[Federal Register Volume 78, Number 123 (Wednesday, June 26, 2013)]
[Rules and Regulations]
[Pages 38535-38537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15212]



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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 31 and 52

[FAC 2005-68; FAR Case 2012-017; Docket 2012-0017, Sequence 1]
RIN 9000-AM38


Federal Acquisition Regulation; Expansion of Applicability of the 
Senior Executive Compensation Benchmark

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

ACTION: Interim rule.

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SUMMARY: DoD, GSA, and NASA are issuing an interim rule amending the 
Federal Acquisition Regulation (FAR) to implement section 803 of the 
National Defense Authorization Act for Fiscal Year 2012. In accordance 
with section 803, the interim rule expands the application to a broader 
group of contractor employees on contracts awarded by DoD, NASA, and 
the Coast Guard of the senior executive compensation benchmark amount 
which limits the reimbursement of compensation costs. This interim rule 
applies section 803 prospectively to contracts awarded on or after (but 
not before) the date of enactment of section 803 (which was December 
31, 2011), to the contractor compensation costs incurred after January 
1, 2012. In addition, also as part of the implementation in the FAR of 
section 803, DoD, GSA and NASA are separately issuing a proposed rule 
(FAR Case 2012-025) that addresses the retroactive application of 
section 803 to contractor compensation costs incurred after January 1, 
2012, under contracts that had been awarded before December 31, 2011.

DATES: Effective Date: June 26, 2013.
    Comment Date: Interested parties should submit written comments to 
the Regulatory Secretariat on or before August 26, 2013 to be 
considered in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAC 2005-68, FAR Case 2012-
017, by any of the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2012-017''. Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2012-017.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2012-017'' on your attached document.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Hada Flowers, 1800 F Street, NW., 2nd Floor, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAC 2005-68, FAR 
Case 2012-017, in all correspondence related to this case. All comments 
received will be posted without change to http://www.regulations.gov, 
including any personal and/or business confidential information 
provided.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at 202-501-3221, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-68, FAR Case 2012-
017.

SUPPLEMENTARY INFORMATION: 

I. Background

    The National Defense Authorization Act for Fiscal Year 2012 (Pub. 
L. 112-81) was signed into law and effective on December 31, 2011. 
Section 803 of the law amended the standards for determining the 
individuals affected by the senior executive compensation benchmark 
amount. Specifically, section 803 expanded the applicability (reach) of 
the existing executive compensation cap so that in the case of DoD, 
NASA, and Coast Guard contracts the compensation cap would apply to all 
employees of a contractor (instead of just the ``five most highly 
compensated'' employees in management positions at each home office and 
each segment of the contractor).
    In section 803(c)(2), Congress stated that the expanded reach of 
the compensation cap ``shall apply with respect to costs of 
compensation incurred after January 1, 2012, under contracts entered 
into before, on, or after the date of the enactment of this Act'' 
(which was December 31, 2011). In addition, Congress in section 
803(c)(1) stated that the amendments in section 803 shall be 
implemented in the FAR. In accordance with section 803(c)(1), DoD, GSA, 
and NASA are implementing section 803 in the FAR through the issuance 
of this interim rule and a separate proposed rule.
    This interim rule amends FAR 31.205-6(p) to require that the 
incurred compensation costs for all contractor employees on all DoD, 
NASA, and Coast Guard contracts awarded on or after December 31, 2011, 
be subject to the senior executive compensation amount. The reference 
to 31.205-6(p) in FAR 52.216-7 is also updated to reflect this revision 
in 31.205-6(p).
    DoD will separately handle the implementation of authority provided 
by 10 U.S.C. 2324(e)(1)(P), as amended by section 803(a), in which 
Congress has authorized the Secretary of Defense to establish ``one or 
more narrowly targeted exceptions for scientists and engineers upon a 
determination that such exceptions are needed to ensure that the 
Department of Defense has continued access to needed skills and 
capabilities.''
    As noted above, section 803(c)(2) states that the amendments made 
by section 803 ``shall apply with respect to costs of compensation 
incurred after January 1, 2012, under contracts entered into before, 
on, or after the date of the enactment of this Act,'' which was 
December 31, 2011. There are challenges with respect to the retroactive 
application of section 803 (i.e., to the application of section 803 to 
contracts awarded before the enactment of section 803). The 
implementation of section 803 is similar to the implementation of 
section 808 of the National Defense Authorization Act for Fiscal Year 
1998 (Pub. L. 105-85, November 18, 1997), which imposed a cap on 
Government contractor's allowable costs of ``senior executive'' 
compensation. Section 808, like section 803, retroactively applied to 
contracts that already existed on the date of its enactment; both 
statutes contain text which applied the statute to contracts awarded 
before, on, or after the date of enactment of the underlying act. In 
litigation on the application of section 808 to contracts awarded 
before the date of the enactment of the statute, the courts held that 
section 808 breached contracts awarded before the statutory date of 
enactment (General Dynamics Corp. v. U.S., 47 Fed. Cl. 514 (2000); and 
ATK Launch Systems, Inc., ASBCA 55395, 2009-1 BCA ] 34118 (2009)).
    For these reasons, DoD, GSA, and NASA are implementing section 803 
with both an interim rule and a proposed rule. This interim rule 
addresses only the prospective application of section 803, i.e., to 
contracts awarded on or after its enactment (December 31, 2011). The 
separate proposed rule (FAR Case 2012-025) addresses the retroactive 
application of section 803 to contracts that had been awarded before 
its enactment. In other words, under this

