would qualify as small
business concerns under the SBA's
[[Page 13319]]
definition. Consequently, the FBI estimates that there are fewer than
30 small entity CAPs that may be affected by this rule.
---------------------------------------------------------------------------
\28\ Federal Communications Commission, CCB, Industry Analysis
Division, Telecommunications Industry Revenue: TRS Fund Worksheet
Data, Tbl. 21 (Average Total Telecommunications Revenue Reported by
Class of Carrier) (Fbe. 1996) (TRS Worksheet).
---------------------------------------------------------------------------
Operator Service Providers. Neither the FCC nor the SBA has
developed a definition of small entities specifically applicable to
providers of operator services. The closest applicable definition under
SBA rules is for telephone communications companies other than
radiotelephone (wireless) companies. The most reliable source of
information regarding the number of operator service providers
nationwide of which the FBI is aware appears to be the data that the
FCC collects annually in connection with the TRS. According to the
FCC's most recent data, 29 companies reported that they were engaged in
the provisions of operator services.\29\ Although it seems certain that
some of these companies are not independently owned and operated, or
have more than 1,500 employees, the FBI is unable at this time to
estimate with greater precision the number of operator service
providers that would qualify as small business concerns under the SBA's
definition. Consequently, the FBI estimates that there are fewer than
29 small entity operator service providers that may be affected by this
rule.
---------------------------------------------------------------------------
\29\ Id.
---------------------------------------------------------------------------
Pay Telephone Operators. Neither the FCC nor the SBA has developed
a definition of small entities specifically applicable to pay telephone
operators. The closest applicable definition under SBA rules is for
telephone communications companies. The most reliable source of
information regarding the number of pay telephone operators nationwide
of which the FBI is aware appears to be the data that the FCC collects
annually in connection with the TRS. According to the FCC's most recent
data, 197 companies reported that they were engaged in the provision of
pay telephone services.\30\ Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, the FBI is unable at this time to estimate with
greater precision the number of pay telephone operators that would
qualify as small business concerns under the SBA's definition.
Consequently, the FBI estimates that there are fewer than 197 small
entity pay telephone operators that may be affected by this rule.
---------------------------------------------------------------------------
\30\ Id.
---------------------------------------------------------------------------
Wireless (Radiotelephone) Carriers. The SBA has developed a
definition of small entities of radiotelephone (wireless) companies.
The Census Bureau reports that there were 1,176 such companies in
operation for at least one year at the end of 1992.\31\ According to
the SBA's definition a small business radiotelephone company is one
employing fewer than 1,500 persons.\32\ The Census Bureau also reported
that 1,164 of those radiotelephone companies had fewer than 1,000
employees. Thus, even if all of the remaining 12 companies had more
than 1,500 employees, there would still be 1,164 radiotelephone
companies that might qualify as small entities if they are
independently owned and operated, the FBI is unable at this time to
estimate with greater precision the number of radiotelephone carriers
and services providers that would qualify as small business concerns
under the SBA's definition. Consequently, the FBI estimates that there
are fewer than 1,164 small entity radiotelephone companies that may be
affected by this rule.
---------------------------------------------------------------------------
\31\ 1992 Census, supra, at Firm Size 1-123.
\32\ 13 C.F.R. 121.201, SIC Code 4812.
---------------------------------------------------------------------------
Cellular Service Carriers. Neither the FCC nor the SBA has
developed a definition of small entities specifically applicable to
providers of cellular services. The closest applicable definition under
SBA rules is for radiotelephone (wireless) companies. The most reliable
source of information regarding the number of cellular service carriers
nationwide of which the FBI is aware appears to be the data that the
FCC collects annually in connection with the TRS. According to the
FCC's most recent data, 789 companies reported that they were engaged
in the provision of cellular services.\33\ Although it seems certain
that some of these carriers are not independently owned and operated,
or have more than 1,500 employees, the FBI is unable at this time to
estimate with greater precision the number of cellular service carriers
that would qualify as small business concerns under the SBA's
definition. Consequently, the FBI estimates that there are fewer than
789 small entity cellular service carriers that may be affected by this
rule.
---------------------------------------------------------------------------
\33\ Id.
---------------------------------------------------------------------------
Mobile Service Carriers. Neither the FCC nor the SBA has developed
a definition of small entities specifically applicable to mobile
service carriers, such as paging companies. The closest applicable
definition under SBA rules is for radiotelephone (wireless) companies.
The most reliable source of information regarding the number of mobile
service carriers nationwide of which the FBI is aware appears to be the
data that the FCC collects annually in connection with the TRS.
According to the FCC's most recent data, 117 companies reported that
they were engaged in the provision of mobile services.\34\ Although it
seems certain that some of these carriers are not independently owned
and operated, or have more than 1,500 employees, the FBI is unable at
this time to estimate with greater precision the number of mobile
service carriers that would qualify under the SBA's definition.
Consequently, the FBI estimates that there are fewer than 117 small
entity mobile service carriers that may be affected by this rule.
---------------------------------------------------------------------------
\34\ Id.
---------------------------------------------------------------------------
Broadband PCS Licensees. The broadband PCS spectrum is divided into
six frequency blocks designated A through F. As set forth in 47 C.F.R.
Sec. 24.720(b), the FCC has defined ``small entity'' in the auctions
for Blocks C and F as a firm that had average gross revenues of less
than $40 million in the three previous calendar years. The FCC's
definition of a ``small entity'' in the context of broadband PCS
auctions has been approved by the SBA.\35\ The FCC has auctioned
broadband PCS licenses in Blocks A, B, and C. Neither the FCC nor the
FBI has sufficient data to determine how many small businesses bid
successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auction. Based
on this information, the FBI concludes that the number of broadband PCS
licensees affected by this rule includes, at a minimum, 90 winning
bidders that qualified as small entities in the Block C broadband PCS
auction.
---------------------------------------------------------------------------
\35\ See Implementation of Section 309(j) of the Communications
Act--Competitive Bidding, PP Docket No. 93-253, Fifth Report and
Order, 9 FCC Rcd 5532, 5581-84 (1994).
---------------------------------------------------------------------------
At present, no licenses have been awarded for Blocks D, E, and F of
broadband PCS spectrum. Therefore, there are no small business
currently providing these services. However, a total of 1,479 licenses
will be awarded in the D, E, and F Block broadband PCS auctions, which
began on August 26, 1996. Eligibility for the 483 F Block licenses is
limited to entrepreneurs with average gross revenues of less than $125
million.\36\ The FBI cannot estimate the number of licenses that will
be won by small entities under the FCC's definition, nor how many small
entities will win D or E Block licenses. Given that nearly all
radiotelephone
[[Page 13320]]
companies have fewer than 1,000 employees \37\ and that no reliable
estimate of the number of prospective D, E, and F Block licensees can
be made, the FBI assumes, for the purposes of this FRFA, that all of
the licensees in the D, E, and F Block Broadband PCS auctions may be
awarded to small entities which may be affected by this rule.
---------------------------------------------------------------------------
\36\ Amendment of Parts 20 and 24 of the Commission's Rules--
Broadband PCS Competitive Bidding and the Commercial Mobile Radio
Service Spectrum Cap, WT Docket No. 96-59, Amendment of the
Commission's Cellular/PCS Cross-Ownership Rule, Report and Order, GN
Docket No. 90314, FCC 96-278 (rel. June 24, 1996).
\37\ 1992 Census, Table 5, Employment Size of Firms: 1992, SIC
Code.
---------------------------------------------------------------------------
SMRS Licensees. Pursuant to 47 C.F.R. Sec. 90.814(b)(1), the FCC
had defined ``small entity'' in auctions for geographic area 800 MHz
and 900 MHz SMRS licenses as a firm that had average annual gross
revenues of less than $15 million in the three previous calendar years.
This definition of a ``small entity'' in the context of 800 MHz and 900
MHz SMRA has been approved by the SBA.\38\ This rule may apply to SMRS
providers in the 800 MHz and 900 MHz band that either hold geographic
area licenses or have obtained extended implementation authorizations.
