[Federal Register Volume 70, Number 176 (Tuesday, September 13, 2005)]
[Proposed Rules]
[Pages 53977-53979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-17949]


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OFFICE OF MANAGEMENT AND BUDGET

48 CFR Part 9904


Office of Federal Procurement Policy; Cost Accounting Standards 
Board; CAS Exemption for Contracts Executed and Performed Entirely 
Outside the United States, Its Territories, and Possessions

AGENCY: Cost Accounting Standards Board, Office of Federal Procurement 
Policy, OMB.

ACTION: Staff Discussion Paper (SDP); request for comments.

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SUMMARY: The Cost Accounting Standards (CAS) Board, Office of Federal 
Procurement Policy, invites public comments on the staff discussion 
paper regarding a provision that provides an exemption from CAS for 
contracts that are executed and performed entirely outside the United 
States, its territories, and possessions.

DATES: Comments must be in writing and must be received by November 14, 
2005.

ADDRESSES: Due to delays in OMB's receipt and processing of mail,

[[Page 53978]]

respondents are strongly encouraged to submit comments electronically 
to ensure timely receipt. Electronic comments may be submitted to 
[email protected]. Please put the full body of your comments in the 
text of the electronic message and also as an attachment readable in 
either MS Word or Corel WordPerfect. Please include your name, title, 
organization, postal address, telephone number, and e-mail address in 
the text of the message. Comments may also be submitted via facsimile 
to (202) 395-5105.

FOR FURTHER INFORMATION CONTACT: David Capitano, Cost Accounting 
Standards Board (telephone: 703-847-7486).

SUPPLEMENTARY INFORMATION:

A. Regulatory Process

    The Board's rules, regulations and Standards are codified at 48 CFR 
Chapter 99. The Office of Federal Procurement Policy Act, 41 U.S.C. 
422(g)(1), requires the Board, prior to the establishment of any new or 
revised Cost Accounting Standard (CAS), to complete a prescribed 
rulemaking process. The process generally consists of the following 
four steps:
    1. Consult with interested persons concerning the advantages, 
disadvantages and improvements anticipated in the pricing and 
administration of government contracts as a result of the adoption of a 
proposed Standard (e.g., promulgation of a Staff Discussion Paper.)
    2. Promulgate an Advance Notice of Proposed Rulemaking (ANPRM).
    3. Promulgate a Notice of Proposed Rulemaking (NPRM).
    4. Promulgate a Final Rule.
    This Staff Discussion Paper (SDP) is issued by the Board as step 
one of the four-step process. The Board notes that the exemption at 48 
CFR 9903.201-1(b)(14) is not subject to the four-step process required 
by 41 U.S.C. 422(g)(1) because it is not a standard. Thus, there is no 
requirement for the Board to follow the four-step process for this 
promulgation. Nevertheless, the Board believes following the four-step 
process is beneficial for this issue. However, the issuance of this SDP 
is not intended to establish any precedence for use of the four-step 
process in promulgating CAS rules and regulations other than standards.

B. Background and Summary

    The Office of Federal Procurement Policy, Cost Accounting Standards 
Board, is releasing a SDP regarding the exemption at 48 CFR 9903.201-
1(b)(14). The purpose of the SDP is to solicit public views with 
respect to the Board's consideration of whether the exemption at 48 CFR 
9903.201-1(b)(14) should be revised or eliminated. Respondents are 
encouraged to identify and comment on any issues not addressed in this 
SDP that they believe are important to the subject. This SDP reflects 
research accomplished to date by the staff of the Cost Accounting 
Standards Board in the respective subject area.

C. Public Comments

    Interested persons are invited to participate by submitting data, 
views or arguments with respect to this SDP, including but not limited 
to the questions listed in the SDP. All comments must be in writing or 
by E-mail, and submitted to the mailing or E-mail addresses indicated 
in the ADDRESSES section.

David H. Safavian,
Chair, Cost Accounting Standards Board.

Cost Accounting Standards Board Staff Discussion Paper (SDP)

48 CFR 9903.201-1(b)(14)

Exemption for Contracts Entirely Executed and Performed Outside the 
United States

Background

Purpose

    48 CFR 9903.201-1(b) provides a list of categories of contracts and 
subcontracts that are exempt from all CAS requirements (CAS 
exemptions). Paragraph (14) of this provision provides an exemption for 
``Contracts and subcontracts to be executed and performed entirely 
outside the United States, its territories, and possessions.'' The 
purpose of this SDP is to explore whether this exemption should be 
revised or eliminated.

