[Federal Register Volume 63, Number 35 (Monday, February 23, 1998)]
[Rules and Regulations]
[Pages 9066-9067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4304]



[[Page 9066]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 97-04; FAR Case 97-303; Item XIII]
RIN 9000-AH90


Federal Acquisition Regulation; Limitation on Allowability of 
Compensation for Certain Contractor Personnel

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

ACTION: Interim rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed on an interim rule amending 
the Federal Acquisition Regulation (FAR) to implement Section 808 of 
the National Defense Authorization Act for Fiscal Year 1998 (Pub. L. 
105-85) by limiting the allowable compensation costs for senior 
executives of contractors to the benchmark compensation amount 
determined applicable for each fiscal year by the Administrator for 
Federal Procurement Policy. This regulatory action was not subject to 
Office of Management and Budget (OMB) review under Executive Order 
12866, dated September 30, 1993, and is not a major rule under 5 U.S.C. 
804.

EFFECTIVE DATE: February 23, 1998.
    Applicability Date: This policy applies to costs of compensation 
incurred under Federal contracts after January 1, 1998, regardless of 
the date of contract award.
    Comment Date: Comments should be submitted to the FAR Secretariat 
at the address shown below on or before April 24, 1998, to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVR), 1800 F Street, 
NW, Room 4035, Attn: Ms. Beverly Fayson, Washington, DC 20405.
    E-Mail comments submitted over the Internet should be addressed to: 
[email protected]
    Please cite FAC 97-04, FAR case 97-303 in all correspondence 
related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC 20405 (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAC 97-04, FAR case 97-303.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 808 of the National Defense Authorization Act for Fiscal 
Year 1998 (Pub. L. 105-85) limits allowable compensation costs of 
senior executives of contractors for a fiscal year to the benchmark 
compensation amount determined applicable for each fiscal year by the 
Administrator, Office of Federal Procurement Policy. Section 808 
requires the Administrator, Office of Federal Procurement Policy 
(OFPP), to review commercially available surveys of executive 
compensation, and, on the basis of the results of the review, determine 
the benchmark compensation amount for each fiscal year. See OFPP's 
``Determination of Executive Compensation Benchmark Amount'', as 
published by GSA in the Notices Section of this Federal Register. This 
determination shall be made in consultation with the Defense Contract 
Audit Agency and other executive agencies, as the Administrator deems 
appropriate. Section 808 defines benchmark compensation as the median 
amount of the compensation provided for all senior executives of all 
benchmark corporations for the most recent year for which data is 
available at the time the determination is made.
    This interim rule revises FAR 31.205-6(p) to implement the 
statutory ceiling on allowable compensation costs for senior 
executives. Because the commercial survey used in making the benchmark 
compensation determination is based on Securities and Exchange 
Commission disclosure data (which cannot be separately broken down), it 
includes the cost of employer contributions to defined contribution 
pension plans (which are a form of deferred compensation). The 
implementing language at FAR 31.205-6(p)(2)(i) specifies the components 
of compensation subject to the benchmark compensation. This restriction 
applies to costs of compensation incurred after January 1, 1998, under 
contracts awarded before, on, or after the date of the enactment of 
Public Law 105-85 (November 18, 1997). This restriction applies to the 
chief executive officer (CEO), the four most highly compensated 
employees in management positions other than the CEO, and the five most 
highly compensated individuals in management positions at intermediate 
home offices and segments if a contractor is organizationally 
subdivided into such units.

B. Regulatory Flexibility Act

    The interim rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most 
contracts awarded to small entities use simplified acquisition 
procedures or are awarded on a competitive, fixed-price basis, and do 
not require application of the cost principle contained in this rule. 
An Initial Regulatory Flexibility Analysis has, therefore, not been 
performed. Comments are invited from small businesses and other 
interested parties. Comments from small entities concerning the 
affected FAR subpart also will be considered in accordance with 5 
U.S.C. 610. Such comments must be submitted separately and should cite 
5 U.S.C. 601, et seq. (FAR case 97-303), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the interim rule 
does not impose any new reporting, recordkeeping or information 
collection requirements, or collections of information from offerors, 
contractors, or members of the public which require the approval of OMB 
under 44 U.S.C. 3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This rule 
implements Section 808 of the National Defense Authorization Act for 
Fiscal Year 1998 (Pub. L. 105-85) and applies to costs of compensation 
incurred after January 1, 1998, under contracts entered into before, 
on, or after the date of enactment (November 18, 1997) of this public 
law. However, pursuant to Public Law 98-577 and FAR 1.501, public 
comments received in response to this interim rule will be considered 
in the formation of the final rule.

List of Subjects in 48 CFR Part 31

    Government procurement.


[[Page 9067]]


    Dated: February 13, 1998.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, 48 CFR Part 31 is amended as set forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    1. The authority citation for 48 CFR Part 31 continues to read as 
follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

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


31.205-6  Compensation for personal services.

* * * * *
    (p) Limitation on allowability of compensation for certain 
contractor personnel. (1) Costs incurred after January 1, 1998, for 
compensation of a senior executive in excess of the benchmark 
compensation amount determined applicable for the contractor fiscal 
year by the Administrator, Office of Federal Procurement Policy (OFPP), 
under Section 39 of the OFPP Act (41 U.S.C. 435) are unallowable (10 
U.S.C. 2324(e)(1)(P) and 41 U.S.C. 256(e)(1)(P)). This limitation is 
the sole statutory limitation on allowable senior executive 
compensation costs incurred after January 1, 1998, under new or 
previously existing contracts. This limitation applies whether or not 
the affected contracts were previously subject to a statutory 
limitation on such costs.
    (2) As used in this paragraph:
    (i) Compensation means the total amount of wages, salary, bonuses, 
deferred compensation (see paragraph (k) of this subsection), and 
employer contributions to defined contribution pension plans (see 
paragraphs (j)(5) and (j)(8) of this subsection), for the fiscal year, 
whether paid, earned, or otherwise accruing, as recorded in the 
contractor's cost accounting records for the fiscal year.
    (ii) Senior executive means--
    (A) The contractor's Chief Executive Officer (CEO) or any 
individual acting in a similar capacity;
    (B) The contractor's four most highly compensated employees in 
management positions, other than the CEO; and
    (C) If the contractor has intermediate home offices or segments 
that report directly to the contractor's corporate headquarters, the 
five most highly compensated employees in management positions at each 
such intermediate home office or segment.
    (iii) Fiscal year means the fiscal year established by the 
contractor for accounting purposes.

[FR Doc. 98-4304 Filed 2-20-98; 8:45 am]
BILLING CODE 6820-EP-P