[Federal Register Volume 68, Number 142 (Thursday, July 24, 2003)]
[Rules and Regulations]
[Pages 43871-43872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18538]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2001-15; FAR Case 2001-024; Item VI]
RIN 9000-AJ42


Federal Acquisition Regulation; Selling Cost Principle

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) ``selling costs'' 
cost principle by restructuring the paragraphs and removing unnecessary 
and duplicative language to increase clarity.

DATES: Effective Date: August 25, 2003.

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 Mr. Edward Loeb at (202) 501-0650. Please cite FAC 
2001-15, FAR case 2001-024.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 67 FR 55682, August 29, 2002, with request for comments. 
One respondent submitted comments; a discussion of the comments is 
provided below. Differences between the proposed rule and final rule 
are discussed in paragraph B.2. below.

B. Public Comments

Clarity of the Cost Principle

    1. Comment: Revise proposed FAR 31.205-38(a). The cost principle's 
readability and clarity can be improved by changing the second sentence 
of the proposed paragraph (a) from ``The cost of any selling efforts 
other than those addressed in this cost principle are unallowable'' to 
``The costs of selling efforts are allowable unless expressly 
identified as unallowable in this or any other cost principle.'' The 
proposed wording will be difficult to apply in the field. The 
respondent is unaware of any selling costs that are not already 
included in the cost principle.
    Councils' response: Nonconcur. The sentence in question was simply 
moved from the current paragraph (d) to the beginning of the cost 
principle. The sentence is not new; it was originally included to 
comply with the provisions of section 911 of the Defense Procurement 
Improvement Act of 1985 (codified at 10 U.S.C. 2324 (f)(1)(J)), which 
required that the allowability of selling and marketing costs be 
clarified. At that time, Congress and the General Accounting Office 
(GAO) were concerned about potential negotiation of 50/50 splits of the 
costs in this area due to unclear wording of the cost principle. The 
intent was to ensure that any gray areas of selling costs would be 
disallowed, particularly the costs of broadly targeted selling and 
marketing. The current wording continues this intent.

Cost Principle Consistency

    2. Comment: Delete portion of proposed FAR 31.205-38(a). The last 
sentence in the proposed paragraph (a) is not needed as it reiterates 
what is already included in 31.204(c) (Application of principles and 
procedures).
    Councils' response: Partially concur. Do not agree that the intent 
of the sentence in question is adequately covered by 31.204(c). 
However, the Councils concluded that the objective of this sentence is 
already adequately achieved by the operation of the proposed paragraph 
(b) which directs the reader to other specific cost principles 
governing the allowability of the identified categories of costs, and 
the second sentence of the proposed paragraph (a) which makes any 
selling efforts other than those addressed in the cost principle 
unallowable. Therefore, the last sentence of paragraph (a) is deleted.

Cost Principle Elimination

    3. Comment: Delete proposed FAR 31.205-38. With the exception of 
its last paragraph, the proposed cost principle defines selling costs 
and expressly states they are allowable or refers the reader to other 
cost principles for the determination of allowability of related costs. 
Therefore, consideration should be given to completely eliminating the 
cost principle, after moving the proposed paragraph (c) to another cost 
principle, possibly 31.205-33(f) (Professional and consultant service 
costs).
    Councils' response: Nonconcur. This cost principle has disallowed 
and should continue to disallow all selling costs not made specifically 
allowable by it or the other cited cost principles. In addition, this 
cost principle clarifying the allowability of selling and marketing 
costs is statutorily required by 10 U.S.C. 2324(f)(1)(J) and 41 U.S.C. 
256(f)(1)(J).

General Reformatting of FAR Part 31.205

    4. Comment: The respondent also recommended that the Councils 
consider a general reformatting of FAR Part 31, Contract Cost 
Principles and Procedures. Specifically, consideration should be given 
to establishing a uniform structure for the selected costs detailed in 
FAR Subpart 31.205, which the respondent believes will increase the 
clarity and understanding of the cost principles and thereby reduce 
misinterpretation.
    Councils' response: Nonconcur. The Councils are unaware of any 
significant clarity problems with the current FAR cost principles and 
see no benefit in this recommendation. While it is true that the cost 
principles do not all share an identical format, it does not follow 
that this makes them difficult to understand. Moreover, such a 
comprehensive revision of the cost principles could actually increase 
disputes by substituting new wording for longstanding, court-tested 
language.
    Of the 48 current FAR cost principles, 16 are only one paragraph 
long, and 11 more are only two or three paragraphs long. The Councils 
question the need to ``force-fit'' such short cost principles into a 
uniform format, particularly in the absence of any significant clarity 
problems. Not only would the recommended general reformatting of the 
cost principles be difficult to accomplish, but it would also offer no 
obvious benefit to either industry or the Government.
    The Councils recommend instead that industry continue to identify 
those individual cost principles which it

