[Federal Register Volume 69, Number 19 (Thursday, January 29, 2004)]
[Proposed Rules]
[Pages 4436-4438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1876]



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Part III





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Part 31



Federal Acquisition Regulation; Training and Education Cost Principle; 
Proposed Rule

  Federal Register / Vol. 69, No. 19 / Thursday, January 29, 2004 / 
Proposed Rules  

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 2001-021]
RIN 9000-AJ38


Federal Acquisition Regulation; Training and Education Cost 
Principle

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) ``Training and education costs'' 
cost principle.

DATES: Interested parties should submit comments in writing on or 
before March 29, 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 [email protected]
 Please submit comments only and cite FAR case 2001-021 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 Advisor, at 
(202) 501-0650. Please cite FAR case 2001-021.

SUPPLEMENTARY INFORMATION:

A. Background

    The proposed amendment to FAR 31.205-44, Training and education 
costs, is intended to increase the clarity of this cost principle and 
to make it consistent with recent statutory changes that cover payment 
of costs for Federal employee academic degree training. The proposed 
rule makes training and education costs generally allowable, except for 
training and education for the sole purpose of obtaining an academic 
degree or as a means of qualifying for a position that requires a 
degree, as well as six public policy exceptions that are retained from 
the current cost principle. The reasonableness of specific contractor 
training and education costs that are not subject to one of the 
expressly unallowable cost exceptions can best be assessed by reference 
to FAR 31.201-3, Determining reasonableness.
    A proposed rule was published in the Federal Register at 67 FR 
34810, May 15, 2002. In response to the public comments received (see 
Section B, below), the Councils are proposing additional changes to FAR 
31.205-44. Since the changes result in a rule that differs 
significantly from the first proposed rule, it is being published as a 
second proposed rule. It is noted that an amendment was published in 
the Federal Register at 67 FR 40136, June 11, 2002, to correct an error 
in the Supplementary Information section accompanying the first 
proposed rule. The major differences between the two proposed rules are 
summarized as follows:
    1. The Councils eliminated the disparate treatment of full-time and 
part-time undergraduate education by deleting FAR 31.205-44(b)(1)(i). 
The cost of full-time undergraduate level education will be allowable. 
(See Public Comment 3, paragraph 3, below.)
    2. The cost allowability provisions for full-time graduate level 
education at FAR 31.205-44(b)(2)(ii) are relocated to a separate new 
paragraph (d). (See Public Comment 3, paragraph 4, below.)
    3. The cost of salaries for attending part-time and full-time 
undergraduate level classes and part-time graduate level classes during 
working hours are unallowable, subject to an exception ``when unusual 
circumstances do not permit attendance at such classes outside of 
regular working hours.'' FAR 31.205-44(b)(2) was deleted and coverage 
included in a new paragraph (c). (See Public Comment 3, paragraph 5, 
below.)

B. Public Comments

    Six respondents submitted comments on the first proposed rule. A 
discussion of their comments is provided below.

Eliminate the Cost Principle

    Comment 1: FAR 31.205-44 should be eliminated and the allowability 
of training and education costs should be governed by the general 
reasonableness provisions of FAR 31.201-3. The elimination of all 
thresholds and other allowability criteria can be accomplished without 
jeopardizing safeguards or increasing the risk to the Government.
    Councils' response: Nonconcur that the cost principle should be 
eliminated. The argument for eliminating the training and education 
cost principle in its entirety is not compelling. There are several 
expressly unallowable costs in the current cost principle that are 
considered necessary for sound public policy reasons and are not 
covered elsewhere in the FAR. Concur that the reasonableness of 
specific contractor training and education costs can best be assessed 
by reference to FAR 31.201-3, Determining reasonableness.

Overtime Costs

    Comment 2: Delete the proposed FAR 31.205-44(a), which makes 
overtime pay for training and education unallowable. The number of 
instances in which an employee is paid overtime for training and 
education do not justify the costs for tracking and treating overtime 
payments as unallowable costs.
    Council's Response: Nonconcur. It would not be sound public policy 
to reimburse overtime pay for training and education.

