[Federal Register Volume 64, Number 100 (Tuesday, May 25, 1999)]
[Proposed Rules]
[Pages 28330-28331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13002]



[[Page 28329]]

_______________________________________________________________________

Part III





Department of Defense





_______________________________________________________________________



General Services Administration



_______________________________________________________________________



National Aeronautics and Space Administration



_______________________________________________________________________



48 CFR Part 31



Federal Acquisition Regulation; Relocation Costs; Proposed Rule

  Federal Register / Vol. 64, No. 100 / Tuesday, May 25, 1999 / 
Proposed Rules  

[[Page 28330]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 97-032]
RIN 9000-AH96


Federal Acquisition Regulation; Relocation Costs

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation (FAR) to remove the ceilings imposed on certain 
types of relocation costs; to remove specific references to mortgage 
interest differential and rental differential payments; to permit 
reimbursement of relocation costs on a lump-sum basis in certain 
situations; and to make allowable payments for spouse employment 
assistance and for increased employee income and Federal Insurance 
Contributions Act (FICA) taxes incident to allowable reimbursed 
relocation costs.

DATES: Comments should be submitted on or before July 26, 1999, to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVRS), 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 97-032 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 97-032.

SUPPLEMENTARY INFORMATION:

A. Background

    The proposed FAR rule revises the cost principle at FAR 31.205-35, 
Relocation costs, to remove the numerous ceilings imposed on specific 
relocation costs; remove specific references to mortgage interest 
differential and rental differential payments; recognize the growing 
commercial practice of reimbursing relocation costs on a lump-sum basis 
in certain situations; and make allowable payments for employment 
assistance for spouses and for increased employee income and FICA taxes 
incident to allowable reimbursed relocation costs.
    The councils are proposing these revisions for the following 
reasons:

    Removal of ceilings on individual relocation cost elements. Over 
the years, the relocation cost principle has been criticized as 
being overly detailed particularly for the many allowability 
ceilings it places on individual relocation cost elements (e.g., the 
14% limitation at FAR 31.205-35(a) (3) and (4) for closing cost and 
continuing costs of ownership of a former residence and the 5% 
limitation at FAR 31.205-35(a)(6)(ii) on costs of purchasing a new 
residence). These ceilings represent unnecessary micromanagement of 
contractor business practices. Consistent with the move towards 
increased reliance on commercial practices, the councils propose 
that the Government rely on contractors' individual corporate 
relocation policies to limit such costs to reasonable amounts.
    Removal of specific references to mortgage interest differential 
and rental differential payments. The rule removes the specific 
references to these types of payments from the list of allowable 
costs at 31.205-35(a). The specific guidance at 31.205-35(a) (7) and 
(8) is no longer deemed necessary. However, allowability of these 
types of costs will still be governed by the reasonableness criteria 
at FAR 31.201-3.
    Reimbursement on a lump-sum basis. The rule allows contractors 
the option of claiming employee relocation costs on an actual cost 
basis, an appropriate lump-sum basis, or a combination of the two 
methodologies. However, the rule permits reimbursement on a lump-sum 
basis only if a contractor has an advance agreement with the 
Government. This change would recognize the widespread commercial 
practice of utilizing a lump-sum approach in compensating employees 
for their relocation expenses. Many contractors have adopted the 
lump-sum methodology for its administrative ease, and because it 
results in cheaper and faster relocations, with greater employee 
satisfaction, than the actual cost approach. While individual 
receipts are not required with the lump-sum approach, contractors 
must still demonstrate that amounts paid are reasonable and 
appropriate for the circumstances.
    Two new categories of allowable relocation costs. The rule makes 
allowable two categories of expenses that are currently unallowable: 
payments for increased employee income and FICA taxes incident to 
allowable reimbursed relocations costs; and payments for spouse 
employee assistance. Since contractors incur these type of costs in 
a good faith effort to keep transferred employees from being 
adversely affected by the relocation, it appears equitable to 
reimburse contractors for these types of costs. In addition, this 
revision is consistent with a change to the Federal employee travel 
regulations that now permits recovery of both of these types of 
costs.

    The councils anticipate that these changes to the relocation cost 
principle will generate savings by reducing administrative costs for 
both the contractor and the Government. The Government expects the 
administrative cost savings to lessen any increased costs resulting 
from this rule change. For example, the removal of the ceilings should 
lead to a reduction of the Government's auditing and contract 
administrative effort. In addition, the use of advance agreements for 
the lump-sum payment methodology should lessen the incidence of post-
award disallowances and disputes. Another example of savings would be 
that contractors would no longer need to monitor individual relocation 
cost elements to ensure that amounts claimed do not exceed the numerous 
ceilings.
    However, there is some concern within the Government that removing 
ceilings on individual relocation cost elements and permitting lump-sum 
payments in lieu of actual costs may result in an increase in costs. 
Therefore, to help estimate the potential costs and benefits to the 
Government from these changes, the councils invite respondents to 
provide the following information together with their comments. Note 
that public comments provided in response to this notice will be 
available in their entirety to any requester, including any requester 
under the Freedom of Information Act (5 U.S.C. 552). Therefore, we 
caution respondents not to provide proprietary or other business 
sensitive information. Under no circumstances should respondents 
provide any information unless they do so with a clear understanding 
that it will be made available to the public.
    1. For industry respondents--
    (a) How will your company ensure that relocation costs charged to 
the Government are reasonable under the approach set forth in the 
proposed rule? (Under no circumstances should respondents provide any 
information unless they do so with a clear understanding that it will 
be made available to the public.)
    (b) If your company has little or no commercial business, how will 
you ensure that relocation costs charged to the Government are 
reasonable under the approach set forth in the proposed rule? (Under no 
circumstances should respondents provide any information unless they do 
so with a clear