The FBI does not know how many firms provide 800 MHz or 900 MHz
geographic area SMRS service pursuant to extended implementation
authorizations, nor how many of these providers have annual revenues of
less than $15 million. The FBI assumes, for purpose of this FRFA, that
all of the extended implementation authorizations may be held by small
entities, which may be affected by this rule.
---------------------------------------------------------------------------
\38\ See Amendment of Parts 2 and 90 of the Commission's Rules
to Provide for the Use of 200 Channels Outside the Designated Filing
Areas in the 896-901 MHz and the 935-940 MHz Bands Allotted to the
Specialized Mobile Radio Pool, PR Docket No. 89-583, Second Order on
Reconsideration and Seventh Report and Order, 11 FCC Rcd 2639, 2693-
702 (1995); Amendment of Part 90 of the Commission's Rules to
Facilitate Future Development of SMRS Systems in the 800 MHz
Frequency Band, PR Docket No. 93-144, First Report and Order, Eighth
Report and Order, and Second Further Notice of Proposed Rulemaking,
11 FCC Rcd 1463 (1995).
---------------------------------------------------------------------------
The FCC recently held auctions for geographic area licenses in the
900 MHz SMRS bands. There were 60 winning bidders who qualified as
small entities in the 900 MHz auction. Based on this information, the
FBI concludes that the number of geographic area SMRS licensees
affected by this rule includes these 60 small entities. No auctions
have been held for the 800 MHz geographic area SMRS licenses.
Therefore, no small entities currently hold these licenses. A total of
525 licenses will be awarded for the upper 200 channels in the 800 MHz
geographic area SMRS auction. However, the FCC has not yet determined
how many licenses will be awarded for the lower 230 channels in the 800
MHz geographic area SMRS auction. There is no basis moreover, on which
to estimate how many small entities will win these licenses. Given that
nearly all radiotelephone companies have fewer than 1,000 employees and
that no reliable estimate of the number of prospective 800 MHz
licensees can be made, the FBI assumes, for purposes of this FRFA, that
all of the licenses may be awarded to small entities who may be
affected by this rule.
Commerical Paging and Commercial 220 MHz Radio Services. Neither
the FCC nor the SBA has developed a definition of small entities
specifically applicable to providers of paging services. The closest
applicable definition under SBA rules is for radiotelephone (wireless)
companies.\39\ With respect to commercial 220 MHz services, the FCC has
proposed a two-tiered definition of small business for purposes of
auctions: (1) for EA licensees,\40\ a firm with average annual gross
revenues of not more than $6 million for the preceding three years and
(2) for regional and nationwide licensees, a firm with average annual
gross revenues of not more than $15 million for the preceding 3
years.\41\ Since this definition has not yet been approved by the SBA,
the FBI will use the SBA's definition applicable to radiotelephone
companies. The FBI notes that while there are incumbents in this
service, they are not commercial providers and will not, therefore, be
affected by this rule. Since there have been no auctions for either
service as of yet and the parameters of the industry have not been
fully defined, any estimate of the number of small businesses who will
seek to bid in the future auctions is not yet determined. Given the
fact that nearly all radiotelephone companies have fewer than 1,000
employees,\42\ and that no reliable estimate of the number of
prospective licensees can be made, the FBI assumes, for the purposes of
its evaluations and conclusion in this FRFA, that all of the licenses
will be awarded to small entities, as that term is defined by the SBA.
---------------------------------------------------------------------------
\39\ 13 CFR 121.201, Standard Industrial Classification (SIC)
Code 4812.
\40\ EA licenses refer to the 60 channels in the 172 geographic
economic areas as defined by the Bureau of Economic Analysis,
Department of Commerce. See In the Matter of Amendment of Part 90 of
the Commission's Rules to Provide for the Use of the 220-222 MHz
Band by the Private Land Mobile Radio Service, Second Memorandum
Opinion and Order and Third Notice of Proposed Rule Making, GN
Docket 93-252, 10 FCC Rcd 188 (1995).
\41\ See In the Matter of Amendment of Part 90 of the
Commission's Rules to Provide for the Use of the 220-222 MHz Band by
the Private Land Mobile Radio Service, Second Memorandum Opinion and
Order and Third Notice of Proposed Rule Making, GN Docket 93-252, 10
FCC Rcd 188 (1995).
\42\ See U.S. Bureau of the Census, U.S. Department of Commerce,
1992 Census of Transportation, communications, and Utilities, UC92-
S-1, Subject Series, Establishment and Firm Size, Table 5,
Employment Size of Firms; 1992, SIC Code 4812 (issued May 1995).
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Interconnected Business Services. Neither the FCC nor the SBA has
developed a definition of small entities specifically applicable to
providers of for-profit interconnected business services. The closest
applicable definition under SBA rules is for radiotelephone (wireless)
companies.\43\ The size data provided by the SBA does not enable the
FBI to make a meaningful estimate of the number of for-profit
interconnected business service providers which are small entities
because it combines all radiotelephone companies with 500 or more
employees.\44\ The Census Bureau reports that only 12 out of a total of
1,178 radiotelephone firms which operated during 1992 had 1,000 or more
employees.\45\ However, the FCC does not know how many of the 1,178
firms were for-profit interconnected business service companies.
Although there are in excess of 13,000 for-profit interconnected
business service licenses, the FCC is unable to determine the number of
for-profit interconnected business service licensees because a single
licensee may own several licenses.\46\ Given these facts, the FBI
assumes, for purposes of this FRFA, that all of the current inter-
connected business service licensees are small entities, as that term
is defined by the SBA.
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\43\ 13 CFR 121.201, Standard Industrial Classification (SIC)
Code 4812.
\44\ U.S. Small Business Administration 1992 Economic Census
Employment Report, Bureau of the Census, U.S. Department of
Commerce, SIC Code 4812 (radiotelephone communications industry data
adopted by the SBA Office of Advocacy).
\45\ 1992 Census, supra, at Firm Size 1-123.
\46\ Amendment of the Commission's Rules to Permit Flexible
Service Offerings in the Commercial Mobile Radio Services, First
Report and Order and Further Notice of Proposed Rule Making, WT
Docket No. 96-6, 11 FCC Rcd 8965, 9025 (1996).
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2. Cable System Operators (SIC 4841)
The SBA has developed a definition of small entities for cable and
other pay television services, which includes all such companies
generating less than $11 million in revenue annually. This definition
includes cable systems operators, closed circuit television services,
direct broadcast satellite services, multipoint distribution systems,
satellite master antenna systems and subscription television services.
According to the Census
[[Page 13321]]
Bureau, there were 1,323 such cable and other pay television services
generating less and $11 million in revenue that were in operation for
at least one year at the end of 1992.\47\
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\47\ 1992 Census, supra, at Firm Size 1-123.
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The FCC has developed its own definition of a small cable system
operator for the purposes of rate regulation. Under the FCC's rules, a
``small cable company'' is one serving fewer than 400,000 subscribers
nationwide.\48\ Based on the FCC's most recent information, the FBI
estimates that there were 1,439 cable operators that qualified as small
cable system operators at the end of 1995.\49\ Since then, some of
those companies may have grown to serve over 400,000 subscribers, and
others may have been involved in transactions that caused them to be
combined with other cable operators. In addition, it is unlikely that
many of the ``small cable companies'' will be engaging in activities as
``telecommunications carriers'' as defined by CALEA. Consequently, the
FBI estimates that there are significantly fewer than 1,439 small
entity cable system operators that may be affected by this rule.
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\48\ 47 CFR Sec. 76.901(e). The Commission developed this
definition based on its determination that a small cable system
operator is one with annual revenues of $100 million or less.
Implementation of Sections of the 1992 Cable Act: Rate Regulation,
Sixth Report and Order and Eleventh Order and Reconsideration, 10
FCC Red 7393.
\49\ Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29,
1996 (based on figures for Dec. 30, 1995).