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bifurcated approach, DoD, GSA, and NASA are implementing section 803 
through this interim rule for contracts awarded on or after the date of 
enactment (December 31, 2011) and, at the same time, DoD, GSA, and NASA 
are addressing in the proposed rule the retroactive application of 
section 803. DoD, GSA, and NASA seek public comments on both the 
interim and proposed rules (and, on the proposed rule, especially with 
respect to the potential complexities associated with applying section 
803 to contracts that had been awarded before the date of its 
enactment).

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. 
This is a significant regulatory action and, therefore, was 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, GSA, and NASA do not expect this interim 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. However, an initial regulatory flexibility analysis (IRFA) has 
been prepared consistent with 5 U.S.C. 603, and is summarized as 
follows:

    An analysis of data in the Federal Procurement Data System 
(FPDS) revealed that most contracts awarded to small entities use 
simplified acquisition procedures or are awarded on a competitive, 
fixed-price basis, and do not require application of the cost 
principle contained in this rule. Furthermore, it is not expected 
that a substantial number of small entities will have any employees, 
other than possibly among the ``five most highly compensated'' 
management employees at each home office and each segment of the 
contractor, whose compensation costs exceed the executive 
compensation benchmark. The current benchmark amount is $763,029, 
for costs incurred after January 1, 2011 (77 FR 24226, April 23, 
2012). However, at this time an estimate of the number of small 
entities whose reimbursement for the compensation costs of their 
contractor employees will be limited by this rule is not available.
    The interim rule imposes no reporting, recordkeeping, or other 
information collection requirements. The rule does not duplicate, 
overlap, or conflict with any other Federal rules, and there are no 
known significant alternatives to the rule.

    The Regulatory Secretariat has submitted a copy of the IRFA to the 
Chief Counsel for Advocacy of the Small Business Administration. A copy 
of the IRFA may be obtained from the Regulatory Secretariat. DoD, GSA, 
and NASA invite comments from small business concerns and other 
interested parties on the expected impact of this rule on small 
entities.
    DoD, GSA, and NASA 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 (FAC 2005-68, FAR Case 
2012-017) in correspondence.

IV. Paperwork Reduction Act

    The interim 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).

V. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary because section 803 of Pub. L. 112-81, signed into law on 
December 31, 2011, required it to be implemented in the FAR within 180 
days of enactment. This statute expands the existing executive 
compensation cap so that it would apply to all employees of a 
contractor instead of just the ``five most highly compensated'' 
management employees at each home office and each segment of the 
contractor for DoD, NASA, and Coast Guard contracts. Therefore, issuing 
an interim rule that is effective upon publication, prior to the 
receipt of public comment will allow agencies to immediately implement 
the requirements of this law. Pursuant to 41 U.S.C. 1707 and FAR 1.501-
3(b), DoD, GSA, and NASA will consider public comments received in 
response to this interim rule in the formation of the final rule.

