[Federal Register Volume 71, Number 231 (Friday, December 1, 2006)]
[Rules and Regulations]
[Pages 69492-69495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20396]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215, 230, 252, and 253

[DFARS Case 2003-D014]


Defense Federal Acquisition Regulation Supplement; Contract 
Pricing and Cost Accounting Standards

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to update text addressing 
contract pricing matters and cost accounting standards administration. 
The rule implements statutory provisions regarding exceptions to cost 
or pricing data requirements and waiver of cost accounting standards, 
and relocates internal DoD procedures relating to pricing 
considerations and cost accounting standards to the DFARS companion 
resource, Procedures, Guidance, and Information.

DATES: Effective Date: December 1, 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Bill Sain, Defense Acquisition 
Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0293; 
facsimile (703) 602-0350. Please cite DFARS Case 2003-D014.

SUPPLEMENTARY INFORMATION:

A. Background

    This final rule updates DFARS text addressing contract pricing 
matters and cost accounting standards administration. The DFARS changes 
include--
    [cir] Addition of text at 215.403-1 and 230.201-5 to implement 
Section 817 of the National Defense Authorization Act for Fiscal Year 
2003 (Pub. L. 107-314) regarding exceptions to cost or pricing data 
requirements and waiver of cost accounting standards.
    [cir] Deletion of 215.404-1(d), Cost realism analysis, because FAR 
15.404-1 contains sufficient policy on this subject.
    [cir] Deletion of unnecessary introductory text at redesignated 
215.404-71-4(f), Facilities capital employed, Values: Normal and 
designated ranges.
    [cir] Relocation of the definition of ``Acceptable estimating 
system'' from 215.407-5-70(a)(1) to the contract clause at 252.215-
7002, Cost Estimating System Requirements; elimination of 215.407-5-
70(b)(1)(iii) and (iv) and relocation of the language to the new 
definition at 252.215-7002(a); and deletion of duplicative language at 
252.215-7002(b).
    [cir] Removal of 230.7000, Contract facilities capital estimates; 
230.7001, Use of DD Form 1861; and 230.7002, Preaward facilities 
capital applications; and relocation of text on these subjects to 
215.404-71-4, Weighted guidelines method--Facilities capital employed, 
since these sections pertain to the

[[Page 69493]]

calculation of weighted guidelines for profit, rather than cost 
accounting standards.
    [cir] Elimination of 230.7003, Postaward facilities capital 
applications, and 230.7004-1, Forms CASB-CMF, since these sections 
duplicate Cost Accounting Standard (CAS) 414, Cost of Money as an 
Element of the Cost of Facilities Capital; FAR 31.205-10, Cost of 
Money; and the implementing contract clauses.
    [cir] Elimination of the definitions of ``intangible capital 
asset'' and ``tangible capital asset'' at 230.7100(a) and (b), since 
these definitions are provided in the cost accounting standards; 
elimination of the definition of ``cost of money rate'' at 230.7100(c), 
because it conflicts with cost accounting standards; and elimination of 
the definition of ``representative investment'' at 230.7100(d), because 
it is unnecessary.
    [cir] Elimination of 230.7101, Calculations, and 230.7102, 
Determining imputed cost of money, because they are adequately covered 
in CAS 417, Cost of Money as an Element of the Cost of Capital Assets 
Under Construction (48 CFR 9904.417).
    [cir] Removal of 230.7103, Preaward capital employed application, 
and relocation of text on this subject to 215.404-73(b)(2)(i), Offsets 
for facilities capital cost of money, since it applies to offsets in 
determining profit, rather than cost accounting standards.
    [cir] Relocation of the following text to the DFARS companion 
resource, Procedures, Guidance, and Information (PGI), at http://www.acq.osd.mil/dpap/dars/pgi.
    [cir] 215.403-5, Instructions for submission of cost or pricing 
data or information other than cost or pricing data.
    [cir] 215.404-2, Information to support proposal analysis.
    [cir] 215.404-3, Subcontract pricing considerations.
    [cir] 215.404-70, DD Form 1547, Record of Weighted Guidelines 
Method Application.
    [cir] 215.404-76, Reporting profit and fee statistics.
    [cir] 215.406-1, Prenegotiation objectives.
    [cir] 215.406-3, Documenting the negotiation.
    [cir] 215.407-4, Should-cost review.
    [cir] 215.407-5-70(e) and (f), Estimating systems--Disclosure, 
maintenance, and review requirements.
    [cir] 215.470(b) and (c), Estimated data prices, except that the 
first sentence of (b) remains in DFARS, and is revised for clarity.
    [cir] 230.201-5(a)(1), Waiver (partial relocation).
    [cir] 230.7004-2, DD Form 1861 (relocated to PGI 215.404-71-4(c), 
consistent with the relocation of 230.7000, 230.7001, and 230.7002 to 
DFARS 215.404-71-4.
    [cir] 253.215-70, DD Form 1547, Record of Weighted Guidelines 
Application.
    DoD published a proposed rule at 70 FR 75440 on December 20, 2005. 
One industry association submitted comments on the proposed rule. The 
industry association questioned the proposed relocation of the weighted 
guidelines profit analysis procedures from DFARS Subpart 15.4 to PGI, 
since considerations that DoD contracting officers use to develop 
profit objectives have a significant impact on industry. DoD agrees 
with this comment and has retained the weighted guidelines procedures 
in DFARS Subpart 215.4, with the exception of the text at 215.404-70, 
which merely provides a general description of the DD Form 1547 and its 
use, and the text at 215.404-76, which deals exclusively with internal 
DoD reporting of profit and fee statistics.
    Additional differences between the proposed and final rules 
include--
    215.403-1(c)(1)--This text, which addresses standards for 
exceptions from cost or pricing data requirements, is retained in the 
DFARS, since these standards affect industry.
    215.403-1(c)(3)--This text is amended to clarify that the 
determination as to whether a commercial item exception applies is made 
by the contracting officer.
    215.406-1--The reference to corresponding PGI text is revised to 
indicate that the PGI procedures are mandatory.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD certifies 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 the rule updates, clarifies, and relocates DFARS text, but 
makes no significant change to DoD contracting policy.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply, because the rule does 
not impose any 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 Parts 215, 230, 252, and 253