[[Page 28331]]

understanding that it will be made available to the public.)
    (c) What has been your company's experience in using a lump-sum 
approach instead of an actual cost method for all or a portion of 
relocation costs? (Under no circumstances should respondents provide 
any information unless they do so with a clear understanding that it 
will be made available to the public.)
    (d) What are the types of savings that your company would expect if 
the proposed rule becomes final? (Under no circumstances should 
respondents provide any information unless they do so with a clear 
understanding that it will be made available to the public.)
    (e) Does your company now use commercially available data, such as 
that developed by the Employee Relocation Council, in order to 
establish limits on relocation costs? If so, what sources of 
commercially available data do you use, and how do you use it? (Under 
no circumstances should respondents provide any information unless they 
do so with a clear understanding that it will be made available to the 
public.)
    2. For Government respondents, identify the types and amounts of 
costs, savings, advantages or disadvantages that you anticipate would 
result from implementing the proposed rule.
    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.

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 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 97-032), 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: May 18, 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. In section 31.205-35, revise paragraphs (a), (b), and (c) to 
read as follows:


31.205-35  Relocation costs.

    (a) Relocation costs are costs incident to the permanent change of 
assigned work location (for an indefinite period or for a stated 
period, but in either event for not less than 12 months) of an existing 
employee or upon recruitment of a new employee. The following types of 
relocation costs are allowable as noted, subject to the limitations in 
paragraphs (b) and (f) of this subsection:
    (1) Costs of travel of the employee and members of the employee's 
immediate family (see 31.205-46) and transportation of the household 
and personal effects to the new location.
    (2) Costs of finding a new home, such as advance trips by the 
employee and spouse to locate living quarters, and temporary lodging 
during the transition period for the employee and members of the 
employee's immediate family.
    (3) Closing costs (i.e., brokerage fees, legal fees, appraisal 
fees, points, finance charges, etc.) incident to the disposition of the 
actual residence owned by the employee when notified of the transfer.
    (4) Continuing costs of ownership of the vacant former actual 
residence being sold, such as maintenance of building and grounds 
(exclusive of fixing up expenses), utilities, taxes, property 
insurance, mortgage interest, after the settlement date or lease date 
of a new permanent residence.
    (5) Other necessary and reasonable expenses normally incident to 
relocation, such as disconnecting and connecting household appliances; 
automobile registration; driver's license and use taxes; cutting and 
fitting rugs, draperies, and curtains; forfeited utility fees and 
deposits; and purchase of insurance against damage to or loss of 
personal property while in transit.
    (6) Costs incident to acquiring a home in the new work location, 
except that these costs will not be allowable for existing employees or 
newly recruited employees who, before the relocation, were not 
homeowners.
    (7) Costs of canceling an unexpired lease.
    (8) Payments for increased employee income or Federal Insurance 
Contributions Act taxes incident to allowable reimbursed relocation 
costs.
    (9) Payments for spouse employment assistance.
    (b) The costs described in paragraph (a) of this section must also 
meet the following criteria to be considered allowable:
    (1) The move must be for the benefit of the employer.
    (2) Reimbursement must be in accordance with an established policy 
or practice that is consistently followed by the employer and is 
designed to motivate employees to relocate promptly and economically. 
Reimbursement may be on an actual cost or appropriate lump-sum basis, 
or combination thereof. However, use of a lump-sum basis in lieu of an 
actual cost basis is limited to those situations in which a contractor 
has an advance agreement with the Government.
    (3) The costs must not be otherwise unallowable under Subpart 31.2.
    (c) The following types of costs are unallowable:
    (1) Loss on the sale of a home.
    (2) Costs incident to acquiring a home in the new location as 
follows:
    (i) Real estate brokers fees and commissions.
    (ii) Costs of litigation.
    (iii) Real and personal property insurance against damage or loss 
of property.
    (iv) Mortgage life insurance.
    (v) Owner's title policy insurance when such insurance was not 
previously carried by the employee on the old residence. (However, the 
cost of a mortgage title policy is allowable.)
    (vi) Property taxes and operating or maintenance costs.
    (3) Continuing mortgage principal payments on a residence being 
sold.
    (4) Costs incident to furnishing equity or nonequity loans to 
employees or making arrangements with lenders for employees to obtain 
lower-than-market rate mortgage loans.
* * * * *
[FR Doc. 99-13002 Filed 5-24-99; 8:45 am]
BILLING CODE 6820-EP-U