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The Communications Act of 1934, as amended, also contains a
definition of a small cable system operator, which is ``a cable
operator that, directly or through an affiliate, serves in the
aggregate fewer than 1 percent of all subscribers in the United States
and is not affiliated with any entity or entities whose gross annual
revenues in the aggregate exceed $250,000,000.'' \50\ There were
63,196,310 basic cable subscribers at the end of 1995, and 1,450 cable
system operators serving fewer than one percent (631,960) of
subscribers.\51\ Although it seems certain that some of these cable
system operators are affiliated with entities whose gross annual
revenues exceed $250,000,000, the FBI is unable at this time to
estimate with greater precision the number of cable system operators
that would qualify as small cable operators under the definition of
small cable system operator in the Communications Act of 1934.
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\50\ 47 U.S.C. 543(m)(2).
\51\ Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29,
1996 (based on figures for Dec. 30, 1995).
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C. Reporting, Recordkeeping, and Other Compliance Requirements and
Steps Taken to Minimize the Significant Economic Impact of This Report
and Order on Small Entities, Including the Significant Alternatives
Considered and Rejected
Structure of the Analysis. In this section of the FRFA, the FBI
analyzes the projected reporting, recordkeeping, and other compliance
requirements that may apply to small entities as a result of this
rule.\52\ As a part of this discussion, the FBI mentions some of the
types of skills that will be needed to meet the new requirements. The
FBI also describes the steps taken to minimize the economic impact of
this rule on small entities, including the significant alternatives
considered and rejected.\53\
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\52\ See 5 U.S.C. Sec. 604(a)(4).
\53\ See 5 U.S.C. Sec. 604(a)(5).
---------------------------------------------------------------------------
The FBI provides this information to provide context for its
analysis in this FRFA. To the extent that any statement contained in
this FRFA is perceived as creating ambiguity with respect to this rule,
the rule shall be controlling.
1. Reporting, Recordkeeping, and Other Compliance Requirements
This rule requires carriers to submit cost estimates and requests
for payment to the FBI to receive reimbursement with CALEA funds. To
meet the reporting requirements for these submissions, carriers must
submit quantitative cost data, such as labor rates, estimates, and
invoices for equipment or services procured from subcontractors. This
data is necessary to evaluate cooperative agreement proposals and
subsequent requests for reimbursement under CALEA, and will be used to
determine whether agreement prices are fair and reasonable.
No forms are prescribed for these submissions; rather, in order to
allow carriers to use their existing accounting systems, the rule
simply prescribes the types of information and the headings for
submissions. Carriers may then determine the best means of meeting the
required submission of data in the way least burdensome for their
staffs. The FBI anticipates that small carriers will have the least
difficulty meeting the requirements because their accounting systems
are less likely to require complex calculations or extensive
explanations of such calculations.
The FBI estimates that there are fewer than 3,497 small carriers,
as discussed above, which could be affected by this rule over a 5 year
period. Given the difficulty in determining with any accuracy the
number of small carriers, for purposes of the Paperwork Reduction Act
of 1995, the FBI has calculated its estimate of the reporting and
recordkeeping requirements on a per switch basis. There are
approximately 23,000 switches which may require modification at some
point during the 5 year CALEA implementation period. Therefore, given
this 5 year time span, the total maximum number of annual responses
from all carriers is estimated at 4,600. However, the very nature of
small carriers ensures that the number of switches affect per year
which are owned and operated by small carriers will be significantly
less than 4,600. Based on the collection of similar data under the
Federal Acquisition Regulation (FAR) and on the nature of the
telecommunications industry, the time to read and prepare the required
information for one switch is estimated at 4 hours. Therefore, an
extremely small carrier with only one switch might have only 4 burden
hours imposed whereas a larger carrier with 50 switches might have 200
burden hours imposed.
The recordkeeping necessitated by this rule is, for the most part,
the same as that the carriers would do in the normal course of
business. The only exception might be in the case of carriers which do
not maintain site-specific records. These carriers would be required to
maintain CALEA-specific records for audit purposes. This requirement is
as much for the carrier's protection as for the needs of the
Government, given that the development and maintenance of such records
assure that the carrier will be able to provide the required
information with the least disruption of its business should its
acceptance and use of appropriated funds be audited by the Comptroller
General.\54\ Finally, given that carriers are using their existing
accounting systems, the accounting and financial management skills of
their current personnel are all that is required by this rule.
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\54\ 31 U.S.C. 701 et seq. specifically, 31 U.S.C. 712
authorizes the Comptroller General to investigate all matters
related to the receipt, disbursement, and use of public money.
---------------------------------------------------------------------------
2. Steps taken to Minimize Burdens on Small Entities
First, the guiding principle in the development of this rule was to
allow the maximum range of compliance options to carriers dependent
upon their own accounting systems. The rule was crafted such that it
requires the minimum level of data submission possible which still
allows the FBI to
[[Page 13322]]
meet its good stewardship responsibilities with respect to taxpayer
funds. Furthermore, the dual mandate of CALEA requiring this rule to
permit timely and cost-effective payment to carriers of costs directly
associated with the compliance effort while minimizing the costs to the
Government has limited the FBI's ability to be flexible in some areas
such as the determination of allowable costs.
Within this framework, the FBI has sought industry input at all
stages of the rulemaking process. Initially, the FBI met with carriers
and associations, such as NECA and PCIA, in order to explain the
requirements of CALEA Sec. 109 and to solicit questions and comments
from the industry.\55\ Using the industry input from these meetings,
the FBI drafted the initial versions of the proposed rule. As each
draft was completed, the FBI incorporated its outline and sections of
actual text into the presentations the FBI continued to make to the
industry. At this stage, the FBI met with representatives of both
wireline and wireless carriers.\56\ In addition, the FBI presented to
the Electronic Communications Service Provider (ECSP) committee both
the outline of the draft proposed rule and an explanation of how such
concepts as allowability and reasonableness of costs were being
treated. In addition to carrier representatives, ECSP membership
includes representatives of various associations, including CTIA, NECA,
PCIA, and USTA. Again the FBI solicited comments and issued an open
invitation to meet with anyone who wished to discuss the cost recovery
rules further.\57\ Once the proposed rule was published, the FBI met
again with the ECSP committee and with a variety of individual carriers
and associations to provide supplemental explanations of the proposed
rule and to once again solicit comments and extend the invitation to
discuss the rule further.\58\ Finally, the FBI has maintained an on-
going dialogue with the telecommunications industry with regard to the
CALEA cost recovery rules, both through meetings and in the responses
to comments in the Supplementary Information of this document.
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\55\ January through September, 1995.
\56\ October, 1995 through April, 1996.
\57\ ECSP meeting held at Telecommunications Industry Liaison
Unit's facility on November 15, 1995.
\58\ May through July, 1996. ECSP meeting held at the
Telecommunications Industry Liaison Unit's facility on June 26,
1996.
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In addition to industry input, the FBI solicited advice from a
number of other government entities including the Department of
Justice, the FCC, the General Accounting Office, and the Office of
Management and Budget. With specific regard to the needs of small
carriers, the FBI has also actively sought the assistance of both the
Office of Advocacy at the SBA and the Office of Communications Business
Opportunities at the FCC.
In addition the FBI is currently drafting a Small Business
Compliance Guide (Guide) in accordance with SBREFA. This Guide will be
provided to the SBA and the various associations representing the
interests of small entities in telecommunications industry. It will
also be available upon request from the FBI. and FBI small business
liaison able to assist small carriers with the compliance process will
also be identified in the Guide.
3. Significant Alternatives Considered and Rejected
The FBI considered and rejected a number of alternatives prior to
drafting its proposed rule. Initially, the FBI considered whether a new
regulation was actually necessary. That some procedures were required
was obvious from the mandate of CALEA 109(e) which directs the Attorney
General to ``establish regulations necessary to effectuate timely and
cost-effective payment to telecommunications carriers'' to reimburse
carriers for certain compliance costs. However, it seemed possible that
some existing regulations might be used for this purpose.
