[Federal Register Volume 78, Number 40 (Thursday, February 28, 2013)]
[Proposed Rules]
[Pages 13606-13607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04353]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 231

RIN 0750-AH76


Defense Federal Acquisition Regulation Supplement; Unallowable 
Fringe Benefit Costs (DFARS Case 2012-D038)

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

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to explicitly state that fringe benefit 
costs incurred or estimated that are contrary to law, employer-employee 
agreement, or an established policy of the contractor are unallowable.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before April 29, 2013, to be considered 
in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2012-D038, 
using any of the following methods:
    Regulations.gov: http://www.regulations.gov. Submit comments via 
the Federal eRulemaking portal by inserting ``DFARS Case 2012-D038'' 
under the heading ``Enter keyword or ID'' and selecting ``Search.'' 
Select the link ``Submit a Comment'' that corresponds with ``DFARS Case 
2012-D038.'' Follow the instructions provided at the ``Submit a 
Comment'' screen. Please include your name, company name (if any), and 
``DFARS Case 2012-D038'' on your attached document. Follow the 
instructions for submitting comments.
    Email: [email protected]. Include DFARS Case 2012-D038 in the subject 
line of the message.
    Fax: 571-372-6094.
    Mail: Defense Acquisition Regulations System, Attn: Ms. Amy 
Williams, OUSD(AT&L)DPAP(DARS), Room 3B855, 3060 Defense Pentagon, 
Washington, DC 20301-3060.
    Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To 
confirm receipt of your comment(s), please check www.regulations.gov 
approximately two to three days after submission to verify posting 
(except allow 30 days for posting of comments submitted by mail).

[[Page 13607]]


FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, telephone 571-372-
6106.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS at 231.205-6 to implement the 
Director of Defense Pricing policy memo ``Unallowable Costs for 
Ineligible Dependent Health Care Benefits, dated February 17, 2012. The 
rule adds paragraph 231.205-6(m)(1) to explicitly state that fringe 
benefit costs incurred or estimated that are contrary to law, employer-
employee agreement, or an established policy of the contractor are 
unallowable.
    FAR 42.709, which implements 10 U.S.C. 2324(a) through (d) and 41 
U.S.C. 4303, covers the assessment of penalties against contractors 
that include unallowable indirect costs in final indirect cost rate 
proposals or the final statement of costs incurred or estimated to be 
incurred under a fixed-price incentive contract. The section applies to 
all contracts in excess of $700,000, except fixed-price contracts 
without cost incentives or firm-fixed-price contracts for the purchase 
of commercial items. FAR 42.709-1(a) provides penalties that apply if 
the indirect cost is expressly unallowable under a cost principle in 
the FAR, or an executive agency supplement to the FAR.
    FAR 31.205-6(m) states that the costs of fringe benefits (which 
include employee health care benefits) are allowable to the extent that 
they are reasonable and are required by law, employer-employee 
agreement, or an established policy of the contractor. Although fringe 
benefit costs that do not meet these criteria are not allowable, the 
FAR does not make them expressly unallowable. Specifying these fringe 
benefit costs as expressly unallowable in the DFARS makes it clear that 
the penalties at FAR 42.709-1 are applicable if a contractor includes 
such unallowable fringe benefit costs in a final indirect cost rate 
proposal or in the final statement of costs incurred or estimated to be 
incurred under a fixed-price incentive contract.

II. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

III. Regulatory Flexibility Act

    DoD has prepared an initial regulatory flexibility analysis 
consistent with 5 U.S.C. 603. A copy of the analysis may be obtained 
from the point of contact specified herein. The analysis is summarized 
as follows:
    DoD does not expect this proposed rule to 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 this rule will only impact entities that are submitting covered 
proposals containing unallowable indirect fringe benefit costs. FAR 
31.205-6(m) already states what fringe benefit costs are allowable. 
This rule provides explicit clarification that fringe benefit costs 
incurred or estimated that are contrary to law, employer-employee 
agreement, or an established policy of the contractor are unallowable. 
If this rule takes effect, the penalties at FAR 42.709-1 will apply to 
any entity that includes such unallowable indirect charges in a final 
indirect cost rate proposal or the final statement of costs incurred or 
estimated to be incurred under a fixed-price incentive contract for a 
contract that exceeds $700,000.
    At this time, DoD is unable to estimate the number of small 
entities to which this rule will apply. According to FPDS date for FY 
2012, there were approximately 3000 contract awards exceeding $700,000 
to small entities, excluding fixed-price contracts without cost 
incentives or any firm-fixed-price contract for the purchase of 
commercial items. We estimate that a very small percentage of the 
entities receiving these awards would be submitting covered proposals 
containing unallowable fringe benefit costs. DoD invites comments from 
small business concerns and other interested parties on the expected 
impact of this rule on small entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2012-D038) in 
correspondence.

IV. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 231.

    Government procurement.

Manuel Quinones,
Editor, Defense Acquisition Regulations System.

    Therefore, DoD proposes to amend 48 CFR parts 231 as follows:

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 231 continues to read as 
follows:

     Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

0
2. Section 231.205-6 is amended by adding paragraph (m)(1) to read as 
follows:


231.205-6  Compensation for personal services.

* * * * *
    (m)(1) Fringe benefit costs incurred or estimated that are contrary 
to law, employer-employee agreement, or an established policy of the 
contractor are unallowable.
[FR Doc. 2013-04353 Filed 2-27-13; 8:45 am]
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