History of Exemption

    The original CAS Board (the Board) was established by Section 2168 
of the Defense Production Act of 1950 (DPA). Section 2163 of the DPA, 
entitled ``Territorial Application of Act,'' provided that Sections 
2061 through 2170 of the act ``shall be applicable to the United 
States, its territories and possessions, and the District of Columbia'' 
(United States). Since the provisions of the DPA were applicable only 
within the United States, the CAS Board's rules, regulations and 
standards were also applicable only within the United States.
    On May 29, 1973, Mr. Van Cleve, General Counsel to the CAS Board, 
wrote to Mr. Jack Kendig, DCAA, reiterating the Board's lack of 
authority over contracts executed and performed entirely outside the 
United States. These comments were made during the CAS Board's early 
deliberations of what contracts were, or were not, under its purview:

    ``As you are aware, the CASB has previously recognized that its 
authorizing legislation is a part of Defense Production Act and that 
pertinent provisions of that Act apply to the activities of the 
Board. We consider that the above provision [Section 713 of the Act] 
does exclude from the Board's jurisdiction any contracts which are 
executed and performed in their entirety outside of the United 
States, its territories and possessions.
    To the extent the Board has dealt with foreign contracts, it has 
been assumed that either the document was executed in the United 
States or that some part of performance occurred within the United 
States which would, of course, bring the contract within the scope 
of the Board's authority.'' [Reference added for clarification]

    On June 29, 1973, the Deputy Assistant Secretary of Defense for 
Procurement advised the CAS Board that based on Mr. Van Cleve's May 29, 
1973 opinion, DOD was revising ASPR 3-1204 (Contract Clauses) to add 
contracts and subcontracts executed and performed entirely outside the 
United States to the list of exclusions from CAS. On September 24, 
1973, Defense Procurement Circular No. 115 amended ASPR 3-1204 to 
provide for this CAS exclusion. As amended, ASPR 3-1204 read as 
follows:

    3-1204 Contract Clause. The Cost Accounting Standards clause set 
forth in 7-104.83 shall be inserted in all negotiated contracts 
exceeding $100,000, except when the price is based on established 
catalog or market prices of commercial items sold in substantial 
quantities to the general public or is set by law or regulation. In 
addition to the foregoing exceptions, the clause shall not be 
included in the following contracts:
* * * * *
    (vi) contracts which are executed and performed in their 
entirety outside the United States, its territories and possessions.

    In 1980, the CAS Board ceased to exist under the DPA. CAS 
administration was undertaken by the Department of Defense until the 
CAS Board was re-established in 1988 under the Office of Federal 
Procurement Policy (OFPP) Act.
    In 1991, the new CAS Board decided to review the exemption from CAS 
for contracts and subcontracts executed and performed entirely outside 
the United States, its territories and possessions at FAR 30.201-1(14). 
The exemption was retained and incorporated in the current CAS Board's 
recodified rules and regulations at 48 CFR 9903.201-1(b)(14) on April 
17, 1992 (57 FR 14148).

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Key Questions for Consideration

    The CAS Board is soliciting comments on this issue from interested 
parties. In particular, the Board is interested in comments related to 
the following issues:
    1. Any statute that would require the CAS Board to retain this 
exemption. If any such statute exists, provide the specific statute and 
language that contain this requirement.
    2. How this exemption does or does not promote the CAS Board's 
primary objective of achieving ``(1) an increased degree of uniformity 
in cost accounting practices among Government contractors in like 
circumstances, and (2) consistency in cost accounting practices in like 
circumstances by individual government contractor over periods of 
time.''
    3. The significance of the location of contract execution to CAS 
applicability.
    4. The significance of the location of contract performance to CAS 
applicability.
    5. The advantages and disadvantages of exempting contracts and 
subcontracts from CAS that are executed and performed entirely outside 
the U.S.
    6. Contracting situations in which the exemption has historically 
been utilized.

[FR Doc. 05-17949 Filed 9-12-05; 8:45 am]
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