[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Proposed Rules]
[Pages 66988-66989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29640]



[[Page 66987]]

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Part IV





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Parts 15, 31, and 42



Federal Acquisition Regulation; Applicability of the Cost Principles 
and Penalties for Unallowable Costs; Proposed Rule

  Federal Register / Vol. 68, No. 229 / Friday, November 28, 2003 / 
Proposed Rules  

[[Page 66988]]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 15, 31, and 42

[FAR Case 2001-018]
RIN: 9000-AJ77


Federal Acquisition Regulation; Applicability of the Cost 
Principles and Penalties for Unallowable Costs

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 (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to remove the requirement to apply 
cost principles and procedures when pricing a contract if cost or 
pricing data are not obtained, and to increase the contract dollar 
threshold for assessing a penalty if the contractor includes expressly 
unallowable costs in its claim for reimbursement.

DATES: Interested parties should submit comments in writing on or 
before January 27, 2004 to be considered in the formulation of a final 
rule.

ADDRESSES: Submit written comments to--General Services Administration, 
FAR Secretariat (MVA), 1800 F Street, NW., Room 4035, ATTN: Laurie 
Duarte, Washington, DC 20405.
    Submit electronic comments via the Internet to--farcase.2001-
[email protected]. Please submit comments only and cite FAR case 2001-018 in 
all correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Mr. Edward Loeb, Policy Adviser, at 
(202) 501-0650. Please cite FAR case 2001-018.

SUPPLEMENTARY INFORMATION:

A. Background

    The proposed rule--
    [sbull] Narrows the scope of FAR part 31. The rule would amend the 
FAR to indicate that the cost principles and procedures of FAR part 31 
do not apply to the pricing of fixed-price contracts if cost or pricing 
data are not obtained. Currently, the cost principles and procedures of 
FAR part 31 apply whenever cost analysis is performed, regardless of 
whether cost or pricing data are obtained.
    [sbull] This change is consistent with statute. 10 U.S.C. 2324 
lists a number of costs that are unallowable on ``covered contracts,'' 
and 41 U.S.C. 256 extends the statutory unallowable costs to civilian 
agencies. 10 U.S.C. 2324(1)(1)(A) defines a ``covered contract'' as ``a 
contract for an amount in excess of $500,000 that is entered into by 
the head of an agency, except that such term does not include a fixed-
price contract without cost incentives or any firm fixed-price contract 
for the purchase of commercial items.'' part 31 cost principles 
continue to apply to covered contracts.
    [sbull] This change is consistent with a goal of the Councils to 
reduce government-unique regulations when the risk to the Government is 
low.
    [sbull] Adds a definition to FAR 31.001 for fixed-price contracts, 
subcontracts and modifications. The Councils are particularly 
interested in obtaining comments regarding this proposed definition. We 
are also asking for public input regarding the following alternative 
definition, which has been considered by the Councils, and which was 
published on July 3, 2003 (68 FR 40104) as part of a proposed rule for 
FAR case 1999-025, Cost Accounting Standards Administration: The public 
comment period on that case is closed.

Fixed-price contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described at 16.202, 
16.203, and 16.207;
    (2) Fixed-price incentive contracts and subcontracts where the 
price is not adjusted based on actual costs incurred (Subpart 16.4);
    (3) Orders issued under indefinite-delivery contracts and 
subcontracts where final payment is not based on actual costs 
incurred (Subpart 16.5); and
    (4) The fixed hourly rate portion of the time-and-materials and 
labor-hours contracts and subcontracts (Subpart 16.6).

    [sbull] Raises the dollar threshold for including the contract 
clause at FAR 52.242-3, Penalties for Unallowable Costs, in 
solicitations and contracts. The clause covers the assessment of 
penalties against a contractor that includes unallowable indirect costs 
in its final indirect cost rate proposal or in its final statement of 
costs incurred or estimated to be incurred under a fixed-price 
incentive contract. Currently, the contracting officer must include the 
contract clause in certain solicitations and contracts over $500,000. 
The rule would increase the dollar threshold from $500,000 to $550,000.
    [sbull] 10 U.S.C. 2324(b) requires the head of the agency to assess 
a penalty against the contractor if the contractor submits a cost in 
its proposal for settlement that is expressly unallowable under a 
``covered contract.'' As indicated above, a ``covered contract'' is a 
contract that is greater than $500,000. FAR 42.709 uses this threshold 
to implement the statutory penalty provisions for claiming expressly 
unallowable costs.
    [sbull] 10 U.S.C. 2324(1)(1)(B) provides for adjusting the dollar 
threshold of a ``covered contract'' to account for inflation. This 
adjustment from $500,000 to $550,000 is consistent with the adjustment 
of the Truth in Negotiations Act threshold recently implemented in Item 
II of Federal Acquisition Circular 97-20; and
    [sbull] Makes several editorial changes, including deleting the 
phrase ``or any firm-fixed-price contract for the purchase of 
commercial items'' at FAR 42.709(b) and FAR 42.709-6, since this type 
of contract is included in the class of contracts (fixed-price 
contracts without cost incentives) already addressed at these FAR 
sites.

B. Regulatory Planning and Review

    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 Councils do not expect this proposed rule 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 principles and 
procedures discussed in this rule. An Initial Regulatory Flexibility 
Analysis has, therefore, not been performed. We invite comments from 
small businesses and other interested parties. The Councils will 
consider comments from small entities concerning the affected FAR Parts 
15, 31, and 42 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 2001-018), in correspondence.

D. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the

[[Page 66989]]

approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 15, 31, and 42

    Government procurement.

    Dated: November 21, 2003.
Laura Auletta,
Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 15, 31, 
and 42 as set forth below:
    1. The authority citation for 48 CFR parts 15, 31, and 42 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).

PART 15--CONTRACTING BY NEGOTIATION

    2. Amend section 15.404-1 by revising paragraph (c)(2)(iv) to read 
as follows:


15.404-1  Proposal analysis techniques.

* * * * *
    (c) * * *
    (2) * * *
    (iv) When applicable, verification that the offeror's cost 
submissions are in accordance with the contract cost principles and 
procedures in part 31 and the requirements and procedures in 48 CFR 
Chapter 99 (Appendix to the FAR looseleaf edition), Cost Accounting 
Standards.
* * * * *

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    3. Amend section 31.000 by revising paragraph (a) to read as 
follows:


31.000  Scope of part.

* * * * *
    (a) The pricing of contracts, subcontracts, and modifications to 
contracts and subcontracts whenever cost analysis is performed (see 
15.404-1(c)), except contracts, subcontracts, and modifications issued 
on a fixed-price basis where cost or pricing data is not obtained; and
* * * * *
    4. Amend section 31.001 by adding, in alphabetical order, the 
definition ``Fixed-price contracts, subcontracts, and modifications'' 
to read as follows:


31.001  Definitions.

* * * * *
    Fixed-price contracts, subcontracts, and modifications means--
    (1) Fixed-price contracts, subcontracts, and modifications 
described at 16.202, 16.203 (except 16.203-1(b)) and 16.207;
    (2) Fixed-price incentive contracts, subcontracts, and 
modifications where the price is not adjusted based on actual costs 
incurred (Subpart 16.4);
    (3) The fixed hourly rate portion of time-and-materials and labor-
hour contracts, subcontracts, and modifications where the rate is not 
adjusted based on actual costs incurred (Subpart 16.6); and
    (4) Orders issued under indefinite-delivery contracts (Subpart 
16.5) using one of the contract types in paragraphs (1) through (3) of 
this definition.
* * * * *
    5. Revise section 31.102 to read as follows:


31.102  Fixed-price contracts.

    (a) The applicable subparts of part 31 shall be used in the pricing 
of fixed-price contracts, subcontracts, and modifications to contracts 
and subcontracts when--
    (1) Cost analysis is performed, except contracts, subcontracts, and 
modifications issued on a fixed-price basis where cost or pricing data 
is not obtained; or
    (2) A fixed-price contract clause requires the determination or 
negotiation of costs.
    (b) Application of cost principles to fixed-price contracts and 
subcontracts must not be construed as a requirement to negotiate 
agreements on individual elements of cost in arriving at agreement on 
the total price. The final price accepted by the parties reflects 
agreement only on the total price.
    (c) Further, notwithstanding the mandatory use of cost principles, 
the objective will continue to be to negotiate prices that are fair and 
reasonable, cost and other factors considered.
    6. Amend section 31.103 by revising paragraph (a) to read as 
follows:


31.103  Contracts with commercial organizations.

* * * * *
    (a) The cost principles and procedures in Subpart 31.2 and agency 
supplements shall be used in pricing negotiated supply, service, 
experimental, developmental, and research contracts, subcontracts, and 
contract modifications with commercial organizations whenever cost 
analysis is performed (see 15.404-1(c)), except contracts, 
subcontracts, and modifications issued on a fixed-price basis where 
cost or pricing data is not obtained.
* * * * *
    7. Amend section 31.105 by revising paragraph (b) to read as 
follows:


31.105  Construction and architect-engineer contracts.

* * * * *
    (b) Except as otherwise provided in paragraph (d) of this section, 
the cost principles and procedures in Subpart 31.2 shall be used in the 
pricing of contracts, subcontracts, and contract modifications in this 
category if cost analysis is performed (see 15.404-1(c)), except 
contracts, subcontracts, and modifications issued on a fixed-price 
basis where cost or pricing data is not obtained.
* * * * *
    8. Amend section 31.106-1 by revising the third sentence of the 
introductory paragraph to read as follows:


31.106-1  Applicable cost principles.

    * * * Whichever cost principles are appropriate will be used in the 
pricing of facilities contracts, subcontracts, and contract 
modifications in this category if cost analysis is performed (see 
15.404-1(c)), except contracts, subcontracts, and modifications issued 
on a fixed-price basis where cost or pricing data is not obtained. * * 
*
* * * * *

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

    9. Amend section 42.709 by revising paragraph (b) to read as 
follows:


42.709  Scope.

* * * * *
    (b) This section applies to contracts in excess of $550,000, except 
fixed-price contracts without cost incentives.
    10. Amend section 42.709-6 by revising the first sentence to read 
as follows:


42.709-6  Contract clause.

    Insert the clause at 52.242-3, Penalties for Unallowable Costs, in 
solicitations and contracts over $550,000, except fixed-price contracts 
without cost incentives. * * *

[FR Doc. 03-29640 Filed 11-26-03; 8:45 am]
BILLING CODE 6820-EP-P