[Federal Register Volume 68, Number 190 (Wednesday, October 1, 2003)]
[Rules and Regulations]
[Pages 56686-56688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24589]





48 CFR Part 31

[FAC 2001-16; FAR Case 2002-001; Item VIII]
RIN 9000-AJ46

Federal Acquisition Regulation; Economic Planning, Employee 
Morale, and Travel Cost Principles

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

ACTION: Final rule.


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) by revising three 
cost principles regarding economic planning costs; employee morale, 
health, welfare, food service, and dormitory costs and credits; and 
travel costs. The changes restructure the paragraphs and remove 
unnecessary and duplicative language to increase clarity and 

DATES: Effective Date: October 31, 2003.

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 
2001-16, FAR case 2002-001.


A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 67 FR 55686, 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 Section B, Comments 1 and 2, below.

[[Page 56687]]

FAR 31.205-12, Economic Planning Costs

    Comment 1: Revise proposed FAR 31.205-12(a). The respondent agrees 
with the deletion of the current paragraphs (b) and (c). However, the 
respondent believes that by deleting the phrase ``and that may take 
into account the eventual possibility of economic dislocation or 
fundamental alterations in those markets in which the contractor 
currently does business'' from the first sentence in the current 
paragraph (a), the Councils may be unintentionally narrowing the 
allowability of economic planning costs. Specifically, the respondent 
stated that ``costs associated with the generalized planning of 
possible divestitures may no longer be considered economic planning 
costs by auditors and ACOs but be considered unallowable organization 
costs instead.''
    Councils' response: Partially concur. It was not the Council's 
intent to change the scope of this cost principle; the Councils simply 
concluded that the phrase in question was unnecessary. But, since 
industry believes its deletion would narrow the allowability of costs 
under this cost principle, the phrase is reinstated to the first 
sentence in paragraph (a). However, the Councils also want to go on 
record as not agreeing with the assertion that planning costs related 
to divestiture efforts are economic planning costs covered by this cost 
principle. Efforts by a contractor to analyze future market conditions 
and assess the impact of those conditions on its current organization 
are economic planning costs. Any efforts by a contractor to analyze, 
initiate, or change its current organization to meet future market 
conditions are organization or reorganization costs covered under FAR 
31.205-27, Organization costs. Contractors' general long-range planning 
efforts involving the contractor's organization will need to be 
reviewed on a case-by-case basis.
    Comment 2: Revise proposed FAR 31.205-12(a). The respondent 
believes that it is not necessary to include the words ``determining 
the allowability of'' in the last sentence of paragraph (a), since 
there is no determination to be made under FAR 31.205-38, Selling 
costs, regarding the allowability of other market planning costs.
    Councils' response: Concur. The Councils agree and have deleted the 
phrase from the last sentence in paragraph (a).

FAR 31.205-13, Employee Morale, Health, Welfare, Food Service, and 
Dormitory Costs and Credits

    Comment 3: Delete proposed FAR 31.205-13(d). The respondent 
recommended the elimination of paragraph (d) regarding the cost 
allowability of food and dormitory services provided for employees. The 
respondent states that differing interpretations on how to apply the 
detailed provisions in paragraph (d) often occur. The respondent 
believes that the Government would still be adequately protected by FAR 
31.201-3, Determining reasonableness, even if paragraph (d) is 
    Councils' response: Nonconcur. This section of the cost principle 
clarifying the allowability of dining facilities costs is statutorily 
required by 10 U.S.C. 2324 (f)(1)(G) and 41 U.S.C. 256 (f)(1)(G). In 
addition, while the respondent provided some examples where they 
believe subjective and interpretational differences may occur, they did 
not cite any specific cost principle language that is problematic. The 
Councils believe the current cost principle language provides adequate 
criteria for properly determining cost allowability in their examples.

FAR 31.205-46, Travel Costs

    Comment 4: Revise proposed FAR 31.205-46. The respondent has no 
objection to the deletion of the current paragraphs (b) and (c) to 
remove duplicative coverage. However, the respondent believes this cost 
principle can be further streamlined by removing the existing per diem 
ceiling limitations on the costs incurred for lodging, meals, and 
incidentals by allowing reimbursement of such costs on a ``reasonable 
charge'' basis. The respondent pointed out its endorsement of the 
Government's proposed rule associated with FAR case 1994-753, Travel 
    Councils' response: Partially concur. The Councils agreed to delete 
paragraphs (b) and (c) to remove duplicative coverage.
    The recommendation to remove the existing per diem ceiling 
limitations provided in paragraph (a)(2) for lodging, meals, and 
incidental expenses is outside the scope of this case. During the 
deliberations on FAR case 1994-753, Travel Costs, several respondents 
raised concerns over the potential for increased costs to the 
Government and potential inequities between the treatment of contractor 
travel costs and Federal employee travel costs. The FAR Council placed 
the case on hold in November 2001, pending resolution of these 
concerns. The Councils have not identified procedures to mitigate the 
risks associated with the proposed change to the travel cost principle 
and are taking no further action on FAR case 1994-753.

