[Federal Register Volume 64, Number 131 (Friday, July 9, 1999)]
[Proposed Rules]
[Pages 37360-37361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17298]



[[Page 37359]]

_______________________________________________________________________

Part VII

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Parts 9 and 31



Federal Acquisition Regulation; Contractor Responsibility, Labor 
Relations Costs, and Costs Relating to Legal and Other Proceedings; 
Proposed Rule

  Federal Register / Vol. 64, No. 131 / Friday, July 9, 1999 / Proposed 
Rules  

[[Page 37360]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION


NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 9 and 31

[FAR Case 99-010]
RIN 9000-AI40

Federal Acquisition Regulation; Contractor Responsibility, Labor 
Relations Costs, and Costs Relating to Legal and Other Proceedings

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 (the Councils) are proposing to amend 
the Federal Acquisition Regulation (FAR) to clarify coverage and give 
examples of suitable contractor responsibility considerations, as well 
as to make unallowable the costs of attempting to influence employee 
decisions regarding unionization, and make unallowable those legal 
expenses related to defense of judicial or administrative proceedings 
brought by the Federal Government when a contractor is found to have 
violated a law or regulation, or the proceeding is settled by consent 
or compromise, except to the extent specifically provided as part of 
the settlement agreement.

DATES: Comments should be submitted on or before November 8, 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), 1800 F Street, 
NW, Room 4035 ATTN: Laurie Duarte Washington, DC 20405.
    Address e-mail comments submitted via the Internet to: farcase.99-
[email protected].
    Please submit comments only and cite FAR case 99-010 in all 
correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Ralph De Stefano, Procurement Analyst, at (202) 
501-1758. Please cite FAR case 99-010.

SUPPLEMENTARY INFORMATION:

A. Background

1. FAR Responsibility Criteria

    This proposed rule revises FAR 9.104-1(d) and (e) to clarify 
coverage concerning contractor responsibility considerations, by adding 
examples of what falls within the existing definition of ``an 
unsatisfactory record of integrity and business ethics.'' The proposed 
amendment will provide contracting officers with guidance concerning 
general standards of contractor compliance with applicable laws when 
making pre-award responsibility determinations.
    A prospective contractor's record of compliance with laws and 
regulations promulgated by the Federal Government is a relevant and 
important part of the overall responsibility determination. This 
proposed FAR amendment clarifies the existing rule by providing several 
examples of what constitutes an unsatisfactory record of compliance 
with laws and regulations. These examples are premised on the existing 
principle that the Federal Government should not enter into contracts 
with contractors who do not comply with the law. For example, the 
proposed rule clarifies that a prospective contractor's failure to 
comply with applicable tax laws may be considered by the contracting 
officer in making a responsibility determination. Similarly, the 
proposed rule attempts to clarify the fact that an established record 
of employment discrimination would be a relevant part of the 
contracting officer's responsibility determination because such a 
record or pattern is a strong indication of a contractor's overall 
willingness or capability to comply with applicable laws.
    Normally, the contracting officer should base adverse 
responsibility determinations involving violations of law or regulation 
upon a final adjudication by a competent authority concerning the 
underlying charge. However, in some circumstances, it may be 
appropriate for the contracting officer to base an adverse 
responsibility determination upon persuasive evidence of substantial 
noncompliance with a law or regulation (i.e., not isolated or trivial, 
but repeated and substantial violations establishing a pattern or 
practice by a prospective contractor. The facts and circumstances in 
each such case will require close scrutiny and examination.).
    An efficient, economical and well-functioning procurement system 
requires the award of contracts to organizations that meet high 
standards of integrity and business ethics and have the necessary 
workplace practices to assure a skilled, stable and productive 
workforce. This proposal seeks to further the Government's use of best 
practices by ensuring the Government does business only with high-
performing and successful companies that work to maintain a good record 
of compliance with applicable laws.

2. Cost Principle Changes

    This proposed rule revises the cost principle at FAR 31.205-21 to 
make unallowable those costs relating to attempts to influence employee 
decisions regarding unionization. This cost principle change is in 
furtherance of the Government's long-standing policy to remain neutral 
with respect to employer-employee labor disputes (see FAR Part 22). 
Some contractors are claiming, as an allowable cost, those activities 
designed to influence employees with regard to unionization decisions. 
Inasmuch as a number of cost-based Federal programs have long made 
these types of costs unallowable as a matter of public policy (e.g., 
see 29 U.S.C. 1553(c)(1), 42 U.S.C. 1395x(v)(1)(N), 42 U.S.C. 9839(e), 
and 42 U.S.C. 12634(b)(1)), equity dictates that this same principle be 
extended to Government contracts as well.
    The proposed rule also revises FAR 31.205-47 to make clear that 
costs relating to legal and other proceedings are unallowable where the 
outcome is a finding that a contractor has violated a law or 
regulation, or where the proceeding was settled by consent or 
compromise (except that such costs may be made allowable to the extent 
specifically provided as a part of a settlement agreement). At present, 
the relevant cost principle generally makes unallowable legal and other 
proceeding costs where, for example, in a criminal proceeding, there is 
a conviction; or where, for example, in a civil proceeding, there is a 
monetary penalty imposed. There are a number of civil proceedings 
brought by the Federal Government each year that do not result in 
imposition of a monetary penalty (e.g., NLRB or EEOC proceedings), but 
which do involve a finding or adjudication that a contractor has 
violated a law or regulation, and where appropriate remedies are then 
ordered.
    Under the proposed rule, the allowability of legal and other 
proceedings costs would depend on whether or not a contractor is found 
to have violated a law or regulation rather than on the nature of the 
remedy imposed. Taxpayers should not have to pay the legal defense 
costs associated