Restrictive, Confusing, and Contradictory Conditions

    Comment 3: The language in proposed FAR 31.205-44(b) regarding 
full-time, part-time, undergraduate, and graduate education costs is 
restrictive, confusing and contradictory. The differing allowability 
treatment of these types of education costs is confusing and 
inconsistent with each other and with the accepted concepts of upward 
mobility and job retraining. The proposed paragraph should be 
eliminated, or at a minimum, the language should only list items that 
are unallowable.
    Councils' Response: Concur that language in paragraph (b) of the 
first proposed rule is restrictive, confusing and contradictory; 
changes in this second proposed rule eliminate the confusion and some 
of the cost allowability limitations (as discussed below). Nonconcur 
that all of the cost allowability limitations should be removed; the 
cost allowability limitations that remain represent sound public 
policy. Concur that only unallowable items should be listed; the 
structure of the second proposed rule is to list only the specifically 
unallowable costs.
    FAR 31.205-44(b)(1)(i) of the first proposed rule and the current 
FAR language disallow full-time undergraduate level education costs, 
but implicitly allow part-time undergraduate level education costs. The 
Councils believe that education costs should not become unallowable 
just because an employee elects to accelerate the learning process. 
Imposing restrictions that may cause

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some employees to slow the learning process serves no purpose. 
Moreover, such a bifurcated approach to the allowability of contractor 
employee education costs is inconsistent with recent statutory changes 
that now broadly authorize Government payment of Federal employee 
degree costs (Section 1121 of Public Law 106-398, the FY01 Defense 
Authorization Act, and Section 1331 of Public Law 107-296, the Homeland 
Security Act). Therefore, the disparate treatment of full-time and 
part-time undergraduate education has been eliminated by deleting 
paragraph (b)(1)(i) of the first proposed rule.
    To further simplify the cost principle, the Councils extracted the 
limitations regarding the unallowability of full-time graduate level 
education costs from paragraph (b)(1)(ii) of the first proposed rule 
and made them a separate new paragraph (c) in this second proposed 
rule.
    Paragraph (b)(2) of the first proposed rule disallows the costs of 
salaries for attending undergraduate or graduate level classes on a 
part-time basis, except for attending such classes during working hours 
where circumstances do not permit attendance before or after regular 
work hours. Similarly, the current FAR coverage allows the salaries of 
employees for attending undergraduate or graduate level classes on a 
part-time basis only where circumstances do not permit the operation of 
classes or attendance at classes after regular working hours, but is 
also capped at 156 hours per year. The Councils believe that the cost 
of salaries for attending part-time and full-time undergraduate or 
part-time graduate level classes should remain unallowable, subject to 
an exception ``when unusual circumstances do not permit attendance at 
such classes outside of regular working hours.'' This policy is 
contained in a separate new paragraph (c) in this second proposed rule.

Advance Agreement

    Comment 4: If the Councils still believe that FAR 31.205-44(b) is 
required, then the provisions at FAR 31.205-44(h), which allow and 
establish criteria for Advance Agreements, would have to be reinstated. 
Without this reinstatement, costs that have been allowable in the past 
could become unallowable.
    Councils' Response: Nonconcur. The Councils believe that in light 
of the changes made, the need for an advance agreement provision has 
been eliminated.

Administrative Costs of College Savings Plan

    Comment 5: With the advent of ``529 Plans'' (College Savings 
Plans), companies are beginning to sponsor such plans for employees and 
their dependents, including paying the administrative costs. The 
Councils should make clear that the proposed language in FAR 31.205-
44(e) does not make the administrative costs of college savings plans 
unallowable.
    Councils' Response: The cost principle does not address the 
administrative costs of such plans; therefore, the administrative costs 
are allowable, subject to the reasonableness criteria at FAR 31.201-3. 
However, any contributions to the plan by the company for employee 
dependents would be unallowable under the redesignated paragraph (g) in 
this second proposed rule.

Public Policy

    Comment 6: If one agrees that training and educating employees is 
good public policy, then there is no need for the five ``public policy 
exceptions'' to cost allowability, and the cost principle is 
unnecessary.
    Councils' Response: The Councils support upward mobility, job 
retraining, and educational advancement. Training that is beneficial 
for the contractor, is also beneficial for the Government. But, while 
Government support for training and education is sound overall public 
policy, there are certain related costs the taxpayers should not 
reimburse. The Councils believe the six public policy exceptions in 
this second proposed rule are appropriate.