First, the FBI considered using the FAR as a vehicle for carrying
out reimbursement. However, it became readily apparent that this
approach was nonproductive. The FAR was designed for Federal
procurement actions in which the contractor not only recovers direct
and indirect costs, but also makes a profit. CALEA specifically
restricts reimbursement to costs directly associated with the
modifications performed for CALEA compliance. In addition, the FAR
could require that contractors maintain and use accounting systems
which are compliant with the Cost Accounting Standards as set forth in
48 CFR 30, ``Cost Accounting Standards'' (Part 30). Given that many of
the telecommunications carriers, particularly those classified as small
entities, could be required to implement entirely new accounting
systems to meet this requirement,\59\ the FBI determined that using the
FAR would impose far too great a burden. In addition, using the FAR
could also violate the Paperwork Reduction Act of 1995 by requiring
some carriers already subject to FCC reporting requirements to maintain
duplicate records. Therefore, the FBI rejected this alternative.
---------------------------------------------------------------------------
\59\ 48 CFR 9901.306 states that ``Cost Accounting Standards
promulgated by the [Cost Accounting Standards Board] shall be
mandatory for use by all executive agencies and by contractors and
subcontractors in estimating, accumulating, and reporting costs in
connection with pricing and administration of, and settlement of
disputes concerning, all negotiated prime contract and subcontract
procurements with the United States Government in excess of
$500,000. * * *''
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Second, the FBI considered using the FCC's accounting regulations
found in 47 CFR 32, ``Uniform System of Accounts for Telecommunications
Companies'' (Part 32) as a vehicle for carrying out reimbursement.
However, it became readily apparent that this approach was also non-
productive. While large wireline carriers dealt with these regulations
on a regular basis, many small wireline carriers were exempt from
detailed reporting requirements. Furthermore, wireless carriers, a
large number of which are classified as small entities, had never been
bound by these regulations. Given that many of these small wireline and
wireless carriers would be required to implement entirely new
accounting systems to meet this requirement, the FBI determined that
using Part 32 of the FCC's regulations would impose far too great a
burden. Therefore, the FBI rejected this alternative.
The FBI could identify no other existing regulations which might
provide viable alternatives. Ultimately, the FBI determined that it was
necessary to develop new regulations which were both industry and CALEA
specific; this rule is the result of that development effort.
In developing this rule, the FBI explored two options which might
ease the regulatory burden on small entities. The FBI considered using
a tiered system similar to those the FCC uses. The FBI also considered
allowing small carriers to seek waivers of certain reporting
requirements. However, this rule was crafted to permit reimbursement
for the maximum amount allowable under CALEA and requires the minimum
level of data submission possible that allows (1) The FBI to meet its
good stewardship responsibilities with respect to taxpayer funds; and
(2) the carriers to meet the requirements of an audit by the
Comptroller General. In addition, the flexibility of the cooperative
agreement process and the minimal nature of the reporting requirements
obviate the need for any issuance of waivers. Therefore, the FBI
determined that no special
[[Page 13323]]
exemptions or waivers for small carriers were viable.
D. Issues Raised and Alternatives Suggested in Response to the IRFA
No comments were submitted specifically in response to the IRFA. In
general comments on the proposed rule, however, some commenters raised
issues that might affect small entities. Some commenters also proposed
alternatives which they believed might ease the burden on small
carriers.
1. Issues Raised
Reporting and Recordkeeping Requirements. Several commenters either
classified as small entities for regulatory purposes or representing
such small entities were concerned about what they perceived to be the
excessive reporting and recordkeeping requirements of Sec. 100.16 and
Sec. 100.17 of the proposed rule. These comments have been addressed at
length both in the discussion of general comments received (Section C.,
Significant Comments and Changes) and in the discussion of reporting
and recordkeeping requirements in this FRFA (Section C., 1. Reporting,
Recordkeeping, and Other Compliance Requirements) above. In Section C.,
Significant Comments and Changes, small entities are specifically
referred to comment responses 30 through 45, with emphasis on response
32. The FBI has considerably clarified and streamlined the reporting
and recordkeeping requirements and believes that this final rule
reflects the least burdensome reporting and recordkeeping requirements
possible with regard to small entities.
Definition of ``First-Line Supervision''. One small wireless
carrier expressed concern over the nature and definition of ``first-
line supervision'' as that phrase was used in proposed
Sec. 100.11(b)(2) (``Allowable costs''; Allowable plant specific costs;
first-line supervision). This commenter interpreted this subsection as
excluding from eligibility for reimbursement the work of some
individuals who, of necessity, perform many different functions in a
small business. This was not the FBI's intent. For the purposes of
reimbursement, it is not job title which matters, but rather the nature
of the work performed. Therefore, if the CEO of a company also happens
to be the engineer responsible for network engineering, the time that
individual spends coordinating the integration of the CALEA compliant
solution into the network will be reimbursable, while the time spent
managing the general business affairs of the company will not be
reimbursable. In addition to this explanation, the FBI has changed the
term ``first-line supervision'' to the more commonly used ``direct
supervision'' and has provided a definition of ``direct supervision''
in Sec. 100.10 of the final rule to clarify this issue in the rule.
Burden of Proof. A few commenters either classified as small
entities for regulatory purposes or representing such small entities
were concerned about the burden of proof requirements in proposed
Sec. 100.12(a)(1), Sec. 100.12(a)(2), Sec. 100.13(a)(3), and
Sec. 100.14(b). These subsections establish that no presumption of
reasonableness is attached to the incurrence of costs by a carrier and
that burden of proof that a cost is reasonable for the purposes of
CALEA reimbursement rests with the carrier. The commenters believed
that the burden of proof might be too onerous for small entities,
particularly with respect to supporting documentation submission. These
comments have been specifically addressed in the discussion of general
comments received (Section C., Significant Comments and Changes) and
generally addressed in the discussion of reporting and recordkeeping
requirements in this FRFA (Section C., 1. Reporting, Recordkeeping, and
Other Compliance Requirements) above. In Section C., Significant
Comments and Changes, small entities are specifically referred to
comment responses 17, 18, and 21.
It must be noted that small entities will be required to submit
supplementary documentation meeting the burden of proof only if a
question arises regarding a specific cost on a cost estimate or request
for payment. In addition, the specifics of what constitutes adequate
documentation to meet the burden of proof will be definitized during
the cooperative agreement process. The FBI is cognizant of the special
needs of small carriers and will make every effort to work with small
carriers to tailor the burden of proof requirements to meet their needs
during the cooperative agreement process. Furthermore, the FBI
anticipates that small carriers will have the least difficulty meeting
the requirements because their accounting systems are less likely to
entail complex calculations and, therefore, less likely to require
extensive supporting explanations of such calculations.
Carrier Responsibility for Sole-Source Suppliers. Several
commenters, either classified as small entities for regulatory purposes
or representing the interests of such small entities, expressed concern
that holding small carriers responsible for the cost data of their
sole-source sup-pliers [proposed Sec. 100.19(c)(1)] was unduly
burdensome. Specifically, these commenters asserted that small entities
have little control over their sole-source suppliers because of the
nature of their networks and their inability to make bulk purchases.
The FBI is cognizant of this situation and is prepared to make
accommodations for such situations during the cooperative agreement
process with small carriers. However, this provision exists to ensure
that all carriers make a good faith effort to seek the most cost-
effective solutions for their networks. The FBI requires only that
small carriers negotiate prices with their sole-source suppliers for
CALEA-related work in the same manner that these small carriers would
negotiate if the work were solely to benefit their businesses.
Therefore, the FBI cannot relieve small carriers of this
responsibility.
2. Alternatives Suggested
Tiered System. One association representing the interests of small
carriers suggested that the FBI institute a tiered system, similar to
the FCC's, for the reporting requirements of this rule. In developing
this rule, the FBI did consider using a tiered system as a means of
easing the burden on small entities. However, this rule permits
reimbursement for the maximum amount allowable under CALEA and requires
the minimum level of data submission possible that allows (1) The FBI
to meet its good stewardship responsibilities with respect to taxpayer
funds; and (2) the carriers to meet the requirements of an audit by the
Comptroller General. Therefore, the FBI determined that no exemptions
based upon carrier size were feasible and that no tiered system could
be implemented. Therefore, this proposed alternative was rejected.
