[Federal Register Volume 72, Number 113 (Wednesday, June 13, 2007)]
[Rules and Regulations]
[Pages 32546-32549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-11325]


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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

48 CFR Part 9903


Cost Accounting Standards Board (CAS); Applicability of Cost 
Accounting Standards Coverage

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

ACTION: Final rule.

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SUMMARY: The Office of Federal Procurement Policy, Cost Accounting 
Standards (CAS) Board, has adopted, without change from the interim 
rule, a final rule revising the criteria applicable to United Kingdom 
(UK) contractors for filing a Disclosure Statement, Form No. CASB DS-1. 
This rulemaking is authorized pursuant to Section 26 of the Office of 
Federal Procurement Policy Act.

EFFECTIVE DATE: June 13, 2007.

FOR FURTHER INFORMATION CONTACT: Laura Auletta, Manager, Cost 
Accounting Standards Board, 725 17th Street, NW., Room 9013, 
Washington, DC 20503 (telephone: 202-395-3256).

SUPPLEMENTARY INFORMATION: 

A. Background

    On May 23, 2005, the Cost Accounting Standards Board published an 
interim rule with request for comment (70 FR 29457) for the purpose of 
revising the criteria applicable to United Kingdom (UK) contractors for 
filing a Disclosure Statement, Form No. CASB DS-1. The interim rule was 
adopted in order to comply with a specific request by the UK Ministry 
of Defence (MOD) to simplify the compliance process with CAS Board 
disclosure requirements for UK contractors.
    Unlike certain other foreign contractors, UK contractors have been 
required to file a CASB DS-1 in accordance with CAS regulations. The 
MOD initially approached the Board with a request that UK contractors 
be permitted to use the corresponding UK form ``Questionnaire on Method 
of Allocation of Costs'' (QMAC), in lieu of the CASB DS-1. After a 
review of the content of the QMAC, the UK and U.S. representatives 
agreed that it did not have the same scope as the CASB DS-1. Therefore, 
it was agreed that to cover the gap in the coverage a ``Supplemental 
QMAC'' was needed.
    Based upon the Board's approval of a Supplemental QMAC that is 
acceptable to the MOD, the MOD requested that the CAS Board allow UK 
contractors to submit their basic QMAC, together with the Supplemental 
QMAC, in lieu of the DS-1. At its meeting on February 23, 2005, the 
Board agreed to change the CAS requirements so that UK contractors with 
CAS-covered contracts may file the UK QMAC together with its Supplement 
in lieu of the CASB DS-1 required of U.S. contractors. In conjunction 
with this change, the Board also agreed to eliminate the specific 
paragraph addressing UK contractors at 9903.201-1(b)(12). As a result, 
UK contractors are subject to the requirements of 9903.201-1(b)(4), 
i.e., contracts and subcontracts with UK contractors are exempt from 
CAS ``insofar as the requirements of CAS other than 9904.401 and 
9904.402 are concerned.'' The May, 2005 interim rule reflected these 
Board approved revisions.

B. Public Comments

    The Board received one set of public comments in response to the 
Interim Rule.

1. CAS Coverage for UK Contractors

    Comment: The commenter requested confirmation that the rule 
requires that UK contractors comply only with CAS 401 and 402.
    Response: The language in the final rule requires that all UK 
contractors performing U.S. Government contracts and not otherwise 
exempt under 48 CFR

[[Page 32547]]

9903.201-1 will be required to comply only with CAS 401 and 402 in 
accordance with 48 CFR 9903.201-1(b)(4).

2. Extent of Disclosure Requirement

    Comment: The commenter expressed concern that UK contractors are 
subject to more extensive disclosure requirements than other countries 
listed in 48 CFR 9903.201-4(e) by virtue of the QMAC Supplement.
    Response: The Board believes that the disclosure requirements for 
UK contractors provide the information necessary for the UK MOD to 
determine whether such contractors are complying with the provisions of 
CAS 401 and 402. The MOD initially requested that its contractors be 
permitted to file only the QMAC. However, as described in the 
Background section above, the Board determined that the QMAC, by 
itself, did not provide sufficient information about the accounting 
practices of UK contractors. Therefore, working jointly with the MOD, 
the QMAC supplement was developed to minimize duplicate disclosures 
while providing the additional information needed to cover the gap 
between the QMAC and CASB DS-1.

