[Federal Register Volume 62, Number 161 (Wednesday, August 20, 1997)]
[Proposed Rules]
[Pages 44248-44249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21892]


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DEPARTMENT OF DEFENSE

48 CFR Part 231

[DFARS Case 96-D303]


Defense Federal Acquisition Regulation Supplement; Cost 
Reimbursement Rules for Indirect Costs--Private Sector

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

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SUMMARY: The Director of Defense Procurement is proposing to amend the 
Defense Federal Acquisition Regulation Supplement (DFARS) to provide 
additional guidance on defense capability preservation agreements.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before October 20, 1997, to be considered 
in the formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Ms. Sandra G. Haberlin, 
PDUSD (A&T) DP (DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 
20301-3062. Telefax number (703) 602-0350. Please cite DFARS Case 96-
D303 in all correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT:
Ms. Sandra G. Haberlin, (703) 602-0131.

SUPPLEMENTARY INFORMATION: 

A. Background

    Section 808 of the National Defense Authorization Act for Fiscal 
Year 1996 (Public Law 104-106) permits DoD to enter into a defense 
capability preservation agreement with a defense contractor where it 
would facilitate the achievement of the policy objectives set forth in 
10 U.S.C. 2501(b). Such an agreement would permit the contractor to 
claim certain indirect costs, attributable to its private sector work, 
on its defense contracts. To implement Section 808, an interim rule was 
published in the Federal Register on May 13, 1996 (61 FR 21973), that 
added DFARS subsection 231.205-71, Defense capability preservation 
agreements.
    This proposed rule revises subsection 231.205-71 to add additional 
guidance for evaluating requests for defense capability preservation 
agreements, and to add cost reimbursement rules to apply if DoD enters 
into such an agreement with a contractor. Specifically, this rule 
differs from the interim rule by (1) redesignating paragraph (b) as 
paragraph (e); (2) adding paragraphs (b) Definition, (c) Purpose and 
guidelines, and (d) Cost-reimbursement rules; and (3) making editorial 
changes. Due to the differences between the two rules, a proposed rule 
is being promulgated to obtain further public comment prior to 
finalizing the rule.
    Public comments on the interim rule were received from three 
sources. All comments were considered in the development of this 
proposed rule.

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most 
contracts awarded to small entities use simplified acquisition 
procedures or are awarded on a competitive, fixed-price basis, and do 
not require application of the cost principle contained in this rule. 
An initial regulatory flexibility analysis has, therefore, not been 
performed. Comments are invited from small businesses and other 
interested parties. Comments from small entities concerning the 
affected DFARS subpart also will be considered in accordance with 5 
U.S.C. 610. Such comments should be submitted separately and should 
cite DFARS Case 96-D303 in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501, et seq.) applies 
because the proposed rule contains information collection requirements. 
The Office of Management and Budget (OMB) has approved an information 
collection concerning defense capability preservation agreements 
through July 31, 1999, under OMB Control Number 0704-0387, based on the 
requirements in the interim rule. However, the actual number of 
respondents requesting defense capability preservation agreements since 
publication of the interim rule on May 13, 1996, is lower than 
previously estimated. Accordingly, the estimate of the annual number of 
respondents is decreased from 50 to 10, and the estimated annual 
information collection burden is decreased from 4000 to 800 hours.

List of Subjects in 48 CFR Part 231

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, it is proposed that 48 CFR Part 231 be amended as 
follows:
    1. The authority citation for 48 CFR Part 231 continues to read as 
follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

    2. Section 231.205-71 is revised to read as follows:


231.205-71  Defense capability preservation agreements.

    (a) Scope and authority. Where it would facilitate the achievement 
of the policy objectives set forth in 10 U.S.C. 2501(b), DoD may enter 
into a defense capability preservation agreement with a contractor. As 
authorized by Section 808 of the National Defense Authorization Act for 
Fiscal Year 1996 (Public Law 104-106), such an agreement would permit 
the contractor to claim certain indirect costs attributable to its 
private sector work as allowable costs on its defense contracts.
    (b) Definition. ``Incremental indirect cost,'' as used in this 
subsection, means an additional indirect cost that results from 
performing private sector work described in a defense capability 
preservation agreement.
    (c) Purpose and guidelines. The purpose of a defense capability 
preservation agreement is to broaden and strengthen the industrial base 
by providing an incentive for a company to obtain new private sector 
work, thereby reducing DoD's cost of doing business.

[[Page 44249]]

DoD will use the following guidelines to evaluate requests for defense 
capability preservation agreements:
    (1) the Under Secretary of Defense for Acquisition and Technology 
must make a determination that an agreement would facilitate the 
achievement of the policy objectives set forth in 10 U.S.C. 2501(b).
    The primary consideration in making this determination is whether 
an agreement would promote future growth in the amount of private 
sector work that a company is able to obtain.
    (2) An agreement generally will be considered only for a company or 
business segment with little or no private sector work.
    (3) The agreement shall apply to prospective private sector work 
only, and shall not extend beyond 5 years.
    (4) The agreement must project an overall benefit to DoD, including 
net savings. This would be achieved by demonstrating that private 
sector work will absorb costs that otherwise would be absorbed by DoD.
    (d) Cost-reimbursement rules. If DoD enters into a defense 
capability preservation agreement with a contractor, the following 
cost-reimbursement rules apply:
    (1) The agreement shall require the contractor to allocate the 
following costs to private sector work:
    (i) The direct costs attributable to the private sector work;
    (ii) The incremental indirect costs attributable to the private 
sector work; and
    (iii) The non-incremental indirect costs to the extent that the 
revenue attributable to the private sector work exceeds the sum of the 
costs specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this 
subsection.
    (2) The agreement shall require that the sum of the costs specified 
in paragraphs (d)(1)(ii) and (d)(1)(iii) of this subsection not exceed 
the amount of indirect costs that would have been allocated to the 
private sector work in accordance with the contractor's established 
accounting practices.
    (3) DoD may agree to modify the amount calculated in accordance 
with paragraph (d)(1) of this subsection if it determines that a 
modification is appropriate to the particular situation. In so doing, 
DoD may agree to the allocation of a smaller or larger portion of the 
amount calculated in accordance with paragraph (d)(1) of this 
subsection, to private sector work.
    (i) Any smaller amount shall not be less than the sum of the costs 
specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this subsection.
    (ii) Any larger amount shall not exceed the sum of the costs 
specified in paragraph (d)(1)(i) of this subsection and the amount of 
indirect costs that would have been allocated to the private sector 
work in accordance with the contractor's established accounting 
practices.
    (iii) In determining whether such a modification is appropriate, 
DoD will consider factors such as the impact of pre-existing firm-
fixed-price DoD contracts on the amount of costs that would be 
reimbursed by DoD, the impact of pre-existing private sector work on 
the cost benefit that would be received by the contractor, and the 
extent to which allocating a smaller or larger portion of costs to 
private sector work would provide a sufficient incentive for the 
contractor to obtain additional private sector work.
    (e) Procedure. A contractor may submit a request for a defense 
capability preservation agreement, together with appropriate 
justification, through the Deputy Under Secretary of Defense for 
Industrial Affairs and Installations, to the Under Secretary of Defense 
for Acquisition and Technology, who has exclusive approval or 
disapproval authority. The contractor should also provide an 
informational copy of any such request to the cognizant administrative 
contracting officer.
[FR Doc. 97-21892 Filed 8-19-97; 8:45 am]
BILLING CODE 5000-04-M