FCC Collaboration/Rulemaking. One commenter, which was not a small
entity, suggested that the FBI and DOJ collaborate with the FCC to
determine the best mechanism for ensuring compliance with CALEA. The
commenter asserted that this would yield greater input from industry,
allow for coordination and consistent application of telecommunications
law and policy, and allow the FBI to use FCC developed rules and
procedures permitting the use of established industry cost allocation
manuals.
First, the FBI did consult with the FCC in the development of these
rules. Specifically, the FBI consulted with the FCC in order to ensure
consistent application of telecommunications law and policy in the
development of this rule. The FBI also drew on the FCC's
[[Page 13324]]
considerable knowledge of the telecommunications industry during the
development of this rule. Second, the FBI strove for the maximum
industry input, not only by publishing the proposed notice in the
Federal Register requesting comment, but also by meeting with industry
representatives and associations during the development process and,
concurrent with publication, directly soliciting input by all parties
which had requested that they be included on the proposed rule
distribution list. Furthermore, the FBI made every effort to distribute
the proposed rule to the various industry-related associations in order
to reach the broadest commenter possible. Thus, the FBI is confident
that it did receive input from the industry. Lastly, using industry
established cost allocation manuals, which establish fully distributed
cost methodologies, is not a viable option under CALEA's mandate to
reimburse only for directly associated costs. Therefore, this proposed
alternative was rejected.
Keep Cost System. One commenter, which was not a small entity,
suggested that the FBI allow carriers to use their existing keep cost
system. This system, which is used by many large carriers, is a cost
accumulation system that allows the user to identify costs to specific
accumulation points. These rules do not preclude the use of carriers
existing systems to the extent that the system can exclude or
specifically identify costs that are not allowable under CALEA.
However, if the FBI were to prescribe this type of system, many
carriers, especially those classified as small entities, could be
forced to alter their existing accounting systems. Therefore, this
proposed alternative was rejected.
Rural Utility Services Loan Proposal Forms. One association
representing the interest of small carriers suggested that the FBI use
the existing Rural Utility Services loan proposal form for cost data
submission given that it already exists and that small carriers
understand the form. The FBI reviewed the form and its underlying
requirements and found that some of the information required is
similar. However, the form itself requires unnecessary details and
information not applicable to CALEA. Use of this form could, therefore,
cause confusion within the industry as to what is required under CALEA.
Additionally, not all small carriers are familiar with this form.
Therefore, this potential alternative was rejected.
Separate Rules for the Wireless Industry. One association
representing the interests of wireless carriers suggested that the FBI
implement separate rules for wireless carriers because their accounting
systems were different from those prescribed for wireline carriers.
However, as long as wireless carriers are using accounting systems
which generate financial statements which are in accordance with
generally accepted accounting principles, the final rule will allow
wireless providers to use their current accounting systems to meet
requirements of this rule. Therefore, this potential alternative was
rejected.
E. Conclusion
The FBI believes this rule is fair to small entities and is
committed to assisting them in complying with it. The FBI intends to
maintain an on-going dialogue with the Office of Advocacy at the SBA
and with representatives of small carriers, both wireline and wireless,
with regard to the development of the Small Business Compliance Guide.
In addition, the FBI is in the process of identifying a small business
liaison for CALEA reimbursement issues to ensure that small carriers
are provided with the information and assistance they need to comply
with this rule in the least burdensome manner possible.
Finally, small carriers are reminded that they are in no way
obligated to expend funds on modifications eligible for reimbursement
pursuant to CALEA sections 109(a), 109(b)(2) and 104(e) prior to the
execution of a cooperative agreement. Therefore, in the event they are
selected for reimbursement, they will have both the direct assistance
of the FBI's contracting officer and the opportunity to tailor the
cooperative agreement to meet their special needs.
List of Subjects in 28 CFR Part 100
Accounting, Law enforcement, Reporting and recordkeeping
requirements, Telecommunications, Wiretapping and electronic
surveillance.
For the reasons set out in the preamble, 28 CFR chapter I is
amended by adding part 100 to read as follows:
PART 100--COST RECOVERY REGULATIONS, COMMUNICATIONS ASSISTANCE FOR
LAW ENFORCEMENT ACT OF 1994
Sec.
100.9 General.
100.10 Definitions.
100.11 Allowable costs.
100.12 Reasonable costs.
100.13 Directly assignable costs.
100.14 Directly allocable costs.
100.15 Disallowed costs.
100.16 Cost estimate submission.
100.17 Request for payment.
100.18 Audit.
100.19 Adjustments to agreement estimate.
100.20 Confidentiality of trade secrets/proprietary information.
100.21 Alternative dispute resolution.
Authority: 47 U.S.C. 1001-1010; 28 CFR 0.85(o).
Sec. 100.9 General.
These Cost Recovery Regulations were developed to define allowable
costs and establish reimbursement procedures in accordance with section
109(e) of Communications Assistance for Law Enforcement Act (CALEA)
(Public Law 103-414, 108 Stat. 4279, 47 U.S.C. 1001-1010).
Reimbursement of costs is subject to the availability of funds, the
reasonableness of costs, and an agreement by the Attorney General or
designee to reimburse costs prior to the carrier's incurrence of said
costs.
Sec. 100.10 Definitions.
Allocable means chargeable to one or more cost objectives and can
be distributed to them in reasonable proportion to the benefits
received.
Business unit means any segment of an organization for which cost
data are routinely accumulated by the carrier for tracking and
measurement purposes.
Cooperative agreement means the legal instrument reflecting a
relationship between the government and a party when--
(1) The principal purpose of the relationship is to reimburse the
carrier to carry out a public purpose of support or stimulation
authorized by a law of the United States; and
(2) Substantial involvement is expected between the government and
carrier when carrying out the activity contemplated in the agreement.
Cost element means a distinct component or category of costs (e.g.
materials, direct labor, allocable direct costs, subcontracting costs,
other costs) which is assigned to a cost objective.
Cost objective means a function, organizational subdivision,
contract, or other work unit for which cost data are desired and for
which provision is made to accumulate and measure the cost of
processes, products, jobs, capitalized projects, etc.
Cost pool means groupings of incurred costs identified with two or
more cost objectives, but not identified specifically with any final
cost objective.
Direct supervision means immediate or first-level supervision.
Directly allocable cost means any cost that is directly chargeable
to one or more cost objectives and can be distributed to them in
reasonable proportion to the benefits received.
[[Page 13325]]
Directly assignable cost means any cost that can be wholly
attributed to a cost objective.
Directly associated cost means any directly assignable cost or
directly allocable cost which is generated solely as a result of
incurring another cost, and which would not have been incurred had the
said cost not been incurred.
Final cost objective means a cost objective that has allocated to
it, both assignable and allocable costs and, in the carrier's
accumulation system, is one of the final accumulation points.
Installed or deployed means that, on a specific switching system,
equipment, facilities, or services are operable and available for use
by the carrier's customers.
Labor cost means the sum of the payroll cost, payroll taxes, and
directly associated benefits.
Network operations costs means all directly associated costs
related to the ongoing management and maintenance of a
telecommunications carrier's network.
Plant costs means the directly associated costs related to the
modifications of specific kinds of telecommunications plants, such as
switches, intelligent peripherals and other network elements. These
costs shall include the costs of inspecting, testing and reporting on
the condition of telecommunications plant to determine the need for
replacements, rearranges and changes; rearranging and changing the
location of plant not retired; inspecting after modifications have been
made; the costs of modifying equipment records, such as administering
trunking and circuit layout work; modifying operating procedures;
property held for future telecommunications use; provisioning costs;
network operations costs; and receiving training to perform plant work.
Also included are the costs of direct supervision and office support of
this work.