C. 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.

D. Executive Order 12866 and the Regulatory Flexibility Act

    The Board certifies that this rule will not have a significant 
effect on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5. U.S.C. 601, et seq., because small 
businesses are exempt from the application of the Cost Accounting 
Standards.

List of Subjects in 48 CFR Part 9903

    Accounting, Government procurement.

Paul A. Denett,
Administrator, Office of Federal Procurement Policy.

0
For the reasons set forth in this preamble, Chapter 99 of title 48 of 
the Code of Federal Regulations is amended as set forth below. Please 
note that, in publishing the interim rule, the Code of Federal 
Regulations inadvertently removed and reserved paragraph (d) of the 
first clause under Section 9903.201-4 entitled ``Cost Accounting 
Standards (June 2000)'' instead of paragraph (d) of the section. This 
final rule corrects that error and, for clarity, restates the section 
in its entirety. Therefore, the interim final rule published at 70 FR 
29457, May 23, 2005, is adopted as final with the following changes.

PART 9903--CONTRACT COVERAGE

0
1. The authority citation for part 9903 continues to read as follows:

     Authority: Pub. L. 100-679, 102 Stat. 4056, 41 U.S.C. 422.

Subpart 9903.2--CAS Program Requirements

0
2. Section 9903.201-4 is revised to read as follows:


9903.201-4  Contract clauses.

    (a) Cost Accounting Standards. (1) The contracting officer shall 
insert the clause set forth below, Cost Accounting Standards, in 
negotiated contracts, unless the contract is exempted (see 9903.201-1), 
the contract is subject to modified coverage (see 9903.201-2), or the 
clause prescribed in paragraph (e) of this section is used.
    (2) The clause below requires the contractor to comply with all CAS 
specified in part 9904, to disclose actual cost accounting practices 
(applicable to CAS-covered contracts only), and to follow disclosed and 
established cost accounting practices consistently.

Cost Accounting Standards (June 2000)

    (a) Unless the contract is exempt under 9903.201-1 and 9903.201-
2, the provisions of 9903 are incorporated herein by reference and 
the Contractor in connection with this contract, shall--
    (1) (CAS-covered Contracts Only) By submission of a Disclosure 
Statement, disclosed in writing the Contractor's cost accounting 
practices as required by 9903.202-1 through 9903.202-5 including 
methods of distinguishing direct costs from indirect costs and the 
basis used for allocating indirect costs. The practices disclosed 
for this contract shall be the same as the practices currently 
disclosed and applied on all other contracts and subcontracts being 
performed by the Contractor and which contain a Cost Accounting 
Standards (CAS) clause. If the Contractor has notified the 
Contracting Officer that the Disclosure Statement contains trade 
secrets, and commercial or financial information which is privileged 
and confidential, the Disclosure Statement shall be protected and 
shall not be released outside of the Government.
    (2) Follow consistently the Contractor's cost accounting 
practices in accumulating and reporting contract performance cost 
data concerning this contract. If any change in cost accounting 
practices is made for the purposes of any contract or subcontract 
subject to CAS requirements, the change must be applied 
prospectively to this contract and the Disclosure Statement must be 
amended accordingly. If the contract price or cost allowance of this 
contract is affected by such changes, adjustment shall be made in 
accordance with subparagraph (a)(4) or (a)(5) of this clause, as 
appropriate.
    (3) Comply with all CAS, including any modifications and 
interpretations indicated thereto contained in part 9904, in effect 
on the date of award of this contract or, if the Contractor has 
submitted cost or pricing data, on the date of final agreement on 
price as shown on the Contractor's signed certificate of current 
cost or pricing data. The Contractor shall also comply with any CAS 
(or modifications to CAS) which hereafter become applicable to a 
contract or subcontract of the Contractor. Such compliance shall be 
required prospectively from the date of applicability of such 
contract or subcontract.
    (4)(i) Agree to an equitable adjustment as provided in the 
Changes clause of this contract if the contract cost is affected by 
a change which, pursuant to subparagraph (a)(3) of this clause, the 
Contractor is required to make to the Contractor's established cost 
accounting practices.
    (ii) Negotiate with the Contracting Officer to determine the 
terms and conditions under which a change may be made to a cost 
accounting practice, other than a change made under other provisions 
of subparagraph (a)(4) of this clause; provided that no agreement 
may be made under this provision that will increase costs paid by 
the United States.
    (iii) When the parties agree to a change to a cost accounting 
practice, other than a change under subdivision (a)(4)(i) of this 
clause, negotiate an equitable adjustment as provided in the Changes 
clause of this contract.
    (5) Agree to an adjustment of the contract price or cost 
allowance, as appropriate, if the Contractor or a subcontractor 
fails to comply with an applicable Cost Accounting Standard, or to 
follow any cost accounting practice consistently and such failure 
results in any increased costs paid by the United States. Such 
adjustment shall provide for recovery of the increased costs to the 
United States, together with interest thereon computed at the annual 
rate established under section 6621(a)(2) of the Internal Revenue 
Code of 1986 (26 U.S.C. 6621(a)(2)) for such period, from the time 
the payment by the United States was made to the time the adjustment 
is effected. In no case shall the Government recover costs greater 
than the increased cost to the Government, in the aggregate, on the 
relevant contracts subject to the price adjustment, unless the 
Contractor made a change in its cost accounting practices of which 
it was aware or should have been aware at the time of price 
negotiations and which it failed to disclose to the Government.
    (b) If the parties fail to agree whether the Contractor or a 
subcontractor has complied with an applicable CAS in part 9904 or a 
CAS rule or regulation in part 9903 and as to any cost adjustment 
demanded by the United States, such failure to agree will

