[Federal Register Volume 64, Number 19 (Friday, January 29, 1999)]
[Proposed Rules]
[Page 4760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1997]



[[Page 4759]]

_______________________________________________________________________

Part III

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 31



Federal Acquisition Regulation; Interest and Other Financial Costs; 
Proposed Rule

  Federal Register / Vol. 64, No. 19 / Friday, January 29, 1999 / 
Proposed Rules  

[[Page 4760]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 98-006]
RIN 9000-AI24


Federal Acquisition Regulation; Interest and Other Financial 
Costs

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

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation (FAR) to add interest charges or other amounts 
as a consequence of late contractor payments to the list of unallowable 
costs in the ``Interest and Other Financial Costs'' cost principle, and 
to make several editorial revisions.

DATES: Comments should be submitted on or before March 30, 1999 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVR), Attn: Laurie 
Duarte, 1800 F Street, NW, Room 4035, Washington, DC 20405.
    E-mail comments submitted over Internet should be addressed to: 
[email protected].
    Please cite FAR case 98-006 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 FAR case 98-006.

SUPPLEMENTARY INFORMATION:

A. Background

    A ruling by the Court of Appeals for the Federal Circuit has raised 
a significant issue regarding the allowability of interest charges paid 
as a consequence of late contractor payments. In Lockheed Corporation 
v. Secretary of the Air Force, 113 F.3d 1225 (Fed. Cir. 1997), the 
court ruled that interest paid on an underpayment of State taxes is not 
``interest on borrowings'' within the meaning of FAR 31.205-20, 
Interest and Other Financial Costs, and its predecessor provision, 
Defense Acquisition Regulation (DAR) 15-205.17, and, therefore, is an 
allowable cost.
    It is Government policy to encourage contractors to pay their 
financial obligations on time. Government reimbursement of contractor 
interest charges for underpayment of taxes or other expenses resulting 
from late contractor payments of legal obligations is counter to this 
policy and an inappropriate expenditure of public funds. Therefore, the 
rule proposes to revise FAR 31.205-20, Interest and Other Financial 
Costs, to add interest charges or other amounts paid as a consequence 
of late contractor payments to the list of unallowable costs.
    In addition, the rule proposes several editorial revisions, 
including the deletion of ``and directly associated costs.'' This 
phrase is unnecessary since FAR 31.201-6(a) indicates that when ``an 
unallowable cost is incurred, its directly associated costs are also 
unallowable.''
    This regulatory action was not subject to Office of Management and 
Budget review under Executive Order 12866, dated September 30, 1993, 
and is not a major rule under 5 U.S.C. 804.

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 from small entities concerning the affected FAR 
subpart will be considered in accordance with 5 U.S.C. 610 of the Act. 
Such comments must be submitted separately and should cite 5 U.S.C. 
601, et seq. (FAR case 98-006), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
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: January 21, 1999.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Part 31 be 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 31.205-20 is revised to read as follows:


31.205-20  Interest and other financial costs.

    The following types of costs are unallowable--
    (a) Interest on borrowings (however represented), bond discounts, 
costs of financing and refinancing capital (net worth plus long-term 
liabilities), legal and professional fees paid in connection with 
preparing prospectuses, costs of preparing and issuing stock rights 
(but see 31.205-28); and
    (b) Interest charges and other amounts paid as a consequence of 
late contractor payments (except for interest assessed by State or 
local taxing authorities under the conditions specified in 31.205-
41(a)(3)).
[FR Doc. 99-1997 Filed 1-28-99; 8:45 am]
BILLING CODE 6820-EP-P