[Federal Register Volume 62, Number 109 (Friday, June 6, 1997)]
[Rules and Regulations]
[Pages 31294-31296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14775]
[[Page 31293]]
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Part IV
Office of Management and Budget
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Office of Federal Procurement Policy
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48 Cost Part 9903
Cost Accounting Standards Board; Applicability of Cost Accounting
Standards Coverage; Final Rule
Federal Register / Vol. 62, No. 109 / Friday, June 6, 1997 / Rules
and Regulations
[[Page 31294]]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards Board; Applicability of Cost Accounting
Standards Coverage
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, OMB.
ACTION: Final rule.
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SUMMARY: The Cost Accounting Standards (CAS) Board is revising the
applicability criteria for application of CAS to negotiated Federal
contracts. This rulemaking is authorized pursuant to Section 26 of the
Office of Federal Procurement Policy Act, 41 U.S.C. Sec. 422. The Board
is taking action on this topic to adjust CAS applicability requirements
in accordance with Section 4205 of Pub. L. 104-106, the ``Federal
Acquisition Reform Act of 1996.''
EFFECTIVE DATE: This rule is effective June 6, 1997.
FOR FURTHER INFORMATION CONTACT: Richard C. Loeb, Executive Secretary,
Cost Accounting Standards Board (telephone: 202-395-3254).
SUPPLEMENTARY INFORMATION:
A. Background
On July 29, 1996, the Cost Accounting Standards Board (CASB) issued
an interim rule with request for comment, 61 FR 39360, implementing
Section 4205 of Pub. L. 104-106, the ``Federal Acquisition Reform Act
of 1996'' (FARA), also known as the ``Clinger-Cohen Act''. This law
amends 41 U.S.C. Sec. 422(f)(2)(B) to revise clause (i) and delete
clause (iii). The phase ``contracts or subcontracts where the price
negotiated is based on established catalog or market prices of
commercial items sold in substantial quantities to the general public''
has been replaced with the phase ``contracts or subcontracts for the
acquisition of commercial items.'' The CAS Board is today finalizing it
interim applicability regulations, solicitation provision and contract
clauses in recognition of this change. As amended, firm fixed-price
contracts and subcontracts as well as fixed-price contracts and
subcontracts with economic price adjustment (provided that adjustments
are not based on actual costs incurred), for the acquisition of
commercial items (see 48 CFR, Chap. 1, Part 12) will be exempt from CAS
requirements. This exemption (b)(6) supersedes all other exemptions for
the acquisition of commercial items under 9903.201-2.
To accomplish these changes, the Board is finalizing the interim
amendments to Section 9903.201-1(b)(6) of its rules. Additionally, the
interim solicitation provision found at 9903.201-3, the contract
clauses at 9903.201-4, and the definition found at 9903.301 are
finalized to reflect this change.
The Conference Report to Pub. L. 104-106 directs the CAS Board, in
consultation with the Director of the Defense Contract Audit Agency, to
issue guidance, consistent with commercial accounting systems and
practices, to ensure that contractors appropriately assign costs to
commercial item contracts, other than firm fixed-price commercial item
contracts. At the present time, however, commercial item contracts are
limited by regulation to the firm fixed-price and fixed-price with
economic price adjustment (FPEA) variety. The Board recognizes that one
of the three varieties of FPEA contracts authorized for use provides
for adjustment of price based upon actual incurred costs for labor and
material. Consequently, in order to reconcile the Conference Report
language with the expansion of this CAS exemption to cover FPEA
contracts, the Board's exemption for FPEA contracts does not include
those contracts where adjustment is based on actual costs incurred (see
FAR 16.203-1(b)).
The Board's inquiry of a number of Federal procuring agencies,
including the Department of Defense, has indicated that FPEA contracts
with adjustments based on actual costs incurred are rarely, if ever,
used (DOD could not identify any contract awards of this type that had
been made in the last year). Accordingly, after further consideration
and review of this issue, the Board has concluded that development of
the requested guidance should appropriately await the time when other
than firm fixed-price or fixed-price with economic price adjustment
commercial item contracts are authorized, or until another need for
such guidance arises. At the time that a need arises for guidance to
address the allocation of costs to other than firm fixed-price or
fixed-price with economic price adjustment commercial item contracts as
exempted by this rule, the Board will, of course, pursue the
development of guidance to address the issue.