[[Page 32548]]

constitute a dispute under the Contract Disputes Act (41 U.S.C. 
601).
    (c) The Contractor shall permit any authorized representatives 
of the Government to examine and make copies of any documents, 
papers, or records relating to compliance with the requirements of 
this clause.
    (d) The contractor shall include in all negotiated subcontracts 
which the Contractor enters into, the substance of this clause, 
except paragraph (b), and shall require such inclusion in all other 
subcontracts, of any tier, including the obligation to comply with 
all CAS in effect on the subcontractor's award date or if the 
subcontractor has submitted cost or pricing data, on the date of 
final agreement on price as shown on the subcontractor's signed 
Certificate of Current Cost or Pricing Data. If the subcontract is 
awarded to a business unit which pursuant to 9903.201-2 is subject 
to other types of CAS coverage, the substance of the applicable 
clause set forth in 9903.201-4 shall be inserted. This requirement 
shall apply only to negotiated subcontracts in excess of $500,000, 
except that the requirement shall not apply to negotiated 
subcontracts otherwise exempt from the requirement to include a CAS 
clause as specified in 9903.201-1.


(End of clause)

    (b) [Reserved].
    (c) Disclosure and Consistency of Cost Accounting Practices. (1) 
The contracting officer shall insert the clause set forth below, 
Disclosure and Consistency of Cost Accounting Practices, in negotiated 
contracts when the contract amount is over $500,000 but less than $50 
million, and the offeror certifies it is eligible for and elects to use 
modified CAS coverage (see 9903.201-2, unless the clause prescribed in 
paragraph (d) of this subsection is used).
    (2) The clause below requires the contractor to comply with CAS 
9904.401, 9904.402, 9904.405, and 9904.406, to disclose (if it meets 
certain requirements) actual cost accounting practices, and to follow 
consistently disclosed and established cost accounting practices.

Disclosure and Consistency of Cost Accounting Practices (June 2000)

