[Federal Register Volume 64, Number 185 (Friday, September 24, 1999)]
[Rules and Regulations]
[Page 51844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24420]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 97-14; FAR Case 98-006; Item XI]
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: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to make minor changes 
to the cost principle concerning ``interest and other financial 
costs.''

EFFECTIVE DATE: November 23, 1999.

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 97-14, FAR case 98-006.

SUPPLEMENTARY INFORMATION:

A. Background

    The Councils published a proposed rule in the Federal Register on 
January 29, 1999 (64 FR 4760). The rule proposed amending FAR 31.205-
20, Interest and Other Financial Costs, to add ``interest charges and 
other amounts paid as a consequence of late contractor payments'' to 
the list of unallowable costs. In addition, the rule proposed several 
minor 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.''
    Fifteen respondents submitted public comments to the proposed rule. 
Many of the respondents expressed the following concerns:

     The ruling by the Court of Appeals for the Federal 
Circuit (Lockheed Corporation v. Secretary of the Air Force, 113 
F.3d 1225 (Fed. Cir. 1997)) did not involve interest charges paid 
``as a consequence of late contractor payments,'' but rather as a 
consequence of an inadvertent tax deficiency.
     The term ``late contractor payments'' is overly broad 
and may result in confusion regarding interest allowability.
    The rule is inequitable since it proposes to disallow Government 
reimbursement of interest costs incurred by a contractor for the 
underpayment of State taxes while FAR 31.201-5, Credits, requires 
the contractor to credit the Government the applicable portion of 
any State tax refunds it receives, together with interest.
     The rule incentivizes contractors to be overly 
conservative in computing State tax liability.
     The rule substantially increases administrative burdens 
on the Government and contractors.

    While the Councils do not agree with all of the concerns expressed 
by the respondents, the Councils have decided not to add ``interest 
charges and other amounts paid as a consequence of late contractor 
payments'' to the list of unallowable costs in FAR 31.205-20, pending 
further study on the issue of interest allowability. Therefore, this 
final rule only makes minor changes to the interest cost principle.
    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

    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 this rule only makes 
nonsubstantive changes to the cost principle concerning ``interest and 
other financial costs.'' 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 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 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 Part 31

    Government procurement.

    Dated: September 14, 1999.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA amend 48 CFR Part 31 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. Revise section 31.205-20 to read as follows:


31.205-20  Interest and other financial costs.

    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, and costs of preparing and issuing stock rights 
are unallowable (but see 31.205-28). However, interest assessed by 
State or local taxing authorities under the conditions specified in 
31.205-41(a)(3) is allowable.

[FR Doc. 99-24420 Filed 9-23-99; 8:45 am]
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