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR Parts 215, 230, 252, and 253 are amended as follows:
0
1. The authority citation for 48 CFR Parts 215, 230, 252, and 253 
continues to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 215--CONTRACTING BY NEGOTIATION

0
2. Section 215.403-1 is amended as follows:
0
a. By adding paragraph (c)(3);
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b. By redesignating paragraphs (c)(4)(A) and (B) as paragraphs 
(c)(4)(C) and (D) respectively; and
0
c. By adding new paragraphs (c)(4)(A) and (B) to read as follows:


215.403-1  Prohibition on obtaining cost or pricing data.

    (c) * * *
    (3) Commercial items. By November 30th of each year, departments 
and agencies shall provide a report to the Director, Defense 
Procurement and Acquisition Policy (DPAP), ATTN: DPAP/CPF, of all 
contracting officer determinations that commercial item exceptions 
apply under FAR 15.403-1(b)(3), during the previous fiscal year, for 
any contract, subcontract, or modification expected to have a value of 
$15,000,000 or more. See PGI 215.403-1(c)(3) for the format and 
guidance for the report. The Director, DPAP, will submit a consolidated 
report to the congressional defense committees.
    (4) * * *
    (A) The head of the contracting activity may, without power of 
delegation, apply the exceptional circumstances authority when a 
determination is made that--
    (1) The property or services cannot reasonably be obtained under 
the contract, subcontract, or modification, without the granting of the 
waiver;
    (2) The price can be determined to be fair and reasonable without 
the submission of certified cost or pricing data; and
    (3) There are demonstrated benefits to granting the waiver. See PGI 
215.403-1(c)(4)(A) for guidance applicable to waivers for part of a 
proposal and unpriced options.
    (B) By November 30th of each year, departments and agencies shall 
provide a report to the Director, DPAP, ATTN: DPAP/CPF, of all waivers 
granted under

[[Page 69494]]

FAR 15.403-1(b)(4), during the previous fiscal year, for any contract, 
subcontract, or modification expected to have a value of $15,000,000 or 
more. See PGI 215.403-1(c)(4)(B) for the format and guidance for the 
report. The Director, DPAP, will submit a consolidated report to the 
congressional defense committees.
* * * * *

0
3. Section 215.403-5 is revised to read as follows:


215.403-5  Instructions for submission of cost or pricing data or 
information other than cost or pricing data.

    When the solicitation requires contractor compliance with the 
Contractor Cost Data Reporting System, follow the procedures at PGI 
215.403-5.


215.404-1  [Amended]

0
4. Section 215.404-1 is amended by removing paragraph (d).
0
5. Sections 215.404-2 and 215.404-3 are revised to read as follows:


215.404-2  Information to support proposal analysis.

    See PGI 215.404-2 for guidance on obtaining field pricing or audit 
assistance.


215.404-3  Subcontract pricing considerations.

    Follow the procedures at PGI 215.404-3 when reviewing a 
subcontractor's proposal.

0
6. Section 215.404-4 is amended by revising paragraph (b)(1) 
introductory text to read as follows:


215.404-4  Profit.