General Reformatting of FAR 31.205

    Comment 5: 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 31.205, which the respondent believes will increase the clarity and 
understanding of the cost principles and thereby reduce 
    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 
    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 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

[[Page 56688]]

streamlining cases are currently in process regarding compensation (FAR 
31.205-6), training and education (FAR 31.205-44), selling (FAR 31.205-
38), depreciation (FAR 31.205-11), and expanded relocation lump-sum 
(FAR 31.205-35). 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.

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 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.

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 24, 2003.
Laura G. Auletta,
Director, Acquisition Policy Division.

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


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

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

31.205-6  [Amended]

2. Amend section 31.205-6 in paragraph (m)(2) by removing ``(see 
31.205-46(f))'' and adding ``(see 31.205-46(d))'' in its place.

3. Revise section 31.205-12 to read as follows:

31.205-12  Economic planning costs.

    Economic planning costs are the costs of general long-range 
management planning that is concerned with the future overall 
development of the contractor's business and that may take into account 
the eventual possibility of economic dislocations or fundamental 
alterations in those markets in which the contractor currently does 
business. Economic planning costs are allowable. Economic planning 
costs do not include organization or reorganization costs covered by 
31.205-27. See 31.205-38 for market planning costs other than economic 
planning costs.

4. Amend section 31.205-13 by revising paragraphs (a), (d), and (f) to 
read as follows:

31.205-13  Employee morale, health, welfare, food service, and 
dormitory costs and credits.

    (a) Aggregate costs incurred on activities designed to improve 
working conditions, employer-employee relations, employee morale, and 
employee performance (less income generated by these activities) are 
allowable, subject to the limitations contained in this subsection. 
Some examples of allowable activities are--
    (1) House publications;
    (2) Health clinics;
    (3) Wellness/fitness centers;
    (4) Employee counseling services; and
    (5) Food and dormitory services for the contractor's employees at 
or near the contractor's facilities. These services include--
    (i) Operating or furnishing facilities for cafeterias, dining 
rooms, canteens, lunch wagons, vending machines, living accommodations; 
    (ii) Similar types of services.
* * * * *
    (d)(1) The allowability of food and dormitory losses are determined 
by the following factors:
    (i) Losses from operating food and dormitory services are allowable 
only if the contractor's objective is to operate such services on a 
break-even basis.
    (ii) Losses sustained because food services or lodging 
accommodations are furnished without charge or at prices or rates which 
obviously would not be conducive to the accomplishment of the objective 
in paragraph (d)(1)(i) of this subsection are not allowable, except as 
described in paragraph (d)(1)(iii) of this subsection.
    (iii) A loss may be allowed to the extent that the contractor can 
demonstrate that unusual circumstances exist such that even with 
efficient management, operating the services on a break-even basis 
would require charging inordinately high prices, or prices or rates 
higher than those charged by commercial establishments offering the 
same services in the same geographical areas. The following are 
examples of unusual circumstances:
    (A) The contractor must provide food or dormitory services at 
remote locations where adequate commercial facilities are not 
reasonably available.
    (B) The contractor's charged (but unproductive) labor costs would 
be excessive if the services were not available.
    (C) If cessation or reduction of food or dormitory operations will 
not otherwise yield net cost savings.
    (2) Costs of food and dormitory services shall include an allocable 
share of indirect expenses pertaining to these activities.
* * * * *
    (f) Contributions by the contractor to an employee organization, 
including funds from vending machine receipts or similar sources, are 
allowable only to the extent that the contractor demonstrates that an 
equivalent amount of the costs incurred by the employee organization 
would be allowable if directly incurred by the contractor.

31.205-46  [Amended]

5. Amend section 31.205-46 as follows:
a. Remove paragraphs (b) and (c), and redesignate paragraphs (d), (e), 
and (f) as (b), (c), and (d), respectively; and
b. In the introductory text of newly designated paragraph (c)(2), 
remove ``paragraph (d)'' each time it appears (twice) and add 
``paragraph (b)'' in their place; and remove ``subparagraph (e)(3)'' 
and add ``paragraph (c)(3)'' in its place.

[FR Doc. 03-24589 Filed 9-30-03; 8:45 am]