    (a) The Contractor, in connection with this contract, shall--
    (1) Comply with the requirements of 9904.401, Consistency in 
Estimating, Accumulating, and Reporting Costs; 9904.402, Consistency 
in Allocating Costs Incurred for the Same Purpose; 9904.405, 
Accounting for Unallowable Costs; and 9904.406, Cost Accounting 
Standard--Cost Accounting Period, in effect on the date of award of 
this contract, as indicated in part 9904.
    (2) (CAS-covered Contracts Only) If it is a business unit of a 
company required to submit a Disclosure Statement, disclose in 
writing its cost accounting practices as required by 9903.202-1 
through 9903.202-5. If the Contractor has notified the Contracting 
Officer that the Disclosure Statement contains trade secrets and 
commercial or financial information which is privileged and 
confidential, the Disclosure Statement shall be protected and shall 
not be released outside of the Government.
    (3)(i) Follow consistently the Contractor's cost accounting 
practices. A change to such practices may be proposed, however, by 
either the Government or the Contractor, and the Contractor agrees 
to negotiate with the Contracting Officer the terms and conditions 
under which a change may be made. After the terms and conditions 
under which the change is to be made have been agreed to, the change 
must be applied prospectively to this contract, and the Disclosure 
Statement, if affected, must be amended accordingly.
    (ii) The Contractor shall, when the parties agree to a change to 
a cost accounting practice and the Contracting Officer has made the 
finding required in 9903.201-6(c) that the change is desirable and 
not detrimental to the interests of the Government, negotiate an 
equitable adjustment as provided in the Changes clause of this 
contract. In the absence of the required finding, no agreement may 
be made under this contract clause that will increase costs paid by 
the United States.
    (4) Agree to an adjustment of the contract price or cost 
allowance, as appropriate, if the Contractor or a subcontractor 
fails to comply with the applicable CAS or to follow any cost 
accounting practice, and such failure results in any increased costs 
paid by the United States. Such adjustment shall provide for 
recovery of the increased costs to the United States, together with 
interest thereon computed at the annual rate established under 
section 6621(a)(2) of the Internal Revenue Code of 1986 (26 U.S.C. 
6621(a)(2)) for such period, from the time the payment by the United 
States was made to the time the adjustment is effected.
    (b) If the parties fail to agree whether the Contractor has 
complied with an applicable CAS rule, or regulation as specified in 
parts 9903 and 9904 and as to any cost adjustment demanded by the 
United States, such failure to agree will constitute a dispute under 
the Contract Disputes Act (41 U.S.C. 601).
    (c) The Contractor shall permit any authorized representatives 
of the Government to examine and make copies of any documents, 
papers, and records relating to compliance with the requirements of 
this clause.
    (d) The Contractor shall include in all negotiated subcontracts, 
which the Contractor enters into, the substance of this clause, 
except paragraph (b), and shall require such inclusion in all other 
subcontracts of any tier, except that--
    (1) If the subcontract is awarded to a business unit which 
pursuant to 9903.201-2 is subject to other types of CAS coverage, 
the substance of the applicable clause set forth in 9903.201-4 shall 
be inserted.
    (2) This requirement shall apply only to negotiated subcontracts 
in excess of $500,000.
    (3) The requirement shall not apply to negotiated subcontracts 
otherwise exempt from the requirement to include a CAS clause as 
specified in 9903.201-1.


(End of clause)

    (d) [Reserved].
    (e) Cost Accounting Standards--Educational Institutions. (1) The 
contracting officer shall insert the clause set forth below, Cost 
Accounting Standards--Educational Institution, in negotiated contracts 
awarded to educational institutions, unless the contract is exempted 
(see 9903.201-1), the contract is to be performed by an FFRDC (see 
9903.201-2(c)(5)), or the provision at 9903.201-2(c)(6) applies.
    (2) The clause below requires the educational institution to comply 
with all CAS specified in part 9905, to disclose actual cost accounting 
practices as required by 9903.202-1(f), and to follow disclosed and 
established cost accounting practices consistently.

Cost Accounting Standards--Educational Institutions (June 2000)

    (a) Unless the contract is exempt under 9903.201-1 and 9903.201-
2, the provisions of part 9903 are incorporated herein by reference 
and the Contractor in connection with this contract, shall--
    (1) (CAS-covered Contracts Only) If a business unit of an 
educational institution required to submit a Disclosure Statement, 
disclose in writing the Contractor's cost accounting practices as 
required by 9903.202-1 through 9903.202-5 including methods of 
distinguishing direct costs from indirect costs and the basis used 
for accumulating and allocating indirect costs. The practices 
disclosed for this contract shall be the same as the practices 
currently disclosed and applied on all other contracts and 
subcontracts being performed by the Contractor and which contain a 
Cost Accounting Standards (CAS) clause. If the Contractor has 
notified the Contracting Officer that the Disclosure Statement 
contains trade secrets, and commercial or financial information 
which is privileged and confidential, the Disclosure Statement shall 
be protected and shall not be released outside of the Government.
    (2) Follow consistently the Contractor's cost accounting 
practices in accumulating and reporting contract performance cost 
data concerning this contract. If any change in cost accounting 
practices is made for the purposes of any contract or subcontract 
subject to CAS requirements, the change must be applied 
prospectively to this contract and the Disclosure Statement, if 
required, must be amended accordingly. If an accounting principle 
change mandated under Office of Management and Budget (OMB) Circular 
A-21, Cost Principles for Educational Institutions, requires that a 
change in the Contractor's cost accounting practices be made after 
the date of this contract award, the change must be applied 
prospectively to this contract and the Disclosure Statement, if 
required, must be amended accordingly. If the contract price or cost 
allowance of this contract is affected by