[[Page 43872]]

views as problematic and to provide specific proposals for appropriate 
revisions. It should be noted that the continuing Defense Procurement 
and Acquisition Policy initiative to reduce accounting and 
administrative burdens in the cost principles, without jeopardizing the 
Government's interests, has resulted in significant changes or 
deletions involving more than 20 different cost principles to date, 
including the recent major revisions to the relocation cost principle 
(FAR 31.205-35) that made employee ``tax gross-ups'' and spouse 
employment assistance payments allowable for the first time, as well as 
increased the maximum allowable lump-sum amount for miscellaneous 
expenses from $1,000 to $5,000. In addition, cost principle 
streamlining cases are currently in process regarding compensation (FAR 
31.205-6), training and education (FAR 31.205-44), depreciation (FAR 
31.205-11), expanded relocation lump-sum (FAR 31.205-35), and travel 
(FAR 31.205-46) costs. The Councils continue to believe that such a 
case-by-case cooperative effort with industry offers the best 
opportunity for meaningful change in this often controversial area.
    This is not a significant regulatory action and, therefore, was not 
subject to 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.

C. 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 discussed in this rule.

D. 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: July 16, 2003.
Laura Auletta,
Director, Acquisition Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 31 is revised to read as 
follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).


31.205-1  [Amended]

0
2. Amend section 31.205-1 in paragraph (f)(1) by removing from the 
parenthetical ``31.205-38(c)'' and adding ``31.205-38(b)(5)'' in its 
place.


31.205-12  [Amended]

0
3. Amend section 31.205-12 in paragraph (a) by removing the word 
``generalized'' and adding ``general'' in its place.

0
4. Amend section 31.205-33 by revising the first sentence of the 
introductory text of paragraph (f); and removing the parenthetical 
sentence. The revised text reads as follows:


31.205-33  Professional and consultant service costs.

* * * * *
    (f) Fees for services rendered are allowable only when supported by 
evidence of the nature and scope of the service furnished (see also 
31.205-38(c)). * * *
* * * * *

0
5. Revise section 31.205-38 to read as follows:


31.205-38  Selling costs.

    (a) ``Selling'' is a generic term encompassing all efforts to 
market the contractor's products or services, some of which are covered 
specifically in other subsections of 31.205. The costs of any selling 
efforts other than those addressed in this cost principle are 
unallowable.
    (b) Selling activity includes the following broad categories:
    (1) Advertising. Advertising is defined at 31.205-1(b), and 
advertising costs are subject to the allowability provisions of 31.205-
1(d) and (f).
    (2) Corporate image enhancement. Corporate image enhancement 
activities, including broadly targeted sales efforts, other than 
advertising, are included within the definition of public relations at 
31.205-1(a), and the costs of such efforts are subject to the 
allowability provisions at 31.205-1(e) and (f).
    (3) Bid and proposal costs. Bid and proposal costs are defined at 
31.205-18 and are subject to the allowability provisions of that 
subsection.
    (4) Market planning. Market planning involves market research and 
analysis and general management planning concerned with development of 
the contractor's business. Long-range market planning costs are subject 
to the allowability provisions of 31.205-12. Other market planning 
costs are allowable.
    (5) Direct selling. Direct selling efforts are those acts or 
actions to induce particular customers to purchase particular products 
or services of the contractor. Direct selling is characterized by 
person-to-person contact and includes such efforts as familiarizing a 
potential customer with the contractor's products or services, 
conditions of sale, service capabilities, etc. It also includes 
negotiation, liaison between customer and contractor personnel, 
technical and consulting efforts, individual demonstrations, and any 
other efforts having as their purpose the application or adaptation of 
the contractor's products or services for a particular customer's use. 
The cost of direct selling efforts is allowable.
    (c) Notwithstanding any other provision of this subsection, 
sellers' or agents' compensation, fees, commissions, percentages, 
retainer or brokerage fees, whether or not contingent upon the award of 
contracts, are allowable only when paid to bona fide employees or 
established commercial or selling agencies maintained by the contractor 
for the purpose of securing business.

[FR Doc. 03-18538 Filed 7-23-03; 8:45 am]
BILLING CODE 6820-EP-P