List of Subjects in 48 CFR Parts 31 and 52

    Government procurement.

    Dated: June 10, 2013.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 31 and 52 as set 
forth below:

0
1. The authority citation for 48 CFR parts 31 and 52 continues to read 
as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20115.

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
2. Amend section 31.205-6 by revising paragraph (p) to read as follows:


31.205-6  Compensation for personal services.

* * * * *
    (p) Limitation on allowability of compensation for certain 
contractor personnel. (1) Senior executive compensation limit. (i) 
Applicability. This paragraph (p)(1) applies to the following:
    (A) To all executive agencies, other than DoD, NASA and the Coast 
Guard, for contracts awarded before, on, or after December 31, 2011;
    (B) To DoD, NASA, and the Coast Guard for contracts awarded before 
December 31, 2011;
    (ii) Costs incurred after January 1, 1998. For costs incurred after 
January 1, 1998, for the compensation of a senior executive in excess 
of the benchmark compensation amount determined applicable for the 
contractor fiscal year by the Administrator, Office of Federal 
Procurement Policy (OFPP), under 41 U.S.C. 1127 are unallowable (10 
U.S.C. 2324(e)(1)(P) and 41 U.S.C. 4304(a)(16)). This limitation is the 
sole statutory limitation on allowable senior executive compensation 
costs incurred after January 1, 1998, under new or previously existing 
contracts. This limitation applies whether or not the affected 
contracts were previously subject to a statutory limitation on such 
costs. (Note that pursuant to section 804 of Pub. L. 105-261, the 
definition of ``senior executive'' in (p)(3) has been changed for 
compensation costs incurred after January 1, 1999.) (2) All employee 
compensation limit. (i) Applicability. This paragraph (p)(2) applies to 
DoD, NASA, and the Coast Guard for contracts awarded on or after 
December 31, 2011;

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    (ii) Costs incurred after January 1, 1998. For costs incurred after 
January 1, 1998, for the compensation of any contractor employee in 
excess of the benchmark compensation amount, determined applicable for 
the contractor fiscal year by the Administrator, Office of Federal 
Procurement Policy (OFPP) under 41 U.S.C. 1127 are unallowable (10 
U.S.C. 2324(e)(1)(P)).
    (3) Definitions. As used in this paragraph (p)--
    (i) Compensation means the total amount of wages, salary, bonuses, 
deferred compensation (see paragraph (k) of this subsection), and 
employer contributions to defined contribution pension plans (see 
paragraphs (j)(4) and (q) of this subsection), for the fiscal year, 
whether paid, earned, or otherwise accruing, as recorded in the 
contractor's cost accounting records for the fiscal year.
    (ii) Senior executive means--
    (A) Prior to January 2, 1999--
    (1) The Chief Executive Officer (CEO) or any individual acting in a 
similar capacity at the contractor's headquarters;
    (2) The four most highly compensated employees in management 
positions at the contractor's headquarters, other than the CEO; and
    (3) If the contractor has intermediate home offices or segments 
that report directly to the contractor's headquarters, the five most 
highly compensated employees in management positions at each such 
intermediate home office or segment.
    (B) Effective January 2, 1999, the five most highly compensated 
employees in management positions at each home office and each segment 
of the contractor, whether or not the home office or segment reports 
directly to the contractor's headquarters.
    (iii) Fiscal year means the fiscal year established by the 
contractor for accounting purposes.
    (iv) Contractor's headquarters means the highest organizational 
level from which executive compensation costs are allocated to 
Government contracts.
* * * * *.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
3. Amend section 52.216-7 by revising the date of the clause and 
paragraph (d)(2)(iv)(B) to read as follows.


52.216-7  Allowable Cost and Payment.

* * * * *

Allowable Cost and Payment (JUNE 2013)

    (d) * * *
    (2) * * *
    (iv) * * *
    (B) General organizational information and limitation on 
allowability of compensation for certain contractor personnel. See 
31.205-6(p). Additional salary reference information is available at 
http://www.whitehouse.gov/omb/procurement_index_exec_comp/.
* * * * *

[FR Doc. 2013-15212 Filed 6-25-13; 8:45 am]
BILLING CODE 6820-EP-P