[Federal Register Volume 73, Number 40 (Thursday, February 28, 2008)]
[Rules and Regulations]
[Pages 10965-10967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-3371]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 30 and 52

[FAC 2005-24; FAR Case 2005-027; Item V; Docket 2006-0020; Sequence 9]
RIN 9000-AK60


Federal Acquisition Regulation; FAR Case 2005-027, FAR Part 30-
CAS Administration

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to implement 
revisions to the regulations related to the administration of the Cost 
Accounting Standards (CAS).

DATES: Effective Date: March 31, 2008.

FOR FURTHER INFORMATION CONTACT: Mr. Edward Loeb, Procurement Analyst, 
at (202) 501-0650 for clarification of content. For information 
pertaining to status or publication schedules, contact the FAR 
Secretariat at (202) 501-4755. Please cite FAC 2005-24, FAR case 2005-
027.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 71 FR 58338, October 3, 2006 to make administrative 
corrections to FAR Part 30, ``CAS Administration,'' subsequent to the 
issuance of the final rule (FAR case 1999-025) at 70 FR 11743, March 9, 
2005. Among other changes, the Council's March 9, 2005 final rule 
streamlined the process for submitting, negotiating, and resolving cost 
impacts resulting from a change in cost accounting practice or 
noncompliance with stated practices. The Councils received public 
comments in response to the proposed rule. The Councils' responses to 
the public comments received in response to the proposed rule follow.

The Use of Auditors and Other Technical Advisors

    Comment: One commenter recommended elimination of the words ``as 
appropriate'' from FAR 30.601(c) since it would be imprudent for the 
CFAO not to request and consider the expert advice of the contract 
auditor in performing CAS administration. The commenter also 
recommended that the phrase be eliminated from FAR 1.602-2(c) for 
consistency.
    Response: Nonconcur. The Councils agree that it is generally 
prudent for the CFAO to consider the advice of auditors and other 
specialists in performing contract administration responsibilities. 
However, the Councils believe the CFAO is in the best position to 
determine the need for technical assistance on a particular issue, as 
well as the nature of the technical assistance required. Accordingly, 
it may not be necessary for the CFAO to obtain audit or technical 
advice in all cases in order to effectively and responsibly perform 
his/her duties. In those cases, requiring the CFAO to obtain such 
advice would infringe on the CFAO's authority and may unnecessarily 
delay the administration of contracts. Any revision to FAR 1.602-2(c) 
would be beyond the purview of this case.

Cost Impacts of CAS Noncompliances That Affect Both Cost Estimates and 
Cost Accumulations

    Comment: One commenter recommended that contractors be required to 
submit separate cost impacts when a single noncompliance affects both 
cost estimates and cost accumulations (one for the impact on cost 
estimating and another for the cost impact on cost accumulations). The 
commenter also recommended that those separate cost impacts be 
administered separately, rather than considered as a whole. The 
commenter opined that while ``it might be convenient for the contractor 
to combine the cost impacts, it could make it difficult for the 
Government to analyze the noncompliance(s) and to determine whether the 
cost impacts are material or not.''
    Response: Nonconcur. The Councils believe that the recommendation 
would not comply with paragraph (a)(5) of the clause at 48 CFR 
9903.201-4(a) and 48 CFR 9903.201-6 which require the Government to 
recover the increased costs in the aggregate of a noncompliance. These 
provisions are intended to ensure the Government's full recovery of any 
increased costs in the aggregate while also prohibiting the recovery of 
more than the increased costs in the aggregate. The recommendation 
would require the calculation and recovery of the impact on cost 
estimates separately and apart from the calculation and recovery of the 
impact on cost accumulations, when both are the result of a single 
noncompliance. The Councils believe that the separate consideration of 
the impacts on cost estimating and on cost accumulations may result in 
the Government's recovery of an amount which is either more or less 
than the cost impact in the aggregate of a particular noncompliance.
    As it is currently written, FAR 30.605(h) provides a systematic 
approach to the calculation of the increased or decreased costs in the 
aggregate of a noncompliance that affects both cost estimates and cost 
accumulations. Pursuant to FAR 30.605(h)(6), the cost impact of the 
cost estimating noncompliance (calculated in accordance with FAR 
30.605(h)(3)) is combined with the cost impact of the cost accumulation 
noncompliance (calculated in accordance with FAR 30.605(h)(4)) and the 
impact on profit and fee (calculated in accordance with FAR 
30.605(h)(5)), in order to arrive at the cost impact in the aggregate 
of a noncompliance that affects both cost estimates and cost 
accumulations. The Councils believe that this approach to determining 
the cost impact of a noncompliance affecting both cost estimates and 
cost accumulations complies with the CAS Board's Rules and Regulations.