Provisioning costs means all costs directly associated with the
resources expended within a telecommunications carrier's network to
provide a connection and/or service to an end user of the
telecommunications service.
Trade secrets/proprietary information means information which is in
the possession of a carrier but not generally available to the public,
which that carrier desires to protect against unrestricted disclosure
or competitive use, and which is clearly identified as such at the time
of its disclosure to the government.
Unit cost means the directly associated cost of a single unit of a
good or service which is included in a cost element.
Sec. 100.11 Allowable costs.
(a) Costs that are eligible for reimbursement under section 109(e)
CALEA are:
(1) All reasonable plant costs directly associated with the
modifications performed by carriers in connection with equipment,
facilities, and services installed or deployed on or before January 1,
1995, to establish the capabilities necessary to comply with section
103 of CALEA, until the equipment, facility, or service is replaced or
significantly upgraded or otherwise undergoes major modifications;
(2) Additional reasonable plant costs directly associated with
making the assistance capability requirements found in section 103 of
CALEA reasonably achievable with respect to equipment, facilities, or
services installed or deployed after January 1, 1995, in accordance
with the procedures established in CALEA section 109(b); and
(3) Reasonable plant costs directly associated with modifications
to any of a carrier's systems or services, as identified in the Carrier
Statement required by CALEA section 104(d), that do not have the
capacity to accommodate simultaneously the number of interceptions, pen
registers, and trap and trace devices set forth in the Capacity
Notice(s) published in accordance with CALEA section 104.
(b) Allowable plant costs shall include:
(1) The costs of installation, inspection, and testing of the
telecommunications plant, and inspection after modifications have been
made; and
(2) The costs of direct supervision and office support for this
work for plant costs.
(c) In the case of any modification that may be used for any
purpose other than lawfully authorized electronic surveillance by a
government law enforcement agency, this part permits recovery of only
the incremental cost of making the modification suitable for such law
enforcement purposes.
(d) Reasonable costs that are directly associated with the
modifications performed by a carrier as described in Sec. 100.11(a) are
recoverable. These allowable costs are limited to directly assignable
and directly allocable costs incurred by the business units whose
efforts are expended on the implementation of CALEA requirements.
Sec. 100.12 Reasonable costs.
(a) A cost is reasonable if, in its nature and amount, it does not
exceed that which would be incurred by a prudent person in the conduct
of competitive business. Reasonableness of specific costs must be
examined with particular care in connection with the carrier or its
separate divisions that may not be subject to effective competitive
restraints.
(1) No presumption of reasonableness shall be attached to the
incurrence of costs by a carrier.
(2) The burden of proof shall be upon the carrier to justify that
such cost is reasonable under this part.
(b) Reasonableness depends upon considerations and circumstances,
including, but not limited to:
(1) Whether a cost is of the type generally recognized as ordinary
and necessary for the conduct of the carrier's business or the
performance of this obligation; or
(2) Whether it is a generally accepted sound business practice,
arm's-length bargaining or the result of Federal or State laws and/or
regulations.
(c) It is the carrier's responsibility to inform the Government of
any deviation from the carrier's established practices.
Sec. 100.13 Directly assignable costs.
(a) A cost is directly assignable to the CALEA compliance effort if
it is a plant cost incurred specifically to meet the requirements of
CALEA sections 103 and 104.
(1) A cost which has been incurred for the same purpose, in like
circumstances, and which has been included in any allocable cost pool
to be assigned to any final cost objective other than the CALEA
compliance effort, shall not be assigned to the CALEA compliance effort
(or any portion thereof).
(2) Costs identified specifically with the work performed are
directly assignable costs to be charged directly to the CALEA
compliance effort. All costs specifically identified with other
projects, business units, or cost objectives of the carrier shall not
be charged to the CALEA compliance effort, directly or indirectly.
(3) The burden of proof shall be upon the carrier to justify that
such cost is an assignable cost under this part.
(b) For reasons of practicality, any directly assignable cost may
be treated as a directly allocable cost if the accounting treatment is
consistently applied within the carrier's accounting system and the
application produces substantially the same results as treating the
cost as a directly assignable cost.
Sec. 100.14 Directly allocable costs.
(a) A cost is directly allocable to the CALEA compliance effort:
[[Page 13326]]
(1) If it is a plant cost incurred specifically to meet the
requirements of CALEA sections 103 and 104; or
(2) If it benefits both the CALEA compliance effort and other work,
and can be distributed to them in reasonable proportion to the benefits
received.
(b) The burden of proof shall be upon the carrier to justify that
such cost is an allocable cost under this part.
(c) An allocable cost shall not be assigned to the CALEA compliance
effort if other costs incurred for the same purpose in like
circumstances have been included as a direct cost of that, or any
other, cost objective.
(d) The accumulation of allocable costs shall be as follows:
(1) Allocable costs shall be accumulated by logical cost groupings
with due consideration of the reasons for incurring such costs.
(i) Each grouping should be determined so as to permit distribution
of the grouping on the basis of the benefits accruing to the multiple
cost objectives.
(ii) Similarly, the particular case may require subdivision of
these groupings (e.g., building occupancy costs might be separable from
those of personnel administration within the engineering group).
(2) Such allocation necessitates selecting a distribution base
common to all cost objectives to which the grouping is to be allocated.
The base should be selected so as to permit allocation of the grouping
on the basis of the benefits accruing to the multiple cost objectives.
(3) When substantially the same results can be achieved through
less precise methods, the number and composition of cost groupings
should be governed by practical considerations and should not unduly
complicate the allocation.
(4) Once a methodology for determining an appropriate base for
distributing allocable costs has been agreed to, it shall not be
modified without written approval of the FBI, if that modification
affects the level of reimbursement from the government. All items
properly includable in an allocable cost base should bear a pro rata
share of allocable costs irrespective of their acceptance as
reimbursable under this part.
(5) The carrier's method of allocating allocable costs shall be in
accordance with the accounting principles used by the carrier in the
preparation of their externally audited financial statements and
consistently applied, to the extent that the expenses are allowable
under there regulations. The method may require further examination
when:
(i) Substantial differences occur between the cost patterns of work
under CALEA compliance effort and the carrier's other work;
(ii) Significant changes occur in the nature of the business, the
extent of subcontracting, fixed-asset improvement programs,
inventories, the volume of sales and production, manufacturing
processes, the carrier's products, or other relevant circumstances; or
(iii) Allocable cost groupings developed for a carrier's primary
location are applied to off-site locations. Separate cost groupings for
costs allocable to off-site locations may be necessary to permit
equitable distribution of costs on the basis of the benefits accruing
to the multiple cost objectives.
(6) The base period for allocating allocable costs is the cost
accounting period during which such costs are incurred and accumulated
for distribution to work performed in that period. The base period for
allocating allocable costs will normally be the carrier's fiscal year.
A shorter period may be appropriate when performance involves only a
minor portion of the fiscal year, or when it is general practice to use
a shorter period. When the compliance effort is performed over an
extended period, as many base periods shall be used as are required to
accurately represent the period of performance.
Sec. 100.15 Disallowed costs.
(a) General and Administrative (G&A) costs are disallowed. G&A
costs include, but are not limited to, any management, financial, and
other expenditures which are incurred by or allocated to a business
unit as a whole. These include, but are not limited to:
(1) Accounting and Finance, External Relations, Human Resources,
Information Management, Legal, Procurement; and
(2) Other general administrative activities such as library
services, food services, archives, and general security investigation
services.
(b) Customer Service costs are disallowed. These costs include, but
are not limited to, any Marketing, Sales, Product Management, and
Advertising expenses.
(c) Plant costs that are not directly associated with the
modifications identified in Sec. 100.11 are disallowed. These include,
but are not limited to, repairing materials for reuse, performing
routine work to prevent trouble; expenses related to property held for
future telecommunications use; provisioning costs; network operations
costs; and depreciation and amortization expenses.
(d) Costs that have already been recovered from any governmental or
nongovernmental entity are disallowed.
