[Federal Register Volume 71, Number 2 (Wednesday, January 4, 2006)]
[Proposed Rules]
[Pages 313-315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-8237]


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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

48 CFR Part 9903


Cost Accounting Standards Board; T&M Contracts for Commercial 
Items

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

ACTION: Proposed rule with request for comment.

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SUMMARY: The Cost Accounting Standards (CAS) Board is proposing to 
revise the CAS by providing an exemption for time-and-materials (T&M) 
and labor-hour (LH) contracts for the acquisition of commercial items.

DATES: Comments upon this proposed rule must be in writing and must be 
received by March 6, 2006.

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

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FOR FURTHER INFORMATION CONTACT: Rein Abel, Director of Research, Cost 
Accounting Standards Board (telephone: 202-395-1062).

SUPPLEMENTARY INFORMATION:

A. Background

    On July 29, 1996, the Board implemented the Federal Acquisition 
Reform Act (FARA) by promulgating an interim rule providing an 
exemption from CAS for contracts for the acquisition of commercial 
items that are firm fixed price and fixed price with economic price 
adjustment (except when the adjustment is made on the basis of actual 
costs). The Board's final rule was implemented on June 6, 1997. At the 
time the CAS Board implemented this exemption, FAR limited the 
permissible contract types for the acquisition of commercial items to 
firm fixed price and fixed price with economic price adjustment.
    Section 1432 of the National Defense Authorization Act for Fiscal 
Year 2004 (Pub. L. 108-136, referred to as SARA) amended the Federal 
Acquisition Streamlining Act (FASA) to expressly authorize the use of 
time-and-materials (T&M) and labor-hour (LH) contracts for the 
acquisition of certain categories of commercial services under 
specified conditions. As part of the process to implement this 
amendment, the Federal Acquisition Regulation (FAR) Council published 
an Advance Notice of Proposed Rulemaking (ANRPM) in the Federal 
Register on September 20, 2004 (69 FR 56316) to amend the FAR. The 
ANPRM requested comments on the impact of applying CAS. Public comments 
were received from 23 respondents. Eight of those respondents provided 
comments on the impact of applying CAS. The comments focused on whether 
the statute requires an exemption from CAS and the value of applying 
CAS to T&M/LH contracts for commercial items.
    The FAR Council reviewed the public comments and drafted a proposed 
rule to amend the FAR. Based on the methodology in the draft proposed 
FAR rule that will be used to price and reimburse T&M and LH contracts 
(summarized below), the CAS Board has determined that an exemption from 
CAS is appropriate:
    Pricing. Under the provisions of SARA and the requirements of the 
draft proposed FAR rule, T&M and LH contracts for commercial items must 
be awarded on a competitive basis. In addition, the contracting officer 
is precluded from obtaining cost or pricing data in accordance with FAR 
15.403-1(c)(3). Therefore, the application of CAS, from a pricing 
standpoint, is similar to a firm fixed-price contract awarded on the 
basis of competition without submission of certified cost or pricing 
data. Such firm-fixed price contracts are exempt from CAS under 48 CFR 
9903.201-1(b)(6).
    Reimbursement. In regards to cost reimbursement, the draft proposed 
FAR rule provides for the following:
     Reimbursement of direct labor will be on the basis of 
fixed labor rates in the contract schedule. The fixed labor rates will 
be established based on competition, since SARA requires award on a 
competitive basis.
     Reimbursement of indirect costs will be at a fixed amount 
established at the time of contract award. This fixed amount will be 
part of the price evaluation, and thus is part of the competitive award 
process.
     Materials. If the materials are a commercial item, 
reimbursement will be at price. If the materials are not a commercial 
item, reimbursement will be at actual cost.
     Other Direct Costs will be reimbursed on the basis of 
actual costs incurred. Reimbursement is limited to the specific cost 
elements listed in the contract.
     Subcontracts will be reimbursed at either (a) cost (to the 
extent the costs are incurred in accordance with the terms and 
conditions of the subcontract agreement and evidenced by actual 
payment) or (b) the fixed labor rates in the contract schedule (if 
specifically provided for in the contract).
    Under the draft proposed FAR rule, direct labor and indirect costs 
are reimbursed on a fixed price basis. Thus, for LH contracts, all 
reimbursement is on a fixed price basis (based on the number of labor 
hours expended).
    For T&M contracts, materials, other direct costs, and subcontract 
costs may be reimbursed at cost. The preamble to the draft proposed FAR 
rule indicates that (a) Most of the material costs are anticipated to 
be for commercial items reimbursed at price, (b) the material and other 
direct costs should be a minor portion of the total contract costs, and 
(c) subcontract costs are either reimbursed at cost or at the fixed 
labor rates in the contract schedule.
    The Board has concluded that a CAS exemption is appropriate for 
both T&M and LH contracts for the following reasons:
    (a) The pricing is based on adequate competition without the 
submission of cost data;
    (b) For other than subcontracts, reimbursement based on actual cost 
is anticipated to be very limited;
    (c) Reimbursement of subcontracts based on actual costs requires 
that the costs be (i) incurred in accordance with the terms and 
conditions of the subcontract agreement, and (ii) evidenced by actual 
payment; and
    (d) Reimbursement of subcontracts on other than actual costs will 
be on a fixed price basis (based on the fixed labor rates in the 
contract schedule).

B. Paperwork Reduction Act

    The Paperwork Reduction Act, Public Law 96-511, does not apply to 
this rulemaking, because this rule imposes no paperwork burden on 
offerors, affected contractors and subcontractors, or members of the 
public which requires the approval of OMB under 44 U.S.C. 3501, et seq.

C. Executive Order 12866 and the Regulatory Flexibility Act

    The economic impact of this rule on contractors and subcontractors 
is expected to be minor. As a result, the Board has determined this 
rule is not significant under the provisions of Executive Order 12866, 
and that a regulatory impact analysis will not be required. 
Furthermore, this rule will not have a significant impact on a 
substantial number of small businesses because small businesses are 
exempt from the application of the Cost Accounting Standards. 
Therefore, this rule does not require a regulatory flexibility analysis 
under the Regulatory Flexibility Act of 1980.

D. Public Comments

    Interested persons are invited to participate by submitting data, 
views or arguments with respect to this proposed rule. All comments 
must be in writing and submitted to the address indicated in the 
Addresses section.

List of Subjects in 48 CFR Part 9903

    Accounting, Government procurement.

Joshua B. Bolten,
Director.
    For the reasons set forth in this preamble, chapter 99 of title 48 
of the Code of Federal Regulations is proposed to be amended as set 
forth below:

PART 9903--CONTRACT COVERAGE

    1. The authority citation for part 9903 is revised to read as 
follows

    Authority: Public Law 100-679, 102 Stat 4056, 41 U.S.C. 422.

Subpart 9903.2--CAS Program Requirements

    2. Section 9903.201-1(b)(6) is revised to read as follows:

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Sec.  9903.201-1  CAS Applicability.

* * * * *
    (b) * * *
    (6) Firm fixed-priced, fixed-priced with economic price adjustment 
(provided that price adjustment is not based on actual costs incurred), 
time-and-materials, and labor-hour contracts and subcontracts for the 
acquisition of commercial items.
* * * * *
[FR Doc. E5-8237 Filed 1-3-06; 8:45 am]
BILLING CODE 3110-01-P