Combining Cost Impacts of Multiple Unilateral Cost Accounting Practice 
Changes

    Comment: One commenter recommended that the combination of cost 
impacts resulting from unilateral cost accounting practice changes be 
permitted as prescribed in DoD CAS Working Group Paper 76-8, Interim 
Guidance on the Use of the Offset Principle in Contract Price 
Adjustments Resulting from Accounting Changes. The commenter 
``disagrees with the Councils' interpretation of the statute

[[Page 10966]]

and believes that current statutory language permits aggregation of the 
impact of a unilateral change affecting more than one cost accounting 
practice rather than prohibiting the combining of cost impacts for two 
or more unilateral changes'' and opined that the Councils' reading of 
41 U.S.C. 422(h)(1)(B) is ``overly narrow.''
    Response: Nonconcur. The Councils have previously considered the 
commenter's recommendation in the publication of their final rule 
amending FAR Part 30, effective April 8, 2005 at 70 FR 11743, March 9, 
2005. The Councils' comments in the discussion of Public Comments, Item 
35, follow:

    (c) Combining unilateral changes and/or noncompliances. When the 
individual cost-impact of each unilateral change and each 
noncompliance is increased costs in the aggregate, the Councils 
agree that the change and noncompliance may be combined for 
administrative ease in resolving cost-impacts, as indicated at FAR 
30.606(a)(3)(ii). Such combinations can only be made by mutual 
agreement of both parties.
    The Councils further believe that combining the cost-impacts of 
unilateral changes and/or noncompliances must be precluded if any of 
the individual changes or noncompliances involved results in 
decreased costs in the aggregate. When there are two or more 
unilateral changes/noncompliances, some with increased costs and 
others with decreased costs, combining the cost-impact of those 
changes does not comply with the statutory requirement that the 
Government recover the increased costs in the aggregate for each 
unilateral change/ noncompliance. There is no statutory provision 
that permits offsetting the cost-impact of one unilateral change/
noncompliance with the cost-impact of any other unilateral change/ 
noncompliance.

    As stated above, the Councils found that combining multiple cost 
impacts, where one or more of those cost impacts is decreased costs to 
the Government, does not comply with the CAS Board's requirement that 
the Government recover the increased costs in the aggregate for each 
unilateral change. The 1988 statute (41 U.S.C. 422(h)(3)) and 
subsequent revisions to 48 CFR 9903.201-4, both of which added the 
words ``in the aggregate'' in describing the amounts to be recovered as 
a result of a unilateral cost accounting practice change or 
noncompliance, effectively supersede Working Group Paper 76-8 and 
preclude the combination of the cost impacts of multiple unilateral 
cost accounting practice changes.
    The Councils agree with the commenter that the Councils have 
construed the CAS narrowly. The Councils believe that to do otherwise 
would be a violation of 41 U.S.C 422(f) since that statute provides 
that only the CAS Board may interpret their rules, regulations and 
standards. Accordingly, the Councils have an obligation to construe the 
CAS as narrowly as possible when promulgating regulations so as to 
refrain from interpreting the CAS Board's rules and regulations, and 
second guessing the CAS Board's intent.
    At its July 5, 2005 meeting, the CAS Board instructed its staff to 
establish a working group to evaluate whether revisions or 
interpretations to its rules and regulations are needed regarding the 
term ``increased costs in the aggregate'' and to consider how increased 
costs in the aggregate are to be computed when a contractor makes 
multiple accounting changes that take effect on the same date. After 
the CAS Board has considered these issues, the Councils may take 
additional actions to implement any changes to the CAS Board's rules 
and regulations.

Availability of Funds

    Comment: One commenter recommended that the provision at FAR 
30.603-2(b)(3)(iii) be deleted since the lack of available funds to pay 
any increased costs may compel CFAOs to deny virtually all requests 
that cost accounting practice changes be determined desirable.
    Response: Nonconcur. The Councils believe the consideration of 
funding availability at FAR 30.603-2(b)(3)(iii) is necessary to ensure 
that CFAOs act within their authority in obligating the Government and 
to avoid potential noncompliance with the requirements of the Anti-
Deficiency Act (31 U.S.C. 1341) in determining whether a contractor's 
cost accounting practice change is desirable. In instances where a 
CFAO's determination that a cost accounting practice change is 
desirable may obligate the Government to pay increased costs, it is 
incumbent upon the CFAO to ensure that funds are available on affected 
contracts to pay those increased costs.

Definition of ``Increased Costs''

    Comment: One commenter opined that the ``Councils have exceeded 
their authority by including in FAR Part 30 language that in essence 
defines `increased costs' by indicating what costs can and cannot be 
combined'' and that only the CAS Board has the authority to define the 
term.
    Response: Nonconcur. The Councils believe they have taken actions 
that are consistent with the CAS Board's definition of ``increased 
costs'' at 48 CFR 9903.306, and have not exceeded their authorities or 
redefined the term ``increased costs'' by their narrow application of 
the Board's Rules and Regulations, as asserted by the commenter. In 
accordance with their narrow reading of the CAS, the Councils believe 
that the CAS Board's consistent use of the terms ``a change'' and ``the 
change'' in describing cost accounting practice changes dictates that 
each such change, including the related cost impact, must be considered 
separately.
    As discussed in the comments above, the CAS Board is taking steps 
to determine whether or not additional rules and regulations are needed 
to clarify the meaning of the term ``increased costs in the 
aggregate.'' In the interim, the Councils have adopted regulations that 
reflect their understanding of the CAS Board's existing rules and 
regulations.
    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.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify 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 contracts and 
subcontracts awarded to small businesses are exempt from the Cost 
Accounting Standards.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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 Parts 30 and 52

    Government procurement.