    (b) * * *
    (1) Contracting officers shall use a structured approach for 
developing a prenegotiation profit or fee objective on any negotiated 
contract action when cost or pricing data is obtained, except for cost-
plus-award-fee contracts (see 215.404-74, 216.405-2, and FAR 16.405-2) 
or contracts with Federally Funded Research and Development Centers 
(FFRDCs) (see 215.404-75). There are three structured approaches--
* * * * *

0
7. Section 215.404-70 is revised to read as follows:


215.404-70  DD Form 1547, Record of Weighted Guidelines Method 
Application.

    Follow the procedures at PGI 215.404-70 for use of DD Form 1547 
whenever a structured approach to profit analysis is required.

0
8. Section 215.404-71-4 is amended as follows:
0
a. By redesignating paragraphs (b) through (d) as paragraphs (e) 
through (g) respectively;
0
b. By adding new paragraphs (b) through (d); and c. In newly designated 
paragraph (f), by removing ``These are the normal values and ranges. 
They apply to all situations.''. The added text reads as follows:


215.404-71-4  Facilities capital employed.

* * * * *
    (b) Contract facilities capital estimates. The contracting officer 
shall estimate the facilities capital cost of money and capital 
employed using--
    (1) An analysis of the appropriate Forms CASB-CMF and cost of money 
factors (48 CFR 9904.414 and FAR 31.205-10); and
    (2) DD Form 1861, Contract Facilities Capital Cost of Money.
    (c) Use of DD Form 1861. See PGI 215.404-71-4(c) for obtaining 
field pricing support for preparing DD Form 1861.
    (1) Purpose. The DD Form 1861 provides a means of linking the Form 
CASB-CMF and DD Form 1547, Record of Weighted Guidelines Application. 
It--
    (i) Enables the contracting officer to differentiate profit 
objectives for various types of assets (land, buildings, equipment). 
The procedure is similar to applying overhead rates to appropriate 
overhead allocation bases to determine contract overhead costs.
    (ii) Is designed to record and compute the contract facilities 
capital cost of money and capital employed which is carried forward to 
DD Form 1547.
    (2) Completion instructions. Complete a DD Form 1861 only after 
evaluating the contractor's cost proposal, establishing cost of money 
factors, and establishing a prenegotiation objective on cost. Complete 
the form as follows:
    (i) List overhead pools and direct-charging service centers (if 
used) in the same structure as they appear on the contractor's cost 
proposal and Form CASB-CMF. The structure and allocation base units-of-
measure must be compatible on all three displays.
    (ii) Extract appropriate contract overhead allocation base data, by 
year, from the evaluated cost breakdown or prenegotiation cost 
objective and list against each overhead pool and direct-charging 
service center.
    (iii) Multiply each allocation base by its corresponding cost of 
money factor to get the facilities capital cost of money estimated to 
be incurred each year. The sum of these products represents the 
estimated contract facilities capital cost of money for the year's 
effort.
    (iv) Total contract facilities cost of money is the sum of the 
yearly amounts.
    (v) Since the facilities capital cost of money factors reflect the 
applicable cost of money rate in Column 1 of Form CASB-CMF, divide the 
contract cost of money by that same rate to determine the contract 
facilities capital employed.
    (d) Preaward facilities capital applications. To establish cost and 
price objectives, apply the facilities capital cost of money and 
capital employed as follows:
    (1) Cost of Money. (i) Cost Objective. Use the imputed facilities 
capital cost of money, with normal, booked costs, to establish a cost 
objective or the target cost when structuring an incentive type 
contract. Do not adjust target costs established at the outset even 
though actual cost of money rates become available during the period of 
contract performance.
    (ii) Profit Objective. When measuring the contractor's effort for 
the purpose of establishing a prenegotiation profit objective, restrict 
the cost base to normal, booked costs. Do not include cost of money as 
part of the cost base.
    (2) Facilities Capital Employed. Assess and weight the profit 
objective for risk associated with facilities capital employed in 
accordance with the profit guidelines at 215.404-71-4.
* * * * *

0
9. Section 215.404-73 is amended by revising paragraph (b)(2)(i) to 
read as follows:


215.404-73  Alternate structured approaches.

* * * * *
    (b) * * *
    (2) * * *
    (i) The contracting officer shall reduce the overall prenegotiation 
profit objective by the amount of facilities capital cost of money 
under Cost Accounting Standard (CAS) 414, Cost of Money as an Element 
of the Cost of Facilities Capital (48 CFR 9904.414). Cost of money 
under CAS 417, Cost of Money as an Element of the Cost of Capital 
Assets Under Construction (48 CFR 9904.417), should not be used to 
reduce the overall prenegotiation profit objective. The profit amount 
in the negotiation summary of the DD Form 1547 must be net of the 
offset.
* * * * *

0
10. Section 215.404-76 is revised to read as follows:


215.404-76  Reporting profit and fee statistics.

    Follow the procedures at PGI 215.404-76 for reporting profit and 
fee statistics.

0
11. Sections 215.406-1 and 215.406-3 are revised to read as follows:

[[Page 69495]]

215.406-1  Prenegotiation objectives.