Job Relatedness

    Comment 7: The job relatedness requirement should be eliminated in 
proposed FAR 31.205-44(b)(1)(ii). The original Background section 
accompanying the first proposed rule published in the Federal Register 
dated May 15, 2002, indicated that the Councils proposed the 
elimination of this requirement together with a supporting rationale. 
The commenter agrees with that rationale and recommends the requirement 
be deleted.
    Councils' Response: Nonconcur. The language contained in the 
Background section accompanying the first proposed rule was published 
in error. The Background section language was corrected in the Federal 
Register at 67 FR 40136, June 11, 2002. The current policy which 
requires a relationship between education and work for full-time 
graduate level education is retained.

Two-Year Maximum at Undergraduate Level

    Comment 8: The proposed rule should be revised because FAR 31.205-
44(b)(1)(ii) can reasonably be interpreted as establishing a maximum 
two (2) year completion requirement at both the undergraduate and 
postgraduate levels.
    Councils' Response: Nonconcur. The Councils believe it is clear in 
the new FAR 31.205-44(d) that the two-year limitation only applies to 
the full-time graduate level education.

Suitable Education

    Comment 9: The proposed FAR 31.205-44(d) should be revised to 
define ``suitable'' public education and permit ``suitable'' private 
education where no ``suitable'' public education exists. The proposed 
rule is ambiguous and restrictive in scope due to the lack of a 
definition and the lack of an affirmative statement permitting private 
school education.
    Councils' Response: Nonconcur. A definition of the term 
``suitable'' would limit flexibility. In addition, the proposed rule 
already allows the use of private education and therefore, an 
affirmative statement to this effect is not necessary.

Vocational Training and Specialized Programs

    Comment 10: Recommend the reinsertion of the current FAR sections 
addressing vocational training, specialized programs and other expenses 
relating to maintenance and normal depreciation or fair rental on 
facilities owned or leased by contractors for training purposes. The 
deletion of these sections will place an undue financial burden on 
Government contractors and small businesses and will discourage the 
Government contractor workforce from pursuing non-traditional types of 
training and education.
    Councils' Response: Nonconcur. The allowability of these types of 
expenses did not change in the proposed rule. The structure of the 
proposed rule is to list only the specifically unallowable costs.

Format

    In the past, the Councils have received several public comments 
suggesting a standardized format for cost principles contained in FAR 
part 31. While they believe that this second proposed rule conforms to 
the suggested format, the Councils are interested in comments in this 
regard. If additional standard format changes are deemed appropriate, 
interested parties are

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required to submit a rewritten cost principle in the proposed format as 
part of their response to this proposed rule.
    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 principle 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 Part 31 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 2001-021), 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 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: January 23, 2004.
Ralph de Stefano,
Acting Director, Acquisition Policy Division.

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

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    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).

    2. Revise section 31.205-44 to read as follows:


31.205-44  Training and education costs.

    Training and education costs are allowable, except as follows:
    (a) The costs of education and training for the sole purpose of 
providing an employee an opportunity to obtain an academic degree or to 
qualify for appointment to a particular position for which the academic 
degree is a basic requirement are unallowable.
    (b) Overtime compensation for training and education is 
unallowable.
    (c) The cost of salaries for attending undergraduate level classes 
or part-time graduate level classes during working hours is 
unallowable, except when unusual circumstances do not permit attendance 
at such classes outside of regular working hours.
    (d) Costs of tuition, fees, training materials and textbooks, 
subsistence, and salary and any other costs in connection with full-
time graduate level education are unallowable, except where the course 
or degree pursued is related to the field in which the employee is 
working or may reasonably be expected to work and is limited to a total 
period not to exceed 2 school years or the length of the degree 
program, whichever is less, for each employee so trained.
    (e) Grants to educational or training institutions, including the 
donation of facilities or other properties, scholarships, and 
fellowships, are unallowable.
    (f) Training or education costs for other than bona fide employees 
are unallowable, except that the costs incurred for educating employee 
dependents (primary and secondary level studies) when the employee is 
working in a foreign country where suitable public education is not 
available may be included in overseas differential pay.
    (g) Costs of university and college plans for employee dependents 
are unallowable.

[FR Doc. 04-1876 Filed 1-28-04; 8:45 am]
BILLING CODE 6820-EP-P