    Dated: February 19, 2008.
Al Matera,
Director, Office of Acquisition Policy.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 30 and 52 as set forth 
below:
0
1. The authority citation for 48 CFR parts 30 and 52 continues to read 
as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 30--COST ACCOUNTING STANDARDS ADMINISTRATION

0
2. Amend section 30.001 by--

[[Page 10967]]


0
a. Removing from the definition ``Cognizant Federal agency official 
(CFAO)'' the word ``administer'' and adding ``administer the'' in its 
place;
0
b. Removing from the definition ``Desirable change'' the word 
``unilateral'' and adding ``compliant'' in its place; and
0
c. Revising paragraph (1) of the definition ``Required change'' to read 
as follows:


30.001  Definitions.

* * * * *
    Required change means--
    (1) A change in cost accounting practice that a contractor is 
required to make in order to comply with applicable Standards, 
modifications or interpretations thereto, that subsequently becomes 
applicable to an existing CAS-covered contract or subcontract due to 
the receipt of another CAS-covered contract or subcontract; or
* * * * *

0
3. Amend section 30.601 by removing from paragraph (b) ``52.230-6(b)'' 
and adding ``52.230-6(l), (m), and (n)'' in its place; and by adding 
paragraph (c) to read as follows:


30.601  Responsibility.

* * * * *
    (c) In performing CAS administration, the CFAO shall request and 
consider the advice of the auditor as appropriate (see 1.602-2).

0
4. Amend section 30.602 by revising paragraph (d) to read as follows:


30.602  Materiality.

* * * * *
    (d) For required, unilateral, and desirable changes, and CAS 
noncompliances, when the amount involved is material, the CFAO shall 
follow the applicable provisions in 30.603, 30.604, 30.605, and 30.606.

0
5. Amend section 30.604 by--
0
a. Removing from the introductory text of paragraphs (b) and (f) ``, 
with the assistance of the auditor,'';
0
b. Revising the introductory text of paragraph (g);
0
c. Revising paragraph (h)(4); and
0
d. Removing from paragraph (i)(1) ``With the assistance of the auditor, 
estimate'' and adding ``Estimate'' in its place.
    The revised text reads as follows:


30.604  Processing changes to disclosed or established cost accounting 
practices.

* * * * *
    (g) Detailed cost-impact proposal. If the contractor is required to 
submit a DCI proposal, the CFAO shall promptly evaluate the DCI 
proposal and follow the procedures at 30.606 to negotiate and resolve 
the cost impact. The DCI proposal--
* * * * *
    (h) * * *
    (4) For required or desirable changes, negotiate an equitable 
adjustment as provided in the Changes clause of the contract.
* * * * *

0
6. Amend section 30.605 by--
0
a. Removing from the introductory text of paragraph (c)(2) ``, with the 
assistance of the auditor,'';
0
b. Revising the introductory text of paragraph (f);
0
c. Removing from paragraph (h)(5) ``; and'' and adding ``;'' in it 
place; and
0
d. Redesignating paragraph (h)(6) as (h)(7) and adding a new paragraph 
(h)(6).
    The revised text reads as follows:


30.605  Processing noncompliances.

* * * * *
    (f) Detailed cost-impact proposal. If the contractor is required to 
submit a DCI proposal, the CFAO shall promptly evaluate the DCI 
proposal and follow the procedures at 30.606 to negotiate and resolve 
the cost impact. The DCI proposal--
* * * * *
    (h) * * *
    (6) Determine the cost impact of each noncompliance that affects 
both cost estimating and cost accumulation by combining the cost 
impacts in paragraphs (h)(3), (h)(4), and (h)(5) of this section; and
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
7. Amend section 52.230-6 by--
0
a. Revising the date of the clause; and
0
b. Amending paragraph (a) by--
0
i. In the definition ``Flexibly-priced contracts and subcontracts'' by 
revising paragraph (1); and
0
ii. In the definition ``Required change'' revising paragraph (1).
    The revised text reads as follows:


52.230-6  Administration of Cost Accounting Standards.

* * * * *

ADMINISTRATION OF COST ACCOUNTING STANDARDS (MAR 2008)

* * * * *
    (a) * * *
    Flexibly-priced contracts and subcontracts means--
    (1) Fixed-price contracts and subcontracts described at FAR 
16.203-1(a)(2), 16.204, 16.205, and 16.206;
* * * * *
    Required change means--
    (1) A change in cost accounting practice that a Contractor is 
required to make in order to comply with applicable Standards, 
modifications or interpretations thereto, that subsequently become 
applicable to existing CAS-covered contracts or subcontracts due to 
the receipt of another CAS-covered contract or subcontract; or
* * * * *

(End of clause)

 [FR Doc. E8-3371 Filed 2-27-08; 8:45 am]
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