[[Page 37361]]

with adverse decisions against contractors, especially where the 
proceeding is brought by an agency of the Federal Government.

3. Additional Considerations

    In order to give greater effect to the FAR responsibility 
clarifications being proposed, please provide comments and suggestions 
concerning whether the provision appearing at FAR 52.209-5, 
Certification Regarding Debarment, Suspension, Proposed Debarment, and 
Other Responsibility Matters, should be amended to provide for enhanced 
responsibility disclosure relative to this proposal.
    This is not a significant regulatory action and, therefore, was not 
subject to Office of Management and Budget review under Section 6(b) of 
Executive Order 12866, Regulatory Planning and Review, dated September 
30, 1993. This rule 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 do not involve use of formal 
responsibility surveys. In addition, most contracts awarded to small 
entities use simplified acquisition procedures or are awarded on a 
competitive fixed-price basis and do not require the submission of cost 
or pricing data or information other than cost or pricing data, and 
thus do not require application of the FAR cost principles. An Initial 
Regulatory Flexibility Analysis has, therefore, not been performed. 
Comments are invited from small businesses and other interested 
parties. The Councils will consider comments from small entities 
concerning the affected FAR subparts in accordance with 5 U.S.C. 610. 
Interested parties must submit such comments separately and should cite 
5 U.S.C. 601, et seq. (FAR case 99-010), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed FAR 
changes do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 9 and 31

    Government procurement.

    Dated: July 1, 1999.
Jeremy F. Olson,
Acting Director, Federal Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose that 48 CFR parts 9 and 31 be 
amended as set forth below:
    1. The authority citation for 48 CFR parts 9 and 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).

PART 9--CONTRACTOR QUALIFICATIONS

    2. Amend section 9.104-1 to revise paragraphs (d) and (e) to read 
as follows:


9.104-1  General standards.

* * * * *
    (d) Have a satisfactory record of integrity and business ethics 
(examples of an unsatisfactory record may include persuasive evidence 
of the prospective contractor's lack of compliance with tax laws, or 
substantial noncompliance with labor laws, employment laws, 
environmental laws, antitrust laws or consumer protection laws);
    (e) Have the necessary organization, experience, accounting and 
operational controls, and technical skills, or the ability to obtain 
them (including, as appropriate, such elements as production control 
procedures, property control systems, quality assurance measures, and 
safety programs applicable to materials to be produced or services to 
be performed by the prospective contractor and subcontractors) (see 
9.104-3(a)) and the necessary workplace practices addressing matters 
such as training, worker retention, and legal compliance to assure a 
skilled, stable and productive workforce;
* * * * *

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    3. Revise section 31.205-21 to read as follows:


31.205-21  Labor relations costs.

    (a) Costs incurred in maintaining satisfactory relations between 
the contractor and its employees, including costs of shop stewards, 
labor management committees, employee publications, and other related 
activities, are allowable.
    (b) Costs incurred for activities related to influencing employees' 
decision regarding unionization are unallowable.
    4. In section 31.205-47, redesignate paragraphs (b)(3) through 
(b)(5) as paragraphs (b)(4) through (b)(6) and add new paragraph 
(b)(3); and revise redesignated paragraphs (b)(5) and (b)(6) to read as 
follows:


31.205-47  Costs related to legal and other proceedings.

* * * * *
    (b) * * *
    (3) In a judicial or administrative proceeding brought by the 
Government, a finding that the contractor violated a law or regulation;
* * * * *
    (5) Disposition of the matter by consent or compromise if the 
proceeding could have led to any of the outcomes listed in paragraphs 
(b)(1) through (4) of this subsection (but see paragraphs (c) and (d) 
of this subsection); or
    (6) Not covered by paragraphs (b)(1) through (5) of this 
subsection, but where the underlying alleged contractor misconduct was 
the same as that which led to a different proceeding whose costs are 
unallowable by reason of paragraphs (b)(1) through (5) of this 
subsection.
* * * * *
[FR Doc. 99-17298 Filed 7-8-99; 8:45 am]
BILLING CODE 6820-EP-P