[[Page 32549]]

such changes, adjustment shall be made in accordance with 
subparagraph (a)(4) or (a)(5) of this clause, as appropriate.
    (3) Comply with all CAS, including any modifications and 
interpretations indicated thereto contained in 48 CFR part 9905, in 
effect on the date of award of this contract or, if the Contractor 
has submitted cost or pricing data, on the date of final agreement 
on price as shown on the Contractor's signed certificate of current 
cost or pricing data. The Contractor shall also comply with any CAS 
(or modifications to CAS) which hereafter become applicable to a 
contract or subcontract of the Contractor. Such compliance shall be 
required prospectively from the date of applicability to such 
contract or subcontract.
    (4)(i) Agree to an equitable adjustment as provided in the 
Changes clause of this contract if the contract cost is affected by 
a change which, pursuant to subparagraph (a)(3) of this clause, the 
Contractor is required to make to the Contractor's established cost 
accounting practices.
    (ii) Negotiate with the Contracting Officer to determine the 
terms and conditions under which a change may be made to a cost 
accounting practice, other than a change made under other provisions 
of subparagraph (a)(4) of this clause; provided that no agreement 
may be made under this provision that will increase costs paid by 
the United States.
    (iii) When the parties agree to a change to a cost accounting 
practice, other than a change under subdivision (a)(4)(i) or 
(a)(4)(iv) of this clause, negotiate an equitable adjustment as 
provided in the Changes clause of this contract.
    (iv) Agree to an equitable adjustment as provided in the Changes 
clause of this contract, if the contract cost is materially affected 
by an OMB Circular A-21 accounting principle amendment which, on 
becoming effective after the date of contract award, requires the 
Contractor to make a change to the Contractor's established cost 
accounting practices.
    (5) Agree to an adjustment of the contract price or cost 
allowance, as appropriate, if the Contractor or a subcontractor 
fails to comply with an applicable Cost Accounting Standard, or to 
follow any cost accounting practice consistently and such failure 
results in any increased costs paid by the United States. Such 
adjustment shall provide for recovery of the increased costs to the 
United States, together with interest thereon computed at the annual 
rate established under section 6621(a)(2) of the Internal Revenue 
Code of 1986 (26 U.S.C. 6621(a)(2)) for such period, from the time 
the payment by the United States was made to the time the adjustment 
is effected. In no case shall the Government recover costs greater 
than the increased cost to the Government, in the aggregate, on the 
relevant contracts subject to the price adjustment, unless the 
Contractor made a change in its cost accounting practices of which 
it was aware or should have been aware at the time of price 
negotiations and which it failed to disclose to the Government.
    (b) If the parties fail to agree whether the Contractor or a 
subcontractor has complied with an applicable CAS or a CAS rule or 
regulation in 9903 and as to any cost adjustment demanded by the 
United States, such failure to agree will constitute a dispute under 
the Contract Disputes Act (41 U.S.C. 601).
    (c) The Contractor shall permit any authorized representatives 
of the Government to examine and make copies of any documents, 
papers, or records relating to compliance with the requirements of 
this clause.
    (d) The Contractor shall include in all negotiated subcontracts 
which the Contractor enters into, the substance of this clause, 
except paragraph (b), and shall require such inclusion in all other 
subcontracts, of any tier, including the obligation to comply with 
all applicable CAS in effect on the subcontractor's award date or if 
the subcontractor has submitted cost or pricing data, on the date of 
final agreement on price as shown on the subcontractor's signed 
Certificate of Current Cost or Pricing Data, except that--
    (1) If the subcontract is awarded to a business unit which 
pursuant to 9903.201-2 is subject to other types of CAS coverage, 
the substance of the applicable clause set forth in 9903.201-4 shall 
be inserted; and
    (2) This requirement shall apply only to negotiated subcontracts 
in excess of $500,000.
    (3) The requirement shall not apply to negotiated subcontracts 
otherwise exempt from the requirement to include a CAS clause as 
specified in 9903.201-1.


(End of clause)

[FR Doc. E7-11325 Filed 6-12-07; 8:45 am]
BILLING CODE 3110-01-P