B. Paperwork Reduction Act
The Paperwork Reduction Act, Public Law 96-511, does not apply to
this rulemaking, because this rule imposes no paperwork burden on
offerors, affected contractors and subcontractors, or members of the
public which require the approval of OMB under 44 U.S.C. 3501, et seq.
C. Executive Order 12866 and the Regulatory Flexibility Act
The economic impact of this rule on contractors and subcontractors
is expected to be minor. As a result, the Board has determined that
this final rule will not result in the promulgation of a ``major rule''
under the provisions of Executive Order 12866, and that a regulatory
impact analysis will not be required. Furthermore, this rule will not
have a significant impact on a substantial number of small businesses
because small businesses are exempt from the application of the Cost
Accounting Standards. Therefore, this rule does not require a
regulatory flexibility analysis under the Regulatory Flexibility Act of
1980.
D. Public Comments
This final rule is based upon the Board's interim rule that was
issued on July 29, 1996, 61 FR 39360. Six public comments were
received, including five timely comments, and one late comment. The
comments received and the Board's actions taken in response thereto are
summarized below:
Comment: Four commenters, representing industry associations, the
private bar and Government, supported the issuance of the interim rule.
Response: The Board thanks the commenters for their supportive
comments.
Comment: Two commenters opposed the rule. They stated that there
was no cost accounting basis for the rule. These commenters argued that
whether a contract was subject to DAS should be dependent on the size
of the contract (dollar amount) and whether contractor cost information
had been submitted to assist or support contract negotiations or
contract pricing, and not the product description or nomenclature used
to describe the Government's intended purchase; i.e., a ``commercial
item''.
Response: The Board believes that the commenters raise valid
conceptual accounting concerns. However, inasmuch as Congress has given
the Board what it believes to be direction to create this new CAS
exemption, the Board believes it would be remiss if it were not to
implement the Congressional initiative. In addition, the Board believes
that the absence of any agency audit clause from ``commercial item''
contracts renders an enforceability and compliance scheme
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for CAS, as applied to this contract type, a moot issue.
Comment: Three commenters, including the private bar, objected to
or questioned the Board's procedural process for issuing an interim
rule. Two of the three commenters believe that the Board must use its
statutory ``four-step'' rulemaking process in issuing the new
exemption. Another commenter requested a more specific explanation of
the authority for issuance of the interim rule.
Response: The Board agrees that it would normally have processed a
new regulatory exemption to CAS coverage in accordance with the ``four-
step'' rulemaking process normally appertaining to CAS rules. However,
in this specific instance, the Board believes that it was following
Congressional direction, as embodied in new statutory language
contained in FARA, increasing the subject CAS exemption. In this
instance, in which a statutory authorization has changed, the Board
believes that it is merely implementing a Congressional initiative with
respect to CAS. As such, the Board regards the new statutory language
as representing a specific circumstance that creates an exception to
the Board's regular ``four-step'' rulemaking process.
Comment: Two commenters, representing industry associations,
recommended that the Board authorize contracting officers to waive all
CAS requirements, for all commercial item contracts, entered into since
October 13, 1994, the date of enactment of the Federal Acquisition
Streamlining Act (FASA), Pub. L. 103-355.
Response: The Board believes that the present CAS exemption for
commercial item contracts, as well as the agency CAS waiver authority
that was previously in effect prior to the promulgation of the interim
rule, were sufficient to address CAS commercial item contracting issues
under both FASA and FARA. In this regard, the Board notes that the
effective date of the interim rule was some five months prior to the
effective date of the commercial item contracting changes made in the
FAR as a result of the enactment of FARA. In addition, the Board is
unaware of any contracts in which CAS has served as an impediment with
respect to the acquisition of commercial items since the effective date
of the FASA commercial item contracting rule on October 1, 1995.
Comment: Two commenters, representing Government and the private
bar, recommended that the CAS commercial item exemption be expanded to
include both firm fixed-price contracts and fixed-price contracts with
economic price adjustment (FPEA). These commenters pointed out that
only these two contract types are authorized for the acquisition of
commercial items.