    Follow the procedures at PGI 215.406-1 for establishing 
prenegotiation objectives.


215.406-3  Documenting the negotiation.

    Follow the procedures at PGI 215.406-3 for documenting the 
negotiation.

0
12. Section 215.407-4 is revised to read as follows:


215.407-4  Should-cost review.

    See PGI 215.407-4 for guidance on determining whether to perform a 
program or overhead should-cost review.

0
13. Section 215.407-5-70 is amended by revising paragraphs (a)(1), 
(b)(1), (e), and (f) to read as follows:


215.407-5-70  Disclosure, maintenance, and review requirements.

    (a) * * *
    (1) Acceptable estimating system is defined in the clause at 
252.215-7002, Cost Estimating System Requirements.
* * * * *
    (b) * * *
    (1) DoD policy is that all contractors have acceptable estimating 
systems that consistently produce well-supported proposals that are 
acceptable as a basis for negotiation of fair and reasonable prices.
* * * * *
    (e) Review procedures. Follow the procedures at PGI 215.407-5-70(e) 
for establishing and conducting estimating system reviews.
    (f) Disposition of survey team findings. Follow the procedures at 
PGI 215.407-5-70(f) for disposition of the survey team findings.
* * * * *

0
14. Section 215.470 is amended by revising paragraph (b), removing 
paragraph (c), and redesignating paragraph (d) as paragraph (c). The 
revised text reads as follows:


215.470  Estimated data prices.

* * * * *
    (b) When data are required to be delivered under a contract, 
include DD Form 1423, Contract Data Requirements List, in the 
solicitation. See PGI 215.470(b) for guidance on the use of DD Form 
1423.
* * * * *

PART 230--COST ACCOUNTING STANDARDS ADMINISTRATION

0
15. Section 230.201-5 is revised to read as follows:


230.201-5  Waiver.

    (a)(1)(A) The military departments and the Director, Defense 
Procurement and Acquisition Policy, Office of the Under Secretary of 
Defense (Acquisition, Technology, and Logistics)--
    (1) May grant CAS waivers that meet the conditions in FAR 30.201-
5(b)(1); and
    (2) May grant CAS waivers that meet the conditions in FAR 30.201-
5(b)(2), provided the cognizant Federal agency official granting the 
waiver determines that--
    (i) The property or services cannot reasonably be obtained under 
the contract, subcontract, or modification, as applicable, without 
granting the waiver;
    (ii) The price can be determined to be fair and reasonable without 
the application of the Cost Accounting Standards; and
    (iii) There are demonstrated benefits to granting the waiver.
    (B) Follow the procedures at PGI 230.201-5(a)(1) for submitting 
waiver requests to the Director, Defense Procurement and Acquisition 
Policy.
    (2) The military departments shall not delegate CAS waiver 
authority below the individual responsible for issuing contracting 
policy for the department.
    (e) By November 30th of each year, the military departments shall 
provide a report to the Director, Defense Procurement and Acquisition 
Policy, ATTN: DPAP/CPF, of all waivers granted under FAR 30.201-5(a), 
during the previous fiscal year, for any contract, subcontract, or 
modification expected to have a value of $15,000,000 or more. See PGI 
230.201-5(e) for format and guidance for the report. The Director, 
Defense Procurement and Acquisition Policy, will submit a consolidated 
report to the CAS Board and the congressional defense committees.

Subparts 230.70 and 230.71 [Removed]

0
16. Subparts 230.70 and 230.71 are removed.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
17. Section 252.215-7002 is amended as follows:
0
a. By revising the clause date;
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b. In paragraph (a), by revising the paragraph heading and adding a 
definition of ``Acceptable estimating system''; and
0
c. By revising paragraph (b). The revised and added text reads as 
follows:


252.215-7002  Cost Estimating System Requirements.

* * * * *
COST ESTIMATING SYSTEM REQUIREMENTS (DEC 2006)
    (a) Definitions.
    Acceptable estimating system means an estimating system that--
    (1) Is maintained, reliable, and consistently applied;
    (2) Produces verifiable, supportable, and documented cost estimates 
that are an acceptable basis for negotiation of fair and reasonable 
prices;
    (3) Is consistent with and integrated with the Contractor's related 
management systems; and
    (4) Is subject to applicable financial control systems.
* * * * *
    (b) General. The Contractor shall establish, maintain, and comply 
with an acceptable estimating system.
* * * * *

PART 253--FORMS

0
18. Section 253.215-70 is revised to read as follows:


253.215-70  DD Form 1547, Record of Weighted Guidelines Application.

    Follow the procedures at PGI 253.215-70 for completing DD Form 
1547.

[FR Doc. E6-20396 Filed 11-30-06; 8:45 am]
BILLING CODE 5001-08-P