(e) Costs that cannot be either directly assigned or directly
allocated are disallowed.
(f) Additional costs that are incurred due to the carrier's failure
to complete the CALEA compliance effort in the time frame agreed to by
the government and the carrier are disallowed.
(g) Costs associated with modifications of any equipment, facility
or service installed or deployed after January 1, 1995 which are deemed
reasonably achievable by the Federal Communications Commission under
section 109(b) of CALEA are disallowed.
(h) To ensure that the Government does not reimburse carriers for
disallowed costs, the following provisions are included:
(1) Costs that are expressly disallowed or mutually agreed to be
disallowed, including mutually agreed to be disallowed directly
associated costs, shall be excluded from any billing, claim, or
proposal applicable to reimbursement under CALEA. When a disallowed
cost is incurred, its directly associated costs are also disallowed.
(2) Disallowed costs involved in determining rates used for
standard costs, or for allocable cost proposals or billing, need be
identified only at the time rates are proposed, established, revised,
or adjusted. These requirements may be satisfied by any form of cost
identification which is adequate for purposes of cost determination and
verification.
Sec. 100.16 Cost estimate submission.
(a) The carrier shall provide sufficient cost data at the time of
proposal submission to allow adequate analysis and evaluation of the
estimated costs. The FBI reserves the right to request additional cost
data from carriers in order to ensure compliance with this part.
(b) The requirement for submission of cost data is met if, as
determined by the FBI, all cost data reasonably available to the
carrier are either submitted or identified in writing by the date of
agreement on the costs.
(c) If cost data and information to explain the estimating process
are required by the FBI and the carrier refuses to provide necessary
data, or the FBI determines that the data provided are so deficient as
to preclude adequate analysis and evaluation, the FBI will attempt to
obtain the data and/or elicit corrective action.
[[Page 13327]]
(d) Instructions for submission of the cost data for the estimate
are as follows:
(1) The carrier shall submit to the FBI estimated costs by line
item with supporting information.
(2) A cost element breakdown as described in Sec. 100.16(h) shall
be attached for each proposed line item.
(3) Supporting breakdowns shall be furnished for each cost element,
consistent with the carrier's cost accounting system.
(4) When more than one line item is proposed, summary total amounts
covering all line items shall be furnished for each cost element.
(5) Depending on the carrier's accounting system, the carrier shall
provide breakdowns for the following categories of cost elements, as
applicable:
(i) Materials. Provide a consolidated cost summary of individual
material quantities included in the various tasks, orders, or agreement
line items being proposed and the basis upon which they were developed
(vendor quotes, invoice prices, etc.). Include raw materials, parts,
software, components, and assemblies. For all items proposed, identify
the item, source, quantity, and cost.
(ii) Direct labor. Provide a time-phased (e.g., monthly, quarterly)
breakdown of labor hours, rates, and costs by appropriate category, and
furnish the methodologies used in developing estimates.
(iii) Allocable direct costs. Indicate how allocable costs are
computed and applied, including cost breakdowns that provide a basis
for evaluating the reasonableness of proposed rates.
(iv) Subcontracting costs. For any subcontractor costs submitted
for reimbursement, the carrier is responsible for ensuring that
documentation requirements set forth herein are passed on to any and
all subcontractors utilized in the carrier's efforts to meet CALEA
requirements.
(v) Other costs. List all other costs not otherwise included in the
categories described above (e.g., special tooling, travel, computer and
consultant services) and provide bases for costs.
(e) As part of the specific information required, the carrier shall
submit with its cost estimate and clearly identify as such, costs that
are verifiable and factual. In addition, the carrier shall submit
information reasonably required to explain its estimating process,
including:
(1) The judgmental factors applied, such as trends or budgetary
data, and the mathematical or other methods used in the estimate,
including those used in projecting from known data; and
(2) The nature and amount of any contingencies included in the
proposed estimate.
(f) There is a clear distinction between submitting cost data and
merely making available books, records, and other documents without
identification. The requirement for submission of cost data is met when
all accurate cost data reasonably available to the carrier have been
submitted, either actually or by specific identification, to the FBI.
(g) In submitting its estimate, the carrier must include an index,
appropriately referenced, of all the cost data and information
accompanying or identified in the estimate. In addition, any future
additions and/or revisions, up to the date of agreement on the costs,
must be annotated in a supplemental index.
(h) Headings for submission are as follows:
(1) Total Project Cost: Summary
(i) Cost Elements (Enter appropriate cost elements.)
(ii) Proposed Cost Estimate--Total Cost (Enter those necessary and
reasonable costs that in the carrier's judgment will properly be
incurred in efficient completion of CALEA requirements. When any of the
costs in this have already been incurred (e.g., under a letter
contract), describe them on an attached supporting schedule.)
(iii) Proposed Cost Estimate--Unit Cost (Enter the unit costs for
each cost element.)
(iv) Supporting Material (Identify the attachment in which the
information supporting the specific cost element may be found.)
(2) Total Project Costs: Detail (at Switch Level or Project Level,
as appropriate)
(i) Cost Elements (Enter appropriate cost elements.)
(ii) Proposed Cost Estimate--Total Cost (Enter those necessary and
reasonable costs that in the carrier's judgment will properly be
incurred in efficient completion of CALEA requirements. When any of the
costs in this have already been incurred (e.g., under a letter
contract), describe them on an attached supporting schedule.)
(iii) Proposed Cost Estimate--Unit Cost (Enter the unit costs for
each cost element.)
(iv) Supporting Material (Identify the attachment in which the
information supporting the specific cost element may be found.)
Sec. 100.17 Request for payment.
(a) The carrier shall provide sufficient supporting documentation
at the time of submission of request for payment to allow adequate
analysis and evaluation of the incurred costs. The FBI reserves the
right to request additional cost data from carriers in order to ensure
compliance with this part.
(b) Instructions for submission of the supporting documentation for
the request for payment are as follows:
(1) The carrier shall submit to the FBI incurred costs by line item
with supporting information.
(2) A cost element breakdown as described in Sec. 100.17(f) shall
be attached for each agreed upon line item.
(3) Supporting breakdowns shall be furnished for each cost element,
consistent with the carrier's cost accounting system.
(c) When more than one line item has been agreed upon, summary
total amounts covering all line items shall be furnished for each cost
element. Depending on the carrier's accounting system, breakdowns shall
be provided to the FBI for the following categories of cost elements,
as applicable:
(1) Materials. Provide a consolidated cost summary of individual
material quantities included in the various tasks, orders, or agreement
line items and the basis upon which they were determined (vendor
invoices, time sheets, payroll records, etc.). Include raw materials,
parts, software, components, and assemblies. For all reimbursable
items, identify the item, source, quantity, and cost.
(2) Direct labor. Provide a breakdown of labor hours, rates, and
cost by appropriate category, and furnish the methodologies used in
identifying these costs. Have available for audit, in accordance with
Sec. 100.18, time sheet and labor rate calculation justification for
all direct labor charged to the agreement.
(3) Allocable direct costs. Indicate how allocable costs are
computed and applied, including cost breakdowns, comparing estimates to
actual data as a basis for evaluating the reasonableness of actual
costs.
(4) Subcontracting costs. For any subcontractor costs submitted for
reimbursement, along with a copy of the invoice, the carrier must have
available for audit in accordance with Sec. 100.18, documentation that
costs incurred are just and reasonable.
(5) Other costs. List all other costs not otherwise included in the
categories described above (e.g., special tooling, travel, computer and
consultant services) and have available for audit in accordance with
Sec. 100.18, documentation that costs incurred are just and reasonable.
(d) There is a clear distinction between submitting cost data and
merely making available books, records,
[[Page 13328]]
and other documents without identification.
(1) The requirement for submission of cost data is met when all
accurate cost data reasonably available to the carrier have been
submitted, either actually or by specific identification of the data
that are available for review in the carrier's files, to the FBI.
(2) Should later information which affects the level of
reimbursement come into the carrier's possession, it must be promptly
submitted to the FBI.
(3) The requirement for submission of cost data continues up to the
time of final reimbursement.
(e) In submitting its invoice, the carrier must include an index,
which cross references the actual cost data submitted with the cost
estimate.
(f) Headings for submission are as follows:
(1) Total Project Cost: Summary
(i) Cost Elements (Enter appropriate cost elements.)
(ii) Actual Costs Incurred--Total Cost (Enter those necessary and
reasonable costs that were incurred in the efficient completion of
CALEA requirements.)
(iii) Actual Costs Incurred--Unit Cost (Enter the unit costs for
each cost element.)
(iv) Supporting Material (Identify the attachment in which the
information supporting the specific cost element may be found.)
(2) Total Project Costs: Detail (at Switch Level or Project Level,
as appropriate.)
(i) Cost Elements (Enter appropriate cost elements.)
(ii) Actual Costs Incurred--Total Cost (Enter those necessary and
reasonable costs that were incurred in the efficient completion of
CALEA requirements.)
(iii) Actual Costs Incurred--Unit Cost (Enter the unit costs for
each cost element.)
(iv) Supporting Material (Identify the attachment in which the
information supporting the specific cost element may be found.)
Sec. 100.18 Audit.
(a) General. In order to evaluate the accuracy, completeness, and
timeliness of the cost data, the FBI or other representatives of the
Government shall have the right to examine and audit all of the
carrier's supporting materials.
(1) These materials include, but are not limited to books, records,
documents, and other data, regardless of form (e.g., machine readable
media such as disk, tape) or type (e.g., data bases, applications
software, data base management software, utilities), including
computations and projections related to proposing, negotiating,
costing, or performing CALEA compliance efforts or modifications.
(2) The right of examination shall extend to all documents
necessary to permit adequate evaluation of the cost data submitted,
along with the computations and projections used.
(b) Audits of request for payment. The carrier shall maintain and
the FBI or representatives of the Government shall have the right to
examine and audit supporting materials.
(1) These materials include, but are not limited to, books,
records, documents, and other evidence and accounting procedures and
practices, regardless of form (e.g., machine readable media such as
disk, tape) or type (e.g., date bases, applications software, data base
management software, utilities), sufficient to reflect properly all
costs claimed to have been incurred, or anticipated to be incurred, in
performing the CALEA compliance effort.
(2) This right of examination shall include inspection at all
reasonable times of the carrier's plants, or parts of them, engaged in
performing the effort.
(c) Reports. If the carrier is required to furnish cost, funding,
or performance reports, the FBI or representatives of the Government
shall have the right to examine and audit books, records, other
documents, and supporting materials, for the purpose of evaluating the
effectiveness of the carrier's policies and procedures to produce data
compatible with the objectives of these reports and the data reported.
(d) Availability. The carrier shall make available at its office at
all reasonable times the costs and support material described herein,
for examination, audit, or reproduction, until three (3) years after
final reimbursement payment. In addition,
(1) If the CALEA compliance effort is completely or partially
terminated, the records relating to the work terminated shall be made
available for three (3) years after any resulting final termination
settlement; and
(2) Records relating to appeals, litigation or the settlement of
claims arising under or relating to the CALEA compliance effort shall
be made available until such appeals, litigation, or claims are
disposed of.
(e) Subcontractors. The carrier shall ensure that all terms and
conditions herein are incorporated in any agreement with a
subcontractor that may be utilized by the carrier to perform any or all
portions of the agreement.
Sec. 100.19 Adjustments to agreement estimate.
(a) Adjustments prior to the incurrence of a cost.
(1) In accordance with Sec. 100.17(d)(2), the carrier shall notify
the FBI when any change affecting the level of reimbursement occurs.
(2) Upon such notification, if the adjustment results in an
increase in the estimated reimbursement, the FBI will review the
submission and determine if
(i) Funds are available;
(ii) The adjustment is justified and necessary to accomplish the
goals of the agreement; and
(iii) It is in the best interest of the government to approve the
expenditure.
(3) The FBI will provide the decision as to the acceptability of
any increase to the carrier in writing.
(b) Adjustments after the incurrence of a cost. Any cost incurred
that exceeds the provision in Sec. 100.16(e)(2) will be reviewed by the
FBI to determine reasonability, allowability, and if it is in the best
interest of the government to approve the expenditure for
reimbursement.
(c) Reduction for defective cost data.
(1) The cost shall be reduced accordingly and the agreement shall
be modified to reflect the reduction if any cost estimate negotiated in
connection with the CALEA compliance effort, or any cost reimbursable
under the effort is increased because:
(i) The carrier or a subcontractor furnished cost data to the
government that were not complete, accurate, and current;
(ii) A subcontractor or prospective subcontractor furnished the
cost data to the carrier that were not complete, accurate, and current;
or
(iii) Any of these parties furnished data of any description that
were not accurate.
(2) Any reduction in the negotiated cost under Sec. 100.19(c)(1)
due to defective data from a prospective subcontractor that was not
subsequently awarded the subcontract shall be limited to the amount by
which either the actual subcontract or the actual cost to the carrier,
if there was no subcontract, was less than the prospective subcontract
cost estimate submitted by the carrier, provided that the actual
subcontract cost was not itself affected by defective cost data.
(3) If the FBI determines under Sec. 100.19(c)(1) that a cost
reduction should be made, the carrier shall not raise the following
matters as a defense:
(i) The carrier or subcontractor was a sole source supplier or
otherwise was in a superior bargaining position and thus the costs of
the agreement would not
[[Page 13329]]
have been modified even if accurate, complete, and current cost data
had been submitted;
(ii) The FBI should have known that the cost data at issue were
defective even though the carrier or subcontractor took no affirmative
action to bring the character of the data to the attention of the FBI;
(iii) The carrier or subcontractor did not submit accurate cost
data. Except as prohibited, an offset in an amount determined
appropriate by the FBI based upon the facts shall be allowed against
the cost reimbursement of an agreement amount reduction if the carrier
certifies to the FBI that, to the best of the carrier's knowledge and
belief, the carrier is entitled to the offset in the amount requested
and the carrier proves that the cost data were available before the
date of agreement on the cost of the agreement (or cost of the
modification) and that the data were not submitted before such date. An
offset shall not be allowed if the understated data were known by the
carrier to be understated when the agreement was signed; or the
Government proves that the facts demonstrate that the agreement amount
would not have increased even if the available data had been submitted
before the date of agreement on cost; or
(4) In the event of an overpayment, the carrier shall be liable to
and shall pay the United States at that time such overpayment as was
made, with simple interest on the amount of such overpayment to be
computed from the date(s) of overpayment to the carrier to the date the
Government is repaid by the carrier at the applicable underpayment rate
effective for each quarter prescribed by the Secretary of the Treasury
under 26 U.S.C. 6621(a)(2).
Sec. 100.20 Confidentiality of trade secrets/proprietary information.
With respect to any information provided to the FBI under this part
that is identified as company proprietary information, it shall be
treated as privileged and confidential and only shared within the
government on a need-to-know basis. It shall not be disclosed outside
the government for any reason inclusive of Freedom of Information
requests, without the prior written approval of the company.
Information provided will be used exclusively for the implementation of
CALEA. This restriction does not limit the government's right to use
the information provided if obtained from any other source without
limitation.
Sec. 100.21 Alternative dispute resolution.
(a) If an impasse arises in negotiations between the FBI and the
carrier which precludes the execution of a cooperative agreement, the
FBI will consider using mediation with the goal of achieving, in a
timely fashion, a consensual resolution of all outstanding issues
through facilitated negotiations.
(b) Should the carrier agree to mediation, the costs of that
mediation process shall be shared equally by the FBI and the carrier.
(c) Each mediation shall be governed by a separate mediation
agreement prepared by the FBI and the carrier.
Dated: February 25, 1997.
Louis Freeh,
Director, Federal Bureau of Investigation, Department of Justice.
[FR Doc. 97-7035 Filed 3-19-97; 8:45 am]
BILLING CODE 4410-02-M