Response: The Board agrees with the commenters. However, the Board
again notes that the Conference Report to Pub. L. 104-106 directs the
CAS Board, in consultation with the Director of the Defense Contract
Audit Agency, to issue guidance, consistent with commercial accounting
systems and practices, to ensure that contractors appropriately assign
costs to commercial item contracts, other than firm fixed-price
commercial item contracts. In promulgating the interim rule, the Board
chose not to issue this guidance, at the present time, on the basis
that it is unnecessary, provided that the CAS commercial item exemption
is limited to firm fixed-price commercial item contracts.
However, the Board is also persuaded that failure to include FPEA
contracts within the CAS commercial item exemption might tend to
contract rather than expand the intent of the Board's previous
``catalog or market price'' exemption for commercial items that was in
effect prior to the passage of FARA. Moreover, the Board recognizes
that one of the three varieties of FPEA contracts authorized for use,
provides for adjustment of price based upon actual incurred costs for
labor and material. In order to reconcile the Conference Report
language with the expansion of this CAS exemption to cover FPEA
contracts, the Board is expanding the exemption provided in the interim
rule to include a CAS exemption for FPEA contracts, provided that price
adjustments are not based on actual costs incurred (see FAR 16.203-
1(b)). The Board believes that this approach to FPEA contracts comports
with both the intent of the statute and the Conference Report by
expanding the CAS commercial item exemption to FPEA contracts in a
manner that will avoid the allocation of costs to cost objectives based
on actual contractor incurred costs.
List of Subjects in 48 CFR Part 9903
Costs accounting standards, Government procurement.
Richard C. Loeb
Executive Secretary, Cost Accounting Standards Board.
Accordingly, the interim rule amending 48 CFR Part 9903 which was
published at 61 FR 39360 on July 29, 1996, is adopted as a final rule
with the following changes:
PART 9903--CONTRACT COVERAGE
Subpart 9903.2--CAS Program Requirements
1. The authority citation for part 9903 of chapter 99 of title 48
continues to read as follows:
Authority: Pub. L. 100-679, 102 Stat 4056, 41 U.S.C. Sec. 422.
2. Section 9903.201-1 is amended by revising paragraph (b)(6) to
read as follows:
Sec. 9903.201-1 CAS applicability.
* * * * *
(b) * * *
(6) Firm fixed-priced and fixed-price with economic price
adjustment (provided that price adjustment is not based on actual costs
incurred) contracts and subcontracts for the acquisition of commercial
items.
* * * * *
3. Section 9903.201-4 is amended by revising the clause heading and
paragraph (d) of the clause entitled Cost Accounting Standards; and by
revising paragraph (d)(1) of the clause entitled Disclosure and
Consistency of Cost Accounting Practices, to read as follows:
Sec. 9903.201-4 Contract clauses.
* * * * *
Cost Accounting Standards
(May 1997)
* * * * *
(d) The contractor shall include in all negotiated subcontracts
which the Contractor enters into, the substance of this clause,
except paragraph (b), and shall require such inclusion in all other
subcontracts, of any tier, including the obligation to comply with
all CAS in effect on the subcontractor's award date or if the
subcontractor has submitted cost or pricing data, on the date of
final agreement on price as shown on the subcontractor's signed
Certificate of Current Cost or Pricing Data. If the subcontract is
awarded to a business unit which pursuant to 9903.201-2 is subject
to other types of CAS coverage, the substance of the applicable
clause set forth in 9903.201-4 shall be inserted. This requirement
shall apply only to negotiated subcontracts in excess of $500,000,
except that the requirement shall not apply to negotiated
subcontracts otherwise exempt from the requirement to include a CAS
clause as specified in 9903.201-1.
(End of clause)
* * * * *
Disclosure and Consistency of Cost Accounting Practices
(May 1997)
* * * * *
(d) * * *
(1) If the subcontract is awarded to a business unit which
pursuant to 9903.201-2
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is subject to other types of CAS coverage, the substance of the
applicable clause set forth in 9903.201-4 shall be inserted.
* * * * *
[FR Doc. 97-14775 Filed 6-5-97; 8:45 am]
BILLING CODE 3110-01-M