[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Rules and Regulations]
[Pages 58599-58600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28961]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 97-09; FAR Case 95-020; Item VII]
RIN 9000-AH05


Federal Acquisition Regulation; Costs Related to Legal/Other 
Proceedings

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA),

[[Page 58600]]

and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed on a final rule amending 
the Federal Acquisition Regulation (FAR) to clarify the allowability of 
costs incurred for qui tam suits in which the Government does not 
intervene. This regulatory action was not subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993. This is not a major rule under 5 U.S.C. 804.

EFFECTIVE DATE: December 29, 1998.

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 97-09, FAR case 95-020.

SUPPLEMENTARY INFORMATION:

A. Background

    A proposed rule was published in the Federal Register on June 20, 
1996 (61 FR 31790). Seven sources submitted public comments. All 
comments were considered in developing the final rule.
    This final rule clarifies the cost principle at FAR 31.205-47 as it 
relates to qui tam suits not joined in by the Government. The final 
rule also clarifies, at FAR 31.205-47(e)(3), that the maximum 
reimbursement contractors may receive for legal costs in connection 
with agreements reached under FAR 31.205-47(c) is 80 percent of 
otherwise allowable and allocable incurred costs.
    Industry has commented that this coverage should be effective 
prospectively. After consideration of these comments, it is concluded 
that this coverage is properly characterized as a clarification. 
Nevertheless, it is recognized that certain Government contracting 
personnel and contractors may have had common misinterpretations of the 
regulatory coverage. Indeed, those inconsistencies are the catalyst 
behind this clarification. On August 24, 1995, the Defense Contract 
Audit Agency issued audit guidance that clarified audit treatment for 
qui tam legal fees. For qui tam legal fees incurred before August 24, 
1995, if the Government contracting personnel and the contractor shared 
a common misinterpretation of the regulatory coverage, the contracting 
officer, in consultation with his or her legal advisors, should 
determine the appropriate treatment of those costs on a case-by-case 
basis.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not 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.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose recordkeeping or information collection 
requirements, or collections of information from offerors, contractors, 
or members of the public which require the approval of the Office of 
Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: October 22, 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 31.205-47 is amended by revising the introductory text 
of paragraph (b); by redesignating (c) as (c)(1) and adding (c)(2); and 
by revising paragraph (e)(3) to read as follows:


31.205-47  Costs related to legal and other proceedings.

* * * * *
    (b) Costs incurred in connection with any proceeding brought by a 
Federal, State, local, or foreign government for violation of, or a 
failure to comply with, law or regulation by the contractor (including 
its agents or employees), or costs incurred in connection with any 
proceeding brought by a third party in the name of the United States 
under the False Claims Act, 31 U.S.C. 3730, are unallowable if the 
result is--
* * * * *
    (c) * * *
    (2) In the event of a settlement of any proceeding brought by a 
third party under the False Claims Act in which the United States did 
not intervene, reasonable costs incurred by the contractor in 
connection with such a proceeding, that are not otherwise unallowable 
by regulation or by separate agreement with the United States, may be 
allowed if the contracting officer, in consultation with his or her 
legal advisor, determines that there was very little likelihood that 
the third party would have been successful on the merits.
* * * * *
    (e) * * *
    (3) The percentage of costs allowed does not exceed the percentage 
determined to be appropriate considering the complexity of procurement 
litigation, generally accepted principles governing the award of legal 
fees in civil actions involving the United States as a party, and such 
other factors as may be appropriate. Such percentage shall not exceed 
80 percent. Agreements reached under paragraph (c) of this subsection 
shall be subject to this limitation. If, however, an agreement 
described in paragraph (c)(1) of this subsection explicitly states the 
amount of otherwise allowable incurred legal fees and limits the 
allowable recovery to 80 percent or less of the stated legal fees, no 
additional limitation need be applied. The amount of reimbursement 
allowed for legal costs in connection with any proceeding described in 
paragraph (c)(2) of this subsection shall be determined by the 
cognizant contracting officer, but shall not exceed 80 percent of 
otherwise allowable legal costs incurred.
* * * * *
[FR Doc. 98-28961 Filed 10-